Investors Group
Review of the Business

Core Business: Products & Services

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

Symphony Strategic Investment Planning™ program

Symphony is Investors Group's 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.

In December 2004, Symphony was further enhanced to include a new component, Portfolio Tuner. Portfolio Tuner is a tool, built into Symphony, and designed to help Consultants rebalance clients’ investment portfolios.

PFP - Personal Financial Planner

Investors Group's state-of-the-art financial planning software, the Personal Financial Planner (PFP), handles the full range of potential financial planning needs - from projections and illustrations for basic financial planning concepts to the preparation of written financial plans which integrate all disciplines of financial planning, including investment planning, tax planning, retirement planning, education planning, risk management and estate planning. The PFP software continues to enhance the quality and professionalism in written financial plans prepared by Investors Group Consultants.

Mutual funds

Investors Group is committed to enhancing the performance, scope and diversity of our investment products. In 2004, we completed 13 mergers involving our funds. The mergers will help improve the clarity of our offering as well as derive economies of scale for the benefit of our unitholders by combining smaller funds. In addition, certain of these smaller funds were merged into funds having lower management fee rates. As a result, unitholders of those particular funds experienced a 25 basis point reduction in management fees. Discussion of mutual fund activity in 2004 compared with 2003 is presented in the Investors Group Review of Segment Operating Results beginning on page 36.

Investment management

Investors Group has over $44.5 billion in mutual fund assets under management in 144 mutual funds covering a broad range of investment mandates.

Through our own international 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 money management expertise suitable for the widest range of investment objectives.

The Investors Masterseries™ family of funds includes 47 unit trust funds and 27 Corporate Class funds. The Corporate Class fund structure is discussed later in this report. The 47 unit trust funds include money market, fixed income, balanced, domestic and international equity, global and sector mandates. As at December 31, 2004, total assets related to these funds were $38.1 billion compared with $35.0 billion in 2003, an increase of 8.9%. Masterseries™ unit trust funds represented 85.7% of the total Investors Group mutual fund assets under management, up slightly from 85.6% a year ago. At December 31, 2004, 41% of Masterseries™ mutual funds had four or five star ratings from the Morningstar† fund ranking service and 72% had a rating of three stars or better, compared to 40% and 74% respectively in 2003 and is higher than the Morningstar† universe of 70%. Morningstar Ratings† are an objective, quantitative measure of a fund's historical risk-adjusted performance relative to other funds in its category, of which the top 10% of the funds in each category get a five-star rating.

In December 2004, Investors Group introduced two new mutual funds. Investors Real Return Bond Fund was introduced to provide a level of income that is hedged against inflation. Investors Income Trust Fund was introduced to provide a high level of income with the potential for moderate capital appreciation.

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. Partner funds are comprised of 27 unit trust funds and 19 Corporate Class funds which are discussed below.

With respect to the partner fund unit trusts, 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. and Goldman Sachs Asset Management, L.P. Two changes were made to our partner fund offering during 2004. In July, Bissett Investment Management, an operating division of Franklin Templeton Investments Corp. (Bissett Investment Management), based in Calgary, Alberta, was retained to sub-advise the new IG Bissett Canadian Equity Fund. Also in July, Sceptre Investment Counsel Ltd. was removed as a sub-advisor.

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, 2004, partner unit trust funds totalled $5.3 billion or 11.8% of Investors Group's mutual fund assets under management. Of this amount, Mackenzie currently provides investment advisory services for six funds with total assets of $1.6 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 tax-deferred switching on a fee-free basis among 46 brand-name funds within the group. The funds include 27 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 Bissett Investment Management.

The following changes were made to our partner Corporate Class offering during 2004:

• In July, Bissett Investment Management was hired to sub-advise the new IG Bissett Canadian Equity Class.
• In August, IG Mackenzie Universal Global Future Class was introduced to complement the mandate's unit trust version.
• In December, the Corporate Class structure was enhanced with the addition of two new fixed-income oriented classes. The two new classes, Investors Capital Yield Class and Investors Short-Term Capital Yield Class, were launched to provide investors with the ability to better diversify their Corporate Class investment portfolios.

By the end of 2004, the Corporate Class funds had attracted $659 million in assets compared with $353 million in 2003.

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 $1.1 billion in assets as of December 31, 2004.
  
  
• Alto™ Portfolios: The new Alto™ Portfolios provide a single step investment solution offering geographic, investment style and asset class diversification. The ten portfolios include Investors Masterseries™ funds and Mackenzie partner funds. Seven of the Alto™ portfolios were introduced in October 2003 to coincide with the launch of Symphony. Since their introduction in October 2003, these seven funds have attracted $153 million in assets as of December 31, 2004.
  
  On December 13, 2004, Investors Group introduced three new Alto™ portfolio funds. These portfolios, named the Alto Monthly Income Portfolios, are designed to provide investors with an ongoing monthly cash flow generated from a soundly diversified group of underlying funds. The main feature of these portfolios is series T, which is an income option through which investors can generate a known, expected monthly cash flow made up of income and return of capital.
  
  
• Masterseries™ Portfolios: This is one of the largest fund programs in Canada with assets of $6.5 billion as at December 31, 2004. The program is comprised of eight funds which invest in 21 underlying Masterseries™ funds to provide a high level of 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. Effective January 28, 2004, Waddell & Reed, I.G. Investment Management, Ltd. and J.P. Morgan replaced Provident Investment Counsel, Alliance Bernstein and AIB Govett respectively in their sub-advisory services to the iProfile™ program. By the end of 2004, this program had attracted $437 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.

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 health care coverage and group insurance. I.G. Insurance Services Inc. currently has distribution agreements with:

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

During 2004, sales of insurance products as measured by annualized premiums were $30 million. Total face amount of insurance in force increased during 2004 to $36 billion. The average number of policies sold per Consultant was 8.2 in 2004, consistent with 2003 results. The average number of Consultants with insurance licenses represented 79% 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 clients to one of the 24 securities specialists available through Investors Group Securities Inc.

During 2004, assets under administration in Investors Group Securities Inc. grew by 15.9% to $5.2 billion. Total assets under administration at December 31, 2004 include $2.2 billion in third party mutual funds and securities as well as $3.0 billion in Investors Group's mutual funds. This compares to $2.2 billion and $2.3 billion in 2003, respectively. The number of clients using this service grew to over 61,300 clients, an increase of 4.4% over 2003. At year-end, 83% of Consultants had referred clients to Investors Group Securities Inc., compared to 91% in the prior year – a decrease of 8% largely due to an increase in the number of new Consultants joining Investors Group in 2004. At December 31, 2004, 95% of Consultants with at least 12 months tenure had referred clients compared to 97% last year. The assets gathered by Investors Group Securities Inc. during 2004 were $1.1 billion, consistent with 2003.

Management believes that its securities operation will continue to be an important part of its product and service offering, assisting Consultants in attracting clients and maintaining relationships with investors who wish to include individual securities as a part of their overall financial plan.

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, 2004, Investors Group employed 50 mortgage specialists who originate mortgages in key residential markets.

Mortgage originations in 2004 increased 1.2% to $848 million from $838 million in 2003. The proportion of residential mortgages sourced with the assistance of Consultants has remained constant at 89% in 2004. 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 added the Variable Rate Mortgage and the Lock & Roll Mortgage to its mortgage product shelf on September 7, 2004 in order to provide its mortgage specialists and Consultants with more flexibility within the mortgage product offering.

The Variable Rate Mortgage provides clients with the lowest available interest rate, discounted 1.00% below prime for the first 6 months and .375% below prime for the balance of its 5 year term with payments that are fixed throughout the term of the mortgage. If interest rates decline, the principal owing reduces more rapidly while, in an increasing interest rate environment, payments remain stable with an increased proportion being applied towards interest costs.

The Lock & Roll Mortgage offers the convenience of a 5 year term together with the advantage of a discounted short term interest rate.

Both mortgages offer convertibility features and prepayment options designed to meet clients’ changing needs. Consultants and clients have responded very favourably to these new product offerings.

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†

Investors Group now has 18 months experience with our Solutions Banking† initiative. As at December 31, 2004, 75% of Investors Group Consultants have incorporated Solutions Banking† into their financial planning practices with one or more products sold.

The offering consists of a wide range of products and services provided by National Bank of Canada under a long-term distribution agreement, and includes: 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 web site and private labeled client service centre.

The Solutions Banking† offering supports Investors Group's approach to delivering total financial solutions for our clients via a comprehensive financial planning platform.

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.