THE EASTERN EUROPEAN TRUST PLC - Portfolio Update

        






THE EASTERN EUROPEAN TRUST PLC - Portfolio Update

THE EASTERN EUROPEAN TRUST PLC

All information is at 31 OCTOBER 2012 and unaudited.

Performance at month end with net income reinvested

                                   One   Three   One   Three    *Since
                                 Month  Months  Year   Years  30.04.09

Sterling:

Share price**                    -1.2%    5.6%  4.2%   19.7%     74.6%

Net asset value (undiluted)** -0.1% 4.0% 6.0% 20.3% 72.7% MSCI EM Europe 10/40(TR) 0.3% 4.6% 4.8% 17.4% 64.7%

US Dollars:

Net asset value (undiluted)** -0.4% 7.0% 5.8% 17.5% 87.8% MSCI EM Europe 10/40(TR) 0.1% 7.5% 4.6% 14.8% 79.1%

Sources: BlackRock and Standard & Poor's Micropal

* BlackRock took over the investment management of the Company with effect from 1 May 2009. ** Net asset value and share price performance includes the subscription share reinvestment, assuming the subscription share entitlement was sold and the proceeds reinvested on the first day of trading.

At month end

Net asset value - capital only:             277.56p
Net asset value*** - cum income:            282.90p
Net asset value - cum income (diluted for
subscription shares):                       281.25p
Share price:                                253.50p
Subscription share price:                     6.00p
Total assets^:                              £124.9m
Discount (share price to cum income NAV):     10.4%
Gross market exposure^^^:                    109.7%
Net yield:                                      n/a
Ordinary shares in issue^^:              42,638,291
2012 Subscription shares:                 8,537,982

***Includes year to date net revenue equal to 5.34p per share.

^Total assets include current year revenue.
^^Excluding 6,000,000 shares held in treasury.
^^^ Long positions plus short positions as a percentage of net asset value.

Benchmark
Sector Analysis              NetAssets(%)*      Country Analysis     NetAssets(%)*

Energy                               37.3                 Russia              62.4
Financials                           30.5                 Turkey              17.2
Telecommunications                    9.1                Hungary               9.7
Materials                             8.4                 Poland               6.2
Consumer Staples                      5.8         Czech Republic               5.4
Health Care                           4.6             Kazakhstan               2.4
Industrials                           3.3           Turkmenistan               1.5
Other                                 3.0                Ukraine               1.3
Information Technology                2.9                Austria               1.2
Utilities                             1.8
Consumer Discretionary                0.6
                               ----------                                 --------
Total                               107.3                  Total             107.3 
                               ----------                                 --------
Short Positions                      -2.4        Short Positions              -2.4
                               ==========                                 ========

*reflects gross market exposure from contracts for difference (CFDs)

Ten Largest Equity Investments(in % order of Total Market value)

                                                          Total Market
Company                        Country of Risk                 Value %

Sberbank                                Russia                     9.2
Gazprom                                 Russia                     9.0
Turkiye Garanti Bankasi                 Turkey                     5.6
Lukoil                                  Russia                     5.3
OTP                                    Hungary                     4.4
Surgutneftegaz                          Russia                     3.3
Komercni                        Czech Republic                     3.0
Mail Ru                                 Russia                     2.7
Gedeon Richter                         Hungary                     2.6
Turkcell Iletism Hizmet                 Turkey                     2.6

Commenting on the markets, Sam Vecht, representing the investment Manager noted;

Markets

In October global markets were relatively muted as investors attempted to reconcile the support provided by the Federal Reserve's QE3 programme and the European Central Bank's open market transactions with a disappointing earnings season. The US Presidential election campaign entered its final phase which also contributed to a lack of direction in markets.

Turkey was the strongest performer over the month as better than expected current account deficit figures and the increasing probability of a sovereign debt upgrade helped improved sentiment. A strong set of results from the Turkish banking sector also buoyed the market in October.

Russian equities lost ground over the month despite Rosneft's announcement regarding the acquisition of TNK-BP, which sent the stock soaring nearly 20%. However, low volumes, reflecting international investors' reluctance to act ahead of the US Presidential elections, weighed on the market.

The weakest market in October was Poland. In an environment of slowing economic growth, the poor results of telecom TPSA contributed to the weak performance of the Polish market.

Performance & Activity

Over the month of October, The Eastern European Trust returned -0.4%, underperforming the MSCI Emerging Europe 10/40 index by 0.5% (in US Dollar terms).

Hungarian financial, OTP, was the strongest individual contributor to performance over the month. Sentiment surrounding the stock has been improved by the abatement of systemic risk in the European financial system.

Also contributing to performance was the underweight position in Polish telecom, TPSA. The company announced poor results and a slashing of the dividend which precipitated a 25% fall in the share price.

The largest detractor from performance was Turkish financial, Akbank, a stock which we do not hold, which performed well in line with the rest of the sector.

The team initiated a position in Russian health care provider, MD Medical Group, which operates private obstetrics facilities.

The Trust also opened a new position in TKN-BP Holding after a deal was struck between Rosneft, AAR and BP, based on which Rosneft would acquire 50% in TNK-BP International for $28 billion in cash and the remaining 50% from BP for $17.1 billion.

The Trust reduced the holding in Russian telecom, MTS, in expectation that the increased supply of issuance prompted by the forthcoming IPO of Megafon, the second largest mobile operator in Russia, would weigh on the sector.

Outlook

Russian and Eastern European markets have significant long-term structural advantages. They benefit from flexible and dynamic economies with undervalued currencies and educated and skilled workforces, allowing the countries of the region to remain competitive in a globalized market. That said, the region has not been immune from sentiment stemming from the problems which have beset the Eurozone. Recent action from the ECB has reduced systemic financial risk and that has been positive for all risk assets.

In Russia, the announcement that state-owned companies will return target 25% of profits to shareholders through dividends is positive. Private companies have also followed suit, bringing dividend yields in Russia up to global emerging market averages of c.4% for the first time. In addition, recently announced buybacks from companies across Russia & CIS have totalled $10bn, demonstrating that companies see value in their own capital.

Elsewhere, macroeconomic conditions in Turkey have improved and Hungary inches ever closer to a deal with the IMF for a stand-by agreement which will underpin the country's fiscal position. However, the key driver of markets over recent months is the fact that Emerging European stocks were exceptionally cheap, universally disliked and widely misunderstood. As such, minor changes in sentiment were able to have a meaningful impact on prices.

Although we still see upside for the region, we remain mindful of the risks which could potentially emanate from three places; US, Europe or China.

The fortunes of global markets are still tied to varying degrees to the fate of the US recovery which, although bumpy, is underway as reflected in a housing market which is slowly returning to health. A fragile recovery, by definition, could be blown off course and that is a risk for all markets, not just those of Emerging Europe.

A slowdown in China will affect the demand for commodities, the prices of which impact sentiment surrounding Russia, although this will be positive for Turkey and central Europe, commodity importers.

While recent measures to stabilise the Eurozone have been positive, any deterioration in the crisis will have implications for emerging Europe despite their clear contrast to the economies of peripheral Europe. It is important to remember that the economies of emerging European markets typically have lower government budget deficits and lower debt burdens.

Despite the attendant risks, valuations are still attractive and much of these risks remain reflected (and more) in the price. The long-term outlook for Emerging Europe is bright.

16 November 2012

ENDS

Latest information is available by typing www.estplc.co.uk on the internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3 (ICV terminal). Neither the contents of the Manager's website nor the contents of any website accessible from hyperlinks on the Manager's website (or any other website) is incorporated into, or forms part of, this announcement.

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