THIRD QUARTER REVIEW

Fellow Unitholders,

Outperformance in Turbulent Times
After managing to squeeze out gains in each of the first two quarters of the year, Class A units of the Fund finally succumbed to market forces and were down 0.82% for the quarter ending September 30, 2011. Overall the Fund remains up 5.50% year-to-date. This compared favourably to the Fund’s benchmark, the S&P/TSX Capped Composite Total Return Index, which was down 12.02% in the quarter and is down 11.88% year-to-date. Since inception, the Fund has returned 17.09% on an annualised basis.

* At September 30th, 2011
** Annualised return since inception from 1 June 2009 to 31 August 2011.

Taking advantage of volatility
The best time to prepare for turbulent markets is always BEFORE the crisis. We are firm believers in utilizing cash as a strategic asset class. In a world where financial markets are driven daily by headlines and trade more on emotions than fundamentals, correlation between asset classes is going to be high. Cash is the only asset class that refuses to behave this way.

At the beginning of August the Fund had 30% cash on hand. Zarlink Semiconductors (TSX: ZL) has been on our radar for several years. On July 20th Microsemi announced a hostile takeover to acquire Zarlink for $3.35 cash per share. The market reacted and thought the final price should be higher as Zarlink closed at $3.60 and traded as high as $3.75 in the following days. It continued to trade above the offer price until early August when it plunged, along with the TSX, to $2.94. On August 9th the fund purchased Zarlink at $3.05. As the markets recovered, so did Zarlink’s share price and on September 7th the fund sold its position in Zarlink for $3.59 - a gain of 18% in less than a month.

This is just one example of how the Pender Small Cap Opportunities Fund, a small, nimble and actively managed fund, can take advantage of market inefficiencies and create value by minimizing downside risk and generating superior risk-adjusted returns.

Portfolio Updates
We were very active this quarter as we added to nine positions, initiated six new positions and exited five companies. This level of turnover is uncharacteristically high for the investment strategy of the Fund but when a market downturn means good returns in a short period of time then we make sure we are in a position to capitalise. As a result of this activity, the cash position of the Fund decreased from 30% at June 30th to approximately 10% at the end of the quarter.

Dave Barr
September 30, 2011