IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)
October 4, 2017
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 FIDELITY GLOBAL BOND INVESTMENT TRUST AND FIDELITY GLOBAL CREDIT EX-U.S. INVESTMENT TRUST (the Funds)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption (the Requested Relief), pursuant to section 19.1 of National Instrument 81-102 Investment Funds (NI 81-102) from subsection 2.1(1) of NI 81-102 (the Concentration Restriction) to permit each Fund to invest up to:
(a) 20% of its net asset value at the time of the transaction in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments, other than the government of Canada, the government of a jurisdiction in Canada or the government of the United States of America, and are rated “AA” by Standard & Poor’s Rating Services (Canada) (S&P) or its DRO affiliate (as defined in NI 81-102), or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates; and
(b) 35% of its net asset value at the time of the transaction in evidences of indebtedness of any one issuer if those securities are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments, other than the government of Canada, the government of a jurisdiction in Canada, or the government of the United States of America, and are rated “AAA” by S&P or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates;
(such evidences of indebtedness are collectively referred to as Foreign Government Securities).
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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and Yukon (the Other Jurisdictions).
Interpretation
Terms defined in NI 81-102, 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 is a corporation amalgamated under the laws of Alberta as an unlimited liability company with its head office in Toronto, Ontario.
The Filer is registered as an investment fund manager, portfolio manager, exempt market dealer and commodity trading manager in Ontario. The Filer is also registered as a portfolio manager and exempt market dealer in each of the Other Jurisdictions and as an investment fund manager in Newfoundland and Labrador and Québec.
The Filer will be the manager and trustee of each Fund.
Each Fund will be an open-ended mutual fund trust established under the laws of Ontario.
Each Fund may issue more than one series of units. Each Fund will initially offer Series O units.
The Funds will be offered by a simplified prospectus filed in all of the provinces and territories in Canada and, accordingly, the Funds will be reporting issuers in each of the provinces and territories of Canada. A preliminary simplified prospectus was filed for the Funds via SEDAR in all the provinces and territories on August 14, 2017 (the Simplified Prospectus, and collectively, with all future simplified prospectuses, the Prospectus).
Neither the Filer nor the Funds are in default of securities legislation in any jurisdiction of Canada.
The investment objective of Fidelity Global Bond Investment Trust is expected to be: “The Pool aims 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.”
The investment objective of Fidelity Global Credit Ex-U.S. Investment Trust is expected to be: “The Pool aims to provide a steady flow of income and the potential for capital gains. It invests primarily in global fixed income securities, with an emphasis on corporate and government debt issued outside of the United States.”
As part of its investment strategies, the portfolio manager of each Fund would like to invest a portion of each Fund’s assets in Foreign Government Securities. Depending on market conditions, the portfolio manager of the Funds seeks the discretion to gain exposure to any one issuer of Foreign Government Securities in excess of the Concentration Restriction.
Section 2.1(1) of NI 81-102 prohibits the Funds from purchasing a security of an issuer, other than a “government security”, as defined in NI 81-102, if, immediately after the purchase, more than 10% of the net asset value of the Funds would be invested in securities of that issuer.
The Foreign Government Securities do not meet the definition of “government securities” as such term is defined in NI 81-102.
In Companion Policy 81-102CP (the Companion Policy), the Canadian Securities Administrators state their views on various matters relating to NI 81-102. Subsection 3.1(4) of the Companion Policy indicates that relief from paragraph 2.04(1)(a) of National Policy 39, which was replaced by the Concentration Restriction, has been provided to mutual funds generally under the following circumstances:
a. the mutual fund has been permitted to invest up to 20% of its net asset value in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies 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 S&P or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates; and
b. the mutual fund has been permitted to invest up to 35% of its net asset value in evidences of indebtedness of any one issuer, if those securities are issued, or guaranteed fully as to principal and interest, by supranational agencies 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 “AAA” by S&P or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates.
The Prospectus for the Funds will disclose the risks associated with the concentration of assets of the Funds in securities of a limited number of issuers.
Each Fund seeks the Requested Relief to enhance its ability to pursue and achieve its investment objectives.
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 Requested Relief is granted provided that:
paragraphs (a) and (b) of the Requested Relief cannot be combined for any one issuer;
any security purchased pursuant to the Decision is traded on a mature and liquid market;
the acquisition of the securities purchased pursuant to this Decision is consistent with the fundamental investment objective of each Fund;
the Prospectus of the Funds discloses the additional risks associated with the concentration of net asset value of the Funds in securities of fewer issuers, such as the potential additional exposure to the risk of default of the issuer in which the Funds have so invested and the risks, including foreign exchange risk, of investing in the country in which the issuer is located; and
the Prospectus of the Funds will include a summary of the nature and terms of the Requested Relief, along with the conditions imposed and the type of securities covered by this Decision.
“Vera Nunes”
Vera Nunes, Manager
Investment Funds and Structured Products Branch
Ontario Securities Commission
SEDAR Project #2661255