Eastnine — Annual Report 2012

Mar 28, 2013

East Capital Explorer Annual Report 2012

This is East Capital Explorer

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

Our business concept and objective

Our business concept is to off er our shareholders a liquid investment exposure via a unique portfolio of mainly less liquid or unlisted companies in otherwise hard-to-reach parts of the Eastern European markets. We primarily invest in East Capital's special fund products, funds usually only available to larger investors as they require high minimum investments. These funds have less restrictive mandates compared with UCITS-funds, which implies higher fl exibility in terms of stock selection and allocation. By investing in funds, we achieve a good risk diversifi cation and obtain a cost-eff ective exposure. We also undertake direct investments into private and public companies.

Through our unique connection to East Capital, as Investment Manager for our investments, we benefi t from their local presence, extensive network and long experience in the region. It is East Capital's expertise that creates the primary value for our shareholders.

The objective of our business concept is to achieve long-term capital appreciation. As investments in emerging markets often entail signifi cant risks, they should be made on the basis of a longterm perspective.

Our strategy

Our strategy is to capture the growth by investing in those sectors and companies having the most to gain from the long-term development trends in our investment universe* such as EU convergence and the catch-up process. Strong domestic demand is a key driver for growth in Eastern Europe and this is our main investment theme. In other words, we target fast growing sectors such as retail, consumer goods, fi nancials and real estate. We focus primarily on small- and medium-sized companies which we believe have the highest 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. Risks are managed on the basis of a number of methods and tools, among others, through a diversifi ed portfolio. Long-term capital allows investments over the full performance cycle.

We believe that companies that successfully understand and manage the risks and opportunities related to environmental, social and governance issues (commonly referred to as ESG factors) will be better positioned to enhance the long term value of their business. A number of ESG tools are therefore a natural part of our investment process to adress these issues.

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

East Capital Explorer off ers access to...

... an economically dynamic region

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 fi ve years, with a third of the debt levels

... attractive sectors

We concentrate on sectors benefi tting from strong domestic demand assessed to provide the best long-term growth prospects

... a unique and well-diversifi ed portfolio

East Capital Explorer primarily provides exposure to small and medium-sized Eastern European companies with high growth potential, which usually are not easily accessible for investors. At the end of 2012, the portfolio included exposure to approximately 300 companies

... an experienced investment manager

Our investments are managed by East Capital, which has more than 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

Direct investmentstments

• 14.7 Melon Fashion Group
• 3.5 Komercijalna Banka Skopje
• 2.5 Trev-2 Group
• 0.4 East European Debt Finance

Fund investments

• 12.9 East Capital Bering Balkan Fund
• 9.3 East Capital Bering Russia Fund
• 7.2 East Capital Special Opportunities Fund

Great Dividi

30 countries and almost 450 million inhabitants

• 6.4 East Capital Special Opportunities Fund II
• 6.2 East Capital Bering Central Asia Fund
• 5.7 East Capital Baltic Property Fund II
• 4.8 East Capital Russia Domestic Growth Fund
• 4.4 East Capital Bering New Europe Fund ○ 3.8 East Capital Power Utilities Fund
• 1.7 East Capital Bering Ukraine Fund R
• 1.5 East Capital (Lux) Eastern European Fund
• 1.3 East Capital Bering Ukraine Fund A

Our key investment theme Domestic growth

The domestic sectors of the Russian economy are soaring, supported by a number of macroeconomic trends

• Consumption, which now has outgrown the overall economy in Russia, is the main growth driver
• The middle class is growing rapidly and has a strong purchasing power due to low expenses, increasing wages and fl at taxes
• Russian domestic stocks are growing faster than export oriented stocks and the trend is expected to continue
• The unemployment rate is at record low and decreasing

Annual income growth (USD)

Low fi xed living costs (USD)

High catch-up potential among under-penetrated sectors in Eastern European countries

Sector penetration in Russia (% of EU average)

Despite strong growth in domestic sectors, the penetration of goods and services in Russia compared to EU average is still low within a number of sectors

GDP per capita (USD)

The development that has occurred in the Eastern European EU-member countries is likely to continue in the countries which have not progressed as far in the convergence process

Sources: Annual income growth: MacroBond, European Mortgage Association, World Bank Low fi xed living costs: National Statictics Sector penetration: Rosstat, Euromonitor, Citi GDP per capita (2012): IMF

Target sectors benefi tting from the domestic growth

Retail and consumer goods

Rapidly rising wages and standards of living combined with more disposable income and greater access to credit market continue to positively infl uence the retail and consumer goods sector.

Portfolio company: Sollers

Russia has taken the lead in terms of car sales in Europe and surpassed Germany during 2012. Benefitting from Russia's ability to attract direct investments to the auto sector, the auto producer Sollers showed an impressive performance of over 130% during 2012.

Financials

The rising consumer income and demand as well as growing confi dence in retail banking services create potential within the fi nancial sector, which still has low penetration levels within our markets.

Portfolio company: Bank of Georgia During 2012, the bank was listed on the London Stock Exchange and included in the FTSE 250 index, rewarding many years of eff orts to expand the business and to make the stock available to a broader audience of investors.

Real estate

The Baltic real estate market has stabilized and provides investment opportunities in properties with strong cash fl ow and sustainable rental terms.

Portfolio company: Gedimino 9 Our exposure to the Baltic real estate sector was increased in line with our strategy in 2012. Shopping centre Gedimino 9 in the heart of Vilnius is now among our top holdings. It has an excellent location on the best stretch of Gedimino Avenue, with a daily pedestrian footfall of more than 15,000.

Portfolio company: Melon Fashion Group The Russian fashion industry is booming (expected to grow by 10% per year). MFG is one of the fastest growing clothing retailers in the country. During the past five years, MFG has opened or acquired 435 stores. The stores are located in more than 90 cities, which reflects the growth expansion into less developed regional cities. In the photo above: Mia Jurke (CEO of East Capital Explorer), Michael Urzhumtsev (CEO of MFG) and Kestutis Sasnauskas (CEO at East Capital Private Equity), visiting one of the stores in St Petersburg.

Portfolio company: Tänassilma Logistics Peter Elam Håkansson and Aivaras Abromavicius from East Capital's portfolio management team on a site visit at Tänassilma Logistics centre. Frequent company visits, together with a long-term perspective, fundamental analysis and thorough knowledge of the markets are cornerstones of East Capital's investment philosophy.

Highlights 2012

Main events during the year	7
The East Capital Explorer portfolio	8
The East Capital Explorer share	10
Comments from the CEO	12
Q&A with our Investment Manager	14
Developments in Eastern Europe	16

Our Portfolio

Portfolio Overview	19
Fund Investments
East Capital Baltic Property Fund II	20
East Capital Bering Balkan Fund	21
East Capital Bering Central Asia Fund	22
East Capital Bering New Europe Fund	23
East Capital Bering Russia Fund	24
East Capital Bering Ukraine Fund A	25
East Capital Bering Ukraine Fund R	26
East Capital (Lux) Eastern European Fund	27
East Capital Power Utilities Fund	28
East Capital Russia Domestic Growth Fund	29
East Capital Special Opportunities Fund	30
East Capital Special Opportunities Fund II	31
Direct Investments
Melon Fashion Group	32
Komercijalna Banka Skopje	34
Trev-2 Group	35
East European Debt Finance	36
TEO LT	37

3

4

1

2

Corporate Governance

A word from our Chairman	39
Corporate Governance	40
Staff	45
Board of Directors	46
Managing our risks	48
Environmental, social and governance perspective	50
Fees	52
Internal Control	54

Populi 37

Financial Statements

Administration Report	56
Financial Statements	59
Notes	66
Five-Year Summary	84
Auditor's Report	86

Main events during the year

Q1 Q2

• As a continuation of the Board's decision to utilize its repurchase mandate during Q4 2011, 60,415 own shares were repurchased during the quarter at an average price of SEK 54.21 per share

• Launch of a mandatory takeover off er in Melon Fashion Group

• The Board's proposal to pay a dividend to the shareholders of SEK 0.80 per share was approved. The AGM also approved the Board's proposal to cancel the 1,141,969 shares previously repurchased and the shares were cancelled in the end of June. The AGM also decided on a new repurchase mandate for the Board

• The holding in TEO LT was sold for EUR 19.5m including dividend and an annualized pre-tax return of 17.4% was realized

• EUR 10m was invested in the East Capital Baltic Property Fund II

• The takeover off er in Melon Fashion Group was completed and the number of shares tendered corresponded to a total purchase price of EUR 5.4m

• A revaluation of Melon Fashion Group was made and the value per share increased with 48%

• A distribution of EUR 7.3m was received from the East Capital Power Utilities Fund

• A distribution of EUR 10.6m was received from the East Capital Special Opportunities Fund

• The holding in Populi was sold for EUR 1.7m and an annualized pre-tax return of -43.6% was realized
• The Board decided to utilize its repurchase mandate and a total of 552,742 shares were repurchased at an average price of SEK 49.75 per share
• EUR 15m was invested into the East Capital Russia Domestic Growth Fund

Q3 Q4

• As a continuation of the Board's decision to utilize its repurchase mandate during Q3 2012, 132,369 own shares were repurchased during the quarter at an average price of SEK 50.77 per share
• The Board proposed an annual redemption program for the period 2013-2015 through which 5% of the Company's outstanding shares can be redeemed at NAV each year, if the discount in the share price compared to NAV exceeds 10%
• The redemption program for 2013 was approved by the EGM on 4 December and the application period was 17 December 2012 - 14 January 2013. The fi nal acceptance level was approximately 97%

• EUR 4.2m was divested in the East Capital (Lux) Eastern European Fund

• The decision was made to invest an additional EUR 10m into the East Capital Baltic Property Fund II

• An additional distribution of EUR 14.2m was received from the East Capital Power Utilities Fund. At the same time, the Fund Manager announced its decision to close down the Fund
• The decision was made to invest an additional EUR 15m into the East Capital Russia Domestic Growth Fund. The investment took place on 1 January 2013
• A further revaluation of Melon Fashion Group was made based on an external valuation, which corresponded to an increase of 27% to the previous value of the holding and an 86% increase per share in total during 2012

Portfolio activity during 2012 (EURm)

○ Investments ○ Divestments

The East Capital Explorer portfolio

Top 10 holdings in East Capital Explorer's portfolio on a see-through basis (sum of direct and indirect holdiings)1

Holdings as of 31 December 2012	% of NAV	Value in portfolio, EURm	Country	Sector	East Capital Explorer's investment vehicle
Melon Fashion Group	14.7	44.2	Russia	Consumer Discretionary	Direct investment
Fondul Proprietatea	3.9	11.8	Romania	Financials	East Capital Bering Balkan Fund East Capital Special Opportunities Fund East Capital (Lux) Eastern European Fund
Komercijalna Banka Skopje	3.5	10.5	Macedonia	Financials	Direct Investment East Capital Bering Balkan Fund
Tänassilma Logistics	3.0	8.9	Estonia	Real Estate	East Capital Baltic Property Fund II
Gedimino 9	2.7	8.2	Lithuania	Real Estate	East Capital Baltic Property Fund II
Trev-2 Group	2.5	7.5	Estonia	Industrials	Direct Investment East Capital Bering Russia Fund East Capital Bering Ukraine Fund R
Zavarovalnica Triglav	2.2	6.5	Slovenia	Financials	East Capital Bering Balkan Fund East Capital (Lux) Eastern European Fund East Capital Special Opportunities Fund II
Verofarm	2.0	5.9	Russia	Health Care	East Capital Bering Russia Fund East Capital Special Opportunities Fund East Capital Special Opportunities Fund II
Sollers	1.8	5.4	Russia	Consumer Discretionary	East Capital Special Opportunities Fund East Capital Russian Domestic Growth Fund East Capital (Lux) Eastern European Fund
Bank of Georgia	1.5	4.5	Georgia	Financials	East Capital Bering Central Asia Fund East Capital (Lux) Eastern European Fund
Total top 10	37.7	113.3

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

• The top 10 holdings' share of the total portfolio increased from 30% to almost 38% during 2012.
• Melon Fashion Group (MFG), one of the fastest growing Russian fashion retailers, is currently by far our largest holding with a portfolio weight of almost 15%. MFG's share of the portfolio has more than doubled (increased almost 8 percentage points) since the end of 2011, primarily due to a sharp appreciation of the value during 2012 as a result of improved profitability but also due to the investment in connection with the mandatory off er that took place during the spring of 2012. MFG's future looks promising as the company has improved its fi nancial results during the year and focuses more on the core concepts. The company is well positioned to take advantage of the strong domestic demand in Russia supported by a growing middle class with strong purchasing power.
• Our aim was to increase the exposure to the real estate sector and during 2012 two properties have been included in the top 10 list. These are Tännassilma Logistics, a newly built modern logistics property located in an attractive logistics area in Tallinn, and Gedimino 9, a well-known high street shopping centre in the heart of Vilnius.
• Also, the successful Russian auto producer, Sollers, and Slovenia's largest insurance company, Zavarovalnica Triglav, were added to the top 10 list. Our exposure to Sollers has increased during 2012. Benefi tting from Russia's ability to attract direct investments to the auto sector, Sollers showed an impressive performance of over 130% during the year. The company's future still looks promising on the back of a strong domestic demand and a fast growing car market in Russia. Sollers trades at a low P/E of 6.3 times for 2013 and has the potential to pay decent dividend in the future. Zavarovalnica Triglav had also a positive development during the year on the back of improved operational performance with the company reaching an all time high net profi t of EUR 60m and the stock was also rerated on the back of more positive sentiment towards Slovenia. The company still trades at appealing 2013E P/E multiple of 5.5 times, approx 50% discount to European peers.
• During 2012, TEO LT, Integra, B92 and Korshunovsky GOK have been excluded from the top 10 list. TEO LT was successfully sold in May to TeliaSonera and we realized an annual pre-tax return of 17.4%. Integra, the Russian oil fi eld service provider, dropped out of the list during the fourth quarter after a negative performance during the year of 70% (adjusted for its spin-

off from IG Seismic Service). The company with a new management team in place has been struggling in terms of profi tability but has not yet been able to reverse the negative trend. However, our Investment Manager believes that Integra has positive prospects to do so during 2013. B92, the unlisted Serbian media company, has successfully continued its turnaround but unfortunately the macro environment and the consequent declining TV advertising market presented a very challenging environment whereby it did not fully reach 2012 targets. As a result, the value of the holding in B92 was written down by 15%. Korshunovsky GOK, the Russian iron-ore miner was sold during the fourth quarter as the corporate governance risks increased.

○ 51 Listed ○ 28 Unlisted ○ 21 Cash and short term investments, incl. cash in underlying funds

The current sector allocation is in line with our strategy. The majority of our investments are within sectors benefi tting from domestic growth which represents our main investment theme. By year end, 72% (excl. utilities) of our total portfolio was invested in our targeted sectors. The largest increase was in the real estate and consumer discretionary sectors. We have increased our exposure in real estate from just over 3% to almost 9%. The Baltic real estate market has started to stabilize, with dropping vacancy rates, stable rental terms and increased activity. The increase of 12 percentage points in consumer discretionary during the year is explained by a strong value increase in Melon Fashion Group, but it is also a result of increased exposure to Russian domestically oriented companies.

The largest decrease in weight in the portfolio was in the power utilities sector. In 2007, the Russian power utilities sector was expected to benefi t from the consolidation and liberalization of the sector. Unfortunately, the sector has not developed in line with expectations, and the increased regulatory risks, governmental intervention and an unclear reform direction during 2012 have resulted in the decision to no longer consider the sector to comprise one of our key investment themes. We therefore gradually reduced our exposure to the sector from 16% in the beginning of the year to 7% by year end and expect to reduce it further during the fi rst part of 2013.

During the year, we also reduced the allocation towards the telecom sector, a decrease from 10% to 3% as a result of our divestment in TEO LT, the Lithuanian telecommunications operator.

The country breakdown refl ects our current market outlook. Russia continues to be our largest geographical exposure, with a portfolio weight of 46%. The valuations are still at very attractive levels, the economy is in good shape and the Russian market usually fares well when the world economy is stimulated, and the risk appetite among investors starts coming back. During 2012, the Russian market did not perform according to expectations, but we believe that there is high potential that 2013 will be a good year for Russian equities.

We have a substantial portion, around 25% of the portfolio, invested in the Balkan region, which is unchanged compared with the end of 2011. The smaller countries in South Eastern Europe are still lagging in their recovery from the 2008 crisis, but during the latter part of 2012 we saw a renewed interest in this region in conjunction with increased risk appetite among investors. These countries are coming from very low valuation levels which provide a high upside potential, and we believe we are well positioned to take advantage of a recovery in this region.

As the political uncertainty remains, we are still underweighted in Kazakhstan and Ukraine compared with our original strategy. The underweight has been positive as Ukraine ended the year as the second worst market in the world and the Kazakh market performed weak as well.

Our exposure to the Baltic region, which has showed strong recovery since the fi nancial crisis with major growth in both 2011 and 2012, remains unchanged at 11% of the total portfolio. However, there has been a shift from Lithuania towards Estonia during the year both as a result of our divestment in TEO LT and the investment into the East Capital Baltic Property Fund II, whose fi rst investment was into an Estonian logistics centre. We expect to further increase the weight towards this region as both the real estate sector and the private equity segment are now attractive.

The investment portfolio continues to be comprised of a larger number of listed companies than included in the original strategy and the reason for this is primarily opportunistic. Many listed companies decreased more sharply in price compared with unlisted companies during the fi nancial crisis, which created investment opportunities. We also see attractive valuations in some larger listed companies, even if our main strategy targeting smaller and medium sized companies remains. At the same time, the unlisted part of the portfolio has also increased during 2012 from 15% to 28% and we expect to further increase the ratio of unlisted holdings. We see interesting investment opportunities within both real estate and private equity, especially in the Baltics, where the activity levels have picked up again after years of close to zero activity.

Asset class breakdown, %

We continue to believe that smaller companies off er the highest growth potential in the long term and therefore our focus remains on mainly this type of companies. However, a majority of them have not yet performed in line with the broader markets as they usually rebound later in a recovery cycle. During the fourth quarter of 2012, we started to see a more positive development also in these smaller companies. We expect that this trend will continue and will benefi t our investment portfolio which is heavily weighted towards smaller companies.

As of 31 December 2012, cash and short term investments amounted to 21%, including cash in underlying funds.

9

The East Capital Explorer share

NASDAQ OMX Stockholm, Mid Cap
9 November 2007
SE002158568
40203010
ECEX
ECEX.ST
ECEX SS Equity
www.eastcapitalexplorer.com

Key figures per 31 December 2012

	EUR	SEK
Net Asset Value per share	9.10	78.00
Closing price	5.70	49.00
Net Asset Value per share development during 2012, adjusted for dividend	5.7%	1.8%
Share price development during 2012, adjusted for dividend	-4.2%	-7.5%

East Capital Explorer vs indices during 2012, EUR East Capital Explorer vs indices since the launch date in November 2007, EUR

ECEX NAV* ECEX share price* OMX Index* MSCI EM Europe Index* RTS-2 Index RTS Index

ECEX NAV* ECEX share price* OMX Index* MSCI EM Europe Index* RTS-2 Index RTS Index * Dividend adjusted

Net Asset Value and share price development	2012	2011	2010	2009	2008
Net Asset Value per share, EUR	9.10	8.69	12.33	9.61	7.31
Net Asset Value per share, SEK	78	77	111	99	80
Net Asset Value per share development during the year, adjusted for dividend, SEK	2%	-29%	13%	22%	-22%
Share price on 31 December, SEK	49.00	53.75	84.75	67.00	40.20
Lowest, SEK	43.20	48.60	65.25	38.20	37.30
Highest, SEK	57.50	91.50	88.00	72.75	102.00
Market capitalization on 31 December, MSEK	1,618	1,815	2,954	2,378	1,458
Share price development during the year, adjusted for dividend, SEK	-7%	-36%	26%	67%	-60%
Premium/discount to NAV on 31 December	-37%	-30%	-24%	-32%	-50%
Average premium/discount during the year	-35%	-31%	-29%	-34%	-19%
Total turnover, shares	9,996,271	12,425,137	13,969,467	19,010,661	15,696,617
Average daily turnover, shares	39,985	49,911	55,215	75,740	62,288
Development of relevant indices
OMX Stockholm Total Return Index, SEK	16%	-14%	27%	52%	-40%
RTS-2 (Russian Trading System 2nd tier Index), SEK	-4%	-28%	58%	131%	-73%
MSCI Emerging Markets Europe Total Return Index, SEK	17%	-22%	10%	69%	-61%
Share capital and number of shares
Share capital at 31 December, EUR	3,630,535	3,628,059	3,628,059	3,628,014	3,627,016
Number of shares at 31 December *	33,024,595	33,770,121	34,851,675	35,499,160	36,270,160
Average number of shares	33,474,634	34,645,318	34,967,923	35,651,491	36,270,160
Ownership structure
Number of shareholders on 31 December	9,617	7,123	8,247	9,381	9,984
% shares held outside Sweden	37%	46%	44%	37%	35%

* Excluding shares held by the Company following buy-backs

				Annual Report 2012 Highlights 2012
--	--	--	--	--------------------------------------	--

20 largest shareholders and custodians* on 31 December 2012
Name	Number of shares	Holding, %
Nordea Investment Funds	2,811,247	8.3
East Capital Asset Management	2,172,964	6.4
Alecta Pensionsförsäkring	2,069,000	6.1
Morgan Stanley & Co Intl PLC, W8IMY	1,989,126	5.9
East Capital Partners**	1,752,402	5.2
Mellon Omnibus 30%, Agent F ITS Clients	1,732,694	5.1
Fjärde AP Fonden	941,515	2.8
East Capital AB Clients	813,299	2.4
East Capital Explorer AB	685,111	2.0
Danske Capital Sverige AB	665,000	2.0
Nordnet Pensionsförsäkring AB	621,773	1.8
Försäkringsaktiebolaget, Avanza Pension	620,566	1.8
SSB CL Omnibus AC OM03	495,424	1.5
SSB CL Omnibus AC OM09	451,055	1.3
Volvo Related Foundations	446,844	1.3
Länsförsäkringar Fondförvaltning AB	375,000	1.1
CACEIS Bank Luxembourg	342,151	1.0
Veritas Eläkevakuutusosakeyhtiö	332,615	1.0
Belgian Clients Treaty	291,088	0.9
Svenska Handelsbanken SA	283,123	0.8
Total top 20 shareholders and custodians	19,891,997	58.7
Other 9,597 shareholders and custodians 13,817,709 41.3
Total	33,709,706 100.0

* 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 2012 represented approximately 15% of the Company's shares

Shares and voting rights

East Capital Explorer has one class of shares, in total the Company had 33,709,706 registered shares as of 31 December 2012. 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 15 September 2011, the board of East Capital Explorer decided to utilize its authorization to buy back shares. The utilization of the authorization was prolonged on 12 October 2011 and allowed the Company to repurchase own shares from 15 September 2011 to 30 March 2012. During 1 January to 30 March 2012, 60,415 shares were repurchased at an average share price of SEK 54.21 per share. From 15 September 2011 until 30 March 2012, East Capital Explorer repurchased 1,141,969 own shares, corresponding to 3.3% of the outstanding number of shares in the Company. The average price per share paid was SEK 51.69. The shares were cancelled in June 2012.

