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September/October 1999

Commentary - Hans H. Mathisen

    LIFE LETTER for September deals with a topic most of us don't like to discuss: What should be done the day I walk out? You may want to put this sheet with your will and other important papers.

   October's LIFE LETTER covers a subject important to all of us: How safe is my money? For more detailed information about the limits of the guarantees on your life insurance policies and segregated fund contracts, l suggest that you visit CompCorp's web site or call the toll free number given in the last paragraph.

   I'm enclosing Garth Turner's Sept. 10, 1999, column from the Star Phoenix. Garth Turner, the noted author and broadcaster on financial matters, takes the same approach to investing as Hans Mathisen: Get as much of your money as you can invested outside Canada. "Clone Funds" have been available in Canada for more than 5 years, but it was just recently that the large Canadian mutual fund companies introduced their "Clones".

   During the past couple of months, some of my clients have contacted me, asking questions like, "When is the market going to collapse?", and, "When do you think I should cash in my equity funds and go into cash?".

   My answer to these and similar questions from my clients is, "Let your money stay where it is invested now".

   The reason I can confidently say this to my clients, is that l know where their money is invested now: In high quality securities, in well established economies where the financial wherewithall to address Y2K is present.

   Garth Turner says, "Any market carnage between now and the end of the year should be viewed for exactly what it will be: A chance to buy the future, on sale".



Hans Mathisen

Clone funds bypass investment cap
    (written for the Star Phoenix on Sep.10,1999.)
Turner Report 

   During the past 15 years, the Templeton Growth Fund has given investors an average return of
13 per cent, despite recession, a war with Iraq, the Asian flu, a global currency crisis, double digit inflation and 20 per cent interest rates. But, sadly, you could not put this fund into your RRSP. Until now, that is.
   Hey, this is not a column promoting Templeton, but it is a piece written in praise of clone funds which are currently revolutionizing retirement investing and spitting in the eye of Ottawa's dumb insistence that only 20 per cent of your RRSP could be made up of "foreign property." That has handcuffed investors because foreign markets have outperformed Canadian ones by a significant amount, and keeping 80 per cent of your retirement assets in domestic assets means you lack diversification.
   There are, at the moment, more than 80 100-per-cent-eligible foreign mutual funds available, and here's how they work: Invest $1,000 in one of them and that money will be deposited with a Canadian bank. The money is then pedged to buy a forward contract (that's a derivative) to mirror the performance of an actively managed foreign content fund. That's why it's called a "clone" fund, and it means, in effect, you get foreign zing within your Canadian tax shelter.
   These things have proven to be hugely popular and the expectation is that, come RRSP season, they could attract a lot of money that worried investors have been squirreling away in near-cash investments like GICs, high-yield bank accounts and even savings bonds during 1999.
   Is there risk with a clone fund? Not any more than with the ones they are based on, which means long-term investors who ignore meaningless temporary volatility should end up in great shape by the time the retirement years start.
   But, typically, you will pay a little more in management fees for an RRSP-sheltered clone fund than a typical global equity fund -- something close to a half point premium.
   And how do the feds feel about this blatant circumvention of the foreign content rules? Pretty chilled out, actually.
   Templeton president Don Reed had Revenue Canada take a look at the four clone funds that company is launching, and the ruling came back that the Global RSP Funds would be considered legitimate Canadian assests. That is welcome news to all to the companies, like Trimark, BPI, Mackenzie and others who have clone funds on the market.
   Of course, this is not the only way to boost the foreign content in your RRSP past the 20 per cent mark. For years investors have bought into Canadian mutual funds that have 20 per cent of their assets offshore and, when combined with their own 20 per cent of foreign content, that can give 36 per cent foreign exposure. Or, your can buy units in a labour-sponsored fund, allowing you to triple your non-Canadian RRSP dollars for every one put into the labour fund, to a max of 40 per cent in offshore content.
   Those are still useful and effective strategies. But I think with the advent of the 100 per cent-eligible foreign funds, they pale in comparison. If you have any doubt, just consider that so far in 1999, the   TSE 300 is ahead eight per cent, while the Dow is up more than 20 per cent and the tech-heavy NASDAQ has given an eye-pop- ping 30 per cent return. If you have held yor money in a "safe" GIC or high-yield bank account, then you have grown it by only four per cent. Worse, half of that will be gone in tax, giving you a two per cent yield, one-half of which will b negated by inflation. So, by trying to avoid risk, you have gone a year without increasing your wealth while those people who stay fully invested, and ignore inevitable corrections and ongoing volatility, have done just fine.
    I'm a fan of the clone funds. You should buy some. You should also be feeling positive about the future because today's economic fundamentals suggest the first decade of the millenium is going to be terrific. Any market carnage between now and the end of the year should be viewed for exactly what it
will be: A chance to buy the future, on sale.

Garth Turner is an author, broadcaster and speaker.
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"If anything should happen to me. . ."
   While waiting for surgery, Uncle George realized that Aunt Grace might not know about everything that needs to be done if he dies, so he made her this list of things she should do.
1. Before you tell anyone - Clean out our safety deposit box and joint bank accounts. When the bank finds out I'm dead, they're liable to close off all access to them until my will is probated.

2. Call the funeral director - But go there with somebody who won't be suckered into buying the fanciest coffin. Just remember, the money you spend on my funeral won't be available for the party I want you to have!

3. Gather up all my important papers - My will, life insurance, disability insurance, and general insurance policies, business agreements, bankbooks, notes receivable or payable, stock or bond certificates, real estate deeds, recent tax returns, marriage, birth and death certificates, military papers, automobile registration forms and all recent contracts. Don't throw away anything that looks official, even if it appears to be terminated.

4. Call our life insurance agent - He'll not only help you in collecting the money from my life insurance, but also in collecting the death benefits of my group insurance, company pension and Canada Pension Plan. He'll also advise you on things like settlement options and the guaranteed death benefit on my segregated funds.

5. Call our accountant - He'll be needed for the various tax returns that have to be filed.

6. Call Our lawyer - She'll tell you what other stuff is needed and what must be done to settle my estate. She'll also tell you whether my will has to be probated (proven that it's mine). As the province charges probate fees for everything passing through my will, I've tried to minimize them through joint ownership of most of our assets and naming beneficiaries where I could.

7. Call the other executors - You know you're my primary executrix, and you know who the other two are, so call them. Even though our lawyer will probably call them, it would be nice if they heard from you first.

8. Call my business associates - My partner will want to know that our buy-sell agreement has just been triggered so he can collect the insurance money to buy my share of the business from you. And call Marie in Admin to spread the word. Ask her if there's anything else coming to you such as my vacation pay, Workers' Compensation, Employment Insurance, unpaid expense accounts, ongoing group benefits, etc.

9. DON'T PANIC! I picked my executors and the above mentioned professionals to assist and advise you in this situation. So let them. And don't rush into anything, like selling the house, or anything major, for a year.

Copyright 1999 Bowen Financial Inc. and Donald F. Pooley, Inc. All rights reserved. Illegal to copy without written permission

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"How Safe is Albert's Money?"
   Albert was concerned about his financial plans. He remembered the collapse of Confederation Life a few years ago and wondered if the life insurance he took out, both before and after that, was itself safeguarded.
   And the answers he found reassured him about the safety of all life insurance company products.
   The Canadian life insurance industry decided to insure the insurers well before any of its members faced collapse. Despite the fact that not one Canadian life insurance company had ever failed to meet its obligations to its policyholders until then, it established CompCorp (Canadian Life and Health Insurance Compensation Corporation) to provide protection similar to that provided by the CDIC (Canadian Deposit Insurance Corporation) on the deposits of banks and trust companies.
   While the CDIC was established after the fact, CompCorp was created before it was needed. Albert discovered that it took the failure of 47 of 97 active banks in the first 150 years of Canadian banking to awaken our legislators to the need for such protection. In contrast, though no Canadian life insurance company had ever failed, the industry, not the government, wisely chose to insure against such a possibility. CompCorp was therefore established and funded by levies from its members in the late 1980's.
   Like the CDIC, CompCorp's protection is only available to clients of its members and most life insurance companies operating in Canada are members. However, organizations that offer prepaid dental or medical care and fraternal organizations are normally not members.
   In some areas, CompCorp's protection is superior to the CDIC's. While it matches the CDIC's $60,000 limit on deposits, its coverage extends beyond the CDIC's 5 year limit. As its main purpose is to protect life insurance products, CompCorp guarantees up to $200,000 life insurance per policyholder, and up to $2,000 monthly per annuitant of each of its members. It also insures the minimum guarantees of segregated funds offered by its members. Segregated funds are similar to mutual funds but with certain guarantees.
   This means that Albert can have a $60,000 ten year deposit, $60,000 in an RRSP, $200,000 life insurance, $2,000 per month annuity or disability income, and segregated funds all with the same CompCorp member, and all five would be protected. Even his policies issued before CompCorp existed are covered. In fact, all contracts with CompCorp members that guarantee an amount to be paid in the future are protected.
   Albert got most of this information from its web site,, which also told him that, thanks to CompCorp, Confederation Life's Canadian policyholders recovered 100 cents on the dollar. To find out more about CompCorp and it's members, use the web site or phone 1-800-268-8099.

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Mathisen Financial, Inc.
335 Redberry Road
Saskatoon, Saskatchewan S7K 4W5
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