CI Financial
2 0 0 5 A N N U A L R E P O RT
4 Message to Shareholders
12 Historical Financial Highlights
14 Operating Review
14 CI Investments Inc.
22 Assante Corporation
28
Skylon Advisors Inc.
32 Management’s Discussion and Analysis
54 Consolidated Financial Statements
60 Notes to Consolidated Financial Statements
75 Corporate Directory
76 Corporate Information
CI Financial
CI Financial 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 $70 billion
in fee-earning assets (at August 31, 2005). The company operates primarily
through subsidiaries CI Investments Inc., which offers the industry’s broadest
selection of investment funds; Assante Corporation, which provides financial
advisory services through a national network of 1,050 advisors; and Skylon
Advisors Inc., a manager of structured products. 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.
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)
2005
2004
% change
Total fee-earning assets, end of year
Net sales of funds
Management fees
Total revenues
Net selling, general and administrative
Trailer fees
Net income
Operating cash flow*
Earnings per share
Operating cash flow* per share
EBITDA* per share
Dividends per share
68,053
1,734
881.8
1,082.3
215.3
250.7
284.7
389.7
0.97
1.33
1.81
0.68
61,343
920
710.9
844.6
147.0
197.8
221.1
368.5
0.82
1.37
1.65
0.41
Shareholders’ equity, end of year
1,472.8
1,533.9
Shares outstanding, end of year
286,643,091
295,199,027
+11
+88
+24
+28
+46
+27
+29
+6
+18
-3
+10
+66
-4
-3
*EBITDA (Earnings before interest, taxes, depreciation and amortization) and operating cash flow are non-GAAP (generally accepted
accounting principals) 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
68.1
61.3
26.7
26.8
25.7
33.1
4.4
5.5
6.5
8.3
9.7
'95
'96
'97
'98
'99
'00
'01
'02
'03
‘04
'05
CIX vs S&P/TSX Composite Index Total Return ■ years ended May 31; June 1994 = 100
979
|
|
|
|
241
1,079
|
|
|
|
215
923
|
|
|
|
214
942
|
|
|
|
195
1,339
|
|
1,468
|
CIX
S&P/TSX
Composite
Index
|
284
|
|
244
99
|
|
109
121
|
|
|
|
131
289
|
|
|
|
192
206
|
|
|
|
159
368
|
|
|
|
175
'95
'96
'97
'98
'99
'00
'01
'02
'03
‘04
'05
Dear Shareholders,
Fiscal 2005 was a very successful year, one in which your company
achieved record levels of assets, revenues and profitability. It was a year in which
we built on the acquisitions we have made over the past two years to solidify our
position within the top tier of our industry.
Our principal operating companies, each a leader in its segment, performed well
during the year. CI Investments Inc. led the independent fund companies in net
sales and posted strong results across its lineup.
4
WILLIAM T. HOLLAND
Chief Executive Officer
CI Financial
Assante Wealth Management, one of the largest
Financial Achievements
full-service financial planning firms in Canada, has
restructured its business and established a strong
platform for growth. Our position in this segment
was bolstered in fiscal 2005 with the acquisition
of IQON Financial Management Inc. and Synera
Financial Services Inc.
Skylon Advisors Inc., known for its innovation in
structured products, enjoyed particular success in
developing and marketing fund-linked notes in co-
operation with CI Investments.
We have been making progress at a time when our
industry is facing new challenges. Although Canadian
mutual fund assets hit an all-time high of $530 billion
in June 2005, it is an industry that shows all the signs
of being mature. While net sales have improved since
the slump of 2002-2003, reaching $13 billion in the
first six months of 2005, they are still far below the
peak net sales of $52 billion reached in 1997.
Despite this, CI has grown dramatically and consider-
ably advanced its competitive position within the
industry. Since 1998, we have increased our fee-
earning assets by 750% from $8 billion to $68
billion. We have moved from being the number 15
mutual fund company to the third-largest player in
our industry, with a wide range of products. Our
results for fiscal 2005 reflect this steady growth.
We ended the fiscal year with $68.1 billion in fee-
earning assets, an 11% increase year over year that
resulted from healthy net sales, the acquisition of
IQON and excellent performance by our funds. Our
managed retail assets also grew by 11%, to $49.2
billion. This was enough to boost our share in that
market slightly, to 8.9% at May 31, 2005.
Our net sales at CI Investments and Assante rose
215% in fiscal 2005 to $1.64 billion – making CI the
top-selling independent fund company at a time
when the banks, with their huge branch networks,
are dominating the net new sales figures.
CI’s annual revenues surpassed the billion-dollar
mark for the first time, rising 28% to $1.1 billion. Net
income was $284.7 million, up 29% from $221.0
million in fiscal 2004. Earnings per share rose 18%
to $0.97. CI’s operating cash flow increased 6% to
$389.7 million.
Investors who are familiar with us have come to
understand our focus on building the value of the
company. Our share price at May 31, 2005, was
$17.30, which represents a 9.6% return for the year
including dividends. CI stock has been a top per-
former over the longer term as well. From June
1994, when CI went public, to May 31, 2005, CI
shares posted a total return of 1,368% – making it
the eighth-best-performing stock on the entire
S&P/TSX Composite Index.
6
Shareholders have benefited from the tremendous
the last five or more consecutive
growth in CI’s free cash flow over the years. Given
years. In July, we announced a
our maturing industry, CI produces more cash than it
further 20% increase in the divi-
needs to finance its growth. We have returned cash to
dend, to $0.72 per share a year.
shareholders through share buybacks and dividends.
In fiscal 2005, CI repurchased 8.6 million shares at
companies apart from income trusts to pay its divi-
In January 2005, CI became one of the first Canadian
an average price of $17.24. Over the past 10 years, we
have bought back $520 million worth of shares at an
average price of $9.58 – certainly one of the best
investments we have ever made.
dend on a monthly basis. We took this step to help
the growing number of investors who rely on their
investments to provide a consistent income.
Operational Achievements
CI’s dividend during the fiscal year of $0.675 repre-
Underlying these impressive financial results were
sents an increase of 67% from the prior year and
operational achievements across our organization.
133% from fiscal 2003. This record was enough to
We would like to mention just a few highlights.
place us at the top of a Globe and Mail survey pub-
You can read more in the following sections of this
lished in November 2004, which found that CI had
Annual Report.
the highest dividend growth rate over three and five
years of all companies listed on the S&P/TSX Index.
We have already made note of the strong sales at
CI was also named a “Mergent Canadian Dividend
CI Investments during the year. It’s worthwhile
Achiever,” which recognizes companies that have
mentioning that sales were well diversified among
increased their regular annual dividend payments for
funds, product types and portfolio management groups.
CIX Share Price and Dividends Per Share ■ years ended May 31 (adjusted for stock splits) : $
17.30
|
CIX
Share Price
Dividends
Per Share
|
0.675
16.44
|
|
|
|
0.405
14.10
|
|
12.83
|
|
|
|
0.025
|
|
0.025
11.90
|
|
|
|
0.29
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
'05
7
Much has been made of the fact that industry sales
On the dealership side of the Assante business, we
have been dominated by income and balanced prod-
have updated and consolidated the back office
ucts, but CI also has several equity funds among
procedures and systems – providing the base for
its top sellers. One product that was particularly
increased efficiency and a higher level of service to
successful in fiscal 2005 was fund-linked notes,
advisors and clients. We also expanded our support
which were developed in conjunction with Skylon.
to advisors by offering a wider range of insurance
A number of these notes raised $597 million during
products, additional access to tax, legal, insurance
the year.
and estate planning experts, and increased opportu-
nities for professional and business development.
One of the key drivers of sales at CI Investments has
been its strong ties with a variety of distribution
Perhaps one of our most important operational
channels. While CI has enhanced and strengthened
achievements is our continued focus on efficiency
all of these ties over the past year, our relationship
and cost control throughout our organization. This
with Sun Life Financial’s 4,000 Clarica agents and
discipline not only benefits our shareholders, but the
managers has become increasingly productive. Under
investors in the CI and Assante funds. As a result of
this alliance, which was established in 2002, CI is a
our increasingly efficient fund administration, we
preferred supplier of wealth management products
have steadily reduced the operating expenses of our
to the Clarica sales force.
funds over the past decade. In fiscal 2005, operating
expenses as a percentage of assets were just 24.5
Another key driver of sales is, of course, fund
basis points, down from 39.6 basis points in 1999.
performance. CI Investments has enjoyed strong
performance overall, and one of the best measures
We believe that CI has the industry’s lowest operating
of this quality is Morningstar Canada’s five-star
costs, and we will tell you more later about how we
ratings. At May 31, 2005, CI Investments led the
are capitalizing on this competitive advantage.
industry with 54 funds with the top rating, while
the second-place firm had 18.
At Assante, the asset management business enjoyed
decent growth in fiscal 2005, with respectable net
sales and performance within its own managed
portfolio programs. Over the past year, we made
significant improvements to those programs through
various portfolio management changes and by trans-
ferring their administration to the CI system from a
third-party service provider, which led to substantial
reductions in their operating costs.
8
A Strategy for Today and the Future
CI’s strategy has been consistent over many years and
it has guided the company’s continued growth
through both the “boom” years and the difficult years
of the extended bear market. This strategy has four
defining elements: the achievement of scale; a diverse
lineup of products and portfolio managers; multiple
distribution channels; and operational excellence.
By achieving scale, CI has gained an important
Operational excellence refers not only to our consid-
competitive advantage. We are able to devote more
erable expertise and efficiency in fund administration,
resources to all aspects of our business, while bene-
but to the excellence we achieved in all of our opera-
fiting enormously from economies of scale. Our funds’
tions, including fund performance, our high level of
low operating expenses are but one example of this
customer service and the strength of our brand.
principle at work.
CI’s product lineup is extensive in its variety, as it
includes mutual and segregated funds, hedge funds,
fund-linked notes, closed-end funds, and asset
allocation services and portfolio products, such as
Portfolio Series and Assante’s Optima Strategy and
Artisan Portfolios. Within those products, we offer a
wide range of leading portfolio managers represent-
ing the full spectrum of investment approaches. In
the wealth planning business, Assante provides a full
slate of services.
This diversity has attracted advisors’ support, as it
makes it easier for them to meet their clients’ needs
in one place. It has ensured that CI is not reliant on
any one product or portfolio manager for its sales,
and it has meant that CI has products available to
meet investors’ preferences as they change.
CI views multiple distribution channels as being
critical to the company’s future. We have developed
new avenues for growth through, for example, our
successful participation in third-party fund programs
at other financial institutions and our rewarding
relationship with Clarica. With the acquisitions of
Assante and IQON, CI gained a significant presence
in this segment of the business.
Our Plans for
Fiscal 2006
CI is beginning fiscal 2006 in its strongest position in
six years. In the first two months of the year, net sales
have been strong and our fee-earning assets hit a new
high. We continue to execute our strategy, enhancing
CI’s growth, profitability and competitiveness.
As an example, we are implementing a ground-break-
ing proposal to establish fixed operating expenses for
our CI and Assante mutual funds. This is significant
for the industry because operating costs vary widely
between funds and companies, and are not known
by investors until after the fact. Our investors will
know in advance what they are paying. In addition,
we are setting the operating expenses at levels that
are significantly lower than the funds’ actual average
operating expenses for calendar year 2004. We believe
that our operating expenses are the lowest in the
industry and that most of our competitors will be
unable to match our efficiency.
As part of this, we have taken a leadership position in
the industry in highlighting the pernicious effects of
the GST, which the federal government charges on
the operation of mutual funds. It is, in effect, a tax on
Canadians’ retirement savings.
9
WILLIAM T. HOLLAND
Chief Executive Officer
CI Financial
STEPHEN A. MACPHAIL
President and Chief Operating Officer
CI Financial
We are also introducing new products and services
In closing, we extend our sincere thanks to our
to meet the changing needs of our clients. While a
employees for their dedication and hard work, to our
number of initiatives are underway at CI Investments,
shareholders for their encouragement and support
Assante and Skylon, we would make note of the
and, most importantly, to our clients for entrusting us
July launch of Assante’s Institutional Managed Port-
with their savings.
WILLIAM T. HOLLAND
Chief Executive Officer
STEPHEN A. MACPHAIL
President and Chief Operating Officer
folios, an advanced investment program for affluent
investors. It’s an important step in strengthening
Assante’s product lineup.
CI is well positioned for continued growth. We will
also acquire other companies if the combination
makes sense. As we have said in the past, our ability
to quickly integrate acquired companies is an impor-
tant competitive advantage.
Ultimately, CI only achieves success when our
clients achieve success. We are very serious about
our fiduciary duty to the investors in our funds and
to our wealth planning clients. This is what drives
our ongoing efforts to enhance our portfolio man-
agement expertise, upgrade our technology and our
administrative processes, expand our services and
improve our operations across the board.
Finally, you will have noticed from the cover of this
report that we have adopted the name CI Financial.
This name reflects a new stage in CI’s evolution – our
development into a diversified wealth management
firm and a holding company for a varied range of
financial services businesses.
1 1
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
(millions of dollars, except share and per share amounts)
2005
Y E A R S E N D E D M AY 3 1 ,
Total fee-earning assets, end of year
Net sales of funds
(cid:1) REVENUE
Management fees and other income
Redemption fees
Performance fees
Total revenues
(cid:1) EXPENSES
Net selling, general and administrative
Trailer fees
Distribution fees to limited partnerships
Amortization of deferred sales commissions
Other (including securitization
and minority interest)
Total expenses
Income taxes
Income before amortization of goodwill
Net income [loss]
Operating cash flow*
Earnings per share before
amortization of goodwill
Operating cash flow* per share
EBITDA* per share
Dividends** per share
Shareholders’ equity, end of year
Shares outstanding, end of year**
68,053
1,734
1,035.1
47.1
0.1
1,082.3
215.3
250.7
4.4
55.2
108.8
634.4
163.2
284.7
284.7
389.7
2004
61,343
920
798.4
43.4
2.8
844.6
147.0
197.8
5.6
34.0
68.5
452.9
170.7
221.0
221.0
368.5
2003
33,084
(596)
525.9
50.3
0.1
576.2
111.1
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
56.3
97.8
10.6
201.6
24.1
390.4
22.0
36.8
(61.4)
222.8
0.97
1.33
1.81
0.68
1,472.8
286,643,091
0.82
1.37
1.65
0.41
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
*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
1
.
8
6
3
.
1
6
Net Sales
years ended May 31 : $billions
Net Operating Margin
years ended May 31 : % of average AUM
8
.
5
5
.
3
9
1
.
1
6
1
.
1
2
1
.
1
2
1
.
1
0
1
.
51
0
.
1
8
9
.
0
8
9
.
0
2
0
.
1
0
0
.
1
9
8
.
0
1
.
3
3
7
.
6
2
8
.
6
2
7
.
5
2
7
.
9
3
.
8
5
.
5
5
.
6
4
.
4
4
.
1
2
.
1
9
.
0
5
.
0
5
.
0
7
.
1
9
.
0
5
.
0
6
.
0
-
'95
'96
'97
'98
'99
'00
'01
'02
'03
‘04
'05
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
1 2
2001
26,834
3,468
510.3
28.7
2.6
541.6
67.7
115.6
16.2
183.9
33.8
417.2
34.3
90.1
11.5
291.9
2000
26,678
5,843
353.4
22.5
21.4
397.3
54.8
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
34.3
37.0
9.6
67.3
3.0
151.2
12.4
8.8
8.7
89.8
1998
8,302
1,189
143.9
8.4
—
152.3
33.9
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
27.0
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
23.6
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
24.5
19.9
12.7
1.2
10.2
68.5
8.8
10.5
10.5
20.9
0.49
1.60
1.75
0.025
260.8
180,684,728
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
**Adjusted for two-for-one stock splits in April 1998, January 2000 and November 2000.
Total Revenues
years ended May 31 : $millions
3
.
2
8
0
,
1
6
.
4
4
8
2
.
6
7
5
6
.
1
4
5
2
.
9
4
4
3
.
7
9
3
4
.
2
7
1
3
.
2
5
1
6
.
8
1
1
8
.
7
8
0
.
9
9
Income Before
Amortization of Goodwill
years ended May 31 : $millions
7
.
4
8
2
0
.
1
2
2
EBITDA* Per Share
years ended May 31 :
5
7
.
1
1
8
.
1
5
6
.
1
8
3
.
1
1
5
.
1
2
3
.
1
1
.
0
9
8
.
6
5
0
.
1
7
8
.
6
3
5
.
0
1
5
.
0
1
5
.
9
6
.
8
8
.
8
4
6
.
0
6
4
.
0
5
3
.
0
5
2
.
0
7
1
.
0
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
1 3
PETER W. ANDERSON
President and Chief Executive Officer
CI Investments
Our Company
CI Investments is one of Canada’s largest investment management companies, with
more than $40 billion in assets under management (as of August 31, 2005). We
began managing money in 1965, and have a successful track record of anticipating
and responding to the changing needs of Canadian investors.
We offer a wide selection of leading portfolio management teams and we make
their expertise available through a broad range of products and services, including
mutual funds, segregated funds, structured products, alternative investments and
asset allocation programs. We have the industry’s broadest selection of investment
funds, marketed under the CI, Harbour, Signature, Synergy, Portfolio Series and
SunWise brands.
In June 2005, we changed our name to CI Investments Inc. from CI Mutual Funds
Inc. to better reflect our diverse lineup of investment options and our continuing
commitment to providing Canadians with innovative and high-quality investments
that will help them meet their financial goals.
1 5
Our Strategy
Highlights of Fiscal 2005
CI Investments’ strategy, which follows the overall
Growing Sales Momentum
strategy of CI Financial as highlighted in the Message
to Shareholders, is to build on these key competitive
advantages:
(cid:1) A broad lineup of the best available portfolio
managers offering strong performance and
representing all investment approaches from
value to growth.
(cid:1) A well-diversified selection of products and
services.
(cid:1) Multiple distribution channels. We have
significantly expanded our distribution beyond
the “traditional” channels of brokers and
financial planners.
(cid:1) Scale, which provides for economies of scale
while allowing us to offer a comprehensive
selection of products and services.
(cid:1) Operational excellence, of which two important
components are administrative efficiency and
strength in sales and marketing.
The following highlights demonstrate the success of
this strategy in fiscal 2005 and the priorities we are
pursuing in fiscal 2006.
In fiscal 2005, CI Investments had gross sales of $7.2
billion and net sales of $1.3 billion, which represents
a market share of approximately 10% of industry net
sales of $12.9 billion (as reported by the Investment
Funds Institute of Canada). Assets in our retail mutual
and segregated funds stood at $39.2 billion at May 31,
2005, up approximately 12% over the year. Our sales
momentum improved in the latter half of the year, and
we were the top independent fund company for net
sales from January to June and number three overall.
Our improving sales and market share can be attrib-
uted to our diverse product lineup, the strength of
that lineup and to our strong relationships with our
distribution channels. Whereas overall industry sales
were dominated by income and balanced funds, CI’s
sales were well diversified among asset classes and
product groups. For sure, income and balanced funds
such as Signature High Income Fund, Harbour Growth
& Income Fund and Signature Income & Growth Fund
were well represented on our list of top sellers.
However, our best-selling funds also included the
Canadian equity funds CI Canadian Investment Fund
and Harbour Fund.
1 6
Top-selling product groups included Portfolio Series, a
Performance and Portfolio Management
family of strategic asset allocation funds. Assets in
Portfolio Series grew by 64% over the fiscal year,
climbing from $1.1 billion to $1.8 billion as a result of
net sales and performance.
We have done well in the market for segregated
funds, which combine mutual funds with insurance
contracts. CI Investments is one of the top three
companies for segregated fund sales and assets and
is the top firm that is not an insurance company.
We were the first mutual fund company to enter the
segregated fund market in 1997 and segregated funds
now account for approximately 12% of our net sales
and 16% of our assets, or $6.6 billion. Our best-
selling segregated fund product is SunWise, and its
assets exceed $2.1 billion, up from $1.2 billion at the
end of fiscal 2004.
We also capitalized on the growing demand for
fund-linked notes, which typically offer a principal
guarantee and returns linked to the performance of
one or more mutual funds. From August 2004 to July
2005, CI Investments, in conjunction with Skylon
Advisors, issued nine fund-linked notes, raising $737
million and dominating sales in this burgeoning
market. In particular, the CI C.A.P.I.T.A.L. Deposit
Notes™ struck a chord with investors, with sales of
over $500 million in the first three series.
At the root of our sales success is the strong per-
formance across our lineup of funds and portfolio
management teams.
The overall quality of our funds is recognized by
Morningstar Canada, a leading independent provider
of fund research and analysis. As of June 30, 2005,
CI Investments led the industry with 49 funds with
Morningstar Canada’s top five-star rating – three
times as many as the second-place firm. CI has held
the top spot in the Morningstar Canada five-star
rankings since January 2005 and has been either
number one or number two every month over the
past three years.
Two of our funds were singled out
for recognition at the Canadian
Investment Awards in December
2004, as CI Canadian Investment
Fund was named Canadian Equity
Fund of the Year and Signature High
Income Fund received the award for
Canadian Income Trust Fund of the Year.
1 7
To achieve these results, we use a mix of in-house
Expanding Distribution Channels
teams and outside firms retained as sub-advisors. Our
in-house teams are Harbour Advisors, which man-
aged over $6 billion at May 31, 2005, and Signature
Advisors, which managed approximately $15 billion.
Signature manages more assets for us than any other
team or firm on our roster.
In fiscal 2005, we made various changes to our
portfolio management lineup to support our strategy
of providing a clear choice of leading managers
representing
the
full spectrum of
investment
approaches. These changes included terminating our
contract with Webb Capital Management LLP in June
2004 and transferring those assets to Synergy Asset
Management, which uses a similar investment
approach. In addition, BPI Global Asset Management
LLP, a former subsidiary, was combined with Trilogy
Advisors, LLC, and the management of the BPI
mutual fund portfolios was transferred to Trilogy.
Again, both firms use a growth approach to selecting
global equities.
CI Investments has grown through its close relation-
ships with individual brokers and financial planners
and their firms, the distributors of our products. We
maintain these relationships through one of the
largest sales and client services teams in the industry.
This highly trained team provides strong service and
support to financial advisors – a key to the success of
CI Investments.
Over the past number of years, we have pursued a
strategy of expanding the distribution channels for
our products and this strategy met with continuing
success in fiscal 2005. Two channels that have become
increasingly important are Sun Life Financial’s Clarica
sales force and third-party programs offered by other
financial institutions.
CI Investments is the preferred supplier of wealth
products to Clarica managers and agents and this
relationship, which was established in 2002, has been
marked by growing co-operation. As an example, we
developed two fund-linked notes exclusively for
Clarica. Currently, the Clarica channel accounts for
approximately 19% of our gross sales.
1 8
CI participates in third-party investment programs
Another notable project designed to support our
offered by banks, insurance companies and other
financial advisor partners was the development of
investment dealers that want to add the CI brand
Advising the Client, a Web-based training resource
name and our portfolio management expertise to
where advisors can receive continuing education
their product lineup. An Institutional Business team
credits in a self-study environment. Advising the
within our Sales and Marketing Department develops
Client not only assists advisors with continuing
and maintains these relationships. In fiscal 2005, this
education, but also provides them with information
team established three new relationships, while total
on how our products can be used as solutions to
third-party net sales for the fiscal year were in excess
real-life financial planning issues.
of $600 million. Total assets in third-party programs
increased by 35% year over year to $3.4 billion at
Operating Efficiency
May 31, 2005.
This institutional business has had a significant
impact in boosting our sales, gaining access to
distribution channels that are not typically available
to independent fund companies and heightening
awareness of the CI brand through third parties.
Our overall sales efforts during the year were sup-
ported by a wide range of marketing initiatives. Of
note was a radio advertising campaign in the key
markets of Toronto and Vancouver that was success-
ful in raising our profile and building on the strength
of our brand. As part of our brand-building efforts,
we have been using the terms Experience, Strength
and Diversity in our advertising and marketing
materials. These terms emphasize CI Investments’
long history of managing money, its financial strength
and its broad selection of investments.
Maintaining a comprehensive yet clear lineup of effi-
ciently operated, high-quality funds remains a priority
for CI Investments. Our acquisitions over the years
dramatically expanded the number of funds we offer,
and we have been consistent in streamlining our
lineup by merging funds. This not only simplifies our
lineup, but it creates funds that are more efficient,
as their operating expenses are spread over a larger
asset base.
We completed the merger of 20 funds in fiscal 2005,
as well as the amalgamation of our Synergy global
corporate class structure into CI Corporate Class. In
July and August 2005, we completed another 17 fund
mergers and terminated 39 RSP funds. The RSP funds,
which were foreign funds that were 100% eligible for
registered plans, were no longer necessary once the
federal government eliminated the foreign property
rule. One result of these mergers was that we are no
longer using the Clarica brand name on any of our
mutual funds.
1 9
In our administration and operations, we achieved
Fund Governance
new levels of efficiency in fiscal 2005. In the area of
fund operations, we reduced the average operating
expenses of our funds to 21.5 basis points (as a per-
centage of assets under management) – a reduction of
22% from 27.5 basis points the previous year. We
believe that our overall operating expenses are the
lowest in the industry.
Our efficiency in this area is significant because
these savings improve the performance of the funds,
directly benefiting their investors. The lower costs
also make our funds more attractive relative to those
offered by our primary competitors. As a result, our
efficiency constitutes a competitive advantage that
we intend to exploit as the industry becomes more
competitive and investors increasingly focus on fees.
Please see the section “Our Plans for Fiscal 2006” for
details on our move to establish fixed operating
expenses for our mutual funds.
In fiscal 2005, CI Investments continued to work with
regulators on their investigation into trading activities
within the Canadian mutual fund industry. During
the year, CI Investments and four other fund compa-
nies reached settlements with the Ontario Securities
Commission in which the companies agreed to
compensate investors in a number of their funds
who may have been affected by frequent trading
market timing trades by certain other investors. CI
Investments’ current measures are effective in
detecting and preventing market timing and frequent
trading by investors in our funds.
In fiscal 2005, we continued to enhance our policies
and procedures to ensure that the interests of the
investors in our funds are placed first. An example is
the CI Investments Board of Governors, which acts as
an independent governance body of the funds, pro-
viding impartial judgment on conflicts of interest
with a view to the best interests of the funds and their
investors. The Board of Governors adopted a new
mandate that already meets the requirements of the
latest proposals from securities regulators, published
in May 2005, for independent review committees for
all mutual funds. This reflects the commitment of CI
Investments and the Board of Governors to meeting
our fiduciary duties to our clients.
2 0
Other key plans for 2006 include several new products,
including an enhanced strategic asset allocation
program that will build on the success of Portfolio
Series to be called Portfolio Select Series, and a new
segregated fund program called SunWise Elite.
Fiscal 2005 was a successful year for CI Investments,
marked by growing sales, impressive fund perform-
ance and a stronger position in our industry and our
marketplace. We intend to build on our competitive
advantages in all areas in the coming year and we
are confident we can continue to deliver excellent
products and services – and excellent results.
Our Plans for
Fiscal 2006
One our key initiatives in fiscal 2006 focuses on
the area of operating efficiency. Our plan to set
fixed operating expenses for our mutual funds,
which was overwhelmingly approved by investors in
August 2005, will result in lower costs and greater
transparency for investors. The fixed expenses, to be
called administration fees, are being set at 17 to 22
basis points, depending on the fund category – a level
that is 36% lower on average than the funds’ actual
operating expenses for calendar year 2004.
Just as important is the certainty created for investors.
Currently, operating expenses in the fund industry are
not known ahead of time and they can vary widely
from fund to fund and from company to company.
At CI Investments, investors will know exactly
what they will pay to invest in a fund and that it will
remain at that level.
This measure is a first for our industry and offers
significant benefits to investors. We are setting a
new benchmark that many competitors will be
unable to reach.
2 1
JOSEPH C. CANAVAN
Chairman and Chief Executive Officer
Assante Corporation
STEVEN J. DONALD
President and Chief Operating Officer
Assante Corporation
Our Company
Assante Corporation is a fully integrated wealth management company. It operates
through subsidiaries that include United Financial Corporation (formerly Assante
Asset Management Ltd.), Assante Capital Management Ltd., Assante Financial
Management Ltd., IQON Financial Management Inc., and Assante Estate and
Insurance Services Inc.
