[Federal Register Volume 76, Number 195 (Friday, October 7, 2011)]
[Notices]
[Pages 62470-62475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-25926]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29827; File No. 812-13606]


MFS Series Trust I, et al.; Notice of Application

September 30, 2011.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under (a) section 6(c) of 
the Investment Company Act of 1940 (``Act'') granting an exemption from 
sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act 
granting an exemption from section 12(d)(1) of the Act; (c) sections 
6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1), 
17(a)(2) and 17(a)(3) of the Act; and (d) section 17(d) of the Act and 
rule 17d-1 under the Act to permit certain joint arrangements.

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Summary of the Application: Applicants request an order that would 
permit certain registered open-end management investment companies to 
participate in a joint lending and borrowing facility.

Applicants: 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 Series Trust IX, MFS 
Series Trust X, MFS Series Trust XI, MFS Series Trust XII, MFS Series 
Trust XIII, MFS Series Trust XIV, MFS Series Trust XV, MFS Series Trust 
XVI, MFS Municipal Series Trust, MFS Variable Insurance Trust, MFS 
Variable Insurance Trust II, Massachusetts Investors Trust, 
Massachusetts Investors Growth Stock Fund, MFS Institutional Trust 
(each, a ``Trust'') and Massachusetts Financial Services Company 
(``MFS'').

DATES: Filing Dates: The application was filed on November 20, 2008, 
amended on May 7, 2009, July 22, 2010 and September 16, 2011.

Hearing or Notification of Hearing: An order granting the application 
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 October 25, 2011, 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, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, Massachusetts 
Financial Services Company, 500 Boylston Street, Boston, MA 02116.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 551-6811 or Janet M. Grossnickle, Assistant Director, at (202) 
551-6821 (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 via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. Each Trust is organized as a Massachusetts business trust and is 
registered under the Act as an open-end management investment company. 
Each Trust may consist of one or more series and may offer additional 
series in the future (``Funds''). MFS, a Delaware corporation, is 
registered as an investment adviser under the Investment Advisers Act 
of 1940, and

[[Page 62471]]

serves as the investment adviser to each Fund.\1\
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    \1\ Applicants request that the relief apply to (a) any Fund, 
(b) any successor entity to MFS, and (c) any other registered open-
end management investment company or its series advised by MFS and 
for which MFS Fund Distributors, Inc. (``MFD'') or a person 
controlling, controlled by, or under common control (within the 
meaning of section 2(a)(9) of the Act) with MFD serves as principal 
underwriter (each, also a ``Fund''). The term ``successor'' is 
limited to entities that result from a reorganization into another 
jurisdiction or a change in the type of business organization. All 
entities that currently intend to rely on the requested relief are 
named as applicants. Any other existing or future Funds that 
subsequently rely on the order will comply with the terms and 
conditions set forth in the application.
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    2. Some Funds, including money market Funds that rely on rule 2a-7 
under the Act (``Money Market Funds''), may lend money to banks or 
other entities by entering into repurchase agreements, purchasing other 
short-term instruments, or, in the case of Funds other than the Money 
Market Funds, investing in the MFS Institutional Money Market Fund 
(``IMMF'') pursuant to rule 12d1-1 under the Act. Other Funds may 
borrow money from the same or similar banks for temporary purposes to 
satisfy redemption requests, to cover unanticipated cash shortfalls 
such as a trade ``fail'' in which cash payment for a security sold by a 
Fund has been delayed, or for other temporary purposes. Currently, the 
Trusts have a committed credit facility provided by a syndicate of 
lenders and uncommitted lines of credit with two separate banks 
(collectively, the ``Loan Agreements''). The Funds also have an 
overdraft facility with their custodians.
    3. If a Fund were to borrow money under a Loan Agreement, the Fund 
would pay interest on the borrowed cash at a rate which would be higher 
than the rate that would be earned by other (non-borrowing) Funds on 
investments in repurchase agreements and other short-term instruments 
of the same maturity as the bank loan. In addition, while bank 
borrowings generally can supply needed cash to cover unanticipated 
redemptions and sales fails, the borrowing Funds incur commitment fees 
and/or other charges involved in obtaining a bank loan.
    4. Applicants request an order that would permit each Trust to 
enter into master interfund lending agreements (``Interfund Lending 
Agreements'') that would permit each Fund to lend and borrow money for 
temporary purposes directly to and from each other Fund through a 
credit facility (``Interfund Loan''). Applicants believe that the 
proposed credit facility would reduce the Funds' borrowing costs and 
enhance their ability to earn higher interest rates on short-term 
lendings. Although the proposed credit facility would reduce the Funds' 
need to borrow from banks, the Funds would be free to establish or 
renew committed lines of credit or other borrowing arrangements with 
unaffiliated banks.
    5. Applicants anticipate that the credit facility would provide a 
borrowing Fund with significant savings when the cash position of the 
Fund is insufficient to meet temporary cash requirements. This 
situation could arise when redemptions exceed anticipated volumes and 
certain Funds have insufficient cash on hand to satisfy such 
redemptions. When a Fund liquidates portfolio securities to meet 
redemption requests, it often does not receive payment in settlement 
for up to three days (or longer for certain foreign transactions). The 
credit facility would provide a source of immediate, short-term 
liquidity pending settlement of the sale of portfolio securities.
    6. Applicants also propose using the credit facility when a sale of 
securities ``fails'' due to circumstances such as a delay in the 
delivery of cash to a Fund's custodian or improper delivery 
instructions by the broker effecting the transaction. Sales fails may 
present a cash shortfall if a Fund has undertaken to purchase 
securities using the proceeds from the securities sold. As a result, 
the Fund could fail on its intended purchase due to lack of funds from 
the previous sale, resulting in additional cost to the Fund, or sell a 
security on a same-day settlement basis, earning a lower return on the 
investment. Use of the credit facility under these circumstances would 
enable the Fund to have access to immediate short-term liquidity.
    7. While bank borrowings generally can supply needed cash to cover 
unanticipated redemptions and sales fails, under the proposed credit 
facility a borrowing Fund would pay lower interest rates than those 
offered by banks on short-term loans. In addition, Funds making short-
term cash loans directly to other Funds would earn interest at a rate 
higher than they otherwise could obtain from investing their cash in 
repurchase agreements. Thus, applicants believe that the proposed 
credit facility would benefit both borrowing and lending Funds.
    8. The interest rate charged to a Fund on any Interfund Loan 
(``Interfund Loan Rate'') would be the average of the ``Repo Rate'' and 
the ``Bank Loan Rate,'' both as defined below. The Repo Rate on any day 
would be the highest rate available to a lending Fund from investing in 
overnight repurchase agreements. The Bank Loan Rate on any day would be 
calculated by the ``Interfund Lending Committee'' (as defined below) 
each day an Interfund Loan is made according to a formula established 
by each Fund's board of trustees (``Fund Board'') intended to 
approximate the lowest interest rate at which bank short-term loans 
would be available to the Funds. The formula would be based upon a 
publicly available rate (e.g., Federal funds rates and/or Libor), plus 
an additional spread of basis points and would vary with this rate so 
as to reflect changing bank loan rates. The initial formula and any 
subsequent modifications to the formula would be subject to the 
approval of each Fund Board. Each Fund Board would at least annually 
review the continuing appropriateness of using the method of 
calculating the Bank Loan Rate, as well as the relationship between the 
Bank Loan Rate and current bank loan rates that would be available to 
the Funds.
    9. The credit facility would be administered by investment 
professionals and administrative personnel from MFS (the ``Interfund 
Lending Committee''). No portfolio manager, including research analysts 
with portfolio management responsibilities, for any Fund will serve as 
a member of the Interfund Lending Committee. Under the proposed credit 
facility, senior members of MFS' investment management team and senior 
administrative and management personnel (the ``Investment Management 
Committee'') or a portfolio manager for each participating Fund could 
provide standing instructions to the Interfund Lending Committee that 
the participating Fund is authorized to participate as a borrower or 
lender; alternatively, the portfolio manager could provide instructions 
from time to time as to when the Fund wishes to participate as a 
borrower or a lender. The Interfund Lending Committee, no more 
frequently than once daily in the morning of each business day that a 
transaction is requested under the credit facility pursuant to 
instructions (an ``Interfund Lending Day''), would request and collect 
data on the uninvested cash and borrowing requirements of all 
participating Funds from the Funds' custodian. Once it has determined 
the aggregate amount of cash available for loans and borrowing demand, 
the Interfund Lending Committee would allocate loans among borrowing 
Funds without any further communication from a Fund's portfolio 
managers. Applicants expect there will typically be more available 
uninvested cash each day than borrowing demand. After the Interfund 
Lending Committee

[[Page 62472]]

has allocated cash for Interfund Loans, MFS' cash desk personnel would 
invest any remaining cash in accordance with the Funds' investment 
policies and practices in the ordinary course.
    10. The Interfund Lending Committee would allocate borrowing demand 
and cash available for lending among the Funds on what the Interfund 
Lending Committee believes to be an equitable basis, subject to certain 
administrative considerations applicable to all participating Funds, 
such as the time of filing requests to participate, minimum loan lot 
sizes, the need to minimize the number of transactions and associated 
administrative costs, and the amount of the existing borrowings 
outstanding. To reduce transaction costs, each Interfund Loan normally 
would be allocated in a manner intended to minimize the number of 
participants necessary to complete the loan transaction. The method of 
allocation and related administrative procedures would be approved by 
each Fund Board, including a majority of trustees who are not 
``interested persons'' of the Fund, as defined in section 2(a)(19) of 
the Act (``Independent Fund Board Members''), to ensure that both 
borrowing and lending Funds participate on an equitable basis.
    11. The Interfund Lending Committee would (a) monitor the Interfund 
Loan Rates charged and the other terms and conditions of the Interfund 
Loans; (b) limit the borrowings and loans entered into by each Fund to 
ensure that they comply with the Fund's investment policies and 
limitations; (c) ensure equitable treatment of each Fund; and (d) 
directly or through MFS make quarterly reports to each Fund Board 
concerning any transactions by the Funds under the credit facility and 
the Interfund Loan Rate charged.
    12. MFS, through the Interfund Lending Committee, would administer 
the credit facility as a fiduciary as part of its duties under the 
investment management contract with each Fund and provide 
administrative support pursuant to the administrative services 
agreement between each Fund and MFS and would receive no additional fee 
as compensation for its services.
    13. No Fund may participate in the credit facility unless: (a) The 
Fund has obtained shareholder approval for its participation, if such 
approval is required by law; (b) the Fund has fully disclosed all 
material information concerning the credit facility in its prospectus 
and/or statement of additional information (``SAI''); and (c) the 
Fund's participation in the credit facility is consistent with its 
investment objectives, limitations and organizational documents.
    14. In connection with the credit facility, applicants request an 
order under (a) section 6(c) of the Act granting relief from sections 
18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of the Act granting 
relief from section 12(d)(1) of the Act; (c) sections 6(c) and 17(b) of 
the Act granting relief from sections 17(a)(1), 17(a)(2) and 17(a)(3) 
of the Act; and (d) under section 17(d) of the Act and rule 17d-1 under 
the Act to permit certain joint arrangements.