In August 2012, the board of East Capital Explorer once again decided to utilize its authorization to buy back shares, which was given by the AGM on 25 April 2012, during the period 8 August 2012 until 10 October 2012. During this period East Capital Explorer repurchased 685,111 of its own shares at an average price of SEK 49.95 per share, corresponding to 2.0% of the outstanding number of shares in the Company.

The total number of registered shares in East Capital Explorer amounted to 33,709,706 as of 31 December 2012. Excluding the shares held by the Company the number of shares outstanding was 33,024,595 as of 31 December 2012. Adjusted for buy-backs, the average number of shares outstanding for the twelve month period January to December was 33,474,634.

Dividend policy

A redemption program proposed by the Board for 2013 was approved by the Extraordinary General Meeting (EGM) of East Capital Explorer on 4 December 2012. Redemptions programs for 2014 and 2015 will be proposed by the Board in case of a discount to NAV exceeding 10%. The redemption programs are replacing the Company's dividend policy and the Board does not intend to use its authorization for repurchase of shares during the period.

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	7,863	81.8	1,002,581	3.0
501 – 1,000	684	7.1	585,072	1.7
1,001 – 5,000	701	7.3	1,881,068	5.6
5,001 – 10,000	147	1.5	1,152,842	3.4
10,001 – 15,000	60	0.6	740,015	2.2
15,001 – 20,000	27	0.3	487,355	1.5
20,001 –	135	1.4	27,860,773	82.6
Total	9,617	100.0	33,709,706	100.0

* 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.

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 the Company has invested plus the value of all our direct investments. For more information on the applied valuation principles, see Note 1, page 66. 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.

Comments from the CEO

Mia Jurke CEO

"We believe that we are moving towards a situation which will be favourable for our type of strategy"

2012 has been a turbulent year with periods of both strong performance in the equity markets as well as periods during which the global uncertainties reduced the risk willingness amongst investors. Still, the year ended in a positive mode, and so did the Company's Net Asset Value (NAV). NAV per share increased by 5.7% adjusted for the dividend which was paid in May.

This development was, however, not as strong as the market development in general as our portfolio is dominated by smaller companies, but as always, investors tend to fi rst focus on larger companies while smaller companies tend to receive attention a bit later once the market environment stabilizes. We believe that we are moving towards an environment which will be favourable to our type of strategy, even if the risk remains that a sudden downturn in the global economy could quickly change this development.

Portfolio activity

2012 was an active year. We fi nally started to invest in Real Estate, one of our key sectors since inception, after previously having close to zero exposure. The decision taken by our Investment Manager to initially have a very limited exposure towards this sector was positive since the sector was strongly hit by the fi nancial crisis. We currently see that the Baltic real estate market is recovering. The market has regained balance and the vacancy rates are declining; for prime offi ces down to around 5% compared with 15-20% a few years ago. Investment activity has picked up and many properties are showing strong cash fl ow along with sustainable rental terms. As a result, we have increased our exposure to this sector to a weight of around 9% at year-end.

"The Baltic real estate market has regained balance and the vacancy rates are declining"

The power utilities sector, another of our key sectors since the start, had a diffi cult year with political interference making it unclear as to the manner in which the reform and privatization of the sector will continue. Our exposure towards the sector has primarily been through the East Capital Power Utilities Fund. Due to the increased level of risk in the sector, the decision was made by the Fund Manager to close down the Fund earlier than planned. We also no longer consider this as one of our key

sectors, as we do not think that the risk adjusted returns are suffi ciently attractive in comparison with other investment alternatives. The sector has not delivered according to our original expectations from 2007. However, with an annualized return of -2.6% on our total investment since the time of investment, a heavy outperformance in comparison with the sector as a whole, this investment can still be seen to have developed less negatively than the Eastern European markets in general during the past fi ve years. Two distributions were received from the East Capital Power Utilities Fund during the year and the fi nal payment is expected during the fi rst part of 2013.

"The risk adjusted returns in the power utilities sector are no longer suffi ciently attractive in comparison with other investment alternatives"

The key driver for growth in Eastern Europe is domestic growth and this is our primary investment theme. During the year, we have increased our exposure towards Russian companies primarily targeting the domestic market by investing in the East Capital Russia Domestic Growth Fund. Our Investment Manager believes that these companies off er one of the most attractive investment opportunities at this time, with high growth potential combined with low valuations. We have to date (March 2013) made three investments totalling EUR 40m, which makes this one of the largest holdings in the portfolio.

Another example on the same investment theme is Melon Fashion Group (MFG), a company clearly benefi tting from the strong purchasing power of the Russian consumers which is a result of increasing salaries, fl at taxes, as well as very low debt burden among households. In 2011, we increased our total investment in MFG to over 30%. This resulted in a mandatory off er being launched in the beginning of 2012. We received only a limited number of shares, in total corresponding to a value of around EUR 5.4m, but due to a substantial increase in the value of the holding during the year – in total 86% increase per share - MFG is, today our largest holding, accounting for almost 15% of NAV. The company performed very well during the year with a large increase in sales (32% compared to 2011) as well as an increase in profi tability due to a clear strategy of consolidation and improved logistical processes. The latter had caused the company considerable problems in 2011. We are very pleased to see this development and continue to consider this holding, which has to date delivered annualized performance of 20% since the fi rst investment in 2008, as one of our most interesting holdings.

During 2012, we divested two of our direct investments; TEO LT and Populi. We sold our stake in TEO LT, the Lithuanian telecom company in which we began to invest during 2009, to the majority owner, TeliaSonera, thereby realizing an annualized pre-tax

"During recent years, the focus on environmental, social and governance issues has increased"

return of 17.4%. We sold Populi, the Georgian food retailer, after discovering major problems in the company as a consequence of fraud. We realized a loss of EUR 2.4m on our investment, which we of course are not content with, even if the loss was smaller than we had expected at the beginning of the year. This was a relatively small holding with a portfolio weight of about 1%, prior to the problems being identifi ed. This shows the importance of diversifi cation, which is one way to manage company specifi c risks, which remain relatively high in our region. Our Investment Manager works with risks in a number of other ways as well. During recent years, the focus on ESG (environmental, social and governance issues) has also increased. We are convinced that companies addressing these types of issues will be more profi table and will have a better position for future growth and we therefore agree with our Investment Manager that ESG perspective over time must be an integrated part of the investment process. You can read more how East Capital and we work with these issues on page 50.

Distributions to our shareholders

In 2012, the Company paid a dividend of SEK 0.80 per share, which means that the level was unchanged compared to 2011. The Board also utilised its mandate to repurchase shares, both during the fi rst quarter as well as during the autumn. In October, the Board proposed a share redemption program for 2013, whereby 5% of the shares could be redeemed, which was approved by the shareholders in December. The proposal was made as both the Board of Directors and the Management have a high level of confi dence in the NAV. Similar programs will also be proposed for 2014 and 2015 in case of a continued high discount. We believe that the possibility of realizing the full NAV on up to almost 15% of the shares until 2015 and thereby consequently receiving an annual yield currently corresponding to approximately 8%, should be a good value proposition for our shareholders.

2013

So far, the year has started positively and there are reasons to believe that this could continue – the global economy is starting to look better and investors seem more positive towards equities and higher risks. The Balkans, where we have 25% of our exposure, have fi nally started to pick up after years of neglect from investors, showing that the search for performance has started to spread beyond large caps and larger markets, something which should be benefi cial for our strategy.

For me personally and as currently planned, 2013 will see me starting maternity leave. In mid-May I will turn my work responsibilities over to the capable hands of Catharina Hagberg, who will serve as acting CEO for one year. Catharina will, together with the rest of the team, continue to work with the areas which we have focused on during the past year, such as improved investor communication, effi ciency enhancement of the Company, as well as assisting the Board in ensuring good corporate governance and shareholder focus.

I am pleased to have had the opportunity to meet many of our shareholders during 2012 to obtain a better view of how you see the Company and what can be improved. We in the East Capital Explorer team look forward to continuing this dialog with you during the coming years.

Mia Jurke, CEO

Q&A with our Investment Manager

Five years have passed since East Capital Explorer was established. Can you comment on the portfolio development since inception?

Development has not been satisfactory as the portfolio has decreased in value since start. However, the NAV has developed relatively well in comparison with the Eastern European region as a whole, and with consideration of the diffi cult period we have experienced, with fi nancial crises one after another. This is partly a result of our decision not to directly become fully invested as we saw signs of problems in the fi nancial markets already during the fi rst part of 2008. The NAV, which is what we, as the Investment Manager, have the possibility to impact, has declined by 16% since 2007, while the MSCI Emerging Markets Europe Index has declined 33%. All types of companies have had tough times during these years, but primarily the smaller ones. As East Capital Explorer has the majority of its investments in precisely those types of companies, the development has been signifi cantly weaker than the broader investment alternatives with a similar geographical focus during certain periods. Still, we are convinced that the portfolio companies will realise their growth potential in the long-term.

The Company has its largest geographical exposure in Russia where political uncertainty has characterised the market during 2012. What is your view of this situation?

I believe that the perceived risk is signifi cantly greater than the actual risk in Russia. The media has been mostly negative about Russia during 2012 which has impacted investors' willingness to invest in the country. Positive factors, such as entry into the WTO, good earnings per share growth, historically low valuations and improved legislation as regards foreign ownership of local shares, have all been entirely overshadowed by the concerns about corruption and by political developments. Obviously, these risks must be taken seriously, but investors should also take into account all the positive factors that speak for Russia.

There have been political concerns after the election and an increasing number of critical voices are raised when it comes to Putin's intentions. On the other hand, Putin has clearly communicated his ambition to make the country more investor-friendly and to fi ght corruption. Time will tell whether this materialises, but Putin has pressure on him to implement reforms which he has declared, so we are positive. We believe that developments in Russia are heading in the right direction even if it takes time.

How has the investment strategy changed since the Company was founded?

At bottom, the strategy is the same with domestic growth as the main investment theme. Increasing real wages, fl at taxes and low debt

levels amongst households have all led to a strong purchasing power of the local population. Decreasing unemployment and infl ation in many countries also benefi t companies exposed to domestic growth.

The target sectors: retail- and consumer goods, fi nancials, power utilities and real estate, which were identifi ed when the Company was founded, remained in place until this year. During the fourth quarter, we determined to exclude power utilities as a target sector as a result of the increased risk within the sector arising due to government intervention, uncertainty regarding future reforms and how the deregulation of the sector will continue.

The Company's focus on smaller companies with a high growth potential remains. However, we have been opportunistic and increased the portion of listed companies as a result of the fact that the listed companies declined in value during the 2008 crisis more drastically than private equity investments. Consequently, these companies have been cheaper and have provided an attractive investment environment for the medium term.

Can you comment upon the portfolio activity during 2012?

It was an active year with reallocations in the East Capital Explorer portfolio, both directly and indirectly, via underlying funds. We sold the entire holding in TEO LT to the main owner TeliaSonera in line with the initial strategy when the investment was made, i.e. that TeliaSonera would like to increase its ownership further in the company. At the divestment, we realized an annual pre-tax return of 17.4% (incl. dividend), which we are very content with and also a result of the high yield level in the company.

We also divested our holding in the Georgian company Populi, which was a less successful investment. As a consequence of mismanagement and fraud, the development in the company was negative and at the end of 2011, the company was more or less on the verge of bankruptcy. Despite active involvement as owners, we fi nally saw no other option than to sell our holding in the company which was done at a loss, even if we in the end managed to retrieve part of the initial investment. The investment once again shows the importance of diversifi cation in order to handle the company specifi c risks in our region. We reduced the exposure to the Russian utilities sector.

We increased exposure towards Russian domestic growth and Baltic real estate. These investments were done against the background of the currently attractive valuations seen in many companies targeting the domestic market in Russia and the strong economic recovery in the Baltics. In the underlying funds, we continued to concentrate the portfolios in order to improve liquidity.

What will you focus on during 2013?

In addition to focusing on existing investments, we will continue to look for interesting investment opportunities in order to benefi t from the strong domestic growth that we continue to see in many parts of our region. We will also look for new investments in the Baltic countries, in particular within the real estate sector and the private equity segment.

What are your expectations for Eastern Europe and East Capital Explorer in 2013?

The situation for equities and for emerging markets in particular, encompasses a number of positive indicators. We have started to see a rotation from bonds to equities and I am convinced that equities are the right investment choice in the long term. An increased risk appetite usually benefi ts emerging markets and smaller companies.

Russia, in particular, has good possibilities to develop well considering the fact that the country had a relatively weak development during 2012 compared with many other growth markets. Furthermore, domestically oriented companies are expected to have a signifi cantly better earnings per share growth than more export oriented companies, which also argue in favour of East Capital Explorer's strategy. I also believe that the Balkan region can surprise everyone very positively during 2013. This is a region which has been entirely forgotten about during a number of years but there is now, again, a renewed interest in the region among investors.

Peter Elam Håkansson Chairman, East Capital

About the Investment Manager: East Capital

East Capital is the leading independent asset manager specializing in the emerging markets of Eastern Europe and China. The company, founded in 1997, bases its investment strategy on thorough knowledge of the markets, fundamental analysis and frequent company visits by its investment teams. East Capital actively manages EUR 3.8 billion in public equity, private equity and real estate. It is headquartered in Stockholm with offi ces in Hong Kong, Kyiv, Luxembourg, Moscow, Oslo, Paris, Shanghai and Tallinn. Learn more about East Capital on: www.eastcapital.com

Developments in Eastern Europe

Marcus Svedberg Chief economist, East Capital

"We believe that in 2013 the markets should start to be driven more by fundamentals again as the global economy is slowly returning to a more normal state. This should improve risk appetite and capital is expected to move back into equities and emerging markets."

The majority of equity markets in Eastern Europe did well on the back of improved global risk appetite and supporting fundamentals during 2012. There was, however, a notable spread within the region in terms of performance.

Russia

The Russian market was volatile during 2012. The fi rst quarter was very positive, as risk appetite increased following global central bank stimulus while, at the same time, the domestic economy was strong and expectations of political change strengthened. Disappointment over this latter factor blossomed in the second quarter after the formation of the new administration, while, simultaneously, external risk awareness increased over the crisis in Europe. These factors resulted in a sharp and negative market reaction, which was only reversed towards the end of 2012. This was the general turn of events despite the fact that commodity prices stayed high throughout the entire year.

The Balkans

The Balkan region has been neglected since the fi nancial crisis but, during the fourth quarter of 2012 we saw a renewed interest from investors. The Romanian market performed well throughout the year, whereas the other markets in South Eastern Europe noted more modest gains as they only started to perform towards the end of 2012. Slovenia rallied in September on privatisation talks, while Croatia closed the year almost fl at. Serbia was in negative territory for most of the year, but ended the year only 1% down after a strong fourth quarter.

Market performance in 2012 (EUR)

The Baltics and Central Europe

The Baltic markets were strong and received support from the improved fi nancial situation and rising risk appetite in Europe. The macro situation within the region surprised on the upside throughout the year, and the Baltic States were among the fastest growing countries in the EU. Moreover, the public fi nances remained strong, with Latvia and Lithuania preparing to join the Euro zone over the next two years.

The Central European markets in general, and Poland in particular, performed nicely in 2012, supported by a rising risk appetite and appreciating currencies.

Turkey

The Turkish market had a very strong year, becoming the second-best-performing market in the world, with a 62% gain. Following two years of very rapid growth, Turkey managed to slow its economic expansion down to a low, but a more sustainable level while keeping infl ation under control and reducing the current account defi cit. Turkey was also upgraded to an investment grade, something which further boosted its equity market climb to historical highs.

Ukraine and Kazakhstan

Ukraine and Kazakhstan were the main underperformers in the region, as investors continued to ignore these frontier markets. Ukraine ended the year as the second worst market in the world behind Cyprus due to continued problematic political situation and devaluation fears.

Outlook 2013

We believe 2013 will be characterized by a gradual macro-economic normalization and the start of a new more normal phase in Eastern Europe. GDP growth is expected to average around 3% and infl ation is expected to fall to new lows, but there may be signifi cant diff erences across countries. Financial markets are anticipated to gradually start to trade more on fundamentals, as the tail risks in the global economy have been and continue to be reduced. This should improve risk appetite which, together with the expected major rotation from bonds into equities, should support emerging market stocks.

	Our portfolio
2
	Portfolio Overview	19

Fund Investments

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Direct Investments Melon Fashion Group 32

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Overview

Net Asset Value	Total 301m EUR (SEK 2.6bn)	Per share 9.10 EUR (SEK 78)	65% Fund investments ○ 20% Direct investments ○
Cash, cash equivalents and other short-term investments	46m EUR (SEK 399m)	1.41 EUR (SEK 12)	15% Cash, cash equivalents and other ○ short-term investments

Portfolio per 31 December 2012	Fair value 31 Dec 2012,	NAV/Share,		Fair value 31 Dec 2011,	Value change Jan–Dec
	EURm	EUR	% of NAV	EURm	2012, %1
Fund investments
East Capital Bering Balkan Fund	38.9	1.18	13	38.1	2.1
East Capital Bering Russia Fund	27.8	0.84	9	28.1	-0.9
East Capital Special Opportunities Fund	21.5	0.65	7	29.4	9.5
East Capital Special Opportunities Fund II	19.3	0.58	6	24.8	-22.2
East Capital Bering Central Asia Fund	18.5	0.56	6	16.6	11.7
East Capital Baltic Property Fund II	17.4	0.53	6	-	3.0
East Capital Russia Domestic Growth Fund	14.5	0.44	5	-	-3.5
East Capital Bering New Europe Fund	13.1	0.40	4	12.1	9.1
East Capital Power Utilities Fund	11.4	0.34	4	36.5	-10.0
East Capital Bering Ukraine Fund Class R	5.2	0.16	2	5.5	-5.4
East Capital (Lux) Eastern European Fund	4.4	0.13	1	7.4	16.0
East Capital Bering Ukraine Fund Class A	3.9	0.12	1	5.6	-30.9
Total fund investments	196.0	5.94	65	204.1	-1.6
Direct investments
Melon Fashion Group	44.2	1.34	15	19.5	73.8
Komercijalna Banka Skopje	8.7	0.26	3	9.7	-3.8
Trev-2 Group	7.4	0.22	2	4.0	31.9
East European Debt Finance	1.3	0.04	-	1.1	12.3
Populi	0.0	0.00	-	0.1	-
TEO LT	0.0	0.00	-	15.9	13.9
Total direct investments	61.6	1.86	20	50.4	41.0
Short-term investments
Short-term investments	0.0	0.00	-	22.8
Cash and cash equivalents	46.4	1.41	15	16.6
Total short-term investments	46.4	1.41	15	39.4
Total portfolio	304.0	9.21	101	294.0
Other assets and liabilities, net	-3.5	-0.11	-1	-0.4
Net Asset Value	300.5	9.10	100	293.6	2.3

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

East Capital Baltic Property Fund II

Fund comment

The Fund was launched in May 2012 in conjunction with its fi rst property acquisition, the Tänassilma Logistics centre (previously named VGP Park Tallinn) in Tallinn, Estonia. The 40,000 sqm modern logistics centre was fully rented out at acquisition, and there has not been any change in the tenant occupancy during the year. Re-branding of the property was initiated as "VGP Park" is an integral part of the brand of the former owner. The rebranding to "Tänassilma Logistics" will be fi nalized during the fi rst quarter of 2013.

The logistics property has stable rent revenues and a low interest on its debt (on acquisition the interest rate risk had been fully hedged for the entire credit period), which has resulted in a strong positive cash fl ow. This strong cash fl ow was the main driver behind the positive performance of 6.4% in the Fund's NAV for 2012. An external valuation of this property was undertaken at the end of the third quarter, resulting in a marginal value increase of 1.3% due to certain rent indexations, as the transaction took place quite recently.

The Fund's second acquisition was undertaken in the middle of December. The wellknown high street shopping centre, "Gedimino 9" (G9), in the heart of Vilnius, was acquired. The shopping centre was opened in 2008 after a total redevelopment of the premises, a historical building that had previously housed the Vilnius Municipality. It has an excellent location on the best stretch of Gedimino Avenue, with a daily pedestrian footfall of more than 15,000. Anchor tenants include the successful supermarket Rimi, well-known Swedish fashion retailer, Lindex, exclusive perfumery, Douglas, and the very popular restaurants, Studio 9 and Terasa.

G9 shopping centre suff ered from the poor timing of its opening under previous owners in 2008, just prior to the global fi nancial crisis. Currently, the vacancy rate is 40% and the property now has low rent levels in almost all existing rental agreements. The turn-around

and value added potential is very high. The Fund will invest additional capital into the commercial improvement and reshaping of the G9 shopping centre in co-operation with well-known commercial architect, Wester & Elsner, and other commercial experts. The reopening is planned to take place by the end of 2013 or in the beginning of 2014.

Looking ahead, we will continue to actively pursue new acquisitions in 2013, as well as managing and developing the existing properties.

Biljana Pehrsson Head of Real Estate, East Capital

○ 51 Logistics ○ 49 Retail

Fund facts

The strategy of the fund is to invest in commercial properties in the Baltic region, primarily in shopping centres and retail properties, as well as logistics and offi ce properties. Value will be added through improvements in tenant mix, refurbishment, extension or redevelopment.

Launch date	02 May 2012
Risk	High
Structure	Closed-end fund Lux SICAV-SIF SCA
Management fee	2% of committed capital
Profi t sharing	Investors 80% and East Capital Real Estate AS 20% (at exit) after a hurdle rate of 10% return has been reached annually
Redemption	No
ISIN code	LU0536056483
East Capital Explorer's share on 31 Dec 2012	91% of the Fund

Performance (EUR)	Since inception	Since first investment May 2012
East Capital Baltic Property Fund II, EUR	6%	6%

Country breakdown, % Sector breakdown, % ○ 51 Estonia ○ 49 Lithuania

Properties in the portfolio
	% of portfolio	Performance,%	Country	Sector
Tännasilma Logistics	51	7.4	Estonia	Logistics
Gedimino 9	49	-1.0	Lithuania	Retail

East Capital Explorer's investments
Date of transaction	Amount, EURm	Type of transaction
15 May 2012	8.6	Initial draw-down
06 December 2012	8.4	2nd draw-down
Fair value per 31 December 2012	17.4
Return on investment (per annum)	8.5%

East Capital Bering Balkan Fund

Fund comment

The Balkan region showed a positive development during the latter part of the year, in line with renewed interest among investors.