We are one of the largest independent networks of advisors with more than 1,050
advisors in 400 locations across the country. We have more than $24 billion in
assets under administration (at August 31, 2005), including $9 billion in assets
under management, and serve over 250,000 Canadians.
Assante brings together the extensive experience of our advisors and wealth
management professionals from multiple disciplines to offer our clients customized
strategies for building and preserving their wealth. Our range of services includes
investment advice, retirement planning, tax planning, insurance and estate planning.
2 3
We’re a proud sponsor of
Raise-a-Reader®
Assante is proud to be a sponsor of CanWest
Raise-a-Reader®, a unique program designed
to increase awareness and raise money and
books for family literacy programs across
Canada. In today’s knowledge-based econo-
my, strong literacy skills—the ability to read,
write, think critically and solve problems—
are the foundation for success throughout life
and are a key to our wealth and prosperity
as a nation. In 2000, the International Adult
Literacy Survey found that more than 40% of
Canadian adults do not have strong literacy
skills. Addressing basic language and literacy
education needs early in life and increased
parental involvement can help reverse these
statistics.
Advisory services are offered through Assante Capital
Management, an investment dealer, and Assante
Financial Management, a mutual fund dealer, which
together operate under the brand name Assante Wealth
Management. IQON Financial, a mutual fund dealer
and wholly owned subsidiary, provides advisory serv-
ices under the IQON brand.
Assante Estate and Insurance Services offers
comprehensive insurance advice and sophisticated
insurance-based business and estate planning solu-
tions that are designed to protect our clients’ wealth
and meet specific financial planning objectives.
United Financial manages our investment products –
Artisan Portfolios, Institutional Managed Portfolios
and Optima Strategy, which are offered exclusively
through Assante advisors. They allow advisors to
provide clients with portfolios that are diversified by
asset class, portfolio manager and investment style
within a single investment program. Portfolio man-
agement is provided by a range of outside money
management firms. United Financial also provides
investment management services to high net worth
individuals and institutional clients through Private
Client Managed Portfolios. United Financial has $8.8
billion under management.
Our Strategy
The foundation of our strategy is integrated wealth
management, which combines traditional investment
advice with insurance, tax and estate planning to look
at a client’s entire financial situation. We believe this
business model best serves the increasingly complex
needs of clients, and is the key for successful and
focused on moving to a new administrative platform
sustainable advisory practices over the long term.
at CI Investments, improving our existing products
through reductions in their operating expenses and
Our operations and future growth plans continue to
through portfolio management changes, and launching
be focused on our advisors, whose business success
new products. These changes provide a foundation
has the biggest impact on our profitability. We plan to
for strong net sales in the next 12 months.
grow our business three ways:
(cid:1) By helping our advisors increase their assets
In our advisory business, assets under administration
and manage their businesses more efficiently;
rose by 24% over the year from $19.4 billion to $24.0
(cid:1) By bringing experienced advisors to the firm
billion, driven in large part by the acquisition of
through a targeted recruitment program;
IQON at the beginning of the year. Looking at each
(cid:1) Through strategic acquisitions as opportunities
company individually, assets under administration
arise.
grew during the year to $19.7 billion from $19.4
billion at Assante Wealth Management, and to $4.3
We believe that the advisor is the centre of the client
billion from $4.2 billion at IQON. The number of
relationship. A key part of our strategy is providing our
advisors at Assante increased from approximately 750
advisors with the services and products they need to
to 1,050, primarily because of the addition of IQON
combine all of the components of wealth planning into
with more than 300 advisors. There was also contin-
their business. This will allow them to focus on the needs
ued consolidation of advisors within Assante in 2005,
of their clients, provide more comprehensive advice and
which resulted in a stronger overall advisor base, as
service, and ultimately increase their profitability.
higher average assets under administration produce
Highlights of Fiscal 2005
Growth in Assets
In fiscal 2005, assets under management rose by
7.7% to $8.7 billion. The majority of this increase
occurred in the Optima Strategy and Private Client
programs, which saw assets rise from $7.4 billion to
$8.0 billion, while Artisan assets remained steady at
$760 million. The increase in assets was due to solid
performance and net sales of $301 million, which
represents a slight decline from the previous year.
During the year, our asset management operations
more stable income levels. The average assets per
advisor at Assante Wealth Management have increased
from $23 million to $26 million – among the highest
in the Canadian financial planning industry.
Operational Achievements
In 2005, we completed the restructuring phase that
began when CI acquired Assante in November 2003.
This involved revising and enhancing our administra-
tive processes, integrating our technology platform
with CI, and improving our service offerings for greater
efficiency. We also redefined and repositioned many
of our corporate functions to better reflect our business
model as a wealth management company.
2 5
We introduced a new brand by adopting the business
In the advisory business, we provided advisors with
name Assante Wealth Management and our position-
greater support, adding to our team of insurance and
ing statement, “Be well-advised.” Our goal is to
estate professionals, and offering advisors access to
strengthen our brand in the marketplace as a leader
in-depth expertise through our team of estate, tax and
in wealth management, and we continue to dedicate
legal experts.
resources to help our advisors fulfil this promise to
clients.
This year, we made a major commitment to the
training and development of our advisors through
In early 2005, we entered into a refinement phase,
our business partnership program. This program is
fine-tuning the changes to our processes and systems,
designed to identify opportunities for advisors to
and providing more value-added services and support
grow their business, and operate it more efficiently
to our advisors. Our goals are to help our advisors:
and profitably. The program is in addition to regular,
(cid:1) Deliver better service to clients;
ongoing professional development sessions.
(cid:1) Meet the needs of clients by increasing the
breadth and depth of our products;
We also overhauled our approach to compliance,
(cid:1) Maximize efficiency and profitability;
(cid:1) Protect their business from liability.
strengthened our relationships with regulators and
put regional compliance managers in place to help
advisors stay up to date on regulatory developments
We continued leveraging the strength and resources
and to resolve issues.
of CI’s infrastructure to help achieve these goals.
In our asset management business, this included
consolidating four funds with similar mandates,
eliminating three RSP clone funds as a result of the
elimination of the foreign content rule, modifying
the Artisan Portfolios, reducing fees on the Artisan
Portfolios and Optima Strategy, and replacing sub-
advisors in both programs to make them more
competitive and attractive to our advisors and
clients, who can choose from a wide array of external
investment management products in addition to
our own managed portfolios. We also implemented
a comprehensive administration system for our
Private Client business.
Our Plans for
Fiscal 2006
We are poised to begin a new phase of growth at
Assante. In June, we announced our strategy for
integrating our advisory businesses. Under the plan,
IQON, with its 300 advisors, will join a common
administrative platform, and corporate functions will
be consolidated with the rest of Assante’s operations,
which support the 750 advisors at Assante Wealth
Management. IQON advisors will continue to operate
independently under the IQON brand.
2 6
In addition, Assante is entering into a partnership
Also in July, we expanded our lineup of managed
with selected professional staff and advisors, subject
portfolio products with the launch of Institutional
to regulatory approval. The new firm, Stonegate
Managed Portfolios. This innovative investment
Private Counsel LP, will provide wealth planning and
management program brings together some of the
other inter-generational services to high net worth
world’s best-performing institutional investment
individuals and their families. Initially, the firm is
managers to provide sophisticated investors with
expected to have approximately $1 billion of assets
advanced portfolio management. We are planning to
under administration. It will operate from Toronto
further expand our lineup of wealth management
and Montreal with plans to open in major centres
products and services so that our advisors can offer
across Canada.
additional customized solutions to meet the unique
and diverse needs of their clients, and to make it
Through Assante Wealth Management, IQON Financial
easier for clients to consolidate their business
and Stonegate Private Counsel, advisors have a choice
with Assante.
of affiliations and business models, based on how they
run their businesses and the needs of their clients.
Reducing costs – both corporate expenses and the
A common administrative platform will support all
operating expenses of our investment management
channels, increasing operating efficiencies by leverag-
programs – continues to be a key priority. In early
ing CI’s expertise and infrastructure.
2005, we reduced the cost of investing in a typical
Optima Strategy portfolio by approximately 36 basis
In July, we changed the name of our asset manage-
points and in each Artisan Portfolio by approximate-
ment division from Assante Asset Management Ltd.
ly 34 basis points, representing reductions of up to
to United Financial Corporation, and the name of
54% on the expenses of operating the portfolios.
the Assante Pools, the investment pools within the
Effective September 1, all of our investment funds
Optima Strategy and Private Client programs, to the
have fixed administration fees. Fund expenses have
United Pools. This distinguishes our investment
been set at 17 to 22 basis points, depending on the
management business from our advisory business
portfolio or fund, resulting in a further reduction in
and allows for increased growth through our three
operating expenses of up to 22% for investors. This
distinct distribution channels.
represents an important commitment to our advisors
and clients, and will result in lower costs, greater
transparency for investors and the certainty of
knowing what they are paying to invest, now and
in the future.
2 7
DAVID R. M CB AIN
President and Chief Executive Officer
Skylon Advisors Inc .
Our Company
Skylon Advisors markets and manages the VentureLink Family of Labour-Sponsored
Funds and structured products – closed-end funds, which trade on the stock
exchange, and equity-linked notes, which offer returns linked to mutual funds,
stocks or other securities. Skylon had approximately $1.4 billion in assets under
management at August 31, 2005.
Our Strategy
CI Financial acquired Skylon in November 2003 to spearhead CI’s participation in
the structured products market, which has grown rapidly in recent years. Skylon
has allowed CI to further diversify its product lineup and expand its distribution
channels.
Many structured products focus on investors’ need for regular income or principal
protection. Skylon strives to differentiate its products by combining these benefits
with innovative structures and features and access to leading investment managers,
such as CI’s Signature Advisors, Pacific Investment Management Company LLC
(PIMCO) and Marret Asset Management Inc.
2 9
Highlights of Fiscal 2005
We launched several structured products in fiscal
2005, raising $234 million:
Skylon worked with CI Investments in jointly
developing and marketing several fund-linked notes,
including the highly successful CI C.A.P.I.T.A.L.
Deposit Notes™, which recorded sales of more than
(cid:1) Skylon All Asset Trust, which offers investors
$500 million through the first three series.
exposure to the returns of PIMCO All Asset Fund,
raised $125 million. PIMCO is one of the world’s
largest and most successful portfolio managers of
fixed-income securities.
(cid:1) Yield Advantage Income Trust raised $66 million.
The success of the offering confirmed the value
of the Trust’s unique method of distribution. It
VentureLink assets increased 5% to $188 million at
May 31, 2005. Our marketing efforts focused on the
VentureLink Diversified Income Fund and the
VentureLink Financial Services Innovation Fund.
These funds posted positive results and were first
quartile in the labour-sponsored category for the 12-
was the first investment trust of its kind to be
month period.
distributed without a formal syndicate of selling
agents, which resulted in cost savings for investors.
The underlying portfolio of income trusts, high-
yield debt and other securities is managed by Eric
Bushell and Matt Shandro of Signature Advisors,
which demonstrates how we can leverage our
relationship with other CI companies.
(cid:1) Skylon Y.I.E.L.D. Notes™, Series 1 and Series 2,
raised a combined total of $43 million. These
notes are linked to the price performance of a
diversified basket of equally weighted securities
of 10 Canadian issuers that are leaders in their
respective sectors.
In an effort to further differentiate VentureLink, those
two funds paid a dividend in November 2004 to Class
A unitholders of certain series, making them the first
labour-sponsored funds in Ontario to pay a dividend
to individual shareholders. The ability to pay a divi-
dend was a result of the funds’ positive performance
and their focus on investing in debt issued by more
mature companies rather than start-ups.
3 0
Our experience, the backing of CI, our strong rela-
tionships with advisors and our contacts within the
financial industry will allow us to package innovative
products with the money management skills of
world-class managers – and maintain our leading
position in this market.
Our Plans for
Fiscal 2006
In the structured products area, sales success
depends on consistently offering new products with
features that appeal to advisors and investors. Our
intention is to make a note or a closed-end fund
available throughout the year, to maintain a presence
in the market and generate steady sales.
We launched two new notes in July 2005 – the Skylon
Pro-Tracker Deposit Notes™, Series 1, and the Skylon
Pro-Tracker R.O.C. (Return of Capital) Deposit
Notes™, Series 1. The notes provide exposure to a
basket of income trusts, regular distributions and
principal protection.
Also in July and August, Skylon and CI launched new
versions of the popular CI C.A.P.I.T.A.L. Deposit
Notes™, including the R.O.C. Enhanced Yield Class,
Series 1, and the Enhanced Yield Class, Series 4.
3 1
Management’s Discussion and Analysis
This Management’s Discussion and Analysis (“MD&A”) presents commentary on CI Fund
Management Inc. and its subsidiaries (“CI”) as at and for the year ended May 31, 2005 and
is as of July 7, 2005. Financial information, except where noted otherwise, is presented
in accordance with Canadian generally accepted accounting principles (“GAAP”) and
amounts are expressed in Canadian dollars. The principal subsidiaries referenced herein
include CI Investments Inc. (“CI Investments”) (formerly CI Mutual Funds Inc.), Skylon
Advisors Inc. (“Skylon”), Assante Asset Management Ltd. (“AAM”), Assante Advisory
Services Ltd. (“AAS”) and IQON Financial Management Inc. (“IQON”). The Asset
Management segment of the business includes CI Investments, Skylon and AAM, while
the Asset Administration segment consists of AAS and its subsidiaries, other than AAM,
and IQON.
The MD&A contains forward-looking statements with respect to expected financial perform-
ance, strategy and business conditions. These statements involve risks and uncertainties,
are based on assumptions and estimates, and therefore actual results may differ materially
from those expressed or implied by CI. Factors which may cause such differences include,
but are not limited to, general economic and market conditions including interest and
foreign exchange rates, global financial markets, legislative and regulatory changes, industry
competition, technological developments and catastrophic events. The reader is cautioned
against undue reliance on these forward-looking statements.
Further information on CI can be found in its Consolidated Financial Statements, which
are available on SEDAR at www.sedar.com.
(cid:1) OV E R A L L P E R F O R M A N C E
consideration of the above items, net income would
CI reported net income for the year ended May 31,
2005 of $284.7 million, an increase of 29% over the
$221.0 million for the year ended May 31, 2004. On a
per share basis, CI earned $0.97, up 18% from $0.82
in the prior year.
The results for 2005 were impacted by a $53 million
($33.9 million after-tax) charge to earnings for com-
pensation to unitholders of CI Investments and $6.7
million in capital gains ($5.5 million after-tax). In
2004, CI recorded a non-cash charge of $30.2 million
relating to future income taxes. In addition, stock-
based compensation impacted earnings by $4.8 mil-
lion ($3.1 million after-tax) in fiscal 2005 and $29.7
million ($18.3 million after-tax) in fiscal 2004. After
have been $316.2 million in fiscal 2005, versus $269.5
million in the prior year.
The inclusion of results for a full fiscal year in 2005
of businesses acquired mid-way through fiscal 2004
helped propel CI’s average assets under management
higher year over year, which increased revenues
and overall operating profitability. This is shown in
the selected annual information shown below. The
growth in CI’s business between 2003 and 2005 is
primarily due to the acquisition of Assante Corp-
oration (“Assante”), Synergy Asset Management Inc.
(“Synergy”) and Skylon in the second quarter of
fiscal 2004.
S E L E C T E D A N N U A L I N F O R M AT I O N
(millions, except per share amounts)
Total revenues
Total expenses
Income before income taxes
Income taxes
Net income
Earnings per share
Dividends per share
Total assets
Total long-term debt
Common shares outstanding
Average common shares outstanding
2005
$1,082.3
634.4
447.9
163.2
$284.7
$0.97
$0.675
$2,664.1
$390.9
286.643
293.297
2004
$844.7
453.0
391.7
170.7
$221.0
$0.82
$0.405
$2,493.8
$245.2
295.199
268.103
2003
$576.2
456.2
120.0
49.0
$71.0
$0.32
$0.290
$1,025.7
$144.0
235.526
224.850
3 3
MANAGEMENT’S DISCUSSION AND ANALYSIS
EBITDA, operating profit margin and free cash flow,
option expense was $534.3 million or $1.82 per share,
as defined below, are non-GAAP earnings measures
compared with $471.9 million or $1.76 per share in
that do not have any standardized meaning pre-
fiscal 2004.
scribed by GAAP. They are therefore unlikely to be
comparable to similar measures presented by other
Income before income taxes was $447.9 million for
issuers. However, management believes that most
fiscal 2005, an increase of 14% from $391.7 million in
shareholders, creditors, other stakeholders and
the prior year. The income tax provision decreased
investment analysts prefer to include the use of these
from $170.7 million to $163.2 million in fiscal 2005,
performance measures in analyzing CI’s results.
of which $109.1 million was represented by current
taxes and $54.1 million by future taxes. The provision
For the year ended May 31, 2005, earnings before
for income taxes for the year ended May 31, 2005
interest, taxes, depreciation and amortization (EBIT-
reflects an effective tax rate of 36.4%, versus 43.6%
DA) totalled $529.5 million or $1.81 per share, as set
in the prior year. The prior year income tax provision
out in the table below which reconciles EBITDA to
was negatively impacted by the elimination of previ-
net income. This compares with $442.2 million or
ously legislated decreases to future income tax rates,
$1.65 per share in the prior fiscal year. EBITDA in
resulting in a $30.2 million non-cash charge to future
fiscal 2005 adjusted to eliminate the effect of the
income taxes.
R E C O N C I L I AT I O N O F E B I T D A T O N E T I N C O M E
(millions, except per share amounts)
Net income
Add:
Interest expense
Income tax expense
Amortization of DSC and fund contracts
Amortization of other
EBITDA
per share
3 4
2005
$284.7
9.8
163.2
58.2
13.6
244.8
$529.5
$1.81
2004
$221.0
8.6
170.7
35.4
6.5
221.2
$442.2
$1.65
Fourth Quarter
Net income and earnings per share were steady at $81
million and $0.28 per share, respectively, in the
fourth quarter of fiscal 2005 compared to the third
quarter. While stock-based compensation recorded in
the quarter resulted in a reversal of $3.8 million ($2.4
million after-tax), several expense items increased
during the quarter in conjunction with the increase in
revenues. Total revenue climbed to $281.1 million
from $278.7 million last quarter. The third quarter
included a gain on sale of marketable securities of
$7.4 million ($6.1 million after-tax). There were no
other significant variations to the fourth quarter
results.
S U M M A R Y O F Q U A R T E R LY R E S U LT S
(millions of dollars, except per share amounts)
2005
2004
INCOME STATEMENT DATA
Q 4
Q 3
Q 2
Q 1
Q 4
Q 3
Q 2
Q 1
Management fees
Administration fees
Other revenues
Total revenues
232.1
221.9
213.3
214.5
217.3
205.8
151.8
136.0
30.9
18.1
28.9
27.9
25.9
19.6
28.8
20.4
25.5
21.1
26.5
22.7
4.9
16.7
1.2
15.1
281.1
278.7
258.8
263.7
263.9
255.0
173.4
152.3
Net selling, general and administrative
Trailer fees
Investment dealer fees
Amortization of deferred sales commissions
Other expenses
Total expenses
38.6
68.7
22.4
16.1
5.9
48.0
63.9
20.9
14.2
7.0
91.8
60.2
18.5
13.0
7.3
37.0
57.9
20.3
12.0
7.5
51.8
57.4
18.1
11.0
7.5
31.1
55.8
18.8
7.5
8.0
39.0
45.3
2.8
8.8
6.2
25.0
39.3
0.0
6.7
7.3
151.7
154.0
190.8
134.7
145.8
121.2
102.1
78.3
Minority interest
0.0
0.7
1.2
1.2
1.4
1.5
1.1
1.3
Income before income taxes
Income taxes
Net income
129.4
124.0
48.5
80.8
42.8
81.2
66.8
25.3
41.5
127.8
116.7
132.3
46.5
81.3
41.3
75.4
45.3
87.0
70.1
54.9
15.2
72.7
29.2
43.5
Earnings per share
0.28
0.28
0.14
0.28
0.26
0.29
0.06
0.19
Dividends per share
0.15
0.25
0.15
0.125
0.125
0.10
0.10
0.08
3 5
MANAGEMENT’S DISCUSSION AND ANALYSIS
Fee-Earning Assets and Sales
Total fee-earning assets, which includes mutual and
segregated funds, Assante funds, managed labour-
sponsored funds and structured products (collective-
ly managed retail assets), administered /other funds
and Assante assets under administration (net of
Assante funds) at May 31, 2005, were $68.1 billion, up
11% from $61.3 billion at May 31, 2004. CI’s assets as
reported by the Investment Funds Institute of Canada
(“IFIC”) were $45.9 billion at May 31, 2005. This fig-
ure is $3.3 billion below CI’s actual $49.2 billion in
managed retail assets because IFIC uses a narrow def-
inition of assets under management that does not
include the $1.9 billion of segregated funds, hedge
funds, and pooled funds, $0.2 billion in managed
labour-sponsored funds and $1.2 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.
Average total managed retail assets were $46.085 bil-
lion in fiscal 2005, an increase of 24% from $37.236
billion in fiscal 2004. As most of CI’s revenues and
M A N AG E D R E TA I L A S S E TS
(billions)
Assets at May 31, 2004
Gross Sales
Redemptions
Net Sales
Market Performance
Assets at May 31, 2005
$44.4
8.6
6.9
1.7
3.1
$49.2
3 6
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 average assets
was directly attributable to the addition of $9.0 billion
in assets from the Assante, Skylon and Synergy acqui-
sitions and the increase in the market value of CI’s
funds resulting from the increase in equity markets in
fiscal 2005.
Gross sales of CI’s managed retail funds were $8.6 bil-
lion for the year ended May 31, 2005, compared with
$6.9 billion for the same period in 2004. Net sales
(gross sales less redemptions) were $1.7 billion for
the year ended May 31, 2005, compared with $920
million for the same period in 2004. The significant
increase in CI’s net sales from 2004 is due primarily
to stronger sales at CI Investments, as net sales from
AAM and Skylon declined slightly year over year.
Strong fund performance and the benefits of expand-
ed distribution contributed to the increase in sales of
CI funds.
At June 30, 2005, fee-earning assets totalled $68.8
billion, as shown in the chart on the next page, rep-
resented by $39.7 billion in mutual and segregated
funds, $8.8 billion in managed assets through Assante,
$0.2 billion in managed labour-sponsored funds,
$1.2 billion in structured products, $3.7 billion in
administered/other assets such as labour-sponsored
funds, and $15.2 billion in Assante and IQON assets
under administration (net of Assante-managed assets
described above).
Market Review
Global equity markets were relatively strong in the
12-month period ended May 31, 2005 when measured
F E E - E A R N I N G A S S E T P R O F I L E
A S AT J U N E 3 0
(billions)
Mutual/segregated funds
Assante funds
Managed labour-sponsored funds
Structured products
Total managed retail assets
Administered/other funds
Assante/IQON assets under administration
(net of Assante funds)
Total fee-earning assets
2005
$39.7
8.8
0.2
1.2
$49.9
3.7
15.2
$68.8
2004
$35.3
8.1
0.2
1.1
$44.7
5.8
15.5
$66.0
% change
12
9
0
9
12
-36
-2
4
in local currencies. However, the 8.6% appreciation
not give a comprehensive view of CI’s sales and
of the Canadian dollar against the U.S. dollar reduced
assets, they are helpful as an indicator of trends
foreign returns to Canadian investors.
affecting a significant portion of CI’s business.
For fiscal 2005, the S&P/TSX Composite Index rose
Acquisition Highlights
16.2% on the strength of commodity prices and a
generally healthy economy. In Canadian dollar terms,
the S&P 500 Index fell 0.7%, the Dow Jones Industrial
Average fell 3.6%, the Nasdaq Composite Index fell
3.9% and the MSCI World Index rose 2.9%. The pos-
itive performance of the S&P/TSX Composite Index
encouraged sales into CI’s Canadian equity funds.
Industry net sales of mutual funds as reported by IFIC
were positive, with $12.9 billion in net sales for the
year ended May 31, 2005. This compared with indus-
try net sales of $14.8 billion for the year ended May
31, 2004. Though sales and assets reported by IFIC do
CI’s operating and financial results for fiscal 2005
include IQON Financial Management Inc. and Synera
Financial Services Inc., the acquisitions of which
closed on June 3, 2004. CI paid a total of $38.5 mil-
lion in cash to Sun Life Assurance Company of
Canada (“Sun Life”) for the two companies, which
have networks of financial and insurance advisors
with $3.6 billion in assets under administration.
For details of the accounting treatment of these
acquisitions, reference is made to Note 4 – “Business
Acquisitions” of the Consolidated Financial Statements
for the year ended May 31, 2005.
3 7
MANAGEMENT’S DISCUSSION AND ANALYSIS
(cid:1) L I Q U I D I T Y A N D
C A P I TA L R E S O U R C E S
CI’s main capital requirements are to finance com-
missions arising from the sale of funds on a deferred
sales charge basis, to pay dividends on its common
shares, to purchase marketable securities and to fund
capital expenditures.
In fiscal 2005, CI financed $150.8 million in sales
commissions with its own cash resources, up from
$125.9 million in fiscal 2004. The increase resulted
from CI financing the commission on an additional
$500 million in gross sales this year, which is a
component of the $1.7 billion increase in gross sales
discussed above.
In fiscal 2005, CI paid $198.3 million in dividends to
holders of CI common shares, equivalent to $0.675
per share.
CI also had net purchases of marketable securities in
the amount of $40.6 million in fiscal 2005, resulting
in total marketable securities of $77.2 million at May
31, 2005. Marketable securities are comprised of seed
capital investments and other portfolio investments.
Capital expenditures incurred during the year ended
May 31, 2005 of $7.2 million were primarily for
computer hardware and software related to the
improvement of systems technology within the Asset
Administration segment and continued upgrading of
portfolio trading, reporting and compliance functions.
In fiscal 2005, as in prior years, a portion of the
capital assets for use in the operation of CI’s funds
3 8
were leased with such payments recovered over time
through expenses recovered from the funds. Future
payments are included below under Contractual
Obligations.
In addition, CI used $147.7 million to repurchase 8.6
million of its common shares at an average price of
$17.24 per share. This compares with $21.4 million
used to repurchase 1.7 million common shares at an
average price of $12.74 per share in fiscal 2004. On
May 31, 2005, the closing price of CI was $17.30 per
common share, and on July 7, 2005, it was $18.50 per
common share.
As discussed earlier, in fiscal 2005, CI acquired IQON
and Synera for total cash consideration of $38.5 mil-
lion. Included in IQON’s net assets was cash of $1.2
million.
All of the above funding requirements were met by
cash provided by operating activities in fiscal 2005 of
$441.5 million and an increase of $145.8 million in
the amount drawn on CI’s line of credit with a
Canadian chartered bank. The line of credit stood at
$500 million at May 31, 2005 and was increased to
$650 million on July 7, 2005. At fiscal year-end, CI
had drawn $390.9 million bearing an average rate of
2.90%, compared with $245.2 million drawn at an
average rate of 2.31% at the end of the prior year. Net
of marketable securities, debt was $313.8 million in
fiscal 2005 versus $216.3 million in 2004. Interest
expense was $9.8 million, up from $8.6 million in
fiscal 2004, reflecting higher average debt levels, but
still quite modest compared to levels of cash flow.
Principal repayments would only be required under
the facility should the bank decide not to renew the
In fiscal 2005, CI granted 1.679 million stock options to
facility on its anniversary each December, in which
employees of the company. An estimate of the value of
case the principal would be repaid in 48 equal month-
the options issued, based on a projection of the aver-
ly installments. These payments are set out below
age option life, corresponding stock volatility, current
under Contractual Obligations.
dividend and interest rate assumptions is approxi-
mately $2.9 million or 0.6% of fiscal 2005 EBITDA.
Free cash flow (cash flow from operations before net
This estimate of $2.9 million is not reflected in the
change in working capital less sales commissions and
financial statements. As CI accounts for its stock
minority interest for the year) was $235.8 million, rel-
options as a liability, reflecting their cash-settlement
atively unchanged from $237.2 million in fiscal 2004,
feature, the actual expense will be determined by the
as the increased level of sales commissions paid offset
price at exercise less the strike price, which may be
the growth in operating cash flow. This level of free
more or less than $2.9 million. If option holders elect
cash flow exceeded the dividends paid during the
a cash payment for their options, the payment will be
year by $37.5 million. Based on this, CI currently has
deductible for tax purposes based on current applica-
sufficient cash flow to meet anticipated capital ex-
ble tax laws.
penditures, deferred sales commissions and dividends.
At May 31, 2005, CI’s managed retail assets had a cur-
outside members of its Board of Directors as part of
rent redemption value of $789.1 million or $2.75 per
their compensation. CI also issued 5,500 common
share at May 31, 2005, compared with $817 million or
shares on the exercise of options where the holder
$2.77 per share at May 31, 2004.
requested to settle for stock. For full details on the
In addition, CI issued 7,264 common shares to the
share capital of CI, refer to Note 9 – “Share Capital” in
the Notes to the Consolidated Financial Statements.
C O N T R A C T U A L O B L I G AT I O N S
PAY M E N T S D U E B Y P E R I O D
(millions)
Long-term debt
Operating leases
Total
$390.9
49.8
Less than
1 year
$40.7
11.3
2
$97.7
10.9
3
$97.7
10.0
4
$97.7
4.7
Total
$440.7
$52.0
$108.6
$107.7
$102.4
5 or more
years
$57.1
12.9
$70.0
3 9
MANAGEMENT’S DISCUSSION AND ANALYSIS
(cid:1) O F F - B A L A N C E S H E E T
A R R A N G E M E N T S
CI uses derivative contracts to mitigate its equity mar-
ket exposure on its stock-based compensation. CI has
entered into a total return share swap transaction
agreement with a Canadian chartered bank. This is
intended to hedge CI’s exposure to fluctuations in the
price of its common shares as it records its stock-
based compensation liability.
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 disclosed in
the funds’ prospectus or other offering document.
These payments are in the form of commissions on
sales of funds on a deferred sales charge basis ($42.3
million versus $32.0 million in fiscal 2004) and trailer
fees ($71.0 million versus $58.5 million in fiscal 2004).
CI also uses derivative contracts to hedge the
currency risk associated with seed capital invest-
ments in U.S. dollar-denominated hedge funds. On
May 31, 2005, CI had an $8 million U.S. currency for-
ward contract outstanding to offset its U.S. invest-
(cid:1) C R I T I C A L AC C O U N T I N G
E S T I M AT E S
Goodwill and Intangible Assets
ment in a hedge fund. On July 7,2005, this contract
At the time of acquisition, intangible assets are deter-
was closed out with a realized gain of $0.3 million.
mined using estimates of fair value and goodwill is
recorded as the excess of purchase price over identifi-
Debt outstanding is borrowed at a floating interest rate.
able assets acquired. CI performs impairment tests for
The existing credit facility provides CI with the option
goodwill and indefinite life intangible assets at least
of fixing interest rates, should CI change its view on its
annually. The tests also involve estimates and
exposure to rising interest rates.
(cid:1) R E L AT E D PA RT Y
T R A N S AC T I O N S
Sun Life is a related party as a result of its 35% owner-
ship of CI’s outstanding common shares. In fiscal 2003,
assumptions. At May 31, 2005 there was no impair-
ment to the carrying amounts nor would a reasonably
likely change to material assumptions result in
impairment.
Income Taxes
in conjunction with the acquisition of Spectrum
The current and future income tax assets and
Investment Management Limited and Clarica Diversico
liabilities are recorded based on interpretation of tax
Ltd., CI and Sun Life entered into an arrangement
legislation and assumptions about the realization and
whereby, among other things, Sun Life would distribute
timing of future benefits and costs. A difference in inter-
CI’s funds through Sun Life’s Clarica sales force on a
pretation by tax authorities or a change in timing or
preferred basis and that CI would perform essentially
realization of reversals could result in higher or lower
tax provisions.
4 0
Deferred Sales Commissions
The commissions paid on sales of deferred load
or back-end products are deferred and amortized over
84 months. This estimate matches the period over
which redemption fees are payable by the investor in
this type of product. The sum of these potential
redemption fees, the terminal redemption value, is sig-
to be appropriate. These include the identification,
documentation, designation and effectiveness of
hedges. The adoption of this policy had no material
impact on CI’s financial statements.
(cid:1) F I N A N C I A L
I N S T R U M E N T S
nificantly greater than the balance of unamortized
The fair value of certain financial instruments approx-
deferred sales commissions.
(cid:1) C H A N G E I N
imates carrying value. This is the case for cash,
accounts receivable and prepaid expenses, accounts
payable and long-term debt. Marketable securities
AC C O U N T I N G P O L I C I E S
have a fair value based on quoted market prices for
CI adopted a new accounting policy on Hedging
Relationships in fiscal 2005. This requires that certain
circumstances be met in order for hedge accounting
portfolio investments and seed capital.
The table below sets out the relative carrying and fair
values for each financial instrument.
F I N A N C I A L I N S T R U M E N T S
A S AT M AY 3 1 ,
(millions)
2 0 0 5
2 0 0 4
Cash
Marketable securities
Accounts receivable
and prepaid expenses
Accounts payable
Long-term debt
Off Balance
Carrying
Value
$28.3
77.2
94.2
$199.7
$165.8
390.9
$556.7
Fair
Value
$28.3
79.1
94.2
$201.6
$165.8
390.9
$556.7
Carrying
Value
$25.1
28.8
93.6
$147.5
$116.1
245.2
$361.3
Fair
Value
$25.1
29.3
93.6
$148.0
$116.1
245.2
$361.3
Sheet Arrangements
$ Nil
$ (0.1)
$ Nil
$ 0.2
4 1
MANAGEMENT’S DISCUSSION AND ANALYSIS
(cid:1) D I S C L O S U R E C O N T R O L S
closed-end funds, segregated funds, hedge funds and
Pursuant to Multilateral Instrument 52-109, manage-
ment has assessed the effectiveness of CI’s disclosure
controls and procedures as at May 31, 2005 and found
them to exceed required standards.
(cid:1) A S S E T M A N AG E M E N T
S E G M E N T
Business Review
The principal business of CI is the management, mar-
keting, distribution and administration of mutual funds,
segregated funds, structured products and other fee-
earning investment products for Canadian investors
through brokers, independent financial planners and
insurance advisors, including Assante, Clarica and IQON
financial advisors. The Asset Management segment pro-
vides the majority of CI’s income and includes the
structured products.
In fiscal 2005, CI launched a number of new
products. In August 2004, CI launched FULPAY PLUSTM
CI Funds-Linked Deposit Notes, Series 1, a unique
investment that provides principal protection while
locking in the best cumulative performance each year
out of a diverse portfolio of leading CI funds.
In October 2004, CI launched Skylon All Asset Trust,
providing investors with access to the expertise of
Pacific Investment Management Company LLC and
Research Affiliates, LLC who will seek maximum
inflation-adjusted returns consistent with preservation
of capital and tax-efficient quarterly distributions.
In January 2005, CI launched Yield Advantage Income
Trust, a closed-end fund designed to distribute 7%
annually through exposure to an actively managed
operating results and net assets of its wholly owned
portfolio of income trusts, high yield debt and other
subsidiaries CI Investments, Skylon and AAM which
securities.
derive their revenues principally from the fees earned
on the management of several families of mutual,
In March 2005, CI completed the launch of CI
segregated, pooled and closed-end funds, structured
C.A.P.I.T.A.L. Deposit NotesTM, Enhanced Yield Class,
products and discretionary accounts.
Investment Products
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
Series 1, which offer investors principal protection
and a monthly distribution, along with the potential
for 200% exposure to Signature High Income Fund.
Series 2 and Series 3 were completed in May 2005 and
July 2005, respectively.
In March 2005, CI completed the launch of CI
C.A.P.I.T.A.L. Deposit NotesTM, Callable Class, Series 1,
which offer investors principal protection and a yield
domestic funds offering a variety of investment styles.
of 8% over two and one-half years if redeemed or the
In addition, CI has consistently developed new prod-
full return of two CI funds if held for the five-year
ucts, such as sector-specific funds, portfolio-based
term. Series 2 and Series 3 were completed in April
funds, fee-based portfolio management services,
2005 and July 2005, respectively.
4 2
In April 2005, CI launched Skylon Y.I.E.L.D. Notes,
eliminate duplication arising from recent acquisitions.
Series 1, a 6.6 year note paying a 5% coupon at the
Terminated sub-advisors included Howson Tattersall
end of 2005 and has the potential to pay an annual
Investment Counsel Ltd. and Altamira Investment
variable coupon of up to 11% over the remaining six
Services.
years of the notes. Series 2 was launched in May 2005.
In April 2005, CI announced that it was changing the
name of CI Sector Fund Limited to CI Corporate Class
Limited to more accurately describe the structure of
the funds and the tax-efficient strategies they offer
investors.
As a result of the many acquisitions by CI over the
past several years, CI’s lineup of funds had expanded
significantly. In order to streamline its lineup and
improve the cost efficiencies in operating the funds, CI
eliminated 15 funds in September 2004 by merging
them into other funds with similar mandates.
Similarly, CI eliminated a further eight funds in
November 2004 and announced in May 2005 that a
further 16 funds would be eliminated in August 2005.
In order to offer a broad range of investment products,
CI retains the services of a significant number of inves-
tment managers. CI uses both external sub-advisors
and internal portfolio managers to ensure it can attract
and maintain the investment management expertise
CI believes is necessary to meet investors’ needs.
CI maintains sub-advisory agreements with independent
CI also employs portfolio managers directly. At
May 31, 2005, CI managed $21.0 billion in a
diversified mix of funds using value and growth-
oriented investment approaches. CI’s in-house invest-
ment teams operate under the Harbour Funds,
Signature Funds and CI Funds brands and include
well-known money managers such as Gerry Coleman,
Eric Bushell and Robert Lyon.
Effective June 2004, CI terminated its equity
ownership
in Webb Capital Management LLP
(“Webb”), in which CI had a 55% ownership. A
decision was made to not extend the sub-advisory
contract with Webb and a return of CI’s ownership
in Webb was negotiated in conjunction with the
termination of the contract.
Effective February 2005, CI restructured its 66%
ownership in BPI Global Asset Management LLP
(“BGAM”) such that CI gave up all future economic
benefits of ownership in exchange for a 32% part-
icipation in the net revenue earned on BGAM’s
institutional assets.
investment managers who are compensated on the
Effective November 2004, CI terminated its 49% equity
basis of assets under management, as detailed in the
ownership in Altrinsic Advisors, LLC. CI maintains a
chart on the next page.
25% profit participation in Altrinsic Global Advisors,
LLC, whose mandate is to pursue institutional hedge
During the year, CI terminated relationships with
fund assets.
certain sub-advisors in conjunction with efforts to
4 3
MANAGEMENT’S DISCUSSION AND ANALYSIS
C I I N V E S T M E N T S & A S SA N T E S U B - A DV I S O R S
A S S E T S AT M AY 3 1 , 2 0 0 5
(millions)
AGF Funds Inc.
AIC Limited
AIM Funds Management Inc.
Alliance Capital Management LP
Altrinsic Global Advisors, LLC
Brandes Investment Partners & Co.
Cohen & Steers Capital Management Inc.
Connor, Clark & Lunn Investment Management Ltd.
Deutsche Investment Management Americas Inc.
Dimensional Fund Advisors Inc.
Dynamic Mutual Funds Inc.
Epoch Investment Partners, Inc.
Fidelity Investments Canada Limited
Franklin Templeton Investments Corp.
Legg Mason Capital Management
Mackenzie Financial Corporation
MFC Global Investment Management (Canada)
Picton Mahoney Asset Management
Sanford C. Bernstein & Co., LLC
Sionna Investment Managers Inc.
TD Asset Management Inc.
Tetrem Capital Partners Ltd.
Trident Investment Management, LLC
Trilogy Advisors, LLC
UBS Global Asset Management (Canada) Co.
Waterfall Investments Inc.
Wellington Management Company, LLP
Total
4 4
$407
25
836
203
1,573
30
711
148
1,125
818
53
1,135
692
152
1,255
55
84
1,917
287
4,815
20
1,642
247
6,194
546
257
94
$25,321
Investment Product Distribution
Over the past three years, CI has taken extensive
CI distributes its investment products through invest-
ment dealers, mutual fund dealers, insurance agents,
banks, and its preferred distribution arrangement with
Clarica advisors and managers and through Assante
financial advisors. In order to support these distribu-
tion 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 sup-
port personnel who provide product information and
who 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.
AAM has its own suite of proprietary products known
as the Optima Strategy Pools and the Artisan Portfolios
distributed exclusively through Assante financial
advisors. These products allow Assante advisors to
provide their clients with a comprehensive investment
program that includes strategic asset allocation,
portfolio monitoring and rebalancing and effective
reporting. 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.
AAM also offers its exclusive Assante Private Client
discretionary account management service to high
net worth investors and their families.
measures to broaden its distribution of financial
products:
1. It maintains a broad range of funds that encompass
numerous styles and fund mandates to ensure
financial advisors have the widest choice within CI.
2. 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 will-
ing to support and promote.
3. In July 2002, in conjunction with the purchase of
Spectrum and Diversico, CI entered into a distribu-
tion arrangement with 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 offered by Clarica advisors and managers.
4. In November 2003, CI purchased Skylon to use as a
base to expand CI’s manufacturing and distribution
of structured products such as closed-end funds,
which have become increasingly popular among
certain financial advisors.
5. In November 2003, CI purchased the Canadian
operations of Assante, which currently has app-
roximately 900 financial advisors that distribute
proprietary Assante products and services and
4 5
MANAGEMENT’S DISCUSSION AND ANALYSIS
third-party funds, including CI funds. The acqui-
ating costs will become a competitive advantage in
sition ensures CI maintains a relationship with
the future. The table below depicts the reduction in
these advisors.
costs CI has achieved over the past six years in the
administration of CI funds. (Note that this table does
6. In June 2004, CI purchased IQON, which currently
not include the operating costs of the funds of com-
has approximately 360 financial advisors that
panies acquired by CI until those funds have been
distribute third-party funds, including CI funds.
integrated into CI and therefore have operating costs
The acquisition ensures CI maintains a relationship
consistent with CI funds).
with these advisors.
Investment Product Administration
ability to consolidate fund operations onto its admin-
CI believes that it holds a competitive advantage in its
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 oper-
F U N D O P E R AT I N G
E X P E N S E S
istrative platform and achieve significant cost savings
in the administration of financial products. In fiscal
2003, CI consolidated the Spectrum fund administra-
tion onto CI’s administrative platform within six
weeks of the acquisition. The consolidation of the
Clarica 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 acquisi-
tion of these firms. This has resulted in significant
cost savings in the operations of these funds, which
directly benefits their investors.
In fiscal 2005, CI converted the Assante funds onto
CI’s operating platform, which resulted in significant
Year
1999
2000
2001
2002
2003
2004
2005
as a % of assets (in basis points)
cost savings and enhanced service for the Assante
39.6
34.4
31.1
30.5
31.4
27.5
21.5
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 that have had the
appropriate administrative support to achieve market
4 6
penetration and have contributed significantly to CI’s
Revenues from management fees were $881.8 million
assets under management.
for the year ended May 31, 2005, up 24% from $711.0
Financial Review
The Asset Management segment had income before
income taxes of $452.2 million, an increase of $55.8
million from $396.4 million in the prior year.
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 is
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 man-
agement fees of approximately 2.00%. Approximately
75% 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, CI does not pay trailer fees
on Class I and Class F funds. CI is able to provide
cost-efficient service to Class I funds because of
the large size of these accounts. At May 31, 2005,
there were $354 million and $3,086 million in Class F
and Class I funds, respectively, compared with $261
million and $1,870 million on May 31, 2004.
million in 2004. The increase was mainly attributable
to higher average managed assets in fiscal 2005,
which included a full year of the assets acquired in
the Assante/Synergy/Skylon transactions completed
mid-way through fiscal 2004. A higher proportion of
Class I and Class F funds, which have lower manage-
ment fees, offset positive market performance of the
funds. As a percentage of average managed retail
assets, management fees were 1.91% for fiscal 2005,
unchanged from fiscal 2004.
Other revenue was $78.6 million for fiscal 2005, up
8% from $72.6 million in fiscal 2004.
The largest component of other revenue was
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.
Redemption fees increased from $43.4 million in
fiscal 2004 to $47.1 million in fiscal 2005 as a result
of higher overall redemptions, including a full year’s
redemptions at Assante. This was partially offset
by a decreased level of assets that are subject to
redemption fees, and the aging of assets, which
results in lower applicable redemption fees.
4 7
MANAGEMENT’S DISCUSSION AND ANALYSIS
CI earned income from BGAM’s institutional business
Net SG&A expenses are primarily marketing expenses
of $13.1 million, down 31% from $19.1 million in
incurred to support the funds and portfolio manage-
fiscal 2004, reflecting CI’s reduced share of that
ment expenses. In general, marketing expenses are
business in the fourth quarter.
managed in proportion to assets under management.
Net SG&A expenses relative to assets are higher for
CI may earn revenue or incur losses on investments
the Assante operations due to the more extensive
in seed capital in its hedge funds or other strategic
support provided to the Assante products and servic-
investments such as investments in potential candi-
es. Portfolio management expenses were disclosed
dates for acquisition. CI incurred a gain on the sale of
separately in previous years; however, management
marketable securities of $6.7 million in fiscal 2005,
has determined that such detailed reporting may be
compared with a gain in fiscal 2004 of $0.7 million.
contrary to CI’s best interests by providing informa-
The gain in fiscal 2005 arose primarily from the sale
tion to competitors.
of marketable securities representing strategic invest-
ments. In addition, AAM contributed other income of
Total SG&A expenses were $283.6 million in fiscal
$7.8 million ($4.2 million in fiscal 2004), which is
2005, compared with $238.7 million in fiscal 2004.
primarily made up of custody and other fees from
The single largest reason for the increase is the
Assante’s Private Client Business.
$53 million in compensation to unitholders of CI
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 reflect-
ed in CI’s overall selling, general and administrative
(“SG&A”) expenses. The amount of expenses recov-
ered 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.
Investments’ funds, as described in Note 13 -
“Commitments and Contingencies” in the Notes to
the Consolidated Financial Statements.
Included in total SG&A expenses in fiscal 2005 is
$13.3 million ($40.0 million in fiscal 2004) of com-
pensation expense. 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 por-
tion of unvested amounts, was $46.1 million. At
May 31, 2005, based on the price of CI shares of
$17.30 per share, the potential payment on all options
outstanding, including a portion of unvested amounts,
has decreased by $17.4 million to $28.7 million. As a
result, CI has recorded an expense in fiscal 2005 of
$13.3 million, of which $30.7 million was from option
holders electing cash settlement, $0.1 million from
4 8
option holders electing share settlement and $17.4
along with asset growth, resulted in significant reduc-
million representing the change in liability reported at
tions in the operating expenses of the Assante funds
May 31, 2005 for outstanding vested options and for
in fiscal 2005.
a portion of unvested options. Though CI acknowl-
edges that the option expense is clearly a cost of busi-
Net SG&A expenses were $170.8 million, up
ness that is tied to the performance of CI’s common
from $128.9 million in the prior fiscal year. As
share price, the financial results presented below both
explained above, fiscal 2005 included $13.3 million in
include and exclude the expense to aid the reader in
option-related expenses, compared with $40.0 million
conducting a comparative analysis.
in fiscal 2004. As a percentage of managed retail
assets, net SG&A expenses increased to 0.37% in
Net of the expense related to options and the com-
fiscal 2005 from 0.35% in fiscal 2004. Excluding
pensation to unitholders, total SG&A expenses were
the option-related expense and compensation to
$217.3 million, up 9% from $198.7 million in fiscal
unitholders, net SG&A expenses were $113.0 million or
2004. The increase in SG&A expenses is attributable
0.25% of assets under management in fiscal 2005,
to the inclusion of a full year of Assante’s expenses.
compared with $99.2 million or 0.27% in fiscal 2004.
These costs represent a combination of fund operat-
The majority of the increase in net SG&A expenses
ing expenses and general operating expenses as
was due to SG&A expenses of the acquired Assante
described below.
operations. Assante’s asset management activities
require significantly more support than do CI’s fund
Expenses incurred but recovered as operating expens-
operations, and fiscal 2005 was the first time that
es of the funds rose 3% to $112.8 million for the year
Assante’s expenses were included for the full year.
ended May 31, 2005, compared with $109.8 million in
2004. As a percentage of assets under management,
Trailer fees are paid to investment and mutual fund
expenses charged to mutual funds decreased 17%
dealers and life insurance agents to assist them in
from 0.30% in fiscal 2004 to 0.25% in fiscal 2005.
providing ongoing support to investors in CI funds.
The decrease in overall expenses resulted from the
Trailer fees are also paid to Assante financial advisors
integration of the Assante funds into the CI opera-
on Assante funds for a similar reason. Trailer fees are
tional platform, which led to improved operating effi-
calculated as a percentage of average assets and vary
ciencies, and from cuts in general expenses achieved
with overall assets under management. Trailer fees
through reductions in staff numbers and in variable
are not paid on Class F and Class I mutual funds and
costs. Further improvement in efficiencies resulted
institutional assets.
from the increase in asset levels generated by net
sales and positive equity markets, as costs were being
Trailer fees increased from $204.2 million to $265.0
allocated over a larger asset base. These measures,
million in fiscal 2005. Net of intersegment amounts,
4 9
MANAGEMENT’S DISCUSSION AND ANALYSIS
this expense was up from $197.8 million in fiscal
funds. The actual cash payment in any period is
2004 to $250.7 million in 2005. The overall increase
reported in the Consolidated Statements of Cash
resulted from increased assets under management
Flows under Investing Activities as sales commis-
due to the acquisitions in fiscal 2004 and from the
sions. Amortization of deferred sales commissions
market appreciation of the funds, partly offset by an
rose from $34.0 million in fiscal 2004 to $55.2 million
increase in the percentage of CI’s mutual fund assets
in fiscal 2005. The increase is consistent with the
in Class F and Class I funds, on which CI does not pay
increase in sales commissions paid in the last two
trailer fees. As a percentage of average assets, trailer
fiscal years and the change in amortization period
fees were 0.54% in fiscal 2005, compared with 0.53%
from 36 to 84 months at the beginning of fiscal 2004.
in the prior fiscal year.
Commissions incurred on certain CI assets were
CI monitors its operating profitability on assets under
financed historically by limited partnerships. The
management by measuring the operating margin
expenses for commissions financed by limited part-
calculated as a percentage of average managed retail
nerships are reported as other expenses and are
assets. CI’s operating profit margin is defined as
calculated as a percentage of the assets. The effective
management fees from funds less trailer fees and
amortization period for commissions financed by
net SG&A expenses, calculated as a percentage of
limited partnerships is the life of the CI Master
average managed retail assets. CI uses this measure
Limited Partnership, which will terminate by 2016.
to manage profitability so that when changes in the
market value of assets under management affect rev-
Other expenses dropped from $19.1 million in fiscal
enue flows, CI will adjust discretionary expenditures
2004 to $14.6 million in fiscal 2005. Other expenses
to maintain its margins.
should be viewed in conjunction with revenues rec-
ognized under other income of $24.9 million in fiscal
CI’s operating margin on the Asset Management
2005 and $28.5 million in fiscal 2004. The primary con-
segment, as a percentage of average managed retail
tributors to other expenses were expenses associated
assets and adjusted for the $4.8 million option
with CI’s institutional business, which fell from $10.3
expense and $53 million unitholder compensation
million in fiscal 2004 to $6.8 million in fiscal 2005.
expense as discussed above, was 1.12%, unchanged
from 1.12% in the prior fiscal year. The increase in
Distribution fees to limited partnerships totalled $4.4
trailer fees was offset by lower net selling, general
million, down from $5.6 million in fiscal 2004. As a
and administrative expenses.
percentage of average managed retail assets, distribu-
Commissions paid from CI’s cash resources on the
to 1.0%, reflecting a lower percentage of CI’s overall
sale of funds on a deferred sales charge basis are, for
assets under management that have been financed by
tion fees to limited partnerships decreased from 1.5%
financial reporting purposes, amortized evenly over
limited partnerships.
the 84 months immediately following the sale of the
5 0
For full details on the segmented results of CI, refer to
cial advisory services by Assante and IQON financial
Note 12 – “Segmented Information” in the Notes to the
advisors, CI’s focus is on providing services such
Consolidated Financial Statements.
as compliance oversight, support for tax and legal
(cid:1) A S S E T A D M I N I S T R AT I O N
review of third-party products, a centralized dealer-
services, portfolio management services, product
S E G M E N T
Business Review
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.
Investment Advisory Services
CI provides financial advisory services to clients
through 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 insur-
ance products to a full suite of financial advisory
services, including portfolio management, investment
advice, distribution of securities, insurance products,
ship administrative operation, product design, insur-
ance administration, marketing support, educational
support, financing and other related services.
Income potential from sources other than man-
agement fees has also become significant. CI earns
administration fees predominately on assets under
administration at Assante and at IQON. Administra-
tion fees should be considered in conjunction with
investment dealer fees, which represent payments to
investment advisors on assets under administration.
Payments are determined according to a grid that
provides payments at higher percentages as the indi-
vidual advisor’s assets under administration increase.
Financial Review
The Asset Administration segment had income before
income taxes of $14.3 million, up from $12.7 million
in the prior year.
Revenues
banking products and financial, tax, succession,
Administration fees are fees earned on assets under
wealth and estate planning.
administration in the Assante business and fees
earned from certain labour-sponsored funds and the
At June 30, 2005, Assante and IQON had 1,055 finan-
administration of third-party business. These have
cial advisors with a total of $24.0 billion in assets
increased from $108.5 million last year to $219.2
under administration, resulting in average assets
million this year. The primary contribution to the
under administration of $22.7 million per financial
increase was the revenues earned by Assante on
advisor. In order to support the distribution of finan-
assets under administration for a full fiscal year,
5 1
MANAGEMENT’S DISCUSSION AND ANALYSIS
following the acquisition in November 2003. In
operating expenses. For 2005, gross margin was $53.3
addition, in fiscal 2005, administration fees include
million or 24.3%. In fiscal 2004, investment dealer
fees earned on IQON assets under administration.
fees were $80.1 million on revenue of $108.5 million,
Administration fees should be considered in conjunc-
for a margin of $28.4 million or 26.2%.
tion with investment dealer fees. Net of intersegment
eliminations, administration fee revenue was $114.5
(cid:1) O U T L O O K
million this year, versus $58.0 million last year.
Other revenues earned by the Asset Administration
segment totalled $7.3 million, up from $3.1 million in
the prior year. These amounts are mainly interest
income on cash balances and custody fees.
Expenses
The sales momentum experienced by CI during the
RSP season has continued with net retail sales of $111
million, $131 million and $150 million for April, May
and June, respectively – traditionally very slow
months for the industry. This is in part attributable
to the performance of CI’s funds, which continues to
be strong as demonstrated by CI leading the industry
in Morningstar 5-star rated funds. Market apprecia-
Selling, general and administrative costs for the seg-
tion of CI’s funds has reflected the general increase in
ment were $44.5 million in fiscal 2005, up from $18.1
equity markets, with assets under management
million in fiscal 2004. While the figures for 2005
totalling $50.4 billion at July 7, 2005, up $1.6 billion
reflect a full year of operations for this segment,
or 3% from the fourth quarter average, and up $4.3
SG&A costs were also greater as integration activities
billion or 9% from the fiscal 2005 average.
continued. CI anticipates that the relative cost of the
Assante and IQON operations will decrease over the
CI has steadily increased its dividend over the past
next few years as economies of scale are achieved and
several fiscal years, from $0.29 per share in fiscal
changes to operating technology are implemented to
2003 and $0.405 in fiscal 2004 to $0.675 in fiscal
improve efficiency.
2005. As well, CI introduced monthly dividends in
January 2005 in order to provide shareholders with
Investment dealer fees are the direct costs attributa-
monthly income on their investment. These moves
ble to the operation of the Assante and IQON dealer-
are a result of the stability and growth of CI’s free
ships, including payments to financial advisors based
cash flow and the desire to return excess cash to
on the revenues generated from assets under admin-
shareholders. On July 20, 2005, CI expects to increase
istration. These fees were $165.9 million in fiscal
its dividend from $0.05 per share per month to $0.06
2005, and should be viewed in conjunction with
per share for the monthly dividend payable August
administrative fee revenue of $219.2 million as
15, 2005, reflecting the growth in its operations and
described above when calculating the gross contribu-
the amount of free cash flow available to be returned
tion of the dealership operation before general and
to shareholders.
5 2
On June 23, 2005, CI announced a proposal to estab-
business from Amvescap PLC (“Amvescap”), a
lish a fixed administration fee for its mutual funds.
London-based fund manager. Amvescap then issued
The proposal would have CI bear all operating
a news release stating that it had received such an
expenses of the funds (other than taxes and new gov-
indicative approach from CI, but that its Board of
ernmental fees) in return for fixed administration
Directors had considered and unanimously concluded
fees. These fees are, on average, 36% lower than the
that the approach was not in the best interests of
funds’ operating expenses for calendar 2004. This
shareholders. CI confirmed, in media interviews, that
plan effectively caps the funds’ management expense
it had sent letters to Amvescap outlining its interest in
ratios as CI will absorb any operating expenses that
acquiring AIM/Trimark and possibly Amvescap.
exceed the fixed administration rate. Securityholders
AIM/Trimark manages approximately $44 billion and
will vote on the proposal in late August 2005. If
is the fourth-largest retail fund company in Canada,
passed, the fixed administration fee would come into
making it slightly smaller than CI. Amvescap has a
effect September 1, 2005. CI’s proposal has been
market capitalization of over $7 billion, about one-
unanimously approved by the CI funds’ Board of
third larger than CI.
Governors, a governance body of the funds composed
entirely of governors who are unrelated to CI man-
The agreements between CI and Sun Life relating to
agement, as being in the best interests of the funds’
the acquisition of the Spectrum and Diversico assets
securityholders. The proposal is intended to provide
contain certain provisions that will expire on July 25,
transparency of costs to securityholders of CI’s funds
2005. Sun Life has been limited to a 34% ownership
at attractive levels relative to competitors’ funds, in
stake in CI, which can only be exceeded by CI buying
turn enhancing the appeal of CI’s products.
back its common shares. Sun Life had the right to
maintain its 34% proportionate interest in the event
On June 27, 2005, CI announced that it has adopted
CI issued shares that would have resulted in dilution
the name CI Financial and would seek to change its
of Sun Life’s share position. Sun Life also had the
legal name from CI Fund Management Inc. to CI
right to nominate two individuals for election as
Financial Inc. upon approval from shareholders at its
members of the Board of Directors. At the expiry of
next annual meeting. CI also announced that its
these provisions, it is expected that these rights and
wholly owned subsidiary, CI Mutual Funds Inc. had
obligations will be terminated, although CI will still
changed its name to CI Investments Inc. to better
permit Sun Life to nominate two individuals for elec-
reflect the composition of CI’s business.
tion to its Board of Directors. Any Sun Life purchases
of CI common shares will only be subject to normal
On July 6, 2005, a news story was published
takeover rules as set out by securities laws.
suggesting that CI had made an indicative approach
to purchase the AIM/Trimark Canadian mutual fund
5 3
MANAGEMENT’S DISCUSSION AND ANALYSIS
Consolidated Financial Statements
M A N A G E M E N T ’ S R E P O R T T O S H A R E H O L D E R S
Management of 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
Chief Executive Officer
Douglas J. Jamieson
Chief Financial Officer
July 7, 2005
5 5
CONSOLIDATED FINANCIAL STATEMENTS
A U D I T O R ’ S R E P O R T
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, 2005
and 2004 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, 2005 and 2004 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 7, 2005.
Chartered Accountants
5 6
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 ,
(thousands of dollars)
2005
2004
(cid:1) ASSETS
Current
Cash
Client and trust funds on deposit [note 2]
Marketable securities [note 3]
Accounts receivable and prepaid expenses [note 9(c)]
Income taxes recoverable
Future income taxes [note 11]
Total current assets
Capital assets [note 6]
Deferred sales commissions, net of accumulated
amortization of $322,163 (2004 - $266,919) [note 10]
Fund contracts [notes 4 and 5]
Goodwill [note 4]
Other assets [note 7]
(cid:1) LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable and accrued liabilities [notes 10 and 13]
Client and trust funds payable [note 2]
Income taxes payable
Stock-based compensation [note 9(b)]
Deferred revenue
Current portion of long-term debt [note 8]
Total current liabilities
Deferred lease inducements
Long-term debt [note 8]
Future income taxes [note 11]
Total liabilities
Minority interest
Shareholders’ equity
Share capital [note 9(a)]
Deficit
Total shareholders’ equity
(see accompanying notes)
On behalf of the Board:
28,305
93,099
77,154
94,222
1,923
16,006
310,709
21,276
349,395
1,012,778
951,026
18,886
2,664,070
165,830
93,099
20,537
28,726
4,037
40,722
352,951
2,211
350,212
485,934
1,191,308
–
1,690,663
(217,901)
1,472,762
2,664,070
25,117
89,966
28,829
93,604
6,881
27,865
272,262
26,085
253,867
1,010,682
919,203
11,663
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
1,740,983
(207,114)
1,533,869
2,493,762
_______________________
William T. Holland
Director
_______________________
G. Raymond Chang
Director
5 7
CONSOLIDATED FINANCIAL STATEMENTS
C O N S O L I D AT E D S TAT E M E N T S O F I N C O M E A N D D E F I C I T
Y E A R S E N D E D M AY 3 1 ,
(thousands of dollars, except per share amounts)
2005
2004
(cid:1) REVENUE
Management fees
Administration fees
Redemption fees
Gain on sale of marketable securities
Other income [note 7]
(cid:1) EXPENSES
Selling, general and administrative [notes 9(b) and 13]
Less: expenses recovered from funds
Net selling, general and administrative
Trailer fees [note 10]
Investment dealer fees
Amortization of deferred sales commissions and fund contracts
Interest [note 8]
Other [note 7]
Minority interest
Income before income taxes
Provision for income taxes [note 11]
Current
Future
Net income for the year
Deficit, beginning of year
Cost of shares repurchased in excess of stated value [note 9(a)]
Dividends declared
Deficit, end of year
881,817
114,516
47,081
6,706
32,158
1,082,278
328,089
112,780
215,309
250,695
82,162
58,248
9,785
14,976
631,175
3,188
447,915
109,092
54,074
163,166
284,749
(207,114 )
(97,206 )
(198,330 )
(217,901 )
710,950
58,037
43,375
690
31,621
844,673
256,757
109,782
146,975
197,766
39,710
35,388
8,588
19,112
447,539
5,390
391,744
86,314
84,386
170,700
221,044
(305,932)
(13,457)
(108,769)
(207,114)
Earnings per share [note 9(d)]
0.97
0.82
(see accompanying notes)
5 8
C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W S
Y E A R S E N D E D M AY 3 1 ,
(thousands of dollars)
2005
2004
(cid:1) OPERATING ACTIVITIES
Net income for the year
Add (deduct) items not involving cash
Gain on sale of marketable securities
Stock-based compensation
Amortization of deferred sales commissions and fund contracts
Amortization of other
Minority interest
Future income taxes
Net change in non-cash working capital
balances related to operations
Cash provided by operating activities
(cid:1) INVESTING ACTIVITIES
Purchase of marketable securities
Proceeds on sale of marketable securities
Additions to capital assets
Deferred sales commissions paid
Additions to other assets
Cash paid on acquisitions, including transaction costs and cash acquired [note 4]
Cash used in investing activities
(cid:1) FINANCING ACTIVITIES
Long-term debt [note 8]
Repurchase of share capital [note 9(a)]
Issuance of share capital [notes 4 and 9(a)]
Distributions to minority interest
Dividends paid to shareholders
Cash provided by (used in) financing activities
Net increase in cash during the year
Cash, beginning of year
Cash, end of year
(cid:1) SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid
Income taxes paid
(see accompanying notes)
284,749
221,044
(6,706)
(17,338)
58,248
13,529
3,188
54,074
389,744
51,731
441,475
(106,154)
65,593
(7,213)
(150,772)
–
(37,259)
(235,805)
145,769
(147,745)
219
(2,395)
(198,330)
(202,482)
3,188
25,117
28,305
(690)
16,479
35,388
6,510
5,390
84,386
368,507
1,036
369,543
(50,450)
18,052
(7,390)
(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
10,265
104,424
7,334
86,458
5 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 TAT E M E N T S
M AY 3 1 , 2 0 0 5 A N D 2 0 0 4 ( I N T H O U S A N D S O F D O L L A R S , E X C E P T P E R S H A R E A M O U N T S )
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting
principles.
Basis of presentation
The consolidated financial statements include the accounts of CI, CI Investments Inc. [“CI Investments”] [formerly CI
Mutual Funds Inc.], Assante Corporation [“Assante”] and Skylon Advisors Inc. [“Skylon”] [formerly Skylon Capital
Corp.] and their subsidiaries. Hereinafter, CI and its subsidiaries are referred to as CI.
During fiscal 2005, CI restructured its 66% investment in BPI Global Asset Management LLP [“BGAM”] such that CI
gave up all future economic benefits of ownership in exchange for a 32% participation in the net revenue earned on
BGAM’s institutional assets. As a result, the accounts of BGAM are no longer included in the consolidated financial
statements from the date of disposition.
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.
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.
6 0
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 TAT E M E N T S
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
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 on a straight-line basis over 84 months from the date recorded.
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 a finite lives are amortized on a straight-line basis over eight years. Fund management contracts with indefinite
life are not amortized.
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.
Stock-based compensation
CI has a stock-based compensation plan, which 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 record-
ed with respect to the options and consideration paid by the employees are credited to share capital.
6 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 TAT E M E N T S
Deferred lease inducements
Lease inducements are deferred and amortized on a straight-line basis over the term of the lease.
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 net income by the weighted average number of shares outstanding during the year. There is no dilutive effect
on earnings per share as CI accounts for its stock options as a liability.
Derivative financial instruments
Derivative financial instruments are used to mitigate equity market and foreign exchange exposures.
CI has entered into a total return share swap to manage its equity market exposure related to its stock-based compen-
sation. The total return share swap is measured at fair value and any resulting gains or losses are recognized in income.
CI has entered into forward contracts to manage its foreign exchange exposure related to its investments in U.S. dollar
denominated hedge funds. Forward contracts are measured at fair value and any resulting gains or losses are recog-
nized in income. Included in income are foreign exchange losses of $1,037 [2004 - foreign exchange gains of $62].
Effective June 1, 2004, CI adopted the recommendations of CICA Accounting Guideline 13 - Hedging Relationships on
a prospective basis. These recommendations require that certain circumstances be met in order for hedge accounting
to be appropriate, including the identification, documentation, designation and effectiveness of hedges. The adoption
of this policy did not have a material impact on the consolidated financial statements.
Foreign currency translation
Foreign currency denominated items are translated into Canadian dollars as follows:
Integrated foreign subsidiaries are financially or operationally dependent on 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.
6 2
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 TAT E M E N T S
Other foreign currency transactions are translated into Canadian dollars using the exchange rate in effect on the trans-
action 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.
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 prin-
ciples requires management to make estimates and assumptions that affect the reported amounts of assets and liabili-
ties at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the
reporting year. Actual results could differ from those estimates.
2. CLIENT AND TRUST FUNDS
Included in client and trust funds on deposit are amounts representing cash held in trust with Canadian financial insti-
tutions 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 client and trust
funds payable.
3. FINANCIAL INSTRUMENTS
As at May 31, 2005, the fair value of marketable securities was $79,128 [2004 - $29,276]. As at July 7, 2005, the fair
value of marketable securities was $91,472.
CI had a forward contract outstanding as at May 31, 2005 to sell US$8,000 at a forward rate of $1.2484 on July 7, 2005.
As at May 31, 2005, the fair value of this contract approximates its carrying amount of nil.
CI had a forward contract outstanding as at May 31, 2004 to sell US $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.
The estimated fair values of all other financial instruments approximate their carrying amounts in the consolidated bal-
ance sheets.
6 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 TAT E M E N T S
4. BUSINESS ACQUISITIONS
Year ended May 31, 2005
On June 3, 2004, CI completed its acquisition of all of the outstanding shares of IQON Financial Management Inc. and
Synera Financial Services Inc. from Sun Life Assurance Company of Canada [“Sun Life”], a related party, which have
networks of financial and insurance advisors. As consideration, CI paid $38,500 in cash.
Details of the net assets acquired, at fair value, are as follows:
Cash
Client and trust funds on deposit
Accounts receivable and prepaid expenses
Capital assets
Marketable securities
Fund administration contracts
Other assets
Accounts payable and accrued liabilities
Client and trust funds payable
Future income taxes
Other liabilities
Goodwill on acquisition
$
1,241
92
1,996
717
1,053
5,100
335
(2,175 )
(92 )
(954 )
(636 )
31,823
38,500
Year ended May 31, 2004
On October 6, 2003, CI completed its acquisition of all of the outstanding 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 shares of Skylon, 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 perform-
ance fees earned in that period.
On November 14, 2003, CI completed its acquisition of the Canadian operations of Assante under a Plan of
Arrangement through which it acquired all of the outstanding common shares of Assante, 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 purchased 20,698,368 common shares of CI from treasury
for $265,336 in order to maintain its proportionate share of ownership of CI.
6 4
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 TAT E M E N T S
In addition, CI issued 932,576 stock appreciation rights with a strike price of $13.34 that expire in 2007.
Details of the net assets acquired, at fair value, are as follows:
Skylon
Synergy Asset
Advisors Inc. Management Inc.
$
$
Cash
Client and 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
Client and 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
Details of the consideration given, at fair value, are as follows:
Skylon
Synergy Asset
Advisors Inc. Management Inc.
$
$
Cash
CI common shares
Assante Corporation
shares already owned
Transaction costs
33,817
–
–
343
34,160
94,283
22,189
–
94
Assante
Corporation
$
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
Assante
Corporation
$
309,942
520,549
55,533
1,031
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
116,566
887,055
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.
6 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 TAT E M E N T S
Immediately following the Synergy acquisition, Synergy was amalgamated into CI Investments.
