[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