[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
[[Page 60421]]
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
[[Page 60422]]
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