Mackenzie
Review of Segment Operating Results

Operating Expenses

Mackenzie's operating expenses increased $34.5 million to $575.8 million from $541.3 million in the previous year.

Commission expense, which represents the amortization of deferred selling commissions, increased $8.6 million to $150.3 million from $141.7 million in 2003. Mackenzie amortizes deferred selling commissions over a maximum period of seven years. However, to the extent fees are received on the redemption of the underlying mutual fund units, amortization is accelerated.

Trailer fees paid to dealers were $169.9 million in 2004, an increase of $27.6 million from $142.3 million in the previous year. Trailer fees as a percentage of average mutual fund assets under management increased to 47.9 basis points in the current year as compared to 46.2 basis points last year. The increase in trailer fees was consistent with:

• The year over year growth in the average mutual fund assets under management;
• The shift in the percentage of Mackenzie's mutual fund assets invested in long-term equity funds as opposed to short-term money market funds, which contributed to a higher average trailer fee rate; and,
• The percentage of Mackenzie's mutual fund assets that were purchased on a front-end basis as opposed to a deferred sales charge basis, which also contributed to a higher average trailer fee rate.

Non-commission expenses decreased $1.7 million to $255.6 million in 2004 from $257.3 million in 2003. A component of the non-commission expenses incurred by Mackenzie is related to the administration of its mutual funds. These expenses, which are recovered from Mackenzie's mutual funds, declined in the current period as compared to last year, largely a result of continued cost synergies being realized from the transition work with Investors Group. This reduction in non-commission expenses was partially offset by an increase in sub-advisory expenses incurred by Mackenzie in the management of its mutual funds, consistent with the growth in its sub-advised assets under management as compared to the prior year.