Half Year Report 2010 - East Capital · increase or decrease in value, and there is no guarantee that all of the capital you invest will be repaid. * Best return among today’s approximately

Half Year Report 2010

Et

Andrius Kubilius, Prime Minister of the

Republic of Lithuania, joined by an impress ive

number of senior policymakers and advisers,

met us at our offi ce in Stockholm.

Jacob Grapengiess er visiti

ng Belon, one of the

larges t producers of

coking coal in Russ ia.

Coking coal toget her with iron ore, is

one of

components for producing stee

l.

Aivaras Abromavicius visits Gostomel Glass Factory

in Ukraine. Gostomel was acquired by Vet ropack –

a Swiss -based glass packaging producer – continu-

ing its geographical ex pansion in Eastern Europe.

Eglė Fredrikss on Kazakhstan, a com

seismic and infr ast

the global oil majors

Andras Szalkai visiting MOL off shore gas

drilling site in Croatia. MOL is a Hungarian

oil and gas company.

East Capital broadcasts live web-TV each quar-

ter. Listen to our views on events, opp ortunities

and challenges in Eastern European fi nancial

market s.

e

of the

Tim Umberger and Adrian Pop visiting com-

pany BB Minaqua, a leader in the Serbian

market of mineral waters.

Domes tic consumption is an important growth driver in Russ ia wh ich highly benefi ts the ret ail and consumer goods sect or.

n visiting Caspian Services in

ompany providing off shore marine,

astructure development services to

s working in Caspian oil fi elds.

2

Welcome to the East Capital Universe

Fund fact sheet and information brochure is available at eastcapital.com

Past performance is no guarantee of a particular return in the future. The money invested in a fund can

increase or decrease in value, and there is no guarantee that all of the capital you invest will be repaid.

* Best return among today’s approximately 94,000 regulated onshore funds during the period

1/1 2000 – 31/12 2009. Source: Morningstar.

Our Russian fund was the world’s best fund* this past

decade. It was number one out of today’s 94,000 on-

shore regulated funds with a return of 1,565% (USD).

One secret behind the success is the people who work

in the companies we invest in. (For example employees

at the shipping and logistics company Fesco). Another

is our 37 investment professionals who every year visit

close to one thousand companies and thereby discover

facts that are not always available in annual reports.

Read more about the growth in the new decade at

eastcapital.com/bestfund

One of the men behind the world’s best fund.

Rather than sit in an office all day, we travel around Eastern

Europe visiting companies at numerous destinations –

over 500 of them a year. This tells us more about the

markets than any index in the world ever could.

Important Notice: Historic yields are no guarantee for future yields. Fund units can go up or down in value, and investors may not get back the amount invested. Fact sheets and prospectuses are available at www.eastcapital.com

Global Industry Classification Standard The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (“S&P”) and is licensed for use by East Capital. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS clas-sifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS clas-sifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. GICS associated by East Capital: Alfa Plam, Bambi, Bank Tsentrkredit, BB Minakva, BTA, Cacanska Banka, East Capital Baltic poperty Investors Ab (Publ), East Capital Bering Balkan Cert, East Capital Bering Central Asia Cert, East Capital Bering Russia Cert, East Capital Bering Ukraine Cert, East Capital Financials Fund, Efes Zajecar, Fondul Proprietatea Wts 2010-11-30, Fondul Proprietatea Wts 2011-04-03, Halcyon Investment, Imlek, IMS Group, Inter RAO Extra, JAFFA, Laivite, Novoil pref, Parex Banka, Parex Banka Non Vote, PIK Cacak, Pupin Telecom, Rus Hydro GDR Temp, Rus Hydro Temp, Russian Maintenance Corp, Saturn Sa Alba, Slavutich, Sojaprotein, Srpska Banka, Toza Markovic, Trev-2 Grupp, Umka, Univerzal Holding, Velefarm, Zitopromet - Mlin.

© East Capital, 2010. Photos: Shutterstock, Victor Brott, portfolio companies and members of our staff. Design: Fredrik Folkesson, Ilze Ivanova. Translation: Avison. Print and preprint: Litografia Alfaprint.

Contents

About East Capital .............................................................................................. 4

Invest in East Capital’s funds ......................................................................... 10

A word from the East Capital Chairman .......................................................11

Developments in the funds and markets and the funds’ accounts:

East Capital Russian Fund ............................................................................. 12

East Capital Baltic Fund ..................................................................................15

East Capital Eastern European Fund ............................................................18

East Capital Balkan Fund ............................................................................... 22

East Capital Turkish Fund ............................................................................... 25

Reporting principles ........................................................................................ 27

Tax rules ............................................................................................................. 27

4

About East Capital

East Capital is a leading independent asset manager special-

ising in Eastern European financial markets. Our investment

strategy is based on thorough knowledge of the markets, funda-

mental analysis and frequent company visits by our investment

teams.

Asset Management Company

East Capital Asset Management AB

a wholly-owned subsidiary of East Capital Holding AB

Box 1364, SE-111 93 Stockholm

Tel +46 8 505 88 505, Fax +46 8 505 88 508

E-mail: [email protected]

Company registration no: SE 556564-5370

Share capital: 5,000,000 SEK

Board

Justas Pipinis, chairman of the board

Risto Silander, member of the board

Mia Jurke, member of the board

Dick Lundqvist, member of the board

Chief Executive Officer

Linda Hellström

Depositary

Skandinaviska Enskilda Banken (publ), Securities Services

Supervisory authority

Swedish Financial Supervisory Authority

Applicable regulations

Investment Funds Act (SFS 2004:46), the Swedish Financial

Supervisory Authority’s regulations on investment funds (FFFS

2008:11) and rules and regulations for each fund. The company

follows the Swedish fund company code, which was adopted

by the Board of the Swedish Investment Fund Association on

6 December 2004.

Independent board member

The company’s board currently comprises two independent

members.

Auditor

Carl Lindgren, Authorised public accountant, KPMG AB

Advisory Committee

Örjan Berner

Örjan Berner held various foreign ministry positions in New York,

Beijing and Moscow before becoming ambassador in Warsaw

and New Dehli. He was Sweden’s ambassador in Moscow during

the break up of the Soviet Union and when Russia and a number

of other countries were forming (1989 – 1994). Later he was am-

bassador to both Germany and France. Örjan has maintained a

large network of contacts in Russia over the years and has stead-

ily built up his know-how of the Russian economy and local poli-

tics.

Bengt Dennis

Bengt Dennis was Governor of the Bank of Sweden from 1982 to

1993 after having been Editor-in-chief at the Swedish newspa-

per Dagens Nyheter. He also led the work on the transportation

route “Via Baltica” through the three Baltic States and was a

member of the Hansapank and SEB Baltic Holdings boards.

Bengt is the world’s foremost expert on the economies and

political situations in the Baltic countries. As a member of our

Advisory Committee he is responsible for analysing Poland.

Thorvald Stoltenberg

Thorvald Stoltenberg, Norway’s former Foreign and Defence

Minister, has worked with Balkan issues for many years, among

others as the UN General Secretary’s special envoy to the

former Yugoslavia and Chairman of the UN’s Steering Commit-

tee of the International Conference for the former Yugoslavia.

From 1989 to 1991, Thorvald worked as United Nations High

Commissioner for Refugees and between 1999 and 2008 he

was president of the Norwegian Red Cross.

Our Advisory Committ ee; Bengt Dennis,Th orvald Stoltenberg and Örjan Berner.

5

BELARUS

UZBEKISTAN

UKRAINE

TURKMENISTANTAJIKISTAN

R U S S I A

LITHUANIA

LATVIA

KYRGYZSTAN

MONGOLIA

KAZAKHSTAN

GEORGIA

ESTONIA

AZERBAIJANARMENIA

SWEDEN

ROMANIA

SERBIABOSNIA

CROATIA

SLOVENIA

MONTENEGRO

ALBANIAMACEDONIA

TURKEYGREECE

BULGARIA

SLOVAKIA

POLAND

CZECH REPUBLIC

HUNGARY MOLDOVA

Company visits

are key to good

performanceStaying close to the companies and visiting them on a

regular basis is more important than ever. Our investment

team does over 1,000 company visits and meetings every

year. Local presence and active management constitute

the backbone in the way we work. Most of our funds have

outperformed the underlying markets and some also

earned awards.

As long-term investors, we are also very proud that our

Russian fund was the best worldwide onshore regulated

fund of the decade, with a performance of 1,565% in USD.Golden Star 2004

Dagens Industri and

Morningstar

Golden Star 2005

Dagens Industri and

Morningstar

Morningstar Awards 2005

Best Emerging Markets Equity

Fund FD Morningstar Holland

Golden Star 2003

Dagens Industri and

Morningstar

Golden Star 2001

Dagens Industri and

Morningstar

Lipper Fund Awards 2006

Best Equity

Emerging Markets Europe

Lipper Netherlands


Best Equity


Lipper Europe

Golden Star 2006

Dagens Industri and

Morningstar

Laurier D’Or 2006

Best Fund Over 5 Years

“Foreign Fund Managers”


Best Equity


Lipper Nordics


Best Equity


Lipper France


Best Equity


Lipper Austria


Best Equity


Lipper Netherlands


Best Equity


Lipper Europe


Best Equity


Lipper France


Best Equity


Lipper Netherlands


Best Equity


Lipper Austria


Best Equity


Lipper Nordics


Best Equity


Lipper Nordics


Best Equity


Lipper Europe


Best Equity


Lipper France

Best Equity Fund 2009

Business New Europe


Best Equity


Lipper Nordics

D E C A D E ’ S

B E S T FUNDWORLDWIDE

EA

ST C

APITAL RUSSIAN F

UN

D

2000 — 2009

Eastern Europe is our world. We call this region the East Capi-

tal Universe. It spans 30 countries and encompasses more than

400 million people. Our vision is to release the potential of the

East Capital Universe. Releasing the potential embraces four

dimensions – the capital we invest, the companies we invest in,

the region as a whole and the people in our own company.

6

East Capital Portfolio Management Team

Peter Elam Håkansson

Head of the Portfolio Management team

Peter, a Swedish national, is one of the founders of East Capital,

acting today as Head of the Investment team. Peter was the one

to think through, set up and implement East Capital’s investment

philosophy and strategies, which he still oversees today.

Peter has been working with Eastern European markets since

the early nineties and still travels frequently in the region to visit

companies. Peter has been awarded the Golden Star for best

Fund Manager five times by Morningstar and Dagens Industri.

Peter is a member of the Board of the Swedish-Russian Cham-

ber of Commerce, as well as member of the Investment Commit-

tee of ICICI Bank in India. ICICI Bank is India’s second-largest

bank. He is also member of Bonnier Business Press’ Advisory

Board with focus on Central and Eastern Europe.

Prior to East Capital Peter held a series of senior posi-

tions at Enskilda Securities in London, Paris and Stockholm –

where his last role was as Head of Equities and Global Head

of Research. He is a graduate from the Stockholm School of

Economics, and also studied at EDHEC, France. He is fluent in

Swedish, English and French.

Aivaras Abromavicius

Partner

Aivaras, a Lithuanian national, joined East Capital in 2002 and

is today a Partner of East Capital, working within the Portfolio

management team. He is based in Kyiv.

Aivaras started his career with Hansabank, the largest Baltic

Bank, where he soon was appointed Head of Equities. He also

worked three years as Head of Trading at Brunswick Emerging

Markets.

Aivaras has a BA in International Business from Concordia

International University, Estonia and Concordia University, Wis-

consin, USA. He speaks Russian, Lithuanian and English fluently

and communicates well in Estonian.

Jacob Grapengiesser

Partner

Jacob, a Swedish national, joined East Capital in 2002 and is

today a Partner of East Capital, working within the Portfolio man-

agement team. He is member of the Board of FESCO in Russia

and B92 in Serbia. Jacob is based in Moscow.

Jacob was an analyst with Brunswick Emerging Markets for

three years before joining East Capital. Prior to that, he worked

at Khanty Mansiysk Oil Corporation (KMOC) in Moscow.

Jacob has studied at the Stockholm School of Economics,

the Royal Institute of Technology and Cornell University, USA.

Jacob is fluent in Swedish, Russian and English.

Pet er studying the sales fi gures at a con-

struction warehouse in Kyiv, Ukraine.

Aivaras on his way to visit the tita-

nium producer VSMPO in the Ural

Mountains.

Jacob in Vladivostok visiting FESCO,

Russ ia’s leading transportation and

logistics group.

7

Andras Szalkai

Director

Andras Szalkai, a Hungarian national, is a member of the portfolio

management team, with Central Europe as his area of expertise.

Andras started at East Capital in 2006 as Portfolio Management

Associate, and is based in Vienna.

His prior positions include fund manager at Vontobel Bank in

Vienna, Austria, responsible for Eastern European equities and

regional telecom analyst at Erste Bank.

Andras has a Master of Science in Business Administration

from the Budapest University of Economics and speaks fluent

Hungarian, German and English.

Eglė Fredriksson

Portfolio Manager

Eglė, a Lithuanian national, started her analyst career at East

Capital in 2004, covering the Baltic region.

Eglė has a Masters degree from Stockholm School of Eco-

nomics in finance. Prior to that, she studied at the Stockholm

School of Economics in Riga and Kaunas University of Tech-

nology in Lithuania. Eglė has prior work experience from both

marketing and accounting positions in several Baltic compa-

nies, including Philips Baltic and Phillip Morris Lietuva.

Eglė is fluent in Lithuanian, Russian, Swedish and English

and is a CFA Level I candidate.

Adrian Pop

Portfolio Manager

Adrian, a Romanian national, joined East Capital as an analyst to

cover Turkey and Romania in 2005.

Adrian has prior work experience from Accenture in Bucha-

rest, where he worked as a consultant in the telecommunica-

tions sector. In 2004, he graduated from the Stockholm School

of Economics with a Masters of Science degree in finance, and

in 2002, Adrian graduated from the Vienna Economic Univer-

sity with a Masters of Science degree.

Adrian is fluent in Romanian, German, English and Swedish,

and is a CFA charter holder.

Eglė visiting the construction site of Ukraine’s most modern sports arena in Donet sk.

Adrian discuss ing inves tment opp or-tunities in the Balkan region during one of the East Capital Summits.

Andras in Prague outside the headquarters of Met rostav, a leading construction group in the Czec h Republic and Slovakia.

8

Photos from East Capital Universe

Since we founded the company in 1997, we have spent ridiculously little time

at the office. We simply don’t believe in sitting at our desks tracking the indices.

We have chosen instead to travel the world. We do over 1,000 company visits

a year. We meet management and personnel, we inspect oil fields and mines

and we visit offices and factories. Over time, this has resulted in an invaluable

contact network and a profound insight into the markets in which we invest.

And we have the courage of our convictions to state that these are the reasons

why we invest as we do, with a long-term perspective and with diversification.

Integra: a company in our Russ ian fund

providing service and equipment for the

Russ ian oil industry.

Rosneft : a gas and oil company in ourRuss ian fund.

Cherkizovo: one of Russ ia’s leading

integrated meat producers.

Th e grand opening of the shopp ing centre Modul in Bucha, Kiev. Nova Linya, Eko Market (food ret ail) and Comfy (elect ronics) are the anchor tenants.

9

Gazprom: the larges t ext ractor of

natural gas in the world and the larges t

Russ ian company.

One of the women behind the success of the

Russ ian fund works at Rosneft , a company

that ranks among the world’s top publicly

traded oil and gas companies .

Vimpelcom, a Russ ian mobile operator providing services through a range of wireless , fi xed and broadband tec hnologies . Th e company was in 2008 awarded the East Capital Award for Bes t growth.

An employ ee at the consumer elect ronics and app liance ret ail chain M.Video, also a port-folio company in our Russ ian and Eastern European Fund.

10

Client at East Capital

Follow the instructions at www.eastcapital.com or call client ser-

vices on: +46 8 505 88 505 to receive your client ID and start

investing.

Partners

All of our funds can be bought through a number of partners and

distributors such as banks, insurance companies and independ-

ent financial advisors. Contact East Capital or your advisor for

more information.

Publishing of Net Asset Value

The Net Asset Value (NAV) is calculated daily and published on

our web site www.eastcapital.com, as well as on other web sites

and in daily newspapers.

Transferring fund units

There is no fee for redeeming or transferring fund units (though

other rules may apply when transferring units via our external

partners).

Please observe that a small banking fee may be deducted

when payment is to be made to foreign banks.

It is possible to sell or transfer units between the funds every

banking day through East Capital.

Contact us

Client Services

Monday - Friday 09.00 - 17.00 CET

Tel: +46 8 505 88 505, fax: +46 8 505 88 508

E-mail: [email protected]

www.eastcapital.com

Invest in our funds

11

A word from the

East Capital Chairman

For us Europeans, it may well be hard to grasp that 2010 will

most likely be one of the best years ever when it comes to

growth of the world economy. The full year global forecast is

a fantastic 4.6% gain. In Europe, the crisis in Greece and con-

cerns over a lot of other countries’ substantial budget deficits

have dominated the first half of the year and put somewhat of

a dampener on recovery. The export sector, which has ben-

efited from the weak euro, is showing the strongest growth in

Europe. Despite this, the Euro zone is not expected to post

growth of more than 1% for 2010. The US on the other hand,

is showing stronger signs of recovery with growth expected to

reach 3.3% for the year.

New world trends

The difference this time around when it comes to the recovery of

the world economy, is that the world outside of Europe and the

US is having much more of an impact. Emerging markets con-

tinue to post healthy growth. And with the fact that their share

on the world economy is growing, they are having a completely

new impact on the global picture. In 2010, emerging markets

are expected to post 6.8% growth. To put this into perspective;

the developed countries’ forecast growth is 2.6%.

Central and Eastern Europe are expected to post a sound

3.2% growth. According to the latest forecast from the IMF,

the largest economy in the region, Russia, is expected to grow

by 4.3%.

The IMF predicts that the strongest growth figures will come

from Asia, and particularly from the largest markets, China and

India, both of which are expected to grow by around 10%.

China’s importance to the world economy going forward can-

not be emphasised enough. So we are extremely pleased that

East Capital has taken an essential step into this market via the

acquisition of the successful Asia-dedicated asset manage-

ment company, Asia Growth Investors (AGI), which focuses on

China. East Capital’s securities company, East Capital AB, now

offers investors the full range of investment products within the

East Capital Group, including those managed by AGI.

China

Led by founder and fund manager Gustav Rhenman, AGI, which

was founded five years ago, has developed extremely well with

the funds showing solid growth. This is confirmed not least by

the fact that for the last two years, AGI has won Lipper’s prize

for the best fund in Europe in its category for its first and larg-

est fund, AGI China East Asia Fund. With AGI now a part of

East Capital, we see significant and exciting opportunities

in several areas. Primarily, we will be able to offer our clients

exposure to this rapidly-expanding part of the world. We also

feel strongly that thorough knowledge of China’s economic

development will be crucial in the future when it comes to our

potential to create good results from our fund management in

Eastern Europe. Lastly, we also feel that economic integration

between Russia and China will increase significantly going

forward.

Risks

Risks to the development of the Eastern European stock markets

continue to be mainly external. During the first half of 2010, con-

cerns about the euro and about China’s growth have influenced

Eastern Europe’s markets considerably. Currently, the primary

focus is on the risk of expected lower growth in the US. We feel

that this influence is often undeserved, as the underlying econo-

mies and companies in Eastern Europe continue to do well. This

is also true for the Baltic and Ukraine markets, which were previ-

ously troubled, and that have considerably improved during 2010.

These markets have posted the best gains for the first half of 2010.

Changes in the funds’ sector classification and indices

For the first time, this year we have started using the interna-

tional GICS (Global Industry Classification Standard) for the

sector breakdowns of our funds. This is in order to be able to

better compare East Capital’s funds with other funds using this

international standard.

As of 1 July, our investment funds have changed benchmark

indices. This is to better reflect the investment focuses for the

respective funds. From this date, all indices will also be dividend

adjusted (i.e. they include possible dividends from the compa-

nies within the index). The East Capital Russian Fund will change

to the MSCI Russia, as the old index, the RTS, is not available in

a dividend adjusted-version.

Peter Elam Håkansson

East Capital Chairman

12 Half year report 2010

Management report

The East Capital Russian Fund gained 6.7% during the first half

of the year, outperforming the RTS Index, which gained 1.6%

(both in SEK). The net asset value was SEK 13,490m as of 30

June 2010, to be compared to SEK 11,407m at the turn of the

year. Net inflows were SEK 1,459m.

Market update

The Russian market started the year strongly on the back of

sound market fundamentals and an improving macro outlook,

but was negatively influenced by the negative global sentiment

and the Euro zone debt crisis, consequently losing 14.8% dur-

ing the second quarter. The fact that the oil price rose steadily in

Q1, from the high 70s to mid 80s, and then fell back to the mid

70s in Q2, explains some of the volatility. The oil price swings

are currently more a reflection of the global mood than supply

and demand fundamentals. Most equity markets were out of

favour during Q2, but Russia arguably enjoys the most attrac-

tive fundamentals, low valuations and high expected earnings

growth, at the same time as inflation and interest rates reached

all-time lows. Moreover, neither the public nor the private sector

are very indebted in Russia and the sovereign bond issuance

in Q2 was quite successful, creating a valuation discrepancy

between bonds and equities.

The fund’s development

The power utilities and consumer discretionary sectors were

by far the best performing, gaining 18% and 21.1% respec-

tively, followed by telecommunication services and consumer

staples, which added 8% and 6.2% respectively. The strong

East Capital Russian Fund

Fund facts

Risk High Fund manager East Capital Asset Management AB Launch date 18 May, 1998 Quotation/trade Daily Benchmark RTS-Index Dividend Yes, reinvested Management fee 2.5 % Subscription fee 2.5 % Redemption fee 0 % Minimum investment 200 SEK ISIN SE0000777708 Bloomberg EACRUSS Bank account (IBAN) SE58 5000 0000 0586 4101 7968 SWIFT ESSESESS Cut off point Investment payments available on the fund’s bank account before 15.00 CET will purchase fund units at a NAV calculated later the same day.

Aim and investment strategy

The aim of the fund is to maximise the return on investment for its unit-holders.The fund’s investment focus is tied to the Russian economy, and the fund may invest in financial

instruments of issuers domiciled in Russia. Both direct and indirect exposure is permitted. The fund may also invest up to one-third of its assets in instruments of issuers domiciled in Armenia, Azer-baijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. At least 75% of the fund’s assets shall consist of shares and equity-related instruments.

