Short-Term Income Class Commentary

Portfolio Advisor: Industrial Alliance Investment Management Inc.

Fund Commentary - April, 2012

During the first quarter of 2012, the world economic recovery continued having a positive effect on stock markets worldwide.  However, fears of another market downturn are not unfounded. The European sovereign debt crisis continues to pose a significant risk to the world economy. While a Greek default was avoided, we are clearly not "back to normal."

The start of 2012 presents some major differences from 2011. U.S. economic data is much stronger than a year ago with better than expected results in employment data and Americans renewing their automobile fleet by replacing old cars with more energy-efficient models.

While the stock markets were strongly positive, the bond market turned out a slightly negative performance in the first quarter as the bond yield curve increased. Only the corporate bond sector saw a positive return while the opposite held true for federal, provincial and municipal bonds. In addition, rates increased more among the long-term maturities (10 years or more), causing the DEX Long Term Bond index to decline. The Bank of Canada kept its target rate at 1.0% during the quarter.

The Portfolio Advisor expects the Bank of Canada will keep interest rates on hold in the near future as it waits to see whether Canada's economic rebound sustains itself in the coming months. At the end of the period, the Fund primarily held Treasury bills. The Portfolio Advisor continues to focus on high-quality issuers and maintaining a high degree of liquidity in the Fund. The Portfolio Advisor is not taking any unnecessary credit risk in the selection of securities as the main investment objective of the Fund is capital preservation and liquidity.