[Federal Register Volume 59, Number 117 (Monday, June 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14937]
[[Page Unknown]]
[Federal Register: June 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20354; 812-8848]
Massachusetts Investors Trust, et al.; Notice of Application
June 14, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (``Act'').
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APPLICANTS: Massachusetts Investors Trust, MFS Series Trust I, MFS
Series Trust II, MFS Series Trust III, MFS Series Trust IV, MFS Series
Trust V, MFS Series Trust VI, MFS Series Trust VII, MFS Series Trust
VIII, MFS Fixed Income Trust, MFS Municipal Series Trust, MFS Growth
Opportunities Fund, MFS Government Mortgage Fund, MFS Government
Securities Fund, Massachusetts Investors Growth Stock Fund, MFS
Government Limited Maturity Fund, MFS Institutional Trust, MFS
Municipal Income Trust, MFS Intermediate Income Trust, MFS Multimarket
Income Trust, MFS Government Markets Income Trust, MFS Charter Income
Trust, MFS Special Value Trust, MFS Union Standard Trust, MFS Variable
Insurance Trust, Money Market Variable Account, High Yield Variable
Account, Capital Appreciation Variable Account, Government Securities
Variable Account, World Governments Variable Account, Total Return
Variable Account, Managed Sectors Variable Account, MFS/Sun Life Series
Trust, Sun Growth Variable Annuity Fund, Inc. and MFS Variable
Insurance Trust (collectively, the ``Trusts''), and Massachusetts
Financial Services Company (``MFS'') on their own behalf and on behalf
of (i) all existing and future series of each Trust, (ii) all existing
and future investment companies (and all existing and future series
thereof) not currently advised by MFS but for which MFS (or an existing
or future company controlled by or under common control with MFS) in
the future acts as investment adviser thereof (such Trusts, investment
companies and series are collectively referred to herein as the
``Funds''), and (iii) any existing or future company controlled by or
under common control with MFS that in the future serves as investment
adviser to any Fund (collectively with MFS referred to as the
``Adviser'').
RELEVANT ACT SECTIONS: Order requested under section 17(d) and rule
17d-1.
SUMMARY OF APPLICATION: Applicants seek to amend an existing order that
permits certain applicants to operate a joint trading account that
invests solely in commercial paper with a maturity of 30 days or less,
repurchase agreements with maturities of seven days or less, and
securities issued or guaranteed by the U.S. government or its agencies,
authorities, or instrumentalities (``U.S. Government Securities'') with
a maturity of 30 days or less.\1\ The amended order would permit (a)
cash contributed to the joint account also to be invested in (i) tax-
exempt variable rate demand notes (``VRDNs'') with demand features
providing for maturities of up to 30 days or one month and (ii)
securities (other than VRDNs) exempt from federal and/or state income
tax with remaining maturities of up to 60 days, (b) commercial paper
and U.S. Government Securities held in the joint account to have
remaining maturities of up to 60 days (as opposed to 30 days as
permitted in the Prior Order), and (c) repurchase agreements held in
the joint account to have maturities of up to 60 days (as opposed to
seven days as permitted by the Prior Order). Applicants also seek to
amend the prior order by adding certain additional investment company
applicants.
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\1\MFS Capital Development Fund, Investment Company Act Release
Nos. 19109 (Nov. 19, 1992) (notice) and 19158 (Dec. 16, 1992)
(order) (the ``Prior Order'').
FILING DATE: The application was filed on February 18, 1994 and amended
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on April 15, 1994.
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 July 11, 1994,
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 such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, 500 Boylston Street, Boston, MA 02116.
FOR FURTHER INFORMATION CONTACT:
James M. Curtis, Senior Counsel, at (202) 942-0563, or C. David
Messman, 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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. Each of the existing Funds is an open-end or a closed-end
management investment company registered under the Act. MFS is a
wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.),
which is a wholly-owned subsidiary of Sun Life Assurance Company of
Canada. MFS is a registered investment adviser. Each of the existing
Funds is advised by MFS.
2. Each of the existing Funds except MFS Series Trust and MFS
Municipal Income Trust (the ``Existing Funds'') is currently authorized
to invest through a joint account pursuant to the Prior Order. The
Prior Order permits each of the Existing Funds to participate in a
joint account (the ``Joint Account'') to pool cash balances and
reserves for the purpose of investing in (i) commercial paper with a
remaining maturity of 30 days or less, (ii) one or more repurchase
agreements with a bank or major brokerage house with a maturity of
seven days or less, or (iii) U.S. Government Securities with remaining
maturities of 30 days or less.
3. Applicants propose to continue to operate the Joint Account in
the same manner as permitted by the Prior Order, except for the
modifications discussed below.
4. Applicants seek to amend the Prior Order to permit (a) cash
invested in the Joint Account also to be invested in (i) VRDNs with
demand features providing for maturities of up to 30 days or one month
and (ii) securities (other than VRDNs) exempt from federal and/or state
income tax with remaining maturities of up to 60 days (collectively,
``Tax-Exempt Securities''), (b) commercial paper and U.S. Government
Securities held in the Joint Account to have remaining maturities of up
to 60 days, and (c) repurchase agreements held in the Joint Account to
have maturities of up to 60 days. The amended order also would add MFS
Municipal Series Trust and MFS Municipal Income Trust as named
applicants and permit an existing or future investment company (and all
existing or future series thereof) not currently advised by MFS to
participate in the Joint Account if MFS or an existing or future
company controlled by or under common control with MFS becomes an
investment adviser to the investment company.
