Fidelity Special Values PLC — Annual Report 2013

Aug 31, 2013

Fidelity Special Values PLC

Annual Report

For the year ended 31 August 2013

Contents

Directors Report

Investment Objective and Financial Highlights	1
Chairman's Statement	2
Manager's Review	4
Forty Largest Investments	6
Distribution of the Portfolio	8
Summary of Performance	10
Attribution Analysis	13
Board of Directors	14
The Board's Policies	15
Directors' Report (including the Business Review)	16
Corporate Governance Statement	23
Statement of Directors' Responsibilities	28
Directors' Remuneration Report	29

Financial Statements

Independent Auditor's Report	30
Income Statement	31
Balance Sheet	32
Reconciliation of Movements in Shareholders' Funds	33
Cash Flow Statement	34
Notes to the Financial Statements	35

Shareholder Information

Notice of Meeting	50
Investing in Fidelity Special Values PLC	54
Shareholder Information	56
Warning to Shareholders – Share Fraud Warning	58
Glossary of Terms	59

Financial Calendar

	2013
Financial Year End	31 August
Final Results Announced	4 November
Annual General Meeting	12 December
Dividend Payment	16 December
	2014
Interim Management Statements Announced	January/July
Half-Year End	28 February
Half-Yearly Results Announced	April

Investment Objective and Financial Highlights

The investment objective of the Company is to achieve long term capital growth from an actively managed portfolio of special situation investments, consisting primarily of securities listed or traded on the London Stock Exchange.

Lynn Ruddick, Chairman

	2013	2012
Assets at 31 August
Shareholders' funds	£478.5m	£338.6m
Net Asset Value ("NAV") per share	883.93p	622.71p
Dividend for the year to 31 August
Final dividend per ordinary share	16.25p	13.00p
Share price and discount data at 31 August
Share price at year end	840.00p	527.00p
Share price year high	848.00p	543.50p
Share price year low	523.00p	442.25p
Discount at year end1	3.1%	13.5%
Discount year high1	15.0%	14.9%
Discount year low1	3.1%	8.7%
Total returns (includes reinvested income) for the year to 31 August
NAV	+44.8%	+15.0%
Share price	+63.1%	+9.2%
FTSE All-Share Index	+18.9%	+10.2%
Ongoing charges for the year to 31 August2	1.21%	1.24%

1 Discount is stated on an ex-income basis

2 Ongoing charges (excluding fi nance costs and taxation) based on average net asset values for the reporting year (prepared in accordance with methodology recommended by the Association of Investment Companies).

Sources: Fidelity and Datastream

Past performance is not a guide to future returns

Comparison of NAV and Share Price Total Return Performance against the Benchmark Index for the 5 year period to 31 August 2013

Chairman's Statement

RESULTS FOR THE YEAR ENDED 31 AUGUST 2013
NAV:	+44.8%
SHARE PRICE:	+63.1%
BENCHMARK:	+18.9%
DIVIDEND:	16.25p

PERFORMANCE

This financial year has been the first under the management of Alex Wright, who took over the reins from Sanjeev Shah on 1 September last year. I am pleased to report that it has been a very successful year for the Company, with the share price up 63.1% since I reported to you last year. This is due both to a rise in the Net Asset Value (NAV) of the Company, up 44.8%, well ahead of the FTSE All-Share Index, which is up 18.9% over the period, combined with a significant narrowing of the Company's discount to NAV (all figures on a total return basis which includes reinvested income).

The last year has seen investors tentatively returning to equities as an asset class. While there have been a number of events that have created some volatility in the market, such as the US fiscal deadlock, or more recently, further geopolitical instability in the Middle East, the overall economic picture does seem to be improving and confidence returning. This has translated into good performance for your Company, as many of the Company's contrarian positions, such as those in the retail and media sectors, rose significantly as the negative sentiment around these sectors improved. In addition, the Company's minimal exposure to fashionable stocks with a high proportion of earnings from emerging markets worked well, as investors questioned the value in emerging markets compared to that which was available in developed markets. On the whole, it was a good year to be a contrarian investor.

Part of the Board's underlying reasoning when deciding to appoint Alex Wright as Portfolio Manager was our desire to make better use of the Company's closed-ended structure by increasing the proportion of our capital allocated to medium and smaller companies at those times when good value was identified in these areas of the market. While less liquid than large companies, there is a greater potential for a talented stock-picker to add value in this area of the market, as many good opportunities are overlooked by other investors. Alex had demonstrated his pedigree in this regard by taking the Fidelity UK Smaller Companies Fund to the top of its peer group, and I am pleased to say that the Company's increased exposure to this sector of the market has been of significant benefit to Shareholders this year. What is doubly pleasing, though, is that Alex has also demonstrated his skill in stockpicking larger companies, with around one fifth of the Company's NAV

outperformance generated in companies with a market capitalisation of over £10 billion. The Company's holdings today encompass a range of companies, with some of the world's largest companies such as Royal Dutch Shell and HSBC sitting alongside medium sized companies such as UDG Healthcare, and very small companies such as marketing agency Creston, which has a market capitalisation of around just £60m.

OUTLOOK

The macroeconomic story has undoubtedly moved on since I wrote to you last year. On the whole, confidence in developed markets is much better, particularly in our domestic economy. The stimulus in the housing market seems to have had the desired impact and stirred the economy into action. The sustainability of this improvement, of course, remains to be seen. The trend has been a positive one for our Company, because many of our holdings in mid and small sized companies do much of their business in the UK.

Overseas, the big question has been whether the US political system can pull itself together and move forwards. Whilst it has been painful to watch, US legislators do now seem to have found some common ground to start from. If a more long term solution can be found, markets will take this positively. The other key development over the last year has been the underperformance of emerging markets. It is possible that in time, if these markets continue to perform poorly, they may present some interesting opportunities for a contrarian investor. However, for the time being, the increasing confidence at home, exemplified recently by the successful Royal Mail IPO, is creating enough opportunities for the Company. Though markets have performed well, there has been relatively little in terms of inflows into equity funds over the last year. Should we see demand for equities picking up further among the general public in 2014, this would be an indication that we are in the more mature stages of a bull market.

OTHER MATTERS

Other relevant matters are detailed below.

Fund Manager

From January 2014 Alex will be taking on the management of the open ended, Fidelity Special Situations Fund, in addition to his current responsibilities within Fidelity. The Board has been assured that Alex has been provided with sufficient additional resources in order to take on this extra responsibility and also that Fidelity Special Values PLC will continue to retain its unique portfolio construction which will be run by Alex independently from Special Situations.

Year to 31 August NAV and Index total return %	2013	2012	2011	2010	2009	5 years
Fidelity Special Values PLC	+44.8	+15.0	-4.1	+1.3	+9.0	+76.5
FTSE All-Share Index	+18.9	+10.2	+7.3	+10.6	-8.2	+42.6
Diff erence	+25.9	+4.8	-11.4	-9.3	+17.2	+33.9

Chairman's Statement

Discount

The Board is very mindful of the importance of the level of discount to our Shareholders and we have conducted a number of share repurchases during the year to help narrow the discount. The Board will continue to monitor this closely and will consider taking further action where we feel it to be effective.

Treasury shares

In order to assist in managing the discount and keeping it within a narrow range close to the NAV, the Board has decided to seek Shareholder approval to hold in Treasury any ordinary shares repurchased by the Company, rather than cancelling them. The Treasury shares would carry no voting rights or rights to receive a dividend and would have no entitlement in a winding up of the Company. No more than 10% of the issued ordinary share capital of the Company would be held in Treasury. Any shares held in Treasury would only be re-issued at NAV per share or at a premium to NAV per share. This would ensure that the net effect of repurchasing and then re-issuing the ordinary shares would enhance NAV per share. The Board is seeking Shareholder approval to implement these recommendations at the forthcoming Annual General Meeting.

Derivatives

Derivatives are used on a limited basis as a tool to meet the investment objectives of the Company. They are used principally in the following ways:

• 1. As an alternative form of gearing to bank loans or bonds. The Company will purchase long CFDs that achieve an equivalent effect to bank gearing but often at lower financing costs.
• 1. To hedge equity market risks where the Portfolio Manager considers that suitable protection can be purchased to limit the downside of a falling market at a reasonable cost.
• 1. To enhance the investment returns by taking short exposures on stocks that the Portfolio Manager considers to be over-valued.

The Board has created strict policies and exposure limits to manage derivatives and their impacts on the different parts of the business and these are monitored on a daily basis.

Gearing

The Company has increased its use of derivatives over the last year, and the Board has agreed with the Portfolio Manager that if he is able to find attractive opportunities in the market, then the Company's gearing should be allowed to rise, and stay geared, as long as the opportunities remain. Gearing averaged 7% over the 12 month period and stood at around 14% at the end of August. This enhanced exposure to both Alex's strong stock selection and a rising market has added close to 3% to the portfolio return over the last year. I am confident that combined with Alex's contrarian and value-focused investment philosophy, this should continue to add value for clients over the long term.

Overall, the Board is pleased not only with the financial performance of the Company over the last year, but also that it is making good use of its structural advantages over its open-ended counterparts. Over the long term, this extra flexibility should continue to translate into returns for our Shareholders.

Dividend

The Board has decided to recommend a final dividend of 16.25 pence per share for the year ended 31 August 2013, an increase of 25% over the 13.00 pence paid for the year ended 31 August 2012. This dividend will be payable on 16 December 2013 to Shareholders on the register at close of business on 15 November 2013 (ex-dividend date 13 November 2013).

Board of Directors

It is my belief that the Board has the relevant skills and experience to serve the Company well into the future. In common with our practice since 2004, all Directors are subject to annual re-election and their biographical details are included on page 14 to assist Shareholders when considering their votes.

Alternative Investment Fund Manager Directive

The Alternative Investment Fund Managers Directive ("AIFMD") is a European Directive that affects many investment funds, including the Company, which are managed or promoted within the European Union. The AIFMD was implemented with effect from 22 July 2013, although the Financial Conduct Authority will permit a transitional period of one year. The AIFMD will require the Company to appoint an Alternative Investment Fund Manager ("AIFM") and a Depositary. The Board has decided in principle that Fidelity will be appointed as its AIFM in advance of the end of the transitional period on 22 July 2014. Notwithstanding these changes, the Board has been advised that the AIFMD is unlikely to have any material effect on the services provided by, or to, the Company. Whilst the Company will incur additional expenses in order to comply with the AIFMD, current indications are that these are unlikely to be significant.

The Annual General Meeting: Thursday 12 December 2013 at 11.30 am

The Annual General Meeting will be held at Fidelity's offices at 25 Cannon Street, London EC4M 5TA (St Paul's or Mansion House tube stations) on Thursday 12 December 2013 at 11.30 am.

It is the most important meeting that we, the Directors of your Company, have each year. Alex Wright, 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. We urge as many of you as possible to come and join us for this occasion.

Lynn Ruddick Chairman 4 November 2013

Manager's Review

FIL Investments International

The Company is managed by FIL Investments International (which is authorised and regulated by the Financial Conduct Authority). FIL Investments International is part of the FIL Limited group which, as at 30 September 2013, had total assets under management exceeding £162.5 billion.

INTRODUCTION

The performance of the Company during the current financial year has been very encouraging, delivering a NAV return of 44.8% compared to 18.9% for the Benchmark Index (figures on a total return basis). The stock market environment witnessed a significant improvement over the year supported by positive policy announcements by global central banks as well as signs of a more concrete recovery in the major economies of the world.

In the following pages, I will try to explain the major reasons for the Company's positive performance and some of the significant changes in the Company's portfolio since I took over the management at the beginning of the financial year.

UK MARKET REVIEW

• The UK stock market rose over the 12 month period, as encouraging policy announcements by global central banks and signs of stability in the Eurozone helped to improve investor sentiment. Moreover, data from major economies such as the US and China were largely positive.
• An economic recovery appears to be taking hold in the UK, with the second-quarter GDP growth revised upwards to 0.7%, supported by positive indicators across most sectors of the UK economy.
• Inflation trends remain uncertain as the CPI stayed steadfastly above the Government's 2% target; at the end of August 2013, the annual rate of CPI stood at 2.7%, up from 2.5% at the end of August 2012.
• The Bank of England ("BoE") has a new governor in Canadian Mark Carney, who took over in July. So far there has been no change in the Bank's quantitative easing programme, which remains at £375 billion, while interest rates were kept unchanged throughout the year at a level of 0.5%.

The Company's financial year, which ended on 31 August 2013, was very positive with regard to the NAV performance, as improving investor sentiment towards many of our key stock picks proved rewarding.

The year started on a positive note amidst several encouraging announcements from policymakers across the globe. An unlimited bond purchase programme announced by the

Alex Wright (Portfolio Manager from 1 September 2012) joined Fidelity in 2001 as a research analyst and has covered a number of sectors across the market cap spectrum both in the UK as well as developed and emerging Europe. He has been portfolio manager of Fidelity UK Smaller Companies Fund since its launch in February 2008. He took over responsibility for the Company's portfolio on 1 September 2012.

European Central Bank ("ECB") to help regain control of interest rates in the Eurozone and the US Federal Reserve's ("Fed") open-ended bond-buying programme to boost its economy were largely seen as affirmation of their commitment to keep the economic recovery moving forward. Unexpectedly, large stimulus measures in Japan also added to hopes that the global economic recovery will gather momentum. There were some concerns in the last quarter of 2012 that a failure to resolve the "fiscal cliff" in the US could set back the recovery, which led to volatility in stock prices, but these worries were largely unfounded as US lawmakers agreed on a temporary resolution at the beginning of 2013. The positive momentum was such that until the end of May 2013, the FTSE All-Share Index had recorded gains for 12 straight months.

The stability of the Eurozone remained a major concern, especially following an election stalemate in Italy and an escalating banking crisis in Cyprus. The situation in Europe appears more stable now but unless some of the structural challenges are addressed properly, it is not inconceivable that we could see a re-emergence of similar problems. Meanwhile, the ECB's decision to lower its benchmark interest rate helped to restore confidence somewhat. Central bank action in the UK largely stayed along expected lines, although the bank's Monetary Policy Committee voting patterns showed increasing support for raising the quantitative easing ("QE") programme towards the end of former governor Mervyn King's tenure. The prospects of a near-term increase in interest rates also appear to be receding. Carney's forward guidance towards the end of the financial year tied interest rate increases to the unemployment rate hitting a threshold of 7%, which appears some way off. The market ended our financial year on a subdued note in August owing to concerns about potential tapering of the US Fed's stimulus programme and geopolitical tensions, particularly in Syria.

Overall, the positive market sentiment was reflected at a sector level, with most recording positive returns. Amid improving investor risk appetite, there was an increased focus on growth-oriented stocks, with those in the consumer services, industrials, technology and financials sectors among the notable gainers. However, resources stocks were under pressure due to

Manager's Review

demand concerns, and they are prone to cyclical earnings trends and face high cost inflation.

PORTFOLIO REVIEW

As mentioned above, the Company's performance this year has been very positive and consolidated the gains from the previous financial year. With market participants increasingly optimistic about the macroeconomic outlook, there was a greater focus on growth opportunities within the mid and small sized companies; in this environment, several of my key holdings across a variety of sectors made noteworthy contributions to returns.

At a stock level, Lloyds Banking Group, which has been a key portfolio holding for several years, was a major contributor. Lloyds is a quality retail franchise with an improving balance sheet and earnings growth potential. The holding in Electronic Arts, a video game publisher, also made a significant contribution to returns amid expectations of positive earnings growth as cost cuts take hold and higher-margin digital sales accelerate. Positions in some of my high-conviction holdings, such as tools and equipment hire business Speedy Hire, business services firm DCC and health care provider UDG Healthcare, were also supported by their encouraging outlook for earnings.

Merger & acquisition ("M&A") themes added significant value to the portfolio during the year. A number of the Company's holdings were bought out by larger rivals because they saw the good value that was on offer. I believe this theme can continue, and perhaps gather pace, throughout 2013 and into 2014. Some of the notable holdings which benefited from M&A included May Gurney and Invensys. In an environment of low economic growth, large companies are forced to look outward if they want to grow or defend their positions. My bias towards mid and small sized companies will allow the Company to exploit the inefficiencies in this area of the market, and to benefit from M&A activity which I expect to continue. On the downside, some key resource holdings under-performed owing to the lacklustre outlook for these stocks. AngloGold Ashanti, Saipem and Sevan Drilling were among the notable decliners, although overall the Company had very limited exposure to these under-performing sectors.

As far as portfolio positioning was concerned, the transition from the previous manager Sanjeev Shah was completed in around three months, with the most significant changes being the increase in weighting to a host of medium sized and smaller companies, and a reduction in the portfolio's position in the banking sector. I have kept a large position in banks, the size of which reflects my view that there is potential significant further upside from the sector. As balance sheets and funding markets become more secure, so the downside risk becomes more quantifiable. However, there are still material risks around this issue. As a contrarian, I have become a little more cautious following the strong market rally in the past 12 months. Nevertheless, my process of investing in unloved stocks with mitigated downside risk and unrecognised growth opportunities has continued to add value.

I have continued to find interesting ideas in a number of different areas of the market, one of those areas being defensive, high

yielding stocks. During the crisis, investors were keen to buy companies with defensive growth characteristics and a secure dividend. This has led to a very positive consensus view on certain stocks, notably food staples and tobacco companies, leaving new buyers with not much in the way of a safety margin. However, there continue to be opportunities in cheap and out of favour companies that are entering a period of positive change which the market has not yet appreciated. For example, when I bought SSE for the Company last year, it was trading close to its highest ever dividend yield, much of which is protected by its regulated power distribution business in Scotland. Additionally, with capacity coming out of UK power generation, and SSE's strong position in renewables, the company had good prospects of earnings growth too, which the market has recently been waking up to.

A more recent addition to the portfolio has been Carnival. This is arguably one of the most disliked stocks in the FTSE 100, with a string of high profile difficulties that started with the Costa Concordia disaster last year. The negative impact on earnings has been undeniable, but the market seems to think this will last forever, which seems unlikely to me, especially given that there are a number of different brands in the group. Capacity growth has dramatically slowed in the cruise market, which should allow the company to improve pricing, and it has high exposure to the US consumer, which is showing signs of recovery. There are limited ways to play the US consumer in the UK market, and few of them are as cheap as Carnival.

