[Federal Register Volume 63, Number 216 (Monday, November 9, 1998)]
[Notices]
[Pages 60419-60422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29971]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23517; File No. 812-11208]


John Hancock Bond Trust, et al.; Notice of Application

November 2, 1998.
AGENCY: Securities and Exchange Commission.

ACTION: Notice of application for an order pursuant to Section 11(a) of 
the Investment Company Act of 1940 (the ``1940 Act'').

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SUMMARY OF APPLICATION: Applicants seek an order approving the terms of 
offers of exchange by the Funds, as defined below, and John Hancock 
Funds, Inc. (``JHFI'') to certain holders of variable annuity contracts 
(``Contracts'') issued by Variable Annuity Accounts U and V of John 
Hancock and Variable Annuity Account I of JHVLICO (collectively, the 
``Accounts'').

APPLICANTS: John Hancock Bond Trust, John Hancock Capital Series, John 
Hancock Current Interest, John Hancock Investment Trust, John Hancock 
Investment Trust II, John Hancock Investment Trust III, John Hancock 
Series Trust, John Hancock Bond Fund, John Hancock Special Equities 
Fund, John Hancock Strategic Series, John Hancock World Fund (the 
``Funds''), JHFI, John Hancock Variable Life Insurance Company 
(``JHVLICO'') and John Hancock Mutual Life Insurance Company (``John 
Hancock,'' together with JHVLICO, JHFI and the Funds, ``Applicants'')

FILING DATES: The application was filed on June 29, 1998, and amended 
on October 30, 1998.

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 by writing to the Secretary of the 
Commission and serving Applicants with a copy of the request, 
personally or

[[Page 60420]]

by mail. Hearing requests must be received by the Commission by 5:30 
p.m. on November 27, 1998, and must be accompanied by proof of service 
on the Applicants in the form of an affidavit, or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
requester'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, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, Ronald J. Bocage, Esq., John Hancock Mutual Life Insurance 
Company, John Hancock Place, Boston, Massachusetts 02117.

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

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
Public Reference Branch of the Commission (tel. (202) 942-8090).

Applicants' Representations

    1. Each Fund is a business trust organized under the laws of 
Massachusetts, is registered under the Act as an open-end management 
investment company and was organized by John Hancock or an affiliated 
company of John Hancock. Each Fund offers up to three classes of 
shares: ``A Shares'' (which are sold with a front-end sales load of up 
to 5% or alternatively, for certain purchases, a reduced deferred sales 
charge); ``B Shares'' (which are sold with a deferred sales load of up 
to 5% that declines to 0% after the sixth year); and ``C shares'' 
(which are sold with a reduced deferred sales charge of 1% which 
declines to 0% after the first year) Only A Shares will be offered in 
the proposed exchanges.
    2. JHFI is an indirect, wholly-owned subsidiary of John Hancock. 
JHFI is registered with the Commission as a broker-dealer and is a 
member of the National Association of Securities Dealers, Inc. 
(``NASD''). JHFI is the principal underwriter for each of the Funds.
    3. Each Fund, except for John Hancock Bond Fund and John Hancock 
Special Equities Fund, offers its shares by series (collectively, 
``Series,'' and together with the non-series Funds, the ``Exchange 
Funds''). The investment manager of each of the Exchange Funds is John 
Hancock Advisers, Inc. (``Advisers''), an indirectly wholly-owned 
subsidiary of John Hancock.
    4. The expense ratios of the Exchange Funds on an annual basis for 
their last fiscal year, including management fees, 12b-1 fees and other 
expenses, ranged from a low of 0.35% for John Hancock U.S. Government 
Cash Reserve to a high of 2.06% for John Hancock Pacific Basin Equities 
Fund. These expense ratios reflect the impact of Advisers' and/or 
JHFI's temporary agreement to limit expenses, including management fees 
and 12b-1 fees. Without these limitations, the expense ratios would 
have ranged from 1.00% for the John Hancock Strategic Income Fund to 
3.03% for the John Hancock International Fund.
    5. The Contracts are variable annuity contracts issued by Variable 
Annuity Accounts U and V of John Hancock and Variable Annuity Account I 
of JHVLICO. The Contracts have been purchased on behalf of pension 
plans (``Plans'') qualified under Section 401(k) of the Internal 
Revenue Code of 1986 (``Code'') and certain target-benefit pension 
plans (``Target Benefit Plans''), both of which are qualified under 
Section 401(a) of the Code to fund pension benefits payable to eligible 
persons (``Participants'') participating in the Plans. Under the terms 
of the various Plans holding the Contracts, the employer sponsoring the 
Plan (`'Plan Sponsor'') is the Contract owner, and only the Plan 
Sponsor is permitted to make premium payments to fund Plan benefits 
(either directly or through salary deductions). Further, only the Plan 
Sponsor is authorized to select the investment vehicle(s), such as the 
Contracts, in which Plan assets are to be invested. Depending on the 
type of Plan involved, Plan assets held under the Contracts may or may 
not be allocated specifically as being for the account of individual 
Participants. With respect to certain 401(k) Plans, the Plan Sponsor 
purchases individual Contracts on behalf of Plan Participants, in which 
case Plan assets would be allocated specifically to the Contracts owned 
by the Plan on behalf of such Participants, and the Participants may be 
entitled to provide instructions with respect to how Plan assets held 
in such Contracts are to be invested among the available investment 
options. With respect to the remaining 401(k) Plans and all Target 
Benefit Plans, the Plans provide that Plan assets are not allocated 
specifically as being for the account of individual Participants, in 
which case the Contract essentially serves as an ``unallocated'' group 
contract holding Plan assets for the benefit of the all Plan 
Participants, with the Plan Sponsor investing Plan assets among the 
available investment options. The Contracts, however, are no longer 
being offered for use on such an ``unallocated'' basis. Plan sponsors 
holding contracts issued by the Accounts in connection with target-
benefit plans where plan assets are allocated specifically as being for 
the account of individual participants are not eligible to participate 
in the exchange offer that is the subject of the application.
    6. The investment options underlying the Contracts consist of a 
fixed account investment option that is part of John Hancock's general 
account, and the 23 portfolios of John Hancock Variable Series Trust I 
(``Trust''), a series-type mutual fund advised by John Hancock. These 
23 portfolios (collectively, ``Portfolios'') have a wide range of 
investment objectives.
    7. All but one form of the Contracts have a contingent deferred 
sales charge (``CDSC''). The maximum CDSC for any Contract is 8.5%, and 
in all cases the CDSC declines to 0% seven years after the date of the 
contribution to which the CDSC applies. Moreover, for Contracts that 
impose a CDSC, there is also a ``free corridor'' provision, which, if 
applicable, allows certain amounts to be withdrawn annually without a 
CDSC. One form of Contract imposes a maximum front-end sales charge of 
8% of purchase payments made. None of the Contracts provides for any 
sales charges that is deducted from assets.
    8. Applicants state that the Contracts have an annual maintenance 
charge that ranges from $10 per year to $30 per year, plus a daily 
asset-based administrative charge. For certain Contracts, the annual 
maintenance charge is waived if the account value exceeds $10,000, and 
John Hancock or JHVLICO may reserve the right to increase the annual 
maintenance charge to $50, with state approval. The asset-based 
administrative charge ranges from 0.25% to 0.50% (on an annual basis) 
of the current Contract value.
    9. A mortality and expense risk charge that ranges from 0.75% to 
1.15% of the assets of the issuing Account may be deducted under the 
Contracts.
    10. There is no charge for transfers under the Contracts, but such 
transfers are limited to twelve per Contract year, although one form of 
Contract limits such transfers to four per Contract year. State premium 
taxes are deducted at annuitization or from payments, in accordance 
with applicable state laws.
    11. The expense rations of the Portfolios which serve as the 
investment vehicle for the Accounts ranged from 0.28% to 1.55% (after 
expense reimbursements) on an annual basis in their last fiscal year. 
Applicants state

