Relief from self-dealing prohibition of the Act to allow Inter-fund Trade on a one time basis between mutual funds with common portfolio manager on the basis of conditions similar to requirements in Part 6 of NI 81-107 - no independent review committee approval required given the conditions in the order and since it is to be a one time Inter-fund Trade.
Applicable Legislative Provisions
Securities Act, R.S.O., c. S.5, as am., sections 118, 121(2).
National Instrument 81-107- Independent Review Committee for Investment Funds, Part 6.
FEBRUARY 9, 2007
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
FIDELITY INVESTMENTS CANADA LIMITED ("FIDELITY")
FIDELITY GLOBAL ASSET ALLOCATION FUND
FIDELITY GLOBAL BOND FUND
("GBF", and collectively the "FUNDS")
(Section 121 of the Act)
The Ontario Securities Commission (the "Commission") has received an application from Fidelity, on behalf of Pyramis Global Advisors, the portfolio manager of GAAF and the portfolio manager of GBF, once created, for an order under section 121(2) of the Act that the restriction contained in section 118(2)(b) of the Act prohibiting a portfolio manager from knowingly causing an investment portfolio managed by it to purchase or sell the securities of any issuer from or to the account of a responsible person, any associate of a responsible person or the portfolio manager not apply such that GAAF be permitted to sell its fixed-income securities in a one-time inter-fund trade (the "Inter-fund Trade") to GBF in exchange for units of GBF (the "Requested Relief").
1. Fidelity is a corporation incorporated under the laws of Canada, thereafter continued under the laws of Ontario, and subsequently amalgamated under the laws of Ontario. The head office of Fidelity is located in Toronto, Ontario.
2. Fidelity is registered under the Act as a dealer in the category of mutual fund dealer and as an adviser in the categories of investment counsel and portfolio manager, and under The Commodity Futures Act (Ontario) as an adviser in the category of commodity trading manager.
3. Fidelity is the manager of GAAF and will be the manager of GBF. Pyramis Global Advisors, LLC, an affiliate of Fidelity, is the portfolio manager of GAAF and will be the portfolio manager of GBF. Fidelity is the trustee of GAAF and will be the trustee of GBF.
4. Units of GAAF are currently qualified for distribution in all of the provinces and territories of Canada pursuant to a simplified prospectus and annual information form dated October 18, 2006.
5. A preliminary simplified prospectus and annual information form was filed on January 19, 2007 for purposes of qualifying units of GBF for distribution in all provinces and territories of Canada.
6. The investment objective of GAAF is to achieve a high total investment return. The fund uses an asset allocation approach and it invests primarily in a mix of equity securities, fixed-income securities and money market instruments from around the world. As part of the fund's neutral mix, it invests approximately 30% of its assets in fixed-income securities. The investment strategies of GAAF provide that it may invest a portion of its assets in units of other mutual funds managed by Fidelity to achieve its investment objectives.
7. The investment objective of GBF is to aim to provide a steady flow of income and the potential for capital gains. GBF will invest primarily in foreign fixed-income securities, government and non-government bonds and corporate bonds.
8. To facilitate implementation of its investment objective and strategies, GAAF wishes to dispose of its current investments in fixed-income securities (the "Fixed-Income Securities") to GBF in exchange for units of GBF. This will avoid the need for GAAF to invest directly in fixed-income securities for purposes of gaining exposure to these types of securities and the need for GBF to incur the additional cost associated with acquiring fixed-income securities through normal market channels.
9. Units of GBF are appropriate investments for GAAF and are not inconsistent with GAAF's investment objectives.
10. The Fixed-Income Securities of GAAF are appropriate investments for GBF and are not inconsistent with GBF's investment objectives.
11. The Fixed-Income Securities are liquid investments that may readily be disposed of in the marketplace where such investments are normally purchased and sold and the bid and ask prices for the Fixed-Income Securities are generally readily available. In the event that a price is not publicly available for any of the Fixed-Income Securities, then the Funds will obtain at least one quote from an independent arm's-length purchaser or seller immediately before concluding the Inter-fund Trade in respect of any of the Fixed-Income Securities.
12. The Inter-fund Trade in respect of each Fixed-Income Security will be executed in accordance with the "current market price of the security" and pursuant to the "market integrity requirements" as those terms are defined in National Instrument 81-107 ("NI 81-107").
13. The Funds will receive no consideration for effecting the Inter-fund Trade other than GAAF receiving units of GBF based on the net asset value of units of GBF next determined after the Inter-fund Trade has taken place. The only cost for the Inter-fund Trade will be the normal cost incurred by GAAF to print or otherwise display the Inter-fund Trade. This will result in a savings in costs to GAAF that it would otherwise incur if it were required to dispose of the Fixed-Income Securities through normal market channels and then acquire units of GBF.
14. The Funds will keep written records of the Inter-fund Trade, including records of each purchase and sale of securities and the terms thereof for a period of five years commencing after the end of the fiscal year in which the trade occurred in a reasonably accessible place.
15. Fidelity has concluded that there are no material adverse tax consequences arising from the proposed Inter-fund Trade.
16. Fidelity submits that the Inter-fund Trade will provide the following benefits to investors in GAAF and GBF:
• more favourable pricing and transaction costs on portfolio trades;
• increased access to investments where there is a minimum subscription or purchase amount; and
• better economies of scale through lower custodian fees and greater administrative efficiency.
17. In the absence of the Requested Relief, GAAF would be precluded from engaging in the proposed Inter-fund Trade with GBF due to the provisions contained in paragraph 118(2)(b) of the Act.
18. The proposed Inter-fund Trade represents the business judgement of responsible persons uninfluenced by considerations other than the best interests of the Funds.
19. Fidelity has not as yet established an independent review committee under NI 81-107.
The Commission is satisfied that the tests contained in section 121(2) of the Act have been met.
The Commission orders that the Requested Relief is granted provided that:
1. the Inter-fund Trade in respect of each Fixed-Income Security is executed in accordance with the "current market price of the security" and pursuant to the "market integrity requirements" as those terms are defined in NI 81-107;
2. the bid and ask prices for the Fixed-Income Securities are generally readily available. In the event that a price is not publicly available for any of the Fixed-Income Securities, then the Funds are required to obtain at least one quote from an independent arm's-length purchaser or seller immediately before concluding the Inter-fund Trade in respect of such Fixed-Income Securities;
3. the Funds receive no consideration for effecting the Inter-fund Trade other than GAAF receiving units of GBF based on the net asset value of units of GBF next determined after the Inter-fund Trade has taken place;
4. the only cost for the Inter-fund Trade are the normal costs incurred by the Funds to print or otherwise display the Inter-fund Trade; and
5. the Funds keep written records of the Inter-fund Trade, including records of each purchase and sale of securities and the terms thereof for a period of five years commencing after the end of the fiscal year in which the trade occurred in a reasonably accessible place.
Ontario Securities Commission