Fidelity Asian Values Regulatory News (FAS)

Fidelity Asian Values Plc - Annual Financial Report

PR Newswire

London, October 14

FIDELITY ASIAN VALUES PLC

Annual Results for the year ended 31 July 2019

Contacts

For further information, please contact:

Natalia de SousaCompany Secretary, FIL Investments International01737 837846

CHAIRMAN’S STATEMENT

Fidelity Asian Values PLC provides shareholders with a differentiated equity exposure to Asian markets. The Portfolio Manager, Nitin Bajaj, achieves this differentiation by favouring undervalued small and medium sized companies as this allows him to find mispriced businesses, the “winners of tomorrow”, before they become well known. Asia is the world’s fastest-growing economic region and the Portfolio Manager looks to capitalise on this by finding strong businesses, run by trustworthy people and buying them at a sensible price.

INVESTMENT REVIEWI am happy to report that both the Company’s NAV and its share price strongly outperformed the MSCI All Countries Asia ex Japan Index (“Comparative Index”) in the last 12 months, at a time when small cap stocks significantly underperformed their larger cap peers. This was a headwind given Nitin’s small cap bias. Nonetheless, the Company’s NAV and the share price rose 8.2% and 12.3% respectively, in Sterling terms, compared with the 3.9% gain for the Comparative Index mentioned above.

Nitin focuses on generating absolute returns, ignoring the Comparative Index while he constructs the portfolio stock by stock using fundamental bottom-up research. This is evident from the high level of active money in the Company (98.5% as at 31 July 2019).

ECONOMIC AND MARKET REVIEWOver the last 12 months, Asian equity markets as well as those of the rest of the world became increasingly volatile as investors reacted to mixed news flows around trade negotiations between the US and China. The MSCI All Countries Asia ex Japan Index remained volatile but finished in positive territory, in Sterling terms, as at 31 July 2019.

Investors have become increasingly risk averse due to growing concerns around a potential slowdown in global economic growth. Towards the end of the review period, investors were also disappointed after the US Federal Reserve indicated that its latest interest rate cut was not the start of an aggressive monetary policy easing cycle. In this context, Asian currencies depreciated versus the US dollar over the 12-month period, while the price of gold, which is seen as a safe-haven, rose sharply.

GEARINGIncreased volatility and risk aversion in the market has created stock-picking opportunities and Nitin has been able to add new holdings and increase existing positions at more attractive valuations. As a result, the Company’s net equity exposure has increased from 89.6% at the end of July 2018 to 98.7% at the end of July 2019. To date, Nitin has not felt the need to use gearing extensively during his tenure as the Company’s Portfolio Manager. He continues to believe that the main driver of the Company’s performance will be stock picking.

OUTLOOKThe long-term outlook for Asian equities is generally positive and, in a low growth world, the region’s relatively higher growth prospects should continue to attract investors. Also, at a time when the world is becoming more protectionist, Asia’s robust domestic demand from an expanding middle class supports the outlook for the region. Nonetheless, the region remains vulnerable to a global slowdown and the sudden tightening of global financial conditions.

China is expected to slow moderately this year as the US-China relationship is expected to worsen in the medium-term. Trade-related disputes are only one aspect, and there are many other contentious issues between the two countries, including those relating to transfer of technology and intellectual property, as well as social and geopolitical issues. Key policy options for China to deal with external uncertainties are either to boost domestic demand or use currency flexibility to help exporters mitigate the impact from the tariffs. Given this, the Chinese economy should continue to rebalance towards domestic consumption. Meanwhile, the increasing weight of Chinese A-shares in the MSCI Indices should see an increase in foreign participation and accelerate the development of China’s domestic capital market.

India remains a strong growth story, given sustainable prospects for domestic consumption. Recent economic and policy initiatives from the government suggest that it intends to kick-start the economy by attracting more foreign capital and boosting manufacturing and infrastructure development, while remaining fiscally prudent. However, a lot will depend on execution. In the short-term, earnings and growth are likely to remain under pressure, but the recent correction has brought valuations down to a more reasonable level giving rise to stock specific investment opportunities.

In Australia, the country’s low-cost resources, modest population growth, high dividend yields and healthy dividend growth, as well as disciplined capital management should continue to attract investor interest.

Overall, Asian equities continue to trade at attractive valuations compared to long-term historical averages and developed markets. The region has more than 18,000 listed companies, and the opportunity to find hidden gems remains compellng. The Company will continue to focus on finding attractive long-term investment opportunities across the region based on strong fundamental research. The depth and quality of research provided by Fidelity is amongst the best in Asia and is currently undertaken by 53 analysts and 33 portfolio managers. Nitin draws extensively on this pool of talent in making his investment decisions and we remain convinced that this is one of the key points of distinction for your Company.

OTHER MATTERS

Comparative IndexThe Board has, in conjunction with the Manager and the Company’s Broker, been reviewing the Company’s Comparative Index. The Company uses a Comparative Index against which the variable management fee is calculated, and which is one of the indices against which performance is illustrated in various reports published by the Company. Currently, this is the MSCI All Countries Asia Ex Japan Index (net) total return (in Sterling terms). This benchmark is extensively used by the Company’s current peers and is effectively a mid to mega cap index.

The Company is able to invest in companies of any size of capitalisation and its objective is “to achieve long term capital growth principally from the stockmarkets of the Asian Region excluding Japan”. As previously mentioned, Nitin looks to find strong businesses, run by trustworthy people and to buy them at a sensible price. The universe of possible investment is not constrained by size of company or by its weighting in any benchmark index. However, smaller companies are favoured as they provide an opportunity to find mispriced businesses, the “winners of tomorrow”, before they become well known.

The Board has therefore been considering adopting a smaller companies Comparative Index and has identified the MSCI All Countries Asia ex Japan Small Cap (net) total return Index (in Sterling terms) as a suitable benchmark.

The intention remains that smaller companies are only favoured in order to achieve the Company’s objective of long-term capital growth principally from the stockmarkets of the region. Other reference points, such as achieving long-term capital growth and outperforming all-cap markets in the region generally would continue to be relevant measures for the Board and for investors.

Association of Investment Companies (“AIC”) Sector ClassificationWith effect from 28 May 2019, the AIC Asia Pacific sector has been subdivided into Asia Pacific, Asia Pacific Smaller Companies and Asia Pacific Income sub-sectors. The AIC automatically included the Company in the Asia Pacific sub-sector. However, in light of the considerations discussed above, the Board feels that for simplicity and consistency it would be more appropriate for the Company to be included in the Asia Pacific Smaller Companies sub-sector.

SummaryThere will be no change at all in the way the portfolio is managed. A change is only proposed to the AIC sector classification and the Comparative Index against which its performance can be measured. The Board has consulted with its largest investors on this matter and feedback from the consultation process was overwhelmingly in favour of making these changes.