Fondul Proprietatea (FP), the Romanian restitution fund, gained 34% during an eventful year. The Romanian state sold additional shares in Transelectrica, one of the companies in the portfolio. Further listings of portfolio companies are planned for 2013, with Nuclearelectrica's IPO (initial public off ering) and Transgaz' SPO (secondary public off ering) expected before the end of April 2013. The numerous litigations taking place on procedural grounds refer to a 2010 shareholder meeting, initiated by a small private shareholder. We believe that these cases will be terminated during 2013 which would enable FP to start its already approved share buyback program. In the autumn, the initiation of the insolvency procedures of Hidroelectrica, the second largest asset in FP's portfolio, put pressure on the NAV. Hidroelectrica is expected to exit the procedure by the end of June 2013,

Fund facts

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 signifi cant trade with, or active investments in, the Balkan countries.

Launch date	31 July 2006
Risk	High
Minimum investment	USD 150,000
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	KYG290601031
Bloomberg	BERINGB KY
East Capital Explorer's
share on 31 Dec 2012	66% of the Fund
10 largest holdings	55% of the Fund
Unlisted holdings	15% of the Fund
Total number of holdings	60

Performance (EUR)	2012	Since first investment Dec 2007
East Capital Bering Balkan Fund	2%	-56%

emerging as a more profi table entity after cancellation of economically bad contracts. These triggers, together with a 48% discount to NAV and a 6.5% expected dividend yield, continue to make FP an attractive investment.

Zavarovalnica Triglav (ZT) was one of the best performing stocks overall. The insurance company had a successful business year and is expected to show a net growth in profi ts exceeding 25%. The company's performance was further underpinned by improved sentiment towards Slovenia. It is, therefore, unfortunate that we recently have seen new political turmoil in the country. Despite the re-rating, ZT still trades at an appealing 2013E P/E multiple of 5.5 times, approximately 50% discount to European peers. The company also paid a dividend during the year with a rich 6% yield.

The main negative contributor was Nova Kreditna Banka Maribor (NKBM), a former top 10 holding. NKBM ended the year with a 59% decline and has now only a 2.6% portfolio weight. The bank has seen further large

impairments due to the worsening of the quality of its loan portfolio, with losses starting to weigh on the capital adequacy ratio. We were continuously involved in the company throughout the year. The NKBM shares are still trading at a distressed level of 0.1 times P/B, and re-rating is possible if the bank manages to get its operations back on track.

We also concentrated the portfolio by selling 17 companies.

Jacob Grapengiesser Partner and Senior Advisor, East Capital

Country breakdown, % Sector breakdown, %

• 51.2 Financials
• 16.6 Consumer Discr.
• 9.6 Consumer Staples
• 8.0 Telecom. Services
• 2.6 Industrials
• 0.8 Energy
• 0.5 Materials
• 0.4 Utilities
• 10.1 Other assets and liabilities

Top 10 holdings
Company	Weight, %	Performance,%*	Contribution, %	Country	Sector
Fondul Proprietatea	12.7	33.8	2.8	Romania	Financials
B92	11.5	-14.8	-2.3	Serbia	Consumer Discr.
Zavarovalnica Triglav	6.3	74.2	2.5	Slovenia	Financials
Komercijalna Banka Skopje	4.6	-4.3	-0.3	Macedonia	Financials
Pinar Et Ve Un	3.6	30.2	0.9	Turkey	Consumer Staples
Sif 4 (Muntenia)	3.4	67.7	1.1	Romania	Financials
Telekom Srpske	3.3	21.5	0.6	Bosnia	Telecom. Services
Montenegro Telekom	3.3	35.7	0.8	Montenegro	Telecom. Services
Pif Big	3.1	-3.6	-0.1	Bosnia	Financials
Reinsurance Co Sava	2.9	24.7	0.5	Slovenia	Financials
* Change in share price during 2012, EUR.

and liabilities

East Capital Explorer's investments

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 2012	38.9
Return on investment (per annum)	-8.3%

East Capital Bering Central Asia Fund

Fund comment

The best contributor was Bank of Georgia, the largest holding of the Fund. The investor interest awoke again, spurred by the premium listing on LSE in February and inclusion into the FTSE-250 index. All this was backed by a solid operating performance at 18% ROE and with a 20% loan growth. However, the stock was under pressure during the fourth quarter due to the change in the Georgian government which has led to greater political uncertainty in the near term. We expect that this pressure will decrease once visibility improves.

After losing half of its market value in 2011, Halyk Bank ended 2012 as one of the best performing stocks in the CIS area, with a 69% gain. Among positive triggers were buybacks of preference shares from the state, the forthcoming approval of a new dividend policy, decreased provisions and strong revenues. The systemic risks have eased but we are aware of the remaining issues, with subdued lending growth and legacy non-performing

loans. Following a strong rally in the stock during the second half of the year, we reduced our position by 50% in December.

A new addition to the Fund was Kcell, the largest mobile operator in Kazakhstan, which also became the second largest holding in the portfolio by year end. Kcell was listed by its major shareholder, TeliaSonera, in mid-December. To ensure a successful placement, the company was valued at a 15%-20% discount to traded Russian peers on EV/Ebitda and P/E multiples and at USD 1bn lower compared with the USD 3.1bn valuation for Telia-Sonera's own acquisition of the company from the Kazakh state earlier in 2012. The USD 525m placement was oversubscribed and in the two weeks before year end the stock surged 11%.

The laggards were mainly illiquid and private equity holdings, due to liquidity pressures or impairments conducted during the period. Steppe Cement, the Kazakh cement producer, and Chagala Group, the service provider to the

oil and gas sector, lost 19% and 42% respectively. Chagala Group remains, virtually, the only provider of its kind in Kazakhstan and we hope to see a revival of the interest in the stock once Kashagan ramps up its activities in 2013.

We divested our stake in Populi and reduced the weight of KazMunaiGaz and Dragon Oil at the end of the year due to operational issues. We also accumulated a signifi cant position in ENRC, a beaten-down Kazakh mining stock, as a bet on sentiment recovery in 2013.

Aivaras Abromavicius Partner and Senior Advisor, East Capital

Fund facts

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 signifi cant trade with, or active investments in, the Central Asian countries.

Launch date	28 February 2007
Risk	High
Minimum investment	USD 150,000
Volatility since inception	27%
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
East Capital Explorer's
share on 31 Dec 2012	56% of the Fund
10 largest holdings	88% of the Fund
Unlisted holdings	10% of the Fund
Total number of holdings	22

Performance (EUR)	2012	Since first investment Jan 2008
East Capital Bering Central Asia Fund	12%	-58%
KASE Index 1	-15%	-67%

1 The Kazakhstan Stock Exchange index is composed of the seven most traded companies on the exchange

Country breakdown, % Sector breakdown, %

Top 10 holdings
Company	Weight, %	Performance,%*	Contribution, %	Country	Sector
Bank of Georgia	24.5	19.3	8.1	Georgia	Financials
Kcell	11.9	10.9	1.3		Kazakhstan Telecom. Services
Dragon Oil	11.3	28.9		3.5 Turkmenistan	Energy
ENRC	10.6	-27.5	-1.4	Kazakhstan	Materials
KazMunayGaz	8.8	26.9	3.0	Kazakhstan	Energy
Henryland	6.2	9.5	0.5	Ukraine	Financials
Steppe Cement	4.2	-18.7	-0.6	Kazakhstan	Materials
Caucasus Agro Development	3.5	-38.1	-2.4		Georgia Consumer Staples
Halyk Bank	3.5	69.3	2.9	Kazakhstan	Financials
Chagala Group	3.3	-42.3	-2.8	Kazakhstan	Financials

* Change in share price during 2012, EUR.

East Capital Explorer's investments
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 2012	18.5
Return on investment (per annum)	-9.8%

East Capital Bering New Europe Fund

Fund comment

In general, 2012 has been positive for the markets in Central Europe and in the Baltics. One of the main events was the exit in Elko, the unlisted Latvian IT distributor which, before the divestment, was the largest holding of the Fund. We sold the holding to existing shareholders and realized an annualized pre-tax return of 11%. During the investment period, several strategic optimization initiatives were undertaken, new markets were entered and the value increased due to added brands and organic growth.

The coin producer Mennica Polska was another top performer, up 123%. The company has many interesting business lines under development. Apart from the core business, Mennica Polska has a unique and thriving scrap gold refi ning operation, as well as rapidly growing investment gold sales to the public. A new area of the business is aso emerging, electronic ticketing systems for public transport and additional value can be derived from its

real estate portfolio. The company off ers an interesting investment case with a stable core business and lucrative growth opportunities. However, considering the very steep performance of the stock, we took some profi ts by selling more that 50% of our position during the third and fourth quarter.

The Hungarian property developer, Ablon Group, was among the worst performers during last year. We bought the company in 2009 as it was cheaply valued and we saw a potential for re-rating after its listings in London and Budapest. Unfortunately, this did not materialize. Ablon Group had problems with cash fl ow and payments, while the development projects stalled. In January 2013 we decided to sell the company to a new investor who paid a 25% premium to market price.

We increased the weight of Baltic companies as the Baltic economies are ahead in the recovery cycle. We bought Tallinna Vesi and Olympic Entertainment Group, as well as Inter RAO Lietuva, the Lithuanian electricity trader, planning to expand to Poland. After Inter RAO Lietuva was listed on Warsaw stock exchange, the stock went up 11%. We also sold out our holding in the Hungarian energy company E-star, which went into extreme fi nancial distress and lost another 86%. This holding ended up contributing a negative 3.3% to the Fund's performance. Despite this unfortunate development, we were able to exit this investment with an average annual return of 37%.

Eglé Fredriksson Member of the Portfolio Management team, East Capital

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 signifi cant trade with, or active investments in, the Central European or the Baltic countries.

Launch date	1 May 2008
Risk	High
Minimum investment	USD 150,000
Volatility since inception	27%
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
East Capital Explorer's share on 31 Dec 2012	93% of the Fund
10 largest holdings	46% of the Fund
Unlisted holdings	1% of the Fund
Total number of holdings	30

Performance (EUR)		Since first
		investment
	2012	May 2008
East Capital Bering
New Europe Fund	9%	-17%

Fund facts Country breakdown, % Sector breakdown, %

Top 10 holdings

Company		Weight, % Performance,%*	Contribution, %	Country	Sector
Tallinna Vesi	6.0	42.7	1.8	Estonia	Utilities
Inter RAO Lietuva	5.2	11.1	0.5	Lithuania	Utilities
Pannenergy	5.2	1.4	-0.0	Hungary	Utilities
Mennica Polska	5.1	123.2	6.8	Poland	Materials
Netia	4.6	-11.7	-0.8	Poland	Telecom. Services
Ablon Group	4.3	-55.8	-6.0	Hungary	Financials
Olympic	4.3	34.9	1.0	Estonia	Consumer Discr.
Asseco Poland	3.8	8.6	0.3	Poland	IT
Bank Ochrony Srodowiska	3.7	-12.1	-0.6	Poland	Financials
Bogdanka	3.5	47.7	1.6	Poland	Energy

* Change in share price during 2012, EUR.

East Capital Explorer's investments
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 2012	13.1
Return on investment (per annum)	-3.0%

East Capital Bering Russia Fund

Fund comment

Despite the relative weak performance during the year, we have made several successful exits at attractive valuations.

We successfully exited our holding in the unlisted Latvian IT distributor Elko. We sold the holding to existing shareholders and realized an annualized pre-tax return of 11%. Elko was up 54% during 2012 and gave a positive contribution to the Fund's performance of 1.7%.

We also divested our holding in Korshunovsky GOK, the Russian iron-ore miner which is a subsidiary of the listed company Mechel. The holding increased in value by 23% and resulted in a 1.3% positive contribution. Korshunovsky GOK was sold during the fourth quarter due to increasing corporate governance risks.

Our strategy to secure exposure to attractive investment opportunities through usually cheaper local shares has played out well. LRS Group, the large Russian integrated homebuilder, was fl ourishing last year on the back of an increasing demand in the residential market and strong mortgage growth. As a result, the company's local shares jumped by 58%, while DR (Depository receipt) was up just around 24% during the same period. The Fund has benefi tted during the year from the narrowing discount of local shares vs. DR from 31% to just 11%.

During December, Summa Group completed the acquisition of a controlling stake in FESCO, that was initiated during the second quarter. The share developed well during the year and increased in total with 20%.

The worst contributor to the Fund's performance was the Ukrainian retailer Nova Liniya. Total revenue for 2012 was USD 298m, 7% lower than last year and approximately 18% below budget. The poor results had mainly to do with the decline in the underlying construction market. Due to the weak outlook for the Ukrainian economy, Nova Liniya has written down its forecasts considerably. We wrote down the value of our holding in Nova Linya by 45% in December based on an external valuation. This revaluation had a negative impact, erasing 3.1% from the Fund's performance.

Jacob Grapengiesser Partner and Senior Advisor, East Capital

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 signifi cant trade with, or active investments in, Russia. ○ 71.8 Russia

Launch date	1 June 2004
Risk	High
Minimum investment	USD 150,000
Volatility since inception	31%
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
East Capital Explorer's
share on 31 Dec 2012	46% of the Fund
10 largest holdings	50% of the Fund
Unlisted holdings	11% of the Fund
Total number of holdings	65

Performance (EUR)		Since first investment
	2012	Dec 2007
East Capital Bering Russia Fund	-1%	-61%
RTS-2 Index1	1%	-27%

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.

• 22.5 Financials ○ 16.3 Industrials
• 12.7 Consumer Discr.
• 10.0 Health Care
• 9.4 Energy
• 9.0 Materials
• 1.8 Utilities
• 1.1 Consumer Staples
• 0.5 Telecom. Services
• 16.8 Other assets
• and liabilities

Company	Weight, %	Performance,%*	Contribution, %	Country	Sector
Nomos Bank	10.2	6.0	0.2	Russia	Financials
FESCO	6.9	Undisclosed	Undisclosed	Russia	Industrials
Verofarm	6.6	-2.0	-0.2	Russia	Health Care
GAZ	4.7	64.5	1.4	Russia	Consumer Discr.
Kantik	4.7	11.9	0.4	Ukraine	Financials
Neftekamsky Avto	3.9	-9.4	-0.6	Russia	Industrials
Nova Liniya	3.7	-44.5	-3.1	Ukraine	Consumer Discr.
Bashneft	3.7	-7.5	-0.3	Russia	Energy
Bank TsentrKredit	2.9	-21.2	-0.8	Kazakhstan	Financials
Protek	2.8	8.0	0.2	Russia	Health Care

* Change in share price during 2012, EUR.

East Capital Explorer's investments

Return on investment (per annum)	-10.2%
Fair value per 31 December 2012	27.8
1 October 2009	20.0	2nd installment
1 December 2007	23.6	Initial investment
Date of transaction	Amount, EURm	Type of transaction

East Capital Bering Ukraine Fund A

Fund comment

It was a rather diffi cult year in Ukraine, with delayed politically sensitive reforms ahead of the election in November 2012. Most notably, the IMF loan – frozen since 2011 – was not renegotiated. Ukraine's capacity to keep its currency, Hryvnia, stable has been further constrained due to plunging exports, shrinking Central Bank reserves and lack of aff ordable external borrowing sources. As a result, the Hryvnia devaluation risk kept international investors away.

Myronivsky Hliboproduct (MHP) stayed on investors' radar screens throughout the year as the company delivered solid results. We nearly ten-folded our position in MHP, which paid off since the stock soared 49% and became the best positive contributor.

We continued to enhance the liquidity of the Fund. Most notably, we successfully sold our entire position in the sunfl ower oil producer Creativ Industrial Group, which accounted for 9% of the Fund before the divestment, with a total

return of 64% during 2012. In addition to MHP, we added the most liquid Ukrainian stock, the iron ore producer, Ferrexpo, which also became the third best contributor. The stock's performance was supported by a very solid iron ore price appreciation in the fourth quarter after improved demand from China.

The painful struggle of the food retailers Anthousa and Retail Group to save margins in a defl ationary environment, aggravated by the low purchasing power of the population in a dwindling economy, was refl ected in the very poor performance of these two companies. Anthousa and Retail Group accounted for nearly half of the Fund's decline. Pressed by the banks to concentrate on debt redemption rather than chain expansion, Anthousa materially revised the projections of new store openings from 37 to 9 by 2016. Based on an external valuation, we wrote down the value of our holding to zero, which resulted in a 4.5% negative contribution.

Energo remained largely unchanged during the year. As demand for local stories was subdued, the stocks lost 65% and 28%, respectively. With a new government in place and considering the resumed privatization eff orts of Tsentr Enegro, the stock should lift going forward. As we had expected, in spite of improved performance due to restructuring eff orts, Ukrtelecom has still not, to date, been able to dispose of its noncore mobile assets. Such a disposal would have led to a signifi cant cash injection into the company. We continue to monitor the situation.

Aivaras Abromavicius Partner and Senior Advisor, East Capital

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 signifi cant trade with, or active investments in, Ukraine. The fund is split into two classes: Class A, comprising mainly of listed holdings; and Class R that comprises the illiquid private equity assets.

Launch date	29 July 2005
Risk	High
Minimum investment	USD 150,000
Volatility since inception	34%
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	KYG290651028
Bloomberg	BERINGU KY
East Capital Explorer's share on 31 Dec 2012	37% of the Fund
10 largest holdings	70% of the Fund
Unlisted holdings	0% of the Fund
Total number of holdings	27

investment
Jan 2008
-73%
-81%

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

Our positions in Ukrtelecom and Tsentr

Top 10 holdings

Company		Weight, % Performance,%*	Contribution, %	Country	Sector
Myronivsky Hliboproduct	18.5	48.7		2.3 Ukraine	Consumer Staples
Tsentr Energo	11.8	-27.8	-3.2	Ukraine	Utilities
Ferrexpo	8.6	16.9		0.7 Ukraine	Materials
Bank Aval	8.2	-38.6	-0.9	Ukraine	Financials
Ukrtelecom	6.3	-65.0	-7.6	Ukraine	Telecom. Services
Retail Group	4.1	-77.3	-9.6	Ukraine	Consumer Staples
Koryukivska Fabryka Tekh. Paperiv	3.7	-18.8	-0.6	Ukraine	Materials
Ukrsotsbank	3.4	-32.6	-1.2	Ukraine	Financials
Advantest	2.9	4.7		0.1 Ukraine	Financials
Stirol	2.3	-65.3	-1.8	Ukraine	Materials

* Change in share price during 2012, EUR.

East Capital Explorer's investments

Date of transaction	Amount, EURm	Type of transaction
02 January 2008	6.0	Initial investment
01 April 2010	5.0	2nd installment
Fair value per 31 December 2012	3.9
Return on investment (per annum)	-23.9%

East Capital Bering Ukraine Fund R

Fund comment

The Fund's private equity holdings outperformed the general market by a wide margin in 2012. It was one single holding, Nova Liniya, which signifi cantly dragged down the performance of the Fund, while we were pleased with the performance of the remaining holdings. We closed the year with a successful exit in Elko, which prior the disposal, had accounted for 4.4% of the Fund. We sold the holding to existing shareholders and realized an annualized pre-tax return of 11%.

Dividend contribution from the real estate holdings supported the performance. As every year, Colliers Ukraine performed independent valuations of both Kantik and Henryland. Kantik's NAV per share increased by 2.8%, which together with the received dividend gave a total performance of almost 12% during the year, mostly due to an increase in property valuations, strong cash fl ow and a decrease in debt. NAV per share of Henryland increased by 1.7% (giving a total performance for 2012 including

dividend of 9.5%) due to a strong cash fl ow, strengthened by the redevelopment of the Kremenchuk shopping centre and the accommodation of the new anchor tenant, the retailer Fozzy Food, as well as due to a decrease in debt. In order to balance the equity/debt ratio, Kantik managed to prolong the existing debts in Butcha, Boryspil and Simferopol projects, and Henryland also managed to obtain a new loan of USD 3m in the Kremenchuk project.

Given the constraints in the underlying construction market, Nova Liniya did not meet our expectations in 2012. For the full year, the company's total revenue was USD 298m, or 7% lower than last year and approximately 18% below budget. Due to the weak outlook for the Ukrainian economy, the company has also written down its forecasts considerably. We wrote down the value of our investment in Nova Liniya by 45% in December based on an external valuation. This signifi cant decrease refl ects the poor sales performance and the change in forecasts.

On the other hand, Chumak delivered. Full year revenues grew by 17% to a total of USD 71m mainly due to strong domestic sales despite a weak Ukrainian economy, in general. The strongest growth has been in the pasta segment and the company has also gained market share in its core ketchup and tomato paste segments. Chumak also launched products in a number of new categories during the year, including juices, honey and mustard. As a result of the strong performance, we wrote up the value of our investment in Chumak by 24% in December, based on an external valuation.

Aivaras Abromavicius Partner and Senior Advisor, East Capital

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 signifi cant trade with, or active investments in, Ukraine. The fund is split into two classes: Class A, comprising mainly of listed holdings; and Class R that comprises the illiquid private equity assets.

Launch date	1 January 2010
Risk	High
Minimum investment	USD 150,000
Volatility since inception	50%
Management fee	2%
Performance fee	20% above high
	water mark
Redemption fee	Closed for redemption
ISIN code	KYG290652505
Bloomberg	BERINGU KY
East Capital Explorer's
share on 31 Dec 2012	11% of the Fund
10 largest holdings	92% of the Fund
Unlisted holdings	92% of the Fund
Total number of holdings	6

Performance (EUR)		Since first
		investment
	2012	Jan 2008
East Capital Bering
Ukraine Fund A	-5%	-71%
PFTS Index1	-40%	-81%

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

Country breakdown, % Sector breakdown, %

Top 10 holdings
Company	Weight, %	Performance,%*	Con tribution, %	Country	Sector
Kantik	32.0	11.9	2.8	Ukraine	Financials
Henryland	24.3	9.5	1.7	Ukraine	Financials
Nova Liniya	17.5	-44.5	-13.9	Ukraine	Consumer Discretionary
Chumak	15.3	24.0	6.1	Ukraine	Consumer Staples
Trev-2 Group	2.0	-17.3	-0.4	Estonia	Industrials
Rtc Irpin	1.0	-1.8	-0.0	Ukraine	Financials

* Change in share price during 2012, EUR.

