[Federal Register Volume 67, Number 33 (Tuesday, February 19, 2002)]
[Notices]
[Pages 7430-7433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3863]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25414; 812-12536]


John Hancock Equity Trust and John Hancock Advisers, Inc.; Notice 
of Application

February 11, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under sections 6(c) and 
17(b) of the Investment Company Act of 1940 (``Act'') for an exemption 
from section 17(a) of the Act, under section 6(c) for an exemption from 
section 17(e) of the Act and rule 17e-1 under the Act, and under 
section 10(f) of the Act for an exemption from section 10(f).

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    Summary of the Application: Applicants request an order to permit 
certain registered open-end management investment companies advised by 
two or more investment advisers to engage in principal and brokerage 
transactions with a broker-dealer affiliated with one of the investment 
advisers and to purchase securities in offerings underwritten by a 
principal underwriter of which one of the investment advisers is an 
affiliated person. The transactions would be between a broker-dealer or 
principal underwriter and a portion of the investment company's 
portfolio not advised by the adviser affiliated with the broker-dealer 
or principal underwriter. Applicants also request relief to permit a 
portion of the portfolio to purchase securities in offerings 
underwritten by a principal underwriter of which the investment adviser 
to that portion is affiliated if the purchase is in accordance with all 
of the conditions to rule 10f-3 under the Act, except for the provision 
that would require aggregation of certain purchases.
    Applicants: John Hancock Equity Trust (``Trust'') and John Hancock 
Advisers, Inc. (``Adviser'').

[[Page 7431]]

