Massachusetts Financial Services Company, et al.; Notice of Application, 12161-12165 [E9-6209]

Download as PDF Federal Register / Vol. 74, No. 54 / Monday, March 23, 2009 / Notices Ronald.Hodapp@rrb.gov and to the OMB Desk Officer for the RRB, at the Office of Management and Budget, Room 10230, New Executive Office Building, Washington, DC 20503. Charles Mierzwa, Clearance Officer. [FR Doc. E9–6223 Filed 3–20–09; 8:45 am] BILLING CODE 7905–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 28649; 812–13519] Massachusetts Financial Services Company, et al.; Notice of Application March 17, 2009. dwashington3 on PROD1PC60 with NOTICES AGENCY: Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application for an order under section 12(d)(1)(J) of the Investment Company Act of 1940 (the ‘‘Act’’) for an exemption from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and (2) of the Act, and under section 6(c) of the Act for an exemption from rule 12d1– 2(a) under the Act. Summary of the Application: The requested order would (a) permit certain registered management investment companies to acquire shares of certain registered open-end management investment companies that are outside the same group of investment companies as the acquiring investment companies, and (b) permit funds of funds relying on rule 12d1–2 under the Act to invest in certain financial instruments. Applicants: MFS Series Trust I, MFS Series Trust III, MFS Series Trust IV, MFS Series Trust V, MFS Series Trust IX, MFS Series Trust X, MFS Series Trust XI, MFS Series Trust XII, and MFS Series Trust XIII (collectively, the ‘‘Trusts’’), Massachusetts Financial Services Company (the ‘‘Adviser’’), and MFS Fund Distributors, Inc. (the ‘‘Distributor’’). Filing Dates: The application was filed on April 17, 2008, and amended on November 26, 2008. Applicants have agreed to file an amendment during the notice period, the substance of which is contained in this notice. 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, VerDate Nov<24>2008 15:28 Mar 20, 2009 Jkt 217001 personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on April 13, 2009, 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, 500 Boylston Street, Boston, MA 02116. FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior Counsel, at (202) 551–6879, 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. The Trusts are open-end management investment companies registered under the Act and organized as Massachusetts business trusts. Each Trust is comprised of separate series that pursue distinct investment objectives and strategies. The Trusts are part of the same ‘‘group of investment companies’’ within the meaning of section 12(d)(1)(G)(ii) of the Act. The Adviser, a Delaware corporation, is registered as an investment adviser under the Investment Advisers Act of 1940 (‘‘Advisers Act’’) and serves as investment adviser to the Trusts.1 The Distributor is a Delaware corporation and is registered as a broker-dealer under the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’). The Distributor serves as principal underwriter and distributor for the shares of the Underlying Funds (as defined below) and the Related Funds of Funds (as defined below). 2. Applicants request an exemption to permit registered management investment companies that operate as a 1 All references to the term ‘‘Adviser’’ include successors-in-interest to the Adviser. Successors-ininterest are limited to any entity resulting from a name change, a reorganization of the Adviser into another jurisdiction or a change in the type of business organization. PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 12161 ‘‘fund of funds’’ and that are not part of the same ‘‘group of investment companies,’’ within the meaning of section 12(d)(1)(G)(ii) of the Act, as the Trusts (‘‘Unrelated Funds of Funds’’) to acquire shares of separate series of the Trusts that do not operate as ‘‘funds of funds’’ (‘‘Underlying Funds’’) 2 in excess of the limits in section 12(d)(1)(A) of the Act, and to permit Underlying Funds, any principal underwriter for an Underlying Fund, and any broker or dealer registered under the Exchange Act (‘‘Broker’’) to sell shares of an Underlying Fund to an Unrelated Fund of Funds in excess of the limits in section 12(d)(1)(B) of the Act. Applicants request that the relief apply to: (1) Each registered open-end management investment company or series thereof that currently or subsequently is part of the same ‘‘group of investment companies,’’ within the meaning of section 12(d)(1)(G)(ii) of the Act, as the Trusts, and that is advised or sponsored by the Adviser or any entity controlling, controlled by, or under common control with the Adviser (such registered open-end management investment companies or their series are included in the term ‘‘Underlying Funds’’); (2) each Unrelated Fund of Funds that enters into a Participation Agreement (as defined below) with an Underlying Fund to purchase shares of the Underlying Fund; and (3) any principal underwriter to an Underlying Fund or Broker selling shares of an Underlying Fund.3 3. Each Unrelated Fund of Funds will be advised by an investment adviser, within the meaning of section 2(a)(20)(A) of the Act, that is registered as an investment adviser under the Advisers Act (an ‘‘Unrelated Fund of 2 As of the date of the application, the Underlying Funds include the following series of MFS Series Trust I: MFS Core Growth Fund, MFS New Discovery Fund, MFS Research International Fund, MFS Value Fund; the following series of MFS Series Trust III: MFS High Income Fund; the following series of MFS Series Trust IV: MFS Mid Cap Growth Fund, MFS Money Market Fund; the following series of MFS Series Trust V: MFS International New Discovery Fund, MFS Research Fund; the following series of MFS Series Trust IX: MFS Inflation-Adjusted Bond Fund, MFS Limited Maturity Fund, MFS Research Bond Fund; the following series of MFS Series Trust X: MFS Emerging Markets Equity Fund, MFS Floating Rate High Income Fund, MFS International Growth Fund, MFS International Value Fund; the following series of MFS Series Trust XI: MFS Mid Cap Value Fund; and the following series of MFS Series Trust XIII: MFS Government Securities Fund. 3 All entities that currently intend to rely on the requested order are named as applicants. Any other entity that relies on the order in the future will comply with the terms and conditions of the application. An Unrelated Fund of Funds may rely on the requested order only to invest in an Underlying Fund and not in any other registered investment company. E:\FR\FM\23MRN1.SGM 23MRN1 12162 Federal Register / Vol. 74, No. 54 / Monday, March 23, 2009 / Notices Funds Adviser’’). An Unrelated Fund of Funds or its Adviser may contract with an investment adviser that meets the definition of section 2(a)(20)(B) of the Act (an ‘‘Unrelated Fund of Funds Subadviser’’). Applicants state that Unrelated Funds of Funds will be interested in using the Underlying Funds as part of their overall investment strategy. 4. Applicants also request an exemption to the extent necessary to permit any existing or future funds that operate as ‘‘funds of funds’’ and that are part of the same ‘‘group of investment companies,’’ within the meaning of section 12(d)(1)(G)(ii) of the Act, as the Trusts (‘‘Related Funds of Funds’’) and which invest in other Underlying Funds in reliance on section 12(d)(1)(G) of the Act, and which are also eligible to invest in securities (as defined in section 2(a)(36) of the Act) in reliance on rule 12d1–2 under the Act, to also invest, consistent with its investment objective, policies, strategies and limitations, in financial instruments that may not be securities within the meaning of section 2(a)(36) of the Act (‘‘Other Investments’’).4 5. Consistent with its fiduciary obligations under the Act, each Related Fund of Fund’s board of trustees will review the advisory fees charged by the Related Fund of Fund’s investment adviser to ensure that they are based on services provided that are in addition to, rather than duplicative of, services provided pursuant to the advisory agreement of any investment company in which the Related Fund of Funds may invest. Applicants’ Legal Analysis Investments in Underlying Funds by Unrelated Funds of Funds dwashington3 on PROD1PC60 with NOTICES A. Section 12(d)(1) 1. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a registered investment company from acquiring shares of an investment company if the securities represent more than 3% of the total outstanding voting stock of the acquired company, more than 5% of the total assets of the acquiring company, or, together with the securities of any other investment companies, more than 4 Applicants request that the relief apply to each registered open-end management investment company or series thereof that operates as a ‘‘fund of funds’’ and that currently or subsequently is part of the same ‘‘group of investment companies,’’ within the meaning of section 12(d)(1)(G)(ii) of the Act, as the Trusts, and is advised or sponsored by the Adviser or any entity controlling, controlled by or under common control with the Adviser (such registered open-end management investment companies or their series are included in the term ‘‘Related Fund of Funds’’). VerDate Nov<24>2008 15:28 Mar 20, 2009 Jkt 217001 10% of the total assets of the acquiring company. Section 12(d)(1)(B) of the Act prohibits a registered open-end investment company, its principal underwriter, and any broker or dealer from selling the investment company’s shares to another investment company if the sale will cause the acquiring company to own more than 3% of the acquired company’s voting stock, or if the sale will cause more than 10% of the acquired company’s voting stock to be owned by investment companies generally. 2. Section 12(d)(1)(J) 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 any provision of section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors. Applicants seek an exemption under section 12(d)(1)(J) of the Act to permit Unrelated Funds of Funds to acquire shares of the Underlying Funds in excess of the limits in section 12(d)(1)(A), and an Underlying Fund, any principal underwriter for an Underlying Fund, and any Broker to sell shares of an Underlying Fund to an Unrelated Fund of Funds in excess of the limits in section 12(d)(1)(B) of the Act. 3. Applicants state that the terms and conditions of the proposed arrangement will adequately address the policy concerns underlying sections 12(d)(1)(A) and (B), which include concerns about undue influence by a fund of funds over underlying funds, excessive layering of fees, and overly complex fund structures. Accordingly, applicants believe that the requested exemption is consistent with the public interest and the protection of investors. 4. Applicants believe that neither an Unrelated Fund of Funds nor an Unrelated Fund of Funds Affiliate would be able to exert undue influence over the Underlying Funds.5 To limit the control that an Unrelated Fund of Funds may have over an Underlying Fund, applicants propose a condition prohibiting the Unrelated Fund of Funds Adviser, any person controlling, controlled by, or under common control with the Unrelated Fund of Funds Adviser, and any investment company 5 An ‘‘Unrelated Fund of Funds Affiliate’’ is an Unrelated Fund of Funds Adviser, Unrelated Fund of Funds Subadviser, a promoter, or a principal underwriter of an Unrelated Fund of Funds, and any person controlling, controlled by, or under common control with any of those entities. An ‘‘Underlying Fund Affiliate’’ is an investment adviser, sponsor, promoter, or principal underwriter of an Underlying Fund, and any person controlling, controlled by, or under common control with any of those entities. PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 or issuer that would be an investment company but for section 3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by the Unrelated Fund of Funds Adviser or any person controlling, controlled by, or under common control with the Unrelated Fund of Funds Adviser (the ‘‘Unrelated Fund of Funds Advisory Group’’) from controlling (individually or in the aggregate) an Underlying Fund within the meaning of section 2(a)(9) of the Act. The same prohibition would apply to the Unrelated Fund of Funds Subadviser, any person controlling, controlled by or under common control with the Unrelated Fund of Funds Subadviser, and any investment company or issuer that would be an investment company but for section 3(c)(1) or 3(c)(7) of the Act (or portion of such investment company or issuer) advised or sponsored by the Unrelated Fund of Funds Subadviser or any person controlling, controlled by or under common control with the Unrelated Fund of Funds Subadviser (the ‘‘Unrelated Fund of Funds Subadvisory Group’’). Applicants propose other conditions to limit the potential for undue influence over the Underlying Funds, including that no Unrelated Fund of Funds or Unrelated Fund of Funds Affiliate (except to the extent it is acting in its capacity as an investment adviser to an open-end fund) will cause an Underlying Fund to purchase a security in an offering of securities during the existence of any underwriting or selling syndicate of which a principal underwriter is an Underwriting Affiliate (‘‘Affiliated Underwriting’’). An ‘‘Underwriting Affiliate’’ is a principal underwriter in any underwriting or selling syndicate that is an officer, director, member of an advisory board, investment adviser, subadviser, or employee of the Unrelated Fund of Funds, or a person of which any such officer, director, member of an advisory board, investment adviser, subadviser, or employee is an affiliated person. An Underwriting Affiliate does not include any person whose relationship to an Underlying Fund is covered by section 10(f) of the Act. 5. Applicants do not believe that the proposed arrangement will involve excessive layering of fees. The board of directors or trustees of each Unrelated Fund of Funds, including a majority of the directors or trustees who are not ‘‘interested persons’’ (within the meaning of section 2(a)(19) of the Act) (‘‘Independent Trustees’’), will find that the advisory fees charged under such advisory contract are based on services E:\FR\FM\23MRN1.SGM 23MRN1 Federal Register / Vol. 74, No. 54 / Monday, March 23, 2009 / Notices dwashington3 on PROD1PC60 with NOTICES provided that will be in addition to, rather than duplicative of, the services provided under the advisory contract(s) of any Underlying Fund in which the Unrelated Fund of Funds may invest. In addition, an Unrelated Fund of Funds Adviser will waive fees otherwise payable to it by the Unrelated Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by an Underlying Fund under rule 12b–1 under the Act) received from an Underlying Fund by the Unrelated Fund of Funds Adviser or an affiliated person of the Unrelated Fund of Funds Adviser, other than any advisory fees paid to the Unrelated Fund of Funds Adviser or its affiliated person, by an Underlying Fund, in connection with the investment by the Unrelated Fund of Funds in the Underlying Fund. Applicants also state that with respect to registered separate accounts that invest in an Unrelated Fund of Funds, no sales load will be charged at the Unrelated Fund of Funds level or at the Underlying Fund level.6 Other sales charges and service fees, as defined in Rule 2830 of the Conduct Rules of the NASD (‘‘NASD Conduct Rules’’), if any, will only be charged at the Unrelated Fund of Funds level or at the Underlying Fund level, not both. With respect to other investments in an Unrelated Fund of Funds, any sales charges and/or service fees charged with respect to shares of the Unrelated Fund of Funds will not exceed the limits applicable to a fund of funds as set forth in Rule 2830 of the NASD Conduct Rules. 6. Applicants submit that the proposed arrangement will not create an overly complex fund structure. Applicants note that no Underlying Fund will acquire securities of any investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A) of the Act, except in certain circumstances identified in condition 12 below. Applicants also represent that to ensure that Unrelated Funds of Funds comply with the terms and conditions of the requested 6 Applicants represent that each Unrelated Fund of Funds will represent in the Participation Agreement (as defined below) that no insurance company sponsoring a registered separate account funding variable insurance contracts will be permitted to invest in the Unrelated Fund of Funds unless the insurance company has certified to the Unrelated Fund of Funds that the aggregate of all fees and charges associated with each contract that invests in the Unrelated Fund of Funds, including fees and charges at the separate account, Unrelated Fund of Funds, and Underlying Fund levels, will be reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. VerDate Nov<24>2008 15:28 Mar 20, 2009 Jkt 217001 exemption from section 12(d)(1)(A) of the Act, an Unrelated Fund of Funds must enter into a participation agreement between a Trust, on behalf of the relevant Underlying Fund, and the Unrelated Funds of Funds (‘‘Participation Agreement’’) before investing in an Underlying Fund in excess of the limits in section 12(d)(1)(A). The Participation Agreement will require the Unrelated Fund of Funds to adhere to the terms and conditions of the requested order. The Participation Agreement will include an acknowledgment from the Unrelated Fund of Funds that it may rely on the requested order only to invest in the Underlying Funds and not in any other registered investment company. B. Section 17(a) 1. Section 17(a) of the Act generally prohibits sales or purchases of securities between a registered investment company and any affiliated person of the company. Section 2(a)(3) of the Act defines an ‘‘affiliated person’’ of another person to include any person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by the other person. 2. Applicants seek relief from section 17(a) to permit an Underlying Fund that is an affiliated person of an Unrelated Fund of Funds because the Unrelated Fund of Funds holds 5% or more of the Underlying Fund’s shares to sell its shares to and redeem its shares from an Unrelated Fund of Funds. Applicants state that any proposed transactions directly between an Underlying Fund and an Unrelated Fund of Funds will be consistent with the policies of each Underlying Fund and Unrelated Fund of Funds. The Participation Agreement will require any Unrelated Fund of Funds that purchases shares from an Underlying Fund to represent that the purchase of shares from the Underlying Fund by an Unrelated Fund of Funds will be accomplished in compliance with the investment restrictions of the Unrelated Fund of Funds and will be consistent with the investment policies set forth in the Unrelated Fund of Funds’ registration statement. 3. Section 17(b) of the Act authorizes the Commission to grant an order permitting a transaction otherwise prohibited by section 17(a) if it finds that (i) the terms of the proposed transaction are fair and reasonable and do not involve overreaching on the part of any person concerned; (ii) the proposed transaction is consistent with the policies of each registered investment company involved; and (iii) PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 12163 the proposed transaction is consistent with the general purposes of the Act. Section 6(c) of the Act permits the Commission to exempt any person or transactions from any provision of the Act if 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 submit that the proposed transactions satisfy the standards for relief under sections 17(b) and 6(c) of the Act.7 Applicants state that the terms of the transactions are reasonable and fair and do not involve overreaching. Applicants note that any consideration paid for the purchase or redemption of shares directly from an Underlying Fund will be based on the net asset value of the Underlying Fund. Applicants state that the proposed transactions will be consistent with the policies of each Underlying Fund and each Unrelated Fund of Funds and with the general purposes of the Act. Other Investments by Related Funds of Funds 1. Section 12(d)(1)(G) of the Act provides that section 12(d)(1) will not apply to securities of an acquired company purchased by an acquiring company if: (i) The acquiring company and acquired company are part of the same group of investment companies; (ii) the acquiring company holds only securities of acquired companies that are part of the same group of investment companies, government securities, and short-term paper; (iii) the aggregate sales loads and distribution-related fees of the acquiring company and the acquired company are not excessive under rules adopted pursuant to section 22(b) or section 22(c) of the Act by a securities association registered under section 15A of the Exchange Act or by the Commission; and (iv) the acquired company has a policy that prohibits it from acquiring securities of registered open-end management investment companies or registered unit investment trusts in reliance on section 12(d)(1)(F) or (G) of the Act. 2. Rule 12d1–2 under the Act permits a registered open-end investment company or a registered unit investment 7 Applicants acknowledge that receipt of compensation by (a) an affiliated person of an Unrelated Fund of Funds, or an affiliated person of such person, for the purchase by the Unrelated Fund of Funds of shares of an Underlying Fund or (b) an affiliated person of an Underlying Fund, or an affiliated person of such person, for the sale by the Underlying Fund of its shares to an Unrelated Fund of Funds may be prohibited by section 17(e) of the Act. The Participation Agreement also will include this acknowledgment. E:\FR\FM\23MRN1.SGM 23MRN1 12164 Federal Register / Vol. 74, No. 54 / Monday, March 23, 2009 / Notices trust that relies on section 12(d)(1)(G) of the Act to acquire, in addition to securities issued by another registered investment company in the same group of investment companies, government securities, and short-term paper: (1) Securities issued by an investment company that is not in the same group of investment companies, when the acquisition is in reliance on section 12(d)(1)(A) or 12(d)(1)(F) of the Act; (2) securities (other than securities issued by an investment company); and (3) securities issued by a money market fund, when the investment is in reliance on rule 12d1–1 under the Act. For the purposes of rule 12d1–2, ‘‘securities’’ means any security as defined in section 2(a)(36) of the Act. 3. Applicants state that the proposed arrangement would comply with the provisions of rule 12d1–2 under the Act, but for the fact that the Related Funds of Funds may invest a portion of their assets in Other Investments. Applicants request an order under section 6(c) of the Act for an exemption from rule 12d1–2(a) to allow the Related Funds of Funds to invest in Other Investments. Applicants assert that permitting the Related Funds of Funds to invest in Other Investments as described in the application would not raise any of the concerns that the requirements of section 12(d)(1) were designed to address. dwashington3 on PROD1PC60 with NOTICES Applicants’ Conditions Applicants agree that any order granting the requested relief will be subject to the following conditions: Investments in Underlying Funds by Unrelated Funds of Funds 1. The members of an Unrelated Fund of Funds Advisory Group will not control (individually or in the aggregate) an Underlying Fund within the meaning of section 2(a)(9) of the Act. The members of an Unrelated Fund of Funds Subadvisory Group will not control (individually or in the aggregate) an Underlying Fund within the meaning of section 2(a)(9) of the Act. If, as a result of a decrease in the outstanding voting securities of an Underlying Fund, the Unrelated Fund of Funds Advisory Group or the Unrelated Fund of Funds Subadvisory Group, each in the aggregate, becomes a holder of more than 25 percent of the outstanding voting securities of an Underlying Fund, it (except for any member of the Unrelated Fund of Funds Advisory Group or Unrelated Fund of Funds Subadvisory Group that is a separate account funding variable insurance contracts) will vote its shares of the Underlying Fund in the same VerDate Nov<24>2008 15:28 Mar 20, 2009 Jkt 217001 proportion as the vote of all other holders of the Underlying Fund’s shares. This condition does not apply to the Unrelated Fund of Funds Subadvisory Group with respect to an Underlying Fund for which the Unrelated Fund of Funds Subadviser or a person controlling, controlled by, or under common control with the Unrelated Fund of Funds Subadviser acts as the investment adviser within the meaning of section 2(a)(20)(A) of the Act. A registered separate account funding variable insurance contracts will seek voting instructions from its contract holders and will vote its shares in accordance with the instructions received and will vote those shares for which no instructions were received in the same proportion as the shares for which instructions were received. An unregistered separate account funding variable insurance contracts will either (i) vote its shares of the Underlying Fund in the same proportion as the vote of all other holders of the Underlying Fund’s shares; or (ii) seek voting instructions from its contract holders and vote its shares in accordance with the instructions received and vote those shares for which no instructions were received in the same proportion as the shares for which instructions were received. 2. No Unrelated Fund of Funds or Unrelated Fund of Funds Affiliate will cause any existing or potential investment by the Unrelated Fund of Funds in shares of an Underlying Fund to influence the terms of any services or transactions between the Unrelated Fund of Funds or an Unrelated Fund of Funds Affiliate and the Underlying Fund or an Underlying Fund Affiliate. 3. The board of directors or trustees of an Unrelated Fund of Funds, including a majority of the Independent Trustees, will adopt procedures reasonably designed to assure that the Unrelated Fund of Funds Adviser and any Unrelated Fund of Funds Subadviser(s) are conducting the investment program of the Unrelated Fund of Funds without taking into account any consideration received by the Unrelated Fund of Funds or an Unrelated Fund of Funds Affiliate from an Underlying Fund or an Underlying Fund Affiliate in connection with any services or transactions. 4. Once an investment by an Unrelated Fund of Funds in the securities of an Underlying Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act, the board of trustees of the Underlying Fund (the ‘‘Board’’), including a majority of the Independent Trustees, will determine that any consideration paid by the Underlying Fund to the Unrelated Fund PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 of Funds or an Unrelated Fund of Funds Affiliate in connection with any services or transactions: (a) Is fair and reasonable in relation to the nature and quality of the services and benefits received by the Underlying Fund; (b) is within the range of consideration that the Underlying Fund would be required to pay to another unaffiliated entity in connection with the same services or transactions; and (c) does not involve overreaching on the part of any person concerned. This condition does not apply with respect to any services or transactions between an Underlying Fund and its investment adviser(s) or any person controlling, controlled by, or under common control with such investment adviser(s). 5. No Unrelated Fund of Funds or Unrelated Fund of Funds Affiliate (except to the extent it is acting in its capacity as an investment adviser to an Underlying Fund) will cause an Underlying Fund to purchase a security in any Affiliated Underwriting. 6. The Board of an Underlying Fund, including a majority of the Independent Trustees, will adopt procedures reasonably designed to monitor any purchases of securities by the Underlying Fund in an Affiliated Underwriting once an investment by an Unrelated Fund of Funds in the securities of the Underlying Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any purchases made directly from an Underwriting Affiliate. The Board of the Underlying Fund will review these purchases periodically, but no less frequently than annually, to determine whether the purchases were influenced by the investment by the Unrelated Fund of Funds in shares of the Underlying Fund. The Board of the Underlying Fund shall consider, among other things, (i) whether the purchases were consistent with the investment objectives and policies of the Underlying Fund; (ii) how the performance of securities purchased in an Affiliated Underwriting compares to the performance of comparable securities purchased during a comparable period of time in underwritings other than Affiliated Underwritings or to a benchmark such as a comparable market index; and (iii) whether the amount of securities purchased by the Underlying Fund in Affiliated Underwritings and the amount purchased directly from an Underwriting Affiliate have changed significantly from prior years. The Board of the Underlying Fund shall take any appropriate actions based on its review, including, if appropriate, the institution of procedures designed to E:\FR\FM\23MRN1.SGM 23MRN1 dwashington3 on PROD1PC60 with NOTICES Federal Register / Vol. 74, No. 54 / Monday, March 23, 2009 / Notices assure that purchases of securities in Affiliated Underwritings are in the best interests of shareholders. 7. Each Underlying Fund shall maintain and preserve permanently in an easily accessible place a written copy of the procedures described in the preceding condition, and any modifications to such procedures, and shall maintain and preserve for a period not less than six years from the end of the fiscal year in which any purchase in an Affiliated Underwriting occurred, the first two years in an easily accessible place, a written record of each purchase of securities in Affiliated Underwritings once an investment by an Unrelated Fund of Funds in the securities of an Underlying Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act, setting forth from whom the securities were acquired, the identity of the underwriting syndicate’s members, the terms of the purchase, and the information or materials upon which the Board’s determinations were made. 8. Before investing in shares of an Underlying Fund in excess of the limits in section 12(d)(1)(A), each Unrelated Fund of Funds and Underlying Fund will execute a Participation Agreement stating, without limitation, that their boards of directors or trustees and their investment advisers understand the terms and conditions of the order and agree to fulfill their responsibilities under the order. At the time of its investment in shares of an Underlying Fund in excess of the limit in section 12(d)(1)(A)(i), an Unrelated Fund of Funds will notify the Underlying Fund of the investment. At such time, the Unrelated Fund of Funds will also transmit to the Underlying Fund a list of the names of each Unrelated Fund of Funds Affiliate and Underwriting Affiliate. The Unrelated Fund of Funds will notify the Underlying Fund of any changes to the list of the names as soon as reasonably practicable after a change occurs. The Underlying Fund and the Unrelated Fund of Funds will maintain and preserve a copy of the order, the Participation Agreement, and the list with any updated information for the duration of the investment and for a period of not less than six years thereafter, the first two years in an easily accessible place. 9. Prior to approving any advisory contract under section 15 of the Act, the board of directors or trustees of each Unrelated Fund of Funds, including a majority of the Independent Trustees, will find that the advisory fees charged under such advisory contracts are based on services provided that will be in addition to, rather than duplicative of, the services provided under the VerDate Nov<24>2008 15:28 Mar 20, 2009 Jkt 217001 advisory contract(s) of any Underlying Fund in which the Unrelated Fund of Funds may invest. These findings and their basis will be recorded fully in the minute books of the appropriate Unrelated Fund of Funds. 10. An Unrelated Fund of Funds Adviser will waive fees otherwise payable to it by the Unrelated Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by an Underlying Fund under rule 12b–1 under the Act) received from an Underlying Fund by the Unrelated Fund of Funds Adviser, or an affiliated person of the Unrelated Fund of Funds Adviser, other than any advisory fees paid to the Unrelated Fund of Funds Adviser or its affiliated person by the Underlying Fund, in connection with the investment by the Unrelated Fund of Funds in the Underlying Fund. Any Unrelated Fund of Funds Subadviser will waive fees otherwise payable to the Unrelated Fund of Funds Subadviser, directly or indirectly, by the Unrelated Fund of Funds in an amount at least equal to any compensation received from any Underlying Fund by the Unrelated Fund of Funds Subadviser, or an affiliated person of the Unrelated Fund of Funds Subadviser, other than any advisory fees paid to the Unrelated Fund of Funds Subadviser or its affiliated person by the Underlying Fund, in connection with the investment by the Unrelated Fund of Funds in the Underlying Fund made at the direction of the Unrelated Fund of Funds Subadviser. In the event that the Unrelated Fund of Funds Subadviser waives fees, the benefit of the waiver will be passed through to the Unrelated Fund of Funds. 11. With respect to registered separate accounts that invest in an Unrelated Fund of Funds, no sales load will be charged at the Unrelated Fund of Funds level or at the Underlying Fund level. Other sales charges and service fees, as defined in Rule 2830 of the NASD Conduct Rules, if any, will only be charged at the Unrelated Fund of Funds level or at the Underlying Fund level, not both. With respect to other investments in an Unrelated Fund of Funds, any sales charges and/or service fees charged with respect to shares of the Unrelated Fund of Funds will not exceed the limits applicable to a fund of funds as set forth in Rule 2830 of the NASD Conduct Rules. 12. No Underlying Fund will acquire securities of any other investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A) of the Act, except to the PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 12165 extent that such Underlying Fund: (a) Acquires such securities in compliance with section 12(d)(1)(E) of the Act; (b) receives securities of another investment company as a dividend or as a result of a plan of reorganization of a company (other than a plan devised for the purpose of evading section 12(d)(1) of the Act); or (c) acquires (or is deemed to have acquired) securities of another investment company pursuant to exemptive relief from the Commission permitting such Underlying Fund to (i) acquire securities of one or more investment companies for short-term cash management purposes, or (ii) engage in interfund borrowing and lending transactions. Other Investments by Related Funds of Funds 13. The Applicants will comply with all provisions of rule 12d1–2 under the Act, except for paragraph (a)(2), to the extent that it restricts any Related Fund of Funds from investing in Other Investments as described in the application. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Florence E. Harmon, Deputy Secretary. [FR Doc. E9–6209 Filed 3–20–09; 8:45 am] BILLING CODE SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a Closed Meeting on Thursday, March 26, 2009 at 2 p.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(5), (6), (7), 9(B) and (10) and 17 CFR 200.402(a)(5), (6), (7), 9(ii) and (10), permit consideration of the scheduled matters at the Closed Meeting. Commissioner Aguilar, as duty officer, voted to consider the items listed for the Closed Meeting in closed session. E:\FR\FM\23MRN1.SGM 23MRN1

Agencies

[Federal Register Volume 74, Number 54 (Monday, March 23, 2009)]
[Notices]
[Pages 12161-12165]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-6209]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28649; 812-13519]


Massachusetts Financial Services Company, et al.; Notice of 
Application

March 17, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 12(d)(1)(J) 
of the Investment Company Act of 1940 (the ``Act'') for an exemption 
from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 
17(b) of the Act for an exemption from sections 17(a)(1) and (2) of the 
Act, and under section 6(c) of the Act for an exemption from rule 12d1-
2(a) under the Act.

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    Summary of the Application: The requested order would (a) permit 
certain registered management investment companies to acquire shares of 
certain registered open-end management investment companies that are 
outside the same group of investment companies as the acquiring 
investment companies, and (b) permit funds of funds relying on rule 
12d1-2 under the Act to invest in certain financial instruments.
    Applicants: MFS Series Trust I, MFS Series Trust III, MFS Series 
Trust IV, MFS Series Trust V, MFS Series Trust IX, MFS Series Trust X, 
MFS Series Trust XI, MFS Series Trust XII, and MFS Series Trust XIII 
(collectively, the ``Trusts''), Massachusetts Financial Services 
Company (the ``Adviser''), and MFS Fund Distributors, Inc. (the 
``Distributor'').
    Filing Dates: The application was filed on April 17, 2008, and 
amended on November 26, 2008. Applicants have agreed to file an 
amendment during the notice period, the substance of which is contained 
in this notice.
    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 April 13, 2009, 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, 500 Boylston 
Street, Boston, MA 02116.

FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior 
Counsel, at (202) 551-6879, 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. The Trusts are open-end management investment companies 
registered under the Act and organized as Massachusetts business 
trusts. Each Trust is comprised of separate series that pursue distinct 
investment objectives and strategies. The Trusts are part of the same 
``group of investment companies'' within the meaning of section 
12(d)(1)(G)(ii) of the Act. The Adviser, a Delaware corporation, is 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (``Advisers Act'') and serves as investment adviser to the 
Trusts.\1\ The Distributor is a Delaware corporation and is registered 
as a broker-dealer under the Securities Exchange Act of 1934 (the 
``Exchange Act''). The Distributor serves as principal underwriter and 
distributor for the shares of the Underlying Funds (as defined below) 
and the Related Funds of Funds (as defined below).
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    \1\ All references to the term ``Adviser'' include successors-
in-interest to the Adviser. Successors-in-interest are limited to 
any entity resulting from a name change, a reorganization of the 
Adviser into another jurisdiction or a change in the type of 
business organization.
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    2. Applicants request an exemption to permit registered management 
investment companies that operate as a ``fund of funds'' and that are 
not part of the same ``group of investment companies,'' within the 
meaning of section 12(d)(1)(G)(ii) of the Act, as the Trusts 
(``Unrelated Funds of Funds'') to acquire shares of separate series of 
the Trusts that do not operate as ``funds of funds'' (``Underlying 
Funds'') \2\ in excess of the limits in section 12(d)(1)(A) of the Act, 
and to permit Underlying Funds, any principal underwriter for an 
Underlying Fund, and any broker or dealer registered under the Exchange 
Act (``Broker'') to sell shares of an Underlying Fund to an Unrelated 
Fund of Funds in excess of the limits in section 12(d)(1)(B) of the 
Act. Applicants request that the relief apply to: (1) Each registered 
open-end management investment company or series thereof that currently 
or subsequently is part of the same ``group of investment companies,'' 
within the meaning of section 12(d)(1)(G)(ii) of the Act, as the 
Trusts, and that is advised or sponsored by the Adviser or any entity 
controlling, controlled by, or under common control with the Adviser 
(such registered open-end management investment companies or their 
series are included in the term ``Underlying Funds''); (2) each 
Unrelated Fund of Funds that enters into a Participation Agreement (as 
defined below) with an Underlying Fund to purchase shares of the 
Underlying Fund; and (3) any principal underwriter to an Underlying 
Fund or Broker selling shares of an Underlying Fund.\3\
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    \2\ As of the date of the application, the Underlying Funds 
include the following series of MFS Series Trust I: MFS Core Growth 
Fund, MFS New Discovery Fund, MFS Research International Fund, MFS 
Value Fund; the following series of MFS Series Trust III: MFS High 
Income Fund; the following series of MFS Series Trust IV: MFS Mid 
Cap Growth Fund, MFS Money Market Fund; the following series of MFS 
Series Trust V: MFS International New Discovery Fund, MFS Research 
Fund; the following series of MFS Series Trust IX: MFS Inflation-
Adjusted Bond Fund, MFS Limited Maturity Fund, MFS Research Bond 
Fund; the following series of MFS Series Trust X: MFS Emerging 
Markets Equity Fund, MFS Floating Rate High Income Fund, MFS 
International Growth Fund, MFS International Value Fund; the 
following series of MFS Series Trust XI: MFS Mid Cap Value Fund; and 
the following series of MFS Series Trust XIII: MFS Government 
Securities Fund.
    \3\ All entities that currently intend to rely on the requested 
order are named as applicants. Any other entity that relies on the 
order in the future will comply with the terms and conditions of the 
application. An Unrelated Fund of Funds may rely on the requested 
order only to invest in an Underlying Fund and not in any other 
registered investment company.
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    3. Each Unrelated Fund of Funds will be advised by an investment 
adviser, within the meaning of section 2(a)(20)(A) of the Act, that is 
registered as an investment adviser under the Advisers Act (an 
``Unrelated Fund of

[[Page 12162]]

Funds Adviser''). An Unrelated Fund of Funds or its Adviser may 
contract with an investment adviser that meets the definition of 
section 2(a)(20)(B) of the Act (an ``Unrelated Fund of Funds 
Subadviser''). Applicants state that Unrelated Funds of Funds will be 
interested in using the Underlying Funds as part of their overall 
investment strategy.
    4. Applicants also request an exemption to the extent necessary to 
permit any existing or future funds that operate as ``funds of funds'' 
and that are part of the same ``group of investment companies,'' within 
the meaning of section 12(d)(1)(G)(ii) of the Act, as the Trusts 
(``Related Funds of Funds'') and which invest in other Underlying Funds 
in reliance on section 12(d)(1)(G) of the Act, and which are also 
eligible to invest in securities (as defined in section 2(a)(36) of the 
Act) in reliance on rule 12d1-2 under the Act, to also invest, 
consistent with its investment objective, policies, strategies and 
limitations, in financial instruments that may not be securities within 
the meaning of section 2(a)(36) of the Act (``Other Investments'').\4\
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    \4\ Applicants request that the relief apply to each registered 
open-end management investment company or series thereof that 
operates as a ``fund of funds'' and that currently or subsequently 
is part of the same ``group of investment companies,'' within the 
meaning of section 12(d)(1)(G)(ii) of the Act, as the Trusts, and is 
advised or sponsored by the Adviser or any entity controlling, 
controlled by or under common control with the Adviser (such 
registered open-end management investment companies or their series 
are included in the term ``Related Fund of Funds'').
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    5. Consistent with its fiduciary obligations under the Act, each 
Related Fund of Fund's board of trustees will review the advisory fees 
charged by the Related Fund of Fund's investment adviser to ensure that 
they are based on services provided that are in addition to, rather 
than duplicative of, services provided pursuant to the advisory 
agreement of any investment company in which the Related Fund of Funds 
may invest.

Applicants' Legal Analysis

Investments in Underlying Funds by Unrelated Funds of Funds

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a 
registered investment company from acquiring shares of an investment 
company if the securities represent more than 3% of the total 
outstanding voting stock of the acquired company, more than 5% of the 
total assets of the acquiring company, or, together with the securities 
of any other investment companies, more than 10% of the total assets of 
the acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter, and 
any broker or dealer from selling the investment company's shares to 
another investment company if the sale will cause the acquiring company 
to own more than 3% of the acquired company's voting stock, or if the 
sale will cause more than 10% of the acquired company's voting stock to 
be owned by investment companies generally.
    2. Section 12(d)(1)(J) 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 any provision of section 
12(d)(1) if the exemption is consistent with the public interest and 
the protection of investors. Applicants seek an exemption under section 
12(d)(1)(J) of the Act to permit Unrelated Funds of Funds to acquire 
shares of the Underlying Funds in excess of the limits in section 
12(d)(1)(A), and an Underlying Fund, any principal underwriter for an 
Underlying Fund, and any Broker to sell shares of an Underlying Fund to 
an Unrelated Fund of Funds in excess of the limits in section 
12(d)(1)(B) of the Act.
    3. Applicants state that the terms and conditions of the proposed 
arrangement will adequately address the policy concerns underlying 
sections 12(d)(1)(A) and (B), which include concerns about undue 
influence by a fund of funds over underlying funds, excessive layering 
of fees, and overly complex fund structures. Accordingly, applicants 
believe that the requested exemption is consistent with the public 
interest and the protection of investors.
    4. Applicants believe that neither an Unrelated Fund of Funds nor 
an Unrelated Fund of Funds Affiliate would be able to exert undue 
influence over the Underlying Funds.\5\ To limit the control that an 
Unrelated Fund of Funds may have over an Underlying Fund, applicants 
propose a condition prohibiting the Unrelated Fund of Funds Adviser, 
any person controlling, controlled by, or under common control with the 
Unrelated Fund of Funds Adviser, and any investment company or issuer 
that would be an investment company but for section 3(c)(1) or 3(c)(7) 
of the Act that is advised or sponsored by the Unrelated Fund of Funds 
Adviser or any person controlling, controlled by, or under common 
control with the Unrelated Fund of Funds Adviser (the ``Unrelated Fund 
of Funds Advisory Group'') from controlling (individually or in the 
aggregate) an Underlying Fund within the meaning of section 2(a)(9) of 
the Act. The same prohibition would apply to the Unrelated Fund of 
Funds Subadviser, any person controlling, controlled by or under common 
control with the Unrelated Fund of Funds Subadviser, and any investment 
company or issuer that would be an investment company but for section 
3(c)(1) or 3(c)(7) of the Act (or portion of such investment company or 
issuer) advised or sponsored by the Unrelated Fund of Funds Subadviser 
or any person controlling, controlled by or under common control with 
the Unrelated Fund of Funds Subadviser (the ``Unrelated Fund of Funds 
Subadvisory Group''). Applicants propose other conditions to limit the 
potential for undue influence over the Underlying Funds, including that 
no Unrelated Fund of Funds or Unrelated Fund of Funds Affiliate (except 
to the extent it is acting in its capacity as an investment adviser to 
an open-end fund) will cause an Underlying Fund to purchase a security 
in an offering of securities during the existence of any underwriting 
or selling syndicate of which a principal underwriter is an 
Underwriting Affiliate (``Affiliated Underwriting''). An ``Underwriting 
Affiliate'' is a principal underwriter in any underwriting or selling 
syndicate that is an officer, director, member of an advisory board, 
investment adviser, subadviser, or employee of the Unrelated Fund of 
Funds, or a person of which any such officer, director, member of an 
advisory board, investment adviser, subadviser, or employee is an 
affiliated person. An Underwriting Affiliate does not include any 
person whose relationship to an Underlying Fund is covered by section 
10(f) of the Act.
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    \5\ An ``Unrelated Fund of Funds Affiliate'' is an Unrelated 
Fund of Funds Adviser, Unrelated Fund of Funds Subadviser, a 
promoter, or a principal underwriter of an Unrelated Fund of Funds, 
and any person controlling, controlled by, or under common control 
with any of those entities. An ``Underlying Fund Affiliate'' is an 
investment adviser, sponsor, promoter, or principal underwriter of 
an Underlying Fund, and any person controlling, controlled by, or 
under common control with any of those entities.
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    5. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. The board of directors or trustees 
of each Unrelated Fund of Funds, including a majority of the directors 
or trustees who are not ``interested persons'' (within the meaning of 
section 2(a)(19) of the Act) (``Independent Trustees''), will find that 
the advisory fees charged under such advisory contract are based on 
services

[[Page 12163]]

provided that will be in addition to, rather than duplicative of, the 
services provided under the advisory contract(s) of any Underlying Fund 
in which the Unrelated Fund of Funds may invest. In addition, an 
Unrelated Fund of Funds Adviser will waive fees otherwise payable to it 
by the Unrelated Fund of Funds in an amount at least equal to any 
compensation (including fees received pursuant to any plan adopted by 
an Underlying Fund under rule 12b-1 under the Act) received from an 
Underlying Fund by the Unrelated Fund of Funds Adviser or an affiliated 
person of the Unrelated Fund of Funds Adviser, other than any advisory 
fees paid to the Unrelated Fund of Funds Adviser or its affiliated 
person, by an Underlying Fund, in connection with the investment by the 
Unrelated Fund of Funds in the Underlying Fund. Applicants also state 
that with respect to registered separate accounts that invest in an 
Unrelated Fund of Funds, no sales load will be charged at the Unrelated 
Fund of Funds level or at the Underlying Fund level.\6\ Other sales 
charges and service fees, as defined in Rule 2830 of the Conduct Rules 
of the NASD (``NASD Conduct Rules''), if any, will only be charged at 
the Unrelated Fund of Funds level or at the Underlying Fund level, not 
both. With respect to other investments in an Unrelated Fund of Funds, 
any sales charges and/or service fees charged with respect to shares of 
the Unrelated Fund of Funds will not exceed the limits applicable to a 
fund of funds as set forth in Rule 2830 of the NASD Conduct Rules.
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    \6\ Applicants represent that each Unrelated Fund of Funds will 
represent in the Participation Agreement (as defined below) that no 
insurance company sponsoring a registered separate account funding 
variable insurance contracts will be permitted to invest in the 
Unrelated Fund of Funds unless the insurance company has certified 
to the Unrelated Fund of Funds that the aggregate of all fees and 
charges associated with each contract that invests in the Unrelated 
Fund of Funds, including fees and charges at the separate account, 
Unrelated Fund of Funds, and Underlying Fund levels, will be 
reasonable in relation to the services rendered, the expenses 
expected to be incurred, and the risks assumed by the insurance 
company.
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    6. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that no Underlying 
Fund will acquire securities of any investment company or company 
relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the 
limits contained in section 12(d)(1)(A) of the Act, except in certain 
circumstances identified in condition 12 below. Applicants also 
represent that to ensure that Unrelated Funds of Funds comply with the 
terms and conditions of the requested exemption from section 
12(d)(1)(A) of the Act, an Unrelated Fund of Funds must enter into a 
participation agreement between a Trust, on behalf of the relevant 
Underlying Fund, and the Unrelated Funds of Funds (``Participation 
Agreement'') before investing in an Underlying Fund in excess of the 
limits in section 12(d)(1)(A). The Participation Agreement will require 
the Unrelated Fund of Funds to adhere to the terms and conditions of 
the requested order. The Participation Agreement will include an 
acknowledgment from the Unrelated Fund of Funds that it may rely on the 
requested order only to invest in the Underlying Funds and not in any 
other registered investment company.

