[Federal Register Volume 61, Number 151 (Monday, August 5, 1996)]
[Notices]
[Pages 40679-40682]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19760]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22107; 812-9956]
Daily Money Fund, et al.; Notice of Application
July 29, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``Act'').
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APPLICANTS: Daily Money Fund, Daily Tax-Exempt Money Fund, 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 Advisor Annuity Fund, 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
Congress Street Fund, Fidelity Contrafund, Fidelity Court Street Trust,
Fidelity Court Street Trust II, Fidelity Destiny Portfolios, Fidelity
Deutsche Mark Performance Portfolio, L.P., Fidelity Devonshire Trust,
Fidelity Exchange Fund, Fidelity Financial Trust, Fidelity Fixed-Income
Trust, Fidelity Government Securities Fund, Fidelity Hastings Street
Trust, Fidelity Hereford Street Trust, Fidelity Income Fund, Fidelity
Institutional Cash Portfolios, Fidelity Institutional Tax-Exempt Cash
Portfolios, Fidelity Institutional Investors Trust, Fidelity
Institutional Trust, Fidelity Investment Trust, Fidelity Magellan Fund,
Fidelity Massachusetts Municipal Trust, Fidelity Money Market Trust,
Fidelity Mt. Vernon Street Trust, Fidelity Municipal Trust, Fidelity
Municipal Trust II, Fidelity New York Municipal Trust, Fidelity New
York Municipal Trust II, Fidelity Phillips Street Trust, Fidelity
Puritan Trust, Fidelity School Street Trust, Fidelity Securities Fund,
Fidelity Select Portfolios, Fidelity Sterling Performance Portfolio, L.
P., Fidelity Summer Street Trust, Fidelity Trend Fund, Fidelity Union
Street Trust, Fidelity Union Street Trust II, Fidelity U.S.
Investments--Bond Fund, L.P., Fidelity U.S. Investments--Government
Securities Fund, L.P., Fidelity Yen Performance Portfolio, L.P.,
Variable Insurance Products Fund, Variable Insurance Products Fund II,
Fidelity Management and Research Company (``FMR''), Fidelity
Distributors Corporation (``FDC''), National Financial Services
Corporation (``NFSC''), Fidelity Management Trust Company (``FMTC''),
Strategic Advisers, Inc. (``SAI''), Fidelity Service Company (``FSC''),
and Fidelity Investments Institutional Operations Company (``FIIOC'').
RELEVANT ACT SECTIONS: Order of exemption requested pursuant to section
6(c) of the Act from section 12(d)(1) of the Act, pursuant to sections
6(c) and 17(b) of the Act from section 17(a) of the Act, and pursuant
to rule 17d-1 under the Act permitting certain joint transactions in
accordance with section 17(d) of the Act and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: The requested order would permit applicants to
create one or more Fidelity ``fund of funds.''
FILING DATES: The application was filed on January 23, 1996, and
amended on May 31, 1996 and on July 25, 1996. Applicants agree to file
an additional amendment, the substance of which is incorporated herein,
during the notice period.
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 23, 1996,
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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 82 Devonshire Street, Boston, Massachusetts 02109.
FOR FURTHER INFORMATION CONTACT: Sarah A. Buescher, Staff Attorney, at
(202) 942-0573, or Robert A. Robertson, 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 may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. Applicants propose to organize one or more ``fund of funds''
(each a ``Top Fund'') which will be an open-end management investment
company organized as a Massachusetts or Delaware business trust. A Top
Fund will initially have one or more series (``Top Portfolio'') and may
organize additional Top Portfolios in the future. Each Top Portfolio
may issue multiple classes of shares.
2. Each Top Portfolio may invest in shares of Fidelity open-end
management investment companies (``Underlying Funds'') and their series
(``Underlying Portfolios'') representing one or more of the following
asset groups: the Equity Group, the Fixed Income Group, and the Money
Market Group (``Investment Groups''). Investment Groups may be added or
deleted at any time. Top Portfolios also may invest in Central Funds
(as defined below), and directly in stocks, bonds, and liquid money
market instruments, including pooled accounts of such instruments for
which the investment adviser has obtained a SEC exemptive order
(``money market instruments'').\1\
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\1\ See Investment Company Act Release Nos. 11962 (Sept. 29,
1981) (notice) and 12061 (Nov. 27, 1981) (order).
