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

The following is a summary of the application. The complete application may be obtained for a fee at the Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

1. Each Fund is registered under the Act as an open-end management investment company, and organized as a Massachusetts business trust. MFS, a Delaware corporation, serves as investment adviser to one series of MFS Series Trust XI and to each of the series of MFS Institutional Trust and MFS Variable Insurance Trust. Vertex, a Delaware corporation and a wholly-owned subsidiary of MFS, serves as investment adviser to the other series of MFS Series Trust XI. Each of the Advisers is registered as an investment adviser under the Investment Advisers Act of 1940. 2. Applicants request relief to permit the Funds to satisfy redemption requests made by any shareholder of a Fund who, at the time of such redemption requests, is an ``affiliated person'' of a Fund solely by reason of owning, controlling, or holding with the power to vote, five percent or more of the Fund's shares (``Covered Shareholder'') by distributing portfolio securities in-kind. The relief sought would not extend to shareholders who are ``affiliated persons'' of a Fund within the meaning of sections 2(a)(3)(B) through (F) of the Act. 3. Each Fund's prospectus and statement of additional information provide that, in limited circumstances, the Fund may satisfy all or part of a redemption request by a distribution in-kind of portfolio securities. The boards of trustees of the Funds (``Boards'') including a majority of the trustees who are not ``interested persons'' as defined in section 2(a)(19) of the Act (``Non-Interested Trustees''), have determined that it would be in the best interests of the Funds and their shareholders to pay to a Covered Shareholder the redemption price for shares of the Funds in-kind to the extent permitted by certain Funds' elections to be governed by rule 18f-1 under the Act.

Applicants' Legal Analysis

1. Section 17(a)(2) of the Act generally prohibits an affiliated person of a registered investment company, or an affiliated person of such person, acting as principal, from knowingly purchasing any security or other property (except securities of which the seller is the issuer) from the registered investment company. Section 2(a)(3)(A) of the Act defines ``affiliated person'' of another person to include any person owning 5% or more of the outstanding voting securities of the other person. Applicants state that to the extent that

an in-kind redemption could be deemed to involve the purchase of portfolio securities (of which the Fund is not the issuer) by a Covered Shareholder, the proposed redemptions in-kind would be prohibited by section 17(a)(2). 2. Section 17(b) of the Act provides that, notwithstanding section 17(a) of the Act, the Commission shall exempt a proposed transaction from section 17(a) of the Act if evidence establishes that: (a) The terms of the proposed transaction are reasonable and fair and do not involve overreaching; (b) the proposed transaction is consistent with the policy of each registered investment company involved; and (c) the proposed transaction is consistent with the general purposes of the Act. 3. Section 6(c) of the Act provides that the Commission may exempt any person, security or transaction, or any class or classes of persons, securities or transactions, from the provisions of the Act, to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. 4. Applicants request an order under sections 6(c) and 17(b) of the Act exempting applicants from section 17(a) of the Act to permit Covered Shareholders to redeem their shares of the Funds in-kind. The requested order would not apply to redemptions by shareholders who are affiliated persons of a Fund within the meaning of sections 2(a)(3)(B) through (7) of the Act. 5. Applicants submit that the terms of the proposed in-kind redemptions by Covered Shareholders meet the standards set forth in sections 6(c) and 17(b) of the Act. Applicants assert that neither the Fund nor the Covered Shareholder will have any choice as to the type of consideration to be received in connection with a redemption request, and neither the Adviser nor the Covered Shareholder will have any opportunity to select the specific portfolio securities to be distributed. Applicants further state that the portfolio securities to be distributed will be valued according to an objective, verifiable standards and that the in-kind redemptions are consistent with the investment policies of the Fund. Applicants also state that the proposed in-kind redemption are consistent with the general purposes of the Act because the Covered Shareholders would not receive any advantage not available to other redeeming shareholders.

Applicants' Conditions

Applicants agree that any order of the Commission granting the requested relief will be subject to the following conditions: 1. The securities distributed pursuant to a redemption in-kind (the ``In-Kind Securities'') will be limited to securities that are traded on a public securities market or for which market quotations are available. 2. The in-Kind Securities will be distributed by each Fund on a pro rata basis after excluding (a) Securities which may not be publicly offered or sold without registration under the Securities Act of 1933; (b) securities issued by entities in countries which (i) restrict or prohibit the holding of securities by non-nationals other than through qualified investment vehicles, such as the Funds or (ii) permit transfers of ownership of securities to be effected only by transactions conducted on a local stock exchange; (c) certain portfolio positions (such as forward foreign currency contracts, futures and options contracts, swap transactions and repurchase agreements) that, although they may be liquid and marketable, involve the assumption of contractual obligations, require special trading facilities or can only be traded with the counterparty to the transaction to effect a change in beneficial ownership; (d) cash equivalents (such as certificates of deposit, commercial paper and repurchase agreements); and (e) other assets which are not readily distributable (including receivables and prepaid expenses). In addition, portfolio securities representing fractional shares, odd lot securities and accruals on such securities may be excluded from portfolio securities distributed in-kind to a Covered Shareholder. Cash will be paid for the portion of the in-kind distribution represented by the excluded assets set forth above, less liabilities (including accounts payable). 3. The In-Kind Securities distributed to the Covered shareholders will be valued in the same manner as they would be valued for purposes of computing each Fund's net asset value. 4. The Funds' Boards, including a majority of the Non-Interested Trustees, will determine no less frequently than annually: (a) Whether the In-Kind Securities, if any, have been distributed in accordance with conditions 1 and 2; (b) whether the In-Kind Securities, if any, have been valued in accordance with condition 3; and (c) whether the distribution of any such In-Kind Securities is consistent with the policies of each effected Fund as reflected in the prospectus. In addition, the Board will make and approve such changes as it deems necessary in the procedures for monitoring the Funds' compliance with the terms and conditions of this application. 5. The Funds will maintain and preserve for a period of not less than six years from the end of the fiscal year in which a proposed in- kind redemption occurs, the first two years in an easily accessible place, a written record of such redemption setting forth a description of each security distributed in-kind, the identity of the Covered Shareholder, the terms of the in-kind distribution and the information or materials upon which the valuation was made.

For the Commission, by the Division of Investment Management, under delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. 99-10138 Filed 4-22-99; 8:45 am] BILLING CODE 8010-01-M