Lighthouse Investment Management Investment Outlook - March 2010

1. Investment Outlook March 2010 © 2010 Lighthouse Investment Management

3. Managing money tax-efficiently is getting more and more difficult and time-intensive. With a full-time job and a family I no longer feel able to dedicate enough time to take care of your money.

4. Furthermore I believe that, despite recent losses, most of the "pain" in equities markets is still to come, as banks are under tremendous pressure to reduce their balance sheets and credit is no longer available for a lot of companies and individuals. This must lead to a significant reduction in company earnings that will top the recessions of the years 2001/2 and 1991/2 by far.

5. The US equity market reached its peak in October 2007 - the bear market is not even a year old, and could last for a couple of years. A stabilization of house prices in the US is not expected before 2010 or 2011.

6. I therefore decided to liquidate HPF-funds after almost 23 years and return your money. I will begin selling our assets tomorrow and work out ways of returning cash with each investor individually.

7. Thank you very much for your long-lasting trust. I hope I will be able to manage money professionally at a later stage, as over the long term we have outperformed our benchmarks systematically and substantially.

8. With best regards,2 (c) Lighthouse Investment Management 3/24/2010

9. August 15, 2008 – March 12 3 (c) Lighthouse Investment Management 3/24/2010

10. Just 3 bits of information 4 (c) Lighthouse Investment Management 3/24/2010 Consumer = 2/3of GDP Impact of MEW on GDP Future of residential home prices (Whitney Tilson) Ignore everything else (e.g. Bernanke, Paulson)

11. “Person of the Year” 2009: 5 (c) Lighthouse Investment Management 3/24/2010

13. August 1st, 2007 – Paulson: "I see the underlying economy as being very healthy,“

14. October 15th, 2007 – Bernanke: "It is not the responsibility of the Federal Reserve - nor would it be appropriate - to protect lenders and investors from the consequences of their financial decisions.“

15. February 14th, 2008 – Paulson: (the economy) "is fundamentally strong, diverse and resilient.“

16. February 28th, 2008 – Paulson: "I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street.“

17. February 29th, 2008 – Bernanke: "I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.“

18. March 16th, 2008 – Paulson: "We've got strong financial institutions . . . Our markets are the envy of the world. They're resilient, they're...innovative, they're flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong."6 (c) Lighthouse Investment Management 3/24/2010

20. May 7, 2008 – Paulson: 'The worst is likely to be behind us,”

21. May 16th, 2008 – Paulson: "In my judgment, we are closer to the end of the market turmoil than the beginning," he said.

22. June 9th, 2008 – Bernanke: Despite a recent spike in the nation's unemployment rate, the danger that the economy has fallen into a "substantial downturn" appears to have waned.

23. July 16th, 2008 – Bernanke: (Freddie and Fannie) “…will make it through the storm”, "… in no danger of failing.","…adequately capitalized“

24. July 20th, 2008 – Paulson: “It's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation."

25. August 10th, 2008 – Paulson: ``We have no plans to insert money into either of those two institutions.” (Fannie Mae and Freddie Mac)

26. Sept 8th, 2008 - Fannie and Freddie nationalized. The taxpayer is on the hook for an estimated 1 - 1.5 trillion dollars. Over 5 trillion is added to the nation’s balance sheet.

27. September 16th, 2008 - $85 Billion AIG Bailout “Loan”

28. September 19th, 2008 - $700 Billion Bailout Plan Announced 7 (c) Lighthouse Investment Management 3/24/2010

29. 8 The Economy (c) Lighthouse Investment Management 3/24/2010

31. Consumers will not be able to drive GDP growth1. House no longer the ATM (refi / second mortgage)2. De-leveraging and higher savings3. Higher taxes4. 8m jobs lost

32. Fiscal stimulus to wear off in 2010-11

34. 2016: Recovery from Lost Jobs 11 (c) Lighthouse Investment Management 3/24/2010

35. Federal Withholding Taxes %yoy 12 (c) Lighthouse Investment Management 3/24/2010

36. US vs. Japanese Housing Bubble 13 (c) Lighthouse Investment Management 3/24/2010

37. US: Debt by Sector 14 (c) Lighthouse Investment Management 3/24/2010

38. US: Path to losing AAA 15 (c) Lighthouse Investment Management 3/24/2010

39. Fed Financed 91% of 2009 Deficit 16 (c) Lighthouse Investment Management 3/24/2010

40. Fed Balance Sheet: Maturities 17 (c) Lighthouse Investment Management 3/24/2010

41. US economy: GDP calculation 18 Production = Sales + Inventory changes (c) Lighthouse Investment Management 3/24/2010

42. US Economy: Inventory Cycle 19 (c) Lighthouse Investment Management 3/24/2010

43. GDP: Production vs. Sales 20 (c) Lighthouse Investment Management 3/24/2010

44. Inventory effect in Q4 2009: 3.9% 21 (c) Lighthouse Investment Management 3/24/2010

45. Fiscal stimulus: 1.9% of GDP 22 (c) Lighthouse Investment Management 3/24/2010

46. US economy: Capacity Utilization 23 (c) Lighthouse Investment Management 3/24/2010

47. 24 The Consumer (c) Lighthouse Investment Management 3/24/2010

48. Mortgage Equity Withdrawal (MEW) 25 (c) Lighthouse Investment Management 3/24/2010

49. Homeowner Equity 26 (c) Lighthouse Investment Management 3/24/2010

50. US Consumer and Trade Balance 27 (c) Lighthouse Investment Management 3/24/2010

51. US Consumer: Taxes, Savings 28 (c) Lighthouse Investment Management 3/24/2010

52. US Consumer: Confidence 29 (c) Lighthouse Investment Management 3/24/2010

53. US Fiscal Revenues vs. Expenses 30 (c) Lighthouse Investment Management 3/24/2010

54. Japan: 20 Years After Bubble Burst 31 (c) Lighthouse Investment Management 3/24/2010

55. US Inflation: Velocity collapses 32 (c) Lighthouse Investment Management 3/24/2010

56. Securitization of Debt: collapsed 33 (c) Lighthouse Investment Management 3/24/2010

57. US Inflation: TIPS Break-even Rates 34 (c) Lighthouse Investment Management 3/24/2010

58. GDP Growth Drives Bond Yields 35 (c) Lighthouse Investment Management 3/24/2010

59. US banks: Mark-to-mystery 36 (c) Lighthouse Investment Management 3/24/2010

60. US banks: FDIC is Out of Money 37 (c) Lighthouse Investment Management 3/24/2010

61. US Trade Balance: Goods 38 (c) Lighthouse Investment Management 3/24/2010

62. US Trade Balance: Services 39 (c) Lighthouse Investment Management 3/24/2010

63. US Trade Balance: Total 40 (c) Lighthouse Investment Management 3/24/2010

64. US Trade Deficit excl. Oil 41 (c) Lighthouse Investment Management 3/24/2010

65. International Indebtedness 42 (c) Lighthouse Investment Management 3/24/2010

66. Europe: Imbalances 43 (c) Lighthouse Investment Management 3/24/2010

67. Europe: Debt Burden 44 (c) Lighthouse Investment Management 3/24/2010

68. Europe: Greece = Time Bomb 45 (c) Lighthouse Investment Management 3/24/2010

69. Europe: Debt Solves Deficits? 46 (c) Lighthouse Investment Management 3/24/2010

70. China: Hangover to Come 47 (c) Lighthouse Investment Management 3/24/2010

71. China: Unsustainable Growth 48 (c) Lighthouse Investment Management 3/24/2010

72. China: Exports 49 (c) Lighthouse Investment Management 3/24/2010

73. 50 (c) Lighthouse Investment Management 3/24/2010 The Stock Market

74. US Stock Market Cycles 51 (c) Lighthouse Investment Management 3/24/2010

75. Bear markets 52 (c) Lighthouse Investment Management 3/24/2010

76. US Stock Market: Valuation 53 (c) Lighthouse Investment Management 3/24/2010