Applicants' Legal Analysis

    1. Section 17(a)(3) of the Act generally prohibits any affiliated 
person, or affiliated person of an affiliated person, from borrowing 
money or other property from a registered investment company. Section 
21(b) of the Act generally prohibits any registered management company 
from lending money or other property to any person if that person 
controls or is under common control with the company. Section 
2(a)(3)(C) of the Act defines an ``affiliated person'' of another 
person, in part, to be any person directly or indirectly controlling, 
controlled by, or under common control with, the other person. 
Applicants state that the Funds may be under common control by virtue 
of having MFS as their common investment adviser and/or by having a 
common Fund Board and officers.
    2. Section 6(c) of the Act provides that an exemptive order may be 
granted where an 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. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) provided that the terms of the 
transaction, including the consideration to be paid or received, are 
fair and reasonable and do not involve overreaching on the part of any 
person concerned, and the transaction is consistent with the policy of 
the investment company as recited in its registration statement and 
reports filed under the Act and with the general purposes of the Act. 
Applicants believe that the proposed arrangements satisfy these 
standards for the reasons discussed below.
    3. Applicants submit that sections 17(a)(3) and 21(b) of the Act 
were intended to prevent a party with strong potential adverse 
interests to, and some influence over the investment decisions of, a 
registered investment company from causing or inducing the investment 
company to engage in lending transactions that unfairly inure to the 
benefit of such party and that are detrimental to the best interests of 
the investment company and its shareholders. Applicants assert that the 
proposed credit facility transactions do not raise these concerns 
because: (a) MFS, through the Interfund Lending Committee, would 
administer the program as a fiduciary; (b) all Interfund Loans would 
consist only of uninvested cash reserves that the lending Fund 
otherwise would invest in short-term repurchase agreements or other 
short-term instruments; (c) the Interfund Loans would not involve a 
greater risk than such other investments; (d) the lending Fund would 
receive interest at a rate higher than it could otherwise obtain 
through such other investments; and (e) the borrowing Fund would pay 
interest at a rate lower than otherwise available to it under its bank 
loan agreements. Moreover, applicants believe that the other terms and 
conditions in the application would effectively preclude the 
possibility of any Fund obtaining an undue advantage over any other 
Fund.
    4. Section 17(a)(1) of the Act generally prohibits any affiliated 
person of a registered investment company, or an affiliated person of 
an affiliated person, from selling any securities or other property to 
the company. Section 17(a)(2) of the Act generally prohibits any 
affiliated person of a registered investment company, or any affiliated 
person of such a person, from purchasing securities or other property 
from the investment company. Section 12(d)(1) of the Act generally 
makes it unlawful for a registered investment company to purchase or 
otherwise acquire any security issued by any other investment company 
except in accordance with the limitations set forth in that section.
    5. Applicants state that the obligation of a borrowing Fund to 
repay an Interfund Loan may constitute a security for the purposes of 
sections 17(a)(1) and 12(d)(1). Applicants also state that any pledge 
of assets in connection with an Interfund Loan could be construed as a 
purchase of the borrowing Fund's securities or other property for 
purposes of section 17(a)(2) of the Act. Section 12(d)(1)(J) of the Act 
provides that the Commission may exempt persons or transactions from 
any provision of section 12(d)(1) if and to the extent such exemption 
is consistent with the public interest and the protection of investors. 
Applicants contend that the standards under sections 6(c), 17(b), and 
12(d)(1)(J) are satisfied for all the reasons set forth above in 
support of their request for relief from sections

[[Page 62473]]

