Eastnine — Annual Report 2011

Apr 3, 2012

East Capital Explorer Annual Report 2011

Contact

Investor relations and media contact: Charlotte Åsberg Investor Relations Manager +46 8 505 885 94 charlotte.asberg@eastcapitalexplorer.com

Visiting address: Kungsgatan 30, Stockholm Sweden

Postal address: P.O. Box 7214 SE-103 88 Stockholm Sweden

www.eastcapitalexplorer.com

Your opinion is very welcome

Let us know how we can improve our financial reports, investor service and website. Please email your suggestions or ideas to us at ir@eastcapitalexplorer.com.

Change of address

Changes of address of physical persons who are registered as Swedish residents are made automatically by Euroclear Sweden AB. Please note that shareholders who have chosen not to have their addresses updated automatically must, themselves, notify their account-operating institute.

Shareholders whose holdings are registered in the name of a trustee, should notify the trustee as soon as possible of any changes in their name, address or account number. Other shareholders must notify changes of address and changes of account number to Euroclear Sweden AB, phone: +46 8 402 90 00, e-mail: info@euroclear.eu.

Financial information and calendar

• Indicative monthly Net Asset Value report on the fifth working day after the end of each month

• Annual General Meeting 2012 on 25 April 2012
• Interim Report 1 January 31 March 2012, 8 May 2012
• Interim Report 1 January 30 June 2012, 7 August 2012
• Interim Report 1 January 30 September 2012, 9 November 2012

The annual report, other financial reports and information as well as press releases, are available on www.eastcapitalexplorer.com. Shareholders and other interested persons may sign-up on the website for a subscription to East Capital Explorer's reports and press releases to be sent directly to their e-mail address.

The printed annual report is sent to shareholders who have notified East Capital Explorer that they wish to receive printed financial information from the Company.

More information about our investment region

Do you want to know more about what happens in our investment region? Please visit our Investment Manager East Capital's website www.eastcapital.com for news, analyses and market comments

AGM 2012

The Annual General Meeting of East Capital Explorer AB (publ) will be held at 3.00 p.m. CET on Wednesday, 25 April 2012 at Konserthuset, Hötorget in Stockholm, Sweden.

Programme

12:15 Registration for the AGM opens (registration closes at 3:00 pm)

• 1:00 Presentations and round-table discussion with representatives from the Investment Management Team at East Capital:
• Extraordinary economic development overshadowed by politics Russia's economy moves full speed ahead! Marcus Svedberg, Chief Economist, East Capital
• East Capital Explorer well-positioned to take advantage of the market recovery in Eastern Europe Peter Elam Håkansson, Chairman and Founding Partner, East Capital
• Melon Fashion Group an investment case demonstrating the potential in today's Russia Kestutis Sasnauskas, Head of Private Equity and Founding Partner, East Capital
• 1:50 Panel discussion and questions
• 2:10 Guest speaker Ingmar Karlsson talks about his book, "Europa och turken — betraktelser kring en komplicerad relation", which reflects on the historical relations between Turkey and Europe
• 2:10 Coffee break
• 3:00 AGM

Participation

To be entitled to participate in the Annual General Meeting, shareholders must: be recorded in the register of shareholders maintained by Euroclear Sweden AB on Thursday, 19 April 2012 and have notified the company of their attendance no later than 4:00 p.m. CET on Thursday, 19 April 2012.

Notification of attendance may be made:

On the web: www.eastcapitalexplorer.com/en/agm2012

In writing to: East Capital Explorer "Annual General Meeting" P.O. Box 7839 103 98 Stockholm Sweden

By telephone to: +46 8 402 90 46

When notifying regarding attendance, please state name, personal/ company registration number, address, daytime telephone number, e-mail, number of shares as well as any assistants attending (maximum two).

Please note that shareholders whose shares are registered in the name of a nominee, must temporarily re-register their shares in their own name. Such registration must be in effect with Euroclear Sweden AB no later than Thursday, 19 April 2012. Shareholders are requested to inform their nominees well in advance of this date.

About East Capital Explorer

This is East Capital Explorer	4
East Capital Explorer in figures	6
Main events during 2011	6
The East Capital Explorer share	8
Comment from the CEO	10

About Eastern Europe

2 About Eastern Europe
Developments in Eastern Europe	13
Comment from the Investment Manager	14
About the Investment Manager: East Capital	15

Our Portfolio

Portfolio Overview	17
Fund Investments
East Capital Bering Balkan Fund	18
East Capital Bering Central Asia Fund	20
East Capital Bering New Europe Fund	22
East Capital Bering Russia Fund	24
East Capital Bering Ukraine Fund A	26
East Capital Bering Ukraine Fund R	28
East Capital (Lux) Eastern European Fund	30
East Capital Power Utilities Fund	32
East Capital Special Opportunities Fund	34
3 East Capital Special Opportunities Fund II	36
Direct Investments
Melon Fashion Group	38
TEO LT	40
Komercijalna Banka Skopje	41
Trev-2 Group	42
East European Debt Finance	43
Populi	44

Corporate Governance

A word from our Chairman	47
Corporate Governance	48
Staff	53
Board of Directors	54
4 Managing our risks	56
A more sustainable investment approach	58
Fees	60
Internal Control	62

Wimm-Bill-Dann Foods 44

Financial Statements

Administration Report	65
Financial Statements	68
Notes	76
Five-Year Summary	95
Auditor's Report	97

This is East Capital Explorer

Our Business Concept and Objective

East Capital Explorer (ECEX) is a Swedish company listed on NASDAQ OMX Stockholm Stock Exchange, created with the specific aim of bringing unique investment opportunities in Eastern Europe to a broader investor base.

Our business concept is to offer our shareholders a liquid investment exposure to a unique portfolio of less liquid or unlisted companies in otherwise hard-to-reach parts of Eastern European markets. The Company primarily invests in East Capital's special fund products, normally only available to larger investors as they require high minimum investments. These funds have a less restrictive investment mandate compared to UCITS-funds which means higher flexibility in the choice of investments and allocations. East Capital Explorer also makes direct investments into private and public companies.

Through our unique connection to East Capital, as Investment Manager for the Company's investments, we benefit from their local presence, extensive network and long experience in the region. It is East Capital's investment expertise that creates the primary value for our shareholders. The objective of this business concept is to achieve long-term capital appreciation. As investments in emerging markets often entail significant risks, they should be made with a long term perspective.

Our Strategy

Our strategy is to capture the growth by investing in sectors and companies having the most to gain from the long-term development trends of the countries in our investment universe* which include, but are not limited to, EU convergence and catch-up process. Strong domestic demand is a key driver for growth in Eastern Europe and this is one of our key investment themes. In addition to the retail and consumer goods sector, East Capital Explorer targets other fast growing sectors such as financial, real estate and power utilities, providing interesting opportunities. The Company is primarily focusing on small- and medium-sized companies with high growth potential.

The investment portfolio is actively managed to optimize the long term value for our shareholders. All investments are considered very carefully from a risk and return perspective and the company is managing risk through a diversified portfolio. Long term capital allows investments over the full performance cycle.

* East Capital Explorer invests in Russia and the CIS countries, tha Balkans, the Baltic States, Central Asia and Central Europe

Still room for high growth in domestic sectors

Russia's penetration curve (as a % of EU)

Why the Real Estate sector?

• • Low correlation with equity markets
• Inflation protected through CPI indexation in rental contracts
• Benefit from economic growth, political stability and improved opportunities for financing

Why the Retail and Consumer Goods sector?

• Strong consumer demand driven by a growing middle class
• Strong purchasing power due to low expenses, increasing wages and flat taxes

• Increasing access to consumer credits

• • Despite strong growth in domestic sectors, the penetration of goods and service in Russia compared to EU average is still low within a number of sectors. The most interesting investment opportunities going forward will be found in the domestic sectors with the lowest penetration as they have the highest catch-up potential

• Rapidly rising wages and standards of living combined with more disposable income and greater access to credit market continue to positively influence the retail and consumer sector
• The middle class is growing rapidly and the prospects look very promising for companies able to gain from this development process

Source: Troika 2010

Why the Power Utilities sector?

• Deregulation as a consequence of huge investment needs
• Changes in pricing expected
• • Positive benefits from strong economic growth and demand remain

East Capital Explorer offers access to

• An economically dynamic region: including 30 countries and almost 450 million inhabitants. EU convergence and strong domestic demand are key drivers for growth. Eastern Europe is expected to grow more than three times faster than Western Europe over the next five years, with a third of the debt levels

• Attractive sectors: East Capital Explorer concentrates on those sectors assessed to provide the best long-term growth prospects

• A well-diversified portfolio: East Capital Explorer primarily provides exposure to small and medium-sized companies, which are not easily accessible in Eastern Europe. This is primarily done through East Capital's special fund products. At the end of 2011, our portfolio included exposure to approximately 400 companies

• An experienced Investment Manager: The investment activities of East Capital Explorer are managed by East Capital, which has almost a 15-year track-record, and is one of the largest investors in the region with local presence and an extensive network in these countries

Why the Financial sector?

• Banking is a play on overall economic growth
• Lower penetration of banking services than developed markets (i.e. deposits/GDP, loans/GDP)
• Consolidation may lead to merger and acquisition activity

Great potential for growth in banking services

Mortgage debt (EUR/per capita)

• The financial sector has experienced a period of high growth, however not without volatility, but has still largely under-penetrated local markets

• • The growth and development that has occurred in the Eastern European countries that have become members of the European Union is likely to continue in the countries which have not progressed as far in the convergence process
• • Retail banking is one of the fastest growing segment of the banking market, driven by positive economic conditions and rising

Source: European Mortgage Federation 2010

East Capital Explorer in figures

Top 10 companies in East Capital Explorer's portfolio on a see-through basis1

On 31 December 2011 Company	% of NAV	Value in portfolio, EURm	Country		Sector East Capital Explorer's investment vehicle
TEO	6.8	20.0	Lithuania	Telecommunication Services	Direct investment East Capital Special Opportunities Fund, East Capital (Lux) Eastern European Fund
Melon Fashion Group	6.6	19.5	Russia	Consumer Discretionary Direct investment
Komercijalna Banka Skopje	3.9	11.5	Macedonia		Financials Direct Investment East Capital Bering Balkan Fund
Fondul Proprietatea	3.0	8.8	Romania		Financials East Capital Bering Balkan Fund East Capital Special Opportunities Fund East Capital (Lux) Eastern European Fund
Integra	2.3	6.7	Russia		Energy East Capital (Lux) Eastern European Fund East Capital Special Opportunities Fund East Capital Special Opportunities Fund II
Verofarm	1.9	5.6	Russia		Health Care East Capital Bering Russia Fund East Capital Special Opportunities Fund East Capital Special Opportunities Fund II
Bank of Georgia	1.5	4.4	Georgia		Financials East Capital Bering Central Asia Fund East Capital (Lux) Eastern European Fund
Trev-2 Group	1.4	4.1	Estonia		Industrials Direct Investment East Capital Bering Russia Fund East Capital Bering Ukraine Fund R
B92	1.4	4.1	Serbia		Consumer Discretionary East Capital Bering Balkan Fund
Korshunovsky GOK	1.3	3.7	Russia		Materials East Capital Bering Russia Fund East Capital Special Opportunities Fund

Total top 10 30.2 88.5

1 As if East Capital Explorer AB had owned its pro-rata share of all the underlying securities in the different funds it has invested in

East Capital Explorer's portfolio per 31 December 2011 (%)

Populi

East Capital Bering Balkan Fund East Capital Power Utilities Fund East Capital Special Opportunities Fund East Capital Bering Russia Fund East Capital Special Opportunities Fund II Melon Fashion Group East Capital Bering Central Asia Fund TEO LT East Capital Bering New Europe Fund Komercijalna Banka Skopje East Capital (Lux) Eastern European Fund East Capital Bering Ukraine Fund A East Capital Bering Ukraine Fund R Trev-2 Group East European Debt Finance (EEDF)

Fund investments Direct investments

Small cap/value Industry restructuring/event driven Special situations/activist Small cap/value Special situations/activist Retail/growth Small cap/value Telecom/value Small cap/value Financials/growth Eastern Europe Small cap/value Small cap/value Infrastructure/growth Financials/growth Retail/growth

	Main events during 2011
January	February	March	April	May	June
Nav in EUR
100				Komercijalna Banka Skopje	TEO LT paid a dividend
95	Divestment of EUR 5m from the		Exit, receiving EUR 13m from the East Capital Special Opportuni	paid a dividend of approxi mately EUR 0.7m to ECEX	of EUR 1.2m to ECEX
90	East Capital (Lux) Eastern Euro pean Fund		ties Fund
85	Q1 Direct investment of EUR	Additional investments of EUR 1.1m into TEO LT	Exit, receiving EUR 20m from the East Capital Power Utilities Fund	Q2
70	12m in Komercijalna Banka Skopje	Additional direct invest		The AGM approved the Board's propos	Exit of the total holding in Wimm-Bill Dann Foods for EUR 7.4m, and realized
75	Additional investment of	ment of EUR 0.5m in Populi	al under the Company's new dividend policy to pay a dividend to the share		an annualized pre-tax return of 17.4% on its initial EUR 6.8m investment
60	EUR 5m in the East Capital Bering Balkan Fund		holders of SEK 0.80 per share

• The sector breakdown is substantially in line with strategy. As of 31 December 2011, 74% was invested in key sectors such as financials, utilities, consumer discretionary, consumer staples and telecommunication services

• The portfolio has so far been underweighted in the real estate sector. The sector was strongly influenced by the financial crisis but has started to stabilize in parts of our region. Right now we see a high potential in the Baltic real estate market which offers excellent investment opportunities with attractive yields, strong cash flow and sustainable rental terms. During 2012 an investment of EUR 10m in the East Capital Baltic Property Fund II will be made as we think that the timing is right to increase our exposure to this sector

• Overall, there will be a continued focus on domestic economy and growth in domestic demand

• The country breakdown is almost in line with strategy as well as the current market and economic outlook

• The highest exposure is towards Russia (45%) which has been in focus since inception. There is also a high exposure to the Balkan countries (25%). Smaller markets in Southeastern Europe (The Balkans) are lagging in the recovery from the 2008 crisis and some markets in the region are even -80% from peak. The main reason is that the markets are relatively small and investors have so far primarily focused on larger markets. The long term potential in this region is high and offers interesting investment opportunities

• The largest geographical deviation from the original target is Kazakhstan and Ukraine. These two countries are currently characterized by a high level of political unrest, and are below original target weight, which has proven to be positive

• Lithuania stands out, but is a result of the activist investment in TEO LT, the Lithuanian telecommunications company

○ 65 Listed ○ 15 Unlisted ○ 20 Cash and short

term investments*

* = cash and short term investments, incl cash in underlying funds

• The investment portfolio consists of more listed companies (65%) than in the original strategy and the reason is primarily opportunistic. Many listed companies value decreased more sharply compared to unlisted companies after the 2008 crisis. Therefore valuation became cheaper which has created attractive opportunities in the medium term. The weight of unlisted companies is expected to increase as the valuation discrepancies between listed and unlisted securities decrease

• The Company's main focus is on small and medium-sized companies which offer the highest growth potential long term. Larger companies show a faster recovery after a period of strong negative market sentiment, which is a reason why we have a larger proportion of larger companies in our portfolio. Small caps have not yet recovered and are likely to rebound later in the recovery phase

• Cash and short term investments amounts to 20%. The amount is expected to decrease since there is an attractive pipeline of potential investments as well as attractive price levels in the market

Impairment of the value of the shares in Melon Fashion Group and Populi with -30% and -35% respectively due to failure to meet Q3 previous set expectations	Additional investment of EUR 0.9m intoTEO LT	Mia Jurke succeeded Gert Tiivas as CEO Additional investment of EUR 1.3m Q4 into TEO LT bringing the total invest ment during 2011 to EUR 3.3m	External valuations were performed for the direct investments in Melon Fashion Group (+1.4%), Populi (-94%), and Trev-2 Group	100 95 90 85
Direct investment of EUR 4m in Trev-2 Group	The Board decided to utilize its repurchase authoriza tion. In October, the program was prolonged until the 30 March 2012. During the period 15 September until 31 December, 1,081,554 shares were repurchased at an aver age price of SEK 51,54 per share, which corresponded to 3.1% of the Company's outstanding number of shares.		The investment of EUR 13m in Melon Fashion Group as part of the deal with Swedfund Interna tional AB was completed	70 75 60

The East Capital Explorer share

East Capital Explorer provides a liquid exposure to unique investment opportunities across the Eastern European region through listing on NASDAQ OMX Stockholm, Mid Cap. The closing price per share on 31 December 2011 was SEK 53.75 (corresponding to EUR 6.03). During the year, the share price declined in value by 36.6%. On 31 December 2011, the Net Asset Value per share amounted to EUR 8.69 (corresponding to SEK 77).

Net Asset Value per share, EUR	8.69	12.33	9.61	7.31	10.87
Net Asset Value per share, SEK	77	111	99	80	103
Net Asset Value development during the year, EUR	-32%	26%	29%	-33%	1%
Share price on 31 December, SEK	53.75	84.75	67.00	40.20	100.00
Lowest, SEK	48.60	65.25	38.20	37.30	95.50
Highest, SEK	91.50	88.00	72.75	102.00	108.00
Market capitalization on 31 December, MSEK	1,815	2,954	2,378	1,458	3,627
Share price development during the year, SEK	-37%	26%	67%	-60%	0%
Premium/discount to NAV on 31 December	-30%	-24%	-32%	-50%	-3%
Average premium/discount during the year	-31%	-29%	-34%	-19%	-2%
Total turnover, shares	12,425,137	13,969,467	19,010,661	15,696,617	6,157,487
Average daily turnover, shares	49,911	55,215	75,740	62,288	186,591
Development of relevant indices
SAX (OMX Stockholm All Share index), SEK	-17%	26%	52%	-40%	-5%
RTS-2 (Russian Trading System 2nd tier index), SEK	-21%	48%	143%	-75%	11%
MSCI Emerging Markets Europe, SEK	-24%	9%	64%	-62%	3%
Share capital and number of shares
Share capital at 31 December, EUR	3,628,059	3,628,059	3,628,014	3,627,016	3,627,016
Number of shares at 31 December **	33,770,121	34,851,675	35,499,160	36,270,160	36,270,160
Average number of shares	34,645,318	34,967,923	35,651,491	36,270,160	35,032,755
Ownership structure
Number of shareholders on 31 December	7,123	8,247	9,381	9,984	11,648
% shares held outside Sweden	46%	44%	37%	35%	47%

* 9 November – 31 December 2007

** Excluding shares held by the Company following buy-backs

20 largest shareholders and custodians* on 30 December 2011
Name	Number of shares	Holding %
East Capital Asset Management Funds	2,166,229	6.2
Alecta Pensionsförsäkring	2,070,000	5.9
Morgan Stanley & CO Intl. PLC, W8IMY	1,993,690	5.7
Mellon Omnibus 30%, Agent F ITS clients	1,934,866	5.6
JPM Chase	1,315,105	3.8
East Capital Partners**	1,252,217	3.6
East Capital Explorer AB	1,081,554	3.1
Nordea Investment Funds	954,090	2.7
East Capital AB clients	709,773	2.0
SSB CL Omnibus AC OM09	660,879	1.9
SSB CL Omnibus AC OM03	624,146	1.8
Nordnet Pensionsförsäkring AB	583,479	1.7
Försäkringsaktiebolaget, Avanza Pension	564,256	1.6
JPM Chase	504,922	1.4
Fjärde AP-fonden	466,000	1.3
Danske Capital Sverige AB	460,000	1.3
Stena	450,000	1.3
Volvo Related Foundations	446,844	1.3
JP Morgan Bank	395,647	1.3
Veritas Eläkevakuutusosakeyhtiö	375,000	1.1
Total top 20 shareholders and custodians	16,370,767	54.5
Other 7,103 shareholders and custodians	18,480,908	45.5
Total	34,851,675	100.0

* A majority of the shares registered by foreign shareholders are registered through custodians. This implies that the beneficial shareholders are not officially registered. Certain shareholders may also register part of their holdings through custodians

** East Capital's own investment and investments by Partners in East Capital. The figure presented does not reflect all holdings by East Capital, its Partners and related parties (including funds represented by East Capital), which at the end of 2011 represented approximately 13% of the Company's shares

Shares and voting rights

East Capital Explorer has one class of shares, in total 34,851,675 shares. One share entitles the holder to one vote and all shares have equal rights in the assets and profits of the Group.

Own shares

On 12 April 2011, the Annual General Meeting 2011 issued a new repurchase authorization for the Board to decide on acquiring the company's own shares until the Annual General Meeting 2012.

On 15 September 2011, East Capital Explorer announced that the Company's Board had decided to utilize the repurchase authorization. The utilization of the authorization was prolonged on 12 October and allowed the Company to repurchase own shares up to and including 30 March 2012. From 15 September 2011 until the year-end, East Capital Explorer repurchased 1,081,554 own shares, corresponding to 3.1% of the shares in the Company. Average price per share paid was SEK 51.54.

Before 15 September 2011, the Company did not hold any own shares. The total number of outstanding shares in East Capital Explorer, including the ones held by the company, amount to 34,851,675. Excluding the shares held by the company on 31 December, the number of shares outstanding was 33,770,121. Adjusted for buybacks, the average number of shares outstanding for the twelve month period January to December was 34,645,318.

Dividend Policy

The Board of Directors proposes a dividend of SEK 0.80 per share for the fiscal year of 2011. The proposed dividend is unchanged compared to last year and will be decided upon at the Annual General Meeting on 25 April 2012. The Board of Directors has adopted a dividend policy, whereby East capital Explorer aims to pay dividends to its shareholders consistent with the long-term prospect of the Company. The size of the dividend will, among other things, be related to the size of the Company's received dividends and realized return on short-term investments during the preceding year.

Ownership distribution by size of holding

Number of shares per holding	Number of shareholders	% of share holders	Total number of shares	% of shares and votes
1 – 500	5,229	73.4	1,081,899	3.1
501 – 1,000	740	10.4	638,741	1.8
1,001 – 5,000	777	10.9	2,092,459	6.0
5,001 – 10,000	150	2.1	1,157,389	3.3
10,001 – 15,000	62	0.9	762,407	2.2
15,001 – 20,000	31	0.4	544,531	1.6
20,001 –	134	1.9	28,574,249	82.0
Total	7,123	100.0	34,851,675	100.0

Ownership distribution by country*

* A majority of the shares registered by foreign shareholders are registered through custodians. This means that the beneficial shareholders are not officially registered and the actual domicile of the shareholder cannot be verified and may be different from the domicile of the custodian

Share facts
Listing:	NASDAQ OMX Stockholm, Mid Cap
Listed since:	9 November 2007
ISIN-code:	SE002158568
GICS-code:	40203010
Ticker:	ECEX
Reuters:	ECEX.ST
Bloomberg:	ECEX SS Equity
Latest share price:	www.eastcapitalexplorer.com

Net asset value

A monthly indicative net asset value (NAV) per share is calculated per the last day of each month. East Capital Explorer's net asset value is calculated as the value of total assets (all investments plus all other assets, such as cash) less all liabilities, divided by the number of registered shares, i.e. the total number of outstanding shares less any repurchased shares held by the company. The value of East Capital Explorer's investments is based on the monthly net asset value reported for each respective East Capital fund in which we have invested plus the value of all our direct investments. For more information on the applied valuation principles, Note 1, page 76. The net asset value reports are not subject to review by the Company's auditors.

Please note that the base currency for East Capital Explorer's net asset value is EUR, while the base currency for the share price is SEK. Conversions of the net asset value to SEK and the share price to EUR are made only for information purposes. The resulting figure may vary according to the source and point in time of the conversion. East Capital Explorer obtains the applied exchange rates from Bloomberg at the end of the day.

The net asset value is published through a press release and on our website five business days after the end of the month. The latest portfolio report and net asset value report are always available on our website: www.eastcapitalexplorer.com.

Comment from the CEO

Mia Jurke CEO

"During the year, our total Net Asset Value decreased with 31.7%"

"I believe that one of my most important tasks is to ensure and make our shareholders confident in the corporate efficiency and high level of corporate governance in our Company."

"This year, the proposed dividend is SEK 0.80"

The year 2011 started out strong, but the risk appetite decreased during the spring. Since then, the main focus was towards the US and the Eurozone, where imbalances led to uncertainties in the market and a general shift away from assets perceived as risky among investors. We are again reminded about how global both markets and investors are.

Even if the major problems during this year have originated from other parts of the world, risk aversion has affected everyone and especially emerging markets. 2011 was a challenging year for financial markets in general and for East Capital Explorer. During the year, our total Net Asset Value (NAV) decreased with 31.7% and the value of the East Capital Explorer share decreased with 36.6%, both results we are not content with.

Portfolio activity

In the portfolio, after being more or less fully invested in 2010, there was a shift in 2011 from investment to reallocation. Some of the more sizable investments made include the investments in Komercijalna Banka Skopje and Melon Fashion Group. The companies are active in two of our defined target sectors, i.e. Financials and the Retail sector. The transaction in Melon Fashion Group, initiated in 2011, increased our holding to just above 30% of the company's shares, and resulted in a mandatory takeover offer. The result of this offer is expected to be limited but the final outcome will be known in May 2012. The holding's value was reduced in September, an adjustment much in line with the sector as a whole, and based on profitability below expected levels. The company is now focusing on growth in margins and operational efficiency and both the Investment Manager and we believe that the company has a strong potential for the future.

As for divestments, we made further partial exits from the East Capital Power Utilities Fund and the East Capital Special Opportunities Fund. Both divestments were done successfully close to the peaks in the respective funds. These were the largest divestments in our portfolio during the year and resulted in realized profit of totally EUR 9.8m. We also made an exit in Wimm-Bill-Dann Foods, an investment made in December 2010. The transaction was done to benefit from an arbitrage situation and is a good example on how our Investment Manager can take advantage of opportunities arising in the market on the Company's behalf.

My mission

2011 was an important year for me. Joining East Capital Explorer as CEO in October was very exiting but also challenging, considering the tough market

climate. I believe that one of my most important tasks is to ensure and make our shareholders confident in the corporate efficiency and high level of corporate governance in our Company. This is a responsibility that ultimately lies with our Board of Directors, but it is also an important focus area for me. I believe that the close cooperation with East Capital is a great strength enabling us to take advantage of East Capital's long experience as investors in our universe. At the same time, it is important that our shareholders are confident in the fact that all decisions are made with our shareholders' best interests in mind. Part of doing so is to continue the development of the internal control processes and work with the supervision of the outsourced services. We will also continue working with share buybacks and dividend payouts and other means of enhancing shareholder value that complement the management of the portfolio.

Share buybacks and dividend

In September 2011, the Board of Directors decided to again utilize the repurchase mandate given by the AGM. Until the end of the year, 3.1% of the outstanding shares were repurchased. Given the discount that the share was trading with during the last half of the year, this has been a tool to create shareholder value. In 2011 East Capital Explorer started paying dividends. This year, the proposed dividend is SEK 0.80, leaving the dividend level unchanged compared to last year. Looking at the overall result, 2011 was not a good year for the Company.

2012

In the beginning of 2012 we have started to see a recovery in the markets. Investors seem to have again realized that Eastern Europe is an attractive region to invest in, and there are many reasons why this is the case. First, the growth forecasts that despite having been lowered in the short run, are still expected to be three times higher than in Western Europe during the next five years. Second, the stability in the public finances is in general high. And last but not least, there is a great number of good, solid companies with strong growth potential which are right now trading at historically low levels.

"Investors seem to have again realised that Eastern Europe is an attractive region to invest in"

Considering this, we believe that East Capital Explorer continues to offer great relevance for investors. Our Investment Manager will continue to look for good investment opportunities and we strive to live up to the confidence shown by our shareholders.

Mia Jurke, CEO

Developments in Eastern Europe	13
Comment from the Investment Manager	14
About the Investment Manager: East Capital	15

Developments in Eastern Europe

Eastern Europe was characterized by economic and market recovery in 2010, a trend that continued during the first quarter of 2011 before it was disrupted by the Eurozone crisis. In a way, Eastern Europe was taken hostage by the problems in Western Europe.

Decent growth in 2011

Economic growth held up throughout Eastern Europe in 2011 even though early indicators started to signal a slowdown. Growth across the region was more homogeneous as growth started to approach its potential level in many economies. Average growth was around 4% with a number of frontier economies in Central Asia and also the Baltics outperforming together with Turkey while a handful of economies in Central and Southeastern Europe underperformed in terms of growth.

Real GDP Growth 2012E (% change)

The forecasts for 2012 were substantially revised down during the fall on the back of the expected slowdown in the Eurozone. Most economies will slow down and grow below potential in 2012 and the average growth is expected to be around 3%.

Volatile markets

There was no place to hide from an equity perspective as most markets sold off substantially on the back of the external turmoil. Most markets in the region performed well during the first four months of the year before the worries about the Greek economy resurfaced in May. Most markets then stabilized over the summer before being put under pressure in August and September due to the problems in the US and Eurozone. Markets rallied in October in anticipation of political agreements in the Eurozone (debt) and the US (fiscal), only to fall back again as the hopes faded towards the end of the year.

Market performance in 2011 (EUR % change)

Source: Bloomberg

Some of the smaller markets, like Latvia and Slovakia, managed to limit the fall to single digits while frontier markets like Ukraine and Kazakhstan underperformed the regional average and dropped 45% and 35% respectively. Most markets fell between 20-35% in EUR terms, the correction was primarily caused by external financial turmoil and exacerbated by depreciating currencies. The largest markets in Eastern Europe (Russia, Turkey and Poland) dropped around 20% in local currency terms in 2011, roughly the same as emerging markets in general. Both the Turkish and Polish markets were hit by substantial currency depreciation and their EUR performance was much worse than in local currency.

Outlook

We believe Eastern Europe will be characterized by an economic slowdown and market recovery in 2012. The two trends may seem mutually exclusive, but we believe that the economic and market fundamentals are supportive in some, but far from all, countries in Eastern Europe. Russia looks particularly well positioned to perform as the economy is supported by buoyant domestic demand as well as high commodity prices while the market is trading at very attractive multiples and close to an all-time high discount to other emerging markets. There are also a number of triggers, most notably WTO accession and increased political pressure for reforms, which could help to revalue the Russian market more fundamentally.

The outlook is based on a muddle through scenario for the Eurozone (no financial collapse but no growth) and a modest slowdown elsewhere, with global output between 3-4% and an oil price around USD 100 for Brent blend. We acknowledge that there are risks on the downside, especially in the Eurozone, and that Eastern Europe will be affected if these risks materialize. But the linkages between Eastern Europe and the Eurozone are uneven with large economies further east, like Russia and Turkey, being less dependent on trade with and investment from Western Europe.

Moreover, the rising middle class is not only an important driver of growth in large economies like Russia but also an increasingly important reform anchor.

Marcus Svedberg Chief economist, East Capital

Comment from the Investment Manager: Crises create opportunities

Peter Elam Håkansson Chairman, East Capital

2011 was by no means a strong year for stock markets. The effects of the financial crisis were once again felt, especially during the second half of the year. New problems, particularly for the Euro zone's southern member states, Greece, Italy, Spain and Portugal appeared. Despite the problems, 2011 offered many good investment opportunities.

Financial crises are also about opportunities. Our investment universe has experienced a number of financial crises since East Capital was founded in 1997, and it is important to have perspective when stock markets are falling. Today, large parts of the world face big problems with debt, but when we look at Eastern Europe we do not see the same indebtedness at the country or private individual levels.

Sovereign debt levels in Eastern Europe are also much lower than in Western Europe, and that difference is expected to increase in the coming years. Eastern Europe is in much better shape now than in 2008. Another advantage for Eastern Europe is that its growth rate is expected to be higher than that of Western Europe during the coming years.

"Eastern Europe is in much better shape now than in 2008. Another advantage for Eastern Europe is that its growth rate is expected to be higher than that of Western Europe during the coming years"

During difficult times, financial markets operate to a great extent on fear and psychology. At East Capital, we believe that such times call for a focus on fundamentals. A positive effect during turbulent times is that differences between good and bad companies tend to be put more clearly on display. In practice, this means that 2011 was a year that created many opportunities to lay the foundation for future value increase for an active asset manager such as East Capital. We know that the most sure-fire way to assess a company's business operations is through company visits, and we conducted a total of around 1,000 company visits in Eastern Europe during 2011.

As mentioned, 2011 was a very challenging year, as is reflected in the performance of the portfolio in East Capital Explorer. However, early in the year we made a number of timely exits on behalf of East Capital Explorer and managed to reap some of the

profit made in the East Capital Power Utilities Fund and the East Capital Special Opportunities Fund before the market downturn. The East Capital Special Opportunities Fund has entered its exit phase, and proceeds from divestments made in the fund are being returned to its unit holders on an ongoing basis.

In addition we realized high returns on our investment into the Russian food and dairy company, Wimm-Bill-Dann Foods. The rationale behind the investment was that PepsiCo made an offer on the company, but the local shares were continuing trading with a discount. The shares were only held during six months but the annualized return was 39.7% in the transaction currency dollar (17.4% p.a. in EUR).

The largest investment during the year was the purchase of Swedfund's shares in Melon Fashion Group, the Russian fashion retailer, increasing East Capital Explorer's holding to 31% of the company. The company has been expanding aggressively during the last years but has now turned its focus towards consolidation and profitability. We believe that Melon Fashion Group is well positioned to benefit from the future growth in the consumer goods sector. Our second largest investment was the purchase of a 10% stake in one of the leading banks in Macedonia, Komercijalna Banka Skopje, providing us with exposure to the economy of an exciting and growing region. Although 2011 was a tough year for European banks, Komercijalna Banka stood fast and kept growing.

All in all more than 10% of East Capital Explorer's portfolio was repositioned with divestments totaling EUR 45m and new investments of EUR 40m.

Less visible, but equally or perhaps even more important, for Explorer shareholders, we keep working actively within all the East Capital alternative funds, in which more than two thirds of the company's assets are held. These funds are set up to invest in smaller companies with less liquid shares, public or private, that cannot be invested in by broader UCITS-funds, hence providing a unique exposure to growing parts of the economy in the region that are not reflected in most listed large cap stocks. In a down market like 2011, many of these less liquid investments are hit harder than the market overall. While the risks are higher, we stand firm in our conviction that these will be matched by superior returns over time.

As for activity in the funds, the general focus has been on reducing smaller holdings and increasing the concentration of the funds in order to be better positioned for a turnaround in the market. We have also managed to sell off a few holdings well above

About the Investment Manager: East Capital

market price to strategic buyers. More on the activity in the funds is presented later in the report by other members of the Investment Management team.

"We know that the stock market rallies after tough times, and that during tough times opportunities for investments can be found that otherwise would not have been available."

2011 was in all respects an eventful and challenging year. However, as a long-term investor, we know that the stock market rallies after difficult times, and that during tough times opportunities for investments can be found that otherwise would not have been available. The investment in the East Capital Baltic Property Fund II that will take place in 2012 is an example of this theme. The property markets were in general hit very hard during the 2008 crisis. The Baltic real estate sector has now to a large part recovered and the rent levels have stabilized, the excess in the market has mainly disappeared but the price level is still very attractive. We believe that this is a good time for East Capital Explorer to enter this market and increase its exposure in the real estate sector.

This year so far, is off to a good start in most of our markets. We are confident that it will provide us with opportunities to reap the benefit from previous investments. Besides the Baltic market, we think that Russia, in which around 45% of the portfolio is exposed, has a very strong position going forward. Its WTO membership, which was agreed in late 2011 after several years of negotiation, should have a positive effect. Also, the historically low valuation level, currently in line with the level just after the market collapse in 1998, i.e. before the nearly seven-fold value increase we have seen since then. This makes the region especially interesting in our opinion. We will continue in our effort of making new attractive investments to keep creating value for the shareholder of East Capital Explorer.

East Capital was founded in 1997 by a group of professionals with extensive experience from the financial markets and corporate world in Russia and the Baltics.