B. Section 17(a)

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of the company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include any person 5% or 
more of whose outstanding voting securities are directly or indirectly 
owned, controlled, or held with power to vote by the other person.
    2. Applicants seek relief from section 17(a) to permit an 
Underlying Fund that is an affiliated person of an Unrelated Fund of 
Funds because the Unrelated Fund of Funds holds 5% or more of the 
Underlying Fund's shares to sell its shares to and redeem its shares 
from an Unrelated Fund of Funds. Applicants state that any proposed 
transactions directly between an Underlying Fund and an Unrelated Fund 
of Funds will be consistent with the policies of each Underlying Fund 
and Unrelated Fund of Funds. The Participation Agreement will require 
any Unrelated Fund of Funds that purchases shares from an Underlying 
Fund to represent that the purchase of shares from the Underlying Fund 
by an Unrelated Fund of Funds will be accomplished in compliance with 
the investment restrictions of the Unrelated Fund of Funds and will be 
consistent with the investment policies set forth in the Unrelated Fund 
of Funds' registration statement.
    3. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that (i) the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned; (ii) the proposed transaction is consistent with the 
policies of each registered investment company involved; and (iii) the 
proposed transaction is consistent with the general purposes of the 
Act. Section 6(c) of the Act permits the Commission to exempt any 
person or transactions from any provision of the Act if 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 submit that the proposed transactions satisfy the 
standards for relief under sections 17(b) and 6(c) of the Act.\7\ 
Applicants state that the terms of the transactions are reasonable and 
fair and do not involve overreaching. Applicants note that any 
consideration paid for the purchase or redemption of shares directly 
from an Underlying Fund will be based on the net asset value of the 
Underlying Fund. Applicants state that the proposed transactions will 
be consistent with the policies of each Underlying Fund and each 
Unrelated Fund of Funds and with the general purposes of the Act.
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    \7\ Applicants acknowledge that receipt of compensation by (a) 
an affiliated person of an Unrelated Fund of Funds, or an affiliated 
person of such person, for the purchase by the Unrelated Fund of 
Funds of shares of an Underlying Fund or (b) an affiliated person of 
an Underlying Fund, or an affiliated person of such person, for the 
sale by the Underlying Fund of its shares to an Unrelated Fund of 
Funds may be prohibited by section 17(e) of the Act. The 
Participation Agreement also will include this acknowledgment.
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Other Investments by Related Funds of Funds

    1. Section 12(d)(1)(G) of the Act provides that section 12(d)(1) 
will not apply to securities of an acquired company purchased by an 
acquiring company if: (i) The acquiring company and acquired company 
are part of the same group of investment companies; (ii) the acquiring 
company holds only securities of acquired companies that are part of 
the same group of investment companies, government securities, and 
short-term paper; (iii) the aggregate sales loads and distribution-
related fees of the acquiring company and the acquired company are not 
excessive under rules adopted pursuant to section 22(b) or section 
22(c) of the Act by a securities association registered under section 
15A of the Exchange Act or by the Commission; and (iv) the acquired 
company has a policy that prohibits it from acquiring securities of 
registered open-end management investment companies or registered unit 
investment trusts in reliance on section 12(d)(1)(F) or (G) of the Act.
    2. Rule 12d1-2 under the Act permits a registered open-end 
investment company or a registered unit investment

[[Page 12164]]

trust that relies on section 12(d)(1)(G) of the Act to acquire, in 
addition to securities issued by another registered investment company 
in the same group of investment companies, government securities, and 
short-term paper: (1) Securities issued by an investment company that 
is not in the same group of investment companies, when the acquisition 
is in reliance on section 12(d)(1)(A) or 12(d)(1)(F) of the Act; (2) 
securities (other than securities issued by an investment company); and 
(3) securities issued by a money market fund, when the investment is in 
reliance on rule 12d1-1 under the Act. For the purposes of rule 12d1-2, 
``securities'' means any security as defined in section 2(a)(36) of the 
Act.
    3. Applicants state that the proposed arrangement would comply with 
the provisions of rule 12d1-2 under the Act, but for the fact that the 
Related Funds of Funds may invest a portion of their assets in Other 
Investments. Applicants request an order under section 6(c) of the Act 
for an exemption from rule 12d1-2(a) to allow the Related Funds of 
Funds to invest in Other Investments. Applicants assert that permitting 
the Related Funds of Funds to invest in Other Investments as described 
in the application would not raise any of the concerns that the 
requirements of section 12(d)(1) were designed to address.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:

Investments in Underlying Funds by Unrelated Funds of Funds

    1. The members of an Unrelated Fund of Funds Advisory Group will 
not control (individually or in the aggregate) an Underlying Fund 
within the meaning of section 2(a)(9) of the Act. The members of an 
Unrelated Fund of Funds Subadvisory Group will not control 
(individually or in the aggregate) an Underlying Fund within the 
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in 
the outstanding voting securities of an Underlying Fund, the Unrelated 
Fund of Funds Advisory Group or the Unrelated Fund of Funds Subadvisory 
Group, each in the aggregate, becomes a holder of more than 25 percent 
of the outstanding voting securities of an Underlying Fund, it (except 
for any member of the Unrelated Fund of Funds Advisory Group or 
Unrelated Fund of Funds Subadvisory Group that is a separate account 
funding variable insurance contracts) will vote its shares of the 
Underlying Fund in the same proportion as the vote of all other holders 
of the Underlying Fund's shares. This condition does not apply to the 
Unrelated Fund of Funds Subadvisory Group with respect to an Underlying 
Fund for which the Unrelated Fund of Funds Subadviser or a person 
controlling, controlled by, or under common control with the Unrelated 
Fund of Funds Subadviser acts as the investment adviser within the 
meaning of section 2(a)(20)(A) of the Act. A registered separate 
account funding variable insurance contracts will seek voting 
instructions from its contract holders and will vote its shares in 
accordance with the instructions received and will vote those shares 
for which no instructions were received in the same proportion as the 
shares for which instructions were received. An unregistered separate 
account funding variable insurance contracts will either (i) vote its 
shares of the Underlying Fund in the same proportion as the vote of all 
other holders of the Underlying Fund's shares; or (ii) seek voting 
instructions from its contract holders and vote its shares in 
accordance with the instructions received and vote those shares for 
which no instructions were received in the same proportion as the 
shares for which instructions were received.
    2. No Unrelated Fund of Funds or Unrelated Fund of Funds Affiliate 
will cause any existing or potential investment by the Unrelated Fund 
of Funds in shares of an Underlying Fund to influence the terms of any 
services or transactions between the Unrelated Fund of Funds or an 
Unrelated Fund of Funds Affiliate and the Underlying Fund or an 
Underlying Fund Affiliate.
    3. The board of directors or trustees of an Unrelated Fund of 
Funds, including a majority of the Independent Trustees, will adopt 
procedures reasonably designed to assure that the Unrelated Fund of 
Funds Adviser and any Unrelated Fund of Funds Subadviser(s) are 
conducting the investment program of the Unrelated Fund of Funds 
without taking into account any consideration received by the Unrelated 
Fund of Funds or an Unrelated Fund of Funds Affiliate from an 
Underlying Fund or an Underlying Fund Affiliate in connection with any 
services or transactions.
    4. Once an investment by an Unrelated Fund of Funds in the 
securities of an Underlying Fund exceeds the limit in section 
12(d)(1)(A)(i) of the Act, the board of trustees of the Underlying Fund 
(the ``Board''), including a majority of the Independent Trustees, will 
determine that any consideration paid by the Underlying Fund to the 
Unrelated Fund of Funds or an Unrelated Fund of Funds Affiliate in 
connection with any services or transactions: (a) Is fair and 
reasonable in relation to the nature and quality of the services and 
benefits received by the Underlying Fund; (b) is within the range of 
consideration that the Underlying Fund would be required to pay to 
another unaffiliated entity in connection with the same services or 
transactions; and (c) does not involve overreaching on the part of any 
person concerned. This condition does not apply with respect to any 
services or transactions between an Underlying Fund and its investment 
adviser(s) or any person controlling, controlled by, or under common 
control with such investment adviser(s).
    5. No Unrelated Fund of Funds or Unrelated Fund of Funds Affiliate 
(except to the extent it is acting in its capacity as an investment 
adviser to an Underlying Fund) will cause an Underlying Fund to 
purchase a security in any Affiliated Underwriting.
    6. The Board of an Underlying Fund, including a majority of the 
Independent Trustees, will adopt procedures reasonably designed to 
monitor any purchases of securities by the Underlying Fund in an 
Affiliated Underwriting once an investment by an Unrelated Fund of 
Funds in the securities of the Underlying Fund exceeds the limit of 
section 12(d)(1)(A)(i) of the Act, including any purchases made 
directly from an Underwriting Affiliate. The Board of the Underlying 
Fund will review these purchases periodically, but no less frequently 
than annually, to determine whether the purchases were influenced by 
the investment by the Unrelated Fund of Funds in shares of the 
Underlying Fund. The Board of the Underlying Fund shall consider, among 
other things, (i) whether the purchases were consistent with the 
investment objectives and policies of the Underlying Fund; (ii) how the 
performance of securities purchased in an Affiliated Underwriting 
compares to the performance of comparable securities purchased during a 
comparable period of time in underwritings other than Affiliated 
Underwritings or to a benchmark such as a comparable market index; and 
(iii) whether the amount of securities purchased by the Underlying Fund 
in Affiliated Underwritings and the amount purchased directly from an 
Underwriting Affiliate have changed significantly from prior years. The 
Board of the Underlying Fund shall take any appropriate actions based 
on its review, including, if appropriate, the institution of procedures 
designed to