Shareholder consentThe Comparative Index is not part of the Investment Objective of the Company, nor its stated Investment Policy. Nor does it drive the Portfolio Manager’s choice of investments. A change of Comparative Index therefore of itself does not represent a material change of Investment Policy, which would require shareholder consent. However, the regulatory direction of the FCA and European regulators is clear that benchmarks, where used, should be clearly stated. The Board therefore proposes to take the opportunity to incorporate the new Comparative Index in the formal Investment Policy of the Company. For this reason, and also for the sake of good order in the light of the relationship between the variable management fee and the Comparative Index, the Board wishes voluntarily to seek shareholder approval for the change at the AGM on 6 December 2019. Subject to the vote being approved, the change of Comparative Index would take effect from 1 February 2020 (the start of the second half of the Company’s reporting year).

The detailed proposed Investment Policy is set out in the Appendix to the Notice of Meeting.

BREXITOperationally, the Board believes that the Company should be relatively unaffected by Brexit. However, as the Company holds investments denominated in currencies other than Sterling, investors should note that exchange rates may cause the value of these investments, and the income from them, to rise or fall commensurate to the volatility in the value of Sterling.

MANAGEMENT FEEThis is the first full year that the new variable fee arrangement with FIL Investment Services (UK) Limited, the Company’s Alternative Investment Fund Manager (the “Manager”) has been in place. The base management fee is 0.70% of net assets per annum. In addition, and effective from 1 November 2018, there is a +/- 0.20% variation fee based on the Company’s NAV per share performance relative to the Company’s Comparative Index. The maximum fee that the Company will now pay is 0.90% of net assets, but if the Company underperforms against the Comparative Index, then the overall fee could fall as low as 0.50% of net assets. The revised management fee arrangement has provided an overall reduction this year from the previous tiered management fee structure. The fee to 31 July 2019 was £2,262,000 (2018: £2,626,000). This represented 0.78% of net assets throughout the period (2018:0.93%).

Assuming that shareholders vote in favour of the resolution to amend the Investment Policy and the MSCI All Countries Asia ex Japan Small Cap Index (in Sterling terms) is adopted as the new Comparative Index, there will be no impact to any fees accrued until the date of the change; however over or under performance will be measured against the new Comparative Index with effect from 1 February 2020 (the start of the second half of the Company’s reporting year). The performance of the portfolio is expected to correspond more closely to the proposed new Comparative Index over time, which should lead to reduced volatility in the amount of the variable management fee.

BONUS ISSUE OF SUBSCRIPTION SHARESThe Company issued 1,213,003 ordinary shares of 25 pence on 30 November 2018 following the second exercise date of the conversion rights attached to the subscription shares. The bonus issue of subscription shares on the basis of one subscription share for every five ordinary shares held by qualifying investors was approved at the Company’s Annual General Meeting on 2 December 2016. As at the date of this Annual Report, there are 11,103,030 subscription shares remaining. The final date for exercising the subscription rights will be on 29 November 2019 but notice to exercise may be given in the 25 busines days preceding 29 November 2019. The exercise price is 392.75 pence per share which is equal to the published NAV of 366.88 pence per ordinary share on 2 December 2016 plus a premium of 7%. Further details can be found on the Company’s website.

SHARES ISSUEDI am pleased to say that in the reporting year the Company’s shares have traded at a sustained level of premium since December 2018. Therefore, in order to issue shares, the Board applied for a block listing authority for 6,866,940 ordinary shares which is the maximum allowed under the Company’s current authority as approved by shareholders at the Annual General Meeting on 13 December 2018. The block listing was effective on 8 February 2019. Since 11 February 2019 and as at the date of this report, 2,617,029 shares have been issued from this block listing. Issuing shares increases the size of the Company, making it more liquid and allows for costs to be spread out over a larger asset base.

SHARE REPURCHASES AND TREASURY SHARESRepurchases of ordinary shares and subscription shares are made at the discretion of the Board and within guidelines set by it from time to time and in light of prevailing market conditions. Shares will only be repurchased when it results in an enhancement to the NAV of the ordinary shares for the remaining shareholders. In order to assist in managing the discount, the Board has shareholder approval to hold in Treasury any ordinary shares repurchased by the Company, rather than cancelling them. Any shares held in Treasury would only be re-issued at NAV per share or at a premium to NAV per share. Any subscription shares repurchased would be cancelled.

No ordinary shares were repurchased for cancellation or for holding in Treasury and no subscription shares were repurchased for cancellation in the year under review. No shares have been repurchased since the end of the reporting period and as at the date of this report.

DIVIDENDSubject to shareholders’ approval at the Annual General Meeting (“AGM”) on 6 December 2019, the Directors recommend a dividend of 8.80 pence per ordinary share which represents an increase of 60% over the 5.50 pence paid in 2018. This dividend will be payable on 11 December 2019 to shareholders on the register at close of business on 25 October 2019 (ex-dividend date 24 October 2019). The dividend has increased significantly this year, however Shareholders should be reminded that as the Company’s objective is long-term capital growth; the level of dividend is a function of a particular year’s income and it should not be assumed that dividends will continue to be paid in the future.

BOARD OF DIRECTORSI am pleased to welcome Clare Brady as a new member of the Board with effect from 1 August 2019. Clare is a governance professional with 30 years’ experience in banking and financial services. In the private sector, she has headed audit and oversight functions at Barclays Capital, HSBC and Republic National Bank of New York and was also a Managing Director at Deutsche Bank in London and Singapore. In the public sector, Clare was the Head of Audit at the Bank of England representing the UK on the European Systems of Central Banks (“ESCB”) and also at the G10 meetings of Central Banks. She held the position of Auditor General at the World Bank, based in Washington D.C., where she was a Non-Executive Director of the Institute of Internal Auditors (“IIA”). More recently, she has been a Director of the International Monetary Fund (“IMF”), also based in Washington D.C.

The Board will be refreshing its membership over the course of the next two years. Following Clare’s appointment there are currently six Directors on the Board. The objective of the Board refreshment process is to bring new talent and skills to the Board but not at the cost of losing market knowledge, fund management expertise, as well as knowledge of the Company and its relationship with the Manager. However, the Directors have concluded that over time the Board should revert to a membership of five and it is expected that Philip Smiley will retire in the coming year.

All Directors, with the exception of Clare Brady, are subject to annual re-election at the forthcoming AGM. Clare Brady being newly appointed is subject to election at the AGM on 6 December 2019. The Directors’ biographies are included in the Annual Report, and between them, they have a wide range of appropriate skills and experience to form a balanced Board of the Company.

ANNUAL GENERAL MEETINGThe AGM of the Company will be held at 11.00 am on 6 December 2019 at Fidelity’s offices at 4 Cannon Street, London EC4M 5AB (nearest tube stations are St Paul’s or Mansion House). Full details of the meeting are given in the Annual Report.

This is our opportunity to meet as many shareholders as possible and I hope, therefore, that you will be able to join us. In addition to the formal business of the meeting, Nitin will be making a presentation on the year’s results and the prospects for the Company for the year to come.

KATE BOLSOVERChairman14 October 2019

PORTFOLIO MANAGER’S REVIEW

QUESTIONWhat has the market environment been like in the year under review?

ANSWERStock markets have been choppy globally over the last year as investors try to balance prospects of declining interest rates and fiscal stimulus with an ongoing slowdown in economic growth. This has created volatility which is not uncommon late in the business cycle.

