Fidelity Strategic Income Currency Neutral Fund

Transcription

1 Fidelity Strategic Income Currency Neutral Fund Semi-Annual Report September 30, 2016 Notice to Readers The accompanying interim financial statements have not been reviewed by the external auditor of the Fund. The external auditor will be auditing the annual financial statements of the Fund in accordance with Canadian generally accepted auditing standards.

2 Fidelity Strategic Income Currency Neutral Fund Schedule of Investments September 30, 2016 (Unaudited) Showing Percentage of Net Assets Attributable to Holders of Redeemable Units (Net Assets) Underlying Funds 100.1% Units (000s) Cost (000s) Market Value (000s) Fidelity Strategic Income Fund Series O 3,158 $ 33,771 $ 34,152 TOTAL INVESTMENT PORTFOLIO 100.1% $33,771 34,152 NET OTHER ASSETS (LIABILITIES) (0.1)% (47) NET ASSETS 100% $ 34,105 Forward Foreign Currency Contracts Amounts in thousands Settlement Date Value (000 s) Appreciation/ (Depreciation) (000 s) Contracts to Sell 56 AUD (Receivable amount $56) Oct $ 57 $ (1) 56 AUD (Receivable amount $57) Nov CHF (Receivable amount $1) Nov EUR (Receivable amount $98) Oct (1) 1,150 EUR (Receivable amount $1,700) Nov , GBP (Receivable amount $49) Oct GBP (Receivable amount $371) Nov ,535 JPY (Receivable amount $72) Oct ,083 JPY (Receivable amount $1,300) Nov , ,937 JPY (Receivable amount $64) Nov ,297 USD (Receivable amount $1,692) Oct ,702 (10) 5,477 USD (Receivable amount $7,196) Nov , USD (Receivable amount $739) Nov (1) 5,477 USD (Receivable amount $7,196) Nov , ,477 USD (Receivable amount $7,196) Nov , ,477 USD (Receivable amount $7,196) Nov , Amounts in thousands Settlement Date Value (000 s) Appreciation/ (Depreciation) (000 s) 5,535 JPY (Payable amount $98) Oct $ 72 $ (26) 324 USD (Payable amount $439) Oct (14) 324 USD (Payable amount $439) Oct (14) 324 USD (Payable amount $439) Oct (14) 324 USD (Payable amount $439) Oct (14) TOTAL CONTRACTS TO BUY 1,976 (95) TOTAL FORWARD FOREIGN CURRENCY CONTRACTS $ (47) The value of contracts to buy as a percentage of Net Assets is 5.8% The value of contracts to sell as a percentage of Net Assets is 102.4%. Currency Abbreviations AUD Australian dollar CHF Swiss franc EUR European Monetary Unit GBP British pound JPY Japanese yen USD U.S. dollar TOTAL CONTRACTS TO SELL 34, Contracts to Buy 56 AUD (Payable amount $57) Oct CHF (Payable amount $0) Oct EUR (Payable amount $114) Oct (15) 28 GBP (Payable amount $46) Oct See accompanying notes which are an integral part of the financial statements. Semi-Annual Reportport 2

3 Investment Valuation The following is a summary of the inputs used, as of September 30, 2016, involving the Fund s assets and liabilities carried at fair value. The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used in the tables below, please refer to the Investment Valuation section in the accompanying Notes to Financial Statements. Valuation Inputs at September 30, 2016: Description Total Level 1 Level 2 Level 3 (Amounts in thousands) Investments in Securities: Underlying Funds $34,152 $34,152 $ $ Total Investments in Securities: $34,152 $34,152 $ $ Derivative Instruments: Assets Forward Foreign Currency Contracts $ 63 $ $ 63 $ Total Assets $ 63 $ $ 63 $ Liabilities Forward Foreign Currency Contracts $ (110) $ $ (110) $ Total Liabilities $ (110) $ $ (110) $ Total Derivative Instruments: $ (47) $ $ (47) $ See accompanying notes which are an integral part of the financial statements. 3 Semi-Annual Report

4 Financial Statements (Unaudited) Statements of Financial Position Amounts in thousands of Canadian Dollars /thousands of units (except per unit amounts) As at September 30, 2016 Assets (Note 3) Current assets Investments at fair value through profit or loss (Note 8) $ 34,152 Receivable for investments sold 31 Unrealized appreciation on forward foreign currency contracts (Note 9) 63 Distributions receivable 153 Receivable on sale of units ,053 Liabilities (Note 3) Current liabilities Payable to custodian bank 23 Payable for investments purchased 760 Payable on redemption of units 2 Distributions payable (Note 5) 23 Management and advisory fees payable (Note 4) 24 Other payables to affiliates (Note 4) 5 Unrealized depreciation on forward foreign currency contracts (Note 9) 110 Other payables and accrued expenses (Note 4) Net assets attributable to holders of redeemable units (Notes 3 and 6) $ 34,105 Net assets attributable to holders of redeemable units per Series and per unit (Note 6) Series A: ($4,567 / 443 units) $ Series B: ($3,976 / 386 units) $ Series F: ($18,417 / 1,787 units) $ Series E1: ($1,593 / 155 units) $ Series P1: ($5,552 / 539 units) $ See accompanying notes which are an integral part of the financial statements. Semi-Annual Reportport 4

