CI Financial
Annual Report 2001

Plain-text annual report

C . I . F u n d M a n a g e m e n t I n c . 2 0 0 1 A n n u a l R e p o rt May 31, 2001 6 Message to our shareholders 10 Operating review 18 Management’s discussion and analysis 29 Consolidated financial statements 35 Notes to consolidated financial statements 44 Corporate directory 45 Corporate information The Annual Meeting of Shareholders will be held on October 16, 2001, at 2:00 pm at the Toronto Hilton, Toronto, Ontario. The record of C.I. Fund Management Inc. is marked by a consistent focus on creating shareholder value through growth and financial efficiency. s t h g i l h g i h l a i c n a n i f l a c i r o t s i h Fee-earning assets years ended may 31 $ [billions] 93 1.0 94 95 96 97 98 99 00 01 3.7 4.4 5.5 6.5 8.3 9.7 26.7 26.8 Net sales years ended may 31 93 94 95 96 97 $ [billions] 0.4 2.4 0.9 0.5 0.5 98 1.2 99 1.4 00 01 5.8 3.5 Operating cash flow years ended may 31 $ [millions] 93 1.1 94 95 96 97 98 99 00 01 6.0 20.9 37.4 45.1 64.4 89.8 230.0 291.9 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Total revenues years ended may 31 93 94 95 96 97 98 99 00 01 $ [millions] 19.1 68.6 108.6 120.1 145.4 181.1 204.4 454.5 615.1 Income before amortization of goodwill years ended may 31 93 94 95 96 97 98 99 00 01 $ [millions] 0.6 4.0 10.5 10.5 9.5 8.6 8.8 56.8 90.1 EBITDA per share years ended may 31 93 94 95 96 97 98 99 00 01 $ 0.02 0.10 0.17 0.25 0.35 0.46 0.64 1.38 1.75 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) “CI remains strong. Our solid balance sheet and robust cash flow give us the ability to finance growth and pursue new opportunities.” Years ended May 31, [in millions of dollars except per share amounts] Total fee-earning assets, 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 Earnings per share before amortization of goodwill Operating cash flow per share EBITDA** per share Shareholders’ equity, end of year Shares outstanding, end of year*** 2001 26,834 3,468 510.3 28.7 2.6 73.5 615.1 99.7 41.5 115.6 16.2 183.9 33.8 490.7 34.3 90.1 11.5 291.9 0.49 1.60 1.75 260.8 2000 26,678 5,843 353.4 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 0.33 1.34 1.38 292.1 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 0.06 0.63 0.64 126.6 180,684,728 182,829,928 144,220,460 *Does not include $286 million in sales of the closed-end DDJ Canadian High Yield Fund **Earnings before interest, taxes, depreciation and amortization ***Adjusted for two-for-one stock dividends in April 1998, January 2000 and November 2000 †Net income from continuing operations 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 0.06 0.45 0.46 140.2 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 0.07 0.34 0.35 55.8 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 0.08 0.28 0.25 50.8 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 0.08 0.16 0.17 43.1 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 0.04 0.06 0.10 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 0.01 0.02 0.02 1.3 147,486,888 131,139,160 131,838,104 131,882,104 107,080,000 106,440,000 William T. Holland, President and Chief Executive Officer Dear Shareholders, In this age of rapid change, our focus on creating value for shareholders has not wavered. We have created value by fostering strong asset growth and by maintaining constant attention to the company’s financial efficiency. This approach continued to produce excellent results in fiscal 2001. Despite sharply weaker global equity markets, CI reached record levels of assets, revenues, cash flow and earnings. While our fee-earning assets increased 1% over the fiscal year to $26.8 billion, revenues grew 35% to $615.1 million. Operating cash flow increased 27% to $291.9 million and net income before amortization of goodwill was up 59% to $90.1 million. CI posted net sales for the fiscal year of $3.5 billion and while this was down from our industry-leading record of the previous year, we still ranked No. 2 among all Canadian fund companies. Our share price rose 10% during the fiscal year to $14.10. From the date that CI went public in June 1994 to May 31, 2001, our stock has returned 979% – making CI the TSE 300’s seventh best-performing company during that period and its best-performing financial services stock. Supporting the increase in our share price has been growth in EBITDA per share of over 30% per year coupled with asset growth of 25% per year. A key factor in CI’s success in fiscal 2001 was our long-established strategy of offering fund investors and their advisers a wide choice of funds distinguished by asset class, geographical mandate and investment style. Our diverse lineup was able to accommodate fund investors as their preferences switched to more conservative equity and fixed-income funds. Our concern for financial efficiency continues to be a priority. As the markets declined, we moved quickly to reduce expenses, protecting the interests of both our shareholders and the investors in our funds. In fact, we increased CI’s operating margin during the fiscal year – without compromising the quality of our products, distribution and service. CI remains one of the most efficient and CIX share price low-cost fund companies. 7 During the year, we continued to seek opportunities to create additional value for shareholders. In that spirit, we made a takeover bid for Mackenzie Financial Corporation in November 2000. Had our bid been successful, we are confident we years ended may 31 94 95 96 97 98 99 00 01 could have achieved considerable cost $ 1.38 1.36 1.63 2.75 3.84 4.84 12.83 14.10 savings in merging the two operations – to the benefit of shareholders and fund unitholders of both companies. In the end, the bid produced a net gain of $12 million for CI on the sale of our shares in Mackenzie. CIX vs TSE 300 total return years ended may 31 except for june '94 CIX TSE300 96 97 98 99 00 01 And, as we announced at our Annual Meeting in October 2000, we continued 121 206 289 368 979 1,079 our share repurchase program, buying 94 100 95 99 100 109 131 159 192 175 241 215 back over 3.6 million shares in fiscal (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) 2001 at an average price equal to 7.4 times fiscal 2001 EBITDA (earnings before interest, taxes, depreciation and amortization). CI is now generating significant excess cash flow and our view is that repurchasing stock opportunistically is the best way to return cash to CI shareholders. Despite the uncertainties of today’s markets, CI remains strong. Our solid balance sheet and robust cash flow give us the ability to finance growth and pursue new opportunities. In addition, the decline in corporate tax rates to approxi- mately 30% within the next few years will bene- fit CI considerably as CI becomes taxable, after having sheltered income during the recent period of high taxation. Our lineup of investment funds is the most complete in the industry, and is noted for quality as well as choice. At May 31, 2001, we had eight funds with the coveted five-star rating from Morningstar The Executive Committee: Canada – more than any other fund company. In keeping with our tradition for G. Raymond Chang William T. Holland Peter W. Anderson Stephen A. MacPhail innovation and responsiveness to investors’ changing needs, we continue to expand and diversify our lineup. For example, we have launched three new hedge funds since February 2001, increasing our presence in this key growth area. CI’s funds are backed by extraordinary breadth and depth in portfolio management expertise. We offer investors a choice of six in-house portfolio management teams and three outside firms representing a range of investment styles. Our strategy of developing diversity in both funds and portfolio management has been critical to our development, as the competition for shelf space with financial advisers intensifies. As advisers increasingly reduce the number of fund companies they offer to their clients, CI strives to remain one of their top choices. As a result, the financial adviser or what is known as the advice channel remains the focus of our marketing and distribution, another distinct strength for CI. Our sales force and client services team is among the industry’s most effective and we have invested extensively in new technology and services to bolster our support for advisers. At the same time, we are actively developing alternative distribution channels for our funds, including banks and insurance companies. Our funds are now included in other financial firms’ segregated fund or asset allocation products, for example. These programs, which accounted for $1.2 billion of CI’s assets at May 31, 2001, have exceeded our expectations. These strengths mean that CI is well positioned as the global asset management industry consolidates. We have a successful track record of integrating new businesses and of quickly launching new products. We are expanding our focus and will be pursuing strategic options within Canada and globally – as we believe that size, global investment management breadth, marketing expertise and financial strength will be key competitive advantages to continued success. 9 Currently, the fund business has been affected by the downturn in global equity markets. Nevertheless, CI’s commitment to increasing shareholder value has never been stronger. CI’s management team holds a meaningful equity stake in the company and compensation is tied directly to the value of CI shares – ensuring that the interests of management and shareholders are aligned. This commitment, in conjunction with our entrepreneurial culture and financial prudence, strongly positions CI to benefit from the inevitable market turnaround. [signed] William T. Holland President and Chief Executive Officer September 5, 2001 w e i v e r g n i t a r e p o Fiscal 2001 can be characterized as a year in which CI achieved exceptional results in the face of an increasingly challenging environment. CI continued to consolidate its position as one of the leaders in the Canadian investment fund industry by broadening its lineup of funds, increasing its depth of portfolio management expertise and enhancing its marketing and distribution. The major influence on the industry during the fiscal year was the sharp decline in global equity markets. Over the 12 months ended May 31, 2001, the TSE 300 Composite Index dropped 11% and the MSCI World Index was down 13%. While overall industry net sales continued to be strong, investors began putting more of their money into conservative funds and cash equivalents. In the first five months of 2001, money market funds accounted for 44% of industry net sales. CI’s net sales of $3.5 billion in fiscal 2001 accounted for 15% of the industry’s total and ranked CI a close second among all Canadian fund companies. This followed a year in which CI established an industry record with net sales of $5.8 billion. CI’s fee-earning assets 11 – which include institutional accounts, closed-end funds and other assets as well as mutual funds – increased slightly to $26.8 billion. CI’s market share of mutual fund assets at the end of the period was 5.33%, in line with last year’s share of 5.53%. Unparalleled choice of funds The shift in sales trends once again validated CI’s strategy of providing a broad selection of funds that vary by investment style, asset class, and regional and industry focus. As investors’ preferences changed, their needs could still be met within CI’s family of funds. While core global funds such as CI Global Boomernomics® Fund continued to be top sellers, funds such as the value-oriented Harbour Fund or Signature Select Canadian Fund – the industry’s top-performing Canadian equity fund over the three years ending May 31, 2001 – posted strong sales gains. This diversity also means that CI is not dependent on one or two products, as a majority of CI’s funds continued to register positive net sales during the year. The success of this strategy can also be seen in the consistently high ratings of CI’s funds by Morningstar Canada. At May 31, 2001, CI had eight funds with the top five-star rating – more than any other fund company. These five-star funds reflected a variety of mandates, including two Canadian equity funds, a resource fund, two income funds, a global small companies fund and two emerging markets funds. CI strongly believes that this broad product lineup continues to be a critical competitive advantage. In recent years, industry sales have become more and more concentrated as advisers choose to limit their business to the largest fund companies, which can offer a range of products and more extensive sales support. CI’s approach has always been to give advisers and investors a wide choice of funds, and to respond quickly by creating and introducing innovative products as investors’ needs change and evolve. In fiscal 2001, CI’s new products included: • Landmark Canadian Fund and Landmark Global Fund managed by Derek Webb of Webb Capital Management LLP. The Landmark Funds, which use an earnings momentum approach, gave investors another choice of investment style within the CI lineup. At May 31, 2001, these two funds had total assets of $185 million. • CI American Managers Fund, a multi-manager fund. The fund, along with the CI Global Managers Fund, offers investors style diversification and the best ideas of several leading portfolio managers in one fund. Together, these funds had $522 million in assets at May 31, 2001. • Trident Global Opportunities Fund, a hedge fund launched in February 2001 and managed by Nandu Narayanan of Trident Investment Management, LLC of New York. Two more hedge funds were launched in August 2001 – the Trilogy Global Opportunities Fund managed by Trilogy Advisors, LLC (sister company to CI Global Advisors LLP), and the Landmark Global Opportunities Fund managed by Webb Capital. These additions – which join the existing hedge funds run by BPI Global Asset Management LLP – have created a formidable hedge fund lineup, diversified by manager and investment style. With $1.1 billion in hedge fund assets at May 31, 2001, CI has significant experience in managing and marketing these funds and a considerable presence in this growing market segment. • Class F units, which are units in existing CI funds that do not pay trailer fees and there- fore carry a lower management expense ratio. They are designed for advisers who offer fee-based services or wrap accounts to their clients. With Class F units and Insight, a wrap program offering 15 investment pools, CI is well equipped to compete in the growing fee-based business. By May 31, 2001, CI had accumulated $122 million in assets in this category. (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) • An expanded choice of 100% RSP-eligible funds. CI continues to build on its advantage in this area by launching RSP-eligible versions of both new funds and existing funds. As of August 2001, CI offered 31 RSP-eligible global funds representing over $4.3 billion of CI’s fee-earning assets. • An expanded choice of share classes within CI Sector Fund, which allows for tax-deferred investing outside registered plans. In 1987, CI became the first company in Canada to introduce this type of fund structure and it now offers 39 separate share classes. At May 31, 2001, CI’s clients had over $6.2 billion invested in the Sector Fund. Since the end of the fiscal year, CI has launched two new value funds: CI Global Focus Value Fund, managed by Altrinsic Global Advisors, LLC, and CI American Value Fund, managed by Steinberg Priest Capital Management, LLC. With these funds, CI offers a complete selection of value-oriented global funds. Diverse portfolio management CI’s comprehensive fund lineup is complemented by a strategy of attracting and retaining high-quality portfolio managers. Over the past two years, CI has put in place a unique portfolio 13 management structure with distinct advantages for investors and for CI. This structure has two key characteristics. First, CI’s portfolio management teams operate independently of one another, which CI believes fosters flexibility and innovative thinking. This arrangement also gives investors a clear choice of portfolio management groups with different investment styles. Several teams also manage funds with a separate fund family name or brand – including Harbour, Signature, Landmark and BPI – which helps to highlight their particular investment approaches. Second, four of CI’s portfolio management teams are organized as partnerships between CI and the portfolio managers. By having an equity stake in their business, the portfolio managers are given an incentive to stay with CI over the long term and to increase the assets under management – both through long-term outperformance of their CI funds and by seeking investment advisory business from sources other than CI. These partnerships are a powerful platform for future growth. Both BPI Global Asset Management and CI Global Advisors have growing institutional investment advisory businesses in which they manage money on behalf of U.S.-based mutual funds, pension funds, endowments and other organizations. As a testament to the potential of this business, BPI Global and CI Global managed $3.2 billion in institutional assets at May 31, 2001 – an increase of 19% over one year. These assets generate revenues for CI while requiring little in the way of capital investment on the part of the company. With the establishment of these partnerships, CI has increased the proportion of its mutual fund assets managed in-house to about 95% at May 31, 2001, compared with 75% a year earlier. CI’s in-house management teams are: • Harbour Funds team of Toronto; • Signature Funds team of Toronto; • Altrinsic Global Advisors, LLC of Old Greenwich, Connecticut; • CI Global Advisors LLP of New York; • BPI Global Asset Management LLP of Orlando, Florida; • Webb Capital Management LLP of San Francisco. CI’s external management teams are: • Trident Investment Management, LLC of New York; • J. Zechner Associates Inc. of Toronto. In July 2001, CI retained the services of another outside firm, Steinberg Priest Capital Management, LLC of New York, to manage the new CI American Value Fund. Co-manager William Priest is a veteran money manager and former Chairman and CEO of Credit Suisse Asset Management Americas and CEO and Portfolio Manager of its predecessor firm BEA Associates. Superior marketing and distribution CI primarily distributes its funds through more than 40,000 advisers across Canada. The core of CI’s marketing and distribution efforts continues to be an aggressive sales team that provides information and support to advisers. In independent surveys, advisers give high marks to CI’s wholesalers. A recent study by Environics Research Group indicated that CI’s sales team was one of the best in the top tier of fund companies. CI’s sales team is backed by highly trained client services representatives and one of the industry’s most efficient administrative departments. In fiscal 2001 and the first two months of fiscal 2002, CI introduced a number of measures to provide additional value to both the advisers who recommend CI funds and to the investors in the funds. These included: • A redesigned website, www.cifunds.com, providing a wide range of information about CI’s funds and portfolio managers, as well as useful information for investors about personal finance. CI’s website, www.cifunds.com, provides a wealth of information to investors, while Adviser Online provides industry-leading services to advisers. • Perspective Online, an online version of CI’s monthly fund update. With the online publication, advisers get faster access to CI fund profiles and commentary from CI managers. • A redesigned Adviser Online, CI’s website exclusively for financial advisers. By logging onto Adviser Online, advisers can not only see extensive information about CI products, but they can view up-to-date information about their sales and assets at CI, as well 15 as the details of their clients’ CI accounts through eCISS, CI’s advanced electronic client account system. A common thread in these initiatives is the use of technology and the Internet to not only make CI’s operations more efficient, but to make it faster and easier for advisers to get critical infor- mation from CI. An example of how CI’s system leads the industry is CI’s development of online tax receipts, which allows advisers to instantly provide duplicate tax receipts to their clients. In the past, this was a tedious process that required the duplicate receipt to be printed at CI and delivered by mail. These and other projects have maintained CI’s reputation as an industry trendsetter in electronic communications. Meanwhile, CI has enjoyed great success in developing alternative distribution channels for its funds. These include the direct distribution of CI funds by banks, insurance companies and discount brokers, as well as the inclusion of CI funds in wrap programs, segregated fund lineups and other products offered by various firms. These channels are available only to the largest fund companies and CI’s accomplishments in this area are a reflection of its size, scope and of the power of its brand. CI believes that penetrating these alternative channels is becoming increasingly important as the competition in the industry intensifies and the options available to investors proliferate. As a result, CI has a team within its marketing department dedicated to developing and maintaining these relationships. This business has increased the reach of the CI brand and accounted for $1.2 billion in assets at the end of the fiscal year. Advertising and sponsorships are a central part of CI’s marketing and distribution strategy, with building the CI brand being their focus. This emphasis on brand-building increases awareness of CI among the general public as well as advisers, making it easier for distributors to recommend CI’s funds. Both advertising and sponsorships are tightly targeted at CI’s key audiences – the adviser community and the affluent members of the public. CI’s two major sponsorships – the Canadian Open and the National Ballet of Canada’s The Nutcracker – reflect this approach. The Canadian Open sponsorship in particular has paid dividends for CI. As the premiere professional golf tournament in Canada, it is well attended and closely followed by fans across the country every year. The 2000 Open generated an explosion of interest with the entry of Tiger Woods into the competition. The tournament culminated in an astonishing down-to-the- wire victory by Woods in front of 50,000 fans at the course and an estimated 1.6 million television viewers. Sports fans gained a moment to remember and CI gained invaluable exposure and goodwill. Financial efficiency Today, an emphasis on efficiency and financial responsibility characterizes all aspects of CI’s operations. This applies equally to the management of CI on behalf of its shareholders, and to the management of CI’s funds on behalf of their unitholders. CI’s expenditures are reviewed continually so that they can be adjusted as market conditions change. This keeps margins intact even when market declines result in lower asset levels. This has allowed CI to maintain its industry-leading margins despite the market downturn in fiscal 2001. At the fund level, the introduction of new technology, combined with an overall philosophy of evaluating all expenditures, has resulted in CI being more efficient per dollar of assets under management than any of its competitors. Furthermore, CI has become this efficient while maintaining service levels that are among the highest in the industry. The operating expenses of CI’s funds, expressed as a percentage of assets, continued their downward trend -- declining more than 55% in the last eight years. This is reflected in fee-earning assets per employee, which at May 31, 2001, exceeded $47 million. As a further example of CI’s financial innovation, CI signed an agreement in April 2001 to outsource its fund accounting activities to Royal Trust in conjunction with consolidating CI’s custody services. This transaction benefited CI in a number of ways. First, it eliminated the risk to CI of pricing errors. Second, the economies of scale and technology available to Royal Trust allow it to perform the function more cost-effectively than CI, a clear benefit Fee-earning assets under management per employee to CI’s unitholders. At this time, CI is the largest of all fund companies in 17 Canada to outsource fund accounting activities, following the trend already established in the U.S. mutual fund industry. Outlook years ended may 31 93 94 95 96 97 98 99 00 01 At a difficult time for the Canadian $ [millions] 16.5 23.1 24.4 28.3 31.9 33.3 34.3 44.3 47.3 fund industry, CI continues to build on the strengths that have made it a success – one of the industry’s broad- est selection of funds; an impressive and diverse lineup of portfolio man- agement teams; exceptional strength in marketing and distribution; and financial strength and efficiency. CI believes the stage is set for continued growth and profitability. Fund operating expenses years ended may 31 93 94 95 96 97 98 99 00 01 basis points 69.0 54.2 52.8 46.0 46.5 40.2 39.6 34.4 31.1 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) s i s y l a n a & n o i s s u c s i d s t n e m e g a n a m s u m m a r y o f f i n a n c i a l h i g h l i g h t s Years ended May 31, [millions of dollars except per share amounts] 2001 2000 % 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 EBITDA EBITDA per share Shareholders’ equity, end of year Shares outstanding, end of year ASSET MANAGEMENT DATA Average mutual fund assets under management Total fee-earning assets, end of year Mutual fund assets, end of year Total gross sales Total redemptions Total net sales 19 464.5 45.8 28.7 2.6 73.5 615.1 99.7 41.5 115.6 4.2 16.2 183.9 20.0 9.6 34.3 90.1 11.5 0.49 291.9 1.60 319.9 1.75 260.8 180.7 23,649 26,834 22,361 6,402 2,933 3,468 326.9 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 ) 0.33 230.0 1.34 236.9 1.38 292.1 182.8 16,618 26,678 22,510 8,894 3,050 5,843 +42 +73 +28 -88 +28 +35 +20 +42 +46 +40 -1 +56 +90 +32 -33 +59 n/a +48 +27 +19 +35 +27 -11 -1 +42 +1 -1 -28 -4 -41 s e l e c t e d q u a r t e r l y i n f o r m a t i o n Years ended May 31, [millions of dollars except per share amounts] 2001 2000 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 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 Earnings per share Fully diluted earnings (loss) per share EBITDA EBITDA per share Average mutual fund assets under management 107.4 6.5 9.1 0.0 18.8 141.8 23.4 10.2 26.4 1.0 3.3 47.2 4.9 1.5 (0.2) 24.0 4.4 0.13 0.02 0.02 75.0 0.41 122.4 121.1 5.5 5.9 1.3 17.6 151.3 24.5 9.1 30.1 1.6 4.9 43.2 4.4 3.5 13.9 113.7 21.5 7.3 1.2 20.0 163.6 27.7 11.5 28.8 1.1 3.8 47.7 5.9 1.9 7.8 27.6 8.0 12.3 6.4 0.0 17.1 158.3 23.9 10.7 30.3 0.5 4.3 45.8 4.8 2.8 12.8 22.3 2.7 113.6 7.9 6.8 0.7 19.7 148.7 27.5 9.2 27.9 0.9 4.8 39.1 2.3 3.0 15.6 92.1 7.3 6.5 7.9 15.2 129.0 22.9 8.1 22.3 1.1 5.0 31.5 3.7 2.9 15.4 73.9 10.3 5.0 12.8 13.6 47.3 1.0 4.2 0.0 8.6 115.8 61.0 19.7 6.6 17.6 1.0 4.2 27.5 3.9 1.4 15.8 12.7 5.3 11.3 0.0 2.5 19.8 0.9 0.0 4.5 4.0 4.0 16.1 (3.5) 18.4 (1.2) 16.2 (3.5) 18.2 (1.4) 0.15 0.12 0.09 0.10 0.09 0.10 0.03 0.04 0.04 85.3 0.47 0.02 0.02 83.5 0.46 (0.02) (0.02) 76.2 0.42 (0.01) (0.01) 78.3 0.43 (0.02) (0.02) 65.5 0.36 (0.01) (0.01) 64.4 0.36 0.03 0.03 28.7 0.20 22,103 23,515 24,831 24,156 22,650 18,851 15,117 9,861 Overview of CI’s Business American Managers RSP Fund. The multi-manager structure allows investors to benefit from a diversified mix of the investment management styles offered by different CI managers. The principal business of C.I. Fund Management Inc. is the management, marketing, distribution and administration of mutual funds and other In February 2001, CI launched the Trident Global Opportunities Fund, a fee-earning investment products for Canadian investors through its long/short hedge fund that exploits changing trends in global markets. wholly-owned subsidiary CI Mutual Funds Inc. (“CI”). At May 31, 2001, fee-earning assets totalled $26.8 billion, represented by $22.4 billion in In addition to launching new funds, CI has modified existing products to mutual funds, $0.9 billion in labour-sponsored funds, $0.4 billion in make them more attractive for inclusion in new investment closed-end and other funds and $3.2 billion in institutional assets structures such as fee-based accounts and proprietary funds offered by (through BPI Global Asset Management LLP and Trilogy Advisors, LLC). CI investment dealers, mutual fund dealers, banks and insurance companies. markets its funds to Canadian retail investors through over 40,000 financial advisers representing over one million retail investment accounts owning CI mutual funds. CI’s share of total Canadian mutual fund assets as reported by the Investment Funds Institute of Canada was 5.33% at May 31, 2001. Investment Management In order to offer a broad range of investment products, CI retains the services of a number of investment advisers. CI uses three structures There are four critical components to CI’s business: to ensure it can attract and maintain the investment management 1 2 3 4 Investment Products Investment Management Investment Product Distribution Investment Product Administration Investment Products expertise CI believes is necessary to meet investors’ needs: 1. CI maintains sub-advisory agreements with independent investment managers who are compensated on the basis of assets under management. At May 31, 2001, CI had sub-advisory agreements with J. Zechner Associates of Toronto (which managed 21 $463 million in bond funds) and Trident Investment Management of New York (which managed $573 million in several global CI believes that in order to attract and maintain investor interest in its equity mutual funds and two globally oriented hedge funds). products, it is essential to