Fidelity Investments Canada ULC and the Funds
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from requirement in section 2.1 of NI 81-101 to prepare fund facts in accordance with the requirements of Form 81-101F3 in order to provide disclosure in the fund facts about revisions to tiered pricing program -- relief replaces earlier relief regarding previous version of tiered pricing program and is subject to conditions.
Applicable Legislative Provisions
National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 2.1 and 6.1.
November 4, 2021
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) AND IN THE MATTER OF THE FUNDS (as defined below)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of each existing mutual fund established as a mutual fund trust (each, a Trust Fund and collectively, the Trust Funds) and each existing mutual fund established as a class of shares of a mutual fund corporation (each, a Class Fund and collectively, the Class Funds) and any mutual fund that the Filer may establish in the future (together with the Trust Funds and the Class Funds, the Funds and each, a Fund), for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):
1. exempting the Funds from the requirement in section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) to prepare a fund facts in the form of Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3), to permit the Funds to deviate from certain requirements in Form 81-101F3 to include certain disclosure (the Revised Program Disclosure) as follows:
(a) General instruction 8 of Form 81-101F3 to permit the Fund Facts document to include, at the end of the disclosure under the sub-heading "Fund expenses":
(i) A table (the Fee Decrease Table) that discloses:
(A) The investment amounts associated with each Tier (as defined herein) in the applicable Program Series (as defined herein); and
(B) The combined management and administration fee decrease, paid in the form of a rebate (for Class Funds) or a distribution (for Trust Funds), of each of the Tiers in the applicable Program Series from the combined management and administration fee of the applicable Series F or ISC Series Securities (each as defined herein), as the case may be, shown in percentage terms;
(ii) An introduction to the table stating that the table below lists out the combined management and administration fee decrease, paid in the form of a rebate or distribution, of each of the Tiers of the applicable Program Series from the combined management and administration fee of the applicable Series F or ISC Series Securities, as the case may be; and
(b) Item 1.1 of Part II of Form 81-101F3 to permit the Fund Facts document to include, as part of the introductory statement under the heading "How much does it cost?", a summary of the Revised Program (as defined hereunder) consisting of
(i) a statement explaining that the Automatic Rebate Program (as defined herein) under the Revised Program offers tiered distributions or rebates that result in progressively lower combined management and administration fees for Series F or ISC Series Securities, as applicable;
(ii) a statement explaining the scenarios in which levels of automatic distributions or rebates will change, including reductions in automatic distributions or rebates as the investor no longer qualifies for the particular Tier due to redemptions by the investor;
(iii) a cross-reference to the Fee Decrease Table;
(iv) a cross reference to specific sections of the simplified prospectus of the Funds for more details about the Revised Program;
(v) and a statement disclosing that investors should speak to their dealer representative for more details about the Revised Program; and
2. to revoke the Prior Relief (as defined hereunder 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 section 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 and together with the Jurisdiction, the 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:
The Filer
1. The Filer is a corporation duly amalgamated and validly existing under the laws of the Province of Alberta with its head office in Toronto, Ontario.
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. The Filer, or an affiliate of the Filer is or will be the investment fund manager of the Funds.
4. The Filer is not in default of securities legislation in any of the Jurisdictions.
The Funds
5. Each Trust Fund is, or will be, an open-end mutual fund trust created under the laws of the Province of Ontario. Each Class Fund is, or will be, an open-end mutual fund that is a class of shares of a mutual fund corporation.
6. Each Fund is, or will be, a reporting issuer under the laws of some or all of the Jurisdictions and subject to National Instrument 81-102 Investment Funds (NI 81-102). The securities of the Funds are, or will be, qualified for distribution pursuant to a simplified prospectus, fund facts document and annual information form that have been, or will be, prepared and filed in accordance with NI 81-101.
7. Units of the Trust Funds are currently offered under simplified prospectuses, fund facts and annual information forms dated November 1, 2020, as amended, September 18, 2020, as amended, October 2, 2020, October 5, 2020, January 12, 2021, and April 30, 2021 and shares of the Class Funds are currently offered under a simplified prospectus, fund facts and annual information form dated April 26, 2021 (collectively the Disclosure Documents). The units of the Trust Funds and shares of the Class Funds may be referred to herein collectively as Securities.
