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									March 10, 2010

Dear Partners,

We have a lot to get through in this letter, as the six months since our last report has been the busiest since we started
the Fund seven years ago.

This report will cover a number of items. There’s some very important information in here about the future of NFI, so
we encourage everyone to read it and contact us if there are any questions.

In this letter, we’ll cover the following topics:

    1)   Discussion of property transactions and changes since August 2009
    2)   The new Kunshan Development Fund and a new fund-raising round for NFI
    3)   Updates on NAV and the current portfolio
    4)   Views on the property market in Shanghai and Kunshan
    5)   Going forward

Section 1: Changes Since the Last Report
Since we last reported to you in August 2009, there have been many changes to the Fund. First, Virgil quit his job with
Matthews Capital in October to focus more time on NFI, as we have a lot of important developments coming up over the
next year. Virgil will be spearheading some of the investments that we’ll discuss in more detail later in this report. Also,
we’ll likely be moving to Kunshan within the next year to work on these projects full time.

Since August, we’ve sold all of our Shanghai properties. The property market has rebounded, but new transaction taxes
were going into effect from January 1, and we felt that Shanghai property prices are at unsustainably high levels. We
cannot justify the valuations that property in that city are trading at, and we have access to much higher potential
investments in Kunshan, where affordability and other measures are much more reasonable than they are in Shanghai.

So, NFI is now exclusively a Kunshan property investment company, and we have no intention of investing in Shanghai
for the foreseeable future.

Section 2: The Kunshan Development Fund and New Capital Round
We are launching a second fund, the Kunshan Development Fund, to invest in retail properties in the Aroma County
development. Given our evaluation of the retail sites and the market in Kunshan, plus the discounted price that we’ll be
able to purchase property at in the development, we expect to see very strong appreciation of the retail properties that
will be made available to us.

The Kunshan Development Fund (the “KDF”) will seek to raise $5 mn to purchase 10 retail sites in Aroma County, and
the minimum investment will be $250,000. The KDF will have a five-year life, with two one-year extension options.
Fund raising is expected to begin later this year.

NFI will be an investor in the KDF, and NFI will be conducting a new fund raising round between July and September.
Existing and new partners will be able to invest in NFI ($50k minimums for existing investors, $100k minimums for new
investors), and management expects to invest all of the funds raised into the KDF. Since NFI partners already pay
management and performance fees to NFI, they will be exempt from management fees for the KDF, and any
performance fees paid to KDF by NFI will be credited to NFI (so, if KDF were to earn a performance fee of $10k, that
amount would be credited to NFI so that the NFI investor would have to pay only any difference in performance fees).

Section 3: Updates on the NAV and Current Portfolio
The most recent appraisals are in, and our NAV at the end of February 2010 was $5 mn, up 16% from the NAV of August

NFI sold over $1 mn of property in the last six months. After taxes and fees, we are left with a cash balance of nearly
$1.2 mn. We may have an opportunity to invest more in the land portion of the new development project – buying
additional shares at a price below the current market value, and we will likely invest most of the remaining funds (less a
small cash reserve to cover working capital) in the KDF.

Our Lakeside Houses are appreciating at a nice rate, but are still a fraction of the value of a similar freestanding house in
Shanghai proper. As we’ve stated many times in the past, we expect that discount to turn to a premium in the future.
Despite their appreciation, the Lakeside Houses trade at ridiculously low valuations relative to houses in Shanghai – on
the average, Kunshan property trades at about ¼ the levels of Shanghai property, but your houses in Kunshan are still
valued at about 1/12 the levels of similar property in Shanghai. We believe that over the next five years, we could see
the Lakeside Properties rise by 3-4x their current values.

The commercial properties have shown the lowest rates of appreciation, but that’s due to a near-term effect that is
soon to be alleviated. Originally, the land that the commercial development is on was owned by a large Taiwanese
electronics company, which had a large employee-housing facility on the plot. Across the street was the electronics
factory, which has remained there until very recently, when it relocated to a more industrial part of the city. It is now
developing the plot of land adjacent to the one that our commercial units sit on. The appreciation rates of our
commercial properties has been depressed because of the massive amount of construction being done in the area right
now, but the value of the area should rise markedly once the initial foundation-laying is done within a year.

Section 4: Views on the Property Market in Shanghai and Kunshan
We’re worried about the price of property in Shanghai – it’s out of all proportion with income levels, and cannot be
justified by traditional measures. By our estimates, higher-end residential property in Shanghai trades at over 30x the
average household income (the ratio in Kunshan is a much more modest 7.5-8x, about what it is in Manhattan).

Of course, it’s not entirely appropriate to compare the high-end segment of the market to the income of the average
household – the high-end housing segment is a small fraction of the overall residential market, but there’s a very wide
range of value and definition of “mid-range” and “lower-end” property in the city. Also, most Chinese don’t use income
alone to pay for housing, but usually pay for housing from savings, and the savings levels is still very high in the country
(and housing-related expenditures in China are only 3% of total personal consumption, compared to 16% in the U.S. and
almost 7% in India). Finally, China’s stock of housing is, for the most part, old and decrepit, built as communist group
dwellings with few modern amenities – the strong demand from the growing middle class, and overseas speculators, is
chasing a limited modern-housing supply.

Still, the best one can hope for is a soft landing in the large-city property market. The government is taking all the right
steps to gradually let the air out of this bubble.

Property in Kunshan, on the other hand, was never swept up in speculative excess, as foreign specul ators focused their
attentions on the large cities. Valuations are low and fundamentals are great. Even if property prices in Shanghai were
to fall by 50%, they’d still be twice as expensive as property in Kunshan, but it won’t be long before Kunshan prices
exceed those of Shanghai the way that property prices in Palo Alto are at a premium to San Francisco (and, it should be
noted, don’t fall as much in downturns).

Section 5: Going Forward
You will all receive a business plan and prospectus for the KDF in the coming months. You will also receive another
contact asking if you are interested in participating in the new capital round, which will open on July 1, 2010 and close
on July 30, 2010.

The company is open to new investors, and anyone that introduces someone to us will receive a finder’s fee of 5% of
that person’s initial investment.

We have two investors that are looking to sell their stakes in the company. Both have stakes valued at about $150,000
(after all management and performance fees, but before taxes and transaction costs relating to disposal of existing
properties). If anyone is interested in increasing their holdings of NFI, please let management know so that we can
match you up with these sellers.

We are very pleased with the direction and performance of the company, and are looking forward to increasing our
commitment to it by moving to Kunshan and making new investments.

Please feel free to contact us with any questions or comments.


Virgil Adams & Ming-Li Adams
Managing Partners, New Frontier Investments, LLC,

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