Document ID: SEC-2006-0232-0001
Agency: sec
Document Type: Notice
Title: John Hancock Capital Series, et al.; Notice of Application
Posted Date: 2006-02-23T05:00Z

[Federal Register: February 23, 2006 (Volume 71, Number 36)]
[Notices]               
[Page 9387-9391]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23fe06-99]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27224; 812-12969]

 
John Hancock Capital Series, et al.; Notice of Application

February 15, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 17(b) 
of the Act for an exemption from sections 17(a)(1) and (2) of the Act, 
and under section 17(d) of the Act and rule 17d-1 under the Act to 
permit certain joint transactions.

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    Summary of Application: The applicants request an order that would 
permit (a) certain registered management investment companies and 
certain entities that are excluded from the definition of investment 
company under section 3(c)(1), 3(c)(7) or 3(c)(11) of the Act to invest 
uninvested cash and cash collateral in (i) affiliated money market 
funds and/or short-term bond funds or (ii) one or more affiliated 
entities that operate as cash management investment vehicles and that 
are excluded from the definition of investment company under section 
3(c)(1) or 3(c)(7) of the Act, and (b) the registered management 
investment companies and certain affiliated entities to engage in 
purchase and sale transactions involving portfolio securities in 
reliance on rule 17a-7 under the Act.
    Applicants: John Hancock Capital Series, John Hancock Declaration 
Trust, John Hancock Equity Trust, John Hancock Income Securities Trust, 
John Hancock Investment Trust II, John Hancock Investment Trust III, 
John Hancock Investors Trust, John Hancock Sovereign Bond Fund, John 
Hancock Strategic Series, John Hancock Tax-Exempt Series Fund, John 
Hancock World Fund, John Hancock Bank and Thrift Opportunity Fund, John 
Hancock Bond Trust, John Hancock California Tax-Free Income Fund, John 
Hancock Current Interest, John Hancock Institutional Series Trust, John 
Hancock Investment Trust, John Hancock Patriot Global Dividend Fund, 
John Hancock Patriot Preferred Dividend Fund, John Hancock Patriot 
Premium Dividend Fund, John Hancock Patriot Premium Dividend Fund II, 
John Hancock Patriot Select Dividend Trust, John Hancock Preferred 
Income Fund, John Hancock Preferred Income Fund II, John Hancock Series 
Trust, John Hancock Tax-Free Bond Trust, John Hancock Financial Trends 
Fund, Inc. (each, an ``Investment Company'' and collectively, the 
``Investment Companies''), and John Hancock Advisers, LLC (together 
with any entity controlling, controlled by or under common control with 
John Hancock Advisers, LLC, ``JHA'').
    Filing Dates: The application was filed on April 24, 2003, and 
amended on February 7, 2006.
    Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicant 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 13, 2006, and should be accompanied by proof of 
service on applicant, 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, U.S. Securities and Exchange Commission, 100 F 
St., NE., Washington, DC 20549-1090. Applicants, c/o David C. Phelan, 
Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, 
Massachusetts 02109.

FOR FURTHER INFORMATION CONTACT: Nadya B. Roytblat, Assistant Director, 
at (202) 551-6821 (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, 100 F Street, NE., Washington, DC 
20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. Each Investment Company is organized as a Massachusetts business 
trust or a Maryland corporation and is registered under the Act as an 
open-end or closed-end management investment company. Each Fund, as 
defined below, that is a series of an Investment Company has separate 
investment objectives, policies, and assets. JHA is

[[Page 9388]]

