[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