Fidelity Special Situations Class of the
Fidelity Capital Structure Corp.
Annual Report
November 30, 2016
Fidelity Special Situations Class of the Fidelity Capital Structure Corp.
Schedule of Investments November 30, 2016
Showing Percentage of Net Assets Attributable to Holders of Redeemable Securities (Net Assets)
Underlying Funds – 100.0%
Shares / Units
(000s)
Fidelity Special Situations Fund
‑ Series O
TOTAL INVESTMENT
PORTFOLIO – 100.0%
Cost
(000s)
Market Value
(000s)
12,113 $186,989 $ 234,021
$186,989
234,021
NET OTHER ASSETS (LIABILITIES) – 0.0%
NET ASSETS – 100%
(9)
$234,012
Investment Valuation
The following is a summary of the inputs used, as of November 30, 2016 and November 30, 2015, 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 November 30, 2016:
Description
(Amounts in thousands)
Investments in Securities:
Underlying Funds
Total Investments in Securities:
Total
Level 1
Level 2 Level 3
$234,021 $234,021 $— $—
$234,021 $234,021 $— $—
Valuation Inputs at November 30, 2015:
Description
(Amounts in thousands)
Investments in Securities:
Underlying Funds
Total Investments in Securities:
See accompanying notes which are an integral part of the financial statements.
Annual Reportport
Total
Level 1
Level 2 Level 3
$156,585 $156,585 $— $—
$156,585 $156,585 $— $—
2
Financial Statements
Statements of Financial Position
Amounts in thousands of Canadian Dollars /thousands of securities (except per security amounts)
November 30,
2016
November 30,
2015
$234,021
–
3,294
237,315
$156,585
276
209
157,070
7
1,575
1,255
120
278
44
24
3,303
$234,012
1
54
132
42
207
33
14
483
$156,587
Series A:
($36,418 / 1,708 securities and $33,635 / 1,680 securities, respectively)
$21.3196
$20.0207
Series B:
($65,991 / 3,050 securities and $76,800 / 3,778 securities, respectively)
$21.6402
$20.3293
Series F:
($47,474 / 2,018 securities and $36,517 / 1,650 securities, respectively)
$23.5219
$22.1330
Series F5:
($1,215 / 41 securities and $1,643 / 56 securities, respectively)
$29.7409
$29.3268
Series F8:
($765 / 28 securities and $371 / 13 securities, respectively)
$27.0671
$27.6810
Series T5:
($2,645 / 92 securities and $1,351 / 48 securities, respectively)
$28.7645
$28.3261
Series T8:
($10,272 / 393 securities and $3,163 / 119 securities, respectively)
$26.1508
$26.6725
Series S5:
($936 / 32 securities and $1,967 / 69 securities, respectively)
$28.9241
$28.5026
Series S8:
($4,722 / 179 securities and $1,140 / 42 securities, respectively)
$26.3557
$26.8958
Series E1:
($23,879 / 1,987 securities and $- / – securities, respectively)
$12.0149
$–
As at
Assets (Note 3)
Current assets
Investments at fair value through profit or loss (Note 8)
Receivable for investments sold
Subscriptions receivable
Liabilities (Note 3)
Current liabilities
Payable to custodian bank
Payable for investments purchased
Redemptions payable
Distributions payable (Note 5)
Management fee payable (Note 4)
Other payables to affiliates (Note 4)
Other payables and accrued expenses (Note 4)
Net assets attributable to holders of redeemable securities (Notes 3 and 6)
Net assets attributable to holders of redeemable securities per Series and per security (Note 6)
See accompanying notes which are an integral part of the financial statements.
3
Annual Report
Financial Statements – continued
Statements of Financial Position – continued
Amounts in thousands of Canadian Dollars /thousands of securities (except per security amounts)
November 30,
2016
November 30,
2015
Series E1T5:
($1,233 / 53 securities and $- / – securities, respectively)
$23.0971
$–
Series E2:
($7,446 / 620 securities and $- / – securities, respectively)
$12.0179
$–
Series E2T5:
($968 / 47 securities and $- / – securities, respectively)
$20.3878
$–
Series E3:
($1,460 / 121 securities and $- / – securities, respectively)
$12.0228
$–
Series E4:
($2,510 / 209 securities and $- / – securities, respectively)
$12.0330
$–
Series P1:
($17,137 / 1,617 securities and $- / – securities, respectively)
$10.5976
$–
Series P1T5:
($1,556 / 77 securities and $- / – securities, respectively)
$20.2213
$–
Series P2:
($3,954 / 373 securities and $- / – securities, respectively)
$10.5975
$–
Series P3:
($2,109 / 199 securities and $- / – securities, respectively)
$10.6106
$–
$10.6206
$–
As at
Series P4:
($1,322 / 124 securities and $- / – securities, respectively)
See accompanying notes which are an integral part of the financial statements.
Annual Reportport
4
Statements of Comprehensive Income
Amounts in thousands of Canadian Dollars (except per security amounts)
For the periods ended November 30,
2016
2015
$–
12,520
$–
21,972
1,252
14,399
15,651
3,598
(7,698)
(4,100)
(5)
(5)
28,166
3
3
17,875
Operating expenses (Note 4)
Management fees
Administration fees
Independent Review Committee fees
Commissions and other portfolio costs
Sales tax
2,862
440
–
–
358
2,582
399
–
–
318
Total operating expenses
Expenses waived (Note 4)
3,660
(118)
3,299
(75)
3,542
$24,624
3,224
$14,651
Increase (decrease) in net assets attributable to holders of redeemable securities from operations per Series (Note 3)
Series A
$4,340
$3,630
Series B
$7,702
$7,139
Series F
$4,749
$3,266
Series F5
$159
$105
Series F8
$72
$15
Series T5
$223
$64
Series T8
$893
$183
Series S5
$101
$166
Series S8
$356
$83
Series E1
$2,556
$–
Series E1T5
$186
$–
Series E2
$877
$–
Series E2T5
$22
$–
Series E3
$135
$–
Series E4
$236
$–
Series P1
$1,366
$–
Series P1T5
$144
$–
Series P2
$297
$–
Series P3
$183
$–
Series P4
$27
$–
Increase (decrease) in net assets attributable to holders of redeemable securities from operations per Series per security (Note
3)
Series A
$2.5576
$1.9548
Series B
$2.3311
$1.8398
Investment income (Note 3)
Interest
Capital gain distributions from the underlying funds
Net gain (loss) on Investments
Net realized gain (loss) on investments
Change in net unrealized appreciation (depreciation) on investments
Net gain (loss) on Foreign Currencies
Net realized gain (loss) on foreign currency transactions
Total investment income (loss)
Net operating expenses
Net increase (decrease) in net assets attributable to holders of redeemable securities from operations
Other information:
See accompanying notes which are an integral part of the financial statements.
5
Annual Report
Financial Statements – continued
Statements of Comprehensive Income – continued
Amounts in thousands of Canadian Dollars (except per security amounts)
For the periods ended November 30,
2016
2015
Series F
$2.9353
$2.1745
Series F5
$3.4328
$2.3702
Series F8
$3.8881
$1.6981
Series T5
$3.6028
$2.1851
Series T8
$3.8210
$1.9222
Series S5
$2.3308
$3.1849
Series S8
$3.8665
$2.4293
Series E1
$2.0006
$–
Series E1T5
$3.8307
$–
Series E2
$1.9827
$–
Series E2T5
$.6172
$–
Series E3
$1.8311
$–
Series E4
$1.9075
$–
Series P1
$1.8450
$–
Series P1T5
$4.0141
$–
Series P2
$1.2788
$–
Series P3
$1.9379
$–
Series P4
$1.8903
$–
For certain Series the period shown is from the commencement of sale of securities to period end. See Note 1 for the com‑
mencement dates for newly offered Series.
See accompanying notes which are an integral part of the financial statements.
Annual Reportport
6
Statements of Changes in Net Assets Attributable to Holders of Redeemable Securities
Amounts in thousands of Canadian Dollars
For the period ended November 30, 2016
Net assets attributable to holders of redeemable securities,
beginning of period
Distributions to holders of redeemable securities (Note 5)
From net realized gain
Return of capital
Redeemable security transactions (Note 6)
Proceeds from sale of redeemable securities
Reinvestment of distributions
Amounts paid upon redemption of redeemable securities
Increase (decrease) in net assets attributable to holders of
redeemable securities from operations
Net increase (decrease) in net assets attributable to holders of redeemable securities
Net assets attributable to holders of redeemable securities,
end of period
Total
Series A
Series B
Series F
Series F5
Series F8
$156,587
$33,635
$76,800
$36,517
$1,643
$371
(9,901)
(1,047)
(10,948)
(1,940)
–
(1,940)
(4,773)
–
(4,773)
(2,133)
–
(2,133)
(88)
(60)
(148)
(25)
(42)
(67)
172,946
9,574
(118,771)
63,749
9,230
1,869
(10,716)
383
32,078
4,592
(50,408)
(13,738)
40,952
1,908
(34,519)
8,341
1,133
108
(1,680)
(439)
403
29
(43)
389
24,624
4,340
7,702
4,749
159
72
77,425
2,783
(10,809)
10,957
(428)
394
$234,012
$36,418
$65,991
$47,474
$1,215
$765
For certain Series the period shown is from the commence‑
ment of sale of securities to period end. See Note 1 for
the commencement dates for newly offered Series.
