[Federal Register Volume 61, Number 137 (Tuesday, July 16, 1996)]
[Notices]
[Pages 37097-37102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18050]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 22062; 813-142]


FMR Corp. and Fidelity Waterway Limited Partnership; Notice of 
Application

July 10, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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Applications: FMR Corp. (``FMR'') and Fidelity Waterway Limited 
Partnership (the ``Initial Partnership'').

Relevant Act Sections: Order under sections 6(b) and 6(e) of the Act 
for an exemption from all provisions of the Act except section 9, 
certain provisions of sections 17 and 30, sections 36 through 53, and 
the rules and regulations thereunder.

Summary of Application: Applicants request an order to permit the 
Initial Partnership, and future partnerships or investment vehicles 
that may be offered to the same class of investors (the ``Subsequent 
Partnerships'') (together with the Initial Partnership, the 
``Partnerships''), to engage in certain affiliated and joint 
transactions. Each Partnership will be an employees' securities company 
within the meaning of section 2(a)(13) of the Act.

FILING DATES: The application was filed on May 12, 1995 and amended on 
December 21, 1995 and June 19, 1996.

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 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on August 5, 1996, 
and should be accompanied by proof of service on the applicant, 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 to the SEC's Secretary.

addresses: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants: 82 Devonshire Street, F5H, Boston, Massachusetts 
02109.

FOR FURTHER INFORMATION CONTACT:
Marianne H. Khawly, Staff Attorney, at (202) 942-0562, or Robert A. 
Robertson, Branch Chief, at (202) 942-0564 (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 from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. FMR and its subsidiaries provide investment advisory, 
management, and shareholder services for the ``FMR Funds,'' \1\ for 
individual and institutional investors, as well as for pension trusts. 
FMR and its subsidiaries also offer discount brokerage services to

[[Page 37098]]

