e485bpos
As filed with the Securities and Exchange
Commission on August 30, 2011
1933 Act File No. 2-48925
1940 Act File No. 811-02402
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 þ
PRE-EFFECTIVE AMENDMENT NO. o
POST-EFFECTIVE AMENDMENT NO. 67
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 þ
AMENDMENT NO. 50
(CHECK APPROPRIATE BOX OR BOXES)
JOHN HANCOCK SOVEREIGN BOND FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
601 CONGRESS STREET
BOSTON, MASSACHUSETTS 02210-2805
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE
(617) 663-2999
THOMAS M. KINZLER, ESQ.
601 CONGRESS STREET
BOSTON, MASSACHUSETTS 02210-2805
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES OF COMMUNICATIONS TO:
MARK P. GOSHKO, ESQ.
K & L GATES LLP
ONE LINCOLN STREET
BOSTON, MASSACHUSETTS 02111-2950
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
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immediately upon filing pursuant to paragraph (b) of Rule 485 |
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on (date) pursuant to paragraph (b) of Rule 485 |
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60 days after filing pursuant to paragraph (a)(1) of Rule 485 |
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on (date) pursuant to paragraph (a)(1) of Rule 485 |
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75 days after filing pursuant to paragraph (a)(2) of Rule 485 |
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on (date) pursuant to paragraph (a)(2) of Rule 485 |
If appropriate, check the following box:
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this post-effective amendment designates a new effective date
for a previously filed post-effective amendment. |
John
Hancock
Bond Fund
Prospectus
83011
As
with all mutual funds, the Securities and Exchange Commission
has not approved or disapproved this fund or determined whether
the information in this prospectus is adequate and accurate.
Anyone who indicates otherwise is committing a federal crime.
An
Income
Fund
Table
of contents
Fund
summary
The summary section is a concise look at the investment
objective, fees and expenses, principal investment strategies,
principal risks, past performance and investment management.
Fund
details
More about topics covered in the summary section, including
descriptions of the investment strategies and various risk
factors that investors should understand before investing.
Your
account
How to place an order to buy, sell or exchange shares, as well
as information about the business policies and any distributions
that may be paid.
Fund
summary
John Hancock
Bond Fund
Investment
objective
To seek a high level of current income consistent with prudent
investment risk.
Fees
and expenses
This table describes the fees and expenses you may pay if you
buy and hold shares of the fund.
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Shareholder
fees (%) (fees paid
directly from your investment)
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Class R6
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Maximum front-end sales charge (load) on purchases as a % of
purchase price
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None
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Maximum deferred sales charge (load) as a % of purchase or sale
price, whichever is less
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None
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Annual fund operating
expenses (%)
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(expenses that you pay each year as
a percentage of the value of your investment)
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Class R6
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Management fee
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0.49
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Other
expenses1
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0.10
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Total annual fund operating expenses
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0.59
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Contractual expense
reimbursement2
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−0.05
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Total annual fund operating expenses after expense
reimbursements
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0.54
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1
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Other expenses have been estimated for the first
year of operations of the funds Class R6 shares.
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2
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The adviser has contractually agreed to waive a portion of its
management fee and/or reimburse or pay operating expenses of the
fund in order to reduce the total annual fund operating expenses
for Class R6 shares by 0.05% of the funds average
daily net assets. These fee waivers and/or reimbursements expire
on September 30, 2012, unless renewed by mutual agreement of the
fund and the adviser based upon a determination that this is
appropriate under the circumstances at the time.
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Expense
example
This example is intended to help you compare the cost of
investing in the fund with the cost of investing in other mutual
funds. Please see below a hypothetical example showing the
expenses of a $10,000 investment at the end of the various time
frames indicated. The example assumes a 5% average annual
return. The example assumes fund expenses will not change over
the periods. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
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Expenses ($)
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Class R6
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1 Year
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55
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3 Years
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184
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Portfolio
turnover
The fund pays transaction costs, such as commissions, when it
buys and sells securities (or turns over its
portfolio). A higher portfolio turnover rate may indicate higher
transaction costs and may result in higher taxes when fund
shares are held in a taxable account. These costs, which are not
reflected in annual fund operating expenses or in the example,
affect the funds performance. During its most recent
fiscal year, the funds portfolio turnover rate was 73% of
the average value of its portfolio.
Principal
investment strategies
Under normal market conditions, the fund invests at least 80% of
its net assets (plus any borrowings for investment purposes) in
a diversified portfolio of bonds. These may include, but are not
limited to, corporate bonds and debentures, as well as
U.S. government and agency securities. Most of these
securities are investment grade, although the fund may invest up
to 25% of assets in high-yield bonds rated as low as CC/Ca and
their unrated equivalents. There is no limit on the funds
average maturity.
In managing the funds portfolio, the subadviser
concentrates on sector allocation, industry allocation and
securities selection: deciding which types of bonds and
industries to emphasize at a given time, and then which
individual bonds to buy. When making sector and industry
allocations, the subadviser tries to anticipate shifts in the
business cycle, using top-down analysis to determine which
sectors and industries may benefit over the next 12 months.
In choosing individual securities, the subadviser uses
bottom-up
research to find securities that appear comparatively
undervalued. The subadviser looks at bonds of all quality levels
and maturities from many different issuers, potentially
including foreign governments and corporations
Bond
Fund
Fund
summary
2
denominated in U.S. dollars or foreign currencies. The fund
will not invest more than 10% of its total assets in securities
denominated in foreign currencies.
The fund intends to keep its exposure to interest rate movements
generally in line with those of its peers. The fund may invest
in mortgage-related securities and derivatives, which include
futures contracts on securities and indices; options on futures
contracts, securities and indices; and interest rate, foreign
currency and credit default swaps, in each case, for the
purposes of reducing risk, obtaining efficient market exposure
and/or
enhancing investment returns. The funds investments in
U.S. government and agency securities may or may not be
supported by the full faith and credit of the United States.
Under normal circumstances, the fund may not invest more than
10% of assets in cash or cash equivalents.
Principal
risks
An investment in the fund is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. The funds
shares will go up and down in price, meaning that you could lose
money by investing in the fund. Many factors influence a mutual
funds performance.
Instability in the financial markets has led many governments,
including the United States government, to take a number of
unprecedented actions designed to support certain financial
institutions and segments of the financial markets that have
experienced extreme volatility and, in some cases, a lack of
liquidity. Federal, state and other governments, and their
regulatory agencies or self-regulatory organizations, may take
actions that affect the regulation of the instruments in which
the fund invests, or the issuers of such instruments, in ways
that are unforeseeable. Legislation or regulation may also
change the way in which the fund itself is regulated. Such
legislation or regulation could limit or preclude the
funds ability to achieve its investment objective.
Governments or their agencies may also acquire distressed assets
from financial institutions and acquire ownership interests in
those institutions. The implications of government ownership and
disposition of these assets are unclear, and such a program may
have positive or negative effects on the liquidity, valuation
and performance of the funds portfolio holdings.
Furthermore, volatile financial markets can expose the fund to
greater market and liquidity risk and potential difficulty in
valuing portfolio instruments held by the fund.
The funds main risk factors are listed below in
alphabetical order. Before investing, be sure to read the
additional descriptions of these risks beginning on page 5
of the prospectus.
Active management risk The subadvisers investment
strategy may fail to produce the intended result.
Changing distribution levels risk The amount of the
distributions paid by the fund generally depends on the amount
of income
and/or
dividends received by the fund on the securities it holds.
Credit and counterparty risk The issuer or guarantor of a
fixed-income security, the counterparty to an over-the-counter
derivatives contract or a borrower of a funds securities
may be unable or unwilling to make timely principal, interest or
settlement payments, or otherwise to honor its obligations.
U.S. government securities are subject to varying degrees
of credit risk depending upon the nature of their support. Funds
that invest in fixed-income securities are subject to varying
degrees of risk that the issuers of the securities will have
their credit rating downgraded or will default, potentially
reducing a funds share price and income level.
Fixed-income securities risk Fixed-income securities are
affected by changes in interest rates and credit quality. A rise
in interest rates typically causes bond prices to fall. The
longer the average maturity of the bonds held by the fund, the
more sensitive the fund is likely to be to interest rate
changes. There is the possibility that the issuer of the
security will not repay all or a portion of the principal
borrowed and will not make all interest payments.
Foreign securities risk As compared to
U.S. companies, there may be less publicly available
information relating to foreign companies. Foreign securities
may be subject to foreign taxes. The value of foreign securities
is subject to currency fluctuations and adverse political and
economic developments.
Hedging, derivatives and other strategic transactions risk
Hedging and other strategic transactions may increase the
volatility of a fund and, if the transaction is not successful,
could result in a significant loss to a fund. The use of
derivative instruments could produce disproportionate gains or
losses, more than the principal amount invested. Investing in
derivative instruments involves risks different from, or
possibly greater than, the risks associated with investing
directly in securities and other traditional investments and, in
a down market, could become harder to value or sell at a fair
price.
Credit default swaps Counterparty risk, liquidity risk
(i.e., the inability to enter into closing transactions),
interest-rate risk, risk of default of the underlying reference
obligation and risk of disproportionate loss are the principal
risks of engaging in transactions involving credit default swaps
Foreign currency swaps Counterparty risk, liquidity risk
(i.e., the inability to enter into closing transactions),
foreign currency risk and risk of disproportionate loss are the
principal risks of engaging in transactions involving foreign
currency swaps.
Futures contracts Counterparty risk, liquidity risk
(i.e., the inability to enter into closing transactions) and
risk of disproportionate loss are the principal risks of
engaging in transactions involving futures contracts.
Interest-rate swaps Counterparty risk, liquidity risk
(i.e., the inability to enter into closing transactions),
interest-rate risk and risk of disproportionate loss are the
principal risks of engaging in transactions involving
interest-rate swaps.
Options Counterparty risk, liquidity risk (i.e., the
inability to enter into closing transactions) and risk of
disproportionate loss are the principal risks of engaging in
transactions involving options. Counterparty risk does not apply
to exchange-traded options.
Lower-rated fixed-income securities risk and high-yield
securities risk Lower-rated fixed-income securities and
high-yield fixed-income securities (commonly known as junk
bonds) are subject to greater credit-quality risk and risk
of default than higher-rated fixed-income securities. These
securities may be considered speculative and the value of these
securities can be more volatile due to increased sensitivity to
adverse issuer, political, regulatory, market or economic
developments and can be difficult to resell.
Bond
Fund
Fund
summary
3
Mortgage-backed and asset-backed securities risk
Different types of mortgage-backed securities and
asset-backed securities are subject to different combinations of
prepayment, extension, interest-rate
and/or other
market risks.
Past
performance
The following performance information in the bar chart and table
below illustrates the variability of the funds returns and
provides some indication of the risks of investing in the fund
by showing changes in the funds performance from year to
year. However, past performance (before and after taxes) does
not indicate future results. All figures assume dividend
reinvestment. Performance for the fund is updated daily, monthly
and quarterly and may be obtained at our Web site:
www.jhfunds.com/InstitutionalPerformance, or by calling
Signature Services at 1-888-972-8696 between 8:00 A.M. and 7:00
P.M., Eastern Time, on most business days.
Average annual total returns Performance of a broad-based
market index is included for comparison.
After-tax returns These reflect the highest individual
federal marginal income tax rates in effect as of the date
provided and do not reflect any state or local taxes. Your
actual after-tax returns may be different. After-tax
returns are not relevant to shares held in an IRA, 401(k) or
other tax-advantaged investment plan.
Because Class R6 shares of the fund had not commenced
operations prior to the date of this prospectus, the returns are
those of Class A shares that have been recalculated to
apply the estimated gross fees and expenses of Class R6
shares.
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Calendar year total
returns
Class R6 (%)
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2001
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2002
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2003
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2004
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2005
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2006
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2007
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2008
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2009
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2010
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7.67
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7.91
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8.16
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5.02
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2.86
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4.94
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5.37
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−11.52
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29.08
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13.40
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Year-to-date total return The funds total return
for the six months ended June 30, 2011 was 3.69%.
Best quarter: Q3 09, 11.14%
Worst quarter: Q4 08, −7.19%
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Average annual total
returns (%)
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1 Year
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5 Year
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10
Year
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as of
12-31-10
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Class R6 before tax
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13.40
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7.45
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6.87
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After tax on distributions
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11.09
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5.24
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4.77
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After tax on distributions, with sale
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8.65
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5.00
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4.61
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Barclays Capital Government/Credit Bond Index
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6.59
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5.56
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5.83
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Investment
management
Investment adviser John Hancock Advisers, LLC
Subadviser John Hancock Asset Management a division of
Manulife Asset Management (US) LLC
Portfolio
management
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Barry H. Evans, CFA President and chief fixed-income officer
Joined fund team in 2002
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Jeffrey N. Given, CFA Vice president and portfolio manager
Joined fund team in 2006
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Howard C. Greene, CFA Senior vice president and senior portfolio manager
Joined fund team in 2002
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Purchase
and sale of fund shares
The minimum initial investment requirement for
Class R6 shares of the fund is $1 million for all
investors other than certain qualified plan investors. There is
no minimum initial investment requirement for such qualified
plan investors. There are no subsequent investment requirements.
You may redeem shares of the fund on any business day by mail:
Mutual Fund Operations, John Hancock Signature Services,
Inc., P.O. Box 55913, Boston, Massachusetts
02205-5913;
or for most account types through our Web site: www.jhfunds.com
or by telephone: 1-888-972-8696.
Taxes
The funds distributions are taxable, and will be taxed as
ordinary income
and/or
capital gains, unless you are investing through a tax-deferred
arrangement, such as a 401(k) plan or individual retirement
account. Withdrawals from such tax-deferred arrangements may be
subject to tax at a later date.
Bond
Fund
Fund
summary
4
Fund
details
Investment
strategies
The Board of Trustees can change the funds strategy
without shareholder approval. The fund will provide written
notice to shareholders at least 60 days prior to a change
in its 80% investment policy.
In seeking to achieve its investment objective, the fund invests
in corporate obligations, U.S. government and agency securities,
mortgage-related securities, and derivatives, including futures
contracts, options and swaps, among other investments. While the
fund will mostly invest primarily in investment grade
securities, the fund may invest up to 25% of its assets in high
yield bonds rated as low as CC/Ca and their unrated equivalents.
There is no limit on the funds average maturity. The fund
will not invest more than 10% of its total assets in securities
denominated in foreign currencies. The fund normally will not
invest more than 10% of its assets in cash or cash equivalents.
In managing the fund, the subadviser concentrates on sector
allocation, industry allocation and securities selection.
In abnormal circumstances, the fund may temporarily invest
extensively in investment-grade short-term securities. In these
and other cases, the fund might not achieve its investment
objective.
The fund may trade securities actively, which could increase its
transaction costs (thus lowering performance) and increase your
taxable distributions.
Risks
of investing
Below are descriptions of the main factors that may play a role
in shaping the funds overall risk profile. The
descriptions appear in alphabetical order, not in order of
importance. For further details about fund risks, including
additional risk factors that are not discussed in this
prospectus because they are not considered primary factors, see
the funds Statement of Additional Information (SAI).
Active
management risk
A fund that relies on the managers ability to pursue the
funds investment objective is subject to active management
risk. The manager will apply investment techniques and risk
analyses in making investment decisions for a fund and there can
be no guarantee that these will produce the desired results. A
fund generally does not attempt to time the market and instead
generally stays fully invested in the relevant asset class, such
as domestic equities or foreign equities. Notwithstanding its
benchmark, a fund may buy securities not included in its
benchmark or hold securities in very different proportions than
its benchmark. To the extent a fund invests in those securities,
its performance depends on the ability of the subadviser to
choose securities that perform better than securities that are
included in the benchmark.
Changing
distribution levels risk
The amount of the distributions paid by the fund generally
depends on the amount of income
and/or
dividends received by the fund on the securities it holds. The
fund may not be able to pay distributions or may have to reduce
its distribution level if the income
and/or
dividends the fund receives from its investments decline.
Credit
and counterparty risk
This is the risk that the issuer or guarantor of a fixed-income
security, the counterparty to an over-the-counter (OTC)
derivatives contract (see Hedging, derivatives and other
strategic transactions risk) or a borrower of a
funds securities will be unable or unwilling to make
timely principal, interest or settlement payments or to
otherwise honor its obligations. Credit risk associated with
investments in fixed-income securities relates to the ability of
the issuer to make scheduled payments of principal and interest
on an obligation. A fund that invests in fixed-income securities
is subject to varying degrees of risk that the issuers of the
securities will have their credit ratings downgraded or will
default, potentially reducing the funds share price and
income level. Nearly all fixed-income securities are subject to
some credit risk, which may vary depending upon whether the
issuers of the securities are corporations, domestic or foreign
governments or their subdivisions or instrumentalities. U.S.
government securities are subject to varying degrees of credit
risk depending upon whether the securities are supported by the
full faith and credit of the United States, supported by the
ability to borrow from the U.S. Treasury, supported only by the
credit of the issuing U.S. government agency, instrumentality or
corporation or otherwise supported by the United States. For
example, issuers of many types of U.S. government securities
(e.g., the Federal Home Loan Mortgage Corporation
(Freddie Mac), Federal National Mortgage Association (Fannie
Mae) and Federal Home Loan Banks), although chartered or
sponsored by Congress, are not funded by congressional
appropriations, and their fixed-income securities, including
asset-backed and mortgage-backed securities, are neither
guaranteed nor insured by the U.S. government. An agency of the
U.S. government has placed Fannie Mae and Freddie Mac into
conservatorship, a statutory process with the objective of
returning the entities to normal business operations. It is
unclear what effect this conservatorship will have on the
securities issued or guaranteed by Fannie Mae or Freddie Mac. As
a result, these securities are subject to more credit risk than
U.S. government securities that are supported by the full faith
and credit of the United States (e.g., U.S. Treasury
bonds). When a fixed-income security is not rated, a subadviser
may have to assess the risk of the security itself. Asset-backed
securities, whose principal and interest payments are supported
by pools of other assets, such as credit card receivables and
automobile loans, are subject to further risks, including the
risk that the obligors of the underlying assets default on
payment of those assets.
Funds that invest in below-investment-grade securities (also
called junk bonds), which are fixed-income securities rated
Ba or lower by Moodys or BB or
lower by S&P, or determined by a subadviser to be of
comparable quality to securities so rated, are subject to
increased credit risk. The sovereign debt of many foreign
governments, including their subdivisions and instrumentalities,
falls into this category. Below-investment-grade securities
offer the potential for higher investment returns than
higher-rated securities, but they carry greater credit risk:
their issuers continuing ability to meet principal and
interest payments is considered speculative, they are more
susceptible to real or perceived adverse economic and
competitive industry conditions, and they may be less liquid
than higher-rated securities.
In addition, a fund is exposed to credit risk to the extent it
makes use of OTC derivatives (such as forward foreign currency
contracts
and/or swap
contracts) and engages to a significant extent in the lending of
fund securities or the use of repurchase agreements. OTC
derivatives transactions can be closed out with the other party
to the transaction. If the counterparty defaults, a fund will
have contractual remedies, but there is no assurance that the
counterparty will be able to meet its
Bond
Fund
Fund
details
5
contractual obligations or that, in the event of default, a fund
will succeed in enforcing them. A fund, therefore, assumes the
risk that it may be unable to obtain payments owed to it under
OTC derivatives contracts or that those payments may be delayed
or made only after the fund has incurred the costs of
litigation. While the subadviser intends to monitor the
creditworthiness of contract counterparties, there can be no
assurance that the counterparty will be in a position to meet
its obligations, especially during unusually adverse market
conditions.
Fixed-income
securities risk
Fixed-income securities are generally subject to two principal
types of risks: (a) interest-rate risk and (b) credit
quality risk.
Interest-rate risk. Fixed-income securities are affected
by changes in interest rates. When interest rates decline, the
market value of fixed-income securities generally can be
expected to rise. Conversely, when interest rates rise, the
market value of fixed-income securities generally can be
expected to decline. The longer the duration or maturity of a
fixed-income security, the more susceptible it is to
interest-rate risk.
Credit quality risk. Fixed-income securities are subject
to the risk that the issuer of the security will not repay all
or a portion of the principal borrowed and will not make all
interest payments. If the credit quality of a fixed-income
security deteriorates after a fund has purchased the security,
the market value of the security may decrease and lead to a
decrease in the value of the funds investments. Funds that
may invest in lower-rated fixed-income securities, commonly
referred to as junk securities, are riskier than
funds that may invest in higher-rated fixed-income securities.
Additional information on the risks of investing in
investment-grade fixed-income securities in the lowest rating
category and lower-rated fixed-income securities is set forth
below.
Investment-grade fixed-income securities in the lowest-rating
category risk. Investment-grade fixed-income securities in
the lowest rating category (rated Baa by
Moodys or BBB by S&P and comparable
unrated securities) involve a higher degree of risk than
fixed-income securities in the higher rating categories. While
such securities are considered investment-grade quality and are
deemed to have adequate capacity for payment of principal and
interest, such securities lack outstanding investment
characteristics and have speculative characteristics as well.
For example, changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to
make principal and interest payments than is the case with
higher-grade securities.
Prepayment of principal. Many types of debt securities,
including floating-rate loans, are subject to prepayment risk.
Prepayment risk occurs when the issuer of a security can repay
principal prior to the securitys maturity. Securities
subject to prepayment risk can offer less potential for gains
when the credit quality of the issuer improves.
Foreign
securities risk
Funds that invest in securities traded principally in securities
markets outside the United States are subject to additional and
more varied risks, as the value of foreign securities may change
more rapidly and extremely than the value of U.S. securities.
The securities markets of many foreign countries are relatively
small, with a limited number of companies representing a small
number of industries. Additionally, issuers of foreign
securities may not be subject to the same degree of regulation
as U.S. issuers. Reporting, accounting and auditing standards of
foreign countries differ, in some cases significantly, from U.S.
standards. There are generally higher commission rates on
foreign portfolio transactions, transfer taxes, higher custodial
costs and the possibility that foreign taxes will be charged on
dividends and interest payable on foreign securities, some or
all of which may not be reclaimable. In the event of
nationalization, expropriation or other confiscation, the fund
could lose its entire investment in a foreign security.
Currency risk. Currency risk is the risk that
fluctuations in exchange rates may adversely affect the U.S.
dollar value of a funds investments. Currency risk
includes both the risk that currencies in which a funds
investments are traded, or currencies in which a fund has taken
an active investment position, will decline in value relative to
the U.S. dollar and, in the case of hedging positions, that the
U.S. dollar will decline in value relative to the currency being
hedged. Currency rates in foreign countries may fluctuate
significantly for a number of reasons, including the forces of
supply and demand in the foreign exchange markets, actual or
perceived changes in interest rates and intervention (or the
failure to intervene) by U.S. or foreign governments or central
banks, or by currency controls or political developments in the
U.S. or abroad. Certain funds may engage in proxy hedging of
currencies by entering into derivative transactions with respect
to a currency whose value is expected to correlate to the value
of a currency the fund owns or wants to own. This presents the
risk that the two currencies may not move in relation to one
another as expected. In that case, the fund could lose money on
its investment and also lose money on the position designed to
act as a proxy hedge. Certain funds may also take active
currency positions and may cross-hedge currency exposure
represented by their securities into another foreign currency.
This may result in a funds currency exposure being
substantially different than that suggested by its securities
investments. All funds with foreign currency holdings
and/or that
invest or trade in securities denominated in foreign currencies
or related derivative instruments may be adversely affected by
changes in foreign currency exchange rates. Derivative foreign
currency transactions (such as futures, forwards and swaps) may
also involve leveraging risk, in addition to currency risk.
Leverage may disproportionately increase a funds portfolio
losses and reduce opportunities for gain when interest rates,
stock prices or currency rates are changing.
Hedging,
derivatives and other strategic transactions risk
The ability of a fund to utilize hedging, derivatives and other
strategic transactions successfully will depend in part on its
subadvisers ability to predict pertinent market movements
and market risk, counterparty risk, credit risk, interest-rate
risk and other risk factors, none of which can be assured. The
skills required to successfully utilize hedging and other
strategic transactions are different from those needed to select
a funds securities. Even if the subadviser only uses
hedging and other strategic transactions in a fund primarily for
hedging purposes or to gain exposure to a particular securities
market, if the transaction is not successful, it could result in
a significant loss to a fund. The amount of loss could be more
than the principal amount invested. These transactions may also
increase the volatility of a fund and may involve a small
investment of cash relative to the magnitude of the risks
assumed, thereby magnifying the impact of any resulting gain or
loss. For example, the potential loss from the use of futures
can exceed a funds initial investment in such contracts.
In addition, these transactions could result in a loss to a fund
if the counterparty to the transaction does not perform as
promised.
A fund may invest in derivatives, which are financial contracts
with a value that depends on, or is derived from, the value of
underlying assets, reference rates or indexes. Examples of
derivative instruments include futures contracts, options and
swaps. Derivatives may relate to bonds, interest rates,
currencies or currency exchange rates and related indexes. A
fund may use derivatives for many purposes, including for
hedging, and as a substitute for direct investment in securities
or other assets. Derivatives may be used in a way to efficiently
adjust the exposure of a fund to various securities, markets and
currencies without a fund actually having to sell existing
investments and make new investments. This generally will be
done when the adjustment is
Bond
Fund
Fund
details
6
expected to be relatively temporary or in anticipation of
effecting the sale of fund assets and making new investments
over time. Further, since many derivatives have a leverage
component, adverse changes in the value or level of the
underlying asset, reference rate or index can result in a loss
substantially greater than the amount invested in the derivative
itself. Certain derivatives have the potential for unlimited
loss, regardless of the size of the initial investment. When a
fund uses derivatives for leverage, investments in that fund
will tend to be more volatile, resulting in larger gains or
losses in response to market changes. To limit leverage risk, a
fund may segregate assets determined to be liquid or, as
permitted by applicable regulation, enter into certain
offsetting positions to cover its obligations under derivative
instruments. For a description of the various derivative
instruments the fund may utilize, refer to the SAI.
The use of derivative instruments may involve risks different
from, or potentially greater than, the risks associated with
investing directly in securities and other more traditional
assets. In particular, the use of derivative instruments exposes
a fund to the risk that the counterparty to an over-the-counter
(OTC) derivatives contract will be unable or unwilling to make
timely settlement payments or otherwise to honor its
obligations. OTC derivatives transactions typically can only be
closed out with the other party to the transaction, although
either party may engage in an offsetting transaction that puts
that party in the same economic position as if it had closed out
the transaction with the counterparty or may obtain the other
partys consent to assign the transaction to a third party.
If the counterparty defaults, the fund will have contractual
remedies, but there is no assurance that the counterparty will
meet its contractual obligations or that, in the event of
default, the fund will succeed in enforcing them. For example,
because the contract for each OTC derivatives transaction is
individually negotiated with a specific counterparty, a fund is
subject to the risk that a counterparty may interpret
contractual terms (e.g., the definition of default)
differently than the fund when the fund seeks to enforce its
contractual rights. If that occurs, the cost and
unpredictability of the legal proceedings required for the fund
to enforce its contractual rights may lead it to decide not to
pursue its claims against the counterparty. The fund, therefore,
assumes the risk that it may be unable to obtain payments owed
to it under OTC derivatives contracts or that those payments may
be delayed or made only after the fund has incurred the costs of
litigation. While a subadviser intends to monitor the
creditworthiness of counterparties, there can be no assurance
that a counterparty will meet its obligations, especially during
unusually adverse market conditions. To the extent a fund
contracts with a limited number of counterparties, the
funds risk will be concentrated and events that affect the
creditworthiness of any of those counterparties may have a
pronounced effect on the fund. Derivatives also are subject to a
number of other risks, including market risk and liquidity risk.
Since the value of derivatives is calculated and derived from
the value of other assets, instruments or references, there is a
risk that they will be improperly valued. Derivatives also
involve the risk that changes in their value may not correlate
perfectly with the assets, rates or indexes they are designed to
hedge or closely track. Suitable derivatives transactions may
not be available in all circumstances. The fund is also subject
to the risk that the counterparty closes out the derivatives
transactions upon the occurrence of certain triggering events.
In addition, a subadviser may determine not to use derivatives
to hedge or otherwise reduce risk exposure. A detailed
discussion of various hedging and other strategic transactions
appears in the SAI. To the extent the fund utilizes hedging and
other strategic transactions, it will be subject to the same
risks.
Lower-rated
fixed-income securities risk and high-yield securities
risk
Lower-rated fixed-income securities are defined as securities
rated below investment grade (rated Ba and below by
Moodys, and BB and below by S&P) (also
called junk bonds). The general risks of investing in these
securities are as follows:
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Risk to principal and income. Investing in lower-rated
fixed-income securities is considered speculative. While these
securities generally provide greater income potential than
investments in higher-rated securities, there is a greater risk
that principal and interest payments will not be made. Issuers
of these securities may even go into default or become bankrupt.
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Price volatility. The price of lower-rated fixed-income
securities may be more volatile than securities in the
higher-rating categories. This volatility may increase during
periods of economic uncertainty or change. The price of these
securities is affected more than higher-rated fixed-income
securities by the markets perception of their credit
quality, especially during times of adverse publicity. In the
past, economic downturns or an increase in interest rates have,
at times, caused more defaults by issuers of these securities
and may do so in the future. Economic downturns and increases in
interest rates have an even greater effect on highly leveraged
issuers of these securities.
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Liquidity. The market for lower-rated fixed-income
securities may have more limited trading than the market for
investment-grade fixed-income securities. Therefore, it may be
more difficult to sell these securities, and these securities
may have to be sold at prices below their market value in order
to meet redemption requests or to respond to changes in market
conditions.
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Dependence on subadvisers own credit analysis.
While a subadviser may rely on ratings by established
credit-rating agencies, it will also supplement such ratings
with its own independent review of the credit quality of the
issuer. Therefore, the assessment of the credit risk of
lower-rated fixed-income securities is more dependent on the
subadvisers evaluation than the assessment of the credit
risk of higher-rated securities.
|
Additional risks regarding lower-rated corporate fixed-income
securities. Lower-rated corporate fixed-income securities
(and comparable unrated securities) tend to be more sensitive to
individual corporate developments and changes in economic
conditions than higher-rated corporate fixed-income securities.
Issuers of lower-rated corporate fixed-income securities may
also be highly leveraged, increasing the risk that principal and
income will not be repaid.
Additional risks regarding lower-rated foreign government
fixed-income securities. Lower-rated foreign government
fixed-income securities are subject to the risks of investing in
foreign countries described under Foreign securities
risk. In addition, the ability and willingness of a
foreign government to make payments on debt when due may be
affected by the prevailing economic and political conditions
within the country. Emerging-market countries may experience
high inflation, interest rates and unemployment, as well as
exchange rate trade difficulties and political uncertainty or
instability. These factors increase the risk that a foreign
government will not make payments when due.
Mortgage-backed
and asset-backed securities risk
Mortgage-backed securities. Mortgage-backed securities
represent participating interests in pools of residential
mortgage loans, which are guaranteed by the U.S. government, its
agencies or instrumentalities. However, the guarantee of these
types of securities relates to the principal and interest
payments, and not to the market value of such securities. In
addition, the guarantee only relates to the mortgage-backed
securities held by the fund and not the purchase of shares of
the fund.
Mortgage-backed securities are issued by lenders, such as
mortgage bankers, commercial banks and savings and loan
associations. Such
Bond
Fund
Fund
details
7
securities differ from conventional debt securities, which
provide for the periodic payment of interest in fixed amounts
(usually semiannually) with principal payments at maturity or on
specified dates. Mortgage-backed securities provide periodic
payments which are, in effect, a pass-through of the
interest and principal payments (including any prepayments) made
by the individual borrowers on the pooled mortgage loans. A
mortgage-backed security will mature when all the mortgages in
the pool mature or are prepaid. Therefore, mortgage-backed
securities do not have a fixed maturity and their expected
maturities may vary when interest rates rise or fall.
When interest rates fall, homeowners are more likely to prepay
their mortgage loans. An increased rate of prepayments on the
funds mortgage-backed securities will result in an
unforeseen loss of interest income to the fund as the fund may
be required to reinvest assets at a lower interest rate. Because
prepayments increase when interest rates fall, the prices of
mortgage-backed securities do not increase as much as other
fixed-income securities when interest rates fall.
When interest rates rise, homeowners are less likely to prepay
their mortgage loans. A decreased rate of prepayments lengthens
the expected maturity of a mortgage-backed security. Therefore,
the prices of mortgage-backed securities may decrease more than
prices of other fixed-income securities when interest rates rise.
The yield of mortgage-backed securities is based on the average
life of the underlying pool of mortgage loans. The actual life
of any particular pool may be shortened by unscheduled or early
payments of principal and interest. Principal prepayments may
result from the sale of the underlying property, or the
refinancing or foreclosure of underlying mortgages. The
occurrence of prepayments is affected by a wide range of
economic, demographic and social factors and, accordingly, it is
not possible to accurately predict the average life of a
particular pool. The actual prepayment experience of a pool of
mortgage loans may cause the yield realized by the fund to
differ from the yield calculated on the basis of the average
life of the pool. In addition, if the fund purchases
mortgage-backed securities at a premium, the premium may be lost
in the event of early prepayment, which may result in a loss to
the fund.
Prepayments tend to increase during periods of falling interest
rates, while during periods of rising interest rates,
prepayments are likely to decline. Monthly interest payments
received by a fund have a compounding effect, which will
increase the yield to shareholders as compared to debt
obligations that pay interest semiannually. Because of the
reinvestment of prepayments of principal at current rates,
mortgage-backed securities may be less effective than Treasury
bonds of similar maturity at maintaining yields during periods
of declining interest rates. Also, although the value of debt
securities may increase as interest rates decline, the value of
these pass-through type of securities may not increase as much,
due to their prepayment feature.
Collateralized mortgage obligations (CMOs). A fund may
invest in mortgage-backed securities called CMOs. CMOs are
issued in separate classes with different stated maturities. As
the mortgage pool experiences prepayments, the pool pays off
investors in classes with shorter maturities first. By investing
in CMOs, a fund may manage the prepayment risk of
mortgage-backed securities. However, prepayments may cause the
actual maturity of a CMO to be substantially shorter than its
stated maturity.
Asset-backed securities. Asset-backed securities include
interests in pools of debt securities, commercial or consumer
loans, or other receivables. The value of these securities
depends on many factors, including changes in interest rates,
the availability of information concerning the pool and its
structure, the credit quality of the underlying assets, the
markets perception of the servicer of the pool and any
credit enhancement provided. In addition, asset-backed
securities have prepayment risks similar to mortgage-backed
securities.
Whos
who
The following are the names of the various entities involved
with the funds investment and business operations, along
with brief descriptions of the role each entity performs.
Trustees
Oversee the funds business activities and retain the
services of the various firms that carry out the funds
operations.
Investment
adviser
Manages the funds business and investment activities.
John Hancock Advisers, LLC
601 Congress Street
Boston,
MA 02210-2805
Founded in 1968, the adviser is a wholly owned subsidiary of
John Hancock Life Insurance Company (U.S.A.), which in turn is a
subsidiary of Manulife Financial Corporation.
The adviser administers the business and affairs of the fund and
retains and compensates the investment subadviser to manage the
assets of the fund. John Hancock is one of the most recognized
and respected names in the financial services industry. The
advisers parent company has been helping individuals and
institutions work toward their financial goals since 1862. The
adviser offers investment solutions managed by leading
institutional money managers, taking a disciplined team approach
to portfolio management and research, leveraging the expertise
of seasoned investment professionals. As of June 30, 2011,
the adviser had total assets under management of approximately
$23.2 billion.
The adviser does not itself manage any of the funds
portfolio assets but has ultimate responsibility to oversee the
subadviser and recommend its hiring, termination and
replacement. In this connection, the adviser: (i) monitors
the compliance of the subadviser with the investment objectives
and related policies of the fund, (ii) reviews the
performance of the subadviser and (iii) reports
periodically on such performance to the Board of Trustees.
The fund relies on an order from the Securities and Exchange
Commission permitting the adviser, subject to Board approval, to
appoint a subadviser or change the terms of a subadvisory
agreement without obtaining shareholder approval. The fund,
therefore, is able to change subadvisers or the fees paid to a
subadviser from time to time without the expense and delays
associated with obtaining shareholder approval of the change.
This order does not, however, permit the adviser to appoint a
subadviser that is an affiliate of the adviser or the fund
(other than by reason of serving as a subadviser to the fund),
or to increase the subadvisory fee of an affiliated subadviser,
without the approval of the shareholders.
Management
fee
The fund pays the adviser a management fee for its services to
the fund. The fee is stated as an annual percentage of the
current value of the net assets of the fund determined in
accordance with the following schedule, and that rate is applied
to the average daily assets of the fund.
Bond
Fund
Fund
details
8
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Annual
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Average Daily Net Assets
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Rate
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First $500 million
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0
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.500%
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Next $500 million
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0
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.475%
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Next $500 million
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0
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.450%
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Next $500 million
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0
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.450%
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Next $500 million
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0
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.400%
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Excess over $2.5 billion
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0
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.350%
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During its most recent fiscal year, the fund paid the investment
adviser a management fee equal to 0.50% of net assets.
Out of these fees, the investment adviser in turn pays the fees
of the subadviser.
The basis for the Trustees approval of the advisory fees,
and of the investment advisory agreement overall, including the
subadvisory agreement, is discussed in the funds
November 30, 2010 semiannual shareholder report.
Additional
information about fund expenses
The funds annual operating expenses will likely vary
throughout the period and from year to year. The funds
expenses for the current fiscal year may be higher than the
expenses listed in the funds Annual fund operating
expenses table, for some of the following reasons:
(i) a significant decrease in average net assets may result
in a higher advisory fee rate if advisory fee breakpoints are
not achieved; (ii) a significant decrease in average net
assets may result in an increase in the expense ratio because
certain fund expenses do not decrease as asset levels decrease;
or (iii) fees may be incurred for extraordinary events such
as fund tax expenses.
The adviser has contractually agreed to waive all or a portion
of its management fee and reimburse or pay operating expenses of
the fund to the extent necessary to maintain the funds
total operating expenses at 0.57% for Class R6, excluding
certain expenses such as taxes, brokerage commissions, interest,
litigation and extraordinary expenses, underlying fund expenses
and short dividend expense. The current expense limitation
agreement expires September 30, 2012, unless renewed by
mutual agreement of the fund and the adviser based upon a
determination that this is appropriate under the circumstances
at the time.
Subadviser
Handles the funds
day-to-day
portfolio management.
John Hancock Asset Management a division of Manulife Asset
Management (US) LLC
101 Huntington Avenue
Boston, MA 02199
John Hancock Asset Management a division of Manulife Asset
Management (US) LLC, formerly known as MFC Global Investment
Management (U.S.), LLC, provides investment advisory services to
individual and institutional investors. John Hancock Asset
Management a division of Manulife Asset Management (US) LLC is a
wholly owned subsidiary of John Hancock Life Insurance Company
(U.S.A.) (a subsidiary of Manulife Financial Corporation) and,
as of June 30, 2011, had total assets under management of
approximately $124.5 billion.
Following are brief biographical profiles of the leaders of the
funds investment management team, in alphabetical order.
These managers share portfolio management responsibilities. For
more about these individuals, including information about their
compensation, other accounts they manage and any investments
they may have in the fund, see the SAI.
Barry H. Evans,
CFA
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President and chief fixed-income officer
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Joined fund team in 2002
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Senior vice president, chief fixed-income officer and chief
operating officer, John Hancock Advisers, LLC (19862005)
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Began business career in 1986
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Jeffrey N. Given,
CFA
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Vice president and portfolio manager
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Joined fund team in 2006
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Second vice president, John Hancock Advisers, LLC
(19932005)
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Began business career in 1993
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Howard C. Greene,
CFA
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Senior vice president and senior portfolio manager
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Joined fund team in 2002
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Senior vice president, John Hancock Advisers, LLC
(20022005)
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Began business career in 1979
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Custodian
Holds the funds assets, settles all portfolio trades and
collects most of the valuation data required for calculating the
funds net asset value.
State Street Bank and Trust Company
Lafayette Corporate Center
Two Avenue de Lafayette
Boston, MA 02111
Principal
distributor
Markets the fund and distributes shares through selling brokers,
financial planners and other financial representatives.
John Hancock Funds, LLC
601 Congress Street
Boston,
MA 02210-2805
Transfer
agent
Handles shareholder services, including recordkeeping and
statements, distribution of dividends and processing of buy and
sell requests.
