Fidelity Weighs Fund-of-Funds Structure for Advisor Series

September 17, 2001, 1:00 a.m. EDT 2 Min Read

Fidelity Investments has filed a proxy with the Securities and Exchange Commission to make some changes within its Advisor Series I funds. As a potential cost-saving measure, the firm is asking for the option to adopt a fund-of-funds structure in the future but has no immediate plans to do so. Other proposed changes are designed to keep the funds compliant with SEC regulations.

"FMR and the Board of Trustees continually review methods of structuring mutual funds to take advantage of potential efficiencies or other benefits," the proxy said. "While neither FMR nor the Trustees have determined that a Fund-of-Funds Structure is appropriate at this time, the Trustees believe it could be in the best interests of each fund to adopt such a structure at a future date."

The fund-of-funds structure is generally used to create efficiencies by consolidating the portfolio management for a portion of a funds assets with other funds that invest similarly. By pooling the common portion of fund management in one centralized portfolio, a variety of funds can take advantage of the same base of management, the proxy said.

The Value Strategies Funds Initial Class shares have not garnered much interest; according to Morningstar, the funds assets hover at $7 million. In an effort to attract investments while avoiding potential problems with the SEC regarding rule 12b-1 of the Investment Company Act of 1940, Fidelity is asking for shareholder approval on a distribution plan.

"The Plan is designed to avoid legal uncertainties which may arise from the ambiguity of the phrase primarily intended to result in the sale of shares' and from the term indirectly' as used in the Rule," according to the proxy.

As a matter of bookkeeping, Fidelity is looking to clean up the language regarding several of its funds. Looking for consistent language and unambiguous statements, the firm is taking a series of measures to bring the funds up to snuff.

For instance, Fidelity is changing the investment policy of its Equity Growth Fund to comply with the SECs names rule: the fund currently mandates that at least 65% of its assets be invested in equities, where the SEC will soon require it to invest at least 80%.

Fidelity also hopes to eliminate the fundamental investment policies of several funds, allowing the funds "to more clearly communicate [their] investment objective and investment strategies to shareholders by standardizing [their] investment disclosure in a manner consistent with other Fidelity funds with similar investment disciplines."

Fidelity is also seeking shareholder approval to remove language specific to its funds investment strategies. For example, "Advisor Balanced Fund seeks both income and growth of capital by investing in a diversified portfolio of equity and fixed-income securities with income, growth of income, and capital appreciation potential," would be replaced by: "Advisor Balanced Fund seeks both income and growth of capital."