[Federal Register Volume 59, Number 249 (Thursday, December 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-32095]
[[Page Unknown]]
[Federal Register: December 29, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20794; 812-9256]
John Hancock Sovereign Bond Fund, et al.; Notice of Application
December 23, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: John Hancock Sovereign Bond Fund, John Hancock Cash
Management Fund, John Hancock Capital Series, John Hancock Sovereign
Investors Fund, Inc., John Hancock Special Equities Fund, John Hancock
Strategic Series, John Hancock Tax-Exempt Income Fund, John Hancock
Tax-Exempt Series Fund, John Hancock Technology Series, Inc., John
Hancock Limited Term Government Fund, John Hancock World Fund, Freedom
Investment Trust, Freedom Investment Trust II, Freedom Investment Trust
III, John Hancock Institutional Series Trust, John Hancock Series,
Inc., John Hancock Bond Fund, John Hancock Investment Trust, John
Hancock Capital Growth Fund, John Hancock Tax-Free Bond Fund, John
Hancock California Tax-Free Income Fund, John Hancock Cash Reserve,
Inc., John Hancock Current Interest, John Hancock Bank and Thrift
Opportunity Fund, John Hancock Income Securities Trust, John Hancock
Investors Trust, Patriot Premium Dividend Fund I, Patriot Premium
Dividend Fund II, Patriot Select Dividend Trust, Patriot Global
Dividend Fund and Patriot Preferred Dividend Fund, and any registered
investment companies, or series thereof, for which John Hancock
Advisers, Inc. (``JHA'') or any entity controlling, controlled by, or
under common control with JHA, acts as investment adviser or principal
underwriter (collectively with the future funds, the ``Funds''), and
JHA.\1\
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\1\Although certain Funds, or series thereof, for which JHA (or
an entity controlling, controlled by or under common control with
JHA) currently acts as investment adviser or principal underwriter
do not presently intend to rely on the relief requested, any such
Fund or series would be covered by the relief requested if it later
proposed to adopt and implement the Plan for its Independent
Trustees on the terms described in the application.
Relevant Act Sections: Order requested (a) under section 6(c) of the
Act for an exemption from sections 13(a)(2), 13(a)(3), 18(a), 18(c),
18(f)(1), 22(f), 22(g) and 23(a), and rule 2a-7 thereunder, (b) under
sections 6(c) and 17(b) of the Act for an exemption from section
17(a)(1), and (c) pursuant to section 17(d) of the Act and rule 17d-1
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thereunder.
Summary of Application: Applicants request an order that would permit
the Funds to enter into deferred compensation arrangements with their
independent trustees.
Filing Date: The application was filed on September 28, 1994, and
amended on November 30, 1994, and December 22, 1994.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on January 17,
1995, and should be accompanied by proof of service on applicants, in
the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 101 Huntington Avenue, Boston, Massachusetts 02199.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Barry D. Miller,
Senior Special Counsel and Branch Chief, at (202) 942-0564 (Division of
Investment Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. Each of the Funds is a Massachusetts business trust, except John
Hancock Sovereign Investors Fund, Inc., John Hancock Technology Series,
Inc., John Hancock Series, Inc., and John Hancock Cash Reserve, Inc.
are Maryland corporations. John Hancock Cash Management Fund, John
Hancock Cash Reserve, Inc., and John Hancock U.S. Government Cash
Reserve (a series investment company of John Hancock Current Interest)
are money market funds. Each of the Funds is registered under the Act
as either an open-end investment company or a closed-end investment
company. JHA, an indirect wholly owned subsidiary of the John Hancock
Mutual Life Insurance Company, is the investment adviser to each Fund
and is registered under the Investment Advisers Act of 1940.
2. Each Fund has a board of trustees or directors (collectively,
the ``boards''), a majority of the members of which are not
``interested persons'' (the ``Independent Trustees'') of such Fund
within the meaning of section 2(a)(19) of the Act. Each Fund pays the
Independent Trustees annual trustees' fees plus a fee for each board or
committee meeting attended. If a Fund is composed of more than one
series investment company, each series of that Fund pays a portion,
determined in an equitable manner, of that Fund's trustees' fees. The
amounts paid to the Independent Trustees are insignificant in
comparison to the net assets of the respective Fund or series.
Applicants request an order to permit the Independent Trustees to elect
to defer receipt of all or part of their trustees' fees pursuant to a
deferred fee agreement (the ``Plan'') entered into between each
independent Trustee and appropriate Fund.\2\ Under the Plan, the
Independent Trustees could defer payment of trustees' fees (the
``Deferred Compensation'') in order to defer payment of income taxes or
for other reasons. Participation in the Plan will be limited to the
Independent Trustees.
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\2\In the case of Funds composed of more than one series, the
Fund's board may adopt the Plan on behalf of some but not all of the
series, although the board may in the future adopt and implement the
Plan on behalf of such series.
