Brompton Lifeco Split : Annual Report – 2023

Brompton Lifeco

Split Corp.

Annual Report 2023

VALUE

INTEGRITY PERFORMANCE

THE FOUNDATION FOR EXCELLENCE

MANAGEMENT REPORT OF FUND PERFORMANCE

March 18, 2024

This annual management report of fund performance for Brompton Lifeco Split Corp. (the "Fund") contains financial highlights but does not contain the audited annual financial statements of the Fund. The audited annual financial statements follow this report. You may obtain a copy of the audited annual or unaudited interim financial statements, at no cost, by calling 1-866-642-6001 or by sending a request to Investor Relations, Brompton Funds, Bay Wellington Tower, Brookfield Place, 181 Bay Street, Suite 2930, Box 793, Toronto, Ontario, M5J 2T3, or by visiting our website atwww.bromptongroup.comor SEDAR at www.sedar.com. Shareholders may also contact us by using one of these methods to request a copy of the Fund's proxy voting policies and procedures, proxy voting disclosure record, Independent Review Committee's report, or quarterly portfolio disclosure.

THE FUND

Brompton Lifeco Split Corp. is a mutual fund corporation managed by Brompton Funds Limited (the "Manager"). The Fund has Class A and Preferred shares outstanding which are traded on the Toronto Stock Exchange ("TSX") under the symbols LCS and LCS.PR.A, respectively. The Class A and Preferred shares are RRSP, DPSP, RRIF, RESP, TFSA and FHSA eligible. The Preferred shares are rated Pfd-3 (low) by Dominion Bond Rating Service Limited ("DBRS").

Preferred shares of the Fund receive fixed, cumulative quarterly payments. Payments are usually in the form of eligible Canadian dividends, which are taxed at a lower rate to individuals than interest income. Preferred shares have a priority claim ahead of the Class A shares on the Fund's assets in the event of liquidation. However, the Net Asset Value of Preferred shares generally does not benefit from growth in value of the underlying investments. Generally, the Class A shares capture the price movement of the underlying investments, but in a more magnified way than if an investor owned the underlying portfolio of securities directly. This magnification of return is commonly known as "leverage", which is provided by the Preferred shares.

INVESTMENT OBJECTIVES AND STRATEGIES

The Fund's investment objectives are:

i) to provide holders of Preferred shares with fixed, cumulative, preferential quarterly cash distributions and to return the original issue price of $10.00 per Preferred share to Preferred shareholders at maturity; and

ii) to provide holders of Class A shares with regular monthly cash distributions, targeted to be $0.075 per share, and the opportunity for growth in Net Asset Value per Class A share.

To achieve these objectives, the Fund invests on a approximately equal basis, in a portfolio of common shares consisting of the four Canadian Life Insurance Companies.

Canadian Life Insurance Companies

Great-West Lifeco Inc. iA Financial GroupManulife Financial Corp. Sun Life Financial Inc.

The Manager is responsible for maintaining the portfolio in accordance with the investment guidelines and rebalancing criteria. The Fund's portfolio is rebalanced at least annually to adjust for changes in the market value of investments and to reflect the impact of a merger or acquisition affecting one or more of the life insurance companies. The Manager, at its discretion, selectively writes covered call options from time to time on the portfolio, to generate additional distributable cash for the Fund and to reduce volatility. The Fund may from time to time hold cash and cash equivalents.

RECENT DEVELOPMENTS

New Preferred Share Distribution Rate

On February 28, 2024, the Fund announced an increase in the distribution rate for the Preferred shares for the new term, from April 30, 2024, to April 27, 2029, to $0.70 from $0.625 per annum, payable quarterly. The new Preferred share distribution rate was based on current market rates for Preferred shares with similar characteristics at the time of announcement.

Market Conditions

Monetary policy response to persistently higher levels of inflation over Bank of Canada's 2% target rate has led to higher interest rates and fluctuations in securities prices. The Fund's Net Asset Value reflecting the value of the Fund's portfolio based on the most recent valuation date can be found on the Fund's webpage atwww.bromptongroup.com.

RISKS

Risks associated with an investment in the shares of the Fund are discussed in the Fund's 2023 annual information form, which is available on the Fund's website atwww.bromptongroup.comor on SEDAR at www.sedar.com. There were no changes to the risks during the year ended December 31, 2023 that could materially affect an investment in the shares of the Fund as they were discussed in the annual information form.

