[Federal Register Volume 64, Number 77 (Thursday, April 22, 1999)]
[Notices]
[Pages 19834-19838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10021]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23787; 812-11032]


Colchester Street Trust, et al.; Notice of Application

April 15, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under the Investment Company 
Act of 1940 (the ``Act'') under (i) section 6(c) of the Act granting an 
exemption from sections 18(f) and 21(b) of the Act; (ii) section 
12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of 
the Act, (iii) sections 6(c) and 17(b) of the Act granting an exemption 
from sections 17(a)(1) and 17(a)(3) of the Act, and (iv) section 17(d) 
of the Act and rule 17d-1 under the Act to permit certain joint 
transactions.

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SUMMARY OF APPLICATION: Applicants request an order that would 
supersede an existing order permitting certain registered management 
investment companies to participate in a joint lending and borrowing 
facility.

APPLICANTS: Colchester Street Trust, Fidelity Aberdeen Street Trust, 
Fidelity Advisor Emerging Asia Fund Inc., Fidelity Advisor Korea Fund 
Inc., 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 
Advisor Series VIII, Fidelity Beacon Street Trust, Fidelity Boston 
Street Trust, Fidelity California Municipal Trust, Fidelity California 
Municipal Trust II, Fidelity Capital Trust, Fidelity Charles Street 
Trust, Fidelity Commonwealth Trust, Fidelity Concord Street Trust, 
Fidelity Congress Street Fund, Fidelity Contrafound, Fidelity Court 
Street Trust, Fidelity Court Street Trust II, Fidelity Covington Trust, 
Fidelity Destiny Portfolios, Fidelity Devonshire Trust, Fidelity 
Exchange Fund, Fidelity Financial Trust, Fidelity Fixed-Income Trust, 
Fidelity Hastings Street Trust, Fidelity Hereford Street Trust, 
Fidelity Income Fund, Fidelity Investment Trust, 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 Revere Street Trust, Fidelity School 
Street Trust, Fidelity Securities Fund, Fidelity Select

[[Page 19835]]

Portfolios, Fidelity Summer Street Trust, Fidelity Trend Fund, Fidelity 
Union Street Trust, Fidelity Union Street Trust II, Newbury Street 
Trust, Variable Insurance Products Fund, Variable Insurance Products 
Fund II, Variable Insurance Products Fund III (collectively, the 
``Funds''), and Fidelity Management & Research Company (together with 
any person controlling, controlled by, or under common control with 
Fidelity Management & Research Company, ``FMR''), and any other 
registered open-end management investment companies for which FMR 
serves as investment adviser.\1\

    \1\ All existing registered investment companies that currently 
intend to rely on the order have been named as applicants, and any 
other existing or future registered investment companies that 
subsequently rely on the order will comply with the terms and 
conditions in the application.

FILING DATES: The application was filed on February 27, 1998. 
Applicants have agreed to file an amendment during the notice period, 
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the substance of which is reflected in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief 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 May 10, 
1999, 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 
SEC's Secretary.

ADDRESSES: Secretary, SEC 450 Fifth Street, N.W., Washington DC 20549-
0609. Applicants, Fidelity Management & Research Company, 82 Devon 
shire Street E17B, Boston, MA 02109.

FOR FURTHER INFORMATION CONTACT: Lisa McCrea, Attorney Adviser (202) 
942-0562, or Nadya B. Roytblat, Assistant Director, at (202) 942-0564 
(Office of Investment Company Regulation, Division of Investment 
Management).

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, 450 5th Street, N.W., Washington, DC, 
20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Each of the Funds is registered under the Act as an open-end 
management investment company. FMR, an investment adviser registered 
under the Investment Advisers Act of 1940, serves as investment adviser 
to the Funds.
    2. Applicants have an existing SEC order that permits the Funds to 
participate in a joint lending and borrowing facility (the ``1990 
Order'').\2\ FMR administers the credit facility under its existing 
advisory agreements with the Funds, and does not receive any additional 
compensation for its administration of the credit facility. Applicants 
request an order that would supersede the 1990 Order.
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    \2\ In the Matter of Daily Money Fund, et al., Investment 
Company Act Release Nos. 17257 (Dec. 8, 1989) (notice) and 17303 
(Jan. 11, 1990) (order).
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    3. Applicants state that the credit facility was designed to permit 
the Funds to lend money to each other for temporary purposes, such as 
when redemptions exceed anticipated levels. The credit facility was 
designed to reduce substantially the Funds' borrowing costs and to 
enhance their ability to earn higher rates of interest on investment of 
their short-term cash balances. While bank borrowings continue to be a 
source of liquidity pending the sale and settlement of portfolio 
securities, the rates charged under the credit facility are normally 
below those offered by banks on short-term loans, and Funds making 
loans through the credit facility are able to earn interest at a rate 
higher than they could obtain from investing their cash in short-term 
repurchase agreements or jointly through FICASH.\3\
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    \3\ FICASH was established pursuant to SEC exemptive orders. In 
the Mater of Daily Money Fund, et al., Investment Company Act 
Release Nos. 11962 (Sept. 29, 1981) (notice) and 12061 (Nov. 27, 
1981) (order); In the Mater of Daily Money Fund, et al., Investment 
Company Act Release Nos. 19594 (July 26, 1993) (notice) and 19647 
(Aug. 23, 1993) (order). Pursuant to these orders, during each 
trading day, the Funds' cash balances may be deposited in FICASH. 
FICASH invests these cash balances in one or more large, short-term 
repurchase agreements. FMR administers FICASH as part of its duties 
under its existing advisory contract with each of the Funds, and 
does not charge any additional fee for this service.
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    4. When the Funds lend money to and borrow money from each other 
than the credit facility (``Interfund loans''), interest rates 
(``Interfund Loan Rates'') are based on the average of the overnight 
repurchase agreement rate for that day for the Funds' joint account 
(``FICASH Rate'') and a benchmark rate established periodically to 
approximate the lowest rate available from at least three banks on 
loans to the Funds.
    5. On each business day, the Cash Management Department of Fidelity 
Service Company, Inc., the transfer, pricing and bookkeeping agent for 
most of the Funds, (the ``Cash Management Department'') compares the 
Interfund Loan Rate with the FICASH Rate negotiated that day and 
available short-term borrowing rates quoted to any of the Funds by 
banks with which any Fund has a loan agreement. At least three such 
quotations will be obtained each day in which any Fund borrows through 
the credit facility prior to such borrowing. The Cash Management 
Department will make cash available for Interfund Loans only if the 
Interfund Loan Rate is more favorable to the lending Fund than the 
FICASH Rate and more favorable to the borrowing Fund than the lowest 
quoted back loan rate.
    6. The Cash Management Department on each business day collects 
data on uninvested cash balances and borrowing requirements of all 
participating Funds from the Funds' custodians. The Cash Management 
Department will not solicit cash for the facility from any Fund or 
prospectively publish or disseminate total loan demand data to 
portfolio managers. No portfolio manager is able to direct that a 
Fund's cash balances be loaned to any particular Fund or otherwise 
intervene in the Cash Mangement Department's allocation of loans. A 
portfolio manager for a money market Fund, however, may decline to 
enter into a loan if he or she believes the loan is inconsistent with 
portfolio strategy. The Cash Management Department allocates borrowing 
cash and cash available for lending among Funds on an equitable basis, 
subject to certain administrative procedures applicable to all Funds, 
such as the time of filing requests to participate, minimum loan lot 
sizes, and the need to mininize the number and associated 
administrative costs of transactions.
    7. All Funds whose investment policies and boards of trustees (the 
``Boards'') permit, may participate as potential borrowers and/or 
lenders in the credit facility. The money market Funds typically would 
not participate as borrowers because they rarely need to borrow cash to 
meet redemptions. A Fund would not participate as a lender unless it 
was also eligible to participate in FICASH.
    8. No Fund may participate in the credit facility unless: (i) the 
Fund has obtained shareholder approval for its participation or, if 
such approval is not required by law, the Fund's prospectus and/or 
statement of additional information have disclosed at all times the 
possibility of the Fund's participation in the credit facility upon 
receipt of requisite regulatory approval; (ii) the Fund has fully 
disclosed all material information concerning the credit facility in 
its prospectus and/or

[[Page 19836]]

statement of additional information; and (iii) the Fund's participation 
in the credit facility is consistent with its investment objectives, 
limitations, and/or Declaration of Trust.
    9. Applicants seek to amend the 1990 Order to reduce certain 
administrative burdens associated with the credit facility and give 
participating Funds greater flexibility consistent with the purposes of 
the credit facility and investor protection. Applicants state that the 
anticipated benefits of the 1990 Order have not been realized, 
primarily because the administrative burdens and related costs of 
complying with certain conditions of the 1990 Order often made the use 
of the credit facility inefficient. Applicants assert that modifying 
these conditions would benefit both those Funds that are borrowers and 
those Funds that are lenders.
    10. The 1990 Order prohibited a Fund from borrowing through the 
credit facility if the Fund's outstanding borrowings from all sources 
immediately after the interfund borrowing exceeded 15% of the Fund's 
total assets. Applicants seek to raise that limit to 33\1/3\%. 
Applicants state that this limit would provide greater flexibility in 
the use of the credit facility consistent with the Act. Applicants also 
state that the other conditions in the application governing Funds' 
borrowing through the credit facility (such as the conditions 
addressing unsecured borrowing) provide adequate safeguards against any 
misuse of the credit facility.
    11. Applicants also seek to modify the condition in the 1990 Order 
that permitted an equity, taxable bond or money market Fund to lend 
through the credit facility only if the Fund's aggregate outstanding 
loans through the credit facility do not exceed 5%, 7.5% and 10%, 
respectively, of the Fund's net assets at the time of the loan. 
Applicants seek to permit any type of Fund to make loans through the 
credit facility in an amount of up to 15% of the Fund's current net 
assets at the time of the loan. Applicants state that the percentage 
limitations in the 1990 Order created artificial distinctions that were 
not related to a Fund's particular circumstances and unnecessarily 
restricted a Fund's ability to effectively manage its cash balances. 
Applicants further state that, if a Fund has large cash balances, its 
ability to invest the cash at a more attractive rate should not be 
unnecessarily limited.
    12. Finally, applicants seek to remove the condition in the 1990 
Order that provided that a Fund's borrowing through the credit facility 
will not exceed 125% of the Fund's total net cash redemptions for the 
preceding seven calendar days. Applicants assert that this condition is 
difficult to monitor and ineffective. Applicants state that the 
condition was designed to protect the Funds from the dangers of 
borrowing for investment, and the resulting leverage, especially in a 
declining securities market. Applicants assert that this condition may 
be ineffective in addressing a Fund's need for cash in the case of 
unanticipated levels of redemption (such as in the event of a sharp 
market correction). Applicants also assert that the condition may not 
necessarily prevent a fund from borrowing from investment. Applicants 
state that each Fund's fundamental investment limitations provide that 
the Fund may borrow money only for temporary or emergency purposes and 
prohibit borrowing for purposes of leverage or investment (except that 
certain Funds also may engage in reverse repurchase agreements in which 
the Fund is a seller for any purpose). Applicants assert that this 
fundamental policy is a more effective safeguard that will prevent 
inappropriate use of the credit facility. Applicants propose as a 
condition to the requested order that each Fund borrowing through the 
facility have this fundamental policy.

