Fidelity Investments Canada ULC

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from multi-layering prohibition in paragraph 2.5(2)(b) of NI 81-102 to permit Fidelity managed mutual funds to invest in Fidelity managed underlying mutual funds which in turn obtain exposure to Fidelity managed reference funds through a forward agreement -- Underlying fund and reference fund aim to provide exposure to a portfolio of fixed-income securities -- Three-tier structure is transparent and intended to provide top mutual funds with exposure to fixed income on tax efficient basis -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss 2.5(2)(b), 19.1.

August 24, 2011

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

FIDELITY INVESTMENTS CANADA ULC

(the Filer)

AND

THE FUNDS (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Funds from the requirement of paragraph 2.5(2)(b) of National Instrument 81-102 Mutual Funds (NI 81-102) to permit each Fund to invest in securities of one or more Underlying Funds (defined below) (the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that Section 4.7 of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in respect of the Exemption Sought in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut (the Passport Jurisdictions).

Interpretation

Defined terms in the securities legislation of the Jurisdiction or the Passport Jurisdictions, National Instrument 14-101 -- Definitions or NI 81-102 have the same meanings in this Decision, unless otherwise defined.

For purposes of this Decision:

"Funds" means Fidelity Monthly Income Class, Fidelity Balanced Income Private Pool, Fidelity Balanced Income Currency Neutral Private Pool, Fidelity Income Class Portfolio, Fidelity Balanced Class Portfolio, Fidelity Global Balanced Class Portfolio and any other mutual fund (other than the Underlying Funds and Reference Funds) that is, or in the future becomes, managed by Fidelity and which is permitted by its investment strategies to seek exposure to fixed income securities through investments in other mutual funds.

"Underlying Funds" means Fidelity Canadian Bond Capital Yield Fund, Fidelity American High Yield Capital Yield Fund and any other mutual fund that is, or in the future becomes, managed by Fidelity and which seeks to provide exposure to a portfolio of fixed income securities by investing primarily in a basket of equity securities issued by Canadian corporations and by entering into one or more specified derivatives (collectively, the "Forward Agreement") with one or more counterparties in order to obtain exposure to a Reference Fund.

"Reference Fund" means Fidelity Canadian Bond Fund, Fidelity American High Yield Fund and any other mutual fund that is, or in the future becomes, managed by Fidelity and that invests in a portfolio of fixed income securities.

Representations

This Decision is based on the following facts represented by the Filer:

Filer

1. The Filer, a corporation continued under the laws of Alberta and having its head office in Toronto, Ontario, acts as manager of each of the Funds, Underlying Funds and Reference Funds.

2. The Filer, or an affiliate, acts as portfolio manager to each of the Funds, Underlying Funds and Reference Funds.

3. The Filer is not in default of the Legislation or the securities legislation of any jurisdiction.

Funds

4. Each Fund is or will be:

(a) an open-end mutual fund established under the laws of Ontario or a class of shares of a corporation incorporated under the laws of the Province of Alberta;

(b) a reporting issuer under the securities laws of some or all of the provinces and territories of Canada;

(c) governed by the provisions of NI 81-102; and

(d) qualified for distribution in some or all provinces and territories of Canada under a simplified prospectus and annual information form prepared in accordance with National Instrument 81-101 -- Mutual Fund Prospectus Disclosure ("NI 81-101") and filed with and receipted by the securities regulators in the applicable jurisdictions.

5. Each Fund would like the ability to invest in securities of one or more Underlying Funds from time to time in order to obtain exposure to a portfolio of fixed income securities.

6. Each Fund will only invest in securities of an Underlying Fund if such investment is permitted by, and consistent with, the investment objectives of that Fund.

7. The Funds are not in default of the Legislation or the securities legislation of any jurisdiction.

Underlying Funds

8. Each Underlying Fund is or will be:

(a) an open-end mutual fund established under the laws of Ontario;

(b) a reporting issuer under the securities laws of some or all of the provinces and territories of Canada;

(c) governed by the provisions of NI 81-102; and

(d) qualified for distribution in some or all provinces and territories of Canada under a simplified prospectus and annual information form prepared in accordance with NI 81-101.

9. The investment objective of each Underlying Fund is to provide exposure to a portfolio of fixed income securities.

10. In seeking its investment objective, the Underlying Fund will obtain exposure to a Reference Fund by investing primarily in a basket of equity securities issued by Canadian corporations and by entering into one or more Forward Agreements with one or more counterparties.

11. The Filer expects that gains derived from the disposition of securities under the Forward Agreements will be treated as capital gains and will be distributed to securityholders, including the Funds, as capital gains for income tax purposes.

12. All aspects of the Forward Agreement will comply with the requirements of NI 81-102 relating to the use of specified derivatives by mutual funds.

13. The Underlying Funds are not in default of the Legislation or the securities legislation of any jurisdiction.

Reference Funds

14. Each Reference Fund is or will be:

(a) an open-end mutual fund established under the laws of Ontario;

(b) a reporting issuer under the securities laws of some or all of the provinces and territories of Canada;

(c) governed by the provisions of NI 81-102; and

(d) qualified for distribution in some or all provinces and territories of Canada under a simplified prospectus and annual information form prepared in accordance with NI 81-101.

15. Each Reference Fund invests in a portfolio of fixed income securities.

16. The Reference Funds are not in default of the Legislation or the securities legislation of any jurisdiction.

Three-Tier Fund Structure

17. Absent the Exemption Sought, each Fund will be prohibited from investing in securities of an Underlying Fund since, contrary to subsection 2.5(2)(b) of NI 81-102, more than 10% of the net assets of the Underlying Fund will be deemed by subsection 2.5(1)(b) of NI 81-102 to be invested in securities of another mutual fund.

18. It would be burdensome and expensive from an operational and portfolio management perspective for each Fund to obtain exposure to a Reference Fund through specified derivatives because it would require each Fund to negotiate its own set of specified derivative documentation with a counterparty and, on an on-going basis, administer the mechanics of each of its Forward Agreements (ie., buying separate baskets of equity securities, administering monthly rollovers, etc.).

19. It would be more efficient if exposure to a Reference Fund through specified derivatives occurs at the Underlying Fund level since only one set of documentation with a counterparty will be required. In this way, a Fund could alter its exposure to a Reference Fund by simply acquiring or redeeming securities of the Underlying Fund in the ordinary course rather than having to amend specified derivative documentation.

20. Investments by a Fund in securities of an Underlying Fund, and the exposure of that Underlying Fund to the performance of a Reference Fund, will only be made in accordance with the requirements of section 2.5 of NI 81-102 (except as otherwise permitted by the Exemption Sought). There will be no duplication of fees between each tier of the three-tier fund structure.

Decision

The principal regulator is satisfied that the Decision meets the test set out in the Legislation for the principal regulator to make the Decision.

The Decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that the proposed investments by the Funds in securities of the Underlying Funds are made in compliance with each provision of section 2.5 of NI 81-102, except for paragraph 2.5(2)(b).