nv2
As filed with the Securities and Exchange Commission on May 9, 2012
1933 Act File No. 333-142307
1940 Act File No. 811-22056
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
þ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
o Pre-Effective Amendment No.
o Post-Effective Amendment No.
and/or
þ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
þ Amendment No. 4
JOHN HANCOCK TAX-ADVANTAGED GLOBAL SHAREHOLDER YIELD 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: 1-800-225-6020
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.
If any of the securities being registered on this form are to be offered on a delayed or continuous
basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in
connection with a dividend reinvestment plan, check the following box. þ
It is proposed that this filing will become effective (check appropriate box):
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o when declared effective pursuant to Section 8(c) |
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Proposed Maximum |
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Proposed Maximum |
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Amount Being |
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Offering Price Per |
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Aggregate Offering |
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Amount of |
Title of Securities Being Registered |
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Registered (1) |
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Common Share (1) |
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Price (1) |
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Registration Fee (1)(2) |
Common Shares of Beneficial
Interest, $0.01 par value per share
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1,000
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$12.80
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$12,800
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$1.47 |
(1) |
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Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c)
under the Securities Act of 1933 based on the average of the high and low sales prices of the Common Shares
of beneficial interest on May 7, 2012 as reported on the NYSE. |
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(2) |
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Transmitted prior to filing. |
The Registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these
securities until the Registration Statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and is not soliciting an offer
to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 9, 2012
Base Prospectus
[______________] Shares
John Hancock Tax-Advantaged Global Shareholder Yield Fund
Common Shares
John Hancock Tax-Advantaged Global Shareholder Yield Fund (the Fund) is a diversified, closed-end
management investment company. The Fund commenced operations in September 2007 following an
initial public offering.
Investment Objective. The Funds investment objective is to provide total return consisting of a
high level of current income and gains and long term capital appreciation. In pursuing its
investment objective, the Fund seeks to achieve favorable after-tax returns for its shareholders by
seeking to minimize the U.S. federal income tax consequences on income and gains generated by the
Fund. There can be no assurance that the Fund will achieve its investment objective.
The Offering. The Fund may offer, from time to time, in one or more offerings, the Funds common
shares of beneficial interest, par value $0.01 per share (Common Shares). Common Shares may be
offered at prices and on terms to be set forth in one or more supplements to this Prospectus (each,
a Prospectus Supplement). You should read this Prospectus and the applicable Prospectus
Supplement carefully before you invest in Common Shares.
Common Shares may be offered directly to one or more purchasers, through agents designated from
time to time by us, or to or through underwriters or dealers. The Prospectus Supplement relating
to the offering will identify any agents, underwriters or dealers involved in the offer or sale of
Common Shares, and will set forth any applicable offering price, sales load, fee, commission or
discount arrangement between the Fund and its agents or underwriters, or among its underwriters, or
the basis upon which such amount may be calculated, net proceeds and use of proceeds, and the terms
of any sale. The Fund may not sell any Common Shares through agents, underwriters or dealers
without delivery of a Prospectus Supplement describing the method and terms of the particular
offering of the Common Shares.
Investment Strategy. Under normal market conditions, the Fund invests at least 80% of its total
assets in a diversified portfolio of dividend-paying securities of issuers located throughout the
world. The Fund seeks to produce superior, risk-adjusted returns by using a disciplined,
proprietary investment approach that is focused on identifying companies with strong free cash flow
and that use their free cash flow to seek to maximize shareholder yield through dividend
payments, stock repurchases and debt reduction. By assembling a diversified portfolio of
securities which, in the aggregate, possess positive growth of free cash flow, high cash dividend
yields, share buyback programs and net debt reductions, the Fund seeks to provide shareholders an
attractive total return with less volatility than the global equity market as a whole. Free cash
flow is the cash available for distribution to investors after all planned capital investment and
taxes. The Adviser (as defined below) believes that free cash flow is important because it allows
a company to pursue opportunities that enhance shareholder value.
Investment Adviser and Subadvisers. The Funds investment adviser is John Hancock Advisers, LLC
(the Adviser or JHA) and its subadvisers are Epoch Investment Partners, Inc. (Epoch) and
Analytic Investors, LLC (Analytic and, together with Epoch, the Subadvisers).
Exchange listing. The Common Shares are listed on the New York Stock Exchange (NYSE) under the
symbol HTY. Any new Common Shares offered and sold also will be listed on the NYSE and trade
under this symbol. As of April 30, 2012, the last reported sale price for the Common Shares was
$12.85.
The Common Shares have traded both at a premium and a discount to net asset value (NAV). The
Fund cannot predict whether Common Shares will trade in the future at a premium or discount to NAV.
The provisions of the Investment Company Act of 1940, as amended, generally require that the
public offering price of common shares (less any underwriting commissions and discounts) must equal
or exceed the NAV per share of a companys common stock (calculated within 48 hours of pricing).
The Funds issuance of Common Shares may have an adverse effect on prices in the secondary market
for the Funds Common Shares by increasing the number of Common Shares available, which may put
downward pressure on the market price for our Common Shares. Shares of common stock of closed-end
investment companies frequently trade at a discount from NAV, which may increase investors risk of
loss. The returns earned by holders of the Common Shares who purchase their shares in this
offering and sell their shares below NAV will be reduced.
Investing in the Funds Common Shares involves certain risks. See Risk Factors beginning on page
[34].
Neither the Securities and Exchange Commission (the SEC) nor any state securities commission has
approved or disapproved of these securities or determined whether this Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
This Prospectus, together with any other applicable Prospectus Supplement, sets forth concisely the
information about the Fund that a prospective investor should know before investing. You should
read this Prospectus and the applicable Prospectus Supplement, which contain important information,
before deciding whether to invest in the Common Shares. You should retain the Prospectus and
Prospectus Supplement for future reference. A Statement of Additional Information (SAI), dated
[DATE], containing additional information about the Fund, has been filed with the SEC and is
incorporated by reference in its entirety into this Prospectus. The Table of Contents for the SAI
is on page [61] of the Prospectus. A copy of the SAI may be obtained without charge by visiting
the Funds website (www.jhfunds.com) or by calling 1-800-225-6020 (toll-free) or from the SECs
website at www.sec.gov. Copies of the Funds annual report and semi-annual report and other
information about the Fund may be obtained upon request by writing to the Fund, by calling
1-800-225-6020, or by visiting the Funds website at www.jhfunds.com. You also may obtain a copy
of any information regarding the Fund filed with the SEC from the SECs website (www.sec.gov).
The Funds Common Shares do not represent a deposit or obligation of, and are not guaranteed or
endorsed by, any bank or other insured depository institution, and are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.
Prospectus dated [DATE]
ii
You should rely only on the information contained in, or incorporated by reference into, this
Prospectus and any related Prospectus Supplement in making your investment decisions. The Fund has
not authorized any person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. The Fund is not making an offer
to sell the Common Shares in any jurisdiction where the offer or sale is not permitted. You should
assume that the information in this Prospectus and any Prospectus Supplement is accurate only as of
the dates on their covers. The Funds business, financial condition and prospects may have changed
since the date of its description in this Prospectus or the date of its description in any
Prospectus Supplement.
TABLE OF CONTENTS
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Until [DATE+25] (25 days after the date of this Prospectus), all dealers that buy, sell or trade
the Common Shares, whether or not participating in this offering, may be required to deliver a
Prospectus and the applicable Prospectus Supplement. This requirement is in addition to the
dealers obligation to deliver a Prospectus and the applicable Prospectus Supplement when acting as
underwriters and with respect to their unsold allotments or subscriptions.
iii
Prospectus Summary
This is only a summary. You should review the more detailed information elsewhere in this
prospectus (Prospectus), in any related supplement to this Prospectus (each, a Prospectus
Supplement), and in the Statement of Additional Information (the SAI) prior to making an
investment in the Fund. See Risk Factors.
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The Fund
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John Hancock Tax-Advantaged Global Shareholder Yield Fund (the
Fund) is a diversified, closed-end management investment
company. The Fund commenced operations in September 2007
following an initial public offering.
The Funds investment adviser is John Hancock Advisers, LLC (the
Adviser or JHA) and its subadvisers are Epoch Investment
Partners, Inc. (Epoch) and Analytic Investors, LLC (Analytic
and, together with Epoch, the Subadvisers). |
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Investment Objective
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The Funds investment objective is to provide total
return consisting of a high level of current income
and gains and long term capital appreciation. In
pursuing its investment objective, the Fund seeks to
achieve favorable after-tax returns for its
shareholders by seeking to minimize the U.S. federal
income tax consequences on income and gains generated
by the Fund. There can be no assurance that the Fund
will achieve its investment objective. The Funds
investment objective is fundamental and may not be
changed without shareholder approval. |
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The Offering
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The Fund may offer, from time to time, in one or more
offerings, up to [_______] of common shares of the Fund
(Common Shares) on terms to be determined at the time of
the offering. The Common Shares may be offered at prices and
on terms to be set forth in one or more Prospectus
Supplements. You should read this Prospectus and the
applicable Prospectus Supplement carefully before you invest
in Common Shares. Common Shares may be offered directly to
one or more purchasers, through agents designated from time
to time by the Fund, or to or through underwriters or
dealers. The Prospectus Supplement relating to the offering
will identify any agents, underwriters or dealers involved in
the offer or sale of Common Shares, and will set forth any
applicable offering price, sales load, fee, commission or
discount arrangement between the Fund and its agents or
underwriters, or among its underwriters, or the basis upon
which such amount may be calculated, net proceeds and use of
proceeds, and the terms of any sale. See Plan of
Distribution. The Fund may not sell any of Common Shares
through agents, underwriters or dealers without delivery of a
Prospectus Supplement describing the method and terms of the
particular offering of Common Shares. |
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Listing and Symbol
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The Common Shares are listed on the New York Stock
Exchange (NYSE) under the symbol HTY. Any new
Common Shares offered and sold also will be listed on
the NYSE and trade under this symbol. As of April 30,
2012, the last reported sale price for the Common
Shares was $12.85. |
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Investment Strategy
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Under normal market conditions, the Fund invests at
least 80% of its total assets in a diversified
portfolio of dividend-paying securities of issuers
located throughout the world. The Fund seeks to
produce superior, risk-adjusted returns by using a
disciplined, proprietary investment approach that is
focused on identifying companies with strong free cash
flow and that use their free cash flow to seek to
maximize shareholder yield through dividend
payments, stock repurchases and debt reduction. By
assembling a diversified portfolio of securities
which, in the aggregate, possess positive growth of
free cash flow, high cash dividend yields, share
buyback programs and net debt reductions, the Fund
seeks to provide shareholders an attractive total
return with less volatility than the global equity
market as a whole. Free cash flow is the cash
available for distribution to investors after all
planned capital investment and taxes. The Adviser
believes that free cash flow is important because it
allows a company to pursue opportunities that enhance
shareholder value. |
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The relative portions of the Funds portfolio invested
in securities of U.S. and non-U.S. issuers |
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are expected to vary over time. Under normal market
conditions, the Fund invests at least 40% of its total
assets in securities of non-U.S. issuers. The Fund
may invest up to 20% of its total assets in securities
issued by companies located in emerging markets when
Epoch, the Funds equity portfolio subadviser,
believes such companies offer attractive
opportunities. Securities held by the Fund may be
denominated in both U.S. dollars and non-U.S.
currencies. Under normal conditions, the Fund invests
in the securities of issuers located in at least three
different countries, including the U.S., and the
actual number of countries represented in the Funds
portfolio will vary over time. As of the end of the
last fiscal year, 14 countries were represented in the
Funds portfolio. The Fund may not invest more than
25% of its total assets in the securities of issuers
in any single industry or group of related industries. |
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In order to seek to enhance risk-adjusted returns,
reduce overall portfolio volatility and generate
earnings for current distribution from options
premiums, the Fund writes (sell) call options on a
variety of both U.S. and non-U.S. broad-based
securities indices (the Options Strategy). The
amount of the value of the Funds assets that is
subject to index call options is expected to vary over
time based upon U.S. and non-U.S. equity market
conditions and other factors. The indices on which
the Fund writes call options also are expected to vary
over time based upon a number of factors, including
the composition of the Funds securities portfolio,
prevailing U.S. and non-U.S. equity market conditions
and the amount of the value of the Funds assets that
is subject to index call options. |
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On an overall basis, the Fund seeks to implement an
investment strategy designed to minimize the U.S.
federal income tax consequences on income and gains
generated by the Fund. The Fund seeks to accomplish
this primarily by (i) investing in dividend-paying
securities that are eligible to pay dividends that
qualify for U.S. federal income taxation at rates
applicable to long-term capital gain (tax-advantaged
dividends), and complying with the holding period and
other requirements for such favorable tax treatment;
(ii) selling broad-based index call options that
qualify for favorable U.S. federal income tax
treatment as section 1256 contracts under the
Internal Revenue Code of 1986, as amended (the
Code), on which capital gain and loss generally are
treated as 60% long-term and 40% short-term,
regardless of holding period; and (iii) offsetting any
ordinary income and realized short-term capital gain
against Fund expenses and realized short-term loss.
In this regard, the Funds policy described above of
investing at least 80% of its total assets in
dividend-paying securities of issuers located
throughout the world is subject to the requirement
that Epoch believes at the time of investment that
such securities are eligible to pay tax-advantaged
dividends. |
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Equity Strategy |
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The Fund invests in global equity securities across a broad range of market
capitalizations. The Fund generally invests in companies with a market
capitalization (i.e., total market value of a companys shares) of $500 million
or greater at the time of purchase. The Adviser has engaged Epoch to serve as
a subadviser to the Fund. Epoch is responsible for the day-to-day management
of the Funds portfolio investments, other than with respect to the Options
Strategy. Although the Fund may invest in securities of companies with any
capitalization, it may at any given time invest a significant portion of its
total assets in companies of one particular market capitalization category when
Epoch believes such companies offer attractive opportunities. Epoch seeks to
produce superior, risk-adjusted returns by investing in businesses with
outstanding risk/reward profiles and a focus on high shareholder yield.
Shareholder yield refers to the collective financial impact on shareholders
from the return of free cash flow through cash dividends, stock repurchases and
debt reduction. By assembling a diversified portfolio of securities with these
qualities, Epoch believes Fund investors will have the opportunity to realize
an attractive total return with less volatility than the global equity market
as a whole. |
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Epoch seeks to produce an efficient portfolio on a risk/return basis with a
dividend yield that exceeds the dividend yield of the MSCI World Index. The
MSCI World Index is an unmanaged |
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index that captures large- and mid-cap
representation across 24 developed market countries. With 1,613 constituents,
the MSCI World Index covers approximately 84% of the free float-adjusted market
capitalization in each country as of January 31, 2012. In selecting securities
for the Fund, Epoch utilizes an investment strategy that combines bottom-up
stock research and selection with top-down analysis. Epoch looks for companies
it believes have solid long-term prospects, attractive valuation comparisons
and adequate market liquidity. The equity securities Epoch finds attractive
generally have valuations lower than Epochs estimate of their fundamental
value, as reflected in price-to-cash flow, price-to-book ratios or other stock
valuation measures. |
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In selecting securities for the Funds portfolio, Epoch focuses on
dividend-paying common stocks and to a lesser extent preferred securities that
produce an attractive level of tax-advantaged income. Epoch also considers an
equity securitys potential for capital appreciation. Epoch generally uses a
value approach in selecting the Funds equity investments. Epoch evaluates an
equity securitys potential value, including the attractiveness of its market
valuation, based on the companys assets and prospects for earnings growth.
Investment decisions are made primarily on the basis of fundamental research.
Epoch relies upon information provided by, and the expertise of, Epochs
research staff in making investment decisions. In selecting equity securities,
Epoch considers (among other factors) a companys cash flow capabilities,
dividend prospects and the anticipated U.S. federal income tax treatment of a
companys dividends, the strength of the companys business franchises and
estimates of the companys net value. |
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Epoch sells or reduces a position in a security when it sees the goals of its
investment thesis failing to materialize, or when it believes those goals have
been met and the valuation of the companys shares fully reflect the
opportunities once thought unrecognized in share price. The reasons for a
determination by Epoch that such goals are not being met include: the economic
or competitive environment might be changing; company managements execution
could be disappointing; or in certain cases, management proves to be less than
forthright or have an inappropriate assessment of the companys state and the
task at hand. |
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The Fund may seek to enhance the level of dividend income it receives by
engaging in dividend capture trading. In a dividend capture trade, the Fund
sells a security after having held the security long enough to satisfy the
holding period requirements for tax-advantaged dividends, but shortly after the
securitys ex-dividend date. The Fund then uses the sale proceeds to purchase
one or more other securities that are expected to pay dividends before the next
dividend payment date on the security being sold. Through this practice, the
Fund may receive more dividend payments over a given period of time than if it
held a single security. Receipt of a greater number of dividend payments
during a given time period could augment the total amount of dividend income
received by the Fund. See Investment StrategiesEquity Strategy.
Tax-advantaged dividends. Under normal market conditions, the Fund invests
primarily in a diversified portfolio of dividend-paying securities of issuers
located throughout the world that Epoch believes at the time of investment are
eligible to pay tax-advantaged dividends. |
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Tax-advantaged dividends generally include dividends from U.S. and non-U.S.
corporations that meet certain specified criteria. The Fund generally can pass
the tax treatment of tax-advantaged dividends it receives through to its
holders of Common Shares (the Common Shareholders). For the Fund to receive
tax-advantaged dividends, the Fund must, in addition to other requirements,
hold the otherwise qualified security for more than 60 days during the 121-day
period beginning 60 days before the ex-dividend date (or, in the case of
preferred security, more than 90 days during the 181-day period beginning 90
days before the ex-dividend date). The ex-dividend date is the date that is
established by a stock exchange (usually two business days before the record
date) whereby the owner of a security at the commencement of such date is
entitled to receive the next issued dividend payment for such security, even if
the security is sold |
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by such owner on the ex-dividend date or thereafter. In
addition, the Fund cannot be obligated to make payments (pursuant to a short
sale or otherwise) with respect to substantially similar or related property.
For a Common Shareholder to be taxed at the long-term capital gain rates, the
Common Shareholder must hold his or her Common Shares for more than 60 days
during the 121-day period beginning 60 days before the ex-dividend date.
Consequently, short-term investors in the Fund will not realize the benefits of
tax-advantaged dividends. |
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There can be no assurance as to the portion of the Funds dividends that will
be tax-advantaged. The provisions of the Code applicable to tax-advantaged
dividends are currently effective through December 31, 2012, but may be changed
at any time, possibly with retroactive effect. Thereafter, higher tax rates
will apply unless further legislative action is taken. Thus, no assurance can
be given that current law applicable to tax-advantaged dividends will continue
after December 31, 2012. Although the Fund invests at least 80% of its assets
in equity securities that pay tax-advantaged dividends and to satisfy the
holding period and other requirements, a portion of the Funds income
distributions may be taxable as ordinary income (i.e., income other than
tax-advantaged dividends). |
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Options Strategy |
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The Fund writes index options on a substantial portion of the value of the
Funds security portfolio, although this amount is expected to vary over time
based upon U.S. and non-U.S. equity market conditions and other factors. The
Funds Options Strategy is used to seek to enhance risk-adjusted returns, to
generate earnings from options premiums and to reduce overall portfolio
volatility. The Adviser has engaged Analytic to formulate, in consultation
with the Adviser and Epoch, and implement the Funds Options Strategy.
The Funds use of written call options involves a tradeoff between the options
premiums received and the reduced participation in potential future security
price appreciation of its equity portfolio. As the seller of index call
options, the Fund receives cash (the premium) from purchasers of the options.
The purchaser of an index call option has the right to receive from the option
seller any appreciation in the value of the index over a fixed price (the
exercise price) as of a specified date in the future (the option expiration
date). In effect, the Fund sells the potential appreciation in the value of
the index above the exercise price during the term of the option in exchange
for the premium. Analytic also may cause the Fund to sell put options from
time to time if Analytic considers the pricing of those options highly
favorable and sale of such an option might beneficially alter the risk profile
of the Funds option exposure. |
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Analytic primarily writes index call options that it believes generally will
qualify for favorable tax-treatment as section 1256 contracts under the Code
and for which the Funds gain and loss on those exchange-listed options
generally will be treated as 60% long-term and 40% short-term capital gain or
loss, regardless of the holding period for U.S. federal income tax purposes.
The Fund also may write call options to a lesser extent, on narrow-based
securities indices, exchange traded funds that represent certain indices,
countries or sectors of the market, on futures contracts and on individual
securities. Such written call options would not qualify for favorable
tax-treatment under the Code. |
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Analytic actively manages the Funds options positions using quantitative and
statistical analysis that focuses on relative value and risk/return in an
attempt to manage costs and returns, while at the same time be relatively
correlated to the underlying securities in the Fund. Analytic uses its
proprietary option valuation model to seek to identify options it believes are
overvalued and, therefore, offer relatively high premiums to the Fund.
Analytic believes that volatility is an important component to option valuation
and employs a proprietary volatility forecasting model to identify what
Analytic believes to be overvalued call options. |
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Analytics valuation process begins with identifying characteristics for each
option, such as strike price, time to expiration and risk-free rate. Analytic
then uses a proprietary model to |
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forecast volatility, which includes such
factors as short-term volatility, long-run volatility, significant events, term
structure, seasonality and option market implied volatilities. Analytic
believes its proprietary model can be highly effective in forecasting
volatility. Analytic uses this model as an input into its option valuation
platform along with multiple other factors to calculate an expected annualized
return for all cash/options, stock/option and index/option combinations.
Combinations include covered calls and married puts. Puts may be purchased by
the Fund if Analytic believes that they are attractively priced or reduce the
Funds risk of holding securities. A married put is a purchased put designed
to hedge or provide downside protection for a basket of securities. Analytic
believes that, generally, options are overpriced if the implied volatility
exceeds its forecasted volatility. |
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In an attempt to control risk, Analytic calculates in real time, using current
market prices, option exposures across several dimensions for each option
position and for the entire diversified portfolio. |
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The extent of the Funds use of written call options will vary over time based,
in part, on the Advisers, Epochs and Analytics assessment of market
conditions, pricing of options, related risks and other factors. In addition,
the Funds exposure to call options written by it may at times substantially
fluctuate. The ultimate decision as to the extent of the Funds use of the
Options Strategy is made by the Adviser. At any time, the Adviser or Epoch may
direct Analytic to modify, limit, or temporarily suspend the Funds use of the
Options Strategy. The Funds use of written index call options involves a
tradeoff between the option premiums received and the reduced participation in
potential future stock price appreciation of its equity portfolio. Due to tax
considerations, the Fund attempts to limit the overlap between its equity
securities holdings (and any subset thereof) and each index on which it has
outstanding options positions to less than 70% on an ongoing basis. A portion
of the Funds equity securities holdings normally consists of equity securities
not included in the indices on which it writes call options. |
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As the seller of index call options, the Fund receives cash (the premium) from
purchasers of the options. The purchaser of an index call option has the right
to receive from the option seller any appreciation in the value of the index
over a fixed price (the exercise price) as of a specified date in the future
(the option expiration date). In effect, the Fund sells the potential
appreciation in the value of the index above the exercise price during the term
of the option in exchange for the premium. Analytic also may cause the Fund to
sell put options from time to time if Analytic considers the pricing of those
options highly favorable and sale of such an option might beneficially alter
the risk profile of the Funds option exposure. |
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The Fund primarily uses listed/exchange-traded options contracts but also may
use unlisted (or over-the-counter or OTC) options. Listed options
contracts typically are originated and standardized by securities exchanges and
clearinghouses. OTC options are not originated and standardized by an
exchanger or clearinghouse or listed and traded on an options exchange, and the OTC
options written by the Fund are not issued, guaranteed or cleared by any
clearinghouse. |
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The transaction costs of buying and selling options consist primarily of the
bid-ask spread and commissions (which are imposed in opening, closing, exercise
and assignment transactions), and may include margin and interest costs in
connection with both exchange traded and over-the-counter transactions. |
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Options on broad-based indices differ from options on individual securities
because (i) the exercise of an index option requires cash payments and does not
involve the actual purchase of securities, (ii) the holder of an index call
option has the right to receive cash upon exercise of the option if the level
of the index upon which the option is based is greater than the exercise price
of the option, and (iii) broad-based index options are designed to reflect
price fluctuations in a group of securities or segments of the securities
markets rather than price fluctuations in a single security. |
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Analytic primarily sells call options on broad-based equity indices, such as
the S&P 500 Composite Stock Price Index® (S&P 500), and other U.S. and
non-U.S. broad-based equity indices that qualify for favorable tax treatment as
section 1256 contracts. The Fund also may sell call options on narrower
market indices or on indices of securities of companies in a particular
industry or sector, including (but not limited to) utilities, energy,
telecommunications and other technology, financial services, pharmaceuticals
and consumer products. An equity index assigns relative values to the
securities included in the index (which change periodically), and the index
fluctuates with changes in the market values of those securities. Such call
options would not be eligible for favorable tax treatment. There can be no
assurances that the Funds Options Strategy will be successful, and the Options
Strategy may result in a loss. |
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Analytic attempts to maintain for the Fund written call options positions on
equity indices whose price movements, taken in the aggregate, closely correlate
with the price movements of some or all of the equity securities held in the
Funds equity portfolio. However, this strategy involves the risk that changes
in value of the indices underlying the Funds written index call options
positions will not correlate closely with changes in the market values of
securities held by the Fund. To the extent that there is a lack of
correlation, movements in the indices underlying the options positions may
result in a loss to the Fund, which may more than offset any gain received by
the Fund from the receipt of options premiums and may be significant. In these
and other circumstances, the Fund may be required to sell portfolio securities
to satisfy its obligations as the writer of an index call option when it would
not otherwise choose to do so, or may choose to sell portfolio securities to
realize gain to supplement Fund distributions. Such sales would involve
transaction costs borne by the Fund and also may result in realization of
taxable capital gain, including short-term capital gain taxed at ordinary
income tax rates, and may adversely impact the Funds after-tax returns. |
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The Fund may be subject to the straddle rules under U.S. federal income tax
law. Under the straddle rules, offsetting positions with respect to personal
property generally are considered to be straddles. In general, investment
positions will be offsetting if there is a substantial diminution in the risk
of loss from holding one position by reason of holding one or more other
positions. To avoid characterization as straddles, the Fund is required to
limit the overlap between its securities holdings (and any subset thereof) and
the indices on which it has outstanding option positions to less than 70%
(generally based on value) on an ongoing basis. The Fund expects that the
index call options it writes generally will not be considered straddles because
its securities holdings will be sufficiently dissimilar from the components of
each index on which it has open call options positions under applicable
Treasury Regulations. Under certain circumstances, however, the Fund may enter
into options transactions or certain other investments that may constitute
positions in a straddle. See U.S. Federal Income Tax Matters. |
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There can be no assurance that the Funds Options Strategy will be successful,
and the Options Strategy may result in a loss. See Risk Factors. |
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Other Investments |
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The foregoing policies relating to investments in securities and options
writing are the Funds primary investment policies. In addition to its primary
investment policies, the Fund may invest to a limited extent in other types of
securities and engage in certain other investment practices. The Fund may use
a variety of derivative instruments (including long and short positions) for
hedging purposes, to adjust portfolio characteristics or more generally for
purposes of attempting to increase the Funds investment return, including put
and call options, options on futures contracts, futures and forward contracts
and swap agreements with respect to securities, indices and currencies. The
Fund may invest in securities of other open- and closed-end investment
companies, including exchange traded funds, to the extent that such investments
are consistent with the Funds investment objective and policies and
permissible under the Investment Company Act of 1940, as amended (the 1940
Act). The Fund may lend its |
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portfolio securities. The Fund may invest in
debt securities, including below investment-grade debt securities. See
Investment StrategiesAdditional Investment Practices. Normally, the Fund
invests substantially all of its total assets to meet its investment objective.
The Fund may invest the remainder of its assets in other equity securities and
fixed-income securities with remaining maturities of less than one year or cash
equivalents, or it may hold cash. For temporary defensive purposes, the Fund
may depart from its principal investment strategies and invest part or all of
its total assets in: fixed-income securities with remaining maturities of less
than one year, cash or cash equivalents. During such periods, the Fund may not
be able to achieve its investment objective. |
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Investment Adviser
and Subadvisers
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JHA, the Funds investment adviser, is an indirect wholly-owned
subsidiary of Manulife Financial Corporation. The Adviser is
responsible for overseeing the management of the Fund, including
its day-to-day business operations and monitoring Epoch and
Analytic. As of December 31, 2011, the Adviser had total assets
under management of approximately $20.3 billion. |
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Epoch, a subadviser to the Fund, is responsible for the
day-to-day management of the Funds portfolio investments.
Epoch, founded in 2004, is a wholly-owned subsidiary of Epoch
Holding Corporation, a publicly traded company. As of December
31, 2011, Epoch managed on a worldwide basis more than $19.2
billion. |
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Analytic, a subadviser to the Fund, is responsible for
formulating and implementing the Funds Options Strategy.
Analytic, founded in 1970, is an indirect wholly-owned subsidiary
of Old Mutual plc, a multi-national financial services firm
headquartered in London. As of December 31, 2011, Analytic had
total assets under management of approximately $5.9 billion. |
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The Adviser also engaged its affiliate John Hancock Asset
Management a division of Manulife Asset Management (North
America) Limited (formerly, MFC Global Investment Management
(U.S.A.) Limited) to consult from time to time with the Adviser
on matters relating to the general application of U.S. federal
income tax laws and regulations, compliance and legal issues. |
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See Management of the FundThe Adviser and The Subadvisers. |
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Distributions
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The Fund makes regular quarterly distributions to Common
Shareholders sourced from the Funds cash available for
distribution. Cash available for distribution consists of
the Funds (i) investment company taxable income, which
includes among other things, dividend and ordinary income
after payment of Fund expenses, the excess of net short-term
capital gain (for example, a portion of the premiums earned
in connection with the Funds Options Strategy) over net
long-term capital loss, and income from certain hedging and
interest rate transactions, (ii) qualified dividend income
and (iii) long-term capital gain (gain from the sale of
capital assets held longer than one year). The Board of
Trustees of the Fund (the Board) may modify this
distribution policy at any time without obtaining the
approval of Common Shareholders. |
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Pursuant to the requirements of the 1940 Act, in the event
the Fund makes distributions from sources other than income,
a notice will accompany each quarterly distribution with
respect to the estimated source of the distribution made.
Such notices will describe the portion, if any, of the
quarterly dividend which, in the Funds good faith judgment,
constitutes long-term capital gain, short-term capital gain,
investment company taxable income or a return of capital.
The actual character of such dividend distributions for U.S.
federal income tax purposes, however, will only be
determined finally by the Fund at the close of its fiscal
year, based on the Funds full year performance and its
actual net investment company taxable income and net capital
gain for the year, which may result in a recharacterization
of amounts distributed during such fiscal year from the
characterization in the quarterly estimates. |
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If, for any calendar year, as discussed above, the total distributions made exceed the Funds net |
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investment taxable
income and net capital gain, the excess generally will be
treated as a return of capital to each Common Shareholder
(up to the amount of the Common Shareholders basis in his
or her Common Shares) and thereafter as gain from the sale
of Common Shares. In each fiscal year the Fund has paid
distributions, the Funds total distributions exceeded the
Funds net investment taxable income and net capital gain,
and such excess was treated as a return of capital to each
Common Shareholder. The amount treated as a return of
capital reduces the Common Shareholders adjusted basis in
his or her Common Shares, thereby increasing his or her
potential gain or reducing his or her potential loss on the
subsequent sale of his or her Common Shares. Distributions
in any year may include a substantial return of capital
component. |
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To permit the Fund to maintain more stable distributions,
distribution rates are based on projected annual cash
available from distribution. As a result, the distributions
paid by the Fund for any particular quarter may be more or
less than the amount of cash available for distribution from
that quarterly period. In certain circumstances, the Fund
may be required to sell a portion of its investment
portfolio to fund distributions. Distributions will reduce
the Common Shares net asset value (NAV). |
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The 1940 Act currently limits the number of times the Fund
may distribute long-term capital gain in any tax year, which
may increase the variability of the Funds distributions and
result in certain distributions being comprised more heavily
of long-term capital gain eligible for favorable income tax
rates. In the future, the Adviser may seek Board approval
to implement a managed distribution plan for the Fund. The
managed distribution plan would be implemented pursuant to
an exemptive order already granted by the Securities and
Exchange Commission (SEC), which provides an exemption
from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder
to permit the Fund to include long-term capital gain as a
part of its regular distributions to Common Shareholders
more frequently than would otherwise be permitted by the
1940 Act (generally once or twice per year). If the Fund
implements a managed distribution plan, it would do so
without a vote of the Common Shareholders. |
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Dividend Reinvestment
Plan
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The Fund has established an automatic dividend
reinvestment plan (the Plan). Under the Plan,
distributions of dividends and capital gain are
automatically reinvested in Common Shares of the
Fund by Computershare Trust Company, N. A. Every
shareholder holding at least one full share of the
Fund will be automatically enrolled in the Plan.
Shareholders who do not participate in the Plan will
receive all distributions in cash. Common
Shareholders who intend to hold their Common Shares
through a broker or nominee should contact such
broker or nominee regarding the Plan. See Dividend
Reinvestment Plan. |
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Closed-End Fund Structure
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Closed-end funds differ from traditional,
open-end management investment companies (which
generally are referred to as mutual funds) in
that closed-end funds generally list their
shares for trading on a securities exchange and
do not redeem their shares at the option of the
shareholder. Mutual funds do not trade on
securities exchanges and issue securities
redeemable at the option of the shareholder.
The continuous outflows of assets in a mutual
fund can make it difficult to manage the funds
investments. Closed-end funds generally are
able to stay more fully invested in securities
that are consistent with their investment
objectives and also have greater flexibility to
make certain types of investments and to use
certain investment strategies, such as financial
leverage and investments in illiquid securities.
The Funds Common Shares are designed primarily
for long-term investors; you should not purchase
Common Shares if you intend to sell them shortly
after purchase. |
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Common shares of closed-end funds frequently
trade at prices lower than their NAV. Since
inception, the market price of the Common Shares
has fluctuated and at times has traded below the
Funds NAV and at times has traded above the
Funds NAV. The Fund cannot predict whether in
the future the Common Shares will trade at,
above or below NAV. In addition to NAV, the
market price of the Funds Common Shares may be
affected by such factors as the Funds dividend
stability, dividend levels, which are in turn
affected by expenses, and market supply and
demand. |
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In recognition of the possibility that the
Common Shares may trade at a discount from their
NAV, and that any such discount may not be in
the best interest of Common Shareholders, the
Board, in consultation with the Adviser, from
time to time may review possible actions to
reduce any such discount. There can be no
assurance that the Board will decide to
undertake any of these actions or that, if
undertaken, such actions would result in the
Common Shares trading at a price equal to or
close to NAV per Common Share. In the event
that the Fund conducts an offering of new Common
Shares and such offering constitutes a
distribution under Regulation M, the Fund and
certain of its affiliates may be subject to an
applicable restricted period that could limit
the timing of any repurchases by the Fund. |
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Summary of Risks
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The Funds main risk factors are listed below by general
risks, equity strategy risks, and options strategy risks.
Before investing, be sure to read the additional
descriptions of these risks beginning on page [34] of
this Prospectus. |
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General Risks
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Investment and Market Risk. An investment in Common
Shares is subject to investment risk, including the
possible loss of the entire principal amount invested.
An investment in Common Shares represents an indirect
investment in the securities owned by the Fund, which
generally are traded on a securities exchange or in the
over-the-counter markets. The value of these securities,
like other market investments, may move up or down,
sometimes rapidly and unpredictably. Common Shares at
any point in time may be worth less than the original
investment, even after taking into account any
reinvestment of dividends and distributions. |
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Tax Risk. To qualify for the special tax treatment available to regulated
investment companies, the Fund must: (i) derive at least 90% of its annual
gross income from certain kinds of investment income; (ii) meet certain asset
diversification requirements at the end of each quarter, and (iii) distribute
in each taxable year at least 90% of its net investment income (including net
interest income and net short term capital gain). If the Fund failed to meet
any of these requirements, subject to the opportunity to cure such failures
under applicable provisions of the Code, the Fund would be subject to U.S.
federal income tax at regular corporate rates on its taxable income, including
its net capital gain, even if such income were distributed to its shareholders.
All distributions by the Fund from earnings and profits, including
distributions of net capital gain (if any), would be taxable to the
shareholders as ordinary income. Such distributions generally would be
eligible (i) to be treated as qualified dividend income in the case of
individual and other noncorporate shareholders and (ii) for the dividends
received deduction in the case of corporate shareholders; provided that in each
case the shareholder meets the applicable holding period requirements. In
addition, in order to requalify for taxation as a regulated investment company,
the Fund might be required to recognize unrealized gain, pay substantial taxes
and interest, and make certain distributions. See U.S. Federal Income Tax
Matters. |
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The tax treatment and characterization of the Funds distributions may vary
significantly from time to time due to the nature of the Funds investments.
The ultimate tax characterization of the Funds distributions in a calendar
year may not finally be determined until after the end of that calendar year.
The Fund may make distributions during a calendar year that exceed the Funds
net investment income and net realized capital gain for that year. In such a
situation, the amount by which the Funds total distributions exceed net
investment income and net realized capital gain generally would be treated as a
return of capital up to the amount of the Common Shareholders tax basis in his
or her Common Shares, with any amounts exceeding such basis treated as gain
from the sale of his or her Common Shares. The Funds income distributions
that qualify for favorable tax treatment may be affected by the Internal
Revenue Services (IRS) interpretations of the Code and future changes in tax
laws and regulations. For instance, Congress is considering numerous proposals
to decrease the federal budget deficit, some of which include increasing U.S.
federal income taxes or decreasing certain favorable tax treatments currently
included in the Code. See U.S. Federal Income Tax Matters. |
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No assurance can be given as to what percentage of the distributions paid on
the Common Shares, if any, will consist of tax-advantaged qualified dividend
income or long-term capital gain or what the tax rates on various types of
income will be in future years. The long-term capital gain tax rate applicable
to qualified dividend income is currently 15%, and it is scheduled to increase
to 20% for tax years beginning after December 31, 2012. Further, the current
favorable U.S. federal tax treatment of qualified dividend income is scheduled
to expire for tax years beginning after December 31, 2012. As a result of this
scheduled change and the scheduled expiration of earlier reductions in federal
income tax rates, the maximum individual tax rate for such dividends will
increase to 39.6% in 2013 unless Congress takes further action. In addition,
it may be difficult to obtain information regarding whether distributions by
non-U.S. entities in which the Fund invests should be regarded as qualified
dividend income. Furthermore, to receive qualified dividend income treatment,
the Fund must meet holding period and other requirements with respect to the
dividend-paying securities in its portfolio, and the shareholder must meet
holding period and other requirements with respect to the Common Shares.
Holding periods may be affected by certain of the Funds transactions in
options and other derivatives. See U.S. Federal Income Tax Matters. |
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Distribution Risk. There can be no assurance that quarterly distributions
paid by the Fund to shareholders will be maintained at current levels or
increase over time. The quarterly distributions shareholders receive from the
Fund are derived from the Funds dividends and interest income after payment of
Fund expenses, net option premiums and net realized gain on equity securities
investments. If stock market volatility and/or stock prices decline, the
premiums available from writing call options and writing put options on
individual stocks likely will decrease as well. Payments to purchase put
options and to close written call and put options will reduce amounts available
for distribution. Net realized gain on the Funds stock investments will be
determined primarily by the direction and movement of the stock market and the
particular equity securities held. The Funds cash available for distribution
may vary widely over the short- and long-term. If, for any calendar year, the
total distributions made exceed the Funds net investment taxable income and
net capital gain, the excess generally will be treated as a return of capital
to each Common Shareholder (up to the amount of the Common Shareholders basis
in his or her Common Shares) and thereafter as gain from the sale of Common
Shares. The amount treated as a return of capital reduces the Common
Shareholders adjusted basis in his or her Common Shares, thereby increasing
his or her potential gain or reducing his or her potential loss on the
subsequent sale of his or her Common Shares. Distributions in any year may
include a substantial return of capital component. Dividends on common stocks
are not fixed but are declared at the discretion of the issuers board of
directors. The Funds dividend income will be substantially influenced by the
activity level and success of its dividend capture trading program and Options
Strategy, which may not work as intended. |
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Portfolio Turnover Risk. The Fund may engage in short-term trading
strategies, and securities may be sold without regard to the length of time
held when, in the opinion of Epoch, investment considerations warrant such
action. The Funds Options Strategy may lead to higher levels of portfolio
turnover to the extent that the Fund is required to sell portfolio securities
to meet its obligations as the seller of index options contracts. In addition,
the Funds dividend capture program also may increase the level of portfolio
turnover the Fund experiences. These policies may have the effect of
increasing the annual rate of portfolio turnover of the Fund. In addition, the
Funds dividend capture program also may increase the level of portfolio
turnover the Fund experiences. Higher rates of portfolio turnover likely would
result in higher brokerage commissions and may generate short-term capital gain
taxable as ordinary income, which may have a negative impact on the Funds
performance over time. |
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Defensive Positions Risk. During periods of adverse market or economic
conditions, the Fund may temporarily invest all or a substantial portion of its
total assets in fixed-income securities with remaining maturities of less than
one year, cash or cash equivalents. The Fund will not be pursuing its
investment objective in these circumstances and could miss favorable market developments. |
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Interest Rate Risk. The premiums from writing index call options and amounts
available for distribution from the Funds options activity may decrease in
declining interest rate environments. The value of the Funds investments in
common stock also may be influenced by changes in interest rates. Higher
yielding equity securities and equity securities of issuers whose businesses
are substantially affected by changes in interest rates may be particularly
sensitive to interest rate risk. |
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Inflation Risk. Inflation risk is the risk that the purchasing power of
assets or income from investments will be worth less in the future as inflation
decreases the value of money. As inflation increases, the real value of the
Common Shares and distributions thereon can decline. |
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Market Discount Risk. The Funds Common Shares will be offered only when
Common Shares of the Fund are trading at a price equal to or above the Funds
NAV per Common Share plus the per Common Share amount of commissions. As with
any security, the market value of the Common Shares may increase or decrease
from the amount initially paid for the Common Shares. The Funds Common Shares
have traded at both a premium and at a discount to NAV. The shares of
closed-end management investment companies frequently trade at a discount from
their NAV. This characteristic is a risk separate and distinct from the risk
that the Funds NAV could decrease as a result of investment activities.
Investors bear a risk of loss to the extent that the price at which they sell
their shares is lower in relation to the Funds NAV than at the time of
purchase, assuming a stable NAV. |
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Leverage Risk. Although the Fund has no current intention to do so, the Fund
is authorized and reserves the flexibility to utilize leverage through
borrowings and/or the issuance of preferred shares, including the issuance of
debt securities. In the event that the Fund determines in the future to use
investment leverage, there can be no assurance that such a leveraging strategy
will be successful during any period in which it is employed. Leverage creates
risks for Common Shareholders, including the likelihood of greater volatility
of the NAV and market price of the Common Shares and the risk that fluctuations
in distribution rates on any preferred shares or fluctuations in borrowing
costs may affect the return to Common Shareholders. To the extent the returns
derived from securities purchased with proceeds received from leverage exceeds
the cost of leverage, the Funds distributions may be greater than if leverage
had not been used. Conversely, if the returns from the securities purchased
with such proceeds are not sufficient to cover the cost of leverage, the amount
available for distribution to Common Shareholders will be less than if leverage
had not been used. In the latter case, the Adviser, in its best judgment, may
nevertheless determine to maintain the Funds leveraged position if it deems
such action to be appropriate. The costs of an offering of preferred shares
and/or a borrowing program would be borne by Common Shareholders and
consequently would result in a reduction of the NAV of Common Shares. In
addition, the fee paid to the Adviser is calculated on the basis of the Funds
average daily gross assets, including proceeds from borrowings and/or the
issuance of preferred shares, so the fee will be higher when leverage is
utilized, which may create an incentive for the Adviser to employ financial
leverage. |
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Secondary Market for the Common Shares. The issuance of new Common Shares
may have an adverse effect on the secondary market for the Common Shares. The
increase in the amount of the Funds outstanding Common Shares resulting from
the offering of new Common Shares may put downward pressure on the market price
for the Common Shares of the Fund. Common Shares will not be issued at any
time when Common Shares are trading at a price lower than a price equal to the
Funds NAV per Common Share plus the per Common Share amount of commissions. |
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The Fund also issues Common Shares of the Fund through its dividend
reinvestment plan. Common Shares may be issued under the plan at a discount to
the market price for such Common Shares, which may put downward pressure on the
market price for Common Shares of the Fund. |
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When the Common Shares are trading at a premium, the Fund also may issue Common
Shares of the Fund that are sold through transactions effected on the NYSE.
The increase in the amount of the Funds outstanding Common Shares resulting
from that offering also may put downward pressure on the market price for the
Common Shares of the Fund. |
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The voting power of current Common Shareholders will be diluted to the extent
that such shareholders do not purchase shares in any future Common Share
offerings or do not purchase sufficient shares to maintain their percentage
interest. In addition, if the proceeds of such offering are unable to be
invested as intended, the Funds per Common Share distribution may decrease (or
may consist of return of capital) and the Fund may not participate in market
advances to the same extent as if such proceeds were fully invested as planned. |
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Management Risk. The Fund is subject to management risk because it relies on
Epochs and Analytics ability to pursue the Funds investment objective. The
Subadvisers apply investment techniques and risk analyses in making investment
decisions for the Fund, but there can be no guarantee that they will produce
the desired results. Management risk is particularly significant to the Fund
because it utilizes two interrelated strategies, managed by separate and
unaffiliated subadvisers, requiring communications and coordination between
those subadvisers. |
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Market Disruption Risk. Instability in the Middle East, the wars in
Afghanistan, Iraq and Libya, geopolitical tensions elsewhere and terrorist
attacks in the U.S. and around the world have resulted in market volatility and
may have long-term effects on the U.S. and worldwide financial markets and may
cause further economic uncertainties in the U.S. and worldwide. The Fund does
not know how long the securities markets will continue to be affected by these
events and cannot predict the effects of these or similar events in the future
on the economy or the securities markets. |
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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 affect on issuers in the
agricultural sector and on insurance companies that insure against the impact
of natural disasters. |
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Recent Events Risk. The debt and equity capital markets in the U.S. have
been negatively impacted by significant write-offs in the financial services
sector relating to sub-prime mortgages and the re-pricing of credit risk in the
broadly syndicated market, among other things. These events, along with the
deterioration of the housing market, the failure of major financial
institutions and the resulting U.S. federal government actions have led to a
decline in general economic conditions, which have materially and adversely
impacted the broader financial and credit markets and have reduced the
availability of debt and equity capital for the market as a whole and financial
firms in particular. These events have been adversely affecting the
willingness of some lenders to extend credit, in general, which may make it
more difficult for issuers of debt securities to obtain financings or
refinancings for their investment or lending activities or operations. There
is a risk that such issuers will be unable to successfully complete such
financings or refinancings. In particular, because of the current conditions
in the credit markets, issuers of debt securities may be subject to increased
cost for debt, tightening underwriting standards and reduced liquidity for
loans they make, securities they purchase and securities they issue.
These events may increase the volatility of the value of securities owned by
the Fund and/or |
12
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result in sudden and significant valuation increases or
declines in its portfolio. These events also may make it more difficult for
the Fund to accurately value its securities or to sell its securities on a
timely basis. A significant decline in the value of the Funds portfolio
likely would result in a significant decline in the value of your investment in
the Fund. Prolonged continuation or further deterioration of current market
conditions could adversely impact the Funds portfolio. |
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Changes in U.S. Law. Changes in the state and U.S. federal laws applicable
to the Fund, including changes to state and U.S. federal tax laws, or
applicable to the Adviser, the Subadvisers and other securities or instruments
in which the Fund may invest, may negatively affect the Funds returns to
Common Shareholders. The Fund may need to modify its investment strategy in
the future in order to satisfy new regulatory requirements or to compete in a
changed business environment. |
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Anti-takeover Provisions. The Funds Agreement and Declaration of Trust
includes provisions that could limit the ability of other persons or entities
to acquire control of the Fund or to change the composition of its Board.
These provisions may deprive shareholders of opportunities to sell their Common
Shares at a premium over the then current market price of the Common Shares.
See Certain Provisions in the Declaration of Trust and By-LawsAnti-takeover
provisions. |
|
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Equity Strategy Risks
|
|
Issuer Risk. An issuer of a security may
perform poorly and, therefore, the value of its
stocks and bonds may decline. An issuer of
securities held by the Fund could default or have
its credit rating downgraded. |
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Dividend Strategy Risk. Epoch may not be able to anticipate the level of
dividends that companies will pay in any given timeframe. In accordance with
the Funds strategies, Epoch attempts to identify and exploit opportunities
such as the announcement of major corporate actions that may lead to high
current dividend income. These situations typically are non-recurring or
infrequent, may be difficult to predict and may not result in an opportunity
that allows Epoch to fulfill the Funds investment objective. In addition, the
dividend policies of the Funds target companies are heavily influenced by the
current economic climate and the favorable U.S. federal tax treatment afforded
to dividends. The favorable individual tax rate applied to qualified dividend
income currently is scheduled to expire for tax years beginning after December
31, 2012. Such a change in the favorable provisions of the U.S. federal tax
laws may limit the Funds ability to benefit from dividend increases or special
dividends, may effect a widespread reduction in announced dividends and may
adversely impact the valuation of the shares of dividend-paying companies,
which could adversely impact the value of the Funds Common Shares. |
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Common Stock and Other Equity Securities Risk. The Fund invests primarily in
common stocks, and to a lesser extent in preferred securities. Common stock,
preferred securities and other equity securities represent equity ownership in
a company. Common stocks and similar equity securities are more volatile and
more risky than some other forms of investment. The price of equity securities
will fluctuate, and can decline and reduce the value of the Fund. Therefore,
the value of your investment in the Fund may fluctuate and may be worth less
than your initial investment. The price of equity securities fluctuates based
on changes in a companys financial condition, and overall market and economic
conditions. The value of equity securities purchased by the Fund could decline
if the financial condition of the companies in which the Fund is invested
declines, or if overall market and economic conditions deteriorate. Even if
the Fund invests in high-quality or blue chip equity securities, or
securities of established companies with large market capitalizations (which
generally have strong financial characteristics), the Fund can be negatively
impacted by poor overall market and economic conditions.
The Fund also may invest in securities that can be exercised for or converted
into common |
13
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stocks (such as convertible preferred securities). Because
convertible securities can be converted into equity securities, their values
normally will increase or decrease as the values of the underlying equity
securities increase or decrease. |
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|
The Fund maintains substantial exposure to equities and generally does not
attempt to time the market. Because of this exposure, the possibility that
stock market prices in general will decline over short or extended periods
subjects the Fund to unpredictable declines in the value of its investments, as
well as periods of poor performance. In addition, common stock prices may be
sensitive to rising interest rates, as the costs of capital rise for issuers. |
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|
Non-U.S. Investment Risk. As compared to U.S. companies, there may be less
publicly available information relating to foreign companies. Non-U.S.
securities may be subject to foreign taxes. The value of non-U.S. securities
is subject to currency fluctuations and adverse political and economic
developments. Investments in emerging-market countries are subject to greater
levels of non-U.S. investment risk. |
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Medium and Smaller Company Risk. The prices of medium and smaller company
stocks can change more frequently and dramatically than those of large company
stocks. For purposes of the Funds investment policies, the market
capitalization of a company is based on its market capitalization at the time
the Fund purchases the companys securities. Market capitalizations of
companies change over time. |
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Large Company Risk. Large-capitalization stocks as a group could fall out of
favor with the market, causing the Fund to underperform investments that focus
on small- or medium-capitalization stocks. Larger, more established companies
may be slow to respond to challenges and may grow more slowly than smaller
companies. For purposes of the Funds investment policies, the market
capitalization of a company is based on its market capitalization at the time
the Fund purchases the companys securities. Market capitalizations of
companies change over time. |
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Liquidity Risk. The Fund may invest up to 15% of its total assets in
securities for which there is no readily available trading market or which are
otherwise illiquid. Exposure exists when trading volume, lack of a market
maker or legal restrictions impair the ability to sell particular securities or
close derivative positions at an advantageous price. |
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|
Industry or Sector Risk. The Fund may invest a large percentage of its
assets in a particular industry or sector of the economy or invest in a limited
number of companies. If a large percentage of the Funds assets are closely
tied to a single sector of the economy, the Fund will be far less diversified
than the broad securities markets and it may cause the Fund to underperform
other sectors. Accordingly, investing a large percentage of the Funds assets
in a particular industry or sector may make the Funds value more volatile and
investment values may rise and fall more rapidly. In addition, a fund which
invests in particular industries or sectors is particularly susceptible to the
impact of market, economic, regulatory and other factors affecting those
industries or sectors. |
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Options Strategy Risks
|
|
Options Risk. There are various risks
associated with the Options Strategy. The
purchaser of an index call option written by the
Fund has the right to any appreciation in the
cash value of the index over the strike price
when the option is exercised or on the
expiration date. Therefore, as the writer of an
index call option, the Fund forgoes the
opportunity to profit from increases in the
values of securities held by the Fund whose
values may be correlated with the securities
making up the index. However, the Fund has
retained the risk of loss (net of premiums
received) should the value of the Funds
portfolio securities decline. This combination
of potentially limited appreciation and full
depreciation over time may lead to erosion in
the NAV of the Fund. |
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The value of options written by the Fund, which
are priced daily, will be affected by, among |
14
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other factors, changes in the value of
underlying securities (including those
comprising an index), changes in the dividend
rates of underlying securities (including those
comprising an index), changes in the actual or
perceived volatility of the stock market and the
underlying securities and the remaining time to
an options expiration. The value of an option
also may be adversely affected if the market for
the option is reduced or becomes less liquid. |
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There are significant differences between
securities and options markets that could result
in an imperfect correlation between these
markets, causing a given transaction not to
achieve its objectives. A decision as to
whether, when and how to use options involves
the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful
to some degree because of market behavior or
unexpected events. In the case of index
options, Analytic attempts to maintain for the
Fund written call options positions on equity
indexes whose price movements, taken in the
aggregate, are closely correlated with the price
movements of common stocks and other securities
held in the Funds portfolio. The Fund will
not, however, hold equity securities that
replicate the indices on which it writes call
options. Due to tax considerations, the Fund
limits the overlap between its equity securities
holdings (and any subset thereof) and each index
on which it has outstanding options positions to
less than 70% on an ongoing basis, and a
substantial portion of the Funds holdings
normally is comprised of equity securities not
included in the indices on which it writes call
options. Accordingly, this strategy involves
significant risk that the changes in value of
the indices underlying the Funds written call
options positions will not correlate closely
with changes in the market value of securities
held by the Fund. To the extent that there is a
lack of correlation, movements in the indices
underlying the options positions may result in a
loss to the Fund (including at times when the
market values of securities held by the Fund are
declining), which may exceed any gain received
by the Fund from options premiums and increase
in value of the Funds portfolio securities. In
these and other circumstances, the Fund may be
required to sell portfolios securities to
satisfy its obligations as the writer of an
index call option, when it would not otherwise
choose to do so, or may choose to sell portfolio
securities to realize gain to supplement Fund
distributions. Such sales would involve
transaction costs borne by the Fund and also may
result in realization of taxable capital gain,
including short-term capital gain taxed at
ordinary income tax rates, and may adversely
impact the Funds after-tax returns. |
|
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There can be no assurance that a liquid market
will exist when the Fund seeks to close out an
options position. See Over-the-counter
Options Risk and Listed Options Risk below. |
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|
The exercise price of an index option may be
adjusted downward before the options expiration
as a result of the occurrence of certain
corporate events affecting underlying
securities, such as extraordinary dividends,
stock splits, mergers, or other extraordinary
distributions or events. A reduction in the
exercise price of an option might reduce the
Funds capital appreciation potential on
underlying securities held by the Fund. |
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Listed Options Risk. When the Fund uses listed
or exchange-traded options, a liquid secondary
market may not exist on an exchange when the
Fund seeks to close out an option position.
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
clearinghouse 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 to 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 an exchange or
clearinghouse as a result of trades on that
exchange would continue to be exercisable in
accordance with their terms. |
15
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In addition, the hours of trading for options
may not conform to the hours during which
securities held by the Fund are traded. To the
extent that the options markets close before the
markets for underlying securities, significant
price and rate movements can take place in the
underlying markets that cannot be reflected in
the options markets. In addition, the Funds
listed options transactions are subject to
limitations established by each of the
exchanges, boards of trade or other trading
facilities on which the options are traded.
These limitations govern the maximum number of
options in each class which 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
which the Fund may write or purchase may be
affected by options written or purchased by
other investment advisory clients of Analytic.
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 other sanctions. |
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Over-the-counter Options Risk. As described
above, the Fund may use unlisted (or
over-the-counter) options, which differ from
traded options in that they are two-party
contracts, with price and other terms negotiated
between buyer and seller, and generally do not
have as much market liquidity as exchange-traded
options. The counterparties to these
transactions typically will be major
international banks, broker-dealers and
financial institutions. The Fund may be
required to treat as illiquid over-the-counter
options purchased, as well as securities being
used to cover certain written over-the-counter
options. The over-the-counter options written
by the Fund are not issued, guaranteed or
cleared by the Options Clearing Corporation (the
OCC) or any other clearing agency. In
addition, the Funds ability to terminate
over-the-counter options may be more limited
than with exchange-traded options and may
involve enhanced risk that banks, broker-dealers
or other financial institutions participating in
such transactions will not fulfill their
obligations. In the event of default or
insolvency of the counterparty, the Fund may be
unable to liquidate an over-the-counter option
position. |
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Given the risks described above, an investment in Common Shares may not be
appropriate for all investors. You should carefully consider your ability to
assume these risks before making an investment in the Fund. |
16
Summary of Fund Expenses
The purpose of the table below is to help you understand all fees and expenses that you, as a
Common Shareholder, would bear directly or indirectly. In accordance with SEC requirements, the
table below shows the Funds expenses as a percentage of its average net assets as of [DATE], and
not as a percentage of total assets. By showing expenses as a percentage of average net assets,
expenses are not expressed as a percentage of all of the assets the Fund invests. The offering
costs to be paid or reimbursed by the Fund are not included in the Annual Expenses table below.
However, these expenses will be borne by Common Shareholders and may result in a reduction in the
NAV of the Common Shares. See Management of the Fund and Dividend Reinvestment Plan. The
table and example are based on the Funds capital structure as of [DATE].
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Shareholder Transaction Expenses |
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Sales load paid by you (as a percentage of offering price) (1) |
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|
% |
Offering expenses (as a percentage of offering price) (1) |
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|
% |
Dividend Reinvestment Plan fees (2) |
|
None |
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|
|
Annual Expenses (Percentage of Net Assets Attributable to Common Shares) |
|
|
|
|
Management fees (3) |
|
|
[ ] |
% |
Other expenses |
|
|
[ ] |
(4) |
Total Annual Expenses |
|
|
[ ] |
% |
|
|
|
(1) |
|
If Common Shares are sold to or through underwriters, the Prospectus Supplement will
set forth any applicable sales load and the estimated offering expenses. |
|
(2) |
|
Participants in the Funds dividend reinvestment plan do not pay brokerage
charges with respect to Common Shares issued directly by the Fund. However, whenever
Common Shares are purchased or sold on the NYSE or otherwise on the open market, each
participant will pay a pro rata portion of brokerage trading fees, currently $0.05 per
share purchased or sold. Brokerage trading fees will be deducted from amounts to be
invested. Shareholders participating in the Plan may buy additional Common Shares of
the Fund through the Plan at any time and will be charged a $5 transaction fee plus
$0.05 per share brokerage trading fee for each order. See Distribution Policy and
Dividend Reinvestment Plan. |
|
(3) |
|
See Management of the FundThe Adviser. |
|
(4) |
|
Estimated expenses based on the current fiscal year. |
EXAMPLE
The following example illustrates the expenses that Common Shareholders would pay on a $1,000
investment in Common Shares, assuming (i) total annual expenses of [ ]% of net assets
attributable to Common Shares in years 1 through 10; (ii) a 5% annual return; and (iii) all
distributions are reinvested at NAV:
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1 Year |
|
3 Year |
|
5 Year |
|
10 Year |
Total Expenses |
|
$ |
[ ] |
|
|
$ |
[ ] |
|
|
$ |
[ ] |
|
|
$ |
[ ] |
|
The above table and example and the assumption in the example of a 5% annual return are required by
regulations of the SEC that are applicable to all investment companies; the assumed 5% annual
return is not a prediction of, and does not represent, the projected or actual performance of the
Funds Common Shares. For more complete descriptions of certain of the Funds costs and expenses,
see Management of the Fund. In addition, while the example assumes reinvestment of all dividends
and distributions at NAV, participants in the Funds dividend reinvestment plan may receive Common
Shares purchased or issued at a price or value different from NAV. See Distribution Policy and
Dividend Reinvestment Plan. The example does not include sales load or estimated offering costs,
which would cause the expenses shown in the example to increase.
The example should not be considered a representation of past or future expenses, and the Funds
actual expenses may be greater or less than those shown. Moreover, the Funds actual rate of
return may be greater or less than the hypothetical 5% return shown in the example.
17
Financial Highlights
This table details the financial performance of the Common Shares, including total return
information showing how much an investment in the Fund has increased or decreased each period.
[TO BE ADDED BY AMENDMENT]
18
Market and Net Asset Value Information
The Funds Common Shares are listed on the New York Stock Exchange (NYSE) under the symbol
HTY. The Funds Common Shares commenced trading on the NYSE on September 26, 2007.
The Funds Common Shares have traded both at a premium and a discount to its net asset value
(NAV). The Fund cannot predict whether its shares will trade in the future at a premium or
discount to NAV. The provisions of the 1940 Act generally require that the public offering price
of common shares (less any underwriting commissions and discounts) must equal or exceed the NAV per
share of a companys common stock (calculated within 48 hours of pricing). The Funds issuance of
Common Shares may have an adverse effect on prices in the secondary market for Common Shares by
increasing the number of Common Shares available, which may put downward pressure on the market
price for Common Shares. Shares of common stock of closed-end investment companies frequently
trade at a discount from NAV. See Risk FactorsGeneral RisksMarket Discount Risk.
The following table sets forth for each of the periods indicated the high and low closing market
prices for Common Shares on the NYSE, and the corresponding NAV per share and the premium or
discount to NAV per share at which the Funds Common Shares were trading as of such date. NAV is
determined once daily as of the close of regular trading of the NYSE (typically 4:00 P.M., Eastern
Time). See Determination of Net Asset Value for information as to the determination of the
Funds NAV.
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|
NAV per Share on |
|
Premium/(Discount) on |
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|
|
Date of Market Price |
|
Date of Market Price |
|
|
Market Price |
|
High and Low |
|
High and Low |
Fiscal Quarter Ended |
|
High |
|
Low |
|
High |
|
Low |
|
High |
|
Low |
January 31, 2010 |
|
$ |
13.47 |
|
|
$ |
11.80 |
|
|
$ |
13.31 |
|
|
$ |
12.57 |
|
|
|
1.20 |
% |
|
|
(6.13) |
% |
April 30, 2010 |
|
$ |
13.17 |
|
|
$ |
12.23 |
|
|
$ |
12.73 |
|
|
$ |
12.14 |
|
|
|
3.46 |
% |
|
|
0.74 |
% |
July 31, 2010 |
|
$ |
12.68 |
|
|
$ |
10.70 |
|
|
$ |
12.31 |
|
|
$ |
11.01 |
|
|
|
3.01 |
% |
|
|
(2.82) |
% |
October 31, 2010 |
|
$ |
13.66 |
|
|
$ |
12.05 |
|
|
$ |
12.98 |
|
|
$ |
12.20 |
|
|
|
5.24 |
% |
|
|
(1.23) |
% |
January 31, 2011 |
|
$ |
14.30 |
|
|
$ |
12.35 |
|
|
$ |
13.13 |
|
|
$ |
12.50 |
|
|
|
8.91 |
% |
|
|
(1.20) |
% |
April 30, 2011 |
|
$ |
13.66 |
|
|
$ |
12.39 |
|
|
$ |
13.30 |
|
|
$ |
11.92 |
|
|
|
2.71 |
% |
|
|
3.94 |
% |
July 31, 2011 |
|
$ |
15.27 |
|
|
$ |
12.68 |
|
|
$ |
13.13 |
|
|
$ |
12.53 |
|
|
|
16.30 |
% |
|
|
1.20 |
% |
October 31, 2011 |
|
$ |
12.86 |
|
|
$ |
11.41 |
|
|
$ |
12.42 |
|
|
$ |
11.29 |
|
|
|
3.54 |
% |
|
|
1.06 |
% |
January 31, 2012 |
|
$ |
14.16 |
|
|
$ |
12.21 |
|
|
$ |
11.97 |
|
|
$ |
12.06 |
|
|
|
18.30 |
% |
|
|
1.24 |
% |
April 30, 2012 |
|
$ |
13.50 |
|
|
$ |
12.12 |
|
|
$ |
12.20 |
|
|
$ |
11.75 |
|
|
|
10.66 |
% |
|
|
3.15 |
% |
The last reported sale price, NAV per share and percentage premium to NAV per share of the Common
Shares as of April 30, 2012 were $12.85, $12.03 and 6.82%, respectively. As of April 30, 2012, the
Fund had 9,484,599 Common Shares outstanding and net assets of the
Fund were
[ ].
In 2008 and again in 2009, after evaluating strategic options to enhance shareholder value and
potentially decrease the discount between the market price and the NAV of the Common Shares, the
trustees of the Fund (the Trustees) approved a share repurchase plan. Under each plan, the Fund
was authorized to repurchase, in the open market, up to 10% of its outstanding Common Shares. In
2009, Common Shares were purchased under the plan, resulting in a minimal impact to the Funds NAV.
As a result, as of December 31, 2010, the plan was not renewed.
19
The Fund
The Fund is a diversified, closed-end management investment company registered under the 1940
Act. The Fund was organized on April 23, 2007 as a Massachusetts business trust pursuant to an
Agreement and Declaration of Trust (the Declaration of Trust). The Fund commenced operations in
September 2007 following an initial public offering. On September 25, 2007, the Fund issued an
aggregate of 8,750,000 Common Shares of beneficial interest, par value $0.01 per share, pursuant to
the initial public offering thereof. On November 14, 2007, the Fund issued an additional 600,000
Common Shares in connection with the exercise by the initial underwriters of an over-allotment
option. The Funds principal office is located at 601 Congress Street, Boston, Massachusetts 02210
and its phone number is 800-225-6020.
The following provides information about the Funds outstanding securities as of April 30, 2012.
|
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Amount Held by the |
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Amount |
|
Fund or for its |
|
Amount |
Title of Class |
|
Authorized |
|
Account |
|
Outstanding |
Common Shares |
|
unlimited |
|
|
0 |
|
|
|
9,484,599 |
|
Use of Proceeds
Subject to the remainder of this section, and unless otherwise specified in a Prospectus
Supplement, the Fund currently intends to invest substantially all of the net proceeds of any sales
of Common Shares pursuant to this Prospectus in accordance with its investment objective and
policies as described under Investment Objective and Investment Strategies within three months
of receipt of such proceeds. Such investments may be delayed if suitable investments are
unavailable at the time or for other reasons. Pending such investment, the Fund anticipates that
it will invest the proceeds in high-quality, short-term debt securities, cash and/or cash
equivalents. A delay in the anticipated use of proceeds could lower returns and reduce the Funds
distribution to Common Shareholders or result in a distribution consisting principally of a return
of capital.
Investment Objective
The Funds investment objective is to provide total return consisting of a high level of
current income and gain and long term capital appreciation. In pursuing its investment objective,
the Fund seeks to achieve favorable after-tax returns for its shareholders by seeking to minimize
the U.S. federal income tax consequences on income and gain generated by the Fund. There can be no
assurance that the Fund will achieve its investment objective. The Funds investment objective is
fundamental and may not be changed without shareholder approval.
Investment Strategies
Under normal market conditions, the Fund invests at least 80% of its total assets in a
diversified portfolio of dividend-paying securities of issuers located throughout the world. The
Fund seeks to produce superior, risk-adjusted returns by using a disciplined, proprietary
investment approach that is focused on identifying companies with strong free cash flow and that
use their free cash flow to seek to maximize shareholder yield through dividend payments, stock
repurchases and debt reduction. By assembling a diversified portfolio of securities which, in the
aggregate, possess positive growth of free cash flow, high cash dividend yields, share buyback
programs and net debt reductions, the Fund seeks to provide shareholders an attractive total return
with less volatility than the global equity market as a whole. Free cash flow is the cash
available for distribution to investors after all planned capital investment and taxes. The
Adviser believes that free cash flow is important because it allows a company to pursue
opportunities that enhance shareholder value.
20
The relative portions of the Funds portfolio invested in securities of U.S. and non-U.S. issuers
are expected to vary over time. Under normal market conditions, the Fund invests at least 40% of
its total assets in securities of non-U.S. issuers. The Fund may invest up to 20% of its total
assets in securities issued by companies located in emerging markets when Epoch, the Funds equity
portfolio subadviser, believes such companies offer attractive opportunities. Securities held by
the Fund may be denominated in both U.S. dollars and non-U.S. currencies. The Fund may not invest
more than 25% of its total assets in the securities of issuers in any single industry or group of
related industries. Under normal conditions, the Fund invests in the securities of issuers located
in at least three different countries, including the U.S. The actual number of countries
represented in the Funds portfolio will vary over time and as of the end of the last fiscal year
14 countries were represented.
In order to seek to enhance risk-adjusted returns, reduce overall portfolio volatility and generate
earnings for current distribution from options premiums, the Fund, as part of its Options Strategy,
writes (sell) call options on a variety of both U.S. and non-U.S. broad-based securities indices.
The amount of the value of the Funds assets that is subject to index call options is expected to
vary over time based upon U.S. and non-U.S. equity market conditions and other factors. The
indices on which the Fund will write call options also are expected to vary over time based upon a
number of factors, including the composition of the Funds securities portfolio, prevailing U.S.
and non-U.S. equity market conditions and the amount of the value of the Funds assets that is
subject to index call options.
On an overall basis, the Fund seeks to implement an investment strategy designed to minimize the
U.S. federal income tax consequences on income and gain generated by the Fund. The Fund seeks to
accomplish this primarily by (i) investing in dividend-paying securities that are eligible to pay
dividends that qualify for U.S. federal income taxation at rates applicable to long-term capital
gain (tax-advantaged dividends), and complying with the holding period and other requirements for
such favorable tax treatment; (ii) selling broad-based index call options that qualify for
favorable U.S. federal income tax treatment as section 1256 contracts under the Code on which
capital gain and loss generally are treated as 60% long-term and 40% short-term, regardless of
holding period; and (iii) offsetting any ordinary income and realized short-term capital gain
against Fund expenses and realized short-term loss. In this regard, the Funds policy described
above of investing at least 80% of its total assets in dividend-paying securities of issuers
located throughout the world is subject to the requirement that Epoch believes at the time of
investment that such securities are eligible to pay tax-advantaged dividends. This is a
non-fundamental policy that may be changed by the Board without approval of the Common Shareholders
following the provision of 60 days prior written notice to Common Shareholders.
Equity Strategy
The Fund invests in global equity securities across a broad range of market capitalizations. The
Fund generally invests in companies with a market capitalization (i.e., total market value of a
companys shares) of $500 million or greater at the time of purchase. The Adviser has engaged
Epoch to serve as a subadviser to the Fund. Epoch is responsible for the day-to-day management of
the Funds portfolio investments. Although the Fund may invest in securities of companies with any
capitalization, it may at any given time invest a significant portion of its total assets in
companies of one particular market capitalization category when Epoch believes such companies offer
attractive opportunities. Epoch seeks to produce superior, risk-adjusted returns by investing in
businesses with outstanding risk/reward profiles and a focus on high shareholder yield.
Shareholder yield refers to the collective financial impact on shareholders from the return of free
cash flow through cash dividends, stock repurchases and debt reduction. By assembling a
diversified portfolio of securities with these qualities, Epoch believes Fund investors will have
the opportunity to realize an attractive total return with less volatility than the global equity
market as a whole.
Epoch seeks to produce an efficient portfolio on a risk/return basis with a dividend yield that
exceeds the dividend yield of the MSCI World Index. The MSCI World Index is an unmanaged index
that captures large- and mid-cap representation across 24 developed markets countries. With 1,613
constituents, the MSCI World Index covers approximately 84% of the free float-adjusted market
capitalization in each country as of January 31, 2012. In selecting securities for the Fund, Epoch
utilizes an investment strategy that combines bottom-up stock research and selection with top-down
analysis. Epoch looks for companies it believes have solid long-term prospects, attractive
valuation comparisons and adequate market liquidity. The equity securities that Epoch finds
attractive generally have valuations lower than Epochs estimate of their fundamental value, as
reflected in price-to-cash flow, price-to-book ratios or other stock valuation measures.
21
In selecting securities for the Funds portfolio, Epoch focuses on dividend-paying common stocks
and, to a lesser extent, preferred securities that produce an attractive level of tax-advantaged
income. Epoch also considers an equity securitys potential for capital appreciation. Epoch
generally uses a value approach in selecting the Funds equity investments. Epoch evaluates an
equity securitys potential value, including the attractiveness of its market valuation, based on
the companys assets and prospects for earnings growth. Investment decisions are made primarily on
the basis of fundamental research. Epoch relies upon information provided by, and the expertise
of, Epochs research staff in making investment decisions. In selecting equity securities, Epoch
considers (among other factors) a companys cash flow capabilities, dividend prospects and the
anticipated U.S. federal income tax treatment of a companys dividends, the strength of the
companys business franchises and estimates of the companys net value.
Epoch sells or reduces a position in a security when it sees the goals of its investment thesis
failing to materialize, or when it believes those goals have been met and the valuation of the
companys shares fully reflect the opportunities once thought unrecognized in share price. The
reasons for a determination by Epoch that such goals are not being met include: the economic or
competitive environment might be changing; company managements execution could be disappointing;
or in certain cases, management proves to be less than forthright or have an inappropriate
assessment of the companys state and the task at hand.
Tax-advantaged dividends. Under normal market conditions, the Fund invests primarily in a
diversified portfolio of dividend-paying securities of issuers located throughout the world that
Epoch believes at the time of investment are eligible to pay tax-advantaged dividends.
Tax-advantaged dividends generally include dividends from domestic corporations and dividends from
foreign corporations that meet certain specified criteria. The Fund generally can pass the tax
treatment of tax-advantaged dividends it receives through to its Common Shareholders. For the Fund
to receive tax-advantaged dividends, the Fund must, in addition to other requirements, hold the
otherwise qualified security for more than 60 days during the 121-day period beginning 60 days
before the ex-dividend date (or, in the case of preferred securities, more than 90 days during the
181-day period beginning 90 days before the ex-dividend date). The ex-dividend date is the date
that is established by a stock exchange (usually two business days before the record date) whereby
the owner of a security at the commencement of such date is entitled to receive the next issued
dividend payment for such security, even if the security is sold by such owner on the ex-dividend
date or thereafter. In addition, the Fund cannot be obligated to make payments (pursuant to a
short sale or otherwise) with respect to substantially similar or related property. For a Common
Shareholder to be taxed at the long-term capital gain rates, the Common Shareholder must hold his
or her Common Shares for more than 60 days during the 121-day period beginning 60 days before the
ex-dividend date. Consequently, short-term investors in the Fund will not realize the benefits of
tax-advantaged dividends.
There can be no assurance as to the portion of the Funds dividends that will be tax-advantaged.
The provisions of the Code applicable to tax-advantaged dividends are currently effective through
December 31, 2012, but may be changed at any time, possibly with retroactive effect. Thereafter,
higher tax rates will apply unless further legislative action is taken. Thus, no assurance can be
given that current law applicable to tax-advantaged dividends will continue after December 31,
2012. Although the Fund intends to invest at least 80% of its assets in equity securities that pay
tax-advantaged dividends and to satisfy the holding period and other requirements, a portion of the
Funds income distributions may be taxable as ordinary income (i.e., income other than
tax-advantaged dividends).
Dividend capture strategy. The Fund may seek to enhance the level of dividend income it receives
by engaging in dividend capture trading. In a dividend capture trade, the Fund sells a security
after having held the security long enough to satisfy the holding period requirements for
tax-advantaged dividends, but shortly after the securitys ex-dividend date. The Fund then uses
the sale proceeds to purchase one or more other securities that are expected to pay dividends
before the next dividend payment date on the security being sold. Through this practice, the Fund
may receive more dividend payments over a given period of time than if it held a single security.
Receipt of a greater number of dividend payments during a given time period could augment the total
amount of dividend income received by the Fund. For example, during the course of a single year,
it may be possible through dividend capture trading for the Fund to receive five or more dividend
payments on different securities which have been held
22
for the requisite holding period to qualify as a tax-advantaged dividend, whereas it may only have received
four payments in a hold strategy. The use of dividend capture strategies will expose the Fund to
increased trading costs and the potential for recognizing short-term capital gain or loss on the
sale of security. Also, any net short-term capital gain recognized by the Fund and distributed to
shareholders will be taxed to individual shareholders at ordinary U.S. federal income tax rates,
whereas if the Fund held the security for more than one year, any gain recognized on the sale of
the security and distributed to shareholders would be taxable to individual shareholders at U.S.
federal long-term capital gain rates. Consequently, Epoch employs dividend capture trading as a
strategy in an attempt to produce a positive net effect on the Funds total after-tax return. By
complying with applicable holding period and other requirements while engaging in dividend capture
trading, the Fund may be able to enhance the level of tax-advantaged dividend income it receives
because it will receive more dividend payments qualifying for favorable treatment during the same
time period than if it simply held its portfolio securities. The Funds ability to benefit from
this strategy may be adversely affected by any loss carryforwards the Fund might have.
Options Strategy
The Fund writes index options on a substantial portion of the value of the Funds securities
portfolio, although this amount is expected to vary over time based upon U.S. and non-U.S. equity
market conditions and other factors. The Funds Options Strategy is used to seek to enhance
risk-adjusted returns, generate earnings from options premiums and to reduce overall portfolio
volatility. The Adviser has engaged Analytic to formulate and implement the Funds Options
Strategy. Analytic primarily writes index call options that it believes generally will qualify for
favorable tax-treatment as section 1256 contracts under the Code. The Fund also may write call
options to a lesser extent, on narrow-based securities indices, exchange traded funds that
represent certain indices, countries or sectors of the market, on futures contracts and on
individual securities. Such written call options would not qualify for favorable tax treatment
under the Code.
Analytic primarily writes index call options on broad-based equity indices that trade on a national
securities exchange registered with the SEC or on a domestic board of trade designated as a
contract market by the Commodity Futures Trading Commission that qualify for treatment as section
1256 contracts for U.S. federal income tax purposes. For options that qualify as section 1256
contracts, the Funds gain and loss on those exchange-listed options generally will be treated as
60% long-term and 40% short-term capital gain or loss, regardless of the holding period for U.S.
federal income tax purposes. For U.S. federal income tax purposes, the Fund generally is required
to mark to market (i.e., treat as sold for fair market value) each such outstanding index option
position at the close of each taxable year (and on October 31 of each year for excise tax
purposes), resulting in potential tax gain or loss to the Fund notwithstanding that the option has
not been exercised or terminated. Options that do not qualify as section 1256 contracts
(including, for example, options on exchange traded funds, options on individual securities,
options on narrow-based indices, and over-the-counter options) generally will give rise to
short-term capital gain or loss that will be recognized upon exercise, lapse, or disposition; any
such gain, when distributed to U.S. taxable shareholders, will be taxable at ordinary income rates.
Analytic actively manages the Funds options positions using quantitative and statistical analysis
that focuses on relative value and risk/return in an attempt to manage costs and returns, while at
the same time be relatively correlated to the underlying securities in the Fund. Analytic uses its
proprietary option valuation model to seek to identify options it believes are overvalued and,
therefore, offer relatively high premiums to the Fund. Analytic believes that volatility is an
important component to option valuation and employs a proprietary volatility forecasting model to
identify what Analytic believes to be overvalued call options.
Analytics valuation process begins with identifying characteristics for each option, such as
strike price, time to expiration and risk-free rate. Analytic then uses a proprietary model to
forecast volatility, which includes such factors as short-term volatility, long-run volatility,
significant events, term structure, seasonality and option market implied volatilities. Analytic
believes its proprietary model can be highly effective in forecasting volatility. Analytic uses
this model as an input into its option valuation platform along with multiple other factors to
calculate an expected annualized return for all cash/options, stock/option and index/option
combinations. Combinations include covered calls and married puts. Puts may be purchased by the
Fund if Analytic believes that they are attractively priced or reduce the Funds risk of holding
securities. A married put is a purchased put designed to hedge or provide downside protection for
a basket of equity securities. Analytic believes that, generally, options are overpriced if the
implied volatility exceeds its forecasted volatility.
23
In an attempt to control risk, Analytic calculates in real time, using current market prices,
option exposures across several dimensions for each option position and for the entire diversified
portfolio. These exposures include delta (the change in the options price versus the change in the
underlying asset) and gamma (the change in the delta versus the change in the underlying asset).
Analytic also calculates the expected time decay for each option and for the portfolio (theta), and
calculates the expected growth-exposures and Black-Scholes value for each position. An options
time decay (theta) is a property of an option that generally causes the price of an option (in
absence of any other factors or changes in the market place) to fall as the time to expiration
shortens. Black-Scholes is a standard options pricing model. Analytic uses these statistics to
estimate the combined stock option portfolios market exposure and risk.
The extent of the Funds use of written call options will vary over time based, in part, on the
Advisers, Epochs and Analytics assessment of market conditions, pricing of options, related
risks and other factors. In addition, the Funds exposure to call options written by it may at
times substantially fluctuate. The ultimate decision as to the extent of the Funds use of the
Options Strategy is made by the Adviser. At any time, the Adviser or Epoch may direct Analytic to
modify, limit or temporarily suspend the Funds use of the Options Strategy. The Funds use of
written index call options involves a tradeoff between the option premiums received and the reduced
participation in potential future security price appreciation of its equity portfolio. Due to tax
considerations, the Fund attempts to limit the overlap between its equity security holdings (and
any subset thereof) and each index on which it has outstanding options positions to less than 70%
on an ongoing basis. A portion of the Funds equity securities holdings normally consists of
equity securities not included in the indices on which it writes call options.
As the seller of index call options, the Fund receives cash (the premium) from purchasers of the
options. The purchaser of an index call option has the right to receive from the option seller any
appreciation in the value of the index over a fixed price (the exercise price) as of a specified
date in the future (the option expiration date). In effect, the Fund sells the potential
appreciation in the value of the index above the exercise price during the term of the option in
exchange for the premium. Analytic also may cause the Fund to sell put options from time to time
if Analytic considers the pricing of those options highly favorable and sale of such an option
might beneficially alter the risk profile of the Funds option exposure.
The Fund primarily uses listed/exchange-traded options contracts but also may use unlisted (or
over-the-counter or OTC) options. Listed options contracts typically are originated and
standardized by securities exchanges and clearinghouses. OTC options are not originated and
standardized by an exchange or clearinghouse or listed and traded on an options exchange, and the
OTC options written by the Fund are not issued, guaranteed or cleared by any clearinghouse.
The transaction costs of buying and selling options consist primarily of the bid-ask spread and
commissions (which are imposed in opening, closing, exercise and assignment transactions), and may
include margin and interest costs in connection with both exchange traded and over-the-counter
transactions.
Options on broad-based indices differ from options on individual securities because (i) the
exercise of an index option requires cash payments and does not involve the actual purchase of
securities, (ii) the holder of an index call option has the right to receive cash upon exercise of
the option if the level of the index upon which the option is based is greater than the exercise
price of the option, and (iii) broad-based index options are designed to reflect price fluctuations
in a group of securities or segments of the securities markets rather than price fluctuations in a
single security.
Analytic primarily sells call options on broad-based equity indices, such as the S&P 500, and
other U.S. and non-U.S. broad-based equity indices that qualify for favorable tax treatment as
section 1256 contracts. The Fund also may sell call options on narrower market indices or on
indices of securities of companies in a particular industry or sector, including (but not limited
to) utilities, energy, telecommunications and other technology, financial services, pharmaceuticals
and consumer products. An equity index assigns relative values to the securities included in the
index (which change periodically), and the index fluctuates with changes in the market values of
those securities. Such call options would not be eligible for favorable tax treatment. There can
be no assurances that the Funds Options Strategy will be successful, and the Options Strategy may
result in a loss.
24
The Fund generally writes (sell) index call options that are out-of-the-money or at-the-money at
the time of sale. Out-of-the-money call options are call options with an exercise price that is
above the current cash value of the index and at-the-money call options are call options with an
exercise price that is equal to the current cash value of the index. The Fund also may from time
to time sell in-the-money options when Analytic believes that in-the-money call options are
appropriate (i.e., with an exercise price that is below the current cash value of the index), based
on market conditions and other factors.
Analytic attempts to maintain for the Fund written call options positions on equity indices whose
price movements, taken in the aggregate, closely correlate with the price movements of some or all
of the equity securities held in the Funds equity portfolio. However, this strategy involves the
risk that changes in value of the indices underlying the Funds written index call options
positions will not correlate closely with changes in the market values of securities held by the
Fund. To the extent that there is a lack of correlation, movements in the indices underlying the
options positions may result in a loss to the Fund, which may more than offset any gain received by
the Fund from the receipt of options premiums and may be significant. In these and other
circumstances, the Fund may be required to sell portfolio securities to satisfy its obligations as
the writer of an index call option when it would not otherwise choose to do so, or may choose to
sell portfolio securities to realize gain to supplement Fund distributions. Such sales would
involve transaction costs borne by the Fund and also may result in realization of taxable capital
gain, including short-term capital gain taxed at ordinary income tax rates, and may adversely
impact the Funds after-tax returns.
The Fund may be subject to the straddle rules under U.S. federal income tax law. Under the
straddle rules, offsetting positions with respect to personal property generally are considered
to be straddles. In general, investment positions will be offsetting if there is a substantial
diminution in the risk of loss from holding one position by reason of holding one or more other
positions. To avoid characterization as straddles, the Fund is required to limit the overlap
between its stock holdings (and any subset thereof) and the indices on which it has outstanding
option positions to less than 70% (generally based on value) on an ongoing basis. The Fund expects
that the index call options it writes generally will not be considered straddles because its stock
holdings will be sufficiently dissimilar from the components of each index on which it has open
call options positions under applicable Treasury Regulations. Under certain circumstances,
however, the Fund may enter into options transactions or certain other investments that may
constitute positions in a straddle. See U.S. Federal Income Tax Matters.
There can be no assurance that the Funds Options Strategy will be successful, and the Options
Strategy may result in a loss. See Risk Factors.
The Fund is not sponsored, endorsed, sold or promoted by any index sponsor. No index sponsor has
passed on the legality or suitability of, or the accuracy or adequacy of, descriptions and
disclosures relating to the Fund. No index sponsor has made any representation or warranty,
express or implied, to the Common Shareholders or any member of the public regarding the
advisability of investing in securities generally or in the Fund particularly, or the ability of
any index to track general stock market performance. The indices are determined, composed and
calculated by the respective index sponsors without regard to the Fund or its use of the indices
for option writing. The index sponsors have no obligation to take the needs of the Fund or its
Common Shareholders into consideration in determining, composing or calculating the indices. No
index sponsor is responsible for or has participated in the determination of the timing of, price
of, or number of Common Shares to be issued. No index sponsor has any liability in connection with
the management, administration, marketing or trading of the Fund.
The index sponsors do not guarantee the accuracy and/or uninterrupted calculation of the indices or
any data included therein. The index sponsors make no warranty, express or implied, as to results
to be obtained by the Fund, the Common Shareholders or any other person or entity from the use of
the indices in the Funds options writing program. In publishing the indices, the index sponsors
make no express or implied warranties, and expressly disclaim all warranties of merchantability or
fitness for a particular purpose or use with respect to the indices or any data included therein.
Without limiting any of the foregoing, in no event shall an index sponsor have any liability for
any lost profits or special, incidental, punitive, indirect or consequential damages, even if
notified of the possibility of such damages.
25
Other Investments
The foregoing policies relating to investments in equity securities and options writing are the
Funds primary investment policies. In addition to its primary investment policies, the Fund may
invest to a limited extent in other types of securities and engage in certain other investment
practices. The Fund may use a variety of derivative instruments (including long and short
positions) for hedging purposes, to adjust portfolio characteristics or more generally for purposes
of attempting to increase the Funds investment return, including put and call options, options on
futures contracts, futures and forward contracts and swap agreements with respect to securities,
indices and currencies. The Fund may invest in securities of other open- and closed-end investment
companies, including exchange traded funds, to the extent that such investments are consistent with
the Funds investment objective and policies and permissible under the 1940 Act. The Fund may lend
its portfolio securities. The Fund may invest in debt securities, including below investment-grade
debt securities. See Additional Investment Practices. Normally, the Fund invests
substantially all of its total assets to meet its investment objective. The Fund may invest the
remainder of its assets in other equity securities and fixed-income securities with remaining
maturities of less than one year or cash equivalents, or it may hold cash. For temporary defensive
purposes, the Fund may depart from its principal investment strategies and invest part or all of
its total assets in fixed-income securities with remaining maturities of less than one year, cash
or cash equivalents. During such periods, the Fund may not be able to achieve its investment
objective.
PORTFOLIO INVESTMENTS
Equity Strategy
Common stocks
The Fund invests primarily in common stocks. Common stocks represent an ownership interest in an
issuer. While offering greater potential for long-term growth, common stocks are more volatile and
more risky than some other forms of investment. Common stock prices fluctuate for many reasons,
including adverse events, such as an unfavorable earnings report, changes in investors perceptions
of the financial condition of an issuer or the general condition of the relevant stock market, or
when political or economic events affecting the issuers occur. In addition, common stock prices
may be sensitive to rising interest rates as the costs of capital rise and borrowing costs
increase.
Although common stocks have historically generated higher average returns than fixed-income
securities over the long term and particularly during periods of high or rising concerns about
inflation, common stocks also have experienced significantly more volatility in returns and may not
maintain their real value during inflationary periods. An adverse event, such as an unfavorable
earnings report, may depress the value of a particular common stock held by the Fund. Also, the
prices of common stocks are sensitive to general movements in the stock market and a drop in the
stock market may depress the price of common stocks to which the Fund has exposure. Common stock
prices fluctuate for many reasons, including changes in investors perceptions of the financial
condition of an issuer or the general condition of the relevant stock market, or when political or
economic events affecting the issuers occur. In addition, common stock prices may be sensitive to
rising interest rates, as the costs of capital rise and borrowing costs increase.
Non-U.S. securities
Typically, the Fund invests at least 40% of its total assets in securities of non-U.S. issuers.
The Fund invests in non-U.S. securities, including direct investments in securities of non-U.S.
issuers and investments in depository receipts (such as American Depository Receipts) that
represent indirect interests in securities of non-U.S. issuers. The Fund is not limited in the
amount of assets it may invest in such non-U.S. securities. These investments involve risks not
associated with investments in the U.S., including the risk of fluctuations in foreign currency
exchange rates, unreliable and untimely information about the issuers and political and economic
instability. These risks could result in Epoch misjudging the value of certain securities or in a
significant loss in the value of those securities.
The value of non-U.S. securities is affected by changes in currency rates, non-U.S. tax laws
(including withholding tax), government policies (in this country or abroad), relations between
nations and trading, settlement, custodial and other operational risks. In addition, the costs of
investing abroad generally are higher than in the U.S., and non-U.S. securities markets may be less
liquid, more volatile and less subject to governmental supervision than markets
26
in the U.S. As an alternative to holding non-U.S.-traded securities, the Fund may invest in
dollar-denominated securities of non-U.S. companies that trade on U.S. exchanges or in the U.S.
over-the-counter market (including depositary receipts as described below, which evidence ownership
in underlying non-U.S. securities, and exchange traded funds (ETFs) as described below).
Because non-U.S. companies are not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to U.S. companies, there may
be less publicly available information about a non-U.S. company than about a domestic company.
Volume and liquidity in most non-U.S. debt markets is less than in the U.S. and securities of some
non-U.S. companies are less liquid and more volatile than securities of comparable U.S. companies.
There generally is less government supervision and regulation of securities exchanges,
broker-dealers and listed companies than in the U.S. Mail service between the U.S. and foreign
countries may be slower or less reliable than within the U.S., thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio securities. Payment
for securities before delivery may be required. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments, which could affect investments in those countries.
Moreover, individual non-U.S. economies may differ favorably or unfavorably from the U.S. economy
in such respects as growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Non-U.S. securities markets, while
growing in volume and sophistication, generally are not as developed as those in the U.S., and
securities of some non-U.S. issuers (particularly those located in developing countries) may be
less liquid and more volatile than securities of comparable U.S. companies.
The Fund may invest in the securities of non-U.S. issuers in the form of sponsored and unsponsored
American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), and European Depositary
Receipts (EDRs) (collectively, Depositary Receipts), which are certificates evidencing
ownership of shares of non-U.S. issuers and are alternatives to purchasing directly the underlying
non-U.S. securities in their national markets and currencies. However, such depository receipts
continue to be subject to many of the risks associated with investing directly in non-U.S.
securities. These risks include foreign exchange risk as well as the political and economic risks
associated with the underlying issuers country. ADRs, EDRs and GDRs may be sponsored or
unsponsored. Unsponsored receipts are established without the participation of the issuer.
Unsponsored receipts may involve higher expenses, they may not pass-through voting or other
shareholder rights, and they may be less liquid. Less information is normally available on
unsponsored receipts.
Emerging markets
The Fund may invest in securities of issuers located in emerging markets. The risks of non-U.S.
investments described above apply to an even greater extent to investments in emerging markets.
The securities markets of emerging market countries generally are smaller, less developed, less
liquid and more volatile than the securities markets of the U.S. and developed non-U.S. markets.
Disclosure and regulatory standards in many respects are less stringent than in the U.S. and
developed non-U.S. markets. There also may be a lower level of monitoring and regulation of
securities markets in emerging market countries, and enforcement of existing regulations may be
limited. Many emerging market countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have very negative effects on the economies and securities
markets of certain emerging market countries. Economies in emerging markets generally are heavily
dependent upon international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which they trade. The
economies of these countries also have been and may continue to be adversely affected by economic
conditions in the countries in which they trade. The economies of countries with emerging markets
also may be predominantly based on only a few industries or dependent on revenues from particular
commodities. In addition, custodial services and other costs relating to investment in non-U.S.
markets may be more expensive in emerging markets than in many developed non-U.S. markets, which
could reduce the Funds income from such securities.
27
Options Strategy
Index options generally
The Fund pursues its objective in part through its Options Strategy by writing (selling) stock
index call options with respect to a portion of its common stock portfolio value. The Fund
generally sells index call options that are exchange-listed and European style, meaning that the
options may be exercised only on the expiration date of the option. Index call options differ from
options on individual securities in that index call options (i) typically are settled in cash
rather than by delivery of securities (meaning the exercise of an index option does not involve the
actual purchase or sale of securities) and (ii) reflect price fluctuations in a group of securities
or segments of the securities market rather than price fluctuations in a single security.
U.S. listed options contracts are originated and standardized by the OCC. Currently, U.S. listed
index options are available on approximately 89 indexes, with new listings added periodically. In
the U.S., the Fund generally sells index call options that are issued, guaranteed and cleared by
the OCC. The Fund also may sell index call options in the U.S. and outside the U.S. that are not
issued, guaranteed or cleared by the OCC, including OTC options. The Adviser and Analytic believe
that there exists sufficient liquidity in the index options markets to fulfill the Funds
requirements to implement its strategy.
To implement its options program most effectively, the Fund may sell index options that trade in
OTC markets. Participants in these markets typically are not subject to the same credit evaluation
and regulatory oversight as members of exchange based markets. By engaging in index option
transactions in these markets, the Fund may take credit risk with regard to parties with which it
trades and also may bear the risk of settlement default. These risks may differ materially from
those involved in exchange-traded transactions, which generally are characterized by clearing
organization guarantees, daily marking-to-market and settlement, and segregation and minimum
capital requirements applicable to intermediaries. Transactions entered into directly between two
counterparties generally do not benefit from these protections, which may subject the Fund to the
risk that a counterparty will not settle a transaction in accordance with agreed terms and
conditions because of a dispute over the terms of the contract or because of a credit or liquidity
problem. Such counterparty risk is increased for contracts with longer maturities when events
may intervene to prevent settlement. The ability of the Fund to transact business with any one or
any number of counterparties, the lack of any independent evaluation of the counterparties or their
financial capabilities and the absence of a regulated market to facilitate a settlement may
increase the potential for loss to the Fund.
Selling call options under the Options Strategy
The Funds Options Strategy is used to seek to enhance risk-adjusted returns, generate earnings
from options premiums and to reduce overall portfolio volatility. This Options Strategy is of a
hedging nature, and is not designed to speculate on equity market performance.
As the seller of call options, the Fund receives cash (the premium) from the purchasers thereof.
The purchaser of an option has the right to any appreciation in the value of the applicable index
over a fixed price (the exercise price) as of a specified date in the future (the option valuation
date). The Fund generally writes (sell) index call options that are out-of-the-money or
at-the-money at the time of sale. Out-of-the-money call options are call options with an exercise
price that is above the current cash value of the index and at-the-money call options are call
options with an exercise price that is equal to the current cash value of the index. The Fund may
from time to time also sell in-the-money options when Analytic believes that in-the-money are
appropriate (i.e., with an exercise price that is below the current cash value of the index), based
on market conditions and other factors. The Fund also may sell call options that are more
substantially out-of-the-money. Such options that are more substantially out-of-the-money provide
greater potential for the Fund to realize capital appreciation on its portfolio stocks but
generally would pay a lower premium than options that are slightly out-of-the-money. When it
writes call options, the Fund will, in effect, sell the potential appreciation in the value of the
applicable index above the exercise price in exchange for the option premium received. If, at
expiration, a call option sold by the Fund is exercised, the Fund will pay the purchaser the
difference between the cash value of the applicable index and the exercise price of the option.
The premium, the exercise price and the market value of the applicable index will determine the
gain or loss realized by the Fund as the seller of the call option.
Prior to expiration, the Fund may close an option position by making an offsetting market purchase
of identical option contracts (same type, underlying index, exercise price and expiration). The
cost of closing transactions and
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payments in settlement of exercised options will reduce the net option premiums available for
distribution to Common Shareholders by the Fund. The reduction in net option premiums due to a
rise in stock prices generally should be offset, at least in part, by appreciation in the value of
common stocks held and by the opportunity to realize higher premium income from selling new index
options at higher exercise prices.
In certain extraordinary market circumstances, to limit the risk of loss on the Funds Options
Strategy, the Fund may enter into spread transactions by purchasing call options with higher
exercise prices than those of call options written. The Fund only engages in such transactions
when Analytic believes that certain extraordinary events temporarily have depressed equity prices
and substantial short-term appreciation of such prices is expected. By engaging in spread
transactions in such circumstances, the Fund will reduce the limitation imposed on its ability to
participate in such recovering equity markets that exist if the Fund only writes call options. The
premiums paid to purchase such call options are expected to be lower than the premiums earned from
the call options written at lower exercise prices. However, the payment of these premiums will
reduce amounts available for distribution from the Funds options activity.
In other extraordinary market circumstances, the Fund may purchase put options when Analytic
believes that extra risk is present in the equity market. The premium for these puts may reduce
amounts available for distribution, but may protect the Funds assets in the event of a decline in
the equity markets.
The Fund sells only covered call options. A call option is considered covered if the Fund
maintains with its custodian assets determined to be liquid (in accordance with procedures
established by the Board) in an amount at least equal to the contract value of the index. A call
option also is covered if the Fund holds a call on the same index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price of the call
written, or (ii) greater than the exercise price of the call written, provided the difference is
maintained by the Fund in segregated assets determined to be liquid (in accordance with procedures
established by the Board).
If an option written by the Fund expires unexercised, the Fund realizes on the expiration date a
capital gain equal to the premium received by the Fund at the time the option was written. If an
option written by the Fund is exercised, the Fund realizes on the expiration date a capital gain if
the cash payment made by the Fund upon exercise is less than the premium received from writing the
option and a capital loss if the cash payment made is more than the premium received. If a written
option is repurchased, the Fund realizes upon the closing purchase transaction a capital gain if
the cost of repurchasing the option is less than the premium received from writing the option and a
capital loss if the cost of repurchasing the option is more than the premium received.
For written index options that qualify as section 1256 contracts, the Funds gain and loss
thereon generally will be treated as 60% long-term and 40% short-term capital gain or loss,
regardless of holding period. In addition, the Fund generally will be required to mark to market
(i.e., treat as sold for fair market value) each outstanding index option position at the close of
each taxable year (and on October 31 of each year for excise tax purposes) and to adjust the amount
of gain or loss subsequently realized to reflect the marking to market. Gain or loss on index
options not qualifying as section 1256 contracts under the Code would be realized upon
disposition, lapse or exercise of the positions and would be treated as short-term gain or loss.
Certain indices on which the Fund will sell call options may not qualify for treatment as section
1256 contracts.
The principal factors affecting the market value of an option contract include supply and demand in
the options market, interest rates, the current market price of the underlying index in relation to
the exercise price of the option, the actual or perceived volatility associated with the underlying
index, and the time remaining until the expiration date. The premium received for an option
written by the Fund is recorded as an asset of the Fund and its obligation under the option
contract as an initially equivalent liability. The Fund then adjusts over time the liability as
the market value of the option changes. The value of each written option will be marked to market
daily and valued at the closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and asked prices or
otherwise at fair value as determined by the Board.
The transaction costs of buying and selling options consist primarily of commissions (which are
imposed in opening, closing and exercise transactions), but also may include margin and interest
costs in particular transactions. The impact of transaction costs on the profitability of a
transaction may often be greater for options transactions than for transactions in the underlying
securities because these costs are often greater in relation to option premiums
29
than in relation to the prices of underlying securities. Transaction costs may be especially significant
in option strategies calling for multiple purchases and sales of options over short periods of time
or concurrently. Transaction costs associated with the Funds Options Strategy will vary depending
on market circumstances and other factors.
TEMPORARY DEFENSIVE STRATEGIES
There may be times when, in the Advisers judgment, conditions in the securities market would make
pursuit of the Funds investment strategy inconsistent with achievement of the Funds investment
objectives. At such times, the Adviser may employ alternative strategies primarily to seek to
reduce fluctuations in the value of the Funds assets. In implementing these temporary defensive
strategies, depending on the circumstances, the Fund may invest part or all of its total assets in
fixed-income securities with remaining maturities of less than one year, cash or cash equivalents.
Cash equivalents are highly liquid, short-term securities such as commercial paper, time deposits,
certificates of deposit, short-term notes and short-term U.S. government obligations. During such
market circumstances, the Fund may not pay tax-advantaged dividends. It is impossible to predict
when, or for how long, the Fund may use these alternative strategies.
ADDITIONAL PORTFOLIO INVESTMENTS
Preferred securities
The Fund may invest in preferred securities. Preferred securities, like common stock, represent an
equity ownership in an issuer. Generally, preferred securities have a priority of claim over
common stock in dividend payments and upon liquidation of the issuer. Unlike common stock,
preferred securities do not usually have voting rights. Preferred securities in some instances are
convertible into common stock. Although they are equity securities, preferred securities have
characteristics of both debt and common stock. Like debt, their promised income is contractually
fixed. Like common stock, they do not have rights to precipitate bankruptcy proceedings or
collection activities in the event of missed payments. Other equity characteristics are their
subordinated position in an issuers capital structure and that their quality and value are heavily
dependent on the profitability of the issuer rather than on any legal claims to specific assets or
cash flows.
Distributions on preferred securities must be declared by the board of directors and may be subject
to deferral, and thus they may not be automatically payable. Income payments on preferred
securities may be cumulative, causing dividends and distributions to accrue even if not declared by
the board or otherwise made payable, or they may be non-cumulative, so that skipped dividends and
distributions do not continue to accrue. There is no assurance that dividends on preferred
securities in which the Fund invests will be declared or otherwise made payable. The Fund may
invest in non-cumulative preferred securities, although Epoch would consider, among other factors,
their non-cumulative nature in making any decision to purchase or sell such securities.
Shares of preferred securities have a liquidation value that generally equals the original purchase
price at the date of issuance. The market values of preferred securities may be affected by
favorable and unfavorable changes impacting the issuers industries or sectors, including companies
in the utilities and financial services sectors, which are prominent issuers of preferred
securities. They also may be affected by actual and anticipated changes or ambiguities in the tax
status of the security and by actual and anticipated changes or ambiguities in tax laws, such as
changes in corporate and individual income tax rates, and in the dividends received deduction for
corporate taxpayers or the characterization of dividends as tax-advantaged as described herein.
Because the claim on an issuers earnings represented by preferred securities may become onerous
when interest rates fall below the rate payable on the security or for other reasons, the issuer
may redeem preferred securities, generally after an initial period of call protection during which
the security is not redeemable. Thus, in declining interest rate environments in particular, the
Funds holdings of higher dividend-paying preferred securities may be reduced and the Fund may be
unable to acquire securities paying comparable rates with the redemption proceeds. For the Fund to
receive tax-advantaged dividend income on preferred securities, the Fund must hold securities
paying an otherwise tax-advantaged dividend for more than 90 days during the associated 180-day
period. In addition, as is the case for Common Shares the Fund cannot be obligated to make related
payments (pursuant to a short sale or otherwise) with respect to substantially similar or related
property. Similar provisions apply to each Common Shareholders investment in the Fund as
discussed herein.
30
Derivatives
Other than in connection with the Options Strategy, the Fund does not expect to, but reserves the
flexibility to, use a variety of derivative instruments (including both long and short positions)
for hedging purposes, to adjust portfolio characteristics, or more generally for purposes of
attempting to increase the Funds investment return, including, for example, buying and selling
call and put options, buying and selling futures contracts and options on futures contracts, and
entering into forward contracts and swap agreements with respect to securities, indices, and
currencies. There can be no assurance that the Fund will enter into any such transaction at any
particular time or under any specific circumstances.
The Fund may purchase and sell derivative instruments such as exchange-listed and over-the-counter
put and call options on securities, financial futures, equity, fixed-income, interest rate indices
and other financial instruments, purchase and sell financial futures contracts and options thereon,
and enter into various interest rate transactions such as swaps, caps, floors or collars. The Fund
also may purchase or sell derivative instruments that combine features of these instruments.
Derivatives have risks, including the imperfect correlation between the value of such instruments
and the underlying assets, the possible default of the other party to the transaction, and
illiquidity of the derivative instruments. The ability to use derivatives successfully depends, in
part, on the Advisers or Epochs ability to predict market movements correctly, which cannot be
assured. Thus, the use of derivatives may result in a loss greater than if they had not been used,
may require the Fund to sell or purchase portfolio securities at inopportune times or for prices
other than the values the Fund has placed on them, may limit the amount of appreciation the Fund
can realize on an investment, or may cause the Fund to hold a security that it might otherwise
sell. Additionally, amounts paid by the Fund as premiums and cash or other assets held in margin
accounts with respect to derivatives may not otherwise be available to the Fund for investment
purposes.
Put options
In certain extraordinary market circumstances, the Fund may purchase put options (including married
puts as described herein) when Analytic believes that extra risk is present in the equity market.
Put options are contracts that give the holder of the option, in return for a premium, the right to
sell to the writer of the option the security/index underlying the option at a specified exercise
price at any time during the term of the option. The Fund would use put options as a general hedge
against potential declines in equity markets. As the purchaser of index put options, the Fund
seeks to benefit from a decline in the market prices of the underlying index, thereby hedging the
Funds exposure to market risk. The Fund will pay a premium to the seller of the option for the
right to receive payments of cash to the extent that the value of the applicable index declines
below a fixed price (the exercise price) as of a specified date in the future (the option valuation
date). If the index price is above the exercise price of the option as of the option valuation
date, the option expires worthless and the Fund will not be able to recover the option premium
paid. In buying index put options, the Fund, in effect, acquires protection against a decline in
the value of the applicable index below the exercise price in exchange for the option premium paid.
If, at expiration, an index put option purchased by the Fund is exercised, the Fund will receive
from the option seller the difference between the cash value of the applicable index and the
exercise price of the option. The premium paid, the exercise price and the market value of the
applicable index will determine the gain or loss realized by the Fund as the buyer of the index put
option.
Debt securities
The Fund may invest to a limited extent in a wide variety of bonds, debentures and similar debt
securities of varying maturities and durations issued by corporations and other business entities,
including limited liability companies. Debt securities in which the Fund may invest may pay fixed
or variable rates of interest. Bonds and other debt securities generally are issued by
corporations and other issuers to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest and normally must repay the amount borrowed on or before
maturity. Certain debt securities are perpetual in that they have no maturity date. The Fund
may invest in debt securities of below investment grade quality, commonly known as junk bonds,
which are considered to be predominantly speculative in nature because of the credit risk of the
issuers. Income payments on debt securities received by the Fund will be fully taxable as ordinary
income. To the extent the Fund invests in debt securities, such investments will not be eligible
for favorable tax treatment. Prices of bonds tend to move inversely with changes in interest
rates. Some bonds give the issuer the option to call (redeem) the bonds before their maturity
date. If an issuer calls its bond during a time of declining interest rates, the Fund might not
benefit from any increase in value as a result of declining interest rates. Failure of an issuer
to make timely interest or principal payments, or a decline or perception of a decline in the
credit quality of a bond, can cause a bonds price to fall. The Funds investments in preferred
31
stocks and bonds of below investment grade quality, if any, are predominantly speculative because
of the credit risk of their issuers. Issuers of below investment grade quality preferred stocks
and bonds are more likely to default on their payments of dividends/interest and liquidation
value/principal owed to the Fund, and such defaults will reduce the Funds NAV and income
distributions. The prices of these lower quality preferred stocks and bonds are more sensitive to
negative developments than higher rated securities. Adverse business conditions, such as a decline
in the issuers revenues or an economic downturn, generally lead to a higher non-payment rate.
Exchange traded funds
The Fund may invest in ETFs, which are investment companies that aim to track or replicate a
desired index, such as a sector, market or global segment. ETFs are passively managed and their
shares are traded on a national exchange or the NASDAQ. ETFs do not sell individual shares
directly to investors and only issue their shares in large blocks known as creation units. The
investor purchasing a creation unit may sell the individual shares on a secondary market.
Therefore, the liquidity of ETFs depends on the adequacy of the secondary market. There can be no
assurance that an ETFs investment objective will be achieved, as ETFs based on an index may not
replicate and maintain exactly the composition and relative weightings of securities in the index.
ETFs are subject to the risks of investing in the underlying securities. The Fund, as a holder of
the securities of the ETF, will bear its pro rata portion of the ETFs expenses, including advisory
fees. These expenses are in addition to the direct expenses of the Funds own operations.
Other investment companies
The Fund may invest in securities of open- or other closed-end investment companies, including
ETFs, to the extent that such investments are consistent with the Funds investment objective and
policies and permissible under the 1940 Act. The Fund, as a holder of the securities of other
investment companies, will bear its pro rata portion of the other investment companies expenses,
including advisory fees. These expenses are in addition to the direct expenses of the Funds own
operations. Common Shareholders would therefore be subject to duplicative expenses to the extent
the Fund invests in other investment companies. In addition, these other investment companies may
utilize leverage, in which case an investment would subject the Fund to additional risks associated
with leverage. See Risk FactorsLeverage Risk.
Repurchase agreements
The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement,
it receives collateral which is held in a segregated account by the Funds custodian. The
collateral amount is marked-to-market and monitored on a daily basis to ensure that the collateral
held is in an amount not less than the principal amount of the repurchase agreement plus any
accrued interest. In the event of a default by the counterparty, realization of the collateral
proceeds could be delayed, during which time the collateral value may decline.
Illiquid securities
The Fund may invest up to 15% of the value of its net assets in illiquid securities. Illiquid
securities include securities that have legal or contractual restrictions on resale, securities
that are not readily marketable, and repurchase agreements maturing in more than seven days.
Illiquid securities involve the risk that the securities will not be able to be sold at the time
desired or at prices approximating the value at which the Fund is carrying the securities.
Other investments
The Fund may use a variety of other investment instruments in pursuing its investment programs.
The investments of the Fund may include fixed income securities, sovereign debt, options on foreign
currencies and forward foreign currency contracts.
OTHER INVESTMENT POLICIES
The Fund may, but is under no obligation to, from time to time employ a variety of investment
techniques, including those described below, to hedge against fluctuations in the price of
portfolio securities, to enhance total return or to provide a substitute for the purchase or sale
of securities. The Funds ability to use any of the techniques described below may be limited by
restrictions imposed on its operations in connection with obtaining and maintaining its
qualification as a regulated investment company under the Code. Additionally, other factors (such
as cost) may make it impractical or undesirable to use any of these investment techniques from time
to time.
32
Borrowing
The Fund has no current intention to borrow for investment purposes or to issue preferred shares.
However, it may borrow from banks for extraordinary or emergency purposes. Further, the Fund is
authorized and reserves the flexibility to utilize leverage through borrowing and/or the issuance
of preferred shares, including the issuance of debt securities, to the extent permitted by the 1940
Act.
Portfolio turnover
The Fund may engage in short-term trading strategies, and securities may be sold without regard to
the length of time held when, in the opinion of Epoch, investment considerations warrant such
action. The Funds Options Strategy may lend to higher levels of portfolio turnover to the extent
that the Fund is required to sell portfolio securities to meet its obligations under index options
contracts. In addition, the Funds dividend capture program also may increase the level of
portfolio turnover that the Fund experiences. These policies may have the effect of increasing the
annual rate of portfolio turnover of the Fund. A high turnover rate (100% or more) necessarily
involves greater trading costs to the Fund and may result in the realization of net short term
capital gain. The annual portfolio turnover rate of the Fund has ranged from 95% to 195%. If
securities are not held for the applicable holding periods, dividends paid on them will not qualify
for the advantageous U.S. federal tax rates. See Investment Strategies and U.S. Federal Income
Tax Matters.
Lending of portfolio securities
The Fund may lend portfolio securities to registered broker-dealers, or other institutional
investors, under agreements which require that the loans be secured continuously by collateral in
cash, cash equivalents, or U.S. Treasury bills or other collateral maintained on a current basis at
an amount at least equal to the market value of the securities loaned. The Fund continues to
receive the equivalent of the interest or dividends paid by the issuer on the securities loaned as
well as the benefit of any increase and the detriment of any decrease in the market value of the
securities loaned and also would receive a portion of the investment return on the collateral. The
Fund would not have the right to vote any securities having voting rights during the existence of
the loan, but would have the right to call the loan in anticipation of an important vote to be
taken among holders of the securities or of the giving or withholding of consent on a material
matter affecting the investment.
As with other extensions of credit, there are risks of delay in recovery or even loss of rights in
the collateral should the borrower of the securities fail financially. In addition, under such
circumstances, the Fund may not be able to recover securities loaned. At no time would the value
of the securities loaned exceed 33% of the value of the Funds total assets. Compensation received
by the Fund in connection with securities lending activities will not constitute tax-advantaged
qualified dividend income.
Defensive positions
During periods of adverse market or economic conditions, the Fund may temporarily invest all or a
substantial portion of its total assets in fixed-income securities with remaining maturities of
less than one year, cash or cash equivalents. The Fund will not be pursuing its investment
objective in these circumstances. Cash equivalents are highly liquid, short-term securities such
as commercial paper, time deposits, certificates of deposit, short-term notes and short-term U.S.
government obligations. During such market circumstances, the Fund may not pay tax-advantaged
dividends.
Foreign currency transactions
The value of non-U.S. assets as measured in U.S. dollars may be affected favorably or unfavorably
by changes in foreign currency rates and exchange control regulations. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign governments or central banks,
or the failure to intervene, or by currency controls or political developments in the U.S. or
abroad. The Fund may (but is not required to) engage in transactions to hedge against changes in
foreign currencies, and will use such hedging techniques when the Adviser or Epoch deems
appropriate. Foreign currency exchange transactions may be conducted on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market or through entering into
derivative currency transactions. Currency futures contracts are exchange-traded and change in
value to reflect movements of a currency or a basket of currencies. Settlement must be made in a
designated currency.
33
Forward foreign currency exchange contracts are individually negotiated and privately traded so
they are dependent upon the creditworthiness of the counterparty. Such contracts may be used when
a security denominated in a foreign currency is purchased or sold, or when the receipt in a foreign
currency of dividend or interest payments on such a security is anticipated. A forward contract
can then lock in the U.S. dollar price of the security or the U.S. dollar equivalent of such
dividend or interest payment, as the case may be.
Additionally, when the Adviser or Epoch believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, it may enter into a forward contract to
sell, for a fixed amount of dollars, the amount of foreign currency approximating the value of some
or all of the securities held that are denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved generally will not be
possible. In addition, it may not be possible to hedge against long-term currency changes.
Cross-hedging may be performed by using forward contracts in one currency (or basket of currencies)
to hedge against fluctuations in the value of securities denominated in a different currency if the
Adviser or Epoch determines that there is an established historical pattern of correlation between
the two currencies (or the basket of currencies and the underlying currency). Use of a different
foreign currency magnifies exposure to foreign currency exchange rate fluctuations. Forward
contracts also may be used to shift exposure to foreign currency exchange rate changes from one
currency to another. Short-term hedging provides a means of fixing the dollar value of only a
portion of portfolio assets. Income or gain earned on any of the Funds foreign currency
transactions generally will be treated as fully taxable income (i.e., income other than
tax-advantaged dividends).
Currency transactions are subject to the risk of a number of complex political and economic factors
applicable to the countries issuing the underlying currencies. Furthermore, unlike trading in most
other types of instruments, there is no systematic reporting of last sale information with respect
to the foreign currencies underlying the derivative currency transactions. As a result, available
information may not be complete. In an over-the-counter trading environment, there are no daily
price fluctuation limits. There may be no liquid secondary market to close out options purchased
or written, or forward contracts entered into, until their exercise, expiration or maturity. There
also is the risk of default by, or the bankruptcy of, the financial institution serving as
counterparty.
Risk Factors
Below are descriptions of the main factors that may play a role in shaping the Funds overall
risk profile. The descriptions of are grouped by general risks, equity strategy risks, and options
strategy risks. 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
SAI.
General Risks
INVESTMENT AND MARKET RISK
An investment in Common Shares is subject to investment risk, including the possible loss of the
entire principal amount invested. An investment in Common Shares represents an indirect investment
in the securities owned by the Fund, which generally are traded on a securities exchange or in the
over-the-counter markets. The value of these securities, like other market investments, may move
up or down, sometimes rapidly and unpredictably. Common Shares at any point in time may be worth
less than the original investment, even after taking into account any reinvestment of dividends and
distributions.
TAX RISK
To qualify for the special tax treatment available to regulated investment companies, the Fund
must: (i) derive at least 90% of its annual gross income from certain kinds of investment income;
(ii) meet certain asset diversification requirements at the end of each quarter, and (iii)
distribute in each taxable year at least 90% of its net investment income (including net interest
income and net short term capital gain). If the Fund failed to meet any of these requirements,
subject to the opportunity to cure such failures under applicable provisions of the Code, the Fund
would be subject to U.S. federal income tax at regular corporate rates on its taxable income,
including its net capital
34
gain, even if such income were distributed to its shareholders. All distributions by the Fund from
earnings and profits, including distributions of net capital gain (if any), would be taxable to the
shareholders as ordinary income. Such distributions generally would be eligible (i) to be treated
as qualified dividend income in the case of individual and other noncorporate shareholders and (ii)
for the dividends received deduction in the case of corporate shareholders; provided that in each
case the shareholder meets the applicable holding period requirements. In addition, in order to
requalify for taxation as a regulated investment company, the Fund might be required to recognize
unrealized gain, pay substantial taxes and interest, and make certain distributions. See U.S.
Federal Income Tax Matters.
The tax treatment and characterization of the Funds distributions may vary significantly from time
to time due to the nature of the Funds investments. The ultimate tax characterization of the
Funds distributions in a calendar year may not finally be determined until after the end of that
calendar year. The Fund may make distributions during a calendar year that exceed the Funds net
investment income and net realized capital gain for that year. In such a situation, the amount by
which the Funds total distributions exceed net investment income and net realized capital gain
generally would be treated as a return of capital up to the amount of the Common Shareholders tax
basis in his or her Common Shares, with any amounts exceeding such basis treated as gain from the
sale of his or her Common Shares. The Funds income distributions that qualify for favorable tax
treatment may be affected by the Internal Revenue Services (IRS) interpretations of the Code and
future changes in tax laws and regulations. For instance, Congress is considering numerous
proposals to decrease the U.S. federal budget deficit, some of which include increasing U.S.
federal income taxes or decreasing certain favorable tax treatments currently included in the Code.
See U.S. Federal Income Tax Matters.
No assurance can be given as to what percentage of the distributions paid on the Common Shares, if
any, will consist of tax-advantaged qualified dividend income or long-term capital gain or what the
tax rates on various types of income will be in future years. The long-term capital gain tax rate
applicable to qualified dividend income is currently 15%, and it is scheduled to increase to 20%
for tax years beginning after December 31, 2012. Further, the current favorable U.S. federal tax
treatment of qualified dividend income is scheduled to expire for tax years beginning after
December 31, 2012. As a result of this scheduled change and the scheduled expiration of earlier
reductions in federal income tax rates, the maximum individual tax rate for such dividends will
increase to 39.6% in 2013 unless Congress takes further action. In addition, it may be difficult
to obtain information regarding whether distributions by non-U.S. entities in which the Fund
invests should be regarded as qualified dividend income. Furthermore, to receive qualified
dividend income treatment, the Fund must meet holding period and other requirements with respect to
the dividend-paying securities in its portfolio, and the shareholder must meet holding period and
other requirements with respect to the Common Shares. Holding periods may be affected by certain
of the Funds transactions in options and other derivatives. See U.S. Federal Income Tax
Matters.
DISTRIBUTION RISK
There can be no assurance that quarterly distributions paid by the Fund to shareholders will be
maintained at current levels or increase over time. The quarterly distributions shareholders
receive from the Fund are derived from the Funds dividends and interest income after payment of
Fund expenses, net option premiums and net realized gain on equity securities investments. If
stock market volatility and/or stock prices decline, the premiums available from writing call
options and writing put options on individual stocks likely will decrease as well. Payments to
purchase put options and to close written call and put options will reduce amounts available for
distribution. Net realized gain on the Funds stock investments will be determined primarily by
the direction and movement of the stock market and the equity securities held. The Funds cash
available for distribution may vary widely over the short- and long-term. If, for any calendar
year, the total distributions made exceed the Funds net investment taxable income and net capital
gain, the excess generally will be treated as a return of capital to each Common Shareholder (up to
the amount of the Common Shareholders basis in his or her Common Shares) and thereafter as gain
from the sale of Common Shares. The amount treated as a return of capital reduces the Common
Shareholders adjusted basis in his or her Common Shares, thereby increasing his or her potential
gain or reducing his or her potential loss on the subsequent sale of his or her Common Shares.
Distributions in any year may include a substantial return of capital component. Dividends on
common stocks are not fixed but are declared at the discretion of the issuers board of directors.
The Funds dividend income will be substantially influenced by the activity level and success of
its dividend capture trading program and Options Strategy, which may not work as intended.
35
PORTFOLIO TURNOVER RISK
The Fund may engage in short-term trading strategies, and securities may be sold without regard to
the length of time held when, in the opinion of Epoch, investment considerations warrant such
action. The Funds Options Strategy may lead to higher levels of portfolio turnover to the extent
that the Fund is required to sell portfolio securities to meet its obligations as the seller of
index options contracts. In addition, the Funds dividend capture program also may increase the
level of portfolio turnover the Fund experiences. These policies may have the effect of increasing
the annual rate of portfolio turnover of the Fund. In addition, the Funds dividend capture
program also may increase the level of portfolio turnover the Fund experiences. Higher rates of
portfolio turnover likely would result in higher brokerage commissions and may generate short-term
capital gain taxable as ordinary income, which may have a negative impact on the Funds performance
over time.
DEFENSIVE POSITIONS RISK
During periods of adverse market or economic conditions, the Fund may temporarily invest all or a
substantial portion of its total assets in fixed-income securities with remaining maturities of
less than one year, cash or cash equivalents. The Fund will not be pursuing its investment
objective in these circumstances and could miss favorable market developments.
INTEREST RATE RISK
The premiums from writing index call options and amounts available for distribution from the Funds
options activity may decrease in declining interest rate environments. The value of the Funds
investments in common stock also may be influenced by changes in interest rates. Higher yielding
equity securities and equity securities of issuers whose businesses are substantially affected by
changes in interest rates may be particularly sensitive to interest rate risk.
INFLATION RISK
Inflation risk is the risk that the purchasing power of assets or income from investments will be
worth less in the future as inflation decreases the value of money. As inflation increases, the
real value of Common Shares and distributions thereon can decline.
LEVERAGE RISK
Although the Fund has no current intention to do so, the Fund is authorized and reserves the
flexibility to utilize leverage through borrowings and/or the issuance of preferred shares,
including the issuance of debt securities. In the event that the Fund determines in the future to
utilize investment leverage, there can be no assurance that such a leveraging strategy will be
successful during any period in which it is employed. Leverage creates risks for Common
Shareholders, including the likelihood of greater volatility of the NAV and market price of the
Common Shares and the risk that fluctuations in distribution rates on any preferred shares or
fluctuations in borrowing costs may affect the return to Common Shareholders. To the extent the
returns derived from securities purchased with proceeds received from leverage exceeds the cost of
leverage, the Funds distributions may be greater than if leverage had not been used. Conversely,
if the returns from the securities purchased with such proceeds are not sufficient to cover the
cost of leverage, the amount available for distribution to Common Shareholders will be less than if
leverage had not been used. In the latter case, the Adviser, in its best judgment, may
nevertheless determine to maintain the Funds leveraged position if it deems such action to be
appropriate. The costs of an offering of preferred shares and/or a borrowing program would be
borne by Common Shareholders and consequently would result in a reduction of the NAV of Common
Shares. In addition, the fee paid to the Adviser is calculated on the basis of the Funds average
daily gross assets, including proceeds from borrowings and/or the issuance of preferred shares, so
the fee will be higher when leverage is utilized, which may create an incentive for the Adviser to
employ financial leverage. In this regard, holders of preferred shares do not bear the investment
advisory fee. Rather, Common Shareholders bear the portion of the investment advisory fee
attributable to the assets purchased with the proceeds of the preferred shares offering.
36
MARKET DISCOUNT RISK
The Funds Common Shares will be offered only when Common Shares of the Fund are trading at a price
equal to or above the Funds NAV per Common Share plus the per Common Share amount of commissions.
As with any security, the market value of the Common Shares may increase or decrease from the
amount initially paid for the Common Shares. The Funds Common Shares have traded at both a
premium and at a discount to NAV. The shares of closed-end management investment companies
frequently trade at a discount from their NAV. This characteristic is a risk separate and distinct
from the risk that the Funds NAV could decrease as a result of investment activities. Investors
bear a risk of loss to the extent that the price at which they sell their shares is lower in
relation to the Funds NAV than at the time of purchase, assuming a stable NAV.