RESULTS OF OPERATIONS Distributions

Class A share cash distributions for the year ended December 31, 2023, amounted to $0.90 per share, compared to $0.30 per Class A share for the year ended December 31, 2022. This reflected twelve monthly cash payments of $0.075 per Class A share in 2023, compared to four monthly cash payments of $0.075 per Class A share in 2022. The terms of the Fund's distribution plan state that no distributions will be paid on the Class A shares if, after the payment of a cash distribution by the Fund, the Net Asset Value per unit (each unit includes one Class A share and one Preferred share) would be less than $15.00. Preferred share cash distributions declared were $0.625 per share in 2023, unchanged from 2022. Since its inception date of April 18, 2007, the Fund has paid total cash distributions of $8.28 per Class A share and $9.38 per Preferred share.

The Fund has a distribution reinvestment plan, which allows Class A shareholders to automatically reinvest monthly distribution, commission free, in additional Class A shares of the Fund. Pursuant to this plan, during the year ended December 31, 2023, 39,003 Class A shares were acquired in the market at an average price of $5.72 per Class A share.

Revenue and Expenses

The Fund earned revenue of $0.75 per Class A share in 2023, compared to $0.71 per class A share in 2022. The Fund's dividend income received a boost as all the holdings in the portfolio increased their dividend rates. On average, the dividend rates experienced growth of 9.6%.

Expenses in 2023, amounted to $0.16 per Class A share, compared to $0.30 per Class A share in 2022. Expenses include issue costs, agents' fees and Preferred share premium/discount amortization as a result of issuing Preferred shares. Any issuance related costs were borne by the new subscribing shareholders through the payment of a premium issue price over the Net Asset Value at the time of issuance. Excluding these expenses, Class A share expense was $0.14 per share in 2023 compared to $0.13 per share in 2022.

Net Asset Value

The Net Asset Value per Class A share was $6.83 at December 31, 2023, up by 42.3% from $4.80 at December 31, 2022. The aggregate Net Asset Value of the Fund was $137.3 million at December 31, 2023 up from $133.5 million at December 31, 2022. For the purpose of calculating the Net Asset Value of the Fund as a whole, the Preferred shares are not considered a liability of the Fund.

Investment Portfolio

As at December 31, 2023 the Fund's investment portfolio included 4 securities representing Canadian Life Insurance Companies. The portfolio was rebalanced in April 2023, in accordance with the Fund's investment guidelines. The investment weightings and a detailed listing of the Fund's holdings are provided in the financial statements.

For the year ended December 31, 2023, the Fund's portfolio recorded net realized gains of $3.7 million and change in unrealized gains of $21.9 million. Over the year, all four securities held by the Fund experienced positive market growth, with a weighted average increase of 20.5%. Great-West Lifeco Inc. and Manulife Financial Corp. emerged as the top performers, contributing a combined net gain of $18.0 million.

During 2023, the Fund selectively wrote covered call options on the underlying securities in the portfolio and generated premiums of $0.3 million. The net realized and change in unrealized loss on option writing was $0.4 million which represents the premium received, less the amount paid to close out the options at expiry. As at December 31, 2023, there were 536 option contracts outstanding, with a notional value representing 2.7% of the portfolio.

Portfolio Sectors

To provide liquidity for shareholders, the Class A shares and Preferred shares of the Fund are listed on the TSX. Investors may retract their shares in accordance with the Fund's retraction provisions for each class of share.

RELATED PARTY TRANSACTIONS

Related party transactions consist of services provided by the Manager pursuant to a management agreement. See the Management Fees section below. As at December 31, 2023, 1.9% of the Fund's Preferred shares were held by an investment Fund managed by the Manager (December 31, 2022 - nil).

MANAGEMENT FEES

Pursuant to a management agreement, the Manager provides management and administrative services to the Fund, for which it is paid a management fee equal to 0.60% per annum of the Net Asset Value of the Fund plus applicable taxes. The Net Asset Value of the Fund is determined by taking the total assets of the Fund and deducting the Fund's liabilities. The management fee is used by the Manager to cover its costs to obtain the Fund's assets, the cost to administer the Fund, the cost of investment management services and for profit. During the year ended December 31, 2023, management fees were $0.9 million.

