[Federal Register Volume 64, Number 141 (Friday, July 23, 1999)]
[Notices]
[Pages 40052-40054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18777]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23904; 812-11550 ]
Colchester Street Trust, et al., Notice of Application
July 16, 1999.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order under sections 6(c),
12(d)(1)(J) and 17(b) of the Investment Company Act of 1940 (the
``Act'') for exemptions from sections 12(d)(1) and 17(a) and under
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 seek an order that would amend a
prior order (``Prior Order'') \1\ to permit certain registered
investment companies and other entities (``Participating Funds'') to
investment uninvested cash (``Uninvested Cash'') and cash collateral
received in connection with a securities lending program (``Cash
Collateral'') in shares of affiliated money market funds and/or short-
term bond funds (``Investment Funds'').
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\1\ 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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Applicants: Colchester Street Trust, Fidelity Aberdeen Street
Trust, Fidelity Advisor Korea Fund, Inc., Fidelity Advisor Emerging
Asia 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 Fund,
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
Contrafund, 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 Oxford
Street Trust, Fidelity Phillips Street Trust, Fidelity Puritan Trust,
Fidelity Revere Street Trust, Fidelity School Street Trust, Fidelity
Securities Fund, Fidelity Select Portfolios, Fidelity Summer Street
Trust, Fidelity Trend Fund, Fidelity Union Street Trust, Fidelity Union
Street Trust II, Fidelity U.S. Investment-Bond Fund, L.P., Fidelity
Investments-Government Securities Fund, L.P., Newbury Street Trust,
Variable Insurance Products Fund, Variable Insurance Products Fund II,
Variable Insurance Products Fund III (collectively, the ``Trust'');
Fidelity Advisor World Global High Income Fund (Bermuda) Ltd., Fidelity
Advisor World U.S. Intermediate Bond Fund (Bermuda) Ltd., Fidelity
Advisor World International Bond Fund (Bermuda) Ltd., Fidelity Advisor
World U.S. Large-Cap Stock Fund (Bermuda) Ltd., Fidelity Advisor World
Europe Fund (Bermuda) Ltd., Fidelity Advisor World Southeast Asia Fund
(Bermuda) Ltd., Fidelity Advisor World U.S. Treasury Money Fund
(Bermuda) Ltd. (collectively, the ``World Funds''), Fidelity Management
& Research Company (``FMR''); Fidelity Group Trust for Employee Benefit
Plans (``Group Trust'')' Fidelity Management Trust Company (``FMTC'');
Fidelity Service Company, Inc. (``FSC''); Fidelity Investments
Institutional Operations Company, Inc. (``FIIOC''); Fidelity
Investments Money Management, Inc. (``FIMM''); all other registered
investment companies and series thereof that are advised by FMR or a
person controlling, controlled by, or under common control with FMR
(collectively, the ``Adviser'') and all other registered investment
companies and series thereof for which the Adviser in the future acts
as investment adviser (collectively, the ``Registered Funds''); the
World Funds, and other pooled investment funds advised or in the future
advised by the Adviser, or a person controlling, controlled by, or
under common control with the Adviser, offered exclusively outside the
United States to non-U.S. residents (the ``Off-Shore Funds''); state
and local entities or accounts thereof advised or in the future advised
by the Adviser that are exempt from regulation under the Act pursuant
to section 2(b) of the Act (the ``2(b) Entities''); collective trust
funds of the Group Trust, the trustee for which, or in the future the
trustee for which, is FMTC, that are excepted from the definition of
investment company by section 3(c)(11) of the Act (the ``3(c)(11)
Entities''); and individual institutional accounts advised by the
Adviser (``Institutional Accounts'').\2\
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\2\ All existing entities that currently intend to rely on the
requested order are named as applicants. Any other existing entity
and future entity will rely on the requested order only in
accordance with the terms and conditions of the application.
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Filing Dates: The application was filed on March 26, 1999.
Applicants have agreed to file an amendment, the substance of which is
reflected in this notice, period.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the SEC orders a hearing. Interested
person 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 August
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, NW, Washington, DC 20549-
0609. Applicants, 82 Devonshire Street, Boston, Massachusetts 02109.
FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Senior Counsel, at
(202) 942-0572, or Nadya B. Roytblat, Assistant Director, 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 at the
SEC's Public Reference Branch, 450 5th Street, NW, Washington, DC
20549-0102 (tel. (202) 942-8090).
Applicants' Representations
1. Each of the Registered Funds is registered under the Act and
most of the Trusts are series companies. The Participating Funds
include the Registered Funds (``Participating Registered Funds''), Off-
Shore Funds, 2(b) Entities, 3(c)(11) Entities, and Institutional
Accounts. The current Off-Shore Funds are established under the
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laws of Bermuda. Each 3(c)(11) Entity is organized as a separate pooled
account under the Fidelity Group Trust, for which FMTC acts as trustee.
FMR, an investment adivser registered under the Investment Advisers Act
of 1940, acts as each Participating Fund's investment manager and
provides the Participating Funds with administrative services.
2. Certain of the Investment Funds (the ``Central Funds'') are
series of Fidelity Revere Street Trust, an open-end management
investment company registered under the Act. The Central Funds have not
registered their shares under the Securities Act of 1933 (``Securities
Act''). Shares of the Central Funds will be sold only to the
Participating Funds. FIMM, a wholly-owned subsidiary of FMR, serves as
investment adviser to the Central Funds. The other Investment Funds are
open-end management investment companies registered under the Act, and
their shares are registered under the Securities Act. These Investment
Funds are advised by FMR. All Investment Funds will be taxable or tax-
exempt money market funds or short-term bond funds with a portfolio
maturity of three years or less.
3. Approximately 45 Registered Funds participate in a securities
lending program in which they earn additional income by lending their
portfolio securities. Cash Collateral received by the Registered Funds
may be invested in shares of investment companies approved by the board
of trustees of the Registered Fund and that have investment objectives
that are consistent with the investment restrictions and guidelines of
the Registered Fund.
4. The Prior Order permits Participating Funds to invest cash that
has otherwise not been invested in portfolio securities in the Central
Funds. In addition, the Prior Order permits the Participating Funds and
the Central Funds to engage in interfund purchase and sale transactions
in securities that would otherwise be effected in reliance on rule 17a-
7 under the Act (``Interfund Transactions'').
5. Applicants request an order amending the Prior Order to permit
the Participating Funds to invest Cash Collateral and Uninvested Cash
in other Investment Funds in addition to the Central Funds. The
requested relief would permit (a) the Participating Funds to use Cash
Collateral and Uninvested Cash to purchase shares of the Investment
Funds; (b) the Investment Funds to sell their shares to the
Participating Funds; (c) the Investment Funds to redeem their shares
from the Participating Funds; and (d) the Adviser to effect these
purchases and sales (collectively, these transactions are the ``Cash
Transactions'').
6. The board of trustees of the Participating Registered Funds has
or will approve the Investment Funds as vehicles for the investment of
Cash Collateral and Uninvested Cash. The investment by each
Participating Registered Fund in shares of the Investment Funds will be
in accordance with that Registered Fund's investment policies and
restrictions as set forth in its registration statement. A
Participating Registered Fund that is a money market fund will not
invest its Uninvested Cash or Cash Collateral in an Investment Fund
that does not comply with the requirements of rule 2a-7 under the Act.
Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act provides, in relevant part, that
no investment company may acquire securities of a registered investment
company if such securities represent more than 3% of the acquired
company's outstanding voting stock, more than 5% of the acquiring
company's total assets, or if such securities, together with the
securities of other acquired investment companies, represent more than
10% of the acquiring company's outstanding total assets. Section
12(d)(1)(B) of the Act provides that no registered open-end investment
company may sell its securities to another investment company if the
sale will cause the acquiring company to own more than 3% of the
acquired company's voting stock, or if the sale will cause more than
10% of the acquired company's voting stock to be owned by the
investment company. Applicants state that the investment of Uninvested
Cash and Cash Collateral by the Registered Funds and Off-Shore Funds in
shares of the Investment Funds is subject to the limits in sections
12(d)(1)(A) and (B).
2. Section 12(d)(1)(J) of the Act provides that the Commission may
exempt any person, security, or transaction from any provision of
section 12(d)(1) if and to the extent that such exemption is consistent
with the public interest and the protection of investors. Applicants
request relief under section 12(d)(1)(J) to permit the Registered Funds
and the Off-Shore Funds to invest in the Investment Funds in excess of
the limits in sections 12(d)(1)(A) and (B).
3. Applicants state that the proposed arrangement will not result
in the abuses that sections 12(d)(1)(A) and (B) were intended to
prevent. Applicants state that the proposed arrangement will not result
in inappropriate layering of either sales charges or investment
advisory fees. Shares of the Investment Funds sold to the Participating
Funds will not be subject to a sales load, redemption fee, asset-based
distribution fee or service fee. Applicants state that since investment
advisory fees are calculated on the net, rather than the total, assets
of the Participating Registered Funds, and since Cash Collateral does
not increase net assets, the Participating Registered Funds would not
pay duplicative advisory fees with respect to investments made with
Cash Collateral. Applicants further state advisory fees with respect to
an investment of Uninvested Cash will be subject to condition 2 below.
Applicants also state that because each Participating Fund will invest
in an Investment Fund on the same basis as each other Participating
Fund, there is no risk that the Adviser would exercise undue influence
to advantage any Participating Funds to the detriment of others.
B. Section 17(a)
1. Section 17(a) of the Act makes it unlawful for any affiliated
person of a registered investment company, or any affiliated person of
such affiliated person, acting as principal, to sell or purchase any
security to or from such investment company. Section 2(a)(3) of the Act
defines an affiliated person to include any person directly or
indirectly controlling, controlled by, or under common control with,
the other person or the investment adviser to an investment company.
The Adviser is an affiliated person of each Registered Fund under
section 2(a)(3). Because the Participating Funds either share a common
investment adviser or have an investment adviser that is under common
control with the investment adviser to another Participating Fund, and
most Registered Funds also share a common board of trustees, the
Participating Funds may be deemed to be under ``common control'' and
therefore affiliated persons of each other. As a result, applicants
state that section 17(a) would prohibit the Cash Transactions.
2. Section 17(b) of the Act authorizes the SEC to exempt a
transaction from section 17(a) if the term of the proposed transaction,
including the consideration to be paid or received, are reasonable and
fair and do not involve overreaching on the part of any person
concerned, the proposed transaction is consistent with the policy of
each registered investment company
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concerned, and the proposed transaction is consistent with the general
policy of the Act. Section 6(c) under the Act permits the SEC to exempt
any person or transaction from any provision of the Act, if such
exemption is necessary or appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policies of the Act.
3. Applicants submit that the requested relief satisfies the
standards for relief in sections 6(c) and 17(b). Applicants state that
the Cash Transactions will provide the Participating Funds and their
shareholders with a means of obtaining high current rates of return on
Cash Collateral and Uninvested Cash, reducing aggregate counterparty
exposure on repurchase agreements, protecting liquidity, reducing
credit exposure to custodian banks, reducing transaction costs, and
diversifying risk. In addition, applicants state that the Cash
Transactions will be effected in accordance with each Participating
Fund's investment restrictions and will be consistent with each
Participating Registered Fund's policies as set forth in its
registration statement.
C. Section 17(d) and Rule 17d-1
1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
any affiliated person of or principal underwriter for a registered
investment company or any affiliated person of such person or principal
underwriter, acting as principal, from effecting any transaction in
connection with any joint enterprise or other joint arrangement or
profit sharing plan, in which the investment company participates. As
noted above, applicants are affiliated persons of each other.
