CompX International Inc. Annual Report 1999

FY1999 Annual Report · CompX International Inc.

Loading PDF…

C . I . F U N D M A N A G E M E N T I N C .

1 9 9 9

A N N U A L R E P O R T

growth

n 02 Financial highlights n 04 Message to our shareholders n 08 Operating review n 16 Management’s discussion and analysis
n 24 Management’s report to shareholders n 25 Consolidated financial statements n 29 Notes to consolidated financial statements
n 35 Corporate directory n 36 Corporate information

An uncompromising focus

1981

C.I. Funds

1987

C.I. Sector Fund

1993

100% RSP-eligible
International Funds

1996

Hansberger
Value Series

C.I. Fund Management Inc. is a publicly-traded Canadian corporation that carries on

The Annual and Special Meeting of Shareholders

activities primarily through its wholly-owned subsidiaries, C.I. Mutual Funds Inc. and

will be held on November 19, 1999 at 2:00 p.m. at the

BPI Financial Corporation, with assets under management of $17 billion.

Toronto II Room of the Toronto Hilton, Toronto, Ontario.

on shareholder value.

1997

Harbour Funds

1997

C.I. Segregated
Funds

1998

1999

Signature Funds

BPI Mutual Funds

MU T UAL FUNDS

Historical Financial Highlights

Years ended May 31, [in millions of dollars except per share amounts]

Total assets under management, end of year
Net sales

Revenue:

Management fees and other income
Redemption fees
Expenses charged to mutual funds

Total revenues

Expenses:

Selling, general and administrative
Investment adviser fees
Trailer fees
Distribution fees to limited partnerships
Amortization of deferred sales commissions
Other (including securitization)

Total expenses
Income before taxes
Net income
Operating cash flow

Earnings per share
Operating cash flow per share
Shareholders’ equity, end of year
Shares outstanding, end of year*

1999

9,700
1,369

157.6
14.4
32.0
204.0

48.3
18.1
37.0
9.6
67.3
2.6
182.9
21.1
8.7
89.8

1998

8,302
1,189 **

143.8
8.4
28.9
181.1

46.5
16.3
34.9
11.3
47.3
8.5
164.8
16.3
8.6
64.4

0.25
2.51
126.6
36,055,115

0.24
1.80
140.2
36,871,722

*adjusted for 2 for 1 stock dividend in April 1998
**does not include $286 million in sales of the closed-end DDJ Canadian High Yield Fund

Assets Under Management

Net Sales

Total Revenues

[billions of dollars; years ended May 31]

[millions of dollars; years ended May 31]

$9.7

2500

2000

1500

1000

500

$1,369

250

200

150

100

$204

n 2 Financial Highlights

1997

6,516
461

114.5
4.1
26.8
145.4

40.7
13.1
28.9
11.4
26.4
7.4
127.9
17.5
9.5
45.1

1996

5,469
537

96.6
1.4
22.1
120.1

34.3
11.4
24.0
11.9
11.8
7.7
101.1
19.0
10.5
37.4

1995

4,394
909

86.9
0.1
21.6
108.6

34.9
11.2
19.9
11.9
1.2
10.2
89.3
19.3
10.5
20.9

1994

3,733
2,463

56.5
––
12.1
68.6

29.4
7.8
10.0
8.7
––
4.8
60.7
7.9
4.0
6.0

1993

960
402

14.7
––
4.4
19.1

9.6
2.9
2.7
2.8
––
––
18.0
1.1
0.6 †
1.1

0.29
1.37
55.8
32,784,790

0.32
1.14
50.8
32,959,526

0.32
0.64
43.1
32,970,526

0.15
0.23
6.0
26,770,000

0.03
0.05
1.3
26,610,000

†net income from continuing operations

Operating Cash Flow

Net Income

Total Shareholders' Equity

[millions of dollars; years ended May 31]

100

$89.8

$8.7

150

120

$126.6

n 3 Financial Highlights

The Executive Committee: G. Raymond Chang, Stephen A.MacPhail, Peter W. Anderson, William T. Holland

Dear Shareholders,

Fiscal 1999 was signified by an uncompromising

A key factor supporting C.I.’s growth has been our

focus on growing shareholder value. This is

extensive line-up of 100% RSP-eligible internation-

consistent with our corporate objectives of aggres-

al funds. Originally established by C.I. in 1993, total

sively growing C.I.’s assets while managing our

assets in these funds exceeded $1.5 billion by

business in a fiscally responsible manner.

the end of fiscal 1999 and established C.I. as the

industry leader in this product.

As a result, C.I.’s assets under management grew

by $1.4 billion to finish the year at $9.7 billion and

The growth in C.I.’s assets under management

continue C.I.’s strong record of double-digit asset

was reflected in C.I.’s fiscal results. Revenues

growth since 1990.

rose by $23 million to $204 million, operating cash

flow increased 39% to $90 million, operating

Net sales increased 15% from the prior year to

margins were among the highest in the industry,

$1.4 billion, even though the industry trend saw net

and C.I. continued to be debt-free.

sales down approximately 50%. The momentum

in C.I.’s net sales strengthened throughout the

C.I. expanded its investment management expertise

year, with C.I. currently ranking second among all

and now includes outstanding in-house investment

Canadian mutual fund companies.

managers for C.I.’s domestic and international

n 5 Message to Our Shareholders

“ . . . C O N T I N U E S C . I . ’ S S T R O N G R E C O R D O F

products. From a base of essentially zero only three

$17 billion. The net sales of the combined com-

years ago, over 70% of C.I.’s funds are now managed

panies are second-highest in the Canadian

internally.

mutual fund industry. The cost synergies being

achieved by the merger of BPI's operations are

Recently, C.I. announced its intention to form C.I.

significant and are expected to improve C.I.’s

Global Advisors LLP in partnership with William

financial results immediately.

Sterling

(formerly of Credit Suisse Asset

Management) and his global asset management

As we look forward to the remainder of fiscal 2000,

team. In addition, recently-acquired BPI Global

C.I. is firm in its resolve to continue to grow the com-

Asset Management LLP in Orlando, Florida, whose

pany. The management team holds a significant

global funds have provided exceptional returns to

equity stake in C.I., and our actions reflect the inter-

Canadian investors, further strengthens C.I.’s

ests of all shareholders. Our performance in fiscal

in-house international management.

1999 is continued evidence that we are on the right

track and we expect that the growth in our assets

C.I. capped this successful year with the acqui-

and profitability continues well into the future.

sition of BPI Financial Corporation in August

1999, and the effect has been substantial.

Combined total assets under management are

October 6, 1999

G. Raymond Chang [signed]
President and
Chief Executive Officer

William T. Holland [signed]
Executive Vice-President
and Chief Operating Officer

n 6 Message to Our Shareholders

D O U B L E - D I G I T A S S E T G R O W T H S I N C E 1 9 9 0 . ”

$19.35

CIX Share Price

[as at May 31]

'94

'95

'96

'97

'98

'99

CIX vs. TSE 300 Index Total Return

[as at May 31]

400

350

300

250

200

150

100

CIX
$368

TSE
$175

'94

'95

'96

'97

'98

'99

n 7 Message to Our Shareholders

Operating Review

Environment

In fiscal 1999, overall assets under management in

recorded as such, drew investments that would

the mutual fund industry grew by only 7% to total

normally be recorded by the mutual fund industry.

$346 billion at May 31, 1999. Most of this growth

The investment of maturing GICs into mutual funds

was represented by industry net sales of

had far less effect than in the past five years, while

$24.3 billion as equity markets were generally

uncertainty about financial markets, especially

unchanged from the prior year. This sharp decline

Year 2000 concerns, has increased the reluctance

in industry net sales was a major shift from the

of investors. These factors combined to create a

prior fiscal year.

50% decline in net industry mutual fund sales

compared to the previous year.