17(a)(3) and 21(b) and for the reasons discussed below. Applicants also 
state that the requested relief from section 17(a)(2) of the Act meets 
the standards of section 6(c) and 17(b) because any collateral pledged 
to secure an Interfund Loan would be subject to the same conditions 
imposed by any other lender to a Fund that imposes conditions on the 
quality of or access to collateral for a borrowing (if the lender is 
another Fund) or the same or less restrictive conditions (in any other 
circumstance). Any collateral pledged to secure an Interfund Loan will 
be available solely to secure repayment of such Interfund Loan.
    6. Applicants state that, among other things, section 12(d)(1) was 
intended to prevent the pyramiding of investment companies in order to 
avoid imposing on investors additional and duplicative costs and fees 
attendant upon multiple layers of investment companies. Applicants 
submit that the proposed credit facility does not involve these abuses. 
Applicants note that there will be no duplicative costs or fees to the 
Funds or shareholders, and that MFS will receive no additional 
compensation for its services in administering the credit facility 
through the Interfund Lending Committee. Applicants also note that the 
entire purpose of the proposed credit facility is to provide economic 
benefits for all of the participating Funds and their shareholders.
    7. Section 18(f)(1) of the Act prohibits open-end investment 
companies from issuing any senior security except that a company is 
permitted to borrow from any bank; provided, that immediately after the 
borrowing, there is asset coverage of at least 300 per centum for all 
borrowings of the company. Under section 18(g) of the Act, the term 
``senior security'' includes any bond, debenture, note or similar 
obligation or instrument constituting a security and evidencing 
indebtedness. Applicants request relief from section 18(f)(1) to the 
limited extent necessary to implement the credit facility (because the 
lending Funds are not banks).
    8. Applicants believe that granting relief under section 6(c) is 
appropriate because the Funds would remain subject to the requirement 
of section 18(f)(1) that all borrowings of a Fund, including combined 
interfund and bank borrowings, have at least 300% asset coverage. Based 
on the conditions and safeguards described in the application, 
applicants also submit that to allow the Funds to borrow from other 
Funds pursuant to the proposed credit facility is consistent with the 
purposes and policies of section 18(f)(1).
    9. Section 17(d) of the Act and rule 17d-1 under the Act generally 
prohibit any affiliated person of a registered investment company, or 
affiliated person of an affiliated person, when acting as principal, 
from effecting any joint transactions in which the company participates 
unless the transaction is approved by the Commission. Rule 17d-1(b) 
provides that in passing upon applications filed under the rule, the 
Commission will consider whether the participation of a registered 
investment company in a joint enterprise on the basis proposed is 
consistent with the provisions, policies, and purposes of the Act and 
the extent to which the company's participation is on a basis different 
from or less advantageous than that of other participants.
    10. Applicants submit that the purpose of section 17(d) is to avoid 
overreaching by and unfair advantage to investment company insiders. 
Applicants believe that the credit facility is consistent with the 
provisions, policies, and purposes of the Act in that it offers both 
reduced borrowing costs and enhanced returns on loaned funds to all 
participating Funds and their shareholders. Applicants note that each 
Fund would have an equal opportunity to borrow and lend on equal terms 
consistent with its investment policies and fundamental investment 
limitations. Applicants therefore believe that each Fund's 
participation in the credit facility will be on terms that are no 
different from or less advantageous than that of other participating 
Funds.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Interfund Loan Rate will be the average of the Repo Rate and 
the Bank Loan Rate.
    2. On each business day that the Interfund Lending Committee 
considers whether to use Interfund Loans, the Interfund Lending 
Committee will compare the Bank Loan Rate with the Repo Rate and will 
make cash available for Interfund Loans only if the Interfund Loan Rate 
is: (a) More favorable to the lending Fund than the Repo Rate and, if 
applicable, the yield of any money market fund approved by the 
Investment Management Committee as a money market fund in which the 
lending Fund could otherwise invest; and (b) more favorable to the 
borrowing Fund than the Bank Loan Rate.
    3. If a Fund has outstanding borrowings, any Interfund Loans to the 
Fund: (a) Will be at an interest rate equal to or lower than any 
outstanding bank loan; (b) will be secured at least on an equal 
priority basis with at least an equivalent percentage of collateral to 
loan value as any outstanding bank loan that requires collateral; (c) 
will have a maturity no longer than any outstanding bank loan (and in 
any event not over seven days); and (d) will provide that, if an event 
of default by the Fund occurs under any agreement evidencing an 
outstanding bank loan to the Fund, that event of default will 
automatically (without need for action or notice by the lending Fund) 
constitute an immediate event of default under the Interfund Lending 
Agreement entitling the lending Fund to call the Interfund Loan (and 
exercise all rights with respect to any collateral) and that such call 
will be made if the lending bank exercises its right to call its loan 
under its agreement with the borrowing Fund.
    4. A Fund may make an unsecured borrowing through the proposed 
credit facility if its outstanding borrowings from all sources 
immediately after the interfund borrowing total 10% or less of its 
total assets, provided that if the Fund has a secured loan outstanding 
from any other lender, including but not limited to another Fund, the 
Fund's interfund borrowing will be secured on at least an equal 
priority basis with at least an equivalent percentage of collateral to 
loan value as any outstanding loan that requires collateral. If a 
Fund's total outstanding borrowings immediately after an interfund 
borrowing would be greater than 10% of its total assets, the Fund may 
borrow through the proposed credit facility only on a secured basis. A 
Fund may not borrow through the proposed credit facility or from any 
other source if its total outstanding borrowings immediately after such 
borrowing would be more than 33\1/3\% of its total assets.
    5. Before any Fund that has outstanding interfund borrowings may, 
through additional borrowings, cause its outstanding borrowings from 
all sources to exceed 10% of its total assets, the Fund must first 
secure each outstanding Interfund Loan by the pledge of segregated 
collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan. If the total outstanding 
borrowings of a Fund with outstanding Interfund Loans exceed 10% of its 
total assets for any other reason (such as a decline in net asset value 
or because of shareholder redemptions), the Fund will within one 
business day thereafter: (a) Repay all its outstanding Interfund Loans; 
(b) reduce its outstanding indebtedness to 10% or less of its total 
assets; or (c) secure each outstanding Interfund Loan by the pledge of 
segregated collateral with a

[[Page 62474]]

market value at least equal to 102% of the outstanding principal value 
of the loan until the Fund's total outstanding borrowings cease to 
exceed 10% of its total assets, at which time the collateral called for 
by this condition 5 shall no longer be required. Until each Interfund 
Loan that is outstanding at any time that a Fund's total outstanding 
borrowings exceeds 10% is repaid or the Fund's total outstanding 
borrowings cease to exceed 10% of its total assets, the Fund will mark 
the value of the collateral to market each day and will pledge such 
additional collateral as is necessary to maintain the market value of 
the collateral that secures each outstanding Interfund Loan at least 
equal to 102% of the outstanding principal value of the Interfund Loan.
    6. No Fund may lend to another Fund through the proposed credit 
facility if the loan would cause its aggregate outstanding loans 
through the proposed credit facility to exceed 15% of the lending 
Fund's current net assets at the time of the loan.
    7. A Fund's Interfund Loans to any one Fund shall not exceed 5% of 
the lending Fund's net assets.
    8. The duration of Interfund Loans will be limited to no more than 
the number of days required to receive payment for securities sold, up 
to a maximum of seven days. Loans effected within seven days of each 
other will be treated as separate loan transactions for purposes of 
this condition.
    9. The Fund's borrowings through the proposed credit facility, as 
measured on the day when the most recent loan was made, will not exceed 
the greater of 125% of the Fund's total net cash redemptions or 102% of 
sales fails for the preceding seven calendar days.
    10. Each Interfund Loan may be called on one business day's notice 
by a lending Fund and may be repaid on any day by a borrowing Fund.
    11. A Fund's participation in the proposed credit facility must be 
consistent with its investment objectives and limitations and 
organizational documents.
    12. The Interfund Lending Committee, on each Interfund Lending Day, 
will calculate total Fund borrowing and lending demand through the 
proposed credit facility, and allocate loans on an equitable basis 
among the Funds, without the intervention of any portfolio manager of 
participating Funds. The Interfund Lending Committee will not solicit 
cash for loans from any Fund or prospectively publish or disseminate 
the amount of current borrowing demand to the Investment Management 
Committee or portfolio managers of the Funds. Once it determines the 
aggregate amount of cash available for loans and borrowing demand, the 
Interfund Lending Committee will allocate loans among borrowing Funds 
without any further communication from a Fund's portfolio managers. If 
there is more available uninvested cash than borrowing demand on any 
Interfund Lending Day, any remaining cash will be invested in 
accordance with the Funds' investment policies and practices in the 
ordinary course.
    13. The Interfund Lending Committee will monitor the Interfund Loan 
Rates charged and the other terms and conditions of the Interfund Loans 
and will make a quarterly report to each Fund Board concerning the 
participation of the Funds in the proposed credit facility and the 
terms and other conditions of any extensions of credit under the credit 
facility.
    14. Each Fund Board, including a majority of the Independent Fund 
Board Members, will:
    (a) Review, no less frequently than quarterly, each Fund's 
participation in the proposed credit facility during the preceding 
quarter for compliance with the conditions of any order permitting such 
transactions;
    (b) Review at least annually the continuing appropriateness of the 
method used to calculate the Bank Loan Rate; and
    (c) Review, no less frequently than annually, the continuing 
appropriateness of each Fund's participation in the proposed credit 
facility.
    15. In the event an Interfund Loan is not paid according to its 
terms and such default is not cured within two business days from its 
maturity or from the time the lending Fund makes a demand for payment 
under the provisions of the Interfund Lending Agreement, MFS will 
promptly refer such loan for arbitration to an independent arbitrator 
who was selected by each Fund Board involved in the loan who will serve 
as arbitrator of disputes concerning Interfund Loans.\2\ The arbitrator 
will resolve any dispute promptly, and the arbitrator's decision will 
be binding on both Funds. The arbitrator will submit, at least 
annually, a written report to each Fund Board setting forth a 
description of the nature of any dispute and the actions taken by the 
Funds to resolve the dispute.
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    \2\ If the dispute involves Funds with different Fund Boards, 
the respective Fund Boards will select an independent arbitrator 
that is satisfactory to each Fund.
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    16. Each Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any transaction 
by it under the proposed credit facility occurred, the first two years 
in an easily accessible place, written records of all such transactions 
setting forth a description of the terms of the transactions, including 
the amount, the maturity and the Interfund Loan Rate, the rate of 
interest available at the time on overnight repurchase agreements and 
commercial bank borrowings, and such other information presented to the 
Fund Board in connection with the review required by conditions 13 and 
14.
    17. MFS, through or on behalf of the Interfund Lending Committee, 
will prepare and submit to the Fund Board for review an initial report 
describing how the proposed credit facility will operate and the 
procedures to be implemented to ensure that all Funds are treated 
fairly. For each calendar quarter after the commencement of the credit 
facility, the Interfund Lending Committee will report on the operations 
of the credit facility at the Fund Board's quarterly meetings.
    Each Fund's chief compliance officer (``CCO''), as defined in rule 
38a-1(4) under the Act, shall prepare an annual report for its Fund 
Board each year that the Fund participates in the proposed credit 
facility, that evaluates the Fund's compliance with the terms and 
conditions of the application and the procedures established to achieve 
such compliance. Each Fund's CCO will also annually file a 
certification pursuant to Item 77Q3 of Form N-SAR as such Form may be 
revised, amended, or superseded from time to time for each year that 
the Fund participates in the proposed credit facility, that certifies 
that the Fund and MFS have established procedures reasonably designed 
to achieve compliance with the terms and conditions of the order. In 
particular, such certification will address procedures designed to 
achieve the following objectives:
    (a) That the Interfund Loan Rate is higher than the Repo Rate, but 
lower than the Bank Loan Rate;
    (b) Compliance with the collateral requirements as set forth in the 
Interfund Loan Borrowing Conditions;
    (c) Compliance with the percentage limitations on interfund 
borrowing and lending;
    (d) Allocation of interfund borrowing and lending demand in an 
equitable manner and in accordance with procedures established by the 
Fund Board; and
    (e) That the interest rate on any Interfund Loan does not exceed 
the interest rate on any third-party borrowings of a borrowing Fund at 
the time of the Interfund Loan.

[[Page 62475]]

Additionally, each Fund's independent auditors, in connection with 
their audit examinations of the Fund, will review the operation of the 
credit facility for compliance with the Interfund Loan Borrowing 
Conditions and their review will form the basis, in part, of the 
auditor's report on internal accounting controls in Form N-SAR.
    18. No Fund will participate in the proposed credit facility upon 
receipt of requisite regulatory approval unless it has fully disclosed 
in its prospectus and/or SAI all material facts about its intended 
participation.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-25926 Filed 10-6-11; 8:45 am]
BILLING CODE 8011-01-P