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Gems Recovery Portfolio Gems Recovery Portfolio

Introduction Introduction

Gems was established in 1987 and currently manages assets of over $7 billion for investors around the globe. As one of the first Fund of Hedge Fund managers in the industry, Gems has 20 years of accumulated investment expertise through its exposure to different market conditions across several cycles. This investment experience gives Gems a clear edge in an extremely competitive though relatively young industry. Longevity and our disciplined award-winning investment methodology complement our analytical capabilities and give us access to the most sought-after hedge fund managers. These strengths enable us to adapt dynamically to the often rapid changes in the markets and capitalise on the investment opportunities they present.

InvestHedge Fund of the Year InvestHedge Event Driven and Distressed Fund of the Year EuroHedge Best Performing Specialist Fund over 3 Years Lipper Best Risk-Adjusted Returns Award for 2007

Award Winning Portfolio Award Winning Portfolio

2007/08 Gems Recovery Portfolio Awards

Section 1: Portfolio Overview Section 2: Recovery Opportunity Set Section 3: Performance Section 4: Recovery Opportunities Section 1: Portfolio Overview Section 2: Recovery Opportunity Set Section 3: Performance Section 4: Recovery Opportunities

Table of Contents Table of Contents

Section 1: Portfolio Overview Section 1: Portfolio Overview

Portfolio Objective: Investment Objective: Investment Approach: Capital Preservation Targeting annualised returns of 10-18% with 4- 8% volatility Invests in a broad range of recovery and other credit-related strategies with emphasis on managers who can capitalise on their specialised understanding of a company’s intrinsic value and the complexities of capital structures, as well as through their understanding of the economic cycle

Portfolio Highlights Portfolio Highlights

Gems Recovery Portfolio assets under management: $1.7 billion Percentage of assets invested with closed managers: 51.99% High degree of flexibility at the strategy level Top quality managers

• Manager alpha from credit selection

Consistent Results

• Uncorrelated returns throughout the credit cycle

Gems Recovery Portfolio is also available in an Enhanced version (with up to 2X leverage)

Portfolio Facts Portfolio Facts

Value Analysis

Involves extensive analysis to determine if the purchase of the security is below its liquidation value. This provides a value floor for the

• investment. Hard assets such

as real estate and equipment can be more easily valued. This creates a bias towards these sectors of the market. Alternatively, analysis of all of the company’s assets and future prospects can suggest that the market has seriously mispriced the value of those assets.

Aim: To synthesise these

elements into an investment strategy

Event Process

Involves structuring investments following events that have driven down the price of the security or, alternatively, an event or catalyst that is expected to cause the security to be rerated upwards.

Investment Focus Investment Focus

Understand the economic scenario in various geographies Assess where the richest opportunity sets exist Monitor current investment themes; understand new investment themes and sub-strategies Gems looks for managers with:

• A rich understanding of corporate fundamentals and

capital structure

• Strong legal and forensic accounting skills
• Access to strong deal flow, including international

deals

• Experience in distressed investing through many

market cycles (long term view)

Top Down Research Bottom Up Research

Gems Approach to Recovery Investing Gems Approach to Recovery Investing

1998 2008

Few investment instruments available to capture

• pportunities

Predominantly long only strategy Hard to short bonds Bank loans hard to buy Unexciting coupon clipping strategy Sophisticated, heavily traded credit instruments (CDS, iTraxx) Managers have liquid, efficient tools to structure desired risk profile Shorting of bonds more prevalent Much more liquid bank debt market Global growth in credit markets are exploding More dedicated hedge fund managers in credit strategies

Evolution of Credit Markets Evolution of Credit Markets

Strategy selection based on the opportunity set within the economic cycle Geographic and sector diversification Manager diversification (~30 managers) Avoiding position overlap between managers Finding managers with systematic, quantifiable alpha Gems Recovery portfolio construction is based on:

Portfolio Construction Portfolio Construction

Section 2: Recovery Opportunity Set Section 2: Recovery Opportunity Set

Strategy Emphasis Strategy Emphasis

Source: Gems Investment Research

Dynamic Environment, Changing Opportunities Dynamic Environment, Changing Opportunities

Fed rate at 1.25% (Nov) Corporate spreads* temporarily widen

• Corporate fraud

Aldelphia Worldcom October: Debt Market Low Spreads hit historic highs (700 bps) Fed Rate Dips below 2% (Dec) 9/11 Enron

• Distressed Opp
• Short Opp
• Short Cap. Structural

Arb. Fed rate hits low of 1% (June) Corporate fraud continues March: Iraq War April: markets turned Equity Market Low

• Restructuring debt opp.
• Long distressed debt
• Deep value stocks

Spreads hit cyclical lows of 200 bps Fed raised interest rate 5 times (2.25% Dec)

• Distressed debt opp

Fed rate at 4.25% M&A boom Volatility at all time low

• Event driven

Private equity type deals

• Non US opp.
• Deep value
• Mortgage spreads

begin to fall (end 07) ABX 100 (Nov)

• Shift into equities,

particularly, post restructuring equities

• Deep value equities
• L/S credit
• Event driven

Mid 2007:Spreads widen to 600 bps Emergency Fed cut 50 bps Aug: Liquidity Crisis

• Bulk of gains on

short side

• Short subprime
• Short financials
• Capital struct. Arb.
• Start of new

distressed opp

Market Events Distressed Opportunities

Source: Gems Investment Research

Recovery Portfolio * Corporate BBB- spread

Fed cut of 75 bps (Jan); 75 bps cut (Mar) Rate at 2.25% Mortgage meltdown ABX trades at 15 ABX at 70 (Mar) ABX 40 (Aug)

On-the-run ABX BBB- Credit Spreads* Fed Fund Rate

Fed rate at 5.25%(Dec)

*Represents the OAS (Option Adjusted Spread) for Lehman High Yield Bond Index BB and lower

*

Credit spreads are cyclical, ranging from less than 300bps to 800bps Throughout the cycle, good credit managers find opportunities to make steady returns

Consistent Returns Consistent Returns

Source: Gems Research Investment Ltd / Period: January 02 – May 08

Section 3: Performance Section 3: Performance

USD Historical Performance Recovery Returns vs. Various Indices USD Performance Statistics

Period: *Jan. 02 through May. 08 / Performance figures are net of fees. Past performance is no guarantee of future returns.

Gems Recovery Portfolio Gems Recovery Portfolio

Source: Gems Investment Research * Apr 1, 2008 YTD

Strategy Allocation vs Profit Attribution Strategy Allocation vs Profit Attribution

Strategy Allocation* Profit Attribution* (Percentage of Net Profit)

Geographic Allocation Geographic Allocation

Source: Gems Investment Research Date: 1 April (estimate) Allocation 2008

Section 4: Recovery Opportunities Section 4: Recovery Opportunities

Credit Markets are in the midst of a major credit contraction

• Less liquidity
• Bank balance sheets under tremendous stress
• Harder for companies to receive financing

Wider credit spreads

• Lenders more cautious
• Corporates have higher interest costs
• More risk priced into the bonds

Higher anticipated defaults

• Market estimates expect bond defaults to rise significantly in

2008/09

Indications of Credit Downturn Indications of Credit Downturn

20% of the high yield bond market is trading at distressed levels (1000+bps over Treasury)*

iTraxx Europe Investment Grade 10 Year

Huge Increase in Stressed Debt Huge Increase in Stressed Debt

Source: Bloomberg / Period: September 07 – April 08 * Merrill Lynch distress ratio of February 08

Credit Contraction Getting Worse Credit Contraction Getting Worse

Financial Sector Writedowns

Writedowns in the financial sector since 2007 have exceeded $300 bn and are expected to grow. Bank balance sheets could decrease by $2 trillion during the current credit contraction Large writedowns at investment banks (UBS, Merrill Lynch, Lehman) expected to continue throughout 2008 Large backlog of leveraged loans; banks are delaying syndication

Source: Bloomberg / Date: As of 1, April 08

The credit market is worried about intermediary risk Premia in the financial sector are growing, excellent short/ long opportunities

Credit Spreads in the Banking Sector at All-time Highs Credit Spreads in the Banking Sector at All-time Highs

Source: Bloomberg / Period: April 07 – April 08

Bears Stearns CDS Goldman Sachs CDS JP Morgan CDS

10 Year CDS Spread

Merril Lynch CDS

Lack of demand created huge overhang in bank debt market in late 2007, early 2008 Attractive entry points for long opportunities, good short opportunities

