IMPORTANT LEGAL INFORMATION

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This material has been drawn up by AS Avaron Asset Management (hereafter: Avaron), a fund management company registered in Estonia which is authorised and supervised by the Estonian Financial Supervision Authority. The contact details of Avaron are as follows: address Narva mnt. 5-58, Tallinn 10117, Estonia; phone +372 6644200; fax +372 6644201. This material is the copyright property of Avaron, unless noted otherwise, and all rights are reserved.

This material contains data and facts on investments and funds managed by Avaron, which are provided for information purposes only. No investment advice is offered or given by Avaron to persons using this material. This material is complimentary to and not a substitute for independent professional advice from a person qualified to provide it in your home country. Reliance on this material for the purpose of buying the securities to which this material relates may expose a person to a significant risk of losing all of the property or other assets invested. The information herein is, to the best of the knowledge of Avaron, in accordance with the facts. However, Avaron, none of its affiliates, directors or officers accept any liability in respect of the accuracy or completeness of any information herein, or omitted to be included herein, or any information provided, or omitted to be provided, by any third party. All information and expressions of opinion contained in this material are subject to change without notice.

This material does not constitute or form part of a distribution or an offer or solicitation to buy or sell any securities (in particular, shares or units in any of Avaron funds) to any person in any jurisdiction in which such distribution, offer or solicitation would be contrary to local law or regulation.

In particular, the information herein is not for distribution, and does not constitute an offer to sell or buy, or the solicitation of any offer to sell or buy, any securities in the United States of America or to or for the benefit of United States persons (within the meaning of Regulation S under the Securities Act of 1933).

In relation to persons in the United Kingdom, the information herein is directed only at Investment Professionals in the meaning of Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. This material should not be relied on by persons in the United Kingdom who are not Investment Professionals. Any investment or investment activity to which this material relates is available in the United Kingdom only to Investment Professionals and will be engaged in only with Investment Professionals.

In relation to persons in Switzerland, this material is directed only at Swiss Qualified Investors in the meaning of Article 10 (3) of the Collective Investment Schemes Act. Swiss private individuals are not allowed to use this material. The funds managed by Avaron are not authorised for distribution in Switzerland.

Subscription of Avaron funds should be made on the basis on the funds' prospectus and simplified prospectus, the relevant fund rules and the latest available annual or semi-annual reports. These documents can be obtained from Avaron. Past performance is not indicative of future results. The value of investments and any income derived from the funds may fall as well as rise and investors may not get back the amount invested. An investment in the funds entails risks, some of which are described in the prospectuses of the funds. Investors should be aware of the high risks associated with investments in emerging markets such as Central and Eastern Europe.

This material may include forward looking statements which are based on Avaron's current opinions, expectations and projections. We undertake no obligation to update or revise any forward looking statements. Actual results could differ materially from those anticipated in the forward looking statements.

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Phone: +372 6644 205
Fax: +372 6644 201
E-mail: info@avaron.com

Address:
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Narva Road 5/58
6th floor
Tallinn 10117, Estonia

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Monthly overview

Full overview of Avaron funds - August 2010 (PDF file)

The weakness in global equities in August was reflected with 0.9% decline in Emerging Europe. Majority of the Emerging Europe markets posted negative monthly performance while Balkans and Baltics were a bit more resilient. However, year-to-date Emerging Europe with positive performance has strongly outperformed developed Europe. Avaron Emerging Europe Small Cap Fund delivered 0.8% positive performance in August. Year-to-date the fund is up 6.8%.

Investors' focus during August was largely on the earnings season that in Emerging Europe proved relatively strong. The regional macro developments brought no surprises: household consumption remains weak, while positive dynamics in exports and industrial production have continued.

During August our overall equity exposure and investment level slightly increased. Regionally there was a slight shift from Austria and Romania into Turkey and Poland. These changes have been largely bottom-up driven, however, on macro basis Poland and Turkey are currently the best performing countries in Emerging Europe, and the only ones where domestic demand has been supporting growth alongside with exports.

Valuations in Emerging Europe are appealing, both on absolute and relative basis. Overall companies in Avaron Emerging Europe Small Cap Fund trade at 1.0x book value, 3.9x 2011E EV/EBITDA and offer on average 4.3% dividend yield. Our portfolios today are mostly invested in well-capitalised non-cyclical companies, like telecoms, energy and pharmaceuticals, and high-yielding regional bonds. Higher risk is planted into the portfolio through cyclical companies that are mostly domestic demand driven and asset-driven companies that own agricultural land or are holding companies. Emerging Europe trades overall at 34% discount to global emerging markets on P/B basis.