The year also saw two other major shifts in the

mutual fund industry; increased sales concentra-

The overall decline in mutual fund sales affected

tion among the larger companies; and investor

fund companies unevenly. Net sales continued to

preference for global/international equities, espe-

be concentrated among a select group of mutual

cially 100% RSP-eligible products.

fund companies, with other fund companies expe-

The first shift, a reduction in industry net sales,

many companies showed net sales declines well in

was due to several factors. A proliferation of new

excess of the average 50% industry reduction over

riencing flat net sales or net redemptions. In fact,

products, especially proprietary products of

the previous year.

investment dealers and financial planners that are

essentially like mutual fund products but do not get

The second shift, sales concentration among the

n 8 Operating Review

1999 Growth Rate In Assets

1999 Growth Rate In Net Sales

[year ended May 31, 1999]

17%

15%

-10

-20

-30

-40

-50

-50%

All IFIC Members

C.I.

All IFIC Members

C.I.

C.I. Funds Geographic Allocation

C.I. Funds Asset Profile

[as of September 30, 1999]

Closed-End Funds 2%

Labour-Sponsored Funds 4%

Segregated Funds 4%

Institutional 8%

Mutual Funds 82%

Money Market/Cash 16.0%

Canada 34.1%

Other 0.7%

Latin America 1.2%
Far East 3.4%

Japan 7.4%

Europe 12.2%

U.S.A. 25.0%

“ T H E O N L Y M A J O R M U T U A L F U N D C O M P A N Y T O N E V E R E X P E R I E N C E

A S I N G L E M O N T H O F N E T R E D E M P T I O N S T H R O U G H O U T T H E 1 9 9 0 S . ”

larger fund companies, is one of the most dramatic

continually throughout the RSP season. C.I. has

changes in the business over the last decade. In

been offering 100% RSP-eligible international funds

the early 1990s, many small mutual fund companies

since 1993 and was able to successfully respond

could effectively compete for sales as shelf space

to the demand for 100% RSP-eligible international

was expanding and inflows of net money into

funds throughout the 1999 RSP season. The rest

mutual funds were very high. That has changed.

of the mutual fund industry has recently responded

Now, only larger, well-capitalized mutual fund

to this demand by developing and launching

companies have the financial strength to market

similar products.

effectively, the diversity to be attractive to invest-

ment dealers and financial planners, and the

Sales and Marketing

profile to command the attention of a distribution

In fiscal 1999, C.I. outpaced the industry both in asset

network that is only willing to promote a limited

growth and sales, resulting in a 12% market share

number of fund families.

gain. C.I.'s assets under management increased

17% to $9.7 billion, a growth rate more than double

This change is driving the current industry consoli-

the average industry growth of 7%. C.I.'s net sales of

dation that has been forecast for many years.

$1.4 billion reflected an increase of 15% over the

Smaller firms faced with limited sales growth and

prior year, dramatically ahead of the average 50%

rising costs are finding it increasingly difficult to

decline in net sales across the industry.

justify their independent status. We expect more

industry consolidation over the foreseeable future.

C.I.'s success in fiscal 1999 can be attributed to a

number of factors. C.I. has actively followed its

The third shift was the strong demand for

strategy of offering a wide range of products to

global/international equities, especially 100%

investors through one of the largest sales forces in

RSP-eligible products. In the fall of 1998, C.I. had all

Canada. As brokers and financial planners have

three of its Canadian equity managers providing

reduced the number of fund companies they

top-quartile performance. Generally, this would

consider, C.I. continues to aggressively maintain

have led to strong sales the following RSP season.

crucial shelf space.

However, increased investor preference for global

products, particularly 100% RSP-eligible internation-

C.I.'s broad product range is market driven. First

al funds, began in November of 1998 and grew

and foremost, we create products based on the

n 10 Operating Review

Fund Families

C.I. FUNDS
A diverse family
of Canadian and
international equity,
bond, balanced
and money
market funds

C.I. SECTOR
FUND
Tax-deferred
compounding
in classes of
Canadian and
international shares

HARBOUR FUNDS
Long-term value in
Canadian equity,
balanced,
mid-cap and
small-cap funds

100% RSP-ELIGIBLE
INTERNATIONAL
FUNDS
Global reach
with full
RSP eligibility

SIGNATURE
FUNDS
Low-volatility
investments for
long-term growth

HANSBERGER
VALUE
SERIES
Long-term value
in global equities

C.I. GUARANTEED
INVESTMENT
FUNDS (GIFs)
Solid guarantees
and a proven
approach
to growth

BPI FUNDS
Canadian and
global equity,
balanced,
income
and money
market funds

constant feedback received from clients. Instead

specific sector funds. C.I. continues to be the mar-

of telling investors what is good for them, our phi-

ket leader in 100% RSP-eligible international funds

losophy is the opposite. We give our clients the

with $2 billion of assets under management in

ability to choose among different investment types,

these funds alone (as at October 1999).

investment styles, management themes, specific

industries, geographic investments, segregated

C.I. recently launched a new customized wrap

products, and tax-efficient investments. This has

program called the Insight Program™. This product

made C.I. the only major mutual fund company

was developed so financial planners could offer

to never experience a single month of net

customized investment pools to their higher net

redemptions throughout the 1990s.

worth clients. Insight™ is a comprehensive wealth

management program, providing financial plan-

C.I. continued to expand its product offerings in

ners with a complete package including asset

fiscal 1999. Among its domestic funds, C.I. added

allocation, investment management, and adminis-

the Signature Funds managed by Wally Kusters to

tration. This diversification into non-traditional

complement the family of C.I. funds managed by

mutual fund products

is key to maintaining

J. Zechner Associates and the Harbour Funds

relations with our distribution network whose

managed by Gerald Coleman and Stephen Jenkins.

clients require innovative and attractive alternatives.

In addition, C.I. expanded its segregated fund line-

up with C.I. Guaranteed Investment Funds created

Portfolio Management

with Transamerica Life Insurance Company of Canada.

In fiscal 1998, C.I.'s in-house management of assets

commenced with the launch of the Harbour Funds

Among global products, C.I. increased its offerings

under Gerald Coleman. By May 1998, approxi-

with C.I. Global Boomernomics® Fund, C.I. Global

mately 17% of C.I.'s assets under management

Energy Fund, C.I. Japanese Fund, and C.I. Global

were managed in-house. Since that date, two

Biotechnology Fund.

events have significantly increased C.I.'s in-house

C.I.'s popular 100% RSP-eligible international

managed assets.

funds were improved to make them the most cost-

First, C.I. has announced its intention to form C.I.

effective in the industry. The product line was also

Global Advisors LLP, in partnership with William

expanded to include a number of C.I.'s industry-

Sterling and his global management team, to

n 12 Operating Review

Portfolio Management

D O M E S T I C A D V I S E R S

G L O B A L A D V I S E R S

Harbour Funds
Lead Managers Gerald Coleman and

Stephen Jenkins of C.I. Mutual Funds Inc.
Assets of $1.4 billion in seven funds

C.I. Funds
Advised by C.I. Global Advisors LLP
Assets of $3.9 billion in six funds

Signature Funds
Lead Manager Wally Kusters of C.I. Mutual Funds Inc.
Assets of $0.8 billion in twelve funds

BPI Global Funds
Advised by BPI Global Asset Management LLP
Assets of $1.9 billion in six funds

C.I. Funds
Advised by J. Zechner Associates Inc.
Assets of $1.7 billion in six funds

Hansberger Value Series
Advised by Hansberger Global Investors, Inc.
Assets of $0.6 billion in six funds

BPI Funds
Advised by BPI management team, Wally Kusters

and C.I. Mutual Funds Inc.
Assets of $2.4 billion in seven funds

C.I. Funds
Primarily industry-specific funds advised by

Credit Suisse Asset Management, LLC
Assets of $2.0 billion in fifteen funds

“ T H E C O M B I N E D S A L E S O F C . I . A N D B P I I N C A L E N D A R 1 9 9 9 A R E

C U R R E N T L Y T H E S E C O N D - H I G H E S T I N T H E I N D U S T R Y . . . ”

manage global and other products. Majority-

million), closed-end funds ($133 million), and insti-

owned by C.I., $3.9 billion (as at October 1999) of

tutional assets ($1,250 million).

C.I.'s assets under management are managed by

C.I. Global Advisors including many of C.I.'s

This acquisition has made C.I. Fund Management Inc.

fastest-growing funds.

the 10th-largest mutual fund company in Canada, and

increased C.I.’s market share by over 40%. The

In conjunction with C.I. Global Advisors, Trilogy

combined sales of C.I. Mutual Funds and BPI Mutual

Advisors, LLC has been formed to provide money

Funds in calendar 1999 (as of October 1999) are the

management services to U.S. and international

second-highest in the industry and the highest

institutions, pension funds, and mutual funds. C.I.

among the publicly-traded companies.

is a significant equity participant and we expect

the exceptional profile of William Sterling to help

This acquisition was attractive for a number of

this business grow rapidly.

reasons:

Second, C.I. acquired BPI Financial Corporation,

a] C.I. and BPI had similar operating structures.

all of the assets of which are managed in-house

This combination creates the opportunity

through majority-owned BPI Global Asset

for significant cost savings and improved

Management. Following the completion of this acqui-

available cash flow from the BPI assets.

sition in August, 1999, C.I. now has approximately

b] BPI offered a line-up of international funds

70% of total assets under in-house management.

managed by Orlando-based BPI Global Asset

Management with substantial sales momen-

Acquisition of BPI Mutual Funds

tum due to their strong performance.

In August 1999, C.I. Fund Management Inc. acquired

c] BPI’s majority stake in BPI Global Asset

all the shares of BPI Financial Corporation and its

Management also included a fast-growing

100% stake in BPI Capital Management Corporation.

institutional asset management business.

At the time of the acquisition, BPI Capital Management

Over the course of fiscal 2000, C.I. will be fully

Corporation had approximately $6.3 billion in assets

integrating the operations of BPI into C.I., including

under management represented by mutual funds

all administrative functions, to provide incremental

($4,400 million), labour-sponsored funds ($485

benefits to shareholders in the current year.

n 14 Operating Review

Acquisition of BPI Mutual Funds

C.I. Assets Under Management

[billions of dollars]

$15.6

May 31'98 May 31'99 Sept. 30'99

*excludes $1.3 billion in institutional assets

C.I. Market Share

C.I. Net Sales

[as percentage of IFIC members]

[millions of dollars]

4.01%

250

200

150

100

$203.3

May 31'98 May 31'99

Aug. 30'99

Jun'99

Jul'99

Aug'99

Sept'99

Management’s Discussion and Analysis

SUMMARY OF FINANCIAL POSITION

Years ended May 31, [millions of dollars except per share amounts]

1999

1998

% change

INCOME STATEMENT DATA
Revenue
Management fees
Redemption fees
Administration fees and other income
Expenses charged to mutual funds
Total revenues

Operating Expenses
Selling, general and administrative
Investment adviser fees
Trailer fees

Commission Related Expenses
Net fees paid to securitization
Distribution fees to limited partnerships
Amortization of deferred sales commissions
Other items

Income before taxes
Net income
Earnings per share

Operating cash flow
Operating cash flow per share

154.1
14.4
3.5
32.0
204.0

48.3
18.1
37.0

0.6
9.6
67.3
2.0

21.1
8.7
0.25

89.8
2.51

140.3
8.4
3.5
28.9
181.1

46.5
16.3
34.9

7.4
11.3
47.3
1.1

16.3
8.6
0.24

64.4
1.80

Shareholders’ equity, end of year

126.6

140.2

ASSET MANAGEMENT DATA
Average net assets under management

Total assets under management, end of year

Total gross sales
Total redemptions
Total net sales

8,086

9,700

2,611
1,242
1,369

7,175

8,302

2,420
1,231
1,189

+9.8
+71.4
0.0
+10.7
+12.6

+3.9
+11.0
+6.0

-91.9
-15.0
+42.3
+81.8

+29.4
+1.2
+4.2

+39.4
+39.4

-9.7

+12.7

+16.8

+7.9
+0.9
+15.1

n 16 Management’s Discussion and Analysis

OVERVIEW OF BUSINESS

The principal business of C.I. Fund Management Inc.
is the management, marketing, distribution, and
administration of mutual funds and other investment
products for Canadian investors through its wholly-
owned subsidiary C.I. Mutual Funds Inc. (“C.I.”). At
May 31, 1999, C.I. managed $9.7 billion in assets in
58 domestic and international mutual funds, 23 seg-
regated funds, one labour-sponsored fund, and one
closed-end fund. C.I. markets its funds to Canadian
retail investors through approximately 15,000 invest-
ment and mutual fund dealers representing over
650,000 retail investment accounts owning C.I.
mutual funds and over 3,500 life-licensed insurance
representatives with agreements allowing for the sale
of C.I.’s segregated funds.

In order to offer a broad range of domestic and inter-
national funds to Canadian investors, C.I. utilizes the
expertise of external and internal investment advisers.
The investment advisers to C.I.’s international mutual
funds are Credit Suisse Asset Management (formerly
BEA Associates) of New York and Hansberger Global
Investors of Ft. Lauderdale. The advisers to C.I.’s
domestic funds are J. Zechner Associates and C.I.’s in-
house asset management division, both of Toronto.
The investment adviser for C.I.’s labour-sponsored
fund, the C.I. Covington Fund, is Covington Capital

Corporation, Toronto and for DDJ Canadian High
Yield Fund (a closed-end investment trust) is DDJ
Capital Management, LLC, Wellesley, Massachusetts.

Increasing C.I.’s assets under management requires
maintaining an attractive product line in combination
with good fund performance and continuous support
to investment dealers, mutual fund dealers, and
insurance agents. Over the years, C.I. has consistent-
ly developed new products for investors such as the
sector-specific funds, global funds, segregated funds,
and a labour-sponsored fund.

In fiscal 1999, C.I. introduced three major new prod-
ucts. In July 1998, C.I. launched the C.I. Global
Boomernomics® Fund, whose investment mandate is
based upon the changing global demographics.

In December 1998, the Signature Canadian Fund
and the Signature Canadian Balanced Fund were
launched. Wally Kusters of C.I. is the primary invest-
ment adviser to these funds.

In February 1999, C.I. launched the C.I. Guaranteed
Investment Funds in conjunction with Transamerica
Life Insurance Company of Canada. These funds are
similar to mutual funds, yet offer guaranteed principal
at death of the annuitant or maturity of the investment.
These funds complement the C.I. Segregated Funds

1.02%

Cash Flow Per Share

Net Operating Margin

[years ended May 31]

[as a % of assets under management; years ended May 31]

3.0

2.5

2.0

1.5

1.0

0.5

$2.51

2.0

1.0

0.8

0.6

0.4

0.2

n 17 Management’s Discussion and Analysis

launched in the prior year. For both families of funds,
the guarantees are the responsibility of the insurance
company directly or through a major international
reinsurer to eliminate C.I.’s exposure to this risk.

REVENUES
The majority of C.I.’s revenues are earned from the
management services it provides as fund manager. The
key determinant of C.I.’s revenue is the level of assets
under management which, in turn, is determined by
market returns and net sales (gross sales less redemp-
tions) of the funds. Management fees charged by C.I.
to the funds range up to 2.25% of the average net asset
value of the funds. The mix of funds managed by C.I.
will also affect revenues. Emerging markets funds tend
to generate the highest management fees with bond
and money market funds being the lowest. The mix of
C.I.’s funds is determined by the relative performance
of the funds and net sales of each of the funds.

A key factor influencing net sales of the funds is fund
performance. In addition, prevailing market condi-
tions help determine the effectiveness of sales and
marketing campaigns with investment and mutual
fund dealers.

C.I. also earns revenues from redemption fees.
Investors are subject to redemption fees when mutual

funds are purchased on a deferred sales charge basis
and the investment is redeemed within seven years.
Redemption fees are calculated as a percentage of the
initial value of the funds sold and start at 5.5%,
declining to zero after seven years.

C.I. is responsible for the administration of the funds
and incurs expenses on behalf of the funds. C.I. recov-
ers most operating expenses by charging an adminis-
tration fee to the funds which is recognized as revenue.
As these revenues represent a recovery of expenses, they
do not affect the overall profitability of C.I.

C.I.’s third party administration business, through its
subsidiary InfoWise Inc., generates revenue by provid-
ing back office administrative services to other finan-
cial services companies. At May 31, 1999, InfoWise
had agreements with a number of outside parties.
During fiscal 1999, revenues from InfoWise were not
material to C.I.’s overall business.

EXPENSES
C.I. incurs certain key expenses in conjunction with
the management, marketing, and distribution of the
funds. These expenses constitute the majority of its
expenses outside those operational expenses incurred
on behalf of, and recovered from, the funds. These
expenses include investment management expenses,

Management Fees

Net SG&A Expense

[as a % of average assets under management; years ended May 31]

2.00

1.50

1.00

0.50

1.91%

0.80

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.20%

n 18 Management’s Discussion and Analysis

marketing expenses, trailer fees and selling commis-
sions paid to financial advisers.

Advisory fees paid to investment advisers are generally paid
on the basis of a percentage of assets under management.
C.I.’s advisers have different fee agreements and therefore
the mix of funds will affect the overall expense level.

Operating expenses, net of those recovered from the
funds, (referred to as net selling, general and adminis-
trative expenses) are primarily marketing expenses. In
general, marketing expenses are managed in propor-
tion to C.I.’s assets under management and increase as
assets under management increase.

Trailer fees are paid out to investment and mutual fund
dealers and life insurance agents to assist them in pro-
viding ongoing support to the investors in C.I. funds.
Trailer fees are calculated as a percentage of assets and
will vary with overall assets under management.

C.I. monitors its operating profitability by measuring
the operating margin calculated as a percentage of
assets under management. C.I.’s operating margin is
defined as management fees from C.I.’s funds less
investment adviser fees, trailer fees, and selling, gener-
al and administrative expenses net of expenses recov-
ered from the funds, calculated as a percentage of

average assets under management. This allows C.I. to
manage profitability when changes in the market
value of assets under management affect revenue flows
and permits adjustments to discretionary expenditures
to maintain its margins.

Commissions paid to investment and mutual fund
dealers and life insurance agents on the sale of funds
on a deferred sales charge basis vary directly with the
level of sales. For financial reporting purposes, these
deferred sales commissions are amortized evenly over
the 36 months immediately following the sale of the
funds. C.I. has financed sales commissions with its
own cash resources since January 1, 1995.

Commissions incurred prior to January 1, 1995 were
financed by limited partnerships or a securitization
vehicle. The expenses to C.I. for commissions financed
by limited partnerships are reported as distribution
fees paid to limited partnerships and are calculated as
a percentage of the assets where commissions were
specifically financed by the limited partnerships. The
effective amortization period
for commissions
financed by limited partnerships is the life of the
limited partnership of 15 to 20 years.

The expense to C.I. for commissions financed by the
securitization is reported as net fees paid to securitiza-

Trailer Fees

Investment Adviser Expenses

[as a % of average assets under management; years ended May 31]

0.5

0.4

0.3

0.2

0.1

0.46%

0.5

0.4

0.3

0.2

0.1

0.22%

n 19 Management’s Discussion and Analysis

tion and reflects an effective amortization period for
the commissions of seven years, the life of the securi-
tization vehicle. In June 1998, C.I. repurchased all the
outstanding notes issued by the securitization vehicle.
The remaining effective unamortized commissions are
being amortized over the period ending February 28,
2001 and are included in the amortization of C.I.’s
deferred sales commissions.

YEAR ENDED MAY 31, 1999 COMPARED
WITH YEAR ENDED MAY 31, 1998

Assets under management (including C.I. Covington
Fund and DDJ Canadian High Yield Fund) increased
from $8,302 million at May 31, 1998 to $9,700 mil-
lion at May 31, 1999, an increase of $1,398 million or
17%. Average mutual fund assets under management
were $8,086 million in fiscal 1999, an increase of 13%
from $7,175 million for the same period in fiscal
1998. As most of C.I.’s revenues and expenses are
based on assets throughout the year, average asset lev-
els are critical to the analysis of C.I.’s financial results.

The growth in assets under management was a result
of net sales (gross sales less redemptions) of $1,369
million and an overall performance increase of $29
million. This compares to fiscal 1998, when the
annual growth in assets under management was

$1,786 million or 27%, comprised of net sales of
$1,189 million, $286 million from the sale of the
closed-end DDJ Canadian High Yield Fund and an
overall performance increase of $311 million.

Gross sales of the funds were $2,611 million for the
year ended May 31, 1999 compared to $2,420 million
for the same period in 1998. (1998 sales do not
include $286 million in sales of the closed-end DDJ
Canadian High Yield Fund that are included in C.I.’s
assets under management.) Net sales (gross sales less
redemptions) were $1,369 million for the year ended
May 31, 1999 compared to $1,189 million for the
same period in 1998, an increase of 15%. The
increase in C.I.’s net sales from 1998 reflected the
increased popularity of C.I.’s global and 100% RSP-
eligible international funds. Redemptions of C.I.’s
funds were $1,242 million in fiscal 1999 compared to
$1,231 in fiscal 1998. Overall, C.I.’s redemption rate
as a percentage of average assets under management
declined from 17.3% in fiscal 1998 to 15.5% in fiscal
1999. Of the C.I. funds financed on a deferred sales
charge basis (which represented 85% of mutual fund
assets at May 31, 1999) the redemption rate was 8.4%
in fiscal 1999, down from 9.4% in fiscal 1998.

Total revenues increased to $204.0 million for the year
ended May 31, 1999 from $181.1 million for the

Cash, Short-term Investments

Portfolio Value of Redemption Fees

[millions of dollars; years ended May 31]

$253

300

250

200

150

100

$20.9

n/a

n 20 Management’s Discussion and Analysis

same period in 1998. Revenues from management
fees rose by 10% to $154.1 million for the year ended
May 31, 1999 from $140.3 million in 1998. As a per-
centage of average assets under management, manage-
ment fees charged to mutual funds were 1.91% for
fiscal 1999, down from 1.96% in fiscal 1998, due to
changes in asset mix. Administration fees and other
income (which include administrative fees, interest,
and investment income) decreased from $3.5 million
to $3.4 million due to higher investment gains and
interest income earned in fiscal 1998. Though
redemptions of C.I.’s funds were unchanged in fiscal
1999 from 1998, redemption fees rose from $8.4
million in fiscal 1998 to $14.4 million due to C.I.
initiating the self-funding of commissions in January
1995 and therefore retaining the right to any redemp-
tion fees paid. By having repurchased C.I.’s securiti-
zation vehicle, C.I. FEES Trust, C.I. gained unfettered
rights to all redemption fees on those assets.

Revenues represented by expenses recovered from the
funds rose to $32.0 million for the year ended May
31, 1999 from $28.9 million in 1998. This increase
was from higher assets under management and the
cost of continuing to improve C.I.’s administrative
systems, including costs associated with ensuring all
systems are Year 2000 compliant.

Net fees paid to C.I.’s securitization vehicle (the
“Trust”) (which represents principal and interest pay-
ments and certain expenses of the Trust, net of
redemption fees) were $556,000 for the year ended
May 31, 1999 compared to $7.4 million for the year
ended May 31, 1998. The decrease reflects C.I. hav-
ing repurchased the securitization in full in June 1998.

