Annual Management. Fiera Capital High Income Fund REPORT OF FUND PERFORMANCE FOR THE YEAR ENDED DECEMBER 31, 2014

Transcription

1 Annual Management REPORT OF FUND PERFORMANCE FOR THE YEAR ENDED DECEMBER 31, 2014 Fiera Capital High Income Fund

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3 Fiera Capital High Income Fund MANAGEMENT REPORT OF FUND PERFORMANCE For the year ended December 31, 2014 This management report of fund performance contains financial highlights but does not contain either interim or annual financial statements of the Fund. You can get a copy of the financial statements at your request, and at no cost, by calling , by writing to us at Fiera Capital Corporation, 1501 McGill College, suite 800, Montreal, QC, H3A 3M8 or by visiting our website at 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. MANAGEMENT DISCUSSION OF FUND PERFORMANCE Investment Objective and Strategies The investment objective of the Fiera Capital High Income Fund (the Fund ) is to provide a relatively high level of income along with moderate capital growth by investing in a diversified portfolio of Canadian securities including dividend paying equities, real estate investment trusts (REITs), preferred shares, and fixed income instruments. Investments are chosen on a fundamental basis. Security selection emphasizes companies with consistent dividend and distribution levels along with an ability to grow the dividends over the long term. The fund may use derivatives, such as futures, options, warrants, and swaps, for hedging purposes, or in conjunction with the Fund s other strategies in a manner considered most appropriate to achieving the Fund s overall investment objectives and enhancing the Fund s return. Our strategy is based on understanding the business model of companies and assessing their growth prospects as well as the risks they face with a focus on cash flow generation. We focus on companies that pay a dividend as history has shown that dividend payers outperform over the long term. We then use these growth and risk assessments to appropriately risk adjust valuation multiples to build a portfolio with attractive risk-adjusted return potential that is diversified in terms of business drivers and sources of risk. Dividends can make up a significant portion of total return and provide a regular, tangible, source of income. Risk No material changes were made which affected the overall level of risk associated with an investment in the Fund for the year ended December 31, The overall levelofriskassociatedwithaninvestmentinthefund remains as discussed in the simplified prospectus dated August 28, Results of Operations For the year ending December 31, 2014, the Fund generated returns of 1.3%, 2.2%, 2.5% and 3.6% for Class A, B, F and O units respectively. The benchmark S&P/TSX Composite High Dividend Index (formerly named S&P/TSX Equity Income Index) returned 5.2% over the same period, while the S&P/TSX Composite returned a respectable 10.5% in Digging into what drove these returns reveals two very different halves to The cyclical Energy and Materials sectors outperformed in the first half of 2014, propelled by strong commodity prices (particularly in oil and gold), however, they were the clear losers in the second half of 2014 as oil plunged 51% and gold sold off by 10%. In contrast, during the first half of 2014 the Consumer Discretionary, Telecommunication and Healthcare sectors underperformed, yet came roaring back, particularly in the fourth quarter, as investors sought refuge in anything that did not have resource exposure. The other notable event and surprise in 2014 was the decline in the 10 year government bond yield. Investors started out 2014 bullish on the global economy, grew cautious by mid-year and outright worried by year-end about lower than expected growth in China, European recession and problems in emerging economies. The US remains the sole driver of growth for the global economy. Interestingly for the S&P/TSX, 2014 expected earnings remained flat, despite the gyrations in the commodities market, declining yield on the 10 year government bond, and softening outlook for the global growth. Consequently, the 2014 market performance was driven by multiple expansions. The one year forward earnings multiple on the S&P/TSX remains elevated at 15.7x, almost 2 points higher than its 10 year average. While the market has corrected since its third quarter highs, one year forward earnings estimates have fallen faster. The combination of declining oil and natural gas prices, slower global economic growth, and falling earnings estimates explains the outperformance of defensive sectors in the second half of 2014 as investors shunned risk. It also explains the outperformance of large cap stocks over small cap stocks. Challenging fundamentals and elevated market multiples will require prudence in our investment choices. The Fund s underperformance compared to its benchmark was caused by security selection, which should be expected due to the bottom-up fundamental research performed by the Manager. Security selection in the Materials and Consumer Discretionary sectors contributed the most to the underperformance. The

4 MANAGEMENT DISCUSSION OF FUND PERFORMANCE Continued single largest detractor was the overweight in Canexus which early in the year announced a significant cost overrun at their new crude by rail terminal. Within the Consumer Discretionary Sector, the overweight in Aimia was the leading detractor. Partially offsetting the above was good security selection in the Energy sector (owning Inter Pipeline and Whitecap Resources). Sector allocation had a modest positive contribution to performance for the year. The largest positive impact came from the overweight position in the outperforming Information Technology sector. In 2014, we made select changes to the Fund. The overall purpose of these transactions was to both support the income generating capacity of the Fund and to better meet the objective of modest capital appreciation. In the Telecommunication sector, the Fund held Bell Aliant which received a take-over offer in July at a premium to its trading price. We sold the entire position prior to year-end. In the Materials sector, we eliminated the position in Canexus early in the third quarter shortly after the company announced a new CEO and further cost overruns at the NATO project. These new cost overruns would bring the debt to an unmanageable level and we thought the company would be forced to cut their dividend or sell assets. Subsequent to the sale, the company did cut its dividend by 27% and the NATO project is up for sale. We added Agrium to the Fund due to the good fundamentals with its exposure to all three major fertilizers and its retail business for agriculture. The company is well managed and has a very strong balance sheet. The yield at over 3% is interesting and management is committed to grow the dividend over time. With a strong plan to significantly grow free cash flow over the next 2 years, we found the valuation compelling. We also added Teck Resources. We think that the bear market for metallurgical coal is getting near to its end. Several production cuts from competitors have been announced and should help the price of the commodity recover in the second half of In the meantime, Teck offers compelling value. The cost control initiatives have been very successful and they still generate significant cash flow. The balance sheet is in good shape (there is $2B in cash and the debt has very long maturities). In the Financials sector, we eliminated the position in Sun Life. It has benefited greatly from the growth of MFS (its asset management division in the US) over the past few years. This was reflected in the share price and when we sold Sunlife it was trading at a valuation less attractive historically relative to peers. In the fourth quarter, we added to the position in RioCan REIT. We found its valuation attractive given the low interest rate environment and the very real possibility that any interest rate increase will be modest over the foreseeable future. In the Energy sector, we added to the position in Whitecap Resources because of Whitecap s strong balance sheet and sustainable operations which include growing production within cash flows in a low commodity environment. We see significant upside to an oil price recovery. After an in-dept analysis of the Funds clientele and its desire to receive regular income originating from the Fund s fixed income investments, the Fund Manager decided to proceed with monthly fixed distributions. Upon establishment of the Fund, the Fund Manager anticipated sufficient performance from the Fund to support an annual distribution of $0.82 per unit originating from regular revenus and capital gain. To this date, the Fund Manager remains confident that the Fund can maintain the appropriate performance required to maintain the fixed distribution. However, should the current state surrounding interest rates remain, the Fund Manager may potentially need to revise his decision in order to address this new market reality. Should this scenario prevail, the current distribution policy would need to be revised to ensure the Fund s potential performance along with its investment objective. It is important to remind that, in the case of a return of capital, the distribution is not the result of increased wealth, but rather a return of capital to investors. This return reduces the amount available that the Fund has to invest and create additional wealth. Expenses The management expense ratios ( MER ) increased significantly for Class F and O while it remained fairly stable for Class A and B. The variation between classes is explained by a change in the allocation methodology of some of the securityholders reporting costs. Prior to December 1, 2013, these fees were allocated by the relative number of unitholders in each class, and are since allocated using the weight of the net asset value of each class. As such, the allocation of these expenses between the classes was somewhat different in 2014 than in There have been minor changes in the fee structure of the funds in A new fee schedule with RBC I&TS became effective April 1st, 2014, which affected the custodian fees and some of the securityholders reporting costs. The prior schedule had been in place for several

5 MANAGEMENT DISCUSSION OF FUND PERFORMANCE Continued years, as such, there was an acceptable market adjustment on the newly renegotiated fee schedule. Since these fees are dependant of the fluctuation of the total net asset value of the fund, the increase of these fees may not necessarily translate into an increase of the overall fees of the fund. The structure of the fund accounting fees and the audit fees also slightly increased in While the increase in the audit fees is a reflection of additional work required in preparation for the conversion in January 2014 to the new International Financial Reporting Standards ( IFRS ), the fund accounting fees were adjusted following a manager review which concluded they were insufficient in the past, and did not properly reflect all expenses. Details on the fund accounting fees are available under the Related Party Transaction section of this document. It is expected that those increases will have an impact of a few basis points on the MER of the Fund. In addition to the above mention changes, the custodian fees, the audit fees, the independent review committee fees, the filing fees and the fund accounting fees have been impacted by under and over accruals in 2013, which can explain variations between the 2013 and the 2014 expense levels. Those variations had no significant impact on the net asset value per unit. Recent Developments At the beginning of 2014, it was announced that Carole Berthiaume, one of the members of the management team and co-lead of the Value strategy, would be retiring at the end of June Patrick Potvin, the other comanager of the Value strategy, is now assuming sole leadership of the team. He will continue to contribute to the management of the Canadian High Income Equity investment strategy. Patrice Filiatrault became a new member of the management team as of March 3rd Patriceisaninvestmentprofessionalwith20yearsof experience. Patrice spent the last years managing portfolios for RBC Global Asset Management. Patrice took over most of Carole s responsibilities in terms of sector coverage and portfolio management. Michael Brown continues to be the lead portfolio manager for the Canadian High Income Equity investment strategy. There are no major changes expected in the strategic positioning of the Fund. We remain positive but prudent on the Canadian equity market. We will continue to find and invest in stocks that we deem undervalued. We will finance the purchase of such stocks by selling the ones we think are overvalued. The goal is, and remains, to offer a high dividend paying strategy with the total performance accomplished via a value biased fund. A further increase in the market multiple would be negative to the Fund. The higher the multiple, the harder it is to find good value stocks. If corporate profits do not materialize and if there is a market correction, it would have a negative impact on the absolute performance. However, this would probably be positive in relative performance terms because of the higher quality stocks in the Fund. The stocks in the Fund have stronger balance sheets and lower payout ratios. The Fund has a 33% weight in Financials. Correspondingly, the Fund is exposed to changes in interest rates. More normal levels of interest rates, i.e. higher interest rates, would be positive for the Fund. The Fund also has a 30% weight in Energy. As a result, the Fund is exposed to fluctuations in the price of oil and natural gas. The Fund is positioned to benefit from rising energy prices. Higher inflation, acting as a tax on consumption, would be a negative for the economy and equity markets valuation in particular. We continue to believe that our bottom-up value strategy focused on understanding, assessing and accurately pricing dividend paying stocks is well positioned, especially in the current low interest rate environment. Presentation and Adoption of IFRS The financial statements have been prepared in compliance with International Financial Reporting Standards (IFRS) applicable to the preparation of annual financial statements, including IFRS 1, First-time Adoption of International Financial Reporting Standards. The Fund adopted this basis of accounting in 2014 as required by Canadian securities legislation and the Canadian Accounting Standards Board. Previously, the Fund prepared its financial statements in accordance with Canadian generally accepted accounting principles as defined in the Part V of the Chartered Professional Accountants of Canada Handbook ( Canadian GAAP ). The comparative information has been restated from Canadian GAAP to comply with IFRS. The Fund has consistently applied the accounting policies used in the preparation of its opening IFRS statement of financial position at January 1, 2013 and throughout all periods presented, as if these policies had always been in effect. Note 11, of the Fund s financial statements, discloses the impact of the transition to IFRS on the Fund s reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Fund s financial statements for the year ended December 31, 2013 prepared under Canadian GAAP. Forward-Looking Statement Some of the statements contained herein including, without limitation, financial and business prospects and

6 MANAGEMENT DISCUSSION OF FUND PERFORMANCE Continued financial outlook may be forward-looking statements which reflect management s expectations regarding future plans and intentions, growth, results of operations, performance and business prospects and opportunities. Words such as may, will, should, could, anticipate, believe, expect, intend, plan, potential, continue and similar expressions have been used to identify these forward-looking statements. These statements reflect management s current beliefs and are based on information currently available to management. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements including, but not limited to, changes in general economic and market conditions and other risk factors. Although the forward-looking statements contained herein are based on what management believes to be reasonable assumptions, we cannot assure that actual results will be consistent with these forward-looking statements. Investors should not place undue reliance on forwardlooking statements. These forward-looking statements are made as of the date hereof and we assume no obligation to update or revise them to reflect new events or circumstances. Related Party Transactions Fiera Capital Corporation ( Fiera ) is the Trustee, Portfolio Advisor and Manager of the Fund. Fiera provides or arranges for the provision of all general management and administrative services required by the Fund in its day to day operations, including esthablishment of brokerage arrangements relating to the purchase and sale of the investment portfolio and recordkeeping. Fiera receives a fee for these services. For providing its services to the Fund, the Manager receives annual management fees (the Management Fees ) from the Fund equal to 2.00% of the Class Net Asset Value of the Class A Units, 1.25% of the Class Net Asset Value of the Class B Unit and 1.00% of the Class Net Asset Value of the Class F Units. Class O unitholders are discretionary clients of Fiera. Management fees related to Class O net asset value are handled outside of the Fund. Also, Fiera charges to the Fund fund accounting fees which are allocated using the average weight of the Net Asset Value of each Fiera funds, and which are calculated and accrued on each Valuation Day and payable quarterly. Such fees were increased in 2014 since the manager felt they were insufficient in the past, and did not properly reflected the real amount of expenses. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to be by Fiera. Related party transactions presented in the financial statements incurred by the Fund with the Manager are as follows: As at December 31, 2014 Management fees $418,710 Fund accounting fees 4,784 Management fees payable 36,218 Fund accounting fees payable 1,746 Fiera adopted the practice of funding seed capital for Funds that it promotes. Fiera held 0.30% of Class A units and 0.40% of Class F units as at December 31, 2014.

7 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 past 5 years, where applicable. Fiera Capital High Income Fund Class A (formerly Fiera Sceptre High Income Fund) (4) Net Assets, beginning of year $ $ $ $ $ Increase (decrease) from operations: Total revenue Total expenses (0.55) (0.49) (0.50) (0.45) (0.39) Realized gains (losses) for the period (0.04) Unrealized gains (losses) for the period (2.14) (4.20) (0.16) Total increase (decrease) from operations (2) (0.42) (1.85) 1.27 Distributions: From income (excluding dividends) (0.52) (0.51) (0.27) (0.68) (0.82) From dividends From capital gains Return of capital (0.30) (0.31) (0.55) (0.07) Total Annual Distributions (3) (0.82) (0.82) (0.82) (0.75) (0.82) Net Assets, end of year $ $ $ $ $ (1) This information is derived from the Fund s financial statements. The net assets per unit presented in the financial statements may differ from the net asset value calculated for fund transactional purposes. An explanation of these differences can be found in the notes to the financial statements if applicable. (2) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of units outstanding over the financial period. (3) Distributions were paid in cash/reinvested in additional units of the Fund, or both. (4) December figures have been restated in compliance with IFRS. (5) On August 26, 2011, the existing Class D have been redesigned as Class A. Ratios and Supplemental Data (5) Net Asset Value ($ 000 s) (1) Number of units outstanding (1) 40,672 25,253 10,885 1,203 4,324 Management expense ratio (%) (2) Management expense ratio before waivers or absorptions (%) Portfolio turnover rate (%) (3) Trading expense ratio (%) (4) Net Asset Value per unit $16.89 $17.45 $15.19 $14.94 $15.74 (1) The information is provided as at December 31 of the year shown. (2) The management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs before income tax) for the stated period and is expressed as an annualized percentage of daily average net assets during the period. (3) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund s portfolio turnover in a year, the greater the trading costs payable by the Fund in the year, 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 a fund. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net assets during the period. (5) December figures have been restated in compliance with IFRS.

8 FINANCIAL HIGHLIGHTS Continued Fiera Capital High Income Fund Class B (formerly Fiera Sceptre High Income Fund) (4) Net Assets, beginning of year $ $ $ $ $ Increase (decrease) from operations: Total revenue Total expenses (0.37) (0.35) (0.40) (0.35) (0.31) Realized gains (losses) for the period Unrealized gains (losses) for the period (1.46) (1.98) 1.30 Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) (0.53) (0.51) (0.32) (0.33) (0.82) From dividends From capital gains Return of capital (0.30) (0.32) (0.51) (0.43) Total Annual Distributions (3) (0.83) (0.83) (0.83) (0.76) (0.82) Net Assets, end of year $ $ $ $ $ (1) This information is derived from the Fund s financial statements. The net assets per unit presented in the financial statements may differ from the net asset value calculated for fund transactional purposes. An explanation of these differences can be found in the notes to the financial statements if applicable. (2) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of units outstanding over the financial period. (3) Distributions were paid in cash/reinvested in additional units of the Fund, or both. (4) December figures have been restated in compliance with IFRS. (5) On August 26, 2011, the existing Class A have been redesigned as Class B. Ratios and Supplemental Data (5) Net Asset Value ($ 000 s) (1) 27,054 30,321 26,723 43,548 48,948 Number of units outstanding (1) 1,540,060 1,685,995 1,723,064 2,871,275 3,077,703 Management expense ratio (%) (2) Management expense ratio before waivers or absorptions (%) Portfolio turnover rate (%) (3) Trading expense ratio (%) (4) Net Asset Value per unit $17.57 $17.98 $15.51 $15.17 $15.90 (1) The information is provided as at December 31 of the year shown. (2) The management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs before income tax) for the stated period and is expressed as an annualized percentage of daily average net assets during the period. (3) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund s portfolio turnover in a year, the greater the trading costs payable by the Fund in the year, 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 a fund. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net assets during the period. (5) December figures have been restated in compliance with IFRS.

9 FINANCIAL HIGHLIGHTS Continued Fiera Capital High Income Fund Class F (formerly Fiera Sceptre High Income Fund) (4) Net Assets, beginning of year $ $ $ $ $ Increase (decrease) from operations: Total revenue Total expenses (0.35) (0.26) (0.39) (0.31) (0.28) Realized gains (losses) for the period Unrealized gains (losses) for the period (2.18) 2.12 (0.25) (2.26) 1.51 Total increase (decrease) from operations (2) (0.10) (0.46) 2.78 Distributions: From income (excluding dividends) (0.53) (0.51) (0.35) (0.38) (0.82) From dividends From capital gains Return of capital (0.30) (0.32) (0.48) (0.38) Total Annual Distributions (3) (0.83) (0.83) (0.83) (0.76) (0.82) Net Assets, end of year $ $ $ $ $ (1) This information is derived from the Fund s financial statements. The net assets per unit presented in the financial statements may differ from the net asset value calculated for fund transactional purposes. An explanation of these differences can be found in the notes to the financial statements if applicable. (2) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of units outstanding over the financial period. (3) Distributions were paid in cash/reinvested in additional units of the Fund, or both. (4) December figures have been restated in compliance with IFRS. Ratios and Supplemental Data (5) Net Asset Value ($ 000 s) (1) Number of units outstanding (1) 21,606 15,437 10,500 30,464 35,768 Management expense ratio (%) (2) Management expense ratio before waivers or absorptions (%) Portfolio turnover rate (%) (3) Trading expense ratio (%) (4) Net Asset Value per unit $17.91 $18.28 $15.70 $15.32 $16.02 (1) The information is provided as at December 31 of the year shown. (2) The management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs before income tax) for the stated period and is expressed as an annualized percentage of daily average net assets during the period. (3) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund s portfolio turnover in a year, the greater the trading costs payable by the Fund in the year, 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 a fund. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net assets during the period. (5) December figures have been restated in compliance with IFRS.

10 FINANCIAL HIGHLIGHTS Continued Fiera Capital High Income Fund Class O (formerly Fiera Sceptre High Income Fund) (4) Net Assets, beginning of year $ $ $ $ $ Increase (decrease) from operations: Total revenue Total expenses (0.11) (0.02) (0.12) (0.05) (0.04) Realized gains (losses) for the period Unrealized gains (losses) for the period (1.75) 1.74 (0.14) (2.15) 1.06 Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) (0.52) (0.50) (0.31) (0.41) (0.81) From dividends From capital gains Return of capital (0.29) (0.31) (0.50) (0.33) Total Annual Distributions (3) (0.81) (0.81) (0.81) (0.74) (0.81) Net Assets, end of year $ $ $ $ $ (1) This information is derived from the Fund s financial statements. The net assets per unit presented in the financial statements may differ from the net asset value calculated for fund transactional purposes. An explanation of these differences can be found in the notes to the financial statements if applicable. (2) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of units outstanding over the financial period. (3) Distributions were paid in cash/reinvested in additional units of the Fund, or both. (4) December figures have been restated in compliance with IFRS. Ratios and Supplemental Data (5) Net Asset Value ($ 000 s) (1) 13,366 11,012 9,429 11,442 15,437 Number of units outstanding (1) 697, , , , ,460 Management expense ratio (%) (2) Management expense ratio before waivers or absorptions (%) Portfolio turnover rate (%) (3) Trading expense ratio (%) (4) Net Asset Value per unit $19.17 $19.26 $16.29 $15.63 $16.09 (1) The information is provided as at December 31 of the year shown. (2) The management expense ratio is based on total expenses (excluding commissions and other portfolio transaction costs before income tax) for the stated period and is expressed as an annualized percentage of daily average net assets during the period. (3) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund s portfolio turnover in a year, the greater the trading costs payable by the Fund in the year, 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 a fund. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net assets during the period. (5) December figures have been restated in compliance with IFRS.

11 FINANCIAL HIGHLIGHTS Continued Management Fees An annual management fee is accrued daily as a percentage of the net asset value of each Class units and is paid to Fiera monthly in arrears. Management fees are used by Fiera to pay for the costs of managing and promoting the Fund. The breakdown of the services received in consideration of management fees for each Class units, as a percentage of the management fees, is as follows: Fiera Capital High Income Fund (formerly Fiera Sceptre High Income Fund) Breakdown of Services Portfolio Management Fees Trailing Commissions Advisory Services* Class A units 2.00% 50.00% 50.00% Class B units 1.25% 20.00% 80.00% Class F units 1.00% 0.00% % * Includes Manager and Portfolio advisor compensation, transaction compliance, regulatory fees and insurance. Investors in Class O Units of a Fund pay Fiera a fee based on the net asset values of all investments managed including those units at a negociated rate reflecting the services provided to them. Investors in Class O Units pay a fee directly to Fiera for its investment advisory services. The management fees paid by the Funds are not charged to the Class O Units, but the Class O Units are charged their share of all other expenses. Trailing Commissions To assist with distribution, administration and other client services, at the end of each quarter, in relation to Class A and Class B Units of all Funds, Fiera pays dealers a trailer fee out of the management fees that Fiera receives. The trailer fee is a percentage of the total Net Asset Value per unit of all Class A and Class B Units of all Funds held by each dealer s clients. The trailer fee is paid so long as such Class A and Class B Units continue to be held by clients through the dealer. Fiera expect that dealers will pay a portion of the trailer fees to your financial advisers for the services they provide to you. The table below show the annual trailer fee rate Fiera pay. Fiera Capital High Income Fund (formerly Fiera Sceptre High Income Fund) Annual Trailing Commission Rate (%) Year Year 1 Year 2 Year 3 4 and following Class A units 1.00% 1.00% 1.00% 1.00% Class A LL units* 0.50% 0.50% 0.50% 1.00% Class B units 0.25% 0.25% 0.25% 0.25% * units purchased under the Low Load Sales Charge Option. Fiera also pays trailer fee to the discount broker for securities purchased through discount brokerage firms. In addition, Fiera may changes the trailer fee rate or cancels it at any time. Fiera does not pay trailer fees on Class F, Class O Units or units bought directly from Fiera Capital Funds Inc. (formerly Fiera Sceptre Funds Inc.). PAST PERFORMANCE The performance information shown below assumes that all distributions made by the Fund were reinvested in additional units of the Fund. The performance information shown does not take into account sales, redemption, distribution or other optional charges that, if applicable, would have reduced returns or performance. Mutual funds are not guaranteed. How the Fund performed in the past does not necessarily indicate how it will perform in the future. Year-by-Year Returns The following bar charts show the Fund s annual performance for each of the years shown, and illustrate how the Fund s performance has changed from year to year. The chart shows, in percentage terms, how much an investment in the Fund made on the first day of each financial year would have grown or decreased by the last day of each financial year. 60% 40% 20% 0% -20% -40% -60% Class A Units Annual returns %* 2009 * From April 30, 2009 to December 31, % % % % % 2014

