[Federal Register Volume 59, Number 18 (Thursday, January 27, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-1718] [[Page Unknown]] [Federal Register: January 27, 1994] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Rel. No. IC-20027; 812-8456] Daily Money Fund, et al. Notice of Application January 19, 1994. AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission''). ACTION: Notice of Application for Exemption under the Investment Company Act of 1940 (the ``Act''). ----------------------------------------------------------------------- APPLICANTS: Daily Money Fund, Daily Tax-Exempt Money Fund, Fidelity Special Situations Fund, Fidelity Advisor Series I, Fidelity Advisor Series II, Fidelity Advisor Series III, Fidelity Advisor Series IV, Fidelity Advisor Series V, Fidelity Advisor Series VI, Fidelity Advisor Series VII, Fidelity Beacon Street Trust, Fidelity California Municipal Trust, Fidelity California Municipal Trust II, Fidelity Capital Trust, Fidelity Charles Street Trust, Fidelity Commonwealth Trust, Fidelity Congress Street Fund, Fidelity Contrafund, Fidelity Corporate Recovery Fund, Fidelity Corporate Trust, Fidelity Court Street Trust, Fidelity Court Street Trust II, Fidelity Deutsche Mark Performance Portfolio, L.P., Fidelity Destiny Portfolios, Fidelity Devonshire Trust, Fidelity Exchange Fund, Fidelity Financial Trust, Fidelity Fixed-Income Trust, Fidelity Government Securities Fund, Fidelity Hastings Street Trust, Fidelity Income Fund, Fidelity Institutional Cash Portfolios, Fidelity Institutional Tax-Exempt Cash Portfolios, Fidelity Institutional Trust, Fidelity Institutional Investors Trust, Fidelity Investment Trust, Fidelity Limited Term Municipals, Fidelity Magellan Fund, Fidelity Massachusetts Municipal Trust, Fidelity Money Market Trust, Fidelity Mt. Vernon Street Trust, Fidelity Municipal Trust, Fidelity Municipal Trust II, Fidelity New York Municipal Trust, Fidelity New York Municipal Trust II, Fidelity Phillips Street Trust, Fidelity Puritan Trust, Fidelity Securities Fund, Fidelity Select Portfolios, Fidelity Sterling Performance Portfolio, L.P., Fidelity Summer Street Trust, Fidelity Trend Fund, Fidelity Union Street Trust, Fidelity Union Street Trust II, Fidelity U.S. Investments-Bond Fund, L.P., Fidelity U.S. Investments-Government Securities Fund, L.P., Fidelity Yen Performance Portfolio, L.P., Spartan U.S. Treasury Money Market Fund, Tax-Exempt Portfolios, Variable Insurance Products Fund, Variable Insurance Products Fund II, and Zero Coupon Bond Fund (collectively, the ``Trusts''); Fidelity Management & Research Co. (``FMR''); Fidelity Distributors Corporation (``FDC''); and National Financial Services Corporation (``NFSC''). RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from sections 2(a)(32), 2(a)(35), 22(c), and 22(d) of the Act and rule 22c-1 thereunder, and under section 6(c) to amend a previous order granting an exemption from sections 18(f)(1), 18(g), and 18(i) of the Act. SUMMARY OF APPLICATION: Applicants request an order that would permit them to (a) assess and, under certain circumstances, waive a contingent deferred sales load (``CDSC'') on certain redemptions of shares and (b) amend a prior order by adding a conversion feature to an existing multiple class distribution arrangement. FILING DATE: The application was filed on June 17, 1993, and amended on September 14, 1993 and December 17, 1993. Applicants have agreed to file an additional amendment, the substance of which is incorporated herein, during the notice period. HEARING OR NOTIFICATION OF HEARING: An order granting the application will be issued unless the SEC orders a hearing. Interested persons may request a hearing by writing to the SEC's Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the SEC by 5:30 p.m. on February 14, 1994, 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 may request notification of a hearing by writing the SEC's Secretary. ADDRESSES: Secretary. SEC, 450 5th Street NW., Washington, DC 20549. Applicants, 82 Devonshire Street, Boston, Massachusetts 02109. FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Staff Attorney, at (202) 272-3026, or Robert A. Robertson, Branch Chief, at (202) 272-3030 (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 SEC's Public Reference Branch. Applicants' Representations 1. Most of the Trusts are series companies that may issue one or more series. Applicants request that relief be extended to (a) each Trust and each of its series and (b) all other investment companies or series thereof that are, or in the future will be, (i) advised by FMR (or a person controlling, controlled by, or under common control with FMR) or are, or in the future will be, distributed by FDC or NFSC (or a person controlling, controlled by, or under common control with FDC or NFSC) and that (ii) have or will have the ability to issue classes of shares that are identical in all material respects to those described in the application (collectively with the Trusts and series thereof, the ``Funds''). 