optimize tax-deferred income

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OPTIMIZE TAX-DEFERRED

INCOME

PROTECT THE TRANSFER OF

WEALTH

HARNESS THE POWER OF COMPOUND GROWTH

Invest Today with Tomorrow in MindTM Turning Actionable Tax Ideas into a Lifetime of Advantage for Your Clients

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Capital Preservation1

The answers consistently given are:

Growth2Tax Minimization3

Introduction

When Asked What is Most Important to Clients…

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Large Market and Inefficient Investments

Pre-retirees and retirees represent a “sweet-spot”

People aged 55 and up control 80% of investable assets1

Many are in highly taxed investment vehicles

Over $730 billion sitting in GICs, certificates of deposits and other savings accounts2

$121 billion in fixed income mutual funds3

$19 billion in Canada Savings Bonds4

Introduction

Sources: 1Capgemini, The Canadian Wealth Management Market 2004/2005, 2Investor Economics 2005 Household Balanced Sheet Report, 3IFIC September 2006, 4Government of Canada, Debt Management Strategy, April 2006

Age: 70+27%

Age: 55-7053%

Age: 30-5519%

Age: 16-301%

Total Investable Assets

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Introduction

Not All Cash Flows are Taxed Equally

You keep 53.6%

Tax paid 46.4%

Interest / Income

Tax paid 31.3%

You keep 68.7%

Dividends

Tax paid 23.2%

You keep 76.8%

Capital Gain

You keep 100%

(taxes are deferred)

Return of Capital

Assumes a marginal tax rate of 46.41%, top rate for Ontario; non-eligible dividends

Inefficientcash flow

Efficientcash flow

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What is Invest Today with Tomorrow in Mind™?

Understanding how decisions made today will impact your clients throughout their accumulation, decumulation, and wealth transfer phases of life

Focusing on how long-term tax efficient and tax effective investment strategies impact your clients’ overall wealth plan

Protecting your business from the inevitable impact of your clients’ RRIF drawdown and general tax erosion

Introduction

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Harness the Power of Compound Growth

Flexibility to change investments without incurring a taxable event

Benefit from compounded growth

Keep your client’s assets invested in a lower tax bracket for life

Actionable Strategies

Using Corporate Class to Get Your Client’s Assets Working Harder

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How Does Corporate Class Work?

Defer taxes on capital gains when switching between investments

Enables a lifetime of flexibility

Fund A Fund B

Fund C Fund D

Fund E Fund F

Fund G Fund H

Change investments as your client’s life changes under a tax deferred structure

Corporate Class

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Using Corporate Class:$826,695

Not Using Corporate Class:$642,974

The Difference: $183,721

Your client keeps $183,721 more on their $100,000 investment!

Corporate Class in ActionDuring the Accumulation Phase

*Capital Gain taxes are paid by Non-Corporate Class investors when switching between fundsSource: Globe HySales and Franklin Templeton, January 1, 1986 to March 31, 2006

To simulate the Corporate Class returns for pre-inception periods, annual Series A returns of the Funds were reduced by 22.5 BP (capital tax charges on Corporate Class), BCEF Series F returns were reduced by 169BP (actual return difference between series A and Corporate Class) Assumes: dividends reinvested, all taxes paid MTR 46.41%. Assumes investment on Jan.1 of the year shown and switch on Dec.31 of the year shown, excluding Franklin Templeton Balanced Growth Portfolio where the switch was not made and is indicated as n/a.

Funds: TGF TISF BCEF FTBGP TotalInvestment

Dates:1986-90 1991-96 1996-02 2002-06

Taxes*: $10,257 $45,024 $42,753 n/a $98,034


-100,000200,000300,000400,000500,000600,000700,000800,000900,000

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

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Corporate Class in ActionDuring the Decumulation Phase


Your client gets 30% more After-Tax Income

Scenario assumes effective tax rate is 27.94%. Marginal tax rate of 46.41%, 8% return per year, withdrawing 8% of income per year. The 8% return is hypothetical and for illustration purposes only, actual

fund returns may differ.

Total After Tax Income:

In Corporate Class: $1,034,003

In Series A: $792,280

Series A Corporate Class

21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Amount invested:

Corporate Class:$826,695

Series A:$642,974

30% More After Tax Income

After Tax Income

Year

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Corporate Class in ActionAt the Transfer Phase


Cash Flow Received (over a 20 year period)

$792,280

$1,034,003

$241,723 More Income

$504,288

$639,839

$135,551 More Asset Value

Wealth at Transfer (At year 40)

Your client benefits by a total of $377,274

Capital gains tax paid at year 40 is $186,856 on $826,695 for the Corporate Class Investment and $138,686 on $642,974 for the Series A investment. Assumes both are redeemed at the end of year 40. Net amount after all capital gain taxes paid

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Application #1Application #1

Clients looking for a core investment solution that evolves with their risk tolerance and life stages.

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Quotential and Corporate Class

Benefits:

Switch among 7 fully diversified portfolios

Address your clients’ risk profiles throughout their life stages without triggering a taxable event

Defer tax event until client is in lower tax bracket

Benefit from compounded growth


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Individual and corporate clients seeking preferential tax treatment on their fixed income investments.

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Preferential Tax Treatment on Fixed Income Investments


Corporate Class Tax Shelter

ManagedYield

For Individual Clients:

Beneficial for short-term transitory assets. Clients can hold investments in Corporate Class without triggering taxes

Ideal tax efficient income for clients who are approaching or are in retirement. Income investments are drawn down through a SWP and are in the form of capital gains

For Corporate Clients:

Capital gains have better tax treatment, allowing a corporation to bank any losses to reduce tax liability

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Clients looking to complement their RRSP

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What About RRSPs?RRSP

Tax Deduction

Retirement Savings

Tax-deferred flexibility

Maximum annual contribution

of $19,000

Non-Registered

Tax deduction (with loan)*

Retirement savings

Tax-deferred flexibility (with Corporate Class)

No maximum contribution


Upon Decumulation…RRSP

Full amount is taxed as income

Forced to redeem at 69**

Non-Registered

Cash flow is generally taxed as capital gains***

No forced redemption

*Interest may be deductible if certain criteria are met. Speak to your tax adviser about your specific situation. **Required to either redeem at 69 or rollover into a RRIF. ***Distributions may be taxed as income

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A difference after 20 years after tax!

Monthly Contribution/Payment

After 20 Years…

Corporate Class Loan

$50,000 loan invested in Corporate Class Funds with a monthly interest

payment of $250*

$233,048

($50,000) loan principal

= $183,048

RRSP PAC**

$250 $137,286

*For demonstration purposes only. Assumes the RSP and Corporate Class investments both grow at 8% annually and the $50,000 loan is an interest only loan with a rate of 6% with a marginal tax rate of 46.41%. Interest payment is deductible only if all conditions are met. Investor should talk with their tax advisor to discuss their specific situation. **A pre-authorized contribution (PAC) plan allows you to invest a specific amount of money at regular intervals.

In Accumulation


Corporate Class vs. RRSPs

$45,762

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Corporate Class vs. RRSPsIn Decumulation

$137,286$137,286

$183,048$183,048

Corporate Class

RSP


$18,644 pre-tax cash flow per year

$3,232 in taxes per year (taxed as capital gains)

$15,412 after-tax cash flow per year

$13,983 pre-tax cash flow per year

$6,490 in taxes per year (taxed as interest income) $7,493 after-tax cash flow per year

Over 20 years

51% More/Year

For demonstration purposes only. Assumes the RSP and Corporate Class investments both grow at 8% annually and the $50,000 loan is an interest only loan with a rate of 6% with a marginal tax rate of 46.41%.

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Tools


Show the Benefits of Corporate Class to Your Clients

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Summary of Corporate Class

Choose from a wide range of investment solutions

7 Quotential Portfolios: Canada’s #1 Managed Program

27 Individual Mutual Funds

Benefit from compound growth – Your clients will have more $$ for retirement and more $$ for their estate

Defer taxes until your clients are potentially in a lower tax bracket = more money in their pocket


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OPTIMIZE TAX-DEFERRED INCOME

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Optimize Tax-Deferred Income

Flexibility to structure income around a clients’ specific requirements

Provide high, predictable cash flow whileensuring the lowest tax bracket on investment returns

Continue to grow your clients’ assets


Using Series T to Put More Money In Your Client’s Pocket

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How Does Series T Work?Using the power of ROC, Series T allows your clients to defer capital gains tax until later and enjoy a higher cash flow now

Market Value

Declining ACB

Original ACB

TimeSample Monthly RoC Distribution

Value

The ACB is lowered by each

monthly distribution. If units

are sold, the market value

minus the current ACB is taxed

as a capital gain.

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Customize Your Cash FlowSwitching between Series T and Series A of the same fund or portfolio is not a taxable disposition. This allows you to fine-tune your clients’ cash flow.

