TAU.L Regulatory News (TAU)

27 April 2011

Tau Capital plc

Preliminary Results Announcement

Tau Capital plc and its subsidiaries ("Tau" or the "Group"), an investment group investing in both public and private businesses that are established in, operating in or have exposure to Central Asia, Kazakhstan and surrounding countries, today announces its results for the year to 31 December 2010.

Highlights:

·; Net assets of $176,891,501. Audited Net Asset Value per share as at 31 December 2010 of $0.74, representing an increase of 9.4% for the year.

·; Relevant market indices: MSCI Kazakhstan down -14.7%, KASE Index down -1.4%.

·; As at 31 December 2010 approximately 99% of capital invested; public equity exposure 58% of portfolio (57% as at 31 December 2009); private equity exposure 41% of portfolio (25% as at 31 December 2009).

·; Portfolio unleveraged and unhedged at year-end, with no short positions.

·; Average positive contributions in the listed equities portfolio outweighed negative contributions by a factor of almost four times. Key holdings responsible for positive contributions included: Uranium One, Zhaikmunai, Ivanhoe Mines, Dragon Oil, Sberbank, Kazakhmys, Aurum Mining, ENRC, and Centerra Gold.

·; As at 31 December 2009, Tau held two Kazakhstan based private equity investments: Oil & Gas Services provider TenizService LLP and Telecom Services provider Alem Communications Holding LLP ("Alem").

·; Tau made a follow-on investment of $1 million in Alem during 2010. Alem's operating performance in 2010 significantly improved, achieving monthly EBITDA breakeven in May and steadily progressing to a 10.3% EBITDA margin in December.

·; During 2010 Tau expanded its private equity portfolio with two new significant investments:

o Acquisition of a 40.35% interest in Stopharm LLP, a wholesale pharmaceuticals distributor in Kazakhstan, for a total consideration of $21.5 million.

o Provision of the initial $4.5 million drawdown, out of a total commitment of $15 million, to fund the exploration program of Lucent Petroleum LLP, an Oil & Gas exploration company that holds the exploration rights to a block in Kazkahstan.

Further information, please contact:

The financial information set out in the announcement does not constitute the Group's statutory financial statements for the year ended 31 Dec 2010 and 2009, but is derived from those financial statements. The auditors have reported on those financial statements; their reports were unqualified, but did draw attention to matters by way of emphasis relating to significant uncertainty in respect of the valuation of the private investments and associated interest receivable for 2009, and valuation and recoverability of private investments and associated interest receivable in 2010, and did not contain statements under s15(4) or (6) of Companies Act 1982 of the Isle of Man.

Chairman's Statement

2010 - A Year of Two Halves

2010 was a year of two halves for Tau Capital Plc (the "Fund"). In the first half of the year, the Fund focused on capital protection for its public equity portfolio in light of uncertainties surrounding the continuation of the global economic recovery. Cash increased from 18% of the portfolio at the beginning of the year to 25% at 30 June 2010 following the volatility in international markets during April and May. At the end of June, 60% of the Fund's public equity exposure was hedged.

During the second half of the year, the Fund, encouraged by the improving corporate earnings picture and the steady flow of improving global economic data, moved to a fully invested position. At 31 December 2010, net cash was 1.4% of the portfolio and the Fund had no downside protection on its public equity portfolio. During this period, the Fund exited its Gold futures position; added two new private equity investments: Stopharm LLP and Lucent Petroleum LLP; and increased its public equity exposure.

The Fund's Net Asset Value ("NAV") increased from US$0.68 at the beginning of the year to US$0.74 at 31 December 2010. This represents a +9.4% rise for the Fund compared to a -14.7% fall for the MSCI Kazakhstan, a -1.4% fall for the illiquid Kazakhstan Stock Exchange ("KASE") and a 12.3% rise for the MSCI World Index.

The Fund's private equity investments increased from 25% of the portfolio at the beginning of the year to 41% of the portfolio at 31 December 2010 as a consequence of the completion on 1 September 2010 of the US$21.5 million investment in Stopharm LLP, a wholesale pharmaceuticals distributor in the Republic of Kazakhstan, and the initial drawdown on 22 September of US$4.5 million as part of the total US$15 million commitment to Lucent Petroleum LLP.

Philip Lambert

Chairman

21 April 2011

Investment Manager's Report

PUBLIC EQUITY

Performance

During 2010, the Fund's NAV per share increased from US$0.68 at the beginning of the year to US$0.74 (+9.4%) at 31 December 2010. Since inception, the Fund's NAV decreased by -24.8% compared to a decline of -48.4% in the KASE (total USD returns).

The Fund outperformed the benchmark KASE and the MSCI Kazakhstan indices by 12.3 and 25.6 percentage points, respectively. However, the Fund underperformed the MSCI Frontier and MSCI world indices.

We believe that the underperformance against the international indices resulted largely from investor perceptions that the investment environment in Kazakhstan deteriorated during 2010. Investors were already concerned about government policy and the tax/duty regime following the global credit crisis in 2008. Government controlled oil producer Kazmunaigas Exploration Production ("KMG EP"), which has a weighting of over 70% in the MSCI Kazakhstan Index, was required to place large deposits at certain Kazakh banks after the crisis. In July 2010, KMG EP purchased a bond from its parent company, Kazmunaigas National Company ("KMG NC") leading to investor concerns that the government was continuing to influence the investment decisions of KMG EP. Also in August 2010, the Kazakh government reintroduced the export duty on oil at US$2.7/bbl (which was doubled to US$5.4/bbl in January of 2011). This move reignited investor concerns around the tax/duty regime. KMG EP's stock price fell by 17.6% in 2010.

Corporate governance concerns also affected investor sentiment towards Kazakhstan in 2010. Eurasian Natural Resource's purchase in August 2010 of the Kolwezi asset which was expropriated from First Quantum Minerals Ltd by the Democratic Republic of the Congo for failing to meet the requirements of its mining licence alarmed the foreign investment community.

Global markets

As with the Fund's performance and activity, global markets saw a year of two halves in 2010. The first half of the year was marked by the flash crash in May on concerns over a "double dip" recession and the European sovereign debt crisis. US benchmark bond yields were driven to historic lows as investors fled from equities to the safety of government bonds.

From July onward, risk appetite improved steadily as the headline economic data and the corporate earnings picture improved. Equity market gains in the second half were also driven by the positive market response to the US Federal Reserve's QE2 program. The S&P 500 increased by over 23% from 1 July 2010 to 31 December 2010 with strong gains in commodities; brent crude and copper prices increased by 28% and 49%, respectively, over the same period.

Investment activity

During the first half of 2010, the Fund continued to employ the capital protection strategy used during 2009 for its public equity portfolio. At 30 June 2010, the Fund had 25% in cash and 60% of the public equity exposure was hedged through options.

During the second half of the year, the Fund took a more positive view of global markets and moved to a fully invested position. The Fund exited its gold futures position. Cash reserved for private equity investments was deployed into two new investments: Stopharm LLP and Lucent Petroleum LLP. Cash generated from the capital protection strategy during the flash crash in May was reinvested into public equities. By 31 December 2010, the Fund had only 1.4% in net cash and was not employing any hedging strategies against its public equity portfolio.

Outlook

Rising inflation is continuing to be an issue for the larger emerging markets, particularly, the BRIC markets. In the 4th quarter of 2010, we entered a period where the larger developed markets were outperforming the larger emerging markets as China and the BRIC countries are increasing measures to combat rising inflation. This dynamic will most likely continue into the second quarter of 2011. The inflation issue and measures to combat it may pose the threat of a growth scare at some point during 2011, however, we believe that macro conditions are supportive of the continuation in the rally in commodities and equities in the medium term.

While our medium term view remains positive, it is important to note the risks facing global equity markets in 2011. The ongoing political unrest in North Africa and the Middle East could continue to weigh on markets. The European sovereign debt crisis has not been resolved and could potentially re-emerge as a major concern. In the US, the lack of jobs creation, the ongoing weakness in the housing market and concerns surrounding the municipal debt markets could all affect global markets in 2011.

PRIVATE EQUITY

2010 was an expansionary year for the Fund's private equity portfolio with the US$21.5 million investment in Stopharm LLP and the US$4.5 million initial investment - out of a total US$15 million commitment - in Lucent Petroleum LLP.

Stopharm LLP ("Stopharm")

Stopharm is a wholesale pharmaeceuticals distributor in the Republic of Kazakhstan and the sole provider of backbone pharmaceutical logistics services. The company is poised to highly benefit from the anticipated growth of the Kazakh healthcare market driven by GDP growth and convergence in healthcare standards to the European average as GDP distribution improves.

In September 2010 the Fund announced its US$21.5 million investment in Stopharm, comprising a direct 24% equity stake and an option for a further 16.35% of equity, the exercise of which is subject to approval by the Anti-Monopoly Commission of the Republic of Kazakhstan. While we do not foresee any reasons why that approval would be withheld, should that be the case the Fund will be provided with economic rights equivalent to 16.35% of the equity.

Stopharm recorded a year-on-year +90.8% increase in revenues, reaching US$173.8 million in 2010 (+25.3% over 2010 FY budget) and exceeded its revenue target post investment closing until year end by +121%. The EBITDA margin for 2010 was 7.2% (versus 2.1% in 2009).

Lucent Petroleum LLP ("Lucent")

Lucent is an oil & gas exploration company that holds an indirect stake of 99% in Lucent Petroleum LLP (Kazakhstan) which owns the rights to an exploration block located in the pre-Caspian basin in close proximity to major producing oilfields, including Tengiz, and with oil resources independently estimated at a total 479 million barrels of oil.

In September 2010 the Fund announced a total commitment of US$15 million to Lucent with an initial US$4.5million drawdown, structured as a convertible bridge loan, that will be converted into equity post grant of approvals by the Government of the Republic of Kazakhstan (application in progress as of 31 December), with an additional US$10.5 million to be disbursed in two further tranches contingent on achievement of milestones set in the business plan.

At year end Lucent was 40% below its expenses budget while on track with the project plan consisting mainly of preparatory civil works as of that date.

Alem Communications Holding LLP ("Alem")

2010 was a year of two halves for Alem. The first half of the year saw the new CEO, successfully leading the consolidation and integration of the operations. This focus resulted in a 35% reduction in headcount and achievement of earnings before interest, taxes, depreciation and amortisation ("EBITDA") breakeven in May, thus allowing Alem's management to fully focus on growth in the second half of the year.

In the second half of 2010 Alem achieved a subscriber base increase of 15% (June to December period), with an end of year subscriber base of 218,678 revenue generating units ("RGU's") across all business lines, with stable average revenue per unit ("ARPU") and minimal marketing expenditure, resulting in a monthly revenue of US$1.7 million in December (+27% compared to June) and normalized EBITDA margin of 10.3% in December (2% in June), the latter as a consequence of the steady pick-up of economies of scale.

In September 2010, the Fund acquired a further 1.1% indirect stake in Alem from one of the original founders for a total consideration of US$1 million, raising the Fund's total cost of investment in Alem to US$19.5 million. Following this transaction, the Fund has an indirect stake in Alem of 17.2% at the end of the year versus 18.4% at the start of the year as the Fund did not subscribe to two increases of capital at cost during the year.

TenizService LLP ("Teniz")

The Fund's investment in Teniz is structured as a US$19.5 million loan that accrues interest at an 18% p.a. rate, with the option to convert the accrued interest into equity of Waterford International Holding Limited on maturity (September 2011).

During 2010 Teniz increased revenues by 214% compared to 2009 reaching US$52.4 million. EBITDA reached US$20.2 million, a 130% increase over 2009.

At 31 December 2010 the Fund is reporting a valuation of US$27.7 million for the Teniz loan, comprising US$19.5 million principal and US$8.2 million of accrued interest from inception to year end.

21 April 2011

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Company Statement of Financial Position

Consolidated Statement of Changes in Equity for the year ended 31 December 2010

Consolidated Statement of Changes in Equity for the year ended 31 December 2009

Company Statement of Changes in Equity for the year ended 31 December 2010

Company Statement of Changes in Equity for the year ended 31 December 2009

Consolidated Statement of Cash Flows

Company Statement of Cash Flows

Notes to the Financial Statements

1. General

Tau Capital plc (the "Company") is a closed-ended investment fund incorporated and domiciled in the Isle of Man on 3 April 2007 and registered with number 119384C. The Company was established to allow investors the opportunity to realise returns through investing in both public and private businesses that are established in, operating in or have exposure to Kazakhstan. Although Kazakhstan focused, the Company will also seek investment opportunities in the Kyrgyz Republic, Uzbekistan, Turkmenistan, Tajikistan and Russia (the "Investment Countries"). The Company is listed on the Alternative Investment Market of the London Stock Exchange. The Company has no employees.

The Company's public investments are held by a subsidiary, Tau Cayman LP. Tau Cayman LP also holds three private investments. The other private investment is held by Tau SPV 1 Cooperatief. Hereinafter, Tau Cayman LP, Tau SPV 1 Cooperatief, Tau Cayman Limited and Tau Capital plc will be referred to as the "Group" (see note 19).

The Group intends to invest in public companies with substantial operating assets in Kazakhstan or in the Investment Countries who have securities listed on the KASE or other stock exchanges or over-the-counter-markets. These investments may be in combination with additional debt or equity-related financings, and potentially in collaboration with other financial and/or strategic investors.

In addition, the Group aims to provide equity and equity-related investment capital to private companies operating in, or with business exposure to Kazakhstan and further in the Investment Countries who are seeking capital for growth and development, consolidation or acquisition, or as a pre-initial public offering round of financing. Investments may also be made in special situations if Tau Compass Investment Management Ltd (the "Investment Manager") considers the investment to be of a type in keeping with the aims of the Group.

2. Accounting Policies

The financial statements have been prepared on the historical cost basis, modified by the revaluation of investments. The principal accounting policies adopted are set out below.

a) Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), issued by the International Accounting Standards Board ("IASB"), interpretations issued by the International Financial Reporting Committee of the IASB and applicable legal and regulatory requirements of Isle of Man law and the AIM Rules of the London Stock Exchange.

b) New accounting standards

As of the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue:

Amendment to IFRIC 14: Prepayments of a Minimum Funding Requirement was issued in November 2009. The amendment is effective for annual periods, beginning on or after 1 January 2011, with earlier application permitted.

IFRIC 19: Extinguishing Financial Liabilities with Equity was issued in November 2009. The interpretation is effective for annual periods, beginning on or after 1 July 2010, with earlier application permitted.

IFRS 9: Financial Instruments was issued in November 2009. The standard is effective for annual periods, beginning on or after 1 January 2013, with earlier application permitted.

Related Party Disclosures: Revised IAS 24 Related Party Disclosures was issued in November 2009. The revised standard is effective for annual periods beginning on or after 1 January 2011, with earlier application permitted.

Classification of rights issues: Classification of Rights Issues (Amendment to IAS 32) issued in October 2009. Entities are required to apply the amendment for annual periods beginning on or after 1 February 2010, but earlier application is permitted.

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

c) Basis of presentation

The financial statements are presented in US dollars. The functional currency is also the US dollar.

In accordance with Section 3(5) of the Isle of Man Companies Act 1982, no separate Statement of Comprehensive Income has been presented for the Company. As the parent company did not trade during the year there is no gain or loss recognised in the Consolidated Statement of Comprehensive Income relating to the Company (2009: US$Nil).

The Group's business activities, together with the factors likely to affect its future development, performance and positions are set out in the Investment Managers Report on pages 3 to 6. Note 1 and note 11 to the financial statements include the Group's objectives and policies, its financial risk management objectives, details of its financial instruments and hedging activities and its exposures to market risk, credit risk and liquidity risk.

The Group has considerable financial resources and as a consequence the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. If necessary the Directors will sell sufficient of the public equities to enable the commitment to Lucent Petroleum to be met, as detailed in note 22.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and consolidated financial statements.

The Statement of Financial Position presents assets and liabilities in decreasing order of liquidity and does not distinguish between current and non-current items. All of the Group's assets and liabilities are held for the purpose of being traded or are expected to be realised within one year with the exception of private investments and associated interest receivable. All references to net assets throughout this document refer to net assets attributable to holders of ordinary shares unless otherwise stated.

d) Significant accounting estimates and judgements

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and assumptions. It also requires the Board of Directors to exercise its judgement in the process of applying the Group's accounting policies. Key estimates, assumptions and judgements that have significant risk of causing material adjustment to the carrying amount of assets and liabilities within the next financial year are outlined below:

Fair value of financial instruments

Where the fair value of financial assets and financial liabilities recorded in the Statement of Financial Position cannot be derived from active markets, they are determined using a variety of valuation techniques. Where applicable, investments are valued according to the International Private Equity and Venture Capital Valuation Guidelines based on the opinions and advice of the Investment Manager. Valuation techniques may include the use of mathematical models. The input to these models is taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Further details concerning the uncertainties surrounding the valuation of private investments can be found in note 5 and note 18.

e) Financial instruments

i) Classification

The Group designates its assets and liabilities into the category below in accordance with IAS 39 "Financial instruments: Recognition and Measurement".

Financial assets and liabilities at fair value through profit or loss

The category of financial assets and liabilities at fair value through profit or loss is further sub-divided into:

Financial assets and liabilities held for trading: These include equities, debt instruments, OTC options, futures and liabilities from short sales of financial instruments. These instruments are acquired or incurred principally for the purpose of generating a profit from short-term fluctuation in price. Derivatives are categorised as held for trading, as the Group does not designate any derivatives as hedges for hedge accounting purposes as described under IAS 39.

Financial assets and liabilities designated at fair value through profit or loss at inception: including private investments comprising equity, bridging loans, mezzanine loans, profit participating loans, or combinations thereof. These are financial instruments that are not classified as held for trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Group's documented investment strategy. Private investments have been designated at fair value through profit or loss and accounted for in accordance with IAS 39 "Financial Instruments: Recognition and Measurement". Therefore IAS 28 "Investments in Associates" has not been applied by the Company to the investments that it holds in associates.

ii) Recognition

All regular way purchases and sales of financial instruments are recognised on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial instruments that require delivery of assets within the period generally established by regulation or convention in the market place. Realised gains and losses on disposals of financial instruments are calculated using the first-in-first-out ("FIFO") method.

iii) Initial measurement

Financial instruments categorised at fair value through profit or loss, are recognised initially at fair value, with transaction costs for such instruments being recognised directly in the Statement of Comprehensive Income.

iv) Subsequent measurement

After initial measurement, the Group measures financial instruments which are classified as at fair value through profit or loss at their fair values. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. The fair value of financial instruments is based on their quoted market prices on a recognised exchange or sourced from a reputable broker/counterparty in the case of non-exchange traded instruments at the date of the Statement of Financial Position without any deduction for estimated future selling costs. Financial assets are priced at their current bid prices, while financial liabilities are priced at their current offer prices.

If a quoted market price is not available on a recognised stock exchange or from a reputable broker/counterparty, the fair value of the financial instruments may be estimated by the Directors using valuation techniques, including use of recent arm's length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow techniques, option pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions.

iv) Subsequent measurement (continued)

Unlisted investments are valued at the Directors' estimate of their fair value in accordance with the requirements of IAS 39 and guidelines issued by the International Private Equity and Venture Capital Association ("IPEVCA"). In estimating fair value for an investment, the Directors will apply a methodology that is appropriate in light of the nature, facts and circumstances of the investment and its materiality in the context of the total investment portfolio and will use reasonable assumptions and estimations. An appropriate methodology will incorporate available information about all factors that are likely to materially affect the fair value of the investment. Valuation methodologies will be applied consistently from year to year, except where a change would result in a more accurate estimate of the fair value of the investment, which may be up or down (see note 2(d)).

v) De-recognition

The Group de-recognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for de-recognition in accordance with IAS 39.

The Group derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or expires.

An analysis of the fair value of financial instruments is set out in note 5.

f) Investments in subsidiaries

In accordance with IAS 27 "Consolidated and Separate Financial Statements", investments in subsidiaries are accounted for under IAS 39 "Financial Instruments: Recognition and Measurement" as investments designated at fair value through profit or loss.

g) Interest income and expense

Interest income and interest expense are recognised on an accruals basis, using the effective interest method, in line with contractual terms. Interest is accrued on a daily basis.

h) Dividend income and expense

Dividend income and expense are recognised in the Statement of Comprehensive Income on the dates on which the relevant securities are listed as "ex-dividend". Dividend income is shown gross of any non-recoverable withholding taxes, which are disclosed separately in the Statement of Comprehensive Income, and net of any tax credits.

i) Expenses

All expenses, including performance fees and management fees, are recognised in the Statement of Comprehensive Income on an accruals basis.

Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

k) Foreign currency translation

i) Functional and presentation currency

Items included in the Group's financial statements are measured and presented using the currency of the primary economic environment in which it operates (the "functional currency"). This is the US dollar, which reflects the Group's primary activity of investing in US dollar securities and derivatives.

ii) Foreign currency transactions

Monetary assets and liabilities and financial instruments categorised as at fair value through profit or loss, denominated in currencies other than the US dollar are translated into US dollars at the closing rates of exchange at the date of the Statement of Financial Position. Transactions during the year, including purchases and sales of securities and income and expenses are translated at the rate of exchange prevailing on the date of the transaction. Foreign currency transaction gains and losses are included in realised and unrealised gains and losses on financial assets and liabilities designated at fair value through profit or loss.

Cash and cash equivalents comprise of cash balances with a maturity date of up to three months. They are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant changes in value and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

Amounts due from and to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the date of the Statement of Financial Position.

n) Taxation

The Company is resident for tax purposes in the Isle of Man and its profits are subject to Isle of Man corporate income tax at the current rate of 0%.

The Group is exempt from all forms of taxation in the Cayman Islands, including income, capital gains and withholding taxes.

Provided the relevant investments meet the criteria of the participation exemption, the Group will not incur any taxes in the Netherlands. To date, the Group has not incurred a liability to Dutch tax.

o) Share capital

The Company's founder shares are classified as equity in accordance with the Company's Articles of Association.

p) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December 2010. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date control ceases. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full on consolidation.

q) Segment reporting

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Board of Directors in order to allocate resources to the segment and assess its performance.

The investment strategy of the Group is focused on entities that operate in or have an exposure to Kazakhstan and the Investment Countries, which represent one geographical segment. Accordingly, the Directors are of the opinion that the Group is engaged in a single segment of business, being investment business, in one geographical area, being Kazakhstan and the Investment Countries.

r) Share-based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, from the date that they are issued. The equity-settled transactions were fully vested on the date of their issue.

For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the fair value of the liability determined at each date of the Statement of Financial Position with any changes in fair value recognised in profit or loss for the year.  

4. Derivative Contracts

Typically, derivative contracts serve as components of the Group's investment strategy and are utilised primarily to structure and hedge investments to enhance performance and reduce risk to the Group (the Group does not designate any derivatives as hedges for hedge accounting purposes as described under IAS 39). The derivative contracts that the Group holds or issues are over-the-counter ("OTC") options and futures.

The Group records its derivative activities on a mark-to-market basis. Fair values are determined by using quoted market prices. For OTC contracts, the Group enters into master netting agreements with its counterparties, therefore, assets represent the Group's unrealised gains less unrealised losses for OTC contracts in which the Group has a master netting agreement. Similarly, liabilities represent net amounts owed to counterparties on OTC contracts.

A breakdown of the fair value of the derivatives held as at 31 December 2010 and 31 December 2009 can be found in note 3 to the financial statements above.

The primary difference in the risk associated with OTC contracts and exchange-traded contracts is credit risk. The Group has credit risk from OTC contracts when two conditions are present (i) the OTC contracts have unrealised gains, net of any collateral and (ii) the counterparty to the contract defaults. The credit risk related to exchange-traded contracts is minimal because the exchange ensures that their contracts are always honoured.

The Group purchases or sells put and call options through the OTC markets. Options purchased by the Group provide the Group with the opportunity to purchase (call options) or sell (put options) the underlying asset at an agreed-upon value either on or before the expiration of the option. The Group is exposed to credit risk on purchased options only to the extent of their carrying amount, which is their fair value.

Options written by the Group provide the purchaser of the option the opportunity to purchase from or sell to the Group the underlying asset at an agreed-upon value either on or before the expiration of the option.

Premiums received from writing options are marked to market in accordance with note 2 and the resulting gains or losses are recorded in the Statement of Comprehensive Income.

5. Fair Value of Financial Instruments

The Group values its investments in accordance with IFRS 7 - Financial Instruments: Disclosures ("IFRS 7"). IFRS 7 defines fair value and establishes a framework for measuring fair value. The fair value of financial assets and liabilities are calculated in accordance with the accounting polices disclosed in note 2 to the financial statements.

Financial instruments included in each category are as follows:

Level 1 - Quoted market price: Public equities and contracts for difference

Level 2 - Market observable inputs: Debt instruments and options

Level 3 - Non-market observable inputs: Private investments and debt instruments

The following tables shows an analysis of financial instruments recorded at fair value, between those whose fair value is based on quoted market prices (level 1), those involving valuation techniques where all the model inputs are observable in the market (level 2) and those where the valuation technique involves the use of non-market observable inputs (level 3).

As at 31 December 2010, the breakdown was as follows:

As at 31 December 2009, the breakdown was as follows:

The following is a reconciliation of the movement in financial assets for which non-market observable inputs (level 3) were used to determine fair value as at 31 December 2010 and 31 December 2009:

On 6 Januar

On 6 January 2010, Tau SPV 1 Cooperatief made a loan to DTV Investment Holding of US$7,118,036. The amount was repaid on 29 January 2010. This amount has been disclosed in purchases and sales in 2010. As stated in note 2(d), where the valuation is dependent on non-market observable inputs, a degree of judgement is required in establishing fair values. Accordingly, the valuation of the private investments is subject to inherent uncertainty. Further details can be found in note 18.

6. Amounts Due from Brokers

7. Cash and Cash Equivalents

8. Fees and Expenses

Investment management fees

The Investment Manager is entitled to receive from the Group an investment management fee equal to 2% per annum of the net asset value of the Group. The Group will pay the investment management fee semi-annually in advance.

In addition to the above, the Group bears the third party and other out-of-pocket expenses reasonably incurred in the performance of the duties of the Investment Manager, provided that the amount of the expenses shall not exceed the annual cap of US$500,000.

The investment management fee for the year was US$3,076,295 (2009: US$2,672,811) of which US$Nil (2009: US$Nil) was outstanding as at 31 December 2010.

Performance fees

The Investment Manager is also entitled to receive a performance fee if the net asset value of the Group as at 31 December in the relevant year is greater than or equal to the Group's high water mark.

No performance fees were earned for the year ended 31 December 2010 or 31 December 2009.

The Administrator is entitled to receive a fixed fee of £6,250 each calendar quarter.

The Sub-Administrator is entitled to receive a monthly fee for the provision of administration and accounting services of US$3,000 plus an additional fee at the following rates:

(a) 0.08% of the first US$100 million of average net assets;

(b) 0.06% of the next US$100 million of average net assets;

(c) 0.04% of the next US$100 million of average net assets; and

(d) 0.03% of the average net assets in excess of US$300 million.

The Sub-Administrator is also entitled to receive a monthly fee for its trade support and middle office services at the following rates:

(a) 0.06% of the first US$100 million of average net assets;

(b) 0.04% of the next US$100 million of average net assets; and

(c) 0.03% of the average net assets in excess of US$200 million.

Directors' remuneration

The Directors are entitled to receive by way of fees for their services as Directors, such sum as the Board may determine (not exceeding £400,000 per annum or such other sum as the Group in General Meeting shall determine). Each Director is entitled to be repaid all reasonable travelling, hotel and other expenses properly incurred by him in the performance of his duties as a Director.

The Director's remuneration expense for the year amounted to US$152,000 (2009: US$158,282).

Operating expenses

The Group meets all its own costs and expenses including the costs and expenses of advisors, consultants and other agents engaged on its behalf, commissions, banking fees, legal expenses, audit fees, listing costs and the costs of distribution of reports and accounts and similar documentation to shareholders.

Audit fees

Fees charged by the independent auditor for the year ended 31 December 2010 were US$81,407 (2009: US$70,665) of which US$62,626 (2009: US$55,866) was outstanding as at 31 December 2010.

The following table shows the breakdown of accounts payable and accrued expenses as at 31 December 2010 and 31 December 2009:

The following table shows the breakdown of operating expenses incurred for the year ended 31 December 2010 and 31 December 2009:

9. Share Capital and Share Premium

The authorised share capital of the Group is £3,502,000 comprising 350,199,998 ordinary shares of £0.01 each and 2 founder shares of £0.01 each. The founder shares carry identical rights and privileges to the ordinary shares of the Group. The share capital of the Group has been allocated, called up and fully paid. The shares in issue as at 31 December 2010 and 31 December 2009 were as follows:

There were no capital transactions throughout the years ended 31 December 2010 and 31 December 2009.

10. Related Party Transactions

Michael Sauer, a Director of the Company as listed on page 1, is the CEO of Visor Holding LLP, the parent group of Compass Asset Management JSC, and also the Chairman of Compass Asset Management JSC. Compass Asset Management JSC is the single shareholder of Compass Asset Management Ltd. Compass Asset Management Ltd is the investment advisor for Tau Capital Plc.

Michael Sauer also holds a stake in Visor Investment Services Limited.

Philip Scales, a Director of the Company as listed on page 1, is the managing director of IOMA Fund and

Investment Management Ltd, the administrator.

Fee arrangements with related parties and details of Director's remuneration can be found in note 8.

The investment in Teniz Service LLP ("Teniz") completed in October 2008, made through a mezzanine loan to Contour Caspian Ventures Ltd ("Contour"), a wholly owned subsidiary of Visor Investment Services Limited. The Guarantor of this loan is Visor Holding LLP. Visor Holding LLP is 100% shareholder of the investment sub-advisor of the fund (Compass Asset Management JSC). Contour is a 35% shareholder of Waterford International Holding Ltd ("Waterford"), a consortium owning a 51 % controlling equity stake in Teniz. So this transaction is a related party transaction (see note 18).

The investment in Lucent Petroleum LLP, made through a convertible bridging loan to Lucent Oil and Gas (Cyprus) Limited, a wholly owned subsidiary of Visor Investment Services Limited, is a related party transaction (see note 18).

As at 31 December 2010 and 31 December 2009 Philip Lambert and Robert Brown, III each held 500,000 ordinary shares in the Company. These shares were granted in consideration for the provision of services pursuant to their letters of appointment as Non-executive Directors.

As at 31 December 2010 and 31 December 2009, Richard Horlick held 22,600,000 ordinary shares.

As at 31 December 2010 and 31 December 2009, both Spencer House Capital Management, LLP and

Compass Asset Management Ltd held one founder share each.

11. Financial Instruments and Associated Risks

Introduction

In accordance with the Company's accounting policy for investments in subsidiaries (note 2f), these are designated at fair value through profit or loss. Since the Group's underlying net assets are owned by its subsidiaries and are carried at fair value, the disclosures in this note relating to financial instruments and associated risks are the same for both the Company and the Group.

Risk is inherent in the Group's activities but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process of risk management is critical to the Group's continuing profitability. The Group is exposed to market risk (which includes currency risk, interest rate risk and other price risk), credit risk and liquidity risk arising from the financial instruments it holds.

Risk management structure

The Board of Directors is ultimately responsible for identifying and controlling risks. However, it is the Investment Manager who manages and monitors risks on an ongoing basis.

Risk measurement and reporting system

The Group's risks are measured using a method which reflects both the expected loss likely to arise in normal circumstances and unexpected losses, which are an estimate of the ultimate actual loss based on statistical models. The model makes use of the probabilities derived from historical experience, adjusted to reflect the economic environment.

Monitoring and controlling risks is primarily performed based on limits established by the Board. These limits reflect the business strategy and market environment of the Group as well as the level of risk that the Group is willing to accept. In addition, the Group monitors and measures the overall risk bearing capacity in relation to the aggregate risk exposure across all risk types and activities.

Risk mitigation

The Group has investment guidelines that set out its overall business strategies, its tolerance for risk and its general risk management philosophy and have established processes to monitor and control economic hedging transactions in a timely and accurate manner. The Group uses derivatives and other instruments for trading purposes and in connection with its risk management activities.

Excessive risk concentration

Concentration arises when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentration indicates the relative sensitivity of the Group's performance to developments affecting a particular industry or geographical location.

Market risk

Market risk is the risk that the fair value, or future cash flows of a financial instrument, will fluctuate because of changes in market prices and includes interest rate risk, foreign currency risk and "other price risks", such as equity and commodity risk.

The Group's strategy on the management of investment risk is driven by its investment objective as outlined in note 1 to the financial statements. Details of the Group's financial instruments outstanding at the date of the Statement of Financial Position can be seen in the Schedule of Investments (unaudited) on pages 42 to 43.

Equity price and private investment risk

Equity price risk is the risk that the fair values of equities decrease as a result of changes in the levels of equity indices and the value of individual stocks. The equity and private investment price risk exposure arises from the Group's investment portfolio. The Group manages this risk by investing on different stock exchanges and in different sectors.

Price movements are influenced by, among other things, changing supply and demand relationships, monetary and exchange control programs, policies of governments, political and economic events, and policies and emotions of the marketplace.

The Investment Manager considers the asset allocation of the portfolio in order to minimise risks whilst achieving the Group's investment objectives. The Group maintains a diversified portfolio both in terms of the number of positions, their geographic location and industry sector (as detailed in the Schedule of Investments (unaudited) on pages 42 to 43).

The following table shows the breakdown by industry sector as at 31 December 2010:

The following tabl The following table shows the breakdown by industry sector as at 31 December 2009:

The Investment Manager manages market positions on a daily basis and seeks to mitigate this risk by applying the following restrictions to the portfolio of investments:

(i) the Group acquires only minority stakes in public investments;

(ii) where the Group secures a substantial minority stake or a controlling stake in a private company, it obtains appropriate board representation;

(iii) the Group will not invest more than 15% of the net asset value of the Group in a single company or single affiliated group of companies; and

(iv) the Group will not invest more than 40% of the net asset value of the Group in any one sector.

The Group's overall market positions are monitored on a quarterly basis by the Board of Directors during Board meetings.

Management's best estimate of the effect on net assets and profit due to a reasonably possible change in significant equity indices, with all other variables held constant as at 31 December 2010 is as follows:

Management's best estimate of the effect on net assets and profit due to a reasonably possible change in significant equity indices, with all other variables held constant as at 31 December 2009 was as follows:

Management's best estimate of the effect on net assets and profit due to a reasonably possible change in private investments of a decrease of 10%, with all other variables held constant as at 31 December 2010 is US$6,355,789 (2009: US$3,609,406)

In practice the actual trading results may differ from this change and the difference could be material.

Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.

The Group invests in assets denominated in currencies other than its presentation currency, the US dollar. Consequently, the Group is exposed to risks that the exchange rate of the US dollar, relative to other currencies, may change in a manner which has an adverse effect on the reported value of that portion of the Group's assets which is denominated in currencies other than the US dollar.

The Group's currency risk is managed on a daily basis by the Investment Manager through a review of the portfolio. The Group's overall currency risk is monitored on a quarterly basis by the Board of Directors during Board meetings.

At 31 December 2010 the Group's exposure to foreign currency was as follows:

At 31 December 2009 the Group's exposure to foreign currency was as follows:

The analysis below discloses management's best estimate of the effect of a reasonably possible movement in currency rates against the US dollar, with all other variables held constant on the Statement of Comprehensive Income (due to the fair value of currency sensitive trading monetary assets and liabilities) and Statement of Financial Position (due to the change in fair value of currency swaps and forward foreign exchange contracts). A negative amount in the table reflects a potential net reduction in total comprehensive income or net assets, while a positive amount reflects a net potential increase as at 31 December 2010.

In practice the actual trading results may differ from this change and the difference could be material.

The analysis below discloses management's best estimate of the effect of a reasonably possible movement in currency rates against the US dollar, with all other variables held constant on the Statement of Comprehensive Income (due to the fair value of currency sensitive trading monetary assets and liabilities) and Statement of Financial Position (due to the change in fair value of currency swaps and forward foreign exchange contracts). A negative amount in the table reflects a potential net reduction in total comprehensive income or net assets, while a positive amount reflects a net potential increase as at 31 December 2009.

In practice the actual trading results may differ from this change and the difference could be material.

Interest rate risk

The majority of the Group's financial assets and liabilities are non-interest bearing. As a result, the Group is not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates.

The Group's interest rate risk is managed on a daily basis by the Investment Manager and is monitored on a quarterly basis by the Board of Directors during board meetings.

Liquidity risk

Kazakhstan and the Investment Countries have less liquid and developed securities markets than the United States of America and Western Europe. The public equities which are listed on KASE or a stock market in the Investment Countries may be less liquid and may carry a higher risk than an investment in shares listed on markets in the United States of America and Western Europe.

Given that organised securities markets in Kazakhstan and the Investment Countries have been established relatively recently, the procedures for settlement, clearing and registration of securities transactions may be subject to legal uncertainties, technical difficulties and delays. Although significant developments have occurred in recent years, the sophisticated legal and regulatory frameworks necessary for the efficient functioning of modern capital markets have yet to be fully developed in Kazakhstan and the Investment Countries. In particular, legal protections against market manipulation and insider trading are less well developed in Kazakhstan and the Investment Countries, and less strictly enforced, than in the United States of America and Western European countries, and existing laws and regulations may be applied inconsistently with consequent irregularities in enforcement. In addition, less information relating to the proposed target entities and certain of the investments may be publicly available to investors in securities issued or guaranteed by such entities than is available to investors in entities organised in the United States of America or Western European countries.

The Group's liquidity is managed on a daily basis by the Investment Manager. The objective of the Group is to establish portfolio positions on the merits of the investment case for the stock. The Investment Manager takes care to note the liquidity of a company before investing. The Investment Manager builds significant positions where it sees significant upside potential, sometimes in cases where there is limited liquidity, believing that the liquidity will improve as the market perceives better value in the company. The portfolio has a spread of investments in both semi-liquid and very liquid companies which diversifies its exposure across sectors and markets.

As at 31 December 2010, the Group held private investments with an estimated total fair value of US$63,557,895 (2009: US$36,094,055) which represents 35.50% (2009: 22.38%) of the Group's net assets. These investments are considered to be illiquid as there is no active market for the purchase and sale of these investments (see note 18).

The table below analyses the Group's financial liabilities as at 31 December 2010 into relevant maturity groupings based on the remaining period at the date of the Statement of Financial Position to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

The table below analyses the Group's financial liabilities as at 31 December 2009 into relevant maturity groupings based on the remaining period at the date of the Statement of Financial Position to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Group resulting in a financial loss to the Group. It is the Group's policy to enter into financial instruments with a range of reputable counterparties. Therefore, the Group does not expect to incur material credit losses on its financial instruments.

Financial assets, which potentially expose the Group to credit risk, consists principally of cash due from brokers. The Group's cash balances are primarily with high credit quality, well-established financial institutions. The extent of the Group's exposure to credit risk in respect of these financial assets approximates their carrying value as recorded in the Group's Statement of Financial Position.

With respect to derivative financial instruments, credit risk arises from the potential failure of counterparties to meet their obligations under the contract or arrangement.

The Group also invests in two types of financial assets, principally those that are equity in nature and listed and those that are private unlisted and these can be in the form of loans which include an interest element. All transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on purchases once the securities have been received by the broker. The trade will fail if either party fails to meet its obligation.

Transactions are only concluded with counterparties which have an investment grade as rated by a well known rating agency. All publicly held assets are held under a Prime Brokerage relationship with either Morgan Stanley & Co International plc, operating as a subsidiary of Morgan Stanley Plc, Subsidiary Bank HSBC Kazakhstan Joint Stock Company operating as a subsidiary of HSBC Plc or Renaissance Capital.

At 31 December 2010 the brokers had the following ratings:

The following table shows the value of net assets held with each Prime Broker as at 31 December 2010:

The following table shows the value of net assets held with each Prime Broker as at 31 December 2009:

The Group may be adversely impacted by an increase in its credit exposure related to investing, financing and other activities. The Group is exposed to the potential for credit-related losses that can occur as a result of an individual, counterparty or issuer being unable or unwilling to honour its contractual obligations. These credit exposures exist within financing relationships, commitments, derivatives and other transactions. These exposures may arise, for example, from a decline in the financial condition of a counterparty, from entering into derivative contracts under which counterparties have obligations to make payments to us, from a decrease in the value of securities of third parties that the Group holds as collateral, or from extending credit through guarantees or other arrangements. As the Group's credit exposure increases, it could have an adverse effect on the Group's business and profitability if material unexpected credit losses occur.

The Investment Manager manages the Group's credit risk through regular monitoring of the counterparty's creditworthiness, with particular reference to ratings checks, third party research and the counterparty's reputation in the market. The Group's credit risk is monitored on a quarterly basis by the Board of Directors.

Private investments risk

The main risks related to private investments that the Group is exposed to, are liquidity risk, credit risk and pricing risk. These risks are correlated: since private investments are not traded in organized markets there are no guarantees that a buyer for these investments will materialize or repayment of loans and associated interest will happen in line with expectations, in particular if there is an expectation set forth in terms of investment realization/loan repayment, a lack of an organized market might also cause a significant difference between the carried or expected valuation and the actual price obtained at realization for those investments or the timing and method of the repayment (see note 18 for further details).

12. Exchange Rates

The following exchange rates were used to translate assets and liabilities into US dollars at 31 December 2010 and 31 December 2009:

13. Distributions

Subject to the provisions of the Articles, the Company may by ordinary resolution, declare that out of profits available for distribution, in accordance with Isle of Man law, dividends be paid to members according to their respective rights and interests in the profits of the Company. However, no dividend shall exceed the amount recommended by the Board. There is no fixed date on which an entitlement to dividend arises.

No dividends were paid during the years ended 31 December 2010 and 31 December 2009.

14. Soft Commissions

During the year, the Investment Manager and connected persons have not entered into soft commission arrangements with brokers in respect of which certain goods and services used to support investment decision making were received.

15. Commitments and Contingent Liabilities

As at 31 December 2010, the Group had further commitments to Lucent Oil and Gas (Cyprus) Limited for a consideration of US$10.5m provided as a line of equity to be disbursed in two stages and contingent on the achievement of certain operational milestones and execution of corresponding increases of capital in Lucent.

16. Valuation of the Group

The Net Asset Value ("NAV") of the Group as at 31 December 2010 and 31 December 2009, as reported at the time (based on last traded prices of underlying investments), differs from the financial statements. In accordance with IAS 39, long positions in the financial statements are valued at bid prices and short positions at offer prices. In the current year, following a review of the interest rate calculation methodology adopted for Teniz (use of daily compounding rather than simple accrual) an adjustment of US$2,143,044 has been made.

17. Earnings per Share

Basic earnings per share is calculated by dividing the net profit or loss attributable to shareholders by the weighted average number of ordinary shares outstanding during the year.

There is no difference between the fully diluted earnings per share and basic earnings per share.

18. Private Investments Designated at Fair Value Through Profit or Loss and Associated Interest Receivable

At the financial year end, the Group's private investment portfolio comprised four (31 December 2009: two) investments as follows:

The directors have valued these investments on advice of the Investment Manager and using the guidance laid down in the International Private Equity and Venture Capital Valuation Guidelines (August 2010).

(i) Stopharm LLP ("Stopharm")

Stopharm is a wholesale pharmaceuticals distributor operating in Kazakhstan. On 1 September 2010 the Group announced the closing of a US$21.5 million investment in Stopharm comprising a 24.00% equity stake in Stopharm acquired for US$12.8 million and a fully secured convertible bridge loan of US$8.7 million provided to one of the shareholders of Stopharm with implied equity on conversion representing an additional 16.35% stake. The conversion into equity of this loan is subject to approval by the Anti Monopoly Committee of the Republic of Kazakhstan and the conversion option is structured in such a way that, should this approval be withheld, the Group will receive economic rights equivalent to the implied 16.35% equity stake in Stopharm.

(ii) Lucent Petroleum LLP ("Lucent")

Lucent is a Cyprus based oil and gas exploration company that in turn has a 99% equity stake in a Kazakhstan based subsidiary that owns rights to a block located in the pre Caspian basin, and in close proximity to several major producing oilfields. On 22 September 2010, the Group announced an investment in Lucent with total commitments of US$15 million (see note 15), with an initial US$4.5 million drawdown on that date. The investment is structured as a convertible bridge loan to Lucent Oil & Gas (Cyprus) Limited, an indirect holding company of Lucent. Conversion of the loan is subject to grant of approvals by the Government of the Republic of Kazakhstan. As at 31 December 2010, the investment has been valued at a cost of US$4.5 million being the initial loan drawdown at that date and this is considered to be the best indicator of fair value. (See note 15 Commitments and Contingent Liabilities and note 22 Events After the Date of the Statement of Financial Position).

(iii) Alem Communications Holding LLP ("Alem")

Alem is a telecom holding company operating within the territory of the Republic of Kazakhstan. The Group has an indirect investment in Alem through a secured senior profit participating loan ("SSPPL") in DTV Investment Holding LLP ("DTVI") which has a direct holding in the shares of Alem. On 3 September 2010, the Group increased its economic interest in DTVI from 55.25% to 63.2% under the SSPPL by acquiring the rights of a retiring lender for a consideration of US$1,034,160. As a result of capital transactions entered into between DTVI and the majority shareholder of Alem and further capital injections into Alem by the majority shareholder during the year, DTVI's holding in Alem reduced from 33.4% to 27.2%. The Group's indirect interest in Alem has therefore reduced in the year from 18.4% to 17.2%. The Group's investment in Alem is valued at US$18,057,895 at the balance sheet date based on the price of the most recent investment transaction which related to a sale of Alem shares to a third party on 3 September 2010.

(iv) TenizService LLP ("Teniz")

Teniz is an oil and gas services company operating in Kazakhstan. On 5 September 2008, the Group provided a loan of US$19.5 million to Contour Caspian Ventures Limited ("Contour" or "the Borrower") which through a back to back loan with Waterford International Holdings Limited ("Waterford") was utilised by Waterford to acquire share capital in Teniz. The interest is accrued at a rate of 18% per annum and totalled US$8.2 million as at 31 December 2010 (2009: US$5.3m). There is also an option to convert the interest receivable to shares in Waterford under the terms of the loan agreement.

The loan is repayable on 4 September 2011. However as of 31 December 2010 there is limited liquidity within the Borrower's structure and repayment of the principal amount is contingent on the Borrower generating sufficient liquidity internally or via external funding and/or the guarantor of the loan, Visor Holding LLP, providing such liquidity.

Given the value of the underlying assets in the loan structure and alternatives for the parties involved to raise liquidity at maturity, the directors consider that it remains appropriate to report the fair value of this investment based on the historic cost of the loan, as included in private investments designated at fair value through profit or loss, and the calculated accrued interest included in interest receivable.

As stated in note 2(d), where valuation of investments is dependent on non-market observable inputs, a degree of judgement is required in establishing fair values. Accordingly, the valuation of the private investments and associated interest receivable is subject to inherent uncertainty. Also, as described above, there is uncertainty associated with the repayment of the principal and interest in relation to the Teniz loan within the time frames laid down in the various loan agreements.

19. Investments in Subsidiaries

Tau SPV 3 Cooperatief was dissolved on 9 February 2010.

The values of the subsidiaries at 31 December 2010 and 31 December 2009 were as follows:

20. Off-Balance Sheet Risk

Securities sold short and options written represent obligations of the Group to deliver the specified security at the contracted price, and thereby create a liability to repurchase the security in the market at prevailing prices. Accordingly, these securities may result in off-balance sheet risk as the Group's satisfaction of the obligations may exceed the amount recognised in the Statement of Financial Position.

21. Share-Based Payments

The following share-based payment arrangement was in existence with Numis Securities Limited, the Company's Nominated Adviser and Broker, at 31 December 2010 and 31 December 2009. This arrangement was conditional upon admission of the ordinary share capital of the Company to the Alternative Investment Market operated by the London Stock Exchange

The Directors have determined that the fair value of the options granted (which were fully vested at the date of grant) could not be reliably measured at the measurement date (the date of grant). Therefore in accordance with IFRS 2: Share Based Payments, the intrinsic value method has been used to determine the value of the share-based payment transaction. As at the measurement date and the current financial year-end, the intrinsic value is nil as the exercise price is greater than the market price.

22. Events After the Date of the Statement of Financial Position

On completion of the operational milestones established in the Lucent Petroleum LLP business plan, on 22 February 2011, the Group provided the second tranche of financing in the shape of a convertible loan for a consideration of US$6.5m and this will be converted to equity once approvals from the government of the Republic of Kazakhstan are received. If necessary the Group will sell sufficient of the public equities or divest private investments to enable the commitment to Lucent Petroleum LLP to be met.

There were no other significant events subsequent to the date of the Statement of Financial Position.

23. Approval of Financial Statements

The Annual Report and financial statements were approved by the Directors on 21 April 2011.

Additional Information: Schedule of Investments as at 31 December 2010 (unaudited)