David Knight
Executive Chairman & Co-Founder
1

CAPITAL
MANAGEMENT
Founded in 1980.
Privately owned, by employees.
Manager of $6.6 billion in client assets for pension plans, foundations, private clients and managed accounts.
Leading separately managed accounts manager.
Investing in growing companies at reasonable valuations.
All asset classes managed internally.
Global capabilities.
2

CAPITAL
MANAGEMENT

CANADIAN GROWTH FUND

RRSP-eligible Canadian equity fund

Up to 30% foreign (U.S., & International)

U.S. GROWTH FUND

KBSH management since November 1, 2002

Core U.S. equity fund

DIVERSIFIED INCOME FUND

Conservative, RRSP-eligible income fund; monthly distribution; 6% target yield

Mix of corporate and high yield bonds, income trusts and dividend-paying equities

INCOME TRUST FUND

RRSP-eligible income trust fund, monthly distribution; 8% target yield

Emphasis on most conservative income trusts
4

CAPITAL
MANAGEMENT
STEP 1
IDENTIFY GLOBAL GROWTH COMPANIES
 High growth in revenues, cash flow, earnings
STEP 2
ANALYZE FINANCIAL CRITERIA/VALUATIONS
 Reasonable valuations: P/E, P/CF
 Balance sheet strength
STEP 3
QUALITATIVE ASSESSMENT
 Sustainable competitive advantage
 Management strength
 Accounting philosophy
STEP 4
TAILOR BUY LIST TO INDIVIDUAL
PORTFOLIOS AND GUIDELINES 25-45
Companies
5

Strong Balance
Sheet
Cash Flow
Solvency
Score
(Corp. Bonds)
Sustainable
Distribution
(Income Trusts)
ATTRACTIVE
INVESTMENT
S
Attractive Industry
Profile
Strong and Stable
Management
Sustainable
Competitive
Advantage
6

Sample: Canadian Equity
300
KBSH Cdn Eq (WRAP) Model
S&P/TSX
Canadian Growth Index*
250
200
The KBSH Canadian
Equity WRAP portfolio has doubled over the past 5 years.
150
100
50
Apr-99 Oct-99 Apr-00 Oct-00 Apr-01 Oct-01 Apr-02 Oct-02 Apr-03 Oct-03
The TSX is up 30% over the past 5 years.
Apr-04
The growth style index is down 25% over the past 5 years.
CAPITAL
MANAGEMENT
All returns are in Canadian Dollars as of April 30 th , 2004. The indicated return history is based on average annual compound total returns and does not take into account any management or administration fees payable by individual investors which would have reduced returns in their individual portfolios. Investment returns will fluctuate. *Prior to December 31st, 2002 the
Canadian Growth and Value Indices are represented by the Russell 300 Growth and Value Indices. As of January 1, 2003 they are represented by the MSCI Canada Growth Index and the
MSCI Canada Value Index. Sources: Bloomberg, KBSH
7

(as of April 30 th , 2004)
Market Cap.
Revenue Growth
Latest 12 months
Latest Quarter
Earnings Growth
2003 vs 2002
2004 vs 2003
Valuation
P/E on 2004
P/E on 2005
Sources:
CANADA
KBSH TSX
COMP.
15.0B
16.1B
4.2%
2.8%
-1.8%
-2.8%
30.0%
27.0%
28.0%
23.0%
16.1x
13.8x
Baseline
15.3x
13.4x
U.S.*
KBSH S&P
500
72.6B
89.1B
22.0%
23.0%
3.0%
6.0%
39.0% 15.0%
24.0% 11.0%
18.1x
15.9x
Baseline
17.9x
16.4x
Our objective is to construct portfolios with above average earnings growth characteristics at reasonable, if not discounted, valuations.
CAPITAL
MANAGEMENT
* KBSH U.S. data from a stand-alone U.S. Equity wrap portfolio and may not be identical for the U.S. Equity component of a broader, global mandate.
8

CAPITAL
MANAGEMENT
9

US ECRI Future Inflation Gauge vs Core CPI
CAPITAL
MANAGEMENT
The opinions expressed herein are those of KBSH Capital Management Inc. and are subject to change without notice. Chart source: DB Global Markets Research,
Bloomberg. The ECRI FIG is a composite of commodity prices, labour market conditions, yield spreads, growth in debt, imports prices and ISM supplier deliveries.
10

CAPITAL
MANAGEMENT
The opinions expressed herein are those of KBSH Capital Management Inc. and are subject to change without notice. Chart source: NFIB, BLS/Haver
11

CAPITAL
MANAGEMENT
P/E ratios are sensitive to inflation. Below 3% inflation, pricing power diminishes rapidly. Above 3%, earnings quality decreases.
The opinions expressed herein are those of KBSH Capital Management Inc. and are subject to change without notice. Chart source: Cross Border Capital. Data for the
S&P 500 trailing earnings.
12

CAPITAL
MANAGEMENT
The opinions expressed herein are those of KBSH Capital Management Inc. and are subject to change without notice. Chart source: Canada – Statistics Canada; US –
Bureau of Labor Statistics.
13

Baltic Freight Index
CAPITAL
MANAGEMENT
The opinions expressed herein are those of KBSH Capital Management Inc. and are subject to change without notice. Chart s ource: NBF Economic Research,
Datastream, IMF
14

China’s % Consumption of World Commodities
Cement consumption implies strong infrastructure demand
CAPITAL
MANAGEMENT
The opinions expressed herein are those of KBSH Capital Management Inc. and are subject to change without notice. Chart source: WBMS, IISI, World Cement,
UNCTAD
15

CAPITAL
MANAGEMENT
Trailing P/E multiples may be high, but trailing earnings per share
(EPS) is back on trend.
The opinions expressed herein are those of KBSH Capital Management Inc. and are subject to change without notice. Chart source: DB Global Markets Research,
Bloomberg.
16

CAPITAL
MANAGEMENT
17

CAPITAL
MANAGEMENT
MACRO ECONOMIC

Full throttle for monetary and fiscal policies

Global economic momentum to continue

Modest inflation
MARKETS
 A pause following last year’s strong rebound

Corporate profits growing for 8 straight quarters

Equities appreciation to be driven by profit growth
 Bond yields heading higher
PORTFOLIO STRATEGIES

Equity emphasis in balanced portfolios

Foreign equities becoming more attractive

Economic sensitive sectors favoured
18

CAPITAL
MANAGEMENT
KBSH MANAGED CLARINGTON PORTFOLIOS ARE
WORKING and
THEY’RE POSITIONED FOR FURTHER GROWTH

Leverage to global expansion

Strong growth characteristics at reasonable prices
19

CAPITAL
MANAGEMENT
Materials
Energy
Health Care
Information
Technology
10%
15%
4%
19%
Canada
Aber Diamond
Alcan
Domtar
Encana
Precision Drilling
Suncor Energy
QLT
ATI Technologies
Celestica
Cognos
Solectron
CP Railway
CP Ships
Quebecor World
Apache
Pfizer
U.S.
Analog Devices
Intel
International
Norsk Energy
Canon
Taiwan Semiconductor
Industrials
Consumer
Discretionary
10%
6% Shaw Communications
Danaher
DirecTV*
Lowes Companies
*(received for GM.H)
Whole Foods Market
News Corp. ADR*
*(received for GM.H)
Consumer Staples
Financials
5%
29%
Loblaw
Shoppers Drug Mart
CIBC
Manulilfe
Power Financial
Royal Bank
TD Bank
AIG
Citigroup
HSBC Holdings
Telecom. Services
Utilities
2%
0%
Nextel Communications China Mobile
Always well diversified; currently invested with significant economically sensitive exposure; some defensive holdings retained
Holdings are as of May 21 st , 2004 and are based on a model portfolio. The securities held should not be considered a recommendation to buy, sell or hold. There is no guarantee your portfolio would hold these securities. The securities mentioned herein were chosen as examples and may not represent the complete portfolio.
20

Materials
Energy
Health Care
Information Technology
Industrials
Consumer Discretionary
Consumer Staples
Financials
Telecom. Services
Utilities
3%
9%
13%
23%
4%
11%
10%
21%
6%
0%
International Paper
U.S.
Apache
Schlumberger
Boston Scientific
Cooper
Pfizer
United Healthcare
Analog Devices
Avocent Corp.
Dell Computer
Intel
Symantec
Taiwan Semiconductor
Danaher Corp.
Coach
Lowes Companies
Wendy’s International
DirecTV*
News Corp. ADR*
*(received for GM.H)
Whole Foods Market
Procter & Gamble
AIG
Citigroup
JP Morgan Chase
Morgan Stanley
Nextel
CAPITAL
MANAGEMENT
Holdings are as of May 21 st , 2004 and are based on a model portfolio. The securities held should not be considered a recommendation to buy, sell or hold. There is no guarantee your portfolio would hold these securities. The securities mentioned herein were chosen as examples and may not represent the complete portfolio.
21

Cash & Cash
Equivalents 25%
Royal Bank TDR 1.95 May 28/04
CIBC TDR 1.95 May 31/04
Royal Bank TDR 1.95 Jun/04
Royal Bank TDR 1.95 May 28/04
Corporate Bonds
Federal Bonds
Energy
Consumer
Discretionary
Consumer Staples
22%
3%
8%
6%
7%
Nextel Communications 6.875/13
Call-Net 10.625 Dec 31/08
Cogeco Cable 6.75 Jun 04/09
Cogeco Cable 6.75 Jul 31/07
Compton Petroleum 9.90/09
Grtr Toronto Air Auth 6.25/12
John Hancock 6.496 Nov 30/1
Ipsco 7.80 Dec 01/06
Ipsco 8.75 Jun 01/13
Intrawest 7.50 Oct 15/13
Precision Drilling 7.65 Oct 2
Rogers Cantel 10.50 Jun 01/06
Rogers Wireless 6.375 Mar/14
Royal Bank 3.96 Jan 27/09
Shaw Communications 7.50/13
TD Capital 6.792 Dec 31/12
Telesat Canada 8.20 Nov/08
Telus 7.50 Jun 01/06
Tembec 8.50 Feb 01/11
Timberwest Forest 7.00 Oct/07
Videon Cable 8.15 Apr 26/10
Westcoast Energy 7.15/31
Canada Gov’t 4.25 Sep 01/08
Canada Gov’t 5.75 Jun 01/29
Arc Energy Trust
Calpine Pwr. Income Fund
Bonavista Energy Trust
Enbridge Income Fund
Pembina Pipeline Income Fund
Vermillion Energy
Davis & Henderson Income Fund
Yellow Pages Income Fund
Thomson
Connors Brother Income Fund
Loblaw
North West Company Fund
Coca-Cola
Financials
Health Care
Industrials
Telecom.
Utilities
Technology
13%
Bank of Montreal
Bank of Nova Scotia
Royal Bank of Canada
Calloway Real Estate Investment Units
H&R REITs
Canadian Real Estate Trust
Riocan Real Estate Trust
Banco Popular Espagnol
2% Medical Facilities
1% Livingston International
3%
8%
1%
BCE
Bell Nordiq Income Fund
Consumer Waterheater
Transalta Corp.
Transcanada Power Partners
Transcanada Corp.
UE Waterheater Income Fund
Microsoft
CAPITAL
MANAGEMENT
Holdings are as of May 21, 2004 and are based on a model portfolio. The securities held should not be considered a recommendation to buy, sell or hold. There is no guarantee your portfolio would hold these securities. The securities mentioned herein were chosen as examples and may not represent the complete portfolio.
22

Cash Equivalents
Corporate Bonds
Energy
Consumer Discretionary
Financials
Consumer Staples
Industrials
Utilities
8%
3%
23%
11%
17%
9%
3%
16%
Canada T-Bill Jun 17/04
Canada T-Bill Jun 30/04
Canada T-Bill Aug 12/04
Canada T-Bill Aug 26/04
Timberwest Forest 7.00 Oct/07
Videon Cable 8.15 Apr 26/10
Shaw Communications 7.50/13
Arc Energy Trust
Bonavista Energy Trust
Enbridge Income Fund
Pembina Pipeline Income Fund
Calpine Power Income Fund
Vermillion Energy
Davis & Henderson Income Fund
Osprey Media Income Fund
Yellow Pages Income Fund
Canadian Real Estate Trust
Riocan Real Estate
Calloway Real Estate Investments
H&R Real Estate Investments
Connors Brother Income Fund
North West Company Fund
Hot House Growers Income Fund
Livingston International Units
Consumer’s Waterheater
Transcanada Power Partners
UE Waterheater Income Fund
Macquaire Power Income Fund
Health Care
4% Medical Facilities
Bell Nordiq Income Fund Telecommunications
6%
CAPITAL
MANAGEMENT
Holdings are as of May 21 st , 2004 and are based on a model portfolio. The securities held should not be considered a recommendation to buy, sell or hold. There is no guarantee your portfolio would hold these securities. The securities mentioned herein were chosen as examples and may not represent the complete portfolio.
23