retail and institutional clients, manage and develop real estate 
properties, operate a credit card business, offer variable annuity and 
life insurance products, and operate and invest in emerging businesses.
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    \1\ ``FMR Funds'' means an investment fund or account organized 
for the benefit of investors who are not affiliated with the FMR 
Group (as defined below) and over which an entity within the FMR 
Group exercises investment discretion. An entity which is either 
within the FMR Group or an FMR Fund is referred to as an ``FMR 
Affiliate.''
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    2. The Partnerships will be organized by FMR and its affiliates (as 
defined in rule 12b-2 promulgated under the Securities Exchange Act of 
1934 (the ``Exchange Act''), excluding the FMR Funds (FMR, together 
with such included affiliates, the ``FMR Group''). The Partnerships are 
intended to benefit certain current employees, officers, directors, and 
persons on retainer of the FMR Group (the ``Eligible Employees'') who, 
except as described below, are also ``accredited investors'' meeting 
the income requirements set forth in rule 501(a)(6) of regulation D 
under the Securities Act of 1933 (the ``Securities Act''),\2\ and to be 
a means of rewarding and retaining those individuals. An entity with 
the FMR Group will, as a general partner or other manager of each 
Partnership (a ``General Partner''), participate in each Partnership. 
The Partnerships will enable such personnel to participate in a wide 
variety of investment opportunities that would not be offered to them 
as individual investors.
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    \2\ An Eligible Employee may be determined to be an ``accredited 
investor'' under rule 501(a)(6) of regulation D under the Securities 
Act by reference to income from sources other than from the FMR 
Group.
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    3. The Partnerships will operate as non-diversified, closed-end 
management investment companies. The Partnerships generally will seek 
to achieve a high rate of return through long-term capital appreciation 
by providing expansion capital to a variety of emerging growth 
companies and by making investments in real estate assets through a 
venture capital portfolio (the ``FMR Investments'').
    4. Participation in the Partnerships will be limited to Eligible 
Employees, individuals, and entities that fall within the following 
categories: (a) Trusts of which the trustees, grantors and/or 
beneficiaries are Eligible Employees; (b) partnerships, corporations, 
or other entities all of the voting power of which is controlled by 
Eligible Employees; and (c) spouses, parents, children, spouses of 
children, brothers, sisters, and grandchildren (``Eligible Family 
Members'') of Eligible Employees, and trusts established for the 
benefit of Eligible Family Members ((a), (b), and (c), collectively, 
``Qualified Participants''). Eligible Employees and their Qualified 
Participants are referred to as ``Eligible Participants.''
    5. The purpose of the Initial Partnership is to enable Eligible 
Employees and persons or entities related to Eligible Employees to 
receive the benefit of certain FMR Investments. In order to achieve 
this result, the Eligible Participants have acquired their limited 
partnership interests in the Initial Partnership without payment 
therefor by way of a dividend on their stock interests in FMR. 
Similarly, in the case of any Subsequent Partnership in which the 
investors will acquire their limited partnership interests without 
payment therefor by way of a dividend or compensation award from an 
entity within the FMR Group, the interests will be granted only to 
those persons and entities that are Eligible Participants. The amount 
and timing of distribution of limited partnership interests in a 
Partnership to Eligible Participants will be determined solely by FMR. 
Because the recipients of a distribution of limited partnership 
interests will not have discretion over whether or not they receive 
such distribution of interests, it is possible that certain Eligible 
Employees who receive such interests may not meet the income 
requirements set forth in rule 501(a)(6) under regulation D under the 
Securities Act and, similarly, certain Qualified Participants may not 
qualify as ``accredited investors'' under regulation D.\3\ FMR Group 
