Edgar Filing: John Hancock Hedged Equity & Income Fund


The percentage shown for each investment category is the total value of the category as a percentage of the net assets of the fund.
^All par values are denominated in U.S. dollars unless otherwise indicated.
Key to Currency Abbreviations
EUR	Euro
GBP	Pound Sterling
Key to Security Abbreviations and Legend
ADR	American Depositary Receipts
EURIBOR	Euro Interbank Offered Rate
LIBOR	London Interbank Offered Rate
PIK	Payment-in-kind
(C)	A portion of this security is segregated as collateral for options. Total collateral value at 12-31-14 was $32,597,528.
(I)	Non-income producing security.
(M)	Term loans are variable rate obligations. The coupon rate shown represents the rate at period end.
(N)	Strike price and/or expiration date not available.
(Q)	Perpetual bonds have no stated maturity date. Date shown as maturity date is next call date.
(R)	Direct placement securities are restricted as to resale, and the fund has limited rights to registration under the Securities Act of 1933. For more information on this security refer to the Notes to financial statements.
(S)	These securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration.
†	At 12-31-14, the aggregate cost of investment securities for federal income tax purposes was $233,503,021. Net unrealized appreciation aggregated $10,136,260, of which $23,133,034 related to appreciated investment securities and $12,996,774 related to depreciated investment securities.

25SEE NOTES TO FINANCIAL STATEMENTS

Financial statements

STATEMENT OF ASSETS AND LIABILITIES 12-31-14


Assets
Investments, at value (Cost $232,978,484)		$243,639,281
Cash		35,739
Foreign currency, at value (Cost $8,387)		8,381
Cash held at broker for futures contracts		1,524,488
Receivable for investments sold		2,679,363
Receivable for forward foreign currency exchange contracts		19,674
Dividends and interest receivable		886,250
Receivable for futures variation margin		290,880
Total assets		249,084,056
Liabilities
Foreign capital gains tax payable		1,738
Payable for investments purchased		413,410
Payable for forward foreign currency exchange contracts		33,775
Written options, at value (premium received $162,980)		68,975
Payable to affiliates
Accounting and legal services fees		3,971
Other liabilities and accrued expenses		99,039
Total liabilities		620,908
Net assets		$248,463,148
Net assets consist of
Paid-in capital		$237,672,822
Undistributed net investment income		511,121
Accumulated net realized gain (loss) on investments, futures contracts, options written and foreign currency transactions		293,251
Net unrealized appreciation (depreciation) on investments, futures contracts, options written and translation of assets and liabilities in foreign currencies		9,985,954
Net assets		$248,463,148

Net asset value per share
Based on 13,637,509 shares of beneficial interest outstanding — unlimited number of shares authorized with $0.01 par value		$18.22

SEE NOTES TO FINANCIAL STATEMENTS 26

STATEMENT OF OPERATIONS For the year ended 12-31-14

Investment income

Dividends

$7,357,853

Interest

2,311,194

Less foreign taxes withheld

(324,705

)

Total investment income

9,344,342

Expenses

Investment management fees

2,641,604

Accounting and legal services fees

48,136

Transfer agent fees

20,227

Trustees' fees

45,800

Printing and postage

67,668

Professional fees

96,626

Custodian fees

114,177

Stock exchange listing fees

21,393

Other

33,625

Total expenses

3,089,256

Less expense reductions

(9,668

)

Net expenses

3,079,588

Net investment income

6,264,754

Realized and unrealized gain (loss)

Net realized gain (loss) on

Investments and foreign currency transactions

12,400,960

Futures contracts

(5,060,065

)

Written options

(4,569,261

)

2,771,634

Change in net unrealized appreciation (depreciation) of

Investments and translation of assets and liabilities in foreign currencies

(8,359,001

)²

Futures contracts

895,085

Written options

1,074,488

(6,389,428

)

Net realized and unrealized loss

(3,617,794

)

Increase in net assets from operations

$2,646,960


1	Net of India foreign taxes of $26,374.
2	Net of $1,738 increase in deferred India foreign withholding taxes.

27SEE NOTES TO FINANCIAL STATEMENTS

STATEMENTS OF CHANGES IN NET ASSETS

	Year ended 12-31-14		Year ended 12-31-13
Increase (decrease) in net assets
From operations
Net investment income	$6,264,754		$1,866,450
Net realized gain	2,771,634		35,802,327
Change in net unrealized appreciation (depreciation)	(6,389,428	)	7,967,229
Increase in net assets resulting from operations	2,646,960		45,636,006
Distributions to shareholders
From net investment income	(6,125,164	)	(2,356,116	)
From net realized gain	(14,403,849	)	(16,114,441	)
Total distributions	(20,529,013	)	(18,470,557	)
From fund share transactions
Repurchased	(1,649,235	)	(13,545	)
Total increase (decrease)	(19,531,288	)	27,151,904
Net assets
Beginning of year	267,994,436		240,842,532
End of year	$248,463,148		$267,994,436
Undistributed net investment income (accumulated net investment loss)	$511,121		($492,786	)
Share activity
Shares outstanding
Beginning of year	13,732,375		13,733,169
Shares repurchased	(94,866	)	(794	)
End of year	13,637,509		13,732,375

SEE NOTES TO FINANCIAL STATEMENTS28

Financial highlights

Period ended





		12-31-14		12-31-13		12-31-12	¹	10-31-12		10-31-11	²
Per share operating performance
Net asset value, beginning of period		$19.52		$17.54		$17.60		$16.99		$19.10	³
Net investment income⁴		0.46		0.14		0.05		0.13		0.02
Net realized and unrealized gain (loss) on investments		(0.27	)	3.19		0.18		1.68		(1.73	)
Total from investment operations		0.19		3.33		0.23		1.81		(1.71	)
Less distributions to common shareholders
From net investment income		(0.45	)	(0.18	)	(0.05	)	(0.13	)	(0.02	)
From net realized gain		(1.05	)	(1.17	)	—		—		—
From tax return of capital		—		—		(0.27	)	(1.16	)	(0.34	)
Total distributions		(1.50	)	(1.35	)	(0.32	)	(1.29	)	(0.36	)
Anti-dilutive impact of repurchase plan⁵		0.01		—	⁶	0.03		0.09		—
Offering costs related to common shares		—		—		—		—		(0.04	)
Net asset value, end of period		$18.22		$19.52		$17.54		$17.60		$16.99
Per share market value, end of period		$16.32		$17.07		$15.26		$16.14		$15.18
Total return at net asset value (%)⁷		1.66	⁸	20.40		1.71	⁹	12.17		(8.98	) ⁹
Total return at market value (%)⁷		4.13		21.02		(3.51	) ⁹	15.14		(22.33	) ⁹
Ratios and supplemental data
Net assets applicable to common shares, end of period (in millions)		$248		$268		$241		$245		$248
Ratios (as a percentage of average net assets):
	Expenses	1.17		1.14		0.22	⁹	1.14		1.15	¹⁰
	Net investment income	2.37	¹²	0.72		0.30	⁹	0.74		0.31	¹⁰
Portfolio turnover (%)		42		142	¹¹	11		76		38


1	For the two-month period ended 12-31-12. The fund changed its fiscal year end from October 31 to December 31.
2	Period from 5-26-11 (commencement of operations) to 10-31-11.
3	Reflects the deduction of a $0.90 per share sales load.
4	Based on average daily shares outstanding.
5	The repurchase plan was completed at an average repurchase price of $17.38, $17.06, $15.43 and $15.95 for 94,866 shares, 794 shares, 200,837 shares, and 686,230 shares for the years ended 12-31-14 and 12-31-13, the two month period ended 12-31-12 and the year ended 10-31-12, respectively.
6	Less than $0.005 per share.
7	Total return based on net asset value reflects changes in the fund's net asset value during each period. Total return based on market value reflects changes in market value. Each figure assumes that distributions from income, capital gains and return of capital, if any, were reinvested. These figures will differ depending upon the level of any discount from or premium to net asset value at which the fund's shares traded during the period.
8	Total returns would have been lower had certain expenses not been reduced during the applicable periods.
9	Not annualized.
10	Annualized.
11	Increase in portfolio turnover rate resulted from repositioning of the portfolio in accordance with investment policy changes approved by the Board of Trustees during the year ended December 31, 2013.
12	Increase in net investment income as a percentage of average net assets resulted from repositioning of the portfolio in accordance with investment policy changes approved by the Board of Trustees during the year ended December 31, 2013.

29SEE NOTES TO FINANCIAL STATEMENTS

Notes to financial statements

Note 1 — Organization

John Hancock Hedged Equity & Income Fund (the fund) is a closed-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act).

Note 2 — Significant accounting policies

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP), which require management to make certain estimates and assumptions as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. The fund qualifies as an investment company under Topic 946 of Accounting Standards Codification of US GAAP.

Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the fund:

Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 p.m., Eastern Time. In order to value the securities, the fund uses the following valuation techniques: Equity securities held by the fund are valued at the last sale price or official closing price on the exchange where the security was acquired or most likely will be sold. In the event there were no sales during the day or closing prices are not available, the securities are valued using the last available bid price. Debt obligations are valued based on the evaluated prices provided by an independent pricing vendor or from broker-dealers. Independent pricing vendors utilize matrix pricing which takes into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, as well as broker supplied prices. Options listed on an exchange are valued at the mean of the most recent bid and ask prices from the exchange where the option was acquired or most likely will be sold. Futures contracts are valued at settlement prices, which are the official closing prices published by the exchange on which they trade. Foreign securities and currencies, including forward foreign currency contracts, are valued in U.S. dollars, based on foreign currency exchange rates supplied by an independent pricing vendor. Securities that trade only in the over-the-counter (OTC) market are valued using bid prices. Certain short-term securities with maturities of 60 days or less at the time of purchase are valued at amortized cost.

