OPEN-END INVESTMENT FUND TREND (OEF TREND)Investors’ report

9.11.2015

Management company: Butterfly Finance PLC Head office: Marka Miljanova 46/17, Podgorica, MontenegroDepositary bank: ERSTE Bank MontenegroCEO of the management company: Nedeljko SuskavcevicLicences investment managers: Veselin Kovac, Milica Petricevic, Igor Budisavljevic, Nedeljko Suskavcevic

ABOUT OEF TREND

Open-end investment fund Trend has been created from the transformation of the Mutual investment fund Trend into a closed-end and an open-end investment fund in accordance with the Law on Investment Funds in Montenegro. The establishment of the Fund was initiated on transformational General meeting of shareholders of the Mutual investment fund Trend on 21.07.2014. The date of the establishment is 18.09.2014 when the Fund is registered in the Register of Open-End Funds with the Securities and Exchange Commission of Montenegro.

The open-end fund Trend is managed by the Investment Fund Management Company Butterfly Finance AD – Podgorica.

Investment units of the OEF Trend are freely transferable and can be traded daily on the stock exchange. They are also redeemable but subject to certain limitations in first two years. It means that in the first year of the transformation program the redemption haircut is 20%, and the redemption value is calculated by taking the average of an investment unit value in last 120 days. Investment units can be redeemed every four months (17.01.2015 – 17.05.2015 – 17.09.2015). In the second year the redemption haircut is 10%, again every four months on the same dates. Revenue from the redemption haircut belongs to the Fund, not the management company. Once the transformation period is over (17.09.2016) there is no redemption haircut, just the regular redemption fee which is collected by the management company and not the Fund.

SUMMARY (COMMENT)

After 14 months of the OEF Trend inception we can say that the past period was successful in terms of total return and current structure of the portfolio. We are satisfied with current state and optimistic about the future prospects, expecting further increased growth in value (NAV) which will also trigger the dividend payments to our shareholders starting next year. The optimism arises from our belief that our main stakes are still significantly undervalued and possess great risk-return perspectives.

The total return achieved in the whole period is 11.90% which is dragged down in the last couple of weeks from 19.2% mostly due to a single market deviation which is expected to be annulled very soon.

The main contributors of the portfolio are still Jugopetrol (JGPK) and Prenos (PREN) with the total stake of 55%. They have performed well since the open-end fund inception gaining 32.2% and 40.4% respectively, without the dividend payments.

0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%18.00%20.00%22.00%24.00%26.00%28.00%

OEF - CUMULATIVE RETURN

PERFORMANCE

The table above explains the performance of the OEF Trend in the past period through several quantitative parameters. The total return of 11.90% was achieved with a relatively low level of risk reflected in the daily standard deviation of 0.68%. The risk-return premium is best described by the value of Sharpe ratio which is 0.57, a satisfying level given the recent fall in portfolio. The value of the Sharpe ratio suggests that our return is relatively in line with risk. Another important indicator is the Sortino ratio - the value of 0.74 is higher than the value of Sharpe ratio. It means our portfolio shows signs of downside resistance and utilizes the upside more efficiently. It is also confirmed by the higher number of negative days, but positive total return. The value of Sortino ratio is relatively high at the moment but it has usually been higher during the whole period,

Index MONEX20 statistics:

Start date: 18.09.2014 End date: 09.11.2015 Beginning Price: 11566.01 Ending Price: 11236.14 Total return: -2.85% YTD return: -1.06% Standard deviation: 0.58

Portfolio statistics and indicators:

Start date: 18.09.2014

End date: 09.11.2015

Beginning NAV: 10,212,489 EUR

Ending NAV: 11,427,979 EUR

Total return: 11,90%

YTD return: 3.78%

Compounded annual return: 10.34%

Max drawdown: 10.56%

Peak-to-valley: 06.05.2015-09.11.2015

Monthly mean return: 1.32%

Standard deviation (daily): 0.68%

Downside deviation (daily): 0.52%

Positive periods (days / months): 151 / 8

Negative period (days / months): 266 / 6

Sharpe ratio: 0.57

Sortino ratio: 0.74

Calmar ratio: 0.98

this indicates the portfolio is yielding reasonably strong returns compared to the low downside risk.

Moreover, the value of Calmar ratio (0.98) also tells about limitations to the downside risk, explaining the relationship of the maximum drawdown with the annualized portfolio return. It has dropped during the last few weeks due to recent negative effects on both sides of the equation (higher drawdown and lower annual return), but during the whole period it has been showing a high level of portfolio risk efficiency.

OEF Trend time-period performance statistics:

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15

OEF - monthly return

Benchmark comparison (vs. MONEX20 Index):

In the same period the total return of the Montenegrin stock exchange index MONEX20 was -2.85% - noticeably worse performance than the Fund’s. OEF Trend has gained a premium of 14.75% in the whole period compared to the national index.

MONEX20 daily standard deviation was 0.58 – slightly below OEF’s.

Benchmark comparison, time-period performance statistics:

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

22.00%

24.00%

26.00%

28.00%

OEF MONEX20

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15

OEF - monthly returns MONEX20 - monthly returns

The Fund’s performance:

The performance of the OEF Trend was measured by taking investment unit value movements from 18.09.2014 until 09.11.2015. In that period the total return was 11.90%. The NAV experienced some headwinds most recently after a long period of steady gains.

Year-to-date return until 09.11.2015 was 3.78%. It was significantly affected by the most recent NAV decline in November, reflected in month-to-date return of -6.12%.

Exactly two thirds of the recent fall in NAV by 6.57% since 29.10.2015 is explained by a 45.6% drop in share price of a single company representing 5.33% of our portfolio right now. The other third of the drop can be addressed to the market slowdowns (it can be seen on MONEX20 graph) that slightly dragged down most of our key holdings. Moreover, one part of the recent drop is also explained by the current ex-dividend trading of the JGPK stock. The dividend payment of approximately 4% (2 million EUR) of their market capitalization will be executed on 26th November.

HOLDINGS:

Company No. of Shares

Share Price

% of portfolio Market Value (EUR)

"JUGOPETROL" A.D. 277,711 € 11.3001 27.46% 3,138,162.07 "PRENOS" A.D. 4,119,385 € 0.7599 27.39% 3,130,320.66 HTP "PRIMORJE" 154,788 € 3.9784 5.39% 615,808.58 SOLANA "BAJO SEKULIC" 234,264 € 2.6000 5.33% 609,086.40 TELEKOM CRNE GORE A.D. 156,731 € 3.8500 5.28% 603,414.35 H.T.P. "ULCINJSKA RIVIJERA" 55,863 € 7.7000 3.76% 430,145.10 A.D. "BJELASICA - RADA" 105,719 € 3.8517 3.56% 407,197.87 "RADOJE DAKIC" A.D. 272,766 € 1.4461 3.45% 394,446.91 ZELJEZNICKA INFRASTRUKTURA CRNE GORE

7,675,077 € 0.0370 2.49% 283,977.85

A.D. "PLANTAZE" 2,111,935 € 0.1330 2.46% 280,887.36 "PRVA BANKA" 3,277 € 49.9999 1.43% 163,849.67 "KONTEJNERSKI TERMINAL I GENERALNI TERMINAL"

896,066 € 0.1751 1.37% 156,901.16

A.D. "LUKA BAR" 883,230 € 0.1725 1.37% 152,357.18 "OBOD" A.D. 5,444,260 € 0.0250 1.19% 136,106.50 INSTITUT CRNE METALURGIJE A.D.

65,827 € 1.8888 1.09% 124,334.04

<1% positions 6.58% 751,903.20 Cash and receivables 0.42% 48,125.26 TOTAL 100% 11,427,024.19

Total number of open positions: 47

The main contributors of the portfolio performance are Jugopetrol (JGPK) and Prenos (PREN) presenting 55% of the holdings.

Total number of holdings in OEF Trend portfolio is 47. Our plan which is already in progress is to decrease that number to around 40 by the end of the year (while writing this report the total number of holdings is already down to 45) by eliminating inefficient positions from the portfolio and focusing strong performance rather than asset gathering. Most of the positions to be eliminated are very small holdings, with some of them being illiquid they represent a small burden which when removed will reflect positively on the total performance.

32 out of 47 positions present less than 1% of the total value of the portfolio and together accumulate only 6.58% of NAV. 0.42% of the portfolio is cash, and the other 13 positions (excluding JGPK and PREN) cover 38% of the portfolio.

GAINERS:

As already mentioned, the biggest contributors of the portfolio are JGPK and PREN, they have also shown the strongest performance among most of the holdings, appreciating 32.2% and 40.4% respectively, since the OEF Trend inception. The third strong gainer in the same period was Ulcinjska Rivijera (ULRI) adding 137% to their value.

ILIQUIDITY:

In the whole period since the inception, none of the companies presenting the significant share of the portfolio have shown real underperformance. The biggest “loser” in the period was Telekom (TECG) losing only 3.75% in value, but paying out total of 0.455 EUR dividends per share in which amounts to almost 12% of the current share price at 3.85. Nevertheless the portfolio performance was negatively affected by some appearances which are not usual and don’t reflect the real value. Namely, some of our holdings are companies which are very illiquid on a local stock market, with negligible volume for a long period of time and which trade in prearranged block transactions. Most of them have value; however it is hard for market participants to define it precisely, resulting in a very few transactions and market inactivity. As a consequence, when some minor shareholders of such companies wish to sell their shares, typically they cannot find a matching offer immediately and they sell it on huge discount and vice

versa. Unfortunately, due to the lack of volume, such transactions determine the share price of such companies, thus instantly affecting our NAV.

The most recent drop in NAV was caused by such occurrence. To be precise, the company Solana Bajo Sekulic (SOBS) was valued at 4.78 EUR per share until 02.11.2015 when the sell order of only 100 shares was initiated by an unknown owner of the shares. The order was completed few days later with the average price of 2.60 EUR on the last transaction of only 48 shares - totaling in 124.80 EUR, thus setting the new share price at 2.60 EUR. Accordingly, our position was diluted by 45.6% and our NAV suffered a 4.5% drop since it was the last transaction with SOBS shares. Such unjustified “market anomalies” can negatively affect the current value of our NAV and can create an instant misleading image of the OEF Trend performance. OEF Trend was selling SOBS shares for the price north of 4 EUR and will continue to do so as soon as the share price recovers.*

We believe that the companies OEF Trend holds are not overvalued at current market prices, and that such sudden changes are expected to be neutralized as soon as the volumes slightly improve. It will lead back to the NAV recovery and share price appreciation.

The magnitude of the misleading image caused by this single transaction of 100 shares of Solana Bajo Sekulic is best understood by looking at its effect on the total and YTD NAV return: on 01.11.2015 the total return since the initiation of the OEF Trend was 19.19% while YTD return was 10.54% - now (after the transaction) the total return was 11.90% and YTD return was 3.78%.

Besides expecting such companies to retrieve their fair share value, we also expect positive results of our main holdings in the upcoming period. It is explained on the next page in more details.

Together with share appreciation of major holdings, we expect significant dividend payments which will trigger our first dividend distribution to the shareholders by the end of the next year.

(While writing this report the SOBS shares have gained 35% in value, increasing up to 3.50 EUR – the net effect of this appreciation on OEF Trend NAV is +1.85%. Furthermore the total NAV value has increased correcting the total return of the Fund from 11.90% to 14.39% - YTD return is now 6.09%).

DIVIDEND DISTRIBUTION:

In order to increase the value for our shareholders and potential investors we plan to initiate the dividend program which will commence in the year 2016. Few companies in our portfolio pay lucrative dividends every year which will be collected and paid out to OEF Trend shareholders in form of dividends. We believe that our portfolio is strong, giving long-term appreciation opportunities and also our key holdings are financially stable companies expected to grow and exist for a long period of time. All this enables us to introduce dividend distributions to our shareholders and offer them higher value and steady dividend income in the future. Regarding the dividend yield, right now we expect it to be above 3%, taking into consideration current holdings and their dividend distribution policies. Our idea is to pay dividends permanently after the initiation, and to offer higher yield to our shareholders when possible.

As already mentioned above the two main value drivers of the portfolio are the two biggest holdings Jugopetrol and Prenos. They have appreciated 32.16% and 40.36% respectively, and explain 55% of the Fund’s total return, but furthermore Jugopetrol provides significant income boosts in terms of dividends, yielding 11.5% in 2015 at current share price level.

JUGOPETROL (JGPK):

The graph represents JGPK share price movements since the inception of the OEF Trend (18.09.2014.).

8

8.5

9

9.5

10

10.5

11

11.5

12

12.5

13

18

/09

/14

30

/09

/14

10

/10

/14

22

/10

/14

03

/11

/14

13

/11

/14

25

/11

/14

05

/12

/14

17

/12

/14

29

/12

/14

19

/01

/15

29

/01

/15

10

/02

/15

20

/02

/15

04

/03

/15

16

/03

/15

26

/03

/15

07

/04

/15

21

/04

/15

04

/05

/15

14

/05

/15

28

/05

/15

09

/06

/15

19

/06

/15

01

/07

/15

15

/07

/15

27

/07

/15

06

/08

/15

18

/08

/15

28

/08

/15

09

/09

/15

21

/09

/15

01

/10

/15

13

/10

/15

23

/10

/15

04

/11

/15

Div. 0.86 Div. 0.43

Though the stock has performed better then we initially expected, we still believe it has a lot of upside in the next 2 years. The plan of minority shareholders is to push the company to payout the excess cash, and sell and payout idle assets, so that only the business remains (this year the management has already committed to pay out 2M EUR of cash by the end of the year). Furthermore, the outlook for their gross margins and hence profits is very positive. Namely, as we approach EU, fuel prices will liberalize, and JGPK will be able to better monetize their premier gas station locations. Also, active minority shareholders are increasing their stake in the company hence exercising more influence over it. As a consequence of this, this year for the first time there are two representatives of active minority share-holders in the BoD.

Current market capitalization of JGPK is 52.6 million euros. We believe the company is hugely undervalued considering its current multiples, financial stability, assets, and future expectations.

To be precise, they run a healthy business in an environment where they are not endangered; moreover they present a dominant player with the largest market share in Montenegro in a business with high entry barriers. Many smaller oil suppliers are actually their clients and they don’t try to compete with JGPK. Also, many of JGPK clients are large Montenegrin companies which will remain there due to weak competition.

Their margins improved significantly, mostly due to lower costs related to the oil prices, which has driven its EBITDA and net profit in 2015 higher even though the revenue experienced a slowdown due to the same reasons. It emphasizes the business strength and the management ability to accommodate and accept the challenges, and possible headwinds transform into a positive effect for the company profitability.

For 2015 Jugopetrol’s expected (one quarter remaining) price-to-EBITDA ratio is only 5. Their FY2015 price-to-earnings ratio will be in range 7-8. The dividend to be paid in 2015 at current share price levels represents an 11.5% dividend yield.

Besides low valuation multiples and high dividend yield, the company has a very strong and healthy balance sheet. It is best described by 10M of assets in cash, 21M in accounts receivables, 29M inventory, 39M book value of real estate, plant and equipment and only 14M in total liabilities on the other side, without long-term debt. The company is 100% financed by equity, which presents additional opportunities in future, driven by capital structure changes, introduction of leverage and cheaper financing of their business. The market capitalization of 52M cannot justify the total equity of 92M, with most of the 106M in total assets being liquid. The dividend yield, high profit margins, expected future growth and good industry positioning just come on top of that.

PRENOS (PREN):

Our second key holding and at the same time the biggest contributor in the past period is Prenos (PREN). The share price of PREN increased from 0.5414 EUR since the inception of OEF Trend up to 0.7599 EUR, or exactly 40.36%. The appreciation contributed to the NAV by adding 900,085 EUR and positively affecting the OEF Trend performance by 8.81%. Exactly 74% of the total NAV appreciation is attributable to PREN.

Current market capitalization of PREN is 114.8 million EUR out of which 34 million EUR is cash. The company owns real estate, plant and equipment with total book value of 167 million and 20 million in receivables as well. They have total liabilities of 48 million out of which 38.3 is long-term debt. All of their debt is finance by KfW and EBRD with interest rates below 2%.

For the first three quarters ending 30.09.2015 company’s revenues were 23.3 million EUR. Net profit for the same period was 3.6 million EUR.

Prenos is in the middle of a huge regulatory allowed investment cycle (100M) bringing a lot of potential for future share price appreciation whose exact intensity depends on few variables. Namely, company has regulatory allowed revenue of 7,3% annually on an approved investment.

The key catalyst for the share price increase is the expected revenue from the undersea cable which is anticipated to start at the end of the 2017 (revenue collecting will certainly start by 2018). It is a 1,000MW cable, which means it can transfer 8,760 GWh of electricity every year to Italy, and Prenos owns 20% of the cable capacity, and 100% of the Montenegrin electricity infrastructure leading to the cable. The cost of the transfer

0.50.520.540.560.58

0.60.620.640.660.68

0.70.720.740.760.78

0.80.820.84

18

/09

/14

30

/09

/14

10

/10

/14

22

/10

/14

03

/11

/14

13

/11

/14

25

/11

/14

05

/12

/14

17

/12

/14

29

/12

/14

19

/01

/15

29

/01

/15

10

/02

/15

20

/02

/15

04

/03

/15

16

/03

/15

26

/03

/15

07

/04

/15

21

/04

/15

04

/05

/15

14

/05

/15

28

/05

/15

09

/06

/15

19

/06

/15

01

/07

/15

15

/07

/15

27

/07

/15

06

/08

/15

18

/08

/15

28

/08

/15

09

/09

/15

21

/09

/15

01

/10

/15

13

/10

/15

23

/10

/15

04

/11

/15

will be priced to match the difference in electricity price between Italy and Balkans, and the lowest is around 10 EUR/MWh. In that case (worst case scenario) the cable would earn exactly 87,6 million EUR out of which 20% or 17.5 million EUR is transferable.

All this mean that in the worst case scenario Prenos’ benefit would amount to 17.5 million EUR per year. However, in the expected scenario some part of the total revenue (87,6 million EUR) which is also expected to be higher, will be used for the transfer network to the cable, where PREN has 100% of share. If we assume that only 10% of the revenue is used for the network then PREN would earn 8.76M (10% of 87.6M) plus 20% of the remaining 78.8M which is 24.5 million EUR total. This is our conservative assumption. With the yearly revenue increase of at least 24.5 million EUR we expect the share price to respond and appreciate by more than 50% from current levels.

OTHER POSITIONS:

SOBS Solana Bajo Sekulic (SOBS) is a salt producer from Ulcinj. The business side of the company is non-profitable. However, the company has 14 million square meters of land at the Velika Plaza, which they are trying to sell and liquidate the company. Currently the land is offered at 150 million EUR, or roughly 37 EUR per share. This is a tall order, however, the company’s assets are worth more than the current market capitalization of 12M EUR.

PRIT Primorje Tivat (PRIT) is a hotels group from Tivat, currently most sought for destination in Montenegro, due to the Porto Montenegro project that was implemented there. The company has valuable assets, however the fund is not happy with the way company is managed and is looking to sell its stake. Given that the fund owns 5,7% of the company, which provides good control rights over the company, this stake will be sold. We are looking for a small premium to the market price.

ULRI Ulcinjsa Rivijera is a hotels group from Ulcinj which owns and operates hotels at Velika Plaza and Ada Bojana, which is a very popular tourist destination for guests from Western Europe. The company is currently in the privatization process which is the reason why the price has spiked from 2-3 EUR levels in early 2014, to current price range of 7-14 EUR per share. OEF Trend holds 3,7% of the company making it the biggest minority shareholder. The Fund will not sell its stake before the privatization is over. We are expecting the company to fetch the privatization price at higher multiples to current market capitalization.

STOB Obod is the oldest printing company in this part of Europe, and one of the oldest in the world, founded in 1494. The fund owns 24% of the company and is one of the controlling shareholders (given that there is no majority owner). Though the company is one of the biggest printing companies in Montenegro, with the best printing equipment, it is run in such a way that it barely breaks even after tax. The fund is actively trying to increase the revenues while reducing the expenses, and create new value for shareholders. In line with that, we have appointed a new board member this year.

Several smaller positions such as PLAP, KOGE and LUBA are drastically undervalued in our opinion and we expect the meaningful appreciation of their share prices. Even though they are not the key contributors representing around 5.2% of the portfolio together, the significant increase in their value will contribute to the total Fund’s performance.

We are also actively working on selling some positions or narrowing our exposure. Specifically, we believe we will manage to sell PRIT with 10% premium on current price; ULRI can be sold immediately with premium but we are waiting for the privatization process which is expected to boost the shares (current price is 7.7 EUR but it has reached the price of 15 EUR this year on first speculations regarding the privatization). Besides, we are actively selling SOBS when the opportunity arises and the price is appropriate (above 4 EUR).

GOALS, TARGETS AND EXPECTATIONS

Our goal is to provide investors the long-term increase in value - both through capital gains and dividend payments. We believe we are on a good trajectory, having a strong and healthy portfolio with huge upside potential. We expect our key positions (JGPK and PREN) to advance and contribute by more than 50% in the period to come.

Our commitment and dynamic portfolio management should bring additional value to our shareholders. We do our best to recognize every possible danger as well as the opportunity. We also focus on long-term forecasts and plans as we believe it is the most efficient way to identify and lock the additional value on time.

Our long-term plan is to grow on both ends, in value per unit and in terms of new investments. By introducing steady dividend payouts next year and actively managing and exploiting market opportunities in an undervalued environment which is still transitioning towards higher financial standards and broader knowledge and market activity, we believe the Fund possesses many positive catalysts at this moment and we are quite certain it will continue to grow and achieve results which are above our shareholder’s expectations.