Investors Group
Review of the Business

Investors Group is regarded as a leader in personal financial planning in Canada. This is achieved by delivering personal financial solutions tailored to each client’s individual needs. Consultants recommend balanced, diversified and professionally managed portfolios that reflect the client’s long-term goals and tolerance for risk. They also look beyond investments to offer clients insurance products, banking services, mortgages and tax planning.

Symphony™ – Strategic Investment Planning

In October 2003, Investors Group launched Symphony™, an enhanced strategic investment planning approach. Symphony™ is designed to help Consultants build their business with a sophisticated investment discipline, backed by a process that provides a sound methodology for measuring a client’s risk tolerance. Based on that assessment, Consultants are able to provide appropriate risk-adjusted recommendations using Investors Group’s extensive offering of funds.

Symphony™ is a scientific and fully integrated approach to strategic investment planning support, from the assessment of a client’s risk tolerance and personal investment goals, to the construction and administration of an optimal investment portfolio.

Symphony™ simplifies the asset allocation process and provides Investors Group with a high degree of competitive differentiation. This approach should also provide clients with more predictable and stable investment returns over time.

Mutual Funds

Investors Group is committed to enhancing the performance, scope and diversity of our investment products. In 2003, we executed a number of changes to the investment strategy of our portfolio of funds, and made changes to a number of sub-advisory relationships. Discussion of mutual fund activity in 2003 compared with 2002 is presented in the Investors Group Review of Segment Operating Results beginning on page 32.

Investment Management

Investors Group has over $40.9 billion in mutual fund assets under management in 147 mutual funds covering a broad range of investment mandates.

Through our own team of investment professionals and relationships with external investment advisors, we provide clients with access to a wide range of investment advisory services. Clients can take advantage of the opportunity to diversify their holdings across fund managers, asset categories, investment styles, geography, capitalization and sectors through portfolios customized to meet their objectives.

Investors Masterseries™ Funds

Investors Masterseries™ funds are managed by I.G. Investment Management, our own multi-disciplinary team of investment professionals with offices and advisors in North America, Europe, and Asia. Our global reach, combined with over 50 years of experience, provides us with the depth of investment management capabilities that enables us to offer our clients world class money management expertise suitable for the widest range of investment objectives.

The Investors Masterseries™ family of unit trust funds totals 48 and includes money market, fixed income, balanced, domestic and international equity, global and sector mandates. As at December 31, 2003, total assets related to these funds were $35.0 billion compared with $32.3 billion in 2002, an increase of 8.3%. Masterseries™ funds represented 85.6% of the total Investors Group mutual fund assets under management, down slightly from 86.0% a year ago. At December 31, 2003, 40% of Masterseries™ mutual funds had four or five star ratings from the Morningstar fund ranking service and 74% had a rating of three stars or better, compared to 47% and 81% respectively in 2002.

During the year, it was announced that effective January 28, 2004, J.P. Morgan Fleming Asset Management (Canada) Inc. would assume responsibility for one Investors Masterseries™ fund previously sub-advised by AIB Govett Asset Management Limited.

Partner Funds

Partner funds are an important element of Investors Group’s mutual fund product shelf, offering a range of investment disciplines through advisory relationships with other investment management firms.

In 2003, Investors Group continued its relationships with highly regarded investment managers Mackenzie Financial Corporation, AGF Funds Inc., Beutel, Goodman & Company, Ltd., Fidelity Investments Canada Limited, Franklin Templeton Investments Corp., Goldman Sachs Asset Management, and Sceptre Investment Counsel Limited. Additionally, Waddell & Reed Ivy Investment Company was appointed to sub-advise a partner fund previously sub-advised by Janus Capital Management LLC while the mandate of a second Janus fund was assigned to Mackenzie Financial Corporation.

Investors Group oversees external investment advisors who are responsible for ensuring that their activities are consistent with Investors Group’s investment philosophy and with the stated investment objectives and strategies of their respective funds.

At December 31, 2003, partner funds totaled $5.1 billion or 12.6% of Investors Group’s mutual fund assets under management. Of this amount, Mackenzie currently provides investment advisory services for seven funds with total assets of $1.2 billion.

Investors Group Corporate Class Inc.

Investors Group introduced Investors Group Corporate Class Inc., Canada’s broadest tax advantaged fund structure in 2002. This group of funds features no-fee, tax-deferred switching among 46 brand-name funds within the group. The funds include 28 of Investors Group’s own Masterseries™ funds advised by I.G. Investment Management as well as funds advised by Mackenzie Financial Corporation, AGF Funds Inc., Beutel, Goodman & Company, Ltd., Fidelity Investments Canada Limited, Franklin Templeton Investments Corp., Goldman Sachs Asset Management and Sceptre Investment Counsel Limited.

In 2003, Waddell & Reed became sub-advisor to a Corporate Class fund previously managed by Janus Capital Management LLC while J.P. Morgan Fleming Asset Management (Canada) Inc. replaced AIB Govett as sub-advisor to a Masterseries™ Corporate Class fund, effective January 28, 2004.

By the end of 2003, the Corporate Class funds had attracted $353 million in assets compared with $143 million in 2002.

Managed Asset and Multi-Manager Investment Programs

Investors Group provides clients with access to a growing selection of asset allocation opportunities directed by the world’s leading money-management firms. These programs include:

• Allegro™ Portfolios: The Allegro™ Portfolios provide a single step investment solution offering geographic, investment style and asset class diversification. The seven portfolios include Investors Masterseries™ funds, Mackenzie partner funds as well as a wide variety of other partner funds. The asset mix of the Allegro™ portfolios was updated using the same strategic investment planning approach that was developed for the Symphony™ individual fund recommendations. Since their introduction in 2001 as 1World™ Portfolios (renamed Allegro™ in 2003), these funds have attracted $557 million in assets as of December 31, 2003.
  
  
• Alto™ Portfolios: The new Alto™ Portfolios provide a single step investment solution offering geographic, investment style and asset class diversification. The seven portfolios include Investors Masterseries™ funds and Mackenzie partner funds. Since their introduction in October 2003, these funds have attracted $17 million in assets as of December 31, 2003.
  
  
• Masterseries™ Portfolios: This is one of the largest fund programs in Canada with assets of $6.2 billion as at December 31, 2003. The program is comprised of eight funds which invest in 21 underlying Masterseries™ funds to provide maximum diversification.
  
  
• iProfile™: This is a unique portfolio management program introduced in 2001 for clients with assets over $250,000. iProfile™ investment portfolios have been designed to maximize returns and manage risk by diversifying across asset classes, management styles and geographic regions. The program is advised by a select group of 12 global money management firms such as Goldman Sachs Asset Management, Jarislowsky Fraser Limited and I.G. Investment Management, Ltd. During 2003, Waddell & Reed, I.G. Investment Management, Ltd. and J.P. Morgan Fleming (effective January 28, 2004) replaced Provident Investment Counsel, Alliance Bernstein and AIB Govett respectively in their sub-advisory services to the iProfile™ program. By the end of 2003, this program had attracted $389 million in assets.

Segregated Funds

Investors Group offers eight segregated funds that are distributed solely by Investors Group Consultants. Our segregated funds provide death benefit guarantees and potential creditor protection. These funds also provide protection from long-term market volatility by providing two levels of guarantees – 75% or 100% of the principal invested. The investment component of these products is managed by Investors Group while the insurance component is underwritten by The Great-West Life Assurance Company.

Product Pricing

During 2003, Investors Group introduced a revised pricing structure for new investments that better reflects the value of our offering and strengthens our competitive position. These changes align our pricing across Investors Group products and lower our reported management expense ratios (MERs) to levels more competitive with the industry.

The pricing changes include: a new industry standard deferred sales charge schedule; the elimination of the 2.5% acquisition fee for clients investing under $10,000; the reduction of management fees on a number of partner funds; restructured fees on iProfile™ and on Allegro™ Portfolios to reflect the value of these packaged products; and a fixed rate service fee on DSC and No-load funds.

Insurance

Investors Group continues to be a leader in the distribution of life insurance in Canada. Through its arrangements with leading insurance companies, Investors Group offers a comprehensive range of term, universal life, whole life, disability, critical illness, long-term care, personal healthcare coverage and group insurance. I.G. Insurance Services Inc. currently has distribution agreements with:

• The Great-West Life Assurance Company
• The Maritime Life Assurance Company
• Sun Life Assurance Company of Canada
• Clarica Life Insurance Company
• The Manufacturers Life Insurance Company (Manulife)

During 2003, sales of insurance products as measured by annualized premiums were $31.5 million. This is the second-highest level of insurance sales in Investors Group’s history. Total face amount of insurance in force increased during 2003 to $31 billion. The average number of policies sold per Consultant was 8.2 in 2003 compared to 7.9 in the prior year. The average number of Consultants with insurance licenses represented 88% of the Consultant network. Distribution of insurance products is enhanced through 41 insurance specialists who assist Consultants with the selection of appropriate insurance solutions.

Securities Operations

Investors Group Securities Inc. is an investment dealer registered in all provinces and territories providing securities services to clients seeking a broader product offering in combination with financial and investment planning. Investors Group Consultants can refer high net worth clients to one of the 24 securities specialists available through Investors Group Securities Inc.

During 2003, assets under administration in Investors Group Securities Inc. grew by 22.4% to $4.5 billion. The number of clients using this service grew to over 58,700 clients, an increase of 4.7% over 2002. At year-end, 91% of Consultants had referred clients to Investors Group Securities Inc., compared to 90% in the prior year. The assets gathered by Investors Group Securities Inc. during 2003 were $894 million, compared to $1.2 billion in 2002.

Management believes that by continuing to develop and enhance its securities operations, Investors Group will also continue to attract and retain high quality Consultants, deepen relationships with clients and appeal to a growing segment of investors who require these services.

Mortgage Operations

Investors Group Consultants play an integral role in sourcing high-quality residential mortgages through client referrals to Investors Group mortgage planning specialists. At December 31, 2003, Investors Group employed 46 mortgage specialists who originate mortgages in key residential markets.

Mortgage originations in 2003 increased 19.4% to $838 million from $702 million in 2002. The proportion of residential mortgages sourced with the assistance of Consultants has remained constant at 88% in 2003. While most of these new mortgages were sold to third parties through Investors Group’s mortgage banking operation, the servicing of these mortgages continues to be provided by Investors Group.

Investors Group mortgage operations also provide both origination and servicing to:

• Investors Mortgage Fund, which because of its size requires a steady stream of high-quality mortgages.
• Investors Group Trust Co. Ltd. and Investors Syndicate Limited, both subsidiaries of the Company.
• London Life Insurance Company (London Life), a subsidiary of Great-West Lifeco Inc.

Solutions Banking

On June 25, 2003 the Company launched Solutions Banking on a national basis. The wide range of products and services offered under Solutions Banking, provided by National Bank of Canada under a long-term distribution agreement, include: investment loans, lines of credit, personal loans, creditor insurance, deposit accounts and credit cards. Clients have access to over 1,400 banking machines, as well as a private labeled client website and private labeled client service centre.

Consultant and client response to Solutions Banking has been favorable. As at December 31, 2003, 44% of Investors Group Consultants have incorporated Solutions Banking into their financial planning practices with one or more products sold.

The Solutions Banking offering supports Investors Group’s approach to delivering total financial solutions and expands Investors Group’s financial planning platform to meet our clients’ financial needs.

Additional Products and Services

Investors Group also provides its clients with guaranteed investment certificates offered by Investors Group Trust Co. Ltd., as well as a number of other financial institutions.