[Federal Register Volume 60, Number 183 (Thursday, September 21, 1995)]
[Notices]
[Pages 49033-49035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23377]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21360; 812-9644]
Daily Money Fund, et al.; Notice of Application
September 14, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Daily Money Fund, Daily Tax-Exempt Money Fund, Fidelity
Advisory Annuity Fund, Fidelity Special Situations 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 Beacon 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.,
Spartan U.S. Treasury Money Market Fund, Variable Insurance Products
Fund, Variable Insurance Products Fund II, and Zero Coupon Bond Fund
(each a ``Trust''); on behalf of themselves and all subsequently
registered open-end investment companies advised by Fidelity Management
& Research Company (``FMR'') (collectively, with the Trusts, the
``Funds''); and FMR.
RELEVANT ACT SECTIONS: Order requested (a) under section 6(c) of the
Act for an exemption from sections 13(a)(2), 13(a)(3), 18(f)(1), 22(f),
and 22(g) of the Act and rule 2a-7 thereunder; (b) under sections 6(c)
and 17(b) of the Act for an exemption from section 17(a)(1) of the Act;
and (c) pursuant to section 17(d) of the Act and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order that would permit
each applicant investment company to establish deferred compensation
plans for its trustees who are not interested persons of the company.
FILING DATES: The application was filed on June 27, 1995, and amended
on August 24, 1995.
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 10, 1995
and should be accompanied by proof of service on the 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, N.W., Washington, D.C.
20549. Applicants, 82 Devonshire Street F5E, Boston, Massachusetts
02109-3614.
FOR FURTHER INFORMATION CONTACT: Sarah A. Buescher, Staff Attorney, at
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(202) 942-0573, or C. David Messman, 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. Each Trust is a registered open-end management investment
company advised by FMR. Fidelity Distributors Corporation or National
Financial Services Corporation (each a ``Distributor'') serve as the
distributors of the Trusts' shares.
2. Each Fund has or will have a board of trustees, directors, or
director general partners (``trustees''), a majority of whom are not
``interested persons'' of that Fund within the meaning of section
2(a)(19) of the Act. Each trustee, other than those who are
``interested persons'' of the Trusts, receives an annual fee. No
trustee who is an affiliated person of FMR or a Distributor receives
any remuneration from applicants.
3. The proposed deferred fee arrangements would be implemented by
means of a Fee Deferral Plan (the ``Plan'') entered into by each Fund.
The Plan would permit individual trustees of a Fund who are not
``interested persons'' of such Fund to elect to defer receipt of all or
a portion of their fees. This would enable the trustees to defer
payment of income taxes on such fees. The trustees may amend the Plan
from time to time. Such amendments will be consistent with any relief
granted pursuant to this application.
4. Under the Plan, the trustee's deferred fees will be credited to
a book entry account established by each participating Fund (the
``Deferred Fee Account''), as of the date such fees would have been
paid to a trustee. The value of the Deferred Fee Account will be
periodically adjusted by treating the Deferred Fee Account as though an
equivalent dollar amount had been invested and reinvested in certain
designated securities (the ``Underlying Securities''). The Underlying
Securities for a Deferred Fee Account will be shares of the Funds that
a participating trustee designates. Each Deferred Fee Account shall be
credited or charged with book adjustments representing all interest,
dividends, and other earnings and all gains and losses that would have
been realized had such account been invested in the Underlying
Securities.
5. As a matter of risk management, each Fund intends, and with
respect to any money market Fund that values its assets by the
amortized cost method undertakes, to purchase and maintain Underlying
Securities in an amount equal to the deemed investments of the Deferred
Fee Accounts. Although a Fund's own shares may serve as an Underlying
Security with respect to deferred fees earned by a trustee, it is not
anticipated that a Fund will purchase its own shares. Rather, monies
equal to the amount credited to the Deferred Fee Account will be
invested as part of the general investment operations of that Fund.
6. The amounts paid to the trustees under the Plan are expected to
be insignificant in comparison to total net assets of applicants. The
Plan provides that a Fund's obligation to make payments from a Deferred
Fee Account will be a general obligation of the Fund and payments made
pursuant to the Plan will be made from the Fund's general assets and
property. With respect to the obligations created under the Plan, the
relationship of a trustee to a Fund will be that of a general unsecured
creditor. A Fund will be under no obligation to the trustee to
purchase, hold, or dispose of any investments but, if a Fund chooses to
purchase investments to cover its obligations under the Plan, then any
and all such investments will continue to be part of the general assets
and property of the Fund.
7. Under the Plan, a trustee may specify that the trustee's
deferred fees be distributed in whole or in part commencing on or as
soon as practicable after a date specified by the trustee, which may
not be sooner than the earlier of (a) a date five years following the
deferral election, or (b) the first business day of January following
the year in which the trustee ceases to be a member of the board of
trustees of the Fund. Notwithstanding any elections by a trustee, his
or her deferrals under the Plan shall be distributed (x) in the event
of the trustee's death, or (y) upon the dissolution, liquidation, or
winding up of the Fund, whether voluntary or involuntary; or the
voluntary sale, conveyance or transfer of all or substantially all of
the Fund's assets (unless the obligations of the Fund shall have been
assumed by another Fund); or the merger of the Fund into another trust
or corporation or its consolidation with one or more other trusts or
corporations (unless the obligations of the Fund are assumed by such
surviving entity and the surviving entity is another Fund.) In
addition, upon application by a trustee and a determination by the
Administrator that the trustee has suffered a severe and unanticipated
financial hardship, the Administrator shall distribute to the trustee,
in a single lump sum, an amount equal to the lesser of the amount
needed by the trustee to meet the hardship, or the balance of the
trustee's Deferred Fee Account. Payments will be made in a lump sum or
in installations as elected by the trustee. In the event of the
trustee's death, amounts payable under the Plan will be payable to the
trustee's designated beneficiary. In all other events, the trustee's
right to receive payments will be nontransferable.
8. The Plan will not obligate any Fund to retain the services of a
trustee, nor will it obligate any Fund to pay any (or any particular
level of) trustee's fees to any trustee. The proposed arrangements will
not affect the voting rights of the shareholders of any of the Funds.
If a Fund purchases Underlying Securities issued by another Fund, the
purchasing Fund will vote such shares in proportion to the votes of all
other holders of shares of such other Fund.
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act
granting relief from sections 13(a)(2), 13(a)(3), 18(f)(1), 22(f) and
22(g) of the Act and rule 2a-7 thereunder to the extent necessary to
permit the Funds to enter into deferred free arrangements with their
trustees; under sections 6(c) and 17(b) of the Act granting relief from
section 17(a)(1) to the extent necessary to permit the Funds to sell
securities issued by them to participating Funds, and pursuant to
section 17(d) of the Act and rule 17d-1 thereunder to permit the Funds
to engage in certain joint transactions incident to such deferred fee
arrangements.
2. Section 6(c) provides that the SEC may exempt any person,
security, or transaction from any provision of the Act, if and to the
extent that 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 and provisions of the Act.
3. Section 18(f)(1) generally prohibits a registered open-end
investment company from issuing senior securities. Section 13(a)(2)
requires that a registered investment company obtain shareholder
authorization before issuing any senior security not contemplated by
the recitals of policy in its registration statement. Applicants state
that the Plan possesses none of the characteristics of senior
securities that led Congress to enact these sections. The Plan would
not: (a) Induce speculative investments or provide opportunities for
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manipulative allocation of any Fund's expenses or profits; (b) affect
control of any Fund; (c) confuse investors or convey a false impression
as to the safety of their investments; or (d) be inconsistent with the
theory of mutuality of risk. All liabilities created under the Plan
would be offset by equal amounts of assets that would not otherwise
exist if the fees were paid on a current basis.
4. Section 22(f) prohibits undisclosed restrictions on the
transferability or negotiability of redeemable securities issued by
open-end investment companies. The Plan would set forth any
restrictions on transferability or negotiability, and such restrictions
are primarily to benefit the participating trustees and would not
adversely affect the interests of the trustees or of any shareholder of
any Fund.
5. Section 22(g) prohibits registered open-end investment companies
from issuing any of their securities for services or for property other
than cash or securities. These provisions prevent the dilution of
equity and voting power that may result when securities are issued for
consideration that is not readily valued. Applicants submit that the
Plan would provide for deferral of payment of fees and thus should be
viewed as being issued not in return for services but in return for a
Fund not being required to pay such fees on a current basis.
6. Section 13(a)(3) provides that no registered investment company
shall, unless authorized by the vote of a majority of its outstanding
voting securities, deviate from any investment policy that is
changeable only if authorized by shareholder vote. Any relief granted
from section 13(a)(3) of the Act would extend only to existing Trusts
with a fundamental investment restriction prohibiting investments in
securities of investment companies, except in connection with a merger,
consolidation, or acquisition of assets. Applicants submit that it is
appropriate to exempt applicants as necessary from section 13(a)(3) so
as to enable the existing Trusts to invest in Underlying Securities
without a shareholder vote. Applicants will provide notice to
shareholders in the statement of additional information of the deferred
fee arrangements with the trustees. The value of the Underlying
Securities will be de minimis in relation to the total net assets of
the respective Trust, and will at all times equal the value of the
Trust's obligations to pay deferred fees.
7. Rule 2a-7 imposes certain restrictions on the investments of
``money market funds,'' as defined under the rule, that would prohibit
a fund that is a money market fund from investing in the shares of any
other Fund. Applicants submit that the requested exemption would permit
the Funds to achieve an exact matching of Underlying Securities with
the deemed investments of the Deferred Fee Accounts, thereby ensuring
that the deferred fee arrangements would not affect net asset value.
Applicants further assert that the amounts involved in all cases would
be de minimis in relation to the total net assets of each Fund, and
would have no effect on the per share net assets value of the Funds.
8. Section 17(a)(1) generally prohibits an affiliated person of a
registered investment company from selling any security to such
registered investment company, except in limited circumstances. Funds
that are advised by the same entity may be ``affiliated persons'' of
one another under section 2(a)(3)(C0 of the Act by reason of being
under the common control of their adviser. Applicants assert that
section 17(a)(1) was designed to prevent sponsors of investment
companies from using investment company assets as capital for
enterprises with which they were associated or to acquire controlling
interests in such enterprises. Applicants submit that an exemption from
this provision would not implicate Congress' concerns in enacting
section 17(a)(1), but would facilitate the matching of each Fund's
liability for deferred trustees' fees with the Underlying Securities
that would determine the amount of such Fund's liability.
9. Section 17(b) authorizes the SEC to exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) The
terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching; (b)
the transaction is consistent with the policy of each registered
investment company concerned; and (c) the transaction is consistent
with the general purposes of the Act. Because section 17(b) may apply
only to a specific proposed transaction,\1\ applicants also request an
order under section 6(c) so that relief will apply to a class of
transactions. Applicants believe that the proposed transactions satisfy
the criteria of sections 6(c) and 17(b).
\1\In the Matter of Keystone Custodian Funds, Inc., 21 SEC 295
(1945).
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10. Section 17(d) and rule 17d-1 generally prohibit a registered
investment company's joint or joint and several participation with an
affiliated person in a transaction in connection with any joint
enterprise or other joint arrangement on a basis different from or less
advantageous than that of the affiliated person. Under the Plan,
participating trustees would not receive a benefit that otherwise would
inure to a Fund or its shareholders. When all payments have been made
to a participating trustee, the participating trustee will be no better
off (apart from the effect of tax deferral) than if he or she had
received fees on a current basis and invested them in Underlying
Securities.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. With respect to the requested relief from rule 2a-7, any money
market Fund that values its assets by the amortized cost method or the
penny-rounding method will buy and hold Underlying Securities that
determine the performance of Deferred Fee Accounts to achieve an exact
match between such Fund's liability to pay deferred fees and the assets
that offset that liability.
2. If a Fund purchases Underlying Securities issued by an
affiliated Fund, the purchasing Fund will vote such shares in
proportion to the votes of all other holders of shares of such
affiliated Fund.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-23377 Filed 9-20-95; 8:45 am]
BILLING CODE 8010-01-M