CompX International Inc. Annual Report 2000

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FY2000 Annual Report · CompX International Inc.

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Leadership

C . I .

F U N D M A N A G E M E N T

I N C .

2 0 0 0

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

• 02 Financial highlights • 04 Message to our shareholders • 10 Operating review • 19 Management’s discussion and analysis

• 30 Management’s report to shareholders • 31 Consolidated financial statements • 35 Notes to consolidated financial statements

• 42 Corporate directory • 43 Corporate information • The Annual and Special Meeting of Shareholders will be held on October 26, 2000

at 2:00 p.m. at the Toronto III Room of the Toronto Hilton, Toronto, Ontario.

advantage

C.I.’s leadership is shown in its impressive portfolio
management expertise, an extensive lineup of funds
and its ability to respond quickly to the changing
needs of investors and financial advisers.

future

C.I.’s insight and expertise is helping more than 750,000
Canadians realize their financial goals and dreams.

growth

A consistent focus on shareholder value has fuelled industry-
leading growth in C.I.’s assets, net sales and share price.

C.I.’s innovative products, investment performance
and financial strength have left it well positioned
for continued success.

time

Historical Financial Highlights

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

Total assets under administration, end of year
Net sales

Revenue:

Management fees and other income
Redemption fees
Performance 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 and minority interest)

Total expenses
Income taxes
Income before amortization of goodwill
Net income
Operating cash flow

2000

26,678
5,798

353.4
22.5
21.4
57.2
454.5

83.0
29.2
79.1
16.4
117.8
20.8
346.3
51.3
56.8
(2.1)
230.0

1999

9,700
1,369

158.0
14.4
—
32.0
204.4

48.3
18.1
37.0
9.6
67.3
3.0
183.3
12.4
8.8
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
7.7
8.6
8.6
64.4

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

0.66
2.68
292.1
91,414,964

0.12
1.26
126.6
72,110,230

0.12
0.90
140.2
73,743,444

*adjusted for 2 for 1 stock dividends in April 1998 and January 2000 **does not include $286 million in sales of the closed-end DDJ Canadian High Yield Fund

Assets Under Administration

Net Sales

Total Revenues

[billions of dollars; years ended May 31]

[millions of dollars; years ended May 31]

$454.5

$26.7

6000

5000

4000

3000

2000

1000

$5,798

500

400

300

200

100

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
8.0
9.5
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
8.5
10.5
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
8.8
10.5
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
3.9
4.0
4.0
6.0

1993

960
402

14.7
—
—
4.4
19.1

9.6
2.9
2.7
2.8
—
—
18.0
0.5
0.6
0.6 †
1.1

0.15
0.69
55.8
65,569,580

0.16
0.57
50.8
65,919,052

0.16
0.32
43.1
65,941,052

0.07
0.11
6.0
53,540,000

0.01
0.02
1.3
53,220,000

†net income from continuing operations

$292.1

Operating Cash Flow

Income Before Amortization of Goodwill

Total Shareholders' Equity

[millions of dollars; years ended May 31]

250

200

150

100

$230.0

$56.8

300

250

200

150

100

1000

800

600

400

200

CIX Share Price
[years ended May 31]

$25.65

CIX vs. TSE 300 Total Return
[years ended May 31]

CIX
$979.65

TSE
$241.12

June
94

May
95

May
96

May
97

May
98

May
99

May
00

04 Message to our shareholders

Dear Shareholders,

In fiscal 2000, your company clearly established itself as a leader

in the Canadian mutual fund industry.

This leadership was demonstrated in many ways. We were No. 1 in

net sales and absolute asset growth, we added to our industry-

leading lineup of funds, and we expanded the depth and breadth

of our portfolio management expertise. Furthermore, we achieved

triple-digit growth in key financial measures such as revenues, cash

flow and earnings.

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

These accomplishments were reflected in the performance of C.I.’s stock.

Following a two-for-one stock split in January, the company’s share price

reached $25.65 at May 31, 2000, up 165% from a split-adjusted price of

$9.675 a year earlier. The market capitalization of the company appreci-

ated substantially, growing to $2.3 billion from $700 million.

Since C.I. went public in 1994, our stock has gained over 830%, making

it the 10th best-performing stock on the TSE 300 in that period and the

best-performing publicly traded mutual fund company.

06 Message to our shareholders

Our entrepreneurial culture
continues to thrive.

We believe this leadership has been the result of our unrelenting focus on

delivering value to shareholders through aggressive asset growth and fiscal

efficiency.

During fiscal 2000, C.I.’s assets grew by 175% to $26.7 billion – a result of

strong net sales, excellent investment performance, and the acquisition of

BPI Financial Corporation. Our market share doubled, making C.I. the

eighth-largest mutual fund company in Canada.

C.I.’s net sales increased 324% to $5.8 billion, setting an industry record.

In contrast, the overall industry recorded a sharp decline in net sales. We

attribute the strength in C.I.’s net sales to the calibre of our portfolio

management team, our wide product selection – especially our popular

lineup of “core” global funds, industry funds and 100% RSP-eligible global

funds – and a sales force known for its ability to add value to the businesses

of financial advisers.

The growth in assets helped to boost revenues by 122% to $454.5 million,

while operating cash flow grew 156% to $230 million. Income before

amortization of goodwill was $56.8 million, an increase of 545%.

The year’s growth was accomplished without a corresponding increase in

expenses. We improved our operating profit margin – already the best in

the business – by 14%. As always, we strive to make C.I. as efficient as pos-

sible, to the benefit of both our shareholders and the investors in our funds.

07 Message to our shareholders

The acquisition of BPI was a success. It not only added substantial assets

to our firm, but we have dramatically boosted the sales of the BPI funds.

Furthermore, the integration of BPI’s operations was completed in just

eight months, and we have realized significant economies of scale.

Our legacy of innovation continued with the introduction of several well-

received funds, reflecting our strategy of providing one of the broadest

selections of funds in the industry. Our approach is to be responsive to the

changing needs of Canadian investors and to give our clients the power to

choose the specific investment funds that will meet their individual needs.

We strive to make C.I. as efficient as possible, to
the benefit of both our shareholders and the investors
in our funds.

We also enhanced C.I.’s portfolio management expertise by establishing

C.I. Global Advisors, acquiring BPI Global Asset Management, and

expanding our Signature Funds group. These moves increased the

proportion of assets managed in-house to more than 75% by May 31, 2000.

In July 2000, C.I. made another important addition to its portfolio man-

agement group with the establishment of Webb Capital Management in

partnership with Derek Webb, an experienced portfolio manager with a

record of top-quartile performance and an enthusiastic following among

financial advisers.

08 Message to our shareholders

C.I.’s portfolio managers have the track record and the profile to support

further stellar growth in our Canadian retail business as well as our thriv-

ing institutional money management business – an area in which we see

immense potential. These institutional assets, managed by our U.S. sub-

sidiaries, currently exceed $3 billion.

C.I. is even better positioned today than it was a year ago. It has significant

scale and increasing diversity in products, portfolio management and

sources of revenue. Our net sales in the first quarter of fiscal 2001 were

$1.2 billion, 200% ahead of the first quarter of the prior year. Fee-generat-

ing assets have now surpassed $30 billion.

However, our vision and strategy have not changed. We remain commit-

ted to fostering growth and financial responsibility. Our entrepreneurial

culture continues to thrive. C.I.’s management team holds a meaningful

equity stake in the company, ensuring that the interests of managers and

shareholders are aligned. Every action is judged according to its potential

for creating shareholder value.

G. RAYMOND CHANG

WILLIAM T. HOLLAND

G. Raymond Chang
Chairman

William T. Holland
President and
Chief Executive Officer

September 1, 2000

09 Message to our shareholders

Operating Review

Fiscal 2000 was the most successful period in the history of the company.

