[Federal Register Volume 67, Number 188 (Friday, September 27, 2002)]
[Notices]
[Pages 61173-61178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24607]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-25740; 812-11618]


Fidelity Concord Street Trust, et al.; Notice of Application

September 23, 2002.
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), 15(a) and 17(a) of the 
Act and rule 18f-2 under the Act 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 to permit (a) certain 
registered open-end investment companies to hire subadvisers and 
materially amend subadvisory agreements without shareholder approval; 
(b) the registered investment companies to invest cash collateral 
(``Cash Collateral'') received in connection with a securities lending 
program (``Lending Program'') in shares of affiliated registered and 
private investment companies (``Investment Funds''); and (c) an 
affiliated entity, acting as securities lending agent (``Agent'') for 
the registered investment companies to receive fees based on a share of 
the revenue generated from the securities lending activities.

APPLICANTS: Fidelity Concord Street Trust, Fidelity Commonwealth Trust, 
Variable Insurance Products Fund II (collectively, the ``Companies'') 
and Fidelity Management & Research Company (``FMR'').

FILING DATES: The application was filed on May 19, 1999, and an 
amendment was filed on September 23, 2002.

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 October 15, 
2002, 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: John L. Sullivan, Senior Counsel, at 
(202) 942-0681, or Janet M. Grossnickle, 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

[[Page 61174]]

