Final Results

RNS Number : 0320W

Advance Developing Markets Fund Ltd

23 January 2012

ADVANCE DEVELOPING MARKETS FUND LIMITED

Annual Financial Report Announcement

For the year ended 31 October 2011

INVESTMENT OBJECTIVE AND PERFORMANCE

Investment objective

The Company's investment objective is to achieve consistent returns for Shareholders in excess of the MSCI Emerging Markets Composite Net Total Return Index in Sterling terms (the "Benchmark"). Until 31 October 2011 the Benchmark was the S&P/IFCI Emerging Markets Composite Index.

Performance

For the year ended 31 October 2011

Net Asset Value ("NAV") per share - undiluted¹	-11.7%
Net Asset Value ("NAV") per share - diluted²	-9.6%
Ordinary share price - mid market³	-8.3%
S&P/IFCI Emerging Markets Composite Index in Sterling terms	-10.4%

As at 31 October 2011
NAV per share⁴ - undiluted	493.8p
NAV per share⁴ - diluted	467.6p
Ordinary share price - mid market	428.5p
Subscription share price - mid market	140.5p
Net Assets	£326.5m

¹ Measured against a closing NAV for 31 October 2010 of 559.2p

² Measured against a closing NAV for 31 October 2010 of 517.4p

³ Measured against an opening mid market ordinary share price of 467.5p

⁴See note 7 in the Notes for basis of calculation

Financial Calendar

Annual General Meeting

26 April 2012 at 10.00 a.m.

11 New Street

St Peter Port

Guernsey

GY1 2PF

The Annual Report can be downloaded in electronic format from the website of the Investment Manager www.advance-emerging.com

CHAIRMAN'S STATEMENT

Performance

During the financial year to 31 October 2011 the Company's undiluted net asset value and share price fell by 11.7% and 8.3% respectively. On a diluted basis, the NAV fell by 9.6% compared to a decline in the Benchmark of 10.4%. Given the sharp recovery in emerging stock markets, from the lows reached during the global financial crisis in late 2008, it was not too surprising that we experienced a period of consolidation. It is unfortunate that the Company has given back some of the outperformance achieved in the previous period but it is entirely explained by the conversion of subscription shares. Given the uncertainties that continued to plague global markets during the year, and the volatility this resulted in, the Board is pleased with the Investment Manager's performance on a diluted basis in a very challenging environment.

The year was a busy one for the Company in terms of corporate news. The major points are discussed below.

Final Exercise of Subscription Shares

On 8 November 2010 a total of 2,350,604 new ordinary shares in the Company were issued following the conversion of an equivalent number of subscription shares on the 31 October 2010 exercise date. The final exercise date was 31 October 2011 and I am pleased to say that all remaining subscription shares were converted, resulting in the issue of a further 9,830,153 ordinary shares. This final exercise increased the number of ordinary shares in issue by 14.9% which should facilitate greater liquidity in the Company's shares over time.

Change of Benchmark

In October, the Company announced that it would adopt a new Benchmark effective from 1 November 2011. The new Benchmark is the MSCI Emerging Markets Net Total Return Index in Sterling terms. This change aligns the Company's Benchmark with that of the majority of its peers in the global emerging markets equity fund sector.

Discount Management Policy and Share Buybacks

The Board also took the opportunity presented by the change of Benchmark to clarify its stance on discount management. The Board considers it desirable that the Company's shares do not trade at a significant discount to net asset value and believes that, in normal market conditions, the shares should trade at a price which on average represents a discount of less than 10 per cent to diluted net asset value. To assist the Board in taking action to deal with a material increase in the discount, it seeks authority from shareholders annually to buy back shares. Shares may be repurchased when, in the opinion of the Board and taking into account factors such as market conditions and the discounts of comparable funds, the Company's discount is higher than desired and shares are available to purchase in the market. The Board is of the view that the principal purpose of share repurchases is to enhance net asset value for remaining shareholders. It may also assist in addressing the imbalance between the supply of and demand for the Company's shares and thereby reduce the scale and volatility of the discount at which the shares trade in relation to the underlying net asset value.

During the year, the discount to diluted net asset value averaged 8.5%, which the Board considers to be broadly consistent with the peer group of emerging market closed end funds, the Company's own discount history and market conditions. Despite this, 2,177,050 shares were repurchased during the year, representing 3.2% of the shares in issue at the time of repurchase. These shares were repurchased at a discount to diluted net asset value of 11.5%. These shares are held in treasury but will not be re-issued at a discount to net asset value.

Changes to the Board

As noted in my interim statement I shall be retiring as Chairman of your Company at the next Annual General Meeting planned for April, 2012. May I take this opportunity to thank my colleagues on the Board, the investment team and you, the shareholders, for the support and advice I have received during my chairmanship. Richard Bonsor has been nominated to succeed me and John Hawkins as the new Deputy Chairman.

Prospects for 2012

2011 proved to be one of the most difficult in the past 30 years for managers investing in global stock markets. Our political masters and policy makers in the developed economies have learned little from the events which took place during, and after, the Asian crisis of 1997/98. The restoration of economic health in Asia was a prolonged and painful process lasting a decade. Countries, corporations, financial institutions and private individuals needed to reduce significantly their borrowings, their expectations and tackle the necessity of rebuilding their balance sheets. The alternative was bankruptcy. They were not locked into a single regional currency; nor were they hampered by low levels of personal savings.

Today, the Eurozone has minimal room for manoeuvre. Despite very low interest rates the deficit countries are locked into a debt spiral and are unable to regain competitiveness through devaluation. The banking system needs further significant re-capitalisation and the public sector, which represents 50% of the Eurozone economy, must contract to allow renewed capital investment from the private sector to nourish sustainable economic growth and reduce the high levels of unemployment. The USA and UK face similar problems: in terms of fiscal constraints and high indebtedness. Further quantitative easing will not solve the serious structural problems, as the crisis in Asia clearly proved. China cannot embark on a repeat of the huge monetary expansion of 2009 without incurring further high inflation and social disruption. In 2012, markets - currency, bond, equity and commodity - will remain volatile and unpredictable.

Conclusion

But, out of crises, opportunities are born. Recovery in the developing economies will be swifter and more sustainable. Many governments and corporations within emerging markets have accrued sufficient financial resources to permit them to weather the storms currently buffeting the USA, UK and Eurozone. Personal savings remain relatively high and the thirst for better education and self-improvement remains strong. This, in turn, fosters a work ethic; often sadly lacking in the West.

The investment team overseeing your assets is an experienced and capable one. Success cannot, nor should not, be measured on weekly performance comparisons against indices or peers. Significant success in securing decent sustainable returns from emerging economies and markets has been, and will continue to be, achieved in the medium and long-term. When compared to the economic mess created by our short-term politicians in the USA and Eurozone, the prospects for emerging nations remain relatively bright.

Thank you for your support in 2011. May I wish you, and your families good health, happiness and prosperity in our New Year and the forth-coming year of the Dragon.

PE O'Connor

23 January 2012

INVESTMENT MANAGER'S REPORT

Performance review

The Benchmark S&P/IFCI Emerging Markets Composite Index delivered a return of -10.4% in Sterling terms for the year ended 31 October 2011. Markets were generally unsettled for much of the period. Investor sentiment towards emerging markets was affected by a number of issues including concerns over the financial health of the weaker Eurozone member states, popular uprisings in the Middle East and North Africa, a major earthquake and tsunami in Japan, the sub-par recovery of the US economy and rising inflation in a number of emerging countries.

Advance Developing Markets Fund Limited's ("ADMF" or the "Company") undiluted net asset value per share ("NAV") fell by 11.7% in Sterling terms during the reporting period, compared with the aforementioned decline of 10.4% in the benchmark. The share price declined by 8.3%, with the discount to diluted NAV at which the Company's shares trade closing the period at 8.4%, having commenced it at 9.6%.

The cause of the Company's NAV lagging the benchmark index by 1.3% over the year was the dilution caused by the exercise of subscription shares at the end of October 2010 which resulted in 2,350,604 new ordinary shares being issued at a price of 291p. The issue of these new ordinary shares negatively impacted the NAV by approximately 1.6%. The remaining 9,830,153 subscription shares had a final exercise opportunity at the end of October 2011. All outstanding subscription shares were exercised, resulting in the issuance of the same number of new ordinary shares. The new shares were admitted to the Official List and to trading on the main market of the London Stock Exchange on 8 November 2011.

Without the impact of the exercise of subscription shares, the Company's NAV outperformed its Benchmark. Manager selection was a positive contributor with several of the Company's larger investments delivering good results. In Brazil, our two preferred managers outperformed by significant margins. Tarpon All Equities Fund achieved a gain in its NAV of 11.1% while Advance Brazil Leblon Equities Fund saw its NAV decline by just 6.6%. The S&P/IFCI Brazil Index declined by 15.5% during the period, all in Sterling terms.

Amongst the Russian focussed investments Baring Vostok Investments Limited was a notable contributor with a share price gain of 166% in Sterling terms over the year. This performance was driven by the successful listing of its largest holding at the end of May. Coronation Top 20 Fund in South Africa (NAV -4.4%, S&P/IFCI South Africa -6.8%) and Edinburgh Dragon Trust (share price total return -5.4%, S&P/IFCI Emerging Asia -9.0%) were also positive contributors.

On a less positive note, JP Morgan Russian Securities disappointed as an underweight position in oil and gas stocks proved costly (share price -16.7% vs S&P/IFCI Russia -3.9%). Blackrock Latin American Investment Trust, the Company's second largest holding, also struggled as poor asset allocation and gearing in a falling market combined with a widening discount to net asset value to impinge on shareholder returns. Over the year the share price total return was -18.5% compared with a 13.4% decline in the S&P/IFCI Latin American Index. Blackrock Latin's convertible unsecured loan stock, in which ADMF has a material holding, lagged the Latin index materially towards the end of the year, finishing 11% behind despite the fact that it offers investors the benefit of capital protection and a 3.5% annual coupon.

Asset allocation was a small negative contributor to performance, with the benefit of an underweight position in India and an overweight position in Russia being offset by too little in Korea and too much in Turkey.

It is not surprising that discounts did not contribute much to overall performance given the decline in markets and general ambivalence of investors towards anything deemed risky. The stability in the blend of open and closed end funds that the Company's currently holds is representative of our belief that only selected emerging market closed end funds offer good value in discount terms at present.

Market Environment

The second half of the financial year saw a noticeable deterioration in global fundamentals as a result of fears that continued to emanate from the Eurozone. Faced with a problem to which the outcome is utterly unpredictable, markets remained anxious and highly volatile.

The performances of the various markets that make up the Benchmark are shown in sterling terms in Chart 1. For comparison, we also include the performances of MSCI World (-0.7%), Frontier (-15.9%), UK (-2.2%), US (+5.7%) and Japan (-5.1%).

see chart 1 in Annual report

Chart 1. Market performances during the financial year to 31 October 2011

Source: Bloomberg. GBP returns for the period from 31 October 2010 to 31 October 2011.

Performance in Asia was the most disparate, with several markets making gains whilst others participated fully in the declines. Korea's performance (+5.2%) was somewhat surprising given the high weighting of cyclical sectors within its market. The economy was boosted during the period by strong exports, as Japanese products were substituted with those from Korea following the Japanese earthquake and tsunami in March. The other major markets in the region displayed no such strength. China (-17.6%) was a major underperformer, with ongoing concerns regarding the health of the economy exacerbated by multiple corporate scandals in US listed Chinese companies which, once more, caused investors to question corporate governance standards. India (-23.1%) was the worst performing of the BRIC economies as persistent inflation prevented the Reserve Bank from reducing interest rates. Corruption scandals and a policy vacuum exacerbated market declines.

The EMEA region (Europe, Middle East and Africa) witnessed the largest declines, with Egypt (-33.8%), Hungary (-35.6%) and Turkey (-34.8%) suffering the most. Egypt's political and social upheaval was the major reason for that market's decline. In Turkey, the dependence on a troubled Eurozone region as its major trading partner weighed particularly heavily on the currency, which weakened by 24.9% over the period, making it one of the weakest currencies globally. Hungary, along with many of the other smaller European economies, saw a continual deterioration in its macroeconomic outlook, not helped by the adoption of questionable monetary policies.

In Latin America, Mexico (-4.0%) benefitted by proxy from an improved outlook for the US. Brazil (-15.5%) continued to suffer from negative sentiment, compounded by rapidly slowing growth. Even Chile (-12.4%), historically a defensive market, suffered as a high profile corporate fraud led local investors to reduce their equity exposure at the same time as copper prices declined. The Russian and South African markets, down by 3.9% and 6.8% respectively, proved more resilient as high oil prices continued to bolster the finances of the former and the latter simply failed to do much wrong.

Portfolio

The portfolio breakdown by investment type was as follows at the end of the period.

October 2011 October 2010

Closed ended investment funds 53.3% 53.8%

Open ended investment funds 42.5% 40.5%

Market access products 3.3% 5.8%

Cash and other net assets 0.9% -0.1%

As can be seen from above, the headline composition of the portfolio changed little during the year, but this is not to say we were not active. The number of holdings in the portfolio declined markedly, from 60 to 50 as a result of a concerted effort to concentrate the portfolio in higher conviction investments. Most of those investments we elected to exit were small and of an uncorrelated nature, being either closed end funds of emerging market property or private equity or frontier market equities. As a result of this exercise, the 20 largest investments now represent over 70% of the net asset value, a level of concentration and high conviction we aim to maintain.

New additions to the portfolio were a mixture of closed end funds trading on attractive discounts to net asset value and best of breed managers offering attractive geographic exposure. New closed end fund holdings included Aberdeen New Thai Investment Trust (Thai equities), JPMorgan Brazil Investment Trust (domestic growth oriented Brazilian equities), Qatar Investment Fund (Qatari equities) and Pallinghurst Resources Limited (African resource focussed listed and private equity). On the open ended side, Mirae Korea Equity Fund (Korean equities), Verno Capital Growth (Russian equities), Komodo Fund (Indonesian Equities) and Coronation Smaller Companies Fund (South African smaller companies) were all added to the portfolio for the first time.

Corporate activity was limited during the year. The Eastern European Trust conducted tender offers in January and July of 2011, both for 7.5% of outstanding shares at a discount to net asset value of 3%. These tenders were conducted as part of ongoing efforts by the Board to reduce the discount at which the shares trade. In the US, we exited Taiwan Greater China Fund as the discount narrowed prior to that fund's open ending.

Towards the end of the year, Prosperity Russia Domestic Fund, a London listed closed end fund, announced proposals including a vote on open ending the fund. The conversion to an open ended structure was recently approved by shareholders and effectively affords investors an exit at NAV, subject to certain liquidity constraints. The fund was trading at a discount of 21.8% at the end of the financial period and has subsequently narrowed in to 10.5%.

The asset allocation at the end of the year is shown on page 4. The major exposures remained consistent over the second half of the year.

Market Outlook

In line with the views expressed in ADMF's recent quarterly reports (available at www.advance-emerging.com), we believe emerging markets currently offer an exciting opportunity.

Since the end of 2007, emerging and developed countries have essentially decoupled in economic terms, with the former continuing to grow whilst the latter have struggled. The same pattern has been observed at a corporate level. Whilst recent market declines have been accompanied by slowing economic growth in certain economies and downward revisions to earnings, our sense is that this has been driven more by short term psychology than any change in the long term drivers of the emerging asset class (demographics, education, technology, urbanisation, globalisation etc.). Recent country visits to Brazil, Chile, Russia, India, Taiwan, Hong Kong, China and Indonesia have been supportive of this view.

Turning to valuation, we remain of the view that emerging markets offer exceptional value. The asset class as a whole currently trades on 9.5 times trailing earnings and 8.7 times 2012 forecast earnings (Source: UBS Investment Research). These valuations represent a discount to developed markets, a discount to their own history and, in many people's opinions, a discount to fair value. UBS points out that the asset class has only traded at or below these levels of valuation 7% of the time since the MSCI Emerging Markets Index was launched at the end of 1987.

If there is a silver lining to recent market weakness, it is that we are seeing selected opportunities to build positions in closed end funds at materially wider discounts than were available a year ago. This bodes well for future relative performance and adds to the margin of safety by providing exposure to already cheap assets at discounted prices.

In terms of Investment Manager selection in the open ended space, we are comfortable with the current selections and confident that a less irrational market environment in 2012 will provide opportunities for active and skilled stock pickers to generate alpha.

In asset allocation terms we will, as always, continue to invest more heavily in those markets that offer the best blend of quality, value and growth. At present, Russia and China stand out in this regard. India, Mexico and Taiwan are likely to remain our major underweight positions, all else remaining the same.

Such an uncertain global economic environment makes investing for the short term very difficult. We will try to look beyond the short term confusion and focus on the long term, over which we believe our approach will generate Benchmark outperformance as it has in the past. Whilst we make no forecasts about the solution to or the outcome of the Eurozone crisis, we are optimistic that progress will be made in 2012. We believe that at some stage emerging market fundamentals will prevail again and investors will begin to assess investment opportunities based on their own merit, rather than with reference to extraneous sentiment driven factors. When this happens, the recovery in emerging markets is likely to be rapid and substantial. Your portfolio is positioned to participate in this eventual recovery.

Advance Emerging Capital Limited

23 January 2012

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the main risks faced by the Company fall into the following categories.

(i) General market risks associated with the Company's investments

Changes in economic conditions, interest rates, foreign exchange rates and inflationary pressures, industry conditions, competition, political and diplomatic events, tax, environmental and other laws and other factors can substantially and either adversely or favourably affect the value of the securities in which the Company invests and, therefore, the Company's performance and prospects.

The Company's investments are subject to normal market fluctuations and the risks inherent in the purchase, holding or selling of securities, and there can be no assurance that appreciation in the value of those investments will occur. There can be no guarantee that any realisation of an investment will be on a basis which necessarily reflects the Company's valuation of that investment for the purposes of calculating the net asset value.

The Company's investments, although not made into developed economies, are not entirely sheltered from the negative impact of economic slowdown, decreasing consumer demands and credit shortages in such developed economies which, amongst other things, impact the demand for the products and services offered by the companies in which the Company directly or indirectly invests.

A proportion of the Company's portfolio may be held in cash or cash equivalent investments from time to time. Such proportion of the Company's assets will be out of the market and will not benefit from positive stock market movements, but may give some protection against negative stock market movements.

(ii) Developing markets

The funds selected by the Investment Manager invest in developing markets. Investing in developing markets involves certain risks and special considerations not typically associated with investing in other more established economies or securities markets. In particular there may be (a) the risk of nationalisation or expropriation of assets or confiscatory taxation; (b) social, economic and political uncertainty including war and revolution; (c) dependence on exports and the corresponding importance of international trade and commodities prices; (d) less liquidity of securities markets; (e) currency exchange rate fluctuations; (f) potentially higher rates of inflation (including hyper-inflation); (g) controls on foreign investment and limitations on repatriation of invested capital and a fund manager's ability to exchange local currencies for pounds Sterling; (h) a higher degree of governmental involvement and control over the economies; (i) government decisions to discontinue support for economic reform programmes and imposition of centrally planned economies; (j) differences in auditing and financial reporting standards which may result in the unavailability of material information about economics and issuers; (k) less extensive regulatory oversight of securities markets; (l) longer settlement periods for securities transactions; (m) less stringent laws regarding the fiduciary duties of officers and directors and protection of investors; and (n) certain consequences regarding the maintenance of portfolio securities and cash with sub-custodians and securities depositories in developing markets.

(iii) Other portfolio specific risks

(a) Small cap stocks

The underlying investee funds selected by the Investment Manager may have significant investments in smaller to medium sized companies of a less seasoned nature whose securities are traded in an "over-the-counter" market. These "secondary" securities often involve significantly greater risks than the securities of larger, better-known companies, due to shorter operating histories, potentially lower credit ratings and, if they are not listed companies, a potential lack of liquidity in their securities. As a result of lower liquidity and greater share price volatility of these "secondary" securities, there may be a disproportionate effect on the value of the investee funds and, indirectly, on the value of the Company's portfolio.

(b) Liquidity of portfolio

The fact that a share is traded does not guarantee its liquidity and the Company's investments may be less liquid than other listed and publicly traded securities. The Company may invest in securities that are not readily tradable or may accumulate investment positions that represent a significant multiple of the normal trading volumes of an investment, which may make it difficult for the Company to sell its investments and may lead to volatility in the market price of the Shares. Investors should not expect that the Company will necessarily be able to realise, within a period which they would otherwise regard as reasonable, its investments and any such realisations that may be achieved may be at a considerably lower price than prevailing indicative market prices.

It is not the Company's policy to engage in currency hedging. Accordingly, the movement of exchange rates between Sterling and the other currencies in which the Company's investments are denominated or its borrowings are drawn down may have a material effect, unfavourable or favourable, on the returns otherwise experienced on the investments made by the Company.

Movements in the foreign exchange rate between Sterling and the currency applicable to a particular shareholder may have an impact upon that shareholder's returns in their own currency of account.

(iv) Internal risks

Poor allocation of the Company's assets to both markets and investee funds by the Investment Manager, poor governance, compliance or administration, could potentially result in shareholders not making acceptable returns on their investment in the Company.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Directors' 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 International Financial Reporting Standards and applicable law.

The financial statements are required by law to 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:

n select suitable accounting policies and then apply them consistently;

n make judgements and estimates that are reasonable and prudent;

n state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

n 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 proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. 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.

Disclosure of information to auditor

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 auditors are unaware; and each director has taken all the steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

STATEMENT UNDER THE DISCLOSURE AND TRANSPARENCY RULES 4.1.12

The Directors confirm that to the best of their knowledge and belief;

(a) This annual report 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 the Company faces; and

(b) The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company.

John Hawkins - Director

Richard Hotchkis - Director

23 January 2012

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 October 2011

	Revenue	2011 Capital	Total	Revenue	2010* Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000

(Losses)/gains on investments designated as fair value through profit or loss	-	(37,212)	(37,212)	-	89,779	89,779
Capital gains/(losses) on currency movements	-	16	16	-	(32)	(32)
Net investment (losses)/gains	-	(37,196)	(37,196)	-	89,747	89,747
Investment income	2,380	-	2,380	2,051	-	2,051
Total revenue	2,380	(37,196)	(34,816)	2,051	89,747	91,798
Investment management fees	(3,099)	-	(3,099)	(2,698)	(2,484)	(5,182)
Other expenses	(525)	-	(525)	(528)	-	(528)
Operating (loss)/profit before finance costs and taxation	(1,244)	(37,196)	(38,440)	(1,175)	87,263	86,088
Finance costs	(190)	-	(190)	-	-	-
Operating (loss)/profit before taxation	(1,434)	(37,196)	(38,630)	(1,175)	87,263	86,088
Withholding tax expense	(177)	-	(177)	(164)	-	(164)
Total comprehensive (loss)/income for the year	(1,611)	(37,196)	(38,807)	(1,339)	87,263	85,924
Earnings per ordinary share
- Basic	(2.39p)	(55.21p)	(57.60p)	(2.03p)	132.34p	130.31p
- Diluted	(2.27p)	(52.32p)	(54.59p)	(1.93p)	125.57p	123.64p

The total column of this statement represents the Company's Statement of Comprehensive Income, prepared under IFRS. The revenue and capital columns, including the revenue and capital earnings per share data, are supplementary information prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

* For the period from 16 September 2009 (date of incorporation) to 31 October 2010.

STATEMENT OF FINANCIAL POSITION

AT 31 OCTOBER 2011


	2011 £'000	2010 £'000
Non-current assets
Investments designated as fair value through profit or loss	323,682	369,595

Current assets
Cash and cash equivalents	23,919	601
Sales for future settlement	991	1,263
Other receivables	130	113
	25,040	1,977
Total assets	348,722	371,572

Current liabilities
Other payables	459	323
Purchases for future settlement	11,768	-
Bank borrowings	10,000	-
Performance fee accrual	-	2,484
Total liabilities	22,227	2,807

Net assets	326,495	368,765

Equity
Share capital	279,378	282,841
Capital reserve	50,067	87,263
Revenue reserve	(2,950)	(1,339)

Total equity	326,495	368,765

Net assets per ordinary share -undiluted	493.84p	559.24p
Net assets per ordinary share -diluted	467.58p	517.42p

Number of ordinary shares in issue (excluding shares held in treasury)	66,113,801	65,940,247

Approved by the Board of Directors on 23 January 2012 and signed on their behalf by:

John Hawkins

Richard Hotchkis

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 October 2011


	Share capital account	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000

Opening equity	282,841	87,263	(1,339)	368,765
Issue of shares	6,840	-	-	6,840
Share buy backs	(10,285)	-	-	(10,285)
Share issue expenses	(18)	-	-	(18)
(Decrease) in equity	-	(37,196)	(1,611)	(38,807)
Balance at 31 October 2011	279,378	50,067	(2,950)	326,495

For the period from 16 September 2009 (date of incorporation) to 31 October 2010


	Share capital account	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000
Contributions by shareholders
Issue of shares	283,676	-	-	283,676
Share issue expenses	(835)	-	-	(835)
Increase/(decrease) in equity	-	87,263	(1,339)	85,924
Balance at 31 October 2010	282,841	87,263	(1,339)	368,765

STATEMENT OF CASH FLOW


	For the year ended 31 October 2011 £'000	For the period from 16 September 2009 (date of incorporation) to 31 October 2010 £'000

Cash flows from operating activities
Cash inflow from investment income and bank interest	2,375	1,968
Cash outflow from management expenses	(6,005)	(2,933)
Cash inflow from disposal of investments	121,075	63,150
Cash outflow from purchase of investments	(100,334)	(63,329)
Cash inflow/(outflow) from foreign exchange transactions	18	(32)
Cash outflow from taxation	(177)	(164)
Net cash flow from /(used) in operating activities	16,952	(1,340)

Cash flows from financing activities
Cash inflow from rollover	-	2,617
Increase in bank borrowings	10,000	-
Borrowing commitment fee and interest charges	(171)	-
Share issues expenses	(18)	(676)
Conversion of subscription shares	6,840	-
Share buy backs	(10,285)	-
Net cash flow from financing activities	6,366	1,941

Net increase in cash and cash equivalents	23,318	601

Opening balance	601	-
Cash flow	23,318	601
Balance at 31 October	23,919	601

NOTES

1. REPORTING ENTITY

Advance Developing Markets Fund Limited (the "Company") is a closed-ended investment company, incorporated in Guernsey on 16 September 2009. The Company's registered office is 11 New Street, St Peter Port, Guernsey GY1 2PF. The Company's ordinary shares hold a premium listing on the London Stock Exchange. The financial statements of the Company are presented for the year ended 31 October 2011.

The Company invests in a portfolio of funds and products which give diversified exposure to emerging market economies and those of the Pacific Rim. The Company's investment objective is to achieve consistent returns for shareholders in excess of the S&P/IFCI Emerging Markets Composite Index in Sterling terms (the "Benchmark"). With effect from 1 November 2011 the Company's existing benchmark changed to the MSCI Emerging Markets Net Total Return Index in Sterling terms (Bloomberg ticker: NDUEEGF Index). The Board believed that it was appropriate to align the Company's benchmark with that of the majority of its peers in the global emerging markets equity fund sector.

The investment activities of the Company are managed by Advance Emerging Capital Limited.

This report will be sent to shareholders and copies will be made available to the public at the registered office of the Company. It will also be available in electronic form on the Investment Manager's website, www.advance-emerging.com

2. BASIS OF PREPARATION

(a) Statement of compliance

The financial statements which give a true and fair view have been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted by International Accounting Standards Board ("IASB") and are in compliance with the Companies (Guernsey) Law, 2008. There were no changes in the accounting policies of the Company in the year to 31 October 2011.

Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for Investment Companies issued by the Association of Investment Companies ("AIC") in January 2009 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The total column of the Statement of Comprehensive Income is the profit and loss account of the Company. The capital and revenue columns provide supplementary information.

The directors have adopted the going-concern basis in preparing the accounts.

The comparative period in the financial statements is not directly comparable. The first annual report covered the period from 16 September 2009 (date of incorporation) to 31 October 2010.

(b) Basis of measurement

The financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss which are measured at fair value.

The Company's shares are issued in Sterling and the majority of its investors are UK based, therefore the financial statements are presented in Sterling, which is the Company's functional currency. All financial information presented in Sterling has been rounded to the nearest thousand pounds.

(d) Use of estimates and judgements

The preparation of the financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 3.

3. SIGNIFICANT ACCOUNTING POLICIES

There were no changes to the accounting policies during the year ended 31 October 2011.

(a) Investments

As the Company's business is investing in financial assets with a view to profiting from their total return in the form of increases in fair value, financial assets are designated as fair value through profit or loss on initial recognition. These investments are recognised on the trade date of their acquisition at which the Company becomes a party to the contractual provisions of the instruments. At this time, the best evidence of the fair value of the financial assets is the transaction price. Transaction costs that are directly attributable to the acquisition or issue of the financial assets are charged to the Statement of Comprehensive Income as a capital item. Subsequent to initial recognition, investments designated as fair value through profit or loss are measured at fair value with changes in their fair value recognised in the Statement of Comprehensive Income and determined by reference to:

i) investments quoted or dealt on recognised stock exchanges in an active market are valued by reference to their market bid prices;

ii) investments in underlying funds, which are not quoted or dealt on a recognised stock exchange or other trading facility or in an active market, are valued at the net asset values provided by such entities or their administrators. These values may be unaudited or may themselves be estimates and may not be produced in a timely manner. If such information is not provided, or is insufficiently timely, the Investment Manager uses appropriate valuation techniques to estimate the value of investments. In determining fair value of such investments, the Investment Manager takes into consideration the relevant issues, which may include the impact of suspension, redemptions, liquidation proceedings and other significant factors. Any such valuations are assessed and approved by the directors. The estimates may differ from actual realisable values;

iii) investments in open-ended funds are valued at the latest net asset value provided by the open-ended fund for single priced funds or the latest bid price for those funds with a bid-offer spread;

iv) investments which are in liquidation are valued at the estimate of their remaining realisable value.

Investments are derecognised on the trade date of their disposal, which is the point where the Company transfers substantially all the risks and rewards of the ownership of the financial asset. Gains or losses are recognised in the capital column of the Statement of Comprehensive Income. The Company uses the weighted average cost method to determine realised gains and losses on disposal of investment.

(b) Foreign currency

Transactions in foreign currencies are translated into Sterling at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into Sterling at the spot exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value through profit or loss are retranslated into Sterling at the exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into Sterling using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognised in profit or loss and, depending on the nature of the gain or loss, are allocated to the revenue or capital column of the Statement of Comprehensive Income. Foreign currency differences on retranslation of financial instruments designated as fair value through profit or loss are shown in the "Capital gains on currency movements" line.

Dividend income is recognised when the right to receive it is established and is reflected in the Statement of Comprehensive Income as Investment Income in the revenue column. For quoted equity securities this is usually on the basis of ex-dividend dates. For unquoted investments this is usually on the entitlement date confirmed by the relevant holding. Income from bonds is accounted for using the effective interest rate method.

Special dividends and distributions described as capital distributions are assessed on their individual merits and may be credited to the capital reserve if considered to be closely linked to reconstructions of the investee company or other capital transactions. Bank interest receivable is accounted for on a time apportionment basis and is based on the prevailing variable interest rates for the Company's bank accounts.

(d) Treasury shares

Where the Company purchases its own share capital, the consideration paid, which includes any directly attributable costs, is recognised as a deduction from equity shareholders' funds through the Company's reserves. When such shares are subsequently sold or re-issued to the market any consideration received, net of any directly attributable incremental transaction costs, is recognised as an increase in equity shareholders' funds through Share capital account. Shares held in treasury are excluded from calculations when determining NAV per share as detailed in note 13.

(e) Cash and cash equivalents

Cash comprises of cash at hand and demand deposits. Cash equivalents, which include bank overdrafts, are short term, highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risks of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

(f) Investment management fees and finance costs

Investment management fees and finance costs are charged to the Statement of Comprehensive Income as a revenue item and are accrued monthly in arrears. Finance costs include interest payable and direct loan costs. Performance-related fees, if any, are payable directly by reference to the capital performance of the Company and are therefore charged to the Statement of Comprehensive Income as a capital item.

(g) Financial liabilities

Financial liabilities (including bank loans) are classified according to the substance of the contractual arrangements entered into. Financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

(h) Taxation

The Company applied for exempt status under the Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 and was charged an annual exemption fee of £600.

Dividend and interest income received by the Company may be subject to withholding tax imposed in the country of origin. The tax charges shown in the Statement of Comprehensive Income relate to overseas withholding tax on dividend income.