5 Statements of Comprehensive Income Amounts in thousands of Canadian Dollars (except per unit amounts) For the period April 22, 2016 (Inception date) to September 30, Investment income (Note 3) Interest $ Income distributions from the underlying funds 354 Net gain (loss) on Investments Net realized gain (loss) on investments 4 Change in net unrealized appreciation (depreciation) on investments Net gain (loss) on Derivatives Net realized gain (loss) on derivatives (175) Change in net unrealized appreciation (depreciation) on derivatives (47) (222) Total investment income (loss) 517 Operating expenses (Note 4) Management and advisory fees 49 Administration fees 10 Independent Review Committee fees Commissions and other portfolio costs Sales tax 7 Total operating expenses 66 Expenses waived (Note 4) (3) Net operating expenses 63 Net increase (decrease) in net assets attributable to holders of redeemable units from operations $ 454 Other information: Increase (decrease) in net assets attributable to holders of redeemable units from operations per Series (Note 3) Series A $ 69 Series B $ 92 Series F $ 237 Series E1 $ 6 Series P1 $ 50 Increase (decrease) in net assets attributable to holders of redeemable units from operations per Series per unit (Note 3) Series A $.2508 Series B $.2717 Series F $.2052 Series E1 $.2064 Series P1 $.1909 See accompanying notes which are an integral part of the financial statements. 5 Semi-Annual Report

6 Financial Statements (Unaudited) continued Statements of Changes in Net Assets Attributable to Holders of Redeemable Units Amounts in thousands of Canadian Dollars For the period April 22, 2016 (Inception date) to September 30, 2016 Fund Series A Series B Series F Series E1 Series P1 Net assets attributable to holders of redeemable units, beginning of period $ $ $ $ $ $ Distributions to holders of redeemable units (Note 5) From net investment income (321) (35) (41) (191) (8) (46) Management fee reduction (1) (1) (322) (35) (42) (191) (8) (46) Redeemable unit transactions (Note 6) Proceeds from sale of redeemable units 42,786 5,082 6,665 23,859 1,647 5,533 Reinvestment of distributions Amounts paid upon redemption of redeemable units (9,085) (577) (2,774) (5,650) (60) (24) 33,973 4,533 3,926 18,371 1,595 5,548 Increase (decrease) in net assets attributable to holders of redeemable units from operations Net increase (decrease) in net assets attributable to holders of redeemable units 34,105 4,567 3,976 18,417 1,593 5,552 Net assets attributable to holders of redeemable units, end of period $ 34,105 $ 4,567 $ 3,976 $ 18,417 $ 1,593 $ 5,552 See accompanying notes which are an integral part of the financial statements. Semi-Annual Reportport 6

7 Statements of Cash Flows Amounts in thousands of Canadian Dollars For the period April 22, 2016 (Inception date) to September 30, Cash, beginning of period $ Cash flows from (used in) operating activities: Purchases of investments and derivatives (33,378) Proceeds from sale and maturity of investments and derivatives 163 Cash receipts from interest income Cash receipts from other investment income 202 Cash paid for operating expenses (32) Net cash from (used in) operating activities (33,045) Cash flows from (used in) financing activities: Distributions to holders of redeemable units net of reinvestments (27) Proceeds from sales of units 42,132 Amounts paid upon redemption of units (9,083) Amounts borrowed from (repaid to) custodian bank 23 Net cash from (used in) financing activities 33,045 Net change in cash Cash, end of period $ See accompanying notes which are an integral part of the financial statements. 7 Semi-Annual Report

8 Notes to Financial Statements (Unaudited) For the period ended September 30, 2016 (Unaudited) (Amounts in thousands of Canadian dollars/thousands of units (except per unit amounts)) 1. Formation of the Fund Fidelity Strategic Income Currency Neutral Fund (Fund) is an open end mutual fund trust formed under the laws of Ontario and governed by a Master Declaration of Trust dated April 22, 2016 (Inception Date), as amended thereafter from time to time. The Fund is authorized to issue an unlimited number of units. Fidelity Investments Canada ULC (Fidelity), as manager and trustee of the Fund, is responsible for the day-to-day operations and provides all general management and administrative services. The investment advisor is responsible for the investment management of the Fund s portfolio. The registered office of the Fund is located at 483 Bay Street, Suite 300, Toronto, Ontario, M5G 2N7. The Fund invests substantially all of its assets in Fidelity Strategic Income Fund Series O (Underlying Fund). Currently, Fidelity mutual funds are offered in the following Series: Series A, Series B, Series C, Series D, Series F, Series F5, Series F8, Series I, Series I5, Series I8, Series O, Series T5, Series T8, Series S5, Series S8, Series E1, Series E1T5, Series E2, Series E2T5, Series E3, Series E3T5, Series E4, Series E4T5, Series E5, Series E5T5, Series P1, Series P1T5, Series P2, Series P2T5, Series P3, Series P3T5, Series P4, Series P4T5, Series P5 and Series P5T5. Series A, Series C, Series T5 and Series T8 units are available to all investors in a deferred sales charge (DSC) option. Series A, Series T5 and Series T8 units will be converted to lower management and advisory fee Series B, Series S5 and Series S8 units, respectively, one year after completion of their redemption schedule. Series T5 and Series T8 units have substantially all the same attributes as the Series A units with the exception that Series T5 and Series T8 units distribute an amount comprised of net income and/or return of capital monthly, if available. Series B, Series D, Series S5 and Series S8 units are available to all investors in an initial sales charge (ISC) option. Series S5 and Series S8 units have substantially all the same attributes as the Series B units with the exception that Series S5 and Series S8 units distribute an amount comprised of net income and/or return of capital monthly, if available. Series C and Series D units are available to investors who have enrolled in the rebalancing service. Series F, Series F5 and Series F8 units are usually only available to investors who have fee based accounts with dealers who have signed an eligibility agreement with Fidelity. Series F5 and Series F8 units have substantially all the same attributes as the Series F units with the exception that Series F5 and Series F8 units distribute an amount comprised of net income and/or return of capital monthly, if available. Series E1, Series E1T5, Series E2, Series E2T5, Series E3, Series E3T5, Series E4, Series E4T5, Series E5 and Series E5T5 units are available only to investors who initially hold Series B and/or Series S5 units and then become eligible to hold certain Series E units. Series E1, Series E1T5, Series E2, Series E2T5, Series E3, Series E3T5, Series E4, Series E4T5, Series E5 and Series E5T5 units have lower combined management and administration fees than Series B or Series S5 units. Series E1T5, Series E2T5, Series E3T5, Series E4T5 and Series E5T5 units have the same attributes as the other Series E units with the exception that Series E1T5, Series E2T5, Series E3T5, Series E4T5 and Series E5T5 units distribute an amount comprised of net income and/or return of capital monthly, if available. Series P1, Series P1T5, Series P2, Series P2T5, Series P3, Series P3T5, Series P4, Series P4T5, Series P5 and Series P5T5 units are available only to investors who initially hold Series F and/or Series F5 units and then become eligible to hold certain Series P units. Series P1, Series P1T5, Series P2, Series P2T5, Series P3, Series P3T5, Series P4, Series P4T5, Series P5 and Series P5T5 units have lower combined management and administration fees than Series F or Series F5 units. Series P1T5, Series P2T5, Series P3T5, Series P4T5 and Series P5T5 units have the same attributes as the other Series P units with the exception that Series P1T5, Series P2T5, Series P3T5, Series P4T5 and Series P5T5 units distribute an amount comprised of net income and/or return of capital monthly, if available. Series O units are only available to selected investors who have been approved by Fidelity and have entered into a Series O Account Agreement with Fidelity. Series I, Series I5 and Series I8 units are available to all investors who have entered into a Series I Agreement with Fidelity and are available to all investors in an initial sales charge (ISC) option. Series I5 and Series I8 units have substantially all the same attributes as the Series I units with the exception that Series I5 and Series I8 units distribute an amount comprised of net income and/or return of capital monthly, if available. The Fund offers Series A, Series B, Series F, Series E1 and Series P1 units. The Fund meets the definition of an investment entity and its purpose is to provide investment management services to its unitholders by investing its net assets for capital growth and/or investment income and by measuring its investment performance on a fair value basis. Refer to the Financial Instruments Risk note below for the Fund s investment objective. The Fund commenced operations on June 28, Basis of Preparation Statement of Compliance - These interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board (IASB) and as applicable to the preparation of interim financial statements, including IAS 34 Interim Financial Reporting. The accounting policies set out below have been applied consistently unless otherwise stated. The policies applied in these interim financial statements are based on IFRS issued as of November 8, 2016, which is the date on which the interim financial statements were authorized for issue by Fidelity s board of directors. Any subsequent changes to IFRS that are given effect in the Fund s annual financial statements for the period ending March 31, 2017 could result in restatement of these interim financial statements. Functional and Presentation Currency These financial statements are presented in Canadian dollars, which is the Fund s functional currency. Semi-Annual Reportport 8

