CIFP Annual National Conference 2004

1
CIFP Annual National Conference 2004
1 - Capital Markets Overview - Second Quarter
2004 2 Investing for Income 3 Asian Exposure
Tuesday June 15, 2004
2
GGOF Guardian Group of Funds

• Established in 1962
• 3.9 billion in assets under management
• Global investment management expertise through 9
  leading organizations

3
A New Era of Single-Digit Returns

• Moderate growth and inflation looking forward
• Single-digit return expectations for most
  Canadian asset classes in the next few years
• Stock market leadership requires powerful
  earnings momentum
• Current income a much larger portion of total
  returns

4
A New Era of Single-Digit Returns

• Annualized returns of 10-11 now in rear view
  mirror
• Expect coupon clipping returns in future

5
Central Banks and Interest Rates in the U.S. and
Canada
6
and the yield curve is starting to steepen again.
7
Why would anyone buy government bonds today?

• Either in Canada.

8
Why would anyone buy government bonds today?

• .or in the U.S.?

9
Investors have received equity type returns in
bonds over the last 3 years
Start June 30, 2000 End May 19, 2004
10
Reasons to Consider Non-Traditional Income
Alternatives

• Coupon returns for traditional income products
• Promising outlook for income products with
  equity-like characteristics
• Well-developed markets now for non-traditional
  income products
• Value of low or non-correlated asset classes

11
Non-traditional Income Alternatives

• Preferred shares
• High yield bonds
• Income trusts
• Dividend-paying common shares

12
Preferred Shares

• Exchangeable, retractable and floating rate
  preferred shares provide
• stable, tax-effective income
• low volatility
• 1.00 of dividend income and 1.25 - 1.30 of
  interest income both produce the same after-tax
  income
• Dividends provide yield support, which
  contributes to price stability
• High quality (P1/P2) preferred share market
  shrinking
• Be careful Know what you are buying because
  issue features vary greatly

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What are High Yield Bonds?
LONG-TERM DEBT RATING SCALES
STANDARD POORS
DBRS
Credit Quality
Highest Quality Superior Satisfactory Adequat
e Speculative Highly Speculative Very
Highly Speculative
AAA AA
AA AA-
A A
A- BBB
BBB BBB-
BB BB BB-
B B
B- CCC
CCC CCC-
CC/C D
AAA AA(high) AA
AA (low) A(high) A
A(low) BBB(high) BBB
BBB(low) BB(high) BB
BB(low) B(high) B
B(low) CCC
CC/C D
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Low or non correlation asset classes are the
answer to bear markets
Canadian Risk/Return Comparison Dec. 1988 Dec.
2003
ScotiaCapital BBB Index prior to inception of
High Yield Index December 31/1994
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Low Correlation with Other Asset Groups
Correlations of Monthly Returns
Canada 1997-2003
USA 1985-2003
High Yield Investment Grade Corps 10 Year Govt
Bonds 90-Day T Bills Large Cap. Stocks Small Cap.
Stocks Investment Trusts (Cda) U.S. REITs
1.00 0.06 -0.15 0.10 0.39 0.39 0.09
1.00 0.22 0.17 -0.01 0.50 0.38
0.31
Merrill Lynch Canadian High Yield Index, U.S.
High Yield Index Dec 1994-Dec 2003. (Morgan
Stanley REIT Index Inception Dec 31/94)
16
Reduce Risk AND Increase Return
Efficient Frontier-High Yield Bonds vs. Ten-Year
Treasuries monthly, 1985 - Q1 2003
Source Merrill Lynch Co.
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High Yield Bonds

• Dual nature helps performance in all market
  environments
• Interest-sensitive nature causes price
  appreciation when interest rates fall
• Stronger economies that produce rising rates also
  benefit high yield issuer companies
• Low correlation with other asset classes provides
  diversification benefits
• Total returns driven by income, not capital gains
• Keys are credit analysis and issuer knowledge
• Fund eliminates most of the single issuer risk

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Income Trusts

• Power and Pipeline Trusts utility type income
• Real Estate Investment Trusts (REITs) produce
  rental income
• Royalty Trust Units (RTUs) produce resource
  royalty income
• Business Trust Units (BTUs) produce business
  income
• Return of Capital (ROC) is very tax-efficient
• Tax liability is deferred
• Ultimately paid at lower capital gains rate
• Can act as an inflation hedge
• Low correlation with other asset classes provides
  diversification

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Maturing of an Institutional Asset Class
1995-1996 Now
Universe 15 billion 90 billion Diversificati
on Two asset classes Four asset
classes Governance External Management Internal
Management Business Model Leveraged balance
sheets Strong balance sheets Payout ratios
maximized Lower, sustainable payout
ratios Investor Appetite Capital Gains Current
income Installment receipts Fully paid
priority distributions Research
Minimal Widespread, quality
research Excellent investor
relations Cohesion Disarray Effective
lobbying CAIF, CIPPREC Performance No track
record Established asset class with very
credible performance Legal Theoretical
unlimited Closure imminent putting trusts
on liability for unitholder equal footing with
common shares Bill 35 Trust
Beneficiaries Liability Act
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Income trusts universe is now broadly diversified
74
27
Number of Issuers
23
13
Market Cap ( billions)
Oil Gas Trusts
Business Trusts
REITs
Power/Pipeline

• FOUNDATION OF A VERY LIQUID ASSET CLASS IS NOW
  IN PLACE
• 1 BILLION YELLOW PAGES IPO THE LARGEST EVER IN
  CANADA

Trust Market By SectorAs of March 22, 2004
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RETURNS HAVE BEEN TOO GOOD TO IGNORE

• Four asset classes compared over 8 time frames,
  or 32 data points.

Annualized Total Returns to December 31, 2003
ONE YEAR
EIGHTYEARS
SEVENYEARS
SIX YEARS
FIVE YEARS
FOUR YEARS
THREEYEARS
TWO YEARS
38.3
14.9
12.3
14.0
22.1
25.6
24.7
25.3
SCOTIA CAPITAL INCOME TRUST INDEX
6.8
8.1
7.5
7.1
6.7
9.0
8.4
8.6
SM UNIVERSE (MID TERM BOND)
26.7
9.0
6.5
5.1
6.5
1.0
-1.0
5.3
SP/TSX COMPOSITE TOTAL RETURN
5.4
8.6
6.7
2.0
-3.9
-7.9
-8.7
-9.8
SP 500 TOTAL RETURN (CDN)

• In all 32 observations, income trusts have
  outperformed all other asset classes in all
  time frames.

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Expensive Relative To What?
Income Trusts Produce Tax Effective Upfront
Yields 300 to 900 Basis Points Higher Than
Competing Vehicles
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Strategy And Tactics For MoHigh 2.0
Broad Diversification 50 positions Average
Position 2Maximum Position 4-5 Normal Cash
3-5
As of March 26th, 2004
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Compelling Record of Performance
RETURN
Source Ned Davis Research Inc.
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Compelling Record of Performance
Source Ned Davis Research Inc.
26
Canadian Performance Equally Compelling
Dividend versus Zero-Dividend Stocks SP/TSX
1998-2003
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Dividend-paying Common Shares

• In an era of modest equity returns, dividends are
  an important component of total return.
• 1.00 of dividend income and 1.25 - 1.30 of
  interest income both produce the same after-tax
  income
• Dividend yield provides greater stability than
  non dividend-paying shares
• Good companies with skilled management and
  dominant industry positions create capital and
  dividend growth

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Fund Structure
Preferred Shares GGOF Monthly Dividend Fund
High Yield Bonds GGOF Canadian High Yield Bond
Fund
GGOF Diversified Monthly Income Fund
Dividend paying common shares GGOF Dividend
Growth Fund
Income Trusts GGOF Monthly High Income Fund
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Fund Benefits

• Provides tax-advantaged monthly income of 3.5
  cents
• Comprised of four separate asset classes 25 in
  each asset class
• Asset classes show little correlation with each
  other, ensuring superior diversification benefits
• Provides an easy, convenient way to invest in one
  product based on 4 successful GGOF funds
• Managers among the best in Canada
• John Priestman/Kevin Hall (Guardian Capital)
• Steve Kearns (Guardian Capital)
• Michael Stanley (Jones Heward)

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U.S. dollar has weakened against all currencies,
whether based on commodities...
US/CDN
US/AUD
Source Bloomberg
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or based on higher interest rates.
US/EUR
US/Brit
Source Bloomberg
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Over the long-term, this is the reason for
foreign investing
CDNUSD
Source Bloomberg
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ASIA

• The Case for Asia

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The Asia Pacific Region

• makes up nearly half of the worlds population

2003 Global Population
European Union
United States
6
5
Asia Pacific
47
Rest of World
42
Total 6.3 Billion
Note Asia Pacific is defined as Australia,
China, Hong Kong, India, Indonesia, Japan,
Malaysia, New Zealand, Philippines, Singapore,
South Korea, Taiwan, Thailand. Source U.S.
Census Bureau, Goldman Sachs.
35
The Asia Pacific Region

• accounts for over a quarter of the worlds
  economic output

2003 Global GDP
Asia Pacific
26
European Union
28
Rest of World
11
United States
35
Total 29.3 Trillion
Note Asia Pacific is defined as Australia,
China, Hong Kong, India, Indonesia, Japan,
Malaysia, New Zealand, Philippines, Singapore,
South Korea, Taiwan, Thailand. Source U.S.
Census Bureau, Goldman Sachs.
36
The Asia Pacific Region

• represents over 19 of the worlds market
  capitalization

2003 Global Market Capitalization
Sources Goldman Sachs, CLSA, Standard Poors
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Asia Pacific GDP growing much faster than the
E.U. and U.S.
8
7
6
5
4
3
2
1
0
Source Goldman Sachs, HSBC MICM, 2003 and 2004
are estimates
38
Witnessing rising standards of living in emerging
countries
Source World Bank
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US Imports from Asia

• Chinas share is rising

Source Nomura Securities
40
Private Sector Development
000s

Source Bank Credit Analyst
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Chinas Growing Consumer Demand

• Number of major durable goods owned per 100
  urban households

42
Boom in Foreign Direct Investment
Source Bloomberg
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GGOF Asian Growth and Income Fund

• Diversified exposure to Asian Tiger countries
  China, Hong Kong, Thailand, Malaysia, Taiwan,
  Singapore, Indonesia, the Philippines and South
  Korea.
• Portfolio is concentrated among these countries,
  which have a combined population of 2.9 billion.
• Portfolio of 40 to 75 dividend-paying stocks and
  U.S. dollar-denominated convertible bonds
• Primary goal is to provide investors with
  capital growth and moderate income

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Fund Performance
Fund Performance
Returns calculated in U.S. dollar terms as of
March 31, 2004 Index includes developed and
emerging Asian markets Source Morningstar.
Shading indicates periods when the Matthews fund
outperforms the Index
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Conclusion

• Single digit returns for most Canadian asset
  classes over the next 12 24 months
• Current income a much larger portion of total
  return.
• High yield bonds and more trusts good compliment
  to equities and government bonds (low
  correlation)
• The investment for Asia remains very positive.

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Disclaimer
Sales commissions, service fees, management fees
and expenses all may be associated with mutual
fund investments. Please read the prospectus
before investing. The indicated rates of return
include changes in unit value and assume
reinvestment of all distributions, and do not
take into account sales, redemption or optional
charges or income taxes payable by any
securityholders, which would have reduced
returns. Mutual funds are not guaranteed, their
values change frequently and past performance may
not be repeated.