The year was marked by the following key accomplishments:

• A substantial increase in profitability and shareholder value;

• The establishment of several investment management subsidiaries
in partnership with the money managers – a unique structure with
significant benefits for C.I.;

• The expansion of C.I.’s institutional money management activities

through its U.S. subsidiaries;

• Net sales of $5.8 billion, a record for the Canadian fund industry;

• The acquisition and integration of BPI Financial Corporation;

• Greatly expanded portfolio management expertise, along with a
notable increase in the proportion of assets managed in-house;

• Continued innovation through the launch of new funds that attracted

$1.5 billion in assets.

Spectacular Growth

During the fiscal year, C.I. dramatically outperformed the industry in all respects. C.I.’s

mutual fund assets under management grew 144% to $22.5 billion, compared with an

increase of 17.3% for the Canadian mutual fund industry as a whole. As a result, C.I.’s

market share increased by 107% to 5.53% – making C.I. the eighth-largest mutual fund

company in Canada, up from 13th place in May 1999.

Once institutional accounts, closed-end funds and labour-sponsored funds are counted,

C.I.’s total fee-generating assets reached $26.7 billion, an increase of 175% from $9.7

billion at May 31, 1999.

This spectacular growth can be attributed to impressive investment performance and

strong net sales, as well as the acquisition of BPI Financial Corporation in August 1999.

It’s worth noting that at the time of the acquisition, BPI had assets of $6.3 billion and C.I.

had $10.3 billion. Total assets grew by $10 billion in the following nine months.

C.I.’s sales momentum accelerated after the merger. For the fiscal year as a whole, C.I.

was the top-selling Canadian fund company with net sales of $5.8 billion, an amount that

represented a third of total industry net sales. This capped a decade in which C.I. was the

only major mutual fund company never to experience a single month of net redemptions.

Overall, C.I. continued to benefit from several trends that have affected industry sales.

First, sales became even more concentrated, with C.I. and a few other mutual fund

companies accounting for more than 100% of the industry’s net sales. In fact, 32 of the 72

members of IFIC experienced net redemptions in the first five months of calendar 2000.

While fund performance played a part in these results, it also shows that size does matter

in the mutual fund industry. Larger firms can offer and support more diverse product

lineups, allowing financial advisers to meet the needs of their clients through just a few

fund companies. In addition, large companies have the resources to extensively market

11 Operating review

Senior Sales Staff: Robert J Costigan Derek J. Green K. Michael Kelly David R. McBain Alain Ruel

their products to both advisers and investors, and to provide them superior support. C.I.,

for example, has one of the largest and most effective sales and client services teams in

the industry.

Second, investors continued to put much of their new money into global equity fund

products. In the first five months of calendar 2000 alone, 82% of net new mutual fund

sales went to global equity funds.

C.I., with its wide selection of top-performing global funds, dominated this segment. Our

best-selling funds included broadly diversified “core” funds such as C.I. Global Fund and

BPI Global Equity Fund, as well as industry-specific funds such as C.I. Global

Telecommunications Fund and C.I. Global Biotechnology Fund.

In addition, C.I. has the industry’s largest selection of 100% RSP-eligible global funds,

12 Operating review

including RSP versions of both the core and industry funds. C.I. was a pioneer in

developing these funds for the Canadian market and the company maintained its lead-

ership in this segment in fiscal 2000. As of July 2000, C.I. offered 25 global funds that are

100% RSP-eligible, compared with five in May 1999.

C.I.’s sales also benefited from the depth and diversity of the company’s funds. While

global funds as a group led the sales tally, no single fund dominated. In fact, a long list of

global and Canadian funds contributed to net sales over the year.

Extensive Fund Lineup

During the fiscal year, C.I. continued to launch new funds, cementing its reputation for

innovation and adaptability. These products proved to be popular, amassing about $1.5

billion in assets by May 31, 2000. The new funds (with their launch dates) included:

• C.I. Global Biotechnology Fund, the only fund offered in Canada to focus

exclusively on that industry (August 1999);

• BPI Global Opportunities III Fund and BPI American Opportunities Fund, two

hedge funds that pay performance fees to C.I. and the managers according to their

returns (December 1999);

• C.I. Global Managers™ Fund , which combines the best ideas of four of C.I.’s leading

global portfolio managers (February 2000);

• C.I. Global Business-to-Business (B2B) Fund, which focuses on companies involved

in the Internet and related industries (February 2000).

In July 2000, C.I. launched the Landmark Funds™, a family of equity funds under the

direction of lead manager Derek Webb. These include the Landmark Canadian Fund

and Landmark Global Fund. Also in July, C.I. introduced another multi-manager fund,

the C.I. American Managers™ Fund.

After the acquisition of BPI, C.I. began efforts to streamline its lineup of mutual funds.

Following the approval of securityholders, 17 funds were merged into other C.I. funds in

13 Operating review

July 2000, while three other funds were closed to new investments. This move reduced

the overlap and duplication in the company's fund family, while making the continuing

funds stronger and more efficient.

A key part of C.I.’s marketing efforts is its various advertising and sponsorship activities,

aimed at both financial advisers and the public. The most prominent events sponsored

by the company are the Bell Canadian Open and the National Ballet of Canada’s pro-

duction of The Nutcracker. These sponsorships help to raise the profile of C.I. in the eyes

of the public and support the financial advisers who distribute C.I. funds.

Central to the company’s marketing campaigns in fiscal 2001 will be an emphasis on

continuing to build C.I.’s brand. The campaigns will emphasize how C.I.’s experience,

expertise and broad selection of investment funds meet all of the needs of today’s investors.

New Directions in Portfolio Management

C.I. has assembled teams of portfolio managers who are among the best in the world. The

company believes that quality investment management is a clear competitive advantage.

C.I. continued to expand and develop its portfolio management throughout fiscal 2000.

There are two important aspects to C.I.’s portfolio management organization. First, C.I.’s port-

folio managers operate in distinct teams working independently of one another. This arrange-

ment offers financial advisers and investors a wide choice of leading managers representing

different investment approaches. It also fosters entrepreneurial attitudes and innovative

thinking on the part of the managers – with superior performance being the ultimate result.

Second, several teams are organized as partnerships between C.I. and the portfolio man-

agers. For example, C.I. owns majority stakes in both C.I. Global Advisors LLP (“CIGA”)

and BPI Global Asset Management LLP (“BGAM”), while the managers hold minority

stakes. CIGA was established in November 1999, while BGAM was acquired as part of

BPI Financial Corporation in August 1999.

This unique shared ownership structure has already proven itself. In less than one year,

CIGA’s assets grew to $8.4 billion (at May 31, 2000). Overall, more than $14 billion in

assets were managed through these partnerships by the end of the fiscal year.

14 Operating review

Extensive Fund Lineup

F o r e i gn

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F

Insight

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•

C
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a

Fee-B

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BPI
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Harbour

•

Industry •
H e d g e
ulti-Managers
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MutualFu n

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C
•
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b
o
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•

Funds

Landmark
Sector
Signature

I n s

t i t u tio nal

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m

Progra

Legacy

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C
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Priva t e L a b e l

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Asset
Pensions
Discretionary
m p a ny
d s

•

Canadian All-Star Team

Top Row: Derek Webb, Webb Capital Management;
Eric Bushell, Signature Funds; Steve Misener, Signature Funds.

Bottom Row: Robert Lyon, Signature Funds; John Zechner,
J. Zechner Associates; Gerald Coleman, Harbour Funds;
Wally Kusters, Signature Funds.

New Directions in Portfolio Management

Global All-Star Team

Top Row: Stephen Waite, C.I. Global Advisors; Derek Webb,
Webb Capital Management; William Sterling, C.I. Global
Advisors; Daniel Jaworski, BPI Global Asset Management.

