AGF Management Ltd. said Tuesday strong mutual fund sales helped the company post a 73% hike in net income for second quarter.

However, mutual fund redemptions continued to plague the Toronto-based investment manager. While gross fund sales were up almost 41% to $714 million for the three months ended May 31, redemptions jumped 21.5% to slightly more than $1 billion. That resulted in net redemptions of $373 million for the period down 3.6% from $387 million a year earlier.

AGF said consolidated net income jumped to $34.0 million for the three months ended May 31 vs $19.6 million a year ago. Consolidated revenue increased almost 18% to $166.0 million vs $140.8 million.

Cash flow from operations (before net change in non-cash balances related to operations) came in at $68.4 million (74¢ a share diluted) vs $50.8 million (55¢) in 2003, a jump of 34.7%. Free cash flow increased to $51.1 million vs $37.5 million up 36.3%.

AGF cited strong mutual fund performance despite a downturn in equity markets during the quarter, with 64% of assets under management performing above median for the one-year period ending May 31.

“AGF has delivered strong financial performance this quarter,” said Blake Goldring, AGF president and CEO. “We have a healthy balance sheet and excellent free cash flow, which we will use to build the business and create value for shareholders.”

AGF said net income and cash flow from operations for the three months benefited by $7.1 million (8¢ a share) from a lower effective income tax rate resulting from the acquisition of tax-related benefits.

Mutual fund assets under management jumped almost 11% to $24.23 billion at May 31 vs $21.87 billion a year earlier, thanks in part to the acquisition in January of P.J. Doherty and Associates Co. Ltd., based in Ottawa. In June, AGF added Cypress Capital Management Ltd. of Vancouver.

AGF said it hopes to stem the flow of redemptions through the acquisitions of P.J. Dougherty and Cypress Capital and by centralizing sales and marketing into one department to “allow a more strategic approach to bolstering advisor relationships. Results are expected by the 2005 RSP season.”

To that end, the company said it has appointed a new senior vice president of sales and marketing. “This senior executive brings proven experience in sales force motivation and a track record of fostering strong relationships with distribution partners,” AGF said without naming the executive.