CI Asian Dynasty Fund Annual Report as at December 31

Transcription

1 CI Asian Dynasty Fund 2002 Annual Report as at December 31

2 A Message from the President The past three years have been the most challenging on global markets in 50 years. What makes this more unsettling is that these conditions follow a decade of unprecedented market growth. So, for many investors, these markets may be a new experience. Service CI s Client Services team can be reached toll-free at or by at service@cifunds.com. You can also access your account through CI s state-of-the-art website at by clicking on My Account. In addition, our site has a great deal of information about our funds and about In times like these, it is tough to stay focused on the long term. investing in general. However, history tells us that the markets will turn around and resume their long-term upward trend, reflecting the ongoing growth of companies and the overall economy. We know the markets are challenging, but our goals have never changed to provide you, through your adviser, with the products and services you need to meet your financial goals. In spite of the current market conditions, CI has taken steps to ensure we continue to provide you with the investment options you need. Here is what CI offers: Thank you for investing with CI Funds. We realize that it is a privilege to manage your money. If you have any questions, please contact your adviser or our Client Services Department. Experience CI has been providing investment products and services since We manage over $30 billion on behalf of Yours truly, more than 1.4 million Canadians. Choice Whether you re looking for Canadian or global equity funds, fixed-income or balanced funds, they are all available from CI. Our varied investment options include mutual funds, segregated funds, tax-advantaged funds, RSP-eligible foreign funds and the CI Portfolio Series. Peter W. Anderson President, CI Mutual Funds Inc. Expertise Our wide range of investment funds is combined February 1, 2003 with world-class portfolio managers like Gerry Coleman (named Fund Manager of the Year at the 2001 Canadian Mutual Fund Awards and manager of Harbour Fund, named Best Canadian Equity Fund in 2002), Eric Bushell (manager of Signature Dividend Fund, which was selected Best Dividend Fund in 2001 and 2002, and of Signature Select Canadian Fund, named Best Canadian Equity Fund in 2001), and Bill Miller (named Fund Manager of the Decade for the 1990s by Morningstar).

3 A Message from Trident Investment Management, LLC Most global equity markets ended 2002 down significantly: the S&P 500 Index declined 23% (its worst loss since 1974), the DAX in Germany fell a staggering 44% and Japan s Nikkei closed at a 20-year low. At face value, economic fundamentals do not justify the market action of Overall global economic growth has been robust and monetary policy has been relatively loose. We feel that the turbulence indicates that a structural shift in the equity investment climate is taking place with new longer-term trends about to be established. This year may well be a watershed year in which exciting opportunities abound. The 1990s were a period of U.S. economic and political domination, with its stocks trading at significant premiums. When we look at the situation the country faces today, the U.S. premium is baffling. The government s fiscal situation, which looked strong even in early 2002, has weakened further and faster than anyone thought possible. The productivity gains that justified continued investment by foreigners appear increasingly to be a statistical myth. Despite our bleak overall outlook, we continue to find a host of exciting opportunities in the United States. The defence, energy and health-care areas in particular offer compelling value. When seeking short-sale positions for our hedge fund, we continue to see considerable overvaluation in technology, finance and consumer products. Europe is equally interesting. Continental Europe is challenged by slowing growth, but has a trade surplus rather than a deficit. We expect domestic growth to become a policy priority for the region in 2003 and there is ample room for interest rate cuts. The region presents excellent opportunities in domestic-oriented companies such as banks and consumer goods. With regard to the emerging markets, conditions are especially attractive in Asia, where countries have worked through their problems of the 1997 financial crisis and accumulated significant trade surpluses. Here, too, domestic growth will be a policy priority with the best opportunities in domestic-oriented companies. Latin America, especially Brazil, continues to face significant challenges. However, President Lula s proposed steps for Brazil give us some reason for optimism. We believe 2003 will provide excellent opportunities for profitable investments. It is likely that the European and Japanese equity markets will decouple from the U.S., signalling a definitive end to the reign of the global bear. TRIDENT INVESTMENT MANAGEMENT, LLC Nandu Narayanan February 1, 2003 Paradoxically, conditions in the rest of the world are hardly as grim as the global equity markets would suggest. The Japanese market is at 20-year lows despite new policies from the Bank of Japan. While the country continues to have significant macroeconomic problems, the clamour for action is growing. Compelling opportunities exist in several of the larger, financially strong Japanese companies. Remarkably, many of these stocks trade at multi-year lows with lower valuations than distressed U.S. companies.