2. FMR acts as each Fund's investment manager and also provides the Funds with administrative services. FDC acts as the distributor of all the Funds, other than the Funds for which NFSC services as distributor. NFSC currently acts as the distributor to three Funds, each a series of the Daily Money Fund. FMR, FDC, and NFSC are all subsidiaries of FMC Corp. 3. Applicants previously requested an order under section 6(c) of the Act to permit the issuance and sale of an unlimited number of classes of securities by the Funds (the ``Existing Order'').\1\ The Existing Order contained the following permissible class differences: (a) The impact of certain Class Expenses, as Class Expenses are defined in the Existing Order; (b) the fact that classes will vote separately with respect to the classes' Rule 12b-1 Plan and/or Shareholder Services Plan, as both plans are defined in the Existing Order; (c) exchange privileges of the classes of shares; and (d) the designation of each class of shares. --------------------------------------------------------------------------- \1\Investment Company Act Release Nos. 18874 (July 30, 1992) (notice) and 18907 (August 25, 1992) (order). --------------------------------------------------------------------------- 4. The Funds' existing classes of shares are sold subject to a front-end sales load and/or a rule 12b-1 fee. Applicants now request the ability to offer shares that carry a standard or level load CDSC. The standard CDSC shares will not be subject to a front-end sales load but will be subject to a CDSC and an annual rule 12b-1 and/or service fee. The level load shares will have the same features as the standard CDSC shares except that the rule 12b-1 and/or service fee could be different. Applicants also request the ability to have a conversion feature in connections with the shares that carry a standard or level load CDSC. With this feature, these shares may, after a period of time, automatically convert to shares of another class without the imposition of any additional sales charges and will be subject to the lower rule 12b-1 fee and/or service fee applicable to that class. Applicants also request the ability to impose a CDSC on the proceeds of certain redemptions of shares ordinarily subject to a front-end sales charge initially sold without a sales charge. 5. The amount of the CDSC will be calculated as the lesser of the amount that represents a specified percentage of the net asset value of the shares at the time of purchase, or the amount that represents such percentage of the net asset value of the shares at the time of redemption. As a result, no CDSC will be imposed on an amount which represents an increase in the value of the shareholder's account resulting from capital appreciation above the amount paid for the shares when purchased. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing reinvestment of the dividends and capital gain distributions, second of shares held by the shareholder for a period equal to or greater than the CDSC period, and finally of other shares held by the shareholder for the longest period of time. 6. In accordance with rule 11a-3 under the Act, no CDSC will be imposed on any exchange by an investor of shares with a CDSC for shares of another Fund. The sum of any front-end sales charge, asset based sales and CDSC paid by any individual shareholder on a single investment will not exceed the maximum sales charge provided in article III, section 26 of the National Association of Securities Dealers (``NASD'') Rules of Fair Practice. 7. The Funds request the ability to waive or reduce the CDSC in connection with the following redemptions of shares: (a) Following death or disability, as defined in section 72(m)(7) of the Internal Code of 1986, as amended (the ``Code''), of a shareholder if redemption is made within one year after death or disability of a shareholder, as relevant; (b) of retirement plan distributions which are permitted to be made without penalty pursuant to the Code, other than tax-free rollovers or transfers of assets; (c) by current or former trustees or officers of a Fund, or current or retired officers, directors or Fidelity trustees or employees, and by the spouse of such persons, or by a Fidelity trustee or employee acting as custodian for a minor child, or a person acting as trustee of a trust for the sole benefit of the minor child of a Fidelity trustee or employee; (d) by registered representatives, bank trust officers, and employees (and their immediate families) of investment professionals that have entered into distribution-related