QEIC Fall Report

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QEIC

Queens Economic Investment Club


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+QEIC MISSION/VALUES

QEIC Philosophy:

Pursue investment opportunities by performing due diligence on companymanagement, strategic direction, and financial stability to find companies that areundervalued by the market

n A message from the Execs:QEIC was created a few years ago to give economics students an opportunity to learnabout the dynamic world of finance outside of class. We foster an open learningenvironment and believe that everyone should have an opportunity to understand thebasics of investment and markets. We thank you for taking the time to read our fall

report, and if you have any questions or comments please email us at [email protected].

n DisclaimerThe information in this document is for educational use only and is in no way intendedas recommendation to pursue such strategies. QEIC reserves the right to not be liablefor use and reliance on this document. This information may not be reproduced

without the written consent of QEIC.

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+Table of Contents

n Financial 4n Energy 11n Mining 23nTechnology 28n Diversified 31

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+Financial Sector

As demonstrated in the previous meeting, we have allocated 40% of our portfolio towards the major Canadian banks. Belowis an explanation of why this strategy was pursued, in addition to a brief assessment of alternative investments which will beanalyzed in the upcoming weeks.

The American financial sector remains shaky following the financial crisis, demonstrating weak signs of recovery. This hasnot only resulted in bankruptcies and reduced confidence in the sector (especially with increasing lawsuits), but also in a

structural change to the financial sector, which has made many American banks riskier investments. Regulatory changes (eg.Dodd Frank and Basel III) are perhaps the most important, forcing investment banks and other financial servicesinstitutions to restructure their business models and look for alternative sources of profit generation. Spillovers from the

Eurozone crisis are a major concern, where many of those banks have higher exposure than Canadian banks. There is noviable solution that will be implemented soon, and therefore uncertainty will continue for a while. Nevertheless, thefollowing American Banks will be analyzed considering their ability to overcome these conditions:

n JP Morgann Wells Fargo

On the other hand, Canadian banks continue to be ranked amongst the top globally. Supported by sound economic growth,there is little reason any dramatic changes would occur relative to other financial services. However, it is important to note

that the Bank of Canada still considers the risks to be high, noting that global imbalances and sluggish economic growthmay potentially create adverse effects to the financial system, albeit on a much lower scale than to economies such as the U.S

and the E.U. The two domestic concerns within Canadian financial markets are real estate bubbles, and rising householddebt.

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Investment Strategy:


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+Financial Sector

The Bank emphasizes household debt and the risk associated with any future increases in interest orunemployment rates. Thus, analysis of the big Canadian banks, and consequently their portfolio allocation

percentage, included the banks individual exposure to household debt along with analyzing their fundamentals. Wewill continue to analyze changes in these numbers and keep a close eye on housing markets.

While analyzing smaller banks such as National bank of Canada and Laurentian, we believe diversification isimportant, and will dedicate greater effort towards analyzing asset management companies (Brookfield Asset

Management, for example), and dividend generating investments in Life insurance companies. Over the next fewweeks we will compare different insurance companies.

The Financial sector has turned to the Global Financial Stability Report (GFSR) in order to better understand and

adapt to the current environment, and the insight gained from this report has helped improve our investmentstrategy. In spite of the summer 2012 market rally, as of the October 2012 GFSR financial vulnerabilities are higher

than in the spring. Confidence in the global financial system remains fragile. The chronic concern still lies in thefragile state of Europe as European banks lending remains sluggish. The QEIC financial sector did not anticipate

this state of the market, and this will pose challenges in identifying high growth relatively lower risk bank stocks.

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Global prospects for coming months:


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+Financial Sector

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Until there are significant policies directed at increasing lending globally, it is clearly evident a full recovery is still years away. Emergingmarket banks have been tightening lending standards in the face of rising nonperforming loans and worsening funding conditions. Asa result, we also consider the possibility of a subsequent mini-recession due to the continued crisis in Europe. The IMF states that

the probability of global growth falling below 2 percent in 2013which would be consistent with a recession in advanced economies,and a serious slowdown in developing economieshas risen to about 17 percent, up from 4 percent in April 2012. This is a concern

to QEIC as it points us toward a more cautious approach until better economic conditions are evident, which would justify more risk-taking in a dynamic environment.

Tables adapted from IMF October 2012 Global Outlook


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+Financial Sector

While it is useful to examine the macroeconomic variables and general trends of an economy or the world at large, it can alsobe informative to look at current events and their possible affects on the markets. The results of a presidential election willhave implications for foreign policy, healthcare, and taxes; however, it is also theorized that elections have an indirect effect

on stock markets. Possible results of the U.S. presidential election are;

n The health care sector would benefit with Obama in officen Telecom would benefit from Obama as well, because he supports broadband expansionn With Romney in office, there would be less strict regulations in financial services. This would benefit index funds

made up of banks and financial services corporations.

n The transportation index would also benefit under Romney because Obamas administration has increased costs byregulating the coal industry

Without considering the effects of policy changes with this election, the event of an election alone may affect the marketthrough voters and investors expectations. There are many theories regarding the influence of an election on stock market

performance. Some analysts have predicted general trends such as a bullish market if a Democrat gains office, and a declineotherwise. Historically speaking, the S&P 500 rose an average of 12.2% when there was a Democrat in office, compared toonly 5.1% under Republican presidents. Conversely, the conventional wisdom is that Republicans are more business-friendlyand therefore, stocks should rise if a Republican wins the election. Models become much more complex than this; for

example, Yale Hirschs Presidential Election Cycle Theory. This predicts a cyclical stock performance in the years followingan election, regardless of who wins the election.

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U.S. Presidential Elections Effect on Market


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+Financial Sector

Hirsch states that in the year following an election stocks will decline, and then gradually increase over the following three

years. This theory appears to hold when one considers the earlier administrations of President Roosevelt, Truman, andEisenhower, and investors following this model would invest in safe bonds for the first year following an election and

then invest in the stock market for the next three years. However, this model has failed to describe trends after moremodern elections. For example, markets rose after George H. W. Bush, Clinton, and Obama came into office, and fell

after George W. Bush became President.

Another theory is that the tone of the campaigns, rather than their outcomes, affect markets. A positive campaign wouldlead to a bullish market. Yet investors can be over-anxious to see trends in stock market activity, and this kind of simple

models encourages strategic, but possibly misguided, buying and selling of stocks in anticipation of voting day.

Sector-specific models of presidential effects may be more accurate. For example, investing in the health care sector could

be beneficial should Obama will win the election.

Although these models and theories can be interesting, caution must be used when interpreting them as most are toosimplistic to warrant any serious investing strategy. People develop general expectations about market activity based on

the campaigns of presidential candidates, and the data and trends observed which have given weight to these modelscould be a case of self-fulfilling expectations; as a result of believing in certain models and behaving accordingly,

investors actually create the situation they were expecting. Regardless of whether or not these models are effective it ishelpful to recall how investors may be influenced, and how current events can affect the stock market.

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+Financial Sector

The QEICs financial sector first purchased Blackstone, a firm withone of the largest real estate portfolios in the world. Therefore, wefound it suiting to analyze global real estate trends in order to

understand how Blackstones portfolio could be affected.Blackstones real estate portfolio is diverse and located all around

the globe, in countries such as the U.S, Australia, India, Japan andEurope. A few of Blackstones most recent purchases are the

following:

In 2011, Blackstone acquired Centros U.S portfolio, which isnearly 600 shopping centers located all over the U.S.

In 2011, Blackstone acquired Valad, an Australian company.Their holdings primarily consist of holdings in Australia andNew Zealand.

In 2011, Blackstone acquired a 37% interest in the MalaysiaBusiness Park, a 12.9 million square foot class A office park inIndia.

In 2011, Blackstone acquired 60% interest in the 757 roomHotel de Coronado, a luxury beachfront hotel on CoronadoIsland, California.

In 2012, Blackstone acquired Green Cube, a 405,000 sq.ftmodern logistics facility in Osaka, Japan.

In 2012, Blackstone acquired a portfolio of Three Turkishretail properties (1.1 million sq.ft) in Ankara, Erzurum andManisa.

Most recently, Blackstone agreed to acquire $1.25 billion worth oftroubled Australian real estate loans from the Lloyds BankingGroup of Britain.

n This $1.25 billion is actually half of what these assets areworth.

Regarding the Global Real Estate market, weak consumer

confidence, high unemployment and tight credit conditions are whatcontinue to negatively affect housing demand and pricing. However,there are modest improvements in the U.S, U.K, Australia and

China. Ultra low borrowing costs, especially in the Euro zone andAustralia, and where prior tightening is being reversed, such as

China, India and Thailand, are helping stabilize market conditions.

