Verus Wealth Notes. real. true. well-founded. genuine. Second Quarter

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1 It is with great pleasure that I announce to you that Meghan Pitt will be signing on as Partner and Wealth Advisor with Verus Wealth Management commencing in the Fall. Meghan will continue to work directly with me on managing your portfolios and will also focus her efforts on coordinating all aspects of the wealth management process with our Team of Experts. In addition to this, she and I will work collectively on the business development side of the business. I am delighted to have Meghan as my partner. We would also like to introduce you to the newest member of our team, Emily Vroom. Emily has joined us from CIBC Wood Gundy in Toronto as a Senior Associate. She will be heading up our trading department and administration team and will also be instrumental in working with your accountants during tax season. Emily is well versed on your portfolios and her experience and qualifications within the industry make her a huge asset to our team. Emily s direct phone number is (604) In addition to this, please take special note that our addresses have changed, coinciding with the launch of our new webpage. Our new addresses are as follows. Please ensure that you add these to your safe list to avoid our s from being sent to your Junk Mail folder. Verus Wealth Management: verus@veruswealthmanagement.com Ken Gordon: ken_gordon@veruswealthmanagement.com Meghan Pitt: meghan_pitt@veruswealthmanagement.com Emily Vroom: emily_vroom@veruswealthmanagement.com Jenefer Brabnik: jenefer_brabnik@veruswealthmanagement.com Sharon Fabbro: sharon_fabbro@veruswealthmanagement.com Carmen Ng: carmen_ng@veruswealthmanagement.com In the next day or two, you will be receiving your Quarterly Performance Reports for the period ending June 30, Please note that the majority of you have expressed that you would like to receive these by therefore, these will be sent out from our new Verus Wealth Management address, verus@veruswealthmanagement. com. Going forward, all correspondence of this nature, including these Wealth Notes publications, will be sent from this address. If for some reason you do not receive your performance reports, please give our office a call at (604) or Emily Vroom directly. Market and Portfolio Update The second quarter of 2010 was marred with challenges around the globe. The MSCI AC World Index tumbled 12.2% (in U.S. Dollars) in Q2, the worst quarter since Q4

2 2008 as euro debt worries, slowing Chinese growth, and stumbling U.S. consumer and housing data weighed heavily on investor sentiment. North and South Korea s verbal exchanges magnified this overall nervousness along with the ongoing BP oil spill crisis. Also, the extended state of emergency in Thailand raised fears for stability in Southeast- Asia s second largest economy. This wave of challenges has caused investor psychology to be marked with a short term focus and general nervousness. Markets around the globe reacted accordingly and thank goodness again that we were in Canada: Exhibit 3 - Q2/10 Global Equity Market Performance (%; USD) Exhibit 4 - YTD Global Equity Market Performance (%; USD) Source: Scotia Capital, Bloomberg. Source: Scotia Capital, Bloomberg. Please note that these returns are all quoted in U.S. dollars. In Canadian dollar terms, the S&P/TSX Composite Index for the second quarter of 2010 was down 6.17% and 3.85% year-to-date. The G20 did absolutely nothing to help the markets and, if anything, added more fuel to the fire. The following three scenarios came out of the G20 meetings in Toronto at the end of June: SCENARIO 1 - The G20 Framework Approach: The G20 coordinates key economic policies to rebalance the global economy, such as boosting savings rates in the U.S. and encouraging domestic spending in China. Global growth would reach 3.7% this year and 4.5% next year.

3 SCENARIO 2 - Business As Usual: If governments continue with the same policies that existed before the financial crisis, global growth would gradually slow to 2.4% in 2015, far behind the average 4.0% during the years of 2002 to SCENARIO 3 - Global Deflation: Cash-strapped countries slash spending and other economies fail to pick up the slack. The result is deficient demand globally and widespread deflation. Global growth slumps to less than 1.0%. At Verus Wealth Management, we believe the outcome will be a combination of scenario one and two. We continue to remain bullish on the price of oil over the short and long-term. One big difference between the nuclear power industry and the oil industry is depletion. In today s oil industry, you have to run faster just to stand still. You have to run faster by over four million barrels a day, every year, just to offset what we lose to depletion globally. So, we all must face the fact that we need to find 20 million barrels of new oil per day, over the next five years, just so the world can consume the same 86 million barrels a day, today, in five years time. Before the BP disaster, the oil industry was counting heavily on deep water drilling, not only to fill the growing supply gap but for actual net increases in global production. The million dollar question is what country will want to face the environmental risk and economic cost that America is dealing with in regard to the BP spill? Will an oil company be willing to risk the staggering liabilities that BP shareholders will soon have to pay? In answering these questions, you must also keep in mind that it took Exxon Valdez 21 years to completely settle all lawsuits from their spill in If you answered no to these questions, then get ready for a world of shrinking oil supply which will ultimately lead to higher oil prices. An interesting point to remember is that for every penny the U.S. Dollar goes down, oil prices go up $4 per barrel. Needless to say, this is another reason why we believe the Canadian Dollar will hit parity again in the near future. We believe that we are headed for an environment of choppy markets with continued volatility for the balance of the year. That said, we are focusing on catalyst driven events, namely earnings surprises that will ultimately drive stock prices higher. In the meantime however, the solid companies with clean balance sheets that we own are paying us handsomely to wait out the rough waters. Corporations in the future will be able to do a better job of weathering these choppy waters, given the levels of cash they have on their balance sheets. As mentioned at our June 15th Market Update Luncheon at the Marine Drive Golf Club and illustrated below,

4 U.S. companies are sitting on more cash than they have at any point in the last 50 years. The situation is very similar in Canada. Exhibit 8 - Healthy Balance Sheets: Cash levels relative to S&P500 Index Source: Scotia Capital, S&P The following is a summary of the performance for our portfolios at the end of the second quarter of 2010: PERFORMANCE RETURNS (%) As of June 30, MONTH YTD 1 YEAR 3 YEAR 5 YEAR 10 YEAR Foyston Canadian Equity Bissett Canadian Dividend Income Verus Advantage Equity n/a n/a n/a n/a Verus Dividend Growth* n/a n/a n/a n/a Verus Model Portfolio n/a n/a n/a S&P/TSX Composite Index Note: Performance returns are gross of management fees. All performance data represents past performance and is not indicative of future performance. *Verus Dividend Growth 10-year return is 10.1% to the end of March 2010 Foyston Canadian Equity Foyston underperformed the market last quarter due to their overweight position in Energy and Financials, which accounted for nearly 80% of the S&P/TSX Composite Index s decline. In addition to this, the Foyston portfolio has no exposure to the Gold sub-index, which was up 21% during the quarter. Foyston s view on the Gold sector is that, from a valuation standpoint as well as the political, environmental, mining operational and financing risk that comes along with holding these stocks, these companies do not fit into the defensive nature of their portfolio.

5 In addition to their overweight positions in Energy, namely oil-based companies versus natural gas companies, and Financials, 14% of their portfolio is held in three quality names: Telus Corp, Rogers Communications Inc. and BCE Inc. These three names have low valuations, high yields and management has clearly demonstrated their ability to grow earnings and free cash flows. Canadian bank stocks produced fairly robust earnings for the quarter, with only Royal Bank disappointing slightly on wholesale revenue weakness, and deliver attractive yields that add to the overall 3.10% dividend yield of the portfolio. Bissett Canadian Dividend Income Juliette John from Bissett has been very sensitive to adding to the portfolio at this time, preferring to wait for values to come into the ranges that she looks for. Preferred shares in the portfolio have certainly helped as a buffer against downward movements in equity values. In the last quarter, she trimmed from the strong performing telecommunications sector through Rogers Communications Inc., and added to select Financials through TMX Group and IGM Financial. Both had lagged the banks therefore leaving them with attractive valuations and good growth potential. She also established a position in Canadian Oil Sands which has a distribution yielding 7.37%, bringing the overall yield of the portfolio to 4.6%. Verus Advantage Equity Verus Advantage Equity held up significantly well this past quarter due to its overweight position in the gold sector. In the last two weeks of the quarter, Nick Majendie took some profits in this sector after a good run on gold companies, and decreased his weighting to 13%, a more modest overweight exposure relative to the market. Nick also trimmed Bank of Nova Scotia, National Bank and Royal Bank due to increasing valuations in the stocks, and created a new position in Transalta. The cash weighting in this portfolio is sitting at 15% as he awaits further opportunities that come into view down the line. Verus Dividend Growth Similar to the Verus Advantage Equity portfolio, Nick also took profits on the gold sector in Verus Dividend Growth and trimmed from the Banks. In addition to adding Transalta to the portfolio, he also added to the portfolio holdings in other defensive names such as Emera, Fortis, Rogers Communications Inc, Thomson Reuters and Bonavista Energy Trust. Verus Model Portfolio We have also been selective in adding to our model portfolios this quarter. For clients who have new money, we ve been looking at adding to a few specific names:

6 Research In Motion reported Q1 earnings on June 24th that were slightly light due to late product shipments, but otherwise beat expectations in terms of revenue growth, up 24% over the same quarter last year, and earnings per share, up 41% year over year. The stock since the end of the last quarter is off $21 due to investor sentiment to the company s future earnings capabilities as rivals continue to gain market share. We, however, sit on the side of Scotia Capital and RBC Capital Markets who maintain Sector Outperform ratings with target prices of $117 and $93, respectively. Husky Energy, to name another, was losing $1 million a day back in Today, the company is making $7 million to $10 million. Even with the market pullback, the company is worth over $22 billion and has paid out $6 billion to its shareholders in dividends. Manulife Financial Corp, with a dividend yield of 3.29%, operates in 22 countries around the globe and continues to take a disciplined approach to acquisitions, looking at AIG s Asian life insurance unit. The company has superior revenue growth opportunities, a bullet-proof balance sheet and expectations of dividend growth starting this year again. Brookfield Properties Corp is another company to mention with its dividend yield of 3.95% and price-to-earnings multiple of 15.45, relative to the S&P/TSX Composite Index s at Brookfield Properties is invested in 110 commercial properties, comprising 75 million square feet, with ownership in North America s top markets. We believe that the negative news on commercial estate is already priced into the stock, currently trading around $14.60, which is well below its 2007 all-time high of approximately $ We view this situation similar to when we bought bank stocks in February and March of 2009, when they were grossly out of favour. Since the inception of the Verus Model Portfolio on February 24, 2009 to the end of June 2010, the portfolio is up 53.41%. The current dividend yield is 4.41%. Bill Gross summed it up best in his June 2010 Investment Outlook report when he said the following: Investors must respect this rather tortuous journey in the months and years ahead for what it is: A deleveraging process based upon too much debt and too little growth to service it. No longer will two get you three in the investment world. Not 1,000%, but 4-6% annualized returns for a diversified portfolio of stocks and bonds is the likely outcome. We totally concur with his comments and believe that many industrial countries have hit a debit-wall, where debit servicing costs, even at today s low rate of interest, are becoming too onerous to grow out of. At the end of the day, the most likely result is

7 a longer period of debt deflation and deleveraging. This will cause global economies growth to be moderate at best over the next few years. This takes us back to why we believe that the most likely scenario out of the G20 meetings will be a combination of scenario one and two. Despite all of these challenges that we are faced with today, we view your high-yielding dividend portfolios as revenue property. These dividends will continue to make up a large part of your total return and we have every intention of staying with the game plan. Positively, Ken Gordon Director, Wealth Management Senior Wealth Advisor Meghan Pitt Investment Associate This publication is intended only to convey information. It is not to be consd as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee of ScotiaMcLeod, a division of Scotia Capital Inc. ( SCI ), but the data selection, analysis and views expressed herein are solely those of the author and not those of SCI. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor SCI can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your investment advisor, who can assess all relevant particulars of any proposed investment or transaction. SCI and the author accept no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon or use of this publication in contravention of this notice Commissions, trailing commissions, management fees and expenses all may be 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. All performance data represents past performance and is not indicative of future performance. Scotia Capital Inc. and its affiliates may collectively beneficially own in excess of 1% of one or more classes of the issued and outstanding equity securities mentioned in this presentation. In the last 12 months, Scotia Capital Inc. may have undertaken an underwriting liability with respect to equity securities of, or has provided advice for a fee with respect to any securities mentioned in this presentation. Registered trademark of The Bank of Nova Scotia, used by ScotiaMcLeod under license. ScotiaMcLeod is a division of Scotia Capital Inc. Scotia Capital Inc. is a Member Canadian Investor Protection Fund.