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					                                                                                                                      February 2007
              Muse Newsletter
                                                                                         Muse Capital LLP
   Muse Capital invests in global equities, long/short, seeking under-priced growth on the long          Partners:
                                                                                                +44(0)20 7976 2886
   side and businesses with deteriorating fundamentals and price action on the short side.
                                                                                                +44(0)20 7976 2883

Legal Name of Fund:                 Muse Global Master Fund, Muse Global Fund Ltd (offshore feeder), Muse Global Partners LP (onshore)
Fund Domicile:                      Cayman (offshore feeder), Delaware (onshore feeder)
Inception Date:                     January 2nd, 2003
Listing:                            Irish Stock Exchange. Valoren Number: Class A: CH1732407; Class B: CH1732411
Assets in Strategy:                 US$ 57.1 Million (As at March 1, 2007)
NAVs:                               (Please See Page 2)
NAV frequency:                      Monthly
Currencies:                         US Dollars, Euro, Japanese Yen and Pounds Sterling.
Metrics:                            Sharpe Ratio: 1.14        Std Dev: 12.6% (annualised)
   *      Jan        Fe b     Mar         Apr        May      Jun       Jul           Aug         Se p       O ct         Nov      De c            Ytd
   2003 -0.73%       -0.51% -0.20%        1.52%      3.80% 1.54%        4.54%         2.90%       1.10%      2.77%        -0.63%   1.32%         18.8%
   2004 -0.68%       1.39%    0.49%       0.44%      -3.98% 0.17%       -0.37%        -2.35%      4.82%      1.17%        8.10%    2.44%         11.7%
   2005 -0.62%       7.86%    -4.36%      -3.60%     2.04% 5.40%        5.99%         1.27%       6.43%      -5.12%       6.92%    10.10%        35.6%
   2006 8.96%        -1.95% 4.63%         1.86%      -6.54% -3.26% 1.15%              -1.99%      -0.74%     3.47%        2.70%    2.97%         10.8%
   2007 2.53%        -2.05%                                                                                                                       0.4%
* Net of fees and expenses. Hot Issues Class. Most recent month preliminary est .

Beta Adjusted Exposure - By % of Industry                                    Top Long Positions
                                    Long      Short       Net     Gross      %            Company                                  Country
Consumer Non Cyclical                13.3      -0.1      13.2      13.4
                                                                             3.0          Groupe Danone                            France
Consumer Cyclical                    20.6      -0.1      20.5      20.7
                                                                             2.3          US Airways                               USA
Energy and Utilities                 12.7      -0.6      12.1      13.2
                                                                             2.1          CVS Corp                                 USA
Financials                           25.5      -22.9     2.6       48.4
Industrials                          20.0       -2.8     17.3      22.8      2.1          Continental Airlines                     USA

TMT                                  13.9      -3.4      10.5      17.3      2.0          TOC Co                                   Japan
Totals                              106.0      -29.8     76.2     135.7
                                                                             Top Short Positions (Non—ETF)
Beta Adjusted Exposure - By % of Region                                      %            Company                                  Country
                              Long    Short               Net     Gross
                                                                             - 1.4        Electronics                              UK
Europe                               20.8      -5.9      14.9     26.6
                                                                             - 1.2        Metals                                   Europe
Japan                                25.3      -1.6      23.8     26.9
                                                                             - 0.9        Oil & Gas Services                       USA
USA/Canada                           41.2      -22.3     18.9     63.5
                                                                             - 0.8        Semiconductors                           USA
Others                               18.7       0.0      18.7     18.7
                                                                             - 0.8        Banks                                    Japan
Totals                              106.0      -29.8     76.2     135.8
                                                                             Top 5       Contributors              Bottom 5    Contributors
Beta Adjusted Exposure - By % of Market Cap
                                                                             46 bps      Bayou Bend Petroleum      - 51        Electrolux AB
                                    Long     Short       Net      Gross
                                                                             37          Urasia Energy             - 28        Hanjin Shipping
Large Cap                           32.9       -8.4      24.5     41.3
Mid Cap                             42.9      -18.3      24.6     61.2       23          Neo-Neon Holdings Ltd     - 25        Renewable Power &
                                                                                                                               Light Plc
Small Cap                           30.1      -3.1       27.0     33.2
                                                                             22          Sandvine Corp             - 21        US Airways
Totals                              105.9     -29.8      76.1     135.7
                                                                             17          Everbright                - 21        IQ Power AG

Authorised and regulated by the F.S.A. Registered with the SEC.
Portfolio Review
The Muse Global Fund lost approximately 2% last month as global markets corrected. There has been a lot of commentary on “what hap-
pened” and it is now clear 10 days later that the real issue is all about US subprime mortgages and contagion. However, we can shed some
light on the Chinese correction that investors may find interesting, outlined in the next section.

Our tactical stance at month-end was to hold tight as nothing fundamentally changed except share prices got cheaper. However, we are now
reducing long exposure this month after the market’s recovery.

We used the weakness to add to positions in several European blue chips (Nestle, Danone, Continental) which were sold down despite having
reported blow-out numbers and very positive outlooks. We cut some emerging market exposure earlier in the month but added to positions in
environmental stocks in Asia. Neither a weak Shanghai stock exchange nor a slowing US economy are likely to have much impact on their

Last month, the portfolio was helped by Japanese REITs and alternative energy stocks, but was negatively impacted by US longs, in particular
airlines and diversified financial services. On the short side, Electrolux reported better than expected margin improvement and rose strongly.
Canadian energy stocks did well, specifically Bayou Bend and Urasia (which received and accepted a takeover offer). Small cap longs did
well, especially Neo Neon, a Hong Kong/China-based lighting manufacturer focused on energy-saving LED lighting.

Notes and Themes
The Shanghai A-share sell-off was sparked by the calendar: February 27th was the second day after a 10 day-long Chinese New Year holiday.
The ostensible cause of the sell-off was the removal of the market regulator, who had overseen the successful growth of the exchanges in re-
cent years, who was promoted out of his position. On top of this, rumors (later denied) of a capital gains tax added fuel to the fire. A more
realistic though technical cause of the sell-off was the fact that many domestic mutual funds, after gaining more than 100% last year, paid out
sizeable dividends to their investors after the holiday. Many of these funds implemented the dividend payout by selling in the market at the
same time (Feb 27), to raise cash, and this selling simply snowballed. After the payout, however, funds in China raised fresh money from in-
vestors, as the investors simply re-invested the dividends. Thus mutual funds in China saw net inflows last week.

Fundamentals in China remain sound. China is passing a "Property Rights Law" protecting private property ownership. Further, it is setting
up a huge state investment company to diversify its US$1 trillion FX reserves. The country has to let excess liquidity out of the system into the
world markets. In addition, China has US$4.5trillion in private savings, dwarfing the $1.2 trillion A-share market cap. Thus with tax cuts and
legal protection of private ownership, ample liquidity, on top of which accelerating profit growth, rising profit margins and return on equity, it
is unlikely that the cause of a global meltdown is going to be China, near-term.

Far away from China, the key issue facing global markets today is whether the problems in the subprime sector in the US mortgage market are
a harbinger of problems in the rest of the mortgage sector, which might then be transmitted to the consumer at large and possibly to the entire
financial system. The subprime area is characterized by home buyers who can’t really afford the homes they own, but have been counting on
house price appreciation to bail them out. Now that house price appreciation has substantially slowed, they are having problems, as are their

The implications for the prime mortgage space are uncertain at this point. However, it does seem clear that with low levels of unemployment
and low interest rates, the prospects for a major bust in the mortgage space look remote. For the current problems to result in a recession six
months from now, a scenario like the following would have to play out: corporate profitability having peaked late last year (possible), capital
expenditure is reined in dramatically (growth in capex has slowed, but given the strength in corporate balance sheets a huge drop is unlikely),
layoffs accelerate and unemployment rises sharply (entirely possible though no evidence at this time), financial institutions stop buying mort-
gages (happening in the subprime arena, may be starting in the Alt-A and Alt-B tranches, which are one step up), and the banks rein in lend-
ing. Consumer confidence retreats, spending slows as consumers rebuild their balance sheets, and the economy slows. The credit crunch
worsens, triggering a recession.

This certainly isn’t implausible, and that’s why the market is correcting. In this scenario, instead of mid-single digit rises in earnings this year,
earnings may be flat to slightly down. However, the Fed, as inflation comes down, should cut rates later in the year, and the market should
start to discount a recovery in mid-2008. What level of 2008 multiple will the market put on the S&P at that point? With interest rates on the
10 year Treasury at 4.50%, it is likely to be in the high teens, discounting a profit recovery in 2009. This would imply something over 1600
on the S&P (versus 1377 today).

Thus the long term picture of the market is not that bad, primarily because it has de-rated over the last several years to a reasonable level.
However, in the interim, the market could overshoot on the downside as it adjusts for an economic slowdown. And if something were to trig-
ger a wider systemic crisis, this outlook will, in retrospect, look complacent. For this reason, we have reduced our net position in favor of cau-
tion, though we have maintained exposure to our major themes.

NAV Per Share (as of 31 January 2007)

Muse Global Fund Ltd (USD)                              Muse Global Fund Ltd (EURO)                       Muse Global Fund Ltd (GBP)
Class A1: US$2,078.22                                   Class A1: €1,708.08                               Class A2: £1,058.24
Class A2: US$1,033.70                                   Class A2: €1,019.03                               Class B2: £1,061.87
Class B1: US$1,908.02
Class B2: US$1,025.56

Feb 2007        Muse Capital LLP, 6th Floor Finland House, 56 Haymarket, London SW1Y 4RN                              020 7976 2888         Page 2

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