[Federal Register Volume 60, Number 108 (Tuesday, June 6, 1995)]
[Notices]
[Pages 29903-29905]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13802]



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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-21100; File No. 812-9426]


John Hancock Variable Series Trust I, et al.

May 30, 1995.
Agency: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

Action: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``1940 Act'').

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Applicants: John Hancock Variable Series Trust I (the ``Trust''), any 
series of the Trust which may be established in the future, John 
Hancock Mutual Life Insurance Company (``John Hancock''), and all 
registered investment companies for which John Hancock may serve as the 
investment advisor in the future (the ``Funds'').

Relevant 1940 Act Sections: Order requested under Section 6(c) of the 
1940 Act for exemptions from Section 17(d) and Rule 17d-1 thereunder.

Summary of Application: Applicants seek an order permitting the 
existing series of the Trust to pool daily uninvested cash balances, 
together with the balances of any futures series of the Trust and any 
of the Funds, into a joint account for the purpose of investing the 
cash balances in short-term repurchase agreements, commercial paper and 
other short-term investments.

Filing Date: The application was filed on December 19, 1994, and 
Applicants represent that an amendment to the application will be filed 
during the notice period.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing on this application by writing to the 
Secretary of the SEC and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on June 26, 1995 and should be accompanied by 
proof of service on Applicants in the form of an affidavit or, for 
lawyers, by certificate of service. Hearing requests should state the 
nature of the interest, the reason for the request and the issues 
contested. Persons may request notification of the date of a hearing by 
writing to the Secretary of the SEC.

Addresses: Secretary, SEC, 450 Fifth Street NW., Washington, D.C. 
20549. Applicants: James C. Hoodlet, Law Department, T-55, John Hancock 
Mutual Life Insurance Company, P.O. Box 111, 200 Clarendon Street, 
Boston, Massachusetts 02117.

For Further Information Contact: Barbara J. Whisler, Senior Counsel, or 
Wendy Friedlander, Deputy Chief, both at (202) 942-0670, Office of 
Insurance Products, Division of Investment Management.

Supplementary Information: Following is a summary of the application, 
the complete application is available for a fee from the Public 
Reference Branch of the SEC.

Applicants' Representations

    1. The Trust, an open-end diversified management investment company 
of the series type, currently has nine separate investment portfolios 
(the ``Portfolios''), each of which has separate investment objectives, 
policies and restrictions.
    John Hancock serves as the investment advisor to the Trust. Each 
Portfolio of the Trust pays John Hancock a management fee based on a 
percentage of the average daily net assets of that Portfolio. Shares of 
the Trust are sold to separate accounts (the ``Accounts''), funding 
both variable life insurance [[Page 29904]] policies and variable 
annuity contracts issued by John Hancock and John Hancock Variable Life 
Insurance Company. The Accounts are registered with the Commission as 
unit investment trusts.
    2. Applicants state that at the end of each trading day, it is 
expected that some or all of the Portfolios will have uninvested cash 
balances in their custodian accounts. Applicants state that John 
Hancock would be required by the 1940 Act to purchase short-term 
investments for these uninvested cash balances on a Portfolio by 
Portfolio basis. Applicants argue that these separate purchases result 
in certain inefficiencies which limit the return each of the Portfolios 
may achieve. Accordingly, Applicants request an order to permit the 
Portfolios to deposit some or all of the uninvested cash balances into 
a single joint account. The balance in the joint account would then be 
used to enter into one or more short-term investment transactions.
    3. Applicants state that the proposed joint account arrangement 
will result in the Portfolios saving significant amounts in yearly 
transaction fees. Moreover, Applicants argue that it is easier to 
negotiate a higher yield on large short-term investment transactions 
than on smaller transactions.
    Additionally, Applicants state that, by reducing the number of 
trade tickets which would have to be written, the proposed joint 
account arrangement will simplify transactions and reduce the 
opportunity for errors. Further, Applicants state that flexibility in 
the management of the Portfolios' cash balances will be enhanced, and 
the possibility that any Portfolio will have a cash balance uninvested 
overnight will be reduced. Finally, Applicants argue that the joint 
account should result in an increase in the number of dealers willing 
to enter into short-term investment transactions with some of the 
smaller Portfolios.
    4. Applicants state that each Portfolio requires that repurchase 
agreements always be at least 102% collateralized. The joint account 
would enter into repurchase agreements collateralized by either cash or 
United States government or agency securities, i.e., securities issued 
or guaranteed as to principal or interest by the United States 
government or by any of its agencies or instrumentalities. The 
Portfolios will invest in repurchase agreements only to the extent such 
investment would be consistent with each Portfolio's investment 
objectives, policies and restrictions. Applicants represent that the 
joint repurchase transactions will comply with the standards and 
guidelines set forth in Investment Company Act Release No. 13005 (Feb. 
2, 1983) and with any other existing and future positions the 
Commission or its staff may take regarding repurchase transactions, 
whether by rule, release, letter or otherwise. Applicants acknowledge 
that they have a continuing obligation to monitor the Commission's 
published statements on repurchase agreements, and, in the event that 
the Commission sets forth different or additional requirements, each 
Portfolio will modify its standards and guidelines accordingly.
    5. Applicants state that the commercial paper purchased by the 
joint account will be interest bearing or discounted, and may include 
dollar denominated commercial paper of foreign issuers. Applicants 
further state that the market value of discounted commercial paper plus 
accrued interest will equal par value; and, for interest bearing 
commercial paper, cost, market and par value will be the same. 
Applicants represent that all commercial paper purchased by the joint 
account will be a ``First Tier Security'' as that term is defined in 
Rule 2a-7 under the 1940 Act.
    6. Other short-term instruments purchased by the joint account will 
include: obligations issued or guaranteed as to principal or interest 
by the United States government, or any agency or authority thereof; 
and obligations (including certificates of deposit, time deposits and 
bankers acceptances) of banks and savings and loan associations which, 
at the date of the investment, have capital, surplus and undivided 
profits (as of the date of the most recently published financial 
statements) in excess of $100,000,000. The obligations may include 
those of foreign branches of United States banks and United States 
branches of foreign banks. Each of the obligations of banks and of 
savings and loan associations purchased by the joint account will 
qualify as a ``First Tier Security'' as that term is defined in Rule 
2a-7 under the 1940 Act.\1\

    \1\ Applicants represent that an amendment to the application 
will be filed during the notice period and that such amendment will 
include this representation.
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    7. As with repurchase agreements, Applicants acknowledge that they 
have an obligation to monitor published statements of the Commission 
regarding commercial paper and other short-term investment 
transactions, and, in the event that the Commission or its staff set 
forth guidelines with respect to such transactions, each Portfolio 
participating in the joint account will conform its investments to such 
guidelines and, as necessary, will adopt appropriate standards and 
guidelines.
    8. Applicants state that each of the Portfolios will participate in 
the joint account on the same basis as every other Portfolio and in 
conformity with the Portfolio's fundamental investment policies and 
restrictions. John Hancock will have no monetary participation in the 
joint account, but will be responsible for investing amounts in the 
joint account, establishing accounting and control procedures, and 
ensuring the equal treatment of each Portfolio. Applicants state that 
the assets of the Portfolios will continue to be held under proper bank 
custodial procedures.
    9. Applicants opine that the investment of a Portfolio in the joint 
account will not be subject to the claims of creditors, whether brought 
in bankruptcy, insolvency or other legal proceeding, of any other 
Portfolio participating in the joint account.

Applicants' Legal Analysis

    1. Section 17(d) of the 1940 Act makes it unlawful for an 
affiliated person of a registered investment company, acting as 
principal, to effect any transaction in which the registered investment 
company is a joint or a joint and several participant with such person 
in contravention of rules and regulations prescribed by the Commission. 
Rule 17d-1 under the 1940 Act provides that an affiliated person of a 
registered investment company, acting as principal, shall not 
participate in, or effect any transaction in connection with, any joint 
enterprise or other joint arrangement in which the registered 
investment company is a participant unless the Commission has issued an 
order approving such arrangement.
    2. Each Portfolio, by participating in the proposed joint account, 
and John Hancock, by managing the proposed joint account, may be joint 
participants in a transaction within the meaning of Section 17(d), and 
the proposed joint account could be a joint arrangement or joint 
enterprise within the meaning of Rule 17d-1 under the 1940 Act.
    3. In passing upon applications under Rule 17d-1, the Commission 
may consider the extent to which an entity's participation in a joint 
arrangement or enterprise is on a ``basis different from or less 
advantageous than that of other participants.'' Applicants believe that 
the proposed joint account could have significant benefits for the 
participating Portfolios, and that no participating Portfolio will 
receive fewer relative benefits from the proposed joint account than 
any other participating Portfolio. [[Page 29905]] Applicants represent 
that each Portfolio will participate in the proposed joint account on 
the same basis as every other Portfolio.
    4. The trustees of the Trust have considered the proposed joint 
account and determined that the use of the joint account would be 
beneficial to each participating Portfolio. Applicants represent that 
the trustees have satisfied themselves that the proposed method of 
operation for the joint account will not result in any conflicts of 
interest between any of the Portfolios or between any Portfolio and 
John Hancock. The trustees have further determined that: there does not 
appear to be any basis upon which to predicate greater benefit to one 
Portfolio than to another; the operation of the joint account will be 
free of any inherent bias in favor of any one Portfolio over another; 
and, the anticipated benefits flowing to each Portfolio will fall 
within an acceptable range of fairness.
    5. The trustees believe that the primary beneficiaries will be 
participating Portfolios and the owners of the contracts issued by the 
Accounts because the joint account may earn higher returns and result 
in lower transaction costs for the Portfolios, and will be a more 
efficient means of administering the Portfolios' daily investment 
transactions.
Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions.