SECONDARY MARKET FOR THE COMMON SHARES
The issuance of new Common Shares may have an adverse effect on the secondary market for the Common
Shares. The increase in the amount of the Funds outstanding Common Shares resulting from the
offering of new Common Shares may put downward pressure on the market price for the Common Shares
of the Fund. Common Shares will not be issued at any time when Common Shares are trading at a
price lower than a price equal to the Funds NAV per Common Share plus the per Common Share amount
of commissions.
The Fund also issues Common Shares of the Fund through its dividend reinvestment plan. Common
Shares may be issued under the plan at a discount to the market price for such Common Shares, which
may put downward pressure on the market price for Common Shares of the Fund.
When the Common Shares are trading at a premium, the Fund also may issue Common Shares of the Fund
that are sold through transactions effected on the NYSE. The increase in the amount of the Funds
outstanding Common Shares resulting from that offering also may put downward pressure on the market
price for the Common Shares of the Fund.
The voting power of current Common Shareholders will be diluted to the extent that such
shareholders do not purchase shares in any future Common Share offerings or do not purchase
sufficient shares to maintain their percentage interest. In addition, if the proceeds of such
offering are unable to be invested as intended, the Funds per Common Share distribution may
decrease (or may consist of return of capital) and the Fund may not participate in market advances
to the same extent as if such proceeds were fully invested as planned.
MANAGEMENT RISK
The Fund is subject to management risk because it relies on Epochs and Analytics ability to
pursue the Funds investment objective. The Subadvisers apply investment techniques and risk
analyses in making investment decisions for the Fund, but there can be no guarantee that they will
produce the desired results. The Subadvisers securities and options selections and other
investment decisions might produce a loss or cause the Fund to underperform when compared to other
funds with similar investment goals. If one or more key individuals leave the employ of a
Subadviser, then the Subadviser may not be able to hire qualified replacements, or may require an
extended time to do so. This could prevent the Fund from achieving its investment objective.
Management risk is particularly significant to the Fund because it utilizes two interrelated
strategies, managed by separate and unaffiliated subadvisers. In particular, the implementation of
the Options Strategy requires communications and coordination between Epoch and Analytic (including
with respect to achieving correlation between the performance of the Funds equity and options
positions), which increases the risk that the Funds overall investment program may not be carried
out as intended. The Adviser oversees and assists with the communication and coordination process
between Epoch and Analytic.
MARKET DISRUPTION RISK
Instability in the Middle East, the wars in Afghanistan, Iraq and Libya, geopolitical tensions
elsewhere and terrorist attacks in the U.S. and around the world have resulted in market volatility
and may have long-term effects on the U.S. and worldwide financial markets and may cause further
economic uncertainties in the U.S. and worldwide.
37
The Fund does not know how long the securities markets will continue to be affected by these events
and cannot predict the effects of these or similar events in the future on the economy or the
securities markets.
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 affect on issuers in the agricultural sector and on insurance
companies that insure against the impact of natural disasters.
RECENT EVENTS RISK
The debt and equity capital markets in the U.S. have been negatively impacted by significant
write-offs in the financial services sector relating to sub-prime mortgages and the re-pricing of
credit risk in the broadly syndicated market, among other things. These events, along with the
deterioration of the housing market, the failure of major financial institutions and the resulting
U.S. federal government actions have led to a decline in general economic conditions, which have
materially and adversely impacted the broader financial and credit markets and have reduced the
availability of debt and equity capital for the market as a whole and financial firms in
particular. These events have been adversely affecting the willingness of some lenders to extend
credit, in general, which may make it more difficult for issuers of debt securities to obtain
financings or refinancings for their investment or lending activities or operations. There is a
risk that such issuers will be unable to successfully complete such financings or refinancings. In
particular, because of the current conditions in the credit markets, issuers of debt securities may
be subject to increased cost for debt, tightening underwriting standards and reduced liquidity for
loans they make, securities they purchase and securities they issue.
These events may increase the volatility of the value of securities owned by the Fund and/or result
in sudden and significant valuation increases or declines in its portfolio. These events also may
make it more difficult for the Fund to accurately value its securities or to sell its securities on
a timely basis. A significant decline in the value of the Funds portfolio likely would result in
a significant decline in the value of your investment in the Fund. Prolonged continuation or
further deterioration of current market conditions could adversely impact the Funds portfolio.
CHANGES IN U.S. LAW
Changes in the state and U.S. federal laws applicable to the Fund, including changes to state and
U.S. federal tax laws, or applicable to the Adviser, the Subadvisers and other securities or
instruments in which the Fund may invest, may negatively affect the Funds returns to Common
Shareholders. The Fund may need to modify its investment strategy in the future in order to
satisfy new regulatory requirements or to compete in a changed business environment.
ANTI-TAKEOVER PROVISIONS
The Declaration of Trust includes provisions that could limit the ability of other persons or
entities to acquire control of the Fund or to change the composition of its Board. These
provisions may deprive shareholders of opportunities to sell their Common Shares at a premium over
the then current market price of the Common Shares. See Certain Provisions in the Declaration of
Trust and By-LawsAnti-takeover provisions.
Equity Strategy Risks
ISSUER RISK
An issuer of a security purchased by the Fund may perform poorly and, therefore, the value of its
stocks and bonds may decline and the issuer may default on its obligations. Poor performance may
be caused by poor management
38
decisions, competitive pressures, breakthroughs in technology, reliance on suppliers, labor
problems or shortages, corporate restructurings, fraudulent disclosures or other factors.
DIVIDEND STRATEGY RISK
Epoch may not be able to anticipate the level of dividends that companies will pay in any given
timeframe. In accordance with the Funds strategies, Epoch attempts to identify and exploit
opportunities such as the announcement of major corporate actions that may lead to high current
dividend income. These situations typically are non-recurring or infrequent, may be difficult to
predict and may not result in an opportunity that allows Epoch to fulfill the Funds investment
objective. In addition, the dividend policies of the Funds target companies are heavily
influenced by the current economic climate and the favorable U.S. federal tax treatment afforded to
dividends. The favorable individual tax rate applied to qualified dividend income currently is
scheduled to expire for tax years beginning after December 31, 2012. Such a change in the
favorable provisions of the U.S. federal tax laws may limit the Funds ability to benefit from
dividend increases or special dividends, may effect a widespread reduction in announced dividends
and may adversely impact the valuation of the shares of dividend-paying companies, which could
adversely impact the value of the Funds Common Shares.
COMMON STOCK AND OTHER EQUITY SECURITIES RISK
The Fund invests primarily in common stocks, which represent an ownership interest in a company.
The Fund also can invest in securities that can be exercised for or converted into common stocks
(such as convertible preferred stock). Common stocks and similar equity securities are more
volatile and more risky than some other forms of investment. Therefore, the value of your
investment in the Fund may fluctuate and may be worth less than your initial investment. Common
stock prices fluctuate for many reasons, including changes in investors perceptions of the
financial condition of an issuer, the general condition of the relevant stock market or when
political or economic events affecting the issuers occur. In addition, common stock prices may be
sensitive to rising interest rates, as the costs of capital rise for issuers. Because convertible
securities can be converted into equity securities, their values will normally increase or decrease
as the values of the underlying equity securities increase or decrease.
NON-U.S. INVESTMENT RISK
Funds that invest in securities traded principally in securities markets outside the U.S. are
subject to additional and more varied risks, as the value of non-U.S. 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 non-U.S. 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 generally are higher commission
rates on non-U.S. portfolio transactions, transfer taxes, higher custodial costs and the
possibility that non-U.S. taxes will be charged on dividends and interest payable on non-U.S.
securities, some or all of which may not be reclaimable. Also, for lesser-developed countries,
nationalization, expropriation or confiscatory taxation, adverse changes in investment or exchange
control regulations (which may include suspension of the ability to transfer currency or assets
from a country), political changes or diplomatic developments could adversely affect the Funds
investments. In the event of nationalization, expropriation or other confiscation, the Fund could
lose its entire investment in a non-U.S. security. All funds that invest in non-U.S. securities
are subject to these risks. Some of the non-U.S. risks also are applicable to funds that invest a
material portion of their assets in securities of non-U.S. issuers traded in the U.S.
European Markets Risk. Countries in Europe may be significantly affected by fiscal and monetary
controls implemented by the European Union (EU) and European Economic and Monetary Union (EMU),
which require member countries to comply with restrictions on inflation rates, deficits, interest
rates, debt levels and fiscal and monetary controls. Decreasing imports or exports, changes in
governmental or other regulations on trade, changes in the exchange rate of the Euro, the default
or threat of default by one or more EU member countries on its sovereign debt, and/or an economic
recession in one or more EU member countries may have a significant adverse effect on the economies
of these and other EU member countries and major trading partners outside Europe.
39
The European financial markets have recently experienced volatility and adverse trends due to
concerns about economic downturns, rising government debt levels and the possible default of
government debt in several European countries, including Greece, Ireland, Italy, Portugal and
Spain. Several countries, including Greece and Italy, have agreed to multi-year bailout loans from
the European Central Bank, International Monetary Fund, and other institutions. A default or debt
restructuring by any European country, such as the recent restructuring of Greeces outstanding
sovereign debt, can adversely impact holders of that countrys debt and sellers of credit default
swaps linked to that countrys creditworthiness, which may be located in countries other than those
listed above, and can affect exposures to other EU countries and their financial companies as well.
The manner in which the EU and EMU responded to the global recession and sovereign debt issues
raised questions about their ability to react quickly to rising borrowing costs and the potential
default by Greece and other countries of their sovereign debt and revealed a lack of cohesion in
dealing with the fiscal problems of member states. To address budget deficits and public debt
concerns, a number of European countries have imposed strict austerity measures and comprehensive
financial and labor market reforms, which could increase political or social instability. Many
European countries continue to suffer from high unemployment rates and are projected to experience
similar, double-digit unemployment rates in 2012.
Investing in the securities of Eastern European issuers is highly speculative and involves risks
not usually associated with investing in the more developed markets of Western Europe. Securities
markets of Eastern European countries typically are less efficient and have lower trading volume,
lower liquidity, and higher volatility than more developed markets. Eastern European economies
also may be particularly susceptible to the international credit market due to their reliance on
bank related inflows of capital.
The Fund may be exposed to these risks through its direct investments in European securities,
including sovereign debt, or indirectly through investments in money market funds and financial
institutions with significant investments in such securities.
Emerging Markets Risk. In addition, the Fund may invest up to 20% of its total assets in the
securities of issuers based in countries with emerging market economies. Funds that invest a
significant portion of their assets in the securities of issuers based in countries with emerging
market economies are subject to greater levels of non-U.S. investment risk than funds investing
primarily in more-developed non-U.S. markets, since emerging market securities may present market,
credit, currency, liquidity, legal, political and other risks greater than, or in addition to, the
risks of investing in developed non-U.S. countries. These risks include: high currency
exchange-rate fluctuations; increased risk of default (including both government and private
issuers); greater social, economic and political uncertainty and instability (including the risk of
war); more substantial governmental involvement in the economy; less governmental supervision and
regulation of the securities markets and participants in those markets; controls on foreign
investment and limitations on repatriation of invested capital and on the Funds ability to
exchange local currencies for U.S. dollars; unavailability of currency hedging techniques in
certain emerging market countries; the fact that companies in emerging market countries may be
newly organized, smaller and less seasoned; the difference in, or lack of, auditing and financial
reporting standards, which may result in the unavailability of material information about issuers;
different clearance and settlement procedures, which may be unable to keep pace with the volume of
securities transactions or otherwise make it difficult to engage in such transactions; difficulties
in obtaining and/or enforcing legal judgments in non-U.S. jurisdictions; and significantly smaller
market capitalizations of emerging market issuers.
Currency Risk. Currency risk is the risk that fluctuations in exchange rates may adversely affect
the U.S. dollar value of the Funds investments. Currency risk includes both the risk that
currencies in which the Funds investments are traded, or currencies in which the 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 non-U.S. 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. 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) also may involve leveraging risk, in addition to currency risk.
Leverage may
40
disproportionately increase the Funds portfolio loss and reduce opportunities for gain when interest rates, stock prices or
currency rates are changing.
MEDIUM AND SMALLER COMPANY RISK
Market risk and liquidity risk may be pronounced for securities of companies with medium-sized
market capitalizations and are particularly pronounced for securities of companies with smaller
market capitalizations. These companies may have limited product lines, markets or financial
resources or they may depend on a few key employees. The securities of companies with medium and
smaller market capitalizations may trade less frequently and in lesser volume than more widely held
securities, and their value may fluctuate more sharply than those securities. They also may trade
in the over-the-counter market or on a regional exchange, or may otherwise have limited liquidity.
Investments in less-seasoned companies with medium and smaller market capitalizations may present
greater opportunities for growth and capital appreciation, but also involve greater risks than
customarily are associated with more established companies with larger market capitalizations.
These risks apply to all funds that invest in the securities of companies with smaller market
capitalizations, each of which primarily makes investments in companies with smaller- or
medium-sized market capitalizations. For purposes of the Funds investment policies, the market
capitalization of a company is based on its capitalization at the time the Fund purchases the
companys securities. Market capitalizations of companies change over time. The Fund is not
obligated to sell a companys security simply because, subsequent to its purchase, the companys
market capitalization has changed to be outside the capitalization range for the Fund.
LARGE COMPANY RISK
Larger, more established companies may be unable to respond quickly to new competitive challenges
such as changes in technology and consumer tastes. Many larger companies also may not be able to
attain the high growth rate of successful smaller companies, especially during extended periods of
economic expansion. For purposes of the Funds investment policies, the market capitalization of a
company is based on its capitalization at the time the Fund purchases the companys securities.
Market capitalizations of companies change over time. The Fund is not obligated to sell a
companys security simply because, subsequent to its purchase, the companys market capitalization
has changed to be outside the capitalization range for the Fund.
LIQUIDITY RISK
The Fund may invest up to 15% of its total assets in securities for which there is no readily
available trading market or which are otherwise illiquid. The Fund is exposed to liquidity risk
when trading volume, lack of a market maker or legal restrictions impair the Funds ability to sell
particular securities or close derivative positions at an advantageous market price. Funds with
principal investment strategies that involve investments in securities of companies with smaller
market capitalizations, foreign securities, derivatives or securities with substantial market
and/or credit risk tend to have the greatest exposure to liquidity risk. Exposure to liquidity
risk may be heightened for funds that invest in emerging markets and related derivatives that are
not widely traded, and that may be subject to purchase and sale restrictions.
INDUSTRY OR SECTOR RISK
The Fund may invest a large percentage of its assets in a particular industry or sector of the
economy or invest in a limited number of companies. If a large percentage of the Funds assets are
closely tied to a single sector of the economy, the Fund will be far less diversified than the
broad securities markets and it may cause the Fund to underperform other sectors. For example,
utilities can be hurt by higher interest costs in connection with capital construction programs,
costs associated with environmental and other regulations and the effects of economic declines,
surplus capacity and increased competition. In addition, telecommunication services are subject to
government regulation of rates of return and services that may be offered and can be significantly
affected by intense competition. Accordingly, investing a large percentage of the Funds assets in
a particular industry or sector may make the Funds value more volatile and investment values may
rise and fall more rapidly. In addition, a fund which invests in particular industries or sectors
is particularly susceptible to the impact of market, economic, regulatory and other factors
affecting those industries or sectors.
41
Options Strategy Risks
OPTIONS RISK
There are various risks associated with the Options Strategy. The purchaser of an index call
option written by the Fund has the right to any appreciation in the cash value of the index over
the strike price when the option is exercised or on the expiration date. Therefore, as the writer
of an index call option, the Fund forgoes the opportunity to profit from increases in the values of
securities held by the Fund whose values may be correlated with the securities making up the index.
However, the Fund has retained the risk of loss (net of premiums received) should the value of the
Funds portfolio securities decline. This combination of potentially limited appreciation and full
depreciation over time may lead to erosion in the NAV of the Fund.
The value of options written by the Fund, which are priced daily, will be affected by, among other
factors, changes in the value of underlying securities (including those comprising an index),
changes in the dividend rates of underlying securities (including those comprising an index),
changes in the actual or perceived volatility of the stock market and the underlying securities and
the remaining time to an options expiration. The value of an option also may be adversely
affected if the market for the option is reduced or becomes less liquid.
There are significant differences between securities and options markets that could result in an
imperfect correlation between these markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options involves the exercise of skill
and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of
market behavior or unexpected events. In the case of index options, Analytic attempts to maintain
for the Fund written call options positions on equity indexes whose price movements, taken in the
aggregate, are closely correlated with the price movements of common stocks and other securities
held in the Funds portfolio. The Fund will not, however, hold equity securities that replicate
the indices on which it writes call options. Due to tax considerations, the Fund limits the
overlap between its equity securities holdings (and any subset thereof) and each index on which it
has outstanding options positions to less than 70% on an ongoing basis, and a substantial portion
of the Funds holdings normally are comprised of equity securities not included in the indices on
which it writes call options. Accordingly, this strategy involves significant risk that the
changes in value of the indices underlying the Funds written call options positions will not
correlate closely with changes in the market value of securities held by the Fund. To the extent
that there is a lack of correlation, movements in the indices underlying the options positions may
result in a loss to the Fund (including at times when the market values of securities held by the
Fund are declining), which may exceed any gain received by the Fund from options premiums and
increase in value of the Funds portfolio securities. In these and other circumstances, the Fund
may be required to sell portfolios securities to satisfy its obligations as the writer of an index
call option, when it would not otherwise choose to do so, or may choose to sell portfolio
securities to realize gain to supplement Fund distributions. Such sales would involve transaction
costs borne by the Fund and also may result in realization of taxable capital gain, including
short-term capital gain taxed at ordinary income tax rates, and may adversely impact the Funds
after-tax returns.
There can be no assurance that a liquid market will exist when the Fund seeks to close out an
options position. See Listed Options Risk and Over-the-counter Options Risk below.
The exercise price of an index option may be adjusted downward before the options expiration as a
result of the occurrence of certain corporate events affecting underlying securities, such as
extraordinary dividends, stock splits, mergers, or other extraordinary distributions or events. A
reduction in the exercise price of an option might reduce the Funds capital appreciation potential
on underlying securities held by the Fund.
Listed Options Risk
When the Fund uses listed or exchange-traded options, a liquid secondary market may not exist on an
exchange when the Fund seeks to close out an option position. 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 clearinghouse may not at all times be adequate to handle current trading volume; or
(vi) one or more exchanges
42
could, for economic or other reasons, decide to 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 an exchange or clearinghouse
as a result of trades on that exchange would continue to be exercisable in accordance with their
terms.
In addition, the hours of trading for options may not conform to the hours during which securities
held by the Fund are traded. To the extent that the options markets close before the markets for
underlying securities, significant price and rate movements can take place in the underlying
markets that cannot be reflected in the options markets. In addition, the Funds listed options
transactions is subject to limitations established by each of the exchanges, boards of trade or
other trading facilities on which the options are traded. These limitations govern the maximum
number of options in each class which 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 which the Fund may
write or purchase may be affected by options written or purchased by other investment advisory
clients of Analytic. 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 other sanctions.
Over-the-counter Options Risk
As described above, the Fund may use unlisted (or over-the-counter) options, which differ from
traded options in that they are two-party contracts, with price and other terms negotiated between
buyer and seller, and generally do not have as much market liquidity as exchange-traded options.
The counterparties to these transactions typically will be major international banks,
broker-dealers and financial institutions. The Fund may be required to treat as illiquid
over-the-counter options purchased, as well as securities being used to cover certain written
over-the-counter options. The over-the-counter options written by the Fund are not issued,
guaranteed or cleared by the OCC or any other clearing agency. In addition, the Funds ability to
terminate over-the-counter options may be more limited than with exchange-traded options and may
involve enhanced risk that banks, broker-dealers or other financial institutions participating in
such transactions will not fulfill their obligations. In the event of default or insolvency of the
counterparty, the Fund may be unable to liquidate an over-the-counter option position.
Derivatives and Counterparty Risk
The use of derivative instruments may involve risks different from, or potentially greater than,
the risks associated with investing directly in securities. Specifically, derivative instruments
expose the Fund to the risk that the counterparty to an 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.
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. The specific risks applicable to the derivatives in which the
Fund may invest are described below:
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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. |
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Exchange-traded options. 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 exchange-traded options. |
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Over-the-counter 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 over-the-counter options. |
Given the risks described above, an investment in Common Shares may not be appropriate for all
investors. You should carefully consider your ability to assume these risks before making an
investment in the Fund.
43
Management of the Fund
TRUSTEES
The overall management of the Fund, including supervision of the duties performed by the Adviser,
Epoch and Analytic, is the responsibility of the Board, under the laws of The Commonwealth of
Massachusetts and the 1940 Act. The Trustees are responsible for the Funds overall management,
including adopting the investment and other policies of the Fund, electing and replacing officers
and selecting and supervising the Funds Adviser and Subadvisers. The names and business addresses
of the Trustees and officers of the Fund and their principal occupations and other affiliations
during the past five years, as well as a description of committees of the Board, are set forth
under Those Responsible for Management in the SAI.
A discussion regarding the basis for the Trustees approval of the Advisory Agreement and the
Subadvisory Agreements (each, as defined below) is available in the Funds October 31, 2011 annual
shareholder report.
THE ADVISER
The Adviser is a Delaware limited liability company whose principal offices are located at 601
Congress Street, Boston, Massachusetts 02210 and serves as the Funds investment adviser. The
Adviser is registered with the SEC as an investment adviser under the Investment Advisers Act of
1940, as amended (the Advisers Act).
Founded in 1968, the Adviser is a wholly owned subsidiary of John Hancock Life Insurance Company
(U.S.A.), a subsidiary of Manulife Financial Corporation (Manulife Financial or the Company).
Manulife Financial is the holding company of The Manufacturers Life Insurance Company (the Life
Company) and its subsidiaries. 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.
The Advisers parent company has been helping individuals and institutions work toward their
financial goals since 1862. The Adviser offers investment solutions managed by institutional money
managers, taking a disciplined team approach to portfolio management and research, leveraging the
expertise of seasoned investment professionals. The Adviser has been managing closed-end funds
since 1971. As of December 31, 2011, the Adviser had total assets under management of
approximately $20.3 billion.
Established in 1887, Manulife Financial is a Canada-based financial services group with principal
operations in Asia, Canada and the U.S. Its international network of employees, agents and
distribution partners offers financial protection and wealth management products and services to
millions of clients. It also provides asset management services to institutional customers. Funds
under management by Manulife Financial and its subsidiaries were C$500 billion (US$491 billion) as
of December 31, 2011. The Company operates as Manulife Financial in Canada and Asia and primarily
as John Hancock in the U.S.
Advisory Agreement. The Fund entered into an investment management contract dated July 1, 2009
(the Advisory Agreement) with the Adviser. As compensation for its advisory services under the
Advisory Agreement, the Adviser receives a fee from the Fund, calculated and paid daily, at an
annual rate of the Funds average daily gross assets.
Pursuant to the Advisory Agreement and subject to the general supervision of the Trustees, the
Adviser selects, contracts with, and compensates the Subadvisers to manage the investments and
determine the composition of the assets of the Fund. The Adviser does not itself manage any of the
Funds portfolio assets but has ultimate responsibility to oversee the Subadvisers and recommend
their hiring, termination and replacement. In this connection, the Adviser monitors the
Subadvisers management of the Funds investment operations in accordance with the investment
objectives and related investment policies of the Fund, reviews the performance of the Subadvisers
and reports periodically on such performance to the Board.
44
Service Agreement. The Fund entered into a management-related service contract dated July 1,
2009 (the Service Agreement) with JHA, under which the Fund receives 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, project management office, EDGAR conversion and filing, graphic design, and other
services that are not investment advisory in nature. JHA is reimbursed for its costs in providing
Non-Advisory Services to the Fund under the Service Agreement.
Consulting Agreement. The Adviser entered into a consulting agreement dated September 21, 2007
(Consulting Agreement) with its affiliate John Hancock Asset Management a division of Manulife
Asset Management (North America) Limited (formerly, MFC Global Investment Management (U.S.A.)
Limited) (JHAM(NA)). JHAM(NA) is located at 200 Bloor Street East, Toronto, ON, Canada, M4W1EW.
JHAM(NA) is a wholly-owned subsidiary of Manulife Financial, a publicly traded company based in
Toronto, Canada. JHAM(NA) has been an investment adviser since 1979 and manages registered
investment companies. As of December 31, 2011, JHAM(NA) had approximately $95.9 billion in assets
under management.
Under the Consulting Agreement and as the Adviser may request from time to time, JHAM(NA) consults
with the Adviser on matters relating to the application of U.S. federal income tax laws and
regulations to the operations of the Fund and assists the Adviser with compliance monitoring and
the implementation and use of compliance systems and in addressing and legal and regulatory matters
related to the Fund. JHAM(NA) does not have any day-to-day portfolio management responsibilities
or regularly provide investment advice to the Adviser regarding the Fund and its portfolio. In
return for its consulting and other services, the Adviser (and not the Fund) pays JHAM(NA) a fee.
THE SUBADVISERS
Epoch
The Adviser entered into an investment subadvisory contract dated August 16, 2007 with Epoch (the
Epoch Agreement). Epoch is responsible for the day-to-day management of the Funds portfolio
investments. Epoch, founded in 2004, is a wholly-owned subsidiary of Epoch Holding Corporation, a
publicly traded company. As of December 31, 2011, Epoch managed on a worldwide basis more than
$19.2 billion for mutual funds and institutional investors such as pension plans, endowments and
foundations. Epoch is located at 640 Fifth Avenue, 18th Floor, New York, New York 10019.
Under the terms of the Epoch Agreement, Epoch is responsible for implementing the Funds investment
equity strategy on a day-to-day basis, all subject to the supervision and direction of the Board
and the Adviser. For services rendered by Epoch under the Epoch Agreement, the Adviser (and not
the Fund) pays Epoch a fee.
Analytic
The Adviser entered into an investment subadvisory contract dated August 16, 2007 with Analytic
(the Analytic Agreement and, together with the Epoch Agreement, the Subadvisory Agreements).
Analytic is responsible for formulating and implementing the Funds Options Strategy. Analytic was
founded in 1970 as one of the first independent counsel firms specializing in the creation and
continuous management of option strategies of both equity and debt portfolios for fiduciaries and
other long-term investors. Analytic serves mutual funds, pensions, profit-sharing plans,
endowments, foundations, corporate investment portfolios, mutual savings banks and insurance
companies. Analytic had approximately $5.9 billion of assets under management as of December 31,
2011. It is an indirect wholly-owned subsidiary of Old Mutual plc, a multi-national financial
services firm headquartered in London. Analytic is located at 555 West Fifth Street,
50th Floor, Los Angeles, California 90013.
Under the terms of the Analytic Agreement, Analytic provides advice and assistance with the
development, implementation and execution of the Funds options strategy, all subject to the
supervision and direction of the Board and the Adviser. For services rendered by Analytic under
the Analytic Agreement, the Adviser (and not the Fund) pays Analytic a fee.
45
PORTFOLIO MANAGERS
Below are lists of the Funds investment management team at each Subadviser, listed in alphabetical
order, which include a brief summary of their business careers during the past five years. The
Epoch portfolio managers share joint responsibility for the day-to-day investment management of the
Fund and the Analytic portfolio managers share joint responsibility for the implementation and
execution of the Funds options strategy. For more details about these individuals, including
information about their compensation, other accounts they manage and any investments they may have
in the Fund, see the SAI.
Epoch
William W. Priest
Founder, chief executive officer, co-chief investment officer and portfolio manager, Epoch Investment Partners, Inc. since 2004
Began business career in 1965
Joined Fund team in 2007
Eric Sappenfield
Managing director, portfolio manager and senior analyst, Epoch Investment Partners, Inc. since 2006
Began business career in 1985
Joined Fund team in 2007
Michael A. Welhoelter
Managing director, portfolio manager and head of quantitative research and risk management, Epoch Investment Partners, Inc. since 2005
Began business career in 1986
Joined Fund team in 2007
Analytic
Harindra de Silva, Ph. D., CFA
President and portfolio manager, Analytic Investors, LLC since 1995
Began business career in 1986
Joined Fund team in 2007
Gregory M. McMurran
Chief investment officer and portfolio manager, Analytic Investors, LLC since 1976
Began business career in 1976
Joined Fund team in 2007
Dennis Bein, CFA
Chief investment officer and portfolio manager, Analytic Investors, LLC since 1995
Began business career in 1990
Joined Fund team in 2007
CUSTODIAN AND TRANSFER AGENT
The Funds portfolio securities are held pursuant to a custodian agreement between 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.
Computershare Shareowner Services LLC, 480 Washington Boulevard, Jersey City, New Jersey,
07310-1900, is the transfer agent and dividend disbursing agent of the Fund.
46
Determination of Net Asset Value
The NAV of the Common Shares is determined once daily as of the close of regular trading of
the 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.
The NAV is computed by dividing the total assets, minus liabilities by the number of Fund shares
outstanding.
Distribution Policy
The Fund makes regular quarterly distributions to Common Shareholders sourced from the Funds
cash available for distribution. Cash available for distribution consists of the Funds (i)
investment company taxable income, which includes among other things, dividend and ordinary income
after payment of Fund expenses, the excess of net short-term capital gain (for example, a portion
of the premiums earned in connection with the Funds Options Strategy) over net long-term capital
loss, and income from certain hedging and interest rate transactions, (ii) qualified dividend
income and (iii) long-term capital gain (gain from the sale of capital assets held longer than one
year). The Board may modify this distribution policy at any time without obtaining the approval of
Common Shareholders.
Expenses of the Fund are accrued each day. To the extent that the Funds net investment income for
any year exceeds the total quarterly distributions paid during the year, the Fund may make a
special distribution at or near year-end of such excess amount as may be required. If it does,
over time, all of the Funds investment company taxable income will be distributed.
If, for any calendar year, as discussed above, the total distributions made exceed the Funds net
investment taxable income and net capital gain, the excess generally will be treated as a return of
capital to each Common Shareholder (up to the amount of the Common Shareholders basis in his or
her Common Shares) and thereafter as gain from the sale of Common Shares. In each fiscal year the Fund
has paid distributions, the Funds total distributions exceeded the Funds net investment taxable
income and net capital gain, and such excess was treated as a return of capital to each Common
Shareholder. The amount treated as a return of capital reduces the Common Shareholders adjusted
basis in his or her Common Shares, thereby increasing his or her potential gain or reducing his or
her potential loss on the subsequent sale of his or her Common Shares. Distributions in any year
may include a substantial return of capital component.
Pursuant to the requirements of the 1940 Act, in the event the Fund makes distributions from
sources other than income, a notice will accompany each quarterly distribution with respect to the
estimated source of the distribution made. Such notices will describe the portion, if any, of the
quarterly dividend which, in the Funds good faith judgment, constitutes long-term capital gain,
short-term capital gain, investment company taxable income or a return of capital. The actual
character of such dividend distributions for U.S. federal income tax purposes, however, will only
be determined finally by the Fund at the close of its fiscal year, based on the Funds full year
performance and its actual net investment company taxable income and net capital gain for the year,
which may result in a recharacterization of amounts distributed during such fiscal year from the
characterization in the quarterly estimates.
At least annually, the Fund intends to distribute any net capital gain (which is the excess of net
long-term capital gain over net short-term capital loss) or, alternatively, to retain all or a
portion of the years net capital gain and pay U.S. federal income tax on the retained gain. As
provided under U.S. federal tax law, Common Shareholders of record as of the end of the Funds
taxable year will include their attributable share of the retained gain in their income for the
year as a long-term capital gain, and will be entitled to a tax credit or refund for the tax deemed
paid on their behalf by the Fund. The Fund may treat the cash value of tax credit and refund
amounts in connection with retained capital gain as a substitute for equivalent cash distributions.
The tax treatment and characterization of the Funds distributions may vary substantially from time
to time because of the varied nature of the Funds investments. If the Funds total quarterly
distributions in any year exceed the amount of its net investment taxable income for the year, any
such excess would be characterized as a return of capital for U.S. federal income tax purposes to
the extent not designated as a capital gain dividend. Distributions in
47
any year may include a substantial return of capital component. Under the 1940 Act, for any
distribution that includes amounts from sources other than net income (calculated on a book basis),
the Fund is required to provide Common Shareholders a written statement regarding the components of
such distribution. Such a statement will be provided at the time of any distribution believed to
include any such amounts. A return of capital is a distribution to Common Shareholders that is not
attributable to the Funds earnings but, represents a return of part of the Common Shareholders
investment. If the Funds distributions exceed the Funds current and accumulated earnings and
profits, such excess will be treated first as a return of capital to the extent of the
shareholders tax basis in Common Shares (thus reducing a shareholders adjusted tax basis in his
or her Common Shares), and thereafter as capital gain assuming Common Shares are held as a capital
asset. Upon the sale of Common Shares, a shareholder generally will recognize capital gain or loss
equal to the difference between the amount realized on the sale and the shareholders adjusted tax
basis in Common Shares sold. For example, in year one, a Common Shareholder purchased 100 shares
of the Fund at $10 per Share. In year two, the Common Shareholder received a $1-per-share return
of capital distribution, which reduced the basis in each share by $1, to give the Common
Shareholder an adjusted basis of $9 per share. In year three, the Common Shareholder sells the 100
shares for $15 per Share. Assuming no other transactions during this period, a Common Shareholder
would have a capital gain in year three of $6 per share ($15 minus $9) for a total capital gain of
$600.
During periods in which the Options Strategy does not generate sufficient option premiums or
results in net loss, a substantial portion of the Funds distributions may be comprised of capital
gain from the sale of equity securities held in the Funds portfolio, which would involve
transaction costs borne by the Fund and also may result in realization of taxable short-term
capital gain taxed at ordinary income tax rates. To the extent capital gain from the sale of
equity securities does not arise, a substantial portion of the Funds distributions may be return
of capital.
The 1940 Act currently limits the number of times the Fund may distribute long-term capital gain in
any tax year, which may increase the variability of the Funds distributions and result in certain
distributions being comprised more heavily of long-term capital gain eligible for favorable income
tax rates. In the future, the Adviser may seek Board approval to implement a managed distribution
plan for the Fund. The managed distribution plan would be implemented pursuant to an exemptive
order already granted by the SEC, which provides an exemption from Section 19(b) of the 1940 Act
and Rule 19b-1 thereunder to permit the Fund to include long-term capital gain as a part of its
regular distributions to Common Shareholders more frequently than would otherwise be permitted by
the 1940 Act (generally once or twice per year). If the Fund implements a managed distribution
plan, it would do so without a vote of the Common Shareholders.
The distributions paid by the Fund for any particular quarter may be more or less than the amount
of cash available for distribution from that quarterly period. In certain circumstances, the Fund
may be required to sell a portion of its investment portfolio to fund distributions. Distributions
will reduce the Common Shares NAV.
Common Shareholders may automatically reinvest some or all of their distributions in additional
Common Shares under the Funds dividend reinvestment plan. See Dividend Reinvestment Plan.
Dividend Reinvestment Plan
Pursuant to the Funds Dividend Reinvestment Plan (the Plan), distributions of dividends and
capital gain are automatically reinvested in Common Shares by Computershare Trust Company, N.A.
(the Plan Agent). Every shareholder holding at least one full share of the Fund is automatically
enrolled in the Plan. Shareholders who do not participate in the Plan will receive all
distributions in cash.
If the Fund declares a dividend or distribution payable either in cash or in Common Shares and the
market price of shares on the payment date for the distribution or dividend equals or exceeds the
Funds NAV per share, the Fund will issue Common Shares to participants at a value equal to the
higher of NAV or 95% of the market price. The number of additional Common Shares to be credited to
each participants account will be determined by dividing the dollar amount of the distribution or
dividend by the higher of NAV or 95% of the market price. If the market price is lower than NAV,
or if dividends or distributions are payable only in cash, then participants will receive Common
Shares purchased by the Plan Agent on participants behalf on the NYSE or otherwise on the open
market.
48
If the market price exceeds NAV before the Plan Agent has completed its purchases, the average per share
purchase price may exceed NAV, resulting in fewer Common Shares being acquired than if the Fund had
issued new Common Shares.
There are no brokerage charges with respect to Common Shares issued directly by the Fund. However,
whenever shares are purchased or sold on the NYSE or otherwise on the open market, each participant
will pay a pro rata portion of brokerage trading fees, currently $0.05 per share purchased or sold.
Brokerage trading fees will be deducted from amounts to be invested.
The reinvestment of dividends and net capital gain distributions does not relieve participants of
any income tax that may be payable on such dividends or distributions even though cash is not
received by the participant.
Shareholders participating in the Plan may buy additional Common Shares of the Fund through the
Plan at any time in amounts of at least $50 per investment, up to a maximum of $10,000, with a
total calendar year limit of $100,000. Shareholders will be charged a $5 transaction fee plus
$0.05 per share brokerage trading fee for each order. Purchases of additional shares of the Fund
will be made on the open market. Shareholders who elect to utilize monthly electronic fund
transfers to buy additional shares of the Fund will be charged a $2 transaction fee plus $0.05 per
share brokerage trading fee for each automatic purchase. Shareholders also can sell Fund shares
held in the Plan account at any time by contacting the Plan Agent by telephone, in writing or by
visiting the Plan Agents website at www.computershare.com and clicking EquityAccess & More. The
Plan Agent will mail a check to you (less applicable brokerage trading fees) on settlement date,
which is three business days after your shares have been sold. If you choose to sell your shares
through your stockbroker, you will need to request that the Plan Agent electronically transfer your
shares to your stockbroker through the Direct Registration System.
Shareholders participating in the Plan may withdraw from the Plan at any time by contacting the
Plan Agent by telephone, in writing or by visiting the Plan Agents website at
www.computershare.com and clicking EquityAccess & More. Such termination will be effective
immediately if the notice is received by the Plan Agent prior to any dividend or distribution
record date; otherwise, such termination will be effective on the first trading day after the
payment date for such dividend or distribution, with respect to any subsequent dividend or
distribution. If you withdraw, your shares will be credited to your account; or, if you wish, the
Plan Agent will sell your full and fractional shares and send you the proceeds, less a transaction
fee of $5.00 and less brokerage trading fees of $0.05 per share. If a shareholder does not
maintain at least one whole share of common stock in the Plan account, the Plan Agent may terminate
such shareholders participation in the Plan after written notice. Upon termination, shareholders
will be sent a check for the cash value of any fractional share in the Plan account, less any
applicable broker commissions and taxes.
Shareholders who hold at least one full share of the Fund may join the Plan by notifying the Plan
Agent by telephone, in writing or by visiting the Plan Agents website at www.computershare.com and
clicking EquityAccess & More. If received in proper form by the Plan Agent before the record
date of a dividend, the election will be effective with respect to all dividends paid after such
record date. If you wish to participate in the Plan and your shares are held in the name of a
brokerage firm, bank or other nominee, please contact your nominee to see if it will participate in
the Plan for you. If you wish to participate in the Plan, but your brokerage firm, bank or other
nominee is unable to participate on your behalf, you will need to request that your shares be
re-registered in your own name, or you will not be able to participate. The Plan Agent will
administer the Plan on the basis of the number of shares certified from time to time by you as
representing the total amount registered in your name and held for your account by your nominee.
Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund and the
Plan Agent reserve the right to amend or terminate the Plan. Participants generally will receive
written notice at least 90 days before the effective date of any amendment. In the case of
termination, participants will receive written notice at least 90 days before the record date for
the payment of any dividend or distribution by the Fund.
All correspondence or additional information about the Plan should be directed to Computershare
Trust Company, N.A., (Telephone: 1-800-852-0218 (within the U.S. and Canada), 1-201-680-6578
(International Telephone Inquiries), and 1-201-680-6610 (For the Hearing Impaired (TDD)).
49
Closed-End Fund Structure
Closed-end funds differ from traditional, open-end management investment companies (which
generally are referred to as mutual funds) in that closed-end funds generally list their shares
for trading on a securities exchange and do not redeem their shares at the option of the
shareholder. Mutual funds do not trade on securities exchanges and issue securities redeemable at
the option of the shareholder. The continuous outflows of assets in a mutual fund can make it
difficult to manage the funds investments. Closed-end funds generally are able to stay more fully
invested in securities that are consistent with their investment objectives and also have greater
flexibility to make certain types of investments and to use certain investment strategies, such as
financial leverage and investments in illiquid securities. The Funds Common Shares are designed
primarily for long-term investors; you should not purchase Common Shares if you intend to sell them
shortly after purchase.
Common shares of closed-end funds frequently trade at prices lower than their NAV. Since
inception, the market price of the Common Shares has fluctuated and at times has traded below the
Funds NAV and at times has traded above the Funds NAV. The Fund cannot predict whether in the
future the Common Shares will trade at, above or below NAV. In addition to NAV, the market price
of the Funds Common Shares may be affected by such factors as the Funds dividend stability,
dividend levels, which are in turn affected by expenses, and market supply and demand.
In recognition of the possibility that Common Shares may trade at a discount from their NAV, and
that any such discount may not be in the best interest of Common Shareholders, the Board, in
consultation with the Adviser, from time to time may review possible actions to reduce any such
discount. There can be no assurance that the Board will decide to undertake any of these actions
or that, if undertaken, such actions would result in Common Shares trading at a price equal to or
close to NAV per Common Share. In the event that the Fund conducts an offering of new Common
Shares and such offering constitutes a distribution under Regulation M, the Fund and certain of
its affiliates may be subject to an applicable restricted period that could limit the timing of any
repurchases by the Fund.
U.S. Federal Income Tax Matters
The
following discussion of U.S. federal income tax matters is based on
the advice of [ ]. The Fund has elected to be treated and to qualify each year as a
regulated investment company (a RIC) under the Code. Accordingly, the Fund intends to satisfy
certain requirements relating to sources of its income and diversification of its total assets and
to distribute substantially all of its net income and net short-term capital gain (after reduction
by net long-term capital loss and any available capital loss carryforwards) in accordance with the
timing requirements imposed by the Code, so as to maintain its RIC status and to avoid paying U.S.
federal income or excise tax thereon. To the extent it qualifies for treatment as a RIC and
satisfies the above-mentioned distribution requirements, the Fund will not be subject to U.S.
federal income tax on income paid to its shareholders in the form of dividends or capital gain
distributions.