Amounts in thousands of Canadian Dollars
For the period ended November 30, 2016
Series T5
Series T8
Series S5
Series S8
Series E1
Net assets attributable to holders of redeemable securities, beginning of period
$1,351
$3,163
$1,967
$1,140
$–
(78)
(83)
(161)
(179)
(514)
(693)
(125)
(55)
(180)
(81)
(208)
(289)
–
–
–
1,467
90
(325)
1,232
7,457
249
(797)
6,909
1,265
141
(2,358)
(952)
5,127
100
(1,712)
3,515
26,178
–
(4,855)
21,323
223
893
101
356
2,556
1,294
$2,645
7,109
$10,272
(1,031)
$936
3,582
$4,722
23,879
$23,879
Distributions to holders of redeemable securities (Note 5)
From net realized gain
Return of capital
Redeemable security transactions (Note 6)
Proceeds from sale of redeemable securities
Reinvestment of distributions
Amounts paid upon redemption of redeemable securities
Increase (decrease) in net assets attributable to holders of redeemable securities
from operations
Net increase (decrease) in net assets attributable to holders of redeemable securities
Net assets attributable to holders of redeemable securities, end of period
For certain Series the period shown is from the commencement of sale of securi‑
ties to period end. See Note 1 for the commencement dates for newly offered
Series.
See accompanying notes which are an integral part of the financial statements.
7
Annual Report
Financial Statements – continued
Statements of Changes in Net Assets Attributable to Holders of Redeemable Securities – continued
Amounts in thousands of Canadian Dollars
For the period ended November 30, 2016
Net assets attributable to holders of redeemable securities, beginning of period
Distributions to holders of redeemable securities (Note 5)
Return of capital
Redeemable security transactions (Note 6)
Proceeds from sale of redeemable securities
Reinvestment of distributions
Amounts paid upon redemption of redeemable securities
Increase (decrease) in net assets attributable to holders of redeemable securities from
operations
Net increase (decrease) in net assets attributable to holders of redeemable securities
Net assets attributable to holders of redeemable securities, end of period
Series E1T5
Series E2
Series E2T5
Series E3
Series E4
$–
$–
$–
$–
$–
(43)
(43)
–
–
(8)
(8)
–
–
–
–
1,887
5
(802)
1,090
9,078
–
(2,509)
6,569
954
–
–
954
2,230
–
(905)
1,325
2,813
–
(539)
2,274
186
1,233
$1,233
877
7,446
$7,446
22
968
$968
135
1,460
$1,460
236
2,510
$2,510
For certain Series the period shown is from the commencement of sale of securities to
period end. See Note 1 for the commencement dates for newly offered Series.
Amounts in thousands of Canadian Dollars
For the period ended November 30, 2016
Series P1
Series P1T5
Series P2
Series P3
Series P4
Net assets attributable to holders of redeemable securities, beginning of period
$–
$–
$–
$–
$–
(296)
–
(296)
(46)
(34)
(80)
(137)
–
(137)
–
–
–
–
–
–
17,900
292
(2,125)
16,067
1,528
54
(90)
1,492
7,740
137
(4,083)
3,794
2,231
–
(305)
1,926
1,295
–
–
1,295
1,366
144
297
183
27
17,137
$17,137
1,556
$1,556
3,954
$3,954
2,109
$2,109
1,322
$1,322
Distributions to holders of redeemable securities (Note 5)
From net realized gain
Return of capital
Redeemable security transactions (Note 6)
Proceeds from sale of redeemable securities
Reinvestment of distributions
Amounts paid upon redemption of redeemable securities
Increase (decrease) in net assets attributable to holders of redeemable securities
from operations
Net increase (decrease) in net assets attributable to holders of redeemable securities
Net assets attributable to holders of redeemable securities, end of period
For certain Series the period shown is from the commencement of sale of securities
to period end. See Note 1 for the commencement dates for newly offered Series.
See accompanying notes which are an integral part of the financial statements.
Annual Reportport
8
Statements of Changes in Net Assets Attributable to Holders of Redeemable Securities – continued
Amounts in thousands of Canadian Dollars
For the period ended November 30, 2015
Net assets attributable to holders of redeemable securities,
beginning of period
Total
Series A
Series B
Series F
Series F5
Series F8
$146,757
$38,583
$73,368
$29,479
$971
$128
(462)
(462)
–
–
–
–
–
–
(60)
(60)
(20)
(20)
43,055
78
(47,492)
(4,359)
6,503
–
(15,081)
(8,578)
19,474
–
(23,181)
(3,707)
11,197
–
(7,425)
3,772
647
19
(39)
627
342
4
(98)
248
14,651
3,630
7,139
3,266
105
15
9,830
(4,948)
3,432
7,038
672
243
$156,587
$33,635
$76,800
$36,517
$1,643
$371
Distributions to holders of redeemable securities (Note 5)
Return of capital
Redeemable security transactions (Note 6)
Proceeds from sale of redeemable securities
Reinvestment of distributions
Amounts paid upon redemption of redeemable securities
Increase (decrease) in net assets attributable to holders of
redeemable securities from operations
Net increase (decrease) in net assets attributable to holders of
redeemable securities
Net assets attributable to holders of redeemable securities, end
of period
Amounts in thousands of Canadian Dollars
For the period ended November 30, 2015
Series T5
Series T8
Series S5
Series S8
Net assets attributable to holders of redeemable securities, beginning of period
$641
$1,818
$1,216
$553
(39)
(39)
(201)
(201)
(69)
(69)
(73)
(73)
815
9
(139)
685
64
710
$1,351
2,258
32
(927)
1,363
183
1,345
$3,163
1,079
3
(428)
654
166
751
$1,967
740
11
(174)
577
83
587
$1,140
Distributions to holders of redeemable securities (Note 5)
Return of capital
Redeemable security transactions (Note 6)
Proceeds from sale of redeemable securities
Reinvestment of distributions
Amounts paid upon redemption of redeemable securities
Increase (decrease) in net assets attributable to holders of redeemable securities from operations
Net increase (decrease) in net assets attributable to holders of redeemable securities
Net assets attributable to holders of redeemable securities, end of period
See accompanying notes which are an integral part of the financial statements.
