Annual Management Report of Fund Performance

Transcription

1 December 31, 2017 Annual Management Report of Fund Performance This annual management report of fund performance contains financial highlights but does not contain the complete financial statements of the investment fund. If you have not received a copy of the annual financial statements with this report, you can get a copy of the annual financial statements at your request, and at no cost, by calling , by writing to us at 5000 Yonge Street, Suite 900, Toronto ON M2N 0A7, or by visiting our website at or SEDAR at Securityholders may also contact us using one of these methods to request a copy of the investment fund s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure.

2 Lead Manager Don Taylor, CPA Franklin Advisory Services, LLC (Sub-Advisor) Industry Experience: 36 years Location: New York, NY Portfolio Manager Nicholas Getaz, CFA, MBA Franklin Advisory Services, LLC (Sub-Advisor) Industry Experience: 17 years Location: New York, NY INVESTMENT OBJECTIVE AND STRATEGIES Franklin U.S. Rising Dividends Fund (the Fund ) aims to grow investors capital over the long term by investing primarily in a diversified portfolio of US equities. Under normal market conditions, the Fund invests at least 80% of its net assets in companies that have paid consistently rising dividends. Companies that have paid consistently rising dividends include those companies that pay dividends on their common stocks and have maintained or increased their most recent dividend payment at some point during the last four consecutive years. The Fund invests in companies that have increased dividends at least 100% over the past ten years. The Fund may invest in companies whose long-term debt is not more than 50% of total capitalization (except for utility companies) or senior debt that has been rated investment grade. Although the Fund may invest in equity securities of any size company, it may invest a substantial portion of its assets in companies falling within the small-cap (generally, companies with market capitalization of less than US$2.5 billion) and mid-cap (generally, companies with a market capitalization range of US$2.5 billion to US$8 billion) ranges. The Fund s portfolio sub-advisor (the portfolio manager ) looks for stocks with attractive prices at the time of purchase in either the lower half of the stock s price/earnings ratio range for the past 10 years or less than the current market price/earnings ratio of stocks composing the S&P 500 Index. RISK The risks of investing in the Fund remain as stated in the prospectus. The Fund is suitable for investors with a low to medium risk tolerance and a medium- to long-term investment horizon and who are seeking a core US equity fund. RESULTS OF OPERATIONS As at December 31, 2017, total net asset value of the Fund was $961.4 million, a decrease of 3.6% from December 31, This was primarily driven by $151.9 million in net redemptions and partially offset by an increase of $116.4 million in net assets from operations. The Fund paid out $506,000 in cash distributions to unitholders. During the past year, the Fund s Series A units generated total returns of 10.4%. Over the same time period, the Fund s benchmark, the S&P 500 Index (the Index ), returned 14.1%. The performance of the Fund s other series is similar to that of its Series A units, except for differences in expense structure. For the return of the Fund s other series (if applicable), please refer to the Past Performance section. The Fund underperformed the Index during the reporting period due to stock selection and an underweighting in the Information Technology sector, and stock selection and an overweighting in the Consumer Staples sector. The Fund s cash position also slightly detracted from relative performance. Three holdings that detracted from the Fund s performance during the year included Schlumberger Ltd., Matthews International Corp. and Target Corp. Shares of Schlumberger, a global oilfield services company, were weak over the year due to ongoing industry uncertainty around oil inventory surpluses and the prospect of a sustainable recovery in oil prices. Schlumberger has continued to perform well despite a challenging environment, and the portfolio manager believes that the company is uniquely well positioned to benefit from an oil price recovery. The company has raised its dividend for five consecutive years. Shares of Matthews, a small industrial conglomerate, declined steadily over the year. Mixed performance, with several lacklustre quarters driven by weakness in casket sales and softer North American and European markets for the SGK Brand Solutions segment, negatively impacted earnings. The portfolio manager believes that stabilization in these markets, innovation-driven growth opportunities and lower operating expenses going forward should improve profitability. Matthews has raised its dividend for 23 consecutive years. Shares of Target, a general merchandise discount store chain, declined sharply early in the year due to a reduction in full-year guidance, as management intensified the company s pricing competitiveness, investment in store renovations and enhancement of ecommerce capabilities in response to online retail competition. Target s actions, including private-label brand expansion, supply chain optimization and small-format stores, should improve sales growth, in the portfolio manager s view. Target has increased its dividend for 46 consecutive years. Conversely, contributors to the Fund s performance included Albemarle Corp., Roper Technologies Inc. and Microsoft Corp. Shares of Albemarle, a specialty chemicals producer, experienced strong growth over the year, as the company continued to report strong performance in its lithium business. Periodic market concerns regarding the possibility of excess lithium supply were more than offset by the industry consensus pointing to demand outpacing supply growth, as lithium battery technology benefits from future robust growth in electric vehicles. Albemarle has increased its dividend for 23 consecutive years. Roper Technologies, a diversified industrial company, enjoyed strong stock price performance after reporting robust financial results during the period. The company posted strong organic growth across all segments, led by the Industrial Technology and Energy segments, as energy-related markets rebounded. Management believes that their business plan should continue to achieve strong operating results. Roper has grown its dividend for 25 consecutive years.

3 Microsoft, a software company, saw its shares move higher as the company s cloud-based initiatives continued to deliver strong results, led by Office 365 subscriber growth and Azure revenue growth. Additionally, prudent expense management and better margins in the hardware business led to better operating results and earnings-per-share growth that topped consensus expectations. Microsoft has raised its dividend for 14 consecutive years. Index performance comparison information is provided for reference only. It is important to note that the Fund s return reflects the effect of fees and expenses for professional management, while an index does not have such costs. Average net assets of the series of the Fund that bear expenses have remained relatively flat for the year ended December 31, 2017, resulting in expenses remaining relatively unchanged during the period. Income received from investments held, excluding net realized and/or unrealized gain (loss) on investments and derivatives, decreased due to the results of the Fund s investment activities, including, but not limited to, those previously discussed for the period in review. RECENT DEVELOPMENTS Given that the Fund invests almost exclusively in US equities, the change in the exchange rate can be an important determinant of Canadian investor returns. The difference between the Fund s Canadian- and US-dollar returns is largely a result of shifts in the exchange rate over time. The Canadian dollar strengthened relative to the US dollar during the period, which negatively impacted the Fund s unhedged absolute return to Canadian investors. The current economic expansion in the US may finally be shifting into a higher gear. In addition, the portfolio manager believes a number of factors are in place to support the upturn in economic activity. As a result, equity markets may continue to fare well in The portfolio manager believes that the fundamentals of many companies with dividend growth profiles will benefit from an improving economic backdrop. Global economic activity has converged, leading to a faster and potentially more durable pace of global growth. The International Monetary Fund raised its forecast for global economic growth to 3.6% for 2017 and 3.7% for 2018, compared to 3.2% growth in Recent trends in global economic data declining unemployment rates, strong manufacturing and services purchasing managers index readings, increasing consumer spending and an upturn in capital expenditures support this sanguine view. The recently passed US tax reform bill could also provide a twofold benefit for dividend growth stocks. Permanent reductions in the corporate tax rate, a tax break on repatriated overseas corporate earnings and other business-friendly provisions will likely provide additional capital for investment and returns to shareholders. From the portfolio manager s perspective, business investment and dividend increases could potentially provide companies with greater benefits than increasing share buybacks, given the elevated valuations for many stocks at the start of A dividend growth strategy, in the portfolio manager s view, may serve investors well in the economic and financial market conditions expected to come. Dividend growth stocks can be found in more cyclical sectors; increases in economic activity, business spending and productivity would likely provide a significant boost to those sectors. With gradually increasing inflation, the US Federal Reserve appears comfortable with incrementally raising interest rates. The portfolio manager believes the Fund s rising-dividends strategy can serve a valuable purpose, as investing in companies that increase their payouts consistently and meaningfully may help investors better weather the negative impact of rising interest rates relative to high-yield stocks, which often offer little or no increase in their income stream. At the same time, growth stocks may become incrementally less compelling given their multi-year rally and improving fundamentals in other areas of the equity market. However, the portfolio manager also realizes that low levels of volatility may be a sign of investor complacency; experience shows that unexpected events can prompt sharp turns in investor sentiment. While the portfolio manager is not predicting volatility and does not make top-down portfolio-positioning decisions, it does believe prudent investing requires patience and a conviction in bottom-up fundamental analysis. The portfolio manager will stick to its investment process of targetting historically successful companies that it believes are committed to growing their dividend and have the ability to follow through. This process involves identifying companies with sustainable business models, good corporate governance and low debt. The portfolio manager believes this investment framework constitutes the Fund s competitive advantage and a potentially sustainable source of value-added returns for the foreseeable future. FORWARD-LOOKING STATEMENTS Investors should take note that certain statements in this report about a fund, including its strategy and expected future performance, are forward-looking. Forward-looking statements are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as may, will, should, could, expect, anticipate, intend, plan, believe, or estimate or other similar expressions. Any statement that is made concerning future strategies or performance is also a forward-looking statement. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the forward-looking statements. The forward-looking statements are by their nature based on numerous assumptions, which include, amongst other things, that (i) the Fund can attract and maintain investors and has sufficient capital under management to effect its investment strategies, (ii) the investment strategies will produce the results intended by the portfolio manager, and (iii) the markets will react and perform in a manner consistent with the investment strategies. Although the forward-looking statements contained herein are based upon what the portfolio manager believes to be reasonable assumptions, the portfolio manager cannot assure that actual results will be consistent with these forward-looking statements.