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that when the Portfolio expenses are added to the maximum mortality and 
expense risks charge and applicable asset-based administration charges 
of the Contracts, the ongoing expense of the Contracts ranges from 
1.81% to 3.05% (3.32% without expense reimbursement), excluding the up 
of $30 per year maintenance charge.
    12. Applicants state that certain Plan Sponsors of Plans holding 
Contracts have determined to change the nature of their Plans and to 
replace the Contracts with Exchange Fund shares. To facilitate this 
change, Plans holding Contracts may wish to surrender them and reinvest 
the proceeds in Class A shares of the Exchange Funds. Any such 
surrender and reinvestment of proceeds will be at relative net asset 
values; i.e., immediately after the transaction, the aggregate value of 
the shares of the Exchange Funds acquired will be identical to the cash 
value of the Contract immediately prior to the transaction. No 
administrative fee or any other charge will be imposed for effecting 
this transaction. No CDSC on the Contracts to be surrendered will be 
imposed.
    13. Applicants further state that, prior to surrendering a 
Contract, the Plan Sponsor will be responsible for determining, 
consistent with the terms of its Plan, the appropriate allocation of 
Plan assets among Plan Participants. The Plan Sponsor also will be 
responsible for obtaining instructions from each Plan Participant 
concerning the manner in which Plan assets attributable to that Plan 
Participant, as well as future contributions, are to be allocated among 
the available Exchange Funds. Once a Plan Sponsor decides to surrender 
a Contract and provides the necessary allocation instructions, such 
surrender and reinvestment of proceeds will take place immediately at 
relative net asset values. For 90 days following the surrender of the 
Contract by the Plan, Participants will be allowed unlimited, free 
transfer among the Exchange Funds available under the Plan, subject to 
the Exchange Funds' current exchange policies and any limitation 
imposed by a Plan. No Exchange Fund front-end load will be deducted, 
and no Exchange Fund deferred sales charges will become applicable at 
the time of any transfer from Exchange Fund shares that were acquired 
as a result of the surrender of the Contract, regardless of when any 
such transfers are effected. At present, this offer of exchange is 
expected to be made available to Plan Sponsors during the six-month 
period following the issuance of the order sought by the application.
    14. Applicants state that one or more aspects of the above 
transactions may be deemed to involve one or more offers of exchange by 
a Fund or JHFI that requires Commission approval under Section 11 of 
the 1940 Act. All recipients of such offers will be provided current 
prospectuses for the Exchange Funds available to them. Accompanying 
such prospectuses may be sales literature, including a cover letter, 
that has been approved by the NASD. Such sales literature will 
highlight the differences between Contracts and shares of the Funds and 
the terms of the offer of exchange. Administrative details of effecting 
exchanges will be handled by JHFI.
    15. The exchanges will be effected as direct transfers and will not 
have adverse tax consequences for offerees who accept the exchange 
offer.