In order to understand how Blackstones portfolio will be affected,we must look specifically at the real estate markets within the

countries of its largest purchases:

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Blackstone (NYSE:BX): A Closer Look


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+Financial Sector

n U.K property prices are edging up slowly and were onlydown 1% year to year.

n Prices are beginning to soften in India

n Australian home prices settled, following moderatedeclines over the prior five quarters.

n Demand is being buoyed by central bank interest ratecuts totalling 125 basis points since last fall.

n In Turkey, shopping centre construction is on an incline.As of end-2011, Ankara, with GLA per 1,000 capita of236 sq m, became the most dense retail market in Turkey,surpassing Istanbul, the retail density of which is recorded

at 232 sq m per 1,000 capita.

n This density is quite promising for the success ofthese shopping centres

Overall, Blackstones real estate portfolio seems to be in a safe

place. Blackstones best investment yet has to be in London-as they bought $1.25 billion worth of assets- half of whatthey are really worth. With increasing prices and steady repair

of the real estate market, Blackstones portfolio willundoubtedly become more profitable and grow.

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+Energy Review

n The Energy Sector has had a very inconsistent year with a year-to-date return of -0.44% compared to the S&P 500,which had an 11.80% return since January 1, 2012. We began our portfolio on September 17, 2012 when we allocatedCDN $20,000, or 20% of our portfolio to Crescent Point Energy Corp. We then made four more acquisitions on

September 26, 2012. Our portfolio breakdown is shown in the table below.

n We have held our portfolio for nearly a month, so comparing our returns with the S&P 500 over that same period is amore accurate measure of our performance. Over the last month (September 14-October 12, 2012) the Energy sectorhas a -2.77% return and the S%P 500 has seen a return of -2.14%. Therefore, our current return of 0.08% over the past

month reveals as adequate performance thus far.

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Energy Update


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+Energy Review

n Four of our securities are traded on the Toronto Stock Exchange (TSX);Crescent Point Energy Corp, Athabasca Oil Corp, Talisman Energy Inc andSuncor Energy Inc. Exxon Mobile Corp is traded on the New York Stock

Exchange (NYSE). The breakdown of each stocks performance is coveredin the table to the right.

n We are pleased with our sectors performance in this a time of economicand political uncertainty in oil-abundant countries. Our portfolio is

weighted toward Canadian companies which mainly operate in theCanadian oil sands. Moving forward, our goal is to research additionalNorth American integrated oil and gas companies and to research the

earnings forecasts of securities we already hold. This will allow us todetermine if we can re-allocate a portion of our available capital tocapitalize on future performance.

n A more detailed evaluation of each stock in our portfolio follows.

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+Energy Review

n Since the initial pitch of Crescent Point Energy Corporation (CPG) in early September, CPG has made headlinesas being amongst the most actively traded companies on the TSX and TSX Venture Exchange markets, as well asemerging as the largest holding in the Dynamic Energy Income Fund, managed by Dynamic Funds (Mutual fund

company under Investment Management division of DundeeWealth Inc. )

n As commodities and energy markets faltered Canadian stocks saw a dive in trading prices. However, CPG hasbeen performing better than most, trading near the 200-day moving average of $42.45. Along with the recentclose of bought deal financing, grossing proceed of $633 million, and BMO Capital Markets target price increaseto $50.00 with National Banks support, CPG is set for a good Q3 earnings report (to be released November

5/2012).

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Crescent Point Energy Corporation (TSE:CPG)


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+Energy Review

n Although CPG has not shown a significant rise in stock price, it is fundamentally ahealthy holding. Despite its inception in 2003, as part of a reorganization of CrescentPoint Energy Ltd. (CPE) and Tappit Resources Ltd, CPG shareholders received

immediate returns in a monthly dividend of $0.17/share starting in October 2003. Asof September 2012, CPG has confirmed the monthly dividend of $0.23/share

resulting in a Dividend Yield of 6.71.

n With a strong cash flow enabling CPG to acquire new assets and develop existingprojects, while maintaining a monthly dividend payment schedule, CPG should show

better results in the upcoming quarter.

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Crescent Point Energy Corporation (TSE:CPG)


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+Energy Review

n Having undergone an official name change from Athabasca Oil Sand Corporation in May 2012, Athabasca OilCorporation, ATH, remains a development stage company with primary focus in Alberta. It has two divisions: thermaloil and light oil. Light oil production saw an increase to 11,000 boe/d for the fiscal year 2012, and thermal oil (oil sands)

is expected to begin commercial production in 2014 with five key project areas, each with over 1 billion barrels equivalentof contingent resources.

n In August 2012, ATH announced it signed a letter of intent for a joint-venture agreement which will exceed $4.1 billionin financing for the Hangingstone and Birch properties, the two largest thermal oil project areas, with an unnamedcompany for an undisclosed price. The company is widely speculated to be Kuwaits State petroleum company Kuwait

Petroleum Corporation (KPC), and while KPC is unwilling confirm whether they are unnamed party of the joint-ventureagreement, KPC announced that although no agreement has been signed all projects and investments are subject to

approval of KPC board and Supreme Petroleum Council.

n Having a slight positive return on ATH stocks, holding ATH is definitely recommended as the company has nosignificant debt. With the closing of the sale of Mackay River oil sands project to Cretaceous Oil sands Holdings Limited

for cash consideration of $680 million, ATH has retired all outstanding debt and gained a net $200 million from the sale.

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Athabasca Oil Corporation (TSE:ATH)


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+Energy Review

n ATH should be followed closely in the next couple of years as Canadian companies operating in and near Athabascaproject areas have been bought out by foreign companies, namely CNOOC Ltd. acquiring Nexen Inc. and PetroChinaCo. acquiring assets in projects by ATH;100% of Mackay River and 60% of Dover. There may be the possibility of a

take over by PetroChina if ATH experiences financial difficulty, though it is more likely that ATH would sell theremainder of the 40% of Dover to PetroChina to alleviate finance strains.

n Overall, ATH is virtually long-term debt free and has strong cash flows with substantial assets in development andreserve. ATH should emerge as a competitive supplier and realize gains when commercial production of thermal oilprojects begin.

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Athabasca Oil Corporation (TSE:ATH)


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+Energy Review

n Talisman Energy Inc. is a diversified, Canadian, oil production/exploration company based out of Alberta, whose majorplays are located in North America, Southeast Asia, and the North Sea.

Talisman is one of the major players in the Canadian energy industry so we decided to evaluate it, and at the time ofconsideration oil prices were nearing $100/barrel, reaching a periodical high after a steady increase in price over the

trailing 3 months. This was an obvious concern as oil prices could not rise forever and we accounted for this when

evaluating the company. Also recognized was Talismans relatively high P/E ratio, given its market cap, whichdemonstrated strong investor confidence in the business compared to close competitors. This paired alongside with a

relatively stable beta of 1.02 and analyst price targets around $16-17 made Talisman attractive. Another notable point wasTalismans steady increase in dividend payout over the years, which saw a 9% increase in 2011 alone over the previous

year. Dividend maintenance is one way to assess the standing of a company, and when dividends have been consistentlyincreasing we have to recognize company growth as a driving factor. On another note, Talisman had just acquired newPresident and CEO, Hal Kvisle, who appears to be a safe, industry experienced leader capable of pointing the company

in the right direction and implementing innovative ideas along the way.

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Talisman Energy Inc (TSE:TAL)


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+Energy Review

n Exxon mobile is the largest publicly traded international oil and gas company. As seen in the metrics below, its marketcap and enterprise value are twice that of other leading oil and gas companies.

n Exxon Mobile was purchased on the 26th of September at a price of $91.15 with 165 shares. The Beta of this companyis much less then its competitors which makes it is relatively a steady investment and will be part of the backbone of theenergy sector.

n ExxonMobil has continued to do well over the years with a growth in revenue, an overall attractive valuation and afavourable financial situation including a reasonable debt load (17 billion) and a strong balance of cash on hand ($12.5billion). Exxons current debt to equity ratio is around 0.11, meaning the management of debt has been considerably

successful. With current estimates saying energy will rise by 40% over the next 20 years, Exxon is definitely a long-terminvestment.

n Comparative metrics for Exxon Mobile Corp:

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Exxon Mobil Corp (NYSE:XOM)


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+Energy Review

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Graphical Representation

Energy Sector as a Whole vs. S&P 500: Portfolio Since Adding Four Securities

on September 26t, 2012:


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+Energy Review

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Graphical Representation

Crescent Point Energy (added on September 17, 2012):


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+Mining Review

n The Canadian mining sector has been performing well, without losing the big gains it realized over the summer in spiteof economics fears. These fears include the International Monetary Fund reducing its expected growth rates, andspeculation in the United States mining sector that upcoming months will see weaker performance.

n By mid-September the S&P/TSX materials sub index had fallen approximately two percent. This is not bad consideringthat the sector had dropped twenty seven percent from early March to mid May when the European debt crisis

resurfaced.

n Of all the mining industry metals, gold stocks have been performing best since early September; seven of the ten bestperforming mining stocks have been heavily associated with gold. Some analysts speculated that this does not indicate

that the mining sector is in good position, as gold stocks generally do better when the global economy is worsening.Other metal mining companies, although not plummeting, have not been making any large gains. Looking into the futureis difficult to do at this time, and a resurfacing of the debt crisis could cause some serious issues in the future

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Mining Update


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+Mining Review

n With virtually no warning, the iron ore price plmmeted in August.Falling about 30%, the price was below US$85 a tonne by earlySeptember, compared to US$180 a tonne in 2010. This was due in partto a steelmakers buyers strike and infrastructure plans, which someinitial excitement but were discovered to not be scheduled for a numberof years. This was the first major blow to the iron-ore market since the2008 financial crisis, and it gave a hint of what an extended slowdownin China could mean for this industry.

n Despite the dramatic fall in August, the commodity price of iron orehas picked up as Chinese imports climbed to a 20 month high. Importstotaled 65.01 million metric tons in September, according to Chinascustoms bureau. The shipments, at their highest since January 2011,rose 4.1 percent from August and 7.3 percent from the 60.57 milliontons a year earlier, according to data compiled by Bloomberg.

n However, whether this new-found jump in demand is sustainableremains in doubt. The general outlook on the price of the commodity

is negative. As Chinese growth expectancy hovers below 7%, China

sdemand for steel doesn't show signs of increasing in the near future.

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Iron Ore Outlook


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+Mining Review

n The QEIC Mining portfolio recently acquired 731 shares of Cameco Corporation (TSE:CCO). This decision was based inpart on the attractiveness of Cameco Corporation in relation to its competitors, such as Uranium One (TSE:UUU).However, the main driving factor behind this purchase is the favourable medium-term prospects of uranium as reactor

fuel.

n With the disastrous events of Fukushima Daiichi in March of 2011, nuclear power around the world either stagnated orground to a halt, depending on the region. This shrank the demand for nuclear fuel, lowering with it the price of uraniumore. With this decrease in uranium ore prices (see Figure 1 on the following slide) came a slowdown in production. Minesthat used to be profitable had to be shuttered up, even if on a temporary basis. The other big shock to uranium fuel supply

has not propagated yet, but will do so by the end of 2013. The Megatons to Megawatts program is a program by theRussian government that converts cold-war era nuclear warheads to reactor-grade uranium. The program currently

provides electricity to 1 in 10 homes in the United States of America. The program was designed to convert 500 metrictons of warhead-grade uranium to reactor-grade uranium, and is 90% complete. The completion of this program will leavea significant gap in North American uranium production, that a low-cost producer like Cameco would be able to take

advantage of.

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Uranium Outlook


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+Mining Review

n Although the events of Fukushima Daiichi have sloweduranium consumption in the short term, they will likely notaffect nuclear reactor operation in the long run. In fact, as

nuclear power plants start back up, and the everenvironmentally-conscious public demands carbon-neutral

energy sources, the future for uranium looks rosy indeed.

n There are many sources of energy that nations can takeadvantage of, and aside from the common ones, such as

wind or coal power, new types of power are beingdeveloped every day. For example, a thorium-based plant in

India recently made headlines, promising safer powergeneration, with more abundant and less radioactivethorium as its fuel source. Regardless, the construction of

the plant is set to commence in 2016, long after QEIC isscheduled to realize its gains on the Cameco investment.

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Uranium Outlook

Figure 1


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+Mining Review

n Rising gold prices have attracted many investors, trading at around $1,700 per ounce, up from $500 just six years ago.However, gold does not derive its value from economic activity, as is true with other commodities or companies .

Although gold has been on a steady rise for the last several years, without knowing why it is hard to predict when itmight fall.

n Investors often turn to gold as a hedge in difficult financial periods, with the last few years offering no shortage ofexamples. The increase in gold prices is likely driven by fear, creating a bubble that will eventually burst. In 2005, only16% of the demand for gold came from investors, with the remaining demand coming from jewelers and industrialusers. Today, about 40% of the demand for gold today is coming from investors. With fewer industrial uses for gold,there is little underpinning its economic value. With gold, unlike another commodity, a drop in value would have nofactors to buffer the price no underlying inherent value. If tomorrow all investors decided to stop using commoditiesas a store of value materials like copper, or coal, or even iron would have an underlying demand to cushion their pricesand prevent it from becoming worthless. The same cannot be confidently said about gold, which is why it will not be theQEIC mining portfolio in the foreseeable future.