will endeavor to ensure that no more than 35 Eligible Participants who 
are not ``accredited investors'' will receive partnership interests in 
the Initial Partnership which is distributed by way of a dividend on 
FMR stock.\4\
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    \3\ Each such employee who is not an ``accredited investor'' 
will have received minimum total compensation, (including any profit 
shares, whether paid as dividend or other investment income, and 
bonus) of at least $150,000 in the year prior to the year in which 
the interest in the Initial Partnership is distributed to such 
employee and will have a reasonable expectation of at least the same 
level of minimum total compensation in each of the two immediately 
succeeding years. All such employees will have received 
undergraduate degrees, will have been employed with the FMR Group 
for at least two years, and will occupy middle to senior level 
positions. In addition, each such employee will have such knowledge 
and experience in financial and business matters that he or she is 
capable of evaluating the merits and risks of the prospective 
investment or FMR will have a reasonable belief immediately prior to 
such employee becoming a limited partner of a Partnership that such 
employee falls within the foregoing description.
    \4\ In the event the number of non-accredited investors would 
exceed 35 if all stockholders received the partnership interests as 
a dividend, an appropriate number of non-accredited investors will 
receive cash instead of partnership interests.
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    6. To date, FMR has acquired limited partnership interests in the 
Initial Partnership in exchange for capital contributions of real 
estate interests and securities representing all or a portion of FMR's 
interest in certain FMR Investments. FMR has transferred, by way of a 
dividend on its capital stock, substantially all of its limited 
partnership interests in the Initial Partnership to Eligible 
Participants. Those Eligible Participants who acquire limited 
partnership interests in a Partnership are referred to as ``Limited 
Partners.'' FMR stockholders who were not Eligible Participants (i.e., 
charitable organizations) and certain individual stockholders who do 
not participate for tax reasons (collectively with the charitable 
organizations, ``Excluded Stockholders'') received cash in lieu of 
limited partnership interests in the Initial Partnership. If interests 
in Subsequent Partnerships are acquired by means of a dividend, 
Excluded Stockholders will receive cash and all other shareholders will 
receive partnership interests.\5\
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    \5\ Until receipt of the requested exemptive order, FMR Corp. 
may effect transactions similar to that described above with respect 
to FMR Corp.'s interest in certain FMR Investments, provided that at 
all times the Initial Partnership will continue to qualify for the 
exclusion provided in section 3(c)(50(C) of the Act.
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    7. Currently, the Initial Partnership is not structured to enable 
Participants to invest their own funds but may be amended to permit 
such transactions. Subsequent Partnerships will be identical to the 
Initial Partnership except that they may provide for participants to 
invest their own funds.
    8. The management and control of each Partnership, including all 
investment decisions, will be vested exclusively in the General 
Partner. The General Partner will be under the common control of FMR. 
Thus, the business and affairs of each Partnership will be managed by 
or under the direction of the board of directors or other committee 
serving similar functions (the ``Board'') of an entity that is under 
common control with FMR. Each Board will be comprised exclusively of 
directors and/or officers of the FMR Group, each of whom is expected to 
qualify as an Eligible Employee.
    9. In the case of a Partnership that makes investments with funds 
provided by the Limited Partners, the General Partner will be 
responsible primarily for identifying, investigating, and structuring 
the investments. The General Partner initially will not receive any 
fees or other compensation for serving as the General Partner of the 
Initial Partnership. However, Subsequent Partnerships may provide, and 
the Initial Partnership may be amended to provide, for the General