77. Stock Market Valuation: Rob Shiller 54 (c) Lighthouse Investment Management 3/24/2010

78. US Stock Market: The 1970’s 55 (c) Lighthouse Investment Management 3/24/2010

79. US Stock Market: The 1990’s 56 (c) Lighthouse Investment Management 3/24/2010

80. US Stock Market: The 2000’s 57 (c) Lighthouse Investment Management 3/24/2010

81. Valuation matters 58 (c) Lighthouse Investment Management 3/24/2010

82. Why Not a New Bull Market? 59 Source: David Rosenfeld, Gluskin Sheff (c) Lighthouse Investment Management 3/24/2010

83. Commodities: Oil 60 (c) Lighthouse Investment Management 3/24/2010

85. Storage (bankrupt bank, at home, securitized, abroad)

86. Denominations?

87. Fair price?

88. 2009: 594t demand from ETF’s (170t bars, 234t coins)

89. GLD is second largest ETF in the US ($38bn)

91. Gold demand by ETF 63 (c) Lighthouse Investment Management 3/24/2010

92. 64 The Investor (c) Lighthouse Investment Management 3/24/2010

93. What has changed, really? 65 (c) Lighthouse Investment Management 3/24/2010

95. Bonds: expensive – some value in investment grade

96. Commodities: expensive

97. Money market / bank CD’s: low yield

98. Muni’s: low yields, risk of bankruptcies, tax change

99. Real estate: Market distorted by REO / banks

100. Currencies: in race towards bottom, USD smallest evil Solution: “hibernate”, not lose money

101. LQD, options strategies66 (c) Lighthouse Investment Management 3/24/2010

103. Emerging or Developed Markets?

104. China: Driver or drag? Banking crisis?

105. Oil shackle: Nuclear, solar and wind?

106. Taxes: Only way is up?

107. Political stability: social unrest?

109. Replicates US investment grade corporate bond index

110. Highly liquid (>1m traded daily)

111. Income taxed as dividends; never paid out cap. gains

112. Current yield 5.3% (3/11/2010)

113. Largest position <1.2% of fund

115. LQD: Profile 70 (c) Lighthouse Investment Management 3/24/2010

116. LQD: Top 10 Holdings 71 (c) Lighthouse Investment Management 3/24/2010

117. LQD: Premium to NAV 72 (c) Lighthouse Investment Management 3/24/2010

118. Other ETF’s and Rates 73 (c) Lighthouse Investment Management 3/24/2010

120. Harvest “time value” of options

121. 80% of options expire worthless

123. Option Strategy: Bear Call Spread 76 (c) Lighthouse Investment Management 3/24/2010

124. Option Strategy: Iron Butterfly 77 (c) Lighthouse Investment Management 3/24/2010

125. Option Strategy: Iron Butterfly 78 (c) Lighthouse Investment Management 3/24/2010

126. Option Strategy: Flock of Butterflies 79 (c) Lighthouse Investment Management 3/24/2010

127. A Perfect Match 80 (c) Lighthouse Investment Management 3/24/2010 &

129. Tax return software automatically downloads data

130. Pooling of accounts for efficient money management

131. Assets covered up to $500,000 by SIPC (t/o $100k cash)

133. $8 online US stock trades

134. 25 commission-free ETF’s

135. Commission-free US Treasury Bills, Notes, Bonds, TIPS

136. International investing (12 markets, 8 currencies)

138. Customizable Charts and Data 84 (c) Lighthouse Investment Management 3/24/2010

140. Lighthouse obtains trading permission

142. Investment strategy tailored to individual risk preference

143. Mid-single digit returns p.a.

144. Absolute (positive) return

146. Relative return (no benchmarking)

147. Individual stock picking (or advice)

149. Lighthouse Investment Management 89 (c) Lighthouse Investment Management 3/24/2010 Thank you.