CompX International Inc. Annual Report 2001

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FY2001 Annual Report · CompX International Inc.

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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.

Fee-earning assets

years ended may 31

$ [billions]

1.0

3.7

4.4

5.5

6.5

8.3

9.7 26.7 26.8

Net sales

years ended may 31

$ [billions]

0.4

2.4

0.9

0.5

1.2

1.4

5.8 3.5

Operating cash flow

years ended may 31

$ [millions]

1.1

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)
Total revenues

years ended may 31

$ [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

$ [millions]

0.6

4.0

10.5

9.5

8.6

8.8 56.8 90.1

EBITDA per share

years ended may 31

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)
“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

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

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

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

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

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

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.

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

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

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

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.

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

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

– 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

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

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

Canada to outsource fund accounting

activities, following the trend already

established in the U.S. mutual fund

industry.

Outlook

years ended may 31

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

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

e
m
e

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

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

-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

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

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

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

85.3

0.47

0.02

83.5

0.46

(0.02)

76.2

0.42

(0.01)

78.3

0.43

(0.02)

65.5

0.36

(0.01)

64.4

0.36

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

Investment Products

Investment Management

Investment Product Distribution

Investment Product Administration

Investment Products

expertise CI believes is necessary to meet investors’ needs:

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

$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

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

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

% of average assets under management

1.89

1.94

1.97

1.96

1.91

1.97 1.96

Net SG&A expense

years ended may 31

% 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

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.

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

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

% 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

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

$ [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]

n/a

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

n/a

DSC financed

years ended may 31

$ [millions]

n/a

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

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

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.

e
m
e

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

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

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

—

(4,910,525 )

(4,287,287 )

(15,011,241 )

0.33

0.31

(0.01 )

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

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.

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

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

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

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

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

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.”

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