At least annually, the Fund intends to distribute any net capital gain (which is the excess of net
long-term capital gain over net short-term capital loss) or, alternatively, to retain all or a
portion of the years net capital gain and pay U.S. federal income tax on the retained gain. As
provided under U.S. federal tax law, Common Shareholders of record as of the end of the Funds
taxable year will include their attributable share of the retained gain in their income for the
year as long-term capital gain (regardless of holding period in Common Shares), and will be
entitled to a tax credit or refund for the tax paid on their behalf by the Fund. Common
Shareholders of record for the retained capital gain also will be entitled to increase their tax
basis in their Common Shares by 65% of the allocated gain. Distributions of the Funds net capital
gain (capital gain distributions), if any, are taxable to Common Shareholders as long-term
capital gain, regardless of their holding period in Common Shares. Distributions of the Funds net
realized short-term capital gain will be taxable as ordinary income.
If, for any calendar year, the Funds total distributions exceed the Funds current and accumulated
earnings and profits, the excess will be treated as a return of capital to each Common Shareholder
(up to the amount of the
50
Common Shareholders basis in his or her Common Shares) and thereafter as gain from the sale of
Common Shares (assuming Common Shares are held as a capital asset). In each fiscal year the Fund has paid
distributions, the Funds total distributions exceeded the Funds net investment taxable income and
net capital gain, and such excess was treated as a return of capital to each Common Shareholder.
The amount treated as a return of capital reduces the Common Shareholders adjusted basis in his or
her Common Shares, thereby increasing his or her potential gain or reducing his or her potential
loss on the subsequent sale or other disposition of his or her Common Shares. See below for a
summary of the current maximum tax rates applicable to long-term capital gain (including capital
gain distributions). A corporation that owns Fund shares may be eligible for the dividends
received deduction (DRD) with respect to a portion of the distributions it receives from the
Fund, provided the Fund designates the eligible portion and the corporate shareholder satisfies
certain holding period requirements. Fund distributions that are attributable to qualified
dividend income received by the Fund from certain domestic corporations may be designated by the
Fund as being eligible for the DRD.
To qualify as a RIC 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, gain from the sale or
other disposition of stock, securities or foreign currencies, or other income (including, but not
limited to, gain 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. A qualified publicly traded partnership is a publicly
traded partnership that meets certain requirements with respect to the nature of its income. To
qualify as a RIC, the Fund must also 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, U.S.
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 can be invested in securities (other than U.S.
government securities or the securities of other regulated investment companies) of any one issuer,
or of two or more issuers, which the Fund controls and which are engaged in the same or similar
trades or businesses or related trades or businesses, or of 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.
As a RIC, the Fund generally will not be subject to federal income tax on its investment company
taxable income (as that term is defined in the Code, but without regard to the deductions for
dividend paid) and net capital gain (the excess of net long-term capital gain over net short-term
capital loss), if any, that it distributes in each taxable year to its shareholders, provided that
it distributes at least 90% of its investment company taxable income and 90% of its net tax-exempt
interest income for such taxable year. The Fund intends to distribute to its shareholders, at
least annually, substantially all of its investment company taxable income, net tax-exempt income
and net capital gain. In order to avoid incurring a nondeductible 4% federal excise tax
obligation, the Code requires that the Fund distribute (or be deemed to have distributed) by
December 31 of each calendar year an amount at least equal to the sum of (i) 98% of its ordinary
income for such year, (ii) 98.2% of its capital gain net income (which is the excess of its
realized net long-term capital gain over its realized net short-term capital loss), 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 ordinary income and capital gain net
income from the prior year (as previously computed) that were not paid out during such year and on
which the Fund paid no U.S. federal income tax.
If the Fund does not qualify as a RIC for any taxable year, the Funds taxable income will be
subject to corporate income taxes, and all distributions from earnings and profits, including
distributions of net capital gain (if any), will be taxable to the shareholder as ordinary income.
Such distributions generally would be eligible (i) to be treated as qualified dividend income in
the case of individual and other non-corporate shareholders and (ii) for the DRD in the case of
corporate shareholders. In addition, in order to requalify for taxation as a RIC, the Fund may be
required to recognize unrealized gain, pay substantial taxes and interest, and make certain
distributions.
51
Certain of the Funds investment practices are subject to special and complex U.S. federal income
tax provisions that may, among other things, (i) convert dividends that would otherwise constitute
qualified dividend income into ordinary income, (ii) treat dividends that would otherwise be
eligible for the corporate DRD as ineligible for such treatment, (iii) disallow, suspend or
otherwise limit the allowance of certain loss or deductions, (iv) convert long-term capital gain
into short-term capital gain or ordinary income, (v) convert an ordinary loss or deduction into a
capital loss (the deductibility of which is more limited), (vi) cause the Fund to recognize income
or gain without a corresponding receipt of cash, (vii) adversely affect when a purchase or sale of
stock or securities is deemed to occur, (viii) adversely alter the characterization of certain
complex financial transactions, and (ix) produce income that will not qualify as good income for
purposes of the income requirement that applies to RICs. While it may not always be successful in
doing so, the Fund will seek to avoid or minimize the adverse tax consequences of its investment
practices.
For the Funds index call options that qualify as section 1256 contracts, Code Section 1256
generally will require any gain or loss arising from the lapse, closing out or exercise of such
positions to be treated as 60% long-term and 40% short-term capital gain or loss. In addition, the
Fund generally will be required to mark to market (i.e., treat as sold for fair market value)
each outstanding index option position at the close of each taxable year (and on October 31 of each
year for excise tax purposes). If a section 1256 contract held by the Fund at the end of a
taxable year is sold in the following year, the amount of any gain or loss realized on such sale
will be adjusted to reflect the gain or loss previously taken into account under the mark to
market rules. In addition to most index call options, section 1256 contracts under the Code
include certain other options contracts, certain regulated futures contracts, and certain other
financial contracts. For an index option to qualify as a section 1256 contract it must be traded
on a qualified board or exchange. Only a limited number of non-U.S. exchanges and boards of trade
have been determined by the IRS to be qualified boards or exchanges for these purposes.
The Funds index call options that do not qualify as section 1256 contracts under the Code
generally will be treated as equity options governed by Code Section 1234. Pursuant to Code
Section 1234, if a written option expires unexercised, the premium received is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference between the
premium received for writing the option, and the amount paid to close out its position generally is
short-term capital gain or loss. If a call option written by the Fund that is not a section 1256
contract is cash settled, any resulting gain or loss will be short-term capital gain or loss.
The Code contains special rules that apply to straddles, defined generally as the holding of
offsetting positions with respect to personal property. For example, the straddle rules normally
apply when a taxpayer holds stock and an offsetting option with respect to such stock or
substantially identical stock or securities. In general, investment positions will be offsetting
if there is a substantial diminution in the risk of loss from holding one position by reason of
holding one or more other positions. The Fund expects that the index call options it writes will
not be considered straddles for this purpose because the Funds portfolio of common stocks will be
sufficiently dissimilar from the components of each index on which it has outstanding options
positions under applicable Treasury Regulations. Under certain circumstances, however, the Fund
may enter into options transactions or certain other investments that may constitute positions in a
straddle. If two or more positions constitute a straddle, recognition of a realized loss from one
position generally must be deferred to the extent of unrecognized gain in an offsetting position.
In addition, long-term capital gain may be recharacterized as short-term capital gain, or
short-term capital loss as long-term capital loss. Interest and other carrying charges allocable
to personal property that is part of a straddle are not currently deductible but must instead be
capitalized. Similarly, wash sale rules apply to prevent the recognition of loss by the Fund
from the disposition of stock or securities at a loss in a case in which identical or substantially
identical stock or securities (or an option to acquire such property) is or has been acquired
within a prescribed period.
The Code allows a taxpayer to elect to offset gain and loss from positions that are part of a
mixed straddle. A mixed straddle is any straddle in which one or more but not all positions
are section 1256 contracts. The Fund may be eligible to elect to establish one or more mixed
straddle accounts for certain of its mixed straddle trading positions. The mixed straddle account
rules require a daily marking to market of all open positions in the account and a daily netting
of gain and loss from all positions in the account. At the end of a taxable year, the annual net
gain or loss from the mixed straddle account are recognized for tax purposes. The net capital gain
or loss is treated
52
as 60% long-term and 40% short-term capital gain or loss if attributable to the section 1256
contract positions, or all short-term capital gain or loss if attributable to the non-section 1256
contract positions.
The Fund may recognize gain (but not loss) from a constructive sale of certain appreciated
financial positions if the Fund enters into a short sale, offsetting notional principal contract,
or forward contract transaction with respect to the appreciated position or substantially identical
property. Appreciated financial positions subject to this constructive sale treatment include
interests (including options and forward contracts and short sales) in stock and certain other
instruments. Constructive sale treatment does not apply if the transaction is closed out not later
than thirty days after the end of the taxable year in which the transaction was initiated, and the
underlying appreciated securities position is held unhedged for at least the next sixty days after
the hedging transaction is closed.
Gain or loss from a short sale of property generally is considered as capital gain or loss to the
extent the property used to close the short sale constitutes a capital asset in the Funds hands.
Except with respect to certain situations where the property used to close a short sale has a
long-term holding period on the date the short sale is entered into, gain on short sales generally
are short-term capital gain. A loss on a short sale will be treated as a long-term capital loss
if, on the date of the short sale, substantially identical property has been held by the Fund for
more than one year. In addition, entering into a short sale may result in suspension of the
holding period of substantially identical property held by the Fund.
Gain or loss on a short sale generally will not be realized until such time as the short sale is
closed. However, as described above in the discussion of constructive sales, if the Fund holds a
short sale position with respect to securities that have appreciated in value, and it then acquires
property that is the same as or substantially identical to the property sold short, the Fund
generally will recognize gain on the date it acquires such property as if the short sale were
closed on such date with such property. Similarly, if the Fund holds an appreciated financial
position with respect to securities and then enters into a short sale with respect to the same or
substantially identical property, the Fund generally will recognize gain as if the appreciated
financial position were sold at its fair market value on the date it enters into the short sale.
The subsequent holding period for any appreciated financial position that is subject to these
constructive sale rules will be determined as if such position were acquired on the date of the
constructive sale.
Currently, certain dividend distributions paid by the Fund (whether paid in cash or reinvested in
additional Common Shares) to individual taxpayers are taxed at rates applicable to net long-term
capital gain (currently 15%, or 0% for individuals in the 10% or 15% tax brackets). This tax
treatment applies only if certain holding period and other requirements are satisfied by the Common
Shareholder, as discussed below, and the dividends are attributable to qualified dividend income
received by the Fund itself. For this purpose, qualified dividend income means dividends
received by the Fund from U.S. corporations and qualified foreign corporations, provided that the
Fund satisfies certain holding period and other requirements in respect of the stock of such
corporations. The special tax treatment accorded qualified dividend income is scheduled to expire
for tax years beginning after December 31, 2012.
Subject to certain exceptions, a qualified foreign corporation is any foreign corporation that is
either (i) incorporated in a possession of the U.S. (the possessions test), or (ii) eligible for
benefits of a comprehensive income tax treaty with the U.S. that the Secretary of the Treasury
determines is satisfactory for these purposes and which includes an exchange of information program
(the treaty test). The Secretary of the Treasury has currently identified tax treaties between
the U.S. and 57 other countries that satisfy the treaty test. Subject to the same exceptions, a
foreign corporation that does not satisfy either the possessions test or the treaty test will still
be considered a qualified foreign corporation with respect to any dividend paid by such
corporation if the stock with respect to which such dividend is paid is readily tradable on an
established securities market in the U.S. The Treasury Department has issued a notice stating that
common or ordinary stock, or an ADR in respect of such stock, is considered readily tradable if
it is listed on a national securities exchange that is registered under section 6 of the Securities
Exchange Act of 1934, as amended (the Exchange Act), or on the National Association of Securities
Dealers Automated Quotations system. Foreign corporations that are passive foreign investment
companies (as defined by the Code) will not be qualified foreign corporations.
In order for qualified dividends paid by the Fund to a Common Shareholder to be taxable at
long-term capital gain rates, the Common Shareholder must hold his or her Common Shares for more
than 60 days during the 121-day
53
period beginning 60 days before the ex-dividend date. For dividends the Fund receives to qualify
for tax-advantaged treatment, the Fund must hold securities paying qualified dividend income for
more than 60 days during the 121-day period beginning 60 days before the ex-dividend date (or more
than 90 days during the associated 181-day period, in the case of certain preferred securities).
In addition, neither a Common Shareholder nor the Fund can be obligated to make related payments
(pursuant to a short sale or otherwise) with respect to positions in any security that is
substantially similar or related property with respect to his or her Common Shares or such stock,
respectively. Gain on option positions treated as short-term and other short-term capital gain,
interest income and non-qualified dividends are not eligible for the lower tax rate. The special
rules relating to the taxation of ordinary income dividends paid by the Fund that are attributable
to the Funds qualified income only apply to taxable years beginning before January 1, 2013.
Thereafter, all of the Funds distributions that are characterized as dividends, other than capital
gain distributions, will be fully taxable at ordinary income tax rates unless further Congressional
action is taken. There can be no assurance as to what portion of the Funds dividend distributions
will qualify for favorable treatment as qualified dividend income. The Funds investment program
and the tax treatment of Fund distributions may be affected by the IRSs interpretations of the
Code and future changes in tax laws and regulations, including changes resulting from the sunset
provisions described above that would have the effect of repealing the favorable treatment of
qualified dividend income and reimposing the higher tax rates applicable to ordinary income in 2013
unless further legislative action is taken.
The Fund will inform Common Shareholders of the source and tax status of all distributions promptly
after the close of each calendar year.
Selling Common Shareholders generally will recognize gain or loss in an amount equal to the
difference between the amount realized on the sale and the Common Shareholders adjusted tax basis
in the Common Shares sold. If Common Shares are held as a capital asset, the gain or loss will be
a capital gain or loss. The maximum tax rate applicable to net capital gain recognized by
individuals and other non-corporate taxpayers is (i) the same as the maximum ordinary income tax
rate for gain recognized on the sale of capital assets held for one year or less (in 2012, 35%), or
(ii) 15% for gain recognized on the sale of capital assets held for more than one year (as well as
any capital gain distributions) (currently 0% for individuals in the 10% or 15% tax brackets). The
maximum individual tax rate for long-term capital gain is scheduled to increase to 20% for taxable
years beginning after December 31, 2012.
Any loss on a disposition of Common Shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain distributions received with respect to
those Common Shares. For purposes of determining whether Common Shares have been held for six
months or less, the holding period is suspended for any periods during which the Common
Shareholders risk of loss is diminished as a result of holding one or more other positions in
substantially similar or related property, or through certain options or short sales. Any loss
realized on a sale or exchange of Common Shares will be disallowed to the extent those Common
Shares are replaced by other Common Shares within a period of 61 days beginning 30 days before and
ending 30 days after the date of disposition of Common Shares (whether through the reinvestment of
distributions or otherwise). In that event, the basis of the replacement Common Shares will be
adjusted to reflect the disallowed loss.
An investor should be aware that, if Common Shares are purchased shortly before the record date for
any taxable distribution (including a capital gain distribution), the purchase price likely will
reflect the value of the distribution and the investor then would receive a taxable distribution
that is likely to reduce the trading value of such Common Shares, in effect resulting in a taxable
return of some of the purchase price.
Taxable distributions to certain individuals and certain other non-corporate Common Shareholders,
including those who have not provided their correct taxpayer identification number and other
required certifications, may be subject to backup U.S. federal income tax withholding at the
fourth lowest rate of tax applicable to a single individual (in 2012, 28%, but scheduled
to increase to 31% in 2013). Backup withholding is not an additional tax. Any amounts withheld
may be refunded or credited against such shareholders U.S. federal income tax liability, if any,
provided that the required information is furnished to the Internal Revenue Service.
An investor also should be aware that the benefits of the reduced tax rate applicable to long-term
capital gain and qualified dividend income may be impacted by the application of the alternative
minimum tax to individual shareholders.
54
The Funds investments in non-U.S. securities may be subject to foreign withholding taxes on
dividends, interest, or capital gain, which will decrease the Funds yield. Foreign withholding
taxes may be reduced under income tax treaties between the U.S. and certain foreign jurisdictions.
Depending on the number of non-U.S. shareholders in the Fund, however, such reduced foreign
withholding tax rates may not be available for investments in certain jurisdictions.
The foregoing briefly summarizes some of the important U.S. federal income tax consequences to
Common Shareholders of investing in Common Shares, reflects the U.S. federal tax law as of the date
of this Prospectus, and does not address special tax rules applicable to certain types of
investors, such as corporate and non-U.S. investors. A more complete discussion of the tax rules
applicable to the Fund and the Common Shareholders can be found in the SAI that is incorporated by
reference into this Prospectus. Unless otherwise noted, this discussion assumes that an investor
is a U.S. person and holds Common Shares as a capital asset. This discussion is based upon current
provisions of the Code, the regulations promulgated thereunder, and judicial and administrative
ruling authorities, all of which are subject to change or differing interpretations by the courts
or the IRS retroactively or prospectively. Investors should consult their tax advisors regarding
other U.S. federal, state or local tax considerations that may be applicable in their particular
circumstances, as well as any proposed tax law changes.
Plan of Distribution
The Fund may sell the Common Shares being offered under this Prospectus in any one or more of
the following ways: (i) directly to purchasers; (ii) through agents; (iii) to or through
underwriters; or (iv) through dealers. The Prospectus Supplement relating to the offering will
identify any agents, underwriters or dealers involved in the offer or sale of Common Shares, and
will set forth any applicable offering price, sales load, fee, commission or discount arrangement
between the Fund and its agents or underwriters, or among its underwriters, or the basis upon which
such amount may be calculated, net proceeds and use of proceeds, and the terms of any sale.
The Fund may distribute Common Shares from time to time in one or more transactions at: (i) a
fixed price or prices, which may be changed; (ii) market prices prevailing at the time of sale;
(iii) prices related to prevailing market prices; or (iv) negotiated prices; provided, however,
that in each case the offering price per Common Share (less any underwriting commission or
discount) must equal or exceed the NAV per Common Share.
The Fund from time to time may offer its
Common Shares through or to certain broker-dealers, including UBS Securities LLC, that have entered
into selected dealer agreements relating to at-the-market offerings.
The Fund may directly solicit offers to purchase Common Shares, or the Fund may designate agents to
solicit such offers. The Fund will, in a Prospectus Supplement relating to such offering, name any
agent that could be viewed as an underwriter under the Securities Act of 1933, as amended (the
Securities Act), and describe any commissions the Fund must pay. Any such agent will be acting
on a best efforts basis for the period of its appointment or, if indicated in the applicable
Prospectus Supplement or other offering materials, on a firm commitment basis. Agents, dealers and
underwriters may be customers of, engage in transactions with, or perform services for the Fund in
the ordinary course of business.
If any underwriters or agents are used in the sale of Common Shares in respect of which this
Prospectus is delivered, the Fund will enter into an underwriting agreement or other agreement with
them at the time of sale to them, and the Fund will set forth in the Prospectus Supplement relating
to such offering their names and the terms of the Funds agreement with them.
If a dealer is utilized in the sale of Common Shares in respect of which this Prospectus is
delivered, the Fund will sell such Common Shares to the dealer, as principal. The dealer may then
resell such Common Shares to the public at varying prices to be determined by such dealer at the
time of resale.
The Fund may engage in at-the-market offerings to or through a market maker or into an existing
trading market, on an exchange or otherwise, in accordance with Rule 415(a)(4) under the Securities
Act. An at-the-market offering may be through an underwriter or underwriters acting as principal
or agent for the Fund.
55
Agents, underwriters and dealers may be entitled under agreements which they may enter into with
the Fund to indemnification by the Fund against certain civil liabilities, including liabilities
under the Securities Act, and may be customers of, engage in transactions with or perform services
for the Fund in the ordinary course of business.
In order to facilitate the offering of Common Shares, any underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of Common Shares or any other Common Shares
the prices of which may be used to determine payments on the Common Shares. Specifically, any
underwriters may over-allot in connection with the offering, creating a short position for their
own accounts. In addition, to cover over-allotments or to stabilize the price of Common Shares or
of any such other Common Shares, the underwriters may bid for, and purchase, Common Shares or any
such other Common Shares in the open market. Finally, in any offering of Common Shares through a
syndicate of underwriters, the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing Common Shares in the offering if the syndicate repurchases
previously distributed Common Shares in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize or maintain the
market price of Common Shares above independent market levels. Any such underwriters are not
required to engage in these activities and may end any of these activities at any time.
The Fund may enter into derivative transactions with third parties, or sell Common Shares not
covered by this Prospectus to third parties in privately negotiated transactions. If the
applicable Prospectus Supplement indicates, in connection with those derivatives, the third parties
may sell Common Shares covered by this Prospectus and the applicable Prospectus Supplement or other
offering materials, including in short sale transactions. If so, the third parties may use Common
Shares pledged by the Fund or borrowed from the Fund or others to settle those sales or to close
out any related open borrowings of securities, and may use Common Shares received from the Fund in
settlement of those derivatives to close out any related open borrowings of securities. The third
parties in such sale transactions will be underwriters and, if not identified in this Prospectus,
will be identified in the applicable Prospectus Supplement or other offering materials (or a
post-effective amendment).
The Fund or one of the Funds affiliates may loan or pledge Common Shares to a financial
institution or other third party that in turn may sell Common Shares using this Prospectus. Such
financial institution or third party may transfer its short position to investors in Common Shares
or in connection with a simultaneous offering of other Common Shares offered by this Prospectus or
otherwise.
The maximum amount of compensation to be received by any member of the Financial Industry
Regulatory Authority, Inc. will not exceed 8% of the initial gross proceeds from the sale of any
security being sold with respect to each particular offering of Common Shares made under a single
Prospectus Supplement.
Any underwriter, agent or dealer utilized in the initial offering of Common Shares will not confirm
sales to accounts over which it exercises discretionary authority without the prior specific
written approval of its customer.
Description of Capital Structure
The Fund is a business trust established under the laws of The Commonwealth of Massachusetts
by the Declaration of Trust dated and filed with the Secretary of The Commonwealth on April 23,
2007, as may be amended from time to time. The Declaration of Trust provides that the Board may
authorize separate classes of shares of beneficial interest. The Board has authorized an unlimited
number of Common Shares. The Fund holds annual meetings of Common Shareholders in compliance with
the requirements of the NYSE.
COMMON SHARES
The Declaration of Trust permits the Fund to issue an unlimited number of full and fractional
Common Shares of beneficial interest, $0.01 par value per share. Each Common Share represents an
equal proportionate interest in the assets of the Fund with each other Common Share in the Fund.
Holders of Common Shares will be entitled to the payment of distributions when, and if declared by
the Board. The 1940 Act or the terms of any future borrowings or issuance of preferred shares may
limit the payment of distributions to the holders of Common Shares. Each whole
56
Common Share is entitled to one vote and each fractional Common Share is entitled to a
proportionate fractional vote as to matters on which it is entitled to vote pursuant to the terms
of the Declaration of Trust. Upon liquidation of the Fund, after paying or adequately providing
for the payment of all liabilities of the Fund and the liquidation preference with respect to any
outstanding preferred shares, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Board may distribute the remaining
assets of the Fund among the holders of Common Shares. The Declaration of Trust provides that
Common Shareholders are not liable for any liabilities of the Fund, and requires inclusion of a
clause to that effect in agreements entered into by the Fund and, in coordination with the Funds
by-laws (the By-laws), indemnifies shareholders against any such liability. Although
shareholders of a business trust established under Massachusetts law, in certain limited
circumstances, may be held personally liable for the obligations of the business trust as though
they were general partners, the provisions of the Declaration of Trust and By-laws described in the
foregoing sentence make the likelihood of such personal liability remote. The Fund will not issue
Common Share certificates.
The Fund has no current intention to borrow money or to issue preferred shares. However, if at
some future time there are any borrowings or preferred shares outstanding, subject to certain
exceptions, the Fund might not be permitted to declare any cash distribution on its Common Shares,
unless at the time of such declaration, (i) all accrued distributions on preferred shares or
accrued interest on borrowings have been paid and (ii) the value of the Funds total assets
(determined after deducting the amount of such distribution), less all liabilities and indebtedness
of the Fund not represented by senior securities, is at least 300% of the aggregate amount of such
securities representing indebtedness and at least 200% of the aggregate amount of securities
representing indebtedness plus the aggregate liquidation value of the outstanding preferred shares.
In addition to the requirements of the 1940 Act, the Fund may be required to comply with other
asset coverage requirements under a credit facility as a condition of the Fund obtaining a rating
of preferred shares from a nationally recognized statistical rating organization (a Rating
Agency). These requirements may include an asset coverage test more stringent than under the 1940
Act. This limitation on the Funds ability to make distributions on its Common Shares could in
certain circumstances impair the ability of the Fund to maintain its qualification for taxation as
a RIC for U.S. federal income tax purposes. If the Fund were in the future to borrow money or
issue preferred shares, it would intend, however, to the extent possible, to reduce borrowings or
purchase or redeem preferred shares from time to time to maintain compliance with such asset
coverage requirements and may pay special distributions to the holders of the preferred shares in
certain circumstances in connection with any potential impairment of the Funds status as a RIC.
Depending on the timing of any such redemption or repayment, the Fund may be required to pay a
premium in addition to the liquidation preference of the preferred shares to the holders thereof.
The Fund has no present intention of offering additional Common Shares, except as described herein.
Other offerings of its Common Shares, if made, will require approval of the Board. Any additional
offering will not be sold at a price per Common Share below the then current NAV (exclusive of
underwriting discounts and commissions) except in connection with an offering to existing Common
Shareholders or with the consent of a majority of the Funds outstanding Common Shares. Common
Shares have no preemptive rights.
CREDIT FACILITY
The Fund has no current intention to utilize leverage through borrowing. However, in the event the
Fund borrows, the Fund may enter into definitive agreements with respect to a credit facility in an
amount not to exceed the limits permitted under the 1940 Act. Such a facility is not expected to
be convertible into any other securities of the Fund, outstanding amounts are expected to be
prepayable by the Fund prior to final maturity without significant penalty and there are not
expected to be any sinking fund or mandatory retirement provisions. Outstanding amounts would be
payable at maturity or such earlier times as required by the agreement. The Fund may be required
to prepay outstanding amounts under the facility or incur a penalty rate of interest in the event
of the occurrence of certain events of default. The Fund would be expected to indemnify the
lenders under the facility against liabilities they may incur in connection with the facility. The
Fund may be required to pay commitment fees under the terms of any such facility.
In addition, the Fund expects that such a credit facility would contain covenants that, among other
things, likely will limit the Funds ability to pay dividends in certain circumstances, incur
additional debt, change its fundamental investment policies and engage in certain transactions,
including mergers and consolidations, and may require asset coverage ratios in addition to those
required by the 1940 Act. The Fund may be required to pledge its assets and to
57
maintain a portion of its total assets in cash or high-grade securities as a reserve against
interest or principal payments and expenses. The Fund expects that any credit facility would have
customary covenant, negative covenant and default provisions. There can be no assurance that the
Fund will enter into an agreement for a credit facility on terms and conditions representative of
the foregoing, or that additional material terms will not apply. In addition, if entered into, any
such credit facility may in the future be replaced or refinanced by one or more credit facilities
having substantially different terms.
REPURCHASE OF SHARES AND OTHER DISCOUNT MEASURES
Because shares of closed-end management investment companies frequently trade at a discount to
their NAVs, the Board has determined that from time to time it may be in the interest of the Common
Shareholders to take certain actions intended to reduce such discount. The Board, in consultation
with the Adviser, review at least annually the possibility of open market repurchases and/or tender
offers for the Common Shares and consider such factors as the market price of the Common Shares,
the NAV of the Common Shares, the liquidity of the assets of the Fund, effect on the Funds
expenses, whether such transactions would impair the Funds status as a RIC or result in a failure
to comply with applicable asset coverage requirements, general economic conditions and such other
events or conditions, which may have a material effect on the Funds ability to consummate such
transactions. There are no assurances that the Board will, in fact, decide to undertake either of
these actions or, if undertaken, that such actions will result in the Funds Common Shares trading
at a price which is equal to or approximates their NAV.
In recognition of the possibility that Common Shares might trade at a discount to NAV and that any
such discount may not be in the interest of the Funds shareholders, the Board, in consultation
with the Adviser, from time to time may review possible actions to reduce any such discount. In
the event that the Fund conducts an offering of new Common Shares and such offering constitutes a
distribution under Regulation M, the Fund and certain of its affiliates may be subject to an
applicable restricted period that could limit the timing of any repurchases by the Fund.
PREFERRED SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial
interest with preference rights, including preferred shares (Preferred Shares), having no par
value per share or such other amount as the Board may establish, in one or more series, with rights
as determined by the Board, by action of the Board without the approval of the Common Shareholders.
The Board has no current intention to issue Preferred Shares.
Under the requirements of the 1940 Act, the Fund must, immediately after the issuance of any
Preferred Shares, have an asset coverage of at least 200%. Asset coverage means the ratio which
the value of the total assets of the Fund, less all liability and indebtedness not represented by
senior securities (as defined in the 1940 Act), bears to the aggregate amount of senior securities
representing indebtedness of the Fund, if any, plus the aggregate liquidation preference of the
Preferred Shares. If the Fund seeks a rating of the Preferred Shares, asset coverage requirements,
in addition to those set forth in the 1940 Act, may be imposed. The liquidation value of the
Preferred Shares is expected to equal their aggregate original purchase price plus redemption
premium, if any, together with any accrued and unpaid dividends thereon (on a cumulative basis),
whether or not earned or declared. The terms of the Preferred Shares, including their dividend
rate, voting rights, liquidation preference and redemption provisions, will be determined by the
Board (subject to applicable law and the Declaration of Trust) if and when it authorizes the
Preferred Shares. The Fund may issue Preferred Shares that provide for the periodic
redetermination of the dividend rate at relatively short intervals through an auction or
remarketing procedure, although the terms of the Preferred Shares also may enable the Fund to
lengthen such intervals. At times, the dividend rate as redetermined on the Funds Preferred
Shares may approach or exceed the Funds return after expenses on the investment of proceeds from
the Preferred Shares and the Funds leveraged capital structure would result in a lower rate of
return to Common Shareholders than if the Fund were not so structured.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Fund,
the terms of any Preferred Shares may entitle the holders of Preferred Shares to receive a
preferential liquidating distribution (expected to equal the original purchase price per share plus
redemption premium, if any, together with accrued and unpaid dividends, whether or not earned or
declared and on a cumulative basis) before any distribution of assets is
58
made to holders of Common Shares. After payment of the full amount of the liquidating distribution
to which they are entitled, the holders of Preferred Shares would not be entitled to any further
participation in any distribution of assets by the Fund.
Under the 1940 Act, if at any time dividends on the Preferred Shares are unpaid in an amount equal
to two full years dividends thereon, the holders of all outstanding Preferred Shares, voting as a
class, will be allowed to elect a majority of the Funds Trustees until all dividends in default
have been paid or declared and set apart for payment. In addition, if required by the Rating
Agency rating the Preferred Shares or if the Board determines it to be in the best interests of the
Common Shareholders, issuance of the Preferred Shares may result in more restrictive provisions
than required by the 1940 Act being imposed. In this regard, holders of the Preferred Shares may
be entitled to elect a majority of the Board in other circumstances, for example, if one payment on
the Preferred Shares is in arrears.
If the Fund were to issue Preferred Shares, it is expected that the Fund would seek a credit rating
for the Preferred Shares from a Rating Agency. In that case, as long as Preferred Shares are
outstanding, the composition of its portfolio would reflect guidelines established by such Rating
Agency. Although, as of the date hereof, no such Rating Agency has established guidelines relating
to any such Preferred Shares, based on previous guidelines established by such Rating Agencies for
the securities of other issuers, the Fund anticipates that the guidelines with respect to the
Preferred Shares would establish a set of tests for portfolio composition and asset coverage that
supplement (and in some cases are more restrictive than) the applicable requirements under the 1940
Act. Although, at this time, no assurance can be given as to the nature or extent of the
guidelines, which may be imposed in connection with obtaining a rating of the Preferred Shares, the
Fund currently anticipates that such guidelines will include asset coverage requirements, which are
more restrictive than those under the 1940 Act, restrictions on certain portfolio investments and
investment practices, requirements that the Fund maintain a portion of its total assets in
short-term, high-quality, fixed-income securities and certain mandatory redemption requirements
relating to the Preferred Shares. No assurance can be given that the guidelines actually imposed
with respect to the Preferred Shares by such Rating Agency will be more or less restrictive than as
described in this Prospectus.
Certain Provisions in the Declaration of Trust and By-Laws
Under Massachusetts law, shareholders, in certain circumstances, could be held personally
liable for the obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for debts or obligations of the Fund and requires that notice
of such limited liability be given in each agreement, obligation or instrument entered into or
executed by the Fund or the Board. The By-laws further provide for indemnification
out of the assets and property of the Fund for all loss and expense of any shareholder held
personally liable for the obligations of the Fund. In addition, the Fund will assume the defense
of any claim against a shareholder for personal liability at the request of the shareholder. Thus,
the risk of a shareholder incurring financial loss on account of shareholder liability is limited
to circumstances in which the Fund would be unable to meet its obligations. The Fund believes that
the likelihood of such circumstances is remote.
The Declaration of Trust provides that the Trustees may amend the Declaration of Trust in any
respect without Common Shareholder approval. The Declaration of Trust, however, prohibits
amendments that impair the exemption from personal liability of the shareholders, Trustees,
officers, employees and agents of the Fund or permit assessments upon shareholders.
The Declaration of Trust and By-laws provide that the Trustees have the power, to the exclusion of
shareholders, to make, alter or repeal any of the By-laws, except for any By-law that requires a
vote of the shareholders to be amended, adopted or repealed by the terms of the Declaration of
Trust, By-laws or applicable law. This provision of the Declaration of Trust cannot be amended or
repealed except by the vote of such required number of shares.
ANTI-TAKEOVER PROVISIONS
The Declaration of Trust and By-laws include provisions that could have the effect of limiting the
ability of other entities or persons to acquire control of the Fund or to change the composition of
its Board and could have the effect
59
of depriving Common Shareholders of an opportunity to sell their Common Shares at a premium over
prevailing market prices by discouraging a third party from seeking to obtain control of the Fund.
These provisions may have the effect of discouraging attempts to acquire control of the Fund, which
attempts could have the effect of increasing the expenses of the Fund and interfering with the
normal operation of the Fund. They provide, however, the advantage of potentially requiring
persons seeking control of the Fund to negotiate with its management regarding the price to be paid
and facilitating the continuity of the Funds investment objectives and policies. The Board has
considered the following anti-takeover provisions and concluded that they are in the best interests
of the Fund. The following is only a summary and is qualified in its entirety by reference to the
Declaration of Trust and By-laws on file with the SEC.
The number of Trustees is currently nine, but by action of a majority of the Trustees, the Board
may from time to time be increased or decreased. The Board is divided into three classes of
Trustees serving staggered three-year terms, with the terms of one class expiring at each annual
meeting of shareholders. This provision could delay for up to two years the replacement of a
majority of the Board. If the Fund issues Preferred Shares, the Fund may establish a separate
class for the Trustees elected by the holders of the Preferred Shares. Subject to applicable
provisions of the 1940 Act, vacancies on the Board may be filled by a majority action of the
remaining Trustees. Such provisions may work to delay a change in the majority of the Board.
Generally, the Declaration of Trust requires a vote by holders of at least two-thirds of the Common
Shares and Preferred Shares, if any, voting separately, except as described below and in the
Declaration of Trust, to authorize: (i) a conversion of the Fund from a closed-end to an open-end
investment company; (ii) a merger or consolidation of the Fund with any corporation, association,
trust or other organization, including a series or class of such other organization (in the limited
circumstances where a vote by shareholders is otherwise required under the Declaration of Trust);
(iii) a sale, lease or exchange of all or substantially all of the Funds assets (in the limited
circumstances where a vote by shareholders is otherwise required under the Declaration of Trust);
or (iv) a removal of a Trustee for cause by shareholders. With respect to (i) through (iii), if
such transaction is recommended by the Trustees, then the affirmative vote of the majority of the
outstanding voting securities is required; provided that when only a particular class is affected
(or, in the case of removing a Trustee, when the Trustee has been elected by only one class), only
the required vote of the particular class will be required. However, with respect to (iv) above,
if there are Preferred Shares outstanding, all shares vote as a single class. In addition, the
Declaration of Trust requires holders of at least 75% of the outstanding shares of each class of
the Fund approve certain transactions with Principal Shareholders (as defined in the Declaration of
Trust), unless the Board approves a memorandum of understanding with such Principal Shareholders,
in which case normal voting requirements would be in effect. Such affirmative vote or consent is
in addition to the vote or consent of the holders of the Funds shares otherwise required by law or
any agreement between the Fund and any national securities exchange.
Additionally, the Funds By-laws contain certain provisions that may tend to make a change of
control of the Fund more difficult. For example, the By-laws (i) require a shareholder to give
written advance notice and other information to the Fund of the shareholders nominees for Trustees
and proposals for other business to be considered at shareholders meetings; (ii) require any notice
by a shareholder be accompanied by certain information as provided in the By-laws; (iii) reserve to
the Board the exclusive power to adopt, alter, or repeal any provision of the By-laws or to make
new By-laws, unless otherwise provided in the By-laws; and (iv) provide that Trustees and officers
are entitled to indemnification and that the Fund may pay or reimburse expenses of Trustees and
officers.
POTENTIAL CONVERSION TO OPEN-END FUND
The Fund may be converted to an open-end management investment company at any time if approved by
each of the following: (i) a majority of the Trustees then in office, (ii) the holders of not less
than 75% of the Funds outstanding shares entitled to vote thereon and (iii) by such vote or votes
of the holders of any class or classes or series of shares as may be required by the 1940 Act. In
the event of conversion, the Common Shares would cease to be listed on the NYSE or other national
securities exchange or market system. The Board believes, however, that the closed-end structure
is desirable, given the Funds investment objective and policies. Investors should assume,
therefore, that it is unlikely that the Board would vote to convert the Fund to an open-end
management investment company. Shareholders of an open-end management investment company may
require the company to redeem their shares at any time (except in certain circumstances as
authorized by or under the 1940 Act) at their NAV, less such redemption charge, if any, as might be
in effect at the time of a redemption. The Fund would expect to pay all such
60
redemption requests in cash, but intends to reserve the right to pay redemption requests in a
combination of cash or securities. If such partial payment in securities were made, investors may
incur brokerage costs in converting such securities to cash. If the Fund were converted to an
open-end fund, it is likely that new Common Shares would be sold at NAV plus a sales load.
Reports to Shareholders
The Fund sends to its shareholders unaudited semi-annual and audited annual reports, including
a list of investments held.
Independent Registered Public Accounting Firm
[FIRM], Boston, Massachusetts, is the independent registered public accounting firm for the
Fund and audits the Funds financial statements.
Additional Information
This Prospectus and the SAI do not contain all of the information set forth in the
Registration Statement that the Fund has filed with the SEC (file No. 333-142307). The complete
Registration Statement may be obtained from the SEC at www.sec.gov. See the cover page of this
Prospectus for information about how to obtain a paper copy of the Registration Statement or SAI
without charge.
Table of Contents of the Statement of Additional
Information
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Organization of the Fund |
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Additional Investment Policies and Risks |
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Investment Restrictions |
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Portfolio Turnover |
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Those Responsible for Management |
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Shareholders of the Fund |
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Investment Advisory and Other Services |
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Determination of Net Asset Value |
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Brokerage Allocation |
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Additional Information Concerning Taxes |
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Other Information |
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Custodian and Transfer Agent |
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Independent Registered Public Accounting Firm |
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Reports to Shareholders |
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Legal and Regulatory Matters |
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Codes of Ethics |
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Additional Information |
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Appendix A: Proxy voting policies and procedures |
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The Funds Privacy Policy
The Fund is committed to maintaining the privacy of its shareholders and to safeguarding their
non-public personal information. The following information is provided to help you understand what
personal information the Fund collects, how the Fund protects that information and why, in certain
cases, the Fund may share information with select other parties.
Generally, the Fund does not receive any non-public personal information relating to its
shareholders, although certain non-public personal information of its shareholders may become
available to the Fund. The Fund does not disclose any non-public personal information about its
shareholders or former shareholders to anyone, except as permitted by law (which includes
disclosure to employees necessary to service your account). The Fund may share information with
unaffiliated third parties that perform various required services, such as transfer agents,
custodians and broker/dealers.
The Fund restricts access to non-public personal information about its shareholders to employees of
the Funds investment adviser and its affiliates with a legitimate business need for the
information. The Fund maintains physical, electronic and procedural safeguards designed to protect
the non-public personal information of its shareholders.
62
[ ] Shares
John Hancock Tax-Advantaged Global Shareholder Yield Fund
Common Shares
PROSPECTUS
[ ], 2012
Until [DATE+25], 2012 (25 days after the date of this Prospectus), all dealers that buy, sell or
trade the Common Shares, whether or not participating in this offering, may be required to deliver
a prospectus and the applicable prospectus supplement. This delivery requirement is in addition to
the dealers obligation to deliver a prospectus and the applicable prospectus supplement when
acting as underwriters and with respect to their unsold allotments or subscriptions.
The information in this Statement of Additional Information is not complete and may be
changed. We may not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This preliminary Statement of Additional
Information is not an offer to sell these securities and is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted. This Statement of
Additional Information is not a prospectus.
SUBJECT TO COMPLETION, DATED MAY 9, 2012
JOHN HANCOCK TAX-ADVANTAGED GLOBAL SHAREHOLDER YIELD FUND
Statement of Additional Information
[SAI DATE]
601 Congress Street
Boston, Massachusetts 02210
1-800-225-6020
TABLE OF CONTENTS
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Appendix A: Proxy voting policies and procedures |
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This Statement of Additional Information (SAI) is not a prospectus and is authorized for
distribution to prospective investors only if preceded or accompanied by the prospectus of John
Hancock Tax-Advantaged Global Shareholder Yield Fund (the Fund) dated [PROSPECTUS DATE] (the
Prospectus) and any related supplement thereto (Prospectus Supplements), which are incorporated
herein by reference. This SAI should be read in conjunction with such Prospectus and any related
Prospectus Supplements, copies of which may be obtained without charge by contacting your financial
intermediary or calling the Fund at 1-800-225-6020.
Capitalized terms used in this SAI and not otherwise defined have the meanings given them in the
Funds Prospectus and any related Prospectus Supplements.
