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Fidelity Investments Canada ULC
Headnote
National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the requirement in s. 3.2.01 of NI 81-101 to pre-deliver a fund facts document to investors who purchase mutual fund securities of certain series under automatic switching programs -- Investment fund manager creating two new sets of mutual fund series offering tiered management and administration fees (tiered series), one for investors who purchase securities in fee-based accounts and one for investors purchasing securities under an initial sales charge -- Tiered series offering lower combined management and administration fees than the introductory fee-based or initial sales charge series, as applicable, that the investor first purchased securities in, based on the size of a fund investment -- Investment fund manager initiating automatic switches in and out of tiered series on behalf of investors when their investments satisfy or cease to meet eligibility requirements of tiered series -- Automatic switches between series of a fund triggering a distribution of securities attracting the requirement to deliver a fund facts -- Relief granted from requirement to pre-deliver a fund facts to investors for purchases of series securities made under the automatic switching programs subject to compliance with certain notification and prospectus/fund facts disclosure requirements -- National Instrument 81-101 Mutual Fund Prospectus Disclosure.
Applicable Legislative Provisions
National Instrument 81-101 Mutual Fund Prospectus Disclosure, sections 3.2.01 and 6.1.
May 30, 2016
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE "JURISDICTION") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF FIDELITY INVESTMENTS CANADA ULC (THE "FILER")
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer from the requirement in the Legislation for a dealer to deliver or send the most recently filed fund facts document (Fund Facts) before the dealer accepts an instruction from the purchaser for the purchase of the security (the Pre-Sale Fund Facts Delivery Requirement) in respect of purchases of mutual fund securities of the Tiered Series (defined below) that are made pursuant to Automatic Switches (defined below) (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (collectively, the Passport Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation duly amalgamated and validly existing under the laws of the Province of Alberta. The head office of the Filer is in Toronto, Ontario. The Filer is the investment fund manager of existing mutual funds (the Existing Funds) and may establish and manage other mutual funds in the future (together with the Existing Funds, the Funds).
2. The Filer is registered in Ontario, Québec and Newfoundland and Labrador in the category of investment fund manager. The Filer is also registered as a portfolio manager and mutual fund dealer in each of the provinces and territories of Canada and is registered under the Commodity Futures Act (Ontario) in the category of commodity trading manager.
3. Each Fund is, or will be, an open-end mutual fund trust created under the laws of the Province of Ontario or an open-end mutual fund that is a class of shares of a mutual fund corporation.
4. Each Fund is, or will be, a reporting issuer under the laws of some or all of the provinces and territories of Canada and subject to National Instrument 81-102 Investment Funds. The securities of the Funds are, or will be, qualified for distribution pursuant to a simplified prospectus, Fund Facts and annual information form that have been, or will be, prepared and filed in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure.
5. The units and shares of the Funds are referred to herein collectively as Securities. Securities of the Funds are currently offered under simplified prospectuses, Fund Facts and annual information forms dated December 16, 2015, March 28, 2016 and September 29, 2015, as amended from time to time, as applicable.
6. The Funds currently offer up to 33 series of Securities, as applicable -- series A, B, C, D, E1, E2, E3, E4, E5, E1T5, E2T5, E3T5, E4T5, E5T5 F, F5, F8, I, I5, I8, O, P1, P2, P3, P4, P5, P1T5, P2T5, P3T5, S5, S8, T5 and T8 Securities. Fidelity may offer additional series in the future.
7. Series F, F5 and F8 Securities of the Funds have lower fees than series A, B, I, T5, T8, I5, I8, S5, S8, C and D Securities and are usually purchased by investors who have fee-based accounts with dealers who sign an eligibility agreement with the Filer. Instead of paying sales charges, investors pay their dealer a fee for investment advice and other services they provide. In addition, the Filer does not pay any commissions or trailing commissions to dealers who sell Series F Securities. Series F is defined herein to include series F, F5 and F8, as applicable.
8. Series B, S5 and S8 Securities of the Funds are purchased by investors on an initial sales charge basis. Series B, S5 and S8 Securities of certain of the Funds may also be acquired upon the automatic switch of Series A, T5 or T8 Securities after the expiration of the deferred sales charge period on those Securities. Trailing commissions are paid to dealers who sell ISC Series Securities. ISC Series is defined herein to include series B, S5 and S8, as applicable.
9. Dealers are responsible for deciding whether investors are eligible to purchase and continue to hold Series F Securities. If an investor is no longer eligible to hold these Securities, the investor's dealer is responsible for telling the Filer to switch the investor's Securities into Securities of the appropriate ISC Series of the same Fund or redeem them.
10. On October 29, 2015, the Filer established a new set of series on certain of the Funds that offer tiered management and administration fees (the P Tiered Series) for Series F holders. The P Tiered Series offer lower combined management and administration fees than the existing Series F based on the size of the holdings of the Funds in the investor's account or, in certain instances, the group of related accounts of which the investor is a member. The Filer automatically switches these Series F holders into and out of the P Tiered Series based on the size of the holdings of the Funds in the investor's account or collectively in the related accounts without the dealer or investor having to initiate the trade.
11. On December 15, 2015, the Filer established a similar set of series on certain of the Funds that offer tiered management and administration fees (the ISC Tiered Series) for ISC Series holders. The ISC Tiered Series offers lower combined management and administration fees than the existing ISC Series based on the size of the holdings of the Funds in the investor's account or, in certain instances, the group of related accounts of which the investor is a member. The Filer automatically switches these ISC Series holders into and out of the ISC Tiered Series based on the size of the holdings of the Funds in the investor's account or collectively in the related accounts without the dealer or investor having to initiate the trade.
12. These programs are collectively referred to herein as the Automatic Switching Programs and individually as an Automatic Switching Program.
13. Once an account has qualified for one of the P Tiered Series or ISC Tiered Series, as the case may be, the account continues to enjoy the benefit of lower management and administration fees associated with that tier even if fund performance reduces the account value below that tier's threshold.
14. Investors may only access a P Tiered Series of a Fund by initially investing in Series F Securities of a Fund. Investors may only access an ISC Tiered Series of a Fund by initially investing in ISC Series Securities of a Fund or by acquiring certain ISC Series Securities of a Fund upon the automatic switch of securities after the expiration of the deferred sales charge period. Once an investor already holds a P Tiered Series or an ISC Tiered Series of a Fund, the investor can then buy directly that applicable tier of the P Tiered Series or ISC Tiered Series of the same Fund or any other Fund. For Series F and ISC Series accounts that have qualified for the P Tiered Series or ISC Tiered Series, as the case may be, the Filer automatically switches:
(a) Series F or ISC Series accounts into the appropriate tier of the P Tiered Series or ISC Tiered Series of the same Fund;
(b) once in the P Tiered Series or ISC Tiered Series, among the appropriate tiers of the P Tiered Series or ISC Tiered Series of the same Fund based on increases in the size of the holdings of the Funds in the investor's account or the related accounts, as the case may be, as a result of additional purchases and/or positive fund performance; and
(c) the account(s) to the applicable higher cost P Tiered Series or ISC Tiered Series, or from the P Tiered Series or ISC Tiered Series back into Series F or ISC Series of the same Fund, where the account(s) no longer meets the account size threshold as a result of redemptions.
(the Automatic Switches, individually an Automatic Switch).
15. Further to each Automatic Switch, an investor's account(s) continues to hold Securities in the same Fund(s) with the only material difference to the investor being that the combined management and administration fees of (a) each P Tiered Series are lower than those charged on Series F Securities or (b) each ISC Tiered Series are lower than those charged on ISC Series, as the case may be. In no event will (a) an account that qualifies for the P Tiered Series ever pay more than the Series F management and administration fees for which it initially subscribed or (b) an account that qualifies for the ISC Tiered Series ever pay more than the ISC Series management and administration fees for which it initially subscribed or acquired upon the automatic switch of certain Securities after the expiration of the deferred sales charge period.
16. There are no embedded commissions or trailing commissions in the P Tiered Series. In addition, there are no sales charges associated with the P Tiered Series. Sales charges and trailing commissions may apply to the ISC Tiered Series.
17. The rates of sales charges and trailing commissions attached to each ISC Tiered Series do not exceed the rates of sales charges and trailing commissions attached to the ISC Series.
18. The Automatic Switches have no adverse tax consequences on investors under current Canadian tax legislation.
19. Each Automatic Switch entails a redemption of Series F Securities or of P Tiered Series Securities, or a redemption of ISC Series Securities or of ISC Tiered Series Securities, as the case may be, immediately followed by a purchase of the applicable P Tiered Series or Series F Securities, or the applicable ISC Tiered Series or ISC Series Securities, as the case may be. Each purchase of Securities done as part of the Automatic Switch is a "distribution" under the Legislation that triggers the Pre-Sale Fund Facts Delivery Requirement.
20. While the Filer initiates each trade done as part of the Automatic Switches, the Filer does not deliver the Fund Facts to investors in connection with the purchase of Securities made pursuant to Automatic Switches since:
(a) at no time does:
i. an account that qualifies for the P Tiered Series pay more than the combined management and administration fees of the Series F Securities for which it initially subscribed or
ii. an account in the ISC Tiered Series pay more than the combined management and administration fees of the ISC Series for which it initially subscribed or acquired upon the automatic switch of certain Securities after the expiration of the deferred sales charge period; and
(b) in all cases, since Series F and ISC Series holders received a prospectus or Fund Facts document disclosing the higher level of fees which applied to the series for which they initially subscribed, the investor would derive little benefit from a further Fund Facts document for each Automatic Switch.
21. On October 28, 2015, the Filer obtained relief from the requirement in the Legislation for a dealer to deliver or send the most recently filed Fund Facts document at the same time and in the same manner as otherwise required for the prospectus (the Fund Facts Delivery Requirement) in respect of purchases of mutual fund securities of the P Tiered Series and ISC Tiered Series that are made pursuant to Automatic Switches.
22. On May 30, 2016, the Fund Facts Delivery Requirement was replaced under the Legislation by the Pre-Sale Fund Facts Delivery Requirement. The Filer accordingly requires the Exemption Sought in order to continue making the Automatic Switches pursuant to the Automatic Switching Programs without having to deliver a Fund Facts in advance of each Automatic Switch.
23. The Filer has and will continue to deliver or arrange for the delivery of trade confirmations to investors in connection with each trade done further to Automatic Switches. Furthermore, details of the changes in series of securities have and will continue to be reflected in the account statements sent to investors by their dealer for the month in which the change occurred.
24. The Filer has and will continue to disclose: (a) the eligibility requirements and the management and administration fees applicable to the Series F and each P Tiered Series and/or to the ISC Series and each ISC Tiered Series in the simplified prospectuses of the Funds, and (b) a summary of the eligibility requirements, the management and administration fees or the management expense ratios, as applicable, and the fee discounts applicable to the Series F and each P Tiered Series and/or to the ISC Series and each ISC Tiered Series in the Fund Facts of the Funds.
25. Prior to the launch of the Automatic Switching Programs, the Filer communicated extensively with dealers about the Automatic Switches so that dealers were equipped to appropriately notify existing Series F investors and ISC Series investors of the changes applying to their Series F or ISC Series investments, as the case may be, and appropriately advise new Series F and ISC Series investors on the applicable Automatic Switching Program.
26. In the absence of the Exemption Sought, the Filer may not carry out the Automatic Switches without compliance with the Pre-Sale Fund Facts Delivery Requirement.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator is that the Exemption Sought is granted provided that:
1. For investors who purchase Series F Securities or ISC Series Securities on and after the launch date of the applicable Automatic Switching Program:
a) the Filer incorporates disclosure in the simplified prospectus for the Series F and the P Tiered Series or ISC Series and the ISC Tiered Series, as applicable, or in respect of both, that sets out:
i. the eligibility requirements for both Series F and the P Tiered Series or for the ISC Series and the ISC Tiered Series, as applicable, or in respect of both;
ii. the fees applicable to investments in both the Series F and the P Tiered Series or in both the ISC Series and the ISC Tiered Series, as applicable, or in respect of both; and
iii. that if investors cease to meet the eligibility requirements of a specified P Tiered Series or ISC Tiered Series, their investment will be switched into a series with higher management and administration fees which will not exceed the Series F fees or the ISC Series fees, as the case may be, and
b) each Fund Facts for those series will (i) disclose a summary of the eligibility requirements, the management and administrations fees or the management expense ratio, as applicable, and the fee discounts, (ii) disclose that if investors cease to meet the eligibility requirements of a specified P Tiered Series or ISC Tiered Series, their investment will be switched into a series with higher management and administration fees which will not exceed the Series F fees or the ISC Series fees, as the case may be, and (iii) will contain a cross-reference to the more detailed disclosure in the simplified prospectus; and
c) the Series F Fund Facts or ISC Series Fund Facts, as the case may be, containing the disclosure described in paragraph 1(b) above is delivered by the dealer to Series F investors or ISC Series investors before the first purchase of Series F Securities or ISC Securities on or after the launch date of the applicable Automatic Switching Program in accordance with the Pre-Sale Fund Facts Delivery Requirement.
2. For Series F and ISC Series investors who have holdings in the Funds of $150,000 or more and for investors in the P Tiered Series and ISC Tiered Series, the Filer sends to these investors an annual reminder notice advising that they will not receive the Fund Facts before they purchase Securities further to an Automatic Switch, but that:
a) they may request the most recently filed Fund Facts for the relevant series by calling a specified toll-free number or by sending a request via email to a specified address or email address;
b) the most recently filed Fund Facts will be sent or delivered to them at no cost;
c) the most recently filed Fund Facts may be found either on the SEDAR website or on the Filer's website; and
d) they will not have the right to withdraw from an agreement of purchase and sale in respect of a purchase of series Securities made pursuant to an Automatic Switch, but they will have the right of action for damages or rescission in the event any Fund Facts or document incorporated by reference into a simplified prospectus for the relevant series contains a misrepresentation, whether or not they request the Fund Facts.
"Vera Nunes"
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission