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Alt Inc Fund June 2012

Alt Inc Fund June 2012

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Published by: Bill Hallman on Nov 08, 2012
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G.I.

ALTERNATIVE INCOME STRATEGY JUNE 2012
GI CAPITAL

G.I. Alternative Income Strategy
• • • The Alternative Income 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 Income Strategy seeks to invest in alternative income strategies like private mortgages and asset backed loans that offer higher returns, while still providing reasonable security to cover the loans. The strategy’s objectives are to preserve capital, minimize volatility, have a low or zero correlation with stock and bond markets, and achieve an annualized return of 8-10% net of all fees.

PORTFOLIO PERFORMANCE FOR ALTERNATIVE INCOME STRATEGY
Ye a r 2010 2011 2012 0.63% 0.81% 0.68% 0.53% 1.33% 0.68% 0.91% 2.43% 0.72% 2.95% 1.91% 0.06% Jan Fe b Mar A pr May J un J ul 0.84% 1.26% A ug 0.78% 0.93% Sep 0.87% 0.90% Oc t 0.80% 1.11% N ov 0.83% 0.83% Dec 0.54% 2.50% Tot a l 4.75% 14 . 5 9 % 7.66%

PROPERTY BY CLASSIFICATION 2% 15% 40% 8% Residential Hospitality Retail Mixed Use Self Storage
*Note: The property classifications only apply to real estate holdings.

PORTFOLIO BREAKDOWN BY ALLOCATION
Percentage Weighting 2% 32% 18% 31% 4% 10% 3% 100% Loan To Value Ratio 66% 62% 72% N/A 50% N/A 0% 64% Av erage Expected Maturity (Months) 24 30 16 26 6 5 0 22 Av erage Expected Yield 11% 11% 11% 8% 8% 12% 0% 9.6%

Security Type F irst Mortgage Subordinated F irst Second Mortgage Real Estate Equity Asset Backed Loans Distressed Debt Cash

35%

PROPERTY BY LOCATION 4% AB 18% 21% BC ON QC 23% 7% MB USA
*Note: The property locations only apply to real estate holdings.

Total/Weighted AVG

FEATURE INVESTMENT
Subordinated First Mortgage: Hotels, Western Canada
This is a pool of first mortgages purchased at a discount to par value, on a group of hotel properties owned by a publically traded REIT. The mortgages were previously owned by a US based investment bank, that for strategic reasons had decided to wind down its Canadian operations. The mortgages were purchased at ~70% of par value, which resulted in a ~60% loan to value ratio. This purchase was financed with a senior debt tranche up to ~31% loan to value, which resulted in the subordinated tranche that we own, having a projected IRR of between 14-25% depending on how quickly the loans were paid off (i.e. if held to maturity, the IRR would be 14%). The hotel properties had suffered from declining performance after the financial crisis of 2008, and the resulting slow down in the oil patch in Western Canada. However, at the time of our investment, there was reasonable evidence that the decline was bottoming out, and economic activity was picking up. The exit strategy is to either hold to maturity (2017) or arrange to have the mortgages refinanced at slightly less than par (eg 90%) at an earlier date, which would result in an increased IRR.

26%

SERVICE PROVIDERS
Custodian (for Fund) Administrator Legal Auditor Custodian (for Managed Accounts)

G.I. CAPITAL CORP.
240 Duncan Mill Rd Suite 806 Toronto, Ontario M3B 3S6

Mark Irwin, CFA 647-260-3388*223
mark.irwin@gicapital.ca

Jim Goren, CFA

647-260-3388*222

Bill Hallman, CFA

647-260-3388*228

Gino Scialdone

647-260-3388*229

jim.goren@gicapital.ca

bill.hallman@gicapital.ca

gino.scialdone@gicapital.ca

G.I. Capital Corp. (GI) is a wealth management firm specializing in developing customized investment solutions for its clients. We are a boutique firm focused on managing our client’s portfolios, offering a high level of research and service to a limited number of clients. Our client base consists of professionals, executives and business owners. Visit us at www.gicapital.ca This monthly update does not constitute or purport to constitute a complete description of the G.I. Capital Corp. Alternative Investment Strategy and is in all respects subject to the more detailed provisions found in the fund's declaration of trust. The Alternative Income Strategy is only available to GI clients who have engaged GI to manage their account under the alternative income 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.

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