Statement re Interim Financial Report
Fidelity China Special Situations PLC
Preliminary announcement of unaudited interim financial results for the period
from 19 April 2010 to 30 September 2010.
Contents
The Investment Objective
Summary of Results
Chairman's Statement
Investment Manager's Report
Responsibility Statement
Twenty Largest Investments
Financial Statements
Notes to the Financial Statements
Investor Information
Directory
The investment objective of the Company is to achieve long term capital growth
from an actively managed portfolio made up primarily of securities issued by
companies listed in China or Hong Kong and Chinese companies listed elsewhere.
It may also invest in listed companies with significant interests in China and
Hong Kong.
Returns %
19 April 2010 to
30 September 2010
Returns
NAV per share total return +7.7
Share price total return +13.2
MSCI China Index total return +1.4
Summary of Results
As at At launch %
30 September 19 April change
2010
2010
Assets
Gross assets¹ £576.99m £455.82m* +26.6
Net assets £513.52m £455.82m* +12.7
Net gearing(%)² 9.3 n/a
NAV per share 106.61p 99.01p +7.7
Number of shares in issue 481,700,000 460,000,000
Stock market Data 19 April 2010 % change
to 30 September
2010
MSCI China Index (total return)³ 101.42 +1.4
Share price 30 September 2010 113.20p +13.2
High 113.20p
Low 92.26p
Premium/(discount) 30 September 2010 6.2%
High 10.4%
Low (1.7)%
Returns for the period from 19 April 2010 to 30
September 2010
Revenue return per ordinary share 0.83p
Capital return per ordinary share 6.55p
Total return per ordinary share 7.38p
* Gross assets and net assets at launch on 19 April 2010 represent £460,000,000
received on the initial offer and subscription for placing less fees and
expenses of £3,168,000 charged to the share premium account and £1,015,000
charged to revenue reserve.
¹ Total gross assets less current liabilities, excluding the fixed term bank
loan of £63.47m
² Net gearing is after the deduction of cash at bank and investment in cash
funds
³Rebased to 100.00 at launch.
Chairman's Statement
As this is the first interim financial report of Fidelity China Special
Situations PLC ("the Company"), I would like to take the opportunity to welcome
both the shareholders who invested during the initial public offering in April
2010 and the many new shareholders who have invested in the Company
subsequently.
A significant and, I believe, unstoppable shift is underway from the more
established economies and markets of the western world to the emerging markets,
in particular those situated in Asia. Indeed, Anthony Bolton, the Company's
portfolio manager, has described China as "the investment opportunity of the
next decade." I am pleased to see that many other people support that view, and
our successful launch of the largest new investment trust registered in the UK
market for 16 years is evidence of this growing interest.
China is the powerhouse of Asia and is expected to overtake Japan as the
region's largest economy at the end of the year. The structural changes that
are taking place in the country, particularly the shift from an export-led
economy to one driven by domestic consumption will drive the next phase of
China's growth. With continuing urbanisation and the growing affluence of
China's middle class, consumer spending will grow as disposable income rises.
This trend is a central focus for the Company's investment portfolio.
I am pleased to report that over the period since launch, the Company has made
an encouraging start, with the results contained in this interim financial
report clearly demonstrating that the Company is well-placed to achieve its
investment objective of generating long term capital growth for its
shareholders.
In the period from 19 April to 30 September 2010, the Company's net asset value
per share increased from 99.01p to 106.61p per share, an increase of 7.7% which
compares with a rise in our benchmark, the MSCI China Index, of 1.4%. The
Company's share price rose by 13.2% to 113.2p, at which level the shares sold
at a premium to value of net assets of 6.2%. The revenue return was 0.83p per
share and the capital return was 6.55p per share.
As dividends paid by underlying investments tend to fall into the first half of
the year, the revenue return for the second half is not expected to match that
of the first half of the year. The Board has decided not to pay a dividend at
this interim stage.
A full report on the performance of the Company and that of the Chinese and
Hong Kong markets over the period to 30 September 2010 is set out in the
Investment Manager's Report on pages 4 to 5. I would like, however, to draw
your attention to a number of key milestones during the period under review.
* On 9 April 2010, the Company announced the results of its initial public
offering, which raised £460 million and made Fidelity China Special
Situations PLC the largest China equity fund listed on the London Stock
Exchange and the largest emerging markets equity fund new issue on the UK
market for twenty years;
* On 19 April 2010, Fidelity China Special Situations PLC commenced trading
on the London Stock Exchange.
* On 19 April 2010, the Company entered into a Revolving Facility Agreement
of HK$775,000,000 with the amount being fully drawn down on 22 April 2010;
* On 18 June 2010, the Company joined the FTSE 250 Index; and
* As at 30 September 2010, the Company had issued 21,700,000 additional
shares at an average premium to net asset value of 6.2%. The issued share
capital of the Company as at 30 September 2010 was 481,700,000 ordinary
shares of 1p each. (Following the issue of a further 8,000,000 shares since
30 September 2010, the issued share capital of the Company will be
489,700,000 ordinary share of 1p each)
The Board monitors the relationship between the share price and the net asset
value per share. Since the launch the shares have generally traded at a premium
to their net asset value reflecting demand for shares that is not satisfied by
sellers. The Board has the ability, as set out in the prospectus, to buy shares
at a discount to net asset value and to issue shares at a premium to net asset
value and it is prepared to use these powers when it considers it is in
shareholders' interests to do so.
On 1 November the premium reached a new high level of 13% over net asset value
and the Board announced that it was therefore considering ways in which the
demand for shares could be satisfied. Subsequently the Board announced on 9
November that it was considering increasing the size of the Company through a
pre-emptive open offer of shares together with a public offer for subscription.
Further details will be communicated to shareholders as soon as practicable.
I would like to thank you for your support of Fidelity China Special Situations
PLC and look forward to your continuing interest in the Company.
John Owen CMG MBE DL
Chairman
12 November 2010
Investment Manager's Report
A new chapter
It is with great pleasure that I find myself writing the portfolio manager's
report again, seven months after my wife and I returned to Hong Kong. Our
arrival last March was just five weeks before the money from the launch of
Fidelity China Special Situations PLC became available to invest. In that time
I put together the initial portfolio; re-established a relationship with
Fidelity's excellent team in Hong Kong; discussed with my brokers and other
contacts the type of service I was looking for; bought an apartment; and, most
importantly, started visiting companies.
