Final Results

Baring Emerging Europe PLC Annual Report & Audited Financial Statements for the year ended 30 September 2012 Contents Directors and officers 2 Financial highlights 3 Performance 3 Discount 3 Investment objective 3 The Investment Manager 3 Financial calendar 4 Special considerations and risk factors 4 Chairman's statement 5 Report of the Investment Manager: 8 Review 8 Equity portfolio 12 Classification of assets 13 Report of the Directors 15 Directors' Remuneration Report 28 Statement of Directors' responsibilities in respect of the annual report and 30 the financial statements Independent Auditor's Report 31 Income statement 33 Balance sheet 34 Reconciliation of movement in shareholders' funds 35 Cashflow statement 36 Notes to the accounts 37 Notice of Annual General Meeting 49 Notes to the Notice of Annual General Meeting 51 Appendix 53 Directors and officers Directors Steven Bates, Chairman Josephine Dixon Saul Estrin Jonathan Woollett Ivo Coulson Secretary M. J. Nokes, F.C.A. Registered office 155 Bishopsgate London EC2M 3XY Company number 4560726 Investment Manager Baring Asset Management Limited 155 Bishopsgate London EC2M 3XY Telephone: 020 7628 6000 Facsimile: 020 7638 7928 Auditor KPMG Audit Plc 15 Canada Square London E14 5GL Custodian State Street Bank & Trust Company Limited 20 Churchill Place Canary Wharf London E14 5HJ Administrator Northern Trust Global Services Limited 50 Bank Street Canary Wharf London E14 5NT Telephone: 0207 982 2000 Registrars and transfer office Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Telephone: 0871 664 0300 (calls cost 10 pence per minute plus network extras) Overseas: +44 208 639 3399 Email: ssd@capitaregistrars.com Website www.bee-plc.com Financial highlights 2012 2011 Net asset value per ordinary share ("NAV") 776.34p 701.50p Revenue return per ordinary share 16.18p 10.99p Dividends per ordinary share 16.00p 10.00p Share price 703.00p 638.00p Ongoing charges (based on average NAV) 1.23% 1.19% Performance (total return basis) Year ended 30 September 2012 Net asset value per ordinary share# +11.3% Share price # +11.7% Benchmark* +13.8% *The Benchmark Index is the MSCI EM Europe 10/40 Index. #Source: AIC Discount (at 30 September) 2012 2011 Discount to net asset value per share* 9.4% 9.1% *Based on the net asset value including income. Investment objective The investment objective is to achieve long-term capital growth, principally through investment in securities listed on or traded on an Emerging European securities market or in securities of companies listed or traded elsewhere, whose revenues and/or profits are, or are expected to be, derived from activities in Emerging Europe. The Investment Manager The Investment Manager is Baring Asset Management Limited which is authorised and regulated by the Financial Services Authority. Financial calendar Annual general meeting for 2012 9 January 2013 Announcement of interim results May Announcement of final results December Interim report posted May Annual report posted December The Company's share price is published in the Financial Times. Special considerations and risk factors Shareholders should be aware that the value of the Company's Shares and the income from them may fluctuate. In addition, there is no guarantee that the market prices of shares in investment trusts will fully reflect their underlying Net Asset Value. The risks inherent in investment by the Company in Emerging Europe are of a nature and degree not typically encountered in investing in securities of companies listed on the major securities markets. Such risks are both political and economic and in addition to the normal risks inherent in any equity investment. Investment in the Company should be regarded as long-term in nature. There can be no guarantee that the Company's investment objectives will be achieved. Chairman's statement Dear Shareholder, It's been another year which the Grand Old Duke of York would have appreciated. The troops were marched up to the top of the hill in the first half and then back down again in the second, only for a further attempt on the summit to begin in May. The volatility of Baring Emerging Europe's stock markets has been characteristic of the region since the launch of the Company, but it does seem to have become more extreme since the onset of the financial crisis in 2008. It is worth recalling that the NAV of the Company hit Â£11.47 in mid-2008 before dropping to Â£3.10 in early 2009 and now sits at Â£7.76 despite the fact that things in this part of the world have improved substantially since the peak of share prices, in complete contrast to what has happened in the so called advanced economies. The issue seems to be that the problems of the developed world are so entrenched that regions like ours are caught in the backwash. I have split this report, as usual, into the four sections on which the Board spends most of its time, but this year I would draw your particular attention to the issue of discount management and also to the matter of the Company's income account, which has seen some important developments on the road to maturity. I will finish with some comments on the outlook. Investment Returns During the first half of our fiscal year, the NAV rose 15.1%. In the second half it fell by -3.8%, to give a total return for the year of +11.3%. I commented in the half year statement that, while the overall return might be satisfactory, the Benchmark Index has been hard to beat and it's disappointing that we are slightly behind the Benchmark Index for the year. On a positive note, the decisions on asset allocation between Turkey and Russia, our two largest markets, were very successful during the year and added significant value. On the other side of the ledger, problems in the portfolio have centred on stock selection in Russia and Matthias Siller, your fund manager, goes into more detail on this in his report later. There are two points I would emphasise from the Board's perspective: the first is that Russia remains a market where the underlying fundamentals of a stock can be overwhelmed by political influences. Where an investment process relies on analysis and research, as yours does, it is possible to be blindsided by this in the short run because the winners and losers are not determined by logic but by softer issues, it is no doubt doubly difficult in a year when the political deckchairs were shuffled. The second point is that Barings have added an experienced investment professional to the team with the specific aim of addressing this question. Other fund managers have had similar problems in Russia and that has meant that your Company has fared well in its peer group and further details can be found on page 17. Discount Management Nobody likes discounts. As a Board we have done our best to try and keep the discount under control. This policy had its clearest expression early in the year when we conducted a tender offer for 20% of the Company's share capital at a discount of 3% to NAV. We also indicated that we were tightening up the limits within which we would operate the buyback programme. This we have done, and as a result we have bought back as at the date of this statement, 3,374,500 shares since the completion of the tender process. It is disappointing that this has had only limited effect on the discount in practice, which has averaged just under 9% for the year as a whole, and things haven't improved since the new operating parameters came into force. There are many reasons to explain why a discount sits at a particular level, all variants of the aphorism "more sellers than buyers" (or sometimes the other way round). In our case, there has been some selling by certain shareholders over the past six months and discounts generally in the Investment Trust sector have widened on low volume in these rather choppy markets. This doesn't help our discount level but it is impossible to pin the blame on a single cause. The Board also has to take into account the overall size of your Company. If it shrinks too much, there is a risk that shareholders will seek to apply a further discount to account for the consequent lack of liquidity. With all this in mind, I thought I would reiterate the Board's view that we will continue to take action to try and bring the discount down. It sometimes feels like pushing water uphill, in particular when the markets are pulling in the other direction. Our near term objective is to hold the discount over time around 8% and to use a better market environment to narrow that further. We will not be reckless, however, in this endeavour and will aim to balance it in the interests of all shareholders. Governance The major 'governance' event in the past year for your Company was the tender which was completed at the end of February. The tender itself went well and led to an uplift in NAV per share of 3.4 pence. As explained in the previous section, however, it did not produce a lasting improvement in the discount level, as the Board hoped it would. Tenders have a role in the management of any closed end company and can be very useful in allowing partial exits close to NAV. The downsides relate to the scale of the business after the event. Shareholders like to be able to exit close to NAV, of course, but they also want stock market liquidity. The Investment Manager can also become distracted by the tender process, which requires careful portfolio reorganisation. For these reasons, we hope to resort to tenders very rarely and instead to rely more on buybacks to manage the discount. Regulation Although this has been a light year in terms of new regulation, two major developments lurk in the background. The first is called the Alternative Investment Fund Managers Directive (AIFMD), and hails from Brussels. This is an attempt to corral the hedge fund and private equity industry into a tougher regulatory structure and has almost inadvertently snagged the investment trust industry. We don't know yet exactly what the extra reporting and oversight required by AIFMD will cost, but it won't be zero. There has been a lot of grumbling from our industry, but the reality is that we will have to grin and bear it. The second piece of regulation is called the Foreign Account Tax Compliance Act (FATCA), which is a piece of US legislation designed to catch US tax avoiders. The act puts on to the investee company the burden of identifying and reporting US shareholders. It is not clear yet if or how this will affect BEE. Nevertheless, the sanctions to be applied in the event of non-compliance are extremely serious and we are watching carefully. Dividend and Income Account One of the major changes seen in BEE's investment universe over the past year or two has been the emergence of a dividend paying culture. This is evidence of greater maturity at the corporate level and the emergence of a more conventional shareholder structure at a lot of companies where the demand for some income is more insistent. Most important, your fund manager has not had to relax his quality control to find investments which pay reasonable dividends. This means that this year, BEE's income account is more robust than has been the case in the past. We have always had a policy of paying out more or less all the surplus income by way of dividend to you and we will continue to do so. This year, that equates to a dividend of 16 pence per share, compared with 10 pence last year. In the past, dividend flow into our income account has been erratic and unreliable, but we believe that that is in the process of changing and that we should be able to forecast income flows with more accuracy than in the past. That means in turn that we should be able to give you greater visibility of the likely income to be earned from the BEE portfolio. In time, we expect yield to be an ever more important component of the return to be earned in Emerging Europe. Directorate There have been no changes this year and none are anticipated in the year ahead. We have conducted our regular review of the Board to ensure we have the right mix of skills and experience and the results of this are discussed at the Nomination Committee. As part of this we have recognised that we need a more formal succession process to address the fact that several Directors have been on the Board for some time. We do not believe that there is any magic about the "nine year" tenure rule by which many companies manage this, but we do accept that after a long period of service it is important to consider how and when the Board will be refreshed. This work is in hand. The Nomination Committee has put me forward for re-election this year as a Director of the Company at the AGM in January. Shareholder Communication As a Board we do our best to keep in touch with shareholders. Quite reasonably, many of them would rather talk to the Investment Manager than to the Directors. In that case, I would encourage you to attend the AGM, where, in addition to the formal business, Matthias will be making a presentation on the portfolio and investment outlook. For those who wish to talk to me or my fellow Directors, please let us know of any specific issues or concerns at any point. As I have written before, this is your Company and you have a right to be heard. Savings Scheme and ISA I am afraid there is bad news about the Savings Scheme and ISA. Baring Asset Management ("Barings") has informed us of its intention to cease offering the Baring Investment Trust ISA and Savings Scheme (the "Schemes"). We were surprised that it has not been possible to find another provider who is prepared to take on the administration of the Schemes at a reasonable cost and unfortunately therefore the Schemes will be closed. Barings will be writing formally to all participants in the Schemes with full details of the closures giving three months formal notice. It is likely therefore that the Schemes will cease to operate in the first quarter of 2013. ISA holders will be given an opportunity to transfer their holdings to another ISA manager and the Savings Scheme share holdings will be transferred to the Company's share register. Annual General Meeting The Annual General Meeting ('AGM') will be held on Wednesday, 9 January 2013, at 11.00am at 155 Bishopsgate, London EC2M 3XY. The formal business will be preceded by a presentation from the Investment Manager, after which there will be an opportunity for shareholders to raise any specific issues with the Investment Manager or with any member of the Board. In addition to the usual items of business at an AGM we are again seeking shareholder approval to allot new ordinary shares, disapply the pre-emption rights on the allotment of ordinary shares and grant authority to repurchase the Company's shares. We are also seeking shareholder approval to adopt new articles of association. The principal change proposed to be made to the existing Articles of Association is the removal of the prohibition of the distribution of capital profits. This is to provide the Board with flexibility, although shareholders should note that the Board currently has no intention of making a distribution out of capital profits. Outlook The developed world economy remains sluggish and in the grip of deleveraging. This is not an encouraging background for stock markets anywhere, and those which are seen as particularly volatile have been suitably whipsawed. That has been the story of Emerging Europe over the past year. The stock markets, though, mask underlying improvements in BEE's universe which are not reflected in investors' assessments of the prospects. On the Russian political scene, the transition back to a Putin presidency went off with less social upheaval than seemed likely in the run-up to the election. The mood in the country is of slightly sullen acceptance which will likely stay that way as long as oil revenues remain at current levels. These allow some flow through of national prosperity to the middle classes and there is perhaps less tolerance for the excesses of the earlier Putin period. At the corporate level, oligarchs are replacing themselves with professional managers, and companies are behaving in more predictable fashion. This doesn't mean the end of corporate governance scandals and nor does it mean that the quality of Russian managers has reached Western levels, but all this is more than adequately reflected in share prices which trade on less than 6x next year's earnings. In other words, the reality is running ahead of stock market perceptions. In Turkey, the market has been strong, reflecting an export boom and excellent growth. BEE participated fully in the market rally, but higher than normal valuations following this rise have warranted some reduction in the position. In the meantime, Turkey continues to become more assertive on the world stage and markets are increasingly willing to accept that the economic changes there over the past several years are fully embedded. Elsewhere in BEE's universe, valuations remain reasonable and companies are doing fairly well. Nevertheless, the dominant influence on these stock markets will continue to be the health of the Eurozone and there, visibility remains limited. As a Board we believe the basic direction of travel in our region is still positive, but there is no hiding from the fact that we remain vulnerable to the eddies from the larger storm playing out in the developed world. Steven Bates Chairman 28 November 2012 Report of the Investment Manager for the year ended 30 September 2012 How we manage the Company At Baring Asset Management, we believe that a sound research process is the starting point of any successful investment approach. In our view, it is most effective to analyse both companies and countries, with the goal of investing in the most attractive companies in the most attractive countries. Our research focuses on growth at a reasonable price, on sensitivity to currency movements, and to other external factors; on the soundness or otherwise of government policy (in the case of a country), or business plan (in the case of a company); and last but not least, on the level of valuation. This research gives rise to an assessment of the fundamental drivers of return, and to this we add a subjective judgement as to the level of return we expect from each asset in which we might invest. We also check that these rankings are consistent with the broader thematic developments we expect as a firm. These rankings then allow us to construct a disciplined and relatively concentrated portfolio of our most attractive candidates. Performance After a lacklustre restart (October - December 2011) the year 2012 brought a significant improvement in the Company's performance producing a gain of 11.3% (NAV) over the period. The Company's ranking within the peer group of Emerging European funds moved to the top quartile [1,2] over the one year period but still underperformed the Benchmark Index. The main reason for the underperformance versus the Benchmark Index was stock selection in Russia. On the other hand, attribution from country allocation was slightly positive and stock selection contribution from Turkey and Poland was highly positive. The encouraging development is that the largest part of the underperformance was incurred in the first quarter of our fiscal year (October - December 2011) while 2012 saw a significant improvement in the Company's performance both versus the Benchmark Index and the peer group [3]. The global growth slowdown in general and the Eurozone crisis in particular set the economic backdrop for Emerging European equities over the last 12 months. While deteriorating European demand was clearly not a positive contributor to economic activity, the extent to which it affected individual Emerging European countries was indicative of the growth opportunities in each market. The small, open economies of Central Europe, such as the Czech Republic and Hungary, were most drastically affected as their industries are heavily export oriented (export to GDP - ratios of 70-80%) and very much focused on Eurozone countries. While both countries slipped into recession by mid-2012, their larger neighbour and fellow new European Union member state Poland fared decisively better, adding to its impressive economic track record over the past years, and claiming new highs on real economic output, consumption and production. The main differentiating factor of Poland versus its peers is the potent domestic market, which, due its population size of more than 38 million, provides the country's economy with critical mass and significantly dilutes its export sector's share of the whole. By virtue of that, and the positive effects on consumption and investment of the 2012 European Football championship, the Polish economy kept expanding at a healthy rate. The export share of the region's second largest economy, Turkey, remains similarly low, but, counter-intuitively, it proved to be the export sector that provided the country with one of the few significant global growth surprises. While domestic demand finally cooled after record growth in 2011, it was the success of Turkish businesses in Africa, the Middle East and Central Asia that more than offset sluggish Eurozone demand for Turkish goods, significantly reducing the European Union's share of Turkish exports from over 40% to just 34%. Russia, while being the largest energy exporter globally, derives the largest part of its gross domestic product from domestic consumption and investment. Fiscal expansion, clearly a rarity in Europe, underpinned the domestic economy and lent support to the labour market - a prerequisite for Vladimir Putin's successful presidential bid in May 2012. While commodity prices have come under pressure recently and hampered the profitability of the Metals and Mining sector, it is important to note that this remains a sector specific phenomenon. Overall export performance is dominated by energy prices and, likewise, the bulk of the budget is directly or indirectly financed by Energy sector taxation and the energy export tariff policy. With energy prices remaining at elevated levels, Russia runs a balanced budget, has virtually no sovereign debt and foreign currency reserves of approximately US$500bn. Still, the events of the last year saw Russian exports falling in August 2012. The diverse economic developments of the past 12 months were not reflected in equity market performance, which showed little differentiation. Emerging European stock markets did not move in a synchronized fashion and there were distinct periods of individual market performance that shaped the course of the year. Hence the past year has demonstrated the positive effects that diversification across several markets can have on portfolio risk characteristics. Politically, this year's most important development was the return of Vladimir Putin to the Russian Presidency after a six-year spell as the country's Prime Minister. As opposition activity moved from the Parliament to the streets (and the internet) over the course of the year, President Putin's ability to deliver on reforms and fighting corruption will be crucial to political stability and will be followed closely by markets. It is worth noting that the immediate results of the reform drive mostly affect financial markets rather than the everyday life of the average Russian. These include a new guideline from the Russian Treasury on the minimum dividend payout ratio for state controlled companies, reforms in the central depositary to allow international-standard clearing of Russian securities, the merger of the stock exchanges and generally a more positive attitude towards higher corporate governance standards. Russian companies have in the past presented a patchy record when it comes to dividend distribution. This is now changing however, thanks in part to the reform drive. Russian companies' dividends generate an important additional return element, in fact the dividend yield of the Russian market now ranks amongst the highest globally. The further, unfortunate deterioration of events into a fully fledged civil war in Syria has - so far - had little direct effect on Turkey, its neighbour. Still, the situation in Syria has become a dominant feature of Turkish politics, and a stream of refugees crossing into Turkish territory on a daily basis means that the conflict could easily also reach Turkish soil. We believe Turkey is likely to view this conflict as an opportunity to strengthen its political position as a regional power and "fair broker". Strategy During the last year, Baring Emerging Europe plc's portfolio was actively re-positioned from Turkish equities into Russian stocks to benefit from the perceived improvement in corporate governance and the increased attractiveness of Russian stocks. This meant that Turkey, by far the largest overweight position on the country level at the beginning of the period, was reduced to an underweight relative to the Benchmark Index over the course of the summer. We took advantage of a very strong performance of more than 30% from the Turkish market to implement this change. Strikingly, earnings expectations for some of the leading banks have hardly moved over the course of the year, while stock prices have gained 40% or more, leading to a significant rise in valuation. The Central European component of the portfolio (Czech Republic, Hungary and Poland) remained stable, while the number of stocks held has dropped, inline with our strategy of focusing on high-conviction stock holdings within the portfolio. Exposure to the Banking sector has been reduced over the course of the year as price targets have been reached and, since stock prices rose faster than earnings, valuations re-rated significantly. This was especially true for Turkish banks, where positioning was moved from a substantial overweight to underweight. The most substantial addition within the Financial sector was in insurance companies, namely in the Polish insurance market leader PZU. Not only do we consider valuation and dividend potential for insurers superior to banks, but we also expect the regulatory environment to remain far more challenging for the Banking sector. Further, rising prices on Emerging European sovereign bond markets provides a strong support for the earnings potential of insurance companies, usually the largest holders of government bonds. In industrials our focus remains on the successful Turkish export sector and infrastructure related industrials such as port operators or freight transport/ logistics companies. Over the course of the year the operational performance of the companies we invested in here proved to be highly resilient to the deteriorating global economic growth outlook. In the Commodity sectors, we prefer energy companies, where we continue to see substantial improvements in corporate governance and cash flow generation potential in specific cases. Within the Energy sector we prefer investments into oil companies with strong exploration arms such as Lukoil over pure refiners such as PKN. In the Metals and Mining sector we have focused on companies offering substantial dividends, a strong balance sheet and growth potential. By identifying the copper miner KGHM from Poland as our biggest holding in this sector, this is an example of the successful implementation of this policy. It is important to note that while the portfolio generated a record dividend intake over the course of last year, the Company's investment strategy has not been altered and remains firmly focused on identifying attractively valued, high quality stocks with strong growth potential. Hence the increasing payout of companies within the portfolio can be interpreted as an indication of improving corporate governance, especially in Russia. The attractive portfolio dividend yield is, however, mostly a consequence of relatively low stock prices rather than high payout ratios. Outlook Emerging European equity markets offer a combination of sustainable growth and attractive valuation levels. Previous efforts to improve corporate governance are starting to bear fruit and make dividend payout ratios an important factor in assessing the return potential going forward. The region's three largest economies, Russia, Turkey and Poland, offer significant potential from the perspective of equity market investors as they not only benefit from healthy domestic demand and infrastructure investment potential but also offer highly liquid stock markets. While those three economies share a superior economic growth outlook it is worthwhile pointing out that the individual growth drivers seem to be relatively uncorrelated to each other. Poland, for example, continues to benefit from a highly productive labour force and infrastructure investment subsidised by the EU. Russia benefits from expansionary fiscal policies which support strong domestic demand and the state's reform agenda has created tangible improvements in corporate governance. Turkey's monetary policy, conducted by the Central Bank, has engineered a period of sustained economic growth and a rare export growth success story. We would argue while each country's stock market might perform well going forward, a combination of those three markets would likely provide investors with a superior risk/return relationship given the very distinct nature of individual growth drivers. [1] Source: Morningstar, Global Investment Fund Sector (GIFS) = Emerging Europe Equity (customized) "Quartile ranking customized-Barings/Morningstar" [2] Source: MSCI Emerging Europe 10/40 Index; Morningstar, Global Investment Fund Sector (GIFS) = Emerging Europe Equity (customized) [3] Source: Morningstar, Global Investment Fund Sector (GIFS) = Emerging Europe Equity (customized) Company weighting versus Benchmark Index by country of operation at 30 September 2012 Company Benchmark Czech Republic 0.9% 3.4% Hungary 2.6% 3.3% Poland 13.9% 16.3% Russia 64.9% 58.5% Turkey 15.8% 18.5% Other 1.3% - Net current assets 0.6% - 100.0% 100.0% Source: Barings, MSCI Performance versus Benchmark Index for the year ended 30 September 2012 Graphic removed NAV total return (Source: AIC) Share price total return (Source: AIC) Benchmark Indexâ€ (Source: MSCI) â€ The Benchmark Index is the MSCI EM Europe 10/40 Index. Fund, Benchmark Index and country returns (Â£)- 30 September 2011 to 30 September 2012 Graphic removed Equity portfolio The Company's equity portfolio at 30 September 2012, is set out in the following table: Holding Primary country of listing Market value % of equity or investment Â£000 portfolio 1 Sberbank Russia 20,294 10.78 2 Lukoil Holdings Russia 19,569 10.39 3 Gazprom Russia 17,921 9.52 4 Novatek Russia 11,739 6.23 5 PZU Poland 9,538 5.07 6 KGHM Polska Poland 7,860 4.17 7 VTB Russia 6,652 3.53 8 Tupras Turkey 6,530 3.47 9 Halk Bank Turkey 6,082 3.23 10 PKO Bank Polski Poland 5,750 3.05 11 Rosneft Tupras Russia 5,051 2.68 12 OTP Bank Hungary 4,948 2.63 13 Uralkali Russia 4,693 2.49 14 Norilsk Nickel Russia 4,191 2.23 15 Surgutneftegas Russia 4,150 2.20 16 Mobile Telesystems Russia 3,805 2.02 17 Magnit Russia 3,522 1.87 18 Isbank Turkey 2,822 1.50 19 Dogus Otomotiv Turkey 2,521 1.34 Servis 20 Novolipetsk Steel Russia 2,484 1.32 21 Garanti Bank Turkey 2,400 1.27 22 Tatneft Russia 2,305 1.22 23 BIM Turkey 2,266 1.20 24 Turkcell Iletisim Turkey 2,197 1.17 25 Globaltrans Russia 2,097 1.11 26 Sistema Russia 1,930 1.03 27 Federal Russia 1,764 0.94 Hydrogenerating 28 Eurasia Drilling Russia 1,700 0.90 29 Pinar Sut Turkey 1,683 0.89 30 Koza Altin Turkey 1,572 0.83 Isletmeleri 31 JSW Poland 1,545 0.82 32 Global Ports Russia 1,420 0.75 33 Tofas Turk Otomobil Turkey 1,400 0.74 Fabrikasi 34 TNK-BP Russia 1,360 0.72 35 OGK-4 Russia 1,252 0.67 36 Ferrexpo United Kingdom 1,226 0.65 37 CEZ Czech Republic 1,188 0.64 38 X5 Retail Group Netherlands 1,175 0.62 39 Warsaw Stock Poland 1,022 0.55 Exchange 40 MHP Russia 1,010 0.54 41 Polski Koncern Orlen Poland 888 0.48 42 Yandex Russia 736 0.39 43 Pharmstandard Russia 723 0.38 44 Turk Turkey 715 0.38 Telekomunikasyon 45 Ros Agro Russia 715 0.38 46 Komercni Bank Czech Republic 493 0.26 47 Rushydro Russia 468 0.25 48 Phosagro Russia 398 0.21 49 Polymetal Russia 373 0.20 50 Nova Kreditna Bank Slovenia 146 0.08 51 Tekfen Holding Turkey 4 0.01 Total investments 188,293 100.00 Classification of assets The Company's Portfolio as per MSCI at 30 September 2012 was: Percentage classification of assets based on valuation Russia Hungary Poland Czech Turkey Other Net Total Total Republic Countries Current 2012 2011 Assets Consumer - - - - 2.1 - - 2.1 3.7 Discretionary Consumer Staples 2.9 - - - 2.1 0.5 - 5.5 4.6 Energy 33.7 - 0.5 - 3.4 - - 37.6 28.6 Financials 14.3 2.6 8.4 0.3 6.0 0.1 - 31.7 41.4 Healthcare 0.4 - - - - - - 0.4 0.5 Industrials 1.9 - - - - - - 1.9 5.2 Materials 6.4 - 5.0 - 0.8 0.7 - 12.9 11.4 Telecommunication 3.0 - - - 1.4 - - 4.4 1.9 Services Information 0.4 - - - - - - 0.4 - Technology Utilities 1.9 - - 0.6 - - - 2.5 1.2 Total equity 64.9 2.6 13.9 0.9 15.8 1.3 - 99.4 98.5 investment Net current - - - - - - 0.6 0.6 1.5 assets Total 2012 64.9 2.6 13.9 0.9 15.8 1.3 0.6 100.0 - Total 2011 55.5 1.1 13.1 1.5 23.3 4.0 1.5 - 100.0 Sector distribution of portfolio (%) at 30 September 2012 Graphic removed Baring Asset Management Limited 18 October 2012 Report of the Directors (incorporating the business review) The Directors submit to the shareholders their business review, report and the audited financial statements of the Company for the year ended 30 September 2012. 1. Business review Business and tax status The Company carries on business as an investment trust and as such it has received specific approval from the Inland Revenue under the provisions contained in Section 1158 of the Corporation Tax Act 2010 for the year ended 30 September 2011. In the opinion of the Directors the Company has subsequently directed its affairs so as to enable it to continue to seek such approval under Section 1158 of the Corporation Tax Act 2010. The Company is an investment company as defined in Section 833 of the Companies Act 2006. The Company is not a close company for taxation purposes. The Company is managed by external parties in respect of investment management, custodial services and the day-to-day accounting and company secretarial requirements. Investment management services are provided by Baring Asset Management Limited ("Barings") and details of the agreement with Barings are given in note 3 to the accounts. The Custodian is State Street Bank & Trust Company Limited. Secretarial services are provided by Northern Trust Global Services Limited. The Company has no employees. The Directors are all non-executive. Investment objective The investment objective is to achieve long-term capital growth, principally through investment in securities listed on or traded on an Emerging European securities market or in securities of companies listed or traded elsewhere, whose revenues and/or profits are, or are expected to be, derived from activities in Emerging Europe. Investment policy The policy of the Directors is that, in normal market conditions, the portfolio of the Company should consist primarily of diversified securities listed or traded on Emerging European securities markets (including over the counter markets). Equity securities for this purpose include equity-related instruments such as preference shares, convertible securities, options, warrants and other rights to subscribe for or acquire, or relating to, equity securities. The Company may also invest in debt instruments such as bonds, bills, notes, certificates of deposit and other debt instruments issued by private and public sector entities in Emerging Europe. In addition, Emerging European exposure may be obtained by indirect means. Investments may, for example, be made in securities of companies listed on securities markets outside Emerging Europe that derive, or are expected by the Directors to derive, the majority of their revenues and/or profits and/or growth from activities in Emerging Europe. The Company may also invest in other funds in order to gain exposure to Emerging Europe where, for example, such funds afford one of the few practicable means of access to a particular market, or where such a fund represents an attractive investment in its own right. The Company will not invest more than 15% of its gross assets in other UK listed investment companies (including investment trusts). The Company may from time to time invest in unquoted securities, but the amount of such investment is not expected to be material. Furthermore the Board has agreed that the maximum exposure to unquoted securities should be restricted to 5% of the Company's net assets. For the purposes of this investment policy the Board has defined Emerging Europe as the successor countries of the former Soviet Union, Poland, Hungary, the Czech Republic, Slovakia, Turkey, the States of former Yugoslavia, Romania, Bulgaria and Albania. There is no restriction on the proportion that may be invested in these countries. In addition the Board has agreed that up to 2% of the total assets may be invested in other countries provided that any investments made are companies listed on a regulated stock exchange. In order to comply with the provisions contained in Section 1158 of the Corporation Tax Act 2010 no investment in a company should represent more than 15% by value of the Company's total portfolio except for subsequent market movements in the value of that investment. Furthermore the Board has agreed that the maximum value of any one investment should not exceed 12% of the Company's total portfolio save with the prior written consent of the Board. Where excess occurs due to market movement the manager will notify the Board of this and will reduce the holding to below 12% within six months. In addition to the above restriction on investment in a single company the Board seeks to achieve a spread of risk in the portfolio through monitoring the country and sector weightings of the portfolio. There will be a minimum of 30 stocks in the portfolio. The Company's Articles provide that the Company may borrow an amount equal to its share capital and reserves. At 30 September 2012, the only loan facility in place was a US$10 million unsecured loan and overdraft facility with State Street Bank and Trust Company Limited which is used principally to cover timing differences on portfolio transactions. In order to provide a mechanism to gear the portfolio the Board has authorised the Investment Manager to invest in long only derivatives in Polish, Russian and Turkish index futures where feasible. The Investment Manager has discretion to operate with an overall exposure of the portfolio to the market of between 90% and 110%, to include the effect of any derivative positions, beta adjusted if appropriate and any collateral which may be required. Gearing was not employed during the year due to adverse market conditions and extreme volatility/uncertainty. Dividends The Board does not seek to target any particular level of dividend, and intends rather to distribute by way of dividend most of the net earnings available for this purpose. The Board recommends an annual dividend of 16p per share compared with 10p for the previous period. Subject to approval of the Annual General Meeting, the recommended annual dividend will be paid on 1 February 2013 to members on the register at the close of business on 14 December 2012. The shares will be marked ex-dividend on 12 December 2012. Tender Offer The major event of the year was the tender offer which was made to all shareholders to sell shares for cancellation at 786.214p per share, a discount of 3% to NAV. As a result of the tender offer 6,485,567 shares were bought back for cancellation which represented approximately 20% of the issued share capital at the date of the tender. There was an increase of approximately 3.4p per share in net asset value as a result of the exercise. In conjunction with the tender, the Board also tightened the parameters of the discount control mechanism with the aim of keeping the discount below 10% over time, compared with a target beforehand of 12%. Discount The Directors have adopted a firm policy with regard to the market rating of the Company's shares. As noted above the Board will seek to limit the discount to NAV at which the Company's shares trade to a level significantly lower than 10%, using as necessary the Company's share repurchase authority. During the year ended 30 September 2012, 8,604,067 shares were repurchased (including the shares acquired in the tender offer) at a cost of Â£66,068,000 (1,492,000 shares were repurchased during the year ended 30 September 2011 at a cost of Â£ 13,054,000). Any shares repurchased will either be held in treasury and may be issued at a later date at or above net asset value, or cancelled. If the average closing mid-market price at which the Company's shares trade in the market in the period of ninety days prior to the publication of the Company's results each year represents a discount to NAV which exceeds 12%, the Company will offer to repurchase, by way of tender available to all shareholders, up to 15% of the outstanding issued share capital at 95% of NAV (after taking account of any expenses including the costs of selling investments in order to fund the repurchase). Performance At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives of which the most important are as follows: â€¢ Performance against the peer group The Board monitors performance relative to a broad range of competitor funds, as defined by the Morningstar Emerging Europe Universe. In the year ended 30 September 2012 the Company was ranked 14th out of 58 funds in this universe. Over three years to 30 September 2012 it was ranked 33rd out of 56 funds and over five years it was ranked 10th out of 47 funds. â€¢ Performance against the Benchmark Index A chart of NAV performance versus Benchmark Index for the five years ended 30 September 2012 (total return) is set out in the Directors' Remuneration Report on page 28. â€¢ Discount to NAV In the year ended 30 September 2012 the shares traded at an average discount of 9.0%. â€¢ Ongoing charges The annualised ongoing charges figure for the year was 1.23% (2011: 1.19%). This figure, which has been prepared in accordance with the recommended methodology of the Association of Investment Companies represents the annual percentage reduction in shareholder returns as a result of recurring operational expenses excluding performance fee and the effect of VAT recovered. No performance fee is payable in respect of the year ended 30 September 2012 (2011: no performance fee was paid). The Board reviews each year an analysis of the Company's ongoing charges figure and a comparison with its peers. Principal risks The key risks to the Company fall broadly under the following categories: â€¢ Investment and strategy The Board regularly reviews the investment mandate and long-term investment strategy in relation to the market and economic conditions. The Board also regularly monitors the Company's investment performance against the Benchmark Index and the peer group and its compliance with the investment guidelines. â€¢ Accounting, legal and regulatory In order to qualify as an investment trust, the Company must comply with the provisions contained in Section 1158 of the Corporation Taxes Act 2010. A breach of Section 1158 in an accounting period could lead to the Company being subject to corporation tax on gains realised in that accounting period. Section 1158 qualification criteria are continually monitored by Baring Asset Management Limited and the results reported to the Board at its regular meetings. The Company must also comply with the Companies Act and the UKLA Listing Rules. The Board relies on the services of the administrator, Northern Trust Global Services Limited and its professional advisers to ensure compliance with the Companies Act and the UKLA Listing Rules. â€¢ Loss of investment team or Investment Manager A sudden departure of the Investment Manager or several members of the investment management team could result in a short-term deterioration in investment performance. The Manager takes steps to reduce the likelihood of such an event by ensuring appropriate succession planning and the adoption of a team-based approach, as well as special efforts to retain key personnel. â€¢ Discount A disproportionate widening of the discount relative to the Company's peers could result in loss of value for shareholders. The Board regularly discusses discount policy and has set parameters for the Company's broker to follow with regard to the buy-back of shares. â€¢ Corporate governance and shareholder relations Details of the Company's compliance with corporate governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Report on pages 20 to 25. â€¢ Operational Like most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Investment Manager and the Company's service providers. The security, for example, of the Company's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. These are regularly tested and monitored. The custodian and the Investment Manager also produce annual reports on internal controls which are reviewed by their respective auditors and give assurance regarding the effective operation of controls. â€¢ Financial The financial risks faced by the Company are disclosed in note 20 on pages 45 to 48. â€¢ Future developments The future development of the Company is much dependent upon the success of the Company's investment strategy in the light of economic and equity market developments in the countries in which it invests. The Investment Manager discusses the outlook in his report on page 10. 2. Directors The present Directors are listed below and on page 2. They are all non-executive and have served throughout the year. Steven Bates (55) spent 18 years with the Fleming group until 2002, latterly as co-head of emerging markets of JPMorgan Fleming Asset Management. He has extensive experience in both emerging and developed markets. He is a director of Zephyr Management UK Limited which is a specialist asset management business and is also the chief investment officer of Salisbury Partners. He is also on the boards of a number of financial companies involved in emerging markets. He was appointed a Director of Baring Emerging Europe PLC on 27 January 2003 and was appointed Chairman of Baring Emerging Europe PLC on 19 January 2010. Josephine Dixon (53) is a director of Worldwide Healthcare Trust PLC and of Standard Life Equity Income Trust PLC, and is a Chartered Accountant who has previously held a number of senior executive positions, including that of finance director in a publicly quoted company. She is also a member of the Greenwich Hospital Trust. She was appointed a Director of Baring Emerging Europe PLC on 5 July 2004. Saul Estrin (60) is a Professor and Head of the Department of Management at the London School of Economics where he is a specialist on emerging markets. He was formerly a Professor at the London Business School and Research Director of the Centre for New and Emerging Markets, which analysed the prospects for private sector development and business opportunities in emerging markets. He has written numerous books and articles on emerging economies. He was appointed a Director of Baring Emerging Europe PLC on 5 July 2004. Jonathan Woollett (55) is a founding partner of Acoro Capital Partners LLP, an investment partnership focussing on unlisted financial sector investments in Central and Eastern Europe. He has nearly 20 years experience in the region with 10 years to 2008 at the European Bank for Reconstruction and Development ("EBRD") in London. Prior to EBRD he was the director responsible for the establishment of asset management and mutual fund businesses in Central and Eastern Europe at Credit Suisse Asset Management. Prior to Credit Suisse, he worked for UBS, having started his banking career with Deutsche Bank in 1979. He was appointed a Director of Baring Emerging Europe PLC on 23 July 2008. Ivo Coulson (48) has over 25 years of experience in the City, first with BZW as a director in their investment management division and then as a director with SG Warburg in their equity trading operation, latterly heading up their closed end fund team. He is currently head of portfolio management at Stanhope Capital LLP, a prominent multi family office based in the West End of London and a non executive director of JPMorgan Smaller Companies Investment Trust PLC. He was appointed a Director of Baring Emerging Europe PLC on 29 September 2010. In accordance with the Articles of Association Steven Bates retires by rotation and being eligible, offers himself for re-election. The Directors' and their families' interests in the Company's shares are stated below: Beneficial 27 November 2012 30 September 2012 30 September 2011 Steven Bates 3,000 3,000 3,000 Josephine Dixon 2,325 2,325 2,325 Saul Estrin 1,000 1,000 1,000 Jonathan Woollett 3,000 3,000 3,000 Ivo Coulson 3,000 3,000 3,000 There were no contracts or arrangements subsisting during or at the end of the financial year in which any Director is or was materially interested. No Director held a shareholding in any of the investments in the Company's portfolio during the year ended 30 September 2012. 3. Substantial shareholdings At 27 November 2012, the Company had received notification of the following disclosable interests in the ordinary share capital of the Company: Number of shares % City of London Investment Management Ltd 3,573,410 shares 15.83% Legal & General Group plc 1,406,000 shares 6.23% Sarasin & Partners LLP 1,294,795 shares 5.74% Advance Developing Markets Fund Ltd. 1,249,894 shares 5.54% Lazard Asset Management LLC 1,220,723 shares 5.41% 4. Corporate governance Introduction The Board is accountable to the Company's shareholders for the governance of the Company's affairs and this statement describes how the principles of the UK Corporate Governance Code ("the Code") issued by the Financial Reporting Council have been applied to the affairs of the Company. In applying the principles of the Code, the Directors have also taken account of the Code of Corporate Governance published by the Association of Investment Companies ("the AIC Code"), which has established a framework of best practice specifically for the boards of investment trust companies. There is some overlap in the principles laid down by the two Codes and there are some areas where the AIC Code is more appropriate for investment trust companies. Applications of the Code's principles The Board is committed to high standards of corporate governance and seeks to observe the principles and supporting principles identified in the Code and, where appropriate, the principles identified in the AIC Code. It should be noted that, as an investment trust, most of the Company's day-to-day responsibilities are delegated to third parties and the Directors are all non-executive. Thus not all the provisions of the Code are directly applicable to the Company. The Board The Board currently consists of five non-executive Directors and is chaired by Steven Bates. All the Directors are considered by the Board to be independent of the Investment Manager. Their biographies are set out on pages 18 and 19. Collectively the Board has the requisite range of business and financial experience which enables it to provide clear and effective leadership and proper stewardship of the Company. The number of meetings of the Board, the Audit Committee and the Nomination Committee held during the financial year and the attendance of individual Directors are shown below: Board Audit Committee Nomination Committee Number of meetings in the year 5 2 1 Steven Bates 5 2 1 Josephine Dixon 4 2 1 Saul Estrin 5 2 1 Jonathan Woollett 4 2 1 Ivo Coulson 4 2 1 All of the Directors except Saul Estrin attended the Annual General Meeting held in February 2012. In addition, as part of its responsibility to monitor investments the Board visited, along with the Investment Manager, a number of companies and authorities in Russia during September 2012. The Board deals with the Company's affairs, including the consideration of overall strategy, the setting and monitoring of investment policy and the review of investment performance. The Investment Manager takes decisions as to asset allocation and the purchase and sale of individual investments. The Board papers circulated before each meeting contain full information on the financial condition of the Company. Key representatives of the Investment Manager attend most of the Board meetings, enabling Directors to probe further or seek clarification on matters of concern. Matters specifically reserved for discussion by the full Board have been defined and a procedure adopted for the Directors to take independent professional advice if necessary at the Company's expense. The Chairman of the Company is a non-executive Director. A senior non-executive Director has not been identified as the Board is comprised entirely of non-executive Directors. At every Annual General Meeting any Director: (i) who has been appointed by the Board since the last Annual General Meeting; or (ii) who has held office at the time of the two preceding Annual General Meetings and who did not retire at either of them; or (iii) who has held office with the Company, other than employment or executive office, for a continuous period of nine years or more at the date of the meeting, shall retire from office and may offer himself for re-appointment by the members. Performance evaluation/re-election of Directors An appraisal process has been established in order to review the effectiveness of the Board, the Committees and individual Directors. This process involves the consideration by the Chairman and the Board of responses from individual Directors to a questionnaire which is completed on an annual basis. In addition the other Directors meet collectively once a year to evaluate the performance of the Chairman. As a result of this evaluation, the Nomination Committee having considered the Board structure, size and composition, the balance of knowledge, experience, skill range, diversity and age profile, recommends the re-election of Steven Bates who retires by rotation and offers himself for re-election at the Annual General Meeting. The performance of the Company is considered in detail at each Board meeting. Board Committees The Board believes that the interests of shareholders in an investment trust company are best served by limiting its size so that all Directors are able to participate fully in all the activities of the Board. It is for this reason that the membership of the Audit and Nomination Committees is the same as that for the Board as a whole. Audit Committee Josephine Dixon is the Chairman of the Committee which meets at least twice a year and is responsible for reviewing the annual and interim reports, the nature and scope of the external audit and the findings therefrom, and the terms of appointment of the Auditor, including their remuneration and the provision of any non-audit services. Non audit services provided by the Auditor mainly comprised work on the Company's taxation affairs. The Committee has considered the independence of the Auditor and the objectivity of the audit process and is satisfied that KPMG Audit Plc has fulfilled its obligations to shareholders. It also regularly reviews the terms of the different service providers to the Company including contracts with the Investment Manager, the Company Secretary and the Custodian. The Audit Committee meets representatives of the Investment Manager and its Compliance Officer who report as to the proper conduct of business in accordance with the regulatory environment in which both the Company and the Investment Manager operate. The Company's external Auditor also attends this Committee at its request and report on its findings in relation to the Company's statutory audit. As the Company has no employees, section C.3.4 of the Code, which deals with arrangements for staff to raise concerns in confidence about possible improprieties in respect of financial reporting or other matters, is not directly relevant to it. The Audit Committee has however, confirmed with the Investment Manager and the administrator that they do have "whistle blowing" policies in place for their staff. The Chairman of the Audit Committee will be present at the AGM to deal with questions relating to the financial statements. Nomination Committee The Committee, which meets at least annually, reviews the Board's size and structure and is responsible for Board succession planning. Remuneration The Board as a whole considers Directors' remuneration and therefore has not appointed a separate remuneration committee. As the Company is an investment trust and all Directors are non-executive, the Company is not required to comply with the Code in respect of executive Directors' remuneration. Directors' fees are detailed in the Directors' Remuneration Report on page 28. Internal controls The Board has established a process for identifying, evaluating and managing significant risks faced by the Company. The process is subject to regular review by the Board and accords with "Internal Control: Guidance for Directors on the Combined Code" ("The Turnbull guidance") which was issued in September 1999 and revised in September 2005. The Directors are responsible for the Company's system of internal control which is designed to safeguard shareholders' investment and the Company's assets. These systems of internal control are designed to provide reasonable but not absolute assurance against material misstatement or loss. The Turnbull guidance recommends a risk-based approach to the assessment of internal controls. The Board has completed a risk map for the Company and established procedures for the monitoring and review of the risks identified. The Board as a whole is primarily responsible for the monitoring and review of risks associated with investment matters and the Audit Committee is primarily responsible for other risks. As the Board has contractually delegated to external parties the investment management, the custodial services and the day-to-day accounting and company secretarial requirements, the Company relies significantly upon the internal controls operated by those companies. Therefore the Directors have concluded that the Company should not establish its own internal audit function. The Board continues to monitor its system of internal control in order to ensure it operates as intended and the Directors review annually whether an internal audit function is required. Investment management services are provided by Baring Asset Management Limited ("Barings") and details of the agreement with Barings are given in note 3 to the accounts. The Custodian is State Street Bank & Trust Company Limited. Secretarial services are provided by Northern Trust Global Services Limited. The risk map has been considered at all regular meetings of the Board and Audit Committee. As part of the risk review process, regular reports are received from the Investment Manager on all investment matters including compliance with the investment mandate, the performance of the portfolio compared with the Benchmark Index and compliance with investment trust status requirements. The Board also receives and reviews annual reports from the Investment Manager and the Custodian on their internal controls and their operation. These reports are designed to provide details of the internal control procedures operated by the relevant entity and include a report by an independent reporting accountant. The Board confirms that appropriate procedures to review the effectiveness of the Company's system of internal control have been in place which cover all controls including financial, operational and compliance controls and risk management. An assessment of internal control, which includes a review of the Company's risk map, an assessment of the quality of reports on internal control from the service providers and the effectiveness of the Company's reporting process, is carried out on an annual basis. Accountability and audit Set out on page 30 is a statement by the Directors of their responsibilities in respect of the accounts. As noted earlier, an Audit Committee has been established consisting of independent Directors. The Board as a whole regularly reviews the terms of the management and secretarial contracts. The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditor is unaware; and each Director has taken all the steps that they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information. The Directors were covered by directors' and officers' insurance that was in place during the financial year and at the date of this report. As permitted by the Company's Articles of Association, the Directors have the benefit of an indemnity which is a qualifying third party indemnity, as defined by Section 234 of the Companies Act 