Other portfolio securities and assets, for which reliable market quotations are not readily available, are valued at fair value as determined in good faith by the fund's Pricing Committee following procedures established by the Board of Trustees. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed. Trading in foreign securities may be completed before the daily close of trading on the NYSE. Significant events at the issuer or market level may affect the values of securities between the time when the valuation of the securities is generally determined and the close of the NYSE. If a significant event occurs, these securities may be fair valued, as determined in good faith by the fund's Pricing Committee, following procedures established by the Board of Trustees. The fund uses fair value adjustment factors provided by an independent pricing vendor to value certain foreign securities in order to adjust for events that may occur between the close of foreign exchanges or markets and the close of the NYSE.

The fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using significant unobservable inputs when market prices are not readily available or reliable, including the fund's own assumptions in determining the fair value of investments. Factors used in determining value may include market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.

The following is a summary of the values by input classification of the fund's investments as of December 31, 2014, by major security category or type:


		Total market value at 12-31-14			Level 1 quoted price		Level 2 significant observable inputs		Level 3 significant unobservable inputs
Common stocks
	Consumer discretionary		$16,023,348		$9,010,210		$6,755,571		$257,567
	Consumer staples		15,175,091		9,989,650		5,185,441		—
	Energy		17,000,610		11,286,720		5,713,890		—
	Financials		52,100,899		28,025,685		24,075,214		—
	Health care		24,694,274		15,776,623		8,917,651		—
	Industrials		20,925,822		9,831,620		11,094,202		—
	Information technology		28,970,753		23,569,522		5,262,794		138,437
	Materials		15,653,910		8,738,839		6,915,071		—
	Telecommunication services		7,925,460		1,943,241		5,982,219		—
	Utilities		7,076,144		5,182,429		1,893,715		—
Preferred securities			969,824		—		969,824		—
Corporate bonds			34,439,285		—		34,439,285		—
Convertible bonds			187,288		—		187,288		—
Term loans			1,086,419		—		1,086,419		—
Rights			10,154		10,154		—		—
Short-term investments			1,400,000		—		1,400,000		—
Total Investments in Securities			$243,639,281		$123,364,693		$119,878,584		$396,004
Other financial instruments:
Futures			($741,597	)	($741,597	)	—		—
Forward foreign currency contracts			($14,101	)	—		($14,101	)	—
Written options			($68,975	)	($68,975	)	—		—

Repurchase agreements. The fund may enter into repurchase agreements. When the fund enters into a repurchase agreement, it receives collateral that is held in a segregated account by the fund's custodian, or for tri-party repurchase agreements, collateral is held at a third-party custodian bank in a segregated account for the benefit of the fund. 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. Collateral received by the fund for repurchase agreements is disclosed in the Fund's investments as part of the caption related to the repurchase agreement.

Repurchase agreements are typically governed by the terms and conditions of the Master Repurchase Agreement and/or Global Master Repurchase Agreement (collectively, MRA). Upon an event of default, the non-defaulting party may close out all transactions traded under the MRA and net amounts owed. Absent an event of default, the MRA does not result in an offset of the reported amounts of assets and liabilities in the Statement of assets and liabilities. 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 or the counterparty may have insufficient assets to pay back claims resulting from close-out of the transactions.

Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Interest income includes coupon interest and amortization/accretion of premiums/discounts on debt securities. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by stopping current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful. Dividend income is recorded on the ex-date, except for dividends of foreign

securities where the dividend may not be known until after the ex-date. In those cases, dividend income, net of withholding taxes, is recorded when the fund becomes aware of the dividends. Foreign taxes are provided for based on the fund's understanding of the tax rules and rates that exist in the foreign markets in which it invests. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.

Foreign currency translation. Assets, including investments and liabilities denominated in foreign currencies, are translated into U.S. dollar values each day at the prevailing exchange rate. Purchases and sales of securities, income and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on the value of securities is reflected as a component of the realized and unrealized gains (losses) on investments.

Funds that invest internationally generally carry more risk than funds that invest strictly in U.S. securities. These risks are heightened for investments in emerging markets. Risks can result from differences in economic and political conditions, regulations, market practices (including higher transaction costs), accounting standards and other factors. Foreign investments are also subject to a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.

Foreign taxes. The fund may be subject to withholding tax on income and/or capital gains or repatriation taxes imposed by certain countries in which the fund invests. Taxes are accrued based upon investment income, realized gains or unrealized appreciation.

Overdrafts. Pursuant to the custodian agreement, the fund's custodian may, in its discretion, advance funds to the fund to make properly authorized payments. When such payments result in an overdraft, the fund is obligated to repay the custodian for any overdraft, including any costs or expenses associated with the overdraft. The custodian may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.

Expenses. Within the John Hancock group of funds complex, expenses that are directly attributable to an individual fund are allocated to such fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund's relative net assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.

Federal income taxes. The fund intends to continue to qualify as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required.

As of December 31, 2014, the fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The fund's federal tax returns are subject to examination by the Internal Revenue Service for a period of three years.

Managed distribution plan. The fund has adopted a managed distribution plan (Plan). Under the current Plan, the fund makes quarterly distributions of an amount equal to $0.376 per share, which will be paid quarterly until further notice. This fixed amount was based upon an annualized distribution rate of 8.00% of the fund's net asset value of $18.80 on August 31, 2013 at the time the Plan was last amended.

Distributions under the Plan may consist of net investment income, net realized capital gains and, to the extent necessary, return of capital. Return of capital distributions may be necessary when the fund's net investment income and net capital gains are insufficient to meet the minimum percentage dividend. In addition, the fund may also make additional distributions for purposes of not incurring federal income and excise taxes.

The Board of Trustees may terminate or reduce the amount paid under the Plan at any time. The termination or reduction may have an adverse effect on the market price of the fund's shares.

Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The fund declares and pays distributions quarterly pursuant to its Distribution Plan described above. The tax character of distributions for the years ended December 31, 2014 and 2013 was as follows:


	December 31, 2014	December 31, 2013
Ordinary Income	$6,882,308	$4,605,482
Long-term Capital Gains	13,646,705	13,865,075
Tax Return of Capital	—	—
Total	$20,529,013	$18,470,557

As of December 31, 2014, the components of distributable earnings on a tax basis consisted of $668,820 of undistributed ordinary income.

Such distributions and distributable earnings, on a tax basis, are determined in conformity with income tax regulations, which may differ from US GAAP. Distributions in excess of tax basis earnings and profits, if any, are reported in the fund's financial statements as a return of capital.

Capital accounts within the financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book-tax differences, if any, will reverse in a subsequent period. Book-tax differences are primarily attributable to foreign currency transactions, passive foreign investment companies, wash sale loss deferrals and derivative transactions.

Note 3 — Derivative instruments

The fund may invest in derivatives in order to meet its investment objectives. Derivatives include a variety of different instruments that may be traded in the over-the-counter market, on a regulated exchange or through a clearing facility. The risks in using derivatives vary depending upon the structure of the instruments, including the use of leverage, optionality, the liquidity or lack of liquidity of the contract, the creditworthiness of the counterparty or clearing organization and the volatility of the position. Some derivatives involve risks that are potentially greater than the risks associated with investing directly in the referenced securities or other referenced underlying instrument. Specifically, the fund is exposed to the risk that the counterparty to an OTC derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction.

Forward foreign currency contracts are typically traded through the OTC market. Certain forwards are regulated by the Commodity Futures Trading Commission (the CFTC) as swaps. Derivative counterparty risk is managed through an ongoing evaluation of the creditworthiness of all potential counterparties and, if applicable, designated clearing organizations. The fund attempts to reduce its exposure to counterparty risk for derivatives traded in the OTC market, whenever possible, by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement with each of its OTC counterparties. The ISDA gives each party to the agreement the right to terminate all transactions traded under the agreement if there is certain deterioration in the credit quality or contractual default of the other party, as defined in the ISDA. Upon an event of default or a termination of the ISDA, the non-defaulting party has the right to close out all transactions and to net amounts owed.

Futures and certain options are traded or cleared on an exchange or central clearinghouse. Exchange-traded or cleared transactions generally present less counterparty risk to a fund than OTC transactions. The exchange or clearinghouse stands between the fund and the broker to the contract and therefore, credit risk is generally limited to the failure of the exchange and the clearing member.

Margin requirements for exchange-traded derivatives are set by the broker. Margin for exchange-traded and exchange-cleared transactions are detailed in the Statements of assets and liabilities as Cash held at broker for futures contracts. Securities pledged by the fund for exchange-traded transactions, if any, are identified in the Fund's investments.

Futures. A futures contract is a contractual agreement to buy or sell a particular currency or financial instrument at a pre-determined price in the future. Risks related to the use of futures contracts include possible illiquidity of the futures markets,

contract prices that can be highly volatile and imperfectly correlated to movements in the underlying financial instrument and potential losses in excess of the amounts recognized on the Statement of assets and liabilities. Use of long futures contracts subjects the fund to the risk of loss up to the notional value of the futures contracts. Use of short futures contracts subjects the fund to unlimited risk of loss.

Upon entering into a futures contract, the fund is required to deposit initial margin with the broker in the form of cash or securities. The amount of required margin is generally based on a percentage of the contract value; this amount is the initial margin for the trade. The margin deposit must then be maintained at the established level over the life of the contract. Futures margin receivable / payable is included on the Statement of assets and liabilities. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (variation margin) and unrealized gain or loss is recorded by the fund. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.

During the year ended December 31, 2014, the fund used futures contracts to manage against anticipated changes in securities markets. During the year ended December 31, 2014, the fund held futures contracts with notional values ranging from $30.7 million to $42.5 million, as measured at each quarter end. The following table summarizes the contracts held at December 31, 2014.


Open contracts	Number of contracts	Position	Expiration date	Notional basis		Notional value		Unrealized appreciation (depreciation)
Mini MSCI EAFE Index Futures	144	Short	Mar 2015	($12,493,473	)	($12,656,880	)	($163,407	)
S&P 500 Index E-Mini Futures	176	Short	Mar 2015	(17,482,930	)	(18,061,120	)	(578,190	)
								($741,597	)

Notional basis refers to the contractual amount agreed upon at inception of open contracts; notional value represents the current value of the open contract.

Forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell specific currencies at a price that is set on the date of the contract. The forward contract calls for delivery of the currencies on a future date that is specified in the contract. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the forward agreement, the risk that currency movements will not favor the fund thereby reducing the fund's total return, and the potential for losses in excess of the amounts recognized on the Statement of assets and liabilities.

The market value of a forward foreign currency contract fluctuates with changes in foreign currency exchange rates. Forward foreign currency contracts are marked-to-market daily and the change in value is recorded by the fund as an unrealized gain or loss. Realized gains or losses, equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed, are recorded upon delivery or receipt of the currency or settlement with the counterparty.

During the year ended December 31, 2014, the fund used forward foreign currency contracts to manage against anticipated changes in currency exchange rates. During the year ended December 31, 2014 the fund held forward foreign currency contracts with USD notional values ranging from approximately $3.6 million to $8.0 million, as measured at each quarter end. The following table summarizes the contracts held at December 31, 2014:


Contract to buy		Contract to sell			Counterparty	Contractual settlement date	Unrealized appreciation	Unrealized depreciation		Net unrealized appreciation/ (depreciation)
CAD	255,000	USD	226,735	Royal Bank of Canada		1/16/2015	—	($7,314	)	($7,314	)
EUR	691,000	USD	853,832	Bank of America, N.A.		1/16/2015	—	(17,589	)	(17,589	)
EUR	235,000	USD	284,397	State Street Bank and Trust Company		1/16/2015	—	(2	)	(2	)
EUR	97,000	USD	120,076	UBS AG		1/16/2015	—	(2,687	)	(2,687	)
GBP	692,000	USD	1,083,928	Citibank N.A.		1/16/2015	—	(5,469	)	(5,469	)


Contract to buy		Contract to sell			Counterparty	Contractual settlement date	Unrealized appreciation	Unrealized depreciation		Net unrealized appreciation/ (depreciation)
GBP	96,000	USD	150,157	JPMorgan Chase Bank N.A.		1/16/2015	—	(545	)	(545	)
USD	97,464	EUR	80,000	Goldman Sachs International		1/16/2015	$648	—		648
USD	610,287	EUR	491,000	JPMorgan Chase Bank N.A.		1/16/2015	16,082	—		16,082
USD	99,760	EUR	80,000	State Street Bank and Trust Company		1/16/2015	2,944	—		2,944
USD	46,585	GBP	30,000	Goldman Sachs International		1/16/2015	—	(169	)	(169	)
							$19,674	($33,775	)	($14,101	)


Currency abbreviation
CAD	Canadian Dollar
EUR	Euro
GBP	Pound Sterling
USD	U.S. Dollar

Options. There are two types of options, put options and call options. Options are traded either over-the-counter or on an exchange. A call option gives the purchaser of the option the right to buy (and the seller the obligation to sell) the underlying instrument at the exercise price. A put option gives the purchaser of the option the right to sell (and the writer the obligation to buy) the underlying instrument at the exercise price. Writing puts and buying calls may increase the fund's exposure to changes in the value of the underlying instrument. Buying puts and writing calls may decrease the fund's exposure to such changes. Risks related to the use of options include the loss of premiums, possible illiquidity of the options markets, trading restrictions imposed by an exchange and movements in underlying security values, and for written options, potential losses in excess of the amounts recognized on the Statement of assets and liabilities. In addition, over-the-counter options are subject to the risks of all over-the-counter derivatives contracts.

When the fund writes an option, the premium received is included as a liability and subsequently "marked-to-market" to reflect the current market value of the option written. Premiums received from writing options that expire unexercised are recorded as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. If a put option on a security is exercised, the premium received reduces the cost basis of the securities purchased by the fund.

During the year ended December 31, 2014, the fund wrote option contracts to manage against anticipated changes in securities markets and generate income. The following tables summarize the fund's written options activities during the year ended December 31, 2014 and the contracts held at December 31, 2014:


	Number of contracts		Premiums received (paid)
Outstanding, beginning of period	370		$445,867
Optons written	3,953		4,766,201
Options closed	(4,168	)	(5,049,088	)
Options exercised	—		—
Options expired	—		—
Outstanding, end of period	155		$162,980


Name of issuer	Exercise price	Expiration date	Number of contracts	Premium		Value
Calls
S&P 500 Index	$2,120	Jan 2015	155	($162,980	)	($68,975	)

For financial reporting purposes, the fund does not offset OTC derivative assets or liabilities that are subject to master netting arrangements, as defined by the ISDAs, in the Statement of assets and liabilities. In the event of default by the counterparty or

a termination of the agreement the ISDA allows an offset of amounts across the various transactions between the fund and the applicable counterparty.

Fair value of derivative instruments by risk category

The table below summarizes the fair value of derivatives held by the fund at December 31, 2014 by risk category:

Risk

Statement of assets and
liabilities location

Financial
instruments location

Asset derivatives
fair value

Liabilities derivatives
fair value

Equity contracts

Receivable/payable for
futures

Futures^†

—

($741,597

)

Foreign exchange
contracts

Receivable/payable for
forward foreign currency
exchange contracts

Forward foreign
currency contracts

$19,674

(33,775

)

Equity contracts

Written options, at value

Written options

—

(68,975

)

$19,674

($844,347

)

^† Reflects cumulative appreciation/depreciation on futures as disclosed in Note 3. Only the period end variation margin is separately disclosed on the Statement of assets and liabilities.

Effect of derivative instruments on the Statement of operations

The table below summarizes the net realized gain (loss) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the year ended December 31, 2014:


Risk	Statement of operations location	Futures contracts		Investments and foreign currency transactions*	Written options		Total
Equity contracts	Net realized gain (loss)	($5,060,065	)	—	($4,569,261	)	($9,629,326	)
Foreign exchange contracts	Net realized gain (loss)	—		$438,932	—		438,932
Total		($5,060,065	)	$438,932	($4,569,261	)	($9,190,394	)

*Realized gain/loss associated with forward foreign currency contracts is included in the caption Investments and foreign currency transactions on the Statement of operations.

The table below summarizes the net change in unrealized appreciation (depreciation) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the year ended December 31, 2014:


Risk	Statement of operations location	Futures contracts	Investments and translation of assets and liabilities in foreign currencies*		Written options	Total
Equity contracts	Change in unrealized appreciation (depreciation)	$895,085	—		$1,074,488	$1,969,573
Foreign exchange contracts	Change in unrealized appreciation (depreciation)	—	($160,498	)	—	(160,498	)
Total		$895,085	($160,498	)	$1,074,488	$1,809,075

*Change in unrealized appreciation/depreciation associated with forward foreign currency contracts is included in Investments and translation of assets and liabilities in foreign currencies on the Statement of operations.

Note 4 — Guarantees and indemnifications

Under the fund's organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into contracts with service providers that contain general indemnification clauses. The fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the fund that have not yet occurred. The risk of material loss from such claims is considered remote.

Note 5 — Fees and transactions with affiliates

John Hancock Advisers, LLC (the Advisor) serves as investment advisor for the fund. The Advisor is an indirect, wholly owned subsidiary of Manulife Financial Corporation (MFC).

Management fee. The fund has an investment management agreement with the Advisor under which the fund pays a daily management fee to the Advisor, on an annual basis, equal to 1.00% of the fund's average daily gross assets. The Advisor has a subadvisory agreement with Wellington Management Company LLP. The fund is not responsible for payment of the subadvisory fees.

Effective July 1, 2014, the Advisor has contractually agreed to waive a portion of its management fee and/or reimburse expenses for certain funds of the John Hancock complex, including the fund (the participating portfolios). The waiver equals, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the participating portfolios that exceeds $75 billion but is less than or equal to $125 billion; 0.0125% of that portion of the aggregate net assets of all the participating portfolios that exceeds $125 billion but is less than or equal to $150 billion; and 0.015% of that portion of the aggregate net assets of all the participating portfolios that exceeds $150 billion. The amount of the reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each fund. This arrangement may be amended or terminated at any time by the Advisor upon notice to the fund and with the approval of the Board of Trustees.

The expense reductions described above amounted to $9,668 for the year ended December 31, 2014.

The investment management fees incurred for the year ended December 31, 2014 were equivalent to a net annual effective rate of 1.00% of the fund's average daily gross assets.

Accounting and legal services. Pursuant to a service agreement, the fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to the fund, including the preparation of all tax returns, periodic reports to shareholders and regulatory reports, among other services. These accounting and legal services fees incurred for the year ended December 31, 2014 amounted to an annual rate of 0.02% of the fund's average daily net assets.

Trustee expenses. The fund compensates each Trustee who is not an employee of the Advisor or its affiliates. Each independent Trustee receives from the fund and the other John Hancock closed-end funds an annual retainer. In addition, Trustee out-of-pocket expenses are allocated to each fund based on its net assets relative to other funds within the John Hancock group of funds complex.

Note 6 — Fund share transactions

On December 6, 2011, the Board of Trustees approved a share repurchase plan, which was subsequently renewed and approved by the Board of Trustees each year in December. Under the current share repurchase plan, the fund may purchase in the open market, between January 1, 2015> and December 31, 2015>, up to an additional 10% of its outstanding common shares (based on common shares outstanding as of December 31, 2014). During the years ended December 31, 2014 and 2013, the fund repurchased 0.69% and 0.01% of shares outstanding, respectively. The weighted average discount per share on the repurchases amounted to 10.69% and 11.09% for the years ended December 31, 2014 and 2013, respectively. Shares repurchased and corresponding dollar amounts are included in the Statement of changes in net assets. The anti-dilutive impact of these share repurchases is included on the Financial highlights.

Note 7 — Purchase and sale of securities

Purchases and sales of securities, other than short-term investments, amounted to $107,022,582 and $129,563,799, respectively, for the year ended December 31, 2014.

Note 8 — Direct placement securities

The fund may hold private placement securities, which are restricted as to resale, and the fund has limited rights to registration under the Securities Act of 1933. The following table summarizes the direct placement securities held at December 31, 2014:


Issuer, description		Acquisition date	Acquisition cost	Beginning share amount	Ending share amount	Value as a percentage of fund's net assets	Value as of 12-31-14
Allstar Co-Invest LLC		8-1-11	$240,553	236,300	236,300	0.10%	$257,567
Dropbox, Inc.		5-1-12	$77,258	8,162	7,248	0.06%	$138,437
	Sold: 914 shares
			$317,811				$396,004

AUDITOR'S REPORT

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of John Hancock Hedged Equity & Income Fund:

In our opinion, the accompanying statement of assets and liabilities, including the fund's investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of John Hancock Hedged Equity & Income Fund (the "Fund") at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where securities purchased confirmations had not been received, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
February 10, 2015

TAX INFORMATION

Unaudited

For federal income tax purposes, the following information is furnished with respect to the distributions of the fund, if any, paid during its taxable year ended December 31, 2014.

The fund reports the maximum amount allowable of its net taxable income as eligible for the corporate dividends-received deduction.

The fund reports the maximum amount allowable of its net taxable income as qualified dividend income as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003.

The fund paid $13,646,705 in capital gain dividends.

Eligible shareholders will be mailed a 2014 Form 1099-DIV in early 2015. This will reflect the tax character of all distributions paid in calendar year 2014.

Please consult a tax advisor regarding the tax consequences of your investment in the fund.

ADDITIONAL INFORMATION

Unaudited

Investment objective and policy

The fund is a closed-end, diversified management investment company, common shares of which were initially offered to the public on May 26, 2011 and are publicly traded on the New York Stock Exchange (the NYSE). The fund's investment objective is to provide total return with a focus on current income and gains and also consisting of long-term capital appreciation. The fund uses an equity strategy, as well as futures and call writing, to pursue its investment objective.

Under normal circumstances, the fund will invest at least 80% of its net assets (assets plus borrowings for investment purposes) in equity and equity-related securities, including common stock, preferred stock, depositary receipts (including American Depositary Receipts and Global Depositary Receipts), index-related securities (including exchange-traded funds), options on equity securities and equity indexes, real estate investment structures (including real estate investment trusts), convertible securities, private placements, convertible preferred stock, rights, warrants, derivatives linked to equity securities or indexes and other similar equity equivalents. The fund may invest in listed and unlisted domestic and foreign equity and equity-related securities or instruments. These equity and equity-related instruments may include equity securities of, or derivatives linked to, foreign issuers and indexes (including emerging market issuers or indexes).

Dividends and distributions

During the year ended December 31, 2014, distributions from net investment income totaling $0.449 per share and distributions from net realized gain totaling $1.055 per share were paid to shareholders. The dates of payments and the amounts per share were as follows:


Payment Date	Distributions
March 31, 2014	$0.3760
June 30, 2014	0.3760
September 30, 2014	0.3760
December 31, 2014	0.3760
Total	$1.5040

Dividend reinvestment plan

The fund's Dividend Reinvestment Plan (the Plan) provides that distributions of dividends and capital gains are automatically reinvested in common shares of the fund by Computershare Trust Company, N.A. (the Plan Agent). Every shareholder holding at least one full share of the fund is entitled to participate in the Plan. In addition, every shareholder who became a shareholder of the fund after June 30, 2011 and holds at least one full share of the fund will be automatically enrolled in the Plan. Shareholders may withdraw from the Plan at any time and 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 of the fund and the market price of shares on the payment date for the distribution or dividend equals or exceeds the fund's net asset value per share (NAV), 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 shares to be credited to each participant's 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 shares purchased by the Plan Agent on participants' behalf on the NYSE or otherwise on the open market. 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 shares being acquired than if the fund had issued new 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 gains distributions does not relieve participants of any income tax that may be payable on such dividends or distributions.

Shareholders participating in the Plan may buy additional 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 can also 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 Agent's website at www.computershare.com/investor. The Plan Agent will mail a check (less applicable brokerage trading fees) on settlement date, which is three business days after the shares have been sold. If shareholders choose to sell shares through their stockbroker, they will need to request that the Plan Agent electronically transfer those shares to their 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 Agent's website at www.computershare.com/investor. 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 shareholders withdraw from the Plan, their shares will be credited to their account; or, if they wish, the Plan Agent will sell their full and fractional shares and send the shareholders the proceeds, less a transaction fee of $5 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 shareholder's 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 Agent's website at www.computershare.com/investor. 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 shareholders wish to participate in the Plan and their shares are held in the name of a brokerage firm, bank or other nominee, shareholders should contact their nominee to see if it will participate in the Plan. If shareholders wish to participate in the Plan, but their brokerage firm, bank or other nominee is unable to participate on their behalf, they will need to request that their shares be re-registered in their own name, or they 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 shareholders as representing the total amount registered in their name and held for their account by their 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 requests for additional information about the Plan should be directed to Computershare Trust Company, N.A., at the address stated below, or by calling 800-852-0218, 201-680-6578 (For International Telephone Inquiries) and 800-952-9245 (For the Hearing Impaired (TDD)).

Shareholder communication and assistance

If you have any questions concerning the fund, we will be pleased to assist you. If you hold shares in your own name and not with a brokerage firm, please address all notices, correspondence, questions or other communications regarding the fund to the transfer agent at:

Computershare
P.O. Box 30170
College Station, TX 77842-3170
Telephone: 800-852-0218

If your shares are held with a brokerage firm, you should contact that firm, bank or other nominee for assistance.

Trustees and Officers

This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the fund and execute policies formulated by the Trustees.

Independent Trustees


Name, year of birth Position(s) held with fund Principal occupation(s) and other directorships during past 5 years	Trustee of the Trust since¹	Number of John Hancock funds overseen by Trustee
James M. Oates, Born: 1946	2012	224
Trustee and Chairperson of the Board Managing Director, Wydown Group (financial consulting firm) (since 1994); Chairman and Director, Emerson Investment Management, Inc. (since 2000); Independent Chairman, Hudson Castle Group, Inc. (formerly IBEX Capital Markets, Inc.) (financial services company) (1997-2011); Director, Stifel Financial (since 1996); Director, Investor Financial Services Corporation (1995-2007); Director, Connecticut River Bancorp (since 1998); Director, Virtus Funds (formerly Phoenix Mutual Funds) (since 1988). Trustee and Chairperson of the Board, John Hancock retail funds³ (since 2012); Trustee (2005-2006 and since 2012) and Chairperson of the Board (since 2012), John Hancock Funds III; Trustee (since 2004) and Chairperson of the Board (since 2005), John Hancock Variable Insurance Trust; Trustee and Chairperson of the Board, John Hancock Funds II (since 2005).
Charles L. Bardelis,² Born: 1941	2012	224
Trustee Director, Island Commuter Corp. (marine transport). Trustee, John Hancock retail funds³ (since 2012); Trustee, John Hancock Funds III (2005-2006 and since 2012); Trustee, John Hancock Variable Insurance Trust (since 1988); Trustee, John Hancock Funds II (since 2005).
Peter S. Burgess,² Born: 1942	2012	224
Trustee Consultant (financial, accounting, and auditing matters) (since 1999); Certified Public Accountant; Partner, Arthur Andersen (independent public accounting firm) (prior to 1999); Director, Lincoln Educational Services Corporation (since 2004); Director, Symetra Financial Corporation (since 2010); Director, PMA Capital Corporation (2004-2010). Trustee, John Hancock retail funds³ (since 2012); Trustee, John Hancock Funds III (2005-2006 and since 2012); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2005).
William H. Cunningham, Born: 1944	2011	224
Trustee 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, LIN Television (since 2009); Chairman (since 2009) and Director (since 2006), Lincoln National Corporation (insurance); Director, Resolute Energy Corporation (since 2009); Director, Southwest Airlines (since 2000); former Director, Introgen (manufacturer of biopharmaceuticals) (until 2008); former Director, Hicks Acquisition Company I, Inc. (until 2007); former Director, Texas Exchange Bank, SSB (formerly Bank of Crowley) (until 2009); former Advisory Director, JP Morgan Chase Bank (formerly Texas Commerce Bank-Austin) (until 2009). Trustee, John Hancock retail funds³ (since 1986); Trustee, John Hancock Variable Insurance Trust (since 2012); Trustee, John Hancock Funds II (2005-2006 and since 2012).
Grace K. Fey, Born: 1946	2012	224
Trustee Chief Executive Officer, Grace Fey Advisors (since 2007); Director and Executive Vice President, Frontier Capital Management Company (1988-2007); Director, Fiduciary Trust (since 2009). Trustee, John Hancock retail funds³ (since 2012); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2008).

