Key Market Facts

January 31, 2003

Level YTD Indices     S&P 500 855.70 -2.74% DJIA 8053.81 -3.45% S&P/TSX 6569.49 -0.68% Currencies / Commodities CAD / US 1.5196 -3.44% US / EURO 1.0766 2.66% Gold $US 369.10 6.00% Crude Oil $US 33.51 7.40% Natural Gas $US 5.605 17.04% Interest Rates Canadian Bank Rate 3.00% 0.00% Canadian Prime Rate 4.50% 0.00% Fed Funds Rate 1.25% 0.00% Us Prime Rate 4.25% 0.00%

The fourth quarter earnings reports were primarily released during the month of January. The reports are beginning to show slow signs of improvement in fundamentals compared with 2001 and early 2002.

The rate of growth in earnings is picking up however we should be cautious as these comparisons are against the weaker periods of 2001. With all the accounting scandals and restating of financial positions that took place in 2002 however, I believe that we can be more confident in the figures that are being reported.

The table below presents a summary of what actually happened this quarter with respect to earnings and presents a snapshot of one measure of valuation. The price to earnings ratio is calculated based on 12 month trailing earnings and is compared with the S&P 500 Index. The bolded companies are those companies whose actual earnings were greater than what was expected by the market analysts.

Some noteworthy highlights are:

• Microsoft announced they would conduct a 2 for 1 stock split on February 21st. They have also decided to pay a dividend of $0.08 per post split share.
• Coca Cola beat the market estimates for revenue this quarter. They also announced that in 2002 that they bought back $700 million dollars worth of stock and that they plan to accelerate this repurchase in 2003.
• Citigroup announced an 11% increase in their dividend. A much more significant event for US tax payers if the legislation to remove taxes on dividends actually goes through.

For information on companies not listed on this table or to receive further information on any of the companies listed below contact Kathy at 604 257-7055.

NYR – not yet reported
* Q1/03 Results
** Q2/03 Results

Global Uncertainty will Delay Bank of Canada Rate Hikes

On January 23rd the Bank of Canada decided not to increase interest rates although core inflation was higher than anticipated in recent months.

The central bank’s strategy is inflation control, which implies that if they feel inflation is starting to rise above their 2% target, they will tighten monetary conditions (raise interest rates).

The delay in raising rates is primarily due to geopolitical uncertainties and the continued weakness in both the US and Global markets.

I believe the Bank will stay on hold until some of these uncertainties have been removed; this could take until mid 2003.

Growth in the Canadian economy did slow down in late 2002 so what happens over the next 6 months with respect to domestic demand will strongly influence what the Bank does in the months to come.

RSP Deadline in 17 Days
Don’t forget to send in your RRSP contribution before the deadline of March 1st. If you are unsure of you contribution limit please refer to your 2001 tax assessment. If you have any questions please do not hesitate to call Jas or I.

Income Trusts – The Talk of the Town

Over the past three months there has been a significant amount of attention paid to income trusts. A new income fund is launched almost weekly and there are now over 160 different income trusts trading on the Toronto Stock Exchange. As a general rule this would indicate a top in this market is near.

I believe there are a selective number of very good quality income trusts that may be appropriate for an individual portfolio. Some of the reasons income trusts may fall out of favour are the level of interest rates (as rates go up the yield on income trusts may not look as attractive), the price of the underlying commodity providing the cash flow may fall or the stream of cash flow coming to the trust from the operating business may fall if the business fundamentals start weakening.

With the continued high price of oil and natural gas and the uncertainty around Iraq I am not putting new money into oil and gas trusts however I am still recommending that clients hold on to what they have. Davis and Henderson, Westshore Terminals and Timberwest may be suitable additions to your income portfolio for new money at this time.

If you have questions about income trusts or would like some additional information on whether they would be appropriate for you please give me a call at 257-7055.

Did You Know?

You can access your accounts with RBC DS online. Not only can you see your accounts, you will automatically have access to timely market updates, real time quotes and business and market news from a variety of sources. You can also create your own individual watch list.

If you are a Royal Bank client you can have all your RBC DS ccounts linked to your Royal Bank card. This will give you access to all your accounts with one simple login. At the present time I am aware of a valuation problem with Berkshire Hathaway, Class A. The online system seems to have a problem with 5 digit prices. Apart from that it appears to be quite a useful tool. Please let me know if you are having any problems.

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