The Perfect Storm The PFP Group Wealth Management Team November 2008

And the scariest Halloween costume for this year goes to...

Presentation Agenda The Perfect Storm……US Housing Bubble………………………...……………………..4 The Perfect Storm……Greed and Fear……………………………...………………… ….5 The Perfect Storm……Systemic Risk….…………………………...……………………..9 The Perfect Storm……Is the worst over?…………………………...……………………10 Historical Perspective……………………………………………………………………..11 Investor Emotions…………………………………………………………………………17 Near term Strategy….……………………………………………………………………..22 The PFP Group….Who we are?....……………………………………………………..…26 Why the PFP Group…………………………………………………………………….....28 The PFP Group – Contact Info….…………………………………………………………31

The Perfect Storm……US Housing Bubble………………………...……………………..4

The Perfect Storm……Greed and Fear……………………………...………………… ….5

The Perfect Storm……Systemic Risk….…………………………...……………………..9

The Perfect Storm……Is the worst over?…………………………...……………………10

Historical Perspective……………………………………………………………………..11

Investor Emotions…………………………………………………………………………17

Near term Strategy….……………………………………………………………………..22

The PFP Group….Who we are?....……………………………………………………..…26

Why the PFP Group…………………………………………………………………….....28

The PFP Group – Contact Info….…………………………………………………………31

The Perfect Storm US Housing Bubble US housing bill in the mid-1990’s during Clinton Administration Industry transformed as lending regulation changed Macro-economic environment in early/mid 2000’s Extremely low interest rates fuel credit expansion, consumer spending secured by ever-increasing home equity Yield hungry global investors looking for return and underestimate risks Risk (mis)management US securities regulator, Federal Reserve Board as well as BIS Credit default swaps (CDS) allow investment bank to syndicate credit risks Lack of transparency due to OTC bilateral arrangements of these contracts Contagion effect spread to other securities/assets of banks

US Housing Bubble

US housing bill in the mid-1990’s during Clinton Administration

Industry transformed as lending regulation changed

Macro-economic environment in early/mid 2000’s

Extremely low interest rates fuel credit expansion, consumer spending secured by ever-increasing home equity

Yield hungry global investors looking for return and underestimate risks

Risk (mis)management

US securities regulator, Federal Reserve Board as well as BIS

Credit default swaps (CDS) allow investment bank to syndicate credit risks

Lack of transparency due to OTC bilateral arrangements of these contracts

Contagion effect spread to other securities/assets of banks

The Perfect Storm Greed and Fear Low interest rate and good credit environment promote more leverage Strong investor demand fuel more (marginal) supplies of weaker mortgage (credit) products with more complication and less transparency Relaxed underwriting standards and investors’ heavy reliance on credit rating agencies US, UK house prices ultimately fell in 2006 as bubble burst Panic sets in when CDO’s inventory starts piling up in mid-2007 Credit network begins to crumble (see chart next page) Hedge funds and other investors placed heavier bets for commodities and against US financial firms

Greed and Fear

Low interest rate and good credit environment promote more leverage

Strong investor demand fuel more (marginal) supplies of weaker mortgage (credit) products with more complication and less transparency

Relaxed underwriting standards and investors’ heavy reliance on credit rating agencies

US, UK house prices ultimately fell in 2006 as bubble burst

Panic sets in when CDO’s inventory starts piling up in mid-2007

Credit network begins to crumble (see chart next page)

Hedge funds and other investors placed heavier bets for commodities and against US financial firms

$ Mortgage CDO (Collateralized debt obligations) Originating/Sponsoring Bank Mortgage $ AIG $$$$$ %%%%% %+ % CDS %% CDS $ $$ %+ %- CDS %%% %+ AAA CCC % CDS Bank #1 Bank #3 Hedge Fund Collateral

The Perfect Storm Greed and Fear Persisting low interest rate and good credit environment promote more leverage Strong investor demand fuel more (marginal) supplies of weaker mortgage (credit) products with more complication and less transparency Relaxed underwriting standards and investors’ heavy reliance on credit rating agencies US, UK house prices ultimately fell in 2006 and bubble bursts Panic sets in when CDO’s inventory starts piling up in mid-2007 Credit network begins to crumble (see chart next page) Hedge funds and other investors placed heavier bets for commodities and against US financial firms (until Fall 2008) Volatility magnified as hedge funds unwound their positions in Sept/Oct 2008

Greed and Fear

Persisting low interest rate and good credit environment promote more leverage

Strong investor demand fuel more (marginal) supplies of weaker mortgage (credit) products with more complication and less transparency

Relaxed underwriting standards and investors’ heavy reliance on credit rating agencies

US, UK house prices ultimately fell in 2006 and bubble bursts

Panic sets in when CDO’s inventory starts piling up in mid-2007

Credit network begins to crumble (see chart next page)

Hedge funds and other investors placed heavier bets for commodities and against US financial firms (until Fall 2008)

Volatility magnified as hedge funds unwound their positions in Sept/Oct 2008

Crude Oil Dow Jones Financial Index Hedge funds’ activities exaggerate volatility

The Perfect Storm Systemic risk raise questions on (Fall 2008) Integrity of Global Financial System De-leveraging and redemption of large and small investors alike Long term effect on the economy (main street) Politics and more politics (2007,2008) US ( and Canadian) election year Republican administration favours free market Too little too late?

Systemic risk raise questions on (Fall 2008)

Integrity of Global Financial System

De-leveraging and redemption of large and small investors alike

Long term effect on the economy (main street)

Politics and more politics (2007,2008)

US ( and Canadian) election year

Republican administration favours free market

Too little too late?

The Perfect Storm Is the worst over? Policy response: late but massive Seismic scale recapitalization of banks Global and coordinated Somewhat unfair to taxpayer but authorities focusing on the big picture Short term very volatile Private liquidity providers/market makers still scarce and tentative Leverage will be expensive Bill Gates will have problem getting a loan in 2010 Charles Ponzi can get in mortgage in 2004 Some hedge fund redemption will be suspended Opportunities Secular bull trend in energy and some commodities products Crisis in developed (rich) world. Emerging market disruption minor

Is the worst over?

Policy response: late but massive

Seismic scale recapitalization of banks

Global and coordinated

Somewhat unfair to taxpayer but authorities focusing on the big picture

Short term very volatile

Private liquidity providers/market makers still scarce and tentative

Leverage will be expensive

Bill Gates will have problem getting a loan in 2010

Charles Ponzi can get in mortgage in 2004

Some hedge fund redemption will be suspended

Opportunities

Secular bull trend in energy and some commodities products

Crisis in developed (rich) world. Emerging market disruption minor

Historical Perspective Secular vs Cyclical market trends Secular Bull Market (US): 1942-1966; 1982-2000 Cyclical Markets (US) Bull: 1932-1937,1971-1973;1975-1977; 1978-1981,2003-2007 Bear 1929-1932(D), 1937-1942,1969-1971;1973-1975; 1977-1978, 2000-2002,2007-? Differences Secular: fundamental trend: global growth, inflation, interest rates, technological advancement Cyclical: Greed and fear, monetary/fiscal policies, business cycles

Secular vs Cyclical market trends

Secular Bull Market (US): 1942-1966; 1982-2000

Cyclical Markets (US)

Bull: 1932-1937,1971-1973;1975-1977; 1978-1981,2003-2007

Bear 1929-1932(D), 1937-1942,1969-1971;1973-1975; 1977-1978, 2000-2002,2007-?

Differences

Secular: fundamental trend: global growth, inflation, interest rates, technological advancement

Cyclical: Greed and fear, monetary/fiscal policies, business cycles

Historical interest rates, economy and stock market valuation relationship Calculated based upon earnings yield and S&P 500 levels each year. The raw data for this table was obtained from Bloomberg (and from S&P)

Historical interest rates, economy and stock market valuation relationship Calculated based upon earnings yield and S&P 500 levels each year. The raw data for this table was obtained from Bloomberg (and from S&P)

History a predictor of the future? Change in leadership follows the bursting of a bubble? Nifty Fifty, energy/commodities, Japan, US tech, financials And the winner is…….. Rich countries vs. emerging markets Net debtor nations vs net savers countries Secular trend vs. cyclical trend How long is deleveraging process going to continue? Tell tale signs How does Canada fit in? Fiscal response critical Is global demand for resources going away? Is currency level a good predictor of economic performance?

Change in leadership follows the bursting of a bubble?

Nifty Fifty, energy/commodities, Japan, US tech, financials

And the winner is……..

Rich countries vs. emerging markets

Net debtor nations vs net savers countries

Secular trend vs. cyclical trend

How long is deleveraging process going to continue?

Tell tale signs

How does Canada fit in?

Fiscal response critical

Is global demand for resources going away?

Is currency level a good predictor of economic performance?

S&P 500 Index (-17% over 10 years) MS Commodity Index (+270% over 10 years)

Investor Emotions “ Be fearful when others are greedy and greedy when others are fearful” -Warren Buffet “ A bear market is a temporary interruption of a permanent uptrend” -Nick Murray “ You’ve got to be careful if you don’t know where you are going because you might not get there” -Yogi Berra

“ Be fearful when others are greedy and greedy when others are fearful”

-Warren Buffet

“ A bear market is a temporary interruption of a permanent uptrend”

-Nick Murray

“ You’ve got to be careful if you don’t know where you are going because you might not get there”

-Yogi Berra

The Cycle of Market Emotions Source: Westcore Funds/Denver Investment Advisers LLC, 1998 Point of maximum financial opportunity Optimism Excitement Thrill Euphoria Anxiety Denial Fear Desperation Panic Capitulation Despondency Depression Hope Relief Optimism Point of maximum financial risk “ Wow, I feel great about this investment.” “ Maybe the markets just aren’t for me.” “ Temporary setback. I’m a long-term investor.”

Patience will be rewarded Source: 10-years ended December 31, 2006. By staying invested you will not miss the best days

Volatility and Return Risk(volatility) and return go hand-in-hand Jan 1, 1950 to June 30, 2007 1-year return of all possible periods 5-year GIC: 2.7% to 17.5%* S&P/TSX: -39.2% to 86.9% S&P 500: -40% to 56.8% 10-year return of all possible periods 5-year GIC: 3.9% to 12.3%* S&P/TSX: 3.3% to 19.5% S&P 500: -0.4% to 22.7% *Period from 1968-1982, inflation ranged from 3.27% - 13.58%

Risk(volatility) and return go hand-in-hand

Jan 1, 1950 to June 30, 2007

1-year return of all possible periods

5-year GIC: 2.7% to 17.5%*

S&P/TSX: -39.2% to 86.9%

S&P 500: -40% to 56.8%

10-year return of all possible periods

5-year GIC: 3.9% to 12.3%*

S&P/TSX: 3.3% to 19.5%

S&P 500: -0.4% to 22.7%

*Period from 1968-1982, inflation ranged from 3.27% - 13.58%

What’s Wrong with stockpiling cash? Fear and panic = liquidation and bias towards guaranteed investments/cash……Is this the right strategy to take at this point in the market? Advantages Sleep at night Take advantage of further decline in markets Funds for a rainy day Disadvantages Cyclical market can bounce 20-50% anytime. Market entry after bounce is risky Opportunity cost and potential inflation risk Inadequate return for retirement

Fear and panic = liquidation and bias towards guaranteed investments/cash……Is this the right strategy to take at this point in the market?

Advantages

Sleep at night

Take advantage of further decline in markets

Funds for a rainy day

Disadvantages

Cyclical market can bounce 20-50% anytime. Market entry after bounce is risky

Opportunity cost and potential inflation risk

Inadequate return for retirement

Near term Strategy Evaluate personal situation Cannot control market but can alter our asset allocation Cautious yet opportunistic Focus on quality Equity: Large cap stocks with little debt, high cash balances, stable dividends and global revenue streams Equity: Favors Canada for growth, US for value, selective emerging markets Equity: Secular bull trend for resource and commodity means attractive valuation Fixed income: High quality corporate bonds and preferred shares due to extremely attractive yields due to credit spreads

Evaluate personal situation

Cannot control market but can alter our asset allocation

Cautious yet opportunistic

Focus on quality

Equity: Large cap stocks with little debt, high cash balances, stable dividends and global revenue streams

Equity: Favors Canada for growth, US for value, selective emerging markets

Equity: Secular bull trend for resource and commodity means attractive valuation

Fixed income: High quality corporate bonds and preferred shares due to extremely attractive yields due to credit spreads

Equity Sectors Consumer Staples/Healthcare/Leading Technology/Commodities Advantages Most are Recession proof Attractive valuation Stable cash flow and dividend Little to no debt Disadvantages Equity as an asset class (further decline still possible) Political risk on healthcare Leapfrog technology

Consumer Staples/Healthcare/Leading Technology/Commodities

Advantages

Most are Recession proof

Attractive valuation

Stable cash flow and dividend

Little to no debt

Disadvantages

Equity as an asset class (further decline still possible)

Political risk on healthcare

Leapfrog technology

Fixed Income Canada Royal Bank Preferred share series AL Price $25.00 Dividend 5.6% TD Bank Preferred share series AD Price $25.00 Dividend 5.6% Corporate bonds 30June10 BMO 5.4% AL 17Dec10 CNQ 5.4% BBB 01Dec11 BMO 6.0% AL 31Dec12 TD 6.2% A 30Oct15 TD 7.1% A

Canada

Royal Bank Preferred share series AL

Price $25.00

Dividend 5.6%

TD Bank Preferred share series AD

Price $25.00

Dividend 5.6%

Corporate bonds

30June10 BMO 5.4% AL

17Dec10 CNQ 5.4% BBB

01Dec11 BMO 6.0% AL

31Dec12 TD 6.2% A

30Oct15 TD 7.1% A

Fixed Income Example Note: Tax rate is for highest marginal tax bracket

The PFP Group - Who We Are Business Profile Full service investment advisory team @ RBC DS, Richmond Hill Branch Asset size approx $220 MM Offer investment management (discretionary and advisory), financial, retirement, and estate planning incl. tax-exempted insurance One of the Branch’s top advisory teams with clients in York Region, GTA, Ontario, BC, Hong Kong, China, Ireland , New Zealand and Dubai Clients are high net-worth individuals/families, business executives, professionals, business owners and retirees Also assist medium-size businesses (public and private) as well as no-for-profit organizations such as charities and labour unions

Business Profile

Full service investment advisory team @ RBC DS, Richmond Hill Branch

Asset size approx $220 MM

Offer investment management (discretionary and advisory), financial, retirement, and estate planning incl. tax-exempted insurance

One of the Branch’s top advisory teams with clients in York Region, GTA, Ontario, BC, Hong Kong, China, Ireland , New Zealand and Dubai

Clients are high net-worth individuals/families, business executives, professionals, business owners and retirees

Also assist medium-size businesses (public and private) as well as no-for-profit organizations such as charities and labour unions

Why The PFP Group Knowledge and experience Combined experience over 65 years Institutional investment management and global capital markets experience Fully licensed team with extensive experience in mid and back office functions Educate, Communicate, Facilitate Presentation, newsletters, e-mails, telephone face-to-face discussions Always accessible and available for your needs and concerns Attention and Responsiveness Details and efficiency Proactive investment strategy and portfolio rebalancing Tax season services

Knowledge and experience

Combined experience over 65 years

Institutional investment management and global capital markets experience

Fully licensed team with extensive experience in mid and back office functions

Educate, Communicate, Facilitate

Presentation, newsletters, e-mails, telephone face-to-face discussions

Always accessible and available for your needs and concerns

Attention and Responsiveness

Details and efficiency

Proactive investment strategy and portfolio rebalancing

Tax season services

What’s our core value Proactive approach to client relationship with personalized Service Standards to suit your individual needs Disciplined buy/sell strategy with proven track record Tax effective investment strategies Personalized Investment Policy Statement to suit your personal investment objectives Access to Private or VIP banking services Access to Financial Planner and Will and Estate Consultants

Proactive approach to client relationship with personalized Service Standards to suit your individual needs

Disciplined buy/sell strategy with proven track record

Tax effective investment strategies

Personalized Investment Policy Statement to suit your personal investment objectives

Access to Private or VIP banking services

Access to Financial Planner and Will and Estate Consultants

Why RBC Largest Banking Financial Institution in Canada (top 10 in NA) Conservatively managed and strong capital base Extensive network of resources for wealth management Investment strategies Products availability Investment tax ideas Estate Planning Financial Planning CDIC and CIPF Insurance

Largest Banking Financial Institution in Canada (top 10 in NA)

Conservatively managed and strong capital base

Extensive network of resources for wealth management

Investment strategies

Products availability

Investment tax ideas

Estate Planning

Financial Planning

CDIC and CIPF Insurance

The PFP Group Ian Po, MBA, CIM Vice President Associate Portfolio Manager [email_address] (905) 764- 5596 Mark Porretta, BA, CIM Investment Advisor [email_address] (905 )764 -5258 Antonietta Di Mauro Rob Hallimae Associate Advisor Associate [email_address] [email_address] (905) 764-5552 (905) 764-1345 www.thepfpgroup.com

Ian Po, MBA, CIM

Vice President

Associate Portfolio Manager

[email_address]

(905) 764- 5596

Mark Porretta, BA, CIM

Investment Advisor

[email_address]

(905 )764 -5258

Antonietta Di Mauro Rob Hallimae

Associate Advisor Associate

[email_address] [email_address]

(905) 764-5552 (905) 764-1345