4 CI Asian Dynasty Fund (Formerly Spectrum Asian Dynasty Fund) Fund Objective: To achieve long-term capital growth by investing primarily in equity securities of companies based in the Asia-Pacific region. Lead Manager: Nandu Narayanan Adviser: Trident Investment Management, LLC (since October 2002) Management Style: Top-down analysis of global macroeconomic trends; bottom-up selection of companies with the greatest growth potential. Fund Assets: $15.1 million NAV per Unit: Class A Cdn $8.66 Class F Cdn $8.39 Class I Cdn $10.34 AT A GLANCE Compound Annual Returns [%] Class A Class F Class I 1 year years N/A years 4.7 N/A 7.3 Since Inception Current Value of $10,000 Investment in Class A units $15,000 $10,000 $5,000 $8,907 PERFORMANCE Total Annual Distribution: Class A Class F Class I 2002 $ - $ - $ - C$ NAV at December 31 each year: Class A Class F Class I 2002 $ x.xx $ x.xx $ x.xx Inception: November 1993 Nov. '93 '94 '95 '96 '97 '98 '99 '00 '01 Dec. '02 RSP/RIF Eligible: 30% Distribution: Capital gains and income paid annually Management Expense Ratio: Class A 3.10% Class F 2.30% Class I 0.66% Fund Code: CIG Front End DSC Class A Cdn 7650 Cdn 7655 Class F Cdn 7656 Cdn Class I Cdn 7973 Cdn HOLDINGS & ALLOCATION Top 10 Equity Holdings [%] Nissan Motor Company Ltd [Japan, Consumer Discretionary] Telekomunikasi Indonesia [Indonesia, Telecommunication Services] Uni-Charm Corp [Japan, Consumer Staples] Shiseido Company Ltd [Japan, Consumer Staples] Tokyo Gas Company Ltd [Japan, Utilities] Honda Motor Co. Ltd [Japan, Consumer Discretionary] Huaneng Power International Inc [China, Utilities] United Overseas Bank Ltd [Singapore, Financials] SmarTone Telecommunications Holding Ltd..... [HongKong, Telecommunication Services] TCL International Holdings Ltd [HongKong, Consumer Discretionary] Country Allocation [%] Japan Hong Kong Australia Repub. of China Indonesia Singapore Taiwan South Korea Thailand Cash & Equivalent New Zealand 1.6, India 0.8 Nothing herein should be read to constitute an offer or solicitation by Trident or its principal to provide investment advisory services to any person or entity. CI Asian Dynasty Fund 2002 Annual Report as at December 31, 2002

5 CI Asian Dynasty Fund Statements of Financial Highlights (for the periods ended December 31 and September 30 (Note 1)) Class A Class F Class I Period ended Years ended Period ended Year ended Period ended Years ended Dec. 31 Sept. 30 Dec. 31 Sept. 30 Dec. 31 Sept. 30 Net asset value per unit, beginning of period Distribution per unit: From net income From net realized gain Net income (loss) per unit Net realized and unrealized appreciation (depreciation) of investments per unit Surplus (deficiency) of capital transactions over original cost per unit (f) Net asset value per unit, end of period 2002 $ 2001 $ 2000 $ 1999 $ 1998 $ 2002 $ 2001 $ 2002 $ 2001 $ 2000 $ 1999 $ 1998 $ (0.15) 0.06 (0.28) (0.09) (0.04) (0.05) (2.75) (3.97) 1.13 (2.53) 1.18 (2.96) (4.23) 0.93 (2.69) (4.01) 1.08 (2.47) 1.30 (2.90) (4.17) (0.13) (0.22) - (0.29) Ratios & Supplemental Data Total return (%) (a) Average net assets ($000 s) (b) Management expense information (c) Management expense ratio before absorption of operating expenses (%) Management and operating expenses (%) Goods and services tax expenses (%) Total management expense ratio (%) Portfolio turnover rate (d) 8.05 (25.50) (42.61) (23.71) (41.12) 13,743 18,811 27,099 10,644 9,263 1, ,180 7,326 7,000 4,000 4, Units Issued and Outstanding Balance beginning of period Units issued for cash including re-invested distributions Units redeemed Balance end of period 1,821,854 2,310,520 1, , ,497 1,302, , ,897 1,000 52, ,637 (1,703,100) (888,046) (2,926) - (712,443) (397,559) 1,421,129 1,821, ,971 1,000 31, ,575 Additional Fund Notes (in $000 s) Brokerage Commissions Net capital loss carried forward Non-capital loss carried forward (e) ,892 - (a) (b) (c) (d) (e) (f) Total return is the historical annualized rate of return of an investment for the period, assuming reinvestment of all distributions at net asset value. Average net assets are calculated based on the daily net assets outstanding. Management expense information is calculated based on expenses charged directly to the fund plus, if applicable, expenses of the underlying funds, calculated on a weighted average basis based on the percentage weighting of each underlying fund, and is expressed as annualized percentage of average net assets for the period. Portfolio turnover rate equals the lesser of purchases or sales divided by the average net assets of the fund. Losses will expire within seven years. For the years prior to 2002, the amount is included in Net realized and unrealized appreciation (depreciation) of investments per unit. Inception dates for all classes, please refer to note 1 in the Notes to the Financial Statements. The accompanying notes are an integral part of these financial statements. CI Asian Dynasty Fund 2002 Annual Report as at December 31, 2002

6 CI Asian Dynasty Fund Investment Portfolio (as at December 31, 2002) No. of Shares/ Average Market Face Amount Cost ($) Value ($) No. of Shares/ Average Market Face Amount Cost ($) Value ($) JAPAN (48.7%) 3,000 Canon Inc. 141, ,524 5,600 Canon Inc., ADR 350, ,460 11,200 Credit Saison Company Ltd. 383, , East Japan Railway Co. 101, ,162 2,000 Fanuc Ltd. 165, ,001 4,100 Fast Retailing Company Ltd. 173, ,876 9,000 Fujisawa Pharmaceutical Company Ltd. 344, ,476 6,600 Hitachi Maxell 160, ,165 3,000 Honda Motor Co. Ltd. 94,220 85,187 9,000 Honda Motor Company Ltd. 504, , KDDI Corp. 194, ,772 24,000 Mitsui Sumitomo Insurance Co. Ltd. 187, ,474 7,000 Namco Ltd. 209, ,223 8,500 Nichicon Corp. 159, ,497 70,200 Nissan Motor Company Ltd. 795, ,553 16,800 Nissin Co 183, , Orix Corp. 98,032 91,145 5,400 Right On Co. Ltd. 92,676 87, Saizeriya Co., Ltd. 3,997 2,118 9,900 Sega Corp. 356, ,338 35,000 Shiseido Company Ltd. 563, ,930 26,000 Sompo Japan Insurance Inc. 242, ,526 2,600 Sumitomo Real Estate Sales Company Ltd. 93,417 74,862 4,700 Takeda Chemical Industries Ltd. 322, , ,000 Tokyo Gas Company Ltd. 545, ,371 11,800 Uni-Charm Corp. 532, ,753 4,200 United Arrows Ltd. 179, ,362 7,177,829 7,363,364 HONG KONG (11.4%) 63,000 Citic Pacific Ltd. 221, ,906 81,500 CNOOC Ltd. 146, ,782 27,600 Dah Sing Financial Group 189, ,802 45,000 Hong Kong Electric Holdings Ltd. 270, , ,500 SmarTone Telecommunications Holding Ltd. 369, , ,500 TCL International Holdings Ltd. 320, ,143 32,000 YueYuen Industrial Hldgs 146, ,228 1,663,044 1,722,736 AUSTRALIA (10.3%) 5,641 Amcor Ltd. 36,541 42,255 38,000 APN News & Media Ltd. 127, ,259 22,860 Australia & New Zealand Banking Group Ltd. 411, ,939 6,500 Commonwealth Bank of Australia 198, ,844 37,280 John Fairfax Holdings Ltd. 116, ,913 26,600 News Corporation Ltd. 296, ,426 12,746 News Corporation Ltd., Pfd. 137, ,397 89,100 TAB Ltd. 213, ,197 19,400 TABCORP Holdings Ltd. 165, ,292 1,703,883 1,552,522 CHINA (6.6%) 688,000 Beijing Datang Power Generation Company Ltd. 386, , ,000 China Oilfield Services Ltd. 158, , ,000 Huaneng Power International Inc. 416, , , ,436 INDONESIA (5.6%) 1,244,500 Telekomunikasi Indonesia 741, ,722 SINGAPORE (4.7%) 26,000 DBS Group Holdings Ltd. 292, ,241 1,145 Haw Par Corporation Ltd. 3,637 3,383 42,000 United Overseas Bank Ltd. 485, , , ,854 TAIWAN (3.6%) 326,100 China Steel Corp. 255, , ,000 Chinatrust Financial Holding Company Ltd. 150, ,826 9,200 Fubon Financial Holding Co. Ltd. 123, , , ,508 SOUTH KOREA (2.9%) 1,000 Hyundai Department Store Co., New Shares 38,291 25, Hyundai Department Store Company Ltd. 64,077 3, Pohang Iron & Steel Co. Ltd. 123, ,835 2,500 Posco 107,690 97,208 2,160 Samsung Fire & Marine INS 122, , , ,158 THAILAND (1.9%) 22,300 BEC World PLC 200, ,841 22,800 PTT Expolration and Production Co. 91, , , ,868 NEW ZEALAND (1.6%) 65,563 Telecom Corporation Of New Zealand Ltd. 228, ,787 INDIA (0.8%) 11,275 ICICI Bank Ltd. 116, ,230 Total Investments (98.1%) 14,652,088 14,824,185 Other Assets (net) (1.9%) 291,548 Total Net Assets (100.0%) 15,115,733 The accompanying notes are an integral part of these financial statements. All common shares unless otherwise noted. Percentages shown in brackets relate investments at market value to total net assets of the fund. CI Asian Dynasty Fund 2002 Annual Report as at December 31, 2002

7 CI Asian Dynasty Fund Financial Statements Statements of Net Assets as at December 31 and September 30 (in 000 s except for per unit amounts and units outstanding) Statements of Operations for the periods ended December 31 and September 30 (000 s) Statements of Changes in Net Assets for the periods ended December 31 and September 30 (000 s) Dec. 31 Sept. 30 Dec. 31 Sept. 30 Dec. 31 Sept $ 2001 $ 2002 $ 2001 $ 2002 $ 2001 $ Assets Income Net assets, beginning of period 20,769 32,146 Investments at market value (Note 2) 14,824 19,657 Dividends Cash Interest Capital Transactions Receivable for unit subscriptions Receivable for securities sold Dividends and accrued interest receivable Liabilities Payable for unit redemptions Accrued expenses Net assets and unitholders equity Net asset value per unit: Class A Class F ,131 20, ,116 20, Less foreign withholding taxes Expenses Management fees (Note 4) Administrative (Note 4) Custody Legal Audit Goods and services tax Expenses borne by management company Net income (loss) for the period (66) (53) (31) (198) 154 Proceeds from units issued (including reinvested distributions) Amounts paid for units redeemed Distributions to investors Distribution from net realized gains Distribution from net income Increase (decrease) in net assets from operations Net assets, end of period 14,232 7,841 (22,074) (11,587) (7,842) (3,746) ,189 (7,631) 15,116 20,769 Class I Realized and unrealized Number of units outstanding Class A Class F Class I 1,421,129 1,821, ,971 1,000 31, ,575 gain (loss) on investments Realized gain (loss) on investments (a) Change in unrealized appreciation (depreciation) of investments Net gain (loss) on investments 1,219 (4,589) 1,168 (3,196) 2,387 (7,785) Securities Lending (Note 5) Loaned Increase (decrease) in net assets from operations 2,189 (7,631) Collateral Income (a) Realized gain (loss) on investments Proceeds from sale of investments including foreign exchange gain (loss) (b) (c) 36,497 37,037 Approved on behalf of the Board of Directors: Investments at cost, beginning of period Investments purchased 20,653 29,734 29,277 32,545 Change in cost of short-term notes held - - G. Raymond Chang Director Investments at cost, end of year Cost of investments sold 49,930 62,279 14,652 20,653 35,278 41,626 Realized gain (loss) on investments 1,219 (4,589) William T. Holland Director (b) Proceeds on sales of short-term notes sold during the period not included above - - (c) Foreign exchange gain (loss) included above (170) (125) The accompanying notes are an integral part of these financial statements. CI Asian Dynasty Fund 2002 Annual Report as at December 31, 2002

8 Notes to the Financial Statement 1. THE FUNDS The following CI Funds are open-ended mutual fund trusts created under the laws of Ontario by declarations of trust: Fund Names Dated CI American Growth Fund September 1, 1967 CI American Growth RSP Fund December 2, 1999 CI American Value Fund May 27, 1957 CI Asian Dynasty Fund November 16, 1993 CI Canadian Asset Allocation Fund September 1, 1992 CI Canadian Equity Fund November 30, 1971 CI Canadian Investment Fund November 16, 1932 CI Canadian Small Cap Fund November 30, 1971 CI Canadian Stock Fund June 19, 1987 CI Diversified Fund June 19, 1987 CI Dividend Fund June 19, 1987 CI European Growth Fund February 28, 1995 CI European Growth RSP Fund September 11, 2000 CI International Bond RSP Fund January 22, 1993 CI Long-Term Bond Fund June 15, 1989 CI Mid-Term Bond Fund June 19, 1987 CI Short-Term Bond Fund May 31, 1976 CI TACTONICS Fund April 4, 2001 CI TACTONICS RSP Fund April 4, 2001 CI World Equity Fund September 6, 1990 CI Canadian Balanced Portfolio November 9, 1988 CI Canadian Conservative Portfolio December 1, 1997 CI Canadian Growth Portfolio December 1, 1997 CI Canadian Income Portfolio December 1, 1997 CI Canadian Maximum Growth Portfolio December 1, 1997 Class I units were offered to investors commencing on November 1, 1996 except for the following Funds: Fund Names Inception Date of Class I Units CI Canadian Conservative Portfolio December 1, 1997 CI Growth Portfolio December 1, 1997 CI Canadian Income Portfolio December 1, 1997 CI Canadian Maximum Growth Portfolio December 1, 1997 CI American Growth RSP Fund December 13, 1999 CI European Growth RSP Fund September 11, 2000 CI TACTONICS Fund May 1, 2001 CI TACTONICS RSP Fund May 1, 2001 CI American Growth RSP Fund and CI European Growth RSP Fund currently do not have any Class I units issued. Class A units are available to all investors. Class F units are available to certain investors including those who participate in fee-based programs through their financial advisers or who are members of certain groups. Class I units are available to institutional clients and investors who have entered into a Class I Account Agreement with CI Mutual Fund Inc. In 2002 the Funds fiscal year end was changed to December 31. As a result, the financial statements as presented for the fiscal year 2002 are for the fifteenmonth period ended or as at December 31, All comparative information is for the year ended or as at September 30, 2001 except for the statement of financial highlights, which is for each of the years or periods (since inception) in the four-year period ended September 30. Sometimes referred to herein individually as Fund, and collectively as the Funds. Each fund offers Class A, Class F and Class I units. Class A units were offered to investors on the date of the formation of the Funds. Class F units were offered to investors commencing on November 17, 2000 except for the following Funds: Fund Names Inception Date of Class F Units CI TACTONICS Fund April 4, 2001 CI TACTONICS RSP Fund April 4, 2001 Comparative financial statement information for the year ended or as at September 30, 2001 has been reclassified in accordance with the current year basis. Effective as of the close of business on October 11, 2002 the following funds were merged. Non-taxable Mergers Terminated Fund Continuing Fund Spectrum RRSP World Equity Fund CI TACTONICS RSP Fund Taxable Mergers Terminated Funds Continuing Funds Spectrum Canadian Small-Mid Cap Fund CI Canadian Small Cap Fund Spectrum Optimax USA Fund CI Amercian Value Fund Notes to the Financial Statement 2002 Annual Report as at December 31, 2002

9 Notes to the Financial Statement The merger was effected by transferring the net assets of the terminated funds in exchange for units of the continuing funds. The value of the units of the continuing funds issued in connection with this merger was equal to the market value of the net assets transferred from the terminated funds. With respect to the non-taxable merger, the terminated and continuing fund was deemed to have a taxation year end as at October 11, In accordance with the Income Tax Act, all unrealized losses and certain unrealized gains of that fund s investment portfolio were deemed to be realized at October 11, All tax losses available to that fund as at October 11, 2002 expired on that date. These financial statements do not include the operating results of the terminated funds prior to the merger date. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies of the Fund: (a) Valuation of Investments Mutual Funds are valued on each business day at their closing net asset value. Listed securities are valued on each business day at their latest available sale price. In the absence of recorded sales on that day, they are valued at the average of the last recorded bid and ask prices where appropriate. Unlisted securities are valued on each business day based on price quotations from recognized investment dealers, or failing that, management s best estimate. Short-term fixed income securities are valued at cost which, together with accrued interest, approximates market value. (b) Foreign Exchange Foreign currency amounts are translated into Canadian dollars as follows: market value of investments, forward currency contracts, other assets and liabilities at the closing rate of exchange on each business day; income, expenses and, purchases, sales and settlements of investments at the rate of exchange prevailing on the respective dates of such transactions. (c) Investment Transactions and Income Recognition Investment transactions are accounted for on trade date and any realized gains and losses from such transactions are calculated on an average cost basis. Dividend income is recognized on the ex-dividend date and interest income on the accrual basis. Stock dividends are recorded as dividend income determined by reference to market value. The net asset value of each class is computed by calculating the value of that class s proportionate share of the Fund s assets less that class s proportionate share of the Fund s common liabilities and less class specific liabilities. Expenses directly attributable to a class are charged to that class. Other income and expenses are allocated to each class proportionately based upon the relative net asset value of each class. (e) Futures, Forward, Swap and Option Contracts Futures, forward, swap and option contracts are valued on each business day according to the gain or loss that would be realized if the contracts were closed out, unless daily limits are in effect in which case they are valued based on the current market value of the underlying interest. Any payments made to satisfy initial and variation margin are reflected as a receivable balance in daily variation margin on the Statement of Net Assets. Margin consisting of assets other than cash is noted in the Statement of Investment Portfolio. Gains or losses arising from futures, forward, swap and option contracts which are held as hedges for capital investments are recorded as unrealized gains (losses) on investments until the contracts are closed or expire. Gains or losses arising from futures, forward, swap and option contracts not held as hedges for capital investments are recorded as income (loss) on a daily basis. 3. INCOME TAXES The Funds qualify as mutual fund trusts under the provisions of the Income Tax Act (Canada) and, accordingly, are not subject to tax on net income, including net realized capital gains for the taxation year, which is paid or payable to unitholders at the end of the taxation year. However, such part of each Funds taxable income and net realized capital gains that is not so paid or payable will be taxable to that Fund. Income tax on net realized capital gains not paid or payable will be generally recoverable by virtue of refunding provisions contained in the Income Tax Act (Canada) and provincial income tax legislation, as redemptions occur. It is the intention of each Fund to pay all net taxable income and sufficient net realized capital gains so that the Fund will not be subject to income tax. Occasionally, a Fund may distribute more than it earns. This excess distribution is a return of capital and is not taxable to unitholders. Derivative investments are recorded in the same manner for tax purposes as for accounting purposes. Net capital losses may be carried forward indefinitely to reduce future net realized capital gains. Net capital loss amounts appear under Additional Fund Notes on the Statements of Financial Highlights. (d) Net Asset Value Per Unit Net asset value per unit for each class is calculated at the end of each day on which the Fund s manager is open for business by dividing the net assets of each class by its outstanding units. 4. MANAGEMENT FEES AND OTHER EXPENSES CI Mutual Funds Inc. is the manager of each Fund and, in consideration of management fees received, provides management services required in the day-to-day operations of the Funds including management of the investment portfolio of the Funds. Notes to the Financial Statement 2002 Annual Report as at December 31, 2002

10 Notes to the Financial Statement The management fee is calculated on the net assets of each Fund at the end of each business day and is paid daily. Each Fund also bears all operating and administrative expenses including audit and legal fees, registry and transfer agency fees, custody fees, expenses relating to reporting and making distributions to unitholders, all other costs and fees imposed by statute or regulation and expenses of all communications with unitholders. To encourage large purchases in the Funds, the manager may reduce the management fee that it would otherwise be entitled to receive from a Fund with respect to an investment in a Fund provided that the amount of the management fee reduction is distributed to the investor for whose benefit the fees were reduced. In order to reduce the effective MER s of certain funds, some or all of the management fees and/or operating expenses may have been waived or absorbed by the Manager. The total amount absorbed by the Manager is presented in the Statement of Operations as Expenses borne by management company. 6. RELATED PARTY TRANSACTIONS Sun Life Financial Services of Canada Inc. ( Sun Life ) owns a significant interest in CI Mutual Funds Inc. and is therefore considered a related party to the Funds. The following is a summary of the investments by Sun Life in the Funds at December 31, Fund Names Net Asset Value ($ooo s) CI TACTONICS Fund Class F 1,167 CI American Value Fund Class F 934 CI Asian Dynasty Fund Class F 294 CI Canadian Small Cap Fund Class F 177 CI TACTONICS RSP Fund Class F PORTFOLIO TRANSACTIONS A copy of the Statement of Portfolio Transactions (unaudited) for any Fund for the period ended December 31, 2002 is available without charge upon written request to the manager, CI Mutual Funds Inc., CI Place, 151 Yonge Street, Eleventh Floor, Toronto, Ontario M5C 2W7. 5. SECURITIES LENDING Certain Funds have entered into a securities lending program with their custodian, Royal Trust Company of Canada ("Royal Trust"). The aggregate market value of all securities loaned by a Fund cannot exceed 50% of the assets of the Fund. A Fund will receive collateral of at least 102% of the value of securities on loan. Collateral will generally be comprised of cash and obligations of or guaranteed by the Government of Canada or a province thereof, or by the United States government or its agencies, but may include obligations of other governments with appropriate credit ratings. Royal Trust has indemnified the Funds against the credit risk of the borrowers. For those Funds participating in the program, amounts for securities loaned, the collateral received, and the income collected appear on the Statement of Net Assets and income from securities lending is included in "Interest Income" in the Statement of Operations. Notes to the Financial Statement 2002 Annual Report as at December 31, 2002

11 Management and Audit Reports MANAGEMENT S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying financial statements have been prepared by CI Mutual Funds Inc., the manager of the Funds, and approved by the Board of Directors of the manager. The Funds manager is responsible for the information and representations contained in these financial statements and other sections of the Annual Report. CI Mutual Funds Inc. maintains appropriate processes to ensure that relevant and reliable financial information is produced. The financial statements have been prepared in accordance with accounting principles generally accepted in Canada and include certain amounts that are based on estimates and judgments. The significant accounting policies which management believes are appropriate for the Funds are described in Note 2 to the financial statements. Deloitte & Touche LLP are the external auditors of the Funds, appointed by the unitholders. They have audited the financial statements in accordance with Canadian generally accepted auditing standards to enable them to express to the unitholders their opinion on the financial statements. Their report is set out at the right. AUDITORS REPORTS To the unitholders of each of the CI Funds (as defined in Note 1) ( the Funds ): We have audited the Investment Portfolio of each of the CI Funds as at December 31, 2002, their Statements of Net Assets as at December 31, 2002 and September 30, 2001, their Statements of Operations and Changes in Net Assets for the periods then ended and the Statements of Financial Highlights for the period ended December 31, 2002 and each of the years in the four-year period ended September 30, These financial statements are the responsibility of each of the Fund 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 from 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. President CI MUTUAL FUNDS INC. Chief Financial Officer CI MUTUAL FUNDS INC. In our opinion, these financial statements present fairly, in all material respects, the financial position of each of the CI Funds as at December 31, 2002 and September 30, 2001, the results of their operations and changes in their net assets for the periods then ended and their financial highlights for the period ended December 31, 2002 and each of the years in the four-year period ended September 30, 2001 in accordance with Canadian generally accepted accounting principles. Toronto, Ontario February 21, 2003 DELOITTE & TOUCHE LLP Chartered Accountants Management and Audit Reports 2002 Annual Report as at December 31, 2002

12 Board of Governors Letter Your CI Funds Board of Governors is pleased to report on its activities in respect of the year ended December 31, The Governors are appointed pursuant to the Declarations of Trust governing the Funds that are trusts, and constitute the board of directors of CI Sector Fund Limited. The Governors mandate is to consult with CI Mutual Funds Inc. (the Manager ) and any investment advisers (referred to as Subadvisers ) in matters pertaining to investment policy; receive and review periodic reports concerning the investment of the Funds assets, the issue and redemption of securities and distributions to securityholders; and to review and advise or consent, if appropriate, with respect to any other matter required by the Declarations of Trust and by applicable securities laws, regulations and rules. The Governors met quarterly. The Governors have reviewed, commented on and approved the CI Code of Ethics and Conduct, which establishes rules of conduct designed to ensure fair treatment of the Funds securityholders and that, at all times, the interests of the the Funds and their securityholders are placed above personal interests of employees, officers and directors of the Manager and each of its subsidiaries and affiliates, the Subadvisers, and the Governors, through the application of the highest standards of integrity and ethical business conduct. The objective is not only to remove any potential for real conflict of interest but to avoid any perception of conflict. The independent Governors report that management has been open and cooperative, permitting the Governors to meet with Subadvisers, to meet with individual department heads and personnel to review control mechanisms and compliance procedures, including those relating to the personal securities trading activity of employees, and to consider other matters that affect the Funds, such as customer complaints. The personal trading rules under the CI Code of Ethics and Conduct require prior clearance of personal trades and restrict the ability of staff to trade any securities held by the Funds. The three independent Governors comprise the Audit Committee of the Board of Governors. The Audit Committee independently reviewed, with the Fund s auditors, the planning, scope and results of the audit of the financial statements of the Funds for the year 2002, and reported to the Board of Governors. The Board of Governors has received and accepted the 2002 Annual Reports of the Funds. The Manager's year 2002 report on compliance with the CI Code of Ethics and Conduct has been provided to the Governors in a timely and satisfactory manner. Stephen T. Moore CHAIR, CI FUNDS BOARD OF GOVERNORS March 6, 2003 Members of the Board of Governors Stephen T. Moore, Chair Jasmine Herlt Thomas L. Jarmai Peter W. Anderson, President, CI Mutual Funds Inc. (commencing February 2003) Legal Notice NOTICE: Should you require additional copies of this Annual Report or have received more than one copy, please contact CI Mutual Funds Inc. (the Manager ) or your financial adviser. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. The commentaries contained herein are provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in these commentaries is accurate at the time of publication. However, the Manager cannot guarantee its accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. SIMPLIFIED PROSPECTUS: The Simplified Prospectus and Annual Information Form of a Fund are renewed annually. The Manager would be pleased to provide, without charge, the most recent Simplified Prospectus upon request to its Toronto office. DISTRIBUTION OR DIVIDEND REINVESTMENT: Distributions or dividends from the Funds are automatically reinvested, free of any sales commissions or charges, in additional securities of the relevant Fund, unless you otherwise direct. You may withdraw from participation in the reinvestment plan at any time by delivering a written request to your financial adviser or to the Manager. REDEMPTION OF SECURITIES: Securities may be redeemed by securityholders on any business day by delivering to your financial adviser or the Manager a redemption request in writing, or in such other form as permitted by your financial adviser. If your redemption request is received by the Manager on any Valuation Date prior to 4:00 p.m. (Eastern time), then your securities being redeemed will be priced at the next valuation time following receipt by the Manager of the redemption request. If the proceeds of redemption exceed $10,000 or are to be paid to someone other than the registered owner, your signature must be guaranteed by a bank, trust company, investment dealer, or broker. If certificates representing the securities to be redeemed have been issued, the redemption request must be accompanied by the certificates, properly endorsed for redemption with the signature guaranteed in the manner described above. If the registered owner is a corporation, partnership, agent, fiduciary or surviving joint owner, additional documentation may be required. Boomernomics, Harbour Funds, CI Funds, the CI Funds logo design, BPI Funds, CI Sector Funds and Global Managers are registered trade marks of CI Mutual Funds Inc. Landmark Funds, Signature Funds and American Managers are trademarks of CI Mutual Funds Inc.

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