4 Forward-looking statements are not guarantees of future performance. Any number of factors could contribute to differing results, including, among other things, general economic, political and market factors, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings and catastrophic events. This list of factors is not exhaustive. Investors should not place undue reliance on forward-looking information and should be aware that the Fund may not update any forward-looking statements, whether as a result of new information, future events or otherwise. RELATED PARTY TRANSACTIONS The Manager is an indirect wholly-owned subsidiary of Franklin Resources, Inc., a global investment management organization known as. The Manager is the manager, registrar and transfer agent and a principal distributor of the Fund. The Manager provides or arranges for the provision of these services for day-to-day Fund operations, including the marketing, promotion and distribution of the Fund and portfolio advisory services. In consideration of these management and portfolio advisory services, the Fund pays the Manager a monthly management fee plus applicable taxes, based on the average net asset value of each series of the Fund (except Series O and OT, as applicable), calculated daily, as set out under Management Fees below. During the year ended December 31, 2017, the Fund paid management fees of $4.3 million (2016 $4.1 million). Franklin Templeton Services, LLC (FTS) provides the Manager with fund accounting and portfolio valuation services in connection with the Fund, and provides certain back office administration services to the Manager. The Administration Fee, as discussed below, covers the cost of the services provided by FTS. The Manager pays the operating expenses of the Fund, other than certain fund costs which include, but are not limited to, the cost of compliance with new governmental and regulatory requirements, fees and expenses of the Fund s Independent Review Committee (IRC), borrowing and interest costs and investor meeting costs (as permitted by Canadian securities regulation) in exchange for the payment by the Fund of an annual fixed-rate administration fee of 0.28% plus applicable taxes, applied against the average daily net assets of the Fund ( Administration Fee ), except for Series PF and PFT, which have an annual Administration Fee of 0.15%, and Series O and OT, which have no annual Administration Fee. The Manager will pay all operating expenses of Series O and OT, as applicable, as part of its agreement with each investor. The Manager may, at its discretion, waive a portion of a series Administration Fee or absorb certain fund costs. During the year ended December 31, 2017, the Fund paid Administration Fees of $626,000 (2016 $605,000). During the year ended December 31, 2017, the Manager waived fund costs of $4,000 (2016 $4,000). As at December 31, 2017, Franklin U.S. Rising Dividends Corporate Class and Franklin Quotential Balanced Growth Portfolio held 12% and 11% of the Fund, respectively. Portfolio Advisor The Manager is the portfolio advisor of the Fund. The Manager has engaged Franklin Advisory Services, LLC, an affiliate of the Manager, as sub-advisor (the Sub-Advisor ). The Sub-Advisor provides investment analysis and recommendations and executes or arranges for brokers to execute portfolio transactions. Principal Distributor As a principal distributor of the Fund, the Manager markets the Fund and arranges for the sale of the Fund through dealers across Canada. The Manager may retain companies to assist in the sale of certain series of units of the Fund. The Manager s affiliate, FTC Investor Services Inc. ( FTC ISI ), also acts as a principal distributor for Series F, O, OT, FT, PF and PF (Hedged) units of the Fund, as applicable. For acting as a principal distributor of the applicable series, FTC ISI receives an inter-company service fee of 0.20% of the assets under management of the applicable series from the Manager with respect to those series of units. Registrar and Transfer Agent In addition to management and portfolio advisory services, the Manager acts as the registrar and transfer agent of the Fund. These services are in the normal course of operations and are covered by the Administration Fee paid by the Fund to the Manager. Standing Instructions from the Independent Review Committee The Manager relied on standing instructions from the IRC with respect to the allocation of any operating expenses not covered by the Administration Fee. The Manager relied, or may rely, on standing instructions from the IRC in respect of securities trades amongst mutual funds, investment funds or managed accounts managed by the Manager or an affiliate of the Manager. In both cases, the standing instructions require the Manager to comply with the policies and procedures presented to the IRC with respect to the above matters and to provide periodic reports to the IRC in accordance with NI MANAGEMENT FEES A portion of the management fee paid by the Fund to the Manager is for trail fees and sales commissions the Manager pays to dealers ( Dealer Compensation ). The trail fees are a percentage of the daily average net asset value of each series of the Fund, which is held by the dealer s clients. The remaining portion of the management fee is used to pay for portfolio advisory and administrative services related to the provision of portfolio advisory services. The table below outlines the Fund s annual management fee, as well as the portion of the management fee used to pay for Dealer Compensation and for portfolio advisory services as an approximate percentage of the management fee for each series:

5 Series Management Fee (%) Dealer Compensation (%)* A F PF PF Hedged PFT T Investment management, investment management expenses, and other (%) *Dealer compensation may include other fees related to distribution, which are not payable directly to dealers. The management and administration fees for Series O are paid for by the unitholder directly to the Manager as follows: First C$200,000 to under $2.5 million 0.90% Next C$2.5 million to under $5 million 0.75% C$5 million and over 0.65% Certain institutional investors may negotiate the management and administration fees by written agreement with Franklin Templeton Investments.

6 Summary of Investment Portfolio (AS AT DECEMBER 31, 2017) REGIONAL WEIGHTINGS (%)* North America Europe 2.26 INDUSTRY WEIGHTINGS (%)* Health Care Equipment & Supplies Chemicals Industrial Conglomerates 8.61 Machinery 5.23 Semiconductors & Semiconductor Equipment 5.02 Software 4.73 Oil, Gas & Consumable Fuels 4.69 Aerospace & Defense 4.34 Pharmaceuticals 4.02 IT Services 3.96 Food Products 3.66 Specialty Retail 3.52 Food & Staples Retailing 3.38 Household Products 3.07 Commercial Services & Supplies 2.47 Insurance 2.24 Hotels, Restaurants & Leisure 2.20 Beverages 1.75 Energy Equipment & Services 1.68 Building Products 1.63 Textiles, Apparel & Luxury Goods 1.49 Air Freight & Logistics 1.25 Media 1.21 Biotechnology 0.98 Multiline Retail 0.91 Trading Companies & Distributors 0.67 Metals & Mining 0.56 Capital Markets 0.39 Household Durables 0.35 ASSET CLASS WEIGHTINGS (%) Common Stocks Short-term securities and all other assets, net 1.12 TOP 25 HOLDINGS (%) Roper Technologies Inc Microsoft Corp Albemarle Corp Honeywell International Inc Stryker Corp Accenture PLC, A 3.32 Becton, Dickinson and Co Praxair Inc Texas Instruments Inc Air Products and Chemicals Inc Medtronic PLC 2.54 Dover Corp Johnson & Johnson 2.50 General Dynamics Corp Pentair PLC 2.10 United Technologies Corp West Pharmaceutical Services Inc Ross Stores Inc Analog Devices Inc McDonald s Corp PepsiCo Inc Schlumberger Ltd Johnson Controls International PLC 1.63 Abbott Laboratories 1.59 The Procter & Gamble Co TOTAL NET ASSET VALUE: $961,443,000 * Excluding short-term securities and all other assets, net. Above is an outline of the investments held in the Fund as a percentage of the Fund s net assets. Due to ongoing portfolio transactions, the investments and percentages may have changed by the time you purchase units of the Fund. The top 25 holdings are made available quarterly, 60 days after the quarter-end. To obtain a copy, please contact a member of our client services team at or visit

7 Series A (AS AT DECEMBER 31, 2017) FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the fiscal periods ended December 31. Net assets per unit (1) Net assets beginning of period $41.63 $38.91 $35.15 $30.53 $22.72 Increase (decrease) from operations: Total revenue Total expenses (1.09) (0.99) (0.95) (0.81) (0.71) Realized gains (losses) for the period Unrealized gains (losses) for the period Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends (0.40) (0.89) (0.60) (0.51) (0.39) From capital gains Returns of capital Total annual distributions (3) (0.40) (0.89) (0.60) (0.51) (0.39) Net assets end of period $45.58 $41.63 $38.91 $35.15 $30.53 Ratios and supplemental data: Total net asset value ($ millions) (1) $ $ $ $ $ Number of units outstanding 3,909,205 4,137,462 4,453,229 3,996,050 3,585,469 Management expense ratio (2) 2.51% 2.51% 2.51% 2.51% 2.55% Management expense ratio before waivers or absorptions 2.51% 2.51% 2.51% 2.51% 2.75% Trading expense ratio (3) 0.01% 0.01% 0.01% 0.01% 0.01% Portfolio turnover rate (4) 2.09% 7.77% 4.87% 8.97% 11.85% Net asset value per unit $45.58 $41.63 $38.91 $35.15 $30.53 For explanatory notes, please refer to Explanatory Notes to Financial Highlights at the end of the section. The opening net assets have been adjusted in accordance with IFRS. Information pertaining to 2013 was derived from the audited annual financial statements prepared under Canadian GAAP. PAST PERFORMANCE The following information assumes that all distributions made by the Fund in the periods shown were reinvested in additional securities of the Fund and does not take into account sales, redemption, distribution or other optional charges that would have reduced returns. Past performance does not necessarily indicate how the Fund will perform in the future. Year-by-Year Returns The bar chart shows the Fund s annual performance for each of the years shown, and illustrates how the investment Fund s performance has changed from year to year. In percentage terms, the bar chart indicates how much an investment made on January 1 would have grown or decreased by the December 31 of each year shown. 40% 20% 0% % -1.1% 10.2% 6.3% 5.5% 36.1% 16.8% 12.4% 9.3% 10.4% Annual Compound Returns The table shows the annual compound total returns for each of the periods shown ended December 31, The returns are compared against the benchmark(s) over the same period. 1 Year 3 Years 5 Years 10 Years Since Inception Series A Units 10.4% 10.7% 16.6% 8.9% 1.9% S&P 500 TR Index 14.1% 14.4% 21.4% 11.1% 4.9% For a definition of the benchmark(s), please refer to Benchmark(s) Information at the end of the section. -20% -40%

8 Series F (AS AT DECEMBER 31, 2017) FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the fiscal periods ended December 31. Net assets per unit (1) Net assets beginning of period $49.70 $45.94 $41.04 $35.25 $25.93 Increase (decrease) from operations: Total revenue Total expenses (0.73) (0.66) (0.62) (0.53) (0.44) Realized gains (losses) for the period Unrealized gains (losses) for the period Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends (0.48) (1.07) (0.71) (0.59) (0.45) From capital gains Returns of capital Total annual distributions (3) (0.48) (1.07) (0.71) (0.59) (0.45) Net assets end of period $55.01 $49.70 $45.94 $41.04 $35.25 Ratios and supplemental data: Total net asset value ($ millions) (1) $12.91 $13.60 $22.23 $19.97 $11.51 Number of units outstanding 234, , , , ,452 Management expense ratio (2) 1.40% 1.40% 1.40% 1.40% 1.39% Management expense ratio before waivers or absorptions 1.40% 1.40% 1.40% 1.40% 1.39% Trading expense ratio (3) 0.01% 0.01% 0.01% 0.01% 0.01% Portfolio turnover rate (4) 2.09% 7.77% 4.87% 8.97% 11.85% Net asset value per unit $55.01 $49.70 $45.94 $41.04 $35.25 For explanatory notes, please refer to Explanatory Notes to Financial Highlights at the end of the section. The opening net assets have been adjusted in accordance with IFRS. Information pertaining to 2013 was derived from the audited annual financial statements prepared under Canadian GAAP. PAST PERFORMANCE The following information assumes that all distributions made by the Fund in the periods shown were reinvested in additional securities of the Fund and does not take into account sales, redemption, distribution or other optional charges that would have reduced returns. Past performance does not necessarily indicate how the Fund will perform in the future. Year-by-Year Returns The bar chart shows the Fund s annual performance for each of the years shown, and illustrates how the investment Fund s performance has changed from year to year. In percentage terms, the bar chart indicates how much an investment made on January 1 would have grown or decreased by the December 31 of each year shown. 40% 20% 0% % 0.0% 11.4% 7.5% 6.7% 37.7% 18.1% 13.7% 10.5% 11.6% Annual Compound Returns The table shows the annual compound total returns for each of the periods shown ended December 31, The returns are compared against the benchmark(s) over the same period. 1 Year 3 Years 5 Years 10 Years Since Inception Series F Units 11.6% 11.9% 17.9% 10.1% 7.3% S&P 500 TR Index 14.1% 14.4% 21.4% 11.1% 11.2% For a definition of the benchmark(s), please refer to Benchmark(s) Information at the end of the section. -20% -40%