9
Annual Report
Financial Statements – continued
Statements of Cash Flows
Amounts in thousands of Canadian Dollars
For the periods ended November 30,
Cash, beginning of period
Cash flows from (used in) operating activities:
Purchases of investments
Proceeds from sale and maturity of investments
Cash receipts from interest income
Cash receipts from other investment income
Cash paid for operating expenses
Net cash from (used in) operating activities
Cash flows from (used in) financing activities:
Distributions to holders of redeemable securities net of reinvestments
Proceeds from sales of securities
Amounts paid upon redemption of securities
Amounts borrowed from (repaid to) custodian bank
Net cash from (used in) financing activities
Net change in cash
Cash, end of period
See accompanying notes which are an integral part of the financial statements.
Annual Reportport
10
2016
2015
$–
$–
(72,025)
12,032
–
12,520
(3,450)
(50,923)
(32,159)
18,139
–
21,972
(3,212)
4,740
(1,296)
85,388
(33,175)
6
50,923
–
$–
(361)
43,129
(47,455)
(53)
(4,740)
–
$–
Notes to Financial Statements
For the periods ended November 30, 2016 and 2015
(Amounts in thousands of Canadian dollars/thousands of securities (except per security amounts))
1. Formation of the Corporation
Fidelity Capital Structure Corp. (Corporation) is a mutual fund corporation incorporated under the laws of Alberta on August 30, 2001. The
authorized capital of the Corporation consists of an unlimited number of Class A voting securities and 300 classes of redeemable mutual fund
special securities. Currently, 76 classes of the redeemable mutual fund special securities are available in Series A, Series B, Series F, Series F5,
Series F8, Series I, Series I5, Series I8, Series S5, Series S8, Series T5, Series T8, 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. Each of these 76 classes is a separate reporting entity. The registered office of the Corporation is located at 407
2nd Street S.W., Suite 820, Calgary, Alberta, T2P 2Y3.
Fidelity Special Situations Class of the Fidelity Capital Structure Corp. (Fund) is a class of the Corporation and invests substantially all of its
assets in Fidelity Special Situations 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 securities are available to all investors in a deferred sales charge (DSC)
option. Series A, Series T5 and Series T8 securities will be converted to lower management and advisory fee Series B, Series S5 and Series S8
securities, respectively, one year after completion of their redemption schedule. Series T5 and Series T8 securities have substantially all the same
attributes as the Series A securities with the exception that Series T5 and Series T8 securities distribute an amount comprised of net income
and/or return of capital monthly, if available. Series B, Series D, Series S5 and Series S8 securities are available to all investors in an initial sales
charge (ISC) option. Series S5 and Series S8 securities have substantially all the same attributes as the Series B securities with the exception
that Series S5 and Series S8 securities distribute an amount comprised of net income and/or return of capital monthly, if available. Series C and
Series D securities are available to investors who have enrolled in the rebalancing service. Series F, Series F5 and Series F8 securities 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 securities have substantially all the same attributes as the Series F securities with the exception that Series F5 and Series F8 securities 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 securities are available only to investors who initially hold Series B
and/or Series S5 securities and then become eligible to hold certain Series E securities. Series E1, Series E1T5, Series E2, Series E2T5, Series E3,
Series E3T5, Series E4, Series E4T5, Series E5 and Series E5T5 securities have lower combined management and administration fees than Series
B or Series S5 securities. Series E1T5, Series E2T5, Series E3T5, Series E4T5 and Series E5T5 securities have the same attributes as the other
Series E securities with the exception that Series E1T5, Series E2T5, Series E3T5, Series E4T5 and Series E5T5 securities 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 securities are available only to investors who initially hold Series F and/or Series F5 securities
and then become eligible to hold certain Series P securities. Series P1, Series P1T5, Series P2, Series P2T5, Series P3, Series P3T5, Series P4,
Series P4T5, Series P5 and Series P5T5 securities have lower combined management and administration fees than Series F or Series F5 securities. Series P1T5, Series P2T5, Series P3T5, Series P4T5 and Series P5T5 securities have the same attributes as the other Series P securities with
the exception that Series P1T5, Series P2T5, Series P3T5, Series P4T5 and Series P5T5 securities distribute an amount comprised of net income
and/or return of capital monthly, if available. Series O securities 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 securities are available to all investors who have
entered into a Series I Agreement with Fidelity and are available to all investors in an ISC option. Series I5 and Series I8 securities have substantially all the same attributes as the Series I securities with the exception that Series I5 and Series I8 securities 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 F5, Series F8, Series T5, Series T8,
Series S5, Series S8, Series E1, Series E1T5, Series E2, Series E2T5, Series E3, Series E4, Series P1, Series P1T5, Series P2, Series P3 and Series
P4 securities. The Fund commenced the offering Series E2T5 securities on September 16, 2016, commenced the offering of Series E1, Series
E1T5, Series E2, Series E3 and Series E4 securities on February 5, 2016 and commenced the offering of Series P1, Series P1T5, Series P2, Series
P3 and Series P4 securities on December 4, 2015.