Applicants' Legal Analysis

    1. Section 17(a)(3) generally prohibits any affiliated person, or 
affiliated person of an affiliated person, from borrowing money or 
other property from a registered investment company. Section 21(b) 
generally prohibits any registered management investment company from 
lending money or other property to any person if that person controls 
or is under common control with the company. Section 2(a)(3)(c) of the 
Act defines an ``affiliated person'' of another person, in part, to be 
any person directly or indirectly controlling, controlled by, or under 
common control with, the other person. Applicants state that the Funds 
may be deemed to be under common control because FMR serves as their 
common investment adviser.
    2. Section 17(d) authorizes the SEC to exempt a proposed 
transaction from section 17(a) provided that the terms of the 
transaction, including the consideration to be paid or received, are 
fair and reasonable and do not involve overreaching on the part of any 
person concerned, and the transaction is consistent with the policy of 
the investment company as recited in its registration statement and 
with the general purposes of the Act. Section 6(c) under the Act 
provides that an exemptive order may be granted where an example 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. Applicants believe that the proposed 
arrangements satisfy these standards for the reasons discussed below.
    3. Applicants submit that sections 17(a)(3) and 21(b) of the Act 
were intended to prevent a party with potential adverse interests to 
and influence over the investment decisions of a registered investment 
company from causing or inducing the investment company to engage in 
lending transactions that are detrimental to the best interests of the 
investment company and its shareholders. Applicants assert that the 
credit facility does not raise these concerns because (i) FMR 
administers the credit facility as a disinterested fiduciary; (ii) the 
Interfund Loans consist only of uninvested cash reserves that the Fund 
otherwise would invest in short-term repurchase agreements or other 
short-term instruments directly, through FICASH or in affiliated money 
market funds (``Central Funds''); \4\ (iii) the Interfund Loans do not 
involve a significantly greater risk than such other investments; (iv) 
the lending Fund would receive interest at a rate higher than it could 
obtain through such other investments; and (v) the borrowing Fund would 
pay interest at a rate lower than otherwise available to it under its 
bank loan agreements. Moreover, applicants believe that the other 
conditions governing the credit facility effectively preclude the 
possibility of any undue advantage.
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    \4\ See In the Matter of Daily Money Fund, et al., Investment 
Company Act Release Nos. 22236 (Sept. 20, 1996) (notice) and 22285 
(Oct. 16, 1996) (order).
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    4. Section 17(a)(1) generally prohibits an affiliated person of a 
registered investment company, or an affiliated person of an affiliated 
person, from selling any securities or other property to the company. 
Section 12(d)(1) of the Act generally makes it unlawful for a 
registered investment company to purchase or otherwise acquire any 
security issued by any other investment company except in accordance 
with the limitations set forth in that section. Applicants believe that 
the obligation of a borrowing Fund to repay an Interfund Loan may 
constitute a security under sections 17(a)(1) and 12(d)(1).
    5. Section 12(d)(1)(J) provides that the SEC may exempt persons or 
transactions from any provision of section 12(d)(1) if and to the 
extent such exception is consistent with the public interest and the 
protection of investors. Applicants contend that the standards under

[[Page 19837]]

sections 6(c), 17(b) and 12(d)(1) are satisfied for all the reasons set 
forth above in support of their request for relief from sections 
17(a)(3) and 21(b) and for the reasons discussed below.
    6. Applicants state that section 12(d)(1) was intended to prevent 
the pyramiding of investment companies in order to avoid duplicative 
costs and fees attendant upon multiple layers of investment companies. 
Applicants submit that the credit facility does not involve these 
abuses because there would be no duplicative costs or fees to the Funds 
or shareholders, and that FMR would receive no additional compensation 
for its services in administering the credit facility.
    7. Section 18(f)(1) prohibits an open-end investment company from 
issuing any senior security except that the company is permitted to 
borrow from any bank; provided that immediately after any such 
borrowing there is an asset coverage of at least 300 per centum for all 
borrowings of the company. Under section 18(g) of the Act, the term 
``senior security'' includes any bond, debenture, note, or similar 
obligation or instrument constituting a security and evidencing 
indebtedness. Applicants request exemptive relief from section 18(f)(1) 
to the limited extent necessary to implement the credit facility 
(because the lending Funds are not banks). Applicants believe that 
granting relief under section 6(c) is appropriate because the Funds 
would remain subject to the requirement of section 18(f)(1) that all 
borrowings of the Fund, including combined credit facility and bank 
borrowings, have at least 300% asset coverage. Based on the conditions 
and safeguards described in the application, applicants also submit 
that to allow the Funds to borrow from other Funds pursuant to the 
credit facility is consistent with the purposes and policies of section 
18(f)(1).
    8. Section 17(d) and rule 17d-1 generally prohibit any affiliated 
person of a registered investment company, or affiliated person of an 
affiliated person, when acting as principal, from effecting any joint 
transaction in which the company participates unless the transaction is 
approved by the SEC. Rule 17d-1 provides that in passing upon such 
applications, the SEC will consider whether the participation of a 
registered investment company in a joint enterprise on the basis 
proposed is consistent with the provisions, policies, and purposes of 
the Act and the extent to which the company's participation is on a 
basis different from or less advantageous than that of other 
participants.
    9. Applicants submit that the purpose of section 17(d) is to avoid 
overreaching by and unfair advantage to investment company insiders. 
Applicants believe that the credit facility is consistent with the 
provisions, policies and purposes of the Act in that it offers both 
reduced borrowing costs and enhanced returns on loaned moneys to all 
participating Funds and their shareholders. Applicants note that each 
Fund would have an equal opportunity to borrow and lend on equal terms 
consistent with its investment policies and fundamental investment 
limitations. Applicants therefore believe that each Fund's 
participation in the credit facility will be on terms which are no 
different from or less advantageous than that of other participating 
Funds.

