The David Miner Communiqué—Fall 2007

While I love the summer and the sunshine, the fall offers cooler temperatures and a drive to change with the season– much like the youthful days of summer vacation ending and it is time again to move into a different gear. I spent a few days in San Francisco, California in September, part of the time meeting with some of the good people at Franklin Templeton which is headquartered in San Mateo. Dorinda and I also spent some quality time visiting the wine country north of San Francisco – Napa, Sonoma, and Alexander Valleys. While we are not wine snobs, it was a great experience.

Economic and Market Commentary:

Global Environment
The Federal Reserve Board in the United States has begun to ease interest rates in response to a difficult credit environment. The US dollar continues to weaken, and the U.S. real estate market is suffering, with U.S. residential real estate inventories exceeding ten months. On a positive note, the U.S. corporate sector is buoyed by strong balance sheets. While we expect weaker spending by U.S. consumers, that weakness will be offset in part by increasing consumerism in developing countries like China and India. Developed economies such as the United States and Great Britain continue to evolve into service economies and lose their manufacturing base to developing third world nations.

Fixed Income vs. Equity
We expect that equities will outperform bonds, although bonds continue to serve as a great portfolio stabilizer. Furthermore, many institutional equity portfolios such as pension plans are favoring global equity to domestic equity. We do encourage equity investors to avoid too much concentration in Canada, despite our currently hot loonie and resource sector. As always, our mantra is “balance and diversification”. Avoid big bets to avoid big disappointments.

Currency
While the recent rise of the loonie is impressive, the strength of the Canadian dollar has a negative effect on manufacturing and exports and possibly a negative lag effect on the Canadian economy. Cross border shopping has certainly shifted in favour of the United States retailers.

Franklin Templeton Investments Corp.

We have highlighted Franklin Templeton in the past. There are few firms that offer the same level of care with tremendous breadth and depth of management. I visited the head office of Franklin Templeton in San Mateo, California in September. Having worked with Franklin Templeton now for almost a quarter of a century, I continue to become more impressed with the organization and its people.

While there, the president of Franklin Templeton Canada, Don Reed, remarked that the flagship fund of the organization, Templeton Growth Fund, started in 1954. A $10,000 investment at inception has grown to over $7 million today – not bad for what has sometimes been described as a dull mutual fund. Nevertheless, that represents a compound average annual return of well over 13%. So if that is dull, I like it! And while it may have been possible to buy a house in 1954 for $10,000, that same house is not worth even close to $7 million today.

Quotential from Franklin Templeton is one of Canada’s leading wrap (or fund-offunds) programs with attractively low management expense ratios and excellent diversification by asset class and management style. There are 27 different funds incorporated into 8 different Quotential portfolios. There are two layers of management. At the fundamental level is the portfolio management specific to each individual fund. At a higher level is the management of fund allocation and rebalancing. This higher level of management is performed seamlessly and in the background, but serves to enhance risk adjusted returns over the long-term. Furthermore, this constant fine-tuning and rebalancing among funds is outside the scope and administrative capability of any individual advisor (humbly including yours truly).

Franklin Templeton offers Quotential portfolios in a number of tax efficient ways including mutual fund trusts, corporate class, and T-SWP (for tax efficient income needs). This terminology sounds technical and full discussion is outside the scope of this newsletter. Nevertheless, suffice it to say that with this selection of structures, tax efficiency can be optimized to fit each individual situation.

• Quotential
• Series T
• Deferred Taxes

Franklin Templeton is the largest public investment counsel in the world with approximately $669 billion under management. The team at Franklin Templeton includes 470 portfolio managers and analysts situated in 29 different countries around the globe. Under the one Franklin Templeton umbrella, different management styles are also available from deep value to growth. Blending styles, a philosophy that we have always supported, serves to generally reduce overall portfolio volatility.

Below is a sample list of Quotential portfolios available with average annualized compound return performance to September 30, 2007 for the past 5 years. All of these performance numbers are in the first or second quartile according to Morningstar.

Quotential Portfolio	Fund Type	1 Yr Ret	2 Yr Ret	3 Yr Ret	5 Yr Ret	Since Incept.
Franklin Templeton Balanced Growth Portfolio (Inception: 08/19/02)	Balanced	8.0	6.2	9.2	9.1	8.3
Franklin Templeton Global Growth Portfolio (Inception: 06/09/03)	Equity	14.7	11.1	11.7	N/A	11.7
Franklin Templeton Growth Portfolio (Inception: 08/19/02)	Balanced	10.3	8.0	9.6	9.1	7.9

 

Quotential Program: Key Benefits

1. Excellent Diversification – The Quotential Program offers eight different portfolios, each built on the principle of diversification, and including at least six proven underlying funds. Each Quotential Portfolio has an unmatched degree of diversification by asset class, geographic region, market capitalization and investment style.
2. Proven Performance – Quotential Portfolios are built to take advantage of Franklin Templeton Investments’ multiple management styles. Each Quotential Portfolio consists of well-established proven underlying funds from Templeton, Franklin, Bissett and Mutual Series.
3. Exclusive Management – Investors now have access to Franklin Templeton’s strategic asset allocation experience.
4. Accessibility – A single, simple package available at an investment minimum of $25,000. With this investment, investors receive one of the industry’s best wrap programs

Of course, the real advantage to investors in working with us is the depth of knowledge and understanding of the managers and the portfolio management process that we offer, coupled with meticulous care in structuring strategies that are tailored to individual client needs. And the real benefit to all clients is that we provide service on a no-load (ie., no commissions to buy, redeem, or switch between funds) basis.

Mutual fund performances changes in share value and reinvestment of all dividends but do not take into account sales, redemption, distribution of optional charges or income taxes which may have reduced returns. Fees and expenses are associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual funds are not insured by the Canada Deposit Insurance Corporation or any other deposit insurer and are not guaranteed.