agreements with FDC or NFSC, (e) of shares made pursuant to a shareholder's participation in any systematic withdrawal plan adopted by a Fund; (f) by large accountholders holding specified minimums of a Funds' shares; (g) those affected by advisory accounts managed by FMR or any affiliated company, or by FMR or any such affiliated company itself; (h) those effected tax-exempt employee benefit plans as a result of the enactment or promulgation of any law or regulation pursuant to which continuation of the investment in the Funds would be improper; (i) those effected pursuant to each Fund's right to liquidate a shareholder's account if the aggregate net asset value of shares held in the account is less than the effective minimum account size; (j) by trust institutions investing on behalf of their clients; (k) by a charitable organization (as defined in section 501(c)(3) of the Code); (l) by a charitable remainder trust or life income pool established for the benefit of a charitable organization (as defined in section 501(c)(3) of the Code); (m) by any state, county, or city, or any governmental instrumentality, department, authority, or agency; (n) of shares purchased with redemption proceeds from other mutual fund complexes on which the investor has paid a front-end sales charge only;\2\ (o) of shares purchased by an insurance company separate account used to fund annuity contracts purchased by employee benefit plans; (p) by investors participating in the Fidelity trust portfolios program; (q) of shares purchased through Portfolio Advisory Services;\3\ (r) of new or subsequent shares purchased in a Uniform Gifts to Minors/Uniform Transfers to Minors account; (s) redemptions of shares purchased by contributions and exchanges to prototype or prototype-like retirement plans sponsored by FMR Corp. or FMR and that are marketed and distributed directly to plan sponsors (the Fidelity IRA, the Fidelity Rollover IRA, the Fidelity SEP-IRA and SARSEP, the Fidelity Retirement Plan, the Fidelity Defined Benefit Plan, the Fidelity Group IRA, the Fidelity 403(b) Program, the Fidelity Investments 401(a) Prototype Plan for Tax-Exempt Employers, and the CORPORATEplan for Retirement);\4\ (t) in accounts to which banks or broker-dealers which have agreements with FDC or NFSC charge an investment management fee; (u) of shares purchased as part of an employee benefit plan maintained by an employer whose employee benefit plan is either subject to the requirements of the Employee Retirement Income Security Act of 1974 or would be except for specific statutory exemptions (``U.S. Employer''); (v) of shares purchased as part of an employee benefit plan maintained by a US. Employer that is a member of a parent-subsidiary group of corporations (within the meaning of section 1563(a)(1) of the Code); (w) of shares purchased in a Fidelity IRA account purchased with the proceeds of a distribution from an employee benefit plan, provided that at the time of the distribution, the employer or its affiliate had an account of a specified size maintained with Fidelity; and (x) of shares purchased by a registered investment adviser purchasing for its discretionary accounts, provided it has executed a Fidelity registered investment adviser agreement. --------------------------------------------------------------------------- \2\The Funds will take such steps as may be necessary to determine that a shareholder has not paid a CDSC or redemption fee in connection with the redemption of shares of an unrelated open-end investment company, including, without limitation, requiring a shareholder to provide a written representation that neither a CDSC nor redemption fee was imposed upon the redemption and, in addition, either (a) requiring such shareholder to provide an activity statement reflecting the redemption that supports the shareholder's representation, or (b) reviewing a copy of the current prospectus of the unrelated open-end investment company and determining that such company does not impose a CDSC or redemption fee. \3\Portfolio Advisory Services is a division of Strategic Advisors, Inc., a registered investment adviser. \4\A prototype retirement plan is a qualified pension or profit- sharing plan that can be separately adopted by an unlimited number of employers, the form of which plan has been reviewed and approved by the Internal Revenue Service. A prototype-like plan is a tax- deferred retirement savings vehicle, other than a qualified pension or profit-sharing plan for which the Internal Revenue Service does not maintain the same type of review procedures as it does for qualified pension or profit-sharing plans. --------------------------------------------------------------------------- Applicants' Legal Analysis 1. Applicants request an exemption under section 6(c) from sections 2(a)(32), 2(a)(35), 22(c), and 22(d) of the Act and rule 22c-1 thereunder to permit the Funds to assess a CDSC on certain redemptions of the shares as described above and to permit the Funds to waive the CDSC with respect to certain types of redemptions. Applicants believe that the contingent nature of the proposed charge places the purchaser in a better position than if a sales load were imposed at the time of sale, since in the case of the CDSC the shareholder enjoys the possibility that he or she will have to pay only a reduced sales charge, or no sales charge at all. Applicants further believe that the imposition of the CDSC permits the Funds' shareholders to have the advantage of greater investment dollars working for them from the time of their purchase of shares of the Funds than if a sales load were imposed at the time of purchase. 2. Applicants also request an amendment to the Existing Order, which granted an exemption under section 6(c) from sections 18(f)(1), 18(g), 18(i), to permit applicants to issue multiple classes of shares representing interests in the same portfolio of securities. The amendment to the Existing Order would permit applicants to add a conversion feature as a difference between classes of shares. Applicants believe that the conversion feature is equitable and will not discriminate against any group of shareholders. Applicants' Conditions Applicants agree that the order of the Commission granting the requested relief will be subject to the following conditions:\5\ --------------------------------------------------------------------------- \5\All capitalized terms have the same meaning as in the Existing Order. --------------------------------------------------------------------------- 1. Each class of shares of a Fund will represent interests in the same portfolio of investments, and be identical in all respects, except as set forth below. The only differences between the classes of shares of a Fund will relate solely to one or more of the following: (a) The impact of certain Class Expenses, which are limited to any or all of the following (i) transfer agent fee identified by applicants as being attributable to a specific class of shares; (ii) printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses, and proxy statements to current shareholders of a specific class; (iii) blue sky registration fees incurred by a class of shares; (iv) Commission registration fees incurred by a class of shares; (v) the expense of administrative personnel and services as required to support the shareholders of a specific class; (vi) trustees' fees or expenses incurred as a result of issues relating to one class of shares; and (vii) accounting expenses relating solely to one class of shares; (b) expenses assessed to a class pursuant to a Shareholder Services Plan and/or Rule 12b-1 Plan with respect to such class; (c) the fact that classes will vote separately with respect to the Fund's Shareholder Services Plan and/or Rule 12b-1 Plan, except as provided in conditions 16 and 17; (d) the different exchange privileges of the classes of shares; (e) the designation of each class of shares of a Fund; and (f) the fact that certain classes will have a conversion feature. Any additional incremental expenses not specifically identified above which are subsequently identified and determined to be properly allocated to one class of shares shall not be so allocated until approved by the Commission pursuant to an amended order. 2. The trustees of the Funds, including a majority of the independent trustees, will approve the offering of different classes of shares (the ``Multi-Class System'') prior to the implementation of that system by a particular Fund. The minutes of the meetings of the trustees of the Funds regarding the deliberations of the trustees with respect to the approvals necessary to implement the Multi-Class System will reflect in detail the reasons for the trustees' determination that the proposed Multi-Class System is in the best interests of both the Funds and their shareholders. 3. The initial determination of the Class Expenses that will be allocated to a particular class and any subsequent changes thereto will be reviewed and approved by a vote of the board of trustees of the Trusts including a majority of the trustees who are not interested persons of the Trusts. Any person authorized to direct the allocation and disposition of monies paid or payable by the Funds to meet Class Expenses shall provide to the board of trustees, and the trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. 4. On an ongoing basis, the trustees of the Trusts, pursuant to their fiduciary responsibilities under the Act and otherwise, will monitor the Funds for the existence of any material conflicts among the interests of the classes of shares. The trustees, including a majority of the independent trustees, shall take such action as is reasonably necessary to eliminate any such conflicts that may develop. Each Fund's distributor and adviser will be responsible for reporting any potential or existing conflicts to the trustees. If a material conflict arises that the trustees determine cannot be eliminated, the Fund's distributor and adviser, at their own cost, will remedy such conflict up to and including establishing a new registered management investment company. 5. The distributor of each Fund will adopt compliance standards as to when each class of shares may be sold to particular investors. Applicants will require all persons selling shares of the Funds to agree to conform to such standards. 6. The Shareholder Services Plan will be adopted and operated in accordance with the procedures set forth in rule 12b-1 (b) through (f) as if the expenditures made thereunder were subject to rule 12b-1, except that shareholders need to enjoy the voting rights specified in rule 12b-1. 7. The trustees will receive quarterly and annual statements concerning the amounts expended under the Shareholder Services Plans and Rule 12b-1 Plans and the related Service Agreements complying with paragraph (b)(3)(ii) of rule 12b-1, as it may be amended from time to time. In the statements, only expenditures properly attributable to the sale or servicing of a particular class of shares will be used to justify any distribution or servicing fee charged to that class. Expenditures not related to the sale or servicing of a particular class will not be presented to the trustees to justify any fee attributable to that class. The statements, including the allocations upon which they are based, will be subject to the review and approval of the independent trustees in the exercise of their fiduciary duties. 8. Dividends paid by a Fund with respect to each class of its shares, to the extent any dividends are paid, will be calculated in the same manner, at the same time, on the same day, and will be in the same amount, except that Service Payments made by a class under a Plan and any Class Expenses will be borne exclusively by that class. 9. The methodology and procedures for calculating the net asset value and dividends and distributions of the classes and the proper allocation of expenses among the classes has been reviewed by an expert (the ``Expert'') who has rendered a report to applicants, which has been provided to the staff of the Commission, that such methodology and procedures are adequate to ensure that such calculations and allocations will be made in an appropriate manner. On an ongoing basis, the Expert, or an appropriate substitute Expert, will monitor the manner in which the calculations and allocations are being made and, based upon such review, will render at least annually a report to the Funds that the calculations and allocations are being made properly. The reports of the Expert will be filed as part of the periodic reports filed with the Commission pursuant to sections 30(a) and 30(b)(1) of the Act. The work papers of the Expert with respect to such reports, following request by the Funds (which the Funds agree to provide), will be available for inspection by the Commission staff upon written request to the Funds for such work papers by a senior member of the Division of Investment Management, limited to the Director, an Associate Director, the Chief Accountant, the Chief Financial Analyst, and Assistant Director, and any Regional Administrators or Associate and Assistant Administrators. The initial report of the Expert is a ``Special Purpose'' report on the ``Design of a System'' as defined and described in SAS No. 44 of the AICPA. The ongoing reports will be ``reports on policies and procedures placed in operation and tests of operating effectiveness'' as defined and described in SAS No. 70 of the AICPA, as it may be amended from time to time, or in similar auditing standards as may be adopted by the AICPA from time to time. 10. Applications have adequate facilities in place to ensure implementation of the methodology and procedures for calculating the net asset value and dividends and distributions of the classes of shares and the proper allocation of expenses among the classes of shares and this representation has been concurred with by the Expert in the initial report referred to in condition 9 above and will be concurred with by the Expert, or an appropriate substitute Expert, on an ongoing basis at least annually in the ongoing reports referred to in condition 9 above. Applicants will take immediate corrective measures if this representation is not concurred in by the Expert or appropriate substitute Expert. 