Bottom Row: Andrew Waight, Signature Funds;
John Hock, Altrinsic Global Advisors; Scott Morrison,
Signature Funds; Paul Holland, BPI Global Asset
Management; Nandu Narayanan, Trident Investment
Management.

C.I. believes the partnership structure is a powerful platform for further growth. It

provides an incentive for the managers to stay with the company and to maximize

performance. In addition, it allows the managers to pursue other investment advisory

opportunities that do not conflict with C.I. mutual funds – generating additional sources

of revenue for C.I. and the managers. BGAM, for example, has gathered $2.3 billion in

institutional assets in just three years – illustrating the potential of this business.

In May 2000, C.I. set up Altrinsic Global Advisors LLP, a partnership with John Hock. A

month later, Webb Capital Management LLP was established in partnership with Derek

Webb to manage the new Landmark Funds and other C.I. funds. Mr. Webb has an

impressive track record of achieving top-quartile returns in Canadian and global portfolios.

The success of CIGA and BGAM has led to a sharp increase in the proportion of C.I.’s

assets managed in-house, to about 75% at May 31, 2000. It also led to a dramatic reduc-

tion in the cost of managing money. Following the end of the fiscal year, the remaining

funds managed by Credit Suisse Asset Management and Hansberger Global Investors

were transferred to other teams, increasing the portion of assets managed in-house to

about 90%.

C.I.’s in-house management teams are:

• The Harbour Funds team (Canadian equities and fixed income);

• The Signature Funds team (Canadian and global equities and fixed income);

• Altrinsic Global Advisors LLP (global equities);

• C.I. Global Advisors LLP (global equities and fixed income);

• BPI Global Asset Management LLP (global equities);

• Webb Capital Management LLP (Canadian and global equities).

C.I.’s external management teams are:

•

J. Zechner Associates Inc. (Canadian equities and fixed-income);

• Trident Investment Management, LLC (global equities).

C.I. offers leading funds across various categories and asset classes, especially in the

crucial Canadian and global equity groups that form the “core” of many investors’

portfolios. For example, C.I. Global Fund and BPI Global Equity Fund were ranked No. 1

and No. 5, respectively, in their class over 10 years (for the period ended April 30, 2000).

17 Operating review

C.I.’s leadership has been recognized by Morningstar, a respected U.S. investment fund

research firm that now analyses Canadian funds. As of July 2000, C.I. had 11 funds with

Morningstar’s top five-star rating, more than twice as many as any other Canadian fund

company.

Integration of BPI Financial Corporation

Once the takeover of BPI was completed in August 1999, C.I. moved quickly to merge

the operations of the two companies. The process was completed in just eight months,

with the integration of the companies’ back-office functions and the transfer of BPI

unitholder accounts to the C.I. system in April 2000.

The acquisition has proven to be an outstanding success in terms of bringing new assets

and new portfolio management expertise to C.I. Furthermore, it has allowed C.I. – and

its shareholders and fund investors – to enjoy the benefits of economies of scale.

Proof of this is shown in the fact that C.I. was able to reduce the expenses on its funds by

an average of 26% or 10 basis points effective July 1, 2000. The reductions were greatest

on the former BPI funds. This achievement reflects C.I.’s commitment to being one of

the most efficient mutual fund companies in Canada.

Outlook

Fiscal 2000 was an exceptional year, with C.I. achieving impressive heights in sales, asset

growth and performance. However, the year was also marked by a series of initiatives

designed to make the company even stronger. All of the elements are in place – financial

efficiency, a large asset base, extraordinary choice in funds, and portfolio management

expertise that is second to none. The result is a solid foundation for continuing growth

and momentum.

18 Operating review

Management’s
discussion and
analysis

Management’s Discussion and Analysis
Management’s Discussion and Analysis

SUMMARY OF FINANCIAL HIGHLIGHTS

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

2000

1999

% change

INCOME STATEMENT DATA
Revenue
Management fees
Administration fees and other income
Redemption fees
Performance fees
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

Minority interest

Income taxes

Income before amortization of goodwill
Net income (loss)
Earnings per share before amortization of goodwill

Operating cash flow
Operating cash flow per share

Shareholders’ equity, end of year

ASSET MANAGEMENT DATA
Average mutual fund assets under management

Total assets under administration, end of year

Total gross sales
Total redemptions
Total net sales

20 Management’s discussion and analysis

326.9
26.5
22.5
21.4
57.2
454.5

83.0
29.2
79.1

3.0
16.4
117.8
10.5

7.3

51.3

56.8
(2.1)
0.66

230.0
2.68

292.1

16,618

26,678

8,846
3,048
5,798

154.1
3.9
14.4
—
32.0
204.4

48.3
18.1
37.0

0.6
9.6
67.3
2.5

—

12.4

8.8
8.7
0.12

89.8
1.26

126.6

8,086

9,700

2,611
1,242
1,369

+112
+579
+56
n/a
+79
+122

+72
+61
+114

+400
+71
+75
+320

n/a

+314

+545
n/a
+450

+156
+113

+131

+106

+175

+239
+145
+324

OVERVIEW OF C.I.’s BUSINESS

The principal business of C.I. Fund Management Inc. is
the management, marketing, distribution, and adminis-
tration of mutual funds and other investment products
for Canadian investors through its wholly-owned sub-
sidiary C.I. Mutual Funds Inc. (“C.I.”). At May 31, 2000,
assets under administration totalled $26.7 billion, repre-
sented by $22.5 billion in mutual funds, $1.1 billion in
labour-sponsored funds, $0.4 billion in closed-end and
other funds and $2.7 billion in institutional assets
(through majority-owned BPI Global Asset Management
LLP and Trilogy Advisors, LLC). C.I. markets its funds to
Canadian retail investors through over 40,000 financial
advisers representing over one million retail investment
accounts owning C.I. mutual funds. C.I.’s share of total
Canadian mutual fund assets as reported by The
Investment Funds Institute of Canada was 5.53% at May
31, 2000, an increase of 107% from 2.67% at May 31, 1999.

There are four critical components to C.I.’s business:

(1) Investment products
(2) Investment management
(3) Marketing
(4) Administration

INVESTMENT PRODUCTS

products. C.I.’s product line encompasses a broad range
of global and domestic funds offering a variety of invest-
ment styles. In addition, over the years C.I. has consis-
tently developed new products for investors such as
sector-specific funds, labour-sponsored funds, closed-end
funds, segregated funds, 100% RSP-eligible foreign
funds, and hedge funds.

In August 1999, C.I. launched the C.I. Global
Biotechnology Fund to meet growing investor interest in
this industry. This fund had assets of $579 million at May
31, 2000.

In December 1999, C.I. launched the BPI Global
the BPI American
Opportunities III Fund and
Opportunities Fund. These hedge funds, designed for
sophisticated investors, had assets of $269 million and
$127 million, respectively, at May 31, 2000.

In February 2000, C.I. launched the C.I. Global
Business-to-Business (B2B) Fund, which focuses on
investments in the Internet economy. This fund had
assets totalling $150 million at May 31, 2000.

In March 2000, C.I. launched the C.I. Global Managers™
Fund, a global equity fund that combines the best ideas
of four of C.I.’s global managers. This fund had assets of
$352 million at May 31, 2000.

