Annual Financial Report

FIDELITY JAPANESE VALUES PLC ANNUAL FINANCIAL REPORT, PROXY FORM AND ADDITIONAL DISCLOSURES TO THE PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2008 Further to the voluntary disclosure of the Company's annual results for the year ended 31 December 2008 by way of a preliminary announcement dated 16 March 2009, in accordance with the Disclosure and Transparency Rules ("the Rules") 4.1.3 and 6.3.5(2) this announcement contains the text of the preliminary announcement dated 16 March 2009 together with the additional text in compliance with the Rules. The Company's annual report and financial statements for the year ended 31 December 2008 together with the accompanying proxy form have been filed with the UK Listing Authority Document Disclosure team and will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility which is situated at: Financial Services Authority 25 The North Colonnade Canary Wharf London E14 5HS Tel: 020 7676 1000 (Documents will usually be available for inspection within six normal business hours of this notice being given). The annual report and financial statements will shortly be available on the Company's website at www.fidelity.co.uk/its Rebecca Burtonwood, FIL Investments International, Company Secretary - 01737 836 869 2 April 2009 FIDELITY JAPANESE VALUES PLC Preliminary Announcement of Results For the year ended 31 December 2008 Chairman's Statement For the year ended 31 December 2008 The Year's Results: NAV 53.58p (-19.6%) The Share Price and the Discount: Price: 41.75p (down 16.75p; -28.6%) Discount: 22.1% (12.3% in 2007) PERFORMANCE REVIEW The net asset value fell by 13.09p per share during 2008. This was a fall in absolute terms and also represented an underperformance relative to our Benchmark Index, the Russell Nomura Mid/Small Cap Index (when expressed in sterling). So what happened? The year can be split into two parts. Performance in the first half of 2008 was strong and your Company's shares outperformed its Benchmark Index as well as its peer group. However, after the summer renewed concerns about a global recession and the negative effect of yen appreciation on Japanese corporate earnings triggered a series of violent declines. In the second half of the review period, your Company's holdings in technology exporters and commodity-price-sensitive stocks severely undermined performance, both in absolute and relative terms and this more than removed the gains of the first half. For the year as a whole, as can be seen from the attribution analysis below, the fall in markets accounted for 25.15p of the decline in net asset value per share and stock selection by the Portfolio Manager a further 6.52p. However, the decline was partially offset by currency gains (+28.67p). Unfortunately the share price fell by a further 16.75p reflecting a widening of the discount to 22.1% due to lack of interest in Japanese smaller companies. Performance was further weakened by the effect of gearing (-8.83p) which had risen because of the decline in gross assets, although this was partly offset by the yen's appreciation against sterling. The Board's view is that over the longer term the portfolio will benefit from an eventual recovery in the stockmarket and therefore to reduce borrowings at a depressed level of the market is not in the long-term interests of shareholders. Attribution analysis Year ended 3 years to 31 December 2008 31 December 2008 (pence) (pence) Opening Net Asset Value 66.67 123.56 Impact of the Index (in yen terms) -25.15 -59.08 Impact of stock selection (in yen -6.52 -19.57 terms) Impact of exchange rate, cash and 28.67 29.80 residual Impact of gearing (in yen terms) -8.83 -16.83 Impact of share repurchasing 0.12 0.15 Impact of other costs -1.38 -4.45 Net Asset Value 53.58 53.58 MARKET REVIEW 2008 proved to be an extraordinary year and a very disappointing one for equity investors. The financial crisis that dawned in 2007 evolved into a truly global phenomenon, as shockwaves reverberated from its epicentre in the US across Western Europe, Asia and into emerging markets. In the autumn, the collapse of Lehman Brothers and the rejection of the US government's initial bailout plan marked a watershed that sent equity markets into freefall and unleashed unprecedented levels of volatility. While Japan was far less exposed to the leverage and asset market excesses that dominated Western economies, the synchronised global downturn that gathered pace towards the end of the year dealt a severe blow to its export-dependent economy. This situation was exacerbated by the yen's steep appreciation against both the US dollar and the euro. Industries that drove Japan's longest period of post-war growth were hardest hit, with auto and electrical machinery companies seeing a sharp drop in demand. By the end of the year, the Bank of Japan had cut its rate to a mere 0.1% and adopted a range of measures aimed at easing financing conditions. Although the government announced two stimulus plans, at the time of writing neither had yet been implemented. Over the year, Japanese small-cap stocks outperformed larger companies for the first time in three years, a trend that reflected investors' preference for domestic-oriented names over those exposed to the risks of global recession and a strong yen. GEARING The Company's loans with Royal Bank of Scotland are due for repayment this year and the extent to which these will be renewed is being kept under the most careful scrutiny. Cash has been lodged with the Bank to ensure that the Company's levels of net gearing remain within the loan covenants and further details of this are provided in the financial statements. Additional cash is also currently held by the Company to reduce the overall level of net gearing. THE BOARD Your Board continues to monitor corporate governance issues, reviewing and updating processes as appropriate. In accordance with the Listing Rules, Simon Fraser, following an evaluation of his performance by his fellow Directors and on their recommendation, will seek re-election at the forthcoming Annual General Meeting. Simon Fraser retired from his executive responsibilities at Fidelity in 2008, however he has agreed to continue his directorship of the Company. Simon retires and seeks re-election on an annual basis due to his recent employment relationship with the Manager and his directorship of another investment trust managed by Fidelity, namely Fidelity European Values PLC. Having been on the Board for more than nine years I will also retire and, following an evaluation of my performance by my fellow Directors and on their recommendation, I will seek re-election at the forthcoming Annual General Meeting. SHARE REPURCHASES Purchases of shares for cancellation are made at the discretion of your Board and within guidelines set from time to time by the Board in the light of prevailing market conditions. Share repurchases will only be made when they will result in an enhancement to the NAV for the remaining shareholders. In recent years share repurchases have been used sparingly due to their impact on liquidity and gearing. However, in the year to 31 December 2008 1,450,000 shares were repurchased. Your Board continues to believe that the ability to repurchase shares is a valuable tool and therefore a resolution to renew your Company's authority to repurchase shares will be proposed at the forthcoming Annual General Meeting. ANNUAL GENERAL MEETING - 14 MAY 2009 The Annual General Meeting will be held at midday on 14 May 2009 at Fidelity's offices at 25 Cannon Street in the City of London and all investors are encouraged to attend. It is the one occasion in the year when shareholders can meet all of the Directors as well as representatives from the Manager. Following the meeting the Portfolio Manager will give a presentation on the past year and the prospects for the current year. OUTLOOK At the time of writing, the downturn has already engulfed most of the developed and developing world and appears to be gathering momentum. Current share prices reflect the likelihood that corporate results are expected to deteriorate in coming months and the second half of the Japanese fiscal year of 2008 (ending 31 March 2009) is shaping up as one of the worst periods in Japan's post-war economic history. In fact, the International Monetary Fund recently issued a forecast which said that the Japanese economy would contract by 2.6% in 2009, a sharp downgrade from its previous estimate of a 0.2% decline. As we witnessed in the Japanese third-quarter results season (ending 31 December 2008), Japanese companies are coming to terms with an increasingly difficult operating environment and the balance of earnings revisions is likely to remain deeply negative for the time being. Announcements of rationalisation efforts, cost cutting and staff reductions are also set to continue. On a more positive note, global policy makers have responded to the crisis by releasing an unprecedented wave of fiscal and monetary policy easing. As the year progresses, these measures should start to take effect and we could start to see an improvement in sentiment as the crisis bottoms out. Stockmarkets will undoubtedly anticipate recovery, although it is too early to see specific pointers as to when this will take place. However, as the Manager's Review states, the immediate outlook remains uncertain and the future direction of share prices will be partly determined by the ultimate depth of the current crisis and its effect on corporate earnings. Small-cap stocks appear attractive both on an absolute basis and relative to their larger counterparts and it is possible that they will start recovering ahead of a wider rebound as was the case following a market bottom in 2003. William Thomson Chairman 16 March 2009 Manager's Review PERFORMANCE REVIEW The net asset value of the Company fell by 19.6% compared with a 4.4% gain in the Russell Nomura Mid/Small Cap Index (all figures in sterling terms). This review period was an extraordinary one as financial markets deteriorated in dramatic fashion amidst elevated levels of volatility that had not been seen for many years. What started as the deflation of a credit bubble in the Anglo-Saxon orientated economies quickly spread into a global financial crisis where the very stability of the capitalist banking system was seriously questioned. Whilst at the beginning of the review period some had argued that Japan and Asia could "decouple" from this process, the lack of credit available quickly exerted a meaningful effect on the real economy of all nations. Japan remains a very cyclically orientated economy and growth suffered accordingly. In this environment, Japanese equities suffered a series of sharp declines and by October had fallen to their lowest level since 1984. The broad market in Japan measured by the TOPIX fell by 41.8% in Japanese yen terms, but in sterling terms, it declined marginally by 0.8% and outperformed other developed markets. During the review period, the Japanese yen sharply appreciated against the sterling pound by 41.4%, which aided market returns in sterling terms. Small cap stocks underperformed their larger counterparts until October, but their performance gained momentum during the final two months of the year and ended the year outperforming the broad market. This mirrors investors' aversion to large cap stocks that are exposed to risks of a global economic cycle and currency losses, whereas small cap companies in general are more domestically oriented and somewhat insulated from the global economic downturn. Sector rotation within the small cap universe in 2008 was quite similar to that within the large cap space. Defensive sectors such as pharmaceutical and electric power & gas fared better, while cyclical sectors including transport equipment, nonferrous metals, precision machinery and mining fell sharply. PORTFOLIO REVIEW In the first half of the review period, your Company outperformed its Benchmark, the Russell/Nomura Mid Small Cap Index, and it was the best performing investment trust within its peer group. This was largely attributable to holdings in trading companies that benefited from strong commodity prices and in glass makers that produce glass components for LCD panels. However, the trend quickly reversed in the second half, as the global downturn started to deepen. The Company's relatively large exposure to cyclical stocks in the glass & ceramics, machinery, wholesale trade, and electrical machinery sectors - major contributors to the outperformance in the first half - became detractors in the second half of the review period. We subsequently reduced positions in cyclical stocks in the portfolio and put more emphasis on domestic companies that are less exposed to the global economic cycle. However, your Company's exposure to defensive stocks was not big enough to offset declines in cyclical stocks. Nippon Electric Glass (NEG) was the single largest detractor from the Company's relative returns over the year under review. Another major detractor in the glass & ceramics sector was Asahi Glass. Both NEG and Asahi Glass produce glass substrate for LCD panels. We believed that they would continue to benefit from the secular growth trend in the LCD market, as the flat panel TV market was growing rapidly and the average size of a TV panel was increasing. However, TFT-LCD panel and component prices started to decline after the summer as an economic slowdown in the US and other developed countries gathered pace. Although conditions are likely to remain tough in 2009, both companies remain in the portfolio's core holdings. They are trading at historically low valuations and we believe that their strong balance sheets should help them weather the current down cycle. In the machinery sector, a niche machinery maker, Produce, hurt performance. The Japanese SEC's investigation into the firm's accounting irregularities was followed by a declaration of bankruptcy. We sold out of the position in the firm before it was de-listed from the exchange in October. In the wholesale trade sector, holdings in trading companies Mitsui & Co and Mitsubishi Corp proved detrimental. Their share prices continued to fall in tandem with oil prices, as they have a large exposure to energy businesses. Despite the cyclical headwinds, we have maintained overweight positions in both Mitsui and Mitsubishi. Currently they are trading below their book value but our analysis suggests that there is significant room for re-rating. Elsewhere, overweight positions in technology exporters in the electrical machinery sector further detracted from relative returns. Both consumer electronics makers and component makers in the same value chain slashed their earnings projections by more than half due to slowing demand and a stronger yen. On a positive note, holdings in the domestic consumer sectors that are more insulated from the global downturn and a stronger yen achieved solid gains. Major contributors included a food container producer FP Corporation, an operator of internet portal sites Kakaku.Com and a revolving sushi restaurant chain Kappa Create. As the market environment became increasingly uncertain, we tried to strike a balance between exposure to attractively-valued companies that have not been derailed from their long-term growth path despite near term earnings disappointment and to companies with good short-term earnings visibility. During the second half of the review period, we reduced exposure to cyclical stocks. In the chemicals sector, there were risks of earnings downgrades by electronic material producers due to production cuts in LCD panels and semiconductors. We closed the position in Hitachi Chemical and trimmed weights in JSR and Daicel Chemicals. Concerns about earnings downgrades also prompted us to close the position in shipping company Kawasaki Kisen in the marine transportation sector. We also moved to underweight in technology exporters in the machinery and electrical appliance sectors while selectively maintaining overweight positions in undervalued, niche technology makers such as Hamamatsu Photonics, a precision machinery maker specialising in optical technology for sensors, measuring instruments and imaging processing, and Shinko Electric Industries, a major manufacturer of semiconductor flip chip packages. Conversely, we increased exposure to retailers and operators of restaurant chains whose earnings growth is relatively stable. A leader in the e-commerce market, Rakuten was added to the portfolio. While department stores and other traditional retailers struggle to grow sales, the e-commerce retailers are growing their shares in the retail market. At the end of the review period, the key overweight sectors included services, retail trade and foods. The largest underweights were land transportation, banks and electric appliances. OUTLOOK Any comments on the future course of the Japanese and world economies needs to be prefaced with a realisation that the current scale of global monetary and fiscal policy easing against the backdrop of massive de-leveraging places us in unchartered territory. However, we believe that upside catalysts will remain in short supply in the near term, as macro economic conditions are deteriorating rapidly and as the risk appetite of investors has diminished. It is possible we will see another wave of downward earnings revisions towards the end of the current fiscal year ending March 2009. However, our recent dialogues with Japanese companies suggest that some of them expect their earnings to hit bottom in the coming month as production and inventory adjustments pick up speed. In the past, it has been more difficult to justify stock valuations in Japan, particularly compared to similar stocks listed elsewhere in the world. Now, however, the Japanese price-to-book ratio seems to have gone a long way towards discounting the deteriorating macro economic fundamentals. It is also noteworthy that historically Japan has been one of the first countries to bottom out in a global economic cycle. Although fundamentals in Japan are likely to remain weak over the near term and continue to be susceptible to global economic developments, a number of factors suggest that Japanese companies are well placed to withstand the current recession and emerge in a position of relative strength. Corporate as well as household balance sheets are generally healthy. Many firms have accelerated their restructuring efforts. Meanwhile, Japan continues to command technological competitive advantages and is actively developing new expertise in areas such as desalination, solar power and high-speed rail. Furthermore, at a time when many US and European companies are withdrawing from Asian markets, Japanese firms remain committed to the region and are likely to benefit from a reacceleration in growth once the global economy recovers. However, this does depend on the yen losing some of its high value. In the meantime, many cash-rich Japanese companies are actively expanding overseas, capitalising on a currently strong yen to acquire weaker peers and increase global market share. Most global investors believe that Japan has delivered weak market returns relative to other major stock market indices. However, that is a misperception anchored on the returns in the 1990s after the Japanese asset bubble burst. During the past 10 years, Japanese equities have actually outperformed stocks in the US and the UK by most measures. We believe this trend could continue because Japan has largely avoided the leverage and asset market excesses that have plagued many Western economies in recent years. FIL Investments International 16 March 2009 Principal risks and uncertainties MANAGEMENT Due to the current economic climate, shareholders will have concerns about the current reduction in the value of their investments. 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 control process, identifies the key risks that the Company faces. The matrix has identified strategic, marketing, investment management, statutory and administrative and operational and support function risks. The Board reviews and agrees policies, which have remained unchanged since the beginning of the accounting period, for managing these risks. The process is regularly reviewed by the Board in accordance with the FRC's "Internal Control: Revised Guidance for Directors on the Combined Code". Risks are identified, introduced and graded in this process, together with the policies and procedures for the mitigation of risks, and are updated and reviewed twice a year in the form of a comprehensive internal controls report considered by the Audit Committee. The key risks identified within this matrix are: Market 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 41 to 44 of the annual report together with summaries of the policies for managing these risks. These comprise: equity price risk; market price risk; foreign currency risk; interest rate risk and liquidity risk. The Company has fixed term, fixed rate loan facilities in place which are due for repayment this year. The extent to which any loan facilities will be retained or renewed will be kept under the most careful scrutiny. At the present time, cash is being held against these loans to reduce the level of net gearing. In addition a day to day overdraft facility can be used if required. The impact of limited finance from counterparties including suppliers 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 counterparties, namely the Manager, Registrar, Custodian and Auditor. 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 controls team and the counterparties' own internal controls reports are received by the Board and any concerns investigated. 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 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. Share price The Board is not able to control the share price at which the Company's shares trade; it may not reflect the value of the underlying investments. However, it can have a modest influence in the market by maintaining the profile of the Company through an active marketing campaign and, under certain circumstances, through repurchasing shares. Currency The Company's total return and balance sheet are affected by foreign exchange movements because the Company has assets and income which are denominated in yen whilst the Company's base currency is sterling. While it is the Company's policy not to hedge currency, the fact that borrowings are in yen means that part of the investment portfolio funded by borrowing is naturally hedged against changes in the yen:sterling exchange rate. Further detail can be found in Note 17 to the financial statements on pages 41 to 44 of the annual report. Governance/regulatory, financial, operational administration 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 system of internal control and for reviewing its effectiveness. Details of this process are provided in the Corporate Governance Statement within this annual report. Financial instrument risks The financial instrument risks faced by the Company are shown in Note 17 to the financial statements on pages 41 to 44 of the annual report. Other risks Other risks monitored on a regular basis include loan covenants, which are subject to daily monitoring, together with the Company's cash position, and the continuation vote (at a time of poor performance). Related parties Mr Simon Fraser was employed by Fidelity International until the end of December 2008 and continues to act for Fidelity as a Senior Advisor. No Director is under 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 was significant in relation to the Company's business, except as disclosed in relation to Simon Fraser's interest in the Management Agreement. There have been no other related party transactions requiring disclosure under Financial Reporting Standard ("FRS") 8. FIL Limited has a direct interest of 6,854,100 shares or 7.17% in the Company (2007: 6,854,100 shares or 7.15%). It holds a further 16.21% indirectly for clients. Statementof 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 period. Under the 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 proper accounting records are kept which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 1985. 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 Directors' Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations. The Directors are responsible 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. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in their 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 16 March 2009 and signed on its behalf. William Thomson Chairman 16 March 2009 Report of the Independent Auditor to the Shareholders of Fidelity Japanese Values PLC We have audited the financial statements (the "financial statements") of Fidelity Japanese Values PLC for the year ended 31 December 2008 which comprise the Income Statement, the Reconciliation of Movements in Shareholders' Funds, the Balance Sheet, the Cash Flow Statement and Notes 1 to 19. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors' Remuneration Report that is described as having been audited. This report is made solely to the Company's members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company's members 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 members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditors The Directors' responsibilities for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements and the part of the Directors' Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the financial statements. The information given in the Directors' Report includes that specific information given in the Chairman's Statement and the Manager's Review that is cross referenced from the Business Review section of the Directors' Report. In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We review whether the Corporate Governance Statement reflects the Company's compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Company's corporate governance procedures or its risk and control procedures. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Objective and Highlights, Financial Summary, the Chairman's Statement, the Manager's Review, Distribution of the Portfolio, Summary of Performance, the Directors' Report, the Corporate Governance Statement, the unaudited part of the Directors' Remuneration Report, and the Full Portfolio Listing. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors' Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors' Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors' Remuneration Report to be audited. Opinion In our opinion: - the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Company's affairs as at 31 December 2008 and of its net loss for the year then ended; - the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and - the information given in the Directors' Report is consistent with the financial statements. Grant Thornton UK LLP Registered Auditor and Chartered Accountants London 16 March 2009 FIDELITY JAPANESE VALUES PLC Income Statement - for the year ended 31 December 2008 2008 2007 revenue capital total revenue capital total £'000 £'000 £'000 £'000 £'000 £'000 Losses on investments* - (5,946) (5,946) - (11,710) (11,710) Income - Overseas dividends 1,284 - 1,284 986 - 986 - Deposit interest 4 - 4 5 - 5 Investment management fee (719) - (719) (850) - (850) Other expenses (338) - (338) (354) - (354) Exchange gains on other 15 2,871 2,886 3 203 206 net assets Exchange losses on loans - (9,612) (9,612) - (708) (708) Net return/(loss) before 246 (12,687) (12,441) (210) (12,215) (12,425) finance costs and taxation Interest payable (269) - (269) (202) - (202) Net loss on ordinary (23) (12,687) (12,710) (412) (12,215) (12,627) activities before taxation Taxation on loss on (89) - (89) (69) - (69) ordinary activities ** Net losson ordinary (112) (12,687) (12,799) (481) (12,215) (12,696) activities after taxation for the year Loss per ordinary share(1) (0.12p) (13.23p) (13.35p) (0.49p) (12.52p) (13.01p) 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 profit 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. * Losses on investments include the foreign exchange gains made on the investments arising from the strong appreciation of the yen during the year. The yen had increased by approximately 40% against sterling thereby significantly improving the performance of the portfolio in sterling terms. ** This relates to overseas taxation only FIDELITY JAPANESE VALUES PLC Reconciliation of Movements in Shareholders' Funds - for the year ended 31 December 2008 called up share capital other capital capital revenue total share premium redemption reserve reserve reserve reserve equity capital account reserve realised unrealised £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Opening 24,551 44 1,780 60,369 17,497 (14,215) (11,860) 78,166 shareholders' funds: 1 January 2007 Net - - - - (25,637) 13,422 - (12,215) recognised capital (losses)/ gains for the year Repurchase of (295) - 295 (778) - - - (778) ordinary shares Net revenue - - - - - - (481) (481) loss after taxation for the year Closing 24,256 44 2,075 59,591 (8,140) (793) (12,341) 64,692 shareholders' funds: 31 December 2007 Net - - - - (15,647) 2,960 - (12,687) recognised capital (losses)/ gains for the year Repurchase of (362) - 362 (680) - - - (680) ordinary shares Net revenue - - - - - - (112) (112) loss after taxation for the year Closing 23,894 44 2,437 58,911 (23,787) 2,167 (12,453) 51,213 shareholders' funds: 31 December 2008 FIDELITY JAPANESE VALUES PLC Balance Sheet - as at 31 December 2008 2008 2007 £'000 £'000 Fixed assets Investments at fair value through profit or loss 65,324 78,122 Current assets Debtors 1,124 392 Cash at bank 2,301 937 Cash collateral with lender 7,045 - 10,470 1,329 Creditors - amounts falling due within one year Fixed rate unsecured loans (23,952) - Other creditors (629) (419) (24,581) (419) Net current (liabilities)/assets (14,111) 910 Total assets less current liabilities 51,213 79,032 Creditors - amounts falling due after more than one year Fixed rate unsecured loans - (14,340) Total net assets 51,213 64,692 Capital and reserves Called up share capital 23,894 24,256 Share premium account 44 44 Capital redemption reserve 2,437 2,075 Other reserve 58,911 59,591 Capital reserve - realised (23,787) (8,140) Capital reserve - unrealised 2,167 (793) Revenue reserve (12,453) (12,341) Total equity shareholders' funds 51,213 64,692 Net asset value per ordinary share 53.58p 66.67p FIDELITY JAPANESE VALUES PLC Cash Flow Statement - for the year ended 31 December 2008 2008 2007 £'000 £'000 Operating activities Investment income received 1,175 925 Deposit interest received 4 4 Investment management fee paid (690) (920) Directors' fees paid (81) (60) Other cash payments (263) (347) Net cash inflow/(outflow) from operating activities 145 (398) Returns on investments and servicing of finance Interest paid (252) (200) Net cash outflow from returns on investments and (252) (200) servicing of finance Financial investment Purchase of investments (97,886) (115,268) Disposal of investments 106,226 117,138 Net cash inflowfrom financial investment 8,340 1,870 Net cash inflow before financing 8,233 1,272 Financing Repurchase of ordinary shares (680) (778) Cash collateral held with lender (7,045) - Net cash outflow from financing (7,725) (778) Increase in cash 508 494 1. Losses per ordinary share are based on the net revenue loss on ordinary activities after taxation of £112,000 (2007: £481,000), the capital loss in the year of £12,687,000 (2007: £12,215,000) and the total loss in the year of £ 12,799,000 (2007: £12,696,000) and on 95,878,956 ordinary shares (2007: 97,571,864) being the weighted average number of ordinary shares in issue during the year. The above statements have been prepared on the basis of the accounting policies as set out in the annual financial statements to 31 December 2008. This preliminary statement, which has been agreed with the auditors, was approved by the Board on 16 March 2009. It is not the Company's statutory financial statements. The statutory financial statements for the financial year ended 31 December 2007 have been delivered to the Registrar of Companies. The statutory financial statements for the financial year ended 31 December 2008 have been approved and audited but have not yet been filed. The statutory financial statements for the financial years ended 31 December 2007 and 31 December 2008 received unqualified audit reports, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under section 237(2) and (3) of the Companies Act 1985. The annual report and financial statements will be posted to shareholders as soon as is practicable and in any event no later than 9 April 2009.

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Fidelity Japan Trust (FJV)
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