8. The Funds currently offer up to 36 series of Securities, including the following:
• Series A, T5 and T8 Securities (collectively, the DSC Series)
• Series F, F5 and F8 Securities (collectively, Series F)
• Series B, S5 and S8 Securities (collectively, the ISC Series and together with Series F, the Program Series)
• Series E1, E2, E3, E4, E5, E1T5, E2T5, E3T5, E4T5 and E5T5 Securities (collectively, Series E)
• Series P1, P2, P3, P4, P5, P1T5, P2T5, P3T5, P4T5 and P5T5 Securities (collectively, Series P and together with Series E, the Tiered Series)
9. The existing Funds are not in default of securities legislation in any of the Jurisdictions.
ISC Series, Series F and Tiered Series Securities
10. In 2015, the Filer implemented changes to its Funds to allow investors who hold ISC Series and Series F Securities of the Funds to qualify for lower combined management and administration fees based on the size of the holdings of the Funds in the investor's account or, in certain instances, the account grouping of which the investor is a member (together with the Automatic Switching Program (defined below), the Original Program). The benefit of this lower pricing was also made available to certain account groupings, thereby making the Tiered Series more accessible to a larger number of investors.
11. Series F Securities of the Fund have lower fees than the DSC Series or ISC Series 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 commission or trailing commission to dealers who sell Series F Securities.
12. ISC Series Securities of the Funds are purchased by investors on an initial sales charge basis. ISC Series Securities of the Funds may also be acquired upon the automatic switch of DSC Series Securities after the expiration of the deferred sales charge period on those Securities. Trailing commissions are paid to dealers who sell ISC Series Securities.
13. Series P securities offer tiered management and administration fees for Series F securityholders. Series P Securities offer lower combined management and administration fees than the existing Series F Securities based on the size of the holdings of the Funds in the investor's account or, in certain instances, the account grouping of which the investor is a member. The Filer automatically switches these Series F securityholders into, among and out of Series P Securities 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.
14. Series P Securities are available to holders of Series F and Series F5 Securities. Series P1 through P5 correspond to Series F and Series P1T5 through P5T5 correspond to Series F5. Series F5 Securities have the same attributes as Series F Securities, except that Series F5 is designed to provide tax efficient cash flow to investors by making monthly distributions of an amount comprised of a return of capital and/or net income.
15. Series E Securities offer tiered management and administration fees for ISC Series securityholders. Series E Securities offer lower combined management and administration fees than the existing ISC Series Securities based on size of the holdings of the Funds in the investor's account or, in certain circumstances, the account grouping of which the investor is a member. The Filer automatically switches these ISC Series securityholders into, among and out of Series E Securities 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.
16. Series E Securities are available to holders of applicable Series B and Series S5 Securities. Series E1 through E5 correspond to Series B and Series E1T5 through E5T5 correspond to Series S5. Series S5 Securities have the same attributes as Series B Securities, except that Series S5 is designed to provide tax efficient cash flow to investors by making monthly distributions of an amount comprised of a return of capital and/or net income.
17. The programs outlined in paragraphs 12 to 15 are collectively referred to herein as the Automatic Switching Programs and, individually, as an Automatic Switching Program.
18. Investor may only access Series P Securities of a Fund by initially investing in Series F Securities of a Fund. Investors may only access Series E Securities of a Fund by initially investing in the applicable ISC Series Securities of a Fund or by acquiring ISC Series Securities of a Fund upon the automatic switch of DSC Series Securities after the expiration of the deferred sales charge period. Once an investor already holds a series of a Tiered Series of a Fund, the investor can then directly buy Securities of the applicable tier of the Tiered Series of the same Fund or any other Fund.
19. For Series F and ISC Series accounts that have qualified for Series P Securities or Series E Securities, as the case may be, the Filer automatically switches:
(a) Series F or ISC Series accounts into the appropriate tier for Series P Securities or Series E Securities of the same Fund;
(b) Once in Series P Securities or Series E Securities, among the appropriate tiers of Series P Securities or Series E Securities 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;
(c) The account(s) to the applicable higher cost Series P Securities or Series E Securities, or from Series P Securities or Series E Securities back into Series F Securities or ISC Series Securities of the same Fund, where the account(s) no longer meets the account size threshold as a result of redemptions.
