[Federal Register Volume 61, Number 232 (Monday, December 2, 1996)]
[Notices]
[Pages 63881-63884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30529]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22347; File No. 812-10358]


NASL Series Trust, et al.

November 22, 1996.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of Application for Exemption pursuant to the Investment 
Company Act of 1940 (the ``1940 Act'').

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APPLICANTS: NASL Series Trust (``Trust''), The Manufacturers Life 
Insurance Company (``Manulife''), The Manufacturers Life Insurance 
Company of America (``Manulife America''), Manulife Series Fund, Inc. 
(``Manulife Series Fund''), Manufacturers Adviser Corporation 
(``Manufacturers Adviser''), North American Security Life Insurance 
Company (``Security Life''), First North American Life Assurance 
Company (``FNAL''), and NASL Financial Services, Inc. (``Financial 
Services'').

RELEVANT 1940 ACT SECTIONS: Order requested pursuant to Section 17(b) 
of the 1940 Act, granting an exemption from the provisions of Section 
17(a) thereof, and pursuant to Rule 17d-1 of the 1940 Act, permitting 
certain transactions.

SUMMARY OF APPLICATION: Applicants seek exemptive relief to permit the 
merger of each of the investment portfolios of Manulife Series Fund and 
into portfolios of the Trust that are existing or will be established 
(the ``Reorganization'').

FILING DATE: The application was filed on September 19, 1996, and 
amended on November 21, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the Application 
will be issued unless the Commission orders a

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hearing. Interested persons may request a hearing by writing to the 
Secretary of the Commission 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 December 17, 1996, and must 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 requestor's interest, the reason for the 
request, and the issues contested. Persons may request notification of 
a hearing by writing to the Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549. Applicants, c/o James D. 
Gallagher, Esq., 116 Huntington Avenue, Boston, Massachusetts 02116 and 
Sheri L. Kocen, Esq., 200 Bloor Street East, Toronto, Ontario, Canada 
M4W 1E5.

FOR FURTHER INFORMATION CONTACT: Pamela K. Ellis, Senior Counsel, or 
Kevin M. Kirchoff, Branch Chief, at (202) 942-0670, Office of Insurance 
Products (Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application; the complete application may be obtained for a fee from 
the Public Reference Branch of the Commission.

Applicants' Representations

    1. The Trust, a Massachusetts business trust, is an open-end, 
series investment company registered pursuant to the 1940 Act. Shares 
of the Trust are sold only to insurance companies and their separate 
accounts as the underlying medium for variable annuity and variable 
life insurance contracts. Security Life, FNAL, and Manulife America and 
their separate accounts are the only shareholders of the Trust.
    2. Manulife is a Canadian mutual life insurance company.
    3. Manulife America, an indirect wholly-owned subsidiary of 
Manulife, is a stock life insurance company, organized under the laws 
of Pennsylvania, and redomesticated under the laws of Michigan.
    4. Manulife Series Fund, a Maryland corporation, is an open-end, 
series, management investment company registered pursuant to the 1940 
Act. Shares of Manulife Series Fund are sold only to Manulife America 
and its separate accounts as the underlying medium for variable annuity 
and variable life insurance contracts.
    5. Manufacturers Adviser, a direct wholly-owned subsidiary of 
Manulife America, is registered pursuant to the Investment Advisers Act 
of 1940 (``Advisers Act'') as an investment adviser.
    6. Security Life is a Delaware stock life insurance company.
    7. FNAL, a wholly-owned subsidiary of Security Life, is a New York 
stock life insurance company.
    8. Financial Services, a wholly-owned subsidiary of Security Life, 
is registered pursuant to the Advisers Act as an investment adviser and 
pursuant to the Securities Exchange Act of 1934 as a broker-dealer.
    9. Applicants propose that each of the investment portfolios of 
Manulife Series Fund merge with and into an existing or to be 
established investment portfolio of the Trust. In the Reorganization, 
all of the assets and liabilities of each Manulife Series Fund 
portfolio will be transferred to a corresponding Trust portfolio having 
a substantially similar investment objective in exchange for shares of 
such Trust portfolio.
    10. Shares of each Trust portfolio will be distributed to holders 
of shares of the respective corresponding Manulife Series Fund as 
follows:

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        Manulife series fund portfolio                                   Trust portfolio                        
----------------------------------------------------------------------------------------------------------------
Money-Market Fund.............................  Money Market Trust                                              
International Fund............................  International Stock Trust                                       
Emerging Growth Equity Fund...................  Emerging Growth Trust                                           
Balanced Assets Fund..........................  Balanced Trust                                                  
Common Stock Fund.............................  Common Stock Trust                                              
Pacific Rim Emerging Markets Fund.............  Pacific Rim Emerging Markets Trust                              
Real Estate Securities Fund...................  Real Estate Securities Trust                                    
Capital Growth Bond Fund......................  Capital Growth Bond Trust                                       
Equity Index Fund.............................  Equity Index Trust                                              
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    11. Applicants represent that the total value of all shares of each 
Trust portfolio issued in the Reorganization will equal the total value 
of the net assets of the corresponding Manulife Series Fund portfolio 
being acquired by such Trust portfolio. The number of full and 
fractional shares of a Trust portfolio received by a shareholder of the 
corresponding Manulife Series Fund will be equal in value to the value 
of that shareholder's shares of the corresponding Manulife Series Fund 
portfolio as of the close of regularly scheduled trading on the New 
York Stock Exchange on the date of the Reorganization.
    12. On September 27, 1996, the Board of Directors of Manulife 
Series Fund and the Board of Trustees of the Trust authorized and 
approved the Reorganization. The Reorganization will be submitted to a 
vote of the shareholders of the Manulife Series Fund for approval at a 
special meeting of shareholders scheduled to be held on December 20, 
1996. The sole shareholder of the Manulife Series Fund at the record 
date for that meeting, October 23, 1996, was Manulife America. Manulife 
America will vote all shares of Manulife Series Fund in accordance with 
and in proportion to timely instructions received from owners of the 
variable contracts issued by it, the values of which were invested in 
shares of the Manulife Series Fund through the separate accounts at the 
record date. The Reorganization must be approved by a majority of the 
outstanding voting shares of each Manulife Series Fund portfolio. Under 
Massachusetts law, the Reorganization does not require the approval of 
the shareholders of the Trust.
    13. Financial Services currently serves as investment adviser to 
the Trust. Manufacturers Adviser currently serves as investment manager 
of Manulife Series Fund. Following consummation of the Reorganization 
and pursuant to agreements with Financial Services: (a) Manufacturers 
Adviser will serve as subadviser to the six of the Trust portfolios--
Money Market, Common Stock, Pacific Rim Emerging Markets, Real Estate 
Securities, Capital Growth Bond, and Equity Index Trusts; (b) Rowe 
Price-Fleming International, Inc. will serve as subadviser to the 
International Stock Trust; (c) Founders Asset Management, Inc. will 
serve as subadviser to the Balanced Trust; and (d) Warburg, Pincus 
Counsellors, Inc. will serve as

[[Page 63883]]