Applicants state that Cash Transactions may be deemed a joint
enterprise for the purposes of section 17(d) and rule 17d-1.
2. Rule 17d-1 permits the SEC to approve a proposed joint
transaction covered by the terms of section 17(d). In determining
whether to approve a transaction, the SEC is to consider whether the
proposed transaction is consistent with the provisions, policies, and
purposes of the Act, and the extent to which the participation of the
investment companies is on a basis different from or less advantageous
than that of the other participants. Applicants state that investments
by the Participating Registered Funds in the Investment Funds will be
on the same basis as other participants.
Applicants' Conditions
Applicants agree that any order of the SEC granting the requested
relief will be subject to the following conditions:
1. The shares of the Investment Funds that are sold to and redeemed
from the Registered Funds will not be subject to a sales load,
redemption fee, distribution fee under a plan adopted in accordance
with rule 12b-1, or service fee (as defined in rule 2830(b)(9) of the
National Association of Securities Dealers' Rules of Conduct).
2. If the Adviser to an Investment Fund collects a fee from the
Investment Fund for acting as its investment adviser, and unless the
fee payable to the Adviser for acting as the adviser of the Registered
Fund is reduced by the amount of such other fee paid with respect to
the investment of the Registered Fund's Uninvested Cash, before the
next meeting of the board of trustees of a Registered Fund (``Board'')
that invests in the Investment Fund is held for the purpose of voting
on an advisory contract under section 15 of the Act, the Adviser to the
Registered Fund will provide the board with specific information
regarding the approximate cost to the Adviser for managing the
Uninvested Cash that can be expected to be invested in such Investment
Fund. Before approving any advisory contract under section 15, the
Board, including a majority of the trustees who are not ``interested
persons,'' as defined in section 2(a)(19) of the Act, shall consider to
what extent, if any, the advisory fees charged to the Registered Fund
by the Adviser should be reduced to account for the fee indirectly paid
by the Registered Fund because of the advisory fee paid by the
Investment Fund, to the extent that the latter fee is not credited
against the advisory fee payable by the Registered Fund. The minute
books of the Registered Fund will record fully the Board's
consideration in approving the advisory contract, including the
considerations relating to fees referred to above.
3. Each Participating Fund, each Investment Fund, and any future
fund that may rely on the order shall be advised by or, in the case of
a 3(c)(11) Entity, shall have as its trustee, FMR or a person
controlling, controlled by, or under common control with FMR.
4. Investment in shares of the Investment Funds will be in
accordance with each Registered Fund's respective investment
restrictions and will be consistent with each Registered Fund's
policies as set forth in its prospectus and statement of additional
information.
5. No Investment Fund in which a Registered Fund invests shall
acquire securities of any other investment company in excess of the
limits contained in section 12(d)(1)(A) of the Act, except as permitted
by a Commission order concerning an interfund lending and borrowing
facility.
6. Each of the Registered Funds will invest Uninvested Cash in, and
hold shares of, the Investment Funds only to the extent that a
Registered Fund's aggregate investment of Uninvested Cash in the
Investment Funds at the time the investment is made does not exceed 25%
of the Registered Fund's total net assets. For purposes of this
limitation, each Registered Fund or series thereof will be treated as a
separate investment company.
7. To engage in Interfund Transactions, the Participating Funds
will comply with rule 17a-7 under the Act in all respects other than
the requirement that the parties to the transaction be affiliated
persons (or affiliated persons of affiliated persons) of each other
solely by reason of having a common investment adviser or investment
advisers which are affiliated persons of each other, common officers,
and/or common directors.
8. A Registered Fund that is a money market fund will not invest
its Uninvested Cash or Cash Collateral in an Investment Fund that does
not comply with the requirements of rule 2a-7 under the Act.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-18777 Filed 7-22-99; 8:45 am]
BILLING CODE 8010-01-M