Fund Performance Review (1Q2006)

Categories posed positive returns, while fund performance ranged from the 40.1 percent gains of the Hang Seng IS-China H-Share Index Leveraged 150 to the 9.68 percent loss of JF Smaller Company.

Top 10 Performing Fund Categories
The last quarter saw the volatile side of fund performance, and some investors may have had a roller-coaster experience. The China Equity Category - the worst performing fund category in the fourth quarter of 2005 - became the best performing one in the first quarter of 2006. The China Equity Fund suffered a 0.17 percent loss on average in the fourth quarter of 2005, but posted a 24.7 percent return in the first quarter this year. Speculation of RMB appreciation mounted as China's Foreign Exchange reserve amounted to US$853.6 billion at the end of February, exceeding Japan to become the biggest Foreign Exchange reserves in the world. The Hang Seng H-share index gained about 28 percent over six months. The top performer in China equity, Hang Seng IS-China H-share index leveraged 150 generated a 40.1 percent return for the first quarter.

India Equities increased an average of 21.9 percent to become the second best performing category in the first quarter of 2006. The India economy is growing at more than 8 percent and investors remain bullish about the Indian stock market. Massive investment inflows to Asia's second-fastest growing economy are driven by hopes of sustained higher economic growth, especially in consumption, and strong corporate earnings. The top performer in this category, LG India Fund, recorded a 26.7 percent gain when the India Bombay SE100 index rose around 20 percent in the first quarter.

Other Asian markets also performed well during the first quarter, with Singapore Equity ranking among the top-10 performing categories. Singapore's economy grew around 9 percent in the first quarter, with manufacturing acting as the engine of local strong growth and with output rising by an average of 17.4 percent. Returns in the first quarter ranged from JF Singapore Fund's 27.4 percent to Fidelity Funds Singapore's 12.03 percent.

High commodities prices kept both the Gold and Precious Metal Equity Category and the Latin America Equity Category strong. According to the latest 2006 Gold Survey, the market may see a further strong increase of gold prices. Fear of inflation and troubles in Iran have pushed gold price above US$600. The strong performance in gold prices lifted the Gold and Precious Metal Equity to impressive returns in the first quarter of 2006. On average, it recorded 19.1 percent gains, and fund returns ranged from SGAM Fund-Equities Gold Mines' 24.02 percent to Investec GSF-Global Gold's 14.78 percent.

Latin American Equity funds have been enjoying an exceptional and extended run for more than three years. Thanks to encouraging macroeconomic and corporate conditions in the region, especially Brazil and Mexico, the Latin America Equity Category posted a 17.2 percent return in the first quarter and ranked fifth of the top-10 categories. The AIG Latin America fund maintained its leadership position with a 19.2 percent return.

Bottom 10 Performing Fund Categories
Except Japan Small/Mid Cap Equity and Taiwan Equity, eight of the bottom 10 categories were in the fixed-income segment, as a result of the sustaining high oil price and extended rate hike cycle in the United States. The dollar fell against other major currencies such as the euro and yen, which resulted in the US Fixed Income Category losing 0.21 percent on average during the quarter.

After the US Fed raised the key rate to a five-year high of 4.75 percent, the European Central Bank raised the key rate to 2.5 percent in March to ease the pressure of inflation caused by high energy prices. The Europe Fixed Income Category showed a small rally during this quarter, spurred by the strengthening Euro, with the average return significantly improved from a 9.96 percent loss in 2005 to a 1.77 percent gain. The Schroder ISF-European Defensive was the best performing fund in this category, posting an 8.36 percent rise in the quarter.

In early March, the Bank of Japan announced it would retain a zero-interest rate policy but gradually reduce the credit it had injected into the banking system. The end of the easy credit policy in Japan could have a broad impact on the global economy. Impacted by profit-taking activities and worries on the appreciation of the yen against the US dollar, Japan Small/Mid Cap Equity slipped from one of the top-10 performers in the fourth quarter of 2005 to one of the bottom 10 performers in the first quarter of 2006. On average, this category posted a 2.07 percent loss, with the JF Japan Smaller Company the worst performing fund, slumping 9.68 percent.