PCC L QUAT2 Eng001 letter 2011-08-04 v1 - Power ......PPCC L_QUAT2_Eng001_letter_2011-08-04_v1.indd 1CC L_QUAT2_Eng001_letter_2011-08-04_v1.indd 1 88/4/11 10:26:06 PM/4/11 10:26:06

Second quarter report

For the period ended june 30, 20112

PR

INT

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CA

NA

DA

751 Victoria Square

Montréal, Québec, Canada H2Y 2J3

514-286-7400

www.powercorporation.com

This document is also available on www.sedar.com or on the Corporation’s website, www.powercorporation.com

Additional printed copies of this document are available from the Secretary, Power Corporation of Canada 751 Victoria Square, Montréal, Québec, Canada H2Y 2J3

or

Suite 2600, Richardson Building, 1 Lombard Place, Winnipeg, Manitoba, Canada R3B 0X5

Ce document est aussi disponible sur le site www.sedar.com ou sur le site Web de la Société, www.powercorporation.com

Si vous préférez recevoir ce document en français, veuillez vous adresser au secrétaire, Power Corporation du Canada 751, square Victoria, Montréal (Québec) Canada H2Y 2J3

ou

Bureau 2600, Richardson Building, 1 Lombard Place, Winnipeg (Manitoba) Canada R3B 0X5

Stock LiStingS

Shares of Power Corporation of Canada are listed on the Toronto Stock Exchange, under the following listings:

Subordinate Voting Shares: POWParticipating Preferred Shares: POW.PR.EFirst Preferred Shares 1986 Series: POW.PR.FFirst Preferred Shares, Series A: POW.PR.AFirst Preferred Shares, Series B: POW.PR.BFirst Preferred Shares, Series C: POW.PR.CFirst Preferred Shares, Series D: POW.PR.D

tr anSfer agen t and regiStr ar

Computershare Investor Services Inc.

Offices in:Montréal (QC); Toronto (ON); Vancouver (BC)www.computershare.com

SharehoLder ServiceS

Shareholders with questions relating to the payment of dividends, change of address and share certificates should contact the Transfer Agent:

Computershare Investor Services Inc.Shareholder Services 100 University Avenue, 9th Floor Toronto, Ontario, Canada M5J 2Y1Telephone: 1-800-564-6253 (toll-free in Canada and the U.S.) or 514-982-7555 www.computershare.com

WebSite


CorPorATE InformATIon

Power Corporation has been designated “A Caring Company” by Imagine, a national program to promote corporate and public giving, volunteering and support in the community.

TO THE SHAREHOLDERS

Power Corporation of Canada’s operating earnings for the six-month period ended June , were $ million or $ . per share, compared with $ million or $ . per share in the corresponding period of . This represents a . % increase on a per share basis.

The increase in operating earnings re lects a higher contribution from Power Financial Corporation, a subsidiary of the Corporation, and higher income from investments.

Subsidiaries contributed $ million to Power Corporation’s operating earnings for the six-month period ended June , , compared with $ million in the corresponding period of . Results from corporate activities were a net contribution of $ million in the six-month period ended June , , compared with a charge of $ million in the same period in . This increase is mainly due to income from investments generated by the Corporation’s interest in the Sagard fund in Europe, which is managed by Sagard SAS, a subsidiary of the Corporation.

Other items represented a charge of $ million in the six-month period ended June , . In the corresponding period of , other items were a charge of $ million and consisted mainly of an impairment charge on the value of the Corporation’s investment in CITIC Paci ic, as required by IFRS.

Net earnings attributable to participating shareholders (including other items and after dividends on non-participating shares) for the six-month period ended June , were $ million or $ . per share, compared with $ million or $ . per share in the corresponding period of .

SECOND QUARTER RESULTSOperating earnings for the three-month period ended June , were $ million or $ . per share, compared with $ million or $ . per share in the corresponding period in . This represents an increase of . % on a per share basis. The increase in operating earnings re lects a higher contribution from Power Financial Corporation and higher income from investments due principally to the income generated by Sagard , as mentioned above.

Power Corporation’s share of operating earnings from its subsidiaries was $ million for the three-month period ended June , , compared with $ million for the same period in . Corporate activities represented a net contribution of $ million in the quarter ended June , , compared with a net charge of $ million in the corresponding period in .

Other items were nil in the three-month period ended June , , compared with a charge of $ million in the corresponding period of , which consisted mainly of an impairment charge on the value of the Corporation’s investment in CITIC Paci ic, as required by IFRS.

Net earnings attributable to participating shareholders (including other items and after dividends on non-participating shares) for the three-month period ended June , were $ million or $ . per share, compared with $ million or $ . per share in the corresponding period in .

P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1 1

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RESULTS OF POWER FINANCIAL CORPORATIONPower Financial Corporation’s operating earnings for the six-month period ended June , were $ million or $ . per share, compared with $ million or $ . per share in the corresponding period in . This represents an increase of . % on a per share basis.

The increase in operating earnings re lects a higher contribution from Power Financial’s subsidiaries, Great-West Lifeco Inc. (Lifeco), IGM Financial Inc. and from Pargesa Holding SA.

Included in net earnings of Lifeco for the second quarter of was a release of a legal provision in Putnam Investments, LLC resulting from a settlement of a lawsuit pertaining to certain private equity investments with a net earnings impact of $ million (Power Corporation’s share: $ million).

Net earnings attributable to common shareholders of Power Financial (including other items and after dividends on perpetual preferred shares) for the six-month period ended June , were $ million or $ . per share, compared with $ million or $ . per share in the corresponding period of .

For the three-month period ended June , , Power Financial reported operating earnings of $ million or $ . per share, compared with $ million or $ . per share for the same period in

. This represents an increase of . % on a per share basis.

Net earnings attributable to common shareholders of Power Financial (including other items and dividends on perpetual preferred shares) for the three-month period ended June , were $ million or $ . per share, compared with $ million or $ . per share in the corresponding quarter of .

On behalf of the Board of Directors,

Paul Desmarais, Jr., . ., . . André Desmarais, . ., . .Chairman and Co-Chief Executive Of icer Deputy Chairman, President and

Co-Chief Executive Of icer

August ,

2 P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1

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Signed, Signed,

POWER CORPORATION OF CANADA

TABLE OF CONTENTS

GR

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T-WEST LIFEC

O IN

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IGM

FINA

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PA RT A

POWER FINANCIAL CORPORATION

PA RT B

GREAT-WEST LIFECO INC.

PA RT C

IGM FINANCIAL INC.

PA RT D

PARGESA HOLDING SA

PA RT E

This document contains management’s discussion and analysis of the unaudited interim consolidated fi nancial condition and fi nancial performance of Power Corporation of Canada for the three months and six months ended June 30, 2011 and the unaudited interim condensed consolidated financial statements of the Corporation as at and for the three months and six months ended June 30, 2011. This document has been fi led with the securities regulatory authorities in each of the provinces and territories of Canada and mailed to shareholders of the Corporation in accordance with applicable securities laws.

P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1 3

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The trademarks contained in this report are owned by Power Corporation of Canada or by a member of the Power Corporation group of companiesTM. Trademarks that are not owned by Power Corporation are used with permission.

4 P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1

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PART A

MANAGEMENT’S DISCUSSION AND ANALYSIS

PAGE A 2

FINANCIAL STATEMENTS AND NOTES

PAGE A 2 1

JUNE 30, 2011

P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1 A 1

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POWER CORPORATION OF CANADAMANAGEMENT’S DISCUSSION AND ANALYSIS

A U G U S T 5 , 2 0 1 1

A 2 P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1


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OVERVIEW


COMMUNICATIONS – MEDIA

La Presse,



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VICTORIA SQUARE VENTURES

ASIA

INVESTMENT IN FUNDS AND SECURITIES



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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

I N T E R N A T I O N A L F I N A N C I A L R E P O R T I N G S T A N D A R D S

Interim FinancialReporting First Time Adoption of International Financial Reporting Standards

CHANGES IN ACCOUNTING POLICIES



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INCLUSION OF PARGESA’S RESULTS

NON IFRS FINANCIAL MEASURES

SUMMARY OF CRITICAL ACCOUNTING ESTIMATES



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FUTURE ACCOUNTING CHANGES

IFRS 4 – Insurance Contracts

IFRS 9 – Financial InstrumentsFinancial Instruments

Financial Instruments: Recognition and Measurement

IFRS 10 – Consolidated Financial Statements

IFRS 12 – Disclosure of Interest in Other Entities



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IFRS 13 – Fair Value MeasurementFair Value Measurement,

IAS 1 – Presentation of Financial StatementsPresentation of Financial Statements

IAS 17 – Leases

IAS 19 – Employee Benefits



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RESULTS OF POWER CORPORATION OF CANADA

EARNINGS SUMMARY – CONDENSED SUPPLEMENTARY STATEMENTS OF EARNINGS

June 30, June 30,2011 2011

587 339

66 60(59) (33)

594 366(2)(20) (10)

572 356

1.24 0.77

1.24 0.77

OPERATING EARNINGS



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SHARE OF OPERATING EARNINGS FROM SUBSIDIARIES

RESULTS FROM CORPORATE ACTIVITIES

Six months ended Three months ended

June 30, June 30, June 30, March 31, June 30,

2011 2010 2011 2011 2010

6 6 6 6

8 (6) 2 6 (5)

5 (1) 3 2 –

39 (3) 40 (1) (1)

3 16 5 (2) 1

5 4 1 (2)

66 12 60 6 (1)

A 1 0 P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1


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2011 2010 2011 2011 2010

Power Corporation’s share of(2) 2 (2) (2)

Other(133) (85)

(2) (131) (2) (87)

NET EARNINGS ATTRIBUTABLE TO PARTICIPATING SHAREHOLDERS

P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1 A 1 1


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CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, December 31, June 30, December 31,

2011 2010 2011 2010

Consolidated basis Equity basis [1]

Assets3,342 4,016 886 883

2,617 2,566 7,574 7,372

105,979 105,154 1,412 1,396

6,765 6,827

2,642 2,533

4,269 4,317

8,792 8,755

18,244 18,572 358 333

96,776 94,827

249,426 247,567 10,230 9,984

Liabilities109,000 108,158

3,507 3,505

6,311 6,720 400 400

534 535

8,988 9,921 161 133

96,776 94,827

225,116 223,666 561 533

Equity781 783 781 783

8,888 8,668 8,888 8,668

14,641 14,450

24,310 23,901 9,669 9,451

249,426 247,567 10,230 9,984

CONSOLIDATED BASIS



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June 30,2011

December 31,2010

107.7 106.6

27.7 27.9

96.8 94.8

130.1 126.1

362.3 355.4

130.2 129.5

492.5 484.9

134.8 131.5

Total assets under administration 627.3 616.4

EQUITY BASIS



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7,372

587

(2)

(74)

(327)

18

7,574

June 30,2011

December 31,2010

CostRevaluationto fair value Fair value Cost

Revaluationto fair value Fair value

310 68 378 310 96 406

213 11 224 211 15 226

115 84 199 121 90 211

108 67 175 95 50 145

223 77 300 213 82 295

47 12 59 38 15 53

73 4 77 48 12 60

1,089 323 1,412 1,036 360 1,396

SHAREHOLDERS’ EQUITY



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OUTSTANDING NUMBER OF PARTICIPATING SHARES

CASH FLOWS

CONDENSED CASH FLOWS – CONSOLIDATED

Six months endedJune 30,

2011June 30,

2010

2,367 2,806

(1,732) (421)

(1,311) (2,054)

2 (186)

(674) 145

4,016 5,383

3,342 5,528



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CASH FLOWS – CORPORATE


2011June 30,

2010

Cash flow from operating activities592 350

(258) (201)

(64) 150

270 299

Cash flow from financing activities(287) (286)

21 12

(2) (2)

(268) (276)

Cash flow from investing activities144 115

(7) –

(125) (147)

(11) (35)

1 (67)

Increase (decrease) in cash and cash equivalents 3 (44)

883 918

886 874



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RISK FACTORS



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OFF BALANCE SHEET ARRANGEMENTS

GUARANTEES

LETTERS OF CREDIT

COMMITMENTS/CONTRACTUAL OBLIGATIONS

FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS



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INTERNAL CONTROL OVER FINANCIAL REPORTING

SUMMARY OF QUARTERLY RESULTS

2011 2010 2009 – previous Canadian GAAP

Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

7,963 7,041 6,002 9,823 8,022 9,010 6,613 11,059 9,869 5,611

366 228 242 275 262 219 203 252 223 189

0.77 0.47 0.51 0.58 0.55 0.46 0.42 0.53 0.47 0.39

(2) (3) (96) (87) (44) (149) (2) 4 (38)

(0.01) (0.21) (0.19) (0.10) (0.32) (0.01) 0.01 (0.08)

(10) (10) (10) (10) (10) (10) (10) (10) (10) (10)

356 216 229 169 165 165 54 250 227 151

0.77 0.47 0.50 0.37 0.36 0.36 0.10 0.52 0.48 0.31

0.77 0.47 0.50 0.36 0.36 0.36 0.10 0.52 0.48 0.31


Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Power Corporation’sshare of

(96)

(9) (25)

(2) (2) (2) 4 (4) (2) (2) (38)

8

Other

(85) (48) (110)

8 (10) (2)

– (2) (3) (96) (87) (44) (149) (2) 4 (38)



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C O N D E N S E D C O N S O L I D A T E D B A L A N C E S H E E T S

June 30,2011

December 31,2010

January 1,2010

Assets3,342 4,016 5,383

73,831 74,250 67,94220,940 20,209 20,6138,002 7,736 7,5843,206 2,959 2,615

105,979 105,154 98,7546,765 6,827 6,9579,659 9,856 10,9842,642 2,533 2,8002,617 2,566 2,9481,184 1,272 1,3327,401 7,444 7,3554,269 4,317 4,4338,792 8,755 8,686

96,776 94,827 87,495249,426 247,567 237,127

Liabilities108,225 107,367 104,988

775 791 841778 835 907160 149 331

3,507 3,505 3,3106,311 6,720 6,339534 535 540

– – 4991,158 1,165 1,0436,892 7,772 7,110

96,776 94,827 87,495225,116 223,666 213,403

Equity

781 783 787570 549 526

7,893 7,578 7,395425 541 894

9,669 9,451 9,60214,641 14,450 14,12224,310 23,901 23,724249,426 247,567 237,127



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C O N D E N S E D C O N S O L I D A T E D S T A T E M E N T S O F E A R N I N G S

Three months ended June 30 Six months ended June 30

2011 2010 2011 2010Revenues

4,980 4,887 9,921 10,135(708) (672) (1,354) (1,310)4,272 4,215 8,567 8,825

1,492 1,245 2,958 2,665715 1,170 524 2,746

2,207 2,415 3,482 5,4111,484 1,392 2,955 2,7967,963 8,022 15,004 17,032

Expenses3,690 3,860 7,780 7,748377 351 730 734

1,231 1,447 1,367 3,8085,298 5,658 9,877 12,290593 542 1,178 1,094958 989 1,989 1,995111 118 226 236

6,960 7,307 13,270 15,6151,003 715 1,734 1,417

63 53 64 571,066 768 1,798 1,474232 184 367 347834 584 1,431 1,127(468) (409) (839) (777)366 175 592 350(10) (10) (20) (20)356 165 572 330

0.77 0.36 1.24 0.720.77 0.35 1.23 0.71



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C O N D E N S E D C O N S O L I D A T E D S T A T E M E N T S O F C O M P R E H E N S I V E I N C O M E


2011 2010 2011 2010

834 584 1,431 1,127

(37) (217) 73 (320)(22) (25) (21) (39)(83) 93 (134) 1056 1 19 7

(136) (148) (63) (247)

35 (100) 44 (66)(9) 35 (18) 231 – 1 –

27 (65) 27 (43)

(156) 138 (157) (471)

(265) (75) (193) (761)

569 509 1,238 366

412 435 767 51110 10 20 20147 64 451 (165)569 509 1,238 366



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C O N D E N S E D C O N S O L I D A T E D S T A T E M E N T S O F C H A N G E S I N E Q U I T Y

Stated capital Reserves

Nonparticipating

sharesParticipating

sharesRetainedearnings

Stock basedcompen

sation

Investmentrevaluation

and cashflow hedge

Foreigncurrency

translation

Noncontrollinginterests Total equity

783 549 7,578 130 968 (557) 14,450 23,901– – 592 – – – 839 1,431– – – – (39) (82) (72) (193)– – 592 (39) (82) 767 1,238– – – – – – – –

– – (20) – – – – (20)– – (267) – – – – (267)

– – – – – – (538) (538)– – – 7 – – 3 10– 21 – (2) – – (3) 16

– – – – – – (38) (38)(2) – – – – – – (2)– – 10 – – – – 10

781 570 7,893 135 929 (639) 14,641 24,310


Nonparticipating

sharesParticipating


Stock basedcompen

sation


and cashflow hedge

Foreigncurrency

translation


787 526 7,395 119 775 – 14,122 23,724– – 350 – – – 777 1,127– – – – (219) (276) (266) (761)– – 350 – (219) (276) 511 366– – – – – – – –

– – (20) – – – – (20)– – (266) – – – – (266)

– – – – – – (528) (528)– – – 8 – – 2 10– 12 – (1) – – (2) 9

– – – – – – 472 472(2) – – – – – – (2)– – (7) – – – – (7)

785 538 7,452 126 556 (276) 14,577 23,758



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C O N D E N S E D C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S

Six months ended June 302011 2010

Operating activities1,798 1,474(256) (203)

1,533 4,085257 40528 42(8) (11)

(99) (231)(524) (2,746)(362) (9)2,367 2,806

Financing activities

(538) (528)(20) (20)

(267) (266)(825) (814)21 1248 87– 430(2) (2)

(121) (52)– (200)

75 127(450) –

(421) (6)– 53

(57) (45)– (11)

(1,732) (421)

Investment activities12,348 10,010

841 9661,134 1,119(70) (54)

(145) 325(12,271) (11,799)(1,674) (1,147)(1,288) (1,296)(186) (178)

(1,311) (2,054)

2 (186)(674) 1454,016 5,3833,342 5,528

Supplemental cash flow information2,567 2,517279 270



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N O T E S T O T H E I N T E R I M C O N D E N S E D C O N S O L I D A T E D F I N A N C I A LS T A T E M E N T S

NOTE 1 CORPORATE INFORMATION

NOTE 2 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Reporting,

First Time Adoption of International Financial Reporting Standards



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NOTE 2 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES AND MEASUREMENT UNCERTAINTY

REVENUE RECOGNITION

CASH AND CASH EQUIVALENTS



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INVESTMENTS

Fair Value Measurement

Bonds



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Shares and other equity investments

Mortgages and Other loans, Bonds – Loans and receivables

Investment properties

Impairment

TRANSACTION COSTS

LOANS TO POLICYHOLDERS



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REINSURANCE CONTRACTS

DERECOGNITION

OTHER ASSETS

SEGREGATED FUNDS FOR THE RISK OF UNIT HOLDERS



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DEFERRED SELLING COMMISSIONS

GOODWILL AND INTANGIBLE ASSETS

Impairment testing

INSURANCE AND INVESTMENT CONTRACT LIABILITIES

Contract classification

Insurance Contracts.



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Financial Instruments:Recognition & Measurement.

Revenue Recognition.

Measurement

DEFERRED INCOME RESERVE

POLICYHOLDER BENEFITS

FINANCIAL LIABILITIES



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STOCK BASED COMPENSATION PLANS

REPURCHASE AGREEMENTS




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Fair value hedges

Cash flow hedges

Net investment hedges

EMBEDDED DERIVATIVES

FOREIGN CURRENCY TRANSLATION



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PENSION PLANS AND OTHER POST EMPLOYMENT BENEFITS

FUNDS HELD BY CEDING INSURERS / FUNDS HELD UNDER REINSURANCE CONTRACTS

INCOME TAXES

Current income tax



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Deferred income tax

LEASES

EARNINGS PER SHARE

COMPARATIVE FIGURES



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IFRS 9 – Financial Instruments

Financial Instruments: Recognition and measurement

IFRS 10 – Consolidated Financial StatementsConsolidated Financial Statements

Consolidated Financial Statements



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IFRS 11 – Joint Arrangements JointArrangements

Joint Arrangements

IFRS 12 – Disclosure of Interest in Other EntitiesDisclosure of Interest in Other Entities

Disclosure of Interest in Other Entities

IFRS 13 – Fair Value StatementsFair Value Measurement

IAS 1 – Presentation of Financial StatementsPresentation of Financial Statements.

IAS 17 – Leases



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NOTE 3 TRANSITION TO IFRS

Interim Financial Reporting,

RECONCILIATIONS OF PREVIOUS CANADIAN GAAP TO IFRS



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NOTE 3 TRANSITION TO IFRS (CONTINUED)

Reference

Reportedunder CGAAPDecember 31,

2009Conversionadjustments

Presentation andreclassificationadjustments

Date oftransition to

IFRSJanuary 1, 2010

Assetsy 5,385 (2) 5,383

67,942 67,942m 17,356 3,257 20,613r,p 7,463 121 7,584f,g,s 3,101 (85) (401) 2,615

95,862 3,293 (401) 98,7546,957 6,957

t 10,839 145 10,984t – 2,800 2,800o,y 2,677 154 117 2,948q 1,281 51 1,332

a,d, i,n,p,s,u,y 6,744 (239) 850 7,355l,y 4,502 (7) (62) 4,433l,y 8,760 (13) (61) 8,686w – 87,495 87,495

143,007 3,239 90,881 237,127

Liabilitiesf,g,h, t,v 102,651 (69) 2,406 104,988t,u,v – 841 841

907 907t 186 145 331m – 3,310 3,310p 6,375 (36) 6,339

540 540p 503 (4) 499q 1,136 (96) 3 1,043

a,g,h, i, j,k,p,q 6,402 717 (9) 7,110x 14,478 (356) (14,122) –

w – 87,495 87,495133,178 3,466 76,759 213,403

Equity

787 787526 526

8,742 (1,347) 7,395p 117 2 119b,c (343) 1,118 775

9,829 (227) – 9,602x – – 14,122 14,122

9,829 (227) 14,122 23,724143,007 3,239 90,881 237,127



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ReferenceJune 30,

2010June 30,

2010December 31,

2010

657 1,247 2,369(402) (768) (1,462)255 479 907

f 6 4 –g (3) (6) (12)

h 17 23 18a, i (3) (1) (18)j (8) (15) (26)m (5) 12 36n 3 4 13o – (1) 7k – – (6)e – – (4)r (91) (140) (137)p 14 5 (22)q (3) (5) (9)

(73) (120) (160)(7) (9) 21

(80) (129) (139)

175 350 768

ReferenceJune 30,

2010June 30,

2010December 31,

2010

504 358 1,410(429) (485) (1,039)

75 (127) 371

(80) (129) (139)

c (1) (13) (29)c (1) 3 9r (9) (36) 19r 91 140 137b (2) 34 63

78 128 1991 (17) (27)

79 111 172

(1) (18) 33

74 (145) 404



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iv) Reconciliation of equity

Reference

Date oftransition to IFRS

January 1,2010

June 30,2010

December 31,2010

9,829 9,427 9,648– 13,895 13,895

9,829 23,322 23,543

a (465) 4 8b (1,809) – –c (127) – –d 40 – –

f 119 4 –g 110 (6) (12)

h (468) 23 18

i 121 (5) (26)j (240) (15) (26)m (127) 12 36l, n (10) 4 13o 154 (1) 7k (25) – (6)l (13) – –r (8) (140) (137)e – – (4)p 23 5 (22)q 168 (5) (9)p 1,210 (9) 21

– (1) (3)(1,347) (130) (142)

p 5 1 1p (3) (1) (1)

2 – –

b 1,809 34 63c 127 (13) (29)c, q (34) 3 9r 120 (36) 19r 8 140 137p (912) (17) (27)

1,118 111 172

x 14,122 455 328

13,895 436 358

23,724 23,758 23,901



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STATEMENT OF CASH FLOWS

IFRS 1 FIRST TIME ADOPTION OF IFRS OPTIONAL EXEMPTIONS

a) Employee benefits – cumulative unamortized actuarial gains and losses

Employee Benefits

b) Cumulative translation losses of foreign operations

c) Redesignation of financial assets

Fair valueJanuary 1, 2010

Unrealized gainsreclassified to AOCI

January 1, 2010373 38360 89



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d) Fair value as deemed cost for owner occupied properties

e) Business combinations

Business Combinations

MANDATORY CHANGES IN ACCOUNTING POLICIES AT CONVERSION TO IFRS

Measurement and Recognition Differences

f) Measurement of investment properties at fair value

g) Deferred net realized gains



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h) Deferred acquisition costs (DAC) and deferred income reserves (DIR) on investment contracts

i) Unamortized vested past service costs and other employment benefits

j) Uncertain income tax provisions

k) Recognition of contingent liabilities

l) Goodwill and intangible asset measurement and impairment testing



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m) Derecognition

n) Deferred selling commissions



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o) Investment in associates

p) Other adjustments

q) Tax impact of IFRS adjustments

r) Investments in private equity funds and financial instruments

Presentation and Classification Differences

s) Presentation of real estate properties

t) Presentation of reinsurance accounts



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u) Reclassification of deferred acquisition costs

v) Presentation of insurance and investment contract liabilities

Insurance Contracts

98,0591,308606317

2,361102,651

111(203)23(69)

4472,8003,247

105,829

104,988841

105,829

w) Presentation of segregated funds on the balance sheets

x) Presentation of non controlling interests within equity

y) Joint ventures



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NOTE 4 INVESTMENTS

June 30, 2011 December 31, 2010 January 1, 2010Carrying value Fair value Carrying value Fair value Carrying value Fair value

55,013 55,013 55,277 55,277 52,029 52,0291,810 1,810 1,748 1,748 1,759 1,7597,866 7,866 7,935 7,935 4,989 4,9899,142 9,804 9,290 9,942 9,165 9,42173,831 74,493 74,250 74,902 67,942 68,198

20,468 21,267 19,985 20,750 20,372 20,579472 472 224 224 241 241

20,940 21,739 20,209 20,974 20,613 20,820

5,743 5,743 5,364 5,364 4,928 4,9282,259 2,259 2,372 2,372 2,656 2,6568,002 8,002 7,736 7,736 7,584 7,584

3,206 3,206 2,959 2,959 2,615 2,615105,979 107,440 105,154 106,571 98,754 99,217

NOTE 5 SEGREGATED FUNDS FOR THE RISK OF UNIT HOLDERS

June 30,2011

December 31,2010

January 1,2010

19,351 19,270 16,0562,137 2,058 1,74466,070 64,468 59,1115,710 5,598 6,0125,545 5,414 5,658193 245 195

(2,230) (2,226) (1,281)

96,776 94,827 87,495

2011 201094,827 87,495

6,461 7,488141 365702 609465 (1,658)(331) (1,672)

(5,495) (5,668)6 64

1,949 (472)96,776 87,023



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NOTE 6 INSURANCE AND INVESTMENT CONTRACT LIABILITIES

Gross Ceded Net108,225 2,642 105,583

775 – 775109,000 2,642 106,358

Gross Ceded Net107,367 2,533 104,834

791 – 791108,158 2,533 105,625

Gross Ceded Net104,988 2,800 102,188

841 – 841105,829 2,800 103,029

NOTE 7 SECURITIZATIONS

NOTE 8 DEBENTURES AND OTHER BORROWINGS



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NOTE 9 STATED CAPITAL AND STOCK BASED COMPENSATION

STATED CAPITALISSUED AND OUTSTANDING

June 30,2011

December 31,2010

January 1,2010

Non Participating Shares

31 33 37

150 150 150

200 200 200

150 150 150

250 250 250781 783 787

Participating Shares

27 27 27

543 522 499570 549 526

STOCK BASED COMPENSATION

2011 20104.2% 3.4%20.1% 20.6%2.9% 3.1%

8 8$3.69 $5.09

$27.60 $30.07

6 1010



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NOTE 9 STATED CAPITAL AND STOCK BASED COMPENSATION (CONTINUED)

NOTE 10 CAPITAL MANAGEMENT

Insurance Companies Act



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NOTE 11 RISK MANAGEMENT

LIQUIDITY RISK



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NOTE 11 RISK MANAGEMENT (CONTINUED)

CREDIT RISK

MARKET RISK

Currency Risk



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87

71

Interest Rate Risk



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Equity Price Risk



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NOTE 12 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Unrealized gains (losses) onAvailable for

sale assetsCash flow

hedgesForeign currency

translation Total

968 – (557) 411

(61) 45 (157) (173)(2) (18) – (20)

(63) 27 (157) (193)14 (17) 75 72(49) 10 (82) (121)

919 10 (639) 290




translation Total

799 (24) – 775–

(215) (66) (471) (752)(32) 23 – (9)(247) (43) (471) (761)48 23 195 266

(199) (20) (276) (495)

600 (44) (276) 280



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NOTE 13 FINANCING CHARGES

Three months ended June 30 Six months ended June 302011 2010 2011 201098 100 199 1948 8 16 16– 4 – 10

– – – 25 6 11 14

111 118 226 236

NOTE 14 PENSION PLANS AND OTHER POST RETIREMENT BENEFITS

Three months ended June 30 Six months ended June 302011 2010 2011 201033 35 59 586 6 12 11

39 41 71 69

NOTE 15 INCOME TAXES

Three months ended June 30 Six months ended June 302011 2010 2011 2010226 65 398 1266 119 (31) 221

232 184 367 347

20

NOTE 16 EARNINGS PER SHARE

Three months ended June 30 Six months ended June 302011 2010 2011 2010366 175 592 350(10) (10) (20) (20)356 165 572 330(1) (1) (3) (3)

355 164 569 327

459.8 457.9 459.6 457.64.0 4.6 4.0 4.6

(3.1) (3.1) (3.1) (3.1)

460.7 459.4 460.5 459.1



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NOTE 16 EARNINGS PER SHARE (CONTINUED)

9,420,424 8,785,870


2011 2010 2011 2010

0.77 0.36 1.24 0.720.77 0.35 1.23 0.71

NOTE 17 SEGMENTED INFORMATION



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NOTE 17 SEGMENTED INFORMATION (CONTINUED)INFORMATION ON PROFIT MEASURE

Lifeco IGM Parjointco Other TotalRevenues

4,272 – – – 4,272

1,416 34 – 42 1,492707 8 – – 715

2,123 42 – 42 2,207739 668 – 77 1,484

7,134 710 – 119 7,963Expenses

5,298 – – – 5,298390 229 – (26) 593651 172 – 135 95872 26 – 13 111

6,411 427 – 122 6,960723 283 – (3) 1,003

– – 63 – 63723 283 63 (3) 1,066161 64 – 7 232

562 219 63 (10) 834(324) (136) (21) 13 (468)

238 83 42 3 366


4,215 – – – 4,215

1,335 12 – (102) 1,2451,160 10 – – 1,1702,495 22 – (102) 2,415703 617 – 72 1,392

7,413 639 – (30) 8,022Expenses

5,658 – – – 5,658355 212 – (25) 542705 160 – 124 98970 28 – 20 118

6,788 400 – 119 7,307625 239 – (149) 715

– – 53 – 53625 239 53 (149) 768126 57 – 1 184

499 182 53 (150) 584(292) (115) (18) 16 (409)

207 67 35 (134) 175



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8,567 – – – 8,567

2,843 83 – 32 2,958520 4 – – 524

3,363 87 – 32 3,4821,459 1,343 – 153 2,95513,389 1,430 – 185 15,004

Expenses

9,877 – – – 9,877767 463 – (52) 1,178

1,375 341 – 273 1,989144 56 – 26 226

12,163 860 – 247 13,2701,226 570 – (62) 1,734

– – 65 (1) 641,226 570 65 (63) 1,798230 137 – – 367

996 433 65 (63) 1,431(570) (270) (22) 23 (839)

426 163 43 (40) 592


8,825 – – – 8,825

2,752 65 – (152) 2,6652,736 10 – – 2,7465,488 75 – (152) 5,4111,427 1,228 – 141 2,79615,740 1,303 – (11) 17,032

Expenses

12,290 – – – 12,290718 426 – (50) 1,094

1,423 319 – 253 1,995144 55 – 37 236

14,575 800 – 240 15,6151,165 503 – (251) 1,417

– – 57 – 571,165 503 57 (251) 1,474215 127 – 5 347

950 376 57 (256) 1,127(548) (237) (20) 28 (777)

402 139 37 (228) 350



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NOTE 18 CONTINGENT LIABILITIES (CHANGES SINCE DECEMBER 31, 2010 ANNUAL REPORT)



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PART B


PAGE B 2


PAGE B 20

JUNE 30, 2011

The attached documents concerning Power Financial Corporation are documents prepared and publicly disclosed by such subsidiary. Certain statements in the attached documents, other than statements of historical fact, are forward-looking statements based on certain assumptions and refl ect the current expectations of the subsidiary as set forth therein. Forward-looking statements are provided for the purposes of assisting the reader in understanding the subsidiary’s fi nancial performance, fi nancial position and cash fl ows as at and for the periods ended on certain dates and to present information about the subsidiary’s management’s current expectations and plans relating to the future and the reader is cautioned that such statements may not be appropriate for other purposes.

By its nature, forward-looking information is subject to inherent risks and uncertainties that may be general or specifi c and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved.

For further information provided by the subsidiary as to the material factors that could cause actual results to diff er materially from the content of forward-looking statements, the material factors and assumptions that were applied in making the forward-looking statements, and the subsidiary’s policy for updating the content of forward-looking statements, please see the attached documents, including the section entitled Forward-Looking Statements. The reader is cautioned to consider these factors and assumptions carefully and not to put undue reliance on forward-looking statements.

P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1 B 1

PCC_QUAT2_ENG02_PFC_2011-08-04_v1.indd B1PCC_QUAT2_ENG02_PFC_2011-08-04_v1.indd B1 8/4/11 10:18:37 PM8/4/11 10:18:37 PM

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P O W E R F I N A N C I A L C O R P O R A T I O NM A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S

B 2 P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1


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OVERVIEW



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BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES

INTERNATIONAL FINANCIAL REPORTING STANDARDS

Interim FinancialReporting First Time Adoption of International Financial Reporting Standards




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INCLUSION OF PARGESA’S RESULTS

NON IFRS FINANCIAL MEASURES




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IFRS 9 – Financial InstrumentsFinancial Instruments

Financial Instruments: Recognition and Measurement

IFRS 10 – Consolidated Financial Statements

IFRS 12 – Disclosure of Interest in Other Entities



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IFRS 13 – Fair Value MeasurementFair Value Measurement,

IAS 1 – Presentation of Financial StatementsPresentation of Financial Statements

IAS 17 – Leases




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RESULTS OF POWER FINANCIAL CORPORATION

EARNINGS SUMMARY – CONDENSED SUPPLEMENTARY STATEMENTS OF EARNINGS



2011 2010 2011 2011 2010

644 607 360 284 312

246 209 125 121 101

67 55 63 4 57

957 871 548 409 470

(26) (42) (15) (11) (21)

931 829 533 398 449

(2) 2 (2) (4)

(52) (46) (26) (26) (23)

877 785 507 370 422

1.24 1.11 0.72 0.52 0.61

(0.01)

1.24 1.11 0.72 0.52 0.60

OPERATING EARNINGS

SHARE OF OPERATING EARNINGS FROM SUBSIDIARIES AND INVESTMENT IN ASSOCIATES



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RESULTS FROM CORPORATE ACTIVITIES

OTHER ITEMS

NET EARNINGS ATTRIBUTABLE TO COMMON SHAREHOLDERS

B 1 0 P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1


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CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, December 31, June 30, December 31,

2011 2010 2011 2010

Consolidated basis Equity basis [1]

Assets2,874 3,656 724 713

2,498 2,448 12,968 12,690

104,092 103,165

6,765 6,827

2,642 2,533

4,184 4,231

8,751 8,713

17,921 18,284 97 94

96,776 94,827

246,503 244,684 13,789 13,497

Liabilities109,000 108,158

3,507 3,505

5,903 6,313 250 250

534 535

8,796 9,744 411 406

96,776 94,827

224,516 223,082 661 656

Equity2,005 2,005 2,005 2,005

11,123 10,836 11,123 10,836

8,859 8,761

21,987 21,602 13,128 12,841

246,503 244,684 13,789 13,497

CONSOLIDATED BASIS

P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1 B 1 1


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June 30,2011

December 31,2010

107.7 106.6

27.7 27.9

96.8 94.8

130.1 126.1

362.3 355.4

130.2 129.5

492.5 484.9

134.8 131.5

Total assets under administration 627.3 616.4

EQUITY BASIS



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Lifeco IGM Parjointco Total

7,748 2,462 2,480 12,690

(32) (32)

644 246 67 957

(2) (2)

(87) (3) (22) (112)

(399) (152) (551)

4 7 7 18

7,910 2,560 2,498 12,968

SHAREHOLDERS’ EQUITY

OUTSTANDING NUMBER OF COMMON SHARES



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CASH FLOWS

CONDENSED CASH FLOWS – CONSOLIDATED

June 30,2011

June 30,2010

2,436 2,835

(1,793) (473)

(1,427) (2,232)

2 (186)

(782) (56)

3,656 4,855

2,874 4,799



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CASH FLOWS – CORPORATE


2011June 30,

2010

Cash flow from operating activities929 831

(404) (266)

2 1

527 566

Cash flow from financing activities(548) (540)

280

31

(8)

(548) (237)

Cash flow from investing activities32

32

Increase (decrease) in cash and cash equivalents 11 329

713 756

724 1,085



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RISK FACTORS

OFF BALANCE SHEET ARRANGEMENTS

GUARANTEES



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LETTERS OF CREDIT

COMMITMENTS/CONTRACTUAL OBLIGATIONS



INTERNAL CONTROL OVER FINANCIAL REPORTING



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Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

7,7945330.72

(26)

5070.720.71

2011Q2

Share of Lifeco’s

Share of IGM’s

Share of Pargesa’s

Corporate



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P O W E R F I N A N C I A L C O R P O R A T I O N

June 30,2011

December 31,2010

January 1,2010

Assets2,874 3,656 4,855

73,293 73,582 67,38820,940 20,209 20,6136,653 6,415 6,3923,206 2,959 2,615

104,092 103,165 97,0086,765 6,827 6,9579,659 9,856 10,9842,642 2,533 2,8002,498 2,448 2,8291,160 1,249 1,3007,102 7,179 7,0654,184 4,231 4,3598,751 8,713 8,655

96,776 94,827 87,495246,503 244,684 234,307

Liabilities108,225 107,367 104,988

775 791 841778 835 907160 149 331

3,507 3,505 3,3105,903 6,313 5,931534 535 540

– – 300– – 199

1,125 1,136 1,0186,733 7,624 6,955

96,776 94,827 87,495224,516 223,082 212,815

Equity

2,005 2,005 1,725636 636 605

10,410 10,012 9,55377 188 969

13,128 12,841 12,8528,859 8,761 8,640

21,987 21,602 21,492246,503 244,684 234,307



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2011 2010 2011 2010Revenues

4,980 4,887 9,921 10,135(708) (672) (1,354) (1,310)4,272 4,215 8,567 8,825

1,426 1,326 2,881 2,775715 1,170 524 2,746

2,141 2,496 3,405 5,5211,381 1,294 2,750 2,6057,794 8,005 14,722 16,951

Expenses3,690 3,860 7,780 7,748377 351 730 734

1,231 1,447 1,367 3,8085,298 5,658 9,877 12,290593 542 1,178 1,094835 878 1,741 1,768102 109 209 218

6,828 7,187 13,005 15,370966 818 1,717 1,58163 53 65 57

1,029 871 1,782 1,638226 182 363 341803 689 1,419 1,297(270) (244) (490) (466)533 445 929 831(26) (23) (52) (46)507 422 877 785

0.72 0.60 1.24 1.110.71 0.59 1.23 1.10



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2011 2010 2011 2010

803 689 1,419 1,297

(13) (114) 38 (160)(16) (25) (15) (37)(25) 4 (68) (16)6 1 19 5

(48) (134) (26) (208)

25 (100) 48 (66)(9) 35 (18) 231 – 1 –

17 (65) 31 (43)

(154) 105 (152) (478)

(185) (94) (147) (729)

618 595 1,272 568

277 332 456 43726 23 52 46315 240 764 85618 595 1,272 568



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Perpetualpreferred

sharesCommon


Stock basedcompen

sation


and cashflow hedge

Foreigncurrency

translation


2,005 636 10,012 108 856 (776) 8,761 21,602– – 929 – – – 490 1,419– – – – 3 (116) (34) (147)– – 929 – 3 (116) 456 1,272

– – – – – – – –

– – (52) – – – – (52)– – (496) – – – – (496)

– – – – – – (318) (318)– – – 5 – – 2 7– – – (3) – – (2) (5)

– – – – – – (40) (40)– – 17 – – – – 17

2,005 636 10,410 110 859 (892) 8,859 21,987


Perpetualpreferred

sharesCommon


Stock basedcompen

sation


and cashflow hedge

Foreigncurrency

translation


1,725 605 9,553 105 864 – 8,640 21,492– – 831 – – – 466 1,297– – – – (270) (430) (29) (729)– – 831 – (270) (430) 437 568

280 – – – – – – 280

– – (46) – – – – (46)– – (494) – – – – (494)

– – – – – – (315) (315)– – – 3 – – 1 4– 31 – (1) – – (1) 29

– – – – – – 163 163– – (10) – – – – (10)

2,005 636 9,834 107 594 (430) 8,925 21,671



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Six months ended June 302011 2010

Operating activities1,782 1,638(255) (211)

1,533 4,085257 40528 42(8) (11)

(99) (231)(524) (2,746)(278) (136)2,436 2,835

Financing activities

(318) (315)(52) (46)

(496) (494)(866) (855)

– 3148 56– 280– 150

(121) (52)– (200)

74 126(450) –

(421) (6)– 53

(57) (45)– (11)

(1,793) (473)

Investment activities11,815 9,559

841 966990 1,074(70) (54)

(145) 325(11,856) (11,659)(1,674) (1,147)(1,160) (1,149)(168) (147)

(1,427) (2,232)

2 (186)(782) (56)3,656 4,8552,874 4,799

Supplemental cash flow information2,557 2,511261 252



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P O W E R F I N A N C I A L C O R P O R A T I O N

NOTE 1 CORPORATE INFORMATION

NOTE 2 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Reporting

First Time Adoption of International Financial Reporting Standards



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USE OF ESTIMATES AND MEASUREMENT UNCERTAINTY

REVENUE RECOGNITION

CASH AND CASH EQUIVALENTS

INVESTMENTS



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Fair Value Measurement

Bonds

Shares and other equity investments



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Mortgages and Other loans, Bonds – Loans and receivables


Impairment

TRANSACTION COSTS

LOANS TO POLICYHOLDERS

REINSURANCE CONTRACTS



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DERECOGNITION

OTHER ASSETS

SEGREGATED FUNDS FOR THE RISK OF UNIT HOLDERS



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DEFERRED SELLING COMMISSIONS

GOODWILL AND INTANGIBLE ASSETS

Impairment testing

INSURANCE AND INVESTMENT CONTRACT LIABILITIES

Contract classification

Insurance Contracts



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Financial Instruments:Recognition & Measurement

Revenue Recognition

Measurement

DEFERRED INCOME RESERVE

POLICYHOLDER BENEFITS

FINANCIAL LIABILITIES



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STOCK BASED COMPENSATION PLANS

REPURCHASE AGREEMENTS




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Fair value hedges

Cash flow hedges

Net investment hedges

EMBEDDED DERIVATIVES

FOREIGN CURRENCY TRANSLATION



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PENSION PLANS AND OTHER POST EMPLOYMENT BENEFITS

FUNDS HELD BY CEDING INSURERS / FUNDS HELD UNDER REINSURANCE CONTRACTS

INCOME TAXES

Current income tax



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Deferred income tax

LEASES

EARNINGS PER SHARE

COMPARATIVE FIGURES



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IFRS 9 – Financial Instruments

Financial Instruments: Recognition and measurement

IFRS 10 – Consolidated Financial StatementsConsolidated Financial Statements

Consolidated Financial Statements

IFRS 11 – Joint Arrangements JointArrangements

Joint Arrangements



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IFRS 12 – Disclosure of Interest in Other EntitiesDisclosure of Interest in Other Entities

Disclosure of Interest in Other Entities

IFRS 13 – Fair Value StatementsFair Value Measurement

IAS 1 – Presentation of Financial StatementsPresentation of Financial Statements.

IAS 17 – Leases




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NOTE 3 TRANSITION TO IFRS

Interim Financial Reporting

RECONCILIATIONS OF PREVIOUS CANADIAN GAAP TO IFRS



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Reference

Reportedunder CGAAPDecember 31,

2009Conversionadjustments

Presentation andreclassificationadjustments

Date oftransition to

IFRSJanuary 1, 2010

Assets4,855 4,855

67,388 67,388m 17,356 3,257 20,613

6,392 6,392f, g, r 3,101 (85) (401) 2,615

94,237 3,172 (401) 97,0086,957 6,957

s 10,839 145 10,984s – 2,800 2,800o 2,675 154 2,829q 1,268 32 1,300

a, d, i, n, p, r, t 6,379 (162) 848 7,065l 4,366 (7) – 4,359

8,655 8,655v – 87,495 87,495

140,231 3,189 90,887 234,307

Liabilitiesf, g, h, s, u 102,651 (69) 2,406 104,988s, t, u – 841 841

907 907s 186 145 331m – 3,310 3,310p 5,967 (36) 5,931

540 540300 300

p 203 (4) 199q 1,098 (80) 1,018

a, g, h, i, j, k, p, q 6,294 661 6,955w 8,878 (238) (8,640) –

v – 87,495 87,495127,024 3,544 82,247 212,815

Equity

1,725 1,725605 605

11,165 (1,612) 9,553p 102 3 105b, c (390) 1,254 864

13,207 (355) – 12,852w – – 8,640 8,640

13,207 (355) 8,640 21,492140,231 3,189 90,887 234,307



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ReferenceJune 30,

2010June 30,

2010December 31,

2010

671 1,279 2,444(242) (461) (860)429 818 1,584

f 6 4 –g (3) (6) (12)

h 17 23 18a, i (3) (4) (26)j (8) (15) (26)m (5) 12 36n 3 4 13o – (1) 7k – – (6)e – – (12)p 14 5 (19)q (3) (4) (5)

18 18 (32)(2) (5) 1516 13 (17)

445 831 1,567

ReferenceJune 30,

2010June 30,

2010December 31,

2010

582 527 1,485(331) (421) (714)

251 106 771

16 13 (17)

c (1) (13) (29)c (1) 3 9b (3) 33 63

(5) 23 431 (11) (14)(4) 12 29

12 25 12

263 131 783



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Reference

Date oftransition to IFRS

January 1,2010

June 30,2010

December 31,2010

13,207 13,074 13,184– 8,285 8,285

13,207 21,359 21,469

a (316) – –b (1,650) – –c (127) – –d 40 – –

f 119 4 –g 110 (6) (12)

h (468) 23 18

i 123 (4) (26)j (240) (15) (26)m (127) 12 36l, n (10) 4 13o 154 (1) 7k (25) – (6)e – – (12)p 4 5 (19)q 133 (4) (5)p 668 (5) 15

– 1 –(1,612) 14 (17)

p 5 1 1p (2) – (1)

3 1 –

b 1,650 33 63c 127 (13) (29)c, q (34) 3 9p (489) (11) (14)

1,254 12 29

w, p 8,640 285 121

8,285 312 133

21,492 21,671 21,602



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STATEMENT OF CASH FLOWS

IFRS 1 FIRST TIME ADOPTION OF IFRS OPTIONAL EXEMPTIONS

a) Employee benefits – cumulative unamortized actuarial gains and losses

Employee Benefits



373 38360 89



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Business Combinations

MANDATORY CHANGES IN ACCOUNTING POLICIES AT CONVERSION TO IFRS

Measurement and Recognition Differences

f) Measurement of investment properties at fair value

g) Deferred net realized gains



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h) Deferred acquisition costs (DAC) and deferred income reserves (DIR) on investment contracts

i) Unamortized vested past service costs and other employment benefits


k) Recognition of contingent liabilities

l) Goodwill and intangible asset measurement and impairment testing



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m) Derecognition

n) Deferred selling commissions



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o) Investment in associates

p) Other adjustments

q) Tax impact of IFRS adjustments

Presentation and Classification Differences

r) Presentation of real estate properties

s) Presentation of reinsurance accounts

t) Reclassification of deferred acquisition costs



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u) Presentation of insurance and investment contract liabilities

Insurance Contracts

98,0591,308606317

2,361102,651

111(203)23(69)

4472,8003,247

105,829

104,988841

105,829

v) Presentation of segregated funds on the balance sheets

w) Presentation of non controlling interests within equity



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NOTE 4 INVESTMENTS

June 30, 2011 December 31, 2010 January 1, 2010Carrying value Fair value Carrying value Fair value Carrying value Fair value

54,991 54,991 55,251 55,251 51,542 51,5421,810 1,810 1,748 1,748 1,759 1,7597,350 7,350 7,293 7,293 4,922 4,9229,142 9,804 9,290 9,942 9,165 9,42173,293 73,955 73,582 74,234 67,388 67,644

20,468 21,267 19,985 20,750 20,372 20,579472 472 224 224 241 241

20,940 21,739 20,209 20,974 20,613 20,820

5,743 5,743 5,364 5,364 4,928 4,928910 910 1,051 1,051 1,464 1,464

6,653 6,653 6,415 6,415 6,392 6,392

3,206 3,206 2,959 2,959 2,615 2,615104,092 105,553 103,165 104,582 97,008 97,471

NOTE 5 SEGREGATED FUNDS FOR THE RISK OF UNIT HOLDERS

June 30,2011

December 31,2010

January 1,2010

19,351 19,270 16,0562,137 2,058 1,74466,070 64,468 59,1115,710 5,598 6,0125,545 5,414 5,658193 245 195

(2,230) (2,226) (1,281)96,776 94,827 87,495

2011 201094,827 87,495

6,461 7,488141 365702 609465 (1,658)(331) (1,672)

(5,495) (5,668)6 64

1,949 (472)96,776 87,023



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NOTE 6 INSURANCE AND INVESTMENT CONTRACT LIABILITIES

Gross Ceded Net108,225 2,642 105,583

775 – 775109,000 2,642 106,358

Gross Ceded Net107,367 2,533 104,834

791 – 791108,158 2,533 105,625

Gross Ceded Net104,988 2,800 102,188

841 – 841105,829 2,800 103,029

NOTE 7 SECURITIZATIONS

NOTE 8 DEBENTURES AND OTHER BORROWINGS



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NOTE 9 STATED CAPITAL AND STOCK BASED COMPENSATION

AUTHORIZED

ISSUED AND OUTSTANDING

June 30, 2011 December 31, 2010 January 1, 2010Numberof shares

Statedcapital

Numberof shares

Statedcapital

Numberof shares

Statedcapital

Preferred Shares (classified as liabilities)– – – – 6,000,000 150– – – – 6,000,000 150

– – 300

Preferred Shares (perpetual)4,000,000 100 4,000,000 100 4,000,000 1006,000,000 150 6,000,000 150 6,000,000 1508,000,000 200 8,000,000 200 8,000,000 2006,000,000 150 6,000,000 150 6,000,000 1506,000,000 150 6,000,000 150 6,000,000 1508,000,000 200 8,000,000 200 8,000,000 200

10,000,000 250 10,000,000 250 10,000,000 2508,000,000 200 8,000,000 200 8,000,000 2007,000,000 175 7,000,000 175 7,000,000 1756,000,000 150 6,000,000 150 6,000,000 150

11,200,000 280 11,200,000 280 – –2,005 2,005 1,725

708,013,680 636 708,013,680 636 705,726,680 605

STOCK BASED COMPENSATION

2011 20104.8% 3.9%19.6% 20.1%3.0% 3.3%

9 9$3.48 $4.99

$30.18 $32.46



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NOTE 9 STATED CAPITAL AND STOCK BASED COMPENSATION (CONTINUED)

NOTE 10 CAPITAL MANAGEMENT

Insurance Companies Act



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NOTE 11 RISK MANAGEMENT

LIQUIDITY RISK



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CREDIT RISK

MARKET RISK

Currency Risk



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Interest Rate Risk



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Equity Price Risk



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NOTE 12 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)




translation Total

856 – (776) 80

(30) 49 (152) (133)4 (18) – (14)

(26) 31 (152) (147)7 (9) 36 34

(19) 22 (116) (113)

837 22 (892) (33)




translation Total

900 (36) – 864

(176) (66) (478) (720)(32) 23 – (9)(208) (43) (478) (729)(32) 13 48 29(240) (30) (430) (700)

660 (66) (430) 164

NOTE 13 FINANCING CHARGES

Three months ended June 30 Six months ended June 302011 2010 2011 201089 91 182 1768 8 16 16– 4 – 10

– – – 25 6 11 14

102 109 209 218



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NOTE 14 PENSION PLANS AND OTHER POST RETIREMENT BENEFITS

Three months ended June 30 Six months ended June 302011 2010 2011 201031 31 54 505 4 10 9

36 35 64 59

NOTE 15 INCOME TAXES

Three months ended June 30 Six months ended June 302011 2010 2011 2010220 63 394 1206 119 (31) 221

226 182 363 341

NOTE 16 EARNINGS PER SHARE

Three months ended June 30 Six months ended June 302011 2010 2011 2010533 445 929 831(26) (23) (52) (46)507 422 877 785(2) (2) (5) (5)

505 420 872 780

708.0 706.2 708.0 706.04.9 3.3 4.9 3.3

(3.8) (2.4) (3.8) (2.4)

709.1 707.1 709.1 706.9

Three months ended June 30 Six months ended June 302011 2010 2011 2010

0.72 0.60 1.24 1.110.71 0.59 1.23 1.10



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NOTE 17 SEGMENTED INFORMATION



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4,272 – – – 4,272

1,416 34 – (24) 1,426707 8 – – 715

2,123 42 – (24) 2,141739 668 – (26) 1,381

7,134 710 – (50) 7,794Expenses

5,298 – – – 5,298390 229 – (26) 593651 172 – 12 83572 26 – 4 102

6,411 427 – (10) 6,828723 283 – (40) 966

– – 63 – 63723 283 63 (40) 1,029161 64 – 1 226

562 219 63 (41) 803(202) (94) – 26 (270)

360 125 63 (15) 533


4,215 – – – 4,215

1,335 12 – (21) 1,3261,160 10 – – 1,1702,495 22 – (21) 2,496703 617 – (26) 1,294

7,413 639 – (47) 8,005Expenses

5,658 – – – 5,658355 212 – (25) 542705 160 – 13 87870 28 – 11 109

6,788 400 – (1) 7,187625 239 – (46) 818

– – 53 – 53625 239 53 (46) 871126 57 – (1) 182

499 182 53 (45) 689(187) (81) – 24 (244)

312 101 53 (21) 445



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8,567 – – – 8,567

2,843 83 – (45) 2,881520 4 – – 524

3,363 87 – (45) 3,4051,459 1,343 – (52) 2,75013,389 1,430 – (97) 14,722

Expenses

9,877 – – – 9,877767 463 – (52) 1,178

1,375 341 – 25 1,741144 56 – 9 209

12,163 860 – (18) 13,0051,226 570 – (79) 1,717

– – 65 – 651,226 570 65 (79) 1,782230 137 – (4) 363

996 433 65 (75) 1,419(352) (187) – 49 (490)

644 246 65 (26) 929


8,825 – – – 8,825

2,752 65 – (42) 2,7752,736 10 – – 2,7465,488 75 – (42) 5,5211,427 1,228 – (50) 2,60515,740 1,303 – (92) 16,951

Expenses

12,290 – – – 12,290718 426 – (50) 1,094

1,423 319 – 26 1,768144 55 – 19 218

14,575 800 – (5) 15,3701,165 503 – (87) 1,581

– – 57 – 571,165 503 57 (87) 1,638215 127 – (1) 341

950 376 57 (86) 1,297(343) (167) – 44 (466)

607 209 57 (42) 831



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NOTE 18 CONTINGENT LIABILITIES (CHANGES SINCE DECEMBER 31, 2010 ANNUAL REPORT)



Page intentionally left blank.



