PREPARED FOR: John Doe DATE: 10/10/11

CRITICAL FACTORS IN THE PURSUIT OF A BETTER INVESTMENT EXPERIENCE

UNDERSTAND MARKETS

1. Let markets work for you.

2. Take risks worth taking.

3. Invest, don’t speculate.

HARNESS THEIR POWER

4. Hold multiple asset classes.

5. Practice smart diversification.

6. Keep costs low.

KEY INVESTMENT PRINCIPLES

KNOW YOURSELF

7. Don’t confuse entertainment with advice.

8. Manage your emotions and biases.

WORK YOUR PLAN

9. Avoid common investment mistakes.

10. Plan for the long term—and stay the course!

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$1

$10

$100

$1,000

$10,000

$100,000

1926 1936 1946 1956 1966 1976 1986 1996 2006

In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. US small, small value, and large value index data (ex utilities) provided by Fama/French. The S&P data are provided by Standard & Poor’s Index Services Group. CRSP data provided by the Center for Research in Security Prices, University of Chicago. US long-term bonds, bills, inflation, and fixed income factor data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).

$56,891

$3,013

$81

$20$12

$13,666

$4,599

S&P 500 Index

US Inflation (CPI)

US Treasury Bills

US Five- Year Treasury Bonds

US Small Cap Value Stocks

US Large Cap Value Stocks

US Small Cap Stocks

LET MARKETS WORK FOR YOUMONTHLY GROWTH OF WEALTH ($1)1926−2010

1

Markets throughout the world have a history of rewarding investors for the capital they supply. Their expected returns offer compensation for bearing systematic risk—or risk that cannot be diversified away.

An efficient market or equilibrium view assumes that competition in the marketplace quickly drives securities prices to fair value, ensuring that investors can only expect greater average returns by taking greater systematic risk in their portfolios.

This graph documents compounded performance of fixed income and equity asset classes from 1926 to 2009, based upon growth of a dollar. It shows that equities have offered higher compounded returns than fixed income investments. Within the equity asset classes, small cap stocks have outperformed large cap stocks, and value stocks have outperformed growth stocks, resulting in higher returns and greater wealth accumulation.

Capital markets reward investors based on the risk they assume. Rather than trying to outguess the markets, investors should identify the risks they are willing to take, then position their portfolios to capture these risks through broad diversification.

TAKE RISKS WORTH TAKINGSIZE AND VALUE EFFECTS AROUND THE WORLD

2

1. In CAD. All returns in USD except Canadian Market Stocks. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. US value and growth index data (ex utilities) provided by Fama/French. The S&P data are provided by Standard & Poor’s Index Services Group. CRSP data provided by the Center for Research in Security Prices, University of Chicago. International Value data provided by Fama/French from Bloomberg and MSCI securities data. International Small data compiled by Dimensional from Bloomberg, StyleResearch, London Business School, and Nomura Securities data. MSCI EAFE Index is net of foreign withholding taxes on dividends; copyright MSCI 2011, all rights reserved. Emerging Markets index data simulated by Fama/French from countries in the IFC Investable Universe; simulations are free-float weighted both within each country and across all countries.

US Large Value

S&P 500

US Large

Growth

US Smal

l Valu

e

CRSP

6-10

US Small

Growth

Intl. Valu

e

Intl. Smal

lMSCI EAFE

Intl. Growt

h

Canada

Value

Canada

Market

Canada

Growth

Emg. Markets

Value

Emg. Markets Small

Emg. Markets

“Market”

Emg. Markets Growth

US Large Capitalization

Stocks 1927–2010

US Small Capitalization Stocks 1927–

2010

Non-US Developed Markets Stocks

1975–2010

Canadian Market Stocks1

1977–2010

Emerging Markets Stocks

1989–2010

14.03 11.88 11.35 19.17 15.98 13.95 18.48 19.17 13.67 11.29 14.53 12.86 10.40 25.01 21.98 19.46 17.05

27.01 20.51 21.93 35.13 30.94 34.05 24.56 28.13 22.29 22.21 21.64 17.47 21.79 42.01 40.67 36.40 34.89

Annualized Compound Returns (%)

Average Return (%)

Standard Deviation (%)

10.459.85

9.05

13.82

11.69

8.97

15.7915.72

11.38

18.17

13.68

11.4312.48

11.46

8.239.03

15.07

To pursue higher expected returns, investors must take higher risks. But only certain risks offer an expected reward—and science has helped identify these risks.

The two major equity risks are size and price (as measured by book-to-market ratio—or BtM). These appear in the Canadian, US, and international markets—strong evidence that the risk factors are systematic across the globe.

This graph demonstrates the higher expected returns offered by small cap stocks and value (high-BtM) stocks in the US, non-US developed, Canadian, and emerging markets. Note that the international, Canadian, and emerging markets data are for shorter time frames.

Small cap stocks are considered riskier than large cap stocks, and value stocks are deemed riskier than growth stocks. These higher returns reflect compensation for bearing higher risk.

A multifactor approach incorporates both size and value measures—and exposure to markets around the world—in an effort to increase expected returns and reduce portfolio volatility. An effective way to capture these effects is through portfolio structure.

Over time, only a very small fraction of money managers outperform the market after fees, and it is difficult to identify them in advance.

Source: Standard & Poor’s Indices Versus Active (SPIVA) Funds Scorecard Canada, Second Quarter 2010.

INVEST, DON’T SPECULATEPERCENT OF WINNING ACTIVE MANAGERSJuly 2005–June 2010

3

12%7%

International EquityCanadian Equity

9%

US Equity

In an efficient market, stock prices reflect all publicly available information—and only new information causes prices to change as market participants adjust their views of the future. Since new information is unknowable in advance, most fund managers who try to beat the market through stock selection and market timing fail to deliver long-term value.

As shown above, few active fund managers can outperform their respective market indices. For the five-year period through 2009, only 9% of US Equity managers outperformed their respective benchmarks, compared with 10% for International Equity managers and 7% for Canadian Equity managers.

Worse yet, many active funds failed to survive the entire five-year period. Active fund survival was only 39% for US Equity, 53% for International Equity, and 47% for Canadian Equity. Non-survivors either ceased doing business or were merged into other funds.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

37.72 40.72 37.81 31.70 36.18 25.07 2.58 34.77 23.47 24.11 35.72 9.82 2.56 63.86 35.35

34.71 39.18 28.62 24.88 28.45 20.37 2.39 31.32 22.49 22.47 30.13 4.27 -21.94 42.73 23.33

28.35 32.22 26.15 24.17 12.24 19.35 -3.79 30.15 17.49 19.56 26.10 1.96 -22.85 35.05 21.50

23.56 24.87 21.65 22.53 7.41 4.36 -5.03 28.96 15.28 10.97 26.08 1.41 -24.88 27.47 17.61

22.18 17.17 18.16 19.52 5.17 4.12 -12.45 26.74 14.47 10.95 22.11 -5.25 -25.55 25.12 14.59

21.30 14.99 4.78 16.86 0.78 1.63 -16.02 19.07 11.49 10.69 21.66 -7.92 -30.67 15.97 13.29

18.98 11.92 4.60 13.94 0.65 -6.40 -16.72 13.57 10.97 9.79 17.25 -9.70 -31.53 13.85 10.26

9.39 6.22 -0.03 4.59 -5.54 -11.56 -16.75 11.60 8.42 4.16 16.58 -10.09 -33.00 10.98 9.16

6.56 5.89 -1.59 2.35 -7.68 -12.57 -17.33 7.46 7.80 3.05 15.76 -15.63 -33.27 9.26 2.22

4.61 2.85 -5.66 0.39 -8.82 -13.45 -20.43 5.46 2.80 2.57 15.58 -17.11 -35.17 3.45 0.43

3.30 -10.82 -11.05 -8.30 -10.80 -16.55 -22.85 2.86 2.25 2.29 3.93 -29.73 -47.33 0.36 -2.05

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Canadian Fixed Income 4.61 2.85 4.60 4.59 5.17 4.36 2.39 2.86 2.25 2.57 3.93 4.27 2.56 0.36 0.43

Canadian Large Cap 28.35 14.99 -1.59 31.70 7.41 -12.57 -12.45 26.74 14.47 24.11 17.25 9.82 -33.00 35.05 17.61

Canadian Value 34.71 11.92 -5.66 2.35 28.45 4.12 -17.33 28.96 17.49 22.47 15.76 1.96 -33.27 42.73 13.29

Canadian Small Cap 21.30 17.17 -0.03 24.17 0.78 20.37 -5.03 34.77 7.80 9.79 21.66 1.41 -47.33 63.86 35.35

US Large Cap 23.56 39.18 37.81 13.94 -5.54 -6.40 -22.85 5.46 2.80 2.29 15.58 -10.09 -22.85 9.26 9.16

US Value 22.18 40.72 21.65 0.39 12.24 1.63 -16.02 7.46 8.42 4.16 22.11 -15.63 -21.94 3.45 10.26

US Small Cap 18.98 32.22 4.78 24.88 -7.68 25.07 -20.43 30.15 10.97 3.05 16.58 -17.11 -24.88 27.47 23.33

US Real Estate 37.72 24.87 -11.05 -8.30 36.18 19.35 2.58 11.60 23.47 10.97 35.72 -29.73 -25.55 10.98 21.50

International Large Cap 6.56 6.22 28.62 19.52 -10.80 -16.55 -16.75 13.57 11.49 10.69 26.10 -5.25 -30.67 13.85 2.22

International Value 9.39 5.89 26.15 16.86 0.65 -13.45 -16.72 19.07 15.28 10.95 30.13 -9.70 -31.53 15.97 -2.05

International Small Cap 3.30 -10.82 18.16 22.53 -8.82 -11.56 -3.79 31.32 22.49 19.56 26.08 -7.92 -35.17 25.12 14.59

Highest Return

Lowest Return

HOLD MULTIPLE ASSET CLASSESRANDOMNESS OF ANNUAL RETURNS

4

In Canadian dollars. Charts are for illustrative purposes only.Canadian Fixed Income is Canadian One-Month Treasury Bills. Canadian Large Cap is the S&P/TSX Composite Index. Canadian Value is the MSCI Canada Value Index (net dividends), and Canadian Small Cap is the MSCI Canada Small Cap Index (price-only). US Large Cap is the S&P 500 Index. US Value is Russell 3000 Value Index. US Small Cap is CRSP 6-10 Index. US Real Estate is the Dow Jones US Select REIT Index. International Large Cap is the MSCI EAFE Index (net dividends), and International Value is the MSCI EAFE Value Index (net dividends). International Small Cap is compiled by Dimensional from StyleResearch securities data; includes securities of MSCI EAFE countries in the 10%-1% of ME range; market-capitalization weighted; each country capped at 50%; value defined as the top 30% of book-to-market; rebalanced semiannually. Canadian T-bills provided by PC-Bond a business unit of TSX Inc.; copyright © TSX Inc., all rights reserved. MSCI data copyright MSCI 2011, all rights reserved. The S&P data provided by Standard & Poor’s Index Services Group. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

There is little predictability in asset class performance from one year to the next.

The above slide features annual performance of major asset classes in the Canadian, US, and international markets between 1994 and 2009.

The top chart ranks the annual returns (from highest to lowest) using the colours that correspond to the asset classes. The bottom chart displays annual performance by asset class.

The data reveal no obvious pattern in annual returns that can be exploited for excess profits. The charts offer additional evidence of market efficiency and make a strong case for investors to hold multiple asset classes in their portfolios.

10% EachCanadian Large Cap IndexCanadian Large Cap Value IndexCanadian Small Cap IndexInternational Small Cap IndexUS Large Cap IndexUS Value IndexUS Small Cap IndexUS Real Estate IndexInternational Value IndexInternational Large Cap Index

100%Canadian Large Cap Index1991−20101

Canadian Model Equity

Index Portfolio

Annualized Return (%) 9.80

AnnualizedStandard Deviation (%) 16.91

1991−20101

Global Model Diversified

Equity Index Portfolio

Annualized Return (%) 9.74

AnnualizedStandard Deviation (%) 13.87

It’s not enough to diversify by security.Deeper diversification involves geographic and asset class diversity. Holding a global portfolio helps reduce risk and increase expected returns.

PRACTICE SMART DIVERSIFICATIONS&P/TSX INDEX vs. A GLOBAL PORTFOLIO

5

S&P/TSXComposite

GloballyDiversifiedPortfolio

For illustrative purposes only. In Canadian dollars.Canadian Large Cap is the S&P/TSX Composite Index. Canadian Value is the MSCI Canada IMI Value Index (gross dividends) for June 1998-present, and Barra Canada Value Index for January 1982-May 1998. Canadian Small Cap is the MSCI Canada Small Index (gross dividends) for January 1999-present, and Barra Canadian Small Cap Index for July 1990-December 1998. US Large Cap is the S&P 500 Index. International Value is the MSCI EAFE Value Index (net dividends), and International Large Cap is the MSCI EAFE Index (net dividends). International Small is: 1970-June 1981, 50% UK small cap stocks provided by the London Business School and 50% Japan small cap stocks provided by Nomura Securities; July 1981-present, compiled by Dimensional from StyleResearch securities data; includes securities of MSCI EAFE Index countries, market-capitalization weighted, each country capped at 50%. US Value is the Russell 3000 Value Index. US Small Cap is the CRSP 6-10 Index. US Real Estate is the Dow Jones US Select REIT Index. S&P/TSX data provided by S&P/TSX. Barra data provided by MSCI Barra. S&P data provided by Standard & Poor’s Index Services Group. MSCI data copyright MSCI 2011, all rights reserved. Russell data copyright © Russell Investment Group 1995-2011, all rights reserved. CRSP data provided by the Center for Research in Security Prices, University of Chicago. Dow Jones US Select data provided by Dow Jones Indexes. Standard deviation is a statistical measure of risk. Generally speaking, the higher the standard deviation, the greater the risk.1. Date range selected is the longest common time series of whole years of data available. Rebalanced quarterly.Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual investment performance.

Many Canadians concentrate in their home stock market. They choose Canadian stocks and mutual funds—or use several brokers who focus on Canadian equity investing. Many of these investors may not consider their portfolios to be undiversified. Yet, from a global perspective, limiting one’s investment universe to a single stock market is a concentrated strategy with possible risk and return implications.

This slide compares a concentrated Canadian stock portfolio, as represented by the S&P/TSX Composite Index, to a globally diversified portfolio holding ten equally weighted asset classes. The January 1991−December 2009 time frame offers the longest data set in which returns for all featured asset classes are available.

Over this period, the globally diversified portfolio had a slightly higher annualized return and a substantially lower annualized standard deviation. The reduction in volatility can also be seen by the decrease in the distribution range of quarterly returns.

Diversification should not be defined by how many stocks or funds an investor owns—or how many brokers one uses. A diversified portfolio should include asset classes that are exposed to different macro risk factors, with different dimensions of risk and return across the globe.

Many Canadians use fixed income to reduce the risk of their equity portfolio that is highly concentrated in the Canadian equities market. Yet, they forgo the benefit of global diversification. While adding fixed income to a portfolio will reduce risk, it will also reduce expected returns. Global diversification is a more efficient means of risk reduction. Once the equity portfolio is globally diversified, an investor may consider adding fixed income to further reduce the portfolio risk, given one’s risk preference and financial profile.

$4,983,951

$3,745,318

$2,806,794

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

1 3 5 10 20 30

TIME (years)

1% Fee

2% Fee

3% Fee

Assumes 6.5% Annualized Return over 30 Years

In US dollars. For illustrative purposes only.

Over long time periods, high costs can drag down wealth accumulation in a portfolio.

Costs to consider include:

• Management fees

• Fund expenses

• Taxes

KEEP COSTS LOWNET GROWTH OF $1 MILLION

6

Active managers seek to beat the market through stock selection and market timing. They generally charge higher fees than passive managers as compensation for their perceived “skill.” Their active strategy also leads them to trade more frequently, which incurs higher transaction costs.

High fees and costs can inflict a significant penalty on net investment returns and terminal wealth, as the attached graph demonstrates for various cost levels.

Over a long period of time, such as thirty years, the difference between a 1%, 2%, and 3% annual fee may determine the quality of your lifestyle in retirement.

Passive investments generally charge lower fees than the average actively managed investment, while eliminating the costs of researching stocks and reducing both trading costs and tax impact.

• The television, print, and online financial media are in the business of entertainment.

• The emphasis is often on short-term, sensational, and emotionally charged headlines.

• These messages can compromise long-term focus and discipline, and lead to poor investment decisions.

DON’T CONFUSE ENTERTAINMENT WITH ADVICE7

Building wealth in the capital markets is a long-term endeavor that does not frequently capture media attention. The business and financial media look to more sensational news to attract readers and keep advertisers.

The short-term focus is particularly obvious in articles that dispense investment advice and are framed to appeal to human emotion, especially fear and greed. Investors should view these messages as entertainment, not advice, and resist the temptation to act on them.

• OVERCONFIDENCE

• SELF ATTRIBUTION

• HINDSIGHT

• EXTRAPOLATION

• FAMILIARITY

• MENTAL ACCOUNTING

• REGRET AVOIDANCE

• CONFIRMATION

MANAGE YOUR EMOTIONS8COMMON COGNITIVE ERRORS AND BIASES

Behavioral finance examines the influence of social beliefs, psychology, and emotion on economic decision making. Research suggests that humans are not naturally wired for making good investment decisions, due to cognitive errors and behavioral biases.

Investors who are aware of this tendency are better positioned to avoid:• Overconfidence: People overestimate their ability to anticipate future investment

results. • Self attribution: Investors may take credit for their successful investment

decisions, while blaming bad outcomes on outside influences.• Hindsight: When viewing past outcomes, investors may apply selective recall and

conclude that future movements were obvious at that time.• Extrapolation: Investors may expect recent market results to continue in the

future, and may place too much weight on certain factors or recent events.

• Familiarity: People may limit investing to areas in which they are familiar, resulting in a false sense of control.

• Mental accounting: People partition their wealth in categories, resulting in inconsistent and fragmented financial decisions.

• Regret avoidance: Investors who have experienced painful financial events tend to avoid those investments or markets in the future.

• Confirmation: Investors seek out or interpret information that confirms what they want to believe about an investment, markets, or their own skill.

• NO INVESTMENT PLAN

• LACK OF MANAGER SCRUTINY

• CHASING PERFORMANCE

• OVERCONCENTRATION

• MARKET TIMING

• WRONG TIME HORIZON

• FORECASTING

• EXCESSIVE RISK TAKING

AVOID INVESTMENT MISTAKES9COMMON INVESTMENT PITFALLS

In today’s sophisticated marketplace, investors have access to information, advice, and tools to help them grow wealth effectively. With these resources at hand, it would seem natural that people could pursue a successful investment experience.

But lack of insight, emotions, and the temptation to speculate keep many investors from reaching their financial goals. Without a well-defined investment plan, they may pick money managers for the wrong reasons and make other decisions that increase risk in their portfolios.

By understanding markets and the nature of risk, and by learning to manage their emotions, investors may avoid mistakes that can compromise returns.

9.14%S&P 50020-Year Annualized Return(time weighted)

3.83%“Average” Equity Fund Investor20-Year Annualized Return(dollar weighted)

Source: DALBAR Quantitative Analysis of Investor Behavior (QAIB), 2011.

Comparing time-weighted index returns to dollar-weighted fund returns suggests that the “average” equity fund investor buys high and sells low while owning a given fund for less than five years.

KEEP A LONG-TERM PERSPECTIVE— AND STAY THE COURSE!10

Each year, Dalbar measures mutual fund investor performance using data from industry cash flows versus market indices.

The research shows that the “average” equity fund investor significantly underperforms the market average, as represented by the S&P 500 Index. (In this study, the market average is considered a proxy for a “buy-and-hold” investor.)

The main reason for this poor relative performance is lack of investment discipline. The short-term focus of many fund investors compels them to buy high and sell low, and to hold funds for less than five years, on average.

So, investment returns depend on investor behavior. Those who invest for the long term and stay the course typically earn higher returns over time than investors who attempt to time market highs and lows.