2006. The indemnities were executed on 20 April 2011 and are currently in force. Going concern The Directors believe that, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolios and expenditure projections, the Company has adequate resources and an appropriate financial structure in place to continue in operational existence for the foreseeable future. The assets of the Company consist mainly of securities which are readily realisable. For these reasons, they consider that there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts. Relations with shareholders The Board regularly reviews the Investment Manager's contacts with the Company's shareholders and monitors its shareholder profile. The Board supplements this with some direct contact with shareholders and is available to speak with any shareholder who wishes to do so. The Board supports the principle that the Annual General Meeting be used to communicate with private investors. The full Board attends the Annual General Meeting and the Chairman of the Board chairs the meeting. Details of the proxy votes received in respect of each resolution are made available to shareholders at the meeting. The Investment Manager attends to give a presentation to the meeting. A quarterly newsletter is produced by the Investment Manager and is available to shareholders. If a shareholder would like to contact the Board directly, he or she should write to the Chairman at 155 Bishopsgate, London EC2M 3XY and mark their letter private and confidential. Evaluation of performance of Investment Manager Investment performance is reviewed at each regular Board meeting at which representatives of the Investment Manager are required to provide answers to any questions raised by the Board. The Board conducts an annual formal review of the Investment Manager which includes consideration of: â€¢ performance compared with Benchmark Index and peer group; â€¢ investment resources dedicated to the Company; â€¢ investment management fee arrangements and notice period compared with the peer group; and â€¢ marketing effort and resources provided to the Company. The Board believes that Baring Asset Management Limited has served the Company well both in terms of investment portfolio management and general support and will continue its appointment. Statement of compliance The Board considers that it has complied with all the material provisions set out in Section 1 of the Code throughout the year. It did not, however, comply with the following provisions as explained above: â€¢ due to the small size of the Board and nature of the business a separate remuneration committee has not been established; â€¢ a senior non-executive Director has not been identified; and â€¢ the Chairman is a member of the Audit Committee. 5. Witholding tax The Company has sought to recover excess withholding tax from companies held in Poland and has engaged KPMG for this exercise. During the year ended 30 September 2010, an amount of Â£208,000 was recovered. A further amount of Â£ 333,000 has been reclaimed but is subject to an appeal by the Polish tax authorities; this has not been recognised in the financial statements for the year ended 30 September 2012. As reported last year the Company has engaged KPMG to advise on the recovery of excess withholding tax on dividends received from companies in Russia. This potential recovery of withholding tax has also not been recognised in the financial statements for the year ended 30 September 2012 as the amounts reclaimable are uncertain and have not yet been quantified. 6. Creditor payment policy It is the Company's payment policy to obtain the best possible terms for all business and therefore there is no consistent policy as to the terms used. In general, the Company agrees with its suppliers the terms on which business will take place and it is its policy to abide by the terms. As an investment trust, the Company does not transact business of a trading nature. There were no trade creditors at 30 September 2012. 7. Socially responsible investment The Board has delegated the investment management function to Baring Asset Management Limited. The Investment Manager's primary objective is to produce superior financial returns to investors. It believes that over the long term sound social, environmental and ethical policies make good business sense and takes these issues into account when, in its view, they have a material impact on either the investment risk or the expected return from an investment. 8. Corporate Governance and Voting Policy The Company delegates responsibility for voting to its Investment Manager, Baring Asset Management Limited (Barings). The following is a summary of Barings statement on corporate governance and voting policy which has been noted by the Board. The full policy is available from the Barings website (www.barings.com) and is contained within the paper titled "Corporate engagement at Barings" dated December 2010. "Barings is charged to secure a satisfactory rate of return on capital entrusted to it by its clients. We do this by providing companies with their risk capital, buying stocks and shares which we believe will outperform the broader market and deliver these returns to our clients. We assess these companies and decide which to invest in through a process of fundamental research. As long-term investors, corporate engagement is at the heart of what we do. It is particularly relevant for equity investing, where we will develop and maintain a purposeful dialogue on strategy, performance and the management of risk, but it is also an integral part of the investment process for sub-investment grade (or "high yield") credit. In our assessment of the risk factors, before making an investment in these classes we will take in to account the corporate governance structure of the company; judging whether the structure could inhibit the delivery of good returns and whether the interests of the management are aligned with those of the investors in the company. We make use of an external agency, Institutional Shareholder Services (ISS) Voting Services to assist on our voting procedures. ISS gives recommendations which we assess and then we vote in accordance with what we believe to be in the best interests of our clients." 9. Annual General Meeting ("AGM") THIS SECTION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to any aspect of the proposals referred to in this document or as to the action you should take, you should seek your own advice from a stockbroker, solicitor, accountant, or other professional adviser. If you have sold or otherwise transferred all of your shares, please pass this document together with the accompanying documents to the purchaser or transferee, or to the person who arranged the sale or transfer so they can pass these documents to the person who now holds the shares. The AGM will be held on Wednesday, 9 January 2013 at 11:00am. The formal notice of the AGM is set out on pages 49 and 50. Separate resolutions are proposed for each substantive issue. Resolutions relating to the following items of special business will be proposed at the AGM, for which shareholder approval is required in order to comply with the Companies Act 2006. Authorities to allot shares and to disapply pre-emption rights (Resolutions 7 and 8) Approval is sought to give the Board the authority to allot ordinary shares or grant rights to subscribe for or convert any securities into ordinary shares up to an aggregate nominal amount equal to Â£121,840 (representing 1,218,400 ordinary shares of 10 pence each). This amount represents approximately 5% of the issued ordinary share capital (excluding treasury shares) of the Company as at 27 November 2012, being the latest practicable date prior to publication of the notice of meeting on pages 49 and 50 (the "Notice"). As at the date of the Notice, 3,318,207 ordinary shares are held by the Company in treasury. This amount represents 12.82% of the total ordinary share capital in issue (including treasury shares) as at the latest practicable date prior to publication of the Notice. The Directors do not intend to allot ordinary shares pursuant to this power other than to take advantage of opportunities in the market as they arise and only if they believe it is advantageous to the Company's existing shareholders to do so. Resolution 8 would, if passed, give the Board the authority to allot shares (or sell any shares held in treasury) for cash on a non pre-emptive basis up to an aggregate amount of Â£129,431. This amount represents 1,294,310 shares and is approximately 5% of the total share capital of the Company in issue (including treasury shares) as at 27 November 2012, being the latest practicable date prior to publication of the Notice. This will enable the Company to issue new shares (or to sell treasury shares) to investors when the Directors consider that it is in the best interests of shareholders to do so. This power will not be utilised when it would result in any dilution of the net asset value per ordinary share. In respect of this amount, the Board confirm their intention to follow the provisions of the Pre-Emption Group's Statement of Principles regarding cumulative usage of authorities within a rolling three year period. The Principles provide that usage in excess of 7.5% of share capital should not take place without prior consultation with shareholders. The full text of the resolutions is set out in the Notice. If Resolutions 7 and 8 are approved, the authorities will expire at the conclusion of the AGM in 2014. Authority to purchase own shares (Resolution 9) At the AGM held on 16 February 2012, shareholders renewed the Director's authority to buyback up to 14.99% of the Company's ordinary shares. Pursuant to this authority, a total of 1,571,500 shares were purchased and cancelled during the year under review. This represented 5.68% of the issued share capital at 30 September 2012. The prices paid for these shares ranged from 772.00p to 640.00p and the total cost amounted to Â£10,732,000. 1,803,000 further shares have been brought back since the Company's year end. The Board proposes that the Company should be given renewed authority to purchase ordinary shares in the market either for cancellation or to be held, sold, transferred or otherwise dealt with as treasury shares in accordance with the Companies Act. The Directors consider that the renewal of this authority is in the interests of shareholders as a whole as the repurchase of ordinary shares at a discount to their net asset value ("NAV") would enhance the NAV of the remaining ordinary shares. Accordingly a special resolution will be proposed at the AGM to authorise the Company to make market purchases of up to 14.99% of the ordinary shares in issue, equivalent to 3,382,849 ordinary shares as at 27 November 2012, being the latest practicable date prior to publication of the Notice. Under the Listing Rules of the Financial Services authority, this is the maximum percentage of its equity share capital that a company may purchase through the market pursuant to such authority. Purchases of shares will be made within guidelines set from time to time by the Board and will only be made in the market at prices below the prevailing NAV and, in any event, not below a minimum price of 10 pence per share. The authority for the Company to purchase its own ordinary shares will, by virtue of the Treasury Share Regulations 2003 and the Companies (Share Capital and Acquisition by a Company of its Own Shares) Regulations 2009, allow the Company to hold ordinary shares so purchased in treasury, as an alternative to immediate cancellation. Any exercise by the Company of the authority to purchase shares will occur only when market conditions are appropriate. Purchases will be funded either by using available cash resources, debt or by selling investments. This authority shall expire at the earlier of the conclusion of the AGM in 2014 or 8 July 2014, unless such authority has been renewed prior to such time. Adoption of New Articles of Association (Resolution 10) It is proposed in Resolution 10 to adopt new articles of association (the 'New Articles'). The changes introduced in the New Articles are set out in the Appendix of the Notice. The principal change is the removal of the prohibition of the distribution of capital profits. The full text of the resolution is set out in the Notice of Annual General Meeting on pages 49 and 50 and an explanation of the proposed changes are included on page 53. The Board considers that all the resolutions to be put to the meeting are in the best interests of the Company and its shareholders as a whole. The Board unanimously recommends that you vote in favour of them. 10. Conflict of interest Section 175 of the Companies Act 2006, which came in to effect on 1 October 2009, introduced a duty for directors to avoid unauthorised conflicts of interest. The Articles of Association approved by Resolution 2 at the General Meeting held on 15 January 2009 allows the Directors to authorise such conflicts and potential conflicts, where appropriate. The Board has expanded the terms of reference of the Audit Committee to review conflicts and potential conflicts and make recommendations to the Board as to whether any such conflicts should be authorised. 11. Companies Act 2006 Disclosures In accordance with Section 992 of the Companies Act 2006 the Directors disclose the following information: â€¢ the Company's capital structure is summarised on page 43, voting rights are summarised on page 51, and there are no restrictions on voting rights nor any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights; â€¢ there exist no securities carrying special rights with regard to the control of the Company; â€¢ details of the substantial shareholders in the Company are listed on page 19; â€¢ the Company does not have an employees' share scheme; â€¢ the rules concerning the appointment and replacement of Directors, amendment of the Articles of Association and powers to issue or buy back the Company's shares are contained in the Articles of Association of the Company and the Companies Act 2006; â€¢ there exist no agreements to which the Company is party that may affect its control following a takeover bid; and â€¢ there exist no agreements between the Company and its Directors providing for compensation for loss of office that may occur because of a takeover bid. The Board recognises the requirement under Section 417(5) of the Act to detail information about environmental matters (including the impact of the Company's business on the environment), any Company employees and social and community issues; including information about any policies it has in relation to these matters and effectiveness of these policies. As the Company has no employees or policies in these matters this requirement does not apply. Notwithstanding, the Investment Manager takes into account these considerations when making investment decisions and determines its voting instructions at investee company meetings accordingly. 