Mackenzie

Report on Operations

	James L. Hunter President and Chief Executive Officer, Mackenzie Financial Corporation

The past three years represent one of the most difficult periods in the history of the markets and our firm. But the outstanding qualities of our team, our products and our partnerships have combined to overcome this challenge. It was a fitting close to the year in December when financial advisors named Mackenzie as Fund Company of the Year at the industry’s Canadian Investment Awards Gala.

With equity markets down and global tensions on the rise, investor confidence is understandably low. We empathize with individual investors. As well, Mackenzie’s strong and supportive relationship with independent financial advisors has never been more important. In an uncertain investment climate, the experienced and professional advice of an advisor is more important than ever.

Our comprehensive relationships with more than 35,000 independent advisors have played a large part in generating strong results relative to our competitors. These results are underpinned by our management team’s focus on five principles of our business:

• Industry-leading investment performance
• Industry-leading product and service innovation
• Industry-leading sales outreach to independent financial advisors
• Industry-leading marketing, educational and service support
• Disciplined financial management

Our management team implements decisions with tremendous spirit and enthusiasm. Their diligence and integrity set us apart in the fiercely competitive marketplace.

As a result, Mackenzie is one of Canada’s leading mutual fund companies focused on the independent financial advisor. Our employee team totals over 1,400 full-time people and we have $34.4 billion in assets under management and administration through 1.5 million client and institutional accounts. The feedback from the people we serve is very positive – Mackenzie won a total of eight awards at the Canadian Investment Awards Gala, more than any other company.

Leading Investment Performance

Mackenzie has an excellent team of fund managers. There is an abundance of objective evidence to support their quality. Eighty-five percent of the assets managed by Mackenzie were in the top half of performance for all funds over five years as of December 31, 2002. The results are equally impressive over shorter periods. During 2002, Mackenzie also had more four and five star rated funds by the independent Morningstar service than any other Canadian mutual fund company.

In addition to the strong Mackenzie brand, funds are offered through five names: Cundill, Ivy, Keystone, Maxxum and Universal. The Ivy Funds celebrated their 10th anniversary in 2002 and it was fitting that Jerry Javasky was voted Analysts’ Choice Fund Manager of the Year, for a second time in four years. Alan Pasnik of the Cundill team and our Chief Investment Strategist, Fred Sturm, were also recognized for industry-leading performance in their categories. The outstanding long-term performance records of Peter Cundill, Stephen Peak and Bill Procter, as well as many others, further solidify our investment results leadership. This industry-leading recognition for investment excellence helped boost our visibility in the marketplace relative to our competitors. Most important, it led to the resurgence in net sales of profitable long-term funds at a time when the industry was in net redemptions for much of the year. Net sales of long-term funds totalled $700 million in 2002, compared to net redemptions of $627 million in 2001. Net sales of all Mackenzie funds for 2002 totalled $288 million.

Strong Advisor Relationships

Mackenzie relies on independent financial advisors to recommend our product to their clients. Survey research conducted in 2002 demonstrated strong and improving relations with these advisors. In fact, Mackenzie’s overall advisor satisfaction improved by 42% for 2002 over 2001. Advisor’s satisfaction also increased with services from our MRS operation. Concerns regarding channel conflict issues, which arose when Investors Group acquired Mackenzie, have largely been addressed. Advisors tell us that our focused advisor wholesaler teams, our investment performance and our independent corporate leadership, are the principle reasons their support has been unwavering. Our commitment to advisor and investor education was recognized by sweeping the awards for the best programs in this area. Just as important, our back office capability continues to improve. To support our market and brand positioning, a new advertising campaign was unveiled at the end of 2002 under the theme “Choose Wisely.”

Leading Product and Service Innovation

Mackenzie has a long history of developing innovative products and services. Financial advisors continue to rank Mackenzie’s broad product mix as our number one competitive advantage. The year 2002 has been extremely productive in product development and will be reflected in our financial results in the years ahead. During 2002, we launched the T-Series of seven funds offering monthly cash flow with tax benefits. A bond substitute fund and an additional hedge style fund were also launched. During 2003, we expect to unveil a number of new products, including further innovations in the area of tax efficient investing. Products that are tax smart are the next frontier of investing and Mackenzie will continue as a pioneer and leader.

During 2002, we also merged 29 redundant funds, resulting primarily from the Maxxum, Industrial and Scudder integration, to reduce unitholder costs. We renegotiated a number of major sub-advisory agreements reducing rates per dollar of assets managed.

The net result of these initiatives on fiscal 2003 will be financially positive. That contribution will grow substantially beyond 2003 as launch costs are absorbed and as we build sales momentum and assets in the years ahead.

Sale of U.S. Operations

We completed the sale of Mackenzie Investment Management Inc. (Mackenzie Investment) in December 2002. The decision to sell Mackenzie Investment is part of Mackenzie’s strategy to focus on its core Canadian distribution operations and the needs of Canadian independent financial advisors and their clients. Proceeds of CDN$95 million from the Mackenzie Investment transaction were used to repay the bridge financing related to the acquisition of Mackenzie by Investors Group. Related to this transaction, we formed a long-term investment management alliance at industry competitive terms with the buyer of Mackenzie Investment – Waddell & Reed Financial, Inc., a leading U.S. mutual fund company based in Kansas.

Added Efficiencies and Profitability

Mackenzie offers trust and administrative services through M.R.S. Trust Company, Multiple Retirement Services Inc., M.R.S. Securities Services Inc. and Winfund Software Corp. The resources of this group have been utilized to lower costs and generate new profits across the broader company. For example, brokerage arrangements were renegotiated for M.R.S. Securities Services Inc. and Investors Group Securities Inc. Necessary qualifications were obtained for M.R.S. Trust Company to be able to provide Canadian content qualification to both Mackenzie’s and Investors Group’s foreign funds for registered accounts. Mackenzie is the first non-bank owned mutual fund company to have this capability.

Mackenzie’s contribution to the group net income from operations before interest and taxes increased by $26.1 million or 13.6% on a pro forma basis.

A Tribute

It is with sadness we note the passing of Neil Lovatt in 2002, Mackenzie’s former Chief Investment Officer and the Chairman of Mackenzie Investment Management Inc. Neil has left a great legacy at Mackenzie.

A Bright Future

In a difficult year, Mackenzie has made a strong contribution, and we have set the stage for further exciting and profitable developments. We intend to employ our size, the resources of our parent and sister companies within the Power Financial group of companies to compete effectively in the financial services industry in Canada in the years ahead. Combined with our talented management, employees, dealers and advisor partners, we are a company to watch.