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3. Under the Plan, the deferred fees payable by a Fund to a
participating Independent Trustee (a ``Participant'') will be credited
to a book reserve account established by the Fund (an ``Account''), as
of the date such fees would have been paid to the Independent Trustee.
The value of an Account will be determined by reference to a
hypothetical investment in shares of one or more of the Funds, as
selected by each Participant from a list as designated from time to
time by the committee established to administer the Plan, in its sole
discretion, as eligible for hypothetical investment under the Plan (the
``Investment Funds''). With respect to open-end Funds, the initial
value of Deferred Compensation credited to an Account will be affected
at the respective current net asset value of each such open-end Fund.
With respect to closed-end Funds, the initial value of Deferred
Compensation credited to an Account will be effected at the respective
current market price, less any brokerage fees which would be payable
upon the acquisition of shares of such closed-end Fund in the open
market. Thereafter, the value of such Account will fluctuate as the net
asset value of the shares of each open-end Fund fluctuates or as the
market value of the shares of each closed-end Fund fluctuates, as the
case may be, and will also reflect the value of assumed reinvestment of
dividends and capital gains distributions from each open-end and
closed-end Fund in additional shares of such Fund.
4. The Funds' respective obligations to make payments of amounts
accrued under the Plan will be general unsecured obligations, payable
solely from their respective general assets and property. In the case
of Funds composed of more than one series, no series will be liable for
the other series' respective obligations to make payments of amounts
accrued under the Plan. The Plan provides that the Funds will be under
no obligation to purchase, hold or dispose of any investments under the
Plan, but, if one or more of the Funds choose to purchase investments
to cover their obligations under the Plan, then any and all such
investments will continue to be a part of the respective general assets
and property of such Funds.
5. As a matter of prudent risk management, to the extent a
Participant selects an Investment Fund other than the Fund for which
the participant is deferring his or her trustee's fees, each Fund
intends to and, with respect to any money market Fund that values its
assets by the amortized cost method, will, purchase and hold shares of
the Underlying Securities in amounts equal in value to the deemed
investments of the Accounts of its Participants. Thus, in cases where
the Funds purchase shares of the Underlying Securities, liabilities
created by the credits to the Accounts under the Plan are expected to
be matched by an equal amount of assets (i.e., a direct investment in
Underlying Securities), which assets would not be held by the Fund if
fees were paid on a current basis.
6. Payments under the Plan will commence on the first day of the
calendar year following termination of the Participant's service in
such capacity or on a specific date selected by the Participant, with
payment to be made in a lump sum or in ten or fewer annual
installments. In the event of a Participant's death, amounts payable
under the Plan will thereafter be payable to the Participant's
designated beneficiaries. In all other events, a Participant's right to
receive payments will be nontransferable. Amounts deferred under the
Plan may become payable to the Participant, in the discretion of the
Committee, in the event of the Participant's total disability or to
alleviate financial hardship. In the event of the liquidation,
dissolution or winding up of a Fund or the distribution of all or
substantially all of a Fund's assets and property to its shareholders
(unless the Fund's obligations under the Plan have been assumed by a
financially responsible party purchasing such assets) or in the event
of a merger or reorganization of a Fund (unless prior to such merger or
reorganization, the Fund's board determines that the Plan shall survive
the merger or reorganization), all unpaid amounts in the Accounts
maintained by such Fund shall be paid in a lump sum to the participants
on the effective date thereof.\3\ The Plan will not obligate any
participating Fund to retain a trustee in such a capacity, nor will it
obligate any Fund to pay any (or any particular level of) trustees'
fees to any trustee.
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\3\Applicants acknowledge that the requested order would not
permit a party acquiring a Fund's assets to assume a Fund's
obligations under the Plan if such obligations would constitute a
violation of the Act by the assuming party. Accordingly, such
assumption would be permitted only if the assuming party is (a)
another Fund, (b) another registered investment company that has
received exemptive relief similar to that sought by this amendment,
or (c) not a registered investment company or is otherwise exempt
from the provisions of the Act.
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Applicants' Legal Analysis
1. Applicants request an order which would exempt the Funds
(including each Fund's successors in interest\4\) (a) under section
6(c) of the Act from sections 13(a)(2), 13(a)(3), 18(a), 18(c),
18(f)(1), 22(f), 22(g) and 23(a) and rule 2a-7 thereunder, to the
extent necessary to permit the Funds to adopt and implement the Plan;
(b) under sections 6(c) and 17(b) of the Act from section 17(a)(1) to
permit the Funds to sell securities for which they are the issuer to
participating Funds in connection with the Plan; and (c) under section
17(d) of the Act and rule 17d-1 thereunder to permit the Funds to
effect certain joint transactions incident to the Plan.
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\4\``Successors in interest'' is herein limited to entities that
result from a reorganization into another jurisdiction or a change
in the type of business organization.
