Mackenzie
Review of the Business

As of December 31, 2003, more than one million clients held Mackenzie mutual funds and segregated funds. In addition to the Mackenzie brand, the Mackenzie family includes: Cundill, Ivy, Keystone, Maxxum and Universal. Two new sub-brands were introduced in 2003: Sentinel Funds, Mackenzie’s family of income-oriented funds, and Select Managers* Funds. Multi-managed, each Select Managers* Fund combines four to six leading investment specialists who actively manage a portion of the fund. Total Mackenzie assets under management and administration increased 11.3% during the year to total $38.3 billion.

Gross sales of Mackenzie mutual funds were $5.3 billion for 2003. Despite strong sales and a redemption rate which was below the average redemption rate for IFIC members, the year ended with net redemptions of $69 million.

In 2003, Mackenzie received eight awards at the Canadian Investment Awards Gala. Peter Cundill, lead manager of Mackenzie’s Cundill Funds, had the distinction of being named “Analysts’ Choice Fund Manager of the Year”. Mackenzie is now home to the “Analysts’ Choice Fund Manager of the Year” award winner for five of the past six years. Jerry Javasky, lead manager of Mackenzie’s Ivy Funds, received the distinction in 1998 and 2002, and Ian Ainsworth, the award winner for 1999 and 2000, joined Mackenzie in April to head up its growth equity team. Ian Ainsworth is lead manager of the Mackenzie Universal Future Fund and Mackenzie Universal Emerging Technologies Capital Class fund.

Industry recognition also came from the Morningstar fund ranking service. In December, they reported that for the sixth consecutive month Mackenzie offered the most funds with a five star rating. Mackenzie remains ahead of all other fund companies in Canada with 26 five star funds. At year-end, 36% of Mackenzie mutual funds had ratings of four or five stars, and 71% had three stars or better, compared to 49% and 79% respectively in 2002.

The Cundill Funds continued their history of strong performance. All Cundill Funds were ranked in the first quartile for 2003 by BellCharts, with the exception of the Cundill Canadian Security Fund. Over the most recent three and five year periods, all Cundill Funds were ranked in the first quartile.

It was a year of relative underperformance for the Ivy Funds. The strong Canadian dollar had a negative impact on the returns of our foreign funds in this fund family. The Ivy approach to investing in global and European markets seeks to identify companies that can grow their businesses at above-average rates over long periods of time. Currency is not hedged so that the funds offer Canadian investors diversification not only in terms of foreign businesses, but also in terms of foreign currencies. In addition, the market activity in 2003 was focused on lower credit quality companies as well as on cyclical and recovery stories, a narrow market in which the Ivy Funds tend to underperform.

While the short-term performance of the Ivy Funds is disappointing, we are confident that over the long term these funds will maintain their solid track record. The Ivy Funds ranked first quartile for 2000, 2001 and 2002. Ivy’s approach continues to be the building of diversified portfolios of high quality businesses that exhibit the characteristics of conservative growth.

Mackenzie continues to move towards a leaner investment lineup that avoids duplication, creates efficiencies, and enhances the value provided to our investors. In a major initiative to streamline our offerings, the tax-efficient Capital Class structure was revamped so that all Capital Class funds now qualify as domestic property and are 100% RRSP eligible. Funds with similar mandates were merged into their Capital Class version.

The new structure provides expanded benefits to investors. Registered investors are now able to diversify their investments globally without concern as to the 30% foreign content limit or the need to rebalance their foreign holdings. In addition, the mergers are expected to positively impact RRSP fund performance as the embedded transaction cost used to carry out a derivative investment strategy has been eliminated in favour of a lower foreign content monitoring fee. The increased appeal of Capital Class funds will generate increased assets in the portfolios, leading to greater administrative efficiencies and economies of scale.