[Federal Register Volume 61, Number 142 (Tuesday, July 23, 1996)]
[Notices]
[Pages 38232-38233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18561]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22078; 812-10220]


MFS Special Value Trust; Notice of Application

July 17, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANT: MFS Special Value Trust.

RELEVANT ACT SECTIONS: Exemption requested under section 6(c) of the 
Act that would grant an exemption from section 19(b) of the Act and 
rule 19b-1 thereunder.

SUMMARY OF APPLICATION: Applicant requests an order to make up to 
twelve monthly distributions of long-term capital gains in any one 
taxable year, so long as applicant maintains in effect a distribution 
policy calling for monthly distributions of a fixed percentage of its 
net asset value.

FILING DATES: The application was filed on June 24, 1996.

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 August 12, 1996, 
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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street N.W., Washington, D.C. 20549. 
Applicant, 500 Boylston Street, Boston, MA 02116.

FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Staff Attorney, at 
(202) 942-0572, or Alison E. Baur, Branch Chief, 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.

Applicant's Representations

    1. Applicant is closed-end management investment company organized 
as a Massachusetts business trust. Applicant's investment objective is 
to maintain an annual distribution rate of 11%, based on the original 
offering price of $15 per share, while seeking capital appreciation.
    2. Applicant has a distribution policy calling for twelve monthly 
distributions to shareholders of an amount equal to 0.916% of its 
initial public offering price of $15 per share (11% on an annualized 
basis) (``Monthly Distribution Policy''). If, for any monthly 
distribution, net investment income and net realized short-term capital 
gains are less than the amount of the distribution, the difference is 
distributed from other assets. Applicant's final distribution for each 
calendar year includes any remaining net investment income and net 
realized short-term capital gains deemed, for federal income tax 
purposes, undistributed during the year, as well as any net long-term 
capital gains realized during the year. If, for any fiscal year, the 
total distributions exceed net investment income and net realized 
capital gains, the excess, distributed from other assets, is treated as 
a return of capital. If applicant's net investment income, net short-
term realized gains, net long-term realized gains, and returns of 
capital for any one year exceed the amount to be distributed under the 
Monthly Distribution Policy, applicant may in its discretion retain net 
long-term capital gains to the extent of such excess. Applicant 
requests relief to permit it to make up to twelve distributions of net 
long-term capital gains in any one taxable year, so long as it 
maintains in effect the Monthly Distribution Policy.

Applicant's Legal Analysis

    1. Section 19(b) provides that registered investment companies may 
not, in contravention of such rules, regulations, or orders as the SEC 
may prescribe, distribute long-term capital gains more often than once 
every twelve months. Rule 19b-1 limits the number of capital gains 
distributions, as defined in section 852(b)(3)(C) of the Internal 
Revenue Code of 1986, as amended, (the ``Code''), that applicant may 
make with respect to any one taxable year to one, plus a supplemental 
distribution made pursuant to section 855 of the Code not

[[Page 38233]]

exceeding 10% of the total amount distributed for year, plus one 
additional long-term capital gains distribution made to avoid the 
excise tax under section 4982 of the Code.
    2. Rule 19b-1, by limiting the number of net long-term capital gain 
distributions that applicant may make with respect to any one year, 
prevents the normal operation of the Monthly Distribution Policy 
whenever applicants realized net long-term capital gains in any year 
exceed the total of the fixed monthly distributions that under rule 
19b-1 may include such capital gains. In that situation, the rule 
effectively forces the fixed monthly distributions, that under the rule 
may not include such capital gains, to be funded with returns of 
capital (to the extent net investment income and realized short-term 
capital gains are insufficient), even though net realized long-term 
capital gains would otherwise be available therefor. The long-term 
capital gains in excess of the fixed monthly distributions permitted by 
the rule then must either be added as an ``extra'' on one of the 
permitted capital gains distributions, thus exceeding the total annual 
amount called for by the Monthly Distribution Policy, or be retained by 
applicant (with applicant paying taxes thereon). d
    3. Applicant believes that granting the requested relief would 
limit applicant's return of capital distributions to that amount 
necessary to make up any shortfall between applicant's guaranteed 
distribution and the total of its investment income and capital gains. 
The likelihood that applicant's shareholders would be subject to 
additional tax return complexities involved when applicant retains and 
pays taxes on long-term capital gains would therefore be avoided.
    4. One of the concerns leading to the adoption of section 19(b) and 
rule 19b-1 was that shareholders might be unable to distinguish 
frequent distributions of capital gains from investment income. In 
accordance with rule 19a-1, a separate statement showing the source of 
the distribution (net investment income, net realized capital gains, or 
returns of capital) will accompany each distribution (or the 
confirmation of the reinvestment thereof under applicant's dividend 
reinvestment plan). In addition, a statement showing the amount and 
source of distributions received during the year will be included with 
applicant's IRS Form 1099-DIV reports sent to each shareholder who 
received distributions during the year (including shareholders who sold 
shares during the year). This information will also be included in 
applicant's annual report to shareholders. Through these disclosures 
and other communications with shareholders, applicant states that its 
shareholders will understand that applicant's fixed distributions are 
not tied to its investment income and realized capital gains and will 
not represent yield or investment return.
    5. Another concern that led to the adoption of section 19(b) and 
rule 19b-1 was that frequent capital gains distributions could 
facilitate improper fund distribution practices, including the practice 
of urging an investor to purchase fund shares on the basis of an 
upcoming dividend (``selling the dividend''), where the dividend 
results in an immediate corresponding reduction in net asset value and 
is in effect a return of the investor's capital. Applicant believes 
that this concern does not apply to closed-end investment companies, 
such as applicant, which do not continuously distribute shares.
    6. Applicant states that another concern leading to the adoption of 
section 19(b) and rule 19b-1, the increased administrative costs 
associated with more frequent distributions, is not present because 
applicant will continue to make monthly distributions regardless of 
what portion thereof is composed of capital gains.
    7. Section 6(c) of the Act provides that the SEC may exempt any 
person, security, or transaction, or any class of classes of persons, 
securities, or transactions, from any provisions of the Act, if and to 
the extent 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. For 
the reasons stated above, applicant believes that the requested 
exemption meets the standards set forth in section 6(c).

Applicant's Condition

    Applicant agrees that the order granting the exemption shall 
terminate upon the effective date of a registration statement under the 
Securities Act of 1933 for any future public offering by applicant of 
shares of applicant other than: (i) a non-transferable rights offering 
to shareholders of applicant, provided that such offering does not 
include solicitation by brokers or the payment of any commissions or 
underwriting fee; and (ii) an offering in connection with a merger, 
consolidation, acquisition, or reorganization.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18561 Filed 7-22-96; 8:45 am]
BILLING CODE 8010-01M