the annual 2014 - fonds de solidarité ftq...the fonds de solidarité ftq’s 2013 annual and...

2014

OUT OF COLLECTIVE DRