Segregated funds are investment products offered through life insurance companies. Recently, many insurance companies have added new benefits that make investing in segregated funds even more attractive. While essentially the same as mutual funds, Segregated Funds offer certain unique advantages:

• Guarantee up to 100% of the principal investment at maturity;
  (usually 10 years)
• Guarantee up to 100% of the principal investment upon death;
• Allow a beneficiary to be named - even on non registered investments,
  thus avoiding probate fees, reducing legal fees and other estate related problems.
• Offer the potential for protection from future creditors;

Segregated funds are currently not subject to the same foreign content rules as mutual funds; in fact, as of January, 2001 there are no foreign content restrictions placed on segregated funds at all. This is under review and likely to ultimately conform with the same rules that apply to other registered products.

Since U.S. and Global equity markets have historically outperformed Canadian markets, you may want to add some of these funds in order to boost returns and reduce your total portfolio risk.

Investing in segregated funds allows you to increase your foreign investment exposure without affecting the overall available foreign content limits inherent in mutual funds and most other securities.

Segregated Funds also offer access to some of the best and most respected names in the Canadian Mutual Funds industry. Select from among several different fund types and investment management styles. In some cases, you are investing in a pool of funds, which are, in turn, invested in underlying mutual funds; this is known as 'fund-on-fund' investing. Others mimic the underlying fund by investing in the same securities in the same ratios.

Another feature offered by some insurance companies is the "Reset" or "Freeze" option. This provides you with a means of locking in gains and increasing the guaranteed principal as value of your investment rises. Once exercised, this feature protects your investment value even if markets later decline. Whether you are seeking capital preservation or growth, you have peace of mind that your investment principal and market gains will be guaranteed.

Example: Initial investment $50,000. One year later, the market value is $55,000. You then exercise the reset option (charges may apply), thereby increasing the capital guarantee from $50,000 to $55,000. If you were to subsequently die after the market took a tumble (which reduced the market value of your investment to $44,000) the beneficiary still receives $55,000.

While no one expects their investment to go down in value, isn't it comforting to know, that the capital is safe - regardless of market swings?

While Segregated Funds add significant value in the case of death, an investor doesn't have to die in order to benefit. While you are alive, segregated funds grow In the same way as conventional mutual funds; i.e. they are redeemable at any time, in whole or in part, at current market valuations.

With regard to fees or commissions, Segregated Funds are purchased like mutual funds - with a front- end sales charge (load) or with a deferred sales charge (which is ultimately load free, as long as you hold your investment for a certain period usually 6-7 years). Some Segregated Funds are available on a 'No-Load' basis as well.

Seniors holding individual stocks or mutual funds inside their RRSPs, RRIFs or investment accounts should seriously consider switching these investments to Segregated Funds. The average annual return for the TSE over the past 50 years has been 11% - not the 20%+ returns of recent years. Switching to a Segregated Fund will protect these returns and also allow future gains to be locked-in if markets continue to rise.

Guarantees on principal and the ability to lock-in gains provides new opportunities for investment strategies:

• Spouses trying to grow their capital while alive may now protect their principal and growth for each other in case of death
• Parents or grandparents who have allocated sums of money for their children may now invest in equity funds and lock-in future growth without risk to the principal investment.
• Middle-aged children with a parent who is a senior may purchase a Segregated Fund in their own name, but link the term of the investment to the parent's life.
• Whether it is the potential for creditor proofing, avoiding probate fees and taxes, increasing foreign content on RRSPs or RRIFs, or using the Death Benefit Guarantee and Reset option as part of estate planning, Segregated Funds, which are available for both registered and non-registered investments offer unique benefits, which are appealing to a wide range of investors.