## FIDELITY ## CHINA SPECIAL ## SITUATIONS PLC ### Annual Report for the year ended 31 March 2024 ## The purpose of the Company is to offer investors who are building ## a diversified portfolio a direct exposure to China, recognising ## the size and growing importance of the country within the world ## economy and its weighting within global stock market indices. ## 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 in China, both listed ## and unlisted, as well as Chinese companies listed elsewhere. The ## Company may also invest in companies with significant interests in ## China. Fidelity China Special Situations PLC | Annual Report 2024 ## The Year at a Glance In the reporting year, the Company’s Net Asset Value per Share decreased by 16.3% and the Share Price decreased by 16.4%, whilst the Benchmark Index decreased by 18.8% (all performance data on a total return basis). | | | | | 1,2 | | | | | 1,2 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Net Asset Value per Share total return | | | | | Share Price total return | | | | | | | Year ended 31 March | | | | | ear ended 31 March | | | | | | | 2024 | -16.3% | | | | 2024 | -16.4% | | | | | | | | | | | 2023 | | | +0.3% | | | | 2023 | | | +2.6% | | | | | | | | | | | | | | 2022 | | -39.2% | | | | | 2022 | | -34.9% | | | | | | | | | | | | | | | 2021 | | | | | +97.2% | | 2021 | | | | +81.9% | | | | | | | | | | | | | 2020 | | -6.5% | | | | | 2020 | | -5.9% | | | | | | | | | ### MSCI China Index total return Dividend per Share 1, 3 ### (in UK sterling terms) ear ended 31 March Year ended 31 March 6.5 6.0 6.40p 2024 -18.8% 6.25p 5.5 5.0 5.50p 4.5 2023 +1.4% 4.68p 4.0 4.25p 3.5 2022 -29.3% 3.0 2.5 2.0 2021 +29.1% 1.5 1.0 0.5 2020 -1.0% 0.0 20242023202220212020 1 Includes reinvested income. 2 Alternative Performance Measures. See pages 92 and 93. 3 The Company’s Benchmark Index. ### As at 31 March 2024 Summary of the key aspects of the ### Investment Policy The Portfolio Manager will focus on identifying companies ### Equity Shareholders’ Funds which are most likely to benefit from China’s growth and changing economy. ## £1,176.0m The Company is not restricted in terms of size or industry when ### Market Capitalisation including companies in the portfolio and may invest in unlisted securities. ## £1,056.6m Y The Company may also invest into other transferable securities, Y collective investment schemes, money market instruments, ### Capital Structure cash and deposits and is also able to use derivatives and Ordinary Shares of 1 pence held outside of Treasury bank borrowing for gearing purposes and efficient portfolio management. ## 525,681,434 The Company operates a variable management fee arrangement which is calculated by referencing performance relative to the MSCI China Index (in UK sterling terms). # Financial Highlights | | 2024 | 2023 | | --- | --- | --- | | **Assets as at 31 March** | | | | Gross Asset Exposure | £1,450.9m | £1,659.1m | | Net Assets | £1,176.0m | £1,338.4m | | Gross Gearing^{1,2} | 23.4% | 23.9% | | Net Gearing^{1,2} | 20.8% | 21.1% | | Net Asset Value ('NAV') per Share^{2} | 223.71p | 274.08p | | **Share Price and Discount data as at 31 March** | | | | Share Price at year end | 201.00p | 247.50p | | Share Price: year high | 248.50p | 302.00p | | Share Price: year low | 182.60p | 178.60p | | Discount at year end^{2} | 10.2% | 9.7% | | Discount: year high^{2} | 12.9% | 15.2% | | Discount: year low^{2} | 6.2% | 0.2% | | **Earnings for the year ended 31 March – see page 61** | | | | Revenue Earnings per Share^{2,3} | 5.78p | 7.05p | | Capital Loss per Share^{2,3} | (50.18p) | (2.42p) | | Total (Loss)/Earnings per Share^{2,3} | (44.40p) | 4.63p | | Ongoing Charges Ratio for the year to 31 March^{2,4} | 0.98% | 0.98% | | Variable Management Fee | 0.15% | 0.20% | | Ongoing Charges Ratio including Variable Management Fee for the year to 31 March^{2,4} | 1.13% | 1.18% | 1 See Note 19 on page 90. Defined in the Glossary to the Annual Report on pages 99 and 100. 2 Alternative Performance Measures. 3 Based on the weighted average number of shares held outside of Treasury during the year. 4 Ongoing charges ratio (excluding finance costs and taxation) expressed as a percentage of average net asset values for the year (prepared in accordance with guidance issued by the Association of Investment Companies). It is estimated that the ongoing charges ratio for the year ending 31 March 2025 will be 0.88%, the significant reduction reflecting the management fees waived by the Manager in lieu of its contribution to the costs of the Company's transaction with abrdn China Investment Company Limited ("ACIC"). The transaction with ACIC is covered in more detail on pages 2 and 65. ## Standardised Performance Total Return$^{1}$ (%) ![img-0.jpeg](img-0.jpeg) 1 Includes reinvested income. Sources: Fidelity International and Datastream. Past Performance is not a guide to future returns. ### 01 Annual Report 2024 | Fidelity China Special Situations PLC ## Contents ### Strategy Chairman’s Statement 02 STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS Portfolio Manager’s Review 07 Unlisted Investments 12 Spotlight on the Top 10 Holdings 14 Forty Largest Holdings 16 Distribution of the Portfolio 19 Attribution Analysis 20 Ten Year Record 21 ### Chairman’s Statement Strategic Report 22 Read more on pages 02 to 06 ESG in the Investment Process at Fidelity International 33 ### Governance Board of Directors 36 Directors’ Report 37 Corporate Governance Statement 41 Directors’ Remuneration Report 45 Statement of Directors’ Responsibilities 48 Report of the Audit and Risk Committee 49 ### Portfolio Manager’s Review Read more on pages 07 to 11 ### Financial Independent Auditor’s Report 53 Income Statement 61 Statement of Changes in Equity 62 Balance Sheet 63 Cash Flow Statement 64 Notes to the Financial Statements 65 Alternative Performance Measures 92 ### Unlisted Investments Read more on pages 12 and 13 ### Information for Shareholders ### Spotlight on the Top 10 Holdings Notice of Meeting 94 Read more on pages 14 and 15 Glossary to the Annual Report 98 Shareholder Information 103 ### Ten Year Record Data Protection 105 Read more on page 21 Alternative Investment Fund Manager’s Disclosure 106 02 Fidelity China Special Situations PLC | Annual Report 2024 # Chairman's Statement ![img-1.jpeg](img-1.jpeg) I have pleasure in presenting the Annual Report of Fidelity China Special Situations PLC for the year ended 31 March 2024. **Mike Balfour, Chairman** **£1,176.0m** (As at 31 March 2024) Equity Shareholders' Funds **-16.3%** (Year ended 31 March 2024) Net Asset Value per Share total return **-16.4%** (Year ended 31 March 2024) Share Price total return **-18.8%** (Year ended 31 March 2024) Benchmark Index total return With global uncertainties and geopolitical concerns remaining heightened, as well as a softer-than-expected economy recovery in the wake of COVID restrictions being lifted, investors in China have once more faced a challenging year. Overall returns were negative during the year with the small consolation that your Company did manage again to outperform its Benchmark Index, the MSCI China Index (in UK sterling terms). In the reporting year to 31 March 2024, the net asset value ("NAV") per share total return of your Company was -16.3%, while the Benchmark Index returned -18.8%. The share price total return was -16.4%. After widening during the previous financial year, the share price discount to NAV was relatively stable beginning the period at 9.7% and ending it at 10.2%. Noticeably Chinese companies – even in the state-owned sector – are becoming increasingly focused on rewarding minority shareholders, including through the payment of dividends. While we have always expected your Company to generate the majority of its returns from capital, dividends from underlying companies also make a meaningful contribution to the total return. This has helped us to grow the dividend paid each year since launch. The current Chinese Year of the Dragon marks Dale Nicholls' 10th anniversary as your Portfolio Manager. While there have undoubtedly been ups and downs for investors during this time (particularly during 2021 and 2022), Dale has built an impressive record, with the NAV outperforming the Benchmark Index over one, five and 10 years. Over his tenure, he has generated a total shareholder return of 125.7% (NAV total return of 123.0%), some 75 percentage points ahead of the Benchmark Index return of 49.3%. A notable event during the year was the transaction by your Company with the abrdn China Investment Company Limited ("ACIC"). The transaction was concluded on 14 March 2024 and provides benefits to both existing shareholders of Fidelity China Special Situations PLC ("FCSS") and former holders of ACIC. Upon conclusion of the transaction (which was supported by 99.9% of ACIC shareholders voting at their shareholders meeting) the Company's assets grew by £126m, which brings greater liquidity to our shares and a larger asset base (now well over £1 billion) over which to spread the Company's fixed costs, helping to otherwise reduce the level of ongoing charges for all investors. As part of the transaction, the Manager (FIL Investment Services (UK) Limited) contributed to the transaction costs, waiving eight months of management fees on the assets transferred from ACIC, thereby offsetting direct expenses to the Company. It also reduced the fee level at the higher tier of assets (above £1.5 billion) from 0.70% to 0.65%. This is expected to lower the ongoing costs of the Company further as it grows over the longer-term. We welcome the former ACIC shareholders and look forward to their continued support being rewarded. The very short-term experience since the transaction has been encouraging for both new and existing shareholders with the share price rising from 197.40 pence on 14 March 2024 to 222.00 pence per share on 31 May 2024, an increase of 12.5%. The main driving force of the Chinese economy in the past 10 years has been investment – whether at the government, business or household level – leading to improvements in infrastructure, strong export growth and a property boom. In the current environment, export growth has weakened as a result of ### 03 Annual Report 2024 | Fidelity China Special Situations PLC global supply chain diversification away from China as well as sectors in which they operate. The valuation process is set out in US trade reluctance (expressed via tariffs and sanctions), and more detail on page12 of this report. The Board receives regular infrastructure is now developed to the point where the marginal updates from the FVC, with Alastair Bruce, our Audit and Risk impact of additional investment is reduced. Concerns in the Committee Chairman, also providing expertise in the area, STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS property market – particularly in the new-build sector, which has having for many years been involved professionally in private a stronger contribution to overall growth – have been well equity investing. documented in recent years. With these three stalwarts of economic growth curtailed a 5% GDP growth target – would be a The Board is mindful of the risks of investing in a single emerging good outcome that underscores China’s resilience. While a US market, however large and diverse it may be, and monitors both plan to further restrict sales of advanced semiconductors to current risks and its perception of emerging risks. Dale’s focus on China adds an element of uncertainty, particularly in some areas consumption and the domestic economy mitigates much of the of technology and automation, it is leading to a wave of Chinese geopolitical risk that has increased in the last few years. In invention and investment to compensate. So far, China has particular, a greater focus on the opportunities in the domestic surprised in its ability to keep innovating in microchips in market generated by industrial and technology companies is particular. It is also leading the world in electric vehicles, green helping Chinese businesses continue to innovate and grow, even energy technologies and battery technology and is making in a period of continued strain in the relationship between China strong progress with AI. All these are becoming increasingly and the US. important industries that China could seek to lead globally in the future. ESG While your Company is not a ‘green’ or ‘ethical’ fund, ESG factors Meanwhile, the Chinese stock market remains one of the most remain an important part of the work of the Portfolio Manager, lowly-valued large, liquid markets in the world. Market-level as continuing deterioration in the climate and other social and performance has been disappointing for three years now, and it governance concerns present a potential investment risk to your is always difficult to know when share prices will start to reflect portfolio. Chinese businesses are under increasing pressure to intrinsic value rather than being marked down on poor sentiment. ensure that their activities are environmentally sustainable and However, the companies in the portfolio continue to show strong demonstrate social responsibility and good corporate earnings growth, and we remain confident that the market will governance. Although there is progress in the form of come to appreciate the value on offer in the future; it may commitments and initiatives across a wide range of areas, more already have started to happen. As ever, having a large research needs to be done. Fidelity has a sustainable investing approach, team on the ground in China is fundamental to success in including engagement and voting principles and guidelines, as seeking out the best opportunities, particularly among smaller well as having developed its own proprietary forward-looking and medium-sized companies, where the relatively higher growth ESG ratings. The ratings of the companies in the portfolio are potential has yet to be reflected in share prices, and investor ahead of the broader market and continue to improve. Details of awareness is low. ESG engagements by the management team in the year under review are included in the Portfolio Manager’s Review on the Being structured as a closed-ended investment company means following pages, and an explanation of how Fidelity has that your Company does not have the liquidity constraints of an embedded ESG factors in its investment decision-making can be open-ended fund, and it can use this flexibility to invest in less found on pages 33 to 35. liquid assets with a longer-term view of returns. Up to 15% of Net Assets plus Borrowings may be invested in unquoted companies Gearing (those not yet listed on a stock exchange), allowing the Manager During the year, the Company repaid its US$100m loan from The to take advantage of the faster growth trajectory of earlier-stage Bank of Nova Scotia and replaced it with additional gearing by businesses before they are potentially listed on the public way of contracts for difference (“CFDs”). Previously CFDs markets. During the period under review, the number of unquoted accounted for around two-thirds of gearing and for the time companies held in the portfolio reduced from nine to six, being this has risen to 100% to control costs. We continue to following the IPOs of Beisen, Cutia Therapeutics and Tuhu Car in believe that the judicious use of gearing (another benefit of the April, June and September 2023 respectively. Unlisted holdings investment trust structure) can enhance long-term capital and now make up 12.8% of Net Assets, compared with 13.6% on income returns, although being more than 100% invested also 31 March 2023. If the Company were to reach the 15% limit in means that the NAV and share price may be more volatile and unquoted companies, it does not preclude us from further can accentuate losses in a falling market. The overall level of investment in existing holdings if fresh capital was required by gearing remains broadly unchanged, with net gearing beginning them. However, with valuations in the listed equity market the year at 21.1% and ending it at 20.8%. Gearing in the past has currently at historically low levels, Dale has said that any potential typically been in the range of 10% to 25%, and the current level new private investments would have to be very attractive in order reflects Dale’s view that the low valuation of the Chinese equity to win a place in the portfolio. market means that there are many attractive investment opportunities available on a bottom-up basis. Going forward, the We have confidence in the strength of the detailed process for upper limit for net gearing will be 20% of Net Assets. Your Board the valuation of our unlisted holdings. They are assessed will continue to monitor the cost of fixed term debt, with the regularly by Fidelity’s dedicated Fair Value Committee (“FVC”), ambition of reinstating an element of it in the future. with advice from Kroll, a third-party valuation specialist, as well as from the Fidelity analysts who follow the companies and the 04 Fidelity China Special Situations PLC | Annual Report 2024 # Chairman's Statement continued ## Dividend Although the Company's investment objective is to achieve long-term capital growth, it has paid an increased dividend each year since its inception, growing from 0.25 pence per share in 2011 to 6.25 pence per share in 2023, which is a compound annualised growth rate of 25.8%. The Board is pleased to recommend once again an increased final dividend of 6.40 pence per share for the year ended 31 March 2024 for approval by shareholders at the Annual General Meeting ("AGM") to be held on 23 July 2024. This represents an increase of 2.4% over the 6.25 pence paid in respect of the prior year. The dividend will be payable on 31 July 2024 to shareholders on the register on 21 June 2024 (ex-dividend date 20 June 2024). The revenue per share earned by the Company during the year was 5.78 pence, which is a decrease of 18.0% compared with the 7.05 pence earned in the prior year. This is primarily due to the higher cost of gearing. This revenue per share does not fully cover the recommended dividend for the year and as a result Revenue Reserves, which have been built up over the years, will be used to cover the shortfall. Following this, there will remain 3.78 pence per share in Revenue Reserves. ## Discount management The Board believes that investors are best served when the share price trades close to the Company's NAV per share. However, we recognise that the share price is affected by the interaction of supply and demand in the market based on investor sentiment towards China, as well as the performance of the Company's portfolio. A discount control mechanism is in place whereby we seek to maintain the Company's discount in single digits in normal market conditions. Historically, shares bought back were held in Treasury and could be issued at a later date should the share price move to a premium to NAV per share. As the number of shares held in Treasury equated to 15% of the issued share capital by 11 May 2023, shares repurchased since then have been cancelled. The Company's discount was broadly stable during the reporting year, widening marginally from 9.7% on 31 March 2023 to 10.2% at the end of the period. This is perhaps notable in a period in which many investment trusts saw their discounts widen, sometimes materially. With sentiment towards China in particular and investment trusts in general remaining challenging, the Board authorised the repurchase of 21,650,191 shares (the majority for cancellation) at a cost of £45,933,000, representing 3.5% of the issued share capital of the Company. Just under half of the repurchases (by number of shares) took place between August and November 2023. As well as helping to limit discount volatility, share repurchases are of benefit to the remaining shareholders, as the NAV per share is increased by purchasing shares at a discount. Since the year end and as at the latest practicable date of this report, the Company has repurchased a further 2,696,249 shares for cancellation. The graph in the next column shows the movement of the Company's discount during the year. ![img-2.jpeg](img-2.jpeg) At the forthcoming AGM, the Board is seeking to renew the annual authority to repurchase up to 14.99% of the Company's shares, to be either cancelled or held in Treasury, as it has done each year previously. ## Ongoing Charges Ratio The Ongoing Charges Ratio (the costs of running the Company) for the year was 0.98% (2023: 0.98%). The variable element of the management fee (due to outperformance of the Benchmark Index) was a charge of 0.15% (2023: 0.20%). Therefore, the Ongoing Charges Ratio, including this variable element, for the year was 1.13% (2023: 1.18%). ## Management fee Your Board continues to focus on achieving good value for the Company's shareholders. During the year under review, the management fee paid to the Manager, FIL Investment Services (UK) Limited, on the first £1.5 billion of Net Assets was reduced from 0.90% to 0.85% (effective 1 July 2023). As mentioned above, in tandem with the transaction with ACIC, the fee payable on Net Assets should they exceed £1.5 billion has also been renegotiated, falling from 0.70% to 0.65%. The variable element of the fee of +/-0.20% remains unchanged. ## Continuation Vote Following the completion of the transaction with abrdn China Investment Company Limited, your Board has committed to give shareholders the opportunity to vote on the continuation of the Company. The first vote will be at the AGM in 2029 and every five years thereafter. ## Board of Directors After a programme of Board refreshment in recent years (with all the Directors, including myself, having been appointed since 2020 as the Company's founding Directors retired), there have been no changes to the Board of Directors in the year under review. We are pleased that your Company's Board includes a real diversity and balance of relevant skills and experience, covering China itself, accountancy, investment management (including private equity and private equity valuations) and marketing expertise. I noted in last year's Annual Report that with two women and four men, our Board currently falls short of the voluntary target of 40% of FTSE 350 board members to be women, as set by the new FCA Listing Rules. It should, however, be noted that from July 2019 to January 2023 at least 40% of the Board was comprised ### 05 Annual Report 2024 | Fidelity China Special Situations PLC of women. In order to meet this target in the near term, we would Meanwhile, we hope to see you, in person or virtually, at our need to increase the number of Directors from six to seven, a Annual General Meeting on 23 July 2024. move that we have carefully assessed – in consultation with some of our larger shareholders – and concluded that it would not STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS currently represent the best value for shareholders. It remains our longer-term ambition to move closer to gender parity as and when any of our current Directors retire from the Board. Mike Balfour In accordance with the UK Corporate Governance Code for Chairman Directors of FTSE 350 companies, all Directors are subject to 10 June 2024 annual re-election at the AGM on 23 July 2024. The Directors’ biographies can be found on page 36, and, between them, they have a wide range of appropriate skills and experience to form a balanced Board to support and oversee the Company in the best interests of all shareholders. Annual General Meeting The Company’s AGM is at 11.00 am on Tuesday, 23 July 2024. While the meeting will once again be hybrid in format, with online attendance available, the Board and I hope to see as many of you as possible in person on the day to mark Dale’s 10-year record of outperformance. Details of the AGM are on the next page. Outlook While the Chinese economy remains sluggish, having failed to reap fully the benefits from the post-COVID reopening, there are undoubtedly signs of improvement. The March PMI figure – a measure of the economic health of the manufacturing sector – moved into positive territory (a reading above 50) for the first time in six months, reaching its highest level since March 2023 and potentially signalling a more sustained period of improvement. April trade data was good and showed a rise in imports, indicating a possible rise in domestic demand. At the same time, it is heartening to see that the Chinese authorities have not been panicked into implementing one-off large measures to boost the economy. They are going about things in a gradually stimulating fashion on both the fiscal and the monetary side, which will hopefully lead to a more balanced outcome. Meanwhile, with Chinese equity market valuations at particularly low levels, both relative to their own history and in a global context, there should be many opportunities for investors to participate profitably in the recovery. Perhaps the major risk to our cautiously positive outlook is the forthcoming US Presidential election. US relations with China have stabilised somewhat, although increasing tariffs and trade restrictions remain a concern. There is a significant risk that relations could worsen and US may implement measures such as raising tariffs on imports from China to 60%, which would significantly harm Chinese exporters and would depress global trade and exacerbate US inflation trends. In Chinese culture, the Year of the Dragon is associated with great change, good fortune and prosperity, to such an extent that Dragon years have historically experienced ‘baby booms’. While there can be no certainty that the Chinese equity market is itself on the verge of a boom, the structural trends at play in the economy, coupled with Dale and his team’s focus on selecting the stocks best positioned to deliver value to shareholders, should continue to support our positive medium to long-term view. ### 06 Fidelity China Special Situations PLC | Annual Report 2024 ## Chairman’s Statement continued ## Annual General Meeting – Tuesday, 23 July 2024 at 11.00 am The AGM of the Company will be held at 11.00 am on Tuesday, 23 July 2024 at 4 Cannon Street, London EC4M 5AB (nearest tube stations are St Paul’s or Mansion House) and virtually via the online Lumi AGM meeting platform. Full details of the meeting are given in the Notice of Meeting on pages 94 to 97. For those shareholders who are unable to attend in person, we will live-stream the formal business and presentations of the meeting online. Dale Nicholls, the Portfolio Manager, will be making a presentation to shareholders highlighting the achievements and challenges of the year past and the prospects for the year to come. He and the Board will be very happy to answer any questions that shareholders may have. Copies of his presentation can be requested by email at investmenttrusts@fil.com or in writing to the Secretary at FIL Investments International, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. Properly registered shareholders joining the AGM virtually will be able to vote on the proposed resolutions. Please see Note 9 to the Notes to the Notice of Meeting on page 96 for details on how to vote virtually. Investors viewing the AGM online will be able to submit live written questions to the Board and the Portfolio Manager and we will answer as many of these as possible at an appropriate juncture during the meeting. Further information and links to the Lumi platform may be found on the Company’s website at www.fidelity.co.uk/china. On the day of the AGM, in order to join electronically and ask questions via the Lumi platform, shareholders will need to connect to the website https://web.lumiagm.com. Please note that investors on platforms, such as Fidelity Personal Investing, Hargreaves Lansdown, Interactive Investor or AJ Bell Youinvest, will need to request attendance at the AGM in accordance with the policies of your chosen platform. They may request that you submit electronic votes in advance of the meeting. If you are unable to obtain a unique IVC and PIN from your nominee or platform, we will also welcome your online participation as a guest. Once you have accessed https://web.lumiagm.com from your web browser on a tablet or computer, you will need to enter the Lumi Meeting ID which is 134-206-210. You should then select the ‘Guest Access’ option before entering your name and who you are representing, if applicable. This will allow you to view the meeting and ask questions, but you will not be able to vote. ### 07 Annual Report 2024 | Fidelity China Special Situations PLC ## Portfolio Manager’s Review Question ### How has the investment company STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS ### performed in the year to 31 March 2024? Answer The Company’s NAV delivered a total return of -16.3% for the financial year ended 31 March 2024, outperforming the MSCI China Index (the Benchmark Index), which returned -18.8%. While overall returns were negative, the biggest contributors to outperformance were stock selection in the consumer discretionary (our largest sector weighting), industrials and consumer staples sectors. We were overweight in all these sectors compared to the Benchmark. In absolute terms, our energy stocks were the best performers, although their weighting is a very small part of the portfolio (c. 2% of total net assets), and is underweight versus the Benchmark. Our overweight exposures to financials and materials were the biggest drag on relative returns, while the worst absolute performance was in real estate – perhaps unsurprisingly, given another year of negative headlines – although our exposure did outperform the Benchmark. This is another small weighting, at only around 3% of total net assets. Question ### What stocks have been the main drivers ## Dale Nicholls was appointed ### of performance during the period and why? ## as Portfolio Manager of Fidelity Answer ## China Special Situations PLC on Four of our top 10 relative performers are consumer discretionary ## 1 April 2014. He has over 30 stocks, the best of which has been Hisense Home Appliances Group. While the ‘white collar’ area of the consumer market has ## years of investment experience had a tougher time, the lower end has been much more resilient, ## and also manages one other supported by government stimulus in the case of home appliances. Hisense has executed well in the mass-market ## major Fidelity Fund. He spends segment, growing its market share and margins in both 2023 and so far in 2024. It had also been trading at a very cheap ## much of his time speaking valuation. The market began to recognise the value on offer with the share price almost doubling in the year under review. It is ## to management teams and also among our best performing shares over the past 10 years. ## competitors of companies Elsewhere in the consumer space, two clothing companies – ## in which he invests or may Crystal International Group and JNBY Design – were also notable contributors. Crystal International is an apparel manufacturer, with ## choose to invest, engaging strong growth in sportswear, supported by excellent relationships with the likes of Adidas and lululemon. JNBY is a designer ## with hundreds of companies fashion brand offering a good value proposition for its niche ## each year. He is supported higher-end customers, and has been posting resilient sales numbers despite economic headwinds. Its loyal and sophisticated ## by 35 analysts based in Hong customer base with high fashion awareness helps mitigate macro risks. ## Kong, Shanghai and Singapore, Logistics firm Sinotrans falls into the industrial sector, but also ## of which 26 are dedicated to benefits from consumer trends, with an increase in international e-commerce transportation leading to strong performance. ## covering Greater China stocks. Disruption in the Red Sea has also provided some support as air transportation freight rates have increased. ### 08 Fidelity China Special Situations PLC | Annual Report 2024 ## Portfolio Manager’s Review continued HollySys Automation Technologies, a firm engaged in industrial Consumer services have also outperformed consumer goods, for automation, was also among the largest contributors to positive example in the growth of travel since the lifting of COVID returns in the year. The company is in the process of being taken restrictions. For now, we believe service-led consumption will private after a bid from a Hong Kong-based private equity group. continue to dominate the recovery in China. Recent data has We decided to exit the position following its share price strength shown that Chinese tourists spent more per trip now than the prompted by the bid. pre-pandemic era. Railway travel has doubled year-to-date, and air travel has almost tripled compared with 2023. Sectors such as The portfolio does not have heavy exposure to Chinese auto Macau gaming, tourism and internet platforms related to services makers, mostly on the back of competition concerns, but, as a are well positioned to benefit. On the consumer goods side, the global leader in the electric vehicle (EV) market, China offers government has announced measures to encourage durable many opportunities to participate in growth. Our two biggest goods upgrades through subsidies or targeted credit support, detractors have exposure to the autos value chain. Hesai Group such as lowering the down payment requirement for car is a global leader in three-dimensional LiDAR (laser range purchases. We believe this should support increased industrial determining) sensors, which are an important component in the production and manufacturing opportunities. development of autonomous vehicles. While Hesai’s stock price suffered over the reporting period, and was the largest detractor Weakness in the property sector has clearly been a significant to performance, we still see this as a structural growth drag on overall economic growth, including the obvious impact opportunity over the long-term. Intron Technology’s automotive on consumer sentiment. Although retail sales have been more electronic components are applied in new energy, body control, volatile in the post-COVID period than previously, they continue safety and power train systems. It detracted from performance on a broadly upward trend, indicating some resilience in the face amid a tough market environment, with a price war in auto parts of falling property sales. We feel confident that we will continue putting pressure on margins. to see ongoing policy loosening to support the property sector. Relative returns were also hurt by not holding state-owned banks, Question China Construction Bank and Bank of China. We preferred not to own these stocks given a poor outlook for their net interest ### We are reading about challenges in the margins, due to falling lending rates, weak loan growth and the ### potential impact on credit quality, if the government steps up region with potential higher tariffs being policies to encourage more lending. The portfolio did include ### explored in the US and Europe, along China Merchants Bank to mitigate this risk and for its consumer ### lending franchise. with other domestic challenges. How are ### you managing this risk, and does this Question ### bring with it opportunities? ### The expected recovery of the Chinese Answer ### consumer has been somewhat With regard to US executive orders and sanctions, we are ### disappointing. Could 2024 see a change working closely with Fidelity International’s legal and regulatory ### in both consumer confidence and retail experts to understand the policy direction and potential policy response. In general, we believe that China would be keen to ### sales? have better relations with the US, and the greater dialogue between Presidents Xi and Biden is encouraging. There is no Answer denying, however, that strategic competition between the two Consumer confidence has indeed been weak but there are countries is going to be a factor that will be with us for decades. reasons to anticipate an improvement. Bank deposits saw huge The good thing is that the market is becoming more comfortable growth during COVID and household balance sheets are very with this reality. China has been dealing with US tariffs for years, strong, so there is spending power available, but people need and companies are well aware of the prospect that they might confidence to unlock it. Deposit growth has slowed down more be higher in the future. Former President Trump has even recently, which suggests a more optimistic outlook on spending. suggested raising import tariffs to 60%, although one has to think There has been a bifurcation in confidence, with the white-collar that stickier inflation in the US could mean it will be harder for the area suffering most, presumably hurt by bigger redundancies. In government there to implement hikes of this magnitude. general, lower-end products have performed better. Job cuts by the big technology companies may now be largely behind us, and a slowly improving employment picture could bring back some confidence. ### 09 Annual Report 2024 | Fidelity China Special Situations PLC In terms of corporate-level geopolitical risk, it is something we Question look at on a stock by stock basis. For example, we try to incorporate sanction risks on companies with any significant ### Looking longer-term, what do you see as technology exporting from China to the US into our analysis. In STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS ### general, within our portfolio, revenue exposure to the US is limited the drivers of returns for China equities? and any risk would appear to be mostly priced in. While the video platform TikTok has again been in the headlines because Answer of a new US bill that would require it to be sold off or risk being At a basic level, returns will be driven by a Company’s earnings banned, it is important to remember that as a percentage of its and the multiple that the market is willing to put on those parent company ByteDance’s operations, TikTok is relatively small earnings. As mentioned, this multiple can swing significantly and also loss-making, whereas the domestic business is highly depending on sentiment, which is often influenced by factors such profitable and growing strongly. Meanwhile, the vast majority of as geopolitics, which in many cases bear little influence on a companies are largely unaffected by such geopolitical concerns. company’s earnings outlook. This is why we spend most of our efforts analysing company fundamentals, and looking to Question capitalise at times when these fundamentals are underappreciated. ### How have you utilised the investment ### company structure this year? Has it been While China’s economy is forecast to slow from its current growth rate of around 5%, it is expected to remain one of the fastest ### beneficial? growing major economies in the world. Its gradual shift towards consumption-driven growth, fuelled by an expanding middle Answer class, rising incomes and technological innovation, provides a Our approach to managing the gearing of the Company mostly solid backdrop for companies to thrive. reflects the opportunity set that we see at any one time. Gearing will naturally be higher when that opportunity set is plentiful and However, China’s financial markets in the shorter-term are often vice versa. Given the significant swings in sentiment towards the heavily influenced by geopolitics and macro decisions, which China market, we tend to see better risk-reward prospects when have been more of an issue in the last few years, amid one of sentiment is weak and valuations are lower. Gearing is primarily the longest and harshest regulatory environments. Despite this, deployed using contracts for difference (“CFDs”), which are regulation trends are typically somewhat cyclical, and the low-cost and represent a flexible way of increasing investment government is now increasingly focused on economic growth. exposure. During the year, we repaid the fixed-term loan facility, and all gearing is currently via CFDs. However, this is something What is often not appreciated is the level of change that is we continue to evaluate and may look to reinstate an element of apparent on the ground, with winners emerging and innovation fixed-term borrowing in the future if the terms are attractive. flourishing across sectors, reflecting companies’ commitment to building a competitive edge. Coupled with trends such as rapid We like to utilise all the tools the investment company structure automation implementation driven by an aging population and gives us, with historically a working maximum net exposure of the energy transition, this continues to create interesting around 25% and a hard limit of 30% of gross assets. At the start investment opportunities. Consumer trends like experience-based of the period under review, net gearing was 21.1%, which rose spending, health consciousness and premiumisation continue to over the following months, peaking at 25.5% by the end of August grow. There is also an increasing preference among Chinese 2023 before falling slightly. At 31 March 2024, the portfolio’s net consumers and corporates for Chinese brands and local market exposure was 120.8% (net gearing of 20.8%), which, while suppliers, resulting in domestic companies taking ever greater marginally lower than at the start of the period, is still a notable market share in what remains one of the world’s largest markets. increase since late 2021, reflecting the compellingly attractive valuations of the Chinese market and, therefore, the relative At the same time, and importantly, companies are increasingly appeal of greater levels of gearing to take advantage of rewarding shareholders through dividends and share buybacks, opportunities on offer. It is not anticipated that net gearing will supported by recent government policy reforms and shareholders materially exceed 20% in the future, following a change of the demands. This trend is particularly prominent in the financial Board’s policy. sector, where state-owned enterprise companies have increased dividend payout ratios, while smaller financial companies have Because gearing increases market exposure, it magnifies returns engaged in buybacks or boosted dividends. in strong market conditions, but also acts as a drag in times of poor returns. As such, it was a negative contributor to relative Companies have started to recognise the potential value performance in the period under review, detracting by 3.75 accretion when valuations are at extreme levels. Internet percentage points. Nevertheless, we continue to believe that the companies like Alibaba Group Holding and Tencent Holdings judicious use of gearing can be accretive to long-term capital have been some of the most aggressive in hiking both dividends and income returns, allowing us the opportunity to capitalise on and buybacks. For many of these companies, we are seeing the volatility in the Chinese market. shares outstanding decline for the first time. ### 10 Fidelity China Special Situations PLC | Annual Report 2024 ## Portfolio Manager’s Review continued The Japanese equity market has been in the headlines in the In addition, despite macroeconomic challenges, many companies past year as a similar focus on boosting shareholder returns has will continue to benefit from China’s long-term shift from export helped the main index to finally regain highs last seen more than and investment-led growth towards higher-quality growth driven 30 years ago. We have been closely monitoring Chinese by consumption. Urbanisation and a growing middle class are companies’ dividend payouts, buybacks and restricted share units important factors underlying stronger consumer purchasing (RSU) for many years and believe that across the board – be it power, offering notable structural growth opportunities for state-owned or private companies, large or small-cap, utilities, under-penetrated products and services. Therefore, we are internet stocks or consumer names – management teams are equally excited about long-term structural beneficiaries in the emphasising returns for minority shareholders. consumption space, with an abundance of investment opportunities given many companies have seen their valuations In addition to this encouraging trend towards increasing dragged down by weak overall market sentiment. shareholder value, the Chinese stock markets also offer earnings growth opportunities that compare well to other markets. Question However, there will be differences across sectors and companies, ### which underscores the importance of bottom-up stock selection. You have just reached the milestone Identifying companies with good long-term growth prospects, that ### of 10 years managing the Trust. With are cash generative and have strong management teams, ### remains key to constructing a resilient portfolio that compounds strong NAV and share price comparative growth over the long-term. ### performance versus the Benchmark Index, ### Question outperforming by over 76% since your ### tenure, what has been the key to that ### Which sectors are you particularly excited ### success over the longer-term? ### about? Answer Answer For me, the past 10 years has underlined how important it is for We continue to find companies offering compelling long-term us to stay focused on company level fundamentals. We operate growth prospects within the industrial sector, driven by factors in a volatile market with significant swings in sentiment. Even such as ongoing industry consolidation and the continued fast through tough markets of the last few years, we have had huge pace of innovation. China’s share of global patent applications is winners driven by great market opportunities supported by great approaching 50%, and companies are investing ever more into management execution. research and development (R&D), which over time should feed through into improved competitiveness, pricing power and returns Supporting this is the calibre of the team of people we have on on capital. This is clear in areas like robotics and the related the ground in China. Our analysts understand the DNA of supply chain. Fragmented industries like building materials, companies; they have long-standing relationships with the including paint, pipes and waterproofing, are poised for further companies they cover, and they understand the nuances of consolidation, following the trajectory seen in more developed trends. The ‘challenge’ of stock price volatility is also the markets. Moreover, many businesses are also benefiting from the opportunity, and we are now finding many great companies re-orientation of global supply chains and an increasing trading at bargain valuations. As long as our earnings forecasts preference for local suppliers. are accurate, we believe share prices will reflect the delivery of those growth opportunities in the long-term. In emerging sectors such as EVs and renewable energy, we are finding opportunities among enablers in the EV value chain, The main driver of the Company’s performance has always been particularly those providing key components and services, such – and will always be – the individual stocks that we invest in, the as EV battery manufacturers or auto parts suppliers. Healthcare ability to choose from the whole market cap spectrum, from tech also presents opportunities, especially in areas with low giants through to entrepreneurial small and medium-sized penetration like medical devices. Chinese companies also now companies, and even new businesses yet to launch on the stock have the third-largest number of innovative drugs in development market. This all-cap strategy allows me to unearth and invest in a globally, and are fast catching up with Europe, which currently lies multitude of stocks that play into the growth and development of second behind the US. the domestic consumer. While confidence remains weak, spending power is significant, and we see the ongoing emergence of strong domestic brands leveraging a deep understanding of the local consumer and operating environment. ### 11 Annual Report 2024 | Fidelity China Special Situations PLC As discussed in the question above on the drivers of returns for Question China equities, better capital management is a key aspect of improving governance. We actively engaged with many of the ### Environmental, social and governance companies we hold, and it is positive to see increased buyback STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS ### (“ESG”) themes are very topical among and dividend activity across the whole market. For example, we encouraged wealth management firm Noah Holdings to improve ### investors. How do you approach ESG, its capital allocation, for which, in our view, returns have been ### and can you outline specific examples held back by an over-capitalised balance sheet. Over the past year, the company has made some improvements, including the ### where engagement has resulted in good removal of dual share classes and the introduction of a (small) ### outcomes for stakeholders? dividend. In its most recent earnings release, it announced a 50% payout ratio (which was at the top end of the newly announced Answer policy), as well as an additional 50% special dividend payout. Fidelity International integrates ESG factors into its investment process, with research analysts incorporating ESG into company Question assessments using proprietary Sustainability Rating and Climate ### Rating frameworks. We also actively engage with companies to Finally, with the completion of the improve their ESG practices. ### combining of assets with abrdn China ### Investment Company Limited (ACIC), how Chinese companies have not historically performed well in ### third-party ESG assessments, but a great deal of this is about have you allocated these assets within the disclosure. If a company is not transparent about its supply chains ### portfolio? or its emissions, then the market will tend to assume the worst. We have been working with the companies in our portfolio to Answer improve their disclosures, and this is resulting in good progress on the governance front. The transaction with ACIC was a real team effort and thank you to all involved. From a portfolio management perspective, I was One such example through the review period was our involved in the transition of assets throughout the transaction engagement with Medlive Technology, one of the largest online process, making sure individual companies that I already owned physician platforms. The engagement focused on their or would own came across ‘in-specie’ and the residual cash from cybersecurity and data privacy practices, which had been lacking the ACIC portfolio was implemented into my best ideas. This cash in the past. We found that while the company places a strong was invested as soon as the transaction was completed. emphasis on data systems and policies, this was not adequately reflected in their disclosures. Therefore, we recommended that The key benefits of the transaction for the Company were greater the company improves its transparency for all stakeholders, scale, an enhanced profile and increased liquidity. While we strengthens cybersecurity privacy practices and increases were already by some way the largest in our Association of engagements with rating agencies. Subsequently, Medlive took Investment Companies (AIC) sector, the increased scale and proactive steps, leading to enhanced cybersecurity, privacy liquidity should help to bring Fidelity China Special Situations PLC management and disclosures. These efforts were recognised by to the attention of more professional fund buyers, many of whom rating agencies, contributing to an upgrade of the company’s may not consider investing in a portfolio below £1 billion. ESG rating. Additionally, Medlive established a board-level committee to oversee key areas of information and data security. Dale Nicholls Portfolio Manager Other noteworthy progress included our multi-year engagement 10 June 2024 with leading Chinese sports equipment company ANTA Sports Products. We encouraged enhancements in sustainable supply chain management, an area that we identified as lagging global best practices. By explaining essential aspects of industry leading supply chain practices during our discussions, the company was open to suggestions and proactively made improvements and new commitments. For example, the company committed to further measures for improving labour supply chain management, workforce disclosure, publishing health and safety practices, and supporting suppliers in obtaining ISO/Bluesign certifications. 12 Fidelity China Special Situations PLC | Annual Report 2024 # Unlisted Investments The Company can invest up to 15% of its Net Assets plus Borrowings in unlisted securities which carry on business, or have significant interests, in China. The limit is applied at the time of purchase. The Directors believe that the ability to invest in unlisted securities is a differentiating factor for the Company and can be a source of additional investment performance. It allows the Portfolio Manager to take advantage of the growth trajectory of early-stage companies before they potentially become listed and this can offer good opportunities for patient and long-term investors. In the reporting year, the following companies listed on the Hong Kong Stock Exchange: Beisen on 13 April 2023; Cutia Therapeutics on 12 June 2023; and Tuhu Car on 26 September 2023. No new investments were made in unlisted securities in the reporting year. At the year end, the Company had six unlisted investments valued at £151,212,000 being 12.8% of its Net Assets (2023: nine unlisted investments valued at £192,878,000 being 13.6% of Net Assets plus Borrowings). ## Overview of the Unlisted Investments Valuation Process Unlisted investments in the Company's portfolio are held at fair value, which is defined as the value that would be paid for a holding in an open-market transaction. The Manager's Fair Value Committee ("FVC"), which is independent of the Portfolio Manager, provides recommended fair values to the Directors. Twice yearly, ahead of the Company's interim and its year end, the Company's Audit and Risk Committee receives a detailed presentation from the FVC, Fidelity's unlisted investments specialist and Kroll (independent third-party valuers), in order to satisfy itself that the unlisted investments are carried at an appropriate value in accordance with Accounting Policies Notes 2 (e) and (f) on pages 66 to 68 at the balance sheet date. The external Auditor attends the unlisted valuations meeting ahead of the Company's year end. The work completed by the Audit and Risk Committee on the unlisted investments is set out in its report on page 52. ## Workings of the Fair Value Committee The valuation of each unlisted investment is set by the Manager's FVC and includes input from the analysts covering the securities, Fidelity's unlisted investments specialist and also advised upon by the independent third-party valuers, Kroll. Kroll, as independent valuers, undertake a detailed review of each of the unlisted investments on a quarterly basis. The Board is provided with the quarterly updates from the FVC, which includes recommendations from the analysts' and Fidelity's unlisted investments specialist, enabling the Board to have oversight of and confidence in Fidelity's process. Outside of the normal quarterly cycle, the unlisted investments are monitored daily for trigger events such as funding rounds or news of fundamentals which may require the FVC to adjust the valuation price as soon as the Fidelity analyst has been consulted. In addition to this, the unlisted investments are monitored on a weekly basis within a comparable movement model. If the average movement of the selected proxies is +/-15%, a revaluation of the relevant investment is considered. ## Value of Unlisted Investments Private companies in China are staying private for longer, with their value increasing significantly in recent years. In 2015, there were 60 private companies valued at over $1 billion; in 2023 there were over 340, showing the growth in number of these private companies before they enter the public markets. The current split of unlisted investments is as follows: | Equity value at the time of investment | Company count | % of total unlisted | | --- | --- | --- | | Micro (<$300 million) – Venturous Holdings | 1 | 20% | | Small ($300 million – $2 billion) – Chime Biologics | 1 | 20% | | Medium ($2 billion – $10 billion) – Pony.ai | 1 | 20% | | Large (>$10 billion) – DJI International & ByteDance | 2 | 40% | | **Total** | **5*** | | * Shanghai Yiguo, the sixth unlisted investment in the Company's portfolio, is in liquidation and valued at nil. Annual Report 2024 | Fidelity China Special Situations PLC 13 ## Unlisted companies held in the Company's portfolio as at 31 March 2024. ![img-3.jpeg](img-3.jpeg) ### DJI International (Purchased: May 2018) DJI International is the world's largest manufacturer of drones. Its platforms empower creators to capture images that were once out of reach. Its flying and camera stabilisation systems redefine camera placement and motion through a commitment to research and development and a focus on transforming complex technology into easy-to-use devices worldwide. Building on the ethos of "form follows function", DJI's products combine advanced technology with dynamic designs in industries such as filmmaking, agriculture, conservation, search and rescue, energy infrastructure. Its high-precision control modules are also widely applied to flying toys. ![img-4.jpeg](img-4.jpeg) ### ByteDance (Purchased: November 2018) ByteDance is a leading internet entertainment and social media company with hundreds of millions of users in China. Despite the threat of Baidu, Alibaba and Tencent, ByteDance is one of the few contenders able to capture significant time-spent and advertisement revenue in China. Among its best-known products are Douyin, TikTok, Toutiao, BuzzVideo and Vigo Video. With products available in over 150 markets, the company has offices in 126 cities and has more than 60,000 employees and 15 research and development centres around the globe. The US has given ByteDance until January 2025 to sell its TikTok product or face a ban by citing a threat to national security. ByteDance has claimed that it would prefer to shut down TikTok if it exhausts all legal options to fight the ban. ![img-5.jpeg](img-5.jpeg) ### Pony.ai (Purchased: March 2020) Founded in 2016, in Silicon Valley, Pony.ai has quickly become a global leader in autonomous mobility and is a pioneer in extending autonomous mobility technologies and services at a rapidly expanding footprint of sites around the world. Operating Robotaxi, Robotruck and Personally Owned Vehicle (POV) business units, Pony.ai is an industry leader in the commercialisation of autonomous driving. In 2022, Pony.ai became the first autonomous company to receive a licence to operate its self-driving taxis in China. ![img-6.jpeg](img-6.jpeg) ### Venturous Holdings (Purchased: December 2020) Venturous Holdings' mission is to make cities smart – more liveable, sustainable and productive, contributing to the buildout of an All-Digital Urban Economy in China. Venturous' focus is the four 'must-have' areas of Smart Energy, Smart Buildings, Smart Computing and Smart City Management. It also provides strategic advice to CEOs and their management teams, which covers corporate architecture designs, strategies, market expansions, capital plans, business model expansions, partnerships and ecosystems. ![img-7.jpeg](img-7.jpeg) ### Chime Biologics (Purchased: March 2021) Chime Biologics is a leading biologics Contract Development and Manufacturing Organization (CDMO) company. The company leverages its comprehensive capabilities and internationally recognised expertise to support its clients from early-stage biopharmaceutical development through to late-stage clinical and commercial manufacturing, catering to the needs of the biopharmaceutical industry. Shanghai Yiguo, purchased in December 2016 as an unlisted company in the portfolio, has not performed as expected. It is in liquidation and valued at nil (2023: nil). STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS ### 14 Fidelity China Special Situations PLC | Annual Report 2024 ## Spotlight on the Top 10 Holdings ### as at 31 March 2024 ### Based on Asset Exposure expressed as a percentage of Net Assets. Asset Exposure comprises ### the value of direct equity investments plus market exposure to derivative instruments. ### Industry Communication Services Tencent Holdings % of Net Assets 11.0% Tencent Holdings has a dominant position in social networking in China and has enriched the user experience and benefits from a sizeable user base. As China’s internet user growth slows down and the internet industry focuses increasingly on monetisation, Tencent is one of the best-positioned companies because of its very sticky user base and strong ecosystem which should lead to overall margin expansion. An improving government tone towards mobile gaming and an acceleration of new game approvals since early 2023 and strong domestic game pipelines should underpin growth in its gaming segment. Its increasing shareholder returns also underpin its long-term investment thesis. ### Industry Financials Ping An Insurance Company of China % of Net Assets 3.9% Ping An Insurance Company of China is a financial services holding company whose subsidiaries provide insurance, banking, asset management, and financial services. It has a strong presence in China, Hong Kong, and Macau, with expanding operations overseas. It has a robust structural growth outlook and, within the broader sector, its operations are of relatively better quality with the best distribution channels, earnings quality, and a strong management team. It trades at an attractive valuation in comparison to its historical averages and the broader index. ### Industry Consumer Discretionary Pony.ai (unlisted) % of Net Assets 3.6% Founded in 2016, in Silicon Valley, Pony.ai has quickly become a global leader in autonomous mobility and is a pioneer in extending autonomous mobility technologies and services at a rapidly expanding footprint of sites around the world. Operating Robotaxi, Robotruck and Personally Owned Vehicle (POV) business units, Pony.ai is an industry leader in the commercialisation of autonomous driving. In 2022, Pony.ai became the first autonomous company to receive a licence to operate its self-driving taxis in China. ### Industry Consumer Discretionary Alibaba Group Holding % of Net Assets 3.5% Alibaba Group Holding has a leading position in the e-commerce market. Its core e-commerce categories, including apparel and makeup, will stand to benefit from any recovery and consumption upgrades in China. Its new management team is focused on a clearer strategy by investing in technology and user experiences, including logistics, product return, and customer service. Its strategy to exit from non-core businesses, cut losses, and improve shareholder returns also underpins a strong growth outlook. ### Industry Consumer Discretionary PDD Holdings % of Net Assets 3.5% PDD Holdings is the third largest e-commerce platform by Gross Merchandise Value (GMV) in China, with outstanding efficiency in supply chain management and cost control. With its unique traffic distribution method, PDD is able to offer the cheapest version of products and continuously gains market share. The company is also expanding internationally to more than 50 countries via a new shopping app called Temu by leveraging domestic supply chains in order to meet offshore demand. ### 15 Annual Report 2024 | Fidelity China Special Situations PLC ### Industry Consumer Discretionary Crystal International Group % of Net Assets 2.7% STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS Crystal International Group is a leading international clothing manufacturer. It delivers over 470 million pieces of apparel a year to the best-in-class apparel brands in the world, with a focus on offering the right product at the right time and at the right cost. Its Dongguan factory is advanced in automation and digitalisation after years of investment, which will also likely benefit its overseas factories. It has achieved fully local-for-local operations in China and its relationships with sportswear customers are getting stronger, supporting a robust growth outlook. ### Industry Consumer Discretionary Hisense Home Appliances Group % of Net Assets 2.6% Hisense Home Appliances Group is principally engaged in the development, manufacture and distribution of home electric appliances. The company’s main products include barrel washing machines, rotary drum washing machines, on-hook air conditioners, cabinet air conditioners, side-by-side combination refrigerators, multi-door refrigerators, computer refrigerators, and mechanical refrigerators, among others. It has good brand value across its assets (Hisense Hitachi is the second largest air conditioning brand in China; Hisense washer & fridge products are popular tier-2 brands) and is on track to gain market share and improve overall margins. ### Industry Information Technology DJI International (unlisted) % of Net Assets 2.6% DJI International is the world’s largest manufacturer of drones. Its platforms empower creators to capture images that were once out of reach. Its flying and camera stabilisation systems redefine camera placement and motion through a commitment to research and development and a focus on transforming complex technology into easy-to-use devices worldwide. Building on the ethos of “form follows function”, DJI’s products combine advanced technology with dynamic designs in industries such as filmmaking, agriculture, conservation, search and rescue, and energy infrastructure. Its high-precision control modules are also widely applied to flying toys. Industry Consumer Staples ### China Foods % of Net Assets 2.4% China Foods is a beverage company engaged in the processing, bottling and distribution of sparkling beverage products, and the distribution of still beverage products. It has the franchise to produce and distribute Coca-Cola products in selected territories in China, giving them access to a globally recognised and popular brand portfolio. Industry Manufacturing ### Chime Biologics (unlisted) % of Net Assets 2.3% Chime Biologics is a leading biologics Contract Development and Manufacturing Organization (CDMO) company. The company leverages its comprehensive capabilities and internationally recognised expertise to supports its clients from early-stage biopharmaceutical development through to late-stage clinical and commercial manufacturing, catering to the needs of the biopharmaceutical industry. 16 Fidelity China Special Situations PLC | Annual Report 2024 # Forty Largest Holdings as at 31 March 2024 The Asset Exposures shown below measure the exposure of the Company's portfolio to market price movements in the shares, equity linked notes and convertible bonds owned or in the shares underlying the derivative instruments. The Fair Value is the value the portfolio could be sold for and is the value shown on the Balance Sheet. Where a contract for difference ("CFD") is held, the fair value reflects the profit or loss on the contract since it was opened and is based on how much the share price of the underlying shares has moved. | | Asset Exposure £'000 | %^{1} | Fair Value £'000 | | --- | --- | --- | --- | | **Long Exposures – shares unless otherwise stated** | | | | | **Tencent Holdings (shares and long CFDs)** | | | | | Internet, mobile and telecommunications service provider | 128,967 | 11.0 | 76,892 | | **Ping An Insurance Company of China (shares and long CFD)** | | | | | Provider of insurance, banking and investment products | 46,017 | 3.9 | 12,977 | | **Pony.ai (unlisted)** | | | | | Developer of artificial intelligence and autonomous driving technology solutions | 42,805 | 3.6 | 42,805 | | **Alibaba Group Holding** | | | | | e-commerce group | 41,428 | 3.5 | 41,428 | | **PDD Holdings (long CFD)** | | | | | e-commerce group | 40,975 | 3.5 | (3,740) | | **Crystal International Group** | | | | | Clothing manufacturer | 31,842 | 2.7 | 31,842 | | **Hisense Home Appliances Group** | | | | | Developer, manufacturer and distributor of household appliances | 30,901 | 2.6 | 30,901 | | **DJI International (unlisted)** | | | | | Manufacturer of drones | 30,769 | 2.6 | 30,769 | | **China Foods (shares and long CFDs)** | | | | | Processor and distributor of food and beverages | 27,877 | 2.4 | 2,683 | | **Chime Biologics Convertible Bond (unlisted)** | | | | | Contract Development and Manufacturing Organization | 27,312 | 2.3 | 27,312 | | **Venturous Holdings (unlisted)** | | | | | Investment company | 25,602 | 2.2 | 25,602 | | **ByteDance (unlisted)** | | | | | Technology company | 24,724 | 2.1 | 24,724 | | **Sinotrans (shares and long CFD)** | | | | | Logistics, storage and terminal services provider | 23,369 | 2.0 | 13,776 | | **China Life Insurance (shares and long CFDs)** | | | | | Insurance company | 23,277 | 2.0 | 980 | | **Luk Fook Holdings International (long CFD)** | | | | | Jewellery company | 19,627 | 1.7 | (1,147) | | **HUTCHMED China** | | | | | Biopharmaceutical company | 18,387 | 1.6 | 18,387 | | **NetEase (shares and long CFD)** | | | | | Internet technology company | 18,139 | 1.5 | 12,767 | | **Haitian International Holdings** | | | | | Manufacturer and distributor of plastic injection moulding machines | 18,111 | 1.5 | 18,111 | | **Lenovo Group (long CFDs)** | | | | | Multinational technology company | 18,104 | 1.5 | (296) | | **JD.com (shares and long CFDs)** | | | | | Online retailer | 18,062 | 1.5 | 4,691 | Annual Report 2024 | Fidelity China Special Situations PLC 17 | | Asset Exposure £'000 | %^{1} | Fair Value £'000 | | --- | --- | --- | --- | | **Meituan (shares and long CFDs)** Shopping platform for locally found consumer products and retail services | 17,868 | 1.5 | 7,947 | | **Focus Media Information Technology (shares and equity linked notes)** Advertising solution provider | 17,086 | 1.5 | 17,086 | | **China Oilfield Services (shares and equity linked notes)** Oilfield services provider | 16,943 | 1.4 | 16,943 | | **Autohome** Online portal for automobile buyers | 16,490 | 1.4 | 16,490 | | **Precision Tsugami (China)** High precision machine tool manufacturer | 15,395 | 1.3 | 15,395 | | **Noah Holdings** Wealth management company | 14,882 | 1.3 | 14,882 | | **China Merchants Bank** Commercial bank | 14,847 | 1.3 | 14,847 | | **Full Truck Alliance (shares and long CFD)** Online commercial freight platform | 14,534 | 1.2 | 748 | | **RS Technologies (long CFDs)** Silicon water manufacturer | 13,903 | 1.2 | 1,256 | | **WH Group** Meat and food processing company | 13,829 | 1.2 | 13,829 | | **Li-Ning** Sportswear and sports equipment company | 13,697 | 1.2 | 13,697 | | **Qifu Technology (shares and long CFD)** Credit-Tech services company | 13,668 | 1.2 | 6,481 | | **JNBY Design** Designer and seller of fashion apparel and footwear | 13,618 | 1.2 | 13,618 | | **Kweichow Moutai** Producer and distributor of alcoholic beverages | 11,732 | 1.0 | 11,732 | | **iQIYI (long CFD)** Provider of online entertainment video services | 11,632 | 1.0 | 192 | | **China Hongqiao Group** Producer of aluminium | 11,590 | 1.0 | 11,590 | | **Sinopec Kantons Holdings (shares and long CFD)** Storage and logistics company in the crude oil, petroleum and petrochemical industry | 11,555 | 1.0 | 4,660 | | **Qingdao Port International** Provider of port services | 11,180 | 0.9 | 11,180 | | **ANTA Sports Products** Sportswear company | 10,974 | 0.9 | 10,974 | | **Haier Smart Home** Manufacturer and distributor of household electrical appliances | 10,903 | 0.9 | 10,903 | | **Forty largest long exposures (2023: 83.9%)** | **932,621** | **79.3** | **625,914** | | Other long exposures (2023: 53.5%) | 641,881 | 54.6 | 531,868 | | **Total long exposures before hedges (149 companies)** | **1,574,502** | **133.9** | **1,157,782** | STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS 18 Fidelity China Special Situations PLC | Annual Report 2024 # Forty Largest Holdings continued | | Asset Exposure | | Fair Value | | --- | --- | --- | --- | | | £'000 | %^{1} | £'000 | | **Less: hedging exposures** | | | | | Hang Seng Index (futures) | (94,883) | (8.1) | (192) | | Hang Seng China Enterprises Index (futures) | (43,519) | (3.7) | (283) | | **Total hedging exposures** | **(138,402)** | **(11.8)** | **(475)** | | **Total long exposures after the netting of hedges** | **1,436,100** | **122.1** | **1,157,307** | | **Short exposures** | | | | | Short CFDs (3 holdings) | 14,766 | 1.3 | (1,246) | | **Gross Asset Exposure^{2}** | **1,450,866** | **123.4** | | | **Portfolio Fair Value^{3}** | | | **1,156,061** | | Net current assets (excluding derivative instruments) | | | **19,953** | | **Net Assets** | | | **1,176,014** | 1 Asset Exposure expressed as a percentage of Net Assets. 2 Gross Asset Exposure comprises market exposure to investments of £1,162,265,000 plus market exposure to derivative instruments of £288,601,000. 3 Portfolio Fair Value comprises investments of £1,162,265,000 plus derivative assets of £7,103,000 less derivative liabilities of £13,307,000. A full list of the Company's holdings as at 31 March 2024 will be available on the Company's website at www.fidelity.co.uk/china from the day of the posting of this Annual Report. Annual Report 2024 | Fidelity China Special Situations PLC 19 # Distribution of the Portfolio as at 31 March 2024 | Sector | Asset Exposure %^{1} | Benchmark Index % | | --- | --- | --- | | Consumer Discretionary | 40.0 | 29.6 | | Communication Services | 21.3 | 20.8 | | Financials | 17.6 | 16.5 | | Industrials | 17.4 | 5.2 | | Healthcare | 11.0 | 4.5 | | Consumer Staples | 10.2 | 5.2 | | Information Technology | 7.5 | 6.1 | | Materials | 3.9 | 3.5 | | Energy | 3.1 | 3.8 | | Real Estate | 2.5 | 2.2 | | Utilities | 0.7 | 2.6 | | **Total excluding hedging** | **135.2** | **100.0** | | Hedging | (11.8) | - | | **Total including hedging** | **123.4** | **100.0** | ## Share Type | Listed in Hong Kong | 43.4 | 46.2 | | --- | --- | --- | | Listed in US | 21.3 | 8.1 | | China 'H' Shares | 18.1 | 23.9 | | Unlisted | 12.8 | - | | Red Chips | 12.2 | 4.5 | | China 'A' Shares | 10.1 | 17.0 | | Listed in Japan | 2.4 | - | | Listed in UK | 1.5 | - | | Listed in Germany | 0.9 | - | | Listed in Taiwan | 0.7 | - | | China 'B' Shares | - | 0.3 | | **Total** | **123.4** | **100.0** | ## Size of Company (Market Cap) | Large – above £5bn | 48.1 | 87.7 | | --- | --- | --- | | Medium – between £1bn – £5bn | 28.5 | 12.2 | | Small – below £1bn | 34.0 | 0.1 | | Unlisted | 12.8 | - | | **Total** | **123.4** | **100.0** | $^{1}$ Asset Exposure expressed as a percentage of Net Assets. STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS 20 Fidelity China Special Situations PLC | Annual Report 2024 # Attribution Analysis as at 31 March 2024 | Analysis of NAV total return for the year ended 31 March 2024 | % | | --- | --- | Impact of: | MSCI China Index (in Hong Kong dollar terms) | -17.3 | | --- | --- | | Stock Selection (in Hong Kong dollar terms) | +11.3 | | Gearing (in Hong Kong dollar terms) | -7.9 | | Currency translation into sterling | -1.4 | | Share Repurchases | +0.1 | | Other Costs | -1.0 | | Cash | -0.1 | | **NAV total return for the year ended 31 March 2024** | **-16.3** | | --- | --- | | Ten Highest Contributors to NAV total return | % | | --- | --- | | Hisense Home Appliances Group | +1.5 | | --- | --- | | PDD Holdings | +1.4 | | BC Technology Group | +1.3 | | GNI Group | +1.1 | | Sinotrans | +0.9 | | Hollysys Automation Technology | +0.8 | | Sharkninja Hong Kong | +0.8 | | Crystal International Group | +0.5 | | JNBY Design | +0.5 | | Shanghai Kelai Mechatronics Engineering | +0.3 | | Ten Highest Detractors to NAV total return | % | | --- | --- | | Tencent Holdings | -2.5 | | --- | --- | | Alibaba Group Holding | -1.7 | | Ping An Insurance Company of China | -0.9 | | Hesai Group | -0.9 | | Intron Technology Holdings | -0.8 | | China Tourism Group Duty Free | -0.7 | | Tuhu Car (unlisted) | -0.7 | | Lufax Holding | -0.7 | | WuXi AppTec | -0.6 | | Peijia Medical | -0.6 | Note: Derivative positions are included in the above investment positions. Source: Fidelity International. Annual Report 2024 | Fidelity China Special Situations PLC 21 # Ten Year Record | For the year ended 31 March | 2024 | 2023 | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Investment Performance** | | | | | | | | | | | | Net Asset Value per Share total return (%)^{1} | **-16.3** | +2.6 | -34.9 | +81.9 | -5.9 | -5.3 | +22.2 | +38.8 | +0.0 | +45.3 | | Share Price total return (%)^{1} | **-16.4** | +0.3 | -39.2 | +97.2 | -6.5 | -0.3 | +23.6 | +45.8 | -4.5 | +39.9 | | MSCI China Index total return (in UK sterling terms) (%) | **-18.8** | +1.4 | -29.3 | +29.1 | -1.0 | +0.9 | +23.8 | +37.6 | -16.2 | +39.3 | | **Assets** | | | | | | | | | | | | Gross Asset Exposure (£m) | **1,450.9** | 1,659.1 | 1,765.6 | 2,754.9 | 1,594.2 | 1,767.1 | 1,806.6 | 1,586.9 | 1,155.3 | 1,189.1 | | Net Assets (£m) | **1,176.0** | 1,338.4 | 1,400.6 | 2,183.0 | 1,273.0 | 1,401.6 | 1,502.9 | 1,243.8 | 908.5 | 944.1 | | Gross Gearing (%)^{1} | **23.4** | 23.9 | 26.1 | 26.2 | 25.2 | 26.1 | 20.2 | 27.6 | 27.2 | 25.9 | | Net Gearing (%)^{1} | **20.8** | 21.1 | 23.5 | 18.4 | 23.2 | 20.9 | 14.2 | 22.4 | 27.2 | 21.1 | | Net Asset Value per Share (pence)^{1} | **223.71** | 274.08 | 272.52 | 423.50 | 236.27 | 255.03 | 272.55 | 225.36 | 164.18 | 165.27 | | **Share Price data at year end** | | | | | | | | | | | | Share Price (pence) | **201.00** | 247.50 | 252.00 | 419.00 | 216.00 | 235.00 | 239.00 | 195.70 | 136.00 | 143.60 | | Discount (%)^{1} | **10.2** | 9.7 | 7.5 | 1.1 | 8.6 | 7.9 | 12.3 | 13.2 | 17.2 | 13.1 | | **Earnings and Dividends paid** | | | | | | | | | | | | Revenue Earnings per Share (pence)^{1} | **5.78** | 7.05 | 6.42 | 4.70 | 4.51 | 4.06 | 3.80 | 2.92 | 2.07 | 1.41 | | Capital (Loss)/Earnings per Share (pence)^{1} | **(50.18)** | (2.42) | (152.81) | 186.11 | (19.67) | (18.21) | 45.86 | 60.01 | (2.24) | 50.17 | | Total (Loss)/Earnings per Share (pence)^{1} | **(44.40)** | 4.63 | (146.39) | 190.81 | (15.16) | (14.15) | 49.66 | 62.93 | (0.17) | 51.58 | | Dividend per Share (pence) | **6.40** | 6.25 | 5.50 | 4.68 | 4.25 | 3.85 | 3.50 | 2.50 | 1.80 | 1.30 | | **Ongoing Charges Ratio** | | | | | | | | | | | | Ongoing Charges Ratio (excluding variable element of the management fee) (%)^{1} | **0.98** | 0.98 | 0.94 | 0.97 | 0.99 | 1.02 | 1.11 | 1.16 | 1.20 | 1.29 | | Variable Management Fee | **0.15** | 0.20 | 0.20 | 0.12 | (0.20) | (0.09) | 0.00 | n/a | n/a | n/a | | Ongoing Charges Ratio (including variable management fee)^{1} | **1.13** | 1.18 | 1.14 | 1.09 | 0.79 | 0.93 | 1.11 | 1.16 | 1.20 | 1.29 | 1 Alternative Performance Measures. Sources: Fidelity International and Datastream. Past performance is not a guide to future returns. STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS 22 Fidelity China Special Situations PLC | Annual Report 2024 # Strategic Report The Directors have pleasure in presenting the Strategic Report of the Company. The Chairman's Statement and Portfolio Manager's Review on pages 2 to 11 form part of the Strategic Report. ## Business and Status The Company carries on business as an investment company and has been accepted as an approved investment trust by HM Revenue & Customs under Sections 1158 and 1159 of the Corporation Tax Act 2010, subject to the Company continuing to meet eligibility conditions. The Directors are of the opinion that the Company has conducted its affairs in a manner which will satisfy the conditions for continued approval. The Company is registered as an investment company under Section 833 of the Companies Act 2006 and its ordinary shares are listed and traded on the London Stock Exchange. It is not a close Company and it has no employees. ## Purpose The purpose of the Company is to offer investors who are building a diversified portfolio a direct exposure to China, recognising the size and growing importance of the country within the world economy and its weighting within global stock market indices. ## Investment Objective The Company's investment objective is to achieve long-term capital growth from an actively managed portfolio made up primarily of securities issued by companies in China, both listed and unlisted, as well as Chinese companies listed elsewhere. The Company may also invest in companies with significant interests in China. ## Strategy In order to achieve the investment objective, the Company operates as an investment company which has an actively managed portfolio of investments. As an investment company, it is able to gear the portfolio and the Board takes the view that long-term returns for shareholders can be enhanced by the use of gearing. As part of the strategy, the Board has delegated the management of the portfolio and certain other services to the Manager (FIL Investment Services (UK) Limited). The Manager delegates the investment management to FIL Investment Management (Hong Kong) Limited and the company secretariat function to FIL Investments International. The Portfolio Manager aims to achieve a total return on the Company's Net Assets over the long-term in excess of the equivalent return on the MSCI China Index (the Benchmark Index), as expressed in UK sterling. The stock selection approach adopted by the Portfolio Manager is considered to be well suited to achieving the objective. The Board recognises that investing in equities is a long-term process and that the Company's returns will vary from year to year. The Company's strategy and principal activity have remained unchanged throughout the year ended 31 March 2024. ## Investment Management Philosophy, Style and Process The Portfolio Manager makes full use of Fidelity International's extensive investment research presence and investment licenses in China. He focuses on undervalued companies which have good long-term growth prospects and which have been underestimated by the wider market. Company visits and management meetings comprise an important part of the investment process. He has a bias to small and medium-sized companies, where lower levels of research by competitors leads to greater opportunities for mispricing – but he is not constrained and may invest in large or mega cap companies such as state-owned enterprises where mispricing appears. The Portfolio Manager may invest in companies listed in China and Chinese companies listed elsewhere. He may also invest in companies with significant interests in China. The Company is also able to invest up to 15% of its Net Assets plus Borrowings in unlisted companies with a view to their Initial Public Offering, thereby providing investors in the Company with very wide-ranging investment opportunities in China. ## INVESTMENT POLICY The Company invests in a diversified portfolio consisting primarily of securities issued by companies in China, both listed and unlisted, as well as Chinese companies listed elsewhere. The Company may also obtain exposure to other listed companies which have significant interests in China. The Company may invest through equities, index linked, equity linked and other debt securities, cash deposits, money market instruments, foreign currency exchange transactions, equity related securities, forward transactions and other interests including derivative instruments. Forward transactions and derivatives, including futures, options and contracts for difference, may be used to enhance portfolio performance as well as for efficient portfolio management and hedging. The Company's interest in any single investment will not, on acquisition, exceed 15% of Net Assets plus Borrowings. The Investment Manager is not required to ensure that the Company's cash resources are fully invested at all times. Accordingly, there may be times when the Company holds cash or money market instruments pending investment. The Company may invest in China "A" Shares both directly through the Investment Manager's Qualified Foreign Institutional Investor ("QFII") license and indirectly through third parties who have a QFII facility. ## Unlisted Investments The Company is able to invest up to 15% of Net Assets plus Borrowings in unlisted securities which carry on business, or have significant interests, in China. *As at 31 March 2024, the Company held six (2023: nine) unlisted investments with a fair value of £151,212,000 (2023: £192,878,000) representing 12.8% of Net Assets (2023: 13.6% of Net Assets plus Borrowings).* ### 23 Annual Report 2024 | Fidelity China Special Situations PLC Derivative Instruments Foreign Exchange Hedging Policy The Company may use derivative instruments for efficient portfolio The Company’s Financial Statements are denominated in UK management, gearing and hedging purposes. They may also be sterling, while investments are made and realised in currencies used to achieve the investment objective (i.e. to enhance portfolio other than UK sterling, including Chinese renminbi, Hong Kong STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS performance). dollars and US dollars. It is the Company’s policy not to hedge the underlying currencies of the holdings in the portfolio but The Board has adopted a policy that the Gross Asset Exposure of rather to take the currency risk into consideration when making short positions held by the Company will not in aggregate investment decisions. exceed 15% of Net Assets plus Borrowings. Performance As at 31 March 2024, the Company’s exposure to short derivative The Company’s performance for the year ended 31 March 2024, instruments represented 13.5% of Net Assets (2023: 14.1% of Net including a summary of the year’s activities, and details on trends Assets plus Borrowings). and factors that may impact future performance, are included in the Chairman’s Statement and the Portfolio Manager’s Review on It is the Board’s policy that total exposure to any single pages 2 to 11. The Forty Largest Holdings, the Distribution of the counterparty from all activities, including, but not limited to, the Portfolio, the Attribution Analysis and the Ten Year Record are on management of cash and the use of derivatives should not exceed pages 16 to 21. 15% of Net Assets plus Borrowings. Derivative exposures are included after the netting off of off-setting positions and allowing Results and Dividends for any collateral placed by the counterparty with the Company. The Company’s results for the year ended 31 March 2024 are set out in the Income Statement on page 61. The revenue earnings As at 31 March 2024, the Company’s largest exposure to any per share was 5.78 pence and the capital loss per share was single counterparty from all derivative activities was 0.2% of Net 50.18 pence, giving a total loss of 44.40 pence per share. Assets (2023: 0.3% of Net Assets plus Borrowings). Under Section 1159 of the Corporation Tax Act 2010, the Investment in other Listed Investment Companies Company is not able to retain more than 15% of its net income in The Company may invest no more than 10%, in aggregate, of its any reporting year to qualify as an investment company. The Net Assets plus Borrowings at the time of acquisition in other Directors recommend that a final dividend of 6.40 pence (2023: listed investment companies (including listed investment trusts), 6.25 pence) per ordinary share be paid on 31 July 2024 to but this restriction will not apply to investments in investment shareholders who appear on the register as at close of business companies or investment trusts which themselves have stated on 21 June 2024 (ex-dividend date 20 June 2024). investment policies to invest no more than 15% of their Net Assets plus Borrowings in other listed investment companies (including Key Performance Indicators listed investment trusts). The Board’s intention is for the NAV and share price to outperform the Benchmark Index over the longer-term and that As at 31 March 2024, the Company held no investments in other the discount should be maintained in single digits in normal listed investment companies (2023: nil). market conditions. It regularly considers the costs of running the Company with the aim of keeping the Ongoing Charges Ratio as Borrowing and Gearing Policy low as possible. The Board deems these to be the Company’s The Board considers that long-term capital growth can be key performance indicators (“KPIs”) and they are also enhanced by the judicious use of borrowing. The Board is comparable to those reported by other investment companies. responsible for the Company’s gearing strategy with day-to-day The Company’s KPIs for the current and prior year are set out in decisions being made by the Investment Manager within the the table below. remit set by the Board in line with the Company’s Prospectus. Year ended Year ended The Company may borrow up to 25% of Net Assets and the Gross 31 March 31 March Asset Exposure of the Company, whether from borrowing or the 2024 2023 use of derivatives, may not exceed the Net Assets of the % % Company by more than 30%. The Portfolio Manager is | responsible for operating within these limits. The Board has | Net Asset Value per Share total | | | | --- | --- | --- | --- | | requested that, in the future, the Portfolio Manager limits net | | 1 | | | | return | | -16.3 +2.6 | gearing to 20% of Net Assets. 