East Capital Explorer's investments
Date of transaction	Amount, EURm	Type of transaction
02 January 2008	18.4	Initial investment
Fair value per 31 December 2012	5.2
Return on investment (per annum)	-22.2%

East Capital (Lux) Eastern European Fund

Fund comment

The Fund underperformed the MSCI EM Europe Index due to relative underweight in Turkey and Central Europe, as well as being overweight in Russia, in general, and in power utilities, in particular. There was a major spread across sectors and markets in terms of performance. Turkish fi nancials and industrials were among the best performers, while Russian utilities and gas stocks were notably weak.

A number of Turkish banks gained more than 100% on strong macro indicators, good operational performance and lower funding costs, while the Austrian banks, Erste and Raiff eisen International, returned 80% and 62%, respectively, on the back of reduced tail risks in Europe. Industrials were also strong, with Turkish Airlines and household appliance manufacturer, Arcelik, gaining 210% and 96%, respectively.

In Russia, private consumption held up well over the year, benefi tting retail bets like M.Video and Sollers, which gained 57% and 133%, respectively. Energy stocks were strong overall, with Gazprom as a notable exception due to gas price pressure. Oil majors, Surgut NG and Lukoil, were the two single biggest contributors to the Fund, gaining 39% and 28%, respectively, on high prices and increased dividend payments. Utilities dropped sharply in May after political statements indicated a reversal of the liberal power sector reform. The sector recovered in the second half of the year.

The Fund increased the exposure to fi nancials at the expense of energy, while increasing both Turkey and Russia at the expense of Central Europe and some of the smaller markets, as we turned increasingly positive towards

Turkish macro situation, while Polish valuations seemed relatively high. We added Russia due to attractive valuations, and the single biggest changes included a substantial net increase in Sberbank, partly by participating in the SPO (Secondary Public Off ering), while taking profi t in Surgut NG preference shares.

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 www.eastcapital.com.

Launch date	12 December 2007
Risk	High
Minimum investment	EUR 2m (Class C)
Volatility since inception	30%
Management fee	2%
Performance fee	0%
Redemption fee	0%
ISIN code	LU0332315398
Bloomberg	ECESTCE LX
East Capital Explorer's
share on 31 Dec 2012	4% of the Fund
10 largest holdings	37% of the Fund
Unlisted holdings	0% of the Fund
Total number of holdings	132

Performance (EUR)	2012	Since first investment Dec 2007
East Capital (Lux) Eastern European Fund	18%	-31%
MSCI EM Europe Index 1	22%	-33%

1 MSCI EM Europe Index until 30.06.2010, MSCI EM Europe Index Total Return (net) from 01.07.2010

Top 10 holdings

Company	Weight, %	Performance,%*	Contribution, %	Country	Sector
Sberbank	9.4	22.1	0.7	Russia	Financials
Lukoil	6.0	28.5	1.4	Russia	Energy
Surgut NG	3.5	39.1	1.7	Russia	Energy
Gazprom	3.2	-7.4	-0.5	Russia	Energy
Sistema	3.2	20.3	0.3	Russia	Telecom. Services
M.Video	2.7	57.1	1.3	Russia	Consumer Discr.
Novatek	2.6	9.1	0.1	Russia	Energy
PZU	2.4	59.6	0.9	Poland	Financials
Transneft	2.3	44.8	0.8	Russia	Energy
Fondul Proprietatea	1.9	33.4	0.6	Romania	Financials

* Change in share price during 2012, EUR.

East Capital Explorer's investments

Date of transaction	Amount, EURm	Type of transaction
12 December 2007	18.3	Initial investment
28 February 2011	-5.0	Redemption
30 November 2012	-4.2	Redemption
Fair value per 31 December 2012	4.4
Return on investment (per annum)	-6.4%

East Capital Power Utilities Fund

Fund comment

2012 was a challenging year for the Russian utilities sector. Despite a strong start to the year, all gains had disappeared by early May when the regulatory risks in the sector increased. As a result, the power utilities sector was the worst performing sector during the year compared to other sectors. Despite weaker than expected performance, the Fund has outperformed its benchmark since inception by 46%.

The sector was under pressure during the preelection campaign of 2012. Tariff s were frozen; the previously claimed long-term Regulatory-Asset-Based regulation was reloaded and more clarity was expected with the new government. Instead, radical ideas were proposed in May, including a major merger in the electric grid sector, postponement of the privatization process and state-controlled Rosneftegaz involvement in the sector. The increased risk of intensifying state control over the sector resulted in a sharp sell-off . Liquid stocks, such as MRSK Holding and Federal Grid Company, were hit hard and ended the year with a negative performance of 10% and 22%, respectively. These developments had a particularly negative impact on the Fund.

Two distributions to the Fund's investors have been undertaken during 2012. We decided to close the Fund earlier than planned, due to the increased regulatory risks, governmental intervention and unclear reform direction in the sector. We spent a lot of time communicating with the government to outline and describe the existing contradictory regulatory environment in the sector and presented the expectations of unifi ed minorities regarding sector regulation. We continue to stay committed to the improvement of corporate governance practice and will continue to be highly involved in key regulatory discussions in the sector going forward.

In terms of best contributors, E.ON Russia committed to continuous effi ciency improvements despite all adverse regulatory changes and was up 30%. MRSK Tsentra, MRSK Tsentra I Privolzhya and Tomskaya RSK performed well on renewed privatization hopes. OGK-2, controlled by Gazprom, was the worst performer after the company announced a massively dilutive share issue and downgraded its guidance for the year.

Aivaras Abromavicius Partner and Senior Advisor, East Capital

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 42%
Management fee	1.9%
Performance fee	15% of profi ts (after a hurdle rate of 7% return has been reached annually)
Redemption fee	Closed for redemption
Profi t sharing	5% of profi ts (after a hurdle rate of 7% return has been reached annually)
East Capital Explorer's
share on 31 Dec 2012	73% of the Fund
10 largest holdings	86% of the Fund
Unlisted holdings	0% of the Fund
Total number of holdings	20

Performance (EUR)	2012	Since first investment Dec 2007
East Capital Power Utilities Fund	-6%	-18%1
RTS Electric Utilities Index2	-13%	-64%

1 The fund performance has been calcuated taking into account the dividend of EUR 125 per unit paid in June 2010. 2

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

Fund facts Country breakdown, % Sector breakdown, %

Top 10 holdings
Company	Weight, %	Performance,%*	Contribution, %	Country	Sector
MRSK Tsentra	13.7	-0.2	1.1	Russia	Utilities
RAO EES	11.4	-21.5	-1.7	Russia	Utilities
OGK-5	10.0	-7.9	-0.6	Russia	Utilities
E.ON Ryssland	9.7	29.6	2.6	Russia	Utilities
Tomskaya RSK	9.4	52.1	1.2	Russia	Utilities
TGK-5	8.8	-42.6	-2.5	Russia	Utilities
TGK-6	7.3	-44.6	-1.8	Russia	Utilities
MRSK Tsentra I Privolzhya	7.3	22.8	2.3	Russia	Utilities
TGK-4	4.6	-42.9	-1.1	Russia	Utilities
Caucasus Energi & Infrastructure	3.7	-28.2	-0.6	Georgia	Utilities

* Change in share price during 2012, EUR.

East Capital Explorer's investments

Date of transaction	Amount, EURm	Type of transaction
5 December 2007	81.0	Initial investment
24 June 2010	-20.3	Dividend
29 April 2011	-20.3	Redemption
29 June 2012	-7.3	Redemption
18 December 2012	-14.2	Redemption
Fair value per 31 December 2012	11.4
Return on investment (per annum)	-2.5%

East Capital Russia Domestic Growth Fund

Fund comment

The Fund was launched in August 2012 as we saw that the current market environment off ered many situations where domestically oriented companies with high growth potential were valued at very attractive levels. By the end of the year the Fund had a concentrated portfolio comprising of 13 holdings.

In terms of best contributing stocks, the Russian retailer Dixy Group stood out with 34% performance, adding 1.5% to the Fund's performance. We are very optimistic on the stock as the company has started to benefi t from economies of scale after the integration of the Victoria chain. Effi ciency improvement measures and operational adjustments for an enlarged company will be a high priority for the management during 2013. This should almost double earnings and signifi cantly improve Dixy Group's profi tability. The investment was undertaken during accelerated book building in the company's share in November, which was priced at a 7% discount on the market.

The second best performer in the Fund, Nomos Bank, was up 6% over the year, adding 0.5% to the Fund's performance. The investment was done on the basis of the expectations specifi ed in the company's tender off er, which now has been completed at USD 14 per share.

The worst contributing stock, Bank Sankt-Petersburg, with a current portfolio weight of 4.1%, corrected 20% and contributed negatively with 1.4%. The bank reported weaker than expected results which triggered market concerns that it might not be able to pay dividends for 2012. We have nominated an independent director to the bank with extensive sector experience and expect a turnaround to start

later during 2013. We believe that the situation in the bank has started to normalize and the bank's operations will benefi t from growth in the retail segment.

Aivaras Abromavicius Partner and Senior Advisor, East Capital

Fund facts

The aim of the Fund is to exploit the potential of the strong domestic growth in the Russian economy. The portfolio consists of between 10 and 20 listed companies which generate at least half of their revenue in Russia and have a market capitalization of above USD 500m. The Fund operates across all sectors and invests in securities that are believed to be undervalued and have a signifi cant performance potential.

Launch date	31 August 2012
Risk	High
Minimum investment	EUR 125,000
Volatility since inception N/A
Management fee	2.0%
Performance fee	Carried interest, equal to 20% of outperformance over a 7 % hurdle, calculated on annual basis
ISIN code	LU0823634083
East Capital Explorer's share on 31 Dec 2012	99% of the Fund
10 largest holdings	87% of the Fund
Unlisted holdings	0% of the Fund
Total number of holdings	13

Performance (EUR)		Since first investment
	2012 1	Aug 2012
East Capital Russia
Domestic Growth Fund	-3%	-3%

1 The fund was launched in August 2012.

Top 10 holdings
Company	Weight, %	Performance,%*	Contribution, % Country		Sector
Sberbank	19.7	-1.7	-0.2	Russia	Financials
Nomos Bank	10.8	5.5	0.5	Russia	Financials
Sistema	9.5	-9.5	-0.4	Russia	Telecom. Services
Sollers	9.3	0.4	0.1	Russia	Consumer Discr.
M.Video	8.4	-1.2	-0.5	Russia	Consumer Discr.
OGK-5	8.2	-18.5	-0.8	Russia	Utilities
Dixy Group	6.1	33.5	1.5	Russia	Consumer Staples
Aerofl ot Russian Airlines	5.4	3.6	-0.1	Russia	Industrials
E.ON Russia	5.0	-4.0	-0.5	Russia	Utilities
LSR Group	5.0	-6.0	-0.7	Russia	Financials

* Change in share price since inception in August 2012, EUR.

East Capital Explorer's investments
Date of transaction	Amount, EURm	Type of transaction
31 August 2012	15.0	Initial investment
Fair value per 31 December 2012	14.5
Return on investment (per annum)	-10.1%

East Capital Special Opportunities Fund

Fund comment

The main positive contribution to the Fund's performance came from Sollers, the Russian auto producer. The holding was up sharply by 143% in 2012, adding a 15.4% positive contribution. Russia's ability to attract foreign direct investments into the auto sector has done wonders for Sollers' performance, which has successfully used joint ventures with international auto producers to boost its production. In addition to the company's strong growth profi le, Sollers is becoming an attractive dividend story as the company plans to resume paying dividends from 2013 earnings. The dividend has been initially forecasted at 40% of IFRS net profi t, implying a dividend yield of 6%.

The second positive contributor was Fondul Proprietatea (FP). The stock has gained 34%, adding as much as 8.0% contribution to the

Fund's performance. For further information about FP, please see fund comment for East Capital Bering Balkan Fund on page 21.

The most negative contribution to the Fund's performance came from the Russian oil service company Integra, whose shares lost 70% last year (adjusted for its spin-off from IG Seismic Service during the fourth quarter), bringing a negative contribution of 9.2%. After changes in the management team and a constructive action plan from the new CEO, Integra succeeded in improving its Ebitda margin from zero at the beginning of the year, to 13% in the third quarter. During 2012, an independent Board member was elected to Integra's Board of Directors, with an extensive knowledge of the Russian oil and gas sector, which will strengthen the Board's expertise. Still, the company remains far below its peers

who enjoy a margin of around 20-25%. The outlook for Integra remains poor with low drilling rig utilization and a small order book for 2013. We believe that Integra has positive prospects to reverse this negative trend during 2013, but a full turnaround is yet to be seen.

Jacob Grapengiesser Partner and Senior Advisor, East Capital

Fund facts

The aim of the fund is to invest in companies with a solid business model and outlook, which for market or owner specifi c 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.

Launch date	8 May 2009
Risk	High
Minimum investment	Closed for further subscriptions
Volatility since inception 25%
Management fee	2.0%
Performance fee	20% on realized profi ts, hurdle rate of 7% (with a 50/50 catch-up)
Redemption fee	1% (Max 10% of NAV per quarter)
ISIN code	KYG2906U1076
Bloomberg	EACASPU KY
East Capital Explorer's share on 31 Dec 2012 10 largest holdings	83% of the Fund 89% of the Fund
Unlisted holdings	0% of the Fund
Total number of holdings	14

Since first
investment
2012 May 2009
11% 13%

Country breakdown, % Sector breakdown, %

• 21.1 Consumer Discr.
• 10.0 Energy
• 9.2 Health Care
• 3.2 Consumer Staples
• 0.7 Industrials
• 0.5 IT
• 8.3 Other assets and liabilities

Top 10 holdings
Company	Weight, %	Performance,%*	Contribution, %	Country	Sector
Fondul Proprietatea	33.3	33.8	8.0	Romania	Financials
Sollers	19.3	142.9	15.4	Russia	Consumer Discr.
Sibirskiy Cement	11.3	15.4	1.2	Russia	Materials
Verofarm	9.2	-2.1	0.0	Russia	Health Care
IG Seismic Service	3.5	-10.0	-0.3	Russia	Energy
Mashstroy	3.4	-7.1	-0.5	Russia	Energy
Integra	3.1	-70.0	-9.2	Russia	Energy
Vino Zupa	2.3	17.1	0.2	Serbia	Consumer Staples
Centrenergogaz	1.8	-35.7	-0.7	Russia	Consumer Discr.
Stirol	1.7	-62.9	-2.4	Ukraine	Materials

and liabilities

* Change in share price during 2012, EUR.

East Capital Explorer's investments
Date of transaction	Amount, EURm	Type of transaction
8 May 2009	10.0	Initial investment
01 July 2009	25.0	2nd installment
13 April 2011	-12.5	Redemption
19 July 2012	-10.6	Redemption
Fair value per 31 December 2012	21.5
Return on investment (per annum)	8.7%

East Capital Special Opportunities Fund II

Fund comment

The best performing stock during the year was Zavarovalnica Triglav, rallying 74% with a contribution of 6.3% to the Fund's performance as a result of improved fi nancial results. For further information about Zavarovalnica Triglav, please see fund comment about the Bering Balkan Fund on page 21.

Even though the Serbian macro situation was poor in 2012, the confectionary producer Bambi managed to increase its 6-month 2012 Ebitda by 20%, through cost-cutting. This, combined with dividends and share buybacks, meant that the stock rose by 18% during the year. Bambi remains interesting for strategic investors, trading at 5 times EV/Ebitda 2013.

Rusforest was the worst performer with a contribution of -9.6% after a staggering 96% price drop due to several factors, one of them being that the management's expectations of

the timber market did not materialize. This, in combination with a tightening on the fi nancial market, resulted in unavailable debt funding giving Rusforest no other option but an SPO (Secondary Public Off ering) with an approximately 100% dilution. The company has now initiated an EGM for another share capital increase and there has been management reshuffl ing. We remain actively involved in the company.

The Russian oil service company Integra lost 70% during last year (adjusted for its spinoff from IG Seismic Service during the fourth quarter), bringing a negative contribution of -7.6% to the Fund's performance. After changes in the management and a constructive action plan from the new CEO, Integra succeeded in improving its Ebitda margin from zero in the beginning of the year to 13% in the third

quarter. Still, the company remains far below its peers who enjoy a margin of around 20-25%. The outlook for Integra remains poor with low drilling rig utilization and a small order book for 2013. We believe that Integra has positive prospects to reverse this negative trend during 2013, but a full turnaround is yet to be seen.

Jacob Grapengiesser Partner and Senior Advisor, East Capital

Fund facts

The aim of the fund is to invest in companies with a solid business model and outlook, which for market or owner specifi c 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.

Launch date	30 September 2010
Risk	High
Minimum investment	EUR 125,000
Volatility since inception 15%
Management fee	2.0%
Performance fee	20% on realized profi ts, hurdle rate of 7% (with a 50/50 catch-up)
Redemption fee	1% (Max 10% of NAV per quarter)
ISIN code	KYG2906U1076
Bloomberg	ECSIIAE LX
East Capital Explorer's share on 31 Dec 2012	56% of the Fund
10 largest holdings	75% of the Fund
Unlisted holdings	7% of the Fund
Total number of holdings	16

Performance (EUR)		Since first
		investment
	2012	Oct 2010
East Capital Special
Opportunities Fund II	-22%	-45%

○ 28.1 Slovenia ○ 2.6 Hungary ○ 2.4 Lithuania ○ 2.2 Poland ○ 13.5 Other assets

and liabilities

Top 10 holdings
Company	Weight, %	Performance,%*	Contribution, %	Country	Sector
Zavarovalnica Triglav	19.3	73.8	6.3	Slovenia	Financials
Bambi	14.2	18.4	1.5	Serbia	Consumer Staples
Verofarm	10.5	-2.1	-0.3	Russia	Health Care
Nfd 1 Delniski Investicijski Sklad	6.9	3.0	0.0	Slovenia	Financials
AIK Banka	6.1	-5.8	-0.4	Serbia	Financials
RAO EES	4.7	-22.2	-1.1	Russia	Utilities
Sibirskiy Cement	4.0	15.4	0.4	Russia	Materials
IG Seismic Service	3.5	-10.0	-0.4	Russia	Energy
Integra	3.1	-70.0	-7.6	Russia	Energy
TGK-4	2.6	-43.2	-1.6	Russia	Utilities

East Capital Explorer's investments Date of transaction Amount, EURm Type of transaction 1 October 2010 35.0 Initial investment Fair value per 31 December 2012 19.3

Melon Fashion Group

History

One of the fastest growing Russian fashion retail companies

Investment facts

East Capital Explorer's fi rst investment in the company: 2008

East Capital Explorer's holding in the company: 36% (additional 12% stake is owned by East Capital Holding)

Fair Value 31 December 2012: EUR 44.2m

Annualized return on investment: 20%

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

Investment rationale

• Well positioned for future growth and increase of market share
• Further improvements in profi tability expected
• Benefi ts from strong consumer demand and a growing middle class in Russia

Number of stores

Melon Fashion Group (MFG) is one of the largest and fastest growing fashion retail companies in Russia. At the end of 2012, the company operated 556 stores on the basis of three own and two master-franchised concepts. 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. At the beginning of the fi nancial crisis in 2008, MFG was in a strong fi nancial position and was able to take advantage of the opportunity to expand, both organically and through two acquisitions. During 2012, the focus has been on profitability, after years of strong expansion.

East Capital Explorer fi rst invested in the company in 2008 with the expectation of strong growth in the market and with a belief that MFG was well positioned to take advantage of it, supported by a rapidly growing middle class with strong purchasing power. Over fi ve years, the company has increased its revenues more than 6 times (compared with fi scal year 2007) and has opened or acquired 435 stores.

Highlights and results 2012

In 2012, East Capital Explorer increased its shareholding in MFG through a mandatory tender off er to the minority shareholders of the company. This tender off er was required by the Russian corporate law (exceeding 30% ownership) and is a consequence of the acquisition of a 14.8% stake from Swedfund International completed in the fourth quarter of 2011. As a result of the tender off er, East Capital Explorer acquired an additional 3.5% stake in MFG from several minority shareholders who decided to tender their shares.

2012 was a very important year for MFG as the company transitioned its relatively weak fi nancial performance in 2011 to strong profi tability. The improvement in fi nancial performance has been a result of a concentrated management eff ort focused on the improvement of logistics operations, store mix optimization (close down of poor-performing

stores and the Co&Beauty concept), as well as the implementation of better and more effi cient reporting systems.

During the year, MFG achieved more than EUR 214m in total sales, an increase of 32% compared to previous year. Gross margin was 59% and the Ebitda margin was close to 11% according to preliminary 2012 fi gures. The performance improvement program has been very successful and resulted in as much as 86% value increase per share in EUR terms based on an external independent valuation, compared to the beginning of the year.

In September 2012, the CEO of East Capital Private Equity and Founding Partner of East Capital, Kestutis Sasnauskas, took over as interim Chairman of the company.

Outlook 2013

As a result of the company's strategy to focus on its core brands Befree, Zarina and Love Republic, MFG completed the divestment of the two masterfranchise concepts; Springfi eld and Women'Secret to the franchisor Cortefi el Group during the fi rst quarter of 2013. From 1 March 2013, the results of these two concepts are no longer consolidated in MFG's fi nancial reporting. 67 stores were transferred to the buyer and additional 38 stores ceased operations. In 2012 the concepts generated a loss for the company and therefore this divestment will have a net positive eff ect on MFG's profi tability. Moreover, the decline in the number of concepts compared to a year ago, from six to three, would also allow the management team to even further concentrate its focus and eff orts on the development of the group's core brands and operations.

We expect that the pace of the top line growth rate of MFG will decelerate compared with the previous year but still remain in double-digit level. We also believe that a more comprehensive approach to growth would help the company to maintain and further improve its profi tability and to create further value.

Revenue (EURm)

Latest campaign photos for Love Republic, Zarina and BeFree brands.

Photos: MFG

Komercijalna Banka Skopje

The largest bank in Macedonia in terms of assets and capital

Investment facts

East Capital Explorer's fi rst investment in the company: 2011

East Capital Explorer's holding in the company: 10% (additional 3% held by East Capital funds)

Fair Value 31 December 2012: EUR 8.7m

Annualized return on investment: -14.2%

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 (KBS), the largest bank in Macedonia in terms of assets and capital, assumed its current form and name in 1990, shortly after the Law on Banks and Financial Institutions came into force. In the early 70's this bank merged with three local banks and became the fi rst Macedonian bank to off er current accounts for citizens. KBS is a joint-stock company, listed on the Macedonian stock exchange and is one of the ten companies comprising the Macedonian Stock Exchange Index MBI-10.

KBS off ers universal banking services to both individuals and companies through a nationwide network of branches and offi ces. The bank's loan portfolio is comprised predominately (more than 80%) of corporate loans to clients, including many of Macedonia's blue chip companies. On the other hand, similar to the majority of corporate banks in the region, its funding base is dominated by retail deposits, a segment in which the bank enjoyed a 29.3% market share at the end of 2012. This deposit base is quite stable and growing – KBS posted 3.4% deposit growth in 2012, despite declining deposit rates in the market during the year.