I have also been becoming positive on a number of secondary property stocks recently. Secondary property has been off most investors' radars for some time. However, with some confidence returning to the economy, activity has been increasing in the sector, which could create value for companies with attractive development assets. Additionally, many companies are trading at deep discounts to their net asset values. A combination of these attributes is attractive to my investment style, which is about identifying positive change in unloved companies. Some examples are CLS Holdings, Max Property, Conygar and Development Securities.

The good news is that new ideas for the portfolio are still in plentiful supply. All new ideas must meet my criteria of having downside protection to the share price and unrecognised growth options.

OUTLOOK

Overall, stock valuations in the UK remain reasonable compared to history. Additionally, I think the market environment looks very favourable for equities on a long term view, although we could see some level of volatility from time to time. Despite record low yields available in the bond market, there have been very limited flows into equities thus far. Should this so called 'great rotation' start in earnest, we could be at the beginning of an extended bull market.

Alex Wright

FIL Investments International 4 November 2013

Forty Largest Investments as at 31 August 2013

Investments including derivatives	Exposure £'000	Fair Value1 £'000	%2
UDG Healthcare
Food & Drug Retailers	25,485	13,238	4.7
Sanofi Pharmaceuticals & Biotechnology	24,507	2,428	4.5
Royal Dutch Shell Oil & Gas Producers	23,732	23,732	4.4
Brewin Dolphin Financial Services	22,725	22,725	4.2
Lloyds Banking Group Banks	19,841	4,336	3.6
DCC Support Services	19,778	5,609	3.6
Electronic Arts Leisure Goods	19,092	19,092	3.5
HSBC Banks	17,583	17,583	3.2
SSE Electricity	17,513	17,513	3.2
WPP Media	15,891	15,891	2.9
Ten Largest Investments including derivatives (2012: 43.4%)	206,147	142,147	37.8
GlaxoSmithKline Pharmaceuticals & Biotechnology	15,508	15,508	2.8
Resolution Life Insurance	13,473	2,224	2.5
Kcom Group Fixed Line Telecommunications	12,814	12,814	2.4
Barclays Banks	12,771	12,771	2.3
Mothercare General Retailers	12,431	12,431	2.3
Origin Enterprises Food Producers	11,538	4,238	2.1
Speedy Hire Support Services	10,361	10,361	1.9
BP Oil & Gas Producers	10,195	(376)	1.9
Cable & Wireless Communications Fixed Line Telecommunications	9,987	9,987	1.8
Pendragon General Retailers	9,916	9,916	1.8
Twenty Largest Investments including derivatives (2012: 66.8%)	325,141	232,021	59.6
Games Workshop Group Leisure Goods	9,294	9,294	1.7
Carnival Travel & Leisure	8,802	8,802	1.6
CLS Holdings Real Estate Investment & Services	8,631	8,631	1.6
NMC Health Health Care Equipment & Services	8,043	8,043	1.5

Forty Largest Investments as at 31 August 2013

Investments including derivatives	Exposure £'000	Fair Value1 £'000	%2
Fiberweb Support Services	7,707	7,707	1.4
ICAP Financial Services	7,646	7,646	1.4
TDC Fixed Line Telecommunications	6,939	941	1.3
Esure Group Non-life Insurance	6,907	6,907	1.3
Google Software & Computer Services	6,875	6,875	1.3
Brammer Support Services	6,604	6,604	1.2
Redrow Household Goods & Home Construction	6,585	6,585	1.2
Photo-Me International Leisure Goods	6,568	6,568	1.2
Total Produce Food & Drug Retailers	6,285	2,250	1.2
BBA Aviation Industrial Transportation	5,958	5,958	1.1
Lavendon Group Support Services	5,950	5,950	1.1
Mears Group Support Services	5,714	5,714	1.0
ITV Media	5,228	5,228	1.0
Entertainment One Media	5,190	5,190	0.9
Regus Support Services	5,070	5,070	0.9
Signet Jewellers General Retailers	5,065	5,065	0.9
Forty Largest Investments including derivatives (2012: 88.4%)	460,202	357,049	84.4
Other Investments including derivatives (2012: 11.6%)	85,010	96,807	15.6
Total Investments including derivatives – 94 holdings (2012: 134)	545,212	453,856	100.0

1 The fair value of £453,856,000 (2012: £325,342,000) is recognised in the Balance Sheet on page 32 and is made up of: Fixed asset investments of £424,387,000 (2012: £326,618,000) plus derivative assets of £31,333,000 (2012: £3,839,000) less derivative liabilities of £1,864,000

(2012: £5,115,000) 2 % based on net portfolio exposure which is the fi xed asset investments plus the fair value of the underlying securities within the long CFDs, less the fair value of the underlying securities within the short CFDs

A full list of the Company's portfolio has not been included in this Annual Report but will be made available in the Company's page on the Manager's website, following the Annual General Meeting

Distribution of the Portfolio1 as at 31 August 2013

		Overseas
Investments (including derivatives)	UK		Total	2012	Index2
Financials	24.5	0.2	24.7	26.6	23.4
Banks	9.2	–	9.2	17.6	11.6
Financial Services	7.2	–	7.2	4.2	1.9
Life Insurance	3.3	–	3.3	1.4	3.8
Real Estate Investments & Services	4.3	0.2	4.5	2.1	0.5
Non-life Insurance	0.5	–	0.5	1.0	1.0
Real Estate Investment Trusts	–	–	–	0.3	1.4
Equity Investment Trusts	–	–	–	–	3.2
Consumer Services	18.6	1.2	19.8	26.6	10.6
Media	6.2	–	6.2	13.6	3.0
Food & Drug Retailers	4.7	1.2	5.9	4.1	2.3
General Retailers	5.9	–	5.9	4.0	2.0
Travel & Leisure	1.8	–	1.8	4.9	3.3
Industrials	14.9	0.2	15.1	12.2	9.9
Support Services	12.2	–	12.2	8.1	4.4
Industrial Transportation	2.4	0.4	2.8	0.1	0.1
General Industrials	–	0.8	0.8	1.5	0.7
Construction & Materials	0.7	–	0.7	–	0.8
Industrial Engineering	(0.4)	(1.0)	(1.4)	(0.3)	1.0
Electronic & Electrical Equipment	–	–	–	0.4	0.5
Aerospace & Defence	–	–	–	2.4	2.4
Consumer Goods	4.9	6.1	11.0	5.4	13.5
Leisure Goods	2.9	3.5	6.4	0.2	–
Food Producers	0.6	2.1	2.7	1.2	2.2
Household Goods & Home Construction	1.2	–	1.2	1.3	2.3
Automobiles & Parts	0.2	0.5	0.7	–	0.3
Personal Goods	–	–	–	2.5	0.4
Beverages	–	–	–	0.2	4.1
Tobacco	–	–	–	–	4.2
Oil & Gas	8.1	0.9	9.0	7.9	14.9
Oil & Gas Producers	8.1	0.9	9.0	7.9	14.3
Oil Equipment, Services & Distribution	–	–	–	–	0.6

Distribution of the Portfolio1 as at 31 August 2013

		Overseas			Index2
Investments (including derivatives)	UK		Total	2012
Health Care	4.5	4.3	8.8	7.8	7.4
Pharmaceuticals & Biotechnology	3.0	4.5	7.5	8.6	7.0
Health Care Equipment & Services	1.5	(0.2)	1.3	(0.8)	0.4
Telecommunications	3.7	1.3	5.0	6.2	6.8
Fixed Line Telecommunications	3.7	1.3	5.0	2.1	1.5
Mobile Telecommunications	–	–	–	4.1	5.3
Utilities	4.1	–	4.1	3.0	3.9
Electricity	3.2	–	3.2	–	0.9
Gas, Water & Multiutilities	0.9	–	0.9	3.0	3.0
Technology	0.7	1.0	1.7	7.0	1.5
Software & Computer Services	0.5	1.0	1.5	4.0	0.7
Technology Hardware & Equipment	0.2	–	0.2	3.0	0.8
Basic Materials	–	0.8	0.8	(2.7)	8.1
Mining	–	0.8	0.8	(0.7)	7.1
Forestry and Paper	–	–	–	(0.3)	0.2
Chemicals	–	–	–	(1.7)	0.7
Industrial Metals & Mining	–	–	–	–	0.1
Total Investments (including derivatives) – 2013	84.0	16.0	100.0		100.0
Total Investments (including derivatives) – 2012	85.9	14.1		100.0

1 Distribution of the Portfolio is shown as a percentage of net portfolio exposure which is the fi xed asset investments, plus the fair value of the underlying securities within the long CFDs, less the fair value of the underlying securities within the short CFDs

2 FTSE All-Share Index

Summary of Performance

Historical record as at 31 August	2013	2012	2011	2010	2009	2008	2007	2006	2005	2004	2003
Capital
Shareholders' funds (£m)	478.5	338.6	312.5	333.8	334.5	319.3	376.6	357.9	301.4	216.9	136.2
NAV per share (p)1	883.93	622.71	552.85	586.21	587.50	562.13	630.75	547.65	461.23	341.94	285.93
Share price (p)	840.00	527.00	494.00	530.00	550.00	481.50	592.00	521.50	452.25	348.00	300.50
(Discount)/premium to NAV (%)2	(3.1)	(13.5)	(8.7)	(7.9)	(5.0)	(11.6)	(5.0)	(4.1)	(1.4)	2.2	5.4
Revenue
Revenue return per ordinary share (p)	17.02	13.25	11.43	10.74	8.76	17.13	6.91	3.65	2.76	1.55	0.91
Dividend per ordinary share (p)	16.25	13.00	11.25	10.50	9.00	17.003	7.50	3.75	2.75	1.40	1.00
Costs of running the Company (ongoing charges) (%)	1.21	1.24	1.23	1.23	1.32	1.14	1.32	1.49	1.52	1.42	1.75
Gearing
Gross exposure (%)4	24.8	12.6	7.8	12.6	n/a	n/a	n/a	n/a	n/a	n/a	n/a
Net exposure (%)5	14.0	(0.9)	(2.2)	2.6	n/a	n/a	n/a	n/a	n/a	n/a	n/a
Actual gearing ratio
(bank loans) (%)	n/a	n/a	n/a	n/a	5.7	3.4	2.8	4.8	12.3	14.8	17.1
Performance Total Return
NAV performance (%)	+44.8	+15.0	-4.1	+1.3	+9.0	-9.8	+15.9	+19.4	+35.8	+19.9	+20.4
Share price performance (%)	+63.1	+9.2	-5.0	-2.1	+19.4	-17.6	+14.3	+16.0	+30.4	+16.2	+18.8
Index performance (%)	+18.9	+10.2	+7.3	+10.6	-8.2	-8.7	+11.8	+16.8	+24.1	+10.8	+4.6

1 The 2003 NAV per share is diluted to refl ect the warrants in issue at that date

2 (Discount)/premium to NAV is stated on an ex-income basis

3 Includes repayment of £2,306,000 VAT on management fees recovered from HM Revenue & Customs

4 Gross portfolio exposure, which is the fi xed asset investments plus the fair value of the underlying securities within the long and short CFDs, in excess of Shareholders' funds

5 Net portfolio exposure, which is the fi xed asset investments plus the fair value of the underlying securities within the long CFDs less the fair value of the underlying securities within the short CFDs, in excess of Shareholders' funds

Sources: Fidelity and Datastream

Past performance is not a guide to future returns

Summary of Performance

Prices rebased to 100 Sources: Fidelity and Datastream

NAV and share price in pence from launch to 31 August 2013

Prices rebased to 100 Sources: Fidelity and Datastream

Summary of Performance

Total return performance relative to the Benchmark Index from launch to 31 August 2013

Prices rebased to 100

Sources: Fidelity and Datastream

Based on figures at month end only and on an ex-income basis

Source: Fidelity

Attribution Analysis

Analysis of change in NAV in the year	pence
NAV as at 31 August 2012	622.71
Impact of Index (Ungeared)	+131.36
Impact of Portfolio Management1	+168.88
Impact of other derivatives2	-12.45
Operational Costs	-9.12
Share Repurchases	+0.37
Cash/Residual	+0.30
NAV (total return)	902.05
Dividend paid	-13.00
Impact of reinvestment of dividend paid	-5.12
NAV as at 31 August 2013	883.93

Top 5 and bottom 5 sector contributors (pence per share)

1 Equities purchased via cash and long CFDs

2 Futures and short CFDs

10 Highest contributors (pence per share)

10 Highest detractors (pence per share)

Board of Directors

LYNN RUDDICK2,3

(Chairman) (date of appointment: 22 July 2005; appointed as Chairman: 9 July 2010) is a Fellow of the Chartered Association of Certified Accountants. She is Chairman of British Assets Trust plc, a Non-Executive Director and Chairman of the Audit

Committees of Standard Life UK Smaller Companies Trust plc and BlackRock Frontiers Investment Trust plc, a member of the Investment Committee of the Pearson Group Pension Plan and Chairman of the Scottish & Newcastle Pension Plan Trustee Board and the Western Provident Association Pension Plan. She worked for many years as an investment manager in both Edinburgh and London and is a former Chairman of the Investment Committee of the National Association of Pension Funds.

BEN THOMSON1,2,3

(Senior Independent Director) (date of appointment: 1 January 2008; appointed as Senior Independent Director: 12 July 2010) has a background of over 25 years in investment banking. He is Chairman of: Urbicus Ltd, Castle Capital Ltd, Reform

Scotland Limited, Inverleith LLP, Barrington Stoke Limited and the National Galleries of Scotland. He is a Director of the Edinburgh International Science Festival and until recently a Director of Martin Currie Global Portfolio Investment Trust PLC. He was also Chairman and Chief Executive of the Edinburgh investment banking firm, Noble Group Limited, from 1997 until 2010. Mr Thomson has previously been a Non-Executive Director on a number of publicly quoted and private boards.

SHARON BROWN1,2,3

(Chairman of the Audit Committee) (date of appointment: 15 April 2010; appointed as Chairman of the Audit Committee: 26 October 2010) was Finance Director of Dobbies Garden Centres Ltd between 1998 and 2013.

She is a Non-Executive Director of F&C Capital and Income Investment Trust PLC and a member of the Group of Scottish Finance Directors. Mrs Brown previously held a senior financial position at John Menzies plc and is a Fellow of the Chartered Institute of Management Accountants.

ANDY IRVINE1,2,3

(Date of appointment: 15 April 2010) is Non-Executive Chairman of Jones Lang La Salle Scotland and has over 30 years' experience in the field of commercial property development and investment. He is also Chairman of Montanaro European

Smaller Companies PLC, a Non-Executive Director of BlackRock North American Income Trust plc and a Director of Securities Trust of Scotland PLC. Mr Irvine is Chairman of Celtic Rugby and is a past Chairman of the British and Irish Lions Limited and a past President of the Scottish Rugby Union.

DOUGLAS KINLOCH ANDERSON1,2,3

(Date of appointment: 18 October 1994) is Chairman of Kinloch Anderson Limited and a Director of F&C Private Equity Trust PLC. He has been President of the Edinburgh Chamber of Commerce and a member of the Scottish Committee of the Institute of

Directors. He was previously a board member of the Scottish Tourist Board, Master of the Edinburgh Merchant Company and he was national President of the Royal Warrant Holders Association. His career has included wide experience in manufacturing, retailing and exporting, particularly to Europe, North America and the Far East.

NICKY McCABE3

(Date of appointment: 9 December 2004) is Chief Operating Officer of Moonray Investors, a division of the FIL Limited Group, responsible for the non-financial services businesses within Fidelity. She is also a Non-Executive Director of Medvivo

Limited, Amantys Limited, Romax Technology Ltd and Delta Healthcare Shanghai, all Moonray Investors' businesses. Prior to joining Moonray Investors, she was Chief Operating Officer for the investment management team, having joined Fidelity in 1999 as head of investment administration. Ms McCabe has wide experience in investments, having been responsible for all aspects of operational, systems and project support for the portfolio managers, analysts and traders. Prior to joining Fidelity, she spent 6 years at HSBC Asset Management where she ran Performance Measurement, Institutional Marketing Support and Operations. Ms McCabe also spent 2 years at McKinsey & Co. as a strategy consultant.

All of the Directors are Non-Executive Directors and (with the exception of Ms McCabe) are independent

1 Member of the Audit Committee

• 2 Member of the Management Engagement Committee
• 3 Member of the Nomination Committee

The Board's Policies

INTRODUCTION

The role of the Board of Directors of your Company includes determining the policies which govern how it is managed, which are:

INVESTMENT GOAL: CAPITAL GROWTH

The Board of Directors recognises that investing in equities is a long term process and that there will be variations from year to year in the Company's returns to Shareholders. However, our primary objective is to make money for you, the Shareholders, over the long term. The Board believes that investment predominantly in equities will achieve this aim and we consider a five year time span to be the most appropriate term over which to consider the success of this goal.

DIVIDEND POLICY

The portfolio is managed actively in the pursuit of capital growth. Hence, in any one year the dividend income received from investments will vary according to which stocks are owned during the period and so will the net income earned and the dividend paid.

INVESTMENT POLICY

The objective of the Company is to invest predominantly in the stocks and shares of companies with certain characteristics which, in the Portfolio Manager's judgement, offer unusual opportunities to make capital gains.

The Portfolio Manager has a distinct contrarian style which focuses on significant valuation anomalies in stocks which are unloved and under-owned by other investors.

The companies selected will typically have:

• Limited downside risk. The Portfolio Manager invests in companies that have underperformed for a period, and where market expectations are very low. They will have some asset or characteristic that should prevent significant falls in the share price.
• Unrecognised growth potential. The Portfolio Manager also wants to see evidence of the company embarking upon a period of positive change. Once this change begins to be recognised by the market, there is potential for substantial upside.

The Portfolio Manager may short companies within Board guidelines.

Although the portfolio consists predominantly of holdings in UK companies, up to 20% can be invested in the shares of overseas companies. The Company invests mainly in shares but may also invest in equity-related instruments (such as convertible bonds, warrants or derivative contracts) and in debt instruments. The Company may also invest up to 5% of its assets in unquoted securities, but it is unlikely that the Portfolio Manager will make such investments except where it is expected that the securities will shortly be listed. The Board has a policy whereby the Company will not, at the time of investment, have a holding in a company that represents more than 10% by value of the investing company's investments. Cash and cash equivalents are not included within this guideline.

The current investment approach is detailed in the Manager's Review on pages 4 and 5.