C.I. believes that in order to attract and maintain investor
interest in its products, it is essential to offer a wide range
of investment products and continually develop new

INVESTMENT MANAGEMENT

In order to offer a broad range of investment products,

Operating Cash Flow Per Share

Net Operating Margin

[years ended May 31]

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

1.16%

3.0

2.5

2.0

1.5

1.0

0.5

0.0

$2.68

1.6

1.2

0.8

0.4

21 Management’s discussion and analysis

C.I. retains the services of a number of investment advis-
ers. There are three structures that C.I. uses to ensure it
can attract and maintain the investment management
expertise C.I. believes is necessary to meet investors’
needs:

1. C.I. maintains sub-advisory agreements with indepen-
dent investment managers whereby they are compen-
sated on the basis of assets under management. At
May 31, 2000, C.I. had sub-advisory agreements with
J. Zechner Associates of Toronto (which managed
$1.731 billion of C.I.’s growth-oriented domestic
funds), Hansberger Global Investors of Ft. Lauderdale
(which managed $457 million of value-based global
funds), Credit Suisse Asset Management of New York
(which managed $2.690 billion of industry-oriented
sector and other
funds), and Trident Asset
Management of New York (which managed $152
million in emerging markets funds and a hedge fund).

2. C.I. employs money managers directly. At May 31,
2000, C.I. Mutual Funds managed $4.779 billion
in a variety of funds using value and growth-based
investment approaches.

3. C.I. has partnership agreements with investment advisers
whereby C.I. owns a majority of the partnership. With
this structure, the investment adviser, through a direct
equity participation, has incentive to grow the assets
under management and attract money from sources
other than C.I. An equity stake in the partnership also
provides for the advisers to stay with C.I. over the long
term. C.I. has two investment advisory partnerships of

this type. C.I. Global Advisors LLP (“C.I. Global
Advisors”) of New York, which is 55% owned by C.I.
and 45% owned by Trilogy Advisors, LLC (“Trilogy
Advisors”). C.I. Global Advisors had assets under man-
agement of $8.430 billion in a number of growth-
oriented funds and industry-specific funds. BPI
Global Asset Management LLP (“BPI Global Asset
Management”) of Orlando, which is 66% owned by
C.I. and 34% owned by JBS Advisors, Inc., had
growth-oriented mutual fund assets under manage-
ment of $4.140 billion (including $1.267 billion of
hedge funds) and institutional assets of $2.312 billion.

MARKETING

C.I. distributes its investment products through invest-
ment dealers, mutual fund dealers and insurance agents.
In order to support this distribution channel, C.I. ensures
it has an extensive marketing staff comprised of marketing
wholesalers and in-house marketing sales representatives.
In turn, the marketing staff is supported by the use of
advertising, marketing materials, Internet-based information,
and appearances and presentations by the funds’ invest-
ment advisers.

A key element of C.I.’s marketing strategy has been to be
adaptive and responsive to changes in investor demand
for new financial products. C.I. has the broadest range of
funds available in Canada - encompassing numerous
styles and fund mandates. C.I. believes this strategy is
critical, as the mutual fund distributors have reduced the
number of fund families they are willing to promote.

Management Fees

Net SG&A Expense

[as a % of average assets under management; years ended May 31]
1.97%

2.0

1.6

1.2

0.8

0.4

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

1.0

0.8

0.6

0.4

0.2

0.15%

22 Management’s discussion and analysis

This has resulted in the concentration of sales of mutual
funds among fewer fund families.

During C.I.’s most recent fiscal year, its net sales of
mutual funds (gross sales less redemptions) were the
highest of all mutual fund companies in Canada.
Furthermore, C.I. has not had any one-month period
since 1990 wherein it experienced net redemptions.

ADMINISTRATION

Providing investors and distributors of C.I. funds with
accurate and timely information on purchases, redemp-
tions and holdings requires a highly efficient administra-
tive operation. C.I. has made extensive investments in
technology to ensure its clients receive information
quickly. For example, the company allows clients to get
information such as account statements via the Internet
and maintains an image-based record keeping system for
use by its customer service representatives. Furthermore,
C.I. also believes that it is important to provide these ser-
vices in a cost-efficient manner. In recent years, C.I. has
taken advantage of economies of scale and productivity
improvements to reduce the percentage cost of adminis-
tration to levels that are among the lowest in the industry.

A key strength has been C.I.’s ability to quickly provide
administrative capacity for new products. In the last three
years, C.I. has successfully launched numerous new
products, including segregated funds, 100% RSP-eligible
foreign funds, labour-sponsored funds, hedge funds,
closed-end funds, and a wrap program. All of these new

products have had the appropriate administrative support
to achieve market penetration and have contributed sig-
nificantly to C.I.’s assets under management.

OVERVIEW OF C.I.’S REVENUES AND EXPENSES

The majority of C.I.’s revenues are earned from the man-
agement services it provides as fund manager. The key
determinant of C.I.’s revenue is the level of assets under
management, which is determined by both market
returns and net sales 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. C.I. focuses on offer-
ing equity funds, which earn management fees ranging
from 2.00% to 2.25%. Approximately 89% of C.I.’s mutu-
al fund assets are equity funds.

Income from sources other than management fees has
also become significant. As a result of the acquisition of
BPI Financial Corporation in August 1999, C.I. manages
a number of hedge funds that provide performance fees.
At May 31, 2000, C.I. managed $1.267 billion of hedge
fund assets. In general, these funds provide performance
fees of 20% of returns in excess of certain thresholds. Of
the total performance fees earned, approximately 45% is
paid to C.I., 45% is paid to the investment advisers and
the remaining 10% to the distributors.

C.I.’s 45% ownership stake in Trilogy Advisors and 66%
ownership in BPI Global Asset Management allows C.I.
to benefit from the growth in revenues and profits on
assets these firms manage for organizations other than C.I.

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

0.48%

0.5

0.4

0.3

0.2

0.1

0.18%

23 Management’s discussion and analysis

At May 31, 2000, BPI Global Asset Management had
$2.312 billion in institutional assets ($0.9 billion at May
31, 1999) and Trilogy Advisors had $416 million in assets
under management (nil at May 31, 1999).

C.I. also earns revenues from redemption fees. Investors
pay redemption fees when mutual funds are purchased on
a deferred sales charge basis and the investment is
redeemed within seven years. Redemption fees, which are
calculated as a percentage of the initial value of the funds
sold, start at 5.5%, and decline to zero after seven years.

agement. C.I.’s advisers have different fee agreements,
and therefore, the mix of funds will affect the overall
expense level.

In addition, C.I.’s equity interest in BPI Global Asset
Management and C.I. Global Advisors means that as
assets under management increase with these firms, they
become more profitable. C.I., through its equity owner-
ship, participates in the profitability of these subsidiaries,
effectively reducing its investment advisory expenses as a
percentage of assets under management.

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

Operating expenses, net of those recovered from the
funds (referred to as net selling, general and administra-
tive expenses), are primarily marketing expenses. In gen-
eral, marketing expenses are managed in proportion to
C.I.’s assets under management and increase as assets
under management increase.

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, marketing expenses,
trailer fees, and selling commissions paid to financial
advisers.

Advisory fees paid to investment advisers are generally
paid on the basis of a percentage of assets under man-

Trailer fees are paid out to investment and mutual fund
dealers and life insurance agents to assist them in provid-
ing ongoing support to 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, general and administrative
expenses net of expenses recovered from the funds, calcu-
lated as a percentage of mutual funds under management.
This allows C.I. to manage profitability when changes in

Cash & Short-term Investments

Portfolio Value of Redemption Fees

[millions of dollars; years ended May 31]

$552

600

500

400

300

200

100

$9.6

n/a

24 Management’s discussion and analysis

the market value of assets under management affect rev-
enue flows and permits adjustments to discretionary expen-
ditures in order for C.I. to maintain its margins.

Commissions paid from C.I.’s cash resources on the sale
of funds on a deferred sales charge basis are, for financial
reporting purposes, amortized evenly over the 36 months
immediately following the sale of the funds.

BPI Capital Management Corporation. At the time of
acquisition, BPI Capital Management Corporation had
approximately $6.3 billion in assets under management;
represented by mutual funds ($4,400 million), labour-
sponsored funds ($485 million), closed-end funds ($133
million) and institutional assets ($1,250 million). At May
31, 2000, the total BPI assets had grown to $9.8 billion,
an increase of 56% since C.I. acquired BPI.

