
[Federal Register: November 4, 2009 (Volume 74, Number 212)]
[Notices]               
[Page 57208-57211]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04no09-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28987; 812-13482]

 
MFS Government Markets Income Trust et al.; Notice of Application

October 29, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 19(b) of 
the Act and rule 19b-1 under the Act.

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Summary of Application: Applicants request an order to permit certain 
closed-end investment companies to make periodic distributions of long-
term capital gains with respect to their outstanding common stock as 
frequently as twelve times each year, and as frequently as 
distributions are specified by or in accordance with the terms of any 
outstanding preferred stock that such investment companies may issue.

Applicants: MFS Government Markets Income Trust, MFS Intermediate 
Income Trust (together, the ``Current Funds''), and Massachusetts 
Financial Services Company (the ``Adviser'').

Filing Dates: January 22, 2008, February 9, 2009 and May 27, 2009.

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 November 23, 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, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090; Applicants, c/o Massachusetts Financial 
Services Company, 500 Boylston Street, Boston, MA 02116, Attention: 
Mark N. Polebaum, Esq.

FOR FURTHER INFORMATION CONTACT: Wendy Friedlander, Senior Counsel, at 
(202) 551-6837, or James M. Curtis, Branch Chief, at (202) 551-6825 
(Division of Investment Management, Office of Chief Counsel).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/
search.htm, or by calling (202) 551-8090.
    Applicants' Representations:
    1. The Current Funds are registered closed-end management 
investment companies organized as Massachusetts business trusts. The 
Current Funds' primary investment objective is to provide high current 
income, and their secondary investment objective is capital 
appreciation.\1\ The common stock of the Current Funds is listed and 
traded on the New York Stock Exchange. The Current Funds have not 
issued preferred stock. Applicants believe that the stockholders of the 
Current Funds may prefer an investment vehicle that provides regular/
monthly distributions.
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    \1\ Applicants request that any order issued granting the relief 
requested in the application also apply to any closed-end investment 
company (``future fund'') that in the future: (a) Is advised by the 
Adviser (including any successor in interest) or by any entity 
controlling, controlled by, or under common control (within the 
meaning of section 2(a)(9) of the Act) with the Adviser; and (b) 
complies with the terms and conditions of the requested order. A 
successor in interest is limited to entities that result from a 
reorganization into another jurisdiction or a change in the type of 
business organization.
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    2. The Adviser is a Delaware corporation and is registered as an 
investment adviser under the Investment Advisers Act of 1940. The 
Adviser is the investment adviser for the Current Funds. The Adviser is 
a wholly-owned subsidiary of Sun Life of Canada (U.S.) Financial 
Services Holdings, Inc., which is an indirect wholly-owned subsidiary 
of Sun Life Financial Inc.
    3. Applicants represent that in 2007 each Current Fund adopted a 
level-distribution policy with respect to its common stock. Applicants 
represent that at that time each Current Fund had substantial capital 
loss carryforwards and realized and unrealized net capital losses in 
its portfolio sufficient to offset the Current Fund's long-term capital 
gains for a period of time. Applicants represent that the Adviser 
believes that each of the Current Funds will be able to continue to 
make distributions in accordance with its respective existing 
distribution policy for the time being without exceeding applicable 
limits in the Act on long-term capital gains distributions. Applicants 
represent that the Current Funds will make distributions of long-term 
capital gains more frequently than the applicable limits under the Act 
only if the requested order is granted. Applicants represent that any 
such distributions made in reliance on the order will comply with the 
terms and conditions of this application.
    4. Applicants represent that prior to making distributions in 
reliance on the requested order, the Board of a fund, including a 
majority of the trustees who are not ``interested persons'' of the 
fund, as defined in section 2(a)(19) of the Act (the ``Independent 
Trustees''), will have:
    (1) Approved the fund's adoption of the distribution policy 
(``Plan'');
    (2) Requested and evaluated, and the Adviser shall have furnished, 
such information as may be reasonably necessary for an informed 
determination of whether the Plan should be adopted and implemented;
    (3) Determined that adoption and implementation of the Plan is 
consistent with the fund's investment objective(s) and policies and in 
the best interests of the fund and its shareholders, after considering 
the information in (2) above, including, without limitation:
    (i) The purpose(s) of the Plan as stated in this application,
    (ii) Information about any potential or actual conflicts of 
interest that the Adviser, any affiliated person of the