11. The prospectus of each class of shares will contain a statement to the effect that a salesperson and any other person entitled to receive compensation for selling or servicing Fund shares may receive different compensation with respect to one particular class of shares over another in the Funds. 12. The conditions pursuant to which the exemptive order is granted and the duties and responsibilities of the trustees of the Trusts with respect to the Multi-Class System will be set forth in guidelines which will be furnished to the trustees. 13. The Funds will disclose the respective expenses, performance data, distribution arrangements, services, fees, sales loads, deferred sales loads, and exchange privileges applicable to each class of shares in every prospectus, regardless of whether all classes of shares are offered through each prospectus. The Funds will disclose the respective expenses and performance data applicable to all classes of shares in every shareholder report. The shareholder reports will contain, in the statement of assets and liabilities and statement of operations, information related to the Fund as a whole generally and not on a per class basis. Each Fund's per share data, however, will be prepared on a per class basis with respect to all classes of shares of such Fund. To the extent that any advertisement or sales literature describes the expenses or performance data applicable to any class of shares, it will also disclose the respective expenses and/or performance data applicable to all classes of shares. The information provided by applicants for publication in any newspaper or similar listing of the Funds' net asset value or public offering price will present each class of shares separately. 14. Applicants acknowledge that the grant of the exemptive order requested by the application will not imply Commission approval, authorization of or acquiescence in any particular level of payments that any Fund may make pursuant to its Rule 12b-1 Plan or Shareholder Services Plan in reliance on the exemptive order. 15. Applicants will comply with the provisions of proposed rule 6c- 10 under the Act, Investment Company Act Release No. 16619 (Nov. 2, 1988), as such rule is currently proposed and as it may be reproposed, adopted or amended. 16. Any class of shares with a conversion feature (``Purchase Class'') will convert into another class (``Target Class'') of shares on the basis of the relative net asset values of the two classes, without the imposition of any sales load, fee, or other charge. After conversion, the converted shares will be subject to an asset-based sales charge and/or service fee (as those terms are defined in article III, section 26 of the NASD's Rules of Fair Practice), if any, that in the aggregate are lower than the asset-based sales charge and service fee to which they were subject prior to the conversion. 17. If a Fund implements any amendment to its Rule 12b-1 Plan (or, if presented to shareholders, adopts or implements any amendment of a non-rule 12b-1 shareholder services plan) that would increase materially the amount that may be borne by the Target Class shares under the plan, existing Purchase Class shares will stop converting into Target Class unless the Purchase Class shareholders, voting separately as a class, approve the proposal. The trustees shall take such action as is necessary to ensure that existing Purchase Class shares are exchanged or converted into a new class of shares (``New Target Class''), identical in all material respects to Target Class as it existed prior to implementation of the proposal, no later than the date such shares previously were scheduled to convert into Target Class. If deemed advisable by the trustees to implement the foregoing, such action may include the exchange of all existing Purchase Class shares for a new class (``New Purchase Class''), identical to existing Purchase Class shares in all material respects except that New Purchase Class will convert into New Target Class. New Target Class or New Purchase Class may be formed without further exemptive relief. Exchanges or conversions described in this condition shall be effected in a manner that the trustees reasonably believe will not be subject to federal taxation. In accordance with condition 4 above, any additional cost associated with the creation, exchange, or conversion of New Target Class or New Purchase Class shall be borne solely by FMR, and FDC or NFSC. Purchase Class shares sold after the implementation of the proposal may convert into Target Class shares subject to the higher maximum payment, provided that the material features of the Target Class plan and the relationship of such plan to the Purchase Class shares are disclosed in an effective registration statement. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. 94-1718 Filed 1-26-94; 8:45 am] BILLING CODE 8010-01-M