Commissions incurred on certain of C.I.’s assets were
financed by limited partnerships or securitization vehi-
cles. The expenses for commissions financed by limited
partnerships are reported as distribution fees paid to lim-
ited partnerships and are calculated as a percentage of
the assets. The effective amortization period for commis-
sions financed by limited partnerships is the life of the
limited partnership of 15 to 20 years.

C.I. paid $60 million and issued 17 million common
shares (post-split) of C.I. Fund Management Inc. to
acquire BPI. At the time of the acquisition, BPI had $51
million of debt and $20 million outstanding in two secu-
ritization vehicles. The acquisition gave rise to $236 mil-
lion of goodwill, which is being amortized over 36
months, consistent with C.I.’s policy on amortization of
deferred sales charge commissions.

The expense for commissions financed by securitization
are reported as net fees paid to securitization and reflect an
effective amortization period equal to the life of the secu-
ritization vehicle. In June 1998, C.I. repurchased all the
outstanding notes issued by one of C.I.’s securitization
vehicles. The remaining effective unamortized commis-
sion from this securitization vehicle is being amortized
over the period ending February 28, 2001, and is included
in the amortization of C.I.’s deferred sales commissions.

ACQUISITION OF BPI FINANCIAL CORPORATION

In August 1999, C.I. Fund Management Inc. acquired
BPI Financial Corporation (“BPI”) and its 100% stake in

YEAR ENDED MAY 31, 2000, COMPARED
WITH YEAR ENDED MAY 31, 1999

Total assets under administration (which includes C.I.
Covington Funds, DDJ Canadian High Yield Fund,
Insight Program, Keystone Fund, BPI Global Asset
Management and Trilogy Advisors institutional accounts,
VenGrowth Investment Fund Inc., and ENSIS Growth
Fund Inc.) grew from $9.7 billion at May 31, 1999, to
$26.7 billion at May 31, 2000 - an increase of $17 billion or
175%. Of the increase, $6.3 billion arose from the acquisi-
tion of BPI in August 1999. Average mutual fund assets
under management were $16.6 billion in fiscal 2000, an
increase of 105% from $8.1 billion for the same period in

Percentage of Assets Self-financed

DSC Financed

[years ended May 31]

[millions of dollars; years ended May 31]

$252

60%

300

250

200

150

100

n/a

25 Management’s discussion and analysis

fiscal 1999. As most of C.I.’s revenues and expenses are
based on assets throughout the year, average asset levels
are critical to the analysis of C.I.’s financial results.

No expense was incurred in respect of C.I.’s securitiza-
tion in fiscal 2000, as C.I. repurchased its securitization
vehicle in June 1998.

Gross sales of the funds were $8,846 million for the year
ended May 31, 2000, compared with $2,611 million for
the same period in 1999. Net sales (gross sales less
redemptions) were $5,798 million for the year ended
May 31, 2000, compared with $1,369 million for the
same period in 1999 – an increase of 324%. The increase
in C.I.’s net sales from 1999 reflected the increased pop-
ularity of C.I.’s global, 100% RSP-eligible global and
industry sector funds. Redemptions of C.I.’s funds were
$3,048 million in fiscal 2000, compared with $1,242
million in fiscal 1999. All sales and redemption data
include the BPI funds from September 1, 1999, inclusive.

Total revenues increased to $454.5 million for the year
ended May 31, 2000, from $204.4 million for the same
period in 1999. Revenues from management fees rose by
112% to $326.9 million for the year ended May 31, 2000,
from $154.1 million in 1999. As a percentage of average
mutual fund assets under management, management
fees were 1.97% for fiscal 2000, up from 1.91% in fiscal
1999, due to changes in C.I.’s asset mix. Performance fees
totalled $21.4 million for the year ended May 31, 2000
(nil in 1999 due to C.I. not having any performance fee-
based funds at that time). Administration fees and other
income (which includes investment income, revenues
from investment management subsidiaries, administra-
tive fees and interest) increased from $3.9 million to
$26.5 million. The primary contribution to the increase
was $11.2 million in gains on marketable securities ($2.2
million in 1999) and $7.1 million in revenues from BPI
Global Asset Management’s institutional business (nil in
1999). Redemption fees rose from $14.4 million in fiscal
1999 to $22.5 million in fiscal 2000, reflecting the
increased level of assets from the BPI acquisition and the
increased assets under management financed from C.I.’s
cash resources.

Revenues represented by expenses charged to the mutual
funds rose to $57.2 million for the year ended May 31,
2000, from $32.0 million in 1999. The increase in rev-
enues reflected general increases in operating costs
resulting from higher assets under management. As a per-
centage of assets under management, expenses charged
to mutual funds declined 15% from 0.40% to 0.34% for
fiscal 1999 and 2000, respectively.

Net fees paid to securitization vehicles were $3.0 million
for the year ended May 31, 2000, compared with
$0.6 million for the year ended May 31, 1999. The
increase reflects the obligations for BPI’s securitizations.

Selling, general and administrative expenses (net of
expenses recovered from the funds for activities carried out
in support of the funds) were $25.8 million, up 59% from
$16.2 million in the prior fiscal year. This increase in costs
was a result of C.I.’s 105% increase in average assets and an
industry record level of sales. As a percentage of assets
under management, the net selling, general and adminis-
trative expenses declined 25% to 0.15% in fiscal 2000,
down from 0.20% in fiscal 1999. The decline was a direct
result of economies of scale available from asset growth.

Investment adviser fees increased from $18.1 million in
fiscal 1999 to $29.2 million in fiscal 2000 due to
increased assets under management. However, as a per-
centage of average assets under management, investment
adviser fees were 0.18% versus 0.22% in fiscal 1999 – a
reflection of the benefit of C.I.’s ownership in BPI Global
Asset Management and C.I. Global Advisors.

Trailer fees increased from $37.0 million to $79.1 million
in fiscal 2000 due to increased assets under management.
As a percentage of average assets, trailer fees were 0.48%
of assets under management at May 31, 2000, compared
with 0.46% in the prior fiscal year. The increase resulted
from an increase in the percentage of C.I.’s mutual fund
assets purchased on a front-end load basis.

C.I.’s operating margin as a percentage of mutual funds
under management was 1.16%, up from 1.02% in the
prior fiscal year. This 14% improvement in C.I.’s operat-
ing profitability resulted from higher management fees,
combined with lower investment adviser expenses and
lower net selling, general and administrative expenses.

Distribution fees to limited partnerships totalled $16.4
million, up from $9.6 million in fiscal 1999. This
increase is directly due to the addition of the BPI limited
partnerships. As a percentage of average assets, distribu-
tion fees to limited partnerships declined from 0.12% to
0.10%, reflecting a lower percentage of C.I.’s overall
assets under management having been financed by limit-
ed partnerships. The marginal cost of the distribution
fees to limited partnerships at May 31, 2000, was approx-
imately 0.08% 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 represented
C.I.’s largest expense increase, rising from $67.3 million
in fiscal 1999 to $117.8 million in fiscal 2000. The

26 Management’s discussion and analysis

At May 31, 2000, 60% of C.I.’s mutual fund assets had
been financed by cash resources. These assets had a cur-
rent redemption value of $552 million ($6.04 per share)
at May 31, 2000, compared with $253 million ($3.51 per
share) at May 31, 1999. At May 31, 2000, 14% of C.I.’s
assets were financed by limited partnerships, down from
18% at May 31, 1999. At May 31, 2000, 3% of C.I.’s assets
were financed from securitization, up from nil at May 31,
1999, due to C.I. assuming BPI’s securitizations. The
front-end load sales assets at May 31, 2000, were 23% of
mutual fund assets under management, up from 15% the
prior year.