[[Page 57209]]

Adviser, or any other affiliated person of the fund may have relating 
to the adoption or implementation of the Plan,
    (iii) Whether the rate of distribution under the Plan will exceed 
the fund's expected total return (in relation to NAV); and
    (iv) The reasonably foreseeable material effects of the Plan on the 
fund's long-term total return (in relation to market price and NAV);
    (4) Approved the adoption of compliance policies and procedures in 
accordance with rule 38a-1 under the Act that:
    (i) Are reasonably designed to ensure that all notices required to 
be sent to fund shareholders pursuant to section 19(a) of the Act and 
rule 19a-1 thereunder (each a ``Notice'') include the disclosure 
required by rule 19a-1 and the conditions below, and that all other 
communications by the fund or its agents about distributions under the 
Plan include the disclosure required by the conditions below, and
    (ii) Require the fund to keep records that demonstrate its 
compliance with all of the conditions of the requested order and that 
are necessary for the fund to form the basis for, or demonstrate the 
calculation of, the amounts disclosed in its Notices; and
    (5) Recorded the information, pursuant to representation (3) above, 
considered by it and the basis for its approval of the Plan in its 
meeting minutes, which must be made and preserved for a period of not 
less than six years from the date of such meeting, the first two years 
in an easily accessible place or such longer period as may otherwise be 
required by law.
    Applicants' Legal Analysis:
    1. Section 19(b) generally makes it unlawful for any registered 
investment company to make long-term capital gains distributions more 
than once each year. Rule 19b-1 limits the number of capital gains 
dividends, as defined in section 852(b)(3)(C) of the Code 
(``distributions''), that a fund may make with respect to any one 
taxable year to one, plus a supplemental ``clean up'' distribution made 
pursuant to section 855 of the Code not exceeding 10% of the total 
amount distributed for the year, plus one additional capital gain 
dividend made in whole or in part to avoid the excise tax under section 
4982 of the Code.
    2. Section 6(c) provides that the Commission may, by order upon 
application, conditionally or unconditionally exempt any person, 
security, or transaction, or any class or classes of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that the 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.
    3. Applicants state that the one of the concerns underlying section 
19(b) and rule 19b-1 is that shareholders might be unable to 
differentiate between regular distributions of capital gains and 
distributions of investment income. Applicants state, however, that 
rule 19a-1 effectively addresses this concern by requiring that a 
separate statement showing the sources of a distribution (e.g., 
estimated net income, net short-term capital gains, net long-term 
capital gains and/or return of capital) accompany any distributions (or 
the confirmation of the reinvestment of distributions) estimated to be 
sourced in part from capital gains or capital. Applicants state that 
the same information also is included in the Current Funds' annual 
reports to shareholders and on their IRS Forms 1099-DIV, which are sent 
to each common and preferred shareholder who received distributions 
during the year.
    4. Applicants further state that each of the funds will make the 
additional disclosures required by the conditions set forth below, and 
each of them has adopted or will adopt compliance policies and 
procedures in accordance with rule 38a-1 to ensure that all required 
Notices and disclosures are sent to shareholders. Applicants argue that 
by providing the information required by section 19(a) and rule 19a-1, 
and by complying with the procedures adopted under each Plan and the 
conditions listed below, the funds would ensure that each fund's 
shareholders are provided sufficient information to understand that 
their periodic distributions are not tied to the fund's net investment 
income and realized capital gains to date, and may not represent yield 
or investment return.
    5. Applicants note that section 19(b) and rule 19b-1 also were 
intended to prevent certain improper sales practices, including, in 
particular, the practice of urging an investor to purchase shares of a 
fund on the basis of an upcoming capital gains dividend (``selling the 
dividend''), where the dividend would result in an immediate 
corresponding reduction in NAV and would be in effect a taxable return 
of the investor's capital. Applicants assert that a periodic payout 
policy will help avoid the buildup of large end-of-the-year 
distributions and accordingly will help to avoid the scenario in which 
an investor acquires shares that are subject to a large upcoming 
capital gains distribution.
    6. Applicants also note that common shares of closed-end funds that 
invest primarily in equity securities often trade in the marketplace at 
a discount to their NAV. Applicants believe that this discount may be 
reduced for closed-end funds that pay relatively frequent dividends on 
their common shares at a consistent rate, whether or not those 
dividends contain an element of long-term capital gain.
    7. Applicants assert that the application of rule 19b-1 to a Plan 
actually could have an undesirable influence on portfolio management 
decisions. Applicants state that, in the absence of an exemption from 
rule 19b-1, the implementation of a Plan imposes pressure on management 
to realize capital gains on a regular and frequent basis and at a time 
when pure investment considerations would dictate not doing so. 
Applicants thus assert that the requested order would enable the funds 
to realize long-term capital gains as often as investment consideration 
dictate without fear of violating rule 19b-1.
    8. Applicants state that Revenue Ruling 89-81 under the Code 
requires that a fund that has both common stock and preferred stock 
outstanding designate the types of income, e.g. investment income and 
capital gains, in the same proportion as the total distributions 
distributed to each class for the tax year. To satisfy the 
proportionate designation requirements of Revenue Ruling 89-81, 
whenever a fund has realized a long-term capital gain with respect to a 
given tax year, the fund must designate the required proportionate 
share of such capital gain to be included in common and preferred stock 
dividends. Applicants state that although rule 19b-1 allows a fund some 
flexibility with respect to the frequency of capital gains 
distributions, a fund might use all of the exceptions available under 
the rule for a tax year and still need to distribute additional capital 
gains allocated to the preferred stock to comply with Revenue Ruling 
89-81.
    9. Applicants assert that the potential abuses addressed by section 
19(b) and rule 19b-1 do not arise with respect to preferred stock 
issued by a closed-end fund. Applicants assert that such distributions 
are fixed or determined in periodic auctions by reference to short-term 
interest rates rather than by reference to performance of the issuer 
and Revenue Ruling 89-81 determines the proportion of such 
distributions that are comprised of the long-term capital gains.
    10. Applicants also submit that the ``selling the dividend'' 
concern is not applicable to preferred stock, which

