[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
[[Page 63882]]
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
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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