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3. The Underlying Funds are open-end management investment
companies registered under the Act. Each Underlying Funds may have one
or more Underlying Portfolios and each Underlying Portfolio may issue
multiple classes of shares. Top Portfolio shares and Underlying
Portfolio shares may be subject to sales charges, including front-end
and deferred sales charges, redemption fees, services fees, and rule
12b-1 fees under the Act.
4. Applicants request relief on behalf of each open-end management
investment company or series thereof that is (a) advised by, or that in
the future becomes advised by, FMR, FMTC, SAI, or a person controlling,
controlled by, or under common control with FMR, FMTC, or SAI
(collectively referred to as the ``Adviser''); or (b) distributed by
FDC, NFSC, or a person controlling, controlled by, or under common
control with FDC or NFSC
[[Page 40680]]
(collectively referred to as the ``Distributor'') (all such investment
companies and series thereof are collectively referred to as the
``Fidelity Funds''). Each Fidelity Fund is a member of the same ``group
of investment companies'' as defined in paragraph (a)(5) of rule 11a-3
under the Act.
5. The Adviser or an affiliate of the Adviser is, to the extent
required, registered as an investment adviser under the Investment
Advisers Act of 1940 and will be the investment adviser to each Top
Fund, the Top Portfolios, the Underlying Funds, and the Underlying
Portfolios. One or more of the Top Portfolios of a Top Fund may have a
fixed investment portfolio and, therefore, may not use an investment
adviser. In that case, the Adviser or an affiliate of the Adviser may
act as the administrator for the Top Portfolio and would not be
required to register as an investment adviser.
6. The Distributor is, to the extent required, registered as a
broker/dealer under the Securities Exchange Act of 1934 (``Exchange
Act''), and is the distributor of certain Fidelity Funds. FSC and FIIOC
are registered transfer agents under the Exchange Act. Each is a
transfer and dividend paying agent for certain Fidelity Funds
(collectively referred to as ``Transfer Agent''). FMR is the parent
holding company for the Adviser, the Distributor, and the Transfer
Agent.
7. Certain applicants previously received an SEC order for an
exemption from sections 12(d)(1), 17(a), 18(f), and 21(b) of the Act,
and pursuant to section 17(d) of the Act and rule 17d-1 thereunder that
permits certain Fidelity Funds to borrow and lend to each other through
a credit facility (``Interfund Lending Order'').\2\ If the present
application is granted, the Top Funds and the Underlying Funds could
participate in interfund lending. In addition, certain applicants
recently filed an application with the SEC for an exemption from
sections 12(d)(1), 15(a), and 17(a) of the Act, and pursuant to section
17(d) of the Act and rule 17d-1 thereunder (the ``Central Funds
Application'').\3\ The Central Funds Application seeks relief so that
participating funds may purchase shares of one or more non-publicly
traded Fidelity money-market funds and/or short-term bond funds (the
``Central Funds'') in excess of the percentage limits of section
12(d)(1). If the exemptions requested in the Central Funds Application
and the present application are granted, a Top Fund could invest either
directly in a Central Funds or in an Underlying Fund that could invest
in a Central Fund.
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\2\ See Daily Money Fund, et al., Investment Company Act Release
Nos. 17257 (Dec. 8, 1989) (notice) and 17303 (Jan. 11, 1990)
(order).
\3\ Daily Money Fund, et al., File No. 812-9844.
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Applicants' Legal Analysis
1. Section 12(d)(1)(A) of the Act provides 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 any
other acquired investment companies, represent more than 10% of the
acquiring company's total assets. Section 12(d)(1)(B) 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.
2. Section 6(c) provides that the SEC may exempt persons or
transactions if the 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.
Applicants request an order under section 6(c) exempting them from
section 12(d)(1) to permit any Top Portfolio to invest in the
Underlying Portfolios in excess of the percentage limitations of
section 12(d)(1).
3. Section 12(d)(1) was intended to mitigate or eliminate actual or
potential abuses that might arise when one investment company acquires
shares of another investment company. These abuses include the
acquiring fund imposing undue influence over the management of the
acquired funds through the threat of disruptive redemptions, the
acquisition by the acquiring company of control of the acquired
company, the layering of fees, and the creation of a complex pyramidal
structure that may be confusing to investors.