The Fund meets the definition of an investment entity and its purpose is to provide investment management services to its securityholders 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.
Fidelity is the Fund’s and Underlying Fund’s investment manager. The investment advisor is responsible for the investment management of
the Fund’s and Underlying Fund’s portfolio. On December 31, 2015, the investment advisor changed from FIAM LLC (formerly Pyramis Global
Advisors, LLC) to Fidelity.
11
Annual Report
Notes to Financial Statements – continued
(Amounts in thousands of Canadian dollars/thousands of securities (except per security amounts))
2. Basis of Preparation
Statement of Compliance – These financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as published by the International Accounting Standards Board (IASB). The accounting policies set out below have been applied consistently unless otherwise stated.
The financial statements were authorized for issue by the Corporation’s board of directors on February 7, 2017.
Functional and Presentation Currency – These financial statements are presented in Canadian dollars, which is the Fund’s functional
currency.
3. Summary of Significant Accounting Policies
Basis of Measurement – These financial statements have been prepared on the historical cost basis except for investments 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 November 30, 2016 and November 30, 2015, 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’s securities are classes in the Corporation. The classes will not participate pro rata in
the residual net assets of the Corporation in the event of the Corporation’s liquidation and they do not have identical features. Consequently,
the Fund’s outstanding redeemable securities are classified as financial liabilities in accordance with the requirements of IAS 32 – Financial
Instruments – Presentation (IAS 32).
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 Valuation – Investments are designated at their fair value through profit or loss in accordance with IAS 39 and are carried at their
fair value.
The Fund categorizes the inputs to valuation techniques used to fair value its investments 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 periods. The aggregate value of investments by input level, as at November 30, 2016 and
November 30, 2015, 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 by major category are as follows:
Annual Reportport
12
Investment in any Underlying Fund is valued at its closing net asset value per security (NAVPS) 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 November 30, 2016 and November 30, 2015.
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, Fund’s security 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 short-term nature.
Classification of redeemable securities issued by the Fund – The Fund’s redeemable securities are equally subordinated to each other,
but have differing features as outlined in the notes below, and will not participate pro rata in the residual net assets of the Corporation in the
event of the Corporation’s liquidation. Therefore, in accordance with IAS 32, the Fund’s redeemable securities 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 securities is recorded at the redemption amount. As at November 30, 2016 and November 30, 2015, the
Fund’s net asset value per Series per security may differ by less than $0.01 from its net assets attributable to holders of redeemable securities per
Series per securities 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.
Valuation of Series – Separate net assets attributable to holders of redeemable securities is calculated for each Series of securities in the
Fund. The net assets attributable to holders of redeemable securities 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 securities of each Series, except for items that can be specifically attributed to one or more Series.
Per Security from Operations - The increase (decrease) in net assets attributable to holders of redeemable securities resulting from operations per security in the Statements of Comprehensive Income represent the increase (decrease) in net assets attributable to holders of redeemable securities resulting from operations for each Series of the Fund, divided by the weighted average securities outstanding for each Series of
the Fund during the period as follows:
Weighted
Average
Securities
Period ended November 30, 2016
Series A
1,697
13
Annual Report
Notes to Financial Statements – continued
(Amounts in thousands of Canadian dollars/thousands of securities (except per security amounts))
Weighted
Average
Securities
Series B
Series F
Series F5
Series F8
Series T5
Series T8
Series S5
Series S8
Series E1
Series E1T5
Series E2
Series E2T5
Series E3
Series E4
Series P1
Series P1T5
Series P2
Series P3
Series P4
Period ended November 30, 2015
Series A
Series B
Series F
Series F5
Series F8
Series T5
Series T8
Series S5
Series S8
3,305
1,618
46
19
62
234
43
92
1,278
49
442
36
74
124
740
36
232
94
15
1,857
3,880
1,502
45
9
29
95
52
34
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” or “Proceeds from sale and maturity of investments”, 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 does not plan to adopt the new standard early.
