Investment Outlook

INVESTMENT OUTLOOK

Macroeconomic & Strategy Global Economic Climate After the turmoil of the credit crisis, the world economy is possibly facing a deep recession ahead. Despite strong, concerted efforts by central banks to increase money supply and stimulus packages pushed through by various nations, global growth is expected to take a sharp dive for the year ahead. According to IMF estimates, world GDP growth is expected to fall to 0.5% before experiencing gradual recovery in 2010. (Figure 1)

Geographical Outlook Our Fund is upbeat on economic prospects in Asia and the emerging markets. After China’s real GDP growth fell in the last quarter of 2008 to 6.8%, its government announced a 4 trillion yuan stimulus package aimed at maintaining the nation’s economic growth above 7%. Unlike the US, China has a tiny budget deficit and is focused on keeping literally millions of workers employed. The stimulus package is mainly funnelled into infrastructure projects like railways, telecommunications network, airports and environmental projects. Our fund aims to capitalize on the expected growth in this sector and country. S&P estimates that the Asia Pacific region will lead the recovery in the global economy and the momentum will be consolidated in 2010 when US economic growth turns positive. Sector Outlook Our Fund sees strong upside potential in the renewable energy and healthcare industries. The need for a renewable source of energy has always been a global issue in the face of ever increasing demands for energy from nations like China and India. It is optimistic that newly elected President Obama has not turned a blind eye to this need. Taking the credit crisis as an opportunity, he has pledged to invest $150 billion into clean energy for the future. We feel healthcare is a resilient industry even in the face of economic storms. In times when cash is king, major pharmaceutical companies have the some of the strongest balance sheets around. As witnessed by the Pfizer-Wyeth bid, this may be the time to acquire targets on the cheap to secure their rival’s more lucrative drugs in the pipeline.

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INVESTMENT OUTLOOK

Fixed Income PIMCO Emerging Markets Bond Fund Investment Overview Our fund seeks to avoid any US debt, even supposedly safe Treasuries. US Treasuries typically act as a safe haven for investors, backed by the full weight of the US government. We feel the massive borrowings needed to fund the stimulus packages for the US economy would depress bond prices on fear of default. We are also wary of US high-grade corporate bonds despite their increasingly attractive risk-reward trade-off. Our fund sees potential in emerging markets debt. After the financial contagion in late 1990s which culminated in Russia defaulting on its debt, better fiscal and monetary policies have established stable conditions. A simple measure is found in movement of credit default swaps linked to national debt. While emerging market debt still has a wider CDS spread, it is the CDS spread of industrialized nations that have seen the most movement. Inexperienced investors and those with smaller risk appetites should be wary of investing in emerging markets debt. In February, Russia’s debt rating was downgraded to BBB after it failed in stopping the ruble’s downward slide. We trust in PIMCO’s expertise as one of the world’s top asset management firms to manage our capital in this area. The Emerging Markets Bond Fund employs active management of emerging market corporate bonds as well as tactical investments in non-benchmark local currencies and instruments. As can be seen from the holdings, the Fund invests in corporate bonds with a higher risk rating. We feel this form of high-risk, high-reward active management should be left in the hands of the professionals (PIMCO).

Fund Performance

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INVESTMENT OUTLOOK LEGG MASON Asian Bond Trust Investment Overview We believe that Asia will lead the recovery and take center stage in the world economy. As we recover from the crisis and money starts to flow into “riskier” assets, we feel that Asia will be the place to be in. The current crisis is likely to leave both the US and Europe in bad shape financially, with increasing debt levels and the threat of inflation setting in. Backed by substantial foreign reserves, with the US faced with more than US$10 trillion in debt and a potentially destabilizing bond market bubble, we see Asian bonds offering greater value as investors seek out alternatives to treasuries. Major Holdings by Industry Industry

Fair Value (as at 30/09/2008) $

Percentage of total net assets attributable to unitholders at 30/09/2008 %

Government

21,175,724

50.16

Bank

5,222,674

12.36

Electronic

2,670,365

6.33

We like the high exposure to government bonds which provide for a low risk, high yielding alternative to corporate bonds. We also like the fund’s low exposure to Thailand (1.63% of total net assets – the lowest exposure amongst all Asian countries) as we do not see the political situation completely abating itself in the near future. Asian banks are still standing strong despite the credit crisis with the debacle brought about by US and European banks increasing the possibility of Asian banks as an alternative. Singapore banks have seen increased bank transfers and deposits since the start of the crisis and the fund’s significant exposure to the Asian banking sector allows them to benefit from the recovery where we see Asian banks recovering very much faster than US and European banks. Fund Performance

Legg Mason Asian Bond Fund NAV Source: Legg Mason Asian Bond Trust factsheet

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INVESTMENT OUTLOOK

PARVEST Asian Convertible Bond Investment Overview We like convertible bonds because it allows reduces our risk in the short term while allowing for longer term exposure to a potentially stronger rebound in the equity markets. We see equity markets bottoming in 1H 2009 if it has not already done so. The Baltic Dry Index has bottomed last year and with the stimulus packages from China slated to kick in, we think that it is an opportune time to increase exposure to equities in 2009. Convertible bonds will provide us with a margin of safety and defensive aspect with returns from the bond portion and provide exposure to the foreseeable upside in equity markets via the convertible portion. Major Holdings by Industry and Geography Industry

Percentage of Net Asset Value (%)

Country

Percentage of Net Asset Value (%)

Finance

46.18

China

26.72

Telecom Services

17.46

India

16.54

Energy

11.42

Singapore

16.04

Materials

9.01

Hong Kong

15.84

Malaysia

15.16

We like the fund’s high exposure to China. China’s equity market has been one of the worst hit even as their middle class continues to grow and will seek assets to allocate their capital to. China’s dedication to keep itself growing at a decent rate and huge reserves which gives it leeway for economic stimuli may serve as an indication that markets may be oversold. We also expect the bigger players to consolidate their position as smaller players face increasing difficulties in operations or credit and benefit greatly when economic conditions return to normal. The fund’s significant exposure to telecommunications, energy and materials are beneficial with telecoms and energy demands benefiting from an increasing middle class and materials likely to benefit from the stimulus packages. Fund Performance

Parvest Asian Convertible Bond performance Source: Parvest Asian Convertible Bond factsheet

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INVESTMENT OUTLOOK

Mutual Funds SCHRODER International Selection Fund – Global Climate Change Equity One of the funds worth looking into is Schroder International Selection Fund – Global Climate Change Equity. This particular fund invests in companies that contribute positively to the environment through their fundamental business operation. The green wave has been on the rise in recent years. The global climate change is an undeniable and urgent agenda, propelling greater consumer interest in ‘green’ brands. As pollution gets increasingly out of hand with rising economic activities, governments and worldwide organizations are realizing the greater need to exercise responsibility and restrain corporations from further worsening the precarious environment. Legislation is likely to be altered to accommodate friendly environmental efforts and we can expect greater subsidies to be set aside to support these ‘green’ companies. This will benefit this particular fund tremendously. When the time comes, these companies will be well positioned above their peers who have neglected the adoption of a green policy. They will possess a first mover advantage when it comes to seizing their respective market share while their peers are busy making the necessary structural changes to their business model in response to the change in legislation and consumer interest. Our prediction for a rising green wave is not unfounded. U.S President Obama has recently unveiled the new energy plan for American, aiming to make U.S a leader in climate change. This is good news for Schroder International Selection Fund – Global Climate Change Equity as a significant 34.33% of their assets is allocated in America. 13.81% of this particular fund’s assets lie within the energy sector. This is a reasonable allocation as President Obama aims to ensure that 10% of America’s electricity will come from renewable sources by 2012 and 25% by 2025. President Obama also plans to strategically invest $150 billion over the next ten years to accelerate private efforts to realize a clean energy future. Companies investing in green energy will be able to take advantage of this. The fund’s annual management fee is 1.50%, this is reasonable taking into account that most of its peers are charging the same amount. We like how they diversified their holdings such that none of them holds more than 2.7% of the net asset value. On the flip side, the risk rating of 9 might be a cause for wary. We will have to take into account the impact of the economic slowdown. Countries’ may be limited in their financial capabilities and political concerns may be diverted from environment-saving efforts to address more pressing matters at hand. However, from the long-term perspective, environment is certainly one of the urgent issues on the agenda that must be addressed at the end of the day. THE BROWNIE FUND

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INVESTMENT OUTLOOK As the fund is still relatively new, we feel that it is not fair to judge the fund based on only results from the past two years given that these are exceptional years. At a price of 5.85, beaten down almost by half from 10.00, this fund is worth investing into and we hope to ride on the green wave in anticipation of its likely high returns. UNITED Global Healthcare Fund Another one of the funds worth looking into is the United Global Healthcare Fund. This particular fund invests in securities issued by companies operating in the healthcare industry worldwide. Healthcare is a defensive industry. Health, being one of the utmost priorities in life, will not be as drastically affected by the economic downturn in comparison to other industry. Health expenses will not be cut back on simply because they concern the matter of life and death. Given the uncertainty regarding the recovery of the global economy, we feel that it is good to hold on to at least one defensive fund as a safety buffer especially in such current situation. Launched in Year 2000, the fund’s performance is largely impressive as it consistently outperform the MSCI ACWI Healthcare benchmark. The proven track record of eight years for consistently picking performing securities issued by respective healthcare companies speaks volume regarding the management’s expertise and experience. The management fee stands at 1.75%, a reasonable charge given their performance.

Source: Fund Fact Sheet

We like how the fund allocates 33.66% of its investment in the major pharmaceuticals sector and 26.40% in biotechnology. Medical research and development is one of the more lucrative field in the healthcare industry as the rewards are tremendous. The high fixed cost incurred from such R&D will be offset with the increasing consumers purchasing the particular product or cure formula. Following which, health services come third with 21.20% invested in it. With aging population, more money will be pouring into the health services industry as the demand for medical treatments and services will rise once the generation of the baby boomers retires. This justifies the hefty 70.41% asset allocation in the United States. At a price of S$X, we think that the United Global Healthcare Fund will be a good addition to the investment portfolio for primarily defensive purposes. We like how the Sharpe ratio is high at -0.5 compared to its peers, signifying that returns are relatively high compared to the amount of risk to be undertaken. THE BROWNIE FUND

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INVESTMENT OUTLOOK

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