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. The interest rate to be charged to the Funds under the credit 
facility will be the average of the current FICASH Rate and a benchmark 
rate established periodically to approximate the lowest rate available 
from banks on loans to the Funds.
    2. The Cash Management Department on each business day will compare 
the Interfund Loan Rate set pursuant to the formula calculated as 
provided in condition 1 with the FICASH Rate negotiated that day and 
all short-term borrowing rates quoted to any of the Funds by any bank 
with which any Fund has a loan agreement. At least three such 
quotations will be obtained each day in which any Fund borrows through 
the credit facility prior to such borrowing. The Cash Management 
Department will make cash available for Interfund Loans only if the 
Interfund Loan Rate is more favorable to the lending Fund than the 
FICASH Rate and more favorable to the borrowing Fund than the lowest 
quoted bank loan rate.
    3. If a Fund has outstanding borrowings from one or more banks, any 
Interfund Loans to the Fund (a) will be at an interest rate equal to or 
lower than any outstanding bank loan, (b) will be secured at least on 
an equal priority basis with at least an equivalent percentage of 
collateral to loan value as any outstanding bank loan that requires 
collateral, (c) will have a maturity no longer than any outstanding 
bank loan (and in no event over seven days), and (d) will provide that, 
if an event of default occurs under any agreement evidencing an 
outstanding bank loan, it will automatically (without need for action 
or notice by the lending Fund) constitute an immediate event of default 
under the Interfund Loan agreement entitling the lending Fund to call 
the loan (and exercise all rights with respect to any collateral) and 
that such call will be made if the lending bank exercises its right to 
call its loan under its agreement with the borrowing Fund.
    4. A Fund may make an unsecured borrowing through the credit 
facility if its outstanding borrowings from all sources immediately 
after the interfund borrowing total 10% or less of its total assets, 
provided that if the Fund has a second loan outstanding from any other 
lender, including but not limited to another Fund, the Fund's interfund 
borrowing will be secured on at least an equal priority basis with at 
least an equivalent percentage of collateral to loan value as any 
outstanding loan that requires collateral. If a Fund's total 
outstanding borrowings immediately after interfund borrowing would be 
greater than 10% of its total assets, the Fund may borrow through the 
credit facility only on a secured basis. A Fund could not borrow 
through the credit facility or from any other source if its total 
outstanding borrowings immediately after the interfund borrowing would 
be more than 33\1/3\% of its total assets.
    5. Before any Fund that has outstanding interfund borrowings may, 
through additional borrowings, cause its outstanding borrowings from 
all sources to exceed 10% of its total assets, the Fund must first 
secure each outstanding Interfund Loan by the pledge of segregated 
collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan. If the total outstanding 
borrowings of a Fund with outstanding Interfund Loans exceeds 10% of 
its total assets for any other reason (such as decline in net asset 
value or because of shareholder redemptions), the Fund will within one 
business day thereafter: (a) repay all its outstanding Interfund Loans, 
(b) reduce its outstanding indebtedness to 10% or less of its total 
assets, or (c) secure each outstanding Interfund Loan by the pledge of 
segregated collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan until, the Fund's total 
outstanding borrowings cease to exceed 10% of its total assets, at 
which time the collateral called for by this condition (5) shall no 
longer be required. Until each Interfund Loan that is outstanding at 
any time that a Fund's total outstanding borrowings exceeds 10% is 
repaid or the Fund's total outstanding borrowings cease to exceed 10% 
of its total assets, the Fund will mark the value of the collateral to 
market each day and will pledge such additional collateral as is 
necessary to