Total net operating expenses (net selling, general and
administrative expenses, investment adviser fees, and
trailer fees) for the year ended May 31, 1999 increased
by $2.5 million or 4% to $71.3 million from $68.8
million in 1998.

Selling, general and administrative expenses (net of
expenses recovered from the funds for activities carried
out in support of the funds) were $16.2 million, down
from $17.6 million in the prior fiscal year. This
reduction in costs was from C.I. focussing more of its
marketing expenditures on sales staff and less on gen-
eral advertising in combination with not having the
costs incurred in fiscal 1998 associated with launching
the Harbour Funds and the C.I. Segregated Funds. As
a percentage of assets under management, the net sell-
ing, general and administrative expenses were 0.20%
in fiscal 1999, down from 0.24% in fiscal 1998.

$86.2

Percentage of Assets Self-financed

DSC Financed

[years ended May 31]

[millions of dollars; years ended May 31]

65%

100

n/a n/a

n 21 Management’s Discussion and Analysis

Investment adviser fees increased from $16.3 million
in fiscal 1998 to $18.1 million in fiscal 1999 due to
increased assets under management. However, as a
percentage of average assets under management,
investment adviser fees were 0.22% versus 0.23% in
fiscal 1998 because of higher levels of in-house man-
aged funds. Trailer fees increased from $34.9 million
to $37.0 million due to increased assets under man-
agement. As a percentage of average assets, trailer fees
were 0.46% of assets under management at May 31,
1999 compared to 0.49% in the prior fiscal year.

C.I.’s operating margin (measured as management fees
less the net operating expenses described above, as a
percentage of mutual funds under management) was
1.02%, up from 1.00% in the prior fiscal year.

Distribution fees to limited partnerships totalled $9.6
million, down from $11.3 million in fiscal 1998. As
a percentage of average assets, distribution fees to lim-
ited partnerships declined from 0.16% to 0.12%,
reflecting a lower percentage of C.I.’s overall assets
under management financed by limited partnerships.
The marginal cost of the distribution fees to limited
partnerships at May 31, 1999 was approximately
0.10% of assets under management as these assets
continue to decline on a percentage basis relative to
C.I.’s self-financed assets.

Amortization of deferred sales commissions represent-
ed C.I.’s largest expense increase, rising from $47.3
million in fiscal 1998 to $67.3 million in fiscal 1999.
The $67.3 million amortization in fiscal 1999
includes $4.9 million in amortization of the excess of
the purchase price over fair value of net assets acquired
for the acquisition of the Trust (nil in fiscal 1998).

Net income for the year ended May 31, 1999 was
$8.7 million compared to $8.6 million in the same
period in 1998. Though operating earnings were up
substantially from fiscal 1998, the impact of the
additional $20 million in amortization of sales com-
missions had the effect of reducing net earnings.

FINANCING AND LIQUIDITY
C.I.’s capital requirements are primarily to fund com-
missions arising from the sale of funds on a deferred
sales charge basis. In fiscal 1999, C.I. financed $86.2
million in sales commissions, up from $84.2 million
in fiscal 1998. In addition, during fiscal 1999, C.I.
used $25.1 million to repurchase 1.8 million common
shares at an average price of $13.62 per share. This
compares to $23.1 million used to repurchase 1.6 mil-
lion common shares at an average price of $14.06 per
share in fiscal 1998. On May 31, 1999, the closing
price per share for C.I. common shares was $19.35.
In addition, in June 1998, C.I. repurchased the notes
issued under its securitization vehicle at a total cost of
$28.7 million.

These funding requirements were met by cash, short-
term investments and marketable securities of $67.9
million at May 31, 1998, operating cash flow in fiscal
1999 of $89.8 million (up from $64.4 million in
1998) and the issuance of 1.0 million common shares
from the exercise of stock options at an average price of
$6.28 per share for total gross proceeds of $6.5 million.

At May 31, 1999, C.I. had cash, short-term invest-
ments and marketable securities totalling $20.9
million ($67.9 million at May 31, 1998) and an
undrawn $75 million line of credit with a Canadian
chartered bank.

Since January 1, 1995, C.I. has used internally gener-
ated cash flow, proceeds from the issue of common
shares, and existing cash resources to finance sales
commissions. As a result, by May 31, 1999, 67% of
mutual fund assets were financed by C.I.’s cash
resources, up from 61% financed by cash resources at
May 31, 1998. C.I. has no debt associated with these
self-financed assets. The self-financed assets had a cur-
rent redemption value of $253 million ($7.02 per
share) at May 31, 1999 compared to $203 million
($5.52 per share) at May 31, 1998. At May 31, 1999,
18% of C.I.’s assets were financed by limited partner-
ships, down from 24% at May 31, 1998. The front-
end load sales assets at May 31, 1999 were 15% of
mutual fund assets under management, unchanged
from the prior year.

n 22 Management’s Discussion and Analysis

the period June 1999 to December 1999, this will be
done as part of C.I.’s previously scheduled software
upgrading process. Contingency plans to deal with the
Year 2000 issue are currently being developed and are
expected to be in place by November 15, 1999. C.I.
believes that, to the extent it is an operating expense of
the company, the anticipated expenditures of any
required remediation of such systems will not be mate-
rial and that such remediation will be completed before
such systems are at risk of a Year 2000 issue.

C.I. is working with certain corporate affiliates and
external service providers, upon which it is dependent,
to ensure such affiliates and service providers are tak-
ing steps to address their Year 2000 issues. Although
C.I. is using reasonable efforts to monitor the Year
2000 compliance of its service providers, a failure of
key service providers to address their Year 2000 issue
in a timely manner may have a material adverse effect
on C.I.’s ability to manage its operations.

While C.I.’s efforts to address the Year 2000 issue are
proceeding expeditiously, there can be no guarantee
that deficiencies in the systems of other entities on
which C.I. is dependent will not have an adverse effect
on our operations. Although the Year 2000 issue is an
additional business risk that must be taken into
account when investing, C.I.’s investment advisers are
considering the impact of the Year 2000 on their
respective portfolios as one of the factors influencing
investment decisions.

Capital expenditures incurred during the year ended
May 31, 1999 totalling $2.1 million were primarily
for computer hardware and software related to the
improvement of systems technology and additional
space requirements. Depreciation charges on these
assets are generally recoverable from the funds.

OUTLOOK
At July 6, 1999, C.I.’s total assets under management
totalled $10,450 million, up 24% from the average
level of assets in fiscal 1999. In June 1999, net sales of
C.I.’s funds were $120 million, up 152% from June
1998. Should assets remain at this level or, as expect-
ed, continue to grow during fiscal 2000, C.I.’s total
revenues, operating cash flow and underlying prof-
itability will increase significantly from fiscal 1999.

THE YEAR 2000 ISSUE
C.I. realizes the importance of the Year 2000 issue and
has taken the necessary steps to address the problem.
Like many organizations, C.I. is highly dependent on
computer systems, both those that are operated inter-
nally, as well as those operated by external service
providers, to ensure optimal operations. C.I.’s Year
2000 project was initiated in 1997 to review its sys-
tems and implement any procedures necessary to
eliminate or significantly reduce the Year 2000 risk.
The project has been staffed with highly skilled indi-
viduals and supplied with the necessary technology.
C.I.’s Year 2000 review included assessing the limited
number of systems that are operated internally.
Essentially all of C.I.’s Year 2000 testing was success-
fully completed prior to June 30, 1999. Accordingly,
while C.I. will continue to be involved in Year 2000
testing throughout the remainder of the year, its
efforts will be focused mainly on continued participa-
tion in industry-wide evaluations rather than its own
internal testing.

The primary systems used by C.I. are relatively new.
All of C.I.’s mission critical systems are operated inter-
nally, have been fully tested and are Year 2000 compli-
ant. In addition, service contracts entered into by C.I.
that involve computer systems generally include Year
2000 compliance provisions. While some of the com-
mercial software used by C.I. will be replaced during

n 23 Management’s Discussion and Analysis

Management’s Report to Shareholders

Management of C.I. Fund Management Inc. is responsible for the integrity and objectivity of the consolidated
financial statements and all other information contained in the Annual Report. The consolidated financial
statements have been prepared in accordance with generally accepted accounting principles and are based on
management’s best information and judgement.

