G.I.

ALTERNATIVE HEDGE STRATEGY JULY 2012

GI CAPITAL

G.I. Alternative Hedge Strategy Pool

The Alternative Hedge Strategy is an alternative to traditional bond funds, which although carry very low credit risk, currently have minimal return; and to equity funds that exhibit high volatility. The Alternative Hedge Strategy seeks to invest in alternative strategies like hedge funds, private equity, and real estate, which offer higher returns, at a reasonable risk, while minimizing exposure to global stock and bond markets. The fund provides access to sophisticated private investment vehicles traditionally reserved for large pension plans and the ultra high net worth investors. The strategys objectives are to preserve capital, minimize volatility, have a low or zero correlation with stock and bond markets, and achieve an annual return of 7-9% net of fees. The pool is a core holding across all of GIs managed accounts.

PORTFOLIO PERFORMANCE FOR ALTERNATIVE HEDGE STRATEGY

Ye a r 2011 2012 0.31% - 0.16% 0.61% 0.19% 3.28% - 1.19% - 0.70% Jan Fe b Mar A pr May J un J ul A ug Sep Oc t N ov Dec - 0.07% Tot a l - 0.07% 2.30%

STRATEGY

COUNTRY US US US CAN US

Securitized Fixed Income High Yield Bond Strategies Private Distressed Debt Hedged Fixed Income Distressed Real Estate

DESCRIPTION Long senior or mezzanine tranches of securitized bonds (RMBS, CMBS, CDOs, CLOs) through granular analysis of underlying assets in the pool. Hedged through tactically shorting the ABX (RMBS Index), etc. Publically traded bonds that have fallen below 75% of their par value. High current yields and yield to maturity. Some hedging through shorts on equities and non-distressed bonds. Private placements into charged off consumer debt at a severe discount to face value (ie 1-2% of par value). Purchased from distressed banks trying to clean up their balance sheets. High quality fixed income fund which has been hedged against a rise in interest rates. Private placements into real property with positive cash flows, purchased at significant discounts to replacement cost. MONTH PERFORMANCE BY STRATEGY
-0.89% 0.29%
Hedged Fixed Income High Yield Bond Strategies

INVESTMENT BY ASSET CLASS

Distressed Real Estate

5% 22% 26%

Hedged Fixed Income High Yield Bond Strategies

1.24% Securitized Fixed Income 1.00% 0.00%

Private Distressed Debt Distressed Real Estate Other

20% 7%

20%

Private Distressed Debt Securitized Fixed Income -0.85% Cash

FEATURE INVESTMENT
Hedged Fixed Income Fund: This is a hedge fund strategy that owns high quality long maturity bonds, but has hedged out the duration risk, ie the risk of interest rates rising over time and depressing the value of the bonds, as yields rise. We like this strategy as it provides a solution some of the challenges facing investors in the current fixed income environment. With so much risk in the equity markets, investors have flocked to short term bonds, pushing the prices up and the yields to maturity down. As a result short term investment grade bonds pay very little. On the other hand, longer term bonds still have very reasonable yields, a result of investors avoiding the longer end of the curve due to the duration risk. Being able to capture high coupons on high quality investment grade bonds while hedging out the risk of rising rates is a very attractive strategy in the current environment. In addition to this core strategy, the fund can also add additional alpha by tactically adjusting duration on a short term basis, depending on the prevailing investment climate. In fact, they are able to position the fund with negative duration, meaning that the fund would profit from rates moving up, as opposed to a traditional bond portfolio that would lose value under that scenario. The expected return profile for this strategy is 7-8%/annum net.

This monthly update does not constitute or purport to constitute a complete description of the G.I. Capital Corp. Alternative Hedge Strategy and is in all respects subject to the more detailed provisions found in the fund's declaration of trust. The Alternative Hedge Strategy is only available to GI clients who have engaged GI to manage their account under the alternative income/hedge mandate as outlined in their investment policy statement. The returns above are net of all fees, other than management fees. The references to the target rates of return are provided for illustrative purposes only and there can be no assurance that the fund will be able to achieve the targeted rates of return.