SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE
SECURITIES EXCHANGE ACT OF 1934
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| ☒ | Definitive Information Statement | |
Fidelity Rutland Square Trust II
(Name of Registrant as Specified In Its Charter)
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Information Statement
Strategic Advisers Funds
We appreciate your business and your trust in Fidelity Investments. As always, we are committed to keeping you informed about your Fidelity account(s), including any updates and/or changes.*
The enclosed information statement provides important information regarding a new manager that has been appointed to one or more of the Strategic Advisers Funds held within your Fidelity account.
Inside, you will find detailed information about the terms of an agreement with the new manager, which was selected by Strategic Advisers LLC, the adviser to the Strategic Advisers Funds and the portfolio manager for your Fidelity managed account. They believe these changes will provide your account with additional benefits, such as increased manager diversification, and help to ensure that the Fund can be effectively managed to meet its specific style exposure and investment objective.
Please read the enclosed information carefully. No other action is required by you. Should you have any questions, please call the appropriate number listed below.
| • | For current or former clients in a Fidelity managed account: Please call1-800-544-3455, Monday–Friday, 8 a.m. to 7 p.m. Eastern time (Strategic Advisers® Income Opportunities Fund). |
| * | You may have elected to suppress other legal notifications; however, certain regulatory requirements mean that we are legally bound to send you this notification. We apologize for any inconvenience. |
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IMPORTANT NOTICE REGARDING THE
AVAILABILITY OF INFORMATION STATEMENT.
The Information Statement is available at www.proxyvote.com/proxy.
STRATEGIC ADVISERS® INCOME OPPORTUNITIES FUND (THE FUND)
A SERIES OF
FIDELITY RUTLAND SQUARE TRUST II
245 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
1-800-544-3455
INFORMATION STATEMENT
This Information Statement is being furnished by the Board of Trustees (the Board or Trustees) of Fidelity Rutland Square Trust II (the Trust) to the shareholders of Strategic Advisers® Income Opportunities Fund (the Fund), a series of the Trust. This Information Statement is provided in lieu of a proxy statement, pursuant to the terms of an exemptive order that the Trust has received from the Securities and Exchange Commission (SEC) that permits the Trust’s investment adviser, Strategic Advisers LLC (Strategic Advisers), to hire unaffiliatedsub-advisers without obtaining shareholder approval, subject to the approval of the Trust’s Board.
This Information Statement is being mailed on or about February 7, 2020 to shareholders of record as of January 14, 2020. This Information Statement is intended to inform you that a newsub-adviser has been appointed to your fund. No action is required of you. We are not asking you for a proxy and you are requested not to send us a proxy.
The information contained in this Information Statement relates to the Trustees’ approval on December 4, 2019 of a newsub-adviser under asub-advisory agreement (the Agreement) with PGIM, Inc. (PGIM or NewSub-Adviser).
The purpose of this Information Statement is to provide an overview of the Trustees’ decision to appoint PGIM as an additionalsub-adviser for the Fund and to discuss the terms of the Agreement.
INTRODUCTION
Strategic Advisers is the Fund’s investment adviser. Pursuant to the terms of an exemptive order granted to Strategic Advisers and the Trust by the SEC on November 28, 2006 (SEC Order), Strategic Advisers employs aso-called “manager of managers” arrangement in managing the Fund. Section 15(a) of the Investment Company Act of 1940, as amended (the 1940 Act) generally requires that a fund’s shareholders approve all agreements pursuant to which persons serve as investment adviser orsub-adviser to a fund. The SEC Order exempts Strategic Advisers and the Trust from the shareholder voting requirements of Section 15(a) of the 1940 Act and allows the Trustees, subject to certain conditions, to appoint new unaffiliatedsub-advisers and approve their respectivesub-advisory agreements on behalf of the Fund without a shareholder vote.
Consistent with the SEC Order, the Trustees, including a majority of the Trustees who are not parties to the Agreement or “interested persons” of any such party (the Independent Trustees), appointed the NewSub-Adviser as an additionalsub-adviser to the Fund and approved the Agreement at anin-person meeting on December 4, 2019. As discussed later in this Information Statement, the Board carefully considered the matter and concluded that the appointment of the NewSub-Adviser under the terms of the Agreement was in the best interest of the Fund and its shareholders.
As a condition to relying on the SEC Order, Strategic Advisers and the Trust are required to furnish shareholders of the Fund with notification of the appointment of a new unaffiliatedsub-adviser within ninety days from the date that thesub-adviser is hired. This Information Statement serves to provide such notice and give details of the new arrangement.
MANAGEMENT CONTRACT OF THE FUND
Strategic Advisers, located at 245 Summer Street, Boston, Massachusetts 02210, is the Fund’s investment adviser. Strategic Advisers directs the investments of the Fund in accordance with the Fund’s investment objective, policies and limitations pursuant to a management contract that was initially approved by the Board, including a majority of the Independent Trustees, on March 4, 2010, and by the initial sole shareholder on August 20, 2010.
The management contract for the Fund (the Management Contract) was most recently renewed by the Board, including a majority of the Independent Trustees, on September 4, 2019.
Strategic Advisers, or its affiliates, subject to the supervision of the Board, provides the management and administrative services necessary for the operation of the Fund. These services include, among others, supervising relations with, and monitoring the performance of, anysub-advisers; preparing all general shareholder communications, including shareholder reports; maintaining the Fund’s records; maintaining the registration and qualification of the Fund’s shares under federal and state law; and furnishing reports, evaluations, and analyses on a variety of subjects to the Trustees. In addition, Strategic Advisers or its affiliates also compensate all officers of the Fund and all personnel of Strategic Advisers for performing services relating to research, statistical and investment activities.
The Fund pays a monthly management fee to Strategic Advisers (the Management Fee). The Management Fee is calculated by adding Strategic Advisers’ annual Management Fee rate of 0.25% and the total fee, payable monthly, to the Fund’ssub-advisers based on eachsub-adviser’s allocated portion of the Fund’s average daily net assets throughout the month. The Fund’s effective Management Fee may be higher or lower in the future based on factors such as the portion of fund assets managed bysub-advisers and thesub-advisory fee rates of thesub-advisers that may manage a Fund in the future.
Strategic Advisers has contractually agreed to waive its portion of the Management Fee for the Fund in an amount equal to 0.25% of the Fund’s average daily net assets
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through September 30, 2022. Strategic Advisers has also contractually agreed that the maximum aggregate annual management fee rate of the Fund will not exceed 0.75%.
Strategic Advisers may not discontinue or modify the management fee waiver prior to its expiration date without the approval of the Board. The addition of the NewSub-Adviser will not result in a change to the maximum aggregate annual management fee payable by shareholders, the portion of the Management Fee retained by Strategic Advisers, if any, or the management fee waiver arrangement discussed above.
In addition to the NewSub-Adviser FIAM LLC (FIAM) serves as asub-adviser to the Fund. FIAM is an affiliate of Strategic Advisers.
The following table shows management fees paid by the Fund to Strategic Advisers andsub-advisory fees paid by Strategic Advisers to FIAM during the fiscal period ended February 28, 2019.
Fund | Management | Management | Aggregate | Sub-Advisory | ||||
| Income Opportunities Fund | $1,630,820 | 0.30% | $1,630,873 | 0.05% | ||||
| A | After waivers reducing management fees in the amount of $7,439,924. |
| B | Differences between the amount of the management fees paid by the Fund to Strategic Advisers and the aggregate amount ofsub-advisory fees paid by Strategic Advisers to FIAM may be due to expense estimates which are accrued in the period to which they relate and adjusted when actual amounts are known. |
SUMMARY OF THE AGREEMENT WITH THE NEWSUB-ADVISER
On December 4, 2019, pursuant to the “managers of managers” arrangement, the Board approved the Agreement with the NewSub-Adviser on behalf of the Fund. Pursuant to the Agreement, the NewSub-Adviser hasday-to-day responsibility for choosing investments for the portion of assets of the Fund allocated to it by Strategic Advisers and for voting proxies for the Fund with respect to those investments.
Pursuant to the Agreement, the NewSub-Adviser provides a program of continuous investment management for the portion of the Fund’s assets allocated to it in accordance with the Fund’s investment objective and policies as stated in the Fund’s prospectus and statement of additional information filed with the SEC on FormN-1A, as amended and supplemented from time to time (the Registration Statement), and such other limitations as the Trust, the Fund, the Board, or Strategic Advisers may impose. The NewSub-Adviser
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will vote the Fund’s proxies in accordance with the NewSub-Adviser’s proxy voting policies, as approved by the Board. Strategic Advisers has granted the NewSub-Adviser authority to invest and reinvest the assets of the Fund allocated to it by selecting the securities, instruments, repurchase agreements, financial futures contracts, options and other investments and techniques that the Fund may purchase, sell, enter into or use. For providing investment management services to its allocated portion of the Fund, Strategic Advisers pays the NewSub-Adviser a monthly asset-based fee out of the Management Fee payable by the Fund.
The Agreement may be terminated on sixty days’ written notice to the NewSub-Adviser: (i) by the Trust, pursuant to (A) action by the Board or (B) the vote of the holders of a “majority” (as defined in the 1940 Act) of the shares of the Fund or (ii) by Strategic Advisers. The Agreement is terminable, without penalty, by the NewSub-Adviser upon ninety days’ written notice to Strategic Advisers and the Trust. In addition, the Agreement will terminate in the event of the termination of the Management Contract with respect to the Fund. The Agreement will be terminated automatically in the event of its “assignment” (as defined in the 1940 Act).
INFORMATION ABOUT PGIM
PGIM’s main office is located at 655 Broad Street, Newark, New Jersey 07102. PGIM is not affiliated with Strategic Advisers.
Investment Process
In managing the Fund’s assets, the NewSub-Adviser uses a combination oftop-down economic analysis andbottom-up research in conjunction with proprietary quantitative models and risk management systems. In thetop-down economic analysis, the NewSub-Adviser develops views on economic, policy and market trends by continually evaluating economic data that affect the movement of markets and securities prices. Thistop-down macroeconomic analysis is integrated into the NewSub-Adviser’sbottom-up research which informs security selection. In itsbottom-up research, the NewSub-Adviser develops an internal rating and outlook on issuers. The rating and outlook are determined based on a thorough review of the financial health and trends of the issuer, which include a review of the composition of revenue, profitability, cash flow margin, and leverage.
The NewSub-Adviser also uses actively managed high yield bond portfolios, constructed from the bottom up using methodical, research-based subsector and security selection.
The NewSub-Adviser also uses diversified portfolios of performing credits. Fundamental research is conducted by an internal credit research staff to attempt to identify strong and improving credits. Portfolios are then actively managed to capture what the NewSub-Adviser believes are the best opportunities and minimize credit losses, within an environment of disciplined risk management oversight.
The New Sub-Adviser also uses a sector-based approach, whereby portfolio managers specialize on certain industries (typically 4 to 6 each).
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The NewSub-Adviser may also consider investment factors such as expected total return, yield, spread and potential for price appreciation as well as credit quality, maturity and risk. The NewSub-Adviser may invest in a security based upon the expected total return rather than the yield of such security.
The NewSub-Adviser may also utilize proprietary quantitative tools to support relative value trading and asset allocation for portfolio management as well as various risk models to support risk management.
Directors and Officers
The following are the directors, officers, and control persons of PGIM. Unless otherwise noted, the address of each is 655 Broad Street, Newark, New Jersey 07102.
| DIRECTORS AND OFFICERS | ||
| Name | Position | |
| Allen A. Weaver | Director, Senior Managing Director & Vice President | |
| Taimur Hyat | Chief Operating Officer, Vice President | |
| David A. Hunt | Chairman, Director, President & CEO PGIM | |
| David M. Durning | Senior Managing Director, President and CEO PGIM Real Estate Finance, Chairman Global Debt Real Estate Business for PGIM & Vice President | |
| Eric B. Collinet-Adler | Senior Managing Director, Chairman and CEO PGIM Real Estate Chairman and CEO Finance & Vice President | |
| Wiley S. Adams | Chief Legal Officer, Vice President | |
| Jurgen Muhlhauser | Director, Vice President, and Chief Financial Officer | |
| Chad A. Earnst | Vice President and Chief Compliance Officer | |
| Michael Lillard | Director, Senior Managing Director, Senior Vice President | |
| CONTROL PERSON | ||
| Name | Relationship | |
| Prudential Financial, Inc. | Owns 100% of PGIM Holding Company LLC, which owns 100% of PGIM | |
No officer or Trustee of the Fund is an officer, employee, director, or shareholder of PGIM.
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PGIM also acts as investment adviser orsub-adviser to other registered investment companies (or portions thereof) set forth below, which have investment objectives that are similar to the portion of the Fund that may be allocated to PGIM pursuant to the Agreement:
Fund | Net Assets | |
| Affiliated Mutual Fund (1992) | $10,000,000,000 | |
| Affiliated Mutual Fund (1992) | $514,200,000 | |
| Affiliated Mutual Fund (2010) | $407,500,000 | |
| Affiliated Mutual Fund (2014) | $65,800,000 | |
MATTERS CONSIDERED BY THE BOARD
IN APPROVING THE AGREEMENT
Matters Considered by the Board in Approving the Agreement is included in Appendix A.
MANAGEMENT INFORMATION ABOUT STRATEGIC ADVISERS
The principal business address of Strategic Advisers, the Fund’s investment adviser, is 245 Summer Street, Boston, Massachusetts, 02210.
The principal business address of Fidelity Distributors Corporation, the Fund’s principal underwriter and distribution agent, is 900 Salem Street, Smithfield, Rhode Island 02917.
OTHER INFORMATION
Outstanding Shares and Ownership of Shares. There were $21,412,257 shares of the Fund outstanding as of October 31, 2019. As of February 28, 2019, the Trustees, Members of the Advisory Board (if any), and officers of the Fund owned, in the aggregate, less than 1% of the Fund’s total outstanding shares.
To the knowledge of the Trust, no shareholder had substantial (5% or more) record and/or beneficial ownership of the Fund as of October 31, 2019.
Shareholder Proposals. The Trust does not hold regularly scheduled meetings of shareholders of the Fund. Any shareholder proposal for a shareholder meeting must be presented to the Trust within a reasonable time before proxy materials for such meeting are sent to shareholders. Shareholders wishing to submit proposals for inclusion in a proxy statement for a future shareholder meeting should send their written proposals to the Secretary of the Fund, attention “Fund Shareholder Meetings,” 245 Summer Street, Mailzone V10A, Boston, Massachusetts 02210.
Annual Report. For a free copy of the Fund’s most recent annual report and semi- annual report, if any, call1-800-544-3455 or write to Fidelity Distributors Corporation
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at 900 Salem Street, Smithfield, Rhode Island 02917. In addition, you may visit Fidelity’s website at www.fidelity.com for a free copy of a prospectus, statement of additional information, annual or semi-annual report, or to request other information.
NOTICE TO BANKS, BROKER-DEALERS
AND VOTING TRUSTEES AND THEIR NOMINEES
Please advise the Trust, in care of Fidelity Investments Institutional Operations Company, Inc., 245 Summer Street, Boston, Massachusetts, 02210, whether other persons are beneficial owners of shares for which the Information Statement is being mailed and, if so, the number of copies of the Information Statement and Annual Report you wish to receive in order to supply copies to the beneficial owners of the respective shares.
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APPENDIX A
MATTERS CONSIDERED BY THE BOARD
IN APPROVING THE AGREEMENT
On December 4, 2019, the Board of Trustees, including the Independent Trustees (together, the Board) voted at anin-person meeting to approve asub-advisory agreement (theSub-Advisory Agreement) with PGIM, Inc. (NewSub-Adviser) for the fund.
The Board, assisted by the advice of fund counsel and Independent Trustees’ counsel, considered a broad range of information it believed relevant to the approval of theSub-Advisory Agreement.
In considering whether to approve theSub-Advisory Agreement, the Board reached a determination, with the assistance of fund counsel and Independent Trustees’ counsel and through the exercise of its business judgment, that the approval of theSub-Advisory Agreement is in the best interests of the fund and its shareholders and that the approval of such agreement does not involve a conflict of interest from which Strategic Advisers LLC (Strategic Advisers) or its affiliates derive an inappropriate advantage.Also, the Board found that thesub-advisory fees to be charged under theSub-Advisory Agreement bear a reasonable relationship to the services to be rendered and will be based upon services provided that will be in addition to, rather than duplicative of services provided under the advisory contract of any underlying fund in which the fund may invest. The Board’s decision to approve theSub-Advisory Agreement was not based on any single factor, but rather was based on a comprehensive consideration of all the information provided to the Board. In addition, individual Trustees did not necessarily attribute the same weight or importance to each factor.
Nature, Extent, and Quality of Services Provided. The Board considered the backgrounds of the investment personnel that will provide services to the fund, and also took into consideration the fund’s investment objective, strategies and related investment philosophy and currentsub-adviserline-up. The Board also considered the structure of the NewSub-Adviser’s portfolio manager compensation program and whether this structure provides appropriate incentives to act in the best interests of the fund. The Board noted that it is familiar with the nature, extent and quality of services provided by the NewSub-Adviser from its oversight of the NewSub-Adviser on behalf of other funds overseen by the Board and that the same support staff, including compliance personnel, that currently provides services to other Strategic Advisers funds will also provide services to the fund.
Resources Dedicated to Investment Management and Support Services. The Board reviewed the general qualifications and capabilities of the NewSub-Adviser’s investment staff, its use of technology, and the NewSub-Adviser’s approach to managing and compensating its investment personnel. The Board noted that the NewSub-Adviser will utilize a different investment mandate to manage the fund than it currently uses in managing other Strategic Advisers funds and reviewed the general qualifications and capabilities of the investment staff that will provide services to the fund. The Board noted that the NewSub-Adviser’s analysts have extensive resources, tools and capabilities
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which allow them to conduct sophisticated fundamental and/or quantitative analysis. Additionally, in its deliberations, the Board considered the NewSub-Adviser’s trading capabilities and resources which are integral parts of the investment management process.
Shareholder and Administrative Services. The Board considered (i) the nature, extent, quality, and cost of advisory services to be performed by the NewSub-Adviser under theSub-Advisory Agreement and (ii) the resources to be devoted to the fund’s compliance policies and procedures.
Investment Performance. The Board also considered the historical investment performance of the NewSub-Adviser and the portfolio managers in managing accounts under a similar investment mandate.
Based on its review, the Board concluded that the nature, extent, and quality of services that will be provided to the fund under theSub-Advisory Agreement should benefit the fund’s shareholders.
Competitiveness of Management Fee and Total Fund Expenses. In reviewing theSub-Advisory Agreement, the Board considered the amount and nature of fees to be paid by the fund to the fund’s investment adviser, Strategic Advisers, the amount and nature of fees to be paid by Strategic Advisers to the NewSub-Adviser and the projected change in the fund’s management fee and total operating expenses, if any, as a result of hiring the NewSub-Adviser.
The Board noted that the fund’s maximum aggregate annual management fee rate may not exceed 0.75% of the fund’s average daily net assets and that theSub-Advisory Agreement will not result in a change to the maximum aggregate annual management fee payable by the fund or Strategic Advisers’ portion of the management fee. The Board considered Strategic Advisers’ contractual agreement to waive its 0.25% portion of the fund’s management fee through September 30, 2022. The Board also considered that after allocating assets to the NewSub-Adviser, the fund’s management fee is expected to continue to rank below the competitive peer group median, and the fund’s total net expenses are expected to continue to rank above the competitive peer group median, presented to the Board in the June 2019 management contract renewal materials.
Based on its review, the Board concluded that the fund’s management fee structure and any changes to projected total expenses bear a reasonable relationship to the services that the fund and its shareholders will receive and the other factors considered.
Because theSub-Advisory Agreement was negotiated at arm’s length and will have no impact on the maximum management fees payable by the fund or Strategic Advisers portion of the management fee, the Board did not consider the costs of services and profitability to be significant factors in its decision to approve theSub-Advisory Agreement.
PotentialFall-Out Benefits. The Board considered that it reviews information regarding the potential of direct and indirect benefits to Strategic Advisers and its affiliates from their relationships with the fund, includingnon-advisory fee compensation
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paid to affiliates of Strategic Advisers, if any, as well as information regarding potentialfall-out benefits accruing to the fund’ssub-advisers, if any, as a result of their respective relationships with the fund, during its annual renewal of the fund’s advisory agreement with Strategic Advisers and the fund’ssub-advisory agreements. With respect to the NewSub-Adviser, the Board considered management’s representation that it does not anticipate that the hiring of the NewSub-Adviser will have a significant impact on the potential forfall-out benefits to Strategic Advisers or its affiliates.
Possible Economies of Scale. The Board considered that it reviews whether there have been economies of scale in connection with the management of the fund during its annual renewal of the fund’s advisory agreement with Strategic Advisers and the fund’ssub-advisory agreements. The Board noted that theSub-Advisory Agreement provides for breakpoints that have the potential to reducesub-advisory fees paid to the NewSub-Adviser as assets allocated to the NewSub-Adviser grow.
Conclusion. Based on its evaluation of all of the conclusions noted above, and after considering all factors it believed relevant, the Board ultimately concluded that theSub-Advisory Agreement’s fee structure bears a reasonable relationship to the services to be rendered and that theSub-Advisory Agreement should be approved because theSub-Advisory Agreement is in the best interests of the fund and its shareholders. The Board also concluded that thesub-advisory fees to be charged thereunder will be based on services provided that will be in addition to, rather than duplicative of services provided under the advisory contract of any underlying fund in which the fund may invest. In addition, the Board concluded that the approval of theSub-Advisory Agreement does not involve a conflict of interest from which Strategic Advisers or its affiliates derive an inappropriate advantage.
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The third-party marks appearing above are the marks of their respective owners.
Strategic Advisers is a registered service mark of FMR LLC.© 2020 FMR LLC. All rights reserved.
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