9 3. Summary of Significant Accounting Policies Basis of Measurement These financial statements have been prepared on the historical cost basis except for investments and derivatives which are measured at fair value in the Statements of Financial Position. Use of Estimates and Judgments Under IFRS, management is required to make certain estimates and judgments at the date of the financial statements. The principal financial statement components subject to significant accounting estimates and judgments include: Fair value measurements The Fund may invest in financial instruments that are not quoted in an active market. Where applicable, these instruments are categorized in Level 2 and Level 3 of the fair value hierarchy explained below. When current market prices or quotations are not readily available or reliable, valuation techniques will be applied in good faith and in accordance with procedures adopted by the manager. Factors used in determining fair value may include, but are not limited to, broker quotes from reputable pricing sources, market or security specific events, changes in interest rates and credit quality. Fair value models use observable data, to the extent practical; however, the manager is required from time to time to make estimates and assumptions that are based on the best information available at that particular time. Changes in these estimates could impact the fair values of the financial instruments, and the impact could be material. The aggregate fair value of investments measured by valuation techniques as at September 30, 2016, is included at the end of the Fund s Schedule of Investments. Classification and measurement of financial instruments The Fund has made significant judgments when determining the classification and measurement of its financial instruments under IAS 39, Financial Instruments Recognition and Measurement (IAS 39). These judgments centre upon the determination that certain investments are held-for-trading and that the fair value measurement option can be applied to those that are not due to factors including performance evaluation and management of the Fund on a fair value basis. Presentation of financial instruments The Fund has made significant judgments when determining the classification of its redeemable units as financial liabilities in accordance with IAS 32 Financial Instruments Presentation (IAS 32). These judgments centre upon the determination that the Fund s redeemable units do not have identical features and their entitlements include a contractual obligation to distribute any net income and net realized capital gains at least annually in cash (at the request of the unitholder). Therefore, the ongoing redemption feature is not the units only contractual obligation. Determination of Relationship with Underlying Funds The Fund has made significant judgments when determining the nature of its relationship with any Underlying Fund in accordance with IFRS 10 Consolidated financial statements (IFRS 10) and IAS 28 Investment in associates and joint ventures (IAS 28). These judgments centre upon identifying the Fund s ability to control or significantly influence any Underlying Fund. In both determinations, the Fund looks at the relevant activities of any Underlying Fund such as voting rights, participation in policy choices and material cash flows such as subscription and redemption proceeds. The Fund has determined that it does not have the ability to control nor exercise significant influence on any Underlying Fund due to the Fund s inability to exercise its voting rights and direct or participate in the financial and operating policy decisions of any Underlying Fund. Investment and Derivative Valuation Investments, excluding derivatives, are designated at their fair value through profit or loss in accordance with IAS 39 and are carried at their fair value. Derivatives are classified as held-for-trading in accordance with IAS 39 and are carried at fair value. The Fund categorizes the inputs to valuation techniques used to fair value its investments and derivatives into a disclosure hierarchy consisting of three levels as shown below: Level 1 quoted prices in active markets for identical investments Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, etc.) Level 3 unobservable inputs (including the Fund s own assumptions based on the best information available) Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. There were no significant transfers between Level 1 and Level 2 during the period. The aggregate value of investments by input level, as at September 30, 2016 as well as a roll forward of Level 3 securities, where applicable, is included at the end of the Fund s Schedule of Investments. Valuation techniques used to value the Fund s investments and derivatives by major category are as follows: The Canadian dollar value of forward foreign currency contracts is determined using the closing foreign currency exchange rates and are categorized as Level 2 in the hierarchy. Investment in any Underlying Fund is valued at its closing net asset value per unit (NAVPU) each business day and is categorized as Level 1 in the hierarchy. Cash Cash is comprised of cash on deposit and may include cash equivalents which are short-term debt instruments with terms to maturity of less than 90 days at acquisition which are held for the purpose of meeting short-term cash commitments. Foreign currencies are comprised of cash amounts denominated in currencies other than Canadian dollars, which are on deposit with the custodian to facilitate the settlement of foreign denominated security transactions. Cash is carried at amortized cost which approximates its fair value. The Fund did not hold any cash equivalents as at September 30, Semi-Annual Report