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2. Sections 18(a) and 18(c) restrict the ability of a registered
closed-end investment company to issue senior securities. Section
18(f)(1) generally prohibits a registered open-end investment company
from issuing senior securities. Section 13(a)(2) requires that a
registered investment company obtain shareholder authorization before
issuing any senior security not contemplated by the recitals of policy
in its registration statement. Applicants state that the Plan possesses
none of the characteristics of senior securities that led Congress to
enact these sections. The Plan would not: (a) induce speculative
investments or provide opportunities for manipulative allocation of any
Fund's expenses or profits; (b) affect control of any fund; or (c)
confuse investors or convey a false impression as to the safety of
their investments. All liabilities created under the Plan would be
offset by equal amounts of assets that would not otherwise exist if the
fees were paid on a current basis.
3. Section 22(f) prohibits undisclosed restrictions on
transferability or negotiability of redeemable securities issued by
open-end investment companies. The Plan would set forth all such
restrictions, which would be included primarily to benefit the
Participants and would not adversely affect the interests of the
trustees or of any shareholder.
4. Sections 22(g) and 23(a) prohibit registered open-end investment
companies and closed-end investment companies, respectively, from
issuing any of their securities for services or for property other than
cash or securities. These provisions prevent the dilution of equity and
voting power that may result when securities are issued for
consideration that is not readily valued. Applicants believe that the
Plan would merely provide for deferral of payment of such fees and thus
should be viewed as being issued not in return for services but in
return for a Fund not being required to pay such fees on a current
basis.
5. Section 13(a)(3) provides that no registered investment company
shall, unless authorized by the vote of a majority of its outstanding
voting securities, deviate from any investment policy that is
changeable only if authorized by shareholder vote.
Certain of the Funds have adopted an investment policy regarding
the purchase of investment company shares, which policy could prohibit
or restrict the Fund from purchasing shares of other investment
companies. Applicants believe that it is appropriate to exempt
applicants as necessary from section 13(a)(3) so as to enable the
affected Funds to invest in Underlying Securities without a shareholder
vote. Applicants will provide notice to shareholders in the prospectus
of each affected Fund of the deferred fee arrangement with the
Independent Trustees. The value of the Underlying Securities will be de
minimis in relation to the total net assets of the respective Fund, and
will at all times equal the value of the Fund's obligations to pay
deferred fees. The relief requested from section 13(a)(3) would extend
to named applicants only.
6. Rule 2a-7 imposes certain restrictions on the investments of
``money market funds,'' as defined under the rule, that would prohibit
a Fund that is a money market fund from investing in the shares of any
other Fund. Applicants believe that the requested exemption would
permit the Funds to achieve an exact matching of Underlying Securities
with the deemed investments of the Accounts, thereby ensuring that the
deferred fees would not affect net asset value.
7. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company from selling any security to such
registered investment company, except in limited circumstances. Funds
that are advised by the same entity may be ``affiliated persons'' under
section 2(a)(3)(C) of the Act. Section 17(a)(1) was designed to prevent
sponsors of investment companies from using investment company assets
as capital for enterprises with which they were associated or to
acquire controlling interest in such enterprises. Applicants believe
that an exemption from this provision would facilitate the matching of
each Fund's liability for deferred trustees' fees with the Underlying
Securities that would determine the amount of such Fund's liability.
Applicants assert that the proposed transaction satisfies the criteria
of section 17(b). The finding required by section 17(b)(2) is
predicated on the assumption that relief is granted from section
13(a)(3).
8. Section 17(d) and rule 17d-1 generally prohibit a registered
investment company's joint or joint and several participation with an
affiliated person in a transaction in connection with any joint
enterprise or other joint arrangement or profit-sharing plan ``on a
basis different from or less advantageous than that of'' the affiliated
person. Under the Plan, Participants will not receive a benefit,
directly or indirectly, that would otherwise inure to a Fund or its
shareholders. Participants will receive tax deferral, but the Plan
otherwise will maintain the parties, viewed both separately and in
their relationship to one another, in the same position as if the
deferred fees were paid on a current basis. When all payments have been
made to a Participant, the Participant will be no better off (apart
from the effect of tax deferral) than if he or she had received
trustees fees on a current basis and invested them in Underlying
Securities.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. With respect to the relief requested from rule 2a-7, any money
market Fund, or series thereof, that values its assets in accordance
with a method prescribed by rule 2a-7 will buy and hold Underlying
Securities that determine the value of the Accounts to achieve an exact
match between such Fund's or series' liability to pay deferred fees and
the assets that offset that liability.
2. If a Fund purchases Underlying Securities issued by an
affiliated Fund, the Fund will vote such shares in proportion to the
votes of all other shareholders of such affiliated Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-32095 Filed 12-28-94; 8:45 am]
BILLING CODE 8010-01-M