Highlights and results 2012

Overall, it was a diffi cult year for the bank given the recessionary environment in the second half of the year which meant that KBS struggled to fi nd creditworthy clients and certain existing borrowers faced diffi culty in servicing their debts. Nevertheless, the bank's business continued to grow, with both net loans and income for main business ending the year 6% higher than in 2011 while operating expenses declined by almost 3%.

Net interest income grew by just over 6% versus the comparable fi gure in 2011, and net income from fees and commissions grew by over 5%. However, net provisions against impairment grew by 28% due to problems experienced by certain large corporate borrowers during the year. The net profi t of the bank for 2012 was MKD 562m (EUR 9.1m), which is 48% lower than in 2011, and equates to a 5.9% return on equity and 0.7% return on assets.

One of the main achievements of 2012 was the completion of a large real estate transaction with the government in which KBS sold a large property that had been acquired through an earlier foreclosure. One of the other buildings involved in this transaction is the bank's current headquarters, which

Asset structure (%)

○ 36 Cash and liquid assets

• 1 Loans and advances to banks ○ 55 Loans to customers
• 1 Investments and traded portfolio
• 3 Property and equipment
• 4 Intangible and other assets

the government bought due to its prime location. As a result, the bank will move out of its current headquarters this summer, after the renovation of another building, acquired through foreclosures, is completed. This building will be turned into the new headquarters. The sale of foreclosed assets and the transformation of another building into the bank's own offi ces eff ectively reduced the amount of foreclosed assets on KBS's balance sheet by some 30%.

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 3,215 in February, the bank's share price fell steadily through the second quarter of 2012 on negative economic news and poor results, and remained volatile through the second half of the year as the market waited for news on the real estate transaction mentioned above. At the end of the year, the share price was still below MKD 2,500 but after the announcement of the real estate sale, shares have risen to over MKD 2,700. This share price implies a multiple of 0.57 times the 2012 book value and 10 times 2012 earnings. East Capital Explorer is represented on the Supervisory Board of KBS and actively participates in Board meetings. Our representative maintains a dialogue with management on strategic and operational issues and to contributes expertise where needed. In 2012, branch profi tability, corporate loan application review, and realization of foreclosed collateral were signifi cant topics addressed by the Board, all of which are important for the KBS's fi nancial performance and business development.

Outlook 2013

The outlook 2013 is for continued modest asset growth, funded by incremental increases in client deposits. The Bank expects the income from the main business operations to continue growing, but net profi t will, once again, be highly dependent on provisioning levels.

Core income (EURt)

Trev-2 Group

One of the largest infrastructure construction and maintenance companies in Estonia with a presence in Latvia and Russia

Investment facts

East Capital Explorer's fi rst investment in the company: 2011

East Capital Explorer's holding in the company: 35% (additional 13% held by East Capital funds)

Fair Value 31 December 2012: EUR 7.4m

Annualized return on investment: 28.1%

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 effi ciency

History

The main business segments of Trev-2 Group are road construction and maintenance, as well as environmental construction.

The company's history dates back to the 1950's, when the Estonian state initiated larger road construction projects in Tallinn. Tallinn Road Administration unit was established and the operations of Administration No. 2 (in Estonian abbreviated as "Trev-2") became a separate legal entity in 1961. In 1993, the employees of the company participated in the privatization of the Trev-2 Group. The main activity of Trev-2 Group until 2000 was road construction. During the period of 2000-2003, the company became an active player in the road maintenance segment. In 2006 the operations were extended further by providing construction services to external parties. In 2011, the company entered the environmental construction segment, which is a strong growth area.

East Capital Explorer made its initial EUR 4m direct investment into the company in August 2011, followed by an add-on investment of EUR 1.6m in 2012.

Highlights and results 2012

As 2011 was a diffi cult year for all Estonian infrastructure construction fi rms, the fi nancial results of the Trev-2 Group were also much weaker than expected. This brought about the need to drive major changes in the company in 2012.

To strengthen the balance sheet, Trev-2 Group carried through a share split, followed by a subsequent reduction of share capital and a new share issue in the amount of EUR 4.2m. As the business volumes have grown signifi cantly during the last two years, additional equity was required to support the business and to meet the requirements of the creditors. East Capital Explorer experienced a positive out-

come from the new share issue. As one of the underwriters, it picked up part of the unsubscribed shares, in addition to its pro-rata subscription. As a result, East Capital Explorer's shareholding increased from 18% to 35% and it recognized a value increase of 32%. Shareholders who only picked up their pro rata share experienced a value reduction of 16% due to the dilution eff ect.

As a result of the share issue, East Capital Explorer together with East Capital funds and Baltcap, a pan-Baltic private equity fund, increased their combined ownership to over 80%, and the founders of the company left their positions on the Board. The Board is now jointly controlled by East Capital and Baltcap.

In August, the Board appointed a new CEO. The primary focus of the new CEO is on the enhancement of operational performance and the development of a new strategy. Also, several other key executives of the company have been replaced during 2012.

During the year, the group structure was streamlined and several subsidiaries were merged. Another signifi cant decision was to wind down operations in Latvia, which had been acquired in the summer of 2011 and where performance had been very poor.

The Board also decided to dispose of certain noncore assets, primarily real estate, in order to deleverage the balance sheet and the sale of these assets has been initiated. Risk management has been strengthened by hedging oil exposure and implementing a new system for monitoring bids and projects.

The active turnaround measures have started to bear fruit. According to the preliminary results for 2012, the company was able to increase its revenues considerably, posting a net turnover of EUR 87.6m (corresponding to an increase of 28% year-on-year). The Trev-2 Group accumulated a gross profi t of EUR 5.2m (EUR -0.3m in 2011) during the period, which implies a margin of 5.9%. Estimated Ebitda stands at EUR 4.8m, including EUR 830t in one-off items. The company is expected to fi nish 2012 with a net profi t of approximately EUR 1.5m (EUR -8.3m in 2011).

Improved operational results and the disposal of non-core assets have also strengthened the balance sheet. The balance of interest bearing liabilities has decreased from EUR 17.1m in the beginning of 2011 to EUR 9.2m at the end of 2012.

Outlook 2013

The company's revenue growth is expected to stabilize in 2013, whereas the main focus continues to be on improving profi tability and deleveraging the balance sheet. In December, the management presented development scenarios for each business segment. This information will be used as an input for the development of a comprehensive strategy study to address the next three years. The work is expected to be completed and the new strategy approved by end of the fi rst quarter of 2013. The pipeline for 2013 is very strong.

East European Debt Finance

A joint-venture focusing on purchasing nonperforming loan portfolios

Investment facts

East Capital Explorer's fi rst investment in the company: 2010

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

Fair Value 31 December 2012: EUR 1.3m

Annualized return on investment: 7.3%

Investment rationale

• Operating in an undeveloped industry with high growth potential
• Booming consumer lending in Russia
• Cooperating with strong partners

History

East European Debt Finance (EEDF) is a joint venture which East Capital Explorer established in February 2010, together with the leading European debt collection company, Intrum Justitia, and the East Capital Financials Fund. The company focuses exclusively on purchasing non-performing retail loan portfolios consisting mainly of unsecured consumer loans, credit card debts and car loans from Russian commercial banks. The Russian consumer loan market is one of the fastest growing in the world with, still, very low penetration levels in various products. The total original commitment from shareholders amounted to EUR 20m, of which East Capital Explorer committed EUR 5m. As of end of 2012, a total of EUR 1.1m of East Capital Explorer's commitment had been drawn down. The commitment has now expired and, therefore, no new drawdowns are expected.

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 54% stake in Morgan & Stout.

Highlights and results 2012

In 2012, Russia experienced a real consumer lending boom as the market grew close to 40% year-on-year. This put a pressure on the lenders to become more effi cient in their collection and also to clean up their balance sheet. Despite of the more active market, EEDF did not conclude any new purchases but focused on measures to improve the performance of the already purchased portfolios. EBRD, as a co-fi nancing partner, actively marketed EEDF to its partner banks but this did not result in any proprietary transactions. As no cash was needed for new purchases, EEDF made a fi rst partial repayment of the shareholder loan at the end of December. East Capital Explorer received EUR 0.5m as loan repayment.

Outlook 2013

EEDF is currently not bidding very aggressively for new portfolios as it has decided to focus its resources on improving the current collection process. The partners of this joint venture are considering alternative strategies for the future. It is obvious that the current volumes are suboptimal for all the parties. The market is also expected to grow at a somewhat slower pace as the Central Bank of Russia is targeting the consumer lenders with new regulations. It has been agreed that from now on, the company will start making quarterly repayments of the shareholder loan using the accumulated collection revenue.

Investment facts

East Capital Explorer's fi rst investment in the company: 2009

Investment divested in May 2012

Realized annual return on investment: 17.4%

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

Investment rationale

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

TEO LT, the leading Baltic telecommunications operator, started its operations as a state company, Lietuvos Telekomas, back in 1992 and was later privatized by 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 off ering in 2000, Lietuvos Telekomas was listed on the Vilnius Stock Exchange. TEO LT is the only Baltic company with a global depositary receipts program on the London Stock Exchange. Furthermore, the company, although listed, is a subsidiary of Telia-Sonera which increased its stake in TEO LT during 2012 from 68.1% to 88.2%.

The initial investment of EUR 8.9m in TEO LT was made in October 2009 as the Investment Manager, East Capital, identifi ed an opportunity to acquire shares in a company with a solid track record and strong profi tability. Additional investments have been made along the way which has brought the total investment to EUR 16.4m. Prior to the divestment, East Capital Explorer owned 3.6% of TEO LT's shares and the company was the largest holding for East Capital Explorer on a see-through basis, corresponding to 7% of NAV.

Transaction 2012

On 10 May 2012, East Capital Explorer divested its entire holding in TEO LT to TeliaSonera for a total of EUR 17.9m. The transaction took place after the record date for the dividend, and as a result, East Capital Explorer also received the dividend of EUR 0.06 per share, totalling EUR 1.6m, as resolved upon at the TEO LT 2012 AGM. The transaction occurred at a price per share which was 20% higher than the price off ered in 2009, and together with the dividend, this off ered a 6% premium over the previous closing price. The paid out dividend was also higher than expected, yielding 9.1%. In total, the Company received EUR 19.5m and realized an annualized pretax return of 17.4% on the total investment.

East Capital Explorer agreed to sell its stake in TEO LT as the Company estimated the valuation as fair and in line with the comparable telecom companies in the region (an enterprice value corresponding to 5 times EV/Ebitda and 10 times P/E).

Populi

The Georgian food retailer

Investment facts

East Capital Explorer's fi rst investment in the company: 2010

Investment divested in July 2012

Realized annual return on investment: -43.6%

Learn more about Populi on: www.populi.ge

Investment rationale

• Benefi ts 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. East Capital Explorer has invested around EUR 4.1m in total into the company with the aim of continuing to develop what was by that time Georgia's leading food retailer. Populi was expected to benefi t from Georgia's fast growing economy as the market leader in a very fragmented food retail sector, where the majority of the market was held by small independent retailers.

Unfortunately shortly after East Capital Explorer's investment, it was revealed that the company's management had provided incorrect information, and that the fi nancial and operational situation was in a bad state. In particular, the 2010 results had been strongly overstated and there were many examples of mismanagement, as well as cases of suspected fraud. The management was immediately dismissed and a court case was fi led against the founder and CEO. Populi has faced major challenges since these problems were discovered.

Transaction 2012

The performance of Populi continued to deteriorate during the beginning of 2012, with negative growth and continuing losses. The new management team appointed in 2011 had made major eff orts to turn the company around, but the high debt burden, an inherited high cost position and rapidly increasing competition made this task diffi cult. In early 2012, with a lack of tangible improvement, it was obvious that neither lenders, nor shareholders, were ready to continue to back the company's fi nancing, and our Investment Manager, East Capital, took the lead in fi nding a buyer for the company.

In July, East Capital Explorer sold its entire stake in Populi to a local competitor and received a total payment of EUR 1.7m. This was EUR 1.6m higher than the value as of 30 June and East Capital Explorer realized an annual negative pre-tax return of 43.6% on the total investment.

A word from our Chairman	39
Corporate Governance	40
Staff	45
Board of Directors	46
Managing our risks	48
Environmental, social and governance perspective	50
Fees	52
Internal Control	54

A word from our Chairman

Paul Bergqvist Chairman of the Board

In November 2012, East Capital Explorer had its 5th anniversary. The Company was founded to provide a broader investor base with the opportunity to get exposure to smaller and hard-to-reach companies geared towards domestic growth in the Eastern European region through a share listed on the Stockholm stock exchange. These fi ve years have not turned out as we expected in 2007.

These years have been diffi cult for a strategy like East Capital Explorer's focusing on smaller companies in Eastern Europe. Despite this, we continue to believe that this strategy is valid and perhaps even more so than it was in 2007, considering the fact that the valuation levels are very attractive right now and, to a large part, have not yet recovered since the global fi nancial crisis.

During the fi ve years since the Company was established, the Board has focused mainly on two things; developing the processes for good corporate governance, and how to maximize shareholder value. Since 2007, we have come a long way when it comes to further developing the internal processes and controls. During 2012, we had an increased focus on risk control. We have also continued strengthening our monitoring of our service providers, of which our Investment Manager, East Capital, is the most important.

"We have clear rules for the decisions which are to be made by the independent Board in order to ensure that all decision making is undertaken in the best interest of our shareholders."

The Board also has an important responsibility in terms of handling confl icts of interest. Being close to our Investment Manager, East Capital is very benefi cial for the Company but it also underlines the importance of a good governance structure. We have clear rules for the decisions which are to be made by the independent Board in order to ensure that all decision making is undertaken in the best interest of our shareholders. The monitoring and internal control is something which is performed by the Board, and also by Management, but we are also assisted in this work by both our external, as well as, internal auditors.

As for shareholder value, we decided to utilize the authorization for the repurchase of shares granted by the 2012 Annual General Meeting. We have since 2009 used this mandate every year in periods of

high discount to NAV, and so also in 2012. Even if this has been benefi cial for our shareholders, we have not seen any long term eff ects of these share repurchases. In October 2012, we, therefore, decided it was time to try something new. The Board proposed to the shareholders a redemption program giving the possibility to redeem 1 out of 20 shares to the NAV, thereby, enabling our shareholders to realize the full value of a portion of their shares. This also shows the confi dence we have in the Company's NAV. This was not only to be a oneoff but a similar proposal will be made during three years if the share would continue to trade at a discount to NAV exceeding 10%. That means that until 2015, nearly 15% of the shares can be realized at full value. Those of us on the Board believe that this is a more transparent means of distributing cash to our shareholders, and at the same time, making it possible for our shareholders to receive a high yield, if they accept the off er. During this period, we do not intend to propose either dividends or further share buy-backs. We want to balance between distributions and new investments, which right now can be made at very attractive levels. And we prefer to focus on only one distribution strategy for better clarity and, hopefully, better eff ect. The fi rst redemption program was fi nalized in January 2013, with a participation of 97%.

"Sometimes people ask if the redemption programs are a way to start deconstructing the company. The answer is no."

Sometimes people ask if the redemption programs are a way to start deconstructing the Company, considering that a considerable part of the capital can be distributed in forthcoming years. The answer is no, our confi dence in our strategy's ability to, in time, realize the potential we see in this region and this segment of the market in which we invest, is intact. We are convinced that long term value will be created in our investments and not by the short term measures for enhancing shareholder value. And, furthermore, we have full trust in our Investment Manager's ability to help us increase the size of the Company in coming years, far beyond the scope of the amounts that will be distributed to our shareholders through the redemption programs. And it seems that there are investors that agree – during 2012 we have seen a change in the previous trend with a declining number of shareholders. We added during the year approximately 2,500 new shareholders, an increase of 35%, to whom I would like to extend my warmest of welcomes and to thank for their confi dence in East Capital Explorer!

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 long-term, 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 signifi cant 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 under the control of the Investment Manager are in compliance with the Investment Policy. The Board may decide to amend or deviate from the Investment Policy from time to time.

The structure also results in operational competitive advantages, for example, allowing for an effi cient 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 Corporate Governance and 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;

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 10-11 and "Board of Directors" sections of the Administration Report on page 57.

Governance structure

^– The nomination Committee's principles and work; – Information regarding Annual General Meetingg,

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 Board and the Investment Manager. Any investment which deviate from the Investment Policy require approval by the Board. 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 alternative investment 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 limited investments in East Capital's open-ended daily-traded funds.

More specifi cally, 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 was a short term cash management tool to create more attractive returns on East Capital Explorer's cash while remaining liquid for future investments.

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 Sasnauskas, 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.

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 fi nancial 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, Louise Hedberg, are members of the Board of East Capital Explorer Investments AB, together with Hanna Loikkanen, member of the Investment Management team at East Capital. Hanna Loikkanen replaced Pia Gisgård (fd Nilsson), Group Compliance Offi cer at East Capital, in March 2013.

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 signifi cant 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 existing investments, monitors management performance, and decides on management remuneration. Another function of the Board is to monitor the operations of the Investment Manager,

Investment decision process

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 receive all material related to the investment proposals decided by the Board of East Capital Explorer Investments AB as well as the Board minutes. 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.

Board of Directors

Composition of the Board

According to the articles of association of the Company, the Board shall consist of three to six 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 2012 Annual General Meeting re-elected Paul Bergqvist, Lars Emilson, Karine Hirn and Alexander V. Ikonnikov to the Board. Anders Ek and Justas Pipinis had declined re-election. Lars O Grönstedt and Louise Hedberg were elected as new members of the Board. The meeting re-elected Paul Bergqvist as Chairman of the Board.

Independence of the Board

Under applicable regulations, Paul Bergqvist, Lars Emilson, Lars O Grönstedt 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.

Louise Hedberg and Karine Hirn are not defi ned as independent in relation to the Company and its management as they are affi liated 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 affi liated enterprises. Regarding the Board members' independence in relation to major shareholders, it should be noted that in 2012 East Capital, together with its related parties, was a major shareholder of the Company, as the term is defi ned in the Swedish Code of Corporate Governance, and therefore Louise Hedberg and Karine Hirn are not regarded as independent from major shareholders of the Company. As of 31 December 2012, there were no other major shareholders of the Company, as defi ned in the stock exchange rules and Swedish Code of Corporate Governance.

For more information about each Board member please see pages 46–47.

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 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, General Counsel, Stefano Grace and Investor Relations Manager, Charlotte Åsberg also participated in the Board meetings during 2012 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 diff erent 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 fi nancial and political events, and always includes company visits. During 2012, the Board participated in the East Capital Summit in St.Petersburg, Russia in April.

Board meetings and main discussions

During 2012, a total of 14 Board meetings were held. The main discussions held during the meetings were:

Meeting	Main discussion
1/2012	Approval of the Year-end report 2011
2/2012	Per capsulam meeting to approve the notice and statements to be made in connection with the Annual General Meeting 2012
3/2012	Meeting to approve the Annual Report 2011
4/2012	Telephone meeting to approve an investment proposal and a divestment proposal
5/2012	Board meeting held in conjunction with Annual General Meeting
6/2012	Telephone meeting to approve a divestment proposal
7/2012	Approval of the Interim Report 1 January – 31 March 2012
8/2012	Per capsulam meeting to approve an investment proposal
9/2012	Approval of the Interim Report 1 January – 30 June 2012
10/2012	Strategy meeting to address the share discount, share buyback program and evaluation of a share redemption program
11/2012	Second strategy meeting to address the share discount, share buyback program and evaluation of a share redemption program
12/2012	Per capsulam meeting to approve the share redemption program strategy and proposal
13/2012	Meeting to approve EGM notice and statements in relation to the 2013 share redemption program
14/2012	Approval of the Interim Report 1 January – 30 September 2011

In addition, Mia Jurke, in her capacity as Board member of East Capital Explorer Investments AB, participated in 15 meetings respectively for East Capital Explorer Investments AB (all of which were per capsulam meetings) during 2012.

Evaluation of the Board

During 2012, the work of the Board was not formally evaluated by an external consultant as was the case in 2008. However, two independent members 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 2013. In 2009, 2010 and 2011 the Board was internally evaluated of its work to assist the work of the Nomination Committee.

Audit Commitee

The Audit Committee is appointed to serve the Board in an advisory function with respect to fi nancial 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), Lars Emilson, Lars O Grönstedt 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, CFO, Mathias Pedersen, General Counsel, Stefano Grace and Investor Relations Manager, Charlotte Åsberg also participated in the Audit Committee meetings during 2012 to report on their respective areas.

Audit Committee meetings and main discussions

During 2012, a total of fi ve Audit Committee meetings were held. Topics of the main discussions held during the meetings were:

Meeting	Main discussion
1/2012	Discussion regarding the Year-end report 2011, Internal Audit Report and Internal Audit Plan for 2012-2014
2/2012	Discussion regarding the Annual Report 2011 and policy review
3/2012	Discussion regarding the Interim Report 1 January – 31 March 2012
4/2012	Discussion regarding the Interim Report 1 January – 30 June 2012
5/2012	Discussion regarding the Interim Report 1 January – 30 September 2012

Directors' fees and executive remuneration

On 25 April 2012, the Annual General Meeting resolved to leave the Directors' fees in the Company unchanged and that the Chairman of the Board will receive an annual compensation of SEK 770,000 for the period until the 2013 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 Louise Hedberg and Karine Hirn waived their Directors' fees.

Remuneration for work in the Audit Committee was also left unchanged and totalled 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 dayto-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 to be able to make valid decisions.

The CEO has no signifi cant assignments outside the Company. For more information about the CEO, see page 45.

Remuneration of Executive Management

Remuneration to the CEO and the CFO consists of fi xed salary, variable salary and pension and insurance benefi ts. 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, defi ned annually by the Board. Targets are set and evaluated annually. During 2012 the Board has decided to grant the CFO a variable salary for 2011 corresponding to 17.5% of his fi xed salary, out of a maximum variable salary corresponding to 50% of the fi xed 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 SEK 30,000. During 2013, a variable salary for 2012 amounting to 27.5% of the fi xed salary was paid to the CEO and CFO, respectively, out of a maximum variable salary corresponding to 50% of the fi xed salary.

The composition of the Board

				Shareholdings as		Board meeting	Audit	Audit Commitee
Name	Position	Citizenship	Independent	of 28 March 2013	Elected	attendance 2012	Committee	attendance 2012
Paul Bergqvist	Chairman	Swedish	Yes	21,110 shares	2007	14/14	Yes	5/5
Lars Emilson	Board member	Swedish	Yes	9,215 shares	2007	13/14	Yes	5/5
Lars O Grönstedt	Board member	Swedish	Yes	200 shares	2012	9/10	Yes	2/3
Louise Hedberg	Board member	Swedish	No	2,565 shares	2012	10/10	No	n/a
Karine Hirn	Board member	French	No	70,232 shares	2010	14/14	No	n/a
Alexander V. Ikonnikov	Board member	Russian	Yes	15,200 shares	2007	14/14	Yes	5/5

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 receives a benefits package of a limited scale. This benefits package was 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. It was subsequently added to the remuneration guidelines approved by the 2012 AGM.

For detailed information on the remuneration to executive management, see Note 4 on page 71.

Share-related incentive program

East Capital Explorer does not have any sharerelated 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 infl uence. The AGM must be held within six months from the end of the fi nancial 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. In connection with the AGM, all shareholders are invited to a seminar about our markets and investments. 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 2012

The 2012 AGM was held on 25 April 2012 at Konserthuset in Stockholm. All documents from the 2012 AGM including notice, documents presented at the AGM and the full minutes from the meeting are available at www.eastcapitalexplorer.com.

The 2012 AGM was attended by approximately 200 persons, including shareholders representing a total of 33% 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 2013

In accordance with a resolution by the 2012 AGM, the Nomination Committee for the 2013 AGM comprises fi ve 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 2013 Nomination Committee consisted of:

• Peter Elam Håkansson, East Capital (Chairman)
• Peter van Berlekom, Nordea Funds
• André Vatsgar, Danske Capital
• 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 15 October 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 2013 AGM are specified in the notice of the AGM and are also available on www.eastcapitalexplorer.com.

Annual General Meeting 2013

The 2013 AGM will be held on 24 April 2013, at 3.15 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 four-year 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 audits and reviews. During financial year 2012, the audit fee amounted to EUR 168t.

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. Auditor in charge for East Capital Explorer since 2007.

Other auditing assignments: Castellum AB, AB Traction, RusForest AB, Brummer & Partners AB and Nordea Bank 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 2,500 shares as of 28 March 2013

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 2,375 shares as of 28 March 2013

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 Offi ce, 2004–2005 In-House Legal Counsel NASDAQ OMX Tallinn (Tallinn Stock Exchange), 1999–2003 Paralegal at Pattishall, McAuliff e, Newbury, Hilliard and Geraldson.

Shareholding in East Capital Explorer AB 0 shares as of 28 March 2013

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 as of 28 March 2013

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

1,000 shares as of 28 March 2013

Board of directors

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, HTC Sweden AB and AB Pieno Zvaigzdes. Board member of TrygVesta AS.

Shareholding in East Capital Explorer AB 21,110 shares as of 28 March 2013

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 9,215 shares as of 28 March 2013

Lars O Grönstedt Board member since 2012

Independent of the Company, Company management and the Company's major shareholders. Born 1954.

Education

BA in languages and literature from Stockholm University and an MBA from Stockholm School of Economics.

Work experience

Currently a senior advisor to Nord Stream, 2001-2006 CEO of Handelsbanken and its Chairman 2006-2008.

Other board assignments

Chairman of the Nordic Museum and ATC Industries Group and member of the board of Vostok Nafta Investment Ltd, the Swedish National Debt Offi ce, MDM Bank (Moscow), the IT company Pro4U and Skansen Foundation.

Shareholding in East Capital Explorer AB 200 shares as of 28 March 2013

Louise Hedberg Board member since 2012

Dependent in relation to the Company and its Management. Dependent in relation to the Company´s major shareholders. Born 1974.

Education

Master of science from the Stockholm School of Economics and has completed studies in Sustainable Development at the Stockholm University/Stockholm Resilience Centre.

Work experience

Since 2010 Head of Corporate Governance at East Capital, 2007-2010 Head of Communications/IR at East Capital Explorer, 2002-2007 Investor Relations manager at Dometic Group, 1998-2002 Financial communications consultant at JKL Group.

Other board assignments

Chairman of East Capital Explorer Investments AB

Shareholding in East Capital Explorer AB 2,565 shares as of 28 March 2013

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 Post-graduate degree in Eastern European studies from IEP Paris.

Work experience

Since 1997 Partner and co-founder of East Capital, Numerous positions in the East Capital Group, including 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 (Lux) General Partner S.à.r.l, East Capital Global Advisory Committee and French Foreign Trade Advisor in the network CCE.

Shareholding in East Capital Explorer AB 70,232 shares as of 28 March 2013

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. Chartered Director by the IoD, UK.

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 Aff airs 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 Settlement Depository (Central Securities Depository), Russia. Also independent director and member of the personnel and remuneration committee in Sollers Plc, Russia.

Shareholding in East Capital Explorer AB 15,200 shares as of 28 March 2013

Managing our risks

East Capital Explorer's business involves diff erent 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 fi nancial risks with possible impact on our business. Risk management deals with risks and opportunities aff ecting 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 fi nancial risks are presented in Note 16 on page 79.

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 specifi c investment and ownership risks. For example, amendments to the regulatory framework for the fi nancial 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 more than 15 years of operations, gives us the ability to integrate a well-grounded 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 anti-corruption 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 specifi c company or investment in a fund.

Country risks also include instability in fi nancial, legal and political systems and other country specifi c aspects, such as quality of corporate governance, reliability of settlement and clearing systems, lack of appropriate custody services, level of fi nancial reporting and general availability to other reliable corporate information. If any of these country specifi c 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 macroeconomic risk.

• Our Investment Policy, which may be amended by the Board together with the Investment Manager, assumes that the vast majority of the assets are invested in East Capital funds, which in turn are diversifi ed into 5 – 100+ holdings, depending on the strategy of the fund. No single fund investment made may exceed 40% 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% of the total net asset value at the time of the investment. This eff ectively diversifi es our portfolio across both sectors and the diff erent 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 benefi cial moment. There is a risk that we are neither effi cient in choosing or developing our investments, nor successful in timing the market conditions at the most profi table moment.

Managing these risks:

• Our access to the experienced investment teams at East Capital provides us with a structure to make well-grounded investment decisions and to eff ectively 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 justifi ed

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 specifi c risk

Our success depends on our ability to provide our shareholders with a portfolio of interesting and profi table investments. This also includes being able to manage our investments eff ectively 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 aff ected by internal and external factors and that they will, thereby, have a negative impact on the value of our investments.

Managing these risks:

• Diversifi cation is key to managing company specifi c 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, eff ectively diversifying our portfolio across approximately 300 companies in our investment region on 31 December 2012, and thereby limiting the specifi c 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 eff ectively 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, fi rmly 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 confi dence 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 these risks:

• Operational risks are managed on the basis of our structure for internal control, including adequate routines and instructions, a clearly defi ned division of responsibility, ITbased 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 cost-effi ciently source general offi ce and administrative resources from East Capital including offi ce premises, reception, HR and IT. The costs for the service agreement are continuously evaluated by the Board and are estimated to be signifi cantly more cost-effi cient 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 these risks:

• Considering our close relationship with East Capital, we have paid specifi c attention to ensuring the best interests of our shareholders. This includes a detailed Investment Management Agreement between our two companies that eff ectively stipulates the manner in which the investment activities should be undertaken, and assures that confl icts 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 unlike investments in East Capital other funds, 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 confl icts 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 fulfi ll 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.

The environmental, social and governance perspective in our investments

Louise Hedberg Board member in East Capital Explorer and East Capital's Head of Corporate Governance

lenges in our region are signifi cant. Since its founding in 1997, East Capital has actively advocated to its portfolio companies that improved corporate governance practices translate into increased shareholder value. Working on the ground and in dialogue with portfolio companies, the Investment Manager highlights the importance of implementing a well thought through strategy that ensures that the companies are eff ectively managed in all relevant aspects, including issues related to environment, social or governance factors.

The sustainability related chal-

Activities during 2012

In April, East Capital's Chairman sent his annual letter to all companies included in the portfolios of East Capital's funds. This year, the letter emphasized the importance of active strategies to create shareholder value and upholding best practice corporate governance standards - not least in the form of minority shareholder rights and transparent reporting. In the letter, East Capital also urged companies to support the work of the Carbon Disclosure Project (CDP) by taking time to report their carbon emissions data to the CDP framework as this information is becoming increasingly important to the investor community.

During the 2012 AGM season, East Capital continued to actively work to nominate and elect independent directors to the boards of numerous Russian companies. East Capital strongly encourages companies to appoint a board that is well suited to eff ectively able to carry out its duties and which also has an appropriate ratio of independent directors. The election of independent directors is largely achieved through collaboration with other minority investors in Russia, coordinated by the Investor Protection Association (IPA), a governance association for minority investors in Russia. East Capital is a member of the association since 2002 and Aivaras Abromavicius, partner of East Capital, is vice chairman of the board since 2010. The 2012

season was marked with considerable increase in activity with the IPA members collectively nominating directors to a total of 84 Russian companies of which approximately 30 directors were successfully elected. 14 of the successfully elected directors are on boards of companies held by funds in East Capital Explorer's portfolio.

The IPA also plays an important role in advocating greater transparency and improved standards in conjunction with AGMs and EGMs. Executing the voting rights associated to a holding is still a highly manual process in Russia. A major hurdle is the fact that information and ballots related to shareholders' meetings are disclosed very late or not at all. Although numbers are improving every year, less than 20% of the issuers currently post shareholder meeting related materials on their website and even fewer publish this information on their English websites despite having a large international investor base.

The investment manager also fi led shareholder resolutions to the general meetings of and/or voted in approximately ten companies outside Russia. The investment manager also participated in the work of three nomination committees. Moreover, East Capital also continously initiates dialogues and engages with portfolio companies on specifi c governance topics such as eff ective capital structures and dividend policies, improving transparency and protecting minority rights in conjunction with corporate actions such as share capital increases.

In October 2012, East Capital became a signatory to the United Nations Principles for Responsible Investment (PRI), an investor initiative supported by more than 1,000 institutions around the world representing in excess of USD 30 trillion in assets under management. The PRI affi liation further underpins East Capital's belief that considering material and relevant ESG factors is an important component in creating long term attractive returns and provides a valuable framework and network of likeminded investors to integrate the ESG perspective in the investment process.

Guiding policy documents

East Capital Explorer has two documents that defi ne and describe the ESG perspective in relation to our investments. Both policies, adopted by the Board in 2008, are revised annually and available online at: www.eastcapitalexplorer.com

• The Principles of Responsible Investment specifi es our expectations on the Investment Manager to implement an investment process that includes both the fi nancial outlook as well as an assessment of risks and opportunities related to relevant and material environmental, social and governance factors.
• The Code of Conduct governs the principles of conduct and guidance for the Company's Board Members and for its employees.

East Capital's investment team spends a great deal of time on the ground, visiting companies and meeting managements. Face-to-face involvement through company visits provides a good opportunity to see and discuss how relevant and material ESG issues impact the companies.

East Capital's ESG related work is coordinated by East Capital's Head of Corporate Governance 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.

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 confi rm 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 service providers. 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 can 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. The Investment Manager will reach their voting decisions independently and will not delegate decision making to any third party, although they may take third party recommendations into consideration.

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. 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. There are several channels and methods that East Capital may use when initiating and maintaining such dialogue, these include:

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

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 2012 amounted to EUR 10m, of which EUR 5.7m was management fees and EUR 4.3m was performance fees.

Fee structure for East Capital Explorer's investments

Fee for managing East Capital Explorer's investment portfolio	Subscription fee	Annual mgmt. fee1	Base amount2	Perfor mance fee3	Period4	High water mark5	Hurdle rate	Catch-up	Profi t share	Redemption fee6
East Capital Baltic Property Fund II	0%	2.0%	Committed capital	20%	Qtr		10%	50/50
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 Russia Domestic Growth Fund	0%	2.0%	NAV	20%	Monthly		7%
East Capital Special Opportunities Fund	0%	2.0%	Committed capital	20%	Monthly		7%	50/50
East Capital Special Opportunities Fund II	0%	2.0%	Committed capital	20%	Monthly		7%	50/50
Direct investments 1, 7	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 AB higher.

The management fee is calulated in % of committed capital or opening NAV for each period for all investments except for the bond mandate that use closing NAV as base for fee.

In East Capital Special Opportunities Fund and East Capital Special Opportunities Fund II, the performance fee is based on the development of the individual holdings in the funds. To ensure that the total performance fee charged to the fund does not exceed 20% of the profi ts for the entire fund, the is a claw-back mechanism by which the Investment Manager is required to pay back any such amount to the fund's investors upon termination of the fund.

4 The Bering funds managment fees are based on monthly NAV, while performances fee are based on quarterly NAV.

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

6 The redemption fee is paid to the fund and not to the Investment Manager to compensate other fund investors for the costs associated exits in illiquid assets. The fee starts at 20% and is gradually reduced to zero over a four-year-period from the time of each investment into the fund.

Separate agreements regarding the investment in TEO LT and the MFG Loan have been made, reducing the management fee to 1.0% per annum and waiving the performance fee.

Fee glossary

2

Allocation target = Level of net proceeds of the fund whereafter the net proceeds are paid according to set profi t 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 profi t 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 preagreed 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 20121

Fee for managing East Capital Explorer's investment portfolio
	Management fees	Performance fees	Total fees
(EUR thousands)	accrued	accrued	accrued
East Capital Bering Russia Fund	606	-	606
East Capital Bering Ukraine Fund Class A	106	-	106
East Capital Bering Ukraine Fund Class R	113	-	113
East Capital Bering Balkan Fund	773	-	773
East Capital Bering Central Asia Fund	399	-	399
East Capital Bering New Europe Fund	267	-	267
East Capital Power Utilities Fund	612	-	612
East Capital Special Opportunities Fund	491	134	625
East Capital Special Opportunities Fund II	713	-	713
East Capital Baltic Property Fund II	124	-	124
East Capital (Lux) Eastern European Fund	164	-	164
East Captal Russia Domestic Growth Fund	95	1	96
Direct investments 2	1,099	4,185	5,285
Bond mandate 2	118	-	118
Cash and cash equivalent	-	-	-
Committed capital	-	-	-
Total	5,681	4,320	10,001

1 These numbers diff er 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

2 Fees are stated including VAT

Q1 Q2 Q3 Q1 Q2 Q3 Year 1 Year 2 NAV 0 First threshold New high water mark Second threshold New high water mark Third threshold New high water mark 20% of the perf. 20% of the perf. 20% of the perf.

Performance fee with high water mark. A performance fee of 20% 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.

Example fee structure when using High Water Mark Example fee structure with profi t sharing

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 fi nancial reporting is organized.

The internal control within East Capital Explorer is designed to manage the risks within the fi nancial reporting processes and this includes, for example, ensuring an effi cient 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 effi ciently 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 defi nition, internal control is comprised of the following components: control environment, risk assessment, control activities, information and communication and monitoring.

Control environment

Control environment means the overall structure of the Company ensuring sound internal control as regards to investment activity and fi nancial reporting. Refl ecting the specifi c 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 the 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 contain detailed provisions regarding the manner in which fi nancial 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 fulfi ll its obligations pursuant to applicable law, regulations and stock exchange regulations. The governing documents also defi nes the respective responsibilities to ensure an effi cient handling of the operations in the Company. The Board is ultimately responsible for the fi nancial reporting.

Risk assessment

The Company's management is responsible for the internal control required in order to manage the signifi cant risks in the ongoing operations. Here is included the identifi cation of possible risks in the portfolio reporting and the fi nancial reporting, 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. Any risks that are considered material are reported to the Company's board.

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. 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 signifi cant risks impacting the internal control regarding investment management and fi nancial 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 ommittee meetings at East Capital ensuring control of the valuation process.

• Ongoing discussions and contacts with key individuals within East Capital including the members of the investment management team and 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 fi nancial reporting. The Information Policy describes the manner in which East Capital is to communicate fi nancial and other information to the market in accordance with stock market regulations. Furthermore, there are policies and instructions for, amongst other things, investment activities, short term investments, including deposits and cash, accounting and fi nancial 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 fi nancial 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 fi nancial activities of the Company. The Audit Committee meets on a regular basis in order to manage and discuss accounting issues, forms of fi nancial 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. The specifi c areas for review are decided in a three year internal audit plan which is approved by the Board. Internal Audit's work for 2012 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. The audit plan for 2012 included a more extensive review of the outsourcing of supportive functions through the Service Agreement with East Capital, application of the fee clauses in the IMA and the adherence to governing documents. The results of these audit activities were reported to the Audit Committee as well as the Board.

Stockholm, March 2013

Board of Directors of East Capital Explorer AB (publ)

Financial Statements

Administration Report	56
Financial Statements	59
Notes	66
Five-Year Summary	84
Auditor's Report	86

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 2012 and the annual report for the Parent Company for the financial year 1 January – 31 December 2012.

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. 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, Humarito Limited and East Capital Explorer Investments (Cyprus) Ltd as well as the funds listed below.

Consolidated funds	Share of equity
East Capital Bering New Europe Fund	93%
East Capital Special Opportunities Fund	83%
East Capital Power Utilities Fund	73%
East Capital Bering Balkan Fund	66%
East Capital Bering Central Asia Fund	56%

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 19 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.

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

Net asset value

The total net asset value at year-end amounted to EUR 301m (EUR 294m)*. This was an increase of 2.4% (reduction of 31.7%) compared to 31 December 2011. Note that distributions to shareholders through share buy-backs and dividends decreased the total net assets value with EUR 7.4m during 2012. This effect, however, was offset by the positive results which brought the total change to a net increase. The net asset value per share at year end was EUR 9.10 (8.69). The investment portfolio was divided into three segments, where 65% (70%) was held in twelve of East Capital funds, 20%

* Figures stated in parentheses refer to information for the previous financial year.

(17%) in four different direct investments and the remaining 15% (13%) was held in cash and cash equivalents.

Results

Total comprehensive income for the year 2012 amounted to EUR 16.5m (EUR -152.1m), which included exchange rate differences on translation of foreign operations of EUR -3.0m (EUR 1.1m).

Net profit for the year amounted to EUR 19.6m (loss of EUR 153.2m). Of this a net profit of EUR 16.9m ( net loss EUR 127.9m) was attributable to the shareholders of the Parent Company corresponding to earnings per share of EUR 0.49 (EUR -3.59).

For the year, the main items of the net profit in the investment portfolio included value changes of EUR 21.4m (EUR -151.8m) and EUR 9.4m (6.5m) in dividends.

Financial income amounted to EUR 1.7m (EUR 1.2m), which mainly related to interest income. Financial expenses amounted to EUR –0.1m (EUR -2.1m).

Other items included EUR -12.7m (EUR -7.2m) in operating expenses (described further below) and EUR -0.1m (EUR 0.2m) in income taxes.

Of the total operating expenses of EUR -12.7m (EUR -7.2m) during the year, EUR -1.8m (EUR -1.8m) related to ordinary operating expenses within the Parent Company. The remaining EUR -10.9m (EUR -5.4m) related to operating expenses, mainly fees, in consolidated funds and subsidiaries.

The Parent Company's net profit was EUR 15.6m (EUR -80.2m), of which EUR 15.6m (EUR -79.1m) referred to a reversal of write down of shares in Group companies. Operating expenses amounted to EUR -1.8m (EUR -1.8m).

Key events during the financial year

During 2012, East Capital Explorer made new fund and direct investments amounting to EUR 40.5m (EUR39.7m). Proceeds from divestments amounted to EUR 56.0m (EUR 45.2m).

Fund investments

In May 2012 East Capital Explorer invested EUR 8.6m in East Capital Baltic Property Fund II. In June 2012 East Capital Explorer received a payout of EUR 7.3m from East Capital Power Utilities Fund. In the beginning of July East Capital Special Opportunities Fund made a second pay-out to East Capital Explorer amounting to EUR 11m. In September EUR 15m was invested in East Capital Russia Domestic Growth Fund. In November 2012 East Capital Explorer divested EUR 4.2m in East Capital Eastern Europe (Lux) Fund. In December 2012 East Capital Explorer invested EUR 8.4m in East Capital Baltic Property Fund II and received a

pay-out of EUR 14.2m from East Capital Power Utilities Fund.

Direct investments

Throughout January and February 2012, East Capital Explorer continued to build its position in the Lithuanian telecom operator TEO LT and purchased share for EUR 1.1m. In May, TEO LT paid a dividend of EUR 1.6m to East Capital Explorer. The entire holding in TEO were divested to TeliaSonera in May for EUR 17.9m.

During May East Capital Explorer received a dividend payment from Komercijalna Banka Skopje in the amount of EUR 0.7m. A mandatory takeover offer for Melon Fashion Group (MFG) was made. The number of shares tendered was limited, corresponding to a total purchase price of EUR 5.4m.

In July, East Capital Explorer divested its entire stake in Populi, the Georgian food retailer and received a total payment of EUR 1.7m, EUR 1.6m higher than the value as of 31 December 2011 but returned a loss of EUR 2.5m, compared to the acquisition costs. Trev-2 Group, the Estonian infrastructure construction company, carried out a new share issue in the amount of EUR 4.2m during the third quarter, to which East Capital Explorer subscribed and invested EUR 1.6m. Through the new share issue, the company repaid the outstanding EUR 2.2m shareholder loan to East Capital Explorer.

Dividends and buybacks

In April 2012, the AGM of East Capital Explorer approved the Board's proposal under the Company's dividend policy to pay a dividend to the shareholders of SEK 0.80 per share for fiscal year 2011. This was paid out on 4 May 2012.

On 15 September 2011, the board of East Capital Explorer decided to utilize its authorization to buy back shares. The buy-back program was prolonged on 12 October 2011 and allowed the Company to repurchase its own shares from 15 September 2011 to 30 March 2012. During 1 January to 30 March 2012 60,415 shares were repurchased. The average share price paid was 54.21 SEK. The average price per share paid was SEK 51.69. The shares were cancelled in June 2012. The 2012 Annual General Meeting of East Capital Explorer AB (publ) approved the proposal to authorize the Company's Board of Directors to decide on the purchase up to 10% of the company's own shares until the annual general meeting 2013.

In August 2012, the board of East Capital Explorer decided to utilize its authorization to buy back shares from 8 August 2012 until 10 October 2012. During this period East Capital Explorer repurchased 685,111 of its own shares at an average price of SEK 49.95 per share, which corresponded to 2.0% of the outstanding number of shares. Further details are given below.

Key events after the end of the financial year

Net asset value

On 28 February 2013, East Capital Explorer's indicative net asset value was EUR 9.42 per share, compared with EUR 9.10 on 31 December 2012. The closing price per share on 28 February 2013 was SEK 52.75, corresponding to EUR 6.25.

Investments

Until 28 March 2013 , the Company purchased additional shares in East Capital Russia Domestic Growth Fund for EUR 25m.

Share information

The total number of shares on 31 December 2012 was 33,709,706 (34,851,675). No new shares were issued during the year.

In light of the discount to NAV and the high confidence of both the Board and Management in the Company's NAV, the Board decided, as announced on 23 October 2012, to propose a share redemption program to the Company's shareholders. The program was approved by an EGM on 4 December 2012, allowing the shareholders to redeem 1 out of 20 shares at NAV. The Board has committed to making the same proposal to the 2014 and 2015 AGMs in case the share is trading at a discount to NAV exceeding 10%. The redemption program is replacing the Company's dividend policy and the Board does not intend to use its authorization for repurchase of shares during the current mandate.

The application period for East Capital Explorer's offer to redeem shares ended on 14 January 2013. The offer entitled redemption of a maximum of every twentieth share held in the Company, at a redemption price of SEK 77 per share (corresponding to the Net Asset Value per share on 31 October 2012).

1,600,286 shares were tendered for redemption during the redemption program, corresponding to an acceptance level of approximately 97%. Consequently, a total of SEK 123.2m (EUR 14.6m) was paid out to the shareholders participating in the redemption program.

In accordance with the extraordinary general meeting's resolution on 4 December 2012, in the end of January 2013 East Capital Explorer redeemed shares as well as cancelled the 685,111 shares that were repurchased during the period of 8 August 2012 - 5 October 2012 through the share buyback program. The Company does not hold any of its own shares

following the cancellation.

Following completion of the redemption and cancellation, and a bonus issue effected in connection therewith without issuing new shares, East Capital Explorer's share capital amounted to EUR 3.6m and 31,424,309 shares. Payment of the redemption amount was completed at the end of January 2013.

The closing price per share on 31 December, the last trading day of the year, was SEK 49.00 which was equivalent to EUR 5.70 (SEK 53.75 equivalent to EUR 6.03). Adjusted for dividend, East Capital Explorer AB's share price decreased 4.2% (35.6%) in EUR during the year while the OMX Total Return Index increased 20.7% (decreased 13.3%) in EUR. By comparison, the RTS 2 Index decreased 0.6% (27.3%) and the MSCI Total Return Emerging Europe Index increased 22.0% (decreased 21.3%) in EUR.

Material risks and uncertainties

Many risks are associated with opportunities. The goal is to eliminate the risks that are not associated with opportunities (e.g. inadequate procedures). A 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.

Operational risk is defined as the risk of loss resulting from inadequate internal processes or systems, or from external events not related to investments. 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 79 Financial risks and Risk management for the Group's material risks and uncertainties.

Future development

East Capital Explorer's objective for the future is to create long term value growth for the shareholders by increasing net asset value through active portfolio management in close corporation with East Capital.

Personnel and remuneration guidelines

On 31 December 2012, the Group had five employees, three women and two men.

In accordance with current guidelines, the

Board proposes the Annual General Meeting 2013 the following with regard to remuneration of executive management, i.e. the CEO and CFO. Remuneration is comprised of fixed salary, variable salary, pension and insurance benefits, as well as other nonmonetary 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. In addition, CEO Mia Jurke, is entitled a benefits package of a limited scale. 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. The proposed renumeration is the same as it was decided at the Annual General Meeting 2012.

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 71.

Corporate Governance and the Board of Directors

The Board shall be comprised of three to six 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. 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.

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 38-54. See page 54 regarding internal control and risk management in connection with the preparation of the consolidation.

The Corporate Governance report for the Company and the Group and the auditor's opinion thereof are available at the company's website: www.eastcapitalexplorer.com/ en/about-east-capital-explorer/corporategovernance.

Shareholders' meeting and redemption program

The 2013 redemption program was approved by the Extraordinary General Meeting (EGM) of East Capital Explorer AB (publ) on 4 December 2012.

The EGM approved the proposal to reduce the share capital through voluntary redemption of the company's shares, to cancel repurchased shares, and to increase the share capital through a bonus issue.

Under the approved redemption proposal for 2013, East Capital Explorer redeemed 5% of the Company's outstanding shares at a price SEK 77 (corresponding to EUR 8.95) for each redeemed share. The redemption amount corresponded to the Company's net asset value per share on 31 October 2012.

The last day of trading in shares including redemption rights was Thursday, 6 December 2012 and the record day for the right to receive redemption rights was Tuesday, 11 December 2012.

The application period to call for redemption was from and including Monday, 17 December 2012 to and including Monday, 14 January 2013 and trading in redemption rights at NASDAQ OMX Stockholm took place from and including Monday, 17 December 2012 to and including Wednesday, 9 January 2013.

The Board has committed to also propose a redemption program to the Annual General Meeting (AGM) in 2014 and 2015 if the discount to NAV exceeds 10%.

The redemption program is voluntary and requires shareholders to actively participate.

Proposed of Earnings

The Board of Directors proposes that the unappropriated earnings in East Capital Explorer AB is disposed as follows:

Total available funds for distribution:

Share premium reserve	362,461,443
Retained earnings	-80,095,775
Profit for the year	15,586,325
Total EUR	297,951,993

To be allocated as follows:

Funds to be carried forward 297,951,993 (Of which share premium reserve 362,461,443)

Total EUR 297,951,993

Statement of Comprehensive Income

EUR thousands	Note	1 Jan – 31 Dec 2012	1 Jan – 31 Dec 2011
Changes in value		21,366	-151,795
Dividends		9,385	6,470
Total operating income		30,750	-145,325
Other operating expenses	3,5	-11,897	-6,118
Staff expenses	4	-833	-1,108
Operating profit/loss	2	18,020	-152,552
Financial income	6	1,746	1,211
Financial expense	6	-81	-2,071
Profit/loss before tax		19,685	-153,412
Income tax	7	-135	210
NET PROFIT/LOSS FOR THE YEAR		19,550	-153,201
Other comprehensive income:
Exchange differences on translating foreign operations		-3,000	1,081
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		16,550	-152,120
Net profit/loss for the year distribution:
Shareholders of the Parent Company		16,878	-127,925
Non-controlling interest		2,673	-25,276
		19,550	-153,201
Total comprehensive income distribution:
Shareholders of the Parent Company		14,424	-127,075
Non-controlling interest		2,127	-25,045
		16,550	-152,120
Earnings per share, EUR - shareholders of the Parent Company	8	0.49	-3.59

No accumulated dilution effects No dilution effects during year

Statement of Financial Position

EUR thousands	Note	31 Dec 2012	31 Dec 2011
Assets
Shares and participations in investing activities	10,15,16,17	287,925	293,585
Deferred tax	7	403	70
Total non-current assets		288,328	293,656
Current receivables
Other short-term receivables	15	3,073	100
Tax receivables		740	103
Accrued income and prepaid expenses	11,15	50	125
Total current receivables		3,863	328
Short-term Investments	15,16	1	22,793
Cash and cash equivalents	15	61,210	32,147
Total current assets		65,075	55,266
Total assets		353,402	348,923
	12
Shareholders' equity
Share capital		3,631	3,628
Other contributed capital		362,458	369,924
Reserves		1,729	4,183
Retained earnings including profit/loss for the year		-67,304	-84,182
Equity attributable to shareholders of the Parent Company		300,513	293,552
Non-controlling interest		44,120	45,627
Total shareholders' equity		344,634	339,179
Liabilities
Other liabilities	13,15	2,137	3,609
Accrued expenses and deferred income	14,15	6,632	6,136
Total current liabilities		8,768	9,745
Total liabilities		8,768	9,745
Total equity and liabilities		353,402	348,923
PLEDGED ASSETS AND CONTINGENT LIABILITIES	19

Pledged assets Contingent liabilities

Statement of Changes in Equity

EUR thousands	Share	Other contributed	Translation	Retained earnings incl. profit/loss	Total equity shareholders in	Non controlling
2012	capital	capital	Reserves	for the year	Parent Company	interest	Total equity
Opening equity 1 Jan 2012	3,628	369,923	4,183	-84,182	293,551	45,627	339,178
Net profit/loss for the year	-	-	-	16,878	16,878	2,673	19,550
Other comprehensive income	-	-	-2,454	-	-2,454	-546	-3,000
Total comprehensive income	-	-	-2,454	16,878	14,424	2,127	16,550
Bonus issue	2	-2	-	-	-	-	-
Reclassification from invest ment to subsidiary 1	-	-	-	-	-	16,444	16,444
Paid dividend to shareholders		-3,033			-3,033		-3,033
Dividend to and redemption to/ from non-controlling interest 2	-	-	-	-	-	-20,078	-20,078
Share buy-back	-	-4,429	-	-	-4,429		-4,429
Per 31 December 2012	3,631	362,458	1,729	-67,304	300,513	44,120	344,634

EUR thousands 2011	Share capital	Other contributed capital	Translation Reserves	Retained earnings 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

1 Holdings in East Capital Bering Central Asia Fund have been reclassified from investment to subsidiary during 2012. Please refer to Financial Position section above for more information.

During 2011, the holding in East Capital Special Opportunities Fund II was reclassified from subsidiary to investment.

Dividend and redemption to/from non-controlling interest differs from cash flow due to unsettled amounts at year end.

Statement of Cash Flow

EUR thousands	1 Jan – 31 Dec 2012	1 Jan – 31 Dec 2011
Operating activities
Operating profit/loss	18,020	-152,552
Changes in value	-21,366	151,795
Interest received	-	275
Interest paid	614	0
Other financial income	143	-408
Tax paid	-1,092	-1,397
Cash flow from current operations before changes in working capital	-3,681	-2,287
Cash flow from changes in working capital
Increase (-)/decrease (+) in other current receivables	-1,141	118
Increase (+)/decrease (-) in other current payables	-1,783	-9,052
Cash flow from operating activities	-6,604	-11,221
Investing activities
Investment in shares and participations	-65,840	-95,664
Sale of short-term investments	4,999	9,600
Sale of shares and participations	123,623	115,661
Cash flow from investing activities	62,782	29,597
Financing activities
Dividend to and redemption from non-controlling interest	-21,306	-22,962
Paid dividend to shareholders	-3,033	-3,131
Share buy-back	-4,429	-6,096
Cash flow from financing activities	-28,768	-32,189
Cash flow for the year	27,410	-13,813
Cash and cash equivalents at beginning of the year1	32,147	62,874
Reclassification between subsidiary and investment2	2,219	-15,960
Exchange rate differences in cash and cash equivalents	-566	-954
Cash and cash equivalents at end of the year	61,210	32,147

Cash equivalents comprise deposits and cash.

2 The holding in East Capital Bering Central Asia Fund has been reclassified from investment to subsidiary during 2012.

During 2011, the holding in East Capital Special Opportunities Fund II was reclassified from subsidiary to investment.

Income statement – Parent Company

EUR thousands	Note	1 Jan – 31 Dec 2012	1 Jan – 31 Dec 2011
Staff expenses	4	-833	-1,108
Other operating expenses	3,5	-985	-691
Operating profit/loss		-1,818	-1,799
Result from participation in Group Companies	6	15,617	-79,106
Financial income from Group Companies	6	1,980	203
Financial income excluding Group Companies	6	-	57
Financial expense excluding Group Companies	6	-114	-
Profit/loss before tax		15,664	-80,645
Income tax	7	-78	402
NET PROFIT/LOSS FOR THE YEAR		15,586	-80,242

Statement of Comprehensive Income – Parent Company

EUR thousands	1 Jan – 31 Dec 2012	1 Jan – 31 Dec 2011
NET PROFIT/LOSS FOR THE YEAR	15,586	-80,242
Other comprehensive income	-	-
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	15,586	-80,242

Balance Sheet – Parent Company

EUR thousands	Note	31 Dec 2012	31 Dec 2011
Assets
Financial non-current assets
Participations in group companies	9	271,272	262,156
Deferred tax		340	402
Total non-current assets		271,612	262,558
Receivables from group companies		30	-
Loan to Group Companies	15	29,315	29,315
Interest accrued on Group Companies	11	-	203
Accrued income and prepaid expenses	11	23	33
Total current receivables		29,368	29,551
Cash and cash equivalents
Cash and bank		1,131	1,916
Total current assets		30,499	31,466
Total assets		302,111	294,024
Shareholders' equity	12
Restricted equity
Share capital		3,631	3,628
Total restricted equity		3,631	3,628
Non-restricted equity
Share premium reserve		362,461	369,923
Retained earnings		-80,096	146
Net profit/loss for the year		15,586	-80,242
Total non-restricted equity		297,952	289,828
Total shareholders' equity		301,581	293,455
Liabilities
Other liabilities	13,15	198	167
Accrued expenses and prepaid income	14	332	402
Total current liabilities		530	569
Total liabilities		530	569
Total equity and liabilities		302,111	294,024
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
2012	Share capital	reserve	the year	Total equity
Opening equity 1 Jan 2012	3,628	369,923	-80,096	293,455
Net loss for the year	-	-	15,586	15,586
Other comprehensive income	-	-	-	-
Total comprehensive income	-	-	15,586	15,586
Bonus issue	2	-2	-	-
Paid dividend to shareholders	-	-3,033	-	-3,033
Share buy-back	-	-4,429	-	-4,429
Per 31 December 2012	3,631	362,461	-64,510	301,581

	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

Cash flow statement – Parent Company

EUR thousands	1 Jan – 31 Dec 2012	1 Jan – 31 Dec 2011
Operating activities
Operating profit/loss	-1,818	-1,799
Interest received	-17	15
Interest received from group companies	2,187	-
Tax paid	30	-
Cash flow from current operations before changes in working capital	381	-1,784
Cash flow from changes in working capital
Increase (-)/decrease (+) in other current receivables	3	6
Increase (+)/decrease (-) in other current payables	-69	40
Cash flow from operating activities	315	-1,738
Financing activities
New share issue	2	-
Repayment of shareholders contribution	6,500	10,000
Share buy-back	-4,429	-6,096
Payment of dividend	-3,033	-3,131
Group contribution received	-	2,566
Cash flow from financing activities	-959	3,339
Cash flow for the year	-644	1,601
Cash and cash equivalents at beginning of the year1	1,916	272
Exchange rate differences	-141	43
Cash and cash equivalents at end of the year1	1,131	1,916

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 2011 Annual Report and 2012 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 28 March 2013. 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 24 April 2013.

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 on-going 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 77.

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

A review of potential impacts of amendments to IFRS has been done. IFRS 10 Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls. Control requirements have changed compared to "IAS 27 Consolidated and Separate Financial Statements" and "SIC-12 Consolidation—Special Purpose Entities" which form the basis for the year-end report 2012. IFRS 10 requires exposure to variable returns and the ability to affect those returns through power over an investee for the investee to be considered a controlled entity. These changes will particularly benefit East Capital Explorer Group, as the funds that are consolidated in the year-end report no longer will qualify as subsidiaries, and therefore should be deconsolidated and instead held at fair value. IFRS 10 also specifies specific consolidation rules for investment entities. However, the conclusion that East Capital Explorer should no longer consolidate any of its fund investments has not been made based on those rules. For 2012, the total comprehensive income and the book value of equity would have been EUR 2.7m and EUR 44.1m lower respectively, had the changes been in effect at year end as there would have been no non-controlling interest reported.

The application of IFRS 10 for annual periods begins on or after 1 January 2014, but earlier application is permitted. After consultation with the Authorized Public Accountant, it has been decided that all the funds and similar entities in East Capital Explorer will be exempted from consolidation and that those holdings will be held at fair value under IFRS 10 starting on 1 January 2013. Hence, East Capital Explorer will only consolidate its subsidiaries East Capital Explorer Investments AB and Humarito Ltd. starting on 1 January 2013.

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 Shortterm 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 2012.

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 recognized in profit or loss.

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

Shares in subsidiaries are recognised in the parent company using the cast method. Dividends are recognised as revenue.

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 unrealized 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: EUR/USD average 2012 = 1.2855 EUR/SEK average 2012 = 8.7066

EUR/USD closing 2012 = 1.3198 EUR/SEK closing 2012 = 8.5904

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 at the same rate at which salaries are expensed.

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 interestbearing 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 shortterm 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.
• 1. 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.
• 1. 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.
• 1. 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.
• 1. 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.

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 included 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	Fund Investments	Direct	Short-term	Unallocated	Total
	1 Jan – 31 Dec 2012	Investments	Investments	1 Jan – 31 Dec 2012	consolidated
EUR thousands		1 Jan – 31 Dec 2012	1 Jan – 31 Dec 2012		1 Jan – 31 Dec 2012
Changes in value	-1,011	22,041	335	-	21,366
Received dividends	7,012	2,373	-	-	9,385
Staff expenses	-	-	-	-833	-833
Other operating expenses	-5,511	-5,402	-	-985	-11,897
Operating profit/loss	490	19,013	335	-1,818	18,020
Financial income	1,283	-	463	-	1,746
Financial expense	37	-	-	-118	-81
Profit/loss before tax	1,810	19,013	798	-1,936	19,685
Assets	244,146	61,586	46,498	1,172	353,402

Group	Fund Investments	Direct Investments	Short-term	Unallocated	Total
	1 Jan – 31 Dec 2011	1 Jan – 31 Dec 2011	Investments	1 Jan – 31 Dec 2011	consolidated
EUR thousands			1 Jan – 31 Dec 2011		1 Jan – 31 Dec 2011
Changes in value	-135,097	-16,699			-151,795
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

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	2012	2011	2012	2011
Fees to Investment Managers	9,247	3,660	-	-
Custody fees	283	314	-	-
Marketing and PR	99	78	99	78
Internal services1	256	174	256	174
Rent2	52	78	52	78
Audit assignments3	473	283	168	31
Travel	28	59	28	59
Other external costs	1,459	1,472	381	270
Total	11,897	6,118	985	691

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

Rent is included in the service agreement with East Capital Private Equity AB. See note 18.

3 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

Salaries, other remunerations and social charges		Group		Parent Company
EUR thousands	2012	2011	2012	2011
Board of Directors and CEO	408	445	408	445
of which variable	37	3	37	3
Other employees	228	327	228	327
Total	635	771	635	771
Social charges	188	328	188	328
of which pensions	46	88	46	88
Total	823	1,099	823	1,099

On 31 December 2012 the Group had five employees - three women and two men. One male employee is located in Estonia and the rest of the employees are located in Sweden.

Compensation

Remuneration to the Board

On 25 April 2012, 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

The proposal regarding remuneration to executive management for 2013 is the same as it was decided for 2012, which is described in Administration report.

Remuneration and other benefits, Parent Company
-------------------------------------------------	--	--	--	--

					2012					2011
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	-	-	100	-	100	-	-	93	-	93
Anders Ek, Board member	-	-	13	-	13	-	-	41	-	41
Monika Elling, Board member during 2010 1	-	-	-	-	-	-	-	15	-	15
Lars Emilson, Board member	-	-	44	-	44	-	-	41	-	41
Lars O Grönstedt, Board member during 2012 6	-	-	33	-	33	-	-	-	-	-
Louise Hedberg, Board member during 2012 2,6	-	-	-	-	-	-	-	-	-	-
Karine Hirn, Board member during 2010 2	-	-	-	-	-	-	-	-	-	-
Alexander V. Ikonnikov, Board member	-	-	44	-	44	-	-	41	-	41
Justas Pipinis, Board member during 2011 2	-	-	-	-	-	-	-	-	-	-
Gert Tiivas, CEO 2010 to 15 October 20114	-	-	-	-	-	189	-	-	25	214
Mia Jurke, CEO from 15 October 20115	137	37	-	24	198	22	3	-	2	27
Mathias Pedersen, CFO7	58	16	-	15	89	150	27	-	22	199
Total	195	53	233	39	520	361	30	230	49	670

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

2 Board members Louise Hedberg, Karine Hirn and Justas Pipinis waived their director's fees.

In 2013 the Board has resolved to pay out EUR 53,000 in variable salary for executive management for 2012.

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 to CEO and started her assignment on 15 October 2011. She worked part-time (75%) until February 2012 and full time until year-end.

6 Lars O Grönstedt and Louise Hedberg were elected at the Annual General Meeting 2012.

Mathias Pedersen, starting in January 2012, is employed part time (40%) at the company, previously having been employed full time.

Note 5 Fees and Expenses for Auditors

		Group		Parent Company
EUR thousands	2012	2011	2012	2011
KPMG
Audit fee	357	283	52	31
Tax assignments	24	11	24	11
Other assignments	57		57
Total	438	294	133	42

Note 6 Financial Income and Expense

		Group		Parent Company
EUR thousands	2012	2011	2012	2011
Interest income on financial assets measured at fair value (fair value option)1	463	861	-	-
Reversal of write down of shares in Group companies	-	-	15,617	-
Interest income on cash and cash equivalents	596	295	6	15
Interest income from Group companies	-	-	1,984	203
Other financial income	186	55	-	-
Exchange rate gain2	501	-	-	42
Total financial income	1,746	1,211	17,607	260
Financial expenses
Interest expense on financial liabilities measured at amortised cost	-81	-10	-	-
Write down of shares in Group companies	-	-	-	-79,105
Exchange rate loss2	-	-2,061	-124	-1
Total financial expense	-81	-2,071	-124	-79,106
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	2012	2011	2012	2011
Current tax expense (-)/income (+)
Tax expense/income for the period	-453	-1,043	-	-
Deferred tax expense (-)/income (+)
Deferred tax on temporary differences	318	1,253	-78	402
Total recognised tax expense/income	-135	210	-78	402

Reconciliation of effective tax				Group				Parent Company
EUR thousands	2012 (%)	2012	2011 (%)	2011	2012 (%)	2012	2011 (%)	2011
Profit/loss before tax		19,685		-153,412		15,664		-80,645
Tax as per applicable tax rate for the Parent Company	26.3	-5,177	26.3	40,347	26.3	-4,120	26.3	21,210
Difference in tax rate in foreign operations	-4.9	962	0.3	474	-	-	-	-
Tax effect of non-taxable income	-21.0	4,133	-	-	-26.2	4,108	-	-
Tax effect of non-taxable expense	-	-	-26.5	-40,598	0.0	-1	-25.8	-20,807
Change of tax rate from 26,3% to 22% on tax loss carried forward	0.6	-109			0.4	-61
Correction of previous years tax	-0.3	57	0.0	-14	0.0	-4	-	-
Recognised effective tax	0.7	-135	0.1	210	0.5	-78	0.5	402

Deferred tax assets and tax liabilities relate to the following:

Group	Deferred tax	Deferred tax	Net	Deferred tax	Deferred tax	Net
EUR thousands	asset 2012	liability 2012	2012	asset 2011	liability 2011	2011
Loss carry forwards	810	-	810	477	-	477
Tax allocation reserve	-	-407	-407	-	-407	-407
Total	810	-407	403	477	-407	70

Note 8 Earnings Per Share

Earnings per share

EUR	2012	2011
Earnings per share, basic and diluted	0.49	-3.59

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	2012	2011
Profit/loss attributable to the holders of ordinary shares in the Parent Company.	16,878	-127,925
Weighted average number of outstanding ordinary shares	2012	2011
In thousands of shares	1 Jan – 31 Dec	1 Jan – 31 Dec
Total number of outstanding shares, 1 January	33,770	34,852
Share buy-back	-746	-1,082
Total number of outstanding shares, 31 December	33,025	33,770
Weighted average number of ordinary shares, basic and diluted, adjusted for the effects of the redemption program	34,394	35,597

Note 9 Group Companies

Holdings in subsidiaries

			Share of Equity, %
	Subsidiary's domicile country	2012	2011
East Capital Explorer Investments AB	Stockholm, Sweden	100	100
East Capital Explorer Investments (Cyprus) Ltd	Nicosia, Cyprus	100	100
Humarito Limited	Nicosia, Cyprus	100	58
East Capital Power Utilities Fund AB	Stockholm, Sweden	73	73
East Capital Special Opportunities Fund	Grand Cayman, Cayman Islands	83	82
East Capital Bering New Europe Fund	Grand Cayman, Cayman Islands	93	88
East Capital Bering Balkan Fund	Grand Cayman, Cayman Islands	66	62
East Capital Bering Central Asia Fund 1	Grand Cayman, Cayman Islands	56	-

1 During the first quarter of 2012 other investors in East Capital Bering Central Asia Fund redeemed shares. As a result East Capital Explorer, from an accounting perspective, has a controlling influence over the fund and therefore needed to treat it as a subsidiary. Consequently, the fund was reclassified in the first quarter of 2012 from shares and participations in investing activities to a subsidiary.