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Why Not Invest in Gold?


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+Technology Sector

The Semiconductor Subsector of Technology includes all companies that make semiconductor devices. Semiconductorsserve as the foundational component of every piece of modern day electronic equipment. Semiconductors are used to buildcontrols on switches and circuitries, and are the foundation of modern electronics, radio, computers, and telephones. Todays

modern military equipment, research laboratory instrumentation, and manufacturing industries all rely on semiconductors,and in 2011, two-thirds of semiconductor applications involve the manufacturing of integrated circuits which are used in

electronic devices such as personal computers, netbooks, laptops, tablet computers, calculators and other devices. Continuedimprovement in the manufacturing process of semiconductors is the main reason that the prices of computers and othersimilar electronics continue to decrease.

Last Friday, Taiwan Semiconductor Manufacturing Company (TSMC) hit a milestone by announcing that it has taped out(the point when the artwork for a circuit is sent out for manufacture) the segments first Chip on Wafer Substrate test vehicle

using JEDEC Solid State Technology Associations Wide I/O mobile DRAM interface. Compared to the same period in2011, TSMC revenues for January through September 2012 totaled NT$370.39 billion (around CAD$12.4 billion), which isan increase of 17.5%.

TSMC makes almost all of NVIDIAs graphics cards, ARM processors are designed and manufactured by TSMC, and

Apples iPhone 5s processor are made by TSMC.

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Semiconductors

Computer Hardware

The S&P Computers (Hardware) industry index has been quite volatile over the past three months. However, on a month-to-date basis, the index has dropped by 8.94%, which underperformed the S&P500 (-2.54%) by 6.40%, indicating an overalldownwards trend. A weak environment for information-technology spending has hurt Ingram Micro and Tech Data, both

of whom are among the worlds largest wholesale distributors of technology products.


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+Technology Sector

However, while technology spending may not pick up soon, expectations for IM and TECDs stocks remain optimistic. AsIngram Micro seeks to obtain more pricing power and higher margin, it acquired BrightPoint (CELL) in July, which isexpected to bring in revenues from supply-chain services to the wireless industry in 2013. This acquisition, accompanied

with Ingrams solid balance sheet positions its stock well for future pick up. Tech Data has also been clearly affected by thedifficult business environment. With its stock price hitting close to 52 week low, TECD is a good buy, because TECD is able

to keep a strong balance sheet (Debt to Equity Ratio: 5.03) and even achieve a slight increase in revenue of 0.11% in 2012Q3, in this low-technology spending environment. We expect that when technology spending picks up again, Tech Data willbe a big beneficiary.

On September 28, 2012, we bought in stocks from the following two companies within the computer hardware industry:Tech Data Corp. (NASDAQ: TECD) and Ingram Micro (NYSE: IM). As of October 12, 2012 the performance of these 2

stocks is as follows:

n TECD: Close: 42.78, down 5.4%. (Trading only 1.25% above its 52 week low.)

n IM: Close: 14.86, down 2.4%. (Trading 3.05% above its 52 week low.)

The Software and Programming Subsector of Technology includes companies that create the computer programs and datathat direct computers on how to work properly and efficiently. These companies can range from making computer chipdevices used in cell phones and GPS, to programs created for gaming, working on computers, or educational purposes.

These software companies allow us to save a huge amount of time and money, and are always striving for new ways ofmaking our lives easier. In the future, software programs are expected to turn to self-service marketing which will allow

customers to easily roll their own applications by purchasing and downloading them from the companys website,emphasizing the role of software as a service. Recent software developments of note include Smartphone technology andcloud computing, both of which look to be leading the Software and Programming subsector towards a bright future.

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Software and Programming


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+Technology Sector

To follow-up on the July Newsletter, we have chosen to take another look at Zynga, which was earlier placed on the Techsectors watch list until the creation of new games was announced. Zynga is a company that supplies social gaming servicesin over 175 countries with an average of 240 million monthly active users. The issue was that Zyngas stock dropped to $2.95

at the end of July, raising the issue of whether some of its recent acquisitions were able to sustain growth and maintain asteady flow of revenue.