9 Series O (AS AT DECEMBER 31, 2017) FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the fiscal periods ended December 31. Net assets per unit (1) Net assets beginning of period $63.13 $57.53 $50.68 $42.93 $31.14 Increase (decrease) from operations: Total revenue Total expenses Realized gains (losses) for the period Unrealized gains (losses) for the period Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends (0.62) (1.36) (0.88) (0.73) (0.55) From capital gains Returns of capital Total annual distributions (3) (0.62) (1.36) (0.88) (0.73) (0.55) Net assets end of period $70.86 $63.13 $57.53 $50.68 $42.93 Ratios and supplemental data: Total net asset value ($ millions) (1) $ $ $ $ $ Number of units outstanding 10,462,058 12,585,529 12,906,996 15,781,434 16,320,904 Management expense ratio (2) Management expense ratio before waivers or absorptions 0.03% Trading expense ratio (3) 0.01% 0.01% 0.01% 0.01% 0.01% Portfolio turnover rate (4) 2.09% 7.77% 4.87% 8.97% 11.85% Net asset value per unit $70.86 $63.13 $57.53 $50.68 $42.93 For explanatory notes, please refer to Explanatory Notes to Financial Highlights at the end of the section. The opening net assets have been adjusted in accordance with IFRS. Information pertaining to 2013 was derived from the audited annual financial statements prepared under Canadian GAAP. PAST PERFORMANCE The following information assumes that all distributions made by the Fund in the periods shown were reinvested in additional securities of the Fund and does not take into account sales, redemption, distribution or other optional charges that would have reduced returns. Past performance does not necessarily indicate how the Fund will perform in the future. Year-by-Year Returns The bar chart shows the Fund s annual performance for each of the years shown, and illustrates how the investment Fund s performance has changed from year to year. In percentage terms, the bar chart indicates how much an investment made on January 1 would have grown or decreased by the December 31 of each year shown. 40% 20% 0% % 1.5% 13.1% 9.2% 8.2% 39.7% 19.8% 15.3% 12.1% 13.2% Annual Compound Returns The table shows the annual compound total returns for each of the periods shown ended December 31, The returns are compared against the benchmark(s) over the same period. 1 Year 3 Years 5 Years 10 Years Since Inception Series O Units 13.2% 13.5% 19.6% 11.7% 4.5% S&P 500 TR Index 14.1% 14.4% 21.4% 11.1% 4.9% For a definition of the benchmark(s), please refer to Benchmark(s) Information at the end of the section. -20% -40%

10 Series PF (AS AT DECEMBER 31, 2017) FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the fiscal periods ended December 31. Net assets per unit (1) Net assets beginning of period $10.18 $10.00 Increase (decrease) from operations: Total revenue Total expenses (0.11) (0.03) Realized gains (losses) for the period Unrealized gains (losses) for the period Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends (0.10) (0.22) From capital gains Returns of capital Total annual distributions (3) (0.10) (0.22) Net assets end of period $11.31 $10.18 Ratios and supplemental data: Total net asset value ($ millions) (1) $23.90 $12.12 Number of units outstanding 2,112,134 1,190,698 Management expense ratio (2) 0.99% 1.02% Management expense ratio before waivers or absorptions 0.99% 1.02% Trading expense ratio (3) 0.01% 0.01% Portfolio turnover rate (4) 2.09% 7.77% Net asset value per unit $11.31 $10.18 For explanatory notes, please refer to Explanatory Notes to Financial Highlights at the end of the section. PAST PERFORMANCE The following information assumes that all distributions made by the Fund in the periods shown were reinvested in additional securities of the Fund and does not take into account sales, redemption, distribution or other optional charges that would have reduced returns. Past performance does not necessarily indicate how the Fund will perform in the future. Year-by-Year Returns The bar chart shows the Fund s annual performance for each of the years shown, and illustrates how the investment Fund s performance has changed from year to year. In percentage terms, the bar chart indicates how much an investment made on January 1 would have grown or decreased by the December 31 of each year shown. 40% 20% 0% * % 12.1% Annual Compound Returns The table shows the annual compound total returns for each of the periods shown ended December 31, The returns are compared against the benchmark(s) over the same period. 1 Year 3 Years 5 Years 10 Years Since Inception Series PF Units 12.1% N/A N/A N/A 13.1% S&P 500 TR Index 14.1% N/A N/A N/A 17.1% For a definition of the benchmark(s), please refer to Benchmark(s) Information at the end of the section. -20% -40% *2016 Series PF return: October 3 to December 31