4. Expenses and Other Related Party Transactions
Management Fee – Fidelity serves as manager of the Fund. Fidelity is part of a broader group of companies collectively known as Fidelity
Investments. Fidelity provides investment advice with respect to the Fund’s investment portfolio and arranges for the acquisition and disposition
of portfolio investments, including all necessary brokerage arrangements. The Fund pays Fidelity a monthly management fee for its 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. To
avoid duplication of fees, Series O securities of any Underlying Fund are not subject to a management fee. The annual management fee rates for
each Series were as follows:
Annual Reportport
14
Annual
Management
Fee Rate (%)
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
A
B
F
F5
F8
T5
T8
S5
S8
E1
E1T5
E2
E2T5
E3
E4
P1
P1T5
P2
P3
P4
2.000
1.850
0.850
0.850
0.850
2.000
2.000
1.850
1.850
1.825
1.825
1.800
1.800
1.775
1.725
0.825
0.825
0.800
0.775
0.725
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. The administration fee is in addition to the management fee. To avoid duplication of fees, Series O securities of any Underlying Fund are not subject to the
Administration 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:
Series A
Series B
Series F
Series F5
Series F8
Series T5
Series T8
Series S5
Series S8
Series E1
Series E1T5
Series E2
Series E2T5
Series E3
Series E4
Series P1
Series P1T5
Series P2
Series P3
Series P4
Tier 1 (%)
Tier 2 (%)
Tier 3 (%)
0.310
0.260
0.230
0.230
0.230
0.310
0.310
0.260
0.260
0.235
0.235
0.210
0.210
0.185
0.185
0.205
0.205
0.180
0.155
0.155
0.300
0.250
0.220
0.220
0.220
0.300
0.300
0.250
0.250
0.225
0.225
0.200
0.200
0.175
0.175
0.195
0.195
0.170
0.145
0.145
0.290
0.240
0.210
0.210
0.210
0.290
0.290
0.240
0.240
0.215
0.215
0.190
0.190
0.165
0.165
0.185
0.185
0.160
0.135
0.135
Prior to March 28, 2016, the administration fee was calculated as a fixed annual percentage of the net asset value of each Series as follows (some
or all Series’ administration fees may not have changed):
15
Annual Report
Notes to Financial Statements – continued
(Amounts in thousands of Canadian dollars/thousands of securities (except per security amounts))
Series A
Series B
Series F
Series F5
Series F8
Series T5
Series T8
Series S5
Series S8
Series E1
Series E1T5
Series E2
Series E3
Series E4
Series P1
Series P1T5
Series P2
Series P3
Series P4
Tier 1 (%)
Tier 2 (%)
Tier 3 (%)
0.310
0.260
0.230
0.230
0.230
0.310
0.310
0.260
0.260
0.235
0.235
0.210
0.185
0.185
0.205
0.205
0.180
0.155
0.155
0.300
0.250
0.220
0.220
0.220
0.300
0.300
0.250
0.250
0.225
0.225
0.200
0.175
0.175
0.195
0.195
0.170
0.145
0.145
0.290
0.240
0.210
0.210
0.210
0.290
0.290
0.240
0.240
0.215
0.215
0.190
0.165
0.165
0.185
0.185
0.160
0.135
0.135
Prior to March 27, 2015, the administration fee was calculated as a fixed annual percentage of the net asset value of each Series as follows (some
or all Series’ administration fees may not have changed):
Series A
Series B
Series F
Series F5
Series F8
Series T5
Series T8
Series S5
Series S8
Tier 1 (%)
Tier 2 (%)
Tier 3 (%)
0.312
0.262
0.234
0.234
0.234
0.311
0.311
0.261
0.261
0.302
0.252
0.234
0.234
0.234
0.301
0.301
0.251
0.251
0.292
0.242
0.234
0.234
0.234
0.291
0.291
0.241
0.241
Independent Review Committee Fees – The IRC, as required under National Instrument 81-107, 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 GST/HST liability or refund is
calculated using the residency of securityholders 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 securityholders’ 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 periods are disclosed as
“Expenses waived” in the Statements of Comprehensive Income, if applicable.
5. Taxation and Dividends
The Corporation qualifies as a mutual fund corporation under the provisions of the Income Tax Act (Canada). The Corporation is a single
legal entity for tax purposes and is not taxed on a class by class basis. The Corporation has a taxation year–end of November 30 and will pay all
Canadian dividends, if any, earned in the year on or about November 30. In addition, the Corporation will pay, if necessary, capital gains dividends
within 60 days of year–end, to ensure the Corporation is not subject to income tax on its net realized capital gains and other income earned
during the year. As a result, the Corporation and each of its classes in substance is tax exempt and does not record income taxes under IAS 12
Annual Reportport
16
– Income Taxes (IAS 12) and accordingly does not recognize the deferred tax benefit associated with tax loss carry forwards and other taxable
temporary differences.
Dividends, if any, are declared separately for each Series.
Capital losses of the Corporation may be applied against the capital gains attributable to the Corporation as a whole irrespective of the class from
which the gains or losses arise. Non-capital losses attributable to any particular series of a fund may be applied against income or taxable income
attributable to any series of a fund.
As at the last taxation year-end, the Corporation had no capital losses and no non-capital losses available to be carried forward for up to 20
tax years.
6. Capital Risk Management
Securities 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 securities of equal value, with no par value. All securities in a series of the Fund rank equally with respect to distributions. A securityholder of the Fund is entitled to one vote for each one dollar in value of securities owned. Fractional securities are proportionately entitled to
these rights. The Fund generally has no restrictions or specific capital requirements on the subscriptions and redemptions of securities other
than minimum subscription requirements; although, on rare occasions, Fidelity may temporarily suspend securityholders’ right to redeem securities and postpone paying sale proceeds. The relevant movements attributable to securityholders are shown in the Statements of Changes in Net
Assets Attributable to Holders of Redeemable Securities. 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.
Security Transactions - Security transactions for each Series were as follows:
Period ended November 30, 2016
Series A
Series B
Series F
Series F5
Series F8
Series T5
Series T8
Series S5
Series S8
Series E1
Series E1T5
Series E2
Series E2T5
Series E3
Series E4
Series P1
Series P1T5
Series P2
Series P3
Series P4
Period ended November 30, 2015
Series A
Series B
Series F
Series F5
Series F8
Series T5
Series T8
Series S5
Series S8
17
Securities
Outstanding,
Beginning of
Period
Issued
1,680
3,778
1,650
56
13
48
119
69
42
–
–
–
–
–
–
–
–
–
–
–
467
1,588
1,845
40
16
52
295
45
199
2,422
89
848
47
204
255
1,793
79
785
229
124
108
262
101
4
1
4
11
6
4
–
–
–
–
–
–
34
3
16
–
–
(547)
(2,578)
(1,578)
(59)
(2)
(12)
(32)
(88)
(66)
(435)
(36)
(228)
–
(83)
(46)
(210)
(5)
(428)
(30)
–
1,708
3,050
2,018
41
28
92
393
32
179
1,987
53
620
47
121
209
1,617
77
373
199
124
2,114
3,968
1,481
35
5
24
69
45
21
329
976
512
21
11
29
83
39
27
–
–
–
1
–
–
1
–
–
(763)
(1,166)
(343)
(1)
(3)
(5)
(34)
(15)
(6)
1,680
3,778
1,650
56
13
48
119
69
42
Reinvested
Redeemed
Securities
Outstanding,
End of Period
Annual Report
Notes to Financial Statements – continued
(Amounts in thousands of Canadian dollars/thousands of securities (except per security amounts))
Affiliated Ownership - As at November 30, 2016, Fidelity and its affiliates held less than 1% of the Fund. As at November 30, 2015, Fidelity and
its affiliates held less than 1% of the Fund.
7. 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 long-term capital growth and seeks a similar return to its Underlying Fund, Fidelity Special Situations Fund, by investing substantially all of its assets in units of the Underlying Fund.
The Underlying Fund aims to achieve long-term capital growth by investing primarily in equity securities of Canadian companies. The Underlying
Fund seeks to identify investment opportunities that are believed to represent special situations.
The Fund’s and the Underlying Fund’s benchmark is a blended benchmark made up of: 70.0% S&P/TSX Completion Index and 30.0% Russell
2500 Index.
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. The Fund may be exposed to
indirect credit risk through its investments in any Underlying Fund. 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 November 30, 2016 and November 30, 2015.
Other than outlined above, there were no significant concentrations of credit risk to counterparties as at November 30, 2016 and November
30, 2015
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.
Sector Mix
% of Fund’s
Net Assets as
at 11/30/16
Information Technology
Financials
Materials
Health Care
Consumer Discretionary
Energy
Industrials
Consumer Staples
Annual Reportport
29.2
21.5
19.1
7.4
7.3
4.9
3.7
1.9
18
% of Fund’s
Net Assets as
at 11/30/15
24.8
27.2
5.9
5.2
12.3
11.0
6.1
0.6
% of Fund’s
Net Assets as
at 11/30/16
Others (Individually Less Than 1%)
Canadian Bonds
Cash and Short-Term Investments
Net Other Assets (Liabilities)
0.0
0.2
3.3
1.5
% of Fund’s
Net Assets as
at 11/30/15
5.9
0.0
1.1
(0.1)
Prior period industry classifications reflect the categories in place as of the date indicated and have not been adjusted to reflect current industry
classifications.
Market Capitalization
% of Fund’s
Net Assets as
at 11/30/16
Large
Mid
Small
40.6
32.7
17.3
% of Fund’s
Net Assets as
at 11/30/15
35.4
35.5
23.7
Market Capitalization is a measure of the size of a company. It is calculated by multiplying the current share price by the number of outstanding
common shares of the company. The Fund defines small cap as less than $2 billion, mid cap as between $2 billion and $10 billion, and large cap as
over $10 billion in capitalization.
Geographic Mix
% of Fund’s
Net Assets as
at 11/30/16
Canada
United States of America
Others (Individually Less Than 1%)
Cash and Short-Term Investments
Net Other Assets (Liabilities)
50.0
43.6
1.6
3.3
1.5
% of Fund’s
Net Assets as
at 11/30/15
49.9
45.0
4.1
1.1
(0.1)
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 securities. Redeemable securities are redeemed on demand at the securityholder’s option based on the Fund’s net asset value per security (NAVPS) 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 November 30, 2016 and November 30, 2015, 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 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 November 30, 2016 and November 30, 2015, with all other variables held constant, the net
assets attributable to holders of redeemable securities of the Fund would have increased or decreased by approximately $11,584 (November 30,
2015: $8,221). This change is estimated using the Fund’s beta which is calculated based on the historical correlation between the return of the
19
Annual Report
Notes to Financial Statements – continued
(Amounts in thousands of Canadian dollars/thousands of securities (except per security amounts))
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 majority of the Fund’s and any Underlying Fund’s financial assets and liabilities are non-interest bearing. As a result,
the Fund is not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates.
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 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. As a result, the Fund is not subject to
significant amounts of risk due to fluctuations in exchange rates.
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 securities. In addition, the purpose of any Underlying Fund is to
provide investment management services to its securityholders 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 securities 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 tables present 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:
November 30, 2016
Fidelity Special Situations Fund Series O
Total Net Assets
($)
Fair Value of
Investment ($)
1,091,995
234,021
November 30, 2015
Total Net
Assets ($)
Fair Value of
Investment ($)
Fidelity Special Situations Fund Series O
857,588
156,585
9. Federal Budget
Legislative amendments have been introduced to implement the March 22, 2016 federal government proposals that would eliminate tax-deferred
switching for investors between different corporate class funds. The budget proposal will treat switches between corporate class funds occurring
on or after January 1, 2017 as a disposition at fair market value for tax purposes. Switches between different series of securities within the same
class fund will not be affected by the budget proposal.
Annual Reportport
20
Management Report and Independent Auditor’s Report
Management Responsibility for Financial Reporting
To the Securityholders of Fidelity Special Situations Class (Fund) of the Fidelity Capital Structure Corp. (Corporation)
The accompanying financial statements have been prepared by management of the Corporation and approved by the Board of Directors of Fidelity
Capital Structure Corp. Management is responsible for the information and representations contained in these financial statements.
Fidelity maintains appropriate processes to ensure that relevant and reliable financial information is produced. The financial statements have
been prepared in accordance with International Financial Reporting Standards and include certain amounts and disclosures that are based on
estimates and judgments. The significant accounting policies, which management believes are appropriate for the Fund, are described in Note 3
to the financial statements.
PricewaterhouseCoopers LLP is the external auditor of the Fund. They have audited the financial statements in accordance with Canadian generally accepted auditing standards to enable them to express to the securityholders their opinion on the financial statements. Their report is set
out below.
Philippe Potvin
Gordon Thomson
Chief Financial Officer
February 7, 2017
Chief Executive Officer
February 7, 2017
Independent Auditor’s Report
To the Securityholders of Fidelity Special Situations Class (Fund) of the Fidelity Capital Structure Corp. (Corporation)
We have audited the accompanying financial statements of the Fund, which comprise the statements of financial position as at November 30,
2016 and 2015 and the statements of comprehensive income, changes in net assets attributable to holders of redeemable securities and cash flows
for the years ended November 30, 2016 and 2015, and the related notes, which comprise a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial
Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with Canadian
generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures
selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as at November 30, 2016 and
2015 and its financial performance and its cash flows for the years ended November 30, 2016 and 2015 in accordance with International Financial
Reporting Standards.
PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 7, 2017
21
Annual Report
Fidelity Capital Structure Corp.
407 2nd Street S.W., Suite 820
Calgary, Alberta T2P 2Y3
Manager and Registrar
Fidelity Investments Canada ULC
483 Bay Street, Suite 300
Toronto, Ontario M5G 2N7
Custodian
State Street Trust Company of Canada
Toronto, Ontario
Auditor
PricewaterhouseCoopers LLP
Toronto, Ontario
Visit us online at
www.fidelity.ca
or call Fidelity Client Services
at 1-800-263-4077
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 securities 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.
62.108441E
1.886176.108
FICL-SSIT-CS-ANN-0217