John Hancock Signature Services, Inc.
P.O. Box 55913
Boston,
MA 02205-5913
Bond
Fund
Fund
details
9
Financial
highlights
The financial highlights information shown below represents the
financial highlights of the funds Class A shares for
the fiscal periods indicated. Because Class R6 shares
of the fund have not yet commenced operations, there are no
financial highlights to report for these shares. Total return
shows how much an investment in the fund would have increased
(or decreased) during the period.
The financial statements of the fund as of May 31, 2011,
have been audited by PricewaterhouseCoopers LLP (PwC), the
funds independent registered public accounting firm. The
report of PwC is included, along with the funds financial
statements, in the funds annual report, which has been
incorporated by reference into the SAI and is available upon
request.
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Bond Fund Class A Shares
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Per share operating
performance Period
ended
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5-31-11
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5-31-10
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5-31-09
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5-31-08
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5-31-07
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Net asset value, beginning of
year
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$15.00
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$12.96
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$14.31
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$14.75
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$14.51
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Net investment
income1
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0.81
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|
0.97
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0.87
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0.81
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0.75
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Net realized and unrealized gain (loss) on investments
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0.92
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2.05
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(1.34
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)
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(0.43
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)
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0.26
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Total from investment
operations
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1.73
|
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3.02
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(0.47
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)
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0.38
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|
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|
1.01
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Less distributions
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From net investment income
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(0.87
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)
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(0.98
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)
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(0.88
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)
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(0.82
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)
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(0.77
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)
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Net asset value, end of
year
|
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$15.86
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$15.00
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$12.96
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$14.31
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|
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$14.75
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Total
return2 (%)
|
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11.78
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23.83
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3
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(3.02
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)
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2.57
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|
7.08
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Ratios and supplemental data
|
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Net assets, end of year (in millions)
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$912
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$819
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$686
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$824
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$870
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|
Ratios (as a percentage of average net assets):
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Expenses before reductions
|
|
|
1.05
|
|
|
|
1.08
|
|
|
|
1.16
|
4
|
|
|
1.05
|
|
|
|
1.05
|
|
|
Expenses net of fee waivers and credits
|
|
|
1.05
|
|
|
|
1.07
|
|
|
|
1.16
|
4
|
|
|
1.05
|
|
|
|
1.05
|
|
|
Net investment income
|
|
|
5.24
|
|
|
|
6.71
|
|
|
|
6.71
|
|
|
|
5.54
|
|
|
|
5.11
|
|
|
Portfolio turnover (%)
|
|
|
73
|
|
|
|
88
|
|
|
|
90
|
|
|
|
90
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
Based on the average daily shares outstanding.
|
|
|
2 |
Does not reflect the effect of sales charges, if any.
|
|
|
3 |
Total returns would have been lower had certain expenses not
been reduced during the periods shown.
|
|
|
4 |
Includes the impact of proxy expenses, which amounted to 0.03%
of average net assets.
|
Bond
Fund
Fund
details
10
Your
account
Who
can buy shares
Class R6 shares are offered without any sales charge
and are generally made available to the following types of
investors if they also meet the minimum initial investment
requirement for purchases of Class R6 shares. (See
Opening an account.)
|
|
|
Qualified 401(a) plans (including 401(k) plans, Keogh plans,
profit-sharing pension plans, money purchase pension plans,
target benefit plans, defined benefit pension plans and
Taft-Hartley multi-employer pension plans) (collectively,
Qualified Plans)
|
|
|
Endowment funds and foundations
|
|
|
Any state, county or city, or its instrumentality, department,
authority or agency
|
|
|
457 Plans, including 457(a) governmental entity plans and
tax-exempt plans
|
|
|
Accounts registered to insurance companies, trust companies and
bank trust departments
|
|
|
Investment companies, both affiliated and not affiliated with
the adviser
|
|
|
Any entity that is considered a corporation for tax purposes,
including corporate non-qualified deferred compensation plans of
such corporations
|
|
|
Fund trustees and other individuals who are affiliated with the
fund and other John Hancock funds
|
In addition to the above investors, certain existing
Class I shareholders of the fund: (i) who own a
minimum of $250,000 of Class I shares of the fund; and
(ii) who do not require the fund or its affiliates to make
any type of administrative payments, may exchange all of their
Class I shares for Class R6 shares of the fund
within one year after the commencement of operations of
Class R6 shares of the fund.
Class R6 shares may not be available through certain
investment dealers.
The availability of Class R6 shares for Qualified Plan
investors will depend upon the policies of your financial
intermediary
and/or the
recordkeeper for your Qualified Plan.
Class R6 shares also are generally available only to
Qualified Plan investors where plan level or omnibus accounts
are held on the books of the fund.
Class R6 shares are not available to retail
nonretirement accounts, traditional and Roth individual
retirement accounts (IRAs), Coverdell Education Savings
Accounts, SEPs, SARSEPs, SIMPLE IRAs and 529 college savings
plans.
Class R6 shares are also not available to retail,
advisory fee-based wrap programs or to adviser-sold
donor-advised funds.
Your broker-dealer or agent may charge you a fee to effect
transactions in fund shares.
Other classes of shares of the fund, which have their own
expense structure, may be offered in separate prospectuses.
Payments to
financial intermediaries
No dealer compensation is paid from fund assets on sales of
Class R6 shares. Class R6 shares do not
carry sales commissions or pay 12b-1 fees, or make payments to
financial intermediaries to assist in the distributors
efforts to promote the sale of the funds shares, sometimes
referred to as revenue sharing. Neither the fund nor
its affiliates make any type of administrative or service
payments in connection with investments in
Class R6 shares.
Opening
an account
|
|
1
|
Read this prospectus carefully.
|
|
2
|
Determine if you are eligible by referring to Who can buy
shares.
|
|
3
|
Determine how much you want to invest. The minimum initial
investment is $1 million for all investors other than
Qualified Plan investors. There is no minimum initial investment
requirement for Qualified Plan investors that do not require the
fund or its affiliates to pay any type of administrative
payments. There are no minimum investment requirements for
subsequent purchases to existing accounts.
|
|
4
|
All shareholders must complete the account application,
carefully following the instructions. If you have any questions,
please contact your financial representative or call John
Hancock Signature Services, Inc. (Signature Services) at
1-888-972-8696.
|
|
5
|
Make your initial investment using the instructions on the next
page.
|
Important
information about opening a new account
To help the government fight the funding of terrorism and money
laundering activities, the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (USA PATRIOT Act) requires all financial
institutions to obtain, verify and record information that
identifies each person or entity that opens an account.
When you open an account, you will be asked for the name of the
entity, its principal place of business and taxpayer
identification number (TIN) and may be requested to provide
information on persons with authority or control over the
account, such as name, residential address, date of birth and
Social Security number. You may also be asked to provide
documents, such as articles of incorporation, trust instruments
or partnership agreements and other information that will help
Signature Services identify the entity. Please see the Mutual
Fund Account Application for more details.
Bond
Fund
Your
account
11
Buying
shares
|
|
|
Opening an
account
|
|
Adding to an account
|
|
By check
|
|
|
Make out a check for the investment amount, payable to John Hancock Signature Services, Inc.
Deliver the check and your completed application to your financial representative or mail them to Signature Services (address below).
|
|
Make out a check for the investment amount, payable to John Hancock Signature Services, Inc.
If your account statement has a detachable investment slip, please complete it in its entirety. If no slip is available, include a note specifying the fund name, your share class, your account number and the name(s) in which the account is registered.
Deliver the check and your investment slip or note to your financial representative, or mail them to Signature Services (address below).
|
|
|
|
|
|
|
|
|
By exchange
|
|
|
Call your financial representative or Signature
Services to request an exchange.
|
|
Log on to the Web site below to process exchanges between funds.
Call EASI-Line for account balance, fund inquiry and transaction processing on some account types.
You may exchange Class R6 shares for other Class R6 shares or John Hancock Money Market Fund Class A shares.
For one year after the commencement of operations of Class R6 shares of the fund, certain existing investors of Class I shares of the fund (i) who own a minimum of $250,000 of Class I shares of the fund; and (ii) who do not require the fund or its affiliates to make any type of administrative payments, may exchange all of their Class I shares for Class R6 shares of the fund.
Call your financial representative or Signature Services to request an exchange.
|
|
|
|
|
|
|
|
|
By wire
|
|
|
Deliver your completed application to your financial representative or mail it to Signature Services.
Obtain your account number by calling your financial representative or Signature Services.
Obtain wiring instructions by calling Signature Services.
Instruct your bank to wire the amount of your investment. Specify the fund name, the share class, your account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds.
|
|
Obtain wiring instructions by calling Signature Services.
Instruct your bank to wire the amount of your investment. Specify the fund name, the share class, your account number and the name(s) in which the account is registered. Your bank may charge a fee to wire funds.
|
|
|
|
|
|
|
|
|
By phone
|
|
|
See By exchange and By wire.
|
|
Verify that your bank or credit union is a member of
the ACH system.
Complete the To purchase, exchange or redeem
shares via telephone and Bank information
sections on your account application.
Call EASI-Line for account balance, fund inquiry and
transaction processing on some account types.
Call your financial representative or call Signature
Services between
8:30 a.m. and
5:00 p.m.,
Eastern Time, on most business days.
|
|
|
|
|
|
|
|
|
|
|
Regular mail
|
|
Express delivery
|
|
Web site
|
|
EASI-Line
|
|
Signature Services, Inc.
|
Mutual Fund Operations
John Hancock Signature Services, Inc.
P.O. Box 55913
Boston, MA
02205-5913
|
|
Mutual Fund Operations
John Hancock Signature Services, Inc.
30 Dan Road
Canton, MA 02021
|
|
www.jhfunds.com
|
|
(24/7 automated service)
1-800-597-1897
|
|
1-888-972-8696
|
Bond
Fund
Your
account
12
Selling
shares
|
|
|
|
|
To sell some or all of your
shares
|
|
By letter
|
|
|
Sales of any amount.
|
|
Write a letter of instruction or complete a stock power indicating the fund name, the share class, your account number, the name(s) in which the account is registered and the dollar value or number of shares you wish to sell.
Include all signatures and any additional documents that may be required (see next page).
Mail the materials to Signature Services (address below).
A check will be mailed to the name(s) and address in which the account is registered, or otherwise according to your letter of instruction.
Certain requests will require a Medallion Signature Guarantee. Please refer to Selling shares in writing on the next page.
|
|
|
|
|
|
|
|
|
By phone
|
|
|
Amounts up to $5 million:
Available to the following types of accounts: custodial accounts held by banks, trust companies or broker-dealers; endowments and foundations; corporate accounts and group retirement plans.
|
|
Call EASI-Line for account balance, general fund inquiry and transaction processing on some account types.
Redemption proceeds of up to $100,000, may be sent by wire or by check. A check will be mailed to the exact name(s) and address on the account.
To place your request with a representative at John Hancock, call Signature Services between 8:30 a.m. and 5:00 p.m., Eastern Time, on most business days, or your financial representative.
Redemption proceeds exceeding $100,000 must be wired to your designated bank account.
Redemption proceeds exceeding $100,000 and sent by check will require a letter of instruction with a Medallion Signature Guarantee. Please refer to Selling shares in writing.
|
|
|
|
|
|
|
|
|
By wire or electronic funds transfer (EFT)
|
|
|
Requests by letter to sell any amount.
Qualified requests by phone to sell to $5 million (accounts with telephone redemption privileges).
|
|
To verify that the telephone redemption privilege is in place on an account, or to request the form to add it to an existing account, call Signature Services.
Amounts of $5 million or more will be wired on the next business day.
Amounts up to $100,000 may be sent by EFT or by check. Funds from EFT transactions are generally available by the second business day. Your bank may charge a fee for this service.
|
|
|
|
|
|
|
|
|
By exchange
|
|
|
Sales of any amount.
|
|
Obtain a current prospectus for the fund into which
you are exchanging by accessing the funds Web site by
Internet, or by calling your financial representative or
Signature Services.
Call EASI-Line for account balance, general fund
inquiry and transaction processing on some account types.
You may only exchange Class R6 shares for other
Class R6 shares or John Hancock Money Market Fund Class A
shares.
For one year after the commencement of operations of
Class R6 shares of the fund, certain existing investors of Class
I shares of the fund (i) who own a minimum of $250,000 of Class
I shares of the fund, and (ii) who do not require the fund or
its affiliates to make any type of administrative payments, may
exchange all of their Class I shares for Class R6 shares of the
fund.
Call your financial representative or Signature
Services to request an exchange.
|
|
|
|
|
|
|
|
|
|
|
Regular mail
|
|
Express delivery
|
|
Web site
|
|
EASI-Line
|
|
Signature Services, Inc.
|
Mutual Fund Operations
John Hancock Signature Services, Inc.
P.O. Box 55913
Boston, MA
02205-5913
|
|
Mutual Fund Operations
John Hancock Signature Services, Inc.
30 Dan Road
Canton, MA 02021
|
|
www.jhfunds.com
|
|
(24/7 automated service)
1-800-597-1897
|
|
1-888-972-8696
|
Bond
Fund
Your
account
13
Selling
shares in writing
In certain circumstances, you will need to make your request to
sell shares in writing. You may need to include additional items
with your request, unless they were previously provided to
Signature Services and are still accurate. These items are shown
in the table below. You may also need to include a signature
guarantee, which protects you against fraudulent orders. You
will need a signature guarantee if:
|
|
|
your address of record has changed within the past 30 days;
|
|
|
you are selling more than $100,000 worth of shares and are
requesting payment by check (this requirement is waived for
certain entities operating under a signed fax trading agreement
with John Hancock);
|
|
|
you are selling more than $5 million worth of shares from
the following types of accounts: custodial accounts held by
banks, trust companies or broker-dealers; endowments and
foundations; corporate accounts; and group retirement plans.
|
|
|
you are requesting payment other than by a check mailed to the
address/bank of record and payable to the registered owner(s).
|
You will need to obtain your signature guarantee from a member
of the Medallion Signature Guarantee Program. Most
broker-dealers, banks, credit unions and securities exchanges
are members of this program. A notary public CANNOT provide a
signature guarantee.
|
|
|
Seller
|
|
Requirements for written
requests
|
|
Owners of individual, joint or UGMA/UTMA accounts (custodial
accounts for minors)
|
|
Letter of instruction.
On the letter, the signatures and titles of all persons authorized to sign for the account, exactly as the account is registered.
Medallion Signature Guarantee, if applicable (see above).
|
|
|
|
|
|
|
|
|
Owners of corporate, sole proprietorship, general partner or
association accounts
|
|
Letter of instruction.
Corporate business/organization resolution, certified within the past 12 months, or a John Hancock business/organization certification form.
On the letter and the resolution, the signature of the person(s) authorized to sign for the account.
Medallion Signature Guarantee, if applicable (see above).
|
|
|
|
|
|
|
|
|
Owners or trustees of trust accounts
|
|
Letter of instruction.
On the letter, the signature(s) of the trustee(s).
Copy of the trust document, certified within the past 12 months, or a John Hancock trust certification form.
Medallion Signature Guarantee, if applicable (see above).
|
|
|
|
|
|
|
|
|
Joint tenancy shareholders with rights of survivorship with
deceased co-tenant(s)
|
|
Letter of instruction signed by surviving tenant(s).
Copy of death certificate.
Medallion Signature Guarantee, if applicable (see above).
Inheritance tax waiver, if applicable.
|
|
|
|
|
|
|
|
|
Executors of shareholder estates
|
|
Letter of instruction signed by executor.
Copy of order appointing executor, certified within the past 12 months.
Medallion Signature Guarantee, if applicable (see above).
Inheritance tax waiver, if applicable.
|
|
|
|
|
|
|
|
|
Administrators, conservators, guardians and other sellers or
account types not listed above
|
|
Call Signature Services for instructions.
|
|
|
|
|
|
|
|
|
|
|
Regular mail
|
|
Express delivery
|
|
Web site
|
|
EASI-Line
|
|
Signature Services, Inc.
|
Mutual Fund Operations
John Hancock Signature Services, Inc.
P.O. Box 55913
Boston, MA
02205-5913
|
|
Mutual Fund Operations
John Hancock Signature Services, Inc.
30 Dan Road
Canton, MA 02021
|
|
www.jhfunds.com
|
|
(24/7 automated service)
1-800-597-1897
|
|
1-888-972-8696
|
Bond
Fund
Your
account
14
Transaction
policies
The net asset value (NAV) for each class of shares of the fund
is determined once daily as of the close of regular trading of
the New York Stock Exchange (NYSE) (typically 4:00
p.m., Eastern
Time) on each business day that the NYSE is open. On holidays or
other days when the NYSE is closed, the NAV is not calculated
and the fund does not transact purchase or redemption requests.
The time at which shares are priced and until which purchase and
redemption orders are accepted may be changed as permitted by
the Securities and Exchange Commission.
Each class of shares of the fund has its own NAV, which is
computed by dividing the total assets, minus liabilities,
allocated to each share class by the number of fund shares
outstanding for that class.
Valuation
of securities
Except as noted below, securities held by the fund are primarily
valued on the basis of market quotations or official closing
prices. Certain short-term debt instruments are valued on the
basis of amortized cost. Shares of other open-end investment
companies held by the fund are valued based on the NAVs of those
investment companies.
If market quotations or official closing prices are not readily
available or do not accurately reflect fair value for a
security, or if a securitys value has been materially
affected by events occurring before the funds pricing time
but after the close of the exchange or market on which the
security is principally traded, the security will be valued at
its fair value as determined in good faith by the Trustees. The
Trustees have delegated the responsibility to fair value
securities to the funds Pricing Committee, and the actual
calculation of a securitys fair value may be made by
persons acting pursuant to the direction of the Trustees.
In deciding whether to fair value a security, the funds
Pricing Committee may review a variety of factors, including:
in the case of foreign securities:
|
|
|
|
|
developments in foreign markets,
|
|
|
|
the performance of U.S. securities markets after the close of
trading in the market and
|
|
|
|
the performance of instruments trading in U.S. markets that
represent foreign securities or baskets of foreign securities.
|
in the case of fixed-income securities:
|
|
|
|
|
actions by the Federal Reserve Open Market Committee and other
significant trends in U.S. fixed-income markets.
|
in the case of all securities:
|
|
|
|
|
political or other developments affecting the economy or markets
in which an issuer conducts its operations or its securities are
traded,
|
|
|
|
announcements relating to the issuer of the security concerning
matters such as trading suspensions, acquisitions,
recapitalizations, litigation developments, a natural disaster
affecting the issuers operations or regulatory changes or
market developments affecting the issuers industry and
|
|
|
|
events affecting the securities markets in general (such as
market disruptions or closings and significant fluctuations in
U.S. and/or
foreign markets).
|
Fair value pricing of securities is intended to help ensure that
a funds NAV reflects the fair market value of the
funds portfolio securities as of the close of regular
trading on the NYSE (as opposed to a value that no longer
reflects market value as of such close), thus limiting the
opportunity for aggressive traders or market timers to purchase
shares of the fund at deflated prices reflecting stale security
valuations and promptly sell such shares at a gain, thereby
diluting the interests of long-term shareholders. However, a
securitys valuation may differ depending on the method
used for determining value, and no assurance can be given that
fair value pricing of securities will successfully eliminate all
potential opportunities for such trading gains. The use of fair
value pricing has the effect of valuing a security based upon
the price the fund might reasonably expect to receive if it sold
that security in an orderly transaction between market
participants, but does not guarantee that the security can be
sold at the fair value price. Further, because of the inherent
uncertainty and subjective nature of fair valuation, a fair
valuation price may differ significantly from the value that
would have been used had a readily available market price for
the investment existed and these differences could be material.
With respect to any portion of a funds assets that is
invested in another open-end investment company, that portion of
the funds NAV is calculated based on the NAV of that
investment company. The prospectus for the other investment
company explains the circumstances and effects of fair value
pricing for that other investment company.
If the fund has portfolio securities that are primarily listed
on foreign exchanges that trade on weekends or other days when
the fund does not price its shares, the NAV of the funds
shares may change on days when shareholders will not be able to
purchase or redeem the funds shares.
Buy
and sell prices
When you buy shares, you pay the NAV. When you sell shares, you
receive the NAV.
Execution
of requests
The fund is open on those days when the NYSE is open, typically
Monday through Friday. Buy and sell requests are executed at the
next NAV to be calculated after Signature Services receives your
request in good order. In unusual circumstances, the fund has
the right to redeem in kind.
At times of peak activity, it may be difficult to place requests
by telephone. During these times, consider using EASI-Line,
accessing www.jhfunds.com or sending your request in writing.
In unusual circumstances, the fund may temporarily suspend the
processing of sell requests or may postpone payment of proceeds
for up to three business days or longer, as allowed by federal
securities laws.
Telephone
transactions
For your protection, telephone requests may be recorded in order
to verify their accuracy. Also for your protection, telephone
redemption transactions are not permitted on accounts in which
names or mailing addresses have changed within the past
30 days. Proceeds from telephone transactions can only be
mailed to the address of record.
Exchanges
You may exchange Class R6 shares of one John Hancock
fund for Class R6 shares of any other John Hancock
fund or John Hancock Money Market Fund Class A shares.
The registration for both accounts involved must be identical.
Note: Once exchanged into John Hancock Money Market
Fund Class A shares, shares may only be exchanged back
to Class R6.
For one year after the commencement of operations of
Class R6 shares of the fund, certain existing
investors of Class I shares of the fund (i) who own a
minimum of $250,000 of Class I shares of the fund; and
(ii) who do not require the fund or its affiliates to make
any type of administrative payments, may exchange all of their
Class I shares for
Bond
Fund
Your
account
15
Class R6 shares of the fund. Class I shares of
the fund are described in a separate prospectus.
The exchange of Class I shares for
Class R6 shares of the same fund in these particular
circumstances does not cause the investor to realize taxable
gain or loss. For further details, see Additional
Information Concerning Taxes in the SAI for information
regarding taxation upon the redemption or exchange of shares of
the fund (see the back cover of this prospectus).
The fund may change or cancel its exchange policies at any time,
upon 60 days written notice to its shareholders. For
further details, see Additional Services and
Programs in the SAI (see the back cover of this
prospectus).
Excessive
trading
The fund is intended for long-term investment purposes only and
does not knowingly accept shareholders who engage in market
timing or other types of excessive short-term trading.
Short-term trading into and out of the fund can disrupt
portfolio investment strategies and may increase fund expenses
for all shareholders, including long-term shareholders who do
not generate these costs.
Right
to reject or restrict purchase and exchange orders
Purchases and exchanges should be made primarily for investment
purposes. The fund reserves the right to restrict, reject or
cancel (with respect to cancellations within one day of the
order), for any reason and without any prior notice, any
purchase or exchange order, including transactions representing
excessive trading and transactions accepted by any
shareholders financial intermediary. For example, the fund
may, in its discretion, restrict, reject or cancel a purchase or
exchange order even if the transaction is not subject to a
specific limitation on exchange activity, as described below, if
the fund or its agent determines that accepting the order could
interfere with the efficient management of the funds
portfolio, or otherwise not be in the funds best interest
in light of unusual trading activity related to your account. In
the event that the fund rejects or cancels an exchange request,
neither the redemption nor the purchase side of the exchange
will be processed. If you would like the redemption request to
be processed even if the purchase order is rejected, you should
submit separate redemption and purchase orders rather than
placing an exchange order. The fund reserves the right to delay
for up to one business day, consistent with applicable law, the
processing of exchange requests in the event that, in the
funds judgment, such delay would be in the funds
best interest, in which case both the redemption and purchase
side of the exchange will receive the funds NAV at the
conclusion of the delay period. The fund, through its agents in
their sole discretion, may impose these remedial actions at the
account holder level or the underlying shareholder level.
Exchange
limitation policies
The Board of Trustees has adopted the following policies and
procedures by which the fund, subject to the limitations
described below, takes steps reasonably designed to curtail
excessive trading practices.
Limitation
on exchange activity
The fund or its agent may reject or cancel a purchase order,
suspend or terminate the exchange privilege, or terminate the
ability of an investor to invest in John Hancock funds if the
fund or its agent determines that a proposed transaction
involves market timing or disruptive trading that it believes is
likely to be detrimental to the fund. The fund or its agent
cannot ensure that it will be able to identify all cases of
market timing or disruptive trading, although it attempts to
have adequate procedures in place to do so. The fund or its
agent may also reject or cancel any purchase order (including an
exchange) from an investor or group of investors for any other
reason. Decisions to reject or cancel purchase orders (including
exchanges) in the fund are inherently subjective and will be
made in a manner believed to be in the best interest of the
funds shareholders. The fund does not have any arrangement
to permit market timing or disruptive trading.
Exchanges made on the same day in the same account are
aggregated for purposes of counting the number and dollar amount
of exchanges made by the account holder. The exchange limits
referenced above will not be imposed or may be modified under
certain circumstances. For example, these exchange limits may be
modified for accounts held by certain retirement plans to
conform to plan exchange limits, ERISA considerations or
Department of Labor regulations. Certain automated or
pre-established exchange, asset-allocation and
dollar-cost-averaging programs are not subject to these exchange
limits. These programs are excluded from the exchange limitation
since the fund believes that they are advantageous to
shareholders and do not offer an effective means for market
timing or excessive trading strategies. These investment tools
involve regular and predetermined purchase or redemption
requests made well in advance of any knowledge of events
affecting the market on the date of the purchase or redemption.
These exchange limits are subject to the funds ability to
monitor exchange activity, as discussed under Limitation
on the ability to detect and curtail excessive trading
practices below. Depending upon the composition of the
funds shareholder accounts, and in light of the
limitations on the ability of the fund to detect and curtail
excessive trading practices, a significant percentage of the
funds shareholders may not be subject to the exchange
limitation policy described above. In applying the exchange
limitation policy, the fund considers information available to
it at the time and reserves the right to consider trading
activity in a single account or multiple accounts under common
ownership, control or influence.
Limitation
on the ability to detect and curtail excessive trading
practices
Shareholders seeking to engage in excessive trading practices
sometimes deploy a variety of strategies to avoid detection and,
despite the efforts of the fund to prevent excessive trading,
there is no guarantee that the fund or its agent will be able to
identify such shareholders or curtail their trading practices.
The ability of the fund and its agent to detect and curtail
excessive trading practices may also be limited by operational
systems and technological limitations. Because the fund will not
always be able to detect frequent trading activity, investors
should not assume that the fund will be able to detect or
prevent all frequent trading or other practices that
disadvantage the fund. For example, the ability of the fund to
monitor trades that are placed by omnibus or other nominee
accounts is severely limited in those instances in which the
financial intermediary, including a financial adviser, broker,
retirement plan administrator or fee-based program sponsor,
maintains the records of the funds underlying beneficial
owners. Omnibus or other nominee account arrangements are common
forms of holding shares of the fund, particularly among certain
financial intermediaries, such as financial advisers, brokers,
retirement plan administrators or fee-based program sponsors.
These arrangements often permit the financial intermediary to
aggregate its clients transactions and ownership positions
and do not identify the particular underlying shareholder(s) to
the fund. However, the fund will work with financial
intermediaries as necessary to discourage shareholders from
engaging in abusive trading practices and to impose restrictions
on excessive trades. In this regard, the fund has entered into
information-sharing agreements with financial intermediaries
pursuant to which these intermediaries are required to provide
to the fund, at the funds request, certain information
relating to their customers investing in the fund through
omnibus or other nominee accounts. The fund will use this
information to attempt to identify excessive trading practices.
Financial intermediaries are contractually required to follow
any instructions from the fund to restrict or
Bond
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16
prohibit future purchases from shareholders that are found to
have engaged in excessive trading in violation of the
funds policies. The fund cannot guarantee the accuracy of
the information provided to it from financial intermediaries and
so cannot ensure that it will be able to detect abusive trading
practices that occur through omnibus or other nominee accounts.
As a consequence, the funds ability to monitor and
discourage excessive trading practices in these types of
accounts may be limited.
Excessive
trading risk
To the extent that the fund or its agent is unable to curtail
excessive trading practices in the fund, these practices may
interfere with the efficient management of the funds
portfolio and may result in the fund engaging in certain
activities to a greater extent than it otherwise would, such as
maintaining higher cash balances, using its line of credit and
engaging in increased portfolio transactions. Increased
portfolio transactions and use of the line of credit would
correspondingly increase the funds operating costs and
decrease the funds investment performance. Maintenance of
higher levels of cash balances would likewise result in lower
fund investment performance during periods of rising markets.
While excessive trading can potentially occur in the fund,
certain types of funds are more likely than others to be targets
of excessive trading. For example:
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A fund that invests a significant portion of its assets in
small- or mid-capitalization stocks or securities in
particular industries that may trade infrequently or are fair
valued as discussed under Valuation of securities
entails a greater risk of excessive trading, as investors may
seek to trade fund shares in an effort to benefit from their
understanding of the value of those types of securities
(referred to as price arbitrage).
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A fund that invests a material portion of its assets in
securities of foreign issuers may be a potential target
for excessive trading if investors seek to engage in price
arbitrage based upon general trends in the securities markets
that occur subsequent to the close of the primary market for
such securities.
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A fund that invests a significant portion of its assets in
below- investment-grade (junk) bonds that may trade
infrequently or are fair valued as discussed under
Valuation of securities incurs greater risk of
excessive trading, as investors may seek to trade fund shares in
an effort to benefit from their understanding of the value of
those types of securities (referred to as price arbitrage).
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Any frequent trading strategies may interfere with efficient
management of a funds portfolio and raise costs. A fund
that invests in the types of securities discussed above may be
exposed to this risk to a greater degree than a fund that
invests in highly liquid securities. These risks would be less
significant, for example, in a fund that primarily invests in
U.S. government securities, money market instruments,
investment-grade corporate issuers or large-capitalization U.S.
equity securities. Any successful price arbitrage may cause
dilution in the value of the fund shares held by other
shareholders.
Account
information
The fund is required by law to obtain information for verifying
an account holders identity. For example, an individual
will be required to supply his or her name, residential address,
date of birth and Social Security number. If you do not provide
the required information, we may not be able to open your
account. If verification is unsuccessful, the fund may close
your account, redeem your shares at the next NAV minus any
applicable sales charges and take any other steps that it deems
reasonable.
Certificated
shares
The fund no longer issues share certificates. Shares are
electronically recorded. Any existing certificated shares can
only be sold by returning the certificated shares to Signature
Services, along with a letter of instruction or a stock power
and a signature guarantee.
Sales
in advance of purchase payments
When you place a request to sell shares for which the purchase
money has not yet been collected, the request will be executed
in a timely fashion, but the fund will not release the proceeds
to you until your purchase payment clears. This may take up to
ten business days after the purchase.
Dividends
and account policies
Account
statements
In general, you will receive account statements as follows:
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after every transaction (except a dividend reinvestment) that
affects your account balance
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after any changes of name or address of the registered owner(s)
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in all other circumstances, every quarter
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Every year you should also receive, if applicable, a
Form 1099 tax information statement, mailed by
January 31.
Dividends
The fund generally declares dividends daily and pays them
monthly. Capital gains, if any, are distributed at least
annually, typically after the end of the funds fiscal
year. Most of the funds dividends are income dividends.
Your dividends begin accruing the day after the fund receives
payment and continues through the day your shares are actually
sold.
Dividend
reinvestments
Most investors have their dividends reinvested in additional
shares of the same class of the same fund. If you choose this
option, or if you do not indicate any choice, your dividends
will be reinvested. Alternatively, you may choose to have your
dividends and capital gains sent directly to your bank account
or a check may be mailed if your combined dividend and capital
gains amount is $10 or more. However, if the check is not
deliverable or the combined dividend and capital gains amount is
less than $10, your proceeds will be reinvested. If five or more
of your dividend or capital gains checks remain uncashed after
180 days, all subsequent dividends and capital gains will
be reinvested. No front-end sales charge or CDSC will be imposed
on shares derived from reinvestment of dividends or capital
gains distributions.
Taxability
of dividends
For investors who are not exempt from federal income taxes,
dividends you receive from the fund, whether reinvested or taken
as cash, are generally considered taxable. Dividends from the
funds short-term capital gains are taxable as ordinary
income. Dividends from the funds long-term capital gains
are taxable at a lower rate. Whether gains are short-term or
long-term depends on the funds holding period. Some
dividends paid in January may be taxable as if they had been
paid the previous December.
The Form 1099 that is mailed to you every January, if
applicable, details your dividends and their federal tax
category, although you should verify your tax liability with
your tax professional.
Returns
of capital
If the funds distributions exceed its taxable income and
capital gains realized during a taxable year, all or a portion
of the distributions made
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17
in the same taxable year may be recharacterized as a return of
capital to shareholders. A return of capital distribution will
generally not be taxable, but will reduce each
shareholders cost basis in the fund and result in a higher
reported capital gain or lower reported capital loss when those
shares on which the distribution was received are sold.
Taxability
of transactions
Any time you sell or exchange shares, it is considered a taxable
event for you if you are not exempt from federal income taxes.
Depending on the purchase price and the sale price of the shares
you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities
generated by your transactions.
Additional
investor services
Disclosure
of fund holdings
The following information for the fund is posted on the Web
site, www.jhfunds.com, generally on the fifth business day after
month end: top ten holdings; top ten sector analysis; total
return/yield; top ten countries; average quality/maturity;
beta/alpha; and top ten portfolio composition. The holdings of
the fund will be posted to the Web site no earlier than
15 days after each calendar month end. The holdings of the
fund are also disclosed quarterly to the SEC on
Form N-Q
as of the end of the first and third quarters of the funds
fiscal year and on
Form N-CSR
as of the second and fourth quarters of the funds fiscal
year. A description of the funds policies and procedures
with respect to the disclosure of its portfolio securities is
available in the SAI.
Bond
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For
more information
Two
documents are available that offer further information on the
fund:
Annual/Semiannual
report to shareholders
Includes
financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance,
as well as the auditors report (in annual report only).
Statement
of Additional Information
The SAI
contains more detailed information on all aspects of the fund
and includes a summary of the funds policy regarding
disclosure of its portfolio holdings, as well as legal and
regulatory matters. A current SAI has been filed with the SEC
and is incorporated by reference into (and is legally a part of)
this prospectus.
To
obtain a free copy of these documents
There are
several ways you can get a current annual/semiannual report,
prospectus or SAI from John Hancock:
Online: www.jhfunds.com
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By mail: |
John Hancock Signature Services, Inc.
PO Box 55913
Boston, MA
02205-5913
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By phone: 1-888-972-8696
By
TDD: 1-800-554-6713
By
EASI-Line: 1-800-597-1897
You can also
view or obtain copies of these documents through the SEC:
Online: www.sec.gov
By e-mail
(duplicating fee required): publicinfo@sec.gov
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By mail (duplicating fee required): |
Public Reference Section
Securities and Exchange Commission
Washington, DC
20549-0102
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In person: at the SECs Public Reference Room
in Washington, D.C.
For access to the Reference Room call
1-800-732-0330.
©
2011 JOHN HANCOCK FUNDS, LLC 21R6PN 8-30-11 SEC file number:
811-02402
MEMBER FINRA | SIPC
601 Congress Street
Boston, MA
02210-2805
Electronic
delivery now available at
www.jhfunds.com/edelivery
JOHN HANCOCK SOVEREIGN BOND FUND
John Hancock Bond Fund
Class: R6
Ticker: JHBSX
Statement of Additional Information
August 30, 2011
This Statement of Additional Information (SAI) provides information about John Hancock Bond Fund
(the Fund) in addition to the information that is contained in the Funds current Class R6
prospectus dated August 30, 2011 (the Prospectus). Other share classes of the Fund are described
in a separate prospectus and a separate SAI. The Fund is a diversified series of John Hancock
Sovereign Bond Fund (the Trust).
This SAI is not a prospectus. It should be read in conjunction with the Prospectus. This SAI
incorporates by reference the Funds most recent Annual Report. A copy of the Funds Prospectus or
the Annual Report can be obtained free of charge by writing or telephoning:
John Hancock Signature Services, Inc.
P.O. Box 55913
Boston, MA 02205-5913
1-800-225-5291
www.jhfunds.com
TABLE OF CONTENTS
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2
ORGANIZATION OF THE FUND
The Fund is the sole series of the Trust, a diversified open-end investment management company
organized as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts.
The Trust was organized in 1984.
John Hancock Advisers, LLC (the Adviser) is the Funds investment adviser. The Adviser is a
wholly owned subsidiary of John Hancock Life Insurance Company (U.S.A.), a subsidiary of Manulife
Financial Corporation (Manulife Financial). John Hancock Life Insurance Company (U.S.A.) and its
subsidiaries (John Hancock) today offer a broad range of financial products and services,
including whole, term, variable, and universal life insurance, as well as college savings products,
mutual funds, fixed and variable annuities, long-term care insurance and various forms of business
insurance.
Manulife Financial is a leading Canadian-based financial services group operating in 22 countries
and territories worldwide. For more than 120 years, clients worldwide have looked to Manulife
Financial for strong, reliable, trustworthy and forward-thinking solutions for their most
significant financial decisions. Manulife Financials international network of employees, agents
and distribution partners offers financial protection and wealth management products and services
to millions of clients around the world. Manulife Financial provides asset management services to
institutional customers worldwide as well as reinsurance solutions, specializing in life and
property and casualty retrocession. Funds under management by Manulife Financial and its
subsidiaries were Cdn$481 billion (US$498 billion) at June 30, 2011. The Company operates as
Manulife Financial in Canada and Asia and primarily as John Hancock in the United States.
Manulife Financial trades as MFC on the Toronto Stock Exchange, New York Stock Exchange (the
NYSE), and Pacific Stock Exchange, and under 945 on the Stock Exchange of Hong Kong.
Information about Manulife Financial can be found on the Internet at www.manulife.com.
The subadviser to the Fund is John Hancock Asset Management a division of Manulife Asset Management
(US) LLC (John Hancock Asset Management or the Subadviser) formerly, MFC Global Investment
Management (U.S.), LLC. The Subadviser is a subsidiary of John Life Insurance Company (U.S.A.).
The Subadviser is responsible for providing investment advice to the Fund subject to the review of
the Board of Trustees (the Board) and the overall supervision of the Adviser.
The Adviser serves as investment adviser to the Fund and is responsible for the supervision of the
Subadvisers services to the Fund.
The Fund commenced operations November 9, 1973 and became a series of the Trust on October 5, 1984.
INVESTMENT POLICIES AND RISKS
The following information supplements the discussion of the Funds investment policies and risks,
as discussed in the Prospectus. The investment objective, as stated in the Prospectus, is
fundamental and may only be changed with shareholder approval. There is no assurance that the Fund
will achieve its investment objective.
The Funds investment objective is to generate a high level of current income, consistent with
prudent investment risk, through investment in a diversified portfolio of freely marketable debt
securities. The Subadviser seeks high current income consistent with the moderate level of risk
associated with a portfolio consisting primarily of investment grade debt securities.
To pursue this goal, the Fund normally invests at least 80% of its assets (plus any borrowing for
investment purposes) (Assets) in a diversified portfolio of bonds. The Fund will notify
shareholders at least 60 days prior to any change in this policy. These include corporate bonds
and debentures as well as U.S. government and agency securities, and are sometimes referred to
generally as debt securities in this SAI.
3
In addition, the Fund contemplates at least 75% of the value of its total assets will be in (1)
debt securities that have, at the time of purchase, a rating within the four highest grades as
determined by Moodys Investors Service, Inc. (Moodys) (Aaa, Aa, A or Baa) or Standard
& Poors (S&P) (AAA, AA, A, or BBB); (2) debt securities of banks, the U.S. Government
and its agencies or instrumentalities and other issuers that, although not rated as a matter of
policy by either Moodys or S&P, are considered by the Fund to have investment quality comparable
to securities receiving ratings within the four highest grades; and (3) cash and cash equivalents.
Under normal conditions, the Fund may not invest more than 10% of total assets in cash and/or cash
equivalents (except cash segregated in relation to futures, forward and options contracts). Debt
securities rated Baa or BBB are considered medium-grade obligations with speculative
characteristics and adverse economic conditions or changing circumstances may weaken the issuers
capacity to pay interest and repay principal. The Fund will, when feasible, purchase debt
securities that are non-callable. It is anticipated that under normal conditions, the Fund will
not invest more than 25% of its total assets in U.S. dollar-denominated foreign securities
(excluding U.S. dollar-denominated Canadian securities). The Fund will not invest more than 10%
of its total assets in securities denominated in foreign currencies. The Fund will diversify its
investments among a number of industry groups without concentration in any particular industry.
The Funds investments, and consequently its net asset value per share (NAV), will be subject to
the market fluctuations and risks inherent in all securities.
The Fund may purchase corporate debt securities bearing fixed or fixed and contingent interest as
well as those that carry certain equity features, such as conversion or exchange rights or warrants
for the acquisition of stock of the same or a different issuer, or participations based on
revenues, sales or profits. The Fund may purchase preferred securities. The Fund will not
exercise any such conversion, exchange or purchase rights if, at the time, the value of all equity
interests so owned would exceed 10% of the Funds total assets taken at market value.
For liquidity and flexibility, the Fund may place up to 20% of its Assets in investment-grade
short-term securities. In abnormal circumstances, such as situations where the Fund experiences
large cash inflows or anticipates unusually large redemptions, and in an abnormal market, economic,
political or other conditions, the Fund may temporarily invest more than 20% of its Assets in
investment-grade short-term securities, cash, and cash equivalents.
The market value of debt securities that carry no equity participation usually reflects yields
generally available on securities of similar quality and type. When such yields decline, the
market value of a portfolio already invested at higher yields can be expected to rise if such
securities are protected against early call. Similarly, when such yields increase, the market
value of a portfolio already invested can be expected to decline. The Funds portfolio may include
debt securities that sell at substantial discounts from par. These securities are low coupon bonds
that, during periods of high interest rates, because of their lower acquisition cost tend to sell
on a yield basis approximating current interest rates.
Investment Companies. To the extent permitted by the Investment Company Act of 1940, as
amended (the 1940 Act), the rules and regulations thereunder and any applicable exemptive relief,
the Fund may invest in shares of other investment companies in pursuit of its investment objective.
This may include investments in money market mutual funds in connection with the Funds management
of daily cash portions. In addition to the advisory and operational fees the Fund bears directly
in connection with its own operation, the Fund and its shareholders also will bear the pro rata
portion of each other investment companys advisory and operational expenses.
Ratings as Investment Criteria. In general, the ratings of Moodys and S&P represent the
opinions of these agencies as to the quality of the securities that they rate. It should be
emphasized, however, that such ratings are relative and subjective and are not absolute standards
of quality. These ratings will be used by the Fund as initial criteria for the selection of
portfolio securities. Among the factors that will be considered are the long-term ability of the
issuer to pay principal and interest and general economic trends. Appendix A contains further
information concerning the ratings of Moodys and S&P and their significance. Subsequent to its
purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither of these events will require the sale
of the securities by the Fund, but the Subadviser will consider the event in its determination of
whether the Fund should continue to hold the securities.
Participation Interests. Participation interests, which may take the form of interests in,
or assignments of certain loans, are acquired from banks that have made these loans or are members
of a lending syndicate. The Funds investments in participation interests may be subject to its
15% limitation on investments in illiquid securities.
4
Structured Securities. The Fund may invest in structured securities including notes, bonds
or debentures, the value of the principal of and/or interest on which is to be determined by
reference to changes in the value of specific currencies, interest rates, commodities, indices or
other financial indicators (the Reference) or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption may be increased or
decreased depending upon changes in the applicable Reference. The terms of the structured
securities may provide that in certain circumstances no principal is due at maturity and,
therefore, may result in the loss of the Funds investment. Structured securities may be
positively or negatively indexed, so that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the change in the value
of the Reference. Consequently, structured securities entail a greater degree of market risk than
other types of debt obligations. Structured securities also may be more volatile, less liquid and
more difficult to accurately price than less complex fixed income investments.
Lower Rated High Yield Debt Obligations. The Fund may invest up to 25% of the value of its
total assets in fixed income securities rated below Baa3 by Moodys, and below BBB- by S&P, or
the unrated equivalent as determined by the Subadviser. The Fund may invest in securities rated as
low as Ca by Moodys or CC by S&P, which may indicate that the obligations are highly
speculative and in default. Lower rated securities are generally referred to as junk bonds. See
Appendix A attached to this SAI, for the distribution of securities in the various ratings
categories and a description of the characteristics of the categories. The Fund is not obligated
to dispose of securities whose issuers subsequently are in default or that are downgraded below the
above-stated ratings. The Fund may invest in unrated securities that, in the opinion of the
Subadviser, offer comparable yields and risks to those securities that are rated.
Debt obligations rated in the lower ratings categories, or that are unrated, involve greater
volatility of price and risk of loss of principal and income. In addition, lower ratings reflect a
greater possibility of an adverse change in financial condition affecting the ability of the issuer
to make payments of interest and principal.
The market price and liquidity of lower rated fixed income securities generally respond to
short-term economic, corporate and market developments to a greater extent than do higher rated
securities. In the case of lower-rated securities, these developments are perceived to have a more
direct relationship to the ability of an issuer of lower rated securities to meet its ongoing debt
obligations.
Reduced volume and liquidity in the high yield bond market, or the reduced availability of market
quotations, will make it more difficult to dispose of the bonds and value accurately the Funds
assets. The reduced availability of reliable, objective data may increase the Funds reliance on
managements judgment in valuing the high yield bonds. To the extent that the Fund invests in
these securities, the achievement of the Funds objective will depend more on the Subadvisers
judgment and analysis than would otherwise be the case. In addition, the Funds investments in
high yield securities may be susceptible to adverse publicity and investor perceptions, whether or
not the perceptions are justified by fundamental factors. In the past, economic downturns and
increases in interest rates have caused a higher incidence of default by the issuers of lower-rated
securities and may do so in the future, particularly with respect to highly leveraged issuers. The
market prices of zero coupon and payment-in-kind bonds are affected to a greater extent by interest
rate changes, and thereby tend to be more volatile than securities that pay interest periodically
and in cash. Increasing rate note securities are typically refinanced by the issuers within a
short period of time. The Fund accrues income on these securities for tax and accounting purposes,
which is required to be distributed to shareholders. Because no cash is received while income
accrues on these securities, the Fund may be forced to liquidate other investments to make the
distributions.
The Fund may acquire individual securities of any maturity and is not subject to any limits as to
the average maturity of its overall portfolio. The longer the Funds average portfolio maturity,
the more the value of the portfolio and the net asset value of the Funds shares will fluctuate in
response to changes in interest rates. An increase in interest rates generally will reduce the
value of the Funds portfolio securities and the Funds shares, while a decline in interest rates
generally will increase their value.
Securities of Domestic and Foreign Issuers. The Fund may invest in U.S.
dollar-denominated securities of foreign and United States issuers that are issued in or outside of
the United States. Foreign companies may not be subject to
5
accounting standards and government
supervision comparable to U.S. companies, and there is often less publicly available information
about their operations. Foreign markets generally provide less liquidity than U.S. markets (and
thus potentially greater price volatility) and typically provide fewer regulatory protections for
investors. Foreign securities can also be affected by political or financial instability abroad.
It is anticipated that under normal conditions, the Fund will not invest more than 25% of its total
assets in U.S. dollar-denominated foreign securities (excluding U.S. dollar-denominated Canadian
securities).
Sovereign Debt Obligations. Sovereign debt obligations are issued or guaranteed by foreign
governments or their agencies. Sovereign debt may be in the form of conventional securities or
other types of debt instruments such as loan or loan participations. Typically, sovereign debt of
developing countries may involve a high degree of risk and may be in default or present the risk of
default; however, sovereign debt of developed countries also may involve a high degree of risk and
may be in default or present the risk of default. Governments rely on taxes and other revenue
sources to pay interest and principal on their debt obligations, and governmental entities
responsible for repayment of the debt may be unable or unwilling to repay principal and pay
interest when due and may require renegotiation or rescheduling of debt payments. The payment of
principal and interest on these obligations may be adversely affected by a variety of factors,
including economic results, changes in interest and exchange rates, changes in debt ratings, a
limited tax base or limited revenue sources, natural disasters, or other economic or credit
problems. In addition, prospects for repayment and payment of interest may depend on political as
well as economic factors. Defaults in sovereign debt obligations, or the perceived risk of
default, also may impair the market for other securities and debt instruments, including securities
issued by banks and other entities holding such sovereign debt, and negatively impact the Fund.
Government Securities. The Fund may invest in U.S. Government securities, which are
obligations issued or guaranteed by the U.S. Government and its agencies, authorities or
instrumentalities. Certain U.S. Government securities, including U.S. Treasury bills, notes and
bonds, and certificates issued by the Government National Mortgage Association (Ginnie Mae), are
supported by the full faith and credit of the United States. Certain other U.S. Government
securities, issued or guaranteed by federal agencies or government sponsored enterprises, are not
supported by the full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include obligations issued by the
Federal Home Loan Mortgage Corporation (Freddie Mac), and obligations supported by the credit of
the instrumentality, such as those issued by Federal National Mortgage Association (Fannie Mae).
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a relatively
short period (usually not more than 7 days) subject to the obligation to sell it back to the issuer
at a fixed time and price plus accrued interest. The Fund will enter into repurchase agreements
only with member banks of the Federal Reserve System and with primary dealers in U.S. Government
securities. Under procedures established by the Board, the Subadviser will continuously monitor
the creditworthiness of the parties with whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as collateral for each
repurchase agreement must be delivered to the Funds custodian either physically or in book-entry
form and that the collateral must be marked to market daily to ensure that each repurchase
agreement is fully collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in or be prevented from
liquidating the underlying securities and could experience losses, including the possible decline
in the value of the underlying securities during the period while the Fund seeks to enforce its
rights thereto, possible subnormal levels of income and decline in value of the underlying
securities or lack of access to income during this period as well as the expense of enforcing its
rights.
Reverse Repurchase Agreements. The Fund also may enter into reverse repurchase agreements
which involve the sale of U.S. Government securities held in its portfolio to a bank with an
agreement that the Fund will buy back the securities at a fixed future date at a fixed price plus
an agreed amount of interest that may be reflected in the repurchase price. Reverse repurchase
agreements are considered to be borrowings by the Fund. Reverse repurchase agreements involve the
risk that the market value of securities purchased by the Fund with proceeds of the transaction may
decline below the repurchase price of the securities sold by the Fund that it is obligated to
repurchase. To minimize various risks associated with reverse repurchase agreements, the Fund will
establish and maintain a separate account consisting of liquid securities, of any type or maturity
in an amount at least equal to the
6
repurchase prices of these securities (plus any accrued interest
thereon) under such agreements. The Fund also will continue to be subject to the risk of a decline
in the market value of the securities sold under the agreements because it will reacquire those
securities upon effecting their repurchase.
In addition, the Fund will not enter into reverse repurchase agreements or borrow money, except
from banks as a temporary measure for extraordinary emergency purposes in amounts not to exceed 33
1/3% of the Funds total assets (including the amount borrowed) taken at market value. The Fund
will not use leverage to attempt to increase income. The Fund will not purchase securities while
outstanding borrowings exceed 5% of the Funds total assets. Under the procedures established by
the Board, the Subadviser will monitor the creditworthiness of the banks involved.
Restricted Securities. The Fund may purchase securities that are not registered under the
Securities Act of the 1933 Act, as amended (1933 Act) (restricted securities), including
commercial paper issued in reliance on Section 4(2) of the 1933 Act. The Fund will not invest more
than 15% limit on illiquid investments. If the Board determines, based upon a continuing review of
the trading markets for specific Section 4(2) paper or Rule 144A securities, that they are liquid,
they will not be subject to the 15% limit in illiquid investments. The Board has adopted
procedures and delegated to the Adviser oversight of the Subadvisers compliance with the daily
function of determining and monitoring the liquidity of restricted securities. The Board, however,
will retain sufficient oversight and be ultimately responsible for the determinations. The Board
will carefully monitor the Funds liquidity and availability of information. This investment
practice could have the effect of increasing the level of liquidity in the Fund if qualified
institutional buyers become for a time uninterested in purchasing these restricted securities.
Options on Securities and Securities Indices. The Fund may purchase and write (sell) call
and put options on any securities in which it may invest or on any securities index based on
securities in which it may invest. These options may be listed on national domestic securities
exchanges or traded in the over-the-counter market. The Fund may write covered put and call
options and purchase put and call options to enhance total return, as a substitute for the purchase
or sale of securities, or to protect against declines in the value of portfolio securities and
against increases in the cost of securities to be acquired.
Writing Covered Options. A call option on securities written by the Fund obligates the
Fund to sell specified securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. A put option on securities written by the Fund
obligates the Fund to purchase specified securities from the option holder at a specified price if
the option is exercised at any time before the expiration date. Options on securities indices are
similar to options on securities, except that the exercise of securities index options requires
cash settlement payments and does not involve the actual purchase or sale of securities. In
addition, securities index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in a single security.
Writing covered call options may deprive the Fund of the opportunity to profit from an increase in
the market price of the securities in its portfolio. Writing covered put options may deprive the
Fund of the opportunity to profit from a decrease in the market price of the securities to be
acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option or put option may
be covered by: (i) maintaining cash or liquid securities in a segregated account with a value at
least equal to the Funds obligation under the option; (ii) entering into an offsetting forward
commitment; and/or (iii) purchasing an offsetting option or any other option that, by virtue of its
exercise price or otherwise, reduces the Funds net exposure on its written option position. A
written call option on securities is typically covered by maintaining the securities that are
subject to the option in a segregated account. The Fund may cover call options on a securities
index by owning securities whose price changes are expected to be similar to those of the
underlying index.
The Fund may terminate its obligations under an exchange traded call or put option by purchasing an
option identical to the one it has written. Obligations under over-the-counter options may be
terminated only by entering into an offsetting transaction with the counterparty to such option.
Such purchases are referred to as closing purchase transactions.
7
Purchasing Options. The Fund normally would purchase call options in anticipation of an
increase, or put options in anticipation of a decrease (protective puts) in the market value of
securities of the type in which it may invest. The Fund also may sell call and put options to
close out its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium paid, to purchase
specified securities at a specified price during the option period. The Fund would ordinarily
realize a gain on the purchase of a call option if, during the option period, the value of such
securities exceeded the sum of the exercise price, the premium paid and transaction costs;
otherwise the Fund would realize either no gain or a loss on the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium paid, to sell
specified securities at a specified price during the option period. The purchase of protective
puts is designed to offset or hedge against a decline in the market value of the Funds portfolio
securities. Put options also may be purchased by the Fund for the purpose of affirmatively
benefiting from a decline in the price of securities that it does not own. The Fund ordinarily
would realize a gain if, during the option period, the value of the underlying securities decreased
below the exercise price sufficiently to cover the premium and transaction costs; otherwise the
Fund would realize either no gain or a loss on the purchase of the put option. Gains and losses on
the purchase of put options may be offset by countervailing changes in the value of the Funds
portfolio securities.
The Funds options transactions will be subject to limitations established by each of the
exchanges, boards of trade or other trading facilities on which such options are traded. These
limitations govern the maximum number of options in each class that may be written or purchased by
a single investor or group of investors acting in concert, regardless of whether the options are
written or purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more brokers. Thus,
the number of options that the Fund may write or purchase may be affected by options written or
purchased by other investment advisory clients of the Adviser or the Subadviser. An exchange,
board of trade or other trading facility may order the liquidation of positions found to be in
excess of these limits, and it may impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid secondary
market on a domestic or foreign options exchange will exist for any particular exchange-traded
option or at any particular time. If the Fund is unable to effect a closing purchase transaction
with respect to covered options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a closing sale transaction with respect to
options it has purchased, it would have to exercise the options in order to realize any profit and
will incur transaction costs upon the purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the following:
(i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed
by an exchange on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange;
(v) the facilities of an exchange or the Options Clearing Corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the trading of options (or
a particular class or series of options). If trading were discontinued, the secondary market on
that exchange (or in that class or series of options) would cease to exist. However, outstanding
options on that exchange that had been issued by the Options Clearing Corporation as a result of
trades on that exchange would continue to be exercisable in accordance with their terms.
The Funds ability to terminate over-the-counter options is more limited than with exchange-traded
options and may involve the risk that broker-dealers participating in such transactions will not
fulfill their obligations. The Subadviser will determine the liquidity of each over-the-counter
option in accordance with guidelines adopted by the Board.
The writing and purchase of options is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary portfolio securities
transactions. The successful use of options
8
depends in part on the Subadvisers ability to predict
future price fluctuations and, for hedging transactions, the degree of correlation between the
options and securities markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total return or
hedge against changes in interest rates or securities prices, the Fund may purchase and sell
futures contracts, and purchase and write call and put options on these futures contracts. The
Fund also may enter into closing purchase and sale transactions with respect to any of these
contracts and options. The futures contracts may be based on various securities (such as U.S.
Government securities), securities indices and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. exchanges or boards of trade that are
licensed, regulated or approved by the Commodity Futures Trading Commission (CFTC).
Futures Contracts. A futures contract generally may be described as an agreement between
two parties to buy and sell particular financial instruments for an agreed price during a
designated month (or to deliver the final cash settlement price, in the case of a contract relating
to an index or otherwise not calling for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are instead liquidated
through offsetting transactions that may result in a profit or a loss. While futures contracts on
securities will usually be liquidated in this manner, the Fund may instead make, or take, delivery
of the underlying securities whenever it appears economically advantageous to do so. A clearing
corporation associated with the exchange on which futures contracts are traded guarantees that, if
still open, the sale or purchase will be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more certainty than
would otherwise be possible the effective price or rate of return on portfolio securities or
securities that the Fund proposes to acquire. When securities prices are falling, the Fund can
seek to offset a decline in the value of its current portfolio securities through the sale of
futures contracts. When securities prices are rising, the Fund, through the purchase of futures
contracts, can attempt to secure better rates or prices than might later be available in the market
when it effects anticipated purchases.
The Fund may, for example, take a short position in the futures market by selling futures
contracts in an attempt to hedge against an anticipated decline in market prices that would
adversely affect the value of the Funds portfolio securities. Such futures contracts may include
contracts for the future delivery of securities held by the Fund or securities with characteristics
similar to those of the Funds portfolio securities.
If, in the opinion of the Subadviser, there is a sufficient degree of correlation between price
trends for the Funds portfolio securities and futures contracts based on other financial
instruments, securities indices or other indices, the Fund also may enter into such futures
contracts as part of its hedging strategy. Although under some circumstances prices of securities
in the Funds portfolio may be more or less volatile than prices of such futures contracts, the
Subadviser will attempt to estimate the extent of this volatility difference based on historical
patterns and compensate for any differential by having the Fund enter into a greater or lesser
number of futures contracts or by attempting to achieve only a partial hedge against price changes
affecting the Funds portfolio securities.
When a short hedging position is successful, any depreciation in the value of portfolio securities
will be substantially offset by appreciation in the value of the futures position. On the other
hand, any unanticipated appreciation in the value of the Funds portfolio securities would be
substantially offset by a decline in the value of the futures position.
On other occasions, the Fund may take a long position by purchasing futures contracts. This
would be done, for example, when the Fund anticipates the subsequent purchase of particular
securities when it has the necessary cash, but expects the prices then available in the applicable
market to be less favorable than prices that are currently available. The Fund also may purchase
futures contracts as a substitute for transactions in securities, to alter the investment
characteristics of portfolio securities or to gain or increase its exposure to a particular
securities market.
Options on Futures Contracts. The Fund may purchase and write options on futures for the
same purposes as its transactions in futures contracts. The purchase of put and call options on
futures contracts will give the Fund the right (but not the obligation) for a specified price to
sell or to purchase, respectively, the underlying futures contract at any time during the option
period. As the purchaser of an option on a futures contract, the Fund obtains the
9
benefit of the
futures position if prices move in a favorable direction but limits its risk of loss in the event
of an unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium that may partially offset a
decline in the value of the Funds assets. By writing a call option, the Fund becomes obligated,
in exchange for the premium (upon exercise of the option) to sell a futures contract if the option
is exercised, which may have a value higher than the exercise price. Conversely, the writing of a
put option on a futures contract generates a premium that may partially offset an increase in the
price of securities that the Fund intends to purchase. However, the Fund becomes obligated (upon
exercise of the option) to purchase a futures contract if the option is exercised, which may have a
value lower than the exercise price. The loss incurred by the Fund in writing options on futures
is potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its position by selling or
purchasing an offsetting option of the same series. There is no guarantee that such closing
transactions can be effected. The Funds ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options transactions
either for bona fide hedging purposes or to seek to increase total return as permitted by the CFTC.
To the extent that the Fund is using futures and related options for hedging purposes, futures
contracts will be sold to protect against a decline in the price of securities that the Fund owns
or futures contracts will be purchased to protect the Fund against an increase in the price of
securities that it intends to purchase. The Fund will determine that the price fluctuations in the
futures contracts and options on futures used for hedging purposes are substantially related to
price fluctuations in securities held by the Fund or securities or instruments that it expects to
purchase. As evidence of its hedging intent, the Fund expects that on 75% or more of the occasions
on which it takes a long futures or option position (involving the purchase of futures contracts),
the Fund will have purchased, or will be in the process of purchasing, equivalent amounts of
related securities in the cash market at the time when the futures or option position is closed
out. However, in particular cases, when it is economically advantageous for the Fund to do so, a
long futures position may be terminated or an option may expire without the corresponding purchase
of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures contracts and options on
futures, the aggregate initial margin and premiums required to establish these nonhedging positions
will not exceed 5% of the net asset value of the Funds assets, after taking into account
unrealized profits and losses on any such positions and excluding the amount by which such options
were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage costs, require margin
deposits and, in the case of contracts and options obligating the Fund to purchase securities,
require the Fund to establish a segregated account consisting of cash or liquid securities in an
amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce certain risks, these
transactions themselves entail certain other risks. For example, unanticipated changes in interest
rates or securities prices may result in a poorer overall performance for the Fund than if it had
not entered into any futures contracts or options transactions.
Perfect correlation between the Funds futures positions and portfolio positions will be impossible
to achieve. In the event of an imperfect correlation between a futures position and a portfolio
position that is intended to be protected, the desired protection may not be obtained and the Fund
may be exposed to risk of loss.
Some futures contracts or options on futures may become illiquid under adverse market conditions.
In addition, during periods of market volatility, a commodity exchange may suspend or limit trading
in a futures contract or related option, which may make the instrument temporarily illiquid and
difficult to price. Commodity exchanges also may establish daily limits on the amount that the
price of a futures contract or related option can vary from the previous days settlement price.
Once the daily limit is reached, no trades may be made that day at a price beyond the limit. This
may prevent the Fund from closing out positions and limiting its losses.
10
Forward Commitment and When-Issued Securities. The Fund may purchase securities on a
when-issued or forward commitment basis. When-issued refers to securities whose terms are
available and for which a market exists, but that have not been issued. The Fund will engage in
when-issued transactions with respect to securities purchased for its portfolio in order to obtain
what is considered to be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a month or more after the
purchase. In a forward commitment transaction, the Fund contracts to purchase securities for a
fixed price at a future date beyond customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it relies on the seller
to consummate the transaction. The failure of the issuer or seller to consummate the transaction
may result in the Funds losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines prior to the
settlement date.
On the date the Fund enters into an agreement to purchase securities on a when-issued or forward
commitment basis, the Fund will segregate in a separate account cash or liquid securities of any
type or maturity equal in value to the Funds commitment. These assets will be valued daily at
market, and additional cash or securities will be segregated in a separate account to the extent
that the total value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, the Fund may enter into offsetting contracts for the forward sale of
other securities that it owns.
Mortgage Dollar Roll Transactions. The Fund may enter into mortgage dollar roll
transactions with selected banks and broker-dealers pursuant to which the Fund sells
mortgage-backed securities and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. The Fund will only enter into
covered rolls. A covered roll is a specific type of dollar roll for which there is an offsetting
cash position or a cash equivalent security position that matures on or before the forward
settlement date of the dollar roll transaction. Covered rolls are not treated as a borrowing or
other senior security and will be excluded from the calculation of the Funds borrowings and other
senior securities. For financial reporting and tax purposes, the Fund treats mortgage dollar rolls
as two separate transactions; one involving the purchase of a security and a separate transaction
involving a sale.
Swaps, Caps, Floors and Collars. As one way of managing its exposure to different types of
investments, the Fund may enter into interest rate swaps, currency swaps, and other types of swap
agreements such as caps, collars and floors. In a typical interest rate swap, one party agrees to
make regular payments equal to a floating interest rate times a notional principal amount, in
return for payments equal to a fixed rate times the same amount, for a specified period of time.
If a swap agreement provides for payment in different currencies, the parties might agree to
exchange the notional principal amount as well. Swaps also may depend on other prices or rates,
such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified
circumstances, usually in return for payment of a fee by the other party. For example, the buyer
of an interest rate cap obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated
to make payments to the extent that a specified interest rate falls below an agreed-upon level. An
interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift the Funds investment exposure from one type of investment to
another. For example, if the Fund agreed to exchange payments in dollars for payments in a foreign
currency, the swap agreement would tend to decrease the Funds exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap agreements may increase
or decrease the overall volatility of the Funds investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of
cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may
have a considerable impact on the Funds performance. Swap agreements are subject to risks related
to the counterpartys ability to perform, and may decline in value if the counterpartys
creditworthiness deteriorates. The Fund also may suffer losses if it is
11
unable to terminate
outstanding swap agreements or reduce its exposure through offsetting transactions. The Fund will
maintain in a segregated account with its custodian, cash or liquid, high grade debt securities
equal to the net amount, if any, of the excess of the Funds obligations over its entitlements with
respect to swap, cap, collar, or floor transactions.
Credit Default Swap Agreements. The Fund may enter into credit default swap agreements.
The buyer in a credit default contract is obligated to pay the seller a periodic stream of
payments over the term of the contract provided that no event of default on an underlying reference
obligation has occurred. If an event of default occurs, the seller must pay the buyer the par
value (full notional value) of the reference obligation in exchange for the reference obligation.
The Fund may be either the buyer or seller in the transaction. If the Fund is a buyer and no event
of default occurs, the Fund loses its investment and recovers nothing. However, if an event of
default occurs, the buyer receives full notional value for a reference obligation that may have
little or no value. As a seller, the Fund receives a fixed rate of income throughout the term of
the contract, which can run between six months and ten years but are typically structured between
three and five years, provided that there is no default event. If an event of default occurs, the
seller must pay the buyer the full notional value of the reference obligation. Credit default
swaps involve greater risks than if the Fund had invested in the reference obligation directly. In
addition to general market risks, credit default swaps are subject to illiquidity risk,
counterparty risk and credit risks. The Fund will enter into swap agreements only with
counterparties who are rated investment grade by at least one nationally recognized statistical
rating organization at the time of entering into such transaction or whose creditworthiness is
believed by the Subadviser to be equivalent to such rating. A buyer also will lose its investment
and recover nothing should an event of default occur. If an event of default were to occur, the
value of the reference obligation received by the seller, coupled with the periodic payments
previously received, may be less than the full notional value it pays to the buyer, resulting in a
loss of value to the Fund.
If the Fund enters into a credit default swap, the Fund may be required to report the swap as a
listed transaction for tax shelter reporting purposes on the Funds federal income tax return.
If the Internal Revenue Service (the IRS) were to determine that the credit default swap is a tax
shelter, the Fund could be subject to penalties under the Internal Revenue Code of 1986, as amended
(the Code).
Pay-In-Kind, Delayed and Zero Coupon Bonds. The Fund may invest in pay-in-kind, delayed
and zero coupon bonds. These are securities issued at a discount from their face value because
interest payments are typically postponed until maturity. The amount of the discount rate varies
depending on factors including the time remaining until maturity, prevailing interest rates, the
securitys liquidity and the issuers credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. A portion of the discount with
respect to stripped tax-exempt securities or their coupons may be taxable. The market prices in
pay-in-kind, delayed and zero coupon bonds generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a greater degree to changes in interest
rates than interest-bearing securities having similar maturities and credit quality. The Funds
investments in pay-in-kind, delayed and zero coupon bonds may require the Fund to sell certain of
its portfolio securities to generate sufficient cash to satisfy certain income distribution
requirements. See Additional Information Concerning Taxes.
Brady Bonds. The Fund may invest in Brady Bonds and other sovereign debt securities of
countries that have restructured or are in the process of restructuring sovereign debt pursuant to
the Brady Plan. Brady Bonds are debt securities described as part of a restructuring plan created
by U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their outstanding external indebtedness (generally, commercial bank debt). In
restructuring its external debt under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as multilateral institutions such as the World Bank and the
International Monetary Fund (the IMF). The Brady Plan facilitates the exchange of commercial
bank debt for newly issued bonds (known as Brady Bonds). The World Bank and the IMF provide funds
pursuant to loan agreements or other arrangements that enable the debtor nation to collateralize
the new Brady Bonds or to repurchase outstanding bank debt at a discount. Under these arrangements
the IMF debtor nations are required to implement domestic monetary and fiscal reforms. These
reforms have included the liberalization of trade and foreign investment, the privatization of
state-owned enterprises and the setting of targets for public spending and borrowing. These
policies and programs seek to promote the debtor countrys ability to service its external
obligations and promote its economic growth and development. The Brady Plan only sets forth
general guiding principles for economic reform and debt reduction, emphasizing that solutions must
be negotiated on a case-by-case basis between debtor nations and their creditors. The Subadviser
12
believes that economic reforms undertaken by countries in connection with the issuance of Brady
Bonds make the debt of countries that have issued or have announced plans to issue Brady Bonds an
attractive opportunity for investment.
Brady Bonds may involve a high degree of risk, may be in default or present the risk of default.
Agreements implemented under the Brady Plan to date are designed to achieve debt and debt-service
reduction through specific options negotiated by a debtor nation with its creditors. As a result,
the financial packages offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face value of such debt,
bonds issued at a discount of face value of such debt, bonds bearing an interest rate that
increases over time and bonds issued in exchange for the advancement of new money by existing
lenders. Certain Brady Bonds have been collateralized as to principal due at maturity by U.S.
Treasury zero coupon bonds with a maturity equal to the final maturity of such Brady Bonds,
although the collateral is not available to investors until the final maturity of the Brady Bonds.
Collateral purchases are financed by the IMF, the World Bank and the debtor nations reserves. In
addition, the first two or three interest payments on certain types of Brady Bonds may be
collateralized by cash or securities agreed upon by creditors. Although Brady Bonds may be
collateralized by U.S. Government securities, repayment of principal and interest is not
guaranteed by the U.S. Government.
Securities
Lending. The Fund may lend its securities so long as such loans do not
represent more than 33 1/3% of its total assets. As collateral for the loaned securities, the
borrower gives the lending portfolio collateral equal to at least 102% of the value of the loaned
securities (105% for foreign equity and corporate securities). The collateral will consist of cash
(including U.S. dollars and foreign currency). The borrower must also agree to increase the
collateral if the value of the loaned securities increases. As with other extensions of credit,
there are risks that collateral could be inadequate in the event of the borrower failing
financially, which could result in actual financial loss, and risks that recovery of loaned
securities could be delayed, which could result in interference with portfolio management decisions
or exercise of ownership rights. Cash collateral may be invested by the Fund in a privately
offered registered investment company advised by the Subadviser that is part of the same group of
investment companies as the Fund and that is offered exclusively to funds in the same group of
investment companies. Investment of cash collateral offers the opportunity for the Fund to profit
from income earned by this collateral pool, but also the risk of loss, should the value of the
Funds shares in the collateral pool decrease below their initial value. The Fund will be
responsible for the risks associated with the investment of cash collateral, including the risk
that the Fund may lose money on the investment or may fail to earn sufficient income to meet its
obligations to the borrower. In addition, the Fund may lose its right to vote its shares of the
loaned securities unless it recalls the loaned securities.
The Fund has entered into an agreement with The Goldman Sachs Trust Company, doing business as
Goldman Sachs Agency Lending (Goldman Sachs), as its securities lending agent (the Securities
Lending Agreement). Under the Securities Lending Agreement, Goldman Sachs generally will bear the
risk that a borrower may default on its obligation to return loaned securities.
Securities lending involves counterparty risk, including the risk that the loaned securities may
not be returned or returned in a timely manner and/or a loss of rights in the collateral if the
borrower or the lending agent defaults or fails financially. This risk is increased when the
Funds loans are concentrated with a single or limited number of borrowers. There are no limits on
the number of borrowers to which the Fund may lend securities and the Fund may lend securities to
only one or a small group of borrowers. In addition, under the Securities Lending Agreement, loans
may be made to affiliates of Goldman Sachs as identified in the Securities Lending Agreement.
Rights and Warrants. The Fund may purchase warrants and rights, which are securities
permitting, but not obligating, their holder to purchase the underlying securities at a
predetermined price, subject to the Funds Investment Restrictions. Generally, warrants and stock
purchase rights do not carry with them the right to receive dividends or exercise voting rights
with respect to the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered to entail greater
investment risk than certain other types of investments. In addition, the value of warrants and
rights does not necessarily change with the value of the underlying securities, and they cease to
have value if they are not exercised on or prior to their expiration date. Investment in warrants
and rights increases the potential profit or loss to be realized from the investment of a given
amount of the Funds assets as compared with investing the same amount in the underlying stock.
13
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase and
subsequent sale of a security after it has been held for a relatively brief period of time. The
Fund may engage in short term trading in response to stock market conditions, changes in interest
rates or other economic trends and developments, or to take advantage of yield disparities between
various fixed income securities in order to realize capital gains or improve income. Short term
trading may have the effect of increasing portfolio turnover rate. A high rate of portfolio
turnover (100% or greater) involves correspondingly greater brokerage expenses. The Funds
portfolio turnover rate is set forth in the table under the caption Financial Highlights in the
Prospectus.
The Fund intends to use short-term trading of securities as a means of managing its portfolio to
achieve its investment objective. The Fund, in reaching a decision to sell one security and
purchase another security at approximately the same time, will take into account a number of
factors, including the quality ratings, interest rates, yields, maturity dates, call prices, and
refunding and sinking fund provisions of the securities under consideration, as well as historical
yield spreads and current economic information. The success of short-term trading will depend upon
the ability of the Fund to evaluate particular securities, to anticipate relevant market factors,
including trends of interest rates and earnings and variations from such trends, to obtain relevant
information, to evaluate it promptly, and to take advantage of its evaluations by completing
transactions on a favorable basis. It is expected that the expenses involved in short-term
trading, which would not be incurred by an investment company that does not use this portfolio
technique, will be significantly less than the profits and other benefits that will accrue to
shareholders.
The portfolio turnover rate will depend on a number of factors, including the fact that the Fund
intends to continue to qualify as a regulated investment company under the Code. Accordingly, the
Fund intends to limit its short-term trading so that less than 30% of its gross annual income
(including all dividend and interest income and gross realized capital gains, both short and
long-term, without being offset for realized capital losses) will be derived from gross realized
gains on the sale or other disposition of securities held for less than three months. This
limitation, which must be met by all mutual funds in order to obtain such federal tax treatment, at
certain times may prevent the Fund from realizing capital gains on some securities held for less
than three months.
Mortgage Securities
Prepayment of Mortgages. Mortgage securities differ from conventional bonds in that principal is
paid over the life of the securities rather than at maturity. As a result, the Fund receives
monthly scheduled payments of principal and interest, and may receive unscheduled principal
payments representing prepayments on the underlying mortgages. When the Fund reinvests the
payments and any unscheduled prepayments of principal it receives, it may receive a rate of
interest that is higher or lower than the rate on the existing mortgage securities. For this
reason, mortgage securities may be less effective than other types of debt securities as a means of
locking in long term interest rates.
In addition, because the underlying mortgage loans and assets may be prepaid at any time, if the
Fund purchases mortgage securities at a premium, a prepayment rate that is faster than expected
will reduce yield to maturity, while a prepayment rate that is slower than expected will increase
yield to maturity. Conversely, if the Fund purchases these securities at a discount, faster than
expected prepayments will increase yield to maturity, while slower than expected payments will
reduce yield to maturity.
Adjustable Rate Mortgage Securities. Adjustable rate mortgage securities are similar to the fixed
rate mortgage securities discussed above, except that, unlike fixed rate mortgage securities,
adjustable rate mortgage securities are collateralized by or represent interests in mortgage loans
with variable rates of interest. These variable rates of interest reset periodically to align
themselves with market rates. Most adjustable rate mortgage securities provide for an initial
mortgage rate that is in effect for a fixed period, typically ranging from three to twelve months.
Thereafter, the mortgage interest rate will reset periodically in accordance with movements in a
specified published interest rate index. The amount of interest due to an adjustable rate mortgage
holder is determined in accordance with movements in a specified published interest rate index by
adding a pre-determined increment or margin to the specified interest rate index. Many
adjustable rate mortgage securities reset their interest rates based on changes in:
14
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|
|
one-year, three-year and five-year constant maturity Treasury Bill rates; |
|
|
|
|
three-month or six-month Treasury Bill rates; |
|
|
|
|
11th District Federal Home Loan Bank Cost of Funds; |
|
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|
|
National Median Cost of Funds; or |
|
|
|
|
one-month, three-month, six-month or one-year London Interbank Offered Rate (LIBOR)
and other market rates. |
During periods of increasing rates, the Fund will not benefit from such increase to the extent that
interest rates rise to the point where they cause the current coupon of adjustable rate mortgages
held as investments to exceed any maximum allowable annual or lifetime reset limits or cap rates
for a particular mortgage. In this event, the value of the mortgage securities held by the Fund
would likely decrease. During periods of declining interest rates, income to the Fund derived from
adjustable rate mortgages that remain in a mortgage pool may decrease in contrast to the income on
fixed rate mortgages, which will remain constant. Adjustable rate mortgages also have less
potential for appreciation in value as interest rates decline than do fixed rate investments.
Also, the Funds NAV could vary to the extent that current yields on adjustable rate mortgage
securities held as investments are different than market yields during interim periods between
coupon reset dates.
Privately-Issued Mortgage Securities. Privately-issued mortgage securities provide for the monthly
principal and interest payments made by individual borrowers to pass through to investors on a
corporate basis, and in privately issued collateralized mortgage obligations, as further described
below. Privately-issued mortgage securities are issued by private originators of, or investors in,
mortgage loans, including:
|
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mortgage bankers; |
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commercial banks; |
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investment banks; |
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savings and loan associations; and |
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special purpose subsidiaries of the foregoing. |
Since privately-issued mortgage certificates are not guaranteed by an entity having the credit
status of Ginnie Mae or Freddie Mac, such securities generally are structured with one or more
types of credit enhancement. For a description of the types of credit enhancements that may
accompany privately-issued mortgage securities, see Types of Credit Support below. The Fund may
invest in mortgage securities and will not limit its investments in asset-backed securities to
those with credit enhancements.
Collateralized Mortgage Obligations (CMOs). CMOs generally are bonds or certificates issued in
multiple classes that are collateralized by or represent an interest in mortgages. CMOs may be
issued by single-purpose, stand-alone finance subsidiaries or trusts of financial institutions,
government agencies, investment banks or other similar institutions. Each class of CMOs, often
referred to as a tranche, may be issued with a specific fixed coupon rate (which may be zero) or
a floating coupon rate. Each class of CMOs also has a stated maturity or final distribution date.
Principal prepayments on the underlying mortgages may cause the CMOs to be retired substantially
earlier than their stated maturities or final distribution dates. Interest is paid or accrued on
CMOs on a monthly, quarterly or semiannual basis.
The principal of and interest on the underlying mortgages may be allocated among the several
classes of a series of a CMO in many ways. The general goal sought to be achieved in allocating
cash flows on the underlying mortgages to the various classes of a series of CMOs is to create
tranches on which the expected cash flows have a higher degree of predictability than the
underlying mortgages. In creating such tranches, other tranches may be subordinated to the
interests of these tranches and receive payments only after the obligations of the more senior
tranches have been satisfied. As a general matter, the more predictable the cash flow is on a CMO
tranche, the lower the anticipated yield will be on that tranche at the time of issuance. As part
of the process of creating more predictable cash flows on most of the tranches in a series of CMOs,
one or more tranches generally must be created that absorb most of the volatility in the cash flows
on the underlying mortgages. The yields on these tranches are relatively higher than on tranches
with more predictable cash flows. Because of the uncertainty of the cash flows on these tranches,
and the sensitivity of these transactions to changes in prepayment rates on the underlying
mortgages, the market prices of and yields on these tranches tend to be highly volatile. The
market prices of and yields on tranches with longer terms to maturity also tend to be more volatile
than tranches with shorter terms to maturity due
15
to these same factors. To the extent the
mortgages underlying a series of a CMO are so called subprime mortgages (mortgages granted to
borrowers whose credit history is not sufficient to obtain a conventional mortgage), the risk of
default is higher, which increases the risk that one or more tranches of a CMO will not receive its
predicted cash flows.
