Collection of Modern Art Fund presentation

DECEMBER 2010

Collection of Modern Art

 What is this fund- Why Post-war art and a “buy & hold” strategy?

 Art has outperformed other asset classes

 Art and gold, two real assets

 Art can improve your risk return profile

 Short term price influence

 Art market review/outlook

Source: Castlestone Management

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What is the Collection of Modern Art?

Fund Objective The primary investment objective is the preservation of capital and the creation of long-term wealth, whilst offering a hedge against inflation. Fund Strategy The Collection of Modern Art can invest across a diversified portfolio of museum quality post-war art. The fund invests predominantly in works by non-producing or deceased blue-chip artists and employs a buy and hold strategy.

Fund overview  Access to the benefits of art investment through an expertly managed collection of museum-quality Post-War art  Investment in predominately non-producing/deceased “blue-chip” artists with established secondary markets  Investment strategy: “Buy and Hold” which is the only proven investment strategy  Active portfolio management: loan to museum exhibitions, literature and other promotional activities  USD/EUR/GBP 10,000 minimum investment for retail share classes  BVI mutual fund, 8-year investment period with monthly liquidity

Source: Castlestone Management. *€EUR & £GBP share classes.

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Why Post-War Art?

1600

1900

1945

2000

Old Master Paintings

Impressionism / Expressionism

Post-War / Modern Art

Contemporary Art

(deceased or non-producing artists)

Still producing

Shrinking supply + Increased demand = Maximum price appreciation

Very speculative

Very rare Very expensive

E.g. Rembrandt († 1669)

E.g. Monet († 1926)

E.g. Jeff Koons

E.g. Andy Warhol († 1987)

Price range: $10-40 million

Price range: $250k-1 million

Price range: $50k-1 million

The Golden Middle Too established / rare + Too expensive = Limited price appreciation

Source: Castlestone Management.

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Too speculative Too risky

Intended collection*

Maximum diversification – 100 works of art by 50 artists represented in the AMR Post-War Art 50 Index

Andy Warhol

Lucio Fontana

Robert Rauschenberg

Francis Bacon

Roy Lichtenstein

Jasper Johns

Alberto Giacometti

Rene Magritte

Jean-Michel Basquiat

Henry Moore

Lucian Freud

Keith Haring

Pablo Picasso

Niki de Saint-Phalle

Yves Klein

Sol Le Witt

Alexander Calder

Jackson Pollock

Willem de Kooning

Joan Miro

Note: *This list is not exhaustive, and is used for indicative purposes only.

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Why buy and hold strategy

Long- term wealth preservation to hedge against inflation Only proven investment strategy for art is “buy and hold”

La Peau De L’Ours (The Skin of the Bear):

British Rail Pension Fund:

Holding period: Annualised return:

Holding period: Annualised return:

1904 - 1914 14.8%*

Source: *The New Yorker, 2005. **The Economist, August 23, 2003.

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1974 - 1999 11.3%**

Art, long-term outperformance over equities

450% AMR Post-War Art 50 Index 400%

S&P 500

350%

Cumulative Return

300%

250%

200%

150%

100%

50%

0% Jan-2000

Jan-2002

Jan-2004

Source: Bloomberg, AMR & Castlestone Management. Data runs from January 2000 – November 2010. Note: Past performance cannot be relied upon as a guide for future results.

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Jan-2006

Jan-2008

Jan-2010

Art lags equities 6 – 18 months*

140% AMR Post-War Art 50 Index S&P 500

Cumulative Return

120%

100%

80%

60%

40% Dec-2008

Apr-2009

Aug-2009

Dec-2009

Source: Bloomberg, AMR & Castlestone Management. Data runs from December 2008 – November 2010. * Mei Moses Note: Past performance cannot be relied upon as a guide for future results.

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Apr-2010

Aug-2010

Art and gold, real assets

500%

AMR Post-War Art 50 Index Gold Bullion 400%

Cumulative Return

Art prices still lag gold 300%

200%

100%

0% Jan-2000

Jan-2002

Jan-2004

Jan-2006

Source: Bloomberg, AMR & Castlestone Management. Data runs from January 2000 – November 2010. Gold Bullion: London Market PM Fixing. Note: Past performance cannot be relied upon as a guide for future results.

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Jan-2008

Jan-2010

Art and gold display similar characteristics

Art Work

Holding Period

Purchase Price

Sale Date

Sale Price

Annualised Return

Gold Bullion per ounce

12 Years

$288.70

2010

$1,339.00*

14.9%

Andy Warhol – Coca-Cola(4)

27 Years

$143,000

2010

$35.4 million

22.6%

Andy Warhol – Self Portrait**

12 Years

Approx $9 million

2010

$32.6 million

10.7%

Mark Rothko – Untitled***

13 Years

$1,872,500

2010

$31.4 million

25.3%

Source: Austin Gold Information Network, * Bloomberg – London PM Fix 19 October 2010, **Artasanasset.com, Beautiful Asset Advisors LLC Flash Report May 2010, ***Artnet.com & Castlestone Management Note: Past performance cannot be relied upon as a guide for future results.

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Art can improve your risk return profile

9%

Efficient Frontier

Portfolio A: Bonds, Equities, Commodities & Art

Adding Art to a portfolio can considerably improve returns at the same level of risk

Portfolio B: Bonds, Equities & Commodities

Annualised Returns

8% Adding Art to a portfolio can considerably improve returns at the same level of risk 7%

6%

5% 1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Standard Deviation

Source: Bloomberg, AMR & Castlestone Management. Data runs from Jan 1995 – April 2010. Note: ART refers to the AMR Post-War 50 Index, EQUITIES refers to S&P 500, BONDS refers to Merrill Lynch Global Government Bond Index, COMMODITIES refers to S&P GSCI. Past performance cannot be relied upon as a guide for future results.

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Art has outperformed other asset classes

January 2000 – November 2010

ART

STOCKS

BONDS

COMMODITIES

Annualised Return (over total period)

11.54%

-1.98%

4.68%

1.95%

Annualised Volatility (over total period)

10.69%

16.33%

3.01%

24.93%

-0.086

-0.028

-0.031

Correlation (over total period)

Source: Bloomberg & Castlestone Management. Note: ART refers to the AMR Post-War 50 Index, STOCKS refers to S&P 500, BONDS refers to Merrill Lynch Global Government Bond Index, COMMODITIES refers to S&P GSCI Past performance cannot be relied upon as a guide for future results. Date Range: January 2000 – November 2010

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Short-term price influences

Supply from deceased or non-producing artist constantly shrinks

Boom in art museum construction

“Bilbao Effect” – population growth, increased tourism

IRS tax rules

Collectors incentivised to donate art works to museums

Art as a hedge against inflation

Demand increases as more immune to economic downturns

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Quantity theory of money

MV = PQ M = Money Supply V = Velocity P = Price Q = Quantity

Note: Based on the assumption that „V‟ is always constant and positive

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Example

Production moves to China

MV = PQ Higher production levels mean quantity (Q) increases whilst prices (P) decrease

Note: Based on the assumption that „V‟ is always constant and positive

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Gold mining

MV = PQ Gold is a finite resource and as quantity (Q) decreases prices (P) will increase

Original works of art are unique

Quantity cannot change Q = 1

As Q becomes constant money supply (M) will directly affect art prices (P)

MV = PQ M = Money Supply V = Velocity P = Price Q = Quantity

Note: Based on the assumption that „V‟ is always constant and positive

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Art market review 2009

Andy Warhol, 200 Dollar Bills Sold for $43 million

London auction estimates declined 30 - 40%

Jan

Feb

Mar

Holding period:1986 – 2009 Annual growth: 22.84%*

Apr

May

Jun

”The bottom of the art market has already been reached for Post-War art”

Jul

Aug

Sep

Oct

Nov

Mei Moses All Art Index has risen by 13.1% in Q4 2009**

Edward Dolman, CEO Christie’s

London Auctions

Source: *Bloomberg, **Mei Moses

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Dec

NY Auctions

Auction bidders – back to highs...

300

Number of lots offered Number of bidders

Average number of bidders and number of lots offered in New York evening sales since 2004

250

200

150

100

50

0 Spring 2004

Fall 2004

Spring 2005

Fall 2005

Spring 2006

Source: Sotheby‟s & Castlestone Management. Data runs from Spring 2004 – Fall 2009. Note: Past performance cannot be relied upon as a guide for future results.

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Fall 2006

Spring 2007

Fall 2007

Spring 2008

Fall 2008

Spring 2009

Fall 2009

Art market review 2010 & outlook

Auction sales volume up 162%* Bidding war for Roy Lichtenstein’s “Collage for Nude with Red Shirt”

Auction sales volume up 130%*

Drove price to $4.1m (Estimate: $900K – 1.2m)

Alberto Giacometti’s Walking Man I

Quadruple its estimate!**** (Click Here to Watch Video)

sold for $104.3m (new world record price)

Mei Moses Post War Art index: +35% YTD***

Annual growth: 14.16%**

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Auctions sales volume up 110%*

Auction sales volume up 157%*

Sep

Oct

Nov

Dec

Auctions sales volume up 92%*

Pablo Picasso’s Nude, Green Leaves and Bust

Marino Marini Sculpture

Andy Warhol’s “Men in her life”

sold for $106.5m (new world record price)

sold for £4.5m

sold for £63.3m

Annual growth: 15.5%**

(estimate £1.2-1.8m)

Andy Warhol’s “Coca-Cola (4)”

Record auction price for the artist

sold for £35.4m, Annual growth 22.6%***** Roy Lichtenstein’s “Ohhh…Alright…” sold for £42.6m

London Auctions

NY Auctions

Record auction price for the artist Day auctions average price above 2006 level******

Source: *Castlestone Management calculated from Christie‟s & Sotheby‟s data, ** ArtPrice, *** Artasanasset.com, Beautiful Asset Advisors, **** Collection of Modern Art owns a comparable work. *****Castlestone Management & Bloomberg. ******Day auctions offer works around or below the $1m estimate range. 2006 was the year before the art market boom in 2007/2008.

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Conclusion

 Real Assets portfolio weighting of 18% to 30% to hedge against the devaluation of money  $/€/£ 10,000 minimum investment – access to the benefits of art investment as a means of portfolio diversification  Expertly managed portfolio of Post-War art from deceased or non-producing blue chip artists  Art has outperformed all other asset classes in the long run and serves as a safe-haven investment such as gold  Art lags the equity market 6 - 18 month – True!*

Source:. * House view.

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Important information

This document is intended for and directed at investment professionals and is not intended for retail customer use. This document is not offering to sell any product. Any transaction requires our subsequent formal agreement which will be subject to internal approvals and binding transaction documents. Castlestone Management (“We”) will not be liable for any use you make of any information in this document. We are not your advisor or fiduciary. We are not recommending or making any representations as to suitability of any product or the tax, legal or accounting treatment of any product. We are not responsible for information stated to be obtained or derived from third party sources. All opinions are given as of the date hereof and are subject to change. We are not obliged to inform you of any such changes. Any simulated performance data and/or past performance data contained herein is not a reliable indicator of future performance. Income from investments may fluctuate and investors may not recoup the amount originally invested. Any forward-looking statements concerning the financial condition, results of operations and businesses of Castlestone Management expressed or implied, are based on management's current expectations and assumptions, which may change without notice, and are no guarantee of future results, performance or events This document is confidential. No part of it may be reproduced, distributed or transmitted without Castlestone Management‟s written permission. Neither this document nor any copy of it may be distributed, directly or indirectly, in the United States of America or its territories or possessions (the “United States” or to any US Person as defined in Regulation S under the United States Securities Act of 1933 (as amended). Any failure to comply with these restrictions may constitute a violation of United States securities law. This is not exhaustive; other regional-specific wording may apply. If in doubt, please consult with Castlestone Management‟s Legal and Compliance department. Castlestone Management Limited is authorized and regulated by the Financial Services Authority in the UK. Castlestone Management Limited is authorized by the Financial Services Board in South Africa. Castlestone Management Inc. is regulated by the British Virgin Islands Financial Services Commission.

This scheme has been entered into the List of Restricted Schemes by the Monetary Authority of Singapore under paragraph 2(3) of the Sixth Schedule to the Securities and Futures (Offers of Investments)(Collective Investment Schemes) Regulations 2009 for distribution to institutional and accredited investors.

December 2010 – 17.12.10

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