[[Page 12165]]

assure that purchases of securities in Affiliated Underwritings are in 
the best interests of shareholders.
    7. Each Underlying Fund shall maintain and preserve permanently in 
an easily accessible place a written copy of the procedures described 
in the preceding condition, and any modifications to such procedures, 
and shall maintain and preserve for a period not less than six years 
from the end of the fiscal year in which any purchase in an Affiliated 
Underwriting occurred, the first two years in an easily accessible 
place, a written record of each purchase of securities in Affiliated 
Underwritings once an investment by an Unrelated Fund of Funds in the 
securities of an Underlying Fund exceeds the limit in section 
12(d)(1)(A)(i) of the Act, setting forth from whom the securities were 
acquired, the identity of the underwriting syndicate's members, the 
terms of the purchase, and the information or materials upon which the 
Board's determinations were made.
    8. Before investing in shares of an Underlying Fund in excess of 
the limits in section 12(d)(1)(A), each Unrelated Fund of Funds and 
Underlying Fund will execute a Participation Agreement stating, without 
limitation, that their boards of directors or trustees and their 
investment advisers understand the terms and conditions of the order 
and agree to fulfill their responsibilities under the order. At the 
time of its investment in shares of an Underlying Fund in excess of the 
limit in section 12(d)(1)(A)(i), an Unrelated Fund of Funds will notify 
the Underlying Fund of the investment. At such time, the Unrelated Fund 
of Funds will also transmit to the Underlying Fund a list of the names 
of each Unrelated Fund of Funds Affiliate and Underwriting Affiliate. 
The Unrelated Fund of Funds will notify the Underlying Fund of any 
changes to the list of the names as soon as reasonably practicable 
after a change occurs. The Underlying Fund and the Unrelated Fund of 
Funds will maintain and preserve a copy of the order, the Participation 
Agreement, and the list with any updated information for the duration 
of the investment and for a period of not less than six years 
thereafter, the first two years in an easily accessible place.
    9. Prior to approving any advisory contract under section 15 of the 
Act, the board of directors or trustees of each Unrelated Fund of 
Funds, including a majority of the Independent Trustees, will find that 
the advisory fees charged under such advisory contracts are based on 
services provided that will be in addition to, rather than duplicative 
of, the services provided under the advisory contract(s) of any 
Underlying Fund in which the Unrelated Fund of Funds may invest. These 
findings and their basis will be recorded fully in the minute books of 
the appropriate Unrelated Fund of Funds.
    10. An Unrelated Fund of Funds Adviser will waive fees otherwise 
payable to it by the Unrelated Fund of Funds in an amount at least 
equal to any compensation (including fees received pursuant to any plan 
adopted by an Underlying Fund under rule 12b-1 under the Act) received 
from an Underlying Fund by the Unrelated Fund of Funds Adviser, or an 
affiliated person of the Unrelated Fund of Funds Adviser, other than 
any advisory fees paid to the Unrelated Fund of Funds Adviser or its 
affiliated person by the Underlying Fund, in connection with the 
investment by the Unrelated Fund of Funds in the Underlying Fund. Any 
Unrelated Fund of Funds Subadviser will waive fees otherwise payable to 
the Unrelated Fund of Funds Subadviser, directly or indirectly, by the 
Unrelated Fund of Funds in an amount at least equal to any compensation 
received from any Underlying Fund by the Unrelated Fund of Funds 
Subadviser, or an affiliated person of the Unrelated Fund of Funds 
Subadviser, other than any advisory fees paid to the Unrelated Fund of 
Funds Subadviser or its affiliated person by the Underlying Fund, in 
connection with the investment by the Unrelated Fund of Funds in the 
Underlying Fund made at the direction of the Unrelated Fund of Funds 
Subadviser. In the event that the Unrelated Fund of Funds Subadviser 
waives fees, the benefit of the waiver will be passed through to the 
Unrelated Fund of Funds.
    11. With respect to registered separate accounts that invest in an 
Unrelated Fund of Funds, no sales load will be charged at the Unrelated 
Fund of Funds level or at the Underlying Fund level. Other sales 
charges and service fees, as defined in Rule 2830 of the NASD Conduct 
Rules, if any, will only be charged at the Unrelated Fund of Funds 
level or at the Underlying Fund level, not both. With respect to other 
investments in an Unrelated Fund of Funds, any sales charges and/or 
service fees charged with respect to shares of the Unrelated Fund of 
Funds will not exceed the limits applicable to a fund of funds as set 
forth in Rule 2830 of the NASD Conduct Rules.
    12. No Underlying Fund will acquire securities of any other 
investment company or company relying on section 3(c)(1) or 3(c)(7) of 
the Act in excess of the limits contained in section 12(d)(1)(A) of the 
Act, except to the extent that such Underlying Fund: (a) Acquires such 
securities in compliance with section 12(d)(1)(E) of the Act; (b) 
receives securities of another investment company as a dividend or as a 
result of a plan of reorganization of a company (other than a plan 
devised for the purpose of evading section 12(d)(1) of the Act); or (c) 
acquires (or is deemed to have acquired) securities of another 
investment company pursuant to exemptive relief from the Commission 
permitting such Underlying Fund to (i) acquire securities of one or 
more investment companies for short-term cash management purposes, or 
(ii) engage in interfund borrowing and lending transactions.

Other Investments by Related Funds of Funds

    13. The Applicants will comply with all provisions of rule 12d1-2 
under the Act, except for paragraph (a)(2), to the extent that it 
restricts any Related Fund of Funds from investing in Other Investments 
as described in the application.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-6209 Filed 3-20-09; 8:45 am]
BILLING CODE
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