INVESTMENT OBJECTIVE

1
Principal Protected Notes Q4 2007 Commentary
INVESTMENT OBJECTIVE Principal Protected Notes
are 100 principal-guaranteed by Société Générale
such that the full principal amount is repaid at
maturity regardless of market performance. In
addition, investors receive any investment return
earned by the investment managers, net of fees.
The Pro-Hedge Principal Protected Notes provide
selected leading fund managers in the world
available to all Canadian investors and are
designed to deliver consistent performance
regardless of market conditions.

• THE QUARTER IN REVIEW
• The Principal Protected Notes Series 2, 3 and 4
  modestly outperformed the SP500 during the
  fourth quarter but slightly under-performed the
  Lehman Bond Index. As a group, the 23 investment
  managers within the Ontario Partners Global
  Master Fund performed well but, more importantly,
  the investment return during the year
  outperformed the SP500 by nearly 5.
  Maintaining this investment ensures that you get
  the full principal back at maturity and also
  provides protection from market declines. You
  have excellent fourth-quarter relative
  performance with these notes and it probably
  compares very favorably with returns earned by
  those investors who invest directly into the
  markets,.
• As we expected, the performance of the US markets
  is being affected by the sub-prime mortgage
  market and declines in real estate values. To
  date, the reaction has been somewhat muted but we
  do expect more of an effect as financial
  institutions report earnings in the future. The
  situation is not yet resolved.
• Inflation is still subdued and US Treasury rates
  remain low. The Fed is continuing to reduce
  interest rates to minimize the effect on their
  domestic economy. Credit spreads on poor quality
  debt instruments have widened considerably
  especially for high-yield and distressed
  securities.
• The Canadian dollar has gained against both the
  US dollar (15) and the Euro (6) throughout 2007
  ending at US0.99. The price of crude oil has
  moved up 57 since the beginning of the year to
  US96 and gold has appreciated 31 to US838.
  Large-cap equities moved higher in Canada
  resulting in a gain of 7 for the TSX. The US
  market did not fare so well in Canadian dollars
  due to the weak dollar resulting in a loss of 8
  by the SP500.
• During the quarter, our heaviest investment
  manager exposure was to Ontario Partners and they
  added 2.8 during the quarter. Our modest (10)
  exposure to our other managers reduced the
  overall performance to 1.5 for the Series II
  notes. One of the other investment managers,
  Winton Capital Management was small and we
  eliminated it just after the end of the third
  quarter. However, in summary, the overall
  positive performance resulted in excellent
  relative performance and bodes well for the
  future while you are still guaranteed to receive
  full repayment at maturity.

Contd
Calculations for the above funds were based on
net asset values after deductions for management
fees, performance fees, and operating expenses.
The above fund values change frequently and past
performance may not necessarily be repeated. This
communication contains information about
Pro-Hedge Funds Inc. but under no circumstances
should be construed as a public offering to sell,
or a solicitation of an offer to buy securities.
An eligible investor should refer to a funds
confidential offering document prior to purchase.
2
Principal Protected Notes Q4 2007 Commentary
WHY IS THE PERFORMANCE OF THE NOTES DIFFERENT
FROM THE PERFORMANCE OF THE UNDERLYING FUND? The
performance of the Note at maturity will be
solely dependent on the performance of the
underlying fund portfolio. Prior to maturity,
however, the value of the Notes will be dependent
on several factors including Fund performance,
time to maturity, market volatility, and interest
rates. At the high level, these deposit notes are
constructed using a zero-coupon bond, to provide
principal protection at maturity, and a call
option, to provide the linkage to the performance
of the underlying fund portfolio. The price of
the Notes on any particular day is calculated
simply as the sum of (1) value of the zero coupon
bond, and (2) the value of the call option.
During the life of the Notes, many factors can
influence the monthly price, including changes in
interest rates, credit spreads, volatility, and
underlying manager performance. The sensitivity
to each of these factors will also change over
time. For example, it is expected that changes in
both interest rates and market volatility will
impact the Note disproportionately in the earlier
years and less so as the Note gets closer to
maturity, when the performance of the underlying
managers will be more influential. Recently,
rising interest rates have hurt the performance
of the Notes despite positive underlying manager
performance. In addition, volatility has fallen,
which has also hurt near-term performance. Over
time however, these variables will become less
significant and will not materially impact the
performance of the Notes if held to maturity. As
such, the monthly fluctuations in interest rates
and volatility should not be of major concern for
those investors who intend on holding the Notes
to maturity. What does matter in the long-term is
the performance of the underlying Fund, which has
been positive over the duration of the Note.
For additional information please contact
Pro-Hedge Funds Inc., a registered trade name of
Pro-Financial Asset Management Inc., at
1-877-566-5145.