Pre-Annual General Meeting Information • Oct 22, 2012
Pre-Annual General Meeting Information
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you should seek your own personal financial advice from your stockbroker, bank manager, solicitor or other financial adviser authorised under the Financial Services and Markets Act 2000.
If you sell or have sold or otherwise transferred all of your Ordinary Shares, please send this document, Form of Proxy and/or Voting Instruction Form at once to the purchaser or transferee or to the bank, stockbroker or other agent through whom or by whom the sale or transfer was made, for delivery to the purchaser or transferee.
This document comprises a circular relating to Fidelity Asian Values PLC prepared in accordance with the Listing Rules of the United Kingdom Listing Authority. This Circular has been approved by the Financial Services Authority and published in accordance with the Listing Rules.
The contents of this Circular relate only to the proposed changes to the investment policy of Fidelity Asian Values PLC and the Notice of General Meeting seeking shareholder approval for the proposed changes.
A Form of Proxy for use in relation to the General Meeting is enclosed with this document. To be valid, Forms of Proxy must be completed and returned in accordance with the instructions printed thereon so as to be received by the Company's Registrars, Capita Registrars, P.O. Box 25, Beckenham, Kent BR3 4TU no later than 48 hours before the time of the General Meeting.
A list of defined terms used in this Circular is set out at pages 9 and 10 of this Circular.
(An investment company within the meaning of section 833 of the Companies Act 2006 incorporated and registered in England and Wales with registered number 3183919)
Directors: all of whom are non-executive Registered Office: Hugh Bolland (Chairman) Beech Gate Kate Bolsover Millfield Lane William Knight Lower Kingswood Kathryn Matthews Tadworth Philip Smiley Surrey KT20 6RP
22 October 2012
To Shareholders and Scheme Participants
Dear Sir/Madam
The Board is proposing changes to the Existing Investment Policy of Fidelity Asian Values PLC ("the Company") to permit the use of Contracts for Difference ("CFDs") which will increase the gearing options available to the Company although the overall gearing limit will remain unchanged.
The changes are being proposed to provide the Company with additional flexibility to gear the Company through means other than, or in addition to, bank loans, particularly should bank debt become difficult and/or expensive to obtain. At present, the Company has a competitive revolving credit facility with Scotiabank Europe PLC which will mature on 29 February 2014.
The Board believes that it is in the best interests of Shareholders for the Company to continue to have the ability to employ gearing and that the use of CFDs in the manner proposed will provide an appropriate method of gearing the assets of the Company without necessarily relying on traditional forms of borrowing. The ability to use CFDs will increase gearing flexibility and add to the range of options available to the Board and the Manager in changing market conditions. The costs of using CFDs in the manner proposed are currently lower than the costs involved in traditional borrowing, including the existing facility.
Under the New Investment Policy, the Company's aggregate exposure to equities, whether through bank lending or the use of CFDs (or any combination thereof), will not exceed 130% of total net assets. This is the same gearing limit as under the Company's existing Investment Policy where borrowing will not exceed an amount to 30 per cent of the value of the Company's net assets at the date on which the borrowing is incurred. In addition, the limits on exposure to individual companies and groups as set out in the New Investment Policy in Part II of this document will be calculated on the basis that the Company had acquired the securities to which any CFD is providing exposure.
The investment in equities, whether through borrowed money or gearing achieved through the use of CFDs, will be subject to the exposure limits set out in the New Investment Policy.
The Board will continue to monitor and review the Company's gearing level, whether through the use of CFDs or traditional borrowing.
The New Investment Policy and an annotated version detailing the proposed changes to the Existing Investment Policy are set out in Part II of this Circular.
CFDs are derivative instruments that may be used for hedging or investment purposes.
A CFD is entered into between two counterparties on an over the counter basis ("OTC"), which means that the terms of each contract are individually negotiated and are not standardised. CFDs would be used purchase exposure to equities selected by the Manager.
Under a CF D, the counterparties agree to make payments to each other based on the difference between the current value of a specified asset and its value at a future date. Under CFDs to be entered into by the Company, the Company would be entitled to receive payments from the counterparty as the price of the underlying equities increases, and would be obliged to make payments to the counterparty as the price of the underlying equities decreases. Consequently, under CFDs the Company may achieve a gain or suffer a loss similar to gains or losses resulting from having purchased the applicable asset.
Since single positions under CFDs can general ly be freely increased, decreased or closed, they can offer s imil ar gea ring fl exibility as a loan.
The Manager is responsible for assessing the credit rating of counterparties and has a formal process for doing so which involves regular reviews of current and proposed counterparties by a dedicated team of credit analysts charged with risk counterparty risk assessment. At present, the Manager's approved CFD counterparties include UBS A.G. and Deutsche Bank. The Manager will assess the creditworthiness of counterparties on a continuing basis as part of its risk management process but, for the avoidance of doubt, would not be liable for any default by any counterparty (in the absence of any negligence, recklessness, wilful default or fraud by the Manager). Under the terms of the CFDs, the Manager on behalf of the Company has the right to terminate the related transactions if the credit ratings of any counterparty falls below certain specified levels. The Manager may use one or more separate counterparties to undertake CFD transactions on behalf of the Company, and may be required to deliver assets of the Company as collateral in order to secure the Company's obligations under such contracts.
The counterparty also charges the Company a daily funding charge, based on the initial market price of the securities that are the subject of the CFD. The effect is to give the Company an exposure to the securities on a geared basis, in effect as if the counterparty had lent the Company the money necessary for the Company to acquire the securities and the Company had acquired them.
The Manager adopts a marked-to-market approach to measure and manage the Company's credit exposure from CFDs. The Manager obtains the current market values of all CFD contracts held with a single counterparty on a daily basis. Collateral is used as a risk mitigant to reduce the credit risk exposure for both parties to these derivative transactions. This means that collateral – in the form of eligible scheme property – is pledged by either party once unrealised losses exceed a minimum transfer amount of US\$ 1.0 million. From the Company's perspective, this decreases the counterparty exposure arising from these positions. Collateral is managed and monitored against CFD portfolio replacement costs on a daily basis.
The Company enters into a CFD providing equity exposure to 10,000 shares at 100p per share. The initial equity exposure is therefore 10,000 x 100p = £10,000. If the share price increases to 105p, the unrealised profit on the position is now 10,000 x 5p = £500 and the Company's ongoing equity exposure is 10,000 x 105p = £10,500. If the aggregate unrealised profit exceeds the equivalent of US\$1 million, assets in excess of US\$1 million will be credited to the Company's collateral account with its custodian (thus limiting the exposure to the counterparty). Unrealised losses are secured by the Company providing collateral to the counterparty on a similar basis.
A funding charge will accrue daily on the initial cost of the equities to which the CFDs give exposure adjusted to reflect changes in the value of the equities and the daily posting of collateral by and to the counterparty. If cash is deposited with the counterparty as collateral to act as security for the unrealised losses on CFDs, the Company will receive interest on this amount.
Under current market conditions, the costs involved in using CFDs as outlined above would be less than the costs that would be incurred using traditional methods of borrowing.
The Company intends to use gearing to enhance returns. Traditional bank debt may be secured against the Company's assets. While the use of gearing should enhance the returns on the NAV of the Company's Shares when the value of the Company's underlying assets is rising, it will have the opposite effect when the underlying asset value is falling. Further, the return on the Company's investments and the amount of cash available for distribution to Shareholders may be reduced to the extent that changes in market conditions cause the cost of these borrowings to increase relative to the income that can be derived from the Company's underlying assets. This may lead to a higher volatility in the NAV and Share price than would otherwise be the case.
The Company will be exposed to risks associated with movements in prevailing interest rates when using traditional forms of bank loans. In the unlikely event that prevailing interest rates rise to such an extent that the Company is not able to meet its debt service obligations from cash reserves available for use at the time, it may be required to dispose of investments at a time not of its choosing and at a price less than the Company's valuation of such investments in order to meet such debt obligations.
The additional risk to the Company of using CFDs rather than traditional forms of finance is that the Company does not own the underlying Asian stocks to which the CFDs give exposure and is at risk if the counterparty defaults, for example for insolvency reasons.
Only delayed return of collateral from the counterparty to the Company adds to counterparty exposure and this process is monitored closely by the Manager. However, there may be a risk that the counterparty will wholly or partially fail to honour its contractual obligations regarding the return of collateral and any other payments due to the Company. In the event of bankruptcy or insolvency of a counterparty, the Company may only have the rights of a general creditor and so recovery of money owed may be slow or impossible and the Company may incur losses. In accordance with the risk management process which the Manager employs to oversee and manage derivative exposures, the Manager will seek to minimise such risk by only entering into transactions with counterparties that it believes 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 by closely monitoring the credit rating of the counterparty during the life of the CFD. In any event, the balance on all outstanding CFDs will be calculated on a daily basis with collateral then adjusted so that collateral equal to the outstanding balance has been posted, although no collateral adjustment will be made where the balance is less than US\$1 million. This results in a potential exposure to a single counterparty which would be the unposted collateral plus any unrealised trading profit before the position could be unwound.
Collateral is managed and monitored on a daily basis for all relevant OTC transactions and collateral received will be held by the Company's custodian.
Under the Listing Rules the Company is required to seek the approval of shareholders for any material change to its investment policy. An ordinary resolution to approve the changes to the Existing Investment Policy and to adopt the New Investment Policy will be proposed at the General Meeting. The full text of the Resolution is set out in the Notice of General Meeting at the end of this Circular.
You will find enclosed a Form of Proxy or Form of Direction depending on whether you hold your Shares under your own name on the share register or have chosen to hold your Shares through the Fidelity ISA or the Fidelity Investment Trust Share Plan
Whether or not you propose to attend the meeting, you are asked to complete the Form of Proxy or Form of Direction in accordance with the instructions printed thereon and return it to the Company's Registrars, Capita Registrars, P.O. Box 25, Beckenham, Kent BR3 4TU as soon as possible. The Form of Proxy must be returned no later than 48 hours before the meeting and the Form of Direction within 5 clear days before the General Meeting.
The Board has declared their intention to vote their individual holdings amounting to an aggregate of 28,685 Ordinary Shares (representing approximately 0.05% of the issued Ordinary Share capital of the Company as at the date of this document) in favour of the Resolution.
Some Sha reholders have chosen to hold their Shares through the Fidelity ISA or the Fidelity Investment Trust Share Plan. As at 22 October 2012, 12,338,435 Ordinary Shares representing approximately 20.85% of the issued Ordinary Share capital of the Company were held this way. Scheme Participants are being given the opportunity to vote on the proposal. Where voting directions are not received, these Shares will be voted in favour of the Resolution by the Savings Schemes managers in line with the terms and conditions of the Savings Schemes.
The Board considers the Resolution to be in the best interests of the Company and its Shareholders as a whole.
Yours faithfully
Hugh Bolland Chairman
The Company primarily invests in a diversified portfolio of companies listed on stockmarkets in the Asian region excluding Japan, but investments may be made in companies listed elsewhere which, in the opinion of the portfolio manager, have significant interests in the Asian region excluding Japan.
In order to diversify the Company's portfolio the Board has set broad guidelines for the portfolio manager, which the Board reserves the right to amend as it sees fit, in respect of the country weightings of the portfolio. Investment of up to 10 per cent. of the Company's total assets less current liabilities (as at the date of the investment), excluding the fixed term loan liability ("Total Assets") is permitted in any one company or other investment entity.
The Company principally invests in equities but may also invest in equity related instruments; up to 15 per cent. in convertible bonds, 10 per cent. in warrants and 35 per cent. in debt or money market instruments or money market funds. The Company may invest up to 5 per cent. of total assets in securities which are not listed on any stock exchange but the portfolio manager will not normally make any such investment, except where it is expected that the securities will become listed on a stock exchange in the foreseeable future.
In addition, the Company may invest up to 15 per cent. of Total Assets in other investment funds (whether listed or unlisted) where such funds offer the only practicable means of gaining exposure to a particular market in the Asian region excluding Japan.
Investment in non-voting depository receipts, American depositary receipts, global depositary receipts and equity linked notes is permitted by the Board, any such investment being included in the aggregate relevant country weighting. While it is not expected that the Company will undertake any foreign exchange hedging of its portfolio, it reserves the right to do so.
The Company has the ability to use gearing when it believes that long term investment returns will exceed the costs of gearing. This gearing will be obtained through the use of borrowing and/or through the use of Contracts for Difference ("CFDs") to obtain exposure to securities selected by the Manager. The effect of gearing is to magnify the consequence of market movements on the portfolio and if the portfolio value rises the NAV will be positively impacted, but if it falls the NAV will be adversely impacted. The Board is responsible for setting the guidelines for the level of gearing in the Company and reviews the position on a regular basis.
The aggregate exposure of the Company to equities, as a result of borrowing or under CFDs, will not exceed 130% of the total net assets at the time at which any CFD is entered into or borrowing incurred. In addition, the limits on exposure to individual companies and groups will be calculated on the basis that the Company has acquired the securities to which any CFD is providing exposure.
The Company primarily invests in a diversified portfolio of companies listed on stockmarkets in the Asian region excluding Japan, but investments may be made in companies listed elsewhere which, in the opinion of the portfolio manager, have significant interests in the Asian region excluding Japan.
In order to diversify the Company's portfolio the Board has set broad guidelines for the portfolio manager, which the Board reserves the right to amend as it sees fit, in respect of the country weightings of the portfolio. Investment of up to 10 per cent. of the Company's total assets less current liabilities (as at the date of the investment), excluding the fixed term loan liability ("Total Assets") is permitted in any one company or other investment entity.
The Company principally invests in equities but may also invest in equity related instruments; up to 15 per cent. in convertible bonds, 10 per cent. in warrants and 35 per cent. in debt or money market instruments or money market funds. The Company may invest up to 5 per cent. of total assets in securities which are not listed on any stock exchange but the portfolio manager will not normally make any such investment, except where it is expected that the securities will become listed on a stock exchange in the foreseeable future.
In addition, the Company may invest up to 15 per cent. of Total Assets in other investment funds (whether listed or unlisted) where such funds offer the only practicable means of gaining exposure to a particular market in the Asian region excluding Japan.
Investment in non-voting depository receipts, American depositary receipts, global depositary receipts and equity linked notes is permitted by the Board, any such investment being included in the aggregate relevant country weighting. While it is not expected that the Company will undertake any foreign exchange hedging of its portfolio, it reserves the right to do so.
It is the policy of the Company that the total amount of borrowings will not exceed an amount equal to 30 per cent. of the value of the Company's net assets at the date on which the borrowing is incurred. The portfolio manager is currently permitted by the Board to maintain net gearing between 0 per cent. and 10 per cent. depending on the strength or weakness of the markets.
The Company has the ability to use gearing when it believes that long term investment returns will exceed the costs of gearing. This gearing will be obtained through the use of borrowing and/or through the use of Contracts for Difference ("CFDs") to obtain exposure to securities selected by the Manager. The effect of gearing is to magnify the consequence of market movements on the portfolio and if the portfolio value rises the NAV will be positively impacted, but if it falls the NAV will be adversely impacted. The Board is responsible for setting the guidelines for the level of gearing in the Company and reviews the position on a regular basis.
The aggregate exposure of the Company to equities, as a result of borrowing or under CFDs, will not exceed 130% of the total net assets at the time at which any CFD is entered into or borrowing incurred. In addition, the limits on exposure to individual companies and groups will be calculated on the basis that the Company has acquired the securities to which any CFD is providing exposure.
| Board of Directors | the board of directors of the Company (or any duly authorised committee thereof) from time to time |
|---|---|
| Circular | this document |
| Company | Fidelity Asian Values PLC |
| Existing Investment Policy |
the Company's current investment policy |
| Financial Services Authority or FSA |
the single regulatory authority for the UK financial services industry |
| Form of Proxy | the form of proxy which accompanies this document for use by Shareholders in connection with the General Meeting |
| FSMA | the Financial Services and Markets Act 2000 (as amended) |
| General Meeting | the general meeting of the Company to be held at 25 Cannon Street, London EC4M 5TA on 28 November 2012 immediately following the Annual General Meeting of the Company which is being held at 11.00 am, or any adjournment thereof, notice of which is set out at the end of this document |
| Manager | FIL Investments International |
| NAV | net asset value as calculated in accordance with the Company's valuation policies and the Articles |
| New Investment Policy | the proposed investment policy that will be adopted by the Company if the Resolution is passed as set out on page 11 |
| Official List | the official list maintained by the UK Listing Authority pursuant to Part IV of FSMA |
| Ordinary Shareholders or Shareholders |
holders of Ordinary Shares |
| Ordinary Shares | ordinary shares of 25 pence each in the capital of the Company |
| Registrars | Capita Registrars, P.O. Box 25, Beckenham, Kent BR3 4TU |
| Resolution | the ordinary resolution to be proposed at the General Meeting |
| Scheme Participants | beneficial owners of Shares held through the Savings Schemes |
|---|---|
| UK | the United Kingdom of Great Britain and Northern Ireland |
| UK Listing Authority | the Financial Services Authority acting in its capacity as the competent authority for the purposes of admissions to the Official List |
| Voting Instruction Form | the voting instruction form which accompanies (where relevant) this document for use by Scheme Participants in connection with the General Meeting |
(Incorporated and registered in England and Wales with registered number3183919)
Notice is hereby given that a General Meeting of shareholders will be held at 25 Cannon Street, London EC4M 5TA on 28 November 2012, immediately following the Annual General Meeting of the Company which is being held at 11.00 am, for the purpose of considering and, if thought fit, passing the following resolution which will be proposed as an ordinary resolution:
The resolution is an ordinary resolution which, if approved, will amend the Company's Existing Investment Policy. The complete text of the New Investment Policy is included in Part II of a circular of the Company dated 22 October 2012 (the "Circular"). Terms defined in the Circular shall have the same meanings in this Notice unless otherwise defined.
THAT the New Investment Policy set out in Part II of the Circular, a copy of which will be marked "A" and signed for the purpose of identification by the Chairman of the Meeting, be and is hereby approved and adopted with immediate effect as the Company's investment policy in place of its Existing Investment Policy.
Lower Kingswood Tadworth Surrey KT20 6RP
Registered office: By order of the board: Beech Gate FIL Investments International Millfield Lane Secretary
22 October 2012
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