Fidelity European Trust Plc - Annual Financial Report

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For further information, please contact:

Smita Amin

Company Secretary

01737 836347

FIL Investments International

Chairman’s Statement

This is my first Annual Report for the Company, having joined the Board of Directors in November 2024 and taken over as Chairman from Vivian Bazalgette at the last AGM in May 2025. On behalf of the Board and our shareholders, I would like to place on record our thanks to Vivian, who became Chairman following the 2016 AGM, for his strong leadership and invaluable contribution to the Company’s strategy which has helped sustain its successful returns to shareholders over the long-term.

2025 proved to be another busy year, not just on the world political stage and in European financial markets, but also for your Company given the combination with Henderson European Trust plc (“HET”), which completed in late September. The considerable benefits of the combination are set out below, but first I would like to extend a very warm welcome to former HET shareholders, who I hope will remain happy shareholders of this Company for many years to come.

While European stock market performance in 2024 was muted as a result of geopolitical and macroeconomic concerns, 2025 saw strong returns despite some of the previous year’s fears – notably, higher US trade tariffs – becoming reality. In a more fractious global environment, Europe turned to self-help measures, such as the European Central Bank (ECB) interest rate cuts and wide-ranging fiscal stimulus in Germany, leading to an appreciation in the Euro and a tailwind for more cyclically sensitive stocks. As discussed below and in the Portfolio Managers’ Review that follows, the nature of the Company’s investment philosophy is to seek companies based on four key criteria: attractive valuations, disciplined use of capital; cash generation; and strong balance sheets to ensure the ability to grow dividends. This means that periods characterised by sharp, momentum-led or cyclical rallies, such as those experienced in 2025, can act as a headwind for a portfolio that prioritises sustainable cash generation and downside resilience.

Performance

For the year ended 31 December 2025, your Company delivered a net asset value (“NAV”) total return of 16.2% in sterling, which, while a good outcome in absolute terms, was significantly behind the 27.9% total return from the Benchmark Index, the FTSE World Europe ex UK Index in sterling terms. With the discount to NAV having narrowed appreciably during the year, the share price total return was higher, at 21.1%.

Sam and Marcel give a detailed picture of the contributors to and detractors from performance in their Portfolio Managers’ Review below. In brief, however, some of the factors underlying the underperformance against the Benchmark Index include holding Danish pharmaceutical firm Novo Nordisk through a period of poor news flow; being underweight in defence stocks, which they see as more than pricing in increased European defence spending; and preferring France to more highly favoured Germany, albeit with a skew towards global companies that are less exposed to the French domestic economy. However, perhaps more important than all of these has been investor enthusiasm for a narrow number of stocks that do not necessarily share the combination of attractive starting valuations and long-term capital and income growth potential that your Portfolio Managers favour.

Over the longer-term, performance remains consistent, averaging 10-13% per annum for both the NAV and share price total return over three, five and 10 years, since Sam’s appointment in 2011 and since the Company’s launch in 1991. We have also matched or outperformed the Benchmark Index return over 10 years, as well as beating the average return of the AIC Europe peer group over three, five and 10 years (and in NAV terms over one year).

Combination with Henderson European Trust plc

Following the resignation of HET’s portfolio managers in January 2025 and consultation with shareholders, the Board of HET (which itself was formed through the merger of Henderson EuroTrust plc (“HNE”) and Henderson European Focus Trust plc (“HEFT”) in 2024), undertook a comprehensive review of its options and a competitive pitch process, leading to the recommendation in June of a combination with Fidelity European Trust PLC (“FEV”). Through combining the two largest investment companies in the Association of Investment Companies’ (“AIC”) Europe sector, the proposal sought to create a market-leading European equity investment enjoying the benefits of scale and enhanced liquidity with continuity of investment style, given both trusts’ focus on quality companies at attractive valuations. HET shareholders were offered the choice of new FEV shares or a cash exit of up to 33%, and it was pleasing to note that the cash option was undersubscribed, with less than 30% electing to take the cash element. The deal completed on 29 September 2025, resulting in the issuance of 111,902,155 shares in the Company.

The proposals for the combination were covered in detail in the Half Year Report for the six months ended 30 June 2025, but now that it has taken place, it is worth revisiting some of the benefits.

•   Increased scale: Your company now has net assets of more than £2bn, placing it in the top 10 by assets of all equity investment companies. While this may seem to have limited relevance for individual shareholders, consolidation in the wealth management market – historically a key source of demand for investment trust shares – means investment companies now need significant scale to make it on to centralised buy lists, given the large sums at work and the need to maintain liquidity, which can be challenging for investors who account for a significant proportion of a company’s share register. As one of the larger companies in the FTSE 250 Index, we can also enjoy greater demand from index-tracking funds.

•   Lower management fees and ongoing charges: Fidelity agreed, with effect from completion of the HET deal, a reduction in its tiered annual management fee to: 0.70% on net assets up to £400m, 0.65% on net assets from £400m to £1.4bn and 0.55% on net assets in excess of £1.4bn. This revised fee has resulted in a blended annual management fee rate of 0.62% based on net assets as at 31 December 2025. The lower management fee, together with economies of scale (meaning fixed costs are spread over a larger base), is feeding into a reduced ongoing charges ratio (“OCR”). For the year under review, the OCR was 0.73% (2024: 0.76%) and reflecting the revised fee arrangement together with the economies of scale the OCR going forward is 0.68%.

•   Enhanced discount management policy: The Board proposed an enhancement to the Company’s discount management policy with the aim of maintaining any share price discount to NAV in mid-single digits (previously below 10%) in normal market conditions. The steps taken to manage the discount are discussed in a separate section below.

•   Governance benefits: As part of the combination, we welcomed two new Directors to the Board: Vicky Hastings, formerly chairman of HET and its predecessor HEFT, and Rutger Koopmans, who was a director of HNE before joining the HET board. As well as providing continuity for former HET (as well as HEFT and HNE) shareholders, Vicky, with her strong investment management background, and Rutger, a Dutch national with a wealth of experience as a financial professional, are strong additions to the Company’s Board.

Dividends

Sustainable and growing dividends are a key feature your Portfolio Managers seek when analysing potential holdings for your Company’s portfolio. The Board has a policy whereby it seeks to deliver a progressive dividend in normal circumstances, paid twice yearly in order to smooth dividend payments for the reporting year. We understand that dividends are also important to our shareholders, which is why your Company has increased its annual payout for the past 14 years, placing it among the AIC’s ‘next generation of dividend heroes’ (investment companies with more than 10 but fewer than 20 consecutive years of annual dividend growth).

In the year under review, the Company’s revenue return was 11.30 pence per ordinary share (2024: 10.41 pence) and an interim dividend of 3.90 pence per share was paid on 23 October 2025 (an increase of 8.3% on the 3.60 pence paid for the same period in 2024). The Board is pleased to recommend a final dividend of 6.00 pence for the year ended 31 December 2025 (2024: 5.50 pence), bringing the total dividend for the year to 9.90 pence (2024: 9.10 pence), an increase of 8.8% and a 15th consecutive annual dividend increase.

Subject to approval by shareholders at the Annual General Meeting (“AGM”) on 12 May 2026, the final dividend will be paid on 19 May 2026 to shareholders on the register at close of business on 27 March 2026 (ex-dividend date 26 March 2026). Shareholders may choose to reinvest their dividends for additional shares in the Company.

Discount Management and Treasury Shares

The success of the enhanced discount management policy (see Combination with HET above) can be seen in the narrowing of the discount to NAV during the year, from 8.0% at the beginning of the year to 4.1% as at 31 December 2025. Having previously sought to maintain the discount in single figures, the policy now is to maintain a maximum discount in the mid-single digits in normal market conditions. For the majority of 2025, even before the proposed combination with HET, the discount to NAV was in mid or low single digits, with a low of 0.2% in November, having seen a high of 9.9% at the start of the year.

During the year, a total of 9,286,723 shares were repurchased into Treasury (2024: nil), equal to 2.2% of the shares in issue at the beginning of the year.

To assist in managing the discount, the Board has shareholder approval to hold ordinary shares repurchased by the Company in Treasury, rather than cancelling them. Shares in Treasury (which numbered 17,004,110 at the year end) are then available to be reissued at NAV per ordinary share or at a premium to NAV per ordinary share, facilitating the management of and enhancing liquidity in the Company’s shares. As buying back shares at a discount to NAV is accretive, the Board is seeking shareholder approval to renew this authority at the AGM on 12 May 2026.

Gearing

The Company continues to gear mainly through the use of derivative instruments, primarily contracts for difference (CFDs). However, as part of the combination with HET, the Company acquired a small amount of fixed gearing €35m at par value in the form of two very long-term private loan notes at a particularly attractive blended interest rate of only 1.57%. Having this element of structural gearing provides the Company with a degree of diversification in its counterparty risk, as well as potentially allowing Sam and Marcel to take a longer-term view on some of their geared positions.

The Portfolio Managers have flexibility to gear within the parameters set by the Board, the rationale being that over the longer-term carefully monitored levels of gearing will enhance returns from a rising market. The ability to do this is a key advantage of the investment company structure. As at 31 December 2025, the Company’s gross gearing was 9.7% (2024: 11.3%), with net gearing also at 9.7% (2024: 11.3%). In the reporting year, gearing was maintained within the limits set by the Board and made a positive contribution to NAV performance, as can be seen from the Attribution Analysis table in the Annual Report.

The Board monitors the level of gearing and the use of derivative instruments carefully and has defined a risk control framework for this purpose which is reviewed at each Board meeting. It should be emphasised that all gearing is subject to the Portfolio Managers’ confidence in identifying attractive investment opportunities, and to their remaining attractive.

Due diligence trip to Norway

Towards the end of the reporting year, the Board had the opportunity to visit Oslo with your Portfolio Managers, and we were privileged to be invited to observe a meeting with the senior management of DNB Bank, one of Norway’s leading financial institutions. One of Fidelity’s great strengths is the depth of its analyst team, with 38 analysts devoted to the European stock market. It was fascinating to see one of the analyst team interacting with Sam, Marcel and DNB, and gave us great confidence both in the calibre of the team and the respect they command in the market.

Board of Directors

As mentioned above, I joined the Company’s Board in November 2024 and assumed the role of Chairman on the retirement of Vivian Bazalgette at the AGM in May 2025. Also new to the Board are Vicky Hastings and Rutger Koopmans, who joined as part of the combination with HET. Whilst Rutger has already served nine years, having been a director of HNE from 2016 until it merged with HEFT to become HET in 2024, the Board feels that it is important to extend his tenure to give him a full year of representing HET (and HNE) shareholders and the intention therefore is that Rutger will retire at the AGM in May 2027.

Paul Yates, Senior Independent Director, has served on your Company’s Board since 2017, and will retire at the AGM on 12 May 2026. Paul has considerable experience in investment management and investment trusts, both valuable assets during his tenure and his contribution to the Board will be greatly missed. In respect of skills that we will lose when Paul retires, Vicky’s appointment will give us continuity in this regard with her strong background in investment management.

Fleur Meijs, Chair of the Audit Committee, will have completed nine years on the Board in September 2026 and will therefore not seek re-election at the AGM in May 2027. A recruitment process to appoint her replacement will be conducted later this year.

Following the AGM at which Paul retires, the Board will reduce to six Directors and then become five following the 2027 AGM when Rutger and Fleur retire.

Annual General Meeting

The Company’s AGM will be held at 11.00 am on 12 May 2026 at 4 Cannon Street EC4M 5AB and virtually via the online Lumi AGM meeting platform.

The AGM provides a great opportunity for shareholders to hear first-hand from your Portfolio Managers and to meet the Company’s Directors, and of course, for us to meet you. We hope to see as many of you as possible on the day. Full details of the AGM are below.

Outlook

After a year of strong performance, with markets having risen significantly, many investors in Europe are looking for further progress supported by potential productivity gains, interest rate cuts, continued fiscal stimulus and a belief that ‘the worst is over’ in relation to US trade tariffs. This has led to a meaningful improvement in corporate earnings expectations from the flat outlook anticipated for 2025. While the path ahead may not be linear in these uncertain times, our team believe the portfolio is well positioned through its focus on high-quality, cash-generative businesses with strong balance sheets.

Davina Walter

Chairman

17 March 2026

ANNUAL GENERAL MEETING – TUESDAY, 12 MAY 2026 AT 11.00 AM

The AGM of the Company will be held at 11.00 am on Tuesday, 12 May 2026 at 4 Cannon Street, London EC4M 5AB (nearest tube stations are St Paul’s or Mansion House) and virtually via the online Lumi AGM meeting platform. Full details of the meeting are given in the Notice of Meeting in the Annual Report .