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 Company is registered under the Act as an open-end 
management investment company and is organized as a Massachusetts 
business trust. Each Company offers shares of one or more series 
(``Funds'') each with its own investment objectives, policies and 
restrictions. Shares of Variable Insurance Products Fund II are offered 
solely to insurance company separate accounts, which are used to fund 
variable annuity contracts and variable life insurance contracts. FMR 
is an investment adviser registered under the Investment Advisers Act 
of 1940 (``Advisers Act''). Applicants request that the relief extend 
to any person controlling, controlled by, or is under common control 
with FMR (an ``Adviser'') and any additional series of the Companies 
organized in the future and advised by an Adviser (``Future Funds,'' 
collectively with the Funds, the ``Subadvised Funds''), provided that 
such Future Funds operate in substantially the same manner as described 
in the application.\1\
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    \1\ Each existing Fund advised by the Adviser that currently 
intends to rely on the requested order has been named as an 
applicant. Any Future Fund that relies on the requested order will 
do so only in accordance with the terms and conditions of the 
application. Each Adviser will be an investment adviser registered 
under the Advisers Act or exempt from registration.. Applicants 
represent that if the name of any Subadvised Fund should, at any 
time, contain the name of a Subadviser (as defined below), it will 
also contain the name of the Adviser, which will appear before the 
name of the Subadviser.
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    2. The Adviser acts as investment adviser to each Fund under an 
investment advisory agreement between the Adviser and the Companies on 
behalf of the Funds (``Advisory Agreement''). The Advisory Agreement 
was approved by the Companies'' board of trustees (``Board''), 
including a majority of the trustees who are not ``interested 
persons,'' as defined in sections 2(a)(19) of the Act (``Independent 
Trustees'') and by the shareholders of the Funds. Under the terms of 
the Advisory Agreement, the Adviser provides each Fund with investment 
research, advice and supervision and administrative services. For its 
services, the Adviser receives a management fee at an annual rate based 
on a percentage of the average daily net assets of each Fund.
    3. The Advisory Agreements authorize the Adviser to enter into 
separate subadvisory agreements (``Subadvisory Agreements'') with one 
or more investment subadvisers (``Subadvisers''). The specific 
investment decisions for each Subadvised Fund are made by a Subadviser, 
which has discretionary authority to invest the assets of a particular 
Subadvised Fund, subject to the general supervision and oversight by 
the Adviser and the Board.\2\ The Adviser retains the responsibility to 
oversee Subadvisers and to recommend to the Board the hiring, 
termination and replacement of the Subadvisers. The Adviser selects 
Subadvisers based on the Adviser's evaluation of the Subadvisers' 
skills and abilities in managing assets. The Adviser pays the 
Subadvisers the fees specified in the Subadvisory Agreements out of the 
fees paid by the Subadvised Funds to the Adviser.
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    \2\ Each Subadviser will be registered or exempt from 
registration under the Advisers Act.
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    4. In connection with the Lending Program, an Agent will enter into 
an agreement (``Securities Lending Agreement'') with each Subadvised 
Fund. Each Subadvised Fund that participates in the Lending Program is 
referred to as a ``Lending Fund.'' The Securities Lending Agreement 
will authorize the Agent to enter into agreements (``Borrowing 
Agreement'') with entities that are designated by the Agent and 
approved by the Subadvised Fund as eligible to borrow securities 
(``Borrowers'') to lend them portfolio securities of the Lending Funds. 
Pursuant to the Borrowing Agreement, the Agent delivers Lending Funds' 
portfolio securities to Borrowers in exchange for Cash Collateral or 
other collateral, such as U.S. government securities.
    5. The Securities Lending Agreement will authorize and instruct the 
Agent, as agent for the Subadvised Fund, to invest the Cash Collateral 
in accordance with specific guidelines or instructions provided by the 
Subadvised Fund. These guidelines or instructions will identify the 
particular Investment Funds and other investment vehicles, instruments 
and accounts, if any, in which cash collateral may be invested, and the 
maximum and minimum amounts of Cash Collateral that may be invested in 
the Investment Funds and other authorized investments. For its services 
as securities lending agent, the Agent will be compensated based on a 
percentage of the revenue generated by the Subadvised Funds' 
participation in the Lending Program.\3\
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    \3\ Deutsche Bank Trust Company Americas (``DBTCA'') currently 
serves as the Subadvised Funds' lending agent agent in reliance on a 
prior exemptive order, Bankers Trust Company, Investment Company Act 
release Nos. 23370 (July 31, 1998) (notice) and 23402 (Aug. 26, 
1998) (order). Applicants are requesting relief to participate in a 
Lending Program with respect to an Agent other than DBTCA.
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    6. Investment Funds will be open-end management investment 
companies registered under the Act (``Registered Investment Funds''). 
Investment Funds also may include investment companies that are exempt 
from registration under the Act in reliance on sections 3(c)(1) or 
3(c)(7) of the Act (``Private Investment Funds''). Each Investment Fund 
will be established for the investment of cash collateral and advised 
by an Agent serving as the securities lending agent for that Lending 
Fund, or an entity controlling, controlled by, or under common control 
with the Agent. The Investment Funds will invest in high quality money 
market instruments, short-term bonds and such other investments that 
are consistent with capital preservation and the increased needs of 
liquidity associated with securities lending transactions.
    7. Applicants request relief to permit: (a) The Adviser and the 
Subadvised Funds to hire Subadvisers and materially amend the 
Subadvisory Agreements without shareholder approval; (b) the Lending 
Funds to use Cash Collateral to purchase shares of the Investment Funds 
and the Investment Funds to redeem shares from the Lending Funds; and 
(c) an Agent to receive fees based on a share of the revenue generated 
by the securities lending activities of a Lending Fund.

Applicants' Legal Analysis

A. Relief To Hire Subadvisers and Materially Amend Subadvisory 
Agreements

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except pursuant to a written contract that has been 
approved by the vote of the company's outstanding voting securities. 
Rule 18f-2 under the Act provides that each series or class of stock in 
a series company affected by a matter must approve such matter if the 
Act requires shareholder approval.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities, or transactions from any provision of the Act, or 
from any rule thereunder, 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 policy