(the Automatic Switches and, individually, and Automatic Switch).
20. The sole difference between a Tiered Series and its corresponding Program Series is the combined management fee and administration fee (the Fee Difference).
21. The Automatic Switching Programs are part of the Original Program. The Original Program has 4 elements:
(a) Automatically applies to all holders of ISC Series Securities and Series F Securities.
(b) Aggregation Rule: Applies to all assets held in the Funds by the investor even where such assets do not meet the thresholds for the tiers on their own, as long as the holdings in one Fund meet the threshold.
(c) Financial Grouping Rule, which is defined broadly in the Funds' simplified prospectuses and includes family members of the qualified investor. The onus is on the primary account holder to advise Fidelity as to inclusions in the Household.
(d) Automatic Switching Programs.
The Revised Program
22. The Filer intends to revise the Original Program (the Revised Program) by the end of this year. The Revised Program has 4 elements:
(a) Automatically applies to all holders of ISC Series Securities and Series F Securities.
(b) Aggregation Rule, same as before.
(c) Financial Grouping Rule, same as before.
(d) Automatic Rebate Programs (as defined below), replacing Automatic Switching Programs.
23. The Filer will establish five asset level tiers (each, a Tier and, collectively, the Tiers) for each Fund corresponding to the asset level tiers for the Tiered Series. The Filer will disclose, in its simplified prospectuses, the details of the Revised Program and set out a table showing the management and advisory fee and administration fee rebate or distribution ("Fee Rebate") for each Tier for each Fund. The Fee Rebate is similar to the Fee Difference, adjusted for any reductions in the Program Series management and advisory fees or administration fees. The Fee Rebate will be in an amount such that the net combined management and administration fee after payment of the Fee Rebate will be equal to or less than the combined management and administration fee of the applicable Tiered Series as of the Date of this Decision. Upon an investor in a Program Series reaching the initial asset threshold, the investor will automatically qualify for a Tier and, thus, be eligible for a Fee Rebate. As the investor passes the asset level threshold to the next Tier, the Fee Rebate will be increased and will apply to the first dollar invested. If the investor's assets fall below the asset threshold for the Tier as a result of and to the extent of an investor's redemption from a Fund, the Fee Rebate will be automatically reduced to the level of Fee Rebate applicable to the lower Tier. Fee Rebates cannot be reduced due to market losses. The foregoing is referred to as the Automatic Rebate Program. The right to receive a Fee Rebate is automatic and non-discretionary, pursuant to the simplified prospectuses of the Funds. Fee Rebates are accrued daily and paid monthly by reinvestment in securities of the Fund.
24. As before, clients will continue to purchase Series F or ISC Series Securities. However, instead of the investor receiving an Automatic Switch to a Tiered Series, the investor will receive the Fee Rebate applicable to that Tier for that Fund.
25. As a result of the change from the Original Program to the Revised Program, the administrative complexity from both the Filer's perspective and the dealer's perspective will be significantly reduced. Currently, there is a separate fund code for each Tiered Series of each Fund, which places an undue burden on dealer systems.
26. From the client's perspective, the benefits received under the Revised Program will be more transparent that under the Original Program as they will see the amount of the Fee Rebate on their regular account statements.
The Prior Relief
27. On February 10, 2017, the Principal Regulator issued an order to the Filer (the Prior Relief) permitting the Filer to consolidate into one fund facts document Series F and the corresponding Series P Securities and each ISC Series Securities and the corresponding Series E Securities.
28. A feature of the Prior Relief is that it allowed the Filer to show, in the fund facts document of each Program Series, the corresponding Tiered Series available for the Fund as well as the Fee Difference applicable to each Tiered Series. As a result of the changes in the Revised Program, the Prior Relief will no longer be applicable as the Tiered Series will be terminated and will no longer be offered.
Generally
29. The Filer would like to continue to show the Fee Difference, as modified by the Fee Rebate, in the fund facts document of each Program Series and continue to provide a description of the Revised Program in the fund facts document, as described in the Revised Program Disclosure.
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 Exemption Sought is granted provided each fund facts document for a Program Series of a Fund contains the Revised Program Disclosure.
"Darren McKall"
Manager, Investment Funds and Structured Products
Ontario Securities Commission
Application File #: 2021/0452