    Filing Dates: The application was filed on May 29, 2001 and amended 
on February 5, 2002. Applicants have agreed to file an amendment during 
the notice period, the substance of which is reflected in this notice.
    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 Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on March 7, 2002, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants: c/o Pamela J. Wilson, Esq., Hale and Dorr LLP, 
60 State Street, Boston, MA 02109; Susan S. Newton, Esq., John Hancock 
Advisers, Inc., 101 Huntington Avenue, Boston, MA 02199-7603.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 942-0567, or Nadya B. Roytblat, Assistant Director, at (202) 942-
0564 (Office of Investment Company Regulation, Division of Investment 
Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Trust is a Massachusetts business trust registered under the 
Act as an open-end management investment company. The Trust offers two 
series, one of which is John Hancock Large Cap Spectrum Fund 
(``Fund'').
    2. The Adviser is registered under the Investment Advisers Act of 
1940 (``Advisers Act'') and is an indirect wholly owned subsidiary of 
John Hancock Life Insurance Company. The Adviser has overall 
supervisory responsibility for the general management and investment of 
the Fund's assets, subject to the Fund's investment objective and 
policies and direction of the Fund's trustees.
    3. The Fund's assets are divided into three discrete portions 
(each, a ``Portion''), and the assets of each Portion are invested 
pursuant to a particular investment strategy. The Adviser has allocated 
management of two Portions to Alliance Capital Management, L.P. 
(``Alliance''), an investment adviser registered under the Advisers 
Act. Alliance has complete discretion to purchase and sell securities 
for its Portions in accordance with the Fund's objectives, policies, 
and restrictions, and the more specific strategies provided by the 
Adviser.\1\ Alliance is paid a fee by the Adviser out of the proceeds 
of the management fee received by the Adviser from the Trust. The 
Adviser directly manages the remaining Portion. In managing this 
Portion, the Adviser acts independently of Alliance and does not 
control or influence Alliance's decisions to trade particular 
securities for Alliance's Portions.
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    \1\ The specific strategies are limited to general guidelines 
that do not restrict Alliance's discretion to purchase or sell 
particular securities for its Portions.
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    4. Sanford C. Bernstein & Co., LLC (``Sanford Bernstein''), a 
broker-dealer registered under the Securities Exchange Act of 1934 (the 
``Exchange Act''), is a wholly owned subsidiary of Alliance. AXA 
Advisors (``AXA''), a broker-dealer registered under the Exchange Act, 
is an indirect wholly owned subsidiary of The Equitable Life Insurance 
Society of the United States (``The Equitable''). The parent company of 
The Equitable, Alliance Capital Management Corp., owns directly all of 
the shares of the general partner of Alliance. Accordingly, both 
Sanford Bernstein and AXA are affiliated persons of Alliance within the 
meaning of section 2(a)(3)(C) of the Act.
    5. Applicants request relief to permit: (i) a broker-dealer 
registered under the Exchange Act that serves as a subadviser 
(``Subadviser'') or is an affiliated person of a Subadviser (the 
broker-dealer, an ``Affiliated Broker-Dealer''; the Subadviser, an 
``Affiliated Subadviser''), to one or more Multi-Managed Fund (as 
defined below) to engage in principal transactions with a Portion that 
is advised by a Subadviser that is not an affiliated person of the 
Affiliated Broker-Dealer or Affiliated Subadviser (the Portion, an 
``Unaffiliated Portion''; the Subadviser, an ``Unaffiliated 
Subadviser''\2\); (ii) an Affiliated Broker-Dealer to provide brokerage 
services to an Unaffiliated Portion, and the Unaffiliated Portion to 
utilize such brokerage services, without complying with rule 17e-1(b) 
and (d) under the Act; (iii) an Unaffiliated Portion to purchase 
securities during the existence of an underwriting syndicate, a 
principal underwriter of which is an Affiliated Subadviser or a person 
of which an Affiliated Subadviser is an affiliated person (``Affiliated 
Underwriter''); and (iv) a Portion advised by an Affiliated Subadviser 
(``Affiliated Portion'') to purchase securities during the existence of 
an underwriting syndicate, a principal underwriter of which is an 
Affiliated Underwriter, in accordance with the conditions of rule 10f-3 
under the Act, except that paragraph (b)(7) of the rule would not 
require the aggregation of purchases by the Affiliated Portion with 
purchases by an Unaffiliated Portion.
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    \2\ The terms ``Subadviser,'' ``Unaffiliated Portion,'' and 
``Unaffiliated Subadviser'' include the Adviser and the Portion 
directly advised by the Adviser, respectively, provided that the 
Adviser manages its Portion independently of the Portions managed by 
the Subadviser to the Multi-Managed Fund (as defined below), and the 
Adviser does not control or influence any other Subadviser's 
investment decisions as to specific securities for the other 
Subadviser's Portions.
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    6. Applicants request that the exemptive relief apply to the Trust, 
its series, and any existing or future registered open-end management 
investment company or series thereof advised by (i) the Adviser or a 
person controlling, controlled by, or under common control (within the 
meaning of section 2(a)(9) of the Act) with the Adviser and (ii) at 
least one other investment adviser registered under the Advisers Act or 
exempt from such registration (the Trust, its series, such investment 
companies, or series thereof, each, a ``Multi-Managed Fund''). Any 
investment company that currently intends to rely on the order is named 
as an applicant. The Adviser will take steps designed to ensure that 
any other existing or future entity that relies on the order will 
comply with the terms and conditions of the application.

Applicants' Legal Analysis

A. Principal Transactions Between an Unaffiliated Portion and 
Affiliated Broker-Dealers

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and an affiliated 
person of, promoter of, or principal underwriter for such company, or 
any affiliated person of an affiliated person, promoter, or principal 
underwriter (``second-tier affiliate''). Section 2(a)(3)(E) of the Act 
defines an affiliated person to be any investment adviser of an 
investment company, and section 2(a)(3)(C) of the Act defines an 
affiliated person of

[[Page 7432]]

another person to include any person directly or indirectly 
controlling, controlled by, or under common control with such person. 
Applicants state that an Affiliated Subadviser would be an affiliated 
person of a Multi-Managed Fund, and an Affiliated Broker-Dealer would 
be either an Affiliated Subadviser or an affiliated person of the 
Affiliated Subadviser, and thus a second-tier affiliate of a Multi-
Managed Fund, including the Unaffiliated Portion. Accordingly, 
applicants state that any principal transactions to be effected by an 
Unaffiliated Subadviser on behalf of an Unaffiliated Portion with an 
Affiliated Broker-Dealer are subject to the prohibitions of section 
17(a).
    2. Applicants seek relief under sections 6(c) and 17(b) to exempt 
principal transactions prohibited by section 17(a) because an 
Affiliated Broker-Dealer is deemed to be an affiliated person or a 
second-tier affiliate of an Unaffiliated Portion solely because an 
Affiliated Subadviser is the Subadviser to another Portion of the same 
Multi-Managed Fund. The requested relief would not be available if the 
Affiliated Broker-Dealer (except by virtue of serving as a Subadviser) 
is an affiliated person or a second-tier affiliate of the Adviser, 
principal underwriter or promoter of the Multi-Managed Fund, the 
Unaffiliated Subadviser making the investment decision with respect to 
the Unaffiliated Portion, or any officer, trustee or employee of the 
Multi-Managed Fund.
    3. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned, and the proposed transaction is consistent with the policy 
of each registered investment company and the general purposes of the 
Act. Section 6(c) of the Act permits the Commission to exempt any 
person or transaction from any provision of the Act if the exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the 
policies and provisions of the Act.
    4. Applicants contend that section 17(a) is intended to prevent 
persons who have the power to control an investment company from using 
that power to the person's own pecuniary advantage. Applicants assert 
that when the person acting on behalf of an investment company has no 
direct or indirect pecuniary interest in a party to a principal 
transaction, the abuses that section 17(a) is designed to prevent are 
not present. Applicants state that if an Unaffiliated Subadviser 
purchases securities on behalf of an Unaffiliated Portion in a 
principal transaction with an Affiliated Broker-Dealer, any benefit 
that might inure to the Affiliated Broker-Dealer would not be shared by 
the Unaffiliated Subadviser. In addition, applicants state that a 
Subadviser is paid on the basis of a percentage of the value of the 
assets allocated to its management. The execution of a transaction to 
the disadvantage of the Unaffiliated Portion would disadvantage the 
Unaffiliated Subadviser to the extent that it diminishes the value of 
the Unaffiliated Portion. Applicants further submit that the Adviser's 
power to dismiss Subadvisers or to change the Portion allocated to each 
Subadviser reinforces a Subadviser's incentive to maximize the 
investment performance of its Portion. In the case where the Adviser 
directly manages a Portion, the board of trustees or directors of the 
Multi-Managed Fund oversees the performance of the Adviser and can 
terminate the Adviser.
    5. Applicants state that each Subadviser's contract assigns it 
responsibility to manage a Portion. Each Subadviser is responsible for 
making independent investment and brokerage allocation decisions based 
on its own research and credit evaluations. Applicants represent that 
the Adviser does not dictate brokerage allocation or investment 
decisions to any Multi-Managed Fund advised by a Subadviser, or have 
the contractual right to do so, except with respect to a Portion 
advised directly by the Adviser. Applicants contend that, in managing a 
Portion, each Subadviser acts for all practical purposes as though it 
is managing a separate investment company.
    6. Applicants state that the proposed transactions will be 
consistent with the policies of the Multi-Managed Fund, since each 
Unaffiliated Subadviser is required to manage the Unaffiliated Portion 
in accordance with the investment objectives and related investment 
policies of the Portfolio as described in its registration statement. 
Applicants also assert that permitting the transactions will be 
consistent with the general purposes of the Act and in the public 
interest because the ability to engage in the transactions increases 
the likelihood of a Multi-Managed Fund achieving best price and 
execution on its principal transactions, while giving rise to none of 
the abuses that section 17(a) was designed to prevent.

B. Payment of Brokerage Compensation by an Unaffiliated Portion to 
Affiliated Broker-Dealers

    1. Section 17(e)(2) of the Act prohibits an affiliated person or a 
second-tier affiliate of a registered investment company from receiving 
compensation for acting as a broker in connection with the sale of 
securities to or by the investment company if the compensation exceeds 
the limits prescribed by the section unless otherwise permitted by rule 
17e-1 under the Act. Rule 17e-1 sets forth the conditions under which 
an affiliated person or a second-tier affiliate of an investment 
company may receive a commission which would not exceed the ``usual and 
customary broker's commission'' for purposes of section 17(e)(2). Rule 
17e-1(b) requires the investment company's board of directors, 
including a majority of the directors who are not interested persons 
under section 2(a)(19) of the Act, to adopt certain procedures and to 
determine at least quarterly that all transactions effected in reliance 
on the rule complied with the procedures. Rule 17e-1(d) specifies the 
records that must be maintained by each investment company with respect 
to any transaction effected pursuant to rule 17e-1.
    2. As discussed above, applicants state that an Affiliated Broker-
Dealer is either an affiliated person (as Subadviser to another 
Portion) or a second-tier affiliate of an Unaffiliated Portion and thus 
subject to section 17(e). Applicants request an exemption under section 
6(c) from section 17(e) and rule 17e-1 to the extent necessary to 
permit an Unaffiliated Portion to pay brokerage compensation to an 
Affiliated Broker-Dealer acting as broker in the ordinary course of 
business in connection with the sale of securities to or by such 
Unaffiliated Portion, without complying with the requirements of rule 
17e-1(b) and (d). The requested exemption would apply only where an 
Affiliated Broker-Dealer is deemed to be an affiliated person or a 
second-tier affiliate of an Unaffiliated Portion solely because an 
Affiliated Subadviser is the Subadviser to another Portion of the same 
Multi-Managed Fund. The relief would not apply if the Affiliated 
Broker-Dealer (except by virtue of serving as a Subadviser) is an 
affiliated person or a second-tier affiliate of the Adviser, principal 
underwriter or promoter of the Multi-Managed Fund, the Unaffiliated 
Subadviser making the investment decision with respect to the 
Unaffiliated Portion of the Multi-Managed Fund, or any officer, trustee 
or employee of the Multi-Managed Fund.

[[Page 7433]]

    3. Applicants believe that the proposed brokerage transactions 
involve no conflicts of interest or possibility of self-dealing and 
will meet the standards of section 6(c). Applicants assert that the 
interests of an Unaffiliated Subadviser are directly aligned with the 
interests of the Unaffiliated Portion it advises, and an Unaffiliated 
Subadviser will enter into brokerage transactions with Affiliated 
Broker-Dealers only if the fees charged are reasonable and fair as 
required by rule 17e-1(a). Applicants also note that an Unaffiliated 
Subadviser has a fiduciary duty to obtain best price and execution for 
the Unaffiliated Portion.

C. Purchases of Securities From Offerings With Affiliated Underwriters

    1. Section 10(f) of the Act, in relevant part, prohibits a 
registered investment company from knowingly purchasing or otherwise 
acquiring, during the existence of any underwriting or selling 
syndicate, any security (except a security of which the company is the 
issuer) a principal underwriter of which is an officer, director, 
member of an advisory board, investment adviser, or employee of the 
company, or an affiliated person of any of those persons. Section 10(f) 
also provides that the Commission may exempt by order any transaction 
or classes of transactions from any of the provisions of section 10(f), 
if and to the extent that such exemption is consistent with the 
protection of investors. Rule 10f-3 under the Act exempts certain 
transactions from the prohibitions of section 10(f) if specified 
conditions are met. Paragraph (b)(7) of rule 10f-3 limits the 
securities purchased by the investment company, or by two or more 
investment companies having the same investment adviser, to 25% of the 
principal amount of the offering of the class of securities.
    2. Applicants state that each Subadviser, although under contract 
to manage only a Portion of a Multi-Managed Fund, is considered an 
investment adviser to the entire Multi-Managed Fund. As a result, 
applicants believe that all purchases of securities by an Unaffiliated 
Portion from an underwriting syndicate, a principal underwriter of 
which is an Affiliated Underwriter, would be subject to section 10(f).
    3. Applicants request relief under section 10(f) from that section 
to permit an Unaffiliated Portion to purchase securities during the 
existence of an underwriting or selling syndicate, a principal 
underwriter of which is an Affiliated Underwriter. Applicants request 
relief from section 10(f) only to the extent those provisions apply 
solely because an Affiliated Subadviser is an investment adviser to the 
Multi-Managed Fund. The requested relief would not be available if the 
Affiliated Underwriter (except by virtue of serving as a Subadviser) is 
an affiliated person or a second-tier affiliate of the Adviser, 
principal underwriter or promoter of the Multi-Managed Fund, the 
Unaffiliated Subadviser making the investment decision with respect to 
the Unaffiliated Portion of the Multi-Managed Fund, or any officer, 
trustee or employee of the Multi-Managed Fund. Applicants also seek 
relief from section 10(f) to permit an Affiliated Portion to purchase 
securities during the existence of an underwriting syndicate, a 
principal underwriter of which is an Affiliated Underwriter, provided 
that the purchase will be in accordance with the conditions of rule 
10f-3, except that paragraph (b)(7) of the rule will not require the 
aggregation of purchases by the Affiliated Portion with purchases by an 
Unaffiliated Portion.
    4. Applicants state that section 10(f) was adopted in response to 
concerns about the ``dumping'' of otherwise unmarketable securities on 
investment companies, either by forcing the investment company to 
purchase unmarketable securities from its underwriting affiliate, or by 
forcing or encouraging the investment company to purchase the 
securities from another member of the syndicate. Applicants submit that 
these abuses are not present in the context of the Multi-Managed Fund 
because a decision by an Unaffiliated Subadviser to purchase securities 
from an underwriting syndicate, a principal underwriter of which is an 
Affiliated Underwriter, involves no potential for ``dumping.'' In 
addition, applicants assert that aggregating purchases would serve no 
purpose because there is no collaboration among Subadvisers, and any 
common purchases by an Affiliated Subadviser and an Unaffiliated 
Subadviser would be coincidence.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each Multi-Managed Fund relying on the requested order will be 
advised by an Affiliated Subadviser and at least one Unaffiliated 
Subadviser and will be operated in the manner described in the 
application.
    2. No Affiliated Subadviser, Affiliated Broker-Dealer, or 
Affiliated Underwriter (except by virtue of serving as Subadviser to a 
Portion) will be an affiliated person or a second-tier affiliate of the 
Adviser, any Unaffiliated Subadviser, principal underwriter or promoter 
of the Multi-Managed Fund, or any officer, trustee, or employee of a 
Multi-Managed Fund.
    3. No Affiliated Subadviser will directly or indirectly consult 
with any Unaffiliated Subadviser concerning allocation of principal or 
brokerage transactions.
    4. No Affiliated Subadviser will participate in any arrangement 
whereby the amount of its subadvisory fees will be affected by the 
investment performance of an Unaffiliated Subadviser.
    5. With respect to purchases of securities by an Affiliated Portion 
during the existence of any underwriting or selling syndicate, a 
principal underwriter of which is an Affiliated Underwriter, the 
conditions of rule 10f-3 under the Act will be satisfied except that 
paragraph (b)(7) will not require the aggregation of purchases by the 
Affiliated Portion with purchases by an Unaffiliated Portion.

    For the Commission, by the Division of Investment Management, 
under delegated authority.

Jill M. Peterson,
 Assistant Secretary.
[FR Doc. 02-3863 Filed 2-15-02; 8:45 am]
BILLING CODE 8010-01-P