Parent Company
EUR thousands
Acquisition value	2012	2011
At 1 January	262,156	380,576
Repayment of shareholder contribution	-6,500	-10,000
Conversion of shareholders contribution to Loan	-	-29,315
Write down	-	-79,105
Reversal of write downs	15,617	-
At 31 December	271,272	262,156

Specification of the Parent Company's direct holdings of participations in subsidiaries

Subsidiary / Corporate registration number / Domicile		31 Dec 2012	31 Dec 2011
	No. of shares	Carrying amount	Carrying amount
East Capital Explorer Investments AB/556693-7370/ Stockholm	3,410	271,272	262,156
Total	3,410	271,272	262,156

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	2012	2011
At 1 January	455,063	433,447
Exchange difference opening balance	-4,831	5,625
Reclassification of subsidiary	43,170	13,810
Acquisitions	64,989	92,042
Disposals	-150,735	-89,861
At 31 December	407,657	455,063
Change in fair value through profit or loss
At 1 January	-161,478	21,855
Exchange difference opening balance	1,373	-4,642
Reclassification of East Capital Bering Central Asia Fund	-26,796	-
Fair value change in the value through the income statement for the year	67,170	-177,745
Redistribution consolidated funds		-947
At 31 December	-119,731	-161,478
Carrying amount 31 December	287,925	293,585

Holdings 2012	Number of shares/Units	Cost	Value Change	Carrying amount
East Capital Bering Russia Fund	1,660,805	43,590	-15,786	27,804
East Capital Bering Ukraine Fund Class A	738,641	11,039	-7,146	3,893
East Capital Bering Ukraine Fund Class R	912,395	18,372	-13,143	5,228
East Capital Bering Central Asia Fund 1
Bank of Georgia	654,471	4,064	4,195	8,259
Kcell	450,000	3,580	426	4,006
Dragon Oil	560,197	2,581	1,240	3,821
Eurasian Natural	1,018,000	3,933	-374	3,559
Other		41,015	-27,860	13,155
East Capital Bering New Europe Fund 1
Tallinna Vesi	96,500	710	177	887
Inter Rao Lietuva	118,000	680	90	770
Pannergy	390,729	1,274	-505	769
Mennica Polska	135,000	432	318	749
Other		10,639	-2,124	8,515
East Capital Bering Balkan Fund 1
Fondul Proprietatea	60,554,700	3,496	3,984	7,480
Astonko	132	12,401	-7,433	4,968
Zavarovalnica Triglav	225,414	5,660	-1,935	3,725
Komercijalna Banka Skopje	70,096	2,766	-64	2,702
Other		69,947	-37,818	32,128
East Capital Special Opportunities Fund 1
Integra Group Holdings	3,125,883	3,822	-3,017	805
Veropharm	116,000	2,300	82	2,383
Belon	1,178,000	561	-387	173
Fondul Proprietatea	70,174,000	4,102	4,555	8,657
Other		16,612	-4,780	11,832
East Capital Power Utilities Fund
MRSK Tsentra	148,429,267	4,027	-1,818	2,209
RAO EES	298,405,716	2,228	-614	1,614
OGK-5	39,697,452	2,520	-925	1,595
E.ON Russia	23,897,095	389	1,161	1,550
Other		13,136	-5,640	7,496
East Capital (Lux) Eastern European Fund	61,943	6,194	-1,781	4,413
East Capital Russia Domestic Growth Fund	15,000	15,000	-522	14,478
East Capital Special Opportunities Fund II	3,500,000	35,000	-15,715	19,285
East Capital Baltic Property Fund II	163,898	16,931	500	17,431
MFG (OAO Melon Fashion Group)	11,545	28,873	15,321	44,194
EEDF AG 2	2,500	1,144	144	1,288
Trev-2 Group	18,064,014	5,614	1,792	7,406
Komercijalna Banka Skopje	227,907	13,027	-4,330	8,697
Total		407,657	-119,731	287,925

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

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

Note 11 Accrued Income and Prepaid Expenses

		Group		Parent Company
EUR thousands	31 Dec 2012	31 Dec 2011	31 Dec 2012	31 Dec 2011
Accrued interest	4	22	-	-
Accrued interest, Group Companies	-	-	-	203
Prepaid expenses	46	103	23	33
Total	50	125	23	236

Note 12 Shareholders Equity

Outstanding shares	2012	2011
Issued at January 1	33,770	34,852
Share buy-back, September to December 2011. Cancelled in June 2012.	-	-1 082
Share buy-back, January to March and August to October 2012.	-746	-
January to March shares cancelled in June 2012
Issued at 31 December	33,025	33,770

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 301m (EUR 294m) per 31 December. EUR 258m (EUR 255m) was invested in equity funds and direct investments.

The objective is to offer investors longterm 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 increase of the NAV for the year 1 January to 31 December 2012 was 2.4% (decrease 32%).

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 2012	31 Dec 2011	31 Dec 2012	31 Dec 2011
Other current liabilities
Accounts payables	42	93	34	20
Redemption from non-controlling interest not paid out	1,732	2,997	-	-
Management fee in East Capital Bering Balkan Fund, East Capital Bering New Europe Fund, East Capital Bering Central Asia Fund and East Capital Special Opportunities Fund I	174	-	-
Other	188	519	163	147
Total	2,137	3,609	198	167

Note 14 Accrued Expenses and Prepaid Income

		Group		Parent Company
EUR thousands	31 Dec 2012	31 Dec 2011	31 Dec 2012	31 Dec 2011
Vacation pay	27	61	27	61
Managment fee East Capital Power Utilities Fund, Bond mandate, Komercijalna Banka Skopje, Trev-2 Group and East European Debt Finance	296	807	-	-
Performance fee East Capital Special Opportunities Fund I, Melon Fashion Group and Trev-2 Group	5,710	4,478	-	-
Other accrued expenses	599	791	305	341
Total	6,632	6,136	332	402

Note 15 Financial Assets and Liabilities

Financial assets at		Other	Total
fair value through	Loans and	financial	carrying
profit or loss	receivables	liabilities	amount	Fair value
287,925	-	-	287,925	287,925
-	3,073	-	3,073	3,073
-	4	-	4	4
1	-	-	1	1
-	61,210	-	61,210	61,210
287,926	64,287	-	352,213	352,213
-	-	2,137	2,137	2,137
-	-	6,006	6,006	6,006
-	-	8,142	8,142	8,142

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

Parent Company				2012				2011
EUR thousands	Loans and receivables	Other financial liabilities	Total carrying amount	Fair value	Loans and receivables	Other financial liabilities	Total carrying amount	Fair value
Loan to Group Companies	29 315	-	29 315	29 315	29,315	-	29,315	29,315
Other current receivables	30	-	30	30	-	-	-	-
Total	29 345	-	29 345	29 345	29,315	-	29,315	29,315
Other financial liabilities	-	198	198	198	-	167	167	167
Total	-	198	198	198	-	167	167	167

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 66.

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 66–69.

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 2012.

Fair value hierarchy for financial assets (EUR thousands)
2012
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	154,155	38,950	33,234	226,339
- Direct investments	8,697	-	52,889	61,586
- Short-term investments	-	-	1	1
Total assets measured at fair value	162,852	38,950	86,124	287,926
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

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 2012 by class of financial instrument:

2012	Fund Investments	Direct Investments	Total
Opening balance 2012	15,565	24,799	40,363
Exchange rate differences	-141	-	-141
Purchase/addition	16,931	14,691	31,622
Sales/reduction	-5,379	-11,322	-16,702
- Movements to level 31	6,803	-	6,803
- Movements from level 3	-107	-	-107
- Result from financial assets at fair value through profit or loss 2	-436	24,722	24,286
Closing balance 2012	33,235	52,889	86,124

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

1 In 2012 movements to level 3 mainly refers to the result of consolidation of East Capital Bering Central Asia as holdings, which were previously reported as an aggregate to level 1 now instead are individually reported to the levels which each holding belongs to. In 2011 movements from level 3 mainly refers to Fondul Proprietatea which was listed on the Bucharest 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 2012, the total fair value of East Capital Explorer AB's investments exposed to equity price risk amounted to EUR 288m (EUR 294m) 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 2012	Fair value at 31 Dec 2011
Shares and participations in investment activities designated at fair value through profit or loss at inception:
Fund Investments	226,339	243,187
Direct investments	61,586	50,398
Total Portfolio	287,925	293,585

The table "Sensitivity analysis for market risks" below summarizes the Group's sensitivity to equity price changes on 31 December 2012.

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 short-term 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 "Concentration of foreign currency assets" below has been analyzed between the Group's monetary and nonmonetary assets, which are denominated in a currency other than the euro.

The consolidated profit or loss includes exchange differences of tEUR 501 (tEUR -2,061) 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 2012. 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 2012.

(iv) Sensitivity analysis

The table "Sensitivity analysis for market risks" below summarizes the effect of the most important market risks on the Group's total comprehensive income.

5 largest concentration	EUR	SEK	USD	RUB	CZK	Other	Total
Monetary assets, 31 Dec 2012	32,323	15,451	13,317	82	38	-	61,211
Monetary assets, 31 Dec 2011	25,127	993	28,532	-	61	228	54,940
5 largest concentration	EUR	USD	RON	GBP	MKD	Other	Total
Non-monetary assets, 31 Dec 2012	125,115	76,792	23,982	17,965	11,590	32,481	287,925
Non-monetary assets, 31 Dec 2011	93,258	124,002	24,564	1,437	12,992	37,332	293,585

Concentration of foreign currency assets (EUR thousands)

Sensitivity analysis for market risks (EUR thousands)

	31 Dec 2012			31 Dec 2011
Risk factors		Effect on total comprehensive		Effect on total comprehensive
	Change	income for the period	Change	income for the period
Currency rate EUR/USD	+/- 5%	3,146	+/- 5%	7,883
Interest rate	+/- 2 percentage points	21	+/- 2 percentage points	505
Equity price	+/- 10%	28,792	+/- 10%	29,359
Value of level 3 holdings	+/- 10%	8,612	+/- 10%	4,036

(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 well-known 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 assets 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 2012, the largest exposure to a single company had a value of EUR 44.2m (EUR 20.0m) or 14.7% (6.8%) of the net asset value. The top 10 holdings (when combining holdings in underlying funds) had a value of EUR 37.8m (EUR 88.5m) corresponding to 37.8% (30.2%) of the net asset value at year end 2012.

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 2012, 46% of the invested portfolio has it geographic exposure to Russia, followed by Estonia, Romania, Serbia and Ukraine, representing 7%, 7%, 6% and 5% respectively. By industry sectors 37% of the invested portfolio was held in Financials, followed by 27% in Consumer Discretionary, by 7% in Utilities, 7% in Industry and 5% 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 ongoing 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 2012

Acquisitions 2012

As from 1 January 2012, the Group acquired controlling influence in East Capital Bering Central Asia Fund in connection with redemptions within the Fund, and at year-end the Group's holdings were 56%. The holdings in East Capital Bering Central Asia Fund has been reclassified from investment to subsidiary. Of the consideration, EUR 29m had been paid before the Group acquired controlling influence. Fair value on the investment has been based on the published NAV of the Fund as at 31 December 2011. At that time, the noncontrolling interest held 49.8% of the Fund, equivalent to EUR 16m in fair value. All cash considerations paid to East Capital Bering Central Asia Fund are related to share capital and share premium reserves of the fund.

As of 17 July 2012 the Group acquired remaining 840 shares in Humarito Ltd, equivalent to 42% of the company's shares. After the acquisition the Group holds 100% of the shares of Humarito Ltd. Total assets of Humarito Ltd amounted to 6,278,185 EUR at the time of the acquisition. Total liabilities of Humarito Ltd amounted to 6,445,510 EUR at the time of the acquisition. The value of NCI before the acquisition was 70,277 EUR.

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.

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.

Effects of the acquisitions 2012
Total net assets acquired	Book value	Fair value adjustment	Recognised values
East Capital Bering Central Asia Fund	29,478	-12,873	16,605
Total	29,478	-12,873	16,605
Net assets acquired – Bering Central Asia Fund	Book value	Fair value adjustment	Recognised values
Investments	16,554	-	16,554
Cash and cash equivalents	1,128	-	1,128
Liabilities	-1,076	-	-1,076

East Capital Bering Central Asia Fund
19,529
9,949
29,478
-12,873
16,605

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 10,001 (tEUR 5,703). For more details about fees, see page 53.

Fees and profit sharings to the following recipients	2012	2011
East Capital Alternative Investments, Cayman	2,889	2,902
East Capital Advisory S.A.	164	293
East Capital Private Equity AB	4,962	-370
East Capital AB	1,986	2,878
Total	10,001	5,703

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. The company has a subrent premises agreement with East Capital Private Equity AB. During the year the Group purchased services for EUR 0.3m (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 6.6m (EUR 6.1m). 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 15% (13%) of voting rights in the Company. For information about remuneration of senior executives please refer to Note 4 on page 71.

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. In any such matter referred to the Board, the Board members affiliated with East Capital will not take part in such decision where a conflict exists, in accordance with the conflict of interest rules under the Companies Act.

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 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

East Capital Explorer AB made a committment to invest EUR 20m in the East Capital Baltic Property Fund II. It has been invested totally EUR 17m and the remaining EUR 3m will be made as the Fund calls for the capital, which takes place when the Fund has identified an investment object.

East Capital Explorer has committed to invest EUR 15 m into the East Capital Russia Domestic Growth Fund in the fund's opening on 1 January 2013. EUR 15 m was invested into the Fund in January 2013.

On 4 December, the EGM approved a share redemption program for 2013 to the Company's shareholders, which was launched during December 2012. Approximately EUR 15m was committed to pay out to the shareholders participating in the redemption program, corresponding to an acceptance level of 100%.

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 33, Box 7214, 103 88 Stockholm, Sweden. The consolidated financial statements for 2012 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 28 February 2013 amounted to EUR 9.42 (corresponding to SEK 79). The share price on 28 February 2013 was SEK 52.75 (corresponding to EUR 6.25). Cash, cash equivalents and other short-term investments on 28 February 2013 amounted to EUR 7m.

Investments

Until 28 February 2013 investments were made in East Capital Russia Domestic Growth Fund totalling EUR 25m.

Redemption program

In light of the discount to NAV and the high confidence of both the Board and Management in the Company's NAV, the Board decided, as announced on 23 October 2012, to propose a share redemption program to the Company's shareholders. The program was approved by an EGM on 4 December 2012, allowing the shareholders to redeem 1 out of 20 shares at NAV. The Board has committed to making the same proposal to the 2014 and

2015 AGMs in case the share is trading at a discount to NAV exceeding 10%. The redemption program is replacing the Company's dividend policy and the Board does not intend to use its authorization for repurchase of shares during this period.

The application period for East Capital Explorer's offer to redeem shares ended on 14 January 2013. The offer entitled redemption of a maximum of every twentieth share held in the Company, at a redemption price of SEK 77 per share (corresponding to the Net Asset Value per share on 31 October 2012).

1,600,286 shares were tendered for redemption during the redemption program, corresponding to an acceptance level of

approximately 97%. Consequently, a total of SEK 123,2m (EUR 14.6m) was paid out to the shareholders participating in the redemption program.

In accordance with the extraordinary general meeting's resolution on 4 December 2012, in the end of January 2013 East Capital Explorer cancelled the redeemed shares as well as the 685,111 shares that were repurchased during the period of 8 August - 5 October 2012 through the share buyback program. The Company does not hold any own shares following the cancellation.

Following completion of the redemption and cancellation, and a bonus issue effected in connection therewith without issuing new shares, East Capital Explorer's share capital amounted to approximately EUR 3.6m by 31,424,309 shares. Payment of the redemption amount was completed at the end of January 2013.

Five-Year Summary

Consolidated key figures	2012	2011	2010	2009	2008
Equity ratio,%	97.5	97.3	96.1	98.4	97.9
Net asset value, EUR thousands	300,513	293,551	429,853	341,369	265,025
Change in NAV, %	2.40	-31.70	25.90	28.80	-32.80
Market capitalisation, SEKm	1,618	1,815	2,954	2,378	1,458
Market capitalisation, EUR thousands	188,374	208,807	328,661	231,817	134,013
Number of employees	5	4	4	4	4

Key figures/share	2012	2011	2010	2009	2008
Earnings per share1	0.49	-3.59	2.48	2.20	-3.46
NAV, SEK2	78.00	77.00	111.00	99.00	79.53
NAV, EUR2	9.10	8.69	12.33	9.61	7.31
Share price, SEK	49.00	53.75	84.75	67.00	40.20
Share price, EUR	5.70	6.03	9.43	6.53	3.69

1 Following the Company's redemption program all historical earnings per share calculations have been adjusted accordingly.

2 Some currency translations are made for informational purposes. 1 EUR = SEK 8.5904 on 31 December 2012 and SEK 8.9182 on 31 December 2011.

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, 28 March 2013

Paul Bergqvist Mia Jurke

Chairman of the Board Chief Executive Officer

Lars Emilson Lars O Grönstedt Board member Board member

Louise Hedberg Karine Hirn Board member Board member

Alexander V. Ikonnikov Board member

Our Auditors' Report was submitted on 28 March 2013

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 28 March 2013. 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 24 April 2013.

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 2012. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 56–85.

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 in accordance with the Annual Accounts Act and of the 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 opinions.

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 2012 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2012 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, 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 the statement of comprehensive income and balance sheet for the group.

Report on other legal and regulatory requirements

In addition to our audit of the annual accounts and consolidated accounts, we have also audited 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 2012.

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 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 is sufficient and appropriate to provide a basis for our opinions.

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 be discharged from liability for the financial year.

Stockholm 28 March 2013

KPMG AB

Carl Lindgren Authorized Public Accountant

Defi nitions

See page 52 for defi nitions related to fees

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 profi t 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). Profi t 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 fi ve 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.

Outstanding number of shares

Registered number of shares less any share held by the company.

Profi t/loss for the year Profi t/loss after tax.

Registered number of shares The number of shares in the company including shares held by the Company.

Return on equity

Profi t/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 noninterest-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.

This Annual Report is available in Swedish and English. In the case of any discrepancies between the two language versions, the Swedish version shall govern.

Production: East Capital Explorer Graphic design: Ilze Johnston, ITZIT Design Printed in Estonia by Dixa AB Photos: Snezana Vucetic Bohm (15,16,20,23,39,45,46,47), Jakob Guardian (21,22), Victor Brott (cover,12,46,47,50,53), Niklas Larsson (cover, 13,14), Karl Lans (51), Maria Jansson (cover), Shutterstock and portfolio companies.

AGM 2013

The Annual General Meeting of East Capital Explorer AB (publ) will be held at 3.15 p.m. CET on Wednesday, 24 April 2013 at Konserthuset, Hötorget in Stockholm, Sweden.

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, 18 April 2013 and have notified the company of their attendance no later than 4:00 p.m. CET on Thursday, 18 April 2013.

Notification of attendance may be made:

On the web: www.eastcapitalexplorer.com/en/agm2013

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, 18 April 2013. Shareholders are requested to inform their nominees well in advance of this date.

Programme

• 12:15 Registration for the AGM opens (registration closes at 3:15 pm)
• 1:00 Presentations and round-table discussion with representatives from the Investment Management Team at East Capital:
• Welcome to the Annual General Meeting for East Capital Explorer Moderator: Elisabeth Hedborg, former news correspondent in Russia for SVT (Swedish Television) and Swedish Radio
• Highlights from 2012 and outlook 2013 Charlotte Åsberg, Investor Relations Manager, East Capital Explorer
• When does the recovery in Eastern Europe seriously take off and which countries have the greatest potential? Marcus Svedberg, Chief Economist, East Capital
• East Capital Explorer's investment themes and portfolio investments and how sustainability issues are considered in the investment process Panel discussion with representatives from the Investment Manager, East Capital: Peter Elam Håkansson, Chairman and Founding Partner, Jacob Grapengiesser, Partner and Louise Hedberg, Head of Corporate Governance
• Melon Fashion Group Focus on profitability during 2012 has delivered positive results and the company's outlook remains promising Representing the Investment Manager, East Capital: Kestutis Sasnauskas, CEO Private Equity and Founding Partner
• Baltic investment opportunities within Real Estate and Private Equity Panel discussion with representatives from the Investment Manager, East Capital: Biljana Pehrsson, Head of Real Estate & Kestutis Sasnauskas, CEO Private Equity and Founding Partner
• 2:15 Q&A session
• 2:45 Coffee break
• 3:15 AGM

Financial information and calendar

• Indicative monthly Net Asset Value report on the fifth working day after the end of each month
• 24 April 2013 Annual General Meeting 2013
• 8 May 2013 Interim Report 1 January – 31 March 2013
• 14 August 2013 Interim Report 1 January – 30 June 2013
• 11 November 2013 Interim Report 1 January – 30 September 2013

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.

Contact us

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

Visiting address:

Kungsgatan 33, Stockholm Sweden

Postal address:

P.O. Box 7214 SE-103 88 Stockholm Sweden

www.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: +46 8 402 90 00 info@euroclear.eu

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.

Kungsgatan 33, Box 7214 SE-103 88 Stockholm, Sweden Tel: +46 8 505 97 700 Coroporate identity no: 556693-7404 www.eastcapitalexplorer.com