In fulfilling its responsibilities, management has developed internal control systems and procedures designed
to provide reasonable assurance that the Corporation’s assets are safeguarded, that transactions are executed in
accordance with appropriate authorization, and that accounting records may be relied upon to properly reflect
the Corporation’s business transactions.

The Audit Committee of the Board of Directors is composed of outside directors who meet periodically and
independently with management and the auditors to discuss the Corporation’s financial reporting and
internal control. The Audit Committee reviews the results of the audit by the auditors and their audit report
prior to submitting the consolidated financial statements to the Board of Directors for approval. The external
auditors have unrestricted access to the Audit Committee.

Management recognizes its responsibility to conduct the Corporation’s affairs in the best interests of its
shareholders.

G. Raymond Chang [signed]
President and Chief Executive Officer

Stephen A. MacPhail [signed]
Executive Vice-President
and Chief Financial Officer

July 7, 1999

n 24 Management’s Report to Shareholders

Consolidated Financial Statements

AUDITORS’ REPORT

To the Shareholders of C.I. Fund Management Inc.

We have audited the consolidated balance sheets of C.I. Fund Management Inc. as at May 31, 1999 and 1998
and the consolidated statements of income and retained earnings (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Corporation's management. Our responsibil-
ity is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial
position of the Corporation as at May 31, 1999 and 1998 and the results of its operations and the changes in
its financial position for the years then ended in accordance with generally accepted accounting principles.

Toronto, Canada,
July 2, 1999

Ernst & Young LLP [signed]
Chartered Accountants

n 25 Consolidated Financial Statements

Consolidated Financial Statements

CONSOLIDATED BALANCE SHEETS

As at May 31,

1999 $

1998 $

9,285,190

11,647,511
5,883,685
1,537,266
28,353,652
––
6,514,821

134,271,371
7,872,515
177,012,359

16,974,753
16,974,753
1,922,927
31,487,723
50,385,403

130,350,843
(3,723,887)
126,626,956
177,012,359

61,382,122

6,485,217
5,503,477
771,718
74,142,534
748,195
6,333,446

100,757,662
7,397,953
189,379,790

15,520,418
15,520,418
2,108,736
31,595,544
49,224,698

130,423,379
9,731,713
140,155,092
189,379,790

G. Raymond Chang [signed]

William T. Holland [signed]

Director

ASSETS
Current
Cash and short-term investments
Marketable securities, at cost which
approximates market value
Accounts receivable and prepaid expenses
Income taxes recoverable
Total current assets
Advance to C.I. FEES Trust [note 4]
Capital assets [note 5]
Deferred sales commissions, net of accumulated
amortization of $99,559,772 [1998 - $86,814,096]
Other assets [note 6]

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities
Total current liabilities
Deferred lease inducement
Deferred income taxes
Total liabilities

Shareholders' equity
Share capital [note 8]
Retained earnings (deficit)
Total shareholders' equity

See accompanying notes

On behalf of the Board:

n 26 Consolidated Financial Statements

Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)

Years ended May 31,

1999 $

1998 $

140,288,115
3,590,609
28,876,570
8,382,570
181,137,864
(7,389,561)
173,748,303

46,469,561
16,328,550
34,904,411
11,258,940
47,344,212
1,106,421
157,412,095
16,336,208

1,236,160
6,549,437
7,785,597
8,550,611

23,640,610
(2,312,460)
(17,308,250)
(2,838,798)
9,731,713

0.24
0.23

REVENUE
Management fees
Administration fees and other income
Expenses charged to mutual funds
Redemption fees
Total revenue
Net fees paid to securitization [note 4]

EXPENSES
Selling, general and administrative
Investment adviser fees
Trailer fees
Distribution fees to limited partnerships
Amortization of deferred sales commissions
Other

Income before income taxes
Provision for income taxes
Current
Deferred

Net income for the year

Retained earnings, beginning of year
Share issue expense, net of income taxes
Cost of shares repurchased in excess of stated value [note 8]
Dividends
Retained earnings (deficit), end of year

Earnings per share
Fully diluted earnings per share

See accompanying notes

154,085,314
3,448,846
32,039,431
14,405,728
203,979,319
(556,000)
203,423,319

48,280,548
18,089,245
36,970,991
9,637,888
67,325,751
2,004,448
182,308,871
21,114,448

956,086
11,411,953
12,368,039
8,746,409

9,731,713
––
(18,588,597)
(3,613,412)
(3,723,887)

0.25
0.24

n 27 Consolidated Financial Statements

Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended May 31,

1999 $

1998 $

8,746,409

1,911,048
11,411,953
67,325,751
380,000
89,775,161

(988,107)
88,787,054

(2,121,985)
(5,162,294)
(86,177,238)
(24,288,365)
(859,559)
(118,609,441)

––
(25,120,658)
6,459,525
––
(18,661,133)

(3,613,412)

(52,096,932)
61,382,122
9,285,190

2.51
2.32

OPERATING ACTIVITIES
Net income for the year
Add items not involving cash

Depreciation and amortization
Deferred income taxes
Amortization of deferred sales commissions
Other

Operating cash flow
Net change in non-cash working capital balances

related to operations

Cash provided by operating activities

INVESTING ACTIVITIES
Additions to capital assets, net
Purchase of marketable securities, net
Sales commissions
Purchase of C.I. FEES Trust notes, net of cash
Other assets
Cash used in investing activities

FINANCING ACTIVITIES
Repayment of advance to C.I. FEES Trust
Repurchase of share capital [note 8]
Issue of share capital [note 8]
Share issue expenses
Cash provided by (used in) financing activities

DIVIDENDS PAID

Net increase (decrease) in cash during the year
Cash and short-term investments, beginning of year
Cash and short-term investments, end of year

Operating cash flow per share
Fully diluted operating cash flow per share

See accompanying notes

n 28 Consolidated Financial Statements

8,550,611

1,585,701
6,549,437
47,344,212
380,000
64,409,961

2,750,447
67,160,408

(2,092,067)
(2,184,897)
(84,168,497)
–
(310,000)
(88,755,461)

1,251,805
(23,143,347)
104,062,492
(4,175,650)
77,995,300

(2,838,798)

53,561,449
7,820,673
61,382,122

1.80
1.68

Notes to Consolidated Financial Statements

MAY 31, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles.
The significant accounting policies are summarized as follows:

Basis of presentation
The consolidated financial statements include the accounts of C.I. Fund Management Inc. [the "Corporation"], C.I.
Mutual Funds Inc. ["CIMF"] and its wholly-owned subsidiaries, InfoWise Inc., Canadian International GP Limited and
C.I. Fund Services Inc. The accounts of C.I. FEES Trust [the "Trust"] have been consolidated from June 29, 1998.

Hereinafter, the Corporation and its subsidiaries are referred to as the Corporation.

Investment in limited partnership
The investment in limited partnership is being amortized over its estimated life using a 10% annual diminishing balance
basis. Amortization of the investment in limited partnership is included in other expenses in the consolidated statements
of income and retained earnings (deficit). The carrying value of the investment approximates market value based on the
net present value of estimated future cash flows.

Short-term investments
Short-term investments are carried at cost which approximates market value and include investments in demand notes
and C.I. Money Market Fund.

Capital assets
Capital assets are recorded at cost less accumulated depreciation and amortization. These assets are depreciated or
amortized over their estimated useful lives as follows:

Computer hardware
Computer software
Office equipment
Leasehold improvements

30% diminishing balance or straight-line over four years
50% straight-line or straight-line over four years
20% diminishing balance
straight-line over the term of the lease

Revenue recognition
Management fees are based upon the net asset value of the respective funds and are recognized on an accrual basis.