Independent Trustees (continued)


Name, year of birth Position(s) held with fund Principal occupation(s) and other directorships during past 5 years	Trustee of the Trust since¹	Number of John Hancock funds overseen by Trustee
Theron S. Hoffman,² Born: 1947	2012	224
Trustee Chief Executive Officer, T. Hoffman Associates, LLC (consulting firm) (since 2003); Director, The Todd Organization (consulting firm) (2003-2010); President, Westport Resources Management (investment management consulting firm) (2006-2008); Senior Managing Director, Partner, and Operating Head, Putnam Investments (2000-2003); Executive Vice President, The Thomson Corp. (financial and legal information publishing) (1997-2000). Trustee, John Hancock retail funds³ (since 2012); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2008).
Deborah C. Jackson, Born: 1952	2011	224
Trustee President, Cambridge College, Cambridge, Massachusetts (since 2011); Chief Executive Officer, American Red Cross of Massachusetts Bay (2002-2011); 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 (2002-2008); Board of Directors of Harvard Pilgrim Healthcare (health benefits company) (2007-2011). Trustee, John Hancock retail funds³ (since 2008); Trustee of John Hancock Variable Insurance Trust and John Hancock Funds II (since 2012).
Hassell H. McClellan, Born: 1945	2012	224
Trustee Trustee, Virtus Variable Insurance Trust (formerly Phoenix Edge Series Funds) (since 2008); Director, The Barnes Group (since 2010); Associate Professor, The Wallace E. Carroll School of Management, Boston College (retired 2013). Trustee, John Hancock retail funds³ (since 2012); Trustee, John Hancock Funds III (2005-2006 and since 2012); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2005).
Steven R. Pruchansky, Born: 1944	2011	224
Trustee and Vice Chairperson of the Board 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). Trustee (since 1992) and Chairperson of the Board (2011-2012), John Hancock retail funds³; Trustee and Vice Chairperson of the Board, John Hancock retail funds³ John Hancock Variable Insurance Trust, and John Hancock Funds II (since 2012).
Gregory A. Russo, Born: 1949	2011	224
Trustee Director and Audit Committee Chairman (since 2012), and Member, Audit Committee and Finance Committee (since 2011), NCH Healthcare System, Inc. (holding company for multi-entity healthcare system); Director and Member of Finance Committee, The Moorings, Inc. (nonprofit continuing care community) (since 2012); Vice Chairman, Risk & Regulatory Matters, KPMG LLP (KPMG) (2002-2006); Vice Chairman, Industrial Markets, KPMG (1998-2002); Chairman and Treasurer, Westchester County, New York, Chamber of Commerce (1986-1992); Director, Treasurer, and Chairman of Audit and Finance Committees, Putnam Hospital Center (1989-1995); Director and Chairman of Fundraising Campaign, United Way of Westchester and Putnam Counties, New York (1990-1995). Trustee, John Hancock retail funds³ (since 2008); Trustee, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2012).

Non-Independent Trustees⁴


Name, year of birth Position(s) held with fund Principal occupation(s) and other directorships during past 5 years	Trustee of the Trust since¹	Number of John Hancock funds overseen by Trustee
Craig Bromley, Born: 1966	2012	224
Non-Independent Trustee President, John Hancock Financial Service (since 2012); Senior Executive Vice President and General Manager, U.S. Division, Manulife Corporation (since 2012); President and Chief Executive Officer, Manulife Insurance Company (Manulife Japan) (2005-2012, including prior positions). Trustee, John Hancock retail funds,³ John Hancock Variable Insurance Trust, and John Hancock Funds II (since 2012).
Warren A. Thomson, Born: 1955	2012	224
Non-Independent Trustee Senior Executive Vice President and Chief Investment Officer, Manulife Financial Corporation and The Manufacturers Life Insurance Company (since 2009); Chairman and Chief Executive Officer, Manulife Asset Management (since 2001, including prior positions); Director (since 2006), and President and Chief Executive Officer (since 2013), Manulife Asset Management Limited; Director and Chairman, Hancock Natural Resources Group, Inc. (since 2013). Trustee, John Hancock retail funds,³ John Hancock Variable Insurance Trust, and John Hancock Funds II (since 2012).

Principal officers who are not Trustees


Name, year of birth Position(s) held with fund Principal occupation(s) during past 5 years	Officer of the Trust since
Andrew G. Arnott, Born: 1971	2011
Executive Vice President President** Senior Vice President, John Hancock Financial Services (since 2009); Director and Executive Vice President, John Hancock Advisers, LLC (since 2005, including prior positions); Director and Executive Vice President, John Hancock Investment Management Services, LLC (since 2006, including prior positions); President, John Hancock Funds, LLC (since 2004, including prior positions); President (effective 3-13-14) and Executive Vice President, John Hancock retail funds,³ John Hancock Variable Insurance Trust, and John Hancock Funds II (since 2007, including prior positions).
**Effective 3-13-14.
John J. Danello,Born: 1955	2014
Senior Vice President, Secretary, and Chief Legal Officer Vice President and Chief Counsel, John Hancock Wealth Management (since 2005); Senior Vice President (since 2007) and Chief Legal Counsel (2007-2010), John Hancock Funds, LLC and The Berkeley Financial Group, LLC; Senior Vice President (since 2006, including prior positions) and Chief Legal Officer and Secretary (since 2014), John Hancock retail funds³ and John Hancock Variable Insurance Trust; Vice President, John Hancock Life & Health Insurance Company (since 2009); Vice President, John Hancock Life Insurance Company (USA) and John Hancock Life Insurance Company of New York (since 2010); and Senior Vice President, Secretary, and Chief Legal Counsel (2007-2014, including prior positions) of John Hancock Advisers, LLC and John Hancock Investment Management Services, LLC.

Principal officers who are not Trustees (continued)


Name, year of birth Position(s) held with fund Principal occupation(s) during past 5 years	Officer of the Trust since
Francis V. Knox, Jr.,Born: 1947	2011
Chief Compliance Officer Vice President, John Hancock Financial Services (since 2005); Chief Compliance Officer, John Hancock retail funds,³ John Hancock Variable Insurance Trust, John Hancock Funds II, John Hancock Advisers, LLC, and John Hancock Investment Management Services, LLC (since 2005).
Charles A. Rizzo, Born: 1957	2011
Chief Financial Officer 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,³ John Hancock Variable Insurance Trust and John Hancock Funds II (since 2007).
Salvatore Schiavone, Born: 1965	2011
Treasurer 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 funds³ (since 2007, including prior positions); Treasurer, John Hancock Variable Insurance Trust and John Hancock Funds II (since 2010 and 2007-2009, including prior positions).

The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805.

1	Mr. Bardelis, Mr. Burgess, Mr. Hoffman, and Mr. Thomson serve as Trustees for a term expiring in 2015; Mr. Bromley, Ms. Jackson, Mr. Oates, and Mr. Pruchansky serve as Trustees for a term expiring in 2016; and Mr. Cunningham, Ms. Fey, Mr. McClellan, and Mr. Russo serve as Trustees for a term expiring in 2017.
2	Member of the Audit Committee.
3	"John Hancock retail funds" comprises John Hancock Funds III and 37 other John Hancock funds consisting of 27 series of other John Hancock trusts and 10 closed-end funds.
4	The Trustee is a Non-Independent Trustee due to current or former positions with the Advisor and certain of its affiliates.

More information

Trustees

James M. Oates, Chairperson
Steven R. Pruchansky, Vice Chairperson
Charles L. Bardelis*
Craig Bromley†
Peter S. Burgess*
William H. Cunningham
Grace K. Fey
Theron S. Hoffman*
Deborah C. Jackson
Hassell H. McClellan
Gregory A. Russo
Warren A. Thomson†

Officers

Andrew G. Arnott
President

John J. Danello
Senior Vice President, Secretary,
and Chief Legal Officer

Francis V. Knox, Jr.
Chief Compliance Officer

Charles A. Rizzo
Chief Financial Officer

Salvatore Schiavone
Treasurer

Investment advisor

John Hancock Advisers, LLC

Subadvisor

Wellington Management Company LLP

Custodian

State Street Bank and Trust Company

Transfer agent

Computershare Shareowner Services, LLC

Legal counsel

K&L Gates LLP

Independent registered public accounting firm

PricewaterhouseCoopers LLP

Stock symbol

Listed New York Stock Exchange: HEQ

*Member of the Audit Committee
†Non-Independent Trustee

For shareholder assistance refer to page 43

You can also contact us:

800-852-0218
jhinvestments.com

Regular mail:

Computershare
P.O. Box 30170
College Station, TX 77842-3170

The fund's proxy voting policies and procedures, as well as the fund's proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) website at sec.gov or on our website.

The fund's complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The fund's Form N-Q is available on our website and the SEC's website, sec.gov, and can be reviewed and copied (for a fee) at the SEC's Public Reference Room in Washington, DC. Call 800-SEC-0330 to receive information on the operation of the SEC's Public Reference Room.

We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our website at jhinvestments.com or by calling 800-225-5291.

The report is certified under the Sarbanes-Oxley Act, which requires closed-end funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.

Family of funds

DOMESTIC EQUITY FUNDS

Balanced

Classic Value

Disciplined Value

Disciplined Value Mid Cap

Fundamental All Cap Core

Fundamental Large Cap Core

Fundamental Large Cap Value

Large Cap Equity

Select Growth

Small Cap Equity

Small Cap Value

Small Company

Strategic Growth

U.S. Equity

U.S. Global Leaders Growth

Value Equity

GLOBAL AND INTERNATIONAL EQUITY FUNDS

Disciplined Value International

Emerging Markets

Global Equity

Global Opportunities

Global Shareholder Yield

Greater China Opportunities

International Core

International Growth

International Small Company

International Value Equity

INCOME FUNDS

Bond

California Tax-Free Income

Core High Yield

Emerging Markets Debt

Floating Rate Income

Focused High Yield

Global Income

Government Income

High Yield Municipal Bond

Income

Investment Grade Bond

INCOME FUNDS (continued)

Money Market

Short Duration Credit Opportunities

Strategic Income Opportunities

Tax-Free Bond

ALTERNATIVE AND SPECIALTY FUNDS

Absolute Return Currency

Alternative Asset Allocation

Enduring Equity

Financial Industries

Global Absolute Return Strategies

Global Conservative Absolute Return

Natural Resources

Redwood

Regional Bank

Seaport

Technical Opportunities

ASSET ALLOCATION

Income Allocation Fund

Lifestyle Aggressive Portfolio

Lifestyle Balanced Portfolio

Lifestyle Conservative Portfolio

Lifestyle Growth Portfolio

Lifestyle Moderate Portfolio

Retirement Choices Portfolios (2010-2055)

Retirement Living Portfolios (2010-2055)

Retirement Living II Portfolios (2010-2055)

CLOSED-END FUNDS

Financial Opportunities

Hedged Equity & Income

Income Securities Trust

Investors Trust

Preferred Income

Preferred Income II

Preferred Income III

Premium Dividend

Tax-Advantaged Dividend Income

Tax-Advantaged Global Shareholder Yield

The fund's investment objective's, risks, charges, and expenses are included in the prospectus and should be considered carefully before investing. For a prospectus, contact your financial professional, call John Hancock Investments at 800-225-5291, or visit the fund's website at jhinvestments.com. Please read the prospectus carefully before investing or sending money.