11 Series PF (Hedged) (AS AT DECEMBER 31, 2017) FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the fiscal periods ended December 31. Net assets per unit (1) 2017 Net assets initial offering price* $10.00 Increase (decrease) from operations: Total revenue 0.13 Total expenses (0.06) Realized gains (losses) for the period 0.74 Unrealized gains (losses) for the period 0.24 Total increase (decrease) from operations (2) 1.05 Distributions: From income (excluding dividends) From dividends From capital gains Returns of capital Total annual distributions (3) Net assets end of period $10.96 Ratios and supplemental data: 2017 Total net asset value ($ millions) (1) $0.28 Number of units outstanding 25,095 Management expense ratio (2) 1.02% Management expense ratio before waivers or absorptions 1.02% Trading expense ratio (3) 0.01% Portfolio turnover rate (4) 2.09% Net asset value per unit $10.96 For explanatory notes, please refer to Explanatory Notes to Financial Highlights at the end of the section. *The series was launched on June 9, PAST PERFORMANCE The following information assumes that all distributions made by the Fund in the periods shown were reinvested in additional securities of the Fund and does not take into account sales, redemption, distribution or other optional charges that would have reduced returns. Past performance does not necessarily indicate how the Fund will perform in the future. Year-by-Year Returns The bar chart shows the Fund s annual performance for each of the years shown, and illustrates how the investment Fund s performance has changed from year to year. In percentage terms, the bar chart indicates how much an investment made on January 1 would have grown or decreased by the December 31 of each year shown. 40% 20% 0% * 9.4% Annual Compound Returns The table shows the annual compound total returns for each of the periods shown ended December 31, The returns are compared against the benchmark(s) over the same period. 1Year 3 Years 5 Years 10 Years Since Inception Series PF (H) Units N/A N/A N/A N/A 9.4% S&P 500 TR Index N/A N/A N/A N/A 3.9% For a definition of the benchmark(s), please refer to Benchmark(s) Information at the end of the section. -20% -40% *2017 Series PF (H) return: June 9 to December 31

12 Series PFT (AS AT DECEMBER 31, 2017) FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the fiscal periods ended December 31. Net assets per unit (1) Net assets beginning of period $15.07 $15.00 Increase (decrease) from operations: Total revenue Total expenses (0.16) (0.04) Realized gains (losses) for the period Unrealized gains (losses) for the period Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends (0.14) From capital gains Returns of capital (1.21) (0.20) Total annual distributions (3) (1.35) (0.20) Net assets end of period $15.47 $15.07 Ratios and supplemental data: Total net asset value ($ millions) (1) $0.35 $0.01 Number of units outstanding 22, Management expense ratio (2) 1.02% 0.99% Management expense ratio before waivers or absorptions 1.02% 0.99% Trading expense ratio (3) 0.01% 0.01% Portfolio turnover rate (4) 2.09% 7.77% Net asset value per unit $15.47 $15.07 For explanatory notes, please refer to Explanatory Notes to Financial Highlights at the end of the section. PAST PERFORMANCE The following information assumes that all distributions made by the Fund in the periods shown were reinvested in additional securities of the Fund and does not take into account sales, redemption, distribution or other optional charges that would have reduced returns. Past performance does not necessarily indicate how the Fund will perform in the future. Year-by-Year Returns The bar chart shows the Fund s annual performance for each of the years shown, and illustrates how the investment Fund s performance has changed from year to year. In percentage terms, the bar chart indicates how much an investment made on January 1 would have grown or decreased by the December 31 of each year shown. 40% 20% 0% * % 12.0% Annual Compound Returns The table shows the annual compound total returns for each of the periods shown ended December 31, The returns are compared against the benchmark(s) over the same period. 1 Year 3 Years 5 Years 10 Years Since Inception Series PFT Units 12.0% N/A N/A N/A 13.0% S&P 500 TR Index 14.1% N/A N/A N/A 17.1% For a definition of the benchmark(s), please refer to Benchmark(s) Information at the end of the section. -20% -40% *2016 Series PFT return: October 3 to December 31

