788 Leveraged Japan Fund Ltd.

 FINAL  NAV and Performance  as at  31 MARCH 2010   NAV  14.84    +34.42 % Year to Date

MANAGER's COMMENTS

JAPAN is finally pulling out of its 20 year debt deflation cycle and is at the beginning of a multi year virtuous cycle that will unfold slowly at first and then more rapidly as infltion comes back into its domestic system, interst rates normalize themselves and the japanese currency starts an extended phase of depreciation against the USD and the RMB.

Powerful trends are at work in the Japanese economy and the catalyst for the turn have already taken place.

Inflation is coming back, exports are growing again, consumption is surprising on the upside and the huge pool of savings will finally move out of cash into riskier assets as inflation makes interest rates climb gradually over the next quarters.

The Japanese stock market lingers at levels last seen in 1984 after having bottomed out twice at the same level in five years and the technical configuration is extremely positive. Japan has been the unloved market for a decade and both domestic and international investors are heavily underweighted this extremely cheap equity market.

The current level of 11 000 is a unique entry point for long term investors and we expect earnings growth to support the beginning of a strategic and structural re-building of exposure to this market.

in 2010, our target is 17 000 for the Nikkei 225, a + 54 % appreciation from here, while the Japanese Yen should fall from the current level of 93 to 111 against the USD.

in Q1 2010, the Nikkei recorded + 5.6 % performance and March alone saw the market rise by +9.5 %.

the 788 Japan Fund fully benefitted from this move, recording a + 34.4 % performance, thanks to the good timing of the entry point and the appropriate use of our leveraging capabilities.

our fund should deliver a spectacular performance in 2010.

31st MARCH 2010

TECHNICAL VIEWS

Major Break in the 2007 trend in the Japanese Yen, after the completion of te three bear phases and an unsuccesfull testing of the 1995 high.

Same picture with the Nikkei 225, major break out to the upside after having tested the 2003 low and trading at 1984 levels. target for the new bull phase is 17 000, it could be completed in one single year if our prediction on the Japanese Yen proves to be right.

MACRO VIEWS

Coming back from hell, the Japanese economy is displaying a number of interesting trends at the moment and signs of strength are plenty.

Vehicle sales was up +35 % yoy in FEB 10 and +37 % in MAR, Machine tool orders were up 262 % yoy in MAR, the annualized GDP was up 3.8 % in Q4 2009 and although the dfelator is stil in negative at -2.8 % yoy, it is actually rising quite fast and is positive on a month to month basis. Industrial production is up +31% yoy  in February, Tokyo condominium sales are up +10.7 % yoy in FEB10 and the ALL INDUSTRY Activity Index is up 3.8 % mom, Retail trade is up +4.2 % YOY and +0.9 % MOM, Finally, Vehicle production is up 74.9 % YOY in FEB, a record in Japan's history.

The Japanese economy is far from being out of the woods and is still mired in deep deflation afetr 20 years of unwinding of the debt accumulated in the 1980's, however the turning of these series and the fact that the stock market held up well in the face of extremely severe economic conditions in 2009 lead us to conclude that these trends are turning for good and under their own dynamics.