[[Page 37099]]

Partner to receive a management or performance-based fee, or ``carried 
interest'' based on the gains and losses arising from a Partnership's 
investments.\6\ Any such fee would not exceed those customarily charged 
for such investment advisory services.
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    \6\ A ``carried interest'' is an allocation to the General 
Partner of net gains in addition to the amount allocable to the 
General Partner that is in proportion to its capital contributions. 
If a ``carried interest'' is payable to the General Partner, it will 
be structured to comply with the requirements of rule 205-3 under 
the Advisers Act.
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    10. Applicants anticipate that a Partnership may own an investment 
in an entity in which an FMR Affiliate is also invested and the 
Partnership's investment may be in the same or different securities as 
the entity's investment. A Partnership's investment may be acquired by 
the Partnership as a capital contribution from an entity within the FMR 
Group while the entity continues to hold an investment in the same or 
different securities of the portfolio company. In the case of a 
Partnership that makes investments with funds provided by the Limited 
Partners, an investment in a portfolio company may be purchased by a 
Partnership: (a) From an entity within the FMR Group while the entity 
continues to hold an investment in the same or different securities of 
the portfolio company; (b) concurrently with an investment made in the 
same or different securities by an entity within the FMR Group; or (c) 
at a different point in time from an investment held by an entity 
within the FMR Group in the same or different securities of the 
portfolio company. All such purchases will meet the requirements of 
condition 1 below.
    11. If a Partnership makes its investment concurrently with an 
investment in the same securities by an entity within the FMR Group, 
the economic terms applicable to the Partnership's investment generally 
will be substantially the same as those applicable to the corresponding 
investment by the FMR Group entity. It is possible, however, that the 
FMR Group entity's investment may have more favorable non-economic 
terms (e.g., the right to representation on the board of directors of 
the portfolio company) in light of differences in legal structure or 
regulatory, tax, or other considerations.
    12. In addition, a Partnership may co-invest in a portfolio company 
alongside an FMR Fund.\7\ Although the terms applicable to the 
investment by the FMR Fund may differ from the terms of the relevant 
investment held by the Partnership, and the limitations and conditions 
contained in the application that are applicable to entities within the 
FMR Group will not apply to the FMR Fund, the entities within the FMR 
Group will continue to be subject to all of the limitations and 
conditions contained in the application with respect to the making and 
disposition of investments by the Partnership.
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    \7\ With respect to any FMR Fund that is an investment company 
registered under the Act, applicant acknowledges and agrees that, 
for purposes of the application, no exemption from any provision of 
the Act that may apply to any Partnership's dealings with such 
investment company is being sought, and each Partnership will 
continue to be subject to, and to comply with, all of the provisions 
of the Act that may apply to any such dealings with any such 
investment company.
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    13. The Partnership will, except as permitted under condition 3 
below, be required to be given the opportunity to sell or otherwise 
dispose of its investments prior to or concurrently with, and on the 
same terms as, sales or other dispositions of the side-by-side 
investment of an entity within the FMR Group in the same investment 
securities.\8\
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    \8\ ``Non-lockstep'' dispositions generally would be confined to 
instances where tax or other regulatory concerns made different 
disposition strategies advisable. For example, FMR may donate 
appreciated securities to charity to minimize capital gains 
taxation. Holders of partnership interests, on the other hand, would 
pay tax on dispositions by the Partnership. Thus, holders of 
Partnership interests might prefer to sell the securities in a later 
negotiated sale or that the securities be distributed in order to 
choose the timing of recognition of capital gains.
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    14. The General Partner and the Limited Partners (collectively, the 
``Partners'') of the Initial Partnership will share in the profits and 
losses arising from the Initial Partnership's investment activities in 
proportion to the size of their respective interests in the Initial 
Partnership. When distributing cash and securities to the Partners, the 
General Partner will be required to distribute the cash and securities 
to all Partners in the same proportion, however, the General Partner 
will have the right to make non-ratable distributions.\9\
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    \9\ The General Partner's right to make such non-ratable 
distributions would be confined to the instances in which it is 
desirable for an individual partner to receive certain types of 
distributions due to regulatory, tax, or other legal considerations. 
No non-ratable distribution will be made to any Partner to the 
extent that such distribution, while beneficial to such Partner, is 
substantially likely to have a material adverse effect on another 
Partner.
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    15. The Initial Partnership may, in the future, either through the 
Initial Partnership or a subsidiary partnership established by the 
Initial Partnership (a ``Subpartnership''), acquire additional FMR 
Investments through: (a) The proceeds of a loan from an entity within 
the FMR Group made to the Initial Partnership or such Subpartnership; 
(b) cash generated by Partnership investments or; (c) capital 
contributions provided by an entity within the FMR Group. A 
Subpartnership might be utilized to allow an FMR Group entity and the 
Initial Partnership to invest together. In the event that the Initial 
Partnership incurs indebtedness from an entity within the FMR Group to 
finance such investments, such indebtedness will bear interest on terms 
no less favorable to the Partnership than would be obtained on an 
arm's-length basis from an unaffiliated third party.
    16. The Partnerships also may, in the future, make loans to FMR. 
The loans will be on terms no more favorable than would be obtainable 
by FMR from an unaffiliated third party on an arm's length basis. Such 
unsecured loans will be fully disclosed to an Eligible Employee prior 
to the acquisition of limited partnership interests.
    17. In addition, the Initial Partnership or a Subpartnership may, 
in the future, enter into a joint venture or other arrangement with an 
FMR Group entity (a ``Joint Venture''). Such Joint Ventures will be 
fully disclosed to an Eligible Employee prior to the acquisition of 
limited partnership interests. Such Joint Ventures will acquire 
additional FMR Investments or capital contributions provided by such 
FMR entity and/or the Initial Partnership or Subpartnership. Any entity 
with the FMR Group that participates with the Initial Partnership in a 
Joint Venture will be subject to the requirements applicable to a ``Co-
Investor'' under condition 3.
    18. During the existence of the Initial Partnership, full and 
faithful books and accounts will be kept, in which the General Partner 
will enter, or cause to be entered, all business transacted by the 
Initial Partnership and all monies received, advanced, paid out, or 
delivered on behalf of the Initial Partnership, the results of the 
Initial Partnership's operations, and each Partner's capital. Such 
books will at all times be accessible to all Partners. In addition, the 
General Partner will supply to the Limited Partners all information it 
deems necessary to enable the Limited Partners to prepare their Federal 
income tax returns.
    19. The General Partner will cause a firm of independent certified 
public accountants to make a determination of the net asset value of 
the Initial Partnership as of the end of each fiscal year of the 
Initial Partnership and at any time such value will affect or determine 
the price at which a specified percentage of interests in the Initial 
Partnership will be redeemed, sold, or otherwise transferred by any 
Partner,