CMOs purchased by the Fund may be:
|
(1) |
|
collateralized by pools of mortgages in which each mortgage is guaranteed as to payment
of principal and interest by an agency or instrumentality of the U.S. Government; |
|
|
(2) |
|
collateralized by pools of mortgages in which payment of principal and interest is
guaranteed by the issuer and the guarantee is collateralized by U.S. Government securities;
or |
|
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(3) |
|
securities for which the proceeds of the issuance are invested in mortgage securities
and payment of the principal and interest is supported by the credit of an agency or
instrumentality of the U.S. Government. |
Separate Trading of Registered Interest and Principal of Securities (STRIPS). The Fund may
invest in separately traded interest components of securities issued or guaranteed by the U.S.
Treasury. The interest components of selected securities are traded independently under the STRIPS
program. Under the STRIPS program, the interest components are individually numbered and
separately issued by the U.S. Treasury at the request of depository financial institutions, which
then trade the component parts independently.
Stripped Mortgage Securities. Stripped mortgage securities are derivative multi-class mortgage
securities. Stripped mortgage securities may be issued by agencies or instrumentalities of the
U.S. Government, or by private issuers, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities have greater volatility than other types of mortgage securities in which the
Fund invests. Although stripped mortgage securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers, the market for
such securities has not yet been fully developed. Accordingly, stripped mortgage securities may be
illiquid and, together with any other illiquid investments, will not exceed 15% of the Funds net
assets. See Additional Investment Policies Illiquid Securities.
Stripped mortgage securities are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage assets. A common
type of stripped mortgage security will have one class receiving some of the interest and most of
the principal from the mortgage assets, while the other class will receive most of the interest and
the remainder of the principal. In the most extreme case, one class will receive all of the
interest (the interest only or IO class), while the other class will receive all of the principal
(the principal only or PO class). The yield to maturity on an IO class is extremely sensitive to
changes in prevailing interest rates and the rate of principal payments (including prepayments) on
the related underlying mortgage assets. A rapid rate of principal payments may have a material
adverse effect on an investing funds yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, such fund may fail to fully recoup
its initial investment in these securities even if the securities are rated highly.
As interest rates rise and fall, the value of IOs tends to move in the same direction as interest
rates. The value of the other mortgage securities described in the Prospectus and this SAI, like
other debt instruments, will tend to move in the opposite direction to interest rates.
Accordingly, investing in IOs, in conjunction with the other mortgage securities described in the
Prospectus and this SAI, is expected to contribute to the Funds relatively stable NAV.
Under the Code, POs may generate taxable income from the current accrual of original issue
discount, without a corresponding distribution of cash to the Fund.
Types of Credit Support. Mortgage securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the impact of an obligors failure to make
payments on underlying assets, mortgage securities may contain elements of credit support. A
discussion of credit support is described under Asset-Backed Securities.
16
Asset-Backed Securities
The securitization techniques used to develop mortgage securities also are being applied to a broad
range of other assets. Through the use of trusts and special purpose corporations, automobile and
credit card receivables are being securitized in pass-through structures similar to mortgage
pass-through structures or in a pay-through structure similar to the CMO structure.
Generally, the issuers of asset-backed bonds, notes or pass-through certificates are special
purpose entities and do not have any significant assets other than the receivables securing such
obligations. In general, the collateral supporting asset-backed securities is of a shorter
maturity than mortgage loans. As a result, investment in these securities should be subject to
less volatility than mortgage securities. Instruments backed by pools of receivables are similar
to mortgage-backed securities in that they are subject to unscheduled prepayments of principal
prior to maturity. When the obligations are prepaid, the Fund must reinvest the prepaid amounts in
securities with the prevailing interest rates at the time. Therefore, the Funds ability to
maintain an investment, including high-yielding asset-backed securities, will be affected adversely
to the extent that prepayments of principal must be reinvested in securities that have lower yields
than the prepaid obligations. Moreover, prepayments of securities purchased at a premium could
result in a realized loss. Unless otherwise stated in the Prospectus, the Fund will only invest in
asset-backed securities rated, at the time of purchase, AA or better by S&P or Fitch or Aa or
better by Moodys. As with mortgage securities, asset-backed securities are often backed by a pool of assets
representing the obligation of a number of different parties and use similar credit enhancement
techniques. For a description of the types of credit enhancement that may accompany asset-backed
securities, see Types of Credit Support below. The Fund will not limit its investments in
asset-backed securities to those with credit enhancements. Although asset-backed securities are
not generally traded on a national securities exchange, such securities are widely traded by
brokers and dealers, and will not be considered illiquid securities for the purposes of the
investment restriction on illiquid securities under Additional Investment Policies.
Types of Credit Support. To lessen the impact of an obligors failure to make payments on
underlying assets, mortgage securities and asset-backed securities may contain elements of credit
support. Such credit support falls into two categories:
|
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liquidity protection; and |
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default protection. |
Liquidity protection refers to the provision of advances, generally by the entity administering the
pool of assets, to ensure that the pass-through of payments due on the underlying pool of assets
occurs in a timely fashion. Default protection provides protection against losses resulting from
ultimate default and enhances the likelihood of ultimate payment of the obligations on at least a
portion of the assets in the pool. This protection may be provided through guarantees, insurance
policies or letters of credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of such approaches. The Fund will
not pay any additional fees for such credit support, although the existence of credit support may
increase the price of a security.
Some examples of credit support include:
|
|
|
senior-subordinated securities (multiple class securities with one or more classes
subordinate to other classes as to the payment of principal thereof and interest thereon,
with the result that defaults on the underlying assets are borne first by the holders of
the subordinated class); |
|
|
|
creation of reserve funds (where cash or investments, sometimes funded from a portion
of the payments on the underlying assets, are held in reserve against future losses); and |
|
|
|
over-collateralization (where the scheduled payments on, or the principal amount of,
the underlying assets exceed those required to make payment on the securities and pay any
servicing or other fees). |
The ratings of mortgage securities and asset-backed securities for which third-party credit
enhancement provides liquidity protection or default protection are generally dependent upon the
continued creditworthiness of the provider of the credit enhancement. The ratings of these
securities could be reduced in the event of deterioration in the creditworthiness of the credit
enhancement provider even in cases where the delinquency and loss experienced
17
on the underlying
pool of assets is better than expected.
The degree of credit support provided for each issue is generally based on historical information
concerning the level of credit risk associated with the underlying assets. Delinquency or loss
greater than anticipated could adversely affect the return on an investment in mortgage securities
or asset-backed securities.
Collateralized Debt Obligations. The Fund may invest in collateralized debt obligations (CDOs),
which include collateralized bond obligations (CBOs), collateralized loan obligations (CLOs)
and other similarly structured securities. CBOs and CLOs are types of asset-backed securities. A
CBO is a trust that is backed by a diversified pool of high risk, below investment grade fixed
income securities. A CLO is a trust typically collateralized by a pool of loans, which may
include, among others, domestic and foreign senior secured loans, senior unsecured loans, and
subordinate corporate loans, including loans that may be rated below investment grade or equivalent
unrated loans.
For both CBOs and CLOs, the cash flows from the trust are split into two or more portions, called
tranches, varying in risk and yield. The riskiest portion is the equity tranche that bears the
bulk of defaults from the bonds or loans in the CBO trust or CLO trust, as applicable, and serves
to protect the other, more senior tranches from default in all but the most severe circumstances.
Since it is partially protected from defaults, a senior tranche from a CBO trust or CLO trust
typically has higher ratings and lower yields than their underlying securities, and can be rated
investment grade. Despite the protection from the equity tranche, CBO or CLO tranches can
experience substantial losses due to actual defaults, increased sensitivity to defaults due to
collateral default and disappearance of protecting tranches, market anticipation of defaults, as
well as aversion to CBO or CLO securities as a class. In the case of both the equity tranche and
the CBO or CLO tranches, the market prices of and yields on tranches with longer terms to maturity
tend to be more volatile than tranches with shorter terms to maturity due to the greater volatility
and uncertainty of cash flows.
The risks of an investment in a CDO depend largely on the type of the collateral securities and the
class of the CDO in which the Fund invests. Normally, CBOs, CLOs and other CDOs are privately
offered and sold, and thus, are not registered under the securities laws. As a result, investments
in CDOs may be characterized by the Fund as illiquid securities; however, an active dealer market
may exist for CDOs allowing a CDO to qualify for Rule 144A transactions. In addition to the normal
risks associated with fixed income securities discussed elsewhere in this SAI and the Prospectus
(e.g., interest rate risk and default risk), CDOs carry additional risks including, but are not
limited to: (i) the possibility that distributions from collateral securities will not be adequate
to make interest or other payments; (ii) the quality of the collateral may decline in value or
default; (iii) the Fund may invest in CDOs that are subordinate to other classes and, therefore,
receive payments only after the obligations of the more senior class have been satisfied; and (iv)
the complex structure of the security may not be fully understood at the time of investment and may
produce disputes with the issuer or unexpected investment results.
Natural Disasters and Adverse Weather Conditions. Certain areas of the world historically
have been prone to major natural disasters, such as hurricanes, earthquakes, typhoons, flooding,
tidal waves, tsunamis, erupting volcanoes, wildfires or droughts, and have been economically
sensitive to environmental events. Such disasters, and the resulting damage, could have a severe
and negative impact on the Funds investment portfolio and, in the longer term, could impair the
ability of issuers in which the Fund invests to conduct their businesses in the manner normally
conducted. Adverse weather conditions also may have a particularly significant negative effect on
issuers in the agricultural sector and on insurance companies that insure against the impact of
natural disasters.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will not be
changed without approval of a majority of the Funds outstanding voting securities that, as used in
the Prospectus and this SAI, means approval by the lesser of (1) the holders of 67% or more of the
Funds shares represented at a meeting if more than 50% of the Funds outstanding shares are
present in person or by proxy at that meeting or (2) more than 50% of the Funds outstanding
shares.
|
(1) |
|
The Fund may not issue senior securities, except as permitted under the 1940 Act. |
18
|
(2) |
|
The Fund may not borrow money, except from banks as a temporary measure for
extraordinary emergency purposes in amounts not to exceed 33 1/3% of the Funds total
assets (including the amount borrowed) taken at market value. The Fund will not use
leverage to attempt to increase income. The Fund will not purchase securities while
outstanding borrowings exceed 5% of the Funds total assets. |
|
(3) |
|
The Fund may not engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an underwriter in connection with
the disposition of portfolio securities. |
|
(4) |
|
The Fund may not purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments secured by real estate
or interests therein, except that the Fund reserves freedom of action to hold and to sell
real estate acquired as a result of the Funds ownership of securities. |
|
(5) |
|
The Fund may not make loans except as permitted under the 1940 Act. |
|
(6) |
|
The Fund may invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except interest rate futures contracts, options on securities,
securities indices, currency and other financial instruments and options on such futures
contracts, forward foreign currency exchange contracts, forward commitments, securities
index put or call warrants and repurchase agreements entered into in accordance with the
Funds investment policies. |
|
(7) |
|
The Fund may not concentrate its investments in a particular industry, as that term is
used in the 1940 Act. |
|
(8) |
|
The Fund has elected to be treated as a diversified investment company, as that term is
used in the 1940 Act. |
Except with respect to borrowing money, if a percentage restriction on investment or utilization of
assets as set forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Funds assets will not be considered a
violation of the restriction.
Non-fundamental Investment Restrictions. The following investment restrictions are
designated as non-fundamental and may be changed by the Board without shareholder approval:
The Fund may not:
|
(a) |
|
Participate on a joint or joint-and-several basis in any securities trading account.
The bunching of orders for the sale or purchase of marketable portfolio securities with
other accounts under the management of the Adviser to save commissions or to average prices
among them is not deemed to result in a securities trading account. |
|
(b) |
|
Purchase securities on margin or make short sales, except margin deposits in connection
with transactions in options, futures contracts, options on futures contracts and other
arbitrage transactions or unless by virtue of its ownership of other securities, the Fund
has the right to obtain securities equivalent in kind and amount to the securities sold
and, if the right is conditional, the sale is made upon the same conditions, except that
the Fund may obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities and in connection with transactions involving forward
foreign currency exchange transactions. |
|
(c) |
|
Invest for the purpose of exercising control over or management of any company. |
|
(d) |
|
Invest more than 15% of its net assets in illiquid securities. |
Except with respect to borrowing money, if a percentage restriction on investment or utilization of
assets as set forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Funds assets will not be considered a
violation of the restriction.
19
The Fund will invest only in countries on the Advisers Approved Country Listing. The Approved
Country Listing is a list maintained by the Advisers investment department that outlines all
countries, including the United States, that have been approved for investment by funds managed by
the Adviser.
If allowed by the Funds other investment policies and restrictions, the Fund may invest up to 5%
of its total assets in Russian equity securities and up to 10% of its total assets in Russian fixed
income securities. All Russian securities must be: (1) denominated in U.S. dollars, Canadian
dollars, euros, sterling, or yen; (2) traded on a major exchange and (3) held physically outside of
Russia.
Investment Policy that May be Changed Only on 60 Days Notice to Shareholders. In order to comply
with Rule 35d-1 under the 1940 Act, the 80% investment policy for the Fund is subject to change
only upon 60 days prior notice to shareholders.
PORTFOLIO TURNOVER
The annual rate of portfolio turnover may vary from year to year as well as within a year. A high
rate of portfolio turnover (100% or more) generally involves correspondingly greater brokerage
commission expenses, which must be borne directly by the Fund. Portfolio turnover is calculated by
dividing the lesser of purchases or sales of Fund portfolio securities during the fiscal year by
the monthly average of the value of the Funds portfolio securities. (Excluded from the
computation are all securities, including options, with maturities at the time of acquisition of
one year or less). The portfolio turnover rates for the Fund for the fiscal years ended May 31,
2010 and May 31, 2011 were 88% and 73%, respectively.
DISCLOSURE OF PORTFOLIO HOLDINGS
The Board has adopted a Policy Regarding Disclosure of Portfolio Holdings to protect the interests
of the shareholders of the Fund and to address potential conflicts of interest that could arise
between the interests of shareholders and the interests of the Adviser, the Subadviser or principal
underwriter, or affiliated persons of the Adviser, Subadviser or principal underwriter. The
Trusts general policy with respect to the release of portfolio holdings to nonaffiliated persons
is to do so only in limited circumstances and only to provide nonpublic information regarding
portfolio holdings to any person, including affiliated persons, on a need to know basis and, when
released, to release such information only as consistent with applicable legal requirements and the
fiduciary duties owed to shareholders. The Trust applies its policy uniformly to all parties,
including individual and institutional investors, intermediaries, affiliated persons of the Fund,
and to all third party service providers and rating agencies.
Portfolio holdings information that is not publicly available will be released only pursuant to the
exceptions described in the Policy Regarding Disclosure of Portfolio Holdings. Material nonpublic
holdings information may be provided to nonaffiliated persons as part of the investment activities
of the Fund to: entities that, by explicit agreement, are required to maintain the confidentiality
of the information disclosed; rating organizations, such as Moodys, S&P, Fitch, Morningstar and
Lipper; or other entities for the purpose of compiling reports and preparing data; proxy voting
services for the purpose of voting proxies; entities providing computer software; courts (including
bankruptcy courts) or regulators with jurisdiction over the Trust, and its affiliates; and,
institutional traders to assist in research and trade execution. Exceptions to the portfolio
holdings release policy can only be approved by the Trusts Chief Compliance Officer (CCO) or his
duly authorized delegate after considering: (a) the purpose of providing such information; (b) the
procedures that will be used to ensure that such information remains confidential and is not traded
upon; and (c) whether such disclosure is in the best interest of the shareholders.
At this time, the entities receiving information described in the preceding paragraph are:
APL/Checkfree (daily portfolio accounting); Advent Software (third party reconciliation); BBH
(third party reconciliation); BNY Mellon (middle office functions); BNP Paribas (holdings/activity,
daily); Broadridge Financial Solutions, Inc. (proxy votes, daily); Capital Institutional Services,
Inc. (rebalancing strategy); Electra Information Systems (third party reconciliation); Elkins
McSherry LLC (BoNY) (commission tracking); EVARE (holdings, daily and month end); FactSet
(holdings, daily); GCom2 (portfolio listings); GainsKeeper (wash sale & REIT adjustment
monitoring);
20
Goldman Sachs Agency Lending (holdings/pricing, daily); ITG Solutions Network, Inc.
(trade execution analysis); Institutional Shareholder Services, Inc. (proxy voting); Mellon Bank NA
(outsourcing back office operations); NASDQ (NAVs, daily); PricewaterhouseCoopers LLP (holdings,
various audit cycles); Proxy Edge (ADP) (proxy voting); RiskMetrics Group (proxy voting); SEI (OMS
platform); State Street Bank and Trust Company (custody, pricing, daily); Thompson Financial
(Baseline) (portfolio pricing); and Vestek (holdings, 30 day delay).
The CCO also is required to pre-approve the disclosure of nonpublic information regarding portfolio
holdings to any affiliated persons of the Trust. The CCO will use the same three considerations
stated above before approving disclosure of nonpublic information to affiliated persons.
The CCO shall report to the Board whenever additional disclosures of portfolio holdings are
approved. The CCOs report shall be at the Board meeting following such approval. When the CCO
believes that the disclosure of nonpublic information to a nonaffiliated person is a potential
conflict of interest between the interest of the shareholders and the interest of affiliated
persons of the Trust, the CCO shall refer the conflict to the Board. The Board shall then only
permit such disclosure of the nonpublic information if, in its reasonable business judgment, it
concludes such disclosure will be in the best interests of the Trusts shareholders.
The receipt of compensation by the Fund, the Adviser, the Subadviser or an affiliate as
consideration for disclosing nonpublic portfolio holdings information is not deemed a legitimate
business purpose and is strictly forbidden.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees of the Trust, including certain Trustees who
are not interested persons (as defined by the 1940 Act) of the Fund (the Independent Trustees),
who elect officers who are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Board. Several of the officers and Trustees of the Fund also are
officers or Directors of the Adviser, or officers and Directors of the Funds principal
distributor, John Hancock Funds, LLC (the Distributor). Each Trustee serves in a similar
capacity for other John Hancock funds. The address of each Trustee and officer is 601 Congress
Street, Boston, Massachusetts 02210. Each Trustee holds office for an indefinite term until his or
her successor is duly elected and qualified or until he/she dies, retires, resigns, is removed or
becomes disqualified. Hugh McHaffie was appointed to the Board on August 31, 2010 and each other
current Trustee was most recently elected to the Board by the Trusts shareholders on April 16,
2009.
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Interested Trustees |
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Number of |
|
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|
|
|
|
Funds in John |
|
|
|
|
|
|
Hancock Fund |
|
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|
|
|
Complex |
Name |
|
Position with |
|
Principal Occupation(s) and Other |
|
Overseen by |
(Birth Year) |
|
the Trust |
|
Directorships During the Past 5 Years |
|
Trustee |
Hugh
McHaffie(1)
(1959)
|
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Trustee
(since 2010)
|
|
Executive Vice President, John
Hancock Financial Services (since 2006, including prior positions);
President of John Hancock Variable
Insurance Trust and John Hancock
Funds II (since 2009); Trustee, John
Hancock retail funds (since 2010)
Chairman and Director, John Hancock
Advisers, LLC, John Hancock
Investment Management Services, LLC
and John Hancock Funds, LLC (since
2010); Senior Vice President,
Individual Business Product
Management, MetLife, Inc.
(1999-2006).
|
|
|
46 |
|
21
|
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|
|
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|
|
Interested Trustees |
|
|
|
|
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Number of |
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|
|
|
|
Funds in John |
|
|
|
|
|
|
Hancock Fund |
|
|
|
|
|
|
Complex |
Name |
|
Position with |
|
Principal Occupation(s) and Other |
|
Overseen by |
(Birth Year) |
|
the Trust |
|
Directorships During the Past 5 Years |
|
Trustee |
John G.
Vrysen(1)
(1955)
|
|
Trustee
(since 2009)
|
|
Senior Vice President, John Hancock
Financial Services (since 2006);
Director, Executive Vice President
and Chief Operating Officer, John
Hancock Advisers, LLC, John Hancock
Investment Management Services, LLC
and John Hancock Funds, LLC (since
2005); Chief Operating Officer, John
Hancock Funds II and John Hancock
Variable Insurance Trust (since
2007); Chief Operating Officer, John
Hancock retail funds (until 2009);
Trustee, John Hancock retail
funds(2) (since 2009).
|
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46 |
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(1) |
|
The Trustee is an Interested Trustee due to his position with the Adviser and
certain of its affiliates. |
|
(2) |
|
John Hancock retail funds is comprised of the series of John Hancock Funds III
and 12 other investment companies (including the Trust), as well as ten closed-end funds. |
|
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Independent Trustees |
|
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|
|
|
Number of |
|
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|
|
Funds in |
|
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|
|
|
John |
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|
Hancock |
|
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|
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|
Fund |
|
|
Position(s) |
|
|
|
Complex |
Name |
|
with the |
|
Principal Occupation(s) and Other |
|
Overseen by |
(Birth Year) |
|
Trust |
|
Directorships During the Past 5 Years |
|
Trustee |
James F.
Carlin
(1940)
|
|
Trustee
(since 2006)
|
|
Chief Executive Officer, Director
and Treasurer, Alpha Analytical
Laboratories (environmental,
chemical and pharmaceutical
analysis) (since 1985); Part Owner
and Treasurer, Lawrence Carlin
Insurance Agency, Inc. (since
1995); Chairman and Chief Executive
Officer, CIMCO, LLC
(management/investments) (since
1987).
|
|
|
46 |
|
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|
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|
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|
|
|
William H.
Cunningham
(1944)
|
|
Trustee
(since 2006)
|
|
Professor, University of Texas,
Austin, Texas (since 1971); former
Chancellor, University of Texas
System and former President of the
University of Texas, Austin, Texas;
Director of the following: LIN
Television (since 2009); Lincoln
National Corporation (insurance)
(Chairman since 2009 and Director
since 2006); Resolute Energy
Corporation (since 2009);
Nanomedical Systems, Inc.
(biotechnology company) (Chairman
since 2008); Yorktown Technologies,
LP (tropical fish) (Chairman since
2007); Greater Austin Crime
Commission (since 2001); Southwest
Airlines (since 2000); former
Director of the following: Introgen
(manufacturer of biopharmaceuticals)
(until 2008); Hicks Acquisition
Company I, Inc. (until 2007);
Jefferson-Pilot Corporation
(diversified life insurance company)
(until 2006); and former Advisory
Director, JP Morgan Chase Bank
(formerly Texas Commerce
BankAustin) (until 2009).
|
|
|
46 |
|
22
|
|
|
|
|
|
|
|
|
Independent Trustees |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Funds in |
|
|
|
|
|
|
John |
|
|
|
|
|
|
Hancock |
|
|
|
|
|
|
Fund |
|
|
Position(s) |
|
|
|
Complex |
Name |
|
with the |
|
Principal Occupation(s) and Other |
|
Overseen by |
(Birth Year) |
|
Trust |
|
Directorships During the Past 5 Years |
|
Trustee |
Deborah C.
Jackson
(1952)
|
|
Trustee
(since 2008)
|
|
President, Cambridge College,
Cambridge, Massachusetts (since May
2011); Chief Executive Officer,
American Red Cross of Massachusetts
Bay (2002-May 2011); Board of
Directors of Eastern Bank
Corporation (since 2001); Board of
Directors of Eastern Bank Charitable
Foundation (since 2001); Board of
Directors of American Student
Assistance Corporation (1996-2009);
Board of Directors of Boston Stock
Exchange (20022008); Board of
Directors of Harvard Pilgrim
Healthcare (health benefits company)
(2007-2011).
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
Charles L.
Ladner
(1938)
|
|
Trustee
(since 2006)
Vice
Chairperson
(since 2011)
|
|
Chairman and Trustee, Dunwoody
Village, Inc. (retirement services)
(since 2008); Director, Philadelphia
Archdiocesan Educational Fund (since
2009); Senior Vice President and
Chief Financial Officer, UGI
Corporation (public utility holding
company) (retired 1998); Vice
President and Director for AmeriGas,
Inc. (retired 1998); Director of
AmeriGas Partners, L.P. (gas
distribution) (until 1997);
Director, EnergyNorth, Inc. (until
1995); Director, Parks and History
Association (Cooperating
Association, National Park Service)
(until 2005).
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
Stanley
Martin
(1947)
|
|
Trustee
(since 2008)
|
|
Senior Vice President/Audit
Executive, Federal Home Loan
Mortgage Corporation (20042006);
Executive Vice President/Consultant,
HSBC Bank USA (20002003); Chief
Financial Officer/Executive Vice
President, Republic New York
Corporation & Republic National Bank
of New York (19982000); Partner,
KPMG LLP (19711998).
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
Patti McGill
Peterson(1)
(1943)
|
|
Trustee
(since 2006)
|
|
Chairperson of the Board of the
Trust (2008-2011); Principal, PMP
Globalinc (consulting) (since 2007);
Senior Associate, Institute for
Higher Education Policy (since
2007); Executive Director, CIES
(international education agency)
(until 2007); Vice President,
Institute of International Education
(until 2007); Senior Fellow, Cornell
University Institute of Public
Affairs, Cornell University
(19971998); Former President Wells
College, St. Lawrence University
and the Association of Colleges and
Universities of the State of New
York. Director of the following:
|
|
|
46 |
|
|
|
|
|
Niagara Mohawk Power Corporation
(until 2003); Security Mutual Life
(insurance) (until 1997); ONBANK
(until 1993). Trustee of the
following: Board of Visitors, The
University of Wisconsin, Madison
(since 2007); Ford Foundation,
International Fellowships Program
(until 2007); UNCF, International
Development Partnerships (until
2005); Roth Endowment (since 2002);
Council for International
Educational Exchange (since 2003). |
|
|
|
|
23
|
|
|
|
|
|
|
|
|
Independent Trustees |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Funds in |
|
|
|
|
|
|
John |
|
|
|
|
|
|
Hancock |
|
|
|
|
|
|
Fund |
|
|
Position(s) |
|
|
|
Complex |
Name |
|
with the |
|
Principal Occupation(s) and Other |
|
Overseen by |
(Birth Year) |
|
Trust |
|
Directorships During the Past 5 Years |
|
Trustee |
John A.
Moore
(1939)
|
|
Trustee
(since 2006)
|
|
President and Chief Executive
Officer, Institute for Evaluating
Health Risks, (nonprofit
institution) (until 2001); Senior
Scientist, Sciences International
(health research) (until 2003);
Former Assistant Administrator &
Deputy Administrator, Environmental
Protection Agency; Principal,
Hollyhouse (consulting) (since
2000); Director, CIIT Center for
Health Science Research (nonprofit
research) (until 2007).
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
Steven R.
Pruchansky(1)
(1944)
|
|
Trustee
(since 2006)
Chairperson
(since 2011)
|
|
Chairman and Chief Executive
Officer, Greenscapes of Southwest
Florida, Inc. (since 2000); Director
and President, Greenscapes of
Southwest Florida, Inc. (until
2000); Member, Board of Advisors,
First American Bank (until 2010);
Managing Director, Jon James, LLC
(real estate) (since 2000);
Director, First Signature Bank &
Trust Company (until 1991);
Director, Mast Realty Trust (until
1994); President, Maxwell Building
Corp. (until 1991).
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
Gregory A.
Russo
(1949)
|
|
Trustee
(since 2009)
|
|
Vice Chairman, Risk & Regulatory
Matters, KPMG LLP (KPMG)
(20022006); Vice Chairman,
Industrial Markets, KPMG
(19982002).
|
|
|
46 |
|
|
|
|
(1) |
|
Mr. Pruchansky succeeded Ms. McGill Peterson as Chairperson effective January 1,
2011. |
24
|
|
|
|
|
|
|
|
|
Principal Officers who are not Trustees |
|
|
Position(s) |
|
|
|
|
Name |
|
Held with the |
|
Officer |
|
|
(Birth Year) |
|
Trust |
|
since |
|
Principal Occupation(s) During Past 5 Years |
Keith F. Hartstein
(1956)
|
|
President and
Chief
Executive
Officer
|
|
|
2005 |
|
|
Senior Vice President, John Hancock
Financial Services (since 2004); Director,
President and Chief Executive Officer,
John Hancock Advisers, LLC and John
Hancock Funds, LLC (since 2005); Director,
John Hancock Asset Management a division
of Manulife Asset Management (US) LLC
(since 2005); Director, John Hancock
Investment Management Services, LLC (since
2006); President and Chief Executive
Officer, John Hancock retail funds (since
2005); Member, Investment Company
Institute Sales Force Marketing Committee
(since 2003). |
|
|
|
|
|
|
|
|
|
Andrew G. Arnott
(1971)
|
|
Senior Vice
President and
Chief
Operating
Officer
|
|
|
2009 |
|
|
Senior Vice President, John Hancock
Financial Services (since 2009); Executive
Vice President, John Hancock Advisers, LLC
(since 2005); Executive Vice President,
John Hancock Investment Management
Services, LLC (since 2006); Executive Vice
President, John Hancock Funds, LLC (since
2004); Chief Operating Officer, John
Hancock retail funds (since 2009); Senior
Vice President, John Hancock retail funds
(since 2010) Vice President, John Hancock
Funds II and John Hancock Variable
Insurance Trust (since 2006); Senior Vice
President, Product Management and
Development, John Hancock Funds, LLC
(until 2009). |
|
|
|
|
|
|
|
|
|
Thomas M.
Kinzler
(1955)
|
|
Secretary and
Chief Legal
Officer
|
|
|
2006 |
|
|
Vice President, John Hancock Financial
Services (since 2006); Secretary and Chief
Legal Counsel, John Hancock Advisers, LLC,
John Hancock Investment Management
Services, LLC, and John Hancock Funds, LLC
(since 2007); Secretary and Chief Legal
Officer, John Hancock retail funds, John
Hancock Funds II, and John Hancock
Variable Insurance Trust (since 2006);
Vice President and Associate General
Counsel, Massachusetts Mutual Life
Insurance Company (19992006); Secretary
and Chief Legal Counsel, MML Series
Investment Fund (20002006); Secretary and
Chief Legal Counsel, MassMutual Select
Funds and MassMutual Premier Funds
(20042006). |
|
|
|
|
|
|
|
|
|
Francis V. Knox,
Jr.
(1947)
|
|
Chief
Compliance
Officer
|
|
|
2005 |
|
|
Vice President, John Hancock Financial
Services (since 2005); Chief Compliance
Officer, John Hancock retail funds, John
Hancock Funds II, John Hancock Variable
Insurance Trust, John Hancock Advisers,
LLC and John Hancock Investment Management
Services, LLC (since 2005); Vice President
and Chief Compliance Officer, John Hancock
Asset Management a division of Manulife
Asset Management (US) LLC(20052008). |
25
|
|
|
|
|
|
|
|
|
Principal Officers who are not Trustees |
|
|
Position(s) |
|
|
|
|
Name |
|
Held with the |
|
Officer |
|
|
(Birth Year) |
|
Trust |
|
since |
|
Principal Occupation(s) During Past 5 Years |
Charles A. Rizzo
(1957)
|
|
Chief
Financial
Officer
|
|
|
2007 |
|
|
Vice President, John Hancock Financial
Services (since 2008); Senior Vice
President, John Hancock Advisers, LLC and
John Hancock Investment Management
Services, LLC (since 2008); Chief
Financial Officer, John Hancock retail
funds, John Hancock Funds II and John
Hancock Variable Insurance Trust (since
2007); Assistant Treasurer, Goldman Sachs
Mutual Fund Complex (20052007); Vice
President, Goldman Sachs (20052007). |
|
|
|
|
|
|
|
|
|
Salvatore
Schiavone
(1965)
|
|
Treasurer
|
|
|
2010 |
|
|
Assistant Vice President, John Hancock
Financial Services (since 2007); Vice
President, John Hancock Advisers, LLC and
John Hancock Investment Management
Services, LLC (since 2007); Treasurer,
John Hancock retail funds (since 2010);
Treasurer, John Hancock closed-end funds
(since 2009); Assistant Treasurer, John
Hancock Funds II and John Hancock Variable
Insurance Trust (since 2010); Assistant
Treasurer, John Hancock retail funds, John
Hancock Funds II and John Hancock Variable
Insurance Trust (2007-2009); Assistant
Treasurer, Fidelity Group of Funds
(20052007); Vice President, Fidelity
Management Research Company (20052007). |
Additional Information About the Trustees
In addition to the description of each Trustees Principal Occupation(s) and Other Directorships
set forth above, the following provides further information about each Trustees specific
experience, qualifications, attributes or skills. The information in this section should not be
understood to mean that any of the Trustees is an expert within the meaning of the federal
securities laws.
Although the Boards Nominating, Governance and Administration Committee has general criteria that
guides its choice of candidates to serve on the Board (as discussed below under Board
Committees), there are no specific required qualifications for Board membership. The Board
believes that the different perspectives, viewpoints, professional experience, education, and
individual qualities of each Trustee represent a diversity of experiences and a variety of
complementary skills. Each Trustee has experience as a Trustee of the Trust, as well as experience
as a Trustee of other John Hancock funds. It is the Trustees belief that this allows the Board,
as a whole, to oversee the business of the Fund in a manner consistent with the best interests of
the Funds shareholders. When considering potential nominees to fill vacancies on the Board, and
as part of its annual self-evaluation, the Board reviews the mix of skills and other relevant
experiences of the Trustees.
James F. Carlin As a senior officer of a scientific testing laboratory, insurance companies
and management companies, Mr. Carlin has experience in the management of operating and finance
companies. He also has experience as a board member of other entities.
William H. Cunningham Mr. Cunningham has management and operational oversight experience as
a former Chancellor and President of a major university. Mr. Cunningham has expertise in corporate
governance as a Professor of business ethics. He also has oversight and corporate governance
experience as a current and former director of a number of operating companies, including an
insurance company.
Deborah C. Jackson Ms. Jackson has management and operational oversight experience as the
president of a college and as the former chief executive officer of a major charitable
organization. She also has oversight and
26
corporate governance experience as a current and former
director of various corporate organizations, including a bank, an insurance company and a regional
stock exchange, and nonprofit entities.
Charles L. Ladner Mr. Ladner has management and financial experience as a senior executive
of a retirement services company and a former senior executive of public utility companies,
including serving in the role of chief financial officer. He also has oversight and corporate
governance experience as a current and former director of various corporate and nonprofit entities.
Mr. Ladner, an Independent Trustee, serves as the Boards Vice Chairperson.
Stanley Martin As a certified public accountant and former partner in a major independent
certified public accounting firm, Mr. Martin has accounting and executive experience. Mr. Martin
also has experience as a former senior officer of a federal government-sponsored entity and of two
major banks.
Hugh McHaffie Through his positions as a senior executive of Manulife Financials U.S.
Wealth Management division, his prior position as a senior executive of MetLife, and membership in
the Society of Actuaries and American Academy of Actuaries, Mr. McHaffie has experience in the
development and management of registered investment companies, variable annuities and retirement
products, enabling him to provide management input to the Board.
Patti McGill Peterson Ms. McGill Peterson has planning and management advisory experience as
principal of a consulting firm. She also has management and operational oversight experience as a
former college and university president. She also has oversight and corporate governance
experience as a current and former director of various corporate organizations, including a bank
and an insurance company, and nonprofit entities.
John A. Moore Dr. Moore has management and operational oversight experience from his current
and former positions as a senior executive of scientific research organizations and as a senior
administrator of the Environmental Protection Agency. He also has oversight and corporate
governance experience as a director of a scientific research organization.
Steven R. Pruchansky Mr. Pruchansky has entrepreneurial, executive and financial experience
as a chief executive officer of an operating services company and a current and former director of
real estate and banking companies. Mr. Pruchansky, an Independent Trustee, serves as the Boards
Chairperson.
Gregory A. Russo As a certified public accountant and former partner in a major independent
registered public accounting firm, Mr. Russo has accounting and executive experience.
John G. Vrysen Through his positions as Director, Executive Vice President and Chief
Operating Officer of the Adviser, position as a senior executive of Manulife Financial, the
Advisers parent company, positions with other affiliates of the Adviser, and current and former
memberships in the Society of Actuaries, Canadian Institute of Actuaries and American Academy of
Actuaries, Mr. Vrysen has experience in the development and management of registered investment
companies, variable annuities and retirement products, enabling him to provide management input to
the Board.
Duties of Trustees; Board Meetings and Board Committees
The Trust is organized as a Massachusetts business trust. Under the Declaration of Trust, the
Trustees are responsible for managing the affairs of the Trust, including the appointment of
advisers and subadvisers. Each Trustee has the experience, skills, attributes or qualifications
described above (see Principal Occupation(s) and Other Directorships and Additional Information
About the Trustees above). The Board appoints officers who assist in managing the day-to-day
affairs of the Trust. The Board met six times during the latest fiscal year.
The Board has appointed an Independent Trustee as Chairperson. The Chairperson presides at
meetings of the Trustees and may call meetings of the Board and any Board committee whenever he
deems it necessary. The Chairperson participates in the preparation of the agenda for meetings of
the Board and the identification of information to be presented to the Board with respect to
matters to be acted upon by the Board. The Chairperson also acts as a liaison with the Funds
management, officers, attorneys, and other Trustees generally between
27
meetings. The Chairperson
may perform such other functions as may be requested by the Board from time to time. The Board has
also designated a Vice Chairperson to serve in the absence of the Chairperson, who also serves as
Chairman of the Boards Nominating, Governance and Administration Committee. Except for any duties
specified in this SAI or pursuant to the Trusts Declaration of Trust or By-laws, or as assigned by
the Board, the designation of a Trustee as Chairperson or Vice Chairperson does not impose on that
Trustee any duties, obligations or liability that are greater than the duties, obligations or
liability imposed on any other Trustee, generally. The Board has designated a number of standing
committees as further described below, each of which has a Chairman. The Board also designates
working groups or ad hoc committees as it deems appropriate.
The Board believes that this leadership structure is appropriate because it allows the Board to
exercise informed and independent judgment over matters under its purview, and it allocates areas
of responsibility among committees or working groups of Trustees and the full Board in a manner
that enhances effective oversight. The Board considers leadership by an Independent Trustee as
Chairperson to be integral to promoting effective independent oversight of the Funds operations
and meaningful representation of the shareholders interests, given the amount of assets that the
Fund represents. The Board also believes that having a super-majority of Independent Trustees is
appropriate and in the best interest of the Funds shareholders. Nevertheless, the Board also
believes that having interested persons serve on the Board brings corporate and financial
viewpoints that are, in the Boards view, helpful elements in its decision-making process. In
addition, the Board believes that Mr. McHaffie and Mr. Vrysen, each of whom is a senior executive
of the Adviser, Manulife Financial (the Advisers parent company), and of other affiliates of the
Adviser, provide the Board with the Advisers perspective in managing and sponsoring the Fund. The
leadership structure of the Board may be changed, at any time and in the discretion of the Board,
including in response to changes in circumstances or the characteristics of the Trust.
Board Committees
The Board has five standing committees: the Audit Committee; the Compliance Committee; the
Nominating, Governance and Administration Committee; Investment Performance Committee A; and the
Contracts/Operations Committee.
The current membership of each committee is set forth below. As Chairperson of the Board, Mr.
Pruchansky is considered an ex officio member of each committee and, therefore, is able to attend
and participate in any committee meeting, as appropriate. As Chairperson for the two-year period
ended December 31, 2010, Ms. McGill Peterson was an ex officio member of each committee.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominating, |
|
|
|
|
|
|
|
|
Governance and |
|
Investment |
|
Contracts/ |
Audit |
|
Compliance |
|
Administration |
|
Performance A |
|
Operations |
Ms. Jackson
|
|
Mr. Carlin
|
|
All Independent
|
|
Ms. Jackson
|
|
All Independent |
Mr. Ladner
|
|
Mr. Cunningham
|
|
Trustees
|
|
Mr. Ladner
|
|
Trustees |
Mr. Martin
|
|
Dr. Moore
|
|
|
|
Mr. Martin |
|
|
Ms. McGill Peterson
|
|
Mr. Russo
|
|
|
|
Ms. McGill Peterson |
|
|
|
|
|
|
|
|
Mr. Vrysen |
|
|
Audit Committee. All of the members of this Committee are independent, and each member is
financially literate with at least one having accounting or financial management expertise. The
Board has adopted a written charter for the Committee. This Committee recommends to the full Board
independent registered public accounting firms for the Fund, oversees the work of the independent
registered public accounting firm in connection with the Funds audit, communicates with the
independent registered public accounting firm on a regular basis and provides a forum for the
independent registered public accounting firm to report and discuss any matters it deems
appropriate at any time. Mr. Martin serves as Chairman of this Committee. The Audit Committee
held four meetings during the last fiscal year.
Compliance Committee. The primary role of this Committee is to oversee the activities of the
Trusts Chief Compliance Officer; the implementation and enforcement of the Trusts compliance
policies and procedures; and
28
compliance with the Trusts and the Independent Trustees Codes of
Ethics. Mr. Russo serves as Chairman of this Committee. This Committee held four meetings during
the last fiscal year.
Nominating, Governance and Administration Committee. This Committee is comprised of all of the
Independent Trustees. This Committee periodically reviews the Boards committee structure,
conducts an annual self-assessment, and makes the final selection and nomination of candidates to
serve as Independent Trustees. The Interested Trustees and the officers of the Trust are nominated
and selected by the Board. Mr. Pruchansky serves as Chairman of this Committee. This Committee
held three meetings during the last fiscal year.
In reviewing a potential nominee and in evaluating the renomination of current Independent
Trustees, this Committee generally will apply the following criteria: (i) the nominees reputation
for integrity, honesty and adherence to high ethical standards; (ii) the nominees business acumen,
experience and ability to exercise sound judgments; (iii) a commitment to understand the Fund and
the responsibilities of a trustee of an investment company; (iv) a commitment to regularly attend
and participate in meetings of the Board and its committees; (v) the ability to understand
potential conflicts of interest involving management of the Fund and to act in the interests of all
shareholders; and (vi) the absence of a real or apparent conflict of interest that would impair the
nominees ability to represent the interests of all the shareholders and to fulfill the
responsibilities of an Independent Trustee. This Committee does not necessarily place the same
emphasis on each criteria and each nominee may not have each of these qualities.
As long as an existing Independent Trustee continues, in the opinion of this Committee, to satisfy
these criteria, the Trust anticipates that the Committee would favor the renomination of an
existing Independent Trustee rather than a new candidate. Consequently, while this Committee will
consider nominees recommended by shareholders to serve as Independent Trustees, the Committee may
only act upon such recommendations if there is a vacancy on the Board or a committee determines
that the selection of a new or additional Independent Trustee is in the best interests of the Fund.
In the event that a vacancy arises or a change in Board membership is determined to be advisable,
this Committee will, in addition to any shareholder recommendations, consider candidates identified
by other means, including candidates proposed by members of this Committee. This Committee may
retain a consultant to assist it in a search for a qualified candidate, and did so in 2008. The
Committee has adopted Procedures for the Selection of Independent Trustees.
Any shareholder recommendation for Independent Trustee must be submitted in compliance with all of
the pertinent provisions of Rule 14a-8 under the Securities Exchange Act of 1934, as amended, to be
considered by this Committee. In evaluating a nominee recommended by a shareholder, this
Committee, in addition to the criteria discussed above, may consider the objectives of the
shareholder in submitting that nomination and whether such objectives are consistent with the
interests of all shareholders. If the Board determines to include a shareholders candidate among
the slate of nominees, the candidates name will be placed on the Trusts proxy card. If this
Committee or the Board determines not to include such candidate among the Boards designated
nominees and the shareholder has satisfied the requirements of Rule 14a-8, the shareholders
candidate will be treated as a nominee of the shareholder who originally nominated the candidate.
In that case, the candidate will not be named on the proxy card distributed with the Trusts proxy
statement.
Shareholders may communicate with the Trustees as a group or individually. Any such communication
should be sent to the Board or an individual Trustee c/o The Secretary of the Trust at the
following address: 601 Congress Street, Boston, Massachusetts 02210-2805. The Secretary may
determine not to forward any letter to Trustees that does not relate to the business of the Fund.
Investment Performance Committee A. This Committee monitors and analyzes the performance of the
Fund generally, consults with the Adviser as necessary if the Fund requires special attention, and
reviews peer groups and other comparative standards as necessary. Mr. Ladner serves as Chairman of
this Committee. This Committee held six meetings during the last fiscal year.
Contracts/Operations Committee. This Committee is comprised of all of the Independent Trustees.
This Committee oversees the initiation, operation, and renewal of the various contracts between the
Fund and other entities. These contracts include advisory and subadvisory agreements, custodial
and transfer agency agreements
29
and arrangements with other service providers. Dr. Moore serves as
Chairman of this Committee. This Committee held three meetings during the last fiscal year.
Annually, the Board evaluates its performance and that of its Committees, including the
effectiveness of the Boards Committee structure.
Risk Oversight
As a registered investment company, the Fund is subject to a variety of risks, including investment
risks, financial risks, compliance risks, and operational risks. As part of its overall
activities, the Board oversees the management of the Funds risk management structure by various
departments of the Adviser, including: Investment Management Services Group (which oversees the
Funds subadvisers and investment management operations) (IMS), Fund Administration, Legal, the
Product Group (which oversees new product development and marketplace positioning), and Internal
Audit; as well as by the Trusts Chief Compliance Officer (CCO). The responsibility to manage
the Funds risk management structure on a day-to-day basis is subsumed within the Advisers overall
investment management responsibilities. The Adviser has its own, independent interest in risk
management. The Advisers risk management program is part of the overall risk management
program of John Hancock, the Advisers parent company.
The Board recognizes that it is not possible to identify all of the risks that may affect the Fund
or to develop processes and controls to eliminate or mitigate their occurrence or effects. The
Board discharges risk oversight as part of its overall activities, with the assistance of its
Investment Performance, Audit, Compliance, and Contracts/Operations Committees. In addressing
issues regarding the Funds risk management between meetings, appropriate representatives of the
Adviser communicate with the Chairperson of the Board, the relevant Committee Chair or the Trusts
CCO, who is directly accountable to the Board. As appropriate, the Chairperson of the Board and
the Committee Chairs confer among themselves, with the Trusts CCO, the Adviser, other service
providers, external Fund counsel, and counsel to the Independent Trustees, to identify and review
risk management issues that may be placed on the full Boards agenda and/or that of an appropriate
Committee for review and discussion with management.
The Audit Committee assists the Board in reviewing with the independent auditors, at various times
throughout the year, matters relating to financial reporting matters. In addition, this Committee
oversees the process of the Funds valuation of its portfolio securities, with day-to-day
responsibility for valuation determinations having been delegated to the Funds Pricing Committee
(comprised of officers of the Trust).
Investment Performance Committee A assists the Board in overseeing the significant investment
policies of the Fund. The Adviser monitors these policies and may recommend changes to this
Committee in response to Subadviser requests or other circumstances. On a quarterly basis, this
Committee reviews reports from IMS and the Product Group regarding the Funds investment
performance, which include information about investment risks and how they are managed.
The Compliance Committee assists the Board in overseeing the activities of the Trusts CCO with
respect to the compliance programs of the Fund, the Adviser, the Subadviser, and certain of the
Funds other service providers (the distributor and transfer agent). This Committee and the Board
receive and consider the CCOs annual written report, which, among other things, summarizes
material compliance issues that arose during the previous year and any remedial action taken to
address these issues, as well as any material changes to the compliance programs. This Committee
and the Board also receive and consider reports from the Trusts CCO throughout the year. As part
of its oversight responsibilities, the Board has approved various compliance policies and
procedures.
Each of the above Board Committees meets at least quarterly. Each Committee presents reports to
the Board, which may prompt further discussion of issues concerning the oversight of the Funds
risk management. The Board also may discuss particular risks that are not addressed in the
Committee process.
The Contracts/Operations Committee assists the Board in overseeing the Advisers management of the
Funds operational risks, particularly as it regards vendor management and the quality of services
provided by various service providers. This Committee periodically reviews reports from Fund
Administration on these issues and
30
discusses its findings with the Board. Among other things, in
its annual review of the Funds advisory, sub-advisory and distribution agreements, this Committee
and the Board receive and review information provided by the Adviser, the Subadviser and the
distributor relating to their operational capabilities, financial condition and resources.
The Nominating, Governance and Administration Committee, among other matters, periodically reviews
the Boards committee structure and the charters of the Boards committees, and recommends to the
Board such changes as it deems appropriate. This Committee also coordinates and administers an
annual self-evaluation of the Board that includes a review of its effectiveness in overseeing the
number of funds in the fund complex and the effectiveness of its committee structure. The Board
may, at any time and in its discretion, change the manner in which it conducts its risk oversight
role.
The Adviser also has its own, independent interest in risk management. In this regard, the Adviser
has appointed a Risk and Investment Operations Committee, consisting of senior personnel from each
of the Advisers functional departments. This Committee reports periodically to the Board on risk
management matters. The Advisers risk management program is part of the overall risk management
program of John Hancock, the Advisers parent company. John Hancocks Chief Risk Officer supports
the Advisers risk management program, and at the Boards request will report on risk management
matters.
Independent Trustee Compensation
The Trust pays fees only to its Independent Trustees. Trustees are reimbursed for travel and other
out-of-pocket expenses. The following table shows the compensation paid to each Independent
Trustee for his or her service as a Trustee for the most recent calendar year.
|
|
|
|
|
|
|
|
|
Independent Trustee |
|
Trust |
|
|
John Hancock Fund Complex* |
|
Carlin |
|
$ |
6,330 |
|
|
$ |
179,000 |
|
Cunningham |
|
$ |
7,532 |
|
|
$ |
203,500 |
|
Jackson |
|
$ |
6,641 |
|
|
$ |
253,000 |
|
Ladner |
|
$ |
7,368 |
|
|
$ |
207,000 |
|
Martin |
|
$ |
7,368 |
|
|
$ |
274,000 |
|
McGill Peterson |
|
$ |
9,774 |
|
|
$ |
269,000 |
|
Moore |
|
$ |
7,463 |
|
|
$ |
211,000 |
|
Pruchansky |
|
$ |
7,987 |
|
|
$ |
226,000 |
|
Russo |
|
$ |
7,287 |
|
|
$ |
278,000 |
|
|
|
|
* |
|
These Trustees oversee 46 series in the John Hancock Fund Complex, which consists of 261
series overall. The Trust does not have a pension or retirement plan for any of its Trustees
or officers. The Trust participates in the John Hancock Deferred Compensation Plan for
Independent Trustees (the Plan). Under the Plan, an Independent Trustee may elect to have
his or her deferred fees invested in shares of one or more funds in the John Hancock Fund
Complex and the amount paid to the Independent Trustees under the Plan will be determined
based upon the performance of such investments. Deferral of Trustees fees does not obligate
the Trust to retain the services of any Trustee or obligate the Trust to pay any particular
level of compensation to the Trustee. Under these circumstances, the Trustee is not the legal
owner of the underlying shares, but does participate in any positive or negative return on
those shares to the same extent as all other shareholders. As of December 31, 2010, the value
of the aggregate accrued deferred compensation amount from all funds in the John Hancock Fund
Complex for Mr. Cunningham was $258,573; Mr. Ladner was $85,518; Ms. McGill Peterson was
$272,501; Dr. Moore was $353,339; Mr. Pruchansky was $414,498; and Mr. Martin was $69,005
under the Plan. |
Trustee Ownership of Shares of the Fund
The table below sets forth the dollar range of the value of the shares of the Fund, and the dollar
range of the aggregate value of the shares of all funds in the John Hancock Fund Complex overseen
or to be overseen by a Trustee, owned beneficially by each Trustee as of December 31, 2010. The
current value of the funds that the participating Independent Trustees have selected under the Plan
is included in this table. For purposes of this table, beneficial ownership is defined to mean a
direct or indirect pecuniary interest. Exact dollar amounts of securities held are not listed in
the table. Rather, the ranges are identified according to the following key:
31
A-$0
B -$1 up to and including $10,000
C -$10,001 up to and including $50,000
D -$50,001 up to and including $100,000
E -$100,001 or more
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund/Trustee |
|
Carlin |
|
Cunningham |
|
Jackson |
|
Ladner |
|
Martin |
|
McHaffie |
Bond Fund
|
|
B
|
|
A
|
|
A
|
|
B
|
|
A
|
|
A |
John Hancock Fund
Complex
|
|
E
|
|
E
|
|
D
|
|
E
|
|
E
|
|
E |
|
|
|
|
|
|
|
|
|
|
|
Fund/Trustee |
|
McGill Peterson |
|
Moore |
|
Pruchansky |
|
Russo |
|
Vrysen |
Bond Fund
|
|
D
|
|
C
|
|
C
|
|
A
|
|
C |
John Hancock Fund Complex
|
|
E
|
|
E
|
|
E
|
|
D
|
|
E |
All of the officers listed are officers or employees of the Adviser or affiliated companies. Some
of the Trustees and officers also may be officers and/or directors and/or Trustees of one or more
of the other funds for which the Adviser or an affiliate of the Adviser serves as investment
adviser.
As of the date of this SAI, the Adviser owned 100% of the Class R6 shares of the Fund and,
accordingly, is deemed to control that class of shares of the Fund.
As of the date of this SAI, the Trustees and officers of the Trust, in the aggregate, beneficially
owned less than 1% of the outstanding shares of any class of shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
Advisory Agreement. The Adviser is a Delaware limited liability corporation whose principal
offices are located at 601 Congress Street, Boston, Massachusetts 02210. The ultimate parent of
the Adviser is Manulife Financial based in Toronto, Canada. Manulife Financial is the holding
company of The Manufacturers Life Insurance Company (the Life Company) and its subsidiaries. The
Adviser is registered as an investment adviser under the Investment Advisers Act of 1940, as
amended.
The Subadviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199, was organized in
1979 and as of June 30, 2011 had approximately $124.5 billion in assets under management. The
Subadviser is a wholly owned indirect subsidiary of John Hancock Life Insurance Company (U.S.A.)
(an indirect wholly owned subsidiary of Manulife Financial).
The Adviser serves as investment adviser to the Fund and is responsible for the supervision of the
Subadvisers services to the Fund.
The Fund has entered into an investment management contract (the Advisory Agreement) with the
Adviser. Pursuant to the Advisory Agreement, the Adviser provides investment advisory services to
the Fund. On May 5, 2009, the Funds shareholders approved a new form of Advisory Agreement that
streamlines and standardizes the advisory agreements across the John Hancock Fund Complex. The new
form of Advisory Agreement became effective July 1, 2009.
The Adviser and the Fund have entered into a Sub-Advisory Agreement with the Subadviser under which
the Subadviser, subject to the review of the Trustees and the overall supervision of the Adviser,
is responsible for managing the investment operations of the Fund and the composition of the Funds
portfolio and furnishing the Fund with advice and recommendations with respect to investments,
investment policies and the purchase and sale of securities.
As compensation for its advisory services under the Advisory Agreement, the Adviser receives a fee
from the Fund. The amount of the advisory fee is determined by applying the daily equivalent of an
annual fee rate to the net assets of the Fund. On May 5, 2009, the shareholders also approved
provisions that effectively change the frequency with
32
which advisory fees are paid by the Fund from monthly payment to daily payment. Because the Funds
advisory fees have historically been accrued on a daily basis, there is no difference between the
amounts that the Fund would have paid if daily payment of advisory fees were in effect in prior
periods instead of monthly payment.
Pursuant to the Advisory Agreement, the Adviser selects, contracts with, and compensates
subadvisers to manage the investment and reinvestment of the assets of the Fund. The Adviser
monitors each subadvisers management of the Funds investment operations in accordance with the
investment objectives and related policies of the Fund, and reviews the performance of such
Subadvisers and reports periodically on such performance to the Board.
The Fund bears all the costs of its organization and operation, including but not limited to
expenses of preparing, printing and mailing all shareholders reports, notices, prospectuses, proxy
statements and reports to regulatory agencies; expenses relating to the issuance, registration and
qualification of shares; government fees; interest charges; expenses of furnishing to shareholders
their account statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses pursuant to the Funds
plan of distribution; fees and expenses of custodians including those for keeping books and
accounts maintaining a committed line of credit and calculating the NAV of shares; fees and
expenses of transfer agents and dividend disbursing agents; legal, accounting, financial,
management, tax and auditing fees and expenses of the Fund; the compensation and expenses of
Trustees who are not otherwise affiliated with the Trust, the Adviser or any of their affiliates;
expenses of Trustees and shareholders meetings; trade association memberships (as explicitly
approved by the Trustees); insurance premiums; and any extraordinary expenses.
From time to time, the Adviser may reduce its fee or make other arrangements to limit the Funds
expenses to a specified percentage of average daily net assets. The Adviser retains the right to
re-impose a fee and recover other payments to the extent that, at the end of any fiscal year, the
Funds actual expenses at year end fall below this limit.
Advisory Fees. The following table shows the advisory fees that the Fund incurred and paid
to the Adviser for: (i) the fiscal year ended May 31, 2009; (ii) the fiscal year ended May 31,
2010; and (iii) the fiscal year ended May 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended |
|
|
Fiscal Year Ended |
|
|
Fiscal Year Ended |
|
May 31, 2009 |
|
|
May 31, 2010 |
|
|
May 31, 2011 |
|
|
Gross Fees |
|
|
Waivers |
|
|
Net Fees |
|
|
Gross Fees |
|
|
Waivers |
|
|
Net Fees |
|
|
Gross Fees |
|
|
Waivers |
|
|
Net Fees |
|
$ |
3,955,448 |
|
|
$ |
0 |
|
|
$ |
3,955,448 |
|
|
$ |
4,265,780 |
|
|
$ |
0 |
|
|
$ |
4,265,780 |
|
|
$ |
5,042,013 |
|
|
$ |
0 |
|
|
$ |
5,042,013 |
|
Securities held by the Fund also may be held by other funds or investment advisory clients for
which the Subadviser or its affiliates provide investment advice. Because of different investment
objectives or other factors, a particular security may be bought for one or more funds or clients
when one or more other funds or clients are selling the same security. If opportunities for
purchase or sale of securities by the Subadviser for the Fund or for other funds or clients for
which the Subadviser renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the respective funds or
clients in a manner deemed equitable to all of them. To the extent that transactions on behalf of
more than one client of the Subadviser or its affiliates may increase the demand for securities
being purchased or the supply of securities being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement, the Adviser is not liable for any error of judgment or mistake
of law or for any loss suffered by the Fund in connection with the matters to which the Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its duties or from its reckless disregard of its
obligations and duties under the Agreement.
Under the Advisory Agreement, the Fund may use the name John Hancock or any name derived from or
similar to it only for so long as the Agreement or any extension, renewal or amendment thereof
remains in effect. If the Agreement is no longer in effect, the Fund (to the extent that it
lawfully can) will cease to use such name or any other name indicating that it is advised by or
otherwise connected with the Adviser. In addition, the Adviser or the Life Company may grant the
nonexclusive right to use the name John Hancock or any similar name to any other corporation or
entity, including but not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any subsidiary or affiliate
thereof shall be the investment adviser.
33
The continuation of the Advisory Agreement, the Distribution Agreement (discussed below), and the
Sub-Advisory Agreement was approved by all Trustees. The Advisory Agreement, Sub-Advisory
Agreement and the Distribution Agreement will continue in effect from year to year, provided that
its continuance is approved annually both (i) by the holders of a majority of the outstanding
voting securities of the Trust or by the Trustees, and (ii) by a majority of the Trustees who are
not parties to the Agreement or interested persons of any such parties. Each of these Agreements
may be terminated on 60 days written notice by either party or by vote of a majority of the
outstanding voting securities of the Fund and will terminate automatically if assigned. The
Sub-Advisory Agreement terminates automatically upon the termination of the Advisory Agreement.
Personnel of the Adviser and its affiliates may trade securities for their personal accounts. The
Fund also may hold, or may be buying or selling, the same securities. To prevent the Fund from
being disadvantaged, the Adviser, Subadviser, the Distributor and the Trust have adopted codes of
ethics that restrict the trading activity of those personnel.
Accounting and Legal Services Agreement. Prior to July 1, 2009, the Trust, on behalf of
the Fund, was a party to an Accounting and Legal Services Agreement with the Adviser and its
affiliates under which the Fund previously received Non-Advisory Services (as described below
under Service Agreement). The following table shows the fee that the Fund incurred and paid to
the Adviser for Non-Advisory Services under this Agreement for: (i) the fiscal year ended May 31,
2009; and (ii) the period from June 1, 2009 through June 30, 2009.
|
|
|
Accounting and Legal Service Fee |
Fiscal Year Ended |
|
Period Ended |
May 31, 2009 |
|
June 30, 2009 |
$132,990
|
|
$12,540 |
Service Agreement. Effective as of July 1, 2009, the Fund operates under a Service
Agreement with the Adviser, which replaced the prior Accounting and Legal Services Agreement, under
which the Fund had previously received Non-Advisory Services. These Non-Advisory Services include,
but are not limited to, legal, tax, accounting, valuation, financial reporting and performance,
compliance, service provider oversight, portfolio and cash management, Securities and Exchange
Commission (SEC) filings, graphic design, and other services that are not investment advisory in
nature. The Adviser is reimbursed for its costs in providing Non-Advisory Services to the Fund
under the Service Agreement.
The following table shows the fee that the Fund paid to the Adviser for Non-Advisory Services under
the Services Agreement for: (i) the period from July 1, 2009 through May 31, 2010; and (ii) the
fiscal year ended May 31, 2011.
|
|
|
Service Agreement Fee |
Period Ended |
|
Fiscal Year Ended |
May 31, 2010 |
|
May 31, 2011 |
$136,568
|
|
$148,374 |
The Adviser is not liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Service Agreement relates, except losses
resulting from willful misfeasance, bad faith or negligence by the Adviser in the performance of
its duties or from reckless disregard by John Hancock of its obligations under the Agreement.
The Service Agreement had an initial term of two years, and shall continue hereafter so long as
such continuance is specifically approved at least annually by a majority of the Board and a
majority of the Independent Trustees. The Trust, on behalf the Fund, or the Adviser may terminate
the Agreement at any time without penalty on 60 days written notice to the other party. The
Agreement may be amended by mutual written agreement of the parties, without obtaining shareholder
approval.
34
Advisers and Subadvisers Other Business Relationships. A description of business relationships
among the Adviser, the Subadviser, John Hancock Investment Management Services, LLC (JHIMS),
other John Hancock funds subadvisers and Manulife Financials affiliates is below:
Subadvisory Arrangements
Epoch Investment Partners, Inc. (Epoch), Fiduciary Management Associates, LLC (FMA), Grantham,
Mayo, Van Otterloo & Co. LLC (GMO), John Hancock Asset Management a division of Manulife Asset
Management (North America) Limited, John Hancock Asset Management, Pzena Investment Management, LLC
(Pzena), Rainier Investment Management Inc. (Rainier), and Robeco Investment Management, Inc.
(Robeco) serve as subadvisers to certain of the John Hancock retail funds. Each subadviser
provides investment management services to its funds pursuant to subadvisory agreements with its
investment adviser. Under the terms of each subadvisory agreement, the subadviser manages the
investment and reinvestment of the assets of its relevant funds, subject to the supervision of the
Board and a funds investment adviser. Each subadviser formulates a continuous investment program
for each of its funds consistent with the funds investment objective and policies, as outlined in
a funds prospectus. Each subadviser implements this program by purchases and sales of securities
and regularly reports to its investment adviser and the Board with respect to the implementation of
the program. Each subadviser, at its expense, furnishes all necessary investment and management
facilities, including salaries of personnel required for it to execute its duties, as well as
administrative facilities, including bookkeeping, clerical personnel, and equipment necessary for
the conduct of the investment affairs of its relevant funds.
FMA Business Arrangement. In connection with the reorganization of FMA Small Company Portfolio
into John Hancock Small Company Fund, a JHF III fund, JHIMS and FMA have entered into an overall
business arrangement under which FMA has agreed not to offer investment management services to
certain other registered investment companies that have similar investment strategies to the Fund
it manages for JHIMS for a certain period of time. JHIMS has agreed that under certain
circumstances it (and not John Hancock Small Company Fund or JHF III) will pay to FMA specified
amounts for a period of five years. In addition, as a further part of this arrangement, JHIMS has
agreed that, under certain circumstances, it (and not John Hancock Small Company Fund or JHF III)
will pay to FMA a specified amount if the FMA subadvisory agreement for John Hancock Small Company
Fund is terminated within the five-year period. Neither JHF III nor either of John Hancock Small
Company Fund or FMA Small Company Portfolio is a party to any of these arrangements, and they are
not binding upon either of these funds or their respective Boards of Trustees. These arrangements
present certain conflicts of interest, however, because JHIMS has a financial incentive to support
the continuation of the FMA subadvisory agreement for as long as these arrangements remain in
effect. In approving John Hancock Small Company Funds advisory and subadvisory agreements, the
JHF III Board, including the Independent Trustees, was aware of and considered these potential
conflicts of interest, including any financial obligations of JHIMS to FMA.
Rainier Business Arrangement. In connection with the reorganization of Rainier Large Cap Growth
Equity Portfolio into John Hancock Rainier Growth Fund, a JHF III fund, Rainier and JHIMS have
entered into an overall business arrangement under which Rainier has agreed not to offer investment
management services to certain competitors of JHIMS for the investment strategies it manages for
JHIMS for a period of four years following the closing of the reorganization. As part of this
arrangement, JHIMS has agreed that, under certain circumstances, it (and not John Hancock Rainier
Growth Fund or JHF III) will pay to Rainier specified amounts for a certain period of time. As a
further part of this arrangement, JHIMS has agreed that, under certain circumstances, it (and not
John Hancock Rainier Growth Fund or JHF III) will pay to Rainier a specified amount if the Rainier
subadvisory agreement for John Hancock Rainier Growth Fund is terminated within a four year period
after the closing of the reorganization. Neither JHF III nor either of John Hancock Rainier Growth
Fund or Rainier Large Cap Growth Equity Portfolio is a party to any of these arrangements, and they
are not binding upon either of these funds or their respective Boards of Trustees. These
arrangements present certain conflicts of interest, however, because JHIMS has a financial
incentive to support the continuation of the Rainier subadvisory agreement for as long as these
arrangements remain in effect. In approving the Funds advisory and subadvisory agreements, the
JHF III Board, including the Independent Trustees, was aware of and considered these potential
conflicts of interest, including any financial obligations of JHIMS to Rainier.
Robeco Business Arrangement. In connection with the reorganization of Robeco Boston Partners Large
Cap Value Fund into John Hancock Disciplined Value Fund, a JHF III fund, JHIMS and Robeco have
entered into an overall
35
business arrangement under which Robeco has agreed not to offer investment management services to
another registered investment company, including funds of certain competitors of JHIMS that have
similar investment strategies to those it manages for JHIMS for a certain period of time. As a
further part of this arrangement, JHIMS has agreed that, under certain circumstances, it (and not
John Hancock Disciplined Value Fund or JHF III) will pay to Robeco a specified amount if the Robeco
subadvisory agreement for the Fund is terminated within a three-year period after the closing of
the reorganization. Neither JHF III nor either of John Hancock Disciplined Value Fund or Robeco
Boston Partners Large Cap Value Fund is a party to any of these arrangements, and they are not
binding upon either of these funds or their respective Boards of Trustees. These arrangements
present certain conflicts of interest, however, because JHIMS has a financial incentive to support
the continuation of the Robeco subadvisory agreement for as long as these arrangements remain in
effect. In approving the Funds advisory and subadvisory agreements, the JHF III Board, including
the Independent Trustees, was aware of and considered these potential conflicts of interest,
including any financial obligations of JHIMS to Robeco.
In connection with the reorganization of Robeco Partners Mid Cap Value Fund to John Hancock
Disciplined Value Mid Cap Fund, a JHF III fund, JHIMS and Robeco have entered into an overall
business arrangement under which Robeco has agreed not to offer investment management services to
another registered investment company of certain competitors of JHIMS that have similar investment
strategies to those it manages for JHIMS for a certain period of time. As part of this
arrangement, JHIMS has agreed that, in addition to the assets transferred from Robeco Partners Mid
Cap Value Fund to John Hancock Disciplined Value Mid Cap Fund at the closing of the reorganization
of the fund adoption, that John Hancock Disciplined Value Mid Cap Fund would have a specified
amount of total assets under management within eighteen (18) months after the closing. As a
further part of this arrangement, JHIMS has agreed that, under certain circumstances, it (and not
John Hancock Disciplined Value Mid Cap Fund or JHF III) will pay to Robeco a specified amount if
the Robeco subadvisory agreement for the Fund is terminated within a three-year period after the
closing of the reorganization. Neither JHF III nor either of John Hancock Disciplined Value Mid
Cap Fund or Robeco Boston Partners Mid Cap Value Fund is a party to any of these arrangements, and
they are not binding upon either of these funds or their respective Boards of Trustees. These
arrangements present certain conflicts of interest, however, because JHIMS has a financial
incentive to support the continuation of the Robeco subadvisory agreement for as long as these
arrangements remain in effect. In approving John Hancock Disciplined Value Mid Cap Funds advisory
and subadvisory agreements, the JHF III Board, including the Independent Trustees, was aware of and
considered these potential conflicts of interest, including any financial obligations of JHIMS to
Robeco.
Affiliated Subadvisers. The Adviser, JHIMS, and the following subadvisers are controlled
by Manulife Financial:
|
|
|
John Hancock Asset Management a division of Manulife Asset Management (US) LLC; and |
|
|
|
John Hancock Asset Management a division of Manulife Asset Management (North America)
Limited (collectively, Affiliated Subadvisers). |
Advisory arrangements involving Affiliated Subadvisers may present certain potential conflicts
of interest. For each fund subadvised by an Affiliated Subadviser, Manulife Financial will
benefit not only from the net advisory fee retained by the Adviser or JHIMS, as applicable, but
also from the subadvisory fee paid by the Adviser or JHIMS, as applicable, to the Affiliated
Subadviser. Consequently, Manulife may be viewed as benefiting financially from (i) the
appointment of or continued service of Affiliated Subadvisers to manage the funds; and (ii) the
allocation of the assets of funds of funds to underlying funds having Affiliated Subadvisers.
However, both the Adviser or JHIMS, as applicable, in recommending to the Board the appointment or
continued service of Affiliated Subadvisers and the Affiliated Subadvisers have a fiduciary duty to
act in the best interests of the Fund and its shareholders. In addition, the Fund is required to
obtain shareholder approval of any subadvisory agreement appointing an Affiliated Subadviser as the
subadviser to the Fund (in the case of a new fund, the initial sole shareholder of the fund, an
affiliate of the Adviser or JHIMS, as applicable, and Manulife, may provide this approval). The
Independent Trustees are aware of and monitor these potential conflicts of interest.
Proxy Voting. The Trusts proxy voting policies and procedures (the Trusts Procedures)
delegate to the Subadviser the responsibility to vote all proxies relating to securities held by
that portfolio in accordance with the Subadvisers proxy voting policies and procedures. The
Subadviser has a duty to vote such proxies in the best
interests of the Fund and its shareholders. Complete descriptions of the Trusts Procedures and
the proxy voting procedures of the Subadviser are set forth in Appendix B to this SAI.
36
It is possible that conflicts of interest could arise for the Subadviser when voting proxies. Such
conflicts could arise, for example, when the Subadviser or its affiliate has a client or other
business relationship with the issuer of the security being voted or with a third party that has an
interest in the vote. A conflict of interest also could arise when the Trust, its investment
adviser or principal underwriter or any of their affiliates has an interest in the vote.
In the event the Subadviser becomes aware of a material conflict of interest, the Trusts
Procedures generally require the Subadviser to follow any conflicts procedures that may be included
in the Subadvisers proxy voting procedures. Such conflicts procedures generally include the
following:
|
(a) |
|
voting pursuant to the recommendation of a third party voting service; |
|
(b) |
|
voting pursuant to pre-determined voting guidelines; or |
|
(c) |
|
referring voting to a special compliance or oversight committee. |
The specific conflicts procedures of the Subadviser are set forth in its proxy voting procedures
included in Appendix B. While these conflicts procedures may reduce, they will not necessarily
eliminate, any influence on proxy voting of conflicts of interest.
Although the Subadviser has a duty to vote all proxies on behalf of the Fund, it is possible that
the Subadviser may not be able to vote proxies under certain circumstances. For example, it may be
impracticable to translate in a timely manner voting materials that are written in a foreign
language or to travel to a foreign country when voting in person rather than by proxy is required.
In addition, if the voting of proxies for shares of a security prohibits the Subadviser from
trading the shares in the marketplace for a period of time, the Subadviser may determine that it is
not in the best interests of the Fund to vote the proxies. The Subadviser also may choose not to
recall securities that have been lent in order to vote proxies for shares of the security since the
Fund would lose security lending income if the securities were recalled.
Information regarding how the Trust voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30th is available (1) without charge, upon request, by
calling (800) 344-1029 (attention: Secretary) and (2) on
the SECs website at http://www.sec.gov.
Personnel of the Adviser and its affiliates may trade securities for their personal accounts. The
Fund also may hold, or may be buying or selling, the same securities. To prevent the Fund from
being disadvantaged, the Adviser, Subadviser, the Distributor, and the Trust each have adopted a
code of ethics which restricts the trading activity of those personnel.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO MANAGERS
Other Accounts the Portfolio Managers are Managing. The tables below indicate, for each portfolio
manager, information about the accounts for which the portfolio manager has day-to-day investment
responsibility. All information on the number of accounts and total assets in the tables is as of
May 31, 2011. For purposes of the tables, Other Pooled Investment Vehicles may include
investment partnerships and group trusts and Other Accounts may include separate accounts for
institutions or individuals, insurance company general or separate accounts, pension funds, and
other similar institutional accounts.
37
|
|
|
Portfolio Manager |
|
|
Name |
|
Other Accounts Managed by the Portfolio Manager |
Barry H. Evans, CFA
|
|
Other Registered Investment Companies: Ten (10) funds
with total assets of approximately $13.3 billion. |
|
|
|
|
|
Other
Pooled Investment Vehicles: None |
|
|
|
|
|
Other Accounts: Twenty-eight (28) accounts with total
assets of approximately $363.5 million. |
|
|
|
Jeffrey N. Given, CFA
|
|
Other Registered Investment Companies: Fifteen (15)
funds with total assets of approximately $17.5 billion. |
|
|
|
|
|
Other Pooled Investment Vehicles: Four (4) accounts
with total assets of approximately $213.2 million. |
|
|
|
|
|
Other Accounts: Nine (9) accounts with total assets of
approximately $2.3 billion. |
|
|
|
Howard C. Greene, CFA
|
|
Other Registered Investment Companies: Nine (9) funds
with total assets of approximately $8.2 billion. |
|
|
|
|
|
Other Pooled Investment Vehicles: Four (4) accounts
with total assets of approximately $213.2 million. |
|
|
|
|
|
Other Accounts: Nine (9) accounts with total assets of
approximately $2.3 billion. |
Performance-Based Fees for Other Accounts Managed. The Subadviser does not receive a fee based
upon the investment performance of any of the accounts included under Other Accounts Managed by
the Portfolio Managers in the table above.
Conflicts of Interest. When a portfolio manager is responsible for the management of more than one
account, the potential arises for the portfolio manager to favor one account over another. The
principal types of potential conflicts of interest that may arise are discussed below. For the
reasons outlined below, the Fund does not believe that any material conflicts are likely to arise
out of a portfolio managers responsibility for the management of the Fund as well as one or more
other accounts. The Subadviser has adopted procedures that are intended to monitor compliance with
the policies referred to in the following paragraphs. Generally, the risks of such conflicts of
interests are increased to the extent that a portfolio manager has a financial incentive to favor
one account over another. The Subadviser has structured its compensation arrangements in a manner
that is intended to limit such potential for conflicts of interests. See Compensation of
Portfolio Managers below.
|
|
|
A portfolio manager could favor one account over another in allocating new
investment opportunities that have limited supply, such as initial public offerings
(IPOs) and private placements. If, for example, an IPO that was expected to appreciate
in value significantly shortly after the offering was allocated to a single account, that
account may be expected to have better investment performance than other accounts that did
not receive an allocation on the IPO. The Subadviser has policies that require a portfolio
manager to allocate such investment opportunities in an equitable manner and generally to
allocate such investments proportionately among all accounts with similar investment
objectives. |
|
|
|
A portfolio manager could favor one account over another in the order in which
trades for the accounts are placed. If a portfolio manager determines to purchase a
security for more than one account in an aggregate amount that may influence the market
price of the security, accounts that purchased or sold the security
first may receive a more favorable price than accounts that made subsequent transactions.
The less liquid the market for the security or the greater the percentage that the proposed
aggregate purchases or sales |
38
|
|
|
represent of average daily trading volume, the greater the potential for accounts that make
subsequent purchases or sales to receive a less favorable price. When a portfolio manager
intends to trade the same security for more than one account, the policies of the
Subadviser generally require that such trades be bunched, which means that the trades for
the individual accounts are aggregated and each account receives the same price. There are
some types of accounts as to which bunching may not be possible for contractual reasons
(such as directed brokerage arrangements). Circumstances also may arise where the trader
believes that bunching the orders may not result in the best possible price. Where those
accounts or circumstances are involved, the Subadviser will place the order in a manner
intended to result in as favorable a price as possible for such client. |
|
|
|
A portfolio manager could favor an account if the portfolio managers
compensation is tied to the performance of that account rather than all accounts managed by
the portfolio manager. If, for example, the portfolio manager receives a bonus based upon
the performance of certain accounts relative to a benchmark while other accounts are
disregarded for this purpose, the portfolio manager will have a financial incentive to seek
to have the accounts that determine the portfolio managers bonus achieve the best possible
performance to the possible detriment of other accounts. Similarly, if the Subadviser
receives a performance-based advisory fee, the portfolio manager may favor that account,
whether or not the performance of that account directly determines the portfolio managers
compensation. The investment performance on specific accounts is not a factor in
determining the portfolio managers compensation. See Compensation of Portfolio Managers
below. The Subadviser does not receive a performance-based fee with respect to any of the
other accounts managed by the portfolio managers of the Fund described in this SAI. |
|
|
|
A portfolio manager could favor an account if the portfolio manager has a
beneficial interest in the account, in order to benefit a large client or to compensate a
client that had poor returns. For example, if the portfolio manager held an interest in an
investment partnership that was one of the accounts managed by the portfolio manager, the
portfolio manager would have an economic incentive to favor the account in which the
portfolio manager held an interest. The Subadviser imposes certain trading restrictions
and reporting requirements for accounts in which a portfolio manager or certain family
members have a personal interest in order to confirm that such accounts are not favored
over other accounts. |
|
|
|
If the different accounts have materially and potentially conflicting
investment objectives or strategies, a conflict of interest may arise. In making portfolio
manager assignments, the Subadviser seeks to avoid such potentially conflicting situations.
However, where a portfolio manager is responsible for accounts with differing investment
objectives and policies, it is possible that the portfolio manager will conclude that it is
in the best interest of one account to sell a portfolio security while another account
continues to hold or increase the holding in such security. While these accounts have many
similarities, the investment performance of each account will be different due to
differences in fees, expenses and cash flows. |
Compensation of Portfolio Managers. The Subadviser has adopted a system of compensation for
portfolio managers and others involved in the investment process that is applied systematically
among investment professionals. At the Subadviser, investment professionals are compensated with a
combination of base salary and performance bonuses (e.g., cash and deferral awards). The following
describes each component of the compensation package for the individuals identified as a portfolio
manager for the Funds.
|
|
|
Base salaries. Base salaries are market-based and fixed. Salary ranges are reviewed
and adjusted annually. Individual salary adjustments are based on individual performance
against mutually-agreed-upon objectives and development of technical and experiential
skills. |
|
|
|
Performance Bonuses. Performance bonuses take the form of cash and deferred incentives. |
|
|
|
Short-Term Cash Incentives. Short-term incentives take the form of annual cash
awards. Individual targets are market-based and actual awards are tied to performance
against various objective measures and on overall personal performance ratings. These
include: |
39
|
|
|
Investment Performance. The majority of the bonus considered under the
plan is based on investment performance of accounts managed by the investment
professional over one, three and five year periods are considered (to the extent
applicable). The pre-tax performance of each account is measured relative to an
appropriate benchmark or universe as identified in the table below. |
|
|
|
Financial Performance of the Subadviser. The financial performance of
the Subadviser and its parent corporation are also considered in determining bonus
awards. |
|
|
|
Non-Investment Performance. The more intangible contributions of an
investment professional to the Subadvisers business, including new strategy idea
generation, professional growth and development, and management, where applicable,
are evaluated in determining the amount of any bonus award. |
|
|
|
Long-Term Incentives. All investment professionals are eligible for participation
in a deferred incentive plan. 100% of the eligible awards are invested in the
strategies that the team manages as well as other strategies managed by other teams at
the Subadviser. We believe that owning units in the same strategies a team manages
aligns the performance goals of both client and manager giving the team added incentive
to act in the best interest of the Companys clients. |
As an added incentive, certain investment professionals (considered officers of Manulife Financial)
would receive a portion of their award in Manulife Restricted Share Units (RSUs) or stock
options. This plan is based on the value of the underlying common shares of Manulife Financial.
|
|
|
Fund |
|
Benchmark Index for Incentive Period |
Bond Fund
|
|
Morningstar US OE Intermediate Term Bond |
Share Ownership by Portfolio Managers. The following table indicates as of May 31, 2011 the value,
within the indicated range, of shares beneficially owned by the portfolio managers in the Fund.
For purposes of this table, the following letters represent the range indicated below:
A $0
B $1 $10,000
C $10,001 $50,000
D $50,001 $100,000
E $100,001 $500,000
F $500,001 $1,000,000
G More than $1 million
|
|
|
Portfolio Manager |
|
Range of Beneficial Ownership |
Barry H. Evans, CFA
|
|
B |
Jeffrey N. Given, CFA
|
|
E |
Howard C. Greene, CFA
|
|
E |
DISTRIBUTION CONTRACT
The Fund has a Distribution Agreement with John Hancock Funds, the Distributor. Under the
agreement the Distributor is obligated to use its best efforts to sell shares of each class of the
Fund. Shares of the Fund also are sold by selected broker-dealers, banks and registered investment
advisors (Selling Firms) that have entered into selling agreements with the Distributor. These
Selling Firms are authorized to designate other intermediaries to receive purchase and redemption
orders on behalf of the Fund. The Distributor accepts orders for the purchase of the shares of the
Fund that are continually offered at NAV next determined, plus any applicable sales charge, if any.
Class R6 shares of the Fund are offered without a front-end sales load or contingent deferred
sales charge (CDSC). In connection with the sale of certain other classes of Fund shares, the
Distributor and Selling Firms receive compensation from sales charges imposed at the time of sale.
In the case of certain other classes of Fund shares, Selling Firms receive compensation immediately
but the Distributor is compensated on a deferred basis. Neither the Distributor nor Selling Firms
receive any compensation with respect to the sale of Class R6 shares of the Fund.
40
Unlike other classes of the Funds shares, Class R6 shares of the Fund are not subject to a
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act (a Rule 12b-1 Plan).
Expenses associated with the obligation of the Distributor to use its best efforts to sell Class R6
shares will be paid by the Adviser or by the Distributor and will not be paid from the fees paid
under the Rule 12b-1 Plan for any other class of shares.
With respect to the Funds other share classes, the Distributor may make, either from Rule 12b-1
distribution fees or out of its own resources, additional payments to financial intermediaries
(firms), such as broker/dealers, banks, registered investment advisers, independent financial
planners, and retirement plan administrators. These payments are sometimes referred to as revenue
sharing. No such payments are made with respect to the Funds Class R6 shares.
The Distributor and its affiliates may have other relationships with firms relating to the
provisions of services to the Fund, such as effecting portfolio transactions for the Fund. If a
firm provides these services, the Adviser or the Fund may compensate the firm for these services.
In addition, a firm may have other compensated or uncompensated relationships with the Adviser or
its affiliates that are not related to the Fund.
Affiliated Underwriting Transactions by the Subadviser. The Fund has approved procedures
in conformity with Rule 10f-3 under the 1940 Act whereby the Fund may purchase securities that are
offered in underwritings in which an affiliate of the Subadviser participates. These procedures
prohibit the Fund from directly or indirectly benefiting a subadviser affiliate in connection with
such underwritings. In addition, for underwritings where a subadviser affiliate participates as a
principal underwriter, certain restrictions may apply that could, among other things, limit the
amount of securities that the Fund could purchase.
NET ASSET VALUE
The NAV for each class of the Fund is determined each business day at the close of regular trading
on the NYSE (typically 4:00 p.m. Eastern Time) by dividing a classs net assets by the number of
its shares outstanding. On any day an international market is closed and the NYSE is open, any
foreign securities will be valued at the prior days close with the current days exchange rate.
Trading of foreign securities may take place on Saturdays and U.S. business holidays on which the
Funds NAV is not calculated. Consequently, the Funds portfolio securities may trade and the NAV
of the Funds redeemable securities may be significantly affected on days when a shareholder has no
access to the Fund.
Portfolio securities are valued by various methods that are generally described below. As noted in
the Prospectus, portfolio securities also may be fair valued by the Funds Pricing Committee in
certain instances.
For purposes of calculating the Funds NAV, the following procedures are utilized wherever
applicable.
Equity Securities Traded on Stock Exchanges
Most equity securities that are traded on stock exchanges (including securities traded in both the
over-the-counter (OTC) market and on an exchange) are valued at the last sales prices as of the
close of the exchange in the principal market on which the security trades, or, lacking any sales,
at the closing bid prices. Certain exceptions exist. For example, securities traded on the London
Stock Exchange and NASDAQ are valued at the official closing price.
Securities Traded on the OTC Market
Securities traded only in the OTC market are generally valued at the last bid prices quoted by
brokers that make markets in the securities at the close of regular trading on the NYSE.
Debt Securities and Convertible Securities
41
Debt securities for which market quotations are readily available may be valued at market value
determined by the securitys most recent bid price (sales price if the principal market is an
exchange) in the principal market in which it is normally traded, as furnished by recognized
dealers in such securities. Debt securities (other than certain short term debt securities that
are valued at amortized cost) and convertible securities also may be valued on the basis of
information furnished by a pricing service. A number of pricing services are available and the
Fund may use various pricing services or discontinue the use of any pricing service.
Short Term Debt Instruments
Certain short term debt instruments will be valued on an amortized cost basis. Under this method
of valuation, the instrument is initially valued at cost. For securities purchased at a discount
or premium, the Fund assumes a constant proportionate amortization in value until maturity,
regardless of the impact of fluctuating interest rates on the market value of the instrument.
While the amortized cost method provides certainty in valuation, it may result in periods during
which value, as determined by amortized cost, is higher or lower than the price that would be
received upon sale of the instrument.
Open-End Investment Companies
Shares of other open-end investment companies are valued based on the NAV of those investment
companies.
Securities Denominated in Foreign Currencies
The value of securities denominated in foreign currencies is converted into U.S. dollars at the
prevailing exchange rate at the close of the NYSE.
Options and Futures Contracts
Exchange-traded options are valued at sale prices, if available, and at the mean of the bid and ask
prices if a sale price is unavailable.
Futures contracts are valued at the most recent settlement price.
Limited Partnerships and Pooled Investment Vehicles
The value of the Funds interest in entities such as limited partnerships and other pooled
investment vehicles, such as hedge funds, will be determined by fair valuation. In general, the
fair value of the Funds interest in a hedge fund will represent the amount that the Fund could
reasonably expect to receive from the hedge fund or from a third party if the Funds interest was
redeemed or sold at the time of valuation, based on information available at the time the valuation
is made that the Fund reasonably believes to be reliable. In determining fair value for
investments in a hedge fund, the Fund ordinarily may rely upon the fair value information provided
to it by the administrator for and/or manager of the hedge fund, computed in compliance with the
hedge funds valuation policies and procedures, in addition to any other relevant information
available at the time of valuation. In certain instances, the Funds Pricing Committee may
determine that a reported valuation does not reflect fair value, based on additional information
available or other factors, and may accordingly determine in good faith the fair value of the
assets, which may differ from the reported valuation.
Non-Negotiable Security
A non-negotiable security not treated as an illiquid security because it may be redeemed with the
issuer, subject to a penalty for early redemption, shall be assigned a value that takes into
account the reduced amount that would be received if it were liquidated at the time of valuation.
For purposes of calculating the Funds NAV, investment transactions are accounted for on a trade
date plus one basis (i.e., the business day following the trade date). However, for financial
reporting purposes, investment transactions are reported on the trade date.
42
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the redemption price of shares
of the Fund, in whole or in part, in portfolio securities as prescribed by the Trustees. When the
shareholder sells portfolio securities received in this fashion, the shareholder will incur a
brokerage charge. Any such securities would be valued for the purposes of making such payment at
the same value as used in determining NAV. The Fund has, however, elected to be governed by Rule
18f-1 under the 1940 Act. Under that rule, the Fund must redeem its shares for cash except to the
extent that the redemption payments to any shareholder during any 90-day period would exceed the
lesser of $250,000 or 1% of the Funds NAV at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class for shares of the
same class in any other John Hancock fund offering that same class. The registration for both
accounts involved must be identical. Identical registration is determined by having the same
beneficial owner on both accounts involved in the exchange.
Investors may exchange Class R6 shares for Class R6 shares of other John Hancock funds or Class A
shares of John Hancock Money Market Fund, a series of John Hancock Current Interest (the Money
Market Fund). If an investor exchanges Class R6 shares for Class A shares of the Money Market
Fund, any future exchanges out of the Money Market Fund Class A must be to another John Hancock
fund that offers Class R6 shares.
For one year following the commencement of operations of the Funds Class R6 shares, certain
holders of Class I shares of the Fund who are eligible to purchase Class R6 shares may exchange all
of their Class I shares for Class R6 shares of the Fund. In order to qualify for this privilege, a
Class I shareholder must: (i) own Class I shares of the Fund with a value greater than or equal to
$250,000; and (ii) not require the Fund or its affiliates to make any type of administrative
payments. Conversion of Class I shares to Class R6 shares of the same fund in these particular
circumstances does not cause the investor to realize taxable gain or loss. See Additional
Information Concerning Taxes for information regarding taxation upon the redemption or exchange of
shares of the Fund.
Exchanges between funds are based on their respective NAVs.
The Fund reserves the right to require that previously exchanged shares (and reinvested dividends)
be in the Fund for 90 days before a shareholder is permitted a new exchange.
An exchange of shares is treated as a redemption of shares of one fund and the purchase of shares
of another for federal income tax purposes. An exchange may result in a taxable gain or loss. See
Additional Information Concerning Taxes.
Section 403(b)(7) custodial accounts. Section 403(b)(7) of the Code permits public school
employers and employers of certain types of tax-exempt organizations to establish for their
eligible employees custodial accounts for the purpose of providing for retirement income for such
employees. Treasury regulations impose certain conditions on exchanges between one custodial
account intended to qualify under Section 403(b)(7) (the exchanged account) and another contract
or custodial account intended to qualify under Section 403(b) (the replacing account) under the
same employer plan (a Section 403(b) Plan). Specifically, the replacing account agreement must
include distribution restrictions that are no less stringent than those imposed under the exchanged
account agreement, and the employer must enter in an agreement with the custodian (or other issuer)
of the replacing account under which the employer and the custodian (or other issuer) of the
replacing account will from time to time in the future provide each other with certain information.
Due to these Regulations:
|
1) |
|
The Fund does not accept requests to establish new John Hancock
custodial 403(b)(7) accounts intended to qualify as a Section 403(b) Plan; and |
43
|
2) |
|
The Fund does not accept requests for exchanges or transfers into a
shareholders John Hancock custodial 403(b)(7) accounts (i.e., where it is the
replacing account); and |
|
3) |
|
The Fund requires certain signed disclosure documentation in the event: |
|
|
|
The shareholder established a John Hancock custodial
403(b)(7) account with the Fund prior to September 24, 2007; and |
|
|
|
The shareholder directs the Fund on or after September 25,
2007 to exchange or transfer some or all of its John Hancock custodial
403(b)(7) account assets to another 403(b) contract or account (i.e.,
where the exchanged account is with the fund). |
|
4) |
|
The Fund no longer accepts salary deferrals into 403(b)(7) accounts. |
In the event that the Fund does not receive the required documentation and a shareholder
nonetheless directs the Fund to proceed with the transfer, the transfer may be treated as a taxable
transaction.
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain Selling Firms. Selling Firms may
charge the investor additional fees for their services. The Fund will be deemed to have received a
purchase or redemption order when an authorized Selling Firm, or if applicable, a Selling Firms
authorized designee, receives the order. Orders may be processed at the NAV next calculated after
the Selling Firm receives the order. The Selling Firm must segregate any orders it receives after
the close of regular trading on the NYSE and transmit those orders to the Fund for execution at NAV
next determined. Some Selling Firms that maintain network/omnibus/nominee accounts with the Fund
for their clients charge an annual fee on the average net assets held in such accounts for
accounting, servicing, and distribution services they provide with respect to the underlying Fund
shares. This fee is paid by the Adviser, the Fund, and/or the Distributor.
DESCRIPTION OF FUND SHARES
The Board is responsible for the management and supervision of the Fund. The Declaration of Trust
permits the Trustees to issue an unlimited number of full and fractional shares of beneficial
interest of the Fund, without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate series, without further
action by shareholders. As of the date of this SAI, the Trustees have not authorized any
additional series of the Trust, other than the Fund, although they may do so in the future. The
Declaration of Trust also authorizes the Trustees to classify and reclassify the shares of the
Fund, or any new series of the Trust, into one or more classes. The Trustees have authorized the
issuance of five classes of shares of the Fund, designated as Class A, Class B, Class C, Class I,
and Class R6.
The shares of each class of the Fund represent an equal proportionate interest in the aggregate net
assets attributable to that class of the Fund. Holders of each class of shares have certain
exclusive voting rights on matters relating to their respective distribution plans. The different
classes of the Fund may bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of shares. The Fund no longer
issues share certificates. Shares are electronically recorded.
Dividends paid by the Fund, if any, with respect to each class of shares will be calculated in the
same manner, at the same time and on the same day and will be in the same amount, except for
differences resulting from the facts that: (i) the distribution and service fees relating to each
class of shares will be borne exclusively by that class; (ii) Class B and Class C shares will pay
higher distribution and service fees than Class A shares; and (iii) each class of shares will bear
any other class expenses properly allocable to such class of shares, subject to the conditions the
IRS imposes with respect to the multiple-class structures. Similarly, the NAV per share may vary
depending on which class of shares is purchased. No interest will be paid on uncashed dividend or
redemption checks.
44
In the event of liquidation, shareholders of each class are entitled to share pro rata in the net
assets of the Fund available for distribution to these shareholders. Shares entitle their holders
to one vote per share, are freely transferable and have no preemptive, subscription or conversion
rights. When issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the 1940 Act or the Declaration of Trust, the Fund has no intention of
holding annual meetings of shareholders. Fund shareholders may remove a Trustee by the affirmative
vote of at least two-thirds of the Trusts outstanding shares and the Trustees shall promptly call
a meeting for such purpose when requested to do so in writing by the record holders of not less
than 10% of the outstanding shares of the Trust. Shareholders may, under certain circumstances,
communicate with other shareholders in connection with a request for a special meeting of
shareholders. However, at any time that less than a majority of the Trustees holding office were
elected by the shareholders, the Trustees will call a special meeting of shareholders for the
purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust, under certain
circumstances, could be held personally liable for acts or obligations of the Trust. However, the
Declaration of Trust contains an express disclaimer of shareholder liability for acts, obligations
and affairs of the Fund. The Declaration of Trust also provides for indemnification out of the
Funds assets for all losses and expenses of any shareholder held personally liable by reason of
being or having been a shareholder. The Declaration of Trust also provides that no series of the
Trust shall be liable for the liabilities of any other series. Furthermore, the Fund shall not be
liable for the liabilities of any other John Hancock fund. Liability is therefore limited to
circumstances in which the Fund itself would be unable to meet its obligations, and the possibility
of this occurrence is remote.
The Fund reserves the right to reject any application that conflicts with the Funds internal
policies or the policies of any regulatory authority. The Distributor does not accept starter,
credit card or third party checks. All checks returned by the post office as undeliverable will be
reinvested at NAV in the Fund or funds from which a redemption was made or dividend paid.
Information provided on the account application may be used by the Fund to verify the accuracy of
the information or for background or financial history purposes. A joint account will be
administered as a joint tenancy with right of survivorship, unless the joint owners notify
Signature Services of a different intent. A shareholders account is governed by the laws of The
Commonwealth of Massachusetts. For telephone transactions the transfer agent will take measures to
verify the identity of the caller, such as asking for name, account number, Social Security or
other taxpayer ID number and other relevant information. If appropriate measures are taken, the
transfer agent is not responsible for any losses that may occur to any account due to an
unauthorized telephone call. Also for shareholders protection, telephone redemptions are not
permitted on accounts whose names or addresses have changed within the past 30 days. Proceeds from
telephone transactions can only be mailed to the address of record.
Shares of the Fund may generally be sold only to U.S. citizens, U.S. residents, and U.S. domestic
corporations, partnerships, trusts and estates.
The Trusts Declaration of Trust also provides that the Board may approve the merger of the Fund
with an affiliated mutual fund without shareholder approval, in accordance with the 1940 Act. This
provision will permit mergers of affiliated funds without shareholder approval in certain
circumstances to reduce the incurring the expense of soliciting proxies when a combination does not
raise significant issues for shareholders. For example, this provision would permit the
combination of two small funds having the same portfolio managers, the same investment objectives
and the same fee structure in order to achieve economies of scale and thereby reduce fund expenses
borne by shareholders. Such a merger will still require each funds board (including a majority of
the independent trustees) to determine that the merger is in the best interests of the combining
funds and will not dilute the interest of existing shareholders. The Trustees will evaluate any
and all information reasonably necessary to make their determination and consider and give
appropriate weight to all pertinent factors in fulfilling the overall duty of care owed to
shareholders.
Shareholders of an acquired fund will still be required to approve a combination that would result
in a change in the Fundamental investment policy, a material change to the terms of an advisory
agreement, the institution of or an increase in Rule 12b-1 fees or when the board of the surviving
fund does not have a majority of independent trustees who were elected by its shareholders. Under
Massachusetts law, shareholder approval is not required for fund mergers, consolidation or sales of
assets. Shareholder approval nevertheless will be obtained for combinations of
45
affiliated funds when required by the 1940 Act. Shareholder approval also will be obtained for
combinations with unaffiliated funds when deemed appropriate by the Trustees.
ADDITIONAL INFORMATION CONCERNING TAXES
The Fund is treated as a separate entity for accounting and tax purposes, has qualified and elected
to be treated as a regulated investment company under Subchapter M of the Code, and intends to
continue to qualify for each taxable year. As such and by complying with the applicable provisions
of the Code regarding the sources of its income, the timing of its distributions, and the
diversification of its assets, the Fund will not be subject to federal income tax on its taxable
income (including net realized capital gains) that is distributed to shareholders in accordance
with the timing requirements of the Code.
To qualify as a regulated investment company for income tax purposes, the Fund must derive at least
90% of its annual gross income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities or foreign currencies, or other
income (including, but not limited to, gains from options, futures or forward contracts) derived
with respect to its business of investing in stock, securities and currencies, and net income
derived from an interest in a qualified publicly traded partnership.
To qualify as a regulated investment company, the Fund also must satisfy certain requirements with
respect to the diversification of its assets. The Fund must have, at the close of each quarter of
the taxable year, at least 50% of the value of its total assets represented by cash, cash items,
United States government securities, securities of other regulated investment companies, and other
securities that, in respect of any one issuer, do not represent more than 5% of the value of the
assets of the Fund nor more than 10% of the voting securities of that issuer. In addition, at
those times not more than 25% of the value of the Funds assets may be invested in securities
(other than United States government securities or the securities of other regulated investment
companies) of, (i) any one issuer, (ii) two or more issuers that the Fund controls and that are
engaged in the same or similar trades or businesses or related trades or businesses; or (iii) one
or more qualified publicly traded partnerships.
If the Fund fails to meet the annual gross income test described above, the Fund will nevertheless
be considered to have satisfied the test if (i) (a) such failure is due to reasonable cause and not
due to willful neglect and (b) the Fund reports the failure pursuant to Treasury Regulations to be
adopted, and (ii) the Fund pays an excise tax equal to the excess non-qualifying income. If the
Fund fails to meet the asset diversification test described above with respect to any quarter, the
Fund will nevertheless be considered to have satisfied the requirements for such quarter if the
Fund cures such failure within 6 months and either (i) such failure is de minimis or (ii) (a) such
failure is due to reasonable cause and not due to willful neglect and (b) the Fund reports the
failure under Treasury Regulations to be adopted and pays an excise tax.
If the Fund failed to qualify as a regulated investment company, the Fund would incur regular
corporate income tax on its taxable income for that year, it would lose its deduction for dividends
paid to shareholders, and it would be subject to certain gain recognition and distribution
requirements upon requalification. Further distributions of income by the Fund to its shareholders
would be treated as dividend income, although such dividend income would constitute qualified
dividend income subject to reduced federal income tax rates if the shareholder satisfies certain
holding period requirements with respect to its shares in the Fund, which reduced rates are
scheduled to expire after 2010. Compliance with the regulated investment company 90% qualifying
income test and with the asset diversification requirements is carefully monitored by the Adviser
and the Subadviser and it is intended that the Fund will comply with the requirements for
qualification as regulated investment companies.
In order to avoid incurring a federal excise tax obligation, the Code requires that the Fund
distribute (or be deemed to have distributed) by December 31 of each calendar year (i) at least 98%
of its ordinary income (not including tax-exempt income) for such year, (ii) at least 98.2% of its
capital gain net income (which is the excess of its realized capital gains over its realized
capital losses), generally computed on the basis of the one-year period ending on October 31 of
such year, after reduction by any available capital loss carryforwards and (iii) 100% of any income
and capital gains from the prior year (as previously computed) that was not paid out during such
year and on which the Fund paid no federal income tax. If the Fund fails to meet these
requirements it will be subject to a
46
nondeductible 4% excise tax on the undistributed amounts. The Fund intends under normal
circumstances to seek to avoid or minimize liability for such tax by satisfying such distribution
requirements.
Distributions from the Funds current or accumulated earnings and profits (E&P) will be taxable
under the Code for investors who are subject to tax. If these distributions are paid from the
Funds investment company taxable income, they will be taxable as ordinary income; and if they
are paid from the Funds net capital gain, they will be taxable as capital gain. (Net capital
gain is the excess (if any) of net long-term capital gain over net short-term capital loss, and
investment company taxable income is all taxable income and capital gains, other than those gains
and losses included in computing net capital gain, after reduction by deductible expenses.) Some
distributions may be paid in January but may be taxable to shareholders as if they had been
received on December 31 of the previous year. The tax treatment described above will apply without
regard to whether distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital which will first reduce
an investors federal tax basis in Fund shares and then, to the extent such basis is exceeded,
generally will give rise to capital gains. Shareholders who have chosen automatic reinvestment of
their distributions will have a federal tax basis in each share received pursuant to such a
reinvestment equal to the amount of cash they would have received had they elected to receive the
distribution in cash, divided by the number of shares received in the reinvestment.
The amount of the Funds net realized capital gains, if any, in any given year will vary depending
upon the Subadvisers current investment strategy and whether the Subadviser believes it to be in
the best interest of the Fund, including for tax purposes, to dispose of portfolio securities
and/or engage in option, futures or forward transactions that will generate capital gains or to
enter into other derivatives transactions. At the time of an investors purchase of Fund shares, a
portion of the purchase price is often attributable to realized or unrealized appreciation in the
Funds portfolio. Consequently, subsequent distributions on these shares from such appreciation
may be taxable to such investor even if the net asset value of the investors shares is, as a
result of the distributions, reduced below the investors cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Certain options and futures transactions undertaken by the Fund may cause the Fund to recognize
gains or losses from marking to market even though its positions have not been sold or terminated
and affect the character as long-term or short-term and timing of some capital gains and losses
realized by the Fund. Also, some of the Funds losses on its transactions involving options and
futures contracts and/or offsetting or successor portfolio positions may be deferred rather than
being taken into account currently in calculating the Funds taxable income or gain. Certain of
such transactions also may cause the Fund to dispose of investments sooner than would otherwise
have occurred. These transactions may thereafter affect the amount, timing and character of the
Funds distributions to shareholders. Some of the applicable tax rules may be modified if the Fund
is eligible and chooses to make one or more of certain tax elections that may be available. The
Fund will take into account the special tax rules (including consideration of available elections)
applicable to options and futures transactions in order to seek to minimize any potential adverse
tax consequences.
Upon a redemption or other disposition of shares of the Fund (including by exercise of the exchange
privilege) in a transaction that is treated as a sale for tax purposes, a shareholder ordinarily
will realize a taxable gain or loss depending upon the amount of the proceeds and the investors
basis in his shares. Such gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholders hands. A sales charge paid in purchasing shares of the Fund
cannot be taken into account for purposes of determining gain or loss on the redemption or exchange
of such shares within ninety (90) days after their purchase to the extent Class A shares of the
Fund or another John Hancock fund are subsequently acquired, on or before January 31 of the year
following the calendar year that includes the date of such redemption or exchange, without payment
of a sales charge pursuant to the reinvestment or exchange privilege. This disregarded charge will
result in an increase in the shareholders tax basis in the shares subsequently acquired. Also,
any loss realized on a redemption or exchange may be disallowed to the extent the shares disposed
of are replaced with other shares of the Fund within a period of sixty-one (61) days beginning
thirty (30) days before and ending thirty (30) days after the date on which the initial shares are
disposed of, such as pursuant to automatic dividend reinvestments. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized upon the
redemption of shares with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of
47
long-term capital gain with respect to such shares. Shareholders should consult their own tax
advisors regarding their particular circumstances to determine whether a disposition of Fund shares
is properly treated as a sale for tax purposes, as is assumed in the foregoing discussion.
Although its present intention is to distribute, at least annually, all net capital gain, if any,
the Fund reserves the right to retain and reinvest all or any portion of the excess, as computed
for federal income tax purposes, of net long-term capital gain over net short-term capital loss in
any year. The Fund will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such gain. To the extent
such excess was retained and not exhausted by the carryforward of prior years capital losses, it
would be subject to federal income tax in the hands of the Fund. Upon proper designation of this
amount by the Fund, each shareholder would be treated for federal income tax purposes as if the
Fund had distributed to him on the last day of its taxable year his pro rata share of such excess,
and he had paid his pro rata share of the taxes paid by the Fund and reinvested the remainder in
the Fund. Accordingly, each shareholder would (a) include his pro rata share of such excess as
capital gain in his return for his taxable year in which the last day of the Funds taxable year
falls, (b) be entitled either to a tax credit on his return for, or to a refund of, his pro rata
share of the taxes paid by the Fund, and (c) be entitled to increase the adjusted tax basis for his
shares in the Fund by the difference between his pro rata share of this excess and his pro rata
share of these taxes.
For federal income tax purposes, the Fund is permitted to carry forward a net capital loss in any
year to offset net capital gains, if any, during its taxable years following the year of the loss.
The carryforward of capital losses realized in taxable years beginning prior to December 23, 2010,
however, is limited to an eight-year period following the year of realization. To the extent
subsequent net capital gains are offset by such losses, they would not result in federal income tax
liability to the Fund and, as noted above, would not be distributed to shareholders. The Fund has
$7,201,777 of capital loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. This carryforward expires in 2015 through 2018.
The Subadviser may choose to have the Fund sell portfolio securities or engage in options
transactions in order to generate capital gain for purposes of utilizing the Funds capital loss
carryforward before it expires. Although this strategy would reduce the Funds capital gain
distributions, which could increase the after-tax return of an investment in the Fund by a taxable
investor, the Funds investors in tax-deferred accounts would not obtain a similar benefit.
Additionally, this strategy might cause the Fund to incur transaction costs in connection with such
sales that the Fund would not otherwise incur.
Only a small portion, if any, of the distributions from the Fund may qualify for the dividends-
received deduction for corporations, subject to the limitations applicable under the Code. The
qualifying portion is limited to properly designated distributions attributed to dividend income
(if any) the Fund receives from certain stock in U.S. domestic corporations and the deduction is
subject to holding period requirements and debt-financing limitations under the Code.
If the Fund should have dividend income that qualifies for the reduced tax rate applicable to
qualified dividend income, the maximum amount allowable will be designated by the Fund. This
amount will be reflected on Form 1099-DIV for the current calendar year.
Investment in debt obligations at risk of or in default presents special tax issues for the Fund.
Tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest,
original issue discount, or market discount, when and to what extent deductions may be taken for
bad debts or worthless securities, how payments received on obligations in default should be
allocated between principal and income, and whether exchanges of debt obligations in a workout
context are taxable. These and other issues will be addressed by the Fund that holds such
obligations in order to reduce the risk of distributing insufficient income to preserve its status
as a regulated investment company and seek to avoid becoming subject to federal income or excise
tax.
Different tax treatment, including penalties on certain excess contributions and deferrals, certain
pre-retirement and post-retirement distributions and certain prohibited transactions, is accorded
to accounts maintained as qualified retirement plans. Shareholders should consult their tax
advisors for more information.
48
If a shareholder realizes a loss on disposition of Fund shares of $2 million or more for an
individual shareholder or $10 million or more for a corporate shareholder, the shareholder must
file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of
portfolio securities are in many cases excepted from this reporting requirement, but under current
guidance, shareholders of a regulated investment company are not excepted. Future guidance may
extend the current exception from this reporting requirement to shareholders of regulated
investment companies.
The Fund may be subject to withholding and other taxes imposed by foreign countries with respect to
the Funds investments in certain foreign securities, if any. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes in some cases. Because more than 50% of
the Funds assets at the close of any taxable year generally will not consist of stocks or
securities of foreign corporations, the Fund generally will be unable to pass through such taxes to
its shareholders, who will therefore generally not be entitled to any foreign tax credit or
deduction with respect to their investment in the Fund. The Fund will deduct such taxes in
determining the amount it has available for distribution to shareholders.
The Fund is required to accrue income on any debt securities that have more than a de
minimus amount of original issue discount (or debt securities acquired at a market
discount, if the Fund elects to include market discount in income currently) prior to the receipt
of the corresponding cash payment. The mark to market or constructive sales rules applicable to
certain options, futures and forward contracts also may require the Fund to recognize income or
gain without a concurrent receipt of cash. However, the Fund must distribute to shareholders for
each taxable year substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for any federal income or
excise tax. Therefore, the Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or borrow cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax exemption is generally
available to the extent the Funds distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain U.S. Government
obligations, provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy any threshold or
reporting requirements that may apply in particular taxing jurisdictions, although the Fund may in
its sole discretion provide relevant information to shareholders.
An investor should be aware that the benefits of the reduced tax rate applicable to long-term
capital gains and qualified dividend income may be impacted by the application of the alternative
minimum tax to individual shareholders.
Under legislation enacted in 2010, effective for tax years beginning after December 31, 2012,
certain net investment income received by an individual having modified adjusted gross income in
excess of $200,000 (or $250,000 for married individuals filing jointly) will be subject to a tax of
3.8%. Undistributed net investment income of trusts and estates in excess of a specified amount
also will be subject to this tax. Dividends paid by the Fund will constitute investment income of
the type subject to this tax.
The Fund will be required to report to the IRS all taxable distributions to shareholders, as well
as gross proceeds from the redemption or exchange of Fund shares, except in the case of certain
exempt recipients, i.e., corporations and certain other investors distributions to which are exempt
from the information reporting provisions of the Code. All such reportable distributions and
proceeds may be subject to backup withholding of federal income tax in the case of non-exempt
shareholders who fail to furnish the Fund with their correct taxpayer identification number and
certain certifications required by the IRS or if the IRS or a broker notifies the Fund that the
number furnished by the shareholder is incorrect or that the shareholder is subject to backup
withholding as a result of failure to report interest or dividend income. The Fund may refuse to
accept an application that does not contain any required taxpayer identification number or
certification that the number provided is correct. If the backup withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or reinvested in shares,
will be reduced by the amounts required to be withheld. Any amounts withheld may be credited
against a shareholders U.S. federal income tax liability. Investors should consult their tax
advisors about the applicability of the backup withholding provisions.
49
The Fund may be required to account for its transactions in forward rolls or swaps, caps, floors
and collars in a manner that, under certain circumstances, may limit the extent of its
participation in such transactions. Additionally, the Fund may be required to recognize gain, but
not loss, if a swap or other transaction is treated as a constructive sale of an appreciated
financial position in the Funds portfolio. The Fund may have to sell portfolio securities under
disadvantageous circumstances to generate cash, or borrow cash, to satisfy these distribution
requirements.
The foregoing discussion relates solely to U.S. federal income tax law as applicable to U.S.
persons (i.e., U.S. citizens or residents and U.S. domestic corporations, partnerships, trusts or
estates) subject to tax under such law. The discussion does not address special tax rules
applicable to certain types of investors, such as tax-exempt entities, insurance companies and
financial institutions. Dividends, capital gain distributions and ownership of or gains realized
on the redemption (including an exchange) of shares of the Fund also may be subject to state and
local taxes. Shareholders should consult their own tax advisors as to the federal, state or local
tax consequences of ownership of shares of, and receipt of distributions from, the Fund in their
particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund investment is
effectively connected will be subject to U.S. federal income tax treatment that is different from
that described above. These investors may be subject to withholding tax at the rate of 30% (or a
lower rate under an applicable tax treaty) on amounts treated as ordinary dividends from the Fund
and, unless an effective IRS Form W-8, W-8BEN or other authorized withholding certificate is on
file, to backup withholding on certain other payments from the Fund. Non-U.S. investors should
consult their tax advisors regarding such treatment and the application of foreign taxes to an
investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes. The Fund anticipates
that, provided the Fund qualifies as a regulated investment company under the Code, it also will
not be required to pay any Massachusetts income tax.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the allocation of brokerage
commissions are made by the Subadvisers investment and/or trading personnel. Orders for purchases
and sales of securities are placed in a manner that, in the opinion of such personnel, will offer
the best price and market for the execution of each such transaction. The Funds trading practices
and investments are reviewed periodically by the Subadvisers Senior Investment Policy Committee
and its Brokerage Practices Committee, which consists of officers of the Subadviser and quarterly
by the officers of the Adviser and the Independent Trustees.
Purchases from underwriters of portfolio securities may include a commission or commissions paid by
the issuer and transactions with dealers serving as market maker reflect a spread. Investments
in debt securities are generally traded on a net basis through dealers acting for their own
account as principals and not as brokers; no brokerage commissions are payable on these
transactions. In the U.S. Government securities market, securities are generally traded on a net
basis with dealers acting as principal for their own account without a stated commission, although
the price of the security usually includes a profit to the dealer. On occasion, certain money
market instruments and agency securities may be purchased directly from the issuer, in which case
no commissions or premiums are paid. Investments in equity securities are generally traded on
exchanges or on over-the-counter markets at fixed commission rates or on a net basis. In other
countries, both debt and equity securities are traded on exchanges at fixed commission rates.
Commissions on foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and regulation of foreign
stock exchanges and broker-dealers than in the U.S.
The Funds primary policy is to execute all purchases and sales of portfolio instruments at the
most favorable prices consistent with best execution, considering all of the costs of the
transaction including brokerage commissions. The policy governs the selection of brokers and
dealers and the market in which a transaction is executed. Consistent with best execution, the
Funds trades may be executed by dealers that also sell shares of John Hancock funds. However, the
Subadviser does not consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute the Funds portfolio transactions. To the extent consistent with the
foregoing, the Fund will be governed in the selection of brokers and dealers, and the negotiation
of brokerage commission rates and dealer spreads, by the
50
reliability and quality of the services and may include, to a lesser extent, the availability and
value of research information and statistical assistance furnished to the Subadviser. The
Subadviser has implemented policies and procedures (approved by the Board) reasonably designed to
ensure that the Funds selection of the broker-dealer is not influenced by considerations about the
sales of Fund shares.
Regular
Broker-Dealers. The table below presents information regarding the securities of
the Funds regular broker-dealers (or parents of the regular broker-dealers) that were held by the
Fund as of the fiscal year ended May 31, 2011. Regular broker-dealers are defined by the SEC as:
(a) one of the 10 brokers or dealers that received the greatest dollar amount of brokerage
commissions by virtue of direct or indirect participation in the companys portfolio transactions
during the companys most recent fiscal year; (b) one of the 10 brokers or dealers that engaged as
principal in the largest dollar amount of portfolio transactions of the investment company during
the companys most recent fiscal year; or (c) one of the 10 brokers or dealers that sold the
largest dollar amount of securities of the investment company during the companys most recent
fiscal year.
|
|
|
|
|
|
|
|
|
Fund |
|
|
Broker-Dealer |
|
($000s) |
|
Bond Fund |
|
JP Morgan Chase |
|
$ |
23,736 |
|
|
|
|
|
Bank of America Corp. |
|
$ |
29,927 |
|
|
|
|
|
Morgan Stanley |
|
$ |
18,427 |
|
|
|
|
|
Citigroup, Inc. |
|
$ |
12,772 |
|
|
|
|
|
Barclays Bank PLC |
|
$ |
2,413 |
|
|
|
|
|
Credit Suisse Securities (USA) LLC |
|
$ |
6,494 |
|
|
|
|
|
Bank of America Corp. |
|
$ |
2,356 |
|
|
|
|
|
State Street Corp. |
|
$ |
5,460 |
|
|
|
|
|
Goldman Sachs |
|
$ |
7,602 |
|
|
|
|
|
Citigroup, Inc. |
|
$ |
446 |
|
|
|
|
|
JP Morgan Chase |
|
$ |
23,736 |
|
Where research is available for cash payments, the Subadviser may pay for such research from its
own resources, and not with brokerage commissions. In other cases, as permitted by Section 28(e)
of the Exchange Act, the Fund may pay to a broker that provides brokerage and research services to
the Fund an amount of disclosed commission in excess of the commission that another broker would
have charged for effecting that transaction. This practice is subject to a good faith
determination by the Trustees that such price is reasonable in light of the services provided and
to such policies as the Trustees may adopt from time to time. Commissions, as interpreted by the
SEC, include fees paid to brokers for trades conducted on an agency basis, and certain mark-ups,
mark-downs, commission equivalents and other fees received by dealers in riskless principal
transactions placed in the over-the-counter market.
The term brokerage and research services includes research services received from broker-dealers
that supplement the Subadvisers own research (and the research of its affiliates), and may include
the following types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and interpretations with
respect to the U.S. and foreign economies, securities, markets, specific industry groups and
individual companies; information on federal, state, local and foreign political developments;
portfolio management strategies; performance information on securities, indexes and investment
accounts; and information concerning prices and ratings of securities. Broker-dealers may
communicate such information electronically, orally, in written form or on computer software.
Research services also may include the providing of electronic communication of trade information
and, the providing of specialized consultations with the Subadvisers personnel with respect to
computerized systems and data furnished as a component of other research services, the arranging of
meetings with management of companies, and the providing of access to consultants who supply
research information.
The outside research assistance is useful to the Subadviser since the broker-dealers used by the
Subadviser tend to follow a broader universe of securities and other matters than the Subadvisers
staff can follow. In addition, the research provides the Subadviser with a diverse perspective on
financial markets. Research services provided to the
51
Subadviser by broker-dealers are available for the benefit of all accounts managed or advised by
the Subadviser or by its affiliates. Some broker-dealers may indicate that the provision of
research services is dependent upon the generation of certain specified levels of commissions and
underwriting concessions by the Subadvisers clients, including the Fund. However, the Fund is not
under any obligation to deal with any broker-dealer in the execution of transactions in portfolio
securities.
The Subadviser believes that the research services are beneficial in supplementing the Subadvisers
research and analysis and that they improve the quality of the Subadvisers investment advice. It
is not possible to place a dollar value on information and services to be received from brokers and
dealers, since it is only supplementary to the research efforts of the Subadviser. The advisory
fee paid by the Fund is not reduced because the Subadviser receives such services. The receipt of
research information is not expected to reduce significantly the expenses of the Subadviser.
However, to the extent that the Subadviser would have purchased research services had they not been
provided by broker-dealers, or would have developed comparable information through its own staff,
the expenses to the Subadviser could be considered to have been reduced accordingly. The research
information and statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Subadviser, and conversely, brokerage commissions and
spreads paid by other advisory clients of the Subadviser may result in research information and
statistical assistance beneficial to the Fund. The Fund will make no commitment to allocate
portfolio transactions upon any prescribed basis.
Broker-dealers may be willing to furnish statistical, research and other factual information or
service to the Adviser for no consideration other than brokerage or underwriting commissions.
Securities may be bought or sold from time to time through such broker-dealers on behalf of the
Fund or the Subadvisers other clients.
In effecting portfolio transactions on behalf of the Fund and the Subadvisers other clients, the
Subadviser may from time to time instruct the broker-dealer that executes the transaction to
allocate, or step-out a portion of the transaction to another broker-dealer. The broker-dealer
to which the Subadviser stepped-out would then settle and complete the designated portion of the
transaction. Each broker-dealer would receive a commission or brokerage fee with respect to that
portion of the transaction that it settles and completes.
While the Subadviser will be primarily responsible for the allocation of the Funds brokerage
business, the policies and practices of the Subadviser in this regard must be consistent with the
foregoing and at all times be subject to review by the Board.
Brokerage Commissions Paid. The following table shows the brokerage commissions paid by
the Fund in connection with portfolio transactions for: (i) the fiscal year ended May 31, 2009;
(ii) the fiscal year ended May 31, 2010; and (iii) the fiscal year ended May 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
Year ended |
|
|
Year ended |
|
Fund |
|
May 31, 2009 |
|
|
May 31, 2010 |
|
|
May 31, 2011 |
|
Bond Fund |
|
$ |
1,257 |
|
|
$ |
6,310 |
|
|
$ |
2,432 |
|
Commission
Recapture Program. The Board has approved the Funds participation in a
commission recapture program. Commission recapture is a form of institutional discount brokerage
that returns commission dollars directly to the Fund. It provides a way to gain control over the
commission expenses incurred by the Funds advisor and/or subadviser, which can be significant over
time and thereby reduces expenses, improves cash flow and conserves assets. The Fund can derive
commission recapture dollars from both equity trading commissions and fixed-income (commission
equivalent) spreads. From time to time, the Board reviews whether participation in the recapture
program is in the best interests of the Fund.
Affiliated Brokerage. Pursuant to procedures determined by the Trustees and consistent
with the above policy of obtaining best net results, the Fund may execute portfolio transactions
with or through brokers affiliated with the Adviser and/or the Subadviser (Affiliated Brokers).
Affiliated Brokers may act as broker for the Fund on exchange transactions, subject, however, to
the general policy set forth above and the procedures adopted by the Trustees pursuant to the 1940
Act. Commissions paid to an Affiliated Broker must be at least as favorable as those that the
Trustees believe to be contemporaneously charged by other brokers in connection with comparable
transactions involving similar securities being purchased or sold. A transaction would not be
placed with an
52
Affiliated Broker if the Fund would have to pay a commission rate less favorable than the
Affiliated Brokers contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers except for accounts for which the Affiliated Broker acts as clearing
broker for another brokerage firm, and any customers of the Affiliated Broker not comparable to the
Fund as determined by a majority of the Trustees who are not interested persons (as defined in
the 1940 Act) of the Fund, the Adviser, the Subadviser, or the Affiliated Broker. Because the
Adviser or Subadviser that is affiliated with the Affiliated Broker has, as an investment adviser
to the Fund, the obligation to provide investment management services, which includes elements of
research and related investment skills such research and related skills will not be used by the
Affiliated Broker as a basis for negotiating commissions at a rate higher than that determined in
accordance with the above criteria.
The Advisers indirect parent, Manulife Financial, is the indirect sole shareholder of Signator
Investors, Inc., a broker-dealer (Signator). The Advisers indirect parent, Manulife Financial,
is the parent of another broker-dealer, John Hancock Distributors, LLC (JH Distributors). Each
of Signator and JH Distributors is considered an Affiliated Broker.
Allocation Among Subadviser Clients. Other investment advisory clients advised by the
Subadviser also may invest in the same securities as the Fund. When these clients buy or sell the
same securities at substantially the same time, the Subadviser may average the transactions as to
price and allocate the amount of available investments in a manner that the Subadviser believes to
be equitable to each client, including the Fund. Because of this, client accounts in a particular
style may sometimes not sell or acquire securities as quickly or at the same prices as they might
if each were managed and traded individually.
For purchases of equity securities, when a complete order is not filled, a partial allocation will
be made to each participating account pro rata based on the order size. For high demand issues
(for example, initial public offerings), shares will be allocated pro rata by account size as well
as on the basis of account objective, account size (a small accounts allocation may be increased
to provide it with a meaningful position), and the accounts other holdings. In addition, an
accounts allocation may be increased if that accounts portfolio manager was responsible for
generating the investment idea or the portfolio manager intends to buy more shares in the secondary
market. For fixed income accounts, generally securities will be allocated when appropriate among
accounts based on account size, except if the accounts have different objectives or if an account
is too small to get a meaningful allocation. For new issues, when a complete order is not filled,
a partial allocation will be made to each account pro rata based on the order size. However, if a
partial allocation is too small to be meaningful, it may be reallocated based on such factors as
account objectives, strategies, duration benchmarks and credit and sector exposure. For example,
value funds will likely not participate in initial public offerings as frequently as growth funds.
In some instances, this investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtainable for it. On the other hand, to the extent permitted by
law, the Subadviser may aggregate securities to be sold or purchased for the Fund with those to be
sold or purchased for other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., P.O. Box 55913, Boston, Massachusetts 02205-5913, a wholly
owned indirect subsidiary of Manulife Financial, is the transfer and dividend paying agent for the
Class A, Class B, Class C, Class I, and Class R6 shares of the Fund.
Effective July 1, 2010, the fees paid to Signature Services are determined based on the cost to
Signature Services of providing services to the Trust and to all other John Hancock affiliated
funds for which Signature Services serves as transfer agent (Signature Services Cost). The
Signature Services Cost includes: (i) an allocable portion of John Hancock corporate overhead; and
(ii) out-of-pocket expenses, including payments made by Signature Services to intermediaries and
other third-parties whose clients and/or customers invest in one or more funds for sub-transfer
agency and administrative services provided to those clients/customers. The Signature Services
Cost is calculated monthly and allocated by Signature Services among four different categories as
described below based generally on the Signature Services Cost associated with providing services
to each category in the aggregate. Within each category, the Signature Services Cost is allocated
across all of the John Hancock affiliated funds and/or classes for which Signature Services
provides transfer agent services, on the basis of relative average daily NAVs.
53
Retail Share Classes of Non-Municipal Bond Funds. An amount equal to the total Signature
Services Costs associated with providing services to Class A, Class B, Class C, Class ADV and Class
T shares of all non-municipal series of the Trust and of all other John Hancock affiliated funds
for which it serves as transfer agent, including out-of-pocket expenses for subtransfer agency
fees, is allocated pro-rata based upon assets of all Class A, B, and C shares in the aggregate,
without regard to fund or class. Of these classes, the Fund described in this SAI offers only
Class A, Class B, and Class C shares, which are described in a separate SAI. The Fund described
in this SAI does not offer Class ADV or Class T shares.
Institutional Share Classes. An amount equal to the total Signature Services Costs associated
with providing services to Class I, Class I2, and Class R6 shares of the Trust and all other John
Hancock affiliated funds for which it serves as transfer agent, is allocated pro-rata based upon
assets of all such shares in the aggregate, without regard to fund or class. Class I shares are
described in a separate SAI. The Fund described in this SAI does not offer Class I2 shares. This
SAI relates only to Class R6 shares.
Retirement Share Classes. An amount equal to the total Signature Services Costs associated
with providing services to Class R1, Class R3, Class R4 and Class R5 shares of the Trust and all
other John Hancock affiliated funds for which it serves as transfer agent is allocated pro-rata
based upon assets of all such shares in the aggregate, without regard to fund or class. In
addition, payments made to intermediaries and/or record keepers under Class R Service plans will be
made by each relevant fund on a fund- and class-specific basis pursuant to the applicable plan.
The Fund described in this SAI does not offer Class R1, Class R3, Class R4, or Class R5 shares.
Municipal Bond Funds. An amount equal to the total Signature Services Costs associated with
providing services to Class A, Class B, and Class C shares of all John Hancock affiliated municipal
bond funds for which it serves as transfer agent, including out-of-pocket expenses for subtransfer
agency fees, is allocated pro-rata based upon assets of all such shares in the aggregate, without
regard to fund or class. John Hancock municipal bond funds currently only offer Class A, Class B,
and Class C shares. The Trust does not currently offer any municipal bond funds, and no such funds
are described in this SAI.
In applying the foregoing methodology, Signature Services seeks to operate its aggregate transfer
agency operations on an at cost or break even basis. The allocation of aggregate transfer
agency costs to categories of funds and/or classes assets seeks to ensure that shareholders of each
class within each category will pay the same or a very similar level of transfer agency fees for
the delivery of similar services. Under this methodology, the actual costs associated with
providing particular services to a particular fund and/or share classes during a period of time,
including payments to intermediaries for sub-transfer agency services to clients or customers whose
assets are invested in a particular fund or share class, are not charged to and borne by that
particular fund or share classes during that period. Instead, they are included in the Signature
Services Cost, which is then allocated to the applicable aggregate asset category described above
and then allocated to all assets in that category based on relative NAVs.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement between the Trust, on
behalf of the Fund, and State Street Bank and Trust Company (State Street), Lafayette Corporate
Center, Two Avenue de Lafayette, Boston, Massachusetts 02111. Under the custodian agreement, State
Street performs custody, foreign custody manager and fund accounting services.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements of the Fund for the fiscal year ended May 31, 2011, including the related
financial highlights that appear in the Prospectus, have been audited by PricewaterhouseCoopers LLP
(PwC), independent registered public accounting firm, as indicated in their report with respect
thereto, and are incorporated herein by reference in reliance upon said report given on the
authority of said firm as experts in accounting and auditing. PwC has offices at 125 High Street,
Boston, Massachusetts 02110.
54
LEGAL AND REGULATORY MATTERS
There are no legal proceedings to which the Trust, the Adviser, or the Distributor is a party that
are likely to have a material adverse effect on the Fund or the ability of either the Adviser or
the Distributor to perform its contract with the Fund.
On June 25, 2007, the Adviser and the Distributor and two of their affiliates (collectively, the
John Hancock Affiliates) reached a settlement with the SEC that resolved an investigation of
certain practices relating to the John Hancock Affiliates variable annuity and mutual fund
operations involving directed brokerage and revenue sharing. Under the terms of the settlement,
each John Hancock Affiliate was censured and agreed to pay a $500,000 civil penalty to the United
States Treasury. In addition, the Adviser and the Distributor agreed to pay disgorgement of
$2,087,477 and prejudgment interest of $359,460 to entities, including certain John Hancock funds,
that participated in the Advisers directed brokerage program during the period from 2000 to
October 2003. Collectively, all John Hancock Affiliates agreed to pay a total disgorgement of
$16,926,420 and prejudgment interest of $2,361,460 to the entities advised or distributed by John
Hancock Affiliates. The Adviser discontinued the use of directed brokerage in recognition of the
sale of fund shares in October 2003.
REPORTS TO SHAREHOLDERS
The financial statements of the Fund for the fiscal year ended May 31, 2011 are incorporated herein
by reference from the Funds most recent Annual Report to Shareholders filed with the SEC on Form
N-CSR pursuant to Rule 30b2-1 under the 1940 Act.
CODES OF ETHICS
The Trust, the Adviser, the Distributor, and the Subadviser each have adopted Codes of Ethics that
comply with Rule 17j-1 under the 1940 Act. Each Code of Ethics permits personnel subject to the
Code of Ethics to invest in securities, including securities that may be purchased or held by the
Fund.
55
APPENDIX A
DESCRIPTION OF BOND RATINGS
The ratings of Moodys, S&P and Fitch represent their opinions as to the quality of various debt
instruments they undertake to rate. It should be emphasized that ratings are not absolute
standards of quality. Consequently, debt instruments with the same maturity, coupon and rating may
have different yields while debt instruments of the same maturity and coupon with different ratings
may have the same yield.
MOODYS
Aaa: Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.
Aa: Obligations rated Aa are judged to be of high quality and are subject to very low credit
risk.
A: Obligations rated A are considered upper-medium grade and are subject to low credit risk.
Baa: Obligations rated Baa are subject to moderate credit risk. They are considered
medium-grade and as such may possess certain speculative characteristics.
Ba: Obligations rated Ba are judged to have speculative elements are subject to substantial
credit risk.
B: Obligations rated B are considered speculative elements and are subject to high credit risk.
Caa: Obligations rated Caa are judged to be of poor standing and are subject to very high credit
risk.
Ca: Obligations rated Ca are highly speculative and are likely in, or very near, default, with
some prospect of recovery of principal and interest.
C: Obligations rated C are the lowest rated class of bonds and are typically in default, with
little prospect for recovery of principal or interest.
S&P
AAA: An obligation rated AAA has the highest rating assigned by S&P. The obligors capacity to
meet its financial commitment on the obligation is extremely strong.
AA: An obligation rated AA differs from the highest-rated obligations only to a small degree.
The obligors capacity to meet its financial commitment on the obligation is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher-rated categories. However, the
obligors capacity to meet its financial commitment on the obligation is still strong.
BBB: An obligation rated BBB exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor
to meet its financial commitment on the obligation.
BB, B, CCC, CC and C: Obligations rated BB, B, CCC CC and C are regarded as having
significant speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues.
However, it faces major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions, which could lead to the obligors inadequate capacity to meet its financial
commitment on the obligation.
A-1
B: An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the
obligor currently has the capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligors capacity or
willingness to meet its financial commitment on the obligation.
CCC: An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may be used to over a situation where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation are being continued.
D: An obligation rated D is in payment default. The D rating category is used when payments
on an obligation are not made on the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition or taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within the major rating categories.
NR: This indicates that no rating has been requested, that there is insufficient information on
which to base a rating, or that S&P does not rate a particular obligation as a matter of policy.
FITCH
Investment Grade
AAA: Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They
are assigned only in case of exceptionally strong capacity for payment of financial commitments.
This capacity is highly unlikely to be adversely affected by foreseeable events.
AA: Very high credit quality. AA ratings denote expectations of very low credit risk. They
indicate very strong capacity for payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.
A: High credit quality. A ratings denote expectations of low credit risk. The capacity for
payment of financial commitments is considered strong. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in economic conditions than is the case for higher
ratings.
BBB: Good credit quality. B ratings indicate that there are currently expectations of low
credit risk. The capacity for payment of financial commitments is considered adequate but adverse
changes in circumstances and economic conditions are more likely to impair this capacity. This is
the lowest investment grade category.
Speculative Grade
BB: Speculative.
|
|
|
BB ratings indicate that there is a possibility of credit risk developing,
particularly as the result of adverse economic change over time; however, business or
financial alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade. |
B: Highly speculative.
A-2
|
|
|
For issuers and performing obligations, B ratings indicate that significant credit
risk is present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon a
sustained, favorable business and economic environment. |
|
|
|
For individual obligations, may indicate distressed or defaulted obligations with
potential for extremely high recoveries. Such obligations would possess a Recovery Rating
of R1 (outstanding). |
CCC:
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|
|
For issuers and performing obligations, default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable business or
economic conditions. |
|
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|
For individual obligations, may indicate distressed or defaulted obligations with
potential for average to superior levels of recovery. Differences in credit quality may be
denoted by plus/minus distinctions. Such obligations typically would possess a Recovery
Rating of R2 (superior), or R3 (good) or R4 (average). |
CC:
|
|
|
For issuers and performing obligations, default of some kind appears probable. |
|
|
|
For individual obligations, may indicate distressed or defaulted obligations with
Recovery Raging of R4 (average) or R5 (below average). |
C:
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|
For issuers and performing obligations, default is imminent. |
|
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|
For individual obligations, may indicate distressed or defaulted obligations with
potential for below-average to poor recoveries. Such obligations would possess a Recovery
Rating of R6 (poor). |
RD:
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|
Indicates an entity that has failed to make due payments (within the
applicable grace period) on some but not all material financial obligations, but continues
to honor other classes of obligations. |
D:
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|
Indicates an entity or sovereign that has defaulted on all of its financial
obligations. Default generally is defined as one of the following: |
|
|
|
failure of an obligor to make timely payment of principal and/or interest under
the contractual terms of any financial obligation; |
|
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the bankruptcy filings, administration, receivership, liquidation or winding-up
or cessation of business of an obligor; or |
|
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|
the distressed or other coercive exchange of an obligation, where creditors
were offered securities with diminished structural or economic terms compared with the
existing obligation. |
Default ratings are not assigned prospectively; within this context, non-payment on an instrument
that contains a deferral feature or grace period will not be considered a default until after the
expiration of the deferral or grace period.
Issuers will be rated D upon a default. Defaulted and distressed obligations typically are rated
along the continuum of C to B rating categories, depending upon their recovery prospects and
other relevant characteristics. Additionally, in structured finance transactions, where analysis
indicates that an instrument is irrevocably impaired such that it is not expected to meet pay
interest and/or principal in full in accordance with the terms of the obligations documentation
during the life of the transaction, but where no payment default in accordance with the terms of
the documentation is imminent, the obligation may be rated in the B or CCC-C categories.
Default is determined by reference to the terms of the obligations documentation. Fitch will
assign default ratings where it has reasonably determined that payment has not been made on a
material obligation in accordance with the requirements of the obligations documentation, or where
it believes that default ratings consistent with Fitchs published definition of default are the
most appropriate ratings to assign.
A-3
CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
MOODYS
Moodys employs the following designations to indicate the relative repayment ability of rated
issuers:
P-1: Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay
short-term debt obligations.
P-2: Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term
debt obligations.
P-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay
short-term obligations.
NP: Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime
rating categories.
S&P
Commercial Paper: An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days. Ratings are graded
into several categories, ranging from A for the highest-quality obligations to D for the
lowest. These categories are as follows:
A-1: This designation indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are denoted with a plus
sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is satisfactory. However, the
relative degree of safety is not as high as for issues designated A-1.
A-3: Issues carrying this designation have an adequate capacity for timely payment. They are,
however, more vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations.
B: Issues rated B are regarded as having only speculative capacity for timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful capacity for payment.
D: Debt rated D is in payment default. The D rating category is used when interest payments
of principal payments are not made on the date due, even if the applicable grace period has not
expired, unless S&P believes such payments will be made during such grace period.
Dual Ratings S&P assigns dual rating to all debt issues that have a put option or demand
feature as part of their structure.
The first rating addresses the likelihood of repayment of principal and interest as due, and the
second rating addresses only the demand feature. The long-term debt rating symbols are used for
bonds to denote the long-term maturity and the commercial paper rating symbols for the put option
(for example, AAA/A-1+). With short-term demand debt, not rating symbols are used with the
commercial paper rating symbols (for example, SP-1+/A-1+).
TAX-EXEMPT NOTE RATINGS
MOODYS
Short-Term Debt Ratings: There are three rating categories for short-term municipal obligations
that are considered investment grade. These ratings are designated as Municipal Investment Grade
(MIG) and are divided into three levels MIG 1 through MIG 3. In addition, those short-term
obligations that are of speculative quality are designated SG, or speculative grade. MIG ratings
expire at the maturity of the obligation.
MIG 1: This designation denotes superior credit quality. Excellent protection is afforded by
established cash flows, highly reliable liquidity support, or demonstrated broad-based access to
the market for refinancing.
A-4
MG 2: This designation denotes strong credit quality. Margins of protection are ample, although
not as large as in the preceding group.
MG 3: This designation denotes acceptable credit quality. Liquidity and cash-flow protection may
be narrow, and market access for refinancing is likely to be less well-established.
SG: This designation denotes speculative-grade credit quality. Dept instruments in this category
may lack sufficient margins of protection.
S&P
Short-Term Issue: A S&P U.S. municipal note rating reflects the liquidity factors and market
access risks unique to notes. Notes due in three years or less will likely receive a note rating.
Notes maturing beyond three years will most likely receive a long-term debt rating. The following
criteria will be used in making that assessment:
|
|
|
Amortization schedule the larger the final maturity relative to other maturities, the
more likely it will be treated as note; and |
|
|
|
Source of payment the more dependent the issue is on the market for its refinancing,
the more likely it will be treated as a note. |
SP-1: Strong capacity to pay principal and interest. An issue determined to possess a very strong
capacity to pay debt service is given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
SP-3: Speculative capacity to pay principal and interest.
A-5
APPENDIX B
PROXY VOTING SUMMARY OF THE ADVISER, THE JOHN HANCOCK FUNDS, AND THE
SUBADVISER
JOHN HANCOCK INVESTMENT MANAGEMENT SERVICES, LLC
&
JOHN HANCOCK ADVISERS, LLC
PROXY VOTING POLICIES AND PROCEDURES
General
John Hancock Investment Management Services, LLC and John Hancock Advisers, LLC (collectively the
Adviser) is registered as an investment adviser under the Investment Advisers Act of 1940, as
amended (the Advisers Act), and serves as the investment adviser to a number of management
investment companies (including series thereof) (each a Fund) registered under the Investment
Company Act of 1940, as amended (the 1940 Act). The Adviser generally retains one or more
subadvisers to manage the assets of the Funds, including voting proxies with respect to The Funds
portfolio securities. From time to time, however, the Adviser may elect to manage directly the
assets of The Fund, including voting proxies with respect to its portfolio securities, or the
Funds board of trustees or directors may otherwise delegate to the Adviser authority to vote such
proxies. Rule 206(4)-6 under the Advisers Act requires that a registered investment adviser adopt
and implement written policies and procedures reasonably designed to ensure that it votes proxies
with respect to a clients securities in the best interest of the client. Pursuant thereto, the
Adviser has adopted and implemented these proxy voting policies and procedures (the Procedures).
Fiduciary Duty
The Adviser has a fiduciary duty to vote proxies on behalf of The Fund in the best interest of the
Fund and its shareholders.
Voting of Proxies
The Adviser will vote proxies with respect to The Funds portfolio securities when authorized to do
so by the Fund and subject to the Funds proxy voting policies and procedures and any further
direction or delegation of authority by the Funds board of trustees or directors. The decision on
how to vote a proxy will be made by the person(s) to whom the Adviser has from time to time
delegated such responsibility (the Designated Person). The Designated Person may include the
Funds portfolio manager(s) and a Proxy Voting Committee, as described below.
When voting proxies with respect to The Funds portfolio securities, the following standards will
apply:
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The Designated Person will vote based on what it believes to be in the best interest of
the Fund and its shareholders and in accordance with the Funds investment guidelines. |
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Each voting decision will be made independently. The Designated Person may enlist the
services of reputable professionals (who may include persons employed by or otherwise
associated with the Adviser or any of its affiliated persons) or independent proxy
evaluation services such as Institutional Shareholder Services, to assist with the analysis
of voting issues and/or to carry out the actual voting process. However, the ultimate
decision as to how to vote a proxy will remain the responsibility of the Designated Person. |
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The Adviser believes that a good management team of a company will generally act in the
best interests of the company. Therefore, the Designated Person will take into
consideration as a key factor in voting |
B-1
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|
|
proxies with respect to securities of a company
that are held by the Fund the quality of the companys management and, in general, will
vote as recommended by such management except in situations where the Designated Person
believes such recommended vote is not in the best interests of the Fund and its
shareholders. |
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As a general principle, voting with respect to the same portfolio securities held by
more than one Fund should be consistent among those Funds having substantially the same
mandates. |
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The Adviser will provide the Fund, from time to time in accordance with the Funds proxy
voting policies and procedures and any applicable laws and regulations, a record of the
Advisers voting of proxies with respect to the Funds portfolio securities. |
Material Conflicts of Interest
In carrying out its proxy voting responsibilities, the Adviser will monitor and resolve potential
material conflicts (Material Conflicts) between the interests of (a) The Fund and (b) the Adviser
or any of its affiliated persons. Affiliates of the Adviser include Manulife Financial Corporation
and its subsidiaries. Material Conflicts may arise, for example, if a proxy vote relates to
matters involving any of these companies or other issuers in which the Adviser or any of its
affiliates has a substantial equity or other interest.
If the Adviser or a Designated Person becomes aware that a proxy voting issue may present a
potential Material Conflict, the issue will be referred to the Advisers Legal and Compliance
Department. If the Legal and Compliance Department determines that a potential Material Conflict
does exist, a Proxy Voting Committee will be appointed to consider and resolve the issue. The
Proxy Voting Committee may make any determination that it considers reasonable and may, if it
chooses, request the advice of an independent, third-party proxy service on how to vote the proxy.
Voting Proxies of Underlying Funds of The Fund of Funds
The Adviser or the Designated Person will vote proxies with respect to the shares of The Fund that
are held by another Fund that operates as The Fund of funds (a Fund of Funds) in the manner
provided in the proxy voting policies and procedures of the Fund of Funds (including such policies
and procedures relating to material conflicts of interest) or as otherwise directed by the board of
trustees or directors of the Fund of Funds.
Proxy Voting Committee(s)
The Adviser will from time to time, and on such temporary or longer term basis as it deems
appropriate, establish one or more Proxy Voting Committees. A Proxy Voting Committee shall include
the Advisers Chief Compliance Officer (CCO) and may include legal counsel. The terms of
reference and the procedures under which a Proxy Voting Committee will operate will be reviewed
from time to time by the Legal and Compliance Department. Records of the deliberations and proxy
voting recommendations of a Proxy Voting Committee will be maintained in accordance with applicable
law, if any, and these Procedures.
Records Retention
The Adviser will retain (or arrange for the retention by a third party of) such records relating to
proxy voting pursuant to these Procedures as may be required from time to time by applicable law
and regulations, including the following:
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i. |
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these Procedures and all amendments hereto; |
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ii. |
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all proxy statements received regarding Fund portfolio securities; |
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iii. |
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records of all votes cast on behalf of The Fund; |
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iv. |
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records of all Fund requests for proxy voting information; |
B-2
|
v. |
|
any documents prepared by the Designated Person or a Proxy Voting Committee
that were material to or memorialized the basis for a voting decision; |
|
|
vi. |
|
all records relating to communications with the Funds regarding Conflicts; and |
|
|
vii. |
|
all minutes of meetings of Proxy Voting Committees. |
Reporting to Fund Boards
The Adviser will provide the board of trustees or directors of The Fund (the Board) with a copy
of these Procedures, accompanied by a certification that represents that the Procedures have been
adopted in conformance with Rule 206(4)-6 under the Advisers Act. Thereafter, the Adviser will
provide the Board with notice and a copy of any amendments or revisions to the Procedures and will
report quarterly to the Board all material changes to the Procedures.
The CCOs annual written compliance report to the Board will contain a summary of material changes
to the Procedures during the period covered by the report.
If the Adviser votes any proxies in a manner inconsistent with either these Procedures or The
Funds proxy voting policies and procedures, the Adviser will provide the CCO with a report
detailing such exceptions.
In the case of proxies voted by a subadviser to the Fund (a Subadviser) pursuant to the Funds
proxy voting procedures, the Adviser will request the Subadviser to certify to the Adviser that the
Subadviser has voted the Funds proxies as required by the Funds proxy voting policies and
procedures and that such proxy votes were executed in a manner consistent with these Procedures and
to provide the Adviser will a report detailing any instances where the Subadviser voted any proxies
in a manner inconsistent with the Funds proxy voting policies and procedures. The Adviser will
then report to the Board on a quarterly basis regarding the Subadviser certification and report to
the Board any instance where the Subadviser voted any proxies in a manner inconsistent with the
Funds proxy voting policies and procedures.
Adopted: December 2007
B-3
THE DISTRIBUTOR
JOHN HANCOCK FUNDS
PROXY VOTING POLICIES AND PROCEDURES
POLICY:
General
The Board of Trustees (the Board) of each registered investment company in the John Hancock
family of funds listed on Schedule A (collectively, the Trust), including a majority of the
Trustees who are not interested persons (as defined in the Investment Company Act of 1940, as
amended (the 1940 Act)) of the Trust (the Independent Trustees), adopts these proxy voting
policies and procedures.
The Fund of the Trust or any other registered investment company (or series thereof) (each, a
fund) is required to disclose its proxy voting policies and procedures in its registration
statement and, pursuant to Rule 30b1-4 under the 1940 Act, file annually with the Securities and
Exchange Commission and make available to shareholders its actual proxy voting record. In this
regard, the Trust Policy is set forth below.
Delegation of Proxy Voting Responsibilities
It is the policy of the Trust to delegate the responsibility for voting proxies relating to
portfolio securities held by The Fund to the funds investment adviser (adviser) or, if the
funds adviser has delegated portfolio management responsibilities to one or more investment
subadviser(s), to the funds subadviser(s), subject to the Boards continued oversight. The
subadviser for The Fund shall vote all proxies relating to securities held by The Fund and in that
connection, and subject to any further policies and procedures contained herein, shall use proxy
voting policies and procedures adopted by each subadviser in conformance with Rule 206(4)-6 under
the Investment Advisers Act of 1940, as amended (the Advisers Act).
Except as noted below under Material Conflicts of Interest, the Trust Policy with respect to The
Fund shall incorporate that adopted by the funds subadviser with respect to voting proxies held by
its clients (the Subadviser Policy). Each Subadviser Policy, as it may be amended from time to
time, is hereby incorporated by reference into the Trust Policy. Each subadviser to The Fund is
directed to comply with these policies and procedures in voting proxies relating to portfolio
securities held by The Fund, subject to oversight by the funds adviser and by the Board. Each
adviser to The Fund retains the responsibility, and is directed, to oversee each subadvisers
compliance with these policies and procedures, and to adopt and implement such additional policies
and procedures as it deems necessary or appropriate to discharge its oversight responsibility.
Additionally, the Trusts Chief Compliance Officer (CCO) shall conduct such monitoring and
supervisory activities as the CCO or the Board deems necessary or appropriate in order to
appropriately discharge the CCOs role in overseeing the subadvisers compliance with these
policies and procedures.
The delegation by the Board of the authority to vote proxies relating to portfolio securities of
the funds is entirely voluntary and may be revoked by the Board, in whole or in part, at any time.
Voting Proxies of Underlying Funds of The Fund of Funds
A. Where the Fund of Funds is not the Sole Shareholder of the Underlying Fund
With respect to voting proxies relating to the shares of an underlying fund (an Underlying Fund)
held by The Fund of the Trust operating as The Fund of funds (a Fund of Funds) in reliance on
Section 12(d)(1)(G) of the 1940 Act where the Underlying Fund has shareholders other than the Fund
of Funds which are not other Fund of Funds, the Fund of Funds will vote proxies relating to shares
of the Underlying Fund in the same proportion as the vote of all other holders of such Underlying
Fund shares.
B. Where the Fund of Funds is the Sole Shareholder of the Underlying Fund
B-4
In the event that one or more Funds of Funds are the sole shareholders of an Underlying Fund, the
adviser to the Fund of Funds or the Trust will vote proxies relating to the shares of the
Underlying Fund as set forth below unless the Board elects to have the Fund of Funds seek voting
instructions from the shareholders of the Funds of Funds in which case the Fund of Funds will vote
proxies relating to shares of the Underlying Fund in the same proportion as the instructions timely
received from such shareholders.
1. Where Both the Underlying Fund and the Fund of Funds are Voting on Substantially
Identical Proposals
In the event that the Underlying Fund and the Fund of Funds are voting on substantially
identical proposals (the Substantially Identical Proposal), then the adviser or the Fund
of Funds will vote proxies relating to shares of the Underlying Fund in the same proportion
as the vote of the shareholders of the Fund of Funds on the Substantially Identical
Proposal.
2. Where the Underlying Fund is Voting on a Proposal that is Not Being Voted on By the
Fund of Funds
a. Where there is No Material Conflict of Interest Between the Interests of the
Shareholders of the Underlying Fund and the Adviser Relating to the Proposal
In the event that the Fund of Funds is voting on a proposal of the Underlying Fund
and the Fund of Funds is not also voting on a substantially identical proposal and
there is no material conflict of interest between the interests of the shareholders
of the Underlying Fund and the adviser relating to the Proposal, then the adviser
will vote proxies relating to the shares of the Underlying Fund pursuant to its
Proxy Voting Procedures.
b. Where there is a Material Conflict of Interest Between the Interests of the
Shareholders of the Underlying Fund and the Adviser Relating to the Proposal
In the event that the Fund of Funds is voting on a proposal of the Underlying Fund
and the Fund of Funds is not also voting on a substantially identical proposal and
there is a material conflict of interest between the interests of the shareholders
of the Underlying Fund and the adviser relating to the Proposal, then the Fund of
Funds will seek voting instructions from the shareholders of the Fund of Funds on
the proposal and will vote proxies relating to shares of the Underlying Fund in the
same proportion as the instructions timely received from such shareholders. A
material conflict is generally defined as a proposal involving a matter in which the
adviser or one of its affiliates has a material economic interest.
Material Conflicts of Interest
If: (1) a subadviser to The Fund becomes aware that a vote presents a material conflict between
the interests of: (a) shareholders of the fund; and (b) the funds adviser, subadviser, principal
underwriter, or any of their affiliated persons, and (2) the subadviser does not propose to vote on
the particular issue in the manner prescribed by its Subadviser Policy or the material conflict of
interest procedures set forth in its Subadviser Policy are otherwise triggered, then the subadviser
will follow the material conflict of interest procedures set forth in its Subadviser Policy when
voting such proxies.
If a Subadviser Policy provides that in the case of a material conflict of interest between fund
shareholders and another party, the subadviser will ask the Board to provide voting instructions,
the subadviser shall vote the proxies, in its discretion, as recommended by an independent third
party, in the manner prescribed by its Subadviser Policy or abstain from voting the proxies.
Securities Lending Program
Certain of the funds participate in a securities lending program with the Trust through an agent
lender. When The Funds securities are out on loan, they are transferred into the borrowers name
and are voted by the borrower, in its discretion. Where a subadviser determines, however, that a
proxy vote (or other shareholder action) is materially important to the clients account, the
subadviser should request that the agent recall the security prior to the record date to allow the
subadviser to vote the securities.
B-5
Disclosure of Proxy Voting Policies and Procedures in the Trusts SAI (SAI)
The Trust shall include in its SAI a summary of the Trust Policy and of the Subadviser Policy
included therein. (In lieu of including a summary of these policies and procedures, the Trust may
include each full Trust Policy and Subadviser Policy in the SAI.)
Disclosure of Proxy Voting Policies and Procedures in Annual and Semi-Annual Shareholder Reports
The Trust shall disclose in its annual and semi-annual shareholder reports that a description of
the Trust Policy, including the Subadviser Policy, and the Trusts proxy voting record for the most
recent 12 months ended June 30 are available on the Securities and Exchange Commissions (SEC)
website, and without charge, upon request, by calling a specified toll-free telephone number. The
Trust will send these documents within three business days of receipt of a request, by first-class
mail or other means designed to ensure equally prompt delivery.
Filing of Proxy Voting Record on Form N-PX
The Trust will annually file its complete proxy voting record with the SEC on Form N-PX. The Form
N-PX shall be filed for the twelve months ended June 30 no later than August 31 of that year.
PROCEDURES:
Review of Subadvisers Proxy Voting
The Trust has delegated proxy voting authority with respect to fund portfolio securities in
accordance with the Trust Policy, as set forth above.
Consistent with this delegation, each subadviser is responsible for the following:
|
1) |
|
Implementing written policies and procedures, in compliance with Rule 206(4)-6 under
the Advisers Act, reasonably designed to ensure that the subadviser votes portfolio
securities in the best interest of shareholders of the Trust. |
|
|
2) |
|
Providing the adviser with a copy and description of the Subadviser Policy prior to
being approved by the Board as a subadviser, accompanied by a certification that represents
that the Subadviser Policy has been adopted in conformance with Rule 206(4)-6 under the
Advisers Act. Thereafter, providing the adviser with notice of any amendment or revision
to that Subadviser Policy or with a description thereof. The adviser is required to report
all material changes to a Subadviser Policy quarterly to the Board. The CCOs annual
written compliance report to the Board will contain a summary of the material changes to
each Subadviser Policy during the period covered by the report. |
|
|
3) |
|
Providing the adviser with a quarterly certification indicating that the subadviser did
vote proxies of the funds and that the proxy votes were executed in a manner consistent
with the Subadviser Policy. If the subadviser voted any proxies in a manner inconsistent
with the Subadviser Policy, the subadviser will provide the adviser with a report detailing
the exceptions. |
Adviser Responsibilities
The Trust has retained a proxy voting service to coordinate, collect, and maintain all
proxy-related information, and to prepare and file the Trusts reports on Form N-PX with the SEC.
The adviser, in accordance with its general oversight responsibilities, will periodically review
the voting records maintained by the proxy voting service in accordance with the following
procedures:
|
1) |
|
Receive a file with the proxy voting information directly from each subadviser on a
quarterly basis. |
B-6
|
2) |
|
Select a sample of proxy votes from the files submitted by the subadvisers and compare
them against the proxy voting service files for accuracy of the votes. |
|
|
3) |
|
Deliver instructions to shareholders on how to access proxy voting information via the
Trusts semi-annual and annual shareholder reports. |
Proxy Voting Service Responsibilities
Aggregation of Votes:
The proxy voting services proxy disclosure system will collect fund-specific and/or account-level
voting records, including votes cast by multiple subadvisers or third party voting services.
Reporting:
The proxy voting services proxy disclosure system will provide the following reporting features:
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1) |
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multiple report export options; |
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2) |
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report customization by fund-account, portfolio manager, security, etc.; and |
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3) |
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account details available for vote auditing. |
Form N-PX Preparation and Filing:
The adviser will be responsible for oversight and completion of the filing of the Trusts reports
on Form N-PX with the SEC. The proxy voting service will prepare the EDGAR version of Form N-PX
and will submit it to the adviser for review and approval prior to filing with the SEC. The proxy
voting service will file Form N-PX for each twelve-month period ending on June 30. The filing must
be submitted to the SEC on or before August 31 of each year.
B-7
Schedule A
PROXY VOTING POLICIES AND PROCEDURES
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|
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JOHN HANCOCK FUNDS:
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Adopted:
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Amended: |
John Hancock Variable Insurance Trust
|
|
September 28, 2007
|
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March 26, 2008 |
John Hancock Funds II
|
|
September 28, 2007
|
|
March 26, 2008 |
John Hancock Funds III
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Bond Trust
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|
September 11, 2007
|
|
June 10, 2008 |
John Hancock California Tax-Free Income Fund
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Capital Series
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Current Interest
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Equity Trust
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|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Investment Trust
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Investment Trust II
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Investment Trust III
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Municipal Securities Trust
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Series Trust
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Sovereign Bond Fund
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Strategic Series
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Tax-Exempt Series
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|
September 11, 2007
|
|
June 10, 2008 |
John Hancock World Fund
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|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Preferred Income Fund
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Preferred Income Fund II
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|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Preferred Income Fund III
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|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Patriot Premium Dividend Fund II
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|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Bank & Thrift Opportunity Fund
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|
September 11, 2007
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|
June 10, 2008 |
John Hancock Income Securities Trust
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|
September 11, 2007
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June 10, 2008 |
John Hancock Investors Trust
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|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Tax-Advantaged Dividend Income Fund
|
|
September 11, 2007
|
|
June 10, 2008 |
John Hancock Tax-Advantaged Global Shareholder
Yield Fund
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|
September 11, 2007
|
|
June 10, 2008 |
B-8
Proxy Voting Policy
Executive Summary
Manulife Asset Management (US) LLC (Manulife Asset Management (US) or the Firm) is registered
with the U.S. Securities and Exchange Commission (SEC) as an investment adviser.
The Firm believes that its Proxy Voting Policy is reasonably designed to ensure that proxy
matters are conducted in the best interest of clients, and in accordance with Manulife Asset
Management (US)s fiduciary duties, applicable rules under the Investment Advisers Act of 1940 and fiduciary
standards and responsibilities for ERISA clients set out in the U.S. Department of Labor
interpretations.
Manulife Asset Management (US) seeks to vote proxies in the best economic interests of all of
its clients
for whom the Firm has proxy voting authority and responsibilities. In the ordinary course, this
entails voting proxies in a way which Manulife Asset Management (US) believes will maximize the
monetary value of each portfolios holdings. Manulife Asset Management (US) takes the view that
this will benefit the clients.
To fulfill the Firms fiduciary duty to clients with respect to proxy voting, Manulife Asset
Management (US) has contracted with the RiskMetrics Group (RiskMetrics), an independent third
party service provider, to vote clients proxies according to RiskMetrics proxy voting
recommendations. Proxies will be voted in accordance with the voting recommendations contained in
the applicable domestic or global RiskMetrics Proxy Voting Manual, as in effect from time to time.
