Document ID: SEC-2007-0100-0001
Agency: sec
Document Type: Notice
Title: MFS Series Trust X, et al.; Notice of Application
Posted Date: 2007-01-23T05:00Z

[Federal Register: January 23, 2007 (Volume 72, Number 14)]
[Notices]               
[Page 2910-2913]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ja07-88]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27662; 812-13234]

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

January 17, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 17(d) of the 
Investment Company Act of 1940 (``Act'') and rule 17d-1 under the Act.

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Summary of Application: Applicants request an order to permit certain 
registered open-end investment companies in the same group of 
investment companies to enter into a special servicing agreement 
(``Special Servicing Agreement'').

Applicants: MFS Series Trust X, on behalf of its series, MFS Aggressive 
Growth Allocation Fund, MFS Conservative Allocation Fund, MFS Emerging 
Markets Debt Fund, MFS Emerging Markets Equity Fund, MFS Floating Rate 
High Income Fund, MFS Growth Allocation Fund, MFS International 
Diversification Fund, MFS International Growth Fund, MFS International 
Value Fund and MFS Moderate Allocation Fund; MFS Series Trust XII, on 
behalf of its series, MFS Lifetime Retirement Income Fund, MFS Lifetime 
2010 Fund, MFS Lifetime 2020 Fund, MFS Lifetime 2030 Fund and MFS 
Lifetime 2040 Fund; MFS Series Trust I, on behalf of its series, MFS 
New Discovery Fund, MFS Research International Fund, MFS Strategic 
Growth Fund and MFS Value Fund; MFS Series Trust III, on behalf of its 
series, MFS High Income Fund; MFS Series Trust IV, on behalf of its 
series,

[[Page 2911]]

MFS Mid Cap Growth Fund and MFS Money Market Fund; MFS Series Trust V, 
on behalf of its series, MFS International New Discovery Fund and MFS 
Research Fund; MFS Series Trust IX, on behalf of its series, MFS Bond 
Fund, MFS Inflation-Adjusted Bond Fund, MFS Intermediate Investment 
Grade Bond Fund, MFS Limited Maturity Fund and MFS Research Bond Fund; 
MFS Series Trust XI, on behalf of its series, MFS Mid Cap Value Fund; 
MFS Series Trust XIII, on behalf of its series, MFS Government 
Securities Fund; Massachusetts Financial Services Company (``MFS''); 
MFS Fund Distributors, Inc. (``MFD''); and each existing or future 
registered open-end management investment company or series thereof 
that is part of the same ``group of investment companies'' as MFS 
Series Trust X, MFS Series Trust XII, MFS Series Trust I, MFS Series 
Trust III, MFS Series Trust IV, MFS Series Trust V, MFS Series Trust 
IX, MFS Series Trust XI and MFS Series Trust XIII (the ``Trusts'') 
under Section 12(d)(1)(G)(ii) of the Act and (i) Is advised by MFS or 
any entity controlling, controlled by, or under common control with 
MFS, or (ii) for which MFD or any entity controlling, controlled by, or 
under common control with MFD serves as principal underwriter (such 
investment companies or series thereof, together with the Trusts and 
their series, the ``Funds'').\1\
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    \1\ All entities that currently intend to rely on the order have 
been named as Applicants. Any other entity that relies on the order 
in the future will comply with the terms and conditions of the 
application.

Filing Dates: The application was filed on September 15, 2005, and 
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amended on January 12, 2007.

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 February 12, 2007, 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: John Yoder, Senior Counsel, at (202) 
551-6878, or Mary Kay Frech, Branch Chief, 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 for a fee at the 
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. MFS is an investment adviser registered under the Investment 
Advisers Act of 1940. MFS serves as investment adviser to the Funds. 
MFD is registered as a broker-dealer under the Securities Exchange Act 
of 1934 and serves as distributor of the Funds.
    2. The Trusts are Massachusetts business trusts registered under 
the Act as open-end management investment companies. The Trusts 
currently offer 48 series, 10 of which are ``Top-Tier Funds'' \2\ and 
21 of which are ``Underlying Funds.'' \3\ The Top-Tier Funds will 
invest substantially all of their assets in the Underlying Funds.\4\ 
The Top-Tier Funds and certain of the Underlying Funds currently offer 
multiple classes of shares in reliance on rule 18f-3 under the Act.
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    \2\ ``Top-Tier Funds'' refers to MFS Aggressive Growth 
Allocation Fund, MFS Conservative Allocation Fund, MFS Growth 
Allocation Fund, MFS International Diversification Fund, MFS 
Moderate Allocation Fund, MFS Lifetime Retirement Income Fund, MFS 
Lifetime 2010 Fund, MFS Lifetime 2020 Fund, MFS Lifetime 2030 Fund, 
MFS Lifetime 2040 Fund and any other Fund that invests substantially 
all of its assets in the Underlying Funds (as defined below).
    \3\ ``Underlying Funds'' refers to MFS Emerging Markets Debt 
Fund, MFS Emerging Markets Equity Fund, MFS Floating Rate High 
Income Fund, MFS International Growth Fund, MFS International Value 
Fund, MFS New Discovery Fund, MFS Research International Fund, MFS 
Strategic Growth Fund, MFS Value Fund, MFS High Income Fund, MFS Mid 
Cap Growth Fund, MFS Money Market Fund, MFS International New 
Discovery Fund, MFS Research Fund, MFS Bond Fund, MFS Inflation-
Adjusted Bond Fund, MFS Intermediate Investment Grade Bond Fund, MFS 
Limited Maturity Fund, MFS Research Bond Fund, MFS Mid Cap Value 
Fund, MFS Government Securities Fund and any other Fund.
    \4\ The Top-Tier Funds will not be Underlying Funds and no Top-
Tier Fund will invest in another Top-Tier Fund.
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    3. MFS and the Trusts propose to enter into a Special Servicing 
Agreement that would allow an Underlying Fund to bear the expenses of a 
Top-Tier Fund (other than advisory fees, rule 12b-1 fees and class-
specific administrative service fees). Under the Special Servicing 
Agreement, each Underlying Fund will bear expenses of a Top-Tier Fund 
in proportion to the estimated benefits to the Underlying Fund arising 
from the investment in the Underlying Fund by the Top-Tier Fund 
(``Underlying Fund Benefits'').
    4. Applicants state that the Underlying Fund Benefits are expected 
to result primarily from the incremental increase in assets resulting 
from investment in the Underlying Fund by the Top-Tier Fund and the 
large asset size of each shareholder account that represents an 
investment by the Top-Tier Fund relative to other shareholder accounts. 
A shareholder account that represents a Top-Tier Fund will experience 
fewer shareholder transactions and greater predictability of 
transaction activity than other shareholder accounts. As a result, the 
shareholder servicing costs to any Underlying Fund for servicing one 
account registered to a Top-Tier Fund will be significantly less than 
the cost to that same Underlying Fund of servicing the same pool of 
assets contributed by a large group of shareholders owning relatively 
small accounts in one or more Underlying Funds. In addition, by 
reducing Top-Tier Fund expenses, the Special Servicing Agreement may 
lead to increased assets being invested in the Top-Tier Funds, which in 
turn would lead to increased assets being invested in the Underlying 
Funds, which could enable the Underlying Funds to control and reduce 
their expense ratios because their operating expenses will be spread 
over a larger asset base.
    5. No Fund will enter into a Special Servicing Agreement unless the 
Special Servicing Agreement: (1) Precisely describes the services 
provided to the Top-Tier Fund and the fees for those services charged 
to the Top-Tier Fund that may be paid by the Underlying Fund 
(``Underlying Fund Payments''); (2) provides that no affiliated person 
of the Top-Tier Funds, or affiliated person of such person, will 
receive, directly or indirectly, any portion of the Underlying Fund 
Payments, except for bona fide transfer agent services approved by the 
board of trustees (``Board'') of the Underlying Fund, including a 
majority of trustees who are not ``interested persons'' (within the 
meaning of section 2(a)(19) of the Act) (``Independent Trustees''); (3) 
provides that the Underlying Fund Payments may not exceed the amount of 
actual expenses incurred by the Top-Tier Funds; (4) provides that no 
Underlying Fund will reimburse transfer agent expenses of a Top-Tier 
Fund, including

[[Page 2912]]

sub-accounting expenses and other out-of-pocket expenses, at a rate in 
excess of the average per account transfer agent expenses of the 
Underlying Fund, including sub-accounting expenses and other out-of-
pocket expenses, expressed as a basis point charge (for purposes of 
calculating the Underlying Fund's average per account transfer agent 
expense the Top-Tier Fund's investment in the Underlying Fund will be 
excluded); and (5) has been approved by the Fund's Board, including a 
majority of the Independent Trustees, as being in the best interests of 
the Fund and its shareholders and not involving overreaching on the 
part of any person concerned.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1 under the Act provide 
that an affiliated person of, or a principal underwriter for, a 
registered investment company, or an affiliate of such person or 
principal underwriter, acting as principal, shall not participate in, 
or effect any transaction in connection with, any joint enterprise or 
other joint arrangement in which the registered investment company is a 
participant unless the Commission has issued an order approving the 
arrangement. MFS, as investment adviser, is an affiliated person of 
each of the Underlying Funds and Top-Tier Funds, which in turn could be 
deemed to be under common control of MFS and therefore affiliated 
persons of each other. The Top-Tier Funds and the Underlying Funds also 
may be affiliated persons by virtue of a Top-Tier Fund's ownership of 
more than 5% of the outstanding voting securities of an Underlying 
Fund. Consequently, the Special Servicing Agreement could be deemed to 
be a joint transaction among the Top-Tier Funds, the Underlying Funds 
and MFS.
    2. Rule 17d-1 under the Act provides that, in passing upon a joint 
arrangement under the rule, the Commission will consider whether 
participation of the investment company in the joint enterprise or 
joint arrangement on the basis proposed is consistent with the 
provisions, policies, and purposes of the Act and the extent to which 
the participation is on a basis different from or less advantageous 
than that of other participants.
    3. Applicants request an order under section 17(d) and rule 17d-1 
to permit them to enter into the Special Servicing Agreement. 
Applicants state that participation by the Top-Tier Funds, the 
Underlying Funds and MFS in the proposed Special Servicing Agreement is 
consistent with the provisions, policies and purposes of the Act, and 
that the terms of the Special Servicing Agreement and the conditions 
set forth below will ensure that no participant participates on a basis 
less advantageous than that of other participants.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. No Fund will enter into a Special Servicing Agreement unless the 
Special Servicing Agreement: (a) Precisely describes the services 
provided to the Top-Tier Funds and the Underlying Fund Payments; (b) 
provides that no affiliated person of the Top-Tier Funds, or affiliated 
person of such person, will receive, directly or indirectly, any 
portion of the Underlying Fund Payments, except for bona fide transfer 
agent services approved by the Board of the Underlying Fund, including 
a majority of the Independent Trustees; (c) provides that the 
Underlying Fund Payments may not exceed the amount of actual expenses 
incurred by the Top-Tier Funds; (d) provides that no Underlying Fund 
will reimburse transfer agent expenses of a Top-Tier Fund, including 
sub-accounting expenses and other out-of-pocket expenses, at a rate in 
excess of the average per account transfer agent expenses of the 
Underlying Fund, including sub-accounting expenses and other out-of-
pocket expenses, expressed as a basis point charge (for purposes of 
calculating the Underlying Fund's average per account transfer agent 
expense the Top-Tier Fund's investment in the Underlying Fund will be 
excluded); and (e) has been approved by the Fund's Board, including a 
majority of the Independent Trustees, as being in the best interests of 
the Fund and its shareholders and not involving overreaching on the 
part of any person concerned.
    2. In approving a Special Servicing Agreement, the Board of an 
Underlying Fund will consider, without limitation: (a) The reasons for 
the Underlying Fund's entering into the Special Servicing Agreement; 
(b) information quantifying the Underlying Fund Benefits; (c) the 
extent to which investors in the Top-Tier Fund could have purchased 
shares of the Underlying Fund; (d) the extent to which an investment in 
the Top-Tier Fund represents or would represent a consolidation of 
accounts in the Underlying Funds, through exchanges or otherwise, or a 
reduction in the rate of increase in the number of accounts in the 
Underlying Funds; (e) the extent to which the expense ratio of the 
Underlying Fund was reduced following investment in the Underlying Fund 
by the Top-Tier Fund and the reasonably foreseeable effects of the 
investment by the Top-Tier Fund on the Underlying Fund's expense ratio; 
(f) the reasonably foreseeable effects of participation in the Special 
Servicing Agreement on the Underlying Fund's expense ratio; and (g) any 
conflicts of interest that MFS, any affiliated person of MFS, or any 
other affiliated person of the Underlying Fund may have relating to the 
Underlying Fund's participation in the Special Servicing Agreement.
    3. Prior to approving a Special Servicing Agreement on behalf of an 
Underlying Fund, the Board of the Underlying Fund, including a majority 
of the Independent Trustees, will determine that: (a) The Underlying 
Fund Payments under the Special Servicing Agreement are expenses that 
the Underlying Fund would have incurred if the shareholders of the Top-
Tier Fund had instead purchased shares of the Underlying Fund through 
the same broker-dealer or other financial intermediary; (b) the amount 
of the Underlying Fund Payments is less than the amount of Underlying 
Fund Benefits; and (c) by entering into the Special Servicing 
Agreement, the Underlying Fund is not engaging, directly or indirectly, 
in financing any activity which is primarily intended to result in the 
sale of shares issued by the Underlying Fund.
    4. In approving a Special Servicing Agreement, the Board of a Fund 
will request and evaluate, and MFS will furnish, such information as 
may reasonably be necessary to evaluate the terms of the Special 
Servicing Agreement and the factors set forth in condition 2 above, and 
make the determinations set forth in conditions 1 and 3 above.
    5. Approval by the Fund's Board, including a majority of the 
Independent Trustees, in accordance with conditions 1 through 4 above, 
will be required at least annually after the Fund's entering into a 
Special Servicing Agreement and prior to any material amendment to a 
Special Servicing Agreement.
    6. To the extent Underlying Fund Payments are treated, in whole or 
in part, as a class expense of an Underlying Fund, or are used to pay a 
class-based expense of a Top-Tier Fund, conditions 1 through 5 above 
must be met with respect to each class of a Fund as well as the Fund as 
a whole.
    7. Each Fund will maintain and preserve the Board's findings and 
determinations set forth in conditions 1 and 3 above, and the 
information and considerations on which they were based, for the 
duration of the Special

[[Page 2913]]

Servicing Agreement, and for a period not less than six years 
thereafter, the first two years in an easily accessible place.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-905 Filed 1-22-07; 8:45 am]

BILLING CODE 8011-01-P