CompX International Inc. Annual Report 2004

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FY2004 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 . 2004 A N N U A L R E P O RT

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

M AY 3 1 , 2 0 0 4

C I F U N D M A N A G E M E N T I N C . 2004 A N N U A L R E P O RT

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

M AY 3 1 , 2 0 0 4

K E Y F I N A N C I A L
H I G H L I G H T S

F O R T H E Y E A R S E N D E D M AY 3 1 ,

(millions of dollars, except share and per share amounts)

| Total fee-earning assets, end of year
| Net sales of funds

| Management fees
| Total revenues

| Net selling, general and administrative
| Investment advisor fees
| Trailer fees

| Net income
| Operating cash flow**

2004

61,343

920

710.9

844.7

88.4*

58.6

197.8

221.1

368.5

0.82

1.37

1.65

0.41

1,533.9

33,084

(596)

503.6

576.2

60.5*

50.6

147.4

71.0

245.6

0.32

1.09

1.32

0.29

632.7

+85

n/a

+41

+47

+46

+16

+34

+211

+50

+156

+26

+25

+41

+142

+25

| Shares outstanding, end of year

295,199,027

235,525,648

*Includes option charge.
**EBITDA (Earnings before interest, taxes, depreciation and amortization) and operating cash flow are non-GAAP (generally accepted
accounting principles) earnings measures, however, management believes that most of its shareholders, creditors, other stakeholders and
investment analysts prefer to include the use of these performance measures in analyzing CI’s results.

CI Fund Management Inc. is a diversified wealth management firm and Canada's third-largest investment

fund company. Independent and Canadian-owned, CI provides a comprehensive and innovative selection of

top-quality investment products and services. CI has two million clients and more than $64 billion in fee-

earning assets (at August 31, 2004). The company operates primarily through subsidiaries CI Mutual Funds Inc.,

which offers the industry's broadest selection of investment funds, and Assante Corporation, which offers

financial advisory services through a national network of 850 advisors. CI has been listed on the Toronto Stock

Exchange under the symbol CIX since June 1994 and is a member of the S&P/TSX Composite Index.

2003

% change

Fee-earning Assets | years ended May 31; $billions

61.3

26.7

26.8

25.7

33.1

3.7

4.4

5.5

6.5

8.3

9.7

'94

'95

'96

'97

'98

'99

'00

'01

'02

'03

'04

CIX vs S&P/TSX Composite Index Total Return | years ended May 31 except for June 1994; June 1994 = 100

979
|
|

|
|
241

1,079
|
|

|
|
215

923
|
|

|
|
214

942
|
|

|
|
195

'00

'01

'02

'03

1,339
|

CIX

S&P/TSX
Composite
Index

|
244

'04

100
|

|
100

'94

99
|
|
|
|
109

'95

121
|
|
|
|
131

'96

206
|
|
|
|
159

'97

289
|
|
|
|
192

'98

368
|
|

|
|
175

'99

01 | Message to Shareholders 10 | Historical Financial Highlights 12 | Operating Review 26 | Management’s Discussion and Analysis

54 | Consolidated Financial Statements 60 | Notes to Consolidated Financial Statements 73 | Corporate Directory 74 | Corporate Information

K E Y F I N A N C I A L
H I G H L I G H T S

F O R T H E Y E A R S E N D E D M AY 3 1 ,

(millions of dollars, except share and per share amounts)

| Total fee-earning assets, end of year
| Net sales of funds

| Management fees
| Total revenues

| Net selling, general and administrative
| Investment advisor fees
| Trailer fees

| Net income
| Operating cash flow**

2004

61,343

920

710.9

844.7

88.4*

58.6

197.8

221.1

368.5

0.82

1.37

1.65

0.41

1,533.9

33,084

(596)

503.6

576.2

60.5*

50.6

147.4

71.0

245.6

0.32

1.09

1.32

0.29

632.7

+85

n/a

+41

+47

+46

+16

+34

+211

+50

+156

+26

+25

+41

+142

+25

| Shares outstanding, end of year

295,199,027

235,525,648

CI Fund Management Inc. is a diversified wealth management firm and Canada's third-largest investment

fund company. Independent and Canadian-owned, CI provides a comprehensive and innovative selection of

top-quality investment products and services. CI has two million clients and more than $64 billion in fee-

earning assets (at August 31, 2004). The company operates primarily through subsidiaries CI Mutual Funds Inc.,

which offers the industry's broadest selection of investment funds, and Assante Corporation, which offers

financial advisory services through a national network of 850 advisors. CI has been listed on the Toronto Stock

Exchange under the symbol CIX since June 1994 and is a member of the S&P/TSX Composite Index.

2003

% change

Fee-earning Assets | years ended May 31; $billions

61.3

26.7

26.8

25.7

33.1

3.7

4.4

5.5

6.5

8.3

9.7

'94

'95

'96

'97

'98

'99

'00

'01

'02

'03

'04

CIX vs S&P/TSX Composite Index Total Return | years ended May 31 except for June 1994; June 1994 = 100

979
|
|

|
|
241

1,079
|
|

|
|
215

923
|
|

|
|
214

942
|
|

|
|
195

'00

'01

'02

'03

1,339
|

CIX

S&P/TSX
Composite
Index

|
244

'04

100
|

|
100

'94

99
|
|
|
|
109

'95

121
|
|
|
|
131

'96

206
|
|
|
|
159

'97

289
|
|
|
|
192

'98

368
|
|

|
|
175

'99

01 | Message to Shareholders 10 | Historical Financial Highlights 12 | Operating Review 26 | Management’s Discussion and Analysis

54 | Consolidated Financial Statements 60 | Notes to Consolidated Financial Statements 73 | Corporate Directory 74 | Corporate Information

D E A R S H A R E H O L D E R S ,

Fiscal 2004 was truly a year of progress. Global financial

markets staged a welcome rebound after a difficult

three-year bear market. This turnaround provided a

positive backdrop to the three acquisitions we made

during the year – acquisitions that transformed CI into

a diversified wealth management company and vaulted

us into the top tier of our industry.

On the markets, the world’s major equity indexes climbed steadily over the fiscal year, supported

by a strengthening global economic expansion. In the year ended May 31, the S&P/TSX

Composite Index gained 25%, the MSCI World Index was up 24% and the S&P 500 Index

rose 18% (in Canadian dollars). This drove strong asset growth at CI and led to higher sales.

In October and November 2003, we completed the acquisitions of Assante Corporation,

Synergy Asset Management Inc. and Skylon Capital Corp. As a result of the acquisitions and the

favourable markets, CI finished the fiscal year with record levels of fee-earning assets, revenues,

net income and cash flow. Our share price at May 31, 2004, reached $16.44 – an all-time high

once dividends are included.

It was, in many ways, the most successful year ever for your company. I would like to thank

shareholders, advisors and clients for your continued confidence and our employees for their

first-class performance as we pursued these major initiatives over such a short span of time.

Along with our recent successes, it’s important to recognize that we still face a challenging

environment. The bear market continues to cast its shadow over our business. The indexes

are far below the peaks of the previous bull market. Investor confidence, while much improved,

remains somewhat fragile. This is evident in the net sales figures for the industry,

which turned positive in the fall of 2003, but have been dominated by more conservative

income-oriented funds.

The tepid confidence adds to other concerns for our industry. Mutual funds continue to face

an onslaught of new products that compete for investors’ dollars, including structured products

and income trusts. Distribution has become a critical issue for fund manufacturers, as advisors

increasingly turn to in-house investment products and focus on just a few fund companies.

At CI, we have been addressing the issues of competition and distribution for some time, and they

underlie the strategic moves we have made in recent years. In fiscal 2004, the acquisitions of

CIX Share Price and Dividends Per Share | years ended May 31: $

16.44
|

CIX
Share Price

Dividends
Per Share

|
0.405

11.90
|
|

|
|
0.29

14.10
|
|

12.83
|
|

|
|
0.025

12.00
|
|

|
|
0.06

1.36
|
|
|
|
0.01

1.63
|
|
|
|
0.02

2.75
|
|

|
|
0.02

3.84
|
|

|
|
0.02

4.84
|
|

|
|
0.025

'95

'96

'97

'98

'99

'00

'01

'02

'03

'04

1.38
|

|
n/a

'94

Assante, Synergy and Skylon all advanced our strategic objectives of enhancing our competitiveness

and securing our access to existing and new distribution channels.

First, the acquisitions gave us added scale, a crucial advantage in the fund industry. As a large firm,

we benefit significantly from economies of scale because our robust infrastructure can easily

support additional billions in assets. We also have the resources to provide a wider selection

of products and services and to spend more on marketing, administration and client services.

And I am proud to say that CI has reaped the benefits of scale without falling victim to one

of its main hazards – bureaucracy. This combination of strength and agility has made us more

competitive across the board and increased the likelihood that we will retain the loyalty and

business of advisors across the country. In other words, we keep our spot on the shelf.

Second, the acquisitions expanded our product lineup, increased the diversification of our

business and produced new opportunities for growth in areas such as structured products.

William T. Holland
President and Chief Executive Officer

M E S S A G E T O S H A R E H O L D E R S

Third, the acquisitions of Assante, and of IQON Financial Management Inc. and Synera Financial

Services Inc. in June 2004, have given CI a strong presence in the financial advisory segment of

the Canadian wealth management industry. These moves also were very timely, as the ongoing

consolidation in this business has been rapid.

Furthermore, Assante, Synergy and Skylon have made an immediate and substantial contribution

to CI’s growth. Overall, they added $9 billion in assets under management and another $10 billion

in assets under administration. We finished the fiscal year with $49.3 billion in assets under

management and $12.0 billion in assets under administration, for a total of $61.3 billion in

fee-earning assets – an 85% increase over the year.

In relative terms, we entered fiscal 2005 as one of the dominant fund companies in Canada. At

May 31, 2004, we were third largest with assets of $44.4 billion. A year earlier, we were sixth.

Our share of this market expanded to 8.8% from 7.0% in May 2003.

A more detailed look at our acquisitions shows the individual contributions and progress of

each company.

Synergy had 24 mutual funds and $1.57 billion in assets when we purchased it in October 2003.

Within two months, the firm was fully integrated into our operations, resulting in substantial cost

savings for both CI and the unitholders in the Synergy Funds. Synergy had long been known for

its consistent growth, and that has continued. From the date of the acquisition to the end of May,

assets in those funds increased approximately 9%.

We have retained the Synergy name to represent the firm’s highly regarded momentum and style

management funds under the guidance of portfolio managers David Picton and Michael Mahoney.

The remaining Synergy funds have been renamed and assigned to other CI portfolio managers or

merged into similar CI funds, further enhancing our operating efficiencies.

We acquired Skylon in November 2003 to bolster our presence in labour-sponsored funds and in

the fast-growing structured products business. Skylon was integrated into CI in less than a month

and is the name under which we now market structured products and the VentureLink family of

labour-sponsored funds.

Our Skylon team kept up the momentum of that business. From the closing of the acquisition to

the end of the fiscal year, it issued three new structured products, raising a total of $378 million

and increasing total assets by about 50% to just over $1 billion.

Also in November 2003, we acquired Assante, one of Canada’s leading financial advisory firms,

with exceptional advisors, a strong brand and high-quality products and services. Its 850 advisors

are among the most productive in the industry, with average assets under administration of

$23 million. Assante is also a significant asset manager. Its in-house managed money programs

are highly regarded by advisors and held about $8 billion in assets at the end of the fiscal year.

“ TH I S A B I L I T Y TO Q U I C K LY CA P I TA L I Z E O N AC Q U I S I T I O N S

I S M A D E P O S S I B L E B Y O U R R I G O R O U S E X P E N S E M A N A G E M E N T

A N D H I G H S TA N D A R D S O F E F F I C I E N C Y.”

Our plan is to build on Assante’s strengths by enhancing its product and service offerings and by

creating an efficient, first-class dealership that is able to profitably accommodate increased

growth. Our progress to date has been excellent.

Under the direction of Joe Canavan, President and Chief Executive Officer, Assante has a new

management team that has consulted extensively with advisors and employees and is leading the

reorganization of the business. While Assante is being operated separately from CI Mutual Funds,

we have already begun to reduce costs by applying CI’s considerable expertise in operations and

technology to the business. We are also finding synergies by sharing resources and functions such

as information technology, human resources, and fund administration.

Assante’s investment management business continues to post steady growth. The Assante funds

have had net sales every month since the acquisition. By fiscal year-end, fund assets had grown 12%.

We are following a similar model with our more recent acquisition of IQON – maintaining it as a

separate business to take advantage of its unique brand and character, while sharing resources

and improving its operations and services.

We believe that with these changes and by providing an enhanced lineup of products, services

and support to the Assante, IQON and Synera advisors and their clients, we can create the

premier financial advisory firms in Canada. They will become increasingly profitable and well

positioned for further growth in their own right.

Together, these acquisitions have also strengthened and diversified CI’s channels for distributing

its funds. As always, we maintain strong contacts with thousands of advisors at brokers and

dealers across Canada. Our preferred relationship with Sun Life Financial’s 4,000 Clarica advisors

has been increasingly productive, as has our participation in third-party fund programs at other

institutions such as banks and insurance companies. Much like a well-diversified investment

portfolio, this diversity within our business can be expected to deliver stronger, more stable

returns over the long term.

M E S S A G E T O S H A R E H O L D E R S

In spite of the strategic rationale, we would not buy a company unless we believed that it could

be financially accretive in the first year of its acquisition. In fact, the companies we acquired

mid-way through fiscal 2004 made a significant contribution to our earnings in only half a year.

Both Assante’s in-house funds and Skylon’s structured products played a role in the rebound

in CI’s total net sales, which were $920 million for the fiscal year, up from net redemptions of

$596 million a year ago. With the increase in our assets, revenues rose 47% year over year to

$845 million, while operating cash flow increased 50% to $369 million. Net income was up

211% to $221 million. I would like to point out that our profitability increased in the fourth quarter

versus the third quarter, showing the benefits of our ongoing integration of Synergy, Skylon and

Assante. These results demonstrate how our ability to rapidly integrate acquisitions has become a

competitive advantage.

This ability to quickly capitalize on acquisitions is made possible by our rigorous expense manage-

ment and high standards of efficiency. As the company has grown, we have continued to control

costs. And this is just as important in the operation of the funds as it is in running our corporation.

We have steadily reduced the operating expenses of CI’s funds over the past decade and, in fiscal

2004, they reached their lowest level ever. Expressed as a percentage of assets, operating expenses

declined to 27.6 basis points for the quarter ended May 31, 2004, down from 34.4 basis points

in the same quarter a year earlier. If we exclude the Assante funds – which had not yet benefited

from the steps we are taking to reduce their costs – operating expenses of the funds had fallen

to 25.4 basis points. This is clearly one of the best records in the industry for efficiency.

On a corporate level, our emphasis on efficiency reflects our commitment to creating value for

our shareholders. In this, too, we have a worthy track record. From the time of CI’s initial public

offering in June 1994 to the end of the fiscal year, CI has provided an outstanding average annual

return of 29.8% – making it the seventh-best performing stock on the S&P/TSX Composite Index.

The index’s comparable return over the period was 9.4%.

CIX vs S&P/TSX Composite Index Total Return | years ended May 31 except for June 1994; June 1994 = 100

979
|
|

|
|
241

1,079
|
|

|
|
215

923
|
|

|
|
214

1,339
|

CIX

S&P/TSX
Composite
Index

|
244

942
|
|

|
|
195

206
|
|
|
|
159

289
|
|
|
|
192

368
|
|

|
|
175

'97

'98

'99

'00

'01

'02

'03

'04

100
|

|
100

'94

99
|
|
|
|
109

'95

121
|
|
|
|
131

'96

Peter W. Anderson

William T. Holland

Stephen A. MacPhail

Joseph C. Canavan

Executive Vice-President,

President and

Executive Vice-President,

President and

CI Fund Management Inc.

Chief Executive Officer

Chief Operating Officer and

Chief Executive Officer,

President and

Chief Executive Officer,

CI Mutual Funds Inc.

Chief Financial Officer

Assante Corporation

As CI has generated increasing levels of free cash flow, we have consistently returned the cash to

shareholders through share buybacks and dividends. Our quarterly dividend has been increased

six times since December 2001, when it was one cent per share, and now stands at 15 cents

per share. As of July 31, that represented a dividend yield of 3.7%, one of the highest on the TSX.

While the increase in the dividend has been dramatic, we expect that it will be sustained by CI’s

growth and profitability.

I would also like to update you on how CI has addressed the important issue of fund governance.

As I have explained in previous years, CI has been progressive on this issue, with long-time measures

such as a strict Code of Ethics and Conduct for employees and the establishment of the CI Mutual

Funds Board of Governors in 1998. This body, with its mandate to oversee the operations of the

funds, has always been structured so that independent governors form a majority. I’m pleased to

report that as of January 2004, all of the board governors are independent of CI management.

M E S S A G E T O S H A R E H O L D E R S

“ WE H AV E N OT H E S I TAT E D TO R E F I N E A N D E X PA N D

O U R P R O D U C T L I N E A N D TO R E S H A P E O U R C O M PA N Y,

A S W E P R OV E D T H I S PA S T Y E A R . ”

In addition, during the fiscal year, CI Mutual Funds adopted a more stringent policy to govern

trading by investors in its funds, in response to the heightened concerns within the industry about

this issue. Under this policy, CI reviews trading activity on a daily basis and, if any improper trades

are identified, takes action that includes issuing warnings, imposing a short-term trading fee of

up to 2%, or closing the account. The results of this monitoring are reported to the CI Mutual

Funds Board of Governors.

While we believe that our policies on fund governance are comprehensive, we are continually

reviewing them for ways to improve their effectiveness. We are committed to safeguarding the

interests of the investors in our funds. Perhaps the best example of that commitment is our

success in reducing the operating expenses of the funds.

In closing, I would like to highlight one recent milestone – our 10th anniversary as a public

company. In June 1994, CI had just $3.7 billion in assets in 15 mutual funds, but was embarking

on a period of rapid growth.

Today, our industry is maturing and we face different issues. It’s clear that competition from other

fund companies and other investment products will only intensify. We expect that fund

companies will face pressure to reduce fees and expenses. The banks are likely to increase their

presence in our industry as they become better at using their massive branch networks to provide

advisory services and to sell their own funds.

Certain vital characteristics will determine the companies that emerge as leaders in this next

stage of the industry’s evolution. They will be efficient, low-cost operators with strong brands and

reputations. They will have product lineups offering broad selection, solid performance and

exceptional value to investors. They will have access to multiple distribution channels, and effective

management teams who will make the tough decisions to execute their strategy.