12. Auditor The Company's Auditor, KPMG Audit Plc, have indicated their willingness to continue in office. Resolutions for their re-appointment and to authorise the Board to determine their remuneration will be proposed at the Annual General Meeting. By order of the Board M. J. Nokes Secretary 28 November 2012 Directors' Remuneration Report for the year ended 30 September 2012 This report is presented in accordance with Section 421 of the Companies Act 2006. As the Board of Directors is comprised solely of non-executive Directors, it is exempt under the Listing Rules from appointing a Remuneration Committee. The determination of the level of fees paid to Directors, which are reviewed on a periodic basis, is dealt with by the whole Board. The Company's Articles of Association limits the aggregate fees payable to the Board of Directors to a total of Â£175,000. Subject to this overall limit, it is the Company's policy to determine the level of Directors' fees having regard to fees payable to non-executive Directors in the industry generally, the role that individual Directors fulfil, and the time committed to the Company's affairs. No Director has a service contract with the Company. During the year ended 30 September 2012 the Chairman received a fee of Â£30,000 per annum, the Chairman of the Audit Committee received a fee of Â£25,000 per annum and other Directors Â£22,500 per annum. The Company does not provide pension benefits, share options or long-term incentive schemes for Directors. Directors' emoluments for the year (audited) The Directors who served during the year (except John Cousins who retired 18 January 2011) received the following emoluments in the form of fees: 2012 2011 Â£000 Â£000 Steven Bates 30.0 30.0 Josephine Dixon 25.0 25.0 Saul Estrin 22.5 22.5 Jonathan Woollett 22.5 22.5 Ivo Coulson 22.5 22.5 John Cousins (retired 18 January 2011) - 6.7 Total 122.5 129.2 Share price performance (non audited) The following graph compares the share price and net asset value performance against the Benchmark Indexâ€ : Graphic removed Approval A resolution for the approval of the Directors' Remuneration Report for the year ended 30 September 2012 will be proposed at the Annual General Meeting. By order of the Board M. J. Nokes Secretary 28 November 2012 Statement of Directors' responsibilities in respect of the annual report and the financial statements The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: â€¢ select suitable accounting policies and then apply them consistently; â€¢ make judgments and estimates that are reasonable and prudent; â€¢ state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and â€¢ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The financial statements are published on the www.bee-plc.com website, which is maintained by the Company's Manager, Baring Asset Management Limited. The maintenance and integrity of the website maintained by Baring Asset Management Limited is, so far as it relates to the Company, the responsibility of Baring Asset Management Limited. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors each confirm to the best of their knowledge that: a) the financial information has been prepared in accordance with applicable UK accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and b) the Annual Report and Accounts, to be published shortly, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face. For and on behalf of the Board Steven Bates Chairman 28 November 2012 Independent Auditor's Report to the members of Baring Emerging Europe PLC We have audited the financial statements of Baring Emerging Europe PLC for the year ended 30 September 2012 set out on pages 33 to 48. The financial reporting framework that has been applied in their preparation is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditor As explained more fully in the Directors' Responsibilities Statement set out on page 30, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm. Opinion on financial statements In our opinion the financial statements: â€¢ give a true and fair view of the state of the Company's affairs as at 30 September 2012 and of its return for the year then ended; â€¢ have been properly prepared in accordance with UK Generally Accepted Accounting Practice; and â€¢ have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: â€¢ the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and â€¢ the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: â€¢ adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or â€¢ the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or â€¢ certain disclosures of Directors' remuneration specified by law are not made; or â€¢ we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: â€¢ the Directors' Statement, set out on page 23, in relation to going concern; â€¢ the part of the Corporate Governance Statement on pages 20 to 24 relating to the Company's compliance with the nine provisions of the UK Corporate Governance Code specified for our review, and â€¢ certain elements of the Report to Shareholders by the Board on Directors' remuneration. G Horner (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL 28 November 2012 Income statement (incorporating the Revenue Account*) for the year ended 30 September 2012 Year ended 30 September Year ended 30 September 2012 2011 Revenue Capital Total Revenue Capital Total Notes Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Gains/(losses) on 10 - 22,598 22,598 - (72,963) (72,963) investments held at fair value through profit or loss Income 2 7,994 - 7,994 8,496 - 8,496 Investment management 3 (1,641) - (1,641) (2,593) - (2,593) fee VAT recovered from 4 - - - 275 53 328 HMRC on management fees Other expenses 5 (976) - (976) (1,256) - (1,256) Net return before 5,377 22,598 27,975 4,922 (72,910) (67,988) finance costs and taxation Finance costs 6 (27) - (27) (13) - (13) Return on ordinary 5,350 22,598 27,948 4,909 (72,910) (68,001) activities before taxation Taxation 7 (755) - (755) (1,172) - (1,172) Return attributable to 4,595 22,598 27,193 3,737 (72,910) (69,173) ordinary shareholders Return per ordinary 9 16.18p 79.59p 95.77p 10.99p (214.41)p (203.42)p share *The total column of this statement is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. The annexed notes on pages 37 to 48 form part of these accounts. The supplementary revenue and capital columns are both prepared under the guidance published by the Association of Investment Companies. A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement. Balance sheet as at 30 September 2012 2012 2011 Notes Â£000 Â£000 Non current assets Investments at fair value through profit or loss 10 188,293 228,153 Current assets Debtors 11 3,103 621 Cash at bank and in hand 509 2,980 3,612 3,601 Creditors: amounts falling due within one year 12 (2,702) (434) Net current assets 910 3,167 Net assets 189,203 231,320 Capital and reserves Called-up share capital 2,769 3,630 Share premium account 1,411 1,411 Special reserve - 1,252 Redemption reserve 2,019 1,158 Capital reserve 175,988 218,205 Revenue reserve 7,016 5,664 Total equity shareholders' funds 189,203 231,320 Net asset value per share 14 776.34p 701.50p The financial statements on pages 33 to 48 were approved by the Board on 28 November 2012 and signed on its behalf by: Steven Bates Chairman The annexed notes on pages 37 to 48 form part of these accounts. Company registration number 4560726 Reconciliation of movement in shareholders' funds for the year ended 30 September 2012 Called-up Share share premium Special Redemption Capital Revenue capital account reserve reserve reserve reserve Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 For the year ended 30 September 2012 Beginning of 3,630 1,411 1,252 1,158 218,205 5,664 231,320 year Return for the - - - - 22,598 4,595 27,193 year Buyback of own - - (1,252) - (64,175) - (65,427) shares for cancellation Transfer to (861) - - 861 - - - capital redemption reserve Tender Offer - - - - (640) - (640) costs Dividends paid - - - - - (3,243) (3,243) Balance at 30 2,769 1,411 - 2,019 175,988 7,016 189,203 September 2012 Called-up Share share premium Special Redemption Capital Revenue capital account reserve reserve reserve reserve Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 For the year ended 30 September 2011 Beginning of 3,779 1,411 14,306 1,009 291,115 2,926 314,546 year Return for the - - - - (72,910) 3,737 (69,173) year Buyback of own - - (13,054) - - - (13,054) shares for cancellation Transfer to (149) - - 149 - - - capital redemption reserve Dividends paid - - - - - (999) (999) Balance at 30 3,630 1,411 1,252 1,158 218,205 5,664 231,320 September 2011 The annexed notes on pages 37 to 48 form part of these accounts. Cashflow statement for the year ended 30 September 2012 Year ended Year ended 30 September 30 September 2012 2011 Notes Â£000 Â£000 Operating activities Income received from investments 7,818 9,710 Investment management fees paid (1,641) (2,565) VAT recovered (including interest thereon) - 328 Other cash payments (1,081) (1,262) Net cash inflow from operating activities 15 5,096 6,211 Servicing of finance Interest paid (27) (13) Taxation Overseas tax paid (755) (1,172) Financial investment Purchases of investments (112,372) (193,474) Sales of investments 172,524 203,635 Net cash inflow from financial investment 60,152 10,161 Equity dividends paid (3,243) (999) Net cash inflow before financing 61,223 14,188 Financing Buyback of ordinary shares (63,694) (13,054) Net cash outflow from financing (63,694) (13,054) (Decrease)/increase in cash 16 (2,471) 1,134 The annexed notes on pages 37 to 48 form part of these accounts. Notes to the accounts 1. Accounting policies A summary of the principal policies, all of which have been applied consistently throughout the year, is set out below: (a) Basis of accounting This financial information is prepared under accounting policies set out in accordance with United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the AIC in January 2009. All of the Company's operations are of a continuing nature. This financial information has been prepared under the historical cost convention, as modified by the revaluation of investments and derivative financial instruments at fair value through profit or loss. (b) Valuation of investments Upon initial recognition the investments are designated by the Company as "at fair value through profit or loss". They are included initially at fair value which is taken to be their cost, including expenses incidental to purchase. Subsequently the investments are valued at fair value which is bid market price for listed investments. Unquoted investments are included at a valuation determined by the Directors after discussion with the Investment Manager on the basis of the latest accounting and other relevant information. Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are included in the capital column of the income statement within "Gains/(losses) from investments held at fair value through profit or loss". All purchases and sales are accounted for on a trade date basis. Year-end exchange rates are used to translate the value of investments which are denominated in foreign currencies. (c) Foreign currency Transactions denominated in foreign currencies are translated into sterling at actual exchange rates as at the date of the transaction or, where appropriate, at the rate of exchange in a related forward exchange contract. Monetary assets and liabilities denominated in foreign currencies at the year-end are reported at the rates of exchange prevailing at the year-end or, where appropriate, at the rate of exchange in a related forward exchange contract. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in capital reserve. Foreign exchange movements on fixed asset investments are included in the Income Statement within gains on investments held at fair value through profit or loss. (d) Income Investment income, which includes related taxation, has been accounted for on an ex-dividend basis or when the Company's right to the income is established. Interest receivable on deposits is accounted for on an accruals basis. (e) Expenses All expenses are accounted for on an accruals basis and are charged as follows: â€¢ the basic investment management fee is charged wholly to revenue; â€¢ any investment performance bonus payable to Baring Asset Management Limited is charged wholly to capital; â€¢ dealing costs are charged wholly to capital; and â€¢ other expenses are charged wholly to revenue. (f) Interest payable Interest payable is accounted for on an accruals basis, and is charged wholly to revenue. (g) Capital reserve Gains or losses on disposal of investments and changes in fair values of investments are transferred to the capital reserve. Any investment performance fee payable to Baring Asset Management Limited is accounted for in the capital reserve. (h) Special reserve Pursuant to a special resolution passed on 8 November 2002, the Company's application to reduce its share premium account was approved by the High Court and registered with the Registrar of Companies on 18 December 2002. The amount of the reduction was Â£86,624,982, representing the share premium arising on the issue of shares by the Company on 17 December 2002. This amount was transferred to a special reserve which is available for the repurchase by the Company of its own shares. (i) Taxation The charge for taxation is based upon the net revenue for the year. The tax charge is allocated to the revenue and capital accounts according to the marginal basis whereby revenue expenses are first matched against taxable income arising in the revenue account; the effect of this for the year ended 30 September 2012 was that all the deductions for tax purposes went to the revenue account. Deferred taxation will be recognised as an asset or a liability if transactions have occurred at the balance sheet date that give rise to an obligation to pay more taxation in the future, or a right to pay less taxation in the future. An asset will not be recognised to the extent that the transfer of economic benefit is uncertain. 2. Income 2012 2011 Â£000 Â£000 Income from investments Overseas dividends - Quoted 7,994 8,438 Other income Interest on VAT recovered from HMRC - 58 7,994 8,496 3. Investment management fee Baring Asset Management Limited ("Barings") acts as Investment Manager of the Company under an agreement terminable by either party giving not less than six months' written notice. Under this agreement Barings receives a basic fee (charged to revenue) which is calculated monthly and payable at an annual rate of 0.8% of the net asset value of the Company. The Directors have decided upon a policy of non-allocation of the investment management fees and as such they have been charged wholly to the revenue account. In addition under the agreement Barings is entitled to a performance fee (charged to capital) which is payable at the rate of 10% of the amount by which the change in the Company's net asset value per share (on a total return basis) exceeds the Benchmark Index. The performance fee is capped at 0.6% of the net asset value of the Company on the first day of the performance period. The performance fee is calculated annually on 30 September. The whole of the performance fee is charged to the capital account as it is deemed to have arisen entirely as a result of the capital performance of the Company. No performance fee was payable for either of the years ended 30 September 2012 and 30 September 2011. The investment management fee comprises: 2012 2011 Â£000 Â£000 Basic fee (charged to revenue) 1,641 2,593 At 30 September 2012, Â£126,000 (30 September 2011: Â£180,000) of this fee remained outstanding. 4. VAT recovered from HMRC on management fees 2012 2011 Â£000 Â£000 Recovered in respect of basic management fees - Revenue - 275 Recovered in respect of performance fees - Capital - 53 - 328 On 24 May 2011, the Company received Â£328,000 of VAT on past management fees invoiced since the Company's inception in December 2002 until 31 March 2005 which has been credited to the Company's revenue and capital accounts in accordance with the Board's policy for allocation of management fees and finance costs. 5. Other expenses 2012 2011 Â£000 Â£000 Custody and administration expenses 815 1,087 Auditor's remuneration for: - audit 26 26 - other services* 12 14 Directors' fees 123 129 976 1,256 *KPMG other services includes Â£12,000 for corporation tax compliance work (2011: Â£9,000 for withholding tax work in Poland and Â£5,000 for corporation tax compliance work). 6. Finance costs 2012 2011 (All charged to revenue) Â£000 Â£000 On short-term loan and overdraft facility with State Street Bank & Trust Company repayable within 5 years, not by installments Bank overdraft 27 13 27 13 7. Taxation (a) Current tax charge for the year: 2012 2011 Revenue Capital Total Revenue Capital Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Overseas taxation (note 7(b)) 755 - 755 1,172 - 1,172 (b) Factors affecting the current tax charge for the year The taxation rate assessed for the year is different from the standard rate of corporation taxation in the UK. The differences are explained below: 2012 2011 Revenue Capital Total Revenue Capital Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Return on ordinary 5,350 22,598 27,948 4,909 (72,910) (68,001) activities before taxation Return on ordinary 1,337 5,650 6,987 1,325 (19,685) (18,360) activities multiplied by the standard rate of corporation tax of 25% (2011: 27%) Effects of: Non taxable overseas (1,042) - (1,042) (2,692) - (2,692) dividends Overseas withholding tax 755 - 755 1,172 - 1,172 Capital gains not subject to - (5,650) (5,650) - 19,700 19,700 tax Excess management expenses (295) - (295) 1,367 (15) 1,352 unutilised/(utilised) Current tax charge for the 755 - 755 1,172 - 1,172 year The Company is not liable to tax on capital gains due to its status as an investment trust. The Company has an unrecognised deferred tax asset of Â£1,010,000 (2011: Â£ 2,326,000) based on the long term prospective corporation tax rate of 23% (2011: 26%). This asset has accumulated because deductible expenses have exceeded taxable income in past years. No asset has been recognised in the accounts because, given the composition of the Company's portfolio, it is not likely that this asset will be utilised in the foreseeable future. 8. Dividend 2012 2012 2011 2011 Pence per share Â£000 Pence per share Â£000 Annual dividend per ordinary share 16.00p 3,899 10.00p 3,297 9. Return per ordinary share Total Total Revenue Capital 2012 Revenue Capital 2011 Return per ordinary share 16.18p 79.59p 95.77p 10.99p (214.41)p (203.42)p Revenue return (earnings) per ordinary share is based on the net revenue on ordinary activities after taxation of Â£4,595,000 (2011: Â£3,737,000). Capital return per ordinary share is based on net capital profits for the financial year of Â£22,598,000 (2011: net capital losses of Â£(72,910,000)). These calculations are based on the weighted average of 28,393,596 (2011: 34,004,143) ordinary shares in issue during the year. At 30 September 2012 there were 24,371,043 ordinary shares of 10 pence each in issue (2011: 32,975,110) which excludes 3,318,207 ordinary shares held in treasury (2011: 3,318,207 shares held in treasury). The shares held in treasury are treated as not being in issue when calculating the weighted average of ordinary shares in issue during the year. 10. (i) Fixed asset investments Quoted Total Quoted Total overseas 2012 overseas 2011 Country of listing Â£000 Â£000 Â£000 Â£000 Czech Republic 1,681 1,681 3,483 3,483 Hungary 4,948 4,948 2,555 2,555 Poland 26,603 26,603 30,427 30,427 Russia 123,497 123,497 128,667 128,667 Turkey 30,192 30,192 53,991 53,991 Other 1,372 1,372 9,030 9,030 Total 188,293 188,293 228,153 228,153 10. (ii) Movements in the year Quoted Total Quoted Total overseas Unquoted 2012 overseas Unquoted 2011 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Book cost at 254,535 43 254,578 212,664 95 212,759 beginning of year (Losses)/gains on (26,382) (43) (26,425) 94,366 (95) 94,271 investments held at beginning of year Valuation at 228,153 - 228,153 307,030 - 307,030 beginning of year Movements in year: Purchases at cost 112,372 - 112,372 193,474 - 193,474 Sales proceeds (174,813) (17) (174,830) (199,353) (35) (199,388) (Losses)/gains on (7,464) 17 (7,447) 47,752 - 47,752 investments sold in year Gains/(losses) on 30,045 - 30,045 (120,750) 35 (120,715) investments held at year end Valuation at end of 188,293 - 188,293 228,153 - 228,153 year Expenses incidental to the purchase or sale of investments are included within the purchase cost or deducted from sales proceeds. Transaction costs on purchases for the year ended 30 September 2012 amounted to Â£167,000 (2011: Â£ 317,000) and on sales for the year they amounted to Â£262,000 (2011: Â£287,000). 10. (iii) Gains/(losses) on investments 2012 2011 Â£000 Â£000 (Losses)/gains on investments sold in the year (7,447) 47,752 Gains/(losses) on investments held at year end 30,045 (120,715) Total gains/(losses) on investments 22,598 (72,963) A list of the Company's investments by market value is shown on pages 12 and 13, a geographical classification on page 12 and industrial classification of the investment portfolio is shown on page 13. 11. Debtors 2012 2011 Â£000 Â£000 Amounts due within one year Amounts due from brokers 2,304 - Prepayments and accrued income 796 621 Other debtors 3 - 3,103 621 12. Creditors 2012 2011 Â£000 Â£000 Amounts falling due within one year Amounts outstanding to brokers due to the buyback of own shares 2,374 - Other creditors 328 434 2,702 434 Since November 2003, the Company has had a US$10 million unsecured loan and overdraft facility with State Street Bank and Trust Company. Under this facility, the Company may draw up to a maximum principal amount of US$10 million in varying proportions and for varying periods at prevailing interest rates. There are no amounts outstanding in relation to this facility in either of the year end figures stated above. 13. Called-up share capital 2012 2011 Â£000 Â£000 Allotted, issued and fully paid up 27,689,250 (2011: 36,293,317) ordinary shares of 10 pence (fully 2,769 3,630 paid) During the year 8,604,067 ordinary shares were repurchased for cancellation for Â£66,068,000 (2011: 1,492,000 ordinary shares were repurchased for cancellation for Â£13,054,000). During the year no ordinary shares were repurchased to be held in treasury and no ordinary shares which were held in treasury were cancelled. The Company holds 3,318,207 ordinary shares in treasury which are treated as not being in issue when calculating the number of ordinary shares in issue during the year (2011: 3,318,207 ordinary shares were held in treasury). Shares held in treasury are non-voting and not eligible for receipt of dividends. Subsequent to the year end a further 1,803,000 shares have been repurchased for cancellation. 14. Net asset value per share Total shareholders' funds and the net asset value per share attributable to the ordinary shareholders at the year-end calculated in accordance with the Articles of Association were as follows: 2012 2011 Total shareholders' funds (Â£000) 189,203 231,320 Net asset value (pence per share) 776.34p 701.50p The net asset value per share is based on total shareholders' funds above, and on 24,371,043 ordinary shares in issue at the year end (2011: 32,975,110 ordinary shares in issue) which excludes 3,318,207 ordinary shares held in treasury (2011: 3,318,207 ordinary shares held in treasury). The ordinary shares held in treasury are treated as not being in issue when calculating the net asset value per share. 15. Reconciliation of net return before finance costs and taxation to net cash outflow from operating activities 2012 2011 Â£000 Â£000 Net revenue return before finance costs and taxation 27,975 (67,988) Net capital return before finance costs and taxation (22,598) 72,910 (Increase)/decrease in accrued income (175) 1,272 Decrease in sundry creditors (106) (36) VAT recovered from HMRC capitalised - 53 Net cash inflow from operating activities 5,096 6,211 16. Analysis of changes in cash during the year 2012 2011 Â£000 Â£000 Beginning of year 2,980 1,846 Net cash (outflow)/inflow (2,471) 1,134 End of year 509 2,980 Analysis of balance: Bank balance 509 2,980 17. Financial commitments At 30 September 2012, there were no outstanding capital commitments (2011: nil). 18. Custodian's lien Under the terms of the custody agreement with State Street Bank & Trust Company ("State Street"), the Company has granted a lien over its securities and other assets that are deposited with State Street to cover all sums due in connection with the custody agreement. 19. Related party disclosures Under FRS 8, the Company is required to provide additional information concerning its relationship with the Investment Manager, Barings, and details of the investment management fee charged by Baring Asset Management Limited are set out in note 3. The ultimate holding company of Barings is Massachusetts Mutual Life Insurance Company. 20. Risk management policies and procedures As an investment trust the Company invests in equities and other investments for the long-term so as to secure its investment objective stated on page 3. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company's net assets or a reduction of the profits available for dividends. These risks, include market risk (comprising currency risk, interest rate risk, and other price risk), liquidity risk, and credit risk, and the Directors' approach to the management of them are set out below. The objectives, policies and processes for managing the risks, and the methods used to measure the risks, that are set out below, have not changed from the previous accounting period. (a) Market risk Special considerations and risk factors associated with the Company's investments are discussed on page 4. The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk (see (b) below), interest rate risk (see (c) below) and other price risk (see (d) below). The Board of Directors reviews and agrees policies for managing these risks, which have remained substantially unchanged from those applying in the year ended 30 September 2011. The Company's Investment Manager assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis. (b) Currency risk Some of the Company's assets, liabilities, and income, are denominated in currencies other than sterling (the Company's functional currency, and in which it reports its results). As a result, movements in the rate of exchange between sterling and the currencies of the countries in which the Company invests, which are identified in the table shown in note 10, may affect the sterling value of those items. In addition the Company's uninvested cash balances are usually held in US dollars. Management of the risk The Investment Manager monitors the Company's exposure and reports to the Board on a regular basis. Income denominated in foreign currencies is converted to sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is included in the financial statements and its receipt. Foreign currency exposures At 30 September 2012 monetary assets included cash balances totalling Â£509,000 (2011: Â£2,980,000) that were held in US dollars. Foreign currency sensitivity The following table illustrates the sensitivity of the revenue return for the year in regard to the Company's monetary financial assets to changes in the exchange rates for the various currencies to which the Company is exposed. If sterling had weakened by an average of 10%, this would have had the following effect: 2012 2011 Â£000 Â£000 Income statement - profit after taxation: Revenue return - increase 535 428 If sterling had strengthened by an average of 10%, this would have had the following effect: 2012 2011 Â£000 Â£000 Income statement - profit after taxation: Revenue return - decrease (535) (428) Impact on capital return is disclosed in note 20 (d). (c) Interest rate risk Interest rate movements may affect the level of income receivable on cash deposits. Cash at bank at 30 September 2012 (and 30 September 2011) was held at floating interesting rates, linked to current short-term market rates. (d) Other price risk Other price risk (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the value of the quoted and unquoted equity investments. Management of the risk The Board of Directors believe that as the Company's investment objective is to provide exposure to Emerging European Securities its neutral position in respect of this risk is full exposure to the market as represented by its Benchmark Index. The Investment Manager has been given discretion around the Benchmark Index to enable it to add value. The amount by which the portfolio diverges from the Benchmark Index is closely monitored by the Board with the goal of ensuring that the risk taken is proportionate to the value added. Concentration of exposure to other price risk A sector breakdown and geographical allocation of the portfolio is contained in the Investment Manager's Report on pages 11, 13 and 14. Other price risk sensitivity The following table illustrates the sensitivity of the profit after taxation for the year and the equity to an increase or decrease of 10% in the fair values of the Company's equities. This level of change is considered to be reasonably possible based on observation of current market conditions. The sensitivity analysis is based on the Company's equities at each balance sheet date, with all other variables held constant. Increase Decrease Increase Decrease in in in in fair fair fair fair value value value value 2012 2012 2011 2011 Â£000 Â£000 Â£000 Â£000 Income statement - profit after taxation: Capital return - increase/(decrease) 18,829 (18,829) 22,815 (22,815) Total profit after taxation other than 18,829 (18,829) 22,815 (22,815) arising from interest rate or currency risk- increase/(decrease) Equity 18,829 (18,829) 22,815 (22,815) (e) Liquidity risk This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Management of the risk Liquidity risk is not significant as the majority of the Company's assets are investments in quoted equities that are readily realisable. The Board gives guidance to the Investment Manager as to the maximum amount of the Company's resources that should be invested in any one holding. The policy is that the Company should remain fully invested in normal market conditions and that short-term borrowing may be used to manage short-term cash requirements. (f) Credit risk The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. Management of the risk This risk is not significant, and is managed as follows: â€¢ the majority of transactions take place through clearing houses on a delivery versus payment basis; â€¢ investment transactions are carried out with an approved list of brokers, whose credit-standing is reviewed periodically by the Investment Manager, and limits are set on the amount that may be due from any one broker; and â€¢ cash at bank is held only with reputable banks with high quality external credit ratings. None of the Company's financial assets are secured by collateral or other credit enhancements. (g) Fair values of financial assets and liabilities Financial assets and liabilities are either carried in the balance sheet at their fair value (investments), or the balance sheet amount if it is a reasonable approximation of fair value (amounts due from brokers, dividends receivable, accrued income, amounts due to brokers, accruals and cash balances). The table below sets out fair value measurements using the FRS29 fair value hierarchy. Financial assets at fair value through profit or loss at 30 September 2012: Total Level 1 2012 Â£000 Â£000 Equity investments 188,293 188,293 Total 188,293 188,293 Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows: Level 1 - valued using quoted prices in active markets for identical assets. Level 2 - valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1 (there are no Level 2 investments at 30 September 2012). Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data (there are no Level 3 investments at 30 September 2012 with a market value). The valuation techniques used by the Company are explained in the accounting policies note on page 37. 21. Contingent asset Withholding tax The Company has sought to recover excess withholding tax from companies held in Poland. To date an amount of Â£208,000 was recovered in the year to 30 September 2010. A further amount of Â£333,000 has been reclaimed but is subject to an appeal by the Polish tax authorities. This potential recovery of withholding tax has not been recognised in the financial statements for the year ended 30 September 2012. As reported last year the Company has engaged KPMG to advise on the recovery of excess withholding tax on dividends received from companies in Russia. This potential recovery of withholding tax has also not been recognised in the financial statements for the year ended 30 September 2012 as the amounts reclaimable are uncertain and have not yet been quantified. Notice of Annual General Meeting THIS SECTION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to any aspect of the proposals referred to in this document or as to the action you should take, you should seek your own advice from a stockbroker, solicitor, accountant, or other professional adviser. If you have sold or otherwise transferred all of your shares, please pass this document together with the accompanying documents to the purchaser or transferee, or to the person who arranged the sale or transfer so they can pass these documents to the person who now holds the shares. Notice is hereby given that the Annual General Meeting of the Company will be held at 155 Bishopsgate, London EC2M 3XY on Wednesday, 9 January 2013, at 11: 00am to consider and, if thought fit, pass the following resolutions, which will be proposed as to resolutions 1, 2, 3, 4, 5, 6 and 7 as ordinary resolutions, and as to resolutions 8, 9 and 10 as special resolutions: Ordinary business 1. To receive the Directors' Report and statement of accounts for the year ended 30 September 2012. 2. To approve the Directors' Remuneration Report for the year ended 30 September 2012. 3. To approve the annual dividend. 4. To re-elect Steven Bates as a Director of the Company. 5. To re-appoint KPMG Audit Plc as Auditor of the Company from the conclusion of this meeting until the conclusion of the next general meeting at which the financial statements are laid before members. 6. To authorise the Directors to determine the Auditor's remuneration. Special business 7. Authority to allot new ordinary shares - Ordinary Resolution: That, the Board be and it is hereby generally and unconditionally authorised to exercise all powers of the Company to allot shares and to grant rights to subscribe for or convert any security into shares in the Company (within the meaning of Section 551 of the Companies Act 2006) up to an aggregate nominal amount of Â£112,840, (being approximately 5% of the issued share capital of the Company as at 27 November 2012 being the latest practicable date prior to the publication of this notice of meeting excluding shares held in treasury at that date) PROVIDED THAT this authority shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution, save that the Company may before such expiry make one or more offers or agreements which would or might require relevant securities to be allotted or rights to subscribe for or convert securities into shares to be granted after such expiry and the Board may allot relevant securities or grant rights to subscribe for or convert securities into shares in pursuance of such offers or agreements as if the authority conferred hereby had not expired. 8. Authority to disapply pre-emption rights on allotment of ordinary shares - Special Resolution: That if resolution 7 set out in the notice convening the Annual General Meeting of the Company dated 28 November 2012 (the Notice) is passed, the Board be given power to allot equity securities (as defined in the Companies Act 2006) for cash under the authority given by that resolution and/or where the allotment is treated as an allotment of equity securities under section 560(3) of the Companies Act 2006, free of the restriction in section 561(1) of the Companies Act 2006, such power to be limited: (a) to the allotment of equity securities in connection with an offer of equity securities to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings, and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; and (b) in the case of the authority granted under resolution 7 of the Notice and/or in the case of any transfer of treasury shares which is treated as an allotment of equity securities under section 560(3) of the Companies Act 2006, to the allotment or such transfer (otherwise than under paragraph (a) above) of equity securities up to a nominal amount of Â£129,431; such power to apply until the earlier of the conclusion of the Annual General Meeting of the Company in 2014, or 8 July 2014, but during this period the Company may make offers, and enter into agreements, which would, or might, require equity securities to be allotted after the power ends and the Board may allot equity securities under any such offer or agreement as if the power had not ended. 9. Authority to repurchase the Company's shares - Special Resolution: That, the Company be and is hereby generally and unconditionally authorised in accordance with Section 701 of the Act to make market purchases (within the meaning of Section 693 of the Act) of ordinary shares of 10 pence each in the capital of the Company (the "shares") provided that: (a) the maximum number of shares hereby authorised to be purchased shall be 3,382,949 (being approximately 14.99% of the issued share capital of the Company as at 27 November 2012 being the latest practicable date prior to the publication of this notice of meeting, excluding shares held in treasury); (b) the minimum price (exclusive of any expenses) which may be paid for a share is 10 pence; (c) the maximum price (exclusive of any expenses) which may be paid for a share is an amount equal to the highest of: (i) 105% of the average of the middle market quotations for a share taken from the London Stock Exchange Daily Official List for the 5 business days immediately preceding the day on which the share is purchased; or (ii) the higher of the price of the last independent trade and the highest current independent bid on the trading venues where the purchase is carried out; (d) the authority hereby conferred shall expire at the earlier of the conclusion of the Annual General Meeting of the Company in 2014, or 8 July 2014, unless such authority is renewed prior to such time; (e) the Company may make a contract to purchase shares under the authority hereby conferred prior to the expiry of such authority which will be or may be executed wholly or partly after the expiration of such authority and may make a purchase of shares pursuant to any such contract; and (f) all shares purchased pursuant to the said authority shall be either: (i) cancelled immediately upon completion of the purchase; or (ii) held, sold, transferred or otherwise dealt with as treasury shares in accordance with the provisions of the Act. 10. Adoption of Articles of Association - Special Resolution That, the Articles of Association produced to the meeting and initialled by the Chairman for the purpose of identification be adopted as the Articles of Association of the Company in substitution for, and to the exclusion of, the existing Articles of Association. By order of the Board M. J. Nokes 155 Bishopsgate Secretary London EC2M 3XY 28 November 2012 Notes to the Notice of Annual General Meeting 1. Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. A proxy form which may be used to make such appointment and give proxy instructions accompanies this notice. If you do not have a proxy form and believe that you should have one, or if you require additional forms, please contact the Company's registrars, Capita Registrars (contact details can be found on page 2). 2. To be valid any proxy form or other instrument appointing a proxy must be received by post or (during normal business hours only) by hand at the offices of the Company's registrars, Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU no later than 11:00am on Monday, 7 January 2013 (or, in the event of any adjournment, on the date which is two days before the time of the adjourned meeting for the purposes of which no account is to be taken of any part of a day that is not a working day). 3. The return of a completed proxy form, other such instrument or any CREST Proxy Instruction (as described in paragraph 9 below) will not prevent a shareholder attending the Annual General Meeting and voting in person if he/she wishes to do so. 4. Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated Person") may, under an agreement between him/her and the shareholder by whom he /she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. 5. The statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 1 and 2 above does not apply to Nominated Persons. The rights described in these paragraphs can only be exercised by shareholders of the Company. 6. To be entitled to attend and vote at the Annual General Meeting (and for the purpose of the determination by the Company of the votes they may cast), Shareholders must be registered in the Register of Members of the Company at 6: 00pm on Monday, 7 January 2013 (or, in the event of any adjournment, on the date which is two days before the time of the adjourned meeting for the purposes of which no account is to be taken of any part of a day that is not a working day). Changes to the Register of Members after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the meeting. 7. As at 27 November 2012 (being the last business day prior to the publication of this Notice) the Company's issued share capital consisted of 22,568,043 ordinary shares, carrying one vote each (excluding 3,318,207 shares held in treasury by the Company in relation to which voting rights are suspended). Therefore, the total voting rights in the Company as at 28 November 2012 are 22,568,043. 8. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. 9. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear UK & Ireland Limited's specifications, and must contain the information required for such instruction, as described in the CREST Manual (available via www.euroclear.com/CREST). The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID RA10) by 11:00am on Monday, 7 January 2013 (or, in the event of any adjournment, on the date which is two days before the time of the adjourned meeting for the purposes of which no account is to be taken of any part of a day that is not a working day). For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Application Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. 10. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. 11. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 12. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. 13. Under section 527 of the Companies Act 2006 members meeting the threshold requirements set out in that section have the right to require the Company to publish on a website a statement setting out any matter relating to: (i) the audit of the Company's accounts (including the auditor's report and the conduct of the audit) that are to be laid before the Annual General Meeting; or (ii) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with section 437 of the Companies Act 2006. The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the Companies Act 2006. Where the Company is required to place a statement on a website under section 527 of the Companies Act 2006, it must forward the statement to the Company's auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Annual General Meeting includes any statement that the Company has been required under section 527 of the Companies Act 2006 to publish on a website. 14. Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information, (b) the answer has already been given on a website in the form of an answer to a question, or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. 15. A copy of this notice, and other information required by s311A of the Companies Act 2006, can be found at http://www.bee-plc.com/. Inspection of documents The following documents will be available for inspection at the Company's registered office from 28 November 2012 until the time of the AGM and at the AGM location from 15 minutes before the AGM until it ends: â€¢ Copies of letters of appointment of the non-executive Directors; and â€¢ A copy of the new Articles of Association of the Company and a document showing the changes proposed to be made to the existing Articles of Association of the Company Appendix Explanatory note of changes to the Company's Articles of Association The Companies Act 2006 (Amendment of Part 23) (Investment Companies) Regulations 2012 removed the requirement in the Companies Act 2006 for an investment company to include in its articles of association a prohibition on the distribution of capital profits. The New Articles remove this prohibition by amending articles 116 and 126, although shareholders should note that the Board currently has no intention of making a distribution out of capital profits. Additionally, article 121 of the New Articles has been amended in order to clarify the Board's discretion to make payments of dividends by means other than cheque, warrant or other financial instrument. In all other respects the existing articles will remain unchanged. Baring Asset Management Limited 155 Bishopsgate London EC2M 3XY Telephone: 020 7628 6000 (Authorised and regulated by the Financial Services Authority) www.barings.com Registered in England and Wales no: 02915887 Registered office as above.

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