Organization of the Fund
The Fund is a diversified, closed-end management investment company registered under the
Investment Company Act of 1940, as amended (the 1940 Act). The Fund was organized on April 23,
2007 as a Massachusetts business trust pursuant to an Agreement and Declaration of Trust (the
Declaration of Trust).
John Hancock Advisers, LLC (the Adviser or JHA) is the Funds investment adviser and is
registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as
amended (the Advisers Act). The Adviser is responsible for overseeing the management of the
Fund, including its day-to-day business operations and monitoring the subadvisers. The Adviser has
been managing closed-end funds since 1971.
Founded in 1968, the Adviser is a wholly owned subsidiary of John Hancock Life Insurance Company
(U.S.A.), a subsidiary of Manulife Financial Corporation (Manulife Financial or the Company).
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.
The Advisers parent company has been helping individuals and institutions work toward their
financial goals since 1862. The Adviser offers investment solutions managed by institutional money
managers, taking a disciplined team approach to portfolio management and research, leveraging the
expertise of seasoned investment professionals.
Established in 1887, Manulife Financial is a Canada-based financial services group with principal
operations in Asia, Canada and the United States. Its international network of employees, agents
and distribution partners offers financial protection and wealth management products and services
to millions of clients. It also provides asset management services to institutional customers.
The Funds subadvisers are Epoch Investment Partners, Inc. (Epoch) and Analytic Investors, LLC
(Analytic and, together with Epoch, the Subadvisers). Epoch is responsible for the day-to-day
management of the Funds portfolio investments. Epoch, founded in 2004, is a private company and a
wholly-owned subsidiary of Epoch Holding Corporation, a publicly traded company. Analytic is
responsible for formulating and implementing the Funds Options Strategy. Analytic, founded in
1970, is an indirect wholly-owned subsidiary of Old Mutual plc, a multi-national financial services
firm headquartered in London.
Additional Investment Policies and Risks
The Funds primary investment strategies are described in the Prospectus. The following is a
description of the various investment policies that may be engaged in, whether as a primary or
secondary strategy, and a summary of certain attendant risks. The Subadvisers may not buy any of
the following instruments or use any of the following techniques unless they believe that doing so
will help to achieve the Funds investment objective.
Equity Investments
As described in the Prospectus, the Fund invests primarily in common stocks.
Preferred Securities
The Fund may invest in preferred securities of both U.S. and non-U.S. issuers. Under normal market
conditions, the Fund expects, with respect to that portion of its total assets invested in
preferred securities, to invest only in preferred securities of investment grade quality as
determined by S&P, Fitch or Moodys or, if unrated, determined to be of comparable quality by
Epoch, a subadviser to the Fund. The foregoing credit quality policies apply only at the time a
security is purchased, and the Fund is not required to dispose of a security in the event of a
downgrade of an assessment of credit quality or the withdrawal of a rating. Preferred securities
involve credit risk, which is the
2
risk that a preferred security will decline in price, or fail to pay dividends when expected,
because the issuer experiences a decline in its financial status. In addition to credit risk,
investment in preferred securities involves certain other risks as more fully described in the
Prospectus.
Derivatives
The Fund may use a variety of derivative instruments (including both long and short positions) for
hedging purposes, to adjust portfolio characteristics or more generally for purposes of attempting
to increase the Funds investment return, including, for example, buying and selling call and put
options, buying and selling futures contracts and options on futures contracts and entering into
forward contracts and swap agreements with respect to securities, indices and currencies. There
can be no assurance that the Fund will enter into any such transaction at any particular time or
under any specific circumstances.
The Fund may purchase and sell derivative instruments such as exchange-listed and over-the-counter
put and call options on securities, financial futures, equity, fixed-income, interest rate indices
and other financial instruments, purchase and sell financial futures contracts and options thereon
and enter into various interest rate transactions such as swaps, caps, floors or collars. The Fund
also may enter derivative instruments or transactions that combine features of these instruments.
Derivatives have risks, including the imperfect correlation between the value of such instruments
and the underlying assets, the possible default of the other party to the transaction and
illiquidity of the derivative instruments. The ability to use derivatives successfully depends, in
part, on the Advisers or Epochs ability to predict market movements correctly, which cannot be
assured. Thus, the use of derivatives may result in losses greater than if they had not been used,
may require the Fund to sell or purchase portfolio securities at inopportune times or for prices
other than the values the Fund has placed on them, may limit the amount of appreciation the Fund
can realize on an investment or may cause the Fund to hold a security that it might otherwise sell.
Additionally, amounts paid by the Fund as premiums and cash or other assets held in margin
accounts with respect to derivatives may not otherwise be available to the Fund for investment
purposes.
Short Sales
The Fund may sell a security short if it owns at least an equal amount of the security sold short
or another security convertible or exchangeable for an equal amount of the security sold short
without payment of further compensation (a short sale against-the-box).
Purchasing securities to close out the short position can itself cause the price of the securities
to rise further, thereby exacerbating the loss. Short-selling exposes the Fund to unlimited risk
with respect to that security due to the lack of an upper limit on the price to which an instrument
can rise. Although the Fund reserves the right to utilize short sales, Epoch is under no
obligation to utilize short sales at all.
Securities Lending
As described in the Prospectus, the Fund may lend a portion of its portfolio securities to
broker-dealers or other institutional borrowers. Loans are made only to organizations whose credit
quality or claims paying ability is considered by the Adviser or Epoch to be at least investment
grade. All securities loans are collateralized on a continuous basis by cash, cash equivalents
(such as money market instruments) or other liquid securities held by the custodian and maintained
in an amount at least equal to the market value of the securities loaned. The Fund may receive
loan fees in connection with loans that are collateralized by securities or on loans of securities
for which there is special demand. The Fund may also seek to earn income on securities loans by
reinvesting cash collateral in securities consistent with its investment objective and policies,
seeking to invest at rates that are higher than the rebate rate that it normally will pay to the
borrower with respect to such cash collateral. Any such reinvestment will be subject to the
investment policies, restrictions and risk considerations described in the Prospectus and in this
SAI. Compensation received by the Fund in connection with securities lending activities will not
constitute tax-advantaged qualified dividend income.
Securities loans may result in delays in recovering, or a failure of the borrower to return, the
loaned securities. The defaulting borrower ordinarily would be liable to the Fund for any losses
resulting from such delays or failures, and the collateral provided in connection with the loan
normally would also be available for that purpose. Securities loans normally may be terminated by
either the Fund or the borrower at any time. Upon termination and the return of the loaned
securities, the Fund would be required to return the related cash or securities collateral to the
borrower and it may be required to liquidate longer term portfolio securities in order to do so.
To the extent that such
3
securities have decreased in value, this may result in the Fund realizing a loss at a time when it
would not otherwise do so. The Fund also may incur losses if it is unable to reinvest cash
collateral at rates higher than applicable rebate rates paid to borrowers and related
administrative costs. These risks are substantially the same as those incurred through investment
leverage and will be subject to the investment policies, restrictions and risk considerations
described in the Prospectus and in this SAI.
The Fund will receive amounts equivalent to any interest or other distributions paid on securities
while they are on loan, and the Fund will not be entitled to exercise voting or other beneficial
rights on loaned securities. The Fund will exercise its right to terminate loans and thereby
regain these rights whenever the Adviser considers it to be in the Funds interest to do so, taking
into account the related loss of reinvestment income and other factors.
Cash Equivalents
The Fund may invest in cash equivalents to invest daily cash balances or for temporary defensive
purposes. Cash equivalents are highly liquid, short-term securities such as commercial paper, time
deposits, certificates of deposit, short-term notes and short-term U.S. Government obligations and
may include Cash Management Portfolio, an affiliated money market fund which invests in such
short-term securities.
Exchange-Traded Funds
The Fund may invest in shares of exchange-traded funds (collectively, ETFs), which are designed
to provide investment results corresponding to an index. These indexes may be either broad-based,
sector or international and may include Standard & Poors Depositary Receipts (SPDRs), DIAMONDS,
NASDAQ-100 Index Tracking Stock (also referred to as NASDAQ-100 Shares) and iShares
exchange-traded funds (iShares), such as iShares Russell 2000 Growth Index Fund and HOLDRS
(Holding Company Depositary Receipts). ETFs usually are units of beneficial interest in an
investment trust or represent undivided ownership interests in a portfolio of securities, in each
case with respect to a portfolio of all or substantially all of the component securities of, and in
substantially the same weighting as, the relevant benchmark index. The benchmark indices of SPDRs,
DIAMONDS and NASDAQ-100 Shares are the Standard & Poors 500 Stock Index, the Dow Jones Industrial
Average and the NASDAQ-100 Index, respectively. The benchmark index for iShares varies, generally
corresponding to the name of the particular iShares fund. ETFs are designed to provide investment
results that generally correspond to the price and yield performance of the component securities
(or commodities) of the benchmark index. ETFs are listed on an exchange and trade in the secondary
market on a per-share basis.
Investments in ETFs generally are subject to limits in the 1940 Act on investments in other
investment companies. The values of ETFs are subject to change as the values of their respective
component securities (or commodities) fluctuate according to market volatility. Investments in
ETFs that are designed to correspond to an equity index involve certain inherent risks generally
associated with investments in a broadly based portfolio of common stocks, including the risk that
the general level of stock prices may decline, thereby adversely affecting the value of ETFs
invested in by the Fund. Moreover, the Funds investments in ETFs may not exactly match the
performance of a direct investment in the respective indices to which they are intended to
correspond due to the temporary unavailability of certain index securities in the secondary market
or other extraordinary circumstances, such as discrepancies with respect to the weighting of
securities.
Typically, ETF programs bear their own operational expenses, which are deducted from the dividends
paid to investors. To the extent that the Fund invests in ETFs, the Fund must bear these expenses
in addition to the expenses of its own operation.
Pooled Investment Vehicles
The Fund reserves the right to invest up to 10% of its total assets, calculated at the time of
purchase, in the securities of pooled investment vehicles including other investment companies
unaffiliated with the Adviser. The Fund will indirectly bear its proportionate share of any
management fees paid by pooled investment vehicles in which it invests in addition to the advisory
fee paid by the Fund. Please refer to Cash Equivalents for additional information about
investment in other investment companies. The 10% limitation does not apply to the Funds
investment in money market funds and certain other pooled investment vehicles. If the Fund invests
in Cash Management Portfolio, an affiliated money market fund, the management fee paid on such
investment will be credited against the Funds management fee.
4
Temporary Investments
There may be times when, in the Advisers judgment, conditions in the securities market would make
pursuit of the Funds investment strategy inconsistent with achievement of the Funds investment
objectives. At such times, the Adviser may employ alternative strategies primarily to seek to
reduce fluctuations in the value of the Funds assets. In implementing these temporary defensive
strategies, depending on the circumstances, the Fund may invest part or all of its total assets in
fixed-income securities with remaining maturities of less than one year, cash or cash equivalents.
Cash equivalents are highly liquid, short-term securities such as commercial paper, time deposits,
certificates of deposit, short-term notes and short-term U.S. government obligations.
Investment Restrictions
The investment policies and strategies of the Fund described in this SAI and the Prospectus,
except for the investment objective of the Fund and the nine investment restrictions designated as
fundamental policies under this caption, are not fundamental and may be changed by the Board of
Trustees of the Fund (the Board) without shareholder approval.
Fundamental Investment Restrictions
As referred to above, the following nine investment restrictions of the Fund are designated as
fundamental policies and as such cannot be changed without the approval of the holders of a
majority of the Funds outstanding voting securities, which as used in this SAI means the lesser of
(a) 67% of the shares of the Fund present or represented by proxy at a meeting if the holders of
more than 50% of the outstanding shares are present or represented at the meeting or (b) more than
50% of outstanding shares of the Fund. As a matter of fundamental policy, the Fund may not:
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Borrow money, except as permitted by the Investment Company
Act of 1940, as amended (the 1940 Act). The 1940 Act currently requires
that any indebtedness incurred by a closed-end investment company have an asset coverage of
at least 300% at the time of borrowing; |
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Issue senior securities, as defined in the 1940 Act, other than (i) preferred shares
which immediately after issuance will have asset coverage of at least 200%, (ii)
indebtedness which immediately after issuance will have asset coverage of at least 300%, or
(iii) the borrowings permitted by investment restriction (1) above. The 1940 Act currently
defines senior security as any bond, debenture, note or similar obligation or instrument
constituting a security and evidencing indebtedness and any stock of a class having
priority over any other class as to distribution of assets or payment of dividends. Debt
and equity securities issued by a closed-end investment company meeting the foregoing asset
coverage provisions are excluded from the general 1940 Act prohibition on the issuance of
senior securities; |
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Purchase securities on margin (but the Fund may obtain such short-term credits as may
be necessary for the clearance of purchases and sales of securities). The purchase of
investment assets with the proceeds of a permitted borrowing or securities offering will
not be deemed to be the purchase of securities on margin; |
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Underwrite securities issued by other persons, except insofar as it may technically be
deemed to be an underwriter under the Securities Act of 1933, as amended, in selling or disposing of a portfolio investment; |
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Make loans to other persons, except by (a) the acquisition of loans, loan interests,
debt securities and other obligations in which the Fund is authorized to invest in
accordance with its investment objective and policies, (b) entering into repurchase
agreements and (c) lending its portfolio securities; |
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(6) |
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Purchase or sell real estate, although it may purchase and sell securities which are
secured by interests in real estate and securities of issuers which invest or deal in real
estate. The Fund reserves the freedom of action to hold and to sell real estate acquired
as a result of the ownership of securities; |
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Purchase or sell physical commodities or contracts for the purchase or sale of physical
commodities. Physical commodities do not include futures contracts with respect to
securities, securities indices, currency or other financial instruments; |
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With respect to 75% of its total assets, invest more than 5% of its total assets in the
securities of a single issuer or purchase more than 10% of the outstanding voting
securities of a single issuer, except obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities and except securities of other investment
companies; and |
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Invest 25% or more of its total assets in any single industry or group of industries
(other than securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities). |
In regard to restriction (1), the Fund may borrow money as a temporary measure for extraordinary or
emergency purposes, including the payment of dividends and the settlement of securities
transactions which otherwise might require untimely dispositions of Fund securities. The 1940 Act
currently requires that the Fund have 300% asset coverage at the time of borrowing with respect to
all borrowings other than temporary borrowings.
In regard
to restriction (5)(c), the value of the securities loaned by the Fund
may not exceed 331/3%
of its total assets.
For purposes of construing restriction (9), securities of the U.S. Government, its agencies, or
instrumentalities are not considered to represent industries. Municipal obligations backed by the
credit of a governmental entity also are not considered to represent industries.
Whenever an investment policy or investment restriction set forth in the Prospectus or this SAI
states a maximum percentage of assets that may be invested in any security or other asset or
describes a policy regarding quality standards, such percentage limitation or standard shall be
determined immediately after and as a result of the Funds acquisition of such security or asset.
Accordingly, any later increase or decrease resulting from a change in values, assets or other
circumstances or any subsequent rating change made by a rating agency (or as determined by the
Subadviser if the security is not rated by a rating agency) will not compel the Fund to dispose of
such security or other asset. Notwithstanding the foregoing, the Fund must always be in compliance
with the borrowing policies set forth above.
Non-fundamental Investment Restrictions
The Fund has adopted the following non-fundamental investment policy, which may be changed by the
Board without approval of the Funds shareholders. As a matter of non-fundamental policy, the Fund
may not make short sales of securities or maintain a short position, unless at all times when a
short position is open the Fund either owns an equal amount of such securities or owns securities
convertible into or exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short.
Upon the Boards approval, the Fund may invest more than 10% of its total assets in one or more
other management investment companies (or may invest in affiliated investment companies) to the
extent permitted by the 1940 Act and rules thereunder.
Portfolio Turnover
The Funds 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 securities during the fiscal year
by the monthly average of the value of the Funds 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 rate for the Fund for the fiscal years ended October 31, 2011 and October
31, 2010 were 95% and 96%, respectively.
6
Those Responsible for Management
The business of the Fund is managed by the Board, including certain trustees of the Fund
(Trustees) who are not interested persons (as defined by the 1940 Act) of the Fund (the
Independent Trustees). The Board elects 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. Each Trustee serves in a
similar capacity for other John Hancock funds.
The Board is divided into three staggered term classes, with the term of one class expiring each
year, and no term continuing for longer than three years after the applicable election. Should a
Trustee in a class wish to serve an additional term, he or she must stand for re-election.
Classifying the Trustees in this manner may prevent replacement of a majority of the Trustees for a
period of up to two years. The Board consists of nine members. The three staggered term classes
include one class composed of two Trustees, one class composed of three Trustees and one class
composed of four Trustees.
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 Fund |
|
Directorships During the Past 5 Years |
|
Trustee |
Hugh
McHaffie(1)
(1959)
|
|
Trustee
(since 2010)
(term expires 2013)
|
|
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(2)
(since 2010); Chairman and Director,
John Hancock Advisers, LLC, John
Hancock Investment Management
Services, LLC and John Hancock
Funds, LLC (since 2010).
|
|
|
48 |
|
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|
|
|
|
|
|
|
|
John G.
Vrysen(1)
(1955)
|
|
Trustee
(since 2009)
(term expires 2015)
|
|
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(2) (until
2009); Trustee, John Hancock retail
funds (since 2009).
|
|
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48 |
|
7
Independent Trustees
|
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Number of |
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|
Funds in John |
|
|
|
|
|
|
Hancock Fund |
|
|
|
|
|
|
Complex |
Name |
|
Position(s) with |
|
Principal Occupation(s) and Other |
|
Overseen by |
(Birth Year) |
|
the Fund |
|
Directorships During the Past 5 Years |
|
Trustee |
William H.
Cunningham
(1944)
|
|
Trustee
(since 2007)
(term expires 2014)
|
|
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).
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
Deborah C. Jackson
(1952)
|
|
Trustee
(since 2008)
(term expires 2013)
|
|
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).
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
Stanley Martin
(1947)
|
|
Trustee
(since 2008)
(term expires 2015)
|
|
Director, The St. Joe Company (real estate development) (since May 2012);
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).
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
Patti McGill
Peterson
(1943)
|
|
Trustee
(since 2007)
(term expires 2013)
|
|
Presidential Advisor for Global
Initiatives, American Council on
Education (since 2011); Chairman of
the Board of the Fund (2009-2010);
Principal, PMP Globalinc
(consulting) (2007-2011); Senior
Associate, Institute for Higher
Education Policy (2007-2011);
Executive Director, CIES
(international education agency)
(until 2007); Vice President,
Institute of International Education
(until 2007); Former President Wells
College, St. Lawrence University and
the Association of Colleges and
Universities of the State of New
York. Director of the following:
|
|
|
48 |
|
|
|
|
|
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). |
|
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|
John A.
Moore(3)
(1939)
|
|
Trustee
(since 2007)
Vice Chairman
(since 2012)
(term expires 2015)
|
|
President and Chief Executive
Officer, Institute for Evaluating
Health Risks, (nonprofit
institution) (19892001); Senior
Scientist, Sciences International
(health research) (20002003);
Former Assistant Administrator &
Deputy Administrator, Environmental
Protection Agency (19831989); Principal,
Hollyhouse (consulting) (since
2000); Director, CIIT Center for
Health Science Research (nonprofit
research) (until 2007).
|
|
|
48 |
|
8
Independent Trustees
|
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|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Funds in John |
|
|
|
|
|
|
Hancock Fund |
|
|
|
|
|
|
Complex |
Name |
|
Position(s) with |
|
Principal Occupation(s) and Other |
|
Overseen by |
(Birth Year) |
|
the Fund |
|
Directorships During the Past 5 Years |
|
Trustee |
Steven R. Pruchansky
(1944)
|
|
Trustee
(since 2007)
Chairman
(since 2011)
(term expires 2013)
|
|
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).
|
|
|
48 |
|
|
|
|
|
|
|
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|
|
Gregory A. Russo
(1949)
|
|
Trustee
(since 2008)
(term expires 2014)
|
|
Member, Audit Committee and
Finance Committee of NCH Healthcare
System, Inc. (since 2011); Vice
Chairman, Risk & Regulatory Matters,
KPMG LLP (KPMG) (20022006); Vice
Chairman, Industrial Markets, KPMG
(19982002).
|
|
|
48 |
|
|
|
|
(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 ten closed-end funds (including the Fund), as
well as the series of John Hancock Funds III and 12 other investment companies. |
|
(3) |
|
Dr. Moores term of office will end when he retires as a Trustee on December 31, 2012. |
Correspondence intended for any of the Trustees may be sent to the attention of the individual
Trustee or to the Board c/o the Secretary of the Fund at 601 Congress Street, Boston, Massachusetts
02210. All communications addressed to the Board or individual Trustee will be logged and sent to
the Board or individual Trustee. The Secretary may determine not to forward any letter to Trustees
that does not relate to the business of the Fund.
Principal Officers who are not Trustees
|
|
|
|
|
|
|
Name, |
|
Position(s) with |
|
Officer |
|
|
(Birth Year) |
|
the Fund |
|
since |
|
Principal Occupation(s) During Past 5 Years |
Keith F. Hartstein
(1956)
|
|
President and
Chief Executive Officer
|
|
2007
|
|
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). |
|
|
|
|
|
|
|
Thomas M. Kinzler
(1955)
|
|
Secretary and
Chief Legal Officer
|
|
2007
|
|
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); and Secretary and Chief
Legal Officer, John Hancock retail funds,
John Hancock Funds II and John Hancock
Variable Insurance Trust (since 2006). |
|
|
|
|
|
|
|
Francis V. Knox, Jr.
(1947)
|
|
Chief Compliance Officer
|
|
2007
|
|
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). |
9
Principal Officers who are not Trustees
|
|
|
|
|
|
|
Name, |
|
Position(s) with |
|
Officer |
|
|
(Birth Year) |
|
the Fund |
|
since |
|
Principal Occupation(s) During Past 5 Years |
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). |
|
|
|
|
|
|
|
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
|
|
2009
|
|
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) and
(2007-2009); Assistant Treasurer, John
Hancock retail funds (2007-2009);
Assistant Treasurer, Fidelity Group of
Funds (20052007); Vice President,
Fidelity Management Research Company
(20052007). |
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.
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 U.S. 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. In considering
nominees, although this Committee does not have a formal policy to consider diversity when
identifying candidates for the position of Independent Trustee, as a matter of practice, this
Committee considers the overall diversity of the Board with respect to backgrounds, professional
experience, education, skill, and viewpoint. In addition, as part of its annual self-evaluation,
the Board has an opportunity to consider the diversity of its members, including specifically
whether the Boards members have the right mix of characteristics, experiences and skills. The
results of the self-evaluation are considered by this Committee in its decision-making process with
respect to candidates for the position of Independent Trustee. 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
10
has experience as a Trustee of the Fund, 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.
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 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.
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. Dr. Moore, an
Independent Trustee, serves as the Boards Vice Chairman.
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
Chairman.
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
The Fund is organized as a Massachusetts business trust. Under the Declaration of Trust, the
Trustees are responsible for managing the affairs of the Fund, including the appointment of
advisers and subadvisers. Each Trustee has the experience, skills, attributes or qualifications
described above (see Principal Occupation(s) and
11
Other Directorships and Additional Information about the Trustees above). The Board appoints
officers who assist in managing the day-to-day affairs of the Fund. The Board met six times during
the latest fiscal year.
The Board has appointed an Independent Trustee as Chairman. The Chairman presides at meetings of
the Trustees and may call meetings of the Board and any Board committee whenever he deems it
necessary. The Chairman 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 Chairman also acts as a liaison with the Funds management, officers,
attorneys, and other Trustees generally between meetings. The Chairman may perform such other
functions as may be requested by the Board from time to time. The Board has also designated a Vice
Chairman to serve in the absence of the Chairman. Except for any duties specified in this SAI or
pursuant to the Funds Declaration of Trust or By-laws, or as assigned by the Board, the
designation of a Trustee as Chairman or Vice Chairman 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
Chairman to be integral to promoting effective independent oversight of the Funds operations and
meaningful representation of the shareholders interests, given the number of funds offered by the
complex and the amount of assets that these funds represent. 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 Fund.
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 Chairman 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 Chairman 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 |
Mr. Martin
|
|
Mr. Cunningham
|
|
All Independent
|
|
Ms. Jackson
|
|
All Independent |
Ms. McGill Peterson
|
|
Ms. Jackson
|
|
Trustees
|
|
Ms. McGill Peterson
|
|
Trustees |
Dr. Moore
|
|
Mr. Russo
|
|
|
|
Mr. Russo |
|
|
|
|
|
|
|
|
Mr. Vrysen |
|
|
Audit Committee. Each member of this Committee is a financially literate Independent Trustee and
at least one member has accounting or related 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.
12
Mr. Martin serves as Chairman of this Committee. The Audit Committee held eight meetings during
the last fiscal year.
Compliance Committee. The primary role of this Committee is to oversee the activities of the
Funds Chief Compliance Officer; the implementation and enforcement of the Funds compliance
policies and procedures; and compliance with the Funds 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. The purpose of this Committee is to make determinations and recommendations
to the Board on issues related to the composition and operation of the Board, corporate governance
matters applicable to the Independent Trustees, and issues related to complex-wide matters and
practices designed to facilitate uniformity and administration of the Boards oversight of the
Fund. This Committee is solely responsible for the selection and recommendation to the Board of
Independent Trustee candidates. 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 a current Independent Trustee continues, in the opinion of this Committee, to satisfy
these criteria, the Fund anticipates that the Committee would favor the renomination of a current
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. The Committee has adopted
Procedures for the Selection of Independent Trustees.
While this Committee is solely responsible for the selection and recommendation to the Board of
Independent Trustee candidates, the Committee may consider nominees recommended by any source,
including fund shareholders, management and Committee members, as it deems appropriate. Any such
recommendations from shareholders shall be directed to the Secretary of the Fund at 601 Congress
Street, Boston, Massachusetts 02210-2805. Recommendations from management may be submitted to the
Committee Chairman. All recommendations shall include all information relating to such person that
is required to be disclosed in solicitations of proxies for the election of Board members and as
specified in the Funds By-Laws, and must be accompanied by a written consent of the proposed
candidate to stand for election if nominated for the Board and to serve if elected by shareholders.
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. Ms. Jackson serves as Chairman
of Investment Performance Committee A. This Committee held seven 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 and arrangements with other service providers. Dr. Moore serves as
Chairman of this Committee. As indicated
13
above, Dr. Moore will retire as a Trustee on December 31, 2012. 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
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 Funds 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 Chairman of the Board, the relevant Committee Chair or the Funds CCO,
who is directly accountable to the Board. As appropriate, the Chairman of the Board and the
Committee Chairs confer among themselves, with the Funds 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 Fund).
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 Funds CCO with
respect to the compliance programs of the Fund, the Adviser, the Subadvisers, and certain of the
Funds other service providers. 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 Funds 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
14
discusses its findings with the Board. Among other things, in its annual review of the Funds
advisory and subadvisory agreements, this Committee and the Board receive and review information
provided by the Adviser and the Subadvisers 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 table below sets forth the compensation paid by the Fund and certain other investment companies
in the John Hancock Fund Complex to the Independent Trustees of the Fund for their services for the
fiscal year ended October 31, 2011. These Trustees oversee 48 series in the John Hancock Fund
complex, which consists of 255 series. Each Trustee is reimbursed for travel and other out of
pocket expenses incurred in attending meetings. The Fund pays fees only to its Independent
Trustees. The Fund does not pay any remuneration to any Trustee who is an officer or employee of
the Adviser or its affiliates. Of the Funds officers, the President is furnished to the Fund
pursuant to the Advisory Agreement described below and receives no compensation from the Fund. The
other named officers receive no compensation from the Fund, and are compensated by the Adviser
and/or affiliates for their services. The officers of the Fund may spend only a portion of their
time on the affairs of the Fund.
|
|
|
|
|
|
|
|
|
Independent Trustee |
|
Fund |
|
John Hancock Fund Complex |
James F. Carlin* |
|
$ |
5,000 |
|
|
$ |
188,000 |
|
William H. Cunningham |
|
$ |
5,000 |
|
|
$ |
218,071 |
|
Deborah C. Jackson |
|
$ |
5,125 |
|
|
$ |
203,000 |
|
Charles L. Ladner** |
|
$ |
5,979 |
|
|
$ |
232,500 |
|
Stanley Martin |
|
$ |
5,889 |
|
|
$ |
234,624 |
*** |
Patti McGill Peterson |
|
$ |
5,575 |
|
|
$ |
211,314 |
|
John A. Moore |
|
$ |
6,004 |
|
|
$ |
229,000 |
|
Steven R. Pruchansky |
|
$ |
6,802 |
|
|
$ |
280,149 |
|
Gregory Russo |
|
$ |
5,750 |
|
|
$ |
227,000 |
|
|
|
|
* |
|
Effective February 29, 2012, Mr. Carlin no longer serves as a Trustee of the Fund. |
|
** |
|
Effective December 31, 2011, Mr. Ladner no longer serves as a Trustee of the Fund. |
|
*** |
|
Mr. Martins John Hancock Fund Complex compensation includes $19,000 of fees
contributed to the John Hancock Deferred Compensation Plan. |
The Fund does not have a pension or retirement plan for any of its Trustees or officers. The
Fund 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 Fund to retain the services of any
Trustee or obligate the Fund 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 October 31, 2011, the value of the aggregate accrued deferred compensation
amount from all funds in the John Hancock Fund Complex for Mr. Cunningham was
15
$247,659; Mr. Ladner was $81,197; Mr. Martin was $69,973; Ms. McGill Peterson was $270,374; Dr.
Moore was $322,934; and Mr. Pruchansky was $389,739 under the Plan.
Trustee Ownership of Shares of John Hancock Funds
The table below sets forth the aggregate dollar range of equity securities beneficially owned by
the Trustees in the Fund and in all John Hancock funds overseen by each Trustee as of December 31,
2011. For each Trustee, the amounts reflected include share equivalents of certain John Hancock
funds in which the Trustee is deemed to be invested pursuant to the Deferred Compensation Plan for
Independent Trustees, as more fully described under Compensation of Trustees and Officers. The
information as to beneficial ownership is based on statements furnished to the Fund by the
Trustees. Each of the Trustees has all voting and investment powers with respect to the shares
indicated.
|
|
|
|
|
|
|
|
|
Trustees |
|
Fund |
|
John Hancock Fund Complex |
Independent Trustees |
|
|
|
|
|
|
|
|
James F. Carlin * |
|
$ |
1-$10,000 |
|
|
Over $100,000 |
William H. Cunningham |
|
$ |
1-$10,000 |
|
|
Over $100,000 |
Deborah C. Jackson |
|
$ |
10,001-$50,000 |
|
|
Over $100,000 |
Charles L. Ladner** |
|
$ |
10,001-$50,000 |
|
|
Over $100,000 |
Stanley Martin |
|
$ |
1-$10,000 |
|
|
Over $100,000 |
Patti McGill Peterson |
|
$ |
1-$10,000 |
|
|
Over $100,000 |
John A. Moore |
|
$ |
1-$10,000 |
|
|
Over $100,000 |
Steven R. Pruchansky |
|
$ |
10,001-$50,000 |
|
|
Over $100,000 |
Gregory Russo |
|
$ |
1-$10,000 |
|
|
Over $100,000 |
Non-Independent Trustees |
|
|
|
|
|
|
|
|
Hugh McHaffie |
|
$ |
10,001-$50,000 |
|
|
Over $100,000 |
John G. Vrysen |
|
$ |
10,001-$50,000 |
|
|
Over $100,000 |
|
|
|
* |
|
Effective February 29, 2012, Mr. Carlin no longer serves as a Trustee of the Fund. |
|
** |
|
Effective December 31, 2011, Mr. Ladner no longer serves as a Trustee of the Fund. |
Shareholders of the Fund
As of [DATE], the officers and Trustees of the Fund as a group owned beneficially less than 1%
of the outstanding shares of the Fund.
To the best knowledge of the Fund, the following shareholder owned 5% or more of the outstanding
shares of the Fund as of the date indicated. Information related to these shareholders may be
different as of the date of this SAI.
|
|
|
|
|
|
|
|
|
Percentage |
Shareholder Name |
|
Shareholder Address |
|
Owned |
[___________]
|
|
[___________]
|
|
[____]% |
Investment Advisory and Other Services
A discussion regarding the basis for the Trustees approval of the Advisory Agreement and the
Subadvisory Agreements is available in the Funds October 31, 2011 annual shareholder report.
THE ADVISER
The Adviser is a Delaware limited liability company whose principal offices are located at 601
Congress Street, Boston, Massachusetts 02210 and serves as the Funds investment adviser. The
Adviser is registered with the SEC as an investment adviser under the Advisers Act.
16
Founded in 1968, the Adviser is a wholly owned subsidiary of John Hancock Life Insurance Company
(U.S.A.), a subsidiary of Manulife Financial Corporation (Manulife Financial or the Company).
Manulife Financial is the holding company of The Manufacturers Life Insurance Company (the Life
Company) and its subsidiaries. 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.
The Advisers parent company has been helping individuals and institutions work toward their
financial goals since 1862. The Adviser offers investment solutions managed by institutional money
managers, taking a disciplined team approach to portfolio management and research, leveraging the
expertise of seasoned investment professionals. The Adviser has been managing closed-end funds
since 1971. As of December 31, 2011, the Adviser had total assets under management of
approximately $20.3 billion.
Established in 1887, Manulife Financial is a Canada-based financial services group with principle
operations in Asia, Canada and the United States. Its international network of employees, agents
and distribution partners offers financial protection and wealth management products and services
to millions of clients. It also provides asset management services to institutional customers.
Funds under management by Manulife Financial and its subsidiaries were C$500 billion (US$491
billion) as of December 31, 2011. The Company operates as Manulife Financial in Canada and Asia
and primarily as John Hancock in the United States.
The Adviser serves as investment adviser to the Fund and is responsible for monitoring the
Subadvisers services to the Fund.
Advisory Agreement. The Fund has entered into an investment management contract dated July 1, 2009
(the Advisory Agreement) with the Adviser. As compensation for its advisory services under the
Advisory Agreement, the Adviser receives a fee from the Fund, calculated and paid daily, at an
annual rate of the Funds average daily gross assets.
The following table shows the advisory fee that the Fund incurred and paid to the Adviser for the
last three fiscal years ended October 31, 2011, October 31, 2010, and October 31, 2009.
|
|
|
|
|
October 31, 2011 |
|
October 31, 2010 |
|
October 31, 2009 |
$1,180,297 |
|
$1,158,737 |
|
$1,125,416* |
|
|
|
* |
|
The amount disclosed for the October 31, 2009 fiscal year includes the
advisory fee in the amount of $733,391 paid to the Adviser under the previous advisory
agreement for the period from November 1, 2008 to June 30, 2009 and the advisory fee in
the amount of $392,025 paid to the Adviser under the current Advisory Agreement for the
period from July 1, 2009 to October 31, 2009. |
Pursuant to the Advisory Agreement and subject to the general supervision of the Trustees, the
Adviser selects, contracts with, and compensates the Subadvisers to manage the investments and
determine the composition of the assets of the Fund; provided, that any contract with a Subadviser
(a Subadvisory Agreement) shall be in compliance with and approved as required by the 1940 Act,
except for such exemptions therefrom as may be granted to the Fund or the Adviser. The Adviser
monitors the Subadvisers management of the Funds investment operations in accordance with the
investment objectives and related investment policies of the Fund, reviews the performance of the
Subadvisers and reports periodically on such performance to the Board.
Pursuant to the Advisory Agreement, the Adviser has entered into a Subadvisory Agreement with Epoch
to provide day-to-day portfolio management of the Fund and to implement the Funds portfolio
management strategies and investment objective and into a Subadvisory Agreement with Analytic to
formulate and implement the Funds Options Strategy. The Advisory Agreement provides that the
Adviser may terminate any Subadvisory Agreement entered into and directly assume any functions
performed by a Subadviser, upon approval of the Board.
The Fund pays all expenses of its organization, operations and business.
17
The Advisory Agreement had an initial period of two years and continues from year to year so long
as such continuance is approved at least annually: (i) by the vote of a majority of the
Independent Trustees; and (ii) either by the Board or by the vote of a majority of the outstanding
shares of the Fund.
The Advisory Agreement may be terminated at any time without penalty upon sixty (60) days written
notice by the Board or the Advisor, as applicable, or by the vote of the majority of the
outstanding shares of the Fund. The Advisory Agreement will terminate automatically in the event
of its assignment. The Epoch Agreement terminates automatically upon the termination of the
Advisory Agreement.
The Advisory Agreement provides that, in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations or duties to the Fund under such agreements on
the part of the Adviser, the Adviser shall not be liable to the Fund or to any shareholder for any
loss sustained in connection with the purchase, holding, redemption or sale of any security on
behalf of the Fund.
Service Agreement. The Fund has entered into a management-related service contract dated July 1,
2009 (the Service Agreement) with JHA, under which the Fund receives 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, project management office, EDGAR conversion and filing, graphic design, and other
services that are not investment advisory in nature.
JHA is reimbursed by the Fund for its costs in providing Non-Advisory Services to the Fund under
the Service Agreement. The following table shows the expenses incurred by JHA in providing
services under the Services Agreement for the last three fiscal years ended October 31, 2011,
October 31, 2010, and October 31, 2009.
|
|
|
|
|
October 31, 2011 |
|
October 31, 2010 |
|
October 31, 2009 |
$15,994 |
|
$18,588 |
|
$18,369* |
|
|
|
* |
|
The amount disclosed for the October 31, 2009 fiscal year includes the
service fees in the amount of $10,708 paid to JHA under the previous Accounting & Legal
Services Agreement, EDGAR Services Agreement and Graphic Design Agreement for the
period from November 1, 2008 to June 30, 2009 and the service fee in the amount of
$7,661 paid to JHA under the current Service Agreement for the period from July 1, 2009
to October 31, 2009. |
The Service Agreement had an initial period of two years and continues from year to year 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 Fund or JHA may terminate the Service Agreement at any
time without penalty upon 60 days written notice to the other party. The Service Agreement may be
amended by mutual written agreement of the parties, without obtaining shareholder approval.
JHA 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 JHA in the performance of its duties or from
reckless disregard by JHA of its obligations under the Service Agreement.
Consulting Agreement. The Adviser entered into a consulting agreement dated September 21, 2007
(Consulting Agreement) with its affiliate John Hancock Asset Management a division of Manulife
Asset Management (North America) Limited (formerly, MFC Global Investment Management (U.S.A.)
Limited) (JHAM(NA)). JHAM(NA) is located at 200 Bloor Street East, Toronto, ON, Canada, M4W1EW.
JHAM(NA) is a wholly-owned subsidiary of Manulife Financial, a publicly traded company based in
Toronto, Canada. JHAM(NA) has been an investment adviser since 1979 and manages registered
investment companies. As of December 31, 2011, JHAM(NA) had approximately $95.9 billion in assets
under management.
Under the Consulting Agreement and as the Adviser may request from time to time, JHAM(NA) consults
with the Adviser on matters relating to the application of U.S. federal income tax laws and
regulations to the operations of the Fund and assists the Adviser with compliance monitoring and
the implementation and use of compliance systems and in addressing and legal and regulatory matters
related to the Fund. JHAM(NA) does not have any day-to-day portfolio management responsibilities
or regularly provide investment advice to the Adviser regarding the
18
Fund and its portfolio. In return for its consulting and other services, the Adviser (and not the
Fund) pays JHAM(NA) a fee.
THE SUBADVISERS
Epoch
Epoch Subadvisory Agreement. The Adviser has entered into a Subadvisory Agreement dated August 16,
2007 with Epoch (the Epoch Agreement). Epoch is responsible for the day-to-day management of the
Funds portfolio investments. Epoch, founded in 2004, is a wholly-owned subsidiary of Epoch
Holding Corporation, a publicly traded company. As of December 31, 2011, Epoch managed on a
worldwide basis more than $19.2 billion for mutual funds and institutional investors such as
pension plans, endowments and foundations. Epoch is located at 640 Fifth Avenue, 18th Floor, New
York, New York 10019.
Under the terms of the Epoch Agreement, Epoch is responsible for implementing the Funds investment
equity strategy on a day-to-day basis, all subject to the supervision and direction of the Board
and the Adviser. For services rendered by Epoch under the Epoch Agreement, the Adviser (and not
the Fund) pays Epoch a fee.
The Epoch Agreement had an initial period of two years and continues from year to year so long as
such continuance is approved at least annually: (i) by the Board or by the holders of a majority
of its outstanding voting securities and (ii) by a majority of the Trustees who are not interested
persons (as defined in the 1940 Act) of any party to the Epoch Agreement. The Epoch Agreement
terminates automatically in the event of its assignment or upon termination of the Advisory
Agreement and may be terminated without penalty upon 60 days written notice at the option of the
Adviser, Epoch, by the Board or by a vote of a majority of the Funds outstanding shares. As
discussed above, the Adviser may terminate the Epoch Agreement and directly assume responsibility
for the services provided by Epoch upon approval by the Board without the need for approval of the
shareholders of the Fund.
The Epoch Agreement provides that in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard for its obligations and duties thereunder, Epoch is not liable for
any error or judgment or mistake of law or for any loss suffered by the Fund.
Analytic
Analytic Subadvisory Agreement. The Adviser has entered into a Subadvisory Agreement dated August
16, 2007 with Analytic (the Analytic Agreement). Analytic is responsible for formulating and
implementing the Funds Options Strategy. Analytic was founded in 1970 as one of the first
independent counsel firms specializing in the creation and continuous management of option
strategies of both equity and debt portfolios for fiduciaries and other long-term investors.
Analytic serves mutual funds, pensions, profit-sharing plans, endowments, foundations, corporate
investment portfolios, mutual savings banks and insurance companies. Analytic had approximately
$5.9 billion of assets under management as of December 31, 2011. It is an indirect wholly-owned
subsidiary of Old Mutual plc, a multi-national financial services firm headquartered in London.
Analytic is located at 555 West Fifth Street, 50th Floor, Los Angeles, California 90013.
Under the terms of the Analytic Agreement, Analytic provides advice and assistance with the
development, implementation and execution of the Funds options strategy, all subject to the
supervision and direction of the Board and the Adviser. For services rendered by Analytic under
the Analytic Agreement, the Adviser (and not the Fund) pays Analytic a fee.
The Analytic Agreement had an initial period of two years and continues from year to year so long
as such continuance is approved at least annually: (i) by the Board or by the holders of a
majority of its outstanding voting securities and (ii) by a majority of the Trustees who are not
interested persons (as defined in the 1940 Act) of any party to the Analytic Agreement. The
Analytic Agreement terminates automatically on its assignment and may be terminated without penalty
upon 60 days written notice at the option of either the Adviser, by the Board or by a vote of a
majority of the Funds outstanding shares or by Analytic upon 90 days notice. As discussed above,
the
19
Adviser may terminate the Analytic Agreement and directly assume responsibility for the services
provided by Analytic upon approval by the Board without the need for approval of the shareholders
of the Fund.
The Analytic Agreement provides that in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard for its obligations and duties thereunder, Analytic is not liable
for any error or judgment or mistake of law or for any loss suffered by the Fund.
PORTFOLIO MANAGERS
Day-to-day management of the Fund is the responsibility of the investment professionals associated
with Epoch and Analytic. The individuals responsible for managing the implementation and
monitoring the overall portfolio management of the Fund are listed below.
The following charts reflect information regarding accounts other than the Fund for which each
portfolio manager has day-to-day management responsibilities. Accounts are grouped into three
categories: (i) other investment companies, (ii) other pooled investment vehicles, and (iii) other
accounts. To the extent that any of these accounts pay advisory fees based on account performance,
information on those accounts is specifically broken out. In addition, any assets denominated in
foreign currencies have been converted into U.S. dollars using the exchange rates as of the
applicable date. Also shown below the chart is each portfolio managers investment in the Fund.
The following table reflects approximate information as of October 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Registered |
|
Other Pooled Investment |
|
|
|
|
|
Investment Companies |
|
Vehicles |
|
Other Accounts |
|
|
Number of |
|
|
|
Number of |
|
|
|
Number of |
|
|
Portfolio Manager |
|
Accounts |
|
Assets |
|
Accounts |
|
Assets |
|
Accounts |
|
Assets |
Epoch |
|
|
|
|
|
|
|
|
|
|
|
|
William W. Priest |
|
11 |
|
$4.4 billion |
|
33 |
|
$3.7 billion |
|
144 |
|
$8.9 billion |
Eric L. Sappenfield |
|
3 |
|
$1.5 billion |
|
8 |
|
$1.1 billion |
|
4 |
|
$1.6 billion |
Michael A. Welhoelter |
|
11 |
|
$4.4 billion |
|
33 |
|
$3.7 billion |
|
144 |
|
$8.9 billion |
Analytic |
|
|
|
|
|
|
|
|
|
|
|
|
Harindra de Silva |
|
8 |
|
$2.0 billion |
|
19 |
|
$935 million |
|
24 |
|
$2.8 billion |
Gregory M. McMurran |
|
2 |
|
$221 million |
|
3 |
|
$82 million |
|
3 |
|
$182 million |
Dennis Bein |
|
7 |
|
$1.9 billion |
|
17 |
|
$865 million |
|
23 |
|
$2.7 billion |
Performance-Based Fees for Other Accounts Managed
Of the accounts listed in the table above, those for which the advisory fee is based on investment
performance are listed in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Registered |
|
Other Pooled Investment |
|
|
|
|
|
Investment Companies |
|
Vehicles |
|
Other Accounts |
|
|
Number of |
|
|
|
Number of |
|
|
|
Number of |
|
|
Portfolio Manager |
|
Accounts |
|
Assets |
|
Accounts |
|
Assets |
|
Accounts |
|
Assets |
Epoch |
|
|
|
|
|
|
|
|
|
|
|
|
William W. Priest |
|
0 |
|
$0 |
|
1 |
|
$108 million |
|
15 |
|
$2.1 billion |
Eric L. Sappenfield |
|
0 |
|
$0 |
|
0 |
|
$0 |
|
1 |
|
$677 million |
Michael A. Welhoelter |
|
0 |
|
$0 |
|
1 |
|
$108 million |
|
15 |
|
$2.1 billion |
Analytic |
|
|
|
|
|
|
|
|
|
|
|
|
Harindra de Silva |
|
0 |
|
$0 |
|
6 |
|
$322 million |
|
4 |
|
$362 million |
Gregory M. McMurran |
|
0 |
|
$0 |
|
0 |
|
$0 |
|
0 |
|
$0 |
Dennis Bein |
|
0 |
|
$0 |
|
6 |
|
$322 million |
|
4 |
|
$362 million |
20
Portfolio Manager Ownership of Shares of the Fund
The table below sets forth the aggregate dollar range of equity securities beneficially owned by
each portfolio manager in the Fund as of October 31, 2011. The information as to beneficial
ownership is based on statements furnished to the Fund by the portfolio managers.
|
|
|
Portfolio Manager |
|
Fund |
Epoch |
|
|
William W. Priest |
|
$50,001-$100,000 |
Eric L. Sappenfield |
|
$0 |
Michael A. Welhoelter |
|
$0 |
Analytic |
|
|
Harindra de Silva |
|
$0 |
Gregory M. McMurran |
|
$0 |
Dennis Bein |
|
$0 |
Conflicts of Interest
Where conflicts of interest arise between the Fund and other accounts managed by the Portfolio
Managers, the Portfolio Managers will use good faith efforts so that the Fund will not be treated
materially less favorably than other accounts. There may be instances where similar portfolio
transactions may be executed for the same security for numerous accounts managed by the Portfolio
Managers. In such instances, securities will be allocated in accordance with the Advisers trade
allocation policy.
Epoch
In Epochs view, conflicts of interest may arise in managing the Funds portfolio investments, on
the one hand, and the portfolios of Epochs other clients and/or accounts (together Accounts), on
the other. Set forth below is a brief description of some of the material conflicts that may arise
and Epochs policy or procedure for handling them. Although Epoch has designed such procedures to
prevent and address conflicts, there is no guarantee that such procedures will detect every
situation in which a conflict arises.
The management of multiple Accounts inherently means there may be competing interests for the
portfolio management teams time and attention. Epoch seeks to minimize this by utilizing one
investment approach (i.e., classic value investing), and by managing all Accounts on a product
specific basis. Thus, all large cap value Accounts, whether they be fund accounts, institutional
accounts or individual accounts are managed using the same investment discipline, strategy and
proprietary investment model as the Fund.
If the portfolio management team identifies a limited investment opportunity that may be suitable
for more than one Account, the Fund may not be able to take full advantage of that opportunity.
However, Epoch has adopted procedures for allocating portfolio transactions across Accounts so that
each Account is treated fairly. First, all orders are allocated among portfolios of the same or
similar mandates at the time of trade creation/ initial order preparation. Factors affecting
allocations include availability of cash to existence of client imposed trading restrictions or
prohibitions, and the tax status of the account. The only changes to the allocations made at the
time of the creation of the order, are if there is a partial fill for an order. Depending upon the
size of the execution, Epoch may choose to allocate the executed shares through pro-rata breakdown,
or on a random basis. As with all
21
trade allocations each Account generally receives pro rata
allocations of any new issue or IPO security that is appropriate for its investment objective.
Permissible reasons for excluding an account from an otherwise acceptable IPO or new issue
investment include the account having FINRA restricted person status, lack of available cash to
make the purchase, or a client imposed trading prohibition on IPOs or on the business of the
issuer.
With respect to securities transactions for the Accounts, Epoch determines which broker to use to
execute each order, consistent with its duty to seek best execution. Epoch will bunch or aggregate
like orders where to do so will be beneficial to the Accounts. However, with respect to certain
Accounts, Epoch may be limited by the client with respect to the selection of brokers or may be
instructed to direct trades through a particular broker. In these cases, Epoch may place separate,
non-simultaneous, transactions for the Fund and another Account, which may temporarily affect the
market price of the security or the execution of the transaction to the detriment one or the other.
Epoch has adopted a Code of Ethics (the Epoch Code), which sets forth guidelines regarding the
conduct of Epoch and its employees. The Epoch Code, among other things, contains policies and
procedures that address actual and potential conflicts of interest that exist when Epoch employees
purchase or sell for their personal
accounts. The Epoch Code generally requires that all transactions in securities by Epoch
employees, their spouses and immediate family members be pre-cleared by the compliance department
prior to execution. The Epoch Code contains policies which prohibit: (a) employees from buying or
selling securities on the same day that the same security is bought or sold for a client; (b)
employees from buying or selling securities within seven calendar days before or after the time
that the same security is being purchased or sold by a client where the employees trade is on the
opposite side of the trade in the client account; and (c) short-term trading through a minimum
holding period of 21 days. Securities transactions for employees personal accounts are subject to
quarterly reporting requirements, annual holdings disclosure and annual certification requirements.
In addition, the Epoch Code requires Epoch and its employees to act in clients best interests,
abide by all applicable regulations, and avoid even the appearance of insider trading. A copy of
the Epoch Code is available on its website at www.eipny.com. Epoch will provide a copy of the
Epoch Code to any client or prospective client upon request.
Epoch has adopted proxy voting policies and procedures designed to ensure that it votes proxies in
the best interest of its clients and that it provides clients with information about how their
proxies are voted. Epochs proxy voting procedures are set forth in Appendix A to this SAI. In
light of Epochs fiduciary duty to clients, and given the complexity of the issues that may be
raised with proxy votes, Epoch has retained Institutional Shareholder Services Inc. (ISS) to vote
client proxies. ISS is an independent third party that specializes in providing a variety of
fiduciary-level proxy-related services to institutional investment managers. The services provided
to Epoch include in-depth research, voting recommendations, vote execution and recordkeeping.
At times, Epoch and/or ISS may not be able to vote proxies on behalf of clients when clients
holdings are in countries that restrict trading activity around proxy votes or when clients lend
securities to third parties. Epoch attempts to identify any conflicts of interests between the
Funds interests and its own within its proxy voting process. If Epoch determine that it or one of
its employees faces a material conflict of interest in voting the Funds proxy (e.g., an employee
of Epoch may personally benefit if the proxy is voted in a certain direction), Epochs procedures
provide for ISS as an independent party to determine the appropriate vote. Epoch will use its best
judgment to vote proxies in the best interests of its clients and will typically follow the
recommendations of ISS.
In the event that Epoch decides to vote a proxy (or a particular proposal within a proxy) in a
manner different from the ISS recommendation, Epoch will document the reasons supporting the
decision. In the event that Epoch intends to deviate from the proxy voting recommendation of ISS,
and if an Epoch Holding Corporation board member is also a board member of the public company with
the proxy being voted upon, then Epoch shall bring the proxy voting issue to the attention of
affected clients for guidance on how to vote the proxy. In the event that Epoch intends to deviate
from the proxy voting recommendation of ISS and where the public company is an entity with which
Epoch has a significant business relationship, then Epoch shall bring the proxy voting issue to the
attention of affected clients for guidance on how to vote the proxy.
Epoch currently has a limited number of relationships where it receives performance-based fees.
Epoch recognizes that performance-based fee arrangements may create potential conflicts of
interest. A performance-based fee structure may create an inherent pressure to allocate
investments having a great potential for higher returns to
22
accounts of those clients paying the
higher performance fee. To prevent conflicts of interest associated with managing accounts with
different compensation structures, Epoch requires portfolio decisions to be made on a strategy
specific basis and without consideration to Epochs pecuniary or personal interests. Epoch also
requires pre-allocation of client orders based on specific fee-neutral criteria. Additionally,
Epoch requires average pricing of all aggregated orders. Finally, Epoch has adopted a policy
prohibiting all employees, including portfolio managers, from placing the investment interests of
any client above the investment interests of any other client with the same or similar investment
objectives.
Analytic
Conflicts of interest may arise because the Analytic has day-to-day management responsibilities
with respect to both the Fund and various other accounts. These potential conflicts include:
Charging Different Fees. A conflict can arise when accounts are each charged differing fees by an
adviser, especially when some accounts are charged fixed rates while others are performance-based.
This conflict can lead to investment allocations of better performing assets to accounts tied to
performance-based fee schedules.
Personal Investments by Employees. A conflict can arise when an employee (particularly a portfolio
manager) may invest personally in the same securities considered for investment in client accounts.
Potential issues may involve the timing of personal trades compared to those of client accounts,
the use of confidential client information for personal profit and more generally the potential for
personal interests to conflict with the interests of the firms clients.
Short Selling. In spite of legitimate investment reasons, a portfolio manager who sells short a
security for one account and buy long the same security for another account in large trades can
distort the market with short sales depressing the value of a security and long purchases inflating
the value of a security; moreover, prior to the purchase or sale of that same security through
another account creates incentive to sequence those transactions as to favor one account over
another account.
Sequencing Trades. When a portfolio manager places the same trade for a security for different
accounts in sequence, a large trade may affect the price of security. The incentive exists in the
potentiality of decreasing or increasing a securitys value before the purchase or sale of that
same security in another account, therefore favoring one account over another account.
Cross Trading. When a portfolio manager plans to sell a security held in an account to another
account in such a way that the transactions are not recorded through the exchange an incentive may
exist to execute cross trades that favor one account over another account.
Aggregation and Allocation of Transactions. A conflict can arise when a portfolio manager through
the process of aggregation meets a purchase minimum for one account by causing another account to
also make a purchase or to increase the possibility of future participation in offering by an
underwriter may provide an incentive for a portfolio manager to cause one account to participate in
aggregated trades. The SEC recommends an adviser to use fund brokerage commissions to obtain
research that benefits the advisers other clients, which include clients that do not generate
brokerage commissions or those from which the adviser receives the greatest amount of compensation
for its advisory services.
Brokerage Commission Allocation. According to Section 28(e) of the Securities Exchange Act of
1934, soft dollar commissions earned through brokerage transactions for one account may be used to
obtain research for another account. However, the possibility of obtaining research for one
account earned at the expense of another account may provide an incentive to favor one account over
another in allocating soft dollar credits.
Directed Brokerage/Commission Recapture Programs. A conflict could potentially arise in deciding
when to trade non-directed brokerage accounts relative to brokerage directed accounts that would
have otherwise been traded at the same time.
23
In managing the potential for conflict inherent in offering performance based fees and side-by-side
management of accounts, Analytic uses a quantitative investment approach (a system of analysis
using complex mathematical and statistical modeling, measurement and research) through which
investment recommendations are model driven. Client accounts are managed independent of one
another in accordance with specific client mandates, restrictions and instructions. Investment
decisions and each client accounts trade list are determined according to client specific
investment guidelines and objectives.
Compensation
Epoch
Portfolio managers and other investment professionals at Epoch are compensated through a
combination of base salary (set annually), overall work performance bonus and equity ownership, if
appropriate due to superior work performance. The investment professionals work performance is
measured by Epoch, examining such things as effort, efficiency, ability to focus on the correct
issues, stock modeling ability and his or her ability to successfully interact with company
management. Epoch avoids a compensation model that is driven by individual security performance
and set against specific benchmarks, as this can lead to short term thinking which is contrary to
the
firms value investment philosophy. Ultimately, equity ownership is the primary tool used by Epoch
for attracting and retaining the best people. Shares are in the form of restricted stock and
subject to a multi-year vesting schedule.
The equity ownership in Epoch as of December 31, 2011 of each member of the investment team who
makes investment decisions for the Fund is as follows:
|
|
|
William W. Priest
|
|
2,000,000 3,000,000 shares of EPHC |
Eric Sappenfield
|
|
40,000 50,000 shares of EPHC |
Michael Welhoelter
|
|
50,000 60,000 shares of EPHC |
Analytic
Analytics compensation structure for professional employees consists of an industry median base
salary (based on independent industry information) and an annual discretionary bonus. Bonus
amounts are determined using the following factors: the overall success of the firm in terms of
profitability; the overall success of the department or team; and an individuals contribution to
the team, based on goals established during the performance period. Compensation based on
investment strategy performance is not tied to individual account performance, but rather, each
strategy as a whole. Strategy performance information is based on pre-tax calculations for the
prior calendar year. The benchmark used is the BXM Index. No portfolio manager is directly
compensated a portion of an advisory fee based on the performance of a specific account. Members
of Analytics senior management team and investment management professionals also may have a
deferred component to their total compensation (with a three-year vesting period) that is invested
in the firms investment products to tie the interests of the individual to the interests of the
firm and its clients. Portfolio managers base salaries are typically reviewed on an annual basis
determined by each portfolio managers anniversary date of employment. Discretionary bonuses are
determined annually, upon analysis of information from the prior calendar year.
Other Services
Proxy voting
The Funds proxy voting policies and procedures (the Funds Procedures) delegate to Epoch the
responsibility to vote all proxies relating to securities held by the Fund in accordance with
Epochs proxy voting policies and procedures. Epoch has a duty to vote such proxies in the best
interests of the Fund and its shareholders. Complete descriptions of the Funds Procedures and the
proxy voting procedures of Epoch are set forth in Appendix A to this SAI. Analytic does not vote
proxies on behalf of the Fund.
It is possible that conflicts of interest could arise for Epoch when voting proxies. Such
conflicts could arise, for example, when Epoch 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 Fund, its investment adviser or
principal underwriter or any of their affiliates has an interest in the vote.
24
In the event that Epoch becomes aware of a material conflict of interest, the Funds Procedures
generally require Epoch to follow any conflicts procedures that may be included in Epochs proxy
voting procedures. The conflict procedures generally will include one or more of 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 Epoch are set forth in Epochs proxy voting procedures
included in Appendix A. While these conflicts procedures may reduce, they will not necessarily
eliminate, any influence on proxy voting of conflicts of interest.
Although Epoch has a duty to vote all proxies on behalf of the Fund, it is possible that Epoch 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 Epoch from trading the shares in the marketplace for a period of
time, Epoch may determine that it is not in the best interests of the Fund to vote the proxies.
Epoch 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 Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30th is available (i) without charge, upon request, by calling
1-800-225-6020 and (ii) on the SECs website at http://www.sec.gov.
Determination of Net Asset Value
The Funds net asset value per Common Share (NAV) is determined each business day at the
close of regular trading on the NYSE (typically 4:00 p.m. Eastern Time) by dividing the Funds net
assets by the number of Common Shares outstanding. On any day the NYSE is closed, the NAV is not
calculated. 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 Common Shares may be significantly affected on days when a shareholder
has no access to the Fund.
Portfolio securities are valued by various methods which are generally described below. As noted
in the Prospectus, portfolio securities also may be fair valued by the Funds Pricing Committee in
certain instances. Most equity securities that are traded on a stock exchange or in the OTC market
are valued at the last sale price 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. Debt securities with remaining maturities of one year or more at the time of
acquisition are valued on the using prices provided by a pricing service, or by prices furnished by
recognized dealers in such securities. Debt securities with remaining maturities of less than one
year at the time of acquisition are generally valued at amortized cost. Shares of open-end
investment companies held by the Fund are valued based on the NAV of the underlying fund. The
value of securities denominated in foreign currencies are converted into U.S. dollars at the
prevailing exchange rate at the close of the NYSE. Exchange-traded options are valued at the mean
of the bid and ask prices. Futures contracts are valued at the most recent settlement price.
Shares of open-end investments companies held by the Fund are valued based on the NAV of the
Underlying Fund.
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 accordingly may
determine in good faith the fair value of the assets, which may differ from the reported valuation.
25
Brokerage Allocation
Pursuant to the Subadvisory Agreements, the Subadvisers are responsible for placing all orders
for the purchase and sale of portfolio securities of the Fund. The Subadvisers have no formula for
the distribution of the Funds brokerage business; rather they place orders for the purchase and
sale of securities with the primary objective of obtaining the most favorable overall results for
the Fund and the Subadvisers other clients. The cost of securities transactions for the Fund
primarily consists of brokerage commissions or dealer or underwriter spreads. Fixed-income
securities and money market instruments generally are traded on a net basis and normally do not
involve either brokerage commissions or transfer taxes.
Occasionally, securities may be purchased directly from the issuer. For securities traded
primarily in the OTC market, the Subadviser will, where possible, deal directly with dealers who
make a market in the securities unless better prices and execution are available elsewhere. Such
dealers usually act as principals for their own account.
Brokerage Commissions Paid
The following table shows the aggregate amount of brokerage commissions paid by the Fund for the
last three fiscal years ended October 31, 2011, October 31, 2010, and October 31, 2009.
|
|
|
|
|
|
|
|
|
October 31, 2011 |
|
October 31, 2010 |
|
October 31, 2009 |
$293,303
|
|
$ |
346,000 |
|
|
$ |
458,000 |
|
No brokerage commissions paid by the Fund during the last three fiscal years were to any broker
that: (i) is an affiliated person of the Fund; (ii) is an affiliated person of an affiliated
person of the Fund; or (iii) has an affiliated person that is an affiliated person of the Fund,
Adviser, Subadvisers, or principal underwriter.
Selection of Brokers or Dealers to Effect Trades
Epoch
In selecting broker-dealers, Epoch seeks the best combination of net price and execution for client
accounts. Epoch may have an incentive to select or recommend a broker-dealer based on its interest
in receiving the research or other products or services, rather than on the interests of clients in
receiving most favorable execution. However, in all instances, the primary consideration when
placing an order with a broker is overall best execution. Epoch may consider other factors as part
of its trading strategy, including: the quality and capability of the research and execution
services which enhance its investment research, portfolio management, and trading capabilities.
With regard to these services, Epoch considers many factors, including:
|
|
|
The broker-dealers research coverage of sectors and companies |
|
|
|
|
The ability to provide access to issuers or conferences |
|
|
|
|
Timing and accuracy of information |
|
|
|
|
Execution capabilities, including ability to accept orders through
electronic communications |
|
|
|
|
The ability to execute effectively in the target company or market |
|
|
|
|
Activities related to matching, clearance, confirmation, settlement,
liquidity and security price |
|
|
|
|
The willingness to commit capital |
|
|
|
|
Confidentiality |
|
|
|
|
Commission rate |
In selecting a broker, Epoch does not consider whether the Firm or a related person receives client
referrals from a broker or third party.
In order to measure the effectiveness of its trading strategy, Epoch compare its executions against
data compiled by an independent consultant, ITG. This data is reviewed periodically by its
Portfolio Management Group to ensure that its trading strategy is working, and the brokers are
providing the best possible executions. In addition, Epoch use a voting system whereby Epochs
analysts rate brokers to assist in determining commission allocations. Votes are typically taken
quarterly by its research analysts and discussed among its investment personnel and its traders.
Factors affecting such votes include the quality and quantity of research provided and assistance
with access to
26
management and management meetings. On a periodic basis, the Portfolio Management
Group reviews the execution capabilities of certain brokers who receive votes and budget
allocations. If execution issues arise with any broker, the traders may put the broker on a
watch-list or a restricted list. Epoch generally considers the amount and nature of research,
execution and other services provided by broker-dealers, as well as the extent to which these
services are relied on. Epoch attempts to allocate a portion of the brokerage business on the
basis of these considerations. Neither the research services nor the amount of brokerage given to
a particular broker-dealer are a part of any agreement or commitment that would bind Epoch to
compensate any broker-dealer for research provided. Epoch attempt to allocate sufficient
commissions to broker-dealers that have provided Epoch with research Epoch believe it is useful to
its research process and thus more or less than the suggested allocations.
Epoch generally routes a substantial portion of its orders to brokers for execution electronically
(either directly to a broker or trading floor, or through various ECN/matching networks). These
services may provide low cost commissions as well as high quality executions and anonymity in the
market. The Portfolio Management Group
meets frequently to review the current trading budget, as well as how commission dollars were spent
during the previous quarter.
Analytic
In determining the abilities of broker-dealers to provide best execution, Analytic considers all
relevant factors including the execution capabilities required by the transactions; the ability and
willingness of the broker-dealer to facilitate transactions by participating therein for
broker-dealers own accounts; the importance to its clients portfolios of speed, efficiency or
confidentiality; the broker-dealers apparent familiarity with sources from or to whom particular
securities might be purchased or sold; and the quality and continuity of services rendered with
regard to its clients other transactions as well as any other factors relevant to the selection of
a broker-dealer for particular and related transactions.
In determining the abilities of a broker-dealer, Analytic will not consider client referrals or the
sale of mutual fund shares.
Soft Dollar Considerations
Epoch
Epoch has negotiated Client Commission Arrangements (CCAs) with several large, well known
brokerage firms. The CCAs are typically linked to the electronic trading venues of these brokers,
and the negotiated commission rates for these arrangements are comparable to those for full service
brokers. Pursuant to the CCAs, a predetermined portion of the commission goes toward execution of
the trade and the remainder is applied to a commission credit account which is used to pay for
eligible third party soft dollar services as described below (the Services). Epoch may
compensate brokers through CCAs rather than directing trades to the proprietary trading desks of
these brokers who are providing research. The Services received may benefit multiple clients,
including those whose commissions were not used to purchase the service.
All Services paid for out of CCAs qualify for the safe harbor in Section 28(e) of the Exchange Act.
Such Services include:
|
|
|
Research reports on companies, industries and securities |
|
|
|
|
Economic and financial data |
|
|
|
|
Financial publications |
|
|
|
|
Web or computer based market data |
|
|
|
|
Research-oriented computer software and services |
|
|
|
|
Brokerage services facilitating the communication of trade order information
to counterparties and custodians |
In addition to research obtained through the aforementioned CCAs, Epoch accepts proprietary
research from certain brokers and as well as access to company management and conferences with
industry professionals. Research services received from brokers and dealers are supplemental to
Epochs own research effort. To the best of Epochs knowledge, these services are generally made
available to all institutional investors doing business with such
27
broker-dealers. Epoch does not
separately compensate such broker-dealers for the research and does not believe that it pays-up
for such broker-dealers services due to the difficulty associated with the broker-dealers not
breaking out the costs for such services. These services may be used for any or all of its
clients accounts and there may be no correlation between the amount of brokerage commissions
generated by a particular client and the indirect benefits received by the client. Products and
services received by Epoch from brokers in connection with brokerage services provided to certain
client accounts may disproportionately benefit other client accounts. Epoch does not seek to
allocate soft dollar benefits proportionately to the soft dollar credits the accounts generate.
When Epoch use client brokerage commissions to obtain research or other products or services, Epoch
receive a benefit because Epoch do not have to produce or pay for the research, products or
services. Epoch seek to control this process by maintaining a relatively small CCA budget, and by
limiting the Services Epoch pay for using soft dollar credits to those that fall within the safe
harbor of Section 28(e).
Epoch may use soft dollars to purchase services that are not 100% eligible for purchases with soft
dollars. In these circumstances, a mixed-use allocation is proposed and approved by its Portfolio
Management Group and the CCO. The allocation would designate the percentage of the service that is
eligible for payment with soft dollars and the percentage of the service that must be paid with
hard dollars.
Analytic
Analytic does not engage in payment of research and other soft dollar benefits. Analytic may
incidentally receive information that may be deemed research from a brokerage firm but generally
Analytic is not charged for this nor is this passed on in any form including commissions. However,
receiving research is a benefit because Analytic does not have to produce or pay for the research
and this does provide incentive to select or recommend a broker-dealer based on its interest in
receiving research, rather than on clients interest in receiving most favorable execution.
Research received may not benefit all clients accounts at all times.
Trade Aggregation by the Subadvisers
Epoch
Epoch typically manages client accounts based on a model portfolio which is designed to achieve the
investment objectives of the strategy chosen by the client. Epoch conducts transactions in client
accounts to reasonably match the model portfolios daily, weekly, monthly, or as needed. Epoch may
not conduct transactions on behalf of clients in the wrap fee programs as frequently as Epoch do on
behalf of other clients for several reasons, including that certain transactions for the client
accounts in the wrap fee programs may be de minimis due to the wrap fee programs lower minimum
account balances. Epoch places orders for accounts that have directed it to use a specific broker,
such as accounts in the wrap fee programs, after trading for other accounts has begun or has been
completed. Because of directed brokerage agreements with wrap sponsors, Epoch is unable to
aggregate wrap or managed account transactions with orders for other accounts advised or managed by
Epoch. When a model change occurs, Epoch may place orders for its institutional relationships
before placing orders in SMA/Wrap and UMA relationships. Model changes are communicated to its
service provider intraday for trading. When a change to a strategy model occurs, and where the
strategy is on more than one wrap or managed account program, the service provider will use a
rotation list in order to determine the sequencing of order placement among the wrap or managed
account sponsors.
Analytic
Analytic may group together accounts with similar investment and trading strategies when
determining trade cycle and rotation. When making this decision, Analytic may consider timing of
cash flows, time since the last rebalance, projected liquidity, and availability of staff and
market holidays/closures. Client portfolios will be optimized individually and independently from
other accounts according to client directed restrictions and strategy constraints, and a trade list
for each account will be generated. Unless directed otherwise by a client (including instructions
for directed brokerage), the trade lists from grouped accounts may be aggregated for order
execution.
Analytic may aggregate orders of some or all of its accounts, including accounts in which Analytic
or its personnel or affiliates may have a beneficial interest. Because of market activity, it may
not be possible to obtain the same price or execution on all such trades. When this occurs trades
are allocated in a manner Analytic believes is fair and reasonable, taking into consideration its
fiduciary duties to all of its clients, and typically involves taking an average
28
of the price and
commission. Whenever an average is used, some clients will benefit while others may be
disadvantaged. Although in such instance clients will be charged the average price, Analytic will
make information regarding the actual transactions available to clients, upon the clients request.
In such instances where Analytic is trading the same security with multiple brokers due to
directed brokerage arrangements, Analytic will try to deliver such orders simultaneously to
brokers.
Affiliated Underwriting Transactions by the Subadvisers
The Board 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 Adviser or a
Subadviser participates. These procedures prohibit the Fund from directly or indirectly benefiting
an Adviser or Subadviser affiliate in connection with such underwritings. In addition, for
underwritings where an Adviser or 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.
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
Subadvisers, 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.
Additional Information Concerning Taxes
The
following discussion of U.S. federal income tax matters is based on
the advice of [ ]. The Fund intends to elect to be treated and to qualify each year as a
regulated investment company (RIC) under the Internal Revenue Code of 1986, as amended (the
Code).
To qualify as a RIC 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. A qualified publicly traded partnership is a publicly
traded partnership that meets certain requirements with respect to the nature of its income. To
qualify as a RIC, the Fund must also 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, U.S.
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 can be invested in securities (other than United
States government securities or the securities of other regulated investment companies) of any one
issuer, or of two or more issuers, which the Fund controls and which are engaged in the same or
similar trades or businesses or related trades or businesses, or of 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.
As a RIC, the Fund generally will not be subject to U.S. federal income tax on its investment
company taxable income (as that term is defined in the Code, but without regard to the deductions
for dividends paid) and net capital gain (the excess of net long-term capital gain over net
short-term capital loss), if any, that it distributes in each
29
taxable year to its shareholders;
provided that it distributes at least 90% of its investment company taxable income and 90% of its
net tax-exempt interest income for such taxable year. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company taxable income, net
tax-exempt interest income and net capital gain. In order to avoid incurring a nondeductible 4%
U.S. federal excise tax obligation, the Code requires that the Fund distribute (or be deemed to
have distributed) by December 31 of each calendar year an amount at least equal to the sum of (i)
98% of its ordinary income for such year, (ii) 98.2% of its capital gain net income (which is the
excess of its realized net long-term capital gain over its realized net short-term capital loss),
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 ordinary income and
capital gain net income from the prior year (as previously computed) that were not paid out during
such year and on which the Fund paid no U.S. federal income tax. Under current law, provided that
the Fund qualifies as a RIC for U.S. federal income tax purposes, the Fund should not be liable for
any income, corporate excise or franchise tax in the Commonwealth of Massachusetts.
If the Fund does not qualify as a RIC or fails to satisfy the 90% distribution requirement for any
taxable year, subject to the opportunity to cure such failures under applicable
provisions of the Code as described above, the Funds taxable income will be subject to corporate
income taxes, and all distributions from earnings and profits, including distributions of net
capital gain (if any), will be taxable to the shareholder as ordinary income. Such distributions
generally would be eligible (i) to be treated as qualified dividend income in the case of
individual and other noncorporate shareholders and (ii) for the dividends received deduction
(DRD) in the case of corporate shareholders. In addition, in order to requalify for taxation as
a RIC, the Fund may be required to recognize unrealized gains, pay substantial taxes and interest,
and make certain distributions.
For U.S. federal income tax purposes, distributions paid out of the Funds current or accumulated
earnings and profits will, except in the case of distributions of qualified dividend income and
capital gain dividends described below, be taxable as ordinary dividend income. Certain income
distributions paid by the Fund (whether paid in cash or reinvested in additional Fund shares) to
individual taxpayers are taxed at rates applicable to net long-term capital gains (15%, or 0% for
individuals in the 10% or 15% tax brackets). This tax treatment applies only if certain holding
period requirements and other requirements are satisfied by the shareholder and the dividends are
attributable to qualified dividend income received by the Fund itself. For this purpose,
qualified dividend income means dividends received by the Fund from United States corporations
and qualified foreign corporations, provided that the Fund satisfies certain holding period and
other requirements in respect of the stock of such corporations. These special rules relating to
the taxation of ordinary income dividends paid by RICs generally apply to taxable years beginning
before January 1, 2013. Thereafter, the Funds dividends, other than capital gain dividends, will
be fully taxable at ordinary income tax rates unless further Congressional action is taken. Thus,
no assurance can be given that current law applicable to qualified dividend income will continue
after December 31, 2012. There can be no assurance as to what portion of the Funds dividend
distributions will qualify for favorable treatment as qualified dividend income.
Shareholders receiving any distribution from the Fund in the form of additional shares pursuant to
the dividend reinvestment plan will be treated as receiving a taxable distribution in an amount
equal to the fair market value of the shares received, determined as of the reinvestment date.
Dividends of investment company taxable income appropriately reported by the Fund and received by
corporate shareholders of the Fund will qualify for the DRD to the extent of the amount of
qualifying dividends received by the Fund from domestic corporations for the taxable year. A
dividend received by the Fund will not be treated as a qualifying dividend (i) to the extent the
stock on which the dividend is paid is considered to be debt-financed (generally, acquired with
borrowed funds), (ii) if the Fund fails to meet certain holding period requirements for the stock
on which the dividend is paid or (iii) to the extent that the Fund is under an obligation (pursuant
to a short sale or otherwise) to make related payments with respect to positions in substantially
similar or related property. Moreover, the DRD may be disallowed or reduced if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its shares of the Fund or
by application of the Code.
Distributions of net capital gain, if any, reported as capital gains dividends are taxable to a
shareholder as long-term capital gains, regardless of how long the shareholder has held Fund
shares. A distribution of an amount in excess of the Funds current and accumulated earnings and
profits will be treated by a shareholder as a return of capital which
30
is applied against and
reduces the shareholders basis in his or her shares. To the extent that the amount of any such
distribution exceeds the shareholders basis in his or her shares, the excess will be treated by
the shareholder as gain from a sale or exchange of the shares. Distributions of gains from the
sale of investments that the Fund owned for one year or less will be taxable as ordinary income.
The Fund may elect to retain its net capital gain or a portion thereof for investment and be taxed
at corporate rates on the amount retained. In such case, it may designate the retained amount as
undistributed capital gains in a notice to its shareholders who will be treated as if each received
a distribution of his pro rata share of such gain, with the result that each shareholder will (i)
be required to report his pro rata share of such gain on his tax return as long-term capital gain,
(ii) receive a refundable tax credit for his pro rata share of tax paid by the Fund on the gain and
(iii) increase the tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Selling shareholders generally will recognize gain or loss in an amount equal to the difference
between the shareholders adjusted tax basis in the shares sold and the sale proceeds. If the
shares are held as a capital asset, the gain or loss will be a capital gain or loss. The current
maximum tax rate applicable to net capital gains recognized by individuals and other non-corporate
taxpayers is (i) the same as the maximum ordinary income tax rate for gains recognized on the sale
of capital assets held for one year or less, or (ii) 15% for gains recognized on the sale of
capital assets held for more than one year (as well as certain capital gain distributions) (0% for
individuals in the 10% or 15% tax brackets) but only for taxable years beginning on or before
December 31, 2012. Thereafter, the maximum rate will increase to 20%, unless Congress enacts
legislation providing otherwise.
Any loss realized upon the sale or exchange of Fund shares with a holding period of six months or
less will be treated as a long-term capital loss to the extent of any capital gain distributions
received (or amounts designated as undistributed capital gains) with respect to such shares. In
addition, all or a portion of a loss realized on a sale or other disposition of Fund shares may be
disallowed under wash sale rules to the extent the shareholder acquires other shares of the Fund
(whether through the reinvestment of distributions or otherwise) within a period of 61 days
beginning 30 days before and ending 30 days after the date of disposition of the Common Shares.
Any disallowed loss will result in an adjustment to the shareholders tax basis in some or all of
the other shares acquired.
Sales charges paid upon a purchase of shares cannot be taken into account for purposes of
determining gain or loss on a sale of the shares before the 91st day after their
purchase to the extent a sales charge is reduced or eliminated in a subsequent acquisition of
shares of the Fund (or of another fund), on or before January 31 of the calendar year following the
calendar year in which the sale of the shares occurs, pursuant to the reinvestment or exchange
privilege. Any disregarded amounts will result in an adjustment to the shareholders tax basis in
some or all of any other shares acquired.
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 years following the year of the loss. The
carryforward is limited to eight years in the case of losses recognized during taxable years
beginning on or before December 22, 2010. 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 would not be
distributed to the shareholders.
If the Fund makes a distribution in excess of its current and accumulated earnings and profits in
any taxable year, the excess distribution will be treated as a return of capital to the extent of a
shareholders tax basis in its shares, and thereafter as capital gain. A return of capital is not
taxable, but it reduces a shareholders tax basis in its shares, thus reducing any loss or
increasing any gain on a subsequent taxable disposition by a shareholder of its shares.
Under legislation enacted in 2010, effective for tax years beginning after December 31, 2012,
certain net investment income received by an individual having 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 will also
be subject to this tax. Dividends and capital gains distributed by the Fund, and gain realized on
redemption of Fund shares, will constitute investment income of the type subject to this tax.
Dividends and distributions on the Funds shares generally are subject to U.S. federal income tax
as described herein to the extent they do not exceed the Funds realized income and gains, even
though such dividends and distributions may economically represent a return of a particular
shareholders investment. Such distributions are likely to occur
31
in respect of shares purchased at
a time when the Funds net asset value reflects gains that are either unrealized, or realized but
not distributed. Such realized gains may be required to be distributed even when the Funds net
asset value also reflects unrealized losses. Certain distributions declared in October, November
or December to shareholders of record of such month and paid in the following January will be taxed
to shareholders as if received on December 31 of the year in which they were declared. In
addition, certain other distributions made after the close of a taxable year of the Fund may be
spilled back and treated as paid by the Fund (except for purposes of the non-deductible 4% U.S.
federal excise tax) during such taxable year. In such case, shareholders will be treated as having
received such dividends in the taxable year in which the distributions were actually made.
The Fund will inform shareholders of the source and tax status of all distributions promptly after
the close of each calendar year.
Legislation passed by Congress in 2008 requires the Fund (or its administrative agent) to report to
the IRS and furnish to shareholders the cost basis information and holding period for the Funds
shares purchased on or after January 1, 2012, and repurchased by the Fund on or after that date.
The Fund will permit shareholders to elect from among several permitted cost basis methods. In the
absence of an election, the Fund will use a default cost basis method. The cost basis method a
shareholder elects may not be changed with respect to a repurchase of shares after the settlement
date of the repurchase. Shareholders should consult with their tax advisors to determine the best
permitted cost basis method for their tax situation and to obtain more information about how the
new cost basis reporting rules apply to them.
The benefits of the reduced tax rates applicable to long-term capital gains and qualified dividend
income may be impacted by the application of the alternative minimum tax to individual
shareholders.
Special tax rules apply to investments through defined contribution plans and other tax-qualified
plans. Shareholders should consult their tax advisor to determine the suitability of shares of the
Fund as an investment through such plans.
For the Funds index call options that qualify as section 1256 contracts, Code Section 1256
generally will require any gain or loss arising from the lapse, closing out or exercise of such
positions to be treated as 60% long-term and 40% short-term capital gain or loss. In addition, the
Fund generally will be required to mark to market (i.e., treat as sold for fair market value)
each outstanding index option position which it holds at the close of each taxable year (and on
October 31 of each year for excise tax purposes). If a section 1256 contract held by the Fund at
the end of a taxable year is sold in the following year, the amount of any gain or loss realized on
such sale will be adjusted to reflect the gain or loss previously taken into account under the
mark to market rules. In addition to most index call options, section 1256 contracts include
certain other options contracts, certain regulated futures contracts, and certain other financial
contracts. For an index option to qualify as a section 1256 contract it must be traded on a
qualified board or exchange. Only a limited number of non-U.S. exchanges and boards of trade have
been determined by the IRS to be qualified boards or exchanges for these purposes.
The Funds index call options that do not qualify as section 1256 contracts generally will be
treated as equity options governed by Code Section 1234. Pursuant to Code Section 1234, if a
written option expires unexercised, the premium received is short-term capital gain to the Fund.
If the Fund enters into a closing transaction, the difference between the amount paid to close out
its position and the premium received for writing the option is short-term capital gain or loss.
If a call option written by the Fund that is not a section 1256 contract is cash settled, any
resulting gain or loss will be short-term capital gain or loss.
The Code contains special rules that apply to straddles, defined generally as the holding of
offsetting positions with respect to personal property. For example, the straddle rules normally
apply when a taxpayer holds a security and an offsetting option with respect to such security or
substantially identical stock or securities. In general, investment positions will be offsetting
if there is a substantial diminution in the risk of loss from holding one position by reason of
holding one or more other positions. The Fund expects that the index call options it writes will
not be considered straddles for this purpose because the Funds portfolio of common stocks will be
sufficiently dissimilar from the components of the indices on which it has outstanding options
positions under applicable guidance established by the Internal Revenue Service (the IRS). Under
certain circumstances, however, the Fund may enter into options transactions or certain other
investments that may constitute positions in a straddle. If two or
32
more positions constitute a
straddle, recognition of a realized loss from one position must generally be deferred to the extent
of unrecognized gain in an offsetting position. In addition, long-term capital gain may be
recharacterized as short-term capital gain, or short-term capital loss as long-term capital loss.
Interest and other carrying charges allocable to personal property that is part of a straddle are
not currently deductible but must instead be capitalized. Similarly, wash sale rules apply to
prevent the recognition of loss by the Fund from the disposition of stock or securities at a loss
in a case in which identical or substantially identical stock or securities (or an option to
acquire such property) is or has been acquired within a prescribed period.
The Code allows a taxpayer to elect to offset gains and losses from positions that are part of a
mixed straddle. A mixed straddle is any straddle in which one or more but not all positions
are section 1256 contracts. The Fund may be eligible to elect to establish one or more mixed
straddle accounts for certain of its mixed straddle trading positions. The mixed straddle account
rules require a daily marking to market of all open positions in the account
and a daily netting of gains and losses from all positions in the account. At the end of a taxable
year, the annual net gains or losses from the mixed straddle account are recognized for tax
purposes. The net capital gain or loss is treated as 60% long-term and 40% short-term capital gain
or loss if attributable to the section 1256 contract positions, or all short-term capital gain or
loss if attributable to the non-section 1256 contract positions.
