CI Financial Corp (CIXX) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the CI Financial Q1 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded on Wednesday, October 5, 2005 at 4 PM Eastern time.

I will now turn the conference over to Mr. William Holland, Chief Executive Officer of CI Financial. Please go ahead, sir.

Thank you, Matt. Good afternoon and welcome to our first-quarter investor call.

Before we get started, I would just ask that you observe the disclosure, because we will be discussing some non-GAAP measurements, as well as making some forward-looking statements.

I think it's fair to say that, by any standards, we had an excellent start to our fiscal '06. Assets, revenue, EBITDA, earnings all hit all-time highs. I think I'm even more pleased to say that our position for the rest of the year, the fiscal year, is even more favorable.

Let's take a quick look at some of the highlights. Our managed assets ended the quarter at $52.1 billion. That's up 19% on a year-over-year basis. (indiscernible) assets about 71 billion, up 11%. Gross sales spiked up considerably, up 80% to 2.7 billion. Net sales were up about eight times to 900 million for the quarter. Our revenue on a per-share basis was up 17%. Our earnings per share were up 14%. Our EBITDA, on a per-share basis, was also up 14%.

I think, to look at it on a sequential basis, quarter-over-quarter, you really get a sense of how good our first quarter was. Our mutual fund assets essentially were up 6%, our fee earning assets up by 4. Our gross sales and net sales were flat on a quarter-over-quarter basis, which is exceptional because you're comparing a summer quarter to a quarter that represented half the RSP season and the busiest month of the year, March.

Our revenue per share grew on a quarter-over-quarter basis by 7%, our earnings by 14%, and our EBITDA on a per-share basis grew by 6% in the first quarter. We also repurchased about the same amount of shares as last year; we bought back 500,000 shares at an average cost of $17.20. That compares with the previous year, where we bought back about 700,000 shares at 16.91.

I want to talk a little bit about sales. What I see here is that the sales momentum is clearly picking up. Calendar '06 is likely to be the best year that we've ever had for gross sales. I would estimate that we break through the $10 billion mark for the first time. We are also having our second-best year since 2000 in terms of net sales. Our net sales on a year-to-date basis, calendar, are now $2.3 billion. Our previous best was last year at just about half of that.

On a relative basis, our sales continued to be very, very strong. On a year-to-date basis, we ranked third, behind two banks. On a quarter basis, our first quarter, we were also third, behind T.D. Newcrest and RBC. But what this chart shows is how much we are doing better than most of the other large independents. I think it also, unfortunately, points out to how well the banks are doing in the mutual fund business today.

Looking at the asset growth and just picking a twelve-month period of time, our asset growth, which asset growth really just combines both sales and fund performance, and our asset growth has been really exceptional. We are just about -- on a dollar basis, we are number two, and on a percentage basis we are number three, again behind two banks, Bank of Montreal now and Royal Bank, but well ahead of all of the independent competitors.

Just a quick look at what was selling during the quarter -- for the most part, our sales came in Canadian equity, followed by balanced and income-type products. This chart just shows how much sales we had in each of our top ten funds and the performance, on a quartile basis, over the last year. What you can see is seven out of ten of these funds were top-quartile over the last 12 months; one was two, and the two that were four actually had very good performance and they are actually just not characterized properly. Signature high income fund and the signature dividend funds are two very popular funds that actually have very good performance but are just in the wrong categories.

Just before I pass the call over to Steve, I just want to talk a little more about the performance. I think one of the things that I've said here is that I'm very optimistic and I like the positioning of our company. I like our positioning more today than I liked it at the beginning of the first quarter. If you look at our top ten sellers, you see that they all have very, very good performance, top-quartile essentially. If you look and our company on a more broadly basis -- on a broader basis, you see that, on a five-star and four-star ranking, CI continues to have the most five-star rated funds, the most four-star rated funds, obviously having, by a considerable margin then, the most four and five-star rated funds. I think that positions us very well for the rest of this fiscal year. I would say this -- if the RSP season started today, I think we would be very, very optimistic about the results we would achieve.

I'd like to now turn the meeting over to Steve MacPhail. He is going to further discuss some of our financial and operating results. Then, we will be available after that to answer any questions that the analysts have. Steve?

Thanks, Bill.

Our financial results are pretty self-explanatory, but I'm going to cover some of the highlights for you.

Our total revenue for the quarter was 332.2 million, up 14% from last year. I just want to point out that revenue now includes the fixed administrative fee we collect from the funds, and we've reflected this in the comparative numbers.

Net income was 91 million, up 12% from the prior year. On a per-share basis, net income rose by 14% from $0.28 to $0.32 per share. Keep in mind what Bill was showing you earlier was the comparison to the fourth quarter to our most recent quarter, whereas I'm showing on a year-over-year basis.

EBITDA for the quarter was just shy of $160 million, which is up 10% from 145 million in the prior year. On a per-share basis, CI's EBITDA was $0.56, up 14% from $0.49 in the prior year.

Lastly, dividends for the quarter were $0.16, representing the first two months at $0.05 a month and the August dividend reflecting the increase to $0.06 per month. Our annualized dividend rate is now $0.72 per share.

Some of the events affecting the first quarter, apart from the increased profitability from higher assets, are, one, we realized capital gains of 12.7 million, which are part of the overall $21.6 million gain we made on our Amvescap shares. Second, we took an $8.8 million expense on options being mark-to-market and this reflected the increase in CI's share price from $17.30 per share at May 31, 2005 to $20.31 at August 31, 2005. Our option expense, however, was reduced by 6.6 million from a hedge that we put in place early in the year to help shield us from increasing option expenses from higher share prices. So that 8.8 million would have been 6.6 higher had we not put the option hedge in place.

As Bill mentioned earlier, we repurchased almost 500,000 shares at an average price of $17.20, which, compared to today's share price, provides about a $2 million advantage for our shareholders.

We also spent an extra 25% on deferred sales commissions, which is a little over $7 million, compared to the prior year. That's as a result of our growing sales, as Bill had talked about earlier.

Our total Selling, General and Administrative expenses increased about 7% year-over-year if you factor out the option-related expense. This was well below our asset growth of 19%. If you actually compare the same analysis to the immediately prior quarter, our operating expenses have been held flat for the last six months.

From and operating perspective, we had a number of notable events. First, we had a vote of our unitholders to fix our fund offering expenses at levels below what CI had ever achieved and what we believe is the lowest in the industry. The transaction was overwhelmingly approved, and many of the advisers of that deal with CI have now indicated with us that they would hope other fund companies would follow our lead. Our funds are now the only ones with absolute clarity on cost, which allowed us to meet the highest government standards of all the mutual fund companies.

Secondly, we launched a new family of Assante products, which have quickly become the best-selling products in the Assante product line-up.

Looking a bit more on a forward basis, we will be intensifying our laudering (ph) program against the GST being charged on our unitholder savings, which now amounts to about 75 million per annum for CI alone and over 600 million for the industry. It reduces the investment returns of our clients and the cost almost equals what we charge in operating expenses as a whole.

Lastly, again another item which is on behalf of our unitholders, we have over $3 billion invested in funds that have exposure to income trust at CI Financial. We will be doing our best to represent their interests in any potential tax increases contemplated by the Ministry of Finance.

With that, I will turn it back to you, Bill.

Thanks, Steve. Operator, Matt, we will be glad to take questions now.

Doug Young of T.D. Newcrest.

Good afternoon. First question -- I just noticed that you're not disclosing any more of the expense ratios or expense charged to funds in your financials. I guess I'm just trying to get a handle in terms of where they stood this quarter. Kind of maybe just backing up and taking a look at the fact that you are capping your fund expenses, I mean what should we expect moving forward? Are you where you need to be? Is it basically -- are your expenses flat in terms of what your cap is right now?

I wouldn't say it was flat, but our objective would be, over the course of the year, to make sure that it's flat.

Okay. Just in terms of the, I guess the environment, the sales environment and what you said, I guess, Bill, and your comments were if the RSP season started today, you'd be quite positive and optimistic. I mean, what does the outlook look like I guess moving in towards the RSP season, and why today would you be so optimistic? I mean, what can change, obviously? Maybe you can walk through that, dig a little more into that statement?

Well, what can change, obviously, is that we can have a turn in the market. I think that our particular positioning is very good. Our big funds have exceptional performance, and whether it's Kim Shannon, Gerry Coleman, Eric Bushell, (indiscernible) Danny Bubis, we have five Canadian managers that have exceptional one, three and five-year numbers. So I think that that's part of -- to a great degree, that's the reason for the optimism.

That being said, I don't think that the fund industry has been nursed back to health yet. I still see it as being somewhat unhealthy. I mean, you're seeing very few of the big -- of the top companies, you're seeing almost all the business go to a couple of banks. CI is the other one doing quite well, but most of our big competitors are not doing very well right now. There's no other of the large independents that's getting sales at all, really. I think that, in order to think the business is healthy, I think you'd have to see three or four of the independents getting pretty good sales.

The other good place where you are seeing pretty good business is some of the boutiques that specialize in energy or income trust in general. So, I think we are well-positioned; I think that the investment climate is pretty good. I think the mutual fund industry still has a little work to go.

Just lastly, I mean, what is on your plate right now? Obviously, your focus has been looking at acquisition opportunities and potentially income trusting. Unfortunately, those are not moving forward. But what is your focus over the next little while?

Well, I think, for the most part, I have to say that I'm incredibly pleased at the position that we have right now. Over the last couple of months, we did start a couple of initiatives that I thought were interesting and could have had very positive conclusions had we been able to complete them. I mean, if you start out with the Amvescap, I think that we spent a lot of time looking at it. We bought stock; we made a very decent proposal. Looking at the price of Amvescap today, I think it would be very hard for anyone to say that that probably wasn't a transaction for them to look into. But at the end, I think that that process was very positive for us. We made $22 million. It made us really focus on looking at a company that we thought had good synergies and was a good business combination for us. Ultimately, we didn't complete it, but I look at that as a very positive result.

The income trust -- income trust is really quite a different story. We started looking at it two years ago, and I think we were very close to making a proposal to our shoulders that they could vote on, and then all of a sudden there was a restriction on pension ownership. Then, four months later, the pension restriction was lifted and the government suggested that they would come out in short order with a position paper. Well, like a year and a half later, almost, they came out with a position paper which was really quite benign. So, we had done our work again and immediately there again, we filed for a tax rulings standard business practice. Then a week after that, the Minister announced that they were no longer going to provide tax rulings for, amongst others, income trust and then made some comments over the next couple of days that it was pretty clear that the Minister has a fair bit of disdain for income trusts in general -- talking about, you know, the subordinated debt component of it, which is really the backbone of the structure, but also starting to float out things like they could put a tax on them.

Keep in mind, if the thought that they were not going to get tax rulings, they would have put it in the position paper a week later, so this was something that was done on very short notice. So, the environment, I think, changed really over a very short period of time. So, we've now put the income trust -- we have done all of the work, and we just thought it would be almost irresponsible to try to ask our shareholders to vote on something that we don't know what the -- I mean, no matter what, it's cumbersome; it's a more complicated structure; it's more restrictive. If we can't tell our shareholders, the owners of the Company, what the benefits they would achieve by this, then I just thought that was almost reckless. I do believe and I think we've concluded, at the Board level and management level here, that the relative advantages that income trusts have over standard corporations is likely to greatly diminish but at any rate, it's going to diminish. So, we are going to know just sit and wait and see what happens. Hopefully, something comes out in the next little while.

Those were two very meaningful initiatives. I think, now, we will continue to do what we always do, which is to look at companies that would fit well with us. But frankly, I actually don't see a lot of -- I see a business that screams, an industry that screens of consolidation because of how few firms are actually able to grow their business and get sales, but it's hard for me to see combinations that are likely to happen or maybe even make sense. So, I don't see anything meaningfully important that we could do right now, and things change. So, we will continue to look at companies the way we do, but I would suspect that there's not much that's going to be done in the next little while.

Drew McReynolds of RBC Capital Markets.

Good afternoon. I guess three questions for you, Bill, again I guess fairly high level here. Just on the fund flows, the bifurcation of fund flows that we are seeing, whether among the independents or the banks, I'm just wondering what you specifically attributed that to, whether it's distribution performance, product pricing, maybe all of the above.

The second question is just following the government's announcement on tax rulings. Are you seeing any change in flow of funds from an asset mix perspective out there?

The third question, kind of loaded question, is when does pricing in this industry from the retail perspective begin to show more cracks than we have seen, at least to date? Thanks.

I think -- starting with the first question, I think the banks have such a natural advantage over to the vast amount of fund companies because of their branch distribution. I think the banks actually really do get it. I think that it took them a long time to get comfortable in the asset-management business, and I think especially Royal Bank and TD have really got it down pat. So I suspect that the banks will be enjoying this type of success for the foreseeable future.

Why is a company like CI doing well? Well, I think part of this is just that our funds have had good performance over the last couple of years and still performance is still a very big part of it. But the business has really changed. It's changed from 15 years ago, it was about coming up with new products, and CI I think was really at the forefront of that. We had the first emerging markets, Asian fund, Latin American fund. Now, I really think, as the business has matured so much, it really is more -- it's a matured business; it really is more about things like brand and packaging and things that really I don't think a new product will change any company, but you can add an income fund or add a balance fund; I don't think it's going to do anything any more. I think it really is about, as with most mature business, the large well-capitalized, well-branded firms tend to dominate, and scale has become very, very important. So, I continue to see a business that, three or four years out, the top five or six companies probably dominate with 85% of the assets. I just don't think the country is big enough for the amount of capacity that's out there, and so I see that as being a problem; I just don't see how it plays itself out in the short run.

We are definitely seeing a lot of questions from our investors, or from our unitholders regarding income trust and what's going to happen. CI has probably $4 billion worth of income trust in our mutual funds. We have a couple of very, very large income-type funds that have up to 50% positions in this. I think that one thing that has been very clear to us is that they are very worried and they are very annoyed that a product that they've seen has been very positive to them -- because performance of these has been so good for the last couple of years -- is potentially going to disappear or the advantage is going to disappear. So right now, I can't say as I've seen a meaningful shift in the sales out of income trust. It's just about the same as it was a couple of weeks ago, but the concerns are certainly a lot higher.

Okay, no, that's great. Then, just the last question on pricing.

I think that pricing is one of those things that's much more evolutionary than others. I think, when we had a shareholder vote on August 30, a unitholder vote on August 30, to fix our fees on our expenses of our funds and ER, so to speak, of the MER at numbers that range from 18 to 22 basis points, which about 30, is a little over 30% less than what we charged last year, I will tell you that we had overwhelmingly had it approved. It was like 99%. But some of the comments that we heard I think were more important. While anecdotal, I think what you're seeing is that fees are starting to make a difference. If we are offering a product at 220 plus GST and our competitor is offering it at 275 plus GST, I think, at the margin, their business is already being hurt but I don't think it's something that happens overnight. I don't think -- I think that the financial advisors almost laugh when people say, well, it's just about performance -- because yes, it's just about performance, but all things being equal, we would rather have the 25 basis points more rather than less. So, I think that it is starting to play out now, and I think the industry is going to very rapidly get down to 2% plus about 20 basis points of expenses. Those that are charging 2.25 and 2.50 -- I mean, there are still large fund companies out there that have management fees, just the M at 2.50, and I think those days are numbered and I think that if you look at the sales of those type of products, unless they have incredible performance in the short run, the sales -- what we've looked at, and again, it's just anecdotal, but we've looked at these type of funds and for the most part, their inflows are very poor.

Okay, thanks very much.

Timothy Lazaris of GMP Securities.

I've got two or three questions as well, one for Steve or Bill, and I will just do them as you respond to them. The first is just the balance sheet or the use of cash flow, Steve. Did you have to or did you contemplate or even actually modify the Company's balance sheet in anticipation of income-trusting in any way? In other words, was the sale of the securities and the paying down of debt something that you did to sort of support that program? If so, could we see any type of a reversal in terms of your use of cash in both of those categories?

Actually, the answer to your first question is no. When we sold the securities, which were the shares of Amvescap, once we were finished on that program, we basically sold our shares; we weren't interested in being investors in that company over any period of time, and basically took our profits and moved on.

Secondly, we basically use any cash flow we have in excess of what we pay out in dividends to generally buy back our shares and if we haven't bought back our shares, then the debt may go down at the time. But no, we haven't been trying to deleverage ourselves. If anything, as an income trust, we probably would add a bit more leverage over time. We had never decided what the amount would be but we generally are told by analysts like yourself that we are a way-underleveraged company, so we really haven't taken any balance sheet management at all.

okay. Could you just comment on your current sort of -- I think you stated, in the past, that the amount of dividends as a percentage of forward free cash flow or forward opening cash flow -- are those ratios still intact from where they were last quarter?

Yes. You've got to remember, we don't do it off of free cash flow because that would suggest, if you had a great year for sales, you wouldn't pay a dividend. So, the free cash flow doesn't make any sense, because as you know, the free cash flow is after we pay out sales commissions on new assets. Since those net assets earn you money the second you pay the commission, that's not logical. But what we look at as a percentage of operating cash flow or as a percentage of earnings, the range we're in right now is a pretty good range. We're kind of 50, 60% of earnings in operating cash flows.

Okay, thanks, Steve. Then, Bill, a question for you -- clearly, after you announced that you were considering income-trusting, the shareholders of CI Financial voted unanimously in favor of it because the stock had probably its best returns, short-term returns that I've seen in ten years. You know, subsequent to that, we've seen the stock pull back. So I guess I struggle a little bit with your comment that you would have a hard time getting shareholders to approve this at this point. Is it more so that you would have a hard time getting Sun Life to approve it, because they have a blocking position in the Company?

Well, no, it actually isn't. I couldn't recommend it. If Sun Life wasn't here, I couldn't actually recommend our shoulders vote on something that I just don't know what the outcome is. If they put a tax on the -- if they even the playing field, which I don't think is a long shot here, and we've converted to an income trust, we always run the risk of being assessed on the capital gains because we're not giving a tax (indiscernible). I think that's a very small risk, but now we have a very cumbersome company, and any way you look at it, a trust is more restrictive. If we don't at least know what the advantages we're likely to get are, I think that's really a tough call to make.

Plus, the Minister is very clearly, in my mind, floating out these notions that would affect the valuation of income trust. I don't think that the valuation of income trust -- if they tinker with them at all and change the relative advantages, then they won't trade at the same price. If all of a sudden, the tax-exempts are going to be subject to some type of tax, then it's not worth the same amount to them as it is if they're getting it tax-free. So my feeling is that I need to believe that I have some idea of what actually will prevail at the end of this. I mean, we have seen so much changes over the last -- changes of they just changed their mind and you know, changing of the environment that, in my view, this isn't a hard call to make. I don't think that, if they make the changes, then the multiple premium won't stay, and if they leave it alone, then we will just convert and we will be subject to that premium again.

So, Bill, what would the government had to say explicitly for you to put this back on the plate?

They would have to say that they are okay with it, that they are -- look, when they -- if the only reason they pulled the tax ruling is because they knew the tax rulings would be favorable, they did this ten days after putting out a position paper that was benign. So, I mean, if that's not the clearest message, I don't know what is. Then, the next day, they said that they started pontificating about the subordinated debt and maybe putting a tax on it, so I think that, the next time around, I think they're going to be pretty clear on what type of structure they will allow to prevail. If they leave it completely open-ended again, I'm not sure what we would do. I just don't see that as being -- I think that's the one outcome that can't happen.

Okay, I'm not trying to put you on the spot here, but you know, energy income trusts and REITs have been in Canada for 25 years, if not longer, so I'm struggling with what you think the government is actually going to do. But what you're saying is, if the benefits that existed prior to them reversing their opinion are even diluted in any way, that you have a hard time presenting that case to your shareholders?

Well, it's how much is it diluted? Look, right now, we consider our effective tax at 57%. You know, we are one of the few companies in Ontario that actually paid 36%, and we are not fortunate to get any government subsidies of any kind, so there goes 36%. The top marginal rate on the dividend moves the effective tax rate to 57%. We could move the effective tax rate to those in the top bracket in Ontario to 46%. So that's 25% more we're paying by being a corporation over an income trust. That's why we did it; for the tax exempts, their effective tax rate goes to 36 today, to 0. If the 57% that is our effective rate today went down to 55, would we still do it? Yes, I think we would still probably recommend it. If it went to 54, we would. If it went to 47, you know, 1 percentage point above the 46, we probably wouldn't. But I think that there's a range at which we would still think that it was wise and that our shareholders would want to do it, and I think it's just guessing at this point. But we were very encouraged and quite optimistic that, this time around, we were going to be able to complete this and convert our company into an income trust. Now, I think that we're just going to wait and try to get real clarity. I do believe it comes this time around. I just think that such a mess has been made of this now that it would be very, very difficult to just leave this hanging out there for the next year or so.

John Reucassel of BMO Nesbitt Burns.

Thank you. Just a quick question for Steve. Steve, this deal of the earnings, the dealerships, the earnings are down. You know, is this just -- should we just be happy if it's positive earnings out of these things, or is there -- was there something going on this quarter?

No, nothing goes on that's unusual in the dealership. One of things you have to look at is there's seasonality that takes place in the dealership when they get fees in and when they don't, so that can move things around on a quarter-to-quarter basis.

You know, we've pointed out that, in the past, that as a percentage of CI's overall income, that dealership earnings themselves are always very small. They're -- I'm not going to say immaterial, but they are almost immaterial relative to the overall business of CI. I think what you want to watch for is the fact that, despite the huge reinvestment we've put into the dealership and bringing the systems up to be kind of state-of-the-art, reorganizing all of the compliance, a lot of the things that we've talked to you about in the past, that we've kept it profitable the whole time. I'm guessing we are probably the only profitable dealership out there, given the amount of things that are going on.

Just in the MD&A, you talked about integration costs. Should we still -- is this just an ongoing issue that you're dealing with?

I would like to think that we're probably about 75% of the way there right now, another 25% until I'm really happy with the way things are. But compared to where we were even a year ago, we've made a lot of progress. So the new systems we have are all up and running and now we're just fine-tuning them. So, I don't see costs going up in that area any more, so if anything, they are flat to be declining as we go forward on the dealership side.

Okay. Bill, just on the banks, you know, the banks (indiscernible) I viewed as for a long time there a money market companies, (indiscernible) then they figured out they could sell income product in a low-rate environment. Now they are selling a lot of dividend and Canadian equity funds. You know, if people out there talking about -- and I throw myself in there -- that their weakness is international equity, and so when it comes back, they will be relatively weaker. I guess what I'm asking is are the banks here to stay? Are they having success like Royal and TD in selling Royal product in a Gundi (ph) or a Nesbitt Burns channel?

Well, first of all, I don't think -- are the banks here to stay? For sure, especially the ones that are doing very, very well today. I don't think it will matter much whether there's a shift in market sentiment to where retail investors go back to looking at U.S. and international funds, which will clearly happen one day. I think that, if the banks are looking early on, they can raise money through fund-to-funds where they are using underlying mutual fund companies that have a good reputation in that area. They've got it; they've got huge financial planning networks; they've got -- their brokers are selling their own product. There's even some indication now that the Royal funds are being sold by some of the other banks on an occasion. It's on a very small basis, but a few years ago, it would've been 0.

So, I mean, I think that one of the more sensible ways to look at these things is common sense. I wish the banks stunk; they just don't. They've got it down; they are much better managed -- the investment management parts of the banks than they've ever been. They get it. When I sit down and talk to these people, they clearly get it and it's a very ambitious agenda they all have. So I think that we would be foolish if we felt that this is just a lucky run on the banks, kind of like when they had that run in the '90s and w were getting all of this money market and when rates went up, all the money market redeemed. That's just not the case here. You know, I think you are smart if you just acknowledge that you have a very big gorilla in your business now and to start working your way around it. That's all I can say.

A last question, it kind of builds on what I think a few people have asked, but the issue -- you know, the consolidation opportunities don't appear to be transpiring anytime soon. I agree with your view on trusting, that it's probably not the best thing to do with this lack of clarity. We could be years before this government figures out what it's going to do. By the end of the day, Bill, you are piling up a ton of cash. You know, what -- like are you actively looking at other ways to return this to shareholders, (indiscernible) a special divi or more active buyback programs? You know, how are you going to deal with this? And you are underleveraged, so I mean -- it's a good problem to have, but I just wonder how you are going to deal with it.

Yes, it is, and it becomes a problem. First, a couple of years ago, or I guess it's probably four or five years ago now, when we started aggressively raising our dividend, we believed that one of two things would happen. We would eventually income trust our business, or dividend tax rates -- dividend tax rates in combination with corporate taxes would be considerably lower. It never really occurred to us because, remember, there was an aggressive plan to move corporate tax rates down before the government changed hands here in Ontario and they rolled back all of that. So, it has become -- from the point of time that we made this decision to start returning, by dividend, the earnings to the owners, things have changed. Today, I would -- every time I cash my dividend check, it bothers me to know end that I'm paying 57% tax on it. That doesn't even make sense to me. So, I think that if they leave dividends the way they are and continue to tax -- if CI wants to pay all its earnings out and continues to tax us at 57%, I think we would have to look at something else. I really do. I think we would really talk to a lot of shareholders in terms of just what they -- how they would like to see their money returned to them.

So I mean I guess -- I'm just trying to figure out what are the options? Is it a Dutch Auction? Is it a special divi? What is it? Have you thought about what those could be?

Well, a special dividend doesn't do anything because that just means you're paying 57% tax again. So, you know, I'm not saying I suggest this but I could see a scenario where companies like CI go to a 0 dividend and just say what we're going to do is buy back, every single month, what amounts to, on an annual basis, 5% of our shares so that we are basically turning the monthly distribution into a capital gain through some type of auction. I think, if indeed the tax rate is going to be so ridiculous, then you have to think about other ways to get money back to the owners of the Company. I think that, if they don't do anything to dividends, we will start to become creative.

Okay, thank you.

Karen Hui (ph) of Genuity Capital Markets.

My question has two parts, both relating back to the fixed fund operating expenses. First of all, what are some of the initiatives you are taking to be able to achieve the 36% reduction?

secondly, I know that your goal is to reduce your operating costs to lower fixed amounts within the year, but do you think that any of the operating costs of your funds will have to be absorbed as additional SG&A over the next few quarters? If so, how much? Thanks.

Okay, just so I repeat back your question, so there's two things. What are doing (indiscernible) going to bring down our operating expenses? Then you want to get some quantification as to what it might be.

Well, first of all, what I would say is just when we look at the operating expenses, they are in basis point and fortunately, we've had good market performance over the last six months, so that will have a beneficial effect. I would say we're not going to do anything different than the way we have -- than CI has been run in the almost 12 years since I've been here. You know, we throw around nickels like they're manhole covers here and will continue to do the same thing. So hopefully, as everyone has kind of aligned on trying to be as efficient as possible, that will eventually get to the point where the amount that we collect from the funds and administrative fees is equal to what we've spent. So, we clearly have a target that people will work towards when we achieve that. I just couldn't answer that question for you at this point in time.

All I can tell you is we've been above that rate up to this point in time, but we made that clear that we were above that rate and the rate we were setting for our unitholders was below what we were achieving at that time. So, I don't think I can be much help for you, except to say that, on an overall basis, we spent, if you look at money management, net SG&A, fund (indiscernible) expenses, we spent about 46 basis points in the last quarter. We think, with market appreciation and some good effort on it, that maybe we can eventually squeeze a couple of more basis points out of that.

Okay, so do you think that, over the next couple of quarters, that SG&A will have to absorb at least some of it?

I couldn't answer that for you exactly, but I think that's the likelihood.

Gentlemen, there are no further questions at this time. Please continue.

Well, then, I will use this as an opportunity to wrap up. I thank everybody for joining us on our first-quarter conference call, and I look forward to updating you on January 10 on the results of our second quarter. Thank you very much, and good-bye.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.