core sector communique

Nile Pan Africa Fund (NAFAX) First Quarter 2011 Fund Newsletter

Nile Capital Management is pleased to announce the first quarter 2011 performance update for its Nile Pan Africa Fund (NASDAQ: NAFAX), an actively managed mutual fund that focuses exclusively on the continent of Africa.

Fund Overview

During the first quarter of 2011, the Nile Pan Africa Fund fell -3.97%. During the same time period, the MSCI Emerging Markets Index fell -5.49%, the Dow Jones Africa 50 Titans Index fell -4.18%, and the S&P Total Return Index advanced +5.92%. Since its inception on April 28, 2010, the Nile Pan Africa Fund has returned +18.40%, while the MSCI Emerging Markets Index returned +5.13%, the Dow Jones Africa 50 Titans Index advanced +8.58%, and the S&P 500 was up +13.41%.

The Fund’s performance in the first quarter was challenged by the effects of political unrest, most notably in Egypt (our only North African exposure). The Egyptian market was closed from January 27th to March 23rd, and re-opened significantly lower than its January levels. The Fund was thus adversely impacted by the correction, and attributes a significant portion of its weakness in the first quarter to its Egyptian exposure. However, although the political upheaval in Egypt caused short term turbulence in markets, we believe the long term impact of an improved and more stable political system will be beneficial for long term growth.

Africa Region Fund Flows (%)

Source: EPFR

Performance in the Fund was also impacted by capital outflows from international markets, with stronger than expected US economic data encouraging investors to re-balance back to the US. As a result, fund flows to Africa turned negative in the first quarter of 2011 but have since rebounded from off their lows. Fund flows had been vastly positive throughout the previous 12 month period, with substantial growth in the second half of 2010. Nevertheless, we continue to believe that growth will remain slow in Developed economies, and that expansion in Emerging Markets (and Africa in particular) will remain significantly better than in the Developed world.

1Q 2011 Performance of Africa's Major Stock Markets (USD)

Source: MSCI

Overall, Africa’s stock markets were mixed for the first quarter. Aside from Egypt and Tunisia, whose markets were down on political unrest, much of the Continent’s underperformance came from the larger markets of Nigeria and South Africa, where fund flows drove returns.

Portfolio Commentary

For the first quarter, the best performers in the portfolio were commodity, financial, and consumer goods stocks. Overall, the largest gains came from African Aura Mining Incorporated, a Liberian iron ore company whose shares rose 59.83% after a site survey indicated that their mine’s resource could be double their prior estimates. In addition, the company announced that it will split its iron ore and gold projects into separate companies. We believe the company’s share price will continue to perform well in the future as it commences development of its mining projects. In the financial sector, the largest gain in the portfolio came from Old Mutual Inc, a South African banking and insurance company. The company’s shares, which were up 13% for the quarter, sold off at the end of 2010 after its proposed sale to HSBC of Nedbank SA went uncompleted. However, we believe the negative fallout from the terminated deal was overdone, and Old Mutual’s long term prospects remain strong. The company has a new management team that is committed to unlocking value by selling off non-performing assets or spinning them into a separate business, and is a major market player in the growing South African banking sector. In consumer goods, the best performer was Flour Mills of Nigeria, whose shares were up 20% for the quarter. Flour Mills focuses on the Nigerian consumer, and controls 55% of the flour market and 22% of the cement market. We believe the company remains poised for growth as they capture the rising demand for the Nigerian consumer class.

To the downside, the Fund’s Egyptian holdings were the major source of weakness in the first quarter, as political turmoil and unrest caused significant declines. Notably, shares of Commercial International Bank (CIB) were down 33% for the quarter. However, the company is Egypt’s biggest lender, and one of the most liquid stocks on the Egyptian stock exchange. As the Egyptian economy did not experience a banking crisis in conjunction with its instability, we believe that CIB’s shares were oversold, and will rebound with improved economic growth and political stability. Notably, prior to the turmoil, the company’s dominant position meant that its shares traded at a significant premium to other banks in the region, and we believe it remains well positioned. The other companies that detracted from performance were Citadel Capital Corporation and Talaat Mustafa Group which were down 40% and 20% respectively. In particular we believe that Citadel – an investment firm whose holdings are largely outside Egypt - was oversold in the crisis, and that it is trading at a significant discount to its asset value.

Outlook

We believe our investment case for Africa continues to be underpinned by both global and regional growth dynamics. Although Advanced economies have outperformed Emerging and frontier markets in the first quarter of 2011, we believe that their long term growth is constrained by large fiscal and budget deficits, and these economies will have to raise taxes or cut spending to improve their fiscal conditions. In addition, monetary policy pursuing low short term interest rates (or ‘quantitative easing’) and dollar depreciation as a method to stimulate aggregate demand will lead to capital outflows to Emerging economies in search of higher yielding assets. As a result of these policy measures, we continue to believe Advanced economies will experience lower long term growth. Although in recent months positive data has implied a better than expected recovery in the US, the IMF believes that Advanced economies overall will grow by approximately 2.4% annualized over the next five years.

On the other hand, Africa’s growth is projected to be in excess of 5.4 % annualized in the next five years according to the IMF and the World Bank. In fact, the IMF has projected that Nigeria (the second largest Sub-Saharan economy) will experience GDP growth for the next five years in excess of 7% annualized, with the potential to do even better on the back of sustained high oil prices. A number of African countries have pursued stable monetary economic policies, and have better fiscal balances and low leverage. We believe this macroeconomic background continues to support the case for investing in Africa’s stock markets. In addition, we continue to believe that demand for natural resources and agricultural commodities, the need for infrastructure investment, and growing consumer demand will continue to be drivers on the continent. If anything, we feel that recent weakness presents a compelling opportunity for long term investors to enter Africa’s markets.

Thank you,

Larry Seruma
Portfolio Manager
Nile Pan Africa Fund

The table below shows the performance of the fund relative to several benchmark indices.

Nile Pan Africa Fund (NAFAX) Performance, First Quarter 2011

As of March 31, 2011. Inception Date is April 28, 2010.

Fund Name	2011 Q1	Since Inception
Nile Pan Africa Fund (NAFAX)	-3.97%	18.40%
Dow Jones Africa Titans 50 Index	-4.18%	8.58%
MSCI Frontier Markets Index	-5.49%	5.13%
S&P 500 Total Return	5.92%	13.41%

The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. As stated in the current prospectus, the Fund’s total annual operating expense ratio (gross) is 4.17% for Class A, 4.92% for Class C and 3.92% for Institutional Class shares. The Fund’s investment adviser has contractually agreed to reduce its fees and/or absorb expenses of the fund, at least until July 31, 2011, to ensure that the Total Annual Fund Operating Expenses After Fee Waiver (exclusive of any acquired fund fees and expenses, borrowing costs, taxes and extraordinary expenses) will not exceed 2.50% for Class A, 3.25% for Class C and 2.25% for Institutional Class shares, subject to possible recoupment from the Fund in future years. Please review the Fund’s prospectus for more detail on the expense waiver. Results shown reflect the waiver, without which the results could have been lower. A Fund's performance, especially for very short periods of time, should not be the sole factor in making your investment decisions

Investors should carefully consider the investment objectives, risks, charges and expenses of the Nile Pan Africa Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained by calling 1-877-68-AFRICA. The prospectus should be read carefully before investing. The Nile Pan Africa Fund is distributed by Northern Lights Distributors, LLC member FINRA. Nile Capital Management, LLC is not affiliated with Northern Lights Distributors, LLC.

Mutual Funds involve risk, including possible loss of principal.  Because the Fund will invest the majority of its assets in African companies, it is highly dependent on the state of the African economy and the financial prospects of specific African companies.  Certain African markets are in only the earliest stages of development and may experience political and economic instability, capital market restrictions, unstable governments, weaker economies and less developed legal systems with fewer security holder rights.  Adverse changes in currency exchange rates may erode or reverse any potential gains from the Fund’s investments. ETF’s are subject to specific risks, depending on the nature of the underlying strategy of the fund. These risks could include liquidity risk, sector risk, as well as risks associated with fixed income securities, real estate investments, and commodities, to name a few. Non-diversification risk, as the Funds are more vulnerable to events affecting a single issuer. Investments in underlying funds that own small and mid-capitalization companies may be more vulnerable than larger, more established organizations.

Dow Jones Africa Titans 50 Index: Measures the stock performance of 50 leading companies that are headquartered or generate the majority of their revenues in Africa. Stocks are selected to the index by float-adjusted market capitalization, subject to screens for size and liquidity.
Standard Deviation: Measures the degree of variation of monthly returns around the mean (average) return. The higher the volatility of the investment returns, the higher the standard deviation will be.
The S&P 500 Index: An unmanaged composite of 500 large capitalization companies. The index is widely used by professional investors as a performance benchmark for large-cap stocks.
The MSCI Emerging Markets Index: A market-capitalization weighted index of 21 emerging market country indices.
The MSCI Frontier Markets Index: A market-capitalization weighted index of 26 emerging market country indices.
You cannot invest directly in an index.