If challenge reveals character, the events of fiscal 2008 illustrated that Canaccord is staffed by a remarkable team of men and women who demonstrate our company’s commitment to client service. Our focus on providing clients with ideas that deliver results was unwavering through unprecedented turbulence in global credit and equity markets. And though we did not achieve a fifth consecutive year of record financial performance, our business was solidly profitable at the operating level, we set new high-water marks in equity underwriting during calendar 2007, and we continued to invest in building the capabilities of Canaccord’s global platform.

While the beginning of the fiscal year was strong across all of Canaccord’s businesses, investor confidence decreased as the volatility of global markets increased over the balance of the year. Revenues declined 3.4% to $731.5 million, with the major portion of the decrease attributable to lower levels of activity in investment banking and lower principal trading revenue. Expenses rose 9.9% due primarily to third party asset-backed commercial paper (ABCP) charges related to the Canaccord Relief Program for clients. During fiscal 2008, we recorded fair value adjustments of $0.17 per share related to the ABCP Canaccord holds in treasury, including a provision of $4.2 million pre-tax, or $0.06 per share after tax, recorded during Q4/08. The balance of the ABCP-related expenses resulted from a charge of $58.2 million pre-tax, $39.6 million after tax, or $0.82 per share for the Canaccord Relief Program and restructuring. As a result, net income for fiscal 2008 declined to $31.3 million from $93.5 million in the prior year.

In May 2008 we completed the sale of 6.7 million Canaccord treasury shares for gross proceeds of $69.0 million. The net proceeds of the offering effectively return our balance sheet to the level of strength it had prior to the provision taken for the Canaccord Relief Program. And while we did not need additional capital for our normal business activities, it does position Canaccord very well to take advantage of strategic acquisition opportunities and continue to execute on the business plan that has driven our growth in recent years.

an equitable solution for clients
The ABCP issue was an unforeseen consequence of the unprecedented disruption in the credit and capital markets during calendar 2007 and early 2008. Regrettably, those consequences caused significant concerns and hardships for Canaccord clients who held these notes. Throughout the time-consuming and complex restructuring process, we remained determined to find a solution that provided clients with a return of their capital. The Canaccord Relief Program will accomplish that goal by combining a credible third party market bid for eligible clients’ ABCP with a Canaccord-funded top-up to achieve par value for their restructured notes; we will also reimburse clients’ pro rata share of restructuring costs. Moreover, the Canaccord Relief Program will protect eligible clients’ entitlement to any unpaid interest resulting from the Pan-Canadian Investors Committee for Third-Party Structured ABCP’s restructuring program for the ABCP notes.

We believe this to be the best possible outcome from a very challenging situation, and we were pleased with the overwhelming support for the restructuring plan in the April 25th vote. Full details of the Canaccord Relief Program and of the fair value adjustments to Canaccord’s treasury holdings of ABCP can be found in the Management’s Discussion and Analysis, beginning on page 18 of this report.

Subsequent to March 31, 2008, Bob Larose stepped down from his position as Executive Vice President and Head of Private Client Services. Bill Whalen also announced his retirement from his position as Vice President and Head of our fixed income group. As a result of these changes, I am acting as interim Head of Private Client Services and Mark Maybank, our COO, will be leading our fixed income group while we recruit permanent leadership for these important business groups.

accomplishments in a difficult year
Given the business environment in which our teams were required to operate, the past year was in many ways a remarkable period and a strong corroboration of our culture and values. During calendar 2007, for example, Canaccord Adams ranked first among all Canadian investment banks for led and co-led equity transactions over $1.5 million, raising $6.1 billion in connection with over 175 transactions. We led or co-led 17 transactions over $100 million during calendar 2007, including our largest ever at more than $614 million. And as a measure of our continuing diversification, more than half of the transactions we were involved in last year were for non-resource companies.

Our investments in the US during the past two years in talent, offices and systems helped generate significant momentum during fiscal 2008. Despite volatile market conditions, investment banking revenues in the US grew strongly, as did revenues from our revitalized sales and trading operations. While the US operations are not yet profitable, we are pleased not just with the returns on our investment to date but also our ability to be competitive in winning investment banking mandates. Our UK operations – Canaccord Adams Limited – also performed well, winning high profile investment banking assignments and being named a leading stockbroker on the London Stock Exchange’s AIM market in the 2008 Hemscott Ranking. That said, investment banking revenues, particularly in Canada and the UK, were adversely impacted by the dramatic slowdown in underwriting and merger & acquisition (M&A) activity that gripped the entire industry during the final quarter of Canaccord’s fiscal year.

After years of steady growth supported by strong markets, Private Client Services was affected by investor concerns over the direction of equity markets: revenues declined 8.6% in fiscal 2008. Assets under administration, which has grown at a compounded annual growth rate of 15% over the past five years, decreased 4.8% to $14.3 billion from $15.0 billion in the prior year. The segment made good progress on expanding Canaccord’s capabilities, serving clients’ needs for sophisticated wealth management, rolling out the latest generations of planning software and enhancing our wealth management platform to provide Advisory Teams and their clients with professional advisory services. We also initiated more intensive training and development for newly licenced Investment Advisors (IAs). At year end, Canaccord had 354 Advisory Teams compared to a restated 368 in fiscal 2007 – a net decrease of 14 Advisory Teams during fiscal 2008.

the view ahead
From our vantage point, the successes of fiscal 2008 and the challenging conditions under which they were achieved demonstrate the value of our over-arching strategy for Canaccord. That is to offer investors an integrated global platform with specialized expertise in eight growth areas of economic activity. There is no doubt that our marketplace is becoming more competitive as more investment banks try to emulate the success of our model. We are confident that Canaccord offers clients not only outstanding ideas that meet their entrepreneurial needs but also a better-integrated global platform capable of executing their transactions very efficiently.

We began the new fiscal year with strong client relationships and a growing share of our chosen markets. We are well capitalized and able to take on any anticipated level of business with our own resources. We are confident that Canaccord is very well positioned – with ideas, people, values and relationships – to resume its trend of growth as certainty returns to our markets.

Sincerely,

paul d. reynolds
President & Chief Executive Officer