At midyear 2011, the Smedley Special Opportunities Fund has benefitted from a strong rally after the recent market correction as we move into July. In the week to June 30, the Fund appreciated by 2.8% but was still down 3.8% year to date. Resource stocks in particular, presently more than 40% of portfolio weighting, seem to be into a restoration of stronger prices and several mining stocks have surprised by breaking out above old highs. More look like joining the move.

The portfolio is little changed in its constituents since our last report at the beginning of May but several more of our special situations are showing initial or further gains. Tourmaline Oil Corp. continued to advance as it did against the lower resources trend earlier. We believe this reflects the excellence of its management, cash flows and profits despite a gas market that is still depressed.

The Fund’s top weighted stock, Morguard Corporation, with its stellar commercial property portfolio, has now risen to a market valuation much closer to net asset value and has moved up to a 7.1% weighting in the Fund at June 30. The Brick Ltd. warrants have cut their short-term decline and are transitioning into shares in a cashless exercising. This national furnishings retailer has been moving into profitability. It is also acting to boost value per share or to cut dilution by buying in shares and debentures.

Wi-LAN Inc. has completed successfully another of its $5-10 million patent infringement settlements. The patent business is attracting much investor attention stimulated by the important auctioning of Nortel’s patents. Linking up with the successful bidders, Wi-LAN might emerge, we surmise, as a beneficiary of this big event.

Close to quarter end, we have re-acquired some of shares sold higher in DATA Group Income Fund, which retreated solely on the negative readings of a couple of professional chartists over a two-week period. Still an income trust, DATA Group now provides a sound 13% payout yield and has been maintaining revenues and profits. It is the clear national leader in forms management and has four of the major banks in Canada among its long-term clients. DATA Group has been rapidly gaining advantage from investment in digital systems while purchasing and maintaining traditional print machinery where this is still appropriate in its operations.

As we move into the second half of 2011, the market appears to be firmer and we should see plenty of opportunities for appreciation in resources and across other sectors generally.

Michael Smedley, Executive Vice-President & CEO, Director and Chief Portfolio Officer

Certain financial information contained in this report, including investment growth rates, rates of return and other such statistical information are historical values; past performance is no assurance or indicator of future returns. Share prices, net asset values and investment returns will fluctuate. Stated historical returns assume the reinvestment of all distributions. Such financial information does not reflect any broker commissions, transaction costs or such other fees and expenses which may have been applicable or income taxes payable by any shareholder, which would have the effect of reducing such historical returns. Stated returns for periods greater than one year are compound average annual rates of return.

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