Investors Group
Review of Segment Operating Results

Fee income is generated from the management, administration and distribution of 147 Investors Masterseries™, partner and managed asset investment funds. The distribution of insurance products and the provision of securities services provide additional fee income.

Fee income represented 90.3% of gross revenue in 2003, compared with 91.1% in 2002. Total fee income declined by $58.0 million to $971.6 million, a decrease of 5.6% from 2002. To provide a stable level of fee income, Investors Group must continue to maintain high levels of assets under management. The level of assets under management is influenced by four factors: sales, redemption rates, capital markets and relative investment performance. The changes in assets under management in 2003 compared with 2002 are summarized in Table 4.

For the year ended December 31, 2003, sales of Investors Group mutual funds through its Consultant network were $4.02 billion, a decrease of 18.2% from 2002. This compares to an overall industry decrease in mutual fund sales of 14.3%. Mutual fund redemptions totaled $4.86 billion for the same period, a decrease of 3.3% from $5.02 billion in 2002. Investors Group’s redemption rate for long-term funds increased to 10.7% in 2003 from 10.2% in 2002, however it remains well below the corresponding redemption rate of 14.1% for all other members of IFIC. Net redemptions of Investors Group mutual funds were $839 million in 2003 compared with net redemptions of $109 million in 2002. Sales of long-term funds were $3.10 billion in 2003, compared with $3.86 billion in 2002, a decrease of 19.6%. Net redemptions of long-term funds were $855 million compared to net redemptions of $76 million in 2002. Investment management services provided attractive levels of returns during the year as mutual fund assets increased by $4.2 billion or 11.1% of opening assets due to market appreciation, consistent with overall industry growth.

Investors Group earns management fees for investment management services provided to its mutual funds. In 2003, management fee income decreased by $46.0 million or 5.8% to $741.4 million. This decrease in fee income reflects the decline of 4.5% in average daily mutual fund assets in 2003 compared with 2002. In addition, 2002 fee income includes $3.3 million in income from hedging activities related to the Company’s mutual fund assets under management.

Investors Group earns administration fees for providing:

• Administrative services to its mutual funds through certain of its subsidiaries.
• Trusteeship services to its mutual funds through Investors Group Trust Co. Ltd.

Administration fees totaled $138.3 million in 2003, down 6.9% from $148.6 million in 2002. Fees charged to the mutual funds for administrative services declined due to reductions in related expenses. Trustee fees declined due to reduced average mutual fund assets during the year.

Distribution fees are earned from:

• Redemption fees or back-end loads on mutual funds subject to a deferred sales charge. In 2003, Investors Group revised redemption fee rates on mutual fund sales subject to a deferred sales charge. Fees charged range from 5.5% in the first year reducing to nil after seven years and are consistent with industry rates. Previously, redemption fee rates ranged from 3.0% in the first year reducing to nil after six years. This change has not had a significant effect on redemption fee revenues in 2003.
• Distribution of insurance products through I.G. Insurance Services Inc.
• Provision of securities services through Investors Group Securities Inc.

Distribution fee income was $91.9 million in 2003 compared with $93.6 million in 2002. This decrease was due to lower redemption fee income consistent with the decline in redemptions subject to those fees.