10 Notes to Financial Statements (Unaudited) continued (Amounts in thousands of Canadian dollars/thousands of units (except per unit amounts)) Impairment of Financial Assets At each reporting date, the Fund assesses whether there is objective evidence that a financial asset carried at amortized cost is impaired. If such impairment exists, the Fund recognizes the difference between the amortized cost of the financial assets and the present value of the estimated future cash flows, discounted using the instrument s original effective interest rate as an impairment loss on the Statements of Comprehensive Income. Such impairment losses are reversed in subsequent periods in the Statements of Comprehensive Income if the conditions that lead to the initial recognition of the loss diminish or cease to exist. Other Assets and Liabilities Other assets and liabilities may include amounts due to or from the custodian, affiliates or other counterparties for accrued income, investment transactions, unit transactions, accrued expenses and other unsettled transactions at period end. These amounts are classified as loans and receivables or financial liabilities and are carried at amortized cost, which approximates fair value due to their shortterm nature. Offsetting Financial Instruments Financial assets and liabilities are offset and the net amount reported in the Statements of Financial Position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Classification of redeemable units issued by the Fund In accordance with IAS 32, the Fund s redeemable units entitlements include a contractual obligation to distribute any net income and net realized capital gains at least annually in cash (at the request of the unitholder) and, therefore, the ongoing redemption feature is not the units only contractual obligation. In addition, each series of redeemable units are equally subordinated to each other, but have differing features as outlined in the notes below. Therefore, the Fund s redeemable units do not meet the criteria for classification as equity and have been classified as financial liabilities on the Statements of Financial Position. The Fund s obligation for net assets attributable to holders of redeemable units is recorded at the redemption amount. As at September 30, 2016, the Fund s net asset value per Series per unit may differ by less than $0.01 from its net assets attributable to holders of redeemable units per Series per unit calculated in accordance with IFRS as a result of normal reporting period end procedures to close off the books and records. Investment Transactions, Income Recognition and Transaction Costs Regular way purchases and sales of financial assets are recognized at their trade date. The cost of investments is determined on an average cost basis, excluding commissions and other portfolio transaction costs. Income from investments is recognized on an accrual basis. Interest income is accrued as earned. Distributions from any Underlying Fund, if any, are recognized on the ex-dividend date by the Fund in the same form that they were distributed. Net realized gains and losses from the sale of investments and change in net unrealized appreciation (depreciation) on investments are calculated with reference to average cost of the related investment securities which exclude transaction costs and may include proceeds received from litigation. Transaction costs, such as brokerage commissions, incurred in the purchase and sale of securities by the Fund are recognized as Commissions and other portfolio costs in the Statements of Comprehensive Income. Foreign Currency Translation Securities and other assets and liabilities denominated in a foreign currency are translated into Canadian dollars at the period-end exchange rates. Purchases and sales of securities, income and expenses denominated in foreign currencies are translated into Canadian dollars at the exchange rate on the date of the respective transaction. The effects of exchange rate fluctuations on investments are included in the Net realized gain (loss) and change in net unrealized appreciation (depreciation) on investments and exchange rate fluctuations on other foreign currency transactions are included in the Net realized gain (loss) on foreign currency transactions and Change in net unrealized appreciation (depreciation) on other net assets in foreign currencies in the Statements of Comprehensive Income. Forward Foreign Currency Contracts The Fund may use forward foreign currency contracts to manage its currency exposure in any Underlying Fund. Contracts to sell generally are used to mitigate the risk of the Fund s investments against currency fluctuations, while contracts to buy generally are used to offset a previous contract to sell. Also, a contract to buy can be used to acquire exposure to foreign currencies and a contract to sell can be used to offset a previous contract to buy. These contracts involve market risk in excess of the unrealized gain or loss reflected in the Statements of Financial Position. Fidelity monitors the credit rating of each counterparty with which it does business. All counterparties have a credit rating of at least A, as determined by Moody s Investor Services, Inc. or S&P at the date of purchase. The Canadian dollar value of any currencies the Fund has committed to buy or sell is shown in its Schedule of Investments under the caption Forward Foreign Currency Contracts. This amount represents the aggregate exposure to each currency the Fund has acquired or sold through currency contracts at period end. Losses may arise from changes in the value of foreign currency or if the counterparties do not perform under the contracts terms. Purchases and sales of forward foreign currency contracts having the same currency, settlement date and broker are offset and any realized gain (loss) is recognized on settlement date and settled with the counterparty on a net basis. Valuation of Series Separate net assets attributable to holders of redeemable units is calculated for each Series of units in the Fund. The net assets attributable to holders of redeemable units of a Series is computed by calculating the Series proportionate share of the assets and liabilities of the Fund common to all Series, adjusted for the assets and liabilities of the Fund attributable only to that Series. Expenses directly attributable to a Series are charged to that Series. Investment income and operating expenses are allocated proportionately to each Series based upon the relative net assets attributable to holders of redeemable units of each Series, except for items that can be specifically attributed to one or more Series. Semi-Annual Reportport 10

11 Per Unit from Operations - The increase (decrease) in net assets attributable to holders of redeemable units resulting from operations per unit in the Statements of Comprehensive Income represent the increase (decrease) in net assets attributable to holders of redeemable units resulting from operations for each Series of the Fund, divided by the weighted average units outstanding for each Series of the Fund during the period as follows: Weighted Average Units Period ended September 30, 2016 Series A 271 Series B 344 Series F 1,152 Series E1 30 Series P1 260 Statements of Cash Flows When preparing the Statements of Cash Flows, the Fund nets the rollover activity of its short-term investments, and includes only the net cash flow impact in Purchases of investments and derivatives or Proceeds from sale and maturity of investments and derivatives, as applicable. Additionally, in accordance with IFRS, the Fund s Statements of Cash Flows excludes non-cash transactions from its operating and financing activities. Recent Accounting Pronouncements The final version of IFRS 9, Financial Instruments, was issued by the IASB in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces a model for classification and measurement, a single, forward-looking expected loss impairment model and a substantially reformed approach to hedge accounting. The new single, principle based approach for determining the classification of financial assets is driven by cash flow characteristics and the business model in which an asset is held. The new model also results in a single impairment model being applied to all financial instruments, which will require more timely recognition of expected credit losses. It also includes changes in respect of an entity s own credit risk in measuring liabilities elected to be measured at fair value, so that gains caused by the deterioration of an entity s own credit risk on such liabilities are no longer recognised in profit or loss. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, however is available for early adoption. In addition, the entity s own credit risk changes can be early applied in isolation without otherwise changing the accounting for financial instruments. The Fund is in the process of assessing the impact of IFRS 9 and has not yet determined when it will adopt the new standard. 4. Expenses and Other Related Party Transactions Management and Advisory Fees Fidelity serves as the manager and investment advisor of the Fund. The Fund pays Fidelity a monthly management and advisory fee for their services and the provision of key management personnel to the Fund, based on the net asset value of each Series, calculated daily and payable monthly. Fidelity may reduce the management and advisory fee or fund expenses for certain investors by reducing the management and advisory fee it charges to the Fund or reducing the amount charged to the Fund for certain expenses and having the Fund pay out the amount of the reduction to the investors as a distribution. These distributions are disclosed as Management fee reduction in the Statements of Changes in Net Assets Attributable to Holders of Redeemable Units. To avoid duplication of fees, Series O units of any Underlying Fund are not subject to management and advisory fees. The annual management and advisory fee rates for each Series were as follows: Annual Management and Advisory Fee Rate (%) Series A Series B Series F Series E Series P Administration Fee Fidelity charges the Fund a fixed administration fee in place of certain variable expenses and the provision of key management personnel to the Fund. Fidelity, in turn, pays all of the operating expenses of the Fund, other than certain specified fund costs, including the fees and expenses of the Independent Review Committee (IRC), taxes, brokerage commissions and interest charges. To avoid duplication of fees, Series O units of any Underlying Fund are not subject to the Administration fee. The administration fee is in addition to the management and advisory fee. The annual rate of the administration fee will fall under one of three tiers, depending on the net asset value of the Fund: Under $100 Million (Tier 1), $100 Million to $1 Billion (Tier 2) and Over $1 Billion (Tier 3). The administration fee is calculated as a fixed annual percentage, accrued daily and payable monthly, of the net asset value of each Series as follows: 11 Semi-Annual Report

12 Notes to Financial Statements (Unaudited) continued (Amounts in thousands of Canadian dollars/thousands of units (except per unit amounts)) Tier 1 (%) Tier 2 (%) Tier 3 (%) Series A Series B Series F Series E Series P Independent Review Committee Fees - The IRC, as required under National Instrument , reviews conflict of interest matters referred to it by the manager and provides recommendations or approves actions, as appropriate, that are in the best interest of the funds. There are currently four members of the IRC who are independent of Fidelity and its affiliates. IRC members are compensated by way of an annual retainer fee and a per meeting attendance fee, as well as reimbursed for expenses associated with IRC duties. These costs are allocated among the individual funds proportionately by assets. Sales Tax - Certain provinces have harmonized their Provincial Sales Tax (PST) with the federal Goods and Services Tax (GST). The Harmonized Sales Tax (HST) combines the GST rate of 5% with the PST rate of certain provinces. The Provincial HST liability or refund is calculated using the residency of unitholders and the value of their interests in the Fund as at specific times, rather than the physical location of the Fund. The effective GST/HST rate charged to each Series of the Fund is based on the unitholders proportionate investments by province, using each province s HST rate or GST rate in the case of non-participating provinces. All amounts are included in the Statements of Comprehensive Income as Sales tax. Expenses Waived - Fidelity may absorb or waive certain expenses at its sole discretion. Fidelity can terminate the absorption or waiver at any time. The manager of the Fund waived a portion of its administration fee. The expenses absorbed or waived during the period are disclosed as Expenses waived in the Statements of Comprehensive Income, if applicable. 5. Taxation and Distributions The Fund qualifies as a mutual fund trust under the provisions of the Income Tax Act (Canada). For tax purposes, the Fund has a December year end. In each tax year, the Fund declares and credits as due and payable sufficient net investment income and net realized capital gains to unitholders such that the Fund will not be subject to income taxes. As a result, the Fund does not record income taxes under IAS 12 Income Taxes (IAS 12) and accordingly does not recognize the deferred tax benefit associated with tax loss carry forwards and other taxable temporary differences. Distributions are taxable in unitholders hands. At the end of each tax year, the character of the distributions is determined for tax purposes. Under the terms of the Declaration of Trust, the trustee may capitalize any distribution amount without any increase in the number of units outstanding. Distributions, if any, are declared separately for each Series. Capital losses may be carried forward indefinitely to reduce future realized capital gains. Non capital losses may be carried forward for up to 20 tax years to reduce future taxable income. 6. Capital Risk Management Units issued and outstanding are considered to be the capital of the Fund. The capital of each series of the Fund is divided into an unlimited number of units of equal value, with no par value. All units in a series of the Fund rank equally with respect to distributions. A unitholder of the Fund is entitled to one vote for each one dollar in value of units owned. Fractional units are proportionately entitled to these rights. The Fund generally has no restrictions or specific capital requirements on the subscriptions and redemptions of units other than minimum subscription requirements; although, on rare occasions, Fidelity may temporarily suspend unitholders right to redeem units and postpone paying sale proceeds. The relevant movements attributable to unitholders are shown in the Statements of Changes in Net Assets Attributable to Holders of Redeemable Units. In accordance with the objectives and the risk management policies outlined in the Financial Instruments Risk notes, the Fund endeavors to invest the subscriptions received in appropriate investments while maintaining sufficient liquidity to meet redemptions. Such liquidity is managed by investing the majority of assets in investments that can be readily disposed and via the Fund s ability to borrow up to 5% of its net asset value. Unit Transactions - Unit transactions for each Series were as follows: Semi-Annual Reportport 12