FINANCIAL HIGHLIGHTS

The following tables show selected key financial information about the Fund and are intended to help readers understand the Fund's financial performance for the fiscal periods indicated. This information is derived from the Fund's audited annual financial statements which have been prepared in accordance with IFRS Accounting Standards. The information in the following tables is presented in accordance with National Instrument ("NI") 81-106 and, as a result, does not act as a continuity of opening and closing Net Assets per Class A share. The increase (decrease) in Net Assets from operations is based on average shares outstanding during the period, and all other numbers are based on actual shares outstanding at the relevant point in time.

Net Assets per Class A Share1

• 1 The financial information was prepared in accordance with IFRS Accounting Standards.

• 2 Net Assets per Class A share and distributions per Class A share are based on the actual number of Class A shares outstanding at the relevant time.

• 3 The increase (decrease) in Net Assets from operations per Class A share is based on the weighted average number of Class A shares outstanding over the fiscal period.

Ratios and Supplemental Data (Based on Net Asset Value)

As at December 31

• 1 MER for Class A shares is based on the requirements of NI 81-106 and includes the total expenses of the Fund for the stated period, including distributions on Preferred shares, Preferred share premium/discount amortization and issuance costs, but excluding brokerage commissions on securities transactions, and is expressed as an annualized percentage of the average Net Asset Value of the Fund for Class A shares over the period. Please see the Expense Ratio section following this table for further discussion of the calculation.

• 2 The trading expense ratio represents total commissions and transaction costs expressed as an annualized percentage of daily average Net Asset Value of the Fund during the period.

• 3 The Fund's portfolio turnover rate indicates how actively the Fund manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher the Fund's portfolio turnover rate in a year, the greater the trading costs payable by the Fund in the year and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of the Fund. Portfolio turnover rate is calculated by dividing the lesser of the cost of purchases and the proceeds of sales of portfolio securities for the period, excluding cash and short-term investments maturing in less than one year, by the average market value of such investments during the period.

• 4 A unit includes one Class A share and one Preferred share. Net Asset Value per unit is determined by the Net Asset Value of the Fund, for which the Preferred shares are not treated as liabilities. Net Asset Value per unit includes any distributions declared and not paid that are payable to Shareholders.

• 5 Net Asset Value per Preferred share does not include the accrued Preferred share distributions.

Expense Ratio

In 2023, the MER per Class A share, which includes agents' fees, issuance costs, Preferred share premium/discount amortization and Preferred shares distributions was 12.93%, down from 22.70% in the prior year ended 2022. Expenses for agents' fees and issuance costs were borne by the new subscribing shareholders as the share issuances were priced at an amount higher than the Net Asset Value per unit plus these associated expenses; therefor, any share issuances are not dilutive for the existing shareholders. Pursuant to the prescribed regulatory formula, these costs must be included in the MER calculation. The MER per Class A share excluding agent's fees, issuance costs and Preferred share premium/discount amortization was 12.66% in 2023 compared to 15.99% in the prior year. Excluding Preferred share distributions, the MER per Class A share was 2.31% in 2023 down from 2.62% in the prior year. The decrease in MER resulted from the higher average Net Asset Value of the Fund, which made the impact of fixed costs lower.

The MER per unit (Included one Class A share and one Preferred share) of the Fund, excluding agents' fees, issuance costs, Preferred share premium/discount amortization and Preferred share distributions, was 0.86% for the year ended 2023, compared to 0.83% for the year ended 2022. This latter ratio is more representative of the ongoing efficiency of the administration of the Fund.

PAST PERFORMANCE

The following chart and table show the past performance of the Fund. Past performance does not necessarily indicate how the Fund will perform in the future. The information shown is based on Net Asset Value per Class A share and per unit (each unit includes one Class A share and one Preferred share) and assumes that distributions made by the Fund on the Class A shares and units in the periods shown were reinvested (at Net Asset Value per Class A share and unit, respectively) in additional Class A shares and units of the Fund.

The bar chart shows the Fund's returns for a Class A share and a unit for the years ended December 31, 2014 to December 31, 2023. The chart shows, in percentage terms, how investments held in a Class A share and a unit of the Fund on the first day of each fiscal period would have changed by the last day of the fiscal period.

