Today we are going to talk about the new T- Class op7on from CI Investments. We are going to cover what it is and how it works.

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2 Today we are going to talk about the new T- Class op7on from CI Investments. We are going to cover what it is and how it works. By the end of the presenta7on you will have a be@er idea of the target market, the sales process and why T- Class is superior to other tax- efficient funds that are available to investors. 2

3 Market Opportunity Long gone are the days of double- digit GIC returns. Today s re7rees are facing low interest rates, which are likely to con7nue. And even though interest rates may move up moderately over the mid- term, it s likely there won t be enough of an increase to provide a solid aher- tax income. What your clients will be looking for is a stable, predictable source of tax- efficient income that can also provide some capital preserva7on and the poten7al for growth to help them stay ahead of infla7on. 3

4 What is T- Class? T- Class provides a single solu7on that creates a predictable tax- efficient cash flow, without sacrificing a choice of investments. By tapping into the unrealized gains, your clients can create a predictable, monthly income stream and s7ll allow their investments to con7nue growing at rates that can poten7ally match, or outstrip the rate of withdrawal. They receive a tax- efficient income without sacrificing the poten7al for growth. No longer are they confined to inves7ng in tradi7onal fixed- income products to fill their income needs. With T- Class they are able to have a steady income from non- conven7onal sources, such as equi7es and balanced pornolios. There s no need to adjust their asset alloca7on mix they can con7nue to hold the same pornolios and s7ll receive income. Whether your clients are conserva7ve or focused on growth T- Class can create a predictable cash flow to meet their needs. They can choose from balanced funds, Canadian, U.S. and global equity funds, as well as managed solu7ons. T- Class provides one solu7on at no addi7onal cost over regular mutual funds and provides more aher- tax income than conven7onal SWPs based on mutual fund trusts. It s a simple, flexible solu7on that can be adjusted to any income requirement. 4

5 Tax- efficient cash flow with T- Class T- Class provides a monthly distribu7on that is 100% return of capital. This differs from tradi7onal SWPs, where a por7on of the withdrawal will be taxable (usually capital gains) and a por7on will be ROC. Monthly ROC distribu7ons from T- Class do not a@ract tax, which puts more money into your client s pockets. Please note that T- Class may pay taxable annual dividends in addi7on to the return of capital payments. ROC distribu7ons result in a reduc7on of the adjusted cost base, and allow your clients to defer capital gains un7l they sell their investment, or the ACB drops below zero. T- Class is available in two op7ons 5% and 8% plus there is the flexibility to customize an income solu7on based on your clients cash flow needs. With T- Class, you can help them create their own income with the growth of their investments so they won t be reliant on what the market is paying for fixed- income investments. 5

6 Tax efficiency Clients invested in non- registered investments need to be aware of the taxa7on of their investments so that they can select the solu7on that will put the most money in their pocket. Here s the breakdown of how they will be taxed, assuming a marginal tax rate of 46.4%: GIC, bonds and other fixed- income returns are taxed as regular income at their full marginal tax rate this means that on $10,000 of income, they lose $4,640 or almost half to tax. Income from Canadian dividends is taxed at approximately 29% of the MTR so they pay about $2,900 in tax. Capital gains a@racts a 23% rate so they pay only $2,320 in tax on $10,000. Return of capital ROC a@racts no tax since it is considered a return of a por7on of the original capital or unrealized capital gains. Please note that T- Class may pay taxable annual dividends in addi7on to the return of capital payments. 6

7 $1 million investment This table illustrates the annual income and how much tax will be paid with a tradi7onal fixed- income investment compared to the aher- tax cash flow that clients can realize by using T- Class. Clients receive the same gross distribu7on, but that s the only thing that s similar between the two. With T- Class, clients receive a higher annual cash flow, because they pay no tax. With each distribu7on, the ACB declines by the amount of capital being returned in each monthly distribu7ons. And, even when both pornolios are sold aher 15 years and all taxes are paid, the client with T- Class is s7ll $174,000 or 43.3% ahead of the client that invested in an interest- paying investment. 7

8 T- Class Corporate Class advantage The monthly distribu7ons will always be tax- efficient ROC, unlike other T Series funds that are based on mutual fund trusts where a large por7on of the distribu7on can be highly- taxed interest. The structure of CI Corporate Class and T- Class minimizes or eliminates taxable annual dividends. By inves7ng in CI Corporate Class, your clients also have the freedom to: Move between funds without triggering a taxable event Defer taxes un7l the ACB is zero, or the investment is redeemed from CI Corporate Class Defer taxes un7l they are in a lower tax bracket This gives them more control over the taxa7on of their investments since they can be@er manage when to trigger capital gains, and have more control over how much tax to pay. 8

9 T- Class investment lineup Your clients have a choice of more than 50 mandates that are widely diversified to ensure they won t have to alter their long- term investment objec7ves. A 5% T- Class op7on provides an annual cash flow equal to 5% of the market value of the investments at year end. An 8% T- Class provides annual cash flow equal to 8% of the year- end market value. 9

10 T- Class compebbve advantage Many T series funds that use mutual fund trusts can t provide the same tax benefits as corporate class funds. Distribu7ons from mutual fund trusts are heavily weighted toward highly- taxed interest income and are topped- up with return of capital (ROC) to produce a slightly more tax- effec7ve distribu7on. OHen an 8% annual distribu7on will consist mainly of interest income and very li@le ROC which is not tax- efficient. To avoid this situa7on, we have based T- Class on our tax- efficient Corporate Class funds. T- Class provides customizable monthly payments of non- taxable ROC, and keeps any taxable annual dividends to a minimum. Please note, PorNolio Series funds are trusts. However, PorNolio Series funds pay ROC monthly and in December they pay taxable amount. With Corporate Class, taxes are postponed un7l your original capital has been depleted by the ROC distribu7ons. Only aher the ACB has been depleted will the monthly distribu7ons become capital gains and when that day comes, the tax bill will be paid with infla7on- eroded dollars. Please note that T- Class may pay taxable annual dividends in addi7on to the return of capital payments. 10

11 How does T- Class work? T- Class uses the tax- efficiency inherent in CI s Corporate Class to provide investors with a distribu7on consis7ng of mainly ROC. The result is a higher aher- tax cash flow without compromising the earning poten7al of the investment. Taxes are deferred un7l a 7me when the investor may be in a lower tax bracket. Over 7me, T- Class will reduce the ACB to zero which means any further distribu7ons will be capital gains, but this will s7ll be taxed at the lowest rate. Of course, if the investment is sold before that 7me, capital gains will be calculated on the difference between the market value and the ACB. CI provides an annual statement regarding all distribu7ons that are return of capital so your clients can track their investment. For PorNolio Series funds, the T3 slip would show this ROC. 11

12 CalculaBon of monthly payments The NAV of the fund on the last business day of the year determines the distribu7on per unit for the following year. The distribu7on is reset annually to maintain a consistent target payout. This helps to ensure preserva7on of capital in weak markets to slow the erosion of the ACB and to increase payments in strong markets. This enhances the sustainable, monthly cash flow you receive. As you can see, in a rising market the monthly cash flow will increase in a falling market the opposite will happen. 12

13 T- Class in rising market In a rising market the value of the investment is going higher, which means that the annual payout level will be increasing and the ACB is lowered to zero faster. But even aher 15 years or so, the market value of the pornolio has grown in excess of the original investment. AHer the ACB has been reduced to zero, all monthly distribu7ons will be treated as capital gains which is s7ll more tax efficient than receiving interest income. 13

14 T- Class in falling market In a down market, the annual payout will be lower, but it will also take longer to lower the ACB to zero because the annual payout is adjusted each year to ensure that the target distribu7on is maintained. If your client needs more income you can always adjust the withdrawal rate. It takes longer to reduce the ACB to zero and erode the original capital. 14

15 Sales process Iden7fy your clients who can benefit from the tax- efficiency of T- Class. Select investments that best fit your clients objec7ves and need for income. Choose either a 5% or an 8% distribu7on level or customize by using a mix of the two to provide the required level of income. 15

16 Target markets Canadians have $982 billion siong in liquid accounts earning an average yield of less than 1% (as at December 31, 2014), based on calcula7ons by Investor Economics. Millions of Canadians have maximized their RRSPs. Non- registered tax deferral vehicles are under u7lized by most Canadians and many investors are paying tax when they don t have to. T- Class helps lessen the tax burden. It is ideal for any investor looking to supplement the income from higher- taxed registered investments with T- Class s non- registered cash flow for an overall lower tax rate. Since it is not considered income for tax purposes, it can help re7red investors lower their taxable income and avoid triggering the Old Age Security (OAS) clawback. OAS clawbacks begin to kick in around $72,809 in net income and once re7rees hit this level they can also lose out on other social benefits, such as GIS. T- Class also suits pre- re7rees who are currently accumula7ng assets in CI Corporate Class. 16

17 Choose distribubon T- Class s flexible structure allows investors to increase, decrease, combine T- Class and non- T- Class investments for an overall return, as well as the ability to stop withdrawals and start again at any 7me. Clients can switch back and forth between series (5% and 8%) and other Corporate Class funds without worrying about the tax consequences. T- Class allows you to customize your client s cash flow strategy, through flexible T- Class. 17

18 Key benefits T- Class is a cash flow income solu7on and shouldn t be confused with the investment s rate of return, or a yield that is offered on tradi7onal income vehicles. T- Class taps into the unrealized gains inherent in an equity- based investment. T- Class s compe77ve advantage produces predictable, tax- efficient monthly cash flow that is 100% ROC with any annual taxable distribu7ons automa7cally reinvested. It can offer your client flexibility to be fully invested and s7ll receive a stable tax- efficient income at the same 7me. Plus, it gives them flexibility on when to realize capital gains on their investment. 18

19 T- Class CompeBBve PosiBon CI provides the most tax- efficient investments across the widest selec7on of assets. With more than 50 mandates under the Corporate Class structure, clients can: switch among funds without tax consequences defer paying tax and see the power of compounding add to the growth of their investments 19

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