12 PAST PERFORMANCE Continued 60% 40% 20% 0% -20% -40% -60% 21.1% 2005 Class B Units Annual returns 28.0% 19.1% 8.1% 7.9% 8.0% 0.1% -31.5% Class F Units Annual returns 21.9% % 2014 Annual Compound Returns The following table compares the historical annual compound total returns of the Class A, B, F and O units with the benchmark Index (the Benchmark index ). The blended composition used from September to February 28, 2010 and comprised of 60% S&P/TSX Income Trust Index (the S&P/TSX Income Trusts Index reflects the performance of Income Trusts & Royalty Trust incorporated under Canadian jurisdictions and listed on the TSX) and 40% S&P/TSX Composite Index (the S&P/TSX Composite Index reflects the performance of stocks of major companies incorporated under Canadian jurisdictions and listed on the TSX). The blended composition changed on March 1, 2010 until January 31, 2011 to the S&P Composite Index. Since February 1, 2011, the benchmark used for comparison is the S&P/TSX Composite High Dividend Index (formerly S&P/TSX Equity Income Index ) (consists of 50 to 75 stocks selected from the S&P/TSX Composite Index focusing on dividend income). 60% 40% 20% 0% 28.5% 19.3% 8.9% 0.0%* 0.3% 8.2% 22.3% 2.5% For further information on the performance of the Fund, please refer to the Results of Operations section of the present document. Fiera Capital High Income Fund (formerly Fiera Sceptre High Income Fund) -20% -32.0% -40% -60% From December 29, 2006 to December 31, 2006 Class O Units Annual returns 60% 40% 30.0% 21.0% 20% 9.2% 9.5% 9.7% 1.4%* 1.7% 0% % % Commencement of operation date % Past 10 years % Past 5 years % Past 3 years % Past 1 year % Class A Benchmark index Class B Benchmark index Class F Benchmark index Class O Benchmark index % -40% -30.4% -60% * From August 31, 2005 to December 31, 2005

13 PAST PERFORMANCE Continued The Inception date is the date when the fund was formed and became available for sale to the public, while the Commencement of operation date indicates when a fund began investing in the market. Considering that some classes may have different Commencement of operations date and Inception date, we report only the Commencement of operation date. The different dates are listed below: Commencement of operation date Inception date Class A April 30, 2009 April 30, 2009 Class B September 7, 2001 September 7, 2001 Class F December 29, 2006 December 1, 2006 Class O August 31, 2005 August 31, 2005 SUMMARY OF INVESTMENT PORTFOLIO as at December 31, 2014 Sector Mix % of Net Asset Value Energy Materials 6.15 Industrials 4.89 Consumer Discretionary 5.09 Financials Information Technology 1.74 Telecommunication Services 9.69 Utilities 8.70 Cash and Cash Equivalents 0.14 Net Other Assets Top 25 Investments % of Net Asset Value 1 Royal Bank of Canada Whitecap Resources Inc Vermilion Energy Inc Crescent Point Energy Corp Bank of Montreal Inter Pipeline Fund, Class A TELUS Corp ARC Resources Ltd RioCan REIT BCE Inc Pembina Pipeline Corp Canadian Imperial Bank of Commerce Great-West Lifeco Inc IGM Financial Inc Cominar REIT, Class U Teck Resources Ltd Superior Plus Corp Agrium Inc WSP Global Inc Husky Energy Inc Brookfield Renewable Energy Partners LP Capital Power Corp Russel Metals Inc Thomson Reuters Corp DH Corp Total Net Asset Value: $41,493,969 The summary of investment portfolio may change due to ongoing portfolio transactions of the Fund. Asset Mix % of Net Asset Value Equities Real Estate Investment Trusts (REITs) 8.39 Cash and Cash Equivalents 0.14 Net Other Assets

14 fieracapital.com Client Services Montreal (Head office) 1501 McGill College Avenue Suite 800 Montreal, Quebec H3A 3M8 T T (toll free) Toronto 1 Adelaide Street East Suite 600 Toronto, Ontario M5C 2V9 T T (toll free) Calgary 607 8th Avenue SW Suite 300 Calgary, Alberta T2P 0A7 T Vancouver 1040 West Georgia Street Suite 520 Vancouver, British Columbia V6E 4H1 T T (toll free) Halifax 5657 Spring Garden Road, Box 117 Suite 505 Halifax, Nova Scotia B3J 3R4 T New York WILKINSON O GRADY & CO., INC. * 499 Park Avenue 7th Floor New York, New York T Los Angeles BEL AIR INVESTMENT ADVISORS * 1999 Avenue of the Stars Suite 2800 Los Angeles, California T T (toll free) info@fieracapital.com *Legal Notice to U.S. Persons: Fiera Capital does not provide investment advisory services, or offer investment funds, in the United States or to U.S. persons. Investment advisory services for U.S. persons are provided by Fiera Capital s U.S. affiliates, Bel Air Investment Advisors LLC, Wilkinson O Grady & Co., Inc. and Fiera Asset Management USA. Fiera Asset Management USA is a trade name of Bel Air Investment Advisors LLC. All services of Fiera Asset Management USA are provided by Bel Air Investment Advisors LLC, a SEC-registered investment advisor. Bel Air Investment Advisors LLC is a subsidiary of Fiera Capital.

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