Half Yearly Report

Chairman's Report

The interim results to 30 June 2010 show a further decline in the Fund's NAV. The published NAV was 22p (Eur 27 cents) at end June 2010, having declined from 28p (Eur 31 cents) in December 2009. The accounting NAV of 22p (Eur 27 cents) compares with NAV of 27p (Eur 30 cents) in December.

There are signs that the economy and property market in Bulgaria are bottoming out, following the sharp falls of the previous two years or so.

Although the Fund has had to dispose of assets to remain liquid, we are now well positioned to take advantage of any future improvements in property prices. We have no debt and retain a good portfolio of land, either for disposals when prices firm or to realise their development potential.

Further fund raising will be needed to provide working capital for the future. This is being actively sought.

Charles Burton

29 September 2010

Investment Managers' Report

BULGARIA

Management Update

Disposals

In January 2010 the Fund sold a plot of land in Veliko Tarnovo for €450,000 to provide additional working capital. While in March 2010, the Directors investigated several financing avenues to exercise an option agreement in respect to the Sofia Kambanite Bistrista asset. The asset encompassed 100,713 square metres of land near the Sofia Business Park. Despite the Directors exploring various means to secure the asset, it was decided to let the option agreement lapse.

Sofia Project 55 (apartment sales)

During Q1 2010 the Fund saw very little activity in the Bulgarian property market. From the middle of Q2 it became increasingly clear that the Bulgarian market was starting to pick up due to several factors. An improvement in the global macro environment and global property prices leading to a pick-up in demand and an improvement in availability of mortgages. Since the end of June 2010, the Fund has sold all except two of the remaining apartments; all of these were sold to locals with mortgages.

BuySell

The Company rescinded six contracts with BuySell, a Bulgarian property development company, on 17 April 2009 due to BuySell's non performance of their contractual duty to deliver completed properties in Sofia to the Company by the due date. As a result of BuySell's non-performance the Company is entitled to claim the repayment of its €9.5 million deposit plus penalties of an additional €9.5 million. The Company is currently in talks with various parties, including BuySell with a view to resolving its outstanding claims. As stated before, the Company continues to believe that there is a realistic possibility that the talks can be concluded successfully. This would clearly be a positive development for the Company and its shareholders. However at this stage the Group still values the BuySell inventory as nil. We hope to be able to make further announcements of progress.

Westhill

One of the Company's Bulgarian subsidiaries is in dispute with Westhill BG 8 AD, a Bulgarian property development company. The latter submitted an insolvency claim against the Company's subsidiary which, in the Company's opinion, is groundless. The Fund's Bulgarian legal advisers have submitted a written response to the relevant Bulgarian court stating the lack of legal grounds to Westhill's claim and requesting its dismissal. The Company is confident that this matter will eventually be concluded successfully. Further announcements will be made as appropriate.

BULGARIAN PROPERTY MARKET UPDATE

●

Foreign and domestic housing demand subdued but showing signs of revival

●

Mortgage rates have come down

●

Some areas are beginning to see price increases

After two very weak years, the investment managers believe that the Bulgarian property sector is close to the bottom of the market. At the end of Q1 2010, dwellings across the country sold for an average of BGN978.7 (€500) per square metre, down by 17.81% (-18.55% inflation-adjusted) from a year earlier, and down by 2.30% during the quarter, according to the National Statistical Institute. This is 31% lower than the peak price of BGN1,418 (€725) per sq. m. in Q3 2008.

Since the end of Q1 2010, the investment managers, as stated earlier have seen a definite uplift in prices, demand and availability of mortgages. In particular it is interesting to note that Sofia is showing an increase of well over 5% in house prices since Q1 2009. This should lead to an improvement in land prices in Sofia and gradually spread out to the rest of the country. Valuations of the Fund's property portfolio at the end of June 2010 show a small fall of 5% compared to valuations at the end of December 2009.

Despite the still weak prices, some agents say sales surged by 40% in Q1 2010 compared to the same quarter last year. According to Colliers Bulgaria, sales began to pick up as early as August 2009, after months of stagnation. Houses priced below €1,000 per square metre were the most marketable.

British and Russians are the top foreign buyers of Bulgarian real estate, buying holiday houses near the Black Sea and the Danube River. Russians remain net buyers. There was an investment inflow from Russia of €43.6 million in Q1 2010, down from €73.7 million the year earlier, in Q1 2009.

Many housing construction projects were halted during the global economic crisis. Dwellings completed in Q1 2010 were 26.9% down from Q1 2009, and building permits were 32.8% lower. Weak credit demand and stringent loan policies have meant a decrease in the amount of housing loans over the past couple of years. Having been down approximately 65% from the beginning of the crisis in 2008, housing loans have now started to pick up with 2010 showing an increase of loans of nearly 5% (January to May 2010). The average mortgage interest rate in May was down to 8.55%, from 10.09% in 2009, for BGN-denominated loans. Euro-denominated loan rates were down to 8.29%, from 8.59% in 2009.

THE BULGARIAN ECONOMY

GDP declined by a further 1.4% year-on-year in Q2 so Bulgaria remains on track to see a full year contraction of 0.8% for 2010. The Bulgarian economy is however expected to pick up strongly from 2011, growing by about 3.5% in 2011 and 6% in 2012 and 2013 led initially by exports with fixed investment and consumer growth picking up gradually. Domestic demand (a key weakness) continued to contract sharply during Q2 2010 with consumer spending down a further 4% year on year to the end of Q2 2010. Consumer confidence has improved throughout the year but is not expected to add much to growth in 2011 due to expected job losses and pay cuts. On the positive side exports of goods and services were up by over 12% but this may come down if growth elsewhere in Europe were to slow from here. Inflation has also been lower than expected at just below the 3% level. The budget deficit is also expected to be lower in 2010 at 2.8% of GDP falling to around -1.3% (deficit) in 2012.

According to Finance minister Simeon Djankov, Bulgaria does not need IMF support although a €1bn international bond issue is being planned for next year in order to provide a fillip for reserves. Thus, the currency board system seems to have survived the tensions caused by the recession and Greece's predicament, with the overnight BNB rate remaining under 20bp in recent months.

GROUP PROPERTIES

Land

Build

Cost €

Valuation €

Area M2

Area M2

30/06/2010

30/06/2010

(Note 1)

1

Goverdartsi (Crystal Vale/ Crystal Glade)

36,562

41,332

5,758,901

5,340,000

2

Beli Iskar (Crystal Heights)

19,432

22,464

1,322,309

1,130,000

3

Razlog/Bansko

18,353

24,301

9,209,373

5,890,000

4

Dolna Banya

48,548

48,713

1,661,695

1,380,000

5

Plovdiv

12,141

12,712

3,890,195

2,730,000

6

Banya

117,774

141,329

3,608,064

4,220,000

7

Sofia Project 55

1,298

2,685

1,738,358

979,021

Sub Total

254,108

293,536

27,188,895

21,669,021

8

Buy Sell Rescinded Contracts (Note 2)

48,218

89,967

9,529,830

-

Total

302,326

383,503

36,718,725

21,669,021

Note 1: Some build areas are estimated subject to planning approval.

Note 2: The Group has terminated these contracts with BuySell and accordingly they have been valued at Nil on the balance sheet.

 1. GOVEDARCI

CRYSTAL VALE

Crystal Vale has full residential planning approval and is situated inside the Super Borovets project boundary. Super Borovets is a joint venture between the Omani State General Reserve Fund, Equest and the Municipality of Samokov for the development of an enhanced ski resort in the area surrounding Borovets; the project plans call for the investment of up to €500 million in the construction of new hotels, apartments, ski lifts and supporting infrastructure. The Crystal Vale site has a footprint of 16,776 sq m and a build area of 17,589 sq m.

The project has been designed as an exclusive retreat destination and is aimed at the international and domestic leisure market. The 'Clubhouse' building, which will contain 22 apartments and all central facilities for the project (including swimming pool, spa and restaurant), has been partly completed - to the extent that the roof is in place. Construction was halted in September 2009 awaiting a recovery in market conditions.

CRYSTAL GLADE

The Crystal Glade project is located approximately one kilometre away from Crystal Vale and has a site footprint and build area of 19,786 sq m. The site has residential planning permission and is intended to be a complementary leisure development to Crystal Vale. It will remain in the land bank until Crystal Vale has been substantially completed.

2. BELI ISKAR

CRYSTAL HEIGHTS

The Fund has purchased 19,432 sq m, currently designated as agricultural land, inside the Super Borovets project area beside the village of Beli Iskar. Residential planning permission for the land will be sought in due course.

3. RAZLOG / BANSKO

PANORAMA VILLAS

This project is located close to the ski resort of Bansko and Phase 1 has reached the stage of rough construction; further work has been suspended pending improved market conditions. Until Phase 1 has been completed the remaining 3 phases will remain in the land bank.

NIRVANA

This undeveloped plot close to the centre of Bansko has residential planning permission and will remain in the land bank.

4. DOLNA BANYA

The Fund owns four plots in and around the town of Dolna Banya; the plots have a total surface area of 48,548 sq m and a build area of 57,621 sq m. One of the plots has a construction permit for residential buildings and a restaurant, while the other three are zoned for residential development. Dolna Banya is famed for its geothermal hot springs and is 16 km from the Boroverts ski resort. The four plots will continue to be held in the land bank.

5. PLOVDIV

The Fund owns 12,151 sq m of land in Plovdiv, split between two separate locations. Both projects have residential planning permission. The first plot ('Plovdiv Reach') is situated two kilometres from the city centre, beside the national rowing centre. The second site ('Roman View') is a disused tobacco factory located in the heart of the city centre. Both plots will be held in the land bank until economic recovery warrants their development or sale.

6. BANYA

The Fund owns 117,774 sq m of land close to the village of Banya which is five kilometres from Bulgaria's main ski resort (Bansko). The site was bought from numerous landowners as agricultural and has since been consolidated into three plots of similar size. Change of use from agricultural to residential has already been obtained on one of the plots whilst the other two have been removed from agricultural. The site will remain in the land bank while neighbouring leisure developments, not owned by the Fund, are completed. The reason this is important is that as neighbouring developments reach completion their ultimate sale of apartments will crystallise value for our plots whilst the importation of utilities close to the site will also improve its attractiveness to potential purchasers.

INVESTING POLICY

• The Fund is restricted to investments in Bulgaria and these investments must be largely (but not exclusively) residential in nature.

• The Fund may invest in early stage residential developments mainly, but not exclusively, in and around Sofia and its adjacent ski resorts.

• The Fund may buy land and seek to develop its land through partnerships with Developers.

• The Fund may borrow in order to develop its assets.

• The Fund should be liquidated and proceeds distributed to shareholders by 27 September 2012 (7 years from launch) unless shareholders vote to extend the life of the Fund.

• The Fund does not intend to pay a dividend (although the Fund is not restricted from doing so).

Mark Anderson and Loraine Pinel

Investment Managers

September 2010

Unaudited condensed consolidated statement of comprehensive income

for the 6 month period ended 30 June 2010

1 Jan 2009 to 30 Jun 2009

Notes

Revenue

Capital

Total

Total

€

€

€

€

Revenue

Property sales

-

-

-

88,207

Cost of sales

-

-

-

(127,020)

Other income

28,731

-

28,731

-

Gross profit

28,731

-

28,731

(38,813)

Expenses

Administration fees

71,340

-

71,340

87,784

Management fees

-

-

-

377,406

Performance fees

-

-

-

(2,092,068)

Directors' fees and expenses

31,497

-

31,497

31,786

Salaries and other disbursements

171,188

-

171,188

-

Foreign exchange gain

(15,396)

-

(15,396)

(20,194)

Loss on disposal of subsidiaries

2

-

116,860

116,860

-

Net change in (gain)/loss on revaluation

of investment properties

4

-

(49,848)

(49,848)

11,810,816

Impairment/(reversal of

impairment) of inventory net

5

-

807,268

807,268

(831,601)

Legal and professional expenses

311,525

-

311,525

297,546

Other expenses

152,910

-

152,910

186,551

723,064

874,280

1,597,344

9,848,026

Operating loss

(694,333)

(874,280)

(1,568,613)

(9,886,839)

Finance income

530

-

530

2,698

Finance cost

6

(636,313)

-

(636,313)

(782,011)

Loss before taxation

(1,330,116)

(874,280)

(2,204,396)

(10,666,152)

Taxation

-

-

-

793,715

Loss for the period

(1,330,116)

(874,280)

(2,204,396)

(9,872,437)

Other comprehensive income

Exchange differences arising on

translation of foreign operations

-

-

-

-

Total comprehensive loss

for the period

(1,330,116)

(874,280)

(2,204,396)

(9,872,437)

Loss per share - basic and

diluted (cents per share)

3

(3.29)

(20.42)

All items in the above statement derived from continuing operations

The accompanying notes 1 to 8 form an integral part of these financial statements

Unaudited condensed consolidated statement of financial position

as at 30 June 2010

Notes

30 June 2010

31 December 2009

€

€

€

€

Non-current assets

Investment properties

4

15,000,000

19,545,693

Investment properties -

4

held for sale

-

488,279

Current assets

Inventory

5

6,669,021

7,440,000

Property options

5

5

Trade and other receivables

55,861

196,308

Cash and cash equivalents

355,543

1,053,703

7,080,430

8,690,016

Total assets

22,080,430

28,723,988

Current liabilities

Loan payable

6

-

(4,063,687)

Trade and other payables

(1,011,937)

(1,387,412)

(1,011,937)

(5,451,099)

Non-current liabilities

Trade and other payables

(3,075,519)

(3,075,519)

(3,075,519)

(3,075,519)

Total liabilities

(4,087,456)

(8,526,618)

Net assets

17,992,974

20,197,370

Equity

Share capital

-

-

Special reserve

57,913,640

57,913,640

Capital reserve

(24,784,991)

(23,910,711)

Revenue reserve

(15,135,675)

(13,805,559)

Total Equity

17,992,974

20,197,370

NAV per share (Euro per share)

7

0.268

0.301

NAV per share at launch (Euro

per share)

1.178

1.178

These condensed financial statements were approved by the Board of Directors and authorised for issue on 29 September 2010. They were signed on its behalf by Charles Burton and Clive Simon.

Charles Burton

Clive Simon

Chairman

Director

The accompanying notes 1 to 8 form an integral part of these financial statements

Unaudited condensed consolidated statement of changes in equity

for the 6 month period ended 30 June 2010

Share

Special

Capital

Revenue

Total

Capital

Reserve

Reserve

Reserve

Equity

€

€

€

€

€

As at 31 December 2008

-

56,956,985

(2,522,902)

(10,342,057)

44,092,026

Total comprehensive loss

for the period

-

-

(8,093,432)

(1,779,005)

(9,872,437)

As at 30 June 2009

-

56,956,985

(10,616,334)

(12,121,062)

34,219,589

Share

Special

Capital

Revenue