Meeting management teams has always been one of the most important inputs into
my investment process. Over the last half year or so I have had more than 250
company meetings - about two thirds of these were conducted in English and a
third in Mandarin, generally using my colleagues as interpreters.
After a number of trips to the mainland, which I visit about once a month, I am
as convinced as ever about the long term potential of China. This will become
the dominant economy in Asia and it will have an effect on every other country
in the region - many of which will become satellites to China's sun.
This is not to say, of course, that there are not challenges and that there
will not be bumps along the way, but I fully agree with one of my competitors
who observed that one day, as a matter of course, investors will own a China
fund and be surprised that there was a time when most people did not. I was
encouraged at the time of the launch that optimism for China was by no means
universal. There were some very vocal bears and money flows were generally
going to other emerging markets. If everyone had agreed with me I would have
been more concerned.
Why a China investment trust?
There were four strands to my case for our China investment trust. First, I
believed that in a low growth world the higher growth in emerging markets like
China would become even more attractive. Second, it was clear to me that
investors could benefit from the ongoing shift in China from exports and low
value manufacturing to consumption, higher value manufacturing and services.
Third, the market was less well researched, throwing up better investment
opportunities than in the developed markets. Finally, I predicted that my long
investment experience and our local team's detailed knowledge of Chinese stocks
and industries would prove to be a powerful combination.
My belief that we are in a two-speed world has become conventional wisdom. The
slow growth in the developed world, including the US, UK, Europe and Japan, is
having a negative impact on emerging economies' exports but I believe their
relative growth will look even more attractive, especially those that are not
too reliant on overseas demand. Chinese growth could return to 7-8% from its
current double digit level but, relative to growth of around 2% in much of the
world, this will look pretty interesting. In a low-growth world investors will
seek to invest in higher growth countries, industries and companies. I believe
the premium they will be willing to pay for this growth could rise
considerably.
An additional important factor is the difference between the monetary policies
of the developed and emerging worlds. I have never before witnessed the
current situation whereby money created in one country is leaking at a rapid
pace into assets in another part of the world. This is a phenomenon that I
think is only in its early stages and could be the big investment story of the
next year or so. The place where these two "tectonic plates" (the slow
developed world and the fast emerging one) rub up against each other is Hong
Kong. Hong Kong's monetary policy is tied to the US while its trade is
principally with the rest of mainland China. It remains unclear whether Hong
Kong's current monetary policy can continue indefinitely and if it changes what
the financial consequences will be - but they could be very significant.
The Portfolio
I have been convinced for some time that the emerging market 'S' curve effect
will continue to boost spending in China. It is now clear to me that the
Chinese authorities also wish to encourage domestic consumption and the move to
more added-value services. They know that the days of China as the low cost
manufacturing base for the world are numbered. It is interesting that in my
meetings with Chinese textile companies, management often talks about putting
new capacity in Indonesia, Cambodia and Vietnam rather than in China. If they
are looking at investing in China, then they are doing so in the centre or West
of the country and not the East or the South. The increasing price of labour
is driving this trend.
I have focused the majority of the portfolio to benefit from these changes,
with high exposure to consumer discretionary businesses such as retailers,
automobiles, lifestyle goods producers, restaurants, hotels and the like. I am
also focusing on services such as telecommunications, internet companies,
automation, healthcare and financial stocks. I am underweight traditional
manufacturers and commodity plays such as oil and, in addition, I think many of
the major infrastructure plays are past their best as investment opportunities.
Research as the keystone
As regards under-researched stocks, it has been refreshing (and exciting) to be
able to find companies that are poorly followed or not followed at all by
brokers, particularly in the medium and smaller capitalisation end of the
market. This is why the majority of the portfolio is in medium and small
capitalisation stocks, with under 30% (as at 30.9.10) in stocks with a market
capitalisation of more than US$ 5bn. There is no shortage of interesting
companies in this space, many of which are growing at 20-30% p.a. The
challenge is to find the ones that are not already on high valuations and where
the managements are credible and the figures realistic.
There are three main groups of Chinese stocks: the "A" Shares listed on the
mainland stock exchanges of Shanghai and Shenzhen, Hong Kong listed China
companies and those with a US listing. I have been interested to see that, at
times, the three move quite independently of each other. With one notable
exception, I have generally found the "A" Shares pretty expensive when compared
with the Hong Kong names in the same industries, so my focus (in research and
investing), has been more on Hong Kong and US-listed companies. The exception
is financials, where many of the "A" Shares of dual-listed companies have
recently sold at discounts to the Hong Kong-listed shares of the same company.
Two of my top holdings, Ping An Insurance and China Merchants Bank, have
offered discounts of around 20%. Roughly 15% of the Company is in US-listed
Chinese stocks. Within this universe there is a very wide range of valuations
and it contains some of the best and worst companies from a corporate
governance perspective.
I devote much of my time to cross checking with external independent sources
what companies are telling me. However, given the size and complexity of the
Chinese market, it will remain a challenge to identify every potential problem
out there.
Another challenge with investing in the smaller companies area is being able to
acquire and dispose of holdings. Often this takes time and, for this reason,
the closed end investment trust structure is, as I expected, the most
appropriate for this kind of fund.
I have also been confirmed in my suspicion that smaller Chinese stocks would be
more volatile than I have generally experienced in Europe. A meeting with the
management of an interesting company illustrates this well. For every such
meeting our library prepares a pack of information. Coming out of the meeting
I was quite excited, as the business was attractive and the stock looked good
value. Unfortunately, the price used in the pack, although only a few days out
of date, was not the current one - which I found was over 50% higher!
It has been a great pleasure working closely with the team here in Hong Kong.
I think our resource is second to none and I have learned a lot from them.
What I have brought to the party is my experience. I believe it helps in many
areas but two in particular spring to mind. One is in evaluating management
teams. Even in a Mandarin meeting my long experience in seeing hundreds of
presentations of business models and teams can give me a particular advantage.
I aim to identify individuals who stick out from the crowd and have a strategic
vision or operational plan that differentiates them from their competitors.
The second is identifying stocks which don't excite investors at that moment
but might do at some future date. An example was Brilliance China, BMW's joint
venture partner in China and one of my top 10 holdings. When I first met the
company and heard of their plans to increase local production from 50,000 to
300,000 units over the next 3 years, I thought this had the potential to
capture investors' imaginations. This process has started to happen.
Outlook and growth potential
China is an enigma. Although impressive in many ways, it can still give cause
for concern. Some of the aspects that other international investors worry
about actually concern me less. For example, while others predict a big bad
debt problem in the short term, I believe that China will be cushioned by its
ability to transfer assets and loans between different parts of its vast public
sector. The banks which financed some of the big infrastructure projects could
end up with bad debts, but it is unclear how much of this will become visible
to investors.
I have some concern about the current rate of credit expansion, which is still
too high, particularly when one takes all the off-balance sheet and unofficial
lending channels into account. The recent interest rate hike could be the
first of several. Another potential issue could be social cohesion - whether
or not China can take the ongoing transformation of its economy in its stride.
I share widespread concerns about the internationalisation of the RMB. China
likes to do things in a measured, steady way, but it is not clear that this
will be possible in a global world of massive currency flows. Destabilising
factors in countries like North Korea are another long term concern.
Although these are still early days, the initial performance of the fund has
been encouraging, with the NAV up about 15% at the time of writing and the
shares trading at a premium of around 13%. I see little logic for the recent
high level of premium but I hope that the proposed share issuance will bring
the premium closer to the net asset value of the Company.
It's great to have my feet under the desk again.
Anthony Bolton
Portfolio Manger
Principal Risks and Uncertainties
The Board has considered the principal risks and uncertainties over the period
under review and for the remainder of the financial year and believes that the
risks and uncertainties faced by the Company, and applicable for the remainder
of the financial year, fall into two broad categories. The first, external
risks, being stock market, share price and discount and the second, internal
risks, being portfolio and governance, operational, financial, compliance,
administration etc. Information on each of risk is detailed in full in the
Prospectus of the Company dated 26 February 2010, which is available for
inspection on the Company's pages on its website www.fidelity.co.uk/china.
Responsibility Statement
The Directors confirm to the best of their knowledge that:
a) the condensed set of financial statements contained within the interim
financial report has been prepared in accordance with International Accounting
Standard 34: "Interim Financial Reporting";
b) the interim financial report narrative (constituting the interim management
report) includes a fair review of the information required by Rule 4.2.7R of
the FSA's Disclosure and Transparency Rules and their impact on the condensed
set of financial statements and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
c) in accordance with Disclosure and Transparency Rule 4.2.8R there have been
no related party transactions during the period from 19 April 2010 to 30
September 2010 and therefore nothing to report of any material effect of such a
transaction on the financial position or the performance of the Company during
that period;
The interim financial report has been reviewed by the Company's Auditors who
have provided a review opinion on the financial report which can be found on
page 8.
The interim financial report was approved by the Board on 12 November 2010 and
the above responsibility statement was signed on its behalf by John Owen,
Chairman.
By order of the Board
John Owen CMG MBE DL
Chairman
Enquiries
Chris Davies - Head of Investment Trusts, FIL Investments International - 01737
837 723
Anne Read - Corporate Communication, FIL Investments International - 0207 961
4409
Christopher Pirnie - Company Secretary, FIL Investments International - 01737
837929
Twenty Largest Investments as at 30 September 2010
Holding Fair Value %¹
£'000
China Unicom 27,685 4.8
An integrated telecommunications provider
China Mobile 26,089 4.5
A mobile telecommunications provider
Bank of China Hong Kong 25,569 4.4
A commercial banking group
Brilliance China Automotive 22,512 3.9
Manufactures and sells minibuses and autos
China Merchants Bank (ELN) 20,209 3.5
Commercial bank offering corporate banking,
retail banking and treasury businesses
HSBC Holdings 18,658 3.2
A global banking and financial services company
Tencent Holdings 18,446 3.2
Provides internet, mobile and telecommunications
value-added services
Ping An Insurance (ELN) 17,451 3.0
Engaged in the insurance business
Hang Lung Properties 16,889 2.9
Property investment and development company
United Laboratories International 16,016 2.8
Pharmaceutical company
Zhaojin Mining Industry 13,373 2.3
Gold mining company
Gome Electrical Appliances 11,864 2.1
Retails electrical appliances and consumer
electronic products
Jardine Strategic Holdings (Singapore listed) 11,353 2.0
A holding company with interests in engineering,
transport services, insurance broking, property
investment and mining
Industrial and Commercial Bank of China 8,702 1.5
One of China's largest commercial bank
CNinsure 8,438 1.5
An independent insurance intermediary company
Shangdong Chenming Paper 8,400 1.4
Manufactures and sells paper products
Golden Eagle Retail Group 7,358 1.3
Develops and operates department store chains
Chow Sang Sang Holdings 6,760 1.2
Manufacturer and retailer of jewellery
Television Broadcast 6,472 1.2
Terrestrial television broadcaster
Vision Opportunity China Fund 6,554 1.1
A closed-ended investment company investing in
China
Twenty 298,798 51.8
largest
investments
¹ % of total gross assets less current liabilities, excluding the fixed rate
loan of £63,470,000
Income Statement for the period from 19 April 2010 to 30 September 2010
Notes revenue capital total
return return
£'000
£'000 £'000
Revenue
Investment income 3 6,981 - 6,981
Other income 3 18 - 18
Derivative income 3 741 - 741
Total income 7,740 - 7,740
Gains on investments designated at 10 - 44,653 44,653
fair value through profit or loss
Losses on derivative instruments held 11 - (13,837) (13,837)
at fair value through profit or loss
Foreign exchange gains on other net 15 59 1,619 1,678
assets
Foreign exchange gains on bank loan 15 - 1,503 1,503
Total income and gains 7,799 33,938 41,737
Expenses
Investment management fee 4 (1,602) (1,602) (3,204)
Performance fee 4 - (1,425) (1,425)
Other expenses 5 (1,689) - (1,689)
Profit before finance costs and 4,508 30,911 35,419
taxation
Finance costs
Interest on bank loan 6 (250) (250) (500)
Profit before taxation 4,258 30,661 34,919
Taxation 7 (349) - (349)
Net profit after taxation for the 3,909 30,661 34,570
period
Earnings per ordinary share 8 0.83p 6.55p 7.38p
The Company does not have any income or expense that is not included in the net
profit for the period. Accordingly the net profit after taxation for the period
is also the Total Comprehensive Income for the period and consequently no
separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the
Company and is presented in accordance with IFRS. The revenue return and
capital return columns are supplementary and presented for information purposes
as recommended by the Statement of Recommended Practice issued by the
Association of Investment Companies.
All of the profit and total comprehensive income is attributable to the equity
shareholders of the Company. There are no minority interests.
All items in the above statement derive from continuing operations.
The Company was incorporated on 22 January 2010 and operations commenced when
its shares were listed on the London Stock Exchange on 19 April 2010.
The Notes on page 13 to 24 form an integral part of these financial statements.
Statement of Changes in Equity for the period from 19 April 2010 to 30
September 2010
Notes share share other capital revenue total
premium reserve reserve reserve equity
capital
account £'000 £'000 £'000 £'000 £'000
£'000
Proceeds from offer for 15 4,600 455,400 - - - 460,000
subscription and placing
Fees and expenses of the 15 - (3,168) - - - (3,168)
offer for subscription
and placing
Cancellation of the share 15 - (452,232) 452,232 - - -
premium account*
Issue of ordinary shares 15 217 22,060 - - - 22,277
Additional share listing 15 - (161) - - - (161)
costs
Net profit after taxation 15 - - - 30,661 3,909 34,570
for the period
Closing equity 4,817 21,899 452,232 30,661 3,909 513,518
shareholders' funds: 30
September 2010
*Court approval was given on 21 April 2010 for the Company's Share Premium
Account to be cancelled. As a result £452,232,000 was transferred to the Other
Reserve Account, which is a distributable reserve.
The Company was incorporated on 22 January 2010 and operations commenced when
its shares were listed on the London Stock Exchange on 19 April 2010.
Balance Sheet as at 30 September 2010
Notes £'000
Non current assets
Investments designated at fair value through profit 10 502,364
or loss
Current assets
Derivative assets held at fair value through profit 11 54,788
or loss
Cash and cash equivalents 15,564
Amounts held at futures clearing houses and brokers 170
Other receivables 12 12,923
83,445
Current liabilities
Bank loan 13 (63,470)
Other payables 13 (8,821)
(72,291)
Net Current assets 11,154
Total net assets 513,518
Equity attributable to equity shareholders
Share capital 14 4,817
Share Premium 15 21,899
Other reserve 15 452,232
Capital reserve 15 30,661
Revenue reserve 15 3,909
Total equity shareholders' funds 513,518
Net asset value per ordinary share 16 106.61p
The Company was incorporated on 22 January 2010 and operations commenced when
its shares were listed on the London Stock Exchange on 19 April 2010.
Cash Flow Statementfor the period 19 April 2010 to 30 September 2010
£'000
Operating activities
Cash inflow from investment income 5,881
Cash inflow from equity linked notes 708
Cash inflow from other income 18
Cash outflow from directors fees (47)
Cash outflow from other payments (1,200)
Cash outflow from purchase of investments (623,637)
Cash outflow from purchase of derivatives (75,042)
Cash inflow from sale of investments 160,029
Cash inflow from sale of derivatives 6,417
Cash outflow from amounts held at futures clearing houses and (170)
brokers
Net cash outflow from operating activities before servicing of (527,043)
finance
Servicing of finance
Cash outflow on interest on bank loan (264)
Net cash outflow from operating activities and servicing of (527,307)
finance
Financing activities
Cash inflow from offer for subscription and placing 460,000
Cash inflow from issue of ordinary shares* 18,154
Cash outflow from costs of issue of ordinary shares (3,329)
Cash inflow from bank loan 63,470
Effect of foreign exchange losses on bank loan rollover (246)
Net cash inflow from financing activities 538,049
Increase in cash and cash equivalents 10,742
Reconciliation of net cash flow to movements in net funds
Net cash inflow from cash and cash equivalents 10,742
Effect of foreign exchange gains 4,822
Cash and cash equivalents at the end of the period 15,564
*Excludes proceeds of share issue receivable (see Note 12 on page 19)
The Company was incorporated on 22 January 2010 and operations commenced when
its shares were listed on the London Stock Exchange on 19 April 2010.
The Notes on pages 13 to 24 form an integral part of these financial
statements.
Notes to the Financial Statements
1 PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company
within the meaning of Section 1159 of the Corporation Tax Act 2010.
2 ACCOUNTING POLICIES
The interim financial statements have been prepared in accordance with
International Accounting Standard ("IAS") 34 "Interim Financial Reporting". The
Company's annual financial statements for the period to 31 March 2011 will be
prepared in accordance with International Financial Reporting Standards
("IFRS") to the extent that they have been adopted by the European Union and
with the Association of Investment Companies ("AIC") Statement of Recommended
Practice ("SORP"). The accounting policies adopted in the preparation of the
interim financial statements are the same as will be applied in the forthcoming
Annual Report and are summarised below.
The Company has one operating segment and therefore segmental information is
not disclosed.
a) Basic of Accounting- The financial statements have been prepared on a going
concern basis and under the historical cost convention, except for the
measurement at fair value of investments and derivative assets and
liabilities, and on the assumption that approval as an investment trust will
be granted.
b) Presentation of the Income Statement - In order to better reflect the
activities of an investment trust company and in accordance with guidance
issued by the AIC, supplementary information which analyses the Income
Statement between items of a revenue and capital nature has been prepared
alongside the Income Statement. In accordance with the Company's status as a
UK investment company under Section 833 of the Companies Act 2006, net capital
returns may not be distributed by way of dividends. Additionally, the net
revenue is the measure the Directors believe appropriate in assessing the
Company's compliance with certain requirements set out in Section 1159 of the
Corporation Tax Act 2010.
c) Revenue - Income from equity investments is credited to the Income
Statement on the date on which the right to receive the payment is
established, normally the ex dividend date. Where the Company has elected to
receive its dividends in the form of additional shares rather than cash, the
amount of the cash dividend foregone is recognised as income. Any excess in
the value of the shares received over the amount of the cash dividend foregone
is recognised as a gain in the capital return column of the Income Statement.
Where appropriate certain derivatives, such as equity linked notes, are used.
Income derived from these are included in revenue return in the Income
Statement.
d) Special Dividends- Special dividends are treated as a capital receipt or a
revenue receipt depending on the facts and circumstances of each particular
case.
e) Expenses and finance costs- All expenses are accounted for on an accruals
basis and are charged as follows:
* The performance fee is allocated entirely to capital return as the Board
believe it reflects capital performance of the Company's investments;
* The investment management fee and finance costs are allocated equally
between revenue return and capital return; and
* All other expenses are allocated in full to revenue return.
f) Taxation - The taxation expense represents the sum of taxation currently
payable and deferred taxation.
Taxation currently payable is based on taxable profit for the period. Taxable
profit differs from profit before taxation as reported in the Income Statement
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. The Company's liability for current taxation is calculated using
taxation rates that have been enacted or substantially enacted by the balance
sheet date.
Deferred taxation is the taxation expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding taxation bases used in the
computation of taxable profit, and is accounted for using the balance sheet
liability method. Deferred taxation liabilities are recognised for all taxable
temporary differences and deferred taxation assets are recognised to the extent
that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Investment companies which
have approval as such under section 1159 of the Corporation Tax Act 2010 are
not liable for taxation on capital gains.
The carrying amount of deferred taxation assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset
to be recovered.
Deferred taxation is calculated at the taxation rates that are expected to
apply in the period when the liability is settled or the asset is realised.
Deferred taxation is charged in the Income Statement, except when it relates to
items charged or credited directly to equity, in which case the deferred
taxation is also dealt with in equity.
g) Foreign currency - The Directors, having regard to the currency of the
Company's share capital and the predominant currency in which its investors
operate, have determined the functional currency to be sterling. Transactions
denominated in foreign currencies are calculated in sterling at the rate of
exchange ruling as at the date of transactions. Assets and liabilities in
foreign currencies are translated at the rates of exchange ruling at the
balance sheet date. All capital gains and losses, including exchange
differences on the translation of foreign currency assets and liabilities, are
dealt with in capital reserve.
h) Valuation of investments - The Company's business is investing in financial
assets with a view to profiting from their total return in the form of income
and capital growth. This portfolio of financial assets is managed and its
performance evaluated on a fair value basis, in accordance with a documented
investment strategy, and information about the portfolio is provided internally
on that basis to the Company's Board of Directors and other key management
personnel. Accordingly, upon initial recognition the investments are designated
by the Company as "at fair value through profit or loss". They are included
initially at fair value, which is taken to be their cost and subsequently, the
investments are valued at "fair value", which is measured as bid or last prices
depending on the convention of the exchange on which they are listed, where
available, or otherwise at fair value based on published price quotations.
In accordance with the AIC SORP the Company includes transaction costs within
gains/(losses) on investments and has disclosed them in Note 10 on page 18.
i) Derivative instruments - Where appropriate, certain permitted transactions
involving derivatives instruments are used. Derivative transactions into which
the Company may enter comprise equity linked notes, forward currency contracts,
futures, and options and are measured at fair value. The fair value is the
quoted trade price for the contract.
Where such transactions are used to protect or enhance income, if the
circumstances support this, then the income and expenses derived from them are
included in 'Derivative income'' and "Derivative expenses" via the revenue
return column of the Income Statement. Where such transactions are used to
protect or enhance capital, if the circumstances support this, the gains and
losses derived from them are included in 'Gains/(losses) on derivative
instruments held at fair value through profit or loss' via the capital return
column of the Income Statement. Any positions on such transactions open at the
period end are reflected in the Balance Sheet at their fair value within
'Current assets' and 'Creditors - amounts falling due within one year'.
As part of an established policy, premiums received on written options are
taken to capital and are recognised within the gains/(losses) on derivative
instruments via the capital return column of the Income Statement.
j) Loans - Loans are initially included in the financial statements at cost,
being the fair value of the consideration received, net of any issue costs
relating to the borrowing. After initial recognition, the loans are measured at
amortised cost using the effective interest method. The amortised cost is
calculated by taking into account any issue costs and any discount or premium
on settlement.
k) Capital reserve- The following are accounted for in capital reserve:
• Gains and losses on the disposal of investments, including derivatives;
• Changes in the fair value of investments, including derivatives, held at the
year end;
• Foreign exchange gains and losses of a capital nature;
• Performance fee;
• 50% of the investment management fee
• 50% of finance costs
• Dividends receivable which are capital in nature; and
• Costs of repurchasing ordinary shares.
As a result of technical guidance by the Institute of Chartered Accountants in
England and Wales in TECH 02/10: "Distributable Profits", changes in fair value
of investments which are readily convertible to cash, without accepting adverse
terms at the balance sheet date, can be treated as realised. Capital reserves
realised and unrealised are shown in aggregate as capital reserve in the
Statement of Changes in Equity and the Balance Sheet. At the balance sheet date
all investments held by the Company were listed on a recognised stock exchange
and were considered to be readily convertible to cash.
l) Dividend- Dividends payable to equity shareholders are recognised when the
Company's obligation to make payment is established.
m) Share issue costs- Costs incurred directly in relation to the offer for
subscription and placing of ordinary shares together with additional
sharelisting costs have been deducted from equity. All other costs not directly
attributable to the offer for subscription have been charged to revenue.
30.09.10
£'000
3 INCOME
Income from investments designated at fair value through profit or
loss
Overseas dividends 6,734
Overseas scrip dividends 247
6,981
Other Income
Deposit interest 7
Income from Fidelity Institutional Liquidity Fund plc 11
Income from equity linked notes 741
Total income 7,740
There were no derivative expenses in the reporting period.
30.09.10
£'000
4 INVESTMENT MANAGEMENT AND PERFORMANCE FEES
Investment management fee charged to revenue return 1,602
Investment management fee charged to capital return 1,602
Performance fee charged to capital return 1,425
4,629
Under a Management Agreement between the Company and FIL Investment Management
(Hong Kong) Limited ("The Manager"), the Manager has agreed to provide
investment management services for an annual fee equal to 1.5% of the net asset
value ("NAV") (excluding investment in the Fidelity Institutional Liquidity
Fund plc) payable quarterly in arrears and calculated on the last business day
of March, June, September and December in each year.
In addition, the Manager is entitled to an annual performance fee of 15% of any
change in the NAV attributable to performance which is more than 2% above the
returns on the MSCI China Index subject to a maximum performance fee payable in
any year equal to 1.5% of the arithmetic mean of the value of net assets
calculated at the end of each month during the year. Any outperformance above
this cap will be carried forward. If the Company underperforms 2% above the
returns on the MSCI China Index in any year, the underperformance must be made
good before any further performance fee becomes payable in future years. Both
the NAV and the MSCI China Index will be calculated on a total return basis,
while the NAV will be based on the weighted average number of shares in issue.
30.09.10
£'000
5 OTHER EXPENSES
AIC fees 7
Custody fees 38
Directors' expenses 23
Directors' fees 82
Legal and professional fees 30
Marketing expenses 82
Printing and publication expenses 38
Registrars' fees 21
Secretarial and administration fees 268
Other expenses 21
Costs incurred on the offer for subscription and placing charged to 1,015
revenue return
Fees payable to the Company's Auditors: 5
Review of Interim Report 12
Provision for the audit of the Annual Report 18
Review of derivative charter and contacts 29
Tax advice relating to Hong Kong
1,689
30.09.10
£'000
6 FINANCE COSTS
Interest on bank loans payable within one year: 250
Charged to revenue reserve 250
Charged to capital reserve
500
revenue 30.09.10 total
£'000 capital £'000
£'000
7. TAXATION ON RETURN ON ORDINARY
ACTIVITES
Overseas taxation suffered 349 - 349
Total current taxation for the period 349 - 349
revenue 30.09.10 total
capital
8. EARNINGS PER ORDINARY SHARE
Earnings per ordinary share 0.83p 6.55p 7.38p
Earnings per ordinary share are based on the net revenue return after taxation
in the period of £3,909,000, the capital return in the period of £30,661,000
and the total profit in the period of £34,570,000 and on 468,269,394 ordinary
shares being the weighted average number of ordinary shares in issue during the
period.
9. DIVIDEND
No dividend has been declared for the current reporting period.
30.09.10
£'000
10. INVESTMENT DESIGNATED AT FAIR VALUE THROUGH
PROFIT OR LOSS
Listed overseas 502,364
30.09.10
Listed
overseas
£'000
Movements for the period 19 April 2010 to 30 September 2010
Purchases at cost 626,018
Sales - proceeds (168,307)
Sales - realised losses (2,375)
Movement in investment holding gains in the period 47,028
Closing fair value of investments 502,364
Closing book cost 455,336
Closing investment holding gains 47,028
Closing fair value of investments 502,364
30.09.10
£'000
Net (losses)/gains on investments
Losses on sales of investments (2,375)
Investment holding gains in the period 47,028
44,653
Cost of investment transactions
Transaction costs are incurred in the acquisition and disposal of investments.
These are included in the gains on investments designated at fair value through
profit or loss in the capital return column of the Income Statement. The total
costs were as follows:
30.09.10
£'000
Purchase expenses 1,485
Sales expenses 331
1,816
30.09.10
£'000
11. DERVATIVE INSTRUMENTS HELD AT FAIR VALUE THROUGH
PROFIT OR LOSS
Net losses on derivative instruments held at fair value through
profit or loss in the period
Realised losses on forward currency contracts (226)
Realised losses on equity linked notes (1,464)
Realised losses on options (62)
Realised losses on futures (9,726)
Closing investment holding gains on forward currency contracts 1,445
Closing investment holding losses on equity linked notes (2,790)
Closing investment holding losses on options (1,014)
(13,837)
30.09.10 30.09.10
fair value exposure
£'000
£'000
At the period end the Company had exposure to the
following derivative instruments:
Net forward currency contracts 1,445 1,445
Equity linked notes - assets 52,507 52,507
Options - assets 836 54,993
54,788 108,945
30.09.10
£'000
12. OTHER RECEIVABLES
Securities sold for future settlement 7,988
Accrued income 595
Proceeds of share issue receivable 4,123
Other receivables 217
12,923
30.09.10
£'000
13. OTHER PAYABLES
Securities purchased for future settlement 3,298
Loan interest payable 236
Other payables 5,287
Fixed rate unsecured bank loan @ 2.07% per annum 22,522
Fixed rate unsecured bank loan @ 1.82% per annum 40,948
72,291
On 22 April 2010, the Company entered into a 364 day revolving credit facility
for HK$ 775,000,000. On 22 July 2010, the Company rolled over the full amount
in two tranches. Tranche A is for HK$ 275,000,000 with interest fixed at 2.07%
per annum and tranche B is for HK$ 500,000,000 with interest fixed at 1.82% per
annum, both tranches are repayable on 22 November 2010.
30.09.10
£'000
14. SHARE CAPITAL
Issued, allotted and fully paid*:
460,000,000 ordinary of 1 penny each at launch on 19 April 2010 4,600
20 April to 30 September 2010: issue of 21,700,000 ordinary shares 217
of 1 penny each
End of Period
481,700,000 ordinary shares of 1 penny each 4,817
* On 19 February 2010, to enable the Company to re-register as a Public Limited
Company under Section 90 of the Companies Act 2006, 50,000 fully paid
redeemable shares were allotted to the Investment Manager for 100 pence per
share. The 50,000 shares were redeemed in full for £50,000 on admission on 19
April 2010.
share other capital revenue
premium
account reserve reserve reserve
£'000 £'000 £'000 £'000
15. RESERVES
Beginning of the period
Proceeds from offer for subscription 455,400 - - -
and placing
Fees and expenses of the offer for (3,168) - - -
subscription and placing
Cancellation of the share premium (452,232) 452,232 - -
account*
Issue of ordinary shares 22,060 - - -
Additional share listing costs (161) - - -
Net gains on investments for the - - 44,861 -
period
Net losses on derivative instruments - - (14,045) -
for the period
Foreign exchange gains on other net - - 1,619
assets
Foreign exchange gain on bank loan - - 1,503 -
Investment management fee - - (1,602)
Performance fee - - (1,425) -
Interest on bank loan (250)
Net profit after taxation for the - - - 3,909
period
End of period 21,899 452,232 30,661 3,909
*Court approval was given on 21 April 2010 for the Company's Share Premium
Account to be cancelled. As a result £452, 232,000 was transferred to the Other
Reserve Account, which is a distributable reserve.
16. NET ASSET VALUE PER SHARE
The net asset value per ordinary share is based on net assets at the period end
of £513,518,000 and on 481,700,000 ordinary shares, being the number of
ordinary shares in issue at the period end.
17. FINANCIAL INSTRUMENTS
The Company's investing activities in pursuit of its investment objective
involve certain inherent risks. The principal risks and uncertainties analysis
undertaken by the Board appear in the Responsibility Statement on page 6 and
the information on each risk is detailed in full in the Prospectus of the
Company. This note is incorporated in accordance with IFRS7 "Financial
Instruments: Disclosures" and refers to the identification, measurement and
management of risks potentially affecting the value of financial instruments.
The Company's financial instruments comprise:
• Equity shares held in accordance with the Company's investment objective and
policies;
• Derivative instruments which comprise equity linked notes, forward currency
contracts, futures, and options written on stocks and equity indices;
• Cash, liquid resources and short term debtors and creditors that arise from
its operations; and
• Bank borrowings
The risks identified by IFRS7 arising from the Company's financial instruments
are market price risk (which comprises other price risk, interest rate risk and
foreign currency exposure), liquidity risk, counterparty risk and credit risk.
The Board reviews and agrees policies for managing each of these risks, which
are summarised below. These policies have remained unchanged since the
beginning of the accounting period.
Market price risk
Other price risk
Other price risk arises mainly from uncertainty about future prices of
financial instruments used in the Company's business. It represents the
potential loss the Company might suffer through holding market positions in the
face of price movements and changes in exchange rates.
The Manager is responsible for actively monitoring the existing portfolio
selected in accordance with the overall asset allocation parameters described
above and seeks to ensure that individual stocks also meet an acceptable risk/
reward profile. Other price risks arising from derivative positions, mainly to
do with underlying exposures, are estimated using Value at Risk and Stress
Tests as set out in accordance with the Company's Derivative Risk Measurement
and Management Document.
The Board meets quarterly to consider the asset allocation of the portfolio and
the risk associated with particular industry sectors within the parameters of
the investment objective.
Interest rate risk
The Company finances its operations through share capital raised. In addition,
financing has been obtained through a HK$ 775,000,000 revolving facility which
falls due for repayment on 22 November 2010. The Company is exposed, therefore,
to a fair value interest rate risk if Hong Kong dollar interest rates change.
The Board imposes borrowing limits to ensure gearing levels are appropriate to
market conditions.
Interest rate risk profile of financial assets and liabilities
The Company is exposed to cash flow interest risk on the forward currency
contracts, cash at bank and amounts held at futures clearing houses and
brokers. The Company is exposed to a fair value interest rate risk on the bank
loan of HK$ 775,000,000. The net exposure to forward currency contracts is
shown in Note 11 on page 18 and cash at bank and amounts held at futures
clearing houses and brokers are shown in the Balance Sheet on page 11.
Foreign currency risk
The Company's total return and balance sheet can be affected by foreign
exchange movements because the Company has assets and income which are
denominated in currencies other than the Company's base currency which is
sterling.
Three principal areas have been identified where foreign currency risk could
impact the Company:
• Movements in rates affecting the value of investments and the bank loans;
• Movements in rates affecting short term timing differences; and
• Movements in rates affecting income received
The Company hedges the sterling value of investments or other net assets priced
in other currencies by the use of forward currency contracts. It has also
increased finance available to the Company for its investment activities with
HK dollar borrowings, thereby hedging part of the movements which are a result
of exchange movements.
The Company might also be subject to short term exposure from exchange rate
movements, for example between the date when an investment is bought or sold
and the date when settlement of the transaction occurs. Income denominated in
foreign currencies is converted to sterling on receipt.
Financial Assets
The Company's financial assets comprise equity investments, derivative
instruments, short term debtors and cash. The currency cash flow profile of
these financial assets as at 30 September 2010 is shown below.
investments derivative other cash and total
designated at exposure held receivables cash
fair value at fair value equivalents
through profit through profit *
or loss or loss
£000 £000 £000 £000 £000
Euro - - - 10 10
Hong Kong dollar 379,538 54,993 6,116 15,184 455,831
Korean Won 8,184 - - - 8,184
Singapore dollar 2,723 - - - 2,723
Taiwan dollar 5,793 - - - 5,793
UK sterling 2,582 - 4,340 539 7,461
US dollar 103,544 170,927 2,467 1 276,939
502,364 225,920 12,923 15,734 756,941
*Cash and cash equivalents includes amounts held at futures clearing houses and
brokers.
Financial Liabilities
The Company finances its investment activities through its ordinary share
capital, reserves and borrowings.
The Company's financial liabilities comprise bank loans and other short term
creditors.
The currency cash flow profile of these financial liabilities as at 30
September 2010 is shown below.
derivative exposure bank other total
held at fair value payables
through profit or loan
loss
£000 £000 £000 £000
Chinese yuan renminbi 116,975 - - 116,975
Hong Kong dollar - 63,470 2,317 65,787
UK sterling - - 5,287 5,287
US dollar - - 1,217 1,217
116,975 63,470 8,821 189,266
Liquidity risk
The Company's assets comprise readily realisable securities, to meet funding
commitments if necessary. Short term flexibility is achieved by the use of
overdraft facilities as required. Details of the Company's borrowing
commitments are explained in Note 13 on page 19 to the financial statements.
Counterparty risk
All securities and derivative instruments are transacted with brokers and carry
the risk that the counterparty to a transaction may not meet its financial
obligations. All counterparties for any type of trading are assessed by an
independent credit research and analysis function and approved for use by the
Manager. Exposures to counterparties are monitored and reported frequently by
the Manager to the Board. Margin on exchange-traded derivatives mitigates
counterparty risk exposure in accordance with the terms outlined in market
standard (ISDA) derivative legal contracts.
Credit risk
The Company may be adversely affected if an institution with which money is
deposited suffers insolvency or other financial difficulty. All investment
transactions are carried out with brokers that have been approved by the
Manager and are settled on a delivery versus payment basis. Limits are
established for each broker which are kept under review by the Manager.
Exposure to credit risk arises on cash at bank, outstanding investment
transactions and derivative instruments.
Derivative instruments
A Derivative Instrument Charter, including an appendix entitled Derivative Risk
Measurement and Management details the risks and risk management processes used
by the Manager. This Charter was approved by the Board and allows the use of
derivative instruments for the following purposes:
* to gain long exposure to equity markets, sectors or individual investments;
* to hedge equity market risk in the Company's investments with the intention
of mitigating losses in the
event of market falls;
* to enhance investment returns by writing put and call options; and
* to take short positions in equity markets which would benefit from a fall
in the relevant market price in instances where the Manager believes the
investment is overvalued. These positions increase the investment risk in
the Company's portfolio.
The Company has also agreed that its use of derivatives should be similar to
that of the Manager's managed UCITS investment funds. This means the Company
can enter into derivative contracts that carry unlimited liability, but this
will only be permitted where the liability to the counterparty is, on a net
basis, less than 15% of gross assets.
The risk and investment performance of these instruments are managed by an
experienced, specialist derivatives team of the Manager using portfolio risk
assessment tools for portfolio construction.
Fair value hierarchy
Under IFRS7, the International Accounting Standards Board requires investment
companies to disclose the fair value hierarchy that classifies financial
instruments measured at fair value at one of three levels according to the
relative reliability of the inputs used to estimate the fair values.
Classification Input
Level 1 Valued using quoted prices in active markets for identical
assets
Level 2 Valued by reference to valuation techniques using observable
inputs other than quoted prices included within Level 1
Level 3 Valued by reference to valuation techniques using inputs that
are not based on observable market data
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
The valuation techniques used by the Company are explained in the Accounting
Policies Notes 2(h) and (i) on page 14. The table below sets out the Company's
fair value hierarchy measurements as at 30 September 2010:
level 1 level level 3 Total
2
£000 £000 £000
£000
Financial assets at fair value through profit
or loss
Equity investments 502,364 - - 502,364
Derivative investments - 54,788 - 54,788
Total 502,364 54,788 - 557,152
18. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS
There were no contingent liabilities or capital commitments as at 30 September
2010
19. TRANSACTIONS WITH THE MANAGER
FIL Investment Management (Hong Kong) Limited is the Manager and FIL
Investments International is the Secretary of the Company. Details of the
investment management fee and performance fee payable are given in Note 4 on
page 15 and the secretarial and administration fees are detailed in Note 5 on
page 16.
20. COMPARATIVES
As this is the first reporting period since the Company was incorporated, there
are no comparative balances.
21. STATUS OF THIS REPORT
These financial statements are not the Company's statutory accounts for the
purposes of section 435 of the Companies Act 2006.
Investor Information
CONTACT INFORMATION
Private investors can call free on 0800 41 41 10, 9am to 6pm, Monday to
Saturday.
Financial advisers can call free on 0800 41 41 81, 8am to 6pm, Monday to
Friday.www.fidelity.co.uk/its
Existing shareholders who have specific queries regarding their holding, for
example a change of address, should contact the appropriate administrator.
Holders of ordinary shares:
Capita Registrars, Registrars to Fidelity China Special Situations PLC,
Northern House, Woodsome Park, Fenay Bridge, Huddersfield, West Yorkshire, HD8
OGA, Telephone: 0871 664 0300 (calls cost 10p per minute plus network extras)
email: ssd@capitaregistrars.com . Details of individual shareholdings and other
information can also be obtained from the Registrars' website:
www.capitaregistrars.com
Fidelity Share Plan investors:
Fidelity Investment Trust Share Plan, BNP Paribas Securities Services, Block C,
Western House, Lynchwood Business Park, Peterborough PE2 6BP. Telephone: 0845
358 1107 (calls to this number are charged at 4p per minute from a BT landline.
Other telephone providers' costs may vary).
Fidelity ISA investors:
Fidelity, using the freephone numbers given above, or by writing to: UK
Customer Service, Fidelity Investments, Oakhill House, 130 Tonbridge Road,
Hildenborough, Tonbridge, Kent TN11 9DZ. www.fidelity.co.uk/its
Fidelity ShareNetwork: http://www.fidelity.co.uk/sharenetwork
General enquiries should be made to FIL Investments International, the
Secretary, at the Company's registered office: FIL Investments International,
Investment Trusts, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth,
Surrey KT20 6RP. Telephone: 01732 36 11 44 Fax: 01737 83 68 92
www.fidelity.co.uk/its
FINANCIAL CALENDAR
30 September 2010 - interim period end
16 November 2010 - announcement of interim results
early December - publication of Interim Report
31 March 2011 - financial year end
June - publication of Annual Report
July - Annual General Meeting
Directory
Board of Directors
John Owen CMG MBE DL (Chairman)
Nicholas Bull
David Causer (Chairman of the Audit Committee)
Douglas Naismith
Hon Peter Pleydell-Bouverie DL
Manager,
FIL Investment Management (Hong Kong) Limited
17/F, One International Finance Centre, Hong Kong
Secretary and Registered Office
FIL Investments International
Beech Gate, Millfield Lane
Lower Kingswood
Tadworth, Surrey, KT20 6RP
Financial Advisers and Stockbrokers
Cenkos Securities plc
6,7,8 Tokenhouse Yard
London
EC2R 7AS
Independent Auditor
Grant Thornton UK LLP
Chartered Accountants and Registered Auditor
30 Finsbury Square
London, EC2P 2YU
Bankers and Custodian
JPMorgan Chase Bank (London Branch)
125 London Wall
London, EC2Y 5AJ
Registrars
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 OGA
Lawyers
Slaughter and May
One Bunhill Row
London, EC1Y 8YY
The Fidelity Individual Savings Account ("ISA") is offered and managed by
Financial Administration Services Limited. The Fidelity Investment Trust Share
Plan is managed by FIL Investments International. Both companies are authorised
and regulated by the Financial Services Authority. The Fidelity Investment
Trust Share Plan is administered by BNP Paribas Securities Services and shares
will be held in the name of Puddle Dock Nominees
Limited. The value of savings and eligibility to invest in an ISA will depend
on individual circumstances and all tax rules may change in the future.
Fidelity investment trusts are managed by FIL Investments International.
Fidelity only gives information about its own products and services and does
not provide investment advice based on individual circumstances. Should you
wish to seek advice, please contact a Financial Adviser. Please note that the
value of investments and the income from them may fall as well as rise and the
investor may not get back the amount originally invested. Past performance is
not a guide to future returns. For funds that invest in overseas markets,
changes in currency exchange rates may affect the value of your investment.
Investing in small and emerging markets can be more volatile than other more
developed markets. Reference in this document to specific securities should not
be construed as a recommendation to buy or sell these securities, but is
included for the purposes of illustration only. Investors should also note that
the
views expressed may no longer be current and may already have been acted upon
by Fidelity. Fidelity, Fidelity International and the Pyramid Logo are
trademarks of FIL Limited. Issued by Fidelity China Special Situations PLC
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