[Federal Register Volume 64, Number 158 (Tuesday, August 17, 1999)]
[Notices]
[Pages 44767-44771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21273]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23941; 813-200]
John Hancock Mutual Life Insurance Company, et al.; Notice of
Application
August 11, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under sections 6(b) and 6(e)
of the Investment Company Act of 1940 (the ``Act'') exempting the
applicants from all provision of the Act, except section 9, section 17
(other than certain provisions of paragraphs (a), (d), (f), (g), and
(j), section 30 (except for certain provisions of sections 30(a), (b),
(e), and (h)), and sections 36 through 53, and the rules and
regulations under the Act.
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SUMMARY OF APPLICATION: Applicants request an order to exempt certain
limited liability companies and other entities formed for the benefit
of key employees John Hancock Mutual Life Insurance Company (``John
Hancock'') and its affiliates from certain provisions of the Act. Each
limited liability company or other entity will be an employees'
securities company within the meaning of section 2(a)(13) of the Act.
APPLICANTS: John Hancock Employees' Securities Company I LLC (``Initial
Company'') and John Hancock, on behalf of other limited liability
companies or other investment vehicles that may be formed in the future
(together, with the Initial Company, the ``Companies'').
FILING DATES: The application was filed on October 22, 1998, and
amended on February 18, 1999, May 17, 1999 and August 10, 1999.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on September 7,
1999, and should be accomplished 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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549-0609. Applicants, c/o John A. Tisdale, John Hancock Mutual Life
Insurance Company, 200 Clarendon Street, Boston, Massachusetts 02117.
FOR FURTHER INFORMATION CONTACT: Janet M. Grossnickle, Attorney-
Adviser, at (202) 942-0526, or Nadya B. Roytblat, Assistant Director,
at (202) 942-0564 (Division of Investment Management, Office of
Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549-0102 (tel. 202-942-8090).
Applicants' Representations
1. John Hancock is a mutual life insurance company organized under
the laws of the Commonwealth of Massachusetts. John Hancock is also an
investment adviser registered under the Investment Advisers Act of 1940
(``Advisers Act''). John Hancock and its affiliates as defined in rule
12b-2 of the Securities Exchange Act of 1934 (the ``Exchange Act'') are
referred to in this notice collectively as the ``John Hancock Group''
and individually as a ``Jon Hancock Group entity.''
2. The Initial Company is a limited liability company organized
under the laws of the State of Delaware. John Hancock formed the
Initial Company to provide certain investment opportunities to certain
key employees of the John Hancock Group. John Hancock is the sole
Managing Member (as defined below) of the Initial Company.
3. The John Hancock Group may organize additional Companies in the
future (the ``Subsequent Companies''). Each Company will be either a
limited liability company, a business trust, or a limited partnership
formed as an ``employees' securities company'' within the meaning of
section 2(a)(13) of the Act, and will operate as a closed-end,
management investment company and may be diversified or non-
diversified. The Companies will be established primarily for the
benefit of highly compensated employees of the John Hancock Group as
part of a program designed to create capital building opportunities
that are competitive with those at other investment banking firms and
to facilitate the recruitment of high caliber professionals.
Participation in a Company will be voluntary.
4. John Hancock will act as the managing member of the Initial
Company (together with any John Hancock Group entity that acts as a
[[Page 44768]]
Company's managing member or general partner, the ``Managing Member'').
The Managing Member will manage and operate each of the Companies. The
Managing Member will be authorized to delegate management
responsibility to a John Hancock Group entity. A John Hancock Group
entity will act as the investment adviser to a Company and will
register as an investment adviser under the Advisers Act, if required
under applicable law.
5. The Managing Member of a Company may charge the Company an
annual management fee, a flat administrative charge or a carried
interest, including a fee meeting the requirements of rule 205-3 under
the Advisers Act. Both the management fee and the administrative fee,
if any, will serve to reimburse the Managing Member for its costs of
managing the Company, and will include expenses charged by a John
Hancock Group entity for services actually rendered to the Company, but
without any additional markup. Any management fee charged to a Company
will not be duplicative of any management fee charged to a Client Fund
(as defined below). A Managing Member may receive reimbursement of its
out-of-pocket expenses, including the allocable portion of the salaries
of its employees who work on the Companies' affairs.
6. Interests in the Companies (``Interests'') will be offered
without registration in reliance on section 4(2) of the Securities Act
of 1933 (the ``Securities Act''), or Regulation D under the Securities
Act, and will be sold without a sales load only to ``Eligible
Employees'' and other ``Qualified Participants,'' in each case as
defined below, or to a John Hancock Group entity (collectively,
``Members''). Prior to offering Interests to an Eligible Employee or
Qualified Family Member (as defined below), the Managing Member must
reasonably believe that such individual will be a sophisticated
investor capable of understanding and evaluating the risks of
participating in the Company and is able to afford a complete loss of
any investment. An Eligible Employee is an individual who is a current
or former employee, officer, or director of John Hancock Group and,
except for certain individuals (``ESC Investors'') who manage the day-
to-day affairs of the Company in question and certain individuals (``JH
Investors'') who manage the day-to-day affairs of the Client Funds or
the Co-Investors (both as defined below), meets the standards of an
accredited investor under rule 501(a)(6) of Regulation D under the
Securities Act (an ``Accredited Investor'').
7. ESC Investors, who also will qualify as Eligible Employees, will
have primary responsibility for operating the Company in which they
invest. These responsibilities will include, among other things,
monitoring investments for the Company, communicating with the Members
in the Company, maintaining the books and records of the Company,
addressing day-to-day tax issues involving the Company, and evaluating
investments for the Company. Each ESC Investor will (a) be closely
involved with the knowledgeable about the Company's affairs and
investments, (b) be an officer or employee of John Hancock Group, and
(c) have reportable income from all sources (including any profit
sharing and bonuses) in the two calendar years immediately preceding
the ESC Investor's participation in the Company in excess of $100,000
and have a reasonable expectation of reportable income of at least
$100,000 in the years in which the ESC Investor invests in a Company.
8. JH Investors, who also will qualify as Eligible Employees, will
have primary responsibility for operating (i) the investment
partnerships or other investment entities managed by John Hancock
(``Client Funds'') in which the Companies invest, provided that such
Client Funds represent the sole investments of the Company in which the
JH Investor invests or (ii) any other investor organized or managed by
a John Hancock Group entity that generally will co-invest with such
Client Funds on a pari passu basis (the ``Co-Investors''). These
responsibilities will include, among other things, monitoring
investments for the Client Funds or Co-Investors, communicating with
the members or other representatives of the Client Funds or Co-
Investors, maintaining the books and records of the Client Funds or Co-
Investors, addressing day-to-day tax issues involving the Client Funds
or Co-Investors, marketing units in the Client Funds or Co-Investors,
and evaluating investments for the Client Funds or Co-Investors. Each
JH Investor will (a) be closely involved with and knowledgeable about
the affairs and investments of the Client Funds or Co-Investors, (b) be
an officer or employee of John Hancock Group, (c) have a graduate
degree in business, law or accounting, (d) have a minimum of five years
of consulting, investment banking or similar business experience, and
(e) have reportable income from all sources (including any profit
sharing and bonuses) in the two calendar years immediately preceding
the JH Investor's participation in the Company in excess of $100,000
and have a reasonable expectation of reportable income of at least
$140,000 in the years in which the JH Investor invests in a Company. In
addition, a JH Investor will not be permitted to invest in any year
more than 10% of such person's income from all sources for the
immediately preceding year in the aggregate in a Company and in all
other Companies in which that JH Investor has previously invested.
9. A Qualified Participant is an Eligible Employee, Qualified
Family Member (as defined below) or Qualified Investment Vehicle (as
defined below). A ``Qualified Family Member'' is a spouse, parent,
child, spouse of child, brother, sister, or grandchild of an Eligible
Employee, and must be an Accredited Investor. A ``Qualified Investment
Vehicle'' is a trust or other investment vehicle established for the
benefit of an Eligible Employee or Qualified Family Members. A
Qualified Investment Vehicle must be either (i) an accredited investor
or (ii) an entity for which an Eligible Employee or Qualified Family
Member is a settlor and principal investment decision-maker.
10. The terms of investment in a Company will be fully disclosed to
each Qualified Participant in a private placement memorandum, which
will be furnished at the time the Eligible Employee is invited to
participate in the Company. Each Company will send audited financial
statements to each Member as soon as practicable after the end of its
fiscal year. In addition, each member will receive a report setting
forth such tax information as shall be necessary for the preparation by
the Member of his or her federal and state income tax returns.
11. Interests in a Company will be non-transferable except with the
prior written consent of the Managing Member. No person will be
admitted into a Company as a Member unless the person is a Qualified
Participant or a John Hancock Group entity.
12. A Member's interest in a Company may be subject to repurchase
if: (a) The Eligible Employee's relationship with John Hancock Group is
terminated for cause; or (b) the Eligible Employee accepts employment
of any nature with a firm that the Managing Member determines is
competitive with any business of John Hancock Group. Upon repurchase,
the Managing Member will pay to the Member the lesser of (a) the amount
actually paid by the Member to acquire the Interest (less prior
distributions, plus interest and dividends), and (b) the fair value of
the
[[Page 44769]]
Interest as determined at the time of termination in good faith by the
Managing Member.
13. Subject to the terms of the applicable limited liability
company agreement (for other constitutive documents), a Company will be
permitted to enter into transactions involving (a) a John Hancock Group
entity, (b) a Client Fund or other portfolio company, (c) any Member or
any person or entity affiliated with a Member, or (d) any partner or
other investor in any entity in which a Company invests. These
transactions may include a Company's purchase or sale of an investment
or an interest from or to any John Hancock Group entity or Client Fund,
acting as principal. Prior to entering into these transactions, the
Managing Member must determine that the terms are fair to the Members.
A Company will not acquire any security by a registered investment
company if immediately after the acquisition, the Company will own more
than 3% of the outstanding voting stock of the registered investment
company.
Applicants' Legal Analysis
1. Section 6(b) of the Act provides, in part, that the SEC will
exempt employees' securities companies from the provisions of the Act
to the extent that the exemption is consistent with the protection of
investors. Section 6(b) provides that the SEC will consider, in
determining the provisions of the Act from which the company should be
exempt, the company's form of organization and capital structure, the
persons owning and controlling its securities, the price of the
company's securities and the amount of any sales load, how the
company's funds are invested, and the relationship between the company
and the issuers of the securities in which it invests. Section 2(a)(13)
defines an employees' security company, in relevant part, as any
investment company all of whose securities are beneficially owned (a)
by current or former employees, or persons on retainer, of one or more
affiliated employers, (b) by immediate family members of such persons,
or (c) by such employer or employers together with any of the persons
in (a) or (b).
2. Section 7 of the Act generally prohibits investment companies
that are not registered under section 8 of the Act from selling or
redeeming their securities. Section 6(e) provides that, in connection
with any order exempting an investment company from any provision of
section 7, certain provisions of the Act, as specified by the SEC, will
be applicable to the company and other persons dealing with the company
as though the company were registered under the Act. Applicants request
an order under sections 6(b) and 6(e) of the Act exempting the
Companies from all provisions of the Act, except section 9, section 17
(other than certain provisions of paragraphs (a), (d), (e), (f), (g),
and (j)), sections 36 through 53 of the Act, and the rules and
regulations under the Act.
3. Section 17(a) generally prohibits any affiliated person of a
registered investment company, or any affiliated person of an
affiliated person, acting as principal, from knowingly selling or
purchasing any security or other property to or from the company.
Applicants request an exemption from section 17(a) to permit: (a) a
member of the John Hancock Group or a Client Fund, acting as principal,
to engage in any transaction directly or indirectly with any Company or
any entity controlled by such Company; (b) a Company to invest in or
engage in any transaction with any entity, acting as principal (i) in
which such Company, any company controlled by such Company or any John
Hancock Group entity or a Client Fund has invested or will invest or
(ii) with which such Company, and company controlled by such Company or
any John Hancock Group entity is or will otherwise become affiliated;
and (c) a partner or other investor in any entity in which a Company
invests, acting as a principal, to engage in transactions directly or
indirectly with the related Company or any company controlled by such
Company.
4. Applicants state than an exemption from section 17(a) is
consistent with the protection of investors and the purposes of the
Companies. Applicants state that the Members in each Company will be
fully informed of the extent of the Company's dealings with the John
Hancock Group. Applicants also state that, as professionals engaged in
financial services businesses, Members will be able to evaluate the
attendant risks. Applicants assert that the community of interest among
the Members and John Hancock Group will serve to reduce any risk of
abuse.