[[Page 57210]]

entitles a holder to no more than a periodic dividend at a fixed rate 
or the rate determined by the market, and, like a debt security, is 
priced based upon its liquidation value, credit quality, and frequency 
of payment. Applicants state that investors buy preferred shares for 
the purpose of receiving payments at the frequency bargained for, and 
do not expect the liquidation value of their shares to change.
    11. Applicants request an order under section 6(c) granting an 
exemption from the provisions of section 19(b) and rule 19b-1 to permit 
each fund's common stock to distribute periodic capital gains dividends 
(as defined in section 852(b)(3)(C) of the Code) as often as monthly in 
any one taxable year in respect of its common shares and as often as 
specified by or determined in accordance with the terms thereof in 
respect of its preferred shares.\2\
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    \2\ Applicants state that a future fund that relies on the 
requested order will satisfy each of the representations in the 
application except that such representations will be made in respect 
of actions by the board of directors of such future fund and will be 
made at a future time.
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    Applicants' Conditions:
    Applicants agree that, with respect to each fund seeking to rely on 
the order, the order will be subject to the following conditions:

I. Compliance Review and Reporting

    The fund's chief compliance officer will: (a) Report to the fund 
Board, no less frequently than once every three months or at the next 
regularly scheduled quarterly board meeting, whether (i) the fund and 
the Adviser have complied with the conditions to the requested order, 
and (ii) a Material Compliance Matter, as defined in rule 38a-1(e)(2), 
has occurred with respect to compliance with such conditions; and (b) 
review the adequacy of the policies and procedures adopted by the fund 
no less frequently than annually.

II. Disclosures to Fund Shareholders

    A. Each Notice to the holders of the fund's common shares, in 
addition to the information required by section 19(a) and rule 19a-1:
    1. Will provide, in a tabular or graphical format:
    (a) The amount of the distribution, on a per common share basis, 
together with the amounts of such distribution amount, on a per common 
share basis and as a percentage of such distribution amount, from 
estimated: (A) Net investment income; (B) net realized short-term 
capital gains; (C) net realized long-term capital gains; and (D) return 
of capital or other capital source;
    (b) The fiscal year-to-date cumulative amount of distributions, on 
a per common share basis, together with the amounts of such cumulative 
amount, on a per common share basis and as a percentage of such 
cumulative amount of distributions, from estimated: (A) Net investment 
income; (B) net realized short-term capital gains; (C) net realized 
long-term capital gains; and (D) return of capital or other capital 
source;
    (c) The average annual total return in relation to the change in 
NAV for the 5-year period (or, if the fund's history of operations is 
less than five years, the time period commencing immediately following 
the fund's first public offering) ending on the last day of the month 
prior to the most recent distribution declaration date compared to the 
current fiscal period's annualized distribution rate expressed as a 
percentage of NAV as of the last day of the month prior to the most 
recent distribution declaration date; and
    (d) The cumulative total return in relation to the change in NAV 
from the last completed fiscal year to the last day of the month prior 
to the most recent distribution declaration date compared to the fiscal 
year-to-date cumulative distribution rate expressed as a percentage of 
NAV as of the last day of the month prior to the most recent 
distribution declaration date.
    Such disclosure shall be made in a type size at least as large and 
as prominent as the estimate of the sources of the current 
distribution; and
    2. Will include the following disclosure:
    (a) ``You should not draw any conclusions about the fund's 
investment performance from the amount of this distribution or from the 
terms of the fund's Plan'';
    (b) ``The fund estimates that it has distributed more than its 
income and net realized capital gains; therefore, a portion of your 
distribution may be a return of capital. A return of capital may occur 
for example, when some or all of the money that you invested in the 
fund is paid back to you. A return of capital distribution does not 
necessarily reflect the fund's investment performance and should not be 
confused with `yield' or `income' ''; \3\ and
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    \3\ This disclosure will be included only if the current 
distribution or the fiscal year-to-date cumulative distributions are 
estimated to include a return of capital.
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    (c) ``The amounts and sources of distributions reported in this 
Notice are only estimates and are not being provided for tax reporting 
purposes. The actual amounts and sources of the amounts for tax 
reporting purposes will depend upon the fund's investment experience 
during the remainder of its fiscal year and may be subject to changes 
based on tax regulations. The fund will send you a Form 1099-DIV for 
the calendar year that will tell you how to report these distributions 
for federal income tax purposes.''
    Such disclosure shall be made in a type size at least as large as 
and as prominent as any other information in the Notice and placed on 
the same page in close proximity to the amount and the sources of the 
distribution.
    B. On the inside front cover of each report to shareholders under 
rule 30e-1 under the Act, the fund will:
    1. Describe the terms of the Plan (including the fixed amount or 
fixed percentage of the distributions and the frequency of the 
distributions);
    2. Include the disclosure required by condition II.A.2.a above;
    3. State, if applicable, that the Plan provides that the Board may 
amend or terminate the Plan at any time without prior notice to fund 
shareholders; and
    4. describe any reasonably foreseeable circumstances that might 
cause the fund to terminate the Plan and any reasonably foreseeable 
consequences of such termination.
    C. Each report provided to shareholders under rule 30e-1 and in 
each prospectus filed with the Commission on Form N-2 under the Act, 
will provide the fund's total return in relation to changes in NAV in 
the financial highlights table and in any discussion about the fund's 
total return.

III. Disclosure to Shareholders, Prospective Shareholders and Third 
Parties

    A. The fund will include the information contained in the relevant 
Notice, including the disclosure required by condition II.A.2 above, in 
any written communication (other than a Form 1099) about the Plan or 
distributions under the Plan by the fund, or agents that the fund has 
authorized to make such communication on the fund's behalf, to any fund 
common shareholder, prospective common shareholder or third-party 
information provider;
    B. The fund will issue, contemporaneously with the issuance of any 
Notice, a press release containing the information in the Notice and 
will file with the Commission the information contained in such Notice, 
including the disclosure required by condition II.A.2 above, as an 
exhibit to its next filed Form N-CSR; and
    C. The fund will post prominently a statement on its (or the 
Adviser's) Web site containing the information in each

[[Page 57211]]

Notice, including the disclosure required by condition II.A.2 above, 
and will maintain such information on such Web site for at least 24 
months.
    IV. Delivery of Notices to Beneficial Owners: If a broker, dealer, 
bank or other person (``financial intermediary'') holds common stock 
issued by the fund in nominee name, or otherwise, on behalf of a 
beneficial owner, the fund: (a) Will request that the financial 
intermediary, or its agent, forward the Notice to all beneficial owners 
of the fund's shares held through such financial intermediary; (b) will 
provide, in a timely manner, to the financial intermediary, or its 
agent, enough copies of the Notice assembled in the form and at the 
place that the financial intermediary, or its agent, reasonably 
requests to facilitate the financial intermediary's sending of the 
Notice to each beneficial owner of the fund's shares; and (c) upon the 
request of any financial intermediary, or its agent, that receives 
copies of the Notice, will pay the financial intermediary, or its 
agent, the reasonable expenses of sending the Notice to such beneficial 
owners.