subadviser to the Emerging Growth Trust.
    14. Manufacturers Adviser pays all expenses of Manulife Series Fund 
attributable to the Emerging Growth Equity Fund, Balanced Assets Fund, 
Capital Growth Bond Fund, Money-Market Fund, Common Stock Fund, and 
Real Estate Securities Fund except for investment management fees, 
brokerage commission, taxes, interest and other borrowing-related costs 
and extraordinary expenses. With respect to the International Fund, the 
Pacific Rim Emerging Markets Fund, and the Equity Index Fund, the 
respective portfolio pays investment management fees and the other 
expenses noted above, plus up to .50 percent, .65 percent, and .15 
percent, respectively, of any additional expenses in connection with 
the operation of these portfolios.
    15. Financial Services is responsible for performing or paying for 
various administrative services for the Trust. Advisory fees are 
reduced, or Financial Services reimburses the Trust, if the total of 
all expenses (excluding advisory fees, taxes, brokerage commission, 
interest, litigation and indemnification expenses, and other 
extraordinary expenses) applicable to a Trust portfolio exceeds an 
annual rate of .75 percent for the International Stock Trust and 
Pacific Rim Emerging Markets Trust, .15 percent for the Equity Index 
Trust, or .50 percent for all other Trust portfolios. The expense 
limitations continue in effect from year to year unless terminated upon 
notice to the Trust.
    16. In determining whether to approve the Reorganization and 
recommend its approval to shareholders, the Board of Directors of 
Manulife Series Fund (including the directors who are not ``interested 
persons'' of the Manulife Series Fund, with the advice and assistance 
of independent legal counsel) considered various factors, including: 
(a) The advantages to shareholders of investing in a series fund with a 
modern strategy of offering investment opportunities that address 
investor needs at multiple risk/reward levels; (b) the capability of 
Financial Services to offer flexibility and the potential for greater 
and more diverse investment opportunities; (c) the multiple manager 
approach by which Financial Services monitors and evaluates subadviser 
performance, investment compliance, and capabilities with the goal of 
maintaining high quality and an appropriate balance of investment 
alternatives; (d) expense ratios and available information regarding 
the fees and expenses of each Manulife Series Fund portfolio and each 
corresponding Trust portfolio, as well as of similar funds; (e) the 
fact that Financial Services has agreed to limit the total expenses of 
certain of the Trust portfolios for one year following the 
Reorganization to a level no higher than the existing levels of total 
expense of the corresponding Manulife Series Fund portfolios; (f) the 
sophistication and specialization of the new subadvisers for certain of 
the Trust portfolios; (g) the compatibility of the investment 
objectives, policies, restrictions, and portfolios of each Manulife 
Series Fund portfolio and each corresponding Trust portfolio; (h) the 
advantages to each Manulife Series Fund portfolio of investing in 
potentially larger asset pools with greater diversification; (i) the 
historical performance of the Manulife Series Fund portfolios and the 
NASL Money Market Trust, as well as of each portfolio's respective 
investment adviser and subadviser where relevant; (j) the terms and 
conditions of the Reorganization and whether the Reorganization would 
result in dilution of shareholder or contractholder interests; (k) 
portfolio transaction policies of the Manulife Series Fund portfolios 
and the Trust portfolios; (l) any direct and indirect costs incurred by 
each Manulife Series Fund portfolio and each corresponding Trust 
portfolio as a result of the Reorganization; (m) tax consequences of 
the Reorganization; and (n) possible alternatives to the 
Reorganization.
    17. In determining whether to approve the Reorganization and 
recommend its approval to shareholders, the Board of Directors of 
Manulife Series Fund concluded that the participation of each Manulife 
Series Fund portfolio in the Reorganization is in the best interests of 
such portfolio, as well as its shareholders and contract holders whose 
contract values are invested in shares thereof, and that the interest 
of existing shareholders and contractholders will not be diluted as a 
result of such participation. That conclusion was based on various 
consideration, including that the Reorganization will: (a) Enable 
contractholders to take advantage of an investment management approach 
known as managing to the ``efficient frontier'' in which investors 
allocate their assets among a broad mix of investment choices 
consistent with their risk tolerance levels with the goal of maximizing 
their risk adjusted investment return; (b) allow shareholders to 
receive the investment advisory services of Financial Services and its 
multiple manager approach to portfolio management; and (c) permit 
shareholders of the Money-Market Fund portfolio of Manulife Series Fund 
to pursue substantially the same investment goals in a larger fund 
immediately following the consummation of the Reorganization.
    18. Although the expense ratios of five of the Trust's portfolios 
are higher than the expense ratios of the corresponding Manulife Series 
Fund portfolios, the Board of Directors of Manulife Series Fund 
determined that the higher expense ratios are consistent with current 
industry standards and justified in light of the change in portfolio 
management of such portfolios and certain agreements with Financial 
Services to limit for a period of one year following the consummation 
of the Reorganization certain expense ratios.
    19. The Board of Trustees of the Trust determined to approve the 
Reorganization because it would result in an increase in the total 
assets of the Trust, and would provide initial assets for new Trust 
portfolios to be offered after the Reorganization.

Applicants' Legal Analysis

Section 17(a)

    1. Section 17(a) of the 1940 Act prohibits any affiliated person of 
a registered investment company, or any affiliated person of such 
person, acting as principal, knowingly from selling or purchasing any 
security or other property to or from such investment company.
    2. Section 2(a)(3) of the 1940 Act, in part, defines an 
``affiliated person'' of another as ``the person directly or indirectly 
controlling, controlled by, or under common control with, such other 
person.'' Section 2(a)(9) of the 1940 Act defines ``control'' in part 
to mean ``the power to exercise a controlling influence over the 
management or policies of a company, unless such power is solely the 
result of an official position with such company.''
    3. The Trust and Manulife Series Fund may be deemed to be 
affiliated persons of each other or affiliated persons of affiliated 
persons under Section 2(a)(3) of the 1940 Act. Section 17(a), 
therefore, may prohibit the transactions required to effect the 
Reorganization.
    4. Section 17(b) of the 1940 Act provides that the Commission may 
grant an order of exemption from the provisions of Section 17(a) if 
evidence establishes that: (a) the terms of the proposed transaction, 
including the consideration to be paid or received, are reasonable and 
fair and do not involve overreaching on the part of any person 
concerned; (b) the proposed transaction

[[Page 63884]]

is consistent with the policy of each registered investment company 
concerned, as recited in its registration statement and reports filed 
pursuant to the 1940 Act; and (c) the proposed transaction is 
consistent with the general purposes of the 1940 Act.
    5. Applicants request, pursuant to Section 17(b) of the 1940 Act, 
an exemption from the provisions of Section 17(a) to permit the 
Reorganization.
    6. The exchange of assets of the Manulife Series Fund portfolios 
for shares of capital stock of the Trust portfolios will be 
accomplished on the basis of the net asset value of the respective 
portfolios; Applicants assert that the Reorganization will therefore 
not dilute the interests of existing shareholders or contract owners.
    7. In determining whether to approve the Reorganization, the Board 
of Directors of Manulife Series Fund and the Board of Trustees of the 
Trust found, after considering the factors summarized above, that the 
terms of the transactions proposed to accomplish the Reorganization are 
fair and reasonable and do not involve overreaching on the part of any 
person concerned.
    8. The proposed Reorganization has been reviewed by the Board of 
Directors of Manulife Series Fund and the Board of Trustees of the 
Trust for consistency with the policies of both the Manulife Series 
Fund and the Trust. Although the Manulife Series Fund and the Trust 
have different investment advisers, Applicants assert that they are 
substantially similar investment vehicles.
    9. Applicants assert that the Reorganization is consistent with the 
general purposes of the 1940 Act and will not result in any of the 
abuses that the 1940 Act was designed to prevent.

Rule 17d-1

    10. Section 17(d) of the 1940 Act prohibits an affiliated person of 
a registered investment company from effecting any transaction in which 
the company is a joint participant in contravention of Commission 
rules.
    11. Rule 17d-1(a) prohibits an affiliated person of any registered 
investment company, acting as principal, from participating in or 
effecting any transaction in a ``joint enterprise or other joint 
arrangement'' in which the company is a participant without prior 
Commission approval.
    12. Rule 17d-1(b) provides that when the Commission is passing upon 
exemptive applications it is to ``consider whether the participation . 
. . in such joint enterprise, joint arrangement or profit-sharing plan 
on the basis proposed is consistent with the provisions, policies and 
purposes of the [1940] Act, and the extent to which such participation 
is on a basis different from or less advantageous than that of other 
participants.''
    13. The expenses of the Reorganization (other than registration 
fees payable for the registration of shares of each Trust portfolio 
issued in connection with the Reorganization, which will be payable by 
such Trust portfolio) will be borne by Financial Services and one or 
more insurance companies that are affiliates of Manulife Series Fund or 
the Trust.
    14. Applicants assert that the bearing of expenses of the 
Reorganization by Financial Services and one or more insurance 
companies that are affiliates of Manulife Series Fund or the Trust 
could be regarded as a joint enterprise. Applicants therefore request 
exemptive relief pursuant to Rule 17d-1 of the 1940 Act.
    15. As summarized above, Applicants assert that the terms of the 
proposed transactions are consistent with the policies, provisions, and 
purposes of the 1940 Act because they are reasonable and fair to all 
parties, do not involve overreaching, and are consistent with the 
investment objectives and policies of each portfolio of Manulife Series 
Fund and of the Trust participating in the proposed transactions. The 
participation in the Reorganization by each portfolio will be at 
respective net asset value, and not on a basis different from or less 
advantageous than that of other participants. Contract owners of each 
Manulife Series Fund portfolio will have the opportunity to provide 
voting instructions regarding approval of the Reorganization.
    16. Applicants also assert that the participation by affiliates of 
Manulife Series Fund and the Trust in the transaction is consistent 
with the requirements of Rule 17d-1. Applicants note that to the extent 
that expenses of the Reorganization are borne by affiliated insurance 
companies rather than Financial Services, no benefit will accrue to 
such affiliates. Moreover, Applicants note that payment of expenses of 
the Reorganization by Financial Services and the affiliated insurance 
companies will reduce expenses that would otherwise be payable by the 
Manulife Series Fund portfolios.

Conclusion

    For the reasons summarized above, Applicants submit that the terms 
of the Reorganization meet the conditions for exemptive relief 
established by Section 17(b) of the 1940 Act and Rule 17d-1 thereunder.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-30529 Filed 11-29-96; 8:45 am]
BILLING CODE 8010-01-M