[Federal Register Volume 77, Number 219 (Tuesday, November 13, 2012)]
[Notices]
[Pages 67689-67693]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-27494]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30258; File No. 812-13731]


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

November 6, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application to amend a prior order under (a) 
section 6(c) of the Investment Company Act of 1940 (``Act'') granting 
an exemption from sections 18(f) and 21(b) of the Act; (b) section 
12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of 
the Act; (c) 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 (d) section 17(d) 
of the Act and rule 17d-1 under the Act to permit certain joint 
arrangements (``Prior Order'').\1\

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    \1\ Colchester Street Trust, et al., Investment Company Act 
Release Nos. 24563 (Jul. 24, 2000) (notice) and 24602 (Aug. 21, 
2000) (``Prior Order''), amending, Colchester Street Trust, et al., 
Investment Company Act Release Nos. 23787 (Apr. 15, 1999) (notice) 
and 23831 (May 11, 1999) (order), superseding, 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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    Summary of the Application: The Prior Order permitted certain 
registered open-end management investment companies to participate in a 
joint lending and borrowing facility. Applicants seek to amend the 
Prior Order to modify the Rate Conditions (as defined below) and to 
request an exemption from section 17(a)(2) of the Act.
    Applicants: Fidelity Aberdeen Street Trust; Fidelity Advisor Series 
I; Fidelity Advisor Series II; Fidelity Advisor Series IV; Fidelity 
Advisor Series VII; Fidelity Advisor Series VIII; Fidelity Beacon 
Street Trust; Fidelity Boylston Street Trust; Fidelity California 
Municipal Trust; Fidelity California Municipal Trust II; Fidelity 
Capital Trust; Fidelity Central Investment Portfolios LLC; Fidelity 
Central Investment Portfolios II LLC; Fidelity Charles Street Trust; 
Fidelity Colchester Street Trust; Fidelity Commonwealth Trust; Fidelity 
Commonwealth Trust II; Fidelity Concord Street Trust; Fidelity

[[Page 67690]]

Contrafund; Fidelity Court Street Trust; Fidelity Court Street Trust 
II; Fidelity Covington Trust; Fidelity Destiny Portfolios; Fidelity 
Devonshire Trust; Fidelity Financial Trust; Fidelity Garrison Street 
Trust; Fidelity Hanover 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 Newbury Street Trust; Fidelity Oxford Street Trust; 
Fidelity Phillips Street Trust; Fidelity Puritan Trust; Fidelity Revere 
Street Trust; Fidelity Salem 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; Variable Insurance Products Fund; 
Variable Insurance Products Fund II; Variable Insurance Products Fund 
III; Variable Insurance Products Fund IV; Variable Insurance Products 
Fund V; (each, a ``Trust'' and collectively, the ``Trusts''), and each 
series of the Trusts; Fidelity Management & Research Company (``FMR 
Co.''); Strategic Advisers, Inc. (``SAI'' and together with FMR Co. and 
any person controlling, controlled by, or under common control with FMR 
Co., ``FMR''); and each registered open-end management investment 
company or series thereof that in the future is advised or sub-advised 
by FMR Co., SAI or another FMR entity (together, with each series of 
the Trusts, each, a ``Fund'' and collectively, the ``Funds'').

DATES: Filing Dates: The application was filed on December 11, 2009 and 
amended on May 13, 2011, October 21, 2011, May 11, 2012, and October 
19, 2012.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on November 30, 2012 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 Commission's Secretary.

ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants: 82 
Devonshire Street, Boston, Massachusetts 02109.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-6873 or Dalia Osman Blass, Assistant Director, at (202) 551-
6821 (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 via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. Each Trust is formed as a business trust or limited liability 
company under the laws of Massachusetts or Delaware, as applicable. 
Each Trust is registered under the Act as an open-end management 
investment company.\2\ FMR Co., SAI or another FMR entity serves as 
investment adviser or sub-adviser to each of the Funds. FMR Co. and SAI 
are investment advisers registered under the Investment Advisers Act of 
1940 (``Advisers Act''). Any investment adviser to the Funds will be 
registered under the Advisers Act.
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    \2\ All existing investment companies or series thereof advised 
by FMR that are currently participating in the IFL Program have been 
named as applicants (included in the term ``Funds''). Any other 
existing or future investment companies or series thereof advised by 
FMR that rely on the order will comply with the terms and conditions 
of the application.
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    2. The Prior Order permits the Funds to participate in a credit 
facility administered by FMR (the ``IFL Program''). The IFL Program 
enables the Funds to lend money to each other for temporary purposes, 
such as when redemptions exceed anticipated levels. The IFL Program is 
designed both to reduce the cost of borrowing for the Funds and enhance 
the lending Funds' ability to earn higher rates of interest of 
investment on their short-term balances. The Prior Order requires that 
the interest rate for loans made through the IFL Program (the ``IFL 
Rate'') be based on the average of: (a) the higher of the overnight 
time deposit rate (the ``OTD Rate'') and the Funds' current overnight 
repurchase agreement rate (the ``FICASH Rate''); \3\ and (b) a 
benchmark rate representing the lowest bank loan rate available for 
borrowing by the Funds (``Benchmark Rate''). The board of trustees 
(each, a ``Fund Board'' and collectively, the ``Fund Boards'') of each 
Fund, including a majority of the trustees who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act, (``Independent 
Trustees'') establishes the Benchmark Rate, and, reviews, no less 
frequently than annually, the continuing appropriateness of the 
Benchmark Rate. The Benchmark Rate is currently set each day based on 
the average actual spread between the lowest quoted bank loan rate and 
the Federal Funds rate over the previous 60 days.
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    \3\ FICASH is one or more joint accounts that were established 
pursuant to Commission orders to enable the Funds to invest in 
certain repurchase agreements. See Daily Money Fund, et al., 
Investment Company Act Release Nos. 19594 (Jul. 26, 1993) (notice) 
and 19647 (Aug. 23, 1993) (order), amending, Daily Money Fund, et 
al., Investment Company Act Release Nos. 11962 (Sep. 29, 1981) 
(notice) and 12061 (Nov. 27, 1981) (order).
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    3. Applicants state that their business purposes and operational 
preferences over time have made inclusion of the OTD Rate in 
calculation of the IFL Rate unnecessary. Therefore, applicants seek to 
amend the Prior Order to eliminate the use of the OTD Rate in the IFL 
Rate calculation provided in conditions 1 and 2 (``Rate Conditions''). 
Applicants also request an exemption from section 17(a)(2) of the Act.

