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BKF: Fund manager report 12/98

31.03.1999, , TLN
BALTI KASVUFOND
ANNOUNCEMENT
31.03.99

1998 FUND MANAGER REPORT

The year 1998 brought along crises in the economies of the Baltic
countries, therefore also on the securities markets. Although the sharp
fall of securities markets, following the financial crisis in
Southeast-Asia, started already in 1997, then 1998 was the first year
when the securities markets fell in annual summary. Most of the share
indices fell even below their values in the beginning of the year.
TALSE in Estonia –66.1%, LITIN-A in Lithuania –41.9%, RICI in Latvia -
74.9%, and composite index of the Baltic countries BAL30 –61.5%.

The main reason behind such decline were the impacts of the Russian
financial crisis to the Baltic companies. Several companies selling
their production to Russia had direct losses in the form of unpaid
debts. However, loss of market due to devaluation of ruble brought
along even more significant consequences. Most of the companies spent
the second half of the year to count their losses and work out new
strategic plans. The economic crisis also helped to indicate the
shortcomings in the management of several companies and economic short-
sightedness of managers.

The economic crisis was also reflected in the companies’ liquidity
problems, which resulted in rapid increase of interest rates during the
second half year. Although the increase of interest rates included
increase of the issuers’ credit risk, and several companies defaulted
on redeeming their bonds on time, the interest rate raise offered also
interesting investment opportunities.

The financial crisis had a direct influence also on the Estonian fund
market. The liquidity crisis and price fall caused a significant
decrease in the fund volumes, which in turn caused the net asset value
of several investment funds to fall below the legally required level of
5 million EEK, thus these funds were liquidated.

As of the end of 1998, the net asset value of Balti Kasvufond was
15 275 868 EEK; unit net value amounted to 112.15 EEK. Thus, the fund’s
NAV decreased annually 7 times, from the level of 107 775 172 EEK at
the end of 1997. In great extent, decline of the fund NAV occurred due
to decrease in the number of units by 3.35 times. The annual net value
of the fund unit was –52.5%, i.e. the NAV decreased annually by
approximately half (236.14 EEK at the end of 1997).

Compared with the above figures describing the general investment
climate, the annual yield of –52.5% can be considered satisfactory,
since the result exceeded most of the region’s share indices (the only
exception was LITIN-A). The yield figure of Balti Kasvufond was also
positively influenced by allocation of the investment portfolio between
shares and bonds.


Mihkel Õim
Manager of the fund

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