[Federal Register Volume 64, Number 78 (Friday, April 23, 1999)]
[Notices]
[Pages 20033-20034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10138]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23790; 812-11492]
MFS Series Trust XI, et al.; Notice of Application
April 19, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under sections 6(c) and 17(b) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
section 17(a) of the Act.
SUMMARY OF APPLICATION: Applicants seek an order to permit in-kind
redemptions of shares of certain registered open-end management
investment companies held by certain affiliated shareholders.
APPLICANTS: MFS Series Trust XI, MFS Institutional Trust and MFS
Variable Insurance Trust (each a ``Fund'' and collectively, the
``Funds'') and Massachusetts Financial Services Company (``MFS'') and
Vertex Investment Management, Inc. (``Vertex,'' and together with MFS,
the ``Advisers'').
FILING DATES: The application was filed on February 1, 1999, and
amended on April 1, 1999.
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 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 May 14, 1999, 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, Massachusetts Financial Services Company, 500
Boylston Street, Boston, MA 02116.
FOR FURTHER INFORMATION CONTACT: George J. Zornada, Branch Chief, 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 (tel. 202-942-8090).
Applicants' Representations
1. Each Fund is registered under the Act as an open-end management
investment company, and organized as a Massachusetts business trust.
MFS, a Delaware corporation, serves as investment adviser to one series
of MFS Series Trust XI and to each of the series of MFS Institutional
Trust and MFS Variable Insurance Trust. Vertex, a Delaware corporation
and a wholly-owned subsidiary of MFS, serves as investment adviser to
the other series of MFS Series Trust XI. Each of the Advisers is
registered as an investment adviser under the Investment Advisers Act
of 1940.
2. Applicants request relief to permit the Funds to satisfy
redemption requests made by any shareholder of a Fund who, at the time
of such redemption requests, is an ``affiliated person'' of a Fund
solely by reason of owning, controlling, or holding with the power to
vote, five percent or more of the Fund's shares (``Covered
Shareholder'') by distributing portfolio securities in-kind. The relief
sought would not extend to shareholders who are ``affiliated persons''
of a Fund within the meaning of sections 2(a)(3)(B) through (F) of the
Act.
3. Each Fund's prospectus and statement of additional information
provide that, in limited circumstances, the Fund may satisfy all or
part of a redemption request by a distribution in-kind of portfolio
securities. The boards of trustees of the Funds (``Boards'') including
a majority of the trustees who are not ``interested persons'' as
defined in section 2(a)(19) of the Act (``Non-Interested Trustees''),
have determined that it would be in the best interests of the Funds and
their shareholders to pay to a Covered Shareholder the redemption price
for shares of the Funds in-kind to the extent permitted by certain
Funds' elections to be governed by rule 18f-1 under the Act.
Applicants' Legal Analysis
1. Section 17(a)(2) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such person, acting as principal, from knowingly purchasing any
security or other property (except securities of which the seller is
the issuer) from the registered investment company. Section 2(a)(3)(A)
of the Act defines ``affiliated person'' of another person to include
any person owning 5% or more of the outstanding voting securities of
the other person. Applicants state that to the extent that
[[Page 20034]]
an in-kind redemption could be deemed to involve the purchase of
portfolio securities (of which the Fund is not the issuer) by a Covered
Shareholder, the proposed redemptions in-kind would be prohibited by
section 17(a)(2).
2. Section 17(b) of the Act provides that, notwithstanding section
17(a) of the Act, the Commission shall exempt a proposed transaction
from section 17(a) of the Act if evidence establishes that: (a) The
terms of the proposed transaction are reasonable and fair and do not
involve overreaching; (b) the proposed transaction is consistent with
the policy of each registered investment company involved; and (c) the
proposed transaction is consistent with the general purposes of the
Act.
3. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class or classes of
persons, securities or transactions, from the provisions of the Act, to
the extent that such 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.
4. Applicants request an order under sections 6(c) and 17(b) of the
Act exempting applicants from section 17(a) of the Act to permit
Covered Shareholders to redeem their shares of the Funds in-kind. The
requested order would not apply to redemptions by shareholders who are
affiliated persons of a Fund within the meaning of sections 2(a)(3)(B)
through (7) of the Act.
5. Applicants submit that the terms of the proposed in-kind
redemptions by Covered Shareholders meet the standards set forth in
sections 6(c) and 17(b) of the Act. Applicants assert that neither the
Fund nor the Covered Shareholder will have any choice as to the type of
consideration to be received in connection with a redemption request,
and neither the Adviser nor the Covered Shareholder will have any
opportunity to select the specific portfolio securities to be
distributed. Applicants further state that the portfolio securities to
be distributed will be valued according to an objective, verifiable
standards and that the in-kind redemptions are consistent with the
investment policies of the Fund. Applicants also state that the
proposed in-kind redemption are consistent with the general purposes of
the Act because the Covered Shareholders would not receive any
advantage not available to other redeeming shareholders.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. The securities distributed pursuant to a redemption in-kind (the
``In-Kind Securities'') will be limited to securities that are traded
on a public securities market or for which market quotations are
available.
2. The in-Kind Securities will be distributed by each Fund on a pro
rata basis after excluding (a) Securities which may not be publicly
offered or sold without registration under the Securities Act of 1933;
(b) securities issued by entities in countries which (i) restrict or
prohibit the holding of securities by non-nationals other than through
qualified investment vehicles, such as the Funds or (ii) permit
transfers of ownership of securities to be effected only by
transactions conducted on a local stock exchange; (c) certain portfolio
positions (such as forward foreign currency contracts, futures and
options contracts, swap transactions and repurchase agreements) that,
although they may be liquid and marketable, involve the assumption of
contractual obligations, require special trading facilities or can only
be traded with the counterparty to the transaction to effect a change
in beneficial ownership; (d) cash equivalents (such as certificates of
deposit, commercial paper and repurchase agreements); and (e) other
assets which are not readily distributable (including receivables and
prepaid expenses). In addition, portfolio securities representing
fractional shares, odd lot securities and accruals on such securities
may be excluded from portfolio securities distributed in-kind to a
Covered Shareholder. Cash will be paid for the portion of the in-kind
distribution represented by the excluded assets set forth above, less
liabilities (including accounts payable).
3. The In-Kind Securities distributed to the Covered shareholders
will be valued in the same manner as they would be valued for purposes
of computing each Fund's net asset value.
4. The Funds' Boards, including a majority of the Non-Interested
Trustees, will determine no less frequently than annually: (a) Whether
the In-Kind Securities, if any, have been distributed in accordance
with conditions 1 and 2; (b) whether the In-Kind Securities, if any,
have been valued in accordance with condition 3; and (c) whether the
distribution of any such In-Kind Securities is consistent with the
policies of each effected Fund as reflected in the prospectus. In
addition, the Board will make and approve such changes as it deems
necessary in the procedures for monitoring the Funds' compliance with
the terms and conditions of this application.
5. The Funds will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which a proposed in-
kind redemption occurs, the first two years in an easily accessible
place, a written record of such redemption setting forth a description
of each security distributed in-kind, the identity of the Covered
Shareholder, the terms of the in-kind distribution and the information
or materials upon which the valuation was made.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-10138 Filed 4-22-99; 8:45 am]
BILLING CODE 8010-01-M