GR

EA

T-WEST LIFEC

O IN

C.

GREAT-WEST LIFECO INC.

PART C


PAGE C 2


PAGE C 3 9

JUNE 30, 2011

Please note that the bottom of each page in Part C contains two diff erent page numbers. A page number with the prefi x “C” refers to the number of such page in this document and the page number without any prefi x refers to the number of such page in the original document issued by Great-West Lifeco Inc.

The attached documents concerning Great-West Lifeco Inc. are documents prepared and publicly disclosed by such subsidiary. Certain statements in the attached documents, other than statements of historical fact, are forward-looking statements based on certain assumptions and refl ect the current expectations of the subsidiary as set forth therein. Forward-looking statements are provided for the purposes of assisting the reader in understanding the subsidiary’s fi nancial performance, fi nancial position and cash fl ows as at and for the periods ended on certain dates and to present information about the subsidiary’s management’s current expectations and plans relating to the future and the reader is cautioned that such statements may not be appropriate for other purposes.


For further information provided by the subsidiary as to the material factors that could cause actual results to diff er materially from the content of forward-looking statements, the material factors and assumptions that were applied in making the forward-looking statements, and the subsidiary’s policy for updating the content of forward-looking statements, please see the attached documents, including the section entitled Cautionary Note Regarding Forward-Looking Information. The reader is cautioned to consider these factors and assumptions carefully and not to put undue reliance on forward-looking statements.

P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1 C 1

PCC_QUAT2_ENG03_GWL_2011-08-04_v1.indd C1PCC_QUAT2_ENG03_GWL_2011-08-04_v1.indd C1 8/4/11 7:24:59 PM8/4/11 7:24:59 PM

GR

EA

T-W

EST

LIFE

CO

INC

.

Management's Discussion & Analysis

4


FOR THE PERIOD ENDED JUNE 30, 2011

DATED: AUGUST 3, 2011

This Management’s Discussion and Analysis (MD&A) presents management’s view of the financial condition, results of operations and cash flows of Great-West Lifeco Inc. (Lifeco or the Company) for the three months and six months ended June 30, 2011 compared with the same periods in 2010, and with the three months ended March 31, 2011. The MD&A provides an overall discussion, followed by analysis of the performance of Lifeco's three major reportable segments: Canada, United States and Europe. BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES The consolidated financial statements of Lifeco, which are the basis for data presented in this report, have been prepared in accordance with International Financial Reporting Standards (IFRS) unless otherwise noted and are presented in millions of Canadian dollars unless otherwise indicated. This MD&A should be read in conjunction with the Company's interim condensed consolidated financial statements for the period ended June 30, 2011. Please also refer to the 2010 Annual MD&A and consolidated financial statements, which were prepared in accordance with the previous Canadian Generally Accepted Accounting Principles (CGAAP), in the Company’s 2010 Annual Report to Shareholders. CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION This MD&A contains some forward-looking statements about the Company, including its business operations, strategy and expected financial performance and condition. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates” and similar expressions or negative versions thereof. In addition, any statement that may be made concerning future financial performance (including revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future action by the Company, including statements made by the Company with respect to the expected benefits of acquisitions or divestitures, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company, economic factors and the financial services industry generally, including the insurance and mutual fund industries. They are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the Company due to, but not limited to, important factors such as sales levels, premium income, fee income, expense levels, mortality experience, morbidity experience, policy lapse rates, taxes, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, changes in accounting policies and the effect of applying future accounting policy changes including the adoption of IFRS, unexpected judicial or regulatory proceedings, catastrophic events, and the Company's ability to complete strategic transactions and integrate acquisitions. The reader is cautioned that the foregoing list of important factors is not exhaustive, and there may be other factors, including factors set out under "Risk Management and Control Practices" and "Summary of Critical Accounting Estimates" in the Company's 2010 Annual MD&A, and any listed in other filings with securities regulators, which are available for review at www.sedar.com. The reader is also cautioned to consider these and other factors carefully and not to place undue reliance on forward-looking statements. Other than as specifically required by applicable law, the Company does not intend to update any forward-looking statements whether as a result of new information, future events or otherwise. CAUTIONARY NOTE REGARDING NON-IFRS FINANCIAL MEASURES This MD&A contains some non-IFRS financial measures. Terms by which non-IFRS financial measures are identified include, but are not limited to, “operating earnings”, “constant currency basis”, “premiums and deposits”, “sales”, and other similar expressions. Non-IFRS financial measures are used to provide management and investors with additional measures of performance. However, non-IFRS financial measures do not have standard meanings prescribed by IFRS and are not directly comparable to similar measures used by other companies. Please refer to the appropriate reconciliations of these non-IFRS financial measures to measures prescribed by IFRS.

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CONSOLIDATED OPERATING RESULTS Selected consolidated financial information (in Canadian $ millions, except for per share amounts) As at or for the three months ended

For the six months ended

June 30 2011

March 31 2011

June 30 2010

June 30 2011

June 30 2010

Premiums and deposits: Life insurance, guaranteed annuities

and insured health products $ 4,272 $ 4,295 $ 4,215 $ 8,567 $ 8,825

Self-funded premium equivalents (ASO contracts)

664 670 657 1,334 1,302

Segregated funds deposits: Individual products 1,636 1,905 1,633 3,541 3,423 Group products 1,427 1,493 2,335 2,920 4,065

Proprietary mutual funds & institutional deposits

8,289 9,083 5,389 17,372 11,580

Total premiums and deposits 16,288 17,446 14,229 33,734 29,195 Fee and other income 739 720 703 1,459 1,427 Paid or credited to policyholders 5,298 4,579 5,658 9,877 12,290 Operating earnings -

common shareholders 526 415 455

941 883 Net earnings - common shareholders 526 415 455 941 883 Per common share Operating earnings $ 0.553 $ 0.438 $ 0.480 $ 0.991 $ 0.932 Basic earnings 0.553 0.438 0.480 0.991 0.932 Dividends paid 0.3075 0.3075 0.3075 0.615 0.615 Book value 11.75 11.53 11.70 Return on common shareholders'

equity (trailing four quarters*)

Net operating earnings 17.0% 16.4% N/A Net earnings 15.2% 14.5% N/A Total assets $ 232,159 $ 231,331 $ 221,814 Proprietary mutual funds and institutional

net assets 130,066 129,470 121,147

Total assets under management 362,225 360,801 342,961 Other assets under administration 134,822 134,412 120,700 Total assets under administration $ 497,047 $ 495,213 $ 463,661 Total equity $ 15,115 $ 14,880 $ 15,120 The Company uses operating earnings, a non-IFRS financial measure, which excludes the impact of the provision described in note 25 to the Company's December 31, 2010 consolidated financial statements. *ROE is the trailing four quarter calculation of net earnings divided by common shareholders’ equity. Comparative March 31 and June 30, 2010 ROE calculations are not presented as IFRS figures are not available for the trailing period, which includes certain periods of 2009 reported solely on a CGAAP basis.



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NET EARNINGS Consolidated net earnings of Lifeco include the net earnings of The Great-West Life Assurance Company (Great-West) and its operating subsidiaries London Life Insurance Company (London Life) and The Canada Life Assurance Company (Canada Life); Great-West Life & Annuity Insurance Company (GWL&A) and Putnam Investments, LLC (Putnam), together with Lifeco’s corporate results. Lifeco's net earnings attributable to common shareholders for the three month period ended June 30, 2011 were $526 million compared to $455 million reported a year ago. On a per share basis, this represents $0.553 per common share ($0.550 diluted) for the second quarter of 2011 compared to $0.480 per common share ($0.477 diluted) a year ago. Included in net earnings for the second quarter of 2011 was a release of a legal provision in Putnam resulting from a settlement of a lawsuit with an after-tax shareholders net earnings impact of $55 million (US$57 million). For the six months ended June 30, 2011, Lifeco's net earnings attributable to common shareholders were $941 million compared to $883 million reported a year ago, an increase of 6.6%. On a per share basis, this represents $0.991 per common share ($0.986 diluted) for 2011 compared to $0.932 per common share ($0.927 diluted) a year ago. Net earnings - common shareholders For the three months ended For the six months ended June 30

2011 March 31

2011 June 30 2010

June 30 2011

June 30 2010

Canada Individual Insurance $ 66 $ 82 $ 80 $ 148 $ 153 Wealth Management 91 82 78 173 157 Group Insurance 94 66 93 160 182 Canada Corporate 11 15 1 26 (3)

262 245 252 507 489 United States

Financial Services 81 98 74 179 152 Asset Management 47 (13) (15) 34 (30) U.S. Corporate - 3 2 3 4

128 88 61 216 126 Europe

Insurance & Annuities 97 125 130 222 226 Reinsurance 50 (38) 14 12 49 Europe Corporate - (1) 1 (1) -

147 86 145 233 275 Lifeco Corporate (11) (4) (3) (15) (7) Operating earnings 526 415 455 941 883 Net earnings $ 526 $ 415 $ 455 $ 941 $ 883 The information in the table is a summary of results for net earnings of the Company. Additional commentary regarding net earnings can be found in Segmented Operating Results.



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PREMIUMS AND DEPOSITS AND SALES Premiums and deposits include premiums on risk-based insurance and annuity products, premium equivalents on self-funded group insurance administrative services only (ASO) contracts, deposits on individual and group segregated fund products and deposits on proprietary mutual funds and institutional accounts. Sales include 100% of single premium and annualized recurring premium on risk-based and annuity products, deposits on individual and group segregated fund products, deposits on proprietary mutual funds and institutional accounts and deposits on non-proprietary mutual funds. Premiums and deposits For the three months ended For the six months ended June 30

2011 March 31

2011 June 30

2010 June 30

2011 June 30

2010 Canada

Individual Insurance $ 914 $ 875 $ 852 $ 1,789 $ 1,651 Wealth Management 2,124 2,425 2,068 4,549 4,403 Group Insurance 1,786 1,787 1,732 3,573 3,450

4,824 5,087 4,652 9,911 9,504 United States

Financial Services 1,167 1,327 2,058 2,494 3,813 Asset Management 8,114 8,852 5,245 16,966 11,246

9,281 10,179 7,303 19,460 15,059 Europe

Insurance & Annuities 1,285 1,376 1,408 2,661 2,898 Reinsurance 898 804 866 1,702 1,734

2,183 2,180 2,274 4,363 4,632 Total $ 16,288 $ 17,446 $ 14,229 $ 33,734 $ 29,195 Sales For the three months ended For the six months ended June 30

2011 March 31

2011 June 30

2010 June 30

2011 June 30

2010

Canada $ 2,204 $ 2,549 $ 2,216 $ 4,753 $ 4,950 United States 9,526 11,032 6,826 20,558 18,446 Europe 876 1,108 1,097 1,984 2,187

Total $ 12,606 $ 14,689 $ 10,139 $ 27,295 $ 25,583 The information in the table is a summary of results for premiums and deposits and sales of the Company. Additional commentary regarding premiums and deposits and sales can be found in Segmented Operating Results.



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NET INVESTMENT INCOME Net investment income For the three months ended For the six months ended June 30

2011 March 31

2011 June 30

2010 June 30

2011 June 30

2010 Investment income earned (net of investment properties expenses) $ 1,384 $ 1,395 $ 1,354

$ 2,779 $ 2,763

(Provision)/recovery of credit losses on loans and receivables 12 1 (1)

13 (1)

Net realized gains/(losses) 37 48 2 85 27 Regular investment income 1,433 1,444 1,355 2,877 2,789 Investment expenses (17) (17) (20) (34) (37) Regular net investment income 1,416 1,427 1,335 2,843 2,752 Changes in fair value through profit or

loss 707 (187) 1,160

520 2,736 Net investment income $ 2,123 $ 1,240 $ 2,495 $ 3,363 $ 5,488 Net investment income in the second quarter of 2011 decreased by $372 million compared to the same period last year. The reduction in net investment income is mostly the result of an increase in fair values of $707 million in 2011 compared to an increase in fair values of $1,160 million in 2010. In the second quarter of 2011, the fair value of the Company’s bond investments increased primarily as a result of decreasing government bond rates. For the six months ended June 30, 2011 net investment income decreased by $2,125 million compared to the same period last year. The reduction in net investment income from 2010 is primarily a result of an increase in fair values of $520 million in 2011 compared to an increase in fair values of $2,736 million in 2010. Government rates decreased more in the first six months of 2010 as compared to 2011 resulting in a smaller increase in bond investment fair values in 2011. Net investment income was higher in the second quarter of 2011 compared to the first quarter of 2011 primarily due to the change in fair values, which was an increase of $707 million in the second quarter of 2011 compared to a decrease of $187 million in the first quarter of 2011. The fair value of the Company’s bond investments increased primarily as a result of decreasing government bond rates in the second quarter of 2011 but decreased in the first quarter of 2011 as a result of increasing government bond rates. With the adoption of IFRS, investment properties are carried at fair value with changes in fair value recorded in net investment income. Because of the long-term nature of investment properties, these assets are often acquired to support longer term insurance contract liabilities. Generally, the value of the insurance contract liabilities will fluctuate in line with the changes in fair value of the investment properties held in support of those liabilities as both are based on the long-term expected cash flows for these investments. For investment properties that are held to support shareholders surplus, any change in fair value directly impacts common shareholders net earnings. Investment property fair values for the three month period ended June 30, 2011 improved $36 million compared to $67 million for the same period last year. For the six months ended June 30, 2011, investment property fair values improved $101 million compared to $129 million in the same period last year. In the Company’s Canadian portfolio, stronger real estate fundamentals and lower investment yield parameters resulted in an increase of $29 million in fair value for the quarter ($68 million year-to-date). The Company’s United Kingdom portfolio experienced an increase of $7 million in fair value in the quarter across a number of properties ($33 million year-to-date). The Company has no significant holdings of investment properties in its United States segment. The after-tax impact on shareholders net earnings of the increase in fair value of investment properties held in the surplus accounts was $14 million in the second quarter ($32 million year-to-date) compared to $6 million in the second quarter of 2010 ($7 million year-to-date).



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Credit Market Impact In the second quarter of 2011, the Company experienced net market value recoveries on previously impaired securities (both realized and unrealized) and no significant new impairments in period with the result positively impacting common shareholder net earnings by $3 million. In the second quarter of 2011, the Company experienced a small number of net bond downgrades. The increase in provisions for future credit losses in insurance contract liabilities for the second quarter relating to credit rating changes negatively impacted net earnings attributable to common shareholders by $9 million. Holdings of Debt Securities of Governments Credit market spreads in North America and Europe continued to reflect political and economic uncertainty, particularly in certain European countries where the potential for defaults is a concern. At June 30, 2011, the Company held government and government related debt securities (including certain assets reported as funds held by ceding insurers) with an aggregate carrying value of $31.8 billion. Included in this portfolio are debt securities issued by Portugal, Ireland, Italy and Spain, with an aggregate carrying value of $273 million. The Company does not have any direct exposure to Greece. Carrying Value by Rating - June 30, 2011

AAA AA A BBB BB & Lower

Total

Amortized Cost

Canada $ 7,736 $ 2,998 $ 2,016 $ - $ - $ 12,750 $ 12,150 U.K. 9,418 391 119 365 - 10,293 9,982 U.S. 5,075 839 75 31 - 6,020 5,822 22,229 4,228 2,210 396 - 29,063 27,954Portugal - - - 15 - 15 16 Ireland* - - - 155 - 155 218 Italy - - 51 - - 51 55 Greece - - - - - - - Spain - - 52 - - 52 60 - - 103 170 - 273 349Germany 520 6 - - - 526 513 France 455 13 - - - 468 470 Netherlands 309 15 - - - 324 314 Austria 127 - - - - 127 121 Australia 8 - - - - 8 8 Supranationals 727 - - - - 727 693 All other (9 countries) 158 64 - 17 - 239 234 2,304 98 - 17 - 2,419 2,353Total $ 24,533 $ 4,326 $ 2,313 $ 583 $ - $ 31,755 $ 30,656 *At June 30, 2011, all Government bond holdings were rated investment grade. In July, one rating agency downgraded the Government of Ireland debt securities to below investment grade. The impact of the downgrade has not been reflected in the table above and will have a minimal impact on the third quarter financial results.



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Holdings of Debt Securities of Banks and Other Financial Institutions At June 30, 2011, the Company held debt securities issued by banks and other financial institutions (including certain assets reported as funds held by ceding insurers) with an aggregate carrying value of $11.2 billion. Included in this portfolio is $495 million of debt securities issued by banks and other financial institutions domiciled in Ireland, Italy and Spain. The Company does not have any holdings of banks and other financial institutions domiciled in Greece or Portugal. As described below, the Company has significantly reduced its holdings of Irish banks. During the quarter, the Company tendered all of its Allied Irish Bank Tier 2 and Tier 1 securities pursuant to a tender offer. As a result, the Company no longer has any holdings of Allied Irish Bank. Also during the quarter, the Company disposed of certain Bank of Ireland debt securities which had a carrying value of $26 million. The sale negatively impacted common shareholders net earnings by $1 million. At June 30, 2011, the Company held Bank of Ireland impaired securities with an amortized cost of $37 million, against which the impairment provisions are $28 million. Subsequent to quarter end, the company sold certain of these securities. After these sales, the Company holds $13 million Bank of Ireland Tier 1 securities, against which the impairment provisions are $11 million. At June 30, 2011, approximately 93% of the $11.2 billion carrying value of banks and other financial institutions was rated investment grade. Carrying Value by Rating - June 30, 2011

AAA AA A BBB BB & Lower

Total

Amortized Cost

Canada $ 72 $ 468 $ 1,154 $ 31 $ - $ 1,725 $ 1,678 U.K. 126 522 1,293 501 563 3,005 3,180 U.S. 43 1,393 1,901 438 102 3,877 3,798 241 2,383 4,348 970 665 8,607 8,656Portugal - - - - - - - Ireland - 63 - - 9 72 122 Italy - 30 65 61 - 156 169 Greece - - - - - - - Spain 46 20 201 - - 267 286 46 113 266 61 9 495 577Germany 40 - 37 - - 77 75 France 64 64 298 70 - 496 504 Netherlands 185 15 93 - 103 396 400 Austria - - - - - - - Australia 18 285 172 11 - 486 482 All other (15 institutions) 67 69 331 131 - 598 585 374 433 931 212 103 2,053 2,046Total $ 661 $ 2,929 $ 5,545 $ 1,243 $ 777 $ 11,155 $ 11,279 FEE AND OTHER INCOME In addition to providing traditional risk-based insurance products, the Company also provides certain products on a fee-for-service basis. The most significant of these products are segregated funds and mutual funds, for which the Company earns investment management fees on assets managed and other fees, and ASO contracts, under which the Company provides group benefit plan administration on a cost-plus basis.



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Fee and other income For the three months ended For the six months ended June 30

2011 March 31

2011 June 30

2010 June 30

2011 June 30

2010 Canada

Segregated funds, mutual funds and other $ 240 $ 239 $ 218

$ 479 $ 437

ASO contracts 37 37 37 74 74 277 276 255 553 511 United States

Segregated funds, mutual funds and other 318 314 307

632 624

Europe Segregated funds, mutual funds and

other 144 130 141

274 292 Total fee and other income $ 739 $ 720 $ 703 $ 1,459 $ 1,427 The information in the table is a summary of results of gross fee and other income for the Company. Additional commentary regarding fee and other income can be found in Segmented Operating Results. PAID OR CREDITED TO POLICYHOLDERS Paid or credited to policyholders For the three months ended For the six months ended June 30

2011 March 31

2011 June 30

2010 June 30

2011 June 30

2010 Canada $ 2,585 $ 2,181 $ 2,279 $ 4,766 $ 4,960 United States 890 950 1,241 1,840 2,540 Europe 1,823 1,448 2,138 3,271 4,790 $ 5,298 $ 4,579 $ 5,658 $ 9,877 $ 12,290

Amounts paid or credited to policyholders include changes in insurance and investment contract liabilities, claims, surrenders, annuity and maturity payments, segregated funds guarantee payments and dividend and experience refund payments for risk based products. The change in insurance contract liabilities includes adjustments to insurance contract liabilities for changes in fair value of certain invested assets backing those insurance contract liabilities and changes in the provision for future credit losses in insurance contract liabilities. These amounts do not include benefit payment amounts for ASO contracts or redemptions of segregated funds and mutual funds. For the three months ended June 30, 2011 consolidated amounts paid or credited to policyholders were $5.3 billion, a decrease of $360 million from the same period in 2010. The amounts paid or credited to policyholders increased by $306 million in Canada, due primarily to the increase in fair value of assets backing these insurance contract liabilities. In both the United States and Europe the amounts paid or credited to policyholders decreased by $351 million and $315 million respectively, due primarily to smaller increases in the fair value of invested assets backing insurance contract liabilities as well as a reduction of maturity and surrender benefits paid out. For the six months ended June 30, 2011 consolidated amounts paid or credited to policyholders were $9.9 billion, a decrease of $2.4 billion from the same period in 2010. The amounts paid or credited to policyholders decreased by $194 million in Canada, $700 million in the United States and $1.5 billion in Europe primarily due to a decrease in the fair value of assets backing insurance contract liabilities in the period. Compared to the first quarter of 2011, amounts paid or credited to policyholders increased by $719 million primarily



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due to increases in Canada and Europe which is attributed to increases in the fair value of assets backing the insurance contract liabilities. INCOME TAXES The Company has a statutory income tax rate of 28% and had an effective income tax rate of 22% for the second quarter of 2011. The effective income tax rate is primarily reduced by benefits related to non-taxable investment income and lower tax in foreign jurisdictions. Also reducing the effective income tax rate are the impacts of the application of future tax rates to temporary differences and changes to statutory rates on the calculation of insurance contract liability reserves. CONSOLIDATED FINANCIAL POSITION ASSETS Assets under administration June 30, 2011 Canada United States Europe TotalAssets

Invested assets $ 53,443 $ 25,320 $ 28,921 $ 107,684Goodwill and intangible assets 5,085 1,667 1,706 8,458Other assets 4,429 2,979 11,833 19,241Segregated funds net assets 51,034 21,168 24,574 96,776

Total assets 113,991 51,134 67,034 232,159Proprietary mutual funds and institutional net assets 3,394 126,672

-

130,066

Total assets under management 117,385 177,806 67,034 362,225Other assets under administration 10,987 123,719 116 134,822Total assets under administration $ 128,372 $ 301,525 $ 67,150 $ 497,047 December 31, 2010 Canada United States Europe Total Assets

Invested assets $ 52,378 $ 25,714 $ 28,550 $ 106,642 Goodwill and intangible assets 5,086 1,717 1,702 8,505 Other assets 4,532 2,917 11,986 19,435 Segregated funds net assets 50,001 21,189 23,637 94,827

Total assets 111,997 51,537 65,875 229,409 Proprietary mutual funds and institutional net assets 3,272 122,781

-

126,053

Total assets under management 115,269 174,318 65,875 355,462 Other assets under administration 11,655 119,766 107 131,528 Total assets under administration $ 126,924 $ 294,084 $ 65,982 $ 486,990 * During the period ended March 31, 2011, the Company reclassified its Maxim Series Funds in the United States from other assets under

administration to assets under management. The comparative figures reflect the presentation adopted in the current period. Total assets under administration at June 30, 2011 increased by $10.1 billion from December 31, 2010. Segregated funds increased by approximately $1.9 billion primarily due to increased net flows and improved bond markets. Proprietary mutual funds and institutional net assets increased by $4.0 billion primarily as a result of improved net flows. Other assets under administration increased by $3.3 billion primarily as a result of improved equity markets. Provision for future credit losses At June 30, 2011, the total provision for future credit losses in insurance contract liabilities was $2,327 million compared to $2,318 million at December 31, 2010, an increase of $9 million.

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The $9 million increase in the provision consists of a $23 million increase relating to credit rating activity and basis changes and a $4 million increase mainly due to normal movement in the block of insurance contract liabilities, partially offset by $18 million of releases in connection with the sale of certain non-investment grade assets. The aggregate of impairment provisions of $243 million ($385 million at December 31, 2010) and $2,327 million ($2,318 million at December 31, 2010) provision for future credit losses in insurance contract liabilities represents 2.6% of bond and mortgage assets at June 30, 2011 (2.8% at December 31, 2010). LIABILITIES Total liabilities June 30 December 31 2011 2010 Insurance and investment contract liabilities $ 109,000 $ 108,158 Other general fund liabilities 11,268 11,571 Investment and insurance contracts on account of unit holders 96,776 94,827 Total liabilities $ 217,044 $ 214,556 Total liabilities increased by $2.4 billion from $214.6 billion at December 31, 2010 to $217 billion at June 30, 2011. Under IFRS, segregated fund liabilities are presented as investment and insurance contracts on account of unit holders on the balance sheet within liabilities, which increased primarily due to positive net flows and the increase in fair value of the corresponding assets as a result of market conditions. Guarantees Associated with Wealth Management Products The Company offers retail segregated fund products, unitized with profits (UWP) products and variable annuity products that provide for certain guarantees tied to the market values of the investment funds. The guaranteed minimum withdrawal benefits (GMWB) products offered by the Company also offers levels of death and maturity guarantees. At June 30, 2011, the amount of GMWB product in-force in Canada, the United States and Germany was $963 million ($709 million at December 31, 2010). The company has a formal hedge program to manage the economic risks associated with the withdrawal benefit.

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Segregated funds guarantee exposure June 30, 2011 Deficiency by benefit type Market value Death Maturity IncomeCanada

Great-West Life/London Life/Canada Life $ 23,646 $ 136 $ 22 $ - London Reinsurance Group 78 - 1 - 23,724 136 23 -

United States

GWL&A 6,827 94 - - London Reinsurance Group 1,097 44 - 350 7,924 138 - 350

Europe 2,222 146 - - Total $ 33,870 $ 420 $ 23 $ 350 At June 30, 2011, the excess of policyholder guaranteed minimum death benefits (GMDB) over the market value of the policyholder funds was $420 million. This should be interpreted to mean that if all of the policyholders with in-the-money GMDB had died on June 30, 2011, the Company would have been obligated to pay death benefits of $420 million, ($340 million at December 31, 2010) in excess of the market value of the policyholder funds on that date. If markets were to remain at June 30, 2011 levels, the GMDB related payments over the next twelve months are estimated to be $5 million ($5 million at December 31, 2010). FUTURE ACTUARIAL ASSUMPTION CHANGES The Canadian Actuarial Standards Board has approved, on July 12, 2011, a revision to the Standards of Practice for subsection 2350 relating to mortality improvement which the Company will be implementing later this year. As part of normal practice, the Company also expects to complete a number of actuarial experience studies during the latter part of 2011 and these studies may result in updates of economic, mortality, longevity, morbidity, expense and policyholder behaviour assumptions used in the valuation of policy liabilities. SHARE CAPITAL AND SURPLUS Share capital outstanding at June 30, 2011 was $7,719 million, which comprise $5,822 million of common shares, $1,417 million of perpetual preferred shares, and $480 million of five-year rate reset preferred shares. At June 30, 2011, the Company had 949,473,141 common shares outstanding with a stated value of $5,822 million compared to 948,458,395 common shares with a stated value of $5,802 million at December 31, 2010. During the six months ended June 30, 2011, no common shares were purchased for cancellation pursuant to the Company’s Normal Course Issuer Bid. Under the Company’s Stock Option Plan, 1,014,746 shares were issued for a total value of $20 million or $18.10 per share.



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NON-CONTROLLING INTERESTS Under IFRS, non-controlling interests are now presented in equity. The Company's non-controlling interests include preferred shares issued by subsidiaries to third parties. In addition, participating account surplus previously presented under CGAAP within non-controlling interests, is now a separate line item within equity. During the second quarter of 2011, the Company revised its interpretation and classification under IFRS for certain share-based payments in Putnam. As a result of this revision to recognize these awards as cash settled rather than equity settled, an adjustment was required to non-controlling interests. For further information on this revision, please refer to the Accounting Policies section addressing International Financial Reporting Standards within this MD&A. LIQUIDITY AND CAPITAL MANAGEMENT AND ADEQUACY LIQUIDITY The Company’s liquidity requirements are largely self-funded, with short-term obligations being met by generating internal funds and maintaining adequate levels of liquid investments. At June 30, 2011, Lifeco held cash and government short-term investments of $4.3 billion ($5.1 billion at December 31, 2010) and government bonds of $21.5 billion ($21.5 billion at December 31, 2010). This includes approximately $0.7 billion ($0.8 billion at December 31, 2010) held directly at the holding company level. In addition, the Company maintains a $200 million committed line of credit with a Canadian chartered bank. The Company does not have a formal common shareholder dividend policy. Dividends on outstanding common shares of the Company are declared and paid at the sole discretion of the Board of Directors of the Company. The decision to declare a dividend on the common shares of the Company takes into account a variety of factors including the level of earnings, adequacy of capital, and availability of cash resources. As a holding company, the Company’s ability to pay dividends is dependent upon the Company receiving dividends from its operating subsidiaries. The Company’s operating subsidiaries are subject to regulation in a number of jurisdictions, each of which maintains its own regime for determining the amount of capital that must be held in connection with the different businesses carried on by the operating subsidiaries. The requirements imposed by the regulators in any jurisdiction may change from time to time, and thereby impact the ability of the operating subsidiaries to pay dividends to the Company. CASH FLOWS Cash flows For the three months ended

June 30 For the six months ended

June 30 2011 2010 2011 2010 Cash flows relating to the following activities: Operations $ 1,473 $ 1,317 $ 2,134 $ 2,514 Financing (341) (297) (537) (513) Investment (1,470) (1,389) (1,709) (2,324) (338) (369) (112) (323) Effects of changes in exchange rates on cash and

cash equivalents (2) 50

2 (186)

Increase (decrease) in cash and cash equivalents in the period (340) (319)

(110)

(509)

Cash and cash equivalents, beginning of period 2,070 3,237 1,840 3,427 Cash and cash equivalents, end of period $ 1,730 $ 2,918 $ 1,730 $ 2,918 The principal source of funds for the Company, on a consolidated basis, is cash provided by operating activities, including premium income, net investment income and fee income. In general, these funds are used primarily to pay policy benefits, policyholder dividends and claims, as well as operating expenses and commissions. Cash flows



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generated by operations are mainly invested to support future liability cash requirements. Financing activities include the issuance and repayment of capital instruments, and associated dividends and interest payments. In the second quarter, cash and cash equivalents decreased by $340 million from March 31, 2011. Cash flows provided by operations during the second quarter of 2011 were $1,473 million, an increase of $156 million compared to the second quarter of 2010. For the three months ended June 30, 2011, cash flows were used by the Company to acquire an additional $1,470 million of investment assets, and $316 million of cash was utilized to pay dividends to the preferred and common shareholders and $25 million was used for other financing activities. For the six months ended June 30, 2011, cash and cash equivalents decreased by $110 million from December 31, 2010. Cash flows provided from operations were $2,134 million, a decrease of $380 million compared to 2010. In 2011, cash flows were used by the Company to acquire an additional $1,709 million of investment assets, and $631 million of cash was utilized to pay dividends to the preferred and common shareholders and $94 million was received from other financing activities. COMMITMENTS/CONTRACTUAL OBLIGATIONS Commitments/contractual obligations have not changed materially from December 31, 2010. CAPITAL MANAGEMENT AND ADEQUACY CAPITAL ALLOCATION METHODOLOGY In 2011, the Company adopted a capital allocation methodology which allocates financing costs in proportion to allocated capital. For the Canadian and European segments (essentially The Great-West Life Assurance Company), this new allocation method tracks the consolidated Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio, while for U.S. Financial Services and Putnam, it tracks the financial statement carrying value of the business units. Total leverage capital is consistently allocated across all business units in proportion to total capital resulting in the leverage ratio of each business unit mirroring the consolidated Company. The Company’s consolidated net earnings are presented on an IFRS basis after capital allocation. The Company's return on common shareholders' equity (ROE) and net earnings are unaffected by the capital allocation methodology as the process does not change the total, just the distribution of leverage capital and net earnings among the business units.

Return on Equity Trailing four quarters June 30

2011 March 31

2011 December 31

2010 Canada 22.7% 22.7% 22.7% U.S. Financial Services (1) 25.7% 26.7% 25.4% U.S. Asset Management (Putnam) 1.4% (2.3)% (2.5)% Europe 15.9% 16.4% 18.0% Lifeco Corporate* (5.0)% (2.5)% (2.5)% Total Lifeco Operating Earnings* 17.0% 16.4% 16.6%

(1) Includes U.S. Corporate * The Company uses operating earnings, a non-IFRS financial measure, which excludes the impact of the provision described in note 25 to the Company's December 31, 2010 consolidated financial statements. ROE is the trailing four quarter calculation of net earnings divided by common shareholders' equity. Comparative March 31 and June 30, 2010 ROE calculations are not presented as IFRS figures are not available for the trailing period, which includes certain periods of 2009 reported solely on a CGAAP basis.



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The Company reported ROE based on net earnings of 15.2%, compared to 14.8% at December 31, 2010. The Company achieved a 17.0% ROE on operating earnings, which compares favourably with its long-term objective of 15.0%. For further information on the capital allocation model and return on equity, refer to the IFRS, Capital Allocation and Canadian Segment presentation posted on the Company's website. In Canada, the Office of the Superintendent of Financial Institutions (OSFI) has established a capital adequacy measurement for life insurance companies incorporated under the Insurance Companies Act (Canada) and their subsidiaries, known as the MCCSR ratio. The target operating range of the MCCSR ratio for Lifeco's major Canadian operating subsidiaries is 175% to 200% (on a consolidated basis). Great-West Life’s MCCSR ratio at June 30, 2011 was 200% (203% at December 31, 2010). London Life’s MCCSR ratio at June 30, 2011 was 222% (245% at December 31, 2010). Canada Life's MCCSR ratio at June 30, 2011 was 209% (204% at December 31, 2010). The MCCSR ratio does not include any impact from approximately $0.7 billion of cash at the Lifeco holding company level. At December 31, 2010, the Risk Based Capital (RBC) ratio of GWL&A, Lifeco's regulated U.S. operating company, was 408% of the Company Action Level set by the National Association of Insurance Commissioners. GWL&A reports its RBC ratio annually to U.S. insurance regulators. Under OSFI’s Advisory on Conversion to International Financial Reporting Standards by Federally Regulated Entities, the Company's federally regulated subsidiaries have elected to phase in the impact of the conversion to IFRS on capital for MCCSR regulatory reporting purposes over eight quarters which commenced January 1, 2011. As a result 2010 MCCSR has not been restated. In the years following the Company's initial adoption of IFRS, as a result of the proposed changes to the IFRS for measurement of insurance contract liabilities and the evolving nature of IFRS, there will likely be further regulatory capital and accounting changes, some of which may be significant. RATINGS Relative to its peer group in North America, Lifeco and its major operating subsidiaries receive strong ratings from the five rating agencies that rate the Company as outlined below. The ratings have been affirmed with a stable outlook by Standard & Poor's Ratings Services on September 21, 2010, Fitch Ratings on June 24, 2011, and both A.M. Best Company and DBRS Limited on July 8, 2011 and Moody's Investors Service on July 27, 2011.

Rating agency

Measurement Lifeco Great-West

London Life

Canada LifeGWL&A

A.M. Best Company Financial Strength A+ A+ A+ A+ DBRS Limited Claims Paying Ability

Senior Debt Subordinated Debt

AA (low)

IC-1 IC-1 IC-1

AA (low)

NR

Fitch Ratings Insurer Financial Strength Senior Debt

A

AA

AA

AA

AA

Moody's Investors Service Insurance Financial Strength Aa3 Aa3 Aa3 Aa3 Standard & Poor's Ratings Services

Insurer Financial Strength Senior Debt Subordinated Debt

A+

AA AA AA

AA-

AA

Note: There were no rating changes to the Company's credit ratings during the second quarter of 2011.



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RISK MANAGEMENT AND CONTROL PRACTICES Insurance companies are in the business of assessing, structuring, pricing, assuming and managing risk. The types of risks are many and varied, and will be influenced by factors both internal and external to the businesses operated by the insurer. These risks, and the control practices used to manage the risks, are discussed in detail in the Company's 2010 Annual MD&A and have not substantially changed. FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS There were no major changes to the Company’s and its subsidiaries’ policies and procedures with respect to the use of derivative financial instruments in 2011. During the six month period ended June 30, 2011, the outstanding notional amount of derivative contracts increased by $275 million. Their exposure to credit risk, which is limited at the reporting period to the current fair value of those instruments which are in a gain position, increased to $1,055 million at June 30, 2011 from $984 million at December 31, 2010. ACCOUNTING POLICIES International Financial Reporting Standards – In February 2008, the Canadian Institute of Chartered Accountants (CICA) announced that Canadian GAAP (CGAAP) for publicly accountable enterprises would be replaced by International Financial Reporting Standards (IFRS) for fiscal years beginning on or after January 1, 2011. The Company developed an IFRS changeover plan which addressed key areas including accounting policies, financial reporting, disclosure controls and procedures, information systems, education and training and other business activities. The Company commenced reporting under IFRS for the quarter ending March 31, 2011 including presenting a transitional balance sheet at January 1, 2010 and reporting under IFRS for comparative periods, with the required reconciliations presented. The Company has monitored the impact of other changes to financial reporting processes, disclosure controls and procedures, and internal controls over financial reporting. The initial adoption of IFRS has not had a considerable impact on the disclosure controls and procedures for financial reporting. The Company’s information technology, data systems and business processes were not impacted significantly by the changeover to IFRS. The Company has prepared the June 30, 2011 unaudited interim condensed consolidated financial statements (financial statements) in accordance with IAS 34, Interim Financial Statements and IFRS 1, First-time Adoption of International Financial Reporting Standards. Included in these financial statements is the IFRS 1 transitional note to the financial statements including reconciliations of equity and reconciliations of net earnings and comprehensive income for the three and six months ended June 30, 2010 for the figures previously presented under CGAAP. The Company has monitored and assessed the impact of the adoption of IFRS on each of the business units and reporting segments. The operating results of each of the respective business units have been restated on an IFRS basis within the Segmented Operating Results.



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During the second quarter of 2011, the Company revised its interpretation of and classification under IFRS for certain share-based awards in Putnam. This revision recognized the awards as cash-settled rather than equity settled. The impact on net earnings each period is inversely related to the change in Putnam’s share value which in turn is influenced by movements of the equity market. As a result of this revision, the IFRS transition impacts on January 1, 2010 opening equity and 2010 comparative shareholder net earnings have been revised from the March 31, 2011 MD&A as follows: Impact on 2010

Shareholder Net Earnings

Impact on January 1, 2010 Opening Equity

IFRS impact reported $ (35) $ (576)

Share-based awards, Putnam (7) (22) Revised IFRS impact $ (42) $ (598) Contributed surplus (elimination of Putnam share-based awards) 31 IFRS impact, total equity $ (567)

The quarterly impact on 2010 shareholder net earnings for the periods ended is as follows: March 31, 2010 $ - June 30, 2010 6 September 30, 2010 2 December 31, 2010 (15) Total 2010 impact $ (7)

Refer to note 3 of the Company’s June 30, 2011 condensed consolidated interim financial statements for additional information. Adoption of IFRS required that the IFRS be applied on a retroactive basis with the exception of those specifically exempted under IFRS 1. Absent an exemption, any changes to existing standards were applied retroactively and reflected in the opening balance sheet of the comparative period. Noted within the summary tables are the Company’s exemptions applied upon transition. Other exemptions available under IFRS were reviewed and are either not applicable or did not have a significant impact on the Company’s financial statements. The following table sets out the transition and post-implementation impact of key IFRS 1 optional transitional exemptions on the financial statements.

IFRS Accounting Policies

Impact of IFRS 1 Optional Exemptions on the Financial Statements

a) Employee benefits cumulative unamortized actuarial gains and losses

The Company has elected to apply the exemption available to recognize all cumulative unamortized actuarial gains and losses of the Company’s defined benefit plans in equity upon transition to IFRS. Subsequent to transition, the Company will continue to use the corridor approach available under the present IAS 19, Employee Benefits standard for deferring recognition of actuarial gains and losses that reside within the corridor.


The Company has elected to reset its cumulative translation adjustment (CTA) account for all foreign operations to zero as of January 1, 2010. Future gains or losses on disposal of any foreign operation will therefore exclude translation differences that arose before January 1, 2010.



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The Company has elected to redesignate certain available for sale financial assets to the fair value through profit or loss classification and certain financial assets classified as held for trading under the previous CGAAP to available for sale. The redesignation will have no overall impact on the Company’s opening surplus at transition but will result in a reclassification within equity.


The Company has elected to measure owner occupied properties at fair value as its deemed cost at the January 1, 2010 transition date. Subsequent to this date, owner occupied properties are carried at deemed cost less amortization.


The Company has applied the IFRS 1 business combinations exemption and has not restated business combinations that took place prior to the January 1, 2010 transition date, which has resulted in no impact on opening figures. The Company will apply IFRS 3, Business Combinations prospectively for business combinations occurring on or after January 1, 2010.

The following table identifies key differences between CGAAP and IFRS accounting policies. The impact of these changes in accounting policies was reviewed at transition and could continue to impact operating results under IFRS. IFRS Accounting Policies

Impact of Mandatory Accounting Policy Changes on the Financial Statements

f) Investment properties

Under IFRS, real estate properties have been classified between investment properties and owner occupied properties. Real estate not classified as owner occupied properties (see accounting policy g below) will be accounted for as investment properties and measured at fair value under IFRS, for both investment properties backing surplus and liabilities. In addition, deferred net realized gains permitted under CGAAP and not permitted under IFRS were derecognized upon transition to IFRS.

g) Owner occupied properties

For all owner occupied properties, the Company has elected to measure the fair value as its deemed cost at transition. Under IFRS, the cost model is now used to value such properties with depreciation expensed within the Statements of Earnings.

h) Deferred acquisition costs and deferred income reserves on investment contracts

The majority of CGAAP policyholder and reinsurance contract liabilities will be classified as insurance contracts under IFRS. Contracts where significant insurance risk does not exist will be classified as investment contracts under IFRS and accounted for either at fair value or at amortized cost. If significant insurance risk exists, the contract is classified as an insurance contract and will be measured under the Canadian Asset Liability Method (CALM). IFRS allows for the recognition of both deferred acquisition costs (DAC) and deferred income reserves (DIR) related to investment contracts. Certain DAC that were not incremental to the contract and were deferred and amortized into consolidated net earnings over the anticipated period of benefit under CGAAP, will now be recognized as an expense under IFRS in the period incurred. DAC that are incremental in nature were reclassified from investment contracts to other assets under IFRS and will continue to be deferred and amortized.

i) Employee benefits - vested past service cost and other

Differences exist between IFRS and CGAAP in determining employee benefits, including the timing of the recognition of unamortized past service costs and certain service awards. In addition, under IFRS all vested past services are recognized in net earnings immediately.


There is a difference in the recognition and measurement of uncertain income tax provisions between the previous CGAAP and IFRS. Under IFRS, tax uncertainties which meet the more likely than not threshold for recognition are measured. Measurement of the provision is based on the probability weighted average approach.



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k) Other adjustments Several additional items have been identified where the transition from CGAAP to IFRS resulted in recognition changes. These adjustments include the capitalization of transaction costs on financial liabilities previously classified as other than held for trading (HFT) financial liabilities under CGAAP, adoption of the graded vesting method to account for all stock options, the adoption and classification as liabilities for share-based payments that are cash-settled and the measurement of preferred shares previously recorded at fair value now recorded at amortized cost under IFRS.

l) Segregated funds Under IFRS, the assets and liabilities of segregated funds are now included at fair value on the Consolidated Balance Sheets as a single line within assets and liabilities.

m) Presentation of reinsurance accounts

Reinsurance accounts have been presented on a gross basis on the Consolidated Balance Sheets with reinsurance assets and corresponding liabilities having no impact on shareholders’ equity. Gross presentation of the reinsurance revenues and expenses will also be required within the Statements of Earnings.

n) Non-controlling interests

Under CGAAP non-controlling interests were presented in the mezzanine between liabilities and equity. IFRS requires presentation of non-controlling interests within the equity section distinct from common shareholders' equity on the Consolidated Balance Sheets.

o) Capital Trust Securities

Diluted earnings per share calculations under IFRS require the Company to presume that the conversion of trust units to shares could and will be exercised. The trust units of the Great-West Life Capital Trust (GWLCT) have contingent conversion rights into Lifeco common shares. The shares may have a dilutive effect in the calculation of diluted earnings per share, the expected impact of which on diluted earnings is less than $0.01 per share.

p) Goodwill and intangible assets

Goodwill and intangible assets under IFRS will be measured using the cost model, based on the recoverable amount which is the greater of value in use and fair value less costs to sell. At each reporting date, the Company is required to review goodwill and intangible assets for indicators of impairment or reversals of impairment. In the event that certain conditions have been met, the Company would be required to reverse the impairment charge or a portion thereof. Under CGAAP, reversals of impairment charges were not permitted.

For a complete listing of IFRS accounting policies and details of the financial impact of the initial adoption of IFRS, refer to notes 2 and 3 of the interim condensed consolidated financial statements. IFRS that are proposed to change in the future that will impact the company are included in the following table: Revised standard Summary of Proposed Changes IFRS 4 - Insurance Contracts

The International Accounting Standards Board (IASB) issued an exposure draft proposing changes to the accounting standard for insurance contracts in July 2010. The proposal would require an insurer to measure insurance liabilities using a model focusing on the amount, timing, and uncertainty of future cash flows associated with fulfilling its insurance contracts. This is vastly different from the connection between insurance assets and liabilities considered under the CALM and may cause significant volatility in the results of the Company. The exposure draft also proposes changes to the presentation and disclosure within the financial statements. The Company will continue to measure insurance contract liabilities using CALM until such time when a new IFRS for insurance contract measurement is issued. A final standard is not expected to be implemented for several years; the Company continues to actively monitor developments in this area.



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IFRS 9 - Financial Instruments

The IASB tentatively approved the adoption of the proposed new IFRS 9, Financial Instruments standard to be effective January 1, 2015. The new standard requires all financial assets to be classified on initial recognition at amortized cost or fair value while eliminating the existing categories of available for sale, held to maturity, and loans and receivables. The new standard also requires: • embedded derivatives to be assessed for classification together with their financial

asset host; • a single expected loss impairment method be used for financial assets; and • amendments to the criteria for hedge account and measuring effectiveness The full impact of IFRS 9 on the Company will be evaluated after the remaining stages of the IASB’s project to replace IAS 39, Financial Instruments – impairment methodology, hedge accounting, and asset and liability offsetting – are finalized. The Company continues to actively monitor developments in this area.

IFRS 10 - Consolidated Financial Statements; IFRS 11 - Joint Arrangements; IFRS 12 - Disclosure of Interests in Other Entities

Effective January 1, 2013, the Company plans to adopt IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, and IFRS 12, Disclosure of Interest in Other Entities for the presentation and preparation of its consolidated financial statements. IFRS 10, Consolidated Financial Statements uses consolidated principles based on a revised definition of control. The definition of control is dependent on the power of the investor to direct the activities of the investee, the ability of the investor to derive variable benefits from its holdings in the investee, and a direct link between the power to direct activities and receive benefits. IFRS 11, Joint Arrangements separates jointly controlled entities between joint operations and joint ventures. The standard has eliminated the option of using proportionate consolidation for accounting in the interests in joint ventures, now requiring an entity to use the equity method of accounting for interests in joint ventures. IFRS 12, Disclosure of Interests in Other Entities proposes new disclosure requirements for the interest an entity has in subsidiaries, joint arrangements, associates, and structured entities. The standard requires enhanced disclosure including how control was determined and any restrictions that might exist on consolidated assets and liabilities presented within the financial statements. The Company is currently evaluating the impact of the above standards on its consolidation procedures and disclosure in preparation of the January 1, 2013 effective date.

IFRS 13 - Fair Value Measurement

Effective January 1, 2013, the Company will adopt the guidance in IFRS 13, Fair Value Measurement for the measurement and disclosure of assets and liabilities held at fair value. The standard refines the measurement and disclosure requirements and aims to achieve consistency with other standard setters to improve the visibility to financial statement users. The Company is currently evaluating the impact this standard will have on its financial statements when it becomes effective January 1, 2013.



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IAS 1 - Presentation of Financial Statements

Effective January 1, 2013, the Company will adopt the guidance in the amended IAS 1, Presentation of Financial Statements. The amended standard includes requirements that other comprehensive income (OCI) be classified by nature and grouped between those items that will be reclassified subsequently to profit or loss (when specific conditions are met) and those that will not be reclassified. Other amendments include changes to discontinued operations and overall financial statement presentation. The Company is evaluating the impact this standard will have on the presentation of its financial statements.

IAS 17 - Leases The IASB issued an exposure draft proposing a new accounting model for leases where both lessees and lessors would record the assets and liabilities on the balance sheet at the present value of the lease payments arising from all lease contracts. The new classification would be the right-of-use model, replacing the operating and finance lease accounting models that currently exist. The full impact of adoption of the proposed changes will be determined once the final lease standard is issued, which is proposed to be in 2012.

IAS 19 - Employee Benefits

The IASB published an amended version of this standard in June 2011 that eliminates the corridor approach for actuarial gains and losses resulting in those gains and losses being recognized immediately through OCI while the net pension asset or liability would reflect the full funded status of the plan on the Consolidated Balance Sheets. Further, the standard includes changes to how the defined benefit obligation and the fair value of the plan assets would be presented within the financial statements of an entity. The Company will continue to use the corridor method until January 1, 2013 when the revised standard for employee benefits becomes effective.

The Company continues to monitor these potential changes proposed by the IASB and considers the impact changes in these standards would have on the Company’s operations. SEGMENTED OPERATING RESULTS The consolidated operating results of Lifeco including the comparative figures are presented on an IFRS basis after capital allocation. The operating results include Great-West Life, London Life, Canada Life, GWL&A and Putnam. For reporting purposes, the consolidated operating results are grouped into four reportable segments, Canada, United States, Europe and Lifeco Corporate reflecting geographic lines as well as the management and corporate structure of the companies. CANADA The Canada segment of Lifeco includes the operating results of the Canadian businesses operated by Great-West Life, London Life, and Canada Life. There are three primary business units included in this segment. Through its Individual Insurance business unit, the Company provides life, disability and critical illness insurance products to individual clients. Through its Wealth Management business unit the Company provides accumulation products and annuity products for both group and individual clients in Canada. Through its Group Insurance business unit, the Company provides life, health, critical illness, disability and creditor insurance products to group clients in Canada.



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Selected consolidated financial information - Canada For the three months ended For the six months ended June 30

2011 March 31

2011 June 30

2010 June 30

2011 June 30 2010

Premiums and deposits $ 4,824 $ 5,087 $ 4,652 $ 9,911 $ 9,504 Sales 2,204 2,549 2,216 4,753 4,950 Fee and other income 277 276 255 553 511 Net earnings - common shareholders 262 245 252 507 489 Total assets $ 113,991 $ 113,823 $ 104,465 Proprietary mutual funds net assets 3,394 3,439 2,829 Total assets under management 117,385 117,262 107,294 Other assets under administration 10,987 10,900 10,858 Total assets under administration $ 128,372 $ 128,162 $ 118,152 BUSINESS UNITS – CANADA Net earnings attributable to common shareholders for the second quarter of 2011 were $262 compared to $252 for the second quarter of 2010. The increase is primarily due to higher earnings from Wealth Management, and Corporate, partially offset by lower Individual Insurance earnings. Group earnings for the second quarter of 2011 are consistent with the second quarter of 2010. Total sales for the three months ended June 30, 2011 were $2.2 billion, comparable with the same period in 2010. INDIVIDUAL INSURANCE 2011 DEVELOPMENTS Individual Life Insurance sales have increased significantly in 2011 driven by both participating life sales (17%

ahead of the same period last year) and universal life sales (14% ahead of the same period last year). Universal life sales have surged in advance of rate increases implemented part way through the first quarter of 2011.

Sales in the second quarter were $112 million, up 13% compared to the second quarter of 2010. On a year-to-date basis, sales were $210 million, up 11% over the same period last year.

Net earnings for the second quarter were $66 million, down 18% compared to the second quarter of 2010. On a year-to-date basis, earnings were $148 million, down 3% from the same period last year.

Premiums and deposits of $914 million were 7% higher than the second quarter of 2010. Year-to-date premiums and deposits of $1.8 billion were 8% higher than the same period last year.

OPERATING RESULTS For the three months ended For the six months ended June 30

2011 March 31

2011 June 30 2010

June 30 2011

June 30 2010

Premiums and deposits $ 914 $ 875 $ 852 $ 1,789 $ 1,651 Sales 112 98 99 210 190 Net earnings 66 82 80 148 153



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Premiums and deposits Individual Life premiums for the quarter increased by $59 million to $838 million compared with the same quarter last year. The increase was primarily due to increased participating life premiums. Living Benefits premiums for the quarter increased by $3 million to $76 million compared with the same period last year. For the six months ended June 30, 2011, Individual Life premiums increased by $130 million to $1.6 billion compared to the same period last year. Living Benefits premiums increased by $8 million to $151 million compared to the same period last year. Individual Insurance premiums increased by $39 million to $914 million compared to the previous quarter, primarily due to seasonality of premium payments. Sales For the quarter, Individual Life sales increased by $12 million to $100 million compared with the same quarter last year. The increase was primarily due to strong participating life sales. Universal life rate increases were implemented in first quarter 2011, consistent with rate increases in the market. Sales of Living Benefits for the quarter increased by $1 million to $12 million compared with the same quarter last year. For the six months ended June 30, 2011, Individual Life sales increased by $20 million to $189 million compared to the same period last year, primarily due to strong participating life and universal life sales. Sales of Living Benefits are flat at $21 million compared to the same period last year. Individual Life sales increased by $11 million to $100 million compared with the previous quarter, driven primarily by participating life sales. Living Benefits sales increased by $3 million to $12 million compared with the previous quarter. Net earnings Net earnings for the quarter decreased by $14 million compared with the second quarter of 2010. This decrease is primarily due to lower investment gains and policy behaviour losses, partially offset by favourable morbidity experience and favourable basis changes. For the six months ended June 30, 2011, net earnings decreased by $5 million compared to the same period last year, primarily due to lower investment gains, higher new business strain and higher surrender losses, offset by favourable basis changes. Net earnings decreased by $16 million compared with the previous quarter, primarily due to lower investment gains and basis changes partially offset by lower strain on new life insurance business. Net earnings attributable to the participating account were $6 million in 2011 compared to net earnings of $18 million in the second quarter of 2010, primarily due to lower investment gains. For the six months ended June 30, 2011, net earnings attributable to the participating account were $7 million compared with net earnings of $12 million for the same period in 2010, primarily due to lower investment gains. Net earnings attributable to the participating account increased $5 million from the first quarter of 2011.



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WEALTH MANAGEMENT 2011 DEVELOPMENTS Deposits to proprietary retail investment funds increased 17% compared to the same quarter last year and 23%

year-to-date. Fee and other income for the second quarter were $232 million and on a year-to-date basis were $462 million, up

10% compared to the second quarter and first six months of 2010. Net earnings for the second quarter were $91 million, up 17% compared to the second quarter of 2010. On a

year-to-date basis, net earnings were $173 million, up 10% from the same period last year. Real Estate Funds While the current suspension on transfers and withdrawals from the Real Estate Segregated Funds of Great-West Life and Canada Life remains in place, the companies processed a second payout on June 10, 2011 for unitholders who made eligible requests. There was enough cash in the Fund to pay 100 percent of all eligible requests and to pay remaining balances from the previous payout. As all eligible requests for transfers and withdrawals from the Real Estate Funds have been met, we expect to lift the current suspension in the fourth quarter of 2011. OPERATING RESULTS For the three months ended For the six months ended June 30

2011 March 31

2011 June 30 2010

June 30 2011

June 30 2010

Premiums and deposits $ 2,124 $ 2,425 $ 2,068 $ 4,549 $ 4,403 Sales 1,995 2,314 2,040 4,309 4,479 Fee and other income 232 230 211 462 420 Net earnings 91 82 78 173 157 Premiums and deposits Premiums and deposits to proprietary retail investment funds for the quarter increased by $130 million to $905 million compared with the same quarter last year, primarily due to continued momentum from the Company’s focus on attracting new investment to the funds. Premiums and deposits to retail guaranteed interest rate and payout annuity products decreased by $32 million to $136 million compared with the second quarter of 2010. This decrease is primarily due to a continued shift towards equity investments. Premiums and deposits to group retirement products decreased by $42 million to $1.1 billion compared to the same quarter last year as a result of the large decline in investment only deposits offsetting a $37 million increase in group payout annuity premiums. For the six months ended June 30, 2011, premiums and deposits to proprietary retail investment funds increased by $386 million to $2.1 billion compared to the same period last year. Premiums and deposits to retail guaranteed interest rate and payout annuity products decreased by $152 million to $257 million compared to the same period last year, primarily due to the continued shift towards equity investments. Premiums and deposits to group retirement products decreased by $88 million to $2.2 billion compared to the same period last year, primarily due to the significant decline in investment only deposits. Premiums to group payout annuity business increased significantly due to a large sale. Premiums and deposits to proprietary retail investment funds decreased by $277 million compared with the previous quarter, primarily due to the RRSP (Registered Retirement Savings Plan) season in the first quarter. Premiums and deposits to retail guaranteed interest rate and payout annuity products increased by $15 million compared with the previous quarter due to stronger payout annuity sales. Premiums and deposits to group retirement products decreased by $39 million compared with the previous quarter as a result of the RRSP season in the first quarter.



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Sales Sales of proprietary retail investment funds increased by $25 million to $1.1 billion compared to the same quarter last year. Sales of retail guaranteed interest rate and payout annuity products decreased by $8 million to $233 million compared to the same quarter last year. Sales of group retirement products decreased by $91 million to $428 million compared to the same quarter last year due to a large decline in investment only sales. For the six months ended June 30, 2011, sales of proprietary retail investment funds increased by $68 million to $2.6 billion compared to the same period last year. Sales of retail guaranteed interest rate and payout annuity products decreased by $85 million to $485 million compared to the same period last year. Sales of group retirement products decreased by $244 million to $772 million compared to the same period last year due to a large decline in investment only sales. Sales of proprietary retail investment funds decreased by $302 million and sales of retail guaranteed interest rate and payout annuity products decreased by $19 million compared to the previous quarter. Sales of group retirement products increased by $84 million from the previous quarter due to growth in payout annuity and investment only sales. Fee and other income Fee and other income for the quarter increased by $21 million compared with the same quarter last year, primarily driven by the increase in asset based fees from higher average proprietary investment fund assets. For the six months ended June 30, 2011, fee and other income increased $42 million compared to the same period last year, primarily due to the increase in average proprietary investment fund assets. Fee and other income increased by $2 million compared with the previous quarter. Net earnings Net earnings for the quarter increased by $13 million compared with the same quarter last year primarily due to the growth in fee income on proprietary investment fund assets. For the six months ended June 30, 2011, net earnings increased by $16 million compared to the same period last year for the same reasons as the in-quarter increase. Net earnings increased $9 million compared to the previous quarter due to lower operating expenses. GROUP INSURANCE 2011 DEVELOPMENTS Premiums and deposits of $3.6 billion grew by 4% for the six months ended June 30, 2011, compared with the

same period in 2010. Sales were $234 million for the six months ended June 30, 2011, a decrease of 17% compared to the same period

in 2010. Net earnings were $160 million for the six months ended June 30, 2011, a decrease of 12% compared with the

same period in 2010.



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OPERATING RESULTS For the three months ended For the six months ended June 30

2011 March 31

2011 June 30 2010

June 30 2011

June 30 2010

Premiums and deposits $ 1,786 $ 1,787 $ 1,732 $ 3,573 $ 3,450 Sales 97 137 77 234 281 Fee and other income 37 37 37 74 74 Net earnings 94 66 93 160 182 Premiums and deposits Premiums and deposits for the quarter increased by $54 million to $1.8 billion compared with the same period last year, primarily due to health and long-term disability premium growth. For the six months ended June 30, 2011, premiums and deposits increased by $123 million to $3.6 billion compared to the same period in 2010. Large case premiums and deposits increased by 5%. Premiums and deposits decreased by $1 million compared with the previous quarter. Large case premiums and deposits decreased by $4 million mainly due to a drop in ASO premium equivalent due to lower claims caused by the postal strike. This was offset by a $3 million increase in the small/mid-size case market. Sales For the quarter, sales increased by $20 million to $97 million compared with the same quarter last year. The increase was primarily due to increased sales in the large case market due to a higher average case size as well as a higher number of new sales. For the six months ended June 30, 2011, sales decreased by $47 million to $234 million compared to the same period last year. The decrease was primarily due to lower sales in the large case market from larger sales of $58 million compared with $114 million last year. The large case sales market exhibits significant volatility resulting in regular year-over-year variances. The decrease is also due to a lower number of new sales in the small/mid-size market due to a reduction in quotations. Sales decreased by $40 million to $97 million compared with the previous quarter, due to lower sales in the large case market from large sales of $7 million in the quarter compared to $51 million in the previous quarter as well as lower sales in the Creditor/Direct Marketing market. This was partially offset by higher sales in the small/mid-size market mainly due to a higher average case size and higher activity sales. Fee and other income Fee and other income is derived primarily from ASO contracts, whereby the Company provides group insurance benefit plan administration on a cost-plus basis. Fee and other income for the quarter were at the same level as last year as well as the previous quarter. For the six months ended June 30, 2011, fee and other income was at the same level compared to the same period last year. Net earnings Net earnings for the quarter of $94 million increased by $1 million compared with the same period last year. For the six months ended June 30, 2011, net earnings of $160 million decreased by $22 million compared to the same period last year. The decrease was primarily due to lower gains from non-credit related basis changes. The decrease was also due to lower morbidity gains and investment gains. These reductions were partially offset by



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higher mortality gains and higher expense gains. Net earnings increased by $28 million compared with the previous quarter, primarily due to higher investment gains from higher trading gains, higher expense gains as well as an increase in morbidity gains. CANADA CORPORATE Canada Corporate consists of items not associated directly with or allocated to the Canadian business units. Canada Corporate reported net earnings for the quarter of $11 million, compared with net earnings of $1 million in the second quarter of 2010. The net increase in net earnings is primarily due to mark-to-market gains on investment properties supporting corporate surplus. For the six months ended June 30, 2011, Canada Corporate reported net earnings of $26 million compared with a net loss of $3 million for the same period in 2010. The increase in net earnings is primarily due to higher mark-to-market gains on investment properties supporting corporate surplus. Compared to the previous quarter, net earnings decreased $4 million primarily due to lower mark-to-market gains on investment properties supporting corporate surplus. UNITED STATES The United States operating results for Lifeco include the results of GWL&A, Putnam, and the results of the insurance businesses in the United States branches of Great-West Life and Canada Life, together with an allocation of a portion of Lifeco's corporate results. Through its Financial Services business unit, the company provides an array of financial security products, including employer sponsored defined contribution retirement plans and defined benefit plans for certain market segments. Through its Asset Management business unit, the company provides investment management, certain administrative functions, distributions, and related services through a broad range of investment products. Selected consolidated financial information - United States For the three months ended For the six months ended June 30

2011 March 31

2011 June 30 2010

June 30 2011

June 30 2010

Premiums and deposits $ 9,281 $ 10,179 $ 7,303 $ 19,460 $ 15,059 Sales 9,526 11,032 6,826 20,558 18,446 Fee and other income 318 314 307 632 624 Net earnings - common shareholders $ 128 $ 88 $ 61 216 126 Net earnings - common shareholders

(US$) 132 89 59 221 122

Total assets $ 51,134 $ 50,785 $ 51,726 Proprietary mutual funds and institutional

net assets 126,672 126,031 118,318

Total assets under management 177,806 176,816 170,044 Other assets under administration 123,719 123,401 109,744 Total assets under administration $ 301,525 $ 300,217 $ 279,788 * During the period ended March 31, 2011, the Company reclassified its Maxim Series Funds from other assets under administration to assets

under management. The comparative figures reflect the presentation adopted in the current period.



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BUSINESS UNITS – UNITED STATES In the second quarter, comparing 2011 to 2010, the Canadian dollar strengthened against the U.S. dollar. As a result of currency movement, net earnings were negatively impacted by $8 million compared to the second quarter of 2010 and $12 million compared to the last six months of 2010. FINANCIAL SERVICES 2011 DEVELOPMENTS Net earnings increased by US$36 million to US$183 million through June 30, 2011 compared to US$147 million

for the first six months of 2010. The 24% increase was primarily due to improved investment income, higher fee income and improved mortality results.

Financial Services launched a new hybrid Business-Owned Life Insurance (BOLI) product in the first quarter. Sales were 39% of total community bank market sales in the second quarter.

Financial Services introduced a new collective trust investment product in the second quarter aimed at providing the large corporate and government plan markets with retirement target date asset allocation investment solutions. As of the end of the second quarter, Collective Trust assets under management totalled US$55 million.

Financial Services formally launched an Individual Retirement Account (IRA) rollover initiative in the second quarter. The initiative’s goal is to increase awareness of the IRA rollover product among terminated plan participants. It is expected to result in increased asset retention in the rollover IRA product. This initiative has resulted in year-to-date sales of US$104 million, an increase of 160% from the prior year.

Financial Services assets under management in its managed accounts now exceed US$5 billion. OPERATING RESULTS For the three months ended For the six months ended June 30

2011 March 31

2011 June 30 2010

June 30 2011

June 30 2010

Premiums and deposits $ 1,167 $ 1,327 $ 2,058 $ 2,494 $ 3,813 Sales 1,412 2,180 1,581 3,592 7,200 Fee and other income 115 116 112 231 223 Net earnings 81 98 74 179 152 Premiums and deposits (US$) $ 1,204 $ 1,340 $ 1,999 $ 2,544 $ 3,686 Sales (US$) 1,456 2,202 1,535 3,658 6,938 Fee and other income (US$) 119 117 108 236 215 Net earnings (US$) 84 99 72 183 147 Premiums and deposits Premiums and deposits for the quarter decreased by US$795 million compared to the second quarter of 2010 primarily due to an US$800 million transfer in 2010 from retail mutual funds assets under administration investment option to the Company’s segregated funds (AUM) investment option. For the six months ended June 30, 2011, premiums and deposits decreased by US$1.1 billion compared to the same period in 2010 primarily due to the above mentioned US$800 million transfer in the second quarter of 2010, and to a decrease of US$158 million from the BOLI market. BOLI experienced a large sale in the first quarter of 2010 that was not repeated in 2011.



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Premiums and deposits decreased by US$136 million compared with the previous quarter primarily due to lower 401(k) plan sales. Sales For the quarter, sales decreased by US$79 million compared to the second quarter of 2010 primarily due to lower sales on 401(k) and the retail bank insurance markets, offset by improved sales in the BOLI and IRA markets. For the six months ended June 30, 2011, sales decreased by US$3.3 billion compared to the same period last year primarily due to one large plan sale in the public non-profit market in the first quarter of 2010 of US$3 billion and a US$150 million sale in the BOLI market in the first quarter of 2010, neither of which were repeated in 2011. For the three months ended June 30, 2011, sales decreased by US$746 million compared with the previous quarter primarily due to lower sales in the 401(k) market of US$658 million. Fee and other income Fee and other income for the quarter increased by US$11 million compared to the second quarter of 2010 primarily due to increased average assets levels, driven by improved equity markets and sales. For the six months ended June 30, 2011, fee and other income increased by US$21 million compared to the same period last year, primarily due to increased average assets levels, driven by improved equity markets and sales. For the three months ended June 30, 2011, fee and other income increased by US$2 million compared with the previous quarter. Net earnings Net earnings for the quarter increased by US$12 million compared to the second quarter of 2010 primarily due to higher investment income on surplus assets of US$30 million, and improved mortality experience of US$10 million partially offset by a basis change reducing the mortality assumption on assumed reinsurance of US$17 million in the second quarter of 2010 which was not repeated in 2011. For the six months ended June 30, 2011, net earnings increased by US$36 million compared to the same period last year. The increase was primarily due to higher investment income on surplus assets of US$47 million and improved mortality experience of US$13 million, offset by a basis change reducing the mortality assumption on assumed reinsurance of US$17 million in the second quarter of 2010. Net earnings decreased by US$15 million compared with the previous quarter primarily due to the recognition of a US$9 million deferred tax asset in the first quarter and higher operating expenses in the second quarter.



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ASSET MANAGEMENT 2011 DEVELOPMENTS Premiums and deposits increased US$6.4 billion in the first six months of 2011 compared to the same period last

year. Putnam’s total net flows improved by US$4.7 billion in the first six months of 2011 compared to the same period

last year. For the six months ended June 30, 2011, the impact of improved equity markets on fee income positively impacted

earnings by US$8 million after-tax compared to the same period a year ago. Putnam was selected to subadvise two fixed income portfolios with AUM of $1.75 billion. Putnam launched the Putnam Retirement Income Fund Lifestyle suite of funds. The funds aim to help advisors

work with retirees in developing strategies for monthly income flows, at varying levels of risk tolerance, to flexibly address their changing lifestyle financial needs throughout retirement. The product suite is expected to have broad applicability for defined contribution, IRA, and other retirement assets.

Putnam launched the Putnam Institute, which will conduct rigorous research on investment theory and practice related to retirement and educational savings and the provision of lifelong income, to advance discussion and ultimately provide solutions in the retail, institutional and defined contribution markets.

Putnam launched FundVisualizerTM, an open-architecture analytical tool enabling in-depth evaluations of over 10,000 investment choices in real time, using more than 60 different selection criteria.

For the three months ended For the six months ended June 30

2011 March 31

2011 June 30 2010

June 30 2011

June 30 2010

Premiums and deposits $ 8,114 $ 8,852 $ 5,245 $ 16,966 $ 11,246 Fee and other income

Investment management fees 137 135 132 272 264 Performance fees 14 7 2 21 12 Service fees 37 38 42 75 86 Underwriting & distribution fees 15 16 18 31 37

Fee and other income 203 196 194 399 399 Net earnings (loss) 47 (13) (15) 34 (30) Premiums and deposits (US$) $ 8,365 $ 8,941 $ 5,092 $ 17,306 $ 10,862 Fee and other income (US$)

Investment management fees (US$) 141 136 128 277 256 Performance fees (US$) 14 7 2 21 11 Service fees (US$) 38 38 41 76 83 Underwriting & distribution fees (US$) 16 17 17 33 35

Fee and other income (US$) 209 198 188 407 385 Net earnings (loss) (US$) 48 (13) (15) 35 (29)



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Premiums and deposits For the three and six months ended June 30, 2011, total premiums and deposits increased by US$3.3 billion and US$6.4 billion respectively, compared to the same period in 2010. These improvements are primarily due to an increase in institutional sales as well as improved economic conditions and performance. Premiums and deposits decreased by US$576 million or 6%, compared with the previous quarter, partially due to seasonality of defined contribution plan fundings and an industry-wide reduction in new sales. Fee and other income Revenue is derived primarily from investment management fees, performance fees, transfer agency and other shareholder service fees and underwriting and distribution fees. Generally, fees are earned based on average AUM and may depend on financial markets, the relative performance of Putnam’s investment products, the number of retail shareholder accounts and sales. Fee and other income for the quarter increased by US$21 million compared to the same period in 2010 primarily due to an increase in asset-based fees from higher average AUM and an increase in performance fees, partially offset by lower service fee revenue due to a modest decline in fund shareholder accounts. For the six months ended June 30, 2011, fee and other income increased by US$22 million compared to the same period last year for the same reasons as the in-quarter period compared to 2010. Fee and other income increased by US$11 million compared with the previous quarter, primarily due to higher investment management fees as a result of a 3% increase in average AUM and higher performance fees. Net earnings Net earnings for the quarter increased by US$63 million compared with the same period last year due to higher fee revenue and the release of a legal provision resulting from a settlement of a lawsuit of US$57 million, partially offset by fair value adjustments related to share-based compensation. For the six months ended June 30, 2011, net earnings increased US$64 million compared to the same period last year for the same reasons as the in-quarter period compared to 2010. Net earnings increased US$61 million compared with the previous quarter primarily due to higher fee revenue and the release of a legal provision resulting from a settlement of a lawsuit of US$57 million. ASSETS UNDER MANAGEMENT Assets under management (US$ millions) For the three months ended For the six months ended June 30

2011 March 31

2011 June 30 2010

June 30 2011

June 30 2010

Beginning assets $ 127,211 $ 121,213 $ 118,355 $ 121,213 $ 114,946 Sales (includes dividends reinvested) 8,365 8,941 5,092 17,306 10,862 Redemptions (6,750) (7,102) (6,179) (13,852) (12,075)

Net asset flows 1,615 1,839 (1,087) 3,454 (1,213) Impact of market/performance 306 4,159 (7,607) 4,465 (4,072)

Ending assets $ 129,132 $ 127,211 $ 109,661 $ 129,132 $ 109,661

Average assets under management $ 127,951 $ 124,239 $ 114,971 $ 126,110 $ 115,207 Average AUM for the three months ended June 30, 2011, was US$128 billion comprising mutual funds US$69 billion and institutional accounts US$59 billion. Average AUM increased by US$13 billion compared to the three



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months ended June 30, 2010 primarily due to the positive impact of market performance and a significant improvement in net asset flows. Average AUM for the six months ended June 30, 2011 increased by US$11 billion compared to the six months ended June 30, 2010 due to the same reason as the in-quarter comparison. Compared to the first quarter, average AUM increased by US$4 billion for the same reasons as noted above. UNITED STATES CORPORATE United States Corporate reported earnings of less than $1 million for the quarter, compared with reported net earnings of US$2 million in the second quarter of 2010. For the six months ended June 30, 2011, United States Corporate reported net earnings of US$3 million compared with net earnings of US$4 million for the same period in 2010. Compared to the previous quarter, net earnings decreased US$3 million primarily due to lower income taxes. EUROPE The Europe segment comprises two distinct business units: Insurance & Annuities and Reinsurance. Insurance & Annuities consists of operations in the United Kingdom, Isle of Man, Ireland and Germany which offer protection and wealth management products including payout annuity products, conducted through Canada Life and its subsidiaries. Reinsurance operates primarily in the United States, Barbados and Ireland, and is conducted through Canada Life, London Life, and their subsidiaries. Selected consolidated financial information - Europe For the three months ended For the six months ended June 30

2011 March 31

2011 June 30 2010

June 30 2011

June 30 2010

Premiums and deposits $ 2,183 $ 2,180 $ 2,274 $ 4,363 $ 4,632 Sales 876 1,108 1,097 1,984 2,187 Fee and other income 144 130 141 274 292 Net earnings - common shareholders 147 86 145 233 275 Total assets 67,034 66,723 65,623 Other assets under administration 116 111 98 Total assets under administration $ 67,150 $ 66,834 $ 65,721 2011 DEVELOPMENTS Net earnings for the second quarter of 2011 were $147 million in line with the same period in 2010. Insurance and Annuities sales decreased by 20% in the quarter and by 9% for the six months year-to-date

compared to the same periods in 2010 when sales performance was particularly strong. The business environment, in most of Europe, remains challenging as consumer confidence is weak and credit

markets are unsettled. In the AssCompact survey of German independent brokers, Canada Life was named the best foreign insurer for

the second year, the best provider of individual disability products and the third best provider of single premium pensions products.



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BUSINESS UNITS – EUROPE Comparing 2011 to 2010, the British pound and the euro strengthened against the Canadian dollar. This was partially offset by the strengthening of the Canadian dollar against the U.S. dollar. As a result of currency movement, net earnings were positively impacted by $2 million compared to the second quarter of 2010 but had a negligible net earnings impact compared to the first six months of 2010. INSURANCE & ANNUITIES OPERATING RESULTS For the three months ended For the six months ended June 30

2011 March 31

2011 June 30 2010

June 30 2011

June 30 2010

Premiums and deposits $ 1,285 $ 1,376 $ 1,408 $ 2,661 $ 2,898 Sales 876 1,108 1,097 1,984 2,187 Fee and other income 134 120 132 254 273 Net earnings 97 125 130 222 226 Premiums and deposits Premiums and deposits for the quarter decreased by 9% compared with the same quarter last year, or 12% in constant currency. The decrease was primarily due to lower sales of savings products in the Isle of Man, payout annuities in the U.K. and pension products in Ireland. For the six months ended June 30, 2011, premiums and deposits decreased by 8% compared to the same period in 2010, primarily due to lower sales of payout annuities in the U.K. and savings products in the Isle of Man. These were partly offset by growth in sales of savings products in the U.K. Premiums and deposits decreased by 7% compared with the previous quarter mainly due to lower sales of payout annuities and savings products in the U.K. and pension products in Ireland. These decreases were partly offset by seasonal growth of group insurance products in the U.K. Sales Compared to the same quarter last year, sales decreased by 20%, or 23% in constant currency. The decrease was primarily due to a 33% decline of single premium savings products in the Isle of Man. This decrease was due to a slowdown compared to 2010 when sales performance was particularly strong as well as fluctuations in the number of large cases which vary from quarter-to-quarter. In addition, payout annuities sales declined by 15% in the U.K. due to increased competition while pension sales declined by 28% in Ireland. These results reflect weaker consumer confidence in most of Europe, due to economic uncertainty currently prevailing in 2011, opposite strong sales performance in 2010. For the six months ended June 30, 2011, sales decreased by $203 million compared to the same period last year, largely due to a 26% decline in payout annuities in the U.K., an 11% decrease in single premium savings products in the Isle of Man and currency movement. These decreases were partially offset by the 38% growth in single premium savings products in the U.K. Sales decreased by 21% from the previous quarter primarily due to lower sales of payout annuities and single premium savings products in the U.K. as well as pension products in Ireland.



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Fee and other income Fee and other income increased by $2 million compared to the same quarter last year. On a constant currency basis fees decreased by 3%. Higher fees in Germany were more than offset by a reduction in surrender charges in the U.K. The pattern of sales and surrenders on certain shorter term single premium investment products can cause the surrender charges to fluctuate from quarter to quarter. For the six months ended June 30, 2011, fee and other income decreased by $19 million compared to the same period last year. Higher fees in Ireland and Germany were more than offset by a reduction in surrender charges in the U.K. Fee and other income for the quarter increased by $14 million compared to the previous quarter. On a constant currency basis fees increased 9% due mainly to higher fee income in the U.K. resulting from a favourable sales mix and increased margins. Net earnings Net earnings for the second quarter of 2011 decreased by $33 million compared with the same quarter last year. The decline was due primarily to $18 million higher surrender gains earned in the U.K. wealth management business in 2010, a $27 million decrease of mortality gains and $28 million attributed to a higher effective tax rate. The effective tax rate in 2010 was favourably impacted by the positive resolution of prior years’ income tax issues. The decline in mortality gains was mainly in the U.K. payout annuity and group insurance businesses. Partly offsetting these decreases was the $8 million higher net impact of basis changes which reduced insurance contract liabilities and an increase in investment gains of $37 million. For the six months ended June 30, 2011, net earnings decreased by $4 million compared with the same period last year. The decline was mainly due to lower mortality and morbidity gains in U.K. group insurance of $26 million, lower surrender gains in wealth management of $18 million and a higher effective tax rate of $35 million. The effective tax rate in 2010 was favourably impacted by the positive resolution of prior years’ income tax issues. These were mostly offset by higher investment trading experience gains of $66 million and the net impact of basis changes on insurance contract liabilities of $19 million. Net earnings decreased by $28 million compared to the previous quarter. This decrease was primarily due to a $44 million impact in the first quarter from the implementation of a change of the valuation methodology of insurance contract liabilities, backed by investment properties. Also contributing to the decrease were lower mortality gains in U.K. payout annuities and Ireland of $20 million. These decreases were partly offset by $26 million higher net impact of other basis changes which reduced insurance contract liabilities and increased investment trading experience of $18 million.



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REINSURANCE OPERATING RESULTS For the three months ended For the six months ended June 30

2011 March 31

2011 June 30 2010

June 30 2011

June 30 2010

Premiums and deposits $ 898 $ 804 $ 866 $ 1,702 $ 1,734 Fee and other income 10 10 9 20 19 Net earnings (loss) 50 (38) 14 12 49 Premiums and deposits Premiums and deposits for the quarter increased by $32 million compared with last year as higher volumes were partially offset by currency movement. For the six months ended June 30, 2011, premiums and deposits decreased by $32 million compared to 2010 due to higher volumes which were more than offset by currency movement. Premiums and deposits increased by $94 million compared with the previous quarter due primarily to higher volumes partially offset by currency movement. Fee and other income Fee and other income increased by $1 million compared to the same quarter last year and for the six months ended in 2010. The reinsurance business earns fee income primarily in the life insurance business where the fees are driven largely by volume of coverage provided and which has not changed significantly this period. . Net earnings Net earnings for the second quarter of 2011 increased by $36 million compared to the same period last year. Included in net earnings for the second quarter of 2010 was the establishment of catastrophe provisions relating to the earthquake in Chile, which negatively impacted earnings by $16 million. Excluding these provisions, net earnings increased by $20 million due primarily to favourable investment gains in the annuities business of $15 million and experience in traditional life of $4 million accounting for the increase. For the six months ended June 30, 2011, net earnings decreased by $37 million compared to the same period last year. The decrease was primarily due to the catastrophe provisions of $75 million relating to earthquake events in Japan and New Zealand in the first quarter of 2011 partially offset by provisions of $18 million recorded in 2010 in relation to the earthquake in Chile. Excluding the impact of these items, net earnings increased by $20 million due to favourable mortality experience of $17 million partially offset by the impact of changes to insurance contract liabilities of $3 million. Second quarter net earnings increased by $88 million compared to the previous quarter. Included in net earnings for the first quarter was the establishment of catastrophe provisions relating to the earthquake events in Japan and New Zealand, which negatively impacted earnings by $75 million. Excluding these provisions, net earnings increased by $13 million resulting primarily from favourable experience in traditional life of $9 million and investment gains in the annuities business of $5 million. EUROPE CORPORATE The Europe Corporate account includes financing charges, the impact of certain non-continuing items as well as the results for the non-core international businesses. Europe Corporate net earnings for the quarter and for the six months ending June 30, 2011 were comparable to the same periods in 2010.



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LIFECO CORPORATE OPERATING RESULTS The Lifeco Corporate segment includes operating results for activities of Lifeco that are not associated with the major business units of the Company. For the six months ended June 30, 2011, Lifeco Corporate reported a net loss of $15 million compared to a net loss of $7 million for the same period in 2010. The increase in the net loss of $8 million is primarily due to an increase in operating and other expenses. For the three months ended June 30, 2011, Lifeco Corporate reported a net loss of $11 million compared to a net loss of $4 million in the first quarter of 2011, as well as a net loss of $3 million in the second quarter of 2010. The increase in the loss is due to the same reasons as the in-quarter period compared to 2010. OTHER INFORMATION QUARTERLY FINANCIAL INFORMATION Quarterly financial information(in $ millions, except per share amounts)

2011 2010 2009 - CGAAP Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Total revenue $ 7,134 $ 6,255 $ 5,247 $ 9,116 $ 7,413 $ 8,327 $ 6,001 $ 10,389 Common Shareholders Net earnings

Total 526 415 465 266 455 428 443 445 Basic - per share 0.553 0.438 0.491 0.281 0.480 0.452 0.468 0.471 Diluted - per share 0.550 0.436 0.488 0.281 0.477 0.449 0.467 0.470

Operating earnings(1)

Total 526 415 465 471 455 428 443 445 Basic - per share 0.553 0.438 0.491 0.497 0.480 0.452 0.468 0.471 Diluted - per share 0.550 0.436 0.488 0.494 0.477 0.449 0.467 0.470

(1) Operating earnings are presented as a non-IFRS financial measure of earnings performance before certain other items that management

considers to be of a non-recurring nature. Refer to "Non-IFRS Financial Measures" section of this report.

Per Share Total Basic Diluted Q3 2010 Operating earnings $ 471 $ 0.497 $ 0.494

Litigation provision (204) (0.216) (0.213) Net earnings $ 267 $ 0.281 $ 0.281

Lifeco's net earnings attributable to common shareholders were $526 million for the second quarter of 2011 compared to $455 million reported a year ago. On a per share basis, this represents $0.553 per common share ($0.550 diluted) for the second quarter of 2011 compared to $0.480 per common share ($0.477 diluted) a year ago. Total revenue for the second quarter of 2011 was $7,134 million and comprises premium income of $4,272 million, regular net investment income of $1,416 million, change in fair value through profit or loss assets of $707 million, and fee and other income of $739 million. Total revenue for the second quarter of 2010 was $7,413 million, comprising premium income of $4,215 million, regular net investment income of $1,335 million, change in fair value through profit or loss assets of $1,160 million and fee and other income of $703 million.



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DISCLOSURE CONTROLS AND PROCEDURES Based on their evaluations as of June 30, 2011, the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective at the reasonable assurance level in ensuring that information relating to the Company which is required to be disclosed in reports filed under provincial and territorial securities legislation is: (a) recorded, processed, summarized and reported within the time periods specified in the provincial and territorial securities legislation, and (b) accumulated and communicated to the Company's senior management, including the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. INTERNAL CONTROL OVER FINANCIAL REPORTING The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for Lifeco. All internal control systems have inherent limitations and may become inadequate because of changes in conditions. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. There have been no changes in the Company’s internal control over financial reporting during the period ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. TRANSLATION OF FOREIGN CURRENCY Through its operating subsidiaries, Lifeco conducts business in multiple currencies. The four primary currencies are the Canadian dollar, the United States dollar, the British pound and the euro. Throughout this document, foreign currency assets and liabilities are translated into Canadian dollars at the market rate at the end of the financial period. All income and expense items are translated at an average rate for the period. The rates employed are: Translation of foreign currency Period ended June 30

2011Mar. 31

2011Dec. 31

2010Sept. 30

2010 June 30

2010Mar. 31

2010United States dollar Balance sheet $0.96 $0.97 $0.99 $1.03 $1.06 $1.02Income and expenses $0.97 $0.99 $1.01 $1.04 $1.03 $1.04 British pound Balance sheet $1.55 $1.56 $1.55 $1.62 $1.59 $1.54Income and expenses $1.58 $1.58 $1.60 $1.61 $1.53 $1.62 Euro Balance sheet $1.40 $1.38 $1.33 $1.40 $1.30 $1.37Income and expenses $1.39 $1.35 $1.38 $1.34 $1.31 $1.44



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MUTUAL FUNDS DEPOSITS AND ASO PREMIUM EQUIVALENTS (ASO CONTRACTS) The financial statements of a life insurance company do not include the assets, liabilities, deposits and withdrawals of mutual funds or the claims payments related to ASO group health contracts. However, the Company does earn fee and other income related to these contracts. Mutual funds and ASO contracts are an important aspect of the overall business of the Company and should be considered when comparing volumes, size and trends. Segregated funds were not included in the financial statements under former CGAAP. As a result of the adoption of IFRS, segregated funds are now included at fair value on the consolidated balance sheet as a single line item within assets and liabilities. Additional information relating to Lifeco, including Lifeco's most recent consolidated financial statements, CEO/CFO certification and Annual Information Form are available at www.sedar.com.



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CONSOLIDATED STATEMENTS OF EARNINGS (unaudited) (in Canadian $ millions except per share amounts)

For the three months ended For the six months ended June 30 March 31 June 30 June 30 June 30 2011 2011 2010 2011 2010 Income Premium income Gross premiums written $ 4,980 $ 4,941 $ 4,887 $ 9,921 $ 10,135 Ceded premiums (708) (646) (672) (1,354) (1,310) Total net premiums 4,272 4,295 4,215 8,567 8,825 Net investment income (note 4) Regular net investment income 1,416 1,427 1,335 2,843 2,752

Changes in fair value through profit or loss

707

(187)

1,160

520

2,736

Total net investment income 2,123 1,240 2,495 3,363 5,488 Fee and other income 739 720 703 1,459 1,427 7,134 6,255 7,413 13,389 15,740 Benefits and expenses Policyholder benefits 3,690 4,090 3,860 7,780 7,748

Policyholder dividends and experience refunds

377

353

351

730

734

Change in insurance and investment contract liabilities

1,231

136

1,447

1,367

3,808

Total paid or credited to policyholders

5,298

4,579

5,658

9,877

12,290

Commissions 390 377 355 767 718 Operating expenses 558 645 619 1,203 1,249 Premium taxes 68 56 62 124 127 Financing charges (note 7) 72 72 70 144 144

Amortization of finite life intangible assets

25

23

24

48

47

Earnings before income taxes 723 503 625 1,226 1,165 Income taxes (note 14) 161 69 126 230 215 Net earnings before

non-controlling interests

562

434

499

996

950 Attributable to non-controlling

interests

12

(5)

22

7

25 Net earnings 550 439 477 989 925 Perpetual preferred share dividends 24 24 22 48 42 Net earnings - common

shareholders

$ 526

$ 415

$ 455

$ 941

$ 883 Earnings per common share (note 12)

Basic $ 0.553 $ 0.438 $ 0.480 $ 0.991 $ 0.932 Diluted $ 0.550 $ 0.436 $ 0.477 $ 0.986 $ 0.927



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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) (in Canadian $ millions)

For the three months ended For the six months ended June 30

2011 March 31

2011 June 30

2010 June 30

2011 June 30

2010 Net earnings $ 550 $ 439 $ 477 $ 989 $ 925 Other comprehensive income (loss)

Unrealized foreign exchange gains (losses) on translation of foreign operations

(66)

(64)

237

(130)

(196) Income tax (expense) benefit (2) 2 - - -

Unrealized gains (losses) on available for sale assets

71

(32)

108

39

150

Income tax (expense) benefit (16) 1 (26) (15) (37)

Realized (gains) losses on available for sale assets

(26)

(42)

4

(68)

(9)

Income tax expense (benefit) 6 13 1 19 4

Unrealized gains (losses) on cash flow hedges

25

23

(100)

48

(66)

Income tax (expense) benefit (9) (9) 35 (18) 23

Realized (gains) losses on cash flow hedges

1

-

-

1

-

Non-controlling interests (16) 13 (18) (3) (15) Income tax (expense) benefit - - - - -

(32) (95) 241 (127) (146) Comprehensive income $ 518 $ 344 $ 718 $ 862 $ 779



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CONSOLIDATED BALANCE SHEETS (unaudited) (in Canadian $ millions)

June 30 December 31 January 1 2011 2010 2010 Assets Cash and cash equivalents $ 1,730 $ 1,840 $ 3,427 Bonds (note 4) 72,376 72,203 66,147 Mortgage loans (note 4) 16,658 16,115 16,684 Stocks (note 4) 6,951 6,700 6,442 Investment properties (note 4) 3,204 2,957 2,613 Loans to policyholders 6,765 6,827 6,957

107,684 106,642 102,270 Funds held by ceding insurers 9,659 9,856 10,984 Reinsurance assets (note 13) 2,642 2,533 2,800 Goodwill 5,394 5,397 5,406 Intangible assets 3,064 3,108 3,238 Derivative financial instruments 1,055 984 717 Owner occupied properties 452 439 429 Other assets 4,368 4,482 4,599 Deferred tax assets 1,065 1,141 1,193 Segregated funds for the risk of unit holders (note 6) 96,776 94,827 87,495 Total assets

$ 232,159

$ 229,409

$ 219,131

Liabilities Insurance contract liabilities (note 13) $ 108,225 $ 107,367 $ 104,988 Investment contract liabilities (note 13) 775 791 841 Debentures and other debt instruments 4,328 4,288 4,106 Funds held under reinsurance contracts 160 149 331 Derivative financial instruments 176 165 251 Other liabilities 4,452 4,637 4,479 Deferred tax liabilities 747 755 623 Repurchase agreements 871 1,042 532 Capital trust securities 534 535 540 Preferred shares - - 199 Investment and insurance contracts on account of unit holders (note 6)

96,776

94,827

87,495

Total liabilities

217,044

214,556

204,385

Equity Non-controlling interests Participating account surplus in subsidiaries 2,060 2,050 2,050 Preferred shares issued by subsidiaries - - 157 Perpetual preferred shares issued by subsidiaries - - 147 Non-controlling interests in capital stock 2 2 2 Shareholders' equity Share capital (note 8) Perpetual preferred shares 1,897 1,897 1,497 Common shares 5,822 5,802 5,751 Accumulated surplus 5,865 5,507 5,071 Accumulated other comprehensive income (loss) (587) (460) 19 Contributed surplus 56 55 52 Total equity 15,115 14,853 14,746 Total liabilities and equity

$ 232,159

$ 229,409

$ 219,131



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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited) (in Canadian $ millions)

June 30, 2011

Share capital

Contributed surplus

Accumulated surplus

Accumulated other

comprehensive income (loss)

Non-

controlling interests

Total equity

Balance, beginning of year $ 7,699 $ 55 $ 5,507 $ (460) $ 2,052 $ 14,853 Net earnings - - 989 - 7 996 Other comprehensive income (loss) - - - (127) 3 (124) Total comprehensive income 7,699 55 6,496 (587) 2,062 15,725 Dividends to shareholders Perpetual preferred - - (48) - - (48) Common shareholders - - (583) - - (583) Shares issued under stock option

plan (note 8)

20

-

-

-

-

20 Share based payments - 1 - - - 1 Balance, end of period $ 7,719 $ 56 $ 5,865 $ (587) $ 2,062 $ 15,115 December 31, 2010

Share capital

Contributed surplus

Accumulated surplus

Accumulated other


Non-


Total equity

Balance, beginning of year $ 7,248 $ 52 $ 5,071 $ 19 $ 2,356 $ 14,746 Net earnings - - 1,702 - 7 1,709 Other comprehensive income (loss) - - - (479) 8 (471) Total comprehensive income 7,248 52 6,773 (460) 2,371 15,984 Share issue costs - - (9) - - (9) Dividends to shareholders Perpetual preferred - - (86) - - (86) Common shareholders - - (1,166) - - (1,166) Dividends to non-controlling

interests

-

-

-

-

(15)

(15) Redemption of preferred shares in

subsidiaries

-

-

(5)

-

(304)

(309) Shares issued under stock option

plan

51

-

-

-

-

51 Issuance of new preferred shares 400 - - - - 400 Share based payments - 3 - - - 3 Balance, end of period $ 7,699 $ 55 $ 5,507 $ (460) $ 2,052 $ 14,853 June 30, 2010

Share capital

Contributed surplus

Accumulated surplus

Accumulated other


Non-


Total equity

Balance, beginning of year $ 7,248 $ 52 $ 5,071 $ 19 $ 2,356 $ 14,746 Net earnings - - 925 - 25 950 Other comprehensive income (loss) - - - (146) 15 (131) Total comprehensive income 7,248 52 5,996 (127) 2,396 15,565 Share issue costs - - (3) - - (3) Dividends to shareholders Perpetual preferred - - (42) - - (42) Common shareholders - - (583) - - (583) Dividends to non-controlling

interests

-

-

-

-

(9)

(9) Shares issued under stock option

plan

39

-

-

-

-

39 Issuance of new preferred shares 150 - - - - 150 Share based payments - 3 - - - 3 Balance, end of period $ 7,437 $ 55 $ 5,368 $ (127) $ 2,387 $ 15,120



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CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in Canadian $ millions)

For the six months ended June 30 2011 2010 Operations Earnings before income taxes $ 1,226 $ 1,165 Income taxes paid, net of refunds received (72) (68) Adjustments: Change in insurance and investment contract liabilities 1,533 4,085 Change in funds held by ceding insurers 257 405 Change in funds held under reinsurance contracts 28 42 Change in deferred acquisition costs (8) (11) Change in reinsurance assets (99) (231) Changes in fair value through profit or loss (520) (2,736) Other (211) (137) Cash flows from operations 2,134 2,514 Financing Activities Issue of common shares 20 39 Issue of preferred shares - 150 Redemption of preferred shares - (200) Increase in line of credit of subsidiary 70 125 Increase in (repayment of) debentures and other debt instruments 4 1 Share issue costs - (3) Dividends paid on common shares (583) (583) Dividends paid on preferred shares (48) (42) (537) (513) Investment Activities Bond sales and maturities 10,732 9,140 Mortgage loan repayments 841 966 Stock sales 976 805 Investment property sales 1 9 Change in loans to policyholders (70) (54) Change in repurchase agreements (145) 325 Investment in bonds (11,236) (11,250) Investment in mortgage loans (1,491) (974) Investment in stocks (1,152) (1,148) Investment in investment properties (165) (143) (1,709) (2,324) Effect of changes in exchange rates on cash and cash equivalents 2 (186) Decrease in cash and cash equivalents (110) (509) Cash and cash equivalents, beginning of period 1,840 3,427 Cash and cash equivalents, end of period $ 1,730 $ 2,918

Supplementary cash flow information

Interest income received $ 2,348 $ 2,309 Interest paid $ 144 $ 143 Dividend income received $ 94 $ 91



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Notes to the Condensed Consolidated Financial Statements (unaudited)

(in Canadian $ millions except per share amounts)

1. Corporate Information

Great-West Lifeco Inc. (Lifeco or the Company) is a publicly listed company (TSX: GWO), incorporated and domiciled in Canada. The registered address of the Company is 100 Osborne Street North, Winnipeg, Manitoba, Canada, R3C 1V3. Lifeco is a member of the Power Financial Corporation group of companies and its direct parent is Power Financial Corporation. Lifeco is a financial services holding company with interests in the life insurance, health insurance, retirement savings, investment management and reinsurance businesses, primarily in Canada, the United States, Europe and Asia through its major operating subsidiaries The Great-West Life Assurance Company (Great-West Life), London Life Insurance Company (London Life), The Canada Life Assurance Company (Canada Life), Great-West Life & Annuity Insurance Company (GWL&A) and Putnam Investments, LLC (Putnam LLC). The condensed consolidated interim unaudited financial statements (financial statements) of the Company for the quarter ended June 30, 2011 were authorized for issue by the Board of Directors on August 3, 2011.

2. Basis of Presentation and Summary of Accounting Policies

The financial statements of Lifeco at June 30, 2011 have been prepared in accordance with the requirements of International Accounting Standard (IAS) 34, Interim Financial Reporting (IAS 34) as issued by the International Accounting Standards Board (IASB). These financial statements do not include all of the information required for consolidated financial statements. The Company issued its first International Financial Reporting Standards (IFRS) financial statements for the period ended March 31, 2011 in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards (IFRS 1). The financial statements are prepared using IFRS accounting policies which became Canadian generally accepted accounting principles for publicly accountable enterprises and were adopted by the Company for fiscal years beginning on January 1, 2011. These financial statements are prepared in accordance with the same accounting policies and methods of computation followed in the interim unaudited consolidated financial statements at March 31, 2011 also being the policies that the Company expects to adopt in its December 31, 2011 annual consolidated financial statements. These accounting policies are based on the IFRS standards and IFRS Interpretations Committee (IFRIC) interpretations that the Company expects to be applicable at December 31, 2011. The Company’s financial statements were previously prepared in accordance with Canadian generally accepted accounting principles (CGAAP), which differs in some areas from IFRS. See note 3 for an explanation of how the adoption of IFRS has affected the reported financial position, financial performance and accounting policies of the Company. This note includes reconciliations of equity and comprehensive income under IFRS for the comparative periods and of equity at the date of transition reported under previous CGAAP for those periods and at the date of transition to IFRS. The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. The valuation of insurance and investment contract liabilities, certain financial assets and liabilities, goodwill and indefinite life intangible assets, income taxes, contingencies and pension plans and other post-employment benefits are the most significant components of the Company’s financial statements subject to management estimates. The financial statements of the Company are measured using the functional currency which is in the primary economic environment in which the Company operates within.



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Management has applied judgments in the classification of insurance and investment contracts, and financial instruments within the financial statements. In addition, the financial statements required management's judgments in accounting for Deferred Income Reserves (DIR) and Deferred Acquisition Costs (DAC), the valuation of deferred income tax assets, the level of componentization of Property, Plant and Equipment, determination of relationships with subsidiaries and special purpose entities and the identification of cash generating units and operating segments. The year to date results of the Company reflect management's judgments regarding the impact of prevailing global credit, equity and foreign exchange market conditions. The estimation of insurance and investment contract liabilities relies upon investment credit ratings. The Company's practice is to use third party independent credit ratings where available. Credit rating changes may lag developments in the current environment. Subsequent credit rating adjustments will impact insurance contract and investment liabilities. The significant accounting policies are as follows: (a) Portfolio Investments

Portfolio investments are classified as fair value through profit or loss, available for sale, held to maturity, loans and receivables or as non-financial instruments based on management’s intention or characteristics of the investment. The Company currently has not classified any investments as held to maturity. Investments in bonds and stocks normally actively traded on a public market are either designated or classified as fair value through profit or loss or classified as available for sale on a trade date basis, based on management’s intention. Fair value through profit or loss investments are recognized at fair value on the Consolidated Balance Sheets with realized and unrealized gains and losses reported in the Consolidated Statements of Earnings. Available for sale investments are recognized at fair value on the Consolidated Balance Sheets with unrealized gains and losses recorded in other comprehensive income (OCI). Realized gains and losses are reclassified from OCI and recorded in the Consolidated Statements of Earnings when the available for sale investment is sold. Interest income earned on both fair value through profit or loss and available for sale bonds is recorded as investment income earned in the Consolidated Statements of Earnings. Investments in equity instruments where a market value cannot be measured reliably are classified as available for sale and carried at cost. Investments in stocks for which the Company exerts significant influence over but does not control are accounted for using the equity method of accounting. Investments in stocks include the Company’s investment in an affiliated company, IGM Financial Inc. (IGM), a member of the Power Financial Corporation group of companies, over which it exerts significant influence but does not control. The investment is accounted for using the equity method of accounting. Investments in mortgages and bonds not normally actively traded on a public market are classified as loans and receivables and are carried at amortized cost net of any allowance for credit losses. Interest income earned and realized gains and losses on the sale of investments classified as loans and receivables are recorded in the Consolidated Statements of Earnings and included in investment income earned. Investment properties are initially measured at cost and subsequently carried at fair value on the Consolidated Balance Sheets. All changes in fair value are recorded as investment income earned in the Consolidated Statements of Earnings. Fair values for investment properties are determined using independent qualified appraisal services. Properties that are leased that would otherwise be classified as investment property if owned by the Company are also included with investment properties. Fair Value Measurement Financial instrument carrying values necessarily reflect the prevailing market liquidity and the liquidity premiums embedded within the market pricing methods the Company relies upon.



