Canadian Conservative Equity Fund

Canadian Conservative Equity Fund Commentary

Portfolio Sub-Advisor: Leon Frazer & Associates Inc.

Fund Commentary - December 31, 2011

The past year was a difficult one for the Canadian equity market. Left-over enthusiasm from 2010 dissipated in the second quarter, replaced instead with angst stemming from further sovereign credit deterioration and financial system stress in Europe. The North American economy continued to show modest strength as private sector spending appears to be filling in for decreased government stimulus in the second half of the year. Europe continues to inch toward a resolution; however, there is still much uncertainty surrounding the outcome and how it will be viewed by financial markets.

The Fund outperformed the S&P/TSX Composite Index due to its focus on the industries that make up the backbone of the Canadian economy, and by overweighting its positions in Telecommunications Services, Utilities, banks (a Financials sub-sector) and pipelines (an Energy sub-sector). This positive performance occurred in a year that will be viewed by many as a bad year for the Canadian stock market, due to its 50% weighting in Materials and Energy, which experienced double digit losses. The Fund is underweight Materials and energy producers (an Energy sub-sector), compared with the S&P/TSX Composite Index, which also contributed to the Fund's performance. All of the Fund's Utility, pipeline and telecommunications holdings had positive performance for the calendar year.

Most importantly, 55% of the Fund's equity holdings increased dividends this year by a weighted average of greater than 7%. The Portfolio Sub-Advisor added two holdings to the Fund this year, Crescent Point Energy Corp. and Canadian Pacific Railway Co., and continued to build on existing holdings. The Portfolio Sub-Advisor exited a position in Trinidad Drilling Ltd. Due to a cash accumulation in December, the Fund ended 2011 with a slightly higher cash position of 6%. The Portfolio Sub-Advisor is anxious to deploy this cash to dividend-paying stocks in 2012 in order to maintain a fully invested stance.