Investors Group
Review of Segment Operating Results

OPERATING EXPENSES

Expenses are made up of two major components: commission and non-commission expenses.

Investors Group incurs commission expense in connection with the distribution of its financial services and products, particularly its mutual funds. Commissions are paid on the sale of these products and will fluctuate with the level of sales. Commission expense in 2003 decreased by $4.0 million or 2.0%, to $191.3 million compared with $195.3 million in 2002. The decrease in commission expense was related to:

• Lower average mutual fund assets under management resulting in lower asset retention bonus expense.
• Lower mutual fund sales in 2003.

Non-commission expenses include: costs incurred by Investors Group in the support of its Consultant network; the administration, marketing and management of its mutual funds and other products; as well as all other expenses in the operation of its business.

Non-commission expenses declined $18.5 million to $235.8 million in 2003 from $254.3 million in the previous year and represents a decrease of 7.3%. This decline was primarily due to:

• The impact of synergies related to the transition work completed with Mackenzie.
• Management of discretionary expenses.
• Improvements in productivity and the benefits derived from continued investment in technology.
• The decrease in average assets on which sub-advisory fees are based.
• Reductions in Consultant network support costs as a result of lower transactional activity levels and a smaller number of Consultants during the year.

Management continues to focus on expense reduction measures beyond the opportunities created by the transition activities. Investors Group has been able to gain these efficiencies and reduce expenses without affecting the quality of service provided to its clients and Consultants.