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The following is a description of the methodologies used to value instruments carried at fair value: Bonds — Fair Value Through Profit or Loss and Available for Sale Fair values for bonds classified as fair value through profit or loss or available for sale are determined with reference to quoted market bid prices primarily provided by third party independent pricing sources. Where prices are not quoted in a normally active market, fair values are determined by valuation models. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company obtains quoted prices in active markets, when available, for identical assets at the balance sheet date to measure bonds at fair value in its fair value through profit or loss and available for sale portfolios. The Company estimates the fair value of bonds not traded in active markets by referring to actively traded securities with similar attributes, dealer quotations, matrix pricing methodology, discounted cash flow analyses and/or internal valuation models. This methodology considers such factors as the issuer's industry, the security's rating, term, coupon rate and position in the capital structure of the issuer, as well as, yield curves, credit curves, prepayment rates and other relevant factors. For bonds that are not traded in active markets, valuations are adjusted to reflect illiquidity, and such adjustments generally are based on available market evidence. In the absence of such evidence, management's best estimate is used. Stocks — Fair Value Through Profit or Loss and Available for Sale Fair values for public stocks are generally determined by the last bid price for the security from the exchange where it is principally traded. Fair values for stocks for which there is no active market are determined by discounting expected future cash flows. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company obtains quoted prices in active markets, when available, for identical assets at the balance sheet date to measure stocks at fair value in its fair value through profit or loss and available for sale portfolios. Mortgages and Bonds – Loans and Receivables Market values for bonds and mortgages classified as loans and receivables are determined by discounting expected future cash flows using current market rates. Investment Properties Market values for investment properties are determined using independent qualified appraisal services and include management adjustments for material changes in property cash flows, capital expenditures or general market conditions in the interim period between appraisals. Impairment Investments are reviewed regularly on an individual basis to determine impairment status. The Company considers various factors in the impairment evaluation process, including, but not limited to, the financial condition of the issuer, specific adverse conditions affecting an industry or region, decline in fair value not related to interest rates, bankruptcy or defaults and delinquency in payments of interest or principal. Investments are deemed to be impaired when there is no longer reasonable assurance of timely collection of the full amount of the principal and interest due. The market value of an investment is not a definitive indicator of impairment, as it may be significantly influenced by other factors including the remaining term to maturity and liquidity of the asset. However market price must be taken into consideration when evaluating impairment.



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For impaired mortgages and bonds classified as loans and receivables, provisions are established or write-offs made to adjust the carrying value to the net realizable amount. Wherever possible the fair value of collateral underlying the loans or observable market price is used to establish net realizable value. For impaired available for sale bonds, recorded at fair value, the accumulated loss recorded in accumulated other comprehensive income (AOCI) is reclassified to net investment income. Impairments on available for sale bonds are reversed if there is objective evidence that a permanent recovery has occurred. All gains and losses on bonds classified or designated as fair value through profit or loss are already recorded in income. As well, when determined to be impaired, interest is no longer accrued and previous interest accruals are reversed.

(b) Transaction Costs

Transaction costs are expensed as incurred for financial instruments classified as fair value through profit or loss. Transaction costs for financial assets classified as available for sale or loans and receivables are added to the value of the instrument at acquisition and taken into net earnings using the effective interest rate method. Transaction costs for financial liabilities classified as other than fair value through profit or loss are added to the value of the instrument issued and taken into net earnings using the effective interest rate method.

(c) Cash and Cash Equivalents

Cash and cash equivalents comprises cash, current operating accounts, overnight bank and term deposits with original maturities of three months or less, and fixed income securities with an original term to maturity of three months or less. Net payments in transit and overdraft bank balances are included in other liabilities. The carrying value of cash and cash equivalents approximates their fair value.

(d) Trading Account Assets

Trading account assets consist of investments in Putnam sponsored funds, which are carried at fair value based on the net asset value of these funds. Investments in these assets are included in other assets on the Consolidated Balance Sheets with realized and unrealized gains and losses reported in the Consolidated Statements of Earnings.

(e) Financial Liabilities

Financial liabilities, other than insurance and investment contract liabilities and certain preferred shares, are classified as either capital trust securities or other liabilities. Capital trust securities and other liabilities are initially recorded on the Consolidated Balance Sheets at fair value and subsequently carried at amortized cost using the effective interest rate method with amortization expense recorded in the Consolidated Statements of Earnings.

(f) Derivative Financial Instruments

The Company uses derivative products as risk management instruments to hedge or manage asset, liability and capital positions, including revenues. The Company’s policy guidelines prohibit the use of derivative instruments for speculative trading purposes.

The Company includes disclosure of the maximum credit risk, future credit exposure, credit risk equivalent and risk weighted equivalent as prescribed by The Office of the Superintendent of Financial Institutions of Canada (OSFI).



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All derivatives including those that are embedded in financial and non-financial contracts that are not closely related to the host contracts are recorded at fair value on the Consolidated Balance Sheets in other assets and other liabilities. The method of recognizing unrealized and realized fair value gains and losses depends on whether the derivatives are designated as hedging instruments. For derivatives that are not designated as hedging instruments, unrealized and realized gains and losses are recorded in net investment income on the Consolidated Statements of Earnings. For derivatives designated as hedging instruments, unrealized and realized gains and losses are recognized according to the nature of the hedged item. Derivatives are valued using market transactions and other market evidence whenever possible, including market based inputs to models, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value a derivative depends on the contractual terms of, and specific risks inherent in the instrument, as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. To qualify for hedge accounting, the relationship between the hedged item and the hedging instrument must meet several strict conditions on documentation, probability of occurrence, hedge effectiveness and reliability of measurement. If these conditions are not met, then the relationship does not qualify for hedge accounting treatment and both the hedged item and the hedging instrument are reported independently as if there was no hedging relationship. Where a hedging relationship exists, the Company documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. This process includes linking derivatives that are used in hedging transactions to specific assets and liabilities on the Consolidated Balance Sheets or to specific firm commitments or forecasted transactions. The Company also assesses, both at the hedge’s inception and on an ongoing basis, whether derivatives that are used in hedging transactions are effective in offsetting changes in fair values or cash flows of hedged items. Hedge effectiveness is reviewed quarterly through correlation testing. Derivatives not designated as hedges for accounting purposes For derivative investments not designated as accounting hedges, changes in fair value are recorded in net investment income. Fair value hedges For fair value hedges, changes in fair value of both the hedging instrument and the hedged item are recorded in net investment income and consequently any ineffective portion of the hedge is recorded immediately in net investment income. The Company currently has interest rate futures designated as fair value hedges. Cash flow hedges Certain interest rate swaps and cross currency swaps are used to hedge cash flows. For cash flow hedges, the effective portion of the changes in fair value of the hedging instrument is recorded in the same manner as the hedged item in either net investment income or OCI while the ineffective portion is recognized immediately in net investment income. Gains and losses that accumulate in OCI are recorded in net investment income in the same period the hedged item affects net earnings. Gains and losses on cash flow hedges are immediately reclassified from OCI to net investment income if and when it is probable that a forecasted transaction is no longer expected to occur.



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Net investment hedges Foreign exchange forward contracts are used to hedge the net investment in the Company's foreign operations. Changes in the fair value of these hedges are recorded in OCI. Hedge accounting is discontinued when the hedging no longer qualifies for hedge accounting. The Company currently has no derivatives designated as net investment hedges.

(g) Embedded Derivatives

Embedded derivatives are treated as separate contracts and are recorded at fair value if their economic characteristics and risks are not closely related to those of the host contract and the host contract is not itself recorded at fair value through the Consolidated Statements of Earnings. Embedded derivatives that meet the definition of an insurance contract are accounted for and measured as an insurance contract.

(h) Foreign Currency Translation

The Company’s consolidated financial statements are prepared in Canadian dollars, which is the functional and presentation currency of the Company. For those subsidiaries with different functional currencies, exchange rate differences arising from the translation of monetary items that form part of the net investment in the foreign operation are taken to unrealized foreign exchange gains (losses) on translation of foreign operations in AOCI. For the purpose of presenting consolidated financial statements, assets and liabilities are translated into Canadian dollars at the rate of exchange prevailing at the balance sheet dates and all income and expense items are translated at an average of daily rates. Unrealized foreign currency translation gains and losses on the Company’s net investment in its foreign operations are presented separately as a component of OCI. Unrealized gains and losses will be recognized proportionately in net investment income on the Consolidated Statements of Earnings when there has been a disposal of the investment in the foreign operations. Foreign currency translation gains and losses on foreign currency transactions of the Company are included in net investment income and are not material to the financial statements of the Company.

(i) Loans to Policyholders

Loans to policyholders are shown at their unpaid principal balance and are fully secured by the cash surrender values of the policies. Carrying value of loans to policyholders approximates their fair value.

(j) Funds Held by Ceding Insurers/Funds Held Under Reinsurance Contracts

Under certain forms of reinsurance contracts, it is customary for the ceding insurer to retain possession of the assets supporting the liabilities ceded. The Company records an amount receivable from the ceding insurer or payable to the reinsurer representing the premium due. Investment revenue on these funds withheld is credited by the ceding insurer.

(k) Reinsurance Contracts

The Company, in the normal course of business, is both a user and provider of reinsurance in order to limit the potential for losses arising from certain exposures. Assumed reinsurance refers to the acceptance of certain insurance risks by the Company underwritten by another company. Ceded reinsurance refers to the transfer of insurance risk, along with the respective premiums, to one or more reinsurers who will share the risks. To the extent that assuming reinsurers are unable to meet their obligations, the Company remains liable to its policyholders for the portion reinsured. Consequently, allowances are made for reinsurance contracts which are deemed uncollectible.



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Assumed reinsurance premiums, commissions and claim settlements, as well as the reinsurance assets associated with insurance and investment contracts, are accounted for in accordance with the terms and conditions of the underlying reinsurance contract. Reinsurance assets are reviewed for impairment on a regular basis for any events that may trigger impairment. Impairment occurs when there is objective evidence that the Company will not be able to collect amounts due under the terms of the contract. The carrying amount of a reinsurance asset is adjusted through an allowance account with any impairment loss being recorded in the Consolidated Statements of Earnings.

Any gains or losses on buying reinsurance are recognized in the Consolidated Statements of Earnings immediately at the date of purchase and are not amortized.

Premiums and claims ceded for reinsurance are deducted from premiums earned and insurance and investment contract benefits. Assets and liabilities related to reinsurance are reported on a gross basis in the Consolidated Balance Sheets. The amount of reserves ceded to reinsurers is estimated in a manner consistent with the claim liability associated with reinsured risks.

(l) Goodwill and Intangible Assets

Goodwill represents the excess of purchase consideration over the fair value of net assets of acquired subsidiaries of the Company. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Intangible assets represent finite life and indefinite life intangible assets of acquired subsidiaries of the Company and software acquired or internally developed by the Company. Finite life intangible assets include the value of software, customer contracts, distribution channels, and technology. These finite life intangible assets are amortized over their estimated useful lives, generally not exceeding 10 years, 20 years and 30 years respectively.

Indefinite life intangible assets include brands and trademarks, customer contracts and the shareholder’s portion of acquired future participating account profits. Amounts are classified as indefinite life intangible assets when based on an analysis of all the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Company. The identification of indefinite life intangible assets is made by reference to relevant factors such as product life cycles, potential obsolescence, industry stability and competitive position. Impairment Testing Goodwill and intangible assets are tested for impairment annually or more frequently if events indicate that impairment may have occurred. Intangible assets that were previously impaired are reviewed at each reporting date for evidence of reversal. In the event that certain conditions have been met, the Company would be required to reverse the impairment charge or a portion thereof (see note 3 (n)). Goodwill has been allocated to cash generating units (CGU), representing the lowest level in which goodwill is monitored for internal reporting purposes. Goodwill is tested for impairment by comparing carrying value of the CGU groups to the recoverable amount to which the goodwill has been allocated. Intangible assets are tested for impairment by comparing the asset’s carrying amount to its recoverable amount. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use, which is calculated using the present value of estimated future cash flows expected to be generated.



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(m) Revenue Recognition

Premiums for all types of insurance contracts, and contracts with limited mortality or morbidity risk, are generally recognized as revenue when due and collection is reasonably assured. When premiums are recognized, policy liabilities are computed, with the result that benefits and expenses are matched with such revenue. Fee and other income is recognized when earned, collectible and the amount can be reasonably estimated. Fee and other income primarily includes fees earned from the management of segregated fund assets, proprietary mutual funds assets, fees earned on administrative services only (ASO) Group health contracts and fees earned from management services.

(n) Other Assets

Included in other assets are fixed assets and property held for own use carried at cost less accumulated depreciation and impairments. Depreciation is charged so as to write off the cost of assets, over their estimated useful lives, using the straight-line method, on the following bases: Owner occupied properties 15 - 20 years Furniture and fixtures 5 - 10 years Other assets 3 - 10 years Also included in other assets are DAC relating to investment contracts. DAC is recognized if the costs are incremental and incurred due to the contract being issued.

(o) Segregated Funds for the Risk of Unit Holders

Segregated funds assets and liabilities arise from contracts where the financial risk is borne by unit holders and are presented separately in the Consolidated Balance Sheets at fair value. Investment income and changes in market value of the segregated fund assets are offset by a corresponding change in the segregated fund liabilities.

(p) Insurance and Investment Contract Liabilities

Contract Classification The Company’s products are classified at contract inception, for accounting purposes, as insurance, service or investment contracts depending on the existence of significant insurance risk. Significant insurance risk exists when the Company agrees to compensate policyholders or beneficiaries of the contract for specified uncertain future events that adversely affect the policyholder and whose amount and timing is unknown. When significant insurance risk exists, the contract is accounted for as an insurance contract in accordance with IFRS 4, Insurance Contracts (IFRS 4). In the absence of significant insurance risk, the contract is classified as an investment or service contract. Investment contracts with discretionary participating features (DPF) are accounted for in accordance with IFRS 4 and investment contracts without DPF are accounted for in accordance with IAS 39, Financial Instruments: Recognition & Measurement. The Company has not classified any contracts as investment contracts with DPF. Service contracts mainly relate to ASO contracts and are accounted for under IAS 18, Revenue Recognition. Investment contracts may be reclassified as insurance contracts after inception if insurance risk becomes significant. A contract that is classified as an insurance contract at contract inception remains as such until all rights and obligations under the contract are extinguished or expire. Investment contracts are contracts that carry financial risk, which is the risk of a possible future change in one or more of the following: interest rate, commodity price, foreign exchange rate, or credit rating. Refer to note 5 for discussion of risk management.



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Measurement Insurance contract liabilities represent the amounts required, in addition to future premiums and investment income, to provide for future benefit payments, policyholder dividends, commission and policy administrative expenses for all insurance and annuity policies in force with the Company. The Appointed Actuaries of the Company's subsidiary companies are responsible for determining the amount of the liabilities to make appropriate provisions for the Company's obligations to policyholders. The Appointed Actuaries determine the liabilities for insurance contracts and investment contracts with DPF using generally accepted actuarial practices, according to the standards established by the Canadian Institute of Actuaries. The valuation uses the Canadian Asset Liability Method (CALM). This method involves the projection of future events in order to determine the amount of assets that must be set aside currently to provide for all future obligations and involves a significant amount of judgment. Investment contract liabilities are measured at amortized cost, except for those at fair value through profit or loss.

(q) Deferred Income Reserves

Included in other liabilities are DIR relating to investment contract liabilities. DIR are amortized on a straight-line basis to recognize the initial policy fees over the policy term, not to exceed twenty years, to release revenue as it is earned over the policy term.

(r) Income Taxes

The tax expense for the period represents the sum of current tax and deferred tax. Tax is recognized as an expense or income in profit or loss except to the extent that it relates to items that are recognized outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognized outside profit or loss. Current Income Tax Current income tax is based on taxable income for the year. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities using the tax rates that have been enacted or substantively enacted at the balance sheet date. Current tax assets and current tax liabilities are offset, if a legally enforceable right exists to offset the recognized amounts and the entity intends either to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. Deferred Income Tax Deferred income tax is the tax expected to be payable or recoverable on differences arising between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable income and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is more likely than not that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets and liabilities are measured at the tax rates expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.



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The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer more likely than not that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become more likely than not that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and associates, except where the group controls the timing of the reversal of the temporary difference and it is more likely than not that the temporary differences will not reverse in the foreseeable future. There is a difference in the recognition and measurement of uncertain income tax provisions between the previous CGAAP and IFRS. Under the IFRS liability method, a provision for tax uncertainties which meet the criteria for recognition more likely than not will be measured. Measurement of the provision is based on the probability weighted average approach.

(s) Policyholder Benefits

Gross benefits and claims for life insurance contracts include the cost of all claims arising during the year, settlement of claims, as well as changes in the gross valuation of insurance contracts. Death claims and surrenders are recorded on the basis of notifications received. Maturities and annuity payments are recorded when due.

(t) Repurchase Agreements

The Company enters into repurchase agreements with third party broker dealers in which the Company sells securities and agrees to repurchase substantially similar securities at a specified date and price. As substantially all of the risks and rewards of ownership of the assets are retained, the Company does not derecognize the assets. Such agreements are accounted for as investment financings.

(u) Pension Plans and Other Post-Employment Benefits

The Company’s subsidiaries maintain contributory and non-contributory defined benefit pension plans for certain employees and advisors. The Company’s subsidiaries also maintain defined contribution pension plans for certain employees and advisors. The cost of defined pension benefits is charged to net earnings using the projected unit credit method prorated on services (see note 11). For the Company’s defined benefit plans, actuarial gains and losses are amortized into the Consolidated Statements of Earnings using the straight-line method over the expected average remaining working lives of employees covered by the plan to the extent that the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceed corridor limits. The corridor is defined as ten percent of the greater of the defined benefit obligation or plan assets. The amortization charge is re-assessed at the beginning of each year. The Company’s subsidiaries also provide post-employment health, dental and life insurance benefits to eligible employees, advisors and their dependents. The cost of post-employment health, dental and life insurance benefits is charged to earnings using the projected unit credit method prorated on services (see note 11).



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(v) Share Capital and Surplus

Financial instruments issued by the Company are classified as share capital if they represent a residual interest in the assets of the Company. Preferred share capital is classified as equity if it is non-redeemable, or retractable only at the Company’s option and any dividends are discretionary. Incremental costs that are directly attributable to the issue of share capital are recognized as a deduction from equity, net of income tax. Contributed surplus represents the vesting of share options less share options exercised. Accumulated other comprehensive income represents the total of the unrealized foreign exchange gains (losses) on translation of foreign operations, the gains (losses) on available for sale assets, and the unrealized gains (losses) on cash flow hedges. Non-controlling interests represent the proportion of equity that is attributable to minority shareholders. Participating account surplus in subsidiaries represents the proportion of equity attributable to participating account policyholders.

(w) Share Based Payments

The Company follows the fair value based method of accounting for the valuation of compensation expense for shares and share options granted to employees under its stock option plans (see note 10). Compensation expense is recognized as an increase to compensation expense in the Consolidated Statements of Earnings and an increase to contributed surplus over the vesting period of the granted options. When options are exercised, the proceeds received, along with the amount in contributed surplus, is transferred to share capital. The Company follows the liability method of accounting for share-based awards issued by Putnam LLC and its subsidiary PanAgora. Compensation expense is recognized as an increase to operating expenses in the Consolidated Statements of Earnings and a liability is recognized on the Consolidated Balance Sheets over the vesting period of the share-based awards. The liability is remeasured at fair value at each reporting period and is settled in cash when the shares are purchased from the employees.

(x) Earnings Per Common Share

Earnings per common share is calculated using net earnings after preferred share dividends and the weighted average number of common shares outstanding. The treasury stock method is used for calculating diluted earnings per common share (see note 12).

(y) Leases

Leases that do not transfer substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases, where the Company is the lessee, are charged to net earnings over the period of use. Where the Company is the lessor under an operating lease for its investment property, the assets subject to the lease arrangement are presented within the Consolidated Balance Sheets. Income from these leases is recognized in the Consolidated Statements of Earnings on a straight-line basis over the lease term.



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(z) Operating Segments

Operating segments have been identified based on internal reports that are regularly reviewed by the Company’s Chief Executive Officer to allocate resources and assess performance of segments. The Company’s reportable business segments are categorized by geographic region and include Canada, the United States and Europe. Reinsurance operations and operations in all countries other than Canada and the United States are reported as part of the Europe segment. The Lifeco Corporate segment represents activities and transactions that are not directly attributable to the measurement of the operating segments of the Company.

3. Reconciliations of IFRS Equity and Comprehensive Income

The Company’s financial statements have been prepared in accordance with the requirements of IAS 34 as issued by the IASB and as adopted by the Accounting Standards Board of Canada for financial reporting periods beginning on or after January 1, 2011. References made to IAS throughout refer to the application of IAS and related interpretations of IFRIC and interpretations of the Standing Interpretations Committee (SIC). These are the second quarterly unaudited consolidated financial statements prepared in accordance with IFRS, with the 2010 comparatives restated accordingly. Previously, the consolidated financial statements were prepared in accordance with CGAAP. During the year of adoption of IFRS, the Company will continue to monitor and assess the impact of adoption of IFRS on the consolidated financial statements. During the second quarter of 2011 the Company revised its interpretation of and classification under IFRS for certain share-based awards in Putnam as described in 3 (k) which decreased the IFRS transition impact on January 1, 2010 opening equity by $22, increased the impact on three and six months ended June 30, 2010 net earnings by $6 net of tax and decreased the impact on net earnings by $7 net of tax for the year ended December 31, 2010. As a result of this revision, non-controlling interests decreased by $61 at January 1, 2010 and $110 at December 31, 2010 and other liabilities increased by $83 at January 1, 2010 and $140 at December 31, 2010. The effects of the transition to IFRS on the financial position, financial performance and cash flows for the periods presented are as follows: Reconciliations of Previous CGAAP to IFRS At transition to IFRS the Company applied IFRS 1 which requires the Company to reconcile accumulated surplus and comprehensive income for prior periods presented. The adoption of IFRS has not changed the Company’s cash flows however it has resulted in certain changes to the Company’s reported financial position and results of operations. IFRS has also resulted in a number of presentation changes to the Company’s financial statements. In order for users to understand the effects of adopting IFRS, reconciliations of the Company’s financial statements from the previous CGAAP to IFRS along with narrative explanations have been provided below. IFRS does not allow the use of hindsight to recreate or revise estimates and consequently the estimates previously made by the Company under the previous CGAAP were not revised when converting to IFRS except where necessary to reflect any difference in accounting policies.



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Reconciliation of consolidated equity from the previous CGAAP to IFRS

Date of transition to

IFRS January 1, 2010

Comparative period reported under

CGAAP June 30, 2010

Comparative period reported under

CGAAP December 31, 2010

Total surplus under the previous CGAAP $ 13,003 $ 13,309 $ 13,420 2010 year to date IFRS equity adjustments Impact on participating account surplus in subsidiaries - 46 46 Impact on shareholders' equity - (613) (613) Net impact of IFRS on equity - (567) (567) Beginning surplus restated under IFRS 13,003 12,742 12,853 IFRS 1 optional elections / exemptions

Employee benefits cumulative unamortized actuarial gains and losses

a

(302)

-

-

Cumulative translation losses of foreign operations - common shareholders

b

(1,590)

-

-

Redesignation of financial assets c (127) - - Fair value as deemed cost of owner occupied properties d 28 - - IFRS adjustments

Measurement of investment properties and owner occupied properties

d,f

119

4

-

Derecognition of deferred net realized gains g 110 (6) (12) Unamortized vested past service costs and other

employment benefits

h 123

(5)

(9)

Uncertain income tax provisions i (240) (15) (26) Deferred acquisition costs and deferred income reserves

on investment contracts j

(468)

23

18

Other adjustments k 9 2 (21) Income tax effect of the above adjustments l 88 1 (2) Total IFRS adjustment to shareholders' account (2,250) 4 (52) Adjustment related to participating account surplus in

subsidiaries

m (46)

5

9

Total IFRS adjustment (2,296) 9 (43) $ 10,707 $ 12,751 $ 12,810 Accumulated other comprehensive income Cumulative translation losses of foreign operations -

common shareholders

b 1,590

37

55

Redesignation of financial assets c 127 (13) (29) Tax impact on redesignation of financial assets c (34) 3 9 Total adjustment to accumulated other comprehensive

income

1,683

27

35

Total adjustment to shareholders' equity at transition to IFRS

(613)

36

(8)

Total share capital and shareholders' equity under IFRS 12,390 12,778 12,845 Reclassification of non-controlling interests for IFRS

presentation

2,310

2,347

2,017

Cumulative translation losses of foreign operations - participating account surplus

b

(84)

-

-

Cumulative translation losses of foreign operations - participating account surplus

b

84

-

-

Total IFRS adjustment to participating account surplus in subsidiaries

m

46

(5)

(9)

Reclassification of non-controlling interests 2,356 2,342 2,008 Total equity $ 14,746 $ 15,120 $ 14,853



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Reconciliation of consolidated earnings and comprehensive income from the previous CGAAP to IFRS Comparative period

reported under CGAAP for the

three months ended June 30, 2010

Comparative period reported under CGAAP for the

six months ended June 30, 2010

Comparative period reported under CGAAP for the

year ended December 31, 2010

Total comprehensive income under the previous

CGAAP

$ 707

$ 743

$ 1,230

Adjustments for: Measurement adjustment for owner occupied

and investment properties

d,f 6

4

-

Derecognition of deferred net realized gains g (3) (6) (12) 3 (2) (12) Unamortized vested past service costs and

other employment benefits

h (4)

(5)

(9)

Uncertain tax provisions i (8) (15) (26) Change in recognition of deferred acquisition

costs on investment contracts

33

50

71

Change in recognition of deferred income reserves on investment contracts

(16)

(27)

(53)

j 17 23 18 Other adjustments k 11 2 (21) Total impact on operating earnings before tax and

OCI

19

3

(50)

Income tax effect related to the above l (1) 1 (2) Total after-tax adjustments to net earnings 18 4 (52) Total participating account surplus adjustment m 4 5 9 22 9 (43) Other comprehensive income Cumulative translation gains (losses) of foreign

operations

b (9)

37

55

Redesignation of financial assets c (1) (13) (29) Tax impact on redesignation of financial assets c (1) 3 9 Total after tax adjustments to comprehensive

income

(11)

27

35

Total IFRS comprehensive income $ 718 $ 779 $ 1,222



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Reconciliation of the Consolidated Balance Sheet from the previous CGAAP to IFRS

(in Canadian $ millions) December 31

Comparative period reported under CGAAP

December 31, 2009

Conversion adjustments

Presentation and reclassification

adjustments

Date of transition

to IFRS January 1, 2010

Assets Cash and cash equivalents $ 3,427 $ - $ - $ 3,427 Bonds 66,147 - - 66,147 Mortgage loans 16,684 - - 16,684 Stocks 6,442 - - 6,442 Investment properties 3,099 (85) f (401) q 2,613 Loans to policyholders 6,957 - - 6,957 Funds held by ceding insurers 10,839 - 145 r 10,984 Reinsurance assets - - 2,800 r 2,800 Goodwill 5,406 - - 5,406 Intangible assets 3,238 - - 3,238 Derivative financial instruments 717 - - 717 Owner occupied properties - 28 d 401 q 429 Other assets 4,216 (64) h 447 s 4,599 Deferred tax assets 1,197 (4) - 1,193 Segregated funds for the risk of unit

holders

-

-

87,495 u

87,495

Total assets $ 128,369 $ (125) $ 90,887 $ 219,131 Liabilities Insurance contract liabilities $ 102,651 $ (69) f,g,j $ 2,406 r $ 104,988 Investment contract liabilities - - 841 r,s 841 Debentures and other debt instruments 4,142 (36) k - 4,106 Funds held under reinsurance contracts 186 - 145 r 331 Derivative financial instruments 251 - - 251 Other liabilities

3,658

821

a,h,ij,k,l

-

4,479

Deferred tax liabilities 699 (76) p - 623 Repurchase agreements 532 - - 532 Deferred net realized gains 133 (133) g - - Capital trust securities 540 - - 540 Preferred shares 203 (4) k - 199 Non-controlling interests 2,371 (61) v (2,310) v - Investment and insurance contracts on

account of unit holders

-

-

87,495

u

87,495

Total liabilities 115,366 442 88,577 204,385 Equity Non-controlling interests Participating account surplus in

subsidiaries

-

46 m

2,004

v

2,050

Preferred shares issued by subsidiaries

-

-

157

v

157

Perpetual preferred shares issued by subsidiaries

-

-

147

v

147

Non-controlling interests in capital stock and surplus

-

-

2

v

2

Shareholders' equity

Share capital Perpetual preferred shares 1,497 - - 1,497 Common shares 5,751 - - 5,751 Accumulated surplus 7,367 (2,296) - 5,071 Accumulated other comprehensive

income (loss)

(1,664)

1,683 b.c

-

19

Contributed surplus 52 - - 52 Total equity 13,003 (567) * 2,310 14,746 Total liabilities and equity $ 128,369 $ (125) $ 90,887 $ 219,131

*Total impact on equity of $(567) consists of $46 impact on participating account and impact on non-participating of $(613).



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Statements of Cash Flows Under IFRS, the statements of cash flows will continue to be presented under the indirect method with limited presentation differences of operating earnings being presented before tax and cash flows related to tax expense presented separately within operating cash flows. The cash flows reported under the previous CGAAP for operating, financing, and investing activities will not be impacted by the adoption of IFRS requirements. IFRS 1 First-time Adoption of IFRS Optional Exemptions The Company has applied IFRS 1 in preparing the interim consolidated financial statements which requires retrospective application of IFRS except for certain optional exemptions and mandatory exceptions provided in the Standard. The optional exemptions adopted by the Company and the mandatory exceptions that apply to the Company are described within this transitional note. (a) Employee Benefits Cumulative Unamortized Actuarial Gains and Losses

The Company has elected to apply the exemption available to recognize all cumulative unamortized actuarial gains and losses of the Company’s defined benefit plans in equity upon transition to IFRS. This adjustment, referred to as the ‘fresh start adjustment’, decreased total equity by $302 before tax (decrease of $275 to shareholders' equity and $27 to participating account surplus). Subsequent to transition, the Company will continue to use the corridor approach available under the present IAS 19, Employee Benefits standard for deferring recognition of actuarial gains and losses that reside within the corridor.

(b) Cumulative Translation Losses of Foreign Operations

The Company has elected to reset its cumulative translation adjustment (CTA) account for all foreign operations to zero as of January 1, 2010. Future gains or losses on disposal of any foreign operation will therefore exclude translation differences that arose before January 1, 2010. The balance of the cumulative loss to be reclassified from AOCI to accumulated non-participating account surplus at January 1, 2010 is approximately $1,590 and the balance reclassified within participating account surplus is $84 at January 1, 2010. As a result of the foreign exchange revaluation of the transitional IFRS adjustments for the three months ended June 30, 2010, there was a $9 decrease to income related to unrealized foreign exchange on translation of foreign operations within OCI. For the six months ended June 30, 2010, the total impact to CTA was an increase of $37 with an increase for the year ended December 31, 2010 of $55.

(c) Redesignation of Financial Assets

The Company has elected to redesignate certain non-participating available for sale financial assets to the fair value through profit or loss classification and certain financial assets classified as held for trading under the previous CGAAP to available for sale. The redesignation will have no overall impact on the Company’s opening surplus at transition but will result in a reclassification within surplus of $127 before tax ($93 after-tax) between accumulated surplus and AOCI (a decrease $129 related to shareholders’ equity and an increase of $2 related to participating account surplus). For the three and six months ended June 30, 2010, the redesignation has decreased net earnings by $1 and $13 – with a decrease of $1 and an increase of $3 for a tax impact on redesignation of those certain financial assets.



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The financial assets carried at fair value in the most recent previous CGAAP consolidated financial statements and at transition to IFRS is as follows:

Fair value

January 1, 2010

Unrealized gains reclassified to

AOCI January 1, 2010

Financial assets re-designated to fair value through profit or loss

$ 373

$ 38

Financial assets re-designated to available for sale

$ 360

$ 89

(d) Fair Value as Deemed Cost for Owner Occupied Properties

The Company has elected to measure owner occupied properties at fair value as its deemed cost at the January 1, 2010 transition date which has resulted in an increase to opening surplus of $28 before tax (increases of $26 to shareholders’ equity and $2 to participating account surplus). Subsequent to this date, owner occupied properties will be carried at amortized cost.

(e) Business Combinations

The Company has applied the IFRS 1 business combinations exemption and has not restated business combinations that took place prior to the January 1, 2010 transition date which has resulted in no impact on opening figures. The Company will apply IFRS 3, Business Combinations prospectively for business combinations occurring on or after January 1, 2010.

Changes in Accounting Policies Mandatory at Conversion to IFRS Measurement and Recognition Differences (f) Measurement of Investment Properties and Owner Occupied Properties

Under the previous CGAAP, real estate is carried at cost net of write-downs and allowance for loss, plus a moving average market value adjustment. Under IFRS, real estate held for investment purposes is classified as investment property and is measured at fair value. This measurement change has increased opening surplus at January 1, 2010 by $119 before tax (increase of $114 in shareholders’ equity and $5 in participating account surplus) and has increased the Consolidated Statements of Earnings at June 30, 2010, offset by the change in accounting for owner occupied properties, by $6 and $4 before tax for the three and six months ended June 30, 2010 with a net effect of zero for the year ended December 31, 2010.

(g) Derecognition of Deferred Net Realized Gains

Under the previous CGAAP, net realized gains and losses associated with the sale of real estate were deferred and included in deferred net realized gains on the Consolidated Balance Sheets. These deferred net realized gains and losses are amortized to income at a rate of 3% per quarter on a declining balance basis. Under IFRS, gains and losses associated with the sale of investment properties are immediately recognized in income and consequently the balance of the unrecognized net deferred realized gains were recognized in equity at transition. This recognition change has increased opening surplus at January 1, 2010 by $110 before tax (increase of $47 in shareholders’ equity and $63 in participating account surplus), decreased net earnings by $3 and $6 before tax for the three and six months ended June 30, 2010 and decreased net earnings by $12 for the year ended December 31, 2010.



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(h) Unamortized Vested Past Service Costs and Other Employment Benefits

Previous CGAAP and IFRS differ in their treatment of other employee benefits including the timing of recognition of unamortized vested past service costs and certain service awards. The change in recognition for these vested past service costs and other employee benefits under IFRS has increased opening surplus at January 1, 2010 by $123 before tax (increased by $105 in shareholders’ equity and $18 in participating account surplus), decreased net earnings before tax by $4 and $5 for the three and six months ended June 30, 2010, and has decreased net earnings by $9 for the year ended December 31, 2010.

(i) Uncertain Income Tax Provisions

The difference in the recognition and measurement of uncertain income tax provisions between the previous CGAAP and IFRS has decreased opening surplus at January 1, 2010 by $240 (decreased by $231 in shareholders’ equity and $9 in participating account surplus), decreased net earnings by $8 and $15 for the three and six months ended June 30, 2010 and by $26 for the year ended December 31, 2010.

(j) Deferred Acquisition Costs and Deferred Income Reserves on Investment Contracts

Under the previous CGAAP, DAC relating to policyholder liabilities were deferred in policy liabilities and amortized into consolidated net earnings over the anticipated period of benefit. Under IFRS, DAC on policyholder liabilities reclassified as investment contract liabilities are no longer deferred and amortized into earnings over the anticipated period of benefit but rather recognized through earnings in the period incurred for those costs not incremental to issuing the contract. In addition to DAC, DIR related to fee income on investment contracts will also be deferred and recognized over the term of the contract. The change in measurement for both DAC and DIR has decreased opening surplus at January 1, 2010 by $468, has increased net earnings by $17 and $23 before tax for the three and six months ended June 30, 2010 and $18 for the year ended December 31, 2010.

(k) Other Adjustments

In addition to the items described above, several other items required adjustments due to the transition from the previous CGAAP to IFRS which resulted in measurement changes. These adjustments, which include adopting the IFRS requirement for the use of the graded vesting method to account for awards that vest in installments over a period rather than the straight-line method and the adoption and classification as liabilities for share-based payments that are cash settled (decreased opening surplus at January 1, 2010 by $15 net of tax), preferred shares classified as held for trading under the previous CGAAP now being carried at amortized cost under IFRS (increased opening surplus at January 1, 2010 by $4 before tax), and the capitalization of transaction costs costs on other than held for trading financial liabilities under IFRS that were expensed under the previous CGAAP (increased opening surplus at January 1, 2010 by $36 before tax). Other adjustments have increased net earnings by $11 and $2 before tax for the three and six months ended June 30, 2010 and decreased net earnings by $21 for the year ended December 31, 2010.

(l) Tax Impact of IFRS Adjustments

The tax effect of the above adjustments, excluding the uncertain tax provisions, is an increase to income tax liabilities of $88 at transition (an increase of $94 to shareholders’ equity and a decrease of $6 to participating account surplus), a decrease of $1 and an increase of $1 to net earnings for the three and six months ended June 30, 2010, and a decrease of $2 for the year ended December 31, 2010.

(m) Adjustment Related to Participating Account Surplus in Subsidiaries

The total impact to participating account was a decrease of $46 at transition, an increase of $4 and $5 at for the three and six months ended June 30, 2010, and $9 for the year ended December 31, 2010.



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(n) Goodwill and Intangible Asset Measurement and Impairment Testing

Goodwill and intangible assets under IFRS are measured using the cost model, based on the recoverable amount which is the greater of the value-in-use and fair value less cost to sell. The recoverable amount calculated under IFRS approximates the previous CGAAP carrying value at January 1, 2010 and therefore no transitional adjustment was required. At June 30, 2011, the Company had $865 of impaired intangible assets for which conditions have not been met in order to reverse the impairment charge. At each reporting date, the Company reviews goodwill and intangible assets for indicators of impairment or reversals of impairment on the intangible assets. In the event that certain conditions have been met, the Company is required to reverse the impairment charge, or a portion thereof, on intangible assets. Under the previous CGAAP, goodwill is tested for impairment by comparing the fair value of the reporting unit to which the goodwill is associated with its carrying value. Under IFRS, the carrying value of goodwill is tested for impairment by reference to the CGU in which goodwill is associated. A CGU represents the lowest level in which goodwill is monitored for internal reporting purposes. This change in impairment testing had no impact on the Company’s financial statements at transition.

(o) Recognition of Contingent Liabilities

Under the previous CGAAP, contingent liabilities are recognized using the ‘more likely than not’ criteria whereas under IFRS, contingent liabilities are recognized depending on the ‘probability of resource outflows’ required to settle a present obligation. The change in the recognition threshold has not resulted in additional provisions being recognized at January 1, 2010.

(p) Recognition of Deferred Tax Assets

Previous CGAAP limited the amount of future income tax assets recognized to the amount that is ‘more likely than not’ to be realized whereas IFRS recognizes a deferred tax asset if it is more likely than not that sufficient future taxable profit will be available to recover the asset. The change in measurement criteria has not impacted consolidated net earnings and equity at January 1, 2010.

Presentation and Classification Differences (q) Presentation of Real Estate Properties

Properties classified as real estate under the previous CGAAP are reclassified to investment properties of $2,613 and owner occupied properties of $401 in the Consolidated Balance Sheets under IFRS.

(r) Presentation of Reinsurance Accounts

Reinsurance accounts will be presented on a gross basis on the Consolidated Balance Sheets totalling $2,800 of reinsurance assets with an offsetting increase to insurance and investment contract liabilities with no impact to shareholders’ equity. Funds withheld asset and liability accounts have also been adjusted for gross presentation of $145. Gross presentation of the reinsurance revenue and expenses is also required within the Consolidated Statements of Earnings.

(s) Reclassification of Deferred Acquisition Costs

The DAC of $447 recognized on investment contracts that was previously included within policy liabilities under the previous CGAAP has been reclassified to other assets on the Consolidated Balance Sheets.



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(t) Presentation of Insurance and Investment Contract Liabilities

Under the previous CGAAP, all policyholder related liabilities are classified as actuarial liabilities and valued using CALM. Under IFRS 4, contracts are classified and measured depending on the existence of significant insurance risk. If significant insurance risk exists, the contract is classified as an insurance contract and IFRS permits the Company to continue with measuring insurance contract liabilities using CALM. If significant insurance risk does not exist, then the contract is classified as an investment contract and measured at either fair value or amortized cost. The change in reclassification has had no impact on opening surplus at January 1, 2010 or consolidated earnings and comprehensive income at June 30, 2010. The reconciled amount of policy liabilities under the previous CGAAP to insurance and investment contract liabilities under IFRS at transition is as follows:

Policy liabilities under CGAAP at December 31, 2009 comprises: Actuarial liabilities $ 98,059 Provision for claims 1,308 Provision for policyholder dividends 606 Provision for experience rating refunds 317 Policyholder funds 2,361 $ 102,651 IFRS conversion adjustments: Remeasurement of deferred acquistion costs 111 Fair value of investment properties backing liabilities (203) Recognition of deferred net realized gains 23 Sub-total - IFRS conversion adjustments (69) IFRS reclassification adjustments:

Deferred acquistion costs to other assets 447 Reinsurance assets offset by reinsurance liabilities 2,800 Sub-total - IFRS reclassification adjustments 3,247 Total insurance and investment contract liabilities under IFRS at January 1, 2010

$ 105,829

Attributable to:

Insurance contract liabilities $ 104,988 Investment contract liabilities $ 841

(u) Presentation of Segregated Funds on the Consolidated Balance Sheets

The assets and liabilities of the segregated funds, totalling $87.4 billion at January 1, 2010, will be included at fair value on the Consolidated Balance Sheets as a line item within both assets and liabilities under IFRS. There was no measurement change impacting shareholders’ equity.

(v) Presentation of Non-Controlling Interests Within Equity

Under the previous CGAAP, non-controlling interests were presented in the mezzanine between liabilities and equity whereas under IFRS non-controlling interest is presented within the equity section of the Consolidated Balance Sheets. The reclassification of non-controlling interests from liabilities of $2,004 relates to participating account surplus and the $306 relates primarily to preferred shares issued by subsidiaries. There was an increase of $2,310 to equity as a result of this change in presentation at transition to IFRS.



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(w) Future Accounting Policies

In addition, the Company may be impacted in the future by the IFRSs set out in the following table: Revised standard Summary of proposed changes IFRS 4 - Insurance Contracts The IASB issued an exposure draft proposing changes to the accounting

standard for insurance contracts in July 2010. The proposal would require an insurer to measure insurance liabilities using a model focusing on the amount, timing, and uncertainty of future cash flows associated with fulfilling its insurance contracts. This is vastly different from the connection between insurance assets and liabilities considered under CALM and may cause significant volatility in the results of the Company. The exposure draft also proposes changes to the presentation and disclosure within the financial statements. The Company will continue to measure insurance contract liabilities using CALM until such time when a new IFRS for insurance contract measurement is issued. A final standard is not expected to be implemented for several years; the Company continues to actively monitor developments in this area.

IFRS 9 - Financial Instruments The IASB tentatively approved the adoption of the proposed new Financial Instruments standard to be effective January 1, 2015. The new standard requires all financial assets to be classified on initial recognition at amortized cost or fair value while eliminating the existing categories of available for sale, held to maturity, and loans and receivables. The new standard also requires that:

embedded derivatives to be assessed for classification together with their financial asset host;

a single expected loss impairment method be used for financial assets; and

amendments to the criteria for hedge account and measuring effectiveness

The full impact of IFRS 9 on the Company will be evaluated after the remaining stages of the IASB’s project to replace IAS 39: Financial Instruments – impairment methodology, hedge accounting, and asset and liability offsetting – are finalized. The Company continues to actively monitor developments in this area.



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IFRS 10 - Consolidated Financial Statements; IFRS 11 - Joint Arrangements; IFRS 12 - Disclosure of Interest in Other Entities

Effective January 1, 2013, the Company plans to adopt IFRS 10: Consolidated Financial Statements, IFRS 11: Joint Arrangements, and IFRS 12: Disclosure of Interest in Other Entities for the presentation and preparation of its consolidated financial statements. IFRS 10: Consolidated Financial Statements uses consolidated principles based on a revised definition of control. The definition of control is dependent on the power of the investor to direct the activities of the investee, the ability of the investor to derive variable benefits from its holdings in the investee, and a direct link between the power to direct activities and receive benefits. IFRS 11: Joint Arrangements separates jointly controlled entities between joint operations and joint ventures. The standard has eliminated the option of using proportionate consolidation for accounting in the interests in joint ventures, now requiring an entity to use the equity method of accounting for interests in joint ventures. IFRS 12: Disclosure of Interest in Other Entities proposes new disclosure requirements for the interest an entity has in subsidiaries, joint arrangements, associates, and structured entities. The standard requires enhanced disclosure including how control was determined and any restrictions that might exist on consolidated assets and liabilities presented within the financial statements. The Company is currently evaluating the impact of the above standards on its consolidation procedures and disclosure in preparation of the January 1, 2013 transition date.

IFRS 13 - Fair Value Measurement

Effective January 1, 2013, the Company will adopt the guidance in IFRS 13: Fair Value Measurement for the measurement and disclosure of assets and liabilities held at fair value. The standard refines the measurement and disclosure requirements and aims to achieve consistency with other standard setters to improve the visibility to financial statement users. The Company is currently evaluating the impact this standard will have on its financial statements when it becomes effective January 1, 2013.

IAS 1 - Presentation of Financial Statements

Effective on January 1, 2013, the Company will adopt the guidance in the amended IAS 1: Presentation of Financial Statements. The amended standard includes requirements that OCI be classified by nature and grouped between those items that will be reclassified subsequently to profit or loss (when specific conditions are met) and those that will not be reclassified. Other amendments include changes to discontinued operations and overall financial statement presentation. The Company is evaluating the impact this standard will have on the presentation of its financial statements.



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IAS 17 - Leases The IASB issued an exposure draft proposing a new accounting model

for leases where both lessees and lessors would record the assets and liabilities on the balance sheet at the present value of the lease payments arising from all lease contracts. The new classification would be the right-of-use model, replacing the operating and finance lease accounting models that currently exist. The full impact of adoption of the proposed changes will be determined once the final lease standard is issued, which is proposed to be in 2012.

IAS 19 - Employee Benefits The IASB published an amended version of this standard in June 2011 that eliminates the corridor approach for actuarial gains and losses resulting in those gains and losses being recognized immediately through OCI while the net pension asset or liability would reflect the full funded status of the plan on the Consolidated Balance Sheets. Further, the standard includes changes to how the defined benefit obligation and the fair value of the plan assets would be presented within the financial statements of an entity. The Company will continue to use the corridor method until January 1, 2013 when the revised IAS for employee benefits becomes effective.



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4. Portfolio Investments

(a) Carrying values and estimated market values of portfolio investments are as follows:

June 30, 2011 December 31, 2010 January 1, 2010 Carrying

value Market value

Carrying value

Market value

Carrying value

Market value

Bonds Designated fair value

through profit or loss(1)

$ 54,749

$ 54,749

$ 54,585

$ 54,585

$ 50,616

$ 50,616 Classified fair value

through profit or loss (1)

1,810

1,810

1,748

1,748

1,759

1,759 Available for sale 6,675 6,675 6,580 6,580 4,607 4,607 Loans and receivables 9,142 9,804 9,290 9,942 9,165 9,421 72,376 73,038 72,203 72,855 66,147 66,403 Mortgage loans Residential 5,816 6,119 5,640 5,945 6,174 6,388 Non-residential 10,842 11,338 10,475 10,935 10,510 10,503 16,658 17,457 16,115 16,880 16,684 16,891 Stocks Designated fair value

through profit or loss (1)

5,743

5,743

5,364

5,364

4,928

4,928 Available for sale 873 873 1,006 1,006 1,186 1,186 Other 335 465 330 399 328 389 6,951 7,081 6,700 6,769 6,442 6,503 Investment properties 3,204 3,204 2,957 2,957 2,613 2,613 $ 99,189 $ 100,780 $ 97,975 $ 99,461 $ 91,886 $ 92,410

(1) Investments can be fair value through profit or loss in two ways: designated as fair value through profit or loss at the option of management; or, classified as fair value through profit or loss if they are actively traded for the purpose of earning investment income.

(b) Included in portfolio investments are the following:

Carrying amount of impaired investments June 30

2011 December 31

2010 January 1

2010 Impaired amounts by type (1)

Fair value through profit or loss $ 257 $ 302 $ 239 Available for sale 30 29 23 Loans and receivables 43 50 70

Total $ 330 $ 381 $ 332

Provisions on loans and receivables were $38 at June 30, 2011, $64 at December 31, 2010 and $81 at January 1, 2010. (1) Excludes amounts in funds held by ceding insurers of nil at June 30, 2011, $11 at December 31, 2010

and $6 at January 1, 2010.



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(c) Net investment income comprises the following: For the three months ended June 30, 2011

Bonds

Mortgage loans

Stocks


Other

Total

Regular net investment income:

Investment income earned $ 933 $ 217 $ 49 $ 64 $ 138 $ 1,401 Net realized gains (losses) (available for sale) 25 - 3 - - 28

Net realized gains (losses) (other classifications) 5 4 - - - 9

Net recovery (provision) for credit losses (loans and receivables)

15

(3)

-

-

-

12

Other income and expenses - - - (17) (17) (34) 978 218 52 47 121 1,416 Changes in fair value on fair value through profit or loss assets:

Net realized/unrealized gains (losses) (classified fair value through profit or loss)

19

-

-

-

-

19

Net realized/unrealized gains (losses) (designated fair value through profit or loss)

794

-

(160)

36

18

688

813 - (160) 36 18 707 Net investment income $ 1,791 $ 218 $ (108) $ 83 $ 139 $ 2,123

For the three months ended June 30, 2010

Bonds

Mortgage loans

Stocks


Other

Total


Investment income earned $ 941 $ 215 $ 53 $ 62 $ 97 $ 1,368 Net realized gains (losses) (available for sale) (7) - 4 - - (3)

Net realized gains (losses) (other classifications) - 5 - - - 5


-

(1)

-

-

-

(1)

Other income and expenses - - - (14) (20) (34) 934 219 57 48 77 1,335 Changes in fair value on fair value through profit or loss assets:


34

-

-

-

-

34


1,527

-

(295)

67

(173)

1,126

1,561 - (295) 67 (173) 1,160 Net investment income $ 2,495 $ 219 $ (238) $ 115 $ (96) $ 2,495



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For the six months ended June 30, 2011

Bonds

Mortgage loans

Stocks


Other

Total


Investment income earned $ 1,879 $ 432 $ 91 $ 125 $ 285 $ 2,812 Net realized gains (losses) (available for sale) 64 - 6 - - 70



16

(3)

-

-

-

13

Other income and expenses - - - (33) (34) (67) 1,965 438 97 92 251 2,843 Changes in fair value on fair value through profit or loss assets:


3

-

-

-

-

3


388

-

116

101

(88)

517

391 - 116 101 (88) 520 Net investment income $ 2,356 $ 438 $ 213 $ 193 $ 163 $ 3,363

For the six months ended June 30, 2010

Bonds

Mortgage loans

Stocks


Other

Total


Investment income earned $ 1,878 $ 436 $ 96 $ 118 $ 265 $ 2,793 Net realized gains (losses) (available for sale) (3) - 12 - - 9



-

(1)

-

-

-

(1)

Other income and expenses - - - (30) (37) (67) 1,885 443 108 88 228 2,752 Changes in fair value on fair value through profit or loss assets:


49

-

-

-

-

49


2,874

-

(137)

129

(179)

2,687

2,923 - (137) 129 (179) 2,736 Net investment income $ 4,808 $ 443 $ (29) $ 217 $ 49 $ 5,488

Investment income earned comprises income from investments that are classified as available for sale and loans and receivables and classified or designated as fair value through profit or loss.



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5. Risk Management

The Company has policies relating to the identification, measurement, monitoring, mitigating, and controlling of risks associated with financial instruments. The key risks related to financial instruments are credit risk, liquidity risk and market risk (currency, interest rate and equity). Our risk governance structure and risk management approach have not substantially changed from that described in Lifeco’s 2010 Annual Report. Certain risks have been outlined below. For a complete discussion of our risk governance structure and our risk management approach, see the "Financial Instrument Risk Management" note in the Company's December 31, 2010 consolidated financial statements prepared in accordance with the previous CGAAP. The Company has also established policies and procedures designed to identify, measure and report all material risks. Management is responsible for establishing capital management procedures for implementing and monitoring the capital plan. The Board of Directors reviews and approves all capital transactions undertaken by management. (a) Credit Risk

Credit risk is the risk of financial loss resulting from the failure of debtors making payments when due.

Concentration of Credit Risk Concentrations of credit risk arise from exposures to a single debtor, a group of related debtors or groups of debtors that have similar credit risk characteristics in that they operate in the same geographic region or in similar industries. No significant changes have occurred from the year ended December 31, 2010.

(b) Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet all cash outflow obligations as they come due. The following policies and procedures are in place to manage this risk: The Company closely manages operating liquidity through cash flow matching of assets and liabilities and

forecasting earned and required yields, to ensure consistency between policyholder requirements and the yield of assets.

Management closely monitors the solvency and capital positions of its principal subsidiaries opposite liquidity requirements at the holding company. Additional liquidity is available through established lines of credit or the capital markets. The Company maintains a $200 million committed line of credit with a Canadian chartered bank.

(c) Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market factors which include three types: currency risk, interest rate (including related inflation) risk and equity risk.

(i) Currency Risk

Currency risk relates to the Company operating in different currencies and converting non-Canadian earnings at different points in time at different foreign exchange levels when adverse changes in foreign currency exchange rates occur. If the assets backing insurance and investment contract liabilities are not matched by currency, changes in foreign exchange rates can expose the Company to the risk of foreign exchange losses not offset by liability decreases. A 10% weakening of the Canadian dollar against foreign currencies would be expected to increase

non-participating insurance and investment contract liabilities and their supporting assets by approximately the same amount resulting in an immaterial change to net earnings. A 10% strengthening of the Canadian dollar against foreign currencies would be expected to decrease non-participating insurance and investment contract liabilities and their supporting assets by approximately the same amount resulting in an immaterial change in net earnings.



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(ii) Interest Rate Risk

Interest rate risk exists if asset and liability cash flows are not closely matched and interest rates change causing a difference in value between the asset and liability. Projected cash flows from the current assets and liabilities are used in CALM to determine insurance contract liabilities. Valuation assumptions have been made regarding rates of returns on supporting assets, fixed income, equity and inflation. The valuation assumptions use best estimates of future reinvestment rates and inflation assumptions with an assumed correlation together with margins for adverse deviation set in accordance with professional standards. These margins are necessary to provide for possibilities of misestimation and/or future deterioration in the best estimate assumptions and provide reasonable assurance that insurance contract liabilities cover a range of possible outcomes. Margins are reviewed periodically for continued appropriateness. Testing under several interest rate scenarios (including increasing and decreasing rates) is done to assess reinvestment risk. One way of measuring the interest rate risk associated with this assumption is to determine the effect on the insurance and investment contract liabilities impacting the shareholder earnings of the Company of a 1% immediate parallel shift in the yield curve. These interest rate changes will impact the projected cash flows. The effect of an immediate 1% parallel increase in the yield curve would be to increase these insurance

and investment contract liabilities by approximately $86 causing a decrease in net earnings of approximately $64.

The effect of an immediate 1% parallel decrease in the yield curve would be to increase these insurance and investment contract liabilities by approximately $231 causing a decrease in net earnings of approximately $163.

In addition to above, if this change in the yield curve persisted for an extended period the range of the tested scenarios might change. The effect of an immediate 1% parallel decrease or increase in the yield curve persisting for a year would have immaterial additional effects on the reported insurance and investment contract liability.

(iii) Equity Risk

Equity risk is the uncertainty associated with the valuation of assets arising from changes in equity markets. To mitigate price risk, the Company has investment policy guidelines in place that provide for prudent investment in equity markets within clearly defined limits. The risks associated with segregated fund guarantees have been mitigated through a hedging program for lifetime Guaranteed Minimum Withdrawal Benefit guarantees using equity futures, currency forwards, and interest rate derivatives. For policies with segregated fund guarantees, the Company generally determines insurance contract liabilities at a conditional tail expectation of 75 (CTE75) level. Some insurance and investment contract liabilities are supported by investment properties, common stocks and private equities, for example segregated fund products and products with long-tail cash flows. Generally these liabilities will fluctuate in line with equity market values. There will be additional impacts on these liabilities as equity market values fluctuate. A 10% increase in equity markets would be expected to additionally decrease non-participating insurance and investment contract liabilities by approximately $29 causing an increase in net earnings of approximately $23. A 10% decrease in equity markets would be expected to additionally increase non-participating insurance and investment contract liabilities by approximately $67 causing a decrease in net earnings of approximately $51.



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The best estimate return assumptions for equities are primarily based on long-term historical averages. Changes in the current market could result in changes to these assumptions and will impact both asset and liability cash flows. A 1% increase in the best estimate assumption would be expected to decrease non-participating insurance contract liabilities by approximately $330 causing an increase in net earnings of approximately $245. A 1% decrease in the best estimate assumption would be expected to increase non-participating insurance contract liabilities by approximately $362 causing a decrease in net earnings of approximately $267.

6. Segregated Funds For The Risk Of Unit Holders

(a) Segregated funds - consolidated net assets

June 30 2011

December 31 2010

January 1 2010

Bonds $ 19,351 $ 19,270 $ 16,056 Mortgage loans 2,137 2,058 1,744 Stocks 66,070 64,468 59,111 Investment properties 5,710 5,598 6,012 Cash and cash equivalents 5,545 5,414 5,658 Accrued income 193 245 195 Other assets (liabilities) (2,230) (2,226) (1,281) $ 96,776 $ 94,827 $ 87,495

(b) Segregated funds - consolidated statements of changes in net assets

For the six months ended June 30

2011 2010 Segregated funds net assets, beginning of year $ 94,827 $ 87,495 Additions (deductions): Policyholder deposits 6,461 7,488 Net investment income 141 365 Net realized capital gains (losses) on investments 702 609 Net unrealized capital gains (losses) on investments 465 (1,658) Unrealized gains (losses) due to changes in foreign exchange rates (331) (1,672) Policyholder withdrawals (5,495) (5,668) Net transfer from General Fund 6 64 1,949 (472) Segregated funds net assets, end of period $ 96,776 $ 87,023



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7. Financing Charges

Financing charges consist of the following: For the three months

ended June 30 For the six months

ended June 30 2011 2010 2011 2010 Operating charges:

Interest on operating lines and short-term debt instruments $ 1

$ 3

$ 2

$ 6

Financial charges:

Interest on long-term debentures and other debt instruments

58

56

116

112

Dividends on preferred shares classified as liabilities - - - 2 Subordinated debenture issue costs 1 1 1 2 Other 4 2 9 6 Net interest on capital trust securities 8 8 16 16

71 67 142 138 $ 72 $ 70 $ 144 $ 144

8. Share Capital

Common Shares Issued and outstanding

June 30, 2011 December 31, 2010 January 1, 2010

Number Carrying

value

Number Carrying

value

Number Carrying

value Common shares: Balance, beginning of

period 948,458,395

$ 5,802

945,040,476

$ 5,751

945,040,476

$ 5,751

Issued under stock option plan (exercised)

1,014,746

20

3,417,919

51

-

-

Balance, end of period 949,473,141 $ 5,822 948,458,395 $ 5,802 945,040,476 $ 5,751



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9. Capital Management

At the holding company level, the Company monitors the amount of consolidated capital available, and the amounts deployed in its various operating subsidiaries. The amount of capital deployed in any particular company or country is dependent upon local regulatory requirements as well as the Company’s internal assessment of capital requirements in the context of its operational risks and requirements, and strategic plans. Since the timing of available funds cannot always be matched precisely to commitments, imbalances may arise when demands for funds exceed those on hand. Also, a demand for funds may arise as a result of the Company taking advantage of current investment opportunities. The sources of the funds that may be required in such situations include bank financing and the issuance of debentures and equity securities. The Company’s practice is to maintain the capitalization of its regulated operating subsidiaries at a level that will exceed the relevant minimum regulatory capital requirements in the jurisdictions in which they operate. The capitalization of the Company and its operating subsidiaries will also take into account the views expressed by the various credit rating agencies that provide financial strength and other ratings to the Company. In Canada, OSFI has established a capital adequacy measurement for life insurance companies incorporated under the Insurance Companies Act (Canada) and their subsidiaries, known as the Minimum Continuing Capital and Surplus Requirements (MCCSR). For Canadian regulatory reporting purposes, capital is defined by OSFI in its MCCSR guideline. The following table provides the MCCSR information and ratios for Great-West Life: June 30 December 31 December 31 2011 2010 2009 Capital Available: Adjusted Net Tier 1 Capital $ 7,528 $ 7,422 $ 7,014 Net Tier 2 Capital 1,604 1,546 1,856 Total Available Capital $ 9,132 $ 8,968 $ 8,870 Capital Required: Total Capital Required $ 4,557 $ 4,414 $ 4,354 MCCSR ratios: Tier 1 165% 168% 161% Total 200% 203% 204% The result of adoption of IFRS as at January 1, 2011 is a reduction in Total Available Capital subject to phase-in of $636. This impact is to be phased-in over eight quarters beginning March 31, 2011 in accordance with the IFRS transition guidance outlined by OSFI. In the United States, GWL&A is subject to comprehensive state and federal regulation and supervision. The National Association of Insurance Commissioners (NAIC) has adopted risk-based capital rules and other financial ratios for U.S. life insurance companies. At December 31, 2010 the Risk-Based Capital (RBC) ratio for GWL&A was 408% of the Company Action Level. As at June 30, 2011, December 31, 2010 and December 31, 2009 the Company maintained capital levels above the minimum local regulatory requirements in each of its other foreign operations.



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The Company is both a user and a provider of reinsurance, including both traditional reinsurance, which is undertaken primarily to mitigate against assumed insurance risks, and financial or finite reinsurance, under which the amount of insurance risk passed to the reinsurer or its reinsureds may be more limited. The Company is required to put amounts on deposit for certain reinsurance transactions. These amounts on deposit are presented in funds held by ceding insurers on the Consolidated Balance Sheets. Some of these amounts on deposit support surplus.

10. Share Based Payments

No options were granted under the Company's stock option plan during the second quarter and 1,638,700 options were granted during the first quarter of 2011 (863,000 options were granted under the Company's stock option plan during the first and second quarter of 2010). The weighted average fair value of options granted was $4.41 per option during the six months ended June 30, 2011 ($4.34 for the six months ended June 30, 2010). Compensation expense relating to the Company's stock option plan of $3 after-tax has been recognized in the Summaries of Consolidated Operations for the six months ended June 30, 2011 ($3 after-tax for the six months ended June 30, 2010).

11. Pension Plans and Other Post-Employment Benefits

The total benefit costs included in operating expenses are as follows: For the three months For the six months ended June 30 ended June 30 2011 2010 2011 2010 Pension benefits $ 27 $ 28 $ 46 $ 44 Other post-employment benefits 4 4 9 8 $ 31 $ 32 $ 55 $ 52



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12. Earnings per Common Share

The following table provides the reconciliation between basic and diluted earnings per common share: For the three months For the six months ended June 30 ended June 30 2011 2010 2011 2010 Earnings Net earnings $ 550 $ 477 $ 989 $ 925 Perpetual preferred share dividends (24) (22) (48) (42) Net earnings - common shareholders $ 526 $ 455 $ 941 $ 883 Capital trust securities 2 2 5 5 Net earnings - common shareholders - diluted

basis

$ 528

$ 457

$ 946

$ 888 Number of common shares Average number of common shares

outstanding

949,293,303

947,648,873

949,029,017

946,877,593 Add:

- Capital trust units 9,735,128 9,872,578 9,735,128 9,872,578 - Potential exercise of outstanding stock

options

818,400

985,134

786,499

1,419,075 Average number of common shares

outstanding - diluted basis

959,846,831

958,506,585

959,550,644

958,169,246 Basic earnings per common share $ 0.553 $ 0.480 $ 0.991 $ 0.932 Diluted earnings per common share $ 0.550 $ 0.477 $ 0.986 $ 0.927

13. Insurance and Investment Contract Liabilities

June 30, 2011 Gross Ceded Net Insurance contract liabilities $ 108,225 $ 2,642 $ 105,583 Investment contract liabilities 775 - 775 $ 109,000 $ 2,642 $ 106,358 December 31, 2010 Gross Ceded Net Insurance contract liabilities $ 107,367 $ 2,533 $ 104,834 Investment contract liabilities 791 - 791 $ 108,158 $ 2,533 $ 105,625 January 1, 2010 Gross Ceded Net Insurance contract liabilities $ 104,988 $ 2,800 $ 102,188 Investment contract liabilities 841 - 841 $ 105,829 $ 2,800 $ 103,029



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14. Income Taxes

(a) Income Tax Expense

Income tax expense consists of the following: For the three months For the six months ended June 30 ended June 30 2011 2010 2011 2010 Current income taxes $ 139 $ (6) $ 272 $ (3) Deferred income taxes 22 132 (42) 218 $ 161 $ 126 $ 230 $ 215

(b) Effective Income Tax Rate

The overall effective income tax rate for Lifeco for the six months ended June 30, 2011 was 19% compared to 13% for the full year 2010. The full year 2010 effective tax rate reflected one-time reductions related to prior year overstatements of tax liabilities in the United States and the third quarter 2010 litigation provision. The six months ended June 30, 2011 effective income tax rate reflects the application of lower future tax rates to temporary differences and changes to the statutory rates on the calculation of insurance contract liabilities.

(c) Deferred Tax Assets

A deferred tax asset is recognized for a tax loss carryforward only to the extent that realization of the related tax benefit through the future taxable profits is more likely than not. Recognition is based on the fact that it is more likely than not that the entity will have taxable profits and/or can utilize tax planning opportunities before expiration of the deferred tax assets. Changes in circumstances in future periods may adversely impact the assessment of the recoverability. The uncertainty of the recoverability is taken into account in establishing the deferred tax assets. The deferred tax asset includes balances which are dependent on future taxable profits while the relevant entities have incurred losses in either the current year or the preceding year. The aggregate deferred tax asset for the most significant entities where this applies is $1,032 at June 30, 2011 ($1,077 at December 31, 2010).

15. Contingent Liabilities (changes since December 31, 2010 annual report)

A decision in the class action relating to one of the partial windups of an Ontario defined benefit pension plan has been issued in favour of a subsidiary of the Company. The subsidiary of the Company will now be taking steps to obtain regulatory approval to complete the partial windups. It is not expected that these matters will have a material adverse effect on the consolidated financial position of the Company. Subsidiaries of the Company have an ownership interest in a USA based private equity partnership wherein a dispute has arisen over the terms of the partnership agreement. The Company acquired the ownership interest in 2007 for purchase consideration of US$350. Legal proceedings have been commenced and are in their early stages. While it is difficult to predict the final outcome of these proceedings, based on information presently known these proceedings are not expected to have a material adverse effect on the consolidated financial position of the Company. In a separate matter, legal proceedings had commenced against the private equity partnership by third parties. A subsidiary of the Company had established a provision related to these proceedings. During the second quarter of 2011 the subsidiary released $55 (US$57) after-tax of these provisions as a result of the settlement of the majority of the legal proceedings.



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16. Segmented Information

During the year, the Company established a capital allocation model to better measure the performance of the operating segments. The segmented information below including the comparative figures reflects the impact of the capital allocation model implemented. Consolidated Earnings For the three months ended June 30, 2011 United Lifeco Canada States Europe Corporate Total Income: Premium income $ 2,353 $ 602 $ 1,317 $ - $ 4,272 Net investment income

Regular net investment income 618 328 466 4 1,416 Changes in fair value through profit or loss 315 126 266 - 707

Total net investment income 933 454 732 4 2,123 Fee and other income 277 318 144 - 739

Total income 3,563 1,374 2,193 4 7,134

Benefits and expenses: Paid or credited to policyholders 2,585 890 1,823 - 5,298 Other 598 251 156 11 1,016 Financing charges 34 34 4 - 72 Amortization of finite life intangible assets 11 12 2 - 25

Earnings before income taxes 335 187 208 (7) 723

Income taxes 69 55 37 - 161

Net earnings before non-controlling interests 266 132 171 (7) 562

Non-controlling interests 6 2 4 - 12

Net earnings 260 130 167 (7) 550

Perpetual preferred share dividends 18 - 6 - 24

Net earnings before capital allocation 242 130 161 (7) 526

Impact of capital allocation

20

(2)

(14)

(4)

-

Net earnings - common shareholders

$ 262

$ 128

$ 147

$ (11)

$ 526



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For the three months ended June 30, 2010 United Lifeco Canada States Europe Corporate Total Income: Premium income $ 2,228 $ 675 $ 1,312 $ - $ 4,215 Net investment income

Regular net investment income 570 327 434 4 1,335 Changes in fair value through profit or loss 199 398 563 - 1,160

Total net investment income 769 725 997 4 2,495 Fee and other income 255 307 141 - 703

Total income 3,252 1,707 2,450 4 7,413

Benefits and expenses: Paid or credited to policyholders 2,279 1,241 2,138 - 5,658 Other 568 338 128 2 1,036 Financing charges 31 35 4 - 70 Amortization of finite life intangible assets 10 13 1 - 24

Earnings before income taxes 364 80 179 2 625

Income taxes 93 18 13 2 126

Net earnings before non-controlling interests 271 62 166 - 499

Non-controlling interests 22 1 (1) - 22

Net earnings 249 61 167 - 477


Net earnings before capital allocation 231 61 163 - 455


21

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(18)

(3)

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$ 252

$ 61

$ 145

$ (3)

$ 455



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82

For the six months ended June 30, 2011 United Lifeco Canada States Europe Corporate Total Income: Premium income $ 4,632 $ 1,354 $ 2,581 $ - $ 8,567 Net investment income

Regular net investment income 1,234 656 947 6 2,843 Changes in fair value through profit or loss 251 157 112 - 520

Total net investment income 1,485 813 1,059 6 3,363 Fee and other income 553 632 274 - 1,459

Total income 6,670 2,799 3,914 6 13,389

Benefits and expenses: Paid or credited to policyholders 4,766 1,840 3,271 - 9,877 Other 1,213 586 281 14 2,094 Financing charges 68 67 9 - 144 Amortization of finite life intangible assets 21 23 4 - 48

Earnings before income taxes 602 283 349 (8) 1,226

Income taxes 91 64 75 - 230

Net earnings before non-controlling interests 511 219 274 (8) 996

Non-controlling interests 6 - 1 - 7

Net earnings 505 219 273 (8) 989


Net earnings before capital allocation 468 219 262 (8) 941


39

(3)

(29)

(7)

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$ 507

$ 216

$ 233

$ (15)

$ 941



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83

For the six months ended June 30, 2010 United Lifeco Canada States Europe Corporate Total Income: Premium income $ 4,496 $ 1,501 $ 2,828 $ - $ 8,825 Net investment income

Regular net investment income 1,175 658 914 5 2,752 Changes in fair value through profit or loss 622 699 1,415 - 2,736

Total net investment income 1,797 1,357 2,329 5 5,488 Fee and other income 511 624 292 - 1,427

Total income 6,804 3,482 5,449 5 15,740

Benefits and expenses: Paid or credited to policyholders 4,960 2,540 4,790 - 12,290 Other 1,125 681 286 2 2,094 Financing charges 67 70 7 - 144 Amortization of finite life intangible assets 19 25 3 - 47

Earnings before income taxes 633 166 363 3 1,165

Income taxes 132 37 43 3 215

Net earnings before non-controlling interests 501 129 320 - 950

Non-controlling interests 20 3 2 - 25

Net earnings 481 126 318 - 925


Net earnings before capital allocation 446 126 311 - 883


43

-

(36)

(7)

-


$ 489

$ 126

$ 275

$ (7)

$ 883






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IGM FINANCIAL INC.

PART D


PAGE D 2


PAGE D 4 8

JUNE 30, 2011

Please note that the bottom of each page in Part D contains two different page numbers. A page number with the prefi x “D” refers to the number of such page in this document and the page number without any prefi x refers to the number of such page in the original document issued by IGM Financial Inc.

The attached documents concerning IGM Financial Inc. are documents prepared and publicly disclosed by such subsidiary. Certain statements in the attached documents, other than statements of historical fact, are forward-looking statements based on certain assumptions and refl ect the current expectations of the subsidiary as set forth therein. Forward-looking statements are provided for the purposes of assisting the reader in understanding the subsidiary’s fi nancial performance, fi nancial position and cash fl ows as at and for the periods ended on certain dates and to present information about the subsidiary’s management’s current expectations and plans relating to the future and the reader is cautioned that such statements may not be appropriate for other purposes.


For further information provided by the subsidiary as to the material factors that could cause actual results to diff er materially from the content of forward-looking statements, the material factors and assumptions that were applied in making the forward-looking statements, and the subsidiary’s policy for updating the content of forward-looking statements, please see the attached documents, including the section entitled Forward-Looking Statements. The reader is cautioned to consider these factors and assumptions carefully and not to put undue reliance on forward-looking statements.

P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1 D 1

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4 igm financial inc. second quarter report 2011 / management’s discussion and analysis

Management’s Discussion and Analysis

The Management’s Discussion and Analysis (MD&A) presents management’s view of the results of operations andfinancial condition of IGM Financial Inc. (IGM Financial or the Company) as at and for the three and six monthsended June 30, 2011 and should be read in conjunction with the unaudited interim Condensed ConsolidatedFinancial Statements (Interim Financial Statements), as well as the 2010 IGM Financial Inc. Annual Report and the2011 IGM Financial Inc. First Quarter Report to Shareholders filed on www.sedar.com. Commentary in the MD&Aas at and for the three and six months ended June 30, 2011 is as of August 4, 2011.

Certain statements in this MD&A, other thanstatements of historical fact, are forward-lookingstatements based on certain assumptions and reflectIGM Financial’s current expectations. Forward-lookingstatements are provided for the purposes of assistingthe reader in understanding the Company’s financialposition and results of operations as at and for theperiods ended on certain dates and to presentinformation about management’s currentexpectations and plans relating to the future andreaders are cautioned that such statements may notbe appropriate for other purposes. These statementsmay include, without limitation, statements regardingthe operations, business, financial condition,expected financial results, performance, prospects,opportunities, priorities, targets, goals, ongoingobjectives, strategies and outlook of the Company, aswell as the outlook for North American andinternational economies, for the current fiscal yearand subsequent periods. Forward-looking statementsinclude statements that are predictive in nature,depend upon or refer to future events or conditions,or include words such as “expects”, “anticipates”,“plans”, “believes”, “estimates”,“seeks”, “intends”,“targets”, “projects”, “forecasts” or negative versionsthereof and other similar expressions, or future orconditional verbs such as “may”, “will”, “should”,“would” and “could”.

This information is based upon certain materialfactors or assumptions that were applied in drawing a

conclusion or making a forecast or projection asreflected in the forward-looking statements, includingthe perception of historical trends, current conditionsand expected future developments, as well as otherfactors that are believed to be appropriate in thecircumstances.

By its nature, this information is subject toinherent risks and uncertainties that may be generalor specific and which give rise to the possibility thatexpectations, forecasts, predictions, projections orconclusions will not prove to be accurate, thatassumptions may not be correct and that objectives,strategic goals and priorities will not be achieved.

A variety of material factors, many of which arebeyond the Company’s and its subsidiaries’ control,affect the operations, performance and results of theCompany, and its subsidiaries, and their businesses,and could cause actual results to differ materiallyfrom current expectations of estimated or anticipatedevents or results. These factors include, but are notlimited to: the impact or unanticipated impact ofgeneral economic, political and market factors inNorth America and internationally, interest andforeign exchange rates, global equity and capitalmarkets, management of market liquidity andfunding risks, changes in accounting policies andmethods used to report financial condition (includinguncertainties associated with critical accountingassumptions and estimates), the effect of applyingfuture accounting changes (including adoption of

International Financial Reporting Standards),operational and reputational risks, businesscompetition, technological change, changes ingovernment regulations and legislation, changes intax laws, unexpected judicial or regulatoryproceedings, catastrophic events, the Company’sability to complete strategic transactions, integrateacquisitions and implement other growth strategies,and the Company’s success in anticipating andmanaging the foregoing factors.

The reader is cautioned that the foregoing list offactors is not exhaustive of the factors that may affectany of the Company’s forward-looking statements.The reader is also cautioned to consider these andother factors, uncertainties and potential eventscarefully and not place undue reliance on forward-looking statements.

Other than as specifically required by law, theCompany undertakes no obligation to update anyforward-looking statements to reflect events orcircumstances after the date on which suchstatements are made, or to reflect the occurrence ofunanticipated events, whether as a result of newinformation, future events or results, or otherwise.

Additional information about the risks anduncertainties of the Company’s business is providedin its disclosure materials filed with the securitiesregulatory authorities in Canada, available atwww.sedar.com.

FORWARD-LOOKING STATEMENTS

Basis of Presentation and Summary of Accounting Policies

The Interim Financial Statements of IGM Financial, which are the basis of the information presented in theCompany’s MD&A, have been prepared in accordance with Canadian generally accepted accounting principlesapplicable to publicly accountable enterprises which is International Financial Reporting Standards (IFRS) and arepresented in Canadian dollars (Note 1 of the Interim Financial Statements).

D 2 P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1


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igm financial inc. second quarter report 2011 / management’s discussion and analysis 5

IGM Financial Inc.Summary of Consolidated Operating Results

IGM Financial Inc. (TSX:IGM) is one of Canada’spremier financial services companies. The Company’sprincipal businesses are Investors Group Inc. andMackenzie Financial Corporation, each operatingdistinctly within the advice segment of the financialservices market.

Total assets under management were $130.2 billionas at June 30, 2011 compared with $115.7 billion as atJune 30, 2010 and $129.5 billion at December 31, 2010.

Net earnings available to common shareholdersfor the second quarter ended June 30, 2011 were$216.9 million or 84 cents per share compared to$178.3 million or 68 cents per share in the secondquarter of 2010. This represents an increase of 23.5%on a per share basis.

Net earnings available to common shareholders forthe six months ended June 30, 2011 were $428.7 millionor $1.65 per share compared to $370.0 million or $1.40per share for the comparative period in 2010. Thisrepresents an increase of 17.9% on a per share basis.

Shareholders’ equity was $4.4 billion as at June 30,2011 compared to $4.3 billion as at December 31, 2010.Return on average common equity for the six monthsended June 30, 2011 was 20.4% compared with 17.8%in 2010. The quarterly dividend per common sharedeclared in the second quarter of 2011 was 51.25 cents,unchanged from the first quarter of 2011.

NON-IFRS FINANCIAL MEASURES

Net earnings available to common shareholders, whichis a financial measure in accordance with IFRS, may besubdivided into two components consisting of:• Operating earnings available to common

shareholders; and• Other items, which include the after-tax impact of

any item that management considers to be of anon-recurring nature or that could make the period-over-period comparison of results from operationsless meaningful.“Operating earnings available to common

shareholders”, “operating diluted earnings per share”(EPS) and “operating return on average common equity”(ROE) are non-IFRS financial measures which are usedto provide management and investors with additionalmeasures to assess earnings performance. These non-IFRS financial measures do not have standard meaningsprescribed by IFRS and may not be directly comparableto similar measures used by other companies.

“Earnings before interest and taxes” (EBIT)and “earnings before interest, taxes, depreciation andamortization” (EBITDA) are also non-IFRS financialmeasures. EBIT and EBITDA are alternative measuresof performance utilized by management, investorsand investment analysts to evaluate and analyze theCompany’s results. These non-IFRS financial measures

TABLE 1: RECONCILIATION OF NON-IFRS FINANCIAL MEASURES

three months ended six months ended

2011 2011 2010 2011 2010($ millions) jun. 30 mar. 31 jun. 30 jun. 30 jun. 30

EBITDA – Non-IFRS measure $ 388.7 $ 398.6 $ 347.7 $ 787.3 $ 723.3 Commission amortization (70.7) (72.5) (73.6) (143.1) (148.3)Amortization of property, plant and

equipment and intangible assets and other (8.6) (8.4) (8.4) (17.1) (16.6)Interest expense on long-term debt (26.2) (30.4) (27.6) (56.6) (55.0)

Earnings before income taxes 283.2 287.3 238.1 570.5 503.4 Income taxes (64.1) (73.3) (57.6) (137.4) (127.7)Perpetual preferred share dividends (2.2) (2.2) (2.2) (4.4) (5.7)

Net earnings available to common shareholders $ 216.9 $ 211.8 $ 178.3 $ 428.7 $ 370.0



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do not have standard meanings prescribed by IFRS andmay not be directly comparable to similar measuresused by other companies.

Refer to the appropriate reconciliations of thesenon-IFRS financial measures to reported results inaccordance with IFRS in Tables 1 to 4.

REPORTABLE SEGMENTS

IGM Financial’s reportable segments, which reflect thecurrent organizational structure and internal financialreporting, are:• Investors Group• Mackenzie• Corporate and Other.

Management measures and evaluates the performanceof these segments based on EBIT as shown in Tables 2,3 and 4. Segment operations are discussed in each oftheir respective Review of Segment Operating Resultssections of the MD&A.

Certain items reflected in Tables 2, 3 and 4 are notallocated to segments:

• Interest expense – Represents interest expense onlong-term debt. The change in interest expense forall comparative periods reflected the repayment ofthe $450.0 million 2001 Series 6.75% debentureson May 9, 2011. The change in interest expensefor the three and six month periods ended June 30,2011 compared to 2010 also reflected the issuanceof the $200 million 6.00% debentures issued onDecember 9, 2010.

• Income taxes – Changes in the effective tax rates areshown in Table 5.

Tax planning may result in the Company recordinglower levels of income taxes. Management monitorsthe status of its income tax filings, and regularlyassesses the overall adequacy of its provision forincome taxes and, as a result, income taxes recordedin prior years may be adjusted in the current year.Any changes in management’s best estimates arereflected in Other items, which also includes, but isnot limited to, the effect of lower effective incometax rates on foreign operations.

TABLE 2: CONSOLIDATED OPERATING RESULTS BY SEGMENT – Q2 2011 VS. Q2 2010

investors group mackenzie corporate & other totalThree months ended 2011 2010 2011 2010 2011 2010 2011 2010($ millions) jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30

RevenuesFee income $ 404.3 $ 375.2 $ 219.7 $ 210.0 $ 44.7 $ 31.4 $ 668.7 $ 616.6Net investment income

and other 12.8 (6.2) 4.1 3.0 24.6 23.3 41.5 20.1

417.1 369.0 223.8 213.0 69.3 54.7 710.2 636.7

ExpensesCommission 124.9 119.0 73.8 72.6 30.2 20.4 228.9 212.0Non-commission 92.1 83.6 69.2 67.1 10.7 8.3 172.0 159.0

217.0 202.6 143.0 139.7 40.9 28.7 400.9 371.0

Earnings before interest and taxes $ 200.1 $ 166.4 $ 80.8 $ 73.3 $ 28.4 $ 26.0 309.3 265.7

Interest expense 26.1 27.6

Earnings before income taxes 283.2 238.1Income taxes 64.1 57.6

Net earnings 219.1 180.5Perpetual preferred share dividends 2.2 2.2

Net earnings available to common shareholders $ 216.9 $ 178.3



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TABLE 3: CONSOLIDATED OPERATING RESULTS BY SEGMENT – YTD 2011 VS. YTD 2010

investors group mackenzie corporate & other totalSix months ended 2011 2010 2011 2010 2011 2010 2011 2010($ millions) jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30

RevenuesFee income $ 807.5 $ 743.2 $ 442.5 $ 418.5 $ 93.2 $ 66.0 $1,343.2 $1,227.7Net investment income

and other 34.3 18.9 8.6 6.4 44.5 49.0 87.4 74.3

841.8 762.1 451.1 424.9 137.7 115.0 1,430.6 1,302.0


427.0 399.9 290.5 283.3 86.2 60.5 803.7 743.7






TABLE 4: CONSOLIDATED OPERATING RESULTS BY SEGMENT – Q2 2011 VS. Q1 2011

investors group mackenzie corporate & other totalThree months ended 2011 2011 2011 2011 2011 2011 2011 2011($ millions) jun. 30 mar. 31 jun. 30 mar. 31 jun. 30 mar. 31 jun. 30 mar. 31

RevenuesFee income $ 404.3 $ 403.2 $ 219.7 $ 222.8 $ 44.7 $ 48.5 $ 668.7 $ 674.5Net investment income

and other 12.8 21.5 4.1 4.5 24.6 19.9 41.5 45.9

417.1 424.7 223.8 227.3 69.3 68.4 710.2 720.4


217.0 210.0 143.0 147.5 40.9 45.3 400.9 402.8








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• Perpetual preferred share dividends – represents thedividends declared on the Company’s 5.90%non-cumulative first preferred shares issued onDecember 8, 2009. The dividends declared for thesix months ending June 30, 2010 included the initialdividend of $0.57788 per share or $3.5 million andrelated to the period from December 8, 2009 toApril 30, 2010.

SUMMARY OF CHANGES IN TOTAL ASSETS UNDER MANAGEMENT

Total assets under management were $130.2 billion atJune 30, 2011 compared to $115.7 billion at June 30,2010. Changes in assets under management are detailedin Tables 6 and 7.

Changes in assets under management for InvestorsGroup and Mackenzie are discussed further in eachof their respective Review of Business sections inthe MD&A.

TABLE 5: EFFECTIVE INCOME TAX RATE

three months ended six months ended

2011 2011 2010 2011 2010jun. 30 mar. 31 jun. 30 jun. 30 jun. 30

Income taxes at Canadian federal andprovincial statutory rates 28.14 % 28.16 % 30.08 % 28.15 % 30.07 %

Effect of:Dividend income (0.01) (0.01) (0.03) (0.01) (0.10)Net capital gains and losses – – (0.03) – (0.19)Proportionate share of affiliate’s earnings (1.81) (1.67) (2.26) (1.74) (2.10)Loss consolidation(1) (2.55) (1.14) – (1.84) –Other items (1.13) 0.16 (3.57) (0.48) (2.32)

Effective income tax rate – net earnings 22.64 % 25.50 % 24.19 % 24.08 % 25.36 %

(1) See the Transactions with Related Parties section of this MD&A for additional information.



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TABLE 6: CHANGE IN TOTAL ASSETS UNDER MANAGEMENT – Q2 2011 VS. Q2 2010

investment planning investors group mackenzie counsel consolidated(1)

Three months ended 2011 2010 2011 2010 2011 2010 2011 2010($ millions) jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30

Mutual FundsGross sales –

money market $ 157.9 $ 166.9 $ 134.9 $ 141.9 $ 14.9 $ 11.6 $ 307.7 $ 320.4 Gross sales – long term 1,246.7 1,149.2 1,223.5 1,569.9 118.7 103.1 2,588.6 2,822.2

Total mutual fund gross sales $ 1,404.6 $ 1,316.1 $ 1,358.4 $ 1,711.8 $ 133.6 $ 114.7 $ 2,896.3 $ 3,142.6

Net sales – money market $ (25.7) $ (46.2) $ (35.6) $ (80.5) $ 9.7 $ 5.7 $ (51.6) $ (121.0)Net sales – long term (119.7) (56.8) (308.7) (86.1) 42.1 26.8 (386.6) (116.1)

Total mutual fund net sales $ (145.4) $ (103.0) $ (344.3) $ (166.6) $ 51.8 $ 32.5 $ (438.2) $ (237.1)

Sub-advisory, institutional and other accounts

Gross sales $ – $ – $ 1,325.5 $ 1,631.5 $ – $ – $ 1,064.6 $ 1,556.1 Net sales – – 171.7 (349.7) – – (47.7) (383.9)

CombinedGross sales $ 1,404.6 $ 1,316.1 $ 2,683.9 $ 3,343.3 $ 133.6 $ 114.7 $ 3,960.9 $ 4,698.7 Net sales (145.4) (103.0) (172.6) (516.3) 51.8 32.5 (485.9) (621.0)

Change in total assets under management

Net sales $ (145.4) $ (103.0) $ (172.6) $ (516.3) $ 51.8 $ 32.5 $ (485.9) $ (621.0)Market and income (1,745.3) (3,652.2) (1,698.8) (3,453.9) (40.4) (115.3) (3,435.5) (7,052.5)

Net change in assets (1,890.7) (3,755.2) (1,871.4) (3,970.2) 11.4 (82.8) (3,921.4) (7,673.5)Beginning assets 64,048.6 59,223.6 70,678.9 64,857.2 2,833.6 2,254.1 134,080.1 123,367.6

Ending assets $ 62,157.9 $ 55,468.4 $ 68,807.5 $ 60,887.0 $ 2,845.0 $ 2,171.3 $130,158.7 $115,694.1

(1)Total Gross Sales and Net Sales excluded $262 million and $220 million respectively in accounts sub-advised by Mackenzie on behalf of Investors Group and InvestmentPlanning Counsel ($75 million and $35 million in 2010).Total assets under management excluded $3.7 billion of assets sub-advised by Mackenzie on behalf of Investors Group and Investment Planning Counsel ($2.8 billion atJune 30, 2010).



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TABLE 7: CHANGE IN TOTAL ASSETS UNDER MANAGEMENT – YTD 2011 VS. YTD 2010

investment planning investors group mackenzie counsel consolidated(1)

Six months ended 2011 2010 2011 2010 2011 2010 2011 2010($ millions) jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30 jun. 30

Mutual FundsGross sales –

money market $ 370.5 $ 353.6 $ 290.9 $ 295.2 $ 34.3 $ 25.0 $ 695.7 $ 673.8 Gross sales – long term 3,080.0 2,842.7 3,029.4 3,003.2 268.1 222.5 6,376.8 6,068.4

Total mutual fund gross sales $ 3,450.5 $ 3,196.3 $ 3,320.3 $ 3,298.4 $ 302.4 $ 247.5 $ 7,072.5 $ 6,742.2

Net sales – money market $ 5.0 $ (51.2) $ (71.4) $ (246.3) $ 24.7 $ 13.1 $ (41.7) $ (284.4)Net sales – long term 353.6 508.7 (316.1) (268.1) 100.5 80.6 137.3 321.2

Total mutual fund net sales $ 358.6 $ 457.5 $ (387.5) $ (514.4) $ 125.2 $ 93.7 $ 95.6 $ 36.8

Sub-advisory, institutional and other accounts

Gross sales $ – $ – $ 2,849.8 $ 3,272.4 $ – $ – $ 2,464.6 $ 3,075.8 Net sales – – 335.6 99.0 – – 37.5 1.7

CombinedGross sales $ 3,450.5 $ 3,196.3 $ 6,170.1 $ 6,570.8 $ 302.4 $ 247.5 $ 9,537.1 $ 9,818.0 Net sales 358.6 457.5 (51.9) (415.4) 125.2 93.7 133.1 38.5

Change in total assets under management

Net sales $ 358.6 $ 457.5 $ (51.9) $ (415.4) $ 125.2 $ 93.7 $ 133.1 $ 38.5 Market and income 14.0 (2,644.1) 513.1 (2,277.0) 31.7 (61.9) 542.1 (4,889.6)

Net change in assets 372.6 (2,186.6) 461.2 (2,692.4) 156.9 31.8 675.2 (4,851.1)Beginning assets 61,785.3 57,655.0 68,346.3 63,579.4 2,688.1 2,139.5 129,483.5 120,545.2

Ending assets $ 62,157.9 $ 55,468.4 $ 68,807.5 $ 60,887.0 $ 2,845.0 $ 2,171.3 $130,158.7 $115,694.1

(1)Total Gross Sales and Net Sales excluded $386 million and $299 million respectively in accounts sub-advised by Mackenzie on behalf of Investors Group and InvestmentPlanning Counsel ($196 million and $98 million in 2010).Total assets under management excluded $3.7 billion of assets sub-advised by Mackenzie on behalf of Investors Group and Investment Planning Counsel ($2.8 billion at June 30, 2010).


The Summary of Quarterly Results in Table 8 includes:• The six most recent quarters based on IFRS and the

reconciliation of non-IFRS financial measures to netearnings in accordance with IFRS.

• The two quarters in 2009 based on previousCanadian GAAP and the reconciliation of non-Canadian GAAP financial measures to net earningsin accordance with previous Canadian GAAP.Quarterly operating earnings available to common

shareholders are primarily dependent on the level ofmutual fund assets under management. Average daily

mutual fund assets under management are shown inTable 8. Improving market conditions beginning in thesecond quarter of 2009 resulted in increasing levels ofaverage daily mutual fund assets under management inthe third and fourth quarters of 2009. Average dailymutual fund assets under management remainedrelatively constant in each of the first three quarters of2010 and increased in the fourth quarter of 2010,consistent with improving market conditions. Averagedaily mutual fund assets under management increasedin the first quarter of 2011 and remained at that level inthe second quarter.



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TABLE 8: SUMMARY OF QUARTERLY RESULTS previousifrs canadian gaap

2011 2011 2010 2010 2010 2010 2009 2009q2 q1 q4 q3 q2 q1 q4 q3

Consolidated Statements of Earnings ($ millions)Revenues

Management fees $ 491.7 $ 492.0 $ 479.0 $ 452.5 $ 455.5 $ 449.7 $ 449.7 $ 432.1Administration fees 93.0 92.8 90.8 87.8 89.2 88.5 88.3 88.6Distribution fees 84.0 89.7 83.7 69.1 71.9 72.9 70.7 62.0Net investment income and other 41.5 45.9 52.4 41.2 20.1 54.2 28.9 43.8

710.2 720.4 705.9 650.6 636.7 665.3 637.6 626.5Expenses

Commission 228.9 233.6 221.4 207.3 212.0 213.7 213.5 205.3Non-commission 172.0 169.2 160.4 157.9 159.0 159.0 148.7 148.7Interest 26.1 30.3 28.7 27.8 27.6 27.3 33.2 33.0

427.0 433.1 410.5 393.0 398.6 400.0 395.4 387.0283.2 287.3 295.4 257.6 238.1 265.3 242.2 239.5

Non-recurring items related to transition to IFRS – – (29.3) – – – – –

Proportionate share of affiliate’s provision – – – (8.2) – – – –Non-cash charge on AFS equity securities – – – – – – (76.5) –Premium paid on redemption of

preferred shares – – – – – – (14.4) –Earnings before income taxes 283.2 287.3 266.1 249.4 238.1 265.3 151.3 239.5Income taxes 64.1 73.3 73.7 73.0 57.6 70.1 37.6 72.1Net earnings 219.1 214.0 192.4 176.4 180.5 195.2 113.7 167.4Perpetual preferred share dividends 2.2 2.2 2.2 2.2 2.2 3.5 – –Net earnings available to

common shareholders $ 216.9 $ 211.8 $ 190.2 $ 174.2 $ 178.3 $ 191.7 $ 113.7 $ 167.4

Reconciliation of Non-IFRS and Non-Canadian GAAP Financial Measures(1) ($ millions)Operating earnings available to

common shareholders – non-IFRS or non-Canadian GAAP measure $ 216.9 $ 211.8 $ 212.0 $ 182.4 $ 178.3 $ 191.7 $ 176.5 $ 167.4

Other items:Non-recurring items related to

transition to IFRS, net of tax – – (21.8) – – – – –Proportionate share of affiliate’s

provision – – – (8.2) – – – –Non-cash charge on AFS equity

securities, net of tax – – – – – – (66.2) –Non-cash income tax benefit – – – – – – 17.8 –Premium paid on redemption

of preferred shares – – – – – – (14.4) –Net earnings available to common

shareholders – IFRS or PreviousCanadian GAAP $ 216.9 $ 211.8 $ 190.2 $ 174.2 $ 178.3 $ 191.7 $ 113.7 $ 167.4

Earnings per Share (¢)Net earnings available to common

shareholders 84 82 73 67 68 73 43 6384 81 73 66 68 73 43 63

Operating earnings available to common shareholders(1) – Basic 84 82 81 70 68 73 67 63

– Diluted 84 81 81 69 68 73 67 63

Average Daily Mutual Fund Assets ($ billions) $ 109.9 $ 110.0 $ 105.0 $ 99.4 $ 100.5 $ 100.4 $ 98.6 $ 94.4

Total Mutual Fund AssetsUnder Management ($ billions) $ 108.6 $ 111.7 $ 107.9 $ 102.3 $ 96.5 $ 102.8 $ 100.4 $ 98.4

Total Assets Under Management ($ billions) $ 130.2 $ 134.1 $ 129.5 $ 122.7 $ 115.7 $ 123.4 $ 120.5 $ 117.9

(1) Q4 2010 – refer to Table 1 in the First Quarter MD&A for an explanation of Other items used to calculate the Non-IFRS financial measure.Refer to the Summary of Consolidated Operating Results section included in the MD&A of the 2010 IGM Financial Inc. Annual Report for an explanation of Other itemsused to calculate the Non-IFRS or Non-Canadian GAAP financial measures for other periods.

– Basic– Diluted



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Investors GroupReview of the Business

INVESTORS GROUP STRATEGY

Investors Group strives to ensure that the interests ofshareholders, clients, Consultants and employees areclosely aligned. Investors Group’s business strategy isfocused on:1. Growing our distribution network by expanding the

number of region offices, attracting new Consultantsto our industry and supporting existing Consultantsin their growth and development.

2. Emphasizing the delivery of financial planningadvice, products and services through our exclusivenetwork of Consultants.

3. Providing an effective level of administrative supportto our Consultants and clients, including activecommunication during all economic cycles.

4. Extending the diversity and range of productsoffered by Investors Group as we continue to buildand maintain enduring client relationships.

5. Maximizing returns on business investment byfocusing resources on initiatives that have directbenefits to clients and Consultants, result in increasedefficiency, and improved control over expenditures.

CONSULTANT NETWORK

Investors Group distinguishes itself from its competitionby offering personal financial planning to its clientswithin the context of long-term relationships. At thecentre of this relationship is a national distributionnetwork of Consultants based in 101 region officesacross Canada. Two new region offices in London andDrummondville were recently announced which willexpand our network to 103 region offices.

At June 30, 2011, Investors Group had 4,592Consultants, compared with 4,586 at March 31, 2011,4,686 at the end of 2010, and 4,667 one year ago. Inearly 2011, Investors Group refined its selection andrecruitment practices which will be beneficial to thefuture growth of the Consultant network. However,this change has resulted in a short-term reduction inthe number of Consultant appointments. Terminationsof Consultants in the second quarter of 2011 werebelow recent comparable periods.

The number of Consultants with more than fouryears experience totalled 2,659 at June 30, 2011compared to 2,655 at March 31, 2011, 2,641 at theend of 2010 and 2,612 a year earlier.

ADMINISTRATIVE SUPPORT AND COMMUNICATION FOR CONSULTANTS AND CLIENTS

Administrative support for Consultants and clientsincludes timely and accurate client account record-keeping and reporting, effective problem resolutionsupport, and continuous improvements to servicingsystems.

This administrative support is provided from boththe Company’s Quebec General Office located inMontreal for Consultants and clients residing in Quebecand from the Company’s head office in Winnipeg forConsultants and clients in the rest of Canada. TheQuebec General Office has approximately 200 employees,including operating units for most functions in supportof the 17 region offices and approximately 800Consultants throughout Quebec. Mutual funds undermanagement in Quebec were in excess of $10 billion asat June 30, 2011.

Regular communication with our clients includesquarterly reporting of their Investors Group mutualfund holdings and the change in asset values of theseholdings during the quarter. Individual clients experiencedifferent returns as a result of their net cash flow andfund holdings in each quarter as illustrated on theaccompanying chart. This chart reflects in-quarterclient median rates of return for the four most recentquarters and also illustrates upper and lower range ofrates of return around the median for 90% of InvestorsGroup clients.

For the twelve months ending June 30, 2011, theclient median rate of return was approximately 12%.

-10

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0

5

10

15

20

Q3 10 Q4 10 Q1 11 Q2 11

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R %

In-Quarter Client Rate of Return (ROR) Experience

5.0 5.1 2.7 (2.6) MedianReturns - %

90% of clients rate of return range

D 1 0 P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1


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As a result of the significant market volatilityexperienced in the last few years, communicationsto Consultants and clients increased substantially.Consultants, in turn, maintain a high degree of contactwith our clients, continuing to reinforce the importanceof long-term planning and a diversified investmentportfolio. Ongoing surveys of our clients indicate astrong appreciation of the value of advice provided byour Consultants through varying economic cycles.

ASSETS UNDER MANAGEMENT

The level of mutual fund assets under management isinfluenced by three factors: sales, redemptions and netasset values of our funds. Changes in assets undermanagement for the periods under review are reflectedin Table 9.

Fund PerformanceAt June 30, 2011, 63% of Investors Group mutual funds(Investors, partner and portfolio funds) had a rating ofthree stars or better from the Morningstar† fund rankingservice and 21% had a rating of four or five stars. Thiscompared to the Morningstar† universe of 66% forthree stars or better and 29% for four and five starfunds at June 30, 2011. Morningstar† Ratings are anobjective, quantitative measure of a fund’s three, fiveand ten year risk-adjusted performance relative tocomparable funds.

Change in Mutual Fund Assets Under Management –2011 vs. 2010Investors Group’s mutual fund assets under managementwere $62.2 billion at June 30, 2011, a decrease of 3.0%from $64.0 billion at March 31, 2011 and an increase of

TABLE 9: CHANGE IN MUTUAL FUND ASSETS UNDER MANAGEMENT – INVESTORS GROUP

% change

Three months ended 2011 2011 2010 2011 2010($ millions) jun. 30 mar. 31 jun. 30 mar. 31 jun. 30

Sales $ 1,404.6 $ 2,045.9 $ 1,316.1 (31.3)% 6.7 %Redemptions 1,550.0 1,541.9 1,419.1 0.5 9.2

Net sales (redemptions) (145.4) 504.0 (103.0) n/m (41.2)Market and income (1,745.3) 1,759.3 (3,652.2) n/m 52.2

Net change in assets (1,890.7) 2,263.3 (3,755.2) n/m 49.7Beginning assets 64,048.6 61,785.3 59,223.6 3.7 8.1

Ending assets $ 62,157.9 $ 64,048.6 $ 55,468.4 (3.0)% 12.1 %

Average daily assets $ 62,848.4 $ 63,005.6 $ 57,862.8 (0.2)% 8.6 %

Six months ended 2011 2010($ millions) jun. 30 jun. 30 % change

Sales $ 3,450.5 $ 3,196.3 8.0 %Redemptions 3,091.9 2,738.8 12.9

Net sales 358.6 457.5 (21.6)Market and income 14.0 (2,644.1) n/m

Net change in assets 372.6 (2,186.6) n/mBeginning assets 61,785.3 57,655.0 7.2

Ending assets $ 62,157.9 $ 55,468.4 12.1 %

Average daily assets $ 62,926.6 $ 57,803.0 8.9 %

P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1 D 1 1


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12.1% from $55.5 billion at June 30, 2010. Averagedaily mutual fund assets were $62.8 billion in thesecond quarter of 2011, down 0.2% from $63.0 billionin the first quarter of 2011 and up 8.6% from$57.9 billion in the second quarter of 2010.

For the second quarter ended June 30, 2011, sales ofInvestors Group mutual funds through its Consultantnetwork were $1.4 billion, an increase of 6.7% from2010. Mutual fund redemptions totalled $1.6 billioncompared to $1.4 billion in 2010. Investors Group’stwelve month trailing redemption rate for long-termfunds was 8.5% at June 30, 2011 compared to 7.7% atJune 30, 2010, and remains well below the correspondingaverage redemption rate of approximately 15.5% for allother members of the Investment Funds Institute ofCanada (IFIC) at June 30, 2011. Net redemptions ofInvestors Group mutual funds for the second quarter of2011 were $145 million compared with net redemptionsof $103 million in 2010. Sales of long-term funds were$1.2 billion for the second quarter of 2011, comparedwith $1.1 billion in 2010, an increase of 8.5%. Netredemptions of long-term funds for the second quarterof 2011 were $120 million compared to net redemptionsof $57 million in 2010. During the second quarter,market and income resulted in a decrease of $1.7 billionin mutual fund assets compared to a decrease of$3.7 billion in the second quarter of 2010.

For the six months ended June 30, 2011, sales ofInvestors Group mutual funds through its Consultantnetwork were $3.5 billion, an increase of 8.0% from2010. Mutual fund redemptions totalled $3.1 billioncompared to $2.7 billion in 2010. Net sales of InvestorsGroup mutual funds for the first half of 2011 were$359 million compared with net sales of $458 million in2010. Sales of long-term funds were $3.1 billion for thefirst half of 2011, compared with $2.8 billion in 2010,an increase of 8.3%. Net sales of long-term funds forthe first half of 2011 were $354 million compared to netsales of $509 million in 2010. During the six monthperiod, market and income resulted in an increase of$14 million in mutual fund assets compared to adecrease of $2.6 billion in 2010.

Change in Mutual Fund Assets Under Management –Q2 2011 vs. Q1 2011Investors Group’s mutual fund assets under managementwere $62.2 billion at June 30, 2011, a decrease of 3.0%from $64.0 billion at March 31, 2011. Average dailymutual fund assets were $62.8 billion in the second

quarter of 2011 compared to $63.0 billion in the firstquarter of 2011.

For the second quarter ended June 30, 2011, sales ofInvestors Group mutual funds through its Consultantnetwork were $1.4 billion, a decrease of 31.3% from thefirst quarter of 2011. Mutual fund redemptions, whichtotalled $1.6 billion for the same period, increased 0.5%from the previous quarter. Net redemptions of InvestorsGroup mutual funds for the current quarter were$145 million compared with net sales of $504 millionin the previous quarter. Sales of long-term funds were$1.2 billion for the current quarter, compared with$1.8 billion in the previous quarter, a decrease of32.0%. Net redemptions of long-term funds for thecurrent quarter were $120 million compared to net salesof $473 million in the previous quarter.

OTHER PRODUCTS AND SERVICES

Segregated FundsThe Guaranteed Investment Funds (GIFs) offering ofGreat-West Life segregated funds includes 14segregated fund-of-fund portfolios and 6 segregatedfunds. These funds offer an enhanced selection of deathbenefit and maturity guarantees and also include a newLifetime Income Benefit (LIB) protection feature onselect GIFs. The investment components of thesesegregated funds are managed by Investors Group.At June 30, 2011, total segregated fund assets were$980 million compared to $662 million in 2010.

InsuranceInvestors Group distributes insurance products throughI.G. Insurance Services Inc. For the three monthsended June 30, 2011, sales of insurance products asmeasured by new annualized premiums were$16.1 million, an increase of 13.0% over $14.2 millionin 2010. For the six months ended June 30, 2011, salesof insurance products were $31.0 million, an increase of13.5% over $27.3 million in 2010.

Securities OperationsInvestors Group provides securities services to clientsthrough Investors Group Securities Inc. At June 30,2011, total assets under administration were $6.3 billioncompared to $5.5 billion in 2010.

Mortgage OperationsClients who are seeking residential mortgages arereferred to Investors Group mortgage planning



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specialists who originate mortgages in key residentialmarkets. For the three months ended June 30, 2011,mortgage originations were $404 million compared with$402 million in 2010. For the six months ended June 30,2011, mortgage originations were $734 million comparedto $687 million in 2010. At June 30, 2011, mortgagesserviced by Investors Group totalled $6.0 billioncompared to $5.7 billion at December 31, 2010.

Through its mortgage banking operations, residentialmortgages originated by Investors Group mortgageplanning specialists are sold to the Investors Mortgageand Short Term Income Fund, securitization programs,and institutional investors. Certain subsidiaries ofInvestors Group are CMHC-approved issuers ofNational Housing Act Mortgage-Backed Securities(NHA MBS) and sellers of NHA MBS into the CanadaMortgage Bond Program (CMB Program).Securitization programs that these subsidiariesparticipate in also include certain bank-sponsoredasset-backed commercial paper (ABCP) programs.Residential mortgages are also held by InvestorsGroup’s intermediary operations.

Solutions Banking†

Investors Group’s Solutions Banking† continues toexperience high rates of utilization by Consultants andclients. The offering consists of a wide range of productsand services provided by the National Bank of Canadaunder a long-term distribution agreement and includes:investment loans, lines of credit, personal loans, creditorinsurance, deposit accounts and credit cards. Clientshave access to a network of banking machines, as wellas a private labeled client website and private labeledclient service centre. The Solutions Banking† offeringsupports Investors Group’s approach to delivering totalfinancial solutions for our clients through a broadfinancial planning platform.

Additional Products and ServicesInvestors Group also provides its clients withguaranteed investment certificates offered by InvestorsGroup Trust Co. Ltd., as well as a number of otherfinancial institutions.



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TABLE 10: OPERATING RESULTS – INVESTORS GROUP

% change


RevenuesManagement fees $ 298.7 $ 297.6 $ 275.7 0.4 % 8.3 %Administration fees 58.3 57.9 54.6 0.7 6.8Distribution fees 47.3 47.7 44.9 (0.8) 5.3

404.3 403.2 375.2 0.3 7.8Net investment income and other 12.8 21.5 (6.2) (40.5) n/m

417.1 424.7 369.0 (1.8) 13.0

ExpensesCommission 68.1 68.0 67.2 0.1 1.3Asset retention bonus and premium 56.8 56.2 51.8 1.1 9.7Non-commission 92.1 85.8 83.6 7.3 10.2

217.0 210.0 202.6 3.3 7.1

Earnings before interest and taxes $ 200.1 $ 214.7 $ 166.4 (6.8)% 20.3 %


RevenuesManagement fees $ 596.3 $ 547.4 8.9 %Administration fees 116.2 109.1 6.5Distribution fees 95.0 86.7 9.6

807.5 743.2 8.7Net investment income and other 34.3 18.9 81.5

841.8 762.1 10.5

ExpensesCommission 136.1 131.9 3.2Asset retention bonus and premium 113.0 102.9 9.8Non-commission 177.9 165.1 7.8

427.0 399.9 6.8

Earnings before interest and taxes $ 414.8 $ 362.2 14.5 %

Review of Segment Operating Results

Investors Group’s earnings before interest and taxes arepresented in Table 10.

2011 VS. 2010

Fee IncomeFee income is generated from the management,administration and distribution of Investors Groupmutual funds. The distribution of insurance and

Solutions Banking† products and the provision ofsecurities services provide additional fee income.

Investors Group earns management fees forinvestment management services provided to itsmutual funds, which depend largely on the level andcomposition of mutual fund assets under management.Management fees were $298.7 million in the secondquarter of 2011, an increase of $23.0 million or 8.3%from $275.7 million in 2010. For the six months ended



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June 30, 2011, management fees were $596.3 million,an increase of $48.9 million or 8.9% from $547.4 millionin 2010. The increase in management fees in bothperiods was primarily due to the increase of 8.6% and8.9%, respectively, in average daily mutual fund assetsas shown in Table 9. Management fees were 191 basispoints of average daily mutual fund assets for all periodsunder review. Management fee income and averagemanagement fee rates for all of the periods under reviewalso reflected the effect of Investors Group waiving aportion of the investment management fees on its moneymarket funds to ensure that these funds maintained apositive yield. For the three and six month periods,these waivers totalled $1.0 million and $2.0 million,respectively, in 2011 compared to $1.8 million and$3.8 million, respectively, in the prior year.

Administration fees totalled $58.3 million in thecurrent quarter compared to $54.6 million a year ago,an increase of 6.8%. Administration fees were$116.2 million for the six month period ended June 30,2011 compared to $109.1 million in 2010. The increasesresulted primarily from the increase of average dailymutual fund assets under management of 8.6% and8.9%, respectively, in the three and six month periodsoffset by the impact of reductions in the fixed rate onadministration fees charged on certain mutual funds,effective July 1, 2010.

Distribution fees are earned from:• Redemption fees on mutual funds sold with a

deferred sales charge.• Distribution of insurance products through

I.G. Insurance Services Inc.• Securities trading services provided through

Investors Group Securities Inc.• Banking services provided through Solutions Banking†,

an arrangement with the National Bank of Canada.Distribution fee income of $47.3 million for the

second quarter of 2011 increased by $2.4 million from$44.9 million in 2010. For the six month period,distribution fees of $95.0 million increased by$8.3 million from $86.7 million in 2010. Distributionfee income from insurance and banking products andfrom securities services increased in both periods of2011 compared to 2010. Redemption fee incomeincreased by $0.2 million to $12.6 million in the secondquarter of 2011 compared to 2010. For the six monthperiod, redemption fee income increased by $2.0 millionto $26.3 million. Redemption fee income may vary

depending on the level of deferred sales chargeattributable to fee-based redemptions.

Net Investment Income and OtherNet investment income and other includes incomerelated to mortgage banking activities as well as interestearned on cash and cash equivalents, securities andmortgage loans related to intermediary operations.Investors Group reports net investment income as thedifference between investment income and interestexpense. Interest expense includes interest on depositliabilities and interest on bank indebtedness, if any.

Net investment income and other was $12.8 millionin the second quarter of 2011, an increase of $19.0 millionfrom a loss of $6.2 million in 2010. For the six monthsended June 30, 2011, net investment income and othertotalled $34.3 million, an increase of $15.4 million from$18.9 million in 2010. The increases in net investmentincome related primarily to Investors Group’s mortgagebanking operations. A summary of mortgage bankingactivities for the three and six month periods underreview are presented in Table 11.

Net investment income related to Investors Group’smortgage banking operations totalled $12.6 million and$33.7 million in the three and six month periods endedJune 30, 2011 compared to a net loss of $6.6 millionand net income of $18.8 million in the comparableperiods in 2010 primarily due to: • Fair value adjustments – related to financial

instruments and interest rate swaps utilized forhedging purposes in securitization transactions andfor warehouse mortgage loans which are classified asheld for trading. Negative fair value adjustments as aresult of interest rate changes were $4.5 million forthe three and six month periods ended June 30, 2011compared to $29.0 million and $32.8 million in thecomparative periods in 2010. The Company’sexposure to and management of interest rate risk isdiscussed further in the Financial Instrumentssection of this MD&A.

• Net interest income on securitized loans – whichtotalled $15.6 million and $31.9 million for thethree and six month periods ended June 30, 2011compared to $21.7 million and $42.8 million in thecomparative periods in 2010. Increases in asset-backed commercial paper yields during the periodsunder review resulted in a lower net interest incomemargin which accounted for $4.6 million and$2.5 million of the decrease in the respective



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periods. The remainder of the decrease related toa reduction in the proportion of securitized loansresiding in asset-backed commercial paper programsto total securitized loans which declined to 32% atJune 30, 2011 from 49% at June 30, 2010. Theseloans currently have a higher net interest marginthan those securitized in the Canada MortgageBond Program.

ExpensesInvestors Group incurs commission expense inconnection with the distribution of its mutual fundsand other financial services and products. Commissionsare paid on the sale of these products and fluctuate withthe level of sales. The expense for deferred sellingcommissions consists of the amortization of the assetover its useful life and the reduction of the unamortizeddeferred selling commission asset associated with

TABLE 11: MORTGAGE BANKING ACTIVITIES – INVESTORS GROUP

% change

2011 2011 2010 2011 2010($ millions) jun. 30 mar. 31 jun. 30 mar. 31 jun. 30

(As at)Mortgages serviced $ 5,982 $ 5,808 $ 5,608 3.0 % 6.7 %Mortgage warehouse(1) $ 363 $ 289 $ 358 25.6 % 1.4 %

(Three months ended)Average mortgages serviced

CMB/MBS Programs $ 2,300 $ 2,113 $ 1,627 8.8 % 41.4 %Bank-sponsored ABCP programs 1,108 1,281 1,554 (13.5) (28.7)

Securitizations 3,408 3,394 3,181 0.4 7.1Other 2,511 2,367 2,350 6.1 6.9

$ 5,919 $ 5,761 $ 5,531 2.7 % 7.0 %

Mortgage originations(2) $ 404 $ 330 $ 402 22.4 % 0.5 %

Mortgage sales to:(3)

Securitizations $ 236 $ 291 $ 351 (18.9)% (32.8)%Other(4) 189 198 200 (4.5) (5.5)

$ 425 $ 489 $ 551 (13.1)% (22.9)%

Total mortgage banking incomeNet interest income on securitized loans

Interest income $ 36.2 $ 36.7 $ 36.8 (1.4)% (1.6)%Interest expense (20.6) (20.4) (15.1) (1.0) (36.4)

Net interest income 15.6 16.3 21.7 (4.3) (28.1)Gains on sales(5) 2.2 3.3 (0.2) (33.3) n/mMark-to-market and other income (5.2) 1.5 (28.1) n/m 81.5

$ 12.6 $ 21.1 $ (6.6) (40.3)% n/m %

(1) Warehouse activities include mortgage fundings, mortgage renewals and mortgage refinances.(2) Excludes renewals and refinances.(3) Represents principal amounts sold.(4)(5) Represents sales to both institutional investors through private placements and to Investors Mortgage and Short Term Income Fund and gains realized on those sales.



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TABLE 11: MORTGAGE BANKING ACTIVITIES – INVESTORS GROUP (CONTINUED)

2011 2010($ millions) jun. 30 jun. 30 % change

(Six months ended)Average mortgages serviced

CMB/MBS Programs $ 2,218 $ 1,569 41.4 %Bank-sponsored ABCP programs 1,184 1,635 (27.6)

Securitizations 3,402 3,204 6.2Other 2,443 2,262 8.0

$ 5,845 $ 5,466 6.9 %

Mortgage originations(2) $ 734 $ 687 6.8 %

Mortgage sales to:(3)

Securitizations $ 527 $ 555 (5.0)%Other(4) 387 433 (10.6)

$ 914 $ 988 (7.5)%

Total mortgage banking incomeNet interest income on securitized loans

Interest income $ 72.9 $ 73.2 (0.4)%Interest expense (41.0) (30.4) (34.9)

Net interest income 31.9 42.8 (25.5)Gains on sales(5) 5.5 5.2 5.8Mark-to-market and other income (3.7) (29.2) 87.3

$ 33.7 $ 18.8 79.3 %


redemptions. Commissions paid on the sale of mutualfunds are deferred and amortized over a maximumperiod of seven years. Commission expense for thesecond quarter of 2011 increased by $0.9 million to$68.1 million compared with $67.2 million in 2010 andfor the six month period increased by $4.2 million to$136.1 million compared with $131.9 million in 2010.These increases were due to increases in thedistribution of mutual funds and other financial servicesand products.

Asset retention bonus and premium expense iscomprised of the following:• Asset retention bonus which is paid monthly is

based on the value of assets under management.Asset retention bonus expense increased by$4.6 million and $9.2 million for the three and sixmonth periods ended June 30, 2011 to $48.4 million

and $96.2 million, respectively, compared to 2010.The increases were primarily as a result of changesin average assets under management.

• Asset retention premium which is paid annually is adeferred component of compensation designed topromote Consultant retention and is based on assetsunder management at each year-end. Asset retentionpremium expense increased by $0.4 million and$0.9 million in the three and six month periods to$8.4 million and $16.8 million, respectively,compared to 2010.Non-commission expenses incurred by Investors

Group related primarily to the support of theConsultant network, the administration, marketingand management of its mutual funds and other products,as well as subadvisory fees related to mutual fundsunder management. Non-commission expenses were



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$92.1 million for the second quarter of 2011 comparedto $83.6 million in 2010, an increase of $8.5 million or10.2%. For the six month period, non-commissionexpenses were $177.9 million compared to $165.1 millionin 2010, an increase of $12.8 million or 7.8%.

Q2 2011 VS. Q1 2011

Fee IncomeManagement fee income increased by $1.1 million or0.4% to $298.7 million in the second quarter of 2011compared with the first quarter of 2011. There was oneadditional calendar day in the second quarter of 2011compared to the first quarter of 2011 which resulted ina $3.3 million increase in fee income in the currentquarter. Excluding the impact of the additional calendarday in the current quarter, management fee incomedeclined consistent with the decrease in average dailymutual fund assets of 0.2% as shown in Table 9 and thedecrease in the management fee rate to 191 basis pointsof average daily mutual fund assets from 192 basispoints in the prior quarter. Money market fund waiverstotalled $1.0 million in both the first and secondquarters of 2011.

Administration fees increased to $58.3 million in thesecond quarter of 2011 from $57.9 million in the firstquarter of 2011 due primarily to the impact of theadditional calendar day in the quarter.

Distribution fee income of $47.3 million in thesecond quarter of 2011 decreased by $0.4 million from$47.7 million in the first quarter. The decrease wasprimarily due to a decrease in redemption fee income of$1.1 million, offset in part by an increase in distributionfee income from insurance products.

Net Investment Income and OtherNet investment income and other was $12.8 million inthe second quarter of 2011, a decrease of $8.7 millionfrom $21.5 million in the previous quarter. The decreasein net investment income related primarily to InvestorsGroup’s mortgage banking operations, which decreasedby $8.5 million during the quarter as shown in Table11. As previously discussed, the Company recordednegative fair value adjustments of $4.5 million duringthe second quarter relating to its hedges of interest raterisk associated with fixed-rate mortgages securitizedthrough asset-backed commercial paper programs.There were no fair value adjustments in the previousquarter. Gains on sales to the Investors Mortgage andShort Term Income Fund and institutional investorsdecreased by $1.0 million as a result of lower marginsduring the period. Net interest income on securitizedloans decreased by $0.7 million due to a reduction inthe proportion of securitized loans residing in bank-sponsored asset-backed commercial paper programs,as these loans currently have a higher net interestmargin than those securitized in the Canada MortgageBond Program.

ExpensesCommission expense in the current quarter was$68.1 million compared with $68.0 million in theprevious quarter. The asset retention bonus andpremium expense increased by $0.6 million to$56.8 million in the second quarter of 2011.

Non-commission expenses increased $6.3 million to$92.1 million in the second quarter of 2011 comparedwith the first quarter due primarily to seasonal patternsof expenses related to the support of the Consultantnetwork and mutual fund operations.



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MACKENZIE STRATEGY

Mackenzie strives to ensure that the interests ofshareholders, dealers, advisors, investment clients andemployees are closely aligned. Mackenzie’s businessapproach embraces current trends and practices in theglobal financial services industry and our strategic planis focused on:1. The delivery of consistent long-term investment

results.2. Offering a diversified suite of investment solutions

for financial advisors and investors.3. Continuing to build and solidify our distribution

relationships.4. Maximizing returns on business investment by

focusing resources on initiatives that have directbenefits to investment management, distributionand client service.Founded in 1967, Mackenzie continues to build

an investment advisory business through proprietaryinvestment research and portfolio management whileutilizing strategic partners in a selected sub-advisorycapacity. Our sales model focuses on multiple thirdparty distribution channels engaged in the provision offinancial advice to investors. This approach is particularlyrelevant in the current economic environment asinvestors look for assistance in positioning their financialplans. We are committed to continuing to partner withthe advice channel going forward.

Mackenzie distributes its retail investment productsthrough third party financial advisors. Mackenzie’ssales teams work with many of the more than 30,000independent financial advisors across Canada. Inaddition to its retail distribution team, Mackenzie alsohas specialty teams focused on strategic alliances, sub-advisory accounts, private asset management and theinstitutional marketplace. Mackenzie attracts newinstitutional business through its relationships withpension and management consultants, through directsales efforts and through additional mandates from itsexisting client relationships.

Mackenzie faces strong competition from other assetmanagement companies, banks, insurance companies andother financial institutions which distribute their productsand services to the same customers that Mackenzie isseeking to attract. Mackenzie continues to be wellpositioned with its team of experienced investmentprofessionals, broad product shelf, competitively priced

products and its focus on customer service to continueto build and enhance its distribution relationships.

ASSETS UNDER MANAGEMENT

The changes in assets under management aresummarized in Table 12.

The change in Mackenzie’s assets under managementis determined by: (1) the increase or decrease in themarket value of the securities held in the portfolios ofinvestments; (2) the level of sales as compared to thelevel of redemptions; and (3) acquisitions.

Long-term investment performance is a key measureof Mackenzie’s ongoing success. At June 30, 2011, 46%of Mackenzie’s mutual funds were rated in the top twoperformance quartiles for the one year time frame,67% for the three year time frame and 65% for thefive year time frame. Mackenzie also monitors its fundperformance relative to the ratings it receives on itsmutual funds from the Morningstar† fund rankingservice. At June 30, 2011, 82% of Mackenzie’s mutualfund assets measured by Morningstar† had a rating ofthree stars or better and 45% had a rating of four orfive stars. This compared to the Morningstar† universeof 81% for three stars or better and 41% for four andfive star funds at June 30, 2011.

Mackenzie’s diversified suite of investment productsis designed to meet the needs and goals of investors.During the current period, Mackenzie continued toadjust its product shelf by providing enhancedinvestment solutions for financial advisors to offer theirinvestment clients. A summary of product initiativesundertaken this quarter included the following:• April 21 – Mackenzie announced the conversion

of the Canadian Shield Fund from a closed-endinvestment fund to an open-end mutual fund. Theconversion took place on July 8, 2011 and the newfund was named Mackenzie Universal CanadianShield Fund.

• May 27 – Mackenzie announced that it appointedPutnam Investments as sub-advisor to severalMackenzie high-yield corporate bond funds,effective June 1, 2011.

2011 vs. 2010Mackenzie’s total assets under management at June 30,2011 were $68.8 billion, an increase of 13.0% from$60.9 billion at June 30, 2010. Mackenzie’s mutual fund

MackenzieReview of the Business



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assets under management were $43.6 billion at June 30,2011, an increase of 12.2% from $38.9 billion atJune 30, 2010. Mackenzie’s sub-advisory, institutionaland other accounts at June 30, 2011 were $25.2 billion,an increase of 14.5% from $22.0 billion last year.

In the three months ended June 30, 2011,Mackenzie’s gross sales were $2.7 billion, a declineof 19.7% from $3.3 billion in the comparative periodlast year. Redemptions in the current period were

$2.9 billion, a decline of 26.0% from $3.9 billion lastyear. Net redemptions for the three months endedJune 30, 2011 were $173 million, as compared to netredemptions of $516 million last year. During thecurrent quarter, market and income resulted in assetsdecreasing by $1.7 billion as compared to a decrease of$3.5 billion in 2010.

Mackenzie’s gross sales were higher by $0.5 billionand redemptions were higher by $0.4 billion in the

TABLE 12: CHANGE IN ASSETS UNDER MANAGEMENT – MACKENZIE

% change


Sales $ 2,683.9 $ 3,486.2 $ 3,343.3 (23.0)% (19.7)%Redemptions 2,856.5 3,365.5 3,859.6 (15.1) (26.0)

Net sales (redemptions) (172.6) 120.7 (516.3) n/m 66.6Market and income (1,698.8) 2,211.9 (3,453.9) n/m 50.8

Net change in assets (1,871.4) 2,332.6 (3,970.2) n/m 52.9Beginning assets 70,678.9 68,346.3 64,857.2 3.4 9.0

Ending assets $ 68,807.5 $ 70,678.9 $ 60,887.0 (2.6)% 13.0 %

Consists of:Mutual funds $ 43,601.3 $ 44,824.2 $ 38,867.3 (2.7)% 12.2 %Sub-advisory, institutional and

other accounts 25,206.2 25,854.7 22,019.7 (2.5) 14.5

$ 68,807.5 $ 70,678.9 $ 60,887.0 (2.6)% 13.0 %

Daily average mutual fund assets $ 44,176.0 $ 44,219.0 $ 40,431.5 (0.1)% 9.3 %

Monthly average total assets(1) $ 69,934.2 $ 69,546.5 $ 63,406.3 0.6 % 10.3 %


Sales $ 6,170.1 $ 6,570.8 (6.1)%Redemptions 6,222.0 6,986.2 (10.9)

Net sales (redemptions) (51.9) (415.4) 87.5Market and income 513.1 (2,277.0) n/m

Net change in assets 461.2 (2,692.4) n/mBeginning assets 68,346.3 63,579.4 7.5

Ending assets $ 68,807.5 $ 60,887.0 13.0 %

Daily average mutual fund assets $ 44,197.4 $ 40,482.1 9.2 %

Monthly average total assets(1) $ 69,695.7 $ 63,430.9 9.9 %

(1) Based on daily average mutual fund assets and month-end average sub-advisory, institutional and other assets.



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quarter ended June 30, 2010 as a result of rebalancetransactions by two institutional investors.

In the six months ended June 30, 2011, Mackenzie’sgross sales were $6.2 billion, a decrease of 6.1% from$6.6 billion in the comparative period last year.Redemptions in the current period were $6.2 billion,a decrease of 10.9% from $7.0 billion last year. Netredemptions for the six months ended June 30, 2011were $52 million, as compared to net redemptions of$415 million last year. During the current period,market and income resulted in assets increasing by$0.5 billion as compared to a decrease of $2.3 billionin 2010.

Redemptions of long-term mutual funds in the sixmonths ended June 30, 2011 were $3.3 billion unchangedfrom last year. As at June 30, 2011, Mackenzie’s twelve-month trailing redemption rate for long-term funds was15.9%, as compared to 15.7% last year. The averagetwelve-month trailing redemption rate for long-termfunds for all other members of IFIC was 14.6% atJune 30, 2011. Mackenzie’s twelve-month trailingredemption rate is comprised of the weighted averageredemption rate for front-end load assets, deferred sales

charge and low load assets with redemption fees, anddeferred sales charge assets without redemption fees(matured assets). Generally, redemption rates for front-end load assets and matured assets are higher than theredemption rates for deferred sales charge and low loadassets with redemption fees.

Q2 2011 vs. Q1 2011Mackenzie’s total assets under management at June 30,2011 were $68.8 billion, a decrease of 2.6% from$70.7 billion at March 31, 2011 as summarized in Table12. Mackenzie’s mutual fund assets under managementdecreased $1.2 billion or 2.7% to $43.6 billion in thequarter and Mackenzie’s sub-advisory, institutionaland other accounts decreased $0.7 billion or 2.5% to$25.2 billion at June 30, 2011.

Redemptions of long-term mutual fund assets inthe current quarter were $1.5 billion as compared to$1.8 billion in the quarter ended March 31, 2011.Mackenzie’s annualized quarterly redemption rate forlong-term funds for the quarter ended June 30, 2011was 14.1% as compared to 17.0% in the first quarterof 2011.

Mackenzie’s earnings before interest and taxes arepresented in Table 13.

2011 VS. 2010

RevenuesMackenzie’s management fee revenues are earned fromservices it provides as fund manager to the Mackenziemutual funds and as investment advisor to sub-advisoryand institutional accounts. The majority of Mackenzie’smutual fund assets are purchased on a retail basis.Mackenzie also offers certain series of its mutual fundswith management fees that are designed for fee-basedprograms, institutional investors and third partyinvestment programs offered by banks, insurancecompanies and investment dealers. Mackenzie does notpay commissions on these non-retail series of its mutualfunds. At June 30, 2011, there were $10.6 billion ofmutual fund assets in these series of funds, as comparedto $8.9 billion at June 30, 2010.

Management fees were $181.6 million for the threemonths ended June 30, 2011, an increase of $10.9 millionor 6.4% from $170.7 million last year. For the sixmonths ended June 30, 2011, management fees were$364.9 million, an increase of $24.9 million or 7.3%from $340.0 million in 2010. The increase inmanagement fees in both periods was due to the changein Mackenzie’s monthly average total assets undermanagement combined with the change in the mix ofassets under management.

Monthly average total assets under managementwere $69.9 billion in the three month period endedJune 30, 2011 compared to $63.4 billion in 2010, anincrease of 10.3%. Monthly average total assets undermanagement for the six month period ended June 30,2011 were $69.7 billion as compared to $63.4 billion in2010, an increase of 9.9%.

Mackenzie’s average management fee rate was 104.2basis points in the three month period ended June 30,2011, and 105.6 basis points in the six month period

Review of Segment Operating Results



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TABLE 13: OPERATING RESULTS – MACKENZIE

% change


RevenuesManagement fees $ 181.6 $ 183.3 $ 170.7 (0.9)% 6.4 %Administration fees 32.8 33.1 33.1 (0.9) (0.9)Distribution fees 5.3 6.4 6.2 (17.2) (14.5)

219.7 222.8 210.0 (1.4) 4.6Net investment income and other 4.1 4.5 3.0 (8.9) 36.7

223.8 227.3 213.0 (1.5) 5.1

ExpensesCommission 23.6 25.7 27.0 (8.2) (12.6)Trailing commission 50.2 50.1 45.6 0.2 10.1Non-commission 69.2 71.7 67.1 (3.5) 3.1

143.0 147.5 139.7 (3.1) 2.4

Earnings before interest and taxes $ 80.8 $ 79.8 $ 73.3 1.3 % 10.2 %


RevenuesManagement fees $ 364.9 $ 340.0 7.3 %Administration fees 65.9 65.8 0.2Distribution fees 11.7 12.7 (7.9)

442.5 418.5 5.7Net investment income and other 8.6 6.4 34.4

451.1 424.9 6.2

ExpensesCommission 49.3 56.0 (12.0)Trailing commission 100.3 91.0 10.2Non-commission 140.9 136.3 3.4

290.5 283.3 2.5

Earnings before interest and taxes $ 160.6 $ 141.6 13.4 %

ended June 30, 2011, compared to 108.0 basis pointsand 108.1 basis points respectively in 2010. Factorscontributing to the net decrease in the averagemanagement fee rate as compared to 2010 are as follows:• Institutional assets and non-retail mutual funds have

lower management fees than retail mutual funds.The proportion of Mackenzie’s institutional accountsand non-retail mutual funds increased as a percentageof Mackenzie’s total assets under management

resulting in a decrease to the average managementfee rate.

• The lower level of waivers of management fees onits money market funds relative to last year increasedMackenzie’s average management fee rate. Due tothe continuing low interest rate environment inthe current year, Mackenzie waived a portion of itsmanagement fees on these funds in order tomaintain positive net returns for investors. In the



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three and six month periods ended June 30, 2011,Mackenzie waived management fees of $0.1 millionand $0.2 million respectively on its money marketfunds as compared to $1.8 million and $4.1 millionin 2010.Administration fees include the following main

components:• Administration fees for providing services to the

Mackenzie mutual funds.• Trustee and other administration fees generated

from the MRS account administration business.Administration fees were $32.8 million for the

three months ended June 30, 2011, as compared to$33.1 million in 2010. Administration fees were$65.9 million for the six months ended June 30, 2011,as compared to $65.8 million in 2010.

Effective August 1, 2007, Mackenzie assumedresponsibility for the operating expenses of theMackenzie funds, other than GST/HST andcertain specified fund costs, in return for a fixed rateadministration fee established for each fund based onthe following criteria:• From August 1, 2007 until December 31, 2009, and

thereafter as may be applicable, the funds that existedas at August 1, 2007 may be required to pay a monthlyoperating expense adjustment to Mackenzie if thecombined average monthly net assets for allMackenzie funds and series that were subject to theadministration fee proposal that was approved byinvestors on August 7, 2007 fall to a level that is95% of the amount of their total net assets onAugust 1, 2007. If it becomes payable, Mackenziewill be entitled to receive an operating expenseadjustment for that month from each of those fundsand series in such amount that will result in all ofthose series, collectively, paying an administrationfee for the month equal to the administration feethat would have been payable had the monthly netassets equaled 95% of the net assets on August 1,2007 throughout the month.

• As the applicable mutual fund asset levels as atDecember 31, 2009 were below 95% of the net assetlevels on August 1, 2007, the monthly operatingexpense adjustment continues until the first monthwhere average asset levels exceed 95% of the netasset levels on August 1, 2007. If, in a subsequentmonth, the monthly net assets increase to an amountequal to or greater than 95% of the net assets on

August 1, 2007, the operating expense adjustmentwill no longer be payable.Due to the level of mutual fund assets, Mackenzie

continued to receive an operating expense adjustmentin the current period. Included in administration feeswere operating expense adjustments of $2.0 million inthe three months ended June 30, 2011 and $3.6 millionin the six months ended June 30, 2011, compared to$3.3 million and $6.5 million respectively in 2010.

Mackenzie earns distribution fee income onredemptions of mutual fund assets sold on a deferredsales charge purchase option and on a low load purchaseoption. Distribution fees charged for deferred salescharge assets range from 5.5% in the first year anddecrease to zero after seven years. Distribution fees forlow load assets range from 3.0% in the first year anddecrease to zero after three years. Distribution feeincome in the three months ended June 30, 2011 was$5.3 million, a decrease of $0.9 million from $6.2 millionlast year. Distribution fee income in the six monthsended June 30, 2011, was $11.7 million, a decrease of$1.0 million from $12.7 million in 2010.

The primary component of net investment incomeand other is the net interest margin from M.R.S. TrustCompany’s lending and deposit-taking operations. Netinvestment income and other in the three monthsended June 30, 2011 was $4.1 million, an increase of$1.1 million from $3.0 million in 2010. Net investmentincome in the six months ended June 30, 2011 was$8.6 million, an increase of $2.2 million from $6.4 millionin the comparative period last year.

ExpensesMackenzie’s expenses were $143.0 million for the threemonths ended June 30, 2011, an increase of $3.3 millionor 2.4% from $139.7 million last year. Expenses for thesix months ended June 30, 2011 were $290.5 million,an increase of $7.2 million or 2.5% from $283.3 millionin 2010.

Mackenzie pays selling commissions to the dealersthat sell its mutual funds on a deferred sales charge andlow load purchase option. The expense for deferredselling commissions consists of the amortization of theasset over its useful life and the reduction of theunamortized deferred selling commission asset associatedwith redemptions. Commission expense, whichrepresents the amortization of selling commissions, was$23.6 million in the three months ended June 30, 2011,



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as compared to $27.0 million last year. Commissionexpense in the six months ended June 30, 2011 was$49.3 million as compared to $56.0 million in 2010.Mackenzie amortizes selling commissions over amaximum period of three years from the date oforiginal purchase of the applicable low load assets andover a maximum period of seven years from the dateof original purchase of the applicable deferred salescharge assets.

Trailing commissions paid to dealers are calculated asa percentage of mutual fund assets under managementand vary depending on the fund type and the purchaseoption upon which the fund was sold: front-end,deferred sales charge or low load. Trailing commissionswere $50.2 million in the three months ended June 30,2011, an increase of $4.6 million or 10.1% from$45.6 million last year. Trailing commissions in the sixmonths ended June 30, 2011 were $100.3 million, anincrease of $9.3 million or 10.2% from $91.0 million inthe comparative period last year. The change in trailingcommissions in both the three and six month periodsended June 30, 2011 is consistent with the period overperiod increase in average mutual fund assets undermanagement and the change in asset mix withinMackenzie’s mutual funds. Trailing commissions asa percentage of average mutual fund assets undermanagement were 45.6 basis points in the three monthsended June 30, 2011 and 45.8 basis points in the sixmonths ended June 30, 2011 as compared to 45.2 basispoints and 45.3 basis points respectively last year.

Non-commission expenses are incurred by Mackenziein the administration, marketing and management ofits assets under management, and in its accountadministration and trust company businesses. Non-commission expenses were $69.2 million in the threemonths ended June 30, 2011, an increase of $2.1 millionor 3.1% from $67.1 million last year. Non-commissionexpenses in the six months ended June 30, 2011 were$140.9 million, an increase of $4.6 million or 3.4%from $136.3 million in the comparative period last year.Mackenzie actively manages its non-commissionexpenses to enhance its future operating capabilitieswhile at the same time investing in revenue generatinginitiatives to further grow its business.

Q2 2011 VS. Q1 2011

RevenuesManagement fees were $181.6 million for the currentquarter, a decrease of $1.7 million or 0.9% from$183.3 million in the first quarter of 2011. Factorscontributing to this decrease are as follows:• Mackenzie’s average management fee rate was 104.2

basis points in the current quarter as compared to106.9 basis points in the first quarter of 2011.Contributing to the decline is the relative change inMackenzie’s institutional accounts and in its non-retail mutual funds relative to the change in its retailmutual funds.

• Monthly average total assets under managementwere $69.9 billion in the current quarter comparedto $69.5 billion in the quarter ended March 31,2011, an increase of 0.6%.

• An increase in calendar days in the current quarteras compared to the first quarter of 2011. Thisdifference resulted in an increase of managementfees of approximately $1.9 million in the currentquarter on a comparative basis.Administration fees were $32.8 million in the current

quarter compared to $33.1 million in the quarter endedMarch 31, 2011. Included in administration fees for thecurrent quarter were fund operating expense adjustmentsof $2.0 million as compared to $1.6 million in the firstquarter of 2011.

ExpensesMackenzie’s expenses were $143.0 million for thecurrent quarter, a decrease of $4.5 million or 3.1%from $147.5 million in the first quarter of 2011.

Commission expense, which represents theamortization of selling commissions, was $23.6 millionin the quarter ended June 30, 2011, as compared to$25.7 million in the first quarter of 2011. Trailingcommissions were $50.2 million in the current quarter,an increase of $0.1 million or 0.2% from $50.1 millionin the first quarter of 2011.

Non-commission expenses were $69.2 million in thecurrent quarter, a decrease of $2.5 million or 3.5% fromthe first quarter of 2011. Mackenzie’s non-commissionexpenses tend to be higher in the first quarter of theyear due to the general increase in sales activities andtransaction volumes.



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The Corporate and Other segment includes netinvestment income not allocated to the Investors Groupor Mackenzie segments, the Company’s proportionateshare of earnings of its affiliate, Great-West Lifeco Inc.,operating results for Investment Planning Counsel Inc.,other income, as well as inter-segment eliminations.

Corporate and other earnings before interest andtaxes are presented in Table 14.

2011 VS. 2010

Net investment income and other increased by$1.3 million in the second quarter of 2011 comparedwith 2010. The increase in net investment incomeon unallocated investments as well as an increase of$0.2 million in the Company’s proportionate share

of Lifeco’s earnings, as reflected in the ConsolidatedFinancial Position section of this MD&A. In addition,the second quarter of 2010 included net gains on thesale of equity securities.

Net investment income and other decreased by$4.5 million in the six months ended June 30, 2011compared with 2010. The six months ended June 30,2010 included net gains on the sale of equity securities.This decrease was offset in part by an increase in netinvestment income on unallocated investments.

Earnings before interest and taxes related toInvestment Planning Counsel were $1.3 millionhigher in the second quarter of 2011 compared to thesame period in 2010 and $1.9 million higher for thesix months ended June 30, 2010.

Corporate and OtherReview of Segment Operating Results

TABLE 14: OPERATING RESULTS – CORPORATE AND OTHER

% change


RevenuesFee income $ 44.7 $ 48.5 $ 31.4 (7.8)% 42.4 %Net investment income and other 24.6 19.9 23.3 23.6 5.6

69.3 68.4 54.7 1.3 26.7

ExpensesCommission 30.2 33.6 20.4 (10.1) 48.0 Non-commission 10.7 11.7 8.3 (8.5) 28.9

40.9 45.3 28.7 (9.7) 42.5

Earnings before interest and taxes $ 28.4 $ 23.1 $ 26.0 22.9 % 9.2 %


RevenuesFee income $ 93.2 $ 66.0 41.2 %Net investment income and other 44.5 49.0 (9.2)

137.7 115.0 19.7

ExpensesCommission 63.8 43.9 45.3 Non-commission 22.4 16.6 34.9

86.2 60.5 42.5

Earnings before interest and taxes $ 51.5 $ 54.5 (5.5)%



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Q2 2011 VS. Q1 2011

Net investment income and other increased by$4.7 million in the second quarter of 2011 comparedwith the previous quarter due primarily to an increaseof $1.1 million in the Company’s proportionate share ofLifeco’s earnings and increases in other income relatedto the seasonality of certain fees.

Earnings before interest and taxes related toInvestment Planning Counsel were $0.5 million higherin the second quarter of 2011 compared with theprevious quarter.



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IGM Financial’s total assets were $11.2 billion atJune 30, 2011, compared to $12.2 billion atDecember 31, 2010.

SECURITIES

The composition of the Company’s securities holdingsis detailed in Table 15.

Available for Sale (AFS) SecuritiesSecurities classified as available for sale include equitysecurities, investments in proprietary investment fundsand fixed income securities. Unrealized gains and losseson available for sale securities are recorded in Othercomprehensive income until they are realized or untilmanagement determines that there is objective evidenceof impairment, at which time they are recorded in theConsolidated Statements of Earnings.

The Company held a diversified portfolio of fixedincome securities totalling $197.7 million at June 30,2011 which was comprised primarily of bankers’acceptances, Canadian chartered bank senior depositnotes and corporate bonds.

Fair Value Through Profit or Loss SecuritiesSecurities classified as fair value through profit or lossinclude Canada Mortgage Bonds, which are discussedbelow, and fixed income securities comprised of therestructured notes of the master asset vehicle (MAV)conduits. Unrealized gains and losses are recorded inNet investment income and other in the ConsolidatedStatements of Earnings.

Canada Mortgage Bonds were purchased in 2009 aspart of the Company’s ongoing interest rate riskmanagement activities related to its participation in theCMB Program. The Canada Mortgage Bonds arefinanced through repurchase agreements, whichrepresent short-term funding transactions where theCompany sells securities that it owns and commits torepurchase these securities at a specified price on aspecified date in the future.

During the second quarter, the Company sold$425.6 million of the Canada Mortgage Bonds andsettled $427.6 million of the related repurchaseagreements as the Company achieved its investmentand risk management objectives related to these bonds.

The remaining securities had a fair value of$213.4 million at June 30, 2011. The obligation torepurchase the securities is recorded at amortized costand had a carrying value of $214.3 million. The interestexpense related to these obligations is recorded on anaccrual basis in Net investment income and other in theConsolidated Statements of Earnings.

LOANS

Loans, including mortgages and investment loans,increased by $187.3 million to $4.28 billion at June 30,2011 and represented 38.3% of total assets, comparedto 33.7% at December 31, 2010. Loans consisted of:• Residential mortgage loans and investment loans

which relate to the Company’s intermediaryoperations are classified as loans and receivables

IGM Financial Inc.Consolidated Financial Position

TABLE 15: SECURITIES

june 30, 2011 december 31, 2010

($ thousands) cost fair value cost fair value

Available for saleCommon shares $ 8,687 $ 7,666 $ 8,687 $ 7,698 Proprietary investment funds 26,339 28,887 33,326 37,794 Fixed income securities 196,149 197,696 243,939 243,748

231,175 234,249 285,952 289,240

Fair value through profit or lossCanada Mortgage Bonds 220,432 213,362 647,318 637,850 Fixed income securities 31,062 28,922 31,301 27,601

251,494 242,284 678,619 665,451

$ 482,669 $ 476,533 $ 964,571 $ 954,691



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and totalled $105.9 million and $276.6 million,respectively, compared to $117.3 million and$283.6 million at December 31, 2010.

• Residential mortgage loans which relate to theCompany’s mortgage banking operations are classifiedas held for trading and totalled $472.2 millioncompared to $224.4 million at December 31, 2010.These loans are held by the Company pending saleor securitization.

• Residential mortgage loans which were sold tosecuritization programs are classified as loans andreceivables and totalled $3.43 billion compared to$3.47 billion at December 31, 2010. In applying thederecognition criteria under IAS 39 FinancialInstruments, the Company has recorded these loanson its balance sheet following securitization. Anoffsetting liability, Obligations to securitizationentities, has been recorded and totalled $3.51 billionat June 30, 2011, unchanged from December 31, 2010.The general allowance for credit losses on the entire

portfolio was $4.3 million at June 30, 2011, unchangedfrom December 31, 2010.

Residential mortgage loans originated by InvestorsGroup are funded primarily through sales to thirdparties on a fully serviced basis, including CMHC orCanadian bank sponsored securitization programs.Investors Group services residential mortgage loansof $7.9 billion, including $1.9 billion originated bysubsidiaries of Great-West Lifeco Inc.

M.R.S. Trust Company sources mortgage loansand investment loans through financial advisors. Theseloans are funded through M.R.S. Trust Company’sdeposit operations.

The Company’s exposure to and management ofcredit risk and interest rate risk related to its loan

portfolios and its mortgage banking operations isdiscussed in the Financial Instruments section ofthe MD&A.

INVESTMENT IN AFFILIATE

The Company currently has a 4% equity interest inGreat-West Lifeco Inc. (Lifeco), an affiliated company.Both IGM Financial and Lifeco are controlled byPower Financial Corporation.

The equity method is used to account for IGMFinancial’s investment in Lifeco, as it exercises significantinfluence over Lifeco. The Company’s proportionateshare of Lifeco’s earnings is recorded in Net investmentincome and other in the Corporate and other reportablesegment. Changes in the carrying value for the three andsix month periods ended June 30, 2011 compared withthe same periods in 2010 are shown in Table 16.

SECURITIZATION ARRANGEMENTS

The Company securitizes residential mortgages throughthe Canada Mortgage and Housing Corporation(CMHC)-sponsored National Housing Act Mortgage-Backed Securities (NHA MBS) Program and CanadaMortgage Bond (CMB) Program and through Canadianbank-sponsored ABCP programs. These securitizationswere classified as off-balance sheet arrangements inaccordance with previous Canadian GAAP. In accordancewith IFRS, these securitization arrangements are nowreflected on the Consolidated Balance Sheets asdiscussed in the Change in Accounting Policies –Derecognition of Financial Assets section of this MD&A.

Through the Company’s mortgage banking operations,residential mortgages originated by Investors Group

TABLE 16: INVESTMENT IN AFFILIATE

three months ended june 30 six months ended june 30

($ millions) 2011 2010 2011 2010

Carrying value, beginning of period $ 569.3 $ 574.6 $ 580.5 $ 574.8 Proportionate share of earnings and other 18.2 17.9 35.1 35.2 Dividends received (11.6) (11.6) (23.2) (23.2)Proportionate share of other comprehensive

income (loss) and other adjustments (3.8) (17.3) (20.3) (23.2)

Carrying value, end of period $ 572.1 $ 563.6 $ 572.1 $ 563.6

Fair value, end of period $ 961.3 $ 909.2 $ 961.3 $ 909.2



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LIQUIDITY

Cash and cash equivalents totalled $896.8 million atJune 30, 2011 compared with $1.57 billion and$1.11 billion at December 31, 2010 and June 30, 2010,respectively. Cash and cash equivalents related to theCompany’s deposit operations were $305.7 million atJune 30, 2011 compared with $326.2 million and

$337.1 million at December 31, 2010 and June 30,2010, respectively, as shown in Table 17.

Net working capital totalled $585.1 million atJune 30, 2011 compared with $617.7 million atDecember 31, 2010 and $397.5 million at June 30,2010. Net working capital excludes the Company’s cashand cash equivalents related to its deposit operations asshown in Table 17.

Consolidated Liquidity and Capital Resources

mortgage planning specialists are sold to securitizationtrusts sponsored by third parties that in turn issuesecurities to investors. The Company retains servicingresponsibilities and certain elements of credit riskassociated with the transferred assets. The Company’scredit risk on its securitization activities is limited to itsretained interest, however substantially all securitizedmortgages are insured. The Company retainsprepayment risk associated with the securitized loans.Accordingly, the Company has recorded these loans onits balance sheet following securitization. During thesecond quarter of 2011, the Company securitized loansthrough its mortgage operations with cash proceeds of$235.0 million compared to $349.0 million in thesecond quarter of 2010. The fair value of the Company’sretained interest was $75.9 million at June 30, 2011

compared to $107.0 million at December 31, 2010. Theretained interest includes cash reserve accounts of$8.1 million, which are reflected on the balance sheet,and rights to future excess spread of $99.5 million,which are not reflected on the balance sheet. Theretained interest also includes the component of a swapentered into under the Canada Mortgage Bond Programwhereby the Company pays coupons on CanadaMortgage Bonds and receives investment returns onthe reinvestment of repaid mortgage principal. Thiscomponent of the swap is recorded on the balancesheet and had a negative fair value of $31.7 million atJune 30, 2011. Additional information related to theCompany’s securitization activities can be found in theFinancial Instruments section of this MD&A and inNotes 1 and 4 of the Interim Financial Statements.

TABLE 17: ASSETS RELATED TO DEPOSIT OPERATIONS

2011 2010 2010($ millions) jun. 30 dec. 31 jun. 30

AssetsCash and cash equivalents $ 305.7 $ 326.2 $ 337.1 Securities 197.7 243.7 261.6 Loans 444.3 422.5 424.7

Total assets $ 947.7 $ 992.4 $ 1,023.4

Liabilities and shareholders’ equityDeposit liabilities $ 777.5 $ 834.8 $ 862.6 Other liabilities – net 49.2 39.6 43.3 Subordinated debt 20.0 20.0 20.0 Shareholders’ equity 101.0 98.0 97.5

Total liabilities and shareholders’ equity $ 947.7 $ 992.4 $ 1,023.4



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Net working capital may be utilized to:• Finance ongoing operations, including the funding

of selling commissions.• Temporarily finance mortgages in its mortgage

banking operations.• Meet regular interest and dividend obligations

related to long-term debt and preferred shares.• Maintain liquidity requirements for regulated

entities.• Pay quarterly dividends on its outstanding common

shares.• Finance common share purchases related to the

Company’s normal course issuer bid.IGM Financial continues to generate significant cash

flows from its operations. Earnings before interest,taxes, depreciation and amortization (EBITDA) totalled$388.7 million in the second quarter of 2011 comparedto $347.7 million in the second quarter of 2010 and$398.6 million in the first quarter of 2011. EBITDAtotalled $787.3 million for the six months endedJune 30, 2011 compared to $723.3 million in 2010.EBITDA for each period under review also excludes theimpact of amortization of deferred selling commissionswhich totalled $70.7 million in the second quarter of2011 compared to $73.6 million in the second quarterof 2010 and $72.5 million in the first quarter of 2011.As well as being an important alternative measure ofperformance, EBITDA as reported by the Company isone of the primary metrics utilized by investment

analysts and credit rating agencies in reviewing assetmanagement companies.

Refer to the Financial Instruments section of thisMD&A for information related to other sources ofliquidity and to the Company’s exposure to andmanagement of liquidity risk.

Cash FlowsTable 18 – Cash Flows is a summary of the ConsolidatedStatements of Cash Flows which forms part of theInterim Financial Statements for the three and sixmonths ended June 30, 2011. Cash and cash equivalentsdecreased by $584.9 million in the quarter comparedwith a decrease of $62.8 million in the second quarterof 2010. For the six month period, cash and cashequivalents decreased by $676.8 million compared toan increase of $169.2 million in 2010.

Operating activities, before payment of commissions,generated $242.1 million and $471.2 million during thethree and six month periods ended June 30, 2011, ascompared to $252.5 million and $474.5 million in 2010.Cash commissions paid were $55.6 million and$143.8 million for the three and six month periods in2011 compared to $55.3 million and $136.3 million,respectively, in 2010. Net cash flows from operatingactivities, net of commissions paid, were $186.5 millionand $327.4 million for the three and six month periodsin 2011 as compared to $197.2 million and $338.2 millionfor the three and six month periods in 2010.

TABLE 18: CASH FLOWS

three months ended june 30 six months ended june 30

($ millions) 2011 2010 change 2011 2010 change

Operating activitiesBefore payment of commissions $ 242.1 $ 252.5 (4.1)% $ 471.2 $ 474.5 (0.7)%Commissions paid (55.6) (55.3) (0.5) (143.8) (136.3) (5.5)

Net of commissions paid 186.5 197.2 (5.4) 327.4 338.2 (3.2)Financing activities (1,102.4) (170.6) n/m (1,292.3) (305.1) n/mInvesting activities 331.0 (89.4) n/m 288.1 136.1 111.7

(Decrease) increase in cash and cash equivalents (584.9) (62.8) n/m (676.8) 169.2 n/m

Cash and cash equivalents, beginning of period 1,481.7 1,177.1 25.9 1,573.6 945.1 66.5

Cash and cash equivalents, end of period $ 896.8 $ 1,114.3 (19.5)% $ 896.8 $ 1,114.3 (19.5)%



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Financing activities during the second quarter of2011 compared to the same period in 2010 relatedprimarily to:• A net decrease of $40.7 million in deposits and

certificates in 2011 compared to a net decrease of$38.9 million in 2010. The net decrease in 2011related to decreases in demand deposit levels.

• A net payment of $427.1 million in 2011 arisingfrom obligations related to assets sold underrepurchase agreements compared to a net paymentof $5.6 million in 2010. The net payment in 2011included the settlement of $427.6 million inobligations related to the sale of $425.6 million inCanada Mortgage Bonds which are reported inInvesting activities.

• A net decrease of $21.6 million in 2011 arising fromobligations to securitization entities compared to anet increase of $39.0 million in 2010.

• The repayment on maturity of the $450.0 million2001 Series 6.75% debentures.

• Proceeds received on the issuance of common sharesof $6.8 million in 2011 compared with $2.8 millionin 2010.

• The purchase of 711,300 common shares in 2011under IGM Financial’s normal course issuer bid ata cost of $35.2 million compared with the purchaseof 850,000 common shares at a cost of $29.9 millionin 2010.

• The payment of perpetual preferred share dividendswhich totalled $2.2 million in 2011 compared to$3.5 million in 2010.

• The payment of regular common share dividendswhich totalled $132.4 million in 2011 compared to$134.5 million in 2010.Financing activities during the six months ended

June 30, 2011 compared to the same period in 2010related primarily to:• A net decrease of $57.3 million in deposits and

certificates in 2011 compared to a net decrease of$44.7 million in 2010. The net decrease in 2011related to decreases in both demand and termdeposit levels.

• A net payment of $421.0 million in 2011 arisingfrom obligations related to assets sold underrepurchase agreements compared to a net paymentof $5.6 million in 2010. The net payment in 2011included the settlement of $427.6 million in

obligations related to the sale of $425.6 million inCanada Mortgage Bonds which are reported inInvesting activities.

• A net decrease of $0.1 million in 2011 arising fromobligations to securitization entities compared to anet increase of $53.0 million in 2010.

• The repayment on maturity of the $450.0 million2001 Series 6.75% debentures.

• Proceeds received on the issuance of common sharesof $27.5 million in 2011 compared with $16.6 millionin 2010.

• The purchase of 2,711,300 common shares in 2011under IGM Financial’s normal course issuer bid at acost of $121.5 million compared with the purchaseof 1,390,000 common shares at a cost of$51.8 million in 2010.

• The payment of perpetual preferred share dividendswhich totalled $4.4 million in 2011 compared to$3.5 million in 2010.