[[Page 61175]]

and provisions of the Act. Applicants request an exemption under 
section 6(c) of the Act from section 15(a) of the Act and rule 18f-2 
under the Act to permit the Adviser and the Subadvised Funds, subject 
to approval by the Board, to enter into and materially amend 
Subadvisory Agreements without shareholder approval. The requested 
relief would not extend to any Subadviser that is an affiliated person, 
as defined in section 2(a)(3) of the Act, of the Company, the 
Subadvised Fund or the Adviser, other than by reason of serving as a 
Subadviser to one or more of the Subadvised Funds (``Affiliated 
Subadviser'').
    3. Applicants assert that investors expect the Adviser and the 
Board to select one or more Subadvisers for the Subadvised Funds and 
look to the Adviser when they have questions or concerns about the 
Subadvised Fund's management or investment performance. Applicants 
contend that the role of the Subadviser, from the perspective of the 
investor, is comparable to that of the individual portfolio managers 
employed by other investment advisory firms. Applicants also contend 
that requiring shareholder approval of Subadvisory Agreements would 
impose expenses and unnecessary delays on the Subadvised Funds and 
could prevent the prompt implementation of actions deemed advisable by 
the Adviser and the Board. Applicants note that the Advisory Agreements 
will continue to be fully subject to section 15 of the Act and rule 
18f-2 under the Act.

B. Investment of Cash Collateral by the Lending Funds in the Investment 
Funds

    1. Section 12(d)(1)(A) of the Act provides, in relevant part, that 
no registered investment company may acquire securities of another 
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 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 investment companies 
generally.
    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 Lending Funds to 
invest Cash Collateral in the Registered Investment Funds in excess of 
the limits in sections 12(d)(1)(A) and (B).
    3. Applicants represent that the Investment Funds will be designed 
as vehicles to be used specifically in connection with securities 
lending transactions. 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 
Lending Funds will not be subject to a sales load, redemption fee, 
asset-based distribution fee, or service fee. Applicants further state 
that since investment advisory fees are calculated on the net, rather 
than the total, assets of the Lending Funds, and since Cash Collateral 
does not increase net assets, the Lending Funds would not pay 
duplicative advisory fees with respect to investments made with Cash 
Collateral. Applicants also state that each Investment Fund will be 
operated for the purpose of providing the necessary liquidity to 
satisfy the demands of the Lending Program and, therefore, will not be 
susceptible to control through the threat of large scale redemptions. 
Finally, applicants state that an Investment Fund will not acquire 
securities of any other investment company in excess of the limits 
contained in section 12(d)(1)(A) of the Act, except to the extent 
permitted by condition 7 of the conditions regarding participating in a 
Lending Program below. For these reasons, applicants state that the 
proposed arrangement will not give rise to the abuses that sections 
12(d)(1)(A) and (B) were intended to prevent.
    4. Section 17(a) of the Act makes it unlawful for any affiliated 
person or principal underwriter of a registered investment company, or 
any affiliated person of such person (``second-tier affiliate''), 
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 owning, 
controlling, or holding with power to vote 5% or more of the 
outstanding voting securities of the other person, as well as any 
person directly or indirectly controlling, controlled by, or under 
common control with, the other person, and in the case of an investment 
company, its investment adviser. The Adviser is an affiliated person of 
each Lending Fund under section 2(a)(3). Because the Lending Funds 
share a common investment adviser, the Lending Funds may be deemed to 
be under ``common control'' and therefore affiliated persons of each 
other. In addition, a Lending Fund could own more than 5% of the 
outstanding voting securities of an Investment Fund. As a result, each 
Lending Fund and the Investment Fund may be deemed to be affiliated 
persons (or second-tier affiliates) of each other Lending Fund. As a 
result, applicants request relief from section 17(a) under sections 
6(c) and 17(b) to permit the sale of shares of the Investment Funds to 
the Lending Funds and the redemption of the shares by the Lending Funds 
from the Investment Funds.
    5. Section 17(b) of the Act authorizes the SEC to exempt a 
transaction from section 17(a) if the terms 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 concerned and the proposed 
transaction is consistent with the general policy of the Act.
    6. Applicants submit that the requested relief satisfies the 
standards for relief in sections 6(c) and 17(b). Applicants state that 
the Lending Funds will be treated like any other shareholders in the 
Investment Funds, and purchase and sell shares of the Investment Funds 
on the same terms and on the same basis, including price, as all other 
shareholders of the Investment Funds. Applicants assert that the 
proposed transactions comply with each Lending Fund's investment 
restrictions and policies. Applicants state that Cash Collateral of a 
Lending Fund that is a money market fund will not be used to acquire 
shares of any Investment Fund that does not comply with rule 2a-7 under 
the Act. Applicants further state that the investment of Cash 
Collateral will comply with all present and future Commission and staff 
positions concerning securities lending. Applicants also state that the 
Private Investment Funds will comply with the major substantive 
provisions of the Act, including the prohibitions against affiliated 
transactions, leveraging and issuing senior securities, and rights of 
redemption.
    7. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any

[[Page 61176]]

affiliated person of or principal underwriter for a registered 
investment company or any second-tier affiliate, 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. 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.
    8. Applicants state that the Lending Funds (by purchasing and 
redeeming shares of the Investment Funds), a Subadviser (by managing 
the portfolio securities of the Subadvised Funds while at the same time 
acting as Agent for the Lending Funds), an Agent (by acting as lending 
agent, investing Cash Collateral in the Investment Funds, and receiving 
a portion of the revenue generated by securities lending transactions), 
and the Investment Funds (by selling shares to and redeeming shares 
from the Lending Funds) could be deemed to be participants in a joint 
enterprise or other joint arrangement within the meaning of section 
17(d) of the Act and rule 17d-1 under the Act. Applicants submit that 
the proposed investments by the Lending Funds in the Investment Funds 
meet the standards of rule 17d-1 for the reasons discussed above, 
particularly that the Lending Funds will invest in the Investment Funds 
on the same basis as any other shareholder.

C. Payment of Fees by a Lending Fund to an Agent

    1. As noted above, section 17(d) of the Act and rule 17d-1 under 
the Act generally prohibit joint transactions involving investment 
companies and their affiliated persons unless the SEC has approved the 
transaction. Applicants state that an Agent may serve as a Subadviser 
for certain series of a particular Company,\4\ while other series of 
that Company could be advised by entities that are not affiliated with 
the Agent. Each series of the Company could be deemed to be under 
common control, and thus an affiliated person of each other series. The 
Agent thus could be deemed an affiliated person of any series for which 
it acts as Subadviser and a second-tier affiliate of those series for 
which it does not act as Subadviser. Moreover, an Agent that is a bank 
may own more than 5% of the voting securities of a Lending Fund in a 
fiduciary capacity, and thus be an affiliated person of that Lending 
Fund and a second-tier affiliate of those series of a Company in which 
it does not own a 5% interest. Further, if a Lending Fund acquired more 
than 5% of the outstanding voting securities of an Investment Fund 
advised by the Agent, the Agent could be deemed a second-tier affiliate 
of the Lending Fund. As a result, the prohibitions of section 17(d) and 
rule 17d-1 would apply to activities involving the series and the 
Agent, including the Agent's activities as lending agent and the 
receipt of a share of the revenue from the series' lending activities. 
Applicants request relief to permit an Agent acting as lending agent to 
a Lending Fund to receive a percentage of the revenue generated by the 
Lending Fund's participation in the Lending Program. Each Agent will 
have an established securities lending program with numerous other 
unaffiliated institutional investors participating as lenders in the 
Agent's program.
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    \4\ The personnel who will provide day-to-day lending agency 
services to the Subadvised Funds do not and will not provide 
investment advisory services to the Subadvised Funds, or participate 
in any way in the selection of the portfolio securities or other 
aspects of the management of the Subadvised Funds.
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    2. Applicants propose that each Lending Fund will adopt the 
following procedures to ensure that the proposed fee arrangement and 
the other terms governing the relationship with the Agent will meet the 
standards of rule 17d-1:
    (a) In connection with the approval of the Agent as lending agent 
for a Lending Fund and implementation of the proposed fee arrangement, 
a majority of the Board (including a majority of the Independent 
Trustees) of the Lending Fund will determine (i) the Securities Lending 
Agreement with the Agent is in the best interests of the Lending Fund 
and its shareholders; (ii) the services to be performed by the Agent 
are appropriate for the Lending Fund; (iii) the nature and quality of 
the services performed by the Agent are at least equal to those 
provided by others offering the same or similar services for similar 
compensation; and (iv) the fees for the Agent's services are within the 
range of, but in any event no higher than, the fees charged by the 
Agent for services of the same nature and quality provided to 
unaffiliated parties.
    (b) Each Lending Fund's contract with the Agent for lending agent 
services will be reviewed annually by the Board and will be approved 
for continuation only if a majority of the Board (including a majority 
of the Independent Trustees) makes the findings referred to in 
paragraph (a) above.
    (c) In connection with the initial implementation of an arrangement 
whereby the Agent will be compensated as lending agent based on a 
percentage of the revenue generated by a Lending Fund's participation 
in the Program, the Board will secure a certificate from the Agent 
attesting to the factual accuracy of clause (iv) in paragraph (a) 
above. In addition, the Board will request and evaluate, and the Agent 
will furnish, such information and materials as the Board, with and 
upon the advice of agents, consultants, or counsel, determines to be 
appropriate in making the findings referred to in paragraph (a) above. 
Such information shall include, in any event, information concerning 
the fees charged by the Agent to other institutional investors for 
performing similar services.
    (d) The Board, including a majority of the Independent Trustees, 
will (i) no less frequently than quarterly determine, on the basis of 
reports submitted by the Agent, that the loan transactions during the 
proceeding quarter were conducted in compliance with the conditions and 
procedures set forth in the application; and (ii) review no less 
frequently than annually the conditions and procedures set forth in the 
application for continuing appropriateness.
    (e) Each Lending Fund will (i) maintain and preserve permanently in 
an easily accessible place a written copy of the procedures and 
conditions (and modifications thereto) described in the application or 
otherwise followed in connection with lending securities under the 
Lending Program; and (ii) maintain and preserve for a period of not 
less than six years from the end of the fiscal year in which any loan 
transaction pursuant to the Lending Program occurred, the first two 
years in an easily accessible place, a written record of each loan 
transaction setting forth a description of the security loaned, the 
identity of the person on the other side of the loan transaction, the 
terms of the loan transaction, and the information or materials upon 
which the determination was made that each loan was made in accordance 
with the procedures set forth above and the conditions to the 
application.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:

[[Page 61177]]

A. Relief To Enter Into and Materially Amend Subadvisory Agreements

    1. Before a Subadvised Fund may rely on the order requested herein, 
the operation of the Subadvised Fund in the manner described in the 
application will be approved by the vote of a majority of its 
outstanding voting securities (or, if the Subadvised Fund serves as a 
funding medium for any sub-account of a registered separate account, 
pursuant to voting instructions provided by the unitholders of the sub-
account) as defined in the Act, or, in the case of a Future Fund whose 
public shareholders (or variable contract owners through a separate 
account) purchased shares on the basis of a prospectus containing the 
disclosure contemplated by condition number 2 below, by the sole 
initial shareholder(s) before offering shares of that Subadvised Fund 
to the public (or variable contract owners through a separate account).
    2. Each Subadvised Fund will disclose in its prospectus the 
existence, substance, and effect of any order granted pursuant to the 
application. In addition, each Subadvised Fund will hold itself out to 
the public as employing the management structure described in the 
application. The prospectus will prominently disclose that the Adviser 
has the ultimate responsibility to oversee Subadvisers and recommend 
their hiring, termination, and replacement.
    3. Before relying on the requested Manager of Managers relief, each 
Subadvised Fund that sought its shareholders' approval to operate in 
the manner described in the Application prior to the date of the 
requested order and subsequently sold shares based on a prospectus that 
does not comply with condition 2 above will provide its shareholders 
(or, if the Subadvised Fund serves as a funding medium for any sub-
account of a registered separate account, then the unitholders of the 
sub-account) with at least 30 days prior written notice of (a) the 
substance and effect of the Manager of Managers relief and (b) the fact 
that the Subadvised Fund intends to employ the management structure 
described in the Application.
    4. At all times, a majority of each Company's Board will be 
Independent Trustees, and the nomination of new or additional 
Independent Trustees will be at the discretion of the then existing 
Independent Trustees.
    5. The Adviser will not enter into a Subadvisory Agreement with any 
Affiliated Subadviser without that agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
(or, if the Subadvised Fund serves as a funding medium for any sub-
account of a registered separate account, pursuant to voting 
instructions provided by the unitholders of the sub-account) of the 
applicable Subadvised Fund.
    6. When a Subadviser change is proposed for a Subadvised Fund with 
an Affiliated Subadviser, the Board of the corresponding Company, 
including a majority of the Independent Trustees, will make a separate 
finding, reflected in the Company's Board minutes, that the change is 
in the best interests of the Subadvised Fund and its shareholders (or, 
if the Subadvised Fund serves as a funding medium for any sub-account 
of a registered separate account, in the best interests of the 
Subadvised Fund and the unitholders of any sub-account) and does not 
involve a conflict of interest from which the Adviser or the Affiliated 
Subadviser derives an inappropriate advantage.
    7. Within 90 days of the hiring of any new Subadviser, shareholders 
(or, if the Subadvised Fund serves as a funding medium for any sub-
account of a registered separate account, the unitholders of the sub-
account) will be furnished all information about a new Subadviser that 