Except in instances where a Manulife Asset Management (US) client retains voting authority,
Manulife Asset Management (US) will instruct custodians of client accounts to forward all proxy
statements and materials received in respect of client accounts to RiskMetrics.
Manulife Asset Management (US) has engaged RiskMetrics as its proxy voting agent to:
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1. |
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research and make voting recommendations or, for matters for which Manulife Asset
Management (US) has so delegated, to make the voting determinations; |
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2. |
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ensure that proxies are voted and submitted in a timely manner; |
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3. |
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handle other administrative functions of proxy voting; |
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4. |
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maintain records of proxy statements received in connection with proxy votes and provide
copies of such proxy statements promptly upon request; |
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5. |
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maintain records of votes cast; and |
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6. |
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provide recommendations with respect to proxy voting matters in general. |
The proxy voting function of Manulife Asset Management (US) Operations is responsible for
administering and implementing the Proxy Voting Policy, including the proper oversight of any
service providers hired by the Firm to assist it in the proxy voting process. Oversight of the
proxy voting process is the responsibility of the Firms Senior Investment Policy Committee.
Introduction
Manulife Asset Management (US) LLC (Manulife Asset Management (US) or the Firm) is
registered with the U.S. Securities and Exchange Commission (SEC) as an investment adviser. As a
registered investment adviser, Manulife Asset Management (US) must comply with the requirements of
the SEC Investment Advisers Act of
1940, as amended and the rules there under (Advisers
Act). In accordance with Rule 206(4)-7 of the Advisers Act, Manulife Asset Management (US) has
adopted policies and procedures reasonably designed to prevent violations of the Advisers Act and
designated a Chief Compliance Officer to administer its compliance policies and procedures.
B-9
The Firm is a wholly owned subsidiary of Manulife Financial Corporation (Manulife
Financial) and is affiliated with several SEC-registered and non-SEC registered investment
advisers which are also subsidiaries or affiliates of Manulife
Financial. Collectively, Manulife Asset Management (US) and its advisory affiliates represent the
diversified investment management division of Manulife Financial and they provide comprehensive
asset management solutions for institutional investors, retirement and investment funds, and
individuals, in key markets around the world. Certain of these companies within Manulife
Financial offer a number of products and services designed specifically for various categories of
investors in a number of different countries and regions. These products or services are only
offered to such investors in those countries and regions in accordance with applicable laws and
regulations.
The Firm manages assets for a variety of institutional and other types of clients, including
public and private pension funds, financial institutions and investment trusts. It also manages
registered and private collective funds, including UCITS, US and Canadian open- and closed-end
mutual funds. In particular, the Firm is affiliated with, and serves as investment manager or a
sub-adviser to, a number of mutual fund families that are sponsored by affiliates (the Funds).
This
investment expertise extends across a full range of asset classes including equity, fixed
income and alternative investments such as real estate, as well as asset allocation strategies.
The portfolios under management have a mix of investment objectives and may invest in, or
create exposure to, a wide variety of financial instruments in different asset classes,
including listed and unlisted equity and fixed income securities, commodities, fixed income
instruments, derivatives and structured products, futures and options.
Proxy Voting Policy
This Proxy Voting Policy (the Policy) covers the proxy activities and related disclosure
obligations of Manulife Asset Management (US) and applies to all Manulife Asset Management (US)
clients for whom Manulife Asset Management (US) has been delegated the authority to vote proxies.
The Proxy Voting Policy is designed to meet the needs of Manulife Asset Management (US)s
clients with strict adherence to the highest principles of fiduciary conduct, including minimizing
any potential material conflict of
interest between the Firm and the Firms clients. It is also designed to ensure compliance
with the applicable rules and regulations of the various regulators to which Manulife Asset
Management (US) is subject. It sets forth the general corporate governance principles of Manulife
Asset Management (US) in ensuring that clear guidelines are established for voting proxies and
communicating such with our clients, regulators and other relevant parties.
The structure and purpose of the Proxy Voting Policy will continually evolved in alignment with
the risk profile of Manulife Asset Management (US), internal standards and requirements, roles and
responsibilities of the Manulife Asset Management (US) Board and other relevant oversight
committees, and regulatory requirements. The Proxy Voting Policy is not intended to cover every
possible situation that may arise in the course of conducting the Firms business. It is meant to
be subject to change and to interpretation from time to time where facts and circumstances
dictate, or where new regulations or guidance become effective, or where the plain language of the
Policy appears unclear in light of the particular circumstances.
All Firm employees are asked to consult with the Chief Compliance Officer of Manulife Asset
Management (US) (Chief Compliance Officer) if they have any questions concerning this Policy,
questions about the standards set forth, or questions about proxy voting in general. Where,
however, such obligations are inconsistent with this Policy, then the matter should
immediately be referred to the Chief Compliance Officer and the Manulife Asset Management (US)
General Counsel (General Counsel) who have authority to interpret this Policy or to take
appropriate action in accordance with the principles set forth in this Policy in a manner in any
situations not specifically covered by guidelines or procedures.
The Proxy Policy has the following six sections:
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1. |
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General Principles |
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2. |
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Standards |
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3. |
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Administration
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4. |
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Conflict of Interest |
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5. |
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Recordkeeping |
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6. |
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Policy Administration |
B-10
General Principles
Scope
Manulife Asset Management (US) provides investment advisory services to both ERISA and
non-ERISA institutional clients, the Funds, and other non-institutional clients (collectively, the
Clients). Manulife Asset Management (US) understands that proxy voting is an integral aspect of
security ownership. Accordingly, in cases where Manulife Asset Management (US) has been delegated
authority to vote proxies, that function must be conducted with the same degree of prudence and
loyalty accorded any fiduciary or other obligation of an investment manager.
This Policy permits Clients to:
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1. |
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delegate to Manulife Asset Management (US) the responsibility and authority to vote
proxies on their behalf according to Manulife Asset Management (US)s proxy voting polices
and guidelines; |
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2. |
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delegate to Manulife Asset Management (US) the responsibility and authority to vote
proxies on their behalf according to the particular Clients own proxy voting policies and
guidelines, subject to acceptance by the Firm, as mutually agreed upon between the Firm and
the Client; or |
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3. |
|
elect to vote proxies themselves. In instances where Clients elect to vote their own
proxies, Manulife Asset Management (US) shall not be responsible for voting proxies on behalf
of such Clients. |
Policy Statement
Manulife Asset Management (US) seeks to vote proxies in the best economic interests of all of
its Clients
for whom the Firm has proxy voting authority and responsibilities. In the ordinary course, this
entails voting proxies in a way which Manulife Asset Management (US) believes will maximize the
monetary value of each portfolios holdings. Manulife Asset Management (US) takes the view that
this will benefit the Clients.
The Firm believes that its Proxy Voting Policy is reasonably designed to ensure that proxy
matters are conducted in the best interest of Clients, and in accordance with Manulife Asset
Management (US)s
fiduciary duties, applicable rules under the Investment Advisers Act of 1940 and fiduciary
standards and responsibilities for ERISA clients set out in the U.S. Department of Labor
interpretations.
To fulfill the Firms fiduciary duty to Clients with respect to proxy voting, Manulife Asset
Management (US) has contracted with the RiskMetrics Group (RiskMetrics), an independent
third-party service provider, to vote Clients proxies according to RiskMetrics proxy voting
recommendations. Proxies will be voted in accordance with the voting recommendations contained in
the applicable domestic or global RiskMetrics Proxy
Voting Manual, as in effect from time to time. Except in instances where a Manulife Asset
Management (US) client retains voting authority, Manulife Asset Management (US) will instruct
custodians of client accounts to forward all proxy statements and materials received in respect
of client accounts to RiskMetrics.
Manulife Asset Management (US) provides copies of the current domestic and global
RiskMetrics proxy voting guidelines upon request. It reserves the right to amend any of
RiskMetricss guidelines in the future. If any such changes are made an amended Proxy Voting
Policy will be made available for clients.
Therefore, the Proxy Voting Policy encompasses the following principles:
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|
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The proxy voting function of Manulife Asset Management (US) Operations (Proxy
Operations) shall cause the implementation of procedures, practices, and controls
(collectively, the Procedures) sufficient to promote high quality fiduciary administration
of the Proxy Voting Policy, including the proper oversight of any service providers hired by
the Firm to assist it in the proxy voting process. Such Procedures shall be reasonably
designed to meet all applicable regulatory requirements and highest fiduciary standards. |
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The Chief Compliance Officer makes an annual risk-based assessment of Manulife Asset
Management (US)s compliance program, which may include proxy voting activities, and may
conduct a review of the Procedures to determine that such Procedures are satisfactory to
promote high-quality fiduciary administration. The Chief Compliance Officer makes periodic
reports to Manulife Asset Management (US) Senior Investment Policy Committee (SIPC) that
include a summary of instances where Manulife Asset Management (US) has (i) voted proxies in
a manner inconsistent with the recommendation of RiskMetrics, and (ii) voted proxies in
circumstances in which a material conflict of interest may exist as set forth in the
Conflicts section. |
B-11
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Except as otherwise required by law, Manulife Asset Management (US) has a general policy
of not disclosing to any issuer or third-party how Manulife Asset Management (US) or its
voting delegate voted a Clients proxy. |
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Manulife Asset Management (US) endeavors to show sensitivity to local market practices
when voting proxies of non-U.S. issuers. Manulife Asset Management (US) votes in all
markets where it is feasible to do so. |
Standards
Manulife Asset Management (US) has engaged RiskMetrics as its proxy voting agent to:
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1. |
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research and make voting recommendations or, for matters for which Manulife Asset
Management (US) has so delegated, to make the voting determinations; |
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2. |
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ensure that proxies are voted and submitted in a timely manner; |
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3. |
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handle other administrative functions of proxy voting; |
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4. |
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maintain records of proxy statements received in connection with proxy votes and provide
copies of such proxy statements promptly upon request; |
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5. |
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maintain records of votes cast; and |
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6. |
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provide recommendations with respect to proxy voting matters in general. |
Oversight of the proxy voting process is the responsibility of the SIPC. The SIPC reviews and
approves amendments to the Proxy Voting Policy and delegates authority to vote in accordance with
this Policy to RiskMetrics.
Manulife Asset Management (US) does not engage in the practice of empty voting ( a term
embracing a variety of factual circumstances that result in a partial or total separation of the
right to vote at a shareholders meeting from beneficial ownership of the shares on the meeting
date). Manulife Asset Management (US) prohibits investment managers from creating large hedge
positions solely to gain the vote while avoiding economic exposure to the market. Manulife Asset
Management (US) will not knowingly vote borrowed shares (for example, shares borrowed for short
sales and hedging transactions) that the lender of the shares is also voting.
Manulife Asset Management (US) reviews various criteria to determine whether the costs
associated with voting the proxy exceed the expected benefit to Clients and may conduct a
cost-benefit analysis in determining whether it is in the best economic interest to vote client
proxies. Given the outcome of the cost-benefit analysis, the Firm may refrain from voting a proxy
on behalf of the Clients accounts.
In addition, Manulife Asset Management (US) may refrain from voting a proxy due to
logistical
considerations that may have a detrimental effect on the Firms ability to vote such a proxy.
These issues may include, but are not limited to:
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1. |
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proxy statements and ballots being written in a foreign language; |
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2. |
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underlying securities have been lent out pursuant to a Clients securities lending
program; |
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3. |
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untimely notice of a shareholder meeting; |
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4. |
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requirements to vote proxies in person; |
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5. |
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restrictions on foreigners ability to exercise votes; |
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6. |
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restrictions on the sale of securities for a period of time in proximity to the shareholder
meeting (share blocking and re-registration); |
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7. |
|
requirements to provide local agents with power of attorney to facilitate the voting
instructions (such proxies are voted on a best-efforts basis); or |
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8. |
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inability of a Clients custodian to forward and process proxies electronically. |
Administration
Proxy Operations is responsible for administering the proxy voting process, including:
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1. |
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Implementing and updating the applicable domestic and global RiskMetrics proxy voting
guidelines; |
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2. |
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Coordinating and overseeing the proxy voting process performed by RiskMetrics; and |
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3. |
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Providing periodic reports to the SIPC, the Chief Compliance Officer and Clients as
requested. |
B-12
As noted, all proxies received on behalf of Clients are forwarded to RiskMetrics. Any
Manulife Asset Management (US) employee that receives a clients proxy statement should
therefore notify Proxy Operations and arrange for immediate delivery to RiskMetrics.
From time to time, proxy votes will be solicited which
(i) involve special circumstances and require additional research and discussion or (ii) are
not directly addressed by RiskMetrics. These proxies are identified through
a number of methods, including but not limited to notification from RiskMetrics, concerns of
clients, and questions from consultants.
In such instances of special circumstances or issues not directly addressed by RiskMetrics, a
sub-committee
of SIPC (Proxy Committee) will be consulted for a determination of the proxy vote. The Proxy
Committee comprises of no fewer than three members of SIPC. Although the Firm anticipates that
such instances will be rare, The Proxy Committees first determination is whether there is a
material conflict of interest between the interests of a Client and those of Manulife Asset
Management (US). If the Proxy Committee determines that there is a material conflict, the process
detailed under Potential Conflicts below is followed. If there is no material conflict, the
Proxy Committee examines each of the issuers proposals in detail in seeking to determine what
vote would be in the best interests of Clients. At this point, the Proxy Committee will make a
voting decision based on maximizing the monetary value of all portfolios holdings.
There may be circumstances under which a portfolio manager or other Manulife Asset Management (US)
investment professional (Manulife Asset Management (US) Investment Professional) believes that
it is in the best interest of a Client or Clients to vote proxies in
a manner inconsistent with the recommendation of RiskMetrics. In such an event, as feasible, the
Manulife Asset Management (US) Investment Professional
shall inform Proxy Operations of his or her decision to vote such proxy in a manner inconsistent
with the recommendation of RiskMetrics. Proxy Operations will report to the Chief Compliance
Officer no less than quarterly any instance where a Manulife Asset
Management (US) Investment Professional has decided to vote a proxy on behalf of a Client in that
manner.
In addition to voting proxies, Manulife Asset Management (US):
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1. |
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describes its proxy voting procedures to its clients in the relevant or required
disclosure document, including Part II of its Form ADV; |
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2. |
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provides clients with a copy of the Proxy Voting Policy, upon request; |
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3. |
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discloses to its clients how they may obtain information on how Manulife Asset Management
(US) voted the clients proxies; |
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4. |
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generally applies its Proxy Voting Policy consistently and keeps records of votes for each
Client; |
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5. |
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documents the reason(s) for voting for all non-routine items; and |
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6. |
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keeps records of such proxy voting through RiskMetrics available for inspection by the Client
or governmental agencies. |
Conflict of Interest
In instances where Manulife Asset Management (US) has the responsibility and authority to
vote proxies on behalf of its clients for which Manulife Asset Management (US) serves as the
investment adviser, there may be instances where a material
conflict of interest exists. For example, Manulife Asset Management (US) or its affiliates
may provide services to a company whose management is soliciting proxies, or to another entity
which is a proponent of a particular proxy proposal. Another example could arise when Manulife
Asset Management (US) or its affiliates has business or other relationships with participants
involved in proxy contests, such as a candidate for a corporate directorship. More specifically, if
Manulife Asset Management (US) is aware that one of the following conditions exists with respect to
a proxy, Manulife Asset Management (US) shall consider such event a potential material conflict of
interest:
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1. |
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Manulife Asset Management (US) has a business relationship or potential relationship with
the issuer; |
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2. |
|
Manulife Asset Management (US) has a business relationship with the proponent of the
proxy proposal; or |
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3. |
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Manulife Asset Management (US) members, employees or consultants have a personal or |
B-13
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other business relationship with the participants in the proxy contest, such as corporate
directors or director candidates. |
As a fiduciary to its clients, Manulife Asset Management (US) takes these potential conflicts
very seriously.
While Manulife Asset Management (US)s only goal in addressing any such potential conflict
is to ensure that proxy votes are cast in the clients best interests and are not affected by
Manulife Asset Management (US)s potential conflict, there are a number of courses Manulife Asset
Management (US) may take. The final decision as to which course to follow shall be made by the
Proxy Committee.
In the event of a potential material conflict of interest, the Proxy Committee will (i) vote
such proxy according to the specific recommendation of RiskMetrics; (ii) abstain; or (iii)
request that the Client votes such proxy. All such instances shall be reported to the Chief
Compliance Officer at least quarterly.
As RiskMetrics will vote proxies in accordance with its proxy voting guidelines, Manulife Asset
Management (US) believes that this process is reasonably designed to address conflicts of interest
that may arise between Manulife Asset Management (US) and a Client as to how proxies are voted.
When the matter falls clearly within one of the proposals enumerated in RiskMetrics proxy voting
policy, casting a vote which simply follows RiskMetrics pre-determined policy would eliminate
Manulife Asset Management (US)s discretion on the particular issue and hence avoid the conflict.
In other cases, where the matter presents a potential material conflict and is not clearly within
one of the RiskMetrics enumerated recommendations, or is of such a nature that the Proxy
Committee believes more active involvement is necessary, the Proxy Committee shall make a decision
as to the voting of the proxy. The basis for the voting decision, including the basis for the
determination that the decision is in the best interests of Clients, shall be formalized in
writing as a part of the minutes of the Proxy Committee. Which action is appropriate in any given
scenario would be the decision of the Proxy Committee in carrying out its duty to
ensure that the proxies are voted in the Clients, and not Manulife Asset Management (US)s,
best interests.
Recordkeeping
In accordance with applicable law, Manulife Asset Management (US) shall retain the following
documents for not less than five years from the end of the year
in which the proxies were voted, the first two years in Manulife Asset Management (US)s
office:
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the Manulife Asset Management (US) Proxy Voting Policy and any additional procedures
created pursuant to that policy; |
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|
|
a copy of each proxy statement Manulife Asset Management (US) receives regarding
securities held by Clients (this requirement will be satisfied by RiskMetrics who has agreed
in writing to do so or by obtaining a copy of the proxy statement from the EDGAR database); |
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|
|
a record of each vote cast by Manulife Asset Management (US) (this requirement will be
satisfied by RiskMetrics who has agreed in writing to do so) on behalf of Clients; |
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a copy of any document created by Manulife Asset Management (US) that was material in
making its voting decision or that memorializes the basis for such decision; and |
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|
a copy of each written request from a client, and response to the client, for
information on how Manulife Asset Management (US) clients proxies were voted. |
Policy Administration
The Proxy Voting Policy shall be review and approved by the Chief Compliance Officer at least
annually.
The Chief Compliance Officer shall make periodic reports to the SIPC covering the
effectiveness of the Policy.
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|
Policy Edition: February 2011 |
|
![(MANULIFE ASSET MANAGEMANT LOGO)](b87778a1b8777809.gif) |
B-14
JOHN HANCOCK SOVEREIGN BOND FUND
PART C
OTHER INFORMATION
Item 28. Exhibits.
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99.(a) |
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Amended and Restated Declaration of Trust dated March 8, 2005. previously filed as
exhibit 99.(a) to post-effective amendment no. 58 filed on September 14, 2005, accession
number 0001010521-05-000406. |
|
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|
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99.(a).1 |
|
Amendment dated June 24, 2005 to the Amended and Restated Declaration of Trust regarding
change of address of principal place of business. previously filed as exhibit 99.(a).1 to
post-effective amendment no. 59 filed on September 27, 2006, accession number
0001010521-06-000828. |
|
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|
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99.(a).2 |
|
Amendment dated April 17, 2009 to the Amended and Restated Declaration of Trust regarding
amendment and restatement of Section 8.4. previously filed as exhibit 99.(a).2 to
post-effective amendment no. 65 filed on September 25, 2009, accession number
0000950123-09-046087. |
|
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|
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99.(a).3 |
|
Amendment March 12, 2010 to the Amended and Restated Declaration of Trust regarding
amendment of Section 5.11 with respect to Class R1 shares. previously filed as exhibit
99.(a).3 to post-effective amendment no. 66 filed on September 28, 2010, accession number
0000950123-010-089477. |
|
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99.(a).4 |
|
Certificate dated August 4, 2011 regarding establishment and designation of Class R6
shares relating to John Hancock Bond Fund. FILED HEREWITH. |
|
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99.(b) |
|
Amended and Restated By-Laws dated March 8, 2005. previously filed as exhibit 99.(b) to
post-effective amendment no. 58 filed on September 14, 2005, accession number
0001010521-05-000406. |
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|
99.(b).1 |
|
Amendment dated March 11, 2008 to the Amended and Restated By-Laws. previously filed as
exhibit 99.(b).1 to post-effective amendment no. 65 filed on September 25, 2009, accession
number 0000950123-09-046087. |
|
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99.(b).2 |
|
Amendment dated June 9, 2009 to the Amended and Restated By-Laws. previously filed as
exhibit 99.(b).2 to post-effective amendment no. 65 filed on September 25, 2009, accession
number 0000950123-09-046087. |
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99.(b).3 |
|
Amendment dated August 31, 2010 to the Amended and Restated By-Laws dated March 5, 2005.
FILED HEREWITH. |
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99.(c) |
|
Instruments Defining Rights of Security Holders. See Exhibit 99.(a) and 99.(b). |
|
|
|
99.(d) |
|
Investment Advisory Contracts. Advisory Agreement dated July 1, 2009 between Registrant and
John Hancock Advisers, LLC (the Adviser) relating to John Hancock Bond Fund previously
filed as exhibit 99.(d) to post-effective amendment no. 65 filed on September 25, 2009,
accession number 0000950123-09-046087. |
- 1 -
|
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99.(d).1 |
|
Amendment dated July 1, 2011 to the Advisory Agreement dated July 1, 2009 between
Registrant and the Adviser relating to John Hancock Bond Fund FILED HEREWITH. |
|
|
|
99.(d).2 |
|
Sub-Advisory Agreement dated December 31, 2005 among Registrant, the Adviser, and MFC
Global Investment Management (U.S.), LLC (now known as John Hancock Asset Management a
division of Manulife Asset Management (US) LLC) (the Subadviser) relating to John Hancock
Bond Fund. previously filed as exhibit 99.(d).1 to post-effective amendment no. 59 filed on
September 27, 2006, accession number 0001010521-06-000828. |
|
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99.(d).3 |
|
Amendment dated July 1, 2011 to the Sub-Advisory Agreement dated December 31, 2005 among
Registrant, the Adviser, and the Subadviser relating to John Hancock Bond Fund. FILED
HEREWITH. |
|
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99.(e) |
|
Underwriting Contracts. Distribution Agreement dated August 1, 1991 between Registrant and
John Hancock Broker Distribution Services, Inc. (renamed John Hancock Funds, Inc. and now
known as John Hancock Funds, LLC) (the Distributor). previously filed as exhibit 99.B6 to
post-effective amendment no. 39 filed on April 26, 1995, accession number
0000950146-95-000178. |
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99.(e).1 |
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Form of Soliciting Dealer Agreement between the Distributor and Selected Dealers.
previously filed as exhibit 99.(e).1 to post-effective amendment no. 57 filed on September 29,
2004, accession number 0001010521-04-000222. |
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99.(e).2 |
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Form of Financial Institution Sales and Service Agreement between the Distributor and the
John Hancock funds. previously filed as exhibit 99.B6.2 to post-effective amendment no. 39
filed on April 26, 1995, accession number 0000950146-95-000178. |
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99.(f) |
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Bonus or Profit Sharing Contracts. Not Applicable. |
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99.(g) |
|
Custodian Agreement. Master Custodian Agreement dated September 10, 2008 between John
Hancock Mutual Funds and State Street Bank and Trust Company. previously filed as exhibit
99.(g) to post-effective amendment no. 65 filed on September 25, 2009, accession number
0000950123-09-046087. |
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99.(h) |
|
Other Material Contracts. Class A Service Agreement dated January 24, 2000 among Charles
Schwab & Co., Inc., the Distributor, and John Hancock Signature Services, Inc. relating to
John Hancock Bond Fund previously filed as exhibit 99.(h).2 to post-effective amendment no.
49 filed on September 25, 2000, accession number 0001010521-00-000426. |
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99.(h).1 |
|
Master Transfer Agency and Service Agreement dated June 1, 2007 (the Transfer Agency
Agreement) between John Hancock Mutual Funds advised by the Adviser and John Hancock
Signature Services, Inc. previously filed as exhibit 99.(h) to post-effective amendment no.
61 filed on September 25, 2007, accession number 0001010521-07-000661. |
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99.(h).2 |
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Amendment dated June 1, 2008 to the Transfer Agency Agreement. previously filed as
exhibit 99.(h).1 to post-effective amendment no. 64 filed on October 2, 2008, accession number
0000950135-08-006310. |
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99.(h).3 |
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Amendment dated July 1, 2010 to the Transfer Agency Agreement. FILED HEREWITH. |
- 2 -
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99.(h).4 |
|
Service Agreement dated July 1, 2009 among the Adviser, John Hancock Investment Management
Services, LLC, and John Hancock Mutual Funds. previously filed as exhibit 99.(h).3 to
post-effective amendment no. 65 filed on September 25, 2009, accession number
0000950123-09-046087. |
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99.(h).5 |
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Expense Limitation Agreement dated June 7, 2011 between Registrant and the Adviser.
FILED HEREWITH. |
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99.(h).6 |
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Chief Compliance Officer Services Agreement dated March 10, 2009 by and among Registrant,
John Hancock Investment Management Services, LLC, the Adviser and Registrants Chief
Compliance Officer. previously filed as exhibit 99.(h).5 to post-effective amendment no. 66
filed on September 28, 2010, accession number 0000950123-010-089477. |
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99.(i) |
|
Legal Opinion previously filed as exhibit 99.(i) to post-effective amendment no. 63 filed
on September 25, 2008, accession number 0001010521-08-000421. |
|
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99.(i).1 |
|
Legal Opinion dated August 30, 2011 related to Class R6 shares. FILED HEREWITH. |
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99.(j) |
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Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP
FILED HEREWITH. |
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99.(k) |
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Omitted Financial Statements. Not Applicable. |
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99.(l) |
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Initial Capital Agreements. Not Applicable. |
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99.(m) |
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Rule 12b-1 Plan. Class A and Class B Distribution Plans dated July 1, 2009 between
Registrant and the Distributor relating to John Hancock Bond Fund. previously filed as
exhibit 99.(m) to post-effective amendment no. 65 filed on September 25, 2009, accession
number 0000950123-09-046087. |
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99.(m).1 |
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Class C Shares Distribution Plan dated October 1, 1998 between Registrant and the
Distributor previously filed as exhibit 99.(m).1 to post-effective amendment no. 46 filed
on September 28, 1998, accession number 0001010521-98-000334. |
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99.(m).2 |
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Class R Shares Distribution Plan dated August 1, 2003 between Registrant and the
Distributor previously filed as exhibit 99.(m).2 to post-effective amendment no. 54 filed
on August 5, 2003, accession number 0001010521-03-000257. |
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99.(m).3 |
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Class R Shares Service Plan dated August 1, 2003 between Registrant and the Distributor
previously filed as exhibit 99.(m).3 to post-effective amendment no. 54 filed on August 5,
2003, accession number 0001010521-03-000257. |
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99.(n) |
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Rule 18f-3 Plan. Amended and Restated Multiple Class Plan pursuant to Rule 18f-3 dated May
3, 2011 for John Hancock Mutual Funds advised by the Adviser. FILED HEREWITH. |
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99.(p) |
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Code of Ethics. Code of Ethics dated January 1, 2008 (as revised January 1, 2011) of the
Adviser and John Hancock Investment Management Services, LLC (each, a John Hancock Adviser),
the Distributor, John Hancock Distributors, LLC, and each open-end and closed-end fund advised
by a John Hancock Adviser. FILED HEREWITH. |
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99.(p).1 |
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Code of Ethics of the Subadviser, dated as of February 2011 FILED HEREWITH. |
- 3 -
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99.(q) |
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Power of Attorney dated December 7, 2010 FILED HEREWITH. |
Item 29. Persons Controlled by or Under Common Control with the Registrant.
John Hancock Advisers, LLC is the Adviser to the Registrant. The Adviser is a wholly owned
subsidiary of John Hancock Life Insurance Company (U.S.A.), which in turn is a subsidiary of
Manulife Financial Corporation (MFC), a publicly traded company based in Toronto, Canada. A
corporate organization list is set forth below.
- 4 -
MANULIFE FINANCIAL CORPORATION
PRINCIPAL SUBSIDIARIES December 31, 2010
Item 30. Indemnification.
Indemnification provisions relating to Registrants Trustees, officers, employees and agents are
set forth in Article IV of Registrants Declaration of Trust included as Exhibit (a) herein.
Under Section 12 of the Distribution Agreement, the Distributor has agreed to indemnify Registrant
and its Trustees, officers and controlling persons against claims arising out of certain acts and
statements of John Hancock Funds.
Section 9(a) of the By-Laws of John Hancock Life Insurance Company (USA)(the Insurance Company)
provides, in effect, that the Insurance Company will, subject to limitations of law, indemnify each
present and former director, officer and employee of the Insurance Company who serves as a Trustee
or officer of Registrant at the direction or request of the Insurance Company against litigation
expenses and liabilities incurred while acting as such, except that such indemnification does not
cover any expense or liability incurred or imposed in connection with any matter as to which such
person shall be finally adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Insurance Company. In addition, no such person will be
indemnified by the Insurance Company in respect of any final adjudication unless such settlement
shall have been approved as in the best interests of the Insurance Company either by vote of the
Board of Directors at a meeting composed of directors who have no interest in the outcome of such
vote, or by vote of the policyholders. The Insurance Company may pay expenses incurred in defending
an action or claim in advance of its final disposition, but only upon receipt of an undertaking by
the person indemnified to repay such payment if he should be determined not to be entitled to
indemnification.
Article V of the Limited Liability Company Agreement of the Adviser provides as follows:
Section 5.06. Indemnity and Exculpation.
(a) No Indemnitee, and no shareholder, director, officer, member, manager, partner, agent,
representative, employee or Affiliate of an Indemnitee, shall have any liability to the Company or
to any Member for any loss suffered by the Company (or the Corporation) which arises out of any
action or inaction by such Indemnitee with respect to the Company (or the Corporation) if such
Indemnitee so acted or omitted to act (i) in the good faith (A) belief that such course of conduct
was in, or was not opposed to, the best interests of the Company (or the Corporation), or (B)
reliance on the provisions of this Agreement, and (ii) such course of conduct did not constitute
gross negligence or willful misconduct of such Indemnitee.
(b) The Company shall, to the fullest extent permitted by applicable law, indemnify each person who
was or is a party or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of
the fact that he is or was, or has agreed to become, a Director or Officer, or is or was serving,
or has agreed to serve, at the request of the Company (or previously at the request of the
Corporation), as a director, officer, manager or trustee of, or in a similar capacity with, another
corporation, partnership, limited liability company, joint venture, trust or other enterprise
(including any employee benefit plan) (all such persons being referred to hereafter as an
Indemnitee), or by reason of any action alleged to have been taken or omitted in such capacity,
against all expenses (including attorneys fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by or on behalf of an Indemnitee in connection with such action,
suit or proceeding and any appeal therefrom.
(c) As a condition precedent to his right to be indemnified, the Indemnitee must notify the Company
in writing as soon as practicable of any action, suit, proceeding or investigation
- 5 -
involving him for which indemnity hereunder will or could be sought. With respect to any action,
suit, proceeding or investigation of which the Company is so notified, the Company will be entitled
to participate therein at its own expense and/or to assume the defense thereof at its own expense,
with legal counsel reasonably acceptable to the Indemnitee.
(d) In the event that the Company does not assume the defense of any action, suit, proceeding or
investigation of which the Company receives notice under this Section 5.06, the Company shall pay
in advance of the final disposition of such matter any expenses (including attorneys fees)
incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or
investigation or any appeal therefrom; provided, however, that the payment of such expenses
incurred by an Indemnitee in advance of the final disposition of such matter shall be made only
upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company as authorized in this Section 5.06, which undertaking shall be accepted
without reference to the financial ability of the Indemnitee to make such repayment; and further
provided that no such advancement of expenses shall be made if it is determined that (i) the
Indemnitee did not act in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Company, or (ii) with respect to any criminal action or
proceeding, the Indemnitee had reasonable cause to believe his conduct was unlawful.
(e) The Company shall not indemnify an Indemnitee seeking indemnification in connection with a
proceeding (or part thereof) initiated by such Indemnitee unless the initiation thereof was
approved by the Board of Directors. In addition, the Company shall not indemnify an Indemnitee to
the extent such Indemnitee is reimbursed from the proceeds of insurance, and in the event the
Company makes any indemnification payments to an Indemnitee and such Indemnitee is subsequently
reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund such
indemnification payments to the Company to the extent of such insurance reimbursement.
(f) All determinations hereunder as to the entitlement of an Indemnitee to indemnification or
advancement of expenses shall be made in each instance by (a) a majority vote of the Directors
consisting of persons who are not at that time parties to the action, suit or proceeding in
question (Disinterested Directors), whether or not a quorum, (b) a majority vote of a quorum of
the outstanding Common Shares, which quorum shall consist of Members who are not at that time
parties to the action, suit or proceeding in question, (c) independent legal counsel (who may, to
the extent permitted by law, be regular legal counsel to the Company), or (d) a court of competent
jurisdiction.
(g) The indemnification rights provided in this Section 5.06 (i) shall not be deemed exclusive of
any other rights to which an Indemnitee may be entitled under any law, agreement or vote of Members
or Disinterested Directors or otherwise, and (ii) shall inure to the benefit of the heirs,
executors and administrators of the Indemnitees. The Company may, to the extent authorized from
time to time by its Board of Directors, grant indemnification rights to other employees or agents
of the Company or other persons serving the Company and such rights may be equivalent to, or
greater or less than, those set forth in this Section 5.06. Any indemnification to be provided
hereunder may be provided although the person to be indemnified is no longer a Director or
Officer.
Item 31. Business and Other Connections of Investment Advisers.
For information as to the business, profession, vocation or employment of a substantial nature of
each of the officers and Directors of the Adviser, reference is made to Form ADV (801-8124) filed
under the Investment Advisers Act of 1940, which is incorporated herein by reference.
Item 32. Principal Underwriters.
- 6 -
(a) The Distributor acts as principal underwriter for the Registrant and also serves as principal
underwriter or distributor of shares for John Hancock Bond Trust, John Hancock California Tax-Free
Income Fund, John Hancock Capital Series, John Hancock Current Interest, John Hancock Funds II,
John Hancock Funds III, John Hancock Investment Trust, John Hancock Investment Trust II, John
Hancock Investment Trust III, John Hancock Municipal Securities Trust, John Hancock Series Trust,
John Hancock Strategic Series and John Hancock Tax-Exempt Series Fund.
(b) The following table presents certain information with respect to each director and officer of
the Distributor. The principal business address of each director or officer is 601 Congress
Street, Boston, Massachusetts 02110.
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POSITIONS AND |
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POSTIONS AND OFFICES WITH |
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OFFICES WITH |
NAME |
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UNDERWRITER |
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REGISTRANT |
Hugh McHaffie
|
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Director, Chairman
|
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Trustee |
Keith F. Hartstein
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Director, President and Chief Executive Officer
|
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President and Chief
Executive Officer |
John G. Vrysen
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Director, Executive Vice President and Chief
Operating Officer
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Trustee |
Michael Mahoney
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Chief Compliance Officer
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None |
Peter Levitt
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Treasurer
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None |
John J. Danello
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Senior Vice President
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Vice President, Law |
Thomas M. Kinzler
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Secretary, Chief Legal Counsel
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Secretary and Chief
Legal Officer |
Declan OBeirne
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Chief Financial Officer
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None |
Andrew G. Arnott
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Executive Vice President
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Senior Vice
President and Chief
Operating Officer |
Jeff Duckworth
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Senior Vice President
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None |
Carey Hoch
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Senior Vice President
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None |
Jeffrey H. Long
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Vice President, Finance
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None |
Howard Cronson
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Vice President and Assistant Treasurer
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None |
Krishna Ramdial
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Vice President, Treasury
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None |
(c) None.
Item 33. Location of Accounts and Records.
All applicable accounts, books and documents required to be maintained by the Registrant by Section
31(a) of the Investment Company Act of 1940, as amended, and the Rules promulgated thereunder are
in the possession and custody of Registrants custodian State Street Bank and
Trust Company, 2 Avenue de Lafayette, Boston, Massachusetts 02111, and its transfer agent, John
Hancock Signature Services, Inc., P.O. Box 55913, Boston, Massachusetts 02205-5913, with the
exception of certain corporate documents
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and portfolio trading documents that are in the possession
and custody of the Adviser, 601 Congress Street, Boston, Massachusetts, 02210, and the Subadviser,
101 Huntington Avenue, Boston, Massachusetts 02199-7603. Registrant is informed that all
applicable accounts, books and documents required to be maintained by registered investment
advisers are in the custody and possession of the Adviser and the Subadviser.
Item 34. Management Services.
Not Applicable.
Item 35. Undertakings.
Not Applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of
this Amendment to the Registration Statement under Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to the Registration Statement to be signed on its behalf by
the undersigned, duly authorized, in the City of Boston, and The Commonwealth of Massachusetts
on the 30th day of August, 2011.
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JOHN HANCOCK SOVEREIGN BOND FUND
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By: |
/s/Keith F. Hartstein
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Keith F. Hartstein |
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President and Chief Executive Officer |
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Pursuant to the requirements of the Securities Act of 1933, this Amendment to the
Registration Statement has been signed below by the following persons in the capacities
and on the date indicated.
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Signature |
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Title |
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Date |
/s/Keith F. Hartstein
Keith F. Hartstein
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President and
Chief Executive Officer
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August 30, 2011 |
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/s/Charles A. Rizzo
Charles A. Rizzo
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Chief Financial
Officer (Principal
Financial Officer and
Principal Accounting
Officer)
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August 30, 2011 |
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/s/James F. Carlin*
James F. Carlin
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Trustee
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August 30, 2011 |
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/s/William H. Cunningham*
William H. Cunningham
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Trustee
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August 30, 2011 |
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/s/Deborah C. Jackson*
Deborah C. Jackson
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Trustee
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August 30, 2011 |
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/s/Charles L. Ladner*
Charles L. Ladner
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Trustee
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August 30, 2011 |
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/s/Stanley Martin*
Stanley Martin
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Trustee
|
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August 30, 2011 |
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/s/Patti McGill Peterson*
Patti McGill Peterson
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Trustee
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August 30, 2011 |
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/s/ Hugh McHaffie*
Hugh McHaffie
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Trustee
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August 30, 2011 |
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/s/John A. Moore*
John A. Moore
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Trustee
|
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August 30, 2011 |
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/s/Steven R. Pruchansky*
Steven R. Pruchansky
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Trustee
|
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August 30, 2011 |
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/s/Gregory A. Russo*
Gregory A. Russo
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Trustee
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August 30, 2011 |
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/s/John G. Vrysen*
John G. Vrysen
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Trustee
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August 30, 2011 |
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*By: Power of Attorney |
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By:
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/s/Nicholas J. Kolokithas
Nicholas J. Kolokithas
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August 30, 2011 |
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Attorney-in-Fact |
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* |
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Pursuant to Power of Attorney filed herewith |
Exhibit Index
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99.(a).4 |
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Certificate dated August 4, 2011 regarding the establishment and designation of Class R6
shares. |
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99.(b).3 |
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Amendment dated August 31, 2010 to the Amended and Restated By-Laws. |
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99.(d).1 |
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Amendment dated July 1, 2011 to the Advisory Agreement. |
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99.(d).3 |
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Amendment dated July 1, 2011 to the Sub-Advisory Agreement. |
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99.(h).3 |
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Amendment dated July 1, 2010 to the Transfer Agency Agreement. |
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99.(h).5 |
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Expense Limitation Agreement dated June 7, 2011. |
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99.(i).1 |
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Legal Opinion dated August 30, 2011 related to Class R6 shares. |
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99.(j) |
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Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP. |
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99.(n) |
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Amended and Restated Multiple Class Plan pursuant to Rule 18f-3 dated May 3, 2011. |
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99.(p) |
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|
Code of Ethics dated January 1, 2008 (as revised January 1, 2011) of the Adviser, John
Hancock Investment Management Services, LLC, the Distributor, John Hancock Distributors, LLC,
and each open-end and closed-end fund advised by a John Hancock adviser. |
|
|
|
|
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99.(p).1 |
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|
Code of Ethics of the Subadviser dated February 2011. |
|
|
|
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|
99.(q) |
|
|
Power of Attorney dated December 7, 2010. |
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