clarica summit canadian equity fund - ci investments · 2002 annual report as at december 31 76...

Clarica SummitCanadian EquityFund2002 Annual Report as at December 31

76

managed by CI Mutual Funds Inc.distributed by Clarica Financial Services Inc.

Last year afforded an exciting opportunity for CI Funds as we

acquired the mutual fund and segregated fund operations of both

Clarica and Sun Life Financial, combining them with our own

products to create one of the largest and most diverse fund families

in Canada.

We believe that with the integration of these operations now

complete, in conjunction with your Clarica adviser, we will be

able to offer you the greatest choice of investment products, cost-

efficient management and unparalleled client service.

At CI Funds, our promise to you is clear: We provide innovative

thinking, a broad selection of investments, outstanding service,

and access to many of the world’s leading fund managers.

We firmly believe that now is always the best time to invest wisely,

and we intend to provide the most effective tools to help you

achieve your financial goals.

• Investment Experience – CI has been providing investment

products and services since 1965. We manage well over $30

billion in assets on behalf of more than 1.4 million Canadians.

CI offers a wide range of investment solutions that can meet the

needs of any investor.

• Investment Choice – Whether you’re looking for Canadian or

global equity funds, fixed-income or balanced funds, they are all

available to you through your Clarica adviser. No other company

can offer you as many investment product options including

mutual funds, segregated funds, tax-advantaged funds, RSP-eligible

funds and the CI Portfolio Series – providing asset allocation in

a single fund.

• Investment Expertise – Our wide range of investment funds and

products is combined with world-class money managers like

Gerry Coleman, manager of Harbour Fund, named the Best

Canadian Equity Fund at the 2002 Canadian Investment

Awards; Eric Bushell, manager of Signature Dividend Fund; the

best Dividend Fund, and Bill Miller, named Fund Manager of

the Decade for the 1990s by Morningstar in the U.S.

• Customer Care – CI’s industry-leading Client Services team

can be reached toll-free at 1-888-771-2999 or by e-mail at

[email protected]. You can also access your account through

CI’s state-of-the-art website at www.cifunds.com by clicking on

My Account. In addition, our site has a great deal of information

about our funds and about investing in general.

We look forward to continuing the high level of service and support

you’ve come to expect from Clarica and CI Funds.

Yours truly,

Peter W. Anderson

President,

CI Mutual Funds Inc.

February 1, 2003

A Message from the President

Strong performances from leading global stock markets during the

fourth quarter failed to erase the damage inflicted during the first

nine months of the year. As investors put to rest a year in which

many saw their portfolios drop in value for the third straight year,

feelings of uncertainty and fear still abound. Fortunately, investors

in the Harbour Funds have fared much better over this rough

three-year period. We believe that preservation of capital during

weak periods can be extremely valuable to long-term performance.

The unwavering commitment to our investment philosophy of

owning quality established businesses at favourable valuations

enabled Harbour Fund to preserve the capital of its investors over

the past year. Harbour Fund ended the year with a cash position of

just over 26% of the fund – down from 32% at the end of 2001.

Going forward, we will continue to be extremely picky about the

price we pay for our companies, knowing that this disciplined

approach has delivered above-average, low-risk returns over long

periods. Given the valuation and quality levels of the companies

currently held in the portfolio, we remain very optimistic regarding

the longer-term prospects for Harbour Fund.

We continue to have a cautious outlook for the bond market. The

20-year decline in interest rates appears to be over. Additionally,

inflationary winds appear to be slowly blowing through the economy

and are likely to gain momentum as the current economic expansion

continues to take hold. As a result of the likelihood that interest

rates will increase this year, Harbour Growth & Income Fund

has what could be considered a “bare minimum” exposure to

bonds – about 10% of the fund. The current bond holdings consist

entirely of Government of Canada bonds with an average duration

of just less than four years.

Harbour Foreign Equity Fund, launched on June 1, 2002, had a

very successful start. In just seven months, the fund accumulated

almost $90 million in assets and delivered results at the top range

of its peer group. The fund ended the year with 75% of its assets

invested in a diverse group of 37 companies from leading developed

nations. Cash represented the remaining 25%.

In terms of geographical exposure, the United States continues to

carry the largest weighting within the fund at around 26%. As a

region, Europe dominates at 44% of the fund, and is an area where

we are finding very good value. We have accumulated positions in

some truly outstanding, world-class European growth companies

at what we would consider value prices. Many of these companies

are now being valued on the assumption that a sub-par growth

scenario will last indefinitely. However, they have terrific franchises

that will enable them to return to the path of above-average,

sustainable earnings growth in the not-too-distant future.

At the end of the year, we were in the process of launching a new

fund – Harbour Foreign Growth & Income Fund. Like its Canadian

counterpart, this fund is an asset allocation fund with the freedom to

invest any proportion of its portfolio in the asset classes of cash,

bonds and equities. The equity portion mirrors the equity holdings

within the Harbour Foreign Equity Fund. The bond component

consists of government-issued debt from leading developed nations,

as well as selected high-quality corporate bonds.

Looking forward, while challenging headwinds linger, we remain

guardedly optimistic regarding the prospects for the broader market

in the year ahead. We do, however, feel very good about the

prospects for the individual companies that comprise our portfolios

and our ability to add value through superior stock selection in the

years ahead.

CI MUTUAL FUNDS INC. –

HARBOUR FUNDS

Gerald Coleman

Stephen Jenkins

February 1, 2003

A Message from the Harbour Funds Team

P E R F O R M A N C EFund Objective:To provide long-term capital growthwith protection of capital. The fund willinvest mainly in equity securities ofhigh-quality, large Canadian companies.

Lead Manager:Gerald Coleman(since October 26, 2002)

Adviser:Harbour Group, CI Mutual Funds Inc.

Management Style:Bottom-up approach with emphasis on growth and value; concentratedportfolio; long-term buy and holdstrategy.

Fund Assets: $114.6 million

NAV per Unit: Front End Cdn $13.38DSC Cdn $13.48

Inception: May 1997

RSP/RIF Eligible: 100%

Distribution: Net income and net capitalgains paid annually

Management Expense Ratio:Front End 3.11%DSC 3.04%

Fund Code: CIGFront End Cdn 9012DSC Cdn 9062

C l a r i c a S u m m i t C a n a d i a n E q u i t y F u n d 2 0 0 2 A n n u a l R e p o r t a s a t D e c e m b e r 3 1 , 2 0 0 2

$13,237

$15,000

$10,000

$5,000

Dec. '02May '97 '98 '99 '00 '01 '02

Top 10 Equity Holdings [%]

EnCana Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [Canada, Energy] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1Royal Bank of Canada. . . . . . . . . . . . . . . . . . . . . . . . [Canada, Financials] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0Berkshire Hathaway Inc. . . . . . . . . . . . . . . . . . . . . . [United States, Financials] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7TJX Companies Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . [United States, Consumer Discretionary] . . . . . . . . . . . . . . . . . . 4.3Potash Corp. of Saskatchewan . . . . . . . . . . . . . . . . [Canada, Materials] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9Sigma-Aldrich Corp. . . . . . . . . . . . . . . . . . . . . . . . . . [United States, Materials] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3Bank of Nova Scotia . . . . . . . . . . . . . . . . . . . . . . . . . [Canada, Financials] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2Suncor Energy Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . [Canada, Energy] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2Pfizer Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [United States, Health Care] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9Talisman Energy Inc. . . . . . . . . . . . . . . . . . . . . . . . . . [Canada, Energy] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7

Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.7Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.8Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2Consumer Discretionary . . . . . . . . . . . . . . . . . . . . . 11.7Health Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5Industrials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6Information Technology . . . . . . . . . . . . . . . . . . . . . . 1.0Cash & Equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.5

Sector Allocation [%]

Current Value of $10,000 Investment in Front End units

Front End DSC1 year -4.2 -4.03 years 5.3 5.75 years 4.7 N/ASince Inception 5.2 6.5

Front End DSC2002 $ - $ -

AT

A G

LAN

CE

H O L D I N G S & A L L O C AT I O N

Total Annual Distribution:Compound Annual Returns [%]

Clarica Summit Canadian Equity Fund

$12,152

$15,000

$10,000

$5,000

Dec. '02Dec. '99 '01 '02

Current Value of $10,000 Investment in DSC units

Net asset value per unit, beginning of year

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 (g)

Net asset value per unit, end of year

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)

Units Issued and Outstanding (for the years ended December 31, 2002 and 2001)

Balance beginning of year

Units issued for cash including re-invested distributions

Units redeemed

Balance end of year

Additional Fund Notes (in 000’s)

Brokerage Commissions

Net capital loss carried forward

Non-capital loss carried forward (e)

Amount of Fund owned by related party (f)

(a) Total return is the historical rate of return of an investment for the year, assuming reinvestment of all distributions at net asset value.(b) Average net assets are calculated based on the daily net assets outstanding.(c) Management expense information is calculated based on total amount of respective expenses and expressed as an annualized percentage of average net assets during the year. (d) Portfolio turnover rate equals the lesser of purchases or sales divided by the average value of the portfolio securities of the fund, excluding short term securities.(e) Losses will expire within seven years. (f) 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 Fund.

As such we have shown the amount of the Fund owned by Sun Life as at year end.(g) 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.

Front End DSC

2002 $ 2001 $ 2000 $ 1999 $ 1998 $ 2002 $ 2001 $ 2000 $ 1999 $

14.06 13.81 11.55 11.24 10.70 14.15 13.87 11.55 11.23

- - - - - - - (0.06) -

(0.09) - - - - (0.10) - - -

(0.09) - - - - (0.10) - (0.06) -

(0.20) (0.16) (0.13) (0.02) (0.03) (0.19) (0.14) (0.08) (0.01)

(0.43) 0.41 2.39 0.33 0.57 (0.43) 0.42 2.46 0.33

(0.63) 0.25 2.26 0.31 0.54 (0.62) 0.28 2.38 0.32

0.04 - - - - 0.05 - - -

13.38 14.06 13.81 11.55 11.24 13.48 14.15 13.87 11.55

(4.23) 1.85 19.51 2.82 4.99 (4.00) 2.02 20.59 2.85

108,253 87,757 66,634 59,213 37,404 1,932 1,221 526 10

3.15 3.18 3.27 2.82 2.89 3.08 3.05 3.19 2.64

2.91 2.85 2.81 2.64 2.70 2.84 2.73 2.66 2.47

0.20 0.20 0.20 0.18 0.19 0.20 0.19 0.19 0.17

3.11 3.05 3.01 2.82 2.89 3.04 2.92 2.85 2.64

0.86 0.17 0.55 0.11 0.38 0.86 0.17 0.55 0.11

7,039,889 5,727,263 110,623 63,950

2,223,031 1,925,586 75,992 60,988

(864,048) (612,960) (21,399) (14,315)

8,398,872 7,039,889 165,216 110,623

235 33

-

-

- -

Clarica Summit Canadian Equity FundStatements of Financial Highlights (for the years ended December 31)


The accompanying notes are an integral part of these financial statements.

MATERIALS (17.7%)40,000 Alcan Inc. 1,851,632 1,853,200

60,000 Cameco Corp. 1,965,000 2,248,800

87,100 DuPont Canada Inc. 1,411,014 1,865,682

85,000 Ipsco Inc. 1,363,825 1,343,850

215,000 Nexfor Inc. 1,707,100 1,773,750

75,000 Noranda Inc. 1,110,390 1,065,750

300,000 Norske Skog Canada Ltd. 1,481,640 1,635,000

44,500 Potash Corp. of Saskatchewan 4,241,318 4,436,650

50,000 Sigma-Aldrich Corp. 3,738,256 3,828,556

20,000 Teck Cominco Ltd. 220,540 232,000

19,090,715 20,283,238FINANCIALS (16.8%)

70,000 Bank of Nova Scotia 3,160,500 3,686,200

845 Berkshire Hathaway Inc. 4,794,422 5,430,693

60,000 Canadian Imperial Bank of Commerce 2,400,000 2,611,200

100,000 Royal Bank of Canada 4,149,404 5,785,000

50,000 Toronto Dominion Bank 1,688,823 1,700,500

16,193,149 19,213,593ENERGY (16.2%)

119,579 EnCana Corp. 5,148,025 5,833,064

50,000 Ensign Resource Service Group Inc. 806,690 833,000

59,400 Petro-Canada 2,088,940 2,905,254

149,100 Suncor Energy Inc. 2,404,299 3,682,770

55,000 Talisman Energy Inc. 2,969,450 3,126,750

20,000 Total Fina Elf S.A., ADR 2,136,310 2,248,392

15,553,714 18,629,230CONSUMER DISCRETIONARY (11.7%)

35,000 Black & Decker Corp. 2,577,125 2,360,262

60,000 Darden Restaurants Inc. 1,824,702 1,929,215

40,000 Jones Apparel Group Inc. 2,240,589 2,228,896

70,000 Koninklijke (Royal) Philips Electronics N.V. 1,894,127 1,945,881

160,000 TJX Companies Inc. 5,026,483 4,910,615

13,563,026 13,374,869HEALTH CARE (4.5%)

20,000 Merck & Co., Inc. 1,755,935 1,780,161

70,000 Pfizer Inc. 3,711,437 3,364,570

5,467,372 5,144,731INDUSTRIALS (2.6%)

45,000 Canadian National Railway Co. 2,724,003 2,937,150

No. of Shares/ Average MarketFace Amount Cost ($) Value ($)

INFORMATION TECHNOLOGY (1.0%)35,000 Kemet Corp. 499,254 480,967

35,000 Research In Motion Ltd. 815,098 722,750

1,314,352 1,203,717

Total Bonds & Equities (70.5%) 73,906,331 80,786,528

Short Term Notes (28.5%) 32,683,271 32,683,271

Total Investments (Capital) (99.0%) 106,589,602 113,469,799

Other Assets (net) (1.0%) 1,174,477

Total Net Assets (100.0%) 114,644,276

No. of Shares/ Average MarketFace Amount Cost ($) Value ($)


Clarica Summit Canadian Equity FundInvestment Portfolio as at December 31, 2002

The accompanying notes are an integral part of these financial statements. All common shares unless otherwise noted. Percentages shown in brackets relate investmentsat market value to total net assets of the fund.

Assets

Investments at market value (Note 2)

Cash

Income taxes recoverable

Receivable for unit subscriptions

Dividends and accrued interest receivable

Prepaid expenses

Liabilities

Payable for securities purchased

Payable for unit redemptions

Accrued expenses

Net assets and unitholders’ equity

Net asset value per unit

Front End

DSC

Number of units outstanding

Front End

DSC

Securities Lending (Note 5)

Loaned

Collateral

Income

Approved on behalf of the Board of Directors:

G. Raymond ChangDirector

William T. HollandDirector


Clarica Summit Canadian Equity FundFinancial Statements

The accompanying notes are an integral part of these financial statements.

Income

Dividends

Interest

Less foreign withholding taxes

Expenses

Management fees (Note 4)

Administrative (Note 4)

Custody

Legal

Audit

Goods and services tax

Net income (loss) for the year

Realized and unrealized

gain (loss) on investments

Realized gain (loss) on investments (a)

Change in unrealized appreciation

(depreciation) of investments

Net gain (loss) on investments

Increase (decrease) in net assets

from operations

(a) Realized gain (loss) on investments

Proceeds from sale of investments including

foreign exchange gain (loss) (b) (c)

Investments at cost, beginning of year

Investments purchased

Change in cost of short-term notes held

Investments at cost, end of year

Cost of investments sold

Realized gain (loss) on investments

(b) Proceeds on sales of short-term

notes sold during the year

not included above

(c) Foreign exchange gain (loss)

included above

Statements of Operations for the years ended December 31 (000’s)

2002 $ 2001 $

113,470 100,563

1,083 119

- 1

25 -

83 122

- 7

114,661 100,812

6 -

11 -

- 246

17 246

114,644 100,566

13.38 14.06

13.48 14.15

8,398,872 7,039,889

165,216 110,623

509 -

550 -

3 -

Statements of Net Assets as at December 31 (in 000’s except forper unit amounts and units outstanding)

Net assets, beginning of year

Capital Transactions

Proceeds from units issued

(including reinvested distributions)

Amounts paid for units redeemed

Distributions to investors

Distribution from realized gains

Distribution from net income

Increase (decrease) in net assets

from operations

Net assets, end of year

2002 $ 2001 $

100,566 79,962

31,911 26,773

(12,140) (8,414)

19,771 18,359

(739) -

- -

(739) -

(4,954) 2,245

114,644 100,566

Statements of Changes in Net Assets for the years ended December 31 (000’s)

2002 $ 2001 $

1,225 1,070

691 665

(38) (27)

1,878 1,708

2,862 2,323

319 170

16 21

7 21

4 3

223 176

3,431 2,714

(1,553) (1,006)

6,488 244

(9,889) 3,007

(3,401) 3,251

(4,954) 2,245

76,438 12,498

83,794 66,390

78,296 21,095

14,450 8,563

176,540 96,048

106,590 83,794

69,950 12,254

6,488 244

163,927 95,287

149 (7)

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 0 0 2 A n n u a l R e p o r t a s a t D e c e m b e r 3 1 , 2 0 0 2

Notes to the Financial Statements

1. THE FUNDThe following Clarica Mutual Funds are open-ended mutual fund trusts creat-ed under the laws of Ontario by declarations of trust:

Fund Names Dated Clarica Alpine Asian Fund May 1, 1997Clarica Alpine Canadian Resources Fund May 1, 1997Clarica Alpine Growth Equity Fund May 1,1997Clarica Amerifund January 2, 1986Clarica Asia and Pacific Rim Equity Fund November 27, 2000Clarica Balanced Fund December 17, 2001Clarica Bond Fund October 1, 1990Clarica Bond Index Fund November 27, 2000Clarica Canadian Blue Chip Fund November 1, 1992Clarica Canadian Diversified Fund May 1, 1994Clarica Canadian Equity Fund November 17, 1999Clarica Canadian Equity Index Fund November 27, 2000Clarica Canadian Large Cap Value Fund December 17, 2001Clarica Canadian Small/Mid Cap Fund November 1, 1992Clarica Conservative Balanced Fund December 17, 2001Clarica Diversifund 40 January 2, 1985Clarica Equifund January 2, 1985Clarica European Equity Fund November 17, 1999Clarica Global Bond Fund November 17, 1999Clarica Global Large Cap Value Fund December 17, 2001Clarica Global Science & Technology Fund December 17, 2001Clarica Growth Fund November 27, 2000Clarica High Yield Bond Fund December 17, 2001Clarica Income Fund November 17, 1999Clarica Money Market Fund January 2, 1985Clarica Premier American Fund May 1, 1993Clarica Premier Bond Fund November 1, 1992Clarica Premier Emerging Markets Fund July 1, 1995Clarica Premier International Fund May 1, 1993Clarica Premier Mortgage Fund May 1, 1993Clarica RSP European Index Fund November 27, 2000Clarica RSP International Index Fund November 27, 2000Clarica RSP Japanese Index Fund November 27, 2000Clarica RSP U.S. Equity Index Fund November 27, 2000Clarica RSP U.S. Technology Index Fund November 27, 2000Clarica Short Term Bond Fund November 17, 1999Clarica Summit Canadian Equity Fund May 1, 1997Clarica Summit Dividend Growth Fund May 1, 1997Clarica Summit Foreign Equity Fund May 1, 1997Clarica Summit Growth and Income Fund May 1, 1997Clarica US Growth Equity Fund November 17, 1999Clarica US Small Cap Fund November 17, 1999

Sometimes referred to herein individually as “Fund”, and collectively as the “Funds”.

CI Mutual Funds Inc. is the manager of each Fund. Prior to July 25, 2002,Clarica Diversico Ltd. was the manager of each Fund. On July 25, 2002,Clarica Diversico Ltd. was amalgamated with CI Mutual Funds Inc.

Front End class units were offered to investors on the date of the formation of the Funds.

DSC class units were offered to investors for the following Funds:

Fund Names Dated Clarica Alpine Asian Fund December 13, 1999Clarica Alpine Canadian Resources Fund December 13, 1999Clarica Alpine Growth Equity Fund December 13, 1999Clarica Asia and Pacific Rim Equity Fund December 19, 2000Clarica Canadian Blue Chip Fund December 13, 1999Clarica Canadian Diversified Fund December 13, 1999Clarica Canadian Equity Fund December 13, 1999Clarica Canadian Small/Mid Cap Fund December 13, 1999Clarica European Equity Fund December 13, 1999Clarica Global Bond Fund December 13, 1999Clarica Growth Fund December 19, 2000Clarica Income Fund December 13, 1999Clarica Premier American Fund December 13, 1999Clarica Premier Bond Fund December 13, 1999Clarica Premier Emerging Markets Fund December 13, 1999Clarica Premier International Fund December 13, 1999Clarica Premier Mortgage Fund December 13, 1999Clarica Short Term Bond Fund December 13, 1999Clarica Summit Canadian Equity Fund December 13, 1999Clarica Summit Dividend Growth Fund December 13, 1999Clarica Summit Foreign Equity Fund December 13, 1999Clarica Summit Growth and Income Fund December 13, 1999Clarica US Growth Equity Fund December 13, 1999Clarica US Small Cap Fund December 13, 1999

Both Front End and DSC class units are available to all investors.

Information for the years ended or as at December 31 has been reclassified inaccordance with the current year basis.

The Investment Portfolios for each of the Funds are as at December 31, 2002and the Statements of Net Assets are as at December 31, 2002 and 2001, if theFund was in existence at that time. The Statements of Operations and Changesin Net Assets for each Fund are for the years ended December 31, 2002 and2001, except for Funds established during either period, in which case theinformation provided is for the period from inception to December 31. TheStatements of Financial Highlights for each Fund are for each of the mostrecent five years ended December 31, except where the inception date of aFund, or date of first sale of a Class of a Fund, was after January 1, 1998, in



which case the information is provided for the period from inception or date offirst sale, as applicable, to December 31 of that period, if applicable, and foreach year ended December 31 thereafter. The date of inception of each Fundis shown above.

2. SIGNIFICANT ACCOUNTING POLICIESThe following is a summary of significant accounting policies of the Fund:

(a) Valuation of InvestmentsListed securities are valued on each business day at their latest available saleprice. In the absence of recorded sales on that day, they are valued at theaverage of the last recorded bid and ask prices where appropriate. Unlistedsecurities are valued on each business day based on price quotations fromrecognized investment dealers, or failing that, management’s best estimate.Short-term fixed income securities are valued at cost which, together withaccrued interest, approximates market value.

(b) Foreign ExchangeForeign currency amounts are translated into Canadian dollars as follows:market value of investments, forward currency contracts, other assets andliabilities at the closing rate of exchange on each business day; income,expenses and, purchases, sales and settlements of investments at the rateof exchange prevailing on the respective dates of such transactions.

(c) Investment Transactions and Income RecognitionInvestment transactions are accounted for on trade date and any realizedgains and losses from such transactions are calculated on an average costbasis. Dividend income is recognized on the ex-dividend date and interestincome on the accrual basis. Stock dividends are recorded as dividendincome determined by reference to market value.

(d) Net Asset Value Per UnitNet asset value per unit for each class is calculated at the end of each dayon which the Fund’s manager is open for business by dividing the netassets of each class by its outstanding units.

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’sproportionate share of the Fund’s common liabilities and less class specificliabilities. Expenses directly attributable to a class are charged to that class.Other income and expenses are allocated to each class proportionatelybased upon the relative net asset value of each class.

(e) Futures, Forward and Option ContractsFutures, forward and option contracts are valued on each business dayaccording to the gain or loss that would be realized if the contracts wereclosed out, unless daily limits are in effect in which case they are valuedbased on the current market value of the underlying interest. Any paymentsmade 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 InvestmentPortfolio. Gains or losses arising from futures, forward and option contractswhich are held as hedges for capital investments are recorded as unrealizedgains (losses) on investments until the contracts are closed or expire. Gainsor losses arising from futures, forward and option contracts not held ashedges for capital investments are recorded as income (loss) on a daily basis.

3. INCOME TAXESThe Funds qualify as mutual fund trusts under the provisions of the Income TaxAct (Canada) and, accordingly, are not subject to tax on net income, including netrealized capital gains for the taxation year, which is paid or payable to unitholdersat the end of the taxation year. However, such part of each Fund’s taxable incomeand net realized capital gains that is not so paid or payable will be taxable to thatFund. Income tax on net realized capital gains not paid or payable will be generally recoverable by virtue of refunding provisions contained in the IncomeTax 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 isa return of capital and is not taxable to unitholders. Derivative investments arerecorded in the same manner for tax purposes as for accounting purposes.

Net capital losses may be carried forward indefinitely to reduce future net realizedcapital gains. Net capital loss amounts appear under “Additional Fund Notes” onthe Statements of Financial Highlights.

4. MANAGEMENT FEES AND OTHER EXPENSESCI 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 investmentportfolio of the Funds.

The management fee is calculated on the net assets of each Fund at the end ofeach business day and is paid daily.

Each Fund also bears all operating and administrative expenses including auditand legal fees, registry and transfer agency fees, custody fees, expenses relatingto reporting and making distributions to unitholders, all other costs and feesimposed by statute or regulation and expenses of all communications withunitholders.

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 thefees were reduced.

In order to reduce the effective MER’s of certain funds, some or all of the man-agement fees and/or operating expenses may have been waived by the Manager.



5. SECURITIES LENDINGCertain Funds have entered into a securities lending program with their custo-dian, Royal Trust Company of Canada (“Royal Trust”). The aggregate marketvalue of all securities loaned by a Fund cannot exceed 50% of the assets of theFund. A Fund will receive collateral of at least 102% of the value of securitieson loan. Collateral will generally be comprised of cash and obligations of orguaranteed by the Government of Canada or a province thereof, or by theUnited States government or its agencies, but may include obligations of othergovernments with appropriate credit ratings. Royal Trust has indemnified theFunds against the credit risk of the borrowers. For those Funds participating inthe program, amounts for securities loaned, the collateral received, and theincome collected appear on the Statement of Net Assets and income from secu-rities lending is included in "Interest Income" in the Statement of Operations.

6 . RELATED PARTY TRANSACTIONSSun Life Financial Services of Canada Inc. (“Sun Life”) owns a significant inter-est in CI Mutual Funds Inc. and is therefore considered a related party to theFunds. Investments by Sun Life in each of the Funds, if applicable, are disclosedin the Statement of Financial Highlights.

7 . PORTFOLIO TRANSACTIONSA copy of the Statement of Portfolio Transactions (unaudited) for any Fund for the year ended December 31, 2002 is available without charge upon writtenrequest to the manager, CI Mutual Funds Inc., CI Place, 151 Yonge Street,Eleventh Floor, Toronto, Ontario M5C 2W7.

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying financial statements have been prepared by CI MutualFunds Inc., the manager of the Funds, and approved by the Board ofDirectors of the manager. The Funds’ manager is responsible for the infor-mation and representations contained in these financial statements andother 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 principlesgenerally accepted in Canada and include certain amounts that are basedon estimates and judgments. The significant accounting policies whichmanagement believes are appropriate for the Funds are described in Note 2to the financial statements.

Ernst & Young LLP are the external auditors of the Funds, appointed bythe unitholders. They have audited the financial statements in accordancewith Canadian generally accepted auditing standards to enable them toexpress to the unitholders their opinion on the financial statements. Theirreport is set out at the right.

President Chief Financial OfficerCI MUTUAL FUNDS INC. CI MUTUAL FUNDS INC.

AUDITORS’ REPORTS

To the unitholders of Clarica Mutual Funds (as defined in note 1) (the “Funds”):

We have audited the Investment Portfolio of each of the Funds as atDecember 31, 2002, their Statements of Net Assets as at December 31, 2002and 2001, their Statements of Operations and Changes in Net Assets forthe years then ended and their Statements of Financial Highlights for each of the years in the five-year period ended December 31, 2002. Thesefinancial statements are the responsibility of the Funds’ management. Ourresponsibility is to express an opinion on these financial statements basedon our audits.

We conducted our audits in accordance with Canadian generally acceptedauditing standards. Those standards require that we plan and perform anaudit to obtain reasonable assurance whether the financial statements arefree from material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating theoverall financial statement presentation.

In our opinion, these financial statements present fairly, in all materialrespects, the investment portfolio of each of the Funds as at December 31,2002, the financial position of each of the Funds as at December 31, 2002and 2001, the results of their operations and changes in their net assets for the years then ended and their financial highlights for each of the years in the five-year period ended December 31, 2002 in accordance withCanadian generally accepted accounting principles.

Toronto, Ontario ERNST & YOUNG LLPMarch 14, 2003 Chartered Accountants

M a n a g e m e n t a n d A u d i t R e p o r t s 2 0 0 2 A n n u a l R e p o r t a s a t D e c e m b e r 3 1 , 2 0 0 2

Management and Audit Reports

NOTICE: Should you require additional copies of this Annual Report or havereceived 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 beforeinvesting. Unless otherwise indicated and except for returns for periods lessthan one year, the indicated rates of return are the historical annual com-pounded total returns including changes in security value. All performance dataassume reinvestment of all distributions or dividends and do not take intoaccount sales, redemption, distribution or optional charges or income taxespayable by any securityholder that would have reduced returns. Mutual fundsare not guaranteed, their values change frequently and past performance maynot be repeated. Mutual fund securities are not covered by the Canada DepositInsurance 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 anoffer or solicitation to buy or sell securities. Every effort has been made toensure that the material contained in these commentaries is accurate at thetime of publication. However, the Manager cannot guarantee its accuracy orcompleteness and accepts no responsibility for any loss arising from any use ofor reliance on the information contained herein.

SIMPLIFIED PROSPECTUS: The Simplified Prospectus and AnnualInformation Form of a Fund are renewed annually. The Manager would bepleased to provide, without charge, the most recent Simplified Prospectus uponrequest 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, unlessyou otherwise direct. You may withdraw from participation in the reinvestmentplan at any time by delivering a written request to your financial adviser or tothe Manager.

REDEMPTION OF SECURITIES: Securities may be redeemed by security-holders on any business day by delivering to your financial adviser or the Managera redemption request in writing, or in such other form as permitted by yourfinancial adviser. If your redemption request is received by the Manager on anyValuation Date prior to 4:00 p.m. (Eastern time), then your securities beingredeemed will be priced at the next valuation time following receipt by theManager 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, orbroker. If certificates representing the securities to be redeemed have beenissued, the redemption request must be accompanied by the certificates, properly endorsed for redemption with the signature guaranteed in the mannerdescribed above. If the registered owner is a corporation, partnership, agent,fiduciary or surviving joint owner, additional documentation may be required.

®CI Funds, the CI Funds logo design, are registered trade marks of CI MutualFunds Inc.®Clarica is a registered trade mark of Sun Life Assurance Company of Canada.

Trustees’ Letter

Legal Notice

Your Clarica Funds’ Trustees are pleased to report on their activities in respectof the year ended December 31, 2002. The Trustees are appointed pursuant tothe Declarations of Trust governing the Funds that are trusts.

The Trustees’ mandate is to consult with CI Mutual Funds Inc. (the “Manager”)and any investment advisers (referred to as “Subadvisers”) in matters pertainingto investment policy; receive and review periodic reports concerning the invest-ment of the Funds’ assets, the issue and redemption of securities and distribu-tions to securityholders; and to review and advise or consent, if appropriate, withrespect to any other matter required by the Declarations of Trust and by appli-cable securities laws, regulations and rules. The Trustees met quarterly.

The Trustees have reviewed, commented on and approved the CI Code ofEthics and Conduct, which establishes rules of conduct designed to ensure fairtreatment of the Funds’ securityholders and that, at all times, the interests of thethe 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 Trustees, through the application of thehighest standards of integrity and ethical business conduct. The objective is notonly to remove any potential for real conflict of interest but to avoid any perception of conflict.

The independent Trustees report that management has been open and coopera-tive, permitting the Trustees to meet with Subadvisers, to meet with individualdepartment heads and personnel to review control mechanisms and compli-ance procedures, including those relating to the personal securities trading activity of employees, and to consider other matters that affect theFunds, such as customer complaints. The personal trading rules under the

CI Code of Ethics and Conduct require prior clearance of personal trades andrestrict the ability of staff to trade any securities held by the Funds. The three independent Trustees comprise the Audit Committee of the Trustees.The Audit Committee independently reviewed, with the Fund’s auditors, the plan-ning, scope and results of the audit of the financial statements of the Funds forthe year 2002, and reported to the Trustees. The Trustees have received andaccepted the 2002 Annual Reports of the Funds.

The Manager's year 2002 report on compliance with the CI Code of Ethics andConduct has been provided to the Trustees in a timely and satisfactory manner.

Stephen T. MooreCHAIR, CLARICA FUNDS TRUSTEES

March 6, 2003

TrusteesStephen T. Moore, ChairJasmine HerltThomas L. JarmaiPeter W. Anderson, President, CI Mutual Funds Inc. (commencing February 2003)

Head OfficeCI Place, 151 Yonge Street, Eleventh FloorToronto, Ontario M5C 2W7Tel: 416-364-1145Toll Free: 1-800-268-9374Client Services Team: 1-888-771-2999

Sales OfficesCalgary Tel: 403-205-4396 Toll Free: 1-800-776-9027Halifax Tel: 902-422-2444 Toll Free: 1-888-246-8887Montreal Tel: 514-875-0090 Toll Free: 1-800-268-1602Vancouver Tel: 604-681-3346 Toll Free: 1-800-665-6994CI Teleservice: 1-800-275-3672 Automated account informationE-mail: [email protected] • www.cifunds.com

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