13 Series T (AS AT DECEMBER 31, 2017) FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the fiscal periods ended December 31. Net assets per unit (1) Net assets beginning of period $10.60 $10.75 $10.50 $9.86 $7.87 Increase (decrease) from operations: Total revenue Total expenses (0.27) (0.27) (0.28) (0.26) (0.24) Realized gains (losses) for the period Unrealized gains (losses) for the period 0.38 (0.05) Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends (0.09) (0.23) (0.17) (0.15) (0.13) From capital gains Returns of capital (0.85) (0.86) (0.84) (0.79) (0.63) Total annual distributions (3) (0.94) (1.09) (1.01) (0.94) (0.76) Net assets end of period $10.72 $10.60 $10.75 $10.50 $9.86 Ratios and supplemental data: Total net asset value ($ millions) (1) $4.51 $4.90 $7.02 $7.77 $6.67 Number of units outstanding 420, , , , ,849 Management expense ratio (2) 2.53% 2.55% 2.55% 2.55% 2.61% Management expense ratio before waivers or absorptions 2.53% 2.55% 2.55% 2.55% 2.99% Trading expense ratio (3) 0.01% 0.01% 0.01% 0.01% 0.01% Portfolio turnover rate (4) 2.09% 7.77% 4.87% 8.97% 11.85% Net asset value per unit $10.72 $10.60 $10.75 $10.50 $9.86 For explanatory notes, please refer to Explanatory Notes to Financial Highlights at the end of the section. The opening net assets have been adjusted in accordance with IFRS. Information pertaining to 2013 was derived from the audited annual financial statements prepared under Canadian GAAP. PAST PERFORMANCE The following information assumes that all distributions made by the Fund in the periods shown were reinvested in additional securities of the Fund and does not take into account sales, redemption, distribution or other optional charges that would have reduced returns. Past performance does not necessarily indicate how the Fund will perform in the future. Year-by-Year Returns The bar chart shows the Fund s annual performance for each of the years shown, and illustrates how the investment Fund s performance has changed from year to year. In percentage terms, the bar chart indicates how much an investment made on January 1 would have grown or decreased by the December 31 of each year shown. 40% 20% 0% % -1.0% 10.2% 6.4% 5.6% 36.0% 16.8% 12.3% 9.2% 10.5% Annual Compound Returns The table shows the annual compound total returns for each of the periods shown ended December 31, The returns are compared against the benchmark(s) over the same period. 1 Year 3 Years 5 Years 10 Years Since Inception Series T Units 10.5% 10.7% 16.6% 8.9% 6.6% S&P 500 TR Index 14.1% 14.4% 21.4% 11.1% 9.4% For a definition of the benchmark(s), please refer to Benchmark(s) Information at the end of the section. -20% -40%

14 EXPLANATORY NOTES TO FINANCIAL HIGHLIGHTS NOTES TO FINANCIAL HIGHLIGHTS Net Assets per Unit: (1) This information is derived from the Fund s audited annual financial statements. In the period a fund or series is established, the financial information is provided from the date of inception to the end of the period. In cases where the net assets per unit presented in the financial statements differ from the net asset value calculated for Fund pricing purposes, an explanation of these differences can be found in the notes to the financial statements. (2) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase/decrease in net assets from operations is based on the weighted average number of units outstanding over the fiscal period. This table is not intended to be a reconciliation of opening and closing net assets per unit. (3) Distributions were paid in cash or reinvested in additional units of the Fund or both, and exclude distributions of management fee reductions to unitholders. BENCHMARK(S) INFORMATION S&P 500 TR Index measures the total return of the broader US economy through changes in the aggregate market value of 500 stocks representing all major industries and assumes reinvestment of dividends. Index returns are shown in Canadian dollars. Ratios and Supplemental Data: (1) This information is provided as at the period-end of the year shown. (2) Management expense ratio is based on total expenses for the stated period and is expressed as an annualized percentage of daily average net asset value during the period. (3) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of net asset value during the period. (4) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio manager manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling each security in its portfolio once in the course of the relevant period. The higher the portfolio turnover rate in the period, the greater the trading costs payable by the Fund and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of the Fund. OTHER FUND INFORMATION Reported year-by-year returns for past years may be revised, based on the results of recalculations, audits and/or other historical review processes. Such revisions are considered immaterial to performance disclosure unless otherwise stated. Series I and V, as applicable, are presently capped (closed to new investors). Investors who currently own units of Series I and Series V may continue to purchase additional units in those series. These series may become available for purchase by new investors at the discretion of the Manager. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute.