Portfolio project

THE SIN PORTFOLIO

Original Sin
By
Michelangelo Buonarroti

Presented by:
Brian Neary

INDEX
Sections:

1. Mission Statement- objective & strategy (pg.2-3)

2. Selection Process- factors, and scoring- (pgs.4-6)

3. Industry Analysis- (pgs. 8-12)

4. Company Analysis- (pgs.12-29)

5. Hedge Analysis- (pg. 30)

6. Portfolio Financials- (pgs.31- 36)

7. Sin Portfolio Performance (pg. 37-39)

8. Financials Appendix- (pgs.40-51)

9. Bibliography (pg.52)
10. Endnotes (pg.53-54)

INVESTMENT OBJECTIVE

The primary Investment Objective of the “SIN” Portfolio is to create a well-
diversified International Equity Fund that endeavors to achieve long term
capital appreciation, stable returns, and sustainable growth based upon our
uniquely designed stock selection model, and its related parameters.

PRINCIPAL STRATEGY

The Sin Fund is a $100 million dollar closed-end asset fund designed for a
“bottom-up” approach to investing. The Principal Investment Strategy of the
fund is to invest 90% of its assets in Large Cap common equity securities
($1.7-$500 billion USD) of non-U.S. issuers. The remaining 10% of its assets
are for defensive positioning. The equity markets comprising the portfolio
principally encompass the BRIC, MSCI EAFE Index, as well as from sectors
designated as emerging market zones. The countries/regions to be included
within the fund are China, Japan, Western Europe, and the Middle East.

Accordingly, the equity issuer from a particular country or geographic
region selected for the fund will only be considered if it possesses three specific
characteristics. The first qualification designates that the stock has a principal
securities trading market in that country or geographic region. The second
condition is that the company derives 50% or more of its annual revenue
within its vicinity. Lastly, the equity issuer is incorporated under the laws of,
or has its corporate headquarters in that country or geographic region.

The equity securities in which the Fund invests may also include depositary
receipts, preferred securities, and ETFs. Furthermore, the Sin Fund’s 90%
investment policy may be changed without shareholder approval. However,
notification of investment strategy modifications will be sent in writing.

There are several inherent risks with investment in the Sin Fund, and non-
U.S. assets. The first regards performance risk. In general, stock values will
fluctuate in response to the specific activities of a company, as well as to

general market conditions. Since the shares of an international fund are not
bank deposits, they aren’t guaranteed or insured by the FDIC, SIPC, or any
other government agency for default. Therefore, it may not be feasible to
enforce a judgment against the issuers of the securities, possibly resulting in a
total loss of the investment.

Second, investment in foreign securities involves market risk. Quite often
foreign securities are less liquid than comparable U.S. securities, so they may
exhibit price volatility and an inability to execute timely divesture. There may
also be differences in clearance and settlement procedures effecting accurate
settlements, and resulting in unforeseen losses. Currency risk is prevalent
along with the typical risks associated with domestic securities. If the value of
a local currency falls relative to the U.S. dollar, then the U.S. dollar value of the
foreign security will decrease.

Third, foreign securities also have risks related to global economic and
political developments. Several include expropriations, confiscatory taxation,
exchange control regulation, limitations on foreign ownership or the transfer of
assets, as well as situations of regional social instability.

Fourth, non-U.S. securities may be subject to regulatory risk. In general,
overseas security exchanges and broker-dealers have less oversight by
compliance entities than the U.S. markets. Foreign requirements may vary for
providing publicly available information. In the case of unsponsored or
unregistered depositary receipts the primary issuers are under no obligation to
distribute shareholder communications, or to convey any voting rights for the
deposited securities. Moreover, foreign accounting regulations, auditing, and
financial reporting standards may deviate from applicable FASB standards.

Lastly, there is no guarantee that any fund will achieve its investment
objectives. The depositor accepts the speculative risk of the portfolio when
taking a position. The performance of the Sin Fund depends upon whether or
not the investment team is successful in applying the portfolio investment
strategies.

SECURITY SELECTION PROCESS

The Sin Fund utilizes a quantitative approach to the equity selection
process by employing a proprietary model. The model is both industry-neutral
and region-neutral. It creates a diversified portfolio consisting of three
predetermined Sector components: Capital Goods (industries may include:
Aerospace & defense, construction/agricultural machinery, raw materials,
construction supplies/services, project management/engineering, oil services,
and capital goods manufacturing), Consumer non-cyclical (industries may
include: Alcohol and Tobacco), and Services (industry: Gaming). The model is
driven by research that screens a series of stocks within the global
marketplace. The model employs five quantitative screens based on the
following primary inputs:

P/E Ratio ( 12 months trailing )
Earnings per share ( 5YR Growth Rate )
Revenues ( 5YR Growth Rate )
Price to Free Cash flows ( 12 months trailing )
Total Debt to Equity ( Most Recent Quarter )
EBITD ( 5YR Average )

Each of these six factors contributes 16 2/3 % to the total calculation. The
individual securities are then ranked within each industry sector by the most
effective combination of these factors based upon the current economic cycle.
The scale of the ranking is from (1-5) with 1 being the lowest value or
percentage performance indicator, and 5 being the highest.

Holdings within each sector are uniformly distributed. No industry will
represent more than 30% of the Fund’s Portfolio. Furthermore, no single
position will comprise more than 10% of the total value under management.
The individual weighting of each security will be determined by its relative
position within the scale. The shares will then be accumulated as portfolio
holdings according to the percentage calculated from the screening process.

The Sin Fund may invest up to 10% of its net assets in forward foreign
currency exchange contracts, commodity futures and ETFs. This strategy is for
hedging purposes, to protect against a decline in the fund’s securities or an
increase in prices of securities that may be purchased. These assets may be
used to increase, limit or modify exposure to various securities, indices,
countries or regions.

Sin Portfolio Components

10%
30% Military / Industrial

Alcohol / Tobacco
30%
Gaming
30%
Portfolio Hedge

The Sin Fund, based upon its proprietary quantitative model, may engage in
active trading of its portfolio securities. As an example, a portfolio turnover
rate of 100% is equal to a fund buying and selling all of its securities one time
during the course of the year. Therefore, a high portfolio turnover rate (over
100%) could result in increased brokerage fees and substantial taxable capital
gains distributions to the shareholders. The Sin Fund employs a buy and hold
strategy, with anticipated portfolio turnover rate of approximately 25%-50%.

The fees and expenses applicable to the fund are calculated as follows:

Shareholder Fees:

1. Maximum sales charge (load) imposed on purchases- 2.5%
2. No deferred sales charges (load)
3. Early Redemption fees- 5% (within 60 days of initial purchase)

Annual Fund Operating Expenses: (1.25%)

1. Advisory fee 0.5%
2. Distribution and/or Service (12B-1) fees: 0.25%
3. Other expenses: 0.5%

The price of the Sin Fund’s shares (excluding the sales charge shown above)
is called net asset value, or NAV. The NAV is based on the value of the fund’s
portfolio securities. The initial pricing will be $100 per share, or par of the
$100 million portfolio, with a total of 1 million shares issued.

From the initial pricing onward, the NAV of the fund will differ because of
ongoing distribution fees, and relative stock performance. Actual market price
reflects NAV plus sales fees. The NAV per share will be determined once daily
at 4:00 p.m. EST on each day that the NYSE is open (or early closes). Shares
will not be priced on days that the NYSE is closed.

The value of the portfolio is based upon each stock price, when available. If
a market price is not readily obtainable, the asset will be marked at its fair
value. Therefore, regarding securities that are listed on foreign exchanges, the
NAV may change on days when shareholders will be unable to purchase or sell
shares.

The last topic to be discussed within the security selection process is the
Sin Fund’s dividend and income distribution policy. First, the fund will
disburse its net investment income (for example: the accumulation of stock
dividends for the fiscal year) if any, in the form of an annual dividend to all of
its shareholders. The weighting of this payout will be in proportion to the
amount of the fund’s shares held. Second, any net realized capital gains that
are accrued within the fund from the sale of any of the portfolio holdings will be
allocated to investors, on an annual basis.

These earnings will be calculated net of any capital losses incurred during
the year. The distributions are eligible for favorable Capital Gains Tax rates if
the positions were held for more than 12 months. However, if the shares were
sold in 12 months or less, the gains would be subject to regular income taxes
at the shareholder's tax bracket. The fund’s fiscal year begins on the first
business day of January within the current year of inception.

INDUSTRY ANALYSIS

The first Industry component of the Sin Fund, as President Dwight D.
Eisenhower forewarned us of in his ‘Farewell Address to the Nation’, is the
Military Industrial Complex. The Capital Goods providers encompassing this
Sector are composed primarily of multinational corporations. Several
industries include defense contractors, aerospace & military weaponry
producers, engineering firms, heavy industry manufacturing, agricultural
machinery, and construction equipment and services firms. The following
paragraphs will examine the general configuration, and overall financial
econometrics of the two industries selected for the portfolio; Aerospace/Defense
& Construction Services.

The military, aerospace, and defense industries represent the vast majority
of global growth within the military industrial complex. In total, worldwide
defense spending for FY 2006 was $1.1 trillion dollars. The United States was
first place on the list with $623 billion dollars appropriated. China followed in
second place with $63 billion dollars. Russia was a distant third, with $50
billion dollars spent on defense. The remaining top-ten entrants were all
Western European NATO Alliance members 1.

The largest manufacturing groups within the aerospace/defense sector are
ship-building, heavy weaponry, aircraft, and various technology-based
producers of missile systems, radar equipment, and light armament. Key
competitors within the category represent the largest industrialized nations.
The major manufacturers include; BAE Systems in the U.K., EADS in the
Netherlands, Thales & DCN in France, state owned Sukhoi & RSK MIG in
Russia, Saab in Sweden, Rheinmetall & Walther in Germany, Finmeccanica in
Italy, and the numerous U.S. corporations, not eligible for the portfolio.

The second segment within the Capital Goods analysis is engineering/heavy
construction industry. This group includes construction project management
firms, large-scale manufacturing & production, as well as oil services and
equipment providers. Several notable companies include; Mitsui, Komatsu,

Hitachi, Hyundai, Mitsubishi Heavy, Skanska, Norinco-China International,
Cemex, and Halliburton. In particular, Halliburton characterizes a hybridized
business model, having construction project management services and civilian
defense contracts, along with the oil equipment and servicing aspects of the
energy industry. Other notable firms excluded from examination for the
portfolio are Fluor, Schlumberger, Bovis Lend Lease, Turner Construction,
Caterpillar, and Ingersoll Rand all located within the U.S.

The FY 2006 financial results for this industry exceeded $300 billion dollars
in revenues. The global market cap for the sector, including agricultural and
commercial equipment (Komatsu and Caterpillar), is over $600 billion dollars 2.
The segment has been experiencing a global growth rate of 10-20% yearly.
However, this figure is biased especially toward the Asian Tiger and Chinese
building booms, specifically the 2008 Olympic capital improvement projects.

In regard to future economic expansion, the most important developing
regions to account for increasing revenue streams will remain the Middle East,
China and Southeast Asia, with average GDP growth rates exceeding 10%, and
gross capital expenditures over $500 billion dollars a year. The UAE, in
particular, has approved capital improvement projects in excess of $2 trillion
dollars to be constructed over the next 5-10 years.

Second sector within the fund is Consumer Non-cyclical. The industry
selected for the portfolio is Alcoholic Beverages. It is comprised of three major
segments: beer (which includes primarily beer, ale, ciders, and stout), wines
(includes brandies) and spirits (includes primarily liquors, whiskies, and
vodka). According to research firm Datamonitor, the global alcohol industry
generated total revenues of $812.4 billion in 2006, an increase of 2.4% and a
compound annual growth rate (CAGR) of 2.1 for the five year period of years
2002 though 2006i . Datamonitor forecasts that there will be a 2.2% CAGR for
years 2006-2011.

The breweries segment of the global alcoholic beverage industry accounts
for 48.7% of all industry revenues, followed by Wines with a 28.3%

contribution to global revenue, and Spirits with 22.9%ii. China is the largest
consumer of beer (Czechs have the honor of being the largest per capita
consumersiii). The Chinese drink an estimated 19.7% of all beer consumed
worldwide in 2005, followed by the USA who consumed approximately 14.8% of
all beer. Germany is the third largest consumer at close to 6%iv.

Europe is responsible for approximately 49.4% of the $187.4 billion
generated in sales within the Spirits segment of alcoholic beverages – a CAGR
of .7% for years 2002 – 2006. Europe is considered a mature market and it is
not surprising that there is little growth. The region with the largest CAGR for
years 2002-2006 is Asia-Pacific, Asia-Pacific CAGR is 4.4% over the same
period.

Global sales of the Spirits totaled approximately $269 billion in 2005.
According to Euromonitor, White Spirits (which includes Vodka, Gin, and ‘white’
rum like Barcardi®) accounted for 23.2% of all spirits sales, followed by
Whiskey, which accounts for 10.5% of overall sales. Although rum accounted
for only 5.6% of global spirits sales, rum is growing fastest in popularity,
according to Euromonitor.

Western Europeans have been the leading consumers of Spirits accounting
for about 30% of the $269.7 billion spent on Spirits. However, Europe
(especially Western Europe) is considered a mature market for alcohol
consumption. India showed the most growth in major markets of Spirits
salesv. The greatest growth opportunities exist in emerging markets such as
China, Southeast Asia and Latin America. China especially is an interesting
opportunity for growth in the alcoholic drinks industry. As the middle classes
emerge in these countries, there is an expectation for sales growth of global
‘premium’ brands. These ‘premium’ brands can be considered a luxury item.
The company best equipped and prepared to take advantage of these
opportunities can potentially be the big winner in the world alcoholic beverages
industry.

The third and final component of the Sin Fund is the Services Sector, in
particular the Gaming Industry. The 14 industry segments can be categorized
into either brick-and-mortar casinos or online gaming and Internet casinos.
Bricks-and-mortar casinos include land-based casinos, riverboats, dockside
casinos, tribal casinos, slot parlors, racinos (slots at racetracks), and limited-
stakes casinos. Online gaming and Internet casinos include virtual poker
rooms, and other online sites in countries where it is legal.vi

Gambling as an activity has existed in some form or another in every society
from the most primitive to the most advanced. Games that are played
throughout the world today have their roots in sixteenth century Europe.
While gambling and wagering have always been a popular pastime, it has not
been until recently that companies have been able to amass tremendous
revenues. The global industry revenues are expected to double from $61.4B in
2000 to excess of $100B by 2009.vii17

The Sin Portfolio managers are bullish toward the gaming industry, as a
result of the trends that we have seen during the recent boom. First, we have
noticed there is a latent demand for gambling. The soaring Gaming industry
growth in regions where legalization takes place indicates that the industry’s
customer base is nowhere near saturated. Unlike most other industries, an
increase in supply of gaming venues typically leads to an increase in demand.
As a result, pockets of Casino hotels are appearing around the globe. It is
usual for a number of gaming companies to occupy the same area in order to
satisfy the demand, clearly indicating it is an industry which thrives on
economies of scale.

Secondly, Internet-based gambling eliminates two of the largest constraints
within the industry, legalization and accessibility. Internet-based casinos have
managed to successfully maneuver through the legal landscape. While some
governments have eliminated or highly regulated brick-and-mortar gambling,
laws have lagged behind Internet gambling making it a controversial grey area.
The Internet allows people to partake in gambling who otherwise cannot travel

to a brick-and-mortar casino. The online casino customer base will grow as the
Internet reaches the far corners of the globe.

Thirdly, casinos have offered visitors more than the opportunity to gamble,
by positioning themselves as family destinations. They have become family
vacation-oriented, providing entertainment and services suitable for children as
well as adults. For instance, The Atlantis Resort and Casino located on
Paradise Island in the Bahamas offers its customers a variety of services
including a large marina, golf course, nightclubs, restaurants, a water park
and a beach. Casinos have also developed their meeting, incentive, convention
and exposition (MICE) business as well.

The final topic to be discussed for Gaming regards the major constraints
upon the industry. The two principal factors are government regulation and
extensive capital expenditures. Governments around the world are cautious
when dealing with the gaming industry, often feeling it has the responsibility to
protect their constituents from a potentially harmful environment. Those
governments that allow gambling usually do so in order to promote tourism
and generate employment opportunities yet still maintain tight control over
their operations.

Also, brick-and-mortar casinos require a significant amount of funds in
order to deliver a product that can generate consistent revenues. As discussed
earlier, Casino Hotels are no longer simply rooms full of tables and slots.
Casinos today are destination resorts requiring an entire infrastructure to
support the needs of the operation. It is for this reason that international
locations are often sponsored in some part by the local government, providing
beneficial tax consideration and legislation to promote travel & tourism.

COMPANY ANALYSIS

The first company to be included within the Sin Fund portfolio of stocks is
Finmeccania SpA. Finmeccanica is Italy's largest aerospace/defense company,
operating in the design and manufacture of helicopters, aeronautic design and
manufacture, aerospace/satellites, missiles/defense electronics. The company
has 56,000 employees within 5 main subdivisions.

The main business segment is Alenia Aeronautics. The company has an
alliance with EADs and Thales in production of the Typhoon Euro-fighter.
Also, the company is a 25% owner of the Sukhoi civilian aircraft division, of
Russia. The company’s second largest division MBDA is a joint alliance with
BAE Systems and is the #2 producer of missiles, behind Raytheon. The
company also has significant manufacturing assets in the heavy rail transport,
energy and IT sectors.

Finmeccanica has a market cap of €8.7 billion Euros, with 425 million
shares outstanding. The group is listed on the Milan stock exchange, and
operates in Italy and abroad through 16 companies and 6 joint ventures. The
company re-invests over 16% of its revenues on research and development.
From a future earnings perspective, the company reported guidance in excess
of 10% growth for FY 2008-2009. Also, based upon forward industry
contracts, the company expects revenues of €17 billion Euros for FY 2010.
Two recent developments are a €1.8 billion Euro contract with France to
produce helicopters, and a manufacturing deal of 2 satellites for Spain.3

However, uncertainties for the company exist within its aeronautics
division. Russian President Vladimir Putin has announced that Tupelov and
Sukhoi Aerospace companies will be consolidating operations. Therefore, with
a Russian re-assertion of “State Power”, Finmeccanica may possibly be
prohibited from further ownership rights of a state-run corporation, and lose
out on a substantial revenue stream.

The second company to be discussed within the Large Cap Sector is China
North Industries Corporation (or Norinco Group). It is a mainland Chinese
Enterprise Group engaged in international large capital expenditure projects,
manufacturing, marketing, and production services. Norinco’s scope of
operations includes defense/weaponry products, international engineering,
construction project management, optronics, chemical products, recreational
sports firearms & equipment and logistics services.4 The Norinco Group is one
of China's 10 defense-industrial enterprises (Jungong Qiye) which report
directly to the State Council. The company does not have any formal ties to the
People’s Liberation Army, although it is an indispensable military supplier.

The Norinco Group was created in the early 1980's as the export arm of the
Ministry of Ordnance Industry. Norinco Group was eventually incorporated in
1988 during a wave of State de-regulation. During the mid-1990’s the People’s
Congress sought to restructure China's Military Industrial Complex. As part of
the reorganization, shares of Norinco International were sold to the public. The
company has 162.4 million shares outstanding worth in excess of ¥15 billion
Renminbi ($1.7 billion dollars). But, it remains 81% controlled by parent
company (a.k.a. central authority) so the true market cap of the company is
indeterminable, especially in respect to an artificially undervalued currency.
Norinco Group currently has 82 overseas corporate locations, and 23 domestic
subsidiaries. The shares issued trade on China’s Shenzhen Stock Exchange.

From an R&D and Forward Earnings perspective, the Norinco Group
develops and sells high-tech defense products. Norinco has designed precision
strike systems, missile components (including fire control systems, sighting
and aiming systems), amphibious assault weapons & equipment, long-range
suppression weapon systems, anti-aircraft & anti-missile systems, information
& night vision products, high-effect destruction systems (WMD’s), anti-
terrorism & anti-riot products as well as small arms weaponry.5

However, the Norinco Brand has established its international reputation
primarily thru its engineering and construction projects (roads, railways,
bridges, commercial and residential buildings, municipal facilities, power

stations, and environmental protection projects). Recently, the company
completed Ethiopia’s first superhighway, and has begun phase II construction
of the first subway system in Tehran, Iran. The project is company’s largest
foreign revenue generator to date, valued at approximately $800 million dollars.

Norinco has had its share of controversy. In March 2000, the company sold
$65 million dollars worth of weapons to the Zimbabwe government, including
anti-personnel shells, rocket-propelled grenades, tanks and tank ammunition,
as well as large shipments of small arms. Also, in May 2003, the U.S.
government imposed sanctions on Norinco for allegedly supplying missile
technology to Iran. The charges included transfers of equipment and
technology that could contribute to a WMD program. Prior to the sanctions
Norinco exported an estimated $100 million worth of products to the U.S.

Norinco has also experienced recent earnings disappointments. Company
officials blame the sharp spike in commodity prices, and the appreciation of the
Yuan as main contributors. Despite reduced project volume, the company
recently signed another €500 million Euro contract with Iran to supply railway
cars. Also seen as beneficial, the Chinese government is increasing its defense
spending budget for FY 2008-09 directly from the $300 billion dollar China
Sovereign Fund, in response to continued U.S. aid commitments to Taiwan.

The third company to be added to the portfolio is Halliburton. Halliburton
is a defense/energy/construction services corporation with over 100 thousand
employees and operations in more than 120 countries. The company has
recently relocated its headquarters to Dubai, in the United Arab Emirates. The
main cash-flow stream for the company is generated in the Middle East, Africa
and Asia, with revenues of $13 billion dollars for FY 2006. Halliburton has a
market cap of $30 billion dollars, with 881.2 million shares issued and
outstanding. The stock currently trades on all major U.S. and German stock
exchanges in both Euro and U.S. Dollar denominations. 6 The consensus for
long-term growth is estimated at 12% YOY.

The company’s primary industry segment is its construction & energy
services group (ESG). The division provides engineering services, logistics,
technical products, and heavy manufacturing for oil and gas exploration and
production. The company’s subsidiary, Kellogg, Brown & Root (KBR), was a
major contractor for the construction division, building refineries, oil fields,
pipelines, chemical plants, and civil infrastructure. However, due to
substantial losses from ongoing asbestos litigation, and a $1 billion dollar loss
from the Barracuda Caratinga construction project in Brazil, Halliburton spun-
off KBR in April 2007.

Halliburton too, has had its share of controversies. Vice-President Dick
Cheney (former Halliburton CEO) has been accused of favoritism in awarding
no-bid contracts to the company for operations in Iraq, and Guantanamo Bay,
Cuba. Moreover, Halliburton has $8 billion dollar contract with the Pentagon
to supply American troops and support personnel with food, fuel, housing and
logistical support. But, a Government Accountability Office (GAO) examination
of several requisitions worth $4.3 billion dollars identified unsubstantiated cost
overruns of nearly $2 billion dollars.7 Approximately one-half of every dollar
spent could not be justified by the company.

Also, it has been documented that Halliburton has been building oil rigs in
Iran, despite official U.S. sanctions. And, in May 2003, Halliburton revealed in
SEC filings that its KBR subsidiary had paid a Nigerian official $2.4 million in
bribes in order to receive favorable tax treatment. 8

As a final note, in 2004 Al-Qaeda Figurehead Osama bin-Laden accused
Halliburton of war profiteering, and the subjugation Muslims worldwide.
Ironically, the Saudi bin-Laden Group is a direct competitor to Halliburton, but
sadly it could not be included in the Sin Fund because it is privately-held.

The fourth entrant within the Sin Fund is BAE Systems. BAE Systems is
the 3rd largest defense & aerospace company in Europe. The Rockville
Maryland subsidiary is the 6th largest defense firm in the United States. There
are currently 96,000 employees globally. The company has six major markets;

Australia, Saudi Arabia, South Africa, Sweden, UK, and the U.S. BAE’s total
revenues exceeded £15 billion pounds ($30 billion dollars) for FY 2006.7

The primary focus of operations is to deliver a full range of
defense/weaponry products including integrated communications, electronic
warfare systems, military air support, air-defense, mission support systems,
intelligence, surveillance & reconnaissance, armored combat vehicles, naval
guns, missile launchers, land-based artillery systems, intelligent munitions,
submarines and large naval ships, as well as military aircraft. Current
revenues for FY 2006 were £12.3 billion pounds ($24 billion dollars). A large
portion of the profits were re-directed toward R&D. The FY 2006 expenditure
was £1.3 billion pounds. The company currently has a market cap of £16.2
billion pounds ($32.4 billion dollars), with 3.5 million shares outstanding. The
stock trades on the London and the DAX exchanges.

The future revenue generators for the company are based upon four specific
products. The first is the ‘Type 45’ Destroyer. The warship is designed for
modern naval combat, combining advanced satellite and radar tracking, with
on board missile launching capabilities. The second product is the Typhoon
Euro-fighter. Its development is derived from a partnership with EADS, and
Alenia Aero-space Groups. The aircraft will be the 21st century replacement
plane for NATO, and the Euro-zone. The estimated price for each Typhoon
fighter to be built is £20 million pounds. The standing order is for 635 planes
to be produced. BAE is responsible for 37% of the plane’s construction, and
has obtained the exclusive rights for support and maintenance.

The third product is the UAV and UCAV programs. The ‘Taranis’ is an
unmanned combat vehicle, and the ‘Herti’ is an unmanned surveillance vehicle.
BAE Systems has £124 million pounds committed to the program by the
British government. The two projects are being developed in coordination with
the fourth future revenue cash flow stream, the SAMPSON system. SAMPSON
represents the next generation multi-function radar platform, providing
surveillance, target tracking and missile guidance information. The system is
currently being implemented on the ‘Type 45’ Destroyers. BAE is relying

exclusively upon the SAMPSON brand to promote all of its complementary
products, and be the backbone for future development initiatives.

The last member of the military industrial complex for the Sin Portfolio is
Rheinmetall AG. Rheinmetall AG is a German automotive and defense
company with factories in Düsseldorf, Kassel and Unterlüß. It has a long
tradition of making guns and artillery pieces, dating back to the 1890’s. In
1993, Rheinmetall merged with Mauser AG, another firearms/light weapons
manufacturer. Then, in 1996 & 1999 respectively, the company expanded its
overall scope of operations by acquiring majority-shares of STN Atlas &
Oerlikon Contraves, two major European defense companies.8

The company currently has 18,800 employees worldwide. Annual revenues
for FY 2006 were €3.6 billion Euros ($5.25 billion dollars). It has
manufacturing facilities in Brazil, Mexico, China, India, the U.S. Canada,
Turkey, and throughout the Euro-zone. The company’s market cap is €1.9
billion Euros ($2.8 billion dollars), with 34.9 million shares outstanding. The
price-to-book ratio is a very attractive 1.86 versus an industry average of 7.4.
The 5 year EPS growth rate is 42%, compared to an industry average of 24%.

Rheinmetall AG has two specific avenues of revenue creation. First, the
automotive sector is parented by Kolbenschmidt Pierburg AG. This segment
specializes in automotive modules and components. Its combined divisions
manufacture Air Supply & Pumps, Pistons, Plain Bearings, Aluminum engine
block technology, and motor services. The company is also an innovator of
advanced metal-working and milling technologies.

Second, the defense sector of company operations has several product
offerings including; armored vehicles, support and mine-clearing systems, NBC
protection systems, turret systems, weapons for tank and artillery systems,
medium-caliber weapons & ammunition, self-defense systems, propellants and
powder, civilian chemicals, air-defense systems, radar/reconnaissance
systems, fire control units, UAVs, and war-games/flight simulation.

The future cash flows indicators for Rheinmetall are currently at a 2:1 ratio
of automotive to defense. But, both groups are experiencing order backlogs.

Growth rates for FY 2007 are 5% year over year, and net income is expected to
exceed €120 million Euros.

The Sin Fund contains four Alcoholic Beverage Companies in its portfolio:
Diageo PLC, Heineken NV, Kirin Brewery, and Pernod-Ricard. The following
paragraphs will outline company operations.

Diageo PLC is the world’s leading producer of alcoholic drinks. Diageo was
formed in 1997 as a result of a merger between Grand Metropolitan PLC and
Ireland’s Guinness PLC. Among some of Diageo’s best known premium brands
are Smirnoff® vodka, Johnnie Walker® Scotch whiskies, Tanqueray® gin,
Bailey’s Original Irish Cream®, José Cuervo® tequila, Captain Morgan® rum,
and Guinness® stout. In addition to these internationally known brands,
Diageo also produces Premium local brands. Diageo reported fiscal year end
June 2007 total sales of £9.917 billion up from £9.704 billion for fiscal year
ending June 2006.

Diageo generates sales throughout the world. In fiscal year 2007, Europe
was Diageo’s biggest market. European sales accounted for £3.765 billion or
approximately 38% of Diageo’s total sales. After Europe, North America was
the region in which Diageo generated the most sales. Diageo’s North American
sales amounted to £2.939 billion – approximately 29% of Diageo total sales.
However, Diageo’s sales in Europe and North America declined in fiscal year
ending June 2007 compared to fiscal years June 2006. European and North
American sales both declined approximately 1.8%.

Diageo’s performance in regions outside of North America and Europe paint
a different picture. Sales in Asia-Pacific were reported as £1,131 in fiscal year
ending June 30, 2007 compared to £1,042 for the previous year – an increase
of 8.5%. Furthermore, Diageo’s International (comprised of Latin America and
The Caribbean, Africa, the Middle East) sales increased 13.8%.

Diageo’s key strength is being a leader in a variety of categories. Diageo’s
whiskey brands accounted for approximately 16.4% of global whiskey sales in
2005, making it the world leader. Diageo is especially strong in the blended
scotch whiskey category. Diageo’s Johnnie Walker® brand is the world’s best
known brand of blended scotch whiskey. Diageo is the premier blended Scotch
whiskey producer in the world, accounting for 35% of global salesviii. The
Number two selling Scotch Whiskey is J&B®, a Diageo brand as well.
Furthermore, Johnnie Walker® is available is several labels (Red, Black, Green,
Gold and Blue) which allows it to compete successfully worldwide, and perhaps
at different income levels (I was in Delhi, India recently and at every club I
attended, Johnnie Walker Green seemed to be the drink of choice).

Diageo also owns the world’s most famous brand on stout: Guinness®.
About 60% of the stout sold in the world is Guinness®. Stout consumption is
declining somewhat in its more traditional markets such as the UK and
Ireland. However, Diageo saw some increase in stout sales in other regions,
particularly in Nigeria. Diageo is less competitive in the lager beer market.
Diageo’s offering ‘lags’ far behind Belgium’s Imbev and SABMiller.

Ultimately, it is Diageo’s stable of ‘premium’ brands and Diageo’s position of
being the largest Spirits producer in the world that will give the company
leverage in increasing its sales and market shares in emerging markets,
particularly China and India. These are large consumption markets with a
growing middle class, offering the greatest opportunity for penetration.

The second company within the fund, Heineken N.V. is headquartered in
Amsterdam, The Netherlands. Heineken is the world’s fourth largest beer
brewer, behind InBev Anheuser Busch, and SABMiller PLC. The overall
marketshare is 5.85%. ix Founded in 1864, Heineken brews and sells over 170
international brands of beer including Amstel®, Poland’s Zywiec®, Birra
Moretti® of Italy, and Heineken®, its flagship brand. Heineken owns 115
breweries and distributors in over 65 countries throughout the world. x

Furthermore, Heineken is the principal producer in Western Europe. It is
the leading beer brewer in The Netherlands, Spain, and Italy and second
leading brewer in Switzerland, Ireland and France. Heineken is also a leading
brewer in much of Eastern Europe. Heineken also has a large presence in the
USA. Heineken USA, in addition to importing Heineken, is the exclusive
marketer of Dos Equis®, Tecate® and Bohemia®. Heineken also owns 50% of
Chilean brewer, Compania Cervecerias Unidas.

The popularity of Heineken and Heineken’s brands is reflected in its sales
numbers. In fiscal year 2006, Heineken reported sales of €11.829 billion (up
from 2005 sales of €10.796 – a 9.57% increase). Of these sales, approximately
70% were generated in Europe, 16% in the Americas, 10% in Africa and the
Middle East and about 5% in the Asia Pacific region. After many years of being
the #1 ranked imported beer brands in the USA, Heineken is now #2, having
been replaced by Corona®, a brand owned by Mexico’s Grupo Modelo.xi

Heineken believes that future beer consumption growth in the mature
markets such as Western Europe, USA, Japan, and Australia is about zero.
However, Heineken estimates that in developing regions such as, Eastern
Europe, Africa, Latin America and Asia, expected growth is 3% to 4%. The
drivers of demand for growth opportunities in beer consumption for developing
markets include; growing populations, increase in personal incomes and the
shift of consumption from liquors towards beer. xii

Heineken’s strengths include its strong global brand recognition. Perhaps
Heineken NV’s greatest opportunity for growth is in Asia-Pacific and Latin
America. Heineken is currently ranked 21st in the Asia-Pacific region, and, in
Latin America ranked #16.xiii Heineken has been aggressive in Asia. It has
been acquiring, through its joint-owned Singapore based Asia Pacific
Breweries, smaller breweries in countries like Vietnam. The company has also
purchased breweries previously owned by Australian brewer, Fosters Ltd.
Heineken controls approximately 9.53% of Asia Pacific Breweries.

There are many other emerging market opportunities available for
Heineken’s brand growth as well. In particular, the company is well-positioned
to take advantage of future prospects for growth in Eastern Europe, as
industry and commerce promotes rising incomes and a bourgeoning middle-
class within the expanding Euro-zone.

Kirin Holdings Co Ltd (Tokyo Stock Exchange: 2503.T) is a Japanese
holding company that operating companies in soft drinks and functional foods,
but it’s main segment in its domestic brewery business, Kirin Brewery Co Ltd.
Brewery. Its main beer brands are Kirin lager beer, Classic Lager, and Ichiban
Shibori. The Kirin brand dates back to 1888. For many years it has been the
top selling brand of beer in Japan, until recently when it was overtaken by its
archrival, Asahi. Even though Asahi is Japan’s largest brewer and holder of
Japan’s #1 Brand of beer, Asahi Super Dry, Kirin has been gaining market
share against Asahixiv.

In addition to beer, Kirin produces popular low malt beer– known as
happoshu. In total, 64% of Kirin’s 2006 revenues were derived from its alcohol
sales, followed by soft drinks, which accounted for 24%, and pharmaceuticals
which accounted for 4% of Kirin Holdings Co Ltd revenues. Kirin Holdings Co
Ltd’s remaining 8% source of revenue is from so-called “other operations” such
as seasonings, health foods, and its agro/bio businessxv.

Aside from the Japanese domestic market, Kirin also has strong sales
overseas. Kirin owns 42% of New Zealand brewerxvi Lion Nathan. Kirin also
owns 20% of San Miguel Corporation, the largest Philippines food & beverage
company. Sales from Lion Nathan accounted for ¥160.2 billion. Additionally,
Lion Nathan has a market share greater than 50% of New Zealand’s beer
industry. Kirin is aiming to expand in the giant market to the West of Japan:
China – as it has acquired a 25% stake in Chinese brewery, Hangzhou
Qiandaohu Brewery Co. for $38 million in 2006.

Last month, Kirin announced that it is acquiring 100% of Australian dairy
products company National Foods Ltd, known for its Yoplait® yogurt among

other brands. Kirin hopes to streamline its combine its distribution channels
of National Foods and Nathan Lion. Kirin’s pharmaceutical segment is also
expanding, as the company continues to diversify. It has acquired a controlling
interest in Kyowa Hakko, a drug maker and developer of cancer treatmentsxvii.

The domestic Japanese beer market has been declining most likely as a
result of an aging and decreasing population. Japan’s National Institute of
Population & Social-Security Research estimates that by 2012 Japan’s
population will decline by about 300,000 people per year. However, it currently
remains the sixth largest consumer of beer behind China, the USA, Germany,
Brazil, and Russiaxviii.

There is fierce competition between Kirin and its archrival Asahi Brewing.
Both Kirin and Asahi are fighting for supremacy in the same marketplaces,
primarily within Japan. However, Kirin stock is preferable to Asahi, as an
addition to this portfolio, mainly because of its relative company size and
aggressive growth plan for the Asia-pacific region. Another deciding factor is
Kirin experienced higher sales growth than Asahi, over the past 5 years.

Pernod-Ricard SA is the fourth alcoholic beverage company added to The
Sin Portfolio. Pernod-Ricard is the second largest Spirits Company in the
world, behind the United Kingdom’s Diageo PLC. Pernod has a strong stable of
internationally owned brands such as, Beefeater® gin, The Glenlivet® Single
Malt Scotch Scotch, Jameson® Irish Whiskey, Ballantine®, coffee liqueur
Kahlúa®, Jacob’s Creek® wines, and Chivas Regal® a premium blended Scotch
whiskey. Pernod Ricard, with its acquisition of Allied Domecq, has doubled its
share in the North American Spirits market, and bumped the company to the
leading Spirits producer in Western Europe.

Pernod’s most important categories are Blended Scotch Whiskey and Pernod
Blended Scotch Whiskey led by its premium Chivas Regal® and Ballantine’s®
(formerly an Allied Domecq brand). The brands accounted for 55% of Pernod
Ricard’s whiskey sales ranking second well behind Diageo PLC. Ballantine’s®
sales have made Pernod the overall leader of Irish whiskey production.

Jameson’s® is the number #1 brand of Irish whiskey in the world. Rum
manufacture is the third largest segment of Pernod, which accounts for 12% of
sales. Its best known rum brand is Malibu® also acquired from Allied Domecq.
Pernod-Ricard also has a joint-venture with Havana Club International.
Havana Club is especially strong in Greece, Chile, and Mexico. However as it is
produced in Cuba, it has no access to the enormous US market.

A concern for Pernod-Ricard, is an absence of a strong premium vodka
brand. Pernod Ricard owns distribution rights to Russian brand Stolichnaya®
the world’s number three brand of vodka - until 2010xix. It is likely that Pernod
Ricard will try to acquire a premium brand like Sweden’s Absolut® or even
Stolichnaya® to enable it to better compete with Diageo. Another premium
Pernod-Ricard SA brand, Martell® cognac, has struggled in the domestic
European market in recent years. However, Martell® has increasing sales in
emerging markets such as Russia, China, and Latin America. Pernod claims a
39% growth rate in Martell® sales over the past year.

Pernod-Ricard, like all of its competition, understands that most growth
opportunities exist in emerging markets, especially in China, India and Russia.
Additionally, Pernod-Ricard seems to be well positioned to take advantage of
the increasing demand of ‘premium’ brands due to a growing middle class in
these emerging markets. Pernod-Ricard experienced 13% organic growth in
Asia, Africa and the Middle East over the first reported quarter of FY
2007/2008 (the quarter ending September 2007). Revenues are also
highlighted with a 30% increase in China over the same period last year. Can
Pernod-Ricard keep up these results? One can not tell what the future but
these figures must be encouraging for the company, as it is clear there is
strong demand in Asia, the world’s fastest growing region.

The last stocks to be included within the Sin Fund are from the Gaming
Industry. The first company to be discussed is OPAS S.A. Founded in 1958
and is based in Athens, it has grown to become the leading gaming company in

Greece. OPAP operates and manages numerical lottery and sports betting
games in Greece and Cyprus. Their portfolio of games consists of six
numerical lottery games, including Joker, Lotto, Proto, Extra 5, Super 3, and
Kino; and three sports betting games including Stihima, Propo, and Propo-
goal.xx Kino, the most popular lottery game, is responsible for over 50% of the
numerical gaming sector. The sports games are based around the results of
Football (American Soccer) matches in Greece.

OPAP holds the sole concession to operate and manage the existing games
in Greece, as well as a right of first refusal to operate and manage any new
lottery games permitted by the Hellenic Republic. With this agreement comes
the right to operate and manage all absolute and variable fixed odds betting
games in Greece subject to government approval.xxi The Government
agreement was signed in 2000 and is in force for 20 years.

The Greek gaming industry has been growing at an average rate of 18%
since 1998 to over $8 billion today. Other segments within the industry
include; horse racing, instant lottery, state lottery, and casinos. OPAP is
directly responsible for generating 52.6% of the total industry revenue. In
addition to revenue growth, the company has been able to reduce the
percentage of sales devoted to income tax expense from 6.36% to 4.66%, which
has directly improved their bottom line.

OPAP S.A. has a number of focused business strategies starting with
revitalizing existing games through increased payouts and rule changes.
Introducing “over under” betting as well as adding additional sports activities
are concepts that OPAP is considering. It’s also continually focused on
introducing new lottery game in an easily accessible format. For example,
Bingo Lotto was introduced in 2006, which will be played through nationally
televised draws.

OPAP hopes to improve its brand through enhancing its distribution
network. Currently, OPAP operates its games through an online network of
approximately 5,440 dedicated independent agents throughout Greece and
Cyprus. The agents are equipped with one or more on-line terminals that are
linked directly to a central data center in either Athens or Cyprus. Not only is

the company applying a more uniform and modern look to its distribution
network but it’s also making a capital investment to modernize the technology
platform to allow for improve operation of the games and to better utilize their
on-line capabilities.

OPAP has plans to capitalize on its on-line expertise by branching out
internationally. Understanding the growth potential of online gaming, it plans
to reproduce its network beyond the current concession contract. The online
footprint affords OPAP the opportunities to further diversify its operations by
providing commercial on-line service other than those relating to gaming.

Illegal gambling poses the only direct threat to their market share. OPAP
will continue their efforts to combat illegal gaming in Greece by working with
the government to identify and implement measures designed to eliminate
illegal betting.

The second company in the gaming portfolio is Genting Berhad, an
investment holding company that engages in a wide range of operations
including; leisure and hospitality, gaming and entertainment businesses,
plantation, generation and supply of electric power, property development and
management, tours and travel related services, investments, manufacturing
and trading in paper and paper related products, and oil and gas exploration
activities principally in Malaysia. The company was founded in 1965 and now
has operations in Asia-Pacific and Europe. It was formerly known as Genting
Highlands Hotel Sdn Bhd and changed its name to Genting Highlands Hotel
Berhad in 1970. Later, the company changed its name to Genting Berhad in
1978. It is headquartered in Kuala Lumpur, Malaysia. As of July 2007,
Genting Berhard held 50.08% interest in Resorts Berhard.xxii

The company’s Leisure and Hospitality division operates hotel, gaming,
and entertainment businesses; and provides tours and travel-related services,
and other support services. Its Plantations division involves in oil palm
plantations, palm oil milling, and related activities. The company’s Property
division engages in the property development, and letting of land and premises.
Its Manufacturing division manufactures and trades paper and paper-related
products, as well as involves in downstream activities, including packaging.

Genting’s Oil and Gas division’s activities include oil and gas exploration, and
the development, production and sale of crude oil. Its Power division engages in
the generation and supply of electric power. It operates a 720-megawatt Kuala
Langat power plant in Malaysia.xxiii

The company is also involved in various other activities, such as;
providing risk and insurance management consultancy, operating golf courses,
fruit bunches processing, owning and operating casinos, and tour promotion.
The company's pre-tax profit for the third quarter of 2007 plummeted 50.7% to
MYR 365.689 million compared with MYR 742.479 million previously due to
the impairment losses on goodwill of MYR 937.8 million arising from the GIPLC
Group's acquisition of Genting Stanley. Revenue climbed 40.3% to MYR 2.224
billion from MYR 1.585 billion, with higher revenue recorded from all business
divisions of the group with the exception of the property division.xxiv

For the nine months period, the company per tax profit jumped 39.5% to
MYR 2.485 billion ($738 million) that was largely contributed by its leisure &
hospitality, plantation and power divisions as well as one-off gains. The
company said for the period, its revenue surged 47.9% to MYR 6.234 billion
from MYR 4.215 billion a year ago. Earnings per share increased to 39.90 sen
from 28.30 sen. The recent financial success has led the Board of Directors of
Genting Bhd to declare a Special Dividend of 30.0 sen.

The third company in the gaming industry portfolio is Kangwon Land.
Founded in 1998 this Kangwondo, South Korea based company is engaged in
the provision of hotel and recreational services. The company’ can be broken
down into 4 core business operations; Kangwon Land Hotel, which has 674
rooms and 24 floors; casino, which has 132 game tables and 960 game
machines, such as black jacks, baccarats, roulettes, big wheels, slot machines
and video games; Kangwon Land golf course, which has 18 hole golf course and
situated at 1,100m above sea level, and Kangwon Golftel, which is a resort
hotel.xxv In addition, the Company operates skiing ground, condominium and

theme park. Of the 4 operating units, the casino operations are responsible for
97.5% of the revenues.

Kangwon Land is South Korea’s only legal casino facility and was built
on a former coalmine in the Gangwon province. It broke ground on the 51.9
acre resort facility in 1999 and has since expanded to be a multipurpose
vacation destination. The casino allows wagering machines and table games on
its 125,000 square-foot floor but does not offer sports betting or off-track
betting. The facility includes a 500-unit housing facility for its 3135
employees. Additional guest amenities include health club/spa; pools;
conference center and ballroom; six restaurants and bars; 400-seat
amphitheater. The company even has its own ice hockey and ski teams. In
addition to the opening of its casino, Kangwon established several gambling
clinics to help prevent and treat gambling addictions.xxvi

Kangwon Land High 1 Ski Resort has a total of 18 slopes making it the
third largest ski facility in Korea. 3 gondolas and 5 lifts connect to the slopes,
which funnel down into the resort area.

The Gaming portfolio is rounded off with Tabcorp Holdings Limited, an
Australian based company engaged in the provision of leisure and
entertainment services, particularly in relation to gambling and hospitality.
The Company has three main business segments: Casinos, Wagering and
Gaming. Casino operations include hotels, apartment complex, theatres,
restaurants and bars. Wagering comprises numerical and fixed odds betting
activities, and national and international broadcasting of racing and sporting
events.xxvii Gaming includes gaming machine & Keno operations, in licensed
clubs and hotels.

Tabcorp was formed in 1994 when the Victorian State Government listed it
on the Australian Stock Exchange, marking the first major public offering by
the statutory body. The company acquired the business formerly conducted by
the public sector for $77.8 million AUD, and acquired the necessary wagering
and gaming licenses for $597.2 million AUDxxviii. The company has a 75%

controlling position in a joint-venture with the Victorian Racing Industry.
Tabcorp provides the licenses, fixed assets, employees and management of the
wagering business in return for a fee.

The Company has grown through a number of mergers and acquisitions
since its founding. In 1999 Tabcorp acquired Star City, further diversifying its
portfolio of businesses and broadening its leisure and entertainment
operations. In 2000, Tabcorp announced the acquisition of Structured Data
Systems Pty Ltd (SDS), which develops networked wagering systems, Keno
systems and animated games. In 2003, Tabcorp merged with Jupiters Limited,
which owned three Queensland casinos and other gaming operations in
Queensland and New South Wales. In 2004, Tabcorp completed a takeover
offer for Tab Limited; the New South Wales based wagering and Media
Company.

The three business units share relatively even pieces of the total revenue.
The $1.3 billion AUD of casino revenue is generated by four casino and hotel
properties with a combined 407 tables, 4,583 electronic gaming machines,
1,398 hotel rooms, 44 restaurants and bars, and 3 theaters. The casinos also
include conference and banquette facilities to accommodate large business
functions.

The Wagering unit, which generates $1.4 billion of revenue, consists of
numerical and fixed odds betting located in 2,652 retail outlets in Victoria and
New South Wales. This segment also includes the widely broadcasted Sky
Channel network. Sky Channel reaches 1.8 million homes and 5,300 outlets
in Australia in addition to international locations including New Zealand, US,
Canada, UK, Ireland, Sri Lanka and the Middle East. The channel televises
57,000 races per year and has 700,000 regular retail customers using their
wagering products each week.

The Gaming unit uses its gaming machines to generate $1.1 billion in
revenue. Tabcorp controls 13,669 electronic gaming machines in 130 hotels
and 135 clubs under the Tabaret brand in Victoria. It also has Kino games in
2,190 venues in Victoria, Queensland and New South Wales.

Tabcorp’s three major business units of Casinos, Wagering and
Gaming employ more than 11,000 people in all States of Australia. Tabcorp
has more than 220,000 shareholders and has a market capitalization within
the top 50 Australian companies listed on the Australian Securities Exchange.
In the 12 months to 30 June 2007, the company generated net operating
revenue (normalized and before non-recurring items) of $3,881.7 million AUD.
The company's net profit after tax (normalized and before non-recurring items)
for the period was $515.6 million.xxix Tabcorp has typically paid dividends to
shareholders in March/April and September/October. Dividends to
shareholders in respect of the full year to 30 June 2007 totaled 94 cents per
share.

HEDGE ANALYSIS

The Sin Fund is employing a hedge strategy to protect its positions from
currency fluctuations. As there are 7 different currencies involved with
trading, the fund is leveraging the underlying stocks with gold bullion. The
position will be in the form of an ETF derivative security (symbol: GLD). The
gold ETF does not require storage related expenses or shipping costs, unlike a
physical gold purchase, and it is fungible. Its valuation represents 1/10th of
the current CME gold commodity futures price. The gold hedge will be 7% of
the portfolio’s holdings.

The second hedge mechanism to be used by the fund will be in the form of
an FX futures ETF (symbol: UDN). The instrument tracks the price and yield
performance, before fees and expenses, of the Deutsche Bank Short US Dollar
Futures Index. The index is comprised solely of short futures contracts. The
futures contract is designed to replicate the performance of being long the US
Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar,
Swedish Krona and Swiss Franc. The fund is non-diversified. The primary
purpose of this hedge is to protect the portfolio from U.S. dollar losses from
devaluation. The fund will invest 3% in the ETF; to represent a percentage of
U.S. sales that the combined companies have within the United States.

PORTFOLIO HOLDINGS

1. Capital Goods- 30% of portfolio holdings ($30,000,000 dollars)

Norinco: Chinese Reminbi
BAE Systems: Pound Sterling
Halliburton: USD/Euro
Finmeccania: Euro
Rheinmetall AG: Euro

RANKING
Norinco HAL BAE SIFI RHMG
1 3 2 5 4
1 2 5 3 4
4 5 1 3 2
5 3 2 4 1
1 5 4 3 2
1 3 5 2 4
2.2 3.5 3.2 3.3 2.8

%
Weight
Norinco HAL BAE SIFI RHMG
% 14.44% 23.33% 21.11% 22.22% 18.89%
FX
exch 0.13525 1 2.05 1.46 1.46
Shs
$ 15.15 36.61 460 20.4 56.45

$USD $USD
company % price shares total
Norinco 14.44% $2.05 2,114,850 $4,333,333
HAL 23.33% $36.61 191,200 $7,000,000
BAE 21.11% $943.00 6,716 $6,333,333
SIFI 22.22% $29.78 223,860 $6,666,667
RHMG 18.89% $82.42 68,750 $5,666,667

100.00% $30,000,000

The following chart is the 5 year performance of the Cap Goods stocks:

HAL- Black BAE systems- Gold Norinco- Red Finmeccania- Orange

Rheinmetall AG- Green MSCI EAFE Index- Purple S&P 500 Index- Blue

Sin
Median S&P
Performance Portfolio Industry Sector 500
P/E Ratio (TTM) 37.19 31.69 43.08 20.63
EPS - 5 Yr. Growth
Rate 33.40 28.31 25.99 23.46
Sales - 5 Yr.
Growth Rate 9.40 11.18 15.69 32.65
Price to Free CF's
(TTM) 65.50 53.01 68.91 14.68
Total Debt to
Equity (MRQ) 0.56 0.79 0.75 0.73
EBITD - 5 Yr. Avg. 9.52 18.34 18.36 21.63

2. GAMING- 30% of portfolio holdings ($30,000,000)

Kangwon Land: Korean Won
OPAP: Euro
Genting Bhd: Malaysian Ringgit
TabCorp: Australian Dollar

RANKING
TAH Kang OPAP GENT
1.25 3.75 2.50 5.00
5.00 1.25 2.50 3.75
2.50 1.25 3.75 5.00
2.50 1.25 5.00 3.75
3.75 5.00 1.25 2.50
2.50 5.00 1.25 3.75
2.9 2.9 2.7 4.0

%
Weight
TAH KANG OPAP GENT
23.33% 23.33% 21.67% 31.67%
FX exch 0.89 0.00109 1.46 0.297
shs $ 15.27 23,200 26.56 7.90

SHARES $USD $USD
TAH 23.33% $13.51 518,000 $7,000,000
KANG 23.33% $25.29 276,800 $7,000,000
OPAP 21.67% $38.78 167,625 $6,500,000
GENT 31.67% $2.35 4,050,000 $9,500,000

100.00% $30,000,000

The following chart is the 5 year performance of the GAMING stocks:

Genting Bhd- Black Kangwon Land- Red OPAP- Orange

Tab Corp- Green MSCI EAFE Index- Gold S&P 500 Index- Blue

Sin
Median S&P
Performance Portfolio Industry Sector 500
P/E Ratio (TTM) 15.63 12.56 17.73 20.63
EPS - 5 Yr.
Growth Rate 19.63 18.21 11.03 23.46
Sales - 5 Yr.
Growth Rate 16.76 9.82 6.25 32.65
Price to Free
CF's (TTM) 53.55 31.32 66.68 14.68
Total Debt to
Equity (MRQ) 0.68 0.75 0.27 0.73
EBITD - 5 Yr.
Avg. 36.16 14.49 11.53 21.63

3. ALCOHOL- 30% of portfolio holdings ($30,000,000)

Kirin: Japanese Yen
Heineken: USD/Euro
Diageo Ltd: Pound Sterling
Pernod-Ricard: Euro

RANKING
Hein PERN DIAG KIRIN
3.75 2.50 5.00 1.25
2.50 1.25 3.75 5.00
3.75 5.00 1.25 2.50
3.75 5.00 1.25 2.50
3.75 2.50 1.25 5.00
2.50 5.00 3.75 1.25
3.3 3.5 2.7 2.9

%
Weight
HEIN PERN DIAG KIRIN
26.67% 28.33% 21.67% 23.33%
FX exch 1.00 1.46 2.05 0.00899
shs $ 32.60 151.35 1,093 1,749

SHARES $USD $USD
HEIN 26.67% $32.60 245,400 $8,000,000
PERN 28.33% $220.97 38,465 $8,500,000
DIAG 21.67% $2,240.65 2,900 $6,500,000
KIRIN 23.33% $15.72 445,300 $7,000,000

100.00% $30,000,000

The following chart is the 5 year performance of the ALCOHOL stocks:

Heineken- Black: Diageo- Red Pernod-Ricard- Orange

Kirin- Green MSCI EAFE Index- Gold S&P 500 Index- Blue

Median S&P
Performance portfolio Industry Sector 500
P/E Ratio (TTM) 23.44 15.18 20.44 20.63
EPS - 5 Yr.
Growth Rate 9.41 6.88 11.77 23.46
Sales - 5 Yr.
Growth Rate 2.19 6.17 2.70 32.65
Price to Free
CF's (TTM) 38.40 27.62 94.99 14.68
Total Debt to
Equity (MRQ) 0.85 1.28 0.78 0.73
EBITD - 5 Yr.
Avg. 19.97 16.89 11.93 21.63

PORTFOLIO SUMMARY

Portfolio Summary
% $USD $USD %
Free D/E
company
weight price shares Cost (USD) P/E EPS Revenues CF's ratio EBITD
Norinco 4.33% $2.05 2,114,850 $4,333,333 126.25 1.78 17.35 36.09 0.68 4.46
Halliburton 7.00% $36.61 191,200 $7,000,000 18.75 59.30 6.41 130.63 0.47 11.25
BAE 6.33% $943.00 6,716 $6,333,333 12.94 36.02 16.41 66.61 0.56 9.80
Finmeccania 6.67% $29.78 223,860 $6,666,667 14.36 27.46 11.59 22.16 0.45 11.03
Rheinmetall AG 5.67% $82.42 68,750 $5,666,667 13.64 42.44 -4.75 72.02 0.62 11.06

Tab Corp 7.00% $13.51 518,000 $7,000,000 17.83 28.93 14.57 86.47 0.69 27.21
Kangwon Land 7.00% $25.29 276,800 $7,000,000 15.20 2.80 13.48 96.61 0.24 52.24
OPAP 6.50% $38.78 167,625 $6,500,000 16.20 22.10 21.90 16.20 1.06 16.41
Genting Berhand 9.50% $2.35 4,050,000 $9,500,000 13.30 24.70 17.10 14.90 0.72 48.77

Heineken NV 7.00% $13.51 245,400 $8,000,000 20.03 9.56 5.52 39.76 0.64 19.97
Pernod-Ricard 7.00% $25.29 38,465 $8,500,000 19.20 8.30 9.20 2.10 1.10 25.78
Diageo 6.50% $38.78 2,900 $6,500,000 21.96 0.80 -7.25 57.49 1.43 23.63
KIRIN 9.50% $2.35 445,300 $7,000,000 32.55 18.98 1.30 54.24 0.25 10.50

Sub-Totals: 90% $90,000,000 26.32 21.78 9.45 53.48 0.69 20.93

Portfolio Hedge
GLD (gold bullion) 7.00% $77.32 90,530 $7,000,000
UDN (futures) 3.00% $28.09 106,800 $3,000,000

Sub-Totals: 10% $10,000,000

Totals: 100% $100,000,000

Portfolio Performance
industry Sector
S&P
Portfolio 500 AVG AVG
P/E Ratio
(TTM) 21.22 20.63 26.74 36.23
EPS - 5 Yr.
Rate 19.86 23.46 27.85 20.63
Sales - 5 Yr.
Rate 8.44 32.65 22.05 14.00
Price to Free
CF's (TTM) 47.59 14.68 39.46 127.12
Total Debt to
Equity (MRQ) 0.60 0.73 1.48 0.80
EBITD - 5 Yr.
Avg. 19.96 21.63 23.55 19.27

PORTFOLIO STATISTICS

Portfolio vs S&P 500
company weight mean variance std dev cov corr beta
Halliburton 7.00% 0.02291 0.00974 0.10049 0.00087 0.43179 2.07605
Norinco 4.33% 0.07085 0.04583 0.21800 -0.00039 -0.08916 -0.92997
RHMG 5.67% 0.01715 0.00531 0.07422 0.00043 0.28525 1.01292
BAE 6.33% 0.02149 0.00325 0.05803 0.00025 0.21237 0.58959
Finmeccania 6.67% 0.01303 0.00188 0.04414 0.00034 0.37981 0.80210

Tab Corp 7.00% -0.00111 0.00153 0.03977 0.00034 0.42617 0.81087
Kangwon Land 7.00% 0.02240 0.00640 0.08149 0.00072 0.43888 1.71118
OPAP 6.50% 0.02008 0.01300 0.11611 -0.00026 -0.11060 -0.61445
Genting Berhand 9.50% 0.03437 0.00516 0.07315 0.00065 0.44061 1.54215

Heineken NV 7.00% 0.02423 0.00177 0.04279 0.00018 0.20813 0.42612
Pernod-Ricard 7.00% 0.01559 0.00182 0.04340 0.00009 0.10815 0.22456
Diageo 6.50% 0.01070 0.00057 0.02441 -0.00003 -0.05676 -0.06631
KIRIN 9.50% 0.01371 0.00378 0.06260 0.00003 0.02363 0.07077

Sub-Totals: 90%

Portfolio Hedge
GLD (gold bullion) 7.00%
UDN (futures) 3.00%

Sub-Totals: 10%

Totals: 100%

Period Sin
(6/05-12/07) Portfolio S&P
Mean 0.01872 0.00993
Variance 0.00584 0.00042
Std Dev 0.06385 0.02090
Cov 0.00025 -
Corr 0.19723 -
Beta 0.58438 1.00000

PORTFOLIO STATISTICS

Portfolio vs EAFE
company weight mean variance std dev cov corr beta
Halliburton 7.00% 0.02291 0.00974 0.10049 0.00029 -0.11875 -0.47450
Norinco 4.33% 0.07085 0.04583 0.21800 0.00122 0.23121 2.00419
RHMG 5.67% 0.01715 0.00531 0.07422 0.00074 0.41096 1.21275
BAE 6.33% 0.02149 0.00325 0.05803 -0.00022 -0.15497 -0.35756
Finmeccania 6.67% 0.01303 0.00188 0.04414 0.00022 0.20651 0.36243

Tab Corp 7.00% -0.00111 0.00153 0.03977 0.00014 0.14352 0.22694
Kangwon Land 7.00% 0.02240 0.00640 0.08149 -0.00070 -0.35345 -1.14525
OPAP 6.50% 0.02008 0.01300 0.11611 0.00036 0.12942 0.59753
Genting Berhand 9.50% 0.03437 0.00516 0.07315 -0.00007 -0.04202 -0.12222

Heineken NV 7.00% 0.02423 0.00177 0.04279 0.00021 0.20495 0.34872
Pernod-Ricard 7.00% 0.01559 0.00182 0.04340 0.00012 0.11497 0.19838
Diageo 6.50% 0.01070 0.00057 0.02441 -0.00007 -0.11439 -0.11105
KIRIN 9.50% 0.01371 0.00378 0.06260 0.00077 0.50972 1.26878

Sub-Totals: 90%

Portfolio Hedge
GLD (gold bullion) 7.00%
UDN (futures) 3.00%

Sub-Totals: 10%

Totals: 100%

Period Sin
(6/05-12/07) Portfolio vs EAFE EAFE vs S&P
Mean 0.01872 0.0167
Variance 0.00584 0.0006
Std Dev 0.06385 0.0252
Cov 0.00019 0.0000
Corr 0.08207 -0.0640
Beta 0.23843 -0.0770

Milan Exchange (Symbol SIFI.MI)

Growth Rates
1 Year 3 Years 5 Years
Sales % 13.29 18.10 16.41
EPS % 174.59 73.72 36.02
Dividend % -30.00 -44.07 NM

Revenue
Periods 2004 2005 2006 2007
March 1,903 2,166 2,666 2,818
June 4,325 2,758 3,273 3,485
September 2,066 2,614 2,893 3,153
December 2,753 3,905 4,131
Totals 11,047 11,443 12,963 9,456
Note: Units in Millions of EUR

Earnings per Share
Periods 2004 2005 2006 2007
March -0.08 0.02 0.89 0.03
June 0.23 0.23 0.43 0.35
September 0.13 0.17 0.07 0.26
December 1.15 0.45 0.95
Totals 1.43 0.86 2.34 0.64
Note: Units in EUR

Consensus Estimates Analysis
# of Est. Median Est. High Est. Low Est. Std.Dev. Proj.Pr/Est.
Revenue Pr/Sales
Q4: 12/2007 1 4,242.00 4,242.00 4,242.00 -- --
FY: 2007 17 13,536.00 14,844.00 13,327.00 333.52 0.64
FY: 2008 16 14,633.50 15,865.00 13,892.20 414.16 0.59

EPS P/E
Q4: 12/2007 1 0.54 0.54 0.54 -- --
FY: 2007 18 1.21 1.67 0.98 0.14 16.87
FY: 2008 18 1.47 1.88 1.27 0.13 13.88

LT Growth Rate (%) 4 15.00 24.00 12.00 4.56 --
Note: Units in Millions of EUR (except for per share items)

Data supplied by Reuters Fundamentals.

Shenzhen Exchange (Symbol 000065.SZ)

Growth Rates
Sales % 17.51 13.06 17.35
EPS % -20.96 -2.38 1.78
Dividend % NM NM 9.57

Revenue
Periods 2004 2005 2006 2007
March 254 275 402 356
June 343 393 262 195
September 246 199 433 119
December 878 380 399
Totals 1,721 1,246 1,496 670
Note: Units in Millions of CNY

Earnings per Share
Periods 2004 2005 2006 2007
March 0.01 0.02 0.05 0.06
June 0.08 0.06 -0.10 -0.10
September 0.01 0.03 0.13 -0.11
December 0.11 0.04 0.03
Totals 0.22 0.15 0.12 -0.15
Note: Units in CNY

Revenue Pr/Sales
FY: 2006 1 2,160.00 2,160.00 2,160.00 -- 1.14

EPS GAAP P/E
FY: 2006 1 0.15 0.15 0.15 -- 101.20

LT Growth Rate (%) -- -- -- -- -- --
Note: Units in Millions of CNY (except for per share items)


New York Stock Exchange (HAL)

Growth Rates
Sales % 11.54 11.53 11.59
EPS % -3.85 77.13 27.46
Dividend % 20.00 6.27 3.71

Revenue
Periods 2004 2005 2006 2007
March 5,519 4,783 2,938 3,422
June 4,956 4,973 3,116 3,735
September 4,790 4,912 3,392 3,928
December 5,201 5,572 3,509
Totals 20,466 20,240 12,955 11,085
Note: Units in Millions of U.S Dollars

Earnings per Share
Periods 2004 2005 2006 2007
March 0.09 0.35 0.42 0.52
June -0.07 0.37 0.47 0.63
September 0.21 0.47 0.58 0.79
December 0.20 1.03 0.61
Totals 0.43 2.23 2.07 1.94
Note: Units in U.S Dollars

# of Est. Mean Est. High Est. Low Est. Std.Dev. Proj.Pr/Est.
Revenue Pr/Sales
Q4: 12/2007 13 4,047.63 4,186.30 3,930.00 66.71 --
Q1: 03/2008 8 3,977.85 4,117.70 3,846.00 78.37 --
FY: 2007 15 15,093.08 15,271.30 14,700.00 145.22 2.18
FY: 2008 14 17,327.31 18,738.50 16,730.00 543.01 1.90

EPS P/E
Q4: 12/2007 20 0.70 0.75 0.64 0.02 --
Q1: 03/2008 14 0.68 0.77 0.63 0.03 --
FY: 2007 23 2.48 2.55 2.40 0.03 14.46
FY: 2008 23 3.00 3.26 2.85 0.11 11.95

LT Growth Rate (%) 4 12.27 15.00 10.00 1.93 --
Note: Units in Millions of U.S Dollars (except for per share items)

London Stock Exchange (BA.L)

Growth Rates
Sales % 11.92 13.72 6.41
EPS % 43.32 NM NM
Dividend % 9.71 7.09 4.66

Revenue
Periods 2004 2005 2006 2007
June 3,926 4,633 5,760 6,346
December 4,891 6,386 6,573
Totals 8,817 11,019 12,333 6,346
Note: Units in Millions of GBP

Earnings per Share
Periods 2004 2005 2006 2007
June 0.08 0.10 0.09 0.15
December 0.07 0.07 0.10
Totals 0.15 0.17 0.19 0.15
Note: Units in GBP

Revenue Pr/Sales
FY: 2007 21 15,208.00 17,081.00 13,935.40 760.74 1.03
FY: 2008 21 17,505.00 19,515.00 14,702.00 1,112.45 0.91

EPS P/E
FY: 2007 15 28.38 31.88 26.02 1.68 0.16
FY: 2008 14 31.82 37.20 28.82 2.32 0.14

LT Growth Rate (%) 3 17.30 17.30 12.00 2.50 --
Note: Units in Millions of GBP (except for per share items)


Frankfurt Stock Exchange (RHMG.DE)

Growth Rates
Sales % 4.86 -5.68 -4.75
EPS % 7.01 25.03 42.44
Dividend % 11.11 16.04 17.84

Revenue
Periods 2004 2005 2006 2007
March 846 779 870 936
June 833 881 902 986
September 805 831 871 998
December 1,070 1,107 1,130
Totals 3,554 3,598 3,773 2,920
Note: Units in Millions of EUR

Earnings per Share
Periods 2004 2005 2006 2007
March 0.31 0.33 0.46 0.60
June 0.75 0.53 0.57 0.66
September 0.47 0.58 0.49 0.91
December 1.15 1.82 1.91
Totals 2.67 3.26 3.42 2.17
Note: Units in EUR

Revenue Pr/Sales
Q4: 12/2007 2 1,167.00 1,170.00 1,164.00 3.00 --
FY: 2007 20 3,983.50 4,069.14 3,825.00 52.44 0.44
FY: 2008 20 4,185.50 4,357.00 4,048.00 64.13 0.42

EPS GAAP P/E
Q4: 12/2007 1 2.12 2.12 2.12 -- --
FY: 2007 19 4.04 4.87 3.76 0.31 12.08
FY: 2008 20 5.22 6.00 4.39 0.38 9.57

LT Growth Rate (%) 3 11.50 13.20 6.50 2.84 --
Note: Units in Millions of EUR (except for per share items)


Tokyo Stock Exchange (2503.T)

Growth Rates
Sales % 2.06 1.41 1.30
EPS % 5.16 18.94 18.98
Dividend % 3.45 7.72 4.56

Revenue
Periods 2004 2005 2006 2007
March 326,496 311,431 350,101 378,009
June 759,449 740,276 782,722 836,020
September 1,224,255 1,195,492 1,241,359 1,325,344
December 895,437 891,973 883,224
Totals 3,205,637 3,139,172 3,257,406 2,539,373
Note: Units in Millions of JPY

Earnings per Share
Periods 2004 2005 2006 2007
March 3.69 1.03 6.66 6.82
June 14.73 15.55 19.84 17.58
September 41.92 45.49 49.51 49.26
December 35.85 37.72 36.14
Totals 96.19 99.79 112.15 73.66
Note: Units in JPY

Revenue Pr/Sales
FY: 2007 10 1,799,000.00 1,860,000.00 1,777,000.00 24,835.70 0.93
FY: 2008 6 1,825,000.00 1,890,000.00 1,787,800.00 38,226.97 0.91

EPS GAAP P/E
FY: 2007 10 56.58 59.90 53.50 1.57 30.90
FY: 2008 6 60.33 64.60 47.10 5.76 29.72

LT Growth Rate (%) 1 2.30 2.30 2.30 -- --
Note: Units in Millions of JPY (except for per share items)


London Stock Exchange (DGE.L)

Growth Rates
Sales % 3.04 -5.59 -7.25
EPS % -25.45 2.79 0.80
Dividend % 5.14 5.81 6.56

Revenue
Periods 2004 2005 2006 2007
December 5,060 3,674 3,960 4,022
June 3,831 3,003 3,300 3,459
Totals 8,891 6,677 7,260 7,481
Note: Units in Millions of GBP

Earnings per Share
Periods 2004 2005 2006 2007
December 0.29 0.32 0.40 0.33
June 0.17 0.10 0.27 0.17
Totals 0.46 0.43 0.67 0.50
Note: Units in GBP

Revenue Pr/Sales
H1: 12/2007 1 4,258.00 4,258.00 4,258.00 -- --
H1: 12/2007 1 4,258.00 4,258.00 4,258.00 -- --
FY: 2008 14 7,852.67 8,105.00 7,775.00 100.09 3.75
FY: 2009 13 8,374.26 8,761.00 7,995.00 187.09 3.52

EPS P/E
H1: 12/2007 2 35.20 36.10 34.30 0.90 --
H1: 12/2007 2 35.20 36.10 34.30 0.90 --
FY: 2008 23 59.62 62.93 54.28 1.88 0.19
FY: 2009 19 67.25 71.55 58.60 2.86 0.17

LT Growth Rate (%) 4 11.49 13.90 10.00 1.44 --
Note: Units in Millions of GBP (except for per share items)


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