1 Share Price total return -16.4 +0.3 During the year, the Gross Asset Exposure of the Company did MSCI China Index total return -18.8 +1.4 not exceed the Net Assets of the Company by more than 30%. As 1 | at 31 March 2024, Gross Asset Exposure in excess of Net Assets | Discount to Net Asset Value | | 10.2 9.7 | | --- | --- | --- | --- | | was 23.4% (2023: 23.9%). | | 1 | | | | Ongoing Charges Ratio | | 0.98 0.98 | As at the year end, the Company did not have any loan facilities. 1 Alternative Performance Measures. See pages 92 and 93. ### 24 Fidelity China Special Situations PLC | Annual Report 2024 ## Strategic Report continued The Board also monitors the factors contributing to investment risks from its increasing use and manipulation with the potential results, as set out in the NAV Attribution Analysis table on to harm, including a heightened threat to cybersecurity. page20. Long-term performance is also monitored and is set out in the Ten Year Record on page 21. 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 Risk Management principal and emerging risks and uncertainties and to ensure that As required by provisions 28 and 29 of the 2018 UK Corporate the Board can continue to meet its UK corporate governance Governance Code, the Board has a robust ongoing process for obligations. identifying, evaluating and managing the principal risks and uncertainties faced by the Company, including those that could The Board considers the risks listed on pages 25 to 29 as the threaten its business model, future performance, solvency or principal risks and uncertainties faced by the Company. liquidity. 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 existing and emerging risks and uncertainties that the Company faces. The Audit and Risk Committee continues to identify any new emerging risks and take any action necessary to mitigate their potential impact. The risks identified are placed on the Company’s risk matrix and graded appropriately. This process, together with the policies and procedures for the mitigation of existing and emerging risks, is updated and reviewed regularly in the form of comprehensive reports by the Audit and Risk Committee. The Board determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives. Climate change, which refers to a large scale shift in the planet’s weather patterns and average temperatures, continues to be a key emerging as well as a principal risk confronting asset managers and their investors. Globally, climate change effects are already being experienced in the form of changing weather patterns. Extreme weather events can potentially impact the operations of investee companies, their supply chains and their customers. The Board notes that the Manager has integrated ESG considerations, including climate change, into the Company’s investment process. Further details are on pages 33 to 35. The Board will continue to monitor how this may impact the Company as a risk to investment valuations and potentially shareholder returns. Other emerging risks may continue to evolve from unforeseen geopolitical and economic events. The Board, together with the Manager, is also monitoring the emerging risks posed by the rapid advancement of artificial intelligence (“AI”) and technology and how it may threaten the Company’s activities and its potential impact on the portfolio and investee companies. Although advances in computing power mean that AI is a powerful tool that will impact society, there are ### 25 Annual Report 2024 | Fidelity China Special Situations PLC Principal Risks Risk Description and Impact Risk Mitigation Trend Geopolitical • Impact on the value of investments • The Board receives insights and Increasing STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS Risk and the Manager’s ability to access information, including research notes, from markets freely. the Manager and independent sources on a regular basis. • Continuing political and trade tensions between China and the US, e.g. trade • The portfolio is tilted to domestic Chinese sanctions. markets. • Challenging regulatory environment • The Board receives and reviews reports hindering foreign investment, including from the Portfolio Manager on a regular US Executive Orders prohibiting basis. transactions by US persons in certain • Major adverse market events are publicly traded Chinese companies. stress-tested for operational resilience and • The ongoing Ukraine/Russia conflict financial impact. remains a driver of uncertainty impacting the global geopolitical landscape, consumer spending and industrial activity with the potential for increased energy costs, rising food prices and currency instability. • The escalation of the Middle East conflict has added another source of geopolitical risks and economic instability, elevating oil supply concerns and driving prices upwards. China is a major trading partner with countries in the region and any disruption in trade may have an impact on exports/ imports and the shipping sector. • A South China Sea dispute could have a negative impact on Chinese companies, including reduced access to global markets and technology, potential sanctions and retaliatory measures and possible weakening of investment and confidence in Chinese companies. • Implications of tensions in the Taiwan Strait region for China include potential military conflict and increased tensions over trade and economic issues over competing territorial claims. ### 26 Fidelity China Special Situations PLC | Annual Report 2024 ## Strategic Report continued Principal Risks Risk Description and Impact Risk Mitigation Trend Market and • Whilst China’s outlook for “controlled • Growth may still exceed economic targets Stable Economic Risks stabilisation” is supported by targeted as the stable policy setting may help policy measures, the property sector is a restore private sector confidence after a (including source of increased uncertainty. Growth policy-induced slowdown in the prior year. Currency Risk) in consumption remains subdued. • The Portfolio Manager and the • The momentum from the growth in size Manager’s ability to understand and and wealth of the middle class predict events in China. Independent risk depends on China’s ability to generate management insight is provided on a sustained productivity gains. regular basis. • China’s economy is vulnerable to • The Company holds a diversified portfolio uncertain world growth prospects, emphasising sectors of strategic tightening in global financial importance to China. conditions, energy costs, rising food • Current projections are for China’s GDP to prices, currency instability and continue to grow at above the global challenging regulatory environment. average. • China faces several economic headwinds, including an aging population, environmental pollution, isolation of the financial system and debt concerns in its corporate and local government sectors. • China’s economy is vulnerable to uncertain world growth prospects, tightening in global financial conditions, energy costs, rising food prices and currency instability. • The ability of China’s centralised government system to enact regulation rapidly can adversely affect sectors or individual companies and as a result affect their stock market prices negatively. • The currency in which the Company reports its results is sterling and its ordinary shares trade in sterling, whilst the underlying investments are in different currencies. The Company does not hedge currencies. Investment • The Portfolio Manager may fail to • An investment strategy overseen by the Stable Performance outperform the Benchmark Index and Board to optimise returns from investing in peers over the longer-term. China. Risk (including Gearing Risk) • High gearing levels in a falling market • Diversification of investments through accentuates share price weakness. investment restrictions and guidelines NAV performance can be affected by which are monitored and reported upon selling stock in a falling market to keep by the Investment Manager. the gearing level within pre-agreed • A well-resourced team of experienced limits. analysts covering the market. • Board scrutiny of the Manager and the ability in extreme circumstances to change the Manager. • Limit on gearing and oversight of the Manager’s use of gearing by the Board. ### 27 Annual Report 2024 | Fidelity China Special Situations PLC Principal Risks Risk Description and Impact Risk Mitigation Trend Discount • The Board may fail to implement its • The Company’s discount management Stable STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS Management discount management policy policy is aimed at keeping the discount in successfully to keep the level of the single digits during normal market Risk discount in single digits and in the face conditions. of heavy selling pressure, may exhaust • Continuing scrutiny by the Board, the its authorised buyback facility. The Manager and the Company’s Broker impact of excessive market volatility on within parameters set. the Company’s NAV may also lead to a widening of the discount. • Maintaining a reputation for standing in the marketplace when required in order • If investor perception towards China is to keep the discount in single digits. negative, then the shares in the Company may trade at an increasing • Maintaining close communications with discount to its underlying NAV. major shareholders. Unlisted • Valuations of unlisted securities may be • The Company has set a limit on the level Stable Securities Risk adversely affected by market of investments in unlisted companies and conditions. the Manager has a track record of identifying profitable opportunities. • Initial public offering (IPO) of the unlisted companies may face delays • The Board’s Audit and Risk Committee leading to longer holding periods. scrutinises the carrying value of unlisted investments, and this is supported by the • Potential for less stringent standards of Manager, Fidelity’s unlisted investments governance compared with those of specialist and an external advisor. listed entities. • The valuation of unlisted shares relies on third-party judgements. Climate Change • Impact on investment valuations, • The Board is provided with insights and Stable Risk business operations, the supply chain reports by the investment management of investee companies and team. shareholder expectations. • Fidelity uses a proprietary climate rating • China’s climate change credentials are designed to complement broader likely to be less favourable when sustainability ratings and is considered in compared to similar economies in the investment process where developed western markets. appropriate. • Reputational impact may arise by • Fidelity’s climate rating analyses being invested in a company with poor companies in three core areas - net zero climate change performance. target alignment, climate governance and capital allocation to the transition - which are in line with the guidance from the Task Force on Climate-related Financial Disclosures (TCFD) and the Institutional Investors Group on Climate Change (IIGCC). ### 28 Fidelity China Special Situations PLC | Annual Report 2024 ## Strategic Report continued Principal Risks Risk Description and Impact Risk Mitigation Trend Environmental, • Investor expectations and/or • Whilst the investment portfolio does not Stable Social and regulatory requirements related to ESG target or employ any set limit on ESG factors of the underlying investee investments, the Manager is expected to Governance companies and the portfolio are not engage with companies where (“ESG”) Risk perceived to be met. sustainability issues arise. • Reputational damage to the Company • Fidelity carries out ESG considerations at may arise from perception in the the fundamental research level. marketplace. • The Portfolio Manager and analysts carry out additional quantitative and qualitative analysis of potential investments to form a view on ESG characteristics of every investee company. • The Manager has developed an ESG investment risk oversight framework to reinforce its Investment Risk Policy to set minimum controls. Key Person Risk • Loss of the Portfolio Manager or other • The Manager has succession plans for Stable key individuals could lead to potential key dependencies. performance and/or operational • The depth of the team within Fidelity. issues. • The experience of the analysts covering China. Cybercrime and • Cybersecurity risk from cyberattacks or • The risk is monitored by the Board with Stable Information threats to the functioning of global the help of the Manager’s global markets and to the Manager’s own cybersecurity team and their extensive Security Risks business model, including its and the Strategic Cyber and Information Security Company’s outsourced suppliers. program and assurances from outsourced suppliers. • Risk of cybercrime such as phishing, remote access threats, extortion and • Key performance indicators and metrics denial-of-services attacks from have been developed by the Manager to geopolitically motivated attacks. monitor the overall efficacy of cybersecurity processes and controls and to further enhance the Manager’s cybersecurity strategy and operational resilience. Business • Business process disruption risk from • Fidelity has Business Continuity and Crisis Stable Continuity Risk continued threats of cyberattacks, Management Frameworks in place to geopolitical threats and natural events, deal with business disruption and assure such as earthquakes, resulting in operational resilience. financial and/or reputational impact to the Company affecting the functioning of the business. ### 29 Annual Report 2024 | Fidelity China Special Situations PLC Principal Risks Risk Description and Impact Risk Mitigation Trend Operational Risk • Financial losses or reputational • Fidelity’s Operational Risk Management Decreasing STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS damage from inadequate or failed Framework is designed to pro-actively internal processes, people and prevent, identify and manage operational systems or from external parties and risks inherent in most activities. events. • Fidelity uses robust systems and procedures dedicated to its operational processes. Its risk management structure is designed according to the FCA’s three lines of defence model. Variable Interest • The Company’s exposure to a number • Whilst it is not expected that China will Stable Entity Structures of companies with all or part of their change the rules to the extent that it will businesses in Variable Interest Entities ban foreign investment, this risk is closely Risk (“VIEs”) is expected to remain monitored. significant. The ability of overseas investors to invest in VIEs could be amended. • Regulatory risk from the China Security Regulatory Commission (“CSCR”) guidelines that companies with VIE structures require CSCR approval to list overseas and are required to comply with Chinese laws. Other risks facing the Company include: the Company over a longer period than the twelve month period required by the “Going Concern” basis. The Company is an Tax and Regulatory Risks investment trust with the objective of achieving long-term capital There is a risk of the Company not complying with the tax and growth. The Board considers long-term to be at least five years, regulatory requirements in the UK and China. A breach of Section and accordingly, the Directors believe that five years is an 1158 of the Corporation Tax Act 2010 could lead to a loss of appropriate investment horizon to assess the viability of the investment trust status, resulting in the Company being subject to Company, although the life of the Company is not intended to be tax on capital gains. limited to this or any other period. The Board monitors tax and regulatory changes at each Board In making an assessment on the viability of the Company, the meeting and through active engagement with regulators and Board has considered the following: trade bodies by the Manager. • The ongoing relevance of the investment objective in Third-Party Operational Risks prevailing market conditions; The Company relies on a number of third-party service providers, principally the Manager, Registrar, Custodian and Depositary. It is • The Company’s level of gearing; dependent on the effective operation of the Manager’s control systems and those of its service providers with regard to the • The Company’s NAV and share price performance security of the Company’s assets, dealing procedures, accounting compared to its Benchmark Index; records and the maintenance of regulatory and legal requirements. The Registrar, Custodian and Depositary are all • The principal and emerging risks and uncertainties facing subject to a risk-based programme of internal audits by the the Company and their potential impact, as set out on Manager. In addition, service providers’ own internal control page24 to above; reports are received by the Board on an annual basis and any concerns are investigated. Risks associated with these service • The future demand for the Company’s shares; providers is rated as low, but the financial consequences could be serious, including reputational damage to the Company. • The Company’s share price discount to the NAV; Viability Statement • The liquidity of the Company’s portfolio; In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of • The level of income generated by the Company; 30 Fidelity China Special Situations PLC | Annual Report 2024 # Strategic Report continued - Future income and expenditure forecasts; and - Introduction of a continuation vote with effect from 2029 and every five years thereafter. The Company's performance for the five year reporting period to 31 March 2024 was a NAV total return of -4.3% and a share price total return of -5.9%, both outperforming the Benchmark Index total return of -25.6%. The Board regularly reviews the investment policy and considers whether it remains 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 Investment Manager's compliance with the Company's investment objective and policy, its investment strategy and asset allocation; - The portfolio comprises sufficient readily realisable securities which can be sold to meet funding requirements if necessary; 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 preparing the Financial Statements, the Directors have considered the impact of climate change as detailed on page 24. The Board has also considered the impact of regulatory changes, continuing tensions between the US and China, and China and Taiwan, unforeseen market events and also the ongoing global implications of the Russia and Ukraine war and the Middle East conflict, and how this may affect the Company. In addition, the Directors' assessment of the Company's ability to operate in the foreseeable future is included in the Going Concern Statement which is included in the Directors' Report on page 37. ## PROMOTING THE SUCCESS OF THE COMPANY Under Section 172(1) of the Companies Act 2006, the Directors of a company must act in a way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to the likely consequences of any decision in the long-term; the need to foster relationships with the Company's suppliers, customers and others; the impact of the Company's operations on the community and the environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the Company. As an externally managed Investment Trust, the Company has no employees or physical assets, and a number of the Company's functions are outsourced to third parties. The key outsourced function is the provision of investment management services by the Manager, but other professional service providers support the Company by providing administration, custodial, banking and audit services. The Board considers the Company's key stakeholders to be the existing and potential shareholders, the externally appointed Manager (FIL Investment Services (UK) Limited) and other third-party professional service providers. The Board considers that the interest of these stakeholders is aligned with the Company's objective of delivering long-term capital growth to investors, in line with the Company's stated objective and strategy, while providing the highest standards of legal, regulatory and commercial conduct. The Board, with the Portfolio Manager, sets the overall investment strategy and reviews this at an annual strategy day which is separate from the regular cycle of board meetings. In order to ensure good governance of the Company, the Board has set various limits on the investments in the portfolio, whether in the maximum size of individual holdings, the use of derivatives, the level of gearing and others. These limits and guidelines are regularly monitored and reviewed and are set out on pages 22 and 23. The Board receives regular reports from the Company's Broker which covers market activity, how the Company compares with its peers in the China sector on performance, discount and share repurchase activity, an analysis of the Company's share register and market trends. The Board places great importance on communication with shareholders. The Annual General Meeting provides the key forum for the Board and the Portfolio Manager to present to the shareholders on the Company's performance and future plans and the Board encourages all shareholders to attend in person or virtually and raise any questions or concerns. The Chairman and other Board members are available to meet shareholders as appropriate. Shareholders may also communicate with Board members at any time by writing to them at the Company's registered office at FIL Investments International, Beech Gate, Millfield Lane, Tadworth, Surrey KT20 6RP or via the Company Secretary at the same address or by email at investmenttrusts@fil.com. The Portfolio Manager meets with major shareholders, potential investors, stock market analysts, journalists and other commentators throughout the year. These communication opportunities help inform the Board in considering how best to promote the success of the Company over the long-term. The Board seeks to engage with the Manager and other service providers and advisers in a constructive and collaborative way, promoting a culture of strong governance, while encouraging open and constructive debate, in order to ensure appropriate and regular challenge and evaluation. This aims to enhance service levels and strengthen relationships with service providers, with a view to ensuring shareholders' interests are best served, by maintaining the highest standards of commercial conduct while keeping cost levels competitive. Whilst the Company's direct operations are limited, the Board recognises the importance of considering the impact of the Company's investment strategy on the wider community and environment. The Board believes that a proper consideration of ESG issues aligns with the Company's investment objective to deliver long-term growth in both capital and income, and the Board's review of the Manager includes an assessment of their ESG approach, which is set out on pages 33 to 35. ### 31 Annual Report 2024 | Fidelity China Special Situations PLC In addition to ensuring that the Company’s investment objective • at least one board member should be from a non-white was being pursued, key decisions and actions taken by the ethnic background, as defined by the Office of National Directors during the reporting year, and up to the date of this Statistics criteria. report, have included: STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS The Board considers that as an externally managed investment • The decision to combine assets with abrdn China Investment trust, with no CEO or CFO, the Chairman of the Company, the Company Limited on 14 March 2024 (see further details in Senior Independent Director and Chairman of the Audit and Risk the Chairman’s Statement on page 2 and also on page 65); Committee to be senior positions. • The decision to introduce a continuation vote with effect from As required by the FCA Listing Rules, the Company’s reporting 2029 and every five years thereafter; against these targets is set out in the tables below. The data was collected on a self-identifying basis. As at 31 March 2024, the • The decision to hold a hybrid AGM in 2023 (and again this target of at least one senior Board position held by a woman year) in order to make the AGM more accessible and and for at least one individual to be from a minority ethnic improve the shareholder experience; background had been met. The target of 40% of women on the Board has not been met in the reporting year due to Board • Authorising the repurchase of 2,900,696 shares into Treasury changes, but as part of the Board’s succession planning, the and 18,749,495 shares for cancellation in the reporting year Board fully intends to meet this target. After consultation with when the Company’s discount widened, in line with the some major shareholders, it was agreed that this will be Board’s intention that the ordinary share price should trade addressed when there is a natural change to the existing Board. at a level close to the underlying NAV. Since the year ended 31 March 2024 and up to the latest practicable date of this Gender Reporting report, a further 2,696,249 shares have been repurchased; Number Percentage Number of • The decision not to renew the Company’s credit facility for of Board of the Board Senior Board US$100,000,000 and to use contracts for difference for Members Positions gearing purposes as they are generally a cheaper finance (Chair, Senior option and offer more flexibility; Independent Director and • Following discussions with the Manager, the reduction in the Committee first tier of the management fee from 0.90% to 0.85% with Chairs) effect from 1 July 2023, and from 14 March 2024, the Men 4 67% 2 reduction of the second tier management fee from 0.70% to 0.65% for Net Assets over £1.5 billion; Women 2 33% 1 • The decision to carry out an external Board evaluation using Ethnic Background Reporting the services of Lintstock Ltd in accordance with the UK Number Percentage Number of Corporate Governance Code; and of Board of the Board Senior Board Members Positions • The decision to pay a final dividend of 6.40 pence per (Chair, Senior ordinary share. Independent Board Diversity Director and The Board’s overriding intention is to ensure that it is made up of Committee the best combination of people in order to achieve long-term Chairs) capital growth for the Company’s shareholders from an actively White British managed portfolio of investments. To this effect, the Board, as or other White | part of its succession plan, will continue to appoint individuals | (including | 5 83% 3 | | --- | --- | --- | | who, together as a Board, will aim to ensure the continued | minority white | | | optimal promotion of the Company in the marketplace. Due | groups) | | regard will be given to the benefit of diversity on the Board, Asian/Asian including gender and ethnicity. 1 17% 0 British The Board has taken into consideration the new FCA’s Listing Rules requirements (LR 9.8.6R(9), (10) and (11)) regarding the targets on board diversity that: • at least 40% of individuals on the Board are women; • at least one senior Board position (chairman, chief executive officer (“CEO”), senior independent director or chief financial officer (“CFO”)) is held by a woman; and ### 32 Fidelity China Special Situations PLC | Annual Report 2024 ## Strategic Report continued ### CORPORATE AND SOCIAL RESPONSIBILITY FUTURE DEVELOPMENTS Environmental, Social and Governance (“ESG”) in the Some trends likely to affect the Company in the future are Investment Process common to many investment companies together with the impact The Board has contracted with the Manager to provide the of regulatory change and emerging risks. The factors likely to Company with investment management and administrative affect its future development, performance and position are set services. The Board believes that ESG considerations are an out in the Chairman’s Statement and the Portfolio Manager’s important input into the assessment of the value of its Review on pages 2 to 11. investments. The investment universe is undergoing significant structural change and is likely to be impacted by increasing On behalf of the Board regulation as a result of climate change and other social and governance factors. The Board is committed to reviewing how the Manager applies ESG factors in the investment process. The Fidelity group of companies (including the Manager and Investment Manager) sets out its commitment to responsible investing and provides a copy of its detailed Responsible Mike Balfour Investing at www.fidelity.co.uk/responsible-investing. Further Chairman information on Fidelity International’s approach to ESG in the 10 June 2024 investment process and sustainable investing can be found on pages 33 to 35 and is part of this Strategic Report. Socially Responsible Investment The Manager’s primary objective is to produce superior financial returns for the Company’s shareholders. It believes that high standards of corporate social responsibility (CSR) make good business sense and have the potential to protect and enhance investment returns. Corporate Engagement The Board believes that the Company should, where appropriate, take an active interest in the affairs of the companies in which it invests and that it should exercise its voting rights at their general meetings. It delegates the responsibility for corporate engagement and shareholder voting to the Manager who updates the Board on any issues and activities. These activities are reviewed regularly by the Manager’s corporate governance team. Streamlined Energy and Carbon Reporting (SECR) As an investment company with all its activities outsourced to third parties, the Company’s own direct environmental impact is minimal. The Company has no premises, consumes no electricity, gas or diesel fuel and consequently does not have a measurable carbon footprint. The Company is categorised as a low energy user (less than 40MWH) under the Streamlined Energy & Carbon Reporting regulations and therefore is not required to disclose any energy and carbon information in this Annual Report. Task Force on Climate-Related Financial Disclosures (TCFD) The Manager’s product level disclosure consistent with the Task Force on Climate-Related Financial Disclosures (TCFD) can be found on the Company’s pages of the Manager’s website at https://investment-trusts.fidelity.co.uk. ### 33 Annual Report 2024 | Fidelity China Special Situations PLC ## ESG in the Investment Process at Fidelity ## International Fidelity International (“Fidelity”) has embedded Environmental, The Sustainable Investing Team has a key role in assisting the Social and Governance (“ESG”) factors in its investment decision investment teams with ESG integration which includes: making for a number of years. Fidelity has been a signatory to the United Nations Principles for Responsible Investment (UNPRI) • Implementing Fidelity’s proxy voting guidelines. STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS since 2012 and submits an annual report detailing how it incorporates ESG into its investment analysis. As a founding • Engagement with investee companies on ESG issues, utilising signatory to the Net Zero Asset Managers Initiative, Fidelity has Fidelity’s corporate access research capabilities and committed to halving the carbon footprint of its investment investment scale to improve corporate behaviour, including at portfolios by 2030, from a 2020 baseline, starting with equity and company meetings. corporate bond holdings; and to reach net zero for holdings by 2050. • Working closely with the investment team globally across all asset classes in integrating ESG into analysis and decision- ESG integration at Fidelity is carried out at the fundamental making. research analyst level within its investment teams, primarily through the implementation of the Fidelity Proprietary • Providing internal ESG reporting including analyst reports, Sustainability Rating. This rating was established in 2019 and is portfolio manager reviews and industry analysis. designed to generate a forward-looking and holistic assessment of a company’s ESG risks and opportunities, based on sector • Co-ordinating and responding to specific client queries on ESG specific key performance indicators across 127 individual and topics. unique sub-sectors. A breakdown of the ratings of the companies in the portfolio using MSCI and Fidelity’s own proprietary ratings • Publishing client reporting on ESG integration and proxy is on page 35. In addition, Fidelity’s portfolio managers are also voting. active in analysing the effects of ESG factors when making investment decisions. ESG analysis complements financial • Maintaining a thorough understanding of current ESG themes analysis to provide a complete view of every company that is and trends around the world. researched and monitored. • Attending external seminars and conferences focusing on Fidelity’s approach to integrating ESG factors into its investment trending ESG issues and ESG integration. analysis includes the following activities: • Providing ESG training to the investment team and across the • In-depth research. business. • Company engagement. Fidelity follows its sustainable investing voting principles and guidelines. These seek to provide a clear overview of Fidelity’s • Active ownership. voting approach, promote improved corporate behaviours and reduce risk, include environmental and social factors, increase • Collaboration within the investment industry. clarity of votes to issuers and clients and meet current market best practices and stewardship expectations. Examples of the In addition to Fidelity’s Sustainability Ratings, Fidelity has policy include voting against companies not meeting key criteria developed a proprietary Climate Rating, which is an important on climate change and against management in developed part of its plans to reach net zero emissions across its portfolios. markets with less than 30% female representation at board level. It utilises its fundamental research capabilities to identify climate related risks, net zero investments and targets for transition Fidelity’s investment approach involves bottom-up research. As engagement within the Fidelity investment universe. It assesses well as studying financial results, the portfolio managers and which companies are in the best position to transition to net zero analysts carry out additional qualitative analysis of potential or have a positive trajectory towards transition. The Climate investments. They examine the business, customers and suppliers Rating is designed to complement the broader Sustainability and visit the companies in person to develop a view of every Ratings, which score companies across a range of environmental, company in which Fidelity invests. ESG factors are embedded in social and governance criteria. this research process. Although Fidelity’s analysts have overall responsibility for Examples of ESG factors that Fidelity’s investment teams may analysing the environmental, social and governance performance consider as part of its company and industry analysis include: of the companies in which it invests, it has a dedicated Sustainable Investing Team working closely with the investment • Corporate governance (e.g. Board structure, executive teams and responsible for consolidating Fidelity’s approach to remuneration). stewardship, engagement, including thematic engagement, ESG integration and the exercise of its votes at general meetings. • Shareholder rights (e.g. election of directors, capital amendments). • Changes to regulation (e.g. greenhouse gas emissions restrictions, governance codes). ### 34 Fidelity China Special Situations PLC | Annual Report 2024 ## ESG in the Investment Process at Fidelity ## International continued • Physical threats (e.g. extreme weather, climate change, water external ESG research provider and rating agency to supplement shortages). its organic analysis. Fidelity receives reports that include company specific and industry specific research as well as ad • Brand and reputational issues (e.g. poor health and safety hoc thematic re-search looking at particular topics. The ESG record, cyber security breaches). ratings are industry specific and are calculated relative to industry peers and Fidelity uses these ratings in conjunction with its wider • Supply chain management (e.g. increase in fatalities, lost time analysis. Fidelity’s sources of ESG research are reviewed on a injury rates, labour relations). regular basis. • Work practices (e.g. observation of health, safety and human The ESG ratings and associated company reports are included rights provisions and compliance with the provisions of the on Fidelity’s centralised research management system. This is an Modern Slavery Act). integrated desktop database, so that each analyst has a first-hand view of how each company under their coverage is Fidelity operates analyst training and development programmes rated according to ESG factors. In addition, ESG ratings are which include modules on ESG themes, topics and strategies and included in the analyst research notes which are published attendance at external seminars on the trending ESG issues in internally and form part of the investment decision. The external the market globally as well as conferences to explore new ways research vendor also provides controversy alerts which include of integrating ESG into the investment process across all asset information on companies within its coverage which have been classes. identified to have been involved in a high-risk controversy that may have a material impact on the company’s business or its Fidelity uses a number of external research sources around the reputation. world that provide ESG-themed reports and it subscribes to an ### Fidelity International - Setting standards for its business Sustainability built from the ground up Supplier Public advocacy S R S responsibilities O C T O I A A L C I P E D Risk management R F N I Inclusive culture O C E R M N Cybersecurity A A N M Corporate citizenship C R E F O Business continuity I N E R D P plan Gender pay equity I C E A C T O N R A Community S N Bribery/corruption E R engagement V prevention O G Learning & Compensation development We apply the same KPIs to our SUSTAINABILITY KPIs Employee own business that we use for the Independent wellbeing auditing Financial companies in which we invest. wellness Code of conduct And we expect to improve upon Diversity our own ESG standards, just as Recycling Waste reduction Water conservation we would expect from others. Biodiversity Carbon emission Energy management Ecological impacts Supply chain monitoring E N V R S I R O N A T O M E N T I N D I C A L P E R F O R M A N C E world that provide ESG-themed reports and it subscribes to an ### 35 Annual Report 2024 | Fidelity China Special Situations PLC ESG AND CARBON EMISSIONS ASSESSMENT The ratings charts below show a breakdown of the stocks in the Company’s portfolio using MSCI and Fidelity International’s own ESG ratings. The Portfolio Manager and his investment team continue to engage with companies to improve scores. STRATEGYFINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS | | 1 | | 3 | | --- | --- | --- | --- | | MSCI ESG ratings | | FIL Proprietary ESG ratings | | | (% NAV exposure) | | (% NAV exposure) | | 35% 70% Portfolio Index Portfolio Index 31.4% 30% 60% 27.2% 54.3% 52.0% 25% 50% 23.1% 20% 40% 18.0% 17.7% 17.0% 15.8% 14.7% | 15% | | | 30% | | | | | --- | --- | --- | --- | --- | --- | --- | | | | 12.2% | | | 24.2% | | | | 10.7% | | | 20.1% | | | | 10% | | | 20% | | | 16.9% | 14.9% | 5% | | | | | 3.8% | 10% | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2.3% | 3.1% | | | | | 4.9% | | | | | 1.4% | | | 1.4% | | | 3.6% | | 3.0% | 3.2% | 2.3% | | | | 0.3% | | | 0.6% | | --- | --- | --- | --- | --- | --- | --- | | 0% | | | | 0% | | | | | AAA BBBBBANot ratedB | AA CCC | | | ADCBNot ratedE | | The chart below shows that the Company’s portfolio has a significantly lower carbon footprint than that of the Index. 2 Carbon Footprint (tonnes CO2e per US$m invested) 300 268.4 Portfolio Index 250 230.3 200 135.9 150 112.6 107.1 90.3 100 50 0 | Portfolio Carbon | | Portfolio Carbon | | Weighted Average | | --- | --- | --- | --- | --- | | | Emissions | | Emissions | Carbon Intensity | | (tCO2e/US$m | | (tCO2e/US$m | | (tCO2e/US%m) | | | invested) | | revenue) | | Carbon Emissions: Provides a normalised snapshot of the carbon emissions of all of the investments in the Company’s portfolio measured in tons CO2e/US$m invested. Carbon Intensity: The amount of carbon by weight emitted per unit of energy consumed. Weighted Average Carbon Intensity: Measures the weighted average carbon emissions per unit of revenue of each investment in the Company’s portfolio. Source: 31 March 2024, Fidelity International. Benchmark Index: MSCI China (Net). Long only and rescaled. The ESG ratings distribution calculation is based on the net asset value of holdings. 1 MSCI ESG Research. MSCI rates issuers on a AAA-CCC scale according to their exposure to industry specific ESG key issues and their ability to manage those issues relative to peers. The ESG ratings distribution is based on Net Asset Value of holdings excluding cash, liquidity funds, derivatives and ETFs. Although Fidelity International’s information providers, including without limitation, MSCI ESG Research LLC and its affiliates (the “ESG Parties”), obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness of any data herein. None of the ESG Parties makes any express or implied warranties of any kind, and the ESG Parties hereby expressly disclaim all warranties of merchantability and fitness for a particular purpose, with respect to any data herein. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein. Further, without limiting any of the foregoing, in no event shall any of the ESG Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. 