European Assets Trust NV:

UNAUDITED INTERIM RESULTS – SIX MONTHS TO 30 JUNE 2005

The Company’s sterling net asset value total return (capital performance with dividends added back) rose over the six months by 13.7 per cent (19.2 per cent in Euro terms); and over the past year by 32.7 per cent (31.8 per cent in Euro terms).
The Company’s sterling share price total return (share price with dividends added back) rose over the six months by 19.0 per cent (24.7 per cent in Euro terms); and over the past year by 43.8 per cent (42.8 per cent in Euro terms).
In accordance with the Company’s stated policy, dividends payable for the year of 6 per cent based on net asset value at the start of the year. The dividend of Euro 0.555 per share for 2005 represents an increase of 19.4 per cent over the previous year.
Dividend Information

2005

Two dividends of €0.175 per share each have been paid in January and May 2005 and a further dividend will be paid in August 2005 of €0.205 per share. This will result in total dividends paid for the year of €0.555 per share. The increase in the August dividend is to compensate shareholders for a small element of Dutch withholding tax that will apply to it.

Investment Manager’s Review

Performance

Continental European smaller company share prices registered strong gains in the first six months of 2005. The HSBC Smaller Europe (ex UK) Index climbed by 20.1 per cent in Euro total return* terms over the period, almost double the return recorded by the equivalent large capitalisation index. After briefly dipping in March and April, share prices resumed their upwards trend towards the end of the first half. Instrumental in the late spring move was a temporary fall in oil prices and a resurgence in the value of the US dollar. These factors outweighed news of disappointing economic growth rates across continental Europe in the first quarter of 2005 with both Italy and now the Netherlands in technical recession. Another mitigating factor was the company results season which lived up to best expectations. Despite the risks posed to companies’ cost base from the dramatically higher prices for oil and other basic raw materials, margins continue to benefit from earlier cost cutting and negligible wage inflation. Further support for the small and mid-sized asset class came from a marked increase in takeover activity both from private equity houses and corporate buyers.

The net asset value of European Assets Trust rose by 19.2 per cent in Euro total return* terms over the first six months of 2005. Several recent additions to the Trust’s portfolio made particularly noteworthy gains over the period. Spanish-based Fadesa rose by 68% in Euro total return* terms, benefiting from earnings upgrades and broader broker coverage. This innovative developer of residential property now ranks among the larger holdings in the Trust’s portfolio. The higher oil price helped French company, Groupe Bourbon to a gain of 59% in the first six months of 2005. Its oil platform service and maintenance vessels are

expected to profit from a likely increase in exploration and production activity. Another strong performer was Italian civil engineering firm Astaldi which published an aggressive but convincing business plan to 2009. Astaldi shares gained 50% by the end of June. Not all of the Trust’s Italian investments were so successful. Broadband internet provider Fastweb fell by 10% as investors responded to increasing competition in the domestic market. Growing competition was also a factor behind the drop of 14% in the share price of Indesit, the white goods manufacturer. We have ‘bitten the bullet’ with both these poorly-performing stocks and liquidated the positions. One of the key criteria for retention of a stock in the portfolio is for the company to hold a franchise of sufficient strength to withstand competitive pressure. The benefits of a strong franchise are demonstrated by the example of Trust holding, Jurys Doyle Hotel Group. The company stands out among hotel operators by offering accommodation at a unique brand of value-for-money Inns in prime locations. This proven business model has now lured a potential corporate buyer for the group who is prepared to offer a minimum 30% premium to the price in the market.

The Investment Managers welcome recent announcements concerning the simplification and liberalisation of the Dutch tax regime; the measures should benefit the Company.

Gearing

During the first six months of the year, the Managers employed gearing in the range of 2% to 8% of asset value in order to take advantage of new investment opportunities. The use of flexible borrowing powers is a useful feature to enhance returns to shareholders in favourable market conditions.

Outlook

It is all too easy to focus on the political, social and economic problems which face Europe. The French and Dutch referenda on the EU constitution delivered a clear ‘no’ vote. Ageing populations are increasing the strains on already over-burdened social welfare schemes. Economic growth across Europe is slow to gain traction.

This challenging backdrop however masks positive developments initiated by management and employees of many companies. With the "one size fits all" Euro, companies in countries with legacy weak currencies are forced to accept that their declining sales or profits momentum is not going to be ‘rescued’ by devaluation or interest rate reductions. Longer working hours are being agreed in return for job guarantees. Performance-related pay is becoming the norm for senior company managers. For smaller companies, where work practices have not yet become entrenched, the shift in business practice and thinking is easier to make. On visits to and by company management, we encounter a desire to generate long-term stakeholder value, not just for shareholders but also for employees and communities. For the communities, the proof comes in the form of greater attention to environmental and social issues. For employees, the proof comes in the form of profit related bonuses rather than formulaic ‘holiday allowances’. For shareholders, the proof comes in the form of a marked improvement in measures of return on capital and return on equity within the smaller capitalisation asset class.

In selecting stocks for inclusion in the Trust’s portfolio, the Managers pay particular attention to these measures and to the consistency of cashflow and value creation. This is manifest in a number of the Trust’s key holdings. Our companies look to grow their franchise by reinvesting their annual cashflow in value-enhancing acquisitions or organic growth. In the event that opportunities are not available, or do not meet the criterion of value

enhancement, management is now committed to return cash to shareholders. The Interim report to shareholders will contain a brief description of the Trust’s top five holdings and a summary of their financial results. You will see from this that Indra this year raised its dividend by 226%, Neopost by 180% and Andritz by 40%. Fadesa, a newly-listed company, paid a dividend for the first time and Logitech is creating shareholder value not by paying out cash dividend but by buying back shares for cancellation. We consider the outlook to be favourable for the companies in the smaller capitalisation asset class in general and especially so for the companies in the portfolio of European Assets Trust.