13 Units Outstanding, Beginning of Period Issued Reinvested Redeemed Units Outstanding, End of Period Period ended September 30, 2016 Series A (57) 443 Series B (270) 386 Series F 2, (549) 1,787 Series E (6) 155 Series P (2) Financial Instruments Risk The Fund s activities expose it to a variety of financial instruments risks: credit risk, liquidity risk, other price risk, interest rate risk and currency risk. Fidelity seeks to minimize potential adverse effects of these performance risks by employing professional, experienced portfolio advisors, by daily monitoring of positions and market events, and by diversifying the investment portfolio within the constraints of the investment mandate. The Fund and any Underlying Fund may use derivative financial instruments to moderate certain risk exposures. Risk, as defined by Fidelity, is the mismatch of certain risk factors, such as the market capitalization, beta, common factors such as size, priceearnings ratio, price-to-book ratio and industry exposures, between a portfolio and its benchmark. Such mismatches may result in divergence of returns relative to the benchmark. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. A beta of 1 indicates that the security s price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security s price will be more volatile than the market. For example, if a stock s beta is 1.2, it s theoretically 20% more volatile than the market. Fidelity s objective is to provide consistent value-added return over the benchmark. Unsystematic risk is mitigated primarily through investments in a diverse portfolio of securities across many sectors, styles or regions of the market. Fidelity s qualitative fundamental security selection is also well diversified across many analysts. Rather than relying on a single valuation process or quantitative model that implicitly assumes that past value-added returns of some sectors or styles will persist into the future, Fidelity s analysts select securities based on their own unique valuation processes. The Fund aims to achieve a combination of a high level of current income and the potential for capital gains. It seeks a return similar to its underlying fund by investing substantially all of its assets in units of the Underlying Fund, Fidelity Strategic Income Fund. The Fund also uses derivatives to try to minimize the exposure to currency fluctuations between developed market foreign currencies and the Canadian dollar. The Fund also hedges against other foreign currencies. The underlying fund aims to achieve a combination of a high level of current income and the potential for capital gains by investing primarily in fixed income securities of U.S. issuers and other issuers from around the world. The underlying fund can invest in these securities either directly or indirectly through investments in other underlying funds. Fixed income securities may include investment grade fixed income securities, higher yielding lower quality fixed income securities, senior secured floating rate debt securities, emerging markets debt securities, convertible securities, asset-backed securities, commercial mortgage-backed securities and money market securities. The Fund s benchmark is a blended benchmark consisting of 25.0% Barclays Global Aggregate Bond Index Hedged CAD, 15.0% Barclays U.S. Government Bond Index Hedged CAD, 40.0% The BofA Merrill Lynch US High Yield Constrained Index Hedged CAD, 15.0% J.P. Morgan Emerging Markets Bond Index Global Diversified Index Hedged CAD and 5.0% S&P/LSTA Leveraged Loan Index Hedged CAD. Portfolio risk is monitored daily and reviewed monthly by an investment compliance group. In addition, there is a formal quarterly review of each fund. The investment compliance group, portfolio managers and the senior analysts attend a quarterly portfolio review. Portfolios within each strategy are reviewed relative to each other and to their benchmark. Active industry and security allocations are analyzed. Credit Risk - Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Fund. The Fund s own credit risk in the case of financial liabilities and a counterparty s credit risk in the case of financial assets are considered, where applicable, in determining the fair value of financial assets and financial liabilities, including derivative instruments. The Fund may be exposed to indirect credit risk through its investments in any Underlying Fund. The fair value of debt securities includes consideration of the credit worthiness of the debt issuer. In addition, as part of its cash management, the Fund limits its direct exposure to credit loss by placing its cash with high credit quality financial institutions. The carrying amount of investments and other assets represents the maximum credit risk exposure as at September 30, The following table summarizes the credit risk that is relevant for the Fund based on its investment objective, which it is exposed to, through its investments in any Underlying Fund. Quality Diversification 13 Semi-Annual Report

14 Notes to Financial Statements (Unaudited) continued (Amounts in thousands of Canadian dollars/thousands of units (except per unit amounts)) % of Fund s Net Assets as at 9/30/16 AAA 19.3 AA 0.9 A 4.0 BBB 7.9 BB and Below 59.8 Not Rated 3.3 Equities 1.1 Short-Term Investments and Net Other Assets 3.7 We have used ratings from Moody s Investors Service, Inc. Where Moody s ratings are not available, we have used S&P ratings. All ratings are as of the date indicated and do not reflect subsequent changes. Credit risk exposure for derivative instruments is based on the Fund s unrealized gain on the contractual obligations with the counterparty as at the reporting date. The Fund restricts its exposure to credit losses on derivative instruments by limiting its exposure to any one counterparty and by entering into transactions with counterparties who meet the minimum approved credit rating under securities regulations and other pre-set financial and non- financial criteria. Other than outlined above, there were no significant concentrations of credit risk to counterparties as at September 30, Concentration Risk - Fidelity analyzes credit concentration based on the counterparty, industry and/or geographical location of the financial assets that the Fund holds. The following tables summarize the investment concentration risks that are relevant for the Fund based on its investment objective, which it is exposed to, through its investment in any Underlying Fund. Asset Mix % of Fund s Net Assets as at 9/30/16 Foreign Bonds 89.3 Foreign Preferred Securities 3.2 Canadian Bonds 2.7 Foreign Equities 1.1 Canadian Equities 0.0 Cash and Short-Term Investments 0.2 Net Other Assets (Liabilities) 3.5 Derivative Exposure % of Fund s Net Assets as at 9/30/16 Forward Foreign Currency Contracts (0.1) Swaps 0.3 Forward Foreign Currency Contracts percentage is calculated by dividing the net unrealized gain/loss of all contracts held by total net assets. Swaps percentage is calculated by dividing the sum of the notional and unrealized gain/loss by total net assets. Geographic Mix % of Fund s Net Assets as at 9/30/16 United States of America 58.1 United Kingdom 4.4 Netherlands 2.8 Canada 2.7 Luxembourg 2.5 Japan 2.2 Germany 2.0 Argentina 1.9 Semi-Annual Reportport 14

15 % of Fund s Net Assets as at 9/30/16 Ireland 1.9 France 1.8 Mexico 1.3 Italy 1.3 Others (Individually Less Than 1%) 13.4 Cash and Short-Term Investments 0.2 Net Other Assets (Liabilities) 3.5 Fidelity regularly monitors the relative weights of individual securities, sectors, countries, and also monitors the market capitalization and trading liquidity of each holding. Liquidity Risk - Liquidity risk is defined as the risk that the Fund may not be able to settle or meet its obligations on time or at a reasonable price. The Fund is exposed to daily cash redemptions of redeemable units. Redeemable units are redeemed on demand at the unitholder s option based on the Fund s NAVPU at the time of redemption. The Fund may be exposed to indirect liquidity risk through its investment in any Underlying Fund. In accordance with securities regulations, investment funds must maintain at least 90% of assets in liquid investments; investments that are traded in an active market and can be readily disposed of. In addition, the Fund aims to retain sufficient cash and short-term investments to maintain liquidity, and has the ability to borrow up to 5% of its net asset value from the custodian for the purpose of funding redemptions. The Fund and any Underlying Fund may, from time to time, invest in securities that are not traded in an active market and may be illiquid. Private and/or restricted securities held, if any, are identified in the Fund s and any Underlying Fund s Schedule of Investments as at their respective period ends. The liquidity position of the Fund and any Underlying Fund is monitored on a daily basis. As at September 30, 2016, the Fund did not have financial liabilities with maturities greater than 3 months. Other Price Risk - Other price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk on monetary instruments), whether caused by factors specific to an individual investment, its issuer, or other factors affecting all instruments traded in a market or market segment. All securities present a risk of loss of capital. The Fund and any Underlying Fund moderate this risk through a careful selection of securities and other financial instruments within the parameters of the investment strategy. The maximum risk resulting from financial instruments is equivalent to their fair value. The Fund s and any Underlying Fund s investments and derivatives are susceptible to other price risk arising from uncertainties about future prices of the instruments. If the benchmark had increased or decreased by 5% on September 30, 2016, with all other variables held constant, the net assets attributable to holders of redeemable units of the Fund would have increased or decreased by approximately $1,708. This change is estimated using the Fund s beta which is calculated based on the historical correlation between the return of the Fund as compared to the return of the benchmark. In practice, the actual trading results may differ from this sensitivity analysis and the difference could be material. Interest Rate Risk - Interest rate risk arises on interest-bearing financial instruments held in the investment portfolio such as bonds. The Fund and any Underlying Fund are exposed to the risk that the fair value or the future cash flows of interest-bearing financial instruments will fluctuate due to changes in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested in short-term investments at market interest rates. The fixed income investment strategy adheres to independent quantitative understanding of all benchmark and portfolio risk and return characteristics with an explicit understanding of all active exposures relative to the investment benchmark. Interest rate anticipation is not a significant component of the fixed income investment strategy. The following table summarizes the Fund s pro-rata portion of any Underlying Fund s investments at period end categorized by the earlier of contractual interest rate reset or maturity dates. Maturity Diversification % of Fund s Years Net Assets Over Semi-Annual Report

16 Notes to Financial Statements (Unaudited) continued (Amounts in thousands of Canadian dollars/thousands of units (except per unit amounts)) As at September 30, 2016, had prevailing interest rates raised or lowered by 25 basis points, with all other variables remaining constant, net assets attributable to holders of redeemable units would have decreased or increased by approximately $53. In practice, the actual trading results may differ from this sensitivity analysis and the difference could be material. Currency Risk - Currency risk arises from financial instruments that are denominated in a currency other than Canadian dollar, which is the Fund s and any Underlying Fund s functional currency. The table below indicates the currencies to which the Fund and any Underlying Fund have significant exposure as at period end, on the trading monetary, non-monetary assets and liabilities as well as the underlying principal amount of forward foreign currency contracts. Currency As at September 30, 2016 U.S. dollar Monetary Instruments ($) Non- Monetary Instruments ($) Forward FX Contracts ($) Net Exposure ($) As a % of net assets 29,821 (29,473) The Fund and any Underlying Fund are exposed to the risk that the value of financial instruments denominated in other currencies will fluctuate due to changes in exchange rates. Currency risk is not considered to arise from financial instruments that are non-monetary items such as equity investments, or forward foreign exchange contracts related to such non-monetary items. The Fund considers the foreign exchange exposure relating to non-monetary assets and liabilities to be a component of other price risk, not foreign currency risk. However, management monitors the exposure on all foreign currency denominated assets and liabilities, and enters into forward foreign currency contracts to manage the Fund s exposure to foreign exchange movements. As at September 30, 2016, had the Canadian dollar strengthened or weakened by 5% in relation to all currencies, with all other variables held constant, net assets attributable to holders of redeemable units would have decreased or increased by approximately $51. In practice, the actual trading results may differ from this sensitivity analysis and the difference could be material. Generally, the use of forward contracts to hedge as completely as possible currency fluctuations between developed market currencies and the Canadian dollar will not result in the impact of currency fluctuations being eliminated altogether. The Fund s returns will differ from the local currency returns of any Underlying Fund investments. Furthermore, during times of extreme market stress or volatility, the Fund may not be able to prevent losses from exposure to foreign currency. 8. Investment in Structured Entities The Fund s investment in any Underlying Fund represents an interest in a structured entity. A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements such as those agreements executed by a Fund with its manager and portfolio advisor. An Underlying Fund is financed through the issuance of its redeemable trust units. In addition, the purpose of any Underlying Fund is to provide investment management services to its unitholders by investing its net assets for capital growth and/or investment income. The Fund has assessed its ability to control or significantly influence any Underlying Fund in accordance with IFRS 10 and IAS 28. The Fund has determined that it does not have the ability to control nor exercise significant influence on an Underlying Fund due to the Fund s inability to exercise its voting rights and direct or participate in the financial and operating policy decisions of an Underlying Fund. The maximum risk of loss in an investment in an Underlying Fund is equal to its fair value and carrying value which is outlined in the tables below and included in Investments on the Statements of Financial Position. There is no difference between the maximum risk of loss and the carrying amounts of the assets and liabilities of an Underlying Fund that relate to the Fund s interests. There are additional risks associated with an investment in an Underlying Fund. Refer to the Financial Instruments Risk note for further discussion. In the normal course of operations to fulfil its investment objective, the Fund will, from time to time, subscribe for additional units issued by an Underlying Fund or redeem in whole or in part its investment in an Underlying Fund. In addition, the Fund may receive a distribution of income from an Underlying Fund as described above in the Investment Transactions, Income Recognition and Transaction Costs note. The Fund does not have any obligation or intention to provide financial support to an Underlying Fund. The following table presents additional information that is relevant to the Fund s investment in structured entities. Underlying Fund names presented in the tables reflect names in effect as at the dates shown: Total Net Fair Value of September 30, 2016 Assets ($) Investment ($) Fidelity Strategic Income Fund Series O 258,966 34,152 Semi-Annual Reportport 16

17 9. Offsetting of Financial Assets and Liabilities The Fund s derivatives noted below are subject to enforceable master netting arrangements in the form of foreign exchange netting agreements with its counterparties. The normal business terms of the foreign exchange netting agreements call for net settlement of transactions when contracts with the same counterparty and currency mature simultaneously. In the event of default or bankruptcy net settlement of contracts would be enforced. The following table summarizes financial instruments that are offset in the Statements of Financial Position, or are subject to enforceable master netting arrangements or other similar agreements but are not offset: As at September 30, 2016 Amounts offset Amounts not offset Assets Gross ($) Gross assets/liabilities offset ($) Net ($) Master Netting Arrangements ($) Financial Collateral ($) Forward foreign currency contracts 66 (3) 63 (63) Liabilities Forward foreign currency contracts (113) 3 (110) 63 (47) Net ($) 17 Semi-Annual Report

18 Fidelity Investments Canada ULC 483 Bay Street, Suite 300 Toronto, Ontario M5G 2N7 Manager, Transfer Agent and Registrar Fidelity Investments Canada ULC 483 Bay Street, Suite 300 Toronto, Ontario M5G 2N7 Portfolio Adviser Fidelity Investments Canada ULC Toronto, Ontario Custodian State Street Trust Company of Canada Toronto, Ontario Auditor PricewaterhouseCoopers LLP Toronto, Ontario Visit us online at or call Fidelity Client Services at Fidelity s mutual funds are sold by registered Investment Professionals. Each Fund has a simplified prospectus, which contains important information on the Fund, including its investment objective, purchase options, and applicable charges. Please obtain a copy of the prospectus, read it carefully, and consult your Investment Professional before investing. As with any investment, there are risks to investing in mutual funds. There is no assurance that any Fund will achieve its investment objective, and its net asset value, yield, and investment return will fluctuate from time to time with market conditions. Investors may experience a gain or loss when they sell their units in any Fidelity Fund. Fidelity Global Funds may be more volatile than other Fidelity Funds as they concentrate investments in one sector and in fewer issuers; no single Fund is intended to be a complete diversified investment program. Past performance is no assurance or indicator of future returns. There is no assurance that either Fidelity Canadian Money Market Fund or Fidelity U.S. Money Market Fund will be able to maintain its net asset value at a constant amount. The breakdown of Fund investments is presented to illustrate the way in which a Fund may invest, and may not be representative of a Fund s current or future investments. A Fund s investments may change at any time. Fidelity Investments is a registered trademark of FMR LLC E FICL-HSI-ANN-1116