[[Page 37100]]

unless such requirement is waived by the parties to the applicable 
transaction.
    20. Subsequent Partnerships may be structured in a manner 
substantially identical to that of the Initial Partnership described 
above. However, it is possible that a Subsequent Partnership may have 
different terms for the purpose of enabling Eligible Participants to 
invest their own funds through the Partnership in investments that come 
to the attention of the FMR Group from time to time.

Applicants' Legal Analysis

    1. Applicants request an exemption under sections 6(b) and 6(e) of 
the Act from all provisions of the Act, except section 9, sections 17 
and 30 (except as described below), sections 36 through 53, and the 
rules and regulations thereunder that would permit the Partnerships to 
engage in certain affiliated and joint transactions. Each Partnership 
will be an employees' securities company within the meaning of section 
2(a)(13) of the Act.
    2. Section 2(a)(13) defines an employees' security company, among 
other things, as any investment company all of the outstanding 
securities of which are beneficially owned by the employees or persons 
on retainer of a single employer; or by members of the immediate family 
of such employees, persons on retainer, or former employees. Section 
6(b) provides that the SEC shall exempt employees' securities companies 
from the provisions of the Act to the extent that such exemption is 
consistent with the protection of investors. Section 6(e) provides that 
in connection with any order exempting an investment company from 
section 7, certain specified provisions of the Act shall be applicable 
to such company, and to other persons in their transactions and 
relations with such company, as though such company were registered 
under the Act, if the SEC deems it necessary or appropriate in the 
public interest or for the protection of investors.
    3. Section 17(a) provides, in relevant part, that it is unlawful 
for any affiliated person of a registered investment company, acting as 
principal, to sell any security or other property to such registered 
investment company or to purchase from such registered investment 
company any security or other such property. Section 17(b) provides 
that the SEC shall exempt a proposed transaction from section 17(a) 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 policies of the registered 
investment company involved; and (c) the proposed transaction is 
consistent with the general provisions of the Act.
    4. Applicants request an exemption from section 17(a) of the Act to 
the extent necessary to: (a) Permit an entity within the FMR Group, 
acting as principal, to engage in any transaction directly or 
indirectly with any Partnership or any company controlled by such 
Partnership; and (b) permit any Partnership to invest in or engage in 
any transaction with any entity, acting as principal, (i) in which such 
Partnership, any company controlled by such Partnership or any FMR 
Affiliate has invested in or will invest, or (ii) with which such 
partnership, any company controlled by such Partnership or any FMR 
Affiliate is or will become otherwise affiliated. The transactions to 
which any Partnership is a party will be effected only after a 
determination by the Board that the requirements of condition 1 below 
have been satisfied.
    5. The principal reason for the requested exemption is to ensure 
that each Partnership will be able to hold investments in companies: 
(a) In which an FMR Affiliate or its individual employees, officers, or 
directors may make or have already made an investment, or (b) with 
which an FMR Affiliate or its individual employees, officers, or 
directors may engage in transactions.
    6. The Partners of each Partnership will have been fully informed 
of the possible extent of such Partnership's dealings with an FMR 
Affiliate and, as professionals employed in the securities business, 
will be able to understand and evaluate the attendant risks. Applicants 
believe that the community of interest among the Partners of each 
Partnership, on the one hand, and the FMR Group, on the other hand, is 
the best safeguard against any risk of abuse.
    7. Section 17(d) makes it unlawful for any affiliated person of a 
registered investment company, acting as principal, to effect any 
transaction in which such company, or a company controlled by such 
company, is a joint or joint and several participant in contravention 
of SEC rules. Rule 17d-1 provides that the SEC may approve a 
transaction subject to section 17(d) after considering whether the 
participation of such registered company is consistent with the 
provisions, policies, and purposes of the Act and the extent to which 
such participation is on a basis different from or less advantageous 
than that of other participants.
    8. Applicants request an order in accordance with section 17(d) and 
rule 17d-1 to the extent necessary to permit affiliated persons of each 
Partnership (including without limitation on the General Partner and 
the investment adviser of such Partnership and other FMR Affiliates), 
or affiliated persons of any of these persons, to participate in, or 
effect any transaction in connection with, any joint enterprise or 
other joint arrangement or profit-sharing plan in which such 
Partnership or a company controlled by such Partnership is a 
participant.
    9. Applicants assert that the flexibility to structure co-
investments and joint investments will not involve abuses of the type 
section 17(d) and rule 17d-1 were designed to prevent. The concern that 
permitting co-investments or joint investments by an FMR Affiliate on 
the one hand, and a Partnership on the other, might lead to less 
advantageous treatment of such Partnership should be mitigated by the 
fact that: (a) The FMR Group will be acutely concerned with its 
relationship with the personnel who invest in such Partnership; and (b) 
senior officers and directors of the FMR Group will be investing in 
such Partnership.
    10. Section 17(f) provides that the securities and similar 
investments of a registered management investment company must be 
placed in the custody of a bank, a member of a national securities 
exchange, or the company itself in accordance with SEC rules. 
Applicants request an exemption from section 17(f) and rule 17f-1 to 
the extent necessary to permit an entity within the FMR Group to act as 
custodian without a written contract. Applicants believe that because 
there is such a close association between each Partnership and the FMR 
Group, requiring a detailed written contract would expose such 
Partnership to unnecessary burden and expense. An exemption also is 
requested from the terms of rule 17f-1(b)(4), as applicants do not 
believe the expense of retaining an independent accountant to conduct 
periodic verifications is warranted given the community of interest of 
all the parties involved and the existing requirement for an 
independent annual audit.
    11. Section 17(g) and rule 17g-1 generally require the bonding of 
officers and employees of a registered investment company who have 
access to securities or funds of the company. Applicants request an 
exemption from section 17(g) and rule 17g-1 to the extent necessary to 
permit each Partnership to comply with rule 17g-1 without the necessity 
of having a majority of the members of the related Board who are not 
``interested persons'' take such actions and make such approvals as are 
set forth in rule 17g-

[[Page 37101]]

1. Applicants state that since all the members of the related Board 
will be affiliated persons, without the requested relief, a Partnership 
could not comply with rule 17g-1.
    12. Section 17(j) and rule 17j-1 make it unlawful for certain 
persons to engage in fraudulent, deceitful, or manipulative practices 
in connection with the purchase or sale of a security held or to be 
acquired by an investment company. Rule 17j-1 also requires every 
registered investment company, its adviser, and its principal 
underwriter to adopt a written code of ethics with provisions 
reasonably designed to prevent fraudulent activities, and to institute 
procedures to prevent violations of the code. Applicants request an 
exemption from section 17(j) and rule 17j-1 (except rule 17j-1(a)). 
Applicants believe that requiring such Partnership to adopt a written 
code of ethics and requiring access persons to report each of their 
securities transactions would be time consuming and expensive, and 
would serve little purpose in light of, among other things, the 
community of interest among the Partners of such Partnership by virtue 
of their common association in the FMR Group, and the substantial and 
largely overlapping protection afforded by the conditions with which 
such Partnerships have agreed to comply.
    13. Sections 30(a), 30(b), and 30(d), and the rules under those 
sections, generally require that registered investment companies 
prepare and file with the SEC and mail to their shareholders certain 
periodic reports and financial statements. Applicants believe that the 
forms prescribed by the SEC for periodic reports have little relevance 
to a Partnership and would entail administrative and legal costs that 
outweigh any benefit to the Limited Partners of such Partnership. An 
exemption is requested to the extent necessary to permit a Partnership 
to report annually to its Partners in the manner described above.
    14. Section 30(f) requires that every officer, director, and member 
of an advisory board of a closed-end investment company be subject to 
the same duties and liabilities as those imposed upon similar classes 
of persons under section 16(a) of the Exchange Act. An exemption also 
is requested from section 30(f) to the extent necessary to exempt the 
General Partner of each Partnership and any other persons who may be 
deemed members of an advisory board of such Partnership, such as 
members of the related Board, from filing Forms 3, 4, and 5 under 
section 16 of the Exchange Act with respect to their ownership of 
interests in such Partnership. Applicants argue that the purpose 
intended to be served by section 30(f) is not apparent because there 
would be no trading market and the transfers of interests are severely 
restricted.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Each proposed transaction otherwise prohibited by section 17(a) 
or section 17(d) and rule 17d-1 to which a Partnership is a party (the 
``Section 17 Transactions'') will be effected only if the Board, 
through the General Partner of such Partnership, determines that: (a) 
The terms of the transaction, including the consideration to be paid or 
received, are fair and reasonable to the Partners of such Partnership 
and do not involve overreaching of such Partnership or its Partners on 
the part of any person concerned; and (b) the transaction is consistent 
with the interests of the Partners of such Partnership, such 
Partnership's organizational documents and such Partnership's reports 
to its Partners. In addition, the General Partners of each Partnership 
will record and preserve a description of such affiliated transactions, 
the Board's findings, the information or materials upon which the 
Board's findings are based. All such records will be maintained for the 
life of such Partnership and at least two years thereafter and will be 
subject to examination by the SEC and its staff.\10\
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    \10\ Each Partnership will preserve the accounts, books and 
other documents required to be maintained in an easily accessible 
place for the first two years.
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    2. In connection with Section 17 Transactions, the Board, through 
the General Partner of each Partnership, will adopt, and periodically 
review and update, procedures designed to ensure that reasonable 
inquiry is made, prior to the consummation of any such transaction, 
with respect to the possible involvement in the transaction of any 
affiliated person or promoter of or principal underwriter for such 
Partnership, or any affiliated person of such a person, promoter, or 
principal underwriter.
    3. The General Partner of each Partnership will not invest funds in 
any investment in which a ``Co-Investor'', as defined below, has 
acquired or proposes to acquire the same class of securities of the 
same issuer, where the investment involves a joint enterprise or other 
joint arrangement within the meaning of rule 17d-1 in which such 
Partnership and the Co-Investor are participants, unless any such Co-
Investor, prior to disposing of all or part of its investment, (a) 
gives such General Partner sufficient, but not less than one day's 
notice of its intent to dispose of its investment; and (b) refrains 
from disposing of its investment unless such Partnership has the 
opportunity to dispose of such Partnership's investment prior to or 
concurrently with, and on the same terms as, and pro rata with the Co-
Investor. The term ``Co-Investor,'' with respect to any Partnership, is 
defined as any person who is: (a) An ``affiliated person'' (as such 
term is defined in the Act) of such Partnership (other than an FMR 
Fund); (b) an entity within the FMR Group; (c) an officer or director 
of an entity within the FMR Group; or (d) a company in which the 
General Partner of such Partnership acts as a general partner or has a 
similar capacity to control the sale or other disposition of the 
company's securities. The restrictions contained in this condition, 
however, shall not be deemed to limit or prevent the disposition of an 
investment by a Co-Investor: (a) To its direct or indirect wholly-owned 
subsidiary, to any company (a ``Parent'') of which such Co-Investor is 
a direct or indirect wholly-owned subsidiary of its Parent; (b) to 
immediate family members of the Co-Investor or a trust or other 
investment vehicle established for any such family member; (c) when the 
investment is comprised of securities that are listed on any exchange 
registered as a national securities exchange under section 6 of the 
Exchange Act; (d) when the investment is comprised of securities that 
are national market system securities pursuant to section 11A(a)(2) of 
the Exchange Act and rule 11Aa2-1 thereunder; or (e) when the 
investment is comprised of securities that are listed on or traded on 
any foreign securities exchange or board of trade that satisfies 
regulatory requirements under the law of the jurisdiction in which such 
foreign securities exchange or board of trade is organized similar to 
those that apply to a United States national securities exchange or a 
United States national market system for securities.
    4. Each Partnership and the General Partner of such Partnership 
will maintain and preserve, for the life of such Partnership and at 
least two years thereafter, such accounts, books, and other documents 
as constitute the record forming the basis for the audited financial 
statements that are to be provided to the Partners of such Partnership, 
and each annual report of such Partnership required to be sent to such 
Partners, and agree that all such