Applicants' Legal Analysis

    1. Section 11(a) of the 1940 Act makes it unlawful for a registered 
open-end investment company or principal underwriter for such a company 
to make or cause to be made an offer to the holder of a security of 
such company or of any other open-end investment company to exchange 
his security for a security in the same or another such company on any 
basis other than the relative net asset values of the respective 
securities to be exchanged, unless the terms of the offer have first 
been submitted to and approved by the Commission or are in accordance 
with such rules and regulations as the Commission may have prescribed 
in respect of such offers which are in effect at the time such offer is 
made.
    2. Section 11(c) of the 1940 Act provides that, irrespective of the 
basis of exchange, subsection (a) shall be applicable to any type of 
offer of exchange of the securities of registered unit investment 
trusts for the securities of any other investment company.
    3. Applicants maintain, for the reasons summarized below, that the 
terms of the proposed offers of exchange do not involve any of the 
``switching'' (i.e., offer of exchange made solely for the purpose of 
assessing additional selling charges) abuses that led to the adoption 
of Section 11 of the 1940 Act.
    4. Applicants state that the exchanges will be made on the basis of 
relative net asset value (i.e., immediately after an exchange, the cash 
value of the Exchange Fund shares acquired will be identical to the 
cash value under the Contract immediately prior to the exchange). 
Further, no CDSC will be applicable to Exchange Fund shares acquired as 
part of the exchange, and no administrative fee or sales load will be 
deducted at the time of the exchange. Applicants state that the 
exchanges will not have adverse tax consequences for offerees who 
accept the exchange offer because the exchanges proposed would be made 
as direct transfers.
    5. Applicants state that, as a general matter, Exchange Funds with 
investment objectives comparable to most of the 23 Portfolios will be 
available through the exchange offer, although each Plan may not offer 
all Exchange Funds available pursuant to the exchange offer. Certain of 
the Portfolios, however, are designed to fill a specific ``niche,'' 
such as the Real Estate Equity Portfolio and International Balanced 
Portfolio, and there are no Exchange Funds comparable to these 
``niche'' funds that are currently available under the Contracts. 
Accordingly, depending on the Exchange Funds made available by a Plan, 
the exchange offer will offer an opportunity to permit Plan Sponsors 
and Participants to duplicate generally the current investment 
objective selection under the Contracts by allocating plan assets held 
in their accounts among Exchange Funds with comparable investment 
objectives, or to expand those investment objectives by selecting 
Exchange Funds with investment objectives not available under the 
Contracts. Further, Applicants state that the expenses of the Exchange 
Funds are generally lower than the combined expenses and fees of the 
Contracts and the Portfolios in which the Accounts invest. Accordingly, 
those persons who accept the exchange offer should incur lower expenses 
than those incurred under the Contracts.
    6. Applicants have consented to the following conditions:
    (a) No redemption or administrative fee will be imposed in 
connection with the proposed exchanges.
    (b) At the commencement of the exchange offer, and at all times 
thereafter, the prospectus or the statement of additional information, 
as appropriate, of the offering Exchange Fund will disclose that the 
exchange offer is subject to termination and its terms are subject to 
change.
    (c) Whenever the exchange offer is to be terminated or its terms 
are to be amended materially, any holder of a security subject to that 
offer shall be given prominent notice of the impending termination or 
amendment at least 60 days prior to the date of termination or the 
effective date of the amendment, provided that no notice need be given 
if, under extraordinary circumstances, either--
    (i) There is a suspension of the redemption of the exchanged 
security

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under Section 22(e) of the Act and the rules and regulations 
thereunder, or
    (ii) The offering Exchange Funds temporarily delays or ceases the 
sale of the security to be acquired because it is unable to invest 
amounts effectively in accordance with applicable investment 
objectives, policies and restrictions.
    Other than in the circumstance set forth in (c)(i) and (c)(ii) 
above, Applicants would dispense with the 60-days notice requirement 
only upon obtaining further relief from the Commission authorizing them 
to do so.

Conclusion

    For the reasons summarized above, Applicants submit that the 
proposed offer of exchange is consistent with the intent and purpose of 
Section 11 of the 1940 Act, and that none of the abuses which Section 
11 was enacted to prevent will be present.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-29971 Filed 11-6-98; 8:45 am]
BILLING CODE 8010-01-M