Leveraged Loans in Free-fall Leveraged Loans in Free-fall

Source: Bloomberg / Period: March 04 – April 08

NAV of Closed End Fund Investing in Leveraged Loans

Direct Lending

• Banks’ balance sheets under stress
• Banks are expected to decrease their outstanding loans by $2 trillion during the

current credit contraction

• Many solid corporate credits are unable to obtain bank financing
• Hedge fund managers offer direct lending through syndicates at attractive interest

rates Short Financials

• Large financial writedowns provide short opportunities in the financial sector

Long/Short Credit

• Credit selection on both the long side and short side is providing alpha as credit

spreads widen and as volatility enters the corporate bond market Bank Debt

• Huge sell-off in bank debt has created buying opportunity for senior/secured debt

with yield-to-maturity of LIBOR + 500 bp

Opportunities for the Recovery Portfolio in 2008 Opportunities for the Recovery Portfolio in 2008

Portfolio Gems Recovery Portfolio Fund Gems Progressive Fund Investment Manager Gems Management Limited Investment Advisor Gems Advisors Limited Administrator Citco Fund Services (Luxembourg) Ltd Custodian Brown Brothers Harriman (Luxembourg) S.C.A. Auditor PricewaterhouseCoopers (Luxembourg) Fiscal Year-end December Highwater Mark One Year Rolling Listings Lipper Analytical Services, Micropal, Luxembourg Stock Exchange Quotes USD: ISIN LU0221730731, Bloomberg: GEMPFRR LX, Common Code 22173073, Telekurs CH 2206047, International Herald Tribune EURO: ISIN LU0221730905, Bloomberg: GEMRER4 LX , Common Code 22173090, Telekurs CH 2206054 Minimum $100 000 / €100 000 Subscriptions USD: Monthly + 3 days, Euro: Monthly + 6 days Redemptions Quarterly + 65 days Redemption Gate Subject to 10% redemption gateway Lock Up None Initial Fee Up to 5% Advisory Fee 2% per annum Incentive Fee 10% of profits (if above 5% annualised)

Please see official prospectus for full investment terms.

Structure Structure

2007/08 Awards 2007/08 Awards

InvestHedge Awards 2008 Gems Recovery Portfolio (Regular US Dollar) Winner 2008 InvestHedge Awards 2008 Lipper Fund Awards 2008 Gems Recovery Portfolio (Regular Euro) Winner 2008 Winner 2008 Best Risk-Adjusted returns for 2007

• ut of 614 European registered funds
• f hedge funds

Gems Recovery Portfolio (Regular US Dollar) Winner 2008 Lipper Fund Awards 2008 Gems Perennial Portfolio (Regular 3 Year Dollar) Winner Winner 2008 2008 Best Risk-Adjusted returns for 2007 out

• f 1072 offshore-registered fund of

hedge funds European Hedge Fund of Funds Awards 2007 Gems Multi-Strategy 2X Winner 2007 Winner 2007 Best Performing Leveraged Product on a Risk-Return Basis European Hedge Fund of Funds Awards 2007 Gems Recovery Portfolio Winner 2007 Winner 2007 Best Performing Specialist Fund of Hedge Funds over 3 Years Gems Perennial Portfolio Winner 2008 Winner 2008 Best Newcomer Portfolio HFM Awards 2008

Past Awards and Rankings Past Awards and Rankings

European Hedge Fund of Funds Awards 2004 Gems Recovery Winner 2004 Best Performing Hedge Fund Of Funds Over 1 Year on a Risk/ Return Basis (Specialist Funds of Hedge Funds) Gems Advisors Limited Winner 2003 Best Group on the Basis of Investment Process Gems Low Volatility Portfolio Highly Commended for the Best Performing Hedge Fund of Funds Over 5 Years on a Risk adjusted basis European Hedge Fund of Funds Awards 2003 Allenbridge Hedge Info Global Hedge Fund Rating and Research July 2005 Gems Low Volatility Portfolio Recommendation: Buy A,A-= 91-100%. Superior Quality Global Fund Analysis Gems Low Volatility Portfolio 4 Stars for Consistent Returns with Low Volatility European Hedge Fund of Funds Awards 2003 Allenbridge Hedge Info Global Hedge Fund Rating and Research July 2005 Gems Recovery Portfolio Recommendation: Buy A,A-= 91-100%. Superior Quality

MSCI (Total Return with net dividends) This is a free float-adjusted market capitalisation index that is designed to measure global developed market equity

• performance. This series approximates the minimum possible dividend
• reinvestment. The dividend is reinvested after deduction of withholding tax,

applying the rate to non-resident individuals who do not benefit from double taxation treaties. MSCI uses withholding tax rates applicable to Luxembourg holding companies, as Luxembourg applies the highest rates. Lehman Government Credit Bond Index (LGCB) The Lehman Government Credit Bond Index is generally considered to be representative of U.S. Government security and corporate bond market activity. HFRX Distressed Index This investable index contains a wide selection of distressed debt hedge fund managers to act as a proxy for the strategy as a whole.