• The payment of regular common share dividendswhich totalled $265.5 million in 2011 compared to$269.1 million in 2010.Investing activities during the second quarter of

2011 compared to the same period in 2010 relatedprimarily to:• The purchases of securities totalling $51.5 million

and sales of securities with proceeds of $497.8 millionin 2011 compared to $66.7 million and $159.7 million,respectively, in 2010. Proceeds in 2011 includedsales of $425.6 million of Canada Mortgage Bonds.

• A net increase in loans of $109.7 million comparedto a net increase of $177.6 million in 2010 relatedprimarily to residential mortgages in the Company’smortgage banking operations.Investing activities during the six months ended

June 30, 2011 compared to the same period in 2010related primarily to:• The purchases of securities totalling $125.5 million

and sales of securities with proceeds of $607.4 millionin 2011 compared to $141.8 million and $464.4 million,respectively, in 2010. Proceeds in 2011 includedsales of $425.6 million of Canada Mortgage Bonds.

• A net increase in loans of $182.5 million comparedto a net increase of $173.2 million in 2010 relatedprimarily to residential mortgages in the Company’smortgage banking operations.



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CAPITAL RESOURCES

The Company’s capital management objective is tomaximize shareholder returns while ensuring that theCompany is capitalized in a manner which appropriatelysupports regulatory requirements, working capitalneeds and business expansion. The Company’s capitalmanagement practices are focused on preserving thequality of its financial position by maintaining a solidcapital base and a strong balance sheet. Capital of theCompany consisted of long-term debt, perpetualpreferred shares and common shareholders’ equitywhich totalled $5.7 billion at June 30, 2011, comparedto $6.1 billion at December 31, 2010. The Companyregularly assesses its capital management practices inresponse to changing economic conditions.

The Company’s capital is primarily utilized in itsongoing business operations to support working capitalrequirements, long-term investments made by theCompany, business expansion and other strategicobjectives. Subsidiaries subject to regulatory capitalrequirements include trust companies, securitiesadvisors, securities dealers and mutual fund dealers.In addition, during the third quarter of 2010, certainsubsidiaries of the Company applied to be registeredas Investment Fund Managers with the applicablesecurities commissions as required under NationalInstrument 31-103 (NI 31-103). These subsidiaries arerequired to maintain minimum levels of capital basedon either working capital, liquidity or shareholders’equity. These subsidiaries have complied with allregulatory capital requirements.

The total outstanding long-term debt was$1,325.0 million at June 30, 2011, compared to$1,775.0 million at December 31, 2010. The decreaseof $450.0 million is related to the maturity of the 2001Series, 6.75% debentures on May 9, 2011. Long-termdebt is comprised of debentures which are seniorunsecured debt obligations of the Company subjectto standard covenants, including negative pledges,but which do not include any specified financial oroperational covenants.

Perpetual preferred shares of $150 million remainunchanged.

The Company purchased 2,711,300 common sharesin the six months ended June 30, 2011 at a cost of$121.5 million under the normal course issuer bid(Note 6 to the Interim Financial Statements). TheCompany commenced a normal course issuer bid on

April 12, 2011 to purchase up to 5% of its commonshares in order to provide flexibility to purchasecommon shares as conditions warrant. Other capitalmanagement activities in 2011 included the declarationof perpetual preferred share dividends of $4.4 millionand common share dividends of $264.6 million. Changesin common share capital are reflected in the ConsolidatedStatements of Changes in Shareholders’ Equity.

Standard & Poor’s (S&P) current rating on theCompany’s senior debt and liabilities is “A+” with a stableoutlook. Dominion Bond Rating Service’s (DBRS)current rating on the Company’s senior unsecureddebentures is “A (High)” with a stable outlook.

Credit ratings are intended to provide investors withan independent measure of the credit quality of thesecurities of a company and are indicators of thelikelihood of payment and the capacity of a company tomeet its obligations in accordance with the terms ofeach obligation. Descriptions of the rating categoriesfor each of the agencies set forth below have beenobtained from the respective rating agencies’ websites.

These ratings are not a recommendation to buy,sell or hold the securities of the Company and do notaddress market price, nor other factors that mightdetermine suitability of a specific security for aparticular investor. The ratings also may not reflect thepotential impact of all risks on the value of securitiesand are subject to revision or withdrawal at any time bythe rating organization.

The “A+” rating assigned to the Company’s seniorunsecured debentures by S&P is the third highest ofthe ten major rating categories for long-term debt andindicates S&P’s view that the Company’s capacity tomeet its financial commitment on the obligation isstrong, but the Company is somewhat more susceptibleto the adverse effects of changes in circumstances andeconomic conditions than companies in higher ratedcategories. S&P uses “+” or “-” designations to indicatethe relative standing within the major rating categories.

According to S&P, the “Stable” rating outlookmeans that S&P considers that the rating is unlikely tochange over the intermediate term. A stable outlook isnot necessarily a precursor to an upgrade.

The A (High) rating assigned to IGM Financial’ssenior unsecured debentures by DBRS is the thirdhighest of the ten rating categories for long-term debt.Under the DBRS system, debt securities rated A (High)are of satisfactory credit quality and protection of



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interest and principal is considered substantial. Whilethis is a favourable rating, entities in the A (High)category are considered to be more susceptible toadverse economic conditions and have greater cyclicaltendencies than higher-rated companies. A reference to“high” or “low” reflects the relative strength within therating category, while the absence of either a “high” or“low” designation indicates the rating is placed in themiddle of the category.

According to DBRS, the “Stable” rating trend helpsgive investors an understanding of DBRS’s opinionregarding the outlook for the rating.


Table 19 presents the carrying value and the fair valueof financial instruments.

Fair value is determined using the followingmethods and assumptions:• The fair value of short-term financial instruments

approximate carrying value. These include cash andcash equivalents, repurchase agreements, certainother financial assets, and other financial liabilities.

• Securities are valued using quoted prices from activemarkets, when available. When a quoted market

price is not readily available, valuation techniquesare used that require assumptions related to discountrates and the timing and amount of future cashflows. Wherever possible, observable market inputsare used in the valuation techniques.

• Loans are valued by discounting the expected futurecash flows at market interest rates for loans withsimilar credit risk and maturity.

• Obligations to securitization entities are valuedby discounting the expected future cash flows byprevailing market yields for securities issued bythese securitization entities having like maturitiesand characteristics.

• Deposits and certificates are valued by discountingthe contractual cash flows using market interest ratescurrently offered for deposits with similar terms andcredit risks.

• Long-term debt is valued by reference to currentmarket prices for debentures and notes payable withsimilar terms and risks.

• Derivative financial instruments fair values arebased on quoted market prices, where available,prevailing market rates for instruments with similarcharacteristics and maturities, or discounted cashflow analysis.

TABLE 19: F INANCIAL INSTRUMENTS

june 30, 2011 december 31, 2010

($ millions) carrying value fair value carrying value fair value

AssetsCash and cash equivalents $ 896.8 $ 896.8 $ 1,573.6 $ 1,573.6 Securities 476.5 476.5 954.7 954.7 Loans 4,282.0 4,282.9 4,094.7 4,096.0 Other financial assets 187.8 187.8 203.4 203.4 Derivative assets 44.6 44.6 40.9 40.9

Total financial assets $ 5,887.7 $ 5,888.6 $ 6,867.3 $ 6,868.6

LiabilitiesDeposits and certificates $ 777.5 $ 782.4 $ 834.8 $ 840.1 Repurchase agreements 214.3 214.3 635.3 635.3 Other financial liabilities 546.4 546.4 665.8 665.8 Derivative liabilities 67.9 67.9 78.7 78.7 Obligations to securitization entities 3,506.9 3,574.5 3,505.5 3,564.4 Long-term debt 1,325.0 1,523.4 1,775.0 1,966.5

Total financial liabilities $ 6,438.0 $ 6,708.9 $ 7,495.1 $ 7,750.8



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See Note 18 to the Annual Consolidated FinancialStatements included in the 2010 IGM Financial Inc.Annual Report (Annual Financial Statements) whichprovides additional discussion on the determination offair value of financial instruments.

Although there were changes to both the carryingvalues and fair values of financial instruments, thesechanges did not have a material impact on the financialcondition of the Company for the six months endedJune 30, 2011. The Company actively manages risksthat arise as a result of holding financial instrumentswhich include liquidity, credit and market risk.

Liquidity RiskLiquidity risk is the risk that the Company cannotmeet a demand for cash or fund its obligations as theycome due. The Company’s liquidity managementpractices include:• Controls over liquidity management processes.• Stress testing of various operating scenarios.• Oversight over liquidity management by

Committees of the Board of Directors.As part of ongoing liquidity management during

2011 and 2010, the Company:• Repaid the $450.0 million 2001 Series 6.75%

debenture on maturity.• Completed a public offering of $200 million

debentures on December 9, 2010 maturing inDecember 2040.

• Filed a short form base shelf prospectus inDecember 2010 to give the Company more timelyaccess to the capital markets.

• Continued to assess additional funding sources forthe Company’s mortgage banking operations.

• Reduced the equity component of the Company’ssecurities portfolio.A key liquidity requirement for the Company is the

funding of commissions paid on the sale of mutual funds.Commissions on the sale of mutual funds continue tobe paid from operating cash flows.

The Company also maintains sufficient liquidityto fund and temporarily hold mortgages. Through itsmortgage banking operations, residential mortgagesare sold or securitized to:• Investors Mortgage and Short Term Income Fund;• Third parties, including CMHC or Canadian bank

sponsored securitization trusts; or• Institutional investors through private placements.

Investors Group is an approved issuer of NHA MBSand an approved seller into the CMB Program. Thisissuer and seller status provides Investors Group withadditional funding sources for residential mortgages(Note 4 to the Interim Financial Statements). TheCompany’s continued ability to fund residentialmortgages through Canadian bank-sponsoredsecuritization trusts and NHA MBS is dependenton securitization market conditions that are subjectto change.

Liquidity requirements for trust subsidiaries whichengage in financial intermediary activities are basedon policies approved by Committees of their respectiveBoards of Directors. As at June 30, 2011, the trustsubsidiaries’ liquidity was in compliance withthese policies.

The Company’s contractual maturities are reflectedin Table 20.

TABLE 20: CONTRACTUAL OBLIGATIONS

As at June 30, 2011 less than 1 – 5 after($ millions) demand 1 year years 5 years total

Deposits and certificates $ 562.6 $ 85.1 $ 124.9 $ 4.9 $ 777.5 Other liabilities – 34.9 32.6 0.4 67.9 Obligations to securitization entities – 439.4 3,061.8 5.7 3,506.9 Long-term debt – – – 1,325.0 1,325.0 Operating leases(1) – 47.1 134.6 88.4 270.1

Total contractual obligations $ 562.6 $ 606.5 $ 3,353.9 $ 1,424.4 $ 5,947.4

(1) Includes office space and equipment used in the normal course of business.Lease payments are charged to earnings in the period of use.



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In addition to IGM Financial’s current balance ofcash and cash equivalents, other potential sources ofliquidity include the Company’s lines of credit andportfolio of securities. The Company’s operating lines ofcredit with various Schedule I Canadian chartered bankstotalled $325 million as at June 30, 2011, unchangedfrom December 31, 2010. The operating lines of creditas at June 30, 2011 consisted of committed lines of$150 million and uncommitted lines of $175 million. Asat June 30, 2011 and December 31, 2010, the Companywas not utilizing its committed lines of credit or itsuncommitted operating lines of credit.

Although the Company has recently accessed thecapital markets, its ability to access capital markets toraise funds is dependent on market conditions.

Management believes cash flows from operations,available cash balances and other sources of liquiditydescribed above will be sufficient to fund the Company’sliquidity needs. The Company continues to have theability to meet its operational cash flow requirements,its contractual obligations, and its declared dividends.The current practice of the Company is to declare andpay dividends to common shareholders on a quarterlybasis at the discretion of the Board of Directors. Thedeclaration of dividends by the Board of Directors isdependent on a variety of factors, including earningswhich are significantly influenced by the performanceof debt and equity markets. The Company’s liquidityposition and its management of liquidity risk have notchanged materially since December 31, 2010.

Credit RiskCredit risk is the potential for financial loss to theCompany if a counterparty in a transaction fails to meetits obligations. The Company’s cash and cash equivalents,securities holdings, mortgage and investment loanportfolios, and derivatives are subject to credit risk. TheCompany monitors its credit risk management practicescontinuously to evaluate their effectiveness.

At June 30, 2011, cash and cash equivalents of$896.8 million consisted of cash balances of $75.2 millionon deposit with Canadian chartered banks and cashequivalents of $821.6 million. Cash equivalents arecomprised primarily of Government of Canada treasurybills totalling $146.6 million, provincial governmentand government guaranteed commercial paper of$143.7 million and bankers’ acceptances issued byCanadian chartered banks of $501.5 million. TheCompany regularly reviews the credit ratings of its

counterparties. The maximum exposure to credit riskon these financial instruments is their carrying value.

Available for sale fixed income securities at June 30,2011 are comprised of bankers’ acceptances of$19.9 million, Canadian chartered bank senior depositnotes of $83.5 million and corporate bonds and other of$94.3 million. The maximum exposure to credit risk onthese financial instruments is their carrying value.

The Company manages credit risk related to cashand cash equivalents and available for sale fixed incomesecurities by adhering to its Investment Policy thatoutlines credit risk parameters and concentration limits.

Fair value through profit or loss securities includeCanada Mortgage Bonds with a fair value of$213.4 million and fixed income securities which arecomprised of the restructured notes of the MAV conduitswith a fair value of $28.9 million. These fair valuesrepresent the maximum exposure to credit risk atJune 30, 2011. Refer to Note 2 to the Interim FinancialStatements for information related to the valuation ofthe MAV conduits.

The Company regularly reviews the credit quality ofthe mortgage and investment loan portfolios, related tothe Company’s intermediary and mortgage bankingoperations, and the adequacy of the general allowance.As at June 30, 2011, loans totalled $4.28 billioncompared with $4.09 billion as at December 31, 2010and consisted of:• Residential mortgage loans and investment loans

which relate to the Company’s intermediaryoperations are classified as loans and receivablesand totalled $105.9 million and $276.6 million,respectively, compared to $117.3 million and$283.6 million at December 31, 2010.

• Residential mortgage loans which relate to theCompany’s mortgage banking operations areclassified as held for trading and totalled$472.2 million compared to $224.4 million atDecember 31, 2010. These loans are held by theCompany pending sale or securitization.

• Residential mortgage loans which were sold tosecuritization programs are classified as loans andreceivables and totalled $3.43 billion compared to$3.47 billion at December 31, 2010. In applying thederecognition criteria under IAS 39 FinancialInstruments, the Company has recorded these loanson its balance sheet following securitization. Anoffsetting liability, Obligations to securitization



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entities, has been recorded and totalled $3.51 billionat June 30, 2011, unchanged from December 31, 2010.As at June 30, 2011, the mortgage portfolios related

to the Company’s intermediary operations weregeographically diverse, 100% residential (2010 – 100%)and 79.0% insured (2010 – 79.7%). The credit risk onthe investment loan portfolio is mitigated through theuse of collateral, primarily in the form of mutual fundinvestments. As at June 30, 2011, impaired mortgagesand investment loans were nil compared to $0.1 millionat December 31, 2010. There were no non-performingloans over 90 days in the uninsured mortgage andinvestment loan portfolios as at June 30, 2011 andDecember 31, 2010. The characteristics of the mortgageand investment loan portfolios have not changedsignificantly during 2011.

Since 2008, the Company has purchased portfolioinsurance from CMHC on newly funded qualifyingconventional mortgage loans. Under the NHA MBSand CMB programs, it is a requirement that securitizedmortgages be insured against default by an approvedinsurer, and the Company has also insured substantiallyall loans securitized through ABCP programs. AtJune 30, 2011, 94.4% of the securitized portfolio andthe residential mortgage loans classified as held fortrading were insured compared to 94.1% at December 31,2010. As at June 30, 2011, impaired loans on theseportfolios were $0.8 million, compared to $1.0 millionat December 31, 2010. Uninsured non-performingloans over 90 days on these portfolios were $0.5 millionat June 30, 2011, compared to $0.3 million atDecember 31, 2010.

The allowance for credit losses on the entireportfolio was $4.3 million at June 30, 2011, unchangedfrom December 31, 2010, and is considered adequateby management to absorb all credit related losses in themortgage and investment loan portfolios.

The Company’s credit risk on its securitizationactivities is limited to its retained interest. The fairvalue of the Company’s retained interests in securitizedloans was $75.9 million at June 30, 2011 compared to$107.0 million at December 31, 2010. Retainedinterests include:• Cash reserve accounts and rights to future net interest

income – which were $8.1 million and $99.5 million,respectively, at June 30, 2011. Cash reserve accountsare reflected on the balance sheet, whereas rights tofuture net interest income are not reflected on the

balance sheet and will be recorded over the life ofthe loans.

The portion of this amount pertaining toCanadian bank-sponsored securitization trusts of$43.4 million is subordinated to the interests of thetrust and represents the maximum exposure to creditrisk for any failure of the borrowers to pay whendue. Credit risk on these mortgages is mitigated byany insurance on these mortgages, as previouslydiscussed, and the Company’s credit risk on insuredloans is to the insurer. At June 30, 2011, 94.4% ofthe $1.05 billion in outstanding mortgagessecuritized under these programs were insured.

Rights to future net interest income under theNHA MBS and CMB Program totalled $64.2 million.Under the NHA MBS and CMB Program, theCompany has an obligation to make timely paymentsto security holders regardless of whether amountsare received by mortgagors. All mortgages securitizedunder the NHA MBS and CMB Programs areinsured by CMHC or another approved insurerunder the program. Outstanding mortgagessecuritized under these programs are $2.4 billion.

• Fair value of principal reinvestment account swaps – hada negative fair value of $31.7 million at June 30,2011 which is reflected on the Company’s balancesheet. These swaps represent the component of aswap entered into under the CMB Program wherebythe Company pays coupons on Canada MortgageBonds and receives investment returns on thereinvestment of repaid mortgage principal. Thenotional amount of these swaps was $538.9 millionat June 30, 2011.The Company’s exposure to and management of

credit risk related to cash and cash equivalents, fixedincome securities and mortgage and investment loanportfolios have not changed materially sinceDecember 31, 2010.

The Company utilizes derivatives to hedge interestrate risk and reinvestment risk associated with itsmortgage banking and securitization activities, as well asmarket risk related to certain stock-based compensationarrangements.

The Company participates in the CMB Program byentering into back-to-back swaps whereby CanadianSchedule I chartered banks designated by the Companyare between the Company and the Canadian HousingTrust. The Company receives coupons on NHA MBS



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and eligible principal reinvestments and pays couponson the Canada Mortgage Bonds. The Company alsoenters into interest rate swaps to hedge interest rate andreinvestment risk associated with the program. Thenegative fair value of these swaps totalled $25.7 millionat June 30, 2011 and the outstanding notional amountwas $3.9 billion. Certain of these swaps relate tosecuritized loans that have not been derecognized andtherefore the mortgage loans and an associatedobligation have been recorded on the balance sheet.Accordingly, these swaps, with an outstanding notionalamount of $2.4 billion and having a negative fair valueof $22.7 million, are not reflected on the balance sheet.Principal reinvestment account swaps and hedges ofreinvestment and interest rate risk, with an outstandingnotional amount of $1.6 billion and having a negativefair value of $3.0 million, are reflected on the balancesheet. The exposure to credit risk, which is limited tothe fair value of swaps in a gain position, totalled$31.6 million at June 30, 2011 compared to $21.7 millionat December 31, 2010.

The Company utilizes interest rate swaps to hedgeinterest rate risk associated with loans securitizedthrough Canadian bank-sponsored ABCP programs.The negative fair value of these interest rate swapstotalled $31.6 million on an outstanding notionalamount of $1.23 billion at June 30, 2011. The exposureto credit risk, which is limited to the fair value of swapsin a gain position, totalled $1.0 million at June 30, 2011compared to $1.3 million at December 31, 2010.

The Company also utilizes interest rate swaps tohedge interest rate risk associated with its investmentsin Canada Mortgage Bonds. The fair value of theseinterest rate swaps totalled $9.5 million on anoutstanding notional amount of $0.2 billion at June 30,2011. The exposure to credit risk, which is limited tothe fair value of the interest rate swaps which are in again position, totalled $9.5 million at June 30, 2011compared to $15.1 million at December 31, 2010.

The Company enters into other derivative contractswhich consist primarily of interest rate swaps utilizedto hedge interest rate risk related to mortgages heldpending sale, or committed to, by the Company as wellas total return swaps and forward agreements on IGMFinancial common shares utilized to hedge deferredcompensation arrangements. The fair value of interestrate swaps, total return swaps and forward agreementstotalled $1.8 million on an outstanding notional amount

of $293.0 million at June 30, 2011 compared to a fairvalue of $0.8 million on an outstanding notionalamount of $118.1 million at December 31, 2010. Theexposure to credit risk, which is limited to the fair valueof those instruments which are in a gain position, was$2.5 million at June 30, 2011, compared to $0.8 millionat December 31, 2010.

The aggregate credit risk exposure related toderivatives that are in a gain position of $44.6 milliondoes not give effect to any netting agreements orcollateral arrangements. The exposure to credit risk,considering netting agreements and collateralarrangements, was $0.3 million at June 30, 2011.Counterparties are all Canadian Schedule I charteredbanks and, as a result, management has determined thatthe Company’s overall credit risk related to derivativeswas not significant at June 30, 2011. Management ofcredit risk has not changed materially sinceDecember 31, 2010.

Additional information related to the Company’ssecuritization activities and utilization of derivativecontracts can be found in Notes 1, 4 and 17 to theAnnual Financial Statements.

Market RiskMarket risk is the potential for loss to the Companyfrom changes in the values of its financial instrumentsdue to changes in foreign exchange rates, interest ratesor equity prices. The Company’s financial instrumentsare generally denominated in Canadian dollars, and donot have significant exposure to changes in foreignexchange rates.

Interest Rate RiskThe Company is exposed to interest rate risk on its loanportfolio, fixed income securities, Canada MortgageBonds and on certain of the derivative financialinstruments used in the Company’s mortgage bankingand intermediary operations.

The objective of the Company’s asset and liabilitymanagement is to control interest rate risk related to itsintermediary operations by actively managing its interestrate exposure. As at June 30, 2011, the total gap betweenone-year deposit assets and liabilities was within theCompany’s trust subsidiaries’ stated guidelines.

The Company utilizes interest rate swaps withCanadian Schedule I chartered bank counterparties inorder to reduce the impact of fluctuating interest rateson its mortgage banking operations, as follows:



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• As part of the securitization transactions with bank-sponsored securitization trusts the Company hasfunded fixed rate mortgages with ABCP. TheCompany enters into interest rate swaps withCanadian Schedule I chartered banks to hedge therisk that ABCP rates rise. However, the Companyremains exposed to the basis risk that ABCP ratesare greater than the bankers’ acceptances rates thatit receives on its hedges.

• As part of the securitization transactions under theCMB Program, the Company has in certain instancesfunded floating rate mortgages with fixed rate CanadaMortgage Bonds. The Company enters into interestrate swaps with Canadian Schedule I charteredbanks to hedge the risk that the interest rates earnedon floating rate mortgages declines. As previouslydiscussed, as part of the CMB Program, theCompany also is entitled to investment returns onreinvestment of principal repayments of securitizedmortgages and is obligated to pay Canada MortgageBond coupons that are often fixed rate. TheCompany hedges the risk that reinvestment returnsdecline by entering into interest rate swaps withCanadian Schedule I chartered bank counterparties.

• The Company is exposed to the impact that changesin interest rates may have on the value of itsinvestments in Canada Mortgage Bonds. TheCompany enters into interest rate swaps withCanadian Schedule I chartered bank counterpartiesto hedge interest rate risk on these bonds.

• The Company is also exposed to the impact thatchanges in interest rates may have on the value ofmortgages held, or committed to, by the Company.The Company may enter into interest rate swaps tohedge this risk.As at June 30, 2011, the impact to net earnings of a

100 basis point change in interest rates would have beenapproximately $5.6 million. The Company’s exposure toand management of interest rate risk has not changedmaterially since December 31, 2010.

Equity Price RiskThe Company is exposed to equity price risk on itsinvestments in common shares and proprietaryinvestment funds which are classified as available forsale securities as shown in Table 15. Unrealized gainsand losses on these securities are recorded in Othercomprehensive income until they are realized or untilmanagement determines there is objective evidence of

impairment in value that is significant or prolonged, atwhich time they are recorded in the ConsolidatedStatements of Earnings.

MARKET RISK RELATED TO ASSETS UNDER MANAGEMENT

At June 30, 2011, IGM Financial’s total assets undermanagement were $130.2 billion, an increase of 0.5%relative to December 31, 2010.

The Company is subject to the risk of asset volatilityfrom changes in the Canadian and global financial andequity markets. Changes in these markets have causedin the past, and will cause in the future, changes in theCompany’s assets under management, revenues andearnings. Global economic conditions, exacerbated byfinancial crises, changes in the equity marketplace,currency exchange rates, interest rates, inflation rates,the yield curve, defaults by derivative counterpartiesand other factors including political and governmentinstability that are difficult to predict affect the mix,market values and levels of assets under management.

The funds managed by the Company may be subjectto unanticipated redemptions as a result of such events.Changing market conditions may also cause a shift inasset mix between equity and fixed income assets,potentially resulting in a decline in the Company’srevenue and earnings depending upon the nature of theassets under management and the level of managementfees earned by the Company.

Interest rates at unprecedented low levels havesignificantly decreased the yields of the Company’smoney market and managed yield unit trust andCorporate Class mutual funds. Since 2009, InvestorsGroup and Mackenzie have waived a portion ofinvestment management fees or absorbed some expensesto ensure that these funds maintained positive yields.The Company will review its practices in this regard inresponse to changing market conditions.

IGM Financial provides Consultants and independentfinancial advisors with a high level of service andsupport and a broad range of investment products basedon asset classes, countries or regions, and investmentmanagement styles which, in turn, should result inmaintaining strong client relationships and lower ratesof redemptions.

The mutual fund industry and financial advisorscontinue to take steps to educate Canadian investors onthe merits of financial planning, diversification and



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long-term investing. In periods of volatility ourConsultants and independent financial advisors play akey role in assisting investors to maintain perspectiveand focus on their long-term objectives.

Redemption rates for long-term funds are summarizedin Table 21 and are discussed in the Investors Groupand Mackenzie Segment Operating Results sections ofthis MD&A.

OTHER RISK FACTORS

Distribution RiskInvestors Group Consultant Network – Investors Groupderives all of its mutual fund sales through its Consultantnetwork. Investors Group Consultants have regulardirect contact with clients which can lead to a strongand personal client relationship based on the client’sconfidence in that individual Consultant. The marketfor financial advisors is extremely competitive. The lossof a significant number of key Consultants could lead tothe loss of client accounts which could have an adverseeffect on Investors Group’s results of operations andbusiness prospects. Investors Group is focused ongrowing its distribution network of Consultants asdiscussed in the Investors Group Review of the Businesssection of this MD&A.

Mackenzie – Mackenzie derives substantially all ofits mutual fund sales through independent financialadvisors. Mackenzie’s ability to market its products ishighly dependent on access to various distributionchannels. These independent financial advisors generallyoffer their clients investment products in addition to,and in competition with Mackenzie. The inability tohave such access could have a material adverse effect onMackenzie’s operating results and business prospects.However, Mackenzie’s diverse portfolio of financialproducts and its long-term investment performancerecord, marketing, educational and service support has

made Mackenzie one of Canada’s leading companiesserving independent financial advisors. These factorsare discussed further in the Mackenzie Review of theBusiness section of this MD&A.

The Regulatory EnvironmentIGM Financial is subject to complex and changinglegal, taxation and regulatory requirements, includingthe requirements of agencies of the federal, provincialand territorial governments in Canada which regulatethe Company and its activities. The Company and itssubsidiaries are also subject to the requirements of self-regulatory organizations to which they belong. Theprincipal regulators of the Company and its subsidiariesare the Canadian Securities Administrators, the MutualFund Dealers Association of Canada, the InvestmentIndustry Regulatory Organization of Canada and theOffice of the Superintendent of Financial InstitutionsCanada. These and other regulatory bodies regularlyadopt new laws, rules, regulations and policies thatapply to the Company and its subsidiaries. Regulatorystandards affecting the Company and the financialservices industry are increasing. The Company and itssubsidiaries are subject to regular regulatory reviewsas part of the normal ongoing process of oversightby the various regulators.

Failure to comply with laws, rules or regulationscould lead to regulatory sanctions and civil liability, andmay have an adverse reputational or financial effect onthe Company. The Company manages regulatory riskthrough its efforts to promote a strong culture ofcompliance. It monitors regulatory developments andtheir impact on the Company. It also continues todevelop and maintain compliance policies, processesand oversight, including specific communications oncompliance and legal matters, training, testing,monitoring and reporting. The Audit Committee ofthe Company receives regular reporting on complianceinitiatives and issues.

TABLE 21: TWELVE MONTH TRAILING REDEMPTION RATE FOR LONG-TERM FUNDS

As at June 30 2011 2010

IGM Financial Inc.Investors Group 8.5% 7.7%Mackenzie 15.9% 15.7%Counsel 11.5% 12.3%



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THE FINANCIAL SERVICES ENVIRONMENT

At June 30, 2011, mutual fund industry assets in Canadaas reported by the Investment Funds Institute ofCanada (IFIC) were approximately $656.4 billion, anincrease of 3.3% relative to December 31, 2010 on acomparative basis.

Mutual fund dealers and other financial planningfirms represent a significant distribution channel formutual funds in Canada and accounted for 49.8% oflong-term mutual fund sales to March 31, 2011.

Canadian banks distribute financial products andservices through their traditional bank branches, as wellas through their full service and discount brokeragesubsidiaries. In recent years, bank branches haveincreased their emphasis on both financial planning andmutual funds. In addition, each of the big six banks hasone or more mutual fund management subsidiaries.Collectively, mutual fund assets of the big six bank-

owned mutual fund managers and affiliated firmsrepresented 39% of total industry long-term mutualfund assets at March 31, 2011.

As a result of consolidation activity in the last severalyears, the Canadian mutual fund management industryis characterized by large, often vertically-integrated,firms. The industry continues to be very concentrated,with the ten largest firms and their subsidiariesrepresenting almost 81% of both industry long-termmutual fund assets and total mutual fund assets undermanagement at March 31, 2011. Managementanticipates continuing consolidation in this segmentof the industry as smaller participants are acquired bylarger organizations.

Deregulation, competition and technology havefostered a trend towards financial service providersoffering a comprehensive range of products and servicesin-house. Traditional distinctions between bank

Outlook

Particular regulatory initiatives may have the effectof making the products of the Company’s subsidiariesappear to be less competitive than the products of otherfinancial service providers, to third party distributionchannels and to clients. Regulatory differences that mayimpact the competitiveness of the Company’s productsinclude regulatory costs, tax treatment, disclosurerequirements, transaction processes or other differencesthat may be as a result of differing regulation orapplication of regulation. While the Company and itssubsidiaries actively monitor such initiatives, and wherefeasible comment upon or discuss them with regulators,the ability of the Company and its subsidiaries tomitigate the imposition of differential regulatorytreatment of financial products or services is limited.

ContingenciesThe Company is subject to legal actions arising in thenormal course of its business. Although it is difficult topredict the outcome of any such legal actions, based oncurrent knowledge and consultation with legal counsel,management does not expect the outcome of any ofthese matters, individually or in aggregate, to have amaterial adverse effect on the Company’s consolidatedfinancial position.

Acquisition RiskThe Company undertakes thorough due diligence priorto completing an acquisition, but there is no assurancethat the Company will achieve the expected strategicobjectives or cost and revenue synergies subsequent toan acquisition. Subsequent changes in the economicenvironment and other unanticipated factors may affectthe Company’s ability to achieve expected earningsgrowth or expense reductions. The success of anacquisition is dependent on retaining assets undermanagement, clients, and key employees of an acquiredcompany.

Model RiskThe Company uses a variety of models to assist in: thevaluation of financial instruments; operational scenariotesting; management of cash flows; capital management;and assessment of potential acquisitions. These modelsincorporate internal assumptions, observable marketinputs and available market prices. Effective controlsexist over the development, implementation andapplication of these models.



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branches, full service brokerages, financial planningfirms and insurance agent forces are obscured as manyof these financial service providers strive to offercomprehensive financial advice implemented throughaccess to a broad product shelf.

Investment funds, which include mutual funds,remain the most popular financial asset class reliedupon by Canadians for their retirement savings, andthey represent over one-third of Canadian long-termdiscretionary financial assets. Management believes thatinvestment funds are likely to remain the preferredsavings vehicle of Canadians. Investment funds provideinvestors with the benefits of diversification,professional management, flexibility and convenience,and are available in a broad range of mandates andstructures to meet most investor requirements andpreferences.

The financial services industry continues to beinfluenced by:• Shifting demographics as the number of Canadians

in their prime savings years continue to increase.• Changes in investor attitudes and strong preferences

to deal through an advisor.• Public policy related to retirement savings.• Changes in the regulatory environment.• An evolving competitive landscape.• Advancing and changing technology.

THE COMPETITIVE LANDSCAPE

IGM Financial and its subsidiaries operate in a highlycompetitive environment. Investors Group andInvestment Planning Counsel compete directly withother retail financial service providers, including otherfinancial planning firms, as well as full servicebrokerages, banks and insurance companies. InvestorsGroup, Mackenzie and Counsel compete directly withother investment managers for assets undermanagement, and their products compete with otherasset classes, including stocks, bonds and other passiveinvestment vehicles, for a share of the investment assetsof Canadians.

Strong evidence is emerging that Canadians valueadvice in their financial planning and investmentactivities. Multiple sources of research show

significantly better financial outcomes for Canadianswho use financial advisors compared to those who donot. We believe the provision of comprehensivefinancial planning is and will continue to be acompetitive advantage.

In this context, the importance of a strongrelationship with an advisor to keep focused on short-term and long-term financial planning needs isparamount. A primary theme in the Company’s businessmodel is to support financial advisors as they work withclients to plan for and achieve their financial goals.

Investors Group continues to respond to the complexfinancial needs of its clients by delivering a diverse rangeof products and services in the context of personalizedfinancial advice and its Consultants work with clients tohelp them understand the impact of financial marketvolatility on their long-term financial planning.

Mackenzie is maintaining its focus working with theindependent advice channels delivering a varied productsuite with multiple investment styles to meet evolvinginvestor needs.

IGM Financial continues to focus on itscommitment to provide quality investment advice andfinancial products, service innovations, effectivemanagement of the Company and long-term value forits clients and shareholders.

Management believes that IGM Financial is well-positioned to meet competitive challenges and capitalizeon future opportunities. The Company enjoys severalcompetitive strengths, including:• Broad and diversified distribution with an emphasis

on financial advisors.• Broad product capabilities, leading brands and

quality sub-advisory relationships.• Enduring client relationships and the long-standing

heritages and cultures of its subsidiaries.• Significant economies of scale.• Being part of the Power Financial group of

companies, which includes Great-West Life,London Life and Canada Life.These strengths are discussed in detail in the

Outlook section of the MD&A in the 2010 IGMFinancial Inc. Annual Report.



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The preparation of financial statements in conformitywith IFRS requires management to adopt accountingpolicies and to make estimates and assumptions thataffect amounts reported in the Consolidated FinancialStatements. In applying these policies, managementmakes subjective and complex judgments that frequentlyrequire estimates about matters that are inherentlyuncertain. Many of these policies are common in thefinancial services industry; others are specific to IGMFinancial’s businesses and operations. IGM Financial’ssignificant accounting policies are described in detail inNote 1 of the Interim Financial Statements.

The major critical accounting estimates aresummarized below.• Fair value of financial instruments – The Company’s

financial instruments are carried at fair value, exceptfor loans and receivables, deposits and certificates,and long-term debt which are all carried at amortizedcost. The fair value of publicly traded financialinstruments is determined using published marketprices. The Company also holds financial instruments,including derivatives related to the Company’ssecuritized loans, where published market prices arenot available. In these instances the values aredetermined using various valuation models whichmaximize the use of observable market inputs whereavailable. Valuation methodologies and assumptionsused in valuation models are reviewed on an ongoingbasis. Changes in these assumptions or valuationmethodologies could result in significant changes innet earnings.

The Company’s investment securities which areclassified as available for sale are comprised of equitysecurities held for long-term investment, debtsecurities and investments in proprietary mutualfunds. Unrealized gains and losses on securities thatare not part of a designated hedging relationship arerecorded in Other comprehensive income untilrealized or until there is objective evidence ofimpairment that is significant or prolonged, at whichtime they are recorded in the Consolidated Statementsof Earnings. Management regularly reviews theinvestment securities classified as available for saleto assess whether there is objective evidence ofimpairment that is significant or prolonged. TheCompany considers such factors as the nature of the

investment and the length of time and the extentto which the fair value has been below cost. Asignificant change in this assessment may result inunrealized losses being recognized in net earnings.Refer to the Consolidated Financial Position andFinancial Instruments sections of this MD&A,Note 2 to the Interim Financial Statements andNote 18 to the Annual Financial Statements foradditional information.

• Goodwill and intangible assets – Goodwill, indefinitelife intangible assets, and definite life intangibleassets are reflected in Note 7 of the Annual FinancialStatements. The Company tests the fair value ofgoodwill and indefinite life intangible assets forimpairment at least once a year and more frequentlyif an event or circumstance indicates the asset maybe impaired. An impairment loss is recognized if theamount of the asset’s carrying amount exceeds itsrecoverable amount. The recoverable amount is thehigher of an asset’s fair value less selling expensesand its value in use. For the purposes of assessingimpairment, assets are grouped at the lowest levelsfor which there are separately identifiable cashinflows (cash generating units). Finite life intangibleassets are tested for impairment whenever events orchanges in circumstances indicate that the carryingamounts may not be recoverable.

These tests involve the use of estimates andassumptions appropriate in the circumstances. Inassessing recoverable amount, valuation models areused that include discounted cash flows, comparableacquisitions and industry trading multiples. Themodels use assumptions that include levels of growthin assets under management from net sales andmarket, pricing and margin changes, synergiesachieved on acquisition, discount rates, and observabledata for comparable transactions.

The Company completed its annual impairmenttests of goodwill and indefinite life intangible assetsbased on March 31, 2011 financial information anddetermined there was no impairment in the value ofthose assets. As part of its transition to IFRS, theCompany also tested goodwill and indefinite lifeintangible assets for impairment at January 1, 2010and determined there was no impairment in thevalue of those assets.

• Income taxes – The provision for income taxes isdetermined on the basis of the anticipated tax

Critical Accounting Estimates and Policies



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treatment of transactions recorded in the ConsolidatedStatements of Earnings. The determination of theprovision for income taxes requires interpretationof tax legislation in a number of jurisdictions. Taxplanning may allow the Company to record lowerincome taxes in the current year and, as well, incometaxes recorded in prior years may be adjusted in thecurrent year to reflect management’s best estimatesof the overall adequacy of its provisions. Any relatedtax benefits or changes in management’s best estimatesare reflected in the provision for income taxes. Therecognition of deferred tax assets depends onmanagement’s assumption that future earnings willbe sufficient to realize the future benefit. Theamount of the deferred tax asset or liability recordedis based on management’s best estimate of thetiming of the realization of the assets or liabilities.If our interpretation of tax legislation differs fromthat of the tax authorities or if timing of reversals isnot as anticipated, the provision for income taxescould increase or decrease in future periods.Additional information related to income taxes isincluded in the Summary of Consolidated OperatingResults in this MD&A and in Note 11 to the AnnualFinancial Statements.

• Employee benefits – The Company maintains a numberof employee benefit plans. These plans include afunded registered defined benefit pension plan forall eligible employees, unfunded supplementaryexecutive retirement plans for certain executiveofficers (SERPs) and an unfunded post-retirementhealth care and life insurance plan for eligibleretirees. The funded registered defined benefitpension plan provides pensions based on length ofservice and final average earnings. The measurementdate for the Company’s defined benefit pension planassets and for the accrued benefit obligations on alldefined benefit plans is December 31.

Due to the long-term nature of these plans, thecalculation of benefit expenses and obligationsdepends on various assumptions including discountrates, expected rates of return on assets, the leveland types of benefits provided, healthcare cost trendrates, projected salary increases, retirement age, andmortality and termination rates. The discount rateassumption is determined using a yield curve of AAcorporate debt securities. All other assumptions aredetermined by management and reviewed by

independent actuaries who calculate the pension andother future benefits expenses and accrued benefitobligations. Actual experience that differs from theactuarial assumptions will result in actuarial gains orlosses as well as changes in benefits expense. TheCompany elected to record actuarial gains andlosses on all of its defined benefit plans in Othercomprehensive income on transition to IFRS.

During 2010, the performance of the definedbenefit pension plan assets continued to be positivelyimpacted by improving economic conditions.Pension plan assets grew to $226.6 million atDecember 31, 2010 from $206.9 million atDecember 31, 2009. The actual total rate of returnon pension plan assets accounted for $23.4 millionof this increase compared to an estimated rate ofreturn of $14.3 million based on the Company’sexpected long-term rate of return assumption. Theresulting actuarial gain of $9.1 million was recordedin Other comprehensive income in 2010. Bondyields decreased in 2010 thereby impacting thediscount rate used to measure the Company’s variousdefined benefit plan obligations. The discount ratesutilized to value the defined benefit plan obligationsat December 31, 2010 decreased significantly in2010 compared with 2009 and resulted in actuariallosses of $42.5 million which were recorded inOther comprehensive income in 2010. The definedbenefit pension plan had a funding excess of$12.8 million at December 31, 2010 compared toan excess of $43.4 million at the end of 2009. Theunfunded SERPs and other post-retirement benefitsplans had accrued benefit obligations of $36.2 millionand $32.8 million, respectively, at December 31,2010 compared to $16.8 million and $26.8 millionin 2009.

In the first six months of 2011, the increase inthe fair value of the defined benefit pension planassets due to the total rate of return on assets was$2.4 million compared to an estimated rate of returnof $7.8 million. The actuarial loss of $5.4 million in2011 was recorded in Other comprehensive income.Discount rates used to value the various definedbenefit plan obligations were unchanged at June 30,2011 compared to December 31, 2010.

• Provisions – A provision is recognized when there is apresent obligation as a result of a past transaction orevent, it is “probable” that an outflow of resources



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will be required to settle the obligation and areliable estimate can be made of the obligation. Indetermining the best estimate for a provision, asingle estimate, a weighted average of all possibleoutcomes, or the midpoint where there is a range ofequally possible outcomes are all considered.


International Financial Reporting Standards (IFRS)The Company adopted IFRS effective January 1, 2011and has prepared its Interim Financial Statements forthe three and six months ended June 30, 2011 usingIFRS accounting policies. The Company’s financialstatements for the year ended December 31, 2011 willbe the first annual financial statements that complywith IFRS.

Note 14 of the Interim Financial Statements for thethree and six months ended June 30, 2011 provides adescription of the Company’s initial elections uponadoption of IFRS and contains an explanation of theaccounting policy differences and reconciliations fromprevious Canadian GAAP to IFRS.

The Company developed an IFRS changeoverproject which addressed key elements of the conversionto IFRS and included a formal project governancestructure. The project is substantially complete with theremaining focus being on issuing the third quarter andannual financial statements in accordance with IFRS.

Changes in Accounting PoliciesThe following outlines the accounting policies thatwere selected under IFRS that differ from thosepreviously utilized by the Company.

Derecognition of Financial AssetsThe IFRS determination of whether a financial assetshould be derecognized is based on the transfer of risksand rewards of ownership. As a result, the Company’ssecuritization transactions through the CMB and ABCPprograms are accounted for as secured borrowingsrather than sales. Gains are no longer recognized onthese programs when the transactions occur. TheCompany records the transactions under these programsas follows: (i) the mortgages and related obligation arecarried at amortized cost, and (ii) interest income andinterest expense, utilizing the effective interest ratemethod, are recorded over the term of the mortgages.

Deferred Selling CommissionsCommissions paid on the sale of certain mutual fundunits are considered finite life intangible assets and areamortized over their useful life. The IFRS standard forintangible assets specifically addresses the disposal ofintangible assets. When a mutual fund client redeemsunits in certain mutual funds, a redemption fee is paidby the client that is recorded as revenue by the Company.The unamortized deferred selling commission assetassociated with the units being redeemed is recorded asa disposal.

Share-Based PaymentsUnder IFRS, the graded vesting method is used torecognize compensation expense related to awards thatvest in installments over the vesting period as opposedto a straight line amortization method which waspreviously used by the Company. This results incompensation expense being recognized on anaccelerated basis; therefore, higher compensationexpense is recorded earlier in the amortization periodof the share-based payment award.

Employee BenefitsThe Company elected to recognize actuarial gainsand losses related to its defined benefit plans in othercomprehensive income rather than amortize themthrough net earnings. Vested past service costs orpast service credits are recognized immediately inbenefits expense.

Deferred Income TaxesIFRS requires that the cost of assets acquired outside ofa business combination is not adjusted for the tax effectof differences between the accounting cost and tax costat the time of acquisition.

ProvisionsIFRS requires a provision to be recognized when thereis a present obligation as a result of a past transactionor event, it is “probable” that an outflow of resourceswill be required to settle the obligation, and a reliableestimate can be made of the obligation. In determiningthe best estimate for a provision, IFRS provides for theuse of the weighted average of all possible outcomesor the midpoint where there is a range of equallypossible outcomes.



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Internal ControlsThe Company developed and implemented changes toits financial reporting systems and processes to preparethe Company to effectively transition to IFRS. Inaddition, the Company’s internal controls andaccounting procedures were modified, as appropriate,based on the adoption of IFRS accounting policies. Theimpact of these changes on the Company’s internalcontrol over financial reporting was not significant.


The Company continues to monitor the potentialchanges proposed by the International AccountingStandards Board (IASB) and to analyze the effect thatchanges in the standards may have on the Company’soperations.

IFRS 9 Financial InstrumentsThe IASB issued IFRS 9 that amends the classificationand measurement criteria for financial instrumentsincluded within the scope of IAS 39. The standard iscurrently effective for annual periods beginning on orafter January 1, 2013; however, the IASB is now expectedto issue an exposure draft proposing a deferral of thestandard beyond that effective date.

IFRS 10 Consolidated Financial StatementsThe IASB issued IFRS 10 which introduces a singleconsolidation model for all entities which focuses oncontrol, including the rights an investor has to variablereturns resulting from its involvement with the investeeand the investor’s ability to affect those returns throughits power over the investee. The standard is appliedretroactively and is effective for periods beginning on orafter January 1, 2013.

IFRS 12 Disclosures of Interests in Other EntitiesThe IASB issued IFRS 12 which integrates all of thedisclosure requirements for interests in subsidiaries,joint arrangements, associates and unconsolidatedstructured entities into a single standard. The requireddisclosures provide information to evaluate the natureof, and risks associated with, an entity’s interest in otherentities, and the effects of those interests on the entity’sfinancial statements. The standard is effective forperiods beginning on or after January 1, 2013.

IFRS 13 Fair Value MeasurementThe IASB issued IFRS 13 to consolidate all the fairvalue measurement and disclosure guidance into onestandard. Fair value is defined as the price that wouldbe received on the sale of an asset or paid to transfer aliability in an orderly transaction between marketparticipants. The standard requires more extensivefinancial statement disclosure. The standard is effectiveon a prospective basis for periods beginning on or afterJanuary 1, 2013.

IAS 1 Presentation of Financial StatementsThe IASB amended IAS 1 with respect to thepresentation of Other Comprehensive Income (OCI).The most significant change resulting from theamendments was a requirement for entities to groupitems presented in OCI on the basis of whether or notthey will be reclassified subsequently to net earnings.The amendments are applied retroactively and effectivefor periods beginning on or after July 1, 2012.

IAS 19 Employee BenefitsThe IASB issued IAS 19 that amends the measurementand presentation of defined benefit plans. Amendmentsinclude:• The elimination of the deferral and amortization

approach (corridor approach) for recognizing actuarialgains and losses in Net earnings. Actuarial gains andlosses are recognized immediately in OCI and arenot reclassified to net earnings in subsequent periods.

• Changes in the recognition of past service costs. Pastservice costs resulting from plan amendments orcurtailments are recognized in the period in whichthe plan amendments or curtailment occurs, withoutregard to vesting.

• The elimination of the concept of an expectedreturn on assets (EROA). Amended IAS 19 requiresthe use of the discount rate in the place of EROA inthe determination of the net interest component ofthe pension expense. The amended standard requires additional

disclosures in the financial statements. The standardis applied retroactively and is effective for periodsbeginning on or after January 1, 2013.



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During the second quarter of 2011, there have beenno changes in the Company’s internal control overfinancial reporting that have materially affected, or arereasonably likely to materially affect, the Company’sinternal control over financial reporting.

Internal Controls Over Financial Reporting


OtherThe IASB is currently undertaking several projectswhich will result in changes to existing IFRS standardsthat may affect the Company:

IFRS Standard Expected date of issuance

Asset and Liability Offsetting Q4 2011 – Final Standard

Consolidations – Investment Companies Q3 2011 – Exposure Draft

Impairment Q3 2011 – Exposure DraftRevenue Recognition Q3 2011 – Exposure DraftLeases Q4 2011 – Exposure DraftHedge Accounting Q4 2011 – Final Standard

Source: IASB website at www.iasb.org



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TRANSACTIONS WITH RELATED PARTIES

There were no changes to the types of related partytransactions from those reported at December 31, 2010except as follows:• In February 2011, after obtaining advance tax rulings,

the Company agreed to a tax loss consolidationtransaction with its parent company, PowerFinancial Corporation.

On February 23, 2011, the Company acquired$1.0 billion of 6.01% preferred shares of a wholly-owned subsidiary of Power Financial Corporation.As sole consideration for the preferred shares, theCompany issued $1.0 billion of 6.00% secureddebentures to Power Financial Corporation. TheCompany has legally enforceable rights to settlethese financial instruments on a net basis and theCompany intends to exercise these rights. Accordingly,the preferred shares and debentures and relateddividend income and interest expense are offset inthe Interim Financial Statements of the Company.Tax savings arise due to the tax deductibility of theinterest expense.

The Company also agreed to acquire the sharesof a wholly-owned subsidiary of Power FinancialCorporation which has tax losses resulting from atransaction similar to that described above. TheCompany has recognized the benefit of the tax lossesrealized to June 30, 2011.For further information on transactions involving

related parties, see Note 12 to the Interim FinancialStatements and Notes 5 and 21 to the Annual FinancialStatements.

OUTSTANDING SHARE DATA

Outstanding common shares of IGM Financial as atJune 30, 2011 totalled 257,930,829. As at August 3,2011, outstanding common shares totalled 257,941,215.

SEDAR

Additional information relating to IGM Financial,including the Company’s most recent financialstatements and Annual Information Form, is availableat www.sedar.com.

Other Information



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50 igm financial inc. second quarter report 2011 / interim condensed consolidated financial statements

Consolidated Statements of Earnings

(unaudited) three months ended june 30 six months ended june 30(in thousands of Canadian dollars, except shares and per share amounts) 2011 2010 2011 2010

RevenuesManagement fees $ 491,734 $ 455,458 $ 983,796 $ 905,192Administration fees 92,982 89,168 185,775 177,682Distribution fees 83,997 71,946 173,688 144,795Net investment income and other 41,496 20,094 87,356 74,306

710,209 636,666 1,430,615 1,301,975

ExpensesCommission 228,866 212,005 462,495 425,701Non-commission 171,980 159,016 341,163 318,043Interest 26,139 27,571 56,410 54,873

426,985 398,592 860,068 798,617

Earnings before income taxes 283,224 238,074 570,547 503,358Income taxes 64,116 57,589 137,396 127,640

Net earnings 219,108 180,485 433,151 375,718Perpetual preferred share dividends 2,212 2,213 4,425 5,680

Net earnings available to common shareholders $ 216,896 $ 178,272 $ 428,726 $ 370,038

Average number of common shares (in thousands) (Note 11)

– Basic 258,296 262,339 258,792 262,485– Diluted 259,559 263,567 259,892 263,790

Earnings per share (in dollars) (Note 11)

– Basic $ 0.84 $ 0.68 $ 1.66 $ 1.41– Diluted $ 0.84 $ 0.68 $ 1.65 $ 1.40

(See accompanying notes to interim condensed consolidated financial statements.)

