Tactical Income Class

Tactical Income Class Commentary

Portfolio Sub-Advisor: Aston Hill Investments Inc.

Fund Commentary - December 31, 2011

The Fund lagged its benchmark earlier this year as Canadian equities performed well in the spring and Canadian Financials outperformed their global peers. However, the ongoing troubles in Europe continued to play havoc with investors as many flocked to the safety of the U.S. dollar and Treasury bonds in the second half of 2011. In this environment, the Fund outperformed its blended benchmark in the second half due to a heavier weighting in cash and high yield bonds versus equities relative to the benchmark.

Performance in Canadian equities proved to be quite different across industry sectors. Sectors with long duration assets and dependable cash flows such as Real Estate Investment Trusts (REITs), pipelines and Utilities were strong performers in 2011, while the Energy sector and the Materials sector underperformed. The Fund has maintained its weightings in REITs, pipelines and Utilities as the Portfolio Advisor believes they will continue to be strong performers if the problems in Europe are not resolved. Within the REIT sector, the Fund held Canmarc Real Estate Investment Trust when Cominar Real Estate Investment Trust announced its intention to acquire Canmarc Real Estate Investment Trust. The Fund converted its holdings of Canmarc Real Estate Investment Trust into Cominar Real Estate Investment Trust and added more on the transaction as Cominar Real Estate Investment Trust is a very well-run REIT that focuses almost exclusively on real estate in Quebec. The Fund also increased its holdings in Gibson Energy ULC, a strong performer in the storage, treatment and transportation of oil, natural gas and other liquids.

The Fund began the year with a cash equivalent position of approximately 11% of the total Fund and ended the year with roughly the same weight. However, during the first two quarters of 2011 the asset mix of the Fund changed substantially. The cash position at times was below 5% and more than 50% of the Fund was invested in equities. While the Fund did have an equity weighting of more than 50% for a brief time, the Fund ended the year at 41% equities, 48% in bonds and preferred shares and the remaining in cash and cash equivalents.

The Fund had a significant overweight in corporate bonds versus the DEX Universe Bond Index which detracted from relative performance.

The Fund's overweight in REITs and Utilities throughout the year added to performance versus the benchmark as these sectors strongly outperformed the market.

The Fund added to its holdings in high yield bonds throughout 2011. Although this asset class has lagged the performance of investment grade bonds, it has still outperformed the Canadian equity market. Within this asset class, the Fund maintains a significant weight in senior secured first lien securities, otherwise known as "bank debt". The Portfolio Advisor believes these securities offer better protection than the subordinated debt from the same issuer, and, in many cases, still offers significant cash yield.