Fee income

Fee income is generated from the management, administration and distribution of 137 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 90.5% of gross revenue in 2005, compared with 89.8% in 2004. Total fee income increased by $120.7 million to $1.2 billion, an increase of 11.2% from 2004. Fee income is driven primarily by the level and composition of assets under management. Assets under management are influenced by three factors: sales, redemptions and investment returns. The changes in assets under management in 2005 compared with 2004 are reflected in Table 7.

For the year ended December 31, 2005, sales of Investors Group mutual funds through its Consultant network were $5.5 billion, an increase of 16.2% from 2004. Mutual fund redemptions totalled $4.7 billion for the same period, an increase of 4.6% from $4.5 billion in 2004. Investors Group’s twelve month trailing redemption rate for long-term funds decreased to 8.7% at December 31, 2005 from 9.1% at December 31, 2004, and remains below the corresponding redemption rateof 16.4% for all other members of IFIC. Net sales of Investors Group mutual funds were $778 million in 2005 compared with net sales of $218 million in 2004.

Sales of long-term funds were $4.6 billion in 2005, compared with $3.7 billion in 2004, an increase of 22.9%. Net sales of long-term funds, as reported to IFIC, were $529 million compared to net redemptions of $81 million in 2004. 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 Canadian 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 $50.7 billion at December 31, 2005, an increase of $6.2 billion or 13.9% from December 31, 2004. The increase in assets from December 31, 2004 reflects net market appreciation of $5.4 billion and net sales of mutual funds totalling $778 million as discussed above. The increase in assets in the industry for the twelve months ended December 31, 2005 was 14.6%.

Table 7: Change in Mutual Fund assets under management - Investors Group

Investors Group earns management fees for investment management services provided to its mutual funds. In 2005, management fee income increased by $90.7 million to $921.0 million reflecting the increase of 10.9% in average daily mutual fund assets in 2005 compared with 2004. Management fee income represents 195 basis points of average mutual funds assets in 2005, unchanged from 2004.

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 $166.7 million in 2005, up 6.7% from $156.3 million in 2004. Increases in trustee fees and other service fees increased by $9.2 million in 2005 and resulted from growth in average mutual fund assets in 2005 compared to 2004. Fees charged to the mutual funds for administrative services increased $0.6 million due to increases in related noncommission expenses.

Distribution fees are earned from:

• Redemption fees on mutual funds sold with a backend load feature. 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. 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.
• Securities services through Investors Group Securities Inc.
• Banking services through Solutions Banking†, an arrangement with the National Bank of Canada.

Distribution fee income of $113.8 million in 2005 increased by 20.8% from $94.2 million in 2004. Distribution fee revenue from securities, insurance and banking operations totalled $69.1 million, an increase of $15.5 million over 2004. The increase is due primarily to higher fee income related to insurance operations arising from both the increase in premium sales and the restructuring of the Company’s distribution agreements. Redemption fee income of $31.3 million in 2005 increased by $2.2 million due to both higher redemptions subject to deferred sales charges in 2005 compared to 2004 and the impact of the industry standard deferred sales charge schedule which was introduced in 2003.