Glossary Glossary

Gems Management Limited*

Norfolk House, 1st Floor Frederick Street P.O. Box CB 12809 Nassau, Bahamas Contact: Cedric Carroll Tel: +(1 242) 326 1904/5 Fax: +(1 242) 326 3839 bahamas@gemsadvisors.com

Gems Advisors Limited**

Authorised and Regulated by the FSA

38 Park Street London W1K 2JF United Kingdom Tel: +(44 20) 7493 1617 Fax: +(44 20) 7629 2512 london@gemsadvisors.com

Gems Administrator

Citco Luxembourg (S.A.) Carré Bonn, 20, Rue de la Poste L-2346 Luxembourg PO Box 230 L-2012 Luxembourg Contact: Gems Team Tel: +(352) 260 236 400 Fax: +(352) 260 236 470 gems@citco.com

www.gemsadvisors.com

*Gems Management is registered as a non-US Investment Adviser with the Securities and Exchange Commission (SEC No 801-63536). However, it is not registered under the US Investment Advisers Act of 1940 (‘IA40’), and complies with IA40 only with respect to U.S.

• clients. Therefore, protection by the SEC does not apply to non-US investors. ** Gems Advisors Ltd. is authorised and regulated in the UK

by the Financial Services Authority (Firm Reference Number No 222054) and is a member of AIMA

Gems Contact Information Gems Contact Information

Ver.5/08

Gems Management Limited (“GML”) is the Investment Manager to the portfolios mentioned in this document. GML has extensive experience in designing, sponsoring and managing portfolios of hedge funds and other investment funds. GML is registered with the Securities and Exchange Commission of the United States (the "SEC") as an investment adviser under the U.S. Investment Advisers Act (the "U.S. Advisers Act"). However, as a non-U.S. adviser to non-U.S. domiciled funds, the most substantive provisions of the U.S. Advisers Act (excluding, without limitation, the U.S. Advisers Act’s compliance rule, custody rule and proxy voting rule) generally do not apply to GML’s dealing with its clients. Therefore, protection by the SEC does not apply to non-US investors. Gems Advisors Limited (“GAL”) is the Investment Advisor to

• GML. GAL is authorised and regulated in the UK by the Financial Services Authority (Firm Reference No 222054) and is a

member of AIMA and can conduct investment business in the UK. Gems Management Ltd has issued this document for information purposes only and is intended only for the person to whom it has been distributed. This is neither an offer to sell nor a solicitation of any offers to buy the funds mentioned in it. Any investment decision with respect to an investment in any of the funds herein should be made only on the basis of the information contained in the relevant prospectus. This summary is not intended to constitute legal, tax or accounting advice or investment recommendations. The information in this document has been obtained from sources believed to be reliable, but we do not represent that it is accurate or

• complete. The funds described herein are not available for sale in any jurisdiction in which such sale would be prohibited.

The funds referenced in this document have not been registered under the Securities Act of 1933 (the “1933 Act”) or any

• ther securities laws of any other U.S. jurisdiction and may not be sold or transferred to U.S. persons. The Funds are not

registered with or authorised by the UK's Financial Services Authority (the “FSA”) and as such they are all unregulated collective investment schemes (“Unregulated Schemes”). Section 238 of the UK's Financial Services and Markets Act 2000 and the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (SI 2001/1060) prohibits the promotion of unregulated schemes to non-qualifying parties in the United Kingdom. Investors in these funds are not covered by the rules and regulations made for the protection of investors in the UK. Investors will not have the benefit of the rights designed to protect investors under the Financial Services and Markets Act 2000, and the rules of the FSA. In particular, they will lose the right to claim through the Investors Compensation scheme for losses resulting from the default of obligation owed under the rules of the FSA. Gems Management Ltd or companies or individuals connected with it may have positions in or may be materially interested in any of the funds mentioned herein. Opinions expressed herein may not necessarily be shared by all employees and are subject to change without notice. The information concerning the performance track record is by way of information only and without legal liability on the part of Gems Management Ltd. The performance figures contained herein represent actual performance unless otherwise stated. Past performance is not a guarantee of future results. The financial products mentioned in this document will not necessarily be suitable for all types of investors. The value of investments may go down as well as up and you may not get back your original investment.

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