The investment philosophy focuses on the combination of macroeconomic, market and political knowledge. East Capital follows a long-term active stock picking approach and fundamental research including frequent company visits and meetings in the region to continuously review and analyse the most important development trends. The investment teams spend a great deal of time validating the investment theme developed to select the companies with the greatest potential for value growth, and as a final step, in determining the most appropriate financial instruments for the investment in question.

East Capital is the leading independent asset manager specialising in the emerging markets of Eastern Europe and China and actively manages around EUR 3.4bn. A number of the funds have received awards, including Lipper Fund Awards and Golden Star Awards from Dagens Industri and Morningstar.

Many of the members of East Capital's investment teams are nationals of the countries in which they invest, and all of them have the regional experience and the network which is key to identifying investment opportunities. This is especially important for companies that are located in the lesser developed areas in the region. East Capital's investment teams are known for their focus, their local presence and their extensive travelling. This enables them to retain and develop new contacts, which provides an important competitive advantage.

There are 26 different nationalities represented among East Capital's 180 employees, 40 of them are investment professionals and part of the investment teams focusing on Eastern Europe and China. East Capital has eight offices worldwide.

For more information about East Capital: www.eastcapital.com

East Capital partners visiting Riga, Latvia, from left: Albin Rosengren, Aivaras Abromavicius, Jacob Grapengiesser, Peter Elam Håkansson, Justas Pipinis, Karine Hirn and Kestutis Sasnauskas

Portfolio Overview	17
Fund Investments
East Capital Bering Balkan Fund	18
East Capital Bering Central Asia Fund	20
East Capital Bering New Europe Fund	22
East Capital Bering Russia Fund	24
East Capital Bering Ukraine Fund A	26
East Capital Bering Ukraine Fund R	28
East Capital (Lux) Eastern European Fund	30
East Capital Power Utilities Fund	32
East Capital Special Opportunities Fund	34
East Capital Special Opportunities Fund II	36
Direct Investments
Melon Fashion Group	38
TEO LT	40
Komercijalna Banka Skopje	41
Trev-2 Group	42
East European Debt Finance	43
Populi	44
Wimm-Bill-Dann Foods	44

Portfolio Overview

East Capital Explorer's portfolio comprises investments in East Capital funds, Direct Investments and Short-term investments. On 31 December 2011, total Net Asset Value amounted to EUR 294m, corresponding to EUR 8.69 per share. The fair value change of the total portfolio was -31.7% during 2011. Cash, cash equivalents and other short-term investments constituted approximately 13% of the portfolio and amounted to EUR 39m, corresponding to EUR 1.17 per share, on 31 December 2011.

Portfolio per 31 December 2011	Fair value 31 Dec 2011 mEUR	NAV/Share, EUR	% of NAV	Fair Value 31 Dec 2010, mEUR	Value change Jan–Dec 2011, %1
Fund Investments
East Capital Bering Balkan Fund	38.1	1.13	13	42.0	-18.9
East Capital Bering Central Asia Fund	16.6	0.49	6	25.4	-34.5
East Capital Bering New Europe Fund	12.1	0.36	4	19.1	-36.8
East Capital Bering Russia Fund	28.1	0.83	10	42.8	-34.4
East Capital Bering Ukraine Fund Class A	5.6	0.17	2	7.9	-28.5
East Capital Bering Ukraine Fund Class R	5.5	0.16	2	6.4	-13.1
East Capital (Lux) Eastern European Fund	7.4	0.22	3	15.4	-19.1
East Capital Power Utilities Fund	36.5	1.08	12	93.4	-39.2
East Capital Special Opportunities Fund	29.3	0.87	10	58.6	-28.6
East Capital Special Opportunities Fund II	24.8	0.73	8	37.1	-33.1
Total Fund Investments	204.1	6.04	70	347.9	-31.5
Direct Investments
Melon Fashion Group	19.5	0.58	7	13.8	-27.1
TEO LT	15.9	0.47	5	15.2	-7.9
Komercijalna Banka Skopje	9.7	0.29	3	0.0	-19.8
Trev-2 Group	4.0	0.12	1	0.0	0.0
East European Debt Finance	1.1	0.03	0	0.3	2.7
Populi	0.1	0.00	0	3.6	-97.3
Wimm-Bill-Dann Foods2				7.1
Total Direct Investments	50.4	1.49	17	40.0	-20.1
Short-term Investments
Short-term investments	22.8	0.67	8	26.5
Cash and cash equivalents	16.6	0.49	6	17.8
Total Short-Term Investments	39.4	1.17	13	44.3
Total Portfolio	294.0	8.70	100	432.3
Other assets and liabilities net	-0.4	-0.01	0	-2.4
Net Asset Value (NAV)	293.6	8.69	100	429.9	-31.7

1 The value change calculation is adjusted for investments and distributions during the relevant period, i.e. it is the percentage change between the starting fair value plus any added investment during the period and the ending fair value plus any proceeds from divestments or dividends received during the period

2 In June 2011, East Capital Explorer sold its holding in Wimm-Bill-Dann Foods for EUR 7.4m, realizing an annualized pre-tax return of 17.4% on its initial EUR 6.8m investment

East Capital Bering Balkan Fund

Fund facts

Aim of the fund

The aim of the fund is to achieve long term capital appreciation from investments in Balkan equities, both listed and unlisted. The fund may also invest in companies that have significant trade with, or active investments in, the Balkans countries.

Launch date:	31 July 2006
Risk:	High
Minimum investment:	USD 100,000
Volatility since inception:	36%
Management fee:	2%
Performance fee:	20% above high water mark
Redemption fee:	Year 1: 20%, Year 2: 15%, Year 3: 10%, Year 4: 5%
ISIN code:	KYG290601031
Bloomberg:	BERINGB KY
Benchmark index:	The fund does not have a relevant bench mark index
East Capital Explorer's share of the fund on 31 December 2011:	62%

Fund performance since first investment

Fund comment

The East Capital Bering Balkan Fund lost 18% in 2011. In terms of the sector, in line with global developments, the banking stocks suffered the most in the Balkan region as well.

B92, a non-listed Serbian media company, was the main positive performance contributor in 2011 when it became the largest holding of the fund, with a 10% weight. The partnership with a strategic investor that the company entered in 2010 has started to pay off. Despite 2011 being a difficult year for the media sector in Serbia, management executed several important components of a new strategy. The programming schedule was realigned to the viewer target group (18–50 years), and the company created a new visual identity. Thus the company achieved a significant increase in ratings (on average by 30%). The financial impacts of the ratings increase should be visible in 2012, as advertising sales are based on past ratings. B92 has set ambitious targets for 2012, mainly focused on increasing the market share further and consolidating the market. At the end of 2011, we revalued the shares by 48%, based on an external appraisal report.

Fondul Proprietatea, a Romanian restitution fund now managed by Franklin Templeton, ended the year with a 12% decline. The company has a unique portfolio of assets, mainly geared towards the energy and power utility sectors. After several years of delays, Fondul Proprietatea was listed in January 2011. We made a partial exit from the company to lock in a significant gain of around 200% in local currency terms by cutting the position from 24% of the fund at the beginning of the year to 9% at the year end. However, we continue to maintain a positive view on the stock as we believe there are still potential triggers to drive the stock performance such as: 1) further listings of main state owned companies from Fondul Proprietatea's portfolio, which should support valuation and bring down the current 54% discount to NAV, 2) an active stance from Franklin Templeton through representatives on the boards of portfolio companies, which should lead to increased transparency and profitability, 3) a planned secondary listing in Warsaw

that should further enhance interest and liquidity for the stock, 4) an expected strong dividend yield of around 7.5% in 2012, and 5) the share overhang present throughout the majority of last year is now eliminated as the Government stake is close to zero, which should further support the stock price performance.

One of the main negative contributors was Nova Kreditna Banka Maribor (NKBK), the largest Slovenian bank. We acquired our holding through a share capital increase which was done below the market price, but the situation has changed significantly since then. Banking stocks in general were under severe pressure since Eurozone crisis emerged, with bad sentiment spilling over to the local Slovenian market. In addition, operational performance of the bank deteriorated and the bank will, contrary to expectations before the share capital increase, most likely, at the time of writing, end 2011 with a loss due to higher than expected provisions. We are and will continue to actively promote actions that would benefit minority shareholders. NKBM now trades below 0.3 times price to book value, while it should be able to generate 10% return on equity when costs of risk normalize.

Jacob Grapengiesser Partner and member of the Portfolio Management team, East Capital

Zavarovalnica Triglav

Example of a company in the East Capital Bering Balkan Fund

Investment facts

The fund's first investment in the company: 2007

The fund's holding in the company: 0.9% (additional 3% held by other East Capital funds)

Learn more about Zavarovalnica Triglav on: www.triglav.si

Investment rationale

• • Consolidation of existing operations with a focus on profitability will bring better performance in the company
• • Solid financial performance
• • High growth potential in its foreign markets due to high catch up potential
• • Carries significant value of both core and non-core assets on its balance sheet

Country breakdown, % per 31 December 2011 Sector breakdown, % per 31 December 2011

○ 28.9 ○ 24.2 ○ 12.0 ○ 10.7 ○ 9.4 ○ 5.4 ○ 4.4	Romania Serbia Slovenia Turkey Bosnia Macedonia Croatia
○ 1.8	Bulgaria

Top ten holdings in the Fund per 31 December 2011

Zavarovalnica Triglav is the largest insurance company in Slovenia, where it holds approximately a 40% market share across all insurance lines of property, life and health insurance. Over the last few years, it has also successfully expanded into the Southeastern European markets and is now present in eight countries. The company earns around EUR 1bn yearly in gross written premiums, and retained an A rating from S&P in 2011. Its market cap is currently EUR 246m.

We invested in the company for three main reasons, which came through with different dynamics in 2011. First, we believed consolidation of existing operations with a focus on profitability will bring better performance in the company, which has been confirmed by considerably improved financial results with net profit soaring 81% year-on-year during the first half of 2011. Second, the company has a high growth potential in its foreign markets, where gross written premiums per capita are significantly lower than in richer Slovenian market. Premiums per capita amount to EUR 270 in Croatia and EUR 80 in Serbia in comparison to around EUR 1,000 in Slovenia. Of course, this is a long term catch up process that requires sound economic growth, but we believe it will materialize in the long run. Thirdly, Zavarovalnica Triglav carries significant value of both core and non-core assets on its balance sheet, which made the stock a diverse case for the underperforming Slovenian capital market. Large deals that were expected to happen in Slovenia would increase the value of the company either directly through possible disposals of non-core assets at prices above values at which those assets are held on the balance sheet, or indirectly as the company would have benefited from the increase in value of its equity portfolio. Unfortunately, some of the deals were blocked with the government collapsing in the fall of 2011, and their fate is now less clear.

Nevertheless, Zavarovalnica Triglav is expected to continue delivering solid financial performance. Management expects net profit to reach close to all time high levels of above EUR 60m in 2012, which would correspond to a valuation of 4 times earnings and below 0.5 times book value reflecting a return on equity of around 12%. Despite improved performance of the company, the stock lost 40% during 2011. Even more striking, shares are trading around 90% below their peak level in 2007 when the company made a net profit similar to what management is expecting in 2012.

		Portfolio weight 31 Dec, %
Company	2011	2010	Performance, %*	Country	Sector
B92	9.5	5.2	48.1	Serbia	Consumer Discretionary
Fondul Proprietatea	9.2	23.5	-12.5	Romania	Financials
Pinar Et Ve Un	6.7	7.3	-22.4	Turkey	Consumer Staples
Komercijalna Banka Skopje	4.6	4.5	-13.3	Macedonia	Financials
Nova Kreditna Banka Maribor	3.3	0.0	-60.9	Slovenia	Financials
Zavarovalnica Triglav	3.1	1.6	-40.5	Slovenia	Financials
Pif Big	2.9	1.5	22.3	Bosnia	Financials
Telekom Srpske	2.8	2.2	12.0	Bosnia	Telecommunication Services
Conpet Sa Ploiesti	2.8	0.4	30.8	Romania	Energy
AIK Banka	2.8	2.4	-28.3	Serbia	Financials

10 largest holdings (% of portfolio)	Unlisted holdings (% of portfolio)	Total number of holdings
48	15	70

* Change in share price during 2011

East Capital Explorer's holding
Date of transaction	Amount, EURm	Type of transaction
1 December 2007	24.9	Initial investment
1 December 2008	10.0	2nd installment
1 October 2009	10.0	3rd installment
1 June 2010	5.0	4th installment
1 March 2011	5.0	5th installment
Fair value per 31 December 2011	38.1
Return on investment (per annum)	-11.6%

East Capital Bering Central Asia Fund

Fund facts

Aim of the fund

The aim of the fund is to achieve long term capital appreciation from investments in Central Asian equities, both listed and unlisted. The fund may also invest in companies that have significant trade with, or active investments in, the Central Asian countries.

Launch date:	28 February 2007
Risk:	High
Minimum investment	USD 100,000
Volatility since inception:	30%
Management fee:	2%
Performance fee:	20% above high water mark
Redemption fee:	Year 1: 20%, Year 2: 15%, Year 3: 10%, Year 4: 5%.
ISIN code:	KYG2906R1048
Bloomberg:	BERINGC KY
Benchmark index:	KASE Index
East Capital Explorer's share of the
fund on 31 December 2011:	50%

Fund performance since first investment

KASE Index, EUR 1	-34%	-62%
	1 The Kazakhstan Stock Exchange index is composed of the seven most traded companies on

Central Asia Fund, eur -34% -62%

the exchange

Fund comment

2011 was not a good year for the East Capital Bering Central Asia Fund. After significant outperformance compared to the benchmark KASE index in 2010, we ended 2011 in line with the index losing 34%. As Kazakh equities stayed flat in 2010 compared to large gains in other markets, we believed that catch-up in performance could take place the following year. Unfortunately this scenario did not materialize due to external headwinds. As investors fled to safety, they continued to liquidate holdings in peripheral markets including Kazakhstan and Georgia.

Due to the unfavorable backdrop, no stock in our portfolio was spared with the largest negative contribution to performance coming from the financial sector. Our largest holding, Bank of Georgia, lost 32%, despite strong recovery in the underlying business, whereas market capitalizations of Kazakh Halyk Bank and Bank Tsentrkredit were reduced by more than half. Kazakh banks continue facing issues with asset quality while loans to deposit ratio, liquidity and loan growth have improved. However, in our opinion, for the sector to rerate we need to see a sentiment improvement for banking stocks globally as well as final resolution of the BTA bank-case locally (BTA defaulted on its coupon payment and might go into default if debt holders refuse to restructure their debt).

Another source of negative contribution to performance of the fund was impairment of private equity holdings at the end of 2011. The largest revaluation affected Populi, a Georgian retailer, whose continuing survival depends on access to fresh funding. Together with other shareholders, we are currently looking at a range of funding solutions.

The more resilient but still negatively affected sector over the period was oil and gas, with our core holdings Kazmunai Gas and Dragon oil declining 19% and 10% respectively. Despite an undemanding valuation of enterprise value around 1 times EBITDA, the stock of Kazmunai Gas did not rerate as external pressures were aggravated by the wellpublicized labour unrest resulting in production disruptions. Concerned with the rising cash pile of the company and delays in pre-announced acquisitions, we have repeatedly brought up the issue of the need for special dividend to the attention of the board and senior management of Kazmunai Gas.

In terms of changes in the portfolio during the period, we sold Kazakhmys, a Kazakh copper producer, amid increased volatility in the commodity markets. We added shares of Steppe Cement, on the signs of budding recovery in the real estate market in Kazakhstan, and decreased exposure to Armenbrok, an Armenian brokerage, seeing lack of growth opportunities in the region. Additionally we reduced the number of small illiquid holdings with low visibility of upcoming rerating.

Aivaras Abromavicius

Partner and member of the Portfolio Management team, East Capital

Bank of Georgia

Example of a company in the East Capital Bering Central Asia Fund

Investment facts

The fund's first investment in the company: 2007

The fund's holding in the company: 2.8% (additional 15.6% held by other East Capital funds)

Learn more about Bank of Georgia on: www.bog.ge

Investment rationale

• • Leading market position
• • Solid execution track record
• • Experienced management team
• • Attractive valuation

Bank of Georgia is a leading bank in Georgia. The country was severely hit by the 2008 crisis and the conflict with Russia in August the same year. The economy slumped and credit activity was virtually suspended. Since then, Georgia has been on a steady recovery path delivering 6.5% GDP growth in 2011 with production in most sectors of the economy now above pre-crisis level. Against the backdrop of macroeconomic stabilization, the private sector credit penetration still remains low at 32%, creating favourable environment for an actor such as Bank of Georgia, with 36% market share by assets. The history of the bank dates back to 1994, but the aggressive turnaround transforming Bank of Georgia into a market innovator took place in 2004. A period of rapid growth followed and in 2006 the bank became the first company in Georgia to list Global Depository Receipt's on the London Stock Exchange. Currently it is the only company in Georgia to be rated by all three global rating agencies. Among many awards received by the bank, Euromoney Award for Excellence as the Best Bank in

Georgia 2010 and Global Finance award as the Best Bank in Georgia in 2011, can be mentioned.

In terms of operational performance, after difficult 2008–2009 years, the bank has been consistently delivering on its targets. Judging by the third quarter 2011 results, at the time of writing the bank is on track to achieve a 20% return on equity in fiscal year 2011 supported by a healthy 20% loan and 30% deposit growth. A near term trigger at year end was the premium listing on the London Stock Exchange. The listing was completed in February 2012 and had a positive effect on the stock price and is expected to also increase the liquidity of this stock. Bank of Georgia's shares trade on undemanding price of 0.8 times estimated 2012 book value representing a 30% discount to global emerging markets peers. We have a strong belief in this investment case underpinned by its leading market position, solid execution track record, experienced management team, and attractive valuation.

Top ten holdings in the Fund per 31 December 2011

	Portfolio weight 31 Dec, %
Company	2011	2010	Performance, %*	Country	Sector
Bank of Georgia	26.5	28.4	-32.5	Georgia	Financials
Kazmunai Gas	13.8	12.8	-18.6	Kazakhstan	Energy
Dragon Oil	12.0	9.6	-10.2	Turkmenistan	Energy
Caucasus Agro Development	7.6	6.1	-29.0	Georgia	Consumer Staples
Henryland	5.8	3.3	5.4	Ukraine	Financials
Bank Tsentrkredit	5.6	7.6	-58.1	Kazakhstan	Financials
Chagala Group	5.5	5.3	-38.6	Kazakhstan	Financials
Halyk Bank	4.0	4.6	-50.6	Kazakhstan	Financials
Steppe Cement	3.1	2.0	-35.6	Kazakhstan	Materials
Teliani Valley	2.7	2.0	-17.5	Georgia	Consumer Staples
10 largest holdings (% of portfolio)		Unlisted holdings (% of portfolio)		Total number of holdings
87		15			22

* Change in share price during 2011

East Capital Explorer's holding
Date of transaction	Amount, EURm	Type of transaction
2 January 2008	19.5	Initial investment
1 June 2009	9.9	2nd installment
Fair value per 31 December 2011	16.6
Return on investment (per annum)	-15.2%

East Capital Bering New Europe Fund

Fund facts

Aim of the fund

The aim of the fund is to achieve long term capital appreciation from investments in Central European and Baltic equities, both listed and unlisted. The fund may also invest in companies that have significant trade with, or active investments in, the Central European or the Baltic countries.

Launch date:	1 May 2008
Risk:	High
Minimum investment	USD 100,000
Volatility since inception:	30%
Management fee:	2%
Performance fee:	20% above high water mark
Redemption fee:	Year 1: 20%, Year 2: 15%, Year 3: 10%;
	Year 4: 5%.
ISIN code:	KYG2906N1034
Bloomberg:	BERINGN KY
Benchmark index:	The fund does not have a relevant
	benchmark index
East Capital Explorer's share of the
fund on 31 December 2011:	88%

Fund performance since first investment

Fund comment

The East Capital Bering New Europe Fund declined 37% during 2011. In general 2011 has been a bad year for small and mid-cap stocks as well as less liquid markets. The fund has no relevant benchmark index, however most of the markets of the fund's universe showed weak performance during 2011.

The first half of the year started positively for the fund, however, by the middle of the year the fund was hit by the aggravating debt crisis in Europe as well as the global growth downgrades. Yet the growth outlooks for the mid and small cap stocks in the fund's universe have been reduced only moderately. Polish mid-caps, which used to trade at around 18-16 times earnings, presently are valued at only 11-12 times earnings. Baltic equities are also trading at historically low price to earnings multiples of 8-9 times. Most of the holdings in the fund are presently valued at their all-time low average multiple of 10 times earnings.

During 2011, the fund had much lower activity in the primary and secondary markets, instead we focused on taking some profits from the over-performing names, picking up some beaten down equities with likely turnaround situations as well as increased the concentration of the portfolio by reducing the number of small holdings.

The main divestment by the fund during 2011 has been the sale of the majority of our holding in E-star, the Hungarian alternative energy supplier, realizing a gain of over 200%. After a very successful 2010 performance, E-star was one of the weakest stocks in the fund last year declining 54%. We also exited construction company Budimex, as the prospects within its market segments remain limited.

We have participated in one Polish initial public offering (IPO) of debt collection company Kruk, which is up 10% since the IPO and has been outperforming the market by 34% since its listing in May 2011. Another large holding that has been added to the fund during 2011 was Polish broadband network operator Netia. Accounting for the two on-going acquisitions in Poland, Netia is the fastest growing European telecom operator with expected enterprise value of 3.5 times estimated 2012 EBITDA.

During the year we participated in the secondary share issue by Ablon, a UK listed Central European real estate developer which listed its shares in London in July of 2011 and has plans to do a secondary listing in Warsaw. Presently the stock is trading at 20% of the value of its real estate portfolio.

East Capital Bering New Europe Fund, eur -37% -23%

The weakest performing stock of the portfolio has been Norwegian listed fish processing plant Morpol, with a production facility in Poland, plunging another 61%. The company has faced a series of problems after its IPO in 2010, including raw material inflation substantially hurting the company's margins, followed by unsuccessful hedging by the company and lately conflicts within the company's board. Thus, the valuation has declined to 5 times 2012 earnings. On the other hand, the operational situation continues to improve, with the raw salmon price dropping by 35% during 2011, increasing the likelihood of higher margins. The visibility of the low valuation is expected to improve after the company's results are announced, which should provide support to the share price.

The best performing stock in the fund has been Tatra Bank, up 19% during the year supported by the improving operational results as well as a stronger Slovak market. After its successful capital increase last year the bank is trading at 0.8 times earnings.

For 2012 we still see potential in selected situations in Poland and the Baltics, with good rebound possibilities in beaten down stocks. We are also looking to make some exits from our bigger holdings as well as continuing to work on portfolio concentration.

Eglé Fredriksson Member of the Portfolio Management team, East Capital

Elko Group

Example of a company in the East Capital Bering New Europe Fund

Investment facts

The fund's first investment in the company: since inception 2008

The fund's holding in the company: 1.8% (additional 7% held by other East Capital funds)

Learn more about Elko Group on: www.elkogroup.com

Investment rationale

• • Centralised business structure with broad regional presence in most of the Eastern European countries
• • Established successful track record and reputation in the industry
• • High growth potential in IT underpenetrated Russian and other CIS markets
• • Potential for IPO or strategic sale
• • Low valuation

Elko Group is one of the leading IT products distributors operating in the CIS, CEE, and Baltic regions. The Group's principal activity is the wholesale distribution of desktop solutions, mobile solutions, server and security solutions, consumer and multimedia products, monitors and software, achieved through the wide network of its subsidiaries and cooperation partners. The Group distributes a broad range of products from leading international vendors. Based in Riga, Latvia, Elko Group currently sells its products in eight countries, namely, Russia, Ukraine, Romania, Slovakia, Slovenia, Latvia, Estonia and Lithuania.

Since the initial foundation of an IT products distribution company in Latvia in 1993, Elko Group has been able to accumulate extensive market knowledge and maintain a well-established network of clients in the CIS, CEE and Baltics, as well as build long-term relationships with major vendors in the IT industry. The Group currently works with more than 5,400 Original Equipment Manufacturers (oems), system integrators, retailers, sub-distributors and resellers across its markets and some 70

vendors, with key vendors including Intel, Acer, Western Digital, Seagate, AMD and Hitachi.

The Group had revenue of EUR 469m during the first nine months of 2011, up 18% year-on-year. Net profit of the group was EUR 5.8m up 7% year-onyear. For the full year 2011 company is expecting to earn a profit of EUR 9.1m resulting in price to earnings ratio of 6 times.

Country breakdown, % per 31 December 2011 Sector breakdown, % per 31 December 2011

○ 23.6 Financials ○ 16.2 Industrials ○ 13.6 Materials ○ 11.3 Information Technology ○ 10.6 Consumer Discretionary ○ 7.7 Consumer Staples

• 6.8 Utilities
• 5.9 Telecomm. Services
• 4.0 Energy
• 0.2 Health Care

Top ten holdings in the Fund per 31 December 2011

Company	2011	2010	Performance, %*	Country	Sector
Ablon Group	10.4	0.0	-35.0	Hungary	Financials
Elko Group	7.3	5.0	-8.3	Baltics	Information Technology
Morpol	6.8	13.2	-61.1	Poland	Consumer Staples
Mennica Polska	6.2	8.0	-19.8	Poland	Materials
Netia	5.5	0.0	-10.6	Poland	Telecommunication Services
PannEnergy	5.5	5.8	-40.4	Hungary	Materials
E-Star	3.8	10.4	-54.5	Hungary	Utilities
Koelner	3.7	3.2	-24.2	Poland	Industrials
Bogdanka	3.7	3.3	-16.0	Poland	Energy
Kruk Group	3.4	5.1	-2.8	Poland	Financials
10 largest holdings (% of portfolio)	Unlisted holdings (% of portfolio)				Total number of holdings

56 9 55

* Change in share price during 2011

East Capital Explorer's holding
Date of transaction	Amount, EURm	Type of transaction
2 May 2008	10.0	Initial investment
1 June 2009	5.0	2nd installment
Fair value per 31 December 2011	12.1
Return on investment (per annum)	-6.3%

East Capital Bering Russia Fund

Fund facts

Aim of the fund

The aim of the fund is to achieve long term capital appreciation from investments in Russian equities, both listed and unlisted. The fund may also invest in companies that have significant trade with, or active investments in, Russia.

Launch date:	1 June 2004
Risk:	High
Minimum investment	USD 100,000
Volatility since inception:	33%
Management fee:	2%
Performance fee:	20% above high water mark
Redemption fee:	Year 1: 10%, Year 2: 7.5%, Year 3: 5%, Year 4: 2.5%
ISIN code:	KYG290611014
Bloomberg:	BERINGF KY
Benchmark index:	RTS-2 Index
East Capital Explorer's share of the fund on 31 December 2011:	37%

Fund performance since first investment

		Since first investment
	2011	Dec 2007
East Capital Bering Russia Fund, eur	-34%	-60%
RTS-2 Index, eur 1	-30%	-28%

1 The Russian Trading System Second-tier Stock Index is the Russian mid-cap stock market index composed of 78 companies on the RTS that have limited trading volumes

Fund comment

The East Capital Bering Russia Fund declined 34% during 2011. RTS-2 index, which includes roughly 80 companies on the Russian Trading System with limited trading volumes, outperformed the fund and was down 30% during the same period. More than 40% of the RTS-2 index is comprised of medium-sized companies with EUR 5-8bn market capitalization in retail, energy and precious metals. The fund on the other hand invests only in companies with approximately EUR 1bn market capitalization with considerably less exposure to commodities. The smaller companies showed weaker performance compared to their medium-sized peers over the course of the year.

Fesco was the worst contributor to the fund's performance. On the other hand, Fesco was the best performing stock in our fund during 2010 after a successful deal with NCC in which the company sold its 50% stake at extremely favorable company valuation: 15 times EBITDA. Now Fesco trades at around one third of this valuation, after its share price declined 51.5% during the year. A few investors have been selling down Fesco shares due to its cyclical nature, and this share overhang coupled with uncertainty over the Transcontainer privatization price were the main reasons for the decline. Going forward we expect that imports in Russia will continue to grow at slow double digit rates and GDP growth in Russia in 2012 will remain around 3-4%. That should support Fesco's EBITDA reaching above USD 200m in 2012. We would prefer to see that Fesco will not participate in the Transcontainer privatization auction at any price, as that may boost company's debt level to disappointing levels.

Neftekamsky Avto, a subsidiary of Kamaz, producing buses and dump trucks, was another poor performer this year. The company lost 51% of its market capitalization. Kamaz shares and Sollers, its peer, had both also lost half of their value in 2011. The Neftekamsky Avto share remains cheap on multiples, despite weak margins due to a low utilization rate and high steel price inflation. In 2012, a truck manufacturing stimulus will be launched and steel prices have already corrected

downwards by 30%. As a result, we anticipate that 2012 earnings will be better than 2011, and the price to earnings multiple for 2012 is expected to be around 7 times.

Highland Gold Mining was one of the few stocks that showed positive returns in 2011, although the share price was very volatile following gold price swings. Over the year, Highland Gold Mining was up 5.1%, outperforming broader mining peers like coal and iron ore, and of course, steel companies. The stock remains the cheapest in the Russian gold sector despite the complete operational and financial turnaround that took place under Millhouse ownership. Highland Gold is on track to reach 20% production growth in 2012 and trades at 5 times EBITDA whereas its mid-cap peers, Polyus Gold and Polymetal, trade at around 9 times.

Another good performer was Russian oil and gas production and exploration company, Ufimsky NPZ, which gained 4.6% during the year. The market now anticipates a consolidation of the Bashneft subsidiaries, of which Ufimsky NPZ is one, during the second quarter of 2012. Ufimsky NPZ traded at a 60% discount to its sister companies on asset multiples, and we decided to retain our Ufimsky NPZ holding and to sell other subsidiaries over the year due to the valuation differential.

Jacob Grapengiesser Partner and member of the Portfolio Management team, East Capital

Veropharm

Example of a company in the East Capital Bering Russia Fund

Investment facts

The fund's first investment in the company: 2006

The fund's holding in the company: 2.3% (additional 2.9% held by other East Capital funds)

Learn more about Veropharm on: www.veropharm.ru

Investment rationale

• • Attractive valuation
• • Strong free cash flow generation • Best margins in Emerging Market
• peer group • Possible Merger & Aquisition target
• • 30% boost in production facilities by 2016

Veropharm is the leading Russian pharmaceutical producer known as one of the Russia's largest manufacturers of generic drugs, oncological medications, and medical adhesive bandages. The company is ranked fourth among domestic peers by sales value, and total sales in 2010 were USD 174m. Veropharm's portfolio includes prescription drugs (70% of 2010 sales, 71% of gross profit), adhesive bandages (16% of sales, 14% of gross profit) and OTC drugs (13% of sales, 13% of gross profits). The company operates three production facilities – in Belgorod, Voronezh, and Pokrov. Only certain lines are Good Manufacturing Practices (GMP) compliant, while Veropharm is currently building a new GMP-compliant workshop at its Belgorod facilities, where the company plans to move its production of oncology drugs. The new production platform is expected to boost the company's production facilities by about 30% during the next 3–5 years.

Veropharm presents a play on Russia's growing pharmaceutical market, which should be supported by the country's aging population and respective declining health. Focusing on value-added prescrip-

tion medicines, Veropharm enjoys some of the best margins in Russia's pharmaceutical sector and in its emerging market peer group. Its vast pipeline of new drugs ensures continuing revenue growth, which is expected to post a compounded annual growth rate of 15% during 2012-2015. Meanwhile, the company has largely improved its portfolio composition with a shift to high-marginal Rx generics, which supports margin expansion. Strong operating cash flow alongside moderate capital expenditure requirements, make Veropharm one of the cashrichest names, with free cash flow soaring at an estimated compounded annual growth rate of 73% during 2013-2015.

We believe Veropharm presents a likely acquisition target due to its attractive portfolio of highmarginal Rx medicines and healthy cash generation. The company is also attractively valued with an enterprise value 4.3 times estimated 2012 Ebitda and is trading at 5.5 times estimated 2012 earnings, implying some 40% discount to emerging market peers.

Country breakdown, % per 31 December 2011 Sector breakdown, % per 31 December 2011

• 22.7 Materials
• 21.5 Industrials
• 18.0 Energy
• 15.3 Financials
• 10.2 Consumer Discretionary
• 6.8 Health Care
• 2.5 Information Technology
• 1.3 Consumer Staples
• 0.9 Utilities
• 0.8 Telecom. Services

Largest holdings in the Fund per 31 December 2011

2011	2010	Performance, %*	Country	Sector
8.9	11.5	-50.7	Russia	Industrials
6.1	7.4	-47.5	Russia	Energy
5.9	0.7	5.1	Russia	Materials
5.8	4.4	-42.7	Russia	Health Care
5.8	5.5	-32.5	Russia	Materials
5.6	3.4	4.6	Russia	Energy
5.0	4.1	-20.8	Ukraine	Consumer Discretionary
3.9	5.9	-58.1	Kazakhstan	Financials
3.4	1.8	26.0	Ukraine	Financials
3.2	4.2	-51.5	Russia	Industrials
		Portfolio weight 31 Dec, %

10 largest holdings (% of portfolio)	Unlisted holdings (% of portfolio)	Total number of holdings
54	13	94

* Change in share price during 2011

East Capital Explorer's holding
Date of transaction	Amount, EURm	Type of transaction
1 December 2007	23.6	Initial investment
1 Oct 2009	20.0	2nd installment
Fair value per 31 December 2011	28.1
Return on investment (per annum)	-12.9%

East Capital Bering Ukraine Fund A

Fund facts

The aim of the fund is to achieve long term capital appreciation from investments in Ukrainian equities. The fund may also invest in companies that have significant trade with, or active investments in, Ukraine.

Since 1 January 2010, the East Capital Bering Ukraine Fund is split into two classes: East Capital Bering Ukraine Fund Class A, comprising mainly of listed holdings; and East Capital Bering Ukraine Fund Class R that comprises the illiquid private equity assets.

Launch date:	29 July 2005
Risk:	High
Minimum investment	USD 100,000
Volatility since inception:	37%
Management fee:	2%
Performance fee:	20% above high water mark
Redemption fee:	Year 1: 20%, Year 2: 15%, Year 3: 10%,
	Year 4: 5%.
ISIN code (master series)::	KYG290651028
Bloomberg:	BERINGU KY
Benchmark index:	PFTS Index
East Capital Explorer's share of
the fund on 31 December 2011:	34%

Aim of the fund Fund performance since first investment

	2011	Since first investment Jan 2008
East Capital Bering Ukraine Fund A, eur	-28%	-61%
PFTS Index, eur 1	-45%	-68%

1 The PFTS Index is the Ukraine stock market index composed of the twenty largest shares on the stock exchange in Kiev

Fund comment

Ukraine, the so called high-beta market, after a spur of 70% in 2010, tumbled 45% during 2011. The East Capital Bering Ukraine Fund A lost 28%. Eurozone concerns, which coincided with domestic turbulence, including Ukraine's stalled talks with the IMF, declining popularity of the political elite and fears of yet another devaluation of the Ukrainian hryvnia, lead to considerable selling pressure on Ukrainian equities during the second half of the year. Against that background, a majority of the top holdings in the fund suffered double digit declines.

In 2011, our focus was to increase the liquidity of the portfolio by reducing the number of less frequently traded holdings while at the same time boosting the concentration of mid- and large caps to adapt to the current market. As a result, we sold out of fuel retailer Galnaftogaz and brewery Slavutich, which prior the transactions had a weight in the fund of 14% and 11% respectively. In Slavutich we were able to sell our entire position at a premium of 69% on the market price. All in all, we sold out of nine companies and added two foreign-listed agricultural companies ending the year with 31 holdings.

Ukrtelecom was a holding we followed closely in 2011. After some ten years of speculations, we finally saw a resolution in Ukrtelecom's privatisation story. Believing that the new owner will have significant lobbying power to push through well-needed reforms, we enhanced our position in the telecommunication company significantly. Additionally, we anticipate that Ukrtelecom will book a substantial cash gain from selling its operationally less important mobile assets as the selling price may reach up to EUR 380m, or nearly 40% of enterprise value.A considerable part of the gain is also expected to be paid out as dividends. Even though the stock declined 17.8% in 2011, it weathered the sell-off significantly better than most other stocks in the index.

Privatization meanwhile remains the major investment theme for Tsentr Energo. At the time of writing, the privatizations of Zakhid Energo and Dnipro Energo, two out of four Ukrainian public utilities, have already been completed, and we expect that Tsentr Energo could be next in line. Importantly, the price that the buyer, DTEK, the largest Ukrainian energy company, paid in enterprise value by capacity terms implies premiums of 24% and 62% respectively to Tsentr Energo's current valuation. Compared to Russian electricity generating companies, Tsentr Energo is valued at a hefty discount of 75%. We believe that the stock, which lost 40.7% of its value in 2011, was oversold. We are convinced that the privatization of Tsentr Energo offers an asset-repricing opportunity, and therefore hold Tsentr Energo as the second largest holding of the fund, with a weight of 10%.

Anthousa, operating one of the largest supermarket chains in Ukraine under the brand Furshet, was the weakest among our top ten holdings during 2011 with a loss of 68.5%. The contributing reason behind the price slump was delisting of Anthousa's global depositary receipts from the Frankfurt Stock Exchange in the second quarter of 2011, where a decision was taken to tighten some of the inclusion requirements. To compare, its closest public peer, Retail Group, declined 14.6% during the same period. The company is currently investigating listing possibilities on the Warsaw Stock Exchange. Ernst & Young performed an independent valuation of Anthousa in December. In line with their recommendation, we keep the equity value at EUR 50.7m, which translates to the stock trading at an enterprise value 10.1 times EBITDA and 0.3 times sales.

Aivaras Abromavicius Partner and member of the Portfolio Management team, East Capital

Slavutich Brewery

Example of a company in the East Capital Bering Ukraine Fund A

Investment facts

The fund's first investment in the company: 2007

Investment divested in December 2011

The fund's holding in the company: 0%

Learn more about Slavutich on: www.en.carlsbergukraine.com

Investment rationale

• • Strong growth potential in the Eastern European beverage market
• • Attractive growth story
• • Persistent superior profitability compared to its competitors

Slavutich Brewery is the second largest brewery in Ukraine. The brewery was built in 1974 in Zaporizhia, South Eastern Ukraine, and was later acquired by Baltic Beverages Holdings (BBH) in 1996. In 1999 BBH also bought the oldest Ukrainian brewery Lvivska, and the two companies signed a cooperation agreement. Nine years later, Carlsberg Group acquired BBH's assets in Ukraine as part of its broader expansion into Eastern Europe, and Slavutich has been part of the world's fourth largest brewery group ever since.

Recognizing the unrealized potential in the Eastern European beverage market, in the mid-2000s East Capital acquired (and later sold) stakes in a number of breweries located primarily in the Baltics and Russia. Slavutich stood out as a fundamentally attractive growth story. We thus started to accumulate shares in the brewery back in 2005, and as of end of 2011 the fund held 0.8% of the company, or some 12% of the official free-float. Since the fund acquired the stock, Slavutich has expanded its market share in Ukraine from 13% in 2005 to 29% as of the third quarter 2011, grown the number of production sites from one to three, and developed

a rich premium to super-premium product portfolio, which includes such well-established brands as Tuborg, Holsten, Carlsberg, Corona and Guinness. In 2005, beer consumption in Ukraine was 38% below the average for Europe. Since then beer consumption in Ukraine has grown 24% to 56 liters per capita in 2010, corresponding to 20% less than the European average. Moreover, Slavutich has persistently delivered superior profitability compared to its parent. Slavutich's Ebitda margin for the last three years, for instance, averaged 22%, or some three percentage points above that of Carlsberg's Group.

In 2011 the share of Slavutich dropped 14% versus 45% decline for the Ukrainian equity market. In December 2011 we received an attractive bid for our entire position at nearly a 70% premium to the market price and decided to take the profits and fully divest our holding in the brewery.

Company	2011	2010	Performance, %*	Country	Sector
Retail Group	11.1	8.5	-14.6	Ukraine	Consumer Staples
Tsentr Energo	10.0	12.6	-40.7	Ukraine	Utilities
Ukrtelecom	8.7	0.6	-17.8	Ukraine	Telecommunication Services
Creativ Industrial Group	7.8	9.2	-44.7	Ukraine	Consumer Staples
Chumak Loan	4.4	0.0	0.0	Ukraine	Consumer Staples
Anthousa	4.0	1.5	-68.5	Ukraine	Consumer Staples
Bogdan Motors	2.8	1.9	-8.3	Ukraine	Consumer Discretionary
Koryukivska Fabryka Tekhnichnyh Paperiv	2.7	2.4	-22.7	Ukraine	Materials
Poltavsky GOK	2.2	3.8	-60.7	Ukraine	Materials
Russkoe Zerno	2.2	2.9	-51.3	Russia	Consumer Staples

10 largest holdings (% of portfolio)	Unlisted holdings (% of portfolio)	Total number of holdings
56	12	31

* Change in share price during 2011

East Capital Explorer's holding
Date of transaction	Amount, EURm	Type of transaction
2 January 2008	24.4	Initial investment
1 April 2010	5.0	2nd installment
Fair value per 31 December 2011	5.6
Return on investment (per annum)	-21.3%

East Capital Bering Ukraine Fund R

Fund facts

Aim of the fund

The aim of the fund is to achieve long term capital appreciation from investments in Ukrainian equities. The fund may also invest in companies that have significant trade with, or active investments in, Ukraine.

Since 1 January 2010, the East Capital Bering Ukraine fund is split into two classes: East Capital Bering Ukraine Fund Class A, comprising listed holdings; and East Capital Bering Ukraine Fund Class R that comprises the illiquid private equity assets.

Launch date:	31 July 2005
Risk:	High
Minumum investment:	USD 100,000
Volatility since inception:	15%
Management fee:	2%
Performance fee:	20% above high water mark
Redemption fee:	Closed for redemption
ISIN code (master series):	KYG290651028
Bloomberg:	BERINGU KY
Benchmark index:	The fund does not have a relevant
	benchmark index
East Capital Explorer's share of
the fund on 31 December 2011:	12%

Fund performance since first investment

		Since first investment
	2011	Jan 2008
East Capital Bering Ukraine Fund R, eur	-13%	-69%

Fund comment

The East Capital Bering Ukraine Fund R, which consists of private equity holdings, declined 13% in 2011. The decline was less pronounced compared to the drop of 45% that the Ukrainian equity market suffered in 2011 thanks to the very healthy condition of our real estate holdings Kantik and Henryland. The composition of the fund remained unchanged. Real Estate is the largest sector that comprises 52% of the fund while Nova Liniya, the do-it-yourself chain, occupies the single largest position of 30%.

On the back of new devaluation fears, which surfaced this summer, Kantik and Henryland decided to temporarily take a less aggressive expansion stance and concentrate on paying out dividends and decreasing debt. In line with these new developments each company paid out dividends in several tranches equivalent to 4.5% of NAV at the beginning of the year. The underlying property market fundamentals remain favorable for retail properties in Ukraine. However, despite our expectation in the beginning of the year, we did not see a strong rebound in property values, which we believe is due to weak investor sentiment towards Ukraine. During the year the property portfolios values increased by 1.4% in Kantik and decreased by 7.7% in Henryland. While the value of the Kantik portfolio largely reflects the overall market dynamics, Henryland's decline is due to deterioration in quality of one of its properties. The management is now considering different redevelopment opportunities which, once finalized, are expected to increase the property value above initial level. These changes in values of property portfolios and cash generated by the companies resulted in NAV changes of 17% and -2.5% for Kantik and Henryland respectively. Adjusted for dividend payments and currency revaluations, the two companies returned 27% and 5.4% over the previous year.

The two large consumer related holdings in the fund decreased in value during 2011 – Nova Liniya lost 20.8% and Chumak 56.1%. In Nova Liniya, the top management was changed in the beginning of the year. The new management team is implementing a fundamental re-structuring of the company, relating to assortment and product offering as well as operations and organizational structure. The re-structuring is continuing during 2012 with the goal of reaching competitive growth and margin levels by 2013. During 2011, revenues dropped by 5%, mainly due to the fact that one store was destroyed by fire in February 2011.

Chumak's main focus for 2011 has been to invest in marketing and distribution to increase growth and market share. To a large extent, this has been successful – the company grew by 25% during the year – clearly above market growth. However, growth has come at the price of lower margins and higher working capital needs. The debt level in the company is high, leading to negative net margin.

Aivaras Abromavicius Partner and member of the Portfolio Management team, East Capital

Chumak

Example of a company in the East Capital Bering Ukraine Fund R

Investment facts

The fund's first investment in the company: 2008

The fund's holding in the company: 22.2%

Learn more about Chumak on: www.chumak.com

Investment rationale

• • Strong brand with high recognition in Ukraine
• • High-quality products
• • Modern production facilities with capacity for further growth
• • Strong market position in most important product categories
• • Attractive exit opportunities to international Fast Moving Consumer Goods companies

Chumak is a leading Ukrainian producer of high-quality food products, such as ketchup, mayonnaises, condiment sauces, salad dressings, cooking sauces, tomato paste, pasta and canned vegetables. The company was founded in 1996 in Kakhovka, South Ukraine, and Chumak is currently one of the most important companies in the region. The Swedish founders, a family with strongly rooted traditions in food processing and packaging, entered Ukraine at the beginning of the 1990s at a time of upheaval within the agriculture sector. The strategy was to provide high quality vegetable based products with tastes tailored to Ukrainian consumers, in modern packaging and promoted under a local brand. The Chumak brand has, since then, developed into one of the most popular food brands in the country.

For 2011, Chumak's sales reached USD 61m, which is up 23% year-on-year, but 8% below budget. The growth in 2011 has required significant working capital, and the company has raised new capital from its owners at the beginning of 2012. East Capital participated slightly more than pro rata. Chumak's profitability for the full year

2011 was lower than budgeted, and the forecast for 2012 has also been significantly decreased. In December, an annual external valuation was performed by Ernst & Young, resulting in a 52% reduction of the valuation of Chumak compared to last year. The large drop is due to the changed forecasts, in combination with a general price decrease for Ukrainian assets during the year. Chumak's CEO, Pavlo Shevchuk, resigned as of February 2012, and was replaced by Konstantin Shevchenko, previously deputy CEO of the company. Mr. Shevchuk will take a seat on the company's Board of Directors.

Chumak currently has over-capacity in its production and its sales and distribution network. The strategy is to continue to grow by 20–30% per year in 2012 and 2013, by means of increased marketing and new product launches, and thereby increasing the capacity utilization and profitability. The most likely exit is to an international fast moving consumer goods (FMCG) company entering Ukraine.

Country breakdown, % per 31 December 2011 Sector breakdown, % per 31 December 2011

Largest holdings in the Fund per 31 December 2011

• 54.4 Financials
• 31.0 Consumer Discretionary
• 8.1 Consumer Staples
• 4.2 Information Technology
• 2.0 Industrials

Company Portfolio weight 31 Dec, %

○ 93.9 Ukraine ○ 6.1 Baltics

Company	2011	2010	Performance, %*	Country	Sector
Nova Liniya	30.3	33.9	-20.8	Ukraine	Consumer Discretionary
Kantik	29.3	21.5	27.0	Ukraine	Financials
Henryland	22.7	19.9	5.4	Ukraine	Financials
Chumak	7.9	16.0	-56.1	Ukraine	Consumer Staples
Elko Group	4.1	3.9	-8.3	Baltics	Information Technology
Trev-2 Group	1.9	1.7	0.1	Estonia	Industrials
RTC Irpin Loan	1.1	0.2	1.1	Ukraine	Financials
Chumak Loan	0.4	0.0	0.0	Ukraine	Consumer Staples

Largest holdings (% of portfolio)	Unlisted holdings (% of portfolio)	Total number of holdings
98	100	8

* Change in share price during 2011

East Capital Explorer's holding
Date of transaction	Amount, EURm	Type of transaction
2 January 2008	24.4	Initial investment
1 April 2010	5.0	2nd installment
Fair value per 31 December 2011	5.5
Return on investment (per annum)	-26.0%

East Capital (Lux) Eastern European Fund

Fund facts

Aim of the fund

The aim of the fund is to invest in shares of companies in the whole Eastern Europe. The fund seeks investments in a broad spectrum of countries, sectors and companies.

The fund is a daily traded UCITS-fund. More information can be found at the East Capital website www.eastcapital.com.

Launch date:	December 12, 2007
Risk:	High
Minimum investment:	EUR 2m (Class C)
Volatility since inception:	33%
Management fee:	2%
Performance fee:	0%
Redemption fee:	0%
ISIN code:	LU0332315398
Bloomberg:	ECESTCE LX
Benchmark index:	MSCI EM Europe Index
East Capital Explorer's share of
the fund on 31 December 2011:	10%

Fund performance since first investment

		Since first investment
	2011	Dec 2007
East Capital (Lux) Eastern European Fund, eur	-29%	-40%
MSCI Emerging Markets Europe Index	-22%	-43%

Fund comment

The East Capital (Lux) Eastern European Fund declined 29% in 2011, while the benchmark index dropped 22%. Banks, as well as second tier Russian stocks ranked high among the worst contributors to the fund's performance during 2011. However, Russian oil names were among the best contributors during the year. Given the volatile market conditions, we made several country reallocations in the fund during the period. Among the more recent reallocations, is a cut of the exposure to Russian stocks towards year-end with a corresponding increase in exposure to companies in Central Europe. The exposure to Turkey was also reduced slightly in December 2011.

The general sentiment towards banks was very negative last year. Raiffeisen Bank International and Erste Bank, the two Austrian banks with a large exposure in Central and Southeastern Europe lost 50% and 62% last year respectively. Fears of a dilutive share capital increases as a result of more stringent capital requirements imposed by the banking regulators in Europe, as well as the general negative sentiment towards the sector were seen as the main drivers behind the drop. In addition, Erste Bank recorded some unexpected losses on instruments linked to the sovereign debt on the European periphery. Last but not least, the sector-unfriendly measures taken by the government in Hungary, where both banks are present, added to the negative sentiment for the two stocks. Turkish banks were also among the negative contributors to the fund's performance last year. Part of the losses can be explained by the 16% depreciation of the lira against the euro during 2011, while part of it is due to a confusing monetary policy by the Central Bank in Turkey throughout the year.

M.Video, the largest Russian consumer electronic retailer and the first and only publicly-traded company in its sector in Russia, lost 33% last

year. The company secured the leading position in the market and by the end of 2011, the company was debt-free, with around USD 420m of net cash on its books. This represents approximately one third of its current market capitalization. We further increased our position in the company last year, on the back of strong operations and an appealing valuation trading at an enterprise value of 4 times estimated 2012 EBITDA. Bashneft and Surgutneftegas were among the largest contributors to the fund's performance during the year. The former gained 12% during the year, while the latter closed the year with a 21% gain. The companies offer a double digit dividend yield, at 15% for Bashneft and 12% for Surgutneftegas.

Country breakdown, % per 31 December 2011 Sector breakdown, % per 31 December 2011

• 55.5 Russia ○ 9.6 Poland
• 9.5 Turkey ○ 5.3 Eastern Europe
• 4.5 Czech Rep.
• 4.0 Romania
• 2.8 Hungary
• 2.3 Lithuania
• 1.2 Slovenia

• 5.3 Other countries

• 32.9 Energy

• 26.6 Financials ○ 8.6 Utlilities
• 8.3 Industrials
• 7.5 Telecom. Services
• 6.4 Consumer Discretionary
• 5.4 Materials
• 2.8 Consumer Staples ○ 0.8 Health Care
• 0.5 Information Technology

Top ten holdings in the Fund per 31 December 2011
	Portfolio weight 31 Dec, %
Company	2011	2010	Performance, %*	Country	Sector
Gazprom	5.7	6.2	-12.2	Russia	Energy
Lukoil	5.4	5.3	-2.0	Russia	Energy
Surgutneftegas	5.1	2.3	20.9	Russia	Energy
CEZ	2.7	0.5	3.0	Czech Rep.	Utilities
M.Video	2.5	1.8	-33.0	Russia	Consumer Discretionary
PZU	2.3	1.4	-16.6	Poland	Insurance
Fondul Proprietatea	2.1	0.9	-6.7	Romania	Financials
Sistema	2.0	1.0	-16.2	Russia	Telecommunication Services
Bashneft	1.9	2.0	11.9	Russia	Energy
Transneft	1.8	2.6	23.9	Russia	Industrials

10 largest holdings (% of portfolio)	Unlisted holdings (% of portfolio)	Total number of holdings
32	0	147

* Change in share price during 2011 in EUR

East Capital Explorer's holding
Date of transaction	Amount, EURm	Type of transaction
12 December 2007	18.3	Initial investment
28 February 2011	5.0	2nd installment
Fair value per 31 December 2011	7.4
Return on investment (per annum)	-9.9%

East Capital Power Utilities Fund

Fund facts

Aim of the fund

The aim of the fund is to target the many investment opportunities arising from the ongoing power sector reform in Russia. The fund invests in both listed and unlisted companies across sub-sectors of the industry including electricity generation, distribution and services.

Launch date:	5 December 2007
Risk:	High
Minimum investment:	Closed-end fund
Volatility since inception:	46%
Management fee:	1.9%
Performance fee:	15% of profits (after a hurdle rate of 7% return has been reached annually)
Redemption fee:	Closed for redemption
Profit sharing:	5% of profits (after a hurdle rate of 7% return has been reached annually)
Benchmark index:	RTS Electric Utilities Index
East Capital Explorer's share of the fund on 31 December 2011:	73%

Fund performance since first investment

		Since first investment Dec
	2011	2007
East Capital Power Utilities Fund, eur 1	-48%	-15%
RTS Electric Utilities Index, EUR2	-39%	-59%

1 The fund performance has been calcuated taking into account the dividend of EUR 125 per unit paid in June 2010

The Russian Trading System Utilities index is a sector index comprising 15 utility equities listed on RTS

Fund comment

Last year was not an easy one for the Russian utilities sector. Performance-wise, power electricity sector was hit the worst and declined 39% in 2011. East Capital Power Utilities Fund's adjusted performance* for the year 2011 was in line with the benchmark RTS utilities index which also declined 39%.

Russian utilities sector, an enormous infrastructure machinery ranked fourth in the world by installed electric capacity and electricity production, has passed though some turbulent times. In February 2011 the Russian government decided to cut tariffs across the power value chain (generation, transmission and distribution) to curb rising electricity prices. Government officials announced a total USD 2.2bn revenue cut for the entire power sector in 2011, with the primary goal of capping the average end-consumer electricity price growth at 15% ahead of Parliamentary elections in December 2011 and Presidential election in March 2012.

The only stock in the fund which had positive performance last year was TGK-6, which is the biggest holding of our fund with a weight of 10%. Interest in the company was well supported by expectations of consolidation with the rest of the power generation assets of the main shareholder, KES Holding, and a better share swap ratio for the company. However, the rest of the fund's holdings were in red territory with the most hit being the distribution sector, which on average declined by 50%-60% during 2011. Even the best-quality names, such as E.ON Russia and OGK-5 (in total 16% of the fund) controlled by international strategic investors, E.ON and Enel, have not escaped the sell-off. OGK-5 declined by 23.4%, while E.ON Russia was down 29.1%.

During the year we have actively traded in liquid names like MRSK Holding, where we emphasized the theme of discount to SoTP ("sumof-the-parts") which widened somewhat in the spring and reversed into a premium in late summer. Additional catalyst for the stock last year was a long-awaited inclusion into MSCI Russia index, an event which was expected to happen during last three years, but liquidity materially improved only in 2011 and was sufficient for stock inclusion. Another

'blue chip' stock where we have built a position was Federal Grid Company, as the company received a higher-than-expected tariff hike for 2011. Also the company appeared to be relatively immune to the uncertain regulatory environment in Russia.

Overall the number of holdings in the fund has decreased from 51 to 39, as we exited some positions during last year. We successfully sold the entire position in the power generation company TGK-11 to a strategic buyer at a 30% premium on the market price. The main shareholder, InterRAO, intended to increase its stake in TGK-11 from the 83% holding it had before the deal with the aim of a possible delisting of the company from the RTS exchange. Furthermore, a voluntary liquidation of TGK-11 holding has been finalised, with proceeds from the company's assets sale distributed among shareholders. As a result, the holding is no longer in our portfolio as we received payment for our shares in early December 2011.

During the first quarter of 2011 it was decided once again to return 25% of the originally invested money to the fund's investors, as the fund had grown beyond its optimal size. The liquidity in the Russian Utilities sector remains low outside the large-cap stocks, which makes it difficult to exploit investment opportunities in less liquid but fundamentally attractive stocks quickly enough.

Aivaras Abromavicius Partner and member of the Portfolio Management team, East Capital

* East Capital Power Utilities Fund's performance is adjusted for distributions of EUR 28.3m in 2010 and EUR 20.3m in 2011

Federal Grid Company Example of a company in the East Capital Power Utilities Fund

Investment facts

The fund's first investment in the company: 2008

The fund's holding in the company: 0.03% (additional 0.6% held by other East Capital funds)

Learn more about Federal Grid Company on: www.fsk-ees.ru

Investment rationale

• • Attractive valuation
• • Strong earnings potential
• • Improving investment efficiency
• • High liquid stock

The entire utilities sector was oversold last year with stocks down in the range from -40% to -50% on increased regulatory risks ahead of presidential elections. Federal Grid Company outperformed its Russian peers in that sense being down just 24%, as the stock is considered to be more resilient to regulatory pressure.

Federal Grid Company is the dominant owner of the Russian high-voltage electricity grid (i.e. 220k volts or higher), transmitting electricity across 73 Russian regions. The company owns 805 substations with total transformer capacity of 311,007 megavoltamperes. In 2010, the total electricity throughput from the system was 470,648m kilowatt-hours. Federal Grid Company's dominant shareholder is the Russian government with a 79% stake in the company. The government envisages reducing its stake to 75% +1 share in 2012-13.

The company's strategy assumes engaging in an extensive capital expenditure program to modernize Russia's high-voltage electricity transmission network. The indication on the size of the planned capital expenditure change over time depends on the allowed tariff dynamics. Starting in 2010, the Russian government changed the approach to regulation of Federal Grid Company from the previously used cost-plus regulation to the internationally accepted so-called RAB-based regulation (where RAB stands for regulatory asset base, RAB parameters used to establish pricing of electricity). The new regulation will allow the company to gradually improve its investment efficiency over the next 10 years; the return on investment is expected to increase from the current 5% to above 10% in 2016, given the company's return on RAB which is guaranteed under the current tariff structure and its strategic importance to the Russian power system.

The Russian utilities sector is currently faced with significant investment needs and a tightening regulatory environment, with the government taking a more aggressive approach over the last year in tackling increases in electricity prices. We have built our position in Federal Grid Company given its strong earnings momentum (approximately 30% EBITDA compounded annual growth rate from 2011-2015), lower exposure to the potential tariff cuts than other Russian utilities and following the significant sell-off in the sector.

Current valuation of the Federal Grid Company does not reflect the company's strong earnings potential. The stock is trading at an enterprise value of 4.8 times estimated 2012 EBITDA and a 55% discount to its international transmission peers, which is expected to narrow as the market realizes that Federal Grid Company is relatively immune to the uncertain regulatory environment in Russia.

Country breakdown, % per 31 December 2011 Sector breakdown, % per 31 December 2011

○ 98.4 Russia ○ 1.5 Georgia ○ 0.1 Ukraine

○ 98.0 Utilities ○ 1.2 Industrials

○ 0.9 Energy

Top ten holdings in the Fund per 31 December 2011
	Portfolio weight 31 Dec, %
Company	2011	2010	Performance, %*	Country	Sector
TGK-6	10.0	5.6	3.3	Russia	Utilities
TGK-5	9.5	5.8	-65.6	Russia	Utilities
E.ON Russia	9.5	7.8	-29.1	Russia	Utilities
MRSK Tsentra I Privolzhya	7.6	7.6	-51.1	Russia	Utilities
MRSK Tsentra	7.1	6.9	-52.8	Russia	Utilities
OGK-2	6.5	5.0	-58.7	Russia	Utilities
OGK-5	6.5	0.5	-23.4	Russia	Utilities
MRSK Holding	5.1	9.8	-58.0	Russia	Utilities
Federal Grid Company	5.0	1.1	-24.2	Russia	Utilities
Energy System of Far East	3.8	1.9	-27.6	Russia	Utilities

10 largest holdings (% of portfolio)	Unlisted holdings (% of portfolio)	Total number of holdings
71	1	39
* Change in share price during 2011 in EUR
East Capital Explorer's holding
Date of transaction	Amount, EURm	Type of transaction
5 December 2007	81.0	Initial investment

5 December 2007	81.0	Initial investment
24 June 2010	20.3	Dividend
29 April 2011	20.3	Redemption
Fair value per 31 December 2011	36.5
Return on investment (per annum)	-1.4%

East Capital Special Opportunities Fund

Fund facts

Aim of the fund

The aim of the fund is to invest in companies with a solid business model and outlook, which for market or owner specific reasons could be acquired at low valuation levels. The fund has targeted investments in the whole Eastern European region, with both a clear trigger for revaluation and an exit opportunity within four years from the launch of the fund.

The strategy implies, when appropriate, more active role in the company. The investment focus is listed equity securities, but other financial instruments can also be utilized. Distributions to investors can be made throughout the lifetime of the fund. All proceeds on divestments after three years from inception of the fund will be distributed to the investors.

Launch date:	8 May 2009
Risk:	High
Minimum investment:	USD 100,000
Volatility since inception:	23%
Management fee:	2%
Performance fee:	20% on realized profits, hurdle rate of 7% (with a 50/50 catch-up)
Redemption fee:	1% (Max 10% redemptions per quarter)
ISIN code:	KYG2906U1076
Bloomberg:	EACASPU KY
Benchmark index:	The Fund does not have a relevant bench mark index
East Capital Explorer's share of the

fund on 31 December 2011: 82%

Fund performance since first investment

		Since first investment
	2011	May 2009
East Capital Special Opportunities Fund, eur	-36%	2%

Fund comment

The East Capital Special Opportunities Fund lost 36% in 2011.

Fondul Proprietatea, a Romanian restitution fund now managed by Franklin Templeton, ended the year with a 12% decline. The company has a unique portfolio of assets, mainly geared towards the energy and power utility sectors. After several years of delays, Fondul Proprietatea was listed in January 2011. We made a partial exit from the company to lock in a significant gain of around 200% in local currency terms by cutting the position from 23% of the fund at the beginning of the year to 19% at the year-end. See portfolio comment regarding the East Capital Bering Balkan Fund for more information on Fondul Proprietatea.

Integra was down 47% in 2011 and shares traded close to 2009 levels. In 2009 the share price low was USD 0.7 and the average price was USD 2, while in December 2011 the share price was USD 1.8. In 2009 the company faced debt problems and was indeed close to bankruptcy, although a new management team managed to restructure USD 350m debt down to USD 180m and increase earnings from a net loss of USD 270m to USD 18m net profit during the first half of 2011. Lower growth and lower margins versus anticipated figures initially were responsible for part of the underperformance. Another factor that contributed was a business combination, in which Integra merged its seismic business with a competitor to create one of the world's largest inland seismic companies. The timing for a share in-kind dividend was announced and some investors who were restricted to hold shares of the newly created company started to sell shares putting pressure on the quotes. By our estimates, the merger offers around a 100% upside to existing shareholders of Integra, and Integra itself trades at abnormally low valuations, i.e. at 3.3 times

EBITDA. We believe that East Capital's active shareholder position in part of the asset optimization and buy-back policy will create additional value for shareholders.

Sibirskiy Cement was another poor performing stock in the fund from Russia, down by 44.1% despite market recovery to above 95% of pre-crisis levels in volumes (65 metric tons) and to 70% in prices per ton (USD 90 per ton). Residential and infrastructural construction has accelerated further in 2011 due to record budget support and stabilization of the mortgage market creating a record high level of transactions in the real estate market in Moscow. Cement assets remained an attractive M&A target and several transactions have been announced last year. Despite these strong fundamentals, Sibirsky Cement shares declined to levels last seen in 2009 and current valuation of assets is 70% below its replacement cost. The market discounts corporate governance risks as the board is seen to be inefficient and the major shareholder controls the company's management. Unfortunately, last year East Capital was unable to elect a board director to put more control on the board level, but we hope we can achieve this in 2012.

Jacob Grapengiesser Partner and member of the Portfolio Management team, East Capital

Sollers

Example of a company in the East Capital Special Opportunities Fund

Investment facts

The fund's first investment in the company: 2009

The fund's holding in the company: 1.7% (additional 8.3% held by other East Capital funds)

Learn more about Sollers on: www.sollers-auto.com

Investment rationale

• • Expecting a rapid development of the auto market
• • Fast growth in terms of Sollers capacity and market share
• • Low valuation
• • Highly liquid stock

Sollers, the only automotive company in Russia which had an initial public offering (IPO) and management buyout, currently has the largest portfolio of auto brands produced in Russia and the second largest market share in several segments. Soller's share price lost 54% during 2011. Small cap stocks, especially cyclical stocks like Sollers, declined in value more than the rest of the market.

The company was founded in 2002 by Alexei Mordashov, CEO and shareholder of steel company Severstal, by consolidating several Soviet automotive plants producing legendary SUVs (Uazik) in Ulianovsk, engines and small passenger cars (Oka) in Naberezhnie Chelny. In 2005 the company carried out an IPO to raise funds in order to modernize existing plants and build new production sites to assemble Ssang Yong, FIAT and Isuzu vehicles under strategic partnership agreements. Market capitalization at the IPO was USD 400m and by 2007 it grew to USD 1bn when its CEO Vadim Schvetsov bought a controlling stake. Passenger cars and light commercial vehicles (LCV) sales almost doubled in 2005- 2008 to 2.9m units. However, during 2008-2009 the company underwent a USD 900m debt restructuring and cut costs aggressively to survive and not lose control over assets on a very attractive market. In 2012–2020 the company's management is projecting to grow by 5-7% annually. Russia has a small fleet of cars compared to Europe and loans and income double digit growth is expected to drive Russia to become the market leader in Europe by 2015.

In 2011 Sollers made a very important strategic decision and replaced FIAT with Ford as its partner in LCV and passenger car markets. A new large automotive company was created with overall capacity of almost 350k units per year and projected revenues of more than USD 3bn with Sollers holding a 50% equity stake in the joint venture. Also, Sollers announced a joint venture with Toyota and Mazda. The overall capacity of Sollers and its joint ventures are expected to increase to 500k units per year by 2014.

The Special Opportunities Fund invested in Sollers in 2009. The fund bought shares in anticipation of a rapid development of the market as well as fast growth of Soller's capacity and market share. Currently Soller's shares trade at 4.5 times Ebitda and less than 4 times earnings; earnings are expected to almost triple by 2015.

Country breakdown, % per 31 December 2011 Sector breakdown, % per 31 December 2011

Top ten holdings in the Fund per 31 December 2011

○ 20.0 Romania ○ 15.9 Lithuania ○ 6.7 Ukraine ○ 2.1 Serbia ○ 0.9 Croatia

• 21.5 Financials ○ 19.5 Materials
• 15.9 Telecom. Services
• 15.2 Energy
• 14.7 Consumer Discretionary
• 7.0 Health Care
• 4.8 Consumer Staples
• 0.9 Industrials
• 0.5 Information Technology

Company Portfolio weight 31 Dec, % 2011 2010 Performance, %* Country Sector Fondul Proprietatea 18.9 23.2 -12.5 Romania Financials TEO LT 14.9 8.5 -9.3 Lithuania Telecommunication Services Sollers 12.4 13.6 -53.9 Russia Consumer Discretionary Integra 10.2 9.4 -47.1 Russia Energy Sibirskiy Cement 8.6 13.4 -44.1 Russia Materials Korshunovsky GOK 7.0 4.9 -32.5 Russia Materials Veropharm 6.2 5.4 -42.7 Russia Health Care Sintal 4.2 5.5 -64.7 Ukraine Consumer Staples Mashstroy 4.0 5.3 -66.7 Russia Energy Centrenergogaz 2.1 0.0 -55.5 Russia Energy

10 largest holdings (% of portfolio)	Unlisted holdings (% of portfolio)	Total number of holdings
89	0	17

* Change in share price during 2011 in EUR

East Capital Explorer's holding
Date of transaction	Amount, EURm	Type of transaction
8 May 2009	10.0	Initial investment
1 July 2019	25.0	Redemption
13 April 2011	12.5	Redemption
Fair value per 31 December 2011	29.3
Return on investment (per annum)	7.9%

East Capital Special Opportunities Fund II

Fund facts

Aim of the fund

The aim of the fund is to invest in companies with a solid business model and outlook, which for market or owner specific reasons could be acquired at low valuation levels. The fund has targeted investments in the whole Eastern European region, with both a clear trigger for revaluation and an exit opportunity within four years from the launch of the fund.

The target is to achieve a 30% Internal Rate of Return from a concentrated portfolio of our top picks selected on return potential. Proceeds will be distributed as investments are realized but no later than within four years from inception.

Launch date:	30 September 2010
Risk:	High
Minimum investment:	EUR 125,000
Volatility since inception:	14%
Management fee:	2%
Performance fee:	20% on realized returns, hurdle rate of 7% (with a 50/50 catch-up)
Redemption fee:	1% (Max 10 % of NAV per quarter)
ISIN code:	LU0536056483
Bloomberg:	ECSIIAE LX
Benchmark index:	The fund does not have a relevant benchmark index
East Capital Explore's share of the fund on 31 December 2011:	56%

Fund performance since first investment

Fund comment

The East Capital Special Opportunities Fund II lost 33% in 2011.

Bambi – Banat, the Serbian confectionary producer, was up 18% in 2011. With a weight of 9.6% of the fund's NAV at the end of the year, Bambi is the second largest position in the fund. We acquired the shares through a series of small transactions with local funds that were forced to exit their positions in the small Serbian market. The rationale behind our investment focused on the fact that Bambi is a well-run company with active private equity owners who were preparing the company for their exit. Based on our strong relationship with the other shareholders, we reached an agreement that will enable us to sell our shares together with the other private equity owners. The timing and valuation of a potential deal remain unclear as new wave of uncertainty in Europe has made transactions less predictable. However, currently Bambi shares are trading at an enterprise value of 4 times estimated 2011 Ebitda, whereas other recent deals in the food industry in Slovenia, Droga Kolinska and Fructal, were done at higher multiples of between 8 and 9 times. This leads us to believe there is a further upside to the share price once a deal eventually materializes.

AIK Banka, medium sized Serbian bank, lost 51.2% over 2011. The bank had a difficult beginning of the year when the largest domestic construction company declared bankruptcy and high provisions impacted its profitability. Since then, however, the business of AIK Banka has normalized and they reached the revised net profit target for 2011, while in 2012 they expect to return to their targeted return on equity of around 15%. Together with other shareholders, we were supporting the bank to start with a share buyback program given its strong liquidity position and capital adequacy ratio of 30%. The bank obtained regulatory approv-

at below 3 times estimated 2012 earnings and 0.3 times estimated 2012 book. Integra was down 47.1% in 2011 and shares traded close to 2009 levels.

In 2009 the share price low was USD 0.7 and the average price was USD 2, while in December 2011 the share price was USD 1.8. In 2009 the company faced debt problems and was indeed close to bankruptcy, although a new management team managed to restructure USD 350m debt down to USD 180m and increase earnings from a net loss of USD 270m to USD 18m net profit during the first half of 2011. See portfolio comment regarding the East Capital Special Opportunities Fund for more information on Integra.

als for this which could become an important driver of the share price going forward. The other factor is valuation, as the bank is now trading

Jacob Grapengiesser Partner and member of the Portfolio Management team, East Capital

Bambi-Banat Example of a company in the East Capital Special Opportunities Fund II

Investment facts

The fund's first investment in the company: 2010

The fund's holding in the company: 6.5% (additional 1.6% held by other East Capital funds)

Learn more about Bambi-Banat on: www.bambi.rs

Investment rationale

• • Well-managed company with good growth prospects
• • Low leverage and low valuation
• • Takeover candidate

Bambi-Banat, a leading Serbian confectionary producer with market capitalization of EUR 70m, evolved itself into one of the largest confectionaries in the Western Balkans where it now holds the first or second position in the markets of neighboring countries Montenegro, Macedonia, and Bosnia and Herzegovina. With over forty years of tradition, annual production of biscuits, sweets and salty products is now close to 30,000 tons, including the locally well-known brand Plazma.

Private equity owners entered the company in 2004, buying a 65% stake. Since then, the company has undergone a classical turnaround with replacement and modernization of production equipment. However, perhaps more importantly, an innovative approach to marketing, sales and distribution channels with a strong focus on efficiency was put into place. This resulted in a compound annual growth rate of sales of 25% between 2005 and 2010, while the EBITDA margin almost doubled and exceeded 20% in 2010, something the company aimed to repeat for 2011.

The company is a well-run business with good growth prospects and low leverage (net debt below 1 times EBITDA), low valuation and owners that are

expected to exit, which made the company an attractive investment in our view. Since we entered, the company was slowly getting ready to be sold. A large dividend yielding over 6% was paid out whereas the company also did several rounds of share buybacks, decreasing the share count by around 10% throughout the year.

Transactions in the market have unfortunately become increasingly difficult to achieve since the summer of 2011, as both risk appetite decreased and financing became more scarce and expensive. Thus, despite the main owners having launched a sales process in the middle of 2011, the timing and valuation of the potential deal remains unclear. What raises hope is that similar deals in the region were done at enterprise values above 8 times EBITDA, whereas Bambi now trades at roughly half of this (i.e. around an enterprise value of 4 times EBITDA). Despite the fact that the anticipated transaction is expected to trigger a mandatory buyout offer to minority investors under Serbian law, we also used our strong contacts with the main owner to confirm our tag along right to participate if and when a deal eventually happens.

Country breakdown, % per 31 December 2011 Sector breakdown, % per 31 December 2011

• 31.6 Financials
• 16.8 Consumer Staples
• 15.7 Materials
• 14.9 Energy
• 9.7 Utilities
• 9.6 Health Care
• 1.8 Industrials

Top ten holdings in the Fund per 31 December 2011 Company Portfolio weight 31 Dec, % 2011 2010 Performance, %* Country Sector Integra 12.9 18.0 -47.1 Russia Energy Bambi 9.6 1.1 18.4 Serbia Consumer Staples Zavarovalnica Triglav 9.1 9.6 -40.5 Slovenia Financials Verofarm 8.3 0.0 10.3 Russia Health Care Jastrzebksa Spolka Weglova Employee Shares 5.6 0.0 8.0 Poland Materials Rusforest 5.3 0.0 30.0 Russia Materials NFD 1 Delniski Investicijski Sklad 5.2 0.0 -8.5 Slovenia Financials RAO ES Vostok 4.8 0.0 10.1 Russia Utilities Aik Banka 4.8 8.2 -51.2 Serbia Financials Ablon Group 4.5 0.0 20.1 Hungary Financials 10 largest holdings (% of portfolio) Unlisted holdings (% of portfolio) Total number of holdings 70 10 17

* Change in share price during 2011 in EUR

East Capital Explorer's holding
Date of transaction	Amount, EURm	Type of transaction
1 October 2010	35.0	Initial investment
Fair value per 31 December 2011	24.8
Return on investment (per annum)	-24.1%

Melon Fashion Group

Investment facts

East Capital Explorer's first investment in the company: 2008

East Capital Explorer's holding in the company: approximately 31% (additional 11.6% stake is owned by East Capital Holding)

Fair Value 31 December 2011: EUR 19.5m

Return on Investment (per annum): -10.9%

Learn more about Melon Fashion Group on: www.melonfashion.ru

Investment rationale

• • Well positioned for future growth and increase of market share
• • Improvements in profitability expected in 2012 after years of strong expansion
• • Benefits from strong consumer demand and a growing middle class in Russia

History

Melon Fashion Group (MFG) is a Russian fashion retail company operating 552 stores in Russia and Ukraine, which makes it one of the largest fashion retailers in Russia. After being a leading female apparel producer during the Soviet times, the company outsourced production in 2004 and today has turned into a pure-play retailer growing sales by over 850% compared to full-year 2005.

MFG entered the financial crisis of 2008 in a very strong financial position and was able to take advantage of the opportunity to expand cheaply both organically and through two acquisitions. During these years it added four new concepts to the two it initially operated and increased the number of stores by 433, representing growth more than fourfold.

Results 2011

In 2011 Mellon Fashion Group faced a need to digest the aggressive growth of the previous year, scale down on expansion and concentrate on implementation of operational improvements needed to restore profitability. The aggressive growth and rapid increase in market share came at a price of lower profitability which surfaced already in 2010 and continued into the first half of 2011. The performance of Melon Fashion Group's core brands has been fairly strong, but the newly acquired concepts which are operated under a master-franchising arrangement suffered losses. The main challenges came from supply chain disruptions and logistical difficulties outside the company's control. It became clear that the company had to scale down on its pace of expansion and implement important operational changes to improve integration of the new businesses. During the second half of the year, MFG management and the board of directors were focused on joint efforts with the franchisor to develop measures needed to improve operational performance and restore profitability starting from 2012.

Despite the focus on optimization of operations the company managed to add net 41 new stores of its core concepts, which generate over 78% of sales and also net 8 stores of franchised concepts. According to preliminary results, in 2011 the total revenue generated by the company grew by over 37% compared to 2010. Russia contributes 94% of total group sales.

Transaction 2011

During the third quarter of 2011 the management team of East Capital Explorer upon recommendation from the investment manager used the opportunity to increase the ownership stake in MFG by buying out the 14.8% stake previously owned by Swedfund International. Completion of the acquisition increased East Capital Explorer's ownership to approximately 31% and together with other East Capital entities represents the largest shareholding of the company.

Following a severe turbulence in the financial markets during the fall of 2011, the value of East Capital Explorer's stake in MFG was written down by 30%. The main reasons for the revaluation were the market performance of Russian listed retail companies in general and the company's failure to meet expectations. However, we remain optimistic about this investment as we believe that the rebound in listed peers coupled with higher profitability will result in higher valuation in the near future.

As a result of the deal with Swedfund International, a subsidiary of East Capital Explorer, launched a mandatory offer to buy out the remaining shares in MFG from its non-affiliates in March 2012. The mandatory offer is taking place on the same price level as the transaction with Swedfund International. Based on the shareholder structure of MFG and intentions stated by other shareholders of the company, the proportion of shares tendered in the mandatory offer is expected to be limited. The result in terms of tendered shares will be known in May 2012.

TEO LT

Investment facts

East Capital Explorer's first investment in the company: 2009

East Capital Explorer's holding in the company: 3.4% (additional 3.9% held by East Capital funds)

Fair Value 31 December 2011: EUR 15.9 m

Return on Investment (per annum): 10.1%

Learn more about TEO LT on: www.teo.lt

Investment rationale

• • Strong operational performance
• • Sizable improvements in cost efficiency
• • Interesting growth opportunities in new services and technologies
• • Market leader in all of its core sectors
• • Attractively valued compared to peers
• • Historically high dividend paid

History

TEO started its operations as a state company, Lietuvos Telekomas, back in 1992 and was later privatized to the, at the time, Swedish, Finnish, and Norwegian consortium of Telia AB, Sonera Oy, and Amber Teleholding A/S, which acquired 60% of the company's shares. After a successful initial public offering in 2000, Lietuvos Telekomas was listed on the Vilnius Stock Exchange. In addition, TEO is the only Baltic company traded as a global depositary receipts on the London Stock Exchange. Furthermore, the company, although listed, is a subsidiary to TeliaSonera which holds 68% of its shares. TeliaSonera increased its stake in TEO during 2011 by 5.4 percentage points.

Results 2011

2011 has been a successful year for TEO considering its results, technological developments and continued investments, as well as its focus on new services. TEO has reported very solid full year 2011 financial results with sales decline slowing down to -3.1% on year-on-year, at a time when the overall Lithuanian telecom market declined by 7%. Operationally, TEO has managed to keep and even improve its EBITDA margin to 40% - its main source for cash flow and high dividends. The net margin of the company has remained rather stable at around 21%. The most important highlight of last year has been the fourth quarter 2011 results, which showed the first significant improvement in quarterly revenue dynamics since 2008, both compared to the last year and the quarter before. The quarterly growth rate of revenues was an impressive 6% and annual growth showed a positive rate of 1.5%. The main drivers of this positive trend shift have been Internet services revenue returning to growth as well as continued strong growth in TV and IT services.

During the year, revenues from voice telephony shrank by 9.9% in year-on-year terms, with fourth quarter 2011 sales decline slowing down to 4.5%. Substantial improvement in sales figures of TV and IT services by 26% and 32% year-on-year respectively has been achieved to compensate fixed line revenue decline. Hence, the importance of the stagnant fixed line business is decreasing for the company every quarter as its share has dropped from 54% to below 50% during the 2011 thanks to the strong focus on new technologies and services. The growth areas Internet, TV, data services reached up to 52% of the total revenue.

The company invested heavily in its network infrastructure upgrade and it paid back as the number of FTTH (Fiber to the home) and FTTB (Fiber to the building) connections increased by 35%, as the number of copper DSL connections declined by 7.3%. Network upgrades are expected to be a good basis for further development of Internet and data communication services both in terms of quality and pricing.

In the third quarter, TEO's market share of total

Internet providers market in terms of revenue increased to 40% and its share of broadband internet market using fixed connection to 52%. During 2011 the total number of TV service customers increased by 15.3% to 151,000. At the end of September 2011, TEO's market share of the digital television service market in terms of customers amounted to 46%, which is a fantastic result for a service which has been launched just in 2008.

Share price development

During 2011 TEO shares lost 9% in price performance including the dividend paid out, while the Baltic equity market was down 19% during the same period. At the end of the year, TEO was trading at a price to earnings ratio of 10.4 times and an enterprise value at 4.6 times EBITDA. Considering the improvement in the financial results, the expectations for the company's dividend for the year 2011 have increased by 10% and now the share is expected to yield a cash dividend of around 8-9%.

East Capital Explorer has been investing into TEO since the end of the third quarter of 2009. In the fourth quarter of 2011, East Capital Explorer invested an additional EUR 1.3m, and as of 31 December 2011 East Capital Explorer held 3.4% of the company's shares, corresponding to a total value of EUR 15.9m.

Komercijalna Banka Skopje

Investment facts

East Capital Explorer's first investment in the company: 2011

East Capital Explorer's holding in the company: 10% (additional 3.0% held by East Capital funds)

Fair Value 31 December 2011: EUR 9.7m

Return on Investment (per annum): -24.3%

Learn more about Komercijalna Banka Skopje on: www.kb.com.mk

Investment rationale

• • Leading bank in Macedonia with large market share in several market segments
• • Strong operational performance with historical return on equity above 15%
• • Attractive valuation relative to other leading regional banks
• • Bank is an obvious acquisition target for strategic investors

History

Komercijalna Banka Skopje AD (KBS), the largest bank in Macedonia by assets and capital, assumed its current form and name in 1990, shortly after the Law on Banks and Financial Institutions came into force. Prior to that, the bank was established in 1955 as Komunalna Banka of the city of Skopje and was specialized for approving housing loans and financing construction operations. In 1966 the bank was transformed into a mixed type of bank and changed its name to Komercijalno Investiciona banka Skopje. In the early 1970's, the bank merged with three local banks and became the first Macedonian bank to offer current accounts for citizens. KBS is a jointstock company, listed on the Macedonian stock exchange and is one of the ten companies which comprise the Macedonian Stock Exchange Index MBI-10.

Operations

Komercijalna Banka Skopje AD offers universal banking services to both individuals and companies through a nationwide network of branches and offices. The bank's loan portfolio is predominately (over 80%) corporate loans to clients including many of Macedonia's blue chip companies. On the other hand, like most corporate banks in the region its funding base is dominated by retail deposits, a segment where the bank enjoys 29.6% market share at the end of 2011. This deposit base is quite stable and growing – KBS posted 13.8% deposit growth in 2011, despite reducing deposit rates early in the year. Thus funding growth facilitated 5.2% loan growth during the year, even though the bank has implemented more stringent credit criteria against a backdrop of weak economic growth in the region.

The 2011 income statement showed top line growth in line with expectations. Net interest income grew by 8% versus 2010, and net income from fees and commissions grew by over 10%. However, provisions against impairment more than doubled, due to problems experienced by certain large corporate borrowers during the year. The net profit of the Bank for 2011 amounted to MKD 1.085b, which is 24% lower than in 2010, but still represents a creditable 11.4% return on equity.

The Macedonian Central Bank, which oversees banking sector regulation, enforces strict standards of liquidity management, stress testing and reporting. The general capital adequacy requirement is 10% for banks, but large, systemically important banks (including KBS) are required to meet a higher threshold of 12%. This conservative regulatory environment, which also limits banks' exposure to wholesale funding, has helped to insulate the sector against external shocks, resulting in very little sector volatility during the 2008/2009 global financial crisis.

Although interest from strategic investors in the banking sector is now at a low, as banks throughout Europe focus on problems in their domestic markets, KBS should be a logical acquisition target in the future, once regional strategic players start feeling stronger and more optimistic.

Share price development

East Capital Explorer completed its direct investment into KBS in March of 2011 via a new share issue, after obtaining permission from the Macedonian Central Bank. The cost of acquisition was MKD 3,500 per share. After reaching a high for the year at MKD 3,931 in early June, the Bank's share price fell steadily through the second and third quarters of 2011, in line with the general trend for banking shares, to finish the year at MKD 2,641 per share. This share price implies a price of 0.63 times 2011 book value and 6 times 2011 earnings, which are quite undemanding, even in the context of current valuation levels throughout the region.

Asset Structure 2011

○	37% Cash and liquid assets
○	2% Loans and advances to banks
○	54% Loans to Customers
○	1% Investments and traded portfolio
○	2% Property and equipment
○	5% Intangible and other assets

Core Income

MKD Thousands

Trev-2 Group

Investment facts

East Capital Explorer's first investment in the company: 2011

East Capital Explorer's holding in the company: 18.5% (additional 6.5% held by East Capital funds)

Fair Value 31 December 2011: EUR 4.0m

Return on Investment (per annum): 0.0%

Learn more about Trev-2 Group on: www.trev2.ee

Investment rationale

• • Well-positioned company to become one of the largest infrastructure construction companies in the Baltics
• • Exposure to EU infrastructure funding dedicated to the Baltics
• • Strong local presence, market knowledge and operational know-how
• • Possibility to unlock extra value by improving operational structure and efficiency

History

Trev-2 Group is one of the largest infrastructure construction and maintenance companies in Estonia with presence in Latvia. The Company has two main business segments – road construction and maintenance and environmental construction.

In August of 2011 East Capital Explorer made a EUR 4m direct investment into the Company.

The company's history dates back to second half of 1950-s, when the state initiated larger road construction projects in Tallinn and its suburbs. The company celebrated its 50th anniversary in 2011.

After Estonia re-gained its independence in 1991, the company entered into a development phase driven by a shift from planned economy to market economy. In 1991, the Road Administration decided to divest Trev-2 Group from its organization and for the following two years the company's assets were rented to its employees. In 1993 the employees of the company participated in the privatization of Trev-2 Group. Peeter Vilipuu and Lembit Makstin, persons still active in the company, assumed managerial positions.

Economic activities of the group were extended even further by establishing a general construction unit in 2006 to provide construction services to external parties and have a supportive function to the group's main activities (bridges, pumping stations, etc.). In 2011, the company entered the environmental construction segment, which is a strong growth area.

Operations

Operations of the company cover wide spectrum of infrastructure construction services. The largest and most important ones are road construction and maintenance and environmental construction segments. In addition to the core segments, the company also owns and operates mines and sand pits, and has general and railway construction capacity.

Road construction and maintenance

Road construction and maintenance is the oldest and most stable business segment for the company. The company has accumulated experience over 50 years and is well known in the market as one of the most innovative players. The company maintains and repairs 3,300 km of state roads or in another words, 20% of the entire road network in Estonia.

Environmental construction

The company entered the environmental construction segment through strategic acquisitions in Estonia and Latvia during 2011 around the time East Capital Explorer invested in the company. The main emphasis in the sector is on construction of waterand wastewater systems, meeting the strictest environmental requirements.

Financial performance

The construction sector in general has been under a lot of pressure during the last three years. There were signs of correction in 2011, but clearly no full recovery. Increasing construction prices in 2010, lead to a number of main contractors exceeding price levels assumed while bidding for the projects and put many contractors under economic distress.

Integration of the environmental construction business unit, acquired in summer, was successful. Participation in tenders announced in second half of 2011 in Latvia and Estonia were also successful. The unit is major contributor to the top line growth foreseen for 2012.

The 2011 financial results were weaker than expected. Overall profitability of the company throughout 2011 has been poor, triggering changes both in management and the organisational structure. The CEO and Construction Director of the company were replaced in December. As of year-end, the new group and organisational structure were put in place, making the company more transparent and enhancing operational efficiency.

East European Debt Finance

Investment facts

East Capital Explorer's first investment in the company: 2010

East Capital Explorer's holding in the company: 25% (additional 25% held by the East Capital Financials Fund)

Fair Value 31 December 2011: EUR 1.1m

Return on Investment (per annum): 0.4%

Investment rationale

• • Operating in an undeveloped industry with potential"
• • Increased consumer lending in Russia
• • Attractive valuation of debt portfolios
• • Strong earnings potential

Background

Russian non-performing retail loans such as consumer loans, vendor loans, credit cards and car loans, have increased significantly during the past years and the very young debt collection industry in Russia has taken speed to develop. Banks are outsourcing more collection services to local collection agencies or selling their non performing consumer loan portfolios on the market to improve cash flows and balance sheets. After a longer period of slow growth following the 2008 crisis, consumer lending has been increasing pace in 2011 and is expected to continue to grow rapidly in the coming years. This will continue to offer the debt collection and purchased debt portfolio markets interesting investment opportunities for professional investors.

East European Debt Finance (EEDF) AG is a joint-venture East Capital Explorer established in February 2010 together with the leading European debt collection company Intrum Justitia and the East Capital Financials Fund. This special purpose investment company focuses on purchasing nonperforming retail loan portfolios consisting mainly of unsecured consumer loans, credit card debts and car loans. The total original commitment from shareholders amounted to EUR 20m, of which East Capital Explorer had committed EUR 5m. As of the end of 2011, EUR 1.1m of East Capital Explorer's commitment had been drawn down. Under the governing joint venture agreements, East Capital Explorer's additional commitment expired at the end of the year and any further drawdowns will require new approvals.

The purchased portfolios are serviced by carefully selected local collection companies together with Morgan & Stout as the preferred partner for the joint-venture. East Capital Financials Fund is a shareholder with 33% stake in Morgan & Stout.

Investment activity

The purchased debt market in Russia could be described as rather challenging in 2011. It started off very slow with only a few portfolios offered on the market and the quality of these left much to be desired. Even though the number of offered portfolios increased in the second half of the year, the company purchased only two portfolios as hungry competitors from neighboring Ukraine entered the market quite aggressively distorting the prices. We do not consider this situation to be sustainable as the collection rates remain on the same levels and thus we do not see any grounds for increased prices. All in all, in 2011 the company analyzed and evaluated 55 portfolios for total volume of RUR 70b which represents a 40% increase in volume to the year before. The average price offered was 3.5% of the total debt.

On a positive note, the company not only signed an agreement with EBRD on a co-financing structure to purchase larger debt portfolios, which are over EUR 1m in investment value, but also conducted the first joint purchase of a portfolio with more than 50,000 cases and with total debt amounting to RUR 5.7b. As the portfolio is rather large it will be serviced by two collection agencies in Russia – Morgan & Stout and Pristav. EBRD is actively marketing this facility to their own portfolio banks in Russia and we hope to see more proprietary portfolios coming this way in 2012.

Outlook 2012

On the back of the robust consumer credit growth in 2011, we expect to see quite a lot of activity on the purchase debt market as well. Our focus will be more on the larger portfolios where competition is less fierce and thus pricing also more attractive. We will also focus on making sure that the already purchased portfolios are serviced the most effective way by increasing the regular dialog with the local service providers and using seasonal campaigns to increase the collections. The collection plans for each portfolio are reviewed semi-annually but collection strategies are reviewed on quarterly basis.

Populi

Investment facts

East Capital Explorer's first investment in the company: 2010

East Capital Explorer's holding in the company: 30.7 (additional 19.2 % held by East Capital funds)

Fair Value 31 December 2011: EUR 0.1m

Return on Investment (per annum): -95.5%

Learn more about Populi on: www.populi.ge

Investment rationale

• • Benefits from Georgia's fast-growing economy
• • Market leader in a highly fragmented food retail sector, where more than 90% consists of small old format stores
• • Strong potential for market growth driven by GDP growth, consolidation and modernization

History

Populi is a Georgian food retailer, founded in 2001. By the end of 2011, the company operated 43 stores, 40 of which are located in the capital Tbilisi. The majority of the company's stores are in the convenience format, i.e. round 200 sqm of shopping space, focusing on walking traffic in downtown and residential areas.

Financial performance

The negative development in Populi, started to unveil by the end of 2010, and has exacerbated during 2011.

In December 2010, the board discovered that the company's founder and CEO had mislead the board and acted dishonestly. He was immediately dismissed and replaced by an interim CEO while the search for a permanent candidate was started. Meanwhile, the main shareholders took the lead in starting to investigate what had actually happened under the old CEO. Findings were disappointing. The financial situation of the company was much worse than the management had previous reported. In particular, the results of 2010 had been strongly overstated. Many examples of mismanagement were discovered as well as cases of suspected fraud. Lawyers were hired to analyze whether the findings

could be used in court, and by the end of 2011 both sides had filed law-suits.

In June, a new CEO, Teodora Ticeric, was appointed. After a few months in office, she concluded that the company's organization and operations need to be fundamentally re-structured. She has since recruited an entirely new management team and started to build up proper systems for ordering, logistics, and category management. This work has not yet started to give any visible financial results – the company's losses are still large. By the end of 2011, the cash situation was becoming critical, and lenders and shareholders were discussing how to finance the operations. Without a capital injection, the company has poor conditions to continue its operation and thus survive.East Capital has taken an active role in seeking a financing solution for Populi, and is leading discussions with other shareholders, investors and lenders in this regard.

As a result of the problems in the company and the question marks regarding its survival, the holding has been revalued to almost zero. By the end of 2011, the value of East Capital Explorer's holding in Populi was worth a mere 0.1m EUR. The valuation is based on an external appraisal.

Wimm-Bill-Dann Foods

Investment facts

East Capital Explorer's first investment in the company: 2010

Investment divested in June 2011

East Capital Explorer's holding in the company: 0%

Return on Investment (per annum): 17.4%

Learn more about Wimm-Bill-Dann on: www.wbd.ru

Investment rationale

• Arbitrage opportunity

• PepsiCo's successful track-record of M&A on the Russian markets

• Strong corporate governance standards of PepsiCo

History

Wimm-Bill-Dann Foods was the leading dairy and juice producer on the Russian consumer market and had a strong brand portfolio of value-added products with a wide presence across all Russian regions and CIS countries. The company was founded in 1992 by a group of local entrepreneurs and later attracted a highly professional management team with strong expertise in the sector.

Transaction 2011

At the end of 2010 East Capital Explorer made an investment into Wimm-Bill-Dann Foods, listed in Moscow and New York following an announcement by PepsiCo that it had agreed to acquire a 66% in the company for USD 3.8 billion (a price of USD 132 per common share company, USD 139).

At the time of our investment, the PepsiCo transaction was pending the required government approvals. In accordance with Russian Law, PepsiCo was required to purchase the remaining 34% of the company within 35 days after the close of the transaction at buyout price not below the deal price. PepsiCo had a successful track record of completing similar M&A transactions on the Russian market

and implementing strong corporate governance standards. East Capital Explorer expected to realize a premium above the average price of USD 117.46 paid per share upon completion of the buyout from PepsiCo.

In March 2011, East Capital Explorer accepted PepsiCo's buyout offer to purchase its holding in Wimm-Bill-Dann Foods. It was a short-term investment opportunity, which has allowed East Capital Explorer to realize an annualized pre-tax return of 17.4% on its initial EUR 6.8m investment (39.7% pre-tax IRR when measured in the transaction currency USD). After the buyout, which was finalised in June, East Capital Explorer received EUR 7.4m which was available for future investments.

A word from our Chairman	47
Corporate Governance	48
Staff	53
Board of Directors	54
Managing our risks	56
A more sustainable investment approach	58
Fees	60
Internal Control	62

A word from our Chairman

Paul Bergqvist Chairman of the Board

2011 has been a challenging year for East Capital Explorer. The global scene has been eventful and increased uncertainty has had a negative effect on our investments as well. It has also been an eventful year for our Company. In April, the AGM approved the proposal to start paying a dividend, a way to partially forward income to our shareholders, a decision based on the fact that the portfolio was more or less fully invested in 2010.

In the autumn, Gert Tiivas, who served as CEO of East Capital Explorer since its launch, resigned and joined the Investment Management team at East Capital. Thus, Gert still works, but now more closely, with some of East Capital Explorers investments. Gert's contribution in the creation of the Company has been very important. In October, Mia Jurke joined the Company as the new CEO. Mia, with a background in regulated products, most recently as CEO for East Capital's fund company, brings solid experience in corporate governance and good organizational skills, something that we in the board believe is of great value for our Company that has now entered a more mature stage where both the Company itself as well as our portfolio have left the build-up phase.

"Lots of things has happened in the world this year and so also in our Company".

The most important task for the board remains to focus on the interest of our shareholders. The board has during the year continued working with the corporate governance, developing the established processes and improving the internal control and monitoring of the management of the portfolio. One important tool in this work is the internal audit, which is performed by Ernst & Young, and gives an in-depth control of areas that we in the board think are especially valuable to have an independent view on. The Audit Committee, consisting of the independent members of the board, is thereby assisted in its work of carrying out a high level and quality supervisory function.

One of the board's most prioritised areas during the year has been NAV discount control. The discount in the beginning of the 2011 was just over 20% but increased in the first half of the year, culminating during the late summer in parallel with the increasing uncertainties in the market. In September the board decided to once again utilize the mandate

given by the AGM to start a repurchasing program. In October, the program was extended and until the end of the year 3.1% of the Company's own shares were repurchased. The board believes that the repurchases serve as an important tool to increase shareholder value at the current discount levels. We are still convinced that the shareholder value in the long-run will be created through the value growth in the portfolio.

"One of the board's most prioritised areas during the year has been NAV discount control."

So far during 2012, we have started to see a recovery both globally and in our investment universe. We believe that we are well positioned in a strengthening market, and are confident that many of the companies in which East Capital Explorer has invested will be able to perform well. We are also confident in the fact that our Investment Manager, East Capital, will continue to find interesting companies with high growth potential also going forward.

Paul Bergqvist, Chairman of the Board

Corporate Governance

Governance structure

For East Capital Explorer, corporate governance refers to the manner in which we operate and are organized to maintain the interests of all shareholders in the context of achieving our goal of delivering longterm, attractive returns.

Purpose and nature of the Company

East Capital Explorer is a public limited liability company that indirectly and directly invests in Russia and other countries within the Commonwealth of Independent States (CIS), the Balkans, the Baltic States, Central Asia and Central Eastern Europe. Our indirect investments are made through a selection of East Capital's current and future funds. East Capital Explorer is closely associated with the Investment Manager, East Capital. The governance structure – in which the Investment Manager has significant control over the investment activities of East Capital Explorer – is tailor-made to ensure that our Board and our Audit Committee are granted independence and control tools to fully and completely monitor the investment activities of the Investment Manager. These important monitoring duties comprise both evaluating the Investment Manager's performance as well as ensuring that the investment activities are in compliance with the Investment Policy.

The structure also results in operational competitive advantages, for example, allowing for an efficient decision-making process within the framework of the Investment Policy. The structure also creates stability and a clear division of responsibilities between the Investment Manager and the Company's Board. This structure was established in 2007 and was initially described in East Capital Explorer's prospectus to list on the NASDAQ OMX Stockholm, Mid Cap from November 2007.

Framework for corporate governance

Corporate governance at East Capital Explorer is based on both external and internal frameworks. External frameworks comprise the Swedish Companies Act, the rules of NASDAQ OMX Stockholm Rule Book including the Swedish Code of Corporate Governance, as well as other applicable Swedish and foreign laws and rules. The Company's internal framework includes the Articles of Association, the Investment Management Agreement with East Capital, the rules and procedures of the Board of Directors, the charter of the Audit Committee, the instructions to the CEO and the policies adopted by the Company.

Further information on corporate governance is available on the Company's website, www.eastcapitalexplorer.com. Under the "About East Capital Explorer" tab there is a separate corporate governance section that includes:

• East Capital Explorer's Articles of Association;
• The nomination Committee's principles and work;
• Information regarding Annual General Meetings; and
• Information on policies and guidelines.

Additional information regarding the Company's shares and provisions of its articles of association regulating the appointment of Board members and certain amendments of the articles of association can be found under the "Share information" on page 8–9 and "Board of Directors" sections of the Administration Report on page 65.

Investment Management Agreement

The Investment Management Agreement stipulates the duties and responsibilities of the Investment Manager including the identification, evaluation and negotiating of potential investments. The Agreement specifically defines the division of responsibilities between the Investment Manager and East Capital Explorer, and ensures East Capital Explorer preferential access to alternative investment funds, private equity funds and real estate funds launched by East Capital.

Investment Policy

The Investment Policy stipulates East Capital Explorer's key geographical segments and investment themes and the types of investments which may be undertaken. It also stipulates certain limitations to ensure diversification and an appropriate risk level. The Policy may be revised from time to time, as the investment environment is changing. Any change in the Policy would require approval of both the Company and the Investment Manager. The key elements of our Investment Policy can be summarized in the following points:

Countries

East Capital Explorer may invest in Russia and the CIS countries, the Balkans, the Baltic States, Central Asia and Central Europe.

Asset types

East Capital Explorer invests primarily in East Capital's existing and future semi-public equity funds (with both listed and unlisted investments) and real estate funds, as well as East Capital's future private equity funds (unlisted investments).

East Capital Explorer also has the possibility to make direct investments in selected companies, as well as investments in East Capital's open-ended daily-traded funds.

More specifically, investments can be made in several asset types, including fund units, shares, options, convertibles, derivative instruments and other equity-related instruments. Debt investments are also permitted if related to an equity investment. In conjunction with investments in the real estate sector, investments can also be made in land, real estate and other property.

In 2009, the Board decided to initiate a bond mandate in which cash can be allocated to a portfolio of USD or EUR denominated liquid bonds of issuers in our investment region. The bond mandate is a short term cash management tool to create more attractive returns on East Capital Explorer's cash while remaining liquid for future investments.

Investment decision process

• Information procedure with the board of East Capital Explorer AB (publ)

The Investment Manager and investment structure

The day-to-day investment activities of East Capital Explorer are managed by East Capital PCV Management AB (the Investment Manager), a subsidiary within the East Capital group. These activities include sourcing new investment ideas and planning the reallocation of the portfolio in accordance with the established strategy. Another important function is to manage the cash of East Capital Explorer, pending investments. In order to perform these duties, the Investment Manager utilizes other functions and resources within the East Capital organization.

The Board of the Investment Manager, consisting of East Capital partners Peter Elam Håkansson, Kestutis Sasnausakas, Jacob Grapengiesser and Aivaras Abromavicius, meets on a frequent basis in order to discuss East Capital Explorer's investment portfolio and to plan for divestments and investments of East Capital Explorer.

Recommendations for fund or direct investments are subsequently presented for consideration by the Board of East Capital Explorer Investments AB, which holds the investment portfolio. East Capital Explorer Investments AB is owned by the Company and the Investment Manager. The Company holds all financial rights to East Capital Explorer Investments AB, while the Investment Manager controls and manages the company. Currently, the CEO of the Company, Mia Jurke and the Board member, Justas Pipinis, are members of the Board of East Capital Explorer Investments AB, together with Pia Nilsson, Group Compliance Officer at East Capital.

Functions of the Board of the Company

Although the ordinary investment management activities are assigned to the Investment Manager, the Board of East Capital Explorer always determines the following, more significant matters::

• Decisions on investments constituting more than 15% of NAV at the time of the investment;
• Direct investments (with no co-investment);
• Deviations to the Investment Policy; and
• Investments implying a conflict of interest between East Capital Explorer and East Capital.

The Board of East Capital Explorer also continuously monitors the Investment Policy and evaluates whether the Policy is, in terms of current conditions and developments, in the best interest of the shareholders of the Company. Should the Board determine that an update or revision is required, the Board would initiate the necessary changes. The Board also evaluates made investments,

monitors management performance, and decides on management remuneration.Another function of the Board is to monitor the operations of the Investment Manager, for example by ensuring that the investment activities are carried out in accordance with the Investment Policy and the Investment Management Agreement. This task is primarily executed by the Company's Audit Committee, which consists of the Company's Board members, who are independent from East Capital and from the executive management of the Company. The Board members also receives the Board minutes and all supporting material for the investment decisions carried out by the Board of East Capital Explorer Investments AB. The Company also has the right to appoint the auditor for East Capital Explorer Investments AB.

Termination of the Investment Management Agreement

Under certain circumstances, the Company has the right to terminate the Investment Management Agreement, for example if the Investment Manager does not act in accordance with the Investment Policy or the Investment Management Agreement.

The Company also has the right, at its total discretion and without any breach of the Agreement, to give notice to terminate the Investment Management Agreement with the approval of a majority of at least 75% of votes cast, as well as shares represented, at a general meeting of shareholders of the Company. If the Investment Management Agreement is terminated within five years from listing on the NASDAQ OMX Stockholm Exchange, the Investment Manager shall be reimbursed for the offering costs incurred during the initial listing on the exchange.

Board of Directors

Composition of the Board

According to the articles of association of the Company, the Board shall consist of three to seven members without deputies. Further, the Investment Manager always has the right to appoint one Board member. Board members are elected by the Annual General Meeting for a one-year term. The 2011 Annual General Meeting re-elected Paul Bergqvist, Anders Ek, Lars Emilson, Karine Hirn, Alexander V. Ikonnikov and Justas Pipinis to the Board. Monika Elling had declined to be re-elected. The meeting re-elected Paul Bergqvist as Chairman of the Board.

Independence of the Board

Under applicable regulations, Paul Bergqvist, Anders Ek, Lars Emilson and Alexander V. Ikonnikov are regarded as independent in relation to the Company and its management, as well as the major shareholders of the Company. The independent members of the Board have been proposed based on their significant experience from international management and business, specifically within Eastern Europe and Russia, as well as their board work in various listed companies.

Karine Hirn and Justas Pipinis are not defined as independent in relation to the Company and its management as they are affiliated with East Capital and, due to the Investment Management Agreement and other relationships, must be regarded as having extensive business ties with the Company and affiliated enterprises. Regarding the Board members' independence in relation to major shareholders, it should be noted that in 2011 East Capital, together with its related parties, was a major shareholder of the Company, as the term is defined in the Swedish Code of Corporate Governance, and therefore Karine Hirn and Justas Pipinis are not regarded as independent from major shareholders of the Company. As of 31 December 2011 there were no other major shareholders of the Company, as defined in the stock exchange rules and Swedish Code of Corporate Governance.

For more information about each Board member please see pages 54–55.

The Board and its work

The work of the Board is governed by the rules of procedure adopted by the Board. The Chairman of the Board, Paul Bergqvist, directs the work conducted by the Board and maintains continuous contact with the CEO and the Company's other management functions, in order to monitor the Company's operations. The Board has also prepared and approved a Charter for the Audit Committee, a work instruction for the CEO as well as a number of policy documents.

