Governance Report

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Third-Party Investment Research and GovernanceThe investments within the Foresight solution have been researched, selected and constructed with the help of Morningstar experts. A leading provider of independent investment research around the world, Morningstar has been analyzing investments for more than 20 years. With a global database of more than 320,000 investments, Morningstar can dig beneath the surface of individual funds to provide an unmatched level of scrutiny. The Foresight portfolios have been carefully researched and constructed using Morningstar’s word class approach, resulting in unparalleled peace of mind for plan providers and members alike. In addition, Morningstar provides ongoing monitoring and regular governance reporting, ensuring the highest level of security possible.

Your responsibilities as a retirement plan sponsorDid you know that the Capital Accumulation Plan (CAP) guidelines enacted by the Joint Forum of Financial Market Regulators outline the duties and responsibilities of retirement savings plan sponsors (employers)? The purpose of these guidelines is to ensure that plan participants (employees) receive enough information to make informed investment decisions. The advantage of the Foresight solution is that you can delegate these responsibilities to experts committed to giving you the very best in governance services.

second Quarter, 2010 July, 2010

Executive Summaryby Dale Powell, CFA Director, Investment Consulting Morningstar Canada

Market Review

Equity markets around the world were shaky as fear made a return, driven by a number of events. Worries about sustained economic growth triggered by continued weak indicators in the United States; the debt situation in Europe, most particularly in Greece; and the oil spill in the Gulf of Mexico, to name a few, all took their toll on equities globally, including Canada, where the S&P/TSX Composite Index lost 5.51% in the second quarter. The loss erases the gains of the first quarter, bringing the year-to-date loss to 2.55%. On a sector basis, the market was decidedly mixed. Four of the ten GICS sectors managed a gain over the quarter, but the winners in general comprise a very small slice of the Index. It took only two of the Index heavyweights – Financials (- 9.81%) and Energy (- 4.86%) – to overwhelm the third heavily weighted sector, Materials, which managed a modest gain of 0.79%. Information Technology, with a loss of nearly 25%, was particularly weak.

Foreign markets fared even more poorly over the second quarter. In the US, the S&P 500 Total Return Index, measured in Canadian dollars, gave up 7.23% for the quarter, and has lost 5.38% for the year to date. Almost every sector lost ground, with only Telecommunication Services (+ 0.30%) and Utilities (+ 0.82%) managing modest gains. Materials (- 11.30%) and Financials (- 9.23%) were both particularly weak. Non-North American stocks, as measured by MSCI EAFE Index were even harder hit, falling 9.66% in Canadian dollars and 11.74% so far in 2010. Energy was hard hit, due primarily of course to BP, which was down nearly 50% both for the quarter and for the year to date. Materials, Financials and Information Technology all suffered double digit losses, but every sector lost ground over the quarter and for the year so far. Declines in the value of the Euro added to the pain of Canadians investing in European markets.

Equity market weakness often triggers a flight to the perceived safety of fixed income markets and the second quarter was no exception, with Canadian fixed income investments, as measured by the DEX indices, turned in a solidly positive performance. The broad market, represented by the DEX Universe Bond Index, added an impressive 2.93% over the quarter, bringing the year-to-date advance to 4.22%. While the Bank of Canada raised short-term interest rates by 25 basis points as expected on June 1, yields actually fell across the yield curve, flattening the shape of the curve somewhat over the quarter.

Fund Selections and Portfolio Review

As part of our ongoing participation in the Foresight program, Morningstar continuously monitors the performance of all funds and portfolios available within the program, and makes recommendations to Desjardins on changes, if and as warranted. With twelve months of performance behind us, the summer of 2010 is the appropriate time to conduct a complete review of all the funds on the Select List, as well as the construction of the Foresight Portfolios and their respective benchmarks. When we review the Select List funds, our primary concern is not absolute performance. Foresight has been designed with a keen eye to capital preservation and so, while we are pleased when markets (and the funds) turn in a strongly positive performance, we are most interested in how our managers protect on the downside. We assess the sector and individual security weights within the funds and how they have changed over time, looking for clues as to how we expect a fund to perform in a given market. We continuously monitor the funds for changes in investment philosophy or key personnel, assess the portfolio construction for diversification, risk mitigation, and overall soundness, and report back to Desjardins constantly with our thoughts.

Recommendations

At this time we recommend no changes to either the Portfolios or funds on the Select List. We are actively looking for complementary funds to add to the lineup, but have no concerns or plans to discontinue any of the current roster’s funds.

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Gross annualized rates of return (%)As at June 30, 2010

annualized returns

Ytd 1 mth 3 mths 1 yr 2 yrs 3 yrs 4 yrs 5 yrs 10 yrs

ForesIGHttM PortFoLIos

0450 Foresight 30/70 Portfolio(1) 1.32 0.59 0.00 6.64 N/A N/A N/A N/A N/A

0451 Foresight 40/60 Portfolio(1) 0.30 0.25 -1.03 6.42 N/A N/A N/A N/A N/A

0452 Foresight 50/50 Portfolio(1) -0.68 -0.15 -2.05 6.25 N/A N/A N/A N/A N/A

0453 Foresight 60/40 Portfolio(1) -1.32 -0.44 -2.90 6.39 N/A N/A N/A N/A N/A

0454 Foresight 75/25 Portfolio(1) -2.81 -1.03 -4.48 6.03 N/A N/A N/A N/A N/A

0455 Foresight 85/15 Portfolio(1) -3.75 -1.42 -5.46 5.84 N/A N/A N/A N/A N/A

FIXed IncoMe

0248 BlackRock Universe Bond Index 4.24 1.86 2.95 6.94 6.79 6.74 6.26 4.84 6.47

0279 Beutel Goodman Income 4.09 1.80 2.80 7.04 9.03 8.56 7.62 6.03 7.34

0223 McLean Budden Fixed Income 4.60 1.72 3.42 7.48 7.83 7.30 6.76 5.04 6.73

canadIan eQuItY

0280 Beutel Goodman Canadian Equity -1.45 -3.49 -5.33 10.03 -2.04 -1.46 3.81 5.69 9.28

0252 Jarislowsky Fraser Canadian Equity -4.99 -4.76 -7.22 6.22 -6.47 -3.10 2.76 4.66 9.47

0253 BlackRock Canadian Equity Index -2.56 -3.76 -5.57 11.49 -8.80 -3.68 2.35 5.56 3.32

ForeIGn eQuItY

0274 BlackRock US Equity Index -4.17 -2.57 -5.85 6.59 -5.33 -9.53 -3.92 -3.45 -4.91

0246 McLean Budden American Equity -9.13 -4.01 -10.06 0.29 -7.39 -9.35 -3.58 -2.87 -1.47

0233 Trimark Fund -5.85 1.93 -6.83 5.00 -9.08 -12.08 -3.39 -1.15 2.91

0278 Hexavest Global Equities -4.93 -1.88 -6.36 2.95 0.38 -2.71 0.44 2.24 N/A

0277 Ethical Global Equity -7.78 -2.37 -8.69 4.44 -4.75 -7.93 -1.66 N/A N/A

0260 BlackRock MSCI EAFE Equity Index -11.93 0.18 -9.80 -3.21 -12.66 -13.33 -5.70 -2.11 -3.19

Simulated returns including historical returns of underlying funds. (1) Portfolio available only under a ForesightTM service agreement.Past performance is no assurance or indicator of future returns.

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An Innovative, Age-Based Approach

Many retirement plans and products revolve around an expected retirement age. Many plan members either are not sure of their expected retirement age, or may not completely retire at all. Based on the plan member’s current age, Foresight chooses the appropriate investment portfolio for them. Plan members can also incorporate their own risk tolerance to tailor their portfolio to their own particular needs. It’s a unique approach which combines flexibility and simplicity.

A Quick and Easy Solution for Plan Members

For many plan members, choosing investments that are right for them can be pretty intimidating. Often they are asked to choose from a wide array of funds and products without having the tools or the information they need to select the appropriate ones. Foresight makes picking the right option easy – choose from one of the Foresight Retirement Paths, or build your own portfolio from a concentrated list of “best available” funds, in either case researched and monitored by Morningstar.

The Foresight difference

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Economic HighlightsCanada, at the forefront of the global economic recovery1

Group Retirement Savings Solution by Desjardins Financial Security – Fund research and portfolio construction by Morningstar

Desjardins Financial Security ® and Foresight TM are trademarks owned by Desjardins Financial Security Life Assurance Company.

Desjardins Financial Security (“Desjardins”) has retained Morningstar Research Inc. (“Morningstar”), a wholly-owned subsidiary of Morningstar, Inc., to provide fund research, analytical, data compilation and portfolio construction services for Desjardins’s “Foresight Group Retirement Solution” program. Morningstar is providing consulting services only to Desjardins, and is not acting in the capacity as an advisor to investor clients of Desjardins. The “Morningstar” name and logo are registered marks of Morningstar, Inc.

The economic recovery strengthens

After rising by 4.9% in Q4 of 2009, the economy continued to grow apace in the first quarter of 2010, with real GDP up by a quar-terly annualized 6.1%. Domestic demand is still very lively, thanks to a substantial advance by consumer spending, residential investment and governmental expenditures. For the first time in almost a year, business inventories rose in the first quarter, meaning that they also made a big contribution to real GDP growth. Lastly, despite the loonie’s relatively high value, Canadian exports benefited from the global economic recovery, gaining 12.0%. However, the strength of Canada’s domestic demand prompted an even bigger rise by imports, so that the trade balance deteriorated slightly. These excellent results make Canada the G7 nation that has posted the strongest economic growth since the summer of 2009. Under these circumstances, it is no surprise that, on June 1, the Bank of Canada (BoC) was the first G7 central bank to order a key interest rate increase.

The first quarter of 2010 ended on a very posi-tive note, with a monthly 0.6% increase in real GDP by industry for March. This provides a sub-stantial carry-over for the second quarter. Real GDP growth should therefore have remained high this spring, at around 4.5%. Among other things, recent movement by the economic indicators shows that the primary components of domestic demand are still expanding at a fairly quick pace.

A softer second half

However, there is still a possibility that economic growth will slow substantially in the third and fourth quarters of 2010. For one thing, the winding-up of government economic recovery plans means that their contribution to economic growth will wane. Most governments have an-nounced that they will be tackling the budget deficits, likely resulting in a slowdown of current

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expenditures by the country’s public administrations. Government contribution to real GDP has already started to slow, going from 2.3% at the end of 2009 to 0.9% in the first quarter of 2010. Luckily, the private sector has started to come back in the last few months and now seems to be prepared to take over some of the slack from governments.

For another, the Canadian economy’s strength in the last few quarters has been highly dependent on a big upswing in residential investment. Canada’s real estate market capitalized on a number of positive fac-tors, such as absorbing pent-up demand from the recession and the existence of demand that was moved up as certain households sought to avoid the coming interest rate hikes and the July 1, 2010 harmo-nized sales tax introduction in Ontario and British Columbia. These factors are expected to disappear in the second half of 2010. Variable interest rates have already undergone an initial increase on June 1, when the BoC raised the target for the overnight rate. Under these circumstances, we can expect residential investment’s contribution to economic growth to be much smaller as of mid-2010.

Forecasts are upgraded

The pace of economic growth last winter and, in particular, the increase to our target for real GDP growth in the second quarter prompt an upward change to our scenario for this year. Canada’s real GDP will therefore grow by 3.6% in 2010, with an increase of 3.0% for next year.

Economic growth remains robust in Canada, due in particular to a strong domestic demand. While the second quarter promises to be better than initially forecast, a number of factors should nonetheless rein in real GDP growth in the second half of 2010.

1 Desjardins Economic Studies, Summer 2010