Administration fees are recognized as earned.

Redemption fees payable by unitholders of deferred sales charge mutual funds, the sales commission of which was
financed by the Corporation, are recognized as revenue on the trade date of the redemption of the applicable mutual fund
securities.

Deferred sales commissions
Commissions paid on sales of deferred sales charge mutual funds represent commissions paid by the Corporation to
brokers and dealers, and are recorded on the trade date of the sale of the applicable mutual fund securities. These
commissions are deferred and amortized over 36 months from the date recorded.

n 29 Notes to Consolidated Financial Statements

Foreign currency transactions
Foreign currency accounts are translated into Canadian dollars as follows:

At the transaction date, each asset, liability, revenue or expense is translated into Canadian dollars by the use of the
exchange rate in effect on that date. At the year-end date, monetary assets and liabilities are translated into Canadian
dollars by using the exchange rate in effect at that date and the resulting foreign exchange gains and losses are included
in income.

Goodwill
Goodwill is recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis over 40 years.

Earnings and operating cash flow per share
Earnings and operating cash flow per share have been computed using the weighted average number of common shares
outstanding. Fully diluted earnings and operating cash flow per share have been computed using the weighted average
number of common shares outstanding assuming exercise of stock options.

Deferred lease inducement
Lease inducements are deferred and amortized over the term of the lease.

2. OPERATIONS

The Corporation is incorporated under the laws of Ontario. The primary business of the Corporation is the marketing,
management and administration of the C.I. Mutual Funds which consist of the following:

Fund

Month of establishment of Fund

October, 1981
February, 1986
July, 1987
October, 1990
September, 1991
September, 1991
August, 1992
August, 1992
January, 1993
January, 1993
January, 1993
August, 1993
August, 1993
September, 1993
September, 1993
June, 1994
September, 1994
October, 1994
October, 1994
January, 1995
October, 1995
June, 1996
June, 1996
June, 1996
June, 1996
October, 1996

C.I. Pacific Fund
C.I. Global Fund
C.I. Sector Fund Limited
C.I. Money Market Fund
Hansberger European Fund
C.I. Emerging Markets Fund
C.I. World Bond Fund
C.I. American Fund
C.I. Canadian Balanced Fund
C.I. Canadian Bond Fund
C.I. Canadian Growth Fund
C.I. Global Bond RSP Fund
C.I. Global Equity RSP Fund
C.I. Latin American Fund
Hansberger Asian Fund
C.I. Global High Yield Fund
C.I. International Balanced Fund
C.I. Canadian Income Fund
C.I. International Balanced RSP Fund
C.I. US Money Market Fund
C.I. American RSP Fund
Hansberger Value Fund
Hansberger International Fund
Hansberger Global Small Cap Fund
Hansberger Developing Markets Fund
Harbour Mid-Cap Fund

n 30 Notes to Consolidated Financial Statements

Fund

Month of establishment of Fund

C.I. Dividend Fund
C.I. Canadian Resource Fund
Harbour Fund
Harbour Growth & Income Fund
Harbour Explorer Fund
C.I. Global Boomernomics® RSP Fund
Signature Canadian Balanced Fund
Signature Canadian Fund

October, 1996
April, 1997
June, 1997
June, 1997
October, 1997
October, 1998
December, 1998
December, 1998

The Corporation also markets, manages and administers the C.I. Segregated Funds and the C.I. Guaranteed Investment
Funds.

In addition to management fees derived from the Funds, the Corporation recovers administrative expenses incurred on
behalf of the Funds relating to their operation.

The Corporation employs the services of various investment advisers to act as advisers with respect to the investment port-
folios of the Funds.

In certain cases, the Corporation has granted the rights to arrange for the distribution of the securities of the Funds sold
on a deferred sales charge basis to certain limited partnerships [note 3] and the Trust [note 4].

In addition to commissions paid to dealers on the sale of securities of the Funds by the Corporation, certain limited part-
nerships and the Trust, the Corporation pays fees ["trailer fees"] to dealers to provide ongoing services to investors in Fund
securities. These trailer fees range up to 1% per annum of the average net asset value of the underlying securities of the
Funds and are payable monthly or quarterly.

3. LIMITED PARTNERSHIPS

During the period up to January 21, 1994 and from June 10, 1994 to December 31, 1994, selling commissions on sales
of securities of the Funds under the deferred sales charge method were financed by various limited partnerships. In return,
the limited partnerships receive any redemption fees paid with respect to the related securities and the Corporation is oblig-
ated to pay the limited partnerships an annual fee of up to 0.6% of the net asset value of the securities sold so long as such
securities remain outstanding and the applicable partnership has not been wound up. As at May 31, 1999, the net asset
value of securities of the Funds financed by the limited partnerships was $1,757 million [1998 - $1,985 million].

4. C.I. FEES TRUST

During the period from January 21, 1994 to June 9, 1994, selling commissions on sales of securities of the Funds under
the deferred sales charge method were paid by the Trust which the Trust financed by the issuance of notes repayable with
interest over a period of 7 years. The notes mature on February 1, 2001 and the interest rate on the notes is 6.65%. The
outstanding balance of the notes as at May 31, 1998 was $29,128,525. The Trust has assumed responsibility for provid-
ing transfer agency functions, accounting services, daily valuation and investor reporting services for the securities
financed. In return, the Trust receives any redemption fees paid with respect to the financed securities and receives annu-
al distribution and administrative fees totalling a maximum of 1.35% of the net asset value of the outstanding financed
securities.

The Trust has entered into a sub-administration agreement with the Corporation to provide the above services. In return,
the Corporation receives a fee equal to the above fees earned by the Trust net of required interest and principal payments on
the notes and any other expenses of the Trust. The Corporation's fees from the Trust, which are recognized in income on

n 31 Notes to Consolidated Financial Statements

an accrual basis, are not payable by the Trust unless certain financial ratios are maintained in the Trust.

On June 29, 1998, the Corporation purchased all of the outstanding notes of the Trust for a purchase price of $28,685,146.
This transaction, which conferred a beneficial interest in the Trust to the Corporation, has been accounted for as a purchase
as follows:

Net assets acquired, at fair value [including cash of $4,396,781]
Tax benefit of unrecognized losses
Excess of the purchase price over fair value of net assets acquired
Purchase price

2,503,150
11,519,774
14,662,222
28,685,146

The excess of the purchase price over fair value of net assets acquired has been included in deferred sales commissions and is
being amortized on a straight-line basis over the remaining term of the notes purchased.

5. CAPITAL ASSETS

Capital assets consist of the following:

Computer hardware and software
Office equipment
Leasehold improvements

Less accumulated depreciation
and amortization

Net book value

6. OTHER ASSETS

Other assets consist of the following:

Investment in limited partnership
Contingency fund deposits
Goodwill, net of accumulated amortization
Long-term portfolio investment, at cost
Other

May 31, 1999

Accumulated
depreciation and
amortization
$

7,705,864
1,249,051
1,068,268
10,023,183

Cost
$

11,060,939
2,440,696
3,036,369
16,538,004

10,023,183
6,514,821

May 31, 1998

Accumulated
depreciation and
amortization
$

6,231,400
1,030,690
820,483
8,082,573

Cost
$

9,498,564
2,110,759
2,806,696
14,416,019

8,082,573
6,333,446

1999
$

2,281,463
20,000
129,493
4,422,000
1,019,559
7,872,515

1998
$

2,581,463
20,000
134,490
4,422,000
240,000
7,397,953

The long-term portfolio investment represents an investment in a public company which had a quoted market value of
$9,047,500 as at May 31, 1999.

n 32 Notes to Consolidated Financial Statements

7. CREDIT FACILITY

The Corporation has arranged a credit facility with a Canadian chartered bank for general corporate purposes for $75
million which expires on October 28, 1999. Amounts borrowed under this facility bear interest at prime or bankers'
acceptance rates plus 0.375% to 0.625%, depending on the amounts borrowed and when the facility is drawn. The
facility is secured by all property currently owned or acquired in the future by CIMF and a general guarantee by the
Corporation. As at May 31, 1999 this facility is undrawn.

8. SHARE CAPITAL

Details with respect to share capital are as follows:

Common shares

Number
of shares

Stated
value $

Authorized
Unlimited preference shares
Unlimited common shares

Issued
(reflects 2 for 1 stock split in April 1998)

May 31, 1997
Issue of share capital
Share repurchase
Exercise of stock options

May 31, 1998
Share repurchase
Exercise of stock options

May 31, 1999

32,784,790
5,080,000
(1,646,200)
653,132
36,871,722
(1,844,983)
1,028,376

36,055,115

32,195,984
100,330,000
(5,835,097)
3,732,492
130,423,379
(6,532,061)
6,459,525

130,350,843

In November 1997, the Corporation completed a public offering of 5,080,000 common shares for gross proceeds of
$100,330,000. The expenses of the offering net of income taxes were charged to retained earnings.

On April 8, 1998, the Board of Directors approved a 2 for 1 stock split of the common shares of the Corporation. The
stock split was effected by declaring a stock dividend of one additional common share for each common share of the
Corporation issued and outstanding on the dividend record date of April 21, 1998.

The Corporation has established an incentive stock option plan [the "Plan"] for the executives, key employees and direc-
tors of the Corporation. The maximum number of common shares that may be issued under the Plan is 5,540,426. As
at May 31, 1999, there are 3,493,202 common shares reserved for issue on exercise of stock options. These options may
be exercised at prices ranging from $5.375 to $19.50 per common share with a total exerciseable value of $42,927,936
and expire at dates up to 2006.

During fiscal 1999, 1,844,983 common shares [1998 - 1,646,200] were repurchased under a normal course issuer bid at an
average cost of $13.62 per share [1998 - $14.06] for a total consideration of $25,120,658 [1998 - $23,143,347]. Retained
earnings was reduced by $18,588,597 [1998 - $17,308,250] for the cost of the shares in excess of their stated value.

n 33 Notes to Consolidated Financial Statements

9. INCOME TAXES

The components of the Corporation's effective income tax provision rates are as follows:

Combined Canadian federal and provincial income tax rate
Increase in taxes resulting from:
Non-deductible amortization
Large corporations tax
Other

Effective income tax rate

1999
%

44.6

10.4
2.4
1.2
58.6

1998
%

44.6

––
2.3
0.8
47.7

The non-deductible amortization relates to the excess of the purchase price over fair value of the net assets acquired of the
Trust [note 4].

10. LEASE COMMITMENTS

The Corporation has entered into leases relating to the rental of office premises and computer equipment. The future
minimum annual rental payments under such leases are as follows:

Year ending May 31

2000
2001
2002
2003
2004
2005 and thereafter

11. YEAR 2000 ISSUE

1,486,137
1,108,544
937,980
493,192
485,203
2,156,755

The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-
sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year
2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to rep-
resent something other than a date. The effects of the Year 2000 Issue may be experienced before, on, or after January 1,
2000, and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant
systems failure which could affect an entity's ability to conduct normal business operations. It is not possible to be cer-
tain that all aspects of the Year 2000 Issue affecting the Corporation, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.

12. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

The comparative consolidated financial statements have been reclassified from statements previously presented to
conform to the presentation of the 1999 consolidated financial statements.

n 34 Notes to Consolidated Financial Statements

Corporate Directory

C.I. FUND MANAGEMENT INC. DIRECTORS AND OFFICERS

G. Raymond Chang
President, Chief Executive Officer
and Director

William T. Holland
Executive Vice-President,
Chief Operating Officer and Director

Ronald D. Besse
Chairman of the Board
and Director

George W. Oughtred
Director

Stephen A. MacPhail
Executive Vice-President
and Chief Financial Officer

Michael J. Killeen
General Counsel and
Corporate Secretary

A. Winn Oughtred
Director

David J. Riddle
Director

C.I. MUTUAL FUNDS INC. MANAGEMENT

Executive

G. Raymond Chang
President and
Chief Executive Officer

Marketing

Scott Pehleman
Senior Vice-President

Sales

Ontario

Howard J. Atkinson
Senior Vice-President

Thomas V. Caswell
Senior Vice-President

John Dale
Senior Vice-President

K. Michael Kelly
Senior Vice-President

David R. McBain
Senior Vice-President

Carey W. McIntee
Senior Vice-President

Kevin Bonello
Vice-President

William T. Holland
Executive Vice-President
and Chief Operating Officer

Stephen A. MacPhail
Executive Vice-President
and Chief Financial Officer

Peter W. Anderson
Executive Vice-President,
Sales and Marketing

Marcelo A. Donato
Vice-President

Julie A. Warren
Vice-President

Western Provinces

Quebec and Eastern Provinces

Sean Hayes
Vice-President

Ron Bowes
Vice-President

Michael Warus
Vice-President

Alain Ruel
Senior Vice-President

Sylvain Rivard
Senior Vice-President

Patrick LeFrancois
Vice-President

Patrick Flemming
Vice-President

Robert J. Costigan
Senior Vice-President

Derek J. Green
Senior Vice-President

Dave M. Rupert
Senior Vice-President

Karl Palmen
Vice-President

Roy Ratnavel
Vice-President

Nigel Stewart
Vice-President

Tracy C. Wood
Vice-President

Operations and Corporate

Ian T. Madill
Senior Vice-President,
Administration

Mark MacLeod
Vice-President,
Client Services

Michael J. Killeen
General Counsel and
Corporate Secretary

Douglas J. Jamieson
Vice-President,
Finance

Munir T. Issa
Senior Vice-President,
Information Systems

David C. Pauli
Vice-President,
Financial Operations

Lorraine P. Blair
Vice-President,
Human Resources

Greg Shin
Vice-President,
Fund Accounting

n 35 Corporate Directory

Corporate Information

HEAD OFFICE

Toronto
151 Yonge Street
Seventh Floor
Toronto, Ontario
M5C 2W7
Tel: 416-364-1145
Toll Free: 1-800-268-9374
www.cifunds.com

SALES OFFICES

Vancouver
650 West Georgia Street
Suite 2420
Vancouver, B.C.
V6B 4N9
Tel: 604-681-3346
Toll Free: 1-800-665-6994

Calgary
926 5th Avenue SW
Suite 300
Calgary, Alberta
T2P 0N7
Tel: 403-205-4396
Toll Free: 1-800-776-9027

Montreal
630 René-Lévesque Blvd. West
Suite 1820
Montréal, Québec
H3B 1S6
Tel: 514-875-0090
Toll Free: 1-800-268-1602

Halifax
1969 Upper Water Street
Suite 1705
Halifax, Nova Scotia
B3J 3R7
Tel: 902-422-2444
Toll Free: 1-888-246-8887

REGISTRAR

AUDITORS

Montreal Trust Company
151 Front Street West
Eighth Floor
Toronto, Ontario
M5J 2N1
416-981-9633

Ernst & Young LLP
Toronto-Dominion Centre
P.O. Box 251
Toronto, Ontario
M5K 1J7

INVESTOR
RELATIONS

Contact:
Stephen A. MacPhail
Head Office
416-681-6579
1-800-268-9374
email: smacphail@cifunds.com

TRADING SYMBOL

C.I. Fund Management Inc.
trades on The Toronto Stock
Exchange under the symbol
“CIX”.

This Annual Report can be downloaded from C.I.’s website at www.cifunds.com

n 36 Corporate Information

Design & Production: C.I. Creative Services Department. Printed in Canada on recycled paper.

1 5 1 Yo n g e S t r e e t , S e v e n t h F l o o r, To r o n t o , O n t a r i o M 5 C 2 W 7 w w w. c i f u n d s . c o m

MU T UAL FUNDS