In the competitive world of index funds, even a tiny cut in expenses can be significant. Fidelity Investments of Boston is moving to cut a sliver of the expenses from its already low-cost Spartan Market Index Fund by changing the legal arrangement among Fidelity, the fund and the fund's sub-adviser, Bankers Trust Company of New York.

Fidelity wants to separate its securities lending contract with Bankers Trust from the sub-advisory contract which governs how Bankers Trust runs Spartan Market Index. The fund tracks the S&P 500. As a result of the new arrangement, the cost of the securities lending agreement would no longer be included in the fund's expense ratio. The amount at stake, less than .01 percent of fund assets, is so small that it is not detectable in the fund's expense ratio due to rounding.

In addition to separating the securities lending arrangement from the sub-advisory contract, Fidelity has negotiated a cut in the fee Bankers Trust receives for securities lending and added break points for future reductions in that expense as assets increase.

Under the new arrangement, Bankers Trust will receive 35 percent of the fees from securities lending, with the balance going to the fund. The current agreement pays Bankers Trust 40 percent of securities lending revenue. A Fidelity spokesperson declined to disclose the amount the fund received last year from securities lending, saying it was proprietary information.

Fidelity described the plans in a preliminary proxy statement it filed with the SEC on May 28. Fidelity is asking shareholders to approve a new sub-advisory contract with Bankers Trust because of that firm's merger with Deutsche Bank of Frankfurt, Germany. The shareholders' meeting is scheduled for Sept. 15.

Fidelity's Spartan Market Index Fund, with an expense ratio of 0.19 percent, has the third-lowest expense ratio of all retail index funds, according to fund tracking firm Morningstar of Chicago.

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