    1. A separate custodial account will be established for the joint 
account into which each Portfolio may deposit some or all of its 
uninvested cash balance after the conclusion of its daily trading 
activity. The joint account will not be distinguishable from any other 
accounts maintained by any Portfolio with the custodian except that 
monies of the Portfolios will be commingled. The joint account will not 
have any indicia of separate legal existence, and the sole function of 
the joint custodial account will be to provide a convenient way to 
aggregate individual transactions necessary for the management of each 
of the Portfolios' daily uninvested cash balance.
    2. Cash in the joint account will be invested in one or more 
repurchase agreements, commercial paper and/or other short-term 
investment transactions which will have, with rare exceptions, an 
overnight, over the weekend, or over the holiday maturity, and in no 
event will have a maturity in excess of seven days.
    3. Each of the Portfolios will participate in an investment through 
the joint account only to the extent consistent with that Portfolio's 
investment objectives, policies and restrictions.
    4. John Hancock will maintain records in conformity with Section 31 
of the 1940 Act and rules and regulations thereunder.
    The records will document, for any given day, each Portfolio's 
aggregate investment in the joint account and its pro rata share of the 
joint account.
    5. Repurchase agreements will be at least 102% collateralized at 
all times, and will satisfy the uniform standards set by the Portfolios 
for such investments. The securities subject to the repurchase 
agreement will be transferred to the joint custodial account and they 
will not be held by the Portfolio's repurchase counterparty or by an 
affiliated person of that counterparty.
    6. Each portfolio relying upon Rule 2a-7 for valuation of its net 
assets based on amortized cost will use the average maturity of the 
investments made by the Portfolio participating in the joint account 
when computing that Portfolio's average portfolio maturity with respect 
to the portion of its assets held in the joint account on that day.
    7. No Portfolio will be allowed to create a negative balance in the 
joint account for any reason, although the Portfolio will be permitted 
to withdraw all or a portion of its balance at any time. No Portfolio 
will be obligated either to invest in the joint account or to maintain 
any minimum balance in the joint account.
    8. John Hancock will administer the investment of the cash balances 
in and operation of the joint account as part of John Hancock's duties 
under the general terms of each Portfolio's existing or any future 
investment management agreement. John Hancock will not collect any 
additional or separate fees for the management of the joint account.
    9. The administration of the joint account will be within the 
fidelity bond coverage required by Section 17(g) of the 1940 Act and 
Rule 17g-1 thereunder.
    10. Each of the Portfolios participating in the joint account will 
adopt procedures pursuant to which the joint account will operate and 
which will be reasonably designed to provide that the requirements set 
forth in the application are met. The trustees of the Trust will make 
and approve changes that they deem necessary to ensure that such 
procedures are followed. Additionally, the trustees of the Trust will 
be responsible for assuring that the joint account is operated in 
accordance with such procedures.
    11. The trustees of the Trust and the boards of directors of any 
future Funds participating in the joint account will evaluate the joint 
account annually, and will continue the joint account arrangement only 
if the trustees and/or the boards, as applicable, determine that there 
is a reasonable likelihood that the joint account will benefit the 
Trust, the Funds and the owners of the life insurance policies and 
annuity contracts participating in the Trust and the Funds.\2\

    \2\ Applicants represent that they will file an amendment during 
the notice period and that such amendment will contain the 
representations set forth in condition 11.
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Conclusion

    Applicants assert that for the reasons and upon the facts set forth 
above, the requested exemptions from Section 17(d) of the 1940 Act and 
Rule 17d-1 thereunder are necessary and appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-13802 Filed 6-5-95; 8:45 am]
BILLING CODE 8010-01-M