[[Page 19838]]

maintain the market value of the collateral that secures each 
outstanding Interfund Loan at least equal to 102% of the outstanding 
principal value of the loan.
    6. No Fund may loan funds through the credit facility if the loan 
would cause its aggregate outstanding loans through the credit facility 
to exceed 15% of its current net assets at the time of the loan.
    7. A Fund's Interfund Loans to any one Fund will be limited to 5% 
of the lending Fund's net assets.
    8. The duration of Interfund Loans will be limited to the time 
required to receive payment for securities sold, but in no event more 
than seven days. Loans effected within seven days of each other will be 
treated as separate loan transactions for purposes of this condition.
    9. All loans may be called on one business day's notice by a 
lending Fund and may be repaid on any day by a borrowing Fund.
    10. A Fund's participation in the credit facility must be 
consistent with its investment policies and limitations and Declaration 
of Trust. No Fund may borrow through the credit facility unless the 
Fund has a fundamental policy that prevents the Fund from borrowing for 
other than temporary or emergency purposes (and not for leveraging), 
except that certain Funds may engage in reverse repurchase agreements 
for any purpose.
    11. The Cash Management Department will calculate total Fund 
borrowing and lending demand through the credit facility, and allocate 
loans on an equitable basis among Funds, without the intervention of 
the portfolio manager of any Fund. The Cash Management Department will 
not solicit cash for the credit facility from any Fund or prospectively 
publish or disseminate loan demand data to portfolio managers. The Cash 
Management Department will invest amounts remaining after satisfaction 
of borrowing demand in FICASH or Central Funds or return remaining 
amounts for investment directly by the portfolio managers of the money 
market Funds.
    12. FMR will monitor the interest rates charged and the other terms 
and conditions of the Interfund Loans and will make a quarterly report 
to the Board concerning the participation of the Funds in the credit 
facility and the terms and other conditions of any extensions of credit 
thereunder.
    13. Each Fund's Board, including a majority of the trustees who are 
not interested persons of the Funds as defined in section 2(a)(19) of 
the Act (``Independent Trustees''), will: (a) review, no less 
frequently than quarterly, the Fund's participation in the credit 
facility during the preceding quarter for compliance with the 
conditions of any order permitting such transactions; (b) establish the 
bank loan rate formula used to determine the interest rate on Interfund 
Loans, and review, no less frequently than annually, the continuing 
appropriateness of such benchmark rate formula; and (c) review, no less 
frequently than annually, the continuing appropriateness of the Fund's 
participation in the credit facility.
    14. In the event an Interfund Loan is not paid according to its 
terms and such default is not cured within two business days from its 
maturity or from the time the lending Fund makes a demand for payment 
under the provisions of the Interfund Loan agreement, FMR will promptly 
refer such loan for arbitration to a retired Independent Trustee 
previously selected by the Board of each Fund, who no longer has any 
fiduciary responsibilities to any Fund, and who will serve as 
arbitrator of disputes concerning Interfund Loans. The arbitrator will 
resolve any problem promptly, and the arbitrator's decision will be 
binding on both Funds. The arbitrator will submit, at least annually, a 
written report to the Boards setting forth a description of the nature 
of any dispute and the actions taken by the Funds to resolve the 
dispute.
    15. Each Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any transaction 
under the credit facility occurred, the first two years in an easily 
accessible place, written records of all such transactions setting 
forth a description of the terms of the transaction, including the 
amount, the maturity, and the rate of interest on the loan, the rate of 
interest available at the time on short-term repurchase agreements and 
commercial bank borrowings, and such other information presented to the 
Fund's Board in connection with the review required by conditions 12 
and 13.
    16. Compliance with the conditions to any order issued on the 
application will be considered by the external auditors as part of 
their internal accounting control procedures, performed in connection 
with Fund audit examinations, which form the basis, in part, of the 
auditors' report on internal accounting controls in Form N-SAR.
    17. No Fund will participate in the credit facility unless it has 
fully disclosed in its registration statement all material facts abut 
its intended participation.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-10021 Filed 4-21-99; 8:45 am]
BILLING CODE 8010-01-M