Included in other liabilities at the date of acquisition are accruals for severance and exit costs of $10,000 related to the
three acquisitions, of which the entire amount has been paid as at May 31, 2005 [2004 - $5,600].
5. FUND CONTRACTS
Fund contracts consist of the following:
Fund administration contracts
Fund management contracts
Finite life
Indefinite life
Less accumulated amortization
Net book value
6. CAPITAL ASSETS
Capital assets consist of the following:
Computer hardware and software
Office equipment
Leasehold improvements
Property
Less accumulated amortization
Net book value
Cost
$
37,600
12,000
967,582
1,017,182
4,404
1,012,778
Cost
$
36,001
4,059
5,629
–
45,689
24,413
21,276
2 0 0 5
Accumulated
amortization
$
2,154
2,250
–
4,404
–
2 0 0 5
Accumulated
amortization
$
18,503
3,245
2,665
–
24,413
6 6
2 0 0 4
Accumulated
amortization
$
650
750
–
1,400
–
2 0 0 4
Accumulated
amortization
$
20,377
5,006
4,027
126
29,536
Cost
$
32,500
12,000
967,582
1,012,082
1,400
1,010,682
Cost
$
38,453
7,511
9,312
345
55,621
29,536
26,085
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 TAT E M E N T S
7. OTHER ASSETS, INCOME AND EXPENSES
Other assets consist mainly of an investment in a limited partnership, long-term accounts receivable and prepaid
expenses and deferred charges.
Other income consists mainly of institutional management fees, custody fees, equity income and interest income.
Other expenses consist mainly of institutional management expenses, distribution fees to limited partnerships and
capital taxes.
8. LONG-TERM DEBT
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 in Canadian dollars 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%. Amounts may also be borrowed in U.S. dollars through base rate
loans, which bear interest at the greater of the bank's reference rate for loans made by it in Canada in U.S. funds and
the federal funds overnight rate plus 0.75%, or LIBOR loans which bear interest at LIBOR 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, 2005, CI had accessed $56,936 [2004 - $1,409] 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 CI Investments, Assante, certain subsidiaries of Assante and Skylon, and assignment of the management
agreements and redemption fees of CI Investments and certain subsidiaries of Assante. The facility also requires CI to
meet certain financial ratios on a quarterly basis.
As at May 31, 2005, $333,073 [2004 - $245,165] has been drawn on this facility in the form of bankers’ acceptances at
an effective interest rate of 2.82% [2004 - 2.31%]. In addition, $57,861 [2004 - nil] has been drawn in the form of LIBOR
loans at an effective interest rate of 3.41%. Interest expense attributable to the long-term debt for the year ended May
31, 2005 was $7,912 [2004 - $6,554].
On July 7, 2005, the revolving credit facility was amended to increase the total amount that may be borrowed under
the facility to $650,000.
6 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 TAT E M E N T S
9. SHARE CAPITAL
(a) Details with respect to share capital are as follows:
(thousands of dollars)
Authorized
Unlimited preference shares
Unlimited common shares
Issued
May 31, 2003
Issuance of share capital [note 4]
Share repurchase
Exercise of stock options
May 31, 2004
Issuance of share capital
Share repurchase
Exercise of stock options
May 31, 2005
Common shares
Number of shares
Stated value
235,526
61,203
(1,680 )
150
295,199
7
(8,569 )
6
286,643
938,657
808,074
(7,935 )
2,187
1,740,983
121
(50,539 )
98
1,690,663
For shares issued on the exercise of stock options, the liabilities at the dates on which the stock options were exercised
amounted to $62 [2004 - $1,575] and were included in the stated value of the shares issued.
During fiscal 2005, 8,568,700 common shares [2004 - 1,679,700] were repurchased under a normal course issuer bid at
an average cost of $17.24 per share [2004 - $12.74] for a total consideration of $147,745 [2004 - $21,392]. Deficit was
increased by $97,206 [2004 - $13,457] 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, 2005, there are 8,399,280
common shares [2004 - 9,685,799] 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 $4.73 to $17.04 per common share with a total intrinsic
value of $33,024 as at May 31, 2005 and expire at dates up to 2010.
On April 12, 2005, CI entered into a total return share swap transaction agreement [the “Agreement”] with a Canadian
chartered bank. The Agreement is intended to mitigate CI’s exposure to fluctuations in the price of its common shares,
and is for a maximum of 8,600,000 shares or an aggregate purchase amount of $144,000. Under the Agreement, the
bank will accumulate shares of CI through purchases on the Toronto Stock Exchange and will pay CI the total return,
if positive, on the stock and CI will pay the bank the total return, if negative. In addition, CI will pay the bank interest
on the aggregate purchase amount at bankers’ acceptance rates.
6 8
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 TAT E M E N T S
At May 31, 2005, a total of 1,695,900 common shares were subject to the Agreement and had an average purchase price
of $16.78, which reduced the liability under the Plan and stock-based compensation expense by $874.
The total stock-based compensation expense for the year ended May 31, 2005 of $13,329 [2004 - $39,988] has been
included in selling, general and administrative expenses.
Details of the Plan activity and status for the years ended May 31 are as follows:
2 0 0 5
2 0 0 4
Number Weighted average
exercise price
$
of options
(in thousands)
Number Weighted average
exercise price
$
of options
(in thousands)
Options outstanding, beginning of year
Options granted
Options exercised
Options cancelled
Options outstanding, end of year
9,686
1,679
(2,874 )
(92 )
8,399
Options exercisable, end of year
4,348
10.81
17.02
6.83
14.45
13.37
11.76
10,072
2,273
(2,601 )
(58 )
9,686
8.27
15.59
5.15
10.94
10.81
4,060
9.22
Details of the Plan options outstanding and exercisable as at May 31, 2005 are as follows:
Exercise
price
$
4.73
10.51
11.00
11.27
12.01
15.59
15.67
15.86
17.04
4.73 to 17.04
Number
of options
outstanding
(in thousands)
Weighted average
remaining
contractual life
(years)
Number
of options
exercisable
(in thousands)
138
1,633
599
1,037
1,127
2,187
15
15
1,648
8,399
0.4
2.9
0.8
1.8
2.0
3.9
4.4
4.1
5.0
3.1
138
1,024
599
732
1,127
728
–
–
–
4,348
6 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 TAT E M E N T S
(c) Employee share purchase loans
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, 2005, the carrying amount of employee share purchase loans is $6,430 [2004 - $7,259]
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, 2005, the shares held as collateral have
a market value of approximately $20,175 [2004 - $21,309].
(d) Earnings per share
The weighted average number of shares outstanding for the years ended May 31 is as follows:
(in thousands)
Basic and diluted
(e) Stock appreciation rights
2005
293,297
2004
268,103
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 was included as a liability in the fair value of net assets acquired.
These rights may only be settled for cash.
(f) Maximum share dilution
The following table presents the maximum number of shares that would be outstanding if all of the outstanding options
as at June 30, 2005 were exercised:
(in thousands)
Common shares outstanding at June 30, 2005
Options to purchase common shares
286,177
8,061
294,238
10. RELATED PARTY TRANSACTIONS
CI enters into transactions related to the advisory and distribution of the Funds with Sun Life, a shareholder of CI, and
its subsidiaries. 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, 2005, CI incurred charges for deferred sales commissions of $42,287
[2004 - $31,976], portfolio management fees of nil [2004 - $379] and trailer fees of $70,983 [2004 - $58,511] to Sun Life.
The balance payable to Sun Life as at May 31, 2005 of $6,761 [2004 - $6,085] is included in accounts payable and
accrued liabilities.
11. INCOME TAXES
Future income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of
CI’s future income tax liabilities and assets as at May 31 are as follows:
7 0
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 TAT E M E N T S
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 carry forwards
Acquisition related costs
Other
Total future income tax assets
Net future income tax liabilities
2005
$
357,041
122,917
22,920
502,878
10,376
11,098
5,630
5,846
32,950
469,928
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
2005
$
16,006
485,934
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
2005
%
36.1
–
(0.3 )
–
0.6
36.4
2004
$
353,316
91,242
18,668
463,226
16,661
16,803
11,204
3,658
48,326
414,900
2004
$
27,865
442,765
2004
%
36.4
0.1
–
(7.3)
(0.2)
43.6
12. SEGMENTED INFORMATION
CI has two reportable segments: Asset Management and Asset Administration. These segments reflect CI’s internal
financial reporting and performance measurement. CI has realigned its internal financial reporting with the result that
the former segment called Other is now combined with the Asset Management segment.
7 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 TAT E M E N T S
The Asset Management segment includes the operating results and net assets of CI Investments, Skylon 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., Assante Financial Management Ltd. and IQON
Financial Management Inc. 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.
Segmented information for the year ended May 31, 2005 is as follows:
Asset
Management
$
881,817
–
78,642
960,459
170,813
265,037
–
57,770
14,649
508,269
Asset
Administration
$
–
219,183
7,303
226,486
44,496
–
165,895
1,504
327
212,222
Elimination
$
–
(104,667 )
–
Intersegment
Total
$
881,817
114,516
85,945
(104,667 )
1,082,278
–
(14,342 )
(83,733 )
(1,026 )
–
(99,101 )
215,309
250,695
82,162
58,248
14,976
621,390
Management fees
Administration fees
Other revenue
Total revenue
Net selling,
general and administrative
Trailer fees
Investment dealer fees
Amortization of deferred sales
commissions and fund contracts
Other expenses
Total expenses
Income before income taxes
and non-segmented items
452,190
14,264
(5,566 )
460,888
Interest expense
Minority interest
Provision for income taxes
Net income for the year
Identifiable assets
Goodwill
Total assets
1,544,212
815,303
2,359,515
176,229
135,723
311,952
(7,397 )
–
(7,397 )
9,785
3,188
163,166
284,749
1,713,044
951,026
2,664,070
7 2
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 TAT E M E N T S
Segmented information for the year ended May 31, 2004 is as follows:
Asset
Management
$
710,950
–
72,583
783,533
128,910
204,164
–
35,002
19,054
387,130
Asset
Administration
$
–
108,495
3,103
111,598
18,065
–
80,076
650
58
Elimination
$
–
(50,458 )
–
(50,458 )
–
(6,398 )
(40,366 )
(264 )
–
98,849
(47,028 )
Intersegment
Total
$
710,950
58,037
75,686
844,673
146,975
197,766
39,710
35,388
19,112
438,951
Management fees
Administration fees
Other revenue
Total revenue
Net selling,
general and administrative
Trailer fees
Investment dealer fees
Amortization of deferred sales
commissions and fund contracts
Other expenses
Total expenses
Income before income taxes
and non-segmented items
396,403
12,749
(5,566 )
405,722
Interest expense
Minority interest
Provision for income taxes
Net income for the year
Identifiable assets
Goodwill
Total assets
1,405,150
815,303
2,220,453
172,839
103,900
276,739
(3,430 )
–
(3,430 )
8,588
5,390
170,700
221,044
1,574,559
919,203
2,493,762
13. COMMITMENTS AND CONTINGENCIES
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:
2006
2007
2008
2009
2010
2011 and thereafter
$
11,277
10,938
9,972
4,736
4,313
8,636
7 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 TAT E M E N T S
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.
Settlement with the Ontario Securities Commission
On December 10, 2004, CI Investments reached a settlement with the Ontario Securities Commission relating to concerns
raised with respect to certain trading by a small number of institutional investors in certain of CI Investments’ mutual funds.
Under the settlement agreement, CI Investments agreed to make a payment of $49,300, plus interest at the rate of 5% per
annum from the date of settlement to the approval of the plan of distribution, which occurred on June 30, 2005, to investors
in its mutual funds that were affected by this trading. This payment is secured by a letter of credit. CI recorded a $33,900
after-tax charge to income to reflect the settlement and related costs.
14. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative consolidated financial statements have been reclassified from statements previously presented to
conform to the presentation of the 2005 consolidated financial statements.
15. SUBSEQUENT EVENT
On June 27, 2005, CI announced that it had adopted the name CI Financial, effective immediately, and would seek
shareholder approval to change its legal name from CI Fund Management Inc. to CI Financial Inc. Effective June 16,
2005, CI Mutual Funds Inc. changed its legal name to CI Investments Inc.
7 4
Corporate Directory
CI Financial
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
Chief Executive Officer,
CI Financial;
Director
Toronto, Ontario
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.
Stephen A. MacPhail
President and
Chief Operating Officer
Peter W. Anderson
Executive Vice-President
Michael J. Killeen
Senior Vice-President,
General Counsel and
Corporate Secretary
Douglas J. Jamieson
Chief Financial Officer
David C. Pauli
Executive Vice-President and
Chief Operating Officer
Munir T. Issa
Executive Vice-President and
Chief Technology Officer
Officers
William T. Holland
Chief Executive Officer
Douglas J. Jamieson
Senior Vice-President and
Chief Financial Officer
CI Investments
Executives
Peter W. Anderson
President and
Chief Executive Officer
Assante
Executives
Joseph C. Canavan
Chairman and
Chief Executive Officer
Steven J. Donald
President and
Chief Operating Officer
7 5
Corporate Information
Head Office
2 Queen Street East,
Twentieth Floor
Toronto, Ontario M5C 3G7
Telephone: 416-364-1145
Toll Free: 1 800 268-9374
www.ci.com
Investor Relations
Contact: Stephen A. MacPhail, President and Chief Operating Officer
Telephone: 416-364-1145
Toll Free: 1 800 268-9374
E-mail: investorrelations@ci.com
Trading Symbol
CI Financial 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.ci.com under “Corporate”.
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.
7 6
.
s
k
n
i
d
e
s
a
b
-
e
b
a
t
e
g
e
v
l
g
n
i
s
u
r
e
p
a
p
d
e
l
c
y
c
e
r
n
o
a
d
a
n
a
C
n
i
d
e
t
n
i
r
P
.
L
I
M
:
t
n
i
r
P
&
s
s
e
r
p
e
r
P
.
t
n
e
m
t
r
a
p
e
D
s
e
c
v
r
e
S
i
e
v
i
t
a
e
r
C
s
t
n
e
m
t
s
e
v
n
I
I
C
:
n
o
i
t
c
u
d
o
r
P
&
n
g
i
s
e
D
CI Financial