offer a wide range of investment products and continually develop new products. CI’s product line encompasses a broad range of global and domestic funds offering a variety of invest- ment styles. In addition, CI has consistently 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 fiscal 2001, CI launched nine new funds starting in July 2000 when CI launched Landmark Canadian Fund, Landmark Global Fund and Landmark Global RSP Fund. These funds are managed by Derek Webb of Webb Capital Management LLP who uses an earnings momentum approach to portfolio management. Operating cash flow per share years ended may 31 93 94 95 96 97 98 99 00 01 $ 0.01 0.06 0.16 0.29 0.35 0.45 0.63 1.34 1.60 Also launched in July 2000 were the Signature American Small Companies RSP Fund and Signature Global Small Companies RSP Fund, Net operating margin 100% RSP-eligible versions of existing funds managed by CI’s in-house Signature Funds group, and the BPI International Equity RSP Fund, an RSP version of an existing fund managed by BPI Global Asset Management. CI also expanded its lineup of multi-manager funds with years ended may 31 93 94 95 96 97 98 99 00 01 the July 2000 launch of the CI American Managers Fund and CI % of average assets under management 0.40 0.58 0.89 0.98 0.98 1.00 1.02 1.16 1.19 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Management fees years ended may 31 93 94 95 96 97 98 99 00 01 % of average assets under management 1.89 1.94 1.97 1.97 1.96 1.96 1.91 1.97 1.96 Net SG&A expense years ended may 31 93 94 95 96 97 98 99 00 01 % of average assets under management 0.64 0.56 0.32 0.25 0.24 0.24 0.20 0.15 0.11 • BPI Global Asset Management LLP (“BPI Global Asset Management”) of Orlando, Florida, was formed in March 1997, and is 66% owned by CI and 34% owned by JBS Advisors, Inc. It had growth-oriented mutual fund assets under man- agement of $3.5 billion (including $0.992 billion of hedge funds) and institutional assets of $2.6 billion at May 31, 2001. • Webb Capital Management LLP (“Webb Capital Management”) of San Francisco, California, formed in June 2000, had assets under management of $700 million at May 31, 2001, in several momentum-based growth funds. • Altrinsic Global Advisors, LLC (“Altrinsic Global Advisors”), a value-oriented investment team established in December 2000 and based in Old Greenwich, Connecticut, had assets under management of $600 million at May 31, 2001. During the year, a number of changes were made to the sub-advisory responsibilities for CI’s funds. In June 2000, funds sub-advised by Credit Suisse Asset Management of New York were transferred to CI’s in-house management, Trident Investment Management and Altrinsic 2. CI employs money managers directly. At May 31, 2001, CI Global Advisors. In July 2000, funds sub-advised by Hansberger Global managed $7.1 billion in a diversified mix of funds using value and Investors of Ft. Lauderdale, Florida, were transferred to Trident growth-oriented investment approaches. CI’s in-house investment Investment Management and Altrinsic Global Advisors. In March 2001, teams operate under the Harbour Funds, Signature Funds and CI certain funds sub-advised by J. Zechner Associates were transferred to Funds brands and include well-known money managers such as CI’s in-house money management team. Gerry Coleman, Eric Bushell, Robert Lyon, Andrew Waight and Wally Kusters. 3. CI has partnership agreements with investment advisers whereby CI Investment Product Distribution owns a controlling interest or has an economic interest in the CI distributes its investment products through investment dealers, partnership. This structure gives the investment adviser, through mutual fund dealers, insurance agents and banks. In order to support direct equity participation in the partnership, an incentive to grow these distribution channels, CI ensures it has an extensive number of the assets under management and attract money from sources knowledgeable and experienced staff members, including CI representa- other than CI. An equity stake in the partnership also encourages tives who deal directly with the distributors of CI’s funds, and in-house the advisers to stay with CI over the long term. CI has four fund support personnel, who have access to detailed records of investment advisory partnerships of this type: distributors’ fund assets and transactions with CI. In addition, CI provides distributors with extensive information about its funds and • CI Global Advisors LLP (“CI Global Advisors”) of New York, investment advisers through the Internet, various publications and through established in November 1999, is 55% owned by CI and appearances and presentations by the funds’ advisers. 45% owned by Trilogy Advisors, LLC (“Trilogy Advisors”). CI also has a 45% interest in Trilogy Advisors. CI Global A key element of CI’s product distribution strategy has been to be Advisors had mutual fund assets under management at May adaptive and responsive to changes in investor demand for new financial 31, 2001, of $8.9 billion in a number of growth-oriented funds products. CI has the broadest range of funds available in Canada – a and industry-specific funds and Trilogy Advisors had $0.6 lineup that encompasses numerous styles and fund mandates. billion in institutional assets. CI believes this strategy is critical, as mutual fund distributors have reduced the number of fund families they are willing to support and (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) promote, resulting in a limited number of fund companies dominating A key strength of CI has been its ability to quickly provide administra- Canadian mutual fund sales. During CI’s most recent fiscal year, its net tive capacity for new products. In the last four years, CI has success- sales of mutual funds (gross sales less redemptions) were the second fully launched numerous new products, including segregated funds, highest of all mutual fund companies in Canada. In the prior year, CI 100% RSP-eligible foreign funds, labour-sponsored funds, hedge ranked No. 1 for net sales. Investment Product Administration funds, closed-end funds and a wrap program. These new products have had the appropriate administrative support to achieve market penetration and have contributed significantly to CI’s assets under management. Providing investors and distributors of CI funds with accurate and timely information on purchases, redemptions, transfers, switches and holdings requires a highly efficient administrative operation. CI has made Overview of CI’s Revenues and Expenses extensive investments in technology to ensure its clients receive The majority of CI’s revenues are earned from the management services it information quickly. For example, CI allows clients to get detailed provides as fund manager. The key determinant of CI’s revenue is its level account information via the Internet, and maintains an image-based of assets under management, which is determined by both market returns record-keeping system for use by its fund support staff. Furthermore, CI and net sales of the funds. Management fees charged by CI to the funds also believes that it is important to provide these services in a cost-effi- range up to 2.25% of the average net asset value of the funds. CI focus- cient manner. In fiscal 2001, CI introduced its electronic client account es on offering equity funds, which earn management fees ranging from information system (eCISS) and made it available to fund distributors 2.00% to 2.25%. Approximately 93% of CI’s mutual fund assets are in over the Internet. It allows them to easily access detailed and up-to-date equity funds. client account information and gives them the ability to print duplicate account statements and tax receipts. This, in combination with other effi- Income potential from sources other than management fees has also ciency-based system enhancements, has made CI the most efficient fund become significant. CI manages a number of hedge funds that provide administrator in the industry, with the lowest number of staff relative to performance fees. In general, the fees amount to 20% of returns in 23 assets and transactions. This is reflected in the fact that the percentage excess of certain thresholds, with CI receiving approximately 40% and costs CI incurs to administer its funds are among the lowest in the industry. the investment adviser and the fund distributor receiving the remainder. Trailer fees years ended may 31 93 94 95 96 97 98 99 00 01 % of average assets under management 0.41 0.45 0.49 0.50 0.50 0.49 0.46 0.48 0.49 Investment adviser fees At May 31, 2001, CI managed $1.1 billion of hedge fund assets. CI’s ownership stakes in Trilogy Advisors, BPI Global Asset Management, Altrinsic Global Advisors and Webb Capital Management allow CI to benefit from the growth in revenues and profits on assets these firms manage for organizations other than CI. At May 31, 2001, BPI Global Asset Management had $2.6 billion in institutional assets ($2.3 billion at May 31, 2000) and Trilogy Advisors had $616 million in institutional assets ($416 million at May 31, 2000). CI 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. CI is responsible for the administration of the funds and incurs expens- es on behalf of the funds. CI recovers most operating expenses by charging an administration fee to the funds based on actual expenses incurred in the operation of the funds, which is recognized as revenue. years ended may 31 93 94 95 96 97 98 99 00 01 As these revenues represent a recovery of expenses only, they do not % of average assets under management 0.45 0.35 0.27 0.23 0.23 0.23 0.22 0.18 0.18 affect the overall profitability of CI. (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Expenses Trailer fees are paid out to investment and mutual fund dealers and life insurance agents to assist them in providing ongoing support to investors in CI funds. Trailer fees are calculated as a percentage of average CI incurs certain key expenses in the management, marketing and assets and vary with overall assets under management. distribution of the funds. These expenses – which constitute the majority of its expenses outside those operational expenses incurred on behalf CI monitors its operating profitability by measuring the operating margin of and recovered from the funds – include investment management calculated as a percentage of average mutual fund assets under manage- expenses, marketing expenses, and trailer fees and selling commissions ment. CI’s operating margin is defined as management fees from CI’s paid to financial advisers. funds less investment adviser fees, trailer fees, and selling, general and administrative expenses net of expenses recovered from the funds, Advisory fees paid to investment advisers, other than those employed calculated as a percentage of average mutual fund assets under directly by CI, are generally paid on the basis of a percentage of assets management. This allows CI to manage profitability when changes in the under management. CI’s advisers have different fee agreements and market value of assets under management affect revenue flows and therefore, the mix of funds will affect the overall expense level. permits adjustments to discretionary expenditures in order for CI to In addition, BPI Global Asset Management, CI Global Advisors, Webb maintain its margins. Capital Management and Altrinsic Global Advisors will generally become Commissions paid from CI’s cash resources on the sale of funds on a more profitable as their assets under management increase. CI, through deferred sales charge basis are, for financial reporting purposes, amortized its equity ownership, participates in the profitability of these companies, evenly over the 36 months immediately following the sale of the funds. effectively reducing its investment advisory expenses as a percentage of assets under management. Commissions incurred on certain of CI’s assets were financed by limited partnerships or securitization vehicles. The expenses for commissions Operating expenses, net of those recovered from the funds (referred financed by limited partnerships are reported as distribution fees paid to to as net selling, general and administrative expenses), are primarily limited partnerships and are calculated as a percentage of the assets. marketing expenses. In general, marketing expenses are managed in The effective amortization period for commissions financed by limited proportion to CI’s assets under management. partnerships is the life of CI Master Limited Partnership which will Cash and marketable securities years ended may 31 93 94 95 96 97 98 99 00 01 $ [millions] 5.0 9.3 34.2 19.1 12.1 67.9 20.9 9.6 5.9 Portfolio value of redemption fees years ended may 31 $ [millions] 93 94 n/a n/a 95 20 96 62 97 98 99 00 01 102 202 253 552 663 terminate by 2016. 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 securitization vehicle. In June 1998, CI repurchased all the outstanding notes issued by one of CI’s securitization vehicles. The remaining effective unamortized commission financed by this securitization vehicle was amortized over the period ending February 28, 2001, and is included in the amortization of CI’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 BPI Capital Management Corporation. At the time of acquisition, BPI Capital Management Corporation had approximately $6.3 billion in fee-earning assets represented by $4.4 billion in mutual funds, $485 million in labour-spon- sored funds, $133 million in closed-end funds and $1,250 million in institutional assets. At May 31, 2001, total BPI fee-earning assets had grown to $9.8 billion, an increase of 56% since CI acquired BPI. (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) CI paid $60 million and issued approximately 35 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 securitization vehicles. The acquisition gave rise to $236 million of goodwill, which is being amortized over 36 months, consistent with Percentage of assets self-financed CI’s policy on amortization of deferred sales charge commissions. Year ended May 31, 2001, compared with year ended May 31, 2000 Total fee-earning assets (which includes mutual fund assets as well as Covington Funds, DDJ Canadian High Yield Fund, Insight Program, Keystone Fund, BPI Global Asset Management and Trilogy Advisors institutional accounts, VenGrowth Investment Fund I Inc., and ENSIS Growth Fund Inc.) grew from $26.7 billion at May 31, 2000, to $26.8 billion at May 31, 2001. Average mutual fund assets under management were $23.6 billion in fiscal 2001, an increase of 42% from $16.6 billion for fiscal 2000. As most of CI’s revenues and expenses are based on assets throughout the year, average asset levels are critical to the analysis of CI’s financial results. years ended may 31 % 93 94 95 n/a n/a 8 96 24 97 35 98 61 99 65 00 60 01 64 DSC financed years ended may 31 $ [millions] 93 94 n/a n/a 95 17 96 41 97 46 98 84 99 86 00 01 252 200 Gross sales of the funds were $6,402 million for the year ended May 31, to $11.2 million in 2000, and $15.5 million in revenues from institutional 2001, compared with $8,894 million for the same period in 2000. Net business at BPI Global Asset Management and Trilogy Advisors, up from 25 sales (gross sales less redemptions) were $3,468 million for the year $7.9 million in 2000. Redemption fees rose from $22.5 million in fiscal ended May 31, 2001 – placing CI second highest among all mutual fund 2000 to $28.7 million in fiscal 2001 as a result of the increased assets companies in Canada – compared with $5,843 million for the same period under management financed from CI’s cash resources. increase was $22.6 million in gains on marketable securities compared in 2000, during which period CI established new records for net sales in the Canadian fund industry. The decrease in CI’s net sales from 2000 Revenues represented by expenses charged to the mutual funds rose to reflected the effects of a significant downturn in equity markets, which in $73.5 million for the year ended May 31, 2001, from $57.2 million in turn affected flows into equity mutual funds, especially a number of 2000. This increase of 28% compared favourably to the 42% increase industry-specific funds that had been successful sellers for CI in fiscal in average mutual fund assets during the same period. As a percentage 2000. Redemptions of CI’s funds were $2,933 million in fiscal 2001, of assets under management, expenses charged to mutual funds compared with $3,050 million in fiscal 2000. declined 9% from 0.34% in fiscal 2000 to 0.31% in fiscal 2001. Total revenues increased to $615.1 million for the year ended May 31, Net fees paid to securitization vehicles were $4.2 million for the year ended 2001, from $454.5 million for the same period in 2000. Revenues from May 31, 2001, compared with $3.0 million for the year ended May 31, management fees rose by 42% to $464.5 million for the year ended May 2000. The increase reflects the inclusion of the BPI securitization for a 31, 2001, from $326.9 million in 2000. As a percentage of average full year. mutual fund assets under management, management fees were 1.96% for fiscal 2001, down from 1.97% in fiscal 2000. Performance fees Selling, general and administrative expenses (net of expenses recovered totalled $2.6 million for the year ended May 31, 2001 versus $21.4 from the funds for activities carried out in support of the funds) were million in 2000, as the performance of CI’s hedge fund assets were $26.2 million, up just 2% from $25.8 million in the prior fiscal year. generally below the levels required to generate performance fees. Despite the 42% increase in average assets, CI’s stringent cost controls Administration fees and other income (which includes investment maintained these expenses at the levels of the prior year. As a income, revenues from investment management subsidiaries, administra- percentage of assets under management, the net selling, general and tive fees, interest and gain on sale of marketable securities) increased administrative expenses declined 27% to 0.11% in fiscal 2001 from from $26.5 million to $45.8 million. The primary contribution to the 0.15% in fiscal 2000. (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Investment adviser fees increased 42% from $29.2 million in fiscal CI’s offer in November 2000 to acquire all of the shares of Mackenzie 2000 to $41.5 million in fiscal 2001 due to increased assets under Financial Corporation plus an increase in costs associated with CI’s management. As a percentage of average assets under management, institutional business from $4 million in fiscal 2000 to $7.8 million in investment adviser fees were unchanged from fiscal 2000, at 0.18%. The fiscal 2001. The remaining expenses were primarily attributable to CI’s overall increase in expenses is a reflection of the fact that the majority of third-party back-office processing. CI’s investment advisers are paid on the basis of a percentage of assets under management and of the investment CI has been making in expand- Minority interest in CI’s earnings was $9.6 million for the year ended ing the breadth and depth of its investment management expertise. May 31, 2001, compared with $7.3 million in 2000. This reflects the 45% interest of Trilogy Advisors in CI Global Advisors and the 34% Trailer fees increased from $79.1 million to $115.6 million in fiscal 2001 interest of JBS Advisors, Inc. in BPI Global Asset Management. due to increased assets under management. As a percentage of average assets, trailer fees were 0.49% at May 31, 2001, compared with 0.48% In addition, the provision for future income taxes decreased by $16.2 in the prior fiscal year. The change resulted from an increase in the million from the prior year, mainly as a result of reductions in future percentage of CI’s mutual fund assets purchased on a front-end-load statutory tax rates. basis. CI’s operating margin, as a percentage of average mutual fund assets was $90.1 million, compared with $56.8 million in 2000. This reflects under management, was 1.19%, up from 1.16% in the prior fiscal year. CI’s significant growth in assets and operating profitability and the effect The increase resulted from lower net selling, general and administrative of a reduction to the provision for future income taxes due to reduced expenses, offset partly by higher trailer fees. corporate tax rates. After amortization of goodwill, CI earned net income Income before amortization of goodwill for the year ended May 31, 2001, of $11.5 million for the year ended May 31, 2001, compared with a net Distribution fees to limited partnerships totalled $16.2 million, down from loss of $2.1 million for the year ended May 31, 2000. $16.4 million in fiscal 2000. As a percentage of average assets, distribution fees to limited partnerships declined from 0.10% to 0.07%, reflecting a lower percentage of CI’s overall assets under management having been financed by limited partnerships. The marginal cost of the Financing and Liquidity distribution fees to limited partnerships at May 31, 2001, was CI’s capital requirements are primarily to fund commissions arising from approximately 0.05% of assets under management, as these assets the sale of funds on a deferred sales charge basis. In fiscal 2001, CI continue to decline on a percentage basis relative to CI’s self-financed financed $199.6 million in sales commissions with its own cash assets. The assets financed by limited partnerships are much older resources, down from $251.6 million in fiscal 2000. In addition, during than those financed by CI’s cash resources and therefore have higher fiscal 2001, CI used $47.4 million to repurchase 3.6 million common redemption rates. shares of C.I. Fund Management Inc. at an average price of $13.02 per share. This compares with $6.5 million used to repurchase 1.4 Amortization of deferred sales commissions represented CI’s largest million common shares at an average price of $4.58 per share in fiscal expense increase, rising from $117.8 million in fiscal 2000 to $183.9 2000. On May 31, 2001, the closing price of C.I. Fund Management Inc. million in fiscal 2001. The increase was a direct result of the industry was $14.10 per common share. record level of sales achieved by CI in fiscal 2000 and continued strong sales in fiscal 2001. Amortization of goodwill from the acquisition of BPI In fiscal 2001, CI also paid $57 million to reduce outstanding amounts totalled $78.6 million in fiscal 2001 ($58.9 million in 2000), reflecting under its operating line of credit with a Canadian chartered bank. a full year of amortization under CI’s policy to amortize the goodwill from the BPI acquisition over 36 months. At May 31, 2001, unamortized These funding requirements were met by cash, short-term investments goodwill totalled $98.3 million, which will be amortized over the next and marketable securities of $9.6 million at May 31, 2000, operating 15 months. cash flow in fiscal 2001 of $291.9 million (up from $230.0 million in 2000), the issuance of 1.5 million common shares of C.I. Fund Other expenses rose from $5.7 million in fiscal 2000 to $13.6 million in Management Inc. from the exercise of stock options at an average price fiscal 2001 and are in conjunction with revenues recognized under of $3.74 per share for total gross proceeds of $5.6 million, and the use administrative fees and other income of $45.8 million. The primary of CI’s $250-million line of credit with a Canadian chartered bank. contributors to the increase were $2.7 million in expenses associated with At May 31, 2001, CI had cash, short-term investments and marketable Selling, general and administrative expenses fell 15% from $27.5 million securities totalling $5.9 million, and $189 million available under the $250- in fiscal 2000 to $23.4 million in fiscal 2001, reflecting the effect of million line of credit. stringent cost controls in the overall operations of CI. At May 31, 2001, 63.8% of CI’s mutual fund assets had been financed Investment adviser fees rose from $9.2 million to $10.2 million for the with CI’s internal cash resources. These assets had a current redemp- quarter ended May 31, 2001, as a result of CI’s increased costs relating tion value of $663 million ($3.67 per share) at May 31, 2001, compared to the expansion of its money management subsidiaries in order to with $552 million ($3.02 per share) at May 31, 2000. At May 31, 2001, increase the depth of these subsidiaries and establish a platform for 11% of CI’s assets were financed by limited partnerships, down from future growth. 14% at May 31, 2000. At May 31, 2001, 2% of CI’s assets were financed from securitization down from 3% at May 31, 2000. The Trailer fees declined slightly from $27.9 million to $26.4 million in the front-end-load sales assets at May 31, 2001 were 24% of mutual fund quarter ended May 31, 2001, reflecting the change in mutual fund assets assets under management, up slightly from 23% in the prior year. under management. Capital expenditures incurred during the year ended May 31, 2001, were Overall, CI’s operating profit margin, defined as management fees less primarily for additional space requirements and computer hardware and selling, general and administrative (net of expenses charged to mutual software related to the improvement of systems technology. Depreciation funds), investment adviser fees and trailer fees, calculated as a charges on these assets are generally recoverable from the funds. In percentage of average mutual fund assets under management, was fiscal 2001, capital assets for use in the operations of CI’s funds were 1.19% for the quarter ended May 31, 2001, compared with 1.21% for the leased with such payments recovered over time through expenses quarter ended May 31, 2000. The change was primarily a result of charged to the funds. Future payments are included under Note 11 - lower management fees, offset partly by lower net selling, general and “Lease Commitments” in the Notes to the Consolidated Financial administrative expenses. Statements. Distribution fees to limited partnerships were $3.3 million for the 27 CI’s business does not require the use of any financial instruments for quarter ended May 31, 2001, compared with $4.8 million in the prior year. hedging risk. Debt outstanding is borrowed on the basis of a floating The reduction reflects the higher redemption rate of the limited partner- interest rate. Levels of interest paid are significantly below CI’s earnings ship financed assets, which are older than the mutual fund assets and the potential impact of increased interest costs due to an increase in financed by CI’s cash resources. interest rates is minimal and therefore the exposure is not hedged. Should CI’s view on its exposure to rising interest rates change, the Amortization of deferred sales commission was $47.2 million for the existing loan agreement provides CI with the option of fixing interest rates. quarter, up from $39.1 million in the prior year, reflecting CI’s continued Quarter ended May 31, 2001 compared with quarter ended May 31, 2000 high sales levels throughout the year. Income taxes for the quarter were ($0.2) million, compared with $15.6 million in the prior year. With the introduction of lower future statutory tax rates in the fourth quarter, no provision for income taxes was required due Total revenues for the quarter ended May 31, 2001, were $141.8 million to the higher provisions made in the first three quarters. This had a compared with $148.7 million in the prior year. The change was primarily positive effect on net income for the period of approximately $9.5 million. a result of the decline in management fee revenue from $113.6 million to $107.4 million for the quarter ended May 31, 2001. The primary Income before amortization of goodwill was $24.0 million ($0.132 per contributors to this decline were changes in CI’s asset mix, reduced fees share or $0.126 per share fully diluted) for the quarter ended May 31, from non-mutual fund assets such as labour-sponsored funds and lower 2001, compared with $18.4 million ($0.101 per share or $0.097 per average assets under management as a result of market-related share fully diluted) in the prior year. declines. In addition, revenue from expenses charged to mutual funds declined as CI reduced fund operating expenses to reflect current Net income for the quarter was $4.4 million ($0.02 per share and $0.02 market conditions. per share fully diluted), compared with a net loss of $1.2 million ($0.01 per share and $0.01 per share fully diluted) in the prior year. During the quarter ended May 31, 2001, earnings before interest, taxes, depreciation and amortization (EBITDA) totalled $75.0 million ($0.41 per share), compared with $78.3 million ($0.43 per share) in the prior year. Sales commissions paid for the quarter totalled $34.5 million compared to Outlook $100.9 million in the prior year. Since May 31, 2001, financial markets have continued to be unsettled with the TSE 300 and major global markets declining in June. Despite Net sales for the quarter ended May 31, 2001 were $447 million, which this, CI has continued to post positive net sales, ranking in the top five ranked CI among the top four of the independent mutual fund companies, among the independent mutual fund companies in June 2001. compared with $2.254 million in the prior year. The decline in sales reflected an overall decline in sales of equity mutual funds in the industry As part of CI’s strategy to broaden its product mix to appeal to a due to continued unsettled market conditions, especially in certain industry variety of investor preferences, CI has launched several new funds since sectors such as telecommunications and technology that had been May 31, 2001. The CI Global Focus Value Fund managed by Altrinsic particularly popular with investors in the prior year. Global Advisors is a value-based fund that focuses on 30 to 40 key CI’s average mutual fund assets totalled $22.1 billion for the quarter ended U.S. and international institutional investors. CI plans to launch an May 31, 2001, compared to $22.6 billion in the prior year. equivalent fund for Canadian investors in the near future, further stocks. Through Trilogy Advisors, two hedge funds were launched for diversifying its hedge fund lineup by manager and investment style. CI’s revenues are directly related to the level of assets under management which, in turn, are affected by general levels of equity markets in Canada and globally. Though CI continues to exercise a high degree of discipline in controlling expenses, ultimately growth in income is dependent on favourable equity market conditions. s t n e m e t a t s l a i c n a n i f d e t a d i l o s n o c m a n a g e m e n t s r e p o r t t o s h a r e h o l d e r s 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 con- solidated financial statements have been prepared in accordance with generally accepted accounting principles and are based on management’s best information and judgment. 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. [signed] William T. Holland President and Chief Executive Officer [signed] Stephen A. MacPhail Executive Vice-President and Chief Operating Officer June 29, 2001 a u d i t o r s r e p o r t 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, 2001 and 2000 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 Canadian 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, 2001 and 2000 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. Toronto, Canada, June 29, 2001 [signed] Ernst & Young LLP Chartered Accountants 31 c o n s o l i d a t e d b a l a n c e s h e e t s As at May 31 ASSETS Current Cash Marketable securities, at cost which approximates market value Accounts receivable and prepaid expenses [note 9] Total current assets Capital assets [note 5] Deferred sales commissions, net of accumulated 2001 $ 2000 $ 40,561 5,860,877 16,987,611 22,889,049 4,125,078 3,712,258 5,900,488 16,440,665 26,053,411 8,468,279 amortization of $235,695,402 [2000 - $166,391,529] 326,202,963 310,539,058 Goodwill, net of accumulated amortization of $137,548,975 [2000 - $58,985,282] [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 Long-term debt [note 8] Future income taxes [note 10] Total liabilities Minority interest Shareholders' equity Share capital [note 9] Deficit Total shareholders' equity See accompanying notes 98,270,449 5,516,284 457,003,823 29,092,929 1,065,351 30,158,280 1,976,586 61,000,000 99,453,191 192,588,057 3,581,944 306,533,632 (45,699,810) 260,833,822 457,003,823 176,834,142 10,451,476 532,346,366 36,112,156 3,618,970 39,731,126 2,276,008 118,000,000 77,292,828 237,299,962 2,961,367 307,096,278 (15,011,241 ) 292,085,037 532,346,366 On behalf of the Board: [signed] G. Raymond Chang [signed] William T. Holland Director Director c o n s o l i d a t e d s t a t e m e n t s o f i n c o m e ( l o s s ) a n d d e f i c i t years ended May 31 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 Future Income before amortization of goodwill Amortization of goodwill Net income (loss) for the year 2001 $ 2000 $ 464,541,841 45,771,073 28,708,962 2,552,083 73,481,520 615,055,479 (4,156,630) 610,898,849 99,659,799 41,497,122 115,608,991 16,213,665 183,948,576 6,461,191 13,572,460 476,961,804 9,602,389 124,334,656 8,487,328 25,784,698 34,272,026 90,062,630 78,563,693 11,498,937 326,870,683 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 ) Deficit, beginning of year (15,011,241) (3,723,887 ) Adjustment to deficit as a result of the adoption of the liability method of accounting for income taxes [note 1] 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 3,624,335 (41,227,411) (4,584,430) (45,699,810) 0.49 0.47 0.06 0.06 — (4,910,525 ) (4,287,287 ) (15,011,241 ) 0.33 0.31 (0.01 ) (0.01 ) 33 c o n s o l i d a t e d s t a t e m e n t s o f c a s h f l o w s years ended May 31 2001 $ 2000 $ 11,498,937 (2,089,542 ) OPERATING ACTIVITIES Net income (loss) for the year Add (deduct) items not involving cash Depreciation and amortization Future income taxes Amortization of deferred sales commissions Gain on sale of marketable securities Minority interest Other Net change in non-cash working capital balances related to operations Cash provided by operating activities INVESTING ACTIVITIES Additions to capital assets Dispositions of capital assets Purchase of marketable securities Proceeds on sale of marketable securities Sales commissions Acquisition of BPI Financial Corporation, net of cash [note 6] Additions to other assets Dispositions of 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 83,490,865 25,784,698 183,948,576 (22,628,722) 9,602,389 240,000 291,936,743 (9,381,438) 282,555,305 (2,922,469) 2,024,438 (67,150,702) 90,162,059 (199,612,481) — — 4,029,749 (173,469,406) (57,000,000) — (47,376,185) 5,586,128 (9,383,109) (4,584,430) Cash provided by (used in) financing activities (112,757,596) 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 (3,671,697) 3,712,258 40,561 1.60 1.50 6,821,228 8,863,177 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 1.34 1.25 4,252,732 1,612,070 n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s MAY 31, 2001 AND 2000 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. Basis of presentation The consolidated financial statements include the accounts of C.I. Fund Management Inc. [the "Corporation"], CI Mutual Funds Inc. ["CIMF"] and its wholly-owned subsidiaries, InfoWise Inc., CI GP Limited, CI Fund Services Inc., CI Capital Management Inc., CI FEES Trust, CI Global Holdings Inc. and CI Global Holdings USA Inc. The accounts of partially-owned subsidiaries, BPI Global Asset Management LLP ["BGAM"], CI Global Advisors LLP and Webb Capital Management LLP, are also included in the con- solidated financial statements. Hereinafter, the Corporation and its subsidiaries are referred to as the Corporation. The Corporation's investment in Trilogy Advisors, LLC, Altus Hedge Partners International Inc. and Altrinsic Global Advisors, LLC are accounted for using the equity method. Accordingly, the Corporation's proportionate share of earnings is included in income. Revenue recognition 35 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 three years. The Corporation evaluates the carrying value of goodwill for potential impairment based on estimated future cash flows. Any impairment would be written off to income. n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s 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 three to four years straight-line over two to four years 20% diminishing balance or straight-line over five years 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 invest- ment approximates market value based on the net present value of estimated future cash flows. 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. Revenue and expenses are translated at average rates prevailing during 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 outstanding. Fully diluted earnings and operating cash flow per share have been com- puted 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. 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 consider- ation paid by employees on exercise of stock options or purchase of stock is credited to share capital. n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s Fair value of financial instruments The estimated fair values of all financial instruments approximate their carrying amounts in the consol- idated balance sheets. Income taxes and change in accounting policy Prior to June 1, 2000, the deferral method of tax allocation was used in accounting for income taxes. Effective June 1, 2000, the Corporation changed its method of accounting for income taxes to the liabil- ity method of tax allocation as required by The Canadian Institute of Chartered Accountants' Handbook Section 3465, Accounting for Income Taxes. As permitted under the new rules, prior periods' financial statements have not been restated. Under the new method, future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and measured using the substan- tively enacted tax rates and laws that will be in effect when the differences are expected to reverse. The cumulative effect of this change as of June 1, 2000, was to decrease the opening deficit by $3,624,335 with a corresponding decrease in future income tax liabilities. The cumulative adjustment to opening deficit is primarily due to the lower substantively enacted income tax rates used under the new method. The impact on the current year of adopting the liability method of tax allocation was to decrease the future income tax provision and future income tax liabilities by $15,425,998. The adjustment to the cur- rent year's future income taxes is also a result of the lower substantively enacted income tax rates used. 37 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 CI Mutual Funds, the CI Segregated Funds and the CI Guaranteed Investment Funds [collectively, the "Funds"]. In addition to management fees derived from the Funds, the Corporation recovers administrative expens- es 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, cer- tain 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. n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s 3. LIMITED PARTNERSHIPS During various periods for certain funds prior to July 31, 1997, selling commissions on sales of securi- ties 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 securi- ties 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, 2001, the net asset value of securities of the Funds financed by the limited partnerships was $2,340 million [2000 - $3,264 million]. 4. SECURITIZATION VEHICLES 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 financed securities and receive annual distribution and administration fees totaling a maximum of 1.70% of the net asset value of the outstanding financed 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 Cost $ 14,951,373 4,331,515 3,184,311 345,372 22,812,571 18,687,493 4,125,078 2001 2000 Accumulated depreciation and amortization $ 12,723,325 2,926,325 2,977,208 60,635 18,687,493 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 Reflected in the accounts of the Corporation for 2001 is additional depreciation and amortization expense of approximately $983,000 as a result of a review of the estimates of the useful life of the capital assets. Reflected in the accounts of the Corporation for 2000 are write-downs of leasehold improvements and computer hardware and software of approximately $2,539,000. n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s 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 three 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 Details of the consideration given, at fair value, are as follows: Shares [34,582,668 common shares] Cash Transaction costs $ 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 39 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 CI Global Holdings Inc. and CI 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 Other 2001 $ 1,801,473 1,151,316 1,457,732 30,000 1,075,763 5,516,284 2000 $ 2,041,473 1,511,340 5,414,009 30,000 1,454,654 10,451,476 n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s 8. LONG-TERM DEBT 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 par- ticular financial ratio. The agreement requires the Corporation to meet certain financial ratios on a quar- terly basis. During fiscal 2001, the agreement was amended to increase the revolving credit facility to $250 million. The facility is collateralized by a registered general security agreement from the Corporation, hypotheca- tion of the shares of CIMF, and assignment of the management agreements between CIMF and the Funds. As at May 31, 2001, $61 million [2000 - $118 million] has been drawn on this facility in the form of bankers' acceptances at an effective interest rate of 4.89% [2000 - 5.94%]. Interest expense attribut- able to the long-term debt in fiscal 2001 was $5,990,276 [2000 - $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-or-1 stock splits in January and November 2000] May 31, 1999 Issuance of share capital [note 6] Share repurchase Exercise of stock options May 31, 2000 Share repurchase Exercise of stock options May 31, 2001 Common shares Number of shares # Stated value $ 144,220,460 34,582,668 (1,421,200) 5,448,000 182,829,928 (3,638,400) 1,493,200 180,684,728 130,350,843 167,725,940 (1,605,017) 10,624,512 307,096,278 (6,148,774) 5,586,128 306,533,632 On January 12, 2000 and on October 27, 2000, the Board of Directors approved 2 for 1 stock splits of the common shares of the Corporation. Accordingly, share and per share figures have been restated to reflect these stock splits. The stock splits were each effected by declaring a stock dividend of one addi- tional common share for each common share of the Corporation issued and outstanding on the dividend record dates of January 25, 2000 and November 7, 2000, respectively. n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s During fiscal 2001, 3,638,400 common shares [2000 - 1,421,200] were repurchased under a normal course issuer bid at an average cost of $13.02 per share [2000 - $4.58] for a total consideration of $47,376,185 [2000 - $6,515,542]. Deficit was increased by $41,227,411 [2000 - $4,910,525] 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 30,054,360. As at May 31, 2001, there are 13,522,000 [2000 - 13,601,600] common shares reserved for issuance on exercise of stock options. These options vest over periods of up to five years and may be exercised at prices ranging from $1.34 to $15.65 per common share with a total exercisable value of $78,035,141 and expire at dates up to 2007. Details of the Plan activity and status for the years ended May 31, 2001 and 2000 are as follows: 2001 Number of options 13,601,600 1,779,600 (1,493,200) (366,000) 13,522,000 Options outstanding, beginning of year Options granted Options exercised Options cancelled Options outstanding, end of year Options exercisable, end of year 4,186,600 Weighted average exercise price $ 4.77 12.31 3.74 8.76 5.77 3.63 2000 Number of options 13,972,808 5,576,800 (5,448,000 ) (500,008 ) 13,601,600 3,230,450 Weighted average exercise price $ 3.07 6.27 1.95 4.69 4.77 3.24 Details of the Plan options outstanding and exercisable as at May 31, 2001 are as follows: Options outstanding Options exercisable Weighted average remaining contractual life [years] 1.4 3.2 4.1 5.4 3.9 Weighted average exercise price $ 2.28 3.80 4.66 11.61 5.77 Weighted average exercise price $ 2.23 3.78 4.80 — 3.63 Number exercisable 741,500 2,930,850 514,250 — 4,186,600 Range of Number exercise prices outstanding $ 1.34 to 3.00 3.01 to 4.00 4.01 to 5.00 5.01 to 15.65 1.34 to 15.65 804,000 4,770,800 4,926,200 3,021,000 13,522,000 The Corporation has an employee share purchase loan program. These loans are renewable yearly and bear interest at prescribed rates. As at May 31, 2001, the carrying amount of employee share purchase loans is $3,236,792 [2000 - $4,467,793] and is included in accounts receivable and prepaid expenses. These loans become due immediately upon termination of employment or sale of the shares that are held 41 n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s as collateral. As at May 31, 2001, the shares held as collateral have a market value of approximately $7,995,000 [2000 - $13,736,000]. 10. INCOME TAXES Future income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation's future income tax liabilities and assets as of May 31 are as follows: [Liability Method] [Deferral Method] Future income tax liabilities Deferred sales commissions Other, net Total future income tax liabilities Future income tax assets Book depreciation and amortization in excess of CCA Deferred lease inducement Ontario corporate minimum tax credits Non-capital loss carryforwards Total future income tax assets Net future income tax liabilities 2001 $ 123,092,232 761,989 123,854,221 1,715,943 658,262 7,972,834 14,053,991 24,401,030 99,453,191 2000 $ 136,744,712 873,368 137,618,080 1,244,825 1,008,697 6,077,737 51,993,993 60,325,252 77,292,828 The following is a reconciliation between the Corporation's statutory and effective income tax rates: [Liability Method] [Deferral Method] Combined Canadian federal and provincial income tax rate Increase (decrease) in taxes resulting from: Non-deductible amortization Large Corporations Tax Non-taxable portion of capital gains Reduction in future income taxes resulting from statutory tax rate reduction Other 2001 % 42.9 — 0.3 (3.5) (12.4) 0.3 27.6 2000 % 44.6 2.2 0.6 — — 0.1 47.5 n o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s 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: 2002 2003 2004 2005 2006 2007 and thereafter $ 15,433,000 14,122,000 6,723,000 3,752,000 3,530,000 13,588,000 43 c o r p o r a t e d i r e c t o r y C.I. Fund Management Inc. CI Mutual Funds Inc. Management Directors and Officers Executive Management G. Raymond Chang Chairman and Director William T. Holland President, Chief Executive Officer and Director Stephen A. MacPhail Executive Vice-President and Chief Operating Officer Peter W. Anderson Executive Vice-President Michael J. Killeen General Counsel and Corporate Secretary Ronald D. Besse Director A. Winn Oughtred Director George W. Oughtred Director David J. Riddle Director William T. Holland Chairman, Chief Executive Officer and Director Lorraine P. Blair Vice-President, Human Resources Mark MacLeod Vice-President, Client Services Stephen A. MacPhail Chief Operating Officer and Director Peter W. Anderson President and Director G. Raymond Chang Director Kevin Bonello Vice-President Ron Bowes Vice-President Andrew McBain Vice-President David R. McBain Senior Vice-President Michael Bustard Vice-President, Administration Carey W. McIntee Senior Vice-President Jeff Nairn Vice-President Karl Palmen Vice-President David C. Pauli Senior Vice-President, Financial Operations Scott Pehleman Senior Vice-President Roy Ratnavel Vice-President Sylvain Rivard Senior Vice-President Alain Ruel Senior Vice-President David M. Rupert Senior Vice-President Dean Shales Vice-President, Administration Greg Shin Vice-President, Fund Accounting Philippe Ventura Vice-President Julie A. Warren Vice-President Michael Warus Vice-President Tracey C. Wood Vice-President Thomas V. Caswell Senior Vice-President Robert J. Costigan Senior Vice-President Marcelo A. Donato Vice-President Patrick Flemming Vice-President Michael Gramegna Vice-President Derek J. Green Senior Vice-President Sean Hayes Vice-President Fabio Iannicca Vice-President, Administration Munir T. Issa Senior Vice-President, Information Systems Douglas J. Jamieson Vice-President, Finance and Chief Financial Officer K. Michael Kelly Senior Vice-President Neal Kerr Senior Vice-President Michael J. Killeen Senior Vice-President, General Counsel and Corporate Secretary Pierre Lalonde Vice-President Patrick LeFrancois Vice-President c o r p o r a t e i n f o r m a t i o n Head Office Sales Office Investor Relations Toronto CI Place 151 Yonge Street Eleventh Floor Toronto, Ontario M5C 2W7 Tel: 416-364-1145 Toll Free: 1-800-268-9374 www.cifunds.com 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 Montréal 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 Contact: Stephen A. MacPhail Head Office 416-364-1145 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”. Auditors Ernst & Young LLP Toronto-Dominion Centre P.O. Box 251 Toronto, Ontario M5K 1J7 Registrar and Transfer Agent Computershare Trust Company of Canada 100 University Avenue 8th Floor Toronto, Ontario M5J 2Y1 416-981-9633 1-800-663-9097 This Annual Report can be downloaded from CI’s website at www.cifunds.com under “Corporate Information.” 45 l . r e p a p d e c y c e r n o a d a n a C n i d e t n i r P . s n o i t a v o n n I r u o o C l : t n i r P & m l i F . t n e m t r a p e D g n i t r o p e R d n u F I C : n o i t c u d o r P & n g i s e D 

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