[Federal Register Volume 65, Number 146 (Friday, July 28, 2000)]
[Notices]
[Pages 46518-46520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19093]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24563; 812-11956]


Colchester Street Trust, et al.; Notice of Application

July 24, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order under (a) section 6(c) of 
the Investment Company Act of 1940 (the ``Act'') for exemptions from 
sections 18(f) and 21(b); (b) sections 6(c) and 17(a) for exemptions 
from sections 17(a)(1) and 17(a)(3); (c) section 12(d)(1)(J) for an 
exemption from section 12(d)(1); and (d) 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 
amend a prior order (``Prior Order'') \1\ that permits an interfund 
lending and borrowing facility.
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    \1\ Colchester Street Trust, et al., Investment Company Act 
Release Nos. 23787 (Apr. 15, 1999) (notice) and 23831 (May 11, 1999) 
(order).
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    Applicants: Colchester Street Trust, Fidelity Aberdeen Street 
Trust, Fidelity Advisor Series I, Fidelity Advisor Series II, Fidelity 
Advisor Series III, Fidelity Advisor Series IV, 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 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 Garrison Street 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 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 II, Newbury Street Trust, Variable 
Insurance Products Fund, Variable Insurance Products Fund II, Variable 
Insurance Products Fund III (collectively, the ``Funds''); Fidelity 
Management & Research Company (together with any person controlling, 
controlled by, or under common control with Fidelity Management & 
Research Company (``FMR''); and all other registered open-end 
management investment companies for which FMR serves as investment 
adviser.\2\
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    \2\ All existing investment companies that currently intend to 
rely on the requested order are named as applicants. Any other 
existing or future investment company that subsequently relies on 
the requested order will comply with the terms and conditions of the 
application.
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    Filing Dates: The application was filed on January 31, 2000, and an 
amendment was filed on July 14, 2000.
    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 August 
18, 2000, 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.

ADDRESS: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549-0609. Applicants, 82 Devonshire Street, Boston, Massachusetts 
02109.

FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Special 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, N.W., Washington, D.C. 
20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. Each Fund is registered under the Act as an open-end management 
investment company and currently is organized as either a Massachusetts 
or Delaware business trust. Certain of the Funds are organized as 
series investment companies. FMR acts as each Fund's investment 
adviser. Fidelity Management & Research Company is an investment 
adviser registered under the Investment Advisers Act of 1940 (the 
``Advisers Act'').
    2. The Prior Order permits the Funds to participate in a joint 
lending and borrowing facility under certain conditions (``Credit 
Facility''). The Credit Facility enables the Funds to lend money to 
each other for temporary purposes, such as when redemptions exceed 
anticipated levels (``Interfund Loans''). The Credit Facility is 
designed both to reduce the cost of borrowing for the Funds and enhance 
the lending Fund's ability to earn higher rates of interest on 
investment of their short-term balances. The Prior Order requires that 
the interest rate for loans made through the Credit Facility 
(``Interfund Loan Rate'') be based on the average of the current rate 
of overnight repurchase agreements (the ``FICASH Rate'') \3\ and a 
benchmark rate representing the lowest bank loan rate available to the 
Funds (``Bank Loan Rate''). Applicants request an order amending the 
Prior Order to permit FMR to calculate the Interfund Loan Rate as the 
average of (a) the higher of the overnight time deposit rate (the ``OTD 
Rate'') and the FICASH Rate, and (b) the Bank Loan Rate.
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    \3\ FICASH is a joint account that was established pursuant to 
SEC exemptive orders. In the Matter of Daily Money Fund, et al., 
Investment Company Act Releases Nos. 11962 (Sept. 29, 1981) (notice) 
and 12061 (Nov. 27, 1981) (order); In the Matter 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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Applicants' Legal Analysis

    1. Section 17(a)(3) of the Act generally prohibits any affiliated 
person, or affiliated person of an affiliate person (``second-tier 
affiliate''), 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 they either

[[Page 46519]]

share a common investment adviser or have an investment adviser that is 
under common control with the investment adviser of the other Funds.
    2. Section 17(a)(1) of the Act generally prohibits an affiliated 
person of a registered investment company, or a second-tier affiliate, 
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).
    3. Section 18(f)(1) of the Act 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, 
``senior security'' includes any bond, debenture, note, or similar 
obligation or instrument constituting a security and evidencing 
indebtness. The Prior Order granted relief from section 18(f)(1) to the 
limited extent necessary to implement the credit facility (because the 
lending Funds are not banks).
    4. Section 17(b) of the Act 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) of the Act provides 
that an exemptive order may be granted where an exemption is necessary 
or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act. Section 12(d)(1)(J) of the Act provides that 
the SEC may exempt persons or transactions from any provision of 
section 12(d)(1) of and to the extent such exception is consistent with 
the public interest and the protection of investors.
    5. Section 17(d) of the Act and rule 17d-1 under the Act generally 
prohibit any affiliated person of a registered investment company, or 
second-tier affiliate, 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.
    6. Applicants request an order under (a) section 6(c) of the Act 
for exemptions from sections 18(f) and 21(b); (b) sections 6(c) and 
17(a) for exemptions from sections 17(a)(1) and 17(a)(3); (c) section 
12(d)(1)(J) for an exemption from section 12(d)(1); and (d) section 
17(d) of the Act and rule 17d-1 under the Act. The requested order 
would amend the Prior Order to permit FMR to calculate the Interfund 
Loan Rate as the average of (a) the higher of the OTD Rate and the 
FICASH Rate, and (b) the Bank Loan Rate. Applicants state that the 
requested relief meets the standards for relief under sections 6(c), 
12(d)(1)(J), and 17(b), and rule 17d-1.
    7. Applicants state that the OTD Rate is at times a more accurate 
indicator of the actual overnight investment rate available to the 
lending Funds than the FICASH Rate. Applicants also state that using 
the higher of the OTD Rate and the FICASH Rate to calculate the 
Interfund Loan Rate will make it more likely that the lending Funds 
will receive a market rate of return in excess of other market 
alternatives while the borrowing Funds receive a loan rate lower than 
the Bank Loan Rate.
    8. Applicants state that the Credit Facility will not involve any 
potential that one Fund might receive a preferential rate to the 
disadvantage of another Fund. Applicants assert that under the Credit 
Facility, rates will be set pursuant to a pre-established formula, 
approved the board of trustees of each Fund (the ``Board''). Applicants 
state that all Funds participating in the Credit Facility on any given 
day will receive the same rate.

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. The interest rates to be charged to the Funds under the Credit 
Facility will be the average of (a) the higher of the OTD Rate and the 
FICASH Rate and (b) the Bank Loan Rate.
    2. The cash management department of Fidelity Service Company, Inc. 
(``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 OTD Rate, the FICASH Rate negotiated that day, 
and all short-term borrowing rates quotes 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 both the 
OTD Rate and 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 the 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 secured 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 an 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,

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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 exceed 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 afterwards: (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 will 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 additional collateral as is necessary to 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 the 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 mangers. The Cash 
Management Department will invest amounts remaining after satisfaction 
of borrowing demand in FICASH or money market funds that are advised by 
FMR or return remaining amounts for investment directly by the 
portfolio managers of the Funds.
    12. FMR will monitor the interest rates charged and the other terms 
and conditions of the Interfund Loans and will make quarterly report to 
the Board and each Fund 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 the Bank Loan 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 the 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 the 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 a 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 transactions setting forth a 
description of the terms of the transactions, 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 any other information presented to the 
Fund's Boards 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 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 be permitted to participate in the Credit Facility 
unless it has fully disclosed in its registration statement all 
material facts about its intended participation.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 00-19093 Filed 7-27-00; 8:45 am]
BILLING CODE 8010-01-M