5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
any affiliated person or principal underwriter of a registered
investment company, or any affiliated person of an affiliated person or
principal underwriter, acting as principal, from participating in any
joint arrangement with the company unless authorized by the SEC.
Applicants request relief to permit affiliated persons of each Company,
or affiliated persons of any of these persons, to participate in any
joint arrangement in which the Company or a company controlled by the
Company is a participant.
6. Applicants submit that it is likely that suitable investments
will be brought to the attention of a Company because of its
affiliation with John Hancock Group, John Hancock Group's large capital
resources, and its experience in structuring complex transactions.
Applicants also submit that the types of investment opportunities
considered by a Company often require each investor to make funds
available in an amount that may be substantially greater than what a
Company may make available on its own. Applicants contend that, as a
result, the only way in which a Company may be able to participate in
these opportunities may be to co-invest with other persons, including
its affiliates. Applicants note that each Company will be organized for
the benefit of Eligible Employees as an incentive for them to remain
with John Hancock Group and for the generation and maintenance of
goodwill. Applicants believe that, if co-investments with John Hancock
Group are prohibited, the appeal of the Companies would be
significantly diminished.
7. Applicants state that the possibility that permitting co-
investments by John Hancock Group and a Company might lead to less
advantageous treatment of the Company is minimal in light of the John
Hancock Group's intention in establishing a Company so as to reward
Eligible Employees and to attract and retain highly qualified
personnel, and because senior officers and directors of John Hancock
Group entities will be investing in the Company. In addition,
applicants assert that strict compliance with section 17(d) would cause
the Company to forego investment opportunities simply because a Member
or other affiliated person of the Company (or any affiliate of the
affiliated person) made a similar investment.
8. Section 17(f) designates the entities that may act as investment
company custodians, and rule 17f-1 imposes certain requirements when
the custodian is a member of a national securities exchange. Applicants
request an exemption from section 17(f) and rule 17f-1 to permit the
Managing Member to make certain approvals and ratifications, rather
than a majority of the board of directors of a Company, as would be
required by rule 17f-1 (a) and (d). Applicants also request an
exemption from the rule 17f-1(b)(4) requirement that an independent
accountant periodically verify the assets held by the custodian.
Applicants
[[Page 44770]]
further request an exemption from rule 17f-1(c)'s requirement of
transmitting to the SEC a copy of any contract executed pursuant to
rule 17f-1. Applicants state that, because of the community of interest
between John Hancock Group and the Companies and the independent audit
of annual financial statements, compliance with these requirements
would be unnecessarily burdensome and expensive. Applicants will comply
with all other requirements of rule 17f-1.
9. Section 17(g) and rule 17g-1 generally require the bonding of
officers and employees of a registered investment company who have
access to its securities or funds. Rule 17g-1 requires that a majority
of directors who are not interested persons take certain actions and
give certain approvals relating to fidelity bonding. Applicants request
relief to permit the Managing Member's officers and directors, who may
be deemed interested persons, to take actions and make determinations
set forth in the rule. Applicants state that, because all the directors
of the Managing Member will be affiliated persons, a Company could not
comply with rule 17g-1 without the requested relief. Applicants also
state that each Company will comply with all other requirements of rule
17g-1.
10. Section 17(j) and paragraph (a) of rule 17j-1 make it unlawful
for certain enumerated persons to engage in fraudulent or deceptive
practices in connection with the purchase or sale of a security held or
to be acquired by a registered investment company. Rule 17j-1 also
requires that every registered investment company adopt a written code
of ethics and that every access person of a registered investment
company report personal securities transactions. Applicants request an
exemption from the provisions of rule 17j-1, except for the anti-fraud
provisions of paragraph (a), because they are unnecessarily burdensome
as applied to the Companies.
11. Applicants request an exemption from the requirements in
sections 30(a), 30(b) and 30(e), and the rules under those sections,
that registered investment companies prepare and file with the SEC and
mail to their shareholders certain periodic reports and financial
statements. Applicants contend that the forms prescribed by the SEC for
periodic reports have little relevance to the Companies and would
entail administrative and legal costs that outweigh any benefit to the
Members.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each proposed transaction otherwise prohibited by section 17(a)
or section 17(b) of the Act and rule 17d-1 under the Act to which a
Company is a party (the ``Section 17 Transactions'') will be effected
only if the Managing Member determines that: (a) the terms of the
transaction, including the consideration to be paid or received, are
fair and reasonable to the members and do not involve overreaching of
the company or its Members on the part of any person concerned; and (b)
the transaction is consistent with the interests of the members, the
Company's organizational documents, and the Company's reports to its
Members. In addition, the Managing Members will record and preserve a
description of all Section 17 Transactions, the Managing Member's
findings, the information or materials upon which their findings are
based, and the basis for the findings. All such records will be
maintained for the life of the Companies and at least two years
thereafter, and will be subject to examination by the SEC and its
staff.\1\
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\1\ Each Company will preserve the accounts, books and other
documents required to be maintained in an easily accessible place
for the first two years.
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2. In connection with the Section 17 Transactions, the Managing
Member will adopt, and periodically review and update, procedures
designed to ensure that reasonable inquiry is made, prior to the
consummation of any Section 17 Transaction, will respect to the
possible involvement in the transaction of any affiliated person or
promoter of or principal underwriter for the Company, or any affiliated
person of such person, promoter, or principal underwriter.
3. The Managing Member will not invest the funds of any Company in
any investment in which an ``Affiliated Co-Investor'' (as defined
below) has acquired or proposes to acquire the same class of securities
of the same issuer, where the investment involves a joint enterprise or
other joint arrangement within the meaning of rule 17d-1 in which the
Company and an Affiliated Co-Investor are participants, unless any such
Affiliated Co-Investor, prior to disposing of all or part of its
investment, (a) gives the Managing Member sufficient, but not less than
one days, notice of its intent to dispose of its investment, and (b)
refrains from disposing of its investment unless the Company has the
opportunity to dispose of the Company's investment prior to or
concurrently with, on the same terms as, and pro rata with the
Affiliated Co-Investor. The term ``Affiliated Co-Investor'' with
respect to any Company means any person who is an ``affiliated person''
(as defined in the Act) of the Company or an affiliated person of such
person. The restrictions contained in this condition, however, shall
not be deemed to limit or prevent the disposition of an investment by
an Affiliated Co-Investor: (a) To its direct or indirect wholly-owned
subsidiary, to any company (a ``Parent'') of which the Affiliated Co-
Investor is a direct or indirect wholly-owned subsidiary, or to a
direct or indirect wholly-owned subsidiary of its Parent; (b) to
immediate family members of the Affiliated Co-Investor or a trust or
other investment vehicle established for any such family member; or (c)
when the investment is comprised of securities that are (i) listed on
any exchange registered as a national securities exchange under section
6 of the Exchange Act; (ii) national market system securities pursuant
to section 11A(a)(2) of the Exchange Act and rule 11Aa2-1 thereunder;
or (iii) government securities as defined in section 2(a)(16) of the
Act.
4. Each Company and the Managing Member will maintain and preserve,
for the life of each such Company and at least two years thereafter,
such accounts, books, and other documents as constitute the record
forming the basis for the audited financial statements that are to be
provided to the members, and each annual report of the Company required
to be sent to the Members, and agree that all such records will be
subject to examination by the SEC and its staff.\2\
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\2\ Each Company will preserve the accounts, books and other
documents required to be maintained in an easily accessible place
for the first two years.
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5. The Managing Member of each Company will send to each Member in
the Company who had an interest in a Company, at any time during the
fiscal year then ended, Company financial statement audited by the
Company's independent accountants. At the end of each fiscal year, the
Managing Member will make a valuation or have a valuation made of all
of the assets of the company as of the fiscal year end in a manner
consistent with customary practice with respect to the valuation of
assets of the kind held by the company. In addition, within 90 days
after the end of each fiscal year of each Company or as soon as
practicable thereafter, the Managing Member of the Company will send a
report to each person who was a Member in the company at any time
during the fiscal year then ended,
[[Page 44771]]
setting forth such tax information as shall be necessary for the
preparation by the member of his or its federal and state income tax
returns, and a report of the investment activities of the Company
during that year.
6. Whenever a Company makes a purchase from or sale to an entity
affiliated with the Company by reason of a 5% or more investment in
such entity by a John Hancock Group director, officer, employee, or
person on retainer, such individual will not participate in the
Managing Member's determination of whether or not to effect the
purchase or sale.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-21273 Filed 8-16-99; 8:45 am]
BILLING CODE 8010-01-M
