Exhibit
99.2































DUNDEE
CORPORATION














CONSOLIDATED
FINANCIAL STATEMENTS





AS
AT AND FOR THE YEAR ENDED DECEMBER 31, 2008































Management’s
Responsibility for Financial Reporting








The
accompanying consolidated financial statements, the notes thereto and other
financial information contained in the management’s discussion and analysis, are
the responsibility of and have been prepared by the management of Dundee
Corporation.  These consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
and, of necessity, include items that reflect the best estimates and judgment of
management.  Financial information presented elsewhere in this
document is consistent with that shown in the consolidated financial
statements.





Management
has developed and maintains a system of internal accounting controls that is
designed to ensure that transactions are properly authorized and recorded as
they occur and to provide reasonable assurance that the Company’s assets are
protected from unauthorized use.  Management, under the supervision of
the Chief Executive Officer and the Chief Financial Officer, has a process in
place to evaluate disclosure controls and procedures in line with Canadian
securities regulations.





The Board
of Directors is responsible for ensuring that management fulfills its
responsibility for financial reporting and internal control.  The
Audit Committee, which is currently comprised of five independent directors,
reviews the interim and annual consolidated financial statements and
management’s discussion and analysis and recommends them for approval by the
Board of Directors.  Other key responsibilities of the Audit Committee
include the monitoring of the Company’s system of internal control over
financial reporting, including disclosure controls, and reviewing the
qualifications, fees, independence and performance of the external
auditors.  The Audit Committee reports its findings to the Board of
Directors before the consolidated financial statements are approved by the Board
of Directors.





The
consolidated financial statements have been audited by PricewaterhouseCoopers
LLP, the independent auditors, in accordance with Canadian generally accepted
auditing standards.  The auditors have full and unrestricted access to
the Audit Committee to discuss their audit and related matters.




(signed)
            
            (signed)Ned
Goodman
            
            Joanne
      FerstmanPresident and
            
            Executive Vice
      President,Chief Executive
      Officer
            
            Chief Financial Officer and
      Corporate Secretary









Toronto,
Canada


April 7,
2009




DUNDEE
CORPORATION
 1


Independent
Auditors’ Report


To the
Directors of Dundee Corporation:
 
 We have
completed integrated audits of Dundee Corporation’s (the “Company”) 2008 and
2007 consolidated financial statements and of its internal control over
financial reporting as at December 31, 2008.  Our opinions, based on
our audits, are presented below.
  Consolidated
Financial statements
  We have
audited the accompanying consolidated balance sheets of the Company as at
December 31, 2008 and 2007 and the consolidated statements of operations,
comprehensive (loss) income, changes in shareholders’ equity and cash
flows for each of the years then ended.  These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
  We
conducted our audits of the Company’s consolidated financial statements in
accordance with Canadian generally accepted auditing standards and the standards
of the Public Company Accounting Oversight Board (United
States).  Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit of financial statements includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  A financial statement audit also includes
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as at December
31, 2008 and 2007 and the results of its operations and its cash flows for each
of the years then ended in accordance with Canadian generally accepted
accounting principles.
 
 As
described in note 1 to the consolidated financial statements, the Company
adopted new accounting standards related to disclosure and presentation of
financial instruments and inventories on January 1, 2008.
  Internal
control over financial reporting
   We have
also audited Dundee Corporation’s internal control over financial reporting as
at December 31, 2008, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in “Management’s Report on Internal Control Over Financial Reporting”,
which appears on Page 2 of the Company’s Annual Report on Form
40-F.  Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
  2
  We
conducted our audit of internal control over financial reporting in accordance
with the standards of the Public Company Accounting Oversight Board (United
States).  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects.  An audit
of internal control over financial reporting includes obtaining an understanding
of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we consider necessary in the circumstances.  We believe
that our audit provides a reasonable basis for our opinion.
 
 A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
 
 In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as at December 31, 2008 based on criteria
established in Internal
Control — Integrated Framework issued by the COSO.
 
 
 
 Chartered
Accountants, Licensed Public Accountants
 
 Toronto,
Canada
 April 7,
2009


DUNDEE
CORPORATION
 3




D
      U N D E E   C
      O R P O R A T I O NC
      O N S O L I D A T E D   B A L A N C E   S
      H E E T SAs
      at December 31, 2008 and 2007(expressed
      in thousands of Canadian dollars)2008
              
              
              2007ASSETSCash
      and cash equivalents
              
              
              $
              167,584
              
              
              $
              126,915Accounts
      receivable
              
              
              
              406,076
              
              
              
              399,904Client
      accounts receivable (note 4)
              
              
              
              389,282
              
              
              
              408,778Trading
      securities owned (note 5)
              
              
              
              161,882
              
              
              
              263,943Available-for-sale
      securities (note 6)
              
              
              
              294,730
              
              
              
              645,181Equity
      accounted investments (note 7)
              
              
              
              160,339
              
              
              
              289,041Deferred
      sales commissions (note 8)
              
              
              
              234,027
              
              
              
              207,005Capital,
      real estate and other assets (note 9)
              
              
              
              526,256
              
              
              
              559,603Goodwill
      and other intangible assets (note 10)
              
              
              
              740,784
              
              
              
              705,439Assets
      of discontinued operations (note 3)
              
              
              
              -
              
              
              
              3,287TOTAL
      ASSETS
              
              
              $
              3,080,960
              
              
              $
              3,609,096LIABILITIESBank
      indebtedness (note 11)
              
              
              $
              -
              
              
              $
              43,125Accounts
      payable and accrued liabilities
              
              
              
              291,029
              
              
              
              350,515Client
      deposits and related liabilities (note 12)
              
              
              
              408,647
              
              
              
              423,320Trading
      securities sold short (note 5)
              
              
              
              43,951
              
              
              
              106,521Income
      taxes payable
              
              
              
              8,472
              
              
              
              46,319Corporate
      debt (note 13)
              
              
              
              529,507
              
              
              
              355,714Series
      1 preference shares, DundeeWealth (note 14)
              
              
              
              152,978
              
              
              
              152,655Preference
      shares, series 1 (note 14)
              
              
              
              147,371
              
              
              
              147,020Future
      income tax liabilities (note 20)
              
              
              
              3,024
              
              
              
              134,862Liabilities
      of discontinued operations (note 3)
              
              
              
              -
              
              
              
              2,3951,584,979
              
              
              
              1,762,446NON-CONTROLLING
      INTEREST
              
              
              
              615,142
              
              
              
              726,394SHAREHOLDERS'
      EQUITYShare
      capital (note 15)Common
      shares
              
              
              
              288,398
              
              
              
              292,538Contributed
      surplus
              
              
              
              11,549
              
              
              
              7,513Retained
      earnings
              
              
              
              604,075
              
              
              
              818,885Accumulated
      other comprehensive (loss) income (note 16)
              
              
              
              (23,183
              )
              
              
              1,320880,839
              
              
              
              1,120,256TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
              
              
              $
              3,080,960
              
              
              $
              3,609,096The
      accompanying notes are an integral part of these consolidated financial
      statements.Commitments,
      contingencies and off-balance sheet arrangements (note 24)Approved
      by the Board:(signed)
      Ned Goodman
              (signed)
      Garth A.C. MacRaeDirector
              Director





DUNDEE
CORPORATION
 4





D
      U N D E E  C O R P O R A T I O NC
      O N S O L I D A T E D   S T A T E M E N T S  O
      F   O P E R A T I O N SFor
      the years ended December 31, 2008 and 2007(expressed
      in thousands of Canadian dollars, except per share
amounts)2008
              
              
              2007REVENUESManagement
      fees
              
              $
              464,288
              
              
              $
              557,268Redemption
      fees
              
              
              16,833
              
              
              
              14,725Financial
      services
              
              
              325,360
              
              
              
              418,234Real
      estate revenues
              
              
              400,925
              
              
              
              355,8621,207,406
              
              
              
              1,346,089Investment
      income (note 17)
              
              
              21,249
              
              
              
              52,8431,228,655
              
              
              
              1,398,932EXPENSESSelling,
      general and administrative (notes 18 and 19)
              
              
              343,157
              
              
              
              347,916Variable
      compensation
              
              
              229,137
              
              
              
              283,058Trailer
      service fees
              
              
              134,234
              
              
              
              129,355Operating
      costs, real estate
              
              
              286,538
              
              
              
              229,909993,066
              
              
              
              990,238OPERATING
      EARNINGS BEFORE INTEREST,TAXES,
      AND OTHER NON-CASH ITEMS
              
              
              235,589
              
              
              
              408,694Amortization
      of deferred sales commissions
              
              
              81,868
              
              
              
              67,508Depreciation,
      depletion and amortization
              
              
              21,409
              
              
              
              27,042Interest
      expense
              
              
              31,908
              
              
              
              39,275Share
      of losses (earnings) of equity accounted investees (note
    17)
              
              
              35,690
              
              
              
              (29,932
              )Fair
      value adjustments (notes 6 and 7)
              
              
              385,292
              
              
              
              37,607Foreign
      exchange loss (gains)
              
              
              12,593
              
              
              
              (5,413
              )Unrealized
      (gain) on exchangeable debentures (note 13)
              
              
              (1,314
              )
              
              
              (18,237
              )OPERATING
      EARNINGS (LOSS) BEFORE UNDERNOTED ITEMS
              
              
              (331,857
              )
              
              
              290,844Dilution
      gains (note 3)
              
              
              578
              
              
              
              136,591Loss
      on sale of subsidiary (note 3)
              
              
              (17,679
              )
              
              
              -(348,958
              )
              
              
              427,435Income
      taxes (note 20)Current
              
              
              62,461
              
              
              
              103,678Future
              
              
              (140,850
              )
              
              
              (12,208
              )(78,389
              )
              
              
              91,470Non-controlling
      interest
              
              
              (74,308
              )
              
              
              58,326NET
      (LOSS) EARNINGS FROM CONTINUING OPERATIONS
              
              
              (196,261
              )
              
              
              277,639Earnings
      (loss) from discontinued operations of DundeeWealth,net
      of tax and non-controlling interest (note 3)
              
              
              69
              
              
              
              (79,815
              )Share
      of earnings of discontinued operations of Dundee REIT,net
      of tax (notes 3 and 17)
              
              
              -
              
              
              
              95,909NET
      (LOSS) EARNINGS FOR THE YEAR
              
              $
              (196,192
              )
              
              $
              293,733NET
      (LOSS) EARNINGS PER SHARE (note 21)BasicContinuing
      operations
              
              $
              (2.62
              )
              
              $
              3.68Discontinued
      operations
              
              
              -
              
              
              
              0.22Basic
      net (loss) earnings per share
              
              $
              (2.62
              )
              
              $
              3.90DilutedContinuing
      operations
              
              $
              (2.62
              )
              
              $
              3.49Discontinued
      operations
              
              
              -
              
              
              
              0.29Diluted
      net (loss) earnings per share
              
              $
              (2.62
              )
              
              $
              3.78The
      accompanying notes are an integral part of these consolidated financial
      statements.





DUNDEE
CORPORATION
 5





D
      U N D E E  C
      O R P O R A T I O NC
      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  ( L O S S )   I N
      C O M EFor
      the years ended December 31, 2008 and 2007(expressed
      in thousands of Canadian dollars)ref
              
              
              2008
              
              
              2007NET
      (LOSS) EARNINGS FOR THE YEAR
              
              
              
              
              $
              (196,192
              )
              
              $
              293,733Other
      comprehensive (loss) incomeUnrealized
      losses on available-for-sale securities
              
              
              a
              
              
              
              (231,590
              )
              
              
              (42,440
              )Transfer
      of unrealized losses to net earnings
              
              
              b
              
              
              
              198,772
              
              
              
              22,286Reversal
      of unrealized losses on available-for-sale securities
              
              
              c
              
              
              
              677
              
              
              
              -Unrealized
      foreign currency gain on forward contract
              
              
              d
              
              
              
              1,516
              
              
              
              -Unrealized
      foreign currency translation
              
              
              e
              
              
              
              12,488
              
              
              
              (9,160
              )Transfer
      of unrealized gains from foreign currency translation to net
      earnings
              
              
              f
              
              
              
              (1,284
              )
              
              
              -Share
      of other comprehensive loss of equity accounted investees
              
              
              g
              
              
              
              (1,174
              )
              
              
              (10,234
              )Non-controlling
      interest
              
              
              
              
              
              
              (3,908
              )
              
              
              12,685Other
      comprehensive loss from continuing operations
              
              
              
              
              
              
              (24,503
              )
              
              
              (26,863
              )Unrealized
      loss from discontinued operations, net of non-controlling
      interest
              
              
              h
              
              
              
              -
              
              
              
              (94,819
              )Transfer
      of loss from discontinued operations to net earnings
              
              
              i
              
              
              
              -
              
              
              
              94,539Other
      comprehensive loss from discontinued operations
              
              
              
              
              
              
              -
              
              
              
              (280
              )OTHER
      COMPREHENSIVE LOSS FOR THE YEAR
              
              
              
              
              
              
              (24,503
              )
              
              
              (27,143
              )COMPREHENSIVE
      (LOSS) INCOME
              
              
              
              
              
              $
              (220,695
              )
              
              $
              266,590a)
      Net of taxes of
              
              
              
              
              
              $
              89,697
              
              
              $
              17,560b)
      Net of taxes of
              
              
              
              
              
              $
              (74,642
              )
              
              $
              (8,587
              )c)
      Net of taxes of
              
              
              
              
              
              $
              (310
              )
              
              $
              -d)
      Net of taxes of
              
              
              
              
              
              $
              (679
              )
              
              $
              -e)
      Net of taxes of
              
              
              
              
              
              $
              (3,680
              )
              
              $
              2,491f)
      Net of taxes of
              
              
              
              
              
              $
              524
              
              
              $
              -g)
      Net of taxes of
              
              
              
              
              
              $
              628
              
              
              $
              4,113h)
      Net of taxes of
              
              
              
              
              
              $
              -
              
              
              $
              45,518i)
      Net of taxes of
              
              
              
              
              
              $
              -
              
              
              $
              (45,518
              )The
      accompanying notes are an integral part of these consolidated financial
      statements.


DUNDEE
CORPORATION
 6





D
      U N D E E   C
      O R P O R A T I O NC
      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   S
      H A R E H O L D E R S' E   Q U I T YAs
      at and for the years ended December 31, 2008 and 2007(expressed
      in thousands of Canadian dollars)AccumulatedOtherCommon
              
              
              Contributed
              
              
              Retained
              
              
              ComprehensiveShares
              
              
              Surplus
              
              
              Earnings
              
              
              (Loss)
      Income
              
              
              TotalBalance,
      January 1, 2007
              
              $
              289,849
              
              
              $
              5,426
              
              
              $
              525,993
              
              
              $
              28,463
              
              
              $
              849,731Net
      earnings
              
              
              -
              
              
              
              -
              
              
              
              293,733
              
              
              
              -
              
              
              
              293,733Other
      comprehensive loss
              
              
              -
              
              
              
              -
              
              
              
              (366
              )
              
              
              (27,143
              )
              
              
              (27,509
              )Issuance
      of Class A subordinate shares for cash
              
              
              71
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              71Stock
      based compensation
              
              
              -
              
              
              
              2,087
              
              
              
              -
              
              
              
              -
              
              
              
              2,087Cancellation
      of options
              
              
              -
              
              
              
              -
              
              
              
              (475
              )
              
              
              -
              
              
              
              (475
              )Exercise
      of options
              
              
              2,618
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,618Balance,
      December 31, 2007
              
              
              292,538
              
              
              
              7,513
              
              
              
              818,885
              
              
              
              1,320
              
              
              
              1,120,256Adoption
      of new accounting policy (note 2)
              
              
              -
              
              
              
              -
              
              
              
              (4,480
              )
              
              
              -
              
              
              
              (4,480
              )Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              (196,192
              )
              
              
              -
              
              
              
              (196,192
              )Other
      comprehensive loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (24,503
              )
              
              
              (24,503
              )Acquisition
      of Class A subordinate shares for cancellation
              
              
              (6,374
              )
              
              
              -
              
              
              
              (13,979
              )
              
              
              -
              
              
              
              (20,353
              )Issuance
      of Class A subordinate shares for cash
              
              
              121
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              121Issuance
      of Class A subordinate shares for non-cash consideration
              
              
              45
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              45Stock
      based compensation
              
              
              -
              
              
              
              4,072
              
              
              
              (159
              )
              
              
              -
              
              
              
              3,913Exercise
      of options
              
              
              2,068
              
              
              
              (36
              )
              
              
              -
              
              
              
              -
              
              
              
              2,032Balance,
      December 31, 2008
              
              $
              288,398
              
              
              $
              11,549
              
              
              $
              604,075
              
              
              $
              (23,183
              )
              
              $
              880,839The
      accompanying notes are an integral part of these consolidated financial
      statements.






DUNDEE
CORPORATION
 7




D
      U N D E E   C O R P O R A T I O NC
      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 SFor
      the years ended December 31, 2008 and 2007(expressed
      in thousands of Canadian dollars)2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) earnings from continuing operations for the year
              
              $
              (196,261
              )
              
              $
              277,639Non-cash
      items in net (loss) earnings:Depreciation,
      depletion and amortization
              
              
              103,277
              
              
              
              94,550Net
      investment loss (gains)
              
              
              1,365
              
              
              
              (40,060
              )Share
      of unremitted equity losses (earnings)
              
              
              35,690
              
              
              
              (29,932
              )Dilution
      gains
              
              
              (578
              )
              
              
              (136,591
              )Fair
      value adjustments
              
              
              385,292
              
              
              
              37,607Unrealized
      gain on exchangeable debentures
              
              
              (1,314
              )
              
              
              (18,237
              )Loss
      on sale of subsidiary
              
              
              17,679
              
              
              
              -Future
      income taxes
              
              
              (140,850
              )
              
              
              (12,208
              )Non-controlling
      interest
              
              
              (74,308
              )
              
              
              58,326Stock
      based compensation
              
              
              23,935
              
              
              
              19,897Other
              
              
              17,620
              
              
              
              5,216171,547
              
              
              
              256,207Changes
      in:Accounts
      receivable
              
              
              109,225
              
              
              
              (5,812
              )Accounts
      payable and accrued liabilities
              
              
              (77,417
              )
              
              
              25,965Bank
      indebtedness
              
              
              (43,125
              )
              
              
              (6,534
              )Income
      taxes payable
              
              
              (35,210
              )
              
              
              (6,615
              )Trading
      securities owned and sold short, net
              
              
              48,889
              
              
              
              (113,037
              )Client
      accounts receivable, net of client deposits and related
      liabilities
              
              
              4,823
              
              
              
              65,296Development
      of land, housing and condominium inventory
              
              
              28,965
              
              
              
              (17,612
              )Other
      real estate working capital
              
              
              (75,829
              )
              
              
              (9,573
              )CASH
      PROVIDED FROM OPERATING ACTIVITIES
              
              
              131,868
              
              
              
              188,285CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      investment in real estate assets
              
              
              (29,960
              )
              
              
              (18,180
              )Proceeds
      from (investment in) oil and gas properties
              
              
              45,151
              
              
              
              (20,589
              )Sales
      commissions incurred on distribution of mutual funds
              
              
              (108,890
              )
              
              
              (100,711
              )Proceeds
      from dispositions of corporate investments
              
              
              116,629
              
              
              
              268,161Acquisitions
      of corporate investments
              
              
              (102,945
              )
              
              
              (713,951
              )Cash
      disbursed in business combinations (note 3)
              
              
              (64,455
              )
              
              
              (156,148
              )Acquisition
      of capital and other tangible assets
              
              
              (5,750
              )
              
              
              (22,328
              )CASH
      USED IN INVESTING ACTIVITIES
              
              
              (150,220
              )
              
              
              (763,746
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Change
      in real estate debt
              
              
              4,542
              
              
              
              (6,316
              )Change
      in corporate debt
              
              
              103,969
              
              
              
              20,672Issuance
      of Class A subordinate shares, net of issue costs
              
              
              2,153
              
              
              
              2,689Amounts
      repaid to non-controlling shareholders
              
              
              (7,134
              )
              
              
              -Acquisition
      of Class A subordinate shares, net of costs
              
              
              (20,353
              )
              
              
              -Net
      (cancellation) issuance of shares by subsidiaries
              
              
              (16,614
              )
              
              
              519,463Dividends
      paid by subsidiaries to non-controlling shareholders
              
              
              (7,742
              )
              
              
              (38,548
              )CASH
      PROVIDED FROM FINANCING ACTIVITIES
              
              
              58,821
              
              
              
              497,960NET
      INCREASE (DECREASE) IN CASH DURING THE YEAR
              
              
              40,469
              
              
              
              (77,501
              )Cash
      and cash equivalents, beginning of year
              
              
              126,915
              
              
              
              255,282Change
      in net cash relating to discontinued operations
              
              
              200
              
              
              
              (48,766
              )CASH
      AND CASH EQUIVALENTS, END OF YEAR
              
              $
              167,584
              
              
              $
              129,015Cash
      and cash equivalents, beginning of yearCash
      from continuing operations
              
              $
              126,915
              
              
              $
              199,496Cash
      from discontinued operations
              
              
              -
              
              
              
              55,786$
              126,915
              
              
              $
              255,282Cash
      and cash equivalents, end of yearCash
      from continuing operations
              
              $
              167,584
              
              
              $
              126,915Cash
      from discontinued operations
              
              
              -
              
              
              
              2,100$
              167,584
              
              
              $
              129,015Cash
      flows from operating activities include the following:Interest
      paid
              
              $
              31,908
              
              
              $
              39,275Taxes
      paid
              
              $
              101,899
              
              
              $
              115,256The
      accompanying notes are an integral part of these consolidated financial
      statements.




DUNDEE
CORPORATION
 8








DUNDEE 
CORPORATION


NOTES
 TO  CONSOLIDATED  FINANCIAL  STATEMENTS







December
      31, 2008 and 2007
              (tabular
      dollar amounts in thousands of Canadian dollars, except per share
      amounts)




Dundee
Corporation (the “Company” or “Dundee Corporation”) is an asset management
company dedicated to private wealth management, real estate and
resources.  The Company’s domestic wealth management activities are
carried out through its 63% controlled subsidiary, DundeeWealth Inc.
(“DundeeWealth”).  Wealth management activities are also carried out
internationally through operations in Bermuda and the Cayman
Islands.  Together, these domestic and international wealth management
operations provide a broad range of financial products and services to financial
advisors, institutions, corporations and foundations.  Real estate
operations are carried out primarily through the Company’s 75% owned subsidiary,
Dundee Realty Corporation (“Dundee Realty”), which operates as an
owner/developer of residential and recreational properties in North America and
asset manager of commercial real estate and infrastructure.  Real
estate operations also include a 21% interest in Dundee Real Estate Investment
Trust (“Dundee REIT”), a Canadian real estate investment trust.  The
Company’s resource activities are carried out through Dundee Resources Ltd.
(“Dundee Resources”), a wholly owned subsidiary.  Asset management
activities are carried out through Ravensden Asset Management Inc. and Dundee
Real Estate Asset Management (“DREAM”). Dundee Corporation also holds and
manages its own investments, which include both publicly listed and private
companies in a variety of sectors.  The Company is listed on The
Toronto Stock Exchange (“TSX”) under the symbol (TSX – DC.A).





1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF
    PRESENTATION





The
consolidated financial statements of the Company are prepared in accordance with
Canadian generally accepted accounting principles (“Canadian
GAAP”).





Principles
of Consolidation


The
consolidated financial statements include the accounts of the Company, its
subsidiaries and variable interest entities (“VIEs”) for which the Company is
the primary beneficiary as well as the Company’s proportionate share of assets,
liabilities, revenues and expenses of joint ventures in which it
participates.  The Company’s major operating subsidiaries
include:




Year
      ended December 31, 2008
              
              
              Year
      ended December 31, 2007Opening
              
              
              Ending
              
              
              Opening
              
              
              EndingOwnership
              
              
              Ownership
              
              
              Ownership
              
              
              OwnershipDundeeWealth*
              
              
              45
              %
              
              
              49
              %
              
              
              62
              %
              
              
              45
              %Dundee
      Realty
              
              
              77
              %
              
              
              75
              %
              
              
              78
              %
              
              
              77
              %Eurogas
      Corporation
              
              
              51
              %
              
              
              53
              %
              
              
              51
              %
              
              
              51
              %*The
      Company holds a 63% voting interest in DundeeWealth at December 31,
      2008.


All
intercompany transactions have been eliminated in these consolidated financial
statements.  When the Company does not own all of the equity of the
subsidiary, the minority shareholders’ interest in the net book value of the
subsidiary and in its net earnings are disclosed as separate line items in the
consolidated balance sheets and consolidated statements of operations as
non-controlling interest.








DUNDEE
CORPORATION
 9




Acquisitions


The
Company accounts for business acquisitions as purchase
transactions.  Accordingly, the purchase price of a business
acquisition is allocated to its identifiable net assets on the basis of
estimated fair values as at the date of purchase, including identifiable
intangible assets and associated future income tax effects, with any excess
being assigned to goodwill.  When the net of the amounts assigned to
identifiable net assets exceeds the cost of the purchase (“negative goodwill”),
the excess is eliminated, to the extent possible, by a pro-rata allocation to
certain non-current assets, with the balance presented as an extraordinary
gain.  The interest of minority shareholders is stated at the minority
shareholders’ proportionate share of the pre-acquisition carrying values of the
acquired net assets.  For interests acquired during the year, purchase
accounting is applied on a prospective basis from the date of
acquisition.





Any
deferred contingent consideration payable in relation to a business acquisition
is recorded when the outcome of the contingency is resolved and the
consideration is finalized.  When the outcome of a contingency is
resolved, contingent consideration recognized, if any, will be allocated to
goodwill and other intangible assets.





Use
of Estimates


The
preparation of the consolidated financial statements in accordance with Canadian
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingencies at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period.  These estimates
are made based on information available as at the date of issuance of the
financial statements.  Actual results could materially differ from
those estimates.





Key areas
of estimation, where management has made difficult, complex or subjective
judgments, often about matters that are inherently uncertain, include the
determination of fair values of net assets acquired in a business combination,
including the identification of intangible assets, the determination of fair
values of equity accounted investments, the determination of fair values of
financial instruments, including the Company's portfolio of asset-backed
commercial paper (“ABCP”) and collateralized loan obligations (“CLOs”), the
determination of other-than-temporary impairment in fair value, allowances for
credit losses, income taxes, stock based compensation, deferred sales
commissions, the valuation of goodwill and other intangible assets, the
consolidation of VIEs, the valuation of and determination of useful lives for
capital, real estate and other assets, fair values of oil and gas properties and
gas storage facilities and the determination of contingencies.





Foreign
Currency Translation


Foreign
currency denominated amounts are translated into Canadian dollars using average
rates for the year for items included in the consolidated statements of
operations, the rates in effect at the consolidated balance sheet dates for
monetary assets and liabilities included in the consolidated balance sheets and
historical rates for other items.





Translation
gains or losses are generally included in the determination of net
earnings.  Translation gains or losses arising on translation of
accounts of foreign subsidiaries which are considered self-sustaining and those
arising from the translation of foreign denominated available-for-sale (“AFS”)
securities are included in other comprehensive income (“OCI”) until there has
been a realized reduction in the investment.





Consolidation
of Variable Interest Entities


The
Company is required to consolidate any VIEs in which it is the primary
beneficiary.  An entity is a VIE when, by design, one or both of the
following conditions exist: (a) total equity investment at risk is insufficient
to permit the entity to finance its activities without additional subordinated
support from others; or (b) as a group, the holders of the equity investment at
risk lack certain essential characteristics of a controlling financial
interest.  The primary beneficiary is the entity that is exposed,
through variable interests, to a majority of the VIE’s expected losses or is
entitled to a majority of the VIE’s expected residual returns, or
both.





DUNDEE
CORPORATION
 10





The
Company has reviewed its relationships and determined that there were VIEs for
which it was considered the primary beneficiary as at December 31, 2008 and
2007.  The following is a discussion of the Company’s
VIEs.





As a
result of the reorganization of Eurogas Corporation (“Eurogas”) on July 10, 2008
(note 3), Eurogas International Inc. (“EII”) was determined to be a VIE for
which the Company is the primary beneficiary. Accordingly, the accounts of EII
have been consolidated.





On March
1, 2006, Dundee Realty sold a 50% ownership interest of a revenue property to
the co-owner. The proceeds received were in the form of a loan that Dundee
Realty provided to the co-owner to invest in the property.  Dundee
Realty’s interest in the property is a variable interest through which it is
considered the primary beneficiary.  As a result, Dundee Realty has
consolidated the accounts of the revenue property and eliminated the related
gain on the sale.





On
January 1, 2006, Dundee Realty acquired a 50% interest in Distillery Restaurants
Limited Partnership (the “partnership”).  Dundee Realty’s interest in
the partnership was considered a variable interest given that it also provided
funds to the other 50% owners of the partnership to invest in the
partnership.  Dundee Realty was considered the primary beneficiary of
the partnership, resulting in it consolidating the partnership between January
1, 2006 and August 31, 2007. However, commencing September 1, 2007, the funds
loaned to the other partners of the partnership were fully repaid, resulting in
Dundee Realty no longer being considered the primary beneficiary. As a result,
Dundee Realty has proportionately consolidated the partnership beginning with
September 1, 2007.





On
October 1, 2005, Dundee Realty acquired a 50% interest in the Distillery
Historic District (the "co-ownership") and at the same time provided funds to
the other co-owners to invest in the co-ownership.  The co-ownership
is a VIE for which Dundee Realty is considered the primary
beneficiary.  As a result, commencing on October 1, 2005, Dundee
Realty has consolidated the accounts of the co-ownership.





Cash
and Cash Equivalents


Cash and
cash equivalents are carried at cost, which approximates fair
value.  Cash equivalents may include short-term financial instruments
and investments in money market mutual fund products, all of which are highly
liquid and immediately exchangeable into known amounts of cash.





Client
Accounts


Client
accounts receivable include both clients’ trading accounts and brokers’ and
dealers’ trading accounts in DundeeWealth’s brokerage
subsidiary.  Client deposits and related liabilities include client
cash and client and brokers’ and dealers’ trading balances.





In
accordance with brokerage industry practice, client transactions are entered
into on either a cash or a margin basis and are recorded on a trade-date
basis.  If transactions are conducted on a margin basis,
DundeeWealth’s brokerage subsidiary may extend credit to a client to purchase
securities and such securities purchased and/or other securities in the client’s
account are held as collateral for the amounts loaned.  Amounts due
from clients are carried at the contractual amount receivable, net of any
allowance for credit losses.  DundeeWealth’s brokerage subsidiary
engages in securities borrowing and lending transactions.  Cash
received or delivered as collateral against these transactions is included in
client accounts.





Allowance
for Credit Losses


The
Company maintains an allowance for credit losses which management considers
adequate to absorb all credit-related losses.  It does not record a
general allowance for credit losses.  However, specific allowances for
credit losses are established as a result of detailed reviews of individual
collateral positions securing the client accounts receivable.  Should
the value of the underlying collateral decline by an amount significant enough
that it becomes insufficient to repay the margin loan in full and the client is
unable or unwilling to deposit additional collateral, a specific allowance is
recorded in the amount equivalent to these unsecured balances, without limiting
any recourse to collecting from the clients.





DUNDEE
CORPORATION
 11





Financial
Instruments


All
financial assets are classified as trading, AFS, held-to-maturity (“HTM”) or
loans and receivables.  Transaction costs that are directly
attributable to the acquisition or issue of a financial instrument classified as
other than trading are added to the carrying amount.





All
financial assets are measured at fair value with the exception of loans and
receivables, debt securities classified as HTM and AFS equities that do not have
quoted market values in active markets.  Fair value is generally
determined based on market value or, where market prices are not readily
available, on quoted market prices for similar securities or other third party
evidence.  However, even where a fair value of a financial instrument
is derived from independent broker or dealer price quotes, a valuation
adjustment based on certain assumptions may be required to determine the fair
value.  For financial instruments in illiquid investments, the Company
estimates the fair value based on valuation models using relevant assumptions
based on observable market data or independently sourced market information and
internal data, as may be available.  Privately held securities are
carried at cost.





Changes
in the unrealized fair value of financial assets designated as trading are
reported in earnings in the consolidated statement of
operations.  Changes in the unrealized fair value of financial assets
designated as AFS are reported as OCI in the consolidated statement of
comprehensive income and are included in accumulated other comprehensive income
(“AOCI”) until the financial asset is disposed of or becomes impaired, at which
time, impairment losses are recognized in net earnings.





Trading
Financial Assets and Liabilities


Trading
financial assets and liabilities are securities that are purchased for resale
and are generally held for short periods of time.  The Company’s
trading portfolio is related to trading operations in DundeeWealth’s brokerage
subsidiary and certain other investments in guaranteed investment certificates
and discounted notes issued by a Canadian Schedule I Chartered
Bank.  Trading securities are measured at fair value at the balance
sheet date.  Both realized and unrealized gains and losses from
changes in fair value are recorded in earnings and are reported in financial
services revenue.





Available-for-Sale
Financial Assets


Available-for-sale
financial assets are those non-derivative financial assets that are designated
as AFS or that are not classified as loans and receivables, HTM, trading, or
designated as fair value financial assets and which are not subject to
significant influence.  AFS securities are generally carried at fair
values with unrealized gains and losses being included in AOCI as described
above.





Dividends,
interest and realized gains and losses on the sale of AFS financial assets are
included in investment income.  Realized gains and losses are
calculated using the average cost method.





The
Company assesses its AFS securities at each balance sheet date for potential
impairment. As part of this assessment, it considers positive objective evidence
that its AFS securities are not impaired as well as objective evidence that may
indicate impairment.  Write-downs for impairments in value are
included in the consolidated statement of operations when there is objective
evidence that the financial instrument is impaired and the decline in fair value
is other-than-temporary.  The Company considers various factors in the
determination of whether objective evidence exists that a financial instrument
is impaired, including significant financial difficulty of an issuer, a breach
in the terms and conditions of the security such as a default on interest or
principal payments on debt securities, the granting of a concession to the
issuer that would not otherwise be considered, the disappearance of an active
market for the underlying security where one formerly existed and a significant
or prolonged decline in the market value of an equity-based
investment.





Loans
and Receivables


Loans and
receivables are accounted for at amortized cost.





DUNDEE
CORPORATION
 12





Held-to-Maturity
Financial Assets


Financial
assets designated as HTM comprise non-derivative financial assets with fixed or
determinable payments and a fixed maturity, other than loans and receivables
that the Company has the intent and ability to hold to maturity.  HTM
financial assets are recorded at amortized cost.  The Company has not
presently designated any such assets.





Designation
at Fair Value Financial Assets and Liabilities


Upon
initial recognition, the Company may elect to designate financial assets and
liabilities at fair value and subsequently account for them in the same manner
as trading financial assets and liabilities.  The Company has not
presently elected to designate any such assets or liabilities.





Financial
Liabilities


Financial
liabilities include all liabilities, other than derivatives and trading
financial liabilities relating to securities sold short, or liabilities that
have been designated at fair value on initial recognition.  Financial
liabilities are recorded at amortized cost using the effective interest
method.





Derivatives


Derivatives
are carried at fair value and are generally reported as assets in circumstances
when they have a positive fair value and liabilities when they have a negative
fair value.  However, derivatives may be embedded in other financial
and non-financial instruments.  Embedded derivatives are valued as
separate derivatives when their economic characteristics and risks are not
clearly and closely related to those of the host contract, the terms of the
embedded derivative are the same as those of a free standing derivative and the
combined contract is not held for trading or designated at fair
value.  Otherwise, embedded derivatives are classified as part of the
host instrument and measured at fair value with changes therein recognized in
the consolidated statement of operations.





Hedge
Accounting


The
Company acquires derivative instruments for risk management purposes, and when
such financial instruments meet the criteria specified in the relevant
accounting guidance, the Company may apply fair value hedge accounting or cash
flow hedge accounting, as appropriate, to the risks being
hedged.  Fair value hedges are used to hedge changes in the fair value
of assets, liabilities or firm commitments and changes in the fair value of the
derivative instruments are recorded in net earnings.  Cash flow hedges
are used to hedge the variability of cash flows related to variable rate assets,
liabilities or forecasted transactions and the effective portion of the changes
in the fair value of the derivative instruments are recorded in OCI until the
hedged items are recognized in net earnings.  The ineffective portion
of the derivative instruments used in cash flow hedges is immediately recognized
in net earnings.





For a
derivative to qualify for hedge accounting, the hedge relationship must be
designated and formally documented at its inception and tested on an ongoing
basis.  Documentation must include a description of the risk
management objective and strategy of the specific asset, liability or cash flow
being hedged and describe the test for the ongoing assessment of the
effectiveness of the hedge.





Equity
Accounted Investments


Investments
in companies that are subject to significant influence by the Company are
accounted for using the equity method whereby the Company recognizes in earnings
its proportionate share of earnings or losses of the investee.  An
interest in excess of 20% of the underlying voting shares of an investee would
generally indicate that the Company has significant influence over that
investee.  However, in certain circumstances, the Company may exert
significant influence through representation on the investee’s board of
directors or by other day-to-day participation in operations, although it may
own less than 20%.











DUNDEE
CORPORATION
 13





An equity
accounted investment may be written down if its carrying value exceeds its
estimated fair value and, in the opinion of management, such a decrease is
other-than-temporary in nature.  A significant or prolonged decline in
the fair value of an investment below its carrying value may be evidence of an
other-than-temporary loss in value of an equity investment. Any impairment in
equity accounted investments is recorded in earnings in the period in which the
impairment is identified.





Deferred Sales
Commissions


Deferred
sales commissions consist of sales commissions paid to financial advisors on the
sale of investment management products sold on a deferred sales charge basis to
investors.  DundeeWealth is then entitled to receive from the investor
a fee on redemption of these products if these products are redeemed within a
certain period.





Deferred
sales commissions are capitalized and recorded at cost.  The asset is
amortized on a straight-line basis over a five year period, which represents the
period during which commissions are generally recovered from management fee
revenues.  The carrying value of deferred sales commissions is tested
for impairment at least annually and is written down to the extent that the
carrying value exceeds the expected future revenue on an undiscounted
basis.





Capital,
Real Estate and Other Assets





Capital
and Other Assets


Capital
assets are recorded at cost, net of accumulated amortization, and are amortized
on a straight-line or declining-balance basis.  Annual amortization
rates adopted by the Company range from 8% to 40%.  Leasehold
improvements are amortized on a straight-line basis over the period of the
lease.





Other
assets include deposits made to regulatory authorities, including contingency
trust funds, deferred trademark costs and intellectual property acquired in
business combinations that are amortized on a straight-line basis over various
terms ranging from five to 15 years.





The
Company evaluates the carrying value of capital and other assets whenever
changes in circumstances indicate that the carrying value of the asset may not
be recoverable.  Recoverability is measured by comparing the carrying
value of the asset to future undiscounted cash flows expected to be generated
from operations and projected disposition. The cash flow projections take into
account the estimated cash flows for the life of each asset, specific business
plans and management’s best estimate of the most probable set of economic
conditions anticipated to prevail in the market area. If the analysis indicates
that the carrying value is not recoverable from future cash flows, the asset is
written down to the estimated fair value and an impairment loss is recognized
immediately in net earnings.





The
Company also reviews the amortization method and estimates of the useful life of
its capital and other assets on a regular basis to determine whether events and
circumstances warrant a revision.  On sale or retirement, the capital
and specific asset and its related accumulated amortization are removed from the
consolidated financial statements and any related gain or loss is reflected in
net earnings.





Real
Estate Assets


Land
under development and housing and condominiums are stated at the lower of cost
and net realizable value.  Net realizable value is calculated by
estimating the future cash flows from such properties and discounting these cash
flows at a risk-adjusted rate appropriate for a particular
project.  Land held for development is stated at cost less impairment
charges.








DUNDEE
CORPORATION
 14





Capitalized
costs on land under and held for development and on housing and condominiums
include all expenditures incurred in connection with the acquisition, all
related development costs, interest on project-specific and general debt,
property taxes and applicable general and administrative expenses incurred
during construction, less miscellaneous revenue earned during the construction
period.  The cost of sale of land under development is allocated to
each lot based on the projected total estimated cost to develop the entire
subdivision, pro-rated based on street frontage for each lot.  The
cost of sale of houses and condominiums is based on the total costs incurred up
to the date of occupancy, as well as a provision for costs to
complete.





Revenue
properties are stated at historic cost less accumulated depreciation and
impairment charges, if any.  The net book value of revenue properties
under development includes interest on project-specific and general debt,
property taxes, carrying charges and applicable general and administrative
expenses incurred in the project development and construction periods, and
initial leasing costs, less revenue earned prior to the project being declared
operational.  The Company uses the straight-line method of
depreciation for revenue properties, initial leasing costs and major expansions
and renovations.  The estimated useful life of the properties is
between 30 and 40 years.





Real
estate assets are tested for recoverability whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. Examples of such events or changes in circumstances include,
but are not limited to (a) a significant decrease in the market price; (b) a
significant adverse change in the extent or manner in which the asset is being
used or its physical condition; (c) a significant adverse change in legal
factors or in the business climate that could affect its value; (d) an
accumulation of costs significantly in excess of the amount originally expected
for its acquisition or construction; (e)  a current-period operating
or cash flow loss combined with a history of operating or cash flow losses, or a
projection or forecast that demonstrates continuing losses associated with its
use; or (f) a current expectation that, more likely than not, it will be sold or
otherwise disposed of significantly before the end of its previously estimated
useful life.





Oil
and Gas Expenditures


The
Company follows the full-cost method of accounting for exploration and
development expenditures whereby all costs related to the exploration for and
development of oil and natural gas reserves, including asset retirement costs,
are accumulated in separate country-by-country cost centres. Costs include lease
acquisition, geological and geophysical expenditures, carrying costs of
non-productive properties, the drilling of productive and non-productive wells
and related plant and production equipment costs, and that portion of general
and administrative expenses and interest directly attributable to exploration
and development activities.  Proceeds received from the disposal of
properties are normally deducted from the full-cost pool without recognition of
a gain or loss.  When such a disposal would alter the depletion and
depreciation rate by more than 20 percent, a gain or loss would be
recognized.





Pre-development
Costs


A
subsidiary of Eurogas is currently in the exploratory stage of its drilling
programs in Tunisia and capitalizes all costs associated with these programs.
The recovery of recorded costs is contingent upon the existence of economically
recoverable reserves and future profitable production.





Goodwill
and Other Intangible Assets


Goodwill
represents the excess of the purchase price paid on acquisitions over the fair
value assigned to identifiable net assets, including identifiable intangible
assets.  Goodwill is not amortized but assessed for impairment
annually and more frequently if events or changes in circumstances indicate that
there may be an impairment.  Goodwill impairment testing is a two step
process.  Goodwill is first allocated to reporting
units.  If the fair value of the reporting unit exceeds its carrying
value including goodwill, no further testing is performed.  If the
fair value of the reporting unit is less than its carrying value, the second
step is performed to compare the carrying value of the goodwill to its fair
value to quantify the amount of impairment, if any.  The fair value
used in these goodwill impairment assessments is generally based on an income
approach where estimated future cash flows are discounted to arrive at a single
present value amount.  The Company also utilizes a market approach in
its goodwill impairment assessments to provide a secondary fair value by
comparing this single point estimate with comparable company and transaction
multiples.  The most sensitive assumptions in these approaches
include





DUNDEE
CORPORATION
 15





the
estimate of cash flows and the determination of the weighted average cost of
capital, which is used as the discount rate to determine present
value.  In assessing market data, judgment is required in determining
whether recent transactions are comparable to the Company’s reporting unit in
nature, scope and size.





Intangible
assets with an indefinite life include investment management
contracts.  These intangible assets are not amortized but assessed for
impairment annually and more frequently if events or changes in circumstances
indicate that there may be an impairment.  Indefinite life intangible
assets are tested for impairment by comparing their fair values to their
carrying values.  An impairment loss is recognized when the carrying
amount of the asset exceeds its fair value.  In estimating the fair
value of indefinite life intangible assets, the Company uses valuation
techniques based on projected discounted cash flows to be derived from these
assets.  Similar to the impairment assessments for goodwill, the most
sensitive assumptions in this approach include the estimate of cash flows and
the determination of the weighted average cost of capital, which is used as the
discount rate to determine present value.  Cash flows require that the
Company estimate growth rates in assets under management (“AUM”), as a result of
both net sales activity and performance related activity.





Intangible
assets identified as institutional management contracts, funds under
administration and client relationshipsare considered definite
life intangible assets and are amortized on a straight-line basis over ten
years, 15 years and five years, respectively.  Definite life
intangible assets are tested for impairment when an event or change in
circumstances indicates that the carrying value may not be
recoverable.  In estimating the fair value of definite life intangible
assets, the Company uses valuation techniques based on undiscounted cash flow
projections.





Any
impairment in goodwill and other intangible assets is recorded in earnings in
the period in which the impairment is identified.





Preference
Shares


The
Company classifies its preference shares and preference shares of DundeeWealth
as financial liabilities for reporting purposes given that the preference shares
may be convertible into a variable number of the Company’s or DundeeWealth’s
common shares, respectively, or may be redeemed at or after a particular date
for a fixed or determinable amount.





Issue
costs related to the preference shares are netted against the liability and
recorded at amortized cost using the effective interest method. These issue
costs are recorded in interest expense in the consolidated statements of
operations.





Revenue
Recognition





Wealth
Management


Management
fees are calculated as a percentage of the net asset value of the respective
mutual fund or other discretionary portfolio being managed and are recognized on
an accrual basis over the period during which the related service is
rendered.  These fees are disclosed net of management fee
rebates.  DundeeWealth may also earn performance fees from certain of
these managed assets when their market appreciation exceeds established
benchmarks.  Performance fees are not recognized in earnings until the
amounts are established with certainty.





Redemption
fees paid by unitholders of mutual funds purchased on a deferred sales charge
basis, the sales commissions of which have been financed by DundeeWealth, are
recognized as revenue on the settlement date of the redemption of the applicable
mutual fund units.





Securities
transactions and related commission revenues are recorded in the consolidated
financial statements on a trade-date basis.  Interest earned from or
paid to client accounts and from trading securities owned or sold short is
recognized on a net accrual basis as earned and has been included in financial
services revenue.








DUNDEE
CORPORATION
 16





Securities
owned and securities sold short are classified as part of the trading
portfolio.  Both realized and unrealized gains and losses from trading
securities owned and securities sold short are included in the determination of
net earnings.





Investment
income includes interest and dividend income which are recognized as earned, as
well as realized investment gains and losses in respect of the Company’s AFS
securities or other assets.





Real
Estate


Revenue
from the sale of developed sites and land sold to third parties is recognized at
the time the agreement of purchase and sale is executed, at which point the
earnings process is virtually complete, the usual risks and rewards of ownership
are transferred to the buyer and the Company does not have a substantial
continuing involvement with the property, provided that the agreement is
unconditional, at least 15% of the sale proceeds have been received and the
collectability of the remaining proceeds is reasonably assured.





Revenue
from housing projects is recognized when ownership has been transferred to the
purchaser, at which point the usual risks and rewards of ownership are
transferred to the buyer and the Company does not have a substantial continuing
involvement with the property, and collectability of the proceeds is
assured.





Revenue
from condominium projects is recognized by the percentage-of-completion method
upon the sale of individual units when the following criteria have been
satisfied: construction is beyond a preliminary stage, the purchaser is unable
to demand a refund, sufficient units have been sold to secure that the
condominiums will not revert to a rental property, sales prices are collectable
and proceeds and costs can be estimated.  Proceeds are accounted for
as deposits until all of the criteria are met.





Revenue
from real estate revenue properties includes base rents and recoveries of
operating expenses including property taxes, percentage participation rents,
lease cancellation fees, parking income and other incidental income. The
Company’s real estate segment uses the straight-line method of rental revenue
recognition on revenue properties whereby any contractual rent increase over the
term of a lease is recognized in earnings evenly over the lease
term.





All other
real estate revenue, including management fees, is recognized when earned with
the exception of annual season passes to ski resort properties which are
deferred and amortized on a straight-line basis over the ski
season.





Dilution
Gains


Consolidation
of subsidiaries and the application of the equity method of accounting may
result in a dilution gain or loss if the Company’s interest in its subsidiary or
equity accounted investee is reduced, either by a disposition or by the issuance
of shares by the subsidiary or equity accounted investee to an external
party.  Dilution gains and losses in respect of consolidated
subsidiaries are separately reported in the statement of
operations.  Dilution gains and losses in respect of equity accounted
investments are included in the Company’s share of earnings of equity accounted
investees.





Stock
Based Compensation


The
Company and its subsidiaries may issue stock based compensation to directors,
financial advisors and employees under the terms of its share incentive plan and
the share incentive plans of its subsidiaries.  These plans may
include the issuance of stock options and stock based awards.





The
Company uses the fair value based method to account for stock based compensation
granted to directors, financial advisors and employees.  The value of
stock based compensation, as at the date of grant, including awards under the
Company’s share incentive plan or the share incentive plans of its subsidiaries,
is recognized over the applicable vesting period as compensation expense,
generally with a corresponding increase in contributed surplus.  When
stock options are exercised, the proceeds received, together with the amount in
contributed surplus, are added to common share capital.  No expense is
recognized for stock options granted before January 1, 2003.  At the
time these options are exercised, the amount received is recorded as common
share capital.





DUNDEE
CORPORATION
 17




The
Company’s contributions under its employee share purchase plan, and the employee
and advisor share purchase plans of its subsidiaries, are expensed as
incurred.





DundeeWealth
has established a share loan plan for employees to purchase common shares of
DundeeWealth.  Compensatory amounts in respect of DundeeWealth’s share
loan plan are amortized on a straight-line basis over the three-year vesting
period.





The
Company does not factor in an estimated forfeiture rate for stock based
compensation arrangements, but instead, adjusts for actual forfeitures as a
change in estimate as they occur.





Income
Taxes


The
Company uses the asset and liability method to provide for income taxes on all
transactions recorded in the consolidated financial statements.  The
asset and liability method requires that income taxes reflect the expected
future tax consequences of temporary differences between the carrying amounts of
assets and liabilities and their tax bases.  Future income tax assets
and liabilities are determined for each temporary difference and for unused
losses, as applicable, at rates expected to be in effect when the asset is
realized or the liability is settled.  The effect on future income tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the substantive enactment date.  A valuation
allowance is established, if necessary, to reduce the future income tax asset to
an amount that is more likely than not to be realized.





Contingent
Losses


The
Company accrues estimates for contingent losses when it islikely that a future
event will confirm that an asset has been impaired or a liability incurred at
the date of the financial statements and the amount of the loss can be
reasonably estimated.





Earnings
per Share


Basic
earnings per share is computed by dividing the net earnings for the year,
adjusted for cumulative dividends on preference shares, by the weighted average
number of Class A subordinate voting shares (“Subordinate Shares”) and Class B
common shares ("Class B Shares") outstanding during the year.





Diluted
earnings per share is calculated to reflect the dilutive effect of exercising
outstanding share incentive arrangements by applying the treasury stock method
and by reflecting the dilutive effect of convertible preference shares, as may
be appropriate.





Assets
Under Management


AUM
represent the period-end market value of client assets DundeeWealth manages on a
discretionary basis and in respect of which DundeeWealth earns management fees
and, in certain cases, performance fees.  AUM are not reflected on the
consolidated balance sheet.





Reclassification
of 2007 Amounts


Certain
balances in the consolidated financial statements for the comparative year ended
December 31, 2007 have been reclassified to conform to the presentation adopted
for 2008.





DUNDEE
CORPORATION
 18








2.
            CHANGES
      IN ACCOUNTING POLICIES





Financial
Instruments and Capital Disclosures


On
January 1, 2008, the Company adopted the provisions of CICA handbook sections
3862 “Financial Instruments –
Disclosures”, 3863 “Financial Instruments –
Presentation” and 1535 “Capital
Disclosures”.





The new
standards include enhanced disclosure requirements on the nature and extent of
risks arising from financial instruments and how the Company manages those
risks.  In addition, section 1535 requires qualitative and
quantitative disclosures that enable users of the financial statements to
evaluate the Company’s objectives, policies and processes for managing
capital.  The impact of these standards is disclosed in notes 22 and
23 of these consolidated financial statements.





Inventories


On
January 1, 2008, the Company adopted the provisions of CICA handbook section
3031 “Inventories.”  The
new standard provides guidance on the determination of the cost of real estate
inventory and its subsequent recognition as an expense, including any write-down
to net realizable value.  The standard also provides guidance on the
cost formula used to assign costs to real estate inventories.  The
Company’s previous accounting policy in respect of costs of real estate
inventory was generally consistent with the requirements of the new standard,
with the exception of the capitalizing of certain overhead and selling and
marketing costs.  As a result of implementing the new standard, the
Company recognized an adjustment of $4,480,000 as a reduction to opening
retained earnings, with a corresponding decrease in “capital, real estate and
other assets”, net of future income tax liabilities in respect
thereof.  The opening retained earnings adjustment was net of
non-controlling interest of $1,353,000.  Overhead and selling and
marketing costs of $4,313,000 were expensed during 2008 as a result of the
implementation of these new standards.







Reclassification
of Financial Assets


In
October 2008, the CICA Accounting Standards Board (“AcSB”) issued amendments to
CICA handbook sections 3855 “Financial Instruments – Recognition
and Measurement”, 3861 “Financial Instruments – Disclosure
and Presentation” and 3862 “Financial Instruments –
Disclosures”.  These amendments, which were made with the
intention of providing consistency between Canadian GAAP and International
Financial Reporting Standards (“IFRS”), provide Canadian companies with the
ability to reclassify financial assets out of the held-for-trading and AFS
categories in certain circumstances.  The reclassification of
financial assets designated as held-for-trading is only permitted in rare
circumstances.  The ability to reclassify financial assets designated
as AFS is only permitted if the financial assets would have met the definition
of loans and receivables at the time of acquisition and if the Company has the
intention and ability, at the time of the reclassification, to hold the
financial assets for the foreseeable future or until maturity.





The
Company has considered the impact of these amendments, specifically in respect
of its investments in ABCP and CLOs.  The amendments do not permit a
reclassification of ABCP and CLOs as these products do not meet the definition
of a loan or receivable pursuant to section 3855.  There are no other
significant impacts resulting from these amendments.





DUNDEE
CORPORATION
 19








3.
            BUSINESS
      COMBINATIONS, DISPOSITIONS AND
REORGANIZATIONS





Transactions
Completed in 2008





Wealth
Management


Acquisition
of Aurion Capital Management Inc. (“Aurion”)


In July
2008, DundeeWealth entered into a share purchase agreement to acquire 60% of
Aurion, a Canadian institutional money manager.  The aggregate
purchase price was $26,078,000 including cash of $6,450,000, 1,417,582 common
shares of DundeeWealth with a value of $19,350,000, and transaction costs of
$278,000.  The remaining 40% of Aurion is held by the key employees of
Aurion and is subject to the terms of a shareholders’ agreement.





Approximately
35% of the cash and common shares of DundeeWealth issued as consideration for
the purchase were placed into escrow, to be released on the third anniversary
date of the acquisition, contingent on the retention of certain key employees
and AUM of Aurion.





Acquisition
of BHR Fund Advisors, L.P. (“BHR”)


In July
2008, DundeeWealth entered into a partnership interest purchase agreement to
acquire 89% of BHR, a U.S. based mutual fund manager and distribution
platform.  The aggregate purchase price was US$3,217,000 of which
US$2,217,000 was paid in cash at closing.  DundeeWealth has withheld
US$1,000,000 of the aggregate purchase price to be released on or prior to June
30, 2009, contingent on the AUM of BHR achieving certain
thresholds.  Transaction costs in respect of this acquisition were
$203,000.





Allocation
of the Purchase Price of Aurion and BHR


The
purchase price, net of contingent consideration, is being assigned to the assets
and liabilities acquired based on their estimated fair values.  When
the outcome of the contingency is resolved, contingent consideration recognized,
if any, will be allocated to goodwill and other intangible
assets.  Institutional management contracts acquired are being
amortized over their estimated life of ten years.




Aurion
              
              
              BHR
              
              
              TotalNet
      assets acquiredInstitutional
      management contracts
              
              $
              16,417
              
              
              $
              -
              
              
              $
              16,417Other
      assets, net of liabilities
              
              
              510
              
              
              
              (172
              )
              
              
              338Future
      income tax liabilities
              
              
              (4,937
              )
              
              
              -
              
              
              
              (4,937
              )$
              11,990
              
              
              $
              (172
              )
              
              $
              11,818Aggregate
      purchase priceCash
              
              $
              6,450
              
              
              $
              3,276
              
              
              $
              9,726Common
      shares of DundeeWealth
              
              
              19,350
              
              
              
              -
              
              
              
              19,350Transaction
      costs
              
              
              278
              
              
              
              203
              
              
              
              481Less:
      Contingent consideration
              
              
              (9,030
              )
              
              
              (1,018
              )
              
              
              (10,048
              )$
              17,048
              
              
              $
              2,461
              
              
              $
              19,509Excess
      of the purchase price over net assets acquiredassigned
      to goodwill
              
              $
              5,058
              
              
              $
              2,633
              
              
              $
              7,691


Disposition
of Quebec-based Mutual Fund Dealer and Insurance Distribution
Operations


On
December 31, 2008, DundeeWealth disposed of certain mutual fund dealers and its
insurance network of financial advisors registered in the province of Quebec to
Industrial Alliance Insurance and Financial Services Inc. (“Industrial”), for
cash consideration of $12,734,000.  These financial advisors were part
of DundeeWealth’s brokerage segment.  The disposition resulted in a
loss of $17,679,000.





DUNDEE
CORPORATION
 20


Assets
      disposed of:Cash
                
                $
                1,182Goodwill
      and other intangible assets
                
                
                28,874Other
      assets
                
                
                35730,413Proceeds
      of disposition
                
                
                12,734Loss
      on sale
                
                $
                (17,679
                )


Step Acquisition of
DundeeWealth


In 2008,
the Company purchased 5,450,571 common shares of DundeeWealth for cash of
$72,315,000 and DundeeWealth paid cash of $22,805,000 to purchase and cancel
2,057,600 common shares pursuant to its normal course issuer
bid.  These transactions resulted in a 3.7% increase in the Company’s
interest in DundeeWealth.  This increase in ownership has been
accounted for as a step acquisition in DundeeWealth, with the aggregate purchase
price allocated to the fair value of the assets acquired.  The amount
allocated to investment management contracts was included in “Goodwill and other intangible
assets.”  The investment management contracts have an
indefinite life and are therefore not subject to amortization.




Net
      assets acquiredInvestment
      management contracts
              
              $
              77,619Other
      net assets
              
              
              23,262Future
      income tax liabilities
              
              
              (22,012
              )$
              78,869Aggregate
      purchase priceCash
              
              $
              71,497Cash
      attributed to non-controlling interest
              
              
              7,372$
              78,869




DundeeWealth
may, from time to time, issue shares in accordance with its share incentive
arrangements (note 19) or pursuant to business acquisitions, or
otherwise.  These transactions may create a dilution in the Company’s
interest in DundeeWealth.  During 2008, the Company recognized
dilution gains of $6,297,000 in respect of these dilutions.





Real
Estate





Dilution
of Interest in Dundee Realty Corporation


In June
2008, the non-controlling shareholder of Dundee Realty exercised an option to
acquire an additional 1.5% interest in Dundee Realty for
$1,783,000.  During 2008, the Company recognized a dilution loss of
$435,000 in respect of its investment in Dundee Realty.





Resources





Partial
Disposition of Eurogas Corporation’s Interest in Escal UGS S.L.
(“Escal”)


In
December 2007, Eurogas entered into agreements with ACS Servicios Comunicaciones
y Energia, S.L. (“ACS”) (the “ACS Transaction”), a Spanish construction group,
pursuant to which ACS increased its ownership in Escal from 5% to
66.67%.  Correspondingly, Castor UGS Limited Partnership (“CLP”), of
which Eurogas is a 73.7% owner, reduced its ownership in Escal from
approximately 95% to 33.33%.  The terms of the ACS Transaction were
subject to the granting of a development concession by the Spanish authorities
in respect of CLP’s natural gas storage project.  The development
concession was received on May 16, 2008 and in accordance with Canadian GAAP,
the results and balances of Escal have been deconsolidated and Eurogas’ interest
in Escal is shown as an equity accounted investment in the books of the Company,
effective May 16, 2008.  The Company recorded a dilution loss of
$4,990,000 in respect of this transaction.





DUNDEE
CORPORATION
 21








The ACS
Transaction also provided for the repayment to CLP of certain amounts previously
invested in the natural gas storage project. Amounts due from Escal immediately
following the ACS Transaction were approximately $43,347,000
(€27,894,000).  During 2008, CLP received payments against the loan of
approximately $41,055,000 (€25,683,000).  At December 31, 2008, the
loan amount due from Escal had a principal amount of $3,197,000 (€1,876,000) and
was included in “Accounts
receivable.”





Step
Acquisition of Eurogas


On April
24, 2008, Eurogas completed a rights offering pursuant to which it raised
$29,386,000, net of issue costs of $823,000.  The Company’s
participation in the rights offering was $19,306,000 and resulted in an increase
to the Company’s ownership in Eurogas from 50.8% to 53.4%.  This
increase in ownership has been accounted for as a step acquisition in Eurogas,
with the aggregate purchase price allocated to the fair value of the assets
acquired.  The allocation of the purchase price to fair values
resulted in a fair value increment of $1,208,000 to oil and gas properties which
has been included in “Capital,
real estate and other assets.”  As the amount is attributed to
Eurogas’ development operations in Tunisia, it is not currently subject to
amortization.





From time
to time, Eurogas may issue shares pursuant to stock options or otherwise which
result in the dilution of the Company’s interest in Eurogas.  During
2008, the Company recognized dilution losses of $294,000 in respect of these
transactions.





Reorganization
of Eurogas


On August
5, 2008, Eurogas exchanged its common shares in EII for preferred shares and new
common shares of EII.  The new common shares were then immediately
distributed to all of Eurogas’ common shareholders.  Each common
shareholder of Eurogas received one new common share of EII for every five
Eurogas shares held.  As a result of this transaction, the Company
received a 53% interest in EII and the Company will therefore continue to
consolidate the assets and liabilities and the results of operations of
EII.





Transactions
Completed in 2007





Wealth
Management





Disposition
of Dundee Bank of Canada (“Dundee Bank”)


On
September 28, 2007, DundeeWealth completed the sale of its wholly owned
subsidiary, Dundee Bank for $260,000,000 in cash.  Concurrent with
this sale, DundeeWealth entered into a separate agreement pursuant to which it
issued 300,000 common shares and 27,000,000 Special Shares, Series F from its
treasury for aggregate proceeds of $348,348,000.  Also in connection
with the sale of Dundee Bank, DundeeWealth entered into a service agreement
under which “white label” banking services are made available to support its
distribution of certain products through independent financial advisors across
Canada.





Disposition
of DFG Investment Advisers, Inc. (“DFG”)


On
December 31, 2007, DundeeWealth disposed of 90% of its interest in DFG, its New
York based structured credit subsidiary, to certain executives who subsequently
resigned their position with DundeeWealth to continue their executive functions
at DFG.  DundeeWealth entered into a services agreement with DFG
pursuant to which in 2007 it funded certain costs of $3,000,000, which were
included in discontinued operations.  In addition, DFG will continue
to manage DundeeWealth’s investments in CLOs (note 6) for a two-year period
commencing on January 1, 2008.







DUNDEE
CORPORATION
 22





Operations
Classified as Discontinued


The
Company determined that the operations and cash flows from Dundee Bank and DFG
had been substantially eliminated from its ongoing operations and that it will
not have any significant continuing involvement.  Accordingly, the
financial position and operating results of the above entities were classified
as discontinued operations in the consolidated balance sheet and consolidated
statement of operations of the Company as at and for the year ended December 31,
2007.




DFGASSETSCash
      and cash equivalents
              
              
              
              
              
              
              
              $
              2,100Accounts
      receivable
              
              
              
              
              
              
              
              
              863Capital
      and other assets
              
              
              
              
              
              
              
              
              324Assets
      of discontinued operations
              
              
              
              
              
              
              
              $
              3,287LIABILITIESAccounts
      payable and accrued liabilities
              
              
              
              
              
              
              
              $
              2,395Liabilities
      of discontinued operations
              
              
              
              
              
              
              
              $
              2,395Composition
      of loss from discontinued operations for the year ended December 31,
      2007DundeeBank
              
              
              DFG
              
              
              TotalRevenues
              
              $
              26,220
              
              
              $
              -
              
              
              $
              26,220Expenses
              
              
              (32,548
              )
              
              
              (8,945
              )
              
              
              (41,493
              )Impairment
      charge on available-for-sale securities
              
              
              (57,600
              )
              
              
              -
              
              
              
              (57,600
              )Income
      taxes
              
              
              23,647
              
              
              
              368
              
              
              
              24,015Realization
      of loss in comprehensive income, net of taxes
              
              
              (94,539
              )
              
              
              -
              
              
              
              (94,539
              )Loss
      on sale
              
              
              (143
              )
              
              
              -
              
              
              
              (143
              )Non-controlling
      interest
              
              
              59,210
              
              
              
              4,515
              
              
              
              63,725NET
      LOSS FROM DISCONTINUED OPERATIONS
              
              $
              (75,753
              )
              
              $
              (4,062
              )
              
              $
              (79,815
              )




Acquisition
of DundeeWealth S.A.


In June
2007, a subsidiary of DundeeWealth acquired DundeeWealth S.A. (formerly DF
Investments S.A. and VMR Fund Management SA), a fund management company with AUM
of approximately $69,000,000.  The aggregate cash purchase price was
$1,319,000, of which $218,000 was allocated to the cost of the investment
management contracts and $980,000 was recorded as goodwill.  The
investment management contracts were subsequently disposed of in
2008.





Step
Acquisition in DWM Inc. (“DWM”) by DundeeWealth


In
February 2007, DundeeWealth purchased the 16.3% non-controlling interest in its
subsidiary, DWM previously held by Caisse de dépôt et placement du Québec
(“CDP”) and DWM became a wholly-owned subsidiary of
DundeeWealth.  DundeeWealth accounted for the transaction as a step
acquisition of DundeeWealth’s interest in DWM and the aggregate purchase price,
after elimination of the non-controlling interest, was allocated to net assets
acquired based on their estimated fair value on the date of
acquisition.





The
aggregate purchase price was $330,995,000, being the sum of the $154,500,000
cash paid to the non-controlling shareholder, the value of the 11,000,000 common
shares of DundeeWealth issued to the non-controlling shareholder and transaction
costs of $605,000.  The purchase price, as detailed in the following
table, was assigned to the assets and liabilities acquired.  The
investment management contracts have an indefinite life and are therefore not
subject to amortization.





DUNDEE
CORPORATION
 23




Net
      assets acquiredInvestment
      management contracts
              
              $
              203,150Other
      net assets
              
              
              129,275Future
      income tax liabilities
              
              
              (67,040
              )$
              265,385Aggregate
      purchase priceCash
              
              $
              154,500Common
      shares of DundeeWealth
              
              
              175,890Transaction
      costs
              
              
              605$
              330,995Excess
      of the purchase price over net assets acquired assigned to
      goodwill
              
              $
              65,610





Real
Estate





Disposition
of Portfolio Assets of Dundee REIT to GE Real Estate


On August
24, 2007, Dundee REIT completed the sale of certain properties (the “Eastern
Portfolio”) to GE Real Estate (“GE”) for aggregate consideration of $2.3
billion.  Dundee REIT continued to own a portfolio of office and
industrial properties, primarily in western Canada (the “Western
Portfolio”).  On closing, Dundee REIT received cash of approximately
$1.5 billion, which was subsequently utilized to redeem approximately 29.9
million Dundee REIT units.  In connection with the transaction, GE
acquired approximately 3.5 million Dundee REIT units, giving GE an approximate
16% interest in Dundee REIT.





The
Company accounts for its investment in Dundee REIT on an equity
basis.  The Company elected to tender 3,873,594 Dundee REIT units
pursuant to the transaction for which the Company received cash proceeds of
$183,996,000.  As the Company tendered less than its proportionate
share of Dundee REIT units relative to other unitholders, the Company’s interest
in Dundee REIT increased from approximately 15% immediately prior to the
transaction to approximately 18% immediately thereafter.  As the
redemption of units resulted in the Company increasing its ownership interest in
Dundee REIT, the aggregate redemption proceeds were applied against the carrying
value of the Company’s investment in Dundee REIT.  The Company
maintains the right to appoint the majority of the board of trustees of Dundee
REIT, less one member, while it owns at least 2 million units.  At
December 31, 2007, the Company held a 17% interest in Dundee REIT.





The
results of operations in respect of properties sold pursuant to the transaction
with GE have been identified by Dundee REIT as discontinued operations and have
been reported separately. In accordance with accounting requirements, during
2007, the Company recognized its share of the earnings of discontinued
operations amounting to $95,909,000.





Dilution
Gains Resulting from Equity Transactions in Subsidiaries





Wealth
Management


During
2007, DundeeWealth completed several equity issuances, including the issuance of
shares pursuant to the step acquisition in DWM and concurrent with the sale of
Dundee Bank.  As a result of these transactions and other issuances of
common shares of DundeeWealth pursuant to its share incentive arrangements or
otherwise, the Company’s interest in the carrying value of DundeeWealth’s net
assets was diluted.  In accordance with Canadian GAAP, the Company was
considered to have disposed of approximately 28% of its interest in
DundeeWealth, resulting in a dilution gain of $135,448,000, which was recognized
in fiscal 2007.





Real
Estate


During
2007, the non-controlling shareholder of Dundee Realty exercised its option to
acquire an additional 1.3% interest in Dundee Realty for
$1,783,000.  During 2007, the Company recognized dilution gains of
$349,000 in respect of the equity issuances by Dundee Realty.








DUNDEE
CORPORATION
 24





Resources


During
2007, the Company recognized other dilution gains of $794,000 in connection with
equity issuances in its resources segment.





4.
            CLIENT
      ACCOUNTS RECEIVABLE




2008
              
              
              2007Client
      accounts
              
              $
              232,563
              
              
              $
              293,497Brokers'
      and dealers' balances
              
              
              55,056
              
              
              
              62,087Securities
      borrowed
              
              
              101,663
              
              
              
              53,194$
              389,282
              
              
              $
              408,778


DundeeWealth
has obtained securities with a market value of $101,537,000 (2007 – $53,386,000)
as collateral for the securities borrowed.





5.
            TRADING
      SECURITIES OWNED AND SECURITIES SOLD
SHORT





2008
              
              
              
              
              
              2007Trading
              
              
              Securities
              
              
              Trading
              
              
              SecuritiesSecurities
              
              
              Sold
              
              
              Securities
              
              
              SoldOwned
              
              
              Short
              
              
              Owned
              
              
              ShortBonds
              
              $
              142,333
              
              
              $
              39,925
              
              
              $
              207,065
              
              
              $
              103,009Equities
      and convertible debentures
              
              
              19,549
              
              
              
              4,026
              
              
              
              56,878
              
              
              
              3,512$
              161,882
              
              
              $
              43,951
              
              
              $
              263,943
              
              
              $
              106,521


Bonds
include $75,549,000 in guaranteed investment certificates and discounted notes
held by the resources segment. These amounts have been deposited with a Canadian
Schedule I Chartered Bank.  Bond maturities range from 2009 to 2052
(2007 – from 2008 to 2053) and have annual interest yields ranging from 0% to
12.5% (2007 – 0% to 12.5%).





From time
to time, DundeeWealth’s brokerage subsidiary may sell securities that it does
not own and will therefore be obligated to purchase such securities at a future
date.  The subsidiary may incur a loss if the market value of these
securities subsequently increases.





DUNDEE
CORPORATION
 25








6.
            AVAILABLE-FOR-SALE
      SECURITIES




2008
              
              
              
              
              
              2007Cost
              
              
              Fair
      Value
              
              
              Cost
              
              
              Fair
      ValueAsset-backed
      commercial paper (note 22)
              
              $
              169,478
              
              
              $
              169,478
              
              
              $
              283,305
              
              
              $
              283,305Mutual
      funds managed by a subsidiary
              
              
              91,719
              
              
              
              68,194
              
              
              
              167,199
              
              
              
              171,779Collateralized
      loan obligations and other structured products (note 22)
              
              
              16,645
              
              
              
              16,645
              
              
              
              116,606
              
              
              
              86,589Other
      portfolio investments
              
              
              56,779
              
              
              
              40,413
              
              
              
              81,958
              
              
              
              103,508$
              334,621
              
              
              $
              294,730
              
              
              $
              649,068
              
              
              $
              645,181


During
2008, the Company recognized an other-than-temporary impairment of $113,827,000
in its ABCP investments, $99,961,000 in its CLO investments and $57,310,000 in
its other portfolio investments.





7.
            EQUITY
      ACCOUNTED INVESTMENTS





Details
of the Company’s ownership and carrying values of its equity accounted
investments are included in the following table.  The aggregate fair
value of the Company’s equity accounted investments as at December 31, 2008 was
$106,027,000 (2007 – $413,919,000).




2008
              
              
              
              
              
              2007Carrying
              
              
              
              
              
              CarryingOwnership
              
              
              Value
              
              
              Ownership
              
              
              ValueBreakwater
      Resources Ltd.
              
              
              25
              %
              
              $
              13,560
              
              
              
              25
              %
              
              $
              83,523Dundee
      Precious Metals Inc.
              
              
              20
              %
              
              
              37,952
              
              
              
              20
              %
              
              
              96,146Dundee
      Real Estate Investment Trust
              
              
              21
              %
              
              
              96,337
              
              
              
              17
              %
              
              
              95,056Escal
      UGS S.L. (note 3)
              
              
              33
              %
              
              
              5,975
              
              
              
              
              
              
              
              -Odyssey
      Resources Limited
              
              
              43
              %
              
              
              2,842
              
              
              
              
              
              
              
              -Other
              
              
              
              
              
              
              3,673
              
              
              
              
              
              
              
              14,316$
              160,339
              
              
              
              
              
              
              $
              289,041


As at
December 31, 2008, the Company assessed its equity accounted investments for
impairment that was other-than-temporary in nature.  The Company
reviewed all equity accounted investments where fair values were significantly
below original cost, and where such amounts were subject to an ongoing decline
that had been consistent over a prolonged period.  As a result of this
impairment assessment, during the fourth quarter of 2008, the Company recorded a
total fair value adjustment amount of $114,194,000 against the carrying value of
its equity-accounted investments.





Transactions
During the Year





Breakwater
Resources Ltd. (“Breakwater”)


In March
2007, the Company exercised an aggregate of 30,801,410 warrants to acquire the
same number of common shares of Breakwater at $0.20 per share for a total cost
of approximately $6,160,000.  As a result of the transaction, the
Company's interest in Breakwater increased by approximately 6% from 18% to
24%.








DUNDEE
CORPORATION
 26





On
December 31, 2007, the Company acquired 6,122,449 flow-through common shares of
Breakwater at $1.96 per share for total consideration of
$12,000,000.  Following this transaction, the Company’s interest in
Breakwater increased by approximately 1% from 24% to 25% as at December 31,
2007.





During
2008, the Company acquired 5,000,000 shares of Breakwater at a cost of
$2,915,000. The Company’s interest in Breakwater remained at 25% as at December
31, 2008.





The
Company accounted for each individual transaction as a step acquisition of an
equity accounted investee, with the aggregate purchase price allocated to
Breakwater's underlying assets at their estimated fair value.  The net
amounts assigned to identifiable net assets exceeded the cost of the purchases
by approximately $464,000 and $10,905,000 in 2008 and 2007
respectively.  The excess has been allocated on a pro-rata basis to
the underlying mining properties and other non-current assets of
Breakwater.





Dundee
Precious Metals Inc. (“Dundee Precious”)


During
2007, the Company purchased 225,000 flow-through common shares of Dundee
Precious at an aggregate cost of $2,756,000 and acquired 1,051,000 special units
of Dundee Precious at an aggregate cost of $11,036,000.  Each special
unit purchased consists of one common share of Dundee Precious plus one-half of
a common share purchase warrant of Dundee Precious.  Each full warrant
entitles the holder to acquire a common share of Dundee Precious at $15.00 per
share for a period of five years from the date of issue.  Dundee
Precious also completed an additional financing during 2007, in which the
Company chose not to participate.





As a
result of the above transactions, the Company’s interest in Dundee Precious
decreased marginally to 20%.  The Company accounted for this
transaction as a partial disposition of its interest in Dundee Precious and
recognized a dilution gain of $765,000, which has been included in equity
earnings in fiscal 2007.





During
the fourth quarter of 2008, the Company acquired 6,800,000 shares and 3,400,000
warrants of Dundee Precious at a cost of $15,300,000.  Each full
warrant entitles the holder to acquire a common share of Dundee Precious at
$3.25 per share for a period of seven years from the date of issue.





Dundee
Real Estate Investment Trust


During
2008, the Company acquired 460,000 Dundee REIT Units Series B at a cost of
$3,841,000. Following the transaction, Dundee Corporation and its affiliates
held an aggregate 20.7 % voting and equity interest in Dundee
REIT.  The Company accounted for the transaction as a step acquisition
of its interest in Dundee REIT, with the aggregate purchase price allocated to
Dundee REIT’s underlying assets at their estimated fair value.  The
net amounts assigned to identifiable net assets exceeded the cost of the
purchase by approximately $4,458,000.  The excess has been allocated
on a pro-rata basis to the underlying non-current assets of Dundee
REIT.





Units
Held in Escrow


The
Company's investment in Dundee REIT is partially held through limited
partnership units of Dundee Properties Limited Partnership
(“DPLP”).  The limited partnership units are convertible, at the
Company's option, into publicly traded Dundee REIT units on a one-for-one
basis.  The Company has placed sufficient units of DPLP into escrow to
meet its potential obligation to deliver up to a maximum of 321,000 units
pursuant to the exchange feature of its outstanding exchangeable debentures
(note 13).





Units
Tendered in Settlement of Exchangeable Debentures


During
fiscal 2008, the Company delivered 12,669 units to settle $377,000 of par value
Exchangeable Debentures.  In 2007, 1,863,594 Dundee REIT units were
delivered to settle $55,443,000 of par value Exchangeable
Debentures.  The Company recognized an associated gain on disposition
of the Dundee REIT units of $50,000 and $21,118,000 in 2008 and 2007,
respectively, which has been included in other investment income (note
17).








DUNDEE
CORPORATION
 27





Odyssey
Resources Limited (“Odyssey”)


In the
third quarter of 2008, Dundee Corporation acquired 10,000,000 shares of Odyssey
for $2,500,000, increasing its ownership interest to 43%.  As a
result, effective August 8, 2008, Odyssey has been transferred from AFS
securities to equity accounted investments, and the Company began to account for
its investment on an equity basis.





8.
            DEFERRED
      SALES COMMISSIONS





2008
              
              
              2007Deferred
      sales commissions, beginning of year
              
              $
              207,005
              
              
              $
              173,802Commissions
      funded during the year
              
              
              108,890
              
              
              
              100,711Amortization
      during the year
              
              
              (81,868
              )
              
              
              (67,508
              )Deferred
      sales commissions, end of year
              
              $
              234,027
              
              
              $
              207,005


9.
            CAPITAL,
      REAL ESTATE AND OTHER ASSETS




2008
              
              
              2007Accumulated
              
              
              Net
      Book
              
              
              Net
      BookCost
              
              
              Amortization
              
              
              Value
              
              
              ValueReal
      estate assets
              
              $
              463,302
              
              
              $
              17,076
              
              
              $
              446,226
              
              
              $
              406,685Oil
      and gas properties
              
              
              19,020
              
              
              
              731
              
              
              
              18,289
              
              
              
              84,502Capital
      and other assets
              
              
              148,955
              
              
              
              87,214
              
              
              
              61,741
              
              
              
              68,416$
              631,277
              
              
              $
              105,021
              
              
              $
              526,256
              
              
              $
              559,603Real
      Estate Assets by Type2008
              
              
              2007Land
      under development
              
              
              
              
              
              
              
              
              
              $
              125,298
              
              
              $
              81,218Land
      held for development
              
              
              
              
              
              
              
              
              
              
              160,048
              
              
              
              153,905Housing
      and condominiums
              
              
              
              
              
              
              
              
              
              
              96,929
              
              
              
              125,824Revenue
      properties
              
              
              
              
              
              
              
              
              
              
              63,951
              
              
              
              45,738$
              446,226
              
              
              $
              406,685Oil
      & Gas Properties by Geographic Area2008
              
              
              2007Spain
              
              
              
              
              
              
              
              
              
              $
              -
              
              
              $
              58,464Tunisia
              
              
              
              
              
              
              
              
              
              
              17,825
              
              
              
              25,548Other
              
              
              
              
              
              
              
              
              
              
              464
              
              
              
              490$
              18,289
              
              
              $
              84,502





10.
            GOODWILL
      AND OTHER INTANGIBLE ASSETS





In 2008,
DundeeWealth acquired Aurion and BHR, which resulted in an increase of
$7,691,000 in goodwill and $16,417,000 in institutional management
contracts.  The disposition of DundeeWealth’s Quebec-based mutual fund
dealer and insurance distribution operations included a disposition of
$25,314,000 in goodwill and $3,560,000 in funds under
administration.  As a result of step purchases of DundeeWealth made
during the year, $62,021,000 was allocated to investment management
contracts.  Details of these transactions are disclosed in note
3.





DUNDEE
CORPORATION
 28





2008
              
              
              2007Accumulated
              
              
              Net
      Book
              
              
              Net
      BookCost
              
              
              Amortization
              
              
              Value
              
              
              ValueGoodwill
              
              $
              375,967
              
              
              $
              -
              
              
              $
              375,967
              
              
              $
              411,828Indefinite
      life intangible assetsInvestment
      management contracts
              
              
              336,548
              
              
              
              -
              
              
              
              336,548
              
              
              
              274,745Definite
      life intangible assetsInstitutional
      management contracts
              
              
              16,417
              
              
              
              821
              
              
              
              15,596
              
              
              
              -Funds
      under administration
              
              
              15,795
              
              
              
              6,335
              
              
              
              9,460
              
              
              
              14,322Customer
      relationships
              
              
              6,651
              
              
              
              3,438
              
              
              
              3,213
              
              
              
              4,544$
              751,378
              
              
              $
              10,594
              
              
              $
              740,784
              
              
              $
              705,439


Goodwill
and investment management contracts are not amortized but are tested for
impairment at least annually, on September 30 of each year.  On
December 31, 2008, as a result of the recent declines in equity markets, the
Company completed additional impairment testing on goodwill and investment
management contracts and determined that no impairment existed.





During
2007, DundeeWealth reviewed the value of goodwill assigned to its international
banking activities and determined that an impairment in value
existed.  As a result, a goodwill impairment loss of $2,426,000 was
charged to the consolidated statement of operations.





11.
            BANK
      INDEBTEDNESS





At
December 31, 2008, DundeeWealth’s brokerage subsidiary had borrowed $nil (2007 –
$43,125,000) pursuant to credit facilities provided by two Canadian chartered
banks.  During the year, the interest rate on these facilities ranged
from 2.75% to 5.00% on Canadian funds (2007 – 5.00% to 5.25%) and from 2.6% to
5.25% on U.S. funds (2007 – 5.25% to 5.75%).





From time
to time, and to facilitate the securities settlement process for both client and
principal securities transactions, DundeeWealth’s brokerage subsidiary may
utilize call loans, of which $93,300,000 in facilities was available at December
31, 2008.  The use of call loans is customary to facilitate the
securities settlement process or to fund margin lending and these loans are
collateralized by securities.





12.
            CLIENT
      DEPOSITS AND RELATED LIABILITIES




2008
              
              
              2007Client
      accounts
              
              $
              356,898
              
              
              $
              268,027Brokers'
      and dealers' balances
              
              
              35,061
              
              
              
              135,090Securities
      loaned
              
              
              7,629
              
              
              
              15,180International
      banking client accounts
              
              
              9,059
              
              
              
              5,023$
              408,647
              
              
              $
              423,320


DundeeWealth
has pledged securities with a fair value of $7,610,000 (2007 – $14,942,000) as
collateral for the cash deposited on loan.





DUNDEE
CORPORATION
 29








13.
            CORPORATE
      DEBT





2008
              
              
              2007Corporate$
      150
      million revolving term credit facility due September 9,
    2009
              
              $
              81,960
              
              
              $
              5,737$
      9.5
      million, 5.85% exchangeable unsecured subordinated debentures due June 30,
      2015
              
              
              9,168
              
              
              
              10,809Subsidiaries$
      500
      million revolving term credit facility, DundeeWealth due September 9,
      2009
              
              
              169,606
              
              
              
              127,655$
      150
      million revolving term credit facility, Dundee Realty due November 30,
      2009
              
              
              85,408
              
              
              
              59,047Other
      real estate debt
              
              
              183,365
              
              
              
              152,466$
              529,507
              
              
              $
              355,714


$150,000,000
– Revolving Term Credit Facility, Corporate


The
Company renewed its revolving term credit facility with a Canadian chartered
bank, extending the expiry date to September 9, 2009, subject to certain
amendments.  The facility provides for a tiered interest rate
structure based on the Company’s public debt rating.  Based on the
Company’s current debt rating, draws on the credit facility bear interest, at
the Company’s option, at either the bank’s prime lending rate plus 0.25% for
loans or, for bankers’ acceptances at the bank’s then prevailing bankers’
acceptance rate plus 1.25%.  The Company is subject to a standby fee
of 0.375% on unused amounts under the facility.





As at
December 31, 2008, the Company had borrowed $81,960,000 (2007 – $5,737,000)
pursuant to its revolving term credit facility.





The
facility is subject to certain covenants, including maintenance of minimum
levels of assets, restrictions on the existence of secured indebtedness,
restrictions on the redemption, purchase or repayment of the Exchangeable
Debentures and restrictions on the prepayment and payment of interest on the
Exchangeable Debentures.





Interest
expense relating to this revolving term credit facility was $1,633,000 (2007 –
$4,514,000).





$9,545,000,
5.85% Exchangeable Unsecured Subordinated Debentures


On June
22, 2005, the Company issued 100,000 exchangeable unsecured subordinated
debentures with a par value of $1,000 for aggregate proceeds of $100,000,000
(the “Exchangeable Debentures”).  The Exchangeable Debentures mature
on June 30, 2015 and bear interest at 5.85% per annum, payable semi-annually on
June 30 and December 31 of each year.  Each Exchangeable Debenture may
be exchanged, at the option of the holder for 33.6134 units of Dundee REIT,
representing a conversion price of $29.75 per Dundee REIT unit. The Company has
placed units of DPLP into escrow in order to satisfy the exchange feature, each
unit of which is convertible into a Dundee REIT unit on a one-for-one
basis.  The Company is entitled to all voting rights and related
privileges and is entitled to all distributions and rights of reinvestment of
such distributions associated with the units held in escrow.





The
carrying value of the Exchangeable Debentures is adjusted in the consolidated
financial statements to reflect the market value of the underlying Dundee REIT
units, provided that such adjustment does not result in a carrying value that is
below the principal value of the Exchangeable Debentures
outstanding.  The market value is determined based on the quoted
market value of the Dundee REIT units at each period end. Any change in the
carrying value of the Exchangeable Debentures resulting from such market value
adjustments will be recorded in consolidated net earnings, even though the
Company would continue to hold the offsetting Dundee REIT
investment.  During 2008, the Company recognized a gain of $1,314,000
(2007 – $18,237,000), representing the reversal of previous periods’ market
value adjustments.





DUNDEE
CORPORATION
 30





During
2008, $377,000 par value of Exchangeable Debentures were surrendered for
exchange in accordance with their terms (2007 – $55,443,000).





$500,000,000
– Revolving Term Credit Facility, DundeeWealth


DundeeWealth
renewed its revolving term credit facility with a Canadian chartered bank,
extending the expiry date to September 9, 2009.  If the facility is
not renewed at the expiry date, it will convert into a four-year term loan and
any amounts borrowed as at the date of expiry will be due four years after the
scheduled expiry date.  For Canadian dollar borrowings, the facility
bears interest, at DundeeWealth’s option, at a rate per annum equal to either
the bank’s prime lending rate for loans or, for bankers' acceptances at the
bank’s then prevailing bankers’ acceptance rate plus 0.95%.  For U.S.
dollar borrowings, the facility bears interest, at DundeeWealth’s option, either
at the bank's prevailing Alternate Base Rate Canada for loans, or at LIBOR plus
0.95%.  Euro borrowings under the credit facility bear interest at
EURIBOR plus 0.95%.  Unused amounts available under the facility are
subject to a standby fee of 0.325% per annum.





The
credit facility is secured by a general security agreement over all the assets
of DundeeWealth and certain of its subsidiaries.  At December 31,
2008, DundeeWealth had drawn $169,606,000 against this facility.





The
facility is subject to certain covenants, including maintenance of minimum
levels of AUM and earnings before interest, income taxes and depreciation and
amortization, restrictions on the existence of secured indebtedness and
restrictions on the disposition of assets in excess of a specified amount by
certain subsidiaries.





Interest
expense relating to this revolving term credit facility was $5,585,000 (2007 –
$4,620,000).





$150,000,000
Revolving Term Credit Facility, Dundee Realty


Dundee
Realty established a demand revolving term credit facility with a Canadian
chartered bank, available up to a formula-based maximum not to exceed
$150,000,000 (2007 - $100,000,000).  The facility bears interest, at
Dundee Realty’s option, at a rate per annum equal to either the bank’s prime
lending rate plus 0.625% or at the bank’s then prevailing bankers’ acceptance
rate plus 2.125%.  The facility expires on November 30, 2009 and is
secured by a general security agreement and a first charge against various
assets in western Canada.  At December 31, 2008, Dundee Realty had
drawn $121,146,000 against this facility, including $35,738,000 in the form of
letters of credit.





Interest
expense relating to this revolving term credit facility was $3,985,000 (2007 –
$3,694,000).





Other
Real Estate Debt


Real
estate debt is secured by charges on specific properties to which the debt
relates.  Mortgages, including land mortgages, are secured on specific
properties.  Housing advances are secured by charges on specific land
and housing and condominiums under development or land held for
development.  Term debt is secured by charges on specific capital
equipment.  At December 31, 2008, the weighted average interest rate
on fixed rate debt at Dundee Realty was 6.26% (2007 – 8.04%) and on variable
rate debt, including in respect of its demand revolving term credit facilities,
was 4.29% (2007 – 6.30%).  Fixed rate debt matures between 2009 and
2017. Variable rate debt, including demand revolving term credit facilities,
mature between 2009 and 2018.








14.
            PREFERENCE
      SHARES





Authorized


The
Company is authorized to issue an unlimited number of first preference shares,
issuable in series, an unlimited number of second preference shares, issuable in
series, and an unlimited number of third preference shares, issuable in
series.





First Preference Shares ─Each
series of first preference shares ranks on a parity with the first preference
shares of every other series and will be entitled to preference on the payment
of dividends and the distribution of assets in the





DUNDEE
CORPORATION
 31





event of
the liquidation, dissolution or winding-up of the Company over the Subordinate
Shares, Class B Shares, second preference shares and third preference
shares.





Second Preference Shares ─Each series of second preference shares ranks junior and subordinate to
the first preference shares, on a parity with second preference shares of every
other series and will be entitled to preference over the Subordinate Shares,
Class B Shares and third preference shares.  The Company currently has
no second preference shares outstanding.





Third Preference Shares ─Each
series of third preference shares ranks junior and subordinate to the first
preference shares and the second preference shares, on a parity with the third
preference shares of every other series and will be entitled to preference over
the Subordinate Shares and Class B Shares.  The Company currently has
no third preference shares outstanding.





Issued
and Outstanding Preference Shares, First Series, Series 1




Issued
      and Outstanding Preference Shares, First Series, Series 1Number
              
              
              Par
              
              
              Issue
              
              
              
              
              
              Net
      Bookof
      Shares
              
              
              Value
              
              
              Costs
              
              
              Premium
              
              
              ValueBalance
      as at December 31, 2006
              
              
              6,000,000
              
              
              $
              150,000
              
              
              $
              (4,504
              )
              
              $
              1,236
              
              
              $
              146,732Amortization
      during the year
              
              
              -
              
              
              
              -
              
              
              
              474
              
              
              
              (186
              )
              
              
              288Balance
      as at December 31, 2007
              
              
              6,000,000
              
              
              $
              150,000
              
              
              $
              (4,030
              )
              
              $
              1,050
              
              
              $
              147,020Amortization
      during the year
              
              
              -
              
              
              
              -
              
              
              
              474
              
              
              
              (123
              )
              
              
              351Balance
      as at December 31, 2008
              
              
              6,000,000
              
              
              $
              150,000
              
              
              $
              (3,556
              )
              
              $
              927
              
              
              $
              147,371





On June
28, 2006, the Company issued 6,000,000 5.00% cumulative redeemable first
preference shares, series 1 (“Series 1 Shares”) at a price of $25.00 per Series
1 Share.  The Series 1 Shares rank in priority to the Subordinate
Shares and the Class B Shares of the Company as to the payment of dividends and
the distribution of assets on dissolution, liquidation or winding-up of the
Company.  The Series 1 Shares entitle the holder to a fixed
preferential cumulative dividend at the rate of 5.00% per annum, payable
quarterly.  The Series 1 Shares are generally non-voting, except in
limited circumstances.





The
Series 1 Shares may be redeemed, at the option of the Company, at any time after
June 30, 2006 at a price per Series 1 Share which declines over time in
accordance with the terms of the Series 1 Shares from $27.25 per Series 1 Share
if such share is redeemed prior to June 30, 2007 to $25.00 per Series 1 Share if
such share is redeemed after June 30, 2015 (the “Redemption Price
Schedule”).





The
Company may elect to convert the Series 1 Shares to Subordinate Shares of the
Company (the “Conversion Option”) at any time after June 30, 2006, subject to
regulatory approval.  The Series 1 Shares will be converted on the
basis of one Series 1 Share for that number of Subordinate Shares that is equal
to the redemption price at the time of the conversion determined in accordance
with the Redemption Price Schedule divided by the current market price of the
Subordinate Shares, determined in accordance with a formula.  The
Company does not currently intend to convert the Series 1 Shares.





Any
redemption or conversion of the Series 1 Shares by the Company, prior to June
30, 2011 is limited to circumstances where the Series 1 Shares are entitled to
vote separately as a class or series by law.





The
Company may, at any time, purchase the Series 1 Shares for cancellation, which
purchase may occur in the open market, by private placement or
otherwise.





Series 1
Shares are retractable by the holder at any time after June 30, 2016 for cash of
$25.00 per Series 1 Share.





The
Company has determined that the redemption feature available to the Company
pursuant to the terms of the Series 1 Shares is an embedded derivative with a
fair value on the date of issue of $1,236,000.





DUNDEE
CORPORATION
 32





Series 1
Preference Shares, DundeeWealth


On March
13, 2007, and April 12, 2007, DundeeWealth issued 6,000,000 and 225,000 4.75%
cumulative redeemable first preference shares, series 1 (“DundeeWealth Series 1
Shares”), respectively, at a price of $25.00 per DundeeWealth Series 1
Share.  These shares entitle the holder to a fixed preferential
cumulative dividend at the rate of 4.75% per annum, payable
quarterly.  The DundeeWealth Series 1 Shares are generally non-voting,
except in limited circumstances.





These
shares may be redeemed at the option of DundeeWealth, at any time after March
13, 2007 at a price per share which declines over time in accordance with the
terms of the Series 1 Shares, from $27.25 per share if such share is redeemed
prior to March 13, 2008 to $25.00 per share if such share is redeemed after
March 13, 2016 (the “Redemption Price Schedule”).





On
redemption, DundeeWealth may convert the DundeeWealth Series 1 Shares to its
common shares subject to regulatory approval.  The DundeeWealth Series
1 Shares will be converted on the basis of one DundeeWealth Series 1 Share for
that number of common shares that is equal to the redemption price at the time
of the conversion determined in accordance with the Redemption Price Schedule
divided by the current market price of DundeeWealth’s common shares, determined
in accordance with a formula.  DundeeWealth does not intend to make
such an election if these shares are redeemed.





Any
redemption or conversion of the DundeeWealth Series 1 Shares prior to March 13,
2012 is limited to circumstances where such shares are entitled to vote
separately as a class or series by law.





DundeeWealth
may, at any time, purchase the DundeeWealth Series 1 Shares for cancellation,
which purchase may occur in the open market, by private placement or
otherwise.  DundeeWealth Series 1 Shares are retractable by the holder
at any time after March 13, 2017 for cash of $25.00 per share.





DundeeWealth
has determined that the redemption feature available to it pursuant to the terms
of the DundeeWealth Series 1 Shares is an embedded derivative with a fair value
on the date of issue of $1,805,000.





15.
            SHARE
      CAPITAL





Authorized


The
Company is authorized to issue an unlimited number of Subordinate Shares and an
unlimited number of Class B Shares.





Common
Shares


Holders
of Subordinate Shares and Class B Shares are entitled to one vote and 100 votes,
respectively, for each such share held.  The Subordinate Shares and
Class B Shares participate equally, share for share, as to
dividends.  The Class B Shares are convertible into Subordinate Shares
on a one-for-one basis at any time.  In the event of an offer to
purchase the Class B Shares by a third party, and in certain circumstances, each
Subordinate Share will be convertible, at the option of the holder, into one
Class B Share for purposes of accepting an offer.





Stock
Split


At the
annual meeting of shareholders of the Company held on June 20, 2007,
shareholders approved a three-for-one stock split of the Company’s Subordinate
Shares and Class B Shares.  As a result, each holder of Subordinate
Shares or Class B Shares of the Company on July 6, 2007 was issued two
additional shares of the same class for each Subordinate Share or Class B Share
held.  The stock split did not alter the rights of such holders or the
relative voting rights attached to each class of shares.








DUNDEE
CORPORATION
 33





Issued
and Outstanding




SUBORDINATE
      SHARES
              
              
              CLASS
      B SHARES
              
              
              TOTALNumber
              
              
              Amount
              
              
              Number
              
              
              Amount
              
              
              Number
              
              
              AmountOutstanding
      December 31, 2006
              
              
              72,182,235
              
              
              $
              281,679
              
              
              
              3,120,987
              
              
              $
              8,170
              
              
              
              75,303,222
              
              
              $
              289,849Issued
      (redeemed) during the yearDecember
      31, 2007Issuance
      of shares under theshare
      incentive plan
              
              
              3,680
              
              
              
              71
              
              
              
              -
              
              
              
              -
              
              
              
              3,680
              
              
              
              71Options
      exercised
              
              
              257,340
              
              
              
              2,618
              
              
              
              -
              
              
              
              -
              
              
              
              257,340
              
              
              
              2,618Conversion
      from Class B Sharesto
      Subordinate Shares
              
              
              585
              
              
              
              2
              
              
              
              (585
              )
              
              
              (2
              )
              
              
              -
              
              
              
              -Total
      Share CapitalOutstanding
      December 31, 2007
              
              
              72,443,840
              
              
              $
              284,370
              
              
              
              3,120,402
              
              
              $
              8,168
              
              
              
              75,564,242
              
              
              $
              292,538Issued
      (redeemed) during the yearDecember
      31, 2008Redeemed
      pursuant to issuer bid
              
              
              (1,598,911
              )
              
              
              (6,374
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,598,911
              )
              
              
              (6,374
              )Issuance
      of shares under theshare
      incentive plan
              
              
              19,245
              
              
              
              166
              
              
              
              -
              
              
              
              -
              
              
              
              19,245
              
              
              
              166Options
      exercised
              
              
              275,000
              
              
              
              2,068
              
              
              
              -
              
              
              
              -
              
              
              
              275,000
              
              
              
              2,068Conversion
      from Class B Sharesto
      Subordinate Shares
              
              
              614
              
              
              
              2
              
              
              
              (614
              )
              
              
              (2
              )
              
              
              -
              
              
              
              -Total
      Share CapitalOutstanding
      December 31, 2008
              
              
              71,139,788
              
              
              $
              280,232
              
              
              
              3,119,788
              
              
              $
              8,166
              
              
              
              74,259,576
              
              
              $
              288,398


Normal
Course Issuer Bid


On March
28, 2008, the Company obtained approval from the TSX to purchase its Subordinate
Shares in the market for cancellation pursuant to a renewed normal course issuer
bid.





During
2008, the Company purchased 1,598,911 Subordinate Shares, having an aggregate
stated capital value of $6,374,000 for cancellation pursuant to its normal
course issuer bid.  The Company paid $20,353,000 to retire these
shares.  The excess of the purchase price over the value of stated
capital, which totalled $13,979,000, has been recorded as a reduction of
retained earnings.





Share
Purchase Plan


As part
of its share incentive arrangements (note 19), the Company has established a
share purchase plan pursuant to which eligible participants may contribute up to
a specified maximum amount of their basic annual salary towards the purchase of
Subordinate Shares of the Company, either from treasury or in the open market,
at the discretion of the Company.  The Company may match up to the
full amount of each participant’s contribution to the share purchase plan, such
contribution to be used either to purchase Subordinate Shares in the open market
or to issue additional Subordinate Shares from treasury for the benefit of the
participant.





During
2008, the Company issued 19,245 (2007 – 3,680) Subordinate Shares from treasury
pursuant to the share purchase plans.  In addition, 8,708 (2007 –
3,616) Subordinate Shares were acquired in the market pursuant to these
arrangements.





Compensation
expense associated with the share purchase plans during 2008 was $121,000 (2007
– $71,000).





As at
December 31, 2008, 1,980,000 Subordinate Shares were approved for issuance
pursuant to the share purchase plan, of which 1,087,571 Subordinate Shares were
issued since the plan’s inception and 892,429 Subordinate Shares remain
available for issuance from treasury to eligible participants.





Share
Loans Receivable in DundeeWealth


DundeeWealth
established a share loan plan pursuant to which key employees were provided with
a loan from DundeeWealth to be applied by the key employees to purchase common
shares of the company.  The shares issued pursuant





DUNDEE
CORPORATION
 34





to these
arrangements are pledged as collateral against the loans. At December 31, 2008,
the aggregate loan amount was $29,813,726 (2007 - $36,578,879).





The share
loan plan features a one-time bonus equal to one third of the aggregate loan
amount, which is payable by DundeeWealth following a three year vesting period,
conditional on the retention of the key employee. During 2008, DundeeWealth
recognized compensation expense of $3,065,000 (2007 - $2,643,000) in respect of
these share loans.





The
remainder of the loan is interest free for the first five years and thereafter
is subject to interest at normal lending rates.  As the terms of the
loans receivable were not issued in accordance with prevailing arm’s length
market conditions and terms at the date of issue, DundeeWealth recorded these
loans in its equity.  Accordingly, in these consolidated financial
statements, the share loans receivable have been included as part of
non-controlling interest.





16.
            ACCUMULATED
      OTHER COMPREHENSIVE INCOME (LOSS)





Net
      unrealized gains (loss), net of taxesAvailable-
              
              
              Equity
              
              
              Foreign
              
              
              Non-for-Sale
              
              Accounted
              
              Currency
              
              
              controlling
              
              DiscontinuedSecurities
              
              Investees
              Translation
              
              
              Interest
              
              
              Operations
              
              
              TotalTransitional
      adjustment on adoption of accounting policy
              
              $
              22,809
              
              
              $
              8,365
              
              
              $
              388
              
              
              $
              (3,379
              )
              
              $
              280
              
              
              $
              28,463Transactions
      during the year ended December 31, 2007Other
      comprehensive loss
              
              
              (20,154
              )
              
              
              (10,234
              )
              
              
              (9,160
              )
              
              
              12,685
              
              
              
              (280
              )
              
              
              (27,143
              )Outstanding
      December 31, 2007
              
              
              2,655
              
              
              
              (1,869
              )
              
              
              (8,772
              )
              
              
              9,306
              
              
              
              -
              
              
              
              1,320Transactions
      during the year ended December 31, 2008Other
      comprehensive (loss) income
              
              
              (32,141
              )
              
              
              (1,174
              )
              
              
              12,720
              
              
              
              (3,908
              )
              
              
              -
              
              
              
              (24,503
              )Outstanding
      December 31, 2008
              
              $
              (29,486
              )
              
              $
              (3,043
              )
              
              $
              3,948
              
              
              $
              5,398
              
              
              $
              -
              
              
              $
              (23,183
              )
  17.
                INVESTMENT
      INCOME AND INCOME FROM EQUITY ACCOUNTED
  INVESTEES
 
 Investment
Income
 For
      the year ended December 31,
              
              2008
              
              
              
              2007Interest,
      dividends and cash distributions
              $
              22,614
              
              $
              
              19,909Realized
      investment (losses) gains
              
              (1,415
              )
              
              
              10,855Other
      gains
              
              50
              
              
              
              22,079$
              21,249
              
              $
              
              52,843Share
      of Earnings From Equity Accounted InvesteesFor
      the year ended December 31,
              
              2008
              
              
              
              2007Share
      of (losses) earnings
              $
              (37,236
              )
              $
              
              14,962Gains
      from dilutions of interest
              
              1,546
              
              
              
              14,970(35,690
              )
              
              
              29,932Fair
      value adjustment
              
              (114,194
              )
              
              
              -Share
      of earnings of discontinued operations ofDundee
      REIT, net of tax
              
              -
              
              
              
              95,909$
              (149,884
              )
              $
              
              125,841







DUNDEE
CORPORATION
 35





Share of
earnings of discontinued operations of Dundee REIT represents the Company’s
share of earnings relating to the disposition of certain properties by Dundee
REIT pursuant to a transaction between Dundee REIT and GE completed in August
2007 (note 3).





18.
            SELLING,
      GENERAL AND ADMINISTRATIVE





In fiscal
2008, DundeeWealth continued its strategic initiative designed towards becoming
a more integrated wealth management company. It focused on balancing growth in
key areas with reductions in others. DundeeWealth exited some businesses and
outsourced other services.  It also consolidated central functions in
an effort to reduce the cost of operations by eliminating duplication and more
closely defining business roles.  Measures were therefore implemented
to reduce headcount and improve DundeeWealth’s processes and business
alignment.  DundeeWealth recorded severance costs of $23,598,000 in
fiscal 2008 (2007 – $8,896,000) related to this initiative.





19.
            STOCK
      BASED COMPENSATION





Share
Incentive Plans


During
2008, the Company, before considering stock based compensation of subsidiaries
described below, recognized stock based compensation expense of $1,647,000
(2007- $1,604,000) related to share based compensation
arrangements.





2008
              
              
              2007Share
      option plan
              
              $
              854
              
              
              $
              851Deferred
      share unit plan
              
              
              793
              
              
              
              753$
              1,647
              
              
              $
              1,604


Share
Option Plan


Under the
terms of the Company’s share option plan, the Company may issue options to
eligible participants to purchase Subordinate Shares from
treasury.  The exercise price per option may not be less than the
closing price of the Subordinate Shares as quoted on the TSX or such other stock
exchange, as applicable, on the last trading day immediately preceding the day
the options are granted.  Options granted prior to January 1, 2004
become exercisable as to 33 1/3% of the Subordinate Shares on the first three
anniversary dates following the date of grant and will expire 10 years
thereafter.  Options granted after December 31, 2003 become
exercisable as to 20% of the Subordinate Shares on the first five anniversary
dates following the date of grant and will expire five and a half years
thereafter.





The total
number of share options cannot exceed 12,000,000.  Options to purchase
3,559,644 Subordinate Shares of the Company were outstanding as at December 31,
2008 and 3,937,941 Subordinate Shares remain available for grant under the share
option plan.




Stock
options granted after December 31, 2002 are accounted for using the fair value
method.  No options were granted in 2008 and 2007.  During
2008, the Company recognized stock based compensation of $854,000 (2007 –
$851,000) in respect of this plan.







DUNDEE
CORPORATION
 36







A summary
of the status of the Company’s share option plan as at December 31, 2008 and
2007, and the changes during the years then ended, is as follows:




2008
              
              
              
              
              
              2007Weighted
              
              
              
              
              
              WeightedNumber
      of
              
              
              Average
              
              
              Number
      of
              
              
              AverageOptions
              
              
              Exercise
      Price
              
              
              Options
              
              
              Exercise
      PriceOutstanding,
      beginning of year
              
              
              3,864,644
              
              
              $
              6.67
              
              
              
              4,183,644
              
              
              $
              6.84Exercised
              
              
              (275,000
              )
              
              $
              7.39
              
              
              
              (319,000
              )
              
              $
              8.90Cancelled
              
              
              (30,000
              )
              
              $
              4.95
              
              
              
              -
              
              
              $
              -Outstanding,
      end of year
              
              
              3,559,644
              
              
              $
              6.63
              
              
              
              3,864,644
              
              
              $
              6.67Exercisable,
      end of year
              
              
              3,268,644
              
              
              $
              6.41
              
              
              
              3,282,645
              
              
              $
              6.23
  WeightedAverageWeighted
              
              
              RemainingOptions
              
              
              Average
              
              
              Contractual
              
              
              OptionsExercise
      Price Range
              
              Outstanding
              
              
              Exercise
      Price
              
              
              Life
      (Years)
              
              
              Exercisable$
      4.38
      to $4.83
              
              
              1,060,032
              
              
              $
              4.78
              
              
              
              0.51
              
              
              
              1,060,032$
      4.90
      to $5.42
              
              
              1,044,612
              
              
              $
              4.98
              
              
              
              1.56
              
              
              
              1,044,612At
      $ 9.17
              
              
              1,455,000
              
              
              $
              9.17
              
              
              
              0.76
              
              
              
              1,164,000




Share
Bonus Plan


The
Company’s share bonus plan permits Subordinate Shares of the Company to be
issued from treasury or purchased in the market as a discretionary bonus to
eligible participants from time to time on terms established in the Company’s
share incentive plan.  There were no shares issued under the share
bonus plan arrangement during 2008 or 2007.





As at
December 31, 2008, 1,500,000 Subordinate Shares were approved for issuance
pursuant to the share bonus plan of which 216,000 Subordinate Shares were issued
since the plan’s inception and 1,284,000 Subordinate Shares remain available for
issuance from treasury.





Deferred
Share Unit Plan


The
Company has established a deferred share unit plan (“DSUP”) for eligible
participants.  The Compensation Committee of the Board of Directors
administers the DSUP and discretionary awards will be based on certain criteria,
including services performed or to be performed.  Deferred share units
are redeemable when a participant is no longer a director, officer or employee
of the Company or any of its subsidiaries by a lump sum payment, based on the
value of the deferred share units at that time.





During
2008, the Company issued 348,329 (2007 – 41,779) deferred share units to certain
executives and directors of the Company, including 242,920 (2007 – 15,480)
deferred share units to settle compensation arrangements relating to prior
years. Each unit entitles the holder to a Subordinate Share on retirement.
During 2008, the Company recognized compensation expense of $793,000 (2007 –
$753,000) in respect of the DSUP.





The total
number of deferred share units cannot exceed 1,500,000.  Deferred
share units to purchase 715,959 Subordinate Shares of the Company were
outstanding as at December 31, 2008 and 772,662 Subordinate Shares remain
available for grant under the DSUP.








DUNDEE
CORPORATION
 37





Share
Incentive Plans and Other Stock Based Plans of DundeeWealth


DundeeWealth
has established share incentive plans for its employees, financial advisors,
officers and directors and those of its subsidiaries.  These share
incentive plans consist of a share purchase plan, a share bonus plan, a deferred
share plan and a share option plan.  DundeeWealth has also established
a deferred share unit plan.  During 2008, DundeeWealth recognized
stock based compensation expense of $21,323,000 (2007 - $18,035,000) in respect
of these share incentive arrangements.  As at December 31, 2008,
DundeeWealth had granted 6,984,960 (2007 – 8,040,089) options at a weighted
average exercise price of $9.06 (2007 - $9.15) of which 5,811,636 (2007 –
5,532,187) were exercisable at December 31, 2008.  At December 31,
2008, DundeeWealth had granted awards for the future issuance of 2,615,821
common shares of DundeeWealth, which issuance is conditional on meeting certain
criteria, and it had granted an aggregate of 891,318 deferred share
units.





Stock
Option Plan of Eurogas


Eurogas
has established a stock option plan for its directors, officers and
employees.  As at December 31, 2008, Eurogas had granted 5,205,000
(2007 – 6,005,000) options at a weighted average exercise price of $1.21 (2007 –
$1.27) of which 4,214,997 (2007 – 3,321,667) stock options were exercisable at
December 31, 2008.  Eurogas also has a deferred share unit plan of
which 315,000 (2007 – 175,000) awards have been issued.





During
2008, compensation expense of $767,000 (2007 – $1,261,000) was recognized in
respect of Eurogas’ stock option arrangements and deferred share unit
arrangements. In addition, Eurogas capitalized compensation costs of $78,000
(2007 - $789,000) to its oil and gas properties.





Stock
Based Compensation of Dundee Realty


The
non-controlling shareholder of Dundee Realty was granted an option through the
issuance of a class of Dundee Realty shares that will enable the non-controlling
shareholder to acquire additional shares of Dundee Realty over a six-year period
at a cost of approximately $10,700,000.  If exercised, the option will
increase the non-controlling shareholder’s interest to 30%.  The
option purchase will vest in equal annual installments over the six-year period
commencing in 2006 and is subject to the non-controlling shareholder remaining
an employee of Dundee Realty.





Since
2006, the non-controlling shareholder has paid $3,566,000 towards the exercise
of these options, increasing the non-controlling shareholder’s interest to 25%
at December 31, 2008, including $1,783,000 exercised during
2008.  Dundee Realty recognized stock based compensation expense of
$198,000 (2007 - $409,000) in respect of these option arrangements.





20.
            INCOME
      TAXES





The
Company's income tax (recovery) provision from continuing operations differs
from the amount that would be computed by applying the combined Canadian federal
and provincial statutory income tax rate as a result of the
following:




2008
              
              
              2007Anticipated
      income tax (recovery) provision based on a combined Canadian federal and
      provincialstatutory
      income tax rate of 34% (2007 - 35%)
              
              $
              (118,823
              )
              
              $
              150,625Non
      deductible expenses
              
              
              31,404
              
              
              
              16,829Non
      taxable revenue
              
              
              (931
              )
              
              
              (10,310
              )Non
      taxable dilution gains
              
              
              (995
              )
              
              
              (49,337
              )Change
      in valuation allowance
              
              
              (6,512
              )
              
              
              (1,789
              )Remeasurement
      of future income taxes
              
              
              21,679
              
              
              
              (8,057
              )Net
      income tax benefits not previously recognized
              
              
              (4,240
              )
              
              
              (964
              )Other
              
              
              29
              
              
              
              (5,527
              )Income
      tax (recovery) provision
              
              $
              (78,389
              )
              
              $
              91,470








DUNDEE
CORPORATION
 38





Significant
components of the Company's future income tax assets and liabilities as at
December 31, 2008 and 2007 are as follows:




2008
              
              
              2007Future
      income tax assetsTax
      loss carry forwards
              
              $
              184,838
              
              
              $
              86,247Capital
      assets
              
              
              16,346
              
              
              
              14,575Non
      deductible reserves
              
              
              6,370
              
              
              
              6,926Accrued
      liabilities
              
              
              10,838
              
              
              
              9,410Other
      comprehensive income
              
              
              5,618
              
              
              
              297Other
              
              
              5,525
              
              
              
              6,191229,535
              
              
              
              123,646Valuation
      allowance
              
              
              (17,131
              )
              
              
              (23,551
              )Total
      future income tax assets
              
              
              212,404
              
              
              
              100,095Future
      income tax liabilitiesDeferred
      sales commissions
              
              
              73,770
              
              
              
              67,181Management
      contracts
              
              
              101,885
              
              
              
              79,237Investment
      portfolio, including equity accounted investments
              
              
              5,068
              
              
              
              35,420Real
      estate assets
              
              
              12,769
              
              
              
              5,759Funds
      under administration
              
              
              3,857
              
              
              
              5,802Oil
      and gas properties
              
              
              -
              
              
              
              2,454Other
              
              
              18,079
              
              
              
              39,104Total
      future income tax liabilities
              
              
              215,428
              
              
              
              234,957Net
      future income tax liabilities
              
              $
              3,024
              
              
              $
              134,862





The
future income tax assets arise from available income tax loss carry forwards
from current and prior years and future income tax deductions.  A
valuation allowance is recorded in respect of the total future income tax asset
when management believes it is more likely than not that some or all of the
future tax assets will not be realized.  After consideration of
estimated future taxable income, expected reversal of future tax liabilities,
the nature of the future tax assets and potential tax planning strategies, the
Company has determined that a valuation allowance of $17,131,000 (2007 -
$23,551,000) is required in respect of its future income tax assets as at
December 31, 2008.





DundeeWealth
realized a capital loss on the sale of Dundee Bank of Canada in the third
quarter of 2007.  While the tax benefit of $14.5 million in respect of
this loss was not recognized in the consolidated financial statements or the
table above, the loss can be carried forward indefinitely to offset future
capital gains.





As at
December 31, 2008, the Company and its subsidiaries had operating loss carry
forwards of $683,500,000 (2007 - $291,214,000).  A summary of the
operating loss carry forwards by year of expiry is as follows:




Year
      of Expiry:2009
              
              $
              15,8762010
              
              
              10,3232011
              
              
              5,0342012
              
              
              -2013
              
              
              1,773Thereafter
              
              
              650,494$
              683,500





DUNDEE
CORPORATION
 39








21.
            NET
      (LOSS) EARNINGS PER SHARE




(in
      thousands of Canadian dollars, except weighted average number of shares
      outstanding and per share amounts)For
      the year ended December 31,
              
              2008
              
              
              2007Net
      (loss) earnings available to Subordinate and Class B
      ShareholdersClass
      B ShareholdersContinuing operations
              
              $
              (196,261
              )
              
              $
              277,639Discontinued
      operations
              
              $
              69
              
              
              $
              16,094Weighted
      average number of shares outstanding
              
              
              74,805,009
              
              
              
              75,412,363Basic
      (loss) earnings per shareContinuing
      operations
              
              $
              (2.62
              )
              
              $
              3.68Discontinued
      operations
              
              $
              -
              
              
              $
              0.22Basic
      (loss) earnings per share
              
              $
              (2.62
              )
              
              $
              3.90Effect
      of dilutive securities to available net (loss) earningsContinuing
      operations
              
              $
              -
              
              
              $
              (3,841
              )Discontinued
      operations
              
              $
              -
              
              
              $
              7,219Effect
      of dilutive securities to weighted averagenumber
      of shares outstanding
              
              
              -
              
              
              
              3,106,945Diluted
      (loss) earnings per shareContinuing
      operations
              
              $
              (2.62
              )
              
              $
              3.49Discontinued
      operations
              
              $
              -
              
              
              $
              0.29Diluted
      (loss) earnings per share
              
              $
              (2.62
              )
              
              $
              3.78





22.
            FINANCIAL
      INSTRUMENTS





Fair
Value of Available-for-Sale Financial Assets


AFS
securities are generally carried at fair values with unrealized gains and losses
being included in AOCI.  Where available, fair value is determined
using quoted market prices from active markets.  Fair value for CLOs
and other structured products, for which market quotations are not readily
available, is provided by the third party underwriter of the financial
instrument in the form of an indicative bid value or, where available, the most
recent trading price of such individual security.  The third party
underwriter uses a valuation model that incorporates prevailing primary and
secondary market conditions and deal specific parameters.  This
valuation model is based, in part, on assumptions that may not be supported by
observable market prices or rates.  Indicative bid values provided are
independently assessed by qualified professionals to ensure that they are
reasonable.





DundeeWealth’s
approach to estimating fair value of non-bank sponsored third party ABCP for
financial reporting purposes consists of a review of the asset classes, a review
of the information concerning the particular conduits that it owns and a review
of a series of proxies and other industry information.  Fair value of
the underlying assets is affected by a wide variety of factors including, but
not limited to, changes in corporate credit spreads, changes in credit
correlation, current and expected default and delinquency experience for assets
underlying the affected ABCP, the weighted average life of the assets, the
vintage of asset origination and the global pricing of structured finance
assets.  Some observable market indices used in this approach include:
tracking the changes in spreads for the investment grade North American Credit
Index and its European counterpart, obtaining pricing of CDOs for asset-backed
securities and market prices for reference portfolios of various asset classes
such as commercial mortgages, lines of credit, equipment leases, auto leases and
trade receivables.  However, this valuation technique also requires
making various assumptions that may not be supported by observable market prices
or rates.  The valuation approach is performed by asset class,
breaking down the assets into leveraged and unleveraged categories.





DUNDEE
CORPORATION
 40








Fair
Value of Financial Instruments


With the
exception of the Company’s preference shares, Series 1 and preference shares
issued by DundeeWealth, all of the Company’s financial instruments are recorded
on the consolidated balance sheet at carrying values that are representative of,
or approximate, fair value.  At December 31, 2008, the preference
shares, Series 1 issued by DundeeWealth had a carrying value of $152,978,000
(2007 – $152,655,000) and a fair value based on market prices at that date of
$84,038,000 (2007 – $143,175,000).  At December 31, 2008, the
Company’s preference shares, Series 1 had a carrying value of $147,371,000 (2007
– $147,020,000) and a fair value based on market prices at that date of
$75,000,000 (2007 – $120,960,000).





Risk
Management


Detailed
qualitative disclosures on financial instruments are included in the “Managing
Risk” section of the Company’s Management’s Discussion and Analysis for the year
ended December 31, 2008.





Market
Risk


Market
risk is the risk that the fair value of a financial instrument will fluctuate
because of changes in market prices.  For purposes of this disclosure,
the Company segregates market risk into three categories: fair value risk,
interest rate risk and currency risk.





Fair
Value Risk


Fair
value risk is the potential for loss from an adverse movement, excluding
movements relating to changes in interest rates and foreign exchange currency
rates, because of changes in market prices.  Fair value changes may be
experienced in a single financial instrument, or in a series of financial
instruments in a particular industry sector, or in financial instruments
globally as a result of adverse changes in capital markets.  The
Company incurs fair value risk directly through its trading positions and
portfolio of AFS securities, and indirectly through movements in AUM and Assets
under Administration (“AUA”).  The Company’s fair value risk exposure
and related risk management controls and procedures are discussed in the
“Creating, Attracting and Retaining AUM and AUA” section and the “Market Risk in
Trading and Investments” section of the Company’s Management’s Discussion and
Analysis as at and for the year ended December 31, 2008.





The
following table illustrates the Company’s financial instruments that are
recorded on the consolidated balance sheet at fair value and are exposed to fair
value risk.  The table demonstrates the sensitivity of the Company’s
earnings before taxes and OCI before taxes, net of associated expenses, for the
year ended December 31, 2008 to reasonably possible changes in fair value of
those instruments.  Amounts illustrated are before providing for
allocation of earnings or OCI to non-controlling interests.








DUNDEE
CORPORATION
 41





Earnings
before taxes and other comprehensive income before taxes, net of associated
expenses, for the year ended December 31, 2008


Effect
      of 3%Effect
      of 3%
              
              absoluteabsolute
              
              change
      inchange
      in
              
              fair
      value onfair
      value on
              
              otherCarrying
              
              earnings
              
              comprehensivevalue
              
              before
      taxes
              
              income
      (i)Trading
      securities owned, net of trading securities sold short
              
              $
              117,931
              
              
              $
              3,275
              
              
              $
              n/aAvailable-for-sale
      securities (ii):Asset-backed
      commercial paper (iii)
              
              
              169,478
              
              
              
              5,084
              
              
              
              n/aCollateralized
      loan obligations (iii)
              
              
              16,645
              
              
              
              499
              
              
              
              n/aMutual
      fund investments managed by a subsidiary
              
              
              68,194
              
              
              
              n/a
              
              
              
              2,046Other
      portfolio investments
              
              
              40,413
              
              
              
              n/a
              
              
              
              1,212




(i)
            Before
      taxes


(ii)
            Other-than-temporary
      impairments in the fair value of AFS securities are recorded in net
      earnings


(iii)
            During
      fiscal 2008, the decline in fair values related to ABCP and CLOs was
      considered an other-than-temporary impairment and, therefore, changes in
      fair values are charged to net
earnings.





See
“Market Risks in Assets under Management and Assets under Administration”
section which follows for a discussion of the Company’s exposure to fair value
fluctuations in AUM and AUA.





The
Company also incurs fair value risk in its Exchangeable Debentures (note
13).  The carrying value of the Exchangeable Debentures is adjusted in
the consolidated financial statements to reflect the market value of the
underlying Dundee REIT units, provided that such adjustment does not result in a
carrying value that is below the principal value of the Exchangeable Debentures
outstanding.  Any change in the carrying value of the Exchangeable
Debentures resulting from such adjustment is recorded in net
earnings.  At December 31, 2008, the Exchangeable Debentures were
carried at their principal value.





Interest
Rate Risk


Interest
rate risk relates to the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates.  The Company incurs interest rate risk through some of its
portfolio of investments in trading and AFS securities, including investments in
ABCP and CLOs.  The risks associated with the Company’s investments in
ABCP and CLOs, including the actual and potential effect on earnings before
taxes and OCI before taxes for the year ended December 31, 2008, are discussed
below under the “Specific Risks Associated with Operating Segments – Wealth
Management” section.  The Company does not measure the effects of
interest rate risk on its portfolio in isolation.





The
Company also incurs interest rate risk through its variable rate corporate debt
and client account margin loans and credit balances and, to a lesser extent,
cash and cash equivalents and amounts related to securities borrowing
activities.  This exposure arises principally on changes in Canadian
dollar, U.S. dollar and Euro based interest rates.  The Company’s
exposure to interest rate risk related to its investments in CLOs is discussed
under the “Specific Risks Associated with Operating Segments – Wealth
Management” section.  In general, for every 50 basis point change in
market interest rates, earnings before taxes and non-controlling interest
related to variable rate corporate debt, excluding real estate debt, for the
year ended December 31, 2008 would change by approximately
$713,000.  In general, for every 50 basis point change in market
interest rates, earnings before taxes related to client account margin loans and
credit balances for the year ended December 31, 2008 would change by
approximately $121,000.  The Company’s exposure to its variable rate
real estate debt is discussed under the “Specific Risks Associated with
Operating Segments – Real Estate” section.





DUNDEE
CORPORATION
 42





Currency
Risk


Currency
risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange
rates.  The Company incurs currency risk primarily on its U.S. dollar
and Euro denominated CLOs and DundeeWealth’s $500,000,000 revolving term credit
facility to the extent that it is drawn in U.S. dollars and
Euros.  The Company’s exposure to currency risk related to its
investments in CLOs is discussed under the “Specific Risks Associated with
Operating Segments – Wealth Management” section.  DundeeWealth’s
exposure to currency risk related to its foreign-currency-denominated debt is
illustrated in the following table, which demonstrates the sensitivity of
earnings before taxes and non-controlling interest to a reasonably possible
change in U.S. dollar and Euro exchange rates, with all other variables held
constant.  The effect on earnings before taxes reflects (i) the
revaluation of the debt at December 31, 2008 using a revised spot rate and (ii)
the effect of a revised average quarterly exchange rate used to translate the
related interest expense for the year ended December 31, 2008.





Earnings
before taxes for the year ended December 31, 2008




Earnings
      before taxes for the year ended December 31, 2008Effect
      on earningsbefore
      taxes assuming an absolute3%
      change in exchange ratesU.S.
      dollars
              
              $
              1,582Euros
              
              $
              1,206





DundeeWealth’s
brokerage subsidiary enters into forward foreign exchange contracts to manage
currency risk on pending securities settlements in currencies other than the
Canadian dollar.  At December 31, 2008, the notional value of
outstanding forward foreign exchange contracts was
$105,740,000.  DundeeWealth does not apply the principles of hedge
accounting to these contracts and therefore, changes in the fair value of these
derivatives, which are caused by fluctuations in foreign exchange rates, are
recorded in earnings during the period in which they occur.  Given the
short-term nature of these derivatives, any changes in fair value stemming from
reasonably possible changes in foreign exchange rates would have a nominal
effect on earnings before taxes for the year ended December 31,
2008.





Market
Risk in Assets under Management and Assets under Administration


DundeeWealth’s
exposure and related risk management controls and procedures are discussed in
the “Market Influences” and “Creating, Attracting and Retaining AUM and AUA”
sections of the Company’s Management’s Discussion and Analysis for the year
ended December 31, 2008.





AUM are
exposed to various forms of market risk, including, but not limited to, fair
value risk, interest rate risk and currency risk.  These risks
transfer to DundeeWealth through the generation of management fee revenues, net
of associated trailer service fees, which are calculated as a percentage of the
net asset value of the respective mutual fund or other discretionary portfolio
being managed.  Management fee revenue also includes performance fees
that DundeeWealth earns when the market appreciation of certain AUM exceeds
established benchmarks.  DundeeWealth does not quantify its exposure
to these risks in isolation; however, in general, for every 3% change in the net
asset value of AUM, earnings before taxes and non-controlling interest defined
as revenues less trailer service fees, for the year ended December 31, 2008
would change by approximately $9,588,000, before accounting for any changes in
performance fees that may be generated by such a change in fair
value.








DUNDEE
CORPORATION
 43





The
following table, which includes a breakdown of the December 31, 2008 AUM by
asset type and base currency, provides additional insight regarding
DundeeWealth’s exposure to various forms of market risk.




AUM
      by Asset Type
              
              
              
              
              AUM
      by Base CurrencyEquity
              
              
              $
              17,825,000
              
              Canadian
      dollars
              
              
              $
              19,022,000Fixed
      income
              
              
              
              7,601,000
              
              U.S.
      dollars
              
              
              
              4,817,000Other
              
              
              
              1,587,000Total
              
              
              $
              25,426,000
              
              Total
              
              
              $
              25,426,000





DundeeWealth
also incurs market risk through its exposure to fluctuations in
AUA.  Adverse global market conditions may impact the Company’s AUA
and net earnings through a reduction in client trading and underwriting
activity.  While the Company does not quantify its exposure to these
risks in isolation, it does monitor the portion of its AUA of $19,120,000,000
which is subject to trailer fees and therefore directly impacts trailer fee
revenue.  In general, for every 3% change in the net asset value of
AUA invested in mutual funds, earnings before taxes and non-controlling
interest, net of associated expenses, for the year ended December 31, 2008 would
change by approximately $841,000.





Credit
Risk


Credit
risk is the risk that one party to a financial instrument will cause a financial
loss for the other party by failing to discharge an
obligation.  Credit risk arises from cash and cash equivalents held
with banks and financial institutions, accounts receivable, client accounts
receivable and derivative financial instruments (foreign exchange forward
contracts).  The maximum exposure to credit risk is equal to the
carrying value of these financial instruments.





A
substantial portion of the Company’s accounts receivable relates to management
fees receivable from the funds managed by DundeeWealth.  There are no
significant concentrations of credit risk within the Company.





One of
the primary sources of credit risk to DundeeWealth arises when it extends credit
to clients to purchase securities by way of margin lending.  Margin
loans are due on demand and are collateralized by the financial instruments in
the client’s account.  DundeeWealth faces a risk of financial loss in
the event a client fails to meet a margin call if market prices for securities
held as collateral decline and if DundeeWealth is unable to recover sufficient
value from the collateral held.  Amounts loaned to any client are
limited by DundeeWealth’s credit limits, which are generally more restrictive
than those required by applicable regulatory policies.  To minimize
the financial risks associated with client margin activities, DundeeWealth
applies certain credit standards, conducts ongoing financial reviews with
respect to clients and monitors credit exposure to individual counterparties on
an ongoing basis.





DundeeWealth
manages its credit risk in certain types of trading activities through the
establishment of aggregate limits by individual counterparty, reviewing security
and loan concentrations and marking to market collateral provided on certain
transactions.  For the year ended December 31, 2008 and historically,
DundeeWealth has not incurred any material loss arising from a counterparty
default.





Additionally,
the real estate segment manages its exposure to credit risk by attracting
tenants and land buyers of sound financial standing, diversifying its mix of
tenants and ensuring adequate security has been provided in support of
loans.





Liquidity
Risk


Liquidity
risk is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.  The Company
manages its liquidity risk through the management of its capital structure and
financial leverage as discussed further in the “Liquidity and Capital Resources”
section of the Company’s Management’s Discussion and Analysis for the year ended
December 31, 2008.




DUNDEE
CORPORATION
 44





The
following table summarizes the maturity profile of the Company’s financial
liabilities as at December 31, 2008.




Carrying
      Amount
              
              Contractual
      Term to MaturityBank
      indebtedness (note 11)
              
              $
              -
              
              No
      fixed term to maturityAccounts
      payable and accrued liabilities
              
              
              291,029
              
              Typically
      due within 20 to 90 daysClient
      deposits and related liabilities (note 12)
              
              
              408,647
              
              Due
      on demandCorporate
      debt (i) (note 13)
              
              
              529,507
              
              Subject
      to term facilitiesSeries
      1 preference shares, DundeeWealth (note 14)
              
              
              152,978
              
              Retractable
      by the holder after March 13, 2017Preference
      shares (note 14)
              
              
              147,371
              
              Retractable
      by the holder after June 30, 2016Total
              
              $
              1,529,532




(i)      Contractual
term to maturity related to the real estate debt is disclosed below under the
“Specific Risks Associated with Operating Segments – RealEstate”
section.





Specific
Risks Associated with Operating Segments





Wealth
Management





Asset-Backed Commercial
Paper


At
December 31, 2008, DundeeWealth held ABCP with a par value at maturity of
$379,425,000.  In mid-August 2007, certain ABCP trusts failed to
rollover their matured paper in the usual course of business, resulting in
significant liquidity issues.  Affected ABCP has not traded in active
markets since mid-August 2007 and there are no market quotations available for
these securities as at December 31, 2008.





On March
17, 2008, a court order was obtained through which a restructuring of affected
ABCP was expected to occur under the protection of the Companies’ Creditors
Arrangement Act.  On December 11, 2008, the committee created to
propose a restructuring solution to the liquidity problem facing ABCP, announced
that an agreement in principle had been reached amongst various key participants
in the proposed restructuring plan. As part of the final agreement, the
governments of Canada and Quebec, with participation from Ontario and Alberta,
together with certain other participants in the restructuring provided
additional margin facilities, as further described below.  In
addition, the restructuring included a time-dependent moratorium on collateral
calls to July 16, 2010 and included amendments to spread-loss trigger
tables.  The Superior Court of Ontario granted the Plan Implementation
Order on January 12, 2009 and the arrangement was certified by the Court on
January 21, 2009.





The
restructuring plan, as implemented on January 21, 2009, exchanged the affected
ABCP for longer-term, floating rate notes (“FRNs”) designed to match the
maturities of the underlying assets.





The
restructuring pooled certain assets of all the affected ABCP conduits, and
subsequently allocated them on a pro-rata basis to two newly created Master
Asset Vehicles referred to as MAV 1 and MAV 2.  Certain larger
investors participated in MAV 1 which required self-funding against possible
margin calls by participants in a margin funding facility.





DundeeWealth
is an investor in MAV 2, in which a third-party funding facility was established
and generally funded by a group of third-party lenders.  MAV 2 issued
Class A-1, Class A-2, Class B and Class C notes to ABCP
noteholders.  Each class of notes that DundeeWealth received was
supported by a portfolio of unleveraged and leveraged corporate CDOs,
traditional securitized assets and certain hybrid assets.





Trusts
with ABCP supported solely by traditional securitized assets were placed in a
separate Master Asset Vehicle referred to as MAV 3 and noteholders received FRNs
with maturities based upon the maturities of the underlying
assets.  The FRNs are to amortize and be repaid as assets mature or
are sold.  DundeeWealth is also a participant in MAV 3.





DUNDEE
CORPORATION
 45





Assets in
each Master Asset Vehicle, for which the credit quality is uncertain, are
designated as ineligible assets and are supported by notes designated as IA
Tracking Notes which bear interest at the net rate of return generated by the
corresponding designated tracking asset.





DundeeWealth
received its replacement notes immediately following approval of the
restructuring.  The allocation of the notes in MAV 2 and MAV 3
received by DundeeWealth were consistent with its
expectations.  Approximately 71% of DundeeWealth’s original investment
in ABCP was replaced with senior Class A-1 and Class A-2 long term FRNs issued
in MAV 2.  These notes have been assigned a rating of “A” by
DBRS.  The notes have a legal maturity date that extends into 2056,
although expectation is that these notes will be repaid earlier than their legal
maturity.  DundeeWealth has also received subordinated Class B and
Class C long-term FRNs of MAV 2 representing approximately 8% of its original
ABCP investment.  Assets in MAV 2 which have uncertain credit quality
were restructured on a transaction-by-transaction basis and DundeeWealth has
received long-term FRNs as a result.  Additionally, the traditional
securitized assets in MAV 3 were also restructured on an individual
transaction-by-transaction basis and DundeeWealth has also received long-term
FRNs for these assets. The individual notes issued from MAV 2 and MAV 3 received
by DundeeWealth represent approximately 19% of its original
investment.  DundeeWealth has no recourse to recover the remaining 2%
of its ABCP portfolio.





Prior to
the restructuring, and at December 31, 2008, the ABCP investments held by
DundeeWealth were considered AFS financial instruments for accounting purposes
and were reported at their fair value.  Fair value, among other
things, is a function of the market’s perception of the risks associated with
the asset.  Given that, as at December 31, 2008, these assets were not
distributing interest and the new restructured securities were not yet issued,
the valuation approach applied by DundeeWealth used publicly available
information, either from DBRS or from the information statement outlining the
restructuring plan, to determine the type and characteristics of assets in each
of the affected trusts.  This information was assessed on a
transaction-by-transaction basis for each trust in which DundeeWealth owns
affected ABCP.  Using a valuation technique, DundeeWealth assigned
values to each asset type in each affected trust in which DundeeWealth holds
ABCP.  An overall dollar weighted average valuation across all
affected trusts was then calculated.





DundeeWealth’s
determination of fair value of traditional assets continues to be based
primarily on discussions with third party dealers or, where available, the most
recent trading prices of similar securities.  As proxy for the fair
value of hybrid securitized assets, DundeeWealth considered credit indices on
structured finance products including the ABX, TABX and CMBX
indices.





Fair
value of leveraged and unleveraged corporate CDOs held within the ABCP
investments is determined using a pricing model which requires inputs of initial
and current credit spreads, a risky annuity and a leverage
factor.  Generally and with all other factors remaining constant
including the vintage of assets, the fair value of ABCP is expected to decline
in periods of increasing credit spreads.





Based on
its analysis, DundeeWealth determined that it is necessary to recognize a fair
value adjustment in its ABCP investments as at December 31, 2008 of
$113,827,000, of which $75,885,000 and $37,942,000 were recorded in the first
and third quarters of 2008, respectively.  In the prior year,
DundeeWealth had provided $94,856,000 against the carrying value of its
investment in ABCP, including $57,600,000 that was included in discontinued
operations relating to Dundee Bank (note 3).  This equates, in total,
to approximately 55% of the par value of ABCP held.  As the ABCP
conduits failed to meet their scheduled maturities and interest payments to
noteholders during the standstill period, DundeeWealth determined that the fair
value adjustments reflected an other-than-temporary impairment of ABCP
investments and therefore recognized the adjustments in net
earnings.








DUNDEE
CORPORATION
 46





While
DundeeWealth’s valuation technique, as outlined above, has taken into account
recent market volatility and the implementation of the restructuring plan, there
is no assurance that the pricing of these assets will not increase or decline in
future periods or that following the restructuring, the restructured notes will
trade at a market value which is the same as their fair
value.  Furthermore, there is no assurance that DundeeWealth’s
investment will trade at a value equivalent to their fair value.  As a
result of these uncertainties, and the fact that DundeeWealth’s valuation
methodology was based on incomplete information, these estimates may change
materially in subsequent reporting periods.





Subsequent
to December 31, 2008 and as part of the implementation of the reorganization
plan, DundeeWealth received interest of $12,263,000 in respect of its portfolio
of ABCP.





Collateralized Loan
Obligations


At
December 31, 2008, DundeeWealth held 27 positions in CLOs, including U.S. dollar
denominated CLOs with a par value of US$88,550,000 and Euro denominated CLOs
with a par value of €15,500,000.  The CLOs are collateralized by a
diversified portfolio of senior secured first-lien corporate loans and are, for
the most part, unlevered.  Of the 27 positions held, five were rated
BBB, 12 were rated BB and the remaining 10 positions were investments in equity
tranches.  For the year ended December 31, 2008, DundeeWealth earned
$13,926,000 (2007 – $6,786,000), of investment income from its portfolio of CLO
investments.  There were no defaults in scheduled interest payments
during 2008.





A number
of factors continue to exert downward pressure on CLO pricing which has resulted
in limited trading, despite the significant supply of CLO
products.  During the fourth quarter of 2008, DundeeWealth determined
that its CLO investments were impaired on an other-than-temporary
basis.  As a result, DundeeWealth recognized in net earnings a fair
value adjustment of $99,961,000 against the carrying value of its CLO
investments, of which $69,567,000 was a transfer from OCI and $30,394,000 was
the fourth quarter’s writedown.





Management
uses various measures to monitor the credit quality of loans supporting its CLO
investments, including two main macro measures that are relatively standard in
assessing the underlying credit quality of loans in each CLO
portfolio.





The first
measure is the weighted average rating factor (“WARF”) of each CLO
investment.  Each CLO has a WARF maximum which, if exceeded, prohibits
the manager from purchasing new loans that would otherwise further cause
deterioration in the WARF.  During the fourth quarter of 2008, the
WARF increasedby
two times the increase experienced during the first three quarters of
2008.  Furthermore, certain of the CLO portfolios had exceeded their
individual WARF maximums at December 31, 2008.  At September 30, 2008,
all investments complied with their WARF maximums.





A second
measure is the relative size of the CCC-rated bucket in each CLO portfolio,
generally referred to as the CCC content of the CLO.  Generally, an
increasing number of CCC-rated loans may be seen as a form of credit
deterioration and precursor to default.  Similar to the WARF maximum
described above, each portfolio will generally have a CCC content
maximum.  If breached, the manager of the CLO is limited in its
ability to make further investments in CCC or lower-rated
assets.  Furthermore, the CCC content may result in a cash diversion
away from the equity and lower-rated tranches of the particular
CLO.  While there was a continuing increase in CCC content throughout
2008, during the fourth quarter a significant number of CLOs exceeded their CCC
content limits.





The
deterioration in these two factors, along with various other measures that
DundeeWealth uses to assess credit quality suggested that there was objective
evidence of financial difficulty of the collateral supporting each CLO
investment.








DUNDEE
CORPORATION
 47





DundeeWealth
incurs interest rate risk and currency risk related to its portfolio of CLO
investments.  The following table demonstrates the sensitivity of the
Company’s earnings before taxes and OCI before taxes, for the year ended
December 31, 2008, to reasonably possible changes in market interest rates and
foreign exchange rates.  The foreign exchange rate portion of the
table reflects (i) the effect of the revaluation of the CLOs at December 31,
2008 using a revised spot rate which is reflected in OCI and (ii) the effect of
a revised average quarterly exchange rate used to translate the related
investment income which is reflected in net earnings.  To the extent
that the Company determines that its portfolio of CLO investments has been
other-than-temporarily impaired, the foreign exchange effect in OCI relating to
the revaluation of the CLOs would be included in net earnings.





Earnings
before taxes and other comprehensive income before taxes, for the year ended
December 31, 2008




Effect
      on earnings before taxesassuming
      50 basis point absolute change in market interest
      rates
                
                
                Effect
      on earnings before taxesassuming an absolute 3% change in foreign
      exchange rates
                
                
                Effect
      on other comprehensiveincome before taxes assuming an absolute 3%
      change in exchange ratesU.S.
      dollars
                
                $
                338
                
                
                $
                324
                
                
                $
                366Euros
                
                $
                43
                
                
                $
                94
                
                
                $
                133


DundeeWealth
has borrowed in U.S. and Euro currencies in order to economically protect itself
against foreign exchange fluctuations in its foreign-currency-denominated CLO
investments.  At December 31, 2008, approximately 46% of the par value
of U.S. dollar denominated CLOs and 38% of the par value of Euro denominated
CLOs were economically hedged using foreign-currency-denominated
debt.  The Company has elected not to apply hedge accounting to these
strategies.





Real
Estate


Real
estate debt included in the Company’s real estate segment creates specific
interest rate risk and liquidity risk.  In addition, the foreign
exchange forward contract in the real estate segment creates currency
risk.





Interest
Rate Risk


The
Company incurs interest rate risk through the real estate segment’s variable
rate real estate debt.  This exposure arises principally on changes in
Canadian dollar interest rates.  In general, for every 50 basis point
change in market interest rates, earnings before taxes related to variable rate
real estate debt for the year ended December 31, 2008 would change by
approximately $457,000.





Liquidity
Risk


The
following table summarizes the scheduled principal repayments and debt
maturities in respect of real estate debt.




Demand
      RevolvingPrincipal
      Repayments
              
              Mortgages
              
              
              Credit
      Facilities
              
              
              Land
      Mortgages
              
              
              Housing
      Advances
              
              
              Term
      Debt
              
              
              TOTAL2009
              
              $
              3,956
              
              
              $
              85,408
              
              
              $
              16,144
              
              
              $
              119,870
              
              
              $
              2,512
              
              
              $
              227,8902010
              
              
              833
              
              
              
              -
              
              
              
              3,826
              
              
              
              300
              
              
              
              669
              
              
              
              5,6282011
              
              
              866
              
              
              
              -
              
              
              
              751
              
              
              
              75
              
              
              
              712
              
              
              
              2,4042012
              
              
              912
              
              
              
              -
              
              
              
              801
              
              
              
              -
              
              
              
              751
              
              
              
              2,4642013
              
              
              960
              
              
              
              -
              
              
              
              143
              
              
              
              -
              
              
              
              789
              
              
              
              1,8922014
      and thereafter
              
              
              29,955
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              444
              
              
              
              30,399TOTAL
              
              $
              37,482
              
              
              $
              85,408
              
              
              $
              21,665
              
              
              $
              120,245
              
              
              $
              5,877
              
              
              $
              270,677Adjusted
      for:Acquisition
      date fair value debt adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,645
              )Deferred
      financing
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (259
              )As
      at December 31, 2008
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              268,773


DUNDEE
CORPORATION
 48





Currency
Risk


The
Company’s real estate segment has entered into a foreign exchange forward
contract to purchase a total of US$13,464,000 of currency at specific dates,
which commenced on September 2, 2008 and ends on February 1,
2010.  The foreign exchange forward contract hedges the real estate
segment’s exposure to foreign currency risk related to its future funding
obligations for capital projects.  As of December 31, 2008, the
balance to be purchased under this foreign exchange forward contract was
US$10,472,000. There is no ineffectiveness relating to this hedging
relationship, therefore no amount of gain or loss was recognized in net earnings
for the period.  As determined using a derivative valuation model, a
3% change in foreign exchange rates would result in an approximate $400,000
adjustment to OCI before non-controlling interests.





Resources




Eurogas
is exposed to financial risks due to the nature of its business and the
financial assets and liabilities that it holds.




Interest
Rate Risk


Eurogas
incurs interest rate risk through its discounted notes and GICs and, to a lesser
extent, its cash position.  The investments in discounted notes and
GICs are designated as held-for-trading financial instruments and are measured
at fair value.  As a result, the effect of interest rate changes are
recognized in net income in the period incurred.  For every 50 basis
point change in market interest rates, net income before income taxes related to
discounted notes and GICs would change by approximately
$115,000.  Notes receivable are at fixed rates of interest and
therefore are not subject to interest rate risk.





Currency
Risk


Eurogas
periodically has accounts receivable and accounts payable denominated in foreign
currencies, primarily Euros and US dollars.  As a result of the
deconsolidation of Escal (note 3), Eurogas has a Euro denominated loan to
Escal.  A 3% change in the foreign exchange translation rate of Euro
to Canadian dollar relating to these activities would result in a change to net
earnings of approximately $66,000.





Eurogas’
equity investment in Escal is considered a self-sustaining operation and the
current method is used for translating the results of its operations with
unrealized foreign currency translation adjustments included in
OCI.  A 3% change in the foreign exchange translation rate of Euros to
Canadian dollars would change the value of the equity investment in Escal by
approximately $52,000, with the unrealized foreign exchange amount recognized in
OCI.





Eurogas
also has certain cash balances that are denominated in US dollars in order to
facilitate US dollar transactions.  The Company does not incur
significant currency risk in respect of these balances, as the amount of cash
held in foreign currency is not significant.





Equity
Accounted Investments


The
various risk factors discussed above may impact the Company’s equity accounted
investments and therefore impact future net earnings and OCI.  The
Company, however, does not measure or monitor these risks in
isolation.





DUNDEE
CORPORATION
 49








23.
            CAPITAL
      MANAGEMENT





The
Company defines the capital that it manages as the aggregate of its
shareholders’ equity and interest bearing debt, including outstanding preference
shares.  The following table summarizes the carrying value of the
Company’s capital as at December 31, 2008 and 2007.





Type
      of capital
              
              2008
              
              
              2007Shareholders'
      equity
              
              $
              880,839
              
              
              $
              1,120,256Corporate
      debt
              
              
              529,507
              
              
              
              355,714Series
      1 preference shares, DundeeWealth
              
              
              152,978
              
              
              
              152,655Preference
      shares
              
              
              147,371
              
              
              
              147,020$
              1,710,695
              
              
              $
              1,775,645





The
Company’s objectives when managing capital include (i) ensuring that the Company
and all of its regulated entities meet relevant regulatory capital requirements;
(ii) ensuring that the Company is able to meet its financial obligations as they
become due, whilst ensuring compliance with all applicable debt covenants; (iii)
ensuring that the Company has sufficient capital to manage the land and housing
business in the real estate segment and the exploration and development
activities in the resources segment; (iv) ensuring that the Company has
sufficient capital available to benefit from acquisition opportunities, should
they arise; and (v) ensuring adequate returns for shareholders.  The
Company regularly assesses its capital management practices in response to
changing economic conditions.





Certain
of the Company’s subsidiaries are subject to regulatory capital requirements as
described in the “Liquidity and Capital Resources” section of the Company’s
Management’s Discussion and Analysis as at and for the year ended December 31,
2008.  At December 31, 2008, regulated subsidiaries exceeded required
levels of regulatory capital, with working capital of $45,189,000 (2007 –
$115,394,000) in its investment management business and excess regulatory
capital of $64,209,000 (2007 – $36,824,000) in its brokerage
business.





As at
December 31, 2008, the Company and its subsidiaries complied with all regulatory
capital requirements and all debt covenants.





24.
            COMMITMENTS,
      CONTINGENCIES AND OFF-BALANCE SHEET
ARRANGEMENTS





Commitments





Lease Commitments


The
Company and its subsidiaries have operating and capital lease agreements for
premises and equipment pursuant to which future minimum annual lease payments,
exclusive of operating costs and realty taxes, are as follows:




2009
              
              $
              16,2812010
              
              
              12,2122011
              
              
              10,4982012
              
              
              9,5862013
              
              
              7,372Thereafter
              
              
              54,648$
              110,597








DUNDEE
CORPORATION
 50





Wealth
Management Commitments




Future Compensatory Awards


DundeeWealth
has established compensation arrangements pursuant to which certain employees
and advisors have been awarded grants that provide for the delivery of shares or
other forms of compensation in the future, subject to vesting requirements as
provided in the terms of each arrangement (note 19).  In addition to
DundeeWealth’s share incentive arrangements and other forms of stock based
compensation, DundeeWealth has commitments of $12,174,000 in other future
compensatory awards pursuant to retention award arrangements (note
19).





Shareholders’
Agreement


In
connection with The Bank of Nova Scotia’s (“Scotiabank”) investment in
DundeeWealth, Dundee Corporation and Scotiabank entered into a shareholders’
agreement outlining their respective rights and interests as shareholders of
DundeeWealth. The shareholders’ agreement includes matters relating to the
purchase of shares, board representation, rights of first offer and matching
offers in the event a shareholder wishes to dispose of their
interest.  In a specific circumstance, should the Company dispose of
its shares in DundeeWealth to a third party, Scotiabank may be entitled to a fee
payable by DundeeWealth in an amount between $20,000,000 and
$40,000,000.





Real
Estate Commitments





Shareholders’
Agreement in Respect of Dundee Realty


The
Company has entered into a shareholders’ agreement with the non-controlling
shareholder of Dundee Realty pursuant to which the Company has agreed to
repurchase the interest of the non-controlling shareholder in certain
circumstances at fair market value at the time of purchase.





Land
Purchase Agreements and Estimated Costs to Complete


Dundee
Realty has commitments under land purchase agreements totalling $2,832,000 as at
December 31, 2008 (2007 - $11,639,000) which will become payable in future
periods upon the satisfaction of certain conditions pursuant to these
agreements.  Estimated costs to complete land and housing and
condominium projects which have not been accrued at December 31, 2008 were
$8,265,000 (2007 - $5,782,000).





Wind
Turbine Purchase Agreement


Dundee
Realty has commitments under a wind turbine purchase agreement through its joint
venture investment in the windmill development project for $10,470,000 which
will become payable upon delivery and installation of certain
equipment.








DUNDEE
CORPORATION
 51





Contingent
Liabilities





Legal
Contingencies


A
subsidiary of DundeeWealth has been named in claims for approximately $5,000,000
plus costs and interest initiated by certain former clients of a former
financial advisor.  The Company and its subsidiaries are also
defendants in various other legal actions.  The Company intends to
vigorously defend itself against these claims.  Although the ultimate
outcome of these matters cannot be ascertained at this time and the results of
legal proceedings cannot be predicted with certainty, it is the opinion of
management, based on information currently available, that these are not
material liabilities, adequate provisions have been made for any liabilities and
the resolution of these matters will not have a material adverse effect on the
financial position of the Company.





Acquisition
Contingencies


Contingent
consideration related to business acquisitions are disclosed in note
3.





Off-Balance
Sheet Arrangements





Indemnification
Agreements


In the
normal course of business, the Company executes agreements that provide for
indemnifications to third parties in transactions such as business
combinations.  The Company has also agreed to indemnify its directors
and officers and those of certain of its subsidiaries and to indemnify members
of the Board of Governors of its managed funds, to the extent permitted under
corporate law, against costs and damages that may be incurred by these
individuals as a result of lawsuits or any other proceedings in which they are
sued as a result of their service.  The nature of these agreements
precludes the possibility of making a reasonable estimate of the maximum
potential amount the Company could be required to pay third parties, as the
agreements often do not specify a maximum amount and the amounts are dependent
on the outcome of future contingent events, the nature and likelihood of which
cannot be determined.  Historically, the Company has not made any
payments under such indemnification agreements. No amounts have been recorded in
these consolidated financial statements with respect to these
indemnifications.





Real
Estate Arrangements





Guarantees
Issued in the Normal Course of Business


Dundee
Realty and its operating subsidiaries may become liable under guarantees that
are issued in the normal course of business and with respect to litigation and
claims that arise from time to time.





Letters
of Credit and Security Bonds


Dundee
Realty is contingently liable for letters of credit and security bonds that have
been provided to support land developments in the amount of $39,937,000 (2007 -
$24,482,000).





Joint
Ventures and Co-ownerships


Dundee
Realty may conduct its real estate activities from time to time through joint
ventures with third party partners.  The Company is contingently
liable for the obligations of the other owners of the unincorporated joint
ventures in the amount of $9,861,000 as at December 31, 2008 (2007 -
$6,859,000).  The Company would have available to it the other
venturers’ share of assets to satisfy the obligations, if any, that may
arise.








DUNDEE
CORPORATION
 52





As at and
for the years ended December 31, 2008 and 2007, the Company’s share of assets,
liabilities, revenues and expenses of joint ventures in respect of real estate
projects is illustrated in the table that follows.





2008
              
              
              2007Total
              
              
              Proportionate
              
              
              Total
              
              
              ProportionateJoint
      Ventures
              
              
              Share
              
              
              Joint
      Ventures
              
              
              ShareAssets
              
              $
              185,155
              
              
              $
              68,117
              
              
              $
              177,979
              
              
              $
              75,303Liabilities
              
              $
              58,745
              
              
              $
              25,401
              
              
              $
              53,416
              
              
              $
              25,122Revenues
              
              
              
              
              
              $
              33,557
              
              
              
              
              
              
              $
              106,793Expenses
              
              
              
              
              
              
              29,633
              
              
              
              
              
              
              
              67,289Operating
      income
              
              
              
              
              
              $
              3,924
              
              
              
              
              
              
              $
              39,504Cash
      flows from operating activities
              
              
              
              
              
              $
              13,865
              
              
              
              
              
              
              $
              31,281Cash
      flows used in financing activities
              
              
              
              
              
              $
              (11,981
              )
              
              
              
              
              
              $
              (20,103
              )Cash
      flows used in investing activities
              
              
              
              
              
              $
              (7,234
              )
              
              
              
              
              
              $
              (648
              )


Oil
& Gas Arrangements




Commitments
in Respect of Eurogas


Subsequent
to the year-end, on January 19, 2009, the Tunisian Hydrocarbon Committee
approved a two-year extension on the Sfax Exploration Permit, which will extend
the primary term to December 8, 2011.  The extension requires that one
new exploration well be drilled during the extension period.





25.
            SEGMENTED
      INFORMATION





Wealth
Management


The
wealth management segment consists of the operations of DundeeWealth and its
various operating subsidiaries.  Through these subsidiaries,
DundeeWealth provides diversified wealth management and investment solutions
including alternative and tax-advantaged products, capital markets and advisory
services to financial advisors, institutions, corporations and foundations, and
innovative wealth management through independent financial advisors across
Canada.  The wealth management segment also includes the operations of
the Company’s international wealth management activities located in the Cayman
Islands and Bermuda.





Real
Estate


The real
estate segment includes the operations of Dundee Realty, which operates as an
asset manager of commercial real estate with activities in a land and housing
business in Canada and the United States.  Real estate operations also
include a 21% interest in Dundee REIT.








DUNDEE
CORPORATION
 53





Resources


Activities
in the resources segment are carried out through Dundee Resources, which acts as
both a strategic investor and merchant bank, providing equity and quasi-equity
financing to public and private companies focused on developing resource assets
in the mining and energy businesses.  Principal resource investments
include a 53% interest in Eurogas, an oil and gas company that carries on
exploration, development, production, acquisition and natural gas storage
activities and has its primary interests in Spain and Tunisia.





The
resources segment also includes activities related to the Company’s interests in
Dundee Precious and Breakwater which are accounted for by the equity
method.  The resources segment also holds investments in several other
public and private resource companies.





Other
Investments and Corporate Costs


This
segment consists of the Company’s remaining public and private investment
holdings, covering a wide spectrum of industry sectors.  These
investments are carried at fair value, unless accounted for on an equity basis
if the Company exerts significant influence over the affairs of the investee
company.  This segment also includes general corporate overhead costs,
including interest on corporate debt, which are not specifically allocated to
any operating division.





DUNDEE
CORPORATION
 54




Segmented
Statements of Assets as at December 31,




WealthManagement
              
              
              
              
              
              Real
      Estate
              
              
              
              
              
              Resources
              
              
              Other
      Investments andCorporate
      Costs
              
              
              
              
              
              Intersegment
              
              
              
              
              
              TOTALFor
      the year ended December 31,
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007SEGMENTED
      OPERATIONSRevenues
              
              $
              823,941
              
              
              $
              1,007,451
              
              
              $
              400,622
              
              
              $
              377,683
              
              
              $
              3,105
              
              
              $
              4,472
              
              
              $
              12,412
              
              
              $
              23,239
              
              
              $
              (11,425
              )
              
              $
              13,913
              )
              
              
              (1,228,655
              
              
              $
              1,398,932Expenses
              
              
              802,362
              
              
              
              845,533
              
              
              
              307,281
              
              
              
              253,503
              
              
              
              10,952
              
              
              
              11,487
              
              
              
              22,353
              
              
              
              30,725
              
              
              
              (14,697
              )
              
              
              (17,185
              )
              
              
              1,128,251
              
              
              
              1,124,063Equity
      losses (earnings)
              
              
              -
              
              
              
              -
              
              
              
              (1,468
              )
              
              
              (15,926
              )
              
              
              37,158
              
              
              
              (13,909
              )
              
              
              -
              
              
              
              (97
              )
              
              
              -
              
              
              
              -
              
              
              
              35,690
              
              
              
              (29,932
              )Fair
      value adjustments
              
              
              231,008
              
              
              
              37,607
              
              
              
              -
              
              
              
              -
              
              
              
              149,533
              
              
              
              -
              
              
              
              4,751
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              385,292
              
              
              
              37,607Foreign
      exchange loss (gains)
              
              
              14,044
              
              
              
              (5,541
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,744
              )
              
              
              46
              
              
              
              293
              
              
              
              82
              
              
              
              -
              
              
              
              -
              
              
              
              12,593
              
              
              
              (5,413
              )Gain
      on exchangeable debentures
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,314
              )
              
              
              (18,237
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,314
              )
              
              
              (18,237
              )OPERATING
      (LOSS) EARNINGS BEFOREUNDERNOTED
      ITEMS
              
              
              (223,473
              )
              
              
              129,852
              
              
              
              94,809
              
              
              
              140,106
              
              
              
              (192,794
              )
              
              
              6,848
              
              
              
              (13,671
              )
              
              
              10,766
              
              
              
              3,272
              
              
              
              3,272
              
              
              
              (331,857
              )
              
              
              290,844Loss
      on sale of subsidiary
              
              
              (17,679
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (17,679
              )
              
              
              -Non-controlling
      interest
              
              
              95,902
              
              
              
              (43,080
              )
              
              
              (22,566
              )
              
              
              (16,231
              )
              
              
              972
              
              
              
              985
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              74,308
              
              
              
              (58,326
              )NET
      (LOSS) EARNINGS BEFORENON-SEGMENTED
      ITEMS
              
              
              (145,250
              )
              
              
              86,772
              
              
              
              72,243
              
              
              
              123,875
              
              
              
              (191,822
              )
              
              
              7,833
              
              
              
              (13,671
              )
              
              
              10,766
              
              
              
              3,272
              
              
              
              3,272
              
              
              
              (275,228
              )
              
              
              232,518Dilution
      gains
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              578
              
              
              
              136,591Income
      taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              78,389
              
              
              
              (91,470
              )NET
      (LOSS) EARNINGS FROM CONTINUING OPERATIONS
              
              
              (145,250
              )
              
              
              86,772
              
              
              
              72,243
              
              
              
              123,875
              
              
              
              (191,822
              )
              
              
              7,833
              
              
              
              (13,671
              )
              
              
              10,766
              
              
              
              3,272
              
              
              
              3,272
              
              
              
              (196,261
              )
              
              
              277,639Earnings
      (loss) from discontinued operations of DundeeWealth,net
      of tax and non-controlling interest
              
              
              69
              
              
              
              (79,815
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              69
              
              
              
              (79,815
              )Share
      of earnings of discontinued operations ofDundee
      REIT, net of tax
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              95,909
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              95,909NET
      (LOSS) EARNINGS FOR THE YEAR
              
              $
              (145,181
              )
              
              
              6,957
              
              
              $
              72,243
              
              
              $
              219,784
              
              
              $
              (191,822
              )
              
              $
              7,833
              
              
              $
              (13,671
              )
              
              $
              10,766
              
              
              $
              3,272
              
              
              $
              3,272
              
              
              
              (196,192
              )
              
              $
              293,733
  Segmented
      Statements of Assets as at December 31,WealthManagement
              
              
              
              
              
              Real
      Estate
              
              
              
              
              
              Resources
              
              
              Other
      Investments and
                Corporate
      Costs
              
              
              
              
              
              Intersegment
              
              
              
              
              
              TOTAL2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007Cash
      and cash equivalents
              
              $
              147,113
              
              
              $
              82,411
              
              
              $
              16,506
              
              
              $
              36,729
              
              
              $
              2,688
              
              
              $
              6,383
              
              
              $
              1,277
              
              
              $
              1,392
              
              
              $
              -
              
              
              $
              -
              
              
              $
              167,584
              
              
              $
              126,915Goodwill
              
              
              375,967
              
              
              
              411,828
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              375,967
              
              
              
              411,828Other
      assets
              
              
              1,474,894
              
              
              
              1,881,920
              
              
              
              832,921
              
              
              
              671,808
              
              
              
              183,903
              
              
              
              349,542
              
              
              
              45,691
              
              
              
              167,083
              
              
              
              -
              
              
              
              -
              
              
              
              2,537,409
              
              
              
              3,070,353TOTAL
      ASSETS
              
              $
              1,997,974
              
              
              $
              2,376,159
              
              
              $
              849,427
              
              
              $
              708,537
              
              
              $
              186,591
              
              
              $
              355,925
              
              
              $
              46,968
              
              
              $
              168,475
              
              
              $
              -
              
              
              $
              -
              
              
              $
              3,080,960
              
              
              $
              3,609,096





DUNDEE
CORPORATION
 55





26.
            RELATED
      PARTY TRANSACTIONS




Other
than as disclosed elsewhere in these consolidated financial statements, related
party transactions and balances as at and for the years ended December 31, 2008
and 2007 are as follows.





Wealth
Management


DundeeWealth
and its subsidiaries, in the course of their regular business activities,
conduct routine transactions with the Company and with the Company’s affiliates,
including certain of Dundee Corporation’s equity accounted
investees.  Generally, transactions between DundeeWealth, the Company
and these related entities are conducted on normal market terms and are recorded
at their exchange value.





Financial
Services Revenue


DundeeWealth’s
investment management subsidiary trades securities through registered brokers on
behalf of its mutual fund clients and other discretionary client portfolios.
These transactions may be conducted through DundeeWealth’s brokerage subsidiary
and are conducted in accordance with a negotiated discounted
schedule.  In addition, DundeeWealth Financial may facilitate the
purchase and sale of foreign currencies on behalf of these clients.





DundeeWealth’s
brokerage subsidiary may participate in corporate finance related activities,
including financial advisory activities for the Company, its subsidiaries and
affiliates, including equity accounted investees and fiduciary accounts managed
by DundeeWealth.





Officers,
directors and employees of the Company, its subsidiaries and other related
parties may make use of the facilities of DundeeWealth’s brokerage firm and
mutual fund dealer.





Investments
in Assets Managed by Subsidiaries of DundeeWealth


As at
December 31, 2008, the Company held mutual funds and other investments with a
net carrying value of $68,779,000 (2007 – $172,601,000) managed by the
investment management subsidiary of DundeeWealth.  In addition,
included in cash and cash equivalents at December 31, 2008 is $4,792,000 (2007 –
$852,000) invested in a money market mutual fund managed by the investment
management subsidiary of DundeeWealth.





Agreements
with Mutual Funds


Goodman
& Company Investment Counsel Ltd. (“Goodman & Company”) acts as a
manager for Dynamic FundsTM (the
“Funds”) in accordance with the respective agreements between the Funds and
Goodman & Company.  In return, Goodman & Company is
responsible for management services and all costs connected with the
distribution of securities of the Funds.  A significant portion of the
management fees Goodman & Company earned in 2008 and 2007 were from the
Funds.  As at December 31, 2008, Goodman & Company had $31,412,000
(2007 – $148,540,000) receivable from the Funds.  Goodman &
Company also acts as trustee for the Funds that are mutual fund
trusts.





Real
Estate





Transactions with Certain Officers
of the Company


In 2005,
in accordance with employment arrangements made with an officer of Dundee
Realty, Dundee Realty agreed to sell 4% of its interest, net of debt, in The
Distillery Historic District to such officer at Dundee Realty’s cost of
approximately $365,000 and agreed to permit such executive to participate to the
extent of 10% in a $6,601,000 loan made to the co-owners of The Distillery
Historic District.








DUNDEE
CORPORATION
 56





Dundee
Realty provided a loan to an officer.  At December 31, 2008, the
amount outstanding was $517,000 (2007 - $425,000).  The loan accrues
interest at 3% per annum and is secured by a deed of trust on a residential
property.





In 2007,
Dundee Realty issued a promissory note bearing interest at a rate of prime plus
1% to the non-controlling shareholder in the amount of $8,917,000. The loan was
repaid in 2008.





Dundee
Realty Asset Management Agreement


Effective
August 24, 2007 and subsequent to the disposition by Dundee REIT of certain
properties to GE (note 3), Dundee Realty entered into an asset management
agreement with Dundee REIT pursuant to which Dundee Realty provides certain
asset management services to Dundee REIT and its subsidiaries.  The
asset management agreement provides for a broad range of asset management
services, the remuneration for which includes: a base annual management fee, an
incentive fee based on exceeding certain benchmarks relating to funds from
operations, and certain other fees as defined in the agreement.  For
the year ended December 31, 2008, Dundee Realty received fees of $6,213,000
(2007 - $2,122,000).




27.
              FUTURE
      ACCOUNTING CHANGES




Asset
Recognition Including Goodwill and Intangible Assets


Amendments
to CICA handbook section 1000, “Financial Statement Concepts”
and new CICA handbook section 3064, “Goodwill and Intangible
Assets”, which replaces CICA handbook section 3062, “Goodwill and Other Intangible
Assets”, have been issued and apply to interim and annual financial
statements relating to fiscal years beginning on or after October 1,
2008.  This guidance reinforces the principle-based approach to the
recognition of assets only in accordance with the definition of an asset and the
criteria for asset recognition.  Under the amendments to CICA handbook
section 1000, effective January 1, 2009, the deferral and matching of operating
expenses over future revenues is no longer appropriate.  The Company
is currently assessing the impact of this new accounting guidance.





Business
Combinations


In
January 2009, the CICA issued CICA handbook section 1582, “Business Combinations”,
section 1601, “Consolidations”, and section
1602, “Non-controlling
Interests”.  These sections replace the former CICA handbook
section 1581, “Business
Combinations” and section 1600, “Consolidated Financial
Statements” and establish a new section for accounting for a
non-controlling interest in a subsidiary.





CICA
handbook section 1582 establishes standards for accounting for a business
combination. It provides the Canadian equivalent to IFRS 3, “Business Combinations”
(January 2008).  The section applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after January 1,
2011.





CICA
handbook section 1601 establishes standards for the preparation of consolidated
financial statements.





CICA
handbook section 1602 establishes standards for accounting for a non-controlling
interest in a subsidiary in consolidated financial statements subsequent to a
business combination.  It is the equivalent of the corresponding
provisions of IFRS IAS 27, “Consolidated and Separate Financial
Statements” (January 2008).





CICA
handbook section 1601 and section 1602 apply to interim and annual consolidated
financial statements relating to fiscal years beginning on or after January 1,
2011.  Earlier adoption of these sections is permitted as of the
beginning of a fiscal year.  Section 1582, section 1601 and section
1602 must be adopted concurrently.  The Company is currently
evaluating the impact of the adoption of these sections.








DUNDEE
CORPORATION
 57





International
Financial Reporting Standards


In
February 2008, the CICA AcSB confirmed that Canadian GAAP for publicly
accountable enterprises will be converged with IFRS effective in calendar year
2011, with early adoption being allowed starting in calendar year
2009.  IFRS uses a conceptual framework similar to Canadian GAAP, but
there may be significant differences with respect to recognition, measurement
and disclosure that may materially impact the Company's consolidated financial
statements.





The
implementation of IFRS will apply to the Company's interim and annual financial
statements beginning on or after January 1, 2011, including the restatement of
comparative amounts for 2010.  As a result, the Company has
established an IFRS implementation committee with a mandate to oversee the
conversion process, including any impact that the conversion may have on
business practices, systems and internal controls over financial
reporting.  During the year, the implementation committee completed an
initial analysis of the significant differences between IFRS and the Company's
current accounting policies, including an assessment of the impact of various
accounting alternatives offered pursuant to IFRS.  The implementation
committee also implemented an education program for key employees responsible
for financial reporting.




28.
            SUBSEQUENT
      EVENTS




In April 2008, EIIand its joint venture partner, Atlas Petroleum Exploration Worldwide Ltd.
(“APEX”) entered into a farmout agreement with Delta Hydrocarbons B.V.
(“Delta”), whereby Delta acquired a 50% participation in the Sfax Exploration
Permit, effectively reducing EII’s 45% interest in the Sfax Exploration Permit
to 22.5%, subject to a commitment to spend US$125,000,000 (the “Spending
Commitment”).  If Delta does not fulfill the Spending Commitment,
EII’s interest in the permit would revert to 45%.  To date, Delta has
spent approximately US$110,000,000 of its commitment.






On
January 27, 2009, Delta notified EII and APEX of its desire to market its
participating interest under the farmout agreement.  Under the terms
of the joint operating agreement, EII has a right of first offer, and together
with APEX, responded with a settlement offer on February 26,
2009.  Depending on the outcome of the discussions between the joint
venture partners, Delta’s interest in the joint venture may be reversed,
reverting EII’s interest to 45%.If
reversed, EII would be responsible for 45% of future expenditures.









DUNDEE
CORPORATION
 58




29.
            DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
      ACCOUNTING PRINCIPLES




The
Company’s 2008 and 2007 audited consolidated financial statements have been
prepared in accordance with Canadian GAAP.  These principles differ,
in the following material respects, with those principles that the Company would
have followed had its audited consolidated financial statements been prepared in
accordance with generally accepted accounting principles in the United States
(“US GAAP”).





a)
            FAIR
      VALUE OPTION


Canadian
GAAP requires that the Company account for investments in which it has
significant influence using the equity method, whereby the Company recognizes in
its earnings, its proportionate share of earnings or losses of the underlying
equity accounted investment, including its proportionate share of income
recorded as discontinued operations and any other-than-temporary
impairments.  Under US GAAP, Statement of Financial Accounting
Standard (“SFAS”) 159, “The
Fair Value Option for Financial Assets and Financial Liabilities”, allows
an entity the irrevocable option to elect fair value for the initial and
subsequent measurement of certain financial assets and liabilities, including
those investments  where the Company exercises significant
influence.  The Company elected the fair value option in respect of
its equity accounted investments effective January 1, 2007 and accordingly, for
US GAAP purposes, these investments are accounted for at their fair value with
the change in the fair value recognized in earnings.  Any interest or
dividends earned from these financial instruments are recognized in investment
income.





Canadian
GAAP requires that equity accounted investments be assessed for
other-than-temporary impairment if the market value of the equity accounted
investment is below its carrying value for a significant or prolonged period of
time.  During 2008, the Company recognized an other-than-temporary
impairment on its equity accounted investments.  For US GAAP purposes,
this other-than-temporary impairment has been reversed, as equity accounted
investments are carried at their fair value.





b)
            INCOME
      TAXES


The
Company has adopted Financial Accounting Standards Board (“FASB”) interpretation
No. 48 “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109 “Accounting for Income Taxes”.  The application
of FIN 48 did not impact the Company in 2008 and 2007.





c)
            STOCK
      BASED COMPENSATION


Prior to
2006, under US GAAP, the Company followed the principles of Accounting
Principles Board (“APB”) No. 25 “Accounting for Stock Issued to
Employees”, as amended by SFAS 123 “Accounting for Stock-Based
Compensation”, for purposes of measuring stock based compensation using
the intrinsic method.  Under this method, compensation expense was
measured as the excess, if any, of the quoted market price of the Company’s
shares over the award’s exercise price, as measured on the measurement
date.  This compensation expense was reflected over the vesting
periods of the underlying awards.  The Company’s stock-based awards
were granted with an exercise price equal to market value and do not include a
cash-settlement feature.  Accordingly, no compensation expense was
recognized under US GAAP.  However, effective January 1, 2006, the
Company adopted SFAS 123R “Share-Based Payment”, which
is similar to CICA Handbook Section 3870 “Stock-Based Compensation”,
which requires the recognition of stock-based compensation at fair value. As a
result, the Company has no US and Canadian GAAP differences for stock-based
awards issued after January 1, 2006.  Amounts in 2008 relating to
differences in stock-based compensation between Canadian and US GAAP relate to
the exercise of stock-based awards in 2008 that had been granted prior to
January 1, 2006.





d)
            COSTS
      INCURRED TO SELL REAL ESTATE
PROJECTS


In prior
years, Canadian GAAP permitted the capitalization of certain selling costs
relating to housing and condominium projects, with such amounts being
subsequently expensed as part of cost of goods sold when revenue was recognized
on the sale of the project.  Pursuant to US GAAP, these costs may only
be capitalized if there is reasonable assurance that these costs will be
recovered and if they have been incurred for tangible assets to be used
throughout the selling period to assist in the sale of the





DUNDEE
CORPORATION
 59


project,
or for costs of services to obtain regulatory approval of such
sales.  As disclosed in note 2, effective January 1, 2008, the Company
adopted CICA handbook section 3031 “Inventories”, which resulted
in an adjustment to opening retained earnings. This new section has similar
requirements to US GAAP in respect of these selling costs. As a result,
effective January 1, 2008, there are no continuing US/Canadian GAAP differences
in this respect.





e)
            PRE-OPERATING
      EXPENDITURES


In prior
years, the Company incurred pre-operating expenditures in respect of the start
up of the Dundee Bank of Canada. Under Canadian GAAP, such expenditures were
deferred and were being amortized to income over five years. Under US GAAP, such
expenditures must be expensed as incurred. In fiscal 2007, the Company disposed
of the Dundee Bank of Canada and recognized the pre-operating expenditures in
discontinued operations for Canadian GAAP purposes. Under US GAAP, these
pre-operating expenditures had already been expensed in prior years. As a
result, in fiscal 2007, for US GAAP purposes the Company reversed the
recognition of the pre-operating expenditures in discontinued
operations.  In fiscal 2008, the Company had no continuing US/Canadian
GAAP difference in this respect.





f)
            AVAILABLE-FOR-SALE
      SECURITIES


Prior to
January 1, 2007, the Company’s corporate investments were carried at
cost.  In fiscal 2007, the Company adopted CICA handbook section 3855
“Financial Instruments –
Recognition and Measurement”, which has similar requirements to SFAS 115
“Accounting for Certain
Investments in Debt and Equity Securities”, whereby investments which
meet the available-for-sale criteria are reported at their fair value, with
unrealized gains and losses, net of taxes, reported as part of comprehensive
income.  Unrealized losses on available-for-sale securities that are
determined to be other-than-temporary are included in operations. As a result,
beginning in fiscal 2007, there are no significant continuing US/Canadian GAAP
differences in accounting for these investments.





EFFECT
OF DIFFERENCES BETWEEN CANADIAN AND US GAAP ON


THE
CONSOLIDATED FINANCIAL STATEMENTS





Application
of the above referenced standards, as previously described, would have the
following approximate effects on the audited consolidated balance sheets and the
audited consolidated statements of operations and comprehensive (loss) income of
the Company as at and for the years ended December 31, 2008 and
2007.





DIFFERENCES
      IN THE CONSOLIDATED BALANCE SHEETS
              Ref
              
              2008
              
              
              2007Increase
      (decrease) in equity accounted investmentsAdjustment
      for fair value option
              (a)
              
              $
              (54,959
              )
              
              $
              124,657Decrease
      in capital, real estate and other assetsAdjustment
      for costs incurred to sell real estate projects
              (d)
              
              
              -
              
              
              
              (7,979
              )Increase
      (decrease) in associated future income tax liabilitiesAdjustment
      for fair value option
              (a)
              
              
              (10,477
              )
              
              
              31,335Adjustment
      for costs incurred to sell real estate projects
              (d)
              
              
              -
              
              
              
              (2,769
              )Increase
      (decrease) in non controlling interestAdjustment
      for stock based compensation
              (c)
              
              
              (3,565
              )
              
              
              (3,565
              )Adjustment
      for costs incurred to sell real estate projects
              (d)
              
              
              -
              
              
              
              (1,534
              )Decrease
      in share capitalAdjustment
      for stock based compensation
              (c)
              
              
              (285
              )
              
              
              (249
              )Decrease
      in contributed surplus pursuant to APB No. 25
              (c)
              
              
              (1,490
              )
              
              
              (1,526
              )Increase
      (decrease)  in retained earningsAdjustment
      for fair value option
              (a)
              
              
              (47,601
              )
              
              
              91,380Adjustment
      for stock based compensation
              (c)
              
              
              5,340
              
              
              
              5,340Adjustment
      for costs incurred to sell real estate projects
              (d)
              
              
              -
              
              
              
              (3,676
              )Adjustment
      for available-for-sale securities
              (f)
              
              
              -
              
              
              
              (370
              )Increase
      in accumulated other comprehensive (loss) incomeAdjustment
      for fair value option
              (a)
              
              
              3,119
              
              
              
              1,942Adjustment
      for available-for-sale securities
              (f)
              
              
              -
              
              
              
              370


DUNDEE
CORPORATION
 60




As at
December 31, 2008, the Company’s shareholders’ equity, prepared in accordance
with US GAAP would have been $839,922,000 (2007 – $1,213,467,000).





The
following summarizes the consolidated statements of operations amounts in
accordance with US GAAP, where such items differ from the amounts reported under
Canadian GAAP, all as described above.





DIFFERENCES
      IN (LOSS) EARNINGS FROM CONTINUING OPERATIONS
              Ref
              
              2008
              
              
              2007Net
      (loss) earnings from continuing operations under Canadian
    GAAP
              
              $
              (196,261
              )
              
              $
              277,639Adjustments
      for US GAAPAdjustment
      for mark-to-market adjustments pursuant to SFAS 159
              (a)
              
              
              (331,852
              )
              
              
              (88,318
              )Adjustment
      to operating costs, real estate
              (d)
              
              
              -
              
              
              
              (5,514
              )Adjustment
      to share of losses (earnings) from equity accounted
    investeespursuant
      to SFAS 159
              (a)
              
              
              35,690
              
              
              
              (29,932
              )Adjustment
      to fair value adjustments pursant to SFAS 159
              (a)
              
              
              114,564
              
              
              
              -Effect
      of non controlling interest in (loss) earningsAdjustment
      for costs incurred to sell real estate projects
              (d)
              
              
              -
              
              
              
              740Increase
      in income tax recoveryAdjustment
      for fair value option
              (a)
              
              
              42,184
              
              
              
              -Reduction
      in income tax expenseAdjustment
      for fair value option
              (a)
              
              
              -
              
              
              
              38,299Adjustment
      for costs incurred to sell real estate projects
              (d)
              
              
              -
              
              
              
              1,894Net
      (loss) earnings from continuing operations under US GAAP
              
              
              $
              (335,675
              )
              
              $
              194,808DIFFERENCES
      IN (LOSS) EARNINGS FROM DISCONTINUED OPERATIONS (net of
    tax)
              Ref
              
              2008
              
              
              2007Net
      earnings from discontinued operations under Canadian GAAP
              
              $
              69
              
              
              $
              16,094Adjustments
      to US GAAP earnings from discontinued operationsAdjustment
      to share of earnings from equity accounted investees
              (a)
              
              
              -
              
              
              
              (95,909
              )Adjustment
      for pre-operating expenditures
              (e)
              
              
              -
              
              
              
              2,180Net
      earnings (losses) from discontinued operations under US
    GAAP
              
              $
              69
              
              
              $
              (77,635
              )
  The
following summarizes the consolidated statement of comprehensive (loss) income
amounts in accordance with US GAAP, where such items differ from the amounts
reported under Canadian GAAP, all as described above.
 DIFFERENCES
      IN THE CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
    INCOME
              Ref
              
              2008
              
              
              2007Net
      (loss) earnings under US GAAP
              
              
              $
              (335,606
              )
              
              $
              117,173Other
      comprehensive loss under Canadian GAAP, net of tax
              
              
              
              (24,503
              )
              
              
              (27,143
              )Changes
      related to accouning for equity accounted investments, net of
      tax
              (a)
              
              
              1,177
              
              
              
              10,207Transfer
      of unrealized losses on available-for-sale securities to net earnings, net
      of tax
              (f)
              
              
              (370
              )
              
              
              -$
              (359,302
              )
              
              $
              100,237
  DUNDEE
CORPORATION
 61







The
effect of the above changes to the calculation of (loss) earnings per share is
detailed below.





(Loss)
      earnings per share
              
              Canadian
      GAAP
              
              
              US
      GAAP2008
              
              
              2007
              
              
              2008
              
              
              2007BasicContinuing
      operations
              
              $
              (2.62
              )
              
              $
              3.68
              
              
              $
              (4.49
              )
              
              $
              2.58Discontinued
      operations
              
              $
              -
              
              
              $
              0.22
              
              
              $
              -
              
              
              $
              (1.03
              )$
              (2.62
              )
              
              $
              3.90
              
              
              $
              (4.49
              )
              
              $
              1.55DilutiveContinuing
      operations
              
              $
              (2.62
              )
              
              $
              3.49
              
              
              $
              (4.49
              )
              
              $
              2.43Discontinued
      operations
              
              $
              -
              
              
              $
              0.29
              
              
              $
              -
              
              
              $
              (0.89
              )$
              (2.62
              )
              
              $
              3.78
              
              
              $
              (4.49
              )
              
              $
              1.54





FUTURE
ACCOUNTING CHANGES





In
December 2007, the FASB issued SFAS 141 “Business Combinations (revised
2007)” (“SFAS 141R”). SFAS 141R requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree at the acquisition date, at their fair values as of that date, with
limited exceptions specified in the Statement.  SFAS 141R applies
prospectively to business combinations for which the acquisition date is on or
after January 1, 2009.





In
December 2007, the FASB issued SFAS 160 “Non-controlling Interests in
Consolidated Financial Statements – An Amendment of ARB No. 51” (“SFAS
160”). SFAS 160 establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a non-controlling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements.  SFAS 160 applies
prospectively to business combinations for which the acquisition date is on or
after January 1, 2009.  The Company is currently evaluating the impact
of this standard.





DUNDEE
CORPORATION
 62