Investors Group
Review of Segment Operating Results

Fee Income

Fee income is generated from the management, administration and distribution of 144 Investors Masterseries™, partner and managed asset investment funds. The distribution of insurance and banking products and the provision of securities services provide additional fee income.

Fee income represented 89.8% of gross revenue in 2004, compared with 90.3% in 2003. Total fee income increased by $109.2 million to $1.1 billion, an increase of 11.2% from 2003. Fee income is driven primarily by the level and composition of assets under management. Assets under management are influenced by three factors: sales, redemption rates and capital markets, including relative investment performance. The changes in assets under management in 2004 compared with 2003 are summarized in Table 6.

Table 6: Change in Mutual Fund Aeets Under Management - Investors Group

For the year ended December 31, 2004, sales of Investors Group mutual funds through its Consultant network were $4.7 billion, an increase of 17.4% from 2003. This compares to an overall industry increase in mutual fund sales of 27.5%. Mutual fund redemptions totalled $4.5 billion for the same period, a decrease of 7.3% from $4.9 billion in 2003. Investors Group's redemption rate for long-term funds decreased to 9.1% in 2004 from 10.7% in 2003, and remains well below the corresponding redemption rate of 15.3% for all other members of IFIC. Net sales of Investors Group mutual funds were $218 million in 2004 compared with net redemptions of $839 million in 2003.

Sales of long-term funds were $3.7 billion in 2004, compared with $3.1 billion in 2003, an increase of 19.7%. Net redemptions of long-term funds were $81 million compared to net redemptions of $855 million in 2003. Certain sales of long-term funds in the first quarter of 2004, sourced through Investors Group’s Solutions Banking† loan programs, were deposited and held in Investors Group’s Money Market Fund on a one-day basis and then transferred into long-term mutual funds. Including these sales, the sales and net sales of long-term funds for the year ended December 31, 2004 would have been $3.8 billion and $52 million respectively.

Investors Group's mutual fund assets under management were $44.5 billion at December 31, 2004, an increase of $3.6 billion or 8.8% from December 31, 2003. The increase in assets from December 31, 2003 reflects positive market action of $3.4 billion and net sales of mutual funds totalling $218 million. The increase in assets in the industry for the twelve months ended December 31, 2004 was 13.3%.

Investors Group earns management fees for investment management services provided to its mutual funds. In 2004, management fee income increased by $88.9 million or 12.0% to $830.3 million. This increase in fee income reflects the increase of 11.9% in average daily mutual fund assets in 2004 compared with 2003.

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 totalled $156.3 million in 2004, up 13.0% from $138.3 million in 2003. During the twelve month period, fees charged to the mutual funds for administrative services increased $7.8 million due to increases in related non-commission expenses. Increases in trustee fees resulted from growth in average mutual fund assets in 2004 compared to 2003. Other administration fees increased due to both the growth in average mutual fund assets during 2004 compared to 2003 and the introduction of the fixed rate service fee on deferred sales charge and no-load products in August 2003.

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 funds sold 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.
• Distribution of insurance products through I.G. Insurance Services Inc.
• Provision of securities services through Investors Group Securities Inc.
• Provision of banking services through Solutions Banking†, an arrangement with the National Bank of Canada introduced in June 2003.

Distribution fee income of $94.2 million in 2004 increased by 2.5% from $91.9 million in 2003. Distribution fees related to securities, insurance and banking operations increased in 2004 as a result of higher business volumes. This was offset in part by lower redemption fee income which declined by $3.9 million primarily due to lower redemptions subject to deferred sales charges.