THE MKC GLOBAL REPORT

MANAGER’S COMMENTARY
April 2011

The MKC Global Fund finished 2010 with a return of +16.92%, net of fees. The fund’s performance beat the S&P 500,
including dividends, the Barclay Systematic Index, and the Barclay CTA Index. Returns were generated with less monthly
volatility than the S&P 500 with investors enjoying more positive months and fewer negative months than the broad
indices. Silver, palladium, cotton, sugar, corn, and government bonds were some of the strongest markets that contributed
to the fund’s positive performance.

It has been a pleasure to both generate returns for the fund’s investors and complete my first year of managing the MKC
Global Fund. I continue to be optimistic and excited about future market environments. There seems to be a high
probability for continued large price movements in various asset prices around the world over the next several years; I will
continue to capture as much of those movements as possible in the form of positive returns for the fund.

Currently, the fund is positioned net long, favoring a bullish trend in risk assets for the first several months of 2011. This
investment stance will be subject to continuous reassessment, but higher prices seem to be the path of least resistance in
the near future. At present, we continue to hold a portion of the silver position acquired in late August for around $19 per
ounce (silver closed 2010 at $30.94/oz.). In addition, we maintained long positions in the Swiss Franc, Gold, Brent Crude
Oil, and Australian 90 Day Bank Bills.

Like the MKC Global Fund, many other commodity funds also performed well during this bull market, but the true
advantage of our strategy should emerge when equity markets top out and profitable short positions can be assumed. Most
commodity funds maintained an unusually high correlation to the S&P 500. Historically, a strategy like ours will have a
near-zero correlation to the broad market, but in 2010 the MKC Global Fund held an uncharacteristic positive 70%
correlation to stocks. The Fed’s quantitative easing program probably caused the lock-step moves in assets, making
diversification difficult. Regardless, this high correlation will most likely erode when global equity markets top out.

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Evidence continues to mount, overwhelmingly showing that what we are now experiencing is a cyclical bull market, an
intermittent rally within a larger secular bear market. With that said, it also seems likely that this current rally can last
through a portion of this year. Obviously, corrections can occur, but the current upward trend will probably continue for
some time.

General valuations and certain technical measurements indicate a stretched market and offer much of the needed
ammunition for a major stock market top. Although valuations indicate a top, it doesn’t mean one should immediately
liquidate a stock portfolio. Some valuation measurements showed the market ripe for a major top in the spring of 2010 as
well. Since then, stocks have rallied almost 10%; clearly one needs more than valuations alone to indicate turning points.
Timing is the major factor; as the saying goes, markets can remain illogical longer than you can remain liquid.

In regard to timing, a market top seems to be getting close. There is no need to sell until stock prices stop rising, but that
point may be sneaking up on us. Although not used for managing the MKC Global Fund, there are some strong
investment models that suggest U.S. stocks could rally into May/June of this year. Will that time signal the end of this
cyclical bull market or merely another resting point? Time will tell. A top in U.S. stocks will only further fuel any rally in
government bonds…which brings us to the next topic.

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[email protected] www.mkcglobal.com 206.920.4788
In April 2010, I wrote an article titled, “Shorting U.S. Treasuries, A Historic Sucker Bet.” The case was made for an
upward move in Treasuries seems to be as pertinent now as it was one year ago. Government bond prices rallied
dramatically after that article and since last October have consolidated back to attractive levels.

This investment opportunity holds three major drivers. First, U.S. Treasuries hold the benefit of a safe haven during a
stock market decline and periods of uncertainty; if they naturally resume their upward trend, any market sell-off could
accelerate the upward move. Second, they remain in a massive 30-year bull market; major bull markets tend to continue
further than expected and well past traditional valuations. Lastly, buying U.S. Treasuries is a major contrarian play; an
overwhelming majority of analysts and fund managers loathe this asset. Rarely does an investor see an opportunity with
so many factors simultaneously available: the synergy aspect could be impressive.

This investment view on Treasuries isn’t common. Often professionals and amateurs alike state the following reasons why
a continuation of low rates and a Treasury bull market are impossible: government bonds are in a bubble, inflation is just
around the corner, the government is a debt junkie with an out-of-control deficit, and the U.S. dollar is going to devalue
into oblivion. The data these bond bears lean on isn’t necessarily wrong-they just have the timing incorrect. At some point
interest rates will absolutely rise for a prolonged period. It just won’t be right now. So, I don’t disagree with the critics-I
disagree with their ability to time the trade.

Government bonds are traditionally considered a conservative and safe investment. When the stock market sells off or a
crisis occurs, bond prices will rally as investors seek a safe haven. During the recent Japanese tsunami crisis, government
bonds around the world advanced quickly. They proved to be a haven during 2008’s financial crisis, during the tech
bubble collapse, after 9/11, and after the 1987 crash, as well.

The United States is smack in the middle of a secular bear market, although most wouldn’t know it after a spectacular
two-year cyclical rally. When stocks again work their way lower during this secular bear market, growth investors will be
looking for returns, and conservative investors will be looking for yield and/or a vehicle to preserve capital. U.S.
Treasuries seem to be the most obvious vehicle to satisfy both types of investor. Treasuries played this role like clockwork
during the last two stock market declines in 2000-2003 and 2007-2009. With yields at almost 5%, 30-year Treasuries are
actually quite attractive from a yield perspective, as well.

One year ago, Société Générale’s Dylan Grice released a clear visual representation of the historic valuation of U.S.
stocks. The chart is included below; it showed valuations in the top quintile of all historical periods. Mr. Grice included
data proving that the average 10-year return following a top-quintile valuation period as an entry point is a mere +1.7%.
Today, at current valuations, the stock market is no longer in the top-quintile of historic valuations, but in the top 10%!
What will that mean for average returns over the next decade?

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[email protected] www.mkcglobal.com 206.920.4788
Bonds aren’t “sexy.” Right now, Netflix and Chipotle Mexican Grill are “sexy” stocks. Remember that gold wasn’t a hot
topic in the 1990s, but it is quite popular now. As soon as prices move substantially higher, any asset garners attention;
why would bonds be any different?

“The trend is your friend until it bends in the end.” This cliché about markets is dead on. U.S. Treasuries are in a massive
30-year cyclical bull market. Yes, it may be nearing the end of its life; it just is not quite there yet. The interesting quality
of long-duration markets (either up or down) is that they typically blow right through reasonable valuations before ending
and reversing. Reasonable valuations can help one get into a market initially but historically will get an investor out of an
investment too early before the market reaches an absurd valuation (like Facebook.com currently being valued at over $70
billion?). The point is that relying on fundamental data such as inflation or government deficits at this late stage of the
bond bull market is almost a waste of time in regard to timing the end of the move.

Even if I’m wrong about fundamental valuations being useless at the end of a cyclical bull market, it is clearly evident that
there are numerous historical precedents for higher bond prices. Here in the United States, 10-year government bonds saw
a low in yield of about 1.5% in the 1940s, and Japan saw a low for the 10-year JGB at about 1%. The current U.S.
Treasury yield stands at 3.65% and a bond value of about 119. If the U.S. 10-year note falls to a yield of 1%, the bond
price will rally to over 140-a massive 17% rally. To put that trade in perspective, if the MKC Global Fund assumed a
standard conservative position size in the 10-year note and yields dropped to 1%, our fund as a whole, not just the
individual trade, would earn about 18%.

The most blatant aspect of the bond trade is its contrarian quality. To say I hold a lonely view is an understatement. I
know of only two major fund managers who prefer to buy U.S. Treasuries instead of shorting them. For example, recently
CNBC hosted one of the many individuals preaching the idea of shorting U.S. Treasuries. This man is the chief
investment officer for a firm that manages $2 billion, and he was quite vocal about shorting the asset. Fortunately, there is
nothing special about this since seemingly every day CNBC and Bloomberg interview individuals with identical views.

Parting company with the crowd is never comfortable. Luckily, the logistics of a contrarian investment are quite simple. If
the vast, vast majority of market participants hold the same view and is subsequently on the same side of the trade (in this
case own zero government bonds or short them), any movement in the assets price away from those participants will
result in their sustaining losses and unwinding their positions. It’s comparable to betting the underdog (that’s actually a
superior team) in sports and receiving points.