We have positioned CI to be one of those companies. We have a history of anticipating industry

trends and moving quickly to meet our clients’ changing needs. We have not hesitated to refine

and expand our product line and to reshape our company, as we proved this past year.

While the achievements of fiscal 2004 resulted in the most far-reaching changes to CI in many

years, they are fully aligned with our long-term goals to be one of the top companies in our

business – and to create exceptional value for our shareholders.

As we enter a new decade as a public company, we will not waver in our commitment to those

goals. Once again, I thank you for your trust and support.

William T. Holland

President and Chief Executive Officer

CI Fund Management Inc.

September 10, 2004

M E S S A G E T O S H A R E H O L D E R S

H I S T O R I C A L
F I N A N C I A L H I G H L I G H T S

Y E A R S E N D E D M AY 3 1 ,

(millions of dollars, except share and per share amounts)

| Total fee-earning assets, end of year
| Net sales of funds

Revenue
| Management fees and other income
| Redemption fees
| Performance fees
| Total revenues

| Total expenses

| Income taxes
| Income before amortization of goodwill
| Net income [loss]
| Operating cash flow*

2004

61,343
920

798.4
43.4
2.8
844.6

88.4
58.6
197.8
5.6
34.0

68.5
452.9

170.7
221.0
221.0
368.5

2003

33,084
(596)

525.8
50.3
0.1
576.2

60.5
50.6
147.4
6.8
169.9

21.0
456.2

49.0
71.0
71.0
245.6

2002

25,713
481

407.0
41.1
1.1
449.2

16.5
39.8
97.8
10.6
201.6

24.1
390.4

22.0
36.8
(61.4)
222.8

2001

26,834
3,468

510.3
28.7
2.6
541.6

26.2
41.5
115.6
16.2
183.9

33.8
417.2

34.3
90.1
11.5
291.9

0.82
1.37
1.65
0.405
1,533.9
295,199,027

0.32
1.09
1.32
0.29
632.7
235,525,648

0.21
1.27
1.51
0.06
56.8
170,785,428

0.49
1.60
1.75
0.025
260.8
180,684,728

*EBITDA (Earnings before interest, taxes, depreciation and amortization) and operating cash flow are non-GAAP (generally accepted accounting principles) earnings measures, however, management believes that
most of its shareholders, creditors, other stakeholders and investment analysts prefer to include the use of these performance measures in analyzing CI’s results.

Fee-earning Assets

| years ended May 31 : $billions

Net Sales

61.3

| years ended May 31 : $billions

Net Operating Margin

| years ended May 31 : % of average AUM

5.8

3.5

1.19

1.16

1.13

1.10

1.05

0.98

1.02

1.00

0.89

33.1

26.7

26.8

25.7

2.4

0.58

9.7

8.3

6.5

5.5

3.7

4.4

1.4

1.2

0.9

0.5

0.9

0.5

-0.6

'94

'95

'96

'97

'98

'99

'00

'01

'02

'03

'04

'94

'95

'96

'97

'98

'99

'01

'02

'03

'04

'94

'95

'96

'97

'98

'99

'01

'02

'03

'04

2000

26,678
5,843

353.4
22.5
21.4
397.3

25.6
29.2
79.1
16.4
117.8

21.1
289.2

51.3
56.8
(2.1)
230.0

1999

9,700
1,369

158.0
14.4
—
172.4

16.2
18.1
37.0
9.6
67.3

3.0
151.2

12.4
8.8
8.7
89.8

1998

8,302
1,475

143.9
8.4
—
152.3

17.6
16.3
34.9
11.3
47.3

8.5
135.9

7.7
8.6
8.6
64.4

1997

6,516
461

114.5
4.1
—
118.6

13.9
13.1
28.9
11.4
26.4

7.4
101.1

8.0
9.5
9.5
45.1

1996

5,469
537

97.6
1.4
—
99.0

12.2
11.4
24.0
12.9
11.8

7.7
80.0

8.5
10.5
10.5
37.4

1995

4,394
909

87.6
0.1
—
87.8

13.3
11.2
19.9
12.7
1.2

10.2
68.5

8.8
10.5
10.5
20.9

1994

3,733
2,463

56.5
—
—
56.5

17.3
7.8
10.0
8.7
—

4.7
48.5

4.0
4.0
4.0
6.0

0.33
1.34
1.38
0.025
292.1
182,829,928

0.06
0.63
0.64
0.025
126.6
144,220,460

0.06
0.45
0.46
0.02
140.2
147,486,888

0.07
0.34
0.35
0.02
55.8
131,139,160

0.08
0.28
0.25
0.02
50.8
131,838,104

0.08
0.16
0.17
0.01
43.1
131,882,104

0.04
0.06
0.10
—
6.0
107,080,000

**Adjusted for two-for-one stock splits in April 1998, January 2000 and November 2000.

Total Revenues

| years ended May 31 : $millions

Income Before
Amortization of Goodwill
| years ended May 31 : $millions

844.6

EBITDA* Per Share

| years ended May 31 : $

221.0

1.75

1.65

1.38

1.51

1.32

576.2

541.6

449.2

397.3

172.4

152.3

118.6

87.8

99.0

56.5

90.1

56.8

71.0

36.8

0.64

0.46

0.35

0.25

0.17

0.10

10.5

9.5

8.6

8.8

4.0

'94

'95

'96

'97

'98

'99

'01

'02

'03

'04

'94

'95

'96

'97

'98

'99

'01

'02

'03

'04

'94

'95

'96

'97

'98

'99

'01

'02

'03

'04

O P E R AT I N G
R E V I E W

I N D U S T RY ’ S B R O A D E S T S E L E C T I O N

|| D I V E R S E L I N E U P O F T O P M A N A G E R S

|| S U C C E S S F U L S T R AT E G Y O F E X P A N S I O N

|| B E W E L L A D V I S E D

|| F O C U S O N E F F I C I E N C Y

|| C O M P R E H E N S I V E A P P R O A C H

F I S C A L 2 0 0 4 was marked by a stronger global economy and

significant gains in equity markets. While the Canadian fund industry benefited from this turn-

around, there were indications that investor confidence remained subdued. In the words of one

analyst, this is “not the same old cycle” in which fund companies will automatically enjoy strong

sales as the economy and markets improve.

CI agrees with this view and believes that the key issues in its industry today are competition and

distribution capability. Not only is the fund industry itself highly competitive but mutual funds

now compete with a wide array of investment products, including exchange-traded funds,

income trusts and structured products. At the same time, the companies that distribute funds

have consolidated rapidly and intensified their focus on strengthening their own in-house

investment products.

As part of its goal to achieve profitable growth and become one of the largest fund companies

in Canada, CI has been addressing these issues for more than five years. In fiscal 2004, as

explained in the President’s Message to Shareholders, the acquisitions of Synergy Asset

Management Inc., Assante Corporation and Skylon Capital Corp. helped secure CI’s future

prospects – making the company larger, more profitable and more competitive, and significantly

expanding its distribution network.

CI’s strategic achievements during the year were supported by the continued refinement of its

O P E R AT I N G R E V I E W |

1 3

Products – Industry’s Broadest Selection

For several years now, CI has offered the industry’s broadest selection of investment funds through

its wholly owned subsidiary CI Mutual Funds. This is the company’s key competitive advantage for

two main reasons. First, financial advisors generally prefer to deal with only a few fund companies,

and this wide selection enables them to meet the varying needs of their clients within CI. Second,

for CI, it means the company is not dependent on one or two “hot” funds and is more likely to

keep and attract assets as investor preferences and market conditions change.

CI’s funds include mutual funds, segregated funds, hedge funds and two asset allocation products

– CI Portfolio Series and the Insight Program. The fund lineup is further diversified by mandate,

such as asset class, region, industry and investment approach, and by specialty funds, such as

the tax-efficient CI Sector Fund Limited. Most funds are also available in different classes: Class A

for traditional retail funds; Class F funds (which pay no service fee to advisors) for clients in

fee-based programs, and Class I (which have a reduced management fee) for institutional clients

with large holdings.

CI is able to offer this selection cost effectively by repackaging its funds into new products. Many

CI segregated funds invest in CI mutual funds, for example. In addition, the CI Portfolio Series

invests in other CI mutual funds to create fully diversified, style-balanced portfolios with the

convenience of purchasing and tracking one fund.

CI Guaranteed Investment
Funds (GIF)

SunWise Segregated Funds

CI GIF Portfolios

CI Portfolio Series

Insight

SunWise Portfolios

CI Funds

BPI Funds

Harbour Funds

Signature Funds

Synergy Funds

Hedge Funds

Labour-Sponsored
Funds

Structured Products

Over the past five years, CI’s fund lineup has expanded significantly through the acquisition of

other companies. CI’s strategy is to retain the best funds and portfolio managers while merging

duplicate funds for greater efficiencies. In fiscal 2004, CI amalgamated more than 50 mutual

funds. With another 15 mergers completed in September 2004, CI will have consolidated

120 mutual funds since 2000.

The integration of the Synergy funds is a good example of how CI uses mergers to both

streamline and strengthen its overall fund lineup. When CI acquired Synergy in October 2003,

it had 24 mutual funds with a variety of mandates and investment approaches. CI retained

the Synergy brand name for the Synergy momentum funds and the unique Synergy style

management funds, along with the exceptional team in charge of those funds led by portfolio

managers David Picton and Michael Mahoney. The Synergy name now represents a fund family

within CI with a distinct management style. Meanwhile, 11 Synergy funds were merged into

other CI funds with similar mandates. CI expects to continue this process of streamlining its

lineup in fiscal 2005, while maintaining an industry-leading choice of funds.

In fiscal 2004, CI’s new product launches were concentrated in one of the fastest-growing

segments of the fund industry: structured products. New funds included the DDJ U.S. High Yield

Fund, which raised $40 million in its initial public offering completed in September 2003. The fund

is managed by DDJ Capital Management, LLC, a long-time sub-advisor for CI.

CI acquired Skylon in November 2003 for its depth in structured products. Later in the fiscal year,

CI introduced three new structured products under the Skylon banner:
| High Yield & Mortgage Plus Trust, which raised $115 million;
| Skylon Growth & Income Trust, which raised $195 million;
| Global Resource Split Corp., which raised $58 million.

CI’s Signature Funds Group is portfolio advisor to the latter two funds, demonstrating how CI was

able to leverage its existing resources with the Skylon business.

The acquisition of Assante in November 2003 further diversified CI’s product capability in

managed money. In addition to its exclusive Assante Private Client program for wealthy individuals,

Assante offers two proprietary investment solutions: Assante Optima Strategy Pools and Assante

Artisan™ Portfolios. Currently available only to clients of Assante advisors, these multi-asset,

multi-style, multi-manager investment programs tailor diversified portfolios to the individual

needs of each investor.

O P E R AT I N G R E V I E W |

1 5

Investment Management – Diverse Lineup of Top Managers

CI offers investors a wide choice of leading portfolio management teams, drawing on the expertise

of both in-house managers and external sub-advisors from around the globe. Its strategy here is

to retain the best available managers across the spectrum of investment mandates and styles –

value, blend (growth at a reasonable price), growth and momentum. At CI Mutual Funds,

approximately 50% of mutual fund assets under management are handled by CI’s in-house

investment teams, which consist of Signature, Harbour and Synergy, all based in Toronto, as well

as Altrinsic Global Advisors, LLC of Stamford, Connecticut, and BPI Global Asset Management LLP

of Orlando, Florida.

The strength of this combined lineup is evident in CI’s rankings from Morningstar Canada, a

well-known investment fund research firm. CI has consistently been one of the top two companies

in the industry with the greatest number of funds receiving Morningstar’s five-star rating. The rating

is based on risk-adjusted performance relative to the fund’s category, and a fund must have a

minimum track record of three years to be rated. At July 31, 2004, CI was second in the industry

with 23 funds with the five-star rating. Two Assante Artisan Portfolios also earned five stars.

This strong performance is seen across a range of funds managed by both in-house and external

portfolio management teams. For example, CI funds with the five-star rating include two of its

largest Canadian equity funds: CI Canadian Investment Fund, managed by Kim Shannon of

Sionna Investment Managers Inc., and Signature Select Canadian Fund managed by Eric Bushell

of Signature.

Furthermore, the in-house portfolio management groups of Harbour, Synergy and Altrinsic all

have first-quartile records in key funds for the five years ending July 31, 2004.

P o r t f o l i o M a n a g e m e n t

Value

Blend

Growth

Momentum

Altrinsic Global Advisors, LLC
Stamford, Connecticut
Global equities

Epoch Investment Partners, Inc.
New York, New York
American & global equities

Harbour Funds Group
Toronto, Ontario
Canadian & global equities
& fixed income

Sionna Investment Managers Inc.
Toronto, Ontario
Canadian equities

Legg Mason
Capital Management
Baltimore, Maryland
American equities

Signature Funds Group
Toronto, Ontario
Canadian equities & income

Trident Investment
Management, LLC
New York, New York
Global equities

BPI Global Asset Management LLP
Orlando, Florida
American & global equities

Synergy Funds Group
Toronto, Ontario
Canadian & global equities

Trilogy Advisors, LLC
New York, New York
Global equities & income

Another success story is Bill Miller of Legg Mason Capital Management, lead portfolio manager

of CI Value Trust Sector Fund, who continued his personal winning streak in fiscal 2004 by

outperforming the S&P 500 Index for an unprecedented 13th consecutive calendar year. He is the

only equity mutual fund manager to have outpaced the index for such an extended period.

Through its acquisition of other fund companies in recent years, CI has expanded and aggressively

rationalized its lineup of portfolio managers in much the same way it has streamlined its funds.

CI has kept those managers offering the best combination of quality and fit with its existing

lineup to ensure the best possible selection of managers diversified by mandate and investment

style. So while CI retained several of Synergy’s in-house managers, those managers and

sub-advisors of mandates already well represented at CI were not kept on. As part of this,

CI decided in June 2004 not to renew its investment management contract with Webb

Capital Management LLP.

CI continues to develop and leverage its in-house expertise, including the Signature Funds group

– its largest portfolio management group with about $12.2 billion in assets under management

at July 31, 2004. Signature added to its roster of fixed-income specialists in fiscal 2004. As a

result, CI and Assante transferred several core fixed-income mandates to Signature, allowing CI

to gain additional efficiencies.

Assante uses a variety of sub-advisors – including CI Mutual Funds – to provide investment

management for its diversified investment solutions. As of May 2004, Assante no longer has any

in-house portfolio management teams following an agreement with its chief investment officer,

Daniel Bubis. Mr. Bubis and associates formed a new investment firm, Tetrem Capital Partners Ltd.,

while Assante retained Tetrem for all of the mandates previously managed by Mr. Bubis, including

the top-performing Optima Strategy Canadian Equity Value Pool. In this way, Assante clients are

assured continuity of management for their portfolios.

O P E R AT I N G R E V I E W |

1 7

Marketing and Distribution – Successful Strategy of Expansion

Global equity markets posted strong gains throughout fiscal 2004, leading to renewed sales in

the Canadian investment fund industry. After experiencing net redemptions in almost every

month of fiscal 2003, the industry posted positive net sales in 10 of 12 months of fiscal 2004.

However, a look at the sales asset mix suggests that investors remained cautious. Net sales

were concentrated in dividend and fixed-income funds, while net redemptions were primarily

in equity funds.

During the fiscal year, CI had gross sales of $6,896 million and gross redemptions of $5,976 million,

for total net sales of $920 million. This change from the prior year, when CI had gross sales of

$4,144 million, gross redemptions of $4,740 million and net redemptions of $596 million, reflects

stronger sales at CI Mutual Funds and net sales at Skylon and Assante since their acquisition. The

three new structured products issued by Skylon raised a total of $378 million and Assante’s

proprietary funds continued to attract steady inflows.

At CI Mutual Funds, the top-selling funds during the year included not only income funds such as

Signature High Income Fund and Signature Dividend Fund, but also equity funds such as CI Value

Trust Sector Fund, CI Canadian Investment Fund and Signature Select Canadian Fund. Product

groups with robust sales included the SunWise Segregated Funds, which offer principal

guarantees, and the CI Portfolio Series, a family of asset allocation funds available in both mutual

and segregated fund versions. These strong sales contributions from such a diverse range of

products validate CI’s strategy of maintaining a comprehensive lineup.

The driving force behind CI’s sales growth is a sales and client services team that is one of

the industry’s largest. CI believes this strength is crucial in providing support and maintaining

relationships with the advisors who know and recommend CI funds to their clients. These advisors

and agents, who work at investment dealers, mutual fund dealers, banks and insurance firms

across Canada, remain CI’s primary distribution channel. As a result of maintaining its

commitment to an experienced and well-staffed sales and marketing group, CI was well

positioned to capitalize on the market recovery in fiscal 2004.

These sales and marketing efforts are reinforced by initiatives to promote the CI Funds brand.

Recent activities have included:
| Ongoing print and outdoor advertising focused on the benefits of investing with CI, as well as

specific products such as CI Portfolio Series;

| A new radio advertising campaign to be launched in key markets in fiscal 2005;
| Continued sponsorship of a number of community and sporting events, with the most prominent
being the Bell Canadian Open. As Canada’s most prestigious golf tournament, it provides

valuable exposure for the CI name among target client groups.

CI has pursued a strategy of expanding the distribution channels for its products. One part of this

strategy is CI’s arrangement with Sun Life Financial as the preferred supplier of wealth management

products to its more than 4,000 Clarica agents and managers – the largest such dedicated sales

force in the country. This relationship, which was established in 2002 as part of CI’s acquisition of

Spectrum Investments and Clarica Diversico from Sun Life, has benefited both parties. Clarica

agents have gained access to the industry’s widest selection of investment funds, while CI enjoys

strong net sales from Clarica advisors.

CI continues to extend its distribution reach through third-party investment programs. Under

these programs, CI funds are used in wraps, segregated funds and other investment products

offered by other financial institutions such as banks, insurance companies and dealers. For the

past several years, CI has dedicated a specialized team to fostering these relationships, with

increasing success. In fiscal 2004, the team established four new relationships. Total third-party

net sales exceeded $300 million for the year, while total assets in third-party programs increased

21% to $2.5 billion at May 31, 2004. CI’s success in this area is very much a result of the company’s

size, broad lineup of funds, and the strength of its brand. By including CI in their programs, these

firms benefit from CI’s name, as well as its investment expertise.

CI made additional strides in its distribution strategy when it acquired Assante in November 2003

and IQON Financial Management Inc. in June 2004. Assante has a network of about 850 financial

advisors who provide their clients with financial advisory services and products, which include

Assante’s own funds as well as third-party funds such as CI funds. IQON has 360 advisors who

distribute CI and other third-party funds, along with other financial products.

With the acquisition of these leading firms, CI established a cornerstone in the financial advisory

business. CI is operating Assante and IQON as separate entities from CI Mutual Funds. However,

by sharing resources and expertise, CI is improving the operations and the products and services

the dealers offer to their advisors and clients. Moreover, the closer affiliation will provide for an

even stronger relationship between CI Funds and Assante and IQON advisors.

CI Funds is a Founders Club Sponsor of the prestigious Bell Canadian Open. Other

brand-building activities include outdoor advertising and radio advertising campaigns

targeting the key markets of Toronto and Vancouver.

O P E R AT I N G R E V I E W |

1 9

Assante – Be Well Advised

In November 2003, CI completed its acquisition of Assante, a highly successful organization that has

achieved a great deal in its short history. Together, CI and Assante have undertaken comprehensive

and significant steps designed to build on Assante’s impressive strengths and take the company

to the next level of success.

Under the direction of a new senior management team, and in consultation with advisors and employees,

every process, product and service at Assante is being scrutinized with a view to better supporting

the Assante advisor. Already, the review has identified opportunities to improve available products

and services, reduce the costs of the business and enhance the professionalism of advisors’ practices.

Among the key developments, Assante is broadening and implementing wide-ranging improvements

to its wealth management products and services, including an expanded slate of insurance

products, and improvements to the Artisan and Optima programs.

The company is restructuring its organization to increase efficiency while also enhancing support

to advisors and their clients. Measures to reduce expenses range from consolidating office space

to sharing functions such as information technology and human resources with CI – demonstrating

the benefits of scale that come with being part of a larger organization.

To elevate the knowledge, skills and professionalism of advisors and branch managers, Assante

has launched a major program in training and development. Initiatives include the new “Head to

Head” sessions, in which advisors will learn from the experiences of other advisors, and increased

contact between advisors and the investment managers of the Assante funds.

In technology and administration, Assante is developing a new operating platform for the dealer-

ship’s back office that will provide a stable base for the company’s drive for efficiency and growth.

Assante and CI are also converting the administration of the Assante Artisan and Optima Strategy

funds from an outside service provider to the CI system. The Artisan funds were transferred to CI in

July 2004 and the Optima Strategy funds will be converted in October. This move will significantly

improve the administration and reporting processes of the funds and reduce their operating expenses

– savings that will be passed on to the investors in the funds.

Finally, Assante has begun an ambitious new campaign to breathe

new life into its brand and raise awareness of the company. As a first

step, Assante adopted the name Assante Wealth Management to

easily identify the breadth of its services. The company's advertising and promotions will focus

on the professionalism and expertise of Assante advisors and the benefits of their ability to

develop comprehensive strategies that address all aspects of clients' financial needs. This focus is

captured by the tagline, "Be Well Advised." To create additional awareness and prestige for

Assante, the company is expanding its sponsorships of community organizations and events. In a

significant initiative, Assante has become a national sponsor of the Raise-a-Reader campaign,

which encourages families to read together and raises funds for family literacy programs. This

sponsorship, announced in September 2004, will benefit children and families across Canada.

Administration and Operations – Focus on Efficiency

In the past five years, CI has acquired eight companies and experienced substantial growth –

while maintaining its edge as one of the industry’s most cost-efficient companies. This high level

of efficiency is a notable competitive advantage that enables CI to launch new products quickly

and profitably. Lower operating costs make CI products more attractive, especially at a time

when investors are becoming increasingly concerned about fees and expenses. Furthermore, CI’s

efficiency puts it in a better position to quickly integrate other firms and reap the financial

benefits of the acquisitions.

In fiscal 2004, CI integrated Synergy and Skylon within two months of each acquisition, successfully

transferring key employees and operations to CI and quickly eliminating most of the costs of

running those businesses. The funds were also moved to the CI administrative platform, where

CI’s administration and client services departments absorbed the additional workload with only a

minimal increase in overhead. This set the stage for substantial reductions in their operating costs

that are directly benefiting their investors. By August 31, CI had pared back the average operating

expenses of the Synergy Funds by more than 50%.

Operating Expenses – CI Funds | years ended May 31 : basis points

| 27.5

| 31.4
| 30.5
| 31.1

| 34.4

| 39.6
| 40.2

| 46.5
| 46.0

| 52.8

| 54.2

Fee-earning Assets per Employee | years ended May 31 : $millions

| 51.9

| 54.0

| 48.0
| 47.3

| 44.3

| 34.3
| 33.3

| 31.9

| 28.3

| 24.4
| 23.1

'04

'03

'02

'01

'00

'99

'98

'97

'96

'95

'94

'04

'03

'02

'01

'00

'99

'98

'97

'96

'95

'94

O P E R AT I N G R E V I E W |

2 1

In fact, CI has steadily reduced the overall operating expenses of its funds for the past decade.

Fund operating expenses as a percentage of assets declined from 69.0 basis points in 1993 to

27.5 basis points at the end of fiscal 2004. Excluding the Assante funds, which had not yet been

converted to the CI system, operating expenses stood at 24.4 basis points.

Even with the costs associated with the acquisitions, CI increased the operating profit margin on

its asset management business, expressed as a percentage of average retail managed assets, to

1.13% in fiscal 2004 from 1.05% in the previous year.

And it achieved these results without compromising its high level of service and sales support.

CI maintained its firm commitment to training, quality control and continuous improvement,

especially within its client services and administration departments.

In addition, CI has made significant investments in technology to improve operations and

efficiency throughout the organization, replacing manual and paper-based processes with

automated and online processes wherever possible. In fact, CI has been a leader in making as much

information as possible available electronically, which reduces costs, speeds up communications

and frees up resources for other services.

Among the technology-based initiatives undertaken in fiscal 2004:
| CI added new functions to its innovative and convenient Web-based client services tools. CI’s
eCISS allows advisors to view extensive information about their clients’ accounts and their

business with CI. With CI e-Service, investors can view and print current information about their

accounts and important documents such as statements, confirmations, tax receipts and reports.

They can also opt for electronic delivery of these documents, saving the time and expense of

mailing paper documents. The number of subscribers to CI e-Service now exceeds 100,000.
| CI continued to improve the functionality of its main public website, www.cifunds.com, an
important source of information about CI funds for investors and advisors. CI is also developing

new functions for Advisor Online, its website for advisors, which will be available in the fall of 2004.
| It successfully launched CI Analyzer, a sophisticated software tool that allows advisors to select
appropriate asset allocations and fund portfolios for their clients using CI funds. An enhanced

Web-based version of CI Analyzer is under development for launch in fiscal 2005.

Also this past year, CI made enhancements to various operations throughout the organization,

including CI’s leading-edge portfolio management and trading system and eRep, the customer

relationship management system used by CI’s sales and marketing department.

O P E R AT I N G R E V I E W |

2 3

Compliance and Fund Governance – Comprehensive Approach

Employees, officers and directors of CI recognize their obligation to place the interests of investors

in the company’s products ahead of their personal interests through the application of the highest

standards of integrity and ethical business conduct. CI has a number of policies and mechanisms

in place to ensure the fair treatment of CI’s clients.

At CI Mutual Funds, a key body is the funds’ Board of Governors, which has been in place since

1998 and is distinct from the firm’s Board of Directors. The Board of Governors has a mandate to

consult with CI and the portfolio managers about the investment of the funds’ portfolios and

operations of the funds. The Governors also review the CI Code of Ethics and Conduct, control

mechanisms and compliance procedures, and meet with the compliance officer and other

employees, and consider other matters such as customer complaints. They also review the funds’

financial statements and have the opportunity to consult the funds’ auditors at every meeting.

Since its establishment, independent members have formed a significant majority of the Board of

Governors. In fiscal 2004, the CI representative resigned from the board so that it would be fully

independent of CI. Furthermore, the Board began to evaluate a proposal for a new mandate that

would give it additional responsibilities and powers in reviewing the operations of the funds.

In addition, CI Mutual Funds has a compliance department that monitors trading by CI’s portfolio

managers for the funds and trading by investors in the funds, as well as personal trading by those

employees who have access to non-public information about the funds’ portfolios and trading

activities. The head of the compliance department reports to the Board of Governors at least four

times a year.

During fiscal 2004, the compliance group integrated Synergy and Skylon into its oversight function,

revised the CI Code of Ethics and Conduct which outlines the rules of conduct for CI Mutual Funds

employees, and put in place new or enhanced policies and procedures, where necessary. One

change early in the year was CI’s implementation of a stricter policy governing trading by clients

in the CI funds. CI monitors trading daily and will take action to eliminate improper trades by

issuing warnings, charging short-term trading fees and, if necessary, closing accounts.

At Assante, the company has reorganized and strengthened its compliance department with a

focus on providing additional education and support directly to advisors and branch managers.

CI continues to review and enhance its compliance and governance measures, reflecting its

commitment to fully safeguarding the interests of its clients.

Conclusion

CI’s efforts to capitalize on its competitive strengths and position itself for future growth paid off

in fiscal 2004. It enhanced the diversity and quality of its lineup of funds and portfolio managers,

expanded the distribution channels for its products and gained a strong presence in the financial

advisory business. These successes were made possible with the acquisitions of Assante, Skylon

and Synergy, which also enabled CI to leverage its operational excellence to the benefit of

shareholders, advisors and investors.

And they have already delivered measurable results against CI’s key goals. With the growth

achieved during the year, CI became one of Canada’s top three investment fund companies.

The future continues to look promising. CI is financially strong and has proven its expertise at

selecting and integrating other firms – another clear advantage as the consolidation of the

industry is likely to continue. CI is well positioned to meet the industry’s challenges.

O P E R AT I N G R E V I E W |

2 5

M A N A G E M E N T ’ S
D I S C U S S I O N A N D A N A LY S I S

S U M M A RY O F
F I N A N C I A L H I G H L I G H T S

Y E A R S E N D E D M AY 3 1 ,

(millions of dollars, except share and per share amounts)

2004

2003

2002

Commission Related Expenses
| Amortization of deferred sales commissions
| Distribution fees to limited partnerships

Other Items
| Minority interest

| Income before taxes
| Income taxes
| Net income (loss)
| Earnings per share

| Long-term debt, end of year
| Shareholders’ equity, end of year
| Shares outstanding, end of year

710.9
58.0
43.4
2.8
29.6
844.7

88.4
58.6
39.7
197.8
23.5

34.0
5.6

5.4

391.7
170.7
221.0
0.82

368.5
1.37
442.2
1.65
0.41

219.6
1,533.9
295.2

37,236
20,102
61,343
44,403
6,896
5,976
920

503.6
4.9
50.3
0.1
17.3
576.2

60.5
50.6
–
147.4
16.9

169.9
6.8

4.1

120.0
49.0
71.0
0.32

245.6
1.09
297.4
1.32
0.29

120.0
632.7
235.5

383.0
–
41.1
1.1
24.0
449.2

16.5
39.8
–
97.8
19.1

201.6
10.6

5.2

58.8
22.0
(61.4)
(0.35)

222.8
1.27
265.5
1.51
0.06

68.8
56.8
170.8

27,306
–
33,084
28,773
4,144
4,740
(596)

20,858
–
25,713
20,619
3,641
3,160
481

*EBITDA (Earnings before interest, taxes, depreciation and amortization) and operating cash flow are non-GAAP (generally
accepted accounting principles) earnings measures, however, management believes that most of its shareholders, creditors,
other stakeholders and investment analysts prefer to analyze CI’s results based on these performance measures.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

2 7

S E L E C T E D
Q U A RT E R LY I N F O R M AT I O N

Y E A R S E N D E D M AY 3 1 ,

(millions of dollars, except per share amounts)

2004

Q 4

Q 3

Q 2

Commission Related Expenses
| Amortization of deferred sales commissions
| Distribution fees to limited partnerships

Other items
| Minority interest

| Income before taxes
| Income taxes
| Net income

217.3
25.5
11.9
–
9.2
263.9

34.3
17.5
18.1
57.4
6.2

11.0
1.3

1.4

116.7
41.3
75.4

205.8
26.5
11.5
2.6
8.6
255.0

14.7
16.4
18.8
55.8
6.6

7.5
1.4

1.5

132.3
45.3
87.0

Q 1

136.0
1.2
9.7
–
5.4
152.3

13.3
11.7
–
39.3
5.8

6.7
1.5

1.3

72.7
29.2
43.5

0.19

81.4
0.35
0.08

151.8
4.9
10.2
0.2
6.3
173.4

26.0
13.0
2.8
45.3
4.9

8.8
1.4

1.1

70.1
54.9
15.2

0.06

81.4
0.33
0.10

| Earnings per share

0.26

0.29

| EBITDA*
| EBITDA* per share
| Dividends per share

133.2
0.45
0.13

146.2
0.49
0.10

| Average retail managed assets

44,368

42,539

32,626

29,417

*EBITDA (Earnings before interest, taxes, depreciation and amortization) is a non-GAAP (generally accepted accounting
principles) earnings measure, however, management believes that most of its shareholders, creditors, other stakeholders
and investment analysts prefer to analyze CI’s results based on this performance measure.

(millions of dollars, except per share amounts)

2003

Commission Related Expenses
| Amortization of deferred sales commissions
| Distribution fees to limited partnerships

Other items
| Minority interest

| Income before taxes
| Income taxes
| Net income

| Earnings per share

| EBITDA*
| EBITDA* per share
| Dividends per share

Q 4

Q 3

Q 2

128.0
1.2
11.7
–
2.8
143.7

45.0
12.7
–
36.3
-3.7

26.3
1.4

0.7

25.0
14.6
10.4

0.04

45.6
0.19
0.08

132.3
1.2
12.3
0.1
3.8
149.6

5.5
13.0
–
39.3
11.6

46.0
1.6

1.1

31.5
9.8
21.7

0.09

87.0
0.37
0.08

135.1
1.3
13.1
0.1
2.9
152.5

5.4
13.0
–
41.1
4.5

50.3
1.7

1.2

35.1
13.6
21.4

0.09

87.6
0.37
0.08

Q 1

108.1
1.3
13.2
–
7.8
130.4

4.6
11.9
–
30.7
4.3

47.3
2.0

1.2

28.4
10.9
17.5

0.09

77.2
0.39
0.05

| Average retail managed assets

27,675

28,765

29,079

23,756

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

2 9

O V E RV I E W O F C I ’ S B U S I N E S S

The principal business of CI Fund Management Inc. (“CI”) is the management, marketing, distribution and

administration of mutual funds, segregated funds, structured products and other fee-earning investment

products for Canadian investors through its wholly owned subsidiaries CI Mutual Funds Inc. (“CIMF”) and

Skylon Capital Corp. (“Skylon”). Commencing in November 2003, as a result of the acquisition of the

Canadian operations of Assante Corporation (“Assante”), CI offers, through an extensive network of

Assante financial advisors, a wide range of financial advisory services, including asset allocation, retirement

planning, trusts, portfolio management, insurance, and estate and tax planning. Commencing in June 2004,

as a result of the acquisition of IQON Financial Management Inc. (“IQON”), CI offers through the network

of IQON financial advisors financial products such as mutual funds, segregated funds and insurance

products. In addition, through its money management subsidiary BPI Global Asset Management LLP

(“BGAM”), CI manages institutional assets for clients on a global basis. CI operates through a number of

principal operating subsidiaries as listed below.

CI Fund Management Inc.

Principal Operating Subsidiaries at June 30, 2004

CI Mutual Funds Inc.

Assante Corporation

Skylon Advisors Inc.

BPI Global Asset Management LLP

Assante Advisory Services Ltd.

Assante Asset Management Ltd.

Assante Capital Management Ltd.

Assante Financial Management Ltd.

IQON Financial Management Inc.

At June 30, 2004, fee-earning assets totalled $66.0 billion, as shown in the chart below, represented by

$35.3 billion in mutual and segregated funds, $8.1 billion in managed assets through Assante, $0.2 billion

in managed labour-sponsored funds, $1.1 billion in structured products, $5.0 billion in institutional assets,

$0.8 billion in other administered assets such as labour-sponsored funds, and $15.5 billion in Assante and

IQON assets under administration (net of Assante-managed assets described above).

CI’s assets as reported by the Investment Funds Institute of Canada (“IFIC”) were $40.6 billion at June 30,

2004. This figure is $4.1 billion below CI’s actual $44.7 billion in managed retail assets because IFIC uses a

narrow definition of assets under management that does not include the $1.0 billion of Assante proprietary

funds, $1.8 billion of segregated funds and hedge funds, $0.2 billion in managed labour-sponsored funds

and $1.1 billion of structured products. As such, CI’s assets as reported by IFIC should not be used when

determining overall assets under management, product sales or conducting financial analysis of CI.

CI Fee-earning Asset Profile

As at June 30 (billions of dollars)

Mutual/segregated funds

Assante funds

Managed labour-sponsored funds

Structured products

Managed retail assets

Managed institutional assets

Total managed assets

Other administered funds

Assante/IQON assets under administration

(net of Assante funds)

Total fee-earning assets

2004

35.3

8.1

0.2

1.1

44.7

5.0

49.7

0.8

15.5

66.0

2003

28.8

–

0.2

29.0

4.0

33.0

0.8

–

33.8

% Change

n/a

450

–

n/a

There are five critical components to CI’s business:

1. Investment Products

2. Investment Management

3. Investment Product Distribution

4. Investment Product Administration

5. Investment Advisory Services

I N V E S T M E N T P R O D U C T S

CI believes that in order to attract and maintain investor interest, it is essential to offer a wide range of

investment products and continually review its product lineup to adapt to changing investor preferences. CI’s

product line encompasses a broad range of global and domestic funds offering a variety of investment styles.

In addition, CI has consistently developed new products, such as sector-specific funds, portfolio-based funds,

fee-based portfolio management services, closed-end funds, segregated funds, 100% RSP-eligible foreign

funds and hedge funds.

In fiscal 2004, CI launched a number of new funds. In August 2003, CI completed the launch of DDJ U.S.

High Yield Fund, a closed-end fund designed to provide exposure to high-yield investments and to generate

monthly distributions.

In November 2003, CI completed the launch of High Yield & Mortgage Plus Trust, a closed-end fund

designed to provide exposure to high-yield investments and Canadian commercial mortgages and to

generate monthly distributions.

In January 2004, CI completed the launch of Skylon Growth & Income Trust, a closed-end fund designed to

provide exposure to high-yield securities such as income funds, dividend-paying stocks, high-yield debt and

common shares, with the objective of generating monthly distributions and long-term growth.

In March 2004, CI completed the launch of Global Resource Split Corp., a fund with two components

designed to provide either an attractive ongoing yield or pure exposure to capital gains by allocating

distributions such as dividends to one security and capital appreciation to the other.

As a result of the acquisition of Spectrum Investment Management Limited (“Spectrum”) and Clarica

Diversico Ltd. (“Diversico”) in July 2002 and Synergy Asset Management Inc. (“Synergy”) in October 2003,

CI’s lineup of funds expanded significantly. In order to streamline its lineup and improve the cost efficiencies

in operating the funds, CI eliminated 33 funds in October 2002 by merging them into other funds with

similar mandates. Similarly, CI eliminated a further 45 funds in September 2003, seven funds in May 2004

and announced in July 2004 that a further 15 funds would be eliminated in September 2004.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

3 1

I N V E S T M E N T M A N A G E M E N T

In order to offer a broad range of investment products, CI retains the services of a number of investment

advisors. CI uses three structures to ensure it can attract and maintain the investment management expertise

CI believes is necessary to meet investors’ needs:

1. CI maintains sub-advisory agreements with independent investment managers who are compensated

on the basis of assets under management, as detailed in the following chart:

CI Funds Sub-Advisors

AGF Funds Inc.

AIC Limited

AIM Funds Management Inc.

Fidelity Investments Canada Limited

Howson Tattersall Investment Counsel Ltd.

Legg Mason Capital Management

MFC Global Investment Management (Canada)

Sionna Investment Managers Inc.

TD Asset Management Inc.

UBS Global Asset Management (Canada) Co.

Trident Investment Management, LLC

Trilogy Advisors, LLC

Epoch Investment Partners, Inc.

Total

Assets Sub-Advised
at May 31, 2004 (millions of dollars)

759

621

281

1,247

2,875

600

641

5,439

838

13,458

Assante also maintains sub-advisory agreements with independent investment managers who are

compensated on the basis of assets under management for the Artisan Portfolios and Optima Strategy Pools,

as shown in the following chart:

Assante Sub-Advisors

AGF Funds Inc.

AIM/Trimark Group of Funds

Alliance Capital Management LP

Altamira Investment Services

Cohen & Steers Capital Management Inc.

Conner, Clark & Lunn Investment Management Ltd.

Dynamic Mutual Funds Inc.

Dimensional Fund Advisors Inc.

Fidelity Investments Canada Limited

Sanford C. Bernstein & Co.

Franklin Templeton

Tetrem Capital Partners Ltd.

Deutsche Asset Management

Trident Investment Management, LLC

Trilogy Advisors, LLC

Total

Assets Sub-Advised
at May 31, 2004 (millions of dollars)

572

127

219

611

106

752

152

260

163

1,823

660

750

6,360

During the year, CI terminated relationships with a number of sub-advisors in conjunction with efforts to

eliminate duplication arising from recent acquisitions. Terminated advisors were J. Zechner Associates Inc.,

MFS Institutional Advisors, Inc., Marsico Capital Management, LLC, Viking Capital Corp., Pictet International

Management Ltd. and Thornburg Investment Management, Inc.

2. CI employs money managers directly. At May 31, 2004, CI managed $18,463 million in a diversified mix

of funds using value and growth-oriented investment approaches. CI’s in-house investment teams

operate under the Harbour Funds, Signature Funds, Synergy Funds and CI Funds brands and include

well-known money managers such as Gerry Coleman, Eric Bushell, David Picton, Robert Lyon and

Ben Cheng. In addition, these investment teams managed an additional $1,471 million at May 31, 2004

for the Assante Optima Strategy Pools and Assante Artisan Portfolio funds.

3. CI has partnership agreements with investment advisors whereby CI owns a controlling interest or has

a significant economic interest in the partnership. This structure gives the investment advisor, through

direct equity participation in the partnership, an incentive to grow the assets under management and

attract money from sources other than CI. An equity stake in the partnership also encourages the

advisors to stay with CI over the long term. CI has two investment advisory partnerships of this type:

| BGAM of Orlando, Florida, formed in March 1997, is 66% owned by CI and 34% owned by JBS
Advisors, Inc. At May 31, 2004, it had $1,781 million of growth-oriented mutual fund assets under

management, including a portion of two multi-manager funds and $382 million of retail hedge

funds, and institutional assets of $4,950 million (including $63 million of institutional hedge funds

and $44 million sub-advised for the Assante Optima Strategy Pools).

| Altrinsic Advisors, LLC (“Altrinsic Advisors”), a value-oriented investment team established in
December 2000 and based in Stamford, Connecticut, is 49% owned by CI. It had assets under

management of $1,616 million at May 31, 2004, in several globally oriented funds, two multi-

manager funds and a hedge fund. CI also has a 25% profit participation in Altrinsic Global Advisors,

LLC (“Altrinsic Global”), whose mandate is to pursue institutional hedge fund assets.

During the year, CI terminated its equity ownership in CI Global Advisors LLP and Trilogy Advisors, LLC

(“Trilogy”), in which CI had 55% and 45% interests, respectively. In addition, in June 2004, CI gave notice

that it was terminating its equity ownership in Webb Capital Management LLP (“Webb”), in which CI had

a 55% ownership. In the case of Trilogy, CI had determined that the prospects for generating a return on

its investment was limited and it was in the best interest of CI to negotiate a return of its share ownership

in the two companies. In the case of Webb, a decision was made to not extend the sub-advisory contract

with Webb and a return of CI’s share ownership in Webb is being negotiated in conjunction with the

termination of the contract.

I N V E S T M E N T P R O D U C T D I S T R I B U T I O N

CI distributes its investment products through investment dealers, mutual fund dealers (including IQON,

which was acquired on June 3, 2004), insurance agents, banks, its preferred distribution arrangement with

Clarica advisors and managers and through Assante financial advisors. In order to support these distribution

channels, CI ensures it has an extensive number of knowledgeable and experienced staff members, including

CI representatives who deal directly with the distributors of CI’s funds and in-house fund support personnel,

who, in addition to providing product information, have access to detailed records of distributors’ fund

assets and transactions with CI. CI also provides distributors with extensive information about its funds

through the internet, through various publications and through appearances and presentations by the

funds’ advisors.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

3 3

In addition, Assante has its own suite of proprietary products known as the Assante Optima Strategy Pools

and the Assante Artisan Portfolios distributed exclusively through Assante financial advisors. Distribution of

these funds are supported by an extensive number of staff specific to the Assante operations whose

experience includes all aspects of fund support, as well as knowledge in dealership, compliance, estate,

trust, tax and insurance matters.

Over the past three years, CI has taken extensive measures to broaden its distribution of financial products:

It maintains a broad range of funds that encompass numerous styles and fund mandates to ensure

financial advisors have the widest choice within CI.

It has expanded its asset base significantly through acquisition. This ensures that CI is one of the largest

investment product complexes in Canada, thereby increasing the likelihood of maintaining shelf space

with distributors of financial products as they have reduced the number of fund families they are willing

to support and promote.

In July 2002, in conjunction with the purchase of Spectrum and Diversico, CI entered into a preferred

distribution arrangement with Sun Life Financial Inc. (“Sun Life”), a related party, that covers approximately

4,000 Clarica advisors and managers. The arrangement provides that CI’s funds will be the predominant

wealth management products sold by Clarica advisors and managers.

In November 2003, CI purchased Skylon to use as a base to expand CI’s distribution of structured products

such as closed-end funds, which were becoming increasingly popular among certain financial advisors.

In November 2003, CI purchased the Canadian operations of Assante, which has approximately 900

financial advisors that distributed proprietary Assante funds and third-party funds. The acquisition

ensures CI maintains a relationship with these advisors.

In June 2004, CI purchased IQON, which has approximately 360 financial advisors that distribute third-

party funds, including CI funds. The acquisition ensures CI maintains a relationship with these advisors.

7. CI continues to emphasize distribution through third-party channels and entered into four new arrangements

for the distribution of CI’s products in fiscal 2004.

I N V E S T M E N T P R O D U C T A D M I N I S T R AT I O N

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 extensive

investments in technology to enable its clients to receive information quickly and in a cost-efficient manner,

ensuring that CI continues to be one of the most efficient fund administrators in the industry. CI believes that

the costs it incurs to administer its funds are among the lowest in the industry as a percentage of assets and

that low operating costs will become a competitive advantage in the future. The table below depicts the

reduction in costs CI has achieved over the past six years in the administration of CI funds. (Note that this

table does not include the operating costs of the funds of companies acquired by CI until those funds have

been integrated into CI and therefore have operating costs consistent with CI Funds).

Year

1999

2000

2001

2002

2003

2004

Fund Operating Expenses
as a % of assets (in basis points)

39.6

34.4

31.1

30.5

31.4

27.5

CI believes that it holds a competitive advantage in its ability to consolidate fund operations onto its administrative

platform and achieve significant cost savings in the administration of financial products. In fiscal 2003, CI

consolidated the Spectrum fund administration onto CI’s administrative platform within six weeks of the

acquisition. The consolidation of the Diversico fund administration function, including all segregated funds,

was completed by January 2003. In fiscal 2004, CI consolidated the administration of the Synergy and

Skylon fund assets onto CI’s platform within four weeks of the acquisition of these firms. This has resulted

in significant cost savings in the operations of these funds, which directly benefits their investors.

In late fiscal 2004, CI initiated the process of converting the Assante funds onto CI’s operating platform.

The conversion will be completed in early fiscal 2005 and will result in significant cost savings and enhanced

service for the Assante products.

A key strength of CI is its ability to quickly provide administrative capacity for new products in a cost-effective

manner. In recent years, CI has successfully launched numerous new products, including institutional class

funds, portfolio funds, segregated funds, 100% RSP-eligible foreign funds, hedge funds, closed-end funds,

a wrap program and group RSPs, as well as managing one of the largest blocks of RESP accounts in Canada.

These new products have had the appropriate administrative support to achieve market penetration and

have contributed significantly to CI’s assets under management.

I N V E S T M E N T A D V I S O RY S E RV I C E S

CI provides financial advisory services to clients through the financial advisors at Assante and IQON. The level

of services provided range from offering basic financial advisory services focusing on products such as mutual

funds, segregated funds and other insurance products to a full suite of financial advisory services including

portfolio management, investment advice, distribution of securities, insurance products, banking products

and financial, tax, succession, wealth and estate planning.

At June 30, 2004, Assante had 847 financial advisors with a total of $19.4 billion in assets under administration

resulting in average assets under administration of $22.9 million per Assante financial advisor.

At June 30, 2004, IQON had 351 financial advisors with a total of $4.2 billion in assets under administration

resulting in average assets under administration of $12.0 million per IQON financial advisor.

In order to support the distribution of financial advisory services by Assante and IQON financial advisors,

CI’s focus is on providing services such as compliance oversight, support for tax and legal services, portfolio

management services, product review of third party products, a centralized dealership administrative

operation, product design, insurance administration, marketing support, educational support, financing

and other related services.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

3 5

O V E RV I E W O F C I ’ S R E V E N U E S A N D E X P E N S E S

Revenues

The majority of CI’s revenues is earned from the management services it provides as fund manager to the

CI funds and Assante proprietary products and are reported as management fees. The key determinant of

CI’s management fee revenue is its managed retail assets, which is determined by both market returns

and net sales of these funds. CI focuses on offering retail funds – especially equity funds, which earn

management fees of approximately 2.00%. Approximately 81% of CI’s managed retail assets are in retail

equity funds. CI also offers funds with lower management fees that are designed for fee-based products or

fund-of-fund products. These funds, known as Class F and Class I funds, have management fees that are at

levels approximately one percentage point or more below CI’s basic retail or Class A fund. In return for lower

management fees, Class I and Class F funds do not pay trailer fees. CI is able to provide cost-efficient service

to Class I funds because of the large size of these accounts. At May 31, 2004, there were $261 million and

$1,870 million in Class F and Class I funds, respectively, compared with $120 million and $1,259 million on

May 31, 2003.

Income potential from sources other than management fees has also become significant. CI earns

administration fees predominately on assets under administration at Assante and (subsequent to June 3,

2004), at IQON. Administration fees should be considered in conjunction with investment dealer fees, which

represent payments to investment advisors on assets under administration.

CI also earns revenues from redemption fees. Investors pay redemption fees when funds are purchased on

a deferred sales charge basis and the investment is redeemed within the applicable redemption period,

generally seven years. Redemption fees, which have rates that start as high as 5.5% and decrease to zero

over the redemption period, are calculated as a percentage of the initial value of the funds sold.

CI manages a number of hedge funds that provide performance fees. In general, the fees amount to 20%

of returns in excess of certain thresholds, with CI receiving approximately 40% and the investment advisor

and the fund distributor receiving the remainder. At May 31, 2004, CI managed $443 million of hedge fund

assets that potentially could earn performance fees.

CI’s ownership stakes in BGAM and Altrinsic Advisors position CI to benefit from the growth in revenues and

profits on assets that these firms manage for organizations other than CI. At May 31, 2004, BGAM had

$4.9 billion in institutional assets ($3.4 billion at May 31, 2003). Income related to institutional assets is

reported under other income and should be considered in conjunction with expenses related to institutional

assets reported under other expenses.

CI also may earn revenue or incur losses on investments in seed capital in its hedge funds or other strategic

investments such as investments in potential candidates for acquisition.

Management Fees | years ended May 31 : % of average AUM

| 1.84
| 1.84

| 1.91

| 1.96

| 1.97

| 1.96
| 1.96

| 1.97
| 1.97

| 1.94

Portfolio Value of Redemption Fees | years ended May 31 : $millions

| 817

| 704

| 640

| 663

| 552

| 253

| 202

| 102

| 62

| 20

'04

'03

'02

'01

'00

'99

'98

'97

'96

'95

'94

'04

'03

'02

'01

'00

'99

'98

'97

'96

'95

'94

| n/a

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

3 7

Expenses

CI incurs two distinct types of expenses: expenses incurred on behalf of the funds it administers that are

generally recovered from the funds; and all other expenses incurred in the management of the business that

are not recovered from the funds.

Expenses incurred on behalf of the funds are reflected in CI’s overall selling, general and administrative (“SG&A”)

expenses. The amount of expenses recovered from funds is reported as a reduction of total SG&A expenses.

The SG&A expenses remaining after deducting the expenses recovered from funds is disclosed as net SG&A.

Net SG&A expenses are primarily marketing expenses incurred to support CI funds, Assante proprietary

funds and expenses associated with the dealership operation of Assante (and IQON after June 3, 2004).

In general, marketing expenses specific to CI funds are managed in proportion to CI’s assets under

management. Net SG&A expenses relative to assets are higher for Assante than for CI funds due to the more

extensive support provided to Assante funds and the complexities of a dealership operation. CI anticipates

that the relative cost of the Assante operations will decrease over the next few years as economies of scale

are achieved and changes to operating technology are implemented to improve efficiency.

In addition to net SG&A expenses, major expenses include investment advisor fees, investment dealer fees,

trailer fees and selling commissions paid to financial advisors.

Expenses related to portfolio management are recorded as investment advisor fees. Advisory fees paid to

investment advisors, other than those employed directly by CI, are generally paid on the basis of a percentage

of assets under management. CI’s advisors have different fee agreements and therefore the mix of funds will

affect the overall expense level.

In addition, BGAM and Altrinsic Advisors will generally become more profitable as their assets under

management increase. CI, through its equity ownership, participates in the profitability of these companies,

effectively reducing its investment advisory expenses as a percentage of assets under management.

Investment dealer fees represent commissions paid to Assante financial advisors (and IQON financial advisors

after June 3, 2004) and are based on a percentage of administration fees earned on assets under administration.

Payments are determined according to a grid that provides payments at higher percentages as the individual

advisor’s assets under administration increase.

Trailer fees are paid 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 also paid to Assante financial advisors on Assante

funds for a similar reason. Trailer fees are calculated as a percentage of average assets and vary with overall

assets under management. Trailer fees are not paid on Class F and Class I mutual funds and institutional assets.

Commissions paid from CI’s cash resources on the sale of funds on a deferred sales charge basis are, for

financial reporting purposes, amortized evenly over the 84 months immediately following the sale of the

funds (36 months prior to June 1, 2003, as described below). The actual cash payment in any period is

reported in the Consolidated Statements of Cash Flows in Investing Activities as sales commissions.

Commencing on June 1, 2003, CI revised its estimate for the period of amortization of deferred sales

commissions from 36 months to 84 months. The revised period was determined by management to be

consistent with the period over which CI currently benefits from sales commissions paid and it improves the

comparability of CI’s financial results with other companies.

Commissions incurred on certain CI assets were financed historically by limited partnerships. The expenses for

commissions financed by limited partnerships are reported as distribution fees paid to limited partnerships and

are calculated as a percentage of the assets. The effective amortization period for commissions financed by

limited partnerships is the life of the CI Master Limited Partnership, which will terminate by 2016.

Net SG&A | years ended May 31 : % of average AUM

'04

'03

'02

'01

'00

'99

'98

'97

'96

'95

'94

| 0.16*

| 0.07*

| 0.08

| 0.11

| 0.15

| 0.20

| 0.24

| 0.25

| 0.32

*excluding options-related expense

Trailer Fees | years ended May 31 : % of average AUM

| 0.56

| 0.53

| 0.54

| 0.47

| 0.49

| 0.48

| 0.46

| 0.49

| 0.50

| 0.49

| 0.45

'04

'03

'02

'01

'00

'99

'98

'97

'96

'95

'94

'04

'03

'02

'01

'00

'99

'98

'97

'96

'95

'94

DSC Financed | years ended May 31 : $millions

| 126

| 79

| 97

| 86

| 84

| 46

| 41

| 17

| n/a

| 200

| 252

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

3 9

Other Items

Operating profit margin, EBITDA and free cash flow, as defined below, are non-GAAP (generally accepted

accounting principles) earnings measures that do not have any standardized meaning prescribed by GAAP.

They are therefore unlikely to be comparable to similar measures presented by other issuers. However,

management believes that most shareholders, creditors, other stakeholders and investment analysts prefer

to include the use of these performance measures in analyzing CI’s results.

CI monitors its operating profitability on assets under management by measuring the operating margin

calculated as a percentage of average retail managed assets. CI’s operating profit margin is defined as

management fees from CI’s funds (including Assante funds) less investment advisor fees, trailer fees, and net

SG&A expenses, calculated as a percentage of average retail managed assets. This measure allows CI to

manage profitability when changes in the market value of assets under management affect revenue flows

and permits adjustments to discretionary expenditures in order for CI to maintain its margins.

Prior to April 9, 2003, all stock options were share-settled. Hence, the diluted earnings per share were

calculated using the treasury stock method. For the period from April 9, 2003 forward, there is no dilution

because the potential expense from stock options is recorded as a liability, following the amendment to the

option plan which allows option holders to elect cash settlement. The calculation of diluted earnings per

share for the fourth quarter in fiscal 2003 is based on a pro-rated “diluted” weighted average number of

shares using the treasury method for the first 39 days and basic shares outstanding for the remaining 53 days.

Y E A R E N D E D M AY 3 1 , 2 0 0 4

C O M P A R E D W I T H Y E A R E N D E D M AY 3 1 , 2 0 0 3

Market Review

Global markets for the 12-month period ended May 31, 2004, experienced their strongest gains since fiscal

2000, and a reversal from the declines experienced in fiscal 2001, 2002 and 2003.

For fiscal 2004, the S&P/TSX Composite Index rose 24.9%, the S&P500 Index rose 17.8%, the Dow Jones

Industrial Average rose 17.1%, the NASDAQ Composite Index rose 24.5% and the MSCI World Index rose

23.5%. (All index returns are in Canadian dollars.) From a Canadian perspective, the gains in foreign markets were

offset in part by the strengthening Canadian dollar, which rose 0.3% to $0.73 U.S. during the year. The increases

in global equity markets had a positive impact on overall mutual fund sales and a positive effect on CI’s funds.

Industry net sales of mutual funds as reported by IFIC were strong year over year, with $14.6 billion in net

sales for the year ended May 31, 2004. This compared with industry net redemptions of $7.9 billion for the

year ended May 31, 2003. Though sales and assets reported by IFIC do not give a comprehensive view of

CI’s sales and assets, they are helpful as an indicator of trends impacting a significant portion of CI’s business.

Operating Review

Acquisition Highlights – Fiscal 2004

CI’s operating and financial results for fiscal 2004 include the acquisition of Synergy, Skylon and Assante.

The acquisition of Synergy closed on October 6, 2003. CI paid total consideration of $117 million, consisting

of $94 million in cash and 1.66 million common shares of CI. Synergy had approximately $55 million of

available tax losses. At closing, Synergy had total mutual fund assets of $1.6 billion.

The acquisition of Skylon, a firm specializing in labour-sponsored funds and structured products, closed on

November 7, 2003. CI paid total consideration of approximately $34 million in cash. Skylon had approximately

$6.4 million of available tax losses. At closing, Sklyon’s assets under management consisted of $167 million

in labour-sponsored funds and $613 million in structured products and administered assets.

The acquisition of Assante closed on November 14, 2003. CI paid $887 million in the form of $310 million

in cash and 38.8 million common shares of CI. The cash payment was reduced by $160 million of Assante

debt outstanding at closing. Assante had $18.1 billion in assets under administration at closing, including

$7.2 billion in assets under management.

In order to maintain its 34% interest in CI after the issuance of CI shares to purchase Synergy and Assante,

Sun Life subscribed for a total of 20.7 million common shares of CI for total consideration of $265.3 million

in cash. CI used these proceeds to fund, in part, the cash component of the above transactions.

For details of the accounting treatment of these acquisitions, reference is made to Note 4 accompanying the

financial statements for the year ended May 31, 2004.

As a result of the acquisitions in fiscal 2004, CI now has three reportable segments: Asset Management, Asset

Administration and Other. These segments reflect CI's internal financial reporting and performance measurement.

The Asset Management segment includes the operating results and net assets of CIMF and Assante Asset

Management Ltd., which derive their revenues principally from the fees earned on the management of several

families of mutual and segregated funds.

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The Asset Administration segment includes the operating results and net assets of Assante Advisory Services

Ltd. and most of its subsidiaries, including Assante Capital Management Ltd. and Assante Financial

Management Ltd. These companies derive their revenues principally from commissions and fees earned on

the sale of mutual funds and other financial products, and ongoing service to clients.

The Other segment mainly comprises revenues earned from managed institutional assets and corporate activities.

In the prior fiscal year, CI operated as one reportable segment.

The majority of CI’s income relates to the Asset Management segment, which offers funds through brokers,

independent financial planners (including IQON financial advisors), insurance advisors, Assante financial

advisors, and Clarica financial advisors. The revenues and expenses of these segments are summarized in Note

13 to the financial statements and described in the detailed discussion of revenues and expenses below.

Assets and Sales

Total fee-earning assets, which includes mutual and segregated funds, Assante funds, managed labour-

sponsored funds and structured products (collectively retail managed assets), managed institutional assets,

other administered funds and Assante assets under administration (net of Assante funds) at May 31, 2004,

were $61.3 billion, up 85% from $33.1 billion at May 31, 2003. CI’s assets as reported by IFIC were

$40.3 billion at May 31, 2004. This figure is $4.1 billion below CI’s actual $44.4 billion in non-institutional

managed assets because IFIC uses a narrow definition of assets under management that does not include

CI’s $2.8 billion of segregated funds, hedge funds, and pooled funds, $0.2 billion of managed labour-

sponsored funds and $1.1 billion of structured products.

Average total retail managed assets were $37.2 billion in fiscal 2004, an increase of 36% from $27.3 billion

in fiscal 2003. 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. The increase in CI’s assets was directly attributable

to the acquisition of $9.6 billion in assets from the Assante, Skylon and Synergy acquisitions and the increase

in the market value of CI’s funds resulting from the increase of all major equity markets around the world

in fiscal 2004.

Gross sales of CI’s retail managed funds were $6.896 billion for the year ended May 31, 2004, compared with

$4.144 billion for the same period in 2003. Net sales (gross sales less redemptions) were $920 million for the

year ended May 31, 2004, compared with $596 million of net redemptions for the same period in 2003. The

significant increase in CI’s net sales from 2003 reflects a combination of decreased redemptions and increased

gross sales of CI’s funds, three successful structured product offerings and strong sales of Assante funds.

Improved equity markets, expanded distribution, and improved fund performance all contributed to the

increase in gross sales of CI funds.

Revenues

Total revenues increased 46.6% to $844.7 million for the year ended May 31, 2004, from $576.2 million for

the same period in 2003. Revenues from management fees were $711.0 million for the year ended May 31,

2004, up 41.2% from $503.6 million in 2003. The increase was attributable to management fees on the

increased assets from the Assante/Synergy/Skylon acquisitions, market-related increases in asset levels and

changes in asset mix, as there were higher levels of equity funds, which have higher management fees than

money market or bond funds, offset partly by a higher proportion of Class I and Class F funds that have lower

management fees. As a percentage of average retail managed assets, management fees were 1.91% for

fiscal 2004, up from 1.84% in fiscal 2003.

Administration fees are fees earned on assets under administration in the Assante business and fees earned

from certain labour-sponsored funds and the administration of third-party business. These have increased

from $4.9 million last year to $58.0 million this year. The primary contribution to the increase was the

revenues earned by Assante on assets under administration ($53.3 million versus nil in the prior year). It should

be noted that these administrative fees represent only the period from closing on November 14, 2003 to May

31, 2004 and that they are expected to be significantly higher in fiscal 2005. In addition, in fiscal 2005,

administration fees will include fees earned on IQON assets under administration. Administration fees should

be considered in conjunction with investment dealer fees.

Redemption fees fell from $50.3 million in fiscal 2003 to $43.4 million in fiscal 2004 as a result of lower

overall redemptions, a decreased level of assets which are subject to redemption fees, and the aging of assets,

which results in lower applicable redemption fees.

Performance fees totalled $2.8 million for the year ended May 31, 2004, versus $0.1 million in 2003, due to

the positive performance of certain CI hedge funds. This reflects the positive returns in equity markets in fiscal

2004, in contrast to the prior fiscal year.

CI incurred a gain on the sale of marketable securities of $0.7 million in fiscal 2004, compared with a loss in

fiscal 2003 of $5.0 million. The gain in fiscal 2004 arose primarily from the sale of marketable securities

representing seed capital investments in certain CI funds.

Other income was $28.8 million for fiscal 2004, up 29.1% from $22.3 million in fiscal 2003. The largest

component of other income was income from CI’s U.S. subsidiary, BGAM, of $19.0 million, up 19.5% from

$15.9 million in fiscal 2003, reflecting increased institutional business. In addition, Assante contributed other

income of $7.3 million (nil in fiscal 2003).

Total revenues for the year ended May 31, 2004 were $763.4 million, $111.5 million and $20.2 million for the

Asset Management segment, Asset Administration segment and the Other segment, respectively.

Intersegment transactions totalled $50.5 million for the payment of trailer fees and deferred sales

commissions from the Asset Management segment to the Asset Administration segment.

Expenses

Total SG&A expenses were $198.2 million in fiscal 2004, compared with $152.8 million in fiscal 2003.

Included in total SG&A expenses in fiscal 2004 is $40.0 million ($42.8 million in fiscal 2003) of compensation

expense related to CI’s decision to amend the Employee Incentive Stock Option Plan in fiscal 2003 to allow

option holders to elect to receive cash from the company rather than purchasing optioned shares that would

be sold in the open market. The amendment applied to the existing 11,764,922 options outstanding at

April 9, 2003, and future option grants. At May 31, 2003, based on the price of CI shares of $11.90 per

share, the potential payment on all options outstanding, including a portion of unvested amounts, was

$31.2 million. At May 31, 2004, based on the price of CI shares of $16.44 per share, the potential payment

on all options outstanding, including a portion of unvested amounts has increased by an additional

$14.9 million to $46.1 million. Under Canadian GAAP, the accounting standard for cash-settled options

requires the potential cash payment to be accrued as a liability over the vesting period of the option, adjusted

for any actual payments made. As a result, CI recorded an expense in fiscal 2004 of $40.0 million, of which

$23.5 million was from option holders electing cash settlement, $1.6 million from option holders electing

share settlement and $14.9 million representing the change in liability reported at May 31, 2004, for

outstanding vested options and for a portion of unvested options. Though CI acknowledges that the option

expense is clearly a cost of business that is tied to the performance of CI’s common share price, the

financial results presented below both include and exclude the expense to aid the reader in conducting a

comparative analysis.

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Net of the expense related to options, total SG&A expenses were $158.2 million, up 43.8% from

$110.0 million in fiscal 2003. The increase in SG&A expenses is attributable to the additional costs incurred

by CI as a result of the acquisition of Assante/Synergy/Skylon. These costs represent a combination of fund

operating expenses and general operating expenses as described below.

Expenses incurred but recovered as operating expenses of the funds rose 19.1% to $109.8 million for the

year ended May 31, 2004, compared with $92.2 million in 2003. As a percentage of assets under

management, expenses charged to mutual funds decreased 11.8% from 0.34% in fiscal 2003 to 0.30% in

fiscal 2004. The decrease in overall expenses resulted from the integration of Synergy and Skylon into CI,

which has led to improved operating efficiencies, combined with cuts in general expenses achieved through

reductions in staff numbers and in variable costs. The benefits of these cost reductions will not be fully

realized until fiscal 2005, as the costs of integration become fully amortized. Further improvement in

efficiencies resulted from the increase in asset levels generated by strong equity markets, as costs were being

allocated over a larger asset base. Improvements in the operating expenses of the Assante funds were not

material in fiscal 2004, as the conversion of the Assante funds will not be completed until mid-fiscal 2005.

This conversion, along with other operating enhancements currently being implemented, is expected to

produce significant reductions in the operating expenses of the Assante funds in fiscal 2005.

Net SG&A expenses were $88.4 million, up from $60.5 million in the prior fiscal year. As explained above,

fiscal 2004 included $40.0 million in option-related expenses, compared with $42.8 million in fiscal 2003.

As a percentage of retail managed assets, the net SG&A expenses increased to 0.24% in fiscal 2004 from

0.22% in fiscal 2003. Excluding the option-related expense, net SG&A expenses were $58.7 million or

0.16% of assets under management in fiscal 2004, compared with $18.9 million or 0.07% in fiscal 2003.

The majority of the increase in net SG&A expenses was due to SG&A expenses of the acquired Assante

operations. Assante’s asset management and dealership activities require significantly more support than do

CI’s fund operations.

Net SG&A expenses related to CI’s business excluding the option expense and Assante were $20.1 million

for the year, up from $18.9 million in the prior year. As a percentage of retail managed assets (excluding

Assante), this net SG&A expense was 6.1 basis points, compared with 6.9 basis points in fiscal 2003. The

increase reflected the expansion in the product lineup and assets, including the Skylon business. Net SG&A

expenses attributable to the Assante business were $33.5 million, of which $15.4 million was attributable

to the Asset Management segment and $18.1 million was attributable to the Asset Administration segment.

Investment advisor fees increased 15.8% from $50.6 million in fiscal 2003 to $58.6 million in fiscal 2004

due to higher levels of assets under management. As a percentage of average retail managed assets,

investment advisor fees were 0.16% in fiscal 2004, down from 0.19% in fiscal 2003. CI was able to reduce

advisor fees by eliminating or renegotiating some of the sub-advisor relationships maintained by Synergy,

Skylon and Assante that were at higher fee levels than CI’s existing arrangements.

Investment dealer fees are the direct costs attributable to the operation of the Assante dealership (and IQON

starting in the first quarter of fiscal 2005), including payments to financial advisors based on the revenues

generated from assets under administration. These fees were $39.7 million in fiscal 2004 from the date of

the Assante acquisition on November 14, 2003 to May 31, 2004, and should be viewed in conjunction with

administrative fee revenue specific to Assante of $53.3 million as described above when calculating the gross

contribution of the dealership operation before general and operating expenses.

Trailer fees increased from $147.4 million to $197.8 million in fiscal 2004. This overall increase resulted

from increased assets under management due to the acquisitions in fiscal 2004 and from the market

appreciation of the funds, partly offset by an increase in the percentage of CI’s mutual fund assets in Class

F and Class I funds, which do not pay trailer fees. As a percentage of average assets, trailer fees were 0.53%

in fiscal 2004, compared with 0.54% in the prior fiscal year.

CI’s operating margin on the asset management business (which excludes costs related to the Assante

dealership operation), as a percentage of average retail managed assets and adjusted for the $40.0 million

option expense as discussed above, was 1.13%, up from 1.05% in the prior fiscal year. The increase resulted

from higher management fees, lower trailer fees, lower investment advisor fees and offset in part by higher

net selling, general and administrative expenses.

Distribution fees to limited partnerships totalled $5.6 million, down from $6.8 million in fiscal 2003. As a

percentage of average retail managed assets, distribution fees to limited partnerships decreased from

0.025% to 0.015%, reflecting a lower percentage of CI’s overall assets under management that have been

financed by limited partnerships.

Amortization of deferred sales commissions represented CI’s largest expense decrease, falling from

$169.9 million in fiscal 2003 to $34.0 million in fiscal 2004. The decline reflected the completion of the

amortization of the majority of the deferred sales commissions paid during CI’s record sales in fiscal 2000

and fiscal 2001, and the revision commencing on June 1, 2003 of CI’s accounting estimate for the period

of amortization of deferred sales commissions from 36 months to 84 months. Had CI not changed

the accounting estimate, amortization of deferred sales commission in fiscal 2004 would have been

approximately $105.1 million reducing the May 31, 2004 balance sheet value of unamortized deferred sales

commissions to $182.8 million, reducing income before tax by $71.1 million and reducing net income

by $45.5 million. As this is a non-cash item, there would be no affect on CI’s cash position.

Interest expense in fiscal 2004 was $8.6 million, up from $5.5 million in fiscal 2003, reflecting higher

average debt levels.

Other expenses rose from $11.4 million in fiscal 2003 to $13.5 million in fiscal 2004. Other expenses

should be viewed in conjunction with revenues recognized under other income of $28.8 million. The primary

contributors to other expenses were expenses associated with CI’s institutional business, which rose from

$9.0 million in fiscal 2003 to $10.3 million in fiscal 2004. Expenses attributable to CI’s third-party back-office

processing fell to nil in fiscal 2004 from $1.5 million in the prior year. In fiscal 2003, the majority of CI’s

third-party processing arrangements were terminated and no significant income or expense of this type is

anticipated going forward.

Minority interest in CI’s earnings was $5.4 million for the year ended May 31, 2004, compared with

$4.1 million in 2003. This reflects the 34% interest of JBS Advisors, Inc. in BGAM. The institutional portion

of earnings to which minority interest applies is the institutional revenues of $19.0 million recorded in other

income, less institutional expenses of $10.3 million recorded in other expenses as described above, which

results in $8.7 million of institutional earnings before minority interest.

Income

Income before income taxes was $391.7 million for fiscal 2004, an increase of 226.4% from $120.0 million

in the prior year. The income tax provision increased from $49.0 million to $170.7 million in fiscal 2004, of which

$86.3 million was represented by current taxes and $84.4 million by future taxes. The high level of future taxes

resulted from the timing differential between the expensing of sales commissions and the amortization of

the commission and the utilization of $55.0 million of tax losses available on the acquisition of Synergy.

The provision for income taxes for the year ended May 31, 2004 reflects an effective tax rate of 43.6%,

versus 40.8% in the prior year. The income tax provision was negatively impacted by substantively enacted

increases to income tax rates resulting in a $28.9 million non-cash charge. This item pushed the effective tax

rate up from CI’s statutory tax rate of 36.4% this year, which was down from 37.8% in 2003.

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Income for the year ended May 31, 2004, was $221.0 million ($0.82 per share and $0.82 per diluted share),

compared with $71.0 million ($0.32 per share or $0.31 per diluted share) in 2003. The increase reflects CI’s

higher level of assets under management, which increased operating profitability, combined with the

significant decline in amortization of deferred sales commissions.

Net income in fiscal 2004 adjusted to eliminate the effect of the option expense was $239.4 million

($0.89 per share and $0.89 per diluted share), compared with $101.7 million ($0.45 per share and $0.45 per

diluted share) in fiscal 2003.

For the year ended May 31, 2004, earnings before interest, taxes, depreciation and amortization (EBITDA)

totalled $442.2 million ($1.65 per share and $1.65 per diluted share). This compares with $297.4 million

($1.32 per share or $1.30 per diluted share) in the prior fiscal year. EBITDA in fiscal 2004 adjusted to

eliminate the effect of the option expense for the reason described above were $471.9 million ($1.76 per

share or $1.76 per diluted share), compared with $339.1 million ($1.51 per share or $1.48 per diluted share)

in fiscal 2003.

In fiscal 2004, CI granted 2.3 million stock options to employees and directors of the company. An estimate

of the value of the options issued over their five-year life based on the projection of the average option life

and corresponding stock volatility along with current dividend and interest rate assumptions is approximately

$5.8 million or 1.3% of fiscal 2004 EBITDA. This estimate of $5.8 million is not reflected in the financial

statements. As CI accounts for its stock options as a liability, reflecting their cash-settlement feature, the

actual expense will be determined by the price at exercise less the strike price, which may be more or less

than $5.8 million. If option holders elect a cash payment for their options, the payment will be deductible

for tax purposes based on current applicable tax laws.

Financing and Liquidity

CI’s capital requirements are primarily to finance commissions arising from the sale of funds on a deferred

sales charge basis. In fiscal 2004, CI financed $125.9 million in sales commissions with its own cash

resources, up from $78.9 million in fiscal 2003. In addition, CI used $21.4 million to repurchase 1.7 million

common shares of CI Fund Management Inc. at an average price of $12.74 per share. In addition, CI’s

ownership of shares of Assante prior to the acquisition reduced the number of shares CI issued, providing

to CI the benefit of having effectively repurchased an additional 5.0 million shares at an average price of

$11.10 per share. This compares with $104.2 million used to repurchase 10.1 million common shares at an

average price of $10.30 per share in fiscal 2003. On May 31, 2004, the closing price of CI Fund

Management Inc. was $16.44 per common share.

CI also had net purchases of marketable securities in the amount of $32.4 million in fiscal 2004, resulting

in total marketable securities of $28.8 million at May 31, 2004. Marketable securities are comprised of seed

capital investments and other portfolio investments.

Capital expenditures incurred during the year ended May 31, 2004, of $7.4 million were primarily for

computer hardware and software related to the improvement of systems technology, to support new

systems for portfolio trading, reporting and compliance and related to the Assante operations. In fiscal 2004,

as in prior years, capital assets for use in the operations of CI’s funds were leased with such payments

recovered over time through expenses recovered from the funds. Future payments are included under Note

14 – “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements.

In fiscal 2004, CI paid $108.8 million in dividends to holders of CI common shares, which amounted to

45.9% of free cash flow as described below. Free cash flow (operating cash flow less sales commissions and

minority interest for the year) was $237.2 million, up 45.9% from $162.6 million in fiscal 2003.

As discussed earlier, in fiscal 2004 CI acquired Skylon, Synergy and Assante for total cash consideration of

$438.0 million and the issuance of 40.5 million common shares of CI.

All of the above funding requirements were met by cash, short-term investments and marketable securities

of $52.6 million at May 31, 2003, cash provided by operating activities in fiscal 2004 of $368.5 million, the

issuance of 0.2 million common shares of CI Fund Management Inc. from the exercise of stock options at

an average price of $4.07 per share for total gross proceeds of $0.6 million, the issuance of 20.7 million

shares to Sun Life for proceeds of $265.3 million, and the use of CI’s $500 million line of credit with a

Canadian chartered bank.

CI has sufficient cash flow to meet anticipated capital expenditures, deferred sales commissions and dividends.

At May 31, 2004, CI had cash and marketable securities totalling $53.9 million, and $254.8 million available

under the $500 million line of credit ($245.2 million drawn at an average all-in cost of 2.31%).

At May 31, 2004, CI’s retail managed assets had a current redemption value of $817 million ($2.77 per

share) at May 31, 2004, compared with $704 million ($2.99 per share) at May 31, 2003.

CI’s business does not require the use of any financial instruments for hedging risk other than to hedge

the currency risk associated with seed capital investments in U.S. dollar-denominated hedge funds of CI’s

money management subsidiaries. On May 31, 2004, CI had a $9.5 million US currency forward contract

outstanding to offset its U.S. investment in a hedge fund. On June 30, 2004, this contract was unwound

with a realized gain of $0.3 million. Debt outstanding is borrowed on the basis of a floating interest rate.

Levels of interest paid are significantly below CI’s cash flow and the potential impact of increased interest

costs due to an increase in interest rates is minimal and therefore the exposure is not hedged. The existing

loan agreement provides CI with the option of fixing interest rates, should CI change its view on its exposure

to rising interest rates. CI has no other off-balance sheet arrangements or financial instruments.

Related Party Transactions

CI’s only related party is Sun Life as a result of its 34% ownership of CI’s outstanding common shares. In

fiscal 2003, in conjunction with the acquisition of Spectrum and Clarica Diversico, CI and Sun Life entered

into an arrangement whereby, among other things, Sun Life would distribute CI’s funds through Sun Life’s

Clarica sales force on a preferred basis and that CI would perform essentially all administrative and

management services to Sun Life’s Clarica and SunWise segregated funds. These activities are in the normal

course of business for CI and Sun Life is compensated at normal commercial rates as a distributor of fund

products as is disclosed in the funds’ prospectus. These payments are in the form of commissions on sales

of funds on a deferred sales charge basis ($32.0 million versus $21.2 million in fiscal 2003) and trailer fees

($58.5 million versus $52.9 million in fiscal 2003).

In addition, CI had a sub-advisory arrangement with Sun Life’s U.S. based investment management

company, MFS Institutional Advisors, Inc. (“MFS”) of Boston, Massachusetts, who was a sub-advisor on a

number of CI’s funds. MFS was paid sub-advisory fees based on assets managed and at commercial rates.

The sub-advisory arrangement with MFS was terminated in December 2003 in conjunction with CI’s efforts

to consolidate investment advisory relationships. Payments to Sun Life for sub-advisory services were

$0.4 million ($2.1 million in fiscal 2003).

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Market Review

Global markets, though up strongly on a year-over-year basis, during CI’s quarter ended May 31, 2004,

experienced marginal gains to losses – a reversal from the positive trend of the prior three quarters. During the

quarter, the S&P/TSX Composite Index declined 3.8%, the S&P 500 Index rose 0.3%, the Dow Jones Industrial

Average declined 1.3%, the NASDAQ Composite Index was flat and the MSCI World Index rose 0.3%. (All

index returns are in Canadian dollars.) From a Canadian perspective, the performance in foreign markets was

positively affected by the decline in the Canadian dollar, which fell 2.0% to $0.73 U.S. during the quarter.

Notwithstanding the market performance, industry net sales of mutual funds as reported by IFIC continued

to trend upward, with $5.9 billion in net sales for the quarter ended May 31, 2004. This compared with

industry net redemptions of $2.4 billion for the quarter ended May 31, 2003, indicating a positive trend for

the overall mutual fund industry which represents a significant portion of CI’s business.

Operating Review

CI’s operating and financial results for the quarter ended May 31, 2004 include the results of Synergy, Skylon

and Assante for the entire period, as all acquisitions closed in the second quarter of fiscal 2004. For details

of the accounting treatment of these acquisitions, reference is made to Note 4 to the financial statements

for the year ended May 31, 2004.

CI’s total managed assets at May 31, 2004, were $49.3 billion, up 52.6% from $32.3 billion at May 31, 2003,

and down 0.6% from $49.6 billion at February 29, 2004. The increase of $17.0 billion from May 31, 2003,

was attributable to $9.6 billion of acquired assets, market appreciation and increased institutional assets.

At May 31, 2004, CI had total fee-earning assets of $61.3 billion, comprised of managed assets of

$49.3 billion, $11.3 billion of assets under administration at Assante (net of $8.1 billion of assets included in

managed assets), and $0.7 billion of other administered assets, which were primarily labour-sponsored funds.

CI’s managed assets of $49.3 billion were comprised of $35.1 billion in mutual and segregated funds

($28.6 billion at May 31, 2003), $8.1 billion of assets under management in proprietary funds at Assante

(nil at May 31, 2003), $4.9 billion in institutional assets ($3.5 billion at May 31, 2003), $0.2 billion of

managed labour-sponsored fund assets (nil at May 31, 2003) and $1.0 billion in structured products

($0.2 billion at May 31, 2003). The $35.1 billion in mutual and segregated funds included $1.9 billion in

Class I funds (for which CI negotiates the management fees with institutional clients) and $0.3 billion

in Class F funds (which have reduced management fees, but pay no trailer fees to financial advisors). At

May 31, 2003, Class I and Class F funds had $1.3 billion and $0.2 billion in assets, respectively.

Average assets for the quarter were approximately $44.4 billion, up 60% from $27.7 billion for the quarter

ended May 31, 2003.

CI had overall net sales of retail managed assets during the quarter of $502 million. This compares with

$320 million of net redemptions for the quarter ended May 31, 2003. During the quarter, net sales were as

follows: CI segregated and mutual funds, $267 million; Assante proprietary products, $162 million; and

$73 million in labour-sponsored funds and structured products.

During the quarter, CI continued to be one of the industry’s leaders for performance as measured

by Morningstar Canada fund rankings. At May 31, 2004, CI had 25 funds with the top five-star rating,

maintaining its position of being ranked as one of the top two companies in the industry over the past two

years based on total five-star funds.

Revenues

Total revenues for the quarter ended May 31, 2004, were $263.9 million, compared with $143.7 million in the

prior year – an increase of 83.6%. The increase resulted from the higher level of fee-earning assets produced

by market appreciation and the acquisitions of Synergy, Skylon and Assante in the quarter ended November

30, 2003. The most significant component of revenues for the quarter was management fees, which

increased by 69.8% from $128.0 million in the quarter ended May 31, 2003 to $217.3 million in fiscal 2004.

Administration fees are predominantly fees earned on assets under administration in the Assante business,

but also include fees earned from certain labour-sponsored funds and the administration of third-party

assets. Administration fees rose from $1.2 million in the prior year to $25.5 million, primarily due to revenues

earned by Assante on assets under administration ($24.3 million versus nil in fiscal 2003). Administration

fees from the Assante business should be considered in conjunction with investment dealer fee expenses,

which represent payments to Assante investment advisors on assets under administration and which are

described below.

Redemption fees for the quarter increased slightly from $11.7 million to $11.9 million in fiscal 2004, due to

the higher level of assets subject to redemption fees as a result of the acquisition of Assante and Synergy,

offset partly by a decline in overall redemptions of CI funds that are subject to redemption fees and by the

aging of the assets subject to redemption fees, which means they have lower applicable redemption fee rates.

Performance fees realized during the quarter were negligible, as they were in the prior year. Performance

fees are generally based on calendar year results for the funds that generate them and therefore generally

are recognized in CI’s third quarter results.

Other income was $8.9 million for the quarter ended May 31, 2004, up 117% from $4.1 million in the prior

year. This was primarily income from CI’s U.S. subsidiary, BGAM, of $5.1 million, up from $3.7 million in the

prior year due to increased institutional assets, and the non-administrative fee income earned by Assante of

$3.5 million (nil in the prior year).

There was a gain on marketable securities of $0.3 million during the period, compared with a realized loss

of $1.2 million in the prior year.

Intersegment revenues for the quarter totalled $233.0 million for the Asset Management segment,

$50.8 million for the Asset Administration segment and $4.0 million for the other segment. Intersegment

elimination of total revenues were $23.8 million for the quarter relating to the payment of deferred sales

commissions and trailer fees from the Asset Management segment to the Asset Administration segment.

Expenses

Selling, general and administrative (“SG&A”) expenses fell 6% from $69.0 million to $65.1 million in fiscal

2004. Included in SG&A expenses is $15.2 million related to stock option expense ($42.8 million in fiscal

2003). Under the accounting rules for options with a cash settlement election, the potential cash payment

is accrued over the vesting period of the option, adjusted for any payments made. The $15.2 million expense

reflected the impact of a $1.39 increase in the price of CI common shares from $15.05 at February 29, 2004,

to $16.44 at May 31, 2004. The $42.8 million of compensation expense in fiscal 2003 related to CI’s

decision to amend the Employee Incentive Stock Option Plan to allow option holders to elect to receive cash

from the company rather than purchasing optioned shares that would be sold in the open market was

discussed above. Net of expenses related to stock option expense, SG&A expense rose 90% from $26.2 million

to $49.9 million in fiscal 2004. The increase was primarily related to expenses associated with the acquisitions

of Assante, Skylon and Synergy.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

4 9

A large component of the SG&A expenses are expenses incurred in the operation of the mutual and

segregated funds (which are recovered from the funds generally as incurred), which rose from $24.0 million

to $30.8 million. The increase in the cost of fund operations reflected the additional cost of the Synergy and

Assante assets acquired in fiscal 2004. Due to the achievement of cost synergies on the acquired assets,

combined with the benefits of economies of scale created by the market appreciation of the CI funds, fund

operating expenses as a percentage of assets under management declined 20% to 27.6 basis points for the

quarter ended May 31, 2004, from 34.4 basis points in the quarter ended May 31, 2003. This reduction

benefits unitholders in CI’s funds.

SG&A expenses, net of expenses recovered from the funds, fell from $45.0 million in fiscal 2003 to

$34.3 million in fiscal 2004. Net SG&A expenses include the effect of the option expense of $42.8 million

in fiscal 2003 and $15.2 million in fiscal 2004 as described above. Net SG&A expenses for the fourth quarter

of fiscal 2004 excluding this expense were $23.1 million ($3.3 million in the prior year). The majority of the

increase in net SG&A expenses was due to SG&A expenses of the acquired Assante operations pertaining

to its asset management and dealership activities. Net SG&A expenses related to CI’s business excluding the

option expense and Assante were $5.8 million for the quarter, up from the $3.3 million in the prior year,

due to CI’s expanded product offerings such as the Skylon structured products. Net SG&A expenses

attributable to the Assante business were $15.1 million, of which $7.2 million was attributable to the Asset

Management segment and $7.9 million attributed to the Asset Administration segment.

Investment advisor fees were $17.5 million for the quarter, up 38% from $12.7 million. As a percentage of

assets under management, the cost of investment advisor fees declined from 18.2 basis points to 15.7 basis

points. This was achieved through cost efficiencies realized by rationalizing investment management activities,

efficiencies gained from market appreciation of the managed assets and changes to existing contracts.

Investment dealer fees are the direct costs attributable to the operation of the Assante dealership, including

payments to financial advisors based on the revenues generated from assets under administration. These

fees were $18.1 million (nil for the quarter ended May 31, 2003) and should be viewed in conjunction with

administration fee revenue of $25.5 million as described above when calculating the gross contribution of

the dealership operation before general and operating expenses.

Trailer fees rose from $36.3 million in fiscal 2003 to $57.4 million in fiscal 2004, an increase of 58%. This

increase, which was slightly below the 60% increase in average assets, reflected the trailer fees on the

Skylon, Synergy and Assante assets, as well as market appreciation of CI’s funds.

Distribution fees to limited partnerships declined from $1.4 million to $1.3 million due to the redemption of

assets that had commissions funded by the limited partnerships. CI has not financed commissions with

limited partnerships since 1994; however, BPI Financial Corporation, which CI acquired in 1999, used limited

partnerships until 1997.

Amortization of deferred sales commissions fell from $26.3 million to $11.0 million. The decline reflected

the completion of the amortization of the majority of the deferred sales commissions from CI’s record

industry-leading sales in 2000 and the revision, commencing on June 1, 2003, of CI’s accounting estimate

for the period of amortization of deferred sales commissions from 36 months to 84 months. Had CI not

changed the accounting estimate, amortization of deferred sales commission, in the fourth quarter of fiscal

2004 would have been $24.6 million, reducing income before tax by $13.6 million and net income by

$8.7 million. The effect on the balance sheet is discussed above under Year Ended May 31, 2004 Compared

With Year Ended May 31, 2003.

Interest expense increased from $1.4 million in fiscal 2003 to $2.2 million in fiscal 2004 because of the higher

levels of debt associated with CI’s acquisition of Skylon, Synergy and Assante. Other expenses increased

from $2.5 million in fiscal 2003 to $3.3 million in fiscal 2004. These expenses are primarily related to the

management of institutional assets at CI’s U.S. subsidiary, which increased to $2.7 million from $2.0 million

in the prior year.

Minority interest for the quarter ended May 31, 2004, was $1.4 million, up slightly from $0.7 million in the

prior year. Minority interest is the 34% of BGAM owned by the investment managers of that firm.

Income

Income before taxes was $116.7 million for the quarter ended May 31, 2004, an increase of 367% from

$25.0 million in the prior year. The income tax provision increased from $14.6 million in fiscal 2003 to

$41.3 million in the current year. The non-deductible stock-based compensation expense of $8.1 million

recorded in the fourth quarter of fiscal 2003 had the effect of increasing the effective tax rate on the

provision for income taxes to 58.6%. In the current quarter, the effective tax rate is 35.4%.

Net income for the period was $75.4 million ($0.26 per share), compared with net income of $10.4 million

($0.04 per share) in the prior year. Adjusted for the option expense, net income was $82.9 million or $0.28

per share, compared with $41.1 million or $0.18 per share in fiscal 2003. This reflected an increase in the

overall profitability of CI and the $15.3 million (pre-tax) reduction in the amount of amortization of deferred

sales commissions.

EBITDA was $133.2 million ($0.45 per share) for the quarter, an increase of 192% from $45.6 million ($0.19

per share) in fiscal 2003. Net of the effect of the option expense, EBITDA was $144.5 million ($0.49 per

share) for the quarter ended May 31, 2004, compared to $87.3 million ($0.37 per share) in the prior year.

Free cash flow for the quarter was $63.7 million, up from $37.1 million in the prior fiscal year. The primary

contributor to the increase in free cash flow was the increase in profitability and in future income taxes,

offset partly by an increase in sales commissions paid during the quarter. Free cash flow was 73% greater

than the $36.9 million dividend ($0.125 per share) paid during the quarter.

CI’s operating margin on its asset management business was 1.16% for the quarter, up from 1.09% in the

prior year. (Although the option expense is a compensation cost, the expense is based on an accrual affected

by the price of CI shares at the end of the quarter and is therefore subject to volatility that may distort the

actual cost that may be incurred over the life of the options.) The increase from the prior year was

attributable to higher management fees, which rose from 1.84% to 1.95%; lower investment advisor fees,

which declined from 0.18% to 0.16%; lower trailer fees, which declined from 0.52% to 0.51%; and higher

net SG&A expenses, which rose from 0.05% to 0.12%.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

5 1

O U T L O O K

During fiscal 2004, global equity markets and investor sentiment improved considerably. This has been

reflected in a rising trend for overall sales of managed assets, including mutual and segregated funds. In

addition, over fiscal 2004, CI has maintained its position in the industry as one of the top two companies

with the most funds with Morningstar Canada’s five-star rating. CI believes that the good performance

of its funds, expanded areas of distribution, and high levels of support, have all been critical in the

improvement of CI’s fund sales in fiscal 2004. However, the increased asset levels of CI’s funds stemming

from general market appreciation have had the greatest impact on the company’s profitability.

Operationally, CI has positioned itself to take advantage of favourable market conditions by consolidating

investment managers, streamlining its fund lineup and focusing on managing operations efficiently to lower

corporate and fund operating expenses. In addition, CI is making significant progress in the enhancement

of the Assante operations, which should create a strong platform for continued growth in this business.

The acquisition of IQON in June 2004 reflects CI’s ongoing commitment to expanding its distribution

capabilities and CI is taking steps to enhance product availability to IQON advisors as part of creating a

platform for continued growth in the IQON business.

The Purchase Agreement providing for the purchase by CI of the Spectrum and Diversico assets from Sun

Life and the issuance of common shares of CI to Sun Life as consideration for the purchase on July 25, 2002,

and a Shareholders’ Agreement between CI, Sun Life and Messrs. Ray Chang and Bill Holland, among other

things, provided that during the period up to July 25, 2005:

Sun Life’s ownership of CI shares would be limited to 34% of the outstanding common shares of CI.

In the event that Sun Life desires to increase its ownership of CI beyond 34% by purchasing additional

shares of CI, it is required to make an offer for all shares. Otherwise, the 34% threshold can only be

exceeded if it arises as a result of CI buying back shares under the normal course issuer bid or other

actions taken by CI;

Sun Life has the right to maintain its proportionate interest in CI, to a maximum of 34%, in the event

that CI issues shares resulting in the dilution of Sun Life’s share position;

Sun Life has the right to nominate two individuals for election as members of the Board of Directors

who Messrs. Chang and Holland would vote for; and

4. Messrs. Holland, Stephen MacPhail and Peter Anderson would be subject to three-year executive

employment agreements with CI.

After the expiry of the standstill agreement on July 25, 2005, the above rights and obligations are terminated

and any Sun Life purchases will be subject only to the normal takeover rules under existing securities laws.

At this time, Sun Life has not provided CI with any indication that it has any intention of changing its current

level of shareholding either prior to or after the expiry of the standstill agreement. Should this situation change,

CI will evaluate what options are in the best interests of all shareholders at that time.

In November 2003, the Ontario Securities Commissions (“OSC”) announced that it was initiating a review of the

Canadian mutual fund industry to determine whether or not there was late trading of funds past the 4:00 p.m.

ET deadline or market timing of mutual funds (defined as trading designed to take advantage of stale-dated

pricing between the 4:00 p.m. ET daily pricing period and non-North American markets that closed in different

time zones). Several mutual fund companies, including CIMF, provided information to the OSC relating to these

issues at that time.

In February 2004, the OSC conducted a follow-up request for more detailed information regarding these

matters, including requesting information from CIMF. In May 2004, the OSC sent out a third request for

information that included a broader review of funds in which frequent trading may have been occurring. CIMF

has provided the OSC with all requested information. CI has found no evidence of any late trading in any of its

funds and has disclosed to the OSC that there has been some instances of frequent trading in some of its funds.

In response to changed market perceptions towards frequent trading, in November 2003, CI implemented

restrictions on frequent trading in its funds that subject certain trades that are redeemed or switched within

30 business days to a 2% fee.

In other matters, the Board of Directors declared a dividend of $0.15 per share payable on September 15, 2004,

to shareholders of record on September 1, 2004. The increased dividend reflects continuing strength in CI’s

profitability and cash flow.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

5 3

C O N S O L I D AT E D
F I N A N C I A L S T AT E M E N T S

M A N A G E M E N T ’ S
R E P O RT T O S H A R E H O L D E R S

Management of CI Fund Management Inc. is responsible for the integrity and objectivity of the consolidated

financial statements and all other information contained in the Annual Report. The consolidated financial

statements have been prepared in accordance with Canadian 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.

William T. Holland

President and Chief Executive Officer

Stephen A. MacPhail

Executive Vice-President, Chief Operating Officer

and Chief Financial Officer

July 5, 2004

C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S

5 5

A U D I T O R S ’
R E P O RT

To the Shareholders of

CI Fund Management Inc.

We have audited the consolidated balance sheets of CI Fund Management Inc. ["CI"] as at May 31, 2004 and

2003 and the consolidated statements of income and deficit and cash flows for the years then ended. These

financial statements are the responsibility of CI'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 CI as at May 31, 2004 and 2003 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,
July 5, 2004.

Chartered Accountants

C O N S O L I D AT E D
B A L A N C E S H E E T S

A S AT M AY 3 1 ,

(in thousands of dollars)

2004

2003

| Fund contracts [notes 4 and 6]
| Goodwill [note 4]
| Other assets [note 8]

| Shareholders' equity
| Share capital [note 10(a)]
| Deficit
| Total shareholders' equity

See accompanying notes

25,117
89,966
28,829
96,438
6,881
27,865
275,096
26,085

253,867
1,010,682
919,203
8,829
2,493,762

116,068
89,966
11,396
46,127
4,272
25,538
293,367
2,712
219,627
442,765
958,471
1,422

1,773
–
50,789
41,143
6,090
9,932
109,727
4,689

145,876
432,582
329,680
3,096
1,025,650

42,014
–
–
31,223
–
24,000
97,237
3,213
120,000
169,653
390,103
2,822

1,740,983
(207,114)
1,533,869
2,493,762

938,657
(305,932)
632,725
1,025,650

On behalf of the Board:

_____________________________

______________________________

William T. Holland
Director

G. Raymond Chang
Director

C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S

5 7

C O N S O L I D AT E D S T AT E M E N T S O F
I N C O M E A N D D E F I C I T

F O R T H E Y E A R S E N D E D M AY 3 1 ,

(in thousands of dollars, except per share amounts)

2004

2003

Current
Future

| Net income for the year

| Deficit, beginning of year
| Cost of shares repurchased in excess of stated value [note 10(a)]
| Dividends declared
| Deficit, end of year

| Earnings per share [note 10(d)]
| Diluted earnings per share [note 10(d)]

See accompanying notes

710,950
58,037
43,375
2,833
690
28,788
844,673

198,174
109,782
88,392
58,583
39,710
197,766
5,594
33,988
1,400
8,588
13,518
447,539
5,390
391,744

86,314
84,386
170,700
221,044

(305,932)
(13,457)
(108,769)
(207,114)

0.82
0.82

503,595
4,949
50,251
112
(4,971)
22,267
576,203

152,766
92,244
60,522
50,574
–
147,422
6,772
169,940
–
5,495
11,411
452,136
4,085
119,982

94,628
(45,638)
48,990
70,992

(236,690)
(75,495)
(64,739)
(305,932)

0.32
0.31

C O N S O L I D AT E D S T AT E M E N T S O F
C A S H F L O W S

F O R T H E Y E A R S E N D E D M AY 3 1 ,

(in thousands of dollars)

2004

2003

Operating Activities
| Net income for the year
| Add (deduct) items not involving cash

| Net change in non-cash working capital

balances related to operations

| Cash provided by operating activities

including transaction costs and cash acquired [note 4]

| Cash used in investing activities

| Net increase (decrease) in cash during the year
| Cash, beginning of year
| Cash, end of year

| Supplemental cash flow information
| Interest paid
| Income taxes paid

See accompanying notes

221,044

70,992

(690)
35,388
6,510
16,479
5,390
84,386
368,507

1,036
369,543

(7,390)
(50,450)
18,052
(125,879)
(325)
–

(412,133)
(578,125)

101,165
(21,392)
265,948
(5,026)
(108,769)
231,926

23,344
1,773
25,117

7,334
86,458

4,971
169,940
2,007
39,283
4,085
(45,638)
245,640

(67,802)
177,838

(254)
(57,677)
44,774
(78,923)
–
823

9,744
(81,513)

61,500
(104,176)
14,192
(4,437)
(64,739)
(97,660)

(1,335)
3,108
1,773

5,421
139,509

C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S

5 9

N O T E S T O C O N S O L I D AT E D

F I N A N C I A L S T AT E M E N T S

M AY 3 1 , 2 0 0 4 A N D 2 0 0 3 (in thousands of dollars, except per share amounts)

CI Fund Management Inc. ["CI"] is incorporated under the laws of Ontario. CI's primary business is the

management and distribution of a broad range of financial products and services, including mutual funds,

segregated funds, financial planning, insurance, investment advice, wealth management and estate and

succession planning.

1 . S U M M A RY O F S I G N I F I C A N T AC C O U N T I N G P O L I C I E S

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 CI Fund Management Inc. ["CI"], CI Mutual

Funds Inc. ["CIMF"], Assante Corporation ["Assante"], BPI Global Asset Management LLP ["BGAM"] and

Skylon Capital Corp. ["Skylon"] and their subsidiaries.

Hereinafter, CI and its subsidiaries are referred to as CI.

CI's investment in Altrinsic Advisors, LLC, Altus Hedge Partners International Inc. and Trilogy Advisors, LLC

are accounted for using the equity method. Accordingly, CI's proportionate share of earnings is included in

income. During fiscal 2003, CI disposed of its investment in Altus Hedge Partners International Inc. During

fiscal 2004, CI disposed of its investment in Trilogy Advisors, LLC.

Revenue recognition

Management fees are based upon the net asset value of the respective funds and are recognized on

an accrual basis. Management fees received in advance of amounts earned are disclosed separately as

deferred revenue.

Administration fees and other income are recognized as services are provided under contractual arrangements.

Administration fees include commission revenue, which is recorded on a trade date basis.

Redemption fees payable by unitholders of deferred sales charge mutual funds, the sales commission of

which was financed by CI, are recognized as revenue on the trade date of the redemption of the applicable

mutual fund securities.

Performance fees are recognized when performance thresholds have been satisfied and management is

assured of their realization.

Deferred sales commissions

Commissions paid on sales of deferred sales charge mutual funds represent commissions paid by CI 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 84 months from the date recorded.

Goodwill

Goodwill is recorded as the excess of purchase price over identifiable assets acquired. CI evaluates the

carrying value of goodwill for each segment for potential impairment based on comparison to the allocated

market capitalization by segment. If this test indicates a potential impairment for any segment, the carrying

value of goodwill is evaluated against estimated discounted future cash flows for that segment. These

evaluations are performed on an annual basis, or more frequently if events or changes in circumstances

indicate a potential impairment. Any impairment would be written off to income.

Fund contracts

Fund contracts are recorded net of any write-down for impairment. CI evaluates the carrying value of fund

contracts for potential impairment based on estimated discounted future cash flows. These evaluations are

performed on an annual basis, or more frequently if events or changes in circumstances indicate a potential

impairment. Any impairment would be written off to income.

Fund administration contracts are amortized on a straight-line basis over twenty-five years. Fund management

contracts with definite lives are amortized on a straight-line basis over eight years. Fund management

contracts with indefinite lives are not amortized.

Marketable securities

Marketable securities consist of investments in mutual fund units and shares of publicly traded companies.

These investments are carried at the lower of cost and market value.

Capital assets

Capital assets are recorded at cost less accumulated amortization. These assets are amortized over their

estimated useful lives as follows:

Computer hardware

30% declining balance or straight-line over three to four years

Computer software

Straight-line over two to four years

Office equipment

20% declining balance or straight-line over five years

Leasehold improvements

Straight-line over the term of the lease

Property

Straight-line over twenty-five years

Foreign currency translation

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

Integrated foreign subsidiaries are financially or operationally dependent on CI. 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, revenue and expenses are translated at exchange rates

prevailing during the year and the resulting translation exchange gains and losses are included in income.

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S

6 1

Exchange gains and losses on forward contracts are included in income in the same period as the gains or

losses on the items hedged.

Deferred lease inducements

Lease inducements are deferred and amortized on a straight-line basis over the term of the lease.

Stock-based compensation

CI has a stock-based compensation plan, which as described in note 10[b] includes a cash settlement option.

Compensation expense is recognized and recorded as a liability based upon the intrinsic value of outstanding

stock options as at the balance sheet date and the proportion of their vesting periods that have elapsed. On

the exercise of stock options for shares, the liability recorded with respect to the options and consideration

paid by the employees are credited to share capital.

Fair value of financial instruments

The estimated fair values of all financial instruments approximate their carrying amounts in the consolidated

balance sheets.

CI had a forward contract outstanding as at May 31, 2004 to sell U.S. $9,500 at a forward rate of $1.3803

on October 26, 2004. The contract was settled on June 30, 2004 and CI realized a gain of $339.

Income taxes

The liability method of tax allocation is used in accounting for income taxes. Under this 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 substantively enacted tax rates and laws that will

be in effect when the differences are expected to reverse.

Earnings per share

The treasury stock method is used in the calculation of per share amounts. Basic per share amounts

are determined by dividing income by the weighted average number of shares outstanding during the year.

Prior to the amendment of the employee incentive stock option plan to introduce a cash settlement option,

diluted per share amounts were determined by adjusting the weighted average number of shares outstanding

for the dilutive effect of stock options. Subsequent to the amendment, there is no dilutive effect as CI

accounts for its stock options as a liability.

Business acquisitions

The purchase method of accounting is used for business acquisitions and the results of operations are

consolidated from the date of acquisition.

Use of estimates

The preparation of consolidated financial statements in conformity with Canadian generally accepted accounting

principles requires management to make estimates and assumptions that affect the reported amounts of certain

assets and liabilities at the date of the consolidated financial statements and the reported amounts of certain

revenue and expenses during the reporting year. Actual results could differ from those estimates.

2 . C H A N G E S I N AC C O U N T I N G P O L I C I E S A N D E S T I M AT E S

Deferred sales commissions

Effective June 1, 2003, CI revised its accounting estimate for the period of amortization of deferred sales

commissions from 36 months to 84 months. The revised estimate period has been determined by management

to be consistent with the period over which CI currently benefits from the sales commissions paid.

Stock-based compensation

As described in note 10[b], CI amended the terms of its employee incentive stock option plan on April 9,

2003 to introduce a cash settlement option. The amendment had the effect of decreasing net income for

the year ended May 31, 2004 by $17,161 [2003 - $30,823].

3 . C L I E N T A N D T R U S T F U N D S

Included in trust funds on deposit are amounts representing cash held in trust with Canadian financial

institutions for clients in respect of self-administered Registered Retirement Savings Plans and Registered

Retirement Income Funds, and amounts received from clients for which the settlement date on the purchase

of securities has not occurred or accounts in which the clients maintain a cash balance. The corresponding

liabilities are included in trust funds payable.

4 . B U S I N E S S A C Q U I S I T I O N S

Year ended May 31, 2004

On October 6, 2003, CI completed its acquisition of all of the outstanding common shares of Synergy Asset

Management Inc. ["Synergy"], manager of the Synergy mutual funds. As consideration, CI paid $94,283 in

cash and issued 1,655,874 common shares of CI.

On November 7, 2003, CI completed its acquisition of all of the outstanding common shares of Skylon

Capital Corp., manager of the VentureLink Group of Funds and a series of retail structured products. As

consideration, CI paid $33,817 in cash, and must pay a portion of future performance fees, where earned

on certain funds, which will be netted against performance fees earned in that period.

On November 14, 2003, CI completed its acquisition of all of the outstanding common shares of the

Canadian operations of Assante Corporation, consisting of an investment management business and a

network of financial advisors. As consideration, CI paid $309,942 in cash and issued 38,846,974 common

shares of CI.

In conjunction with the above three transactions, Sun Life Assurance Company of Canada purchased

20,698,368 common shares of CI from treasury for $265,336 in order to maintain its proportionate share of

ownership of CI.

In addition, CI issued 932,576 stock appreciation rights with a strike price of $13.34 that expire in 2007.

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S

6 3

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

Skylon
Capital Corp.
$

Synergy Asset
Management Inc.
$

Assante
Corporation
$

Cash

Trust funds on deposit

Accounts receivable and prepaid expenses

Capital assets

Deferred sales commissions

Fund administration contracts

Fund management contracts

Other assets

Accounts payable and accrued liabilities

Trust funds payable

Future income taxes

Other liabilities

Goodwill on acquisition

1,188

–

2,957

–

17,000

–

(1,216)

–

(6,120)

–

20,351

34,160

1,802

–

1,259

378

5,600

–

35,000

485

(3,619 )

–

5,255

–

70,406

116,566

24,387

91,988

45,586

19,855

10,500

32,500

495,000

6,192

(60,927 )

(91,988 )

(169,928 )

(14,876 )

498,766

887,055

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

Cash

CI common shares

Assante Corporation

shares already owned

Transaction costs

Skylon
Capital Corp.
$

33,817

–

343

34,160

Synergy Asset
Management Inc.
$

Assante
Corporation
$

94,283

22,189

–

116,566

309,942

520,549

55,533

1,031

887,055

Total
$

27,377

91,988

49,802

20,233

16,100

32,500

547,000

6,677

(65,762)

(91,988)

(170,793)

(14,876)

589,523

1,037,781

Total
$

438,042

542,738

55,533

1,468

1,037,781

The common shares of CI issued as consideration were valued at $13.40 per share, the closing price

immediately prior to the announcement date of the three acquisitions on August 22, 2003.

The goodwill on acquisition is not deductible for income tax purposes. $485,623 of the balance relates to

the Asset Management segment and $103,900 relates to the Asset Administration segment.

Immediately following the Synergy acquisition, Synergy was amalgamated into CIMF.

Included in other liabilities are accruals for severance and exit costs of $10,000 related to the three

acquisitions, of which $5,600 has been paid prior to May 31, 2004.

Year ended May 31, 2003

On July 25, 2002, CI acquired all of the outstanding shares of Spectrum Investment Management

Limited [“Spectrum”], the mutual fund management subsidiary of Sun Life Assurance Company of

Canada, and Clarica Diversico Ltd. [“Diversico”], the mutual fund management subsidiary of Clarica Life

Insurance Company.

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

Cash

Fund management contracts

Other assets

Future income taxes

Other liabilities

Goodwill on acquisition

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

CI common shares

Transaction costs

10,133

432,582

23,760

(127,716)

(16,414)

329,680

652,025

651,636

389

652,025

The common shares of CI issued as consideration were valued at $9.15 per share, the weighted average

price on July 24, 2002.

The goodwill on acquisition relates to the Asset Management segment and is not deductible for income

tax purposes.

Immediately following the acquisition, Spectrum and Diversico were amalgamated into CIMF.

5 . L I M I T E D P A RT N E R S H I P S

During various periods for certain Funds prior to July 31, 1997, selling commissions on sales of securities of

the Funds under the deferred sales charge method were financed by various limited partnerships. In return,

the limited partnerships receive any redemption fees paid with respect to the related securities and CI 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, 2004, the net asset value of securities of the Funds financed by the limited partnerships was

$909,000 [2003 - $1,047,000].

6 . F U N D C O N T R A C T S

Fund contracts consist of the following:

Fund administration contracts

Fund management contracts

Definite life

Indefinite life

Less accumulated amortization

Net book value

2 0 0 4

2 0 0 3

Accumulated
amortization
$

650

750

–

1,400

Cost
$

32,500

12,000

967,582

1,012,082

1,400

1,010,682

Accumulated
amortization
$

–

Cost
$

–

432,582

–

432,582

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S

6 5

7 . C A P I T A L A S S E T S

Capital assets consist of the following:

2 0 0 4

2 0 0 3

Accumulated
amortization
$

20,377

5,006

4,027

126

29,536

Cost
$

38,453

7,511

9,312

345

55,621

29,536

26,085

Computer hardware and software

Office equipment

Leasehold improvements

Property

Less accumulated amortization

Net book value

8 . O T H E R A S S E T S

Other assets consist of the following:

Investment in limited partnership

Investment in BGAM-managed funds

Deferred charges

Long-term fees receivable

Other

Cost
$

17,004

5,151

5,509

345

28,009

23,320

4,689

2004

1,366

1,568

930

3,577

1,388

8,829

Accumulated
amortization
$

15,694

4,224

3,298

104

23,320

2003

1,454

1,438

—

204

3,096

9 . L O N G - T E R M D E B T

CI has arranged a revolving credit facility with a Canadian chartered bank for general corporate purposes

for $500,000. Amounts may be borrowed under this facility through prime rate loans, which bear interest

at the greater of the bank's prime rate and one month bankers' acceptance rates plus 0.75%, or bankers'

acceptances, which bear interest at bankers' acceptance rates plus 0.30%.

CI may also borrow under this facility in the form of letters of credit, which bear a fee of 0.30% on any

undrawn portion. At May 31, 2004, CI had accessed $1,409 [2003 - nil] by way of letters of credit.

Loans are made by the bank under a 364-day revolving credit facility, the term of which may be extended

annually at the bank's option. If the bank elects not to extend the term, the outstanding principal amount

shall be repaid in equal monthly installments over the following four years.

The facility is collateralized by a registered general security agreement from CI and certain subsidiaries of CI,

assignment of the shares in CIMF, Assante, certain subsidiaries of Assante and Skylon, and assignment of

the management agreements and redemption fees of CIMF and certain subsidiaries of Assante. The facility

also requires CI to meet certain financial ratios on a quarterly basis.

As at May 31, 2004, $245,165 [2003 - $144,000] has been drawn on this facility in the form of bankers'

acceptances at an effective interest rate of 2.31% [2003 - 3.60%]. Interest expense attributable to the

long-term debt for the year ended May 31, 2004 was $6,554 [2003 - $5,318].

1 0 . S H A R E C A P I T A L

(a) Details with respect to share capital are as follows:

Authorized

Unlimited preference shares

Unlimited common shares

Issued

May 31, 2002

Issuance of share capital [note 4]

Share repurchase

Exercise of stock options

May 31, 2003

Issuance of share capital [note 4]

Share repurchase

Exercise of stock options

May 31, 2004

Common shares

Number
of shares
(in thousands)

Stated
value
$

170,786

71,217

(10,114 )

3,637

235,526

61,203

(1,680 )

150

295,199

293,450

651,636

(28,681)

22,252

938,657

808,074

(7,935)

2,187

1,740,983

For shares issued on the exercise of stock options after the amendment to the employee incentive stock

option plan on April 9, 2003 [note 10[b]], the liabilities at the dates on which the stock options were

exercised amounted to $1,575 [2003 - $8,060] and were included in the stated value of the shares issued.

During fiscal 2004, 1,679,700 common shares [2003 - 10,114,000] were repurchased under a normal

course issuer bid at an average cost of $12.74 per share [2003 - $10.30] for a total consideration of $21,392

[2003 - $104,176]. Deficit was increased by $13,457 [2003 - $75,495] for the cost of the shares repurchased

in excess of their stated value.

(b) Employee incentive stock option plan

CI has an employee incentive stock option plan [the "Plan"] for the executives and key employees of CI. The

maximum number of common shares that may be issued under the Plan is 41,722,566. As at May 31, 2004,

there are 9,685,799 common shares [2003 - 10,071,675] reserved for issuance on exercise of stock options.

These options vest over periods of up to five years, may be exercised at prices ranging from $4.00 to $15.59

per common share with a total intrinsic value of $54,561 as at May 31, 2004 and expire at dates up to 2009.

On April 9, 2003, the Board of Directors approved an amendment to the Plan, which introduced a cash

settlement alternative to be included both in existing options and in options to be granted in the future.

Consequently, CI will recognize a liability and compensation expense in future periods based upon the

intrinsic value of the existing options and the proportion of their vesting periods that have elapsed. Based on

a market price of $10.68 per common share on April 9, 2003, CI immediately recognized a compensation

expense of $36,018. The total stock-based compensation expense for the year ended May 31, 2004 of

$39,988 [2003 - $42,841] has been included in selling, general and administrative expenses.

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S

6 7

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

2 0 0 4

2 0 0 3

Weighted
average
exercise
price
$

8.27

15.59

5.15

10.94

10.81

Number
of options
(in thousands)

10,072

2,273

(2,601)

(58)

9,686

Weighted
average
exercise
price
$

6.72

10.51

3.98

14.39

8.27

Number
of options
(in thousands)

12,720

1,928

(4,171)

(405)

10,072

Options outstanding, beginning of year

Options granted

Options exercised

Options cancelled

Options outstanding, end of year

Options exercisable, end of year

4,060

9.22

3,811

6.86

Details of the Plan options outstanding and exercisable as at May 31, 2004 are as follows:

Exercise
price
$

4.00

4.15

4.51

4.73

4.78

10.51

11.00

11.27

12.01

15.59

4.00 to 15.59

Number
of options
outstanding
(in thousands)

Weighted average
remaining
contractual life
(years)

Number
of options
exercisable
(in thousands)

889

883

207

1,811

1,087

1,214

1,262

2,273

9,686

0.6

1.3

1.4

0.9

3.9

1.8

2.8

3.0

4.9

3.1

500

478

207

580

806

599

830

–

4,060

CI has an employee share purchase loan program for key employees. These loans are renewable yearly and

bear interest at prescribed rates. As at May 31, 2004, the carrying amount of employee share purchase loans

is $7,259 [2003 - $11,831] 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 as collateral. As at

May 31, 2004, the shares held as collateral have a market value of approximately $21,309 [2003 - $25,144].

(d) Earnings per share

The weighted average number of shares outstanding for the years ended May 31 is as follows:

(in thousands)

Basic

Diluted

2004

268,103

2003

224,850

228,447

Before April 9, 2003, stock options were share-settled and the diluted earnings per share were calculated

using the treasury stock method. On April 9, 2003, CI introduced a cash settlement alternative to its

stock option plan. Diluted earnings per share were calculated using the diluted weighted average number

of shares outstanding, which includes the dilutive effect, if any, of stock options. For the year ended

May 31, 2003, the effect of options for 1,332,300 shares was excluded because such options were

not “in the money” during the year. For the year ended May 31, 2004, there was no dilutive effect as

CI accounts for its stock options as a liability.

(e) Stock appreciation rights

In conjunction with the acquisition of Assante, CI has issued share appreciation rights to certain former

option holders. The intrinsic value of these rights at the date of grant has been included as a liability in the

fair value of net assets acquired. These rights may only be settled for cash.

1 1 . R E L AT E D P A RT Y T R A N S A C T I O N S

CI enters into transactions related to the advisory and distribution of the Funds with Sun Life Assurance

Company of Canada, a shareholder of CI, and its subsidiaries ["Sun Life"]. These transactions are in the

normal course of operations and have been recorded at the agreed upon exchange amounts. During the

year ended May 31, 2004, CI incurred charges for deferred sales commissions of $31,976 [2003 - $21,162],

investment advisor fees of $379 [2003 - $2,097] and trailer fees of $58,511 [2003 - $52,929] to Sun Life.

The balance payable to Sun Life as at May 31, 2004 of $6,085 [2003 - $5,328] is included in accounts

payable and accrued liabilities.

1 2 . I N C O M E T A X E S

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 CI's future income tax liabilities and assets as at May 31 are as follows:

Future income tax liabilities

Fund contracts

Deferred sales commissions

Other

Total future income tax liabilities

Future income tax assets

Stock-based compensation

Non-capital loss carryforwards

Acquisition related costs

Other

Total future income tax assets

Net future income tax liabilities

2004
$

353,316

91,242

18,668

463,226

16,661

16,803

11,204

3,658

48,326

414,900

2003
$

121,200

49,036

3,222

173,458

9,932

–

3,805

13,737

159,721

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S

6 9

The net future income tax liabilities are classified in the consolidated balance sheets as follows:

Current future income tax assets

Non-current future income tax liabilities

2004
$

27,865

442,765

The following is a reconciliation between CI's statutory and effective income tax rates:

Combined Canadian federal and provincial income tax rate

Increase (decrease) in taxes resulting from:

Compensation expense on share settled options

Non-taxable portion of capital losses (gains)

Impact of rate changes on future income taxes

Other, net

2004
%

36.4

0.1

–

7.3

(0.2)

43.6

2003
$

9,932

169,653

2003
%

37.8

2.8

0.9

(0.1)

(0.6)

40.8

Substantively enacted increases to income tax rates during the year have resulted in a $28,900 non-cash

charge in the future tax provision for the year.

1 3 . S E G M E N T E D I N F O R M AT I O N

As a result of the acquisitions in fiscal 2004, CI now has three reportable segments: Asset Management,

Asset Administration and Other. These segments reflect CI's internal financial reporting and performance

measurement.

The Asset Management segment includes the operating results and net assets of CIMF and Assante Asset

Management Ltd., which derive their revenues principally from the fees earned on the management of

several families of mutual and segregated funds.

The Asset Administration segment includes the operating results and net assets of Assante Advisory Services

Ltd. and most of its subsidiaries, including Assante Capital Management Ltd. and Assante Financial

Management Ltd. These companies derive their revenues principally from commissions and fees earned on

the sale of mutual funds and other financial products, and ongoing service to clients.

The Other segment mainly comprises revenues earned from managed institutional assets and corporate

activities.

In the prior fiscal year, CI operated as one reportable segment.

Segmented information for the year ended May 31, 2004 is as follows:

Asset
Management
$

Asset
Administration
$

Other
$

–

20,191

Intersegment
Elimination
$

Total
$

–

710,950

(50,458)

–

58,037

75,686

(50,458)

844,673

–

108,495

3,003

111,498

Management fees

Administration fees

Other revenue

Total revenue

Net selling,

general and administrative

Investment advisor fees

Investment dealer fees

Trailer fees

Amortization of deferred

sales commissions

Amortization of fund contracts

Other expenses

Total expenses

Income before

income taxes and

710,950

–

52,492

763,442

65,186

58,583

–

204,164

34,252

750

6,349

369,284

18,085

5,121

–

80,076

–

650

–

98,811

–

12,763

17,884

–

(40,366)

88,392

58,583

39,710

(6,398)

197,766

(264)

–

33,988

1,400

19,112

(47,028)

438,951

non-segmented items

394,158

12,687

2,307

(3,430)

405,722

Interest expense

Minority interest

Provision for income taxes

Net income for the year

8,588

5,390

170,700

221,044

Identifiable assets

Goodwill

Total assets

1,334,106

815,303

2,149,409

172,774

103,900

276,674

71,109

–

71,109

(3,430)

1,574,559

–

919,203

(3,430)

2,493,762

1 4 . C O M M I T M E N T S A N D C O N T I N G E N C I E S

Lease commitments

CI 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:

2005

2006

2007

2008

2009

2010 and thereafter

12,463

7,295

6,171

5,385

4,240

7,654

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S T AT E M E N T S

7 1

Shareholder advisor agreements

CI is a party to shareholder advisor agreements, which provide that the shareholder advisor has the option

to require CI to purchase a practice that cannot otherwise be transitioned to a qualified buyer. The purchase

price would be in accordance with a pre-determined formula contained in the shareholder advisor agreement.

Indemnities

CI has agreed to indemnify its directors and officers, and certain of its employees in accordance with CI's

by-laws. CI maintains insurance policies that may provide coverage against certain claims.

Litigation

CI is engaged in litigation arising in the ordinary course of business. None of this litigation is expected to

have a material adverse effect on the consolidated financial position of CI.

1 5 . S U B S E Q U E N T E V E N T

On June 3, 2004, CI acquired all of the outstanding common shares of IQON Financial Management Inc., a

mutual fund dealership, and Synera Financial Services Inc., an independent insurance advisory firm, from Sun

Life. As consideration, CI paid $38,500 in cash. The net book value of the two companies is not significant.

1 6 . C O M P A R AT I V E C O N S O L I D AT E D

F I N A N C I A L S T AT E M E N T S

The comparative consolidated financial statements have been reclassified from statements previously

presented to conform to the presentation of the 2004 consolidated financial statements.

C O R P O R AT E
D I R E C T O RY

S E P T E M B E R 1 0 , 2 0 0 4

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

DIRECTORS

Ronald D. Besse
President,
Besseco Holdings Inc.;
Lead Director

G. Raymond Chang
President,
G. Raymond Chang Ltd.;
Director and Chairman
of the Board (non-executive)

Paul W. Derksen
Executive Vice-President
and Chief Financial Officer,
Sun Life Financial Inc.;
Director

William T. Holland
President and
Chief Executive Officer,
CI Fund Management Inc.;
Director

Toronto, Ontario

Mississauga, Ontario

Toronto, Ontario

A. Winn Oughtred
Partner,
Borden Ladner Gervais LLP;
Director

George W. Oughtred
President,
Privatbanken Holdings Inc.;
Director

C. James Prieur
President and
Chief Operating Officer,
Sun Life Financial Inc.;
Director

David J. Riddle
President,
C-Max Capital Inc.;
Director

Toronto, Ontario

Calgary, Alberta

Toronto, Ontario

Vancouver, B.C.

C O R P O R AT E D I R E C T O RY |

7 3

C O R P O R AT E
I N F O R M AT I O N

S E P T E M B E R 1 0 , 2 0 0 4

HEAD OFFICE

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

INVESTOR RELATIONS

Contact: Stephen A. MacPhail
Telephone: 416-364-1145
Toll Free: 1 800 268-9374
E-mail: investorrelations@cifunds.com

TRADING SYMBOL

CI Fund Management Inc. trades on the Toronto Stock Exchange under the symbol “CIX”.

AUDITORS

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

REGISTRAR AND TRANSFER AGENT

Computershare Trust Company of Canada
9th Floor, 100 University Avenue
Toronto, Ontario M5J 2Y1
Telephone: 1 800 564-6253
E-mail: caregistry@computershare.com

DIGITAL REPORT

This Annual Report can be downloaded from CI’s website at www.cifunds.com under “Corporate Information”.

ANNUAL MEETING

The Annual and Special Meeting of Shareholders will be held on November 17, 2004 at 2:00 p.m. in Toronto, Ontario.

This Annual Report contains forward-looking statements with respect to CI, including its business operations and strategy and

financial performance and condition. Although management believes that the expectations reflected in such forward-looking

statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those

expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from

expectations include, among other things, general economic and market factors, including interest rates, business competition,

changes in government regulations or in tax laws, and other factors discussed in materials filed with applicable securities

regulatory authorities from time to time.

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K E Y F I N A N C I A L
H I G H L I G H T S

F O R T H E Y E A R S E N D E D M AY 3 1 ,

(millions of dollars, except share and per share amounts)

| Total fee-earning assets, end of year
| Net sales of funds

| Management fees
| Total revenues

| Net selling, general and administrative
| Investment advisor fees
| Trailer fees

| Net income
| Operating cash flow**

2004

61,343

920

710.9

844.7

88.4*

58.6

197.8

221.1

368.5

0.82

1.37

1.65

0.41

1,533.9

33,084

(596)

503.6

576.2

60.5*

50.6

147.4

71.0

245.6

0.32

1.09

1.32

0.29

632.7

+85

n/a

+41

+47

+46

+16

+34

+211

+50

+156

+26

+25

+41

+142

+25

| Shares outstanding, end of year

295,199,027

235,525,648

CI Fund Management Inc. is a diversified wealth management firm and Canada's third-largest investment

fund company. Independent and Canadian-owned, CI provides a comprehensive and innovative selection of

top-quality investment products and services. CI has two million clients and more than $64 billion in fee-

earning assets (at August 31, 2004). The company operates primarily through subsidiaries CI Mutual Funds Inc.,

which offers the industry's broadest selection of investment funds, and Assante Corporation, which offers

financial advisory services through a national network of 850 advisors. CI has been listed on the Toronto Stock

Exchange under the symbol CIX since June 1994 and is a member of the S&P/TSX Composite Index.

2003

% change

Fee-earning Assets | years ended May 31; $billions

61.3

26.7

26.8

25.7

33.1

3.7

4.4

5.5

6.5

8.3

9.7

'94

'95

'96

'97

'98

'99

'00

'01

'02

'03

'04

CIX vs S&P/TSX Composite Index Total Return | years ended May 31 except for June 1994; June 1994 = 100

979
|
|

|
|
241

1,079
|
|

|
|
215

923
|
|

|
|
214

942
|
|

|
|
195

'00

'01

'02

'03

1,339
|

CIX

S&P/TSX
Composite
Index

|
244

'04

100
|

|
100

'94

99
|
|
|
|
109

'95

121
|
|
|
|
131

'96

206
|
|
|
|
159

'97

289
|
|
|
|
192

'98

368
|
|

|
|
175

'99

01 | Message to Shareholders 10 | Historical Financial Highlights 12 | Operating Review 26 | Management’s Discussion and Analysis

54 | Consolidated Financial Statements 60 | Notes to Consolidated Financial Statements 73 | Corporate Directory 74 | Corporate Information

C I F U N D M A N A G E M E N T I N C . 2004 A N N U A L R E P O RT

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

M AY 3 1 , 2 0 0 4