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FRANKLIN K2 MULTI-STRATEGY ALTERNATIVES FUND*

CONFIDENTIAL OFFERING MEMORANDUM

May 22, 2019

* formerly Franklin K2 Alternative Strategies Fund This Confidential Offering Memorandum (the “Offering Memorandum”) constitutes an offering of these securities only in those jurisdictions where they may be lawfully offered for sale and is not, and under no circumstances is to be construed as, a public offering of these securities. No securities commission or similar regulatory authority in Canada has in any way passed on the merits of the securities offered nor has it reviewed this Offering Memorandum and any representation to the contrary is an offence. “Franklin Templeton Investments and design” and “Franklin” and “K2” are registered trademarks of Franklin Templeton Investments Corp. or its affiliates.

FRANKLIN K2 MULTI-STRATEGY ALTERNATIVES FUND OFFERING MEMORANDUM MAY 22, 2019

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SUMMARY The following is a summary of the Franklin K2 Multi-Strategy Alternatives Fund (the “Fund”), formerly Franklin K2 Alternative Strategies Fund. The summary is qualified in its entirety by the more detailed information contained in this Offering Memorandum and the information contained in the Declaration of Trust of the Fund. Prospective investors are encouraged to read the entire Offering Memorandum and to consult their own professional advisors about the legal and tax consequences of investing in the Fund.

THE FUND AND THE MANAGER

The Fund is an open end mutual fund established as a trust under the laws of Ontario pursuant to a Declaration of Trust dated August 2, 2016 (the “Declaration of Trust”), as amended from time to time. Franklin Templeton Investments Corp. (referred to as “we” “us” “FTIC” or the “Manager”) is the trustee, manager and portfolio advisor of the Fund and is responsible for the day-to-day administration and operation of the Fund. Please read “Organization and Management of the Fund - Manager and Trustee.”

THE PORTFOLIO ADVISOR

FTIC, in its capacity as the portfolio advisor of the Fund, is responsible for the investment management of the Fund, including discretionary investment authority over the assets of the Fund and responsibility for managing the Fund’s portfolio on a daily basis. Please read “Organization and Management of the Fund”

INVESTMENT OBJECTIVE

AND STRATEGIES Investment Objective The Fund’s investment objective is to seek capital appreciation with lower volatility relative to the broad equity markets by tracking the performance (net of fees) of FTIF Franklin K2 Alternative Strategies Fund (the “Underlying Fund”), which invests in a wide range of non-traditional or alternative strategies, outlined below. Investment Strategies The Fund seeks to achieve its investment objective by investing its assets singly or in some combination of: (i) Class Y Shares (Hedged) of the Underlying Fund; (ii) a wide range of non-traditional or alternative strategies, including but not limited to the strategies implemented by the Underlying Fund, outlined below; and (iii) total return swaps or other derivative instruments that track the performance of the Underlying Fund or a fund that implements similar investment strategies. Initially, the Fund will seek to achieve its investment objective by investing substantially all (up to 100%) of its assets in Class Y Shares (Hedged) of the Underlying Fund. The Underlying Fund The Underlying Fund is a sub-fund of Franklin Templeton Investment Fund (“FTIF”). FTIF is organized under the laws of Luxembourg as a Société d’Investissement à Capital Variable (“SICAV”). The portfolio advisor of the Underlying Fund is K2/D&S Management Co., L.L.C. (“K2”), an affiliate of FTIC. The Class Y Shares (Hedged) of the Underlying Fund are denominated in Canadian dollars. Although the base currency of the Underlying Fund is U.S. dollars, the assets attributable to the Class Y Shares (Hedged) of the Underlying Fund are hedged to the Canadian dollar. The Underlying Fund seeks to achieve its investment objective by allocating its net assets to sub-managers that implement multiple non-traditional or alternative strategies including but not limited to, some of all of the following strategies:


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Long Short Equity Strategies – Long Short Equity Strategies generally seek to produce returns from investments in the global equity markets by taking long and short positions in stocks and common stock indices. These strategies are generally focused on risk-adjusted returns and capitalize on the sub-manager’s views and outlooks for specific equity markets, regions, sectors and securities. Examples of long short equity strategies include (i) growth focused strategies, (ii) value focused strategies, (iii) market-neutral strategies (e.g., maintaining net exposures between 20% short and 20% long), (iv) sector-focused strategies (e.g., technology, healthcare, financials) and (v) regionally focused strategies (e.g., Europe, Asia). Relative Value Strategies – Relative Value Strategies encompass a wide range of investment techniques that are intended to profit from pricing inefficiencies. These strategies generally involve taking a position in one financial instrument and simultaneously taking an offsetting position in a related instrument in an attempt to profit from incremental changes in the price differential. Examples of relative value strategies are: (i) credit long short strategies; (ii) credit arbitrage; (iii) convertible arbitrage; and (iv) volatility arbitrage. Event Driven Strategies – Event Driven Strategies generally imply investment in securities of companies undergoing corporate events. These strategies are generally focused on analyzing the impact of the company-specific or transaction-specific event on security valuations. Examples of such company-specific or transaction-specific events include mergers, acquisitions, transfers of assets, tender offers, exchange offers, recapitalizations, liquidations, divestitures, spin-offs, equity restructurings and reorganizations. Global Macro Strategies – Global Macro Strategies generally focus on macro-economic (economy-wide phenomena such as changes in unemployment, national income, rate of growth, gross domestic product, inflation and price levels) opportunities across numerous markets and investments. Investments may be long or short and are based on the relative value or direction of a market, a currency, an interest rate, a commodity or any macroeconomic variable. Examples of Global Macro Strategies include discretionary (seeking to profit by tactically investing across different asset classes, markets, and investment opportunities through a combination of fundamental market analysis and quantitative modeling) and systematic (seeking to profit by utilizing quantitative models to identify investment opportunities across different asset classes and markets in order to construct a portfolio of investments) macro strategies. The Underlying Fund intends to invest in a wide range of transferrable securities, financial derivative instruments and other eligible securities. Such securities may include, but not limited to, equity and equity-related securities (which may include common stocks, preferred stocks, participatory notes, equity related certificates and convertible securities) and debt securities (which may include bonds, notes, debentures, bankers’ acceptances and commercial paper.) The Underlying Fund invests in equity and equity-related securities of companies located anywhere and of any capitalization size. Debt securities which may be acquired by the Underlying Fund shall include all varieties of fixed and floating-rate income securities of any maturity or credit rating (including investment grade, non-investment grade, low-rated, unrated securities and/or securities in default) of corporate and/or sovereign issuers worldwide, and may include inter alia, high yield (“junk”) bonds and distressed debt securities (securities of companies that are, or are about to be, involved in reorganizations, financial restructurings, or bankruptcy). The Underlying Fund may engage in active and frequent trading as part of its investment strategies. The Underlying Fund utilizes financial derivatives instruments for hedging, efficient portfolio management and/or investment purposes. These financial derivative


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instruments may be either dealt on regulated markets or over-the-counter, and may include, inter alia, (i) futures contracts, including futures based on equity or fixed income securities and indices, interest rate futures and currency futures and options thereon; (ii) swaps, including equity, currency, interest rate, total return swaps related to equity, fixed income and/or commodities as well as credit default swaps and options thereon; (iii) options, including call options and put options on indices, individual securities or currencies; and (iv) currency forward contracts. Use of financial derivative instrument may result in negative exposure in a specific asset class, yield curve/duration of currency. The Underlying Fund uses investment practices involving leverage and may take long and /or synthetic short positions in a wide range of asset classes, including equities, fixed income and currencies among others. Long positions benefit from an increase in the price of the underlying instrument or asset class, while short positions benefit from a decrease in that price. Exposure to synthetic short positions shall be effected through the use of financial derivative instruments. The expected level of leverage for the Underlying Fund should amount to 450%, however this is an estimate only and may be subject to higher leverage levels. The leverage calculation method used is the Sum of Notionals. It includes the notional exposure associated with financial derivative instruments but does not include the underlying investments of the Underlying Fund which make up 100% of total net assets. The Underlying Fund may also seek exposure to commodities through the use of cash-settled structured products or exchange-traded notes (such as participatory notes) on commodities or financial derivative instruments on commodity indices. The Underlying Fund may also invest up to 10% of its net assets in units of Undertakings for Collective Investment in Transferable Securities (UCITS) and other Undertakings for Collective Investment (UCIs) and up to 10% of its assets in bank loans that quality as money market instruments. The Underlying Fund may also purchase mortgage and asset-backed securities (including collateralized debt obligations) and invest in securities or structured products where securities is linked to or derives its value from another reference asset. Please read “Investment Objective and Strategies of the Fund and the Underlying Fund”.

UNITS An investment in the Fund is represented by units (“units”). The Fund may issue units in separate classes and series. The Fund has issued four series of units: Series F, PF, O and O-NON. Only Series F, PF and O are available for sale to investors. In the future, the Fund may issue additional classes or series of units which may differ from the units of the initial class and series in terms of, among other things, the management fee, administrative fees or expenses, redemption rights, minimum subscription amounts and other rights. Each of the series is also available in the investment advisory services fee option. Please see the “Investment Advisory Services Fee” section for more details. New classes or series of units may be established by the Manager without providing prior notice to, or receiving consent from, existing unitholders. Please read “Classes and Series” for eligibility requirements for each of the series of units of the Fund. In addition to the eligibility criteria for Series F, PF and O units, the table below sets out the minimum investments required to purchase Series F, PF and O units. For more information see “Purchases and Redemptions – Minimum Investments”.

Series Initial Investment Additional Investments

Pre-authorized chequing plans (PACs)

F $500 $100 $50 PF $100,000 No minimum No minimum


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O $200,000 No minimum No minimum

For the purposes of satisfying the minimum investment requirement for Series PF and O investors may link related accounts. Please read “Account Linking Service” for more information on what accounts qualify. The Manager reserves the right to change or waive the minimum investment requirement to purchase any series. Each unit entitles its holder to: (i) one vote for all special matters brought before unitholders or before unitholders of that series on matters being voted on separately by series, as may be the case; (ii) receive an equal portion of all payments made to unitholders of that series in the form of income, capital gains or capital distributions (other than distributions paid on the redemption of units); (iii) participate equally in the net assets of the Fund allocated to that series of units remaining after satisfaction of outstanding liabilities allocated to that series if the Fund is liquidated. Series O-NON units entitle unitholders to all foregoing rights except that these units do not carry a right to vote. Please read “Rights of Unitholders”. Fractions of units in all series may be issued which have the rights, restrictions, conditions and limitations attaching to whole units in the proportion which they bear to a whole unit, except that a fraction of a unit does not carry the right to vote. All unitholders are entitled to the benefit of, are bound by and are deemed to have notice of the provisions of the Fund’s Declaration of Trust as if such unitholder had been a party to the Declaration of Trust. Please read “Declaration of Trust” for more information.

RISK FACTORS This Fund is for investors willing to accept low investment risk for that part of their portfolio. However, this Fund could be used in a portfolio whose overall investment risk may be lower or higher than this individual part. Please see “Investment risk classification methodology” for a description of how we classify the Fund’s investment risk. An investment in the Fund involves some other significant risks including risks associated with the Underlying Fund’s portfolio managers and investment strategies. Prospective investors should carefully consider the risks described under “Risks of the Fund and the Underlying Fund”.

PURCHASES AND

REDEMPTIONS Investors purchase or redeem units at their series net asset value (“NAV”) per unit. FTIC calculates the NAV for each series of units at the close of trading on The Toronto Stock Exchange (“TSX”) every business day (usually 4:00 p.m. ET). Units are denominated in Canadian dollars. If the Manager receives an investor’s purchase or redemption request in good order along with the purchase cheque (or by other means as previously agreed to by the Manger) before the close of trading on the TSX, it will process the investor’s order at the NAV on that date. If the purchase or redemption request is received after 4:00 p.m. ET then it will be processed on the next business day. Investors must pay their dealer or advisor (“Dealer”) when purchasing units. The dealer must pay us within four (4) business days of delivering or placing your order. If your dealer places your purchase order electronically and we do not receive payment for your units within this period, we will redeem your units on the next business day. Pursuant to securities regulations, if the proceeds are greater than the amount you owe us, the Fund keeps the difference; less than the amount you owe, your dealer will owe the difference to the Fund. Your dealer may be entitled to recover any losses from you. Units of the Fund are not available for sale in any jurisdiction outside Canada. An investor cannot purchase units of the Fund (i) outside Canada; (ii) for an investor if they


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reside outside Canada; or (iii) on behalf of a person residing outside Canada if this practice is against the law where the investor or for whom they are investing resides, or such foreign residency has negative legal, regulatory or tax implications for the Fund. In some jurisdictions outside Canada, a purchase of Fund units is not against the law as long as the purchase is unsolicited. In these jurisdictions, you and your dealer are responsible for submitting only those purchase orders that have been initiated by you. U.S. persons (as defined by Regulation S of the U.S. Securities Act of 1933, or by the U.S. Commodity Futures Trading Commission) (“U.S. Persons”) are not eligible to invest in the Fund. In the absence of written notice to the Fund to the contrary, the provision by a potential investor of a non-U.S. address on the application form for investment in the Fund will be deemed to be a representation and warranty from such investor that the investor is not a U.S. Person and that such investor will continue to be a non-U.S. Person unless and until the Fund is otherwise notified of a change in the investor’s U.S. Person status. Please read “Buying Units of the Fund.” Units of the Fund are sold pursuant to prospectus exemptions and therefore each investor must qualify under prospectus exemptions in their jurisdiction of residence in order to purchase units. Generally, this requires that an investor qualify as an accredited investor (as defined in securities legislation) and purchase units as principal. Investors should consult their Dealer and refer to the representations and warranties contained in the Subscription Agreement to determine whether they are eligible to purchase units on a prospectus exempt basis. Where units are to be held in a joint account, each joint account holder must individually qualify as an accredited investor. The Manager must receive a fully completed and signed Subscription Agreement and Risk Acknowledgement Form prior to accepting an investor’s order, and no later than the following business day. The Manager will receive the Subscription Agreement and will be relying on the statements, including the representations and warranties, made in the Subscription Agreement by investors and investors undertake to indemnify the Fund and the Manager against any and all damages, losses, costs or other expenses they may incur as a result of acting in good faith on such representations and warranties. Please read “Prospectus Exemptions and the Subscription Agreement.” In addition to the minimum investment balance requirements investors must also continue to qualify to hold Series F, PF and O units after the initial purchase. Please read “Minimum Balances and Maintaining Eligibility.” An investor can redeem units through their Dealer or directly through the Manager. A redemption order must be in writing. For investor protection, a redemption order must be signature guaranteed by a bank, trust company, Dealer or other institution that is satisfactory to the Manager. In some cases, the Manager may also request additional documentation. If the Manager does not receive all the documentation required to complete a redemption order, we will contact you or your Dealer. If a Dealer placed the redemption order electronically and upon contacting the Dealer, we are advised that you or your Dealer are unable to provide us with the required documentation, we will immediately repurchase your units. If you or your Dealer advise us that you are able to provide us with the required documentation but you or your Dealer fail to provide it to us within ten business days of us receiving your order, we will repurchase your securities. Pursuant to securities regulations, if we repurchase your securities and the sale proceeds are: • greater than the repurchase amount, the Fund keeps the difference; • less than the repurchase amount, we pay the Fund the difference and collect the difference from your Dealer. Your Dealer may be entitled to recover any losses from you.


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The Manager will pay the proceeds of redemption within five days following settlement (settlement taking place on a T+4 basis) of a complete redemption order. Proceeds are paid by cheque unless an investor requests that proceeds be deposited to their bank or trust company by electronic fund transfer (“EFT”). Please read “Processing Redemption Orders.” The Manager may suspend an investor’s right to redeem units if the Manager determines that it is not practical to sell the Fund’s units or fairly determine the value of its net assets or if the right to redeem units held by the Fund is suspended, as the NAV of the Fund would not be available. The Manager may also suspend the right to redeem units and the calculation of the NAV at such other times it deems appropriate. If an investor’s right to redeem units is suspended, and the investor does not withdraw a request for redemption of units, the Manager will redeem the units at their NAV determined on the next business day after the suspension ends. Please read “Suspending Your Right to Redeem Units.” The Manager, in its sole discretion, may redeem units in an investor’s account and forward the proceeds to the investor on the investor’s behalf:

if an investor engages in short-term or excessive trading; or an investor becomes a resident for securities laws or tax purposes of a foreign

jurisdiction where such foreign residency may have negative legal, regulatory or tax implications on the Fund; or

the investor no longer qualifies for a prospectus exemption, as an accredited investor or otherwise, under Canadian securities laws; or

if it would be in the best interest of the Fund to do so.

Please read “Short-term Trading” and “Eligibility to Own Units.”

OPTIONAL SERVICES Investors may buy units of the Fund regularly through a pre-authorized chequing plan (“PAC”) from their bank or trust account. Please see “Optional Services” for more information. Systematic withdrawal plans are not available for this Fund.

FEES AND EXPENSES Some fees and expenses investors pay directly. Others are payable by the Fund, which will indirectly reduce the value of an investor’s investment in the Fund. Management fees are unique to each series of the Fund. See “Series F and PF Management and Administration Fees” below, for Series F and PF. Series O investors do not bear any of the management fees within the Fund, but instead pay a separate Management and Administration Fee to the Manager and an Investment Advisory Fee to their Dealer. See “Series O Management and Administration Fee” for further information. Series F and PF Management and Administration Fees The Manager pays the operating expenses of the Fund, other than Fund Costs (as defined below) and Taxes (as defined below) (the “Operating Expenses”) in exchange for the payment by the Fund of a fixed rate administration fee (the “Administration Fee”) to the Manager with respect to series F and PF units of the Fund (referred to as “Participating Series”). The Operating Expenses payable by the Manager include, but are not limited to, audit fees, fund accounting costs, transfer agency and recordkeeping costs, custodian costs, administration costs and trustee services relating to registered tax plans, costs of printing and disseminating offering documents and continuous disclosure materials, legal fees, investor communication costs and regulatory filing fees. The “Fund Costs”, which are payable by the Fund, are borrowing and interest costs, investor meeting costs (as permitted by Canadian securities regulation), the fees and expenses of the Independent Review Committee, any costs and expenses associated with litigation for the benefit of the Fund or brought to pursue rights on behalf of the Fund, the cost of compliance with any new governmental and regulatory requirements or with any material change to existing governmental and regulatory requirements (including extraordinary increases to regulatory filing fees).


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The Fund will also pay all applicable taxes, including without limitation, income taxes, withholding taxes, HST and related taxes (collectively, the “Taxes”). The Fund is required to pay harmonized sales tax (“HST”) on management fees and expenses at a rate determined separately for each series for each year. The rate that applies to the fees and expenses paid during a year for a series is determined based on the net asset value of the series attributable to investors resident in each province or territory at a certain point in time and the HST rate applicable to each of those provinces or territories. As a result, HST will be paid based on a “blended rate” of the 5% rate in the non-harmonized jurisdictions, 15% in Nova Scotia, 14% in Prince Edward Island, and 13% in the other harmonized provinces of Ontario, New Brunswick and Newfoundland and Labrador. Quebec also has harmonized the QST at a rate of 14.975%, which will be factored into the “blended rate” referred to above. The blended rate will be different from year to year and is subject to change. This happens because different unitholders invest in the different series and the unitholders who invest in each series change from year to year because of purchases and redemptions. The Fund will also continue to pay its portfolio transaction costs, which include costs associated with the purchase and sale of securities and other property, such as brokerage commissions for portfolio trading and related trading fees (including the costs of any derivative transactions), commissions for portfolio trading and related trading fees (including the costs of any derivative transactions), commissions, service charges and research and execution costs, as well as forward agreement and derivative transaction costs. Except as described below, each series of the Fund is responsible for its appropriate share of common Fund Costs in addition to the Fund Costs that it alone incurs. The Manager may, in some years and in certain cases, absorb a portion of a series’ Administration Fee or Fund Costs. The decision to absorb the Administration Fee or Fund Costs, or a portion thereof, is reviewed annually and determined at the discretion of the Manager, without notice to investors. The Administration Fee is equal to a specified percentage of the net asset value of a Participating Series, calculated and paid in the same manner as the management fee for the Fund (calculated as 1/12 of the annual rate applied against the monthly average daily net assets of each series and paid monthly). The rate of the annual Management Fees for series F and PF and annual Administration Fee for each Participating Series is set out below:

Series Fee (%)

Management Fee Administration Fee

F 2.00 0.20

PF 1.85 0.20

Series O Management and Administration Fees In consideration for the management and administration services provided by the Manager in respect of Series O units of the Fund, investors pay a fee to the Manager (the “Management and Administration Fee”) of 2.05% annually. The Management and Administration Fee is subject to applicable taxes and is calculated and paid as described under “Program Fees for Series O units.” Investment Advisory Services Fee (Series F, PF and O units) For Series F, PF and O where you have purchased the series with the investment advisory services fee option, we have an arrangement in place with your Dealer to collect the investment advisory services fee (plus any applicable taxes) from you for payment to your Dealer on your behalf (the “Investment Advisory Services Fee”).


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Where the above arrangement exists, the maximum annual Investment Advisory Services Fee rate that we will facilitate the payment of, is 1.50% (excluding taxes). For Series O the effective date of the 1.50% maximum fee rate limit is March 12, 2018. For Series F and PF the effective date of the 1.50% maximum fee rate limit is August 7, 2018. The Investment Advisory Services Fee purchase option for Series F, PF is available for purchase effective August 7, 2018. In the case of Series O the Investment Advisory Services Fee is calculated and paid to your Dealer as described in the “Program Fees for Series O units” section. The Management and Administration Fee together with the Investment Advisory Services Fee are collectively referred to as the “Program Fees”. For more information on how the Program Fees are calculated and paid, and further details, please read the “Program Fees for Series O units.” Your Dealer is solely responsible for making the recommendation to purchase Series F, PF and O units of the Fund and for providing any and all necessary information regarding your investment in the Fund to you. By placing an order to purchase Series F, PF and O units and in consideration for the investment advice and/or services, and suitability analysis provided to you by your Dealer in respect of your purchase, you are agreeing to pay the negotiated Investment Advisory Services Fee to your Dealer. We will not remit the Investment Advisory Services Fee to your Dealer until we have received confirmation of the amount of the Investment Advisory Services Fee from your Dealer. Investors in Series F and PF units that do not hold their securities in a fee-based or wrap program where they pay their fees directly to their Dealer are eligible to participate in the Investment Advisory Services Fee option. Underlying Fund Fees and Expenses The Fund will purchase Class Y Shares (Hedged) of the Underlying Fund. Although there will be no duplication of investment management fees, sales or redemption fees with respect to the purchase or redemption by the Fund of Class Y Shares (Hedged) of the Underlying Fund, the Class Y Shares (Hedged) of the Underlying Fund bear their pro-rata share of applicable third party expenses including but not limited to brokerage fees including the cost of the currency hedge, custodian, audit and regulatory fees and charges as well as any applicable taxes, costs which are included in the calculation of the daily NAV of the Class Y Shares (Hedged). Please read “Fees and Expenses” for an additional information on the fees and expenses associated with an investment in the Fund.