Lastly, Bill Gross, who manages Pimco’s $257 billion Total Return Bond Fund, made a bold move by reducing the fund’s
holdings of U.S. Treasuries to zero. He sold them all. That is a dramatic stance, and the market will punish him for it by
running up Treasury prices and forcing him back into the market at higher prices. He has a slew of high-profile advisors,
including past Federal Reserve members such as Alan Greenspan. These people help tremendously in determining the
fundamental valuations for U.S. Treasuries. But, as shown earlier, that fundamental information is useless at this stage,
and an advisory board of that caliber can only be for show.

Bill Gross certainly isn’t alone. Other major market players who are either short U.S. Treasuries or maintain a negative
view and won’t buy any time soon include: Warren Buffet, Marc Faber, Jim Rogers, Nassim Taleb, and John Paulsen.
Again, these are only a handful of individuals, but they collectively manage more than $300 billion. It is unknown how
much capital Marc Faber, Warren Buffet, and Jim Rogers influence with their financial views.

Buying U.S. Treasuries should prove to be a profitable investment. Certainly, nothing is a guarantee, but the risk reward
ratio for this asset is heavily skewed in the proper direction. Investors face an investment environment where, starved for
yield, they have been forced to speculate in stocks. When stocks begin to decline, Treasuries will become their asset of
choice. The contrarian component of this opportunity only creates a more exciting scenario for investors, as long as the
masses don’t incorrectly convince them otherwise.

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[email protected] www.mkcglobal.com 206.920.4788
About MKC Global Investments
MKC Global Investments is the sole management company for the MKC Global Fund, a
research-driven commodity pool operation (CPO). Founded in 2009 and based in Seattle,
Washington, we are dedicated to providing our clients a combination of wealth
preservation and strong absolute returns. We strive to provide a fund that maintains a
near-zero correlation to a traditional portfolio of stocks and bonds, offering our clients a
simple way to genuinely diversify their portfolios.
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Overview investing ensures identical treatment of each

investment opportunity, which is vital. History
The primary goal of the MKC Global Fund is to continuously proves that emotional investing is
preserve capital and generate large average dangerous. Often, amateur investors’ fears cause
annual returns for our clients through investing in them to sell at the bottom, and their excitement
the global commodity, currency and financial causes them to buy at the top. Instead, utilizing a
markets. The fund is entirely research driven, and quantitative strategy eliminates a manger’s
our strategy is the result of the analysis of more feelings, such as hope or fear, from interfering
than 100 years of market data. with responsible portfolio management.

The MKC Global Fund invests in more than 80 The MKC Global Fund does not engage in “day
global markets across 15 countries. trading”; we intend to hold positions for many
months and occasionally more than a year.

Our Investment Strategy

About Managed Futures
It’s our belief that profitable investing is simple:
keep losses very small by eliminating losing The managed futures industry includes
positions quickly and allow winning positions to Commodity Pool Operators (CPOs) and
run as long as possible. Commodity Trading Advisors (CTAs). Managed
futures falls under the category of “alternative
Our fund’s strategy is classifies as “trend investments” and is considered a sub-category of
following”; it focuses on finding long-term price hedge funds. The managed futures industry has
trends, up or down, in the commodity, currency grown dramatically over the past 20 years from
and financial markets. The MKC Global Fund can under $1 billion under management to more than
profit equally from both rising and falling markets. $219.7 billion at the end of the first quarter 2008.*
This growth has come in part from investors
We believe the most consistent way to large discovering value in an investment that correlates
annual returns requires buying a market as it very little to others. CTAs and CPOs offer investors
begins a prolonged upward price trend and a mechanism to truly diversify in a way that a
shorting a market as it begins a prolonged typical portfolio of stocks, bonds and even other
downward price trend. hedge funds cannot. In other words, managed
futures performance tends to be uncorrelated and
Our strategy utilizes a logical set of math-based unrelated to factors that influence the
rules to define a price trend and helps determine performance of stocks and bonds.
when to enter or exit that price trend. In other
words, the strategy is quantitative. This way of *According to Barclay Hedge.

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[email protected] www.mkcglobal.com 206.920.4788