For those shareholders who are unable to attend in person, we will live-stream the formal business and presentations of the meeting online.

Sam Morse and Marcel Stötzel, the Portfolio Managers, will be making a presentation to shareholders highlighting the achievements and challenges of the year past and the prospects for the year to come. They and the Board will be very happy to answer any questions that shareholders may have. Copies of their presentation can be requested by email at investmenttrusts@fil.com or in writing to the Secretary at FIL Investments International, Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP.

Properly registered shareholders joining the AGM virtually will be able to vote on the proposed resolutions. See Note 9 to the Notes to the Notice of Meeting in the Annual Report for details on how to vote virtually. Investors viewing the AGM online will be able to submit live written questions to the Board and the Portfolio Managers and we will answer as many of these as possible at an appropriate juncture during the meeting.

Further information and links to the Lumi platform may be found in Note 9 to the Notes to the Notice of Meeting in the Annual Report . On the day of the AGM, in order to join electronically and ask questions via the Lumi platform, shareholders will need to connect to the website https://web.lumiagm.com .

Please note that investors on platforms, such as Fidelity Personal Investing, Hargreaves Lansdown, Interactive Investor or AJ Bell Youinvest, will need to request attendance at the AGM in accordance with the policies of your chosen platform. They may request that you submit electronic votes in advance of the meeting. If you are unable to obtain a unique IVC and PIN from your nominee or platform, we will also welcome online participation as a guest. Once you have accessed https://meetings.lumiconnect.com from your web browser on a tablet or computer, you will need to enter the Lumi Meeting ID which is 100-968-191-255 . You should then select the ‘Guest Access’ option before entering your name and who you are representing, if applicable. This will allow you to view the meeting and ask questions, but you will not be able to vote.

Further information on how to vote across the most common investment platforms is available at the following link: https://www.theaic.co.uk/how-to-vote-your-shares

Portfolio Managers’ Review

Question

How has the Company performed over the year to 31 December 2025, both in absolute terms and relative to its Benchmark Index?

Answer

The Company delivered a positive double-digit return in absolute terms in 2025, but underperformed its Benchmark Index, the FTSE World Europe ex UK Index. Over the year to 31 December 2025, the net asset value (“NAV”) rose 16.2%. Thanks to a narrowing of the discount, the total return to shareholders was 21.1% but this still lagged the Benchmark Index which climbed by 27.9% on a total return basis.

This outcome partly reflects the Company’s investment approach, which means it can lag in strong, fast-moving ‘risk-on’ markets like we saw in 2025 following Germany’s fiscal stimulus announcement. Periods characterised by sharp, momentum-led or cyclical rallies, can act as a headwind for our portfolio that prioritises sustainable cash generation and downside resilience.

Question

What were the principal drivers of performance in 2025, and to what extent was this driven by stock selection versus geographic or sector allocation?

Answer

After sustained outflows for the asset class between 2022 and 2024, European equity funds recorded renewed inflows in 2025, as investors diversified away from a US market which had become highly concentrated on a number of expensive technology stocks. A weaker US dollar further enhanced the appeal of non-US assets.

The Company’s strategy is to be ‘benchmark-aware’, with relatively tight controls around sector exposures. As a result, we usually expect performance to be predominantly driven by stock selection rather than sector or geographic allocation, with relative returns largely determined by company-specific outcomes. In 2025, however, performance was influenced to some extent by the prevailing market environment, which favoured cyclical and value-oriented stocks following the announcement of fiscal stimulus in Germany. Unfortunately, the relative contribution from stock selection was also negative and so did not offset the stylistic headwinds. The Company’s gearing contributed positively to absolute returns in a strong market (see the Attribution Analysis table in the Annual Report).

European equity markets were characterised by sharp, value-led and cyclical rallies, with areas such as defence, peripheral banks and German cyclicals leading the market. The Company’s emphasis on quality businesses, sustainable dividend growth and downside resilience meant that it was underweight in many of these segments, and this acted as a drag on relative performance.

Limited exposure to defence stocks such as Rheinmetall detracted following announcements of increased European defence spending. In addition, holdings including health care company Novo Nordisk and chemicals producer Symrise, detracted on company-specific developments, while software businesses SAP and Dassault Systèmes came under pressure amid weaker software spending and uncertainty around the competitive implications of AI adoption. Despite these near-term headwinds, we believe the long-term fundamentals of most of these companies remain intact and valuations are now attractive relative to their prospects.

Stocks in the financials’ sector, including Bankinter, ABN AMRO Bank, KBC Group, and Intesa Sanpaolo, were the top contributors to performance as they delivered strong earnings and re-rated amid rising European bond yields and German fiscal spending plans. However, not holding peripheral banks, including UniCredit, Banco Santander and BBVA, proved costly as were our investments in private equity holdings Partners Group Holding and 3i Group.

Below are the top five stock contributors and detractors to performance in the Company’s reporting year.

Question

How was the combination with Henderson European Trust plc? What have been the key benefits for shareholders of the enlarged Company, and how smoothly was the integration of the portfolios and investment processes executed?

Answer

The combination with Henderson European Trust plc (“HET”), which became effective on 29 September 2025, followed a comprehensive and competitive review process initiated after the resignation of HET’s co-portfolio managers earlier in the year. Supported by its advisers, the HET Board undertook a formal request-for-proposal process involving a wide range of potential managers and consolidation partners. Fidelity’s proposal was ultimately selected as the option best positioned to deliver long-term value for shareholders, reflecting the strength of your Company’s investment capabilities and strategic positioning.

Following the combination, Fidelity European Trust PLC has consolidated its position as the largest European equity investment trust, with a market capitalisation now exceeding £2 billion. We were delighted to have been chosen after a competitive tender process, not least for out bottom-up investment approach, ensuring continuity and stability for both existing and new shareholders.

The enlarged scale of the Company delivers clear shareholder benefits. A new tiered management fee structure and improved operating leverage have resulted in a material reduction in the ongoing charges ratio. Fidelity also made a significant contribution to the costs of the transaction, equivalent to a waiver of twelve months of management fees on the assets rolling over from HET, which is expected to fully offset the Company’s direct transaction costs. The Board has also enhanced the Company’s discount management policy, with the aim of maintaining the discount in mid-single digits in normal market conditions.

The integration of the portfolios and investment processes was executed smoothly and in an orderly manner, with assets aligned to the Company’s established investment framework and risk controls. The enlarged Company continues to operate with its existing capital structure, including its approach to gearing and loan notes, which remain subject to Board oversight and are described in the Financial Statements. The aggregate exposure of the Company to equities, including from borrowing and the use of derivatives, but excluding hedging, will not exceed 130% of total net assets (a gearing level of 30%). As part of the combination with HET, the Company now has unsecured borrowings of 1.53% Series A senior notes 2047 and 1.66% Series B senior notes 2052 of €25m and €10m, respectively.

Question

For new shareholders, could you outline your bottom-up stock selection approach, and how this process contributed to performance over the past year?

Answer

We employ a bottom-up, fundamentally driven investment approach. The focus is on identifying high-quality European companies with durable business models, strong balance sheets and the ability to generate sustainable, and growing, cash flows and dividends over time.

As active Portfolio Managers, we seek attractively valued companies that exhibit good long-term structural growth prospects and can grow dividends sustainably over the next three to five years. We look for four key characteristics: positive fundamentals (exemplified by structural growth prospects, a proven business model, and disciplined use of capital); the ability to generate cash; a strong balance sheet; and a compelling valuation.

We invest cautiously, looking to manage the strategy’s downside risk and build a balanced, fully invested portfolio that is benchmark aware. Turnover is low, reflecting the long-term approach. Risk is managed through diversification and disciplined position sizing.

This approach contributed to performance during the year through bank holdings such as Bankinter, ABN AMRO Bank, KBC Group, and Intesa Sanpaolo, which delivered strong earnings. French industrial group Legrand also performed well as it saw accelerated growth in its datacentre business, ongoing strength in underlying organic trends and positive contributions from recent acquisitions.

Question

European equities performed strongly in 2025, despite ongoing macroeconomic and geopolitical uncertainty. How are you assessing the ability of the companies in the portfolio to deliver sustainable earnings and dividend growth into 2026 and beyond?

Answer

Although European equities delivered strong absolute and relative performance in 2025, we are conscious that this occurred alongside earnings downgrades, valuation expansion and persistent macroeconomic and geopolitical uncertainty. As we look into 2026 and beyond, our assessment of the ability of companies in the portfolio to deliver sustainable earnings and dividend growth is firmly rooted in bottom-up fundamentals rather than extrapolating recent market strength. We focus on balance sheet resilience, cash flow durability, returns on invested capital and the ability of companies to maintain or grow dividends across the cycle. Indeed, at the time of writing, the escalation in the Middle East suggests that a cautious approach will be prudent.

While not cheap in absolute terms, European equities still look attractive relative to US equities. Valuations across nearly all sectors trade at a discount to US peers, often beyond what differences in growth, margins or returns can justify. This is also the case if we compare valuations on an equal weighted basis to remove the skew to the Mag 7 (Mag 7 are the Magnificent Seven major technology companies that have driven significant stock market growth over the past decade. The seven companies are Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia and Tesla). The equal weight MSCI Europe Index forward price-earnings ratio trades at a 21.5% discount to the US, compared to a 25.7% discount on a market cap weighted basis. All European sectors, except communication services, trade at a forward price-earnings discount to their US counterparts on an equal weight basis. This creates an environment where expectations are low, and companies do not need especially bullish assumptions to deliver acceptable outcomes. In several sectors, including financials, health care, utilities and parts of industrials, European companies generate earnings and returns comparable to US peers, yet trade much cheaper, providing a meaningful margin of safety.

Within the portfolio, we continue to emphasise companies with strong free cash-flow generation and disciplined capital allocation, which supports sustainable dividends even when earnings growth is uneven. This is evident in holdings such as ASML, which can have cyclicality in its orders, but remains the world’s leading supplier of photolithography equipment used in semiconductor manufacturing. More broadly, the portfolio yield, in aggregate, is now close to the market yield, which historically has been a favourable indicator of positive long-term returns relative to the Benchmark Index, although it is no guarantee in terms of absolute returns.

Question

Looking back over the year, were there any material developments or outcomes that surprised you? If so, did these lead to changes in portfolio positioning or investment theses?

Answer

Through 2025, several developments were more surprising than initially expected. At a market level, the resilience of European equities stood out, particularly given ongoing geopolitical tensions, renewed US–EU trade frictions and political uncertainty across the region. Despite these headwinds, markets were supported by a soft economic landing, easing inflation, ECB rate cuts and a meaningful fiscal pivot towards defence and infrastructure spending. The recovery in investor flows into European equity funds after several years of outflows was also notable, reflecting diversification away from relatively expensive and concentrated US equity exposure.

At the stock level, there were some unexpected outcomes that prompted reassessment of individual investment theses. The extent of the setbacks at Novo Nordisk, the leading global health care company, was one such example, with disappointing late-stage trial results, pricing actions in the US, a profit warning and a CEO change all occurring in quick succession. Given the failure of the latest clinical trial for the next-generation weight loss drug, our investment thesis - predicated on Novo’s continued market dominance - no longer holds. As a result, we have exited the position.

Towards the end of the year, there was a brief slowdown in like-for-like sales at Action, the discount retailer owned by 3i Group, which was a surprise after a prolonged period of strong performance. However, the weakness was isolated to one geographic area over a one-month period, and other segments continued to report strong sales growth. As such, we are cautious to extrapolate this to a broader trend and remain constructive on the company.

In other areas, companies such as Symrise, Sika and Dassault Systèmes, were affected by cyclical weakness, cautious customer behaviour or softer guidance, which weighed on share prices. These developments did not result in wholesale changes to portfolio strategy, but they did lead to selective adjustments.

Where conviction in the long-term thesis weakened, positions were exited, including LVMH Moët Hennessy following a change in dividend policy and some management departures, as well as Sodexo and PUMA. Conversely, where near-term disappointment appeared to overshadow intact long-term fundamentals, we selectively added or maintained exposure, including in ASML, Dassault Systèmes and Symrise. Overall, surprises during the year reinforced the importance of disciplined stock selection and valuation awareness rather than prompting a change in investment philosophy.

Question

The dividend has increased for fourteen consecutive years, putting the Company on the AIC’s ‘next generation’ of dividend heroes. How do you look at dividends versus growth when making an investment decision?

Answer

When making investment decisions, dividends are considered within the context of a company’s overall cash-generation capability and financial strength, rather than as a standalone objective. The portfolio focuses on identifying attractively valued companies with strong long-term prospects for cash generation and dividend growth, supported by resilient business models and robust balance sheets. This reflects the belief that the ability to sustain and grow dividends over time is closely linked to the durability and quality of underlying earnings and cash flows.

The portfolio is constructed using a bottom-up approach, with investment decisions driven by company-specific fundamentals rather than short-term macroeconomic considerations. Growth opportunities are therefore assessed alongside capital discipline and balance-sheet resilience. Companies such as ASML illustrate this approach: despite having a low absolute dividend yield, the dividend has grown for many years thanks to a strong business model given a monopolistic position in Extreme Ultraviolet (EUV) lithography machines which are critical for making the most advanced semiconductors.

The Company’s record of fourteen consecutive years of dividend growth is a consequence of this disciplined focus on cash generation and financial strength, rather than pursuing high yields at the expense of long-term growth. This discipline has been a key contributor to our long-term record of income growth and total return, with the AIC also ranking the Company 13th overall, and the highest placed European strategy in its list of investment trusts that “would have made an ISA Millionaire”.

Question

How would you describe the outlook for continental Europe and does this correlate with your thoughts on the individual companies you invest in?

Answer

European equity markets have demonstrated resilience, supported by accommodative monetary policy, attractive relative valuations and a gradual improvement in investor sentiment. Looking ahead, Europe has the potential to close its productivity gap with the US by focusing on technology and innovation and by simplifying business regulations, as outlined in the Draghi report, although progress towards greater European integration is expected to be slow.

Investor expectations for earnings growth have increased, with markets anticipating an improvement driven by interest rate reductions, fiscal stimulus - particularly in Germany - and a belief that the worst of the tariff-related uncertainty is over. However, there is still tariff uncertainty, inflation remains stubborn and rising long-term bond yields may offset some of the benefits of fiscal stimulus. Expectations are high so markets appear vulnerable to disappointment from policy slippage or renewed geopolitical instability. As a result, we remain cautious on the broader market outlook.

This macro view does not directly correlate with our assessment of individual companies. European companies are not simple proxies for the domestic economy, with roughly two-thirds of revenues generated outside the region. This global footprint has long been supportive, and any improvement in domestic European conditions could provide an additional source of upside. Our investment philosophy remains unchanged and is anchored in stock selection, a long-term perspective and capital preservation. The portfolio is balanced across sectors, with positioning driven by bottom-up opportunities rather than macro developments.

We continue to focus on attractively valued companies with good long-term prospects for cash generation and dividend growth. Defensive quality is not expensive on a relative basis, and the portfolio yield is close to the market yield. Higher rates and extreme factor rotations have weighed on many of the high-quality, stable-growing businesses we favour, bringing valuations closer to the market and creating opportunities. We have also made a measured increase in exposure to domestic European revenue streams, reflecting improved structural momentum around fiscal investment, integration and competitiveness reform, while remaining consistent with our bottom-up framework and valuation discipline.

Question

What is the advantage of investing in Fidelity European Trust PLC?

Answer

The Company’s investment discipline provides resilience, in absolute terms, across different market environments. While this disciplined positioning, which is focused on sustainable dividend growth, can result in periods of relative underperformance when markets are more exuberant, it is designed to deliver more consistent long-term outcomes. The Company’s aim is to outperform its Benchmark Index by one to two percent per annum post fees over the long-term. This is supported by the breadth and depth of Fidelity’s research platform, which provides a consistent pipeline of high-quality investment ideas and enables the construction of a fully diversified portfolio across the market cycle. In addition, the Portfolio Managers bring deep experience, and Fidelity’s private ownership allows the firm to take a long-term view in maintaining organisational stability and supporting shareholders’ investment objectives.

Question

Looking ahead to 2026 and beyond, which sectors, themes or regions within Europe are you most optimistic about, and where do you see the greatest potential for long-term outperformance?

Answer

Looking ahead to 2026 and beyond, our optimism is selective rather than thematic or region wide. The greatest potential for long-term outperformance lies in areas where Europe’s valuation discount appears most disconnected from current fundamentals and where confidence can continue to rebuild without requiring a strong macro uplift.

Financials are a clear example. European banks are fundamentally stronger than at any point since the Global Financial Crisis, with significantly higher capital ratios, de-risked balance sheets, improved cost efficiency and structurally higher net interest income. Returns on tangible equity are now broadly in line with the wider market, and in some cases, comparable with US peers, yet valuations continue to reflect historical distrust. As confidence in the sustainability of these returns grows, financials offer meaningful upside through dividend, buybacks and potential valuation normalisation.

More broadly, we see opportunity in high-quality European companies with strong global franchises, pricing power and resilient cash flows, particularly where short-term cyclical weakness or sentiment has created attractive entry points. This includes selective industrials, software and health care names, where long-term structural drivers remain intact, but valuations have adjusted. The potential for Europe to gradually close its productivity gap with the US through technology, innovation and regulatory simplification, as outlined in the Draghi report, also supports selective exposure to companies enabling efficiency and digitalisation, even if progress is slow.

At the same time, we remain cautious on areas where valuations already discount optimistic assumptions around fiscal stimulus, rate cuts or easing trade tensions. Overall, we do not rely on a broad European re-rating to generate returns. Instead, we believe long-term outperformance will come from disciplined stock selection, exploiting valuation gaps created by entrenched pessimism and focusing on companies with durable business models, strong balance sheets and the ability to compound cash flows and dividends over time.

Sam Morse   Marcel Stötzel

Portfolio Manager   Portfolio Manager

17 March 2026   17 March 2026

Strategic Report

RISK FRAMEWORK

Principal Risks and Uncertainties and Risk Management

As required by provisions 28 and 29 of the 2024 UK Corporate Governance Code (“UK Code”), the Board has a robust ongoing process for identifying, evaluating and managing the principal risks and uncertainties faced by the Company, including those that could threaten its business model, future performance, solvency or liquidity. The Board will implement the new requirement under provision 29 of the 2024 UK Code for reporting periods from 1 January 2026, of a Board declaration on the effectiveness of material risk management and internal controls in the Company’s next reporting year.

The Board, with the assistance of the Alternative Investment Fund Manager (FIL Investment Services (UK) Limited/the “Manager”), has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key existing and emerging risks and uncertainties that the Company faces.

Emerging Risks

The Audit Committee continues to identify emerging risks that may arise from existing risks or new situations and take any action necessary to mitigate their potential impact. The risks identified are placed on the Company’s risk matrix and graded appropriately. This process, together with the policies and procedures for the mitigation of existing and emerging risks, is updated and reviewed regularly in the form of comprehensive reports by the Audit Committee. The Board determines the nature and extent of any risks it is willing to take in order to achieve the Company’s strategic objectives.

Globally, climate change (large scale shift in the planet’s weather patterns and average temperatures) effects are already being experienced in the form of changing weather patterns. Extreme weather events can potentially impact the operations of investee and potential investee companies, their supply chains and their customers. Climate change continues to be a key principal as well as an emerging risk. The Board notes that the Manager includes ESG considerations, including climate change, into the Company’s investment process. The Board will continue to monitor how this may impact the Company as a risk to investment valuations and potentially shareholder returns.

The Board, together with the Manager, is also monitoring the emerging risks posed by the rapid advancement of artificial intelligence (“AI”) and technology and how it may threaten the Company’s activities and its potential impact on the portfolio and investee companies. AI can provide asset managers powerful tools, such as enhancing data analysis risk management, trading strategies, operational efficiency and client servicing, all of which can lead to better investment outcomes and more efficient operations. However, with these advances in computing power, there are risks from its increasing use and manipulation with the potential to harm, including a heightened threat to cybersecurity.

Other emerging risks may continue to evolve from unforeseen geopolitical and economic events. There are currently a number of geopolitical factors that could mean greater stock market risks and heightened macro-economic changes such as inflation, interest rates, currency fluctuations, energy costs and an increased regulatory environment.

Emerging Risks – Manager’s Role

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

Annual Review of the Risk Register

The Company has a full risk register which includes less material risks which the Board reviews at least annually.

The Board considers the risks listed below as the principal risks and uncertainties faced by the Company.

Continuation Vote

A continuation vote takes place every two years. The last continuation vote was at the AGM held on 8 May 2025, and 93.85% of shareholders voted in favour of the continuation of the Company. The next continuation vote will take place at the AGM in 2027.

Viability Statement

In accordance with provision 31 of the 2024 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve month period required by the “Going Concern” basis. The Company is an investment trust with the objective of achieving long-term growth in both capital and income. The Board considers that five years is an appropriate investment horizon to assess the viability of the Company, although the life of the Company is not intended to be limited to this or any other period.

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

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

•   The Company’s level of gearing;

•   The Company’s NAV and share price performance compared to its Benchmark Index;

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

•   The likely future demand for the Company’s shares;

•   The Company’s share price discount to the NAV and the Board’s discount management policy;

•   The liquidity of the Company’s portfolio;

•   The level of income generated by the Company; and

•   Future income and expenditure forecasts.

The Company’s performance for the five year reporting period to 31 December 2025 was a NAV total return of 63.3% and an ordinary share price total return of 63.5% compared to the Benchmark Index total return of 66.5%.

The Board regularly reviews the investment policy to consider whether it remains appropriate.

The Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years based on the following additional considerations:

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

•   The portfolio mainly comprises readily realisable securities which can be sold to meet funding requirements if necessary;

•   The Board’s discount management policy; and

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

In preparing the Financial Statements, the Directors have considered the continued impact of climate change and potential emerging risks from the use of artificial intelligence as detailed above. The Board has also considered the impact of regulatory changes, unforeseen market events, geopolitical concerns and the ongoing global implications of the war in Ukraine, and more recently the war in the Middle East, and how this may affect the Company.

In addition, the Directors’ assessment of the Company’s ability to operate in the foreseeable future is included in the Going Concern Statement below.

Going Concern Statement

The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio and its expenditure and cash flow projections. The Directors, having considered the liquidity of the Company’s portfolio of investments (being mainly securities which are readily realisable) and the projected income and expenditure, including the loan notes, are satisfied that the Company is financially sound and has adequate resources to meet all of its liabilities and ongoing expenses and continue in operational existence for the foreseeable future. The Board has, therefore, concluded that the Company has adequate resources to continue to adopt the going concern basis for the period to 31 March 2027 which is at least twelve months from the date of approval of the Financial Statements. This conclusion also takes into account the Board’s assessment of the ongoing risks from significant geopolitical and market events and regulatory changes that could impact the Company’s performance, prospects and operations.

Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.

The prospects of the Company over a period longer than twelve months can be found in the Viability Statement above.

PROMOTING THE SUCCESS OF THE COMPANY

Under Section 172(1) of the Companies Act 2006, the Directors of a company must act in a way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to the likely consequences of any decision in the long-term; the need to foster relationships with the Company’s suppliers, customers and others; the impact of the Company’s operations on the community and the environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the Company.

As an externally managed investment company, the Company has no employees or physical assets, and a number of the Company’s functions are outsourced to third parties. The key outsourced function is the provision of investment management services by the Manager, but other professional service providers support the Company by providing administration, custodial, banking, accounting and audit services. The Board considers the Company’s key stakeholders to be the existing and potential shareholders, the externally appointed Manager (FIL Investment Services (UK) Limited) and other third-party professional service providers. The Board considers that the interest of these stakeholders is aligned with the Company’s objective of delivering long-term capital growth to investors, in line with the Company’s stated objective and strategy, while providing the highest standards of legal, regulatory and commercial conduct.

The Board, with the Portfolio Managers, sets the overall investment strategy and reviews this at an annual strategy day which is separate from the regular cycle of board meetings. In order to ensure good governance of the Company, the Board has set various limits on the investments in the portfolio, whether in the maximum size of individual holdings, the use of derivatives and bank loans, the level of gearing and others. These limits and guidelines are regularly monitored and reviewed and are set out in the Annual Report.

The Board receives regular reports from the Company’s Broker which covers market activity, how the Company compares with peers in the AIC Europe and European Smaller Companies sectors on performance, discount and share repurchase activity, an analysis of the Company’s share register and market trends.

The Board places great importance on communication with shareholders. The Annual General Meeting (“AGM”) provides the key forum for the Board and the Portfolio Managers to present to the shareholders on the Company’s performance and future plans and the Board encourages all shareholders to attend in person or virtually and raise any questions or concerns. The Chairman and other Board members are available to meet shareholders as appropriate. Shareholders may also communicate with Board members at any time by writing to them at the Company’s registered office at FIL Investments International, Beech Gate, Millfield Lane, Tadworth, Surrey KT20 6RP or via the Company Secretary at the same address or by email at investmenttrusts@fil.com .

The Portfolio Managers meet with major shareholders, potential investors, stock market analysts, journalists and other commentators throughout the year. These communication opportunities help inform the Board in considering how best to promote the success of the company over the long-term.

The Board seeks to engage with the Manager and other service providers and advisers in a constructive and collaborative way, promoting a culture of strong governance, while encouraging open and constructive debate, in order to ensure appropriate and regular challenge and evaluation. This aims to enhance service levels and strengthen relationships with service providers, with a view to ensuring shareholders’ interests are best served, by maintaining the highest standards of commercial conduct while keeping cost levels competitive.

Whilst the Company’s direct operations are limited, the Board recognises the importance of considering the impact of the Company’s investment strategy on the wider community and environment and considers the Manager’s Environmental, Social and Governance (ESG) approach.

In addition to ensuring that the Company’s investment objective was being pursued, key decisions and actions taken by the Board during the reporting year, and up to the date of this report, have included:

•   As part of the Board’s succession plan, appointing Davina Walter as Chairman of the Board to replace Vivian Bazalgette as Chairman of the Board when he stepped down at the conclusion of the AGM on 8 May 2025;

•   Holding multiple ad hoc Board meetings between March and September 2025 in the lead up to combining assets with Henderson European Trust plc ("HET");

•   The decision to combine assets with those of HET on 29 September 2025 (see further details in the Chairman’s Statement above and also in the Notes to the Financial Statements below). As part of the combination, appointing Vicky Hastings and Rutger Koopmans to the Company’s Board.

•   Following the combination of assets with HET, agreeing a lower management fee with the Manager with effect from 29 September 2025. This is made up of: 0.70 per cent of net assets up to and including £400 million; 0.65 per cent of net assets in excess of £400 million and up to £1.4 billion; and 0.55 per cent of net assets in excess of £1.4 billion.

•   The decision to pay an interim dividend of 3.90 pence per ordinary share and a final dividend of 6.00 pence per ordinary share (a total of 9.90 pence per ordinary share), to maintain the Board’s policy to pay progressive dividends in normal circumstances. Subject to shareholder approval, the Company will have paid an increased dividend for 15 years in a row;

•   Authorising the repurchase of 9,286,723 shares into Treasury in the reporting year as part of the Board's discount management policy. Since the year ended 31 December 2025 and up to the latest practicable date of this report, a further 2,219,500 shares have been repurchased into Treasury;

•   Meetings with some of the Company’s key shareholders during the reporting year; and

•   The decision once again to hold a hybrid AGM in 2026 in order to make the AGM more accessible to those shareholders who are unable to or prefer not to attend in person.

Statement of Directors’ Responsibilities

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

Company law requires the Directors to prepare financial statements for each financial period. Under that law, the Directors have elected to prepare the Financial Statements in accordance with UK Generally Accepted Accounting Practice (UK Accounting Standards and applicable law), including Financial Reporting Standard FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland (“FRS 102”). Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the reporting period.

In preparing these Financial Statements, the Directors are required to:

•   Select suitable accounting policies in accordance with Section 10 of FRS 102 and then apply them consistently;

•   Make judgements and accounting estimates that are reasonable and prudent;

•   Present information, including accounting policies, in a fair and balanced manner that provides relevant, reliable, comparable and understandable information;

•   State whether applicable UK Accounting Standards, including FRS 102, have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

•   Prepare the Financial Statements on a going concern basis, unless it is inappropriate to presume that the Company will continue in business.

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

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors’ Report, a Corporate Governance Statement and a Directors’ Remuneration Report which 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 at www.fidelity.co.uk/europe to the Manager. Visitors to the website need to be aware that legislation in the UK governing the preparation and dissemination of the Financial Statements may differ from legislation in their own jurisdictions.

The Directors confirm that to the best of their knowledge:

•   The Financial Statements, prepared in accordance with UK Generally Accepted Accounting Practice, including FRS 102, give a true and fair view of the assets, liabilities, financial position and profit of the Company;

•   The Annual Report, including the Strategic 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; and

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

The Statement of Directors’ Responsibilities was approved by the Board on 17 March 2026 and signed on its behalf by:

Davina Walter

Chairman

INCOME STATEMENT

for the year ended 31 December 2025

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

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

On 26 September 2025, the Company combined assets with Henderson European Trust plc (“HET”), following a scheme of reconstruction. No other operations were acquired or discontinued during the year.

The Notes below form an integral part of these Financial Statements.

STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2025

The Notes below form an integral part of these Financial Statements.

BALANCE SHEET

as at 31 December 2025

Company number 2638812

The Financial Statements above and below were approved by the Board of Directors on 17 March 2026 and were signed on its behalf by:

Davina Walter

Chairman

The Notes below form an integral part of these Financial Statements.

NOTES TO THE FINANCIAL STATEMENTS

1   PRINCIPAL ACTIVITY

Fidelity European Trust PLC is an Investment Company incorporated in England and Wales that is listed on the London Stock Exchange. The Company’s registration number is 2638812, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as to continue to be approved.

2   ACCOUNTING POLICIES

The Company has prepared its Financial Statements in accordance with UK Generally Accepted Accounting Practice (“UK GAAP”), including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, issued by the Financial Reporting Council (“FRC”). The Financial Statements have also been prepared in accordance with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (“SORP”) issued by the Association of Investment Companies (“AIC”) in July 2022. The Company is exempt from presenting a Cash Flow Statement as a Statement of Changes in Equity is presented and substantially all of the Company’s investments are highly liquid and are carried at market value.

(a) Basis of accounting

The Financial Statements have been prepared on a going concern basis and under the historical cost convention, except for the measurement at fair value of investments and derivative instruments. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence up to 31 March 2027 which is at least twelve months from the date of approval of these Financial Statements. In making their assessment the Directors have reviewed income and expense projections and the loan agreement, reviewed the liquidity of the investment portfolio, stress testing performed and considered the Company’s ability to meet liabilities as they fall due. This conclusion also takes into account the Director’s assessment of the risks faced by the Company as detailed in the Going Concern Statement above.

In preparing these Financial Statements the Directors have considered the impact of climate change risk as an emerging and a principal risk as set out above, and have concluded that there was no further impact of climate change to be taken into account as the investments are valued based on market pricing. In line with FRS 102, investments are valued at fair value, which for the Company are quoted bid prices for investments in active markets at the balance sheet date and therefore reflect the market participants view of climate change risk on the investments held by the Company.

The Company’s Going Concern Statement above takes account of all events and conditions up to 31 March 2027 which is at least twelve months from the date of approval of these Financial Statements.

Issue of Ordinary Shares in respect of the transaction with Henderson European Trust plc (“HET”)

On 29 September 2025, the Company issued new ordinary shares which were provided to shareholders of HET, in connection with the combination of the assets of the Company with the assets of HET.

The Directors have considered the substance of the assets and activities of HET in determining whether the acquisition represents the acquisition of a business. In this case, the acquisition is not considered to be an acquisition of a business, and therefore, has not been treated as a business combination. Rather, the cost to acquire the assets and liabilities of HET has been allocated between the acquired identifiable assets and liabilities based on their relative fair values on the acquisition date without attributing any amount to goodwill or to deferred taxes. Net assets transferred comprised investments, cash, loans, payables and HET contribution to the transaction. A total of £462,717,000 of assets were acquired as a result of the transaction with HET. This comprised: investments of £478,394,000, cash of £13,631,000, loan notes of -£30,522,000, payables of -£74,000 and a HET contribution to the transaction of £1,288,000.

Transaction costs of £892,000 in relation to the combination of HET have been recognised in the Income Statement in Note 10. Costs of £406,000 in relation to issuing new shares have been recognised in the Statement of Changes in Equity.

Fidelity has agreed to make a material contribution by means of a waiver of the management fees that would otherwise be payable, under the AIFM Agreement and the Investment Management Agreement, in respect of the net assets transferred by HET to the Company following the combination of assets for the 12 month period immediately following the effective date. Fidelity’s total contribution was £2,537,000 allocated £634,000 against Revenue and £1,903,000 against Capital.

Since 26 September 2025, the base investment management fee has been charged at an annual rate of 0.70% (previously 0.85%) on the first £400 million of net assets, 0.65% (previously 0.65%) on net assets above £400 million and up to £1.4 billion, and 0.55% on net assets in excess of £1.4 billion. Fees are payable monthly in arrears and are calculated on a daily basis.

b) Significant accounting estimates and judgements

The Directors make judgements and estimates concerning the future. Estimates and judgements are continually evaluated and are based on historical experience and other factors, such as expectations of future events, and are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The Company’s Financial Statements contain no key sources of estimation or uncertainty.

c) Segmental reporting

The Company is engaged in a single segment business and, therefore, no segmental reporting is provided.

d) Presentation of the Income Statement

In order to better reflect the activities of an investment company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been prepared alongside the Income Statement. The net revenue return/(loss) after taxation for the year is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1159 of the Corporation Tax Act 2010.

e) Income

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

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

Interest received on CFDs, bank deposits, collateral and money market funds is accounted for on an accruals basis and credited to the revenue column of the Income Statement. Interest received on CFDs represent the finance costs calculated by reference to the notional value of the CFDs.

f) Investment management fees and other expenses

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

•   The investment management fee is allocated 25% to revenue and 75% to capital in line with the Board’s expected long-term split of revenue and capital return from the Company’s portfolio of investments; and

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

g) Functional currency and foreign exchange

The functional and reporting currency of the Company is UK sterling, which is the currency of the primary economic environment in which the Company operates. Transactions denominated in foreign currencies are reported in UK sterling at the rate of exchange ruling at the date of the transaction. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the Balance Sheet date. Foreign exchange gains and losses arising on translation are recognised in the Income Statement as a revenue or a capital item depending on the nature of the underlying item to which they relate.

h) Finance costs

Finance costs comprises interest on the unsecured loans notes, overdrafts and finance costs paid on CFDs, which are accounted for on an accruals basis. Finance costs are allocated 25% to revenue and 75% to capital in line with the Board’s expected long-term split of revenue and capital from the Company’s portfolio of investments.

i) Taxation

The taxation charge represents the sum of current taxation and deferred taxation.

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

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

j) Dividend paid

Dividends payable to equity shareholders are recognised when the Company’s obligation to make payment is established.

k) Investments

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

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

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

l) Derivative instruments

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

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

•   Futures – the difference between the contract price and the quoted trade price.

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

m) Debtors

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

n) Amounts held at futures clearing houses and brokers

These are amounts held in segregated accounts on behalf of brokers as collateral against open derivative contracts. These are carried at amortised cost.

o) Cash and cash equivalents

Cash and cash equivalents may comprise cash at bank and money market funds which are short-term, highly liquid and are readily convertible to a known amount of cash. These are subject to an insignificant risk of changes in value.

p) Loan notes (unsecured)

Loan notes are initially included in the Financial Statements at cost, being the fair value of the consideration received net of any issue costs relating to the borrowing. After initial recognition, the loans are measured at amortised cost using the effective interest rate method. The amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement.

q) Other creditors

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

r) Capital reserve

The following are accounted for in the capital reserve:

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

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

•   Foreign exchange gains and losses of a capital nature;

•   75% of investment management fees and finance costs;

•   Dividends receivable which are capital in nature; and

•   Cost of repurchasing shares.

Technical guidance issued by the Institute of Chartered Accountants in England and Wales in TECH 02/17BL, guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006, states that changes in the fair value of investments which are readily convertible to cash, without accepting adverse terms at the Balance Sheet date, can be treated as realised. Capital reserves realised and unrealised are shown in aggregate as capital reserve in the Statement of Changes in Equity and the Balance Sheet. At the Balance Sheet date, the portfolio of the Company consisted of investments listed on a recognised stock exchange and derivative instruments contracted with counterparties having an adequate credit rating, and the portfolio was considered to be readily convertible to cash.

3   INCOME

No special dividends have been recognised in capital during the year (2024: £1,271,000).

4   INVESTMENT MANAGEMENT FEES

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

Fidelity has agreed to make a material contribution by means of a waiver of the management fees that would otherwise be payable, under the AIFM Agreement and the Investment Management Agreement, in respect of the net assets transferred by HET to the Company following the combination of assets for the 12 month period immediately following the effective date.

Since 26 September 2025, the base investment management fee has been charged at an annual rate of 0.70% (previously 0.85%) on the first £400 million of net assets, 0.65% (previously 0.65%) on net assets above £400 million and up to £1.4 billion, and 0.55% on net assets in excess of £1.4 billion. Fees are payable monthly in arrears and are calculated on a daily basis.

Investment management fees have been allocated 75% to capital reserve in accordance with the Company’s accounting policies.

5   OTHER EXPENSES