Capital expenditures incurred during the year ended
May 31, 2000, totalling $3.3 million were primarily for
additional space requirements and computer hardware
and software related to the improvement of systems tech-
nology. Depreciation charges on these assets are gener-
ally recoverable from the funds.

OUTLOOK

At July 12, 2000, C.I.’s mutual fund assets under man-
agement totalled $24.3 billion, up 46% from the average
level of mutual fund assets in fiscal 1999 and up 8% since
May 31, 2000. C.I.’s mutual fund assets with its majority-
owned subsidiaries, C.I. Global Advisors and BPI Global
Asset Management totalled $14.2 billion, up 13% from
May 31, 2000. Non-mutual fund assets associated with
these subsidiaries were approximately $3.0 billion. The
growth in combined assets should improve earnings of
these subsidiaries accordingly. In June 2000, net sales of
C.I.’s funds were $398 million, up 232% from June 1999.
C.I. continues to be a leader in net sales in the Canadian
mutual fund industry. Mutual fund assets that generate
performance fees total $1.332 billion, providing a signifi-
cantly larger earnings base than in fiscal 1999. In June,
C.I. was able to reduce the operating expenses on its
mutual funds by 20%, thereby increasing their attractive-
ness. As a result, C.I. expects total revenues, operating
cash flow and underlying profitability to increase signifi-
cantly from fiscal 2000.

increase was a direct result of the significant increase in
C.I.’s sales in fiscal 2000 compared with fiscal 1999 and
the amortization of the deferred sales commissions on
the BPI funds. Amortization of goodwill from the acqui-
sition of BPI totalled $58.9 million in fiscal 2000 (nil in
1999), reflecting C.I.’s policy to amortize goodwill over
36 months.

Minority interest in C.I.’s earnings was $7.3 million for
the year ended May 31, 2000 (nil in 1999). This reflects
the 45% interest of Trilogy Advisors in C.I. Global
Advisors and the 34% interest of JBS Advisors, Inc. in BPI
Global Asset Management.

Income before amortization of goodwill for the year
ended May 31, 2000, was $56.8 million, compared with
$8.8 million in the same period in 1999. This reflects
C.I.’s significant growth in assets and operating prof-
itability. After amortization of goodwill, C.I. incurred a
net loss of $2.1 million for the year ended May 31, 2000.

FINANCING AND LIQUIDITY

C.I.’s capital requirements are primarily to fund commis-
sions arising from the sale of funds on a deferred sales
charge basis. In fiscal 2000, C.I. financed $251.6 million
in cash in sales commissions, up from $86.2 million in
fiscal 1999. In addition, during fiscal 2000, C.I. used
$6.5 million to repurchase 0.7 million common shares at
an average price of $9.17 per share. This compares with
$25.1 million used to repurchase 3.7 million common
shares at an average price of $6.81 per share in fiscal
1999. On May 31, 2000, the closing price per share for
C.I. common shares was $25.65.

C.I. also paid $60.0 million in cash in conjunction with
the acquisition of BPI Financial Corporation in fiscal 2000
(nil in fiscal 1999) and assumed responsibility for BPI’s $51
million indebtedness, which was repaid during the year.

These funding requirements were met by cash, short-term
investments and marketable securities of $20.9 million at
May 31, 1999, operating cash flow in fiscal 2000 of $230.0
million (up from $89.8 million in 1999), the issuance of
2.7 million common shares from the exercise of stock
options at an average price of $3.90 per share for total
gross proceeds of $10.6 million, and the use of C.I.’s $175
million line of credit with a Canadian chartered bank.

At May 31, 2000, C.I. had cash, short-term investments
and marketable securities totalling $9.6 million ($20.9
million at May 31, 1999), and $57 million available
under the $175 million line of credit.

27 Management’s discussion and analysis

Consolidated Financial Statements
Consolidated Financial Statements

Management’s Report to Shareholders
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.

WILLIAM T. HOLLAND

William T. Holland
President and Chief Executive Officer

STEPHEN A. MACPHAIL

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

July 6, 2000

30 Management’s report to shareholders

Consolidated Financial Statements
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, 2000 and 1999 and the
consolidated statements of income (loss) and deficit and cash flows for the years then ended. These financial statements
are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Canada. 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, 2000 and 1999 and the results of its operations and its cash flows for the years then ended
in accordance with accounting principles generally accepted in Canada.

Toronto, Canada,
July 6, 2000

ERNST & YOUNG LLP

Chartered Accountants

31 Consolidated financial statements

Consolidated Financial Statements
Consolidated Financial Statements

CONSOLIDATED BALANCE SHEETS

As at May 31

2000 $

1999 $

ASSETS
Current
Cash
Marketable securities, at cost which approximates market value
Accounts receivable and prepaid expenses
Income taxes recoverable
Total current assets
Capital assets [note 5]
Deferred sales commissions, net of accumulated

3,712,258
5,900,488
16,440,665
—
26,053,411
8,468,279

9,285,190
11,647,511
5,883,685
1,537,266
28,353,652
6,514,821

amortization of $166,391,529 [1999 - $99,559,772]

310,539,058

134,271,371

Goodwill, net of accumulated amortization of
$58,985,282 [1999 - $70,407] [note 6]

Other assets [note 7]

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities
Income taxes payable
Total current liabilities
Deferred lease inducement
Deferred income taxes
Long-term debt [note 8]
Total liabilities
Minority interest

Shareholders’ equity
Share capital [note 9]
Deficit
Total shareholders’ equity

See accompanying notes

On behalf of the Board:

176,834,142
10,451,476
532,346,366

36,112,156
3,618,970
39,731,126
2,276,008
77,292,828
118,000,000
237,299,962
2,961,367

307,096,278
(15,011,241)
292,085,037
532,346,366

129,493
7,743,022
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

G. RAYMOND CHANG

WILLIAM T. HOLLAND

Director

32 Consolidated financial statements

Consolidated Financial Statements
Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICIT

Years ended May 31

2000 $

1999 $

REVENUE
Management fees
Administration fees and other income
Redemption fees
Performance fees
Expenses charged to mutual funds

Net fees paid to securitization vehicles [note 4]

EXPENSES
Selling, general and administrative
Investment adviser fees
Trailer fees
Distribution fees to limited partnerships [note 3]
Amortization of deferred sales commissions
Interest [note 8]
Other

Minority interest
Income before income taxes and amortization of goodwill
Provision for income taxes

Current
Deferred

Income before amortization of goodwill
Amortization of goodwill
Net income (loss) for the year

Retained earnings (deficit), beginning of year
Cost of shares repurchased in excess of stated value [note 9]
Dividends declared
Deficit, end of year

Earnings per share before amortization of goodwill
Fully diluted earnings per share before amortization of goodwill

Earnings (loss) per share
Fully diluted earnings (loss) per share

See accompanying notes

326,870,683
26,537,402
22,526,402
21,407,329
57,169,841
454,511,657
(2,951,873)
451,559,784

82,970,207
29,189,426
79,147,228
16,437,743
117,830,507
4,829,185
5,696,407
336,100,703
7,308,298
108,150,783

9,384,587
41,940,863
51,325,450
56,825,333
58,914,875
(2,089,542)

(3,723,887)
(4,910,525)
(4,287,287)
(15,011,241)

0.66
0.63

(0.02)
(0.02)

154,085,314
3,935,330
14,405,728
—
32,039,431
204,465,803
(556,000)
203,909,803

48,280,548
18,089,245
36,970,991
9,637,888
67,325,751
486,484
1,999,451
182,790,358
—
21,119,445

956,086
11,411,953
12,368,039
8,751,406
4,997
8,746,409

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

0.12
0.12

33 Consolidated financial statements

Consolidated Financial Statements
Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended May 31

