Final Results

Baring Emerging Europe PLC Annual Report & Audited Financial Statements for the year ended 30 September 2013 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 14 Strategic report 15 Report of the Directors 20 Statement of Corporate Governance report 25 Audit Committee report 31 Statement of DirectorsÊ¼ responsibilities in respect of the Annual Report 33 and the financial statements Directors' remuneration report 34 Independent Auditor's report 36 Income statement 38 Balance sheet 39 Reconciliation of movement in shareholders' funds 40 Cashflow statement 41 Notes to the accounts 42 Notice of Annual General Meeting 54 Notes to the Notice of Annual General Meeting 56 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 Asset Services 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 2013 2012 Net asset value per 846.16p 776.34p ordinary share ("NAV") Revenue return per 19.44p 16.18p ordinary share Dividends per ordinary 19.00p 16.00p share Share price 745.50p 703.00p Ongoing charges (based on 1.30% 1.23% average NAV) Performance (total return basis) Year ended 30 September 2013 Net asset value per ordinary share# +11.1% Share price# +8.3% Benchmark* +3.8% *The Benchmark Index is the MSCI EM Europe 10/40 Index. #Source: AIC Discount (at 30 September) 2013 2012 Discount to net asset 11.9% 9.4% value per share* *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 Conduct Authority. Financial calendar Annual general meeting for 2013 14 January 2014 Announcement of interim results May Announcement of final results November 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 investments 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. Investments 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 has been another year of two halves, roughly speaking. Emerging European markets rose quite strongly until about May and then sank rather ignominiously before rallying towards the end of the financial year. The early part was characterised by optimism about markets as liquidity created by the Central Banks of the developed world flowed into `risky' assets like equities, with emerging markets in general seeing a disproportionate share of that. In May, the Federal Reserve started to talk about how it would take its foot off the accelerator a little, and investors en masse discovered that they wanted less risk. The obvious place to sell was the emerging markets, and Emerging Europe was caught up in a general exodus as the flight to safety took wing. This slackening of the pace of quantitative easing (QE) has become known as tapering, and the markets have become obsessive about when it might start. The main trigger is likely to be evidence of a robust recovery in the US economy, and at the time of writing, this still looks some months away. That explains the recent bounce. As has been the case since the Global Financial Crisis five years ago, asset prices have been generally distorted by the unorthodox monetary policies being pursued by the unelected theoreticians who run our Central Banks. Until direct and indirect intervention in asset prices comes to an end, this is something we have to live with, but it makes the investment task all the harder. This statement is split into four sections, and this year I would draw your attention to the question of discount management, where we plan to make some changes, to the comments on the income account and to the bit on regulation, not because it is interesting, but because there have been some important developments which are, sadly, going to cost shareholders money. Investment Returns During the first half of the financial year, the NAV rose by 15.1%, coincidentally identical to the rise in the previous year. In the second half, the NAV fell by 4.0% to give a total return for the year of 11.1%. In an absolute sense, this is respectable rather than life changing, but in relative terms, your Company performed exceptionally well. The benchmark rose by 3.8%, so the outperformance amounted to 7.3%. It is very encouraging that the investment process followed by the Investment Manager, Matthias Siller, which rests heavily on company analysis, has yielded such a good result. Matthias comments at more length on this in his report later, but stock selection has been excellent in all the major markets. In addition, while we do not attempt to time markets, the fact that a number of holdings in Turkey had reached Matthias' targets at the peak of the market there in May and so were sold, allowed us to miss the worst of the decline there. Last year was one where the macroeconomic and political factors swamped individual companies, rendering research ineffective: this year saw the reverse, with the fundamentals identified by the team being rewarded by the market. As you know, the Board looks both at the benchmark and at the peer group, which we define as the Morningstar Emerging Europe universe. Here, the results are excellent. Over the past year, BEE is 4th out of 52 funds; over the past three years, it ranks 10th out of 50 funds; and over five years 13th out of 47 funds. Proposed Change to the Investment Policy During the year, the Greek equity market was reclassified as an emerging market and entered the MSCI EM Europe 10/40 Index on 27 November 2013. Resolution 15 at the AGM proposes that Greece be added to the list of Emerging Europe countries in which we can invest under the Company's investment policy. Discount Management Through the year, the discount to NAV has averaged 11.5%, with a range of 8.1% to 13.7%. This is disappointing as our objective is to aim for a discount of substantially below 10%. We continued to operate the buyback programme, during the year ended 30 September 2013, 4,123,000 shares were repurchased for cancellation. Subsequent to the year end a further 750,000 shares have been repurchased for cancellation. These repurchases have the positive side effect of enhancing NAV, and this year they added approximately 19 pence per share to the return. Unfortunately, share repurchases come with a negative side effect as well, which is that the size of the Company shrinks. At some level of market capitalisation this could reduce stock market liquidity to the point where some investors might regard us as too small to be worthy of consideration. The existence of a discount is of itself evidence that there are few natural buyers of our shares and it most likely reflects the fact that Emerging Europe remains an unfashionable area from an investment perspective. We remain committed to controlling the discount and have not altered our objectives but wanted to express our disappointment that we have had to buy back so much stock in recent years, in particular in the light of the recent good performance. In the last five years to 30 September 2013, we have spent Â£ 139 million buying back 19,168,462 shares, of which 6,485,567 were the result of last year's tender process. In an attempt to allow ourselves a little more flexibility in the management of the discount, we intend to change the period during which the shares must trade below a 12% average discount which would trigger a tender from the 90 days prior to the results announcement to the full trading year. This means that if the shares average greater than a 12% discount for the 365 day period prior to the publication of the Company's results for the financial year, a tender will be triggered. The Company will then 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). I would also clarify that the relevant NAV number for these purposes is the NAV cum income, which is the most conservative of the NAV calculations we could use. When we originally designed this process, there was no income in the portfolio, and so this was not specified. Income is now an important contributor to return and is expected to persist. Governance Regulation* Last year, I explained that we were likely to be subject to the Alternative Investment Fund Managers Directive (AIFMD). We have spent a disproportionate amount of effort and time trying to sort this out, with deadlines looming even while the rules have remained unclear. AIFMD confers no real benefit to the shareholders of BEE but it carries costs. The most significant of these is that we have to appoint a depositary. In practice, the services provided by this supplier are an expansion of the role of the custodian, for which State Street intend to charge us 2 basis points, equivalent to Â£34,000. We are grateful to BaringÂÂ Fund Managers Limited who have agreed to act as the AIFM. There will be no additional charge from Barings for acting as the AIFM but the Company will be responsible for additional external charges such as the depository. For the Board too, there will be extra responsibilities, and the year ahead will see a lot of legal work (and costs) to put all the necessary agreements in place. The Principle that the accounts are "fair, balanced and understandable" has been given greater prominence together with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 which are other regulatory changes which have impacted the Annual Report and financial statements for the year ended 30 September 2013. The Directors believe that these financial statements are fair, balanced and understandable. I hope you agree. The tide of regulation continues to rise in an inevitable reaction to the excesses of the financial industry in the run up to the debacle of 2008. It is therefore pleasing to be able to report it appears that the threat to us from the US tax authorities imposing reporting responsibilities on foreign companies (FATCA) has largely gone away. We are also now required to seek approval