DEALER COMPENSATION Each of the available series of the Fund is offered on a no load basis, meaning no sales commission or trailing commission is paid to your Dealer in respect of Series F, PF and O units of the Fund. With these series, an advisory services fee is negotiated between you and your Dealer. For Series O units, the Investment Advisory Services Fee is negotiated between you and your Dealer. Fee payment is administered by us in accordance with the Series O agreement that we have with your Dealer. See “Program Fees for Series O unis” for more details. For Series F and PF units, where you have purchased the series with the Investment Advisory Services Fee option, the fee is negotiated and payable by you to your Dealer. We administer the fee payment to your Dealer. For purposes of administering the Investment Advisory Services Fee, you authorize us to remit the amount of your Investment Advisory Services Fee to your Dealer by redeeming securities of the respective series in your account. For more information please see “Investment Advisory Services Fees.”


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DISTRIBUTIONS The Fund intends to distribute income and capital gains annually in December. The Fund may pay distributions at other times during the year. Distributions (other than distributions paid on the redemption of Units) are automatically reinvested in additional Units of the Fund unless an investor requests in writing to receive cash distributions. The Fund will distribute a sufficient amount of its net income and net realized capital gains for each taxation year so that the Fund will not be liable in any taxation year for income tax under Part I of the Income Tax Act (Canada) (the “Tax Act”).

PORTFOLIO VALUATION

AND NET ASSET VALUE FTIC calculates the NAV for the Fund at the close of trading on The Toronto Stock Exchange (“TSX”) every business day (usually 4 p.m. ET) by dividing the value of the net assets of the Fund (the value of the proportionate share of assets of the Fund less any liabilities) by the total number of outstanding Units of the Fund. FTIC has procedures to determine the fair value of individual securities for which market prices are not readily available, such as certain restricted or unlisted securities and private placements, or which may not be reliably priced, such as in the case of trade suspensions or halts, price movement limits set by certain foreign markets, and thinly traded or illiquid securities. The values of the Funds’ holdings in foreign securities, U.S. securities and Canadian securities are all determined in Canadian currency and are aggregated to become the NAV of the Units of the Fund. The U.S. dollar equivalent of each foreign security so determined and the U.S. dollar value of each U.S. security as of the close of the New York Stock Exchange are each converted from U.S. currency into Canadian currency at the rate of exchange as of the close of the TSX. The rates of exchange are provided by an independent service provider that utilizes contributor rates provided by qualified market participants that may include major banks or other financial institutions. Please read “Portfolio Valuation and Net Asset Value”.

CANADIAN FEDERAL

INCOME TAX

CONSIDERATIONS

Units of the Fund are a qualified investment under the Tax Act for RRSPs, RRIFs, TFSAs, RESPs, RDSPs and DPSPs. For information on taxation of the Fund and taxation of investors in the Fund, please read “Canadian Federal Income Tax Considerations”.

PRIVACY AND

DISCLOSURE OF

PERSONAL INFORMATION

FTIC may be required to provide foreign tax authorities and/or foreign tax agents with identity and tax residency information of unitholders and may be required to make any other filing(s) as counsel deems appropriate. FTIC may also be required to provide securities regulators with the name, address and telephone number of the investors in the Fund, the number and type of securities purchased, the total purchase price, the exemption relied on and the date of the distribution and may make any other filing(s) as FTIC’s counsel deems appropriate. By purchasing Units of the Fund, investors consent and authorize FTIC to make the foregoing disclosures and any similar disclosures as FTIC’s counsel deems appropriate and to the retention of such information by FTIC, foreign tax authorities, agents and securities regulators for as long as required or permitted by law or business practices. In addition, investors should read and will be subject to FTIC’s privacy policy available at www.franklintempleton.ca (the “Privacy Policy”). By making an investment in the Fund, the investor is deemed to consent to the collection, use and disclosure of the investor’s personal information by FTIC in accordance with the Privacy Policy. Please read “Privacy and Disclosure of Personal Information”.

STATUTORY AND

CONTRACTUAL RIGHTS

OF ACTION

Securities legislation in the offering jurisdictions provides that every investor of Units must have certain statutory and contractual rights of action. Please read “Statutory and Contractual Rights of Action” set out in Schedule “B”.


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ORGANIZATION AND MANAGEMENT OF THE FUND Franklin K2 Multi-Strategy Alternatives Fund (the “Fund”), formerly named Franklin K2 Alternative Strategies Fund, is an open end mutual fund established as a trust under the laws of Ontario pursuant to a Declaration of Trust dated August 2, 2016 (the “Declaration of Trust”), as amended from time to time. Franklin Templeton Investments Corp. (hereinafter referred to as the “Manager” or “FTIC”) is the manager, trustee and portfolio advisor of the Fund. The head office of the Fund is at Suite 1500, 200 King Street West, Toronto, Ontario, M5H 3T4. Manager and Trustee The day-to-day administration and operation of the Fund is managed by FTIC pursuant to a management agreement dated September 10, 2012, as amended (the “Management Agreement”) between the Fund and FTIC. Unitholder services performed by the Manager include transfer agent and registrar functions and handling all issuances, redemptions, administering distributions and mailing information to unitholders, provision of office space and facilities, portfolio and unitholder accounting and the distribution of the Units of the Fund. The address of the Manager is 200 King Street West, Suite 1500, Toronto, Ontario, M5H 3T4, the phone number is (416) 957-6000, the e-mail address is [email protected] and the website is www.franklintempleton.ca. The Manager is a wholly owned subsidiary of Templeton International, Inc. (“TII”), which is an indirect wholly owned subsidiary of Franklin Resources, Inc. (“Franklin”), a global investment organization operating as Franklin Templeton Investments with total assets under management of approximately C$965 billion as of April 30, 2019. Through its subsidiaries, Franklin Templeton Investments provides global and domestic investment advisory services to mutual funds and pooled funds and institutional accounts. In Canada, FTIC provides investment management services and/or products to individual unitholders as well as pension funds, foundations and other institutional investors. The Management Agreement may be terminated by the Fund without penalty at any time with sixty (60) days’ prior written notice provided that the termination by the Fund is directed or approved by the Trustee or by a vote of the majority of the outstanding unitholders of the Fund. The Management Agreement shall terminate immediately if the Manager assigns the agreement to anyone other than an affiliate of the Manager. Portfolio Advisor FTIC, in its capacity as portfolio advisor of the Fund, is responsible for the investment management of the Fund, including discretionary investment authority over the assets of the Fund and responsibility for managing the Fund’s portfolio on a daily basis. Administrative Services Franklin Templeton Services, LLC (“FTS”), an affiliate of the Manager, provides fund accounting and portfolio valuation services in connection with the Fund, and provides certain back office and administration services to the Manager.


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INVESTMENT OBJECTIVE AND STRATEGIES OF THE FUND AND THE UNDERLYING FUND Investment Objective of the Fund The Fund’s investment objective is to seek capital appreciation with lower volatility relative to the broad equity markets by tracking the performance (net of fees) of FTIF Franklin K2 Alternative Strategies Fund (the “Underlying Fund”), which invests in a wide range of non-traditional or alternative strategies, outlined below. Investment Strategies The Fund seeks to achieve its investment objective by investing its assets singly or in some combination of: (i) Class Y Shares (Hedged) of the Underlying Fund; (ii) a wide range of non-traditional or alternative strategies, including but not limited to the strategies implemented by the Underlying Fund, outlined below; and (iii) total return swaps or other derivative instruments that track the performance of the Underlying Fund or a fund that implements similar investment strategies. Initially, the Fund will seek to achieve its investment objective by investing substantially all (up to 100%) of its assets in Class Y Shares (Hedged) of the Underlying Fund. The Underlying Fund The Underlying Fund is a sub-fund of Franklin Templeton Investment Funds (“FTIF”) and is managed by an affiliate of FTIC. FTIF is organized under the laws of Luxembourg as a Société d’Investissement à Capital Variable (“SICAV”), an open-end investment company. The Underlying Fund qualifies as a UCITS, an undertaking for collective investment in transferable securities, and is distributed under a prospectus in several European and other countries. K2/D&S Management Co., L.L.C. (“K2”), based in Stamford Connecticut, United States of America, is the portfolio advisor to the Underlying Fund. K2 is a majority owned subsidiary of Franklin and an affiliate of FTIC. The Class Y Shares (Hedged) of the Underlying Fund which are denominated in Canadian dollars. Although the base currency of the Underlying Fund is U.S. dollars, the assets attributable to the Class Y Shares (Hedged) of the Underlying Fund are hedged to the Canadian dollar. The Underlying Fund seeks to achieve its investment objective by allocating its net assets to sub-managers that implement multiple non-traditional or alternative strategies including but not limited to, some of all of the following strategies: Long Short Equity Strategies – Long Short Equity Strategies generally seek to produce returns from investments in the global equity markets by taking long and short positions in stocks and common stock indices. These strategies are generally focused on risk-adjusted returns and capitalize on the Investment Co-Managers views and outlooks for specific equity markets, regions, sectors and securities. Examples of long short equity strategies include (i) growth focused strategies, (ii) value focused strategies, (iii) market-neutral strategies (e.g., maintaining net exposures between 20% short and 20% long), (iv) sector-focused strategies (e.g., technology, healthcare, financials) and (v) regionally focused strategies (e.g., Europe, Asia). Relative Value Strategies – Relative Value Strategies encompass a wide range of investment techniques that are intended to profit from pricing inefficiencies. These strategies generally involve taking a position in one financial instrument and simultaneously taking an offsetting position in a related instrument in an attempt to profit from incremental changes in the price differential. Examples of relative value strategies are: (i) credit long short strategies; (ii) credit arbitrage; (iii) convertible arbitrage; and (d) volatility arbitrage. Event Driven Strategies – Event Driven Strategies generally imply investment in securities of companies undergoing corporate events. These strategies are generally focused on analyzing the impact of the company-specific or transaction-specific event on security valuations. Examples of such company-specific or


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transaction-specific events include mergers, acquisitions, transfers of assets, tender offers, exchange offers, recapitalizations, liquidations, divestitures, spin-offs, equity restructurings and reorganizations. Global Macro Strategies – Global Macro Strategies generally focus on macro-economic (economy-wide phenomena such as changes in unemployment, national income, rate of growth, gross domestic product, inflation and price levels) opportunities across numerous markets and investments. Investments may be long or short and are based on the relative value or direction of a market, a currency, an interest rate, a commodity or any macroeconomic variable. Examples of Global Macro Strategies include discretionary (seeking to profit by tactically investing across different asset classes, markets, and investment opportunities through a combination of fundamental market analysis and quantitative modeling) and systematic (seeking to profit by utilizing quantitative models to identify investment opportunities across different asset classes and markets in order to construct a portfolio of investments) macro strategies. The Underlying Fund intends to invest in a wide range of transferrable securities, financial derivative instruments and other eligible securities. Such securities may include, but not limited to, equity and equity-related securities (which may include common stocks, preferred stocks, participatory notes, equity related certificates and convertible securities) and debt securities (which may include bonds, notes, debentures, bankers’ acceptances and commercial paper.) The Underlying Fund invests in equity and equity-related securities of companies located anywhere and of any capitalization size. Debt securities which may be acquired by the Underlying Fund shall include all varieties of fixed and floating-rate income securities of any maturity or credit rating (including investment grade, non-investment grade, low-rated, unrated securities and/or securities in default) of corporate and/or sovereign issuers worldwide, and may include inter alia, high yield (“junk”) bonds and distressed debt securities (securities of companies that are, or are about to be, involved in reorganizations, financial restructurings, or bankruptcy). The Underlying Fund may engage in active and frequent trading as part of its investment strategies. The Underlying Fund utilizes financial derivatives instruments for hedging, efficient portfolio management and/or investment purposes. These financial derivative instruments may be either dealt on regulated markets or over-the-counter, and may include, inter alia, (i) futures contracts, including futures based on equity or fixed income securities and indices, interest rate futures and currency futures and options thereon; (ii) swaps, including equity, currency, interest rate, total return swaps related to equity, fixed income and/or commodities as well as credit default swaps and options thereon; (iii) options, including call options and put options on indices, individual securities or currencies; and (iv) currency forward contracts. Use of financial derivative instrument may result in negative exposure in a specific asset class, yield curve/duration of currency. The Underlying Fund uses investment practices involving leverage and may take long and /or synthetic short positions in a wide range of asset classes, including equities, fixed income and currencies among others. Long positions benefit from an increase in the price of the underlying instrument or asset class, while short positions benefit from a decrease in that price. Exposure to synthetic short positions shall be effected through the use of financial derivative instruments. The Underlying Fund may also seek exposure to commodities through the use of cash-settled structured products or exchange-traded notes (such as participatory notes) on commodities or financial derivative instruments on commodity indices. The Underlying Fund may also invest up to 10% of its net assets in units of Undertakings for Collective Investment in Transferable Securities (UCITS) and other Undertakings for Collective Investment (UCIs) and up to 10% of its assets in bank loans that quality as money market instruments.


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The Underlying Fund may also purchase mortgage and asset-backed securities (including collateralized debt obligations) and invest in securities or structured products where securities is linked to or derives its value from another reference asset. Derivative Exposure In addition to the securities listed above, derivatives (including, but not limited to, those listed below) may be used by the Fund or Underlying Fund, including, without limitation, for the purposes of managing the risks of the portfolio and gaining exposure to certain asset classes. ♦ Forward currency exchange contracts (including, but not limited to, cross-currency forwards) ♦ Buying and selling over-the-counter and exchange traded options (including, but not limited to,

currency options, options on interest rates and exchange-traded options on futures contracts) ♦ Swaps (including, but not limited to, credit default swaps (single name and index/basket), total return

swaps, interest rate swaps, currency swaps and cross currency swaps) ♦ Futures (including, but not limited to, futures on interest rates, bonds, fixed-income indexes,

commodities, securities and currencies) ♦ Structured notes or securities (including, but not limited to, credit-linked notes), including where

coupon or principal payments are linked or indexed to non-U.S. exchange rates, index returns, yield curve shapes or other eligible investments

The Fund or Underlying Fund may take advantage of opportunities in other derivative instruments which are not presently contemplated for the investment strategy or which are not currently available but which may be developed, to the extent such opportunities are consistent with the Fund and/or Underlying Fund’s investment objective. Leverage The expected level of leverage for the Underlying Fund should amount to 450%. This is an estimate only and may be subject to higher leverage levels. The leverage calculation method used is the Sum of Notionals. It includes the notional exposure associated with financial derivative instruments but does not include the underlying investments of the Underlying Fund which make up 100% of total net assets. A copy of the Underlying Fund’s most recent prospectus is available on request or can be found at www.franklintempleton.lu. There can be no assurance that the Fund’s investment objective will be achieved. Further, many of the investment techniques and activities described above are high risk activities that could result in substantial losses under certain circumstances. See “Risks of the Fund and Underlying Fund” at page 17.

UNITS OF THE FUND

An investment in the Fund is represented by units. Investors may purchase units of the Fund in all provinces and territories in Canada on a continuous basis, which means an investor can purchase or redeem any number of units at any time, subject to the restrictions and conditions set out in this Offering Memorandum, including the minimum investment restrictions set out under “Minimum Investments” on page 21, the prospectus exemption qualification requirements set out under “Prospectus Exemptions and the Subscription Agreement” on page 22, and suspensions in redemptions set out under “Suspending Your Right to Redeem Units” on page 23. Please refer to “Purchases and Redemptions” on page 19 for information on how to purchase and redeem Units of the Fund. Classes and Series The Fund may issue units in separate classes and series. The Fund has issued four series of units: Series F, Series PF, Series O and Series O-NON. Only Series F, PF and O are available for sale to investors. The Fund


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may issue additional classes or series of units which may differ from the units of the initial class and series in terms of, among other things, the management fee, administrative fees or expenses, redemption rights, minimum subscription amounts and other rights. New classes or series of units may be established by the Manager without providing prior notice to, or receiving consent from, existing unitholders. Each of the series is also available in the investment advisory services fee option, as discussed below. Series F Units Series F units are available to the following types of investors as determined by us in our discretion: • investors who participate in dealer-sponsored “fee-for-service” or wrap programs and who pay their

advisor an hourly fee or annual asset-based fee rather than commissions on each transaction • investors who participate in “fee-for-service” or wrap programs where we administer the investment

advisory services fee • investors whose Dealer is FTC Investor Services Inc. • investors who purchase, sell or hold their securities through a discount brokerage account • any other investors for whom we do not incur distribution costs. Investors wishing to purchase Series F units must also meet the minimum investment requirements. In addition:

• Series F securities are only available to investors with less than $100,000 invested in securities of all Franklin Templeton mutual funds held in Related Accounts (as defined under “Account Linking Service” on page 21)

• On a monthly basis, we will automatically switch Series F with $100,000 or more invested in securities of all Funds held in Related Accounts to Series PF securities.

Series F is designed for investors participating in programs that do not require us to incur distribution costs in the form of trailing commissions to Dealers. We are able to reduce our management fee on the Series F units because our costs to distribute these units are lower.

Investors in Series F may also use the investment advisory services fee option offered by us. If this option is selected, then we will collect an investment advisory services fee of up to 1.50% on your behalf and remit it to your Dealer. Please see the Investment Advisory Services Fee” section for more details. Participation in Series F is only available with our prior consent and the consent of your Dealer organization. Series PF Units Series PF units are available to the following types of investors as determined by us in our discretion: • investors who participate in dealer-sponsored “fee-for-service” or wrap programs and who pay their

advisor an hourly fee or annual asset-based fee rather than commissions on each transaction • investors who participate in “fee-for-service” or wrap programs where we administer the investment

advisory services fee • investors who purchase through a discretionary managed account • any other investors for whom we do not incur distribution costs. Series PF is available to investors who have in total invested a minimum of $100,000 in Franklin Templeton Investments mutual funds within one month from initial purchase of Series PF units, held in Related Accounts (as defined on page 21 under “Account Linking Service”). The investment minimum may be waived for purchases made by investors who purchase through a discretionary managed account. Series PF is designed for investors participating in programs that do not require us to incur distribution costs in the form of trailing commissions to Dealers. We are able to reduce our management fee on the Series PF units because our costs to distribute these units are lower.


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Investors in Series PF may also use the investment advisory services fee option offered by us. If this option is selected then we will collect an investment advisory services fee of up to 1.50% on your behalf and remit it to your Dealer. Please see the “Investment Advisory Services Fee” section below for more details. Participation in Series PF is only available with our prior consent and the consent of your Dealer organization. Series O Units Series O units are available to the following types of investors, as determined by us in our discretion: • investors who have in total invested a minimum of $200,000 in Franklin Templeton Investments

mutual funds within one month from initial purchase of Series O units, held in Related Accounts (as defined on page 21 under “Account Linking Service”). The investment minimum may be waived for purchases made by investors who purchase through a discretionary managed account.

• mutual funds managed by us or by a third party that use a fund on fund structure, provided the third party fund manager has entered into an agreement with us. • counterparties to derivatives contracts entered into by the Fund. Investors in Series O may also use the investment advisory services fee option offered by us. If this option is selected, then we will collect an investment advisory services fee of up to 1.50% on your behalf and remit it to your Dealer. Please see the “Investment Advisory Services Fee” section below for more details. Rights of Unitholders Each unit of the Fund is entitled to: one vote for all special matters brought before unitholders or before unitholders of that series on matters

being voted on separately by series, as may be the case; • receive an equal portion of all payments made to unitholders of that series in the form of income, capital

gains or capital distributions (other than distributions paid on the redemption of units); • participate equally in the net assets of the Fund allocated to that series of units remaining after satisfaction

of outstanding liabilities allocated to that series if the Fund is liquidated; and • Series O-NON unitholders are entitled to all of the foregoing rights except that these units do not carry a

right to vote .

All units of the Fund will be fully paid and non-assessable when issued and will be transferable without restriction. Unitholders are entitled to require the Fund to redeem their units as outlined under the heading Redeeming Units. Fractions of units may be issued which have the rights, restrictions, conditions and limitations attaching to whole units in the proportion which they bear to a whole unit, except that a fraction of a unit does not carry the right to vote.

All unitholders are entitled to the benefit of, are bound by and are deemed to have notice of the provisions of the Fund’s Declaration of Trust as if such unitholder had been a party to the Declaration of Trust.

Declaration of Trust Pursuant to the Declaration of Trust, the Fund will indemnify and hold each of its unitholders harmless from and against all claims and liabilities to which any such unitholder may become subject by reason of being or having been a unitholder of the Fund and shall reimburse such unitholder for all legal and other expenses reasonably incurred in connection with any such claim or liability, provided, however, that the Fund shall not be liable to reimburse unitholders for taxes assessed against them by reason of their ownership of Units nor for any losses suffered by reason of changes in the value of Units. The Manager in its capacity as Trustee of the Fund may modify, alter or add to the provisions of the Declaration of Trust without the approval of unitholders unless the approval of unitholders of the Fund is required by any


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applicable securities laws. The Manager, in its capacity as Trustee, may also terminate the Fund at any time, such termination to be effective as of the date determined by the Manager, subject to any notice or other conditions which may be required under applicable securities laws. Investors are entitled to redeem their units, subject to the Manager’s right to suspend the right of redemption. Please see “Redeeming Units” on page 22. Eligibility for Registered Plans Units of the Fund are qualified investments under the Tax Act for registered plans. . If you hold securities of the Fund in a registered plan such as a RRSP, RRIF, RESP, deferred profit sharing plan (“DPSP”) or registered disability savings plan (“RDSP”), distributions or dividends paid by the Fund and capital gains from a disposition of the securities are generally sheltered from tax until you decide to make withdrawals from the plan. If you hold securities of a Fund in a TFSA, distributions or dividends paid by the Fund and capital gains from a disposition of the securities are sheltered from tax. An annuitant of a trust governed by a RRSP or RRIF, the holder of a TFSA or RDSP, or the subscriber of an RESP may be subject to a penalty tax in respect of Fund held by the RRSP, RRIF, TFSA, RDSP or RESP if the Fund is a “prohibited investments” as determined under the Tax Act. As long as the RRSP or RRIF annuitant, TFSA or RDSP holder, or RESP subscriber deals at arm’s length with the Fund or does not have a “significant interest” in the Fund, the Fund will not be a prohibited investment under the Tax Act for the RRSP, RRIF, TFSA or RDSP, or the subscriber of an RESP. For more information as to whether mutual fund securities of the Funds would be prohibited investments for your RRSP, RRIF, TFSA, RDSP or RESP, you should contact your tax advisor.

RISKS OF THE FUND AND UNDERLYING FUND Prospective investors should carefully consider, among other factors, the risks described below. These risk factors are not meant to be an exhaustive listing of all potential risks associated with an investment in the Fund. Investment risk classification The Manager has assigned the Fund an investment risk rating to assist investors and their financial advisors in determining whether the Fund is appropriate for them. This information is only a guide – potential investors and their financial advisors should consider their entire portfolio, their investment objectives and individual risk tolerance level when choosing investments. This Fund is for investors willing to accept low investment risk for that part of their portfolio. However, this Fund could be used in a portfolio whose overall investment risk may be lower or higher than this individual part. Please see “Investment risk classification methodology” below, for a description of how we classify the Fund’s investment risk. Investment risk classification methodology The investment risk level of the Fund is required to be determined in accordance with a standardized risk classification methodology that is based on the Fund's historical volatility as measured by the 10-year standard deviation of the returns of the Fund. A full description of the methodology we use to determine the risk ratings of the Fund is available on request and at no cost by calling toll-free 1-800-387-0830, by contacting us at [email protected] or by writing us at Franklin Templeton Investments Corp., 5000 Yonge Street, Suite 900, Toronto, Ontario M2N 0A7. The Fund’s historical volatility risk, as measured by the standard deviation of fund performance, is only one measure of risk. There are other potentially significant risks, described below, which should be considered by prospective investors.


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General Investment Risk Investing in the Fund entails certain risks and is only suitable for investors who understand and are capable of bearing the risks of an investment in the Fund. An investment in the Fund is not intended as a complete investment program. All investments in securities, loans and other debt obligations, mortgages and other financial instruments risk the loss of invested capital. There is no assurance that the Fund will achieve its overall investment objective. The net asset value (“NAV”) per Unit of the Fund will vary directly with the market value and return of the Underlying Fund and remaining investment portfolio of the Fund. The Fund is suitable for investors seeking capital appreciation by investing in a wide range of eligible securities and financial derivative instruments benefiting from several ‘alternative’ strategies. An investment in the Fund should be viewed as a medium to long term investment. Investors should appreciate that the value of investments and the income from them may fall as well as rise and that they may not get back the amount originally invested. The past performance of the Manager and of the assets in which the Fund proposes to invest, including the Underlying Fund, is not necessarily indicative of future performance. There can be no guarantee that the Fund's investment objectives will be achieved. Manager Acting as Dealer Risks The Manager is not currently a member, and does not intend to become a member, of the Mutual Fund Dealers Association of Canada (the “MFDA”). As a result, investors who purchase units of the Fund through the Manager will not have investor protection benefits that might be afforded to them if the Manager was an MFDA member (or if they purchased units through an MFDA member-dealer), including coverage under any investor protection plan for clients of members of the MFDA. The Manager has also obtained an exemption from the requirement in Ontario securities law to participate in an approved compensation fund or contingency trust fund. These funds provide for certain compensation to eligible clients of a participating dealer who suffer a financial loss as a result of the dealer becoming insolvent and not being able to return assets which it was holding on behalf of clients. It is a condition of the exemption that the Manager not hold any client assets. The Manager was a participant in the Ontario Contingency Trust Fund at the time it applied for this exemption. The Manager applied for this exemption in response to the proposed wind-up of that fund, as discussed in Ontario Securities Commission Staff Notice 33-739 - Termination of the Ontario Contingency Trust Fund. Risks of the Fund Lack of Insurance The assets of the Fund are not insured by any government or private insurer except to the extent portions may be deposited in bank accounts insured by a government agency such as the Canada Deposit Insurance Corporation. Therefore, in the event of insolvency of a depository or custodian, the Fund may be unable to recover all of its funds or the value of its securities deposited. Large Investor Risk Units of the Fund may be purchased and redeemed by large investors, such as financial institutions or other mutual funds. These investors may purchase or redeem large numbers of units of the Fund at one time. Large redemptions by these investors may result in more accrued gains to be recognized that could increase the distributions of the Fund. The purchase or redemption of a substantial number of units of the Fund may also require the portfolio advisor to change the composition of a portfolio significantly or may force the portfolio advisor to buy or sell investments at unfavourable prices, which can affect Fund performance and may increase realized capital gains of the Fund. The purchase or redemption of a substantial number of units of the Fund by a single unitholder may cause the Fund to experience a “loss restriction event” for tax purposes. If a Fund experiences a “loss restriction event”


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(i) the Fund will be deemed to have a year-end for tax purposes (which would result in an allocation of the Fund’s taxable income at such time to securityholders so that the Fund is not liable for income tax on such amounts) and (ii) the Fund will be subject to the loss restriction rules generally applicable to corporations that experience an acquisition of control, including a deemed realization of any unrealized capital losses and restrictions on their ability to carry forward losses. Generally, a Fund will be subject to a loss restriction event when a person becomes a “majority-interest beneficiary” of the Fund, or a group of persons becomes a “majority-interest group of beneficiaries” of the Fund, as those terms are defined in the affiliated persons rules contained in the Tax Act, with appropriate modifications. Generally, a majority-interest beneficiary of a Fund will be a beneficiary who, together with the beneficial interests of persons and partnerships with whom the beneficiary is affiliated, has a fair market value that is greater than 50% of the fair market value of all the interests in the income or capital, respectively, of the Fund. Generally, a person is deemed not to become a “majority-interest beneficiary”, and a group of persons is deemed not to become a “majority-interest group of beneficiaries”, of a Fund if the Fund meets certain investment requirements and qualifies as an “investment fund” under the rules. Please read “Canadian Federal Income Tax Considerations” on page 33. Net Asset Value and Estimated Values A significant portion of the calculation of the NAV of the Fund could be based on the NAV provided by the Underlying Fund. The Underlying Fund’s NAV is, in turn, based on values attributed to the underlying investments held in the Underlying Fund, which investments may be illiquid and may trade infrequently or not at all. No adjustments will be made to the number of units purchased or redeemed by an investor in the Fund because the use of estimated values in determining the NAV of the Underlying Fund, even if the estimated values that are used in calculating such NAV are subsequently determined to differ significantly from the final values eventually obtained in respect of the Underlying Fund. Tracking Risk The Fund will invest all or a substantial portion of its assets in shares of the Underlying Fund. There may be a delay between the time an investor buys units of the Fund and the time that the Fund gets additional exposure to the Underlying Fund. During this delay, the Fund may be unable to track the performance of the Underlying Fund. Such performance lags and tracking errors could result in the NAV of the Fund not precisely tracking the NAV per share of the Underlying Fund. Reliance on the Underlying Fund’s Portfolio Manager Risk Unitholders of the Fund will be primarily dependent on the business judgement, knowledge and expertise of the Underlying Fund’s portfolio managers and/or K2 and key personnel employed by them who are responsible for the composition of the portfolio of securities for the Underlying Fund and in determining whether to dispose of securities held in the portfolio. There is no assurance that the current portfolio managers for the Underlying Fund will not be terminated, or that any key personnel will not leave the employ of such portfolio managers. Risks of the Underlying Fund As the Fund intends to invest substantially all of its assets (up to 100%) in the Underlying Fund, the Fund is subject to all of the risks of the Underlying Fund, described in Schedule “A” hereto. In circumstances where the Fund engages in direct investments to achieve its investment objective it will be subject to these risks directly.

PURCHASES AND REDEMPTIONS Unit Price An investor purchases or redeems Fund units at their series NAV per unit. The Manager calculates the NAV for each series of the Fund at the close of trading on The Toronto Stock Exchange (“TSX”) every business day (usually 4:00 p.m. ET). Units are denominated in Canadian dollars. Please see “Portfolio Valuation and Net Asset Value” on page 30 for information on how the NAV is calculated.


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If the Manager receives an investor’s purchase or redemption request in good order along with the purchase cheque (or by other means as previously agreed to by the Manger) before the close of trading on the TSX, it will process the investor’s order at the NAV on that date. If the purchase or redemption request is received after 4:00 p.m. ET then it will be processed on the next business day. Proceeds or redemption will be paid within five days from such date either by cheque or electronic payment, as the unitholder requests. No interest will be paid to the unitholder on account of any delay in forwarding the proceeds of redemption to the unitholder. Opening a Franklin Templeton Investments Account You can open a new account by contacting your investment advisor and completing an application. If you do not have an investment advisor, you may call our Client Services team at 1-800-387-0830. We will be pleased to provide you with options available in your area. How to buy or redeem Units You can buy or redeem units through investment dealers (“Dealers”), including Investment Industry Regulatory Organization of Canada (IIROC) and Mutual Fund Dealers Association of Canada (MFDA) dealers across Canada. MFDA Dealers must meet the proficiency requirements for commodity pools and exempt market securities in order to sell units of the Fund. Your Dealer may place an order with us by: electronic transmission written request via mail or courier phone or fax. You buy or redeem Funds at the NAV per unit of that particular series. Dealers must provide a copy of this Offering Memorandum to investors prior to any purchase of units. Switches from the Fund into other Franklin Templeton Investments funds are not permitted. Buying Units of the Fund The Fund is offered for sale on a continuous basis, which means, subject to certain restrictions, you can buy or redeem any number of securities at any time.

We reserve the right, from time to time, to “cap” or “close” the Fund or any series if it is determined to be in the best interest of the Fund or series and the securityholders. If we do “cap” or “close” the Fund or a series it may be re-opened for investment at our discretion. Any “capping” or “closing” of the Fund or any series will not impact redemption rights of securityholders. Units of the Fund are not available for sale in any jurisdiction outside Canada. An investor cannot purchase units of the Fund:

outside Canada for an investor if they reside outside Canada on behalf of a person residing outside Canada

if this practice is against the law where the investor or for whom they are investing resides, or such foreign residency has negative legal, regulatory or tax implications for the Fund. In some jurisdictions outside Canada, a purchase of Fund securities is not against the law as long as the purchase is unsolicited. In these jurisdictions, you and your Dealer are responsible for submitting only those purchase orders that have been initiated by you. U.S. persons (as defined by Regulation S of the U.S. Securities Act of 1933, or by the U.S. Commodity Futures Trading Commission) (“U.S. Persons”) are not eligible to invest in the Fund. In the absence of written notice to the Fund to the contrary, the provision by a potential investor of a non-U.S. address on the application form for investment in the Fund will be deemed to be a representation and warranty from such investor that the


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investor is not a U.S. Person and that such investor will continue to be a non-U.S. Person unless and until the Fund is otherwise notified of a change in the investor’s U.S. Person status. The Manager reserves the right to ask for additional information and documentation as may be required in higher-risk scenarios or to comply with any applicable laws or regulations. Failure to provide such documentation may result in delay in investment. Minimum Investments The table below sets out the minimum investments required to purchase Series F, PF and O units. Investors must also meet the additional eligibility criteria for the series. For more information see “Classes and Series” on page 14.

Series Initial Investment Additional Investments Pre-authorized chequing plans (PACs)

F $500 $100 $50 PF $100,000 No minimum No minimum O $200,000 No minimum No minimum

The Manager reserves the right to change or waive the minimum investment requirement to purchase any series. Account Linking Service For the purposes of satisfying the minimum investment requirement for Series PF and O units, investors may link related accounts. “Related Accounts” includes any account holding Franklin Templeton Investments mutual funds belonging to: i) the investor; ii) investor’s spouse; iii) investor and spouse jointly; iv) investor’s children, grandchildren and great-grandchildren and the spouses of each of these persons; and v) accounts in the names of companies for which an investor owns more than 50% voting equity. The Manager does not automatically qualify an investor for the account linking service. In order to qualify for the account linking service, the necessary application forms must be executed by your Dealer or financial advisor. It is the responsibility of the investor, to work with their Dealer or financial advisor to manage their account linking preferences and to ensure that all accounts meet the definition of Related Accounts. Please speak to your Dealer or financial advisor for further details. The Manager may modify or discontinue the account linking service at any time, at its sole discretion. Existing participants will be provided 90 days’ notice of any discontinuance of this service. Purchase Options Series F, PF and O units are denominated in Canadian dollars and are sold on a no-load basis, which means that you pay no sales charge when you buy or sell. Please see “Fees and Expenses” on page 26 for the costs associated with a purchase of units of the Fund. Each of the series is available in the investment advisory services fee option. Please see “Investment Advisory Services Fee” below for more information. Processing Your Order to Buy If you would like to buy the Fund, please contact your Dealer. Your Dealer will: deliver your order to us with your payment in full, or place an order with us electronically, or by phone or fax, with payment to follow. You must pay your Dealer when you buy your units. Your Dealer must pay us within four (4) business days of delivering or placing your order. If your Dealer places your purchase order electronically and we do not receive payment for your units within this period, we will redeem your units on the next business day. Pursuant to securities regulations, if the proceeds are:

• greater than the amount you owe us, the Fund keeps the difference;


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• less than the amount you owe, your Dealer will owe the difference to the Fund. Your Dealer may be entitled to recover any losses from you.

Prospectus Exemptions and the Subscription Agreement Units of the Fund are sold pursuant to prospectus exemptions and therefore each investor must qualify under prospectus exemptions in their jurisdiction of residence in order to purchase Units. Generally, this requires that an investor qualify as an accredited investor (as defined in securities legislation) and purchase units as principal. Investors should consult their Dealer and refer to the representations and warranties contained in the Subscription Agreement to determine whether they are eligible to purchase units on this basis. Where units are to be held in a joint account, each joint account holder must individually qualify as an accredited investor. The Manager must receive a fully completed and signed Subscription Agreement and Risk Acknowledgement Form prior to accepting an investor’s order. The Manager will receive the Subscription Agreement and will be relying on the statements, including the representations and warranties, made in the Subscription Agreement by investors and investors undertake to indemnify the Fund and the Manager against any and all damages, losses, costs or other expenses they may incur as a result of acting in good faith on such representations and warranties. Additional Investments If an investor makes an additional investment in units, the investor will not be required to sign an additional Subscription Agreement but, under the terms of the original Subscription Agreement, will be deemed to have repeated the covenants, representations and warranties contained in the original Subscription Agreement and to have represented that it is qualified to make the additional investment on the same basis as set out in the investor’s original Subscription Agreement. Redeeming Units You can redeem your Fund units in the following ways: (1) Through your Dealer, either written or by electronic order, accompanied by any outstanding security certificates and any other appropriate documentation we may need; or (2) Directly through us in writing, by fax, or by telephone.

(i) If you wish to provide your redemption order to us in writing or by fax, your order needs to be accompanied by any outstanding security certificates.

(ii) If you wish to provide your redemption order to us by telephone, you need to contact our

Client Services team and provide your authorization to us, subject to our verification procedures and satisfying our account eligibility criteria for redemptions.

Redemptions placed through your Dealer or in writing will be made payable to you and sent to your address of record, or to your account at a Canadian bank or trust company, or to your Dealer or another recognized financial institution in trust for you. For your protection, your redemption orders (and certificate(s), if applicable) must be signature guaranteed by a dealer, bank, trust company, or other institution that is satisfactory to us. In some cases, we may also request additional documentation. Switches from the Fund into other Franklin Templeton Investments mutual funds are not permitted. Redemptions over the telephone are not available for: • securities held in certificate form; • securities held in a registered plan, except for TFSA accounts; and


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• accounts for which there has been a recent change. Processing Redemption Orders If the Manager does not receive all the documentation required to complete a redemption order, we will contact you or your Dealer. If a Dealer placed the redemption order electronically and upon contacting the Dealer, we are advised that you or your Dealer are unable to provide us with the required documentation, we will immediately repurchase your units. If you or your Dealer advise us that you are able to provide us with the required documentation but you or your Dealer fail to provide it to us within ten business days of us receiving your order, we will repurchase your units. Pursuant to securities regulations, if we repurchase your units and the sale proceeds are: • greater than the repurchase amount, the Fund keeps the difference; • less than the repurchase amount, we pay the Fund the difference and collect the difference from your Dealer. Your Dealer may be entitled to recover any losses from you. The Manager will pay the proceeds of redemption within five (5) days following settlement (settlement taking place on a T+4 basis) of a complete redemption order. Proceeds are paid by cheque unless an investor requests that proceeds be deposited to their bank or trust company by electronic fund transfer (“EFT”). Investors that wish to receive proceeds by EFT should send the Manager a pre-printed void cheque and complete the banking information section of the application at the time of account setup to avoid potential delays on redemption requests. For investor protection, the Manager reserves the right to choose the final method of payment, which may include paying the redemption proceeds to your Dealer, in trust for you. In the event of joint investor accounts, all instructions must be signed by all investors except where sole signatory authority has been granted or where a power of attorney has been communicated to the Manager. If an instruction has not been submitted in writing, the Manager may request a written and duly signed confirmation of such instruction, in which case it may delay the processing of the redemption until receipt of the written and duly signed confirmation. Neither the Fund nor the Manager shall be responsible or liable to any applicant or unitholder for any loss resulting from the non-receipt of any purchase or redemption request by whichever method it is sent (including non-receipt of facsimile purchase or redemption requests). Suspending Your Right to Redeem Units The Manager may suspend an investor’s right to redeem units if the Manager determines that it is not practical to sell the Fund’s securities or fairly determine the value of its net assets or if the right to redeem securities held by the Fund is suspended, as the NAV of the Fund would not be available. The Manager may also suspend the right to redeem units and the calculation of the NAV at such other times it deems appropriate. If an investor’s right to redeem units is suspended, and the investor does not withdraw a request for redemption of units, the Manager will redeem the units at their NAV determined on the next business day after the suspension ends. Short-term Trading Excessive trading can harm Fund’s performance, operations and all unitholders by increasing trading and other costs, and interfering with the efficient management of the Fund. The Manager performs ongoing monitoring of trading in units of the Fund in order to identify investor trading patterns that may suggest short-term trading activity. An investor will be considered to be engaging in short-term trading if the investor: requests a redemption/purchase of the Fund within two weeks of an earlier purchase/redemption of the

Fund; redeems units out of the Fund more than twice within a rolling 90 day period; or engages in trades that appear to follow a market timing pattern that may adversely affect the Fund.


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In determining whether a trade or trading pattern is inappropriate, the Manager will consider all relevant factors including good faith changes in investor circumstances or intentions, the nature of the investment fund involved, and the investor’s past trading pattern, and may conduct discussions with the investor. If the Manager identifies a pattern of short-term trading, the Manager may seek to reject or restrict further short-term trading and/or take other action as described below, if in the Manager’s judgment such trading may adversely affect the Fund. If the Manager, in its sole discretion, reasonably determines that an investor’s pattern of trading may adversely affect the Fund, the Manager reserves the right to:

(1) temporarily or permanently reject further trading in the Fund; (2) restrict the amount, number or frequency of any future trades in the Fund;

Minimum Balances and Maintaining Eligibility Redemptions, distributions and/or withdrawals made in your account may affect the market value of the investments held in your account. Examples of this may include redemptions made to pay program or advisory fees, return of capital distributions and cash withdrawals made from your account. As a result, i the market value of an investor’s investment in any series falls below the minimum investment balance requirement listed in the table below, the Manager may redeem or redesignate units to another series, after giving 30 days’ notice that your balance has fallen below the minimum. You may invest additional money during this period if you wish to maintain the status of your investment. The Manager will not redeem or redesignate units if the market value of the investment falls below the minimum investment balance requirements because of a decline in the NAV of the units. The table below lists the minimum investment balance requirements for each series and the action the Manager may take if an investment falls below the minimum investment balance requirements:

Series Minimum investment balance requirement

Potential consequences if minimum investment balance requirement not met

F $500 per Fund Redeem PF $100,000 invested in Related

Accounts Redesignate to Series F

O $200,000 invested in Related Accounts

Redesignate to Series F

If the Manager redesignates your units on this basis, no switch fees will be charged by your Dealer. The Manager reserves the right to change or waive the minimum investment balance requirements for any series of units. In addition to the minimum investment balance requirements for Series F, PF and O, investors must also continue to qualify to hold Series F, PF and O after the initial purchase as described under “Eligibility to Own Units” below. Eligibility to Own Units The Manager, in its sole discretion, may redeem units in an investor’s account and forward the proceeds to the investor on the investor’s behalf:

if an investor engages in short-term or excessive trading; or an investor becomes a resident for securities laws or tax purposes of a foreign jurisdiction where such

foreign residency may have negative legal, regulatory or tax implications on the Fund; or the investor no longer qualifies for a prospectus exemption, as an accredited investor or otherwise,

under Canadian securities laws; or if it would be in the best interest of the Fund to do so.


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Investors are responsible for all tax consequences, costs and losses, if any, associated with the redemption of units upon the exercise of the right to redeem by the Manager. “Past Exempt” Registered Plans The Manager has a legal obligation to file with and remit taxes to the Canada Revenue Agency in respect of undistributed registered plans that comprise part of an estate (“Past Exempt Registered Plans”). Consequently, on an annual basis, we may redeem sufficient securities of the Funds held in a Past Exempt Registered Plan for the payment of taxes. Investors are responsible for all tax consequences, costs and losses, if any, associated with the redemption of securities in a Fund in a Past Exempt Registered Plan. General information on processing purchases and redemptions Rejecting orders The Manager has the right to reject any purchase order within one business day of receiving it. If the Manager rejects a purchase order, the Manager will return an investor’s money without interest. The Manager will not process transactions for: • a past date • a future date (unless the transaction relates to a PAC) • a specific price • any units that have not been paid for in full. Confirmations Your Dealer or the Manager will send you a confirmation once we have processed your purchase or redemption order. For PACs you will only receive a confirmation on your first purchase or redemption. After that, you will either receive a confirmation each time a PAC runs on your account or you will receive quarterly, semi-annual or annual account statements. Certificates and Assignments We will not issue certificates for units of the Fund unless requested by you or your Dealer. We will also not issue certificates for any units of the Fund held within a registered plan. Telephone Services You will receive telephone privileges automatically when you open your account with us. You can request the following transactions by telephone subject to our verification procedures and meeting our account eligibility criteria (if applicable): (i) redemptions and transfers (from Non-Registered or TFSA accounts only); (ii) change of address; and (iii) add/change account services (including distribution options, systematic investment and withdrawal

programs). Redemption proceeds will be payable only to you directly, and will be sent to your account at a Canadian bank or trust company that we have on file for you. We have the right, in our sole discretion, and in any event, to refuse a telephone request if we are not provided with the requested information or if we reasonably believe that the individual making the request is not authorized to act on the account. It is your responsibility to ensure that the individual making any request on behalf the account is authorized to do so. We will not be held liable for any losses that may occur in the event of unauthorized requests. If you wish to discontinue your telephone privileges at any time, please contact us by phone or in writing. You may reinstate your telephone privileges at any time by calling us or informing us in writing. We will not process your redemption order unless it is accompanied by any outstanding security certificates


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representing the securities to be redeemed and all assignments on the outstanding securities have been cancelled. Transfer of Units Subject to the eligibility requirements set out above, units of the Fund are transferable upon consent of the Manager and only by the registered unitholder of such units or by the unitholder’s legal representative duly appointed by an instrument in writing in form and execution satisfactory to the Manager and upon compliance with such reasonable requirements as the Manager may otherwise prescribe.

OPTIONAL SERVICES

Systematic investment program Investors may buy units of the Fund regularly through a pre-authorized chequing plan (“PAC”) from their bank or trust account. The PAC can run weekly, twice monthly, monthly, quarterly, semi-annually or annually and must be at least $50. The Manager may, at its discretion, waive the minimum PAC amount. There is no charge for this service other than any applicable sales charges investors negotiate with their Dealer. Participants may change or cancel the plan at any time by writing to the Manager or their Dealer. Once the Manager has received all required documentation, it may take up to 72 hours to process any change or cancellation.

The systematic withdrawal program is not available for this Fund.

FEES AND EXPENSES Below you will find the fees and expenses you may pay if you invest in units of the Fund. Some of these fees and expenses you pay directly. Others are payable by the Fund, which will indirectly reduce the value of your investment in the Fund. The Fund is required to pay harmonized sales tax (“HST”) on management fees and expenses at a rate determined separately for each series for each year. The rate that applies to the fees and expenses for a series is based on the net asset value of the series attributable to investors resident in each province or territory at a certain point in time and the HST rate applicable to each of those provinces or territories. As a result, HST will be paid based on a “blended rate” of the 5% rate in the non-harmonized jurisdictions, 15% in Nova Scotia, 14% in Prince Edward Island, and 13% in the other harmonized provinces of New Brunswick, Newfoundland and Labrador and Ontario. Quebec also has harmonized the QST at a rate of 14.975%, which will be factored into the “blended rate” referred to above. The blended rate will be different from year to year and is subject to change. This happens because different securityholders invest in the different series and the securityholders who invest in each series change from year to year because of purchases and redemptions. Series F and PF - Management and Administration Fees Management Fees Management fees are unique to each series of the Fund. See the table below, for the series you wish to purchase. Series O investors do not bear any of the management fees within the Fund, but instead pay a separate Management and Administration Fee to the Manager and an Investment Advisory Fee to their Dealer (collectively, the “Program Fees”). See “Series O Management and Administration Fee” on page 28 for further information. Administration Fees The Manager pays the operating expenses of the Fund, other than Fund Costs (as defined below) and Taxes (as defined below) (the “Operating Expenses”) in exchange for the payment by the Fund of a fixed rate


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administration fee (the “Administration Fee”) to the Manager with respect to Series F and PF units of the Fund (referred to as “Participating Series”). The Operating Expenses payable by the Manager include, but are not limited to, audit fees, fund accounting costs, transfer agency and recordkeeping costs, custodian costs, administration costs and trustee services relating to registered tax plans, costs of printing and disseminating offering documents and continuous disclosure materials, legal fees, investor communication costs and regulatory filing fees. The “Fund Costs”, which are payable by the Fund, are borrowing and interest costs, investor meeting costs (as permitted by Canadian securities regulation), the fees and expenses of the Independent Review Committee, any costs and expenses associated with litigation for the benefit of the Fund or brought to pursue rights on behalf of the Fund, the cost of compliance with any new governmental and regulatory requirements or with any material change to existing governmental and regulatory requirements (including extraordinary increases to regulatory filing fees). The Fund will also pay all applicable taxes, including without limitation, income taxes, withholding taxes, HST and related taxes (collectively, the “Taxes”). The Fund will also continue to pay its portfolio transaction costs, which include costs associated with the purchase and sale of securities and other property, such as brokerage commissions for portfolio trading and related trading fees (including the costs of any derivative transactions), commissions for portfolio trading and related trading fees (including the costs of any derivative transactions), commissions, service charges and research and execution costs, as well as forward agreement and derivative transaction costs. Except as described below, each series of the Fund is responsible for its appropriate share of common Fund Costs in addition to the Fund Costs that it alone incurs. The Manager may, in some years and in certain cases, absorb a portion of a series’ Administration Fee or Fund Costs. The decision to absorb the Administration Fee or Fund Costs, or a portion thereof, is reviewed annually and determined at the discretion of the Manager, without notice to investors. In addition, the Manager pays all Operating Expenses of Series O as part of its agreement with each investor. The Administration Fee is equal to a specified percentage of the net asset value of a Participating Series, calculated and paid in the same manner as the management fee for the Fund (calculated as 1/12 of the annual rate applied against the monthly average daily net assets of each series and paid monthly). The Manager may reduce or rebate the management fee for certain investors in a Fund. The decision to do this depends on a number of factors, including the size of the investment or the nature of the investment, such as investments by pension funds, insurers or other institutional investors. If we reduce or rebate the management fee, we, or the Fund, pay a management fee distribution (“management fee distribution”) or a rebate (“management fee rebate”). The rate of the annual Management Fees for each series (except Series O) and annual Administration Fee for each Participating Series is set out below:

Series Fee (%)

Management Fee Administration Fee

F 2.00 0.20

PF 1.85 0.20

The Manager, in its discretion, may use a portion of the fees it earns to compensate third parties and/or affiliates who assist certain investors in connection with an investment in the Fund or provide investment advisory and other services to the Fund.


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Series O Management and Administration Fee In consideration for the management and administration services we provide in respect of Series O units of the Fund, by placing an order to purchase Series O units, investors agree to pay a fee to the Manager (the “Management and Administration Fee”) of 2.05% annually. Certain institutional investors may negotiate a different Management and Administration Fee with the Manager. We may change the Management and Administration Fee for the Fund and/or the asset thresholds at any time in our sole discretion, but we will not increase the fee or change the asset thresholds in a manner that could result in an investor paying a higher fee, unless we have provided you with at least 60 days’ prior written notice of such change. The Management and Administration Fee is subject to applicable taxes and is calculated and paid as described below under “Program Fees for Series O units.” Investment Advisory Services Fee (Series F, PF and O units) For Series F, PF and O where you have purchased the series with the investment advisory services fee option, we have an arrangement in place with your Dealer to collect the investment advisory services fee (plus any applicable taxes) from you for payment to your Dealer on your behalf (the “Investment Advisory Services Fee”). Where the above arrangement exists, the maximum annual Investment Advisory Services Fee rate that we will facilitate the payment of, is 1.50% (excluding taxes). For Series O the effective date of the 1.50% maximum fee rate limit is March 12, 2018. For Series F and PF the effective date of the 1.50% maximum fee rate limit is August 7, 2018. The Investment Advisory Services Fee purchase option for Series F, PF is available for purchase effective August 7, 2018. Your Dealer is solely responsible for making the recommendation to purchase Series F, PF and O units of the Fund and for providing any and all necessary information regarding your investment in the Fund to you. By placing an order to purchase Series F, PF and O units and in consideration for the investment advice and/or services, and suitability analysis provided to you by your Dealer in respect of your purchase, you are agreeing to pay the negotiated Investment Advisory Services Fee to your Dealer. We will not remit the Investment Advisory Services Fee to your Dealer until we have received confirmation of the amount of the Investment Advisory Services Fee from your Dealer. Investors in Series F and PF units that do not hold their securities in a fee-based or wrap program where they pay their fees directly to their Dealer are eligible to participate in the Investment Advisory Services Fee option. In the case of Series O the Investment Advisory Services Fee is calculated and paid to your Dealer as described in the “Program Fees for Series O units” section. The Management and Administration Fee together with the Investment Advisory Services Fee are collectively referred to as the “Program Fees”. For more information on how the Program Fees are calculated and paid, and further details, please see the “Program Fees for Series O units” section. In the case of Series F and PF units, where you have purchased such series with the Investment Advisory Services Fee option, the Investment Advisory Services Fee is calculated based on the average daily net asset value of the applicable Series F or PF units held in your account at the end of each business day. The fees will accrue on a monthly basis. On the last business day of each month, we will redeem the amount of the accrued Investment Advisory Services Fee (plus applicable taxes) from your account and pay it to your Dealer at a frequency agreed upon between Franklin Templeton and your Dealer. If you redeem, switch or transfer securities of a series where the Investment Advisory Services Fee purchase option applies, before we fulfill your request we will verify if there are sufficient funds in your account to pay the accrued Investment Advisory Services Fee (plus applicable taxes) as part of the next fee redemption cycle (at the end of the accrual month),


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or deduct the fee from the proceeds of your requested redemption, switch or transfer at the time of the transaction, in order to satisfy payment of such fee (plus applicable taxes). If you move your account(s) holding Series F, PF or O units to another Dealer, you will need to negotiate the Investment Advisory Services Fee with your new Dealer. We will remit the Investment Advisory Services Fee to your new Dealer at the negotiated rate, effective from the date we receive written confirmation of the amount from your new Dealer. We will remit the Investment Advisory Services Fee to your former Dealer in the amount accruing up to the date of transfer at the rate you negotiated with your former Dealer. Program Fees for Series O units The Program Fees paid by a Series O investor are calculated based on the average daily net asset value of the Series O units held in the investor’s accounts at the close of trading on the TSX every business day during each calendar quarter. For purposes of calculating the Program Fees, the average daily net asset value of the units held in an investor’s account will be calculated based on a full calendar quarter, even though the Series O units may not have been held in an investor’s account for the full quarter. If such units have not been held in an investor’s account on any day during the quarter, the net asset value for such units for such day will be zero. For the purposes of determining the Program Fees payable by the investor, the Series O units held by the investor in all of the investor’s accounts shall be aggregated, with the graduated fee rates applied on the Fund holding based on its pro-rata share of the aggregated total. The Program Fees and any applicable taxes are paid quarterly in arrears by the redemption of sufficient Series O units held by the investor between the first (1st) and the eighteenth (18th) business day of the month following the end of the calendar quarter. When an investor has more than one account holding Series O units, the Manager will collect payment for the Program Fees and any applicable taxes by redeeming Series O units from each such account in proportion to the market value of each account as at the end of the calendar quarter and within each account in proportion to the series net asset value of the Series O units of a Fund held by the investor in such account as at the end of the calendar quarter. If you redeem or transfer Series O units before we fulfill your request, we will verify if there are sufficient funds in your account to pay the accrued Program Fees (plus applicable taxes) as part of the next fee redemption cycle (at the end of the applicable calendar quarter), or deduct the Program Fees from the proceeds of your requested redemption or transfer at the time of the transaction, in order to satisfy payment of such fees (plus applicable taxes). In the event that an investor moves their account(s) holding Series O units to a new Dealer, the Manager will redeem sufficient securities from the applicable accounts either at the time that the investor moves to the new Dealer or shortly thereafter to pay any accrued Program Fees and applicable tax(es) owing to the former Dealer, prorated to the number of days in the calendar quarter that the former Dealer was the Dealer of record in respect of such account(s), and remit such amount to the former Dealer. The Program Fees are payable for as long as you (or your successor and permitted assign) hold Series O units of the Fund. Investors should consult with their tax advisor regarding the tax deductibility of the Program Fees. Underlying Fund Fees and Expenses The Fund will purchase Class Y Shares (Hedged) of the Underlying Fund. Although there will be no duplication of investment management fees, sales or redemption fees with respect to the purchase or redemption by the Fund of Class Y Shares (Hedged) of the Underlying Fund, the Class Y Shares (Hedged) of the Underlying Fund bear their pro-rata share of applicable third party expenses including but not limited to brokerage fees including the cost of the currency hedge, custodian, audit and regulatory fees and charges as well as any applicable taxes, costs which are included in the calculation of the daily NAV of the Class Y Shares (Hedged).


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Bank fees An investor will be charged the amount of any charges levied by a bank or other financial institution for any cheques that are dishonoured and returned or for any charge related to electronic fund transfers. Dealer Compensation Each of the available series of the Fund is offered on a no load basis, meaning no sales commission or trailing commission is paid to your Dealer in respect of Series F, PF and O units of the Fund. With these series, an advisory services fee is negotiated between you and your Dealer. For Series O units, the Investment Advisory Services Fee is negotiated between you and your Dealer. Fee payment is administered by us in accordance with the Series O agreement that we have with your Dealer. See “Program Fees for Series O units” for more details. For Series F and PF units, where you have purchased the series with the Investment Advisory Services Fee option, the fee is negotiated and payable by you to your Dealer. We administer the fee payment to your Dealer. For purposes of administering the Investment Advisory Services Fee, you authorize us to remit the amount of your Investment Advisory Services Fee to your Dealer by redeeming securities of the respective series in your account. For more information please see the “Investment Advisory Services Fee” section. Inter-company service fee For acting as principal distributor for Series F, PF and O units, the Manager pays an inter-company service fee of 0.20% in respect of those securities to our affiliate, FTC Investor Services Inc. Marketing support programs The Manager may pay for marketing materials we provide to Dealers to help support the sale of the Fund. These materials may include reports and commentaries on the financial markets, securities in general or on the Fund itself. In addition, we may organize and present educational conferences for Dealers to attend or pay the registration costs for Dealers to attend conferences hosted by third parties. We may share with Dealers some of the costs they incur in publishing and distributing sales communications for investors, organizing and presenting seminars to educate investors about mutual funds or organizing and presenting conferences or seminars that Dealers may attend. We may execute brokerage transactions through Dealers who have provided other services to the Fund, such as investment research, order execution, or distribution of Fund units. However, we will only execute through such a Dealer if the relevant Dealer can best execute the transactions, in accordance with our policy.

DISTRIBUTIONS The Fund intends to distribute income and capital gains annually in December. The Fund may pay distributions at other times during the year. Distributions (other than distributions paid on the redemption of Units) are automatically reinvested in additional Units of the Fund unless an investor requests in writing to receive cash distributions. The Fund will distribute a sufficient amount of its net income and net realized capital gains for each taxation year so that the Fund will not be liable in any taxation year for income tax under Part I of the Tax Act.

PORTFOLIO VALUATION AND NET ASSET VALUE The Manager calculates the Net Asset Value (“NAV”) for the Fund at the close of trading on The Toronto Stock Exchange (“TSX”) every business day (usually 4 p.m. ET) by dividing the value of the net assets of the


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Fund (the value of the proportionate share of assets of the Fund less any liabilities) by the total number of outstanding Units of the Fund. The issue and redemption price of Units is the NAV per Unit next determined after the receipt of a purchase or redemption order. In the event of any inconsistency between the valuation principles set out below and the provisions of securities legislation, the provisions of securities legislation shall prevail. In calculating NAV, the following provisions shall apply:

1. The value of any cash or its equivalent on hand, on deposit or on call, bills and demand notes and accounts receivable, prepaid expenses, cash dividends declared and interest accrued and not yet received will be its face amount, unless the Manager determines that another value is more appropriate and such deemed value is approved by the board of directors of the Manager.

2. The value of any security or interest in a security which is listed or dealt in upon a stock exchange will

be determined by:

a. in the case of a security traded on the day as of which the NAV is being determined, the closing sale price on the principal exchange on which it is traded;

b. in the case of a security not traded on the day as of which the NAV is being determined because

such exchange is closed for business on such day, unless decided otherwise by the board of directors of the Manager, the most recent closing sale price; and

c. in the case of any other security not traded on such exchange on the day as of which the NAV

is being determined, a price estimated to be the true value thereof by the Manager on such basis and in such manner as may be approved by the board of directors of the Manager, such price being between the closing ask and bid prices for the security or interest therein as reported by any report in common use or authorized as official by a stock exchange.

3. Except as set out below, the value of any security or interest therein which is not listed or dealt in upon

any stock exchange will be determined as nearly as may be possible in the manner described in paragraph 2 above, except that there may be used, for the purpose of determining the sale price or the asked and bid prices, any public quotations in common use which may be available.

4. Except as set out below, in the case of any security or property for which no price quotations are

available as provided above, the value thereof will be determined from time to time by the Manager on such basis and in such manner as may be approved by the board of directors of the Manager.

5. The value of a security of an investment fund is valued at the same business day’s closing net asset value per security of the respective investment fund.

6. In the case of any forward contract, the unrealised gain or loss represents the gain or loss that would

result if, on the day as of which the NAV is being determined, the forward contracts were closed. When the forward contracts are closed, gains or losses realized are included in the net realized gain (loss) on investments. These investments may be illiquid and may trade infrequently or not at all.

7. Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into

Canadian dollars based on the exchange rate of such currencies against Canadian dollars on the day as of which the NAV is being determined.

8. If an asset cannot be valued under the above rules or under any valuation rules set out in securities

legislation or if any of the valuation rules adopted by the Manager but not set out in securities legislation are at any time considered by the Manager to be inappropriate in the circumstances then the Manager shall use a valuation that it considers to be fair in the circumstances.


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The Fund calculates NAV per Unit as of the close of the TSX. If events materially affecting the value of such securities occur between the time when their price is determined and the time when NAV is calculated, such securities will be valued at fair value as determined in good faith by the board of directors of the Manager. For the purpose of determining NAV at any time, Units of the Fund subscribed for will be deemed to be outstanding as of the time a subscription for Units is accepted by or on behalf of the Fund and the amount received or receivable by the Fund therefor will be deemed to be an asset of the Fund. Units for which an application for redemption has been received by the Fund will be deemed to be outstanding until (and not after) the close of the TSX and thereafter, until paid, the NAV of such Units will be deemed to be a liability of the Fund. Since the Fund may invest in securities that are restricted, unlisted, traded infrequently, thinly traded, or relatively illiquid, there is the possibility of a differential between the last available market prices for one or more of those securities and the latest indications of market values for those securities. The Manager has procedures to determine the fair value of individual securities for which market prices are not readily available (such as certain restricted or unlisted securities and private placements) or which may not be reliably priced (such as in the case of trade suspensions or halts, price movement limits set by certain foreign markets, and thinly traded or illiquid securities). Some methods for valuing these securities may include: fundamental analysis (earnings multiple, etc.), matrix pricing, discounts from market prices of similar securities, or discounts applied due to the nature and duration of restrictions on the disposition of the securities. The application of fair value pricing procedures represents a good faith determination based upon specifically applied procedures. There can be no assurance that the Fund could obtain the fair value assigned to a security if it were able to sell the security at approximately the time at which the Fund determines its NAV per Unit. Trading in securities on European and Far Eastern securities exchanges is normally completed well before the close of business on each business day in Toronto (i.e., a day on which the TSX is open). Trading of European or Far Eastern securities, generally or in a particular country or countries, may not take place on every Toronto business day. In accordance with procedures established and approved by the Manager, a series of market proxies and trigger thresholds are analyzed and maintained daily to determine if events have occurred that might call into question the availability or reliability of the values of such foreign securities between the times at which they are determined and the close of the TSX. If it is determined that the values of such foreign securities are unavailable or unreliable, then the securities will be valued at fair value using procedures established and approved by the board of directors. These procedures may include the use of independent pricing services. Furthermore, trading takes place in various foreign markets on days which are not business days in Toronto and on which the Fund's NAV is not calculated.

The U.S. dollar equivalent of each Foreign Security so determined and the U.S. dollar value of each U.S. security as of the close of the New York Stock Exchange are each converted from U.S. currency into Canadian currency at the rate of exchange as of the close of the TSX. The rates of exchange are provided by an independent service provider that utilizes contributor rates provided by qualified market participants that may include major banks or other financial institutions. The Canadian securities are valued in Canadian currency at the close of the TSX. The values of the Funds’ holdings in Foreign Securities, U.S. securities and Canadian securities are all determined in Canadian currency and are aggregated to become the NAV of the Units of the Fund.

In accordance with recent amendments to National Instrument 81-106 – Investment Fund Continuous Disclosure, the fair value of the securities used to determine the Unit value of the Fund will be based on the Fund’s valuation practices set out above, which may not be the same as Canadian generally accepted accounting principles (GAAP) requirements. Canadian GAAP requires that for financial reporting purposes, the fair value of actively traded securities held by the Fund should be valued at the bid price, instead of the close price or last sale price of the securities for the day. Accordingly, the reported value of securities held


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by the Fund in the annual and interim financial statements may be different from the Unit value. The notes to the financial statements of the Fund include disclosure of the Unit value calculated in accordance with the valuation practices and used for other purposes.

CANADIAN FEDERAL INCOME TAX CONSIDERATIONS The following is a general summary of the Canadian federal income tax considerations as of the date of this Offering Memorandum for the Fund and a prospective investor who acquires Units under this Offering Memorandum and who is an individual (other than a trust) resident in Canada holding Units of the Fund as capital property and who deals at arm's length with the Fund. This summary is based on the current provisions of the Tax Act, the regulations thereunder and the current published administrative practices and assessing policies of the Canada Revenue Agency (“CRA”). This summary takes into account all specific proposals to amend the Tax Act and the regulations thereunder publicly announced by the Minister of Finance (Canada) prior to the date hereof. Except for the foregoing, this summary does not take into account or anticipate any changes in law whether by legislative, regulatory, administrative or judicial action. This summary does not take into account provincial or foreign income tax legislation or considerations. This summary is of a general nature only. It is not exhaustive of all possible income tax considerations and is not intended to be legal or tax advice to any particular investor. Prospective investors should consult their own tax adviser about their particular circumstances. International Information Reporting Pursuant to the Intergovernmental Agreement for the Enhanced Exchange of Tax Information under the Canada-U.S. Tax Convention entered into between Canada and the United States (the “IGA”), and related Canadian legislation, the Fund and the dealers through which securityholders hold their securities are required to report certain information, including certain financial information (e.g. account balances), with respect to securityholders who are U.S. residents and U.S. citizens (including U.S. citizens who are residents or citizens of Canada), and certain other “U.S. Persons” as defined under the IGA (excluding Registered Plans), to the Canada Revenue Agency. The Canada Revenue Agency will then exchange the information with the U.S. Internal Revenue Service pursuant to the provisions of the Canada-U.S. Tax Convention. In addition, pursuant to rules in the Tax Act implementing the Organisation for Economic Co-operation and Development Common Reporting Standard (the “CRS Rules”) a Fund and the dealer through which securityholders hold their securities will be required under Canadian legislation (effective July 1, 2017) to identify and report (commencing in May 2018) to the Canada Revenue Agency certain information, including financial information (e.g. account balances), relating to unitholders of the Fund (other than Registered Plans) who are individual residents in a country outside Canada and the U.S. Such information would be exchanged by the Canada Revenue Agency with the countries where such unitholders are resident if those countries have adopted the CRS Rules. Taxation of the Fund The Fund will be subject to tax under Part I of the Tax Act on its net income, including net taxable capital gains, as calculated in Canadian dollars according to the rules in the Tax Act for a taxation year to the extent that it is not paid or payable to unitholders (after taking into account any loss carryforwards). The Fund will distribute to unitholders enough of its net income and net realized capital gains so that the Fund will not be liable for ordinary income tax under Part I of the Tax Act for any taxation year, including for any taxation year that is deemed to end, after taking into account any entitlement to a capital gains refund. The Fund is required to calculate its net income, including net taxable capital gains, in Canadian dollars for each taxation year according to the rules in the Tax Act. If the Fund invests in securities that are not


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denominated in Canadian dollars, the Fund may realize income, gains and losses by virtue of the fluctuation in the value of foreign currencies relative to the Canadian dollar. The Fund intends to include an amount in income under section 94.1 of the Tax Act in respect of its investment in the Underlying Fund. Generally, foreign source income is received net of any taxes withheld in the foreign jurisdiction. Dividends paid on shares of the Underlying Fund are not subject to withholding tax in Luxembourg. Foreign taxes withheld are included in the calculation of the Fund’s income in the same manner as the foreign source income. Gains and losses from cash-settled options, futures, swaps and other derivatives are generally treated as income rather than capital gains, though in certain situations, gains and losses on derivatives used by the Fund as a hedge to limit gains and losses on a specific capital asset or group of capital assets held by the Fund may be a capital gain or capital loss. Gains and losses from short sales are generally treated as income rather than capital gains. In certain circumstances, losses realized by the Fund on the disposition of its investments (including the shares of the Underlying Fund) may be suspended or restricted and therefore not available to offset capital gains or income. For example, the Fund will experience a “loss restriction event” when an investor (counted together with affiliates) becomes the holder of Units worth more than 50% of the Fund unless the Fund satisfies certain investment diversification and other conditions as stipulated under the Tax Act. Each time the Fund experiences a loss restriction event, the taxation year of the Fund will be deemed to end and the Fund will be deemed to realize its capital losses. The Fund may elect to realize its capital gains to offset capital losses and non-capital losses. Generally, any undeducted losses will expire and may not be deducted in future years. The Declaration of Trust provides for the automatic distribution to unitholders of a sufficient amount of net income and net realized capital gains for each taxation year (including a taxation year that is deemed to end) so that the Fund will not be liable for income tax under Part I of the Tax Act, other than alternative minimum tax. The Declaration of Trust also provides that this distribution is automatically reinvested in Units of the Fund and the Units are immediately consolidated to the pre-distribution NAV. Taxation of Unitholders of the Fund Fund Units Not Held in Registered Plans If you hold securities of the Fund outside of a registered plan, you must include in computing your income for tax purposes the amount of the net income and the taxable portion of net capital gains paid or payable to you by the Fund in the year, whether you receive these distributions in cash or they are reinvested in additional securities. To the extent that the Fund so designates under the Tax Act, distributions of net capital gains, taxable dividends on securities of taxable Canadian corporations and foreign source income of the Fund paid or payable to you by the Fund will effectively retain their character in your hands and be subject to the special tax treatment applicable to income of that character. To the extent that the distributions to you by the Fund in any year exceeds your share of the net income and net realized capital gains of the Fund for the year, those distributions (except to the extent that they are proceeds of disposition) will be a return of capital. Distributions which are return of capital will not be taxable to you but will reduce the adjusted cost base of your securities. If the adjusted cost base of your securities is reduced to less than zero you will realize a capital gain to the extent that your adjusted cost base is below zero and the adjusted cost base of the securities will be increased by the amount of such gain. We will provide you with information regarding any distributions that are a return of capital. For more information, contact your tax advisor. The Fund may have investors who own a significant amount of the Fund as described under “Large Investor Risk” on page 18. Large redemptions by these investors may result in more accrued gains to be recognized that could increase the distribution of the Fund. As described under “Large Investor Risk” on page 18, there are tax loss restriction rules that apply to the Fund each time the Fund experiences a “loss restriction event” for tax purposes. Where a Fund experiences a “loss


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restriction event”, the Fund may make an unscheduled distribution of income and capital gains that must be included in computing your income for tax purposes. The amount of distributions paid by the Fund after a “loss restriction event” may be larger than they otherwise would have been due to the deemed recognition and expiry of losses (both realized and unrealized net of elected unrealized gains) at the time of the “loss restriction event”. When you invest in the Fund, the unit price may include accrued but unrealized capital gains and realized income and capital gains that have not been distributed or paid out as a dividend, as the case may be. You may be taxed on such amounts when they are distributed or paid out as a dividend, as the case may be. If you invest in the Fund before a distribution or dividend date, you will have to pay tax on any distribution of income or capital gains or any dividend paid to you, even if the distribution or dividend relates to income or capital gains that were earned before you bought your securities. The Declaration of Trust provides for the automatic distribution to securityholders of a sufficient amount of net income and net realized capital gains for each taxation year (including a taxation year that is deemed to end) so that the Fund will not be liable for income tax under Part I of the Tax Act, other than alternative minimum tax. The Declaration of Trust also provides that this distribution is automatically reinvested in securities of the Fund and the securities are immediately consolidated to the pre-distribution NAV. As prescribed by the Canada Revenue Agency, we will send you a tax form each year indicating the amount of income, capital gains or return of capital distributed to you in the previous year and the amount of taxable dividends and capital gains dividends that were paid to you in the previous year, if applicable. Dispositions of Fund Units not held in a registered plan If you redeem Fund units (including on a redemption of securities to pay an Investment Advisory Services Fee) you may realize a capital gain or loss. The capital gain (loss) will be equal to the difference between the amount you receive for the sale or switch net of any costs (such as a redemption fee) and the adjusted cost base of the securities sold. In the case of a disposition of securities, one-half of a capital gain generally is included in determining your income. In certain situations, where a securityholder disposes of securities of the Fund and would otherwise realize a capital loss, the loss will be denied. In certain other situations, where a securityholder receives dividends from the Fund and would otherwise realize a capital loss, the securityholder may be required to reduce the capital loss realized by the amount of the dividends received. For more information, contact your tax advisor. We will provide you with details on the proceeds from the sale or switch. However, in order to calculate your gain or loss, you need to know the adjusted cost base of your securities before disposition. Fund Units held in Registered Plans A registered plan that holds Units and the registered plan owner will generally not be subject to tax on the value of the Units or any income or capital gains distributed by the Fund or any gain realized on the disposition of the Units if the Units are a qualified investment and not a prohibited investment for the registered plan. Please see “Eligibility for Registered Plans” on page 17 for more information.

PRIVACY AND DISCLOSURE OF PERSONAL INFORMATION Generally, unitholders will be required to provide their Dealer with information related to their citizenship, tax residence and, if applicable, foreign tax identification numbers. A unitholder that is an entity may be required to provide information about the citizenship, tax residence and tax identification numbers of individuals who are “controlling persons” of the unitholder. If a unitholder is identified as a U.S. citizen, a foreign tax resident or a Canadian resident passive non-financial entity with at least one “controlling person” who is a U.S. citizen or foreign tax resident, details about the unitholder and its investment in the Fund will generally be reported


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to the CRA. The CRA is expected to provide that information to the foreign tax authority in the relevant country if the country has signed an exchange of financial account information agreement with Canada. The Manager may also be required to provide securities regulators with the name, residential address and telephone number of the investors in the Fund, the number and type of securities purchased, the total purchase price, the exemption relied on and the date of the distribution (the “Personal Information”) and may make any other filing(s) as the Manager’s counsel deems appropriate. In particular, investor should be aware that: (i) the Fund is required to deliver the Personal Information concerning the Subscriber to the securities

regulatory authority (the “Regulatory Authority”) in the Subscriber’s province/territory of residence; (ii) the Personal Information is being collected indirectly by the Regulatory Authority under the authority

granted to it under securities legislation; (iii) the Personal Information is being collected for the purposes of the administration and enforcement of

the securities legislation of Regulatory Authority; and (iv) the public official who can answer questions about the Regulatory Authority’s indirect collection of

the Personal Information is set out in the Subscription Agreement. By purchasing Units of the Fund, investors consent and authorize the Manager to make the foregoing disclosures and any similar disclosures as the Manager’s counsel deems appropriate and to the retention of such information by the Manager, foreign tax authorities and agents and securities regulators, for as long as required or permitted by law or business practices. In addition, investors should read and will be subject to Franklin Templeton’s privacy policy available at www.franklintempleton.ca (the “Privacy Policy”). By making an investment in the Units, the investor is deemed to consent to the collection, use and disclosure of the Investor’s personal information by Franklin Templeton in accordance with the Privacy Policy.

CUSTODIAN J.P. Morgan Bank Canada, the principal business address of which is 66 Wellington Street West, Suite 4500, TD Bank Tower, Toronto, ON, M5K 1E7, has been appointed as custodian of the assets of the Fund pursuant to a custody agreement dated as of September 7, 2012, as amended (the “Custody Agreement”).

AUDITOR The auditor of the Fund is PricewaterhouseCoopers LLP, Chartered Accountants, PWC Tower, 18 York Street West, Suite 2600, Toronto, Ontario M5J 0B2.

PRINCIPAL DISTRIBUTOR FTIC is the principal distributor for the Fund. As principal distributor, FTIC markets and distributes the Fund and may also make arrangements for the sale of the Fund through dealers across Canada. The distribution responsibilities of FTIC are contained within the Declaration of Trust previously described under the heading “Organization and Management of the Fund - Manager and Trustee”.

CONFLICTS OF INTEREST


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FTIC is the trustee, manager and portfolio advisor of the Fund and, as such, has the power to exercise a controlling influence over the management and policies of the Fund. FTIC also acts as the principal distributor of the Fund. The Fund currently intends to invest substantially all of its assets (up to 100%) in the Underlying Fund. Franklin Templeton International Services S.à r.l., société à responsabilité limitée with its registered office at 8A, rue Albert Borschette, L-1246 Luxembourg, Grand-Duchy of Luxembourg is the manager of the Underlying Fund (“Underlying Fund Manager”). K2/D&S Management Co., L.L.C., located at 300 Atlantic Street, 12th Floor, Stamford, CT 06901 USA is the portfolio advisor of the Underlying Fund (“Underlying Fund Portfolio Advisor”). Both the Underlying Fund Manager and Underlying Fund Portfolio Advisor are affiliates of FTIC. The Investment Co-Managers appointed by the Underlying Fund Portfolio Advisor may also be affiliated with Franklin Templeton Investments. Investments by the Fund in the Underlying Fund will be in Class Y Shares (Hedged) and there will be no duplication of management or administration fees, although the Underlying Fund may pay certain third party costs as described under “Fees and Expenses” on page 26. FTIC pays a portion of the Management Fee it earns to the Underlying Fund Manager. FTS is an affiliate of FTIC and is compensated by FTIC as remuneration for its services. Inter-Fund and In Specie Trades and the Independent Review Committee The Fund has received an exemption from the Canadian securities regulatory authorities to engage in inter fund trading which would otherwise be prohibited under applicable securities legislation. This exemption permits the Fund to purchase securities from or sell securities to another Canadian investment fund or managed account managed by the Manager or an affiliate of the Manager, subject to certain conditions. The Independent Review Committee (“IRC”) of the Fund must approve the inter-fund trades involving the Fund in accordance with the approval requirements of National Instrument 81-107 – Independent Review Committee for Investment Funds )(“NI 81-107”). The Fund has received an exemption from the Canadian securities regulatory authorities to engage in in specie transfers, which would otherwise be prohibited under various applicable securities legislation. This exemption permits the Fund to receive portfolio securities from, or deliver portfolio securities to, a managed account or another investment fund managed by the Manager or an affiliate of the Manager in respect of a purchase or redemption of units the Fund, subject to certain conditions. The IRC must approve the in specie transfers involving the Fund in accordance with the approval requirements of NI 81-107. FTIC, on behalf of the Fund, has established an IRC for the Fund. The current members of the IRC are Gary Norton (Chair), Bruce Galloway and Stuart Douglas. The composition of the IRC may change from time to time but will be composed of persons who are independent from FTIC, the Fund or entities related to the Manager. The mandate of the IRC is to approve any purchase or sale of securities of any issuer between the Fund and another fund or managed account which is managed by a responsible person or any associate of a responsible person (as defined in securities legislation) of the manager of the Fund. Policies Regarding Personal Securities Transactions and Conflict of Interest FTIC and its subsidiaries and affiliates are subject to the restrictions and procedures described in an internal Personal Investments and Insider Trading Policy (the “Code”). In order to avoid actual or potential conflicts of interest with the clients of FTIC, its subsidiaries and affiliates, the Code monitors and restricts the personal investing activities of employees involved in making investment decisions or those with access to information about client transactions. Additionally, the Code prescribes procedures for pre-clearance, reporting, notification and disclosure of applicable transactions by certain employees. The Code also prohibits improper disclosure or use of material non-public or confidential information for personal gain or for the benefit of any other party.


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Related and Connected Issuers An issuer of securities is “related” to FTIC if, through ownership, or direction and control over voting securities, FTIC exercises a controlling influence over that issuer or that issuer exercises a controlling influence over FTIC, or the same third party exercises a controlling influence over both FTIC and the issuer. An issuer is “connected” to FTIC if due to indebtedness or other relationships, a reasonable prospective investor might question if that issuer and FTIC are independent of each other. In carrying on business as a portfolio advisor, exempt market dealer and/or mutual fund dealer, FTIC may with respect to securities of related issuers, and in the course of a distribution, securities of connected issuers of FTIC: exercise discretionary authority to buy or sell these securities for clients; make recommendations regarding these securities to clients; and sell securities issued by investment funds, or other similar collective investment vehicles, established,

managed and distributed by FTIC to clients. These services will be carried on in the ordinary course of business in accordance with usual practices and procedures and in accordance with all applicable disclosure and other regulatory requirements. It is FTIC’s policy to comply fully with all applicable securities laws and to make all required disclosures. The following is a list as of the date of this Offering Memorandum of related and connected issuers of FTIC: (i) Franklin Templeton mutual funds managed and distributed by FTIC under the brand names of Franklin

Funds, Franklin Corporate Class Funds, Templeton Funds, Templeton Corporate Class Funds, Franklin Bissett Funds, Franklin Bissett Corporate Class Funds, Franklin Mutual Series Funds, Franklin Mutual Series Corporate Class Funds, Franklin Quotential Portfolios, Franklin Quotential Corporate Class Portfolios, Franklin ActiveQuant, Franklin K2 and Franklin Templeton Funds. A complete list of these mutual funds can be found at www.franklintempleton.ca;

(ii) Templeton Growth Fund, Ltd.; (iii) Franklin Exchange Traded Funds (“ETFs”); (iv) Templeton Pooled Trusts/Funds, Franklin Bissett Pooled Funds, Franklin Templeton Pooled Trusts,

Franklin K2 Pooled Funds and Franklin LifeSmart Portfolios; (v) Franklin Target Return Fund; and (vi) Investment management products and services managed and distributed under the following trade

names: Franklin Bissett Investment Management, Franklin Templeton Investments, Franklin Templeton Institutional, Fiduciary Trust Canada and Franklin Templeton Multi-Asset Solutions.

BROKERAGE ARRANGEMENTS

Selection Criteria for Brokers and Dealers Given that the Fund invests substantially all of its assets in the Underlying Fund, the following information relates to the brokerage selection and remuneration policies of the Underlying Fund’s portfolio manager, K2. K2 and any Investment Co-Managers it may appoint select brokers and dealers to execute the Underlying Fund’s portfolio transactions in accordance with criteria set forth in the management agreement, subadvisory agreements and any directions that the Underlying Fund’s board may give. These agreements direct K2 and the Investment Co-Managers to use their best efforts to obtain the best execution with respect to all portfolio transactions for the Underlying Fund. “Best execution” is the best combination of high quality transaction


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execution services, taking into account the services and products to be provided by the broker or dealer, and low relative commission rates with the view of maximizing value for the Underlying Fund and its other clients. For most transactions in equity securities, the amount of commissions paid is negotiated between K2 or an Investment Co-Manager and the broker executing the transaction. The determination and evaluation of the reasonableness of the brokerage commissions paid are based to a large degree on the professional opinions of the persons within the trading department of K2 or the Investment Co-Manager responsible for placement and review of the transactions. These opinions are based on the experience of these individuals in the securities industry and information available to them about the level of commissions being paid by other institutional investors. K2 or an Investment Co-Manager may also place orders to buy and sell equity securities on a principal rather than agency basis if it believes that trading on a principal basis will provide best execution. Orders for fixed-income securities are ordinarily placed with market makers on a net basis, without any brokerage commissions. Purchases of portfolio securities from underwriters will include a commission or concession paid to the underwriter, and purchases from dealers will include a spread between the bid and ask price. K2 and/or an Investment Co-Manager may cause the Underlying Fund to pay certain brokers’ commissions that are higher than those another broker may charge, if it determines in good faith that the amount paid is reasonable in relation to the value of the brokerage and research services it receives. This may be viewed in terms of either the particular transaction or K2’s or the Investment Co-Manager’s overall responsibilities to client accounts over which it exercises investment discretion. The brokerage commissions that are used to acquire services other than brokerage are known as “soft dollars.” Research provided can be either proprietary (created and provided by the broker dealer, including tangible research products as well as access to analysts and traders) or third party (created by a third party but provided by the broker-dealer). To the extent permitted by applicable law, K2 or an Investment Co-Manager may use soft dollars to acquire both proprietary and third-party research. The research services that brokers may provide to K2 or an Investment Co-Managers include, among others, supplying information about particular companies, markets, countries, or local, regional, national or transnational economies, statistical data, quotations and other securities pricing information, and other information that provides lawful and appropriate assistance to K2 or an Investment Co-Manager in carrying out its investment advisory responsibilities. These services may not always directly benefit the Underlying Fund. They must, however, be of value to K2 or an Investment Co-Manager in carrying out its overall responsibilities to its clients. It is not possible to place an accurate dollar value on the special execution or on the research services K2 or an Investment Co-Manager receives from dealers effecting transactions in portfolio securities. The allocation of transactions to obtain additional research services allows K2 or the Investment Co-Manager to supplement its own research and analysis activities and to receive the views and information of individuals and research staffs from many securities firms. The receipt of these products and services does not reduce K2’s or Investment Co-Manager’s research activities in providing investment advice to the Underlying Fund. As long as it is lawful and appropriate to do so, K2, the Investment Co-Managers and their respective affiliates may use this research and data in their investment advisory capacities with other clients. If purchases or sales of securities of the Underlying Fund and one or more other investment companies or clients supervised by K2 or an Investment Co-Managers are considered at or about the same time, transactions in these securities will be allocated among the several investment companies and clients in a manner deemed equitable to all by K2 or an Investment Co-Managers, taking into account the respective sizes of the accounts and the amount of securities to be purchased or sold. In some cases this procedure could have a detrimental effect on the price or volume of the security so far as the Underlying Fund is concerned. In other cases it is possible that the ability to participate in volume transactions may improve execution and reduce transaction costs to the Underlying Fund.


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Because the Underlying Fund may, from time to time, invest in broker-dealers, it is possible that the Underlying Fund will own more than 5% of the voting securities of one or more broker-dealers through whom the Underlying Fund places portfolio brokerage transactions. In such circumstances, the broker-dealer would be considered an affiliated person of the Underlying Fund. To the extent the Underlying Fund places brokerage transactions through such a broker-dealer at a time when the broker-dealer is considered to be an affiliate of the Underlying Fund, the Underlying Fund will be required to adhere to certain rules relating to the payment of commissions to an affiliated broker-dealer. These rules require the Underlying Fund to adhere to procedures adopted by the board to ensure that the commissions paid to such broker-dealers do not exceed what would otherwise be the usual and customary brokerage commissions for similar transactions. Other sales incentives The Manager may pay for marketing materials it provides to dealers to help support the sale of the Fund. These materials may include reports and commentaries on the financial markets, securities in general or on the Fund itself. In addition, the Manager may organize and present educational conferences for dealers to attend or pay the registration costs for dealers to attend conferences hosted by third parties.

The Manager may share with dealers some of the costs they incur in publishing and distributing sales communications for investors, organizing and presenting seminars to educate investors about mutual funds or organizing and presenting conferences or seminars that dealers may attend.

The Manager may pay a fee to dealers and others who it has entered into agreements with to introduce FTIC to clients for its discretionary investment management services.

PROXY VOTING Given that the Fund invests substantially all of its assets in the Underlying Fund, the proxy voting policies of the Underlying Fund’s portfolio manager, K2, which are reasonably designed to ensure that proxies are voted in the best interest of K2’s clients, and in accordance with K2’s fiduciary duties and applicable regulations, are set out below.

K2 Proxy Voting Policies and Procedures Proxies are an asset of a client account, which are treated by K2 with the same care, diligence and loyalty as any asset belonging to a client. Accordingly, proxy voting must be conducted with the same degree of prudence and loyalty accorded any fiduciary or other obligation of K2. There may be circumstances under which K2 may abstain from voting a client proxy for cost reasons (e.g., non-U.S. securities). (K2 will generally, however, vote proxies received with respect to non-U.S. underlying Funds.) K2 understands that it must weigh the costs and benefits of voting proxy proposals under such circumstances and make an informed decision with respect to whether voting a given proxy proposal is prudent and solely in the interests of the client. K2’s decision in such circumstances will take into account the effect that the proxy vote, either by itself or together with other votes, is expected to have on the value of the client’s investment and whether this expected effect would outweigh the cost of voting. The legal/compliance team is responsible for administering and overseeing the proxy voting process. The guidelines set forth below deal with various categories of proxy proposals, particularly in the area of corporate governance. While they are not exhaustive, they do provide a good indication of K2’s general approach to a wide range of issues. K2 usually opposes proposals that dilute the economic interest of equityholders, reduce equityholders’ voting rights or otherwise limit their authority. However, in certain cases, it may not be in a client’s best interest to vote against a proposal. For example, K2 may receive a proposal from an underlying Fund manager that would impose more unfavorable fee or liquidity terms. K2 may nevertheless conclude that continued investment in the underlying Fund is still in the client’s best interest and abstain from voting or give another party the right to exercise K2’s vote.


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K2 generally characterizes proxy voting issues into three Levels (I, II and III). Proxies are generally initially received and reviewed by the Legal/Compliance team. The Senior Compliance Officer or his or her designee will categorize the proxy in the appropriate level. The general Counsel or his designee will have the authority to vote Level I and Level II proxies but decisions with respect to Level III proxies must be made by senior Employees of the Research, risk, Operational due diligence, Accounting and legal/Compliance teams (the “Proxy Review group”). Provided below are guidelines for certain types of proxy proposals K2 employs to develop its position in its proxy voting procedures within each Level of proposal. This section also provides examples of categories and issues as a guide for K2 and is not intended to be a comprehensive list of all possible issues within each level. General guidelines Proxies are voted in what is believed to be the client’s best interest and not necessarily always with management. Each situation is considered individually within the general guidelines. Level i matters normally are voted based on the recommendation of the issuer’s management. Matters that could meaningfully impact the position of existing equityholders (levels II and III) are given special consideration and voted in a manner that is believed to support the interests of equityholders. (i) Level I Proposals. Level I proposals are those that do not propose to change the structure, bylaws, or operations of the entity. Given the routine nature of these proposals, proxies will most likely be voted with management. However, the Legal/Compliance team, in consultation with the Proxy Review group as appropriate, will research the issue before making a conclusion as to how a vote would be in the best interest of the client. Traditionally, level I issues include:

• Approval of auditors

• election of directors and officers of the entity

• indemnification provisions for directors

• liability limitations of directors

• name changes

• declaring stock splits

• elimination of preemptive rights

• incentive compensation plans

• Changing the date and/or the location of the annual meeting

• Minor amendments to organizational documents

• Employment contracts between the entity and its executives and remuneration for directors

• Automatic dividend reinvestment plans

• retirement plans, pensions plans and profit sharing plans, creation of and amendments thereto

• Any other issues that do not adversely affect investors.

(ii) Level II Proposals. Issues in this category are more likely to affect the structure and operations of the company and, therefore, will have a greater impact on the value of a client’s investment. The legal/Compliance team, in consultation with Proxy Review Group as appropriate, will review each issue in this category on a case-by-case basis and perform diligent research to make a decision based on the best interest of the client. As stated previously, voting decisions will be made based on the perceived best interest of the clients. Level II proposals include:


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• Mergers and acquisitions

• restructuring

• re-incorporation or formation

• Changes in capitalization

• increase or decrease in number of directors

• increase or decrease in preferred stock

• increase or decrease in common stock or other equity securities

• Stock option plans or other compensation plans

• Change of manager

• Social issues

(iii) Level III (Corporate Governance) Proposals. K2 generally will vote against any management proposal that clearly has the effect of restricting the ability of equityholders to realize the full potential value of their investment. in addition to the steps taken to render a decision in the above-mentioned scenarios (level I and level II proposals), the legal/Compliance team and/or the Proxy Review Group or its designee may find it necessary to contact company management to discuss any such proposal to gain a more complete understanding before casting a vote. Proposals in Level III may include:

• Increases in fees (including high water marks) and expenses

• Changes in liquidity terms

• Changes in indemnification/standard of care

• Poison pills

• Side pockets

• liquidating trusts

• golden parachutes

• greenmail

• Supermajority voting

• Board classification without cumulative voting

• Confidential voting

Voting Process and Conflicts of Interest K2 will receive and forward the proxy statement or consent that falls under a level III proposal for each individual meeting to the Proxy review group to review. The legal/Compliance team will have the authority to vote level I and level II proxies but decisions with respect to Level III proxies must be made by the Proxy Review Group. Once a decision has been reached, the Legal/Compliance team will then arrange for the votes to be entered. The legal/Compliance team may employ a third party or utilize specialized software to record and transmit proxy votes electronically. Any communication of the Proxy Review Group will be preserved for not less than twelve months. After votes are cast, the legal/Compliance team will perform a review to ensure that all proxies received, and for which a voting obligation exists, have been voted.


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Each proxy is reviewed by the Legal/Compliance team to assess the extent to which there may be a material conflict of interest between K2 and the client. Any communication between the client and K2 regarding the client’s voting direction will be maintained by the legal/Compliance team for a period of not less than twelve months. Examples of a material conflict of interest may be:

• if a proposal may harm a client financially while enhancing the financial or business prospects

of K2. Likewise, if a proposal may harm the financial or business prospects of K2 while enhancing a client’s financial position; and

• if a proposal may be contrary to the social philosophy or beliefs of a client while enhancing

the financial position of the client or the financial or business prospects of K2. Issues not covered by these guidelines will be examined by the Legal/Compliance team. As the Underlying Fund intends to use multiple Investment Co-Managers to implement its investment strategy, the proxy voting policies of the Investment Co-Managers may differ. A copy of the policies and procedures that the Investment Co-Managers follow when voting proxies relating to portfolio securities is available on request from the Manager.

MATERIAL CONTRACTS The material contracts of the Fund are as follows: The Fund has been created under the Declaration of Trust. Under the terms of the Management Agreement, FTIC has agreed to provide or arrange for the provision of all general management and administrative services required by the Fund in its day-to-day operations, including bookkeeping, record-keeping and other administrative services. J.P. Morgan Bank Canada has been appointed as custodian of the assets of the Fund pursuant to the Custody Agreement. A copy of the Declaration of Trust, the Management Agreement and the Custody Agreement referred to in this Offering Memorandum (collectively, the “Material Contracts”) may be inspected at the Manager’s offices during normal business hours. To the extent there is any inconsistency between the Material Contracts and this Offering Memorandum, the provisions of the Material Contracts shall apply.

STATUTORY AND CONTRACTUAL RIGHTS OF ACTION

Securities legislation in the offering jurisdictions provides that every investor of securities pursuant to this Offering Memorandum must have or must be granted, in addition to any other rights they may have at law, a right of action for rescission or damages, or both, against the issuer or selling securityholder on whose behalf the distribution is made if the Offering Memorandum and any amendment thereto contains a misrepresentation. However, such rights must be exercised within prescribed time limits. Statutory or contractual rights of action for each of the offering jurisdictions are described in Schedule “B” hereto. Investors should refer to the applicable provisions of the securities legislation of their offering jurisdiction for particulars of those rights or consult with a lawyer.


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SCHEDULE “A”

Risks of the Underlying Fund As the Fund intends to invest substantially all of its assets (up to 100%) in the Underlying Fund, the Fund is subject to all of the risks of the Underlying Fund, described below. In circumstances where the Fund engages in direct investments to achieve its investment objective it will be subject to the following risks directly. Asset Allocation Risk The Underlying Fund applies an actively managed asset allocation approach. The Underlying Fund could experience losses if its portfolio advisors’ and/or K2’s judgment about markets, future volatility, interest rates, industries, sectors and regions or the attractiveness, relative values, liquidity, effectiveness or potential appreciation of particular investments made for the Underlying Fund’s portfolio prove to be incorrect. K2’s allocation of the Underlying Fund’s assets among different asset classes, underlying funds and direct investments may not prove beneficial in light of subsequent market events. There can be no guarantee that these techniques or the portfolio advisors’ and/or K2’s investment decisions will produce the desired results. Additionally, legislative, regulatory, or tax developments may affect the investment techniques available to the portfolio advisors and K2 in connection with managing the Underlying Fund and may also adversely affect the ability of the Underlying Fund to achieve its investment goals. The portfolio advisors and/or K2 may use modeling systems to implement their investment strategies for the Underlying Fund. There is no assurance that the modeling systems are complete or accurate, or representative of future market cycles, nor will they necessarily be beneficial to the Underlying Fund even if they are accurate. The results generated by these models may perform differently than in the past, or as expected. They may negatively affect Underlying Fund performance and the ability of the Underlying Fund to meet its investment goal for various reasons. For example, human judgment plays a role in building, using, testing, and modifying the financial algorithms and formulas used in these models. Additionally, there is a possibility that the historical data may be imprecise or become stale due to new events or changing circumstances which the models may not promptly detect. Market performance can be affected by non-quantitative factors (for example, market or trading system dysfunctions, investor fear or over-reaction or other emotional considerations) that are not easily integrated into the portfolio advisors’ or K2’s risk models. There may also be technical issues with the construction and implementation of quantitative models (for example, software or other technology malfunctions, or programming inaccuracies). Class Hedging Risk The Underlying Fund may engage in currency hedging transactions with regard to the Class Y Shares (Hedged) (the “Hedged Share Class”). Hedged Share Classes are designed (i) to reduce exchange rate fluctuations between the currency of the Hedged Share Class and the base currency of the Underlying Fund or (ii) to reduce exchange rate fluctuations between the currency of the Hedged Share Class and other material currencies within the Underlying Fund’s portfolio. The hedging will be undertaken to reduce exchange rate fluctuations in case the base currency of the Underlying Fund or other material currencies within the Underlying Fund (the “reference currency(ies)”) is (are) declining or increasing in value relative to the hedged currency. The hedging strategy employed will seek to reduce as far as possible the exposure of the Hedged Share Classes so that the performance of the Hedged Share Classes closely tracks the performance of the Share Classes in base currency. No assurance can be given that the hedging objective will be achieved. In the case of a net flow to or from a Hedged Share Class the hedging may not be adjusted and reflected in the NAV of the Hedged Share Class until the following or a subsequent business day following the valuation day on which the instruction was accepted. This risk for holders of any Hedged Share Class may be mitigated by using any of the efficient portfolio management techniques and instruments (including currency options and forward currency exchange contracts,


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currency futures, written call options and purchased put options on currencies and currency swaps), within the conditions and limits imposed by the Luxembourg financial supervisory authority. Investors should be aware that the hedging strategy may substantially limit investors of the relevant Hedged Share Class from benefiting from any potential increase in value of the share class expressed in the reference currency(ies), if the Hedged Share Class currency falls against the reference currency(ies). Additionally, investors of the Hedged Share Class may be exposed to fluctuations in the NAV per Share reflecting the gains/losses on and the associated transactions costs of the relevant financial instruments used to implement the hedging strategy. The gains/losses on and the transactions costs of the relevant financial instruments will accrue solely to the relevant Hedged Share Class. Any financial instruments used to implement such hedging strategies with respect to one or more classes of the Underlying Fund shall be assets and/or liabilities of the Underlying Fund as a whole, but will be attributable to the relevant class(es) and the gains/losses on and the costs of the relevant financial instruments will accrue solely to the relevant class. However, due to the lack of segregated liabilities between classes of the Underlying Fund, costs which are principally attributed to a specific Class may be ultimately charged to the Underlying Fund as a whole. Any currency exposure of a class may not be combined with or offset against that of any other class of the Underlying Fund. The currency exposure of the assets attributable to a class may not be allocated to other classes. No intentional leveraging should result from currency hedging transactions of a class although hedging may exceed 100% for short periods (i) between redemption instructions and execution of the hedge trade and (ii) between market value decreases of assets being hedged and the execution of the hedge adjustment. Collateralized Debt Obligations Risk The Underlying Fund may invest in particular types of asset-backed security known as Collateralized Debt Obligation (CDOs) or (if loans are the underlying asset) Collateralized Loan Obligations (CLOs). The risks of an investment in a CDO or CLO depend largely on the type of collateral held by the special purpose entity (SPE) and the tranche of the CDO or CLO in which a fund invests. In a typical CDO or CLO structure, there are multiple tranches with varying degrees of seniority, with the most senior tranche getting first access to the interest and principal payments from the pool of underlying assets, the next most senior getting second access, and so on down the line until the residual (or equity tranche) which has the last call on the interest and principal. The lower the priority of the tranche is, the greater the risk. Investment risk may also be affected by the performance of the collateral manager (the entity responsible for selecting and managing the pool of collateral securities held by the SPE trust), especially during a period of market volatility. CDOs or CLOs may be deemed to be illiquid securities and subject to the Underlying Fund’s restrictions on investments in illiquid securities. The Underlying Fund’s investment in CDOs or CLOs will not receive the same investor protection as an investment in registered securities. As a result of these factors, prices of CDO or CLO tranches can decline considerably. In addition to the normal risks associated with debt securities and asset backed securities (e.g., interest rate risk, credit risk and default risk), CDOs and CLOs carry additional risks including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or quality or go into default or be downgraded; (iii) the Underlying Fund may invest in tranches of a CDO or CLO that are subordinate to other classes; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer, difficulty in valuing the security or unexpected investment results. Commodities Related Exposure Risk The Underlying Fund’s exposure to investments in commodities related instruments presents unique risks. Investing in commodities related instruments, including trading in commodities indices and financial derivative instruments related to commodities, is speculative and can be extremely volatile. Market prices of commodities may fluctuate rapidly based on numerous factors, including: changes in supply and demand


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relationships (whether actual, perceived, anticipated, unanticipated or unrealized); weather; agriculture; trade; domestic and foreign political and economic events and policies; diseases; pestilence; technological developments; and monetary and other governmental policies, action and inaction. The current or “spot” prices of physical commodities may also affect, in a volatile and inconsistent manner, the prices of futures contracts in respect of the relevant commodity. Certain commodities are used primarily in one industry, and fluctuations in levels of activity in (or the availability of alternative resources to) one industry may have a disproportionate effect on global demand for a particular commodity. Moreover, recent growth in industrial production and gross domestic product has made some developing countries oversized users of commodities and has increased the extent to which certain commodities prices are influenced by those markets. Convertible and Hybrid Securities Risk A convertible security is generally a debt obligation, preferred stock or other security that pays interest or dividends and may be converted by the holder within a specified period of time into common stock. The value of convertible securities may rise and fall with the market value of the underlying stock or, like a debt security, vary with changes in interest rates and the credit quality of the issuer. A convertible security tends to perform more like a stock when the underlying stock price is high relative to the conversion price (because more of the security’s value resides in the option to convert) and more like a debt security when the underlying stock price is low relative to the conversion price (because the option to convert is less valuable). Because its value can be influenced by many different factors, a convertible security is not as sensitive to interest rate changes as a similar non-convertible debt security, and generally has less potential for gain or loss than the underlying stock. Hybrid securities are those that, like convertible securities described above, combine both debt and equity characteristics. Hybrids may be issued by corporate entities (referred to as corporate hybrids) or by financial institutions (commonly referred as contingent convertible bonds or “CoCos”). Hybrid securities are subordinated instruments that generally fall in the capital structure between equity and other subordinated debt, i.e. such securities will be the most junior securities above equity. Such securities will generally have a long maturity and may even be perpetual in nature. Coupon payments may be discretionary and as such may be cancelled by the issuer at any point, for any reason, and for any length of time. The cancellation of coupon payments may not amount to an event of default. Hybrid securities are callable at pre-determined levels. It cannot be assumed that hybrid securities, including perpetual securities, will be called on the call date. The investor may not receive return of principal on a given call date or on any date. Contingent convertible securities issued by financial institutions (“CoCos”), which became popular following the 2008-2009 financial crisis as a way of mitigating the impact of stressed market conditions, have certain additional characteristics not typical of corporate hybrids. For CoCos, conversion is tied to a pre-specified trigger event based on the capital structure of the financial institution and/or to when the regulator deems the bank to be no longer viable. The contingent convertible bond may convert to equity or, alternatively, may be purely loss absorbing and convert to nothing. Trigger levels may differ from one issue to the next and the risk of conversion will depend on the distance of the capital ratio to the trigger level and/or the point at which the regulator deems the issuer no longer viable (i.e. the bonds are “bail-in-able” at the “point of non-viability” or PONV), making it difficult for the Investment Manager and/or Investment Co-Managers of the relevant Fund to anticipate the triggering events that would require the debt to convert into equity or be simply loss absorbing. It may also be difficult for the Investment Manager and/or Investment Co-Manager to assess how the securities will behave upon conversion. Because conversion occurs after a specified event, conversion may occur when the share price of the underlying equity is less than when the bond was issued or purchased. Whereas traditional convertible securities are convertible at the option of the holder and the holder of such bonds will generally convert when the share price is higher than the strike price (i.e. when the issuer is doing well), CoCos tend to convert when the issuer is in crisis and needs additional equity or loss absorption in order to survive. As a result, there is greater potential for capital loss with CoCos compared to conventional convertible securities. The trigger could be activated through a material loss in capital as represented in the numerator or an increase in risk weighted assets (due to a shift to riskier assets) as measured in the denominator. Unlike for corporate hybrids, cancelled coupon payments do not generally accumulate and are instead written off. Holders of CoCos


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may see their coupons cancelled while the issuer continues to pay dividends on common equity, unlike the case of corporate hybrids which typically have so-called “dividend pusher/stopper clauses” which link the payment of hybrid coupons to equity dividends. CoCos may suffer from capital structure inversion risk, since investors in such securities may suffer loss of capital when equity holders do not in the event the pre-defined trigger is breached before the regulator deems the issuer non-viable (if the regulator declares non-viability before such a breach, the normal creditor hierarchy should apply). The value of CoCos may be subject to a sudden drop in value should the trigger level be reached. A Fund may be required to accept cash or securities with a value less than its original investment or, in the event of instances where the contingent convertible bond is intended to be only loss absorbing, the Fund may lose its entire investment. Counterparty Risk Counterparty risk is the risk to each party of a contract that the counterparty will fail to perform its contractual obligations and/or to respect its commitments under the term of such contract, whether due to insolvency, bankruptcy or other cause. When over-the-counter (OTC) or other bilateral contracts are entered into (inter alia OTC derivatives, repurchase agreements, security lending, etc.), the Underlying Fund may find itself exposed to risks arising from the solvency of its counterparties and from their inability to respect the conditions of these contracts. Credit Risk Credit risk, a fundamental risk relating to all fixed income securities as well as money market instruments, is the chance that an issuer will fail to make principal and interest payments when due. Issuers with higher credit risk typically offer higher yields for this added risk. Conversely, issuers with lower credit risk typically offer lower yields. Generally, government securities are considered to be the safest in terms of credit risk, while corporate debt, especially those with poorer credit ratings, have the highest credit risk. Changes in the financial condition of an issuer, changes in economic and political conditions in general, or changes in economic and political conditions specific to an issuer (particularly a sovereign or supranational issuer), are all factors that may have an adverse impact on an issuer’s credit quality and security values. Related to credit risk is the risk of downgrade by a rating agency. Rating agencies such as Standard & Poor’s, Moody’s and Fitch, among others, provide ratings for a wide array of fixed income securities (corporate, sovereign, or supranational) which are based on their creditworthiness. The agencies may change their ratings from time to time due to financial, economic, political, or other factors, which, if the change represents a downgrade, can adversely impact the value of the affected securities. Although the market for emerging country debt is currently reasonably liquid, this position would alter if a substantial reduction in the number of investors in this market were to occur. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the value or liquidity of such assets. Credit-Linked Securities Risk Credit-linked securities are debt securities that represent an interest in a pool of, or are otherwise collateralized by one or more corporate debt obligations or credit default swaps incorporating debt or bank loan obligations. Such debt obligations may represent the obligations of one or more corporate issuers. A fund that invests in credit-linked securities has the right to receive periodic interest payments from the issuer of the credit-linked security (usually the seller of the underlying credit default swap(s)) at an agreed-upon interest rate, and a return of principal at the maturity date. A fund that invests in credit-linked securities bears the risk of loss of its principal investment, and the periodic interest payments expected to be received for the duration of its investment in the credit-linked security, in the event that one or more of the debt obligations underlying the credit default swaps go into default or otherwise become non-performing. Upon the occurrence of such a credit event (including bankruptcy, failure to timely pay interest or principal, or a restructuring), the Underlying Fund will generally reduce the principal balance of the related credit-linked security by the Underlying Fund’s pro rata interest in the par amount of the defaulted underlying debt obligation in exchange for the actual value of the defaulted underlying obligation or the defaulted underlying obligation itself, resulting in a loss of a portion of the Fund's investment. Thereafter,


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interest on the credit-linked security will accrue on a smaller principal balance and a smaller principal balance will be returned at maturity. To the extent a credit-linked security represents an interest in underlying obligations of a single corporate or other issuer, a credit event with respect to such issuer presents greater risk of loss to a fund than if the credit-linked security represented an interest in underlying obligations of multiple issuers. In addition, the Underlying Fund bears the risk that the issuer of the credit-linked security will default or become bankrupt. In such an event, the Underlying Fund may have difficulty being repaid, or fail to be repaid, the principal amount of its investment and the remaining periodic interest payments thereon. An investment in credit-linked securities also involves reliance on the counterparty to the credit default swap entered into with the issuer of the credit-linked security to make periodic payments to the issuer under the terms of the swap. Any delay or cessation in the making of such payments may be expected in certain instances to result in delays or reductions in payments to the Underlying Fund as an investor in such credit-linked securities. Additionally, credit-linked securities are typically structured as limited recourse obligations of the issuer of such securities such that the securities issued will usually be obligations solely of the issuer and will not be obligations or responsibilities of any other person. Most credit-linked securities are structured as US Rule 144A securities so that they may be freely traded among institutional buyers. The Underlying Fund will generally only purchase credit-linked securities, which are determined to be liquid in the opinion of the portfolio advisors and/or K2. However, the market for credit-linked securities may suddenly become illiquid. The other parties to the transaction may be the only investors with sufficient understanding of the derivative to be interested in bidding for it. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices for credit-linked securities. In certain cases, a market price for a credit-linked security may not be available or may not be reliable, and the Underlying Fund could experience difficulty in selling such security at a price the portfolio advisors and/or K2 believes is fair. The value of a credit-linked security will typically increase or decrease with any change in value of the underlying debt obligations, if any, held by the issuer and the credit default swap. Further, in cases where the credit-linked security is structured such that the payments to a fund are based on amounts received in respect of, or the value of performance of, any underlying debt obligations specified in the terms of the relevant credit default swap, fluctuations in the value of such obligation may affect the value of the credit-linked security. Defaulted Debt Securities Risk The Underlying Fund may invest in debt securities on which the issuer is not currently making interest payments (defaulted debt securities). The Underlying Fund may buy defaulted debt securities if, in the opinion of the portfolio advisors and/or K2, it appears likely that the issuer may resume interest payments or other advantageous developments appear likely in the near future. These securities may become illiquid. The risk of loss due to default may also be considerably greater with lower-quality securities because they are generally unsecured and are often subordinated to other creditors of the issuer. If the issuer of a security in the Underlying Fund's portfolio defaults, the Underlying Fund may have unrealized losses on the security, which may lower the Underlying Fund's NAV per share. Defaulted securities tend to lose much of their value before they default. Thus, the Underlying Fund's NAV per share may be adversely affected before an issuer defaults. In addition, the Underlying Fund may incur additional expenses if it must try to recover principal or interest payments on a defaulted security. Included among the issuers of debt securities or obligations in which the Underlying Fund may invest are entities organized and operated solely for the purpose of restructuring the investment characteristics of various securities or obligations. These entities may be organized by investment banking firms, which receive fees in connection with establishing each entity and arranging for the placement of its securities.


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Derivative Instruments Risk The performance of derivative instruments depends largely on the performance of an underlying currency, security, index or other reference asset, and such instruments often have risks similar to the underlying instrument, in addition to other risks. The Underlying Fund may use options, futures, options on futures, and forward contracts on currencies, securities, indices, interest rates or other reference assets for hedging, efficient portfolio management and/or investment purposes. Derivative instruments involve costs and can create economic leverage in the Underlying Fund’s portfolio which may result in significant volatility and cause the Underlying Fund to participate in losses (as well as gains) in an amount that significantly exceeds the Underlying Fund’s initial investment. In the case of futures transactions, the amount of the initial margin is small relative to the value of the futures contract so that transactions are “leveraged” or “geared”. A relatively small market movement will have a proportionately larger impact which may work for or against the Underlying Fund. The placing of certain orders which are intended to limit losses to certain amounts may not be effective because market conditions may make it impossible to execute such orders. Transactions in options may also carry a high degree of risk. Selling (“writing” or “granting”) an option generally entails considerably greater risk than purchasing options. Although the premium received by the Underlying Fund is fixed, the Underlying Fund may sustain a loss well in excess of that amount. The Underlying Fund will also be exposed to the risk of the purchaser exercising the option and the Underlying Fund will be obliged either to settle the option in cash or to acquire or deliver the underlying investment. If the option is “covered” by the Underlying Fund holding a corresponding position in the underlying investment or a future on another option, the risk may be reduced. The risk of loss to the Underlying Fund for a swap transaction on a net basis depends on which party is obliged to pay the net amount to the other party. If the counterparty is obliged to pay the net amount to the Underlying Fund, the risk of loss to the Underlying Fund is the loss of the entire amount that the Fund is entitled to receive; if the Underlying Fund is obliged to pay the net amount, the Underlying Fund’s risk of loss is limited to the net amount due (please also refer to “Swap Agreements Risk”). Certain derivatives have the potential for a high degree of leverage regardless of the size of the initial investment. The use of leverage may cause the Underlying Fund to liquidate portfolio positions to satisfy its obligations or to meet asset segregation requirements when it may not be advantageous to do so. Other risks include illiquidity, mispricing or improper valuation of the derivative instrument, and imperfect correlation between the value of the derivative and the underlying instrument so that the Underlying Fund may not realize the intended benefits. Their successful use will usually depend on the portfolio advisors and/or K2’s ability to accurately forecast movements in the market relating to the underlying instrument. Should a market or markets, or prices of particular classes of investments move in an unexpected manner, especially in unusual or extreme market conditions, the Underlying Fund may not achieve the anticipated benefits of the transaction, and it may realize losses, which could be significant. If the portfolio advisors are not successful in using such derivative instruments, the Underlying Fund’s performance may be worse than if the portfolio advisors did not use such derivative instruments at all. To the extent that the Underlying Fund uses such instruments for hedging purposes, there is the risk of imperfect correlation between movements in the value of the derivative instrument and the value of the underlying investment or other asset being hedged. There is also the risk, especially under extreme market conditions, that an instrument, which usually would operate as a hedge, provides no hedging benefits at all. The Underlying Fund may engage in transactions involving derivative instruments that trade on exchanges or that may be privately negotiated and trade “over-the-counter” (OTC) and not on an exchange. Exchange-traded derivatives include futures, options, options on futures, and warrants. Examples of OTC derivative instruments include currency forwards, interest rate swaps, credit default swaps, total return swaps or contracts for differences. Use of such OTC instruments could result in a loss if the counterparty to the transaction (with respect to forward currency contracts and other OTC derivatives) does not perform as promised, including because of such counterparty’s bankruptcy or insolvency. This risk may be heightened during volatile market conditions. Collateral is employed for many OTC derivative transactions – it needs to be pledged to the


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counterparty if the Underlying Fund has a net loss on a given transaction and the Underlying Fund may hold collateral pledged by the counterparty to the Underlying Fund if the Underlying Fund has a net gain on a given transaction. The value of the collateral may fluctuate, however, and it may be difficult to sell, so there are no assurances that the value of collateral held will be sufficient to cover the amount owed to the Underlying Fund or will not be absorbed by other outstanding obligations of the counterparty. Other risks include the inability to close out a position because the trading market becomes illiquid (particularly in the OTC markets) or the availability of counterparties becomes limited for a period of time. In addition, the presence of speculators in a particular market could lead to price distortions. To the extent that the Underlying Fund is unable to close out a position because of market illiquidity, the Underlying Fund may not be able to prevent further losses of value in its derivatives holdings and the Underlying Fund’s liquidity may be impaired to the extent that it has a substantial portion of its otherwise liquid assets marked as segregated to cover its obligations under such derivative instruments. The Underlying Fund may also be required to take or make delivery of an underlying instrument that the portfolio advisors would otherwise have attempted to avoid. Some derivatives can be particularly sensitive to changes in interest rates or other market prices. Investors should bear in mind that, while the Underlying Fund may intend to use derivative strategies on a regular basis, it is not obligated to actively engage in these transactions, generally or in any particular kind of derivative, if the portfolio advisors and/or K2 elect not to do so due to availability, cost or other factors. Financial derivative instruments may be used for, among other purposes, synthetic short selling. According to the Law of 17 December 2010, the short selling of securities or any physical instrument is not permitted. In order to replicate short exposure either for investment purposes or to hedge a long position in the same or a similar asset, synthetic short selling can be accomplished through the use of derivatives. The purchase of credit default swaps (CDS), for example, for a particular issuer without owning a debt obligation of that issuer effectively results in the Fund having a short exposure to that issuer. The Fund may also purchase credit default swaps to hedge an existing position in the same issuer. Purchasing a put option on a stock, debt obligation, or a currency without owning the stock, debt obligation or currency is also effectively going short (and again such a transaction may be entered into for the purpose of hedging an existing position). The only investment at risk in such strategies is the premium paid for the CDS or option, unlike the case of going short actual stocks, bonds or currencies where the full investment in such assets is at risk. Another synthetic short selling strategy is the selling of interest rate futures which will benefit from a rise in interest rates, thereby replicating going short interest rates. Where premium is paid for such synthetic short selling strategies (e.g. for credit default swaps or put options), there is the possibility of losing the entire investment if no credit event occurs (in the case of credit default swaps) or the option expires worthless (because the underlying asset did not fall below the strike price). Where a futures contract is entered into (e.g. selling interest rate futures), the potential loss is governed by the degree to which interest rates move down instead of up, the conversion factor applied vis-à-vis the basket of eligible securities, the time to delivery, and the notional amount associated with the contract. Additional strategies similar to these may be implemented with similar consequences and potential risks. Risk is mitigated by virtue of daily adjustment of variation margin and/or the maintenance of eligible collateral against the position. There is no assurance that such synthetic short selling strategies as described herein will be as effective in achieving short exposure for investment or hedging purposes as actual short selling strategies. Under recent financial reforms, certain types of derivatives (i.e., certain swaps) are, and others eventually are expected to be, required to be cleared through a central counterparty. Central clearing is designed to reduce counterparty credit risk and increase liquidity compared to OTC swaps, but it does not eliminate those risks completely. With cleared swaps, there is also a risk of loss by a Underlying Fund of its initial and variation margin deposits in the event of bankruptcy of the Futures Commission Merchant, an individual or organization which does both of the following: 1) solicits or accepts offers to buy or sell futures contracts, options on futures, off exchange foreign exchange contracts or swaps and 2) accepts money or other assets from customers to support such orders (the “FCM”) with which the Underlying Fund has an open position in a swap contract. If an FCM does not provide accurate reporting, the Underlying Fund is also subject to the risk that the FCM could use the Underlying Fund’s assets to satisfy its own financial obligations or the payment obligations of another customer to the central counterparty. With cleared swaps, a Underlying Fund may not be able to obtain as favorable terms as it would be able to negotiate for a bilateral, uncleared swap. In addition, an FCM may


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unilaterally amend the terms of its agreement with the Underlying Fund, which may include the imposition of position limits or additional margin requirements with respect to the Underlying Fund’s investment in certain types of swaps. Central counterparties and FCMs generally can require termination of existing cleared swap transactions at any time, and can also require increases in margin above the margin that is required at the initiation of the swap agreement. The regulation of cleared and uncleared swaps, as well as other derivatives, is a rapidly changing area of law and is subject to modification by government and judicial action. In addition, regulators and exchanges in many jurisdictions are authorized to take extraordinary actions in the event of a market emergency, including, for example, the implementation or reduction of speculative position limits, the implementation of higher margin requirements, the establishment of daily price limits and the suspension of trading. It is not possible to predict fully the effects of current or future regulation. New requirements, even if not directly applicable to the Fund, may increase the cost of the Fund’s investments and cost of doing business, which could adversely affect investors. The use of derivative strategies may also have a tax impact on the Underlying Fund. The timing and character of income, gains or losses from these strategies could impair the ability of the portfolio advisors or K2 to utilize derivatives when it wishes to do so. Equity Risk The value of all funds that invest in equity and equity-related securities fluctuate daily. Prices of equities can be influenced and affected by many micro and macro factors such as economic, political, market, and issuer-specific changes. Such changes may adversely affect the value of the equities which can go up and down, regardless of company-specific performance. Additionally, different industries, financial markets, and securities can react differently to these changes. Such fluctuations of the Fund’s value are often exacerbated in the short-term as well. The risk that one or more companies in the Fund’s portfolio will fall, or fail to rise, can adversely affect the overall portfolio performance in any given period and Underlying Fund investing in equities could incur significant losses. Floating Rate Corporate Investment Risk The floating rate corporate loans and corporate debt securities in which the Underlying Fund invests are often issued in connection with highly leveraged transactions. Such transactions include leveraged buyout loans, leveraged recapitalization loans, and other types of acquisition financing. Leveraged buyout loans are subject to greater credit risks than other investments including a greater possibility that the borrower may default or enter bankruptcy. Some of these loans may be “covenant lite” loans which do not include terms which allow the lender to control and track the performance of the borrower and declare a default if certain criteria are breached. Foreign Currency Risk Since the securities, including cash and cash equivalents, held by the Underlying Fund may be denominated in currencies different from its base currency, the Underlying Fund may be affected favourably or unfavourably by exchange control regulations or changes in the exchange rates between such reference currency and other currencies. Changes in currency exchange rates may influence the value of the Underlying Fund’s Shares, and also may affect the value of dividends and interests earned by the Underlying Fund and gains and losses realised by said Underlying Fund. If the currency in which a security is denominated appreciates against the base currency, the price of the security could increase. Conversely, a decline in the exchange rate of the currency would adversely affect the price of the security. To the extent that the Underlying Fund seeks to use any strategies or instruments to hedge or to protect against currency exchange risk, there is no guarantee that hedging or protection will be achieved. Unless otherwise stated in the Underlying Fund’s investment policy, there is no requirement that the Underlying Fund seeks to hedge or to protect against currency exchange risk in connection with any transaction.


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Currency management strategies may substantially change the Underlying Fund’s exposure to currency exchange rates and could result in losses to the Underlying Fund if currencies do not perform as the Investment Manager expects. In addition, currency management strategies, to the extent that they reduce the Underlying Fund’s exposure to currency risks, may also reduce the F Underlying Fund’s ability to benefit from favourable changes in currency exchange rates. There is no assurance that the Investment Manager’s use of currency management strategies will benefit the Underlying Fund or that they will be, or can be, used at appropriate times. Furthermore, there may not be perfect correlation between the amount of exposure to a particular currency and the amount of securities in the portfolio denominated in that currency. Investing in foreign currencies for purposes of gaining from projected changes in exchange rates, as opposed to hedging currency risks applicable to the Underlying Fund’s holdings, further increases the Underlying Fund’s exposure to foreign investment losses. Investors should be aware of the fact that the Chinese Renminbi (RMB) is subject to a managed floating exchange rate based on market supply and demand with reference to a basket of currencies. Currently, the RMB is traded in two markets: one in Mainland China, and one outside Mainland China (primarily in Hong Kong). The RMB traded in Mainland China is not freely convertible and is subject to exchange controls and certain requirements by the government of Mainland China. The RMB traded outside Mainland China, on the other hand, is freely tradable. Whilst the RMB is traded freely outside Mainland China, the RMB spot, forward foreign exchange contracts and related instruments reflect the structural complexities of this evolving market. Accordingly, Alternative Currency Classes denominated in RMB may be exposed to greater foreign exchange risks. Hedged Strategies Risk K2 will be employing a number of Investment Co-Managers in the Underlying Fund to implement various non-traditional or “alternative” strategies, including strategies characterized as “Long Short Equity”, “Event Driven”, “Global Macro”, “Market Neutral” or “Relative Value”, that involve ‘hedging” or “arbitrage” activities and that are designed to capture value in a non-directional market. These strategies in no respect should be taken to imply, however, that the Underlying Fund’s investments employed in such strategies will be without risk. Substantial losses may be recognized even on “hedge” or “arbitrage” positions, and illiquidity and default on one side of a position can effectively result in the position not being the “hedge” that was intended, resulting in potential losses for the Underlying Fund. These strategies involve exposure to some second order risk of the market, such as the implied volatility in convertible bonds or warrants, the yield spread between similar term government bonds, or the price spread between different classes of stock for the same underlying firm. Further, many “market neutral” sub-managers may employ limited directional strategies that expose the assets they manage to certain market risks. Interest Rate Securities Risk All Funds that invest in debt securities or money market instruments are subject to interest rate risk. A fixed income security’s value will generally increase in value when interest rates fall and decrease in value when interest rates rise. Interest rate risk is the chance that such movements in interest rates will negatively affect a security’s value or, in the Underlying Fund’s case, its Net Asset Value (NAV). Fixed income securities with longer-term maturities tend to be more sensitive to interest rate changes than shorter-term securities. As a result, longer-term securities tend to offer higher yields for this added risk. While changes in interest rates may affect the Underlying Fund’s interest income, such changes may positively or negatively affect the NAV of the Underlying Fund’s shares on a daily basis. Variable rate securities (which include floating rate debt securities) generally are less sensitive to interest rate changes than fixed rate debt securities. However, the market value of variable rate debt securities may decline when prevailing interest rates rise if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, variable rate securities will not generally increase in market value if interest rates decline. However, when interest rates fall, there will be a reduction in the payments of interest received by the


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Underlying Fund from its variable rate securities. Floating rate securities may be rated below investment grade (such securities are commonly referred to as “junk bonds”). Limits on the aggregate amount by which a variable rate security’s interest rate may increase over its lifetime or during any one adjustment period can prevent the interest rate from ever adjusting to prevailing market rates. Liquidity Risk Liquidity risk takes two forms: asset side liquidity risk and liability side liquidity risk. Asset side liquidity risk refers to the inability of the Underlying Fund to sell a security or position at its quoted price or market value due to such factors as a sudden change in the perceived value or credit worthiness of the position, or due to adverse market conditions generally. Liability side liquidity risk refers to the inability of the Underlying Fund to meet a redemption request, due to the inability of the Underlying Fund to sell securities or positions in order to raise sufficient cash to meet the redemption request. Markets where the Underlying Fund’s securities are traded could also experience such adverse conditions as to cause exchanges to suspend trading activities. Reduced liquidity due to these factors may have an adverse impact on the NAV of the Underlying Fund and, as noted, on the ability of the Underlying Fund to meet redemption requests in a timely manner. Certain securities are illiquid due to a limited trading market, financial weakness of the issuer, legal or contractual restrictions on resale or transfer, or that are otherwise illiquid in the sense that they cannot be sold within seven days at approximately the price at which the Underlying Fund values them. Securities that are illiquid involve greater risk than securities with more liquid markets. Market quotations for such securities may be volatile and/or subject to large spreads between bid and ask prices. Illiquidity may have an adverse impact on market price and the Underlying Fund’s ability to sell particular securities when necessary to meet the Underlying Fund’s liquidity needs or in response to a specific economic event. Low-Rated or Non-Investment Grade Securities Risk The Underlying Fund may invest in higher-yielding securities rated lower than investment grade. High-yield debt securities (including loans) and unrated securities of similar credit quality (“high-yield debt instruments” or “junk bonds”) involve greater risk of a complete loss of the Underlying Fund’s investment, or delays of interest and principal payments, than higher-quality debt securities. Issuers of high-yield debt instruments are not as strong financially as those issuing securities of higher credit quality. High-yield debt instruments are generally considered predominantly speculative by the applicable rating agencies as these issuers are more likely to encounter financial difficulties and are more vulnerable to changes in the relevant economy, such as a recession or a sustained period of rising interest rates, that could affect their ability to make interest and principal payments when due. If an issuer stops making interest and/or principal payments, payments on the securities may never resume. These instruments may be worthless and the Underlying Fund could lose its entire investment. The prices of high-yield debt instruments fluctuate more than higher-quality securities. Prices are especially sensitive to developments affecting the issuer’s business or operations and to changes in the ratings assigned by rating agencies. In addition, the entire high-yield debt market can experience sudden and sharp price swings due to changes in economic conditions, stock market activity, large sustained sales by major investors, a high-profile default, or other factors. Prices of corporate high-yield debt instruments often are closely linked with the company’s stock prices and typically rise and fall in response to factors that affect stock prices. High-yield debt instruments are generally less liquid than higher-quality securities. Many of these securities are not registered for sale with relevant regulatory authorities in the local jurisdiction and/or do not trade frequently. When they do trade, their prices may be significantly higher or lower than expected. At times, it may be difficult to sell these securities promptly at an acceptable price, which may limit the Underlying Fund’s ability to sell securities in response to specific economic events or to meet redemption requests. As a result, high-yield debt instruments generally pose greater illiquidity and valuation risks.


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The use of credit ratings in evaluating debt securities can involve certain risks, including the risk that the credit rating may not reflect the issuer’s current financial condition or events since the security was last rated by a rating agency. Credit ratings may be influenced by conflicts of interest or based on historical data that no longer apply or are accurate. Recently, legislation and regulations to reform rating agencies have been proposed and may adversely impact the Underlying Fund’s investments or investment process. Unrated debt securities determined by the portfolio advisors and/or K2 to be of comparable quality to rated securities which the Underlying Fund may purchase may pay a higher interest rate than such rated debt securities and be subject to a greater risk of illiquidity or price changes. Less public information is typically available about unrated securities or issuers. Exposure to the low-rated or high-yield debt may be achieved through synthetic means. For example, the CDX is a credit default swap on a basket of high yield bonds, constituting in effect a high yield bond index. By purchasing such an instrument, the Underlying Fund is buying protection (i.e. the ability to get par for the bonds in the event of an unfavourable credit event), allowing the Underlying Fund to hedge its exposure or go short the high yield sector. By selling such an instrument short and holding cash against the potential obligation to purchase it, the Underlying Fund is selling protection and effectively getting long exposure to the high yield sector more efficiently than purchasing individual bonds. The risks associated with such synthetic instruments are comparable to those of the underlying high yield securities that the instruments are seeking to replicate, in addition to the risk that the synthetic instruments themselves do not perform as intended due to adverse market conditions. Market Risk The market values of securities owned by the Underlying Fund will go up or down, sometimes rapidly or unpredictably. Securities may decline in value due to factors affecting individual issuers, securities markets generally or particular industries or sectors within the securities markets. The value of a security may go up or down due to general market conditions which are not specifically related to a particular issuer, such as real or perceived adverse economic conditions, changes in the general outlook for revenues or corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also go up or down due to factors that affect an individual issuer or a particular industry or sector, such as changes in production costs and competitive conditions within an industry. During a general downturn in the securities markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that securities held by the Underlying Fund will participate in or otherwise benefit from the advance. Stock prices tend to go up and down more dramatically than those of debt securities. A slower-growth or recessionary economic environment could have an adverse effect on the prices of the various stocks held by the Underlying Fund. Mortgage- and Asset-Backed Securities Risk The Underlying Fund may invest in mortgage- and asset-backed securities. Mortgage-backed securities (sometimes referred as mortgage pass-through securities) are securities that are backed by pools of mortgage loans where the payment of interest and principal from the underlying mortgages are passed through to the holders of the mortgage-backed securities. The underlying mortgages may be single family, multifamily, or commercial mortgages (that latter are frequently called commercial mortgage-backed securities, or CMBS), and may be fixed rate or adjustable rate mortgages (if adjustable, such securities are called Adjustable Rate Mortgage Securities or ARMS). Mortgage-backed securities differ from conventional debt securities in that principal is paid back over the life of the security rather than at maturity, as the underlying mortgages are subject to unscheduled pre-payments of principal before the security’s maturity date due to voluntary prepayments, refinancings or foreclosures on the underlying mortgage loans. To the Underlying Fund this means a loss of anticipated interest, and a portion of its principal investment represented by any premium the Underlying Fund may have paid over par at the time of purchase. Mortgage prepayments generally increase when interest rates fall.


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Mortgage-backed securities also are subject to extension risk. An unexpected rise in interest rates could reduce the rate of pre-payments on mortgage-backed securities and extend their life. This could cause the price of the mortgage-backed securities to be more sensitive to interest rate changes. Issuers of asset-backed securities may have limited ability to enforce the security interest in the underlying assets, and credit enhancements provided to support the securities, if any, may be inadequate to protect investors in the event of default. Collateralized Mortgage Obligations (CMOs) are securities backed by a pool of mortgage pass-through securities or actual mortgage loans that are structured into various tranches with varying maturities and varying priorities in terms of their access to the principal and interest payments from the underlying assets. Such securities will have, depending on the tranches, varying degrees of pre-payment risk and credit risk, depending on their priority in the capital structure. The shorter, more senior tranches will generally be lower risk than the longer dated, more junior tranches. Mortgage-backed securities may be offered as interest only (IO) or principal only (PO) strips, where only the interest or the principal of the underlying mortgages in the pool is passed on to the security holders. These types of securities are highly sensitive to the pre-payment experience associated with the underlying mortgages and will behave in opposite ways to the same trend in pre-payments. For IO securities, early pre-payments within the pool will mean less than expected interest payments since the mortgages will have terminated, adversely affecting security holders. For PO securities, early pre-payments within the pool will mean quicker repayment of principal than expected, benefiting security holders. Because of the highly sensitive nature of these securities, the possibility of sharp declines in prices is much greater compared to conventional mortgage-backed securities. Mortgage- and asset-backed securities may be structured as synthetic securities. For example, the CMBX is a credit default swap on a basket of CMBS bonds, constituting in effect a CMBS index. By purchasing such an instrument, the Fund is buying protection (i.e. the ability to get par for the bonds in the event of an unfavourable credit event), allowing the Underlying Fund to hedge its exposure or go short the CMBS sector. By selling such an instrument short and holding cash against the potential obligation to purchase it, the Underlying Fund is selling protection and effectively getting long exposure to the CMBS sector more quickly and efficiently than purchasing individual bonds. The risks associated with such synthetic instruments are comparable to those of the underlying ABS or MBS securities that the instruments are seeking to replicate, in addition to the risk that the synthetic instruments themselves do not perform as intended due to adverse market conditions. Asset-backed securities are very similar to mortgage-backed securities, except that the securities are collateralized by other types of assets besides mortgages, such as credit card receivables, home-equity loans, manufactured homes, automobile loans, student loans, equipment leases, or senior bank loans, among others. Like mortgage-backed securities, asset-backed securities are subject to pre-payment and extension risks. Multi-Manager Risk K2 may seek to achieve the Underlying Fund’s investment objectives through the careful selection of two or more investment co-managers (“Investment Co-Managers”). K2 may also take part in managing the assets of the Underlying Fund in addition to selecting and allocating to Investment Co-Managers. The Investment Co-Managers may be affiliates of K2 and FTIC or may be completely independent, but subject to careful due diligence on the part of K2 as part of the selection process. The Underlying Fund in particular intends to achieve its investment objective by allocating its assets across multiple non-traditional or “alternative” strategies including, but not limited to, Long Short Equity, Relative Value, Event Driven, and Global Macro. The Underlying Fund intends to use multiple Investment Co-Managers to implement this strategy.


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There is the risk that the Investment Co-Managers selected will not effectively implement the intended investment strategy for which the Investment Co-Manager was selected. In addition, the Investment Co-Managers make their investment decisions independently of one another, and as a result may make decisions that conflict with each other. For example, it is possible that an Investment Co-Manager may purchase a security for the Underlying Fund at the same time that another Investment Co-Manager sells the same security, resulting in higher expenses without accomplishing any net investment result; or that several Investment Co-Managers purchase the same security at the same time, without aggregating their transactions, resulting in higher expenses. Moreover, the Underlying Fund’s multi-manager approach may result in the Underlying Fund investing a significant percentage of its assets in certain types of securities, which could be beneficial or detrimental to the Underlying Fund’s performance depending on the performance of those securities and the overall market environment. The Investment Co-Managers may underperform the market generally or underperform other investment managers that could have been selected for the Underlying Fund. Portfolio Turnover Risk The Investment Manager and/or K2 may sell a security or enter into or close out of a derivative position when it believes it is appropriate to do so, regardless of how long the Underlying Fund has held the instrument. These activities increase the Underlying Fund’s portfolio turnover and may increase the Underlying Fund’s transaction costs. Prepayment Risk Debt securities are subject to prepayment risk when the issuer can “call” the security, or repay principal, in whole or in part, prior to the security’s maturity. When the Underlying Fund reinvests the prepayments of principal it receives, it may receive a rate of interest that is lower than the rate on the existing security, potentially lowering the Underlying Fund’s income, yield and its distributions to shareholders. Securities subject to prepayment may offer less potential for gains during a declining interest rate environment and have greater price volatility. Prepayment risk is greater in periods of falling interest rates. Restructuring Companies Risk The Underlying Fund may also invest in the securities of companies involved in mergers, consolidations, liquidations and reorganizations or as to which there exist tender or exchange offers, and may participate in such transactions; they may also purchase indebtedness and participations therein, both secured and unsecured, of debtor companies engaged in reorganization or financial restructuring. Such investments also involve greater credit risks. The companies involved in reorganization or financial restructuring tend to have a relatively weak financial position and may also be subject to the risks that the restructuring could be disruptive to the business and management structure of the companies involved, which may expose the Underlying Fund to higher investment risk. Smaller and Midsize Companies Risk While smaller and midsize companies may offer substantial opportunities for capital growth, they also involve substantial risks and should be considered speculative. Historically, smaller and midsize company securities have been more volatile in price than larger company securities, especially over the short term. Among the reasons for the greater price volatility are the less certain growth prospects of smaller and midsize companies, the lower degree of liquidity in the markets for such securities, and the greater sensitivity of smaller and midsize companies to changing economic conditions. In addition, smaller and midsize companies may lack depth of management, be unable to generate funds necessary for growth or development, have limited product lines or be developing or marketing new products or services for which markets are not yet established and may never become established. Smaller and midsize companies may be particularly affected by interest rate increases, as they may find it more difficult to borrow money to continue or expand operations, or may have difficulty in repaying any loans which are floating rate.


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These risks are typically increased for securities issued by smaller companies registered or performing a significant part of their activities in developing countries and emerging markets, especially as the liquidity of securities issued by companies in emerging markets may be substantially smaller than with comparable securities in industrialized countries. Sovereign Debt Risk Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and repay principal on its sovereign debt, or otherwise meet its obligations when due because of cash flow problems, insufficient foreign reserves, the relative size of the debt service burden to the economy as a whole, the government’s policy towards principal international lenders such as the International Monetary Fund, or the political considerations to which the government may be subject. Sovereign debtors also may be dependent on expected disbursements from other foreign governments or multinational agencies and the country’s access to, or balance of, trade. If a sovereign debtor defaults (or threatens to default) on its sovereign debt obligations, the indebtedness may be restructured. Restructuring may include obtaining additional credit to finance outstanding obligations, reduction and rescheduling of payments of interest and principal, or negotiation of new or amended credit and security agreements. Unlike most corporate debt restructurings, the fees and expenses of financial and legal advisers to the creditors in connection with a restructuring may be borne by the holders of the sovereign debt securities instead of the sovereign entity itself. Some sovereign debtors have in the past been able to restructure their debt payments without the approval of some or all debt holders or to declare moratoria on payments, and similar occurrences may happen in the future. In the event of a default on sovereign debt, the Underlying Fund may have limited legal recourse against the defaulting government entity. As a sovereign entity, the issuing government may be immune from lawsuits in the event of its failure or refusal to pay the obligations when due, and any rights the Underlying Fund may have may be restricted pursuant to the terms of applicable treaties with such sovereign entity. If a sovereign entity defaults, it may request additional time in which to pay or for further loans. There may be no legal process for collecting sovereign debt that a government does not pay or such legal process may be relatively more expensive, nor are there bankruptcy proceedings by which the Underlying Fund may collect in whole or in part on debt issued by a sovereign entity. In certain cases, remedies must be pursued in the courts located in the country of the defaulting sovereign entity itself, which may further limit the Fund’s ability to obtain recourse. The Underlying Fund may invest in sovereign debt issued by governments or government-related entities from countries referred to as emerging markets or frontier markets, which bear additional risks compared to more developed markets due to such factors as greater political and economic uncertainties, currency fluctuations, repatriation restrictions or capital controls. Structured Notes Risk Structured notes such as credit-linked notes, equity-linked notes and similar notes involve a counterparty structuring a note whose value is intended to move in line with the underlying security specified in the note. Unlike financial derivative instruments, cash is transferred from the buyer to the seller of the note. Investment in these instruments may cause a loss if the value of the underlying security decreases. There is also a risk that the note issuer will default. Additional risks result from the fact that the documentation of such notes programmes ends to be highly customized. The liquidity of a structured note can be less than that for the underlying security, a regular bond or debt instrument and this may adversely affect either the ability to sell the position or the price at which such a sale is transacted. Swap Agreements Risk The Underlying Fund may enter into interest rate, index and currency exchange rate swap agreements for the purposes of attempting to obtain a particular desired return at a lower cost to the Underlying Fund than if the Underlying Fund had invested directly in an instrument that yielded that desired return. Swap agreements are


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two-party contracts entered into primarily by institutional investors for periods ranging from a few days to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differential in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount”, i.e. the return on or increase in value of a particular US dollar amount invested at a particular interest rate, in a particular foreign currency, or in a “basket” of securities representing a particular index. The “notional amount” of the swap agreement is only a fictive basis on which to calculate the obligations which the parties to a swap agreement have agreed to exchange. The Underlying Fund's obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the “net amount”). Whether the Underlying Fund's use of swap agreements will be successful in furthering its investment objective will depend on the ability of the Portfolio Manager and/or K2 to correctly predict whether certain types of investments are likely to produce greater returns than other investments. Because they are two-party contracts and because they may have terms of greater than seven (7) calendar days, swap agreements may be considered to be illiquid. Moreover, the Underlying Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty.


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SCHEDULE “B”

STATUTORY AND CONTRACTUAL RIGHTS Securities legislation in certain of the provinces and territories of Canada provides investors, or requires investors to be provided with, a remedy for rescission or damages where an offering memorandum and any amendment to it contains a Misrepresentation. As used herein, “Misrepresentation” means an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make any statement in the Offering Memorandum not misleading in light of the circumstances in which it was made. A “material fact” is a fact that significantly affects, or would reasonably be expected to have a significant effect on, the market price or value of the securities. These remedies, or notice with respect thereto, must be exercised, or delivered, as the case may be, by the investor within the time limit prescribed by the applicable securities legislation. The following is a summary of the rights of rescission or damages available to investors under the securities legislation in certain of the provinces and territories of Canada. Each investor should refer to provisions of the applicable securities legislation for the particulars of these rights or consult with a legal adviser. These rights are in addition to any other right that an investor may have at law. Rights for Investors in Ontario If this Offering Memorandum, together with any amendment hereto, is delivered to an investor resident in Ontario and contains a Misrepresentation, without regard to whether the Misrepresentation was relied upon by the investor, the investor will have a right of action against the Fund for damages or, alternatively, while still the owner of the purchased Units, for rescission, provided that: 1. no action may be commenced to enforce a right of action

(a) for rescission more than 180 days after the date of the purchase; or

(b) for damages more than the earlier of (i) 180 days after the investor first had knowledge of the facts giving rise to the cause of action, or (ii) three years after the date of purchase;

2. the Fund will not be liable if it proves that the investor purchased the Units with knowledge of the Misrepresentation;

3. in an action for damages, the Fund will not be liable for all or any portion of the damages that it proves do not represent the depreciation in value of the Units as a result of the Misrepresentation relied upon;

4. in no case shall the amount recoverable exceed the price at which the Units were sold to the investor; and

5. the Fund will not be liable for a Misrepresentation in forward-looking information if the Fund proves that:

(a) this Offering Memorandum contains, proximate to the forward-looking information, reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, and a statement of material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in the forward-looking information; and


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(b) the Fund had a reasonable basis for drawing the conclusions or making the forecasts and projections set out in the forward-looking information.

The foregoing rights do not apply if the investor is:

(a) a Canadian financial institution (as defined in 45-106) or a Schedule III bank;

(b) the Business Development Bank of Canada incorporated under the Business Development Bank of Canada Act (Canada); or

(c) a subsidiary of any person referred to in paragraphs (a) and (b), if the person owns all of the voting securities of the subsidiary, except the voting securities required by law to be owned by directors of that subsidiary.

Rights for Investors in British Columbia and Alberta If this Offering Memorandum, together with any amendment hereto is delivered to an investor resident in British Columbia or Alberta and contains a Misrepresentation and it was a Misrepresentation at the time of purchase, the investor will be deemed to have relied upon the Misrepresentation and will have a right of action against the Fund, every director of the Fund (if applicable) at the date of this Offering Memorandum and every person who signed this Offering Memorandum for damages or, alternatively, while still the owner of the purchased Units, for rescission against the Fund, provided that: 1. no action may be commenced to enforce a right of action:


(b) for damages more than the earlier of (i) 180 days after the investor first had knowledge of the facts giving rise to the cause of action, or (ii) three years after the date of purchase;

2. no person or company will be liable if the person or company proves that the investor purchased the Units with knowledge of the Misrepresentation;

3. no person or company (but excluding the Fund) will be liable if the person or company proves that (i) the Offering Memorandum was delivered to the investor without the person’s or company’s knowledge or consent and that, on becoming aware of its delivery, the person or company gave written notice (or for persons or companies in Alberta only, gave reasonable notice) to the Fund that it was delivered without the person’s or company’s knowledge or consent, (ii) on becoming aware of any Misrepresentation in the Offering Memorandum, the person or company withdrew the person’s or company’s consent to the Offering Memorandum and gave written notice (or for persons or companies resident in Alberta only, gave reasonable notice) to the Fund of the withdrawal and the reason for it, or (iii) with respect to any part of the Offering Memorandum purporting to be made on the authority of an expert or to be a copy of, or an extract from, a report, an opinion or a statement of an expert, the person or company had no reasonable grounds to believe and did not believe that there had been a Misrepresentation, or the relevant part of the Offering Memorandum did not fairly represent the report, opinion or statement of the expert, or was not a fair copy of, or an extract from, the report, opinion or statement of the expert;

4. no person or company (but excluding the Fund) will be liable with respect to any part of the Offering Memorandum not purporting to be made on the authority of an expert, or to be a copy of, or an extract from, a report, opinion or statement of an expert unless the person or company failed to conduct an investigation (or for investors resident in British Columbia only, a reasonable investigation) to provide


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reasonable grounds for a belief that there had been no Misrepresentation, or believed that there had been a Misrepresentation;

5. in an action for damages, a person or company will not be liable for all or any portion of the damages that the person or company proves does not represent the depreciation in value of the Units as a result of the Misrepresentation;

6. if the Misrepresentation is contained in a record incorporated by reference in, or is deemed to be incorporated into the Offering Memorandum, the Misrepresentation is deemed to be contained in the Offering Memorandum;


8. a person or company will not be liable for a Misrepresentation in forward-looking information if the person or company proves that:

(a) this Offering Memorandum contains, proximate to the forward-looking information, reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, and a statement of the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in the forward-looking information; and

(b) the person or company had a reasonable basis for drawing the conclusions or making the forecasts and projections set out in the forward-looking information.

Rights for Investors in Saskatchewan If this Offering Memorandum, together with any amendment hereto, is delivered to an investor resident in Saskatchewan and contains a Misrepresentation at the time of purchase, the investor is deemed to have relied upon that Misrepresentation and will have a right for damages against the Fund, every promoter and director of the Fund (as the case may be), every person or company who signed this Offering Memorandum and every person or company who sells Units on behalf of the Fund, or alternatively, while still the owner of the purchased Units, for rescission against the Fund, provided that: 1. no action shall be commenced to enforce the foregoing rights:

(a) in the case of an action for rescission, more than 180 days after the date of the transaction that gave rise to the cause of action; or

(b) in the case of any action, other than an action for rescission, the earlier of (i) one year after the investor first had knowledge of the facts giving rise to the cause of action, or (ii) six years after the date of the transaction that gave rise to the cause of the action;


3. no person or company (but excluding the Fund) will be liable if the person or company proves that (i) the Offering Memorandum was delivered without the person’s or company’s knowledge or consent and that, on becoming aware of its delivery, the person or company immediately gave reasonable general notice to the Fund that it was delivered without the person’s or company’s knowledge, (ii) on becoming aware of any Misrepresentation, the person or company withdrew the person’s or company’s


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consent to the Offering Memorandum and gave reasonable general notice to the Fund of the withdrawal and the reason for it, or (iii) with respect to any part of the Offering Memorandum purporting to be made on the authority of an expert or to be a copy of, or an extract from, a report, an opinion or a statement of an expert, the person or company had no reasonable grounds to believe and did not believe that there had been a Misrepresentation, or the relevant part of the Offering Memorandum did not fairly represent the report, opinion or statement of the expert, or was not a fair copy of or extract from the report, opinion or statement of the expert;

4. no person or company (but excluding the Fund) will be liable with respect to any part of the Offering Memorandum not purporting to be made on the authority of an expert, or to be a copy of or an extract from a report, opinion or statement of an expert, unless the person or company failed to conduct a reasonable investigation sufficient to provide reasonable grounds for a belief that there had been no Misrepresentation, or believed there had been a Misrepresentation;

5. in an action for damages, a person or company will not be liable for all or any portion of the damages that the person or company proves do not represent the depreciation in value of the Units resulting from the Misrepresentation;



(a) this Offering Memorandum contains, proximate to the forward-looking information, reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information; and a statement of the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in the forward-looking information; and


An investor resident in Saskatchewan who has entered into an agreement for the purchase of Units, which has not yet been completed, and who receives an amendment to this Offering Memorandum that discloses (i) a material change in the affairs of the Fund, (ii) a proposal that the terms or conditions of the offering described in this Offering Memorandum be altered or (iii) securities are to be distributed that are in addition to the Units described herein, may within two business days of receiving the amendment deliver a notice to the Fund or agent through whom the Units are being purchased indicating the investor's intention not to be bound by the purchase agreement. Rights for Investors in Manitoba In the event that this Offering Memorandum or any amendment hereto contains a Misrepresentation, an investor is deemed to have relied on the Misrepresentation and has a right of action for damages against the Fund, every director of the Fund (if applicable) at the date of the Offering Memorandum and every person or company who signed the Offering Memorandum, or alternatively, while still the owner of the purchased Units, a right of rescission against the Fund, provided that: 1. no action may be commenced to enforce a right of action:



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(b) for damages, the earlier of (i) 180 days after the investor first had knowledge of the facts giving rise to the cause of action, or (ii) two years after the date of the purchase;


3. no person or company (but excluding the Fund) will be liable if the person or company proves that (i) the Offering Memorandum was sent to the investor without the person’s or company’s consent, and that, after becoming aware of its delivery, the person or company promptly gave reasonable notice to the Fund that it was sent without the person’s or company’s knowledge or consent, (ii) on becoming aware of the Misrepresentation, the person or company withdrew their respective consent to the Offering Memorandum and gave reasonable notice to the Fund of the withdrawal and the reason for it, or (iii) with respect to any part of the Offering Memorandum purporting to be made on the authority of an expert or to be a copy of, or an extract from, an expert’s report, opinion or statement, the person or company proves that they had no reasonable grounds to believe and did not believe that there had been a Misrepresentation, or the relevant part of the Offering Memorandum did not fairly represent the expert’s report, opinion or statement, or was not a fair copy of, or an extract from, the expert’s report or statement;

4. no person or company (excluding the Fund) will be liable with respect to any part of the Offering Memorandum not purporting to be made on the authority of an expert and not purporting to be a copy of, or an extract from, an expert’s report, opinion or statement, unless the person or company did not conduct an investigation sufficient to provide reasonable grounds for a belief that there had been a Misrepresentation, or believed that there had been a Misrepresentation;

5. in an action for damages, a person or company will not be liable for all or any part of the damages that the person or company proves do not represent the depreciation in value of the Units resulting from the Misrepresentation;

6. in no case shall the amount recoverable exceed the price at which the Units were sold to the investor;


(a) this Offering Memorandum contains, proximate to the forward-looking information, reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information; and a statement of the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection; and

(b) the person or company had a reasonable basis for drawing the conclusions or making the forecasts and projections set out in the forward-looking information; and

8. if a Misrepresentation is contained in a record incorporated by reference in, or deemed to be incorporated into, this Offering Memorandum, the Misrepresentation is deemed to be contained in this Offering Memorandum.

Rights for Investors in Québec If this Offering Memorandum, together with any amendment hereto, delivered to an investor resident in Québec contains a Misrepresentation, the investor will have a right of action against the Fund, every director and officer of the Fund (if applicable), the dealer (if any) under contract to the Fund in connection with the sale of these


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Units, any person who is required to sign an attestation in the Offering Memorandum and any expert whose opinion, containing a Misrepresentation, appeared, with the expert’s consent, in this Offering Memorandum at the date of this Offering Memorandum, for damages or, without prejudice to the investor’s claim for damages, for rescission or revision of the price in the Offering Memorandum provided that: 1. no action may be commenced to enforce a right of action:

(a) for rescission or revision of the price more than three years after the date of the purchase; or

(b) for damages, the earlier of (i) three years after the investor first had knowledge of the facts giving rise to the cause of action (except on proof that tardy knowledge is imputable to the negligence of the investor), or (ii) five years after the filing of this Offering Memorandum with the Autorité des marchés financiers;

2. no person will be liable if the person proves that the investor purchased the Units with knowledge of the Misrepresentation;

3. in an action for damages, a person (excluding the Fund) will not be liable if that person acted prudently and diligently; and

4. a person will not be liable for a Misrepresentation in forward-looking information if the person proves that:

(a) this Offering Memorandum contains, proximate to the forward-looking information, reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, and a statement of material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection; and

(b) the person had a reasonable basis for drawing the conclusions or making the forecasts or projections set out in the forward-looking information.

Rights for Investors in New Brunswick If the Offering Memorandum, together with any amendment thereto, delivered to an investor resident in New Brunswick contains a Misrepresentation that was a Misrepresentation at the time of purchase, the investor will be deemed to have relied on the Misrepresentation and will have a right of action against the Fund for damages or, alternatively, while still the owner of the purchased Units, for rescission, provided that:

1. no action may be commenced to enforce a right of action:


(b) for damages more than the earlier of (i) one year after the investor first had knowledge of the facts giving rise to the cause of action, or (ii) six years after the date of purchase;

2. the Fund will not be liable if it proves that the investor purchased the Units with knowledge of the Misrepresentation;

3. in an action for damages, the Fund will not be liable for all or any portion of the damages that it proves do not represent the depreciation in value of the Units as a result of the Misrepresentation relied upon;


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5. the Fund will not be liable for a Misrepresentation in forward-looking information if the Fund proves that:

(a) this Offering Memorandum contains, proximate to the forward-looking information, reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information; and a statement of the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in the forward-looking information; and

(b) the Fund had a reasonable basis for drawing the conclusions or making the forecasts and projections set out in the forward-looking information.

Rights for Investors in Nova Scotia In Nova Scotia, in the event that this Offering Memorandum, together with any amendment hereto or any advertising or sales literature (as defined in the Securities Act (Nova Scotia) (the “Nova Scotia Act”)), contains a Misrepresentation and it was a Misrepresentation at the time of purchase, the investor resident in Nova Scotia will be deemed to have relied upon the Misrepresentation and will have a right of action against the Fund, every director of the Fund (if applicable) at the date of this Offering Memorandum and every person who signed this Offering Memorandum for damages or, alternatively, while still the owner of the purchased Units, for rescission against the Fund, provided that: 1. no action may be commenced to enforce a right of action more than 120 days:

(a) after the date on which payment was made for the Units; or

(b) after the date on which the initial payment was made;


3. no person or company (but excluding the Fund) will be liable if the person or company proves that (i) the Offering Memorandum was delivered to the investor without the person’s or company’s knowledge or consent and that, on becoming aware of its delivery, the person or company gave reasonable general notice that it was delivered without the person’s or company’s knowledge or consent, (ii) after delivery of the Offering Memorandum and before the purchase of the Units by the investor, on becoming aware of any Misrepresentation in the Offering Memorandum, the person or company withdrew the person’s or company’s consent to the Offering Memorandum and gave reasonable general notice of the withdrawal and the reason for it, or (iii) with respect to any part of the Offering Memorandum purporting to be made on the authority of an expert or to be a copy of, or an extract from, a report, an opinion or a statement of an expert, the person or company had no reasonable grounds to believe and did not believe that there had been a Misrepresentation, or the relevant part of the Offering Memorandum did not fairly represent the report, opinion or statement of the expert, or was not a fair copy of, or an extract from, the report, opinion or statement of the expert;

4. no person or company (but excluding the Fund) will be liable with respect to any part of the Offering Memorandum not purporting to be made on the authority of an expert, or to be a copy, or an extract from, a report, opinion or statement of an expert unless the person or company failed to conduct a


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reasonable investigation to provide reasonable grounds for a belief that there had been no Misrepresentation, or believed that there had been a Misrepresentation;

5. in an action for damages, a person or company will not be liable for all or any portion of the damages that the person or company proves does not represent the depreciation in value of the Units as a result of the Misrepresentation relied upon;

6. in no case will the amount recoverable in any action exceed the price at which the Units were sold to the investor;



(b) the person or company had a reasonable basis for drawing the conclusions or making the forecasts and projections set out in the forward-looking information; and

8. if a Misrepresentation is contained in a record incorporated by reference in, or deemed incorporated into, this Offering Memorandum, the Misrepresentation is deemed to be contained in this Offering Memorandum.

These rights are intended to correspond with the rights against a seller of securities provided in the Nova Scotia Act and the securities regulations thereto and are subject to defences contained therein. Rights for Investors in Prince Edward Island If this Offering Memorandum delivered to an investor resident in Prince Edward Island contains a Misrepresentation the investor will have a right of action for damages against the Fund, every director of the Fund (if applicable) at the date of this Offering Memorandum and every person who signed this Offering Memorandum, but may elect to exercise a right of rescission against the Fund, in which case the investor shall have no right of action for damages against the Fund, any such director of the Fund or any such other person, provided that, among other limitations: 1. no action may be commenced to enforce a right of action more than:

(a) in the case of an action for rescission, 180 days after the date of the transaction that gave rise to the cause of action; or

(b) in the case of any action, other than an action for rescission,

(i) 180 days after the investor first had knowledge of the facts giving rise to the cause of action, or

(ii) three years after the date of the transaction giving rise to the cause of action,

whichever period expires first.


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2. in an action for rescission or damages, no person or company shall be liable if the person or company proves that the investor purchased the Units with knowledge of the Misrepresentation;

3. in an action for damages, no person or company shall be liable for any damages which that person or company proves do not represent the depreciation in value of the Units resulting from the Misrepresentation;

4. the amount recoverable under the right of action described herein must not exceed the price at which the Units purchased by the investor were offered;

5. no person other than the Fund will be liable if the person proves that: (i) this Offering Memorandum was sent to the investor without the person or company’s knowledge or consent and that, on becoming aware of its being sent, the person promptly gave reasonable notice to the Fund that it had been sent without the person’s knowledge and consent; (ii) the person, on becoming aware of the Misrepresentation, had withdrawn the person’s consent to the Offering Memorandum and had given reasonable notice to the Fund of the withdrawal and the reason for it; or (iii) with respect to any part of this Offering Memorandum purporting to be made on the authority of an expert or to be a copy of, or an extract from, a report, statement or opinion of an expert, the person had no reasonable grounds to believe and did not believe that there had been a Misrepresentation, or that the relevant part of this Offering Memorandum did not fairly represent the report, statement or opinion of the expert, or was not a fair copy of, or an extract from, the report, statement or opinion of the expert;

6. no person other than the Fund will be liable with respect to any part of this Offering Memorandum not purporting to be made on the authority of an expert and not purporting to be a copy of, or an extract from, a report, statement or opinion of an expert, unless the person failed to conduct a reasonable investigation to provide reasonable grounds for a belief that there had been no Misrepresentation, or believed that there had been a Misrepresentation;

7. a person will not be liable for a Misrepresentation in forward-looking information if the person proves that:


(b) the person had a reasonable basis for drawing the conclusions or making the forecasts or projections set out in the forward-looking information; and

8. if a Misrepresentation is contained in a record incorporated by reference in, or deemed to be incorporated into, this Offering Memorandum, the Misrepresentation is deemed to be contained in this Offering Memorandum.

Rights for Investors in Newfoundland

If this Offering Memorandum, together with any amendment hereto, delivered to an investor resident in Newfoundland contains a Misrepresentation and it was a Misrepresentation at the time of purchase, the investor will be deemed to have relied upon the Misrepresentation and will have a right of action for damages against the Fund, a director of the Fund (if applicable) at the date of this Offering Memorandum, and a person or company who signed this Offering Memorandum, or alternatively, while still the owner of the purchased Units, a right for rescission against the Fund, provided that:


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1. no action shall be commenced to enforce the foregoing rights:

(a) in the case of an action for rescission, more than 180 days after the date of the transaction that gave rise to the cause of action; or

(b) in the case of any action, other than an action for rescission, the earlier of: (i) 180 days after the investor first had knowledge of the facts giving rise to the cause of the action; or (ii) three years after the date of the transaction that gave rise to the cause of the action;

2. no person or company is liable if the person or company proves that the investor purchased the Units with knowledge of the Misrepresentation;

3. no person or company (but excluding the Fund) will be liable if the person or company proves that (i) the Offering Memorandum was delivered to the investor without the person’s or company’s knowledge or consent and that, on becoming aware of its delivery, the person or company gave reasonable notice that it was delivered without the person’s or company’s knowledge or consent, (ii) on becoming aware of any Misrepresentation in the Offering Memorandum, the person or company withdrew the person’s or company’s consent to the Offering Memorandum and gave reasonable notice of the withdrawal and the reason for it, or (iii) with respect to any part of the Offering Memorandum purporting to be made on the authority of an expert or to be a copy of, or an extract from, a report, an opinion or a statement of an expert, the person or company had no reasonable grounds to believe and did not believe that there had been a Misrepresentation, or the relevant part of the Offering Memorandum did not fairly represent the report, opinion or statement of the expert, or was not a fair copy of, or an extract from, the report, opinion or statement of the expert;

4. no person or company (but excluding the Fund) will be liable with respect to any part of the Offering Memorandum not purporting to be made on the authority of an expert, or to be a copy of, or an extract from, a report, opinion or statement of an expert unless the person or company did not conduct an investigation sufficient to provide reasonable grounds for a belief that there had been no Misrepresentation, or believed that there had been a Misrepresentation;

5. in an action for damages, a person or company will not be liable for all or any portion of the damages that the person or company proves do not represent the depreciation in value of the Units as a result of the Misrepresentation relied upon;

6. in no case shall the amount recoverable exceed the price at which the Units were sold to the investor;

7. if a Misrepresentation is contained in a record incorporated by reference in, or considered to be incorporated into, this Offering Memorandum, the Misrepresentation is considered to be contained in this Offering Memorandum; and

8. a person or company will not be liable for a misrepresentation in forward-looking information if the person or company proves all of the following:

(a) the document containing the forward-looking information contained, proximate to that information,

(i) reasonable cautionary language identifying the forward-looking information as such, and identifying material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information, and


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(i) a statement of the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection set out in the forward-looking information; and


General The foregoing summaries are subject to any express provisions of the securities legislation of each offering jurisdiction and the regulations, rules and policy statements thereunder and reference is made thereto for the complete text of such provisions. The rights of action described herein are in addition to and without derogation from any other right or remedy that the investor may have at law.

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