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U.S. EQUITIES GUIDED PORTFOLIO U.S. EQUITIES GUIDED PORTFOLIO March 2008 Nesbitt Burns BMO R Portfolio, Action & Research Team

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Page 1: Portfolio, Action & Research Team - BMO Nesbitt Burnsnbpcd... · BMO Nesbitt Burns R U.S. Equities Guided Portfolio — March 2008 Introduction The U.S. Equity Guided Portfolio represents

U.S. EqUitiES GUidEd Portfolio

U.S. EqUitiES GUidEd Portfolio

March 2008

Nesbitt BurnsBMO R

Portfolio, Action & Research Team

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U.S. Equities Guided Portfolio — March 2008 �

IntroductionThe U.S. Equity Guided Portfolio represents what we believe to be a list of core U.S. holdings that make up a diversified portfolio. Our recommendations are based on research provided by various sources, including Bear Stearns, BMO Capital Markets, ISI Group, and S&P Advisor Insight, among others sources. The portfolio consists of 20 equal-weighted positions. Sector allocation is determined by the number of recommendations in each industry sector and our benchmark is the S&P 500. When selecting individual stocks for the portfolio, we focus on those with strong fundamentals, good liquidity and attractive valuation. Ideally, we look for stocks that are rated positively by at least one of our research providers. As with any portfolio, we have been and will be tracking returns, with return data published in Table 2 on Page 24.

Our overall outlook for the U.S. market remains favourable. BMO Economics believes the U.S. has entered into a mild recession, but economic growth will resume in the second half of the year. Valuations for the U.S. market are very attractive, with the S&P 500 trading at only 14.7x 2008 EPS, which is one of the cheaper markets in the world. The outlook for U.S. corporations is positive, with strong balance sheets and reasonable earnings growth. Lastly, with the recent sell-off, sentiment for the U.S. market is very low and any incremental good news, such as an improving economy, further interest rate cuts or additional liquidity, and continued strong corporate earnings, could result in a significant move higher. BMO Capital Markets currently has a one-year target price for the S&P 500 of 1500.

From a company perspective, we continue to favour large cap multinational companies due to their global exposure. These companies are benefiting from a weaker U.S. dollar and global diversification, as they are less dependent on the U.S. economy. In addition, large cap stocks have underperformed over the past several years, resulting in attractive valuations.

From a sector perspective, we favour Consumer Staples due to the sector’s global diversification, its stable earnings growth, strong balance sheets and attractive dividend yields. We are also overweight the Technology sector, as it tends to outperform in a macro environment that is looking toward the next recovery; it benefits from the weaker U.S. dollar, as over half of the sector’s earnings are derived overseas. While the sector has not performed well over the past few months, the four names in the U.S. Equities Guided Portfolio continue to have good fundamentals and growth outlooks, and are trading at some of the cheapest valuations in several years. We also like the Industrial sector, as global infrastructure development and global growth is a key long-term theme. We look for names with high international exposure that will benefit from increased wealth in developing economies.

u.s. equities guided portfolio

AMEriPriSE FinAnciAl (AMP) ................................................. 3APPlE inc. (AAPl) .................................................................... 4ArchEr-DAniElS-MiDlAnD co. (ADM) .................................... 5BoEinG (BA) ............................................................................. 6cAtErPillAr (cAt) .................................................................... 7ciSco SyStEMS (cSco) .............................................................. 8cVS/cArEMArk corP. (cVS) ..................................................... 9EStEE lAUDEr (El) ................................................................... �0GEnErAl ElEctric (GE) .......................................................... ��hAlliBUrton co. (hAl) ........................................................ �2MArkEt VEctorS AGriBUSinESS EtF (Moo) .......................... �3MAttEl inc. (MAt) .................................................................. �4mckesson corp. (mck) ......................................................... �5nASDAq oMx GroUP inc. (nDAq) ......................................... �6nokiA corP. (nok) ................................................................. �7orAclE corP. (orcl) .............................................................. �8PEPSico inc. (PEP) .................................................................. �9United parcel service inc. (Ups) ...................................... 20Walt disney co. (dis) .......................................................... 2�WyEth (WyE) ......................................................................... 22 deletions: AltriA GroUP inc. (Mo), AMGEn (AMGn),

BAnk oF AMEricA (BAc)

additons in bold

Please refer to Pages 26 to 27 for Disclosure Statements.

portfolio strategyMichael H. Herring, CFA, CMT, Investment Strategist

General inquiriesPortfolio, Action and Research Team (416) 359-6600

production & [email protected] [email protected]

Portfolio, Action & Research Team

canadian equities Guided portfolioCaroline Escott, CFA, Canadian Equity Specialist Ann Rait, Canadian Equity SpecialistMark Russell, CFA, Canadian Equity SpecialistVince Francescut, Associate, Canadian Equity Specialist

U.s. equities Guided portfolioMelissa Cavelti, CFA, Senior U.S. Equity SpecialistStuart Hinshelwood, Associate, U.S. Equity Specialist

international equities Guided portfolio Ray Busato, CFA, International Equity Specialist

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2 U.S. Equities Guided Portfolio — March 2008

We continue to be underweight U.S. financials and we are, in fact, lowering our weighting in the sector this quarter with the removal of Bank of America. While the sector has come under significant pressure and some names seem to offer good value, we believe there are still a lot of uncertainties in the financial sector. This includes the weakening U.S. consumer, concerns about mortgage refinancing and the housing market, structured products and slowing investment banking revenues. We have added Disney to the consumer discretionary sector, as this is ISI Group’s number one rated strategist Francois Trahan’s top-rated sector. The sector has been hurt by poor U.S. consumer sentiment as well as a slowing economy. Many of these stocks are cheap and we think there is limited downside in this sector.

We have made the following changes to the portfolio this quarter:

§ We are removing Bank of America (BAC) from the portfolio. While BAC remains one of the best managed of the U.S. banks, we continue to believe the U.S. financial services sector will not Outperform and that Canadian banks offer better fundamentals than their U.S. peers.

§ We are removing Amgen (AMGN) from the portfolio. This was a hard decision for us as Amgen is a diversified drug franchise with significant potential from a new pipeline drug, D-Mab. However, Amgen continues to suffer from negative headlines related to its Epo/Aranesp franchise and we don’t see this ending anytime soon. We continue to believe this stock offers great value, but think there is more upside in McKesson (MCK) in the next few months. We are trying to move our healthcare focus away from pharmaceuticals and towards healthcare services which is what McKesson offers. Our other healthcare services investment remains CVS/Caremark which offers Pharmacy Benefit Manager services.

§ Lastly, we are removing Altria (MO) from the portfolio. We still like this stock and would even be buying at current levels. The company will be undergoing a restructuring and, as of March 28, 2008, spin off its Philip Morris International business. We would hold shares into the restructuring. However, to avoid the complications of the spin-off for the portfolio and to make room for different investments, we are removing the stock.

§ We are adding Walt Disney (DIS) to the portfolio. This is a well-run blue chip company trading at one of its cheapest valuations in several years.

§ We are adding McKesson (MCK) to the portfolio to increase our exposure to the health care sector to Market Weight. McKesson provides drug/medical distribution services as well as health care IT services. The outlook for these businesses is very positive, and McKesson is currently trading at a very attractive level given its strong fundamental outlook.

§ We are adding United Parcel Service Inc. (UPS). Ed Wolfe, Bear Stearns’ number one ranked Transportation analyst, recently upgraded this stock to Outperform. He notes that the transportation/logistics sector tends to lead the market higher coming out of an economic slowdown. UPS’s fundamentals have improved, as has its labour situation. Current valuations provide us with an attractive entry point for this high-quality, blue-chip defensive investment.

This report is priced as of February 29, 2008.

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U.S. Equities Guided Portfolio — March 2008 3

Ameriprise Financial (AMP)

Current Price: $50.64 Sector: Financial

company overview

Ameriprise Financial completed its spin-off from American Express on September 30, 2005, and began trading on the NYSE on October 3, 2005. Despite this, the company is no newcomer to financial services; it ranks among the largest providers of financial planning and brokerage services in the U.S. AMP offers a broad assortment of products, including mutual funds, annuities and life insurance products, and has a network of over 12,500 financial advisers, which ranks as the fifth-largest sales force in the U.S.

investment thesis

Ameriprise currently trades at a discount on a price/book value basis compared to its life insurance peers. Asset management comprises approximately 70% of AMP’s earnings, and compared with the asset manager average of 14-15x, it trades at an even greater discount of 11x 2008E EPS. The company’s valuation discount is partially due to the fact that AMP is a “newer” public company. One of AMP’s key strengths is its financial advisor network, which will allow it to capitalize on growth opportunities. Longer term, AMP is well positioned to benefit from the expected growth in demand for financial advice by retiring baby boomers.

In the past, one of Ameriprise’s key problems was the poor performance of its mutual funds and high level of asset redemptions. However, the company has taken important steps to correct these issues, and performance of its funds over the past three years has improved. Some analysts believe that we have seen the worst in equity fund outflows and it should only get better. In AMP’s most recent Q4/07 results, asset flows continue to show signs of improvement and the Asset Management and Advice & Wealth Management divisions generated good product growth. On the insurance side of the business, the company’s network of financial advisors allows for high persistency in the insurance business due to deep client relationships.

Analysts believe meaningful ROE improvements are possible, as a growing proportion of earnings come from higher ROE businesses such as asset management as well as redeployment of excess capital. Demographic trends support continued growth in the products and services offered by AMP. Ameriprise has met its goal of reaching an ROE of 12–15%. We believe that as the company’s fundamentals and ROE improve, so too will its valuation.

A strong retail distribution network coupled with its modest size could eventually enhance the company’s value as an acquisition candidate. Of note, AMP’s takeover protection expires in October 2007 and analysts believe the company is an attractive takeover candidate, citing foreign insurers as well as Prudential Financial and Manulife as interested parties.

risks

Risks include adverse interest rate or equity market changes, weak credit and economic conditions, net asset redemptions, and adverse mortality and morbidity rates.

AMP US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0845

50

55

60

65

70

45

50

55

60

65

70

As of February 29, 2008 — US$50.64

Weekly Price (US$)

Disclosure: �5EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

ameriprise financial inc. Price as of 02/29/08: $50.64

EPS P/E EPSGrowthf2007a $3.88 �3.06 f2008e $4.42 ��.47 �4%f2009e $5.02 �0.09 �4%

Dividend: $0.60 yield: �.�8% Book Value/Share: $33.38 P/BV: �.52 52-Week high: $69.25 52-Week low: $45.65

ratings and targets Bear Stearns n/A n/A S&P Advisor insight Buy $65.00

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4 U.S. Equities Guided Portfolio — March 2008

Apple Inc. (AAPL)

Current Price: $125.02 Sector: Information Technology

company overview

Apple is a leading provider of hardware and software, including the Macintosh (Mac) computer, the iPod digital media player and the iPhone.

investment thesis

Analysts are expecting strong double-digit earnings growth from Apple for the next several years. This growth is due to the iPod’s dominant position in the MP3 market and continued strong growth projected for this industry. Analysts note that there are 250–300 million consumer PCs in the global installed base, and while a significant portion of these PCs will probably never have a portable music player attached to them, a portion may have more than one attached. Even if the available market for iPods is just 150 million units globally, this is five times the size of Apple’s current iPod installed base.

With the continued appeal of the Apple iPod, analysts believe it will turn customers onto other Apple products, specifically the company’s PCs. Currently, Apple PCs hold approximately 4–5% market share, up from 2–3% last year. In mid-2006 Apple launched Intel-based Macs. With the launch of these products, Apple’s computing power is more competitive compared with its previous architecture. In addition, the company introduced “Boot Camp” — public software that enables Intel-based Macs to run Windows XP. Analysts believe this opens the company up to a much wider audience, as Windows represents over 90% of the global PC installed base. A 1% increase in PC market share is estimated to add $2 billion to revenues and more than $0.30+ to Apple’s EPS.

Innovation is another key reason to own Apple, as the company’s ability to introduce new products is unrivalled in the technology industry. The company continues to launch new products, further supporting growth forecasts. Key products that have been released or are expected include Apple TV, which is Apple’s answer to iPod, but for movies. Apple launched the iPhone in June 2007 to very strong initial demand.

Apple remains in excellent financial shape. The company has no debt, boasts over $24 in net cash per share and generates over $1 billion in cash flow each quarter. Apple offers investors several growth drivers, including iPod, PCs, Apple TV, peripherals and downloads.

risks

Apple currently boasts very high growth rates, which are likely to decrease over time. Slowing growth could negatively impact valuation.

AAPL US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0880100120140160180200220

80100120140160180200220

As of February 29, 2008 — US$125.02

Weekly Price (US$)

Disclosure: 5, �5EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, BMo cM, S&P

apple inc. (aapl) Price as of 02/29/08: $�25.02

EPS P/E EPSGrowthf2007a $3.77 33.20 f2008e $5.�8 24.�4 38%f2009e $6.34 �9.73 22%

Dividend: n/A yield: n/A Book Value/Share: $�9.�3 P/BV: 6.54 52-Week high: $202.96 52-Week low: $83.00

ratings and targets Bear Stearns outperform $220.00 BMo capital Markets corp. outperform $�40.00 S&P Advisor insight Buy $�99.00

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U.S. Equities Guided Portfolio — March 2008 5

Archer-Daniels-Midland Co. (ADM)

Current Price: $45.10 Sector: Consumer Staples, Agricultural Products

company overview

ADM is a major processor and merchandiser of agricultural commodities, including oilseeds, corn and wheat. The company’s operations are classified into three business segments: 1) Oilseeds Processing (32.4% fiscal 2006 revenue); 2) Corn Processing (13.3%); and 3) Agricultural Services (42.2%). The company processes oilseeds into vegetable oils and meals principally for the food and feed industries. ADM’s Corn Processing segment produces ethanol, syrup, starch and sweeteners. The Agricultural Services segment utilizes an extensive grain elevator and transportation network to buy, store, clean and transport agricultural commodities.

investment thesis

BMO Financial Group Global Portfolio Strategist Don Coxe is recommending a strong overweighting in agriculture-related stocks. He believes the investment opportunities in stocks tied to production of grains, oilseeds and meats should benefit due to increased wealth in the developing world as well as increased biofuel demand.

The Corn Processing division is expected to benefit from strengthening demand for ethanol and improved corn by-product pricing. While some investors have worried that high corn prices will hurt margins in this division, it is worth noting that the company recovers approximately 50% of its corn costs through the sale of corn by-products. In addition, BMO Capital Markets Corp. believes there is a very real possibility that corn prices will self-correct as farmers plant more corn acres and protein companies continue to ration feed. ADM is the largest producer of ethanol in the United States, but ethanol represents only 20% of ADM’s operating profits.

Oilseeds Processing is expected to benefit from an adequate supply of soybeans and continued demand for biodiesel (a clean burning fuel made from vegetable oil). In addition, the demand for oilseeds is growing, driven by population growth, rising global wealth and increased energy needs. ADM expects world soybean meal consumption to grow 50% over the next 10 years.

Agricultural Services should benefit as large crop supplies in the U.S. could lead to increased demand for storage and transportation services. ADM boasts a fleet of more than 20,000 railcars, 2,000 barges and 1,500 tractor-trailers that connect with 500 crop storage elevators and over 240 ADM processing facilities. ADM continues to see solid demand for transportation, storage and handling.

Over the past 10 years, ADM has traded in a forward P/E range of 11.6–25.2x, with an average of 16.0x, and is currently trading at 14x 2009E EPS. In January, ADM announced the repurchase of 100 million shares through the end of 2009. The company also offers a 1.1% dividend yield. ADM remains BMO Capital Markets’ top pick within the agriculture sector. The analyst believes ADM’s stock price should de-link from ethanol prices over time as investors start to realize the power of its Agriculture Services division.

risks

Risks are losses resulting from fluctuations in worldwide commodity supply and demand levels. The company tries to mitigate commodity risks through the use of hedging contracts.

ADM US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0830

35

40

45

50

30

35

40

45

50

As of February 29, 2008 — US$45.10

Weekly Price (US$)

Disclosure: 9, �0, �5EPS are consensus unless otherwise specified Source: Bloomberg, BMo cM, S&P

archer-daniels-midland co. (adm) Price as of 02/29/08: $45.�0

EPS P/E EPSGrowthf2007a $2.39 �8.9� f2008e $2.8� �6.07 �8%f2009e $3.02 �4.9� 8%

Dividend: $0.52 yield: �.�5% Book Value/Share: $�9.�5 P/BV: 2.36 52-Week high: $47.33 52-Week low: $3�.28

ratings and targets BMo capital Markets corp. outperform $47.00 S&P Advisor insight hold $50.00

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6 U.S. Equities Guided Portfolio — March 2008

Boeing Co. (BA)

Current Price: $82.79 Sector: Industrials, Aerospace & Defense

company overview

Boeing is one of the world’s largest commercial jet and military weapons manufacturers. The three main operating segments are: 1) Boeing Commercial Aircraft (BCA; 46% of revenues and 45% of operating profits in 2006); 2) Integrated Defense Systems (IDS; 52%, 50%), the second-largest military contractor behind Lockheed Martin; and 3) Boeing Capital Corp. (2%, 5%), which primarily finances commercial aircraft for airlines.

investment thesis

The outlook for the commercial aircraft segment is positive, as the global airline industry will continue to be buoyed by strong passenger traffic growth resulting in continued purchases of jet aircraft. Commercial airline orders have been aided by large orders from the Asia/Pacific region, including China and India, as well as the Middle East. Orders from the U.S. and Europe are also expected to increase. With a six-year commercial aircraft backlog and continued strong order flow, analysts see healthy earnings and free cash flow growth for many years.

One of the key drivers for Boeing shares in the next year will be information on Boeing’s newest model, the 787 or Dreamliner. In January 2008, Boeing delayed its schedule for the first delivery of the 787 to early 2009. This has resulted in weakness in the stock. Bear Stearns believes the gap between perception and reality of the 787 schedule has been narrowed, if not erased. Second, Bear Stearns believes Boeing’s share price doesn’t reflect any contribution from the 787 program. While there is still risk of further delays in the flight certification schedule, cost-related risks and production ramp issues, Bear Stearns believes this is largely priced into Boeing’s share price. In addition, it is worth noting that the 787 will be the most fuel-efficient airplane on the market — a positive given current energy prices.

Boeing’s defence operation, IDS, develops and supports military aircraft, including fighters, transports, tankers and helicopters. It also develops missiles, space systems, missile defence systems, satellites, as well as communication systems. IDS’s primary customer is the U.S. Department of Defense, but it also sells to NASA as well as international customers. S&P sees ongoing military actions and potential future threats necessitating at least moderate defence budget growth. In addition, conventional military equipment is aging, and there will be a need for equipment replacement. While Boeing’s defence business is stable, we don’t expect it to be the primary source of growth for the company over the next several years.

In October 2007, the company announced a new $7 billion share repurchase and declared a dividend of $0.35/quarter, resulting in a yield of almost 2%. At current prices, Boeing’s shares are now selling at 13x 2008E EPS. Given BA’s solid position in commercial aerospace and defense, improving margins over the long term and robust free cash flow generation, analysts believe BA can support its current multiple range of 16–18x.

risks

Risks are aircraft production problems, slowing global economic growth and government cuts in defence programs.

BA US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0872

78

84

90

96

102

108

72

78

84

90

96

102

108

As of February 29, 2008 — US$82.79

Weekly Price (US$)

EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

boeinG co. (ba) Price as of 02/29/08: $82.79

EPS P/E EPSGrowthf2007a $5.24 �5.79 f2008e $5.98 �3.84 �4%f2009e $7.�2 ��.63 �9%

Dividend: $�.60 yield: �.93% Book Value/Share: $�2.22 P/BV: 6.77 52-Week high: $�07.83 52-Week low: $74.�2

ratings and targets Bear Stearns Peer Perform n/A S&P Advisor insight Buy $��8.00

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U.S. Equities Guided Portfolio — March 2008 7

Caterpillar Inc. (CAT)

Current Price: $72.33 Sector: Industrial Products

company overview

Caterpillar is the world’s largest producer of earthmoving equipment. It is also a big maker of truck engines and power generators. The company conducts business through three operating segments: Machinery (68% of revenues in 2007); Engines (32%); and Financial Products. Approximately 58% of the company’s revenues are derived from outside of North America.

investment thesis

We include Caterpillar in the U.S. Equities Guided Portfolio for its attractive valuation, expectations of continued growth in key end-markets and the company’s strong fundamental outlook.

CAT’s key end-markets include energy, mining, road building and non-residential construction, several of which are performing very well. A favourable energy market, driven by high oil prices and low margin of spare capacity, will continue to benefit Caterpillar. Analysts believe that upstream capital spending may continue to trend higher given strong balance sheets and lacklustre production growth. The outlook for the mining industry is also positive, with many commodity prices at high levels, including copper, nickel, aluminum and coal close to multi-year highs. The outlook for road building and non-residential construction is also promising, according to analysts.

Bear Stearns notes that the machinery sector faces a mixed macro environment in the near term. However, as we go through 2008, lower interest rates should result in greater availability of capital. The early cycle machinery sector will likely start to outperform.

Caterpillar’s guidance of revenues up 5–10% and EPS up 5–15% seems reasonably conservative according to Bear Stearns given its geographic and application mix. Outside of the U.S. and European housing markets, demand for CAT’s machinery and engines remains at elevated levels. Also, approximately 5% of CAT’s revenues are leveraged to the U.S. coal sector and the recent pick-up in coal prices is likely a positive for CAT’s machinery sales.

Caterpillar’s valuation is currently very attractive, trading at only 12x 2008E EPS with a 2.1% yield. The P/E is well below that of the S&P 500 and at a significant discount to the machinery group. Fundamentals for the company remain strong, as most of CAT’s end-markets are healthy and growing, and management guidance is reasonable. Analysts also expect further share buybacks and dividend increases from the company.

risks

If commodity prices were to decline suddenly and significantly, a key area for upside surprise could be lost. In addition, due to the nature of Caterpillar’s business and its cyclicality, a sharp and sudden rise in the U.S. dollar or interest rates could put pressure on demand for CAT’s products.

CAT US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0860

65

70

75

80

85

90

60

65

70

75

80

85

90

As of February 29, 2008 — US$72.33

Weekly Price (US$)

Disclosure: �5EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

caterpillar inc. (cat) Price as of 02/29/08: $72.33

EPS P/E EPSGrowthf2007a $5.36 �3.49 f2008e $5.95 �2.�5 ��%f2009e $6.69 �0.8� �2%

Dividend: $�.44 yield: �.99% Book Value/Share: $�4.24 P/BV: 5.08 52-Week high: $87.00 52-Week low: $59.60

ratings and targets Bear Stearns outperform $78.00 S&P Advisor insight hold $82.00

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8 U.S. Equities Guided Portfolio — March 2008

Cisco Systems Inc. (CSCO)

Current Price: $24.39 Sector: Information Technology, Communications Equipment

company overview

Cisco Systems supplies the majority of networking gear used for the Internet. Product families are categorized into four segments: 1) Switches (42% of fiscal 2007 sales); 2) Routers (23%); 3) Advanced Technologies (27%); and 4) Other. Within the Advanced Technologies segment, key product lines include home networking, security, storage, telepresence, wireless technology and video systems (primarily digital set-top boxes and transport and access products via the acquisition of Scientific Atlanta). Approximately 50% of Cisco’s total sales come from outside of North America.

investment thesis

We believe Cisco will benefit from the proliferation of bandwidth-intensive applications that are being launched at a rapid pace. According to ISI Group, the explosion of Internet music, video and multimedia applications stresses the network and is likely to drive carrier communication equipment spending. Video and multimedia applications use disproportionately large amounts of bandwidth, and are sensitive to delay and quality, therefore requiring high service levels. Telecom, wireless and cable service providers are increasing capex to handle video traffic. This is driving revenue for the communication equipment sector.

Analysts believe that Cisco offers meaningful upside with limited downside risk. Cisco’s service provider business is benefiting as video and IP convergence continues to drive upgrades of service provider networks throughout the world. A study conducted by one prominent carrier suggests that it will need to increase its IP infrastructure by a minimum of almost five times and potentially by as much as 80 times over the next five years, depending on whether traffic continues to grow on its network at the current 100%+ annual rate.

Within the Advanced Technologies division, Cisco’s February 2006 acquisition of Scientific Atlanta is expected to post 15%+ organic growth for many years to come. High Definition set-top boxes account for less than 25% of SA’s base of 32 million installed set-top boxes. There is continued growth in this area as the U.S. moves to full adoption of high-definition broadcasting in 2009.

Cisco’s key competitive advantages are its ability to offer one-stop shopping with the industry’s most complete end-to-end portfolio of IP infrastructure ranging from core and edge routing to switching, security, storage and set-top boxes, giving the company bundling and pricing advantages; and its global sales and support footprint. Cisco boasts a strong balance sheet with net cash of approximately $2.50 per share and regularly engages in share buybacks. Valuation is attractive, with Cisco trading at 15x 2008E EPS estimates, an attractive multiple relative to the company’s 15%+ one- to three-year EPS growth rate.

risks

Risks are general economic conditions, competitive pressures and potential market share losses as peers increasingly target Cisco’s dominant market share.

CSCO US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-082224262830323436

2224262830323436

As of February 29, 2008 — US$24.39

Weekly Price (US$)

Disclosure: 5, �5EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, BMo cM, S&P

cisco systems inc. (csco) Price as of 02/29/08: $24.39

EPS P/E EPSGrowthf2007a $�.33 �8.34 f2008e $�.52 �6.05 �4%f2009e $�.72 �4.2� �3%

Dividend: n/A yield: n/A Book Value/Share: $5.49 P/BV: 4.44 52-Week high: $34.24 52-Week low: $2�.77

ratings and targets Bear Stearns outperform $28.00 BMo capital Markets outperform $30.00 S&P Advisor insight Buy $27.00

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U.S. Equities Guided Portfolio — March 2008 9

CVS/Caremark Corp. (CVS)

Current Price: $40.38 Sector: Consumer Staples, Drug Retail

company overview

CVS/Caremark Corp. is an integrated pharmacy services provider, combining one of the nation’s leading pharmaceutical services companies (Caremark) with the country’s largest pharmacy chain (CVS Corp.) CVS/Caremark drives value for pharmacy services customers by effectively managing pharmaceutical costs and improving health care outcomes through its 6,200 CVS pharmacy stores; its pharmacy benefit management, mail order and specialty pharmacy division, Caremark Pharmacy Services; its retail-based health clinic subsidiary, MinuteClinic; and its online pharmacy, CVS.com.

investment thesis

The drug retailing industry is expected to benefit from retail pharmacy sales growth, an aging population, an increased number of generics and innovation in front-end retailing. CVS should specifically benefit from the acquisition of 700 drugstores from Albertson’s in June 2006 and from the ongoing integration of 1,100 former Eckerd drug stores acquired in July 2004. These acquisitions provide an opportunity to accelerate earnings growth over the next few years from improved shrink control and increased customer counts due to better service and improved merchandising. CVS has done a great job at turning around struggling Eckerd stores, and should continue to benefit from further synergies.

The CVS and Pharmacy Benefit Manager (PBM) Caremark combination is a “game-changing” deal that will enable the combined company to gain share by leveraging its unique and superior product offering. First, not only will the merger boost sales growth and market share starting in the second half of 2008, but it will also deliver significant procurement savings almost immediately. Second, Caremark’s ability to gain share should be enhanced by the addition of new services, while CVS stores should pick up additional traffic. Third, procurement savings should be significant and front-end loaded, even excluding the benefit of scale. Fourth, there should be sizeable savings stemming from operational efficiencies and the elimination of redundant overhead. Finally, substantial free cash flow should likely be increasingly deployed toward share repurchases. The company estimates $400 million in synergies from this transaction, and analysts believe synergies could be even higher.

With CVS’s strong core fundamentals as well as upside through recent acquisitions, we believe the company remains an attractive investment. Analysts expect the stock to move higher over the next 12 to 18 months as the company exceeds consensus expectations and valuation improves. It is worth noting that the publicly traded PBMs, such as Medco Health and ExpressScripts, trade at significantly higher multiples than CVS currently. We think CVS’s Caremark PBM operation should see significant upside and add to overall valuation as investors become more comfortable with the merger of CVS and Caremark.

risks

Risks are acquisition risk, increased competition from other channels (supermarkets, WMT, mail-order pharmacy) and consumer spending risk with respect to the company’s non-pharmacy business (approximately 30% of sales).

CVS US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-083032343638404244

3032343638404244

As of February 29, 2008 — US$40.38

Weekly Price (US$)

EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, BMo cM, S&P

cvs/caremark corp. (cvs) Price as of 02/29/08: $40.38

EPS P/E EPSGrowthf2007a $�.92 2�.08 f2008e $2.4� �6.73 26%f2009e $2.79 �4.46 �6%

Dividend: $0.24 yield: 0.59% Book Value/Share: $�9.57 P/BV: 2.06 52-Week high: $42.60 52-Week low: $30.45

ratings and targets Bear Stearns Peer Perform n/A BMo capital Markets Mrkt Perform $45.00 S&P Advisor insight Strong Buy $48.00

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�0 U.S. Equities Guided Portfolio — March 2008

Estee Lauder Companies (EL)

Current Price: $42.58 Sector: Consumer Staples, Personal Products

company overview

Estee Lauder is one of the world’s leading manufacturers and marketers of skin care, makeup and fragrance products. EL has historically been a dominant player in the high-end fragrance and cosmetic categories, with brand names such as Estee Lauder, Clinique, M.A.C., Bobbi Brown, Aveda and La Mer, to name a few. Approximately 51% of EL’s sales and 45% of profits were from North America in fiscal 2007 (June). Other regions include Europe, the Middle East and Africa (35% of sales and 43% of profits) and Asia-Pacific (14% and 12%).

investment thesis

Estee Lauder has a 60-year history of annual sales increases. In March, the company announced yearly goals to fiscal 2010, including sales growth of 6–8%, flat operating expense to sales, EPS growth of 10–12% and an increase in ROIC to 23–24% from 21.1% reported in fiscal 2007. Growth projections reflect the continued growth of established markets in Western Europe; emerging markets such as Turkey, Russia, and China; travel retail; and alternative channels of distribution such as the Internet, EL’s own free-stranding stores and direct TV. Growth in these channels and markets will be partially offset by continued weakness in U.S. department stores. Bear Stearns believes EL has an international growth story that has gone unrewarded by the market. Now that the international operations are starting to show more strength, investors may begin to reconsider its potential.

Bear Stearns recently upgraded Estee Lauder to Outperform following some management changes. Former manager of Procter & Gamble snacks, Fabrizio Freda, will be joining Estee as COO, with the intention he becomes CEO in the next two years and replaces William Lauder. According to Bear Stearns, Estee shares would have warranted an upgrade based on valuation alone, but the hiring of an outsider to run the company is a major positive for this underperforming company. Estee has had many operational difficulties under family-run management over the past few years. Hiring an outsider will be perceived as an admission that Estee will focus more on operational improvements than on family legacies. In addition, Mr. Freda’s P&G background should foster the belief that someday P&G could acquire Estee Lauder.

Estee Lauder is currently trading at 16x calendar 2009E EPS, too cheap for a prestige beauty company according to Bear Stearns. If EL starts to deliver on cutting costs and grows its top line by mid-single digits, then $3 in EPS should be reasonable by 2010. This could imply a share price in the $60s over the next 24 months, or at least 50% upside, with more potential upside in future years as well.

risks

The next couple of years could have many challenges and management transition issues. U.S. department stores account for one-third of EL’s business and this channel has been facing pressures over the past few years as buyers move away from department stores toward specialty and smaller stores.

EL US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08363840424446485052

363840424446485052

As of February 29, 2008 — US$42.58

Weekly Price (US$)

EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, BMo cM, S&P

estee laUder companies (el) Price as of 02/29/08: $42.58

EPS P/E EPSGrowthf2007a $2.2� �9.30 f2008e $2.37 �7.96 7%f2009e $2.66 �6.02 �2%

Dividend: $0.55 yield: �.29% Book Value/Share: $7.�0 P/BV: 5.99 52-Week high: $52.3� 52-Week low: $37.03

ratings and targets Bear Stearns outperform $52.00 BMo capital Markets corp. Mrkt Perform $50.00 S&P Advisor insight Strong Buy $52.00

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U.S. Equities Guided Portfolio — March 2008 ��

General Electric Co. (GE)

Current Price: $33.14 Sector: Industrials

company overview

General Electric is one of the largest and most diversified industrial companies in the world. The company is organized in six separate business units: 1) Infrastructure; 2) Industrial; 3) Commercial Financial Services; 4) NBC Universal; 5) Healthcare; and 6) Consumer Finance. Some key divisions that will fall into the above six groups include power generation and systems, water purification, appliance manufacturing, medical equipment, aircraft engines, broadcasting, specialty materials and plastics, transportation equipment such as locomotives and rail equipment, and financial and insurance operations.

investment thesis

Given the current environment of increased economic risk, General Electric is poised to Outperform. In an environment where economic growth is moderating, mid-teen earnings growth at GE is compelling. In addition, the company is well positioned secularly in 2008 with solid multi-year earnings visibility. GE will benefit from the strong aerospace market, increasing demand for energy infrastructure, as well as increased global consumer wealth. We also like GE’s global diversification, as approximately half of GE’s sales are overseas.

GE Management reiterated its long-term growth targets of 2–3x GDP, 10%+ EPS growth and a 20% return on total capital. GE’s guidance for 2008 is for revenues up 10–15% and EPS growth greater than 10%. Embedded in this guidance is a conservative outlook for GE Capital and it is expected to be a source of upside. GE has a track record of delivering solid, quality earnings growth while at the same time delivering growing returns. Management also noted that it expects to redeploy capital in several ways, including organic growth, acquisitions, especially in Healthcare and Infrastructure, and share repurchases.

On average, over the past 10 to 12 years, GE has tended to trade at a 15–20% premium to the S&P 500. GE currently trades at a discount to the S&P based on 2008 forecasts. GE also offers a 3.7% dividend yield. Given the company’s above average dividend payout ratio and track record of raising dividends, we believe this yield is sustainable and will continue to increase. Analysts believe that GE is viewed by some investors as a better name to own in more challenging times due to its yield and consistent earnings stream. These qualities have GE poised to Outperform for the rest of 2007 and 2008.

risks

The key risk is that an economic recovery with improved capital spending trends does not sustain itself. However, GE is viewed as a “defensive” economic-sensitive investment, so investors could look to GE as a safe haven. While GE’s diversification provides it with stability, some view GE’s diversification as a problem, as GE is a very large company and investors are unable to focus their investment in a specific area.

GE US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0832

34

36

38

40

42

32

34

36

38

40

42

As of February 29, 2008 — US$33.14

Weekly Price (US$)

EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

General electric co. (Ge) Price as of 02/29/08: $33.�4

EPS P/E EPSGrowthf2007a $2.20 �5.05 f2008e $2.43 �3.65 �0%f2009e $2.69 �2.32 ��%

Dividend: $�.24 yield: 3.74% Book Value/Share: $��.57 P/BV: 2.86 52-Week high: $42.�5 52-Week low: $32.92

ratings and targets Bear Stearns outperform $46.00 S&P Advisor insight Buy $42.00

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�2 U.S. Equities Guided Portfolio — March 2008

Halliburton Co. (HAL)

Current Price: $38.30 Sector: Energy/Oil & Gas Equipment & Services

company overview

Halliburton is a leading global provider of oilfield services to the energy industry. The company operates in four key segments: 1) Drilling and Formation Evaluation; 2) Fluids; 3) Product Optimization; and 4) Digital and Consulting Solutions. In April 2007, Halliburton completed the separation of its KBR unit.

investment thesis

Shares of Halliburton are deeply undervalued, trading at a 25% discount to its peers. This is inconsistent with HAL’s strong technology portfolio and international footprint.

Part of the reason for Halliburton’s weaker share price performance has been the perception that it is mostly leveraged to the North American market, which has experienced weaker conditions than the overseas market. Management indicated that it took advantage of lower activity levels to train personnel and perform additional preventive maintenance on equipment. Analysts expect an upward trajectory in HAL’s North American business due to recent cost-control initiatives, increased volume activity and a Canadian recovery.

More importantly, Halliburton has been positioning itself in international markets through strategic acquisitions and increased management focus on this region. International markets generally have greater dependence on oil and, as a result, have less fluctuation in drilling activity. Halliburton CEO Dave Lesar has relocated to Dubai in order to establish or improve relationships with the heads of the major national oil companies in Africa, Asia and the Middle East, which are projected to continue aggressive spending. HAL recently closed two acquisitions: 1) PSL Energy Services, which is a production optimization company focused on the Eastern Hemisphere; and 2) Burservice, a Russian directional drilling company. HAL expects 20%+ annual growth in international markets over the next three years, with good visibility in 2008/2009, based on announced projects.

Halliburton’s recent split from KBR has transformed it into a pure-play oilfield services company and analysts believe this separation advances HAL’s shareholder value, given KBR’s relatively lower operating margins. In addition, HAL’s management can focus entirely on the oilfield business for the first time, which should have some value creation potential.

Lastly, Halliburton is aggressively buying back stock. Management has stated it believes shares are absolutely and relatively undervalued. The company recently increased its share repurchase authority to $5 billion.

With Halliburton positioning itself to take advantage of attractive growth opportunities overseas and management now able to focus on the higher-margin oil services business, we think there is significant upside to HAL’s financial results and share valuation.

risks

Risks are reduced oil and gas drilling activity, lower oil and gas prices, and political risk.

HAL US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-082830323436384042

2830323436384042

As of February 29, 2008 — US$38.30

Weekly Price (US$)

hallibUrton company (hal) Price as of 02/29/08: $38.30

EPS P/E EPSGrowthf2007a $2.47 �5.48 f2008e $2.87 �3.35 �6%f2009e $3.39 ��.30 �8%

Dividend: $0.36 yield: 0.94% Book Value/Share: $7.80 P/BV: 4.9� 52-Week high: $4�.95 52-Week low: $29.58

ratings and targets Bear Stearns outperform $55.00 S&P Advisor insight Buy $45.00

Disclosure: �5EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

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U.S. Equities Guided Portfolio — March 2008 �3

Market Vectors Agribusiness ETF (MOO)

Current Price: $56.90 Sector: Agricultural Products

product overview

The Agribusiness ETF seeks to track, before fees and expenses, the investment performance that corresponds to the price and yield of the DAXglobal® Agribusiness Index, a modified market-capitalization index. The Index currently represents 40 companies worldwide that are engaged in the agriculture business. The fund is issued by Van Eck Securities Corporation and currently trades on the AMEX exchange in U.S. dollars with an MER of 0.65%.

investment thesis

Launched in July 2007, the DAXglobal® Agribusiness Index (DXAG) includes many globally prominent companies, including Monsanto, Deere & Co., CNH Global NV, Bunge Ltd., Potash Corp., Archer-Daniels-Midland Co., Tyson Foods and Corn Products International Corp. Also represented in the DXAG Index are leading companies engaged in providing or transporting agricultural equipment, livestock operations, and providing or transporting ethanol and biodiesels. BMO Financial Group Global Portfolio Strategist Don Coxe suggests the long-term outlook for demand in soybeans, sorghum, corn and other feed grains is excellent and that what agricultural companies do is absolutely necessary for the global economy to generate sufficient growth in agricultural output to avert 1970s-style food inflation. Further, Don believes that these companies are core investments under any stock market conditions, as India and China continue to grow at rates they have achieved over the past 10 years, and then the second stage of middle class lifestyle will become the norm for an extra billion or so people over the next 20 years. That stage comes with an upgrading of diets — more specifically, a sustained increase in animal protein consumption compared to diets found among the rice bowl rural population.

risks

Agricultural stock risks include a slowdown in global economies, the potential for lower crop prices to negatively affect spending on farm equipment, continued raw material cost escalation and an unexpected slowdown in end markets.

market vectors aGribUsiness etf (moo) Price as of 02/29/08: $56.90

52-Week high: $59.90 52-Week low: $40.�9

index country breakdown top 10 holdingsUnited States 59.5% the Mosaic co. 9.8%canada 9.2% Potash corp. 9.�%Japan 8.2% Monsanto co. 8.�%Singapore 6.8% Archer-Daniels 7.8%norway 4.7% Deere & co. 7.3%Malaysia 4.4% yara international 5.9%Switzerland 4.3% ioi corp. BhD 4.7%hong kong �.3% Sygneta AG 4.7%Mexico 0.8% Agrium inc. 4.5% Austrailia 0.5% komatsu ltd. 4.2% Argentina 0.3%

sector breakdown Agriculture chemicals 44.50%Agriproduct operations 27.70%Agricutlural Equipment 20.30%livestock operations 4.80%Ethanol/ Biodiesel 2.70%moo

Sep-07 Oct-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-0835

40

45

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65

35

40

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65

As of February 29, 2008 — US$56.90

Weekly Price (US$)

EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

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�4 U.S. Equities Guided Portfolio — March 2008

Mattel Inc. (MAT)

Current Price: $19.32 Sector: Consumer Discretionary, Leisure Products

company description

Mattel markets a wide variety of toy products worldwide. Brands are grouped in the following categories: Mattel Girls & Boys Brands, Fisher-Price Brands and American Girl Brands. Well-known brands include Barbie, Polly Pocket, Hot Wheels, Nickelodeon and Harry Potter, to name a few. Revenues from Mattel’s international segment provided 48% of total sales in 2006.

investment thesis

Mattel shares are down nearly 30% since their highs and we think current valuation offers investors a buying opportunity. In the summer of 2007, Mattel recalled a substantial number of toys, some of which contained lead paint and were produced in China by third-party manufacturers. S&P believes Mattel will be able to restore consumer confidence in the safety of its products, this was evidenced in Mattel’s solid Q4 results which included in-line holiday sales. Analyst channel checks suggest a steady return to business as usual, and a lack of additional headlines should allow the progression to normalcy to continue. The company took several one-time charges related to the recalls and analysts have adjusted their EPS estimates accordingly. In addition, the company has taken measures to avert future recalls by creating a three-point check system and a corporate responsibility board, and it believes potential for future recalls will continue to diminish as the company finishes inspecting its remaining inventory.

Mattel is a 3–4% top-line grower with stable to improving margins, and generates strong returns and a great deal of free cash flow. Mattel offers a strong portfolio of leading consumer brands. Analysts see continued strength in Fisher-Price, Hot Wheels and American Girl. Barbie appears to be stabilizing as well, according to analysts. Mattel’s strong cash flow has enabled it to raise the dividend and increase share buybacks. In November, Mattel raised its annual dividend 15.4% to $0.75 per share. The stock yields over 3.8%.

At just under 12x 2008E EPS, Mattel trades close to its five-year trough multiple of 11x and well below its peak of 18x. The company offers a 7–9% free cash flow yield, a 3.8%+ dividend yield and reasonable earnings growth of 10–13%.

Potential catalysts include 1) diminished headline risk; 2) continued strong fundamental results; 3) incremental return of capital, including continued share repurchases and a solid dividend yield; 4) tuck-in acquisitions; and 5) rotation into more defensive names with valuation/dividend yield support. At less than 13x earnings and with a 3.5% dividend yield, we believe downside is limited from current levels. S&P has a Strong Buy rating on the stock and a $26 target price.

risks

Risks include greater-than-expected fallout from product recalls, weak consumer spending, weakness in certain product categories, such as Barbie and Fisher-Price, and the inability to take pricing to offset input cost pressures.

MAT US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-081618202224262830

1618202224262830

As of February 29, 2008 — US$19.32

Weekly Price (US$)

mattel inc. (mat) Price as of 02/29/08: $�9.32

EPS P/E EPSGrowthf2007a $�.47 �3.�2 f2008e $�.65 ��.72 �2%f2009e $�.78 �0.85 8%

Dividend: $0.75 yield: 3.88% Book Value/Share: $6.38 P/BV: 3.03 52-Week high: $29.7� 52-Week low: $�6.42

ratings and targets BMo capital Markets corp. Underperform $�7.00 S&P Advisor insight Strong Buy $26.00

Disclosure: �5EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

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U.S. Equities Guided Portfolio — March 2008 �5

McKesson Corp. (MCK)

Current Price: $58.76 Sector: Health Care Distributors

company overview

McKesson provides pharmaceutical supply management and information technologies to a broad range of health care industries. McKesson’s two reporting segments are 1) McKesson Distribution Services (MDS: 97.5% of fiscal 2007 revenue). The pharmaceutical distribution unit primarily distributes drugs and health and beauty products, and focuses on three customer segments: retail independent pharmacies, retail chains, and institutions in the U.S. and Canada. The medical-surgical distribution unit provides medical-surgical supplies, equipment, logistics and related services. 2) McKesson Technology Solutions (MTS: 2.5%, 25% of profits) delivers enterprise-wide patient care, clinical financial, supply chain and strategic management software solutions, as well as other technology services. Its customers include hospitals, physicians, home care providers, and retail pharmacies.

investment thesis

MCK continues to be an industry leader with competitive strengths including geographical coverage, the scope and breadth of its products and services, and its ability to offer packaged deals that include pharmaceutical and medical-surgical supplies. Bear Stearns expects McKesson’s annual drug distribution profit growth to be 10%+, with EPS upside from cash flow deployment and ancillary operations. The distribution business should benefit from account wins, growing demand from existing accounts, healthy medical-surgical sales and recent acquisitions. Distribution agreements between distributors and most drugmakers have transitioned toward a more fee-based approach. These new agreements, which came about mostly due to drugmakers seeking to have more control of the supply chain, have resulted in positives for MCK and its peers, as they have more capital for investments and more stable financial performance.

The outlook for the drug distribution industry is positive in 2008. Operating margins are expected to widen gradually as generic drug penetration and cost-control initiatives outweigh incremental internal investments. In terms of generics, the level of drugs going generic reaccelerates in 2008. Branded blockbuster drugs with estimated sales of more than $10 billion are expected to go generic, with Zyrtec in Q4/07, followed by Fosamax, Risperdal and Wellbutrin in 2008, among others. Distributors such as McKesson should benefit incrementally during this period with higher margins from sales of these drugs. Some of these drugs will enjoy exclusivity, which should further benefit drug distributors in the form of higher margins during the 180-day exclusivity period.

A differentiating factor between MCK and the other drug distributors is its Technology Solutions business. This business is the fastest growing within McKesson and boasts higher margins. The company’s health care IT segment, approaching 20% of profits, should eventually warrant a higher valuation, based on the higher P/E multiples commanded by other health care investment technology stocks, and also supplement earnings growth in the distribution business.

McKesson offers investors the opportunity to leverage positive demographics and utilization trends in health care, with less regulatory, reimbursement and pipeline risk than other sectors. Growth of drug utilization from aging, disease incidence and the U.S. government’s Medicare drug benefit should fuel revenue growth.

risks

Risks include the loss of major accounts, unfavourable regulatory changes and unfavourable changes in drugmaker-distributor agreements.

MCK US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0852

56

60

64

68

72

52

56

60

64

68

72

As of February 29, 2008 — US$58.76

Weekly Price (US$)

EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

mckesson corp. (mck) Price as of 02/29/08: $58.76

EPS P/E EPSGrowthf2007a $2.83 20.76 f2008e $3.32 �7.69 �7%f2009e $3.8� �5.44 �5%

Dividend: $0.24 yield:0.4�% Book Value/Share: $22.5� P/BV: 2.6� 52-Week high: $68.43 52-Week low: $53.48

ratings and targets Bear Stearns outperform $74.00 S&P Advisor insight Strong Buy $74.00

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�6 U.S. Equities Guided Portfolio — March 2008

Nasdaq OMX Group Inc. (NDAQ)

Current Price: $41.51 Sector: Financial, Brokers & Asset Managers

company overview

Nasdaq OMX Group Inc. is a leading provider of securities listings, trading, and information products and services. NDAQ operates under two business segments: 1) Issuer Services, and 2) Market Services.

investment thesis

NDAQ is benefiting from a surge in trading volumes from the implementation of Regulation NMS. Historically, the NYSE’s trading volumes have been protected by the “trade-through” rule that ensured orders were executed at the best available price. Regulation NMS maintains the trade-through rule, but distinguishes between fast and slow markets. This differentiation eliminates the historical roadblock created by the NYSE’s specialist system.

Nasdaq has initiated a strategy of luring larger NYSE-listed companies through a combination of significantly lower annual listing fees and value-added services. As NYSE moves to a more electronic platform and the market structure of the way in which stocks are traded becomes more similar between both markets, analysts believe NDAQ will continue to take listings from NYSE.

Nasdaq has also focused on its international expansion. In September 2007, management announced a three-way transaction that will result in a joint venture with the Bourse Dubai and OMX, a Nordic exchange operator. This transaction will include the sale of most of NDAQ’s London Stock Exchange position to Bourse Dubai, as well as the sale of a 19.99% equity stake in NDAQ to Bourse Dubai. BMO Capital Markets Corp. believes this deal is a positive for NDAQ as it diversifies its product offering and geographical footprint. The sale of the majority of the LSE stake will free up capital, with which the company plans to pay down about $1 billion in debt and initiate a stock buyback. Analysts believe the transaction could be $0.30–0.40 accretive to 2008 EPS.

In October 2007, Nasdaq also announced the acquisition of the Boston Stock Exchange (BSE). This deal has multiple benefits, including 1) allowing NDAQ to offer a second protected quote at a different price point for NYSE-, AMEX- and NDAQ-listed securities; 2) the incremental quote can drive incremental market revenue; and 3) NDAQ will gain access to one-, two- and three-letter symbols, lowering costs for companies looking to switch listings from the NYSE. In November, Nasdaq announced the acquisition of the Philadelphia Stock Exchange, which gives Nasdaq exposure to the rapidly growing options market.

NDAQ shares trade at a discount to its U.S. exchange peers. We think the long-term business model of the exchanges supports higher valuations than where they are currently trading. The launch of the options and Portal market, continued market share gains, clarification of the company’s expansion strategy and solid financial results should drive the shares higher.

risks

A significant downturn in volume for the Nasdaq, increased competition and higher-than-average debt levels due to recent acquisitions are risk factors in owning this investment.

NDAQ US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0825

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25

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As of February 29, 2008 — US$41.51

Weekly Price (US$)

Disclosure: �5EPS are consensus unless otherwise specified Source: Bloomberg, BMo cM, S&P

nasdaq omx GroUp inc. (ndaq) Price as of 02/29/08: $4�.5�

EPS P/E EPSGrowthf2007a $�.49 27.88 f2008e $�.99 20.87 34%f2009e $2.45 �6.96 23%

Dividend: n/A yield: n/A Book Value/Share: $�5.90 P/BV: 2.6� 52-Week high: $50.47 52-Week low: $26.57

ratings and targets BMo capital Markets corp. Mrkt Perform $44.00 S&P Advisor insight hold $48.00

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U.S. Equities Guided Portfolio — March 2008 �7

Nokia Corp. (NOK)

Current Price: $36.01 Sector: Information Technology

company overview

Nokia Corp. is a leading provider of wireless telecommunications systems and equipment, and is the world’s largest manufacturer of mobile phones, with an estimated market share of approximately 38%. In addition, Nokia is an important supplier of telecommunications equipment for fixed-line telephony, and makes other electronic products.

investment thesis

Overall, handset industry unit demand continues to be robust with at least 10% annual volume growth. Analysts expect Nokia to continue to gain market share due to improved product mix, such as new higher-end products, including feature-rich colour and camera phones as well as the popular clamshell style phones. Bear Stearns believes that while Motorola’s weakness may be helping, this is a case of Nokia finally getting into the sweet spot of its product landscape, with relatively new devices to address most segments of the space. In addition, Nokia has significant exposure to emerging markets, one of the fastest areas of growth for the wireless industry. In fact, Nokia believes emerging markets will account for around 80% of the next billion subscribers.

Analysts believe that NOK’s product portfolio, combined with strong handset demand growth, bodes well for fundamentals, as evidenced by continued strong financial results. In addition, Nokia will benefit from the migration to WCDMA (wideband code division multiple access) from GSM products, as NOK has a total cost advantage of over 30% versus its peers in this area. Most recently, Nokia launched a music download site called Ovi as well as several higher-end handsets to complement this effort. Analysts applaud Nokia’s effort to diversify its product line-up.

In October, Nokia announced the acquisition of Navteq, a navigational software maker. Nokia noted the deal would be dilutive to both 2008 and 2009 EPS, but only slightly dilutive to 2008 cash EPS and slightly accretive in 2009. Bear Stearns sees this as a solid acquisition for NOK and a good use of its large cash balance. Nokia has been making a bigger push into applications and software with its evolving Services division and this acquisition has significant synergy opportunities. In addition, the geographic footprint for mapping will significantly expand with Nokia’s global footprint.

Valuation remains reasonable, with Nokia trading at almost 14.9x 2008E EPS. Nokia also offers a 2.2% dividend yield. Analysts believe that an improved product portfolio will enable Nokia to improve average selling prices, continue to gain market share and outperform its peer group.

risks

Risks include a slowdown in carrier and consumer spending, product design missteps, rising competition and pricing pressures.

NOK US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0815

20

25

30

35

40

45

15

20

25

30

35

40

45

As of February 29, 2008 — US$36.01

Weekly Price (US$)

Disclosure: �5EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

nokia corp. (nok) Price as of 02/29/08: $36.0�

EPS P/E EPSGrowthf2007a $2.0� �7.92 f2008e $2.5� �4.33 25%f2009e $2.78 �2.96 ��%

Dividend: $0.78 yield: 2.�7% Book Value/Share: $6.60 P/BV: 5.46 52-Week high: $42.22 52-Week low: $20.77

ratings and targets Bear Stearns outperform $44.00 S&P Advisor insight Sell $34.00

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�8 U.S. Equities Guided Portfolio — March 2008

Oracle Corp. (ORCL)

Current Price: $18.80 Sector: Information Technology, Software

company overview

Oracle is a leading provider of enterprise software. The company develops, manufactures, markets, distributes and services databases and software designed to help companies manage and grow their business operations. Oracle is organized into two business units, software and services. In fiscal 2007, the software business represented 79% of total revenues and services and other businesses represented 21%. Oracle is active in M&A, acquiring companies that it believes offer complementary products and services. ORCL believes these acquisitions support its long-term strategy, strengthen its competitive position and expand its customer base.

investment thesis

Oracle represents a compelling value to investors as a unique growth play in enterprise software. The company has been a consistent performer in terms of long-term earnings growth and analysts expect it to continue to offer sustainable earnings growth of approximately 20%.

Oracle is expected to benefit from the ongoing creation of data and the corporate desire to leverage data proliferation via web services. Oracle has 40–50% market share in the database market, which is expected to grow 7–8% globally. Historically, ORCL has grown faster than the overall market. In addition to general market growth, analysts believe ORCL will benefit from market expansion, increasing market share of customers’ software spending through technology integration and driving margin expansion through economies of scale.

Oracle began an aggressive M&A strategy more than two years ago, consolidating almost 30 companies, including large purchases such as Siebel Systems, PeopleSoft and, the most recent, BEA Systems. This acquisition spree positions Oracle for long-term success. Trends in IT buying are moving toward purchasing more products from fewer vendors. Channel checks have indicated that if the product differentiation is marginal, buyers would rather have a more significant relationship with a broader product provider in order to benefit from increased purchasing power and reduced vendor administration costs.

Bear Stearns believes Oracle may be better positioned to weather a trying macro environment. Oracle has become more strategic to its customers given that it now offers a much broader platform of best-in-class products. Therefore, deals are larger on average and there are more of them.

With ORCL trading at only 13x forward EPS, the stock trades below its 20% EPS growth rate and at a notable discount to its peers. Given the company’s strong earnings growth, dominant market position and track record of exceptional results, we think this stock should move higher, especially as investors realize the consistency of ORCL’s financial results.

risks

Key risks include merger integration risk as well as competition from other software providers.

ORCL US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0816

18

20

22

24

16

18

20

22

24

As of February 29, 2008 — US$18.80

Weekly Price (US$)

Disclosure: 5, �5EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

oracle corp. (orcl) Price as of 02/29/08: $�8.80

EPS P/E EPSGrowthf2007a $0.99 �8.99 f2008e $�.26 �4.9� 27%f2009e $�.43 �3.�� �4%

Dividend: n/A yield: n/A Book Value/Share: $3.76 P/BV: 5.00 52-Week high: $23.3� 52-Week low: $�5.97

ratings and targets Bear Stearns outperform $28.00 S&P Advisor insight Strong Buy $27.00

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U.S. Equities Guided Portfolio — March 2008 �9

PepsiCo Inc. (PEP)

Current Price: $69.56 Sector: Consumer Staples, Beverages

company overview

PepsiCo is a leader in the global snack and beverage industry. The company is organized into four business segments: Frito-Lay North America (FLNA), PepsiCo Beverages North America (PBNA), PepsiCo International (PI) and Quaker Foods North America (QFNA). Some of PepsiCo’s well-known brands include Lay’s, Ruffles, Doritos, Pepsi, Gatorade, Tropicana and Aquafina.

investment thesis

PepsiCo is included in the U.S. Equities Guided Portfolio for its superior earnings growth, strong management team and exposure to the high-growth international markets through PepsiCo International.

Analysts forecast PepsiCo’s earnings to grow 11–13% longer term. This is a result of sales increases from new products, a favourable pricing environment, margin expansion at FLNA and even foreign exchange benefits. The Frito-Lay, Pepsi-Cola, Quaker Oats, Gatorade and Tropicana brands all have strong market positions in North America, and it is expected these brands will continue to expand. International opportunities look even brighter, and sales abroad are likely to provide much of the company’s growth in the coming three to five years.

According to analysts, PepsiCo International is the business segment with the highest probability of exceeding expectations over the next several years and remains a high-growth, unique consumer staples business. PI is driving almost 45% of PEP’s operating profit growth year to date, and now accounts for almost 30% of the company’s total enterprise value. Asia Pacific, notably China and India, continues to post the fastest growth. Credit Suisse expects PI to continue to grow profit at a strong double-digit rate.

PepsiCo continues to exhibit execution among the best relative to other consumer staples companies. Management has balanced growth and investment priorities in the context of its consumer portfolio, and the company’s innovation has consistently exceeded its peers’ across the food and beverage landscape. PEP is one of very few companies in the food and beverage sector to avoid an earnings break in the past couple of years. In fact, the company has consistently met and even raised forecasts, and increased its dividend regularly. In May 2007, PEP increased its annual dividend by 25% to $1.50, for a yield of 2.1%. This is the 35th consecutive dividend increase since 1972. PEP also announced an additional $8 billion share buyback program through to mid-2010. Analysts believe PEP remains the best play in the consumer staples sector, citing the company’s consistent double-digit earnings growth rate.

risks

Obesity concerns could negatively impact key PEP brands such as Frito-Lay and Pepsi Cola. However, continued innovation, such as diet beverages and low-carb and healthier snack foods, has so far minimized the impact from these concerns. In addition, weather and commodity input costs are crucial variables for food and beverage companies.

PEP US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0860

65

70

75

80

85

60

65

70

75

80

85

As of February 29, 2008 — US$69.56

Weekly Price (US$)

Disclosure: �5EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

pepsico, inc. (pep) Price as of 02/29/08: $69.56

EPS P/E EPSGrowthf2007a $3.39 20.49 f2008e $3.73 �8.63 �0%f2009e $4.�2 �6.89 �0%

Dividend: $�.50 yield: 2.�6% Book Value/Share: $�0.7� P/BV: 6.49 52-Week high: $79.79 52-Week low: $6�.89

ratings and targets Bear Stearns Peer Perform n/A S&P Advisor insight Buy $85.00

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20 U.S. Equities Guided Portfolio — March 2008

United Parcel Service Inc. (UPS)

Current Price: $70.24 Sector: Industrials

company overview

United Parcel Service Inc. (UPS) is the world’s largest package delivery company and a global leader in supply chain services, and offers an extensive range of options for synchronizing the movement of goods, information and funds. The company was founded in 1907 as a private messenger service in Seattle, Washington, and today it delivers packages each business day for 1.8 million shipping customers to 6.1 million consignees in over 200 countries. In addition, UPS’s Supply Chain Solutions (SCS) services are available to clients worldwide from its Atlanta, Georgia, headquarters.

investment thesis

While the outlook for the air freight and logistics industry remains neutral, largely due to weaker fundamentals in domestic shipping businesses, valuations of many logistics companies currently reflect continued worries about the economy, and any strengthening in the U.S economy could drive increased volumes. Thus UPS’s current valuation discounts a long-term growth rate that is very low compared to both historical levels (CAGR approximately 8% since 1999) and the company’s expectations (approximately 7% CAGR) for future growth prospects.

In addition to above average long-term growth expectations, UPS is perceived as a safer name with less earnings volatility and less cyclical exposure to the U.S. economy. The company generates about 25–30% of its profits from the international markets, which, all else being equal, should provide less overall earnings cyclicality. In fact, earnings growth should be the result of stronger international growth, proving that even in tough economic conditions UPS can provide earnings growth.

With new management in place, which already has proven to be more shareholder friendly, the company will likely focus more on stock performance, especially given the considerable ownership by employees (currently about 25%). Recently, UPS announced that it would lever up its balance sheet to invest in its business, fund acquisitions and increase its share buyback program from approximately $2 billion to $10 billion over the next 24 months.

Bear Stearns’ number one ranked Transportation analyst Ed Wolfe recently upgraded UPS to Outperform with a $85 target price, believing that UPS is one of the lowest risk stocks in his universe. With an attractive valuation and reasonable earnings expectations even in a continued recessionary environment, downside is limited. Longer term, the analyst views upside potential to both earnings and valuation given its improved cost and competitive environment.

risks

General economic market conditions, in the U.S. and internationally: UPS’s business operations are closely tied to global trade; thus, the overall health of the economy may affect the company’s operational and financial performance. Additionally, UPS’s profitability relative to expectations could be negatively impacted by a prolonged freight recession, new competitive responses from competitors (DHL, FDX) or other unforeseen events causing one or both of UPS or FDX to become materially more aggressive on pricing.

UPS US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-086466687072747678

6466687072747678

As of February 29, 2008 — US$70.24

Weekly Price (US$)

EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, S&P

United parcel service inc. (Ups) Price as of 02/29/08: $70.24

EPS P/E EPSGrowthf2007a $4.�7 �6.86 f2008e $4.43 �5.86 6%f2009e $4.96 �4.�5 �2%

Dividend: $�.80 yield: 2.56% Book Value/Share: $�4.88 P/BV: 4.72 52-Week high: $78.99 52-Week low: $64.0�

ratings and targets Bear Stearns outperform $85.00 S&P Advisor insight Buy $89.00

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U.S. Equities Guided Portfolio — March 2008 2�

Walt Disney Co. (DIS)

Current Price: $32.41 Sector: Consumer Discretionary

company overview

Walt Disney is a media and entertainment conglomerate that has diversified global operations in theme parks, motion pictures, television broadcasting and merchandising licensing. Theme Parks (30% of fiscal 2007 (September) revenues) includes Disney World and Disneyland Parks. Media Networks (42%) includes the ABC broadcast network and ESPN (80% owned), among other assets. Studio Entertainment (21%) includes the film, television and home video businesses under the Walt Disney, Touchstone and Miramax brands. Consumer products (6%) includes merchandise licensing, publishing, video game development and 104 retail stores, mostly in Europe.

investment thesis

BMO Capital Markets expects Disney to be a strong EPS grower in fiscal 2008, with earnings up 17%. Disney is firing on all cylinders, as it has become a more diversified, better-managed, less cyclical company that is more disciplined in its brand development and capital-allocation strategies.

Disney’s top strategic priorities include creativity and innovation, international expansion and leveraging new technology applications. Disney has broadened its brand platform to several new areas, including Pirates of the Caribbean, a film franchise that has generated $2.2 billion in sales so far. Other key new franchises are Hannah Montana/Miley Cyrus, High School Musical and CARS. This broader platform of growth brands has lengthened Disney’s demographic reach, which once skewed toward very young children and girls.

Disney’s Media operations are less cyclical than those of a traditional media company. Disney’s ability to leverage brands across several different platforms allows for higher returns on capital. In addition, Disney is less exposed to advertising than some of its peers. Approximately 65% of ESPN’s revenue comes from cable and satellite system “affiliate fees,” with 35% from advertising. The Disney Channel in the U.S. doesn’t take advertising and ABC, while sensitive to advertising, is only a small portion of Disney’s overall operations.

Disney’s Theme Parks division offers significant upside potential, according to BMO Capital Markets, if consumer confidence and the economy start to improve. So far, the Theme Park division has yet to see evidence of shrinking demand, with solid occupancy rates and booking trends. Also, Disney is willing to respond to any weakening traffic trends by changing prices, hours of operation and costly events held at its parks. Recently, attendance has been bolstered by foreign visitors, thanks to the weakening U.S. dollar.

At 14.8x current year earnings, Disney is trading at a discount to the overall market. Historically, Disney has traded at a premium of approximately 30% to the market. Disney continues to aggressively buy back shares, with $7 billion repurchased in the past two years. BMO Capital Markets believes that once the “consumer discretionary mantra” dissipates, Disney’s stock is setting the stage for a much better valuation. The analyst believes that Disney’s global brand and franchises, consistent earnings performance and power, and exceptional management are not being fairly valued by the market.

risks

A sharp decline in consumer discretionary spending would negatively impact advertising and park attendance. Other risks are film volatility and the potential negative impact of the writers strike on the media division.

DIS US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0826

28

30

32

34

36

38

26

28

30

32

34

36

38

As of February 29, 2008 — US$32.41

Weekly Price (US$)

Disclosure: 2, 3, 6, 7, 9, �0EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, BMo cM, S&P

Walt disney co. (dis) Price as of 02/29/08: $32.4�

EPS P/E EPSGrowthf2007a $�.92 �6.89 f2008e $2.24 �4.49 �7% f2009e $2.4� �3.46 8%

Dividend: $0.35 yield: �.08% Book Value/Share: $�5.73 P/BV: 2.06 52-Week high: $36.30 52-Week low: $26.30

ratings and targets Bear Stearns Peer Perform n/A BMo capital Markets corp. outperform $43.00 S&P Advisor insight Strong Buy $45.00

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22 U.S. Equities Guided Portfolio — March 2008

Wyeth (WYE)

Current Price: $43.62 Sector: Healthcare/Pharmaceuticals

company overview

Wyeth is a leading producer of prescription pharmaceuticals, as well as consumer medications and animal health products. Wyeth’s key products are Effexor, an antidepressant; Protonix, a treatment for heartburn; Prevnar, a broad-based pediatric vaccine; and Enbrel, a treatment for rheumatoid arthritis that is marketed in conjunction with Amgen (AMGN).

investment thesis

Prevnar’s ongoing rollout in international markets will be the primary source of growth. Margin expansion should accompany Prevnar’s strong revenue growth as the product’s fixed sales and marketing costs are leveraged. In addition, markets in which Prevnar is launched but not yet reimbursed could provide annual revenues of up to $1.1 billion. Enbrel is a leading therapy for rheumatoid arthritis and international sales in this market are expected to drive growth. Psoriasis is also a key growth driver for Enbrel, which has a first-mover advantage into this large and relatively under-penetrated patient population.

In June 2003, Wyeth established its biopharmaceutical business. Biologics are larger molecule therapies that are created by living human and animal cells, rather than smaller molecules created by chemicals. Many of the new therapies in the market are biologics, as this market is the area of future innovation and is largely under-penetrated. Biologics have a very high barrier to entry, as development and production are very complicated and expensive.

Wyeth is also one of a select group of companies that has a critical mass in the vaccine market. This market also has high barriers to entry and, unlike the small molecule marketplace, is not susceptible to generic competition. Of the U.S. manufacturers, Wyeth currently has the largest footprint in the vaccine market.

Over the next couple of years, Wyeth’s pipeline will be in focus. Among other products, there is much attention on Wyeth’s Alzheimer’s franchise. In May 2007, Wyeth announced it would start Phase 3 trials for a key Alzheimer’s drug (bapineuzumab) in the second half of 2007, which indicates a degree of confidence in this program by management.

Wyeth currently trades at a significant discount to the U.S. pharmaceutical group based on 2008 forecasts. We think this discount will reverse as investors become more comfortable with WYE’s above average EPS growth derived from volume-driven sales growth, gross margin expansion, new products and productivity initiatives. Many view the company as a takeover target due to its highly successful vaccine and biologics business, and the high barriers to entry in this market. Wyeth’s Alzheimer’s program should also lead to upside as the program continues to progress.

risks

Wyeth has been involved in diet drug litigation for the past several years. At this point, WYE has reached an agreement or agreements in principle with attorneys representing more than 99% of the opt-outs. As with any drug company, patent expirations, pipeline setbacks and FDA approval risks exist.

WYE US Equity

Feb-07 May-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-0835

40

45

50

55

60

35

40

45

50

55

60

As of February 29, 2008 — US$43.62

Weekly Price (US$)

EPS are consensus unless otherwise specified Source: Bloomberg, Bear Stearns, BMo cM, S&P

Wyeth (Wye) Price as of 02/29/08: $43.62

EPS P/E EPSGrowthf2007a $3.53 �2.37 f2008e $3.4� �2.80 -3%f2009e $3.67 ��.87 8%

Dividend: $�.�2 yield: 2.57% Book Value/Share: $�2.7� P/BV: 3.43 52-Week high: $62.20 52-Week low: $38.50

ratings and targets Bear Stearns Peer Perform n/A BMo capital Markets corp. Mrkt Perform $49.00 S&P Advisor insight hold $45.00

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U.S. Equities Guided Portfolio — March 2008 23

Table1:U.S.EquitiesGuidedPortfolioValuationTable

ibes cons. earn. p/e long-term 29-feb-08 current next eps Growth current next debt/company ticker closing price year year rate year year div. yield total cap.%

AMEriPriSE FinAnciAl inc AMP $50.64 $4.42 $5.02 �3.7% ��.47 �0.09 $0.60 �.�8% 2�.92APPlE inc AAPl $�25.02 $5.�8 $6.34 22.3% 24.�4 �9.73 $0.00 0.00% 0.00ArchEr-DAniElS-MiDlAnD co ADM $45.�0 $2.8� $3.02 7.7% �6.07 �4.9� $0.52 �.�5% 28.73BoEinG co BA $82.79 $5.98 $7.�2 �9.�% �3.84 ��.63 $�.60 �.93% 43.29cAtErPillAr inc cAt $72.33 $5.95 $6.69 �2.4% �2.�5 �0.8� $�.44 �.99% 47.78ciSco SyStEMS inc cSco $24.39 $�.52 $�.72 �3.0% �6.05 �4.2� $0.00 0.00% �6.9�cVS cArEMArk corP cVS $40.38 $2.4� $2.79 �5.7% �6.73 �4.46 $0.24 0.59% �9.97EStEE lAUDEr coMPAniES-cl A El $42.58 $2.37 $2.66 �2.�% �7.96 �6.02 $0.55 �.29% 44.53GEnErAl ElEctric co GE $33.�4 $2.43 $2.69 �0.8% �3.65 �2.32 $�.24 3.74% 50.03hAlliBUrton co hAl $38.30 $2.87 $3.39 �8.2% �3.35 ��.30 $0.36 0.94% 26.95MArkEt VEctorS AGriBUSinESS Moo $56.90 n/A n/A n/A n/A n/A n/A n/A n/AMAttEl inc MAt $�9.32 $�.65 $�.78 8.0% ��.72 �0.85 $0.75 3.88% �6.89MckESSon corP Mck $58.76 $3.32 $3.8� �4.6% �7.69 �5.44 $0.24 0.4�% 2�.90nASDAq oMx GroUP/thE nDAq $4�.5� $�.99 $2.45 23.0% 20.87 �6.96 $0.00 0.00% 5.09nokiA corP-SPon ADr nok $36.0� $2.5� $2.78 �0.6% �4.33 �2.96 $0.78 2.�7% 20.29orAclE corP orcl $�8.80 $�.26 $�.43 �3.7% �4.9� �3.�� $0.00 0.00% 25.44PEPSico inc PEP $69.56 $3.73 $4.�2 �0.3% �8.63 �6.89 $�.50 2.�6% �9.�4UnitED PArcEl SErVicE-cl B UPS $70.24 $4.43 $4.96 �2.�% �5.86 �4.�5 $�.80 2.56% �5.99WAlt DiSnEy co DiS $32.4� $2.24 $2.4� 7.6% �4.49 �3.46 $0.35 �.08% 25.�8WyEth WyE $43.62 $3.4� $3.67 7.8% �2.80 ��.87 $�.�2 2.57% 38.�0

averaGe 14.84 13.06 1.38%

book value price/ bear stearns bmo capital markets s&pcompany name per share (bv) bv roe stock rtg trgt price stock rtg trgt price stock rtg trgt price

AMEriPriSE FinAnciAl inc $33.38 �.52 9.4% n/A n/A n/A n/A Buy $65.00

APPlE inc $�9.�3 6.54 �7.2% outperform $220.00 outperform $�40.00 Buy $�99.00

ArchEr-DAniElS-MiDlAnD co $�9.�5 2.36 29.�% n/A n/A outperform $47.00 hold $50.00

BoEinG co $�2.22 6.77 �9.3% Peer Perform n/A n/A n/A Buy $��8.00

cAtErPillAr inc $�4.24 5.08 59.3% outperform $78.00 n/A n/A hold $82.00

ciSco SyStEMS inc $5.49 4.44 45.0% outperform $28.00 outperform $30.00 Buy $27.00

cVS/cArEMArk corP $�9.57 2.06 27.2% Peer Perform n/A Market Perform $45.00 Strong Buy $48.00

EStEE lAUDEr coMPAniES-cl A $7.�0 5.99 29.8% outperform $52.00 Market Perform $50.00 Strong Buy $52.00

GEnErAl ElEctric co $��.57 2.86 �9.6% outperform $46.00 n/A n/A Buy $42.00

hAlliBUrton co $7.80 4.9� 49.�% outperform $55.00 n/A n/A Buy $45.00

MArkEt VEctorS AGriBUSinESS n/A n/A n/A n/A n/A n/A n/A n/A n/A

MAttEl inc $6.38 3.03 25.3% n/A n/A Underperform $�7.00 Strong Buy $26.00

MckESSon corP $22.5� 2.6� �4.9% outperform $74.00 n/A n/A Strong Buy $74.00

nASDAq oMx GroUP/thE $�5.90 2.6� 28.3% n/A n/A Market Perform $44.00 hold $48.00

nokiA corP-SPon ADr $6.60 5.46 49.0% outperform $44.00 n/A n/A Sell $34.00

orAclE corP $3.76 5.00 27.5% outperform $28.00 n/A n/A Strong Buy $27.00

PEPSico inc $�0.7� 6.49 34.8% Peer Perform n/A n/A n/A Buy $85.00

UnitED PArcEl SErVicE-cl B $�4.88 4.72 25.4% outperform $85.00 n/A n/A Buy $89.00

WAlt DiSnEy co $�5.73 2.06 �3.5% Peer Perform n/A outperform $43.00 Strong Buy $45.00

WyEth $�2.7� 3.43 28.0% Peer Perform n/A Market Perform $49.00 hold $45.00

averaGe 4.10 29.0%

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24 U.S. Equities Guided Portfolio — March 2008

Price as ofPurchase Date Cost/Share 29-Feb-08 Price Return Current Yield

Ameriprise Financial Inc. 3-Dec-07 $58.04 $50.64 -12.75% 1.18%Apple Inc. 3-Dec-07 $178.86 $125.02 -30.10% 0.00%Archer Daniels Midland Co. 3-Dec-07 $36.10 $45.10 24.93% 1.15%Boeing Co. 3-Dec-07 $91.79 $82.79 -9.80% 1.93%Caterpillar Inc. 3-Dec-07 $72.06 $72.33 0.37% 1.99%Cisco Systems Inc. 3-Dec-07 $27.57 $24.39 -11.53% 0.00%CVS Corp. 3-Dec-07 $39.91 $40.38 1.18% 0.59%Estee Lauder Ltd. 3-Dec-07 $43.07 $42.58 -1.14% 1.29%General Electric Co. 3-Dec-07 $36.62 $33.14 -9.50% 3.74%Halliburton Co. 3-Dec-07 $36.68 $38.30 4.42% 0.94%Market Vectors Agribusiness ETF 3-Dec-07 $51.08 $56.90 11.39% 0.00%Mattel Inc. 3-Dec-07 $19.63 $19.32 -1.58% 3.88%McKesson Corp 29-Feb-08 $58.76 $58.76 0.00% 0.41%NASDAQ OMX Group Inc. 3-Dec-07 $43.51 $41.51 -4.60% 0.00%Nokia Corp. 3-Dec-07 $40.24 $36.01 -10.51% 2.17%Oracle Corp. 3-Dec-07 $20.24 $18.80 -7.11% 0.00%Pepsico, Inc. 3-Dec-07 $76.21 $69.56 -8.73% 2.16%United Parcel Service 29-Feb-08 $70.24 $70.24 0.00% 2.56%Walt Disney Co. 29-Feb-08 $32.41 $32.41 0.00% 1.08%Wyeth 3-Dec-07 $48.38 $43.62 -9.84% 2.57%

Annual Returns* : 2007 2006 2005 2004

U.S. Equity Portfolio: 24.38% 13.47% 5.59% 12.54%S&P 500: 5.49% 13.92% 5.76% 11.18%DJIA: 8.88% 19.04% 2.23% 5.31%

Table2:U.S.EquitiesGuidedPortfolioPerformanceTracker

Table4:FormerU.S.EquitiesPortfolioAnnualReturnData

* these returns reflect the former total returns from the BMo nesbitt Burns U.S. Equities Portfolio in US$. As of December 3, 2007 returns will be tracked under the new quarterly U.S. Equities Guided Portfolio.

Year-to-date

Since Inception*

U.S. Equities Guided Portfolio -7.8% -4.9%S&P 500 -9.1% -9.2%Dow Jones Industrial Average -7.1% -7.3%

* Total return since inception date of Dec-03-07.

Table3A:U.S.dollardenominatedtotalreturns(%)

Year-to-date

Since Inception*

U.S. Equities Guided Portfolio -7.5% -6.0%S&P 500 -8.7% -10.2%Dow Jones Industrial Average -6.8% -8.4%

* Total return since inception date of Dec-03-07.

Table3B:Canadiandollardenominatedtotalreturns(%)

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Table5:GuidedPorfoliosStocksAtAGlance

financials

S&P/tSx Weight: 28.�%S&P 500 Weight: �7.�%

utilities

S&P/tSx Weight: 4.8% S&P 500 Weight: 3.5%

telecom services

S&P/tSx Weight: 5.0% S&P 500 Weight: 3.3%

international canadianequities u.s.equities equities guidedportfolio guidedportfolio guidedportfolio

discretionary

S&P/tSx Weight: 4.3%S&P 500 Weight: 8.7%

staples

S&P/tSx Weight: 2.3% S&P 500 Weight: �0.7%

healthcare

S&P/tSx Weight: 0.4% S&P 500 Weight: �2.2%

industrials

S&P/tSx Weight: 5.5%S&P 500 Weight: ��.8%

information technology

S&P/tSx Weight: 4.4%S&P 500 Weight: �5.5%

energy

S&P/tSx Weight: 25.6%S&P 500 Weight: �3.6%

basic materials

S&P/tSx Weight: �9.7%S&P 500 Weight: 3.6%

{

{

FINANCIALS

industrial Alliance (iAG) Ameriprise Financial (AMP) industrial Alliance (iAG) Manulife Financial (MFc) nASDAq oMx Group inc. (nDAq) tD Bank (tD) national Bank (nA) Power Financial (PWF) tD Bank (tD)

UTILITIES

cEMiG (ciG)

TELECOM SERVICES

Energy and Utilities have been adjusted to reflect pipeline companies*bold indicates stock has been downgraded mid quarter — see Mid-quarter Update for recommendationitalics indicates stock on restricted list

DISCRETIONARY

tim hortons (thi) Mattel (MAt) Mattel (MAt) yellow Pages (ylo.un) Walt Disney (DiS) Walt Disney (DiS)

STAPLES

Archer Daniels Midland (ADM) Estee lauder (El) cVS/caremark corp. (cVS) Pepsico (PEP) Estee lauder (El) Pepsico (PEP)

HEALTHCARE

Mckesson corp (Mck) novartis AG (nVS) Wyeth (WyE) Mckesson corp (Mck)

INDUSTRIALS

cP railway (cP) Boeing (BA) cP railway (cP) cAE (cAE) caterpillar (cAt) Siemens AG (Si) General Electric (GE) United Parcel Service (UPS)

INFORMATION TECHNOLOGY

research in Motion (riM) Apple (AAPl) Apple (AAPl) cisco Systems (cSco) cisco Systems (cSco) nokia (nok) nokia (nok) oracle (orcl)

info

.t

ech

no

log

yin

ter

ests

en

sit

ive

co

nsu

mer

idu

str

ials

ENERGY

canadian oil Sands (coS.Un) halliburton (hAl) Encana (EcA) Encana (EcA) nexen (nxy) husky Energy (hSE) Suncor (SU) nexen (nxy) Suncor (SU) talisman (tlM)

en

er

gy

BASIC MATERIALS

Barrick Gold (ABx) Agribusiness EtF (Moo) Agribusiness EtF (Moo) Gerdau Ameristeel (GnA) Gerdau Ameristeel (GnA) Sherritt int’l (S) teck cominco (tck.B) teck cominco (tck.B)

Ba

sic

ma

ter

ials

{

{{

{

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26 U.S. Equities Guided Portfolio — March 2008

General DisclosureThe information and opinions in this report were prepared by BMO Nesbitt Burns Inc., and BMO Nesbitt Burns Ltee/Ltd’s Portfolio, Action and Research Team (“BMO Nesbitt Burns”). BMO Capital Markets Corp. (“BMO CM”) is an affiliate of BMO Nesbitt Burns operating in the U.S. BMO Nesbitt Burns and BMO CM are subsidiaries of Bank of Montreal. “BMO Capital Markets” is a trade name used by BMO Investment Banking Group, which includes the wholesale/institutional arms of Bank of Montreal and BMO NB in Canada, and BMO CM in the U.S. The opinions, estimates and projections contained in this report are those of BMO Nesbitt Burns as of the date of this report and are subject to change without notice. BMO Nesbitt Burns endeavors to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, BMO Nesbitt Burns makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to BMO Nesbitt Burns or its affiliates that is not reflected in this report. This report is not to be construed as an offer to sell or solicitation of an offer to buy or sell any security. BMO Nesbitt Burns, BMO CM or their affiliates will buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. BMO Nesbitt Burns, BMO CM, their affiliates, officers, directors or employees may have a long or short position in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. BMO Nesbitt Burns, BMO CM or their affiliates may act as financial advisor and/or underwriter for the issuers mentioned herein and may receive remuneration for same. Bank of Montreal or its affiliates (“BMO Financial Group”) has lending arrangements with, or provides other remunerated services to, many issuers covered by BMO Nesbitt Burns’ Portfolio, Action and Research Team. A significant lending relationship may exist between BMO Financial Group and certain of the issuers mentioned herein.

Company Specific Disclosure

Disclosure KeyBMO Nesbitt Burns and BMO Capital Markets Corp. use the following Company Specific Disclosure Key. Please refer to the Company Specific Disclosure section above for specific disclosures applicable to issuers discussed in this report:

1 - BMO Nesbitt Burns has provided advice for a fee with respect to this issuer within the past 12 months.2 - BMO Nesbitt Burns has undertaken an underwriting liability with respect to this issuer within the past 12 months.3 - BMO Nesbitt Burns has provided investment banking services with respect to this issuer within the past 12 months.4 - BMO Nesbitt Burns, BMO Capital Markets Corp. or an affiliate beneficially owns 1% or more of any class of the equity securities of this issuer.5 - BMO Nesbitt Burns, BMO Capital Markets Corp. or an affiliate makes a market in this security.6 - BMO Capital Markets Corp. or an affiliate has managed or co-managed a public offering of securities with respect to this issuer within the past

12 months.7 - BMO Capital Markets Corp. or an affiliate has received compensation for investment banking services from this issuer within the past 12

months.8 - BMO Capital Markets Corp. or an affiliate or its officers or partners own options, rights, or warrants to purchase any securities of this issuer.9 - BMO Capital Markets Corp. or an affiliate received compensation for products or services other than investment banking services from this

issuer within the past 12 months. 10 - This issuer is a client (or was a client) of BMO Nesbitt Burns, BMO Capital Markets Corp. or an affiliate within the past 12 months: Investment

Banking Services, Non-Investment Banking Securities Related Services, Non-Securities Related Services. 11 - An employee, officer, or director of BMO Nesbitt Burns is a member of the Board of Directors or an advisor or officer of this issuer.12 - A member of the Board of Directors of Bank of Montreal is also a member of the Board of Directors or is an officer of this issuer.13 - A household member of the Equity Research Analyst and/or Associates who prepared the research upon which this report is based is a member

of the Board of Directors or an advisor or officer of this issuer.14 - The Equity Research Analysts and/or Associates (or their household members) who prepared the research upon which this report is based

directly or beneficially own securities of the following issuer.15 - The authors of this report (or their household members) directly or beneficially own securities of this issuer: Common Shares - AMP, AAPL,

ADM, CAT, CSCO, HAL, MAT, NDAQ, NOK, ORCL, PEP16 - A household member of the authors of this report is a member of the Board of Directors or an advisor or officer of this issuer.

AMEriPriSE FinAnciAl (AMP) �5APPlE inc. (AAPl) 5, �5ArchEr-DAniElS-MiDlAnD co. (ADM) 9, �0, �5BoEinG (BA) cAtErPillAr (cAt) �5ciSco SyStEMS (cSco) 5, �5cVS/cArEMArk corP. (cVS) EStEE lAUDEr (El) GEnErAl ElEctric (GE) hAlliBUrton co. (hAl) �5

MArkEt VEctorS AGriBUSinESS EtF (Moo) MAttEl inc. (MAt) �5MckESSon (Mck)nASDAq oMx GroUP inc. (nDAq) �5nokiA corP. (nok) �5orAclE corP. (orcl) 5, �5PEPSico inc. (PEP) �5UnitED PArcEl SErVicE inc. (UPS)WAlt DiSnEy (DiS) 2, 3, 6, 7, 9, �0WyEth (WyE)

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Dissemination of Reports BMO Nesbitt Burns Portfolio, Action and Research Team’s reports are made widely available at the same time to all BMO Nesbitt Burns Investment Advisors. Please contact your Investment Advisor for more information.

Additional Matters TO U.S. RESIDENTS: BMO CM and/or BMO Nesbitt Burns Securities Ltd., affiliates of BMO Nesbitt Burns, furnish this report to U.S. residents and accept responsibility for the contents herein subject to the terms as set out above. Any U.S. person wishing to effect transactions in any security discussed herein should do so through BMO CM and/or BMO Nesbitt Burns Securities Ltd. TO U.K. RESIDENTS: The contents hereof are intended solely for the use of, and may only be issued or passed onto, persons described in part VI of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001.

BMO Nesbitt Burns is a Member of CIPF. BMO CM is a Member of SIPC.

® BMO and the roundel symbol are registered trade-marks of Bank of Montreal, used under license.

RT11050_A3 (03/08)

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28 U.S. Equities Guided Portfolio — March 2008

— Notes —

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