A breakdown of the current distribution of the Company's portfolio is detailed on pages 8 and 9.

USE OF DERIVATIVES

Derivatives are used on a limited basis as a tool to meet the investment objectives of the Company. They are used principally in the following ways:

• 1. As an alternative form of gearing to bank loans or bonds. The Company will purchase long CFDs that achieve an equivalent effect to bank gearing but often at lower financing costs.
• 1. To hedge equity market risks where the Portfolio Manager considers that suitable protection can be purchased to limit the downside of a falling market at a reasonable cost.
• 1. To enhance the investment returns by taking short exposures on stocks that the Portfolio Manager considers to be over-valued.

The Board has created strict policies and exposure limits to manage derivatives and their impacts on the different parts of the business and these are monitored on a daily basis.

CURRENCY

The Company does not carry out currency speculation. However, as a sterling based fund, investments can be made in stocks in overseas currencies and the Portfolio Manager can reduce currency exposure through the use of CFDs.

GEARING POLICY

The Board believes that long term capital growth can be enhanced by the selective use of gearing. The Portfolio Manager has the discretion to gear up to a maximum of 30% in excess of Total Net Assets, and will use a range of instruments for gearing, such as debt and CFDs, depending on the relative cost and availability of those instruments.

LIQUIDITY POLICY

The Company will predominantly invest in securities. The Company will also ensure it has sufficient liquidity to meet its ongoing obligations.

CORPORATE ACTIVISM

The Board believes that the Company should, where necessary, 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. The Company delegates the responsibility for corporate activism and Shareholder voting to Fidelity. Further details may be found in the Directors' Report on pages 20 and 21.

PREMIUM/DISCOUNT MANAGEMENT

The Board seeks authority from Shareholders each year to issue new shares at a premium or buy back shares at a discount to the net asset value. The Board may use these authorities to enhance the net asset value and to protect or improve the premium/discount rating of the shares.

INVESTMENT IN OTHER INVESTMENT TRUSTS

The Board has set a limit of 15% on the proportion of the Company's total assets that can be invested in the securities of other listed investment companies (including listed investment trusts) which themselves do not have stated investment policies.

The Directors have pleasure in presenting their report which incorporates the Business Review together with the audited financial statements of the Company for the year ended 31 August 2013. The Company was incorporated in England and Wales as a public limited company on 27 September 1994 under the name of Fidelity Special Values PLC with the registered number 2972628.

ACTIVITIES AND STATUS

The Company carries on business as an investment trust and has been accepted as an approved investment trust by HM Revenue & Customs, under Sections 1158 and 1159 of the Corporation Tax Act 2010, for accounting periods commencing on or after 1 September 2012, 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 these conditions for continued approval.

The Company is registered as an investment company under Section 833 of the Companies Act 2006 and operates as such. It is not a close company and has no employees.

BUSINESS REVIEW

INTRODUCTION

The Company is required to present a "Business Review", which provides a fair review of the Company and a description of the principal risks and uncertainties faced. It includes an analysis of the performance of the Company, both during the financial year and the position at the year end, taking into account its objective, strategy and risks and how these are measured using Key Performance Indicators ("KPIs").

OBJECTIVE & STRATEGY

The primary objective of the Company is to enhance Shareholder value, achieved through long term capital growth. The Company aims to achieve this with an actively managed portfolio of special situation investments, consisting primarily of securities listed or traded on the London Stock Exchange. As is stated in the Board's Policies, which precede the Directors' Report, the Board believes that investment in such securities will achieve that long term aim and considers five years to be the most appropriate time span over which to make assessments. The Board is also aware that Shareholders invest in the Company's shares because of the belief that over the long term they will earn better returns than those of the stock market as a whole, so returns are also measured against an index which reflects the performance of the stock market, the FTSE All-Share Index. Again, the Board believes that five years is the appropriate time span over which to make assessments, but progress is monitored on an ongoing basis as well. Finally, the Board is aware that Shareholders invest in the shares of Fidelity Special Values PLC because FIL Investments International is the Manager and it therefore also monitors returns against those of competing investment trust companies.

Although the Board assesses performance over five year periods, the Business Review requires an annual assessment of the Company's progress and so both sets of KPIs have been provided.

ACTIVITY

The Company's activity is to pursue the objective through operating as an investment trust company. A review of the year's activities and an indication of likely future developments and the factors likely to affect this are given in the Chairman's Statement on pages 2 and 3, in the Manager's Review on pages 4 and 5. The Board supports these views.

FIDELITY'S INVESTMENT MANAGEMENT PHILOSOPHY, STYLE AND PROCESS

Fidelity's distinctive investment approach is "bottom up" stock picking – investing in companies on the basis of their underlying strengths, facilitated by extensive research capabilities. Fidelity has around 184 analysts and research associates with a hands-on approach to knowledge accumulation. Fidelity's analysts evaluate companies, meet their management and workforce and interpret the effects of international and local events. They contact hundreds of companies every week. This first hand research is fundamental to Fidelity's ability to seek the success stories of the future. Fidelity has over 130 portfolio managers. Portfolio managers work closely with the Fidelity analyst team and also have access to a wide range of research produced by third parties.

SUMMARY REVIEW OF RESULTS FOR 2013

As outlined and explained in the Chairman's Statement, in the Manager's Review and in the financial statements, the net asset value per share, on a total return basis, increased by 44.8% to 883.93p and Shareholders' funds increased from £338.6m to £478.5m. The net income generated in the portfolio during the year, less expenses incurred, amounted to 17.02p per share. The Board is recommending to Shareholders a dividend of 16.25p per share. Gross gearing exposure via derivatives at the year end was 24.8% (2012: 12.6%).

KEY PERFORMANCE INDICATORS ("KPIs")

Given the identification of the Company's objective and strategy, the Board has identified KPIs against which returns can be compared.

The objective of enhancing Shareholder value is measured by the total returns of the share price; the KPI against which it is compared is the UK Interbank 3 month Bid rate (banks or building societies) (regarded as a low risk investment alternative). The KPIs for the objectives of higher returns than the market and the competition are the comparisons with their returns. There are three components to the returns involved in the objective of enhancing Shareholder value: the NAV, dividends and the change in the discount/premium at which your shares trade to NAV.

The components of the change in the NAV include the movements in the level of the stock market, the contribution of stock selection, gearing, currencies, share repurchases/share issues, income and costs. These are analysed by the Board and the relevant KPIs involve comparisons of the NAV against competing investment trusts and the FTSE All-Share Index (the Company's Benchmark Index), shown on page 17. A further component part of the NAV that the Directors monitor is that of the expenses of managing the Company.

Those expenses, expressed as a proportion of the NAV (known as the ongoing charges) are compared with the NAV returns. The change in the discount/premium is a component of the change in Shareholder value and the KPI compares it with that of the Company's peer group.

SHAREHOLDER TOTAL RETURNS

Share price total return	1 year (%)	5 years (%)
Fidelity Special Values PLC1	+63.1	+97.9
Low risk investment2	+0.5	+5.3
Benchmark3	+18.9	+42.6
Peer group4	+28.9	+55.8

COMPANY TOTAL RETURNS

Net asset value total return	1 year (%)	5 years (%)
Fidelity Special Values PLC1	+44.8	+76.5
Benchmark3	+18.9	+42.6
Peer group4	+22.3	+44.6

ADDITIONAL KPIs

Discount as at 31 August	2013 (%)	2008 (%)
Fidelity Special Values PLC5	3.1	11.6
Peer group4	5.9	12.4
Ongoing charges	2013 (%)	2008 (%)
Fidelity Special Values PLC	1.21	1.14

1 Total return including net dividend reinvested

• 2 UK Interbank 3 month Bid rate
• 3 FTSE All-Share Index
• 4 AIC UK Growth sector
• 5 On an ex-income basis

Sources: Fidelity and Datastream as at 31 August 2013

PRINCIPAL RISKS AND UNCERTAINTIES AND RISK MANAGEMENT

The Board confirms that there is an ongoing process for identifying, evaluating and managing the principal risks faced by the Company. The Board, with the assistance of the Manager, has developed a risk matrix which, as part of the internal controls process, identifies the key risks that the Company faces. The matrix has identified strategic, marketing, investment management, company secretarial and other support function risks. The Board reviews and agrees policies for managing these risks. The process is regularly reviewed by the Board in accordance with the Financial Reporting Council's ("FRC's") "Internal Control: Revised Guidance for Directors". Risks are identified, introduced and graded. This process, together with the policies and procedures for the mitigation of

risks, is updated and reviewed regularly in the form of comprehensive internal controls reports considered by the Audit Committee. The Board also determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives. The Board's approach to risks is embedded in the Company's investment objectives and investment policy on pages 15 and 16.

EXTERNAL RISKS

MARKET RISK

The Company's assets consist mainly of listed securities and the principal risks are therefore market related such as market recessions, interest rate movements, deflation/inflation, terrorism and protectionism.

Risks to which the Company is exposed and which form part of the market risks category are included in Note 17 to the financial statements on pages 44 to 49 together with summaries of the policies for managing these risks. These are: market price risk (which comprises interest rate risk, foreign currency risk and other price risk); liquidity risk; counterparty risk; credit risk; and derivative instruments risk.

Long CFDs are currently used for gearing purposes. In addition a day-to-day overdraft facility can be used if required. The impact of limited finance from counterparties has not impacted the Company to date, however there are alternative suppliers available in the market place should the need arise.

The Company relies on a number of main service providers, namely the Manager, Registrar and Custodian. The Manager is the member of a privately owned group of companies on which a regular report is provided to the Board. The Manager, Registrar and Custodian are subject to regular audits by Fidelity's internal audit team and the counterparties' own internal controls reports are received by the Board and any concerns investigated.

SHARE PRICE RISK

Although it is usually the case that the longer a share is owned the less the risk of losing money, share prices are volatile and for the short term Shareholder, likely to want to sell in the near future, volatility is a risk. The Board does not believe that volatility should be a significant risk for the long term Shareholder.

DISCOUNT RISK

The Board cannot control the discount at which the Company's share price trades to net asset value. However, it can influence this through its share repurchase policy and through creating demand for shares through good performance and an active investor relations programme.

INTERNAL RISKS

INVESTMENT MANAGEMENT

The Board relies on the Manager's skills and judgement to make investment decisions based on research and analysis of individual stocks and sectors. The Board reviews the performance of the asset value of the portfolio against the Company's Benchmark Index and competitors and the outlook for the market with the Manager at each Board meeting. The emphasis is on long term investment performance and the Board accepts that by targeting long term results the Company risks volatility in the shorter term.

GOVERNANCE, OPERATIONAL, FINANCIAL, COMPLIANCE, ADMINISTRATION ETC

While it is believed that the likelihood of poor governance, compliance and operational administration by other third party service providers is low, the financial consequences could be serious, including the associated reputational damage to the Company. Your Board is responsible for the Company's systems of risk management and of internal control and for reviewing its effectiveness. Details of this process are provided in the Corporate Governance Statement on pages 26 and 27.

ENVIRONMENTAL, EMPLOYEE, SOCIAL AND COMMUNITY MATTERS

The Company is managed by FIL Investments International, has no employees and all of its Directors are Non-Executive (the Company's day-to-day activities being carried out by third parties). There are therefore no disclosures to be made in respect of employees. The Board fully endorses Fidelity's strong procedures which are involved in the making of its investments.

The Company has no premises, consumes no electricity, gas or diesel fuel and consequently does not have a measurable carbon footprint. FIL Investments International is registered with the Carbon Reduction Commitment Energy Efficiency Scheme administered by the Environment Agency.

The Company's financial reports are printed by a company which has received the relevant accreditations for its

environmental awareness and further details of this may be found on the back cover of this report. Financial reports and other publicly available documentation are also available on the Company's pages on the Manager's website www.fidelity.co.uk/its. Details about Fidelity's own community involvement may be found on its website, www.fidelity.co.uk.

DIRECTORS' REPORT – GENERAL

THE BOARD

All appointments to the Board, re-elections and replacements of Directors take place in accordance with the Companies Act 2006 and the Company's Articles of Association. All of the Directors served throughout the year ended 31 August 2013 and their biographical details are set out on page 14.

Since 2004, the Board has followed a process whereby all Directors are subject to re-election on an annual basis. Information on the process of appointment, re-election and replacement of Directors is included in the Corporate Governance Statement.

Nicky McCabe is Chief Operating Officer of Moonray Investors, a division of the FIL Limited group. Nicky McCabe has waived her entitlement to Director's fees.

No Director has a contract of service with the Company and no contracts existed during or at the end of the financial period in which any Director was materially interested and which were significant in relation to the Company's business, except as disclosed in relation to Nicky McCabe's interests in the Management Agreement. There have been no other related party transactions requiring disclosure under Financial Reporting Standard 8: "Related Party Disclosures".

The Board considers that it meets sufficiently regularly to discharge its duties effectively and the table below gives the attendance record for the meetings held during the year.

	Regular Board Meetings	Nomination Committee Meetings	Audit Committee Meetings	Management Engagement Committee Meetings
Lynn Ruddick	5/5	1/1	n/a	1/1
Ben Thomson	4/5	1/1	2/2	1/1
Sharon Brown	5/5	1/1	2/2	1/1
Andy Irvine	5/5	1/1	2/2	1/1
Douglas Kinloch Anderson	5/5	1/1	2/2	1/1
Nicky McCabe	5/5	1/1	n/a	n/a

Figures indicate those meetings for which each Director was eligible to attend and attended in the year. Regular Board meetings exclude procedural meetings held to discharge, for example, formal approvals.

The beneficial interests of the Directors in the ordinary shares of the Company as at 31 August 2013 and 31 August 2012 are shown in the tables below. All of the Directors' shareholdings are beneficial in nature.

	Ordinary shares held at 31 August 2013	Ordinary shares held at 31 August 2012	Changes
Lynn Ruddick	8,097	7,924	173 shares acquired due to automatic dividend reinvestment
Ben Thomson	9,000	nil	9,000 shares acquired February 2013
Sharon Brown	2,000	2,000	No change
Andy Irvine	15,000	10,000	5,000 shares acquired December 2012
Douglas Kinloch Anderson	18,134	18,134	No change
Nicky McCabe	1,000	1,000	No change

The Portfolio Manager also holds ordinary shares in the Company. There have been no changes in the Directors' shareholdings since the year end.

SUBSTANTIAL SHARE INTERESTS

At the date of this report notification had been received that the Shareholders listed in the table below held more than 3% of the voting rights and/or issued share capital of the Company.

Shareholders	Number of ordinary shares	%
FIL Limited1	17,921,856	33.11
Brewin Dolphin2	3,150,342	5.82
Henderson Global Investors3	3,004,355	5.55
Alliance Trust2	2,072,000	3.83
Hargreaves Lansdown2	1,994,153	3.68
Rathbones2	1,795,757	3.32
Legal & General Investment2	1,643,990	3.04

1 Held in aggregate by investors in the Fidelity ISA and the Fidelity Investment Trust Share Plan

2 Indirect holdings

3 Direct and indirect holdings for clients and on own account

An analysis of ordinary Shareholders as at 31 August 2013 is detailed in the table below.

Analysis of ordinary Shareholders as at 31 August 2013	% of issued share capital
Private Shareholders¹	56.77
Institutions	29.49
Pensions	8.64
Insurance	4.13
Other	0.97
	100.00

SHARE CAPITAL

The Company's issued share capital comprises ordinary shares of 25 pence each. As at 31 August 2013 the total number of shares in issue was 54,128,896 (2012: 54,378,896). Each share carries one vote. Deadlines for the exercise of voting rights and details of arrangements by which someone other than the Shareholder can exercise voting rights are detailed in the Notes to the Notice of Meeting on pages 52 and 53. The Company's ordinary shares have a premium listing on the London Stock Exchange.

SHARE ISSUES

No shares were issued during the year and none have been issued since the year end. The authority to issue shares and disapply pre-emption rights, granted by Shareholders at the Annual General Meeting held on 13 December 2012, expires at the conclusion of the next Annual General Meeting and therefore resolutions to renew the authority will be put to Shareholders for approval at the Annual General Meeting to be held on 12 December 2013.

SHARE REPURCHASES

At the Annual General Meeting held on 13 December 2012, the Company's Shareholders passed a special resolution which granted the Directors authority to purchase up 8,151,396 ordinary shares in the market for cancellation. The authority expires on 12 December 2013 and a special resolution to renew the authority, including the ability to buy ordinary shares into Treasury will be put to Shareholders for approval at the forthcoming Annual General Meeting.

During the reporting year, 250,000 ordinary shares were repurchased for cancellation (2012: 2,150,000) representing 0.5% of the issued share capital as at 31 August 2013 (2012: 4.0%) and for a total consideration of £1,875,000 (2012: £10,862,000). No ordinary shares have been repurchased for cancellation since the year end.

1 Includes Share Plan and ISA investors

DIRECTORS AND OFFICERS' LIABILITY INSURANCE

In addition to benefits enjoyed under the Manager's global Directors and Officers' liability insurance arrangements, the Company maintains insurance cover for its Directors under its own policy as permitted by the Companies Act 2006.

ARTICLES OF ASSOCIATION

Any amendments to the Company's Articles of Association must be made by special resolution.

POLITICAL AND CHARITABLE DONATIONS

The Company has not made any political or charitable donations during the year (2012: nil).

PAYMENT OF CREDITORS

The Company's principal supplier is the Manager which is paid in the month following the end of each calendar quarter, in accordance with the terms of the Management Agreement (detailed below). The Company's policy for all suppliers, is to fix terms of payment when agreeing the terms of each business transaction to ensure that the supplier is aware of these terms and to abide by the agreed terms of payment. The Company did not have any trade creditors in the year under review (2012: nil).

MANAGEMENT COMPANY

The Manager, FIL Investments International, a subsidiary of FIL Limited, provides management, accounting, administrative and secretarial services to the Company under an agreement (the "Management Agreement") entered into on 6 February 2006. The Management Agreement replaced that between the same parties dated 19 October 1994 and provides for an annual fee of an amount equal to 0.875% of net assets per annum for investment management and £600,000 for non-portfolio management services payable quarterly in arrears and calculated as of the last business day of March, June, September and December in each year. In computing the net asset value, the value of any investment in any fund which is managed by the Manager or an associate of the Manager is excluded.

The Board has taken a decision not to have a performance element to the management fee because performance for the Company is measured over rolling five year periods and against two benchmarks, namely cash and the Company's Benchmark Index. A performance fee in these circumstances would be quite complex and feedback received by the Board from Shareholders has been to the effect that such complexity would be unwelcome.

The Management Agreement will continue unless and until terminated by either party giving to the other not less than six months' notice in writing. The Management Agreement may, however, 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 Manager or the Company. In addition, the Company may terminate the

Agreement by sixty days' notice if the Manager ceases to be a subsidiary of FIL Limited.

The Management Engagement Committee has reviewed the performance of the Manager taking into consideration those items in the Corporate Governance Statement on pages 23 to 27 of this Annual Report. We have also taken account of the impending increase in Alex Wright's fund manager responsibilities referred to in the Chairman's Statement. Given the assurances made to the Board by Fidelity in respect of additional support being given to Alex Wright, and that the Company will continue to be run independently from his other funds, the Committee concluded that it was in the long term interests of Shareholders that the Management Agreement should continue reflecting the depth and breadth of skills and experience within Fidelity.

The Manager also provides certain services, including marketing and administration, in connection with the Fidelity Investment Trust Share Plan and the Fidelity ISA. The amount payable for these services for the year to 31 August 2013 is £31,000 (2012: £106,000). An amount of £799,000 (2012: £625,000) was due to the Manager under all the above agreements at 31 August 2013 and is included in 'other creditors' in Note 11 on page 42.

Fidelity operates a broker segmentation policy, which allows it to concentrate on those brokers who, in its opinion, offer the best service in terms of overall execution. These brokers are Fidelity's 'core' brokers. At the same time, the Manager evaluates the research provided by other brokers and uses some of them for their research. These brokers are called Secondary State Research firms ("SSRs").

As a consequence of the policy, the 'core' brokers earn a larger percentage of the commission paid. These 'core' brokers pay away some of the increased commission earned to the SSRs, to compensate them for the research provided to Fidelity. Under the Financial Conduct Authority ("FCA") regulations this type of payment from one broker to another is currently treated as 'softing'. The Manager's soft commission policy complies with the UK regulations. Fidelity adopts a best execution policy that applies to all transactions in all instruments, regardless of the fund or account or location of the trading desk. The Manager has an arrangement with certain brokers whereby a portion of commissions from security transactions may be paid to the Company to reduce transaction costs. Amounts received by the Company under this arrangement are credited to capital and included in the gains/(losses) on sales of investments in Note 8 on pages 40 and 41. In the year to 31 August 2013 £57,000 was received (2012: £41,000).

There is a regulatory requirement on the Manager to obtain best execution and no individual deal is entered into which prevents compliance with this requirement.

RESPONSIBILITY AS AN INSTITUTIONAL SHAREHOLDER

The Board has adopted the Manager's Principles of Ownership in relation to investments. These principles include the pursuit of an active investment policy through portfolio management

decisions, voting on resolutions at general meetings and maintaining a continuing dialogue with the management of investee companies. The Manager, in its Principles of Ownership, expressly declares that it supports the Financial Reporting Council's Stewardship Code setting out the responsibilities of institutional Shareholders and agents. Further details of the Manager's Principles of Ownership and voting may be found at www.fidelity.co.uk.

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. Consequently, its investment process takes social, environmental and ethical issues into account when, in the Manager's view, these have a material impact on either investment risk or return.

RELATIONS WITH SHAREHOLDERS

The Chairman is responsible for ensuring that all Directors are made aware of Shareholders' concerns and this is done through a combination of meetings with Shareholders and feedback from the Company's stockbroker and Fidelity. Analyst and stockbroker meetings with the Portfolio Manager are held throughout the year. The Shareholder profile of the Company is regularly monitored. It is believed that Shareholders have proper access to the Manager at any time and to the Board, if they so wish. Members of the Board may be contacted through the Company Secretary whose details are given on page 57.

At general meetings all proxy votes are counted and, except where a poll is called, proxy voting is reported for each resolution after it has been dealt with on a show of hands. Proxy votes are disclosed on the Company's pages of the Manager's website.

The Notice of Meeting on pages 50 to 53 sets out the business of the meeting and the special resolutions are explained more fully on this page. A separate resolution is proposed on each substantially separate issue including the Annual Report and financial statements.

The Chairman of the Board, the Chairman of the Audit Committee and other Directors will be available to answer questions at the forthcoming Annual General Meeting.

The Notice of the Annual General Meeting and related papers are sent to Shareholders at least 20 working days before the meeting.

ANNUAL GENERAL MEETING

THIS SECTION 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.

The Board is recommending to Shareholders the approval of a dividend of 16.25 pence per share for the year ended 31 August 2013. If approved, this dividend will be paid on 16 December 2013 to Shareholders on the register on 15 November 2013. The ex-dividend date will be 13 November 2013. In addition, resolutions will be proposed to renew the Directors' authority to allot securities in the Company. The authorities sought by these resolutions are to replace the existing powers of the Directors which expire on the date of the Annual General Meeting ("AGM") and to provide the Directors with the flexibility to issue further ordinary shares if they deem it appropriate to do so. By law, directors are not permitted to allot new shares (or to grant rights over shares) unless authorised to do so by Shareholders.

Resolution 12 provides the Directors with a general authority to allot securities in the Company up to an aggregate nominal value of £1,353,222. If passed, this resolution will enable the Directors to allot a maximum of 5,412,889 ordinary shares which represents approximately 10% of the issued ordinary share capital of the Company as at 4 November 2013 and so that the Directors may impose any limits or restrictions and make any arrangements which it considers 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. The Directors would not intend to use this power unless they considered that it was in the interests of Shareholders to do so. Any shares issued would be at NAV per share or at a premium to NAV per share.

Resolution 13 is a special resolution disapplying pre-emption rights and granting authority to the Directors, without further specific Shareholder approval, to make allotments of equity securities or sale of Treasury shares for cash by way of (a) rights issues and (b) other issues up to an aggregate nominal value of £1,353,222 (approximately 10% of the issued ordinary share capital of the Company as at 4 November 2013).

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) on 4 November 2013 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 relevant legislation by subsequently selling the shares for cash or cancelling the shares. Purchases of ordinary shares will be at the discretion of the Board and within guidelines set from time to time by the Board in the light of prevailing market conditions. Purchases will only be made in the market at prices below the prevailing net asset value per share, thereby resulting in an increased net asset value per share.

Resolution 15 is a special resolution which, if approved, will amend the Company's Articles of Association to include provisions and clauses for the use of Treasury shares.

Resolution 16 is an ordinary resolution seeking approval for the Company to continue as an investment trust for a further three years. The last continuation vote was passed in 2010.

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.

CORPORATE GOVERNANCE

Full details are given in the Corporate Governance Statement which forms part of the Directors' Report, which can be found on pages 23 to 27.

AUDITOR'S RIGHT TO INFORMATION

As required by Section 418 of the Companies Act 2006 the Directors in office as at the date of this report each confirm that, so far as they are aware, there is no relevant audit information of which the Auditor is unaware and each Director has taken all the steps that ought to have been taken as a Director to make themselves aware of any relevant audit information and to establish that the Auditor is aware of that information.

AUDITOR'S APPOINTMENT

A resolution to reappoint Grant Thornton UK LLP as Auditor to the Company will be proposed at the forthcoming AGM together with a resolution to authorise the Directors to determine the Auditor's remuneration.

GOING CONCERN

The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review on pages 16 and 17. The financial position of the Company, its cash flows, liquidity position and gearing are described in the Financial Statements and Notes thereto on pages 35 to 49.

The Company's objectives, policies and processes for managing its capital, financial risk management objectives, details of financial instruments and its exposures to credit and liquidity risk are also set out on pages 16 to 18 and in Notes 17 and 18 to the Financial Statements on pages 44 to 49.

The Company's assets consist mainly of securities which are readily realisable and, where outsourcing arrangements are in place, alternative service providers are readily available. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.

The Board receives regular reports from the Manager and the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Continuation votes are held every three years and the next continuation vote will be put to Shareholders at this year's AGM. Ongoing discussions are held with Shareholders – not just at the time of continuation votes – and the Board believes that the continuation vote will be passed at this year's AGM.

By Order of the Board FIL Investments International Secretary 4 November 2013

"Corporate governance" is the process by which a board of directors of a company looks after the Shareholders' interests and by which it endeavours to enhance those interests (often referred to as "Shareholder value"). Shareholders hold the directors responsible for the stewardship of a company's affairs, delegating authority to the directors to manage the company on their behalf and holding them accountable for its performance.

This report, which forms part of the Directors' Report, explains how the Directors of Fidelity Special Values PLC deal with that responsibility, authority and accountability.

CORPORATE GOVERNANCE REQUIREMENTS

Part of the London Stock Exchange's Listing Rules is the requirement for all listed companies to set out a statement in their annual reports on how they comply – or if not explain why not – with the provisions of the UK Corporate Governance Code ("UK Code") issued by the Financial Reporting Council ("FRC"). Because investment trust companies differ in many ways from conventional operating companies, the Association of Investment Companies ("AIC") has drawn up its own set of guidelines (the AIC Code of Corporate Governance ("AIC Code")) which meet with the approval of the FRC and which form the basis of Fidelity Special Values' own compliance.

To add to that the Disclosure and Transparency Rules ("DTR"), require that certain extra information be reported in the Corporate Governance Statement. Because some of it is not relevant to a charter of the general principles and practice of the Board's governance of the Company (the purpose of a Corporate Governance Statement), that information has been set out in detail in the Directors' Report on pages 16 to 22. A section of this statement on page 27 entitled "Disclosure and Transparency Rules", provides a list of the information that is required and where it can be found in the Directors' Report.

There are 21 principles which form the substance of the AIC Code. The Board considers that reporting against the principles and recommendations of the AIC Code and by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide") (which incorporates the UK Code), provides better information to Shareholders.

THE CORPORATE GOVERNANCE OF AN INVESTMENT TRUST COMPANY

The corporate governance of most investment trust companies, including Fidelity Special Values PLC, is different from most other commercial companies in one important respect: they do not employ their own people as management but rather the services of a fund management company. This affects the way investment trusts are governed but not the purpose of their governance. Given that the Manager's business is not dedicated solely to the interests of investment trust companies and their Shareholders, the composition of investment trust boards of directors must be largely independent of management. However, it must have the knowledge and experience of both fund management and investment trust management, which the presence of executive management on other commercial boards brings to their corporate governance. Fidelity Special

Values PLC was established and is managed and promoted by its Manager, which is therefore one of the main reasons some Shareholders choose to invest in the Company's shares.

It follows that it is an important aspect of the corporate governance of Fidelity Special Values PLC that its Manager should be party to the responsibility, authority and accountability to those investing in their management.

THE CORPORATE GOVERNANCE POLICIES AND MODUS OPERANDI OF FIDELITY SPECIAL VALUES PLC

The corporate governance of any investment trust company, while following the guidelines of the AIC Code of Corporate Governance, will vary in certain respects depending on its own circumstances. The Board of Fidelity Special Values PLC has considered its own circumstances and determined its own corporate governance policies and modus operandi.

In this section we have outlined the corporate governance policies and modus operandi through the following three aspects of corporate governance: Responsibility, Authority and Accountability. It is first of all important that Shareholders have confidence in the Board of Directors, whom they hold responsible and accountable for the Company's affairs.

In determining the guidelines for the composition of the Board, the Directors believe that there should be a clear majority of the Board members (including the Chairman), who are independent of management, and that the make up of the Board should bring understanding and experience of investment management, investment trust management, the investment objective of the Company, marketing, general business experience and finally of Fidelity's investment philosophy and its operations.

While the key determinant of independent behaviour stems from personal character, the Directors recognise that any individual who is employed by or otherwise materially financially associated with the Manager, FIL Investments International, cannot be regarded as independent. Consequently at any given time there has only ever been one FIL Investments International member serving as a Director. Other relationships or time served as a Director are not regarded prima facie as compromising independent behaviour but may nevertheless be of interest to Shareholders and consequently the details and the Directors' current business associations are set out on page 14 for Shareholders' perusal. All of the independent Directors are considered to be free from any business or other relationship which could materially interfere with the exercise of their independent judgement and all of the Directors are able to allocate sufficient time to the Company to discharge their responsibilities fully and effectively. The Board follows a procedure of notification of other interests that may arise as part of considering any potential conflicts.

All of the Directors are Non-Executive and five of the six have no relationship with the Manager. In addition the Board has appointed Ben Thomson as Senior Independent Director in which he fulfils the role as a "sounding board" for the Chairman

and as intermediary for other Non-Executive Directors where necessary.

Each Director's individual independence, including that of the Chairman, has been considered, taking into consideration:

• integrity, commitment, intelligent challenge;
• independence of mind and character;
• experience and knowledge of investment trusts, of the investment business generally and of Fidelity;
• financial literacy;
• conflicts of interest; and
• performance as a Director.

Based on the above considerations all five non-Fidelity Directors, including the Chairman, have been assessed and are considered to be independent.

Tenure, the term served by a director of a company, is a controversial issue. It is the belief of the Board that it can best do its job if it works as a team composed of individuals who work well together, if each contributes to its performance. In order to do so, it believes that its membership benefits from the inclusion of both Directors who have served a long time and bring both experience and past knowledge of the Company (and its business) to its governance and also newer members who bring additional/further attributes to the Company's governance.

Recognising that different Shareholders have different views on tenure, the Board decided in 2004 that each Director would be subject to annual re-election by Shareholders. This was prior to the new requirement introduced for FTSE 350 companies for all investment trust directors to be subject to annual re-election.

The Board considers that it meets sufficiently regularly to discharge its duties efficiently. The attendance record for the meetings held in the year can be found in the Directors' Report on page 18.

RESPONSIBILITY

The responsibilities delegated by Shareholders to the Board of Directors include:

• 1. The stewardship and monitoring of the affairs of the Company, which includes the management of risk and the monitoring of the controls at work in the Company;
• 1. The promotion of the Company's prosperity so as to endeavour to maximise Shareholder value in the long term, which includes the responsibility for the appropriateness of the Company's investment objective, investment strategy and investment performance and for the Company's efforts in seeking to minimise the level and the volatility of the discount or premium at which the shares may sell in relation to the net asset value. The Company's investment policy is detailed on page 15; and

• Making recommendations to Shareholders (for their consideration at annual general meetings) on matters not delegated to the Board of Directors, which include the approval of the annual financial statements, the election and re-election of Directors and the appointment of the Auditor.

AUTHORITY

The Board of Directors is furnished by the Shareholders with the authority to manage the Company on their behalf, being required to discharge the responsibilities outlined above. The Board, being wholly Non-Executive and (by majority) independent of management, carries out its duties through the mechanism of Board meetings and Board Committee meetings. The most important aspect of the Directors' duties concerns the management of the Company's portfolio of assets and of the risk profile of its balance sheet. While the day-to-day investment management is delegated to FIL Investments International, there are certain decisions which are retained and made by the Directors, including the payment of dividends, the share repurchase guidelines and the derivatives and gearing policies.

In structuring the Board meetings, the Directors try to concentrate as much as possible of their regular Board meetings on (i) investment matters (including strategy, investment policy, gearing and derivatives policies, portfolio and stock reviews, portfolio turnover, monitoring performance etc); and (ii) Shareholder value matters (including monitoring the discount, share repurchases and Fidelity's Investment Trust Share Plan and ISA marketing). The Chairman is responsible for the promotion of a culture of openness and debate, for ensuring that the Directors receive accurate, timely and clear information and for ensuring that there is adequate time available for the discussion of agenda items, particularly strategic issues.

The Board meets regularly with the Company's financial advisers and stockbrokers to discuss Shareholder value and investor relation issues while the Manager meets with the larger Shareholders at least once a year and reports back to the Board on those meetings. Key representatives of the Manager attend each Board meeting, enabling the Board to probe further on matters of concern or seek clarification on certain issues.

The Board of Directors discharges certain of its corporate governance responsibilities through three Committees:

– THE AUDIT COMMITTEE

The Audit Committee is chaired by Sharon Brown and consists of all of the independent Directors, except for Lynn Ruddick. The Committee's authority and duties are clearly defined in its written terms of reference which are available on the Company's pages of the Manager's website (www.fidelity.co.uk/its). These include reviewing and monitoring the production of the annual and half-yearly financial statements, the audit process, corporate governance issues, the existence and performance of all controls operating in the Company (including the adherence to Section 1159 Corporation Tax Act 2010 status), the relationship with and performance of other third party service providers (such as the Registrar or the

Custodian), considering the risks associated with audit firms withdrawing from the market and the relationship with the independent Auditor (and its ongoing appointment and level of fees). It also has responsibility for reviewing and monitoring the external Auditor's independence and objectivity with particular regard to the provision of non-audit services, taking into consideration relevant UK professional and regulatory requirements, including the appointment, reappointment or removal of the Auditor as appropriate. The Committee also reviews the risks associated with audit firms withdrawing from the market which is considered in the Committee's risk evaluation and planning. Finally it considers the scope of work undertaken by the Manager's internal audit department.

The Auditor's continued appointment is reviewed each year and the audit partner changes at least once every five years. The last review of alternative audit service providers took place in 2006 resulting in a change in audit firm. There are no contractual obligations that restrict the Committee's choice of Auditor. The Committee meets with the independent Auditor at least once a year to review all these matters.

The Committee itself meets at least twice a year and reports to the Board of Directors, making recommendations where appropriate.

The continued increase in the scope and in the technical nature of the work of the Committee means that its Chairman must have – and does have – recent and relevant financial experience.

– THE MANAGEMENT ENGAGEMENT COMMITTEE

The Management Engagement Committee is chaired by Lynn Ruddick and consists of all of the independent Directors. It is charged with reviewing and monitoring the performance of the Manager in respect of its contract and the fees it is paid.

This Committee meets at least once a year and reports to the Board of Directors, making recommendations where appropriate.

The level of remuneration of the Manager is determined by the Management Engagement Committee; the fee relates to the investment management function, on which a percentage of funds under management is paid (thereby relating this part of its remuneration to absolute performance) and a set fee for the administrative function.

The Board of Directors is mindful that the amounts paid to the Manager should be sufficient to ensure that both the Portfolio Manager and the administrators within the management house appointed to the job of looking after its affairs are highly skilled and that those individuals should be largely focused on the Company's business.

The criteria which are taken into consideration in reviewing the performance of the Manager are set out below:

• Quality of team the skills and particularly the experience of the team involved in managing all aspects of the Company's business;
• Commitment of the Manager to the investment trust business generally and to the Company in particular;
• Managing the Company in running and controlling the administration, the accounting and the secretaryship of the Company;
• Investment management portfolio management skills, experience and track record and other investment related considerations including gearing, currencies, use of derivatives, hedging, share repurchases etc;
• Shareholders Shareholder consciousness and relations, discount management and commitment to the Company's goals; and
• Management Agreement consideration of fees, notice periods and duties.

The Committee's written terms of reference are available on the Company's pages of the Manager's website (www.fidelity.co.uk/its).

– THE NOMINATION COMMITTEE

The Nomination Committee, chaired by Lynn Ruddick, consists of all the Directors and is charged with:

• 1. Nominating new Directors for consideration by the Board of Directors, in turn for approval by Shareholders; and
• 1. Consideration of the reappointment of Directors.

In respect of new Directors the Board believes that it is important in the search for, the interview of and recommendation to the Board of a candidate that it be controlled by the independent Directors who in turn form the majority of this Committee. The Board carries out its candidate search from the widest possible pool of talent against a set of objective criteria on the basis of merit, with due regard for the benefits of diversity on the Board.

When a new Director is appointed to the Board, he or she is provided with all relevant information regarding the Company and his or her duties and responsibilities as a Director. In addition, a new Director will receive an induction, spending some time with representatives of the Manager whereby he or she will become familiar with the various processes which the Manager considers necessary for the performance of its duties and responsibilities to the Company. The Company's policy is to encourage Directors to keep up to date and attend training courses on matters which are directly relevant to their involvement with the Company and the Chairman reviews and agrees development and training needs with each Director. The Directors also receive regular briefings from, among others, the AIC, the independent Auditor and the Company Secretary regarding any proposed developments or changes in law or regulations that could affect the Company and/or the Directors.

It is the policy of the Board for all Directors to retire and seek re-election at each annual general meeting ("AGM") of the Company. Biographical details for each Director are set out on page 14 to provide sufficient information to enable Shareholders to make an informed decision regarding their re-election. In addition, the terms and conditions of appointment of Directors are available for inspection at the registered office of the Company and will be available prior to the forthcoming AGM.

A formal annual process for the evaluation of the Board and its Committees is in place. This takes the form of written questionnaires and one to one discussions. The performance of the Chairman is evaluated by the other Directors on an annual basis. The Company Secretary and Manager also participate in these processes to provide all round feedback to the Board. The results of these evaluations are considered and discussed by the Board. The process is considered to be constructive in terms of identifying areas for improving the functioning and performance of the Board and action is taken on the basis of the results. As a consequence of this process, the Board has decided not to undertake an externally facilitated evaluation.

The Committee's written terms of reference are available on the Company's pages of the Manager's website (www.fidelity.co.uk/its).

ACCOUNTABILITY

Given that the Shareholders entrust the Board of Directors with the management of the Company's affairs, it is necessary that the Board accounts for itself to Shareholders. The process of accountability involves providing all the necessary information for Shareholders to make judgements about the Board's stewardship and performance through a full and informative annual financial report, a half-yearly financial report, interim management statements, accessibility to the Board at any time through the office of the Chairman and finally the presentation of the results (the financial statements) and future prospects at the AGM.

The AGM is the pivotal point in the relationship between the Board of Directors and Shareholders and is the occasion when the Board accounts for itself in a public meeting. It regards any bona fide issue that any Shareholder raises as one that should be put to all Shareholders at the AGM so that all those attending can hear any concerns expressed in open forum and make their own judgement accordingly. The AGM provides Shareholders with an opportunity to vote on certain issues that are not ultimately delegated to the Board of Directors. This includes the re-election of Directors every year in addition to the normal matters of approving the financial statements, the appointment of the independent Auditor, the issue of new shares and the repurchase of shares for cancellation. Your Board has an established policy that should enable Shareholders to decide whether they wish to continue the Company's existence by putting a "continuation vote" before the Shareholders at every third AGM. The next such vote will be at this year's AGM to be held on 12 December 2013, the last being at the AGM held on 15 December 2010.

THE COMPANY SECRETARY

The Company Secretary is a corporate secretary. The appointment of the Company Secretary is a matter for the Board as a whole. The Directors have access to the advice and services of the Company Secretary through its appointed representative who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. Each of the Directors of the Company is entitled to take independent professional advice, at the Company's expense, in the furtherance of their duties.

SUPPLY OF INFORMATION

The Board meeting papers are the key source of regular information for the Board, the contents of which are determined by the Board and contain sufficient information on the financial condition of the Company. The Board receives this information in due time in a form and of a quality appropriate to enable it to discharge its duties.

AIC CODE

The Board of Fidelity Special Values PLC has considered the principles and recommendations of the Association of Investment Companies ("AIC") Code of Corporate Governance ("the AIC Code") by reference to the AIC Corporate Governance Guide for investment companies ("the AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses governance issues relevant to investment companies and enables boards to satisfy any requirements they may have under the UK Corporate Governance Code ("UK Code") as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company. The AIC Code and the AIC Guide may be found at www.theaic.co.uk. The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), will provide better information to Shareholders.

The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except as set out below. The UK Code includes provisions relating to:

• The Management Engagement Committee being chaired by the Chairman of the Board; and
• The role of the chief executive, executive directors' remuneration and the need for an internal audit function.

For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers that these issues are not relevant to the position of Fidelity Special Values PLC, being an externally managed investment company. The Company has therefore not reported further in respect of these provisions.

RISK MANAGEMENT AND INTERNAL CONTROL

The Board is responsible for the Company's systems of risk management and of internal control and for reviewing their effectiveness. The review takes place at least once a year. Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable, but not absolute, assurance against material

misstatement or loss. The Board also determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives.

The Board confirms that there is an ongoing process for identifying, evaluating and managing the Company's principal business and operational risks, that it has been in place for the year ended 31 August 2013 and up to the date of approval of this Annual Report and financial statements, and that it is regularly reviewed by the Board. This process is in accordance with the FRC's "Internal Control: Revised Guidance for Directors".

The Board is responsible for the design, implementation and maintenance of controls and procedures to safeguard the assets of the Company although these tasks have been delegated on a day-to-day basis to the Manager. The system extends to operational and compliance controls and risk management. Clear lines of accountability have been established between the Board and the Manager and regular reports on controls and compliance issues are provided to the Audit Committee and the Board. In carrying out its review, the Audit Committee has had regard to the activities of the Manager, the Manager's compliance and risk functions and the independent Auditor. The Audit Committee's and Board's review also includes consideration of internal controls and similar reports issued by the Manager and other service providers.

The Board has reviewed the need for an internal audit function. In keeping with most other investment trust companies the Board has decided that the systems and procedures employed by the Manager, including its internal audit function, provide sufficient assurance that a sound system of internal control, which safeguards Shareholders' investments and the Company's assets, is maintained. An internal audit function, specific to the Company, is therefore considered unnecessary. The Audit Committee meets the Manager's Head of Internal Audit at least twice a year. The Chairman of the Audit Committee has direct access to the Manager's Head of Internal Audit and vice versa.

WHISTLE-BLOWING PROCEDURE

Part of the Manager's role in ensuring the provision of a good service pursuant to the Management Agreement includes the ability for employees of Fidelity to raise concerns through a workplace concerns escalation policy (or "whistle-blowing procedure"). Fidelity is committed to providing the highest level of service to its customers and to applying the highest standards of quality, honesty, integrity and probity. The aim of the policy is to encourage employees and others working for Fidelity to assist the Company in tackling fraud, corruption and other malpractice within the organisation and in setting standards of ethical conduct. This policy has been endorsed accordingly by the Board.

BRIBERY ACT 2010

The Company is committed to carrying out business fairly, honestly and openly. The Board recognises the benefits this has to reputation and business confidence.

The Board, the Manager, the Manager's employees and others acting on the Company's behalf, are expected to demonstrate high standards of behaviour when conducting business.

The Board acknowledges its responsibility for the implementation and oversight of the Company's procedures for preventing bribery and the governance framework for training, communication, monitoring, reporting and escalation of compliance together with enforcing action as appropriate. The Board has adopted a zero tolerance policy in this regard.

DISCLOSURE AND TRANSPARENCY RULES

As already stated in the second section of this Corporate Governance Statement entitled Corporate Governance Requirements, certain extra information is required to be given. Because some of it is information which refers to events that have taken place during the course of the year, it has been placed in the Directors' Report on pages 18 to 22.

The following is a list of that information:

Information concerning the service of the Directors on the Board and changes to the Company's Articles of Association Attendance at Board and Committee meetings Directors' shareholdings Directors and Officers' liability insurance Going concern Substantial share interests Share capital Share issues Share repurchases Responsibility as an Institutional Shareholder Relations with Shareholders Environmental, Employee, Social and Community matters

On behalf of the Board

Lynn Ruddick 4 November 2013

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Generally Accepted Accounting Practice.

The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss for the period.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume 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 its 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 Directors' Report, including a Business Review, a Corporate Governance Statement and a Directors' Remuneration Report that comply with that law and those regulations.

The Directors have delegated the responsibility for the maintenance and integrity of the corporate and financial information included on the Company's pages of the Manager's website www.fidelity.co.uk/its to the Manager. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge: the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and the Directors' Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties it faces.

Approved by the Board on 4 November 2013 and signed on its behalf by

Lynn Ruddick Chairman

Directors' Remuneration Report

This report has been prepared in accordance with the requirements of Sections 420 – 422 of the Companies Act 2006 in respect of the year ended 31 August 2013. An ordinary resolution for the approval of this report will be put to the members at the forthcoming Annual General Meeting. The law requires the Company's Auditor to audit certain parts of the disclosures provided. Where disclosures have been audited they are indicated as such. The Auditor's opinion is included in its report on page 30.

REMUNERATION

The level of Directors' fees is determined by the whole Board and Directors do not vote on their own fee. The Company's Articles of Association limit the aggregate fees payable to the Board of Directors to a total of £200,000 per annum. Subject to this overall limit, it is the Company's policy to determine the level of Directors' fees having regard to the level of fees payable to non-executive directors in the industry generally, the role that individual Directors fulfil, the time committed to the Company's affairs and the responsibilities and potential liabilities, both financial and reputational. No Director received any bonus, taxable expenses, compensation for loss of office or non-cash benefits for the year ended 31 August 2013 (2012: nil). Non-Executive Directors are not eligible for participation in any performance related fees, bonuses, pension benefits, share options, long term incentive schemes or other benefits. It is intended that this policy will continue for the year ended 31 August 2014 and for subsequent years. The fee structure with effect from 1 January 2013 is as follows: Chairman – £37,000; Chairman of the Audit Committee – £28,000; Senior Independent Director – £26,000; and Director – £24,000.

DIRECTORS' SERVICE CONTRACTS

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 Articles of Association of the Company. The Company does not make compensation payments to Directors on termination of office.

COMPANY PERFORMANCE

The Company's investment objective is capital growth. The graph below measures this against its Benchmark Index, the FTSE All-Share Index.

REMUNERATION OF DIRECTORS (AUDITED)

	2013 £	2012 £	Notes
Lynn Ruddick	36,667	36,000
Sharon Brown	27,333	26,000
Andy Irvine	23,667	23,000
Douglas Kinloch Anderson	23,667	23,000
Nicky McCabe	–	–	Continues to waive her Director's fees
Ben Thomson	25,000	23,000
Total	136,334	131,000

Prices rebased to 100 Sources: Fidelity and Datastream

On behalf of the Board

Lynn Ruddick 4 November 2013

Independent Auditor's Report to the Shareholders of Fidelity Special Values PLC

We have audited the financial statements of Fidelity Special Values PLC for the year ended 31 August 2013 which comprise the Income Statement, the Balance Sheet, the Reconciliation of Movements in Shareholders' Funds, the Cash Flow Statement and the related Notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company's Shareholders, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's Shareholders those matters we are required to state to them in an Auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's Shareholders as a body, for our audit work, for this report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF THE DIRECTORS AND THE AUDITOR

As explained more fully in the Statement of Directors' Responsibilities set out on page 28, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and to express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

OPINION ON FINANCIAL STATEMENTS

In our opinion the financial statements:

• give a true and fair view of the state of the Company's affairs as at 31 August 2013 and of its return for the year then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion:

• the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
• the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Under the Listing Rules, we are required to review:

• the Directors' statement, set out on page 22 in relation to going concern;
• the part of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and
• certain elements of the report to the Shareholders by the Board on Directors' Remuneration.

Julian Bartlett

Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 4 November 2013

Income Statement for the year ended 31 August 2013

Notes		revenue £'000	2013 capital £'000	total £'000	revenue £'000	2012 capital £'000	total £'000
8	Gains on investments	–	120,875	120,875	–	35,457	35,457
9	Gains on long CFDs	–	25,387	25,387	–	557	557
9	(Losses)/gains on short CFDs, futures and options	–	(6,740)	(6,740)	–	36	36
2	Net income	14,187	–	14,187	11,082	–	11,082
3	Investment management fee	(4,269)	–	(4,269)	(3,412)	–	(3,412)
4	Other expenses	(635)	–	(635)	(547)	–	(547)
	Exchange gains/(losses) on other net assets	–	19	19	–	(117)	(117)
	Net return on ordinary activities before taxation	9,283	139,541	148,824	7,123	35,933	43,056
5	Taxation on return on ordinary activities	(44)	–	(44)	228	–	228
	Net return on ordinary activities after taxation for the year	9,239	139,541	148,780	7,351	35,933	43,284
6	Return per ordinary share	17.02p	257.01p	274.03p	13.25p	64.78p	78.03p

A Statement of Total Recognised Gains and Losses has not been prepared as there are no gains and losses other than those reported in this Income Statement. The total column of the Income Statement is the profi t and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year.

The Notes on pages 35 to 49 form an integral part of these fi nancial statements.

Balance Sheet as at 31 August 2013

Company number 2972628

Notes		2013 £'000	2012 £'000
	Fixed assets
8	Investments	424,387	326,618
	Current assets
9	Derivative assets	31,333	3,839
10	Debtors	2,515	5,247
17	Amounts held at futures clearing houses and brokers	–	1,236
	Cash at bank	25,715	8,451
		59,563	18,773
	Creditors
9	Derivative liabilities	(1,864)	(5,115)
11	Other creditors	(3,626)	(1,652)
		(5,490)	(6,767)
	Net current assets	54,073	12,006
	Total net assets	478,460	338,624
	Capital and reserves
12	Share capital	13,532	13,594
13	Share premium account	95,767	95,767
13	Capital redemption reserve	3,256	3,194
13	Other non-distributable reserve	5,152	5,152
13	Capital reserve	349,724	212,058
13	Revenue reserve	11,029	8,859
	Total equity Shareholders' funds	478,460	338,624
14	Net asset value per ordinary share	883.93p	622.71p

The financial statements on pages 31 to 49 were approved by the Board of Directors on 4 November 2013 and were signed on its behalf by:

Lynn Ruddick Chairman

The Notes on pages 35 to 49 form an integral part of these fi nancial statements.

Reconciliation of Movements in Shareholders' Funds

for the year ended 31 August 2013

Notes	Opening Shareholders' funds:	share capital £'000	share premium account	capital redemption reserve	other non distributable	capital	revenue	total
					reserve	reserve	reserve	equity
			£'000	£'000	£'000	£'000	£'000	£'000
	1 September 2012	13,594	95,767	3,194	5,152	212,058	8,859	338,624
12	Repurchase of ordinary shares	(62)	–	62	–	(1,875)	–	(1,875)
	Net return on ordinary activities after taxation for the year	–	–	–	–	139,541	9,239	148,780
7	Dividend paid to Shareholders	–	–	–	–	–	(7,069)	(7,069)
	Closing Shareholders' funds: 31 August 2013	13,532	95,767	3,256	5,152	349,724	11,029	478,460
	Opening Shareholders' funds: 1 September 2011	14,131	95,767	2,657	5,152	186,987	7,827	312,521
12	Repurchase of ordinary shares	(537)	–	537	–	(10,862)	–	(10,862)
	Net return on ordinary activities after taxation for the year	–	–	–	–	35,933	7,351	43,284
7	Dividend paid to Shareholders	–	–	–	–	–	(6,319)	(6,319)
	Closing Shareholders' funds: 31 August 2012	13,594	95,767	3,194	5,152	212,058	8,859	338,624

Cash Flow Statement for the year ended 31 August 2013

		year ended 31.08.13	year ended 31.08.12
Notes		£'000	£'000
	Operating activities
	Investment income received	10,335	10,480
	Net derivative income/(expenses)	1,596	(354)
	Deposit interest received	22	67
	Investment management fee paid	(4,064)	(4,325)
	Directors' fees paid	(137)	(160)
	Other cash payments	(617)	(666)
15	Net cash infl ow from operating activities	7,135	5,042
	Taxation
	Overseas taxation recovered	27	249
	Taxation recovered	27	249
	Financial investments
	Purchase of investments	(369,725)	(147,520)
	Disposal of investments	400,121	157,186
	Net cash infl ow from fi nancial investments	30,396	9,666
	Derivative activities
	Payments on CFDs	(7,778)	(1,441)
	Movements on amounts held at futures clearing houses and brokers	1,236	4,123
	Payments on futures	(4,415)	–
	Premium paid on options	–	(281)
	Premium received on options	–	263
	Net cash (outfl ow)/infl ow from derivative activities	(10,957)	2,664
7	Dividend paid to Shareholders	(7,069)	(6,319)
	Net cash infl ow before fi nancing	19,532	11,302
	Financing
	Repurchase of ordinary shares	(2,287)	(10,450)
	Net cash outfl ow from fi nancing	(2,287)	(10,450)
16	Increase in cash	17,245	852

The Notes on pages 35 to 49 form an integral part of these fi nancial statements.

1 ACCOUNTING POLICIES

The Company has prepared its financial statements in accordance with United Kingdom Generally Accepted Accounting Practice ("UK GAAP") and 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 January 2009.

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 fixed asset investments and derivative assets and liabilities, and on the assumption that approval as an investment trust continues to be granted by HM Revenue & Customs.

A resolution proposing the continuation of the Company as an investment trust will be put to shareholders at the Annual General Meeting on 12 December 2013. The Directors are recommending that shareholders vote in favour of this resolution. In accordance with Financial Reporting Standard 18: "Accounting Policies", based on this recommendation and that the Company's assets consist mainly of securities which are readily realisable and that the Directors have a reasonable expectation that the Company has adequate resources to continue for the foreseeable future, the Directors believe that it is appropriate to prepare the financial statements on a going concern basis. Accordingly the financial statements do not include any adjustments that may arise from a reconstruction or liquidation of the Company. Such adjustments would include expenses of reconstruction or liquidation along with any costs associated with realising the portfolio.

b) Income – Income from equity investments is credited to the Income Statement on the date on which the right to receive the payment is established. UK dividends are accounted for net of any tax credit. Unfranked investment income includes tax deducted at source. Interest receivable on short term deposits is dealt with on an accruals basis. 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 is recognised in the capital column of the Income Statement.

Derivative instrument income received from dividends on long contracts for difference ("CFDs") and from interest received on short CFDs, and derivative expenses paid as dividends on short CFDs and interest on long CFDs are included in 'Net income' in the revenue column of the Income Statement.

c) Special dividends – Special dividends are treated as a capital receipt or a revenue receipt depending on the facts and circumstances of each particular case.

d) Expenses – All expenses are accounted for on an accruals basis and are charged in full to the revenue column of the Income Statement.

e) Taxation – Deferred taxation is recognised in respect of all timing differences that have originated, but not reversed, at the Balance Sheet date, where transactions or events that result in an obligation to pay more, or a right to pay less tax in the future have occurred. A deferred taxation asset is recognised when it is more likely than not that the asset will be recoverable.

f) Foreign currency – The Directors, having regard to the currency of the Company's share capital and the predominant currency in which its investors operate, have determined the functional currency to be UK sterling. Transactions denominated in foreign currencies are calculated in UK sterling at the rate of exchange ruling as at the date of transactions. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the Balance Sheet date. All capital gains and losses, including exchange differences on the translation of foreign currency assets and liabilities, are dealt with in the capital column of the Income Statement.

g) Valuation of investments – The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors. Accordingly, upon initial recognition the investments are designated by the Company as "at fair value through profit or loss". They are included initially at fair value, which is taken to be their cost and subsequently, the investments are valued at "fair value", which is measured as follows:

• Listed investments and AIM quoted investments are valued at bid prices, or last market prices, depending on the convention of the exchange on which they are listed, or otherwise at fair value based on published price quotations; and
• Unlisted investments where there is not an active market are valued using an appropriate valuation technique so as to establish what the transaction price would have been at the Balance Sheet date.

In accordance with the AIC SORP the Company includes transaction costs, incidental to the purchase or sale of investments, within gains/(losses) on investments and has disclosed them in Note 8 on page 41.

1 ACCOUNTING POLICIES continued

h) Derivative instruments – When appropriate, permitted transactions involving derivative instruments are used. The Company may enter into futures, equity forwards, CFDs and options. Derivative instruments are held at fair value through profit or loss and are valued at "fair value", which is measured as follows:

• Futures and options the quoted trade price for the contract; and
• CFDs and equity forwards the difference between the strike price and the bid or last price of the shares in the security that underlies the contract.

Where transactions are used to protect or enhance income, if the circumstances support this, the income and expense derived from them are included in 'Net income' via the revenue column of the Income Statement. Where such transactions are used to protect or enhance capital, if the circumstances support this, the income and expense derived from them are included: for long CFDs as 'Gains/(losses) on long CFDs', and for options and short CFDs as 'Gains/(losses) on options and short CFDs' via the capital column of the Income Statement. Any positions on such transactions open at the year end are reflected in the Balance Sheet at their fair value within 'Current assets' and 'Creditors'.

i) Gearing – The Company has no financial gearing via bank loans. However, the Company achieves a geared position through the use of CFDs.

j) Capital reserve – The following are accounted for in capital reserve:

• Gains and losses on the disposal of investments, including derivative assets and liabilities, if in accordance with Notes 1(g) and 1(h);
• Changes in the fair value of investments held at the year end, including derivative assets and liabilities, if in accordance with Notes 1(g) and 1(h);
• Foreign exchange gains and losses of a capital nature;
• Dividends receivable which are capital in nature; and
• Costs of repurchasing ordinary shares.

As a result of technical guidance issued by the Institute of Chartered Accountants in England and Wales in TECH 02/10 "Distributable Profits", changes in fair value of investments which are readily convertible to cash, without accepting adverse terms at the Balance Sheet date, can be treated as realised. Capital reserves realised and unrealised are shown in aggregate as 'capital reserve' in the Balance Sheet and in the Reconciliation of Movements in Shareholders' Funds. At the Balance Sheet date all investments held by the Company were listed on a recognised stock exchange and were considered to be readily convertible to cash, with the exception of unquoted investments with a fair value of £865,000 (2012: £821,000).

k) Dividends – In accordance with FRS 21: "Events after the Balance Sheet Date" dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date.

		2013 £'000	2012 £'000
2	INCOME
	Income from investments
	UK dividends	9,454	9,513
	UK scrip dividends	737	908
	Overseas dividends	1,049	857
	Overseas scrip dividends	1,194	–
	Income from REIT investments	–	92
		12,434	11,370
	Income from derivative instruments
	Dividends received on long CFDs	3,209	447
	Interest received on short CFDs	43	42
		3,252	489
	Other income
	Deposit interest	24	66
	Total income	15,710	11,925
	Expenses of derivative instruments
	Interest paid on long CFDs	(789)	(341)
	Dividends paid on short CFDs	(734)	(502)
		(1,523)	(843)
	Net income	14,187	11,082
		2013	2012
3	INVESTMENT MANAGEMENT FEE	£'000	£'000
	Investment management fee	4,269	3,412

A summary of the terms of the Management Agreement is given in the Directors' Report on page 20.

		2013 £'000	2012 £'000
4	OTHER EXPENSES
	AIC fees	27	28
	Custody fees	19	14
	Directors' expenses	17	34
	Directors' fees1	136	131
	Legal and professional fees	89	63
	Marketing expenses	190	106
	Printing and publication expenses	74	84
	Registrars' fees	44	50
	Fees payable to the Company's Auditor for the audit of the annual fi nancial statements2	22	21
	Other expenses2	17	16
		635	547
	1 Details of the breakdown of Directors' fees are provided on page 29 within the Directors' Remuneration Report 2 The VAT on fees payable to the Company's Auditor is included in other expenses
		2013 £'000	2012 £'000
5	TAXATION ON RETURN ON ORDINARY ACTIVITIES
	a) Analysis of the taxation charge/(credit) for the year
	Overseas taxation recovered	(41)	(245)
	Overseas taxation suff ered	85	17
	Total current taxation charge/(credit) for the year (see Note 5b)	44	(228)

5 TAXATION ON RETURN ON ORDINARY ACTIVITIES continued

b) Factors affecting the taxation charge/(credit) for the year

The taxation charge/(credit) for the year is lower than the standard rate of UK corporation tax for an investment trust company of 23.58% (2012: 25.19%).

The differences are explained below.

	2013	2012
	£'000	£'000
Net return on ordinary activities before taxation	148,824	43,056
Net return on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 23.58% (2012: 25.19%)	35,093	10,846
Eff ects of:
Gains on investments not taxable	(32,904)	(9,052)
Income not taxable	(2,932)	(2,841)
Excess management expenses not utilised in the year	743	1,047
Overseas taxation recovered	(41)	(245)
Overseas taxation suff ered	85	17
Current taxation charge/(credit) (Note 5a)	44	(228)

Investment trust companies are exempt from taxation on capital gains for a given period if they meet the HM Revenue & Customs criteria set out in Section 1159 of the Corporation Taxes Act 2010.

c) Deferred taxation

The Company has unrelieved excess expenses of £48,221,000 (2012: £45,070,000). It is unlikely that the Company will generate sufficient taxable profits in the future to utilise these expenses and therefore no deferred tax asset has been recognised.

6 RETURN PER ORDINARY SHARE

The return per ordinary share is based on the net return on ordinary activities after taxation for the year divided by the weighted average number of ordinary shares in issue during the year.

	2013	2012
	£'000	£'000
Net revenue return on ordinary activities after taxation	9,239	7,351
Net capital return on ordinary activities after taxation	139,541	35,933
Net total revenue return on ordinary activities after taxation	148,780	43,284
Weighted average number of ordinary shares in issue during the year	54,294,786	55,471,587
	2013	2012
	pence	pence
Revenue return per ordinary share	17.02	13.25
Capital return per ordinary share	257.01	64.78
Total return per ordinary share	274.03	78.03

7 DIVIDENDS Dividend paid Final dividend of 13.00 pence per share paid for the year ended 31 August 2012 (2011: 11.25 pence) 7,069 Dividend proposed Final dividend proposed of 16.25 pence per share for the year ended 31 August 2013 (2012: 13.00 pence) based on the number of shares in issue as at the date of this report 8,796 The Directors have proposed the payment of a fi nal dividend of 16.25 pence per share which is subject to approval by Shareholders at the Annual General Meeting and has not been included as a liability in these fi nancial statements. The dividend will be paid on 16 December 2013 to Shareholders on the register on 15 November 2013 (ex-dividend date 13 November 2013). 2013 £'000 8 INVESTMENTS Investments Listed investments 393,605 318,694 AIM quoted investments 28,000 Specialist Fund Market investments 1,961 Unlisted investments 821 Total investments 424,387 2013 listed other investments investments £'000 £'000 Opening book cost 322,839 10,766 Opening investment holding losses (4,145) (2,842) Opening fair value of investments 318,694 7,924 Movements in the year Purchases at cost 337,076 36,797 Sales – proceeds (388,757) (8,222) Sales – realised gains on sales in the year 28,707 1,297 Transfers to listed from other investments 6,080 (6,080) Movement in investment holding gains/(losses) in the year 91,805 (934) Closing fair value of investments 393,605 30,782 Closing book cost 305,945 34,558 Closing investment holding gains/(losses) 87,660 (3,776) Closing fair value of investments 393,605 30,782		2013 £'000	2012 £'000
			6,319
			7,069
			2012
			£'000
			7,103
			–
			821
			326,618
			total investments £'000
			333,605
			(6,987)
			326,618
			373,873
			(396,979)
			30,004
			–
			90,871
			424,387
			340,503
			83,884
			424,387

8 INVESTMENTS continued

		2013 £'000	2012 £'000
	Gains on investments
	Gains/(losses) on sales of investments in the year	30,004	(7,710)
	Investment holding gains in the year	90,871	43,167
		120,875	35,457
		2013 £'000	2012 £'000
	Gains on investments are shown net of investment transactions costs as summarised below:
	Purchases	2,009	881
	Sales	446	216
		2,455	1,097
	The portfolio turnover rate for the year was 103.1% (2012: 49.9%).
		2013 £'000	2012 £'000
9	DERIVATIVE INSTRUMENTS
	Gains on long CFDs
	Realised losses on long CFD positions closed	(3,153)	(2,848)
	Movement on investment holding gains on long CFDs	28,540	3,405
		25,387	557
	(Losses)/gains on short CFDs, futures and options
	Realised (losses)/gains on short CFD positions closed	(4,530)	1,373
	Movement on investment holding gains/(losses) on short CFDs	2,205	(2,389)
	Realised losses on futures	(4,415)	–
	Realised gains on call options	–	43
	Realised gains on put options	–	832
	Movement on investment holding gains on options	–	177
		(6,740)	36
		2013	2012
		fair	fair
		value £'000	value £'000
	Derivative assets/(liabilities) as recognised in the Balance Sheet
	Derivative assets	31,333	3,839
	Derivative liabilities	(1,864)	(5,115)
		29,469	(1,276)

9 DERIVATIVE INSTRUMENTS continued

	number of	2013	number of	2012
			3,626	1,652
Other creditors			1,010	841
Amounts payable on share repurchases			–	412
Securities purchased for future settlement			2,616	399
11 CREDITORS – AMOUNTS FALLING DUE WITHIN ONE YEAR
			2013 £'000	2012 £'000
			2,515	5,247
Other debtors			85	2
Taxation recoverable			14	–
Accrued income			1,618	1,400
Securities sold for future settlement			798	3,845
10 DEBTORS			2013 £'000	2012 £'000
	29,469	120,825	(1,276)	8,955
Short CFDs	(807)	(25,867)	(3,012)	(22,839)
Long CFDs	30,276	146,692	1,736	31,794
At the year end the Company held the following derivative instruments
	fair value £'000	2013 exposure £'000	fair value £'000	2012 exposure £'000

Issued, allotted and fully paid:

Ordinary shares of 25 pence each
Beginning of the year	54,378,896	13,594	56,528,896	14,131
Ordinary shares repurchased and cancelled	(250,000)	(62)	(2,150,000)	(537)
End of the year	54,128,896	13,532	54,378,896	13,594

13 RESERVES

The "share premium account" represents the amount by which, in prior years, the proceeds from the issue of ordinary shares exceeded the nominal value of those ordinary shares. It is not distributable by way of dividend. It cannot be used to fund share repurchases.

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

The "other non-distributable reserve" represents an amount transferred in prior years from the warrant reserve. It is not distributable by way of dividend. It cannot be used to fund share repurchases.

The "capital reserve" represents realised gains or losses on investments and derivatives sold, unrealised increases and decreases in the fair value of investments and derivatives held and other income and costs recognised in the capital column of the Income Statement. It is not distributable by way of dividend. It can be used to fund share repurchases.

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

14 NET ASSET VALUE PER ORDINARY SHARE

The net asset value per ordinary share is based on net assets divided by the number of ordinary shares in issue at the year end.
	2013 £'000	2012 £'000
Total net assets at the year end	478,460	338,624
Ordinary shares in issue at the year end	54,128,896	54,378,896
	2013 pence	2012 pence
Net asset value per ordinary share	883.93	622.71
	2013 £'000	2012 £'000
15 RECONCILIATION OF NET RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Net return before taxation	148,824	43,056
Capital return before taxation	(139,541)	(35,933)
Net revenue return before taxation	9,283	7,123
Scrip dividends	(1,931)	(908)
(Increase)/decrease in other debtors	(301)	47

Increase/(decrease) in other creditors 169 (1,203) Overseas taxation suff ered (85) (17)

Net cash infl ow from operating activities	7,135	5,042

	2013	2012
	£'000	£'000
16 RECONCILIATION OF NET CASH MOVEMENTS TO MOVEMENT IN NET FUNDS
Net funds at the beginning of the year*	8,451	7,716
Net cash infl ow	17,245	852
Foreign exchange movement	19	(117)
Change in net funds	17,264	735
Net funds at the end of the year*	25,715	8,451
* Net funds consist entirely of cash at bank

17 FINANCIAL INSTRUMENTS

MANAGEMENT OF RISK

The general risk analysis undertaken by the Board and its overall policy approach to risk management are set out in the Business Review on pages 16 and 17. This Note is incorporated in accordance with Financial Reporting Standard 29 "Financial Instruments: Disclosures" ("FRS 29") and refers to the identification, measurement and management of risks potentially affecting the value of financial instruments.

The Company's financial instruments comprise:

• Equity shares held in accordance with the Company's investment objective and policies;
• Cash, liquid resources and short term debtors and creditors that arise from its operations; and
• Derivative instruments which comprise CFDs, futures and options on listed stocks and equity indices

The risks identified by FRS 29 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 instruments risk. The Board reviews and agrees policies for managing each of these risks, which are summarised below. These policies have remained unchanged since the beginning of the accounting period.

MARKET PRICE RISK

Interest rate risk

The Company finances its operations through share capital raised. In addition, the Company has gearing through the use of derivative instruments. The Board imposes limits to ensure gearing levels are appropriate. The Company is exposed to a financial risk arising as a result of any increases in interest rates associated with the funding of the derivative instruments.

Interest rate risk exposure

The analysis below shows the value of the Company's financial instruments that are exposed to movements in interest rates.

2013	2012
£'000	£'000
Exposure to fi nancial instruments that bear interest
Long CFDs exposure less fair value 116,416	30,058
Exposure to fi nancial instruments that earn interest
Short CFDs exposure 25,867	22,839
Cash at bank 25,715	8,451
Amounts held at futures clearing houses and brokers –	1,236
51,582	32,526
Net exposure to fi nancial instruments that bear/(earn) interest 64,834	(2,468)

17 FINANCIAL INSTRUMENTS continued

Foreign currency risk

The Company's net return on ordinary activities and net assets can be affected by foreign exchange movements because the Company has income and assets which are denominated in currencies other than the Company's base currency which is UK sterling.

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

• Movements in exchange rates affecting the value of investments and derivative instruments;
• Movements in exchange rates affecting short term timing differences; and
• Movements in exchange rates affecting the income received.

The Company does not carry out currency speculation. However, investments can be made in stocks denominated in overseas currencies and the Portfolio Manager can reduce currency exposure through the use of CFDs.

The Company might also be subject to short term exposure from exchange rate movements, for example, between the date when an investment is bought or sold and the date when settlement of the transaction occurs. Income denominated in foreign currencies is converted to UK sterling on receipt.

Currency exposure of financial assets

The Company's financial assets comprise equity investments at fair value, the fair value of the underlying securities within long CFDs, short term debtors and cash. The currency profile of these financial assets is shown below.

			2013
currency	investments designated at fair value through profi t or loss	exposure to long CFDs	short term debtors	cash*	total
	£'000	£'000	£'000	£'000	£'000
Euro	1,977	54,795	11	–	56,783
UK sterling	393,039	81,437	2,421	25,712	502,609
US dollar	25,968	–	–	3	25,971
Other currencies	3,403	10,460	83	–	13,946
	424,387	146,692	2,515	25,715	599,309

* Cash consists entirely of cash at bank

			2012
currency	investments designated at fair value through profi t or loss	exposure to long CFDs	short term debtors	cash*	total
	£'000	£'000	£'000	£'000	£'000
Euro	1,755	29,006	–	9	30,770
UK sterling	301,757	–	5,203	9,641	316,601
US dollar	14,716	–	–	37	14,753
Other currencies	8,390	2,788	44	–	11,222
	326,618	31,794	5,247	9,687	373,346

* Cash includes cash at bank and amounts held at futures clearing houses and brokers

17 FINANCIAL INSTRUMENTS continued

Currency exposure of financial liabilities

The Company's financial liabilities comprise the fair value of the securities underlying the short CFDs and its other short term creditors. The currency profile of these financial liabilities is shown below.

		2013
	exposure to short CFDs £'000	short term creditors £'000	total £'000
Euro	10,947	3	10,950
UK sterling	13,757	3,621	17,378
Other currencies	1,163	2	1,165
	25,867	3,626	29,493

	exposure to short CFDs £'000	2012 short term creditors £'000	total £'000
Euro	4,093	9	4,102
UK sterling	13,017	1,641	14,658
US dollar	2,924	2	2,926
Other currencies	2,805	–	2,805
	22,839	1,652	24,491

Other price risk

Other price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements and changes in exchange rates. The 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 Manager is responsible for actively monitoring the existing portfolio selected in accordance with the overall asset allocation parameters described above and seeks to ensure that individual stocks also meet an acceptable risk/reward profile. Other price risks arising from derivative positions, mainly due to the underlying exposures, are estimated using Value at Risk and Stress Tests as set out in the Company's Derivative Risk Measurement and Management Document.

LIQUIDITY RISK

The Company's assets comprise readily realisable securities, which can be sold easily to meet funding commitments if necessary. Short term flexibility is achieved by the use of bank overdraft facilities as required.

COUNTERPARTY RISK

Certain of the 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 Dealers Association's ("ISDA") market standard derivative legal documentation. As a result the Company is subject to the risk that a counterparty may not perform its obligations under the related contracts.

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 which 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 through adopting a counterparty risk framework which measures, monitors and manages counterparty risk through the use of internal and external credit agency ratings and evaluates financial derivative instrument credit risk exposure.

17 FINANCIAL INSTRUMENTS continued

For Over The Counter ("OTC") derivative transactions collateral is used to reduce the credit risk exposure for both parties to the transaction. Collateral is managed and monitored on a daily basis for all relevant transactions and collateral received from the derivative counterparty will be held in a designated account. At 31 August 2013, £10,000 was received from the derivative counterparty (2012: £1,236,000 was held by the derivative counterparty).

CREDIT RISK

Investments 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 a large number of brokers and are settled on a delivery versus payment basis and limits are set on the amount that may be due from any one broker. All security transactions are through brokers that have been approved as an acceptable counterparty. This is reviewed on an ongoing basis. At the year end, the exposure to credit risk includes cash at bank, outstanding securities transactions and derivative instruments at fair value.

DERIVATIVE INSTRUMENTS RISK

The risks and risk management processes which result from the use of derivative instruments, are set out in a documented "Derivative Risk Measurement and Management Document", details of which can be seen in the other risk categories disclosed on pages 44 to 49.

As set out in a documented Derivative Instrument Charter, the derivative instruments are used by the Manager for the following purposes:

• To gain unfunded long exposure to equity markets, sectors or single stocks. "Unfunded" exposure is exposure gained without an initial flow of capital;
• To hedge equity market risk via derivatives with the intention of at least partially mitigating losses in the exposures of the Company's portfolio as a result of falls in the equity market;
• To enhance portfolio total return by writing short call options ("covered call writing") and the selected use of other option strategies; and
• To position "short" exposures in the Company's portfolio. These uncovered exposures benefit from falls in the prices of shares which the Portfolio Manager believes to be over valued. These positions, therefore, distinguish themselves from other short exposures held for hedging purposes since they are expected to add risk to the portfolio.

The risk and performance contribution of these instruments to the Company's portfolio is overseen by a specialist derivatives team which draws on over forty years of specialist experience in derivative risk management. This team uses sophisticated portfolio risk assessment tools to advise the Portfolio Manager on portfolio construction. Derivative positions are subject to daily monitoring.

RISK SENSITIVITY ANALYSIS

Interest rate risk sensitivity analysis

At 31 August 2013, if interest rates would have increased by 0.5% the Company's net return on ordinary activities and net assets would have decreased by £324,000 (2012: increased by £12,000). A decrease in the interest rates by 0.5% would have had an equal but opposite effect.

Foreign currency risk sensitivity analysis

At 31 August 2013, if UK sterling had strengthened by 10% against the foreign currency exposures, with all other variables held constant, the Company's net return on ordinary activities and net assets would have decreased by £7,690,000 (2012: £4,317,000). If UK sterling had weakened by 10% against the foreign currency exposures, with all other variables held constant, the Company's net return on ordinary activities and net assets would have increased by £9,398,000 (2012: £5,277,000).

Other price risk sensitivity analysis

Changes in market prices, other than those arising from interest rate risk or foreign currency risk, may also affect the value of the Company's net assets. Details of how the Board sets risk parameters and performance objectives can be found on pages 17 and 18 of the Directors' Report.

An increase of 10% in the fair value of the investments at 31 August 2013 would have increased the Company's net return on ordinary activities and net assets by £42,439,000 (2012: £32,662,000). A decrease of 10% in the fair value of investments would have had an equal but opposite effect.

17 FINANCIAL INSTRUMENTS continued

Derivative instruments exposure risk sensitivity analysis – CFDs

The Company contracts in CFDs to gain long and short exposure to the share prices of individual companies. A 10% rise in the price of securities underlying the CFDs at 31 August 2013 would have resulted in an increase of £12,083,000 (2012: £896,000) in the Company's net return on ordinary activities and net assets. A fall of 10% would have had an equal but opposite effect.

For details of the Company's exposure to derivative instruments see Note 9 on page 42.

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

As explained in Notes 1(g) and 1(h) on pages 35 and 36; investments are shown at fair value which is bid or last market price, futures and options at quoted trade prices for the contract and CFDs and equity forwards at the difference between the strike price and the bid or last market price of the shares in the security that underlies the contract. Financial assets and liabilities are stated in the Balance Sheet at values which are not materially different to their fair values. In the case of cash, book value approximates to fair value due to the short maturity of the instruments.

FAIR VALUE HIERARCHY

Under FRS 29, financial companies are required to disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.

Classification	Input
Level 1	Valued using quoted prices in active markets for identical assets
Level 2	Valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1

Level 3 Valued by reference to valuation techniques using inputs that are not based on observable market data

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.

The valuation techniques used by the Company are explained in Notes 1(g) and 1(h) on pages 35 and 36. The tables below and on page 49 sets out movements in the Company's fair value hierarchy:

	2013
	level 1 quoted	level 2 derivative	level 3 unquoted
	investments	instruments	investments	total
	£'000	£'000	£'000	£'000
Fair value of fi nancial instruments
at the beginning of the year	325,797	(1,276)	821	325,342
Purchases of investments at cost	373,873	–	–	373,873
Sales of investments – proceeds	(396,979)	–	–	(396,979)
Sales of investments – realised gains	30,004	–	–	30,004
Transfers from level 1 to level 3	(44)	–	44	–
Derivative positions closed – payments	–	12,098	–	12,098
Derivative positions closed – realised losses	–	(12,098)	–	(12,098)
Movement in investment holding gains in the year	90,871	30,745	–	121,616
Fair value of fi nancial instruments at the end of the year	423,522	29,469	865	453,856

17 FINANCIAL INSTRUMENTS continued

	2012
	level 1	level 2	level 3
	quoted	derivative	unquoted
	investments £'000	instruments £'000	investments £'000	total £'000
Fair value of fi nancial instruments at the beginning of the year	301,520	(3,328)	411	298,603
Purchases of investments at cost	148,558	–	84	148,642
Sales of investments – proceeds	(159,412)	–	–	(159,412)
Sales of investments – realised losses	(7,710)	–	–	(7,710)
Derivative positions closed – payments	–	1,459	–	1,459
Derivative positions closed – realised losses	–	(600)	–	(600)
Movement in investment holding gains in the year	42,841	1,193	326	44,360
Fair value of fi nancial instruments at the end of the year	325,797	(1,276)	821	325,342

18 CAPITAL MANAGEMENT

The Company does not have any externally imposed capital requirements. The capital of the Company comprises its gearing, which is managed by the use of long CFDs, and its issued share capital and reserves as disclosed in the Balance Sheet on page 32. It is managed in accordance with the Company's investment policy in pursuit of its investment objective, both of which are detailed on pages 15 and 16 of the Board's policies and the Directors' Report. The principal risks and their management are disclosed in the Directors' Report on pages 17 and 18 and in Note 17 above.

19 CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS

There were no contingent liabilities or capital commitments as at 31 August 2013 (2012: none).

20 RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE INVESTMENT MANAGER

The Directors have complied with the provisions of Financial Reporting Standard 8 "Related Party Disclosures", which require disclosure of related party transactions and balances. FIL Investments International is the Manager and Secretary of the Company and details of the services provided and fees paid are given in the Directors' Report on page 20. Fees paid to the Directors are disclosed in the Directors' Remuneration Report on page 29.

Notice is hereby given that the Annual General Meeting of Fidelity Special Values PLC will be held at 25 Cannon Street, London EC4M 5TA on 12 December 2013 at 11.30 am for the following purposes:

ORDINARY BUSINESS

• 1. To receive and adopt the Directors' Report and Financial Statements for the year ended 31 August 2013.
• 1. To approve a final dividend.
• 1. To re-elect Ms Lynn Ruddick as a Director.
• 1. To re-elect Mr Ben Thomson as a Director.
• 1. To re-elect Mrs Sharon Brown as a Director.
• 1. To re-elect Mr Douglas Kinloch Anderson as a Director.
• 1. To re-elect Mr Andrew Irvine as a Director.
• 1. To re-elect Ms Nicky McCabe as a Director.
• 1. To approve the Directors' Remuneration Report for the year ended 31 August 2013.
• 1. To reappoint Grant Thornton UK 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.
• 1. To authorise the Directors to determine the Auditor's remuneration.

SPECIAL BUSINESS

(a) Authority to allot shares and disapplication of pre-emption rights

Resolutions 12 and 13 will, if approved, authorise the Directors to allot a limited number of the currently unissued 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 in issue on 4 November 2013. 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 shares held in Treasury would only be re-issued at NAV per share or at a premium to NAV per share. This would ensure that the net effect of repurchasing and then re-issuing the ordinary shares would enhance NAV per share.

To consider and, if thought fit, to pass the following Resolutions of which Resolution 12 will be proposed as an ordinary resolution and Resolution 13 as a special resolution:

1. 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 relevant securities (as defined in that section) up to an aggregate nominal amount of £1,353,222 (approximately 10% of the aggregate nominal amount of the issued share capital of the Company as at 4 November 2013) and so that the Directors may impose any limits or restrictions and make any arrangements which it considers 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 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 expired.

2. 1. THAT, subject to the passing of Resolution 12 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:
3. a) to the allotment of equity securities in connection with a rights issue in favour of all holders of a class of relevant equity securities where the equity securities attributable respectively to the interests of all holders of securities of such class are either proportionate (as nearly as may be) to the respective numbers of relevant equity securities held by them or are otherwise allotted in accordance with the rights attaching to such equity securities (subject in either case to such exclusions or other arrangements as the Board may deem necessary or expedient in relation to fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, or the requirements of, any regulatory body or any stock exchange in any territory or otherwise);
4. b) to the allotment (otherwise than pursuant to a rights issue) of equity securities or sale of Treasury shares up to an aggregate nominal amount of £1,353,222 (approximately 10% of the aggregate nominal amount of the issued share capital of the Company as at 4 November 2013); and
5. c) in either case, 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 net asset value per share

and this power shall expire at the conclusion of the next Annual General Meeting 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.

(b) 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) on 4 November 2013 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 relevant legislation by subsequently selling the shares for cash or cancelling the shares. Purchases of ordinary shares will be at the discretion of the Board and within guidelines set from time to time by the Board in the light of prevailing market conditions. Purchases will only be made in the market at prices below the prevailing net asset value per share, thereby resulting in an increased net asset value per share.

• 1. THAT the Company be and is hereby generally and unconditionally authorised in accordance with Section 701 of the Companies Act 2006 (the "Act") to make market purchases (within the meaning of Section 693 of the Act) of ordinary shares of 25p each in the capital of the Company (the "shares") provided that:
• a) the maximum number of shares hereby authorised to be purchased shall be 8,113,921;
• b) the minimum price which may be paid for a share is 25p;
• c) the maximum price which may be paid for a share is an amount equal to 105% of the average of the middle market quotations for a share taken from the London Stock Exchange Official List for the five business days immediately preceding the day on which the share is contracted to be purchased;
• d) the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company unless such authority is renewed prior to such time; and
• e) the Company may make a contract to purchase shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiration of such authority and may make a purchase of shares pursuant to any such contract.

(c) Amend Articles of Association

Resolution 15 is a special resolution which, if approved, will amend the Company's Articles of Association to include provisions and clauses for the use of Treasury shares.

1. THAT the Articles of Association be amended and the subsequent revised Articles of Association of the Company, produced to the meeting and initialled by the Chairman of the meeting for the purposes of identification, be adopted in substitution for, and to the exclusion of, the existing Articles of Association.

Resolution 16 is an ordinary resolution, which relates to the continuation of the Company as an investment trust.

1. THAT the Company continue to carry on business as an investment trust.

By order of the Board FIL Investments International Secretary 4 November 2013

Registered office: Beech Gate Millfield Lane Lower Kingswood Tadworth Surrey KT20 6RP

Notes

• 1. A member of the Company entitled to attend and vote at the Annual General Meeting may appoint a proxy or proxies to attend and to speak and vote instead of him. A member may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member. A proxy need not be a member of the Company.
• 1. A Form of Proxy is enclosed and must be returned to the Registrars at the address on the form to arrive not later than 11.30 am on 10 December 2013. Completion and return of the Form of Proxy will not prevent a Shareholder from subsequently attending the meeting and voting in person if they so wish.
• 1. To be effective, the instrument appointing a proxy, and any power of attorney or other authority under which it is signed (or a copy of any such authority certified notarially or in some other way approved by the Directors), must be deposited with the Company's Registrars, Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU not less than 48 hours before the time for holding the meeting or adjourned meeting or, in the case of a poll taken more than 48 hours after it is demanded, not less than 24 hours before the time appointed for the taking of the poll at which it is to be used.
• 1. In the case of joint holders, the vote of the first person who appears on the Register of members be accepted to the exclusion of the votes of the other joint holders.
• 1. To appoint a proxy or to give or amend an instruction to a previously appointed proxy via the CREST system, the CREST message must be received by the issuer's agent RA10 by 11.30 am on 10 December 2013. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer's agent is able to retrieve the message. After this time any change of 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)(a) of the Uncertificated Securities Regulations 2001. In any case your Proxy Form must be received by the Company's Registrars no later than 11.30 am on 10 December 2013.
• 1. All members are entitled to attend and vote at the Annual General Meeting and ask questions. The right to vote at the meeting will be determined by reference to the Register of Members as at 6.00 pm on 10 December 2013.
• 1. Any person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated Person") may, under an agreement between him and the member by whom he was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he may, under any such agreement, have a right to give instructions to the member as to the exercise of voting rights. The statement of the rights of members in relation to the appointment of proxies in paragraph 1 above does not apply to Nominated Persons. The right described in that paragraph can only be exercised by members of the Company.
• 1. If the Chairman, as a result of any proxy appointments, is given discretion as to how the votes which are the subject of those proxies are cast and the voting rights in respect of those discretionary proxies, when added to the interests in the Company's securities already held by the Chairman, result in the Chairman holding such number of voting rights that she has a notifiable obligation under the Disclosure and Transparency Rules, the Chairman will make the necessary notifications to the Company and the Financial Conduct Authority. As a result, any member holding 3% or more of 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.
• 1. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the Company has specified that to be entitled to attend and vote at the Annual General Meeting (and for the purpose of determining the number of votes they may cast), members must be entered on the Register of Members by 6.00 pm on 10 December 2013. If the meeting is adjourned then, to be so entitled, members must be entered on the Register of Members at 6.00 pm 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.
• 1. As at 4 November 2013 (the latest practicable date prior to the publication of this document) the Company's issued ordinary share capital consisted of 54,128,896 ordinary shares carrying one vote each. Therefore, the total number of voting rights in the Company as at 4 November 2013 was 54,128,896.
• 1. 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.
• 1. Shareholders and any proxies or representatives they appoint understand that by attending the meeting that they are expressly agreeing that they are willing to receive any communications, including communications relating to the Company's securities, made at the meeting.
• 1. 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 are to be laid before the Annual General Meeting or any circumstance connected with an Auditor of the Company ceasing to hold office since the previous meeting at which annual reports and financial statements were laid. The business which may be dealt with at the Annual General Meeting includes any statement that the Company has been required under Section 527 of the Companies Act 2006 to publish on its website.
• 1. Under Sections 338 and 338A of the Companies Act 2006, members meeting the threshold requirements in those sections have the right to require the Company (i) to give, to members of the Company entitled to receive notice of the meeting, notice of a resolution which may properly be moved and is intended to be moved at the meeting; and/or (ii) to include in the business to be dealt with at the meeting any matter (other than a proposed resolution) which may be properly included in such business. A resolution may properly be moved or a matter may properly be included in the business of the meeting unless (a) (in the case of a resolution only) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the Company's constitution or otherwise), (b) it is defamatory of any person, or (c) it is frivolous or vexatious. Such a request may be in hard copy form or in electronic form, must identify the resolution of which notice is to be given or the matter to be included in the business of the meeting, must be authorised by the person or persons making it, must be received by the Company not later than 30 October 2013, being the date six clear weeks before the meeting, and (in the case of a matter to be included in the business of the meeting only) must be accompanied by a statement setting out the grounds for the request.
• 1. No Director has a service contract with the Company.
• 1. 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/its

Registered office: Beech Gate Millfield Lane Lower Kingswood Tadworth Surrey KT20 6RP

Investing in Fidelity Special Values PLC

The Manager of the Company – FIL Investments International – offers a range of options, so that you can invest in the way that is best for you. As Fidelity Special Values PLC is a company listed on the London Stock Exchange you can also buy its shares through a stockbroker, share shop or bank.

INVESTING INSIDE AN ISA

You may invest in the Company's shares through the Fidelity ISA ("Individual Savings Account"). A Fidelity ISA can be an excellent way to get more from your investment, because you will not have to pay income or capital gains tax on your returns.

The maximum investment in a stocks and shares ISA is £11,520 for the 2013/2014 tax year. The full amount may be invested in a Stocks and Shares ISA, or you can invest up to half the ISA allowance in a Cash ISA and the balance in a Stocks and Shares ISA. The minimum initial investment in the Fidelity ISA is £1,000 as a lump sum, £250 as a top-up or £50 a month per company in a regular savings plan.

Charges – Initial charges in the Fidelity ISA may vary. For those investing personally (directly with Fidelity), there will be no initial charge. Those investing through an intermediary will pay a basic initial charge of 0.5% plus any initial fee or commission (where applicable) agreed with their intermediary. Fidelity pays stamp duty from the initial charge. There are no other charges for the Fidelity ISA, but the Company pays an annual management charge to Fidelity of 0.875% as set out in the Annual Report.

MOVING MONEY FROM A PREVIOUS ISA

If you have opened ISAs with other investment companies, you can move them into the Fidelity ISA and invest in Fidelity Special Values PLC without losing any tax benefits. This is known as an ISA transfer and it can be a great way to give your portfolio a new focus, or to realign it with your current investment goals. Please note that during the transfer your money will not be invested in the stock market so you may miss out on any growth during this time.

Charges – Fidelity does not apply an initial charge for a transfer into Fidelity Special Values PLC. You will also not have to pay any additional transfer costs. However, please bear in mind that your current ISA manager may ask you to pay an exit fee. If your old fund provider charges you a fee for leaving them, you can claim it back from Fidelity. Please note this offer does not apply to Fidelity's share dealing service.

INVESTING OUTSIDE AN ISA

If you prefer to invest outside an ISA, or have already used your full ISA allowance, the Fidelity Investment Trust Share Plan offers you a low-cost and convenient way to put money into Fidelity Special Values PLC. The minimum investment is £1,000 as a lump sum, £250 as a top-up or £50 a month through a regular savings plan. Holding shares within the Share Plan allows you to reinvest your dividends and make further investments without having to pay brokerage fees. You will also be able to set up a monthly savings plan and receive statements and valuations twice a year.

Investing for children – the Share Plan is a flexible and inexpensive way to invest on behalf of children. All you need to do is enter the initials or name of the child in the Designation Box on the Share Plan application form.

Charges – There are no charges for buying, selling or holding shares through the Fidelity Investment Trust Share Plan other than stamp duty of 0.5%, which is currently payable on all share purchases. However, if you invest through a Financial Adviser, there may be additional fees of up to 3%.

BENEFICIAL OWNERS OF SHARES – INFORMATION RIGHTS

Registered Shareholders of fully listed companies are able to nominate the underlying beneficial owners of their shares to receive information rights. You should contact your registered Shareholder direct to request to receive information rights. Please note that beneficial owners of shares who have been nominated by the registered holder of those shares to receive information rights under Section 146 of the Companies Act 2006 are required to direct all communications to the registered holder of their shares rather than to the Company's Registrars, Capita Asset Services, or to the Company direct.

INVESTING ONLINE

Whilst you cannot use a Debit Card online to invest through an ISA, JISA or a Share Plan, the application forms you need are all available via www.fidelity.co.uk/its. You can also invest online in Fidelity Special Values PLC shares via the share trading facility available via our website www.fidelity.co.uk/sharenetwork. The Share Dealing service, ShareNetwork, is provided by Xest which is the online trading division of Charles Stanley & Co Limited, a leading London stockbroker. ShareNetwork enables you to buy or sell shares in any listed company during normal London Stock Exchange trading hours – between 8 am and 4.30 pm on any working day. Shares in ShareNetwork can either be held inside or outside of an ISA, subject to the normal ISA limits and restrictions. You will be shown a live price and be able to buy or sell immediately. If an order is placed when the market is closed, it will be processed as soon as the market reopens. Unlike many online share dealing services, Fidelity ShareNetwork gives you CREST personal membership for shares held directly. This means that shares are registered on the CREST system in your own name and everything relating to your shares – dividends, annual reports and so on – will be sent direct to you and you will be able to attend and vote at Shareholder meetings in your own name.

Personal CREST membership does not apply to ISA holdings which must be held in the name of the ISA manager's nominee under ISA regulations. There is no extra charge for opening a ShareNetwork ISA and share purchases or sales are executed on line for only £9 per trade (Stamp duty is also payable on purchases at the rate of 0.5%). There is an account administration fee of £5.10 per month, regardless of how many different shares you own and whatever their value. Of course, you need to remember that the value of tax savings and eligibility to invest in an ISA will depend on your individual circumstances, and all tax rules may change in the future.

Investing in Fidelity Special Values PLC

FURTHER INFORMATION

For application forms or more information about any of the investment options described here, please call the Fidelity Investment Trust Line on 0800 41 41 10 and talk to a Fidelity customer representative (9 am to 6 pm) Monday to Saturday.

Alternatively, you may like to visit the Fidelity London Investor Centre at 25 Cannon Street, London EC4M 5TA, near St Paul's Cathedral.

You can also find out more by visiting fidelity.co.uk/its or contacting your Financial Adviser.

The Fidelity Individual Savings Account ("ISA") and Junior ISA are offered and managed by Financial Administration Services Limited.

The Fidelity Investment Trust Share Plan is managed by FIL Investments International. Both companies are authorised and regulated by the Financial Conduct Authority.

The Fidelity Investment Trust Share Plan is administered by Bank of New York Mellon and shares will be held in the name of The Bank of New York Nominees Limited.

The value of savings and eligibility to invest in an ISA will depend on individual circumstances and all tax rules may change in the future. Fidelity investment trusts are managed by FIL Investments International. Fidelity only gives information about its own products and services and does not provide investment advice based on individual circumstances. Should you wish to seek advice, please contact a Financial Adviser.

Please note that the value of investments and the income from them may fall as well as rise and the investor may not get back the amount originally invested. Past performance is not a guide to future returns. For funds that invest in overseas markets, changes in currency exchange rates may affect the value of your investment. Investing in small and emerging markets can be more volatile than other more developed markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Investors should also note that the views expressed may no longer be current and may already have been acted upon by Fidelity.

Issued by Fidelity Special Values PLC.

Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and the symbol are trademarks of FIL Limited.

The contents of websites referred to in this document do not form part of the Annual Report.

Shareholder Information

CONTACT INFORMATION

New Investors

Private investors: call free to 0800 41 41 10, 9 am to 6 pm, Monday to Saturday.

Financial advisers: call free to 0800 41 41 81, 8 am to 6 pm, Monday to Friday. www.fidelity.co.uk/its

Existing Shareholders

Existing Shareholders who have a specific query regarding their holding or need to provide updated information, for example a change of address, should contact the appropriate administrator:

Holders of ordinary shares

Capita Asset Services, Registrars to Fidelity Special Values PLC, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. Telephone: 0871 664 0300 (calls cost 10p per minute plus network extras. Lines are open 8.30 am to 5.30 pm Monday to Friday) email: ssd@capitaregistrars.com

Details of individual shareholdings and other information can also be obtained from the Registrars' website: www.capitaregistrars.com

Fidelity Share Plan investors

Fidelity Investment Trust Share Plan, PO Box 12062, Mellon House, Ingrave Road, Brentwood, Essex CM14 9LX. Telephone: 0845 358 1107 (calls to this number are charged at 3.95p per minute from a BT landline. Other telephone service providers' costs may vary).

Fidelity ISA investors

Fidelity, using the freephone numbers given above, or by writing to: UK Customer Service, Fidelity Worldwide Investment, Oakhill House, 130 Tonbridge Road, Hildenborough, Tonbridge, Kent TN11 9DZ.

General enquiries should be made to Fidelity, the Investment Manager and Secretary, at the Company's registered office: FIL Investments International, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. Telephone: 01732 361 144 Fax: 01737 836 892 www.fidelity.co.uk/its

ONLINE SHAREHOLDER SERVICES – SHARE PORTAL

Through the website of our Registrars, Capita Asset Services, Shareholders are able to manage their shareholding online by registering for the Share Portal, a free, secure, online access to your shareholding. Facilities include:

Account Enquiry – Allows Shareholders to access their personal shareholding, including share transaction history, dividend payment history and to obtain an up-to-date shareholding valuation.

Amendment of Standing Data – Allows Shareholders to change their registered postal address and add, change or delete dividend mandate instructions. Shareholders can also download from this site forms such as change of address, stock transfer and dividend mandate forms as well as buy and sell shares in the Company. To make use of any of these facilities, please log on to the Capita Asset Services website at: www.capitashareportal.com

Should you have any queries in respect of the above facilities, please do not hesitate to contact the Capita Share Portal helpline on 0871 664 0391 (calls cost 10p plus network extras), overseas +44 20 8639 3367, or by e-mail at: shareportal@capita.co.uk

Capita Share Dealing Services

You can make use of a low cost share dealing service provided by Capita Asset Services to buy or sell shares. Further information is available at www.capitadeal.com, or by telephoning 0871 664 0454 (calls cost 10p per minute plus network extras. Lines are open 8.30 am to 5.30 pm Monday to Friday). Using Capita Share Dealing Services you will also be able to deal in the shares of other companies for which Capita acts as Registrar, provided you are already a Shareholder in the relevant company, and that company offers the Share Deal facility to its Shareholders.

Dividend Reinvestment Plan

This is a convenient way to build up your shareholding by using your cash dividends to buy more shares in the Company. If you prefer to receive shares for your next dividend instead of cash please complete an application form online at www.capitashareportal.com or call Capita IRG Trustees on 0871 664 0381 (calls cost 10p per minute plus network extras) from the UK or +44 20 8639 3402 from overseas.

ShareGift

You may donate your shares to charity free of charge through ShareGift. Further details are available at www.sharegift.org.uk or by telephoning 020 7930 3737.

KEEPING YOU UPDATED

If you hold Fidelity Special Values PLC shares in an ISA, you will receive a yearly report detailing all of your transactions and the value of your shares. Investors with the Fidelity Investment Trust Share Plan will receive statements and valuations twice a year.

The share price of Fidelity Special Values PLC appears daily in The Financial Times. Price and performance information is also available at fidelity.co.uk/its. You can also obtain current price information by telephoning Fidelity on 0800 41 41 10 (freephone) 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).

Shareholder Information

MANAGER AND ADVISORS

Manager, Secretary and Registered Office

FIL Investments International Beech Gate Millfield Lane Lower Kingswood Tadworth Surrey KT20 6RP

Independent Auditor

Grant Thornton UK LLP Chartered Accountants and Registered Auditor 30 Finsbury Square London EC2P 2YU

Lawyers

Dickson Minto W.S. Broadgate Tower 20 Primrose Street London EC2A 2EW

Banker and Custodian

JPMorgan Chase Bank (London Branch) 125 London Wall London EC2Y 5AJ

Financial Adviser and Stockbroker

Cenkos Securities plc 6,7,8 Tokenhouse Yard London EC2R 7AS

Registrars

Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU

COMPANY INFORMATION

The Company was launched on 17 November 1994. The original subscription price for each share was £1.

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 mid-market price of the ordinary shares is published daily in the Financial Times under the heading "Investment Companies". The ordinary share price is also published in the Times, The Daily Telegraph and The Independent. You can also obtain current price information by telephoning Fidelity on 0800 41 41 10 (freephone) 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 Special Values PLC is FSV.L.

NAV INFORMATION

The net asset value of the Company is calculated on a daily basis and released to the London Stock Exchange.

CAPITAL GAINS TAX

Your Directors have been advised that, for the purposes of calculating an investor's possible liability to capital gains tax ("CGT"), the base cost of ordinary shares and warrants, acquired at the time of the Company's launch, is 94.95p. All UK individuals under present legislation are permitted to have £10,900 of capital gains in the current tax year 2013/2014 (2012/2013: £10,600) before being liable for capital gains tax. CGT is charged at 18% and 28% dependent on the total amount of an individual's total taxable income.

The Company is a member of the Association of Investment Companies

Warning to Shareholders

SHARE FRAUD WARNING

Share fraud includes scams where investors are called out of the blue and offered shares that often turn out to be worthless or non-existent, or an inflated price for shares they own. These calls come from fraudsters operating in 'boiler rooms' that are mostly based abroad.

While high profits are promised, those who buy or sell shares in this way usually lose their money.

The Financial Conduct Authority (FCA) has found most share fraud victims are experienced investors who lose an average of £20,000, with around £200m lost in the UK each year.

PROTECT YOURSELF

If you are offered unsolicited investment advice, discounted shares, a premium price for shares you own, or free company or research reports, you should take these steps before handing over any money:

• 1. Get the name of the person and organisation contacting you.
• 1. Check the FCA Register at www.fca.org.uk/register to ensure they are authorised.
• 1. Use the details on the FCA Register to contact the firm.
• 1. Call the FCA Consumer Helpline on 0800 111 6768 if there are no contact details on the Register or you are told they are out of date.
• 1. Search the FCA's website list of unauthorised firms and individuals to avoid doing business with.

6. REMEMBER: if it sounds too good to be true, it probably is!

If you use an unauthorised firm to buy or sell shares or other investments, you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.

REPORT A SCAM

If you are approached about a share scam you should tell the FCA using the share fraud reporting form at www.fca.org.uk/scams, where you can find out about the latest investment scams. You can also call the Consumer Helpline on 0800 111 6768.

If you have already paid money to share fraudsters you should contact Action Fraud on

0300 123 2040

Glossary of Terms

BENCHMARK INDEX

FTSE All-Share Index against which the performance of the Company is measured.

CAPITAL GAINS TAX (CGT)

The tax which you may have to pay if you sell your shares at a profit.

COLLATERAL

Asset provided as security for the unrealised gain or loss under a Contract For Difference.

CONTRACT FOR DIFFERENCE (CFD)

A Contract For Difference is a derivative. It is a contract between the Company and an investment house at the end of which the parties exchange the difference between the opening price and the closing price of the underlying asset of the specified financial instrument. It does not involve the Company buying or selling the underlying asset, only agreeing to receive or pay the movement in its share price. A Contract For Difference allows the Company to gain access to the movement in the share price by depositing a small amount of cash known as margin. The Company may reason that the asset price will rise, by buying ("long" position) or fall, by selling ("short" position). If the Company trades long, dividends are paid to the Company and interest is paid by the Company. If the Company trades short, dividends are paid by the Company and interest is paid to the Company.

CORPORATION TAX

The tax the Company may have to pay on its profits for a year. Investment trust companies are exempt from corporation tax on their capital gains and do not pay tax on any UK dividends. As they can offset expenses against any taxable income, most investment trusts do not pay corporation tax and are therefore tax efficient for the Company.

DERIVATIVES

Financial instruments (such as futures, options and Contracts For Difference) whose value is derived from the value of an underlying asset.

DISCOUNT

If the share price of the Company is lower than the net asset value per share, the Company is said to be trading at a discount. The discount is shown as a percentage of the net asset value. The opposite of a discount is a premium.

EXPOSURE

The total of fixed asset of investments, futures and options at fair value plus the fair value of the underlying securities within the Contracts For Difference.

FAIR VALUE

The fair value is the best estimate of the value of the investments, including derivatives, at a point in time and this is measured as:

• Listed and AIM quoted investments valued at bid prices, or last market prices, where available otherwise at published price quotations;
• Unlisted investments valued using an appropriate valuation technique in the absence of an active market;
• Options valued at the quoted trade price for the contract; and
• Contracts For Difference valued as the difference between the settlement price and the value of the underlying shares in the contract (unrealised gains or losses).

FUTURE OR FUTURE CONTRACT

An agreement to buy or sell a fixed amount of an asset at a fixed future date and a fixed price.

GEARING

Gearing describes the level of the Company's exposure and is expressed as a percentage of Shareholders' funds. It reflects the amount of exposure the Company uses to invest in the market. It can be obtained through the use of bank loans, bank overdrafts or derivatives, in order to increase the Company's exposure to investments. The Company uses two key measures of gearing:

• Gross gearing is the total of all long exposures, plus the total of all short exposures and less the total of all exposures hedging the portfolio, expressed as a percentage of Shareholders' funds.
• Net gearing is the total of all long exposures, less the total of all short exposures and less the total of all exposures hedging the portfolio, expressed as a percentage of Shareholders' funds.

GEARING RATIO

In a simple example, if a company has £100 million of net assets and £8 million of borrowings (either via bank loans or long Contracts For Difference) then the Shareholders' funds are 8% geared. Normally, the higher the gearing factor, the more sensitive an investment trust's shares will be to the movements up and down in the value of the investment portfolio.

HEDGING

A strategy aimed at minimising or eliminating the risk or loss through adverse movements, normally involving positions in two different markets, with one offsetting the other.

NET ASSET VALUE (NAV)

Net asset value is sometimes also described as "Shareholders' funds", and represents the total value of the Company's assets less the total value of its liabilities. For valuation purposes it is common to express the net asset value on a per share basis.

ONGOING CHARGES

Total expenses (excluding finance costs and taxation) incurred by the Company as a percentage of average net asset values.

Glossary of Terms

OPTIONS

An option is a contract which gives the right but not the obligation to buy or sell an underlying asset at a specific price on or before a specific date. Options (call or put) are used to gain or reduce exposure to the underlying asset on a conditional basis, for example, the purchase of a call option provides exposure to the upside potential of an underlying stock, with the downside risk being limited to the premium paid.

PRE-EMPTION RIGHTS

Section 561 of the Companies Act 2006 provides that a company offering a new issue of shares must first make an offer of these shares, on the same or more favourable terms, in proportion to the nominal value held by existing Shareholders. At each annual general meeting, the Board seeks Shareholder approval to disapply pre-emption right provisions, up to 10% of issued share capital.

PREMIUM

If the share price of the Company is higher than the net asset value per share, the Company is said to be trading at a premium. The premium is shown as a percentage of the net asset value. The opposite of a premium is a discount.

RETURN

The return generated in a given period from the investments:

• Revenue Return reflects the dividends and interest from investments and other income net of expenses, finance costs and taxation;
• Capital Return reflects the return on capital, excluding any revenue returns; and
• Total Return reflects the aggregate of capital and revenue returns in the period.

SHAREHOLDERS' FUNDS

Shareholders' funds are also described as "net asset value" and represent the total value of the Company's assets less the total value of its liabilities.

TOTAL RETURN PERFORMANCE

The return on the share price or net asset value per share taking into account the rise and fall of share prices and the dividends paid to Shareholders. Any dividends received by the Shareholder are assumed to have been reinvested in additional shares (for share price total return) or the Company's assets (for net asset value total return).

TREASURY SHARES

Ordinary shares of the Company that have been repurchased by the Company and not cancelled but held in Treasury. These shares do not pay dividends, have no voting rights and are excluded from the net asset value calculation.

Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and symbol are trademarks of FIL Limited

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