2000 $

1999 $

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

Depreciation and amortization
Deferred income taxes
Amortization of deferred sales commissions
Minority interest
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
Purchase of marketable securities
Sale of marketable securities
Sales commissions
Purchase of C.I. FEES Trust notes, net of cash [note 4]
Acquisition of BPI Financial Corporation, net of cash [note 6]
Other assets
Cash used in investing activities

FINANCING ACTIVITIES
Long-term debt [note 8]
Repayment of long-term debt assumed [note 6]
Repurchase of share capital [note 9]
Issuance of share capital [note 9]
Distributions to minority interest
Dividends paid to shareholders
Cash provided by (used in) financing activities

Net decrease in cash during the year
Cash, beginning of year
Cash, end of year

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

Supplemental cash flow information
Interest paid
Income taxes paid

See accompanying notes

(2,089,542)

8,746,409

64,789,482
41,940,863
117,830,507
7,308,298
240,000
230,019,608

11,211,665
241,231,273

(3,260,551)
(32,464,762)
47,381,133
(251,620,458)
—
(63,118,631)
(5,678,065)
(308,761,334)

118,000,000
(51,058,395)
(6,515,542)
10,624,512
(4,806,159)
(4,287,287)
61,957,129

(5,572,932)
9,285,190
3,712,258

2.68
2.50

4,252,732
1,612,070

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

(988,107)
88,787,054

(2,121,985)
(33,288,728)
28,126,434
(86,177,238)
(24,288,365)
—
(859,559)
(118,609,441)

—
—
(25,120,658)
6,459,525
—
(3,613,412)
(22,274,545)

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

1.26
1.16

486,484
818,005

34 Consolidated financial statements

Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements

MAY 31, 2000 AND 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
Canada. 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, C.I. Fund Services
Inc., C.I. Capital Management Inc., C.I. FEES Trust [the “Trust”], C.I. Global Holdings Inc. and C.I. Global Holdings USA
Inc. The accounts of partially-owned subsidiaries, BPI Global Asset Management LLP [“BGAM”] and C.I. Global Advisors LLP,
are also included in the consolidated financial statements.

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

The Corporation’s investment in Trilogy Advisors, LLC is accounted for using the equity method. Accordingly, the Corporation’s
proportionate share of earnings is included in income.

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. Performance fees are recognized when management is assured of their realization.
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.

Goodwill
Goodwill is recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis over 3 years. The
Corporation evaluates the carrying value of goodwill for potential impairment based on estimated future cash flows. Any impair-
ment would be written off to income.

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
Property

30% diminishing balance or straight-line over four years
straight-line over two to four years
20% diminishing balance
straight-line over the term of the lease
straight-line over twenty-five years

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
(loss) and deficit. The carrying value of the investment approximates market value based on the net present value of estimated
future cash flows.

35 Notes to consolidated financial statements

Foreign currency translation
Foreign currency denominated items are translated into Canadian dollars as follows:

Integrated foreign subsidiaries are financially or operationally dependent on the Corporation. Monetary assets and liabilities are
translated into Canadian dollars using the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities
are translated into Canadian dollars using historical rates. Revenues and expenses are translated at average rates prevailing dur-
ing the year. Translation exchange gains and losses of integrated foreign subsidiaries are included in income.

Other foreign currency transactions are translated into Canadian dollars using the exchange rate in effect on the transaction date.
At the balance sheet date, monetary assets and liabilities are translated into Canadian dollars using the exchange rates in effect
at that date and the resulting translation exchange gains and losses are included in income.

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 out-
standing. 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.

Income taxes
The Corporation follows the deferral method of accounting for income taxes.

Incentive stock option plan
The Corporation has a stock-based compensation plan, which is described in note 9. No compensation expense is recognized
for the plan when stock or stock options are issued to employees. Any consideration paid by employees on exercise of stock
options or purchase of stock is credited to share capital.

Fair value of financial instruments
The estimated fair values of all financial instruments approximate their carrying amounts in the consolidated balance sheets.

Statement of cash flows
The Corporation has retroactively adopted the new accounting standards relating to the presentation of a statement of cash flows
in the consolidated financial statements.

2. OPERATIONS

The Corporation is incorporated under the laws of Ontario. The primary business of the Corporation is the marketing, man-
agement and administration of the C.I. Mutual Funds, the C.I. Segregated Funds and the C.I. Guaranteed Investment Funds
[collectively, the “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 portfolios
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 limited partnerships and securitization vehicles [notes 3 and 4].

In addition to commissions paid to dealers on the sale of securities of the Funds by the Corporation, certain limited partnerships
and securitization vehicles, the Corporation pays fees [“trailer fees”] to dealers to provide ongoing services to investors in the
Funds. These trailer fees range up to 1% per annum based on the net asset value of the underlying securities of the Funds and
are payable monthly or quarterly.

36 Notes to consolidated financial statements

3. LIMITED PARTNERSHIPS

During various periods for certain funds prior to July 31, 1997, 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 obligated to pay the limited partnerships an
annual fee based on 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, 2000, the net asset value of securities of the Funds financed by the limited
partnerships was $3,264 million [1999 - $1,757 million].

4. SECURITIZATION VEHICLES

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%.

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.

During the period from July 1, 1994 to December 31, 1994, selling commissions on sales of securities of certain of the Funds
under the deferred sales charge method were paid by BPI (1994) Fees Partnership, and the periods from October 1, 1995 to
December 31, 1995 and from June 1, 1998 to December 31, 1998 were paid by BPI (1995) Fees Partnership [collectively, the
“Fees Partnerships”]. The Fees Partnerships have assumed responsibility for providing transfer agency functions and investor
reporting services for the securities financed pursuant to Distribution and Administration Agreements. In return, the Fees
Partnerships receive any redemption fees paid with respect to the financial securities and receive annual distribution and admin-
istration fees totaling a maximum of 1.70% of the net asset value of the outstanding financial securities.

5. CAPITAL ASSETS

Capital assets consist of the following:

Computer hardware and software
Office equipment
Leasehold improvements
Property

Less accumulated depreciation
and amortization
Net book value

2000
Accumulated
depreciation and
amortization
$

8,886,938
1,779,365
2,802,940
10,361
13,479,604

Cost
$

14,502,030
4,053,390
3,047,091
345,372
21,947,883

13,479,604
8,468,279

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

Reflected in the accounts of the Corporation are write-downs of leasehold improvements and computer hardware and software
of approximately $2,539,000 [1999 - nil].

37 Notes to consolidated financial statements

6. ACQUISITION OF BPI FINANCIAL CORPORATION

On August 19, 1999, the Corporation acquired 95% of the outstanding shares of BPI Financial Corporation [“BPI”], a mutual
fund management company. In September 1999, the Corporation acquired the remaining 5%. Significant subsidiaries of BPI
included BPI Capital Management Corporation, BPI Global Holdings Inc., BPI Global Holdings USA Inc. and BPI Global
Asset Management LLP. The acquisition was accounted for using the purchase method and the results of operations have been
consolidated from the date of acquisition. Goodwill arising from the acquisition of BPI is being amortized on a straight-line
basis over 3 years.

Details of the net assets acquired, at fair value, are as follows:

Total assets [including cash of $992,127]
Total liabilities [including long-term debt of $51,058,395]
Minority interest
Goodwill on acquisition
Net assets acquired, at fair value

Details of the consideration given, at fair value, are as follows:

Shares [17,291,334 common shares]
Cash
Transaction costs
Consideration given, at fair value

69,991,031
(73,314,629 )
(459,228 )
235,619,524
231,836,698

167,725,940
60,002,385
4,108,373
231,836,698

Subsequent to the acquisition date, BPI and BPI Capital Management Corporation were amalgamated into CIMF, and BPI
Global Holdings Inc. and BPI Global Holdings USA Inc. changed their names to C.I. Global Holdings Inc. and C.I. Global
Holdings USA Inc., respectively.

7. OTHER ASSETS

Other assets consist of the following:

Investment in limited partnership
Investment in securitization vehicles
Investment in BGAM-managed funds
Contingency fund deposits
Long-term portfolio investment, at cost
Other

8. LONG-TERM DEBT

2000 $

2,041,473
1,511,340
5,414,009
30,000
—
1,454,654
10,451,476

1999 $

2,281,463
—
—
20,000
4,422,000
1,019,559
7,743,022

During fiscal 2000, the Corporation arranged a revolving credit facility with a Canadian chartered bank for general corporate
purposes for $175 million which expires on September 22, 2004. Amounts may be borrowed under this facility through prime
rate loans, U.S. base rate loans or bankers’ acceptances, which bear interest at bankers’ acceptance rates plus 0.35% to 0.50%
depending on the status of a particular financial ratio. The agreement requires the Corporation to meet certain financial ratios
on a quarterly basis.

The facility is collateralized by a registered general security agreement from the Corporation, hypothecation of the shares of
CIMF, and assignment of the management agreements between CIMF and the Funds.

38 Notes to consolidated financial statements

As at May 31, 2000, $118 million has been drawn on this facility in the form of bankers’ acceptances at an effective interest rate
of 5.94%. Interest expense attributable to the long-term debt in fiscal 2000 was $3,816,704.

9. SHARE CAPITAL

Details with respect to share capital are as follows:

Authorized
Unlimited preference shares
Unlimited common shares

Issued
[reflects 2 for 1 stock split in January 2000]

May 31, 1998
Share repurchase
Exercise of stock options
May 31, 1999
Issuance of share capital [note 6]
Share repurchase
Exercise of stock options
May 31, 2000

Common shares

Number
of shares
#

Stated
value
$

73,743,444
(3,689,966)
2,056,752
72,110,230
17,291,334
(710,600)
2,724,000
91,414,964

130,423,379
(6,532,061)
6,459,525
130,350,843
167,725,940
(1,605,017)
10,624,512
307,096,278

On January 12, 2000, the Board of Directors approved a 2 for 1 stock split of the common shares of the Corporation. Accordingly,
share and per share figures have been restated to reflect this stock split. The stock split was effected by declaring a stock divi-
dend of one additional common share for each common share of the Corporation issued and outstanding on the dividend record
date of January 25, 2000.

During fiscal 2000, 710,600 common shares [1999 - 3,689,966] were repurchased under a normal course issuer bid at an aver-
age cost of $9.17 per share [1999 - $6.81] for a total consideration of $6,515,542 [1999 - $25,120,658]. Retained earnings was
reduced by $4,910,525 [1999 - $18,588,597] for the cost of the shares in excess of their stated value.

The Corporation has established an incentive stock option plan [the “Plan”] for the executives, key employees and directors of
the Corporation. The maximum number of common shares that may be issued under the Plan is 15,027,180. As at May 31,
2000, there are 6,800,800 [1999 - 6,986,404] common shares reserved for issuance on exercise of stock options. These options
vest over periods of up to 5 years and may be exercised at prices ranging from $2.69 to $21.99 per common share with a total
exercisable value of $64,926,761 and expire at dates up to 2006.

39 Notes to consolidated financial statements

Details of the Plan activity and status for the years ended May 31, 2000 and 1999 are as follows:

Options outstanding, beginning of year
Options granted
Options exercised
Options cancelled
Options outstanding, end of year

Number of
options

6,986,404
2,788,400
(2,724,000)
(250,004)
6,800,800

Options exercisable, end of year

1,615,225

2000

Weighted
average exercise
price
$

6.14
12.53
3.90
9.38
9.55

6.49

1999

Weighted
average exercise
price
$

4.51
8.43
3.14
6.34
6.14

4.01

Number of
options

6,997,428
2,334,400
(2,056,752)
(288,672)
6,986,404

3,282,254

Details of the Plan options outstanding and exercisable as at May 31, 2000 are as follows:

Range of
exercise prices

$2.69 to $6.00
$6.01 to $8.00
$8.01 to $10.00
$10.01 to $21.99
$2.69 to $21.99

Number
outstanding

662,000
2,580,400
2,817,200
741,200
6,800,800

Options outstanding
Weighted
average
remaining
contractual
life [years]

2.3
4.2
5.1
5.8
4.6

Weighted
average
exercise
price $

4.56
7.60
9.32
21.68
9.55

Options exercisable

Number
exercisable

582,000
948,225
85,000
—
1,615,225

Weighted
average
exercise
price $

4.38
7.50
9.66
—
6.49

The Corporation has an employee share purchase loan program. These loans are renewable yearly and bear interest at pre-
scribed rates. As at May 31, 2000, the carrying amount of employee share purchase loans is $4,467,793 [1999 - nil] and is includ-
ed in accounts receivable and prepaid expenses. These loans become due immediately upon termination of employment or sale
of the shares that are held as collateral. As at May 31, 2000, the shares held as collateral have a market value of approximately
$13,736,000 [1999 - nil].

10. 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

2000 %

1999 %

44.6

2.2
0.6
0.1
47.5

44.6

10.4
2.4
1.2
58.6

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].

40 Notes to consolidated financial statements

11. LEASE COMMITMENTS

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

Year ending May 31

2001
2002
2003
2004
2005
2006 and thereafter

3,328,000
3,520,000
3,321,000
3,337,000
3,205,000
15,943,000

12. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

The comparative consolidated financial statements have been reclassified from statements previously presented to conform to
the presentation of the 2000 consolidated financial statements.

41 Notes to consolidated financial statements

Corporate Directory
Corporate Directory

C.I. FUND MANAGEMENT INC. DIRECTORS AND OFFICERS

G. Raymond Chang
Chairman and Director

William T. Holland
President, Chief Executive Officer
and Director

Ronald D. Besse
Director

George W. Oughtred
Director

Stephen A. MacPhail
Executive Vice-President
and Chief Operating 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
Director

Marketing

Scott Pehleman
Senior Vice-President

Sales

Ontario

Thomas V. Caswell
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

Ron Bowes
Vice-President

Sean Hayes
Vice-President

William T. Holland
Chairman, Chief Executive Officer
and Director

Stephen A. MacPhail
Chief Financial Officer,
Chief Operating Officer
and Director

Peter W. Anderson
President and Director

Marcelo A. Donato
Vice-President

Michael Gramegna
Vice-President

Julie A. Warren
Vice-President

Neal Kerr
Vice-President

Pierre Lalonde
Vice-President

Andrew McBain
Vice-President

Jeff Nairn
Vice-President

Michael Warus
Vice-President

Western Provinces

Quebec and Eastern Provinces

Robert J. Costigan
Senior Vice-President

Derek J. Green
Senior Vice-President

David M. Rupert
Senior Vice-President

Karl Palmen
Vice-President

Roy Ratnavel
Vice-President

Tracy C. Wood
Vice-President

Alain Ruel
Senior Vice-President

Sylvain Rivard
Senior Vice-President

Patrick LeFrancois
Vice-President

Patrick Flemming
Vice-President

Philippe Ventura
Vice-President

Operations and Corporate

Ian T. Madill
Senior Vice-President,
Administration

Michael Bustard
Vice-President,
Administration

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
Senior Vice-President,
Financial Operations

Lorraine P. Blair
Vice-President,
Human Resources

Mark MacLeod
Vice-President,
Client Services

Greg Shin
Vice-President,
Fund Accounting

42 Corporate directory

Corporate Information
Corporate Information

HEAD OFFICE

Toronto
151 Yonge Street
Eleventh 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

INVESTOR
RELATIONS

TRADING SYMBOL

Computershare Investor
Services Inc.
100 Univesity Avenue
Toronto, Ontario
M5J 2N1
416-981-9633

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

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

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 under Corporate Information.

43 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 , E l 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