In this environment, the Comparative Index returned 3.9% (including dividends) relative to a long-term average return of 7-10%. Against this, the MSCI All Countries Asia ex Japan Small Cap (net) total return Index declined by around 4.2% (including dividends).

Within this, performance of larger companies and specially those perceived as growth companies was better than smaller companies and value stocks. This was also the case globally, with the MSCI World Value Index performing materially worse than the MSCI World Growth Index. The result is that several well known value managers have had a tough time recently.

These trends between growth and value are part and parcel of investing in the stock market and can capture the imagination of both the media and investors from time-to-time before fading away. It is not possible to forecast the duration or magnitude of these swings but historically they always reverse. To use Howard Marks’ pendulum analogy: “the pendulum always swings one way and then the other, rarely settling at an equilibrium”.

QUESTIONCan you comment on the Company’s performance over the last year?

ANSWERMy comments regarding performance refer to the NAV of the Company rather than the share price. Over the long-term, the share price will approximate the underlying NAV, but in the short-term, the share price can (and will) often diverge from the NAV.

Over my tenure, the NAV has grown by 14.1% p.a., outperforming both the small and large cap indices in Asia over this period.

Similarly, the NAV appreciated by 8.2% versus 3.9% for the large cap index and -4.2% for the small cap index over the year under review.

PERFORMANCE – FUND NAV VERSUS INDICES AND PEER GROUP

Source: Fidelity International, 31 July 2019.

1 Large Cap Index is the MSCI All Countries Asia ex Japan Index.

2 Small Cap Index is the MSCI All Countries Asia ex Japan Small Cap (net) total return Index.

3 Morningstar Direct, Association of Investment Companies (AIC) sector – Asia Pacific ex Japan peer group ex income funds.

Performance figures are net of fees in GBP

As our investment philosophy is based on owning undervalued stocks, I have always had a significant share of funds invested in value stocks, and more specifically small and mid cap value stocks.

FUND AND INDEX SPLIT BY MARKET CAP AND STYLE (AS AT 31 JULY 2019)

Sources: Fidelity International, Factset, 31 July 2019.

1 Large Cap Index is the MSCI All Countries Asia ex Japan Index.

2 Small Cap Index is the MSCI All Countries Asia ex Japan Small Cap (net) total return Index.

Over the last 4 years, small companies have been out of favour. Despite this we have been able to outperform broad indices over this period. This is due to the hard work and diligence of Fidelity’s small cap research team in Asia. The team is both motivated and excellent at what it does. I would like to thank them for their support as this performance would not have been possible without them.

If we analyse the performance in a bit more detail, the biggest driver of performance has been our ability to avoid big losses in situations where our investment thesis was incorrect.

As you can see from the table below, our losses from stocks where we got it wrong and suffered a material loss (stock dropping more than 30%) have been far lower than our profits from stocks where we have got it right and made material gains. Avoiding a big loss when we are wrong is key to our investment process. To achieve this, we need to:

· own good businesses;

· that are run by competent and honest managers;

· with well-financed balance sheets and ensure that;

· our buying price leaves enough margin of safety for mistakes and bad luck.

STOCK LEVEL PERFORMANCE (AS ON 31 JULY 2019)

Source: Fidelity International, 31 July 2019.

Finally, I would also like to highlight that a weak Sterling helped both the NAV and Index returns by around 4% p.a. over the last 4 years. This was primarily due to the prevailing economic and political uncertainty currently in the UK. This may or may not reverse in coming years.

QUESTIONHow concerned should investors be about the impact of heightened political risk on trade and growth?

ANSWERThe world has been becoming polarised and tense. Uncertainty increased a notch with intensifying friction between China and the USA, tensions between Korea and Japan, confusion around possible Brexit scenarios, Hong Kong protests and increased pressures from serious issues like climate change, a reducing water table and polarised electorates.

Political climate and economic policy impacts businesses in different forms which are not often easy to understand. The first order impacts are generally transparent – for example, a ban on Huawei is bad for Huawei and its suppliers. This is obvious. However, there will be knock on effects like increased Chinese investments in technology which over time will change the industry as well as the demand-supply equation in many other sectors. This changes gradually over years and is much harder to analyse.

I made the same point last year. The world economy is a complex system and we need to be careful about drawing knee jerk conclusions.

That said, we as investors need to remain alert to the implications of political crosswinds. My framework for considering the potential impact of changing policy focuses on two elements:

(1) Avoiding businesses where either the risk of policy impact is high or where the stock market has failed to understand the unintended consequences of policy change.

(2) Not allowing myself to become frozen with fear, instead remaining vigilant for new opportunities. Markets sometimes punish stocks in the eye of the storm of a policy decision. I am especially interested in these scenarios as they can throw up wonderful businesses going through challenging circumstances which are likely to improve with time. These sorts of companies can be excellent investments for the patient investor.

QUESTIONHave there been any major changes to your strategy?

ANSWERThere has been no change in my investment philosophy. It has been built over years of practice, observation and empirical evidence. I do not feel the need to change it. And our returns over the coming five years will largely be driven by the hard work of the team and the consistency of application of our investment philosophy.

The investment philosophy is straight forward. What we are trying to do is buy good businesses run by competent and honest management teams and buy them at prices that make sense. To accomplish this, my main areas of focus have always been:

The businessUnderstanding the business is the first and the most critical step. We are trying to understand key drivers of the business, its industry structure, its management, its history, its competitive advantage and its durability.

We start by analysing financial statements for the last 15-20 years to understand the returns on capital that the business is able to generate through an economic cycle.

This is followed up with numerous meetings which range from the management team of the business, to its vendors, customers, ex-employees, competitors, industry experts and regulators. Whoever can help us understand the business better.

Gauging the management team on skill and integrity is important as we only want to invest in companies with honest and competent management teams. An incompetent management will destroy your capital and a dishonest one will steal it.

Getting a holistic picture of the business, its environment, management and challenges allows us to understand opportunities and risks associated with the business. Without doing this, we would be flying blind.

ValuationBuying a good business which is overvalued can undo many years of hard work. The valuation point at which we enter a stock is important for two reasons:

a. It determines the base price for compounding capital.

b. It determines our margin of safety. We will make mistakes. Starting with a margin of safety allows us to limit our losses when we are wrong.

The exact valuation metric to use varies by industry and situation. For example, I may look at the price-earnings (“P/E”) ratio for a low capital intensity business with moats based on intangible assets like brand or trademarks, or I may look at Enterprise Value to replacement cost for a short cycle standardised product business. The idea being that we want to use the most logical metric for any given situation.

While the metric may vary, what is important is to have margin of safety.

Downside protectionAs I mentioned earlier, key to our process is avoiding big losses. In my experience, material downside in a stock arises when one or more of the following situations exist:

· Untested business model.

· High financial leverage.

· Over paying for a good business.

· Paying a reasonable price for a bad business.

· Getting the cycle wrong - whether it is the broad economic cycle or an industry specific down cycle.

We pay a lot of attention to avoid these situations. Our philosophy is that return of capital is as important as return on capital.

QUESTIONWhat have been the major changes to the portfolio over the period?

ANSWERThere have been two changes from last year which I would like to discuss.