an investment adviser registered under the Investment Advisers Act of 
1940 and serves as investment adviser to each Investment Company.\1\
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    \1\ Applicants request that any relief granted also apply to (a) 
any other registered management investment company or series thereof 
and (b) any entity excluded from the definition of investment 
company under section 3(c)(1), section 3(c)(7) or section 3(c)(11) 
of the Act, for which JHA is or in the future may serve as 
investment adviser or trustee exercising investment discretion 
(each, a ``Fund,'' and together with the Investment Companies and 
any existing or future series of the Investment Companies, the 
``Funds''). All Funds that currently intend to rely on the requested 
order are named as applicants. Any other existing or future Fund 
will rely on the order only in accordance with the terms and 
conditions of the application.
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    2. Each Fund that is not a money market fund (a ``Participating 
Fund'') has, or may be expected to have cash that has not been invested 
in portfolio securities (``Uninvested Cash''). Uninvested Cash may 
result from a variety of sources, including dividends or interest 
received from portfolio securities, unsettled securities transactions, 
reserves held for investment strategy purposes, scheduled maturity of 
investments, liquidation of investment securities to meet anticipated 
redemptions and dividend payments, and new monies received from 
investors. Each Fund that is a series of an Investment Company may 
participate in a securities lending program (``Securities Lending 
Program'') under which it may lend its portfolio securities to 
registered broker-dealers or other institutional investors deemed by 
JHA to be of good standing. The loans are secured by collateral, 
including cash (``Cash Collateral'' and together, with Uninvested Cash, 
``Cash Balances''), equal at all times to at least the market value of 
the securities loaned. The Securities Lending Program, including the 
investment of Cash Collateral, will comply with all present and future 
applicable Commission and staff positions regarding securities lending 
arrangements. Currently, certain Participating Funds may be permitted 
to invest a portion of their assets in money market securities or other 
short-term obligations. Applicants state that Participating Funds 
either will be management investment companies registered under the Act 
(``Registered Participating Funds'') or trusts or other entities that 
are excluded from the definition of investment company under section 
3(c)(1), 3(c)(7) or 3(c)(11) of the Act (the ``Non-Registered 
Participating Funds''). Applicants request an order to permit: (i) The 
Participating Funds to use their Cash Balances to purchase shares of 
one or more of the Funds registered under the Act as open-end 
management investment companies that are money market funds or short-
term bond funds (the ``Registered Central Funds,'' and together with 
the Registered Participating Funds, the ``Registered Funds'') or shares 
of one or more Funds that operate as cash management investment 
vehicles and that are excluded from the definition of investment 
company pursuant to section 3(c)(1) and 3(c)(7) of the Act (the ``Non-
Registered Central Funds,'' and together with the Non-Registered 
Participating Funds, the ``Non-Registered Funds'') (the Registered 
Central Funds and the Non-Registered Central Funds, collectively, the 
``Central Funds''); (ii) the Central Funds to sell their shares to and 
purchase (redeem) such shares from the Participating Funds; and (iii) 
JHA to effect the transactions in (i) and (ii) above.
    3. Applicants state that certain Funds currently rely on rule 17a-7 
under the Act to conduct certain purchase and sale transactions 
(``Interfund Transactions''). Applicants seek relief to permit these 
Interfund Transactions to continue in the event that the Participating 
Funds, pursuant to the requested order, use Cash Balances to purchase 
shares of the Central Funds and become affiliated persons of each other 
or affiliated persons of the Central Funds by virtue of owning 5% or 
more of the outstanding voting securities of a Central Fund. Applicants 
also seek relief to permit in-kind Interfund Transactions in which a 
Participating Fund, solely in instances where the Participating Fund 
holds portfolio securities that would be appropriate investments for a 
Central Fund, invests in the Central Fund by transferring such 
portfolio securities to the Central Fund in exchange for shares of the 
Central Fund.
    4. The investment by each Registered Participating Fund in shares 
of the Central Funds will be in accordance with that Registered 
Participating Fund's investment policies and restrictions as set forth 
in its registration statement. The Registered Central Funds are or will 
be open-end management investment companies registered under the Act 
operating either as money market funds pursuant to rule 2a-7 under the 
Act or short-term bond funds that seek to achieve high current income 
consistent with the preservation of capital by investing in fixed-
income securities and maintain a dollar-weighted average maturity of 
three years or less. The Non-Registered Central Funds will comply with 
rule 2a-7 under the Act.

Applicants' Legal Analysis

I. Investment of Cash Balances by the Participating Funds in the 
Central Funds

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act provides that no investment 
company may acquire securities of a registered investment company if 
such securities represent more than 3% of the acquired company's 
outstanding voting stock, more than 5% of the acquiring company's total 
assets, or if such securities, together with the securities of other 
acquired investment companies, represent more than 10% of the acquiring 
company's assets. Section 12(d)(1)(B) of the Act provides that a 
registered open-end investment company, its principal underwriter or 
any broker or dealer may not sell the company's securities to another 
investment company if the sale will cause the acquiring company to own 
more than 3% of the acquired company's voting stock or if the sale will 
cause more than 10% of the acquired company's voting stock to be owned 
by investment companies. Any entity that is excluded from the 
definition of investment company under section 3(c)(1) or 3(c)(7) of 
the Act is deemed to be an investment company for the purposes of the 
3% limitation specified in sections 12(d)(1)(A) and (B) with respect to 
purchases by and sales to such entity.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction from any provision of 
section 12(d)(1) if and to the extent that such exemption is consistent 
with the public interest and the protection of investors. Applicants 
request relief under section 12(d)(1)(J) to permit the Participating 
Funds to use their Cash Balances to acquire shares of the Registered 
Central Funds in excess of the percentage limitations in section 
12(d)(1)(A), provided however, that in all cases a Registered 
Participating Fund's aggregate investment of Uninvested Cash in shares 
of the Central Funds will not exceed the greater of 25% of the 
Registered Participating Fund's total assets or $10 million. Applicants 
also request relief to permit the Registered Central Funds to sell 
their securities to the Participating Funds in excess of the percentage 
limitations in section 12(d)(1)(B).\2\
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    \2\ The references to Participating Funds in the paragraph do 
not include Funds relying on section 3(c)(11) of the Act.
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    3. Applicants state that the proposed arrangement will not result 
in the