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of investments deeply rooted in investor needs, along with strong
risk-adjusted returns across asset classes.


	MF212225	P15A 12/14 2/15

TOP 10 HOLDINGS AS OF 12/31/14 (%)
Merck & Company, Inc.	2.1
Microsoft Corp.	2.0
The PNC Financial Services Group, Inc.	1.7
Maxim Integrated Products, Inc.	1.6
JPMorgan Chase & Company	1.5
Intel Corp.	1.5
International Paper Company	1.4
Marsh & McLennan Companies, Inc.	1.3
British American Tobacco PLC	1.3
Chevron Corp.	1.2
TOTAL	15.6
As a percentage of net assets.
Cash and cash equivalents are not included.

COUNTRY COMPOSITION AS OF 12/31/14 (%)
United States	57.7
Japan	8.6
United Kingdom	7.4
France	4.0
Germany	3.5
Switzerland	3.3
Netherlands	2.2
Spain	1.9
Canada	1.8
China	1.2
Other countries	8.4
TOTAL	100.0
As a percentage of net assets.


As of 12-31-14
	Shares	Value
Common stocks 82.7%		$205,546,311
(Cost $193,743,863)
Consumer discretionary 6.5%		16,023,348
Auto components 1.0%
Aisan Industry Company, Ltd.	15,400	131,748
Delphi Automotive PLC	8,100	589,032
Exedy Corp.	7,000	168,524
Keihin Corp.	15,600	231,545
Sumitomo Riko Company, Ltd.	19,700	148,116
Takata Corp.	12,100	145,878
The Goodyear Tire & Rubber Company	10,800	308,556
Tokai Rika Company, Ltd.	10,400	218,307
Topre Corp.	4,200	60,160
Toyoda Gosei Company, Ltd.	15,700	315,793
Toyota Boshoku Corp.	22,700	301,361
Automobiles 0.4%
Honda Motor Company, Ltd.	15,500	454,743
Peugeot SA (I)	28,477	348,911
Renault SA	3,688	268,620
Diversified consumer services 0.1%
Allstar Co-Invest LLC (I)(R)	236,300	257,567
Hotels, restaurants and leisure 0.5%
Mandarin Oriental International, Ltd.	94,000	156,864
McDonald's Corp.	10,939	1,024,984
Household durables 1.2%
D.R. Horton, Inc.	27,200	687,888
Funai Electric Company, Ltd.	18,200	217,215
Newell Rubbermaid, Inc.	25,900	986,531
PulteGroup, Inc.	48,200	1,034,372
Internet and catalog retail 0.1%
Home Retail Group PLC	54,974	177,167
Media 0.8%
Avex Group Holdings, Inc.	8,900	145,555
Clear Media, Ltd.	45,000	46,854
Gendai Agency, Inc.	5,200	29,209
Metropole Television SA	10,746	202,557
ProSiebenSat.1 Media AG	28,555	1,193,122
Proto Corp.	6,200	89,241
Sky PLC	23,477	327,653
Tri-Stage, Inc.	2,400	30,600


	Shares	Value
Consumer discretionary (continued)
Multiline retail 0.2%
Mothercare PLC (I)	23,403	$63,575
New World Department Store China, Ltd.	211,000	67,476
Nordstrom, Inc.	3,800	301,682
Specialty retail 1.8%
Adastria Holdings Company, Ltd.	9,800	256,290
Honeys Company, Ltd.	12,930	101,299
Nishimatsuya Chain Company, Ltd.	19,800	160,907
Pal Company, Ltd.	6,000	164,004
Ross Stores, Inc.	6,500	612,690
Shimamura Company, Ltd.	2,300	198,483
The Home Depot, Inc.	25,970	2,726,071
Xebio Company, Ltd.	10,600	176,447
Textiles, apparel and luxury goods 0.4%
Daphne International Holdings, Ltd.	432,000	157,347
Hanesbrands, Inc.	2,800	312,536
Ralph Lauren Corp.	2,300	425,868
Consumer staples 6.1%		15,175,091
Beverages 0.6%
Coca-Cola Company	13,010	549,282
Diageo PLC, ADR	8,909	1,016,428
Food and staples retailing 0.2%
Cawachi, Ltd.	7,900	117,085
Delhaize Group SA	2,506	182,500
J Sainsbury PLC	52,649	201,050
Food products 2.4%
Diamond Foods, Inc. (I)	729	20,580
Ebro Foods SA	29,147	481,795
Ingredion, Inc.	10,976	931,204
Kraft Foods Group, Inc.	44,741	2,803,471
Pinnacle Foods, Inc.	25,520	900,856
Suedzucker AG	10,547	151,643
Unilever NV	18,488	723,208
Household products 1.2%
The Procter & Gamble Company	32,575	2,967,257
Personal products 0.1%
Oriflame Cosmetics SA	10,984	152,191
Tobacco 1.6%
British American Tobacco PLC	58,607	3,175,969
Philip Morris International, Inc.	9,829	800,572


	Shares	Value
Energy 6.8%		$17,000,610
Energy equipment and services 0.4%
Baker Hughes, Inc.	7,400	414,918
National Oilwell Varco, Inc.	8,000	524,240
Trican Well Service, Ltd.	5,600	26,848
Oil, gas and consumable fuels 6.4%
BP PLC	125,390	795,923
Canadian Natural Resources, Ltd.	14,900	460,112
Chevron Corp. (C)	26,799	3,006,312
Encana Corp.	11,100	154,490
Energy Resources of Australia, Ltd. (I)	36,883	39,048
Eni SpA	28,025	490,899
Exxon Mobil Corp. (C)	20,755	1,918,800
Gazprom OAO, ADR	40,534	183,619
HollyFrontier Corp.	13,100	490,988
HRT Participacoes em Petroleo SA (I)	2,930	5,071
Inpex Corp.	22,300	248,265
Japan Petroleum Exploration Company	6,500	204,212
Legacy Oil + Gas, Inc. (I)	36,000	66,931
Lukoil OAO, ADR	4,250	162,988
Marathon Oil Corp.	40,840	1,155,364
Occidental Petroleum Corp.	11,573	932,900
Painted Pony Petroleum, Ltd. (I)	13,700	109,076
PetroChina Company, Ltd., H Shares	1,028,000	1,138,515
Petroleo Brasileiro SA, ADR	23,481	171,411
Royal Dutch Shell PLC, B Shares	38,000	1,312,940
Suncor Energy, Inc.	44,830	1,424,697
Talisman Energy, Inc.	10,600	83,026
Total SA	28,869	1,479,017
Financials 21.0%		52,100,899
Banks 8.9%
Allahabad Bank	48,769	101,811
Alpha Bank AE (I)	210,914	118,479
Banca Popolare dell'Emilia Romagna SC (I)	18,526	121,456
Banco Bilbao Vizcaya Argentaria SA	106,224	1,003,222
Barclays PLC	98,643	370,832
BNP Paribas SA (I)	6,759	399,011
Canara Bank	18,345	129,745
CIT Group, Inc.	6,400	306,112
Corporation Bank	13,727	72,684
Dah Sing Financial Holdings, Ltd.	17,200	99,688
HSBC Holdings PLC	297,048	2,807,033
ING Groep NV (I)	32,518	420,121
JPMorgan Chase & Company (C)	60,311	3,774,262

Date of fiscal year end:	December 31

Date of reporting period:	December 31, 2014


2		Your fund at a glance
4		Discussion of fund performance
8		Fund's investments
26		Financial statements
29		Financial highlights
30		Notes to financial statements
39		Auditor's report
40		Tax information
41		Additional information
44		Trustees and Officers
48		More information

	Kent M. Stahl, CFA On the fund since 2011 Investing since 1985
	Gregg R. Thomas, CFA On the fund since 2011 Investing since 1993


	Shares	Value
Financials (continued)
Banks (continued)
KB Financial Group, Inc. (I)	6,384	$208,719
M&T Bank Corp.	3,120	391,934
Mitsubishi UFJ Financial Group, Inc.	320,700	1,761,998
Mizuho Financial Group, Inc.	91,800	153,885
OTP Bank PLC	10,655	153,693
Piraeus Bank SA (I)	139,014	151,266
Shinhan Financial Group Company, Ltd. (I)	3,559	143,054
Societe Generale SA	8,610	360,330
Standard Chartered PLC	27,608	412,902
Sumitomo Mitsui Financial Group, Inc.	11,300	408,526
Svenska Handelsbanken AB, A Shares	16,619	777,567
The Eighteenth Bank, Ltd.	22,000	61,399
The Higashi-Nippon Bank, Ltd.	16,000	44,563
The Oita Bank, Ltd.	23,000	81,227
The PNC Financial Services Group, Inc. (C)	46,431	4,235,900
The Tochigi Bank, Ltd.	25,000	110,789
The Yamanashi Chuo Bank, Ltd.	19,000	76,893
UniCredit SpA	42,225	270,477
Wells Fargo & Company (C)	47,378	2,597,262
Capital markets 2.2%
BlackRock, Inc. (C)	7,650	2,735,334
Henderson Group PLC	307,621	1,017,083
Julius Baer Group, Ltd. (I)	4,563	208,337
LPL Financial Holdings, Inc.	8,600	383,130
Northern Trust Corp.	5,600	377,440
UBS Group AG (I)	30,259	520,143
Uranium Participation Corp. (I)	34,200	151,601
Consumer finance 0.1%
Manappuram Finance, Ltd.	293,168	156,152
Diversified financial services 0.6%
Bolsas y Mercados Espanoles SA	20,213	782,857
Intercontinental Exchange Group, Inc. (C)	1,700	372,793
MSCI, Inc.	8,100	384,264
Insurance 6.6%
ACE, Ltd.	15,318	1,759,732
Ageas	10,345	367,818
Argo Group International Holdings, Ltd.	6,000	332,820
Assicurazioni Generali SpA	59,967	1,231,293
CNO Financial Group, Inc.	30,100	518,322
Delta Lloyd NV	70,901	1,559,138
FNF Group	13,800	475,410
Marsh & McLennan Companies, Inc.	56,016	3,206,356


	Shares	Value
Health care (continued)
Pharmaceuticals (continued)
Johnson & Johnson	28,335	$2,962,991
Merck & Company, Inc. (C)	91,707	5,208,041
Ono Pharmaceutical Company, Ltd.	6,400	566,627
Pfizer, Inc.	63,570	1,980,206
Roche Holding AG	9,463	2,563,926
Takeda Pharmaceutical Company, Ltd.	11,700	484,354
Industrials 8.4%		20,925,822
Aerospace and defense 1.2%
Raytheon Company	4,400	475,948
Thales SA	6,388	345,637
United Technologies Corp.	18,310	2,105,650
Air freight and logistics 0.8%
Deutsche Post AG	22,476	729,614
PostNL NV (I)	93,014	345,698
United Parcel Service, Inc., Class B	8,870	986,078
Airlines 0.5%
Aer Lingus Group PLC	16,800	44,805
American Airlines Group, Inc.	11,500	616,745
Deutsche Lufthansa AG	17,353	287,556
Qantas Airways, Ltd. (I)	111,933	217,409
Building products 0.5%
Cie de Saint-Gobain	12,008	508,669
Fortune Brands Home & Security, Inc.	7,800	353,106
Owens Corning	10,700	383,167
Commercial services and supplies 0.1%
Aeon Delight Company, Ltd.	5,100	118,826
Moshi Moshi Hotline, Inc.	11,100	102,448
Construction and engineering 0.1%
Raubex Group, Ltd.	65,176	123,843
Electrical equipment 2.2%
Eaton Corp. PLC	40,647	2,762,352
Futaba Corp.	5,300	76,896
OSRAM Licht AG (I)	5,478	215,066
Saft Groupe SA	4,326	131,217
Schneider Electric SE	26,557	1,934,126
Ushio, Inc.	19,200	199,950
Zumtobel Group AG	5,223	117,448
Industrial conglomerates 1.5%
3M Company	8,036	1,320,476
General Electric Company	32,770	828,098
Koninklijke Philips NV	8,449	244,903


	Shares	Value
Industrials (continued)
Industrial conglomerates (continued)
Rheinmetall AG	8,007	$348,617
Siemens AG	8,694	975,500
Machinery 0.2%
Fuji Machine Manufacturing Company, Ltd.	12,900	119,491
Hisaka Works, Ltd.	10,300	83,365
Koenig & Bauer AG (I)	2,650	31,889
The Japan Steel Works, Ltd.	59,000	208,749
Toshiba Machine Company, Ltd.	38,000	150,582
Marine 0.0%
D/S Norden A/S	1,250	26,522
Professional services 0.3%
Adecco SA (I)	4,530	311,389
en-japan, Inc.	7,000	110,241
Hays PLC	94,584	212,801
USG People NV	11,918	133,343
Trading companies and distributors 0.4%
Kuroda Electric Company, Ltd.	12,100	166,768
Mitsubishi Corp.	18,200	333,062
Rexel SA	21,729	389,299
SIG PLC	53,792	145,567
Transportation infrastructure 0.6%
Hamburger Hafen und Logistik AG	6,204	128,926
Jiangsu Expressway Company, Ltd., H Shares	1,238,000	1,473,980
Information technology 11.7%		28,970,753
Communications equipment 1.2%
Cisco Systems, Inc. (C)	98,174	2,730,710
Ubiquiti Networks, Inc.	5,400	160,056
Electronic equipment, instruments and components 0.5%
Avnet, Inc.	14,400	619,488
Dai-ichi Seiko Company, Ltd.	4,100	81,529
Hosiden Corp.	30,100	167,635
Kingboard Laminates Holdings, Ltd.	359,000	131,862
Mitsumi Electric Company, Ltd.	12,200	96,535
Nichicon Corp.	28,400	221,846
Internet software and services 0.2%
Dena Company, Ltd.	13,700	163,652
Dropbox, Inc. (I)(R)	7,248	138,437
Gree, Inc.	19,700	118,590
IT services 0.9%
Alten SA	3,933	167,704
Booz Allen Hamilton Holding Corp.	22,600	599,578


	Shares	Value
Information technology (continued)
IT services (continued)
Cap Gemini SA	4,891	$349,790
Devoteam SA	2,222	40,600
Fujitsu, Ltd.	74,000	394,543
GFI Informatique SA	4,237	27,089
Groupe Steria SCA	12,151	233,415
Itochu Techno-Solutions Corp.	5,700	201,121
NET One Systems Company, Ltd.	22,800	134,347
Sopra Steria Group	1,112	84,962
Zuken, Inc.	3,400	34,279
Semiconductors and semiconductor equipment 4.8%
Avago Technologies, Ltd.	3,400	342,006
Intel Corp.	103,111	3,741,898
Kontron AG (I)	15,829	95,499
Lam Research Corp.	9,100	721,994
Marvell Technology Group, Ltd.	21,900	317,550
Maxim Integrated Products, Inc. (C)	126,552	4,033,212
Micronas Semiconductor Holding AG (I)	17,300	98,544
Mimasu Semiconductor Industry Company, Ltd.	13,900	135,021
Miraial Company, Ltd.	7,600	106,760
Rohm Company, Ltd.	4,600	277,165
SCREEN Holdings Company, Ltd.	48,000	282,066
Shinkawa, Ltd.	16,400	88,876
Shinko Electric Industries Company, Ltd.	36,300	245,727
Taiwan Semiconductor Manufacturing Company, Ltd., ADR	49,780	1,114,076
Tokyo Seimitsu Company, Ltd.	12,900	259,816
Software 2.8%
Activision Blizzard, Inc.	30,700	618,605
Alpha Systems, Inc.	1,900	26,246
Microsoft Corp. (C)	108,136	5,022,917
Nintendo Company, Ltd.	2,000	208,715
NSD Company, Ltd.	4,200	61,497
Symantec Corp.	39,073	1,002,418
Technology hardware, storage and peripherals 1.3%
Apple, Inc. (C)	6,300	695,394
Canon, Inc.	13,600	432,259
Compal Electronics, Inc.	156,000	108,930
Japan Digital Laboratory Company, Ltd.	4,000	53,742
Melco Holdings, Inc.	8,900	132,432
SanDisk Corp.	9,500	930,810
Western Digital Corp.	8,300	918,810


	Shares	Value
Materials 6.3%		$15,653,910
Chemicals 2.6%
Agrium, Inc.	1,400	132,553
Akzo Nobel NV	11,932	825,575
Cabot Corp.	5,600	245,616
E.I. du Pont de Nemours & Company	22,500	1,663,650
Fujimi, Inc.	8,600	124,980
Hitachi Chemical Company, Ltd.	14,800	261,469
JSR Corp.	15,200	260,897
Methanex Corp.	10,200	467,466
Mitsui Chemicals, Inc.	99,000	280,405
Nitto Denko Corp.	4,600	257,027
PTT Global Chemical PCL	491,800	766,102
Sumitomo Bakelite Company, Ltd.	61,000	237,072
The Dow Chemical Company	22,959	1,047,160
Construction materials 0.4%
Buzzi Unicem SpA	21,195	268,267
CRH PLC	11,584	277,770
Holcim, Ltd. (I)	3,312	236,755
Lafarge SA	3,237	227,238
Containers and packaging 0.1%
AMVIG Holdings, Ltd.	256,000	110,303
Metals and mining 1.5%
Aichi Steel Corp.	22,000	77,118
Anglo American Platinum, Ltd. (I)	5,767	169,310
Anglo American PLC	18,799	347,865
Aquarius Platinum, Ltd. (I)	273,117	62,165
Barrick Gold Corp.	15,600	168,112
BHP Billiton PLC	26,216	561,844
Centerra Gold, Inc.	33,600	174,681
Chubu Steel Plate Company, Ltd.	10,500	44,159
Eldorado Gold Corp.	32,651	198,518
G-Resources Group, Ltd. (I)	4,689,000	109,781
Impala Platinum Holdings, Ltd. (I)	34,005	222,230
Kinross Gold Corp. (I)	84,525	238,361
Lonmin PLC (I)	67,174	185,189
Maruichi Steel Tube, Ltd.	7,900	168,138
Neturen Company, Ltd.	6,300	41,955
Northern Dynasty Minerals, Ltd. (I)	16,000	6,197
Reliance Steel & Aluminum Company	2,400	147,048
Resolute Mining, Ltd. (I)	262,027	55,806
Salzgitter AG	6,643	185,892
Tokyo Steel Manufacturing Company, Ltd.	38,500	236,798
Yamato Kogyo Company, Ltd.	7,200	201,373


	Shares	Value
Materials (continued)
Metals and mining (continued)
Yodogawa Steel Works, Ltd.	30,000	$111,588
Paper and forest products 1.7%
International Paper Company	67,070	3,593,611
Norbord, Inc.	29,500	655,866
Telecommunication services 3.2%		7,925,460
Diversified telecommunication services 2.9%
KT Corp.	9,534	269,597
Magyar Telekom Telecommunications PLC (I)	133,228	172,119
Nippon Telegraph & Telephone Corp.	42,900	2,191,443
Orange SA	21,632	367,889
Telefonica SA	27,375	393,037
Telenor ASA	67,748	1,370,448
Verizon Communications, Inc.	11,075	515,747
Verizon Communications, Inc.	41,540	1,943,241
Wireless telecommunication services 0.3%
NTT DOCOMO, Inc.	48,200	701,939
Utilities 2.8%		7,076,144
Electric utilities 1.7%
Duke Energy Corp.	28,000	2,339,120
Edison International	14,970	980,236
The Southern Company	10,700	525,477
Xcel Energy, Inc.	14,060	505,035
Gas utilities 0.2%
UGI Corp.	14,071	534,417
Independent power and renewable electricity producers 0.1%
NTPC, Ltd.	55,133	125,360
Multi-utilities 0.8%
E.ON SE	14,969	255,846
GDF Suez	20,482	477,620
National Grid PLC	56,801	805,966
PG&E Corp.	5,600	298,144
RWE AG	7,417	228,923
Preferred securities 0.4%		$969,824
(Cost $168,846)
Information technology 0.4%		969,824
Software 0.4%
Mobileye (I)	24,190	969,824


	Rate (%)	Maturity date	Par value^		Value
Corporate bonds 13.9%					$34,439,285
(Cost $36,214,624)
Consumer discretionary 2.6%					6,354,766
Automobiles 0.2%
Chrysler Group LLC	8.250	06-15-21		230,000	254,725
General Motors Company	4.875	10-02-23		160,000	171,200
General Motors Company	6.250	10-02-43		65,000	77,649
Diversified consumer services 0.2%
Service Corp. International	7.625	10-01-18		125,000	139,425
The ServiceMaster Company LLC	7.000	08-15-20		321,000	332,235
Hotels, restaurants and leisure 0.2%
NH Hotel Group SA (S)	6.875	11-15-19	EUR	235,000	304,907
PC Nextco Holdings LLC	8.750	08-15-19		150,000	150,750
Household durables 0.3%
K Hovnanian Enterprises, Inc. (S)	7.000	01-15-19		25,000	23,875
K Hovnanian Enterprises, Inc. (S)	8.000	11-01-19		150,000	144,000
K Hovnanian Enterprises, Inc. (S)	9.125	11-15-20		125,000	133,125
KB Home	7.000	12-15-21		375,000	394,453
Lennar Corp.	4.750	11-15-22		125,000	122,500
Media 1.5%
Altice Financing SA (S)	6.500	01-15-22	EUR	100,000	123,274
Altice Finco SA (S)	9.000	06-15-23	EUR	100,000	132,712
AMC Entertainment, Inc.	9.750	12-01-20		185,000	201,188
CCO Holdings LLC	5.125	02-15-23		5,000	4,888
CCO Holdings LLC	5.250	09-30-22		5,000	4,988
CCO Holdings LLC	5.750	09-01-23		35,000	35,438
CCO Holdings LLC	7.375	06-01-20		255,000	270,300
Cequel Communications Holdings I LLC (S)	5.125	12-15-21		270,000	261,900
DISH DBS Corp.	6.750	06-01-21		170,000	182,750
DISH DBS Corp.	7.875	09-01-19		440,000	499,400
Gannett Company, Inc. (S)	4.875	09-15-21		115,000	114,138
Gannett Company, Inc.	5.125	10-15-19		380,000	388,550
Gannett Company, Inc. (S)	5.500	09-15-24		20,000	20,050
Gannett Company, Inc.	6.375	10-15-23		55,000	58,300
Getty Images, Inc. (S)	7.000	10-15-20		140,000	109,900
Gray Television, Inc.	7.500	10-01-20		170,000	175,100
Harron Communications LP (S)	9.125	04-01-20		90,000	98,100
Sirius XM Radio, Inc. (S)	4.250	05-15-20		100,000	98,500
TVN Finance Corp. III AB	7.375	12-15-20	EUR	130,000	173,824
Unitymedia Hessen GmbH & Company KG	5.500	09-15-22	EUR	360,000	465,035
Unitymedia Hessen GmbH & Company KG	5.750	01-15-23	EUR	125,000	163,626
Specialty retail 0.2%
GRD Holdings III Corp. (S)	10.750	06-01-19		185,000	202,113
Michaels Stores, Inc. (S)	5.875	12-15-20		195,000	196,950


	Shares	Value
Financials (continued)
Insurance (continued)
MetLife, Inc.	43,855	$2,372,117
Principal Financial Group, Inc.	7,400	384,356
Storebrand ASA (I)	50,498	197,261
T&D Holdings, Inc.	34,500	413,581
The Dai-ichi Life Insurance Company, Ltd.	18,800	285,381
Tongyang Life Insurance (I)	11,035	107,847
Willis Group Holdings PLC	21,600	967,896
Zurich Insurance Group AG (I)	7,017	2,192,829
Real estate investment trusts 1.2%
Blackstone Mortgage Trust, Inc., Class A	26,600	775,124
Equity LifeStyle Properties, Inc.	4,700	242,285
ICADE	8,342	667,465
National Storage REIT	129,201	151,947
Two Harbors Investment Corp.	30,800	308,616
Weyerhaeuser Company	27,100	972,619
Real estate management and development 1.4%
Castellum AB	56,502	880,293
Deutsche Annington Immobilien SE	50,325	1,708,618
Deutsche Wohnen AG	34,159	805,801
Health care 9.9%		24,694,274
Biotechnology 0.1%
Sinovac Biotech, Ltd. (I)	24,701	129,186
Health care equipment and supplies 0.2%
Covidien PLC	2,000	204,560
Zimmer Holdings, Inc.	2,600	294,892
Health care providers and services 0.9%
Aetna, Inc.	10,100	897,183
AmerisourceBergen Corp.	4,700	423,752
Quest Diagnostics, Inc.	13,300	891,898
Suzuken Company, Ltd.	900	24,861
Health care technology 0.0%
AGFA-Gevaert NV (I)	39,241	99,252
Life sciences tools and services 0.0%
CMIC Holdings Company, Ltd.	7,100	111,088
Pharmaceuticals 8.7%
Almirall SA (I)	49,864	822,864


	Rate (%)	Maturity date	Par value^		Value
Telecommunication services (continued)
Diversified telecommunication services (continued)
Level 3 Financing, Inc.	8.625	07-15-20		165,000	$177,994
UPCB Finance III, Ltd.	6.625	07-01-20		325,000	341,250
Wind Acquisition Finance SA (S)	4.000	07-15-20	EUR	310,000	367,970
Windstream Corp.	7.750	10-15-20		90,000	92,475
Windstream Corp.	7.875	11-01-17		165,000	178,613
Wireless telecommunication services 1.0%
SoftBank Corp. (S)	4.500	04-15-20		400,000	394,000
Sprint Communications, Inc. (S)	9.000	11-15-18		100,000	113,740
Sprint Corp.	7.250	09-15-21		580,000	574,925
Sprint Corp.	7.875	09-15-23		180,000	177,696
Syniverse Holdings, Inc.	9.125	01-15-19		75,000	78,375
T-Mobile USA, Inc.	6.464	04-28-19		135,000	140,400
T-Mobile USA, Inc.	6.625	11-15-20		375,000	381,563
T-Mobile USA, Inc.	6.731	04-28-22		220,000	226,600
VimpelCom Holdings BV	5.200	02-13-19		220,000	178,200
VimpelCom Holdings BV	6.255	03-01-17		200,000	182,180
Utilities 0.3%					772,416
Electric utilities 0.2%
DPL, Inc.	7.250	10-15-21		290,000	295,800
GenOn Americas Generation LLC	9.125	05-01-31		100,000	85,500
Techem GmbH	6.125	10-01-19	EUR	200,000	257,741
Independent power and renewable electricity producers 0.1%
Dynegy Finance I, Inc. (S)	7.375	11-01-22		50,000	50,875
Dynegy Finance I, Inc. (S)	7.625	11-01-24		25,000	25,500
Dynegy, Inc.	5.875	06-01-23		60,000	57,000
Convertible bonds 0.1%					$187,288
(Cost $218,514)
Consumer discretionary 0.0%					40,800
Household durables 0.0%
M/I Homes, Inc.	3.000	03-01-18		40,000	40,800
Energy 0.1%					78,488
Oil, gas and consumable fuels 0.1%
Cobalt International Energy, Inc.	2.625	12-01-19		130,000	78,488
Health care 0.0%					68,000
Pharmaceuticals 0.0%
Cubist Pharmaceuticals, Inc.	1.875	09-01-20		50,000	68,000

Portfolio Manager	Range of Beneficial Ownership
Kent M. Stahl, CFA	None
Gregg R. Thomas, CFA	None


(b) REGISTRANT PURCHASES OF EQUITY SECURITIES

Period		Total Number of Shares Purchased		Average Price per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans*		Maximum Number of Shares that May Yet Be Purchased Under the Plans

	14-Jan		17,899		17.124		17,899		1,355,339	*
	14-Feb		28,565		17.471		28,565		1,326,774
	14-Mar		48,402		17.430		48,402		1,278,372
	14-Apr		—		—		—		1,278,372
	14-May		—		—		—		1,278,372
	14-Jun		—		—		—		1,278,372
	14-Jul		—		—		—		1,278,372
	14-Aug		—		—		—		1,278,372
	14-Sep		—		—		—		1,278,372
	14-Oct		—		—		—		1,278,372
	14-Nov		—		—		—		1,278,372
	14-Dec		—		—		—		1,363,751	*
	Total		94,866	$	17.385				—