Year by Year Returns

LCS Class A share

LCS unit

The following table shows the Fund's compound returns on a Class A share, Preferred share and unit for each period indicated, compared with the S&P/TSX Capped Financials Index ("Financials Index"), the S&P/TSX Composite Index ("Composite Index") and the S&P/TSX Preferred Share Index ("Preferred Index") (together the "Indices"). The Financials Index is derived from the Composite Index based on the financials sector of the Global Industry Classification Standard. The Composite Index tracks the performance, on a market-weight basis, of a broad index of large-capitalization issuers listed on the TSX. The Preferred Index tracks the performance, on a market-weight basis, of preferred shares listed on the TSX that meet criteria relating to size, liquidity and issuer rating. The Fund passively invests on an approximately equal-weight basis in a portfolio comprised of four Canadian life insurance companies which are in both the Financials Index and the Composite Index. Since the Indices have more diversified portfolios, it is not expected that the Fund's performance will mirror that of the Indices. The Indices are calculated without the impact of management fees, fund expenses and trading commissions, whereas the performance of the Fund is calculated after deducting such fees and expenses. Further, the performance of the Fund's Class A shares is impacted by the leverage provided by the Fund's Preferred shares.

Annual Compound Returns

1-Year 3-Year 5-Year 10-Year % % % %

• 1 Based on the Net Asset Value per Class A share and Preferred share and assuming that distributions on the Class A shares and Preferred shares made by the Fund in the periods shown were reinvested (at Net Asset Value per Class A share and Preferred share, respectively) in additional Class A shares and Preferred shares of the Fund.

• 2 Based on the Net Asset Value per unit (each unit includes one Class A share and one Preferred share) and assuming that distributions on the units made by the Fund were reinvested (at Net Asset Value per unit) in additional units of the Fund.

The Fund's mandate is to hold four Canadian life insurance companies, and its unit performance mirrors the rise in share prices of these four companies. The life insurance sector experienced substantial equity appreciation in 2023, with the four Canadian insurance companies, on average, experiencing a share price increase of approximately 20.5%. The Fund's Class A share performance return was greatly enhanced by the leverage provided by the Preferred shares, generating a return of 65.2% in 2023. The Fund's Preferred shares continue to provide a consistent positive return of 6.4% in 2023 and 6.1% over the past 10 years.

SUMMARY OF INVESTMENT PORTFOLIO

As at December 31, 2023

1

Net Asset Value of the Fund includes the value of the Preferred shares and Class J shares.

The investment portfolio may change due to ongoing portfolio transactions of the investment fund. Quarterly updates are available on the Fund's website atwww.bromptongroup.comwithin 60 days of each quarter end.

2023 TAX INFORMATION

The following information is applicable to holders who, for the purpose of the Income Tax Act (Canada), are resident in Canada and hold units as capital property outside of an RRSP, DPSP, RRIF, RESP, TFSA or FHSA. Shareholders should receive a T5 slip from their investment dealer providing this information.

T5 supplementary slips will indicate Capital Gains Dividends in Box 18 and Actual Amount of Eligible Dividends in Box 24. Dividend income is subject to the standard gross-up and federal dividend tax credit rules. The return of capital component is a non-taxable amount that serves to reduce the adjusted cost base of Fund shares.

The following tables outline the breakdown in the Fund's distributions on Class A and Preferred shares paid in 2023 on a per share basis.

Class A Shares

This information is of a general nature and does not constitute legal or tax advice to any particular investor. Accordingly, investors are advised to consult their own tax advisors with respect to their individual circumstances.

FORWARD-LOOKING STATEMENTS

Some of the statements contained herein including, without limitation, financial and business prospects and financial outlook may be forward-looking statements which reflect management's expectations regarding future plans and intentions, growth, results of operations, performance and business prospects and opportunities. Words such as "may," "will," "should," "could," "anticipate," "believe," "expect," "intend," "plan," "potential," "continue" and similar expressions have been used to identify these forward-looking statements. These statements reflect management's current beliefs and are based on information currently available to management. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements including, but not limited to, changes in general economic and market conditions and other risk factors. Although the forward-looking statements contained herein are based on what management believes to be reasonable assumptions, we cannot assure that actual results will be consistent with these forward-looking statements. Investors should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date hereof and we assume no obligation to update or revise them to reflect new events or circumstances, except as required by law.

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Brompton Lifeco Split Corp. published this content on 26 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 March 2024 20:38:43 UTC.