Managed Money Reporter Newsletter Editors: Carl Spiess & Allan McGlade

Issue 131 December 1997

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Season's Greetings

By Carl Spiess, MBA

The Year in Review

As we look back on 1997, it becomes clear what a fabulous year it was for our investors. Markets continued their record setting pace, with many funds over the last 12 months showing returns well above their long term averages. Real interest rates also remained high, as inflation remained under control - investor's nirvana, in a way.

This fall we saw investors stay the course during some very volatile markets. We certainly expect to see more volatility in the future. However, it is increasingly clear that our buy and hold, well diversified approach to building client portfolios continues to serve investors well.

What To Do This Year?

As we review your accounts to help advise you on your next investment contributions, here are some of the things we will be examining when making our recommendations to you:

• Is your foreign content topped up? If not, consider Templeton International or Fidelity International.
• Could you take advantage of the extra $1,050 in tax savings from an LSIF investment?
• If you have sizable non-RRSP investments with us, we may want to add more guaranteed stripped bonds to your RRSP, where they are sheltered from tax. Another consideration may be a High Yield Bond fund like O'Donnell High Income Fund.
• If we want to make the portfolio more conservative, we will want to add some balanced funds. Both Fidelity Canadian Asset Allocation and Global Strategy Income Plus funds have had great returns and are well diversified.
• For those worried that some of the big funds may lag the market indices over the next few years, consider buying Toronto Index Participation Units (TIPS) which mirror the TSE 35 index.
• For the very conservative, an Index Linked GIC (as featured last month) may be right.
• For many investors, monthly contributions have eased the decision, but there may still be some room to top up.

As we survey the competitive market place, it is becoming ever more difficult for consumers to decide on the right investment. Many banks are offering new fund asset allocation programs like the Scotia Leaders program. Many firms are also offering all in one services such as WRAP accounts. What are investors to do?

Ask Us!

We have information on all 1600 funds in Canada and can help you sort out the differences between all these new computer generated portfolio tools and a true personalized, customized portfolio designed with your needs in mind. Do not hesitate to ask for a personal appointment this year if it has been a while since we met with you.

Extra Staff to Serve You!

As RRSP season is our busiest time of year, we are ensuring that we are fully staffed to help serve you better. John and I will available for client meetings and will be giving several seminars during RRSP season.

The rest of our team will also be available to help you. Fiona is returning from maternity leave, and joins Sharon, Nicole, Jane-Ann, Barb, Fred, Ron and Allan as your licensed representatives. Our two Brendas will of course be helping with account administration.

With an improved phone system, faxes, and e-mail now available, we have better systems in place than ever before. As our most valued clients, we want to make sure you get the service you deserve this year.

Soup & Sandwich RRSP Seminars Wednesday January 21, 12:00 noon and 5:30 pm 13th Floor Scotia Plaza, 40 King St. W. Call to register 1-800-387-9273, 416-863-RRSP

CI Introduces Segregated Funds

The C.I. Mutual Fund company has launched a family of segregated funds. This particular launch puts a different spin on things because it is C.I. that has quarterbacked the product's development. They have gone out and hired an insurance company (Toronto Mutual Life) to underwrite the product's guaranteed component. In the past, these relationships have been initiated by the insurance companies, who were looking for brand name fund mangers to help sell their products. It would appear that the Mutual Fund industry is ready to acknowledge the unique benefits of segregated funds and their appropriateness for certain types of investors.

Initially C.I. will offer six funds. They are the C.I. Harbour Seg Fund, C.I. Harbour Growth & Income Seg Fund, C.I. Hansberger Value Seg Fund, C.I. Global Seg Fund, C.I. American Seg Fund and C.I. Money Market Seg Fund. All of these funds are clones of C.I.'s mutual funds that go by the same name. The only difference is the management expense ratio (MER) on the seg funds is slightly higher. This covers off the insurance component that guarantees your net deposits into the funds.

Specifically, the guarantee provides for the return of the greater of the redemption value or 100% of your original deposit at maturity or upon death. In other words, your investment is guaranteed to never lose money as long as you stay invested in these funds until maturity. The rules differ slightly for investors who are 65 or older. Another unique feature of the C.I. seg funds is that you can move from their mutual funds to their seg funds, or vice versa, without incurring any sales or administration fees.

Other benefits include the ability to reset your guarantee twice a year. The advantage of this feature is that you can lock in your gains and guarantee yourself a minimum investment return.

As an example lets say you had invested $10,000 in the C.I. American Fund in Oct 1992. Today your investment would be worth just over $28,000. By taking advantage of the reset provision, you are guaranteeing that your account will be worth no less than $28,000 at maturity, which is ten years from the date of the reset. In this case, the maturity date ends up being fifteen years from the date of the original deposit. Your guaranteed minimum rate of return in this instance is 7.11%. Of course, the expectation is that the fund will continue to perform over the next ten years. The peace of mind however of knowing that you are guaranteed to receive a minimum return on your investment can make the difference between sleeping or not sleeping at night in a prolonged bear market.

The funds also offer an element of creditor protection. This has been an important feature for professionals, consultants or anyone who is self- employed. The seg funds are protected from being attacked in the event of a lawsuit or bankruptcy. It should be noted, however, that the courts will not uphold this protection if the assets are deposited directly in anticipation of one of the aforementioned events.

Because the funds are a qualified insurance product, the assets can avoid the probate process. Upon death, so long as you have named a beneficiary other than the estate, the assets will go directly to that beneficiary. No fees, no hassle.

Lastly, up to $60,000 is protected under CompCorp in the event of insolvency. CompCorp is the insurance industry's version of the CDIC that protects the depositors of banks and trust companies.

The last three years have been awfully good for the mutual fund industry. As this market matures, we expect to see quite a few more mutual fund companies bring seg funds to market. These funds offer a win/win situation for fund investors and the managers that manage the funds. The average investor will find it easier to stay invested at all times and the fund managers will benefit from the fact that they can concentrate on investing and not selling to meet redemption requests.

For more information on these or other seg funds, or if you would like an assessment of your particular situation to determine whether segregated funds would be an appropriate investment, please call Allan McGlade at 416-862-3066 or 1-800-387-9273 or e-mail him at Allan_McGlade@scotiamcleod.com.