The Chairman of the Investment Manager, Peter Elam Håkansson, the Company's CEO, Mia Jurke, CFO, Mathias Pedersen and General Counsel, Stefano Grace also participated in the Board meetings during 2011 to report on their respective areas. Other representatives from the Investment Manager are invited, from time to time, to participate in Board meetings to make presentations on particular investment proposals or other matters.

The Board holds at least seven ordinary Board meetings per year. Additional meetings may be held to discuss and decide on investment proposals. One meeting per year is typically held in conjunction with an East Capital Investor Summit or investor trip which East Capital organizes in different parts of our investment region. Participation at these conferences provides the members of the Board with new insights into the investment region and an update on current financial and political events, and always includes company visits. During 2011, the Board participated in the East Capital Summit in Istanbul, Turkey in September.

Board meetings and main discussions

During 2011, a total of 15 Board meetings were held. The main discussions held during the meetings were:

Meeting	Main discussion
1/2011	Approval of the Year-end report 2010
2/2011	Telephone meeting to approve the notice to the Annual General Meeting 2011
3/2011	Meeting to approve the Annual Report 2010
4/2011	Per capsulam meeting to approve the statements to be made in connection with the Annual General Meeting 2011
5/2011	Board meeting held in conjunction with Annual General Meeting
6/2011	Approval of the Interim Report 1 January - 31 march 2011
7/2011	Telephone meeting to approve an investment proposal
8/2011	Approval of the Interim Report 1 January - 30 June 2011
9/2011	Telephone meeting to approve an investment proposal
10/2011	Board meeting in conjunction with East Capital Investor Summit in Istanbul, Turkey
11/2011	Telephone meeting to approve recruitment of the new CEO
12/2011	Per capsulam meeting to approve the statements to be made in connection with share buyback program
13/2011	Approval of the Interim Report 1 January – 30 September 2011
14/2011	Per capsulam meeting to approve to continue the share buyback program
15/2011	Telephone meeting to approve an investment proposal

In addition, Gert Tiivas and Mia Jurke*, in their capacity as Board member of East Capital Explorer Investments AB, participated at nine and four meetings respectively for East Capital Explorer Investments AB (all of which were per capsulam meetings) during 2011.

Evaluation of the Board

During 2011, the work of the Board was not formally evaluated by an external consultant as was the case in 2008. However, an independent member of the Nomination Committee conducted an evaluation of the Board to continue to develop the processes in the Board and provide input to the Nomination Committee's work to prepare proposals to the Annual General Meeting 2012. In 2009 and 2010, the Board was internally evaluated of its work to assist the work of the Nomination Committee.

^*Mia Jurke replaced Gert Tiivas as Board member of East Capital Explorer Investments AB on 20 October 2011

Audit Commitee

The Audit Committee is appointed to serve the Board in an advisory function with respect to financial reporting, valuation and auditing matters. Given East Capital Explorer's investment structure, the Audit Committee has extended responsibilities, compared to many other companies, and also monitors the economic relationship with East Capital Explorer Investments AB and its investments, as well as the Company's cooperation and contractual relationship with the Investment Manager. The Charter of the Audit Committee governs the work of the Committee.

The Audit Committee shall consist of at least three members appointed by the Board from among the independent members of the Board. The Audit Committee comprises Paul Bergqvist (Chairman), Anders Ek, Lars Emilson and Alexander V. Ikonnikov.

The Audit Committee may invite, as it sees fit, representatives from the Company, East Capital Explorer Investments AB or the Investment Manager as non-member attendees and may appoint appropriate legal counsel, audit expertise and independent valuation expertise for consultation in the performance of its duties. Carl Lindgren, auditor in charge representing the Company's auditor KPMG, participates in all meetings at which financial reports are approved, in order to present his findings to the Committee prior to approval of the reports by the Board.

The Company's CEO, Mia Jurke, former CEO, Gert Tiivas, CFO, Mathias Pedersen and General Counsel, Stefano Grace also participated in the Audit Committee meetings during 2011 to report on their respective areas.

Audit Committee meetings and main discussions

During 2011, a total of five Audit Committee meetings were held. Topics of the main discussions held during the meetings were:

Meeting	Main discussion
1/2011	Discussion regarding the Year-end report 2010 and policy review
2/2011	Discussion regarding the Annual Report 2010
3/2011	Discussion regarding the Interim Report
	1 January – 31 March 2011
4/2011	Discussion regarding the Interim Report
	1 January – 30 June 2011
5/2011	Discussion regarding the Interim Report
	1 January – 30 September 2011

Directors' fees and executive remuneration

On 12 April 2011, the Annual General Meeting resolved to increase the Directors' fees in the Company and that the Chairman of the Board will receive an annual compensation of SEK 770,000 for the period until the 2012 AGM. Each member of the Board, other than the Chairman, will receive an annual compensation of SEK 330,000 for the same period. Board members Justas Pipinis and Karine Hirn waived their Directors' fees.

Remuneration for work in the Audit Committee was also increased and totaled SEK 100,000 for the Chairman of the Audit Committee, and SEK 50,000 per year to other members of the Committee.

Remuneration Committee

In light of the Company's limited number of employees, the Board has concluded that no Remuneration Committee should be established. The duties that would have been assigned to a Remuneration Committee are, instead, performed by the Board as a whole.

CEO

The CEO, Mia Jurke*, is responsible for the day-to-day administration of the Company in line with the instructions from the Board, other guidelines and policies. Together with the Chairman of the Board, the CEO prepares the agenda for Board meetings and prepares the requisite materials and information to allow for decision-making at Board meetings. In addition, the CEO ensures that the Board continually receives information on East Capital Explorer's development and market information from the Investment Manager in order to be able to make valid decisions.

The CEO has no significant assignments outside the Company. For more information about the CEO, see page 53.

Remuneration of Executive Management

Remuneration to the CEO and the CFO consists of fixed salary, variable salary and pension and insurance benefits. The Board determines, at its own discretion, whether the executive management should be paid any variable salary. The decision is supported by key performance indicators (KPIs), including among others share price performance, defined annually by the Board. Targets are set and evaluated annually. During 2011, a variable salary for 2010 amounting to 43% of the fixed salary was paid to the CEO and CFO out of a maximum variable salary corresponding to 50% of the fixed salary. During 2012 the Board has decided to grant the CFO a variable salary for 2011 corresponding to 17.5% of his fixed salary, out of a maximum variable salary corresponding to 50% of the fixed salary. Mia Jurke, the new CEO, was not participating in the KPI evaluation for 2011, but the Board decided to grant her a variable salary of 30,000 SEK. Gert Tiivas, the former CEO, was not granted any variable salary for 2011.

* Mia Jurke replaced Gert Tiivas as CEO on 15 October 2011

The composition of the Board
						Board meeting	Audit	Audit Commitee
						attendance	Committe	attendance
Name	Position	Citizenship	Independent	Shareholdings	Elected	2011		2011
Paul Bergqvist	Chairman	Swedish	Yes	16,000 shares	2007	15/15	Yes	5/5
Anders Ek	Board member	Swedish	Yes	4,000 shares	2008	15/15	Yes	5/5
Lars Emilson	Board member	Swedish	Yes	8,500 shares	2007	15/15	Yes	5/5
Karine Hirn	Board member	French	No	611,542 shares	2010	14/15*	No	n/a
Alexander V. Ikonnikov	Board member	Russian	Yes	10,500 shares	2007	15/15	Yes	5/5
Justas Pipinis	Board member	Swedish	No	40,000 shares	2007	13/15*	No	n/a

*Karine Hirn and Justas Pipinis did not participate in the board meeting held by phone on 6 December 2011 due to a potential conflict of interest

The CEO and the CFO have individual premium-based pension plans, pursuant to which the Company pays premiums corresponding to 10% of their respective fixed salaries, up to 10 Swedish income base amounts and premiums corresponding to 20% of the fixed salaries on the portion of the fixed salary exceeding 10 Swedish income base amounts. In addition, CEO Mia Jurke received a benefits package in 2011 of a limited scale. Compensation for these services is a deviation from the remuneration guidelines approved by the 2011 AGM, and were part of the employment package agreed with the CEO during her recruitment.

For detailed information on the remuneration to executive management, see Note 4 on page 81.

Share-related incentive program

East Capital Explorer does not have any share-related incentive programs.

The Annual General Meeting

The Annual General Meeting of Shareholders (AGM) is the Company's highest decision-making body and where shareholders exercise their influence. The AGM must be held within six months from the end of the financial year. All shareholders who are registered in the register of shareholders and who notify the Company of their intention to attend the AGM in time are entitled to take part at the meeting. Shareholders may vote for the full number of shares they own and may be accompanied by a maximum of two assistants. Shareholders who cannot attend the AGM in person may be represented by proxy.

The AGM decides on, among other things, matters such as the election of the Board, when applicable the appointment of auditors, dividend distribution, adoption of the income statement and balance sheet, and the discharge from liability of the members of the Board and CEO. Shareholders are entitled to have a matter considered at the meeting provided a legitimate request has been submitted to the Company well in advance to publication of the notice of the AGM.

The AGM is an important channel in communicating with shareholders. Shareholders are encouraged to participate at the AGM and all shareholders receive a printed invitation and notice to attend the meeting.

The full Board and Company management attend the AGM and are available to answer questions from the shareholders.

Annual General Meeting 2011

The 2011 AGM was held on 12 April 2011 at Nalen in Stockholm. All documents from the 2011 AGM including notice, documents presented at the AGM and the full minutes from the meeting are available at www.eastcapitalexplorer.com.

The 2011 AGM was attended by approximately 200 persons, including shareholders representing a total of 30% of the shares in the Company, all the members of the Board, all employees as well as a number of invited guests.

Nomination Committee

The duties of the Nomination Committee include evaluating the Board and its work prior to the AGM, and to prepare and present to the AGM proposals for resolutions regarding the Chairman of the meeting, members of the Board, Chairman of the Board, as well as the appointment of auditors, when appropriate. The Nomination Committee also proposes resolutions regarding remuneration to the members of the Board, remuneration (if any) for Committee work, fees to be paid to the Company's auditors, and the process for electing a Nomination Committee for the next AGM. All shareholders have the opportunity to submit proposals to the Nomination Committee.

The work of the Nomination Committee 2012

In accordance with a resolution by the 2011 AGM, the Nomination Committee for the 2012 AGM comprises five members; three members appointed by each of the three largest shareholders in the Company who chose to participate in the Committee, East Capital Explorer's Chairman of the Board and a representative of the Investment Manager.

The 2012 Nomination Committee consisted of:

• Peter Elam Håkansson, East Capital (Chairman)
• Peter van Berlekom, Nordea Funds
• Arne Lööw, Fourth Swedish National Pension Fund
• Paul Bergqvist, as Chairman of the Board in East Capital Explorer
• Louise Hedberg, as representative for the Investment Manager

The composition of the Nomination Committee was published through press releases and updates on the Company's website on 25 October 2011 and 1 February 2012.

No fees were paid to the members of the Nomination Committee for their work in the Committee.

Shareholders have been invited to submit proposals to the Nomination Committee. The Nomination Committee's proposals prior to the 2012 AGM are specified in the notice of the AGM and are also available on www.eastcapitalexplorer.com.

Annual General Meeting 2012

The 2012 AGM will be held on 25 April 2012, at 3.00 p.m. at Konserthuset in Stockholm. For more information please visit: www.eastcapitalexplorer.com.

Audit

External auditors

At the 2011 AGM held on 12 April 2011, the registered auditing company KPMG AB was re-elected auditor of East Capital Explorer for a fouryear term until the close of the 2015 AGM, with authorized auditor Carl Lindgren as auditor in charge for as long as the Swedish Companies Act allows.

Compensation to auditors

The Company's auditor receives compensation for audits and other requisite reviews, as well as for advisory services occasioned by observations made in the course of such reviews. During financial year 2011, the audit fee amounted to EUR 31,000.

Communication with the Company's auditors

The Audit Committee maintains regular contact with the auditor. In addition, the auditor participates in the Audit Committee meetings at which the interim reports and full year report are addressed to give his observations from the audit and assessment of the Company's internal controls.

Auditors – KPMG AB

Auditor in charge: Carl Lindgren Born 1958

Authorized public accountant at KPMG AB. Chairman of the Board of KPMG AB. Auditor in charge for East Capital Explorer since 2007.

Other auditing assignments: Castellum AB, AB Traction, RusForest AB, and Brummer & Partners AB.

Staff

East Capital Explorer's staff: Stefano Grace, Charlotte Åsberg, Mia Jurke, Mathias Pedersen and Kristina Karusuo

Mia Jurke CEO since 2011. Born 1973.

Education

Master of Science in Business Administration from the University of Uppsala.

Work experience

2008–2011 CEO of East Capital Asset Management AB, 2006–2008 Product Manager for East Capital (Lux), 2005–2007 Head of Portfolio Administration at East Capital, 1998–2005 E. Öhman J: or Asset Management and E. Öhman J: or Funds AB (2000–2005 Responsible for the Administrative Departments).

Shareholding in East Capital Explorer AB 1,000 shares.

Mathias Pedersen CFO since 2010. Born 1971.

Education

Master of Science in Economics and Finance from the Stockholm School of Economics. Graduated from Harvard Business School's Program for Management Development.

Work experience

2007–2009 CFO at ETAC AB, 2001–2007 Vice President at Foundation Asset Management AB (formerly W Capital Management AB), 1998–2001 Analyst at Investor AB.

Shareholding in East Capital Explorer AB 2,500 shares.

Stefano Grace General Counsel since 2010. Born 1977.

Education

Bachelor of Arts from the University of Virginia and Juris Doctor from Florida State University College of Law.

Work experience

2006–2010 Senior Associate leading the Private Equity Practice in Sorainen's Tallinn Office, 2004–2005 In-House Legal Counsel NASDAQ OMX Tallinn (Tallinn Stock Exchange), 1999–2003 Paralegal at Pattishall, McAuliffe, Newbury, Hilliard and Geraldson.

Shareholding in East Capital Explorer AB 0 shares.

Kristina Karusuo

Administrative Coordinator since 2010. Born 1987.

Education

Business administration studies at Stockholm University School of Business.

Work experience

2007–2009 Intern Client Service and Administration, East Capital.

Shareholding in East Capital Explorer AB 0 shares.

Charlotte Åsberg

Investor Relations Manager since 2011. Born 1976.

Education

Master of Science in Business and Economics from Mitthögskolan, Sundsvall/Stockholm University. Private Banking Executive Education, Handelshögskolan in Stockholm.

Work experience

2010–2011, CEO for Asia Growth Investors AB (merged into East Capital Group in 2011), 2005–2008, Head of Private Sales, East Capital, 2005, Senior Account Manager, East Capital, 2004–2005, Product Specialist/Alternative Investments, SEB Asset Management, 2000–2004, Sales and Marketing Manager, SEB External Funds 1999–2000, Operations/Securities, SEB Asset Management.

Shareholding in East Capital Explorer AB 300 shares.

Board of directors

East Capital Explorer's Board of Directors: Justas Pipinis, Alexander V. Ikonnikov, Paul Bergqvist, Karine Hirn, Lars Emilson, Anders Ek

Paul Bergqvist Chairman of the Board since 2007

Independent of the Company, Company management and the Company's major shareholders. Born 1946.

Education

Engineering and business studies at Linköping University.

Work experience

2000–2006 Deputy CEO of Carlsberg A/S, 1995–2000 CEO Pripps-Ringnes AB, 1992–1995 CEO Procordia Beverage AB, 1988–1992 Deputy CEO PLM AB.

Other board assignments

Board member and chairman of Sveriges Bryggerier AB, AB Svenska Returpack, HTC Sweden AB and AB Pieno Zvaigzdes. Board member of TrygVesta AS and Björk Eklund Group AB.

Shareholding in East Capital Explorer AB

16,000 shares.

Anders Ek Board member since 2008

Independent of the Company, Company management and the Company's major shareholders. Born 1948.

Education

Bachelor's degree from Stockholm University.

Work experience

2004–2008 Executive vice president and head Strategic and International Banking at Swedbank, 2000–2004 CEO of Robur, 1994–2000 Chief Investment Officer and deputy CEO of SPP (currently named Alecta), 1991–1994 Senior Portfolio Manager and member of Group Executive Management Trygg Hansa, 1985–1991 Executive vice president and Chief Investment Officer of the Swedish National Pension Fund.

Other board assignments

Board member of Catella KAG, Hemfosa Fastigheter AB and CA Fastigheter AB.

Shareholding in East Capital Explorer AB 4,000 shares.

Lars Emilson Board member since 2007

Independent of the Company, Company management and the Company's major shareholders. Born 1941.

Education

Bachelor's degree from Lund University.

Work experience

2004–2007 CEO Rexam PLC, 2000–2004 Group Director Rexam Beverage Global can operations, 1999–2000 Managing Director PLM AB, 1970–1999 various positions within PLM AB's packaging operations in Sweden and the US.

Other board assignments

Non-executive director of Filtrona PLC and Luvata Oy.

Shareholding in East Capital Explorer AB 8,500 shares.

Karine Hirn Board member since 2010

Dependent in relation to the Company and its Management. Dependent in relation to the Company's major shareholders. Born 1972.

Education

Masters of Science in Business from EM Lyon, France and a Postgraduate degree in Eastern European studies from IEP Paris.

Work experience

1997 Partner and co-founder of East Capital, Numerous positions in the East Capital Group, including CEO of East Capital Asset Management and CEO of East Capital AB, Currently Chief Representative of East Capital in China, 1995–1997 responsible East Bridge Bank in Moscow, 1994–1995 Financial consultant Adex Finance in Nizhny-Novgorod.

Other board assignments

Number of Board assignments in the East Capital Group, including East Capital Holding AB, East Capital AB, East Capital Asia Ltd, East Capital Global Advisory Committee and French Foreign Trade Advisor in the network CCE.

Shareholding in East Capital Explorer AB 611,542 shares.

Alexander V. Ikonnikov Board member since 2007

Independent of the Company, Company management and the Company's major shareholders. Born 1971.

Education

PhD in Economics, Moscow State University of Oil and Gas. Certified and Diploma Director by the IoD, UK. In 2010 Yale School of Management recognizes Alexander Ikonnikov as Rising Star of Corporate Governance for outstanding work in, and contribution to, the field of corporate governance.

Work experience

Since 2005 Senior partner of Board Solutions, 2001–2004 Co-founder/ CEO of the Investor Protection Association in Russia, 1998–2001 Deputy CEO, NAUFOR (National Association of Securities Market Participants in Russia), 1996–1998 Head of the Department of External Economic Affairs and Investments at the Ministry of Fuel and Energy, Russia.

Other board assignments

Chairman of the Russian Independent Directors Association, Independent director and head of the nomination and remuneration committees in the National Depository Center, Russia. Also independent director and member of the audit committee in Sollers plc, Russia.

Shareholding in East Capital Explorer AB 10,500 shares.

Justas Pipinis Board member since 2007

Dependent in relation to the Company and its Management. Dependent in relation to the Company's major shareholders. Born 1973.

Education

Bachelor of Science from Stockholm University, studies at Vilnius University and Gotland University.

Work experience

Since 2004 Partner at East Capital, since 2005 CEO of East Capital Holding AB, since 2007 CEO of East Capital International AB, 2002–2005 CEO of East Capital Asset Management AB, 2000 joined East Capital and established the Private Equity fund East Capital Amber Fund, 1997–2000 Siemens Business Services AB.

Other board assignments

Number of Board and other assignments within East Capital, including Chairman of East Capital Asset Management AB. Board member of Melon Fashion Group.

Shareholding in East Capital Explorer AB

40,000 shares.

Managing our risks

East Capital Explorer's business involves different types of risk. In addition to the risks that we take in our investments with the intent to create value for our shareholders, there are also a number of business risks and financial risks with possible impact on our business. Risk management deals with risks and opportunities affecting value creation or value preservation.

Managing risks is an important part of achieving our objectives as an investment company. Upon launching East Capital Explorer in November 2007, we focused on designing our structure to be able to ensure our ability to do so. The main business risks and how we manage them in our day-to-day business are outlined below. Our financial risks are presented in Note 16 on page 89.

Political risks

Political systems are generally less stable in emerging markets than in developed economies and the legal systems are often less mature. This may imply certain specific investment and ownership risks. For example, amendments to the regulatory framework for the financial markets including changes on the protection of minority shareholders' rights, could adversely impact our business. Political risks also include the capacity of a country's leadership to govern, and its ability to decide on and implement reforms which are well-needed for the transition phase the whole region is going through. In the aftermath of the credit crisis all the countries of our investment universe face various challenges and not all of them have the same readiness to tackle those or to withstand new crises.

Managing these risks:

• Political risks vary between countries and sectors, and our access to the local presence, experience, know-how and to the network of our Investment Manager East Capital, that has been established during almost 15 years of operations, gives us the ability to integrate a wellgrounded analysis of the political risks in the investment decisions.
• Our access to East Capital's network in the region, and their relations with other foreign investors that are active in these countries, is also valuable when jointly applied measures are made in order to make regulatory progress on issues which are important to us as foreign investors. Examples of such issues are promotion of good corporate governance, independent regulatory regimes and authorities and anticorruption measures, to limit the political interventions and assure the integrity in local business life.
• East Capital also regularly meets with politicians and macro economists to discuss the political situation and future trends. East Capital's advisory committees, also consisting of several highly experienced external advisors, are an additional source of knowledge.
• East Capital avoids association with any political groups and strives to keep neutral in its investment activities, thus reducing the likelihood of being a direct target of political intervention.

Country risks

Investing in emerging markets may generally mean a higher level of risk in the business environment than when investing in more developed countries. These markets are less mature and, thereby, also more volatile and more vulnerable to external shocks, as experienced during 2008/2009 and 2011. This is common to all the countries in our investment region and not just associated with exposure to one specific company or investment in a fund.

Country risks also include instability in financial, legal and political systems and other country specific aspects, such as quality of corporate governance, reliability of settlement and clearing systems, lack of appropriate custody services, level of financial reporting and general availability to other reliable corporate information. If any of these country specific aspects should not develop as anticipated in any of the countries in our investment region, we are at risk of being less successful in our investments.

Managing these risks:

• Our access to East Capital's investment teams, with local presence and both personal and professional experience of living and working in our investment region, provides East Capital Explorer with the capability to analyze, integrate and, to the extent possible, mitigate or even avoid certain country specific risks. Through the knowledge and experience of the advisory committees associated with East Capital, the investment team has access to sophisticated analysis and expertise in order to better evaluate any country specific political or macro-economic risk.
• Our Investment Policy, which may be amended by the Board, assumes that the vast majority of the assets are invested in East Capital funds, which in turn are diversified into 5 – 100+ holdings, depending on the strategy of the fund. No single fund investment made may exceed 40 percent of East Capital Explorer's total net asset value at the time of the investment, and no direct investment made by East Capital Explorer may exceed 15 percent of the total net asset value at the time of the investment. This effectively diversifies our portfolio across both sectors and the different geographic areas within our investment region.
• Both East Capital Explorer and East Capital each have a Code of Conduct which clearly stipulates that corruption will not be tolerated in any manner or form. East Capital has, through its long term presence in the region, established a network of contacts and relationships which contribute to the avoidance of counterparties, projects and situations in which corruption and other inappropriate business practices are known.

Investment strategy risk

Our business plan and objectives are dependent on the availability of interesting investments. This includes timing the market to enter and exit at the most beneficial moment. There is a risk that we are neither efficient in choosing or developing our investments, nor successful in timing the market conditions at the most profitable moment.

Managing this risk:

• Our access to the experienced investment teams at East Capital provides us with a structure to make well-grounded investment decisions and to effectively follow-up on the companies to which we have investment exposure.
• The members of our Board have been selected on the basis of their respective experience of doing business in our investment region and their own merits relevant to the Board composition as a whole. This provides the Board with the right background to evaluate the investment activities of the Investment Manager, and also contributes to the continuous discussions with the Investment Manager on the investment opportunities in our region.
• The independent members of the Board also continuously review the Investment Policy to assess whether revisions may be justified as the investment environment changes. Any possible changes will

be addressed by the Board together with the Investment Manager, in order to make the investment strategy suitable over time.

• The Investment Manager continuously reports on the latest developments in the investment region and follows up on the investments as a standing item at all Board meetings. This provides the Board with updated information on which to base its evaluation of the Investment Manager's activities and the suitability of the Investment Policy.

Company specific risk

Our success depends on our ability to provide our shareholders with a portfolio of interesting and profitable investments. This also includes being able to manage our investments effectively during our ownership and to create progress on investor friendly issues, such as corporate governance. There is a risk that certain companies, from time to time, may be adversely affected by internal and external factors and that they will, thereby, have a negative impact on the value of our investments.

Managing this risk:

• Diversification is key to managing company specific risk. Our preferred route to gaining investment exposure is, therefore, through investments in East Capital's alternative investment funds, private equity funds and real estate funds, effectively diversifying our portfolio across approximately 400 companies in our investment region on 31 December 2011, and thereby limiting the specific risk of any one company.
• Our Investment Policy ensures that the focus is kept on the agreed countries and sectors, and that the model for gaining investment exposure is in agreement with our view on risk-return. It is the responsibility of our Board to review and ensure that our Investment Policy suits our objectives.
• Our access to the experienced investment teams at East Capital provides us with a structure to make well-grounded investment decisions and to effectively follow-up on the companies to which we have investment exposure.
• When managing the unlisted portfolio companies to which we are exposed through our fund investments and direct investments, our Investment Manager aligns interest with both the local management, as well as with other major shareholders, in order to set a common agenda for the investment period and preferred exit strategy. One important aspect in managing investments includes introducing and following up on improvements in corporate governance issues which we, as investors, firmly believe help to strengthen the operations of any company.

Operational risk

Well-structured and relevant internal administrative processes and systems are important in any corporate structure to minimize the operational risks related to the business operations. Lack of internal control, inadequate administrative systems and processes, infrastructure or technology failures, risk of theft or fraud or risks that East Capital Explorer's or East Capital's reputation in the marketplace is damaged could lead to unexpected economic losses or loss in confidence in us. As almost all operative functions are in-sourced from East Capital, East Capital Explorer is highly dependent on the successful ongoing operations of East Capital.

Managing this risk:

• Operational risks are managed on the basis of our structure for internal control, including adequate routines and instructions, a clearly defined division of responsibility, IT-based support and reporting systems with relevant authorizations, our internal structure for information and reporting, as well as both information and physical security.

• Through East Capital, we also have access to risk management functions adapted to the investment activities and operations of East Capital, which should also reduce the overall operative risks related to our business.

• Through a service agreement with East Capital we are able to costefficiently source general office and administrative resources from East Capital including office premises, reception, HR and IT. The costs for the service agreement are continuously evaluated by the Board and are estimated to be significantly more cost-efficient than if we were to source these services on our own.

• As a part of our ongoing monitoring of the Investment Manager, when needed, we also engage external advisors to audit certain functions or processes of East Capital, in order to identify and address any risks related to the operative functions that are administrated by East Capital.

Related party risk

With East Capital as our Investment Manager, we have ensured our shareholders access to one of the most capable and merited investment teams active in the region. We rely on the team's capacity to manage our investment activities rather than having our own in-house investment teams. This could imply a risk that the investments undertaken are not in accordance with the best interest of the Company, or could imply a breach of limits and authority, unfair valuations or unauthorized risk exposure.

Managing this risk:

• Considering our close relationship with East Capital, we have paid specific attention to ensuring the best interests of our shareholders. This includes a detailed Investment Management Agreement between our two companies that effectively stipulates the manner in which the investment activities should be undertaken, and assures that conflicts of interest between ourselves and East Capital can be appropriately handled.
• In particular, in order to avoid any concerns related to the merits of a direct investment presented by East Capital where no other East Capital fund or other co-investors simultaneously participate, such direct investment is within the exclusive decision making powers of our Board. This way, the investment can be evaluated on its own merits by the members of the Board who are independent from East Capital.
• Similarly, investments may not be made in any new funds launched by East Capital with terms which materially adversely deviate from the terms of any prior fund managed by East Capital without the consent of our Board. This prevents East Capital from introducing new terms which could be unfavorable to us.
• Managing this risk also means avoiding investment situations in which the fairness or suitability of a transaction, or its valuation, could be questioned. For this reason, our Investment Policy clearly stipulates that we shall only invest in East Capital's new private equity funds, to avoid valuation issues or a discussion concerning the terms or timing at which we invest.
• The Audit Committee of East Capital Explorer, comprising all four independent Board members, has extended responsibilities compared to many other companies' audit committees. The Audit Committee is responsible for initiating review of our Investment Policy and monitors the Investment Manager's compliance with the Investment Policy and our Investment Management Agreement. In practice, this means reviewing all investment proposals and decisions made on East Capital Explorer's behalf.
• Our independent Board members have important duties in this regard in order to safeguard the interests of our shareholders, as they resolve conflicts of interest (which are not already contemplated by the Investment Policy), for example, in relation to direct investments in which there is no other East Capital entity investing at the same time on the same terms, or when assets are acquired from any other East Capital fund.
• In order to ensure full transparency in the day-to-day investment activities and to enable the Audit Committee to fulfill these responsibilities, all members of the Board also receive all materials and investment proposals for decision by East Capital Explorer Investments AB. Our CEO is also a member of the Board of East Capital Explorer Investments AB.

A more sustainable investment approach

We believe that companies that successfully understand and manage the risks and opportunities related to the material and relevant environmental, social and governance issues of their sector will be better positioned to enhance the long term value of their business. During 2011 our Investment Manager took further steps to implement a number of tools in the investment process related to this perspective – commonly referred to as the ESG perspective.

Progress during 2011

In early 2011, our Investment Manager adopted a revised Ownership policy which integrates East Capital's Principles of Responsible Investment and Ownership policy into one policy document. The policy addresses how East Capital should act when exercising the ownership rights in the portfolio companies, including addressing risks and opportunities associated with different environmental, social and corporate governance factors. The policy is applicable to all funds managed by East Capital.

In April, East Capital's Chairman, Peter Elam Håkansson continued the tradition of sending an annual letter to all companies held by East Capital's funds. The theme of the 2011 letter was the importance of good corporate governance, transparency and strategically managing relevant sustainability themes in creating long term shareholder value.

During the year, East Capital also continued to further implement a number of ESG related tools in the investment management process. This work is coordinated by East Capital's Head of Corporate Governance, Louise Hedberg, who has a specialist role in the investment management team. The following ESG tools are currently applied to all public equity funds, private equity funds, real estate funds as well as special fund products managed by the East Capital Group. Upon request from the client, East Capital also has the capacity to apply these tools when managing segregated accounts.

Exclusion criteria: East Capital does not invest in any company that knowingly generates a material part of its revenue from producing or selling weapons, tobacco products or pornography. The investment management team conducts an annual review of all portfolios to confirm that they comply with these exclusion criteria.

Norm-based screening: East Capital conducts a norm-based screening on all portfolios on a semi-annual basis using external partners. The screening alerts East Capital of any holdings that are alleged to have breached the spirit of international conventions and norms on human rights, labour standards, environmental pollution, health & safety or bribery. The screening results may also be used as an input for any decision to initiate an engagement dialogue with the company.

Voting and Engagement: Exercising the voting rights associated with an investment is an important component of active ownership and one way to communicate views to the companies and their management. East Capital's general policy is to exercise voting rights if it is deemed to be in the best interest of the investors.

East Capital will also evaluate whether it is relevant and suitable to initiate an engagement dialogue with portfolio companies that, in East Capital's view, do not satisfactorily manage the ESG risks and opportunities relevant to their operations. There are several channels and

methods that East Capital may use when initiating and maintaining such dialogue, these include:

• Specific discussions with managements and boards during company visits and meetings
• Annual letter to all portfolio companies highlighting general issues of concern for the coming year
• Nomination or endorsement of independent board members
• Voting in shareholders' meetings
• Collaboration with other shareholders and investor initiatives or associations
• Dialogue with governments, stock exchanges and financial surveillance authorities to advocate improvements in the institutional framework

East Capital's experience has shown that an engaged dialogue usually has greater impact on a company – as opposed to simply exiting the investment – and will more often lead to convincing the company to initiate positive change. An exit may, however, be used as a last resort if a company does not respond in an adequate manner.

During 2011, East Capital was involved in several governance related engagements and one major environment related engagement.

Integrate ESG factors in the investment process: Our Investment Manager sees good corporate governance as well as a thought-through strategy that correctly addresses applicable environmental and social risks and opportunities as essential in maximizing long-term shareholder value. Hence, gaining further understanding of how – and to what extent – different ESG risks and opportunities may affect a company, and its value is seen as one important tool to continue to create long-term superior risk-adjusted investment returns in the funds. Going forward, East Capital's investment team will therefore increasingly seek further insight on relevant and material ESG factors from a global, regional and/or company perspective to ensure that the investment decisions rightly reflect all factors that may affect the risk/reward assessment. This process will also include actively requesting that portfolio companies provide transparent disclosure on relevant and material ESG risks and opportunities.

Guiding policy documents

East Capital Explorer has two documents that define and describe the ESG perspective in relation to our investments; our Code of Business Conduct and our Responsible Investment Policy. Both documents were initially adopted by the Board in 2008 and are reviewed annually.

The Responsible Investment Policy specifies our expectations on the Investment Manager to undertake investment decisions on the basis of an in-depth analysis that includes both the financial outlook as well as an assessment of the risks and opportunities related to relevant environmental, social and governance factors.

The Code of Conduct comprises the ultimate governing tool as regards principles of conduct and guidance for the Company's Board Members and for its employees. Respect is the core principle of this Code.

The policies can be found on: www.eastcapitalexplorer.com

Fees

East Capital Explorer's investment structure has been designed to avoid duplication of fees, so that fees for fund investments are paid only on the underlying fund level at the same terms as by other fund investors. Total fees accrued for direct investments and through fund investments during 2011 amounted to EUR 5.7m, of which EUR 7.7m was management fees and EUR -2.0m was performance fees. The negative perfomance fees stems from reversal of previously recognized fees in certain funds and direct investments whose performance during 2011 have declined.

Fee structure for East Capital Explorer's investments

Fee for managing East Capital
Explorer's investment portfolio		Annual				High
	Subscrip	Mgmt.	Base	Perfor		Water	Hurdle		Profit	Redemption
Investment	tion Fee	Fee1	Amount3	mance Fee4	Period5	Mark6	Rate	Catch-Up	Share	Fees
East Capital Bering Balkan Fund	0%	2.0%	NAV	20%	Mnth/Qtr	Yes				Yes
East Capital Bering Central Asia Fund	0%	2.0%	NAV	20%	Mnth/Qtr	Yes				Yes
East Capital Bering New Europe Fund	0%	2.0%	NAV	20%	Mnth/Qtr	Yes				Yes
East Capital Bering Russia Fund	0%	2.0%	NAV	20%	Mnth/Qtr	Yes				Yes
East Capital Bering Ukraine Fund Class A	0%	2.0%	NAV	20%	Mnth/Qtr	Yes				Yes
East Capital Bering Ukraine Fund Class R	0%	2.0%	NAV	20%	Mnth/Qtr	Yes				Yes
East Capital (Lux) Eastern European Fund	0%	2.0%	NAV	0%	Daily
East Capital Power Utilities Fund	0%	1.9%	NAV	15%	Yearly		7%	50/50	95/5
East Capital Special Opportunities Fund	0%	2.0%	NAV	20%	Monthly		7%	50/50
East Capital Special Opportunities Fund II	0%	2.0%	NAV	20%	Monthly		7%	50/50
Direct investments 1, 2	0%	2.0%	NAV	20%	Yearly		8%	0/100
Bond mandate 1	0%	1.0%	NAV	0%	Monthly
Cash and cash equivalent	0%	0%		0%
Committed capital	0%	0%		0%

1 The fees charged by East Capital for managing the direct investments, and the bond portfolio are subject to VAT which make the actual cost for East Capital Explorer higher

Separate agreements regarding the investment into TEO and Wimm-Bill-Dann have been made, reducing the management fee to 1.0% per annum based on the daily share price and waiving the perfomance fee

3 The management fee is calulated in % of opening NAV for all investments except for the bond mandate that use closing NAV

4 The performance fees in both East Capital Special Opportunities funds are only based on realized investments within the funds. In the other funds they are based on NAV

5 The Bering funds management fees are based on monthly NAV, while performances fee are based on quarterly NAV

6 High Water Marks are set individually for each installment into the funds

Fee glossary

Allocation target = Level of net proceeds of the fund whereafter the net proceeds are paid according to set profit sharing arrangement. This level is typically set to 80–20, meaning that 80% of the net proceeds are paid to investors and 20% are paid to East Capital.