would be contained in a proxy statement, including any change in such 
disclosure caused by the addition of a new Subadviser. Each Subadvised 
Fund will meet this condition by providing shareholders (or, if the 
Subadvised Fund serves as a funding medium for any sub-account of a 
registered separate account, then by providing unitholders of the sub-
account) with an Information Statement meeting the requirements of 
Regulation 14C, Schedule 14C and Item 22 of Schedule 14A of the 
Securities Exchange Act of 1934 within 90 days of the hiring of a 
Subadviser.
    8. The Adviser will provide general management services to each 
Subadvised Fund, including overall supervisory responsibility for the 
general management and investment of each Subadvised Fund's portfolio, 
and subject to review and approval by the Board, will (a) set the 
Subadvised Fund's overall investment strategies; (b) select 
Subadviser(s); (c) monitor and evaluate the performance of 
Subadviser(s); (d) ensure that the Subadviser(s) comply with each 
Subadvised Fund's investment objectives, policies and restrictions; and 
(e) allocate and, where appropriate, reallocate a Subadvised Fund's 
assets among its Subadvisers.
    9. No trustee, director or officer of a Company or director or 
officer of the Adviser will own directly or indirectly (other than 
through a pooled investment vehicle that is not controlled by that 
trustee, director or officer) any interest in a Subadviser except for 
(a) ownership of interests in the Adviser or any entity that controls, 
is controlled by, or is under common control with the Adviser; or (b) 
ownership of less than 1% of the outstanding securities of any class of 
equity or debt of a publicly-traded company that is either a Subadviser 
or an entity that controls, is controlled by, or is under common 
control with a Subadviser.

A. Lending Program

    1. The Lending Program of each Lending Fund will comply with all 
present and future applicable Commission and staff positions regarding 
securities lending arrangements.
    2. The approval of a Lending Fund's Board, including a majority of 
the Independent Trustees, will be required for the initial and 
subsequent approvals of the Agent's service as securities lending agent 
for the Lending Fund under the Lending Program, for the institution of 
all procedures relating to the Lending Program as it relates to the 
Lending Fund, and for any periodic review of loan transactions for 
which the Agent acted as lending agent under the Lending Program.
    3. A majority of a Lending Fund's Board, including a majority of 
the Independent Trustees, will initially and at least annually 
thereafter determine that the investment of Cash Collateral in shares 
of the Investment Funds is in the best interest of shareholders of the 
Lending Fund.
    4. Investment in shares of the Investment Funds will be in 
accordance with each Lending Fund's respective investment restrictions 
and will be consistent with each Lending Fund's policies as set forth 
in its prospectus and statement of additional information. A Lending 
Fund that complies with rule 2a-7 under the Act will not invest its 
Cash Collateral in an Investment Fund that does not comply with rule 
2a-7 under the Act.
    5. Investment in shares of an Investment Fund by a particular 
Lending Fund will be in accordance with the guidelines regarding 
investment of Cash Collateral specified by the Lending Fund in the 
Securities Lending Agreement. A Lending Fund's Cash Collateral will be 
invested in a particular Investment Fund only if that Investment Fund 
has been approved for investment by the Lending Fund and if that 
Investment Fund invests in the types of instruments that the Lending

[[Page 61178]]

Fund has authorized for the investment of its Cash Collateral.
    6. The shares of the Investment Funds that are sold to and redeemed 
from the Lending 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 Conduct Rules 
of the National Association of Securities Dealers).
    7. An Investment Fund will not acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act; except to the extent that the Investment Fund 
(a) receives securities of another investment company as a dividend or 
as a result of a plan or reorganization of a company (other than a plan 
devised for the purpose of evading section 12(d)(1) of the Act) or (b) 
acquires (or is deemed to have acquired) securities of another 
investment company pursuant to exemptive relief from the Commission 
permitting the Investment Fund to (i) acquire securities of one or more 
affiliated investment companies for short-term cash management purposes 
or (ii) lend cash to another fund.
    8. A Lending Fund may enter into a Securities Lending Agreement 
that permits the investment of its cash collateral in a Private 
Investment Fund only if the Securities Lending Agreement provides that:
    (a) Any Private Investment Fund that is operated as a ``money 
market fund'' (``Private Money Market Fund'') will comply with rule 2a-
7 under the Act and will value its shares, as of the close of business 
on each business day, using the ``amortized cost method,'' as defined 
in rule 2a-7, to determine the net asset value per share of the Private 
Money Market Fund. In addition, the Private Money Market Fund will, 
subject to the approval of the Private Money Market Fund's board of 
directors or trustees (collectively with the board of directors or 
trustees of any Private Investment Fund, the ``Trustee''), adopt the 
monitoring procedures described in rule 2a-7(c)(7) under the Act and 
the Private Money Market Fund's adviser (collectively with the adviser 
to any Private Investment Fund, the ``Private Fund Adviser'') will 
comply with these procedures and take any other actions as are required 
to be taken pursuant to these procedures. The Lending Funds may only 
purchase shares of the Private Money Market Fund if the Private Fund 
Adviser determines on an ongoing basis that the Private Money Market 
Funds is in compliance with rule 2a-7. The Private Fund Adviser will 
preserve for a period of not less than six years from the date of 
determination, the first two years in an easily accessible place, a 
record of the determination and the basis upon which the determination 
was made. This record will be subject to examination by the SEC and its 
staff;
    (b) The Private Investment Fund will comply with the requirements 
of sections 17(a), (d), and (e), and 18 of the Act as if the Private 
Investment Fund were a registered open-end investment company;
    (c) With respect to all redemption requests made by a Lending Fund, 
the Private Investment Fund will comply with section 22(e) of the Act;
    (d) The Private Fund Adviser shall, subject to the approval by the 
Trustee, adopt procedures designed to ensure that the Private Fund 
complies with sections 17(a), (d), (e), 18, and 22(e) of the Act. The 
Private Fund Adviser also will periodically review and periodically 
update as appropriate such procedures and will maintain books and 
records describing such procedures and will maintain the records 
required by rules 31a-1(b)(1), 31a-1(b)(2)(ii), and 31a-1(b)(9) under 
the Act. All books and records required to be kept pursuant to this 
condition will be maintained and preserved for a period of not less 
than six years from the end of the fiscal year in which any transaction 
occurred, the first two years in an easily accessible place, and will 
be subject to examination by the SEC and its staff;
    (e) The net asset value per share with respect to Private 
Investment Fund shares will be determined separately for each Private 
Investment Fund by dividing the value of the assets belonging to that 
Private Investment Fund, less the liabilities of that Private 
Investment Fund, by the number of shares outstanding with respect to 
that Private Investment Fund; and
    (f) Each Lending Fund will purchase and redeem Private Investment 
Fund shares as of the same time and at the same price, and will receive 
dividends and bear its proportionate share of expenses on the same 
basis, as other shareholders of the Private Investment Fund. A separate 
account will be established in the shareholder records of the Private 
Investment Fund for the account of each Lending Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-24607 Filed 9-26-02; 8:45 am]
BILLING CODE 8010-01-P