Applicants' Legal Analysis

    1. Section 17(a)(3) of the Act generally prohibits any affiliated 
person of a registered investment company, or affiliated person of an 
affiliated person, from borrowing money or other property from the 
registered investment company. Section 21(b) of the Act generally 
prohibits any registered management company from lending money or other 
property to any person, directly or indirectly, if that person controls 
or is under common control with that 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, such other person. Section 2(a)(9) of the Act 
defines ``control'' as the ``power to exercise a controlling influence 
over the management or policies of a company,'' but excludes 
circumstances in which ``such power is solely the result of an official 
position with such company.'' Because the Funds share a common 
investment adviser or have an investment adviser

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that is under common control with those of the other Funds, applicants 
state that each Fund may be deemed to be under common control with all 
the other Funds, and, therefore, an affiliated person of those Funds.
    2. Section 17(a)(1) of the Act generally prohibits any affiliated 
person of a registered investment company, or any affiliated person of 
such a person, from selling securities or other property to the 
investment company. Section 17(a)(2) of the Act generally prohibits an 
affiliated person of a registered investment company, or any affiliated 
person of such a person, from purchasing securities or other property 
from the investment company. Section 12(d)(1) of the Act prohibits a 
registered investment company from purchasing or otherwise acquiring 
any security issued by any other investment company except in 
accordance with the limitations set forth in that section.
    3. Section 18(f)(1) of the Act prohibits registered open-end 
investment companies from issuing any senior security except that a 
company is permitted to borrow from any bank, if immediately after the 
borrowing, there is 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'' generally includes any bond, debenture, note or 
similar obligation or instrument constituting a security and evidencing 
indebtedness.
    4. Section 17(b) of the Act authorizes the Commission 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 Commission 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.
    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 
any 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 Commission. Rule 
17d-1(b) provides that in passing upon applications filed under the 
rule, the Commission 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 
granting an exemption from sections 18(f) and 21(b) of the Act; (b) 
section 12(d)(1)(J) of the Act granting an exemption from section 
12(d)(1) of the Act; (c) sections 6(c) and 17(b) of the Act granting an 
exemption from sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Act; and 
(d) section 17(d) of the Act and rule 17d-1 under the Act to permit 
certain joint arrangements. The requested order would amend the Rate 
Conditions in the Prior Order and grant applicants an exemption from 
section 17(a)(2) of the Act.
    7. As noted previously, applicants state that their business 
purposes and operational preferences over time have made inclusion of 
the OTD Rate in calculation of the IFL Rate unnecessary. Applicants 
state further that the IFL Rate, as amended, would make it more likely 
that lending Funds would receive a market rate of return in excess of 
other market alternatives and that borrowing Funds would not be harmed 
because they would only participate in the IFL Program if the IFL Rate 
is lower than the lowest quoted bank loan rate. Applicants state that 
the Rate Conditions will prove to be a more efficient means for 
achieving savings to the Funds in connection with their routine daily 
cash management activities and for providing Funds with alternative 
sources of liquidity in times of substantial net redemption activity.
    8. Applicants also state that the IFL Program, as modified by the 
Rate Conditions, will not involve any potential that one Fund might 
receive a preferential interest rate to the disadvantage of another 
Fund. Applicants state that under the IFL Program, as modified by the 
Rate Conditions, rates will be set under a pre-established formula, 
approved by the Fund Boards. Applicants state that all Funds 
participating in the IFL Program, as revised by the Rate Conditions, on 
any given day will receive the same interest rate.
    9. Applicants therefore submit that the modifications to the Rate 
Conditions are necessary or appropriate in the public interest, 
consistent with the protection of investors and the policy and 
provisions of the Act, and meet the standards set forth in sections 
6(c), 12(d)(1)(J), 17(b) and 17(d) of the Act and rule 17d-1 under the 
Act. Applicants represent that the transactions conducted subject to 
the Rate Conditions would be reasonable and fair, would not involve 
overreaching, and would be consistent with the investment policies of 
the Funds and with the general purposes of the Act. Applicants submit 
further that each Fund's participation in the IFL Program would be 
consistent with the provisions, policies and purposes of the Act, and 
would be on a basis which is no different from, or less advantageous 
than that of any other participant.

Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. The IFL Rate to be charged to the Funds under the IFL Program 
will be the average of: (a) the FICASH Rate and (b) the Benchmark Rate.
    2. On each business day, the Cash Management Services Department 
(``Cash Management Department'') of Fidelity Service Company, Inc. will 
compare the IFL Rate calculated as provided in condition 1 with the 
FICASH Rate 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 IFL Program prior to such borrowing. The Cash 
Management Department will make cash available for interfund loans only 
if the IFL 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, any interfund loans to the 
Fund (i) will be at an interest rate equal to or lower than any 
outstanding bank loan, (ii) 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, (iii) 
will have a maturity no longer than any outstanding bank loan (and in 
any event not over seven days), and (iv) will provide that, if an event 
of default by the Fund occurs under any agreement evidencing an 
outstanding bank loan to the Fund, that event of default will 
automatically (without need for action or notice by the lending Fund) 
constitute an immediate event of default under the interfund

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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 IFL Program 
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 IFL Program only on a secured basis. A Fund could not borrow 
through the IFL Program 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 exceed 10% of its 
total assets for any other reason (such as a decline in net asset value 
or because of shareholder redemptions), the Fund will within one 
business day thereafter (i) repay all its outstanding interfund loans, 
(ii) reduce its outstanding indebtedness to 10% or less of its total 
assets, or (iii) 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 shall no longer 
be required. Until each interfund loan that is outstanding at any time 
that a Fund's total outstanding borrowings exceed 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 
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 interfund loan.
    6. No Fund may lend to another Fund through the IFL Program if the 
loan would cause its aggregate outstanding loans through the IFL 
Program to exceed 15% of the lending Fund's current net assets at the 
time of the loan.
    7. A Fund's interfund loans to any one Fund shall not exceed 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. Each interfund loan 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 IFL Program must be consistent 
with its investment objectives and limitations and organizational 
documents. No Fund may borrow through the IFL Program 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 IFL Program, and allocate 
loans on an equitable basis among the Funds, without the intervention 
of any portfolio manager of the Funds. The Cash Management Department 
will not solicit cash for the IFL Program from any Fund or 
prospectively publish or disseminate loan demand data to portfolio 
managers. Cash amounts remaining after satisfaction of borrowing demand 
will be invested in FICASH, or in shares of one or more money market 
funds that are advised by FMR Co. or another FMR entity, or will be 
returned to be invested directly by the portfolio managers of the 
Funds.
    12. FMR will monitor the IFL Rate and the other terms and 
conditions of the interfund loans and will make a quarterly report to 
the Fund Boards concerning the participation of the Funds in the IFL 
Program and the terms and other conditions of any extensions of credit 
under the IFL Program.
    13. Each Fund Board, including a majority of the Independent 
Trustees, will:
    (a) Review, no less frequently than quarterly, each Fund's 
participation in the IFL Program during the preceding quarter for 
compliance with the conditions of any order permitting such 
transactions,
    (b) Establish the Benchmark Rate formula used to determine the 
interest rate on interfund loans, and review, no less frequently than 
annually, the continuing appropriateness of the Benchmark Rate formula, 
and
    (c) Review, no less frequently than annually, the continuing 
appropriateness of each Fund's participation in the IFL Program.
    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 an independent arbitrator selected 
by each Fund Board involved in the loan who will serve as arbitrator of 
disputes concerning interfund loans.\4\ 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 Fund Boards setting forth a description of the nature of any 
dispute and the actions taken by the Funds to resolve the dispute.
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    \4\ If the dispute involves Funds with different Fund Boards, 
the respective Fund Board will select an independent arbitrator that 
is satisfactory to each Fund.
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    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 
by it under the IFL Program 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 transactions, including the 
amount, the maturity and the IFL Rate, the rate of interest available 
at the time on overnight repurchase agreements and commercial bank 
borrowings, and such other information presented to the Fund's 
respective Fund Board in connection with the review required by 
conditions 12 and 13.
    16. Each Fund's independent auditors, in connection with their 
audit examination of the Fund, will review the operation of the IFL 
Program for compliance with the conditions of the application and their 
review will form the basis, in part, of the auditor's report on 
internal accounting controls in Form N-SAR. Applicants will report on 
the operations of the IFL Program at the Fund Board meetings on a 
quarterly basis.

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    17. No Fund will be permitted to participate in the IFL Program 
unless the Fund has fully disclosed in its prospectus and/or statement 
of additional information all material facts about its intended 
participation.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2012-27494 Filed 11-9-12; 8:45 am]
BILLING CODE 8011-01-P