[[Page 37102]]

records will be subject to examination by the SEC and its staff.\11\
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    \11\ Each Partnership will preserve the accounts, books, and 
other documents required to be maintained in an easily accessible 
place for the first two years.
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    5. The General Partner of each Partnership will send to each 
Partner of such Partnership who had an interest in any capital account 
of such Partnership, at any time during the fiscal year then ended, 
Partnership financial statements audited by such partnership's 
independent accountants. At the end of each fiscal year, the General 
Partner of such Partnership will make a valuation or have a valuation 
made of all of the assets of such partnership as of such fiscal year 
end in a manner consistent with customary practice with respect to the 
valuation of assets of the kind held by the Partnership. In addition, 
within 90 days after the end of each fiscal year of each Partnership or 
as soon as practicable thereafter, the General Partner of such 
Partnership will send a report to each person who was a partner at any 
time during the fiscal year then ended, setting forth such tax 
information as shall be necessary for the preparation by the partner of 
his or its federal and state income tax returns and a report of the 
investment activities of such Partnership during such year.
    6. In any case where purchases or sales are made by a Partnership 
from or to an entity affiliated with such Partnership by reason of a 5% 
or more investment in such entity by an FMR Group director, officer, or 
employee, such individual will not participate in such Partnership's 
determination of whether or not to effect such purchase or sale.


    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18050 Filed 7-15-96; 8:45 am]
BILLING CODE 8010-01-M