The Fund may recognize gain (but not loss) from a constructive sale of certain appreciated
financial positions if the Fund enters into a short sale, offsetting notional principal contract,
or forward contract transaction with respect to the appreciated position or substantially identical
property. Appreciated financial positions subject to this constructive sale treatment include
interests (including options and forward contracts and short sales) in stock and certain other
instruments. Constructive sale treatment does not apply if the transaction is closed out not later
than thirty days after the end of the taxable year in which the transaction was initiated, and the
underlying appreciated securities position is held unhedged for at least the next sixty days after
the hedging transaction is closed.
Gain or loss from a short sale of property generally is considered as capital gain or loss to the
extent the property used to close the short sale constitutes a capital asset in the Funds hands.
Except with respect to certain situations where the property used to close a short sale has a
long-term holding period on the date the short sale is entered into, gains on short sales generally
are short-term capital gains. A loss on a short sale will be treated as a long-term capital loss
if, on the date of the short sale, substantially identical property has been held by the Fund for
more than one year. In addition, entering into a short sale may result in suspension of the
holding period of substantially identical property held by the Fund.
Gain or loss on a short sale generally will not be realized until such time as the short sale is
closed. However, as described above in the discussion of constructive sales, if the Fund holds a
short sale position with respect to securities that have appreciated in value, and it then acquires
property that is the same as or substantially identical to the property sold short, the Fund
generally will recognize gain on the date it acquires such property as if the short sale were
closed on such date with such property. Similarly, if the Fund holds an appreciated financial
position with respect to securities and then enters into a short sale with respect to the same or
substantially identical property, the Fund generally will recognize gain as if the appreciated
financial position were sold at its fair market value on the date it enters into the short sale.
The subsequent holding period for any appreciated financial position that is subject to these
constructive sale rules will be determined as if such position were acquired on the date of the
constructive sale.
The Funds transactions in futures contracts and options will be subject to special provisions of
the Code that, among other things, may affect the character of gains and losses realized by the
Fund (i.e., may affect whether gains or losses are ordinary or capital, or short-term or
long-term), may accelerate recognition of income to the Fund and may defer Fund losses. These
rules could, therefore, affect the character, amount and timing of distributions to shareholders.
These provisions also (a) will require the Fund to mark-to-market certain types of the positions in
its portfolio (i.e., treat them as if they were closed out), and (b) may cause the Fund to
recognize income without receiving cash with which to make distributions in amounts necessary to
satisfy the 90% distribution requirement for qualifying to be taxed as a RIC and the distribution
requirement for avoiding excise taxes. The Fund will monitor its transactions, will make the
appropriate tax elections and will make the appropriate entries in its books and records when it
acquires any futures contract, option or hedged investment in order to mitigate the effect of these
rules and prevent disqualification of the Fund from being taxed as a RIC.
33
Further, certain of the Funds investment practices are subject to special and complex U.S. federal
income tax provisions that may, among other things, (i) convert dividends that would otherwise
constitute qualified dividend income into short-term capital gain or ordinary income taxed at the
higher rate applicable to ordinary income, (ii) treat dividends that would otherwise be eligible
for the corporate dividends received deduction as ineligible for such treatment, (iii) disallow,
suspend or otherwise limit the allowance of certain losses or deductions, (iv) convert long-term
capital gain into short-term capital gain or ordinary income, (v) convert an ordinary loss or
deduction into a capital loss (the deductibility of which is more limited), (vi) cause the Fund to
recognize income or gain without a corresponding receipt of cash, (vii) adversely affect the time
as to when a purchase or sale of stock or securities is deemed to occur, (viii) adversely alter the
characterization of certain complex financial transactions, and (ix) produce income that will not
qualify as good income for purposes of the 90% annual gross income requirement described above.
While it may not always be successful in doing so, the Fund will seek to avoid or minimize any
adverse tax consequences of its investment practices.
Dividends and interest received, and gains realized, by the Fund on non-U.S. securities may be
subject to income, withholding or other taxes imposed by foreign countries and United States
possessions (collectively foreign taxes) that would reduce the return on its securities. Tax
conventions between certain countries and the United States, however, may reduce or eliminate
foreign taxes, and many foreign countries do not impose taxes on capital gains in respect of
investments by U.S. investors. Depending on the number of non-U.S. shareholders in the Fund,
however, such reduced foreign withholding tax rates may not be available for investments in certain
jurisdictions.
The Fund may invest in the stock of passive foreign investment companies (PFICs). A PFIC is
any foreign corporation (with certain exceptions) that, in general, meets either of the following
tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain circumstances,
the Fund will be subject to U.S. federal income tax on a portion of any excess distribution
received on the stock of a PFIC or of any gain from disposition of that stock (collectively PFIC
income), plus interest thereon, even if the Fund distributes the PFIC income as a taxable dividend
to its shareholders. The balance of the PFIC income will be included in the Funds investment
company taxable income and, accordingly, will not be taxable to it to the extent it distributes
that income to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a qualified electing fund (QEF),
then in lieu of the foregoing tax and interest obligation, the Fund will be required to include in
income each year its pro rata share of the QEFs annual ordinary earnings and net capital
gainwhich it may have to distribute to satisfy the distribution requirement and avoid imposition
of the excise taxeven if the QEF does not distribute those earnings and gain to the Fund. In
most instances it will be very difficult, if not impossible, to make this election because of
certain of its requirements.
The Fund may elect to mark-to-market its stock in any PFIC. Marking-to-market, in this
context, means including in ordinary income each taxable year the excess, if any, of the fair
market value of a PFICs stock over the Funds adjusted basis therein as of the end of that year.
Pursuant to the election, the Fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as
of the taxable year-end, but only to the extent of any net mark-to-market gains (reduced by any
prior deductions) with respect to that stock included by the Fund for prior taxable years under the
election. The Funds adjusted basis in each PFICs stock with respect to which it has made this
election will be adjusted to reflect the amounts of income included and deductions taken
thereunder. The reduced rates for qualified dividend income are not applicable to (i) dividends
paid by a foreign corporation that is a PFIC, (ii) income inclusions from a QEF election with
respect to a PFIC, and (iii) ordinary income from a mark-to-market election with respect to a
PFIC.
Under Section 988 of the Code, gains or losses attributable to fluctuations in exchange rates
between the time the Fund accrues income or receivables or expenses or other liabilities
denominated in a non-U.S. currency and the time the Fund actually collects such income or
receivables or pays such liabilities generally are treated as ordinary income or loss. Similarly,
gains or losses on non-U.S. currency forward contracts and the disposition of debt securities
denominated in a non-U.S. currency, to the extent attributable to fluctuations in exchange rate
between the acquisition and disposition dates, also are treated as ordinary income or loss.
If, at the end of the fiscal year, more than 50% of the value of the total assets of the Fund is
represented by direct investments in stock or securities of non-U.S. corporations, the Fund may
make an election that allows shareholders
34
whose income from the Fund is subject to U.S. taxation at
the graduated rates applicable to U.S. citizens, residents or domestic corporations to claim a
foreign tax credit or deduction (but not both) on their U.S. income tax return. In such a case,
the amounts of qualified foreign income taxes paid by the Fund would be treated as additional
income to Fund shareholders from non-U.S. sources and as foreign taxes paid by Fund shareholders.
If the Funds investments in stock or securities of non-U.S. corporations do not meet the 50%
threshold requirement, such election will not be available to the Fund. Investors should consult
their tax advisors for further information relating to the foreign tax credit and deduction, which
are subject to certain restrictions and limitations (including a holding period requirement applied
at both the Fund and shareholder level imposed by the Code).
Amounts paid by the Fund to individuals and certain other shareholders who have not provided the
Fund with their correct taxpayer identification number (TIN) and certain certifications required
by the IRS as well as shareholders with respect to whom the Fund has received certain information
from the IRS or a broker may be subject to
backup withholding of U.S. federal income tax arising from the Funds taxable dividends and other
distributions as well as the gross proceeds of sales of shares, at a rate of 28% during 2012. An
individuals TIN generally is his or her social security number. Backup withholding is not an
additional tax. Any amounts withheld under the backup withholding rules from payments made to a
shareholder may be refunded or credited against such shareholders U.S. federal income tax
liability, if any; provided that the required information is furnished to the IRS.
The backup withholding tax rate currently is scheduled to increase to 31% for amounts paid after
December 31, 2012. Distributions will not be subject to backup withholding to the extent they are
subject to the withholding tax on foreign persons described in the next paragraph.
Dividend distributions are in general subject to a U.S. withholding tax of 30% when paid to a
nonresident alien individual, foreign estate or trust, a foreign corporation, or a foreign
partnership (foreign shareholder). Persons who are resident in a country, such as the U.K., that
has an income tax treaty with the U.S. may be eligible for a reduced withholding rate (upon filing
of appropriate forms), and are urged to consult their tax advisors regarding the applicability and
effect of such a treaty. Distributions of capital gain dividends paid by the Fund to a foreign
shareholder, and any gain realized upon the sale of Fund shares by such a shareholder, will
ordinarily not be subject to U.S. taxation, unless the recipient or seller is a nonresident alien
individual who is present in the United States for more than 182 days during the taxable year.
Such distributions and sale proceeds may be subject, however, to backup withholding, unless the
foreign investor certifies his non-U.S. residency status. Also, foreign shareholders with respect
to whom income from the Fund is effectively connected with a U.S. trade or business carried on by
such shareholder will in general be subject to U.S. federal income tax on the income derived from
the Fund at the graduated rates applicable to U.S. citizens, residents or domestic corporations,
whether such income is received in cash or reinvested in shares, and, in the case of a foreign
corporation, also may be subject to a branch profits tax. Again, foreign shareholders who are
residents in a country with an income tax treaty with the United States may obtain different tax
results, and are urged to consult their tax advisors.
If a shareholder realizes a loss on disposition of the Funds 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 IRS 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 RIC are not excepted. Future guidance may extend the current exception from this
reporting requirement to shareholders of most or all RICs.
For shareholders that are considered foreign
financial institutions under recent legislation known as the Foreign Account Tax Compliance Act (FATCA),
a new 30% withholding tax will be imposed on distributions paid after December 31, 2013, and on proceeds
from sales of Common Shares after December 31, 2014, unless such shareholder enters into an agreement with the IRS to
collect and
provide substantial information regarding U.S. account holders, including certain account holders that are foreign
entities with U.S. owners. The legislation also generally imposes a 30% withholding tax on distributions paid to,
and on proceeds from sales of Common Shares by, a non-financial foreign entity unless such entity provides the
withholding agent with a certification that it does not have any substantial U.S. owners or a certification
identifying the direct or indirect substantial U.S. owners. Under proposed regulations, a foreign financial
institution should enter into such an agreement with the IRS by June 30, 2013 to ensure that it will be
identified as compliant in sufficient time to allow withholding agents to refrain from withholding
beginning on January 1, 2014. Non-U.S. investors including investors owning Common Shares through
a foreign financial institution or non-financial foreign entity should consult their own tax advisors
regarding the impact of this recent legislation on their investment in the Fund.
The foregoing briefly summarizes some of the important U.S. federal income tax consequences to
Common Shareholders of investing in Common Shares, reflects U.S. federal tax law as of the date of
this SAI, and does not address special tax rules applicable to certain types of investors, such as
corporate and non-U.S. investors. Unless otherwise noted, this discussion assumes that an investor
is a United States person and holds Common Shares as a capital asset. This discussion is based
upon present provisions of the Code, the regulations promulgated thereunder, and judicial and
administrative ruling authorities, all of which are subject to change or differing interpretations
by the courts or the IRS retroactively or prospectively. Investors should consult their tax
advisors regarding other U.S. federal, state or local tax considerations that may be applicable to
their particular circumstances, as well as any proposed tax law changes.
35
Other Information
The Fund is an organization of the type commonly known as a Massachusetts business trust.
Under Massachusetts law, shareholders of such a trust may, in certain circumstances, be held
personally liable as partners for the obligations of the trust. The Declaration of Trust contains
an express disclaimer of shareholder liability in connection with Fund property or the acts,
obligations or affairs of the Fund. The Declaration of Trust, together with the Funds By-laws,
also provides for indemnification out of Fund property of any shareholder held personally liable
for the claims and liabilities to which a shareholder may become subject by sole reason of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself is unable to meet its
obligations. The Fund has been advised by its counsel that the risk of any shareholder incurring
any liability for the obligations of the Fund is remote.
The Declaration of Trust provides that the Trustees will not be liable for errors of judgment or
mistakes of fact or law; but nothing in the Declaration of Trust protects a Trustee against any
liability to the Fund or its shareholders to which he or she would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved
in the conduct of his or her office. Voting rights are not cumulative with respect to the election
of Trustees, which means that the holders of more than 50% of the shares voting for the election of
Trustees can elect 100% of the Trustees and, in such event, the holders of the remaining less than
50% of the shares voting on the matter will not be able to elect any Trustees.
The Declaration of Trust provides that the Fund will comply with Section 16 of the 1940 Act.
Pursuant to Section 16(c), no person shall serve as a Trustee if shareholders holding two-thirds of
the outstanding shares have removed him from that office either by a written declaration filed with
the Funds custodian or by votes cast at a meeting called for that purpose. The Declaration of
Trust further provides that the Trustees of the Fund shall promptly call a meeting of the
shareholders for the purpose of voting upon a question of removal of any such Trustee or Trustees
when requested in writing to do so by the record holders of not less than 10% of the outstanding
shares.
Custodian and Transfer Agent
The Funds portfolio securities are held pursuant to a custodian agreement between 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.
Computershare Shareowner Services LLC, 480 Washington Boulevard, Jersey City, New Jersey,
07310-1900, is the transfer agent and dividend disbursing agent of the Fund.
Independent Registered Public Accounting Firm
[FIRM, CITY, STATE], is the independent registered public accounting firm for the Fund,
providing audit services, tax return preparation, and assistance and consultation with respect to
the preparation of filings with the SEC.
[TO BE ADDED BY AMENDMENT]
Reports to Shareholders
[TO
BE ADDED BY AMENDMENT]
36
Legal and Regulatory Matters
On June 25, 2007, the Adviser and John Hancock Funds, LLC (JH Funds) 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 JH Funds 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.
Codes of Ethics
The Fund, the Adviser, the Subadvisers and the principal underwriter each have adopted Codes
of Ethics that comply with Rule 17j-1 under the 1940 Act. Each Code of Ethics permits personnel
subject to that Code of Ethics to invest in securities, including securities that may be purchased
or held by the Fund.
These Codes of Ethics can be reviewed and copied at the SECs Public Reference Room in Washington,
D.C. Information regarding the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. These Codes of Ethics also are available on the EDGAR Database on the
SECs website at http://www.sec.gov. Copies of these Codes of Ethics may be obtained, after paying
a duplicating fee, by electronic request at the following e-mail address: public info@sec.gov, or
by writing the SECs Public Reference Section, Washington, D.C. 20549-1520.
Additional Information
The Funds Prospectus, any related Prospectus Supplements, and this SAI do not contain all of
the information set forth in the Registration Statement that the Fund has filed with the SEC. The
complete Registration Statement may be obtained from the SEC upon payment of the fee prescribed by
its Rules and Regulations.
37
John Hancock Tax-Advantaged Global Shareholder Yield Fund
Statement of Additional Information
[SAI DATE]
Investment Adviser
John Hancock Advisers, LLC
601 Congress Street
Boston, Massachusetts 02210
1-800-225-6020
Subadvisers
Epoch Investment Partners, Inc.
640 Fifth Avenue
New York, New York 10019
Analytic Investors, LLC
555 West Fifth Street, 50th Floor
Los Angeles, California 90013
Custodian
State Street Bank and Trust Company
Lafayette Corporate Center
Two Avenue de Lafayette
Boston, Massachusetts 02111
Transfer Agent
Computershare Shareowner Services LLC
480 Washington Boulevard
Jersey City, New Jersey 07310
Independent Registered Public Accounting Firm
[FIRM]
[FIRM ADDRESS]
38
APPENDIX A
PROXY VOTING SUMMARY OF THE ADVISER AND EPOCH
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 a Funds
portfolio securities. From time to time, however, the Adviser may elect to manage directly the
assets of a Fund, including voting proxies with respect to its portfolio securities, or a 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 a Fund in the best interest of the
Fund and its shareholders.
Voting of Proxies
The Adviser will vote proxies with respect to a 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.
A-1
When voting proxies with respect to a Funds portfolio securities, the following standards will
apply:
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.
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.
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 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.
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.
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) a 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
A-2
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 a Fund of Funds
The Adviser or the Designated Person will vote proxies with respect to the shares of a Fund that
are held by another Fund that operates as a 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:
|
i. |
|
these Procedures and all amendments hereto; |
|
|
ii. |
|
all proxy statements received regarding Fund portfolio securities; |
|
|
iii. |
|
records of all votes cast on behalf of a Fund; |
|
|
iv. |
|
records of all Fund requests for proxy voting information; |
|
|
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. |
A-3
Reporting to Fund Boards
The Adviser will provide the board of trustees or directors of a 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 a 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 a 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
A-4
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.
Each 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
NYSE 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 a 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 each fund shall vote all proxies relating to securities held by each 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 a 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 a fund is directed
to comply with these policies and procedures in voting proxies relating to portfolio securities
held by a fund, subject to oversight by the funds adviser and by the Board. Each adviser to a
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.
A-5
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 a 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 a fund of the Trust operating as a 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
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.
A-6
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 a 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 a 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.
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.)
A-7
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 NYSE 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. |
A-8
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. |
|
|
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:
|
1) |
|
multiple report export options; |
|
|
2) |
|
report customization by fund-account, portfolio manager, security, etc.; and |
|
|
3) |
|
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.
A-9
Schedule A
PROXY VOTING POLICIES AND PROCEDURES
|
|
|
|
|
THE DISTRIBUTOR: |
|
Adopted: |
|
Amended: |
John Hancock Trust |
|
September 28, 2007 |
|
March 26, 2008 |
The Distributor II |
|
September 28, 2007 |
|
March 26, 2008 |
The Distributor III |
|
September 11, 2007 |
|
June 10, 2008 |
John Hancock Bond Trust |
|
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 |
|
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 |
|
September 11, 2007 |
|
June 10, 2008 |
John Hancock World Fund |
|
September 11, 2007 |
|
June 10, 2008 |
John Hancock Preferred Income Fund |
|
September 11, 2007 |
|
June 10, 2008 |
John Hancock Preferred Income Fund II |
|
September 11, 2007 |
|
June 10, 2008 |
John Hancock Preferred Income Fund III |
|
September 11, 2007 |
|
June 10, 2008 |
John Hancock Premium Dividend Fund
(formerly, John Hancock Patriot Premium
Dividend Fund II) |
|
September 11, 2007 |
|
June 10, 2008 |
John Hancock Bank & Thrift Opportunity Fund |
|
September 11, 2007 |
|
June 10, 2008 |
John Hancock Income Securities Trust |
|
September 11, 2007 |
|
June 10, 2008 |
John Hancock Investors Trust |
|
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 |
|
September 11, 2007 |
|
June 10, 2008 |
A-10
Epoch Holding Corporation
Compliance Policies & Procedures Manual
Proxy Voting and Class Action Monitoring
Policy
Epoch votes proxies a manner that it believes is most likely to enhance the economic value of the
underlying securities held in client accounts. Epoch will not respond to proxy solicitor requests
unless Epoch determines that it is in the best interest of clients to do so.
Epoch does not complete proofs-of-claim on behalf of clients for current or historical holdings;
however, Epoch will assist clients with collecting information relevant to filing proofs-of-claim
when such information is in the possession of Epoch.
In light of Epochs fiduciary duty to its clients, and given the complexity of the issues that may
be raised in connection with proxy votes, the Firm has retained RiskMetrics Group (formerly
Institutional Shareholder Services) (RiskMetrics). RiskMetrics is an independent adviser that
specializes in providing a variety of fiduciary-level proxy-related services to institutional
investment managers. The services provided to the Firm include in-depth research, voting
recommendations, vote execution and recordkeeping. Notwithstanding the foregoing, the Firm will use
its best judgment to vote proxies in the manner it deems to be in the best interests of its
clients. In the event that judgment differs from that of RiskMetrics, the Firm will memorialize the
reasons supporting that judgment and retain a copy of those records for the Firms files.
Additionally, the CCO will periodically review the voting of proxies to ensure that all such votes
particularly those diverging from the judgment of RiskMetrics were voting consistent with the
Firms fiduciary duties.
Procedures for Lent Securities and Issuers in Share-blocking Countries
At times, neither Epoch nor RiskMetrics will be allowed to vote proxies on behalf of Clients when
those clients have adopted a securities lending program. The Firm recognizes that clients who have
adopted securities lending programs have made a general determination that the lending program
provides a greater economic benefit than retaining the ability to vote proxies. Notwithstanding
this fact, in the event that the Firm becomes aware of a proxy voting matter that would enhance the
economic value of the clients position and that position is lent out, the Firm will make
reasonable efforts to inform the client that neither the Firm nor RiskMetrics is able to vote the
proxy until the client recalls the lent security.
In certain markets where share blocking occurs, shares must be frozen for trading purposes at the
custodian or sub-custodian in order to vote. During the time that shares are blocked, any pending
trades will not settle. Depending on the market, this period can last from one day to three weeks.
Any sales that must be executed will settle late and potentially be subject to interest charges or
other punitive fees. For this reason, in blocking markets, the Firm retains the right to vote or
not, based on the determination of the Firms investment personnel. If the decision is made to
vote, the Firm will process votes through Risk-Metrics unless other action is required as detailed
in this policy.
Procedures for Specific Conflicts of Interest
Conflict Scenario 1: In the event that Epoch intends to deviate from the proxy voting
recommendation of RiskMetrics and if an EPHC Board Member is also a board member of the public
company with the proxy being voted upon, then Epoch shall bring the proxy voting issue to the
attention of affected Clients for guidance on how to vote the proxy.
A-11
Epoch Holding Corporation
Compliance Policies & Procedures Manual
Conflict Scenario 2: In the event that Epoch intends to deviate from the proxy voting
recommendation of RiskMetrics and where the public company is an entity that Epoch has a
significant business relationship, then Epoch shall bring the proxy voting issue to the attention
of affected Clients for guidance on how to vote the proxy.
For the purpose of this policy, a significant business relationship means (a) a broker-dealer
that comprises 10 percent or more of the Firms total dollar amount of transaction flow for the
prior 12 months; (b) a firm that is the sponsor of a wrap program or managed account platform for
which Epoch is currently a manager but only to the extent that Firms revenue from such program or
platform exceeds 10% of the Firms total revenue; (c) a Client that is a public company that has
retained the Firm as an investment manager and the Client has at least $50 million in assets under
management with the Firm; and (d) a Client that is a 401(k) plan or defined benefit plan for a
public company that has retained the Firm as an investment manager and the Client has at least $50
million in assets under management with the Firm.
Procedures for Proxy Solicitation
In the event that any officer or employee of Epoch receives a request to reveal or disclose of
Epochs voting intention on a specific proxy event, then the officer or employee must forward the
solicitation onto the Chief Compliance Officer.
Procedures for RMG Policy Selection
Epoch applies the various country specific benchmark guidelines for all accounts unless
specifically instructed to apply other criteria by the client. A list of the benchmark guidelines
is provided in Attachment A.
Procedures for Voting Disclosure
Upon request, Epoch will provide clients with their specific proxy voting history.
Recordkeeping
Epoch must maintain the documentation described in the following section for a period of not less
than five (5) years, the first two (2) years at its principal place of business. The Firm will be
responsible for the following procedures and for ensuring that the required documentation is
retained.
Client request to review proxy votes:
|
|
|
The Client Service group will record the identity of the client, the date of the
request, and the disposition (e.g., provided a written or oral response to clients
request, referred to third party,
not a proxy voting client, other dispositions, etc.) in a suitable place. |
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|
|
Furnish the information requested, free of charge, to the client within a reasonable
time period (within 10 business days). Maintain a copy of the written record provided in
response to clients written (including e-mail) or oral request. |
A-12
Epoch Holding Corporation
Compliance Policies & Procedures Manual
Proxy voting records:
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The proxy voting record periodically provided by RiskMetrics. |
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Documents prepared or created by Epoch that were material to making a decision on how
to vote, or that memorialized the basis for the decision. |
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Documentation or notes or any communications received from third parties, other
industry analysts, third party service providers, companys management discussions, etc.
that were material in the basis for the decision. |
Disclosure
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The CCO will ensure that Part II of Form ADV is updated as necessary to reflect: (i)
all material changes to this policy; and (ii) regulatory requirements related to proxy
voting disclosure. |
A-13
PART C
OTHER INFORMATION
Item 25. Financial Statements and Exhibits
(1) |
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FINANCIAL STATEMENTS: |
|
|
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Included in Part A: not applicable |
|
|
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Included in Part B: not applicable |
|
(a) |
|
Agreement and Declaration of Trust dated April 23, 2007 (Declaration of Trust)
previously filed as exhibit 99.2(a) to the Funds initial Registration Statement on Form
N-2 (File Nos. 333-142307 and 811-22056) as to the Funds common shares of beneficial
interest (Common Shares) filed with the Securities and Exchange Commission (SEC) on
April 23, 2007 (Accession No. 0000898432-07-000323) (Initial Common Shares Registration
Statement). |
|
|
(b) |
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By-Laws dated April 23, 2007 previously filed as exhibit 99.2(b) to the Funds
Initial Common Shares Registration Statement. |
|
(1) |
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Amendment dated September 9, 2008 to the By-Laws FILED HEREWITH. |
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(2) |
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Amendment dated August 1, 2009 to the By-Laws FILED HEREWITH. |
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(3) |
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Amendment dated August 31, 2010 to the By-Laws FILED HEREWITH. |
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(4) |
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Amendment dated December 6, 2011 to the By-Laws FILED HEREWITH. |
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(c) |
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Voting Trust Agreements. Not applicable. |
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(d) |
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Instruments Defining Rights of Security Holders. See exhibits (a) and (b). |
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(1) |
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Form Certificate previously filed as exhibit 99.(d) to the Pre-Effective
Amendment No. 1 to the Funds Initial Common Share Registration as filed with the SEC
on July 20, 2007 (Accession No. 0000950135-07-004374) (Pre-Effective Amendment No.
1). |
|
(e) |
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Dividend Reinvestment Plan. Dividend Reinvestment Plan dated July 1, 2011 FILED
HEREWITH. |
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(f) |
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Instruments Defining Rights of Long-term Debt Holders. Not applicable. |
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(g) |
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Investment Advisory Contracts. |
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(1) |
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Investment Advisory Agreement dated July 1, 2009 with John Hancock Advisers,
LLC FILED HEREWITH. |
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(2) |
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Sub-Advisory Agreement dated August 16, 2007 with Epoch Investment Partners,
Inc. FILED HEREWITH. |
|
|
(3) |
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Sub-Advisory Agreement dated August 16, 2007 with Analytic Investors, LLC
(formerly, Analytic Investors, Inc.) FILED HEREWITH. |
C-1
|
(h) |
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Underwriting or Distribution Contracts. |
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(1) |
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Form of Underwriting Agreement TO BE FILED BY AMENDMENT. |
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(i) |
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Bonus or Profit Sharing Contracts. Not applicable. |
|
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(j) |
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Custodian Agreement. Master Custodian Agreement dated September 10, 2008 between the
Fund and State Street Bank and Trust Company FILED HEREWITH. |
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(k) |
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Other Material Contracts. |
|
(1) |
|
Service Agreement dated July 1, 2009 with John Hancock Advisers, LLC FILED
HEREWITH. |
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(2) |
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Consultation Agreement dated September 21, 2007 with John Hancock Asset
Management a division of Manulife Asset Management (North America) Limited (formerly,
MFC Global Investment Management (U.S.A.) Limited) FILED HEREWITH. |
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(3) |
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Service Agreement for Transfer Agent Services dated June 1, 2002 with
Computershare Shareowner Services LLC (formerly, Mellon Investor Services, LLC)
FILED HEREWITH. |
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(a) |
|
Amendment dated July 1, 2007 to the Service Agreement for Transfer
Agent Services FILED HEREWITH. |
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(b) |
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Amendment dated September 25, 2007 to the Service Agreement for
Transfer Agent Services FILED HEREWITH. |
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(c) |
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Amendment dated October 10, 2007 to the Service Agreement for Transfer
Agent Services FILED HEREWITH. |
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(d) |
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Amendment dated July 1, 2010 to the Service Agreement for Transfer
Agent Services FILED HEREWITH. |
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(e) |
|
Amendment dated October 18, 2010 to the Service Agreement for Transfer
Agent Services FILED HEREWITH. |
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(f) |
|
Amendment dated April 6, 2011 to the Service Agreement for Transfer
Agent Services FILED HEREWITH. |
|
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(g) |
|
Amendment dated January 27, 2012 to the Service Agreement for Transfer
Agent Services FILED HEREWITH. |
|
(4) |
|
Chief Compliance Officer Services Agreement dated March 10, 2009 by and among the Fund,
John Hancock Investment Management Services, LLC, John Hancock Advisers, LLC, and the Funds
Chief Compliance Officer FILED HEREWITH. |
|
(1) |
|
Opinion and Consent of K&L Gates LLP as to the Funds additional Common Shares
TO BE FILED BY AMENDMENT. |
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(m) |
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Non-resident Consent to Service of Process. Not applicable. |
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(n) |
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Other Opinions. Consent of Independent Registered Public Accounting Firm TO BE FILED
BY AMENDMENT. |
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(o) |
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Omitted Financial Statements. Funds audited financial statements TO BE FILED BY
AMENDMENT. |
C-2
|
(p) |
|
Agreement Related to Initial Capital. Subscription Agreement between the Fund and John
Hancock Advisers, LLC previously filed as exhibit 99.(p) to Pre-Effective Amendment No.
1. |
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(q) |
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Model Retirement Plan. Not applicable. |
|
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(r) |
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Codes of Ethics. |
|
(1) |
|
Code of Ethics dated January 1, 2008 (as revised January 1, 2011) of John
Hancock Advisers, LLC and John Hancock Investment Management Services, LLC (each, a
John Hancock Adviser), John Hancock Funds, LLC, John Hancock Distributors, LLC, and
each open-end and closed-end fund advised by a John Hancock Adviser FILED HEREWITH. |
|
|
(2) |
|
Code of Ethics adopted by Epoch Investment Partners, Inc. amended as of August
15, 2010 FILED HEREWITH. |
|
|
(3) |
|
Code of Ethics adopted by Analytic Investors, LLC dated August 14, 2009
FILED HEREWITH. |
|
(s) |
|
Powers of Attorney. Power of Attorney dated March 6, 2012 for Keith F. Hartstein,
Charles A. Rizzo, William H. Cunningham, Deborah C. Jackson, Stanley Martin, Patti McGill
Peterson, Hugh McHaffie, John A. Moore, Steven R. Pruchansky, Gregory A. Russo and John G.
Vrysen FILED HEREWITH. |
ITEM 26. MARKETING ARRANGEMENTS
See Form of Underwriting Agreement TO BE FILED BY AMENDMENT.
ITEM 27. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The approximate expenses in connection with the offering are as follows:
|
|
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Registration and Filing Fees
|
|
$[______________] |
Financial Industry Regulatory Authority Fee
|
|
$[______________] |
New York Stock Exchange Fee
|
|
$[______________] |
Cost of Printing and Engraving
|
|
$[______________] |
Accounting Fee and Expenses
|
|
$[______________] |
Legal Fees and Expenses
|
|
$[______________] |
|
Total
|
|
$[______________] |
ITEM 28. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
John Hancock Advisers, LLC (the Adviser) is the investment adviser to the Fund. 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 (Manulife Financial), a publicly traded company
based in Toronto, Canada. A corporate organization list is set forth below.
C-3
MANULIFE FINANCIAL CORPORATION
PRINCIPAL
SUBSIDIARIES December 31, 2011
ITEM 29. NUMBER OF HOLDERS OF SECURITIES
Set forth below is the number of record holders as of [DATE] of each class of securities of the
Fund:
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|
|
Number of |
Title of Class |
|
Record Holders |
Shares of Common Stock, $0.01 par value
|
|
[_____________] |
ITEM 30. INDEMNIFICATION
Indemnification provisions relating to the Funds Trustees, officers, employees and agents are set
forth in Section 4.3 of Article IV of Funds Declaration of Trust, as previously filed.
The Funds By-Laws (as previously filed) and the form of Underwriting Agreement (to be filed by
amendment) contain provisions limiting the liability and providing for indemnification of the
Trustees and officers under certain circumstances.
The Funds Trustees and officers are insured under a standard investment company errors and
omissions insurance policy covering loss incurred by reason of negligent errors and omissions
committed in their official capacities as such. Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended (the Securities Act), may be permitted to Trustees,
officers and controlling persons of the Fund pursuant to the provisions described in this Item 30,
or otherwise, the Fund has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the payment by the Fund
of expenses incurred or paid by a Trustee, officer or controlling person of the Fund in the
successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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-4
|
(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 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 ADVISER
For information as to the business, profession, vocation or employment of a substantial nature of
each of the directors and executive officers of the Adviser and the Subadvisers, reference is made
to: (i) the information set forth under the caption Investment Advisory and Other Services in
the Statement of Additional Information; (ii) the Form ADV of John Hancock Advisers, LLC (File No.
801-8124) filed with the SEC; (iii) the Form ADV of Epoch Investment Partners, Inc. (File No.
801-63118) filed with the SEC; and (iv) the Form ADV of Analytic Investors, LLC (File No. 801-7082)
filed with the SEC, all of which are incorporated herein by reference.
C-5
ITEM 32. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by the Fund 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 the Funds custodian, State Street Bank and Trust Company, 2 Avenue de
Lafayette, Boston, Massachusetts 02111, and its transfer agent, Computershare Shareowner Services
LLC, 480 Washington Boulevard, Jersey City, New Jersey 07310, with the exception of certain
corporate documents and portfolio trading documents that are in the possession and custody of the
Adviser, 601 Congress Street, Boston, Massachusetts, 02210, and the Subadvisers: Epoch Investment
Partners, Inc., 640 Fifth Avenue, 18th Floor, New York, New York 10019 and Analytic
Investors, LLC, 555 West Fifth Street, 50th Floor, Los Angeles, California 90013. The
Fund 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
Subadvisers.
ITEM 33. MANAGEMENT SERVICES
Not applicable.
ITEM 34. UNDERTAKINGS
1. |
|
The Fund undertakes to suspend the offering of Common Shares until the Prospectus and any
applicable Prospectus Supplement are amended if (a) subsequent to the effective date of this
registration Statement, the net asset value declines more than 10 percent from its net asset
value as of the effective date of this Registration Statement or (b) the net asset value
increases to an amount greater than its net proceeds as stated in the Prospectus. |
4. |
|
The Common Shares being registered will be offered on a delayed or continuous basis in
reliance on Rule 415 under the Securities Act. Accordingly, the Fund undertakes: |
|
a. |
|
To file, during any period in which offers or sales are being made, a post-effective
amendment to the Registration Statement: |
|
(1) |
|
To include any prospectus required by Section 10(a)(3) of the Securities Act; |
|
|
(2) |
|
To reflect in the prospectus any facts or events after the effective date of
the Registration Statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and |
|
|
(3) |
|
To include any material information with respect to the plan of distribution
not previously disclosed in the Registration Statement or any material change to such
information in the Registration Statement. |
|
b. |
|
That, for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of those securities at that time shall be
deemed to be the initial bona fide offering thereof; and |
|
|
c. |
|
To remove from registration by means of a post-effective amendment any of the Common
Shares being registered which remain unsold at the termination of the offering. |
C-6
|
d. |
|
That, for the purpose of determining liability under the Securities Act to any
purchaser, if the Fund is subject to Rule 430C: Each prospectus filed pursuant to Rule
497(b), (c), (d) or (e) under the Securities Act as part of a Registration Statement
relating to an offering, other than prospectuses filed in reliance on Rule 430A under the
Securities Act, shall be deemed to be part of and included in the Registration Statement as
of the date it is first used after effectiveness. Provided, however, that no statement
made in a Registration Statement or prospectus that is part of the Registration Statement
or made in a document incorporated or deemed incorporated by reference into the
Registration Statement or prospectus that is part of the Registration Statement will, as to
a purchaser with a time of contract of sale prior to such first use, supersede or modify
any statement that was made in the Registration Statement or prospectus that was part of
the Registration Statement or made in any such document immediately prior to such date of
first use. |
|
|
e. |
|
That for the purpose of determining liability of the Fund under the Securities Act to
any purchaser in the initial distribution of Common Shares: |
|
|
|
|
The undersigned Fund undertakes that in a primary offering of securities of the undersigned
Fund pursuant to this Registration Statement, regardless of the underwriting method used to
sell the securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned Fund will be a
seller to the purchaser and will be considered to offer or sell such securities to the
purchaser: |
|
(1) |
|
any preliminary prospectus or prospectus of the undersigned Fund relating to
the offering required to be filed pursuant to Rule 497 under the Securities Act; |
|
|
(2) |
|
the portion of any advertisement pursuant to Rule 482 under the Securities Act
relating to the offering containing material information about the undersigned Fund or
its securities provided by or on behalf of the undersigned Fund; and |
|
|
(3) |
|
any other communication that is an offer in the offering made by the
undersigned Fund to the purchaser. |
5. |
|
The Fund undertakes that, for the purpose of determining any liability under the Securities
Act: |
|
a. |
|
the information omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the
Fund pursuant to 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective; and |
|
|
b. |
|
each post- effective amendment that contains a form of prospectus shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona fide offering
thereof. |
6. |
|
The Fund undertakes to send by first class mail or other means designed to ensure equally
prompt delivery, within two business days of receipt of an oral or written request, its
Statement of Additional Information. |
C-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Boston and The Commonwealth of
Massachusetts, on the 9th day of May, 2012.
|
|
|
|
|
|
JOHN HANCOCK TAX-ADVANTAGED
GLOBAL SHAREHOLDER YIELD
FUND
|
|
|
By: |
/s/ Keith F. Hartstein
|
|
|
|
Keith F. Hartstein |
|
|
|
President and Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
President and
|
|
May 9, 2012 |
Keith F. Hartstein |
|
Chief Executive
Officer
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
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May 9, 2012 |
Charles A. Rizzo
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(Principal Financial
Officer & Principal
Accounting Officer) |
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/s/ William H. Cunningham *
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Trustee
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May 9, 2012 |
William H. Cunningham |
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Trustee
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May 9, 2012 |
Deborah C. Jackson |
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Trustee
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May 9, 2012 |
Stanley Martin |
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Trustee
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May 9, 2012 |
Hugh McHaffie |
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/s/ Patti McGill Peterson *
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Trustee
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May 9, 2012 |
Patti McGill Peterson |
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Trustee
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May 9, 2012 |
John A. Moore |
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/s/ Steven R. Pruchansky *
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Trustee
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May 9, 2012 |
Steven R. Pruchansky |
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Trustee
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May 9, 2012 |
Gregory A. Russo |
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Trustee
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May 9, 2012 |
John G. Vrysen |
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*By: Power of Attorney |
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By: |
/s/ Kinga Kapuscinski
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Kinga Kapuscinski |
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As Attorney-in-Fact
*Pursuant to Power of Attorney filed herewith |
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EXHIBIT INDEX
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(2)(b)(1)
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Amendment dated September 9, 2008 to the By-laws |
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(2)(b)(2)
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Amendment dated August 1, 2009 to the By-laws |
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(2)(b)(3)
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Amendment dated August 31, 2010 to the By-laws |
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(2)(b)(4)
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Amendment dated December 6, 2011 to the By-laws |
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(2)(e)
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Dividend Reinvestment Plan dated July 1, 2011 |
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(2)(g)(1)
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Investment Advisory Agreement dated July 1, 2009 with John Hancock Advisers, LLC |
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(2)(g)(2)
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Sub-Advisory Agreement dated August 16, 2007 with Epoch Investment Partners, Inc. |
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(2)(g)(3)
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Sub-Advisory Agreement dated August 16, 2007 with Analytic Investors, LLC |
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(2)(j)
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Master Custodian Agreement dated September 10, 2008 between the Fund and State Street Bank
and Trust Company |
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(2)(k)(1)
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Service Agreement dated July 1, 2009 with John Hancock Advisers, LLC |
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(2)(k)(2)
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Consultation Agreement dated September 21, 2007 with John Hancock Asset Management a
division of Manulife Asset Management (North America) Limited (formerly, MFC Global Investment
Management (U.S.A.) Limited) |
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(2)(k)(3)
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Service Agreement for Transfer Agent Services dated June 1, 2002 with Computershare
Shareowner Services LLC (formerly, Mellon Investor Services, LLC) |
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(2)(k)(3)(a)
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Amendment dated July 1, 2007 to the Service Agreement for Transfer Agent Services |
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(2)(k)(3)(b)
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Amendment dated September 25, 2007 to the Service Agreement for Transfer Agent Services |
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(2)(k)(3)(c)
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Amendment dated October 10, 2007 to the Service Agreement for Transfer Agent Services |
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(2)(k)(3)(d)
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Amendment dated July 1, 2010 to the Service Agreement for Transfer Agent Services |
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(2)(k)(3)(e)
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Amendment dated October 18, 2010 to the Service Agreement for Transfer Agent Services |
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(2)(k)(3)(f)
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Amendment dated April 6, 2011 to the Service Agreement for Transfer Agent Services |
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(2)(k)(3)(g)
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Amendment dated January 27, 2012 to the Service Agreement for Transfer Agent Services |
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(2)(k)(4)
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Chief Compliance Officer Services Agreement dated March 10, 2009 |
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(2)(r)(1)
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Code of Ethics dated January 1, 2008 (as revised January 1, 2011) of John Hancock
Advisers, LLC and John Hancock Investment Management Services, LLC (each, a John Hancock
Adviser), John Hancock Funds, LLC, John Hancock Distributors, LLC, and each open-end and
closed-end fund advised by a John Hancock Adviser |
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(2)(r)(2)
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Code of Ethics adopted by Epoch Investment Partners, Inc. amended as of August 15, 2010 |
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(2)(r)(3)
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Code of Ethics adopted by Analytic Investors, LLC dated August 14, 2009 |
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(2)(s)
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Power of Attorney dated March 6, 2012 |
C-8