Interim Condensed Consolidated Financial Statements



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igm financial inc. second quarter report 2011 / interim condensed consolidated financial statements 51

Consolidated Statements of Comprehensive Income

(unaudited) three months ended june 30 six months ended june 30(in thousands of Canadian dollars) 2011 2010 2011 2010

Net earnings $ 219,108 $ 180,485 $ 433,151 $ 375,718

Other comprehensive income (loss), net of taxAvailable for sale securities

Net unrealized gains (losses), net of tax of $(280), $1,050, $(260) and $(303) 1,281 (4,923) 790 2,530

Reclassification of realized (gains) losses tonet earnings, net of tax of $162, $182, $490 and $1,154 (366) (697) (1,256) (6,247)

915 (5,620) (466) (3,717)Employee benefits

Net actuarial gains (losses), net of tax of $3,252, $2,253, $1,471 and $4,505 (8,791) (6,090) (3,978) (12,180)

Investment in affiliate and otherOther comprehensive income (loss), net of tax of $(83),

$(31), $(183) and $(17) (3,551) (16,734) (19,254) (22,834)

(11,427) (28,444) (23,698) (38,731)

Comprehensive income $ 207,681 $ 152,041 $ 409,453 $ 336,987




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Consolidated Balance Sheets

(unaudited) JUNE 30 december 31 january 1(in thousands of Canadian dollars) 2011 2010 2010

AssetsCash and cash equivalents $ 896,817 $ 1,573,626 $ 945,081 Securities (Note 2) 476,533 954,691 1,246,259 Loans (Note 3) 4,281,971 4,094,652 3,928,361 Investment in affiliate 572,100 580,478 574,754 Deferred selling commissions 795,240 794,581 847,427 Other assets 389,281 405,579 470,153 Intangible assets 1,119,508 1,123,006 1,121,269 Goodwill 2,639,521 2,639,465 2,613,532

$ 11,170,971 $ 12,166,078 $ 11,746,836

LiabilitiesDeposits and certificates $ 777,501 $ 834,801 $ 907,343 Repurchase agreements (Note 2) 214,300 635,302 629,817 Other liabilities 695,409 823,913 742,200 Deferred income taxes 277,103 264,255 288,456 Obligations to securitization entities (Note 4) 3,506,877 3,505,451 3,310,084 Long-term debt (Note 5) 1,325,000 1,775,000 1,575,000

6,796,190 7,838,722 7,452,900

Shareholders’ EquityShare capital

Perpetual preferred shares 150,000 150,000 150,000 Common shares 1,580,977 1,567,725 1,562,925

Contributed surplus 36,955 37,785 37,845 Retained earnings 2,655,610 2,596,909 2,534,216 Accumulated other comprehensive income (loss) (48,761) (25,063) 8,950

4,374,781 4,327,356 4,293,936

$ 11,170,971 $ 12,166,078 $ 11,746,836

The interim condensed consolidated financial statements were approved by the Board of Directors and authorized forissuance on August 4, 2011.




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igm financial inc. second quarter report 2011 / interim condensed consolidated financial statements 53

Consolidated Statements of Changes in Shareholders’ Equity

(unaudited) six months ended june 30(in thousands of Canadian dollars) 2011 2010

Share capital – Perpetual preferred shares (Note 6)

Balance, end of period $ 150,000 $ 150,000

Share capital – Common shares (Note 6)

Balance, beginning of period 1,567,725 1,562,925 Issued under stock option plan 29,749 13,984 Purchased for cancellation (16,497) (8,321)

Balance, end of period 1,580,977 1,568,588

Contributed surplusBalance, beginning of period 37,785 37,845 Stock options

Current period expense 2,589 132 Exercised (3,419) (1,675)

Balance, end of period 36,955 36,302

Retained earningsBalance, beginning of period 2,596,909 2,534,216 Net earnings 433,151 375,718 Perpetual preferred share dividends (4,425) (5,680)Common share dividends (264,645) (268,811)Common share cancellation excess and other (Note 6) (105,380) (44,105)

Balance, end of period 2,655,610 2,591,338

Accumulated other comprehensive income (loss) on:Available for sale securities

Balance, beginning of period 2,357 1,321 Change in unrealized gains (losses), net of tax (466) (3,717)

Balance, end of period 1,891 (2,396)

Employee benefitsBalance, beginning of period (24,359) – Change in actuarial gains (losses), net of tax (3,978) (12,180)

Balance, end of period (28,337) (12,180)

Investment in affiliate and otherBalance, beginning of period (3,061) 7,629 Other comprehensive income (loss), net of tax (19,254) (22,834)

Balance, end of period (22,315) (15,205)

Total accumulated other comprehensive income (loss), end of period (48,761) (29,781)

Total Shareholders’ Equity $ 4,374,781 $ 4,316,447




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Consolidated Statements of Cash Flows

(unaudited) six months ended june 30(in thousands of Canadian dollars) 2011 2010

Operating activitiesNet earnings $ 433,151 $ 375,718 Adjustments to determine net cash from operating activities

Deferred income taxes 14,878 2,668 Commission amortization 143,137 148,266 Amortization of property, plant and equipment and intangible assets 16,501 16,154 Changes in operating assets and liabilities and other (136,424) (68,334)

471,243 474,472 Commissions paid (143,796) (136,266)

327,447 338,206

Financing activitiesNet decrease in deposits and certificates (57,300) (44,706)Net decrease in obligations related to assets sold under repurchase agreements (421,002) (5,585)Net (decrease) increase in obligations to securitization entities (110) 53,012 Repayment of long-term debt (450,000) – Issue of common shares 27,532 16,574 Common shares purchased for cancellation (121,479) (51,838)Perpetual preferred share dividends paid (4,425) (3,467)Common share dividends paid (265,531) (269,101)

(1,292,315) (305,111)

Investing activitiesPurchase of securities (125,500) (141,845)Proceeds from the sale of securities 607,435 464,368 Net increase in loans (182,508) (173,209)Net additions to property, plant and equipment (7,744) (4,916)Net additions to intangible assets (3,624) (8,244)

288,059 136,154

(Decrease) increase in cash and cash equivalents (676,809) 169,249 Cash and cash equivalents, beginning of period 1,573,626 945,081

Cash and cash equivalents, end of period $ 896,817 $ 1,114,330

Cash $ 75,189 $ 79,323 Cash equivalents 821,628 1,035,007

$ 896,817 $ 1,114,330

Supplemental disclosure of cash flow informationAmount of interest and dividends received $ 114,264 $ 109,914 Amount of interest paid during the period 107,517 89,823 Amount of income taxes paid during the period 182,931 143,765




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igm financial inc. second quarter report 2011 / notes to the interim condensed consolidated financial statements 55

Notes to the Interim Condensed Consolidated Financial Statementsjune 30, 2011 (unaudited) (in thousands of Canadian dollars, except shares and per share amounts)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The unaudited interim Condensed Consolidated Financial Statements (Interim Financial Statements) of IGM FinancialInc. (the Company) have been prepared in accordance with Canadian generally accepted accounting principles applicableto publicly accountable enterprises which is International Financial Reporting Standards (IFRS) and in accordance withIAS 34, Interim Financial Reporting, and IFRS 1, First-time Adoption of IFRS (IFRS 1). These Interim Financial Statementshave been prepared in accordance with accounting policies the Company expects to adopt in its December 31, 2011Consolidated Financial Statements and are based on the IFRS standards and International Financial ReportingInterpretations Committee (IFRIC) interpretations that the Company expects to be applicable at that time. The policiesset out below were consistently applied to all the periods presented unless otherwise noted.

The Company’s Consolidated Financial Statements were previously prepared in accordance with Canadian generallyaccepted accounting principles (previous Canadian GAAP). Previous Canadian GAAP differs in some areas from IFRS.In preparing these interim financial statements, management has amended certain accounting policies and valuationmethods applied in the previous Canadian GAAP financial statements to comply with IFRS. The comparative figures for2010 were restated to reflect these differences. Certain information and note disclosures which are considered material tothe understanding of the Company’s interim financial statements and which are normally included in annual financialstatements prepared in accordance with IFRS are included along with reconciliations and descriptions of the effect of thetransition from previous Canadian GAAP to IFRS (Note 14).

Use of judgment, estimates and assumptionsThe preparation of financial statements in conformity with IFRS requires management to exercise judgment in theprocess of applying accounting policies. It also requires management to make estimates and assumptions that affect theamounts reported in the Interim Financial Statements and accompanying notes. The key areas where judgment has beenapplied include: the determination of which financial assets should be derecognized; assessment of the appropriateclassification of financial instruments, including those classified as fair value through profit or loss; and the determinationthat significant influence exists for its investment in affiliate. Key components of the financial statements requiringmanagement to make estimates include: the fair value of financial instruments, goodwill, intangible assets, income taxes,deferred selling commissions, provisions and employee benefits. Actual results may differ from such estimates.

Basis of consolidationThe Interim Financial Statements include the accounts of the Company and all subsidiaries on a consolidated basis afterelimination of intercompany transactions and balances. The Company is controlled by Power Financial Corporation.

Investment in affiliate represents the Company’s investment in Great-West Lifeco Inc. (Lifeco) over which theCompany has significant influence but not control and is accounted for using the equity method. The investment inLifeco was initially recorded at cost and the carrying amount is increased or decreased to recognize the Company’s shareof the profit or loss since the date of acquisition.

Revenue recognitionManagement fees are based on the net asset value of mutual fund assets under management and are recognized on anaccrual basis as the service is performed. Administration fees are also recognized on an accrual basis as the service isperformed. Distribution fees derived from mutual fund and securities transactions are recognized on a trade date basis.Distribution fees derived from insurance and other financial services transactions are recognized on an accrual basis.

Financial instrumentsAll financial assets are classified in one of the following categories: available for sale, at fair value through profit or loss, orloans and receivables. The classification depends on the purpose for which the financial assets were acquired. Managementdetermines the classification of its financial assets upon initial recognition. Financial assets at fair value through profit orloss are financial assets classified as held for trading or upon initial recognition are designated by the Company as fair valuethrough profit or loss. Financial assets are classified as held for trading if acquired principally for the purpose of selling inthe short-term. Derivatives are also categorized as held for trading unless they are designated as hedges. Loans andreceivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.Available-for-sale financial assets are non-derivative financial instruments that are either designated in this category or notclassified in any of the other categories.



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56 igm financial inc. second quarter report 2011 / notes to the interim condensed consolidated financial statements

Financial instruments (continued)All financial assets are carried at fair value in the Consolidated Balance Sheets, except loans and receivables which are

carried at amortized cost using the effective interest method. Financial liabilities are classified either as financial liabilitiesmeasured at amortized cost using the effective interest method or as fair value through profit or loss, which are carried atfair value.

Unrealized gains and losses on financial assets classified as available for sale as well as other comprehensive incomeamounts, including unrealized foreign currency translation gains and losses related to the Company’s investment in itsaffiliate, are recorded in the Consolidated Statements of Comprehensive Income on a net of tax basis. Accumulated othercomprehensive income forms part of Shareholders’ equity.

Cash and cash equivalentsCash and cash equivalents comprise cash and temporary investments consisting of highly liquid investments with short-term maturities. Interest income is recorded on an accrual basis in Net investment income and other in the ConsolidatedStatements of Earnings.

SecuritiesInvestment securities, which are recorded on a trade date basis, are classified as either available for sale or fair valuethrough profit or loss.

Available for sale securities comprise equity securities held for long-term investment, investments in proprietaryinvestment funds and fixed income securities. Realized gains and losses on disposal of available for sale securities,dividends declared, interest income, as well as the amortization of discounts or premiums using the effective interestmethod, are recorded in Net investment income and other in the Consolidated Statements of Earnings. Unrealized gainsand losses on securities designated as part of a fair value hedging relationship are recorded in Net investment income andother in the Consolidated Statements of Earnings. Unrealized gains and losses on available for sale securities notdesignated as part of a hedging relationship are recorded in Other comprehensive income until they are realized or untilmanagement determines that there is objective evidence of impairment in value, at which time they are recorded in theConsolidated Statements of Earnings.

Fair value through profit or loss securities are held for trading and are comprised of Canada Mortgage Bonds andfixed income securities. Unrealized and realized gains and losses as well as interest income on these securities arerecorded in Net investment income and other in the Consolidated Statements of Earnings.

LoansLoans are classified as either held for trading or loans and receivables, based on the Company’s intent to sell the loans inthe near term.

Loans classified as held for trading are recorded at fair value, with changes in fair value recorded in Net investmentincome and other. Loans classified as loans and receivables are carried at amortized cost less an allowance for creditlosses. Interest income is accounted for on the accrual basis using the effective interest method and is recorded in Netinvestment income and other in the Consolidated Statements of Earnings.

A loan is classified as impaired when, in the opinion of management, there no longer is reasonable assurance of thetimely collection of the full amount of principal and interest. A loan is also classified as impaired when interest orprincipal is contractually past due 90 days, except in circumstances where management has determined that thecollectibility of principal and interest is not in doubt.

The Company maintains an allowance for credit losses which is considered adequate by management to absorb allcredit related losses in its portfolio. Specific allowances are established as a result of reviews of individual loans. There is asecond category of allowance, the designated general allowance, which is allocated against sectors rather than specificallyagainst individual loans. This allowance is established where a prudent assessment by management suggests that losseshave occurred but where such losses cannot yet be identified on an individual loan basis.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



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DerecognitionThe Company enters into transactions where it transfers financial assets recognized on its balance sheet. The determinationof whether the financial assets are derecognized is based on the extent to which the risks and rewards of ownership aretransferred. The gains or losses and the servicing fee revenue for financial assets that are derecognized are reported inNet investment income and other in the Consolidated Statements of Earnings. The transactions for financial assets thatare not derecognized are accounted for as secured financing transactions.

Deferred selling commissionsCommissions paid on the sale of certain mutual funds are deferred and amortized over their estimated useful lives, notexceeding a period of seven years. Commissions paid on the sale of deposits are deferred and amortized over their estimateduseful lives, not exceeding a period of five years. When a client redeems units in mutual funds that are subject to a deferredsales charge, a redemption fee is paid by the client and is recorded as revenue by the Company. Any remaining unamortizeddeferred selling commission asset recognized on the initial sale of these mutual fund units is recorded as a disposal. TheCompany regularly reviews the carrying value of deferred selling commissions with respect to any events or circumstancesthat indicate impairment. Among the tests performed by the Company to assess recoverability is the comparison of thefuture economic benefits derived from the deferred selling commission asset in relation to its carrying value.

Property, plant and equipmentProperty, plant and equipment, which are included in Other assets, are recorded at deemed cost of $275.0 million atJune 30, 2011 (December 31, 2010 – $267.5 million; January 1, 2010 – $260.7 million), less accumulated amortizationof $169.4 million (December 31, 2010 – $162.8 million; January 1, 2010 – $159.0 million). Buildings, furnishings andequipment are amortized on a straight-line basis over their estimated useful lives, which range from 3 to 10 years forequipment and furnishings and 10 to 50 years for the building and its components. Property, plant and equipment are testedfor impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Goodwill and intangible assetsThe Company tests the fair value of goodwill and indefinite life intangible assets for impairment at least once a year and morefrequently if an event or circumstance indicates the asset may be impaired. An impairment loss is recognized if the amount ofthe asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value lessselling expenses or its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for whichthere are separately identifiable cash inflows (cash generating units).

Mutual fund management contracts have been assessed to have an indefinite useful life as the contractual right tomanage the assets has no fixed term.

Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives, not exceeding aperiod of 20 years. Finite life intangible assets are tested for impairment whenever events or changes in circumstances indicatethat the carrying amounts may not be recoverable.

Trade names have been assessed to have an indefinite useful life as they contribute to the revenues of the Company’sintegrated asset management business as a whole and the Company intends to utilize them for the foreseeable future.

Employee benefitsThe Company maintains a number of employee benefit plans. These plans include a funded defined benefit pension planfor all eligible employees, unfunded supplementary executive retirement plans (SERP) for certain executive officers, andan unfunded post-retirement health care and life insurance plan for eligible retirees.

The defined benefit pension plan provides pensions based on length of service and final average earnings. An actuarialvaluation is performed for funding purposes every three years. The most recent actuarial valuation was completed as atDecember 31, 2009 and the next required valuation is as at December 31, 2012.

The cost of pension and other post-retirement benefits earned by employees is actuarially determined using theprojected unit credit method prorated on service based upon management’s assumptions about the expected long-term rateof return on plan assets, discount rates, compensation increases, retirement ages of employees, mortality and expectedhealth care costs. Any changes in these assumptions will impact the carrying amount of pension obligations. The discountrate used to value liabilities is determined using a yield curve of AA corporate debt securities. The defined benefit pensionplan assets are invested in proprietary equity, balanced and fixed income mutual funds and are carried at fair value.




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Employee benefits (continued)Benefit expense or income, which is included in Non-commission expense, includes the cost of pension or other post-

retirement benefits provided in respect of the current year’s service, interest cost on the accrued benefit liability, and theexpected return on plan assets. Benefits expense or income also includes past service costs or past service credits related tothe pension plan, SERPs and other post retirement benefits. Unvested past service costs or credits are amortized over thevesting period which is the expected average remaining service life of the affected employee group for the pension planand SERPs and over the period to full eligibility for the post-retirement benefit plan. Vested past service costs or creditsare recognized immediately in benefits expense or income.

The Company recognizes actuarial gains and losses in the period incurred through other comprehensive income.The accrued benefit asset or liability represents the cumulative difference between the expense and funding

contributions and is included in Other assets or Other liabilities.

Share-based paymentsThe Company uses the fair value based method to account for stock options granted to employees. The fair value ofstock options is determined on each grant date. Compensation expense is recognized over the period that the stockoptions vest, with a corresponding increase in Contributed surplus. When stock options are exercised, the proceedstogether with the amount recorded in Contributed surplus are added to Share capital.

Income taxesThe Company uses the liability method in accounting for income taxes whereby deferred income tax assets and liabilitiesreflect the expected future tax consequences of temporary differences between the carrying amounts of assets andliabilities and their tax bases and tax loss carryforwards. Deferred income tax assets and liabilities are measured based onthe enacted or substantively enacted tax rates which are anticipated to be in effect when the temporary differences areexpected to reverse.

Earnings per shareBasic earnings per share is determined by dividing Net earnings available to common shareholders by the averagenumber of common shares outstanding for the year. Diluted earnings per share is determined using the same method asbasic earnings per share except that the average number of common shares outstanding includes the potential dilutiveeffect of outstanding stock options granted by the Company as determined by the treasury stock method.

Derivative financial instrumentsDerivative financial instruments are utilized by the Company in the management of equity price and interest rate risks.The Company does not utilize derivative financial instruments for speculative purposes.

The Company formally documents all relationships between hedging instruments and hedged items, as well as itsrisk management objective and strategy for undertaking various hedge transactions. This process includes linking allderivatives to specific assets and liabilities on the Consolidated Balance Sheets or to anticipated future transactions. TheCompany also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that areused in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Derivative instruments specifically designated as a hedge and meeting the criteria for hedge effectiveness offset the changesin fair values or cash flows of hedged items. A hedge is designated either as a cash flow hedge or a fair value hedge. A cashflow hedge requires the change in fair value of the derivative, to the extent effective, to be recorded in Other comprehensiveincome, which is reclassified to the Consolidated Statements of Earnings when the hedged item affects earnings. Thechange in fair value of the ineffective portion of the derivative in a cash flow hedge is recorded in the ConsolidatedStatements of Earnings. A fair value hedge requires the change in fair value of the hedging derivative and the change in fairvalue of the hedged item relating to the hedged risk to both be recorded in the Consolidated Statements of Earnings.

Derivative financial instruments are recorded at fair value in the Consolidated Balance Sheets and the changes in fairvalue are recorded in the Consolidated Statements of Earnings.

The Company enters into interest rate swaps as part of its mortgage banking and intermediary operations. Theseswap agreements require the periodic exchange of net interest payments without the exchange of the notional principalamount on which the payments are based. These instruments are not designated as hedges. Changes in fair value arerecorded in Net investment income and other in the Consolidated Statements of Earnings.




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Derivative financial instruments (continued)The Company also enters into total return swaps and forward agreements to manage its exposure to fluctuations in

the total return of its common shares related to deferred compensation arrangements. Total return swap and forwardagreements require the exchange of net contractual payments periodically or at maturity without the exchange of thenotional principal amounts on which the payments are based. Certain of these instruments are not designated as hedges,in which case changes in fair value are recorded in Non-commission expense in the Consolidated Statements of Earnings.

Derivatives not designated as hedges continue to be utilized on a basis consistent with the risk management policies ofthe Company and are monitored by the Company for effectiveness as economic hedges even if specific hedge accountingrequirements are not met.

Future accounting changesThe Company continues to monitor the potential changes proposed by the International Accounting Standards Board(IASB) and to analyze the effect that changes in the standards may have on the Company’s operations.

IFRS 9 Financial InstrumentsThe IASB issued IFRS 9 that amends the classification and measurement criteria for financial instruments included withinthe scope of IAS 39. The standard is currently effective for annual periods beginning on or after January 1, 2013; however,the IASB is now expected to issue an exposure draft proposing a deferral of the standard beyond that effective date.

IFRS 10 Consolidated Financial StatementsThe IASB issued IFRS 10 which introduces a single consolidation model for all entities which focuses on control,including the rights an investor has to variable returns resulting from its involvement with the investee and the investor’sability to affect those returns through its power over the investee. The standard is applied retroactively and is effective forperiods beginning on or after January 1, 2013.

IFRS 12 Disclosures of Interests in Other EntitiesThe IASB issued IFRS 12 which integrates all of the disclosure requirements for interests in subsidiaries, jointarrangements, associates and unconsolidated structured entities into a single standard. The required disclosures provideinformation to evaluate the nature of, and risks associated with, an entity’s interest in other entities, and the effects of thoseinterests on the entity’s financial statements. The standard is effective for periods beginning on or after January 1, 2013.

IFRS 13 Fair Value MeasurementThe IASB issued IFRS 13 to consolidate all the fair value measurement and disclosure guidance into one standard. Fairvalue is defined as the price that would be received on the sale of an asset or paid to transfer a liability in an orderlytransaction between market participants. The Standard requires more extensive financial statement disclosure. Thestandard is effective on a prospective basis for periods beginning on or after January 1, 2013.

IAS 1 Presentation of Financial StatementsThe IASB amended IAS 1 with respect to the presentation of Other Comprehensive Income (OCI). The most significantchange resulting from the amendments was a requirement for entities to group items presented in OCI on the basis ofwhether or not they will be reclassified subsequently to net earnings. The amendments are applied retroactively andeffective for periods beginning on or after July 1, 2012.

IAS 19 Employee BenefitsThe IASB issued IAS 19 that amends the measurement and presentation of defined benefit plans. Amendments include:• The elimination of the deferral and amortization approach (corridor approach) for recognizing actuarial gains and

losses in Net earnings. Actuarial gains and losses are recognized immediately in OCI and are not reclassified to netearnings in subsequent periods.

• Changes in the recognition of past service costs. Past service costs resulting from plan amendments or curtailmentsare recognized in the period in which the plan amendments or curtailment occurs, without regard to vesting.




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Future accounting changes (continued)• The elimination of the concept of an expected return on assets (EROA). Amended IAS 19 requires the use of the

discount rate in the place of EROA in the determination of the net interest component of the pension expense. The amended standard requires additional disclosures in the financial statements. The standard is applied

retroactively and is effective for periods beginning on or after January 1, 2013.

2. SECURITIES

JUNE 30, 2011 december 31, 2010 january 1, 2010

fair fair faircost value cost value cost value

Available for sale:Common shares $ 8,687 $ 7,666 $ 8,687 $ 7,698 $ 236,383 $ 237,085Proprietary investment funds 26,339 28,887 33,326 37,794 41,259 41,341Fixed income securities 196,149 197,696 243,939 243,748 314,260 315,387

231,175 234,249 285,952 289,240 591,902 593,813

Fair value through profit or loss:Canada Mortgage Bonds 220,432 213,362 647,318 637,850 647,318 624,703Fixed income securities 31,062 28,922 31,301 27,601 31,443 27,743

251,494 242,284 678,619 665,451 678,761 652,446

$ 482,669 $ 476,533 $ 964,571 $ 954,691 $ 1,270,663 $ 1,246,259

Available for sale

Fixed income securitiesThe Company held a diversified portfolio of fixed income securities totalling $197.7 million at June 30, 2011 which wascomprised of bankers’ acceptances of $19.9 million, Canadian chartered bank senior deposit notes of $83.5 million, andcorporate bonds and other of $94.3 million.

Fair value through profit or loss

Canada Mortgage BondsAs part of the Company’s interest rate risk management activities relating to its mortgage banking operations, CanadaMortgage Bonds were purchased and subsequently sold under repurchase agreements, which represent short-termfunding transactions where the Company sells securities that it owns and commits to repurchase these securities at aspecified price on a specified date in the future.

During the second quarter, the Company sold $425.6 million of the securities and settled $427.6 million of therepurchase obligations.

The remaining securities had a fair value of $213.4 million at June 30, 2011. The obligation to repurchase the securitiesis recorded at amortized cost and had a carrying value of $214.3 million. The interest expense related to these obligationsis recorded on an accrual basis in Net investment income and other in the Consolidated Statements of Earnings.

Fixed income securitiesFixed income securities of $28.9 million at June 30, 2011 were comprised of the restructured notes of the master assetvehicle (MAV) conduits. During 2011, the fair value of the underlying notes increased by $1.5 million offset by $0.2 millionof principal and interest payments received from the restructured notes of the MAV conduits.




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Fair value through profit or loss (continued)The Company’s valuation of the restructured notes of the MAV conduits was based on its assessment of the prevailing

conditions at June 30, 2011. The estimated fair value reflects the allocation of the floating rate notes the Companyreceived which are expected to mature in January 2017. The Company estimated the fair value of the senior andsubordinated notes by discounting the expected cash flows at yields comparable to prevailing market yields and creditspreads available for securities with similar characteristics to the restructured notes and other market inputs reflecting theCompany’s best available information. The fair value of the Ineligible Asset Tracking long-term floating rate notes wasestimated using observable market inputs from independent pricing sources or by using discounted expected cash flowsreflecting the Company’s best available information, including reference to prevailing market yields on debt instrumentsin the Canadian market.

3. LOANS

CONTRACTUAL MATURITY

JUNE 30 december 31 january 11 YEAR 1 – 5 OVER 2011 2010 2010

OR LESS YEARS 5 YEARS TOTAL total total

Loans and receivablesResidential mortgages $ 328,874 $ 3,201,438 $ 6,830 $ 3,537,142 $ 3,590,629 $ 3,389,155Commercial mortgages – 379 – 379 393 423

328,874 3,201,817 6,830 3,537,521 3,591,022 3,389,578Investment loans 251,217 14,445 10,926 276,588 283,570 305,335

$ 580,091 $ 3,216,262 $ 17,756 3,814,109 3,874,592 3,694,913

Less: General allowance 4,331 4,338 6,943

3,809,778 3,870,254 3,687,970Held for trading 472,193 224,398 240,391

$ 4,281,971 $ 4,094,652 $ 3,928,361

The change in the allowance for credit losses is as follows:Balance, beginning of period $ 4,338 $ 6,943Write-offs (58) (121)Recoveries 13 20Provision for credit losses 38 (2,504)

Balance, end of period $ 4,331 $ 4,338

Total impaired loans as at June 30, 2011 were $798 (December 31, 2010 – $1,106; January 1, 2010 – $1,495).Total interest income on loans classified as loans and receivables was $80.9 million (2010 – $81.2 million). Total

interest expense on obligations to securitization entities, related to securitized loans, was $41.0 million (2010 –$30.4 million). These amounts were included in Net investment income and other.

2. SECURITIES (continued)



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4. SECURITIZATIONS

The Company enters into transactions that result in the transfer of financial assets to third parties.The Company securitizes residential mortgages through the Canada Mortgage and Housing Corporation (CMHC)-

sponsored National Housing Act Mortgage-Backed Securities (NHA MBS) Program and Canada Mortgage Bond (CMB)Program and through Canadian bank-sponsored asset-backed commercial paper programs. The Company has retainedcertain elements of credit risk associated with the transferred assets. However, the Company’s credit risk on itssecuritization activities is limited to its retained interest, and substantially all securitized mortgages are insured. Additionalinformation related to the management of credit risk is contained in the Financial Instruments section of the Company’sManagement Discussion and Analysis (MD&A), contained in the Second Quarter 2011 Report to Shareholders. TheCompany retains prepayment risk associated with the securitized loans. Accordingly, the Company has recorded theseloans on its balance sheets at a carrying value of $3.43 billion at June 30, 2011 (December 31, 2010 – $3.47 billion;January 1, 2010 – $3.26 billion), and has recorded an offsetting liability, Obligations to securitization entities, of$3.51 billion (December 31, 2010 – $3.51 billion; January 1, 2010 – $3.31 billion) which is carried at amortized cost.

The Company’s retained interest in securitized loans includes cash reserve accounts and rights to future excess spread.It also includes the component of a swap entered into under the CMB Program whereby the Company pays coupons onCanada Mortgage Bonds and receives investment returns on reinvestment of repaid mortgage principal (PrincipalReinvestment Account Swap) which is reflected on the Company’s financial statements as a derivative at a fair value of$(31.7) million at June 30, 2011 (December 31, 2010 – $(26.1) million; January 1, 2010 – $10.2 million). The retainedinterest is subordinated to the interests of investors in the securitization vehicles (the Purchasers). The Purchasers do nothave recourse to the Company’s other assets for any failure of mortgage borrowers to pay when due. At June 30, 2011,the fair value of the total retained interests, including the Principal Reinvestment Account Swap, was $75.9 million(December 31, 2010 – $107.0 million; January 1, 2010 – $173.6 million).

The NHA MBS and CMB programs require securitized mortgages be insured by an approved insurer. At June 30,2011, 98.3% of the Company’s securitized loans were insured.

5. LONG-TERM DEBT

JUNE 30 december 31maturity rate series 2011 2010

May 9, 2011 6.75% 2001 $ – $ 450,000March 7, 2018 6.58% 2003 150,000 150,000April 8, 2019 7.35% 2009 375,000 375,000December 13, 2027 6.65% 1997 125,000 125,000May 9, 2031 7.45% 2001 150,000 150,000December 31, 2032 7.00% 2002 175,000 175,000March 7, 2033 7.11% 2003 150,000 150,000December 10, 2040 6.00% 2010 200,000 200,000

$ 1,325,000 $ 1,775,000

The unsecured debentures are redeemable by the Company, in whole or in part, at any time, at the greater of par and aformula price based upon yields at the time of redemption.

Long-term debt is classified as other than held for trading and is carried at amortized cost.The $450.0 million 2001 Series 6.75% debentures matured and were repaid on May 9, 2011.



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6. SHARE CAPITAL

Issued and outstandingJUNE 30, 2011 june 30, 2010

stated statedshares value shares value

Perpetual preferred shares – classified as equity:First preferred shares, Series B 6,000,000 $ 150,000 6,000,000 $ 150,000

Common shares:Balance, beginning of period 259,717,507 $ 1,567,725 262,633,255 $ 1,562,925Issued under Stock Option Plan 924,622 29,749 453,794 13,984Purchased for cancellation (2,711,300) (16,497) (1,390,000) (8,321)

Balance, end of period 257,930,829 $ 1,580,977 261,697,049 $ 1,568,588

Normal course issuer bidIn the second quarter of 2011, 711,300 (2010 – 850,000) shares were purchased at a cost of $35.2 million (2010 –$29.9 million). In the six months ended June 30, 2011, 2,711,300 (2010 – 1,390,000) shares were purchased at a cost of$121.5 million (2010 – $51.8 million). The premium paid to purchase the shares in excess of the stated value was chargedto Retained earnings.

The Company commenced a normal course issuer bid, effective for one year, on April 12, 2011. Pursuant to this bid,the Company may purchase up to 12.9 million or 5% of its common shares outstanding as at March 31, 2011. OnApril 12, 2010, the Company had commenced a normal course issuer bid, effective for one year, authorizing it topurchase up to 13.1 million or 5% of its common shares outstanding as at March 31, 2010.

7. CAPITAL MANAGEMENT

The capital management policies, procedures and activities of the Company are discussed in the Company’s Management’sDiscussion and Analysis (MD&A), contained in the Second Quarter 2011 Report to Shareholders and have not changedsignificantly since December 31, 2010.

8. SHARE-BASED PAYMENTS

JUNE 30 december 31 january 12011 2010 2010

Common share options– Outstanding 8,714,613 8,958,494 9,415,005– Exercisable 3,937,257 4,234,649 4,541,430

In the second quarter of 2011, the Company did not grant options to employees (2010 – 335,000). In the six monthsended June 30, 2011, the Company granted 872,085 options to employees (2010 – 1,182,125). The fair value of optionsgranted during the six months ended June 30, 2011 has been estimated at $6.59 per option (2010 – $5.53) using theBlack-Scholes option pricing model. The assumptions used to determine the fair value of the options on the grantdate include:

2011 2010

Exercise price $ 46.72 $ 42.15Risk-free interest rate 3.02% 3.11%Expected option life 6 years 6 yearsExpected volatility 22.00% 22.00%Expected dividend yield 4.39% 4.87%



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Expected volatility has been estimated based on the historic volatility of the Company’s share price over six yearswhich is reflective of the expected option life. Options vest over a period of up to 7.5 years from the grant date and areexercisable no later than 10 years after the grant date. A portion of the outstanding options can only be exercised oncecertain performance targets are met.

9. RISK MANAGEMENT

The risk management policies and procedures of the Company are discussed in the Company’s MD&A contained in theSecond Quarter 2011 Report to Shareholders and have not changed significantly since December 31, 2010.

10. EMPLOYEE BENEFITS

The Company recorded pension and other post-retirement benefits expense as follows:

three months ended june 30 six months ended june 302011 2010 2011 2010

Defined benefit pension plan and the supplementaryexecutive retirement plans $ 1,962 $ 994 $ 3,922 $ 1,990

Other post-retirement benefits expense 392 280 785 561

Total $ 2,354 $ 1,274 $ 4,707 $ 2,551

11. EARNINGS PER COMMON SHARE

three months ended june 30 six months ended june 302011 2010 2011 2010

EarningsNet earnings available to common shareholders $ 216,896 $ 178,272 $ 428,726 $ 370,038

Number of common shares (in thousands)

Average number of common shares outstanding 258,296 262,339 258,792 262,485Add: Potential exercise of outstanding stock options 1,263 1,228 1,100 1,305

Average number of common shares outstanding– Diluted basis 259,559 263,567 259,892 263,790

Earnings per common share (in dollars)

– Basic $ 0.84 $ 0.68 $ 1.66 $ 1.41– Diluted $ 0.84 $ 0.68 $ 1.65 $ 1.40

12. RELATED PARTY TRANSACTIONS

In February 2011, after obtaining advance tax rulings, the Company agreed to a tax loss consolidation transaction with itsparent company, Power Financial Corporation.

On February 23, 2011, the Company acquired $1.0 billion of 6.01% preferred shares of a wholly-owned subsidiary ofPower Financial Corporation. As sole consideration for the preferred shares, the Company issued $1.0 billion of 6.00%secured debentures to Power Financial Corporation. The Company has legally enforceable rights to settle these financialinstruments on a net basis and the Company intends to exercise these rights. Accordingly, the preferred shares anddebentures and related dividend income and interest expense are offset in the Interim Financial Statements of theCompany. Tax savings arise due to the tax deductibility of the interest expense.

The Company also agreed to acquire the shares of a wholly-owned subsidiary of Power Financial Corporation whichhas tax losses resulting from a transaction similar to that described above. The Company has recognized the benefit ofthe tax losses realized to June 30, 2011.

8. SHARE-BASED PAYMENTS (continued)



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13. SEGMENTED INFORMATION

IGM Financial’s reportable segments are:• Investors Group• Mackenzie• Corporate and Other

These segments reflect the current organizational structure and internal financial reporting. Management measuresand evaluates the performance of these segments based on earnings before interest and taxes.

2011

investors corporateThree months ended June 30 group mackenzie and other total


417,090 223,830 69,289 710,209

ExpensesCommission 124,891 73,844 30,131 228,866Non-commission 92,094 69,194 10,692 171,980

216,985 143,038 40,823 400,846

Earnings before undernoted $ 200,105 $ 80,792 $ 28,466 309,363

Interest expense 26,139

Earnings before income taxes 283,224Income taxes 64,116

Net earnings 219,108Perpetual preferred share dividends 2,212

Net earnings available to common shareholders $ 216,896



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2010

investors corporateThree months ended June 30 group mackenzie and other total

RevenuesManagement fees $ 275,719 $ 170,682 $ 9,057 $ 455,458Administration fees 54,615 33,094 1,459 89,168Distribution fees 44,895 6,151 20,900 71,946Net investment income and other (6,215) 3,048 23,261 20,094

369,014 212,975 54,677 636,666


202,594 139,707 28,720 371,021






13. SEGMENTED INFORMATION (continued)



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2011

investors corporateSix months ended June 30 group mackenzie and other total


841,844 451,107 137,664 1,430,615


427,003 290,489 86,166 803,658






Identifiable assets $ 4,917,416 $ 2,259,448 $ 1,354,586 $ 8,531,450Goodwill 1,347,781 1,169,040 122,700 2,639,521

Total assets $ 6,265,197 $ 3,428,488 $ 1,477,286 $11,170,971




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2010

investors corporateSix months ended June 30 group mackenzie and other total


762,081 424,901 114,993 1,301,975


399,849 283,346 60,549 743,744






Identifiable assets $ 5,196,736 $ 2,378,573 $ 1,543,454 $ 9,118,763Goodwill 1,347,781 1,172,750 98,908 2,619,439

Total assets $ 6,544,517 $ 3,551,323 $ 1,642,362 $ 11,738,202

14. TRANSITION TO IFRS

The Company’s financial statements for the year ending December 31, 2011 will be the first annual consolidated financialstatements that comply with IFRS and the Interim Financial Statements were prepared as described in Note 1, includingthe application of IFRS 1. IFRS 1 requires an entity to adopt IFRS in its first annual consolidated financial statementsprepared under IFRS by making an explicit and unreserved statement in those financial statements of compliance withIFRS. The Company will make this statement when it issues its 2011 annual consolidated financial statements.

IFRS 1 also requires that comparative financial information be provided. As a result, the first date at which the Companyhas applied IFRS was January 1, 2010 (the “Transition Date”). IFRS 1 requires first-time adopters to retrospectively applyall effective IFRS standards as of the reporting date, which for the Company will be December 31, 2011. However, it alsoprovides for certain optional exemptions and certain mandatory exceptions for first time IFRS adopters.

Initial elections upon adoptionIFRS 1 elected exemptions from full retroactive application that the Company applied in the conversion from previousCanadian GAAP to IFRS are detailed as follows:

a) Business combinations: IFRS 1 provides the option to apply IFRS 3, Business Combinations, retrospectively or prospectively from theTransition Date. The retrospective basis would require restatement of all business combinations that occurred priorto the Transition Date. The Company elected not to retrospectively apply IFRS 3 to business combinations thatoccurred prior to its Transition Date and such business combinations have not been restated. Any goodwill arising onsuch business combinations before the Transition Date has not been adjusted from the carrying value determinedunder previous Canadian GAAP as a result of applying these exemptions.




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Initial elections upon adoption (continued)

b) Employee benefits:IFRS 1 provides the option to retrospectively apply IAS 19, Employee Benefits, for the recognition of actuarial gainsand losses, or to recognize all cumulative actuarial gains and losses deferred under previous Canadian GAAP inopening retained earnings at the Transition Date. The Company elected to recognize all cumulative actuarial gainsand losses that existed at its Transition Date in opening retained earnings for all of its employee defined benefit plans.

c) Fair value as deemed cost:IFRS 1 provides the option to measure an item of property, plant and equipment at the Transition Date at its fairvalue and use that fair value as its deemed cost at that date. The Company elected to utilize this option for certainitems of property, plant and equipment.

Reconciliations of previous Canadian GAAP to IFRSThe reconciliations from previous Canadian GAAP to IFRS for net earnings, comprehensive income, shareholders’equity, cash flows and the balance sheet are as follows:

Reconciliation of Net Earnings2010

three six twelvemonths months months

ended ended endedreference june 30 june 30 december 31

Net earnings under previous Canadian GAAP $ 181,332 $ 363,511 $ 735,585

Differences increasing (decreasing) reported net earnings (net of tax):

Derecognition i (3,464) 9,016 25,619Deferred selling commissions ii 2,006 2,541 8,913Share-based compensation iii 22 251 260Property, plant and equipment iv (16) 37 31Employee benefits v (214) (430) (13,700)Investment in affiliate vi 685 373 (1,086)Deferred income taxes vii 61 199 319Provisions viii 79 93 (2,924)Business combinations ix – – (9,330)Other (6) 127 828

(847) 12,207 8,930

Net earnings under IFRS $ 180,485 $ 375,718 $ 744,515

14. TRANSITION TO IFRS (continued)



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Reconciliations of previous Canadian GAAP to IFRS (continued)

Reconciliation of Comprehensive Income2010

three six twelvemonths months months

ended ended endedreference june 30 june 30 december 31

Comprehensive income under previous Canadian GAAP $ 159,290 $ 336,044 $ 725,098

Differences increasing (decreasing) reported comprehensive income (net of tax):

Increase in net earnings as a result of IFRS (847) 12,207 8,930Actuarial losses on employee benefit plans v (6,090) (12,180) (24,359)Investment in affiliate vi (312) 916 833

(7,249) 943 (14,596)

Comprehensive income under IFRS $ 152,041 $ 336,987 $ 710,502

Reconciliation of Shareholders’ Equity2010

reference january 1 june 30 december 31

Shareholders’ equity under previous Canadian GAAP $ 4,424,813 $ 4,447,061 $ 4,475,529

Differences increasing (decreasing) reported shareholders’ equity (net of tax):

Derecognition i (90,752) (81,736) (65,133)Deferred selling commissions ii (1,127) 1,414 7,786Property, plant and equipment iv 8,299 8,336 8,330Employee benefits v 1,537 (11,073) (36,522)Investment in affiliate vi (23,467) (22,098) (23,519)Deferred income taxes vii (2,786) (2,587) (2,467)Provisions viii (22,820) (22,727) (25,744)Business combinations ix – – (9,330)Other 239 (143) (1,574)

(130,877) (130,614) (148,173)

Shareholders’ equity under IFRS $ 4,293,936 $ 4,316,447 $ 4,327,356




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Reconciliation of Cash Flowssix months

ended june 30,

reference 2010

Operating activities:Operating cash flows under previous Canadian GAAP $ 370,346Differences increasing (decreasing) reported operating cash flows:

Increase in net earnings as a result of IFRS 12,207Derecognition i (44,896)Deferred income taxes 4,838Other (4,289)

Operating cash flows under IFRS $ 338,206

Financial activities:Financing cash flows under previous Canadian GAAP $ (358,123)Differences increasing (decreasing) reported financing cash flows:

Derecognition i 53,012

Financing cash flows under IFRS $ (305,111)

Investing activities:Investing cash flows under previous Canadian GAAP $ 157,026Differences increasing (decreasing) reported investing cash flows:

Derecognition i (20,872)

Investing cash flows under IFRS $ 136,154




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Reconciliation of Balance Sheetjanuary 1, 2010

previouscanadian

reference gaap differences ifrs

AssetsCash and cash equivalents $ 945,081 $ – $ 945,081Securities 1,246,259 – 1,246,259Loans i 671,556 3,256,805 3,928,361Investment in affiliate vi 598,221 (23,467) 574,754Deferred selling commissions ii 850,082 (2,655) 847,427Other assets i, iv, v 592,908 (122,755) 470,153Intangible assets vii 1,128,280 (7,011) 1,121,269Goodwill 2,613,532 – 2,613,532

$ 8,645,919 $ 3,100,917 $ 11,746,836

LiabilitiesDeposits and certificates $ 907,343 $ – $ 907,343Repurchase agreements 629,817 – 629,817Other liabilities i, v, viii 780,329 (38,129) 742,200Deferred income taxes 328,617 (40,161) 288,456Obligations to securitization entities i – 3,310,084 3,310,084Long-term debt 1,575,000 – 1,575,000

4,221,106 3,231,794 7,452,900

Shareholders’ equityShare capital

Perpetual preferred shares 150,000 – 150,000Common shares 1,562,925 – 1,562,925

Contributed surplus iii 32,702 5,143 37,845Retained earnings 2,737,785 (203,569) 2,534,216Accumulated other comprehensive income (58,599) 67,549 8,950

4,424,813 (130,877) 4,293,936

$ 8,645,919 $ 3,100,917 $ 11,746,836




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Changes in accounting policiesIn addition to the exemptions and exceptions previously discussed, there are a number of differences between theCompany’s previous Canadian GAAP accounting policies and its current IFRS accounting policies. An explanation ofthese differences follows:

i. Derecognition

Previous Canadian GAAP – Derecognition focused on surrendering control over the transferred assets in order toderecognize the assets and recognize a sale.

IFRS – Derecognition focuses to a greater extent on the transfer of risks and rewards of ownership in order toderecognize the asset and recognize sale under IFRS. As a result, the Company’s securitization transactions areaccounted for as secured borrowings in accordance with IFRS rather than sales, which results in an increase in totalassets and liabilities recorded on the Consolidated Balance Sheets. The increase in the mortgage balances was$3.5 billion at December 31, 2010 (June 30, 2010 – $3.3 billion; January 1, 2010 – $3.3 billion) with a correspondingincrease in liabilities. Certain other mortgage related assets and liabilities, which were recorded under previousCanadian GAAP, including retained interests, certain derivative instruments and servicing liabilities, were adjustedaccordingly. At December 31, 2010, the decrease in other assets was $91 million (June 30, 2010 – $111 million;January 1, 2010 – $129 million) and other liabilities was $85 million (June 30, 2010 – $83 million; January 1, 2010 –$55 million).

In addition, as these transactions are treated as financing transactions rather than sale transactions, a transitionaladjustment to opening retained earnings is required to reflect this change in accounting treatment. Opening retainedearnings, revenue and expenses have been adjusted to reflect this change.

ii. Deferred selling commissions

Previous Canadian GAAP – Deferred selling commissions were finite life intangible assets under previous CanadianGAAP. Previous Canadian GAAP does not specifically address the accounting for disposals of finite life intangibleassets and as a result, the Company utilized a shorter amortization period in order to account for disposals.

IFRS – Deferred selling commissions are finite life intangible assets under IFRS. IFRS more specifically addressesthe approach to record the amortization and disposals of intangible assets. Opening retained earnings and expenseshave been adjusted to reflect the change.

iii. Share-based payments

Previous Canadian GAAP – For grants of share-based awards, the total fair value of the award was recognized on astraight-line basis over the employment period necessary to vest the award.

IFRS – Each tranche in an award with graded vesting is considered a separate grant with a different vesting date.Each grant is accounted for on that basis. Opening retained earnings, opening contributed surplus and expenses forshare-based awards have been adjusted to reflect the change.

iv. Property, plant and equipment

IFRS – The Company has elected under IFRS 1 to record certain property, plant and equipment at fair value as atthe Transition Date and utilize this value as the deemed cost under IFRS. The aggregate fair value of the assetswhere this election was utilized was $34.3 million. As a result of the increase in fair value, opening retained earningsincreased by $8.6 million. The effect of this adjustment on the depreciation expense is not significant.

v. Employee benefits

IFRS – In accordance with IFRS 1, the Company has elected to record all unamortized actuarial gains or lossesthrough opening retained earnings. In addition, IFRS requires that vested past service costs or past service credits berecognized immediately in benefits expense or income. As a result, opening retained earnings and expenses havebeen adjusted. The Company has elected to recognize actuarial gains and losses related to its defined benefit plans inother comprehensive income rather than amortize them through earnings.




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Changes in accounting policies (continued)

vi. Investment in affiliate

The Company’s investment in its affiliate is recorded using the equity method of accounting. Opening retainedearnings, accumulated other comprehensive income, and equity earnings reflect the changes made by the investeecompany upon its conversion to IFRS.

vii. Deferred income taxes

Previous Canadian GAAP – The cost of assets acquired outside of a business combination was adjusted for the taxeffect on differences between the accounting cost and the tax cost at the time of the acquisition.

IFRS – The cost of assets acquired outside of a business combination are not adjusted for the tax effect on anydifferences between the accounting cost and the tax cost at the time of the acquisition. Opening retained earningsand expenses have been adjusted to reflect the difference in amortization expense related to certain intangible assetswhere deferred taxes increased the cost of the asset acquired.

viii. Provisions

Previous Canadian GAAP – A contingent liability was recognized as a result of a past transaction or event if it waslikely that it would result in a loss and the amount of the loss could be reasonably estimated.

IFRS – A provision is recognized where: there is a present obligation as a result of a past transaction or event; it is“probable” that an outflow of resources will be required to settle the obligation; and a reliable estimate can be madeof the obligation. The previous Canadian GAAP recognition criterion of “likely” was a higher threshold than“probable” which results in additional provisions being recognized under IFRS. In determining the best estimate fora provision, IFRS provides for the use of the weighted average of all possible outcomes or the midpoint where thereis a range of equally possible outcomes.

ix. Business combinations

Previous Canadian GAAP – If certain conditions were met, the costs of a plan to exit an activity of an acquiredcompany, to involuntarily terminate employees of an acquired company, or to relocate employees of an acquiredcompany were liabilities assumed in the purchase and were included in the allocation of the acquisition cost.

IFRS – Restructuring provisions are only included as part of the acquired liabilities when the acquiree has recognizedan existing liability for restructuring in accordance with applicable IFRS standards. As a result, restructuringprovisions recorded as part of the purchase price allocation under previous Canadian GAAP are charged to earningsunder IFRS.




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PART E

JUNE 30, 2011

P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1 E 1

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ECONOMIC PRESENTATION OF PARGESA RESULTS

FIRSTHALF2011

Operating contribution of the main shareholdingsConsolidated [Imerys] or equity accounted [Lafarge]:

69.636.1

Non consolidated:98.551.815.011.6 .

Operating contribution of the main shareholdings 282.6per share [SF] 3.34 3.23 6.61

0.8(73.4)

Operating income 210.0per share [SF] 2.48 2.61 5.50

(0.9)(6.9)

Net income 202.2per share [SF] 2.39 2.71 5.50

84,6381.270

E 2 P O W E R C O R P O R AT I O N O F C A N A DA — S E C O N D Q UA RT E R R E P O RT 2 0 1 1


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CONSOLIDATED OR EQUITY ACCOUNTED HOLDINGS

NON CONSOLIDATED HOLDINGS

non operating income from consolidated or equity accounted companiesnet non operating income contributed by

holding companies



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PRESENTATION OF RESULTS IN ACCORDANCE WITH IFRS

FIRSTHALF2011

2,419.2(2,132.1)

44.8Operating income 331.9

353.2(126.6)(82.0)68.1

Consolidated net profit 544.6342.4

Attributable to Pargesa shareholders [group share] 202.2Average number of shares in circulation [thousands] 84,638

Basic earnings per share, group share [SF] 2.39€/SF average exchange rate 1.270

Operating income operating expenses

Other income and expenses

dividends and interest from long term investments

other financial income (expenses) taxes

Income from associates

Minority interests



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ADJUSTED NET ASSET VALUE

Total portfolio

Adjusted net asset value

per Pargesa share






This document is also available on www.sedar.com or on the Corporation’s website, www.powercorporation.com

Additional printed copies of this document are available from the Secretary, Power Corporation of Canada 751 Victoria Square, Montréal, Québec, Canada H2Y 2J3

or

Suite 2600, Richardson Building, 1 Lombard Place, Winnipeg, Manitoba, Canada R3B 0X5

Ce document est aussi disponible sur le site www.sedar.com ou sur le site Web de la Société, www.powercorporation.com

Si vous préférez recevoir ce document en français, veuillez vous adresser au secrétaire, Power Corporation du Canada 751, square Victoria, Montréal (Québec) Canada H2Y 2J3

ou

Bureau 2600, Richardson Building, 1 Lombard Place, Winnipeg (Manitoba) Canada R3B 0X5

Stock LiStingS

Shares of Power Corporation of Canada are listed on the Toronto Stock Exchange, under the following listings:

Subordinate Voting Shares: POWParticipating Preferred Shares: POW.PR.EFirst Preferred Shares 1986 Series: POW.PR.FFirst Preferred Shares, Series A: POW.PR.AFirst Preferred Shares, Series B: POW.PR.BFirst Preferred Shares, Series C: POW.PR.CFirst Preferred Shares, Series D: POW.PR.D

tr anSfer agen t and regiStr ar

Computershare Investor Services Inc.

Offices in:Montréal (QC); Toronto (ON); Vancouver (BC)www.computershare.com

SharehoLder ServiceS

Shareholders with questions relating to the payment of dividends, change of address and share certificates should contact the Transfer Agent:

Computershare Investor Services Inc.Shareholder Services 100 University Avenue, 9th Floor Toronto, Ontario, Canada M5J 2Y1Telephone: 1-800-564-6253 (toll-free in Canada and the U.S.) or 514-982-7555 www.computershare.com

WebSite


CorPorATE InformATIon

Power Corporation has been designated “A Caring Company” by Imagine, a national program to promote corporate and public giving, volunteering and support in the community.

Second quarter report

For the period ended june 30, 20112

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INT

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IN

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751 Victoria Square

Montréal, Québec, Canada H2Y 2J3

514-286-7400


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