for our Directors' Remuneration Policy which is set out on page 34, every 3 years, resolution 2 is being proposed at the AGM to comply with this. *As outlined herein, the Company intends, and is taking steps, to appoint Baring Fund Managers Limited as its alternative investment fund manager. Upon the appointment by the Company of an alternative investment fund manager (which will take place by no later than 21 July 2014), that alternative investment fund manager will be required to make various pre- and post-investment disclosures in respect of the Company. The necessary pre- and post-investment disclosures will be included on the Company's website on or before the relevant date and/or in subsequent annual reports as appropriate. Dividend and Income Account As explained last year, companies in BEE's universe are beginning to embrace a dividend paying culture. This is perhaps most obvious in Russia where the State is a major shareholder in key corporations and is keen to extract more from these assets for its budgetary needs. The revenue return per ordinary share (on a weighted average basis) has increased this year to 19.44p from 16.18p in 2012, a rise of 20%. We have greater visibility of the future flow of income, and while forecasting remains an art rather than a science, it seems likely that dividends will be a consistent feature of our future. Although Matthias is not having to compromise on the quality of the companies in which he invests to maintain income, I should point out that this is not an income seeking portfolio and the dividend yield falls out of the process rather than being the objective itself. In the past, we have applied all our expenses to the income account and generally paid out the majority of what remained. This year is no exception, and we are recommending an annual dividend of 19 pence in respect of the year ended 30 September 2013. For next year, we are intending to apply half of our basic investment management fee and finance costs to the capital account and half to the income account, in acknowledgement that we expect returns to arise from both capital and income. It is standard practice for investment trusts to draw this distinction, even if it really represents an accounting fiction, but if it had applied this year, the revenue return per share would have been 22.74p instead of 19.44p (on a weighted average basis). Directorate We have developed a succession plan for the Board and will be implementing this gradually over the next few years. There have been no changes this year, but we hope to implement the first part of the plan over the next twelve months. This reflects the fact that a number of Directors have served for more than the maximum nine years held by some to represent best practice. While all of us remain robustly independent of the Investment Manager, as time passes Directors are less independent of their own past decisions. There doesn't seem to be any particular reason why nine years should be a rigid witching hour, but it is true that those of us who exceed that tenure are rightly subject to increased scrutiny. This year, the Board has decided that all of the Directors will be subject to re-election every year except where they intend to retire at an Annual General Meeting. At the AGM in January 2014 therefore, all the Directors will stand for re-election. Shareholder Communication Many of you will know that as a Board we are available to speak to any of you about any topic. Naturally, Matthias Siller is much more knowledgeable than we are about the investment environment and the arcana of the portfolio and it is at least as important that you have the opportunity to hear from him. I would therefore encourage you to attend the AGM, where Matthias will be making his by now customary presentation ahead of the formal business of the meeting. I would reiterate what I say every year, which is that this is your Company and you have a right to be heard by both the Directors and the Investment Manager, so please speak up. Outlook The last year has given yet more evidence that our region is easily buffeted by the winds which blow from the developed world. In particular, the creation of excess liquidity through QE has clearly pushed portfolio assets into markets such as those where the Company invests. As we saw, when the flows went into reverse, those markets perceived as inherently risky were hit hardest. In our universe, that meant Turkey, where the monetary impact coincided with the birth of a political protest movement more fully described in Matthias's report. Turkey has always had a volatile and liquid stock market which is skittish in the face of bad news. A poor current account record just exacerbated the problem and triggered a dash for the exits. Something similar, if less extreme, happened elsewhere. Because markets were so certain that `tapering' would begin in September, when it didn't, peace returned and the markets have been able to recover some of the lost ground. It remains to be seen whether the start of the inevitable shift to more normal monetary conditions in the developed world causes a rerun of the summer setback, or if that rehearsal convinced investors that the underlying fundamentals in our universe are much more robust than in previous such episodes. That though, is the key to our region. The fundamentals have been improving over the last several years and both companies and sovereigns are in reasonable shape. The ingredients for a classic emerging market economic crisis are not present and the region's stock markets are the cheapest in the world. Of course, the health of the EU has a significant bearing on matters as does the price of energy, but this region should be a major beneficiary of a more normal global environment. Steven Bates Chairman 27 November 2013 Report of the Investment Manager for the year ended 30 September 2013 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 desirable 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 The Company's return over the last 12 months was 11.1%, beating the benchmark by a significant margin and the Company was in the top quartile of the peer group. Importantly, outperformance was generated by successful stock picking and every single market in the benchmark contributed positively in that respect. The Company's ranking within the peer group of Emerging European funds stayed firmly within the top quartile over the 1 year period and also outperformed much of the competition (as defined by median peer performance) over 2, 3, 5 and 10 years. The slow, yet gradual improvement of developed European economies over the course of the year prompted changes in the portfolio's positioning. Equally, the continued economic recovery of the United States and its implications for global liquidity and interest rates proved to be important influences on performance. Against this backdrop Emerging European countries did not behave as a homogenous unit, instead finding themselves in very different stages of the economic cycle. The small, open economies of Central Europe are particularly sensitive to economic growth in Germany and so were affected by low growth there in 2012. Growth rates started to show signs of improvement in the early months of 2013 with leading economic indicators gradually nudging upwards since then, and while the economic prospects for 2014 are still not overly positive, it seems safe to say that Hungary, Poland and the Czech Republic are seeing an acceleration of domestic activity, bolstered by a solid export performance. Local politics remain a risk factor for these markets, as early elections in the Czech Republic and another round of punitive financial sector taxation in Hungary have triggered market weakness. Even Poland, the largest economy of the Central European states, and traditionally a standard bearer for free market economies, saw its credentials somewhat dented as its overhaul of the private pensions system was in reality a partial nationalisation of the private pension fund assets. The Turkish economy's recovery accelerated towards the end of last year and into this year, driven by rapid domestic credit expansion. The successful policies of Prime Minister Erdogan's AK Party, as well as those of the Central Bank of Turkey, seemed to have ushered in a new era of low interest rates, stability and diplomatic clout, all of which culminated in May in an upgrade of the country's status by rating agency Moody's to investment grade. Since then, both international and domestic factors have led to a deterioration in the country's outlook and adversely affected Turkish securities and money markets. Firstly, the violent response of the police force to environmental demonstrations in Istanbul helped turn what should have been a relatively isolated case into a nationwide focal point of anger over what is perceived to be an overly autocratic leadership style by Prime Minister Erdogan. The week-long violence on Turkish streets significantly increased political tensions and polarised the country ahead of next year's round of elections. Most likely they also thwarted Istanbul's chances of hosting the 2020 Olympic Games. Additionally, concerns about a gradual global tightening of liquidity conditions (so called `tapering') had a pronounced negative effect on risk appetite for Turkish assets because the country's wide current account deficit and relatively low foreign exchange reserves leave it exposed to short-term portfolio flows. On Turkey's doorstep the escalating conflict in Syria creates further worry for investors and is a source of instability for the whole region. On the positive side, Turkey's very flexible economy has operated in a range of difficult environments over the years and both its consumers and smaller and medium-sized companies are well used to working in a high interest rate environment such as exists today. The government's continued commitment to its democratisation agenda could further improve relations with Kurdish dominated Northern Iraq, where Turkish authorities and companies have already invested many billions of dollars in the local economy, making Iraq Turkey's second biggest trading partner. Russia followed the path of most other large emerging economies and reported disappointing economic growth for most of the last 12 months. In the future, we expect that the oil and gas sector will continue to comprise the lion's share of Russian exports and will by far be the largest contributor to the state's finances, unlike other parts of Emerging Europe, Russia cannot count on manufactured exports to influence its prospects positively for the near future. Just how important the Russian state deems the sector can be measured by Rosneft's aggressive acquisition policy over the course of the year. Its takeover of BP-TNK, the most efficiently run Russian large oil firm, not only made it the largest listed energy producer globally, but also prepared the ground for long term cooperation with BP and other international energy producers in arctic oil exploration. In our view the valuation of the Russian market already reflects much of the risk associated with the local economy and indeed, while the Russian stock markets did not rise during the last 12 months, there were a number of positive developments that could help increase investors' appetite further in the future. Firstly, the new head of the Russian Central Bank, Ms Nabullina, thoroughly established her credentials over the course of the summer, leaving her with ample room to support the economy with a more aggressive approach to monetary policy. Secondly, the ongoing effort of Russian companies and the Russian government to improve corporate governance standards has gained some traction, notwithstanding the occasional setback. Interestingly, privately run Russian companies have been able to capitalise on that trend and fared exceptionally well on the stock exchange, contributing significantly to the portfolio's substantial outperformance over the course of the year. Going forward, Russia's independence of global financial flows, significant foreign exchange reserves and low levels of debt should help in attracting additional investor interest in both its primary and secondary markets. Overall, the portfolio's income from dividends increased further to a level equivalent to a gross yield of more than 3.5% - a record level. Strategy While the Polish market was the top performer over the period, it is important to note that the returns of the largest index constituents - Russia, Turkey and Poland - were separated by less than 10%, a tight dispersion which left relatively little room for top down investors to generate outperformance. The market behaviour of the past 12 months prolonged a period of relatively equal, yet still highly volatile and unsynchronised market performance; an environment where stock picking becomes paramount to successful performance generation. Exposure to the consumer and Internet/media sector has been increased steadily over the recent months on the back of attractive growth rates and low valuation. Mobile telecom stocks also performed impressively and the strong operational performance of companies like MTS of Russia and Turkcell of Turkey meant that they were able to withstand selling pressure when investors started to respond to the possibility of a change in Federal Reserve bond buying programmes by reducing exposure to emerging markets generally. The portfolio continues to be overweight in these two stocks. Stock picking in the materials sector has been focused on cash generative, attractively valued and high dividend yielding companies. By adding Severstal, a Russian steel mill after a protracted period of underperformance, we increased exposure to the sector somewhat. Still, at just less than 8% of portfolio value the sector weighting is substantially below the 14% position that the materials sector enjoyed this time last year. Our assessment of the inherently disruptive, cartel-breaking competitive forces in the global potash market meant that the portfolio was substantially underweight in Uralkali, the leading global potash producer. While this positioning had cost us relative performance in the past, as the company's share price performed well, the unravelling of the marketing agreement between Uralkali and Belorussian Potash Corp, another industry giant, meant the industry's desire to protect its "price over quality" formula could no longer be enforced properly. The subsequent correction in global potash prices had a negative effect on share prices in the sector. The substantial rise in Turkish stocks in the run-up to the announcement of the country's investment grade status provided the opportunity to reduce exposure to this market as several stocks reached our price targets. We kept reviewing our stock picks and, sticking to our selling discipline, decided to reduce substantially our allocation to Turkish stocks. The subsequent underweight relative to benchmark was the most pronounced for a number of years just on the cusp of the correction in June and we used the decline in the market to build positions in what we believe to be high quality companies in the telecoms, industrial and financial sectors. In the Polish market we successfully participated in the stock listing of BZ-WBK, one of the largest Polish banks, and the privatisation of PHN, a majority state owned real estate developer. The on-going re-rating of Polish stocks came as a surprise as earnings, impacted by the tough economic environment, declined over the course of the year. Additionally the aforementioned efforts to partially nationalise pension fund assets made us cautious about the sustainability of the current premium valuation of Polish shares. Outlook As we look forward from here, we believe that the Company is well placed to benefit from global economic trends, as most countries start recovering to pre-crisis levels of activity. With concerns about economic activity receding, investors are able to focus once again on the emerging European region as transparency gradually improves and we believe that this will lead to improved demand for investment across our universe. Stable financial conditions, a strong trade surplus and attractive valuations support the Russian market in the current environment. Central European stocks are also likely to benefit from improving European growth prospects and EU grants while the correction in the Turkish market leaves it much more attractively priced, in our view. The Greek equity market was reclassified as an emerging market recently, and will enter the MSCI Emerging Europe benchmark at the end of November. While we expect the index weight to stay in the low single digits, we wish to include Greek stocks in our universe of covered stocks and look forward to potential performance opportunities there. Company weighting versus Benchmark Index by country of operation at 30 September 2013 Company Benchmark Czech Republic 0.3% 2.7% Hungary 2.3% 2.2% Poland 6.7% 17.9% Russia 70.9% 59.0% Turkey 14.8% 18.2% Other 2.8% - Cash 2.2% - 100.0% 100.0% Source: Barings, MSCI Equity portfolio The Company's equity portfolio at 30 September 2013, is set out in the following table: Holding Primary country Market value % of equity of listing or Â£000 portfolio investment 1 Lukoil Holdings Russia 19,509 11.62 2 Sberbank Russia 18,686 11.13 3 Gazprom Russia 12,918 7.69 4 Mobile Russia 8,015 4.77 Telesystems 5 Magnit Russia 7,512 4.47 6 VTB Bank Russia 6,563 3.91 7 Halk Bank Turkey 6,449 3.84 8 Novatek Russia 6,265 3.73 9 Vakif Bank Turkey 5,967 3.55 10 PZU Poland 5,741 3.42 11 Sistema Russia 5,678 3.38 12 Rosneft Russia 5,651 3.37 13 Norilsk Nickel Russia 4,680 2.79 14 Surgneftegas Russia 3,938 2.35 15 Yandex Russia 3,719 2.21 16 Mail.ru Russia 3,694 2.20 17 OTP Bank Hungary 3,539 2.11 18 Turkiye Petrol Turkey 2,673 1.59 19 Turkcell Turkey 2,604 1.55 Iletisim 20 Bank of Georgia Georgia 2,326 1.39 21 Phosagro Russia 2,303 1.37 22 Pinar Sut Turkey 2,248 1.34 23 Globaltrans Russia 2,123 1.26 24 Garanti Bank Turkey 1,938 1.15 25 KGHM Polska Poland 1,933 1.15 26 MD Medical Russia 1,770 1.05 27 Eurasia Russia 1,587 0.95 Drilling 28 Severstal Russia 1,349 0.80 29 Global Ports Russia 1,327 0.79 30 Tofas Turk Turkey 1,203 0.72 Otomobil Fabrikasi 31 MHP Ukraine 1,132 0.68 32 Ferrexpo United Kingdom 1,122 0.67 33 Polski Holding Poland 1,080 0.64 Nieruchomosci 34 Kernel Poland 1,060 0.63 35 IBS Group Russia 906 0.54 36 Uralkali Russia 869 0.52 37 Coca Cola Turkey 771 0.46 Icecek 38 Warsaw Stock Poland 769 0.46 Exchange 39 Eurocash Poland 754 0.45 40 Pharmstandard Russia 722 0.43 41 Sollers Russia 659 0.39 42 Ford Otomotiv Turkey 635 0.38 Sanayi 43 Tatneft Russia 595 0.35 44 Komercni Bank Czech Republic 550 0.33 45 Ros Agro Russia 513 0.31 46 Richter Gedeon Hungary 444 0.27 47 Koza Altin Turkey 441 0.26 48 Turk Traktor Turkey 286 0.17 49 Cyfrowy Polsat Poland 240 0.14 50 OGK-4 Russia 193 0.12 51 Koc Holding Turkey 193 0.12 52 Nova Kreditna Slovenia 57 0.03 Bank Total 167,899 100.00 investments Review of Top Ten Holdings at 30 September 2013 Holding Sector End Weighting Company Comment Relative to Benchmark Lukoil Holdings Energy Overweight High yielding Russian oil stock with potential for further dividend growth. Sberbank Finance Overweight Russia's largest bank - successful implementation of modernisation strategy offers scope for further improvement of profitability. Gazprom Energy Underweight Russian gas export monopoly. Huge scope for improving corporate governance and investment spending. Mobile Telesystems Telecoms Overweight Russian mobile telecom operator, benefitting from attractive mobile data growth rates. Magnit Consumer Staples Overweight Russia's leading supermarket, benefitting from solid margins and strongly growing sales. VTB Bank Finance Overweight Second largest Russian Bank. VTB's focus is on restructuring its balance sheet with the aim of optimising its capital structure and improving profitability. Halk Bank Finance Overweight One of the largest Turkish Banks. Low funding costs provide a sustainable competitive advantage. Novatek Energy Overweight Largest independent gas producer. Arctic gas exploration provides significant growth potential. Vakif Bank Finance Overweight One of the largest Turkish Banks. Strong underlying growth in fees & commission income. PZU Finance Overweight Largest Polish Insurer. Its capital base allows for high dividend payout ratios. Potential consolidator in the Emerging European Insurance space. Classification of assets The Company's Portfolio as per MSCI at 30 September 2013 was: Percentage classification of assets based on valuation Russia Hungary Poland Czech Turkey Other Net Total Total Republic Countries Current 2013 2012 Assets Consumer 0.5 - 0.1 - 1.1 - - 1.7 2.1 Discretionary Consumer Staples 4.6 - 1.0 - 1.8 0.7 - 8.1 5.5 Energy 29.5 - - - 1.5 - - 31.0 37.6 Financials 14.6 2.1 3.8 0.3 8.4 1.4 - 30.6 31.7 Healthcare 1.5 0.2 - - - - - 1.7 0.4 Industrials 2.0 - 0.6 - 0.2 - - 2.8 1.9 Materials 5.3 - 1.2 - 0.3 0.7 - 7.5 12.9 Telecommunication 8.0 - - - 1.5 - - 9.5 4.4 Services Information 4.8 - - - - - - 4.8 0.4 Technology Utilities 0.1 - - - - - - 0.1 2.5 Total equity 70.9 2.3 6.7 0.3 14.8 2.8 - 97.8 99.4 investment Net current - - - - - - 2.2 2.2 0.6 assets Total 2013 70.9 2.3 6.7 0.3 14.8 2.8 2.2 100.0 - Total 2012 64.9 2.6 13.9 0.9 15.8 1.3 0.6 - 100.0 Baring Asset Management Limited 23 October 2013 Strategic report for the year ended 30 September 2013 The Directors submit to the shareholders their Strategic report, Director's report and the audited financial statements of the Company for the year ended 30 September 2013. Business and tax status In the opinion of the Directors, the Company has conducted its affairs during the period under review, and subsequently, so as to maintain its status as an investment trust for the purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010. The Company has obtained written approval as an investment trust from HM Revenue & Customs for all accounting periods up to the year ended 30 September 2012 and has made a successful application under Regulation 5 of the Investment Trust (Approved Company) (Tax) Regulations 2011 for investment trust status to apply to all accounting periods starting on or after 1 October 2012 subject to the Company continuing to meet the eligibility conditions contained in Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements outlined in Chapter 3 of Part 2 of the Regulations. 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. During 2013 the Greek equity market was reclassified as an emerging market and was included in the MSCI EM Europe 10/40 Index on 27 November 2013, the Company's benchmark. A resolution to amend the investment policy to include Greece will be proposed at the Annual General Meeting (resolution 15). 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. 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 2013, 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. In addition the Board is seeking to obtain a US$25 million loan facility as another source of gearing. 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. Once again gearing was not employed during the year. Return per ordinary share 30 30 30 30 30 30 September September September September September September 2013 2013 2013 2012 2012 2012 Revenue Capital Total Revenue Capital Total Return per 19.44p 54.76p 74.20p 16.18p 79.59p 95.77p ordinary share Revenue return (earnings) per ordinary share is based on the net revenue on ordinary activities after taxation of Â£4,239,000 (2012: Â£4,595,000). Capital return per ordinary share is based on net capital profits for the financial year of Â£11,946,000 (2012: net capital profits of Â£22,598,000). These calculations are based on the weighted average of 21,815,561 (2012: 28,393,596) ordinary shares in issue during the year. At 30 September 2013 there were 20,248,043 ordinary shares of 10 pence each in issue (2012: 24,371,043) which excludes 3,318,207 ordinary shares held in treasury (2012: 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. 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 19p per share compared with 16p for the previous period. Subject to approval of the Annual General Meeting, the recommended annual dividend will be paid on 3 February 2014 to members on the register at the close of business on 20 December 2013. The shares will be marked ex-dividend on 18 December 2013. Discount The Directors have adopted a policy with regard to the market rating of the Company's shares and 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 2013, 4,123,000 shares were repurchased at a cost of Â£30,448,000 (8,604,067 shares were repurchased (including the shares acquired in the tender offer) during the year ended 30 September 2012 at a cost of Â£66,068,000). 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). The Company now intends to change the period during which the shares must trade below a 12% average discount which would trigger a tender from the 90 days prior to the results announcement to the full trading year. This means that if the shares average greater than a 12% discount for the 365 day period prior to the publication of the Company's results for the financial year, a tender will be triggered as set out above. The relevant NAV number for these purposes is the NAV cum income. 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 2013 the Company was ranked 4th out of 52 funds in this universe. Over three years to 30 September 2013 it was ranked 10th out of 50 funds and over five years it was ranked 13th 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 2013 (total return) is set out in the Directors' Remuneration report on page 35. â€¢ Discount to NAV In the year ended 30 September 2013 the shares traded at an average discount of 11.5% on the NAV cum income. â€¢ Ongoing charges The annualised ongoing charges figure for the year was 1.30% (2012: 1.23%). 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. No performance fee is payable in respect of the year ended 30 September 2013 (2012: 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 25 to 30. â€¢ Operational Like most other investment trust companies, the Company has no employees. The Board currently consists of five non-executive Directors, one of whom is a female and the other four are male and is chaired by Steven Bates. 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 19 on pages 50 to 53. 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 11. â€¢ Social, community and human rights The Company does not have any specific policies on social, community or human rights issues as it is an investment company which does not have any physical assets, property, employees or operations of its own. For and on behalf of the Board Steven Bates Chairman 27 November 2013 Report of the Directors Directors The present Directors are listed below and on page 2. They are all non-executive and have served throughout the year, the Board consists of one female and four males. Steven Bates (56) 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 (54) is a director of Worldwide Healthcare Trust PLC, Standard Life Equity Income Trust PLC and from 1 October 2013 a director of JP Morgan European Investment 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 was appointed a Director of Baring Emerging Europe PLC on 5 July 2004. Saul Estrin (61) is a Professor and the founding 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 (56) is a founding partner of Acoro Capital Partners LLP, an investment partnership focusing 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 (50) 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. 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 2013. Substantial shareholdings At 26 November 2013, 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 2,932,350 shares 15.04% Management Ltd Lazard Asset Management 1,907,364 shares 9.78% LLC Sarasin & Partners LLP 1,294,795 shares 6.64% Advance Developing Markets 1,249,894 shares 6.41% Fund Ltd. Corporate governance The statement of Corporate Governance, as shown on pages 25 to 30, is incorporated by cross reference into this report. Going concern The Directors believe that, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio 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. 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£259,000 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 2013. As reported in 2011 the Company has engaged KPMG to advise on the recovery of excess withholding tax on dividends received from companies in Russia. To date an amount of Â£23,000 was recovered in the year to 30 September 2013. There is potential to recover further amounts of withholding tax but this has not been recognised in the financial statements for the year ended 30 September 2013 as the amounts reclaimable are uncertain and have not yet been quantified. 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. Global greenhouse gas emissions for the year ended 30 September 2013 The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emission producing sources under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013. 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 Tuesday, 14 January 2014 at 2.30pm. The formal notice of the AGM is set out on pages 54 to 57. 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 12 and 13) 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£97,490 (representing 974,900 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 26 November 2013, being the latest practicable date prior to publication of the notice of meeting on pages 54 to 57 (the "Notice"). As at the date of the Notice, 3,318,207 ordinary shares are held by the Company in treasury. This amount represents 14.54% 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 13 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£114,081. This amount represents 1,140,810 shares and is approximately 5% of the total share capital of the Company in issue (including treasury shares) as at 26 November 2013, 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 12 and 13 are approved, the authorities will expire at the conclusion of the AGM in 2015. Authority to purchase own shares (Resolution 14) At the AGM held on 9 January 2013, 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 2,320,000 shares were purchased and cancelled during the year under review. This represented 11.46% of the issued share capital at 30 September 2013. The prices paid for these shares ranged from 816.67p to 702.79p and the total cost amounted to Â£18,153,000. 750,000 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 2,922,756 ordinary shares as at 26 November 2013, being the latest practicable date prior to publication of the Notice. Under the Listing Rules of the Financial Conduct 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 2015 or 13 July 2015, unless such authority has been renewed prior to such time. Proposed change to the investment Policy (Resolution 15) During the year, the Greek equity market was reclassified as an emerging market and entered the MSCI EM Europe 10/40 Index on 27 November 2013. The Company's benchmark was changed and now includes Greece. Resolution 15 proposes that Greece be added to the list of Emerging European countries in the Company's investment policy. 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. 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. 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 48, voting rights are summarised on page 56, 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 21; 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 to 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. Auditor The Company's Auditor, KPMG Audit Plc, has indicated its willingness to continue in office. The Auditor is currently engaged as KPMG Audit Plc and this will remain the case for the current year end. However the Auditor has proposed that the parent entity, KPMG LLP, should be recommended to the shareholders to become the Auditor in the future. Resolutions for the appointment of KPMG LLP and to authorise the Board to determine its remuneration will be proposed at the Annual General Meeting. By order of the Board M. J. Nokes Secretary 27 November 2013 Statement of 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 2012 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, one of whom is a female and the other four are male and is chaired by Steven Bates. The Chairman, Miss Dixon and Professor Estrin have all served on the Board for over nine years and under the Code may not be considered to be independent of the Company and the Investment Manager. The Board however, takes the view that independence is not necessarily compromised by length of tenure on the Board and experience can add significantly to the Board's strength. It has therefore been determined that in performing their roles as Directors, the Chairman, Miss Dixon and Professor Estrin remain wholly independent and all the Directors are considered by the Board to be independent of the Company and the Investment Manager. Their biographies are set out on page 20. 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 5 2 1 in the year Steven Bates 5 2 1 Josephine Dixon 5 2 1 Saul Estrin 5 2 1 Jonathan Woollett 5 2 1 Ivo Coulson 5 2 1 All of the Directors attended the Annual General Meeting held in January 2013. 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 Turkey during September 2013. 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. 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 Chairman meeting with individual Directors to obtain their views on the performance of the Board and its Committees. In addition, the other Directors meet collectively once a year to evaluate the performance of the Chairman. The Board has also reviewed the Chairman's and Directors' other commitments and is satisfied that the Chairman and other Directors are capable of devoting sufficient time to the Company. 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 of the Board as a whole. Audit Committee The Directors have appointed an Audit Committee consisting of the whole Board, and is chaired by Josephine Dixon. The Board's view is that the members of the Committee, taken as a whole, have the necessary recent and relevant financial experience. The Audit Committee reviews audit matters within clearly-defined written terms of reference (copies of which are available upon request from the Company Secretary). In particular, the Committee shall review and challenge where necessary: â€¢ the consistency of, and any changes to, accounting policies both on a year on year basis and across the Company â€¢ the methods used to account for significant or unusual transactions where different approaches are possible â€¢ whether the Company has followed appropriate accounting standards and made appropriate estimates and judgements, taking into account the views of the external auditor; â€¢ the clarity of disclosure in the Company's financial reports and the context in which statements are made; and â€¢ all material information presented with the financial statements, such as the Strategic Report and the Statement of Corporate Governance (insofar as it relates to the audit and risk management). The main significant issue that the Committee has considered is around the existence and valuation of investments at the year ended 30 September 2013. The Committee is satisfied that the investments at the year ended 30 September 2013 exist and are correctly valued at fair value (which is the bid market price for listed investments and Directors' valuation for unquoted investments which is currently valued at nil). The Committee 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 its 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. The Audit Committee will meet if required with the Auditor to review the proposed audit programme of work and the findings of the Auditor. The Committee shall also use this as an opportunity to assess the effectiveness of the audit process. KPMG Audit Plc has been the Company's Auditor for the last ten years and there has been no re-tendering of the Audit in that time. To comply with the provision in the Code the company will review the option to re-tender the external audit on a regular basis. The Audit Committee 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 provides reports on 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 Nomination Committee consists of the whole Board and is chaired by the Chairman. The Committee meets at least annually and terms of reference are in place which include reviewing the Board's size, structure and diversity, succession planning and training. Possible new Directors are identified against the requirements of the Company's business and the need to have a balanced Board. External search consultants may be used to ensure that a wide range of candidates can be considered. A Director who has been appointed during the year is required under the provisions of the Company's Articles of Association, to retire and seek election by shareholders at the next Annual General Meeting. The Articles also require a Director who has held office at the time of the two preceding Annual General Meetings and who did not retire at either to seek re-election. In addition, a Director 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 seek re-election by the members. Notwithstanding the provisions of the Articles of Association, the Board has adopted a policy that Directors will offer themselves for annual re-election except where they intend to retire at an Annual General Meeting. The Committee recommended to the Board, with the relevant Directors absenting themselves from these discussions, the nominations for re-election of the Chairman, Mr Coulson, Miss Dixon, Prof Estrin and Mr Woollett for the following reasons: â€¢ The Chairman, who was appointed a Director in 2003, has significant experience in both emerging and developed markets and has continued to lead the Board well. â€¢ Mr Coulson, who was appointed a Director in 2010, has significant experience in the investment management industry and has been significantly involved with the Boards' shareholder relations. â€¢ Miss Dixon, who was appointed a Director in 2004, has significant financial experience and is an effective chairman of the Audit Committee. â€¢ Professor Estrin, who was appointed a Director in 2004, has a significant knowledge about the Emerging European region and its economies. â€¢ Mr Woollett, who was appointed a Director in 2008, has over 20 years experience in the Emerging European region with experience in both private equity and financial services. 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. The Directors' remuneration policy and Directors' fees are detailed in the Directors' Remuneration report on page 34. Risk management and internal control The 2012 UK Corporate Governance Code requires the Directors, at least annually, to review the effectiveness of the Company's system of risk management and internal control and to report to shareholders that they have done so. This encompasses a review of all controls, which the Board has identified as including business, financial, operational, compliance and risk management. The Directors are responsible for the Company's system of risk management and internal control which is designed to safeguard shareholders' investment and the Company's assets, maintain proper accounting records and ensure that financial information used within the business, or published, is reliable. However, such a system can only be designed to manage rather than eliminate the risk of failure to achieve business objectives and therefore can only provide reasonable, but not absolute, assurance against fraud, material misstatement or loss 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 33 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. 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. 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." 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 confirms the continuation of 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. By order of the Board M. J. Nokes Secretary 27 November 2013 Audit Committee report The composition and summary terms of reference of the Audit Committee are set out on pages 26 and 27. The Audit Committee met in July 2013 and considered the form and content of the Company's half year report to 31 March 2013 which was published on 3 May 2013. The Committee also reviewed the key risks of the Company and the Internal control framework operating to control risk. The Committee also reviewed the terms of engagement of the audit firm and its proposed programme for the year end audit. The Committee met again in November 2013 and reviewed the outcome of the audit work and the final draft of the financial statements for the year ended 30 September 2013. During this review the Audit Committee met with representatives of both the Investment Manager and the Administrator and sought assurances where necessary. Significant accounting matters The Audit Committee in its work consider that the key accounting issue in relation to the financial statements is the existence and valuation of investments. Existence and valuation of investments As part of the day to day controls of the Company there are regular reconciliations between the accounting records and the records kept by the custodian of the assets they safeguard which are owned by the Company. During the year and at the year end there were no matters brought to light which call in to question that the key controls in this area were not working, or that the existence of assets recorded in the books of account are not held in safe custody. As more fully explained in note 1 (b) on page 42 at the year ended 30 September 2013 the Committee agreed that the fair value of investments is the bid market price for listed investments and the unquoted investment, of which there is a small holding which is currently valued at nil for the year ended 30 September 2013, is appropriate. The external Auditor attended the year end Audit Committee meeting on 18 November 2013 and presented a report on the audit findings which did not include any significant issues in relation to the financial statements. During that meeting the Audit Committee satisfied itself that the Auditor was independent and also concluded to keep under review putting the audit out to tender. KPMG Audit Plc have been the Auditor since the launch of the Company in 2002 and during that time the audit has not been put out to tender. Contracts for non-audit services must be notified to the Audit committee who consider any such engagement in the light of the requirement to maintain audit independence. The Committee believe that all such appointments for non-audit work were appropriate and unlikely to influence the audit independence. During the year the value of non-audit services provided by KPMG amounted to Â£ 26,000 (30 September 2012: Â£12,000). Whilst non-audit services as a proportion of audit services amount to approximately 90%, the overall quantum of non-audit services is not considered to be material and a significant proportion of the non-audit services provided relate to the following matters: â€¢ the provision of tax compliance work Â£7,000 (30 September 2012: Â£12,000); and â€¢ the provision of withholding tax work in Russia Â£19,000 (30 September 2012: nil). In finalising the financial statements for recommendation to the Board for approval the Committee has considered whether the going concern principle is appropriate, and concluded that it is. The Audit Committee has also satisfied itself that the Annual Report and financial statements taken as a whole are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. Josephine Dixon Chairman of the Audit Committee 27 November 2013 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 Strategic report, Directors' report, Directors' Remuneration report and Corporate Governance statement that comply 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; b) the Annual Report and financial statements, 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; and c) the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. For and on behalf of the Board Steven Bates Chairman 27 November 2013 Directors' Remuneration report for the year ended 30 September 2013 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 Directors' and their families' interests in the Company's shares are stated below: Beneficial 26 November 2013 30 September 2013 30 September 2012 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 Directors' remuneration policy (Resolution 2) The Company's Articles of Association limit the aggregate fees payable to the Board of Directors. Subject to this overall limit, currently Â£175,000, 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. A Director may be removed without notice and compensation will not be due on leaving office. The Company does not provide pension benefits, rights to any bonuses, share options or long-term incentive schemes for Directors. Directors' emoluments for the year (audited) The Directors who served during the year received the following emoluments in the form of fees: 2013 2012 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 Total 122.5 122.5 During the year ended 30 September 2013 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. Following a review of Directors' fees it was agreed from 1 January 2014 to increase the annual fees to Â£33,000 for the Chairman, Â£27,500 for the Chairman of the Audit Committee and Â£25,000 for other Directors. This represents the first increase in Directors' fees since 1 October 2007. Share price performance (non audited) The following graph compares the share price and net asset value performance against the Benchmark Indexâ€ : Approval Resolutions for the approval of the Directors' remuneration policy and the Directors' Remuneration report for the year ended 30 September 2013 will be proposed at the Annual General Meeting. By order of the Board M. J. Nokes Secretary 27 November 2013 Independent Auditor's report to the members of Baring Emerging Europe PLC only Opinions and conclusions arising from our audit Opinion on financial statements We have audited the financial statements of Baring Emerging Europe PLC for the year ended 30 September 2013 set out on pages 38 to 53. 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 2013 and of its return for the year then ended; â€¢ have been properly prepared in accordance with UK Accounting Standards; and â€¢ have been prepared in accordance with the requirements of the Companies Act 2006. Our assessment of risks of material misstatement In arriving at our audit opinion above on the financial statements, the risk of material misstatement that had the greatest effect on our audit were as follows: Investments: The Company's portfolio investments make up 97.9% of net assets (by value) and are considered to be the key driver of operations and performance results. We do not consider these investments to be at high risk of significant misstatement, or to be subject to a significant level of judgment because they comprise liquid, quoted investments. However, due to their materiality in the context of the financial statements as a whole, they are considered to be the area which had the greatest effect on our overall audit strategy and allocation of resources in planning and completing our audit. Our procedures over the existence, completeness and valuation of the Company's investment portfolio included, but were not limited to: â€¢ documenting and assessing the processes in place to record investment transactions and to value the portfolio; â€¢ verifying the valuation of 100% of portfolio investments to externally quoted prices; and â€¢ verifying 100% of portfolio investment holdings to independently received third party confirmations. Our application of materiality and an overview of the scope of our audit The materiality for the financial statements as a whole was set at Â£2,579,250. This has been calculated with reference to a benchmark of Total Assets. Total Assets, which is primarily composed of the Company's investment portfolio, is considered the key driver of the Company's capital and revenue performance and, as such, it is one of the principal considerations for members of the Company in assessing the financial performance of the Company. We agreed with the Audit Committee to report to it all corrected and uncorrected misstatements we identified through our audit with a value in excess of Â£171,950, in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds. Our audit of the Company was undertaken to the materiality level specified above and was all performed at the administrator's head office in London. 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 Strategic report and 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 Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the Annual Report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading. In particular, we are required to report to you if: â€¢ we have identified material inconsistencies between the knowledge we acquired during our audit and the Directors' statement that they consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy; or â€¢ the Audit Committee report and the statement of Corporate Governance do not appropriately address matters communicated by us to the Audit Committee. Under the Companies Act 2006 we are required to report to you if, in our opinion: â€¢ adequate accounting records have not been kept by the Company, 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 21, in relation to going concern; â€¢ the part of the Corporate Governance Statement on pages 25 to 30 relating to the Company's compliance with the nine provisions of the 2010 UK Corporate Governance Code specified for our review; and â€¢ certain elements of the report to shareholders by the Board on Directors' remuneration. We have nothing to report in respect of the above responsibilities. Scope of report and responsibilities As explained more fully in the Directors' Responsibilities Statement set out on page 33, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company's members as a body and subject to important explanations and disclaimers regarding our responsibilities, published on our website at http://www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions. Gareth Horner (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL 27 November 2013 Income statement (incorporating the Revenue Account*) for the year ended 30 September 2013 Year Year Year Year Year Year ended 30 ended 30 ended 30 ended 30 ended 30 ended 30 September September September September September September 2013 2013 2013 2012 2012 2012 Revenue Capital Total Revenue Capital Total Notes Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Gains on 9 - 11,946 11,946 - 22,598 22,598 investments held at fair value through profit or loss Income 2 7,490 - 7,490 7,994 - 7,994 Investment 3 (1,439) - (1,439) (1,641) - (1,641) management fee Other 4 (974) - (974) (976) - (976) expenses Net return 5,077 11,946 17,023 5,377 22,598 27,975 before finance costs and taxation Finance costs 5 (21) - (21) (27) - (27) Return on 5,056 11,946 17,002 5,350 22,598 27,948 ordinary activities before taxation Taxation 6 (817) - (817) (755) - (755) Return 4,239 11,946 16,185 4,595 22,598 27,193 attributable to ordinary shareholders Return per 8 19.44p 54.76p 74.20p 16.18p 79.59p 95.77p ordinary 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 42 to 53 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 2013 2013 2012 Notes Â£000 Â£000 Non current assets Investments at fair value through profit or loss 9 167,899 188,293 Current assets Debtors 10 762 3,103 Cash at bank and in hand 3,312 509 4,074 3,612 Creditors: amounts falling due within one year 11 (643) (2,702) Net current assets 3,431 910 Net assets 171,330 189,203 Capital and reserves Called-up share capital 12 2,357 2,769 Share premium account 1,411 1,411 Redemption reserve 2,431 2,019 Capital reserve 157,486 175,988 Revenue reserve 7,645 7,016 Total equity shareholders' funds 171,330 189,203 Net asset value per share 13 846.16p 776.34p The financial statements on pages 38 to 53 were approved by the Board on 27 November 2013 and signed on its behalf by: Steven Bates Chairman The annexed notes on pages 42 to 53 form part of these accounts. Company registration number 4560726 Reconciliation of movement in shareholders' funds for the year ended 30 September 2013 Called-up Share share premium Redemption Capital Revenue capital account reserve reserve reserve Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 For the year ended 30 September 2013 Beginning of year 2,769 1,411 2,019 175,988 7,016 189,203 Return for the year - - - 11,946 4,239 16,185 Buyback of own shares - - - (30,448) - (30,448) for cancellation Transfer to capital (412) - 412 - - - redemption reserve Dividends paid - - - - (3,610) (3,610) Balance at 30 September 2,357 1,411 2,431 157,486 7,645 171,330 2013 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 The annexed notes on pages 42 to 53 form part of these accounts. Cashflow statement for the year ended 30 September 2013 Year ended Year ended 30 September 30 September 2013 2012 Notes Â£000 Â£000 Operating activities Income received from investments 7,545 7,818 Investment management fees paid (1,439) (1,641) Other cash payments (899) (1,081) Net cash inflow from operating activities 14 5,207 5,096 Servicing of finance Interest paid (21) (27) Taxation Overseas tax paid (817) (755) Financial investment Purchases of investments (66,570) (112,372) Sales of investments 99,062 172,524 Net cash inflow from financial investment 32,492 60,152 Equity dividends paid (3,610) (3,243) Net cash inflow before financing 33,251 61,223 Financing Buyback of ordinary shares (30,448) (63,694) Net cash outflow from financing (30,448) (63,694) Increase/(decrease) in cash 15 2,803 (2,471) The annexed notes on pages 42 to 53 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 has been utilised 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 2013 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 2013 2012 Â£000 Â£000 Income from investments Overseas dividends - 7,490 7,994 Quoted 7,490 7,994 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 and any previous underperformance must be recovered before any fee is payable. 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 2013 and 30 September 2012. The investment management fee comprises: 2013 2012 Â£000 Â£000 Basic fee (charged to 1,439 1,641 revenue) At 30 September 2013, Â£216,000 (30 September 2012: Â£126,000) of this fee remained outstanding. 4. Other expenses 2013 2012 Â£000 Â£000 Custody and administration 796 815 expenses Auditor's remuneration for: - audit 29 26 - other services* 26 12 Directors' fees 123 123 974 976 *KPMG other services includes Â£19,000 for withholding tax work in Russia and Â£ 7,000 for corporation tax compliance work (2012: Â£12,000 for corporation tax compliance work). 5. Finance costs 2013 2012 (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 21 27 21 27 6. Taxation 2013 2013 2013 2012 2012 2012 Revenue Capital Total Revenue Capital Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 (a) Current tax charge for the year: Overseas taxation (note 6(b)) 817 - 817 755 - 755 (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: 2013 2013 2013 2012 2012 2012 Revenue Capital Total Revenue Capital Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Return on ordinary activities 5,056 11,946 17,002 5,350 22,598 27,948 before taxation Return on ordinary activities 1,188 2,807 3,995 1,337 5,650 6,987 multiplied by the standard rate of corporation tax of 23.5% (2012: 25%) Effects of: Non taxable overseas dividends (847) - (847) (1,042) - (1,042) Overseas withholding tax 817 - 817 755 - 755 Capital gains not subject to - (2,807) (2,807) - (5,650) (5,650) tax Excess management expenses (341) - (341) (295) - (295) utilised Current tax charge for the year 817 - 817 755 - 755 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£687,000 (2012: Â£ 1,010,000) based on the long term prospective corporation tax rate of 21% (2012: 23%). 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. 7. Dividend 2013 2013 2012 2012 Pence per share Â£000 Pence per share Â£000 Annual dividend 19.00p 3,847 16.00p 3,899 per ordinary share 8. Return per ordinary share Total Total Revenue Capital 2013 Revenue Capital 2012 Return per ordinary share 19.44p 54.76p 74.20p 16.18p 79.59p 95.77p Revenue return (earnings) per ordinary share is based on the net revenue on ordinary activities after taxation of Â£4,239,000 (2012: Â£4,595,000). Capital return per ordinary share is based on net capital profits for the financial year of Â£11,946,000 (2012: net capital profits of Â£22,598,000). These calculations are based on the weighted average of 21,815,561 (2012: 28,393,596) ordinary shares in issue during the year. At 30 September 2013 there were 20,248,043 ordinary shares of 10 pence each in issue (2012: 24,371,043) which excludes 3,318,207 ordinary shares held in treasury (2012: 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. 9. (i) Fixed asset investments Quoted Total Quoted Total overseas 2013 overseas 2012 Country of Â£000 Â£000 Â£000 Â£000 listing Czech Republic 550 550 1,681 1,681 Hungary 3,983 3,983 4,948 4,948 Poland 10,517 10,517 26,603 26,603 Russia 122,877 122,877 123,497 123,497 Turkey 25,408 25,408 30,192 30,192 Other 4,564 4,564 1,372 1,372 Total 167,899 167,899 188,293 188,293 9. (ii) Movements in the year Quoted Total Quoted Total overseas Unquoted 2013 overseas Unquoted 2012 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Book cost at beginning 184,630 26 184,656 254,535 43 254,578 of year Gains/(losses) on 3,663 (26) 3,637 (26,382) (43) (26,425) investments held at beginning of year Valuation at beginning 188,293 - 188,293 228,153 - 228,153 of year Movements in year: Purchases at cost 64,436 - 64,436 112,372 - 112,372 Sales proceeds (96,776) - (96,776) (174,813) (17) (174,830) Gains/(losses) on 5,924 - 5,924 (7,464) 17 (7,447) investments sold in year Gains on investments 6,022 - 6,022 30,045 - 30,045 held at year end Valuation at end of 167,899 - 167,899 188,293 - 188,293 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 2013 amounted to Â£94,000 (2012: Â£ 167,000) and on sales for the year they amounted to Â£172,000 (2012: Â£262,000). 9. (iii) Gains/(losses) on investments 2013 2012 Â£000 Â£000 Gains/(losses) on 5,924 (7,447) investments sold in the year Gains on investments held 6,022 30,045 at year end Total gains on investments 11,946 22,598 A list of the Company's investments by market value is shown on pages 12 and 13, and a geographical classification and industrial classification of the investment portfolio are both shown on page 14. 10. Debtors 2013 2012 Â£000 Â£000 Amounts due within one year Amounts due from brokers - 2,304 Prepayments and accrued 741 796 income Other debtors 21 3 762 3,103 11. Creditors 2013 2012 Â£000 Â£000 Amounts falling due within one year Purchases for future 241 - settlement Amounts outstanding to - 2,374 brokers due to the buyback of own shares Other creditors 402 328 643 2,702 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. 12. Called-up share capital 2013 2012 Â£000 Â£000 Allotted, issued and fully paid up 23,566,250 (2012: 2,357 2,769 27,689,250) ordinary shares of 10 pence (fully paid) During the year 4,123,000 ordinary shares were repurchased for cancellation for Â£30,448,000 (2012: 8,604,067 ordinary shares were repurchased for cancellation for Â£66,068,000). 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 (2012: 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 750,000 shares have been repurchased for cancellation. 13. 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: 2013 2012 Total shareholders' funds (Â£000) 171,330 189,203 Net asset value (pence per share) 846.16p 776.34p The net asset value per share is based on total shareholders' funds above, and on 20,248,043 ordinary shares in issue at the year end (2012: 24,371,043 ordinary shares in issue) which excludes 3,318,207 ordinary shares held in treasury (2012: 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. 14. Reconciliation of net return before finance costs and taxation to net cash outflow from operating activities 2013 2012 Â£000 Â£000 Total net return before 17,023 27,975 finance costs and taxation Net capital return before (11,946) (22,598) finance costs and taxation Decrease/(increase) in 55 (175) accrued income Increase/(decrease) in 75 (106) sundry creditors Net cash inflow from 5,207 5,096 operating activities 15. Analysis of changes in cash during the year 2013 2012 Â£000 Â£000 Beginning of year 509 2,980 Net cash inflow/(outflow) 2,803 (2,471) End of year 3,312 509 Analysis of balance: Bank balance 3,312 509 16. Financial commitments At 30 September 2013, there were no outstanding capital commitments (2012: nil). 17. 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. 18. 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. 19. 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 2012. 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 9, 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 2013 monetary assets included cash balances totalling Â£ 3,312,000 (2012: Â£509,000) 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: 2013 2012 Â£000 Â£000 Income statement - profit after taxation: Revenue return - increase 494 535 If sterling had strengthened by an average of 10%, this would have had the following effect: 2013 2012 Â£000 Â£000 Income statement - profit after taxation: Revenue return - decrease (494) (535) Impact on capital return is disclosed in note 19 (d). (c) Interest rate risk Interest rate movements may affect the level of income receivable on cash deposits. Cash at bank at 30 September 2013 (and 30 September 2012) 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 An analysis of the Company weighting versus Benchmark Index and a sector breakdown and geographical allocation of the portfolio is contained in the Investment Manager's report on pages 10 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 in Decrease in Increase in Decrease in fair value fair value fair value fair value 2013 2013 2012 2012 Â£000 Â£000 Â£000 Â£000 Income statement - profit after taxation: Capital return - 16,790 (16,790) 18,829 (18,829) increase/(decrease) Total profit after 16,790 (16,790) 18,829 (18,829) taxation other than arising from interest rate or currency risk- increase/(decrease) Equity 16,790 (16,790) 18,829 (18,829) (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 2013: Total Level 1 2013 Â£000 Â£000 Equity investments 167,899 167,899 Total 167,899 167,899 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 2013). 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 2013 with a market value). The valuation techniques used by the Company are explained in the accounting policies note on page 42. 20. 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£259,000 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 2013. As reported in 2011 the Company has engaged KPMG to advise on the recovery of excess withholding tax on dividends received from companies in Russia. To date an amount of Â£23,000 was recovered in the year to 30 September 2013. There is potential to recover further amounts of withholding tax but this has not been recognised in the financial statements for the year ended 30 September 2013 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 Tuesday, 14 January 2014, at 2:30pm to consider and, if thought fit, pass the following resolutions, which will be proposed as to resolutions 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 and 15 as ordinary resolutions, and as to resolutions 13 and 14 as special resolutions: Ordinary business 1. To receive the Directors' report and statement of accounts for the year ended 30 September 2013. 2. To approve the Directors' Remuneration policy. 3. To approve the Directors' Remuneration report for the year ended 30 September 2013. 4. To approve the annual dividend. 5. To re-elect Steven Bates as a Director of the Company. 6. To re-elect Ivo Coulson as a Director of the Company. 7. To re-elect Josephine Dixon as a Director of the Company. 8. To re-elect Saul Estrin as a Director of the Company. 9. To re-elect Jonathan Woollett as a Director of the Company. 10. To appoint KPMG LLP 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. 11. To authorise the Directors to determine the Auditor's remuneration. Special business 12. 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£97,490, (being approximately 5% of the issued share capital of the Company as at 26 November 2013 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. 13. Authority to disapply pre-emption rights on allotment of ordinary shares - Special Resolution: That if resolution 12 set out in the notice convening the Annual General Meeting of the Company dated 26 November 2013 (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 12 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£114,081; such power to apply until the earlier of the conclusion of the Annual General Meeting of the Company in 2015, or 13 July 2015, 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. 14. 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 2,922,756 (being approximately 14.99% of the issued share capital of the Company as at 26 November 2013 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 2015, or 13 July 2015, 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. 15. Proposed Changes to Investment Policy - Ordinary Resolution: That, the Company's investment policy be amended with immediate effect to include Greece, which now forms part of the benchmark index (MSCI EM Europe 10/ 40 Index) within the definition of Emerging Europe. By order of the Board M. J. Nokes Secretary 155 Bishopsgate London EC2M 3XY 27 November 2013 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 Asset Services (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 Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU no later than 2:30pm on Sunday, 12 January 2014 (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 Sunday, 12 January 2014 (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 26 November 2013 (being the last business day prior to the publication of this Notice) the Company's issued share capital consisted of 19,498,043 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 26 November 2013 are 19,498,043. 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 2:30pm on Sunday, 12 January 2014 (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 www.bee-plc.com. Inspection of documents The following documents will be available for inspection at the Company's registered office from 27 November 2013 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 Baring Asset Management Limited 155 Bishopsgate London EC2M 3XY Telephone: 020 7628 6000 (Authorised and regulated by the Financial Conduct Authority) www.barings.com Registered in England and Wales no: 02915887 Registered office as above.

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Barings Emerging Emea Opportunities (BEMO)

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