COMMENTS RECEIVED ON JULY 27, 2017
FROM EDWARD BARTZ
FIDELITY CENTRAL INVESTMENT PORTFOLIOS II LLC (File Nos. 811-22083)
Fidelity International Credit Central Fund
AMENDMENT NO. 29
“Fund Summary” (Part A of the Registration Statement)
“Portfolio Manager(s)”
C:
The Staff requests confirmation that all of the portfolio managers are jointly and primarily responsible for the day to day operations of the fund.
R:
We believe this disclosure appropriately identifies each portfolio manager as required by Form N−1A, Item 5(a), Instruction 2.
“Investment Details” (Part A of the Registration Statement)
“Principal Investment Strategies”
“The Adviser normally invests the fund's assets primarily innon-U.S. dollar-denominated securities, including securities of issuers located in emerging markets. The Adviser normally invests at least 80% of the fund's assets in debt securities of all types and repurchase agreements for those securities. The Adviser normally invests the fund's assets primarily in investment-grade debt securities.”
C:
The Staff requests the disclosure be updated to provide a policy for non-U.S. or foreign companies.
R:
We will update the disclosure as follows:
“The Adviser normally invests the fund's assets primarily in securities of foreign issuers, including securities of issuers located in emerging markets.”
“Investment Details” (Part A of the Registration Statement)
“Principal Investment Strategies”
C:
The Staff requests that we disclose the maturity policy for the fund’s debt securities.
R:
The fund does not have a principal investment strategy of investing in securities with a particular maturity. Accordingly, we have not modified disclosure.
“Investment Details” (Part A of the Registration Statement)
“Principal Investment Risks”
“Hybrid and Preferred Securities Risk. The risks of investing in hybrid and preferred securities reflect a combination of the risks of investing in securities, options, futures and currencies. An investment in a hybrid or preferred security may entail significant risks that are not associated with a similar investment in a traditional debt or equity security. The risks of a particular hybrid or preferred security will depend upon the terms of the instrument, but may include the possibility of significant changes in the value of any applicable reference instrument. Such risks may depend upon factors unrelated to the operations or credit quality of the issuer of the hybrid or preferred security. Hybrid and preferred securities are potentially more volatile and carry greater market and liquidity risks
than traditional debt or equity securities. Also, the price of the hybrid or preferred security and any applicable reference instrument may not move in the same direction or at the same time.”
C:
If the fund expects to invest in contingent convertible securities, the Staff suggests the Fund should consider what, if any, disclosure is appropriate.
R:
We will add the following disclosure specifically relating to the risks of investing in contingent convertible securities, which may be modified prior to inclusion in the “Investment Details” section of Part A of the registration statement:
“Contingent Convertible Securities Risk.Contingent convertible securities have unique equity conversion or principal write-down features that are tailored to the issuing banking institution and its regulatory requirements. Contingent convertibles may have fully discretionary coupons. This means coupons can potentially be cancelled at the banking institution's discretion or at the request of the relevant regulatory authority in order to help the bank absorb losses. Contingent convertibles will, in the majority of circumstances, be issued in the form of subordinated debt instruments in order to provide the appropriate regulatory capital treatment prior to a conversion. In the event of liquidation, dissolution or winding-up of an issuer prior to a conversion, the rights and claims of the holders of the contingent convertibles against the issuer will generally rank junior to the claims of all holders of unsubordinated obligations of the issuer. In addition, if the contingent convertibles are converted into the issuer's underlying equity securities following a conversion event, each holder will be subordinated due to their conversion from being the holder of a debt instrument to being the holder of an equity instrument.”
“Investment Details” (Part A of the Registration Statement)
“Principal Investment Strategies”
“The Adviser may engage in transactions that have a leveraging effect on the fund, including investments in derivatives, regardless of whether the fund may own the asset, instrument, currency, or components of the index underlying the derivative, and forward-settling securities. The Adviser may invest a significant portion of the fund's assets in these types of investments.If the fund invests a significant portion of its assets in derivatives, its investment exposure could far exceed the value of its portfolio securities and its investment performance could be primarily dependent upon securities it does not own. In addition to forward foreign currency exchange contracts, the fund's derivative investments may include interest rate swaps, total return swaps, credit default swaps, options (including options on futures and swaps), forwards, and futures contracts (both long and short positions) on securities, other instruments, indexes, or currencies. Depending on the Adviser's outlook and market conditions, the Adviser may engage in these transactions to increase or decrease the fund's exposure to changing security prices, interest rates, credit qualities, foreign exchange rates, or other factors that affect security values, or to gain or reduce exposure to an asset, instrument, currency, or index.”
C:
The Staff would like us to explain the underlying sentence and how this could happen to the Fund.
R:
Investment exposure, the notional value of derivatives entered into by the fund, could exceed the value of the portfolio of securities as the leverage of the fund is calculated using the notional value of some derivatives and the market value of other derivatives, in accordance with the Staff’s guidance.
“Investment Details” (Part A of the Registration Statement)
“Principal Investment Strategies”
“The Adviser may engage in transactions that have a leveraging effect on the fund, including investments in derivatives, regardless of whether the fund may own the asset, instrument, currency, or components of the index underlying the derivative, and forward-settling securities. The Adviser may invest a significant portion of the fund's assets in these types of investments.If the fund invests a significant portion of its assets in derivatives, its investment exposure could far exceed the value of its portfolio securities and its investment performance could be primarily dependent upon securities it does not own. In addition to forward foreign currency exchange contracts, the fund's derivative investments may include interest rate swaps, total return swaps, credit default swaps, options (including options on futures and swaps), forwards, and futures contracts (both long and short positions) on securities, other instruments, indexes, or currencies. Depending on the Adviser's outlook and market conditions, the Adviser may engage in these transactions to increase or decrease the fund's exposure to changing security prices, interest rates, credit qualities, foreign exchange rates, or other factors that affect security values, or to gain or reduce exposure to an asset, instrument, currency, or index.”
C:
The Staff requests that we explain how the Fund will comply with Staff guidance on derivatives and asset coverage since derivatives appear to be a significant part of the strategy.
R:
The Fund will comply with the Staff’s guidance on derivatives and asset coverage by owning assets constituting good cover in an amount greater than or equal to the exposure to the fund created by its use of derivatives. The exposure to the fund by its use of derivatives will also be measured in accordance with the Staff’s guidance based on the type of instrument in which the fund invests.
“Investment Details” (Part A of the Registration Statement)
“Principal Investment Strategies”
C:
The Staff requests that we explain whether derivatives will be included in the calculation of the fund’s compliance with its 80% policy and, if so, how derivatives will be valued for this purpose. Also, please confirm to us that the notional value of the funds derivatives will not be included toward the 80% policy.
R:
Although we understand that in appropriate circumstances derivatives may qualify for the fund’s name test, we confirm that at this time, the fund is not expected to count derivatives toward its 80% policy and that the notional value of the fund’s derivatives would not be included toward the 80% policy.
“Investment Details” (Part A of the Registration Statement)
“Description of Principal Security Types”
“Debt securities are used by issuers to borrow money. The issuer usually pays a fixed, variable, or floating rate of interest, and must repay the amount borrowed, usually at the maturity of the security. Some debt securities, such as zero coupon bonds, do not pay current interest but are sold at a discount from their face values. Debt securities include corporate bonds, government securities, repurchase agreements, money market securities, mortgage and other asset-backed securities, loans and loan participations, and other securities believed to have debt-like characteristics, includinghybrids and synthetic securities.”
C:
The Staff requests that we discuss hybrids and synthetic securities in the “Principal Investment Strategies” section.
R:
In describing debt securities in its prospectus, the fund provides investors a list of different types of debt securities in which a fund may invest. Although the fund includes hybrids and synthetic securities as part of this list, investments in these particular securities are not a principal investment strategy and, therefore, the fund has not called out these securities in that part of the prospectus.
“Investment Details” (Part A of the Registration Statement)
“Principal Investment Risk”
“Foreign Exposure. Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations can involve additional risks relating to political, economic, or regulatory conditions in foreign countries. These risks include fluctuations in foreign exchange rates; withholding or other taxes; trading, settlement, custodial, and other operational risks; and the less stringent investor protection and disclosure standards of some foreign markets. All of these factors can make foreign investments, especially those in emerging markets, more volatile and potentially less liquid than U.S. investments. In addition, foreign markets can perform differently from the U.S. market.”
C:
The Staff questions whether the fund will invest in emerging markets securities and, if so, asks that we provide appropriate strategy and risk disclosure.
R:
As disclosed in the “Principal Investment Strategies” section, the fund’s investments in securities of foreign issuers include securities of issuers located in emerging markets. The “Principal Investment Risks” section contains the following disclosure related to the risks of investing in emerging markets:
“Investing in emerging markets can involve risks in addition to and greater than those generally associated with investing in more developed foreign markets. The extent of economic development; political stability; market depth, infrastructure, and capitalization; and regulatory oversight can be less than in more developed markets. Emerging market economies can be subject to greater social, economic, regulatory, and political uncertainties. All of these factors can make emerging market securities more volatile and potentially less liquid than securities issued in more developed markets.”
Accordingly, we believe the current strategy and risk disclosure are appropriate.
“Investment Details” (Part A of the Registration Statement)
“Principal Investment Risks”
“Issuer-Specific Changes. Changes in the financial condition of an issuer or counterparty, changes in specific economic or political conditions that affect a particular type of security or issuer, and changes in general economic or political conditions can increase the risk of default by an issuer or counterparty, which can affect a security's or instrument's credit quality or value. The value of securities of smaller, less well-known issuers can be more volatile than that of larger issuers. Entities providing credit support or a maturity-shortening structure also can be affected by these types of changes, and if the structure of a security fails to function as intended, the security could decline in value. Lower-quality debt securities (those of less than investment-grade quality, also referred to as high yield debt securities or junk bonds) and certain types of other securities tend to be particularly sensitive to these changes.”
C:
The Staff requests a separate risk be added specific to junk bonds.
R:
We believe that the risks associated with investing in lower-quality debt securities are described in “Issuer-Specific Changes” and, therefore, the addition of a separate risk factor for this type of investment would be duplicative.