Base amount = the basis for the calculation of fees.

Catch-up = Allocation of the net proceeds of the fund, once hurdle has been reached. May be set to 50/50 meaning that 50% of the net proceeds are paid to investors and 50% to East Capital up to a given allocation target of the total net proceeds of the fund. Purpose is to incentivize the manager to create superior returns (above hurdle).

High Water Mark = Previous highest quarterly NAV above which performance fee was paid.

Hurdle Rate = Net return on fund or investment, calculated on a cumulative annual basis, to be paid to investors before catch-up and profit share/performance fee can be paid to East Capital.

Management Fee = Fee paid to Investment Manager. Calculated periodically and subtracted in the net asset value calculation of each fund, or invoiced to East Capital Explorer in the case of Direct investments.

NAV = Net asset value. The value of net assets, i e total assets less net debt.

Performance fee = Fee paid to encourage East Capital to create better returns for the fund investors. A high water mark or hurdle ensures that only performance above the latest previous "highest value" or the predetermined hurdle is remunerated.

Profit share = Arrangement where future proceeds are divided according to pre-agreed level. Typically set to 80–20, meaning that after hurdle has been reached and full catch-up has been paid, East Capital is entitled to a 20% preferred profit share of the returns generated above this and the remaining 80% is distributed among investors.

Redemption fee = Fee paid to the fund (not to East Capital) to compensate the fund for redeeming capital which may lead to the fund divesting assets to meet redemption. The redemption fee compensates the other fund investors for the possible loss of returns that the fund makes from divesting the investment.

Subscription fee = Fee paid upon investment in a fund, amounting to a certain percent of invested capital. East Capital Explorer has waived all subscription fees.

Fees accrued to East Capital in 20111

Fee for managing East Capital Explorer's investment portfolio Investment	Management fees accrued 2011 (EUR thousands)	Performance fees accrued 2011 (EUR thousands)	Total fees accrued 2011 (EUR thousands)
East Capital Bering Balkan Fund	1,373	334	1,707
East Capital Bering Central Asia Fund	473	44	517
East Capital Bering New Europe Fund	352	296	649
East Capital Bering Russia Fund	781	165	945
East Capital Bering Ukraine Fund Class A	148	-	148
East Capital Bering Ukraine Fund Class R	122	-	122
East Capital (Lux) Eastern European Fund	293	-	293
East Capital Power Utilities Fund	1,542	-	1,542
East Capital Special Opportunities Fund2	581	-1,768	-1,187
East Capital Special Opportunities Fund II2	639	-90	549
Direct investments2 3	1 ,098	-965	133
Bond mandate3	285	-	285
Cash and cash equivalent	-	-	-
Committed capital	-	-	-
Total	7,686	-1,983	5,703

1 These numbers differ from the fees reported as expenses in the Comprehensive Income Statement as they include fees generated in unconsolidated fund investments and exclude fees attributable to non-controlling interests in consolidated funds

The negative perfomance fee comes from reversal of fees recognized in previous reporting periods that no longer are accrued to the investment manager following negative performance during 2011 3 Fees are stated including applicable VAT

Example fee structure when using High Water Mark Example fee structure with profit sharing

Performance fee with high water mark. A performance fee of 20% percent is paid to East Capital quarterly, when the NAV exceeds the previous highest water mark. In the example above, performance fees of 20% of the performance above the last high water mark are paid in Q1 and Q3 during the first year and in Q3 in the second year. Performance fees for any performance above the high water mark during a given quarter are not locked in.

Profit distribution waterfall with 10% hurdle rate, 50/50 catch-up and 80/20 profit share arrangement. In the example above, investors receive the full return on an investment upon exit up to a 10% hurdle. After the hurdle, there is a catch-up in which investors and East Capital each receive 50% of the return on the investment until the allocation target of 80% of the return to investors and 20% of the return to East Capital, has been reached (in this case at a 16.8 % return on investment). Thereafter, all excess returns are allocated 80% to investors and 20% to East Capital.

Internal Control

This section describes the manner in which the internal control regarding the investment management and financial reporting is organized.

The internal control within East Capital Explorer is designed to manage the risks within the financial reporting processes and this includes, for example, ensuring an efficient and reliable accounting of buy and sell transactions of securities, and ensuring the valuation of the securities holdings, as well as that the information is efficiently and correctly communicated to the market. As investment management is outsourced to East Capital, the structure has been built also to ensure the best interest of our shareholders. The Board is responsible for the monitoring of the investment activities, and is ensured access to all relevant information through the Investment Management Agreement and relevant policies. To further improve the internal control, East Capital Explorer established, during 2008, an internal control activity. This undertakes ongoing audits of the internal control and presents reports to the Board and management providing recommendations for improvements in the internal governance and control.

The internal control is usually described according to the framework developed by the committee of Sponsoring Organizations of the Treadway Commission (COSO). According to this committee's definition, internal control is comprised of the following components: control environment, risk assessment, control activities, information and communication and monitoring.

Control environment

By control environment is meant the overall structure of the Company ensuring sound internal control as regards to investment activity and financial reporting. Reflecting the specific nature of the Company's operations, the Board's function in monitoring the investment activities carried out by East Capital Explorer Investment AB via East Capital PCV Management AB (the Investment Manager) is central.

The Investment Management Agreement regulates the activities of the Investment Manager and the rights and obligations of the Company in relation to investment management. The Investment Management Agreement also includes the Investment Policy which stipulates the limitations of the management of the portfolio.

The Company's Accounting and Reporting Manual as well as its Information Policy, which are also appendices to the Investment Management Agreement with the Investment Manager, contain detailed provisions regarding the manner in which financial and other information regarding East Capital Explorer Investment's portfolio shall be managed and reported to the company, and stipulate, among other things, that the company shall fulfill its obligations pursuant to applicable law, regulations and stock exchange regulations. The Board is ultimately responsible for the financial reporting.

Risk assessment

The Company's management is responsible for the internal control required in order to manage the significant risks in the ongoing operations. Here is included the identification of possible risks in the portfolio reporting and the financial reporting from East Capital Explorer Investments AB and the Investment Manager, including the reliability of the monthly reporting of the indicative net asset value of East Capital Explorer. The Company's management is responsible for designing a control system to prevent and identify these risks. The Company's management reports to the Board regarding any risks that are considered material.

Control activities

East Capital Explorer primarily undertakes monitoring and controls to ensure that the investment activities are executed in accordance with the Investment Policy and with the Investment Management Agreement established with the Investment Manager.

In addition to the Company's Accounting and Reporting Manual, and the Information Policy, the Company's Board has the right to access all relevant material and investment proposals to East Capital Explorer Investments AB's Board meetings prior to decision, and to review the minutes of the Board meetings.

Furthermore, the Company regularly requests that the Investment Manager make presentations to the Company's Board regarding the investment portfolio in order to assist the Board in monitoring the Investment Manager's and East Capital Explorer Investments AB's compliance with the Investment Management Agreement. Currently, the Company's CEO, Mia Jurke, serves as a Board member of East Capital Explorer Investments AB. The majority of the monitoring work is performed by the Audit Committee and the Executive Management of the Company.

East Capital Explorer works continuously with the elimination and reduction of significant risks impacting the internal control regarding investment management and financial reporting. Examples of control activities implemented in order to manage these risks are:

• Participation in the work of the Board of Directors of East Capital Explorer Investments AB.
• Ongoing review of documentation for decisions and formalities in conjunction with the investment activities.
• Right for the Company's management to participate in the valuation committee meetings at East Capital ensuring control of the valuation process.
• Ongoing review and valuation of internal methods and processes to ensure correct reporting of East Capital Explorer's indicative net asset value and portfolio.
• Ongoing discussions and contacts with key individuals within East Capital including the risk and compliance functions.

Information and communication

East Capital Explorer has produced governance documents aimed at ensuring the quality of the internal control regarding investment management and financial reporting.

The Information Policy describes the manner in which East Capital is to communicate financial and other information to the market in accordance with stock market regulations. Furthermore, there are policies and instructions for, amongst other things, investing activities, shortterm investments, including deposits and cash, accounting and financial reporting.

All material outsourcing agreements regulate that the outsourcing partner is obligated to comply with relevant policies as well as rules and regulations applicable to the Group. Staff are required to read and follow the policies of the Company. Staff and outsourcing partners are also regularly informed about changes in policies applicable to them.

Monitoring

The monitoring of the internal control of the investment management and financial reporting is executed by the Board, the Audit Committee, and the Company's management. Monitoring of the internal control is undertaken by the board, in particular in respect to the financial activities of the Company. The Audit Committee meets on a regular basis in order to manage and discuss accounting issues, forms of financial reporting, internal audit, the appropriateness of policies etc. The Company's management monitors, on an ongoing basis, compliance with policies, instructions and administrative agreements.

Internal Audit is the Board of Directors' independent audit function which is assigned with the ongoing audit of the operations within the Company. Internal Audit's work for 2011 was based on a risk analysis undertaken by the Company management within East Capital Explorer AB and representatives from Ernst & Young to which the internal audit function is outsourced. During the year, the internal audit function has audited a number of areas identified by the risk analysis. The audit plan for 2011 included a more extensive review of the investment decision process, including roles and responsibilities within the process. The results of these audit activities were reported to the Audit Committee.

Stockholm, March 2012

Board of Directors of East Capital Explorer AB (publ)

Financial Statements

Administration Report	65
Financial Statements	68
Notes	76
Five-Year Summary	95
Auditor's Report	97

Administration Report

The Board of Directors of East Capital Explorer AB (publ), Corporate Registration Number 556693-7404, hereby submits the consolidated financial statements for the year 1 January – 31 December 2011 and the annual report for the Parent Company for the financial year 1 January – 31 December 2011.

The Group

East Capital Explorer AB is a Swedish company, created with the specific aim of bringing unique investment opportunities in Eastern Europe to a broader investor base. The company is listed on NASDAQ OMX Stockholm, Mid Cap, which entails advantages, such as liquidity and transparency which is a new component in our markets and for our type of investments. East Capital Explorer invests mainly in East Capital's special fund products as well as makes direct investments into private and public companies.

The Group consists of the Parent Company, East Capital Explorer AB (publ) and the subsidiaries, East Capital Explorer Investments AB and Humarito Limited as well as the funds listed below.

Consolidated funds	Share of
	equity
East Capital Bering New Europe Fund	88%
East Capital Special Opportunities Fund	82%
East Capital Power Utilities Fund	73%
East Capital Bering Balkan Fund	62%

These funds are regarded as subsidiaries and consolidated with the East Capital Explorer Group. The investments in the consolidated funds are reported as investments in the portfolio overview on page 17 but are consolidated in the financial statements. East Capital Explorer Investments AB manages the Company's investment activities in accordance with the Investment Policy and manages the Company's investment portfolio. In the future the consolidated equity funds may be opened to additional investors, which could change the subsidiaries' status.

The Company's functional currency and presentation currency is euro.

Net asset value

The total net asset value at year-end amounted to EUR 294m (EUR 430m). Figures stated in parantheses refers to information for the previous financial year. This was a reduction of 31.7% (increase of 25.9%) compared to 31 December 2010. The net asset value per share at year end was EUR 8.69 (12.33). The investment portfolio was divided into three segments, where 70% (81%) was held in ten of East Capital funds, 17% (9%) in six different direct investments and the remaining 13% (10%) was held in short term investments.

Results

Total comprehensive income for the reporting period 1 January – 31 December 2011 amounted to EUR -152.1m (EUR 119.9m), which included exchange rate differences on translation of foreign operations of EUR 1.1m (EUR 5.2m).

Net loss for the year amounted to EUR 153.2m (profit of EUR 114.7m). Of this a net loss of EUR 127.9m (profit of EUR 89.3m) was attributable to the shareholders of the Parent Company corresponding to earnings per share of EUR -3.69 (EUR 2.55).

For the reporting period, the main items of the net loss in the investment portfolio include value changes of EUR -151.8m (EUR 124.6m) and EUR 6.5m (9.9m) in dividends.

Financial income amounted to EUR 1.2m (EUR 6.5m). The bond portfolio net result of EUR 0.9m included EUR 1.5m (EUR 2.6m) in interest income, result from exchange rate profit EUR 0.7m (EUR -2.0m) and fair value change in the bond portfolio of EUR -1.0m (EUR 3.1m) and EUR -0.3m (EUR -0.5) in management fees.

Financial expenses amounted to EUR -2.1m (EUR 0.0m) which mainly relates to exchange rate losses on cash held in East Capital Power Utilities Fund.

Other items included EUR -7.2m (EUR -25.3m) in operating expenses (described further below) and EUR 0.2m (EUR -0.9m) in income taxes.

Of the total operating expenses of EUR -7.2m (EUR -25.3m) during the year, EUR -1.8m (EUR -2.0m) relates to ordinary operating expenses within the Parent Company. The remaining EUR -5.4m (EUR -23.3m) relates to operating expenses, mainly fees in consolidated funds and subsidiaries.

The Parent Company's net loss was EUR -80.2m (profit of EUR 44.5m), of which EUR -79.1m refers to a write down of shares in Group companies. Such shares are held at the lower of fair value and acquisition value. Operating expenses amounted to EUR -1.8m (EUR -2.0m).

Key events during the financial year

During 2011, East Capital Explorer made new fund and direct investments amounting to EUR 39.7m. Proceeds from divestments amounted to EUR 45.2m. When adjusted for dividends received this resulted in profits of EUR 9.6m over the full investment period.

Fund investments

In February 2011, East Capital Explorer divested EUR 5m through reducing its holding in East Capital (Lux) Eastern European Fund. In the beginning of March, EUR 5m was invested in East Capital Bering Balkan Fund. In April, East Capital Explorer received approximately EUR 13m from the East Capital Special Opportunities Fund and EUR 20m from the East Capital Power Utilities Fund following redemptions in these funds.

Direct investments

In February 2011, East Capital Explorer made a direct investment of EUR 12.1m in Komercijalna Banka Skopje. Shares for an additional EUR 0.9m where purchased during April and May bringing the total investment in the bank to EUR 13m. During April East Capital Explorer received a dividend payment from the bank in the amount of EUR 0.7m.

Throughout 2011, East Capital Explorer continued to build its position in the Lithuanian telecom operator TEO LT and purchased share for EUR 3.3m. In May, TEO LT paid a dividend of EUR 1.2m to East Capital Explorer.

During the first half of 2011, East Capital Explorer made small follow-on direct investments of EUR 0.5m in the Georgian food retailer, Populi. The company, however, came into serious problems and at the end of the year there where question marks regarding its survival. As a result the value of the holding was reduced to a mere 0.1m EUR on 31 December 2011. The valuation was based on an external appraisal by the international audit firm PKF International.

In June, East Capital Explorer divested its holding in Wimm-Bill-Dann Foods for EUR 7.4m, and realized an annualized pre-tax return of 17.4% on its initial EUR 6.8m investment.

In August, East Capital Explorer made a direct investment of EUR 4.0m into Estonian infrastructure construction company, Trev-2 Group. At the year end, an external valuation was procured whereby the fair value of the holding in Trev-2 Group remained unchanged.

In July, East Capital Explorer agreed to acquire Swedfund International AB's 15% stake in Melon Fashion Group for EUR 13.0m (see key events after the end of the year below for more information). Following the portfolio company's failure to meet previously set expectations, East Capital Explorer reduced the fair value of its shares in Melon Fashion Group by 30 percent during the fall. At the end of the year Ernst & Young performed an independent valuation of the holding the company, which essentially confirmed the valuation by making a small upward adjustment of 1.4%.

Dividends and buybacks

In April 2011, the AGM of East Capital Explorer approved the Board's proposal under the Company's new dividend policy to pay a dividend to the shareholders of SEK 0.80 per share from the 2010 results. This was paid out on 20 April 2011.

In September, the board of East Capital Explorer decided to utilize its authorization to buy back shares. Until the year end, the Company repurchased 1,081,554 of its own shares at an average price of SEK 51.54 per share, which corresponded to 3.1% of the outstanding number of shares. Further details are given below.

Change in Executive Management

On 15 October, Mia Jurke succeeded Gert Tiivas as CEO of East Capital Explorer.

Key events after the end of the financial year Net asset value

On 29 February 2012, East Capital Explorer's indicative net asset value was EUR 9.55 per share, compared with EUR 8.69 on 31 December 2011. The closing price per share on 29 February 2011 was SEK 57.25, corresponding to EUR 6.5.

Investments

Until 27 March 2012, the Company purchased additional shares in TEO LT for EUR 1.1m.

Mandatory offer for shares in Melon Fashion Group

As a result of the above mentioned deal with Swedfund International AB, a subsidiary of East Capital Explorer has launched a mandatory offer to buy out the remaining Melon Fashion Group shares from its non-affiliates. Based on the shareholders structure of Melon Fashion Group, and stated intentions of other shareholders of the company, the number of shares tendered during the offer is expected to be limited.

Prior to the transaction with Swedfund, East Capital Explorer through its subsidiaries held a 16 percent stake in MFG, and after the transaction the total holding amounts to approximately 31 percent of the company. The final size of the holding will depend on the number of non-affiliated shareholders who choose to participate in the mandatory buyout offer. The mandatory offer will take place at the same price level as the Swedfund transaction. The shares acquired will be held at their fair value.

Dividend

The Board of Directors of East Capital Explorer has adopted a dividend policy, and proposes that the Company pay out a dividend of SEK 0.80 per share for the fiscal year 2011, to be formally decided upon at the Annual General Meeting in April. The size of the proposed dividend remains unchanged from the previous year.

Share information

The total number of outstanding shares on 31 December 2011 was 34,851,675 (34,851,675). No new shares were issued during the year.

On 15 September 2011, East Capital Explorer announced that the Company's Board had decided to utilize the repurchase authorization to create more value for the shareholders. The utilization of the authorization was prolonged on 12 October and allowed the Company to repurchase own shares up to and including 30 March 2012. From 15 September 2011 until the year-end, East Capital Explorer repurchased 1,081,554 own shares, corresponding to 3.1% of the shares in the Company. Average price per share paid was SEK 51.54.

Before 15 September 2011, the Company did not hold any own shares. Excluding the shares held by the company on 31 December, the

number of shares in the company amounted to 33,770,121. Adjusted for buy-backs the average number of shares for the twelve month period January to December was 34,645,318.

The closing price per share on 30 December, the last trading day of the year, was SEK 53.75 which was equivalent to EUR 6.03 (SEK 84.75 equivalent to EUR 9.43). East Capital Explorer AB's share price, consequently, decreased 36.1% (increase 44.9%) in EUR during the year while the OMXSPI index decreased 16.0% (increased 40.4%) in EUR. By comparison, the RTS Index decreased 19.4% (increased 31.1%), the RTS 2 Index decreased 29.5% (82.1%) and the MSCI EM Europe Index decreased 22.9% (increased 22.5%) in EUR.

Material risks and uncertainties

East Capital Explorer has an investment and finance policy that has the purpose of providing guidelines for managing and controlling the effects of the risks inherent in the investments.

Many risks are also associated with opportunities. The goal is to eliminate the risks that are not associated with opportunities (e.g. inadequate procedures). One material risk in East Capital Explorer's business is the commercial risk associated with exposure to certain industries, geographic regions or individual holdings. Equity price risk is a key risk in the Group's business activities. The Group's policy is to manage price risk through diversification and selection of investments within specified limits set by the Board. The Group's finance policy for management of financial risk has been prepared by the Board and represents a framework of guidelines and regulations in the form of risk mandates and limits for financial activities.

Operational risk is defined as the risk of loss resulting from inadequate internal processes or systems, or from external events. Operational risks occur throughout the business and are managed by constantly improving the management of system-related issues, administrative processes, information security and legal matters. Moreover, the Company monitors obligations arising from external regulations and laws, agreement-related undertakings and the Company's internal rules.

For more information, please see Note 16 on page 89 Financial risks and Risk management for the Group's material risks and uncertainties.

Personnel and remuneration guidelines

On 31 December 2011, the Group had four employees, two women and two men.

In accordance with current guidelines, the Board proposes the Annual General Meeting 2012 the following with regard to remuneration of executive management, in this case the CEO and CFO. Remuneration is comprised of fixed salary, variable salary, pension and insurance benefits, as well as other non-monetary benefits and other compensation. The Board determines at its own discretion on the basis of specific key performance indicators whether the CEO and CFO should be paid any variable salary. The CEO and CFO may receive a maximum variable salary corresponding

to 50% of their fixed salary. The CEO and CFO have an individual premium-based pension plan, pursuant to which the Company pays premiums corresponding to 10% of their fixed salary up to 10 Swedish income base amounts and premiums corresponding to 20% of their fixed salary on the portion of the fixed salaries exceeding 10 Swedish income base amounts. In the event the Company terminates the CEO's employment, the Company is required to observe a six-month period of notice. The CEO is entitled to a severance payment corresponding to six months' salary. In addition, CEO Mia Jurke received a benefits package in 2011 of a limited scale. Compensation for these services is a deviation from the remuneration guidelines approved by the 2011 AGM, and were part of the employment package agreed with the CEO during her recruitment.

Information about salaries and current remunerations guidelines, other compensation and social charges for the Board and executive management, as well as other employees, is found in Note 4 on page 81.

Corporate Governance and the Board of Directors

The Board shall be comprised of three to seven directors without deputies. Board Members are elected annually at the Annual General Meeting for the period up and until the next Annual General Meeting. East Capital PCV Management AB, Corporate Registration Number 556729-6941, has the right to appoint one Board Member for the same period , as long as the Investment Management Agreement to which the Company is a party, (described in §13 of the Articles of Association), is in place. Certain resolutions to amend these articles are valid only if supported by shareholders with at least 75% of the votes cast and of the shares represented at the meeting of shareholders. The complete Articles of Association can be found on www.eastcapitalexplorer.com.

For information as to the manner in which the Company is governed and controlled, such as via the Board and committees, and for information on the Board's internal control, please refer to the Corporate Governance section on pages 48–52. See pages 62–63 regarding internal control and risk management in connection with the preparation of the consolidation.

Shareholders' meeting and dividend

The Board of Directors proposes a dividend of SEK 0.80 per share for the fiscal year of 2011. The proposed dividend is unchanged compared to last year and will be decided upon at the Annual General Meeting on 25 April 2012. The Board of Directors has adopted a dividend policy, whereby East capital Explorer aims to pay dividends to its shareholders consistent with the long-term prospect of the Company. The size of the dividend will be related to the size of the Company's received dividends and realized return on short-term investments during the preceding year and other relevant factors.

Proposed Disposition of Earnings

The Board of Directors proposes that the unappropriated earnings in East Capital Explorer AB at the disposal of the Annual General Meeting:

Total available funds for distribution:		To be allocated as follows:
Share premium reserve	369,922,674	Dividend to shareholders 0.80 SEK/ share1	3,133,720
Retained earnings	146,273	Funds to be carried forward	286,693,134
Profit for the year	-80,242,093	(Of which share premium reserve 286,693,134)
Total EUR	289,826,854	Total EUR	289,826,854

1 Calculated on the total number of registered shares. No dividend is paid for the Parent Company's holding of own shares, whose exact number is determined on the record date for cash payment of the dividend. On 29 February 2012, the Parent Company held 1,124,369 own shares, and the EUR/SEK rate was 8.9.

Statement of Comprehensive Income

EUR thousands	Note	1 Jan – 31 Dec 2011	1 Jan – 31 Dec 2010
Changes in value		-151,795	124,554
Dividends		6,470	9,926
Total operating income		-145,325	134,480
Other operating expenses	3,5	-6,118	-24,250
Staff expenses	4	-1,108	-1,095
Operating profit/loss	2	-152,552	109,135
Financial income	6	1,211	6,475
Financial expense	6	-2,071	-51
Profit/loss before tax		-153,412	115,559
Income tax	7	210	-903
NET PROFIT/LOSS FOR THE YEAR		-153,201	114,656
Other comprehensive income:
Exchange differences on translating foreign operations		1,081	5,230
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		-152,120	119,886
Net profit/loss for the year distribution:
Shareholders of the Parent Company		-127,925	89,260
Non-controlling interest		-25,276	25,397
		-153,201	114,656
Total comprehensive income distribution:
Shareholders of the Parent Company		-127,075	93,710
Non-controlling interest		-25,045	26,176
		-152,120	119,886
Earnings per share, EUR - shareholders of the Parent Company No accumulated dilution effects	8	3.69	2.55

No dilution effects during year

Statement of Financial Position

EUR thousands	Note	31 Dec 2011	31 Dec 2010
Assets
Shares and participations in investing activities	10,15,16,17	293,585	455,302
Deferred tax	7	70	-
Total non-current assets		293,656	455,302
Current receivables
Other short-term receivables	15	100	2,092
Tax receivables		103	-
Accrued income and prepaid expenses	11,15	125	76
Total current receivables		328	2,167
Short-term Investments	15,16	22,793	26,494
Cash and cash equivalents	15	32,147	62,874
Total current assets		55,266	91,536
Total assets		348,923	546,838
Shareholders' equity	12
Share capital		3,628	3,628
Other contributed capital		369,924	379,149
Reserves		4,183	3,333
Retained earnings including profit/loss for the year		-84,182	43,743
Equity attributable to shareholders of the Parent Company		293,552	429,853
Non-controlling interest		45,627	95,581
Total shareholders' equity		339,179	525,434
Liabilities
Deferred tax liabilities	7	-	1,182
Total long-term liabilities		-	1,182
Tax liabilities		-	252
Other liabilities	13,15	3,609	8,670
Accrued expenses and deferred income	14,15	6,136	11,300
Total current liabilities		9,745	20,222
Total liabilities		9,745	21,404
Total equity and liabilities		348,923	546,838

PLEDGED ASSETS AND CONTINGENT LIABILITIES 19

Pledged assets - -

Contingent liabilities - -

Statement of Changes in Equity

EUR thousands 2011	Share capital	Other contrib uted capital	Translation Reserves	Retained earn ings incl. profit /loss for the year	Total equity shareholders in Parent Company	Non controlling interest	Total equity
Opening equity 1 Jan 2011	3,628	379,149	3,333	43,743	429,853	95,581	525,434
Net loss for the year	-	-	-	-127,925	-127,925	-25,276	-153,201
Other comprehensive income	-	-	850	-	850	231	1,081
Total comprehensive income	-	-	850	-127,925	-127,075	-25,045	-152,120
Reclassification from subsidiary to investment	-	-	-	-	-	-1,812	-1,812
Paid dividend to shareholders	-	-3,131			-3,131		-3,131
Dividend to and redemption from non-controlling interest	-	-	-	-	-	-23,096	-23,096
Share buy-back	-	-6,096	-	-	-6,096		-6,096
Per 31 December 2011	3,628	369,923	4,183	-84,182	293,551	45,627	339,178

EUR thousands 2010	Share capital	Other contrib uted capital	Translation Reserves	Retained earn ings incl. profit /loss for the year	Total equity shareholders in Parent Company	Non controlling interest	Total equity
Opening equity 1 Jan 2010	3,628	384,376	-1,117	-45,517	341,370	40,171	381,541
Net profit for the year	-	-	-	89,260	89,260	25,397	114,656
Other comprehensive income	-	-	4,450	-	4,450	780	5,230
Total comprehensive income	-	-	4,450	89,260	93,710	26,176	119,886
Acquired subsidiaries	-	-	-	-	-	37,268	37,268
Dividend to and redemption from non-controlling interest	-	-	-	-	-	-8,034	-8,034
Share buy-back	-	-5,227	-	-	-5,227	-	-5,227
Per 31 December 2010	3,628	379,149	3,333	43,743	429,853	95,851	525,434

Statement of Cash Flow

EUR thousands	1 Jan – 31 Dec 2011	1 Jan – 31 Dec 2010
Operating activities
Operating profit/loss	-152,552	109,135
Changes in value	151,795	-124,554
Interest received	275	1,830
Interest paid	0	-35
Other financial expenses	-408	-
Tax paid	-1,397	-1,715
Cash flow from current operations before changes in working capital	-2,287	-15,340
Cash flow from changes in working capital
Increase (-)/decrease (+) in other current receivables	118	2,328
Increase (+)/decrease (-) in other current payables	-9,052	15,949
Cash flow from investing activities	-11,221	2,937
Investing activities
Investment in shares and participations1	-95,664	-126,304
Sale of shares and participations	125,261	136,453
Cash flow from investing activities	29,597	10,150
Financing activities
Dividend to and redemption from non-controlling interest	-22,962	-6,285
Paid dividend to shareholders	-3,131	-
Share buy-back	-6,096	-5,227
Cash flow from financing activities	-32,189	-11,512
Cash flow for the year	-13,813	1,574
Cash and cash equivalents at beginning of the year2	62,874	57,909
Reclassification from subsidiary to investment3	-15,960	-
Exchange rate differences in cash and cash equivalents	-954	3,391
Cash and cash equivalents at end of the year	32,147	62,874

1 The consolidated cash flow figures differ from the investment activities as described in the Administration Report as they include investments made within the consolidated funds.

2 Cash equivalents comprise deposits and cash.

3 The holding in East Capital Special Opportunities Fund II has been derecognized as a subsidary and subsequently reclassified to Shares and participations in investing activities.

Income statement – Parent Company

EUR thousands	Note	1 Jan – 31 Dec 2011	1 Jan – 31 Dec 2010
Staff expenses	4	-1,108	-1,095
Other operating expenses	3,5	-691	-922
Operating profit/loss		-1,799	-2,017
Financial income excluding Group Companies	6	57	-
Financial income from Group Companies, reversal of write down 2010	6	203	46,005
Financial expense excluding Group Companies	6	-	-14
Financial expense from Group Companies, write down of shares in
Group Companies	6	-79,106	-
Profit/loss before tax		-80,645	43,973
Income tax	7	402	533
NET PROFIT/LOSS FOR THE YEAR		-80,242	44,507

Statement of Comprehensive Income – Parent Company

EUR thousands	1 Jan – 31 Dec 2011	1 Jan – 31 Dec 2010
NET PROFIT/LOSS FOR THE YEAR	-80,242	44,507
Other comprehensive income TOTAL COMPREHENSIVE INCOME FOR THE YEAR	- -80,242	- 44,507

Balance Sheet – Parent Company

EUR thousands	Note	31 Dec 2011	31 Dec 2010
Assets
Financial non-current assets
Participations in group companies	9	262,156	380,576
Deferred tax		402	-
Total non-current assets		262,558	380,576
Current receivables
Other current receivables		-	2,566
Loan to Group Companies	15	29,315	-
Interest accrued on Group Companies	11	203	-
Accrued income and prepaid expenses	11	33	39
Total current receivables		29,551	2,605
Cash and cash equivalents
Cash		1,916	272
Total current assets		31,466	2,878
Total assets		294,024	383,454
Shareholders' equity	12
Restricted equity
Share capital		3,628	3,628
Total restricted equity		3,628	3,628
Non-restricted equity
Share premium reserve		369,923	379,149
Retained earnings		146	-44,361
Net profit/loss for the year		-80,242	44,507
Total non-restricted equity		289,828	379,296
Total shareholders' equity		293,455	382,924
Liabilities
Other liabilities	13,15	167	99
Accrued expenses and prepaid income	14	402	431
Total current liabilities		569	530
Total liabilities		569	530
Total equity and liabilities		294,024	383,454
PLEDGED ASSETS AND CONTINGENT LIABILITIES
Pledged assets		-	-
Contingent liabilities		-	-

Statement of changes in Equity – Parent Company

	Restricted equity		Non-restricted equity
EUR thousands			Retained earnings
		Share premium	incl. profit for
2011	Share capital	reserve	the year	Total equity
Opening equity 1 Jan 2011	3,628	379,149	147	382,924
Net loss for the year	-	-	-80,242	-80,242
Other comprehensive income	-	-	-	-
Total comprehensive income	-	-	-80,242	-80,242
Paid dividend to shareholders	-	-3,131	-	-3,131
Share buy-back	-	-6,096	-	-6,096
Per 31 December 2011	3,628	369,923	-80,095	293,455

	Restricted equity		Non-restricted equity
EUR thousands 2010	Share capital	Share premium reserve	Retained earnings incl. profit for the year	Total equity
Opening equity 1 Jan 2010	3,628	384,376	-45,854	342,150
Net profit for the year	-	-	44,507	44,507
Other comprehensive income	-	-	-	-
Total comprehensive income	-	-	44,507	44,507
Group contribution received	-	-	2,027	2,027
Tax effect on Group contribution	-	-	-533	-533
Share buy-back	-	-5,227	-	-5,227
Per 31 December 2010	3,628	379,149	147	382,924

Cash flow statement – Parent Company

EUR thousands	1 Jan – 31 Dec 2011	1 Jan – 31 Dec 2010
Operating activities
Operating profit/loss	-1,799	-2,017
Interest received	15	-14
Tax paid	-	-
Cash flow from current operations before changes in working capital	-1,784	-2,031
Cash flow from changes in working capital
Increase (-)/decrease (+) in other current receivables	6	20
Increase (+)/decrease (-) in other current payables	40	264
Cash flow from operating activities	-1,738	-1,747
Financing activities
Repayment of shareholders contribution	10,000	5,000
Share buy-back	-6,096	-5,227
Payment of dividend	-3,131	-
Group contribution received	2,566	2,000
Cash flow from financing activities	3,339	1,773
Cash flow for the year	1,601	25
Cash and cash equivalents at beginning of the year1	272	247
Exchange rate differences	43	-
Cash and cash equivalents at end of the year1	1,916	272

1 Cash and cash equivalents comprise deposits and cash.

Notes to the financial statements

Note 1 Accounting Principles

Statement of compliance

The consolidated accounts have been prepared in accordance with the International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") as approved by the European Commission for application within the European Union. Furthermore, the Swedish Financial Reporting Board recommendation RFR 1 has been applied.

The accounting principles presented below have been consistently applied to all periods presented in the Group's financial statements, unless otherwise stated. There have not been any changes in accounting principles between 2010 Annual Report and 2011 Annual Report. Furthermore, the Group's accounting policies have been consistently applied by Group Companies.

The Parent Company applies the same accounting principles as the East Capital Explorer Group except in the instances presented below in the section "Parent Company's accounting principles."

The annual report and the consolidated financial statements were approved for issue by the Board on 27 March 2012. The statement of comprehensive incomes and statement of financial position for the Group and the income statement and the balance sheet for the Parent Company will be submitted to the shareholders' meeting for adoption on 25 April 2012.

Basis of measurement for preparing the Parent Company and Group's financial statements

Shares and participations in investing activities and short-term investments are recognized at fair value through profit or loss. Other financial and non-financial assets and liabilities are recognized at historical cost.

Functional currency and presentation currency

The Parent Company's functional currency is euro (EUR), which is also the presentation currency for the Parent Company and the Group. This means that the financial statements are presented in EUR. All amounts, unless stated otherwise, are rounded off to the nearest thousand. Note that certain figures may not sum exactly due to rounding.

Estimates and assumptions in the financial statements

Preparing financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions affecting the application of the accounting principles and the reported amounts for assets, liabilities, revenue and expenses. Actual outcomes may differ from these estimates. Estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which they arise and in future periods affected.

Management has discussed with the Audit Committee the developments, decisions made and information regarding the Group's most important accounting principles and estimates, as well as the application of these principles and estimates.

Significant judgements made in the application of the Group's accounting principles

The significant accounting assessments used in applying the Group's accounting policies are described below.

The measurement of financial assets at fair value will mainly be based on price quotes from active markets. In cases where the market for a financial instrument cannot be seen as active, such assets will be measured using market information as much as possible and company-specific information as little as possible. Whether a market for a specific financial instrument is considered active is largely a matter of professional judgement. For more information concerning assessments of Financial Instruments please see section Financial Instruments on page 78.

In Applying "SIC-12 Consolidation—Special Purpose Entities" a judgement has been made to consolidate East Capital Explorer Investments AB despite the fact that the share of votes is less than 50%. The majority of the proceeds from the share issue in East Capital Explorer AB in 2007 were transferred to East Capital Investments AB through conditional shareholders' contributions since all investing activities take place in this subsidiary. The Parent Company, however, retained all the benefits of East Capital Explorer Investments AB activities, and the majority of the residual or ownership risks related to its assets, and is therefore exposed to risks incident to the activities of the company. Similar assessments have been made whereby the holdings in different East Capital funds are consolidated.

Key sources of uncertainty in the estimates

The sources of uncertainty in the estimates below refer to the significant risk of substantial adjustments to reported assets or liabilities for the next financial year.

In those cases where portfolio investments are not traded on a market seen as an active market and fair value is not set against the background of actual bid quote, but by means of valuation models (see below financial instruments), there is uncertainty that the holding will be assigned a correct fair value. The Group applies its models consistently between the periods, but the calculation of fair value is characterised by uncertainty. Based on controls and reliability procedures, the Group considers the fair values recognized in the statement of financial position to be carefully calculated and balanced and to reflect the underlying economic values.

New IFRSs, which will be applied further on

IFRS 9, Financial Instruments, is intended to replace IAS 39, Financial Instruments: Recognition and Measurement by 2015 onwards at the latest. The IASB has published the first of at least three parts which together will constitute IFRS 9. This first part deals with the classification and measurement of financial assets.

IFRS 10, Consolidated Financial Statements, is intended to replace "IAS 27 Consolidated and Separate Financial Statements" and "SIC-12 Consolidation—Special Purpose Entities" effective for annual periods beginning on or after 1 January 2013. This might have a material impact on the future accounts of the Group as companies and fund today consolidated as subsidiaries might be derecognized when the new rules are applied.

A number of new standards, amendments to standards and interpretations are effective after the publication of these financial statements, and have not been applied in preparing these consolidated accounts. These are not judged to have any material effect on the consolidated accounts.

Classification, etc.

Noncurrent assets and noncurrent liabilities consist predominantly of amounts expected to be used or paid more than 12 months after the statement of financial position date. Current assets and current liabilities consist predominantly of amounts expected to be utilised or paid within 12 months of the date of the statement of financial position.

Segment Reporting

An operating segment is a component of an entity engaging in business activities from which it may earn revenues and incur expenses and whose operating results are regularly reviewed and for which discrete financial information is available. The Group reports the financial information and evaluates the performance based on the nature of its investments, and it has the following three operating segments: Investments in Equity Funds, Direct Investments and Short-term Investments. Equity Funds include all investments made into East Capital

funds. Direct Investments include equity investments made directly by the subsidiary East Capital Explorer Investments AB, i.e. not held through East Capital Funds. Short-term Investments include cash, cash-equivalents and other short-term investments. Unallocated refers to costs and prepaid expenses in the Parent Company for 2011.

Basis of Consolidation

Subsidiary

Subsidiaries are entities under the controlling influence of East Capital Explorer AB. Controlling influence means the direct or indirect right to govern the financial and operating policies of an entity so as to obtain financial benefit. In assessing whether the controlling influence exists, potential shares conveying voting rights, and which can be converted or utilised without delay, are taken into consideration.

Subsidiaries are accounted for using the purchase method. In accordance with this method, an acquisition is treated as a transaction in which the Group indirectly acquires the subsidiary's assets and assumes its liabilities and contingent liabilities. The consolidated cost is determined by an analysis at the time of the business combination. In such an analysis, the cost of the business combination is established, as are the fair values of recognized identifiable assets, liabilities and contingent liabilities. Transaction costs in business combinations taking place from 2010 are expensed. Contingent considerations are measured at fair value at the acquisition date and subsequently the liability is remeasured to fair value with the fair value changes recoginized in profit or loss.

The financial statements of subsidiaries are consolidated from the date that control commences until the date when control ceases.

Loss of control

On the loss of control, the Group no longer recognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost.

Transactions eliminated upon consolidation

Intra-group balances and transactions, and any unrealised income and expenses or gains and losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

Foreign currency transactions

Transactions in currencies other than euro are translated into the functional currency at the exchange rate prevailing on the transaction date. The functional currency is the currency in the primary economic environment in which the companies operate. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the periods closing rate of exchange. Exchange rate differences arising on currency translations are recognized net as either financial income or financial expense in the statement of comprehensive income.

The assets and liabilities of foreign entities, including goodwill and fair value adjustments arising on consolidation, are translated to euro at the exchange rates prevailing at the end of the reporting period. The revenues and expenses are translated at average exchange rates, which approximate the exchange rate for the respective transactions. Foreign exchange differences arising on translation are recognized in other comprehensive income and are accumulated in a separate component of equity as a translation reserve. On divestment of foreign entities the accumulated exchange differences are recycled from equity to profit or loss.

Certain calculations are based on the following exchange rates for 2011:

EUR/USD average 2011 = 1.39 EUR/SEK average 2011 = 9.01 EUR/USD closing 2011 = 1.30 EUR/SEK closing 2011 = 8.93

Income

Income consists primarily of value changes regarding securities, and of dividends. Revenue is recognized in the Statement of Comprehensive Income when it is likely that the future economic benefits will accrue to the Company, and when these benefits can be calculated in a reliable manner. Income is reported at the fair value of the amount expected to be received.

For Statement of Financial Position items included at both the beginning and end of the period, changes in value comprise the difference in the values at these times. For statement of financial position items realized during the period, changes in value comprise the difference between the payment received and the value at the beginning of the period. For statement of financial position items acquired during the period, changes in value comprise the difference between the value at the end of the period and the acquisition cost.

Income from dividends is recognized when the right to receive the dividends can be determined.

Expenses

Operating expenses refers to costs of an administrative nature, such as staff costs, management fees, notary fees and bank fees. Costs for operating leases are recognized in the statement of comprehensive income on a straight-line basis over the term of the lease. The cost for variable remuneration is estimated and accrued at the end of the year. The difference between the accrued variable remuneration and the actual payment is recognized in the statement of comprehensive income during the following year. Obligations related to contributions to defined contribution plans are expensed in the statement of comprehensive income as they arise.

Financial income and expenses

Interest income and interest expenses on financial instruments are recognized in the Statement of Comprehensive Income in the period to which the amounts refer. Financial income consists of interest income from bank balances, receivables, as well as interest-bearing securities. Financial expenses consist of interest expenses on borrowings and other interest-bearing liabilities. Exchange rate gains and losses on monetary assets and liabilities are reported net. Moreover, fair value changes in short-term investments classified as financial instruments measured at fair value through profit or loss (fair value option) are reported net as financial income or expense.

Interest income on receivables and interest expenses on liabilities are calculated applying the effective interest method. The effective interest is the interest required to be applied in order that the current value of all estimated future receipts and payments during the expected fixed-interest term is equal to the reported value of the receivable or liability.

Interest income includes the allocated amount of transaction costs and any discounts, premiums and other differences between the original value of the receivable and the amount to be received upon maturity.

Interest expenses include the allocated amount of issue expenses and similar direct transaction costs for loans raised.

Taxes

Income tax comprises current and deferred tax. Income tax is reported in profit or loss except when the underlying transaction is reported in other comprehensive income or directly in equity. In such cases, associated tax effects are reported in other comprehensive income or directly in equity.

Current tax is tax to be paid or received during the current year, using the tax rates that have been enacted or substantively enacted by the reporting date, and adjustments of current taxes attributable to previous periods.

Deferred tax is recognized in respect of temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, applying the tax rates which have been enacted or announced as per the reporting date. Temporary differences are not considered in goodwill arising on consolidation or in differences attributable to subsidiaries and associated companies which are not expected to be

taxed within the foreseeable future. Deferred tax assets attributable to deductible temporary differences and loss carry forwards are recognized only to the extent it is likely that they will be utilised and will result in lower tax payments in the future. The value of deferred tax assets is reduced when it is no longer considered likely that they can be utilised. Deferred tax assets and deferred tax liabilities in the same country are reported net.

Financial Instruments

Financial Instruments recognized in the Statement of Financial Position include short-term investments and shares and participations in investing activities, cash and cash equivalents and other short-term receivables on the asset side and accounts payable and other current liabilities on the liability side.

Recognition and derecognition

A financial asset or liability is recognized in the Statement of Financial Position when the Company becomes party to the terms and conditions of the instrument. Acquisitions and sales of financial assets are recorded on the transaction date, which is the date on which the Company becomes obligated to acquire or sell the asset. Borrowings are recognized on the date on which the transaction is completed, the settlement date.

Accounts receivable are recognized in the statement of financial position when the terms and conditions of the agreement are met. Liabilities are recognized when the counterparty has fulfilled its undertaking and a contractual payment obligation exists, regardless of whether or not an invoice has been received. Accounts payable are recognized when the invoice has been received.

A financial asset (or part thereof) is removed from the Statement of Financial Position when the rights in the agreement are realized or expire, or when the Company has transferred substantially all of the risks and benefits associated with ownership. A financial liability (or part thereof) is removed from the Statement of Financial Position when the obligation specified in the agreement is discharged or in any other manner extinguished. A financial asset and financial liability are offset and recognized in the Statement of Financial Position in a net amount only when there is legal right to offset and when it is intended to settle the item with a net amount or to simultaneously realize the asset and settle the liability.

Classification and measurement

Financial instruments are initially recognized at an acquisition cost equivalent to the fair value of the instrument, plus, in the case of receivables and liabilities valued at amortised cost, the addition of transaction costs. Financial instruments are classified upon first recognition based on the purpose for which the instrument was acquired. The classification determines how the financial instrument is valued after first recognition, as described below.

Loans and receivables

Loans, receivables and short-term investments comprising deposits in the Statement of Financial Position consist of immediately available balances at banks and equivalent institutions, as well as other accounts receivable. Loans and receivables are recognized at amortised cost. Note that loans to companies within the investment portfolio are held as short-investments recognized at fair value through profit or loss.

Repurchase of share capital

When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the reserve for own shares.

Financial assets at fair value through profit or loss

Shares and participations in investing activities and short-term investments are recognized in accordance with IAS 39 and the "fair value option" at fair value, including any change in value in profit or loss. The Group applies the "fair value option" due to the fact that it bases the follow-up of its holdings on fair value. In accordance with IAS 28.1, equity-related investments where the Group has a significant influence are also recognized according to IAS 39 at fair value, with fair value changes recognized in profit or loss ("fair value option"). The joint venture between Intrum Justitia and East Capital Explorer was valued at initial recognition at fair value through profit or loss according to IAS 39, and under the exception in IAS 31.1, from using proportionate consolidation or the equity method, the joint venture is recognized at fair value through profit or loss. Fair value is determined as follows:

Listed holdings on active markets

Financial instruments measured at fair value in the Statement of Financial Position are measured, at fair value based on bid quotes received on active markets.

Bid quotes are deemed representative if criteria such as bid and ask spread is less than 1%, only bid quotes are observed or last traded price is below the bid quote are met. If this is not the case, the following hierarchy is used for valuation:

1. Last traded price

• 1. Mid price
• 1. Last available reliable market information (LARMI)

A financial instrument is regarded as listed on an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. Fair value is defined in terms of a price agreed by a willing buyer and a willing seller in an arm's length transaction.

Listed holdings on non-active markets

If the conditions for an active market are not met the market is seen as non-active. Listed holdings on a non-active market will be measured according to IPEVC Guidelines as all private equity (unlisted) holdings described below.

Unlisted holdings and holdings where market data is not reliable All private equity holdings ("unlisted") shall be initially measured at their acquisition price and shall be measured with the following methodologies, in order of priority depending on availability and relevance:

1. The Price of Recent Investment as set out in the IPEVC Guidelines.

2. The value determined by an independent broker, analyst or other knowledgeable party, which has become known, after it was concluded by the Company that (i) there is sufficient documentation available to support the valuation, (ii) such valuation is compliant with valuation methodologies set out in the IPEVC Guidelines, and that (iii) the value can be validated by at least one additional independent broker, analyst or other knowledgeable party.

3. Any other valuation methodology set out in the IPEVC Guidelines if it is considered that it clearly and indisputably provides a better estimate of the fair value.

4. As set out in the IPEVC Guidelines, in situations where Fair Value cannot be reliably measured the Company may conclude that the Fair Value at the previous reporting date remains the best estimate of Fair Value. The Company is required to consider whether events or changes in circumstances indicate that impairment may have occurred.

5. The Company may request, when it considers that there is a requirement to do so, an independent appraiser to perform a valuation of any investment or other holding based on the principles set out in this policy and the IPEVC Guidelines.

Other holdings

Redeemable funds are measured based on official NAV, as soon as such is published.

Other financial liabilities

This category includes loans and other financial liabilities, such as

accounts payable. Liabilities are valued at amortised cost.

Classification of the Group's financial assets and liabilities and their carrying amounts can be seen in Note 15. Recognition of financial income and expenses is also addressed under the principle financial income and expenses above.

Impairment of financial assets

The carrying values of the Group's financial assets, excluding financial assets reported at fair value with changes in value reported in profit or loss in accordance with IAS 39, are tested at the end of each reporting date for indications of impairment.

On each reporting date, the Company evaluates whether there is objective evidence that a financial asset or pool of assets is impaired as a consequence of loss events having impact on future cash flow which is significant or extended. Objective evidence comprises observable conditions which have occurred and which have a negative impact on the possibility of recovering the cost of the asset.

The recoverable amount of assets in the category loans and receivables, which are recognized at amortized cost, is determined as the present value of future cash flows discounted at the effective rate at initial recognition of the asset. Assets with short maturities are not discounted. An impairment loss is recognized as an expense in the statement of comprehensive income.

Impairment losses of loans and receivables that are reported at amortised cost are reversed if a later increase in the recoverable amount can objectively be attributed to an event taking place after the impairment loss was made.

Earnings per share

Earnings per share are calculated by dividing the profit or loss in the Group attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares registered during the year. When calculating diluted earnings per share, earnings and the average number of shares are adjusted to take account of the dilutive effects of potential ordinary shares. There were no dilutive effects during the reported periods.

Dividends

Holders of common shares are entitled to dividends. The amount and timing is to be proposed and approved at the annual general meeting each year. Additionally, each share entitles the right to one vote at the shareholders' meeting and all shares entitle the same right to the Company's remaining net assets.

Contingent liabilities

A contingent liability is recognized when there is a possible obligation relating to past events and whose existence is confirmed only by one or more uncertain future events, or when there is an obligation that is not recognized as a liability or provision as it is not probable that an outflow of resources will be required.

Accounting principles of the Parent Company

The Parent Company, East Capital Explorer AB, applies the same accounting principles as the Group except in the instances specified below. The variances arising between East Capital Explorer AB and the Group's principles result from limitations in the possibility of applying IFRS in East Capital Explorer AB due to the Swedish Annual Accounts Act (1995:1554).

East Capital Explorer AB prepares its annual report in accordance with the Swedish Annual Accounts Act and the Swedish Financial Reporting Board recommendations RFR 2, Accounting for Legal Entities, as well as the pronouncements of the Swedish Financial Reporting Board for listed companies. Application of RFR 2 stipulates that, in its preparation of the annual report for the legal entity, East Capital Explorer AB apply all of the IFRS and interpretive statements approved by the European Union to the extent possible within the framework of the Swedish Annual Accounts Act and with consideration for the relationship between reporting and taxation. The recommendation stipulates the exceptions and additions to IFRS which must be undertaken.

The accounting principles specified below for the Parent Company

have been consistently applied to all periods presented in the financial statements, unless otherwise specified.

Subsidiary

Transactions costs in business combinations taking place from 2010 are expensed. Contingent considerations are measured at fair value at the acquisition date and subsequently the liability is remeasured to fair value with the fair value changes recoginized in profit or loss.

Note 2 Segment Reporting

East Capital Explorer reports the financial information and evaluates the performance based on the nature of its investments. The Group's operating segments consits of Equity Funds, Direct Investments as well as Short-term Investments. Equity Funds include all investments made into East Capital funds. Direct Investments include equity investments made directly by the subsidiary East Capital Explorer Investments AB, i.e. not held through East Capital Funds. Short-term Investments include cash, cash equivalents and other short-term investments, which among other things include a bond portfolio. Segment results and assets include items directly attributable to the segment, as well as those that can be allocated on a reasonable basis.

Group		Direct	Short-term		Total
		Investments	Investments	Unallocated	consolidated
	Fund Investments	1 Jan – 31 Dec	1 Jan – 31 Dec	1 Jan – 31 Dec	1 Jan – 31 Dec
EUR thousands	1 Jan – 31 Dec 2011	2011	2011	2011	2011
Changes in value	-135,097	-16,699			-151,795
Received dividends	4,585	1,885	-	-	6,470
Staff expenses	-	-	-	-1,108	-1,108
Other operating expenses	-5,353	-75	-	-691	-6,118
Operating profit/loss	-135,864	-14,889	-	-1,799	-152,552
Financial income	294	-	861	57	1,211
Financial expense	-2,071	-	-	-	-2,071
Profit/loss before tax	-137,643	-14,889	861	-1,743	-153,412
Assets	258,887	50,398	39,431	206	348,923

Group		Direct	Short-term		Total
	Fund Investments	Investments	Investments	Unallocated	consolidated
	1 Jan – 31 Dec	1 Jan – 31 Dec	1 Jan – 31 Dec	1 Jan – 31 Dec	1 Jan – 31 Dec
EUR thousands	2010	2010	2010	2010	2010
Changes in value	117,189	6,699	666	-	124,554
Dividends	8,909	1,017	-	-	9,926
Staff expenses	-	-	-	-1,095	-1,095
Other operating expenses	-21,915	-1,404	-10	-922	-24,250
Operating profit/loss	104,183	6,313	655	-2,017	109,135
Financial income	3,497	-	2,978	-	6,475
Financial expense	-37	-	-	-14	-51
Profit/loss before tax	107,643	6,313	3,634	-2,031	115,559
Assets	417,390	40,041	89,368	39	546,838

The above tables provide information about allocating revenues to segments for the Group. Expenses are allocated to segments, except for expenses in the Parent Company.

Note 3 Other Operating Expenses

	Group			Parent Company
EUR thousands	2011	2010	2011	2010
Fees to Investment Managers	3,660	22,313	-	-
Custody fees	314	352	-	-
Marketing and PR	78	109	78	109
Internal services1	174	271	174	271
Rent2	78	79	78	79
Audit assignments3	283	332	31	129
Travel	59	60	59	60
Other external costs	1,472	733	270	274
Total	6,118	24,250	691	922

1 Internal services are included in the service agreement with East Capital International AB. Comprise all services except rent charges. See note 18.

2 Rent is included in the service agreement with East Capital International AB. See note 18.

Audit assignment refers to auditing of the annual report, the accounting records and the administration of the Board of directors and the CEO, other tasks incumbent on the Company's independent auditor, and advice or other assistance prompted by observations from such audits or the performance of other such tasks. See note 5.

Note 4 Employees, Staff Expenses and Executive Management Compensation

		Group		Parent Company
EUR thousands	2011	2010	2011	2010
Wages, salaries and remuneration	542	565	542	565
Directors' fees	229	210	229	210
Social charges	328	310	328	310
of which pensions	88	70	88	70
Total	1,099	1,085	1,099	1,085

On December 2011 the Group had four employees, two women and two men.

Salaries and other remunerations		Group		Parent Company
EUR thousands	2011	2010	2011	2010
Board, CEO and CFO, 9 people 2011, 9 people 2010	670	652	670	652
Other employees, average 1.9 people 2011, 0.9 people 2010	132	154	132	154
Total	802	805	802	805

Compensation

Remuneration to the Board

On 12 April 2011, the Company's shareholders' meeting determined that the Chairman of the Board will receive annual compensation of SEK 770,000 for the period until the next shareholders' meeting. Other Board members will receive SEK 330,000 per person in compensation for the time until the next shareholders' meeting. Remuneration for Audit Committee is SEK 100,000 to the chairman of the Audit Committee and SEK 50,000 to each director in the Committee.

Remuneration to executive management and other terms of employment

Guidelines for salary and other remuneration to the Company's CEO and CFO will be resolved on a yearly basis at the shareholders' meeting, based on proposals by the Board. Remuneration to the CEO and CFO consists of fixed salary, variable salary and pension, insurance and customary benefits. The Board decides at its own discretion whether the CEO and CFO should be paid variable salary. The CEO and CFO can receive a maximum variable salary corresponding to 50% of their fixed salary. The CEO and CFO have individual premium-based pension plans, pursuant to which the Company pays premiums corresponding to 10% of the fixed salary up to 10 Swedish income base amounts and premiums corresponding to 20% of the fixed salary on the portion of the fixed salary that exceeds 10 Swedish income base amounts. In addition, CEO Mia Jurke received a benefits package in 2011 of a limited scale. Compensation for these services is a deviation from the remuneration guidelines approved by the 2011 AGM, and were part of the employment package agreed with the CEO during her recruitment. In the event the Company terminates the CEO's employment, the Company is required to observe a six-month notice period. In addition, the CEO is entitled to a severance payment corresponding to six months' salary. In the event the CEO or the CFO terminates their employment, they are required to observe a sixmonth notice period.

Remuneration and other benefits, Parent Company

					2011					2010
EUR thousands	Fixed	Variable	Board	Pension		Fixed	Variable	Board	Pension
	salary	salary 3	fee	expenses	Total	salary	salary 3	fee	expenses	Total
Paul Bergqvist, Chairman	-	-	93	-	93	-	-	81	-	81
Anders Ek, Board member	-	-	41	-	41	-	-	36	-	36
Monika Elling, Board member during 2010 1	-	-	15	-	15	-	-	21	-	21
Lars Emilson, Board member	-	-	41	-	41	-	-	36	-	36
Karine Hirn, Board member during 2010 2	-	-	-	-	-	-	-	-	-	-
Alexander V. Ikonnikov, Board member	-	-	41	-	41	-	-	36	-	36
Justas Pipinis, Board member 2	-	-	-	-	-	-	-	-	-	-
Gert Tiivas, CEO 2010 to 15 October 20114	189	-	-	25	214	160	51	-	31	242
Mia Jurke, CEO from 15 October 20115	22	3	-	2	27	-	-	-	-	-
Mathias Pedersen, CFO	150	27	-	22	199	141	59	-	28	200
Total	361	30	230	49	670	301	110	210	59	652

Monika Elling was elected at the Annual General Meeting 2010. A Board fee was paid out during 2011 for board work during 2011.

2 Board memeber Justas Pipinis and Karine Hirn waived their director's fee.

3 In 2012 the Board has resolved to pay out EUR 30k in variable salary for executive management for 2011.

Gert Tiivas resigned as CEO and ended his assignment on 15 October 2011. He was not granted any variable salary for 2011.

5 Mia Jurke was appointed CEO and started her assignment on 15 October 2011. She worked part-time (75%) until year end. Mia Jurke was granted a variable salary of 30,000 SEK.

Note 5 Fees and Expenses for Auditors

		Group		Parent Company
EUR thousands	2011	2010	2011	2010
KPMG
Audit fee	283	293	31	89
Audit assignments except audit fees	-	40	-	40
Tax assignments	11	-	11	-
Total	294	332	42	129

Note 6 Financial Income and Expense

		Group		Parent Company
EUR thousands	2011	2010	2011	2010
Interest income on financial assets measured at fair value (fair value option)1	861	3,229	-	-
Reversal of write down of shares in Group companies	-	-	-	46,005
Interest income on cash and cash equivalents	295	207	15	-
Interest income from Group companies	-	-	203	-
Other financial income	55	-	-	-
Exchange rate gain2	-	3,039	42	-
Total financial income	1,211	6,475	260	46,005
Financial expense
Interest expense on financial liabilities measured at amortised cost	-10	-51	-	-14
Write down of shares in Group companies	-	-	-79,105	-
Exchange rate loss2	-2,061	-	-1	-
Total financial expense	-2,071	-51	-79,106	-14
1 Includes gains from sale of assets within the bond mandate.

2 Exchange rate gain/loss on cash and cash equivalents.

Note 7 Taxes

Recognised in the statement of comprehensive income/income statement
		Group		Parent Company
EUR thousands	2011	2010	2011	2010
Current tax expense (-)/income (+) Tax expense/income for the period	-1,043	-434	-	533
Deferred tax expense (-)/income (+)
Deferred tax on temporary differences	1,253	-469	402	-
Total recognised tax expense/income	210	-903	402	533

Reconciliation of effective tax

				Group				Parent Company
EUR thousands	2011 (%)	2011	2010 (%)	2010	2011 (%)	2011	2010 (%)	2010
Profit/loss before tax		-153,412		115,559		-80,645		43,973
Tax as per applicable tax rate for the Parent Company	26.3	40,347	26.3	-30,392	26.3	21,210	26.3	-11,565
Difference in tax rate in foreign operations	0.3	474	0.3	-360	-	-	-	-
Tax effect of non-taxable income	-	-	-26.1	30,169	-	-	-27.5	12,100
Tax effect of non-taxable expense	-26.5	-40,598	0.2	-245	-25.8	-20,807	-	-2
Correction of previous years tax	0.0	-14	0.1	-75	-	-	-	-
Recognised effective tax	0.1	210	0.8	-903	0.5	402	-1.2	533

Deferred tax assets and tax liabilities relate to the following:

Group EUR thousands	Deferred tax asset 2011	Deferred tax liability 2011	Net 2011	Deferred tax asset 2010	Deferred tax liability 2010	Net 2010
Financial assets	477	-	477	-	1,005	1,005
Tax allocation reserve	-	-407	-407	-	177	177
Total	477	-407	70	-	1,182	1,182

Note 8 Earnings Per Share

Earnings per share

EUR	2011	2010
Earnings per share, basic and diluted	-3.69	2.55

The origin of the numerator and denominator used in the above calculations of earnings per share is shown below.

Earnings per share, basic and diluted
Profit/loss for the year attributable to the holders of ordinary shares in the Parent Company EUR thousands	2011	2010
Profit/loss attributable to the holders of ordinary shares in the Parent Company.	-127,925	89,260
Weighted average number of outstanding ordinary shares In thousands of shares	2011 1 Jan – 31 Dec	2010 1 Jan – 31 Dec
Total number of outstanding shares, 1 January	34,852	35,499
Share buy-back during March and April 2010. Cancelled in May 2010	-	-647
Share buy-back, September to December 2011	-1,082	-
Total number of outstanding shares, 31 December	33,770	34,852
Weighted average number of ordinary shares, basic and diluted	34,645	34,968

Note 9 Group Companies

Holdings in subsidiaries

			Share of Equity in %
	Subsidiary's domicile, country	2011	2010
East Capital Explorer Investments AB	Stockholm, Sweden	100	100
East Capital Explorer Investments (Cyprus) Ltd	Nicosia, Cyprus	100	100
Humarito Limited	Nicosia, Cyprus	58	-
East Capital Power Utilities Fund AB	Stockholm, Sweden	73	73
East Capital Special Opportunities Fund	Grand Cayman, Cayman Islands	82	82
East Capital Special Opportunities Fund II1	Luxembourg	-	95
East Capital Bering New Europe Fund	Grand Cayman, Cayman Islands	88	86
East Capital Bering Balkan Fund	Grand Cayman, Cayman Island	62	52

1 During the first quarter of 2011 new investors entered the East Capital Special Opportunities Fund II. As a result East Capital Explorer, from an accounting perspective, no longer had a controlling influence over the fund and therefore did not need to treat it as a subsidiary. Consequently, the fund was reclassified from a subsidiary to shares and participations in investing activities.

Parent Company
EUR thousands
Acquisition value	31 Dec 2011	31 Dec 2010
At 1 January	380,576	339,570
Repayment of shareholder contribution	-10,000	-5,000
Conversion of Shareholders Contribution to Loan	-29,315	-
Write down	-79,105	-
Reversal of write downs	-	46,006
At 31 December	262,156	380,576
Specification of the Parent Company's direct holdings of participations in subsidiaries

Subsidiary / Corporate registration number / Domicile	No. of shares	31 Dec 2011 Carrying amount	31 Dec 2010 Carrying amount
East Capital Explorer Investments AB/556693-7370/ Stockholm	3,410	262,156	380,576
Total	3,410	262,156	380,576

East Capital Explorer AB owns all preference shares in the subsidiary. The percentage of votes is 4.3%.

Note 10 Shares and Participations

Group
EUR thousands	2011	2010
Opening acquisition value	433,447	328,516
Exchange difference opening balance	5,625	4,053
Reclassification of subsidiary	13,810	53,963
Acquisitions	92,042	125,967
Disposals	-89,861	-87,897
Redistribution consolidated funds	-	8,845
Closing acquisition value 2011	455,063	433,447
Change in fair value through profit or loss
Opening fair value adjustments	21,855	-36,342
Exchange difference opening balance	-4,642	438
Reclassification of East Capital Bering Balkan Fund	-	-18,940
Fair value change in the value through the income statement for the year	-177,745	85,544
Redistribution consolidated funds	-947	-8,845
Closing fair value adjustments 2011	-161,478	21,855
Carrying amount 31 December	293,585	455,302

The Group has the following holdings:

Holdings 2011	Number of shares/Units	Cost	Value Change	Carrying amount
East Capital Bering Russia Fund	1,660,805	43,590	-15,523	28,067
East Capital Bering Ukraine Fund Class A	738,641	11,039	-5,405	5,634
East Capital Bering Ukraine Fund Class R	912,395	18,372	-12,844	5,528
East Capital Bering Central Asia Fund	5,933,960	29,478	-12,873	16,605
East Capital Bering New Europe Fund 1
Ablon Group	3,326,568	1,683	-247	1,437
ELKO	126,444	2,377	-1,367	1,010
Morpol	866,500	2,259	-1,330	929
Mennica Polska	345,000	1,124	-276	848
Other		13,690	-5,036	8,655
East Capital Bering Balkan Fund 1
Astonko	132	12,627	-6,468	6,158
Fondul Proprietatea	60,554,700	3,560	2,407	5,967
Pinar Et Ve Un	1,903,433	3,490	860	4,350
Komercijalna Banka Skopje	70,096	2,816	180	2,997
Other		92,633	-52,414	40,218
East Capital Special Opportunities Fund 1
Fondul Proprietatea	70,174,000	4,177	2,750	6,927
TEO LT	9,187,878	5,597	-76	5,521
Sollers	596,600	3,913	471	4,383
Integra Group Holdings	3,125,883	6,378	-2,085	4,293
Other		19,904	-6,241	13,663
East Capital Power Utilities Fund
E.ON Russia	104,755,495	1,707	3,643	5,350
MRSK Tsentra i Privolzhnya	1,185,879,788	6,386	-2,149	4,237
MRSK Tsentra	272,429,267	7,392	-3,364	4,028
OGK-2	204,621,440	5,032	-1,350	3,682
Other		47,855	-17,380	30,475
East Capital (Lux) Eastern European Fund	123,887	12,389	-4,943	7,446
East Capital Special Opportunities Fund II	3,500,000	35,000	-10,220	24,780
MFG (OAO Melon Fashion Group)	9,601	22,988	-3,450	19,538
EEDF AG 2	2,500	1,144	3	1,147

TEO LT	26,431,019	15,306	552	15,859
Populi	4,829,866	4,131	-4,019	112
Trev-2 Group	1,923,077	4,000	-	4,000
Komercijalna Banka Skopje	227,907	13,027	-3,285	9,742
Total		455,063	-161,478	293,585

1 The cost amount include foreign exchange differences.

2 East Capital Explorer Investments AB holds 25% of the joint venture, EEDF AG, entered into with Intrum Justitia and East Capital Financials Fund.

Holdings 2010	Number of shares/Units	Cost	Value change	Carrying amount
East Capital Bering Russia Fund	1,660,805	43,590	-787	42,803
East Capital Bering Ukraine Fund Class A	738,641	11,039	-3,159	7,880
East Capital Bering Ukraine Fund Class R	912,395	18,372	-12,014	6,358
East Capital Bering Central Asia Fund	5,933,960	29,478	-4,115	25,363
East Capital Bering New Europe Fund
Morpol ASA	1,066,500	2,692	249	2,941
RFV Regionalis Fejleszt	75,929	801	1,510	2,311
Mennica Polska	57,000	1,798	-13	1,785
PannErgy	399,320	1,284	12	1,296
Other		13,979	-875	13,104
East Capital Bering Balkan Fund1
Fondul Proprietatea	158,948,200	9,049	9,884	18,933
Pinar Entegre Et Ve Un Sanay	1,780,874	2,975	2,866	5,842
Abanka Vipa	95,614	7,410	-2,580	4,830
Astonko Holdings Limited	132	12,329	-8,170	4,158
Other		73,095	-31,321	41,775
East Capital Special Opportunities Fund1
Fondul Proprietatea	143,100,000	8,249	8,989	17,238
Sollers	610,000	3,874	5,756	9,630
Sibirskiy Cement	497,100	5,799	2,771	8,570
Integra Group Holdings	3,125,883	6,177	1,939	8,116
Other		22,802	8,621	31,423
East Capital Special Opportunities Fund II
Integra Group Holdings	2,691,580	5,976	996	6,972
Sibirskiy Cement	234,500	3,205	828	4,033
Zavarovalnica Triglav	210,000	3,615	82	3,697
AIK Banka	100,788	3,103	128	3,231
Other		5,291	977	6,269
East Capital Power Utilities Fund
MRSK Holding	102,078,468	8,137	5,265	13,402
OGK-6	314,674,642	5,396	5,656	11,052
OGK-4	148,505,495	2,420	8,259	10,679
MRSK Tsentra i Privolzhnya	1,390,879,788	7,490	2,883	10,373
Other		63,083	12,723	75,806
East Capital (Lux) Eastern European Fund (EUR)	182,500	18,250	-2,859	15,391
MFG (Melon Fashion Group)	4,996	9,941	3,859	13,800
EEDF AG	2,500	346	-23	323
TEO LT	21,167	11,962	3,215	15,177
Populi	3,846,154	3,604	-	3,604
Wimm-Bill-Dann	76,982	6,835	302	7,137
Total		433,446	21,855	455,302

All shares and participations are classified as financial assets carried at fair value through profit or loss in the sub-category fair value option.

Note 11 Accrued Income and Prepaid Expenses

		Group		Parent Company
EUR thousands	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Accrued interest	22	9	-	-
Accrued interest , Group Companies	-	-	203	-
Prepaid expenses	103	67	33	39
Total	125	76	236	39

Note 12 Shareholders Equity

Outstanding shares	2011	2010
Issued at January 1	34,852	35,499
Share buy-back, March and April 2010	-	-647
Share buy-back, September to December 2011	-1,082	-
Issued at 31 December	33,770	34,852

Shareholders' equity in the Group

Other contributed capital

Pertains to shareholders' equity contributions. The share premium paid in conjunction with new issues is included here.

Reserves – translation reserve

The translation reserve consists of all exchange differences arising on the translation of the financial statements of foreign operations prepared in a currency other than those currencies used by the Group. The Parent Company and the Group prepare their financial reports in euro.

Retained earnings including profit for the year

Retained earnings including profit/loss for the year include profits earned in the Parent Company and its subsidiaries.

Non-restricted equity – Parent Company

Share premium reserve

When new shares are issued at a premium, implying that the price to be paid for a share is higher than the previous quotient value of the share, an amount corresponding to the amount received in excess of the share's quotient value is transferred to the share premium reserve.

Retained earnings

Retained earnings comprise retained profit from previous years after any provisions to reserves and after payment of any dividends. Previous provisions to the statutory reserve, less transferred share premium reserves, are included in this item under equity.

Capital management

Capital is defined as total equity excluding non-controlling interests, and it amounted to EUR 294m (EUR 430m) per 31 December. EUR 255m (388) was invested in equity funds and direct investments.

The objective is to offer investors long-term capital appreciation of the Net Asset Value (NAV). The risk of short-term fluctuations in capital appreciation is deemed to be high due to the high level of risk in the markets in which the Company invests. The decrease of the NAV for the year 1 January to 31 December 2011 was 32% (increase 26%).

The Board of Directors propose a dividend of SEK 0.80 per share for the fiscal year of 2011, which remains unchanged from the previous year and will be decided upon at the Annual General Meeting in April. The Board of Directors has also adopted a dividend policy for the Company, whereby East Capital Explorer aims to pay dividends to its shareholders consistent with the long-term prospect of the Company. The size of the dividend will be related to the size of the company's received dividends and realized return on short-term investments during the preceding year and other relevant factors.

The future liquidity will depend primarily on (i) the timing and sales of investments, (ii) the Company's management of available cash, (iii) cash distributions from existing investments, (iv) capital contributions that are received in connection with the issuance of additional equity and (v) the issuance of debted, if any.

The Company may enter into a line of credit facility with one or more lenders for the purpose of obtaining an additional source of liquidity to fund short-term liquidity needs and for investments. The aggregate amount drawn by the Company under any line of credit facility may not exceed an amount equal to 30% of the Company's net asset value, excluding the debt and net asset value attributable to direct investments in real estate.

There are no externally imposed capital requirements on any of the companies in the Group.

Note 13 Other Liabilities

	Group			Parent Company
EUR thousands	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Other current liabilities
Accounts payable	93	7,399	20	22
Purchase of shares – shares delivered but cash not paid	-	747	-	-
Redemption from non-controlling interest not paid out	2,997	-	-	-
Other	519	524	147	77
Total	3,609	8,670	167	99

Note 14 Accrued Expenses and Prepaid Income

		Group		Parent Company
EUR thousands	31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
Vacation pay	61	64	61	64
Management fee	807	751	-	-
Performance fee	4,478	9,463	-	-
Other accrued expenses	791	1,022	341	367
Total	6,136	11,300	402	431

Note 15 Financial Assets and Liabilities

Group 2011
	Financial assets at		Other	Total
	fair value through	Loans and	financial	carrying
EUR thousands	profit or loss	receivables	liabilities	amount	Fair value
Shares and participation in investing activities	293,585	-	-	293,585	293,585
Other receivables	-	100	-	100	100
Accrued interest	-	22	-	22	22
Short-term investments	22,793	-	-	22,793	22,793
Cash and cash equivalents	-	32,147	-	32,147	32,147
Total	316,378	32,268	-	348,646	348,646
Other financial liabilities	-	-	3,609	3,609	3,609
Accrued expenses	-	-	5,285	5,285	5,285
Total	-	-	8,894	8,894	8,894

Group 2010	Financial assets at fair value through	Loans and	Other financial	Total carrying
EUR thousands	profit or loss	receivables	liabilities	amount	Fair value
Shares and participation in investing activities	455,302	-	-	455,302	455,302
Other receivables	-	2,092	-	2,092	2,092
Accrued interest	-	9	-	9	9
Short-term investments	26,494	-	-	26,494	26,494
Cash and cash equivalents	-	62,874	-	62,874	62,874
Total	481,796	64,975	-	546,771	546,771
Other financial liabilities	-	-	8 670	8,670	8,670
Accrued expenses	-	-	10,214	10,214	10,214
Total	-	-	18,884	18,884	18,884

				2011				2010
Parent Company	Loans and	Other financial	Total carrying	Fair	Loans and	Other financial	Total carrying
EUR thousands	receivables	liabilities	amount	value	receivables	liabilities	amount	Fair value
Loan to Group Companies	29,315		29,315	29,315	-	-	-	-
Other current receivables	-	-	-	-	2,566	-	2,566	2,566
Total	29,315	-	29,315	29,315	2,566	-	2,566	2,566
Other financial liabilities	-	167	167	167	-	99	99	99
Total	-	167	167	167	-	99	99	99

Calculation of fair value

The following summarises the main methods and assumptions applied in determining the fair value of the Group's financial instruments.

Financial instruments measured at fair value through profit or loss For a description of the method applied to measure financial instruments recognised at fair value through profit or loss, see Note 1 on page 76.

Financial instruments not measured at fair value through profit or loss For accounts receivable and accounts payable, the carrying amount is deemed to reflect fair value since the remaining maturity is generally short.

Fair value estimation

The Group applies IFRS 7. This requires the Group to classify for disclosure purposes fair value measurements using a fair value hierarchy reflecting the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: • Level I: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level II: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or

indirectly (that is, derived from prices).

• Level III: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the financial asset.

For fair value estimation, see Note 1 Accounting Principles, pages 76–79.

The determination of that which constitutes 'observable' requires significant judgement by the Group. The Group considers observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. Classification of equity funds that are consolidated are done in each level according to the underlying equities. The remaining equity funds are classified in the level where underlying equities to a predominant proportion have been classified.

The following table analyses within the fair value hierarchy the Group's financial assets measured at fair value at 31 December 2011.

Fair value hierarchy for financial assets (amounts in EUR thousands) 2011
Shares and participations in investment activities designated at fair value through profit or loss at inception:	Level 1	Level 2	Level 3	Total balance
- Fund Investments	206,146	21,475	15,565	243,187
- Direct investments	25,601	-	24,798	50,398
- Short-term investments	22,793	-	-	22,793
Total assets measured at fair value	254,540	21,475	40,363	316,378
2010
Shares and participations in investment activities designated at fair value through profit or loss at inception:	Level 1	Level 2	Level 3	Total balance
- Fund Investments	333,306	28,901	53,053	415,261
- Direct investments	22,314	-	17,727	40,041
- Short-term investments	26,494	-	-	26,494
Total assets measured at fair value	382,114	28,901	70,780	481,796

Investments whose values are based on quoted market prices in active markets, and are therefore classified within level 1, include publically listed companies in Equity fund investments and direct investments.

Financial investments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs, are classified within level 2. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or nontransferability, which are generally based on available market information.

Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3 instruments include mainly private equity investments. As observable prices are not available for these holdings, the Group has used valuation techniques to derive the fair value. Level 3 instruments also include investments in other East Capital Equity funds, to the extent they primarily hold unlisted investments.

The following table presents the movement in level 3 investments for the year ended 31 December 2011 by class of financial instrument:

2011		Fund Investments Direct Investments	Total
Opening balance 2011	53,053	17,727	70,780
Exchange rate differences	992	-	992
Purchase/addition	-	18,419	18,419
Sales/reduction	-107	-	-107
- Movements to level 3	558	-	558
- Movements from level 31	-38,801	-	-38,801
- Result from financial assets at fair value through profit or loss 2	-129	-11 348	-11,477
Closing balance 2011	15,565	24,799	40,363

2010		Fund Investments Direct Investments	Total
Opening balance 2010	19,963	10,402	30,365
Exchange rate differences opening balance	703	-	703
Purchase/addition	26,098	3,950	30,048
Sales/reduction	-625	-	-625
- Movements to level 3	1,392	-	1,392
- Movements from level 3	-2,664	-	-2,664
- Result from financial assets at fair value through profit or loss 2	8,186	3,375	11,561
Closing balance 2010	53,053	17,727	70,780

1 Movements from level 3 mainly refers to S.C Fondul Proprietatea which was listed on the Bucharet Stock Exchange during 2011 and therefore moved from level 3 to level 1.

² Refers to assets included in closing balance

Movement from or to level 3 during the year depends on change in trade pattern for the share.

Note 16 Financial Risks and Risk Managements

The Group's activities expose it to a variety of risks. The main identified risks are financial risks, operating risks and commercial risks. The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Group Audit Committee oversees how management monitors compliance with the Group's different policies. The Committee is assisted in its oversight role by an Internal Audit, which regularly reviews the Company's procedures and reports back to the Committee.

Financial risks

The Group has exposure to the following risks arising from financial instruments: market risk (including equity price risk, currency risk and interest rate risk), liquidity risk and credit risk. The term "financial risks" refers to fluctuations in the Group's income, cash flow and values of its holding in financial instruments as a result of these risks. The Group's financial policy for the management of financial risks has been prepared by the Board and is a framework of guidelines and regulations in the form of risk mandates and limits for financial activities. Compliance with the financial policy is followed up by the Board.

The responsibility for and the handling of financial risks and treasury management activities within the Group is centralized to the CEO together with the Parent Company's finance and accounting department. This includes responsibility for raising capital, management of liquid assets, handling of financial risk exposure, cash management and bank relations. The Board makes decisions concerning the Investment Policy, public financing programs, as well as confirming the financial strategy. The Board also undertakes decisions, upon recommendation from the CEO, concerning the Group's long-term financial strategy.

The Board ensures that the Investment Policy, on which the Investment Manager bases the investment activities, is appropriate for the Group's objectives, decides on more significant investment decisions and monitors the operations of the Investment Manager. The Board also controls that the investment activities are in accordance with the Investment Policy and the Investment Management Agreement which sets out the terms and conditions upon which the investment activities are to be performed. The Investment policy prescribes the types of assets, investment themes and key geographical segments in which investments may be made and stipulates certain limitations in order to assure diversification and an appropriate risk level. The Board may decide to amend or deviate from the Investment policy, as it deems appropriate.

(a) Market risk

Market risk is the risk that changes in market prices, such as equity prices, foreign exchange rates and interest rates will affect the Group's income or the value of its holdings in financial instruments. East Capital Explorer AB is mainly exposed to changes in equity prices and foreign exchange rates.

The Group's exposure to market risk is generally increased by the location of the markets in which it invests. The Group invests in publically listed and privately held enterprises, either through East Capital Equity funds or through direct investments into companies in Russia and the other CIS countries, the Balkans, the Baltic States, Central Asia and Central Europe. Investing in companies based in these emerging markets involves risks and certain other considerations, such as political risks, that are not typically associated with investments in companies established in other parts of Europe.

The Group limits risk by following the Investment Policy that provides guidelines based on the following factors:

• Industry
• Geography
• Financial instruments
• Hedging

(i) Equity price risk

Equity price risk is the most significant risk in East Capital Explorer AB's business activities, which consist of investing in various forms of equities and equity-related instruments in emerging markets. The Group's policy is to manage price risk through diversification and selection of investments within specified limits set by the Board. Please see paragraph (d) "Concentration of risk" below for more information about the Group's specified investment limits. The principal factors that affect the equity price risk are that the investments primarily are made in emerging markets and in the following industry sectors; power utilities, financials, consumer goods, and real estate.

When the Group realize an investment and is seeking an alternative investment in which to re-invest the capital realized, suitable investment opportunities may not always be available. It may take a significant amount of time to reinvest the capital. Although the Group has adopted a policy of active management of cash and liquid investments portfolio to enhance returns, such management may from time to time generate returns that are substantially lower than the returns that the Group anticipates receiving from investments in any East Capital Funds or any direct investments. Board approval is compulsory for investments that exceed 15% of net asset value and direct investments. Investments that differ from the Investment Policy and investments that may imply a conflict of interest between the Group and East Capital PCV Management AB also need approval from the Board. The Group's Investment Policy requires that the overall market position be monitored on a daily basis by the Investment Managers and that it will be reviewed on a quarterly basis by the Board.

On 31 December 2011, the total fair value of East Capital Explorer AB's investments exposed to equity price risk amounted to EUR 294m (EUR 455m) as specified in the table below.

At 31 December, the fair value of the Group's investments exposed to equity price risk was as follows:

	Fair value at 31 Dec 2011	Fair value at 31 Dec 2010
Shares and participations in investment activities designated at fair value through profit or loss at inception:
Fund Investments	243,187	415,261
Direct investments:	50,398	40,041
Total Portfolio	293,585	455,302

The table presented in paragraph "(iv) Sensitivity analysis" below summarizes the Group's sensitivity to equity price changes on 31 December 2011.

Where equity investments are denominated in currencies other than the euro, the price is initially expressed in foreign currency and then converted into euros and will also fluctuate because of changes in foreign exchange rates. Paragraph (ii) "Currency risk" below sets out how this component of price risk is managed and measured.

(ii) Currency risk

Currency risk arises as the value of future transactions, recognized monetary assets and monetary liabilities denominated in other currencies fluctuate due to changes in foreign exchange rates. The Group operates and invests its assets internationally and holds both monetary (investment of excess liquidity classified as cash and cash equivalents) and non-monetary financial assets (investments in shares and participations) denominated in currencies other than euro, the functional currency.

The Group is exposed to currency risk primarily through its non-monetary assets, i.e. through its direct and indirect investments into companies who are domiciled and operates in countries outside the euro-zone. Often, the various investment vehicles, such as equity funds, use the US dollar as reporting currency. However, the underlying investments remain exposed to the local currencies in the target region where the companies invested have their main operations. This exposure relating to non-monetary assets is considered a component of equity price risk, not currency risk, and the Group's general policy is not to hedge this exposure, although it might decide to deviate from this if deemed favorable from an investment perspective.

The Group is also exposed to currency risk in its monetary assets, i.e. its cash and cash equivalents and a portfolio of bonds held as shortterm investments. To avoid currency risk, cash and cash equivalents are mainly held in euro. The bond portfolio includes corporate bonds denominated in US dollar which for the majority of the holding period has been hedged to reduce the currency exposure.

The Group's operating expenses are mainly denominated in Swedish kronor (SEK) and it pays its dividend in SEK. In the future the Group may decide to hedge these transactions. Spot, forward or option transactions may be used as part of the currency hedging strategy. Hedging transactions entail costs and may result in losses.

The table below has been analyzed between the Group's monetary and non-monetary assets, which are denominated in a currency other than the euro.

Concentration of foreign currency assets (amounts in euro thousands) At December 31
5 largest concentration	USD	EUR	SEK	PLN	CZK	Other	Total
Monetary assets, 2011	28,532	25,127	993	219	61	9	54,940
Monetary assets, 2010	49,317	39,860	41	-	91	58	89,368
5 largest concentration	USD	EUR	RON	MKD	PLN	Other	Total
Non-monetary assets 2011	124,002	93,258	24,564	12,992	8,300	30,469	293,585
Non-monetary assets 2010	262,917	77,345	47,904	3,962	10,136	53,038	455,302

The consolidated profit or loss includes exchange differences of tEUR -2,061 (tEUR 3,039) in net financial items arising from, mainly, exchange loss/gains in consolidated funds. The table presented in paragraph (iv) Sensitivity analysis below summarizes the sensitivity of the Group's monetary and non- monetary assets and liabilities to changes in foreign exchange movements at 31 December 2011. The analysis is based on the assumptions that the relevant foreign exchange rate increased/decreased by 5% to the euro, with all other variables held constant. This represents management's best estimate of a reasonable possible shift in the foreign exchange rates, having regard to historical volatility of those rates.

(iii) Interest rate risk

East Capital Explorer is exposed to interest rate risk when excess liquidity is held in short-term investment while awaiting deployment in the long term portfolio of equity investments. Changes in the level of interest rates can affect the rate of return on the Group's cash and cash equivalents and other short-term investments. Changes in the level of interest rates can also affect, among other things: (i) the cost and availability of debt financing and hence the Group's ability to achieve attractive rates of return on its investments, and (ii) the debt financing capability of companies whose capital structures have a significant degree of leverage in which the Group has invested either through fund investments or direct investments.

The goal is to limit the interest rate exposure while achieving the best possible return on liquid assets. Hedging transactions are permitted for coverage of interest rate risks arising from investing liquidity according to the Group's financial policy. A review to re-assess and determine the definition of a neutral risk position from an interest perspective should be carried out on a regular basis.

The table presented in paragraph (iv) "Sensitivity analysis" below summarizes the Group's sensitivity to interest rate changes at 31 December 2011.

(iv) Sensitivity analysis

The table below summarizes the effect of the most important market risks on the Group's net profit/loss for the year.

Sensitivity analysis for market risks (amounts in EUR thousands)
At December 31
		2011		2010
Risk factors		Effect on net profit/	Effect on net profit/
	Change	loss for the period	Change	loss for the period
Currency rate EUR/USD	+/- 5%	7,883	+/- 5%	12,898
Interest rate	+/- 2 percentage points	505	+/- 2 percentage points	565
Equity price	+/- 10%	29,359	+/- 10%	45,530
Value of level 3 holdings	+/- 10%	4,036	+/10%	7,078

(b) Liquidity and financing risk

Liquidity risk for the Group is the risk that financial investments cannot be divested without considerable extra costs, and the risk that liquidity will not be available to meet payment obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Group's activities should, both in short and long term, primarily be financed by available liquid assets and its own profits. Liquidity risk is always considered with respect to investments. The Group's investments in illiquid markets mean that liquidity risk is present in terms of the capacity to quickly divest holdings. This risk is taken on intentionally and it is offset by the assessed potential for returns. Due to the Group's high equity ratio, the risk of suspension of payments is deemed low. In accordance with the Group's financial policy, liquidity risk will be minimized through continual evaluation of exposure in the portfolio with respect to investments in illiquid markets, taking liquidity risks into account.

The Group's financial liabilities are mainly accrued performance and management fees.

In accordance with the Group's policy, the Investment Manager monitors the Group's liquidity position regularly. The Board reviews it on a quarterly basis.

Finance risk is the risk that the costs associated with raising new debt increases and the ability to raise debt is limited when needed for refinancing purpose. Normally, the Group shall not take on financial debt or provide collateral. The finance function is working actively to secure access to capital and create flexibility for new investment opportunities for the Group.

(c) Credit risk

The Group takes on exposure to credit risk, which is the risk that a party to a financial instrument will cause a financial loss for East Capital Explorer AB by failing to discharge its obligation.

The Group is exposed to credit risk mainly through the investment of excess liquidity in interest-bearing securities classified as cash, cash equivalents and bonds, but also through loans made to companies in the equity investment portfolio. Credit risk could also arise from derivative financial instruments with positive fair values. The financial policy regulates counterparty exposure to minimize credit risk. According to the Group's policy, the credit risk for cash and cash equivalents is limited by only granting credit to counterparties with an investment grade by a wellknown rating agency and with a rating of the following levels; A1 (Standard & Poor's), K1 (Nordic Rating) and P1 (Moody's Rating). Investments in deposits in larger Swedish banks and investments in Swedish Treasury bonds without ratings are also accepted.

The bond portfolio, which is managed by East Capital, was set up to generate higher returns on short-term investments. This mandate is regulated by separate investment guidelines adopted by the Board. These guidelines allow the Group to take on higher credit risk in order to create higher returns.

In accordance with the Group's policy, the Investment Manager monitors the Group's credit position regularly. The Board reviews it on a quarterly basis.

(d) Concentration of risk

Concentration of risk refers to single holdings or investment areas that represent a significant part of the total investment portfolio. The Group's investment policy asserts that no investment in any single East Capital Fund may represent more than 40% of the Group's net asset value at the time of the investment, that no single direct investment may exceed 15% of the Group's net asset value at the time of the investment and that total direct investments in real estate may not exceed 30% of the Group's net asset value. At the end of 2011, the largest exposure to a single company had a value of EUR 20.0 or 6.8% of the net asset value. The top ten holdings (when combining holdings in underlying funds) had a value of EUR 88.5m corresponding to 30.2% of the net asset value at year end 2011. Other than that, the Group's Investment Policy only contains limited diversification requirements for the portfolio. Furthermore, the Board can deviate from or amend the Investment Policy. In addition, the Group's Investment Policy does not impose any limitations on the terms of the funds in which the Group may invest, including the fund size, its affiliation with East Capital, geographic focus or other diversification, investment parameters or industry focus. At year end 2011, 45% of the invested portfolio has it geographic exposure to Russia, followed by Lithuania, Romania, Ukraine and Serbia, representing 9%, 7%, 6% and 6% respectively. By industry sectors 27% of the invested portfolio was held in Financials, followed by 16% in Utilities, 15% in Consumer Discretionary, 10% in Telecommunications Services and 9% in Energy. In the event that the portfolio is concentrated on relatively few investments, adverse performance by even just one of these investments could have a material adverse effect on the Group.

Business risk

(a) Political risks

Political systems are generally less stable in emerging markets than in developed economies and the legal systems are often less mature. This may result in certain investment and ownership risks. For example, amendments to the regulatory framework for the financial markets including changes on the protection of minority shareholders' rights, could adversely impact our business. Political risks also include the capacity of a country's leadership to govern, and its ability to decide on and implement reforms which are well-needed for the transition phase the whole region is going through. In the aftermath of the credit crisis all the countries of our investment universe face various challenges and not all of them have the same readiness to tackle those.

(b) Country risks

Investing in emerging markets generally mean taking on a higher level of risk in the business environment than when investing in more developed countries. These markets are less mature and, thereby, often more volatile and more vulnerable to external shocks, as experienced in recent years. This is common to all the countries in our investment region and not just associated with exposure to one specific company or investment in a fund.

Country risks also include instability in financial, legal and political systems and other country specific aspects, such as quality of corporate governance, reliability of settlement and clearing systems, lack of appropriate custody services, level of financial reporting and general availability to other reliable corporate information. If any of these country specific aspects should not develop as anticipated in any of the countries in our investment region, we are at risk of being less successful in our investments.

(c) Investment strategy risk

Our business plan and objectives are dependent on the availability of interesting investments. This includes timing the market to enter, and exit, at the most beneficial moment. There is a risk that we are neither efficient in choosing or developing our investments, nor successful in timing the market conditions at the most profitable moment.

(d) Company specific risk

Our success depends on our ability to provide our shareholders with a portfolio of interesting and profitable investments. This also includes being able to manage our investments effectively during our ownership and to create progress on investor friendly issues, such as corporate governance. There is a risk that certain companies, from time to time, may be adversely affected by internal and external factors and that they will, thereby, have a negative impact on the value of our investments.

(e) Operational risks

Well-structured and relevant internal administrative processes and systems are important in any corporate structure to minimize the operational risks related to the business operations. Lack of internal control, inadequate administrative systems and processes, infrastructure or technology failures, risk of theft or fraud or risks that East Capital Explorer's or East Capital's reputation in the marketplace is damaged could lead to unexpected economic losses or loss in confidence in the Group. As almost all operative functions are in-sourced from East Capital, East Capital Explorer is therefore highly dependent on a limited number of key people working for the company as well as the on the successful on-going operations of East Capital.

(f) Related party risk

With East Capital as the Group's Investment Manager, the shareholders are ensured access to one of the most capable and merited investment teams active in the region. The Group relies on the East Capital's capacity to manage the investment activities rather than having an in-house investment team. This could imply a risk that the investments undertaken are not in accordance with the best interest of the Company, or could imply a breach of limits and authority, unfair valuations or unauthorized risk exposure.

Note 17 Operations Acquired During 2011

Acquisitions 2011

As of 9 December 2011 the Group acquired 1 160 shares in Humarito Ltd, equivalent to 58% of the company's shares. Total assets of Humarito Ltd amounted to 612 EUR at the time of the acquisition.

Acquisitions 2010

The Group acquired additional EUR 5.0 m in East Capital Bering Balkan Fund per 1 June 2010. At the time of the investment, the Group already held EUR 44.9 m in the Fund and after the investment the Group owned 49 % of the Fund. As from 1 October 2010, the Group acquired controlling influence in East Capital Bering Balkan Fund in connection with redemptions within the Fund, and at year end the Groups holdings were 52 %. The holdings in East Capital Bering Balkan Fund has been reclassified from investment to subsidiary. On 1 October 2010, the Group invested EUR 35.0 m in the newly launched East Capital Special Opportunities Fund II, other investors invested EUR 1.7m. At that time, there were no net assets in the Fund. The Group owns 95 % of the total Fund.

Effects of the acquisitions 2010
Total net assets acquired	Book value	Fair value adjustment	Recognised values
East Capital Bering Balkan Fund	49,938	-7,012	42,926
East Capital Special Opportunities Fund II	35,000	-	35,000
Total	84,938	-7,012	77,926

Net assets acquired – Bering Balkan	Book value	Fair value adjustment	Recognised values
Investments	36,846	-	36,846
Cash and cash equivalents	4,785	-	4,785
Trade and other receivables	1,295	-	1,295
Total consideration	42,926	-	42,926

Of the consideration, EUR 49m had been paid before the Group acquired controlling influcende – only EUR 5 m of the consideration has resulted in a cash outflow from the Group in relation to the investment during the year. Fair value on the investment has been based on the published NAV of the Fund as at 30 September 2010. At that time, the non-controlling interest held 48% of the Fund, equivalent to EUR 40m in fair value.

Fair value relating to the non-controlling interest has been based on the same valuation principles as for all holdings in the Group, see note 16.

Total consideration	East Capital Bering Balkan Fund	East Capital Special Opportunities Fund II
Considerations paid 2007	24,938	-
Considerations paid 2008	10,000	-
Considerations paid 2009	10,000	-
Considerations paid 2010	5,000	35,000
Total cash consideration	49,938	35,000
Fair value adjustment based on NAV 30 September 2010	-7,012	-
Total consideration/Net Asset Value	42,926	35,000

All cash considerations paid to East Capital Bering Balkan Fund are related to share capital and share premium reserves of the fund. The reclassification from non-controlling interest resulted in gain of EUR 1.3m relating to the changes in the exchange rates between the time of the initial cash outflows in 2007 up until 2010, compared to the exchange rate at 1 October 2010. The EUR 1.3m has been included in realized gains/losses from financial assets through profit and loss.

Note 18 Related Parties

Related party relationships

East Capital Explorer AB has a related party relationship with its subsidiaries, see Note 9, and with other companies in East Capital, see below, as well as with management and employees.

License agreements

The Company and East Capital Explorer Investments AB have a licensing agreement with East Capital Explorer Licensing AB, pursuant to which East Capital Explorer Licensing AB has granted a non-exclusive, royalty-free license to use the trade name and trademark "East Capital Explorer."

Management agreement

East Capital PCV Management AB (the "Investment Manager"), a subsidiary of East Capital Holding AB, that implements investments according to the investment policy and provides investment management services pursuant to the Investment Management Agreement. The Company has an Investment Management Agreement with the Investment Manager and East Capital Explorer Investments AB. During the year the Group has paid fees to a total of tEUR 5,703 (tEUR 22,201). For more details about fees, see page 60.

Fees and profit sharings to the following recipients	2011	2010
East Capital Alternative Investments, Cayman	2,902	9,896
East Capital Advisory S.A.	293	1,036
East Capital Private Equity AB	-370	1,396
ECPUF AB	-	1,707
East Capital AB	2,878	8,166
Total	5,703	22,201

Service agreement

The Company has a service agreement with East Capital International AB, a service company in East Capital, pursuant to which the Company buys certain administrative and other services and sublets premises. During the year the Group purchased services for EUR 0.2m (EUR 0.2m), all of it through the Parent Company.

Employees

The CEO is a Board member of East Capital Explorer Investments AB.

Receivables and liabilites

Liabilities to related parties at year end amounted to EUR 6.1m (EUR 18.6m). This mainly comprises management and performance fees.

Transactions with key management personnel and related companies

The Company's management, Board members and their close relatives and related companies control 13% (12%) of voting rights in the Company. For information about remuneration of senior executives please refer to Note 4 on page 81.

Potential conflicts of interest

The Investment Management Agreement entered into between the Company and the Investment Manager contains provisions and procedures to address potential conflicts of interest between the Company and East Capital. Any conflict of interest which is not contemplated by the investment policy agreed between the Company and the Investment Manager from time to time, shall be referred to the Board of the Company for resolution. Such conflicts include for example any (i) investments in any East Capital fund on terms which are materially adverse compared to existing East Capital funds or any fund of similar type (it being understood that any increase with respect to fees and carried interest shall be deemed as "materially adverse"); and (ii) any co-investments made on terms which adversely deviate from the terms on which other co-investors make their investments. There are also other terms in the agreement designed to assure that fees payable by the Company are always on market terms. The Investment Management Agreement further provides that direct investments offered by the Investment Manager with no co-investment by any other East Capital fund or by East Capital itself, shall be referred to the Board of the Company for resolution. In any such matter referred to the Board, the Board members affiliated with East Capital will not take part, in accordance with the rules of conflict of interest under the Companies Act.

In addition, East Capital has in place a policy for managing conflicts of interests in relation to its investment business, the overriding principle of which is that East Capital will treat its clients fairly and will at all times act in accordance with its position as investment manager of the various East Capital funds. The policy sets out a strategy and provides measures which will enable the Investment Manager's team to actively identify, monitor and address any conflicts of interest that may arise in connection with the allocation of investment opportunities.

Note 19 Pledged Assets and Contingent Liabilities

On 31 December 2011, East Capital Explorer had no committments for further draw-down into its investments portfolio.

Note 20 Information About the Parent Company

East Capital Explorer AB is a registered Swedish limited liability company domiciled in Stockholm. The Parent Company's shares are registered on the NASDAQ OMX Stockholm. The address to corporate headquarters is Kungsgatan 30, Box 7214, 103 88 Stockholm, Sweden. The consolidated financial statements for 2011 include the Parent Company and its subsidiaries, together comprising the Group.

Note 21 Events After the end of the Financial Year

Net asset value

NAV per share on 29 February 2012 amounted to EUR 9.55 (corresponding to SEK 84). The share price on 29 February 2012 was SEK 57.25 (corresponding to EUR 6.50). Cash, cash equivalents and other short-term investments on 29 February 2012 amounted to EUR 37m. Of those, EUR 24m (SEK 211m) were available for future investments.

Investments

Until 29 February 2012 investments were made in TEO LT totaling EUR 1.1M.

Repurchase own shares

During January, East Capital Explorer additionally repurchased 42,815 own shares, corresponding to 0.1% of the shares in the Company. Average price per share paid was SEK 53.62. Since the repurchases began on 15 September 2011, East Capital Explorer has repurchased 1,124,369 shares, corresponding to 3.2% of the shares in the Company, at an average price of

SEK 51.62 per share. Excluding the shares held by the company, the number of shares outstanding amounted to 33,727,306 on 13 March 2012.

Other

On 1 February, East Capital Explorer announced the investment of EUR 10m into the new East Capital Baltic Property Fund II. As a result of the previously announced deal with Swedfund, a mandatory offer to buy out the remaining shares from non-affiliates was announced on the date of this report. In accordance with Russian law, East Capital Explorer, through its subsidiary Humarito Limited, obtained a bank guarantee in the amount of EUR 11.8m in connection with the offer.

Five-Year Summary

Consolidated key figures	2011	2010	2009	2008	2007
Equity ratio	97.3	96.1	98.4	97.9	98.5
Net asset value, EURt	293,551	429,853	341,369	265,025	394,261
Change in NAV	-31.70	25.90	28.80	-32.80	1.01
Market capitalisation, SEKm	1,815	2,954	2,378	1,458	3,627
Market capitalisation, EURt	208,807	328,661	231,817	134,013	383,810
Number of employees	4	4	4	4	3
Key figures/share	2011	2010	2009	2008	2007
Earnings per share	-3.69	2.55	2.26	-3.56	0.09
NAV. SEK1	77.00	111.00	99.00	79.53	102.33

NAV. EUR 8.69 12.33 9.61 7.31 10.87 Share price. SEK 53.75 84.75 67.00 40.20 100.00

Share price. EUR 6.03 9.43 6.53 3.69 10.58 1 Some currency translations are made for informational purposes. 1 EUR = SEK 8.9182 on 31 December 2011, SEK 8.987 on 31 December 2010.

The Board and the CEO assure that the annual report has been prepared in accordance with generally accepted accounting principles in Sweden and the consolidation has been prepared in accordance with the international financial reporting standards referred to in Regulation (EC) no. 1606/2002 of the European Parliament and of the council of 19 July 2002 on the application of international accounting standards. The annual report and the consolidated accounts give a true and fair view of the financial position and results of the Parent Company and the Group. The statutory Administration Report of the Parent Company and the Group provides a fair review of the development of the Parent Company's and the Group's operations, financial position and results of operations and describes material risks and uncertainties facing the Parent Company and the companies included in the Group.

Stockholm, 27 March 2012

Paul Bergqvist Mia Jurke Chairman of the Board Chief Executive Officer

Anders Ek Lars Emilson

Board member Board member

Board member Board member

Justas Pipinis Board member

Karine Hirn Alexander V. Ikonnikov

Our Auditors' Report was submitted on 28 March 2012

KPMG AB

Carl Lindgren Authorised Public Accountant

The annual report and consolidated annual report, as indicated above, have been approved by the Board for publication on 27 March 2012. The statement of income statement and balance sheet of the Parent Company and the Group will be submitted to the shareholders' meeting for adoption on 25 April 2012.

Auditor's Report

To the annual meeting of the shareholders of East Capital Explorer AB (publ), corporate identity number 556693-7404

Report on the annual accounts and consolidated accounts

We have audited the annual accounts and consolidated accounts of East Capital Explorer AB (publ) for the year 2011. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 65–96.

Responsibilities of the Board of Directors and the Managing Director for the annual accounts and consolidated accounts

The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts and consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinions

In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2011 and of its financial performance and its cash flows for the year then ended in accordance with Annual Accounts Act, and the consolidated accounts have been prepared in accordance with the Annual Account Act and present fairly, in all material respects, the financial position of the group as of 31 December 2011 and of their financial performance and cash flows in accordance with International Financial Reporting Standard, as adopted by the EU, and the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.

We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and statement of comprehensive income and statement of financial position for the group.

Report on other legal and regulatory requirements

In addition to our audit of the annual accounts and consolidated accounts, we have examined the proposed appropriations of the company's profit or loss and the administration of the Board of Directors and the Managing Director of East Capital Explorer AB (publ) for the year 2011.

Responsibilities of the Board of Directors and the Managing Director The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act.

Auditor's responsibility

Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss, we examined the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.

As basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

We believe that the audit evidence we have obtained as above is sufficient and appropriate to provide a basis for our opinion.

Opinions

We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director are discharged from liability for the financial year.

Stockholm 28 March 2012

KPMG AB

Carl Lindgren Authorized Public Accountant

Definitions

See page 60 for definitions related to fees structures

Average number of shares

Balanced average of number of shares outstanding during the year, adjusted for share issues, splits and buybacks.

Change in value

Change in market value.

Dividend per share

Paid or proposed dividend per share adjusted for share issues and splits.

Earnings per share

Net profit for the year, attributable to equity holders of the Parent Company, divided by average number of shares.

EBITDA

(Earnings before interest, tax, depreciation and amortisation). Profit before depreciation and impairment.

Equity ratio

Total equity as a percentage of total assets.

Enterprise value

Sum of the company's market capitalisation, minority interests and net debt.

IRR

(Internal Rate of Return). Annual average return.

Net Asset Value (NAV)

Corresponds to the value of East Capital Explorer´s net assets, i.e. total assets less net debt. An indicative NAV is calculated on a monthly basis and is published five working days after the end of the month.

Net asset value per share

Net asset value per share in relation to the total number of registered shares on the Balance Sheet date.

Net debt/Net cash

Interest-bearing current and long-term liabilities, including pension liabilities, less cash and cash equivalents, short-term investments and interest-bearing current and long-term receivables.

Profit/loss for the year

Profit/loss after tax.

Return on equity

Profit/loss for the year as a percentage of average shareholders' equity.

Shareholders' equity per share

Shareholders' equity, attributable to equity holders of the Parent Company, divided by number of registered shares.

Total assets

All assets and liabilities not included in net debt or net cash, which is the same as the Balance Sheet total less asset items included in net debt or net cash and less non-interest-bearing liabilities.

Total comprehensive income for the year

Change in equity during the period resulting from transactions and other events, other than those changes resulting from transactions with the owners in their capacity as owners.

Volatility

A measure of the variability in an asset's return. Volatility is usually measured as a standard deviation in the return of an asset during a certain given period of time.

Production: East Capital Explorer. Graphic design: Fredrik Folkesson, East Capital. Photos: Snezana Vucetic Bohm (13, 14, 22, 45, 47, 54), Jakob Guardian (18, 20), Viktor Brott (53), Danil Golovkin (38), Shutterstock and portfolio companies. Print & preprint: Imprima

Kungsgatan 30, Box 7214 SE-103 88 Stockholm, Sweden Tel: +46 8 505 97 700 Coroporate identity no: 556693-7404 www.eastcapitalexplorer.com