Argo Group Regulatory News (ARGO)

Argo Group Limited

("Argo" or the "Company")

Annual Report and Accounts for the Year ended 31 December 2010

Argo today announces its final results for the year ended 31 December 2010.

The Company will today make available its report and accounts for the year ended 31 December 2010 on the Company's website www.argogrouplimited.com.

Key highlights for the twelve months ended 31 December 2010

- Steady performance across most of the Argo funds

- Revenues US$10.9 million (2009: US$11.7 million)

- Operating profit US$1.2 million (2009: US$0.9 million)

- Profit before tax US$2.5 million (2009: US$2.4 million)

- Maintained balance sheet strength - net assets US$44.5 million (2009: US$44.5 million) after dividend payment and share buybacks totalling US$1.7 million (2009: Nil)

- Final dividend paid - 1.0p per share (2009: Nil) in respect of year ended 31 December 2009

- Final dividend declared on 11 March 2011 - 1.2p per share (2009:1.0p) in respect of year ended 31 December 2010

Commenting on the results and outlook, Kyriakos Rialas, Chief Executive of Argo said:

"Argo has made very good progress in a particularly challenging and difficult environment. During the year we paid a dividend and carried out the successful buyback of shares whilst still maintaining our strong balance sheet and liquidity. Our profitability remains consistent and we have continued confidence about the future of the business and the outlook for new asset gathering."

Enquiries

Argo Group Limited

Andreas Rialas

020 7535 4000

Panmure Gordon

Dominic Morley

020 7459 3600

CHAIRMAN'S STATEMENT

Business and operational review

Argo is pleased to report another profitable set of results for the year ended 31 December 2010.

Argo's primary business is to deliver a diversified approach to investing in emerging markets. Its investment objective is to provide investors with absolute returns in the six funds that it manages by investing in, inter alia, fixed income, special situations, local currencies and interest rate strategies, private equity, real estate, quoted equities, high yield corporate debt and distressed debt, although not every fund invests in each of these asset classes. Argo has a performance track record dating back to 2000 and this year celebrates its tenth anniversary.

Emerging markets continued to see large investment inflows last year, with a high proportion destined for long-only mutual funds. We believe that higher volatility - as witnessed in recent weeks - may weaken the attractiveness of such funds and that emerging market inflows should in time benefit the more actively managed hedge fund strategies. Our marketing team identified a number of potential leads during the period under review, and it is hoped that the funds will be able to raise more new money during the course of 2011.

For the year ended 31 December 2010 the Group generated revenues of US$10.9 million (2009: US$11.7 million) with management fees accounting for US$10.0 million (2009: US$10.9 million); the largest funds have yet to regain their high-water mark. Cost reductions mitigated the impact of slightly lower revenues with total costs falling to US$9.7 million (2009: US$10.8 million) as a direct result of the cost saving initiatives the Group implemented earlier. Overall, operating profit for the year was US$1.2 million (2009: US$0.9 million) and earnings per share were US$0.03 (2009: US$0.04).

Argo has maintained its strong balance sheet with over US$27.5 million (2009: US$26.6 million) in net current assets. The Group has held its net asset position of US$44.5 million (2009: US$44.5 million) despite paying a dividend of US$1.1 million (2009: Nil) and buying back shares at a total cost of US$605,000 (2009: Nil).The Company's investment in The Argo Fund ("TAF") continues to generate a return on assets well in excess of the prevailing rates available from bank deposits.

The Group employed 26 people (2009: 26) at the end of the year. In order to retain and properly incentivise its qualified personnel, the Company paid its employees variable compensation in the form of a cash bonus and intends to continue such practice in the aggregate amount of 30%-50% of profit before tax. It is also planned to issue stock options to further incentivise personnel and to align their interests with those of the shareholders of the Company.

Fund performance

Performance across the range of Argo funds was mixed for the year ended 31 December 2010, but the three main funds TAF, Argo Global Special Situations Fund SP ("AGSSF"), a segregated portfolio of the Argo Capital Investors Fund SPC, and Argo Distressed Credit Fund ("ADCF") all showed positive annual returns in the 8-10% range.

The generally optimistic tone experienced in the first quarter of the year gave way to concern over the fiscal imbalances and credit metrics of peripheral European economies, most notably Greece and Ireland. Amidst mounting speculation concerning sovereign defaults, restructurings and the status of the Euro as a reserve currency, markets became very volatile and difficult to trade. Our hedge funds navigated the volatility by maintaining some short positions and then benefited from a better tone in the latter part of 2010.

The Argo Funds

* NAV only officially measured twice a year, March and September.

TAF and AGSSF recorded a pleasing annual return of 8.55% and 8.21% respectively and ADCF continued to build a solid track record of returns achieving 10.32% in the year to 31 December 2010 after the 11.06% recorded in 2009.

AGSSF Holdings Limited ("AHL") comprises assets that are currently more difficult to liquidate. In the year ended 31 December 2010 it delivered a return of -1.50%, an improvement on the -5.49% in the six months to 30 June 2010 but down from 7.72% in the year to 31 December 2009. This performance was in part driven by exchange rate fluctuations and despite difficult market conditions we believe that we are nearer to creating liquidity events for investors in the Fund.

The Argo Real Estate Opportunities Fund Limited ("AREOF") continues to operate in a particularly challenging and difficult environment in which regional and global property markets have remained weak. However, 2010 has seen a general stabilisation in the economic downturn, albeit at a low level, as the numbers of retailer bankruptcies and requests for rental concessions have materially decreased since the same period in 2009. Whilst AREOF has reported a further write down of investment property values in the financial year to 30 September 2010 it has successfully renegotiated and agreed terms with its bankers and continues to maintain tenant occupancy at around 97%-98%. Phase 3 of the 83,000 sqm Riviera Shopping City, Odessa, Ukraine was completed in summer 2010. The Fund's adjusted Net Asset Value was US$35.9 million (€27.1 million) as at 30 September 2010, compared with US$37.8 million (€26.4 million) a year earlier.

Argo Capital Partners Fund ("ACPF"), a private equity fund closed to new subscriptions, is now invested in four projects. ACPF reported a negative return of 3.97% for the year (2009: -2.83%). This Fund has suffered mainly from the lack of liquidity and demand for private equity assets in emerging markets. Whilst the intention was to sell some portfolio investments in 2010 it is disappointing that difficult operating conditions hindered this process. However, in February 2010 we did exit with profit (two times money to the fund) from one of the smaller investments, a generic pharmaceutical company in Peru, through a sale to Teva Pharmaceutical and it is hoped that further disposals will occur in the current year.

Assets under management ("AUM")

During the year AUM decreased from US$439.5 million to US$403.2 million. Despite positive fund performance the Group experienced an 8.3% (US$36.3 million) decline in AUM largely due to continuing, albeit declining, net redemptions throughout the year and Euro/Dollar foreign exchange volatility. Since the year end redemptions have arisen solely in AGSSF, this being the only fund that has retained its original gate conditions.

Dividends and share purchase programme

Underlining the Board's confidence in the future prospects of the Group, the directors recommend a final dividend of 1.2p per share (2009: 1.0p). The final dividend will be paid on 22 June 2011 to shareholders who are on the Register of Members on 27 May 2011. The final dividend for the year ended 31 December 2009 of US$1,125,888 was paid on 23 June 2010 to ordinary shareholders who were on the Register of Members on 28 May 2010. Going forward, the Company intends, subject to its financial performance, to pay a final dividend each year.

During the year the directors authorised the repurchase of 3,268,126 shares at a total cost of US$605,000. The directors intend to continue with their share purchase programme on a rolling basis up to a maximum total value of US$2 million over a period of 12 months commencing from 1 April each year.

The directors firmly believe that a return of excess cash to shareholders through dividends and buy-backs will send a positive message to investors in the Company.

Outlook

The Board is satisfied with the Group's current cost base and its alignment with the lower AUM. Costs are appropriate and are reviewed periodically so as to optimise the efficient deployment of Company resources.

More emphasis is being placed on direct communication with existing and new fund investors with the purchase of two databases to assist in growing the funds with additional subscriptions.

Management has recently observed greater mobility and a new air of optimism in the market conditions that will affect positively the workout of some of the less liquid and private equity transactions in the funds. A significant number of man hours is being spent on such transactions and there is continuous communication with investors about the funds' performance.

The Group's priorities continue to be the achievement of consistent investment performance and increasing AUM both of which the Group has the capacity to achieve without a corresponding increase in costs. Emerging markets remain attractive and despite the continuing challenges posed by the global markets for asset gathering the Board is confident about the future of the business and believes that special situations strategies will outperform in the coming year.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

YEAR ENDED 31 DECEMBER 2010

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2010

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

YEAR ENDED 31 DECEMBER 2010

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED 31 DECEMBER 2010

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2010

1. CORPORATE INFORMATION

The Company was incorporated on 14 February 2008 in the Isle of Man under the Companies Act 2006 and started to trade on 13 June 2008. Its registered office is at 33-37 Athol Street, Douglas, Isle of Man, IM1 1LB and the principal place of business is at 10 Vasilissis Frederikis Street, 1066 Nicosia, Cyprus. The principal activity of the Company is that of a holding company and the principal activity of the wider Group is that of an investment management business. The functional and presentational currency of the Group undertakings is US dollars. The Group has 26 (2009: 26) employees.

Wholly owned subsidiaries Country of incorporation

2. ACCOUNTING POLICIES

(a) Accounting convention

These consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments, and in accordance with International Financial Reporting Standards.

These accounts have been prepared on the basis that the Company is a going concern.

(b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. Subsidiaries are consolidated from the date upon which control is transferred to the Company and cease to be consolidated from the date upon which control is transferred from the Company.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Company. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

(c) Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination.

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date.

Goodwill

Goodwill arising on the consolidation represents the excess of the cost of the acquisition over the Company's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Any excess of the Company's interest in the fair value of the identifiable assets and liabilities over the cost of the acquisition (negative goodwill) is immediately recognised in the Consolidated Statement of Comprehensive Income. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed at least annually for impairment. Any impairment is recognised immediately in the Consolidated Statement of Comprehensive Income.

Intangible assets

The Group's principal intangible asset is a fund management contract recorded at directors' valuation at the date of acquisition. The directors' valuation is based on the underlying share price of the vendor and its assets under management at the time of acquisition. This intangible asset has a finite life and is amortised on a straight line basis over the period of the contract. Impairment tests are undertaken annually to determine any diminution in the recoverable amount below carrying value. The Group does not capitalise internally generated goodwill or intangible assets.

Impairment of intangible assets

At each balance sheet date the Group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

(d) Foreign currency translation

The consolidated financial statements are expressed in US dollars. Transactions denominated in currencies other than US dollars have been translated at the rate of exchange prevailing at the date of the transaction. Assets and liabilities in other currencies are translated to US dollars at the rates of exchange prevailing at the balance sheet date. The resulting profits or losses are reflected in the Consolidated Statement of Comprehensive Income.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any, are classified as equity and transferred to the Group's foreign currency translation reserve. Such translation differences are recognised in the Consolidated Statement of Comprehensive Income as income or as expenses in the year of the operation's disposal.

(e) Revenue

Revenue is recognised to the extent that it is probable that economic benefit will flow to the Group and the revenue can be reliably measured.

Management and incentive fees receivable

The Group recognises revenue for providing management services to mutual funds. Revenue accrues on a monthly basis on completion of management services and is based on the assets under management of each mutual fund.

Incentive fees generally arise monthly or annually, however for the Argo funds incentive fees may arise monthly, annually or on realisation of an investment. In addition, for the Argo Real Estate Opportunities Fund Ltd (managed by Argo Capital Management Property Ltd) incentive fees may be triggered at any time on realisation of a property asset.

Management and incentive fees receivable (continued)

The management and incentive fees receivable from the Argo Real Estate Opportunities Fund Ltd are defined in the management contract between that company and Argo Capital Management Property Ltd. The management contract has a fixed term expiring on 26 July 2013.

(f) Management and incentive fees payable

The Group pays management and incentive fees based on a proportion of fees receivable from mutual funds. Fees payable are accrued on a monthly basis consistent with revenue streams earned.

(g) Depreciation

Plant and equipment is initially recorded at cost and depreciated on a straight-line basis over the expected useful lives of the assets as follows:

Leasehold 33 1/3% per annum

Fixtures and fittings 10% to 33 1/3% per annum

Office equipment 10% to 33 1/3% per annum

Computer equipment and software 20% to 33 1/3% per annum

(h) Investments held at fair value through profit or loss

All investments are classified as held at fair value through profit or loss. Investments are initially recognised at fair value. Transaction costs are expensed as incurred.

After initial recognition, investments are measured at fair value, with unrealised gains and losses on investments and impairment of investments recognised in the Consolidated Statement of Comprehensive Income. Investments held at fair value in managed mutual funds are valued at fair value of the net assets as provided by the administrators of those funds. Investments in the management shares of The Argo Fund Ltd, Argo Capital Investors Fund SPC, Argo Capital Partners Fund Ltd, Argo Distressed Credit Fund Limited and AGSSF Holdings Limited are stated at fair value, being the recoverable amount.

(i) Trade date accounting

All 'regular way' purchases and sales of financial assets are recognised on the 'trade date', i.e. the date that the entity commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of the asset within the time frame generally established by regulation or convention in the market place.

(j) Financial instruments

Financial assets and liabilities are recognised on the Consolidated Statement of Financial Position when the Company becomes party to the contractual provisions of the instrument.

Non-derivative financial instruments include trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables. The initial and subsequent measurement of non-derivative financial instruments is dealt with below.

Trade and other receivables

Trade and other receivables do not carry any interest and are stated at their original invoice amount as reduced by appropriate allowances for estimated irrecoverable amounts. An estimate for doubtful debts is made when collection is no longer probable. Bad debts are written off when identified.

Cash and cash equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments which are readily convertible to known amounts of cash, subject to insignificant risk of changes in value, and have a maturity of less than six months from the date of acquisition.

For the purposes of the cash flow statement, cash and cash equivalents consist of cash in hand and bank deposits.

Trade payables

Trade payables are not interest bearing and are stated at their nominal value.

(k) Loans and borrowings

All loans and borrowings payable are initially recognised at cost, calculated as the fair value of the consideration received less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by using the effective interest method, taking into account any issue costs, and discounts and premiums on settlement.

All loans and borrowings receivable are initially recognised at cost and subsequently measured at amortised cost.

 (l) Current taxation

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those enacted or substantially enacted by the balance sheet date.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other periods or because it excludes items that are never taxable or deductible.

(m) Deferred taxation

Deferred income tax is provided for using the liability method on temporary timing differences at the balance sheet date between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised in full for all temporary differences. Deferred tax assets are recognised for all deductible temporary differences, carried forward unused tax credits and unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carry-forward of unused tax credits and unused losses can be utilised.

The carrying amount of deferred income tax assets is revalued at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that is probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date.

 (n) Accounting estimates, assumptions and judgements

The preparation of the consolidated financial statements necessitates the use of estimates, assumptions and judgements. These estimates, assumptions and judgements affect the reported amounts of assets, liabilities and contingent liabilities at the balance sheet date as well as affecting the reported income and expenses for the year. Although the estimates are based on management's knowledge and best judgment of information and financial data, the actual outcome may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that and prior periods, or in the period of the revision and future periods if the revision affects both current and future periods.

In the process of applying the Group's accounting policies, which are described above, management has made the following judgements that have the most significant effect on the amounts recognised in the consolidated financial statements:

- Management and incentive fees

- Intangibles (see note 9)

It has been assumed that, when available, the audited financial statements of the funds under the Group's management will confirm the net asset values used in the calculation of management and performance fees receivable.

(o) Operating leases

Costs in respect of operating leases are charged on a straight line basis over the lease term. Benefits, such as rent free periods, received and receivable as incentives to take on operating leases are spread on a straight line basis over the lease term, or, if shorter than the full lease term, over the period to the review date on which the rent is first expected to be adjusted to the prevailing market rent.

(p) Financial Instruments and Fair Value Hierarchy

The following represents the fair value hierarchy of financial instruments measured at fair value in the Statement of Financial Position. The hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement.

 (q) Changes in accounting policies

New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the year, and have not been applied in preparing these consolidated financial statements:

The directors do not expect the adoption of these standards and interpretations to have a material impact on the Group's financial statements in the period of initial application, except for IFRS 9 Financial Instruments, which becomes mandatory for the Group's 2013 consolidated financial statements and could change the classification and measurement of financial assets. The Group does not plan to adopt this standard early and the extent of the impact has not been determined.

Any standard adopted during the year has presentational impact only; it is therefore not necessary to adjust comparative information.

(r) Dividends payable

Interim and final dividends are recognised when declared.

3. SEGMENTAL ANALYSIS

The Group operates as a single asset management business.

The operating results of the companies set out in note 1 above are regularly reviewed by the directors of the Group for the purposes of making decisions about resources to be allocated to each company and to assess performance. The following summary analyses revenues, profit or loss, assets and liabilities:

4. EMPLOYEE COSTS

5. KEY MANAGEMENT PERSONNEL REMUNERATION

Included in employee costs are payments to:

The remuneration of the Directors of the Company for the year was as follows:

6. OPERATING PROFIT

Operating profit is stated after charging:

7. TAXATION

Taxation rates applicable to the parent company and the Cypriot, UK, Singaporean, Luxembourg, Swiss and Romanian subsidiaries range from 0% to 28% (2009: 0% to 28%).

Income Statement

The tax charge/(credit) for the year can be reconciled to the profit per the Consolidated Statement of Comprehensive Income as follows:

Balance Sheet

8. EARNINGS PER SHARE

Earnings per share is calculated by dividing the net profit for the period by the weighted average number of shares outstanding during the period.

9. INTANGIBLE ASSETS

The Group tests intangible assets annually for impairment, or more frequently if there are indications that the intangible assets may be impaired. The recoverable amounts of the intangible assets that have been reviewed for impairment are separately identifiable business units within the Group. The value in use approach has been used as the businesses were not considered saleable in their current form due to certain factors, the main being reliance on certain key individuals.

At the balance sheet date the carrying value of goodwill was US$14.9m (2009: US$14.9m).

The key assumptions on which the directors have based their five year discounted cash flow analysis are a pre-tax discount rate of 15% (2009: 15%), an inflation rate of 5% (2009: 5%) and a growth in assets under management (which determine management and performance fee income) of 10% to 12.5% (2009: 15% to 20%), with 3.0% to 3.75% (2009: 4.5% to 6%) of this estimated to be from annual profits. The assumption of growth in assets under management has been based on the historic performance of the funds. The calculations use cash flow projections based on actual operating results. The result of this review has been compared to the carrying value of goodwill and accordingly the directors have concluded that there is no impairment to goodwill. As an added sensitivity, if the estimated discount rate applied to the discounted cash flows had been 25% higher (2009: 25% higher) or the growth rate of assets under management had been 25% lower (2009: 25% lower) there would still have been no impairment of goodwill as the net present value of future cash flows would still have been higher than the carrying value of goodwill.

At the balance sheet date the carrying value of the Argo Real Estate Opportunities Fund Limited management contract is US$1.8m (2009: US$2.6m), net of amortisation. The intangible asset has been amortised over 5 years and 44 days, being the remaining period of the contract from the date of acquisition.

10. FIXTURES, FITTINGS AND EQUIPMENT

11. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

12. TRADE AND OTHER RECEIVABLES

The directors consider that the carrying amount of trade and other receivables approximates their fair value. All trade receivable balances are recoverable within one year from the balance sheet date.

13. CASH AND CASH EQUIVALENTS

Included in cash and cash equivalents is a balance of US$100,000 (2009: US$103,000) which represents a bank guarantee in respect of credit cards issued to Argo Capital Management Property Limited. Due to the nature of this balance it is not freely available.

14. LOANS AND ADVANCES RECEIVABLE

The deposits on leased premises are retained by the lessor until vacation of the premises at the end of the lease term as follows:

15. SHARE CAPITAL

The Company's authorised share capital is unlimited ordinary shares with a nominal value of US$0.01.

The directors recommend a final dividend of 1.2p per share (2009: 1.0p) for the year ended 31 December 2010. The final dividend for the year ended 31 December 2009 of US$1,125,888 was paid on 23 June 2010 to ordinary shareholders who were on the Register of Members on 28 May 2010. Going forward, the Company intends, subject to its financial performance, to pay a final dividend each year.

In addition, the directors authorised the repurchase of 750,000 shares on 6 April 2010, 1,518,126 shares on 2 June 2010 and 1,000,000 shares on 30 September at respective purchase prices of US$0.20, US$0.18 and US$0.20 per share.

16. TRADE AND OTHER PAYABLES

Trade and other payables are normally settled on 30-day terms.

17. OBLIGATIONS UNDER OPERATING LEASES

Operating lease payments represent rentals payable by the Group for certain of its business premises. The leases have no escalation clauses or renewal or purchase options and no restrictions imposed on them.

As at the balance sheet date, the Group had outstanding future minimum lease payments under non-cancellable operating leases, which fall due as follows.

18. RECONCILIATION OF NET CASH INFLOW FROM OPERATING ACTIVITIES TO

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

19. RELATED PARTY TRANSACTIONS

71% of revenue derives from funds in which two of the Company's directors, Andreas Rialas and Kyriakos Rialas, have an influence through the provision of investment advisory services.

Michael Kloter, the non-executive chairman, is also partner in a legal firm which supplies services to the Group. This firm charged US$7,180 (2009: US$45,986) for services rendered to the Group in the year.

20. FINANCIAL INSTRUMENTS

(a) Use of financial instruments

The wider Group has maintained sufficient cash reserves not to use alternative financial instruments to finance the Group's operations. The Group has various financial assets and liabilities such as trade and other receivables, loans and advances, cash, short-term deposits, and trade and other payables which arise directly from its operations.

The Group's non-subsidiary investments in funds were entered into with the purpose of providing seed capital for these funds.

(b) Market risk

Market risk is the risk that a decline in the value of assets adversely impacts on the profitability of the Group, either as a result of an asset not meeting its expected value or through the decline of assets under management generating lower fees. The principal exposures of the Group are in respect of its seed investments in its own funds. Lower management fee and incentive fee revenues could result from a reduction in asset values.

 (c) Capital risk management

The primary objective of the Group's capital management is to ensure that the Company has sufficient cash and cash equivalents on hand to finance its ongoing operations. This is achieved by ensuring that trade receivables are collected on a timely basis and that excess liquidity is invested in an optimum manner. This is achieved by placing fixed short-term deposits or using interest bearing bank accounts.

At the year-end cash balances were held at Royal Bank of Scotland, Laiki Bank, Bank of Cyprus, United Overseas Bank, Bancpost and UBS AG.

(d) Credit/counterparty risk

The Group will be exposed to counterparty risk on parties with whom it trades and will bear the risk of settlement default. Credit risk is concentrated in the funds under management as detailed in note 11. Trade receivables are normally settled on 30-day terms.

The Group's principal financial assets are bank and cash balances, trade and other receivables and investments held at fair value through profit or loss. These represent the Company's maximum exposure to credit risk in relation to financial assets and are represented by the carrying amount of each financial asset in the balance sheet.

(e) Liquidity risk

Liquidity risk is the risk that the Group may be unable to meet its payment obligations. This would be the risk of insufficient cash resources and liquid assets, including bank facilities, being available to meet liabilities as they fall due.

The main liquidity risks of the Group are associated with the need to satisfy payments to creditors. Trade receivables and trade payables are on 30-day terms.

(f) Foreign exchange risk

Foreign exchange risk is the risk that the Group will sustain losses through adverse movements in currency exchange rates.

The Group is subject to short-term foreign exchange movements between the calculation date of fees in currencies other than US dollars and the date of settlement. The Group holds cash balances in US dollars, Sterling, Singapore dollars, Swiss Francs, Romanian Lei and Euros.

If there was a 5% increase or decrease in the exchange rate between the US dollar and the other operating currencies used by the Group at 31 December 2010 the exposure would be a profit or loss to the Consolidated Statement of Comprehensive Income of approximately US$74,000 (2009: US$266,000).

(g) Interest rate risk

The interest rate profile of the Group at 31 December 2010 is as follows:

* Changes in the interest rate may cause movements.

The average interest rate at the year end was 0.5%. Any movement in interest rates would have an immaterial effect on the profit/loss for the period.

The interest rate profile of the Group at 31 December 2009 is as follows:

* Changes in the interest rate may cause movements.

The average interest rate at the year end was 0.3%. Any movement in interest rates would have an immaterial effect on the profit/loss for the period.

(h) Fair value

The carrying values of the financial assets and liabilities approximate the fair value of the financial assets and liabilities and can be summarised as follows: