G.I.

ALTERNATIVE HEDGE STRATEGY JUNE 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% 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% 3.02%

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
-0.71% -2.03% 0.37% 1.00% 0.00% -0.88% Cash
Hedged Fixed Income High Yield Bond Strategies Securitized Fixed Income Private Distressed Debt Distressed Real Estate Other

INVESTMENT BY ASSET CLASS

Distressed Real Estate

10% 23% 8%

6% 30%

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

24%

FEATURE INVESTMENT
RMBS Long Short: This is a hedge fund strategy that is long deeply discounted senior tranche RMBS securities, and tactically short the RMBS Index. RMBSResidential Mortgage Backed Securities are essentially bonds backed by residential mortgages in the US. Most investors are familiar with how mortgages were bundled up and sold off in tranches, ranging from super-senior to mezzanine tranches to equity tranches. These are the same securities that contributed to credit bubble in 2008. However, while in hindsight they were not very attractive investments (issued at par paying a few basis points above LIBOR), the super seniors are now trading at 30-50 cents on the dollar and offer an attractive yield to maturity. The fund establishes on a granular basis what the collateral (in this case residential real estate) is worth before making a bid on an RMBS security. Based on this collateral, they estimate that the YTM is 12-15% with no change in real estate value. However, given that an underlying assumption is that these bonds will mature somewhere below par value, there is substantial upside should the real estate market recover. More importantly, the portfolio has been stress tested on the downside, and its estimated that the market would have to decline a further 42% before a loss would be incurred.

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.