[[Page 9389]]

abuses that sections 12(d)(1)(A) and (B) were intended to prevent. 
Applicants state that there is no threat of redemption to gain undue 
influence over the Registered Central Funds due to the highly liquid 
nature of each Registered Central Fund's portfolio. Applicants state 
that the proposed arrangement will not result in inappropriate layering 
of fees. Shares of the Central Funds sold to the Participating Funds 
will not be subject to a sales load, redemption fee, asset-based 
distribution fee, or service fee (as defined in rule 2830(b)(9) of the 
Conduct Rules of the National Association of Securities Dealers Inc. 
(``NASD Conduct Rules''). If a Central Fund offers multiple classes of 
shares, a Registered Participating Fund will invest in the class with 
the lowest expense ratio at the time of investment (after giving effect 
to the Registered Participating Fund's investment). Before the next 
meeting of the board of trustees (``Board'') of a Registered 
Participating Fund that invests in the Central Funds is held for the 
purpose of voting on an advisory contract under section 15 of the Act, 
JHA will provide the Board with such information as the Board, 
including a majority of the directors or trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act (the 
``Independent Trustees''), may request to evaluate the effect of the 
investment of Uninvested Cash in a Central Fund upon the direct and 
indirect compensation by the Registered Participating Funds to JHA. 
Applicants represent that no Central Fund will acquire securities of 
any investment company or company relying on section 3(c)(1) or 3(c)(7) 
of the Act in excess of the limitations contained in section 
12(d)(1)(A) of the Act.

B. Section 17(a) of the Act

    1. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, acting as principal, to sell 
or purchase any security to or from the investment company. Section 
2(a)(3) of the Act defines an affiliated person of another person to 
include any person directly or indirectly owning, controlling, or 
holding with power to vote 5% or more of the outstanding voting 
securities of the other person, any person 5% or more of whose 
outstanding securities are directly or indirectly owned, controlled, or 
held with power to vote by the other person, any person directly or 
indirectly controlling, controlled by, or under common control with the 
other person, and any investment adviser to an investment company. 
Because JHA serves as, or will serve as each Fund's investment adviser 
or trustee exercising investment discretion, the Funds may be deemed to 
be under common control and therefore affiliated persons of each other. 
In addition, if a Participating Fund purchases more than 5% of the 
voting securities of a Central Fund, the Central Fund and the 
Participating Fund may be affiliated persons of each other. As a 
result, section 17(a) would prohibit the sale of the shares of Central 
Funds to the Participating Funds, and the redemption of the shares by 
the Participating Funds.
    2. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) of the Act if 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, and the proposed transaction is consistent with the 
policy of each registered investment company concerned and with the 
general purposes of the Act. Section 6(c) of the Act permits the 
Commission to exempt persons or transactions 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 policy and provisions of the Act.
    3. Applicants submit that their request for relief to permit the 
purchase and redemption of shares of the Central Funds by the 
Participating Funds is consistent with the standards in sections 6(c) 
and 17(b) of the Act. Applicants note that shares of the Central Funds 
will be purchased and redeemed at their net asset value. Applicants 
state that the Registered Participating Funds will retain their ability 
to invest Cash Balances directly in money market instruments and other 
short-term obligations as permitted by their investment objectives and 
policies. Applicants state that a Registered Central Fund has the right 
to discontinue selling shares to any of the Participating Funds if the 
Registered Central Fund's Board or JHA determines that such sale would 
adversely affect the Registered Central Fund's portfolio management and 
operations.

C. Section 17(d) of the Act and Rule 17d-1 Under the Act

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, acting as 
principal, from participating in or effecting any transaction in 
connection with any joint enterprise or joint arrangement in which the 
investment company participates, unless the Commission has approved the 
joint arrangement. Applicants state that the Participating Funds and 
the Central Funds, by participating in the proposed transactions, and 
JHA, by managing the proposed transactions, could be deemed to be 
participating in a joint arrangement within the meaning of section 
17(d) and rule 17d-1.
    2. In considering whether to approve a joint transaction under rule 
17d-1, the Commission considers whether the registered investment 
company's participation in the joint transaction is consistent with the 
provisions, policies and purposes of the Act, and the extent to which 
the participation is on a basis different from or less advantageous 
than that of other participants. Applicants state that the investment 
by the Registered Participating Funds in shares of the Central Funds 
would be on the same basis and no different from or less advantageous 
than that of other participants. Applicants submit that the proposed 
transactions meet the standards for an order under rule 17d-1.

II. Interfund Transactions

    1. As noted above, section 17(a) of the Act would prohibit the 
purchase and sale of portfolio securities between the Funds. Rule 17a-7 
under the Act provides an exemption from section 17(a) for a purchase 
or sale of certain securities between a registered investment company 
and an affiliated person (or an affiliated person of an affiliated 
person), provided certain conditions are met, including that the 
affiliation between the registered investment company and the 
affiliated person (or an affiliated person of the affiliated person) 
must exist solely by reason of the entities having a common investment 
adviser, common directors and/or common officers and the transaction 
must be for no consideration other than cash. Applicants state that the 
Participating Funds could become affiliated persons of each other, and 
affiliated persons of the Central Funds, by virtue of a Participating 
Fund owning 5% or more of the outstanding voting securities of a 
Central Fund (``5% Ownership Affiliation''). In addition, a 
Participating Fund may invest in a Central Fund by transferring its 
portfolio securities to the Central Fund in exchange for shares of the 
Central Fund.
    2. Applicants request relief under sections 6(c) and 17(b) of the 
Act to permit the Interfund Transactions. The Interfund Transactions 
for which relief is requested are transactions between Registered 
Participating Funds and Non-Registered Central Funds and between

[[Page 9390]]

Non-Registered Participating Funds and Registered Central Funds. 
Applicants submit that the requested relief satisfies the standards for 
relief in sections 6(c) and 17(b). Applicants state that, with respect 
to the Participating Funds' in-kind purchases of shares of the Central 
Funds, the consideration paid by the Participating Funds for shares of 
the Central Funds will be based on the net asset value of the Central 
Funds. With respect to the purchase and sale of portfolio securities 
between the Funds, Applicants state that the price paid for the 
securities will be the current market price of the securities. Further, 
Applicants state that the Funds will comply with the requirements set 
forth in rule 17a-7 in all respects other than (a) the requirement that 
the parties to the transactions be affiliated persons (or affiliated 
persons of affiliated persons) of each other solely by reason of having 
a common investment adviser or investment advisers that are affiliated 
persons of each other, common officers and/or common directors, solely 
because the Participating Funds and the Central Funds might become 
affiliated persons within the meaning of section 2(a)(3)(A) and (B) of 
the Act and (b) the requirement that the transactions be for no 
consideration other than cash, solely because certain of the Interfund 
Transactions may be effected in shares of a Central Fund.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. Shares of the Central Funds sold to and redeemed by the 
Participating Funds will not be subject to a sales load, redemption 
fee, asset-based distribution fee under a plan adopted in accordance 
with rule 12b-1 under the Act, or service fee (as defined in rule 
2830(b)(9) of the NASD Conduct Rules).
    2. Before the next meeting of the Board of the Registered 
Participating Fund that invests in the Central Funds is held for the 
purpose of voting on an advisory contract under section 15 of the Act, 
JHA will provide the Board with such information as the Board may 
request to evaluate the effect of the investment of Uninvested Cash in 
the Central Funds upon the direct and indirect compensation to JHA. 
Such information will include specific information regarding the 
approximate cost to JHA of, or portion of the advisory fee under the 
existing advisory contract attributable to, managing the Uninvested 
Cash of the Registered Participating Fund that can be expected to be 
invested in the Central Funds. In connection with approving any 
advisory contract for a Registered Participating Fund, the Registered 
Participating Fund's Board, including a majority of the Independent 
Trustees, shall consider to what extent, if any, the advisory fees 
charged to the Registered Participating Fund by JHA should be reduced 
to account for reduced services provided to the Registered 
Participating Fund by JHA as a result of the Uninvested Cash being 
invested in the Central Funds. The minute books of the Registered 
Participating Fund will record fully the Board's consideration in 
approving the advisory contract, including the considerations relating 
to fees referred to above.
    3. Each Registered Participating Fund will invest Uninvested Cash 
in, and hold shares of, the Central Funds only to the extent that the 
Registered Participating Fund's aggregate investment of Uninvested Cash 
in the Central Funds does not exceed the greater of 25% of the 
Registered Participating Fund's total assets or $10 million.
    4. Investment by a Registered Participating Fund in shares of the 
Central Funds will be in accordance with each Registered Participating 
Fund's respective investment restrictions and will be consistent with 
each Registered Participating Fund's investment policies as set forth 
in its prospectus and statement of additional information.
    5. Each Registered Participating Fund and the Registered Central 
Fund in which it invests shall be in the same group of investment 
companies as defined in section 12(d)(1)(G) of the Act. Each Non-
Registered Fund that may rely on the order shall have JHA as its 
investment adviser or trustee exercising investment discretion.
    6. No Central Fund shall acquire securities of any investment 
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in 
excess of the limits contained in section 12(d)(1)(A) of the Act.
    7. The Non-Registered Central Funds will comply with the 
requirements of sections 17(a), (d), and (e), and 18 of the Act as if 
the Non-Registered Central Funds were registered open-end investment 
companies. With respect to all redemption requests made by a 
Participating Fund, the Non-Registered Central Funds will comply with 
section 22(e) of the Act. JHA will adopt procedures designed to ensure 
that each Non-Registered Central Fund complies with sections 17(a), 
(d), and (e), 18 and 22(e) of the Act. JHA will also periodically 
review and update as appropriate such procedures and will maintain 
books and records describing such procedures, and maintain the records 
required by rules 31a-1(b)(1), 31a-1(b)(2)(ii), and 31a-1(b)(9) under 
the Act. All books and records required to be made pursuant to this 
condition will be maintained and preserved for a period of not less 
than six years from the end of the fiscal year in which any transaction 
occurred, the first two years in an easily accessible place, and will 
be subject to examination by the Commission and its staff.
    8. Each Non-Registered Central Fund will comply with rule 2a-7 
under the Act and will use the amortized cost method of valuation. With 
respect to each Non-Registered Central Fund, JHA will adopt and monitor 
the procedures described in rule 2a-7(c)(7) under the Act and will take 
such other actions as are required to be taken under those procedures. 
A Participating Fund may only purchase shares of a Non-Registered 
Central Fund if JHA determines on an ongoing basis that the Non-
Registered Central Fund is in compliance with rule 2a-7. JHA will 
preserve for a period of not less than six years from the date of 
determination, the first two years in an easily accessible place, a 
record of such determination and the basis upon which the determination 
was made. This record will be subject to examination by the Commission 
and its staff.
    9. Each Participating Fund will purchase and redeem shares of any 
Non-Registered Central Fund as of the same time and at the same price, 
and will receive dividends and bear its proportionate share of expenses 
on the same basis, as other shareholders of the Non-Registered Central 
Fund. A separate account will be established in the shareholder records 
of each Non-Registered Central Fund for the account of each 
Participating Fund that invests in such Non-Registered Central Fund.
    10. To engage in Interfund Transactions, the Funds will comply with 
rule 17a-7 under the Act in all respects other than (a) the requirement 
that the parties to the transaction be affiliated persons (or 
affiliated persons of affiliated persons) of each other solely by 
reason of having a common investment adviser, or investment advisers 
which are affiliated persons of each other, common officers, general 
partners, trustees, managers and/or common directors, solely because a 
Participating Fund and a Central Fund might become affiliated persons 
within the meaning of section 2(a)(3)(A) and (B) of the Act and (b) the 
requirement that the transactions be for no consideration other than 
cash, solely because certain of the Interfund Transactions may be 
effected in shares of a Central Fund.

[[Page 9391]]

    11. Before a Registered Participating Fund may participate in the 
Securities Lending Program, a majority of the Board (including a 
majority of the Independent Trustees) will approve the Registered 
Participating Fund's participation in the Securities Lending Program. 
No less frequently than annually, the Board also will evaluate, with 
respect to each Registered Participating Fund, any securities lending 
arrangement and its results and determine that any investment of Cash 
Collateral in the Central Funds is in the best interests of the 
Registered Participating Fund.
    12. The Board of each Registered Participating Fund will satisfy 
the fund governance standards as defined in rule 0-1(a)(7) under the 
Act by the compliance date for the rule.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-2534 Filed 2-22-06; 8:45 am]

BILLING CODE 8010-01-P