5. Tax-Exempt Securities include short-term tax-exempt demand
obligations that have a variable or floating interest rate and an
unconditional right to demand payment of the unpaid principal and
accrued interest within 30 days (or one month). The variable or
floating rate features of such securities provide for the readjustment
of the interest rate to a rate then prevailing for similar instruments
so that such securities reasonably can be expected to maintain a market
value that approximates the par value of the notes.
6. While none of the existing Funds are tax-exempt money market
funds, if a tax-exempt money market fund contributes cash to the Joint
Account, such cash will only be invested in securities that qualify for
purchase by a tax-exempt money market fund under rule 2a-7 under the
Act, as such rule may be amended from time to time.
7. Repurchase agreements are entered into with securities dealers
and banks which are on the Advisers' approved list for repurchase
agreement counterparties (the ``Repo Approved List''). The Repo
Approved List was compiled by securities analysts and other employees
of the Adviser based on such persons' assessment of whether the
counterparty is financially responsible. The Repo Approved List is
reviewed by the Board of Trustees or Board of Directors of each Fund
(the ``Governing Boards'') at least annually, although a Fund's
Governing Board is not required to pre-approve a counterparty.
8. The Adviser for each Fund will determine whether to invest
assets of such Fund in repurchase agreements, Tax-Exempt Securities,
U.S. Government Securities or commercial paper (collectively, ``Short-
Term Investments''). The existence of the Joint Account will not affect
the decision of whether to invest in Short-Term Investments except to
the extent the Joint Account had available to it a particular Short-
Term Investment which was not otherwise available to a particular Fund
and, on the basis of yield, credit worthiness, and liquidity, offered a
competitive investment.
9. Each Fund will have the ability to purchase commercial paper,
U.S. Government Securities, and repurchase agreements through the Joint
Account consistent with its investment objective and policies. In
addition, each Fund will have the ability to purchase Tax-Exempt
Securities through the Joint Account consistent with its investment
objective and policies. Each Fund may, but is not obligated to, invest
not only cash which in the absence of the Joint Account would remain
uninvested but also cash which in the absence of the Joint Account
would be individually invested in Short-Term Investments pursuant to a
Fund's investment objective and policies. Transactions in the Joint
Account will be recorded and monitored pursuant to the procedures set
forth in the Prior Order.
Applicants' Legal Analysis
1. Section 17(d) and rule 17d-1(a), taken together, prohibit an
affiliated person of a registered investment company, or an affiliated
person of such a person, from participating in any joint enterprise or
arrangement in which such investment company is a participant, without
an SEC order. Rule 17d-1(b) provides that in passing upon applications
under section 17(d) and rule 17d-1, the SEC will consider whether each
party's participation in the proposed joint arrangement is consistent
with the provisions, policies, and purposes of the Act, and the extent
to which such participation is on a basis different from or less
advantageous than that of other participants.
2. Each Fund, by participating in the proposed Joint Account as
proposed to be modified, and the Advisers, by administering the
proposed Joint Account, could be deemed to be ``joint participants'' in
a transaction within the meaning of section 17(d), and the proposed
Joint Account could be deemed to be a ``joint enterprise or other joint
arrangement'' within the meaning of rule 17d-1.
3. Applicants believe that the proposed method of operating the
Joint Account will not result in any conflicts of interest between any
of the Funds or between a Fund and its Adviser. Although the Adviser
will gain some benefit through administrative convenience and a
possible reduction in clerical costs, the primary beneficiaries will be
the Funds because the Joint Account will be a more efficient way of
administering these investment transactions. Applicants believe that
the operation of the Joint Account will be free of any inherent bias
favoring one Fund over another.
4. Applicants further believe that future participation in the
Joint Account by one or more Funds which do not presently exist or are
not presently advised by an Adviser would be desirable without the
necessity of applying for an amendment to the requested order.
Applicants represent that additional Funds will be permitted to
participate in the Joint Account only on the same terms and conditions
as the existing Funds have set forth herein.
5. The Existing Funds have received the Prior Order from the SEC
permitting the operation of the existing Joint Account with respect to
repurchase agreements with a maximum maturity of seven days and
commercial paper and U.S. Government Securities with maximum remaining
maturities of 30 days. Applicants submit that the proposed amendment to
the Prior Order is consistent with the findings required by section
17(d) of the Act and rule 17d-1 thereunder for granting orders pursuant
to rule 17d-1, including the finding that any Fund would participate in
the Joint Account on a basis no different from or less advantageous
than that of any other Fund.
Applicants' Conditions
The Joint Account will operate subject to the following conditions:
1. Each Fund will transfer into the Joint Account the cash it
wishes to invest through the Joint Account after the calculation of its
daily cash available for investment and will specifically indicate
whether the cash is to be used to purchase commercial paper, Tax-Exempt
Securities, repurchase agreements, or U.S. Government Securities. The
Joint Account will not be distinguishable from any other accounts
maintained by a Fund with its custodian bank except that monies from a
Fund will be deposited on a commingled basis. The Joint Account will
not have any separate existence which will have indicia of a separate
legal entity. The sole function of the Joint Account will be to provide
a convenient way of aggregating individual transactions which would
otherwise require management by each Fund.
2. Cash contributed by a Fund to the Joint Account will be invested
in one or more of the following, as directed by the Fund: (1) Interest
bearing or discounted commercial paper with a remaining maturity not to
exceed 60 days; (2) repurchase agreements, with maturities not to
exceed 60 days, ``collateralized fully,'' as that term is defined in
rule 2a-7 under the Act, by U.S. Government Securities; (3) U.S.
Government Securities with remaining maturities of up to 30 days or one
month; (4) VRDNs that have demand features providing for maturities of
up to 30 days or one month; or (5) securities other than VRDNs exempt
from federal and/or state income tax with remaining maturities of up to
60 days.
3. Any investment made by a Fund or Funds through the Joint Account
will satisfy the investment criteria of all Funds participating in that
investment.
4. All investments held by a Fund or Funds through the Joint
Account will be valued on the basis of amortized cost to the extent
permitted by applicable Commission release, rule, or order.
5. Each Fund valuing its net assets in reliance upon rule 2a-7
under the Act will use the average maturity of the instrument(s) in the
Joint Account in which such Fund has an interest (determined on a
dollar weighted basis) for the purpose of computing the Fund's average
portfolio maturity with respect to the portion of its assets held in
the Joint Account on that day.
6. In order to assure that there will be no opportunity for one
Fund to use any part of a balance of the Joint Account credited to
another Fund, no Fund will be allowed to create a negative balance in
the Joint Account for any reason. A Fund's decision to invest through
the Joint Account will be solely at the Fund's option. No Fund will be
obligated to invest through the Joint Account or maintain any minimum
balance therein. In addition, each Fund will retain the sole rights of
ownership of any of its assets held through the Joint Account,
including interest payable on such assets.
7. The Adviser and the custodian of each Fund will maintain records
(in conformity with section 31 of the Act and the rules and regulations
thereunder) documenting, for any given day, each Fund's aggregate
investment in the Joint Account and each Fund's pro rata share of each
Short-Term Investment made through the Joint Account.
8. Not every Fund participating in the Joint Account will
necessarily have its cash invested in every Short-Term Investment held
in the Joint Account. However, to the extent a Fund's cash is applied
to a particular Short-Term Investment made through the Joint Account,
the Fund will participate in and own a proportionate share of such
investment, and the income earned or accrued thereon, based upon the
percentage of such investment purchased with monies contributed by the
Fund.
9. The Adviser will administer the investments of the Joint Account
as part of its duty under its existing or any future investment
advisory contracts with each Fund and will not collect any additional
fee for the management of the Joint Account. (The Adviser will collect
fees in accordance with each Fund's respective investment advisory
agreement.)
10. The Governing Boards of the Funds will adopt procedures
pursuant to which the Joint Account will operate, which will be
reasonably designed to provide that the requirements of the application
will be met. Each of the Governing Boards will make and approve such
changes as it deems necessary to ensure that such procedures are
followed. In addition, the Governing Boards will determine, no less
frequently than annually, that the Joint Account has been operated in
accordance with such procedures.
11. The administration of the Joint Account will be within the
fidelity bond coverage required by section 17(g) of the Act and rule
17g-1 thereunder.
12. Short-Term Investments held through the Joint Account generally
will not be sold prior to maturity except: (i) If the Adviser believes
the security no longer presents minimal credit risk; (ii) in the case
of commercial paper of Tax-Exempt Securities, if as a result of a
credit downgrading or otherwise, the security no longer satisfies the
investment criteria of all Funds participating in that investment; or
(iii) in the case of a repurchase agreement, if the counterparty
defaults. A Fund may, however, sell its fractional portion of a Short-
Term Investment prior to the maturity of the investment if the cost of
such transaction will be borne solely by the selling Fund and the
transaction would not adversely affect the other Funds participating in
the Short-Term Investment. In no case would an early termination by
less than all participating Funds be permitted if it would reduce the
principal amount or yield received by other Funds participating in a
particular Short-Term Investment or otherwise adversely affect the
other participating Funds. Each Fund participating in the Short-Term
Investment will be deemed to have consented to such sale and partition
of the Short-Term Investment.
13. Any Short-Term Investment held through the Joint Account with a
remaining maturity of more than seven days will be considered illiquid
and, for any fund that is an open-end management investment company
registered under the Act, subject to the restriction that the Fund may
not invest more than 15% (or such other percentage as set forth by the
Commission from time to time) of its net assets in illiquid securities,
if the Fund cannot sell its fractional interest in the Short-Term
Investment pursuant to the requirements described in the preceding
condition.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-14937 Filed 6-17-94; 8:45 am]
BILLING CODE 8010-01-M