Compliance September 5, 2007

SEC Sends Letter to ICI Warning About Misuse of 22c-2 Information

With an anti-market timing rule scheduled to go into effect October 16, 2007, Securities and Exchange Commission (SEC) regulators have warned the investment industry not to misuse investor data they may now have to gather.
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In an August letter to Mary Podesta, Acting General Counsel of the Investment Company Institute, SEC Associate Director Robert Plaze reminded fund companies that a federal law, the Gramm-Leach-Bliley Act, forbids using investor information gathered under rule 22c-2 for marketing unless the consumers have been given notice and the opportunity to opt out of having their information shared.

Plaze said his letter was prompted by a May 2007 Wall Street Journal article quoting PricewaterhouseCoopers as asserting that the new rule might give fund companies “a treasure trove of data they can mine to market directly to customers.”

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Under rule 22c-2. funds are mandated to work out agreements with their financial intermediaries – including those holding shares through omnibus accounts – under which the intermediaries must agree to provide funds with certain shareholder identity and transaction information upon request (See 22c-2 Is Here).

The SEC officials said the commission believes that 22c-2 information disclosures may be allowed under certain privacy exceptions including processing and servicing transactions at the consumer’s request and complying with applicable legal requirements.

Plaze asserted that privacy rules permit information sharing under the exceptions if financial institutions include in their privacy notices a statement that they make disclosures to “other nonaffiliated third parties as permitted by law’.”‘

“As a matter of routine practice, most financial institutions currently include this statement in their privacy notices,” Plaze wrote.

Also, Plaze wrote, funds getting 22c-2 information under the exceptions aren’t permitted to use or redisclose the information only for purposes of the exception, which does not include marketing purposes, unless permitted under the intermediary’s privacy policy.

The SEC letter is available here.

Deals & People September 5, 2007

Fidelity Freedom Gets CIO

Fidelity Investments has tapped Ren Y. Cheng as chief investment officer (CIO) of its fast-growing life-cycle and asset-allocation funds, overseeing $130 billion in assets.
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Cheng was previously a portfolio manager of Fidelity’s “Freedom” life-cycle funds, and he was also the head of the life-cycle funds group – but without the CIO designation.

“The position of CIO is a new one, and with Ren no longer involved in the day-to-day management of the Freedom funds, this will allow him to focus on the strategic direction of the group as well as to develop new investment talent,” Fidelity spokesman Alexi Maravel said, according to Reuters. Fidelity, which first launched life-cycle funds in 1996, now has assets of about $75 billion and more than 3 million investors in these funds.

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After his promotion to CIO, Cheng continues to manage 12 portfolio managers and analysts. Christopher L. Sharpe has been named co – manager of the Fidelity Freedom Funds and Fidelity Advisor Freedom Funds, succeeding Cheng, according to a press release.

“Succession” Plans

Sharpe will co–manage the Freedom and Advisor Freedom Funds with current co–manager Jonathan A. Shelon. Shelon has been named co–manager, with current co–manager Sharpe, of the VIP Freedom Portfolios, VIP Investor Freedom Portfolios, and VIP Freedom Lifetime Income Portfolios, also succeeding Cheng. According to a press release, Sharpe will continue to co–manage with Shelon all the Fidelity–managed 529 plans, for which they assumed responsibilities in 2005 for the states of Arizona, New Hampshire, Massachusetts, and Delaware, and in 2006 for the state of California. Sharpe also will remain co–manager of Fidelity Four–in–One Index Fund and certain funds available exclusively to Canadian investors.

Sharpe joined Fidelity in 2002 as an asset allocation director in the Structured Investment Group. In that role, he was responsible for constructing and managing risk–controlled portfolios for institutional clients. Sharpe began co–managing the VIP Freedom Portfolios in 2005. Prior to joining Fidelity, he was an investment policy officer in the Investment Strategy Group with John Hancock Financial Services, Inc. From 1990 to 2000, Sharpe was a consultant and investment actuary with Mercer Human Resources Consulting, Inc., in Boston, with responsibility for retirement and investment consulting for plan sponsors on defined benefit and defined contribution plans.

Shelon joined Fidelity in 2001 as an institutional portfolio manager. He began co–managing the Fidelity Advisor Freedom Funds in 2003 and the Fidelity Freedom Funds in 2005. Prior to joining Fidelity, Shelon was a quantitative consultant in the Capital Markets Research Group of Callan Associates, Inc., an investment consulting firm. In that role, he developed strategic investment plans for institutional clients including pension plans, foundations, endowments, and insurance companies. From 1993 to 1998, Shelon was an associate actuary with Milliman U.S.A.

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