Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- exemption from subsection 2.1(1) of National Instrument 81-102 Mutual Funds to permit global bond fund to invest more than 10% of its net assets in debt securities issued by a foreign government or supranational agency.

Applicable Ontario Statutory Provisions

National Instrument 81-102 Mutual Funds, ss. 2.1(1), 19.1.

May 14, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO, BRITISH COLUMBIA, ALBERTA,

SASKATCHEWAN, MANITOBA, QUEBEC,

NEW BRUNSWICK, NOVA SCOTIA,

PRINCE EDWARD ISLAND, NEWFOUNDLAND,

NORTHWEST TERRITORIES, YUKON AND NUNAVUT

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

FIDELITY INVESTMENTS CANADA LIMITED

(the Filer or Fidelity)

AND

FIDELITY GLOBAL BOND FUND (the Fund)

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdictions (the Legislation) granting an exemption from the requirement in paragraph 2.1(1) of National Instrument 81-102 Mutual Funds (NI 81-102) which prohibits a mutual fund from investing more than 10% of the net assets of the fund, taken at market value at the time of the transaction, in securities of any issuer by allowing the Fund:

a) to invest up to 20 percent of the Fund's net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by permitted supranational agencies (as defined in NI 81-102) or governments other than the government of Canada, the government of a jurisdiction or the government of the United States of America and are rated "AA" by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations; and

b) to invest up to 35 percent of the Fund's net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer, if those securities are issued by issuers described in paragraph (a) and are rated "AAA" by Standard & Poor's, or have an equivalent rating by one or more other approved credit rating organizations.

(collectively the Requested Relief).

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

The Fund

1. Fidelity is a corporation incorporated under the laws of Canada, thereafter continued, and subsequently amalgamated, under the laws of Ontario. Fidelity has its head office in Toronto, Ontario. Fidelity is the trustee and manager of the Fund.

2. The Fund is an open-end mutual fund established under the laws of the Province of Ontario.

3. The Fund is a reporting issuer under the securities laws of each of the Jurisdictions. The Fund is not in default of any requirements of applicable securities legislation.

4. The Fund was qualified for distribution in each of the provinces and territories of Canada under a simplified prospectus and annual information form dated March 13, 2007.

Investment Objective and Strategy

5. The Fund's investment objective is to provide a steady flow of income and the potential for capital gains. It invests primarily in foreign fixed-income securities including government and non-government bonds and corporate bonds.

6. Currently, the Fund's investment strategy is to use the Lehman Brothers Global Aggregate Bonds Index (the Index) as a guide to structuring the fund and selecting investments. The Fund is managed to have similar overall interest rate risk to that of the index. The Fund's assets are allocated among different market sectors, like foreign corporate or government securities, and different maturities based on Fidelity's view of the relative value of each sector or maturity.

The Index

7. The Index is among the most commonly used indices to measure the aggregate performance of global investment grade bonds. It provides a board-based measure of the global investment grade fixed-rate debt markets. The Index contains three major regional components: The U.S. Aggregate Index, the Pan-European Aggregate Index and the Asian-Pacific Aggregate Index, which together comprise roughly 95% of the Index. The Index also includes Eurodollar, Euro-Yen, Canadian and Investment-Grade 144A index-eligible securities not already in the three regional aggregate indices.

8. The Index is currently comprised of over 11,000 bond issues that vary by quality, sector or region. As at March 30, 2007, the Index breaks down was as follows:

By Region:
U.S. Aggregate: 36.44%
Pan-Euro: 39.02%
Asia-Pacific 19.05%
Other 5.49%

9. As of March 30, 2007, almost 2/3 of the Index was comprised of non-US or Canadian assets. In addition, currently, the Index is almost 84% devoted to AA or AAA quality debt (the percentage within the 3 regions mentioned above are higher in some cases).

The Benefits of the Requested Relief

10. The Requested Relief will enable the Fund to better achieve its investment objectives of providing a steady flow of income and the potential for capital gains.

11. The Fund uses the Index only as a guide and is not necessarily required to make the same investments as are in the Index, and in any event, the Index is not static; its composition changes regularly. The Requested Relief would provide Fidelity with the flexibility to manage the Fund in a manner consistent with the Index, but also to have the freedom to go "overweight" in a region or country, relative to the Index, to take advantage of investment opportunities.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make this decision has been met.

The Decision of the Decision Makers under the Legislation is that the Requested Relief is granted to the Funds in connection with their proposed investments, provided that:

1) paragraphs (a) and (b) of the Requested Relief shall not be combined for one issuer;

2) the securities that are purchased pursuant to this Decision are traded on a mature and liquid market; and

3) the acquisition of the securities purchased pursuant to this Decision is consistent with the fundamental investment objectives of the Fund.

4) the simplified prospectus of the Fund discloses the additional risks associated with the concentration of the net assets of the Fund in securities of fewer issuers, such as the potential additional exposure to the risk of default of the issuer in which the fund has so invested and the risks, including foreign exchange risks, of investing in the country in which that issuer is located.

5) the simplified prospectus of the Fund discloses, in the investment strategy section, the details of the Requested Relief outlined in paragraphs a) and b) above along with the conditions imposed and the type of securities covered by this Decision.

"Rhonda Goldberg"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission