IGM Financial Inc.
Consolidated Liquidity and Capital Resources

Liquidity

IGM Financial's operating liquidity is required for

• Financing ongoing operations, including the funding of selling commissions.
• Temporarily financing mortgages in its mortgage banking facility.
• Meeting regular interest and dividend obligations related to long-term debt and preferred shares.
• Payment of quarterly dividends on its outstanding common shares.
• Maintaining liquidity requirements for regulated subsidiaries.

A key liquidity requirement for the Company is the funding of commissions paid on the sale of mutual funds. Commissions paid continue to be fully funded through management fee revenue earned on mutual fund assets under management and through additional sales charges levied in connection with the early redemption of mutual funds.

The Company also maintains sufficient liquidity to fund and temporarily hold mortgages. Through its mortgage banking operations, most of the mortgages are sold to third parties on a fully serviced basis. In order to effectively manage its overall liquidity, the Company is active in both the whole loan sale and securitization markets. During 2004, whole loan sales to third parties totalled $712.1 million and proceeds from securitizations were $207.1 million, compared with $847.3 million and $126.7 million respectively in 2003.

IGM Financial continues to generate significant cash flows from its operations. Earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $1,253.1 million for 2004 compared to $1,138.6 million in 2003, and represents an increase of 10.1%.

Other potential sources of liquidity include the Company's portfolio of securities and lines of credit. As at December 31, 2004, the fair value of the marketable securities in its portfolios and those of its unregulated subsidiaries was $229.1 million. The Company maintains operating lines of credit totalling $210 million with various Schedule A Canadian chartered banks, of which $50 million represented committed lines of credit.

Liquidity can also be provided through IGM Financial's demonstrated ability to raise funds in the capital markets.

Table 9 - Cash Flows is a summary of the Consolidated Statements of Cash Flows which form part of the Consolidated Financial Statements for the year ended December 31, 2004 on page 62.

Operating activities, before payment of commissions, generated $790.4 million during the year ended December 31, 2004, as compared to $673.2 million in 2003. Cash commissions paid of $305.8 million in 2004 compared with $231.0 million in 2003 and reflects both the increase in mutual fund sales over 2003 levels and the increase in commission rates on Investors Group's mutual fund sales introduced in 2003 as part of changes in Consultant compensation.

Financing activities during the year ended December 31, 2004 compared to the same period in 2003 related primarily to:

• A decrease of $39.1 million in deposits and certificates in 2004 compared to an increase of $20.4 million in 2003 as a result of changes in both the demand and term deposit levels.
• The payment of regular preferred and common share dividends which increased to $312.8 million in 2004 from $274.0 million in 2003 as a result of increases in IGM Financial's common share dividends.
• The repayment of the remaining $175 million of Floating Bankers' Acceptance in the fourth quarter of 2004 as well as the repayment of long-term debt assumed on the acquisition of Investment Planning Counsel in May 2004.
• The repurchase of 756,100 common shares under IGM Financial's normal course issuer bid at a cost of $26.9 million.

Table 9: Cash Flows

Other activity in 2003 related to the issue of $300 million in debentures and the repayment of $275 million in long-term debt.

Investing activities during the year ended December 31, 2004 compared to the same period in 2003 related primarily to:

• The acquisition of Investment Planning Counsel, net of cash and cash equivalents assumed, which totaled $62.6 million.
• The purchase of $61.7 million in securities and securities sales with proceeds of $78.5 million compared with $9.0 million and $91.7 million respectively in 2003.
• Increases in residential mortgages related to the Company's mortgage banking operations and personal loans of $167.0 million compared with an increase of $105.8 million in 2003 offset by securitizations of $207.1 million in 2004 and $126.7 million in 2003.

Other activity in 2003 related to the purchase of, by way of private placement, 2,662,690 common shares of Great West Lifeco Inc., an affiliate of the Company, for total cash consideration of $100 million related to their acquisition of Canada Life.

Table 10: Contractual Obligations

Interest Rate Risk

The objective of the Company's asset liability management is to control interest rate risk by actively managing its interest rate exposure within limits established by the Investment Committee of the Board of Directors.

The Company manages the re-pricing characteristics of its consolidated assets and liabilities, and as required by regulation, manages interest rate risk on the assets and liabilities of the deposit operations of M.R.S. Trust and Investors Group Trust Co. Ltd. As at December 31, 2004, the total gap between one year deposit assets and liabilities was well within the Company's stated guidelines.

Regulatory Liquidity Requirements

Liquidity requirements for M.R.S. Trust and Investors Group Trust Co. Ltd., which engage in financial intermediary activities, are established by regulatory authorities. As at December 31, 2004, liquidity for both companies was in excess of regulatory requirements.

Capital Resources

Shareholders' equity increased to $3.5 billion as at December 31, 2004 from $3.2 billion at December 31, 2003. During 2004, long-term debt decreased to $1.2 billion from $1.4 billion at December 31, 2003 as shown in Note 12 to the Consolidated Financial Statements. In the fourth quarter of 2004, IGM Financial repaid the remaining balance of the Floating Bankers' Acceptance as discussed above.

To achieve its strategic objectives, the Company requires a strong capital base. The Company's capital management objective is to preserve the quality of its financial position by establishing and maintaining a solid capital base and a strong balance sheet.

Independent reviews confirm the continuing quality of IGM Financial's balance sheet and the strength of its operations. During 2004, both Standard & Poors (S&P) and the Dominion Bond Rating Service (DBRS) reviewed their ratings of the Company's senior debt and liabilities. The senior debt and liabilities were rated "A" with a stable outlook by both S&P and DBRS.

Management is confident that the Company's current capital resources are adequate and can support its activities during 2005.

Off-Balance Sheet Arrangements

• Securitizations - The Company's liquidity management practices include the periodic transfers of mortgages and personal loans to commercial paper conduits that in turn issue securities to investors. The Company retains servicing responsibilities and certain elements of recourse with respect to credit losses on transferred loans. The Company also transfers NHA-insured loans through the issuance of mortgage-backed securities. Securitized loans serviced at December 31, 2004 totalled $593.2 million compared with $660.9 million in 2003. The fair value of the Company's retained interest was $19.7 million at December 31, 2004 and $24.5 million in 2003. Additional information related to the Company's securitization activities can be found in Notes 1 and 4 of the Consolidated Financial Statements.
• Derivative Contracts - The Company utilizes derivative financial instruments in the management of interest rate and equity market exposures. The Company does not utilize derivative instruments for speculative purposes. The Company enters into interest rate swap arrangements in order to reduce the impact of fluctuating interest rates on its mortgage banking activities. The Company also manages its exposure to market risk on its Corporate securities portfolio by using a variety of derivative instruments including options and forward contracts. All derivative contracts are negotiated in the over-the-counter market with Schedule I and Schedule II bank counterparties on a diversified basis. Additional information related to the Company's utilization of derivative contracts can be found in Notes 1 and 15 of the Consolidated Financial Statements.

Financial Instruments And Other Instruments

Table 11 presents the carrying value and the fair value of on and off-balance sheet financial instruments.

Table 11: Financial Instuments

Fair value is determined using the following methods and assumptions:

• The fair value of short-term financial instruments approximate carrying value. These include cash and cash equivalents, accounts and other receivables, and other financial liabilities.
• Securities are valued at quoted market prices, when available. When a quoted market price is not readily available, alternative valuation methods may be used.
• Loans are valued by discounting the expected future cash flows at market interest rates for loans with similar credit risk.
• Deposits and certificates are determined by discounting the contractual cash flows using market interest rates currently offered for deposits with similar terms and credit risks.
• Long-term debt is determined by reference to current market prices for debentures and notes payable with similar terms and risks.
• Derivative financial instruments' fair values are based on quoted market prices, where available, prevailing market rates for instruments with similar characteristics and maturities, or net present value analysis.

Details of each component of the financial instruments are contained in the various related notes to the Consolidated Financial Statements.

A description of the material risks and management of the risks associated with the various financial instruments are contained in the Consolidated Financial Position, Liquidity and Capital Resources, and Offbalance Sheet Arrangements sections in the MD&A.