4. Applicants believe that none of these potential abuses would be
present in the structure of the Top Portfolios. The Top Portfolios
would not exercise any influence over the management of the acquired
Underlying Portfolios by the threat of redemptions. Because of the
common control of management between the Top Portfolios and the
Underlying Portfolios, the Adviser would not structure a Top Portfolio
as a vehicle for short-term traders or to otherwise contribute to
disruptive cash flow volatility at the Underlying Portfolio level.
5. Applicants represent that the Top Fund will be structured so
that an investment in a 1 Top Portfolio will not result in an
unnecessary duplication of costs. The Adviser may charge each Top
Portfolio an advisory fee to compensate it for monitoring the addition,
deletion, and substitution of the Underlying Portfolios within
particular Investment Groups and the periodic adjustments among
Investment Groups. Each Top Portfolio's shareholder also will pay
indirectly their share of the advisory fees and expenses paid by
shareholders of the Underlying Portfolios. This will not result in a
duplication of advisory fees because the Adviser's services for a Top
Portfolio will be in addition to, and not duplicative of, services
provided to the Underlying Portfolios.
6. Applicants also assert that their proposed fund of funds
structure does not present any danger of excessive sales charges.
Although the Distributor may impose sales charges, service fees, and/or
rule 12b-1 fees at both the Top Portfolio and Underlying Portfolio
levels, sales and distribution expenses relating to the shares of a Top
Portfolio will not exceed the limits in Article III, Section 26 of the
NASD's Rules of Fair Practice when aggregated with any sales and
distribution expenses that the Top Portfolio pays relating to the
respective Underlying Portfolio shares. The aggregate sales and
distribution expenses at both levels, therefore, will not exceed the
limit that otherwise lawfully could be charged at any single level.
7. Section 17(a) makes it unlawful for an affiliated person of a
registered investment company to sell securities to, or purchase
securities from, the company. Because each Top Portfolio and each
Underlying Portfolio are advised by the Adviser or an affiliate under
common control with the Adviser, they could be deemed to be under the
common control of the Adviser and thus affiliated of one another. Thus,
an Underlying Portfolio's issuance of its shares to a Top Portfolio may
be considered a sale prohibited by section 17(a).
8. Section 17(b) provides that the SEC shall exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) the
terms of the proposed transaction are reasonable and fair and do not
involve overreaching; (b) the proposed transaction is consistent with
the policies of the registered investment company involved; and (c) the
proposed transaction is consistent
[[Page 40681]]
with the general provisions of the Act. Applicants request an exemption
under sections 6(c) and 17(b) to permit the Underlying Portfolios to
sell their shares to each Top Portfolio.\4\ Applicants believe that the
proposed transactions meet the standards of sections 6(c) and 17(b).
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\4\ Section 17(b) applies to a specific proposed transaction,
rather than an ongoing series of future transactions. See Keystone
Custodian Funds, 21 S.E.C. 295, 298-299 (1945). Section 6(c) can be
used, along with section 17(b), to grant relief from section 17(a)
for an ongoing series of future transactions.
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9. Section 17(d) prohibits an affiliated person of a registered
investment company from effecting any transaction in which such
investment company is a joint, or joint and several, participant with
such person in contravention of SEC rules and regulations. Rule 17d-1
provides that an affiliated person of a registered investment company
acting as principal, shall not participate in any joint enterprise or
other joint arrangement in which the registered investment company is a
participant unless the SEC has issued an order approving the
arrangement. Applicants request an order pursuant to section 17(d) and
rule 17d-1 thereunder to the extent that the proposed transactions
described in the application, including each Top Fund's possible entry
into a Servicing Agreement, as defined below, may be deemed to be joint
transactions between affiliated persons.
10. Administrative expenses (including transfer agent, shareholder
servicing, custody, legal, and accounting expenses) may be charged at
both the Top Portfolio and Underlying Portfolio levels. Applicants
might adopt one of a number of possible administrative expense
structures. Two examples of possible administrative expense structures
are given below. However, any structure implemented will comply with
the conditions to the application listed at the end of this notice. As
one example, all administrative expenses would be paid for in
accordance with a Special Servicing Agreement (``Servicing Agreement'')
among each Top Fund, the Underlying Funds, and the Transfer Agent.
Under the Servicing Agreement, each Top Portfolio would pay for
services provided by the Transfer Agent, and would reimburse the
Transfer Agent for services provided by other persons, except to the
extent those services, or a portion of them, are paid by the Underlying
Portfolios. Applicants represent that each Top Portfolio is expected to
create economies for the Underlying Portfolios due primarily to a
reduction in the administrative expenses to the Underlying Portfolios
of servicing the Top Portfolios. If the aggregate financial benefits to
the Underlying Portfolio equals or exceeds the costs of the Top
Portfolio with respect to its investment in the Underlying Portfolio,
there would be no charge to the Top Portfolio for the services under
the Servicing Agreement. If the aggregate financial benefits to the
Underlying Portfolio does not equal or exceed the administrative
expenses of the Top Portfolio, the Top Portfolio would pay that portion
of costs determined to be in excess of the benefits, except to the
extent such costs are paid by the Adviser.
11. Alternatively, applicants might adopt a structure that did not
seek to balance administrative expenses and benefits between the Top
Funds and the Underlying Funds. For example, each Top Portfolio may
maintain its shareholder accounts and bear all expenses related
thereto. The Underlying Fund would maintain record ownership of the
shares owned by the Top Portfolio in a single account in the name of
the Top Portfolio. An Underlying Portfolio may adopt a separate class
of shares (``New Class'') that would be offered to the Top Portfolios.
Expense ratios for the New Class would be expected to be lower than
those of other classes of the Underlying Portfolio, primarily due to
lower administrative expenses. Applicants represent that the proposed
arrangement would be advantageous to all applicants, and that
participation of any Fidelity Fund would not be on a basis less
advantageous or different from those of any other participants.
Applicants' Conditions
Applicants agree that any order of the SEC granting the requested
relief will be subject to the following conditions:
1. A Top Portfolio and its Underlying Portfolios will be members of
the same ``group of investment companies,'' as defined in paragraph
(a)(5) of rule 11a-3 under the Act.
2. No Underlying Portfolio 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 otherwise permitted by order of the
SEC pursuant to this application and under the Interfund Lending Order,
and as may in the future be permitted by order of the SEC pursuant to
the Central Funds Application.
3. A majority of the trustees of each Top Fund will not be
``interested persons,'' as defined in section 2(a)(19) of the Act.
4. Before approving any advisory contract under section 15, the
board of trustees of each Top Fund, on behalf of each Top Portfolio,
including a majority of the trustees who are not ``interested
persons,'' as defined in section 2(a)(19), shall find that advisory
fees charged under such contract are based on services provided that
are in addition to, rather than duplicative of, services provided
pursuant to any Underlying Portfolio's advisory contract. Such finding,
and the basis upon which the finding was made, will be recorded fully
in the minute books of the Top Portfolio.
5. Any sales charges and other distribution-related fees charged
with respect to securities of a Top Portfolio, when aggregated with any
sales charges and distribution-related fees paid by the Top Portfolio
with respect to securities of the respective Underlying Portfolios,
shall not exceed the limits set forth in Article III, section 26, of
the NASD Rules of Fair Practice.
6. The applicants agree to provide the following information, in
electronic format, to the Chief Financial Analyst of the SEC's Division
of Investment Management: monthly average net assets for each Top
Portfolio and each of its Underlying Portfolios or Underlying Classes
(as applicable); monthly purchases and redemptions (other than by
exchange) for each Top Portfolio and each of its Underlying Portfolios
or Underlying Classes (as applicable); monthly exchanges into and out
of each Top Portfolio and each of its Underlying Portfolios or
Underlying Classes (as applicable); month-end allocations of each Top
Portfolio's assets among its Underlying Portfolios or Underlying
Classes (as applicable); annual expense ratios for each Top Portfolio
and each of its Underlying Portfolios or Underlying Classes (as
applicable); and a description of any vote taken by the shareholders of
any Underlying Portfolio or Underlying Class (as applicable), including
a statement of the percentage of votes cast for and against the
proposal by the Top Portfolio and by the other shareholders of the
Underlying Portfolios or Underlying Classes (as applicable). Such
information will be provided as soon as reasonably practicable
following each fiscal year-end of the Top Portfolio (unless the Chief
Financial Analyst shall notify applicants in writing that such
information need no longer be submitted).
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For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-19760 Filed 8-2-96; 8:45 am]
BILLING CODE 8010-01-M