2 All rights in the information provided by Institutional Shareholder Services Inc. and its affiliates (ISS) reside with ISS and/or its licensors. ISS makes no express or implied warranties of any kind and shall have no liability for any errors, omissions or interruptions in or in connection with any data provided by ISS. 3 The Fidelity Sustainability Ratings were launched in June 2019. As of 31 March 2024, they cover a universe of around 4,000 issuers in equity and fixed income. Fidelity have a five-scale rating of A (best) to E (worst). ### 36 Fidelity China Special Situations PLC | Annual Report 2024 ## Board of Directors | Mike Balfour | Georgina Field | | --- | --- | | Chairman (since 20 July 2022) | Director | | Appointed 1 October 2018 | Appointed 1 July 2022 | M N A M N Mr Balfour is a non-executive Director of abrdn Property Income Trust Ms Field is the founder and Chief Executive Officer of White Marble Limited and Schroder BSC Social Impact Trust plc. He is Chairman of Consulting, a business that specialises in investment marketing. She was TPT Investment Management Limited and sits on the board of its previously a non-executive Director of the Perpetual Income Growth parent company, TPT Retirement Solutions Limited. He is a member of Investment Trust plc, overseeing its merger into Murray Income Trust plc. the Investment Advisory Board of The Institute of Chartered Accountants She has over 20 years’ experience in the investment industry, including of Scotland. He was chief executive of Thomas Miller Investment Ltd two senior roles leading marketing teams at asset management until 2016 and was previously chief executive at Glasgow Investment companies. Managers and chief investment officer at Edinburgh Fund Managers Limited. His early investment management career was focused on the nascent equity markets of Asia. He is a qualified Chartered Accountant. Gordon Orr Director Appointed 1 January 2023 Alastair Bruce Director Appointed 1 July 2021 A M N Mr Orr is an independent non-executive Director at Hong Kong listed Lenovo Group Limited, Meituan and Swire Pacific Limited. He is a board member at EQT AB, a Swedish private equity business, and is A M N Vice Chairman of the China Britain Business Council. He founded Mr Bruce is a non-executive Director and Chairman of the audit McKinsey’s consulting practice in mainland China in the early 1990s committee of both ICG Enterprise Trust PLC and Barings Emerging and led it in China and Asia until 2015, since when he has served on EMEA Opportunities PLC. He was Managing Partner of Pantheon several corporate boards. Ventures between 2006 and 2013, having joined the firm in 1996. At Pantheon Ventures, he was involved in all aspects of the firm’s business, particularly the management of Pantheon International PLC, Edward Tse the expansion of Pantheon Ventures global platform and the creation Director of a co-investment business. He has over 25 years of private equity, Appointed 24 November 2022 investment management and financial experience. He is a qualified Chartered Accountant. A M N Vanessa Donegan Senior Independent Director Dr Tse is a non-executive Director of China Travel International (since 1 January 2023) Investment Limited (Hong Kong), China Oriental Group and Ping An Appointed 1 September 2020 Life Insurance Company of China as well as an Adviser of CDIB Capital International and Our Hong Kong Foundation. He is founder and Chief Executive Officer of Gao Feng Advisory Company, Professor of Managerial Practice at Cheung Kong Graduate School of Business, A M N and Advisory Board Member cum Adjunct Professor of Institute for Mrs Donegan is a non-executive Director and the Senior Independent China Business at the University of Hong Kong. He became one of the Director of JPMorgan Indian Investment Trust plc and Invesco Asia Trust pioneers in China’s management consulting industry by building and plc in addition to being a non-executive Director of Herald Investment running two leading international management consulting firms (BCG Management Ltd. and State Street Global Advisors Luxembourg SICAV. and Booz) for 20 years. He has also advised Chinese government She has 37 years of Asian fund management experience, including organisations on strategies, state-owned enterprise reform and managing dedicated China portfolios. She was Head of the Asia Chinese companies going overseas, as well as to the World Bank and Pacific desk at Columbia Threadneedle Investments Ltd. (formerly the Asian Development Bank. Threadneedle Investments Ltd.) for 21 years and has extensive experience of marketing funds to retail and institutional clients across the globe. All the Directors are non-executive Directors and all are independent. Committee membership key A Audit and Risk M Management Engagement N Nomination and Remuneration Committee Chair Annual Report 2024 | Fidelity China Special Situations PLC 37 # Directors' Report The Directors have pleasure in presenting their report and the audited Financial Statements of the Company for the year ended 31 March 2024. The Company was incorporated in England and Wales as a public limited company on 22 January 2010 under the registered number 7133583 and was launched as an investment trust on the London Stock Exchange on 19 April 2010. ## Management Company FIL Investment Services (UK) Limited ("FISL") is the Company's appointed Alternative Investment Fund Manager (the "AIFM"/"Manager"). FISL, as the Manager, has delegated the investment management of the Company to FIL Investment Management (Hong Kong) Limited and the role of Company Secretary to FIL Investments International. The Management Agreement will continue unless and until terminated by either party giving to the other not less than six months' notice in writing. However, they may be terminated without compensation if the Company is liquidated pursuant to the procedures laid down in the Articles of Association of the Company. The Management Agreement may also be terminated forthwith as a result of a material breach of the Agreement or on the insolvency of the Investment Manager or the Company. In addition, the Company may terminate the Agreement by not less than two months' notice if the Investment Manager ceases to be a subsidiary of FIL Limited. FIL Limited has no beneficial interest in the shares of the Company (2023: nil). The Board reviews the Management Agreement at least annually and details are included in the Corporate Governance Statement on page 43. ## Management Fee The Company has a management fee arrangement which comprises a base fee, based on Net Assets, plus a positive or negative variable element. With effect from 1 July 2023, the base management fee on the first £1.5 billion of Net Assets reduced from 0.90% to 0.85%. It remained unchanged at 0.70% on Net Assets over £1.5 billion until 14 March 2024, when on the completion of the combination transaction with abrdn China Investment Company Limited, it reduced to 0.65% on Net Assets over £1.5 billion. The variable management fee ("VMF") of +/- 0.20% remained unchanged. The VMF of +/-0.20% is based on the Company's NAV per share performance relative to the MSCI China Index (in UK sterling terms) (the Company's Benchmark Index). The VMF element is calculated daily by referencing the performance of the Company's NAV to the performance of the MSCI China Index on a three year rolling basis. The variable element of the fee increases or decreases by 0.033% for each percentage point of the three year NAV per share outperformance or underperformance over the MSCI China Index to a maximum of +0.20% or a minimum of -0.20%. In the event of outperformance, the maximum fee that the Company would pay on Net Assets up to £1.5 billion is 1.05%, but in the case of underperformance, it can fall as low as 0.65%. For Net Assets over £1.5 billion, the maximum fee payable would be 0.85% if the Company outperforms the MSCI China Index or in the case of underperformance, it could fall as low as 0.45%. The variable management fee charge for the year ended 31 March 2024 was 0.15% (2023: 0.20%). The total management fee for the year ended 31 March 2024 was £11,421,000 (2023: £14,727,000) as detailed in Note 4 on page 70. This was made up of a base fee of £9,719,000 (2023: £12,049,000) and a charge of £1,702,000 (2023: £2,678,000) on the variable element based on the performance of the NAV against the MSCI China Index. ## The Board All Directors served on the Board throughout the year ended 31 March 2024. A brief description of all serving Directors as at the date of this report is shown on page 36 and indicates their qualifications for Board membership. All serving Directors as at the date of this report will be seeking re-election at the AGM on 23 July 2024. ## Directors' and Officers' Liability Insurance The Company maintains insurance cover for its Directors under its own policy as permitted by the Companies Act 2006. This is in addition to benefits under the Manager's global Directors' and Officers' liability insurance arrangements. ## Going Concern Statement The 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 and its expenditure and cash flow projections. The Directors, having considered the liquidity of the Company's portfolio of investments (being mainly securities which are readily realisable), stress testing performed, the projected income and expenditure, are satisfied that the Company is financially sound and has adequate resources to meet all of its liabilities and ongoing expenses and continue in operational existence for the foreseeable future. The Board has therefore concluded that the Company has adequate resources to continue to adopt the going concern basis for the period to 30 June 2025 which is at least twelve months from the date of approval of the Financial Statements. This conclusion also takes into account the Board's assessment of the ongoing risks from the war in Ukraine, the Middle East conflict, China's tensions with the US and Taiwan and significant market events. Accordingly, the Financial Statements of the Company have been prepared on a going concern basis. The prospects of the Company over a period longer than twelve months can be found in the Viability Statement on pages 29 and 30. ## Auditors' Appointment A resolution to reappoint Ernst & Young LLP as Auditor to the Company will be proposed at the AGM on 23 July 2024. STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS 38 Fidelity China Special Situations PLC | Annual Report 2024 # Directors' Report continued Disclosure of Information to the Company's Auditor As required by Section 418 of the Companies Act 2006, each Director in office as at the date of this Annual Report confirms that: a) so far as each Director is aware, there is no relevant audit information of which the Company's Auditor is unaware; and b) each Director has taken all the steps that ought to have been taken as a Director to make himself/herself aware of any audit information, and to establish that the Company's Auditor is aware of that information. Corporate Governance The Corporate Governance Statement forms part of this report and can be found on pages 41 to 44. Registrar, Custodian and Depositary Arrangements The Company has appointed Link Group as its Registrar to manage the Company's share register, JPMorgan Chase Bank as its Custodian, which is primarily responsible for safeguarding the Company's assets, and J.P. Morgan Europe Limited as its Depositary, which is primarily responsible for the oversight of the custody of investment funds and the protection of investors' interests. Fees paid to these service providers are disclosed in Note 5 on page 71. Share Capital The Company's share capital comprises ordinary shares of 1 pence each which are fully listed on the London Stock Exchange. As at 31 March 2024, the issued share capital was 611,310,982 (2023: 571,054,480) of which 85,629,548 (2023: 82,728,852) shares were held in Treasury. Shares in Treasury do not have voting rights, therefore the total number of shares with voting rights was 525,681,434 (2023: 488,325,628). The issued share capital of 611,310,982 shares includes 59,005,997 shares issued as a result of the Company's transaction with abrdn China Investment Company Limited on 14 March 2024. Premium/Discount Management: Enhancing Shareholder Value The Board recognises the importance of the relationship between the Company's share price and the NAV per share and monitors this closely. It seeks authority from shareholders each year to issue shares at a premium or to repurchase shares at a discount to the NAV, either for cancellation or holding in Treasury. The Board will exercise these authorities to endeavour to keep the discount in single digits in normal market circumstances and as mentioned in the Chairman's Statement on page 4. Share Issues On 14 March 2024, the Company issued 59,005,997 shares as a result of the transaction with abrdn China Investment Company Limited. Other than this, no shares were issued during the year ended 31 March 2024 (2023: nil) and none have been issued since the year end and as at the date of this report. The authorities to issue shares and to disapply pre-emption rights expire at the AGM on 23 July 2024 and resolutions to renew these authorities will be put to shareholders at this AGM. Share Repurchases The Company repurchased 2,900,696 (2023: 25,631,781) shares into Treasury and 18,749,495 (2023: nil) for cancellation during the year ended 31 March 2024. In May 2023, the Board decided that once shares held in Treasury reached 15% of the issued share capital of the Company, further share repurchases would be for cancellation and this has been the case since 12 May 2023. Since the year ended 31 March 2024 and as at the latest practicable date of this report, the Company has repurchased a further 2,696,249 shares for cancellation. The authority to repurchase shares expires at the AGM on 23 July 2024 and a resolution to renew the authority to repurchase shares, either for cancellation or to buy into Treasury, will be put to shareholders at this AGM. Substantial Share Interests As at 31 March and 30 April 2024, notification had been received that the shareholders listed in the table below held more than 3% of the voting share capital of the Company. | Shareholders | 31 March 2024 % | 30 April 2024 % | | --- | --- | --- | | Fidelity Platform Investors | 18.96 | 18.82 | | City of London Investment Management | 13.99 | 14.39 | | Hargreaves Lansdown | 11.26 | 11.19 | | Lazard Asset Management | 10.29 | 10.33 | | Allan & Gill Gray Foundation | 6.96 | 6.98 | | Interactive Investor | 5.04 | 5.06 | | Allspring Global Investments | 4.00 | 4.18 | An analysis of shareholders as at 31 March 2024 is detailed in the table below. | Shareholders as at 31 March 2024 | % of voting share capital | | --- | --- | | Retail Investors^{1} | 55.47 | | Mutual Funds | 22.93 | | Pension Funds | 11.42 | | Charities | 6.96 | | Insurance Funds | 2.41 | | Other | 0.81 | | **Total** | **100.00** | 1 Includes Fidelity Platform Investors (18.96%). ### 39 Annual Report 2024 | Fidelity China Special Situations PLC Additional Information required in the Directors’ Report computer, you will need to enter the Lumi Meeting ID which is Information on proposed dividends, financial instruments, 134-206-210. You should then select the ‘Guest Access’ option disclosure on Streamlined Energy and Carbon Reporting (SECR) before entering your name and who you are representing, if and Task Force on Climate-Related Financial Disclosures (TCFD) is applicable. This will allow you to view the meeting and ask | set out in the Strategic Report on pages 22 to 32. | questions but you will not be able to vote. | | --- | --- | | ANNUAL GENERAL MEETING – TUESDAY, | Fidelity Platform Investors – Voting at AGMs | | 23JULY 2024 AT 11.00 AM | If you hold your shares in the Company through the Fidelity | Platform, then Fidelity passes on to you the right to vote on the If you are in any doubt as to the action you should take, you proposed resolutions at the Company’s AGM. Fidelity Platform should seek your own personal financial advice from your Investors are advised to vote online via the Broadridge Service (a stockbroker, bank manager, solicitor or other financial company that specialises in investor voting facilities). Investors adviser authorised under the Financial Services and Markets can sign up to this facility via their Fidelity Investor Account. Act 2000. Proxy Voting The AGM of the Company will be held at 11.00 am on Tuesday, A paper Proxy Form will be sent to all shareholders who hold 23 July 2024 at 4 Cannon Street, London EC4M 5AB and virtually shares on the main share register. This will assist shareholders to via the online Lumi AGM meeting platform. Full details of the vote in advance of the meeting should they decide not to attend meeting are given in the Notice of Meeting on pages 94 to 97. in person. The Notice of Meeting and related papers are sent to If you have sold, transferred or otherwise disposed of all your shareholders at least 20 working days before the AGM. shares in the Company, you should pass this document, together with any accompanying documents, as soon as possible to the For those shareholders who are unable to attend in person, we purchaser or transferee, or to the stockbroker, bank or other will live-stream the formal business and presentations of the agent through whom the sale or transfer was effected, for meeting online. onward transmission to the purchaser or transferee. Dale Nicholls, the Portfolio Manager, will be making a At the AGM on 23 July 2024, resolutions will be proposed relating presentation to shareholders highlighting the achievements and to the items of business set out in the Notice of Meeting on challenges of the year past and the prospects for the year to pages 94 and 95, including the items of special business come. He and the Board will be very happy to answer any summarised below and on the next page. questions that shareholders may have. Copies of the Portfolio Manager’s presentation can be requested by email at Authority to Allot Shares investmenttrusts@fil.com or in writing to the Company Secretary Resolution 12 is an ordinary resolution and provides the Directors at FIL Investments International, Beech Gate, Millfield Lane, Lower with a general authority to allot securities in the Company up to Kingswood, Tadworth, Surrey KT20 6RP. an aggregate nominal value of £608,614. If passed, this resolution will enable the Directors to allot a maximum of Properly registered shareholders joining the AGM virtually will be 60,861,400 ordinary shares which represents approximately 10% able to vote on the proposed resolutions. Please see Note 9 to of the issued ordinary share capital of the Company (including the Notes to the Notice of Meeting on page 96 for details on Treasury Shares) at the latest practicable date of this report, and how to vote virtually. Investors viewing the AGM online will be to impose any limits or restrictions and make any arrangements able to submit live written questions to the Board and the which they consider necessary or appropriate to deal with Portfolio Manager and these will be addressed on their behalf at Treasury Shares, fractional entitlements, record dates, legal, an appropriate juncture during the meeting. regulatory or practical problems in, or under the laws of, any territory or any other matter. The Directors would not intend to Further information and links to the Lumi platform may be found use this power unless they considered that it was in the interests on the Company’s website www.fidelity.co.uk/china. On the day of shareholders to do so. Any shares issued would be at NAV per of the AGM, in order to join electronically and ask questions via ordinary share or at a premium to NAV per ordinary share. the Lumi platform, shareholders will need to connect to the website https://web.lumiagm.com. Authority to Disapply Pre-Emption Rights Resolution 13 is a special resolution disapplying pre-emption We urge shareholders to vote and make use of the proxy form rights and granting authority to the Directors, without the need for provided. Please note that investors on platforms such as Fidelity further specific shareholder approval, to make allotments of Personal Investing, Hargreaves Lansdown, Interactive Investor or equity securities or sale of Treasury shares for cash up to an AJ Bell Youinvest will need to request attendance at the AGM in aggregate nominal value of £608,614 (including Treasury shares) accordance with the policies of your chosen platform. They may (approximately 10% of the issued ordinary share capital of the request that you submit electronic votes in advance of the Company at the latest practicable date of this report and INFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGYGOVERNANCE meeting. If you are unable to obtain a unique IVC and PIN from equivalent to 60,861,400 ordinary shares). your nominee or platform, we will also welcome online participation as a guest. Once you have accessed https://web.lumiagm.com from your web browser on a tablet or ### 40 Fidelity China Special Situations PLC | Annual Report 2024 ## Directors’ Report continued Authority to Repurchase Shares Resolution 14 is a special resolution which renews the Company’s authority to purchase up to 14.99% (78,395,400) of the ordinary shares in issue (excluding Treasury shares) at the latest practicable date of this report, either for immediate cancellation or for retention as Treasury shares at the determination of the Directors. Once shares are held in Treasury, the Directors may only dispose of them in accordance with the relevant legislation by subsequently selling the shares for cash or by cancelling the shares. Purchases of ordinary shares will be made at the discretion of the Directors and within guidelines set from time to time by them in the light of prevailing market conditions. Purchases will only be made in the market at prices below the prevailing NAV per ordinary share. Recommendation: The Board considers that each of the resolutions is likely to promote the success of the Company and is in the best interests of the Company and its shareholders as a whole. The Directors unanimously recommend that you vote in favour of the resolutions as they intend to do in respect of their own beneficial holdings. By Order of the Board FIL Investments International Secretary 10 June 2024 ### 41 Annual Report 2024 | Fidelity China Special Situations PLC ## Corporate Governance Statement This Corporate Governance Statement forms part of the Directors’ Tenure Policy Report. The Company is committed to maintaining high standards Directors appointed to the Board are subject to election and of corporate governance. Accordingly, the Board has put in place subsequent annual re-election by shareholders at Annual General a framework for corporate governance which it believes is Meetings and normally serve a term of up to nine years from appropriate for an investment company. election. Corporate Governance Codes Board Responsibilities The Board follows the principles and provisions of the UK The Board has overall responsibility for the Company’s affairs Corporate Governance Code (the “UK Code”) issued by the and for promoting the long-term success of the Company. All Financial Reporting Council (the “FRC”) in July 2018 and the AIC matters which are not delegated to the Company’s Investment Code of Corporate Governance (the “AIC Code”) issued by the Manager under the Management Agreement are reserved for Association of Investment Companies (the “AIC”) in February the Board’s decision. Matters reserved for the Board and 2019. The AIC Code addresses the principles and provisions of considered at meetings include decisions on strategy, the UK Code. The FRC has confirmed that investment companies management, structure, capital, share issues, share repurchases, which report against the AIC Code will meet their obligations gearing, financial reporting, risk management, investment under the UK Code and paragraph 9.8.6 of the Listing Rules. This performance, share price discount, corporate governance, Board Statement, together with the Statement of Directors’ appointments, and the appointment of the Investment Manager Responsibilities on page 48, set out how the principles have and Company Secretary. The Board also considers shareholder been applied. issues including communication and investor relations. The AIC Code can be found on the AIC’s website at All Directors are independent of the Manager and Investment www.theaic.co.uk and the UK Code on the FRC’s website at Manager and considered to be free from any relationship which www.frc.org.uk. could materially interfere with the exercise of their independent judgement. The Board follows a procedure of notification of other Statement of Compliance interests that may arise as part of considering any potential The Company has complied with the recommendations of the AIC conflicts and is satisfied that none has arisen in the year under Code and the relevant provisions of the UK Code for the year review. under review and up to the date of this report, except in relation to the UK Code provisions relating to the role of the chief All Directors are able to allocate sufficient time to the Company executive, executive directors’ remuneration, and the need for an to discharge their responsibilities fully and effectively. Each internal audit function. The Board considers that these provisions Director is entitled to take independent professional advice, at are not relevant to the position of the Company, as it is an the Company’s expense, in the furtherance of their duties. externally managed investment company and has no executive directors, employees or internal operations. All of its day to day Board Meetings management and administrative functions are delegated to the The Board considers that it meets sufficiently regularly to Manager. discharge its duties effectively and the table on the next page gives the attendance record for the meetings held during the THE BOARD reporting year. The Portfolio Manager and key representatives of Board Composition the Investment Manager and Manager are in attendance at As at the date of this report, the Board, chaired by Mike Balfour, these meetings. consists of six non-executive Directors. The Directors believe that, between them, they have good knowledge and wide experience Between these meetings there is regular contact with the of business in China, the Asia region, unlisted investments and Investment Manager and Manager and other meetings are their valuations, and of investment companies, and that the Board arranged as necessary. Additionally, Board Committees and has an appropriate balance of skills, experience, independence sub-groups meet to pursue matters referred to them by the Board and knowledge of the Company and length of service to and the Chairman is in contact with the other Directors regularly discharge its duties and provide effective strategic leadership without representatives of the Investment Manager and Manager and proper governance of the Company. being present. Vanessa Donegan is the Senior Independent Director and fulfils In addition to the formal Board and Committee meetings held in the role as a sounding board for the Chairman, intermediary for the reporting year, the Board undertook a due diligence trip to the other Directors as necessary and acts as a channel of China in order to meet with the management of existing and communication for shareholders in the event that contact through potential investee companies and also meet with Fidelity’s the Chairman is inappropriate. research and analysts’ teams. Biographical details of all Directors are on page 36. INFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGYGOVERNANCE ### 42 Fidelity China Special Situations PLC | Annual Report 2024 ## Corporate Governance Statement continued Board’s Attendance Record for the Reporting Year Nomination Audit and Management and Regular Risk Engagement Remuneration Board Committee Committee Committee Meetings Meetings Meetings Meetings 1 Mike Balfour 5/5 n/a 1/1 1/1 Alastair Bruce 5/5 5/5 1/1 1/1 Vanessa Donegan 5/5 5/5 1/1 1/1 Georgina Field 5/5 5/5 1/1 1/1 Gordon Orr 5/5 5/5 1/1 1/1 Edward Tse 5/5 5/5 1/1 1/1 1 As Chairman of the Board, Mr Balfour is not a Member of the Audit and Risk Committee but is invited to attend the meetings. Figures in the table above indicate those meetings for which letters of appointment of Directors are available for inspection at each Director was eligible to attend and attended in the year. the registered office of the Company. Regular Board meetings exclude meetings in relation to the transaction with abrdn China Investment Company Limited and Board Evaluation other ad hoc meetings for formal approvals as well as due An annual evaluation of the Board, its Directors and its diligence meetings. Committees is undertaken ahead of each AGM. It takes the form of written questionnaires and discussions, except for every third Company Secretary year when an external evaluation is undertaken. The process is The Board has access to the advice and services of the Company considered to be constructive in terms of identifying areas for Secretary. The Company Secretary is responsible to the Board for improving the functioning and performance of the Board and its ensuring that Board procedures are followed and that applicable Committees and action is taken on the basis of the results. The rules and regulations are complied with. tenure of individual Directors is also considered as part of this process. Changes to the Board Changes to the Board take place in accordance with the As a FTSE 350 Company and in accordance with provision 21 of Companies Act 2006, the Company’s Articles of Association and the 2018 UK Corporate Governance Code, the Board carried out the AIC Code. The Nomination and Remuneration Committee is an externally facilitated evaluation this year using the services of responsible for identifying possible candidates. However, any Lintstock Ltd. which has no connection with the Company or the proposal for the appointment of a new Director is discussed and Manager. It was concluded that the Chairman, each Director and approved by the entire Board. External consultants who have no the Manager had been effective and continue to demonstrate connection with the Company are used to identify potential commitment to their roles. The tenure of the Directors was also candidates. considered during the evaluation process. It was also concluded that the Board and its Committees continue to function and Director Training perform well. Upon appointment, each Director is provided with all relevant information regarding the Company and receives an induction on The next external evaluation will be for the Company’s year the investment operations and administration functions of the ending 2027. Company, together with a summary of their duties and responsibilities to the Company. Directors also receive regular Directors’ Remuneration and Share Interests briefings from, amongst others, the AIC, the Company’s Details of the Directors’ remuneration and share interests are Independent Auditor and the Company Secretary, regarding any disclosed in the Directors’ Remuneration Report on pages 46 and proposed developments or changes in law or regulations that 47. affect the Company and/or the Directors. BOARD COMMITTEES Election and Re-Election of Directors The Board has three Committees, as set out on the next page, All newly appointed Directors stand for election by the through which it discharges certain of its corporate governance shareholders at the AGM following their appointment by the responsibilities. These are the Audit and Risk Committee, the Board. As the Company is a constituent member of the FTSE 350 Management Engagement Committee and the Nomination and Index, all other Directors are subject to annual re-election. All Remuneration Committee. Terms of reference of each Committee Directors being eligible, are standing for re-election at this year’s can be found on the Company’s pages of the Manager’s website AGM and their details are listed on page 36. The terms and at www.fidelity.co.uk/china. ### 43 Annual Report 2024 | Fidelity China Special Situations PLC Audit and Risk Committee The Committee, on behalf of the Board, continues to appoint The Audit and Risk Committee is chaired by Alastair Bruce and apprentices of the Board in order to give board exposure to aspiring consists of all of the Directors, except for Mike Balfour which is in non-executive directors. As a result of this process, the Board line with the recommendation of the 2018 UK Corporate appointed a Board apprentice who started her apprenticeship on Governance Code that a chairman of a board should not be a 13 July 2023 for a term of one year. She attends all Board and member of an audit committee. Mr Balfour will generally be Committee meetings as an observer. invited to attend the Audit and Risk Committee meetings. Succession Planning Full details of the Audit and Risk Committee are disclosed in the The Committee is responsible for succession planning and for Report of the Audit and Risk Committee on pages 49 to 52. Directors’ appointments. Management Engagement Committee ACCOUNTABILITY AND AUDIT Composition Financial Reporting The Management Engagement Committee (the “Committee”) is Set out on page 48 is a statement by the Directors of their chaired by Mike Balfour and consists of all of the Directors. responsibilities in respect of the preparation of the Annual Report and Financial Statements. The Auditor has set out its reporting Role and Responsibilities responsibilities within the Independent Auditor’s Report to the The Committee is charged with reviewing and monitoring the Members on pages 53 to 60. performance of the Manager and for ensuring that the terms of the The Board has a responsibility to present fair, balanced and Management Agreement remain competitive and reasonable for understandable annual and half-yearly financial statements. All shareholders. It meets at least once a year and reports to the financial statements are reviewed by the Audit and Risk Board, making recommendations as appropriate. Committee and approved by the Board prior to their issue to ensure that this responsibility is fulfilled. Manager’s Reappointment Ahead of the AGM on 23 July 2024, the Committee has reviewed Risk Management and Internal Controls the performance of the Manager and the fee basis and The Board is responsible for the Company’s systems of risk concluded that it is in the interests of shareholders that the management and of internal controls and for reviewing their appointment of the Manager should continue. Details of the fee effectiveness. The review takes place at least once a year. Such arrangements for the reporting year are in the Directors’ Report systems are designed to manage rather than eliminate the risk of on page 37. failure to achieve business objectives and can only provide reasonable, but not absolute, assurance against material Nomination and Remuneration Committee misstatement or loss. Composition The Nomination and Remuneration Committee (the “Committee”) The Board determines the nature and extent of any risks it is is chaired by Vanessa Donegan and consists of all of the willing to take in order to achieve its strategic objectives. It is Directors. responsible for the design, implementation and maintenance of controls and procedures to safeguard the assets of the Company Role and Responsibilities although these tasks have been delegated on a day-to-day basis The Committee meets at least once a year and is charged with to the Manager. The system extends to financial, operational and reviewing the composition, size and structure of the Board and compliance controls and risk management. Clear lines of makes recommendations to the Board as appropriate. It is charged accountability have been established between the Board and the with nominating new Directors for consideration by the Board, and in Manager. The Manager provides regular reports on controls and turn for approval by shareholders. The search for a candidate is compliance issues to the Audit and Risk Committee and the carried out against a set of objective criteria, with due regard for the Board. In carrying out its review, the Audit and Risk Committee benefits of diversity on the Board, including gender, social and has regard to the activities of the Manager, the Manager’s ethnic backgrounds. New Directors are appointed on the basis of compliance and risk functions and the work carried out by the merit. Company’s Auditor relevant to the Company’s audit. It also includes consideration of internal controls of similar reports The Committee also considers the election and re-election of Directors issued by the other service providers. ahead of each AGM. For the forthcoming AGM, it has considered the performance and contribution to the Company of each Director The Board, assisted by the Manager, has undertaken a rigorous and concluded that each Director has been effective and continues risk and controls assessment. This process also assists in identifying to demonstrate commitment to their role. Accordingly, the Committee any new emerging risks and the action necessary to mitigate their has recommended their continued service to the Board. potential impact. The Board confirms that there is an effective robust ongoing process in place in order to identify, evaluate and The Committee also considers the remuneration of the Directors, and manage the Company’s principal business and operational risks, takes into account their roles, their responsibilities and the time and that it has been in place throughout the year ended 31March INFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGYGOVERNANCE involved in carrying out their duties effectively. It also makes itself 2024 and up to the date of this report. This process is in aware of Directors’ fees of other comparable investment trust accordance with the FRC’s “Risk Management, Internal Control and companies. Further details can be found in The Remuneration Policy Related Financial Business Reporting” guidance. on page 45. ### 44 Fidelity China Special Situations PLC | Annual Report 2024 ## Corporate Governance Statement continued The Board has reviewed the need for an internal audit function institutional shareholders and agents. Further details of the and has determined that the systems and procedures employed Manager’s Principles of Ownership and voting may be found at by the Manager, which are subject to inspection by the www.fidelity.co.uk. Manager’s internal and external audit processes, provide sufficient assurance that a sound system of internal controls is Relations with Shareholders maintained to safeguard shareholders’ investments and the Communication with shareholders is given a high priority by the Company’s assets. An internal audit function, specific to the Board and it liaises with the Manager and the Company’s Broker Company, is therefore considered unnecessary. The Audit and who are in regular contact with the Company’s major institutional Risk Committee meets the Manager’s internal audit investors to canvass shareholder opinion and to communicate its representative at least once a year. It receives a summary of the views to shareholders. All Directors are made aware of Manager’s externally audited internal controls report on an shareholders’ concerns and the Chairman, the Senior annual basis. Independent Director and, where appropriate, other Board Directors, are available to meet with shareholders to discuss Whistle-Blowing Procedure strategy and governance. In addition, the Portfolio Manager also Part of the Manager’s role in ensuring the provision of a good meets with major shareholders and investors in the UK. The service, pursuant to the Management Agreement, includes the Board regularly monitors the shareholder profile of the Company ability for employees of Fidelity International (“Fidelity”) to raise and receives regular reports from the Manager on meetings concerns through a workplace concerns escalation policy attended with shareholders and any concerns raised in such (“whistle-blowing procedure”). Fidelity has advised the Board meetings. The Board aims to provide the maximum opportunity that it is committed to providing the highest level of service to its for dialogue between the Company and its shareholders. If any customers and to applying the highest standards of quality, shareholder wishes to contact a member of the Board directly, honesty, integrity and probity. The aim of the policy is to they should either email the Company Secretary at encourage employees and others working for Fidelity to assist the investmenttrusts@fil.com or in writing at FIL Investments Company in tackling fraud, corruption and other malpractice International, Beech Gate, Millfield Lane, Lower Kingswood, within the organisation and in setting standards of ethical Tadworth, Surrey KT2 6RP. The Company Secretary will attend to conduct. Accordingly, this policy has been endorsed by the any enquiries promptly and ensure that they are directed to the Board. Chairman, the Senior Independent Director or the Board as a whole, as appropriate. Bribery Act 2010 The Company is committed to carrying out business fairly, The Board encourages all shareholders to attend the Company’s honestly and openly. The Board recognises the benefits this has AGM on 23 July 2024, details of which can be found on page 6. to reputation and business confidence. The Board, the Manager, Full details of the Notice of Meeting are on pages 94 to 97. the Manager’s employees and others acting on the Company’s behalf, are expected to demonstrate high standards of behaviour Voting Rights in the Company’s Shares when conducting business. Every person entitled to vote on a show of hands has one vote. On a poll, every shareholder who is present in person or by The Board acknowledges its responsibility for the implementation proxy or representative has one vote for every ordinary share and oversight of the Company’s procedures for preventing held. At general meetings, all proxy votes are counted and, bribery, and the governance framework for training, except where a poll is called, proxy voting is reported for each communication, monitoring, reporting and escalation of resolution after it has been dealt with on a show of hands. The compliance together with enforcing action as appropriate. The proxy voting results are disclosed on the Company’s pages of the Board has adopted a zero tolerance policy in this regard. Manager’s website at www.fidelity.co.uk/china after the AGM. Criminal Finances Act 2017 Articles of Association The Company is subject to the Criminal Finances Act 2017 and Any changes to the Company’s Articles of Association must be follows a zero tolerance policy to tax evasion and its facilitation. made by special resolution. The Directors are fully committed to complying with all legislation and appropriate guidelines which are designed to prevent tax evasion and the facilitation of tax evasion in the jurisdictions in which the Company, its service providers, counterparties and business partners operate. Responsibility as an Institutional Shareholder The Board has adopted the Manager’s Principles of Ownership On behalf of the Board in relation to investments. These Principles include the pursuit of Mike Balfour an active investment policy through portfolio management Chairman decisions, voting on resolutions at general meetings and 10 June 2024 maintaining a continuing dialogue with the management of investee companies. Fidelity International is a signatory to the UK Stewardship Code which sets out the responsibilities of Annual Report 2024 | Fidelity China Special Situations PLC 45 # Directors' Remuneration Report ## Chairman's Statement The Directors' Remuneration Report for the year ended 31 March 2024 has been prepared in accordance with the Large & Medium-sized Companies & Groups (Accounts & Reports) (Amendment) Regulations 2013 (the "Regulations"). As the Board is comprised entirely of non-executive Directors and has no employees, many parts of the Regulations, in particular those relating to chief executive officer pay and employee pay, do not apply and are therefore not disclosed in this report. An ordinary resolution to approve the Directors' Remuneration Report will be put to shareholders at the AGM on 23 July 2024. The Company's Auditor is required to audit certain sections of this report and where such disclosures have been audited, the specific section has been indicated as such. The Auditor's opinion is included in its report on pages 53 to 60. ## Directors' Remuneration The annual fee structure with effect from 1 April 2024 is as follows: Chairman - £54,000 (2023: £52,000); Chairman of the Audit and Risk Committee - £45,500 (2023: £43,500); Senior Independent Director - £42,500 (2023: £41,000); and Director - £36,000 (2023: £34,500). Directors' remuneration is reviewed on an annual basis to ensure that it remains competitive and sufficient to attract and retain the quality of Directors needed to manage the Company successfully. ## The Remuneration Policy The Company's Articles of Association limit the aggregate fees payable to the Directors to £350,000 per annum. Subject to this overall limit, and based on the recommendations of the Nomination and Remuneration Committee, it is the Board's policy to determine the level of Directors' fees having regard to the time spent by them on the Company's affairs; the level of fees payable to non-executive directors in the industry generally; the requirement to attract and retain individuals with suitable knowledge and experience; and the role individual Directors fulfil. Other than fees and reasonable travel expenses incurred in attending to the affairs of the Company, the Directors are not eligible for any performance related pay or benefits, pension related benefits, share options, long-term incentive schemes or other taxable benefits. The Directors are not entitled to exit payments and are not provided with any compensation for loss of office. The level of Directors' fees is determined by the whole Board. Directors do not vote on their own individual fees. The Nomination and Remuneration Committee reviews the Company's Remuneration Policy and implementation on an annual basis. Reviews are based on information provided by the Company's Manager and research from third parties and it includes information on the fees of other similar investment trusts. As a FTSE 350 company, and in accordance with provision 21 of the 2018 UK Corporate Governance Code, the Board is required to carry out an externally facilitated evaluation every third year of its performance and this also includes input into the appropriate level of Directors' fees from an independent source. No Director has a service contract with the Company. New Directors are provided with a letter of appointment which, amongst other things, provides that their appointment is subject to the Companies Act 2006 and the Company's Articles of Association. Copies of the Directors' letters of appointment are available at each of the Company's Annual General Meetings and can be obtained from the Company's registered office. In common with most investment trusts there is no Chief Executive Officer and there are no employees. The Company's Remuneration Policy will apply to new Board members, who will be paid at the same level of fees as current Board members. ## Voting on the Remuneration Policy The Remuneration Policy (the "Policy") is subject to a binding vote at every third AGM. The Policy, as set out above, was approved at the AGM on 20 July 2022 with 99.90% of votes cast in favour, 0.07% of votes cast against and 0.03% of votes withheld. The current Policy has been followed throughout the year ended 31 March 2024 and up to the date of this report. The next vote will be put to shareholders at the AGM in 2025 and the votes cast will be disclosed on the Company's pages of the Manager's website at: www.fidelity.co.uk/china. ## Voting on the Directors' Remuneration Report At the AGM held on 20 July 2023, 99.82% of votes were cast in favour of the Directors' Remuneration Report for the year ended 31 March 2023, 0.15% of votes were cast against and 0.03% of votes were withheld. The Directors' Remuneration Report for the year ended 31 March 2024 will be put to shareholders at the AGM on 23 July 2024, and the votes cast will be disclosed on the Company's pages of the Manager's website at: www.fidelity.co.uk/china. ## Single Total Figure of Directors' Remuneration The single total aggregate Directors' remuneration for the year ended 31 March 2024 was £245,153 (2023: £209,466). This includes expenses incurred by Directors in attending to the affairs of the Company and are considered by HMRC to be a taxable expense. Information on individual Directors' fees and taxable Directors' expenses are shown in the table on the next page. STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS ### 46 Fidelity China Special Situations PLC | Annual Report 2024 ## Directors’ Remuneration Report continued 2025 2024 2024 2024 2023 2023 2023 Taxable Taxable Projected Fees Expenses* Total Fees Expenses* Total Total (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (£) (£) (£) (£) (£) (£) (£) Remuneration of Directors 1 Mike Balfour 54,000 52,000 5,153 57,153 45,570 7,299 52,869 2 Alastair Bruce 45,500 43,500 – 43,500 37,464 – 37,464 3 Vanessa Donegan 42,500 41,000 – 41,000 33,237 – 33,237 4 Georgina Field 36,000 34,500 – 34,500 23,738 – 23,738 5 Gordon Orr 36,000 34,500 – 34,500 7,912 – 7,912 6 Edward Tse 36,000 34,500 – 34,500 11,165 – 11,165 7 Nicholas Bull n/a n/a n/a n/a 14,581 – 14,581 8 Linda Yueh n/a n/a n/a n/a 28,500 – 28,500 Total 250,000 240,000 5,153 245,153 202,167 7,299 209,466 * Expenses incurred in attending to the affairs of the Company. 1 Appointed Chairman of the Board on 20 July 2022. 2 Appointed Chairman of the Audit and Risk Committee on 20 July 2022. 3 Appointed Senior Independent Director on 1 January 2023. 4 Appointed on 1 July 2022. 5 Appointed on 1 January 2023. 6 Appointed on 24 November 2022. 7 Retired on 20 July 2022. 8 Resigned on 31 December 2022. Five Year Change Comparison in Directors’ Remuneration The table below sets out the change in Directors’ fees over the last five years. Director 2024 2019 Change (%) Chairman 52,000 42,000 +23.8% Audit and Risk Committee Chairman 43,500 32,000 +35.9% Senior Independent Director 41,000 31,500 +30.2% Director 34,500 26,500 +30.2% Expenditure on Remuneration and Distributions to Shareholders The table below shows the total amount paid out on Directors’ remuneration and in distributions to shareholders. The projected Directors’ remuneration for the year ending 31 March 2025 is disclosed in the table above. | 31 March | | | 31 March | | | | --- | --- | --- | --- | --- | --- | | | 2024 | | | 2023 | | | | | £ | | | £ | Expenditure on Remuneration: Aggregate of Directors’ Fees 245,153 209,466 Distribution to Shareholders: Dividend payments 30,198,000 28,240,000 Shares repurchased 45,933,000 57,249,000 Annual Report 2024 | Fidelity China Special Situations PLC 47 # **Performance** The Company's NAV per share total return and share price total return performance are measured against the return of the MSCI China Index (in UK sterling terms) as this is the most appropriate Benchmark in respect of its objective. The graph below shows performance for ten years to 31 March 2024. # **Total Return Performance for Ten Years to 31 March 2024** ![img-8.jpeg](img-8.jpeg) # **Directors' Interest in the Company's Ordinary Shares** Although there is no requirement for the Directors to hold shares in the Company, shareholdings by Directors are encouraged. The interests of the Directors in the shares of the Company are shown in the table below. All of the shareholdings are beneficial. The Portfolio Manager, Dale Nicholls, also holds shares in the Company. # **Directors' Shareholdings (Audited)** | | 31 March 2024 | 31 March 2023 | Change during year | | --- | --- | --- | --- | | Mike Balfour | 65,000 | 65,000 | - | | Alastair Bruce | 43,800 | 43,800 | - | | Vanessa Donegan | 10,000 | 10,000 | - | | Georgina Field | 2,250 | 2,250 | - | | Gordon Orr | - | - | - | | Edward Tse | - | - | - | The above shareholdings remain unchanged as at the date of this report. On behalf of the Board **Mike Balfour** Chairman 10 June 2024 STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS ### 48 Fidelity China Special Situations PLC | Annual Report 2024 ## Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report to be aware that legislation in the UK governing the preparation and the Financial Statements in accordance with applicable and dissemination of the Financial Statements may differ from United Kingdom law and regulations. legislation in their own jurisdictions. Company law requires the Directors to prepare Financial The Directors confirm that to the best of their knowledge: Statements for each financial period. Under that law they have elected to prepare the Financial Statements in accordance with • The Financial Statements, prepared in accordance with UK-adopted International Accounting Standards (“IFRS”) in UK-adopted International Accounting Standards (“IFRS”) and conformity with the requirements of the Companies Act 2006 and IFRIC interpretations, give a true and fair view of the assets, IFRIC interpretations. Under company law the Directors must not liabilities, financial position and loss of the Company; and approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the • The Annual Report includes a fair review of the development Company and of the profit or loss for the reporting period. and performance of the business and the position of the Company, together with a description of the principal risks In preparing these Financial Statements the Directors are and uncertainties it faces. required to: The Directors consider that the Annual Report and Financial • Select suitable accounting policies in accordance with IAS 8: Statements, taken as a whole, are fair, balanced and Accounting Policies, Changes in Accounting Estimates and understandable and provide the information necessary for Errors, and then apply them consistently; shareholders to assess the Company’s performance, business model and strategy. • Make judgements and estimates that are reasonable and prudent; Approved by the Board on 10 June 2024 and signed on its behalf • Present information, including accounting policies, in a by: manner that provides relevant, reliable, comparable and understandable information; • Provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to Mike Balfour understand the impact of particular transactions, other Chairman events and conditions on the Company’s financial position and financial performance; • State whether applicable IFRS and IFRIC interpretations 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 to the Manager the responsibility for the maintenance and integrity of the corporate and financial information included on the Company’s pages of the Manager’s website at www.fidelity.co.uk/china. Visitors to the website need ### 49 Annual Report 2024 | Fidelity China Special Situations PLC ## Report of the Audit and Risk Committee I am pleased to present the formal report of the Audit and Risk • Establishing with the Auditor the nature and scope of the Committee (the “Committee”) to shareholders. audit, reviewing the Auditor’s quality control procedures and reporting, the effectiveness of the audit process and the The primary responsibilities of the Committee are to ensure the Auditor’s independence and objectivity with particular integrity of the Company’s financial reporting, the appropriateness regard to the provision of non-audit services; of the risk management and internal controls processes and the effectiveness of the independent audit process and how this has • Responsibility for making recommendations on the been assessed for the year ended 31 March 2024. appointment, reappointment and removal of the Auditor; Composition of the Committee • Reviewing the effectiveness of the Company’s risk The members of the Committee are myself as Chairman, and all management and internal control systems (including of the other Directors, except for Mike Balfour. This is in line with financial, operational and compliance controls) and the recommendation in the 2018 UK Corporate Governance considering the scope of the work undertaken by the Code that the Chairman of the Board should not be a member of Manager’s Internal Audit function; the Audit and Risk Committee. He will generally be invited to attend the Committee meetings as a guest. The Committee • Monitoring the integrity of the Company’s half-yearly and members are considered independent non-executive Directors annual financial statements to ensure they are fair, balanced and collectively have sufficient recent and relevant financial and understandable; experience to discharge their responsibilities fully. • Reviewing the existence and performance of controls The Committee’s performance is evaluated annually as part of operating in the Company, including the review of internal the overall Board evaluation process. controls reporting of its service providers; and Role and Responsibilities of the Audit Committee • Reviewing the relationship with and the performance of The Committee’s authority and duties are clearly defined in its third-party service providers (such as the Registrar, Custodian terms of reference which are available on the Company’s pages and Depositary). of the Manager’s website at www.fidelity.co.uk/china. These duties include: Meetings and Business considered by the Committee Since the date of the last Annual Report (7 June 2023), the Committee has met five times and the Auditor attended three of these meetings. The following matters were reviewed at each Committee meeting: • The Company’s risk management and internal controls framework; • The Company’s compliance with its investment policy limits; • The valuation of unlisted investments; • The Depositary’s oversight reporting; • The Company’s revenue and expenses forecasts and its Balance Sheet; • The Company’s ongoing charges ratio; • The management fee calculations; and • The Committee’s Terms of Reference. . INFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGYGOVERNANCE ### 50 Fidelity China Special Situations PLC | Annual Report 2024 ## Report of the Audit and Risk Committee continued In addition, the following matters were considered at these meetings: ### September 2023 • Detailed review of the valuations of the Company’s unlisted investments with the Manager’s Fair Value Committee, including the Manager’s unlisted specialist, and the independent valuer, Kroll. See further details on the next page ### November 2023 • The Half-Yearly Report and Financial Statements and recommendation of its approval to the Board • The Going Concern Statement • Review of Fidelity’s Investment Trusts AAF Controls Report from PricewaterhouseCoopers LLP • The Manager’s Risk Management Process Document ### February 2024 • The Auditor’s engagement letter and audit plan for the Company’s year ending 31 March 2024 • Review of Fidelity’s Risk and Internal Control environment • Fidelity’s Internal Audit reporting, including review of the internal audit plan • Cybersecurity and potential threats and attacks and the controls in place to mitigate the risks ### March 2024 • Detailed review of the valuations of the Company’s unlisted investments with the Manager’s Fair Value Committee, including the Manager’s unlisted specialist, and the independent valuer, Kroll. See further details on the next page ### June 2024 • The Auditor’s findings from the audit of the Company • The Auditor’s performance, independence and reappointment • Compliance with Corporate Governance and regulatory requirements • The Annual Report and Financial Statements and recommendation of its approval to the Board following review and conclusion by the Committee that they are Fair, Balanced and Understandable • The Viability and Going Concern Statements, including the impact of China’s reopening following the pandemic, the war in Ukraine, the Middle East and Red Sea conflicts, significant market events and regulatory changes on the Company’s performance, prospects and operations • The final dividend payment to be recommended to the Board and shareholders for approval Annual Report and Financial Statements The Annual Report and Financial Statements are the responsibility of the Board and the Statement of Directors’ Responsibilities can be found on page 48. The Committee advises the Board on the form and content of the Annual Report and Financial Statements, any issues which may arise in relation to these and on any specific areas which require judgement. The Committee members apply their expertise and knowledge in reviewing disclosures made in order to ensure that the Financial Statements are fair, balanced and understandable. Significant Issues considered by the Committee during the year Summarised below and on the next page are the most significant issues considered by the Committee in respect of these Financial Statements and how these were addressed. ### Recognition of Investment income is recognised in accordance with Accounting Policy Note 2 (f) on pages 66 and 67. The Manager provided detailed revenue forecasts which the Committee reviewed and ### Investment Income sought explanations for any significant variances to these forecasts. The Committee also considered the allocation of special dividends between revenue and capital and the reasons for classification of these special dividends. The Committee reviewed the internal audit and compliance monitoring reports received from the Manager, including an additional internal controls report (“AAF” report) prepared by PricewaterhouseCoopers LLP on behalf of the Manager, to satisfy itself that adequate systems were in place for properly recording the Company’s investment income. The Committee also reviewed reports provided by the Auditor on its work on the recognition of investment income, including the allocation of special dividends. ### 51 Annual Report 2024 | Fidelity China Special Situations PLC ### Valuation, existence The valuation of investments (including derivative instruments) is in accordance with Accounting Policies Notes 2 (l) and 2 (m) on pages 67 and 68. The Committee took comfort from the ### and ownership Depositary’s regular oversight reports that investment related activities are conducted in ### of investments accordance with the Company’s investment policy. The Committee received reports from the ### (including derivative Manager, the Depositary and an additional AAF report prepared by PricewaterhouseCoopers LLP on behalf of the Manager which concluded that the controls around the valuation, existence ### instruments) and ownership of investments operate effectively. The Committee also reviewed the reports provided by the Auditor on its work on the valuation, existence and ownership of the Company’s investments, including the derivative investments. ### Valuation of the The Manager as the AIFM, is authorised and responsible for performing the valuation of the Company’s unlisted investments, the valuation of which is in accordance with Accounting Policies ### Unlisted Investments Notes 2 (e) and (l) on pages 66 to 68. The valuation of the unlisted investments is proposed by the Manager’s Fair Value Committee (“FVC”) to the Audit and Risk Committee, who in turn reports these to the Board to ensure that the Directors are satisfied that the process that the FVC adopts in recommending the valuation is rigorous, reasonable and independent. The reporting received from the FVC includes recommendations from Kroll, an external company that provides global financial information and services. The FVC report also includes detailed input from the Fidelity analysts covering the unlisted companies and also Fidelity’s unlisted investment specialist who provides further insight. The Committee reviews and challenges the proposed valuation methodologies for all of the unlisted investments in order to gain comfort on the proposed valuations. In addition, the Auditor reviewed the valuations of the unlisted investments in the Company’s portfolio and reported its findings at the June 2024 Audit and Risk Committee meeting. ### Management fee The Company has a variable management fee structure in place. At each Committee meeting, the Manager reports on the accruals for the variable part of the fee that have been included in ### calculation the Company’s NAV and confirms that it has been calculated in accordance with the Management Agreement. These variable management fee accruals are reviewed by the Committee. It also receives reporting on the work carried out by the Auditor that the Company’s variable management fee has been calculated in accordance with the terms of the Management Agreement. The Company confirms that it has complied with the September With regard to the effectiveness of the audit process, the 2014 Competition and Markets Authority Order in relation to the Committee reviewed: performance and appointment of the Auditor, as set out below. • The fulfilment by the Auditor of the agreed audit plan, Independence and Effectiveness of the Audit Process including the audit team’s approach to significant risks; Ernst & Young LLP acted as the Company’s Auditor for the year ended 31 March 2024. • The audit findings report issued by the Auditor on the audit of the Annual Report and Financial Statements for the year With regard to the independence of the Auditor, the Committee ended 31 March 2024; and reviewed: • Feedback from the Manager on the audit of the Company. • The Auditor’s arrangements for managing any conflicts of interest; The Committee concluded that the Auditor continues to remain independent and the audit process remains effective. • The fact that no non-audit services were provided to the Company during the reporting year and as at the date of this report; and • The statement by the Auditor that it remains independent within the meaning of the regulations and their professional standards. INFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGYGOVERNANCE ### 52 Fidelity China Special Situations PLC | Annual Report 2024 ## Report of the Audit and Risk Committee continued Auditor’s Appointment and Audit Tenure Ernst & Young LLP was appointed as the Company’s Auditor on 30 November 2015 following a formal audit tender process. The Committee has reviewed the Auditor’s independence and the effectiveness of the audit process prior to recommending its reappointment for a further year. The Auditor is required to rotate audit partners every five years and this is the first year that the Audit Partner, Denise Davidson, has been in place. The Committee will continue to review the Auditor’s appointment each year to ensure that the Company is receiving an optimal level of service. There are no contractual obligations that restrict the Company’s choice of auditor. Audit Tender An audit tender process will be completed in 2025. This process will be led by the Audit Committee, who will complete an assessment of external auditors’ proposals. Following this assessment, a recommendation will be made to the Board regarding whether a change of Auditor should be made. Audit Fees Fees paid to the Auditor for the audit of the Company’s Financial Statements are disclosed in Note 5 on page 71. The audit fee for the reporting year was £71,000 (2023: £57,000). The fee of £71,000 includes £10,000 in relation to the audit work carried out for the transaction with abrdn China Investment Company Limited. Alastair Bruce Chairman of the Audit and Risk Committee 10 June 2024 ### 53 Annual Report 2024 | Fidelity China Special Situations PLC ## Independent Auditor’s Report to the Members ## of Fidelity China Special Situations PLC Opinion • Inspecting the Directors’ assessment of going concern, We have audited the Financial Statements of Fidelity China including the revenue and expense forecast, for the period to Special Situations PLC (the ‘Company’) for the year ended 31 30 June 2025 which is at least 12 months from the date of March 2024 which comprise the Income Statement, the Statement approval of the Financial Statements. In preparing the of Changes in Equity, the Balance Sheet, the Cash Flow Statement revenue and expense forecast, the Company has concluded and the related Notes 1 to 20, including a summary of significant that it is able to continue to meet its ongoing costs as they accounting policies. The financial reporting framework that has fall due; been applied in their preparation is applicable law and UK adopted international accounting standards. • Reviewing the factors and assumptions, including the impact of the current economic environment and other significant In our opinion, the Financial Statements: events that could give rise to market volatility, as applied to the revenue and expense forecast and the liquidity • give a true and fair view of the Company’s affairs as at assessment of the investments and determined, through 31March 2024 and of its loss for the year then ended; testing of the methodology and calculations, that the methods, inputs and assumptions utilised are appropriate to • have been properly prepared in accordance with UK be able to make an assessment for the Company; adopted international accounting standards; and • Consideration of the mitigating factors included in the • have been prepared in accordance with the requirements of revenue and expense forecast that are within the control of the Companies Act 2006. the Company. We reviewed the Company’s assessment of GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY the liquidity of investments held and evaluated the Basis for opinion Company’s ability to sell those investments in order to cover We conducted our audit in accordance with International working capital requirements should revenue decline Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our significantly; and responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of Financial Statements • Reviewing the Company’s going concern disclosures section of our report. We believe that the audit evidence we have included in the Annual Report in order to assess whether the obtained is sufficient and appropriate to provide a basis for our disclosures were appropriate and in conformity with the opinion. reporting standards. Independence Based on the work we have performed, we have not identified We are independent of the Company in accordance with the any material uncertainties relating to events or conditions that, ethical requirements that are relevant to our audit of the Financial individually or collectively, may cast significant doubt on the Statements in the UK, including the FRC’s Ethical Standard as Company’s ability to continue as a going concern for a period to applied to listed public interest entities, and we have fulfilled our 30 June 2025 which is at least 12 months from when these other ethical responsibilities in accordance with these Financial Statements are authorised for issue. requirements. In relation to the Company’s reporting on how they have applied The non-audit services prohibited by the FRC’s Ethical Standard the UK Corporate Governance Code, we have nothing material to were not provided to the Company and we remain independent add or draw attention to in relation to the Directors’ statement in of the Company in conducting the audit. the Financial Statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting. Conclusions relating to going concern In auditing the Financial Statements, we have concluded that the Our responsibilities and the responsibilities of the Directors with Directors’ use of the going concern basis of accounting in the respect to going concern are described in the relevant sections preparation of the Financial Statements is appropriate. Our of this report. However, because not all future events or evaluation of the Directors’ assessment of the Company’s ability conditions can be predicted, this statement is not a guarantee as to continue to adopt the going concern basis of accounting to the Company’s ability to continue as a going concern. included: • Confirming our understanding of the Company’s going concern assessment process by engaging with the Directors and the Company Secretary to determine if all key factors were considered in their assessment; ### 54 Fidelity China Special Situations PLC | Annual Report 2024 ## Independent Auditor’s Report to the Members ## of Fidelity China Special Situations PLC continued Overview of our audit approach ### Key audit matters • Risk of incomplete or inaccurate revenue recognition, including the classification of special dividends as revenue or capital items in the Income Statement • Risk of incorrect valuation and resultant impact on the unrealised gains/(losses) of the unlisted investments • Risk of incorrect valuation of the listed investments or ownership of the entire investment portfolio, including derivatives • Risk of incorrect accounting for the transaction between the Company and abrdn China Investment Company Limited (‘ACIC’) ### Materiality • Overall materiality of £11.76m which represents 1% of the Company’s net asset value as at 31March 2024. An overview of the scope of our audit Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for the Company. This enables us to form an opinion on the Financial Statements. We take into account size, risk profile, the organisation of the Company and effectiveness of controls, the potential impact of climate change and changes in the business environment when assessing the level of work to be performed. All audit work was performed directly by the audit engagement team. Climate change Stakeholders are increasingly interested in how climate change will impact companies. The Company has determined that the impact of climate change could affect the Company’s investments and their valuations and potentially shareholder returns. This is explained on page 24 and on page 27 in the principal and emerging risks section, which form part of the “Other information,” rather than the audited Financial Statements. Our procedures on the disclosures therefore consisted solely of considering whether they are materially inconsistent with the Financial Statements, or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated. Our audit effort in considering climate change was focused on the adequacy of the Company’s disclosures in the Financial Statements as set out in Note 2(a) and conclusion that there was no further impact of climate change to be taken into account as the investments are valued based on market pricing. In line with UK adopted international accounting standards, investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the balance sheet date. Investments which are unlisted are priced using market-based valuation approaches. All investments therefore reflect the market participants view of climate change risk on the investments held by the Company. Based on our work we have not identified the impact of climate change on the Financial Statements to be a key audit matter or to impact a key audit matter. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. Annual Report 2024 | Fidelity China Special Situations PLC 55 | Risk | Our response to the risk | Key observations communicated to the Audit and Risk Committee | | --- | --- | --- | | **Risk of incomplete or inaccurate revenue recognition, including the classification of special dividends as revenue or capital items in the Income Statement***Refer to the Report of the Audit and Risk Committee (page 50); Accounting Policies (pages 66 and 67); and Note 3 of the Financial Statements (page 70)* The Company has reported revenue of £38.94m (2023: £44.68m). During the year, the Company received special dividends amounting to £2.37m (2023: £2.34m), of which £0.91m (2023: £1.18m) was classified as revenue and £1.46m (2023: £1.16) as capital. There is a risk of incomplete or inaccurate recognition of revenue through the failure to recognise proper income entitlements or to apply an appropriate accounting treatment. In addition to the above, the Directors may be required to exercise judgement in determining whether income received in the form of special dividends should be classified as 'revenue' or 'capital' in the Income Statement. | **We have performed the following procedures:** We obtained an understanding of the processes and controls surrounding revenue recognition and classification of special dividends by performing walkthrough procedures to evaluate the design and implementation of controls; For all dividends received and accrued, we recalculated the income by multiplying the investment holdings at the ex-dividend date, traced from the accounting records, by the dividend rate as agreed to an independent data vendor. We also agreed all exchange rates to an external source and, for a sample of dividends received and dividends accrued, we agreed amounts to bank statements; For all dividends accrued, we assessed whether the dividend obligations arose prior to 31 March 2024 with reference to an external source; To test completeness of recorded income, we tested that all expected dividends for each of the investee companies had been recorded as income with reference to an external source; and For all investments held during the year, we reviewed the type of dividends paid with reference to an external data source to identify those which were special dividends. There were two special dividends above our testing threshold, and we have assessed the appropriateness of the Company's classification as either revenue or capital by reviewing the rationale for the underlying distribution. | The results of our procedures identified no material misstatement in relation to the risk of incomplete or inaccurate revenue recognition, including the classification of special dividends as revenue or capital items in the Income Statement. | STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS ### 56 Fidelity China Special Situations PLC | Annual Report 2024 ## Independent Auditor’s Report to the Members ## of Fidelity China Special Situations PLC continued Risk Our response to the risk Key observations communicated to the Audit and Risk Committee ### Risk of incorrect valuation and We have performed the following The results of our procedures: procedures identified ### resultant impact on the unrealised no material We obtained an understanding of the processes ### gains/(losses) of the unlisted misstatement in and controls surrounding unlisted investment ### investments relation to the risk of pricing and by performing walkthrough incorrect valuation and Refer to the Report of the Audit and Risk procedures to evaluate the design and resultant impact on the Committee (page 51); Accounting Policies implementation of controls; unrealised gains/ (pages 66 to 68); and Note 18 of the Financial | | For all unlisted investments held at the year-end, | (losses) of the unlisted | | --- | --- | --- | | S tatements (page 88). | | | | | our specialist valuations team reviewed and | investments. | | At 31 March 2024, the Company had six unlisted | challenged the valuations. This included: | | investments with a value of £157.01m (2023: nine • Reviewing the latest valuation papers by unlisted investments with a value of £192.88m) Kroll, a third-party service provider; and an unrealised gain of £44.76m (2023: £25.99m). • Assessing whether the valuations have been performed in line with the IPEV guidelines; We considered that the degree of subjectivity, • Assessing the appropriateness of the data including the level of management judgement inputs and challenging the assumptions and the risk that the valuation does not reflect used to support the valuations; and the most up to date information, results in a fraud risk over misstatement of the valuation of • Assessing other facts and circumstances, unlisted investments. such as market movement and comparative information, that could have an impact on The unlisted investments are approved by the the fair market value of the investments. Manager’s Fair Value Committee and these are We obtained and assessed the Manager’s Fair reviewed and challenged by the Directors. The Value Committee papers including the Manager engages Kroll to perform a valuation assumptions and judgements in determining the which is then considered by the Manager’s Fair fair value of the unlisted investments held by the Value Committee. The unlisted investment policy Company at the year-end; applies methodologies consistent with the International Private Equity and Venture Capital Agreed the cost of the sold unlisted investments Valuation guidelines (“IPEV”). to the supporting sale agreements and traced the payments to bank statement; Agreed 100% of exchange rates to a relevant independent data vendor; and We recalculated the total unrealised gains/ losses on unlisted investments as at the year-end using the book-cost reconciliation. Annual Report 2024 | Fidelity China Special Situations PLC 57 | Risk | Our response to the risk | Key observations communicated to the Audit and Risk Committee | | --- | --- | --- | | **Risk of incorrect valuation of the listed investments or ownership of the entire investment portfolio, including derivatives***Refer to the Report of the Audit and Risk Committee (page 51), Accounting Policies (pages 66 to 68), and Notes 10 and 11 of the Financial Statements (pages 74 and 75).* At 31 March 2024, the Company held listed investments with a value of £1,005.26m (2023: £1,125.89m). The Company also has derivative assets amounting to £7.10m (2023: £22.31m) and derivative liabilities amounting to £13.31m (2023: £20.89m). The valuation of the assets held in the investment portfolio is the key driver of the Company's net asset value and total return. Incorrect investment pricing, or a failure to maintain proper legal title to the investments held by the Company could have a significant impact on the portfolio valuation and the return generated for shareholders. The fair value of the listed investments and derivatives is determined using quoted market prices at close of business on the reporting date. | **We have performed the following procedures:** We obtained an understanding of the processes and controls surrounding investment pricing and legal title by performing walkthrough procedures; For all listed investments in the portfolio, we compared the market prices and exchange rates applied to an independent pricing vendor. For all derivatives, we compared the market prices of the underlying instrument to an independent pricing vendor and agreed cost price to the Brokers' confirmations. We recalculated the investment and derivative valuations as at the year-end; We inspected the stale pricing report to identify prices that had not changed and verified whether the quoted price is a valid fair value; and We compared the Company's investment holdings at 31 March 2024 to the independent confirmation received directly from the Company's Custodian and Depositary. We agreed all year-end open derivative positions to confirmations received independently from the Company's Brokers. | The results of our procedures identified no material misstatement in relation to the risk of incorrect valuation of the listed investments or ownership of the entire investment portfolio, including derivatives. | STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS ### 58 Fidelity China Special Situations PLC | Annual Report 2024 ## Independent Auditor’s Report to the Members ## of Fidelity China Special Situations PLC continued Risk Our response to the risk Key observations communicated to the Audit and Risk Committee ### Risk of incorrect accounting for We have performed the following The results of our procedures: procedures identified ### the transaction between the no material We obtained an understanding of the process ### Company and abrdn China misstatement in on how the transaction was recorded and the ### Investment Company Limited relation to the issuance of shares calculated; transaction between ### (‘ACIC’) the Company and We have reviewed the formula asset value Accounting Policies (page 65); and Notes 15 ACIC. calculations and checked the calculation agreed and 16 of the Financial Statements (pages 77 to the scheme of reconstruction; and 78). | On 28 November 2023, proposals relating to the | We have agreed the number of shares issued | | --- | --- | | combining with ACIC was announced by way of | pursuant to the transaction to the LSE | | a Guernsey scheme of reconstruction. | announcements and agreed to the accounting | | Implementation of the transaction would result in | records of the Company; | voluntary winding up of ACIC and the transfer of part of ACIC’s cash, investments and interest We agreed the cash, investments and interest income to the Company in return for the issue of income transferred to the Company, as part of New Shares by the Company on a formula asset the transaction, to the accounting records of the value (“FAV”) for FAV basis. The transaction was Company; approved in the General meeting on 11 March and implemented on 13 March 2024. We revalued the investments transferred using market prices and exchange rates provided by There is a risk that cash, investments and interest an independent pricing vendor, and traced the income transferred from ACIC to the Company cash transferred through bank statements; and are not recorded correctly. There is also a risk that the issuance of shares related to the We reviewed the disclosures in the Financial transaction are incorrectly accounted for and Statements to ensure the transaction was correctly incorrectly disclosed in the Financial Statements accounted for, and the Strategic Report, including of the Company. Section 172 statement, provided details of the transaction. In the current year we have added a key audit matter on ‘Risk of Performance materiality incorrect accounting for the transaction between the Company The application of materiality at the individual account or and abrdn China Investment Company Limited (‘ACIC’)‘ as it is a balance level. It is set at an amount to reduce to an significant event that occurred during the period, and has a appropriately low level the probability that the aggregate of material impact on the Financial Statements of the Company. uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our Our application of materiality assessment of the Company’s overall control environment, our We apply the concept of materiality in planning and performing judgement was that performance materiality was 75% (2023: 75%) the audit, in evaluating the effect of identified misstatements on of our planning materiality, namely £8.82m (2023: £10.04m). We the audit and in forming our audit opinion. have set performance materiality at this percentage due to our past experience of the audit that indicates a lower risk of Materiality misstatements, both corrected and uncorrected. The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence Reporting threshold the economic decisions of the users of the Financial Statements. An amount below which identified misstatements are considered Materiality provides a basis for determining the nature and as being clearly trivial. extent of our audit procedures. We agreed with the Audit and Risk Committee that we would We determined materiality for the Company to be £11.76m report to them all uncorrected audit differences in excess of (2023: £13.38m), which is 1% (2023: 1%) of net asset value. We £0.59m (2023: £0.67m), which is set at 5% of planning materiality, believe that net asset value provides us with materiality aligned as well as differences below that threshold that, in our view, to the key measure of the Company’s performance. warranted reporting on qualitative grounds. ### 59 Annual Report 2024 | Fidelity China Special Situations PLC Given the importance of the distinction between revenue and • Adequate accounting records have not been kept, or returns capital for investment trusts, we have also applied a separate adequate for our audit have not been received from testing threshold for the revenue column of the Income Statement branches not visited by us; or of £1.43m (2023: £1.83m), being 5% (2023: 5%) of the net return on ordinary activities before taxation. • The Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement We evaluate any uncorrected misstatements against both the with the accounting records and returns; or quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our • Certain disclosures of Directors’ remuneration specified by opinion. law are not made; or • We have not received all the information and explanations Other information we require for our audit. The other information comprises the information included in the Annual Report other than the Financial Statements and our Corporate Governance Statement Auditor’s Report thereon. The Directors are responsible for the We have reviewed the Directors’ statement in relation to going other information contained within the Annual Report. concern, longer-term viability and that part of the Corporate Governance Statement relating to the Company’s compliance Our opinion on the Financial Statements does not cover the other with the provisions of the UK Corporate Governance Code information and, except to the extent otherwise explicitly stated specified for our review by the Listing Rules. in this report, we do not express any form of assurance GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY conclusion thereon. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Our responsibility is to read the other information and, in doing so, Governance Statement is materially consistent with the Financial consider whether the other information is materially inconsistent Statements or our knowledge obtained during the audit: with the Financial Statements or our knowledge obtained in the course of the audit or otherwise appears to be materially • Directors’ statement with regards to the appropriateness of misstated. If we identify such material inconsistencies or apparent adopting the going concern basis of accounting and any material misstatements, we are required to determine whether this material uncertainties identified set out on page 37; gives rise to a material misstatement in the Financial Statements themselves. If, based on the work we have performed, we • Directors’ explanation as to its assessment of the Company’s conclude that there is a material misstatement of the other prospects, the period this assessment covers and why the information, we are required to report that fact. period is appropriate set out on pages 29 and 30; We have nothing to report in this regard. • Director’s statement on whether it has a reasonable expectation that the Company will be able to continue in Opinions on other matters prescribed by the Companies Act operation and meets its liabilities set out on page 37; 2006 In our opinion the part of the Directors’ remuneration report to • Directors’ statement on fair, balanced and understandable be audited has been properly prepared in accordance with the set out on page 48; Companies Act 2006. • Board’s confirmation that it has carried out a robust In our opinion, based on the work undertaken in the course of assessment of the emerging and principal risks set out on the audit: page 24; • The section of the Annual Report that describes the review • the information given in the Strategic Report and the of effectiveness of risk management and internal control Directors’ Report for the financial year for which the systems set out on page 43; and; Financial Statements are prepared is consistent with the Financial Statements; and • The section describing the work of the Audit and Risk Committee set out on page 49. • the Strategic Report and Directors’ Report have been prepared in accordance with applicable legal requirements. Responsibilities of Directors As explained more fully in the Directors’ responsibilities Matters on which we are required to report by exception statement set out on page 48, the Directors are responsible for In the light of the knowledge and understanding of the Company the preparation of the Financial Statements and for being and its environment obtained in the course of the audit, we have satisfied that they give a true and fair view, and for such internal not identified material misstatements in the Strategic Report or control as the Directors determine is necessary to enable the Directors’ Report. preparation of Financial Statements that are free from material misstatement, whether due to fraud or error. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: ### 60 Fidelity China Special Situations PLC | Annual Report 2024 ## Independent Auditor’s Report to the Members ## of Fidelity China Special Situations PLC continued In preparing the Financial Statements, the Directors are capital items in the Income Statement and the incorrect responsible for assessing the Company’s ability to continue as a valuation and resultant impact on the unrealised gains/ going concern, disclosing, as applicable, matters related to (losses) of the unlisted investments. Further discussion of our going concern and using the going concern basis of accounting approach is set out in the section on key audit matters unless the Directors either intend to liquidate the Company or to above. cease operations, or have no realistic alternative but to do so. • Based on this understanding we designed our audit Auditor’s responsibilities for the audit of the Financial procedures to identify non-compliance with such laws and Statements regulations. Our procedures involved review of the reporting Our objectives are to obtain reasonable assurance about to the Directors with respect to the application of the whether the Financial Statements as a whole are free from documented policies and procedures and review of material misstatement, whether due to fraud or error, and to Financial Statements to ensure compliance with the issue an Auditor’s Report that includes our opinion. Reasonable reporting requirements of the Company. assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always A further description of our responsibilities for the audit of the detect a material misstatement when it exists. Misstatements can Financial Statements is located on the Financial Reporting arise from fraud or error and are considered material if, Council’s website at https://www.frc.org.uk/ individually or in the aggregate, they could reasonably be auditorsresponsibilities. This description forms part of our expected to influence the economic decisions of users taken on Auditor’s Report. the basis of these Financial Statements. Other matters we are required to address Explanation as to what extent the audit was considered • Following the recommendation from the Audit and Risk capable of detecting irregularities, including fraud Committee, we were appointed by the Company on 30 Irregularities, including fraud, are instances of non-compliance November 2015 to audit the Financial Statements for the with laws and regulations. We design procedures in line with our year ending 31 March 2016 and subsequent financial responsibilities, outlined above, to detect irregularities, including periods. fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from The period of total uninterrupted engagement including error, as fraud may involve deliberate concealment by, for previous renewals and reappointments is 9 years, covering example, forgery or intentional misrepresentations, or through the years ending 31 March 2016 to 31 March 2024. collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. • The audit opinion is consistent with the additional report to the Audit and Risk Committee. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance Use of our report of the Company and management. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies • We obtained an understanding of the legal and regulatory Act 2006. Our audit work has been undertaken so that we might frameworks that are applicable to the Company and state to the Company’s members those matters we are required determined that the most significant are the UK adopted to state to them in an Auditor’s Report and for no other purpose. international accounting standards, the Companies Act To the fullest extent permitted by law, we do not accept or 2006, the Association of Investment Companies Code of assume responsibility to anyone other than the Company and the Corporate Governance, the Association of Investment Company’s members as a body, for our audit work, for this Companies’ Statement of Recommended Practice, the Listing report, or for the opinions we have formed. Rules, the Corporate Governance Code, Section 1158 of the Corporation Tax Act 2010 and the Companies Denise Davidson (Miscellaneous Reporting) Regulations 2018. (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor • We understood how the Company is complying with those London frameworks through discussions with the Audit and Risk 10 June 2024 Committee and Company Secretary and review of Board minutes and the Company’s documented policies and procedures. • We assessed the susceptibility of the Company’s Financial Statements to material misstatement, including how fraud might occur by considering the key risks impacting the Financial Statements. We identified a fraud risk with respect to the incomplete or inaccurate revenue recognition through incorrect classification of special dividends as revenue or 61^{}[] Annual Report 2024 | Fidelity China Special Situations PLC # Income Statement for the year ended 31 March 2024 | | Notes | Year ended 31 March 2024 | | | Year ended 31 March 2023 | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | | **Revenue** | | | | | | | | | Investment income | 3 | 26,123 | – | 26,123 | 32,704 | – | 32,704 | | Derivative income | 3 | 11,154 | – | 11,154 | 11,566 | – | 11,566 | | Other income | 3 | 1,659 | – | 1,659 | 409 | – | 409 | | **Total income** | | **38,936** | **–** | **38,936** | **44,679** | **–** | **44,679** | | Losses on investments at fair value through profit or loss | 10 | – | (155,001) | (155,001) | – | (6,912) | (6,912) | | (Losses)/gains on derivative instruments | 11 | – | (54,790) | (54,790) | – | 14,971 | 14,971 | | Foreign exchange (losses)/gains | | – | (3,858) | (3,858) | – | 8,167 | 8,167 | | Foreign exchange gains/(losses) on bank loan | | – | 1,517 | 1,517 | – | (4,814) | (4,814) | | **Total income and (losses)/gains** | | **38,936** | **(212,132)** | **(173,196)** | **44,679** | **11,412** | **56,091** | | **Expenses** | | | | | | | | | Investment management fees | 4 | (2,430) | (8,991) | (11,421) | (3,012) | (11,715) | (14,727) | | Other expenses | 5 | (1,203) | (35) | (1,238) | (1,097) | (4) | (1,101) | | **Profit/(loss) before finance costs and taxation** | | **35,303** | **(221,158)** | **(185,855)** | **40,570** | **(307)** | **40,263** | | Finance costs | 6 | (6,699) | (20,098) | (26,797) | (3,956) | (11,869) | (15,825) | | **Profit/(loss) before taxation** | | **28,604** | **(241,256)** | **(212,652)** | **36,614** | **(12,176)** | **24,438** | | Taxation | 7 | (812) | – | (812) | (1,149) | – | (1,149) | | **Profit/(loss) after taxation for the year** | | **27,792** | **(241,256)** | **(213,464)** | **35,465** | **(12,176)** | **23,289** | | **Earnings/(loss) per ordinary share** | 8 | **5.78p** | **(50.18p)** | **(44.40p)** | **7.05p** | **(2.42p)** | **4.63p** | The Company does not have any income or expenses that are not included in the profit/(loss) after taxation for the year. Accordingly, the profit/(loss) 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. All the profit/(loss) and total comprehensive income is attributable to the equity shareholders of the Company. There are no minority interests. On 13 March 2024, the Company combined assets with abrdn China Investment Company Limited ("ACIC"), following a Guernsey scheme of reconstruction. No other operations were acquired or discontinued during the year. The Notes on pages 65 to 91 form an integral part of these Financial Statements. STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS ### 62 Fidelity China Special Situations PLC | Annual Report 2024 ## Statement of Changes in Equity ### for the year ended 31 March 2024 | | | | Share | | Capital | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Share | premium | | redemption | | Other | Capital | | Revenue | | Total | | | capital | account | | | reserve | reserve | reserve | | reserve | | equity | | Notes | £’000 | | £’000 | | £’000 | £’000 | | £’000 | | £’000 | £’000 | Total equity at 31 March 2023 5,710 211,569 917 186,794 877,782 55,649 1,338,421 New ordinary shares issued in respect of the transaction with ACIC 15 590 126,198––––126,788 Contribution in respect of the transaction with ACIC by the Manager –400––––400 Repurchase of ordinary shares into Treasury 15 – – – (6,965) – – (6,965) Repurchase of ordinary shares for cancellation 15 (187) – 187 (38,968) – – (38,968) (Loss)/profit after taxation for the year ––––(241,256) 27,792 (213,464) Dividend paid to shareholders 9 –––––(30,198) (30,198) Total equity at 31 March 2024 6,113 338,167 1,104 140,861 636,526 53,243 1,176,014 Total equity at 31 March 2022 5,710 211,569 917 244,043 889,958 48,424 1,400,621 Repurchase of ordinary shares 15 – – – (57,249) – – (57,249) (Loss)/profit after taxation for the year ––––(12,176) 35,465 23,289 Dividend paid to shareholders 9 –––––(28,240) (28,240) Total equity at 31 March 2023 5,710 211,569 917 186,794 877,782 55,649 1,338,421 The Notes on pages 65 to 91 form an integral part of these Financial Statements. ### 63 Annual Report 2024 | Fidelity China Special Situations PLC ## Balance Sheet ### as at 31 March 2024 ### Company number 7133583 | | 31 March | | 31 March | | | --- | --- | --- | --- | --- | | | | 2024 | | 2023 | | Notes | | £’000 | | £’000 | Non-current assets Investments at fair value through profit or loss 10 1,162,265 1,318,764 Current assets Derivative instruments 11 7,103 22,313 Amounts held at futures clearing houses and brokers 24,589 34,813 Other receivables 12 10,066 11,939 Cash at bank 7,858 72,943 49,616 142,008 Current liabilities Derivative instruments 11 (13,307) (20,892) GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY Bank loan 13 – (80,857) Other payables 14 (9,802) (20,602) Bank overdrafts (12,758) – (35,867) (122,351) Net current assets 13,749 19,657 Net assets 1,176,014 1,338,421 Equity attributable to equity shareholders Share capital 15 6,113 5,710 Share premium account 16 338,167 211,569 Capital redemption reserve 16 1,104 917 Other reserve 16 140,861 186,794 Capital reserve 16 636,526 877,782 Revenue reserve 16 53,243 55,649 Total equity 1,176,014 1,338,421 Net asset value per ordinary share 17 223.71p 274.08p The Financial Statements on pages 61 to 91 were approved by the Board of Directors on 10 June 2024 and were signed on its behalf by: Mike Balfour Chairman The Notes on pages 65 to 91 form an integral part of these Financial Statements. ### 64 Fidelity China Special Situations PLC | Annual Report 2024 ## Cash Flow Statement ### for the year ended 31 March 2024 | Year ended | | | Year ended | | | --- | --- | --- | --- | --- | | | 31 March | | 31 March | | | | | 2024 | | 2023 | | | | £’000 | | £’000 | Operating activities Cash inflow from investment income 26,240 30,352 Cash inflow from derivative income 10,891 11,484 Cash inflow from other income 1,659 409 Cash outflow from Directors’ fees (236) (195) Cash outflow from other payments (13,104) (15,638) Cash outflow from the purchase of investments (592,266) (429,715) Cash outflow from the purchase of derivatives (1,910) (7,957) Cash outflow from the settlement of derivatives (301,285) (485,760) Cash inflow from the sale of investments 703,150 480,407 Cash inflow from the settlement of derivatives 260,351 510,263 Cash outflow from amounts held at futures clearing houses and brokers 10,224 (2,593) Net cash inflow from operating activities before servicing of finance 103,714 91,057 Financing activities Cash inflow from the issuance of ordinary shares in respect of the transaction with ACIC 5,156 – Cash inflow from the Fidelity contribution in respect of the transaction with ACIC 400 – Cash outflow from loan interest paid (5,138) (2,242) Cash outflow from the settlement of the bank loan (79,340) – Cash outflow from CFD interest paid (22,695) (12,099) Cash outflow from short CFD dividends paid – (254) Cash outflow from the repurchase of ordinary shares into Treasury (7,095) (57,119) Cash outflow from the repurchase of ordinary shares for cancellation (38,789) – Cash outflow from dividends paid to shareholders (30,198) (28,240) Cash outflow from financing activities (177,699) (99,954) Decrease in cash at bank (73,985) (8,897) Cash at bank at the start of the year 72,943 73,673 Effect of foreign exchange movements (3,858) 8,167 Cash at bank at the end of the year (4,900) 72,943 Represented by: 7,858 Cash at bank 72,943 (12,758) Bank overdrafts – (4,900) 72,943 The Notes on pages 65 to 91 form an integral part of these Financial Statements. Annual Report 2024 | Fidelity China Special Situations PLC 65 # Notes to the Financial Statements ## 1 Principal Activity Fidelity China Special Situations 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 7133583, 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 Policies The Company's Financial Statements have been prepared in accordance with UK-adopted International Accounting Standards ("IFRS"), IFRIC interpretations and as far as it is consistent with IFRS, 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 July 2022. The accounting policies adopted in the preparation of these Financial Statements are summarised below: **a) Basis 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 instruments. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence up to 30 June 2025 which is at least twelve months from the date of approval of these Financial Statements. In making their assessment the Directors have reviewed income and expense projections, the liquidity of the investment portfolio, stress testing performed and considered the Company's ability to meet liabilities as they fall due. This conclusion also takes into account the Director's assessment of the risks faced by the Company as detailed in the Going Concern Statement on page 37. In preparing these Financial Statements the Directors have considered the impact of climate change risk as an emerging and a principal risk as set out on page 24 and on page 27, and have concluded that there was no further impact of climate change to be taken into account as the investments are valued based on market pricing. In line with IFRS 13, investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the balance sheet date. Investments which are unlisted are priced using market-based valuation approaches. All investments therefore reflect the market participants view of climate change risk on the investments held by the Company. The Company's Going Concern Statement in the Directors' Report on page 37 takes account of all events and conditions up to 30 June 2025 which is at least twelve months from the date of approval of these Financial Statements. ### Issue of Ordinary Shares in respect of the transaction with abrdn China Investment Company Limited ("ACIC") On 13 March 2024, the Company issued New ordinary shares which were provided to shareholders of ACIC, in connection with the combination of the assets of the Company with the assets of ACIC. The Directors have considered the substance of the assets and activities of ACIC in determining whether the acquisition represents the acquisition of a business. In this case, the acquisition is not considered to be an acquisition of a business, and therefore, has not been treated as a business combination. Rather, the cost to acquire the assets and liabilities of ACIC has been allocated between the acquired identifiable assets and liabilities based on their relative fair values on the acquisition date without attributing any amount to goodwill or to deferred taxes. Assets transferred comprised investments, cash and receivables. A total of £126,789,000 of assets were acquired as a result of the transaction with ACIC. This comprised investments (£120,754,000), cash (£5,156,000) and receivables (£879,000). The Manager agreed to contribute towards the transaction with ACIC, as described below. A contribution of £715,000, representing eight months of management fees, in respect of the assets transferred by ACIC to the Company, that would otherwise be payable by the enlarged Company to the Manager in the year to 31 March 2025. Additionally, the Manager agreed to make a cash contribution to the Company equal to £500,000. In the year to 31 March 2024, the Company has recognised an initial contribution of £400,000, with a further £100,000 being recognised in the year to 31 March 2025, to align with the reduction of management fees and the recognition of expenses relating to the transaction and issuance of shares. The Company has recognised the contribution from the Manager in the Share premium account as described in Note 16. Furthermore, the Manager has agreed that following the transaction with ACIC, the base management fee payable by the Company under the Management Agreement will reduce from 0.70% to 0.65% on the Company's Net Assets in excess of £1.5 billion. This is expected to lower the ongoing costs of the Company as it grows over the longer-term. **b) Adoption of new and revised International Accounting Standards** – the accounting policies adopted are consistent with those of the previous financial year. STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS ### 66 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 2 Accounting Policies continued At the date of authorisation of these Financial Statements, the following revised IAS were in issue but not yet effective: • IAS 1 Presentation of Financial Statements (amendments); • IAS 7 Statement of Cash Flows; • IAS 8 Accounting Policies, Changes in Accounting estimates and errors (amendments); and • IAS 12 Income Taxes (amendments). The Directors do not expect that the adoption of the above Standards will have a material impact on the Financial Statements of the Company in future periods. c) Segmental reporting – The Company is engaged in a single segment business and, therefore, no segmental reporting is provided. d) Presentation of the Income Statement – In 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 revenue profit 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) Significant accounting estimates, assumptions and judgements – The preparation of the Financial Statements requires the use of estimates, assumptions and judgements. These estimates, assumptions and judgements affect the reported amounts of assets and liabilities at the reporting date. While estimates are based on best judgement using information and financial data available, the actual outcome may differ from these estimates. The key sources of estimation and uncertainty relate to the fair value of the unlisted investments. Judgements The Directors consider whether each fair value is appropriate following detailed review and challenge of the pricing methodology. The judgement applied in the selection of the methodology used (see Note 2 (l) below) for determining the fair value of each unlisted investment can have a significant impact upon the valuation. Estimates The key estimate in the Financial Statements is the determination of the fair value of the unlisted investments by the Manager’s Fair Value Committee (“FVC”), with support from an external valuer and Fidelity’s unlisted investments specialist, for detailed review and appropriate challenge by the Directors. This estimate is key as it significantly impacts the valuation of the unlisted investments at the Balance Sheet date. When no recent primary or secondary transaction in the company’s shares have taken place, the fair valuation process involves estimation using subjective inputs that are unobservable (for which market data is unavailable). The estimates involved in the valuation process may include the following: (i) The selection of appropriate comparable companies. Comparable companies are chosen on the basis of their business characteristics and growth patterns; (ii) The selection of a revenue metric (either historical or forecast); (iii) The selection of an appropriate illiquidity discount factor to reflect the reduced liquidity of unlisted companies versus their listed peers; (iv) The estimation of the likelihood of a future exit of the position through an initial public offering (“IPO”) or a company sale; (v) The selection of an appropriate industry benchmark index to assist with the valuation; and (vi) The calculation of valuation adjustments derived from milestone analysis and future cash flows (i.e. incorporating operational success against the plans/forecasts of the business into the valuation). As the valuation outcomes may differ from the fair value estimates a price sensitivity analysis is provided in Other Price Risk Sensitivity in Note 18 to illustrate the effect on the Financial Statements of an over or under estimation of fair value. The risk of an over or under estimation of fair value is greater when methodologies are applied using more subjective inputs. ### 67 Annual Report 2024 | Fidelity China Special Situations PLC 2 Accounting Policies continued Assumptions The determination of fair value by the FVC involves key assumptions dependent upon the valuation techniques used. The valuation process recognises that the price of a recent investment may be an appropriate starting point for estimating fair value. The Multiples approach involves subjective inputs and therefore presents a greater risk of over or under estimation, particularly in the absence of a recent transaction. f) Income – Income from equity investments and long contracts for difference (“CFDs”) is credited to the revenue column of the Income Statement 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. 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 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. Interest on securities, interest for CFDs, collateral and bank deposits are accounted for on an accruals basis and credited to the revenue column of the Income Statement. Interest received on CFDs represent the finance costs calculated by reference to the notional value of the CFDs. g) Functional currency and foreign exchange – The functional and reporting currency of the Company is UK sterling, which is the currency of the primary economic environment in which the Company operates. Transactions denominated in foreign currencies are GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY 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) Investment management and other expenses – These are accounted for on an accruals basis and are charged as follows: • The base investment management fee is allocated 25% to revenue and 75% to capital; • The variable investment management fee is charged/credited to capital as it is based on the performance of the net asset value per share relative to the Benchmark 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. i) Finance costs – Finance costs comprise interest on the bank loan and overdrafts and finance costs 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 allocated 25% to revenue and 75% to capital. j) Taxation – The taxation charge represents the sum of current taxation and deferred taxation. Taxation currently payable is based on the taxable profit for the year. 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 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 based on tax rates that have been enacted or substantively enacted when the taxation is expected to be payable or recoverable, 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. 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. k) Dividend paid to shareholders – Dividends payable to equity shareholders are recognised when the Company’s obligation to make payment is established. ### 68 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 2 Accounting Policies continued l) Investments – The 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 on that basis to the Company’s Board of Directors. Under IFRS 9 investments are held at fair value through profit or loss, which is initially taken to be their cost, and is subsequently measured at bid or last traded prices, depending upon the convention of the exchange on which they are listed, where available, or otherwise at fair value based on published price quotations. Investments which are not quoted, or are not frequently traded, are stated at the best estimate of fair value. The Manager’s Fair Value Committee (“FVC”), which is independent of the Portfolio Manager’s team, and with support from the external valuer and Fidelity’s unlisted investments specialist, provides recommended fair values to the Directors. These are based on the principles outlined in Note 2 (e). The unlisted investments are valued at fair value following a detailed review and appropriate challenge by the Directors of the pricing methodology proposed by the FVC. The techniques applied by the FVC when valuing the unlisted investments are predominantly market-based approaches. The market- based approaches are set out below and are followed by an explanation of how they are applied to the Company’s unlisted portfolio: • Multiples; • Industry Valuation Benchmarks; and • Available Market Prices. The nature of the unlisted investment will influence the valuation technique applied. The valuation approach recognises that the price of a recent investment, if resulting from an orderly transaction, generally represents fair value as at the transaction date and may be an appropriate starting point for estimating fair value at subsequent measurement dates. However, consideration is given to the facts and circumstances as at the subsequent measurement date, including changes in the market or performance of the investee company. Milestone analysis and future cash flows are used where appropriate to incorporate the operational progress of the investee company into the valuation. Consideration is also given to the input received from the Fidelity International analyst that covers the company, Fidelity’s unlisted investments specialist and from an external valuer. Additionally, the background to the transaction must be considered. As a result, various multiples-based techniques are employed to assess the valuations particularly in those companies with established revenues. An absence of relevant industry peers may preclude the application of the Industry Valuation Benchmarks technique and an absence of observable prices may preclude the Available Market Prices approach. The unlisted investments are valued according to a three month cycle of measurement dates. The fair value of the unlisted investments will be reviewed before the next scheduled three monthly measurement date on the following occasions: • At the year end and half year end of the Company; and • Where there is an indication of a change in fair value (commonly referred to as ‘trigger’ events). In accordance with the AIC SORP, the Company includes transaction costs, incidental to the purchase or sale of investments within losses on investments held at fair value through profit or loss in the capital column of the Income Statement and has disclosed them in Note 10 below. m) Derivative instruments – When appropriate, permitted transactions in derivative instruments are used. Derivative transactions into which the Company may enter include CFDs, futures, options, warrants and forward currency contracts. Under IFRS 9 derivatives are classified at fair value through profit or loss – held for trading, 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: • CFDs – the difference between the strike price and the value of the underlying shares in the contract, calculated in accordance with accounting policy 2 (l); • Futures – the difference between contract price and the quoted trade price; and • Options – the quoted trade price for the contract. Where such transactions are used to protect or enhance income, if the circumstances support this, the income derived is included in derivative 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 gains and losses derived are included in (losses)/gains on derivative instruments held at fair value through profit or loss 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 current liabilities. ### 69 Annual Report 2024 | Fidelity China Special Situations PLC 2 Accounting Policies continued The Company obtains equivalent exposure to equities through the use of CFDs. All gains and losses in the fair value of the CFDs are included in (losses)/gains on derivative instruments held at fair value through profit or loss in the capital column of the Income Statement. n) Amounts held at futures clearing houses and brokers – Cash deposits are held in segregated accounts on behalf of brokers as collateral against open derivative contracts. These are carried at amortised cost. o) Other receivables – Other receivables include securities sold for future settlement, amounts receivable on settlement of derivatives, accrued income, taxation recoverable and other debtors and prepayments 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. Other receivables are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method and as reduced by appropriate allowance for estimated irrecoverable amounts. p) Bank 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 rate method. The amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement. q) Other payables – Other payables include securities purchased for future settlement, amounts payable on settlement of derivatives, GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY investment management fees, loan interest payable, amounts payable for repurchase of shares, finance costs payable and expenses accrued in the ordinary course of business. Other payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business, if longer). If not, they are presented as non-current liabilities. Other payables are recognised initially at fair value and, where applicable, subsequently measured at amortised cost using the effective interest rate method. r) Other reserve –The full cost of ordinary shares repurchased and held in Treasury and ordinary shares repurchased for cancellation is charged to the other reserve. s) Capital reserve – The following are transferred to capital reserve: • Gains and losses on the disposal of investments and derivatives 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; • Variable investment management fees; • 75% of base investment management fees; • 75% of finance costs; • Dividends receivable which are capital in nature; • Taxation charged or credited relating to items which are capital in nature; and • Other expenses which are capital in nature. Technical guidance issued by the Institute of Chartered Accountants in England and Wales in TECH 02/17BL, guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006, states that 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 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 £10,288,000 (2023: unrealised investment holding gains of £25,993,000). See Note 18 on pages 80 to 89 for further details on the level 3 investments. ### 70 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 3 Income | Year ended | | | Year ended | | | --- | --- | --- | --- | --- | | | 31 March | | 31 March | | | | | 2024 | | 2023 | | | | £’000 | | £’000 | Investment income Overseas dividends 26,052 31,949 Overseas scrip dividends – 755 Interest on securities 71 – 26,123 32,704 Derivative income Dividends received on long CFDs 10,525 11,282 Interest received on CFDs 629 284 11,154 11,566 Other income Interest received on collateral, deposits and money market funds 1,659 409 Total income 38,936 44,679 Special dividends of £1,458,000 (2023: £1,155,000) have been recognised in capital. 4 Investment Management Fees Year ended 31 March 2024 Year ended 31 March 2023 Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 Investment management fee – base 2,430 7,289 9,719 3,012 9,037 12,049 Investment management fee – variable – 1,702 1,702 – 2,678 2,678 2,430 8,991 11,421 3,012 11,715 14,727 FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager (“the Manager”) and has delegated portfolio management to FIL Investment Management (Hong Kong) Limited (“the Investment Manager”). The base investment management fee for the period from 1 April to 30 June 2023 was charged at an annual rate of 0.90% on the first £1.5 billion of Net Assets, reducing to 0.70% of Net Assets over £1.5 billion. Since 1 July 2023, it has been charged at an annual reduced rate of 0.85% on the first £1.5 billion of Net Assets and remained unchanged at 0.70% on Net Assets over £1.5 billion until 14March 2024, when on completion of the transaction with ACIC, it reduced to 0.65% on Net Assets over £1.5 billion. In addition, there is a +/-0.20% variable fee based on the Company’s NAV per share performance relative to the Company’s Benchmark Index measured daily over a three-year rolling basis. Fees are payable monthly in arrears and are calculated on a daily basis. The base investment management fee has been allocated 75% to capital reserve in accordance with the Company’s accounting policies. Further details of the terms of the Management Agreement are given in the Directors’ Report on page 37. ### 71 Annual Report 2024 | Fidelity China Special Situations PLC 5 Other Expenses | Year ended | | Year ended | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2024 | | 2023 | | | £’000 | | £’000 | Allocated to revenue: AIC fees 21 21 Custody fees 101 157 Depositary fees 52 57 Directors’ expenses 79 13 1 Directors’ fees 240 202 Legal and professional fees 143 77 Marketing expenses 269 263 Printing and publication expenses 39 50 GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY Registrars’ fees 63 69 Other expenses 125 131 Fees payable to the Company’s Independent Auditor for the audit of the Financial Statements 71 57 1,203 1,097 Allocated to capital: Legal and professional fees 35 4 Other expenses 1,238 1,101 1 Details of the breakdown of Directors’ fees are provided within the Directors’ Remuneration Report on page 46. 6 Finance Costs Year ended 31 March 2024 Year ended 31 March 2023 Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 Interest paid on bank loan and overdrafts 1,117 3,352 4,469 663 1,989 2,652 Interest paid on CFDs 5,582 16,746 22,328 3,230 9,689 12,919 Dividends paid on short CFDs –––63 191 254 6,699 20,098 26,797 3,956 11,869 15,825 Finance costs have been allocated 75% to capital reserve in accordance with the Company’s accounting policies. 72 Fidelity China Special Situations PLC | Annual Report 2024 # Notes to the Financial Statements continued ## 7 Taxation | | Year ended 31 March 2024 | | | Year ended 31 March 2023 | | | | --- | --- | --- | --- | --- | --- | --- | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | | **a) Analysis of the taxation charge for the year** | | | | | | | | Overseas taxation | 812 | – | 812 | 1,149 | – | 1,149 | | **Taxation charge for the year (see Note 7b)** | **812** | **–** | **812** | **1,149** | **–** | **1,149** | ### b) Factors affecting the taxation charge for the year The taxation charge for the year is lower than the standard rate of UK corporation tax for an investment trust company of 25% (2023: 19%). A reconciliation of the standard rate of UK corporation tax to the taxation charge for the year is shown below: | | Year ended 31 March 2024 | | | Year ended 31 March 2023 | | | | --- | --- | --- | --- | --- | --- | --- | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | | Profit/(loss) before taxation | 28,604 | (241,256) | (212,652) | 36,614 | (12,176) | 24,438 | | Profit/(loss) before taxation multiplied by the standard rate of UK corporation tax of 25% (2023: 19%) | 7,151 | (60,314) | (53,163) | 6,957 | (2,313) | 4,644 | | Effects of: | | | | | | | | Capital losses/(gains) not taxable^{1} | – | 53,033 | 53,033 | – | (2,168) | (2,168) | | Income not taxable | (6,406) | – | (6,406) | (6,116) | – | (6,116) | | Expenses not deductible | – | 4,604 | 4,604 | – | 1,987 | 1,987 | | Excess expenses | (745) | 2,677 | 1,932 | (841) | 2,494 | 1,653 | | Overseas taxation | 812 | – | 812 | 1,149 | – | 1,149 | | **Taxation charge (Note 7a)** | **812** | **–** | **812** | **1,149** | **–** | **1,149** | 1 The Company is exempt from UK corporation tax 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 taxation A deferred tax asset of £39,515,000 (2023: £37,583,000), in respect of excess expenses of £158,059,000 (2023: £150,330,000) has not been recognised as it is unlikely that there will be sufficient future taxable profits to utilise these expenses. The UK corporation tax rate increased from 19% to 25% from 1 April 2023. The rate of 25% has been applied to calculate the unrecognised deferred tax asset for the current year (2023: 25%). ### 73 Annual Report 2024 | Fidelity China Special Situations PLC 8 Earnings/(Loss) per Ordinary Share | Year ended | | Year ended | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2024 | | 2023 | Revenue earnings per ordinary share 5.78p 7.05p Capital loss per ordinary share (50.18p) (2.42p) Total (loss)/earnings per ordinary share (44.40p) 4.63p The earnings/(loss) per ordinary share is based on the profit/(loss) after taxation for the year divided by the weighted average number of ordinary shares held outside of Treasury during the year, as shown below: £’000 £’000 Revenue profit after taxation for the year 27,792 35,465 Capital loss after taxation for the year (241,256) (12,176) Total (loss)/profit after taxation for the year (213,464) 23,289 GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY Number Number Weighted average number of ordinary shares held outside of Treasury 480,806,725 503,045,428 9 Dividends Paid to Shareholders | Year ended | | Year ended | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2024 | | 2023 | | | £’000 | | £’000 | Dividend paid Dividend of 6.25 pence per ordinary share paid for the year ended 31 March 2023 30,198 – Dividend of 5.50 pence per ordinary share paid for the year ended 31 March 2022 – 28,240 30,198 28,240 Dividend proposed Dividend proposed of 6.40 pence per ordinary share for the year ended 31 March 2024 33,471 – Dividend proposed of 6.25 pence per ordinary share for the year ended 31 March 2023 – 30,199 33,471 30,199 The Directors have proposed the payment of a dividend for the year ended 31 March 2024 of 6.40 pence per ordinary share which is subject to approval by shareholders at the Annual General Meeting on 23 July 2024 and has not been included as a liability in these Financial Statements. The dividend will be paid on 31 July 2024 to shareholders on the register at the close of business on 21 June 2024 (ex-dividend date 20 June 2024). ### 74 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 10 Investments at Fair Value through Profit or Loss 2024 2023 £’000 £’000 1 Total investments 1,162,265 1,318,764 Opening book cost 1,514,572 1,630,492 Opening investment holding losses (195,808) (265,007) Opening fair value of investments 1,318,764 1,365,485 Movements in the year Purchases at cost 586,707 440,666 Assets acquired in respect of the transaction with ACIC 120,754 – Sales – proceeds (708,959) (480,475) Losses on investments (155,001) (6,912) Closing fair value 1,162,265 1,318,764 Closing book cost 1,398,894 1,514,572 Closing investment holding losses (236,629) (195,808) Closing fair value of investments 1,162,265 1,318,764 1 The fair value hierarchy of the investments is shown in Note 18. The Company received £708,959,000 (2023: £480,475,000) from investments sold in the year. The book cost of these investments when they were purchased was £823,139,000 (2023: £556,586,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments. Investment transaction costs incurred in the acquisition and disposal of investments, which are included in the losses on investments were as follows: | Year ended | | | Year ended | | | --- | --- | --- | --- | --- | | | 31 March | | 31 March | | | | | 2024 | | 2023 | | | | £’000 | | £’000 | Purchases transaction costs 720 599 Sales transaction costs 740 742 1,460 1,341 The portfolio turnover rate for the year was 57.7%, excluding the ACIC transaction (2023: 35.5%). The portfolio turnover rate measures the Company’s trading activity. It is calculated by taking the average of the total amount of securities purchased and the total amount of securities sold in the reporting year divided by the average fair value of investments. ### 75 Annual Report 2024 | Fidelity China Special Situations PLC 11 Derivative Instruments | Year ended | | Year ended | | | --- | --- | --- | --- | | 31 March | | 31 March | | | | 2024 | | 2023 | | | £’000 | | £’000 | Net change to (losses)/gains on derivative instruments Realised (losses)/gains on CFDs (74,311) 6,913 Realised gains on futures 27,951 16,590 Realised losses on options (4,632) (2,645) Movement in investment holding (losses)/gains on CFDs (11,900) 353 Movement in investment holding gains/(losses) on futures 6,382 (4,466) Movement in investment holding gains/(losses) on options 1,720 (1,774) (54,790) 14,971 GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY | | 2024 | | 2023 | | --- | --- | --- | --- | | Fair value | | Fair value | | | | £’000 | | £’000 | 1 Fair value of derivative instruments recognised on the Balance Sheet Derivative instrument assets 7,103 22,313 Derivative instrument liabilities (13,307) (20,892) (6,204) 1,421 1 The fair value hierarchy of the derivative instruments is shown in Note 18. | | | | 2024 | | | | 2023 | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Asset | | | | Asset | | Fair value | | exposure | | Fair value | | exposure | | | | £’000 | | £’000 | | £’000 | | £’000 | At the year end the Company held the following derivative instruments Long CFDs (4,483) 412,237 7,409 512,674 Short CFDs (1,246) 14,766 (1,238) 19,086 Futures (hedging exposure) (475) (138,402) (6,857) (172,890) Call options ––204 2,161 Put options (long exposure) ––(414) 5,097 Put options (short exposure) ––29 188 Put options (hedging exposure) ––2,288 (26,013) (6,204) 288,601 1,421 340,303 ### 76 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 12 Other Receivables 2024 2023 £’000 £’000 Securities sold for future settlement 5,957 148 Amounts receivable on settlement of derivatives 2,161 10,135 Accrued income 1,726 1,513 Taxation recoverable 12 13 Other receivables 210 130 10,066 11,939 13 Bank Loan – repayable within one year 2024 2023 £’000 £’000 Fixed rate unsecured US dollar loan 1 US dollar 100,000,000 fixed at a rate of 6.335% – 80,857 – 80,857 1 The unsecured loan with The Bank of Nova Scotia, London Branch was repaid on 13 February 2024. 14 Other Payables 2024 2023 £’000 £’000 Securities purchased for future settlement 6,843 12,402 Amounts payable on settlement of derivatives 1,078 4,731 Investment management fees 678 1,266 Finance costs payable 610 977 Accrued expenses 414 1,096 Amounts payable for repurchase of shares for cancellation 179 – Amounts payable for repurchase of shares into Treasury – 130 9,802 20,602 ### 77 Annual Report 2024 | Fidelity China Special Situations PLC 15 Share Capital | | | | 2024 | | | | 2023 | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Nominal | | | | Nominal | | | Number of | | | value | Number of | | | value | | | shares | | £’000 | | shares | | £’000 | Issued, allotted and fully paid Ordinary shares of 1 pence each held outside of Treasury Beginning of the year 488,325,628 4,884 513,957,409 5,140 New ordinary shares issued in respect of the transaction with ACIC 59,005,997 590 –– Ordinary shares repurchased into Treasury (2,900,696) (29) (25,631,781) (256) Ordinary shares repurchased for cancellation (18,749,495) (187) –– End of the year 525,681,434 5,258 488,325,628 4,884 1 GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY Ordinary shares of 1 pence each held in Treasury Beginning of the year 82,728,852 826 57,097,071 570 Ordinary shares repurchased into Treasury 2,900,696 29 25,631,781 256 End of the year 85,629,548 855 82,728,852 826 Total share capital 6,113 5,710 1 The ordinary shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company. On 13 March 2024, the Company acquired £126.8 million of Net Assets from ACIC, in consideration for the issue of 59,005,997 new shares to ACIC shareholders in accordance with the Scheme. During the year, the Company repurchased 2,900,696 (2023: 25,631,781) ordinary shares and held them in Treasury. The cost of repurchasing these shares of £6,965,000 (2023: £57,249,000) was charged to the Other Reserve. The Company also repurchased 18,749,495 (2023: nil shares) ordinary shares for cancellation. The cost of repurchasing these shares of £38,968,000 (2023: £nil) was charged to the Other Reserve. ### 78 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 16 Capital and Reserves | | | Share | | Capital | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Share | premium | | redemption | | Other | Capital | Revenue | | Total | | capital | account | | | reserve | reserve | reserve | reserve | | equity | | £’000 | | £’000 | | £’000 | £’000 | £’000 | | £’000 | £’000 | At 1 April 2023 5,710 211,569 917 186,794 877,782 55,649 1,338,421 Losses on investments (see Note 10) ––––(155,001) – (155,001) Losses on derivative instruments (see Note 11) ––––(54,790) – (54,790) Foreign exchange losses ––––(3,858) – (3,858) Foreign exchange gains on bank loan –––– 1,517 – 1,517 Investment management fees (see Note 4) –––– (8,991) – (8,991) Other expenses (see Note 5) –––– (35) – (35) Finance costs (see Note 6) ––––(20,098) – (20,098) Revenue profit after taxation for the year –––––27,792 27,792 Dividend paid to shareholders (see Note 9) –––––(30,198) (30,198) New ordinary shares issued in respect of the transaction with ACIC (see Note 15) 590 126,198––––126,788 Contribution in respect of the transaction with ACIC by the Manager (see Note 2 (a)) –400––––400 Repurchase of ordinary shares into Treasury (see Note 15) – – – (6,965) – – (6,965) Repurchase of ordinary shares for cancellation (see Note 15) (187) – 187 (38,968) – – (38,968) At 31 March 2024 6,113 338,167 1,104 140,861 636,526 53,243 1,176,014 ### 79 Annual Report 2024 | Fidelity China Special Situations PLC 16 Capital and Reserves continued | | | Share | | Capital | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Share | premium | | redemption | | Other | Capital | Revenue | | Total | | capital | account | | | reserve | reserve | reserve | reserve | | equity | | £’000 | | £’000 | | £’000 | £’000 | £’000 | | £’000 | £’000 | At 1 April 2022 5,710 211,569 917 244,043 889,958 48,424 1,400,621 Losses on investments (see Note 10) ––––(6,912) – (6,912) Gains on derivative instruments (see Note 11) ––––14,971 – 14,971 Foreign exchange gains – – – – 8,167 – 8,167 Foreign exchange losses on bank loan ––––(4,814) – (4,814) Investment management fees (see Note 4) ––––(11,715) – (11,715) Other expenses (see Note 5) ––––(4)–(4) Finance costs (see Note 6) ––––(11,869) – (11,869) Revenue profit after taxation for the year –––––35,465 35,465 GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY Dividend paid to shareholders (see Note 9) –––––(28,240) (28,240) Repurchase of ordinary shares (see Note 15) – – – (57,249) – – (57,249) At 31 March 2023 5,710 211,569 917 186,794 877,782 55,649 1,338,421 The capital reserve balance at 31 March 2024 includes investment holding losses on investments of £236,629,000 (2023: losses of £195,808,000) as detailed in Note 10 above. See Note 2 (s) for further details. The revenue, capital and other reserves are distributable by way of dividend. 17 Net Asset Value per Ordinary Share The calculation of the net asset value per ordinary share is based on the net assets divided by the number of ordinary shares held outside of Treasury. 2024 2023 Net assets £1,176,014,000 £1,338,421,000 Ordinary shares held outside of Treasury at year end 525,681,434 488,325,628 Net asset value per ordinary share 223.71p 274.08p It is the Company’s policy that shares held in Treasury will only be reissued at net asset value per share or at a premium to net asset value per share so that shares held in Treasury have no dilutive effect. ### 80 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 18 Financial Instruments Management of risk The 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 Investment 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 geopolitical, market and economic (including currency), investment performance (including gearing), discount management, unlisted securities, climate change, environmental, social and governance (“ESG”), key person, cybercrime and information security, business continuity, operational and variable interest entity structures. 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. Risks identified are shown in the Strategic Report on pages 24 to 29. This Note is incorporated in accordance with IFRS 7: 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 may comprise: • Equity shares (listed and unlisted), equity linked notes, convertible bonds and rights issues; • Derivative instruments including CFDs, warrants, futures and options written or purchased on stocks and equity indices and forward currency contracts; • Cash, liquid resources and short-term receivables and payables that arise from its operations; and • Bank borrowings. The risks identified by IFRS 7 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 risk Interest rate risk The Company finances its operations through its share capital and in addition, the Company has derivative instruments. The unsecured fixed rate loan facility for US$100,000,000 expired on 13 February 2024 as disclosed in Note 13. Interest rate risk exposure The values of the Company’s financial instruments that are exposed to movements in interest rates are shown below: 2024 2023 £’000 £’000 Exposure to financial instruments that bear interest Long CFDs – exposure less fair value 416,720 505,265 Bank overdrafts 12,758 – Bank loan – 80,857 429,478 586,122 Exposure to financial instruments that earn interest Short CFDs – exposure plus fair value 13,520 17,848 Amounts held at futures clearing houses and brokers 24,589 34,813 Cash at bank 7,858 72,943 45,967 125,604 Net exposure to financial instruments that bear interest 383,511 460,518 ### 81 Annual Report 2024 | Fidelity China Special Situations PLC 18 Financial Instruments continued Foreign currency risk The Company’s profit/(loss) after taxation and its net assets can be affected by foreign exchange 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. Three principal areas have been identified where foreign currency risk could impact the Company: • Movements in currency exchange rates affecting the value of investments; • Movements in currency exchange rates affecting short-term timing differences, for example, between the date when an investment is bought or sold and the date when settlement of the transaction occurs; and • Movements in currency exchange rates affecting income received. Currency exposure of financial assets The Company’s financial assets comprise of investments, long positions on derivative instruments, short-term debtors and cash at bank. The currency exposure profile of these financial assets is shown below: | | Investments | | | Asset | | | | | | | 2024 | GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | held at | exposure of | | | | | | | | | | | | fair value | | | long | | | | | | | | | | | | through | derivative | | | | Other | | | Cash | | | | | | | | | 1 | | | 2 | | | | | | | profit or loss | | instruments | | | receivables | | | at bank | | Total | | | Currency | | £’000 | | £’000 | | | £’000 | | | £’000 | £’000 | | Chinese renminbi 92,336 – – 1,372 93,708 Euro 10,903–––10,903 Hong Kong dollar 704,175 148,557 18,153 – 870,885 Japanese yen 5,787 22,134 125 341 28,387 Taiwan dollar 7,603 – 12 – 7,615 Thai baht 439–––439 UK sterling 17,752 – 209 – 17,961 US dollar 323,270 103,144 16,156 6,145 448,715 1,162,265 273,835 34,655 7,858 1,478,613 1 The asset exposure of long CFDs after the netting of hedging exposures. 2 Other receivables include amounts held at futures clearing houses and brokers. ### 82 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 18 Financial Instruments continued | | Investments | | | Asset | | | | | | 2023 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | held at | exposure of | | | | | | | | | | | fair value | | long | | | | | | | | | | through | derivative | | | | Other | | Cash | | | | | | | | 1 | | | 2 | | | | | profit or loss | | instruments | | | receivables | | | at bank | Total | | Currency | | £’000 | | £’000 | | | £’000 | | £’000 | £’000 | Chinese renminbi 170,913 – – 21,221 192,134 Euro 10,432–––10,432 Hong Kong dollar 601,107 270,181 34,483 24,043 929,814 Japanese yen 35,111 – 84 – 35,195 South Korean won –––11 Taiwan dollar 19,621 – 72 8 19,701 UK sterling 16,221 – 130 – 16,351 US dollar 465,359 50,848 11,983 27,670 555,860 1,318,764 321,029 46,752 72,943 1,759,488 1 The asset exposure of long CFDs and options after the netting of hedging exposures. 2 Other receivables include amounts held at futures clearing houses and brokers. Currency exposure of financial liabilities The Company finances its investment activities through its ordinary share capital, reserves and borrowings. The Company’s financial liabilities comprise short positions on derivative instruments, other payables, bank overdrafts and US dollar denominated bank loan. The currency profile of these financial liabilities is shown below: Asset 2024 exposure of short derivative Other Bank 1 instruments payables overdrafts Total Currency £’000 £’000 £’000 £’000 Hong Kong dollar – 5,994 12,744 18,738 UK sterling – 1,271 14 1,285 US dollar 14,766 2,537 – 17,303 14,766 9,802 12,758 37,326 Asset 2023 exposure of short derivative Other US dollar 1 instruments payables bank loan Total Currency £’000 £’000 £’000 £’000 Hong Kong dollar 13,842 13,658 – 27,500 UK sterling – 1,823 – 1,823 US dollar 5,432 5,121 80,857 91,410 19,274 20,602 80,857 120,733 1 The asset exposure of short derivative instruments excluding hedging exposures. Annual Report 2024 | Fidelity China Special Situations PLC 83 ## 18 Financial Instruments continued ### Other price risk Other price risk arises mainly from uncertainty about future prices of financial instruments. It represents the potential loss the Company might suffer through price movements in its investment positions. 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 Investment Manager is responsible for actively monitoring the portfolio selected in accordance with the overall asset allocation parameters 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 assessed by the Investment Manager's specialist derivative instruments team. ### Liquidity risk Liquidity 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. ### Counterparty risk Certain 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. These are known as Over The Counter ("OTC") trades. 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 Investment Manager employs, this risk is minimised 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 evaluates derivative instrument credit risk exposure. ### Collateral For OTC and exchange traded 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 March 2024, £2,811,000 (2023: £15,601,000) was held by the brokers in cash denominated in US dollars in a segregated collateral account, on behalf of the Company, to reduce the credit risk exposure of the Company. This collateral comprised: Goldman Sachs International Ltd £2,613,000 (2023: £5,814,000), HSBC Bank plc £198,000 (2023: £5,397,000) and UBS AG Enil (2023: £4,390,000). As at 31 March 2024, £24,589,000 (2023: £34,813,000), 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. The collateral comprised: UBS AG £15,689,000 (2023: £24,694,000) in cash, J.P. Morgan Securities plc £5,186,000 (2023: £7,273,000) in cash and Morgan Stanley & Co. International Ltd £3,714,000 (2023: £2,846,000) in cash. ### Offsetting To mitigate counterparty risk for OTC derivative transactions, the ISDA legal documentation is in the form of a master agreement between the Company and the broker. This allows enforceable netting arrangements in the event of a default or termination event. Derivative instrument assets and liabilities that are subject to netting arrangements have not been offset in preparing the Balance Sheet. The Company's derivative instrument financial assets and liabilities recognised in the Balance Sheet and amounts that could be subject to netting in the event of a default or termination are shown on the next page: STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS ### 84 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 18 Financial Instruments continued | | | Gross amount | | | | | Related amounts not set off | | | | | | 2024 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | of recognised | | | Net amount | | | | on balance sheet | | | | | | | | | financial | | of financial | | | | | | | | | | | | | liabilities | | | assets | | | | | Margin | | | | | | | set off on | | presented on | | | | | | account | | | | | Gross | the balance | | | the balance | | | Financial | | received as | | | Net | | | amount | | | sheet | | sheet | instruments | | | collateral | | amount | | | Financial assets | £’000 | | | £’000 | | £’000 | | | £’000 | | £’000 | | £’000 | CFDs 7,103 – 7,103 (3,844) (2,389) 870 | | | Gross amount | | | | | | Related amounts not set off | | | | | | 2024 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | of recognised | | | Net amount | | | | | on balance sheet | | | | | | | | | financial | | of financial | | | | | | | | | | | | | | | assets | | liabilities | | | | | | Margin | | | | | | | set off on | | presented on | | | | | | | account | | | | | Gross | the balance | | | the balance | | | | Financial | | pledged as | | | Net | | | amount | | | sheet | | | sheet | instruments | | | collateral | | amount | | | Financial liabilities | £’000 | | | £’000 | | | £’000 | | | £’000 | | £’000 | | £’000 | CFDs (12,832) – (12,832) 3,844 8,900 (88) Futures (exchange traded) (475) – (475) – 475 – (13,307) – (13,307) 3,844 9,375 (88) | | | Gross amount | | | | | Related amounts not set off | | | | | | | 2023 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | of recognised | | | Net amount | | | | | on balance sheet | | | | | | | | | financial | | of financial | | | | | | | | | | | | | | liabilities | | | assets | | | | | | Margin | | | | | | | set off on | | presented on | | | | | | | account | | | | | Gross | the balance | | | the balance | | | Financial | | | received as | | | Net | | | amount | | | sheet | | sheet | instruments | | | | | collateral | amount | | | Financial assets | £’000 | | | £’000 | | £’000 | | | £’000 | | | £’000 | | £’000 | CFDs 19,792 – 19,792 (9,040) (9,704) 1,048 Options 2,521 – 2,521 (414) (2,107) – 22,313 – 22,313 (9,454) (11,811) 1,048 | | | Gross amount | | | | | | Related amounts not set off | | | | | | | 2023 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | of recognised | | | Net amount | | | | | | on balance sheet | | | | | | | | | financial | | of financial | | | | | | | | | | | | | | | | assets | | liabilities | | | | | | | Margin | | | | | | | set off on | | presented on | | | | | | | | account | | | | | Gross | the balance | | | the balance | | | | Financial | | | pledged as | | | Net | | | amount | | | sheet | | | sheet | instruments | | | | | collateral | amount | | | Financial liabilities | £’000 | | | £’000 | | | £’000 | | | £’000 | | | £’000 | | £’000 | CFDs (13,621) – (13,621) 9,040 4,581 – Futures (exchange traded) (6,857) – (6,857) – 6,857 – Options (414) – (414) 414 – – (20,892) – (20,892) 9,454 11,438 – Annual Report 2024 | Fidelity China Special Situations PLC 85 ## 18 Financial Instruments continued ### Credit risk Financial 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 Investment 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 Investment Manager. Exposure to credit risk arises on outstanding security transactions and derivative instrument contracts and cash at bank. ### Derivative instrument risk A Derivative Instrument Charter, including an appendix entitled Derivative Risk Measurement and Management, details the risks and risk management processes used by the Investment Manager. This Charter was approved by the Board and allows the use of derivative instruments for the following purposes: - To gain 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 events market falls; - To enhance portfolio returns by writing call and put options; and - To take short positions in equity markets, which would benefit from a fall in the relevant market price, where the Investment Manager believes the investment is overvalued. These positions distinguish themselves from other short exposures held for hedging purposes since they are expected to add risk to the portfolio. The risk and investment performance of these instruments are managed by an experienced, specialist derivative team of the Investment Manager using portfolio risk assessment tools for portfolio construction. ## RISK SENSITIVITY ANALYSIS ### Interest rate risk sensitivity analysis Based on the financial instruments held and interest rates at the Balance Sheet date, an increase of 1.00% in interest rates throughout the year, with all other variables held constant, would have increased the loss after taxation for the year and decreased the net assets of the Company by £3,835,000 (2023: decreased the profit after taxation and decreased the net assets by £3,797,000). A decrease of 1.00% in interest rates throughout the year would have had an equal but opposite effect. ### Foreign currency risk sensitivity analysis Based on the financial assets and liabilities held and currency exchange rates ruling at the Balance Sheet date, a strengthening of the UK sterling exchange rate by 10% against other currencies, with all other variables held constant, would have increased the loss after taxation for the year and decreased the net assets of the Company (2023: decreased the profit after taxation and decreased the net assets) by the following amounts: | Currency | 2024 £'000 | 2023 £'000 | | --- | --- | --- | | Chinese renminbi | 8,519 | 17,467 | | Euro | 991 | 948 | | Hong Kong dollar | 77,468 | 82,028 | | Japanese yen | 2,581 | 3,200 | | Taiwan dollar | 692 | 1,791 | | Thai baht | 40 | - | | US dollar | 39,219 | 42,223 | | | **129,510** | **147,657** | STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS ### 86 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 18 Financial Instruments continued Based on the financial assets and liabilities held and the exchange rates ruling at the Balance Sheet date, a weakening of the UK sterling exchange rate by 10% against other currencies would have decreased the loss after taxation for the year and increased the net assets of the Company (2023: increased the profit after taxation and increased the net assets) by the following amounts: 2024 2023 Currency £’000 £’000 Chinese renminbi 10,412 21,348 Euro 1,211 1,159 Hong Kong dollar 94,683 100,257 Japanese yen 3,154 3,911 Taiwan dollar 846 2,189 Thai baht 49 – US dollar 47,935 51,606 158,290 180,470 Other price risk sensitivity analysis Changes in market prices affect the profit/(loss) after taxation for the year and the net assets of the Company. Details of how the Board sets risk parameters and performance objectives are disclosed in the Strategic Report on pages 22 to 32. An increase of 10% in the share prices of the listed investments held at the Balance Sheet date would have decreased the loss after taxation for the year and increased the net assets of the Company by £100,526,000 (2023: increased the profit after taxation and increased the net assets by £112,588,000). A decrease of 10% in share prices of the investments designated at fair value through profit or loss would have had an equal but opposite effect. An increase of 10% in the valuation of unlisted investments held at the Balance Sheet date would have decreased the loss after taxation for the year and increased the net assets of the Company by £15,701,000 (2023: increased the profit after taxation and increased the net assets by £19,288,000). A decrease of 10% in the valuation would have had an equal but opposite effect. Derivative instruments exposure sensitivity analysis The Company invests in derivative instruments to gain or reduce exposure to the equity market. An increase of 10% in the share prices of the investments underlying the derivative instruments at the Balance Sheet date would have decreased the loss after taxation for the year and increased the net assets of the Company by £25,907,000 (2023: increased the profit after taxation and increased the net assets by £30,176,000). A decrease of 10% in share prices of the investments underlying the derivative instruments would have had an equal but opposite effect. Fair Value of Financial Assets and Liabilities Financial assets and liabilities are stated in the Balance Sheet at values which are not materially different to their fair values. As explained in Notes 2 (l) and (m), 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. The exception is the US dollar denominated bank loan, its fair value having been calculated by discounting future cash flows at current US dollar interest rates. | | | | 2024 | | | | 2023 | | --- | --- | --- | --- | --- | --- | --- | --- | | Fair value | | Book value | | Fair value | | Book value | | | | £’000 | | £’000 | | £’000 | | £’000 | 1 Fixed rate unsecured loan of US dollar 100,000,000 ––81,092 80,857 1 The unsecured fixed rate loan facility for US$100,000,000 was repaid on 13 February 2024 as disclosed in Note 13. Fair Value Hierarchy The 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. Annual Report 2024 | Fidelity China Special Situations PLC 87 # **18 Financial Instruments**continued | Classification | Input | | --- | --- | | **Level 1** | Valued using quoted prices in active markets for identical assets | | **Level 2** | Valued by reference to inputs other than quoted prices included in level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly | | **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 Notes 2 (e), (l) and (m). The table below sets out the Company's fair value hierarchy: | Financial assets at fair value through profit or loss | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | 2024 Total £'000 | | --- | --- | --- | --- | --- | | Investments | 980,975 | 24,282 | 157,008 | 1,162,265 | | Derivative instrument assets | – | 7,103 | – | 7,103 | | | 980,975 | 31,385 | 157,008 | 1,169,368 | # **Financial liabilities at fair value through profit or loss** | Derivative instrument liabilities | (475) | (12,832) | – | (13,307) | | --- | --- | --- | --- | --- | | Financial assets at fair value through profit or loss | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | 2023 Total £'000 | | --- | --- | --- | --- | --- | | Investments | 1,081,458 | 44,428 | 192,878 | 1,318,764 | | Derivative instrument assets | 2,492 | 19,821 | – | 22,313 | | | 1,083,950 | 64,249 | 192,878 | 1,341,077 | # **Financial liabilities at fair value through profit or loss** | Derivative instrument liabilities | (7,271) | (13,621) | – | (20,892) | | --- | --- | --- | --- | --- | # **Financial liabilities at fair value** | Bank loan | – | (81,092) | – | (81,092) | | --- | --- | --- | --- | --- | STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS ### 88 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 18 Financial Instruments continued Level 3 investments (unlisted and delisted investments) 2024 2023 £’000 £’000 Pony.ai 42,805 48,272 DJI International 30,769 30,475 Chime Biologics 27,312 29,064 Venturous Holdings 25,602 26,015 ByteDance 24,724 24,035 Tuhu Car (moved into Level 1) – 14,024 Cutia Therapeutics (moved into Level 1) – 11,575 Beisen (moved into Level 1) – 9,418 Shanghai Yiguo – – 4 listed investments whose listings are currently suspended 5,796 – 157,008 192,878 Pony.ai Pony.ai develops artificial intelligence and autonomous driving technology solutions for transportation and is an unlisted company. The valuation at 31 March 2024 is based on the company’s financial performance, the macro-environment and benchmarking the position to a range of comparable market data. As at 31 March 2024, its fair value was £42,805,000 (book cost: £24,892,000). DJI International DJI International is a manufacturer of drones and is an unlisted company. The valuation at 31 March 2024 is as follows: the D shares valuation is based on the strike price of the put option in place and the B shares valuation is based on the company’s performance, the macro-environment, product development and benchmarking the position to a range of comparable market data. As at 31 March 2024, its fair value was £30,769,000 (book cost: £22,416,000). Chime Biologics Chime Biologics is a China-based Contract Development and Manufacturing Organization (CDMO) that provides a solution supporting customers from early-stage biopharmaceutical development through late-stage clinical and commercial manufacturing and is an unlisted company. The valuation at 31 March 2024 is based on analysis of the company performance, the terms of the convertible note and benchmarking the position to a range of comparable market data. As at 31 March 2024, its fair value was £27,312,000 (book cost: £25,227,000). Venturous Holdings Venturous Holdings is an investment company with a focus in smart city technology companies and is an unlisted company. The valuation at 31 March 2024 is based on a review of the company’s portfolio including performance, the wider macro-environment and benchmarking the position to a range of comparable market data. As at 31 March 2024, its fair value was £25,602,000 (book cost: £23,701,000). ByteDance ByteDance develops applications for smart phones and is an unlisted company. The valuation at 31 March 2024 is based on the company’s financial performance, the macro-environment and benchmarking the position to a range of comparable market data. As at 31 March 2024, its fair value was £24,724,000 (book cost: £7,361,000). Shanghai Yiguo Shanghai Yiguo operates an e-commerce platform, selling fruit and vegetables online to customers in China and is an unlisted company. The company has commenced liquidation proceedings and following internal review, the valuation at £nil remained appropriate as at 31 March 2024 (book cost: £11,806,000). Companies whose listings are suspended Four listed companies in the portfolio have had their listing suspended: DBA Telecommunication (Asia) Limited (suspended July 2014), China Animal Healthcare Limited (suspended March 2015), BNN Technology Limited (suspended September 2017) and China Renaissance Holdings (suspended April 2023). All holdings have been valued at £nil, apart from China Renaissance Holdings which has been valued at £5,796,000. ### 89 Annual Report 2024 | Fidelity China Special Situations PLC 18 Financial Instruments continued Significant holdings Details of significant holdings are noted below in accordance with the disclosure requirements of paragraph 82 of the AIC SORP. The Company is required to provide a list of all investments at the balance sheet date with a value greater than 5% of its portfolio and at least the ten largest investments, including the value of each investment and for unlisted investments included in the list, additional detail is required as shown below. This disclosure includes turnover, pre-tax profits and net assets attributable to investors, as reported within the most recently audited financial statements of the investee companies. Income | | | recognised | | | | | | | Net assets | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Latest | | from the | | | | Pre-tax | attributable to | | | | Financial | | holding in | | Turnover | | profit/(loss) | | shareholders | | | | Statements | | | the year | | £’000 | | £’000 | | | £’000 | Pony.ai n/a nil Information not publicly available DJI International n/a nil Information not publicly available Chime Biologics n/a nil Information not publicly available GOVERNANCEINFORMATION FOR SHAREHOLDERS FINANCIAL STRATEGY | | 2024 | 2023 | | --- | --- | --- | | | Level 3 | Level 3 | | Movements in level 3 investments during the year | £’000 | £’000 | Level 3 investments at the beginning of the year 192,878 194,650 Purchases at cost – – Sales proceeds - Venturous Holdings (2,943) – Sales gain - Venturous Holdings 615 – Transfers into level 3 at cost – China Renaissance Holdings 17,316 – 1 Transfers out of level 3 at cost (35,153) (9,971) Unrealised (loss)/profit recognised in the Income Statement (15,705) 8,199 Level 3 investments at the end of the year 157,008 192,878 1 Financial instruments are transferred out of level 3 when they become listed. See page 88 for more information. ### 90 Fidelity China Special Situations PLC | Annual Report 2024 ## Notes to the Financial Statements continued 19 Capital Resources and Gearing The Company does not have any externally imposed capital requirements. The financial resources of the Company comprise its share capital, reserves and gearing, which are disclosed on the Balance Sheet. The Company is managed in accordance with its investment policy and in pursuit of its investment objective, both of which are detailed in the Strategic Report on pages 22 and 23. The principal risks and their management are disclosed in the Strategic Report on pages 24 to 29 and in Note 18 above. The Company’s gearing at the year end is set out below: 2024 Gross gearing Net gearing | Exposure | | | Exposure | | | | --- | --- | --- | --- | --- | --- | | | | 1 | | | 1 | | | £’000 % | | | £'000 % | | Investments 1,162,265 98.8 1,162,265 98.8 Long CFDs 412,237 35.1 412,237 35.1 Total long exposures before hedges 1,574,502 133.9 1,574,502 133.9 less: short derivative instruments hedging the above (138,402) (11.8) (138,402) (11.8) Total long exposures after the netting of hedges 1,436,100 122.1 1,436,100 122.1 Short CFDs 14,766 1.3 (14,766) (1.3) Gross Asset Exposure/net market exposure* 1,450,866 123.4 1,421,334 120.8 Net Assets 1,176,014 1,176,014 2 Gearing 23.4% 20.8% 2023 Gross gearing Net gearing | Exposure | | | Exposure | | | | --- | --- | --- | --- | --- | --- | | | | 1 | | | 1 | | | £’000 % | | | £'000 % | | Investments 1,318,764 98.5 1,318,764 98.5 Long CFDs 512,674 38.3 512,674 38.3 Call options 2,161 0.2 2,161 0.2 Put options (long exposure) 5,097 0.4 5,097 0.4 Total long exposures before hedges 1,838,696 137.4 1,838,696 137.4 less: short derivative instruments hedging the above (198,903) (14.9) (198,903) (14.9) Total long exposures after the netting of hedges 1,639,793 122.5 1,639,793 122.5 Short CFDs 19,086 1.4 (19,086) (1.4) Put options (short exposure) 188 – (188) – Gross Asset Exposure/net market exposure* 1,659,067 123.9 1,620,519 121.1 Net Assets 1,338,421 1,338,421 2 Gearing 23.9% 21.1% * Defined in the Glossary of Terms on pages 99 and 100. 1 Exposure to the market expressed as a percentage of Net Assets. 2 Gearing is the amount by which Gross Asset Exposure/net market exposure exceeds Net Assets expressed as a percentage of Net Assets. Annual Report 2024 | Fidelity China Special Situations PLC 91 ## 20 Transactions with the Managers and Related Parties FIL Investment Services (UK) Limited is the Company's Alternative Investment Fund Manager and has delegated portfolio management to FIL Investment Management (Hong Kong) Limited. Both companies are Fidelity group companies. Details of the current fee arrangements are given in the Directors' Report on page 37. During the year, management fees of £11,421,000 (2023: £14,727,000) were payable to Fidelity. At the Balance Sheet date, management fees of £678,000 (2023: £1,266,000) were accrued and included in other payables. Fidelity also provides the Company with marketing services. The total amount payable for these services was £269,000 (2023: £263,000). At the Balance Sheet date, marketing services of £91,000 (2023: £43,000) were accrued and included in other payables. FIL Investment Services (UK) Limited agreed to contribute towards the costs of the transaction with ACIC and an amount equal to eight months of management fees in the year to 31 March 2025, that would otherwise be payable by the enlarged Company to the AIFM in respect of the assets transferred by ACIC to the Company pursuant to the Scheme was waived. In the financial period ended 31 March 2024, the Company has recognised an initial contribution of £400,000 in respect of the transaction with ACIC, with the balance being recognised in the year ending 31 March 2025. Disclosures of the Directors' interests in the shares of the Company and fees and taxable expenses, relating to reasonable travel expenses, payable to the Directors are given in the Directors' Remuneration Report on pages 46 and 47. In addition to the fees and taxable expenses disclosed in the Directors' Remuneration Report, £23,000 (2023: £22,000) of employers' National Insurance contributions were paid by the Company. At the Balance Sheet date, Directors' fees of £26,000 (2023: £22,000) were accrued and payable. STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS 92 Fidelity China Special Situations PLC | Annual Report 2024 # Alternative Performance Measures ## Discount/Premium The discount/premium is considered to be an Alternative Performance Measure. It is the difference between the Net Asset Value ("NAV") per Ordinary Share of the Company and the Ordinary Share price expressed as a percentage of the NAV per Ordinary Share. Details of the Company's discount/premium are on the Financial Highlights page and are both defined in the Glossary of Terms on page 99 and on page 101. ## Gearing Gearing (both gross and net) is considered to be an Alternative Performance Measure. See Note 19 on page 90 for details of the Company's gearing. ## Net Asset Value ("NAV") per Ordinary Share The NAV per Ordinary Share is considered to be an Alternative Performance Measure. See the Balance Sheet on page 63 and Note 17 on page 79 for further details. ## Ongoing Charges Ratio The ongoing charges ratio is considered to be an Alternative Performance Measure. It has been calculated in accordance with guidance issued by the AIC as the total of management fees and other expenses expressed as a percentage of the average net assets throughout the year. | | 2024 | 2023 | | --- | --- | --- | | Investment management fees (£'000) | 9,719 | 12,049 | | Other expenses (£'000) | 1,238 | 1,101 | | **Ongoing charges (£'000)** | **10,957** | **13,150** | | Variable management fees (£'000) | 1,702 | 2,678 | | Average net assets (£'000) | 1,122,589 | 1,338,770 | | **Ongoing charges ratio** | **0.98%** | **0.98%** | | **Ongoing charges ratio including variable management fees** | **1.13%** | **1.18%** | The ongoing charges ratio represents the total expenses of the Company, excluding transaction costs, interest payments, tax and non-recurring expenses expressed, as a percentage of the average daily net asset value, in accordance with guidance issued by the AIC. The ongoing charges ratio, excluding the variable management fee, for the year ended 31 March 2024 was 0.98%. It is estimated that the ongoing charges ratio for the year ending 31 March 2025 will be 0.88%, the significant reduction reflecting the management fees waived by the Manager in lieu of its contribution to the costs of the Company's transaction with ACIC. ## Revenue, Capital and Total Earnings per Share Revenue, capital and total earnings per share are considered to be Alternative Performance Measures. See the Income Statement on page 61 and Note 8 on page 73 for further details. Annual Report 2024 | Fidelity China Special Situations PLC 93 # **Total Return Performance** Total return performance is considered to be an Alternative Performance Measure. NAV per share total return includes reinvestment of the dividend in the 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 NAV per share and share prices of the Company, the impact of the dividend reinvestments and the total returns for the years ended 31 March 2024 and 31 March 2023. | 2024 | Net asset value per share | Share price | | --- | --- | --- | | 31 March 2023 | 274.08p | 247.50p | | 31 March 2024 | 223.71p | 201.00p | | Change in the year | -18.4% | -18.8% | | Impact of dividend reinvestment | +2.1% | +2.4% | | Total return for the year | -16.3% | -16.4% | | 2023 | Net asset value per share | Share price | | --- | --- | --- | | 31 March 2022 | 272.52p | 252.00p | | 31 March 2023 | 274.08p | 247.50p | | Change in the year | +0.6% | -1.8% | | Impact of dividend reinvestment | +2.0% | +2.1% | | Total return for the year | +2.6% | +0.3% | STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS 94 Fidelity China Special Situations PLC | Annual Report 2024 # Notice of Meeting **Notice is hereby given that the Annual General Meeting of Fidelity China Special Situations PLC will be held at 4 Cannon Street, London EC4M 5AB and virtually via the Lumi AGM meeting platform on Tuesday, 23 July 2024 at 11.00 am for the following purposes:** 1. To receive and adopt the Annual Report and Financial Statements for the year ended 31 March 2024. 2. To declare that a final dividend for the year ended 31 March 2024 of 6.40 pence per ordinary share be paid to shareholders who appear on the register as at close of business on 21 June 2024. 3. To re-elect Mr Mike Balfour as a Director. 4. To re-elect Mr Alastair Bruce as a Director. 5. To re-elect Mrs Vanessa Donegan as a Director. 6. To re-elect Ms Georgina Field as a Director. 7. To re-elect Mr Gordon Orr as a Director. 8. To re-elect Dr Edward Tse as a Director. 9. To approve the Directors' Remuneration Report (excluding the section headed The Remuneration Policy set out on page 45) for the year ended 31 March 2024. 10. To reappoint Ernst & Young LLP as Auditor of the Company to hold office until the conclusion of the next general meeting at which financial statements are laid before the Company. 11. To authorise the Directors to determine the Auditor's remuneration. To consider and, if thought fit, to pass the following special business resolutions of which Resolution 12 will be proposed as an ordinary resolution and Resolutions 13 and 14 as special resolutions. ## Authority to Allot Shares and Disapply Pre-Emption Rights Resolutions 12 and 13 will, if approved, authorise the Directors to allot a limited number of ordinary shares (or sell any ordinary shares which the Company elects to hold in Treasury) for cash without first offering such shares to existing ordinary shareholders pro-rata to their existing holdings. The limit set by the Board is 10% of the number of ordinary shares of the Company (including Treasury shares) in issue at the latest practicable date of this document. The Directors will only issue new ordinary shares, or dispose of ordinary shares held in Treasury, under this authority in order to take advantage of opportunities in the market as they arise and only if they believe it is advantageous to the Company's shareholders to do so. Any ordinary shares held in Treasury would be re-issued at no less than net asset value ("NAV") per ordinary share, or at a premium to NAV per ordinary share. This would ensure that the net effect of repurchasing and then re-issuing the ordinary shares would enhance NAV per ordinary share. 12. THAT the Directors be and they are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 (the "Act") to exercise all the powers of the Company to allot shares in the Company or to grant rights to subscribe for or to convert any securities into shares in the Company ("relevant securities") up to an aggregate nominal amount of £608,614 (approximately 10% of the aggregate nominal amount of the issued share capital of the Company (including Treasury shares) at the latest practicable date of this document) and so that the Directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with Treasury Shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter, such authority to expire at the conclusion of the next Annual General Meeting ("AGM") of the Company or the date 15 months after the passing of this resolution, whichever is the earlier, but so that this authority shall allow the Company to make offers or agreements before the expiry of this authority which would or might require relevant securities to be allotted after such expiry as if the authority conferred by this resolution had not expired. All previous unexpired authorities are revoked, but without prejudice to any allotment of shares or grant of rights already made, offered or agreed to be made pursuant to such authorities. 13. THAT, subject to the passing of Resolution 12, as set out above, the Directors be and they are hereby authorised, pursuant to Sections 570-573 of the Act to allot equity securities (as defined in Section 560 of the Act) for cash pursuant to the authority given by the said Resolution 12 and/or to sell ordinary shares held by the Company as Treasury shares for cash, as if Section 561 of the Act did not apply to any such allotment or sale, provided that this power shall be limited: a) to the allotment of equity securities or sale of Treasury shares up to an aggregate nominal amount of £608,614 (approximately 10% of the aggregate nominal amount of the issued share capital of the Company (including Treasury shares) at the latest practicable date of this document); and b) by the condition that allotments of equity securities or sales of Treasury shares may only be made pursuant to this authority at a price of not less than the NAV per ordinary share and this power shall expire at the conclusion of the next AGM of the Company or the date 15 months after the passing of this resolution, whichever is the earlier, save that this authority shall allow the Company to make offers or agreements before the expiry of this authority, and the Directors may allot equity securities in relation to such an offer or agreement as if the authority conferred by this resolution had not expired. ## Authority to Repurchase Shares Resolution 14 is a special resolution which, if approved, will renew the Company's authority to purchase up to 14.99% of the number of ordinary shares in issue (excluding Treasury shares) at the latest practicable date of this document, either for immediate cancellation or for retention as Treasury shares, at the determination of the Board. Once shares are held in Treasury, the Directors may only dispose of them in accordance with the ### 95 Annual Report 2024 | Fidelity China Special Situations PLC relevant legislation by subsequently selling the shares for cash or Notes to the Notice of Meeting: cancelling the shares. Purchases of ordinary shares will be at the 1. A member of the Company entitled to attend and vote at discretion of the Directors and within guidelines set by them from the Annual General Meeting may appoint a proxy or proxies time to time in the light of prevailing market conditions. Purchases to attend and to speak and vote instead of him. A member will only be made in the market at prices below the prevailing may appoint more than one proxy in relation to the Annual NAV per ordinary share, thereby resulting in an increased NAV General Meeting provided that each proxy is appointed to per ordinary share. exercise the rights attached to a different share or shares held by that member. A proxy need not be a member of the 14. THAT the Company be and is hereby generally and Company. To appoint a proxy via the share portal at unconditionally authorised in accordance with Section 701 www.signalshares.com, you will need to log in to your of the Companies Act 2006 (the “Act”) to make market share portal account or register if you have not previously purchases (within the meaning of Section 693 of the Act) of done so. To register you will need your Investor Code which ordinary shares of 1 pence each (the “shares”) in the capital can be found on your Form of Proxy. of the Company provided that: 2. A Form of Proxy is enclosed and must be returned to the a ) t he maximum number of shares hereby authorised to be Registrar at the address on the form to arrive not later purchased shall be 78,395,400; than 11:00 on Friday, 19 July 2024. Completion and return of the form of proxy will not prevent a shareholder from b) the minimum price which may be paid for an ordinary subsequently attending the meeting and voting in person or share is 1 pence; virtually if they so wish. c) the maximum price (excluding expenses) which may be 3. To be effective, the instrument appointing a proxy, and paid for each share is the higher of: any power of attorney or other authority under which it is signed (or a copy of any such authority certified notarially (i) 5% above the average of the middle market or in some other way approved by the Directors), must be quotations for the shares as derived from the deposited with the Company’s Registrar, PXS 1, Link Group, London Stock Exchange Official List for the five Central Square, 29 Wellington Street, Leeds LS1 4DL not less business days preceding the date of purchase; and than 48 hours before the time for holding the meeting or (ii) the higher of the price of the last independent adjourned meeting or, in the case of a poll taken more than trade and the highest current independent 48 hours after it is demanded, not less than 24 hours before purchase bid on the London Stock Exchange at the the time appointed for the taking of the poll at which it is to time the purchase is carried out; be used (in each case excluding non-business days). d) the authority hereby conferred shall expire at the 4. In the case of joint holders, the vote of the senior who conclusion of the next AGM of the Company unless such tenders the vote shall be accepted to the exclusion of the FINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS STRATEGY authority is renewed prior to such time; and votes of the other joint holders and for this purpose, seniority shall be determined by the order in which the names stand e) the Company may make a contract to purchase shares in the Register of Members. under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly 5. T o appoint a proxy or to give or amend an instruction to or partly after the expiration of such authority and a previously appointed proxy via the CREST system, the may make a purchase of shares pursuant to any such CREST message must be received by the issuer’s agent contract. RA10 by 11:00 on Friday, 19 July 2024. For this purpose, the time of receipt will be taken to be the time (as determined By Order of the Board by the timestamp applied to the message by the CREST FIL Investments International Applications Host) from which the issuer’s agent is able Secretary to retrieve the message. After this time, any change of 10 June 2024 instructions to a proxy appointed through CREST should be communicated to the proxy by other means. CREST Personal Members or other CREST sponsored members and those CREST Members who have appointed voting service provider(s) should contact their CREST sponsor or voting service provider(s) for assistance with appointing proxies via CREST. For further information on CREST procedures, limitations and systems timings please refer to the CREST Manual. We may treat as invalid a proxy appointment sent by CREST in the circumstances set out in Regulation 35(5) of the Uncertified Securities Regulations 2001. In any case your proxy form must be received by the Company’s Registrar no later than 11:00 on Friday, 19 July 2024. ### 96 Fidelity China Special Situations PLC | Annual Report 2024 ## Notice of Meeting continued 6. Proxymity Voting – If you are an institutional investor, you Therefore, it is your responsibility to ensure connectivity for may also be able to appoint a proxy electronically via the the duration of the AGM via your wi-fi. A user guide to the Proxymity platform, a process which has been agreed by Lumi platform is available on the Company’s pages of the the Company and approved by the Registrar. For further Manager’s website at: www.fidelity.co.uk/china. information regarding Proxymity, please go to If you wish to appoint a proxy other than the Chairman of www.proxymity.io. Your proxy must be lodged by no later the meeting and for them to attend the virtual meeting on than 11:00 on Friday, 19 July 2024 in order to be considered your behalf, please submit your proxy appointment in the valid. Before you can appoint a proxy via this process, you usual way before contacting Link Group on +44 (0) 371 277 will need to have agreed to Proxymity’s associated terms 1020* in order to obtain their IVC and PIN. It is suggested and conditions. It is important that you read these carefully that you do this as soon as possible and at least 48 hours as you will be bound by them and they will govern the (excluding non-business days) before the meeting. electronic appointment of your proxy. An electronic proxy appointment via the Proxymity Platform may be revoked If your shares are held within a nominee/platform and completely by sending an authenticated message via the you wish to attend the electronic meeting, you will need to platform instructing the removal of your proxy vote. contact your nominee as soon as possible. Your nominee will need to present a corporate letter of representation to Link 7. Unless otherwise indicated on the Form of Proxy, CREST Group, the Registrar, as soon as possible and at least 72 voting, Proximity or any other electronic voting channel hours (excluding non-business days) before the meeting, in instruction, the proxy will vote as they think fit or, at their order that they can obtain for you your unique IVC and PIN discretion, withhold from voting. to enable you to attend the electronic meeting. 8. All members are entitled to attend and vote at the AGM If you are unable to obtain a unique IVC and PIN from and ask questions. The right to vote at the meeting will be your nominee or platform, we will also welcome online determined by reference to the Register of Members as participation as a guest. Once you have accessed https:// at close of business on Friday, 19 July 2024. Shareholders web.lumiagm.com from your web browser on a tablet are urged to vote using the Form of Proxy provided or or computer, you will need to enter the Lumi Meeting ID electronically where permitted by your nominee or platform. which is 134-206-210. You should then select the ‘Guest 9. The Company is pleased to be able to offer facilities for Access’ option before entering your name and who you are shareholders to attend, ask questions and vote at the AGM representing, if applicable. This will allow you to view the electronically in real time should they wish to do so. The meeting and ask questions but you will not be able to vote. details are set out below. * Lines are open from 09:00 to 17:30 Monday to Friday, excluding public holidays in England and Wales. Calls are charged at the standard geographic In order to join the AGM electronically and ask questions rate and will vary by provider. Calls outside the UK will be charged at the via the platform, shareholders will need to connect to the applicable international rate. following site https://web.lumiagm.com. Lumi is available as a mobile web client, compatible with the latest browser 10. Any person to whom this notice is sent who is a person versions of Chrome, Firefox, Edge and Safari and can be nominated under Section 146 of the Companies Act 2006 to accessed using any web browser, on a PC or smartphone enjoy information rights (a “Nominated Person”) may, under device. an agreement between him and the member by whom he was nominated, have a right to be appointed (or to have Once you have accessed https://web.lumiagm.com from someone else appointed) as a proxy for the meeting. If a your web browser on a tablet or computer, you will be asked Nominated Person has no such proxy appointment right to enter the Lumi Meeting ID which is 134-206-210. You or does not wish to exercise it, he may, under any such will then be prompted to enter your unique 11 digit Investor agreement, have a right to give instructions to the member Code (“IVC”) including any leading zeros and ‘PIN’. Your PIN as to the exercise of voting rights. The statement of the rights is the last 4 digits of your IVC. This will authenticate you as a of members in relation to the appointment of proxies in shareholder. Note 1 above does not apply to Nominated Persons. The right described in that paragraph can only be exercised by Your IVC can be found on your share certificate or as members of the Company. detailed on your proxy form. Signal Shares users (www.signalshares.com) will find this under ‘Manage your 11. If the Chairman, as a result of any proxy appointments, is account’ when logged in to the Signal Shares portal. You can given discretion as to how the votes which are the subject also obtain this by contacting Link, our Registrar, by calling of those proxies are cast and the voting rights in respect +44(0) 371 277 1020* of those discretionary proxies, when added to the interests in the Company’s securities already held by the Chairman, Access to the AGM will be available from 30 minutes before result in the Chairman holding such number of voting rights the meeting start time, although the voting functionality that he has a notifiable obligation under the Disclosure and will not be enabled until the Chairman of the meeting Transparency Rules, the Chairman will make the necessary declares the poll open. During the AGM, you must ensure notifications to the Company and the Financial Conduct you are connected to the internet at all times in order to vote Authority. As a result, any member holding 3% or more of when the Chairman commences polling on the Resolutions. Annual Report 2024 | Fidelity China Special Situations PLC 97 the voting rights in the Company who grants the Chairman a discretionary proxy in respect of some or all of those voting rights and so would otherwise have a notification obligation under the Disclosure and Transparency Rules, need not make separate notification to the Company and the Financial Conduct Authority. 12. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the Company has specified that to be entitled to attend and vote at the AGM (and for the purpose of determining the number of votes they may cast), members must be entered on the Register of Members by close of business on Friday, 19 July 2024. If the meeting is adjourned then, to be so entitled, members must be entered on the Register of Members by close of business on the day two days before the time fixed for the adjourned meeting, or, if the Company gives notice of the adjourned meeting, at any other time specified in that notice. 13. As at the latest practicable date prior to the publication of this document, the Company's issued share capital consisted of 608,614,733 ordinary shares carrying one vote each. The number of shares held by the Company in Treasury was 85,629,548. Therefore, the total number of shares with voting rights in the Company was 522,985,185. 14. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. 15. Shareholders and any proxies or representatives they appoint understand that by attending the meeting they are expressly agreeing that they are willing to receive any communications, including communications relating to the Company's securities, made at the meeting. 16. It is possible that, pursuant to requests made by members of the Company under Section 527 of the Companies Act 2006, the Company may be required to publish on its website a statement setting out any matter relating to the audit of the Company's accounts (including the Auditor's report and the conduct of the audit) that is to be laid before the AGM or any circumstance connected with an Auditor of the Company ceasing to hold office since the previous meeting at which the Annual Report and Financial Statements were laid. The Company may not require the Shareholders requesting any such website publication to pay its expenses in complying with such requests. Where the Company is required to place a statement on a website under Section 527 of the Companies Act 2006, it must forward the statement to the Company's Auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the AGM includes any statement that the Company has been required under Section 527 of the Companies Act 2006 to publish on its website. 17. No Director has a service contract with the Company. 18. A copy of this notice and other information required by Section 311A of the Companies Act 2006 is published on the Company's website at www.fidelity.co.uk/china. Registered office: Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. STRATEGY GOVERNANCE FINANCIAL INFORMATION FOR SHAREHOLDERS ### 98 Fidelity China Special Situations PLC | Annual Report 2024 ## Glossary to the Annual Report AAF REPORT Benchmark Index A report prepared in accordance with the Audit and Assurance MSCI China Index total return (in UK sterling terms) and is a Faculty guidance issued by the Institute of Chartered Accountants composite of China “A”, “B“, “H“, “Red Chip“ and “P Chip“ share in England and Wales. classes and foreign listings (e.g. ADRs). ADR (American Depositary Receipt) Broker A negotiable certificate issued by a US bank representing a The Company’s Broker is Jefferies International Limited. specified number of shares in a foreign stock that is traded on a US Exchange. Capital Gains Tax (CGT) The tax that may be payable if shares are sold at a profit. AIC The Association of Investment Companies (“AIC”). The Company China “A” Shares is a member of the AIC. Shares traded on the Chinese Stock Exchanges in Chinese renminbi. Foreign investors were unable to participate in the AIF China “A” Shares market until the introduction of the QFII program Alternative Investment Fund (“AIF”). The Company is an AIF. in 2002 which provided a legal framework for licensed QFIIs to invest in China “A” Shares on the Chinese Stock exchanges and AIFM certain other securities previously not eligible for investment by Alternative Investment Fund Manager (“AIFM”). The Board has foreign investors. appointed FIL Investment Services (UK) Limited to act as the Company’s AIFM (the Manager). China “B” Shares Shares traded on the Shenzhen Stock Exchange and Shanghai AIFMD Stock Exchange in Hong Kong dollars and US dollars, The Alternative Investment Fund Managers Directive (“AIFMD”) is respectively. The shares were originally intended to be available a European Union Directive implemented on 22 July 2014. only to foreign individuals and institutional investors, however, since February 2001 they have also been available to domestic Alternative Performance Measures individual investors who trade through legal foreign currency The Company uses the following Alternative Performance accounts. Measures which are all defined in this Glossary: China “H” Shares • Discount/Premium; Shares in companies incorporated in the PRC and listed on the Hong Kong Stock Exchange. They are available to non-Chinese • Gearing; investors and are traded in Hong Kong dollars on the Hong Kong Stock Exchange. • Net Asset Value (NAV) per Ordinary Share; Chinese Renminbi • Ongoing Charges Ratio; Currency of the PRC. • Revenue, Capital and Total Returns; and Chinese Stock Exchanges The Shanghai Stock Exchange, the Shenzhen Stock Exchange and • Total Return Performance (Net Asset Value Total Return or any other stock exchange located within the PRC from time to Ordinary Share Price Total Return). time. Asset Exposure ChiNext The value of an underlying security or instrument to which ChiNext is a NASDAQ-style subsidiary of the Shenzhen Stock the Company is exposed, whether through direct or indirect Exchange for innovative and fast-growing companies, especially investment (including the economic value of the exposure in the high-tech companies. It started trading in October 2009. The underlying asset of derivatives). MSCI added stocks trading on Shenzhen’s ChiNext board to its indexes for the first time in May 2019, allowing foreign investors Auditor to tap the tech-focused board by investing in the indexes. Ernst & Young LLP, or such other auditor, as the Company may appoint from time to time. Collateral Asset provided as security for the unrealised gain or loss under a contract for difference. ### 99 Annual Report 2024 | Fidelity China Special Situations PLC Contract For Difference (CFD) Equity Linked Notes (ELNS) A contract for difference is a derivative. It is a contract between Debt instruments whose return on investment is linked to specific the Company and an investment house at the end of which the equities or equity markets. The return on equity linked notes may parties exchange the difference between the opening price and be determined by an equity index, a basket of equities, or a the closing price of an underlying asset of the specified financial single equity. instrument. It does not involve the Company buying or selling the underlying asset, only agreeing to receive or pay the movement Fair Value in its share price. A contract for difference allows the Company The carrying value in the Balance Sheet which represents the to gain access to the movement in the share price by depositing amount that would be received or paid on disposal of the a small amount of cash known as collateral. The Company may financial asset or liability. reason that the asset price will rise, by buying (“long” position) or fall, by selling (“short” position). If the Company holds long FIL Limited positions, dividends are received and interest is paid. If the The ultimate parent company of the FIL Group of companies. Company holds short positions, dividends are paid and interest Incorporated in Bermuda. is received. Fidelity International (Fidelity) Corporation Tax FIL Investments International. The tax the Company may have to pay on its profits for a year. As an investment trust, the Company is exempt from corporation tax Forward Contract on its capital gains and does not pay tax on any UK dividends. An agreement to buy or sell a currency, commodity or other asset It can also offset expenses against any taxable income and at a specified future date and at a predetermined price. consequently it is tax efficient for the Company. Future Custodian An agreement to buy or sell a fixed amount of an asset at a fixed An entity that holds (as intermediary) the Company’s assets, future date and a fixed price. arranges the settlement of transactions and administers income, proxy voting and corporate actions. The Company’s Custodian is Gross Asset Exposure JPMorgan Chase Bank. The value of the portfolio to which the Company is exposed, whether through direct or indirect investment (including the Debt economic value of the exposure in the underlying asset of the Bank borrowings and long contracts for difference. derivatives but excluding forward currency contracts). Depositary Gross Gearing An entity that oversees the custody, cash arrangements and other Gross Asset Exposure in excess of Net Assets. FINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS STRATEGY AIFM responsibilities of the Company. J.P.Morgan Europe Limited act as the Company’s Depositary. Hedging A strategy aimed at minimising or eliminating the risk or loss Derivatives through adverse movements, normally involving taking a position Financial instruments (such as futures, options and contracts in a derivative such as a future or an option. For the purposes for difference ) whose value is derived from the value of an of calculating Gross Asset Exposure, the exposure attributed to underlying asset. the hedge positions will be deducted from the exposure of the corresponding long positions. Short positions are added to long Discount positions in arriving at the Gross Asset Exposure. If the share price of the Company is lower than the net asset value per ordinary share, the Company is said to be trading at a Index Linked Securities discount. The discount is shown as a percentage of the net asset Debt instruments whose return on investment is linked to changes value per ordinary share. in interest rates, stock exchanges, or other price indices. Earnings Initial Public Offering (IPO) The earnings generated in a given period from investments: An initial public offering (IPO) is the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger • Revenue Earnings – reflects the dividends and interest from companies seeking the capital to expand, but can also be done investments and other income, net of expenses, finance costs by large privately owned companies looking to become publicly and taxation; traded. • Capital Earnings – reflects the return on capital, excluding Investment Manager any revenue earnings; and FIL Investment Management (Hong Kong) Limited. • Total Earnings – reflects the aggregate of revenue and capital earnings. ### 100 Fidelity China Special Situations PLC | Annual Report 2024 ## Glossary to the Annual Report continued Kroll Net Asset Value per Ordinary Share Kroll provides an objective and independent assessment of The net asset value divided by the number of ordinary shares in value using sophisticated valuation methodologies. It constantly issue. monitors changing regulations and consistently provides input to Accounting Standards Boards as they develop implementation Net Gearing guidance and new financial reporting rules with valuation Net Gearing is the total of all long exposures, less short implications. exposures and less exposures hedging the portfolio in excess of Net Assets. Management Agreement The agreement between FIL Investment Management (Hong Net Market Exposure Kong) Limited and the Company regarding the management of Net Market Exposure is the total of all long exposures, less short the Company’s investments. exposures and less exposures hedging the portfolio. Manager Ongoing Charges Ratio (excluding Variable Management FIL Investment Services (UK) Limited is the appointed Manager Fee) under the Alternative Investment Fund Managers’ Directive Total operating expenses (excluding finance costs and taxation) (“AIFMD”) and has delegated the investment management of the incurred by the Company as a percentage of the average daily Company to the Investment Manager. net asset values for the reporting year. MSCI China Index Option The Benchmark Index of the investment performance of the An option is a contract which gives the right but not the Company, in UK sterling terms. obligation to buy or sell an underlying asset at an agreed price on or before an agreed date. Options may be calls (buy) or puts MSCI China Mid Cap Index (sell) and are used to gain or reduce exposure to the underlying Designed to measure the performance of the mid cap segment asset on a conditional basis. of the China market. The Index represents approximately 15% of the free float-adjusted market capitalisation of the China equity P Chips universe. Companies controlled by mainland China individuals, with the establishment and origin of the company in mainland China. P MSCI China Small Cap Index Chips are incorporated outside of the PRC and traded on the Designed to measure the performance of the small cap segment Stock Exchange of Hong Kong with a majority of revenues or of the China market. The Index represents approximately 14% of assets derived from mainland China. the free float-adjusted market capitalisation of the China equity universe. Portfolio The Company’s portfolio which may be made up of equities, NASDAQ index linked securities, equity linked notes and other debt A global electronic marketplace for buying and selling securities, securities, cash deposits, money market instruments, foreign as well as the benchmark index for US technology stocks. currency exchange transactions and other interests including derivatives (such as futures, options and contracts for difference). Net Assets The value of the Company’s assets minus its liabilities. Portfolio Manager Dale Nicholls is the appointed Portfolio Manager of the Company Net Assets plus Borrowings and is responsible for managing the Company’s assets. Net Assets plus bank loans. The Company currently has no bank loans. PRC The People’s Republic of China. Net Asset Value Net asset value is sometimes described as “Shareholders’ Funds” Pre-Emption Rights and is the total value of the Company’s assets less the total value Section 561 of the Companies Act 2006 provides that a company of its liabilities. For valuation purposes, it is common to express offering a new issue of shares must first make an offer of these the net asset value on a per ordinary share basis. shares, on the same or more favourable terms, in proportion to the nominal value held to existing shareholders. At each Annual General Meeting, the Board seeks shareholder approval to disapply pre-emption rights provision, up to 10% of the Company’s issued share capital. ### 101 Annual Report 2024 | Fidelity China Special Situations PLC Premium Secretary If the share price of the Company is higher than the net asset FIL Investments International. value per ordinary share, the Company’s shares are said to be trading at a premium. The premium is shown as a percentage of Shareholders’ Funds the net asset value per ordinary share. Shareholders’ funds are also described as “net asset value” and represent the total value of the Company’s assets less the total QFII value of its liabilities as shown in the balance sheet. The Investment Manager is a QFII (a Qualified Foreign Institutional Investor) and as such has been granted a QFII Short Stock Exposure licence by the China Securities Regulatory Commission (“CSRC”) The position of the Company when it has sold a security or derivative which permits the Company to invest in China “A” Shares through that it does not own but is now committed to eventually purchase in the Investment Manager and has received an allocation of quota order to satisfy its obligation to sell. It is a strategy used to capitalise for onshore investment from the State Administration of Foreign on an expected decline in the security or derivative’s price. Exchange of the PRC (“SAFE”). Size of Company (By Market Cap) Large – above £5bn Red Chips Companies incorporated outside China but which are based in Medium – between £1bn – £5bn mainland China. Red Chips are listed on, and are required to Small – below £1bn observe the filing and reporting requirements of the Hong Kong Stock Exchange. Red Chips typically have a significant portion of Total Return Performance their business interests located in mainland China and many are The return on the share price or net asset value per ordinary owned, either directly or indirectly, by organisations or enterprises share taking into account the rise and fall of share prices and the controlled by the Chinese state, provinces or municipalities. dividends paid to shareholders. Any dividends received by the shareholder are assumed to have been reinvested in additional Registrar shares (for share price total return) or the Company’s assets (for An entity that manages the Company’s shareholder register. The net asset value total return). Company’s Registrar is Link Group. Total Shareholder Return Reserves Total shareholder return is the total return of shares to • Share premium account represents the amount by which shareholders, or the capital gains, plus dividends paid. the proceeds from the issue of ordinary shares have Treasury Shares exceeded the cost of those ordinary shares and the amounts Ordinary shares of the Company that have been repurchased paid by the Manager to meet costs relating to acquisitions. by the Company and not cancelled but held in Treasury. These It is not distributable by way of dividends and it cannot be shares do not pay dividends, have no voting rights and are FINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS STRATEGY used to fund share repurchases. excluded from the net asset value per ordinary share calculation. • Capital redemption reserve represents the nominal value Unlisted Companies of ordinary shares repurchased and cancelled. It cannot be Companies not listed on a regulated stock exchange. They used to fund share repurchases and is not distributable by are stated at best estimate of fair value, based on recognised way of dividends. valuation techniques which may take account of recent arm’s length transactions in the investments. • Other reserve is a distributable premium reserve created on 21 April 2010 when High Court approval was given for Variable Interest Entity (VIE) the share premium account to be cancelled. As a result, A variable interest entity (VIE) structure is designed to facilitate £452,232,000 was transferred from the share premium foreign investment in sectors of the Chinese domestic economy account to the other reserve. It can be used to fund share which prohibit foreign ownership. The essential purpose of the repurchases. VIE structure is to convey the economic benefits and operational control of ownership without direct equity ownership itself. As the • C apital reserve represents realised gains or losses on controlling interest is not based on having the majority of voting investments and derivatives sold, unrealised increases and rights, there may be a risk to an investor of being unable to decreases in the fair value of investments and derivatives enforce their ownership rights in certain circumstances. held and other income and costs recognised in the capital column of the Income Statement. It can be used to fund share repurchases and it is distributable by way of dividends. • Revenue reserve represents the net revenue surpluses recognised in the revenue column of the Income Statement that have not been distributed as dividends to shareholders. It is distributable by way of dividends. 102 Fidelity China Special Situations PLC | Annual Report 2024 # Glossary to the Annual Report continued ## Variable Management Fee (VMF) The Company has a Variable Management Fee (VMF) structure. The base fee is on a tiered basis of 0.85% on the first £1.5 billion of Net Assets, reducing to 0.65% on Net Assets over £1.5 billion per annum plus a +/- 0.20% variation fee based on performance relative to the Company's Benchmark Index (the MSCI China Index). The maximum fee that the Company would pay if it outperforms is 1.05% on Net Assets up to £1.5 billion and reducing to 0.85% on Net Assets over £1.5 billion, but if the Company underperforms against the Benchmark Index, then the overall fee could be as low as 0.65% on Net Assets up to £1.5 billion, reducing to 0.45% on Net Assets over 1.5 billion. ## Warrants A derivative security that gives the Company the right to purchase securities (usually equity) from the issuer at a specific price and within a certain time frame. ### 103 Annual Report 2024 | Fidelity China Special Situations PLC ## Shareholder Information Investing in Fidelity China Special Situations PLC Fidelity Platform Investors Fidelity China Special Situations PLC is a company listed on the Contact Fidelity, using the freephone numbers given below, or by London Stock Exchange and you can buy its shares through a writing to: UK Customer Service, Fidelity, PO Box 391, Tadworth, platform, stockbroker, share shop or bank. Fidelity also offers Surrey KT20 9FU. a range of options, so that you can invest in a way that is best for you. Details of how to invest and the latest Key Information Website: www.fidelity.co.uk Document can be found on the Company’s pages of the Manager’s website at www.fidelity.co.uk/china. Private investors: call free on 0800 41 41 10, 9:00 – 18:00, Monday to Saturday. CONTACT INFORMATION Shareholders and Fidelity’s Platform Investors should contact the Financial advisers: call free on 0800 41 41 81, 8:00 – 18:00, appropriate administrator using the contact details given below Monday to Friday. and in the next column. Links to the websites of major platforms can be found online at www.fidelity.co.uk/its General Enquiries General enquiries should be made to the Secretary, at the Shareholders on the main share register Company’s registered office: FIL Investments International, Contact Link Group, Registrar to Fidelity China Special Situations Investment Trusts, Beech Gate, Millfield Lane, Lower Kingswood, | PLC, Central Square, 29 Wellington Street, Leeds LS14DL. | Tadworth, Surrey KT20 6RP. | | --- | --- | | Email: shareholderenquiries@linkgroup.co.uk | Telephone: 0207 961 4240 | | Telephone: 0371 664 0300 (calls are charged at the standard | Email: investmenttrusts@fil.com | geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international Website: www.fidelity.co.uk/its rate. Lines are open 9:00 – 17:30, Monday to Friday excluding public holidays in England and Wales). If you hold Fidelity China Special Situations PLC shares in an account provided by Fidelity International, you will receive a Details of individual shareholdings and other information can report every six months detailing all of your transactions and the also be obtained online from the Registrar’s Share Portal at value of your shares. www.signalshares.com. Shareholders are able to manage their shareholding online by registering for the Share Portal, a free ShareGift and secure online access service. Facilities include: You may donate your shares to charity free of charge through ShareGift. Further details are available at www.sharegift.org.uk. Account Enquiry – Shareholders can access their personal FINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS STRATEGY shareholding, including share transaction history, dividend payment history and obtain an up-to-date shareholding valuation. Amendment of Standing Data – Shareholders can change their registered postal address and add, change or delete dividend mandate instructions. Shareholders can also download forms such as change of address, stock transfer and dividend mandates as well as buy and sell shares in the Company. Should you have any queries in respect of the Link Share Portal, contact the helpline on 0371 664 0391 (calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open 9:00 – 17:30, Monday to Friday excluding public holidays in England and Wales). ### 104 Fidelity China Special Situations PLC | Annual Report 2024 ## Shareholder Information continued ### Managers and Advisors | Alternative Investment Fund Manager | Banker and Custodian | Lawyer | | --- | --- | --- | | (AIFM/the Manager) | JPMorgan Chase Bank (London Branch) | Simmons & Simmons LLP | | FIL Investment Services (UK) Limited | 125 London Wall | 1 Ropemaker Street | | Beech Gate | London | London | | Millfield Lane | EC2Y 5AJ | EC2Y 9SS | Lower Kingswood | Tadworth | Depositary | Registrar | | --- | --- | --- | | Surrey | J.P.Morgan Europe Limited | Link Group | | KT20 6RP | 25 Bank Street | Central Square | | | London | 29 Wellington Street | | Investment Manager | E14 5JP | Leeds | | FIL Investment Management | | LS1 4DL | | (Hong Kong) Limited | Financial Adviser and Stockbroker | | | Level 21 | Jefferies International Limited | | | Two Pacific Place | 100 Bishopsgate | | | 88 Queensway | London | | | Admiralty | EC2N 4JL | | Hong Kong Independent Auditor | Secretary and Registered Office | Ernst & Young LLP | | --- | --- | | FIL Investments International | 25 Churchill Place | | Beech Gate | London | | Millfield Lane | E14 5EY | Lower Kingswood Tadworth Surrey KT20 6RP Email: investmenttrusts@fil.com Company Information Net Asset Value (“NAV”) Information The Company’s initial public offering was on 19 April 2010. The The Company’s NAV is calculated and released to the London original subscription price for each share was £1. The Company Stock Exchange on a daily basis. also issued “C” shares of £1 each on 1 March 2011 and these were subsequently converted into new ordinary shares. The Company is a member of the Association of Investment Companies (“AIC”) from whom general information on investment trusts can be obtained by telephoning 020 7282 5555 (email address: enquiries@theaic.co.uk). Price Information The share price of the Company is published daily in The Financial Times under the heading “Investment Companies”. It is also published in the Times and The Daily Telegraph. Price and performance information is also available at www.fidelity.co.uk/china Investors can also obtain current share price information by telephoning Fidelity for free on 0800 41 41 10 or FT Cityline on 0905 817 1690 (voice activated service) (calls charged at 60p per minute on a per second basis from a BT landline. Charges from other telephone networks may vary). The Reuters Code for Fidelity China Special Situations PLC is FCSS, the SEDOL is B62Z3C7 and the ISIN is GB00B62Z3C74. ### 105 Annual Report 2024 | Fidelity China Special Situations PLC ## Data Protection General Data Protection Regulation (“GDPR”) What personal data is collected and how it is used The Company is an investment trust which is a public limited company and has certain regulatory obligations such as the requirement to send documents to its shareholders, for example, the Annual Report and other documents that relate to meetings of the Company. The Company will therefore collect shareholders’ personal data such as names, addresses and identification numbers or investor codes and will use this personal data to fulfil its statutory obligations. Any personal data collected will be kept securely on computer systems and in some circumstances on paper. Personal information is kept secure in line with Fidelity’s Information Security policies and standards. If you are unhappy with how we have used your personal data, you can complain by contacting the UK Data Protection Officer at Fidelity International, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. Sharing personal data In order to assist the Company in meeting its statutory requirements, the Company delegates certain duties around the processing of this data to its third-party service providers, such as the Company’s Registrar and Printers. The Company has appointed Fidelity to undertake marketing activities for the Company and their privacy statement can be found on the Company’s website at https://investment-trusts.fidelity.co.uk/security-policy/ The Company’s agreements with the third-party service providers have been updated to be compliant with GDPR requirements. The Company confirms to its shareholders that their data will not be shared with any third-party for any other purpose, such as for marketing purposes. In some circumstances, it may be necessary to transfer shareholders’ personal data across national borders to Fidelity Group entities operating in the European Economic Area (“EEA”). Where this does occur, the European standard of protections will be applied to the personal data that is processed. Where personal data is transferred within the Fidelity Group, but outside of the EEA, that data will subsequently receive the same degree of protection as it would in the EEA. Retention Period Personal data will be kept for as long as is necessary for these purposes and no longer than legally permitted to do so. Requesting access, making changes to your personal data and other important information Shareholders can access the information that the Company holds about them or ask for it to be corrected or deleted by contacting Fidelity’s UK Data Protection Officer, Fidelity International, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. FINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS STRATEGY ### 106 Fidelity China Special Situations PLC | Annual Report 2024 ## Alternative Investment Fund Manager’s ## Disclosure In compliance with the Alternative Investment Fund Managers’ Directive (“AIFMD”), the Board has appointed FIL Investment Services (UK) Limited (“FISL”) as the Company’s Alternative Investment Fund Manager (“AIFM”). FISL has delegated the investment management to FIL Investment Management (Hong Kong) Limited (“FIMHK”) and the company secretarial function to FIL Investments International. Details of the current Management Agreement can be found in the Directors’ Report on page 37. The table below discloses information required by the Alternative Investment Fund Managers’ Regulations 2013. Function AIFM Role and Responsibility AIFMD Disclosure ### Investment The AIFM provides portfolio management of Details of the Company’s investment objective, assets and investment advice in relation to the strategy and investment policy, including limits, are ### management assets of the Company. It has delegated this on pages 22 and 23. function to FIL Investment Management (Hong Kong) Limited. The Board remains responsible for setting the investment strategy, investment policy and investment guidelines and the AIFM operates within these guidelines. ### Risk The AIFM has a responsibility for risk The AIFM has an ongoing process for identifying, management for the Company which is in evaluating and managing the principal risks faced ### management addition to the Board’s corporate governance by the Company and this is regularly reviewed responsibility for risk management. by the Board. The Board remains responsible for the Company’s system of risk management and | The Company has a Risk Management | internal controls and for reviewing its effectiveness. | | --- | --- | | Process Document which demonstrates that | Further details can be found in the Strategic Report | | risk management is separated functionally | on pages 24 to 29 and in Note 18 to the Financial | | and hierarchically from operating units and | Statements on pages 80 to 89. | demonstrates independence safeguards. The Manager maintains adequate risk management systems in order to identify, measure and monitor all risks at least annually under AIFMD. The Manager is responsible for the implementation of various risk activities such as risk systems, risk profile, risk limits and testing. The Board, as part of UK corporate governance, remains responsible for the identification of significant risks and for the ongoing review of the Company’s risk management and internal control processes. ### Valuation of The AIFMD requires the disclosure of the As at the date of this report, none of the Company’s percentage of the Alternative Investment Fund’s assets were subject to special arrangements arising ### illiquid assets assets which are subject to special arrangements from their illiquid nature. arising from their illiquid nature and any new arrangements for managing the liquidity of the Company. ### 107 Annual Report 2024 | Fidelity China Special Situations PLC Function AIFM Role and Responsibility AIFMD Disclosure ### Leverage The Company uses leverage to increase its The maximum leverage limits are 1.80 for the Gross exposure primarily to the stock markets of China Method of calculating leverage and 1.50 for the and currently holds long derivatives to achieve Commitment Method. this. The AIFM has set maximum levels of leverage that are reasonable. It has implemented systems At 31 March 2024, actual leverage was 1.51 for the to calculate and monitor compliance against Gross Method and 1.35 for the Commitment Method. these limits and has ensured that the limits have been complied with at all times. There are two methods of calculating leverage – the Gross Method which does not reduce exposure for hedging; and the Commitment Method which does reduce exposure for hedging. ### Liquidity The AIFM, in consultation with the Board, No new arrangements for managing the liquidity of maintains a liquidity management policy which is the Company have been made. Further details can ### management | | considered at least annually. | be found in Note 18 on page 83. | | --- | --- | --- | | Remuneration | The AIFM operates under the terms of Fidelity’s | Details of Fidelity International’s Global | | | Global Remuneration Policy Statement. This | Remuneration Policy can be found at | ### of the AIFM ensures that the AIFM complies with the www.fidelityinternational.com/global/ requirements of the FCA’s Remuneration Code remuneration/default.page (SYSC19A); the AIFM Remuneration Code (SYSC19B) and the BIPRU Remuneration Code (SYSC19C). EU Securities Financing Transactions Regulation (“SFTR”) The following disclosures relate to contracts for difference (“CFDs”) held by the Company which may be considered Total Return Swaps under the SFTR, which came into force on 12 January 2016. As at 31 March 2024, all CFDs were contracted bilaterally with open maturities: FINANCIAL GOVERNANCEINFORMATION FOR SHAREHOLDERS STRATEGY | | | | | | Collateral | | Collateral | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Percentage | | held by the | | held by the | | | | Fair Value | | | of | | broker | Company | | | Broker | | £’000 | Net Assets | | | £’000 | | £’000 | Goldman Sachs International (UK) 1,301 0.11% 2,613 – HSBC Bank plc (UK) 1,068 0.09% 198 – J.P. Morgan Securities plc (UK) (5,242) (0.45%) – 5,186 Morgan Stanley & Co International (UK) (3,746) (0.32%) – 3,714 UBS AG (UK) 890 0.08% – 895 Collateral held by the broker was denominated in US dollars and held in a segregated account on behalf of the Company with a maturity of one day. The total return for the year ended 31 March 2024 from CFDs was a loss of £97,385,000. To find out more about Fidelity China Special Situations PLC, visit our website www.fidelity.co.uk/china where you can read articles and watch videos on the Company. ## www.fidelity.co.uk/its Fidelity, Fidelity International, the Fidelity International logo and symbol are trademarks of FIL Limited Printed by Park Communications on FSC® certified paper. Park works to the EMAS standard and its Environmental Management System is certified to ISO 14001. This publication has been manufactured using 100% offshore wind electricity sourced from UK wind. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy. This document is printed on Revive 100 Silk, a white triple coated sheet that is manufactured from FSC® Recycled certified fibre derived from 100% pre and post-consumer wastepaper containing 100% recycled fibre. 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