788 Leveraged Global Asset Allocation Fund

NAV and Performance  as at   31st MARCH 2010       108.84     + 50.60 % Year to Date

MANAGER'S COMMENT 

Despite flat equity and bond markets over the first quarter of 2010, the 788 Global asset Allcation Fund has recovered strongly in Q1 2010 recording + 50.60 % net over the quarter.  At NAV of 108.84, most investors are back in the black and the fund is just a tad above the performance of the MSCI World equity market and the S&P500 since its inception.

The performance was achieved by having good market timing in a quarter that saw a sharp correction in equity markets in February and a strong recovery in March. Good timing in building up exposure on Japan ( +9.5 % in March ) and on Chinese equities ( -3.5 % in Q1 2010 ) as well as a good timing on the expected turn in the USD yielded the positive results.

Looking ahead for the rest of 2010, the Western econômies are charaterized by DEFLATION in the real economies, particularly in the US, and INFLATION in the financial markets, fueled by quasi zero nominal interest rates. In addition, the Chinese economy is powering ahead thanks to Goldilocks conditions, strong economic growth, strong consumption, strong investments, massive money supply growth, strong bank lending and a recovery in exports.

We expect  Chinese H - shares to appreciate by +70 % over the next 9 moths on the back of record earnings growth, massively positive liquidity conditions and valuation expansion on the back of strong inflationnary pressures. China's inflation will explode upwards to 6 % in Q3 forcing the hand of the Government to let the RMB appreciate.

One of the most important structural phenomenon is that JAPAN is pulling out of its 20 years deflationary conditions and is starting a new long term phase of growth and market appreciation. The Japanese Yen has turned decisively and should depreciate towards 111 in 2010 while consumption, exports and inflation come back to the system in  virtuous cycle.

At 11 000 the Nikkei 225 trades at the same level as in 1984 after having bottomed out twice and both local and international investors being massively underweighted this cheap market.

All in all, 2010 should prove to be  abumper year for these  Asian markets while US tReasury bonds are offering exceptional value at yields of 4.78 % when US inflation will move into negative over the year. we expect a susbtantial rally in the long end of the US Treasury market starting in June 2010.as the market consensus suddenly realizes that DEFLATION is there rather than the expected inflation.

Commodities are at risk as financial players are again dominating this space rather than the ultimate supply/demand. Failure of Gold, Oil and Copper to make new highs rapidly would trigger a massive sell-off. This is the msot dangerous area of the financial marekts at the moment and we stay well clear of it.

31st March 2010