8% targeted distributions are not guaranteed and may change at the discretion of Franklin Templeton Investments.

A T


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Give Your Clients 16+ Years of Tax Deferred Income*

* Assumes 8% annual growth with 6% annual Return of Capital. Returns are hypothetical and for illustration purposes only, actual fund returns and target distributions may differ.


Series T in ActionDuring the Decumulation Phase

Initial Investment in Series T

$600,000

16 2/3 years

Gives you:

$36,000/year (tax deferred)

Ending Value:

$1,017,003

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Series T in ActionAt the Transfer Phase

Total cash flow over 16 2/3 years: $600,000

Total Market Value: $1,017,003

Taxes Payable at the end of 16 2/3 years: $235,995

Net After-Tax Value: $781,008

Total Value to Client over 16 2/3 years: $1.38 million


A higher net value to your client’s Estate

* Assumes 8% annual growth with 6% annual Return of Capital and assumes a tax rate of 46.41%. Returns are hypothetical and for illustration purposes only, actual fund returns and target distributions may differ.

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Applications for Your Practice

Clients looking for regular, tax efficient income through an investment vehicle that can weather different market environments

Also Consider Series T for:

Risk averse clients seeking income and estate preservation

Clients facing an Old Age Security (OAS) clawback

Philanthropic clients planning to give some of their investment to charity


Series T is suitable for:

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Looking for Income and Estate Preservation?The best of both worlds…

*Assumes a tax rate of 46.41%. **Assumes no income distributions and no capital gains distributions ***For demonstration purposes only. Series T Example: Client purchases $500,000 last to die insurance, Cost is based on the average cost of insurance for a 65 year old couple based on Equitable Life Insurance rates. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Unlike GICs, mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government insurer. Assumes that Series T is continued to be held. Taxes will be payable if investment is redeemed.

GIC Series TInitial Investment

$500,000 $500,000

Annual ROR 5% 5%

Return $25,000 gross $25,000 net**

Minus ($11,602 taxes*) ($7,500***)

What’s Left in Your Pocket?

= $13,397 net

= $17,500 net+ $500,000

Insurance Policy

Approximate annual cost to purchase $500,000 Last to Die Insurance Policy

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Clients Fighting the OAS Clawback

Transfer client’s interest-bearing securities worth $100,000 into a Series T fund with an 8% pre-tax ROC distribution1

OAS clawback is reduced by $1,200 and taxes are potentially reduced by $2,952

Client’s total annual after-tax cash flow increases from $58,912 to $63,064*

Don’t let your clients miss out on potentially $4,152 extra cash a year*

1 8% targeted distributions are not guaranteed and are subject to change at any time. Tax rate of 32.98% is assumed based on a client’s gross annual income is $70,000 from pension. The 2006 threshold for OAS Clawback is $62,144.

$64,000

$63,000

$62,000

$61,000

$60,000

$59,000

$58,000

$57,000

$56,000

Keep more of your OAS using Series T funds – OAS Clawback reduced by $1,200

Put more money in your pocket– Taxes reduced by $2,952

Bonus Cash Flow from OAS Clawback Reduction

Bonus Cash Flow from Tax Savings

After Tax Flow from using Regular Funds

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Scenario 1: Redeem Series T and donate its net value in cash Ending market value of units : $100,000 Taxes on capital gains: ($18,564) Your donation receipt+: $81,436 Total Tax Reduction $19,230

Scenario 2: Donate Series T in kind at full market value Your donation receipt: $100,000 Gross tax benefit of the receipt: $46,410 Your capital gains taxes: ($0) Tax credit from receipt and total

Tax reduction: $46,410

Donating Series T in-kind gives your client a tax advantage of $27,180 over a cash donation*


Client Seeking to Reduce Taxes through Charitable Giving

Tax Reduction from Donation

$-

$10

$20

$30

$40

$50

Cash Donation

In-kind Donation

$K

*Based on a $100,000 donation,+ tax credit receipt from $37,794. Assumes a tax rate of 46.41%

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Tools


Show the Benefits of Series T to Your Clients

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OPTIMIZE TAX-DEFERRED

INCOME

PROTECT THE TRANSFER OF

WEALTH

HARNESS THE POWER OF COMPOUND GROWTH

Invest Today with Tomorrow in MindTM Turning Actionable Tax Ideas into a Lifetime of Advantage for Your Clients

optimize tax-deferred income

Documents