The fund is a UCITS fund and can invest a maximum of 10% of its value in any one issuer. Most holdings are under 5%. The fund invests predominantly in liquid shares.

The fund may trade in derivative instruments. Trading in OTC derivatives is permitted for pur-poses of currency hedging. Derivative instruments are traded on a highly limited basis as an integrated tool for more efficiently managing the fund’s assets, as well as protecting them from exchange rate losses and other risks.

performance of these domestic-orientated sectors illustrates

the underlying economic recovery in general and the positive

momentum in domestic demand in particular. The main export-

ing sectors, most notably energy and materials, underper-

formed, and dropped 5.8% and 4.8% respectively. The poor

performance is to a great extent due to the global economic

uncertainties, affecting prices and demand, as some of the com-

modity companies remain very attractively valued.

Industrials and financials performed in the middle, with the for-

mer gaining 2.2% and the latter dropping 2.3%, both contribut-

ing negatively to the performance. The outlook has improved for

these sectors as well, but the combination of global and domes-

tic uncertainties held back performance somewhat.

It is also worth pointing out that the non-Russia holdings

contributed most positively to the performance. The Georgian

and Ukrainian exposure added positive contributions, following

22.8% and 23.5% gains during the period.

Changes during the period

There were no major changes across sectors during the peri-

od, except for modest increases in the financials, materials and

energy sectors, which underperformed during the period, at the

expense of the utilities and telecommunication services sectors,

which were the two strongest during the period. The fund is now

almost equally divided between domestic and export-orientated

sectors.

All performance figures in the management report are in USD unless otherwise

stated.

13Half year report 2010

Key figures for the fund

Total return ............................................... 2010 H1 ............. 2009 ............ 2008 ............ 2007 ............ 2006

East Capital Russian Fund 7% 122% -69% 23% 42%

RTS-Index* 2% 112% -67% 12% 47%

* RTS-Index has been converted to Swedish kronor (SEK).

Net asset value, ’000s SEK 13,489,752 11,406,686 3,959,674 15,259,408 14,236,810

Number of units outstanding 10,648,165 9,604,149 7,393,638 8,740,365 10,063,960

NAV per unit, SEK 1,266.86 1,187.68 535.55 1,745.85 1,414.63

Dividend per unit after tax, SEK - - - - -

Ten largest holdings of the fundCompany Sector % of the fund’s NAV

Sberbank Financials 9.2

Lukoil Energy 6.9

Gazprom Energy 5.7

Transneft Energy 5.3

Surgut NG Energy 5.0

GMK Norilsky Nikel Materials 4.3

Sistema GDR Telecommunication Services 4.3

VTB Bank Financials 3.9

Vimpelcom Telecommunication Services 2.8

TNK-BP Holding Energy 2.8

NAV compared with currency adjusted RTS-IndexIndex for NAV: 18 May, 1998 = 100 SEK

0

500

1 000

1 500

2 000

1998 2000 2002 2004 2006 2008 2010


RTS-Index

Portfolio breakdown by sector and type of equity (%)

(SEK)

9.8 Telecommunication Services 8.4 Materials 6.6 Utilities 6.6 Consumer Staples 3.8 Consumer Discretionary 3.0 Industrials 2.2 Other assets and liabilities, net

Energy42.3

Financials17.2

Common Shares86.8

Perferred Shares

13.2

Balance sheet (‘000s SEK) 30-06-2010 30-06-2009Assets .................................................................................................................................................................

Financial instruments with positive market value 13,186,342 7,353,097

Cash and other funds 650,363 68,353

Short-term receivables 188,036 86,509

Accrued dividends 79,736 56,526

Total assets .......................................................................................14,104,477 ........................... 7,564,485

Liabilities and fund assets ................................................................................................................................

Other short-term liabilities 614,726 156,626

Total liabilities 614,726 156,626

Net asset value of the fund 13,489,752 7,407,859

Total liabilities and net asset value .................................................14,104,477 ........................... 7,564,485



FINANCIAL INSTRUMENTS 1

Name Country 2 Number of shares

Market value ‘000 SEK

% of theNAV

Consumer Discretionary .....................................................................................................508,820.......................... 3.8CTC Media 550,700 63,765 0.5GAZ total 60,332 0.4

GAZ pref* 44,583 4,591 0.0GAZ* 259,654 55,741 0.4

IMS Group 650,000 166 0.0M.Video* 5,283,955 246,520 1.8PIK GDR 282,901 7,332 0.1Sollers* 1,202,909 130,706 1.0

Consumer Staples ...............................................................................................................892,262.......................... 6.6Avangard GDR Ukraine 706,000 67,208 0.5Dixy* 1,477,095 106,224 0.8Gruppa Cherkizovo GDR 727,038 81,782 0.6Kalina* 245,045 33,914 0.3Magnit* 280,885 175,150 1.3Myronivsky Hliboproduct GDR Ukraine 371,000 40,305 0.3Oriflame Cosmetics 54,500 22,157 0.2Wimm-Bill-Dann* 205,882 69,199 0.5X5 Retail Group GDR 1,125,159 296,323 2.2

Energy ...............................................................................................................................5,701,360........................ 42.3Bash Neft total 361,195 2.7

Bash Neft pref* 1,951,392 358,637 2.7Bash Neft* 9,200 2,558 0.0

Dragon Oil Turkmenistan 959,044 46,198 0.3Eurasia Drilling GDR 2,347,724 341,624 2.5Gazprom ADR 5,173,018 765,806 5.7Gazprom Neft ADR 785,789 116,205 0.9Integra Group GDR 8,062,997 140,667 1.0Kazmunai Gas Ep GDR Kazakhstan 2,570,915 370,905 2.7Kuzbass Razrezugol** 50,707,224 143,828 1.1Kuzbasskaya Topli total 99,344 0.7

Kuzbasskaya Topli New** 855,315 38,523 0.3Kuzbasskaya Topli** 1,350,385 60,821 0.5

Lukoil ADR 2,315,345 936,518 6.9Novoil pref* 1,794,322 5,163 0.0Ros Neft GDR 7,386,037 353,854 2.6Surgut NG total 669,038 5.0

Surgut NG ADR 1,981,646 137,825 1.0Surgut NG pref ADR 3,564,000 120,271 0.9Surgut NG pref* 121,775,000 410,942 3.0

Tat Neft pref* 8,445,500 144,734 1.1TNK-BP Holding total 380,512 2.8

TNK-BP Holding pref** 12,530,515 175,275 1.3TNK-BP Holding** 12,666,828 205,236 1.5

Trans Neft pref* 105,224 710,503 5.3UFA NK total 47,122 0.3

UFA NK pref* 3,389,240 37,532 0.3UFA NK* 282,092 9,591 0.1

Ufimsky NPZ** 5,029,000 43,966 0.3Yaroslav Nos total 24,180 0.2

Yaroslav Nos pref* 6,893,000 20,623 0.2Yaroslav Nos* 878,237 3,557 0.0

Financials ..........................................................................................................................2,322,466........................ 17.2Afi Development GDR 885,952 11,257 0.1Bank Aval Ukraine 129,976,567 50,911 0.4Bank of Georgia GDR REG S Georgia 506,667 40,003 0.3Bank of St Petersburg* 4,598,259 100,926 0.7Bank Tsentrkredit Kazakhstan 1,050,807 30,171 0.2Bank Vozrozhdeniye* 120,798 25,281 0.2BTA Kazakhstan 49,667 0 0.0East Capital Bering Central Asia Cert 3 Kazakhstan 9,996,640 37,475 0.3East Capital Bering Russia Cert 4 5,701,230 136,529 1.0East Capital Bering Ukraine Cert 5 Ukraine 9,731,400 67,032 0.5East Capital Financials Fund** 31,206 47,566 0.4Parex Banka total 6,547 0.0

Parex Banka Non Vote** Latvia 113,000 411 0.0Parex Banka** Latvia 1,686,600 6,136 0.0

Sberbank* 64,791,189 1,241,347 9.2VTB Bank GDR 13,950,657 527,421 3.9

Industrials ............................................................................................................................409,024.......................... 3.0FESCO* 114,381,357 319,062 2.4

Kamaz* 3,943,000 65,748 0.5OMZ total 8,314 0.1

OMZ ADR New 1,500 24 0.0OMZ* 509,313 8,290 0.1

Russian Maintenance Corp** 100,000 15,900 0.1

Materials ............................................................................................................................1,129,714.......................... 8.4Evraz GDR 620,256 115,585 0.9GMK Norilsky Nikel ADR 5,183,254 585,460 4.3LSR Group* 219,428 42,753 0.3Magnitogorsk GDR 719,880 52,054 0.4Mechel ADR 539,280 79,604 0.6NLMK GDR 177,498 36,022 0.3Petropavlovsk 347,500 48,220 0.4Raspadskaya* 3,621,503 112,781 0.8Severstal GDR 750,800 57,236 0.4

Telecommunication Services ..........................................................................................1,326,114.......................... 9.8Dal Svyaz total 26,698 0.2

Dal Svyaz pref* 475,784 8,936 0.1Dal Svyaz* 790,077 17,762 0.1

Komstar GDR 2,732,726 129,328 1.0MTS* 1,382,160 81,120 0.6Severo-Zapadny Telekom total 40,669 0.3

Severo-Zapadny Telekom pref* 3,047,901 13,094 0.1Severo-Zapadny Telekom* 5,366,232 27,576 0.2

Sibir Telekom total 56,583 0.4Sibir Telekom pref* 69,339,544 27,262 0.2Sibir Telekom* 64,816,392 29,322 0.2

Sistema GDR 3,130,256 574,809 4.3Tsentr Telekom pref* 2,156,500 10,039 0.1Vimpelkom ADR 3,040,022 380,822 2.8Volga Telekom pref* 1,320,659 26,045 0.2

Utilities ..................................................................................................................................896,582.......................... 6.6Bashkir Energo total 56,524 0.4

Bashkir Energo pref* 650,000 5,304 0.0Bashkir Energo* 4,869,039 51,220 0.4

FSK* 562,751,280 47,961 0.4Halcyon Investment** 2,684 87,615 0.6Inter RAO Extra* 2,326,820,325 26,436 0.2MRSK Holding total 187,892 1.4

MRSK Holding pref* 30,513,589 18,519 0.1MRSK Holding* 206,918,294 169,373 1.3

MRSK Tsentra I privolzhya* 1,947,668,101 95,868 0.7MRSK Tsentra* 242,685,852 61,053 0.5OGK-2* 202,710,700 75,208 0.6Rus Hydro total 222,930 1.7

Rus Hydro ADR 2,133,728 80,088 0.6Rus Hydro Temp** 60,074,269 22,580 0.2Rus Hydro* 319,955,609 120,262 0.9

TGK-2* 1,714,955,149 3,518 0.0TGK-7* 83,079,230 31,578 0.2

Total Financial Instruments ...........................................................................................13,186,342........................ 97.8Regulated markets 6,948,961 51.5Other markets that are regulated (*) 5,389,525 40.0Other (**) 847,856 6.3

Other assets and liabilities, net 303,410 2.2The Fund's NAV ...............................................................................................................13,489,752...................... 100.0

1 Indication of type of market place No asterisk indicates that the financial instrument is traded on a regulated market or equivalent market outside the EES. * Instruments traded on other markets that are regulated. ** Other financial instruments.

2 If not otherwise stated, the instrument is issued by an issuer domiciled in Russia or by a foreign company that has significant operations, or invests significantly in Russia.

3 Investment in East Capital Bering Central Asia Fund made through an equity linked certificate listed on Euronext.4 Investment in East Capital Bering Russia Fund made through an equity linked certificate listed on Euronext.5 Investment in East Capital Bering Ukraine Fund made through an equity linked certificate listed on Euronext.


Continued


East Capital Baltic Fund

Management report

The East Capital Baltic Fund gained 13.6% during the period,

compared to a 14.6% gain for the Baltic 30 Index (both in SEK).

The net asset value was SEK 883m as of 30 June 2010, to be

compared to SEK 494m at the turn of the year. Net inflows were

SEK 343m.

Market update

All three Baltic markets outperformed during the period, with

Estonia and Latvia becoming the second and third strongest

markets in Eastern Europe, gaining 10% and 7.5% respectively,

making them two of only four markets in positive territory in the

first half of the year. The Lithuanian market dropped a marginal

0.1% after dropping as much as 12% in the second quarter on

the back of negative global sentiment and the Euro zone debt

crisis. Estonia, which started the year very strongly on the back

of an improved macro outlook in general and a widespread

understanding of an invitation to join the Euro zone next year,

was hit even harder in Q2, dropping 17.7%.


There was a large spread in terms of sector performance in the

fund during the period. The consumer discretionary, industri-

als and health care sectors performed strongly, gaining 17.7%,

11.6% and 25.3% respectively, and thus added much positive

contribution to the fund’s performance. The telecommunication

services, energy and consumer staples sectors also performed

well and contributed positively, although more modestly. The

materials sector was the main under-performer during the peri-

od, dropping 25.2%, confirming a region-wide trend on the back

of reduced external demand. Financials dropped 5.2% and thus

Fund facts

Risk High Fund manager East Capital Asset Management AB Launch date 30 June, 1998 Quotation/trade Daily Benchmark Baltic 30-Index Dividend Yes, reinvested Management fee 2.5 % Subscription fee 2.5 % Redemption fee 0 % Minimum investment 200 SEK ISIN SE0000777724 Bloomberg EACBALT Bank account (IBAN) SE36 5000 0000 0586 4101 7976 SWIFT ESSESESS Cut off point Investment payments available on the fund’s bank account before 13.00 CET will purchase fund units at a NAV calculated later the same day.


The aim of the fund is to maximise the return on investment for its unit- holders. The fund mainly invests in Baltic financial instruments of issuers domiciled in Estonia,

Latvia and Lithuania. Both direct and indirect exposure is permitted. At least 75 % of the fund’s assets consists of shares issued by issuers domiciled in the EU.

The fund is a UCITS fund and can invest a maximum of 10% of its value in any one is-suer. Most holdings are under 5%. The fund invests predominantly in liquid shares.

The fund may trade in derivative instruments. Trading in OTC derivatives is permitted for purposes of currency hedging. Derivative instruments are traded on a highly limited basis as an integrated tool for more efficiently managing the fund’s assets, as well as protecting them from exchange rate losses and other risks.

underperformed, as did most banking sectors in the region due

to the increased economic uncertainties in the second quarter

on the back of the Euro zone debt crisis.


There were relatively large changes during the period in terms of

sectors. Consumer discretionary was reduced by more than 4

percentage points, to 18.6%. The largest net sale was in Norma,

the Estonian seatbelt maker, after majority shareholder Autoliv

announced a takeover bid for the remaining shares in the com-

pany. One of the largest net purchases was in Lithuanian inte-

grated agribusiness company Linas Agro. East Capital partici-

pated in what was the first Baltic IPO since April 2008, acquir-

ing 4.2% of the company, which started trading on the Vilnius

Stock Exchange on 17 February. The biggest sector increase

was in financials, which increased from 2% to 11.6%, primarily

through large purchases of Swedish Swedbank and SEB. The

exposure to the utilities sector was reduced from 9% to 5.2%,

while there were no major changes in other sectors.

The two biggest changes in terms of market allocation were

a 9 percentage point decrease in Estonian stocks, to 30.2%,

due to the market’s strong performance at the beginning of the

year and the sale of Norma, and a more than 10 percentage

points increase in pan-Baltic exposure to 11.1%, which primarily

included the Swedish banks with regional operations. Lithuania

remains the largest market in the fund, with 43%, and Latvia the

smallest, at 7.6%.


stated.


Ten largest holdings of the fundCompany Country Sector % of the fund’s NAV

TEO Lithuania Telecommunication Services 8.9

Pieno Zvaigzdes Lithuania Consumer Staples 6.8

Tallink Estonia Industrials 6.5

Swedbank Baltic Financials 6.4

Tallinna Kaubamaja Estonia Consumer Discretionary 6.0

Grindeks Latvia Health Care 5.1

City Service Lithuania Industrials 5.0

SEB Baltic Financials 4.2

Linas Agro Group Lithuania Consumer Staples 4.1

Merko Ehitus Estonia Industrials 4.1

NAV compared with currency adjusted Baltic 30-IndexIndex for NAV: 30 June, 1998 = 10 SEK

0102030405060708090

100

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


Baltic 30-Index

(SEK)


Total return ............................................... 2010 H1 ............ 2009 ............ 2008 ............ 2007 ............ 2006

East Capital Baltic Fund 14% 21% -57% 1% 12 %

Baltic 30-Index* 15% 10% -53% -6% 4 %

* Baltic 30-Index has been converted to Swedish kronor (SEK).

Net asset value, ’000s SEK 883,490 493,571 414,202 1,252,318 1,909,260


NAV per unit, SEK 41.72 37.34 32.00 74.24 73.71

Dividend per unit after tax, SEK 0.71 1.13 0.53 0.41 -

Portfolio breakdown by sector and country (%)

16.6 Consumer Staples 11.6 Financials 8.9 Telecommunication Services 5.2 Utilities 5.1 Health Care 4.5 Energy 0.8 Materials 8.2 Other assets and liabilities, net

11.1 Baltics* 7.6 Latvia 8.2 Other assets and liabilities, net

* Baltics refers to companies with business in all three countries.

Industrials20.6

Consumer Discretionary

18.6

Lithuania 43.0

Estonia30.2


Financial instruments with positive market value 811,352 335,354


Short-term receivables 2,870 321

Accrued dividends 0 9,675

Total assets .............................................................................................886,790 .............................. 397,251


Financial instruments with negative market value - 7,664



Net asset value of the fund 883,490 384,561

Total liabilities and net asset value .......................................................886,790 .............................. 397,251




FINANCIAL INSTRUMENTS 1

Name Country Number of shares


% of theNAV

Consumer Discretionary .....................................................................................................164,416........................ 18.6Apranga Lithuania 2,586,712 27,450 3.1Baltika Estonia 2,967,147 16,112 1.8Eesti Ekspress Grupp Estonia 924,506 7,442 0.8Klaipedos Baldai Lithuania 147,125 1,208 0.1Olympic Entertainment Estonia 2,472,909 25,561 2.9Silvano Fashion Group Estonia 1,625,000 23,763 2.7Tallinna Kaubamaja Estonia 1,257,513 52,891 6.0Utenos Trikotazas Lithuania 2,091,319 5,454 0.6Vilniaus Baldu Kombinatas Lithuania 88,603 4,536 0.5

Consumer Staples ...............................................................................................................146,651........................ 16.6Agrowill Group Lithuania 476,937 823 0.1Linas Agro Group AB Lithuania 7,097,743 36,338 4.1Pieno Zvaigzdes Lithuania 5,585,550 60,198 6.8Rokiskio Suris Lithuania 2,215,167 20,389 2.3Vilniaus Degtine Lithuania 2,254,262 8,337 0.9Zemaitijos Pienas Lithuania 5,086,632 20,567 2.3

Energy ....................................................................................................................................39,800.......................... 4.5Klaipedos Nafta Lithuania 8,454,581 28,817 3.3LASCO Latvia 2,124,166 10,983 1.2

Financials .............................................................................................................................102,382.........................11.6Arco Vara As Estonia 48,564 1,578 0.2Bankas Snoras pref Lithuania 168,686 2,595 0.3East Capital Baltic Property Investors ** Baltics 1,818 4,113 0.5SEB Baltics 885,700 36,690 4.2Swedbank A Baltics 792,200 56,900 6.4Trigon Property Development Estonia 102,016 505 0.1

Health Care .............................................................................................................................45,157.......................... 5.1Grindeks Latvia 599,370 45,157 5.1

Industrials ............................................................................................................................181,917........................ 20.6City Service Lithuania 1,810,134 43,988 5.0Harju Elekter Estonia 73,520 1,607 0.2

Järvevana Estonia 225,280 622 0.1Laivite** Lithuania 100,370 1,662 0.2Limarko Lithuania 5,559,190 6,751 0.8Merko Ehitus Estonia 517,742 36,030 4.1Nordecon International Estonia 1,879,524 24,709 2.8Rigas Kugu Buvetava Latvia 637,015 2,481 0.3Tallink Estonia 10,541,013 57,239 6.5Trev-2 Grupp** Estonia 213,752 4,908 0.6Valmieras Stikla Skiedra Latvia 321,020 1,918 0.2

Materials ...................................................................................................................................7,056.......................... 0.8Grigiskes Lithuania 39,821 147 0.0Liepajas Metalurgs Latvia 497,091 6,909 0.8

Telecommunication Services ...............................................................................................78,279.......................... 8.9TEO Lithuania 13,971,853 78,279 8.9

Utilities ....................................................................................................................................45,695.......................... 5.2Lietuvos Dujos Lithuania 5,023,061 30,152 3.4Rytu Skirstomieji Tinklai Lithuania 377,627 2,048 0.2Tallinna Vesi Estonia 175,863 13,495 1.5

Total Financial Instruments ................................................................................................811,352........................ 91.8Regulated markets 800,669 90.6Other markets that are regulated (*) 0 0.0Other (**) 10,684 1.2

Other assets and liabilities, net 72,138 8.2The Fund's NAV ....................................................................................................................883,490...................... 100.0


Continued

July 2010

Summer thoughtsBy: Peter Elam Håkansson

With half of the year now behind us, we can

see that this year’s best markets to date are

last year’s most criticised and condemned, i.e.

Ukraine and the Baltics. Ukraine is up 31.1%

and the Baltics have gained 11.4% (all in USD

terms).

Read more

Stay tuned on Eastern Europe at www.eastcapital.com

We hope that those of you who invest with us share our deep interest in Eastern Europe. In order to give you insights and keep

you updated on what is happening in the region, Peter Elam Håkansson writes a newsletter every month during his travels

through Eastern Europe. Subscribe on the East Capital Newsletter on www.eastcapital.com

Latest news

Join us in Prague

The 15th East Capital Summit will take place in Prague, 8-10 September 2010. Read more

East Capital blog – Eastern Europe from the ground

White Nights in St Peterburg

By: Karine Hirn

My first ever visit to the Soviet Union was in Leningrad in July 1990, as I enrolled myself in a French

youth project program and spent one month removing weeds in the alleys of Peter and Paul Fortress

during sunny days and cleaning off dust from the tsars’ graves in the church within the Fortress during

rainy days. Read more


East Capital Eastern European Fund

Management report

The East Capital Eastern European Fund gained 3.9% during

the period, whereas the benchmark MSCI EM Europe Index

dropped 3.4% (both in SEK). The net asset value was SEK

5,782m as of 30 June 2010, to be compared to SEK 5,598m at

the turn of the year. Net inflows were SEK 5m.

Market update

All but a handful of markets in the region ended the period in

negative territory after a very weak second quarter when nega-

tive global sentiment in general, and the Euro zone debt crisis

in particular, dominated the markets. The negative performance

was overall exacerbated by depreciating currencies. The mar-

kets in Southeastern Europe were the weakest, with the excep-

tion of the large Turkish market, which gained 1.2% and outper-

formed the region, together with Ukraine and the Baltics, gaining

33.8% and 5.8% respectively. The Central European markets

were on the weaker side, with Poland, Hungary and the Czech

Republic dropping 19.3%, 19.9% and 13.1% respectively,

whereas the Russian market dropped a more modest 6.1% after

a strong first quarter.


There were some notable differences across sectors in terms

of performance during the period. On the positive side, the con-

sumer discretionary sector gained 11.7%, highlighting the fact

that domestic demand has started to recover in the region. Rus-

sian electronics retailer M.Video was one of the strongest per-

formers and contributors, gaining 57.6% over the period.

The utilities and telecommunications services sectors were

also in positive territory, gaining 5.4% and 2.9% respectively.

Exporters and banks underperformed throughout the region,

and the energy and financials sectors consequently added

negative contributions to the fund’s performance after dropping

6% and 7.3% respectively. Russian energy giants Rosneft GDR

and Gazprom ADR were among the worst performers after falling

28.1% and 25.6% respectively. All other sectors also contributed

negatively, most notably materials and industrials after dropping

7.3% and 5.1% respectively. It was, however, the information

technology sector that performed the worst, with a 25.3% drop.

The three Baltic markets, Ukraine and Georgia were the five

markets that added positive contributions. None of them are

included in the index.


The largest sector reallocations were in the two largest sectors.

Energy was cut from 32.5% to 30.1% in favour of a 5 percent-

age point increase in financials, to 33.4%, making it the largest

sector in the fund. The exposure to Russian energy companies

like Lukoil, Rosneft and Gazprom was decreased, while the fund

increased its exposure to Turkish and Central European banks,

such as Akbank and Erste.

On a market level, the exposure to Russia was cut from an

almost historic high of 64% to 59%, which is still rather high and

reflects the attractive fundamentals and strong macro recovery.

The exposure to Turkey was increased from 8.9% to 12.2%,

also reflecting the attractive market and macro fundamentals.

The weighting in Central Europe was cut further as these mar-

kets are most integrated with the troubled Euro zone. Poland

now makes up 4.4%, Hungary 2.3%, and the Czech Republic

1.1% of the fund. The exposure to Ukraine, which was the strong-

est market during the period, was increased from 1.1% to 2%.


stated.

Fund facts

Risk High Fund manager East Capital Asset Management AB Launch date 18 March, 2002 Quotation/trade Daily Benchmark MSCI EM Europe Index Dividend Yes, reinvested Management fee 2.5 % Subscription fee 2.5 % Redemption fee 0 % Minimum investment 200 SEK ISIN SE0000888208 Bloomberg EACOSTE Bank account (IBAN) SE13 5000 0000 0586 4100 6362 SWIFT ESSESESS Cut off point Investment payments available on the fund’s bank account before 15.00 CET will purchase fund units at a NAV calculated later the same day.


The aim of the fund is to maximise the return on investment for its unit- holders.The fund mainly invests in Eastern European financial instruments of issuers domiciled in Alba-

nia, Armenia, Austria, Azerbaijan, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Re-public, Estonia, Georgia, Greece, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Macedonia, Moldova, Poland, Romania, Russia, Serbia and Montenegro, Slovakia, Slovenia, Tajikistan, Turkey, Turkmenistan, Ukraine and Uzbekistan. Both direct and indirect exposure is permitted. At least 75% of the fund’s assets shall consist of shares and equity-related instruments.


The fund may trade in derivative instruments. Trading in OTC derivatives is permitted for purpos-es of currency hedging. Derivative instruments are traded on a highly limited basis as an integrated tool for more efficiently managing the fund’s assets, as well as protecting them from exchange rate losses and other risks.




Sberbank Russia Financials 6.1

Lukoil Russia Energy 4.6

Gazprom Russia Energy 3.7

Transneft Russia Energy 3.4

Surgut NG Russia Energy 3.3

GMK Norilsky Nikel Russia Materials 2.9

Sistema GDR Russia Telecommunication Services 2.8

VTB Bank Russia Financials 2.6

East Capital Explorer Eastern Europe Financials 2.5

Bash Neft Russia Energy 2.0

NAV compared with currency adjusted MSCI EM Europe IndexIndex for NAV: 18 March, 2002 = 10 SEK

0

10

20

30

40

50

60

2002 2003 2004 2005 2006 2007 2008 2009 2010



MSCI EM Europe Index

(SEK)


Total return ............................................... 2010 H1 ............ 2009 ............ 2008 ............ 2007 ............ 2006East Capital Eastern European Fund 4% 86% -64% 24% 24 %

MSCI EM Europe Index* -3% 65% -62% 20% 15 %

* MSCI EM Europe Index has been converted to Swedish kronor (SEK).



NAV per unit, SEK 38.10 36.67 19.75 54.77 44.26

Dividend per unit after tax, SEK - - - - -

8.0 Telecommunication Services 6.4 Consumer Staples 6.3 Materials 4.8 Industrials 4.6 Consumer Discretionary 4.3 Utilities 1.2 Health Care 0.2 Information Technology 0.7 Other assets and liabilities, net

6.8 Eastern Europe * 4.4 Poland 2.3 Romania 2.2 Hungary 2.0 Ukraine 1.9 Kazakhstan 1.6 Lithuania 1.4 Slovenia 5.6 Other countries 0.7 Other assets and liabilities, net

Financials33.4

Energy30.1

Russia59.0

Turkey12.2

* Holdings stated in the financial instruments list on next page.





Accrued dividends 27,046 31,145Total assets ..........................................................................................5,835,770 ........................... 3,999,821

Liabilities and fund assets ................................................................................................................................Other short-term liabilities 53,598 9,594Total liabilities 53,598 9,594Net asset value of the fund 5,782,172 3,990,226Total liabilities and net asset value ....................................................5,835,770 ........................... 3,999,821



ContinuedFINANCIAL INSTRUMENTS 1

Name Sector Number of shares

Market value‘000 SEK

% of theNAV

Balkan .....................................................................................................................................18,059.......................... 0.3East Capital Bering Balkan Cert 2 Financials 3,148,000 18,059 0.3

Baltics .....................................................................................................................................51,208.......................... 0.9East Capital Baltic Property Investors ** Financials 7,932 17,947 0.3SEB Financials 313,802 12,999 0.2Swedbank A Financials 282,100 20,262 0.4

Croatia ....................................................................................................................................41,223.......................... 0.7Atlantic Grupa* Consumer Staples 14,445 13,114 0.2Istraturist* Consumer Discretionary 35,804 16,361 0.3Maistra* Consumer Discretionary 50,752 4,604 0.1Podravka* Consumer Staples 20,570 7,144 0.1

Czech Republic .....................................................................................................................61,112.......................... 1.1Cesky Telecom Telecommunication Services 74,700 11,448 0.2CEZ Utilities 61,098 19,334 0.3Komercni Banka Financials 6,038 7,653 0.1New World Resources Materials 242,300 19,733 0.3Orco property GRP Financials 65,530 2,944 0.1

Eastern Europe ....................................................................................................................377,080.......................... 6.8East Capital Explorer 3 Financials 2,039,000 145,534 2.5Erste Bank 4 Financials 388,202 96,829 1.7Immofinanz AG 5 Financials 1,511,613 31,069 0.5KBC BB 6 Financials 53,153 16,114 0.3OMV 7 Energy 112,212 26,455 0.5Raiffeisen International 8 Financials 192,595 57,501 1.0Systemair 9 Industrials 97,972 7,262 0.1Wienerberger 10 Industrials 149,608 14,317 0.2

Estonia ....................................................................................................................................39,399.......................... 0.7Tallink Industrials 3,754,015 20,385 0.4Tallinna Kaubamaja Consumer Discretionary 452,073 19,014 0.3

Georgia .....................................................................................................................................4,939.......................... 0.1Bank of Georgia GDR REG S Financials 62,550 4,939 0.1

Greece ....................................................................................................................................25,377.......................... 0.4Fourlis Holdings Consumer Discretionary 360,457 25,377 0.4

Hungary ................................................................................................................................126,193.......................... 2.2EGIS Health Care 30,351 19,242 0.3FOTEX Financials 462,376 5,682 0.1Gedeon Richter Health Care 7,806 10,872 0.2Magyar Telekom Telecommunication Services 606,700 12,921 0.2MOL Energy 42,010 27,487 0.5OTP Bank Financials 253,300 40,098 0.7Pannenergy Materials 370,130 9,892 0.2

Kazakhstan ..........................................................................................................................112,064.......................... 1.9Bank Tsentrkredit Financials 550,672 15,811 0.3BTA Financials 21,091 0 0.0East Capital Bering Central Asia Cert 11 Financials 2,731,420 10,239 0.2Kazmunai Gas Ep GDR Energy 596,199 86,013 1.5

Latvia .....................................................................................................................................25,517.......................... 0.4Grindeks Health Care 301,600 22,723 0.4Parex Banka** Financials 768,000 2,794 0.0

Lithuania .................................................................................................................................91,647.......................... 1.6City Service Industrials 1,149,800 27,941 0.5Pieno Zvaigzdes Consumer Staples 3,237,334 34,890 0.6TEO Telecommunication Services 5,143,195 28,815 0.5

Poland ..................................................................................................................................252,195.......................... 4.4Asseco Poland Information Technology 113,470 14,065 0.2Bank Zachodni WBK Sa Financials 28,300 12,372 0.2Bioton Health Care 9,441,000 4,234 0.1Bogdanka Energy 29,400 5,165 0.1Bre Bank Financials 10,725 5,501 0.1Cersanit Industrials 143,300 4,480 0.1

Cyfrowy Polsat Consumer Discretionary 197,338 6,467 0.1Decora Consumer Discretionary 114,369 4,689 0.1Globe Trade Centre Financials 102,126 5,375 0.1Grupa Lotos Energy 180,098 12,176 0.2ING Bank Slaski Financials 5,065 8,756 0.2KGHM Materials 57,600 11,822 0.2Kogeneracja Utilities 76,404 19,459 0.3Kopex Industrials 81,800 3,420 0.1PBG Industrials 11,217 5,343 0.1PGNiG Energy 1,466,178 11,110 0.2PKN Energy 237,400 19,378 0.3PKO Financials 197,600 16,434 0.3Polimex Mostostal Industrials 1,110,374 11,222 0.2Polska Grupa Energetyczna Utilities 77,700 3,746 0.1PZU Financials 36,856 29,766 0.5Reinhold Polska Financials 619,445 10,456 0.2TPSA Telecommunication Services 218,000 7,114 0.1TVN Consumer Discretionary 430,467 15,725 0.3Zaklady Azotowe Pulawy Materials 27,134 3,920 0.1

Romania ...............................................................................................................................132,603.......................... 2.3A&D Pharma Holding Health Care 63,267 2,140 0.0BRD Financials 260,100 6,044 0.1Fondul Proprietatea Wts 2010-11-30 Financials 27 13,504 0.2Fondul Proprietatea Wts 2011-04-03 Financials 18,199 15,090 0.3Petrom Energy 69,117,408 45,466 0.8Sif 1 (Banat Crisana) Financials 4,653,400 10,026 0.2Sif 2 (Moldova) Financials 4,389,600 9,027 0.2Sif 3 (Transilvania) Financials 9,265,600 9,552 0.2Sif 4 (Muntenia) Financials 6,854,700 9,011 0.2Sif 5 (Oltenia) Financials 4,929,400 12,745 0.2

Russia ................................................................................................................................3,403,326........................ 58.9Bank of St Petersburg* Financials 1,225,657 26,902 0.5Bank Vozrozhdeniye* Financials 38,640 8,087 0.1Bash Neft total 118,322 2.0

Bash Neft pref* Energy 639,420 117,516 2.0Bash Neft* Energy 2,900 806 0.0

Bashkir Energo* Utilities 1,631,775 17,166 0.3CTC Media Consumer Discretionary 158,800 18,387 0.3Dixy* Consumer Staples 459,719 33,060 0.6East Capital Bering Russia Cert 12 Financials 1,666,060 39,898 0.7East Capital Financials Fund** Financials 15,334 23,373 0.4Eurasia Drilling GDR Energy 659,260 95,931 1.7Evraz GDR Materials 173,743 32,377 0.6FESCO* Industrials 34,282,978 95,631 1.7FSK* Utilities 164,244,686 13,998 0.2GAZ total 17,362 0.3

GAZ pref* Consumer Discretionary 30,000 3,089 0.1GAZ* Consumer Discretionary 66,487 14,273 0.2

Gazprom ADR Energy 1,449,016 214,510 3.7Gazprom Neft ADR Energy 196,436 29,050 0.5GMK Norilsky Nikel ADR Materials 1,462,191 165,158 2.9Gruppa Cherkizovo GDR Consumer Staples 191,055 21,491 0.4Integra Group GDR Energy 2,289,577 39,944 0.7Kamaz* Industrials 1,100,603 18,352 0.3Komstar GDR Telecommunication Services 792,700 37,515 0.6Kuzbass Razrezugol** Energy 14,409,800 40,872 0.7LSR Group* Materials 63,946 12,459 0.2Lukoil ADR Energy 655,304 265,059 4.6M.Video* Consumer Discretionary 1,463,636 68,285 1.2Magnit* Consumer Staples 75,590 47,135 0.8Magnitogorsk GDR Materials 203,456 14,712 0.3Mechel ADR Materials 149,988 22,140 0.4MRSK Holding total 58,107 1.0

MRSK Holding pref* Utilities 11,301,416 6,859 0.1MRSK Holding* Utilities 62,608,500 51,248 0.9

MRSK Tsentra I privolzhya* Utilities 657,063,365 32,342 0.6MRSK Tsentra* Utilities 75,057,196 18,882 0.3MTS* Telecommunication Services 390,032 22,891 0.4NLMK GDR Materials 50,359 10,220 0.2Petropavlovsk Materials 91,400 12,683 0.2Raspadskaya* Materials 1,017,811 31,697 0.5Ros Neft GDR Energy 2,040,461 97,755 1.7Rus Hydro total 53,953 0.9

Rus Hydro ADR Utilities 649,683 24,385 0.4


ContinuedContinued

Rus Hydro GDR Temp** Utilities 4,135 144 0.0Rus Hydro Temp** Utilities 24,222,700 9,105 0.2Rus Hydro* Utilities 54,058,583 20,319 0.4

Sberbank* Financials 18,557,903 355,554 6.1Severo-Zapadny Telekom total 11,707 0.2

Severo-Zapadny Telekom pref* Telecommunication Services 877,400 3,769 0.1Severo-Zapadny Telekom* Telecommunication Services 1,544,750 7,938 0.1

Severstal GDR Materials 214,200 16,329 0.3Sibir Telekom total 16,433 0.3

Sibir Telekom pref* Telecommunication Services 20,127,300 7,913 0.1Sibir Telekom* Telecommunication Services 18,832,980 8,520 0.1

Sistema GDR Telecommunication Services 881,287 161,831 2.8Sollers* Consumer Discretionary 364,711 39,629 0.7Surgut NG total 188,270 3.3

Surgut NG ADR Energy 563,385 39,184 0.7Surgut NG pref ADR Energy 1,050,400 35,447 0.6Surgut NG pref* Energy 33,674,832 113,639 2.0

Tat Neft pref* Energy 2,412,292 41,340 0.7TGK-2* Utilities 816,655,658 1,675 0.0TNK-BP Holding total 109,187 1.9

TNK-BP Holding pref** Energy 3,430,394 47,984 0.8TNK-BP Holding** Energy 3,777,356 61,203 1.1

Trans Neft pref* Energy 29,322 197,991 3.4Ufimsky NPZ** Energy 2,036,200 17,801 0.3Wimm-Bill-Dann* Consumer Staples 65,911 22,153 0.4Vimpelkom ADR Telecommunication Services 853,961 106,975 1.9Volga Telekom pref* Telecommunication Services 380,200 7,498 0.1VTB Bank GDR Financials 3,926,900 148,461 2.6X5 Retail Group GDR Consumer Staples 321,933 84,785 1.5

Serbia ......................................................................................................................................35,797.......................... 0.6AIK Banka** Financials 97,001 24,822 0.4Energoprojekt Holding Industrials 137,372 10,921 0.2Sojaprotein Consumer Staples 750 54 0.0

Slovakia ..................................................................................................................................12,138.......................... 0.2Dexia Banka total 12,138 0.2

Dexia Banka Financials 1,463 10,286 0.2Dexia Banka Series 01 Financials 1,568 1,852 0.0

Slovenia ..................................................................................................................................81,071.......................... 1.4KRKA Health Care 11,689 7,302 0.1Mercator Consumer Staples 28,921 42,953 0.7Nova Kreditna Banka Maribor Financials 213,763 23,113 0.4Pivovarna Lasko Consumer Staples 27,100 5,007 0.1Zavarovalnica Triglav Financials 14,400 2,696 0.0

Turkey ...................................................................................................................................704,650........................ 12.2Akbank Financials 1,751,886 67,311 1.2Albaraka Turk Financials 639,966 9,270 0.2Anadolu Hayat Financials 1,297,732 26,062 0.5Anadolu Sigorta Financials 3,254,581 16,380 0.3Aygaz Utilities 365,862 11,273 0.2Bank Asya Financials 1,145,200 20,749 0.4

Enka Insaat Industrials 432,298 11,621 0.2Finans Leasing Financials 2,641,751 35,412 0.6Garanti Bankasi Financials 2,248,284 74,792 1.3Halkbank Financials 1,365,838 79,472 1.4Is Reit Financials 2,588,000 19,252 0.3Koc Holding Industrials 594,300 15,977 0.3Sabanci Holding Financials 1,019,004 33,148 0.6Sinpas GYO Financials 1,951,033 18,441 0.3Sise Cam Consumer Discretionary 1,815,632 15,735 0.3Tofas Consumer Discretionary 489,421 13,037 0.2Trakya Cam Industrials 1,523,807 16,049 0.3Tupras Energy 257,680 37,483 0.6Turk Telekom Telecommunication Services 1,437,630 35,824 0.6Turkish Airlines Industrials 848,711 16,461 0.3Turkiye Is Bankasi Financials 2,597,972 64,101 1.1Vakifbank Financials 2,065,500 37,424 0.6Yapi Kredi Bankasi Financials 1,375,400 29,377 0.5

Turkmenistan ...........................................................................................................................8,203.......................... 0.1Dragon Oil Energy 170,297 8,203 0.1

Ukraine .................................................................................................................................114,244.......................... 2.0Avangard GDR Consumer Staples 347,000 33,033 0.6Bank Aval Financials 60,753,250 23,797 0.4East Capital Bering Ukraine Cert 13 Financials 4,724,410 32,543 0.6Myronivsky Hliboproduct GDR Consumer Staples 185,500 20,153 0.3Slavutich Consumer Staples 1,979,483 4,719 0.1

Total Financial Instruments .............................................................................................5,736,043........................ 99.2Regulated markets 3,980,158 68.8Other markets that are regulated (*) 1,509,840 26.1Other (**) 246,045 4.3

Other assets and liabilities, net 46,130 0.8The Fund's NAV .................................................................................................................5,782,172...................... 100.0


2 Investment in East Capital Bering Balkan Fund made through an equity linked certificate listed on Euronext.3 East Capital Explorer, an investment company listed in Sweden with exposure to Eastern Europe.4 Erste Bank, a finance company listed in Austria, with business in Eastern Europe. 5 Immofinanz AG, a finance company listed in Austria, with business in Eastern Europe. 6 KBC BB, a finance company listed in Austria, with business in Eastern Europe. 7 OMV, an oil and gas company listed in Austria, with business in Eastern Europe. 8 Raiffeisen International, a finance company listed in Austria, with business in Eastern Europe. 9 Systemair, a construction company listed in Sweden with business in Eastern Europe. 10 Wienerberger, a construction company listed in Austria, with business in Eastern Europe. 11 Investment in East Capital Bering Central Asia Fund made through an equity linked certificate listed on Euronext.12 Investment in East Capital Bering Russia Fund made through an equity linked certificate listed on Euronext.13 Investment in East Capital Bering Ukraine Fund made through an equity linked certificate listed on Euronext.



East Capital Balkan Fund

Management report

The East Capital Balkan Fund dropped 5.8% during the period,

whereas the benchmark MSCI EM Europe Index, which is not

particularly relevant, dropped 3.4% (both in SEK). The net asset

value was SEK 1,123m as of 30 June 2010, to be compared to

SEK 1,213m at the turn of the year. Net outflows were SEK 3m.

Market update

Most markets in Southeastern Europe underperformed their

peer markets in Eastern Europe on the back of weak investor

interest, slower economic recovery and proximity to Greece.

The small Bulgarian and Slovenian markets were the weakest in

Eastern Europe, losing 25.3% and 25.5% respectively, followed

by Serbia, which fell 23.1%. Croatia and Romania were also on

the weaker side after posting 18.5% and 15.9% falls respective-

ly. The large Turkish market was a notable outperformer in the

region, gaining 1.2% on the back of a strong macroeconomic

recovery and a healthy banking system.


Most sectors and markets performed poorly during the period,

but the Turkish holding companies and the exposure to East

Capital Bering Balkan Fund stood out positively. Sabanci Hold-

ing and Koc Holding gained 11.4% and 20.3% respectively,

and the Bering Balkan Fund advanced 33.8%. The utilities sec-

tor was otherwise the only one in positive territory over the peri-

od, gaining 7.6%. The consumer discretionary sector bucked

the trend elsewhere in Eastern Europe and dropped 5.2%. Con-

sumer staples also underperformed and dropped 13.5%, even

though individual stocks performed well, such as Bambi, the

Fund facts

Risk High Fund manager East Capital Asset Managemen AB Launch date 1 October, 2004 Quotation/trade Daily Benchmark MSCI EM Europe Index Dividend Yes, reinvested Management fee 2.5 % Subscription fee 2.5 % Redemption fee 0 % Minimum investment 200 SEK ISIN SE0001244328 Bloomberg EACBALK Bank account (IBAN) SE24 5000 0000 0586 4101 6252 SWIFT ESSESESS Cut off point Investment payments available on the fund’s bank account before 15.00 CET will purchase fund units at a NAV calculated later the same day.