Currently, Zyngas stock price is $2.40, which shows a further decrease in value. The question is whether the company has hitits bottom or if it will continue to depreciate in value. Just over a week ago the company announced that it expects to reporta net loss of $90 million to $105 million for Q3, which would be three straight quarterly losses for the company. Negative

expectations are inspired by Facebook games and mobile games. With regards to Facebook games, there are not enoughsoft-core gamers to sustain growth, and Facebook made the decision to get rid of gaming spam, which decreased the

amount of gamers. With regards to computer games, most of them have been converted to mobile apps, with smallerscreens, making the games less intriguing. One positive expectation of growth is inspired by the possibility of Zynga movinginto the online gambling industry. There is an America bill in the progress of being passed that would put Zynga in the

position to take advantage of an online gambling license that could lead to a substantial future appreciation.

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+Diversified Sector

As of October 14th the QEIC Diversified Industries Sector has experienced gains of 1.32%. Compared to the S&P Index,which is down 0.30%, the DI sector is beating the market by 1.62%. The portfolio currently consists of stocks that haveshown high returns such as Alimentation Couche-Tard (8.95%), and companies that are underperforming, such as Target

(-4.29%). This report will highlight the gains and losses of the portfolio as well as the direction the sector is taking withregards to prospective companies.

Portfolio as it stands:

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+Diversified Review

One of the major disappointments in the portfolio to date is Target (NYSE:TGT). When purchasing Target, the sectorviewed the company as a solid backbone company for the portfolio. With a dividend yield of 2.34%, we viewed thecompany as a safe investment and one which we could build our portfolio around. Target has since underperformed and

produced losses of 4.29%. The entire retail industry has been struggling lately as most companies experienced losses overthe last month. Costco saw a surge in its share price when its latest earnings report exceeded expectations but it has since

fallen to levels equivalent to those before the report. The comparative metrics behind Target still make the company appear

undervalued but a turnaround in the retail industry is needed. The Diversified Industries sector is currently looking into astop/loss price to sell Target at if it continues to underperform and bring down the portfolio with its losses. However, with a

turnaround Target would provide the portfolio with a solid backbone.

The Jean Coutu Group (TSE:PJC.A) has seen gains of 3.00% since the sector acquired the stock on the 1st of October 2012.On October 10th the drug store chain released its quarterly report which showed an increase in revenue compared to last

years quarter, but a drop in profit. Their CEO attributed this drop in profit to the realized gains from selling Rite-Aid shareslast year. The sale of those shares brought about a one-time increase in profits that the company did not match this year.Despite this decrease in profits the stock price has continued to rise. Over the last few days Desjardins Securities hasupgraded PJC to a buy stock. The sector expects this to drive up the stock price even further and will lead to PJC

contributing more gains to the portfolio.

Target

Jean Coutu Group

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+Diversified Review

We continue to monitor our position in Paladin Labs (TSE:PLB).Paladin is a specialty pharmaceutical company focused ondeveloping, acquiring, in-licensing, marketing and distributing

pharmaceutical products. Paladin mainly grows through acquisitionand licensing and therefore does not undertake the risk involved in

the research and development of pharmaceuticals. They have a

history of high cash flows and a very strong return on equity(north of 20% for the last 6 years). However, their ROE has

slumped lately, sitting around 15%, due to the amount of cashwhich remains on their balance sheet (about $260 million which

represents approximately 30% of their market capitalization)earning a minimal rate of interest. This represents both a hindranceand an opportunity. While the cash continues to sit, ROE will

continue to slump, and earnings will grow at a smaller rate.However, once this cash is deployed, the effect on the bottom line

will be significant and Paladins share price will likely pop.Therefore we dont want to be caught without Paladin in ourportfolio when this does occur.

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Value(inthousands)

Year

Paladin Earnings and

EBITDA

EBITDA

Earnings

Paladin Labs

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34/37

+Diversified Review

One stock that remains on our watch list is MWIVeterinary Supply, Inc. (NASDAQ: MWIV). They arethe leading distributor of animal health products across

the United States of America and the United Kingdom.MWI sells both companion animal (dogs, cats, and other

pets) and production animal (cattle and other food

producing animals) products including pharmaceuticals,vaccines, supplies, pet food, capital equipment and

nutritional products. MWI is also a leading innovator andprovider of value-added services and technologies such

as animal cremation services which allow MWI to fuelgrowth with existing customers. The market for animalhealth products has grown by approximately 5% over the

past decade in both the US and the UK. Over the pasteight years, MWI has outpaced this growth with

EBITDA growing at an annual compound rate of26.92%. We feel that this is a leading company in itsrespective industry with a history of strong financial

performance; however, because they are trading slightlyabove their 5-year historical and forward P/E ratios, we

will have to further evaluate an appropriate entry point.

(20,000)

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EBITDA

(000s)

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MWI EBITDA and Operating Cash

Flow

EBITDA

Operating Cash Flow

MWI Veterinary Supply

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35/37

+Diversified Review

Gilead Sciences (NASDAQ: GILD) is a biopharmaceutical company based in the US. They are best known for their recentFDA-approved HIV drug, Stribild. The Diversified Industries Sector purchased 195 shares at $66.77. With Gilead trading at$67.94 a share, the stock has yielded a 1.75% return so far. The Diversified Industries Sector purchased Gilead Sciences based on

their diverse product line, upcoming FDA approval on their Hepatitis C treatment, and recent increases in the target price byanalysts. With products for HIV/AIDS, Liver Disease, Cardiovascular, and Respiratory illnesses, we believe that Gilead is in the

right position to target t growing illnesses. Gilead is currently the only company in the last stages of testing for a Hepatitis Ctreatment. This leaves Gilead the opportunity to become the first company to bring a Hepatitis C treatment to market. The stockhas surged recently due to analysts increasing their price targets on Gilead. The current price target is $75, but we believe that

Gilead may rise higher with FDA approval of their upcoming Hepatitis C drug. Also, with the possibility of re-election forPresident Obama, the Affordable Care Act could be implemented, which would increase the health coverage among American

citizens. The ACA would be extremely beneficial for Gilead because more American could afford Gileads products.

The Coca-Cola Company (NYSE: KO) is a multi-national beverage corporation. We purchased 393 shares at $38.16. Coca-Cola is currentlytrading at $38.23, yielding a 0.18% return thus far. Their product line, international growth, and financials make Coca-Cola a good blue-chipcompany for our portfolio. Coca-Cola has a very diverse product line; as they make soft drinks, energy drinks, and juices, just to name a few.

With a very diverse product line, Coca-Cola appeals to all consumers because there is a product for everyone. International growth is anotherdriving force in Coca-Colas success. With a 58% market share in India and 24% growth in China, we believe that this is beneficial to the

company due to the massive population and potential that is associated with BRIC nations. In terms of financials, Coca-Colas ROE is doublethat of the industry standard. They also have a solid quarterly dividend and a low P/B ratio. Their profit margins have fallen recently due tosugar and corn futures reaching all-time highs. However, we believe that sugar and corn futures will drop, thus increasing profit margins for

Coca-Cola. This is a good time to buy Coca-Cola with such high futures in sugar and corn.

Coca-Cola Company

Gilead Sciences

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36/37

+Diversified Review

On the 1st of October, the Diversified Industries Sector purchased 330 shares in Alimentation Couche-Tard Inc.(TSE:ATB.B) at $45.34/share. Alimentation Couche-Tard is one of the largest company-owned convenience store operatorsin the world, selling food and beverage items, motor fuel and other products and services. Since purchasing shares in the

company, ATB.B has gained 8.95%, trading slightly below their 52-week high of $51.18 (a graph of the share pricemovement can be found below). National Bank Financial recently raised ACTs target to $58 from $56 to reflect higher

synergies from the companys acquisition of Statoil Fuel and Retail. Since the acquisition, Couche-Tard added over 2300stores in Europe and has good growth projections in an economically unstable Eastern Europe. The companys financial riskprofile is exposed to periodically high leverage as it grows through acquisitions, which could be joined by some earnings

instability associated with volatile gasoline prices. We believe the Statoil acquisition strengthens the companys business riskprofile by adding a well-established and profitable convenience store and fuel retailer with a strong market share of more

than 30% in the Scandinavian market. Overall, with this positive momentum, the Diversified Industries Sector has nointentions of selling at this time.

Alimentation

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37/37

+Diversified Review

UTi Worldwide (NASDAQ:UTIW) is an international, non-asset-based supply chain services and solutions company, whichprovides services through a network of offices and contract logistics centers. Closing in today at $13.86, UTi Worldwide hasa 1-year low of $12.55 and a 1-year high of $17.92. Currently listed as a holding company by Reuters, we believe that, despite

their 17.55% loss in share price over the last 6 months, UTi Worldwide is undervalued. A recent $200 million investmentapproved by shareholders to launch a new oracle software system (financial and operating system), is being released in stages,

and starting in Netherlands this will reduce staff by approximately 2000 and create large savings in the long run. A recentdelay in the launch of the software system caused a panic amongst investors, leading to a decrease in share prices. Untilfurther notification of new release dates, the Diversified Industries Sector will continue to research and evaluate UTi

Worldwide.

Uti Worldwide

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Documents

QEIC Fall Report