First, I have deployed a lot more capital during the last year. As investors have paid greater attention to larger growth companies, I found several small companies which were being ignored and hence available on attractive prices. As a result, we have moved from a substantial cash position at the end of last year to a small amount of leverage now.

Our deployment of capital in these attractively valued businesses is represented through the aggregate P/E ratio of our holdings which now stands between 8-9x (substantially lower compared to the market average and our own past).

Such a P/E ratio is often associated with distressed or troubled situations. However, on aggregate, our holdings demonstrate robust balance sheets and high as well as stable returns on equity.

To put this in context, the MSCI All Countries Asia ex Japan Index trades at around 14x P/E ratio, S&P 500 at around 17x and FTSE at around 12-13x.

I understand that the businesses we are buying are out of fashion with little investor interest. But I remain as convinced as ever that owning good businesses, run by able management teams and buying them at attractive prices has to be a sound way to invest.

The other change has been, an increased allocation to non-banking finance companies (“NBFC”) in India. Over the last 12-18 months there has been a crisis building in this sector with some prominent names in substantial financial difficulty.

This has led to extreme risk aversion and attractive valuations for the whole sector. These businesses are an essential part of the credit delivery mechanism in India as large parts of the economy are either under banked or ‘unbankable’ by traditional banks. Hence, NBFCs that survive will emerge stronger and will operate in an industry with substantially less competition.

We have done a lot of work on this sector and backed the companies we think have the best business models, management teams, credit underwriting skills and funding availability. Our entry price leaves enough margin of safety. We are confident and time will tell if we are right.

QUESTIONWhat is your outlook over the next 12 months?

ANSWERI will say exactly what I said last year, “forecasts tell you more about the forecaster than the future.” I try to spend my time understanding businesses that I invest in rather than forecasting the direction of the economy or the stock market.

The world is uncertain, and I expect it to be a bumpy ride over the next 3 years. However, I also feel that the stock market has become very polarised and hence we have bought many excellent businesses at attractive prices over the last 12 months. This should serve us well in the coming three to five years.

The ride might be bumpy but given the quality of the businesses the Company owns, I feel confident about the destination.

NITIN BAJAJPortfolio Manager14 October 2019

STRATEGIC REPORT

PRINCIPAL RISKS AND UNCERTAINTIES AND RISK MANAGEMENTAs required by provision C.2.1 of the 2016 UK Corporate Governance Code, the Board has a robust ongoing process for identifying, evaluating and managing the principal risks and uncertainties faced by the Company. The Board, with the assistance of the Alternative Investment Fund Manager (FIL Investment Services (UK) Limited/the “Manager”), has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key risks that the Company faces. The risks identified are placed on the Company’s risk matrix and graded appropriately. Procedures are in place to identify emerging risks which might impact the Company. These include industry trends, economic/political risk, regulatory developments, technological changes and threats to the Company’s strategy and business model. These are reviewed and assessed in terms of impact, likelihood and timescale of potential threats.

This process, together with the policies and procedures for the mitigation of risks, is updated and reviewed regularly in the form of comprehensive reports considered by the Audit Committee. The Board determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives.

The Manager also has responsibility for risk management for the Company. It works with the Board to identify and manage the principal risks and uncertainties and to ensure that the Board can continue to meet its UK corporate governance obligations.

The Board considers the following as the principal risks and uncertainties faced by the Company. The risks are unchanged from those reported in the prior year apart from updating the “Market risk” to include “Economic and Political risk” and the addition of the “Key Person risk” and the classification of the “Cybercrime risk” as a principal risk.

Other risks facing the Company include:

TAX AND REGULATORY RISKSA breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status resulting in the Company being subject to tax on capital gains.

The Board monitors tax and regulatory changes at each Board meeting and through active engagement with regulators and trade bodies by the Manager.

OPERATIONAL RISKSThe Company relies on a number of third party service providers, principally the Manager, Registrar, Custodian and Depositary. It is dependent on the effective operation of the Manager’s control systems and those of its service providers with regard to the security of the Company’s assets, dealing procedures, accounting records and the maintenance of regulatory and legal requirements. The Registrar, Custodian and Depositary are all subject to a risk-based programme of internal audits by the Manager. In addition, service providers’ own internal control reports are received by the Board on an annual basis and any concerns investigated.

CONTINUATION VOTEA continuation vote takes place every five years. There is a risk that shareholders do not vote in favour of continuation during periods when performance is poor. The next continuation vote will be at the AGM in 2021.

VIABILITY STATEMENTIn accordance with provision C.2.2 of the 2016 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve month period required by the “Going Concern” basis. The Company is an investment trust with the objective of achieving long-term capital growth. The Board considers long-term to be at least five years, and accordingly, the Directors believe that five years is an appropriate investment horizon to assess the viability of the Company, although the life of the Company is not intended to be limited to this or any other period.

In making an assessment on the viability of the Company, the Board has considered the following:

· The ongoing relevance of the investment objective in prevailing market conditions;

· The Company’s NAV and share price performance;

· The principal risks and uncertainties facing the Company, as set out above, and their potential impact;

· The future demand for the Company’s shares;

· The Company’s share price relative to the NAV;

· The liquidity of the Company’s portfolio;

· The level of income generated by the Company; and

· Future income and expenditure forecasts.

The Company’s performance has been strong over the five year reporting period to 31 July 2019, with a NAV total return of 83.6%, a share price total return of 114.7% and a Comparative Index return of 63.6%. The Board regularly reviews the investment policy and considers it to be appropriate. The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years based on the following considerations:

· The Manager’s compliance with the Company’s investment objective, its investment strategy and asset allocation;

· The fact that the portfolio comprises sufficient readily realisable securities which can be sold to meet funding requirements if necessary;

· The Board’s discount management policy; and

· The ongoing processes for monitoring operating costs and income which are considered to be reasonable in comparison to the Company’s total assets.

In addition, the Directors’ assessment of the Company’s ability to operate in the foreseeable future is included in the Going Concern Statement in the Directors’ Report. The Company is also subject to a continuation vote at the AGM in 2021 and the Board expect that the vote, when due, will be approved.

GOING CONCERN STATEMENTThe Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio (being mainly securities which are readily realisable) and its expenditure and cash flow projections, and have concluded that the Company has adequate resources to continue to adopt the going concern basis for at least twelve months from the date of this Annual Report. The prospects of the Company over a period longer than twelve months can be found in the Viability Statement.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with UK Generally Accepted Accounting Practice, including FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland. The Financial Statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss for the period.

In preparing these Financial Statements the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

· prepare the Financial Statements on the going concern basis unless it is inappropriate to assume that the Company will continue in business.

The Directors are responsible for ensuring that adequate accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors’ Report, a Corporate Governance Statement and a Directors’ Remuneration Report that comply with that law and those regulations.

The Directors have delegated responsibility to the Manager for the maintenance and integrity of the corporate and financial information included on the Company’s pages of the Manager’s website at www.fidelityinvestmenttrusts.com to the Manager. Visitors to the website need to be aware that legislation in the UK governing the preparation and dissemination of the Financial Statements may differ from legislation in their jurisdictions.

The Directors confirm that to the best of their knowledge:

· The Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

· The Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.

The Directors consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy.

Approved by the Board on 14 October 2019 and signed on its behalf by:

KATE BOLSOVERChairman

Income Statement for the year ended 31 July 2019

The Company does not have any other comprehensive income. Accordingly, the net return on ordinary activities after taxation for the year is also the total comprehensive income for the year and no separate Statement of Comprehensive Income has been presented.

The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.

No operations were acquired or discontinued in the year and all items in the above statement derive from continuing operations.

The Notes form an integral part of these Financial Statements.

Statement of Changes in Equity for the year ended 31 July 2019

The Notes form an integral part of these Financial Statements.

Balance Sheet as at 31 July 2019Company number 3183919

The Financial Statements were approved by the Board of Directors on 14 October 2019 and were signed on its behalf by:

KATE BOLSOVERChairman

The Notes form an integral part of these Financial Statements.

Notes to the Financial Statements

1 PRINCIPAL ACTIVITYFidelity Asian Values PLC is an Investment Company incorporated in England and Wales with a premium listing on the London Stock Exchange. The Company’s registration number is 3183919, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey, KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as to continue to be approved.

2 ACCOUNTING POLICIESThe Company has prepared its Financial Statements in accordance with UK Generally Accepted Accounting Practice (“UK GAAP”), including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, issued by the Financial Reporting Council (“FRC”). The Financial Statements have also been prepared in accordance with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (“SORP”) issued by the Association of Investment Companies (“AIC”), in November 2014 and updated in February 2018 with consequential amendments. The Company is exempt from presenting a Cash Flow Statement as a Statement of Changes in Equity is presented and substantially all of the Company’s investments are highly liquid and are carried at market value.

a) Basis of accountingThe 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 instruments.

b) Significant accounting estimates and judgementsThe Directors make judgements and estimates concerning the future. Estimates and judgements are continually evaluated and are based on historical experience and other factors, such as expectations of future events, and are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The judgements required in order to determine the appropriate valuation methodology of level 3 financial instruments have a risk of causing an adjustment to the carrying amounts of assets. These judgements include making assessments of the possible valuations in the event of a listing or other marketability related risks.

c) Segmental reportingThe Company is engaged in a single segment business and, therefore, no segmental reporting is provided.

d) Presentation of the Income StatementIn order to reflect better the activities of an investment 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. The net revenue return after taxation for the year 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.

e) IncomeIncome from equity investments is accounted for on the date on which the right to receive the payment is established, normally the ex-dividend date. Overseas dividends are accounted for gross of any tax deducted at source. Amounts are credited to the revenue column of the Income Statement. 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 in the revenue column of the Income Statement. Any excess in the value of the shares received over the amount of the cash dividend is recognised in the capital column of the Income Statement. Special dividends are treated as a revenue receipt or a capital receipt depending on the facts and circumstances of each particular case.

Derivative instrument income received from dividends on long contracts for difference (“CFDs”) are accounted for on the date on which the right to receive the payment is established, normally the ex-dividend date. The amount net of tax is credited to the revenue column of the Income Statement.

Interest received on CFDs and bank deposits are accounted for on an accruals basis and credited to the revenue column of the Income Statement.

f) Investment management fees and other expensesInvestment management fees and other expenses are accounted for on an accruals basis and are charged as follows:

· The base investment management fee is allocated in full to revenue;

· The variable investment management fee, effective 1 November 2018, is charged/credited to capital as it is based on the performance of the net asset value per share relative to the Comparative Index; and

· All other expenses are allocated in full to revenue with the exception of those directly attributable to share issues or other capital events.

g) Functional currency and foreign exchangeThe Directors, having regard to the Company’s share capital, the predominant currency in which its investors operate and the currency in which expenses are paid, have determined its functional currency to be UK Sterling. UK Sterling is also the currency in which the Financial Statements are presented. Transactions denominated in foreign currencies are reported in UK Sterling at the rate of exchange ruling at the date of the transaction. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the Balance Sheet date. Foreign exchange gains and losses arising on translation are recognised in the Income Statement as a revenue or a capital item depending on the nature of the underlying item to which they relate.

h) Finance costsFinance costs comprise interest on bank overdrafts and interest paid on CFDs, which are accounted for on an accruals basis, and dividends paid on short CFDs, which are accounted for on the date on which the obligation to incur the cost is established, normally the ex-dividend date. Finance costs are charged in full to the revenue column of the Income Statement.

i) TaxationThe taxation charge represents the sum of current taxation and deferred taxation.

Current taxation is taxation suffered at source on overseas income less amounts recoverable under taxation treaties. Taxation is charged or credited to the revenue column of the Income Statement, except where it relates to items of a capital nature, in which case it is charged or credited to the capital column of the Income Statement. Where expenses are allocated between revenue and capital any tax relief in respect of the expenses is allocated between revenue and capital returns on the marginal basis using the Company’s effective rate of corporation tax for the accounting period. The Company is an approved Investment Trust under Section 1158 of the Corporation Tax Act 2010 and is not liable for UK taxation on capital gains.

Deferred taxation is the taxation expected to be payable or recoverable on timing differences between the treatment of certain items for accounting purposes and their treatment for the purposes of computing taxable profits. Deferred taxation is based on tax rates that have been enacted or substantively enacted when the taxation is expected to be payable or recoverable. Deferred tax assets are only recognised if it is considered more likely than not that there will be sufficient future taxable profits to utilise them.

j) Dividend paidDividends payable to equity shareholders are recognised when the Company’s obligation to make payment is established.

k) InvestmentsThe Company’s business is investing in financial instruments with a view to profiting from their total return in the form of income and capital growth. This portfolio of investments 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 on that basis to the Company’s Board of Directors. Investments are measured at fair value with changes in fair value recognised in profit or loss, in accordance with the provisions of both Section 11 and Section 12 of FRS 102. The fair value of investments is initially taken to be their cost and is subsequently measured as follows:

· Listed investments are valued at bid prices, or last market prices, depending on the convention of the exchange on which they are listed; and

· Unlisted investments, are investments which are not quoted, or are not frequently traded, and are stated at the Directors best estimate of fair value. The Manager’s Fair Value Committee, which is independent of the Portfolio Manager’s team, provide a recommendation of fair values to the Directors based on recognised valuation techniques that take account of the cost of the investment, recent arm’s length transactions in the same or similar investments and financial performance of the investment since purchase.

In accordance with the AIC SORP, the Company includes transaction costs, incidental to the purchase or sale of investments, within gains on investments in the capital column of the Income Statement and has disclosed these costs in Note 10 below.

l) Derivative instrumentsWhen appropriate, permitted transactions in derivative instruments are used. Derivative transactions into which the Company may enter include long and short CFDs, forward currency contracts, futures, options and warrants. Derivatives are classified as other financial instruments and are initially accounted and measured at fair value on the date the derivative contract is entered into and subsequently measured at fair value as follows:

· Long and short CFDs – the difference between the strike price and the value of the underlying shares in the contract;

· Futures – the difference between the contract price and the quoted trade price;

· Warrants – the quoted trade price for the contract;

· Options – valued based on similar instruments or the quoted trade price for the contract; and

· Forward currency contracts – valued at the appropriate quoted forward foreign exchange rate ruling at the Balance Sheet date.

Where transactions are used to protect or enhance income, if the circumstances support this, the income and expenses derived are included in net income in the revenue column of the Income Statement. Where such transactions are used to protect or enhance capital, if the circumstances support this, the income and expenses derived are included in gains on derivative instruments in the capital column of the Income Statement. Any positions on such transactions open at the year end are reflected on the Balance Sheet at their fair value within current assets or creditors.

m) DebtorsDebtors include securities sold for future settlement, accrued income and other debtors incurred in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business, if longer) they are classified as current assets. If not, they are presented as non-current assets. They are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.

n) Amounts held at futures clearing houses and brokersThese are amounts held in segregated accounts as collateral on behalf of brokers and are carried at amortised cost.

o) Other creditorsOther creditors include securities purchased for future settlement, investment management fees, secretarial and administration fees and other creditors and expenses accrued in the ordinary course of business. If payment is due within one year or less (or in the normal operating cycle of the business, if longer) they are classified as current liabilities. If not, they are presented as non-current liabilities. They are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method.

p) Capital reserveThe following are accounted for in the capital reserve:

· Gains and losses on the disposal of investments and derivative instruments;

· Changes in the fair value of investments and derivative instruments held at the year end;

· Foreign exchange gains and losses of a capital nature;

· Dividends receivable which are capital in nature;

· Other expenses which are capital in nature; and

· Taxation charged or credited relating to items which are capital in nature.

As a result of technical guidance issued by the Institute of Chartered Accountants in England and Wales in TECH 02/10: Guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006, changes in the 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, the portfolio of the Company consisted of investments listed on a recognised stock exchange and derivative instruments, contracted with counterparties having an adequate credit rating, and the portfolio was considered to be readily convertible to cash, with the exception of the level 3 investments which had unrealised investment holding gains of £393,000 (2018: unrealised investment holding loss of £296).

3 INCOME

No special dividends have been recognised in capital (2018: £nil).

4 INVESTMENT MANAGEMENT FEES

FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management to FIL Investments International (“FII”). Both companies are Fidelity group companies.

From 1 August, 2018, the Company adopted a new fee arrangement which reduced the base management fee from 0.90% on the first £200 million of gross assets and 0.85% on gross assets over £200 million to 0.70% of net assets per annum. In addition, with effect from 1 November 2018, there is a +/- 0.20% variation fee based on the NAV per share performance relative to the Comparative Index. Fees are payable monthly in arrears and are calculated on a daily basis.

5 OTHER EXPENSES

* Details of the breakdown of Directors’ fees are disclosed in the Directors’ Remuneration Report.

6 FINANCE COSTS

7 TAXATION ON RETURN ON ORDINARY ACTIVITIES

b) Factors affecting the taxation charge for the yearThe taxation charge for the year is lower than the standard rate of UK corporation tax for an investment trust company of 19.00% (2018: 19.00%). A reconciliation of the standard rate of UK corporation tax to the taxation charge for the year is shown below:

* The Company is exempt from UK taxation on capital gains as it meets the HM Revenue & Customs criteria for an investment company set out in Section 1159 of the Corporation Tax Act 2010.

c) Deferred taxationA deferred tax asset of £4,425,000 (2018: £3,905,000), in respect of excess management expenses of £22,304,000 (2018: £19,503,000) and excess interest paid of £3,728,000 (2018: £3,466,000), has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses.

8 RETURN PER ORDINARY SHARE

The basic returns per ordinary share are based on the net returns on ordinary activities after taxation for the year: revenue return £7,509,000 (2018: £3,892,000), capital return £16,645,000 (2018: £2,886,000) and total return £24,154,000 (2018: £6,778,000). These returns are divided by the weighted average number of ordinary shares in issue during the year of 70,193,856 (2018: 68,277,830).

The diluted returns per ordinary share reflect the notional dilutive effect that would have occurred if the rights attached to subscription shares had been exercised and additional ordinary shares had been issued. The returns on ordinary activities after taxation for the year used in the diluted calculation are the same as those for the basic returns above. These returns are divided by the notional weighted average number of ordinary shares in issue during the year of 70,964,574 (2018: 68,654,259). This number of shares reflects the additional number of ordinary shares that could have been purchased at the average ordinary share price for the year with the proceeds from the excess of the subscription share rights exercise price over the average ordinary share price.

9 DIVIDENDS PAID TO SHAREHOLDERS

The Directors have proposed the payment of a dividend for the year ended 31 July 2019 of 8.80 pence per ordinary share which is subject to approval by shareholders at the Annual General Meeting on 6 December 2019 and has not been included as a liability in these Financial Statements. The dividend will be paid on 11 December 2019 to shareholders on the register at the close of business on 25 October 2019 (ex-dividend date 24 October 2019).

10 INVESTMENTS

Investment transaction costsTransaction costs incurred in the acquisition and disposal of investments, which are included in the gains on the investments above, were as follows:

The portfolio turnover rate of the year was 52.2% (2018: 62.7%).

11 DERIVATIVE INSTRUMENTS

12 DEBTORS

A bonus issue of subscription shares to ordinary shareholders on the basis of one subscription share for every five ordinary shares held took place on 5 December 2016. Each subscription share gives the holder the right, but not the obligation, to subscribe for one ordinary share upon payment of the subscription price. The subscription price is based on the published unaudited NAV per ordinary share at 2 December 2016, plus a premium depending upon the year in which the right is exercised. The subscription share rights can be exercised annually in the 25 business days prior to the relevant subscription date (on which the exercises would take effect). The subscription dates, subscription prices and premiums are as follows:

After the final exercise date of 29 November 2019, the Company will appoint a trustee who will exercise any rights remaining that have not been exercised by shareholders, providing that by doing so a profit can be realised. To realise a profit, the sale proceeds from selling the resulting ordinary shares in the market would need to be in excess of the 392.75 pence per share price of exercising the rights, plus any related expenses and fees. Any resulting profit will be paid to the holders of those outstanding subscription shares, unless the amount payable to an individual holder is less than £5, in which case such sum shall be retained for the benefit of the Company.

Subscription shares carry no rights to vote, to receive a dividend or to participate in the winding up of the Company.

During the year, the Company issued 1,213,003 ordinary shares (2018: 1,181,189 ordinary shares) on the exercise of rights attached to subscription shares. The subscription share price of 381.75 pence per ordinary share issued represented a premium of 356.75 pence per share over the 25 pence nominal value of each share. The total premium received in the year on the issue of ordinary shares of £4,327,000 (year ended 31 July 2018: £4,084,000) was credited to the share premium account.

The Company issued 2,351,048 new ordinary shares during the year (2018: nil). The total premium received in the year on the issue of new ordinary shares of £9,430,000 (2018: £nil) was credited to the share premium account.

15 RESERVESThe “share premium account” represents the amount by which the proceeds, from the issue of new ordinary shares or the issue of ordinary shares on the exercise of rights attached to subscription shares, exceeded the nominal value of those ordinary shares. It is not distributable by way of dividend. It cannot be used to fund share repurchases.

The “capital redemption reserve” maintains the equity share capital of the Company and represents the nominal value of shares repurchased and cancelled. It is not distributable by way of dividend. It cannot be used to fund share repurchases.

The “other non-distributable reserve” represents amounts transferred from the warrant reserve in prior years with High Court approval. It is not distributable by way of dividend. It cannot be used to fund share repurchases.

The “other reserve” represents amounts transferred from the share premium account and the capital redemption reserve in prior years with High Court approval. It is not distributable by way of dividend. It can be used to fund share repurchases.

The “capital reserve” reflects realised gains or losses on investments and derivative instruments sold, unrealised increases and decreases in the fair value of investments and derivative instruments held and other income and costs recognised in the capital column of the Income Statement. Refer to Notes 10 and 11 for information on investment holding gains/(losses) included in this reserve. It can be used to fund share repurchases and it is distributable by way of dividend. The Board has stated that it has no current intention to pay dividends out of capital.

The “revenue reserve” represents retained revenue surpluses recognised through the revenue column of the Income Statement. It is distributable by way of dividend.

16 NET ASSET VALUE PER ORDINARY SHAREThe basic net asset value per ordinary share is based on net assets of £322,999,000 (2018: £287,974,000) and on 72,233,453 (2018: 68,669,402) ordinary shares, being the number of ordinary shares of 25 pence each held outside of Treasury at the year end.

The diluted net asset value per ordinary share reflects the potential dilution in the net asset value per ordinary share if the rights of the 11,103,030 subscription shares in issue had been exercised on 31 July 2019 at the next exercise date price of 392.75 pence per share. The basis of the calculation is in accordance with the guidelines laid down by the AIC.

The net asset value per ordinary share and the diluted net asset value per ordinary share are published by the London Stock Exchange on a daily basis.

17 FINANCIAL INSTRUMENTS

Management of riskThe Company’s investing activities in pursuit of its investment objective involve certain inherent risks. The Board confirms that there is an ongoing process for identifying, evaluating and managing the risks faced by the Company. The Board with the assistance of the Manager, has developed a risk matrix which, as part of the internal control process, identifies the risks that the Company faces. Principal risks identified are market, performance, key person, economic, political, geopolitical, discount control, gearing, derivatives, currency and cybercrime risks. Other risks identified are tax and regulatory and operational risks, including those relating to third party service providers covering investment management, marketing and business development, company secretarial, fund administration and operations and support functions. Risks are identified and graded in this process, together with steps taken in mitigation, and are updated and reviewed on an ongoing basis. These risks and how they are identified, evaluated and managed are shown in the Strategic Report.

This note refers to the identification, measurement and management of risks potentially affecting the value of financial instruments. The Company’s financial instruments may comprise:

· Equity shares and equity linked notes held in accordance with the Company’s investment objective and policies;

· Derivative instruments which comprise CFDs, forward currency contracts, warrants, futures and options on listed stocks and equity indices; and

· Cash, liquid resources and short-term debtors and creditors that arise from its operations.

The risks identified arising from the Company’s financial instruments are market price risk (which comprises interest rate risk, foreign currency risk and other price risk), liquidity risk, counterparty risk, credit risk and derivative instrument risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies are consistent with those followed last year.

Market price riskInterest rate riskThe Company finances its operations through its share capital and reserves. In addition, the Company has gearing through the use of derivative instruments. The level of gearing is reviewed by the Board and the Portfolio Manager. The Company is exposed to a financial risk arising as a result of any increases in interest rates associated with the funding of the derivative instruments.

Interest rate risk exposureThe values of the Company’s financial instruments that are exposed to movements in interest rates are shown below:

Foreign currency riskThe Company’s net return on ordinary activities after taxation for the year and its net assets can be affected by foreign exchange rate movements because the Company has income, assets and liabilities which are denominated in currencies other than the Company’s functional currency which is UK Sterling. The Portfolio Manager may seek to manage exposure to currency movements by using forward and spot foreign exchange contracts. The Company can also be subject to short-term exposure from exchange rate movements, for example, between the date when an investment is purchased or sold and the date when settlement of the transaction occurs.

Three principal areas have been identified where foreign currency risk could impact the Company:

· Movements in currency exchange rates affecting the value of investments and derivative instruments;

· Movements in currency exchange rates affecting short term timing differences; and

· Movements in currency exchange rates affecting income received.

Currency exposure of financial assetsThe currency exposure profile of the Company’s financial assets is shown below:

1 The exposure to the market of long CFDs, long futures and options after the netting of hedging exposures.

2 Debtors include amounts held at futures clearing houses and brokers.

1 The exposure to the market of long CFDs and warrants after the netting of hedging exposures.

2 Debtors include amounts held at futures clearing houses and brokers.

Currency exposure of financial liabilitiesThe Company finances its investment activities through its ordinary share capital and reserves. The Company’s financial liabilities comprise short positions on derivative instruments and other creditors. The currency profile of these financial liabilities is shown below:

1 The exposure to the market of short CFDs and short futures.

1 The exposure to the market of short CFDs.

Other price riskOther 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.

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.

The Portfolio 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 due to the underlying exposures, are estimated using Value at Risk and Stress Tests as set out in the Company’s internal Derivative Risk Measurement and Management Document.

Liquidity riskLiquidity risk is the risk that the Company will encounter difficulties in meeting obligations associated with financial liabilities. The Company’s assets mainly comprise readily realisable securities and derivative instruments which can be sold easily to meet funding commitments if necessary. Short term flexibility is achieved by the use of a bank overdraft, if required.

Liquidity risk exposureAt 31 July 2019, the undiscounted gross cash outflows of the financial liabilities were all repayable within one year and consisted of derivative instrument liabilities of £2,192,000 (2018: £960,000) and creditors of £1,053,000 (2018: £2,447,000).

Counterparty riskCertain derivative instruments in which the Company may invest are not traded on an exchange but instead will be traded between counterparties based on contractual relationships, under the terms outlined in the International Swaps and Derivatives Association’s (“ISDA”) market standard derivative legal documentation. As a result, the Company is subject to the risk that a counterparty may not perform its obligations under the related contract. In accordance with the risk management process which the Manager employs, the Manager will seek to minimise such risk by only entering into transactions with counterparties which are believed to have an adequate credit rating at the time the transaction is entered into, by ensuring that formal legal agreements covering the terms of the contract are entered into in advance, and through adopting a counterparty risk framework which measures, monitors and manages counterparty risk by the use of internal and external credit agency ratings and by evaluating derivative instrument credit risk exposure.

For Over The Counter (“OTC”) derivative transactions, collateral is used to reduce the risk of both parties to the contract. Collateral is managed on a daily basis for all relevant transactions. At 31 July 2019, £nil (2018: UBS AG £457,000) was held by the brokers in cash in a segregated collateral account on behalf of the Company, to reduce the credit risk exposure of the Company. £2,905,000 (2018: £2,363,000), shown as amounts held at futures clearing houses and brokers on the Balance Sheet, was held by the Company in a segregated collateral account, on behalf of the brokers, to reduce the credit risk exposure of the brokers. This collateral is comprised of: HSBC Bank Plc £295,000 (2018: £213,000) in cash, UBS AG £2,610,000 (2018: £2,112,000) in cash and Morgan Stanley & Co International PLC £nil (2018: £38,000).

Credit riskFinancial instruments may be adversely affected if any of the institutions with which money is deposited suffer insolvency or other financial difficulties. All transactions are carried out with brokers that have been approved by the Manager and are settled on a delivery versus payment basis. Limits are set on the amount that may be due from any one broker and are kept under review by the Manager. Exposure to credit risk arises on unsettled security transactions and derivative instrument contracts and cash at bank.

Derivative instruments riskThe risks and risk management processes which result from the use of derivative instruments, are set out in a documented Derivative Risk Measurement and Management Document. Derivative instruments are used by the Manager for the following purposes:

· to gain unfunded long exposure to equity markets, sectors or single stocks. Unfunded exposure is exposure gained without an initial flow of capital;

· to hedge equity market risk using derivatives with the intention of at least partially mitigating losses in the exposures of the Company’s portfolio as a result of falls in the equity market;

· to position short exposures in the Company’s portfolio. These uncovered exposures benefit from falls in the prices of shares which the Portfolio Manager believes to be over valued. These positions, therefore, distinguish themselves from other short exposures held for hedging purposes since they are expected to add risk to the portfolio.

RISK SENSITIVITY ANALYSISinterest rate risk sensitivity analysisBased on the financial instruments held and interest rates at 31 July 2019, an increase of 0.25% in interest rates throughout the year, with all other variables held constant, would have increased the return on ordinary activities after taxation for the year and increased the net assets of the Company by £40,000 (2018: £62,000). A decrease of 0.25% in interest rates throughout the year would have had an equal but opposite effect.

Foreign currency risk sensitivity analysisBased on the financial instruments held and currency exchange rates at 31 July 2019, a 10% strengthening or weakening of the UK Sterling exchange rate against other currencies would have (decreased)/increased the Company’s net return on ordinary activities after taxation for the year and the Company’s net assets by the following amounts:

If the UK Sterling exchange rate had strengthened by 10% the impact would have been:

If the UK Sterling exchange rate had weakened by 10% the impact would have been:

Other price risk – exposure to investments sensitivity analysisBased on the investments held and share prices at 31 July 2019, an increase of 10% in share prices, with all other variables held constant, would have increased the Company’s net return on ordinary activities after taxation for the year and increased the net assets of the Company by £31,268,000 (2018: £27,371,000). A decrease of 10% in share prices would have had an equal and opposite effect.

Other price risk – net exposure to derivative instruments sensitivity analysisBased on the derivative instruments held and share prices at 31 July 2019, an increase of 10% in the share prices underlying the derivative instruments, with all other variables held constant, would have increased the Company’s net return on ordinary activities after taxation for the year and increased the net assets of the Company by £583,000 (2018: decreased the net return and net assets by £1,578,000). A decrease of 10% in share prices would have had an equal and opposite effect.

Fair Value of Financial Assets and LiabilitiesFinancial assets and liabilities are stated in the Balance Sheet at values which are not materially different to their fair values. As explained in Note 2 (k) and (l) above, investments and derivative instruments are shown at fair value. In the case of cash at bank, book value approximates to fair value due to the short maturity of the instruments.

Fair Value HierarchyThe Company is required to disclose the fair value hierarchy that classifies its 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.

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 Note 2 (k) and (l) above. The table below sets out the Company’s fair value hierarchy:

The table below sets out the movements in level 3 financial instruments during the year:

* Financial instruments are transferred into level 3 on the date they are suspended, delisted or when they have not traded for thirty days.

JHL Biotech IncJHL Biotech Inc develops biosimilars and is also engaged in providing process development and contract manufacturing solutions to the biopharmaceutical industry. On 26 February 2018, JHL Biotech voluntarily delisted from the Taipei Exchange. The valuation at 31 July 2019 is based on the price of the shares when US$750m of funding was raised in October 2018.

China Ding Yi Feng Holdings (Short CFD)China Ding Yi Feng Holdings Limited operates as an investment holding company in Hong Kong and is currently suspended from trading. The valuation at 31 July 2019 is based on the unaudited consolidated NAV of the Company.

18 CAPITAL RESOURCES AND GEARINGThe Company does not have any externally imposed capital requirements. The financial resources of the Company comprise its share capital and reserves, as disclosed in the Balance Sheet, and any gearing, which is managed by the use of derivative instruments. Financial resources are managed in accordance with the Company’s investment policy and in pursuit of its investment objective, both of which are detailed in the Strategic Report. The principal risks and their management are disclosed in the Strategic Report and in Note 17 above.

The Company’s gearing/(net cash position) at the year end is set out below:

* Gross Asset Exposure less Total Shareholders’ Funds expressed as a percentage of Total Shareholders’ Funds.

19 TRANSACTIONS WITH THE MANAGER AND RELATED PARTIESFIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management and the role of company secretary to FIL Investments International (“FII”). Both companies are Fidelity group companies.

Details of the current fee arrangements are given in the Directors’ Report. During the year, management fees of £2,262,000 (2018: £2,626,000) and secretarial and administration fees of £75,000 (2018: £75,000) were payable to FII. At the Balance Sheet date, management fees of £217,000 (2018: £222,000) and secretarial and administration fees of £6,000 (2018: £6,000) were accrued and included in other creditors. FII also provides the Company with marketing services. The total amount payable for these services during the year was £146,000 (2018: £108,000). At the Balance Sheet date, marketing services of £20,000 (2018: £11,000) were accrued and included in other creditors.

Disclosures of the Directors’ interests in the ordinary shares of the Company and Directors’ fees and taxable expenses relating to reasonable travel expenses payable to the Directors are given in the Directors’ Remuneration Report. In addition to the fees and taxable expenses disclosed in the Directors’ Remuneration Report, £13,000 (2018: £12,000) of Employers’ National Insurance Contributions was also paid by the Company.

20 ALTERNATIVE PERFORMANCE MEASURESTotal return is considered to be an alternative performance measure (as defined in the Glossary of Terms). NAV and diluted NAV total return includes reinvestment of the dividend in the NAV/diluted NAV of the Company on the ex-dividend date. Share price total return includes the reinvestment of the net dividend in the month that the share price goes ex-dividend.

The tables below provide information relating to the NAVs and share prices of the Company, the impact of the dividend reinvestments and the total returns for the years ended 31 July 2019 and 31 July 2018.

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 July 2019 are an abridged version of the Company's full Annual Report and Financial Statements, which have been approved and audited with an unqualified report. The 2018 and 2019 statutory accounts received unqualified reports from the Company's Auditor and did not include any reference to matters to which the Auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2018 is derived from the statutory accounts for 2018 which have been delivered to the Registrar of Companies. The 2019 Financial Statements will be filed with the Registrar of Companies in due course.

A copy of the Annual Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The Annual Report will be posted to shareholders in due course and additional copies will be available from the registered office of the Company and on the Company's website: www.fidelityinvestmenttrusts.com where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.

The Annual General Meeting will be held at 11.00 on 6 December at 4 Cannon Street, London EC4M 5AB.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

ENDS