(i) Operating segments

The Company has adopted IFRS 8, 'Operating segments'. This standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company. The Board has considered the requirements of the standard and is of the view that the Company is engaged in a single segment of business, which is investing in a portfolio of funds and products which give exposure to the emerging market economies and those of the Pacific Rim. The key measure of performance used by the Board is the Net Asset Value of the Company (which is calculated under IFRS). Therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

The Board of directors is responsible for ensuring that the Company's objective and investment strategy is followed. The day-to-day implementation of the investment strategy has been delegated to the Investment Manager but the Board retains responsibility for the overall direction of the Company. The Board reviews the investment decisions of the Investment Manager at regular Board meetings to ensure compliance with the investment strategy and to assess the achievement of the Company's objective. The Investment Manager has been given full authority to make investment decisions on behalf of the Company in accordance with the investment strategy. Details of the portfolio's asset allocation can be found on page 4. Any significant change to the Company's investment strategy requires shareholder approval.

The Company has a diversified portfolio of investments and as disclosed in the Top Twenty Investments on page 5. No single investment accounts for more than 6.0% of the Company's net assets. The Investment Manager aims to identify funds which it considers are likely to deliver consistent capital growth over the longer term, as such investment income is not a focus of the investment policy and it does not anticipate regular income from its investments. The largest income from an individual investment accounted for 18% of the total income received in the year.

At 31 October 2011 there were two shareholders who each held more than 10% of the issued share capital, from a total shareholder base of 632. Their holdings were 27% and 23% respectively.

(j) Offsetting

Financial assets and liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, the Company has a legal rights to set off the recognised amounts and it intends to either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRSs.

(k) Standards and interpretations in issue but not yet effective

At the date of authorisation of these financial statements a number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2011, and have not been applied in preparing these statements. None of these is expected to have a significant effect on the financial statements of the Company. However, IFRS 9 will change the classification of financial assets.

The standard is not expected to have an impact on the measurement basis of the financial assets since the majority of the Company's financial assets are measured at fair value through profit or loss.

IFRS 9 deals with recognition, derecognition, classification and measurement of financial assets and financial liabilities. Its requirements represent a significant change from the existing requirements in lAS 39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: at amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset's contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing lAS 39 categories of held to maturity, available for sale and loans and receivables.

For an investment in an equity instrument that is not held for trading, the standard permits an irrevocable election, on initial recognition, on an individual share-by-share basis, to present all fair value changes from the investment in other comprehensive income. No amount recognised in other comprehensive income would ever be reclassified to profit or loss. However, dividends on such investments are recognised in profit or loss, rather than other comprehensive income unless they clearly represent a partial recovery of the cost of the investment. Investments in equity instruments in respect of which an entity does not elect to present fair value changes in other comprehensive income would be measured at fair value with changes in fair value recognised in profit or loss.

The standard requires that derivatives embedded in contracts with a host that is a financial asset within the scope of the standard are not separated; instead the hybrid financial instrument is assessed in its entirety as to whether it should be measured at amortised cost or fair value.

IFRS 9 requires that the effects of changes in credit risk of liabilities designated as at fair value through profit or loss are presented in other comprehensive income unless such treatment would create or enlarge an accounting mismatch in profit or loss, in which case all gains or losses on that liability are presented in profit or loss. Other requirements of IFRS 9 relating to classification and measurement of financial liabilities are unchanged from lAS 39.

The requirements of IFRS 9 relating to derecognition are unchanged from lAS 39.

The standard is effective for annual periods beginning on or after 1 January 2015. Earlier application is permitted. The Company does not plan to adopt this standard early.

4.	INVESTMENT INCOME
	Income from investments:	2011 £'000	2010 £'000
	Dividends income	2,141	1,814
	Bond interest income	239	237
		2,380	2,051

5.	INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES		2011			2010
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000

	Investment management fee	3,228	-	3,228	2,698	-	2,698
	-management fee rebate	(129)	-	(129)	-	-	-
	Performance fee	-	-	-	-	2,484	2,484
		3,099	-	3,099	2,698	2,484	5,182
	Administration fees	138	-	138	128	-	128
	Custodian's fees	39		39	40	-	40
	Registrar's fees	17	-	17	10	-	10
	Directors' fees	111	-	111	108	-	108
	Auditors' fees	40	-	40	39	-	39
	Marketing fees	46	-	46	48	-	48
	Broker fees	32	-	32	32	-	32
	Other expenses	102	-	102	123	-	123
	Total other expenses	525	-	525	528	-	528
	Total expenses	3,624	-	3,624	3,226	2,484	5,710

6. EARNINGS PER SHARE

Earnings per share is based on the total comprehensive income loss for the year ended of £38,807,000 (2010: gain £85,924,000) attributable to the weighted average of 67,368,511 (2010: 65,940,247) ordinary shares in issue in the year ended 31 October 2011.

Earnings per share may be diluted by the impact of the subscription shares in issue during the course of the year. The diluted earnings per share for the year ended 31 October 2011 is based on the total comprehensive income for the year, as above, attributable to the diluted weighted average of 71,094,101 (2010: 69,492,635) ordinary shares over the year. The average bid price per ordinary share during the year was 468.60p (2010: 410.81p). The subscription price per ordinary share was 291p. For the purposes of the diluted earnings per share figure, 3,725,590 (2010: 3,552,388) ordinary shares were assumed to be issued for no consideration on 1 November 2010; this being the difference between the number of ordinary shares assumed to be issued on subscription and the number of ordinary shares assumed to be bought back at the average bid price of 468.60p from the assumed subscription proceeds.

Supplementary information is provided as follows: revenue per share is based on the net revenue loss of £1,611,000 (2010: £1,339,000) and capital earnings per share is based on the net capital loss of £37,196,000 (2010: gain £87,263,000) attributable to the above ordinary shares.

7. NET ASSET VALUE PER ORDINARY SHARE

Undiluted net assets per ordinary share is based on net assets of £326,495,022 (2010: £368,765,901) divided by 66,113,801 (2010: 65,940,247) ordinary shares (excluding shares held in treasury) in issue at the Statement of Financial Position date.

Dilution in the net asset value ("NAV") per ordinary share at the end of the year was due to the NAV being higher than the conversion price of the subscription shares into ordinary shares, being 291p per share. Diluted net assets per ordinary share is based on net assets of £355,100,767 (2010: £404,211,000) divided by 75,943,954 (2010: 78,121,004) diluted ordinary shares at the Statement of Financial Position date.

8. RELATED PARTY DISCLOSURES

Investment Manager (the "Manager")

Advance Emerging Capital Limited ("AECL" or the "Investment Manager") has been appointed as the Company's investment manager. Details of its fee and agreement are provided in note 5.

Fees payable to the Investment Manager are shown in the Statement of Comprehensive Income. No performance fee accrual has been included (2010: £2,483,844).

Advance Brazil Leblon Equities Fund

As at 31 October 2011 the Company held an investment with a valuation of £12,030,302 (2010: £12,831,000) in Advance Brazil Leblon Equities Fund ("ABLE"), a fund established by Advance Emerging Capital Limited to invest in domestic growth opportunities within Brazil. Leblon Equities Gestao de Recursos, a locally based investment manager with a highly experienced team, has been appointed as sub investment manager to run the portfolio on a day-to-day basis. The launch of this fund was a means to circumvent the lack of closed end product or appropriately structured open ended vehicles in this highly attractive market. The Company's shareholders benefit from significantly reduced management and performance fees on the investment and no double fees are charged by AECL. A rebate on management fee charged by ABLE of $209,527 (£129,390) was paid to the Company in the year ended 31 October 2011.

Details of the directors' contracts and fees are provided in the Directors' Remuneration Report on page 14. Total fees from the directors' in the year ended 31 October 2011 were £110,250 (2010: £107,680). Of this amount £105,500 (2010: £93,930) had been charged at the year end, with an accrual of £4,750 (2010: £13,750) outstanding.

9. POST BALANCE SHEET EVENTS

Subscription Share rights exercised - October 2011

9,087,474 subscription shareholders exercised their right to subscribe for a total of 9,087,474 ordinary shares. A total of 742,679 subscription shares were not exercised. In accordance with the terms and conditions of the subscription shares, the Company appointed a trustee who in the interests of these subscription shareholders exercised their rights and sold 742,679 ordinary shares in the market for the benefit of such holders at a price of 400p per ordinary share. The 9,830,153 new ordinary shares issued and allotted were listed on the London Stock Exchange on 8 November 2011. Following the listing the issued share capital consisted of 78,121,004 ordinary shares, of which 2,177,050 were held in treasury.

Change of benchmark

With effect from 1 November 2011 the Company's existing benchmark, the S&P/IFCI Emerging Markets Composite Index in Sterling terms changed to the MSCI Emerging Markets Net Total Return Index in Sterling terms (Bloomberg ticker: NDUEEGF Index). The Board believed that it was appropriate to align the Company's benchmark with that of the majority of its peers in the global emerging markets equity fund sector.

10. FINANCIAL INFORMATION

The annual report was approved by the Board of directors on 23 January 2012. The information in this announcement has been extracted from the annual report on which the Company's auditors have given an unqualified report. The annual report will be posted to shareholders and will be made available on the Investment Manager's website at www.advance-emerging.com It will also be available from the registered office of Company and the UK administration agent.

This announcement contains regulated information under the Disclosure Rules and Transparency Rules of the FSA.

DIRECTORS, INVESTMENT MANAGER AND ADVISERS

DIRECTORS	INVESTMENT MANAGER
Mr PE O'Connor (Chairman)	Advance Emerging Capital Limited
Mr AR Bonsor	1^st Floor, Colette House
Mr JA Hawkins	52/55 Piccadilly
Mr RDN Hotchkis	London W1J 0DX
Mr TF Mahony	Telephone: 020 7016 0030
	www.advance-emerging.com

COMPANY SECRETARY AND	UK ADMINISTRATION AGENT
ADMINISTRATOR	Cavendish Administration Limited
Legis Fund Services Limited	145-157 St John Street
11 New Street	London EC1V 4RU
St Peter Port
Guernsey GY1 2PF

STOCKBROKER	SOLICITORS AS TO ENGLISH LAW
Westhouse Securities Limited	Lawrence Graham LLP
One Angel Court	4 More London Riverside
London EC2R 7HJ	London SE1 2AU

AUDITOR	ADVISERS AS TO GUERNSEY LAW
KPMG Channel Islands Limited	Mourant Ozannes
PO Box 20	1 Le Marchant Street
20 New Street	St Peter Port
St Peter Port	Guernsey GY1 4HP
Guernsey GY1 4AN

REGISTRARS	CUSTODIAN
Capita Registrars (Guernsey) Limited	The Northern Trust Company
Mont Crevelt House	50 Bank Street
Bulwer Avenue	Canary Wharf
St Sampson	London E14 5NT
Guernsey GY2 4LH

REGISTERED OFFICE*
11 New Street
St Peter Port
Guernsey GY1 2PF

* Incorporated in Guernsey with registered number 50900