The aim of the fund is to maximise the return on investment for its unit-holders.The fund mainly invests in financial instruments in the Balkans of issuers domiciled in Albania,

Armenia, Austria, Azerbaijan, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia, the Czech Repub-lic, Georgia, Greece, Hungary, Kazakhstan, Kyrgyzstan, Macedonia, Moldova, Poland, Romania, Russia, Serbia and Montenegro, Slovakia, Slovenia, Tajikistan, Turkey, Turkmenistan, Ukraine and Uzbekistan. Both direct and indirect exposure is permitted. At least 75% of the fund’s assets shall consist of shares and equity-related instruments.


The fund may trade in derivative instruments. Trading in OTC derivatives is permitted for pur-poses of currency hedging. Derivative instruments are traded on a highly limited basis as an inte-grated tool for more efficiently managing the fund’s assets, as well as protecting them from exchange rate losses and other risks.

Serbian confectionery producer, which rallied towards the end

of the period and gained 31.8% after trading at a depressed

valuation when announcing that sales were up 26% in the first

5 months of the year. Like everywhere, financials were weak

and dropped 16.2%, even though a number of the Turkish

banks, like Akbank and Albaraka Turk, outperformed.


The exposure to Turkey was cut from 36.9% to 32.3% dur-

ing the period, after the market had performed strongly and

reached an all-time high in the second quarter, but it never-

theless remains the largest market in the fund. Romania and

Slovenia remain the second and third largest markets, and the

exposure was slightly increased, to 16.3% and 13.4% respec-

tively. The largest increase was, however, in Serbia, where the

exposure went from 8.9% to 11.8% as the market is one of the

cheapest in Eastern Europe.

On a sector level, the dominance of financials was further

increased, with the exposure increasing from 50.4% to 53.1%

by adding exposure to a broad range of banks, including Erste

Bank from Austria, Turkish Finans Leasing, Serbian AIK Banka

and Nova Kreditna Banka Maribor from Slovenia. Consumer

staples and consumer discretionary remain the second and

third largest sectors after the exposure was slightly increased

to 12.8% and 10.6% respectively, whilst the energy was

reduced somewhat, to 9.4%.


stated.


NAV compared with currency adjusted MSCI EM Europe IndexIndex for NAV: 1 October, 2004= 10 SEK

0

5

10

15

20

25

30

35

40

2004 2005 2006 2007 2008 2009 2010


MSCI EM Europe Index


Petrom Romania Energy 6.8

Mercator Slovenia Consumer Staples 6.4

Erste Bank Eastern Europe Financials 6.2

Finans Leasing Turkey Financials 4.7

AIK Banka Serbia Financials 4.2

Nova Kreditna Banka Maribor Slovenia Financials 4.2

Fourlis Holdings Greece Consumer Discretionary 3.9

East Capital Bering Balkan Balkan Financials 3.0

Halkbank Turkey Financials 2.9

Garanti Bankasi Turkey Financials 2.7


Total return ............................................... 2010 H1 ............ 2009 ............ 2008 ............ 2007 ............ 2006

East Capital Balkan Fund -6% 29% -66% 41% 22 %

MSCI EM Europe Index* -3% 65% -62% 20% 15 %* MSCI EM Europe Index has been converted to Swedish kronor (SEK).



NAV per unit, SEK 13.52 14.41 11.37 33.32 23.57

Dividend per unit after tax, SEK 0.06 0.27 - - -


10.6 Consumer Discretionary 9.4 Energy 5.3 Industrials 2.4 Health Care 1.8 Materials 1.3 Telecommunication Services 0.4 Utilities 0.1 Information Technology 2.8 Other assets and liabilities, net

13.4 Slovenia 11.8 Serbia 9.9 Eastern Europe * 6.3 Croatia 3.9 Greece 3.0 Balkan * 0.4 Bulgaria 2.8 Other assets and liabilities, net

Financials53.1

Consumer Staples

12.8

Turkey32.3

Romania16.3

* Holdings stated in the financial instruments list on next page.





Accrued dividends 1,009 3,181

Total assets ..........................................................................................1,127,160 ........................... 1,199,696





Total liabilities and net asset value ....................................................1,127,160 ........................... 1,199,696

(SEK)





Name Sector Number of shares

Market value‘000 SEK

% of theNAV

Balkan .....................................................................................................................................34,127.......................... 3.0East Capital Bering Balkan Cert 2 Financials 5,949,000 34,127 3.0

Bulgaria ....................................................................................................................................4,316.......................... 0.4Doverie Holding Financials 326,949 4,316 0.4

Croatia ....................................................................................................................................70,253.......................... 6.3Atlantic Grupa* Consumer Staples 25,546 23,192 2.1Atlantska Plovidba* Industrials 4,107 4,528 0.4Istraturist* Consumer Discretionary 57,990 26,499 2.4Jamnica* Consumer Staples 59 2,657 0.2Podravka* Consumer Staples 32,477 11,279 1.0Valamar Grupa* Consumer Discretionary 50,282 2,098 0.2

Eastern Europe ....................................................................................................................110,646.......................... 9.9CME 3 Consumer Discretionary 105,865 17,141 1.5Erste Bank 4 Financials 278,700 69,516 6.2Raiffeisen International 5 Financials 80,350 23,989 2.1

Greece ....................................................................................................................................43,370.......................... 3.9Fourlis Holdings Consumer Discretionary 616,035 43,370 3.9

Romania ...............................................................................................................................183,306........................ 16.3A&D Pharma Holding Health Care 251,441 8,504 0.8Banca Transilvania Financials 1,716,249 5,111 0.5BRD Financials 462,500 10,747 1.0Fondul Proprietatea Wts 2010-11-30Financials 25 12,504 1.1Oltchim Materials 4,266,705 1,764 0.2Petrom Energy 116,664,194 76,743 6.8Saturn Sa Alba** Industrials 88,504 546 0.0Sif 1 (Banat Crisana) Financials 4,662,500 10,046 0.9Sif 2 (Moldova) Financials 4,370,100 8,986 0.8Sif 3 (Transilvania) Financials 9,280,400 9,567 0.9Sif 4 (Muntenia) Financials 6,855,100 9,011 0.8Sif 5 (Oltenia) Financials 4,921,800 12,725 1.1THR Marea Neagra Consumer Discretionary 4,055,000 3,787 0.3Transgaz Energy 28,130 13,266 1.2

Serbia ....................................................................................................................................132,006.........................11.8AIK Banka** Financials 183,534 46,965 4.2Alfa Plam Consumer Discretionary 14,296 10,923 1.0Bambi** Consumer Staples 10,697 12,664 1.1BB Minakva** Consumer Staples 3,676 2,209 0.2Cacanska Banka** Financials 6,659 8,520 0.8Efes Zajecar** Consumer Staples 3,619 1,624 0.1Energoprojekt Holding Industrials 269,150 21,397 1.9Imlek** Consumer Staples 2,877 334 0.0JAFFA** Consumer Staples 1,909 1,866 0.2Komercijalna Banka Financials 1,972 4,759 0.4PIK Cacak** Consumer Staples 750 0 0.0Pupin Telecom** Information Technology 56,131 1,053 0.1Sojaprotein Consumer Staples 40,920 2,940 0.3Srpska Banka** Financials 650 453 0.0Toza Markovic** Industrials 44,189 5,523 0.5Umka** Materials 2,771 3,553 0.3Univerzal Holding** Financials 11,809 306 0.0Velefarm** Health Care 22,641 2,474 0.2Zitopromet - Mlin** Consumer Staples 9,724 4,442 0.4

Slovenia ................................................................................................................................150,046........................ 13.4KRKA Health Care 20,556 12,841 1.1Mercator Consumer Staples 48,611 72,196 6.4Nova Kreditna Banka Maribor Financials 432,200 46,732 4.2Pivovarna Lasko Consumer Staples 46,184 8,533 0.8Zavarovalnica Triglav Financials 52,048 9,743 0.9

Turkey ...................................................................................................................................363,175........................ 32.3Akbank Financials 730,463 28,066 2.5Albaraka Turk Financials 406,731 5,891 0.5Anadolu Hayat Financials 533,330 10,711 1.0Anadolu Sigorta Financials 1,280,387 6,444 0.6Aygaz Utilities 149,901 4,619 0.4

Bank Asya Financials 475,200 8,610 0.8CELEBI Industrials 64,448 4,478 0.4Enka Insaat Industrials 179,354 4,822 0.4Finans Leasing Financials 3,922,412 52,579 4.7Ford Otosan Consumer Discretionary 60,800 3,120 0.3Garanti Bankasi Financials 921,216 30,645 2.7Halkbank Financials 554,818 32,282 2.9Is Reit Financials 1,018,186 7,574 0.7Koc Holding Industrials 243,500 6,546 0.6Mardin Cimento Materials 141,968 5,263 0.5Sabanci Holding Financials 417,504 13,581 1.2Sekerbank Financials 391,613 2,932 0.3Selcuk Ecza Health Care 286,568 3,032 0.3Sinpas GYO Financials 799,433 7,556 0.7Sise Cam Consumer Discretionary 714,376 6,191 0.6Tekfen Holding Industrials 170,900 3,969 0.4Tofas Consumer Discretionary 200,908 5,352 0.5Trakya Cam Industrials 625,417 6,587 0.6TSKB Financials 462,934 4,012 0.4Tupras Energy 105,245 15,309 1.4Turk Telekom Telecommunication Services 593,779 14,796 1.3Turkish Airlines Industrials 356,968 6,923 0.6Turkiye Is Bankasi Financials 1,064,476 26,264 2.3Unye Cimento Materials 212,593 3,852 0.3Vakifbank Financials 865,026 15,673 1.4Yapi Kredi Bankasi Financials 590,600 12,615 1.1Yapi Kredi Sigorta Financials 60,312 2,880 0.3

Total Financial Instruments .............................................................................................1,091,245........................ 97.2Regulated markets 928,459 82.7Other markets that are regulated (*) 70,253 6.3Other (**) 92,533 8.2

Other assets and liabilities, net 31,764 2.8The Fund's NAV .................................................................................................................1,123,009...................... 100.0

1 Indication of type of market place No asterisk indicates that the financial instrument is traded on a regulated market or equivalent market outside the EES. * Instruments traded on other markets that are regulated. ** Other financial instruments. 2 Investment in East Capital Bering Balkan Fund made through an equity linked certificate listed on Euronext.3 CME, a media company listed in USA, with business in Eastern Europe. 4 Erste Bank, a finance company listed in Austria, with business in Eastern Europe. 5 Raiffeisen International, a finance company listed in Austria, with business in Eastern Europe.


East Capital Turkish Fund

Management report

The East Capital Turkish Fund gained 10.7%, whilst the bench-

mark ISE 100 National Index gained 9.9% (both in SEK). The net

asset value was SEK 2,164m as of 30 June 2010, to be com-

pared to SEK 1,681m at the turn of the year. Net inflows were

SEK 317m.

Market update

The Turkish market, which is dominated by the financials sector,

outperformed throughout the period on the back of the strong

economic recovery and attractive macro fundamentals. The

market actually reached an all-time high in local currency terms

in April, before the negative global sentiment and the Euro zone

debt crisis started to have a negative impact, which, together with

some renewed domestic political tension, caused the market to

fall 6.9% in Q2. The market was nevertheless one of the strong-

est in the region and stayed in positive territory over the period.

The fact that inflation stayed reasonably low despite an upswing

at the beginning of the year and interest rates remained low, cer-

tainly helped the large financial sector. Moreover, the fact that

Turkey managed to ride out the global crisis on its own, despite

frequent rumours of a deal with the IMF, and received several rat-

ing upgrades, certainly also supported the market.


Some domestic sectors outperformed in Turkey during the peri-

od. The consumer discretionary, health care, utilities and consum-

er staples sectors were all in positive territory. Unlike in other parts

of the region, the materials sector was the strongest, gaining

18.6%. But the sector is relying more on domestic demand than

its peers in the region, as Turkey is the least export-dependent

country in Eastern Europe. Companies like Mardin Cimento and

Dogus Otomotiv, for instance, were strong, gaining 19.6% and

34.9% respectively. The latter is an auto importer and distributor

that gained from the weaker Euro and strong rebound in domes-

tic demand. Holding companies were also strong, with Sabanci

Holding and Koc Holding gaining 11.4% and 20.3% respectively.

The former added a 2.5% contribution alone to the fund’s perfor-

mance.

Telecommunication services and industrials were the only

sectors with negative performance, driven much by the poor

performance of Turkish Airlines and Turkcell, and losing 24.6%

and 22.6% respectively. The financials sector was stronger than

in many other markets and stayed in positive but modest ter-

ritory, gaining 1.5%. There was also a large spread within the

sector, with Turkiye Is Bankasi and Yapi Kredi Bankasi gaining

15% and 25.3% respectively, whereas Halkbank and Vakifbank

lost 3% and 16.9% respectively.


The exposure to the financials sector was increased by almost

8 percentage points and now makes up 67.3% of the fund on

the back of an improving macro environment and prudent regula-

tion. The five largest holdings in the fund are all banks, and the

exposure was increased in all but one of those during the period.

The most significant increase was in Akbank, which was up from

4.5% to 8.6%. Halkbank became the largest holding after the

exposure was increased from 8% to 9.9%, whilst Garanti Bankasi

was reduced slightly to 9.3%. The exposure to holding compa-

nies was reduced somewhat after the strong development dur-

ing the period. The significant exposure to mobile telecoms was

completely sold off with the selling of Turkcell after it was hit by an

unfavourable regulatory change, whereas fixed line Turk Telekom

was increased, resulting in the exposure to the telecommunica-

tion services sector being reduced from 7.8% to 4.6%.


stated.

Fund facts

Risk High Fund manager East Capital Asset Management AB Launch date 29 March, 2006 Quotation/trade Daily Benchmark ISE 100 National Index Dividend Yes, reinvested Management fee 2.5 % Subscription fee 2.5 % Redemption fee 0 % Minimum investment 200 SEK ISIN SE0001621327 Bloomberg EACTURK Bank account (IBAN) SE8250000000058641009582 SWIFT ESSESESS Cut off point Investment payments available on the fund’s bank account before 15.00 CET will purchase fund units at a NAV calculated later the same day.


The aim of the fund is to maximise the return on investment for its unit-holders. The fund’s investment focus is tied to the Turkish economy and the fund may invest in financial

instruments of issuers domiciled in Turkey. Both direct and indirect exposure is permitted. The fund may also invest up to one-third of its assets in instruments of issuers domiciled in Albania, Armenia, Azerbaijan, Bosnia-Herzegovina, Bulgaria, Croatia, Cyprus, Egypt, Georgia, Greece, Hungary, Iran, Iraq, Israel, Jordan, Kazakhstan, Kyrgyzstan, Lebanon, Macedonia, Montenegro, Qatar, Ro-mania, Russia, Serbia, Slovenia, Tajikistan, Turkmenistan and Uzbekistan. At least 75 % of the fund’s assets shall consist of shares and equity-related instruments.


The fund may trade in derivative instruments. Trading in OTC derivatives is permitted for purposes of currency hedging. Derivative instruments are traded on a highly limited basis as an integrated tool for more efficiently managing the fund’s assets, as well as protecting them from exchange rate losses and other risks.


NAV compared with currency adjusted ISE 100 National IndexIndex for NAV: 29 March, 2006 = 10 SEK

0

2

4

6

8

10

12

14

2006 2007 2008 2009 2010

Ten largest holdings of the fundCompany Sector % of the fund’s NAV

Halkbank Financials 9.9

Garanti Bankasi Financials 9.3

Akbank Financials 8.6

Turkiye Is Bankasi Financials 8.1

Turkiye Vakifl ar Bankasi Financials 4.8

Tupras Energy 4.7

Turk Telekom Telecommunication Services 4.6

Sabanci Holding Financials 4.2

Yapi Kredi Bankasi Financials 3.9

Anadolu Hayat Financials 3.3


ISE 100 National Index


Total return ................................................ 2010 H1 ............ 2009 ............ 2008 ............ 2007 ........... 2006*

East Capital Turkish Fund 11% 90% -59% 52% -24 %

ISE 100 National Index** 10% 82% -56% 61% -23 %* Since launch date 29 March, 2006. ** ISE 100 National Index has been converted to Swedish kronor (SEK).

Net asset value, ’000s SEK 2,164,323 1,681,448 844,394 2,207,337 1,031,398


NAV per unit, SEK 9.77 8.85 4.73 11.47 7.55

Dividend per unit after tax, SEK 0.02 0.10 - - -

Portfolio breakdown (%)

5.3 Consumer Discretionary 4.7 Energy 4.6 Telecommunication Services 4.4 Materials 1.5 Utilities 0.9 Health Care 0.7 Other assets and liabilities, net

Financials67.3

Industrials10.7




Short-term receivables 9,866 125

Accrued dividends 0 0

Total assets ..........................................................................................2,188,274 ........................... 1,250,564





Total liabilities and net asset value ....................................................2,188,274 ........................... 1,250,564

(SEK)




Name Country 2 Number of shares


% of theNAV

Consumer Discretionary .....................................................................................................114,004.......................... 5.3Dogus Otomotiv 515,700 17,409 0.8Ford Otosan 390,100 20,016 0.9Sise Cam 4,761,608 41,266 1.9Tofas 1,325,674 35,313 1.6

Energy ..................................................................................................................................102,382.......................... 4.7Tupras 703,835 102,382 4.7

Financials ..........................................................................................................................1,457,036........................ 67.3Akbank 4,861,466 186,787 8.6Albaraka Turk 3,018,260 43,719 2.0Anadolu Hayat 3,534,050 70,973 3.3Anadolu Sigorta 7,572,290 38,111 1.8Bank Asya 3,153,500 57,137 2.6Finans Leasing 1,867,820 25,038 1.2Garanti Bankasi 6,062,874 201,689 9.3Halkbank 3,698,195 215,181 9.9Is Reit 6,808,076 50,644 2.3Sabanci Holding 2,761,333 89,825 4.2Sekerbank 2,557,802 19,153 0.9Sinpas GYO 5,329,933 50,379 2.3TSKB 3,055,830 26,483 1.2Turkiye Is Bankasi 7,097,106 175,110 8.1Vakifbank 5,752,370 104,224 4.8Yapi Kredi Bankasi 3,944,300 84,247 3.9Yapi Kredi Sigorta 384,011 18,337 0.8

Health Care .............................................................................................................................19,962.......................... 0.9Selcuk Ecza 1,886,544 19,962 0.9

Industrials ............................................................................................................................231,687........................ 10.7CELEBI 425,927 29,593 1.4Enka Insaat 1,180,793 31,743 1.5

Koc Holding 1,623,400 43,642 2.0Tekfen Holding 1,133,500 26,326 1.2Trakya Cam 4,183,216 44,059 2.0Turkish Airlines 2,363,650 45,843 2.1Yazicilar Holding 227,700 10,482 0.5

Materials .................................................................................................................................94,359.......................... 4.4Adana total 21,377 1.0

Adana A 242,506 5,668 0.3Adana B 531,218 7,382 0.3Adana C 3,169,860 8,327 0.4

Anadolu Cam 629,400 6,474 0.3Cimsa 171,800 7,360 0.3Mardin Cimento 917,032 33,996 1.6Unye Cimento 1,388,177 25,152 1.2

Telecommunication Services ...............................................................................................98,655.......................... 4.6Turk Telekom 3,959,026 98,655 4.6

Utilities ....................................................................................................................................31,717.......................... 1.5Aygaz 1,029,391 31,717 1.5

Total Financial Instruments .............................................................................................2,149,802........................ 99.3Regulated markets 2,149,802 99.3Other markets that are regulated (*) 0 0.0Other (**) 0 0.0

Other assets and liabilities, net 14,521 0.7The Fund's NAV ................................................................................................................2,164,323...................... 100.0

1 Indication of type of market place No asterisk indicates that the financial instrument is traded on a regulated market or equivalent market outside the EES. * Instruments traded on other markets that are regulated. ** Other financial instruments. 2 If not otherwise stated, the instrument is issued by an issuer domiciled in Turkey or by a foreign company that has significant operations, or invests significantly in Turkey.

Reporting principles

This Half Year Report has been drawn in accordance with the

Investment Funds Act (SFS 2004:46), the Swedish Finan-

cial Supervisory Authority’s regulations on investment funds

(FFFS 2008:11) and the Swedish Investment Fund Associa-

tion’s recommendations for the reporting of facts and figures

pertaining to investment funds.

Financial instruments that are included in the funds are valued

based on the current market value, i.e. the mean value of the

bid price and ask price (“mid price”). Should the most recently

indicated mid price not appear to be relevant, financial instru-

ments may be valued at the price objectively decided upon by

the company based on available market information.

Unlisted assets are valued at the most recently known trans-

action price. In the absence of such information or where such

information does not appear to be relevant, financial instruments

may be valued at the price objectively decided upon by the com-

pany based on available market information. Both unrealised

and realised profits and losses are reported in the accounts.

The funds’ holdings in shares and other financial instruments

have been valued with prices taken at 16.00 CET as per 30 June

2010.

Tax rules

For the fund

The Fund is not taxable for capital gains when selling Swedish

or foreign shares or share-related securities and consequently,

capital losses are not tax deductible. Capital gains and capi-

tal losses from the sale of other securities are taxable and tax

deductible respectively.

The Fund’s taxable income also consists of interest and regu-

lar revenue of 1.5% of market value at the beginning of the year,

of the Fund’s holdings of shares and share-related securities.

The tax rate for the Fund is 30%. Dividends to unit-holders are

tax deductible for the Fund but not to such a great extent that a

deficit arises. If the entirety of the Fund’s taxable income is paid

out to the unit-holders, there is therefore no tax on the Fund.

For the unit-holders

Institutions and individuals residing outside of Sweden are

entirely responsible for abiding by the taxation rules of the coun-

try where they are registered to pay tax, and following up as

required.


Documents

Half Year Report 2010 - East Capital · increase or decrease in value, and there is no guarantee that all of the capital you invest will be repaid. * Best return among today’s approximately