Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption granted to permit in-specie subscriptions and redemptions by separately managed accounts and pooled funds in mutual funds and pooled funds where portfolio manager of managed accounts is also portfolio manager of the mutual funds and the pooled funds.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements, ss. 13.5(2)(b)(ii), 13.5(2)(b)(iii).

National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.1(4).

November 13, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

FIDELITY INVESTMENTS CANADA ULC

(FIC)

AND

PYRAMIS GLOBAL ADVISORS, LLC

(Pyramis)

(FIC and Pyramis are collectively, the Filers)

DECISION

Background

The principal regulator in the Jurisdiction (the Principal Regulator) has received an application from the Filers under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for a decision providing an exemption from the prohibition in the Legislation that prohibits a registered adviser from knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, to purchase or sell a security from or to the investment portfolio of an associate of a responsible person, or from or to the investment portfolio of an investment fund for which a responsible person acts as an adviser (collectively the Trading Prohibition Exemption Sought), to permit In-Specie Transactions (as defined below) between (i) NI 81-102 Funds and Pooled Funds, (ii) NI 81-102 Funds and Managed Accounts, (iii) Pooled Funds and Pooled Funds and (iv) Pooled Funds and Managed Accounts (each as defined below).

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 Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut (collectively, with Ontario, the Jurisdictions).

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this Decision. Certain other defined terms have the meanings given to them above or below under "Representations".

Representations

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

1. FIC is a corporation incorporated under the laws of Canada and subsequently continued, and thereafter amalgamated, under the laws of Ontario and thereafter continued under the laws of Alberta as an unlimited liability company and having its registered head office in Toronto, Ontario.

2. Pyramis is a limited liability company formed under the laws of the state of Delaware and having its head office in Smithfield, Rhode Island, U.S.A.

3. FIC is registered under the securities legislation of the Jurisdictions as a dealer in the category of mutual fund dealer and as an adviser in the categories of investment counsel and portfolio manager. FIC is also registered under the Commodity Futures Act as an adviser in the category of commodity trading manager.

4. Pyramis is registered under the securities legislation of Ontario as a non-Canadian advisor in the categories of investment counsel and portfolio manager and commodity trading manager (non-resident) and with the U.S. Securities Exchange Commission as an investment adviser.

5. FIC is the manager (and in some instances also the trustee) of certain existing investment funds that are subject to National Instrument 81-102 Mutual Funds (NI 81-102) (the Existing NI 81-102 Funds) and may be the manager (and in some instances also the trustee) of other investment funds to be established hereafter that will be subject to NI 81-102 (the Future NI 81-102 Funds, and collectively with the Existing NI 81-102 Funds, the NI 81-102 Funds, individually, an NI 81-102 Fund) and each of the Filers is, or may in the future be, the portfolio manager/investment counsel of one or more of the NI 81-102 Funds. Affiliates of the Filers act or may act as sub-advisors in respect of the NI 81-102 Funds.

6. The securities of each of the NI 81-102 Funds are or will be qualified for distribution pursuant to a simplified prospectus and annual information form that have been prepared or will be prepared and filed in accordance with the securities legislation of each of Ontario and one or more of the applicable provinces and territories of Canada (the Prospectus).

7. Each NI 81-102 Fund has or will have an independent review committee (IRC) established in accordance with the requirements of NI 81-107.

8. Either of FIC or Pyramis will be the portfolio manager/investment counsel, of certain existing investment funds (the Existing Pooled Funds) and investment funds to be established hereafter under the laws of Ontario (the Future Pooled Funds), the securities of which are offered pursuant to exemptions from the prospectus and, where available, registration requirements in the Jurisdictions (the Existing Pooled Funds and the Future Pooled Funds are collectively, the Pooled Funds. Affiliates of the Filers act or may act, as sub-advisors in respect of the Pooled Funds. FIC is or will be the manager and trustee of the Pooled Funds.

9. Set out in Schedule A hereto are the Existing NI 81-102 Funds and the Existing Pooled Funds.

10. The Pooled Funds together with the NI 81-102 Funds are collectively referred to herein as the "Fidelity Funds" and individually as a "Fidelity Fund".

11. The Filers, each NI 81-102 Fund, and each Pooled Fund are not in default of securities legislation in any jurisdiction of Canada.

12. The Filers and their affiliates offer discretionary portfolio management services to individuals, corporations and other entities (Clients) seeking wealth management or related services under a written agreement (Managed Account Agreement) in connection with a managed account (Managed Account) of the Client with one or the other of the Filers.

13. Pursuant to Managed Account Agreements entered into with the Clients, the Filers or their affiliates acting as sub-advisors, make investment decisions for each Managed Account and have full discretionary authority to trade in securities for each Managed Account without obtaining the specific consent or instructions of the Client to the trade.

14. The portfolio management/investment counsel services provided by the Filers to each Client consist of the following:

(a) each Client executes a Managed Account Agreement whereby the Client authorizes the respective Filer to supervise, manage and direct purchases and sales in the Client's Managed Account, at the Filer's full discretion on a continuing basis;

(b) the respective Filer's qualified employees (or employees of affiliates of the Filers) perform investment research, securities selection and portfolio management functions with respect to all securities, investments, cash and cash equivalents and other assets in the Managed Account;

(c) each Managed Account holds securities and other investments as selected by the respective Filer or of its affiliates in its sole discretion; and

(d) each Filer retains overall responsibility for the advice provided to its Clients and has designated a senior officer to oversee and supervise the Managed Account.

15. Each Filer's minimum Managed Account size is generally $7.5 million, which may be waived at the Filers' discretion.

16. Investments in individual securities may at certain times not be appropriate in certain circumstances for a Filers' Clients. Consequently, a Filer may, where authorized under the Managed Account Agreement, from time to time invest Client assets in securities of any one or more of the Fidelity Funds in order to give their Clients the benefit of asset diversification, access to investment products with very high minimum investment levels and economies of scale regarding minimum commission charges on portfolio trades and generally to facilitate portfolio management.

17. The Filers wish to be able to enter into transactions that permit payment, in whole or in part, for units or shares of a Fidelity Fund (Fund Securities) purchased by a Managed Account to be made by making good delivery of securities, held by such Managed Account, to a Fidelity Fund, provided those securities meet the investment criteria of the Fidelity Fund.

18. Similarly, following a redemption of Fund Securities by a Managed Account, the Filers wish to be able to enter into transactions that permit payment, in whole or in part, of redemption proceeds to be satisfied by making good delivery of securities held in the investment portfolio of a Fidelity Fund to such Managed Account, provided those securities meet the investment criteria of the Managed Account. The Filers anticipate that such transactions will occur following a redemption of Fund Securities where a Managed Account invested in such Fidelity Fund has experienced a change in circumstances which results in the Managed Account being an ideal candidate for direct holdings of individual securities rather than Fund Securities.

19. In addition to purchases and redemptions of Fund Securities by a Managed Account being satisfied by making good delivery of securities, the Filers wish to be able to enter into such transactions for purchases and redemptions of Fund Securities between a Pooled Fund and a NI 81-102 Fund and between two Pooled Funds. This will occur where, as part of its portfolio management, a Pooled Fund wishes to obtain exposure to certain investments or category of asset classes invested in by a Fidelity Fund by investing in Fund Securities of the Fidelity Fund. The Filers wish to be able to enter into transactions that permit payment, in whole or in part, for the Fund Securities to be made by making good delivery of securities held by the Pooled Fund to the Fidelity Fund in which it seeks to invest. Similarly, following a redemption of Fund Securities, the Filers wish to be able to enter into transactions that permit payment, in whole or in part, of the redemption proceeds to be satisfied by making good delivery of securities held in the investment portfolio of the Fidelity Fund provided those securities meet the investment criteria of the Pooled Fund. (The transactions described in paragraphs 17 to 19 are hereinafter individually referred to as In-Specie Transactions).

20. Clients will consent to In-Specie Transactions with the Fidelity Funds prior to entering into In-Specie Transactions.

21. At the time of an In Specie Transaction, FIC, as manager of the NI 81-102 Funds, will have in place policies and procedures in connection with the NI 81-102 Funds engaging in In-Specie Transactions with the Pooled Funds and the Managed Accounts.

22. The Filers will value the securities under an In-Specie Transaction using the same values to be used on that day to calculate the net asset value for the purpose of the issue price or redemption price of Fund Securities.

23. The NI 81-102 Funds that may engage in In-Specie Transactions will include disclosure in that regard in the Prospectus of the NI 81-102 Funds.

24. None of the Fund Securities which are the subject of an In-Specie Transaction will be securities of related issuers of the Filers.

25. A Fidelity Fund will keep written records of the In-Specie Transactions, 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, the most recent two years in a reasonably accessible place.

26. Since each Filer is the portfolio manager/investment counsel of the Managed Accounts and the Fidelity Funds, each Filer would be considered a "responsible person" within the meaning of the applicable provisions of the legislation in each of the Jurisdictions. Each Fidelity Fund is or will be an "associate" of FIC under applicable Legislation because FIC, as portfolio manager of a Fidelity Fund, serves or may serve as trustee of a Fidelity Fund or in a similar capacity.

27. Prior to entering into an In-Specie Transaction involving a Fidelity Fund and/or Managed Account, the proposed transaction will be reviewed to ensure that the conditions of the Trading Prohibition Exemption Sought are or will be met at the time of the transaction and to determine that the transaction represents the business judgment of the entity that is exercising its discretion on behalf of the Fidelity Fund and/or the Managed Account, uninfluenced by considerations other than the best interests of the Fidelity Fund and/or Managed Account.

28. In the absence of the Trading Prohibition Exemption Sought, the Filers would be prohibited from (a) causing a Managed Account to execute an In-Specie Transaction with a Fidelity Fund; and (b) causing a Fidelity Fund to execute an In-Specie Transaction with a Managed Account or with a Pooled Fund.

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 under the Legislation is that the Trading Prohibition Exemption Sought is granted provided that:

(a) in connection with an In Specie Transaction where a Managed Account acquires Fund Securities:

(i) where the Fidelity Fund is a NI 81-102 Fund,

(a) the manager of the NI 81-102 Fund obtains the approval of the IRC of the NI 81-102 Fund in respect of an In-Specie Transaction in accordance with the terms of section 5.2(2) of NI 81-107; and

(b) the manager of the NI 81-102 Fund and the IRC of the NI 81-102 Fund comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In-Specie Transaction;

(ii) the Filer or its affiliate (as applicable) obtains the prior written consent of the Client of the Managed Account before it engages in any In-Specie Transaction;

(iii) the Fidelity Fund would, at the time of payment, be permitted to purchase the securities;

(iv) the securities are acceptable to the portfolio manager of the Fidelity Fund and consistent with the Fidelity Fund's investment objective;

(v) the value of the securities is at least equal to the issue price of the Fund Securities of the Fidelity Fund for which they are used as payment, valued as if the securities were portfolio assets of that Fidelity Fund;

(vi) the account statement next prepared for the Managed Account describes the securities delivered to the Fidelity Fund and the value assigned to such securities;

(vii) the Fidelity Fund will keep written records of each In-Specie Transaction in a financial year of the Fidelity Fund, reflecting details of the securities delivered to the Fidelity Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonable accessible place;

(b) in connection with an In Specie Transaction where a Managed Account redeems Fund Securities:

(i) where the Fidelity Fund is a NI 81-102 Fund,

(a) the manager of the NI 81-102 Fund, obtains the approval of the IRC of the NI 81-102 Fund in respect of an In-Specie Transaction in accordance with the terms of section 5.2(2) of NI 81-107; and

(b) the manager of the NI 81-102 Fund and the IRC of the NI 81-102 Fund comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In-Specie Transaction;

(ii) the Filer or its affiliate (as applicable) obtains the prior written consent of the Client of the Managed Account before it engages in an In-Specie Transaction;

(iii) the securities are acceptable to the portfolio manager of the Managed Account and consistent with the Managed Account's investment objective;

(iv) the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price;

(v) the Client of the Managed Account has not provided notice to terminate the Managed Account Agreement;

(vi) the account statement next prepared for the Managed Account describes the securities delivered to the Managed Account and the value assigned to such securities;

(vii) the Fund will keep written records of each In-Specie Transaction in a financial year of the Fidelity Fund, reflecting details of the securities delivered by the Fidelity Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place; and

(c) in connection with an In Specie Transaction where a Pooled Fund purchases Fund Securities:

(i) where the Fidelity Fund is a NI 81-102 Fund,

(a) the manager of the NI 81-102 Fund, obtains the approval of the IRC of the NI 81-102 Fund in respect of an In-Specie Transaction in accordance with the terms of section 5.2(2) of NI 81-107; and

(b) the manager of the NI 81-102 Fund and the IRC of the NI 81-102 Fund comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In-Specie Transaction;

(ii) the Fidelity Fund would, at the time of payment, be permitted to purchase the securities;

(iii) the securities are acceptable to the portfolio manager of the Fidelity Fund and consistent with such Fidelity Fund's investment objective;

(iv) the value of the securities is equal to the issue price of the Fund Securities of the Fidelity Fund, valued as if the securities were portfolio assets of that Fidelity Fund;

(v) the Fidelity Fund will keep written records of each In-Specie Transaction in a financial year of the Fidelity Fund, reflecting details of the securities delivered to the Fidelity Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonable accessible place; and

(d) in connection with an In Specie Transaction where a Pooled Fund redeems Fund Securities:

(i) where the Fidelity Fund is a NI 81-102 Fund,

(a) the manager of the NI 81-102 Fund, obtains the approval of the IRC of the NI 81-102 Fund in respect of an In-Specie Transaction in accordance with the terms of section 5.2(2) of NI 81-107; and

(b) the manager of the NI 81-102 Fund and the IRC of the NI 81-102 Fund comply with the requirements of section 5.4 of NI 81-107 for any standing instructions the IRC provides in respect of an In-Specie Transaction;

(ii) the securities are acceptable to the portfolio manager of the Pooled Fund and consistent with the Pooled Fund's investment objective;

(iii) the value of the securities is equal to the amount at which those securities were valued in calculating the net asset value per security used to establish the redemption price;

(iv) the Fidelity Fund will keep written records of each In-Specie Transaction in a financial year of the Fidelity Fund, reflecting details of the securities delivered by the Fidelity Fund and the value assigned to such securities, for five years after the end of the financial year, the most recent two years in a reasonably accessible place;

(e) the Filer or its affiliate (as applicable) does not receive any compensation in respect of any In-Specie Transaction and, in respect of any delivery of securities further to an In-Specie Transaction, the only charges paid by the Managed Account or the applicable Fidelity Fund is the commission charged by the dealer executing the trade and/or any administrative charges levied by the custodian.

"Darren McKall"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission

 

SCHEDULE A

LIST OF EXISTING NI 81-102 FUNDS

Fidelity Canadian Disciplined Equity® Fund
Fidelity Canadian Growth Company Fund
Fidelity Canadian Large Cap Fund
Fidelity Canadian Opportunities Fund
Fidelity Dividend Fund
Fidelity Special Situations Fund
Fidelity True North® Fund
Fidelity American Disciplined Equity® Fund
Fidelity American Opportunities Fund
Fidelity American Value Fund
Fidelity Growth America Fund
Fidelity Small Cap America Fund
Fidelity AsiaStar™ Fund
Fidelity China Fund
Fidelity Emerging Markets Fund
Fidelity Europe Fund
Fidelity Far East Fund
Fidelity Global Disciplined Equity® Fund
Fidelity Global Dividend Fund
Fidelity Global Fund
Fidelity Global Opportunities Fund
Fidelity Global Real Estate Fund
Fidelity International Disciplined Equity™ Fund
Fidelity International Value Fund
Fidelity Japan Fund
Fidelity Latin America Fund
Fidelity NorthStar® Fund
Fidelity Overseas Fund
Fidelity Global Consumer Industries Fund
Fidelity Global Financial Services Fund
Fidelity Global Health Care Fund
Fidelity Global Natural Resources Fund
Fidelity Global Technology Fund
Fidelity Global Telecommunications Fund
Fidelity Canadian Asset Allocation Fund
Fidelity Canadian Balanced Fund
Fidelity Monthly Income Fund
Fidelity Global Asset Allocation Fund
Fidelity Global Monthly Income Fund
Fidelity ClearPath™ 2005 Portfolio
Fidelity ClearPath™ 2010 Portfolio
Fidelity ClearPath™ 2015 Portfolio
Fidelity ClearPath™ 2020 Portfolio
Fidelity ClearPath™ 2025 Portfolio
Fidelity ClearPath™ 2030 Portfolio
Fidelity ClearPath™ 2035 Portfolio
Fidelity ClearPath™ 2040 Portfolio
Fidelity ClearPath™ 2045 Portfolio
Fidelity ClearPath™ Income Portfolio
Fidelity Canadian Bond Fund
Fidelity Canadian Money Market Fund
Fidelity Canadian Short Term Bond Fund
Fidelity American High Yield Fund
Fidelity American High Yield Currency Neutral Fund
Fidelity U.S. Money Market Fund
Fidelity Global Bond Fund
Fidelity Global Bond Currency Neutral Fund
Fidelity Income Trust Fund
Fidelity Monthly High Income Fund
Fidelity Canadian Disciplined Equity® Class
Fidelity Canadian Growth Company Class
Fidelity Canadian Opportunities Class
Fidelity Dividend Class
Fidelity True North® Class
Fidelity American Disciplined Equity® Class
Fidelity American Opportunities Class
Fidelity Growth America Class
Fidelity Small Cap America Class
Fidelity AsiaStar™ Class
Fidelity China Class
Fidelity Europe Class
Fidelity Far East Class
Fidelity Global Disciplined Equity® Class
Fidelity Global Class
Fidelity Global Dividend Class
Fidelity Global Real Estate Class
Fidelity International Disciplined Equity™ Class
Fidelity Japan Class
Fidelity NorthStar® Class
Fidelity Global Consumer Industries Class
Fidelity Global Financial Services Class
Fidelity Global Health Care Class
Fidelity Global Natural Resources Class
Fidelity Global Technology Class
Fidelity Global Telecommunications Class
Fidelity Canadian Asset Allocation Class
Fidelity Canadian Balanced Class
Fidelity Income Class Portfolio
Fidelity Global Income Class Portfolio
Fidelity Balanced Class Portfolio
Fidelity Global Balanced Class Portfolio
Fidelity Growth Class Portfolio
Fidelity Global Growth Class Portfolio
Fidelity Canadian Short Term Income Class

LIST OF EXISTING POOLED FUNDS

Pyramis International Growth Trust
Pyramis Canadian Core Equity Trust
Pyramis Canadian Bond Trust
Pyramis Canadian Systematic Equity Trust
Pyramis U.S. Large Cap Core Trust
Pyramis U.S. Large Cap Core Non-Registered Trust
Pyramis Select Emerging Markets Equity Trust
Pyramis Select International Equity Trust
Pyramis Select International Plus Trust
Pyramis Concentrated International Small Cap Trust
Pyramis Select Global Equity Trust
Pyramis Canadian Long Bond Trust
Pyramis Canadian Bond Core Plus Trust
Pyramis Currency Hedged Global Bond Trust
Pyramis Global Bond Trust
Pyramis Currency Hedged Emerging Markets Debt Trust
Pyramis Emerging Markets Equity Trust
Pyramis Strategic Balanced Trust
Pyramis International Growth Plus Trust
Pyramis ClearPath™ Institutional 2010 Portfolio
Pyramis ClearPath™ Institutional 2015 Portfolio
Pyramis ClearPath™ Institutional 2020 Portfolio
Pyramis ClearPath™ Institutional 2025 Portfolio
Pyramis ClearPath™ Institutional 2030 Portfolio
Pyramis ClearPath™ Institutional 2035 Portfolio
Pyramis ClearPath™ Institutional 2040 Portfolio
Pyramis ClearPath™ Institutional 2045 Portfolio
Pyramis ClearPath™ Institutional Income Portfolio
Pyramis Canadian Long Bond Core Plus Trust
Pyramis Currency Hedged International Growth Trust
Pyramis Currency Hedged Select Global Equity Trust
Pyramis Currency Hedged U.S. Large Cap Core Non-Registered Trust