ALCHEMY CAPITAL MANAGEMENT

INVESTMENT COMMITTEE RESEARCH ALCHEMY CAPITAL MANAGEMENT LTD.

MARCH 11 TH, 2008 confidential

2007Q4 compression of returns After 4 years of bullish capital markets global asset prices turned in mid-2007. This past year will be remembered as the year of the greatest mortgage disaster. Speaking more specifically about the fourth quarter, it was characterized by a continued increase in volatility which began during last July and August, where the fund fared well and managed to remain somewhat isolated from major markets downside risks, as investors remained concerned about the economic damage to come from sub-prime debacle in the form of write-offs, the availability of credit and the contagion effect on the global economy. The fund has suffered from hedge funds blown ups in September and compression of returns in the fourth quarter affecting a large portion of its allocation, 40% being directly and indirectly linked to credit crunch. This sensitive portion has induced NAV delays and major issues such as increase in margin calls for some large funds (within funds of funds) that drove prices even lower and illiquid securities that were closed in depreciation. We managed to reduce this exposure to below 10% of the portfolio’s entire allocation as of 1 st January 2008. We see blown-ups linked to credit crunch has a one-off event in our portfolio that has a low probability of occurrence in the future as a) exposure to credit and illiquid securities has now been widely reduced and b) diversified allocation to market neutral and arbitrage strategies has been greatly increased. We remain cautious, however, on the high level of volatility observed. As always we aim to be diversified and avoid concentrated calls. We monitor other funds of funds, high-quality and larger ones, as to try to mimic their style exposure. Financial crisis moving into final stage (?) Correlations might not have hit one in January but it sure felt that way. Almost all markets gyrated wildly as more bad news poured forth from the financial sector. Underlying fundamentals and notions of value were entirely secondary to fear of a financial and economic meltdown. January was one of the worst months on record for both traditional markets and alternative funds. The fear of recession, global credit concerns, and continued declines in housing prices, weak retail numbers and higher unemployment numbers all contributed to global market declines, sharp and pervasive. January 2008: the losses posted ranged from -15.7% for the Hang Seng, -12.5% for the MSCI Emerging Market, -11.5% for Dow Jones Eurostoxx and MSCI Europe to -6.12% for the DJ Hedge Fund Index, -4.1% for the HFR Equity Hedge and -2.84% for the EDHEC Funds of Funds index. The European, Canadian and Asian markets, that were holding up relatively well at the end of 2007, followed the US indices in their downward spiral move, erasing all the gains of 2007 in just one month and showing, for the most part, double digit monthly losses totalling now -25% to -35% from last summer tops. __________________________________________________________________________________________________

Fundamentals & Quantitative The recession debate has largely concluded. A contraction at some point in 2008 has definitively emerged as the baseline scenario for financial markets. We expect a long and shallow US contraction with contagion to other regions. The next recovery is not necessarily a replay of the leveraged boom and bust cycles investors have become familiar with over the last two decades. Continued deterioration in the US housing market (graph 1 and 2 below) coupled with:

a) Poor US job growth with unemployment rate at 5% and payroll growth average 38% lower in 2007 than in 2006. b) Fall in retail sales in December, -0.4% c) Contraction of ISM to 47.7 in December d) Tight liquidity conditions, in November high-yield bonds spread experienced fastest spread widening since 2002,

making it more challenging to access the capital markets for levered corporations.

__________________________________________________________________________________________________ Assets Volatile markets remain a fact of life, and we predict no substantial decline in uncertainty. Return dispersion reached levels not seen since 2003 as stock, sectors, indices and styles separate themselves. Correlation (implied and realized), have recently declined in February, providing a boost to portfolio managers.

__________________________________________________________________________________________________ Equities January 2008 saw no hiding in capitalization or valuation. Industrial heavy weight on German Dax fell as much as 7.2% on the 21st January. Emerging markets provided with no cover. Alchemy’s equity managers have thus far generated mixed performance in January, with those managers maintaining a lower or reduced net exposure having suffering less than their peers. As expected, those defensively positioned managers running neutral portfolio have been better positioned to protect capital and will be in 2008.

__________________________________________________________________________________________________ Bonds When Chairman Ben Bernanke is talking about “considerable strains” in financial markets, his thoughts are directed to short and long term funding markets. As concerns the short end of liquidity, Fed interest rate action and the new Auction facility have offered some relief. Libor and Overnight index Swap Spreads to 3-months Treasuries have come down from summer highs, but remains above pre-crisis standard levels.

On the long end, trends have been more worrisome, with spreads toping new peaks. And indeed, the backdrop is far from being positive. Credit markets remain in a vicious circle adjustment driven by technical deleveraging. As spreads widen and positions are marked-to-market, structured credit products are hit, forcing additional unwinds prices decline, and liquidity further deteriorates, increasing risk of downgrades. Product complexity, tail risk, and hidden sensitivities (such as bank’s balance sheet sensitivities to downgrades), make it impossible to assert that total losses will indeed amount only the current USD 400Bn estimates. After household mortgage related debt, problems could emerge in other debt segments (credit card, auto loans or commercial property).

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Volatile markets Given the sustained level of volatility over the past several months, we think there might be room for a slight uptick in the general level of volatility. Treasury volatility and equity volatility usually move in tandem. But in the past few months, Treasury volatility has outpaced equity vol. If the long term correlation is to be restored, either Treasury vol could decline or equity volatility could increase. The latter seems somewhat more likely.

S&P 500 realized volatility (1970-present February 2008)

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Correlation Declining correlation, but overall level remains high by historical standards. If we interpret the implied correlation as a measure of risk in a given portfolio, it has declined since the end of last year. The same holds true for realized correlation, which decline in the past month or so (February 2008 that is). Nonetheless, the general level remains elevated. Risk remains high, even if these measures do not reflect quite as much risk as a month ago.

__________________________________________________________________________________________________ Alternative strategies We continue to believe that the asset class will offer strong outperformance. Dispersion among assets returns, declining correlation, and sustained volatility in markets should allow managers to show they have skills and not just luck. We are confident with the portfolio positioning we have adopted since the start of the year, and continue to have a strong preference (and now strong exposure) for non-directional strategies and managers that monetize volatile markets. The amount of dispersion within strategies is key issue for portfolio construction, and we pay a great deal of attention to the bottom-up choices of our portfolio once we settle on the top-down viewpoint. The volatility in the markets means that manager choice is as important as ever.

Hedge Funds: The Fastest Growing Asset Class JPMorgan survey we found noted that the average allocation is 5 per cent for institutional investors (42 per cent of respondents invested), but 63 per cent of current investors intend to increase their exposure over the next 2.2 years. Diversification (53 per cent) is also the main reason for using alternatives. Investment focus is on local/European-domiciled multi-strategy funds of funds. For the first time, the average exposure to hedge funds exceeds the average exposure to private equity among European institutional investors. Annualised returns are expected to decline from 8.9 per cent to 8.0 per cent p.a., resulting in the highest anticipated Sharpe Ratio (1.06) of the three key alternative asset classes (i.e. Hedge funds, Private Equity, Real Estate). Our general conclusions on the proper allocation for a portfolio hedge funds have not changed dramatically, however, our market exposure towards our convictions has been adjusted accordingly, as it takes much time than “hitting a bid” on a market. We dislike equity directionality, as we see little upside in the asset class. We think equity managers who are nimble and try to trade and arbitrage the markets rather than “set it and forget it” approach can add some alpha in these turbulent times, but we know there have been inclusion, in one of our main funds of funds exposure, of a slight short-bias manager overlay in recent weeks to remove lingering beta and to compensate for long-bias in other funds of funds within Alchemy’s portfolio. We believe that market volatility is here to stay for the time being, and we like strategies that aim to make returns on gamma trading (convert arbitrage or statistical arbitrage) or through sophisticated derivatives trades (volatility arbitrage) that capitalize on inconsistencies among instruments prices. These strategies have been overweighed. Some trends (bonds ad commodities, for example) appear promising for certain managers to exploit. A similar story holds true for discretionary global macro managers, who can evaluate trends and changes in the market to benefit from consistent, thematic views (not a systematic model). Strategies that are afflicted with highly illiquid, dysfunctional markets (fixed income, MBS, credit markets) have too much mark-to-market risk and negative systemic risk, risk which outweigh any mispricing or divergence of price and value that we think might be attractive in a long time frame. We greatly reduced this type of exposure. Rather than entering these strategies too early, we prefer to wait a little longer to get some visibility. We’d prefer not to jump the gun too early.

Event-driven strategies are in the middle, Merger Arbitrage and Special Situations rate an overweight, as we expect good quality selection/rotation among our funds of funds. Although we have been contacted by many Distressed managers, we do not see the right time yet for funds of funds to start increasing exposure yet, as we rate Distressed underweight.

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Alchemy Portfolio breakdown As of January 1st, our portfolio’s strategy allocation breakdown is as per graph and data below. We believe that Event Driven has been reduced within several funds part of Alchemy, henceforth this style exposure should be weighed around or under 18% as of March 1st, 2008. The same holds true for Credit and Fixed Income that should have been reduced. On the other hand, we believe L/S Equity Hedge and especially Equity Market Neutral should combine a 7-8% exposure based on our most recent estimates. As seen above on page 9, L/S Equity (inclusive of Emerging Markets) tend to reduce gross and net exposure towards lower beta exposure. Considering overall rebalancing and style rotation, the non-directional bias of the fund accounts for a 50-55% of allocation, if we include Multi-Strategy, FoFs overlay (contained within FoFs) and the strategic reduction of beta exposure of some L/S Equity and Emerging Markets managers.

Long/Short Equity (Europe 70%) 22.5% Market Neutral + All Arbitrage Strategies + Event Driven 46.0% Multi Strategy + FoFs overlay 8.6% Equity Long bias 4.9% Global Macro + CTAs + Commodities 8.9% Emerging Markets 7.5% Cash 1.5%

Breakdown Market Neutral / Arbitrage Strategies (ex-Event Driven)

Equity Market Neutral & Statistical Arb 5.8% Volatility Arbitrage 11.5% Relative Value Arbitrage 4.7% Fixed Income & Convertible Arbitrage 4.2%

Jean-Marc Bloch , Director Alchemy Managers Ltd, Investment M anager of Alchemy Capital Management Ltd. Copyright © 2008, Alchemy Capital Management Ltd. This document does not constitute an offer or invitation to subscribe for or purchase any securities. Distribution directly or indi rectly and reproduction of part or all of the contents are prohibited without prior agreement of Alchemy Capital Management Ltd. Ne ither this document nor any of copy hereof may be distributed in any jurisdiction where its distribution may be restricted. Persons who receive this document should make themselves aware of and adhere to any such restrictions. By accepting this document you agree to be bound by the foregoing limitations. This document or copy cannot be sent or taken or transmitted into the USA, Canada or Japan or distributed in these countries or to any US, Canadian or Japanese person. This document is for information purpose only. Applications for shares in the fund can only be made on the basis of the Prospectus. Past performance is indicative only.