V. Additional Board Determinations for Funds Whose Shares Trade at a 
Premium

    If:
    A. The fund's common shares have traded on the exchange that they 
primarily trade on at the time in question at an average premium to NAV 
equal to or greater than 10%, as determined on the basis of the average 
of the discount or premium to NAV of the fund's common shares as of the 
close of each trading day over a 12-week rolling period (each such 12-
week rolling period ending on the last trading day of each week); and
    B. The fund's annualized distribution rate for such 12-week rolling 
period, expressed as a percentage of NAV as of the ending date of such 
12-week rolling period, is greater than the fund's average annual total 
return in relation to the change in NAV over the 2-year period ending 
on the last day of such 12-week rolling period; then:
    1. At the earlier of the next regularly scheduled meeting or within 
four months of the last day of such 12-week rolling period, the Board 
including a majority of the Independent Directors:
    (a) Will request and evaluate, and the Adviser will furnish, such 
information as may be reasonably necessary to make an informed 
determination of whether the Plan should be continued or continued 
after amendment;
    (b) Will determine whether continuation, or continuation after 
amendment, of the Plan is consistent with the fund's investment 
objective(s) and policies and in the best interests of the fund and its 
shareholders, after considering the information in condition V.B.1.a 
above; including, without limitation:
    (1) Whether the Plan is accomplishing its purpose(s);
    (2) The reasonably foreseeable effects of the Plan on the fund's 
long-term total return in relation to the market price and NAV of the 
fund's common shares; and
    (3) The fund's current distribution rate, as described in condition 
V.B above, compared to with the fund's average annual total return over 
the 2-year period, as described in condition V.B, or such longer period 
as the board deems appropriate; and
    (c) Based upon that determination, will approve or disapprove the 
continuation, or continuation after amendment, of the Plan; and
    2. The Board will record the information considered by it and the 
basis for its approval or disapproval of the continuation, or 
continuation after amendment, of the Plan in its meeting minutes, which 
must be made and preserved for a period of not less than six years from 
the date of such meeting, the first two years in an easily accessible 
place.

VI. Public Offerings

    The fund will not make a public offering of the fund's common 
shares other than:
    A. A rights offering below NAV to holders of the fund's common 
stock;
    B. An offering in connection with a dividend reinvestment plan, 
merger, consolidation, acquisition, spin-off or reorganization of the 
fund; or
    C. An offering other than an offering described in conditions VI.A 
and VI.B above, unless, with respect to such other offering:
    1. The fund's annualized distribution rate for the six months 
ending on the last day of the month ended immediately prior to the most 
recent distribution declaration date,\4\ expressed as a percentage of 
NAV per share as of such date, is no more than 1 percentage point 
greater than the fund's average annual total return for the 5-year 
period ending on such date; \5\ and
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    \4\ If the fund has been in operation fewer than six months, the 
measured period will begin immediately following the fund's first 
public offering.
    \5\ If the fund has been in operation fewer than five years, the 
measured period will begin immediately following the fund's first 
public offering.
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    2. The transmittal letter accompanying any registration statement 
filed with the Commission in connection with such offering discloses 
that the fund has received an order under section 19(b) to permit it to 
make periodic distributions of long-term capital gains with respect to 
its common stock as frequently as twelve times each year, and as 
frequently as distributions are specified in accordance with the terms 
of any outstanding preferred stock that such fund may issue.

VII. Amendments to Rule 19b-1

    The requested relief will expire on the effective date of any 
amendment to rule 19b-1 that provides relief permitting certain closed-
end investment companies to make periodic distributions of long-term 
capital gains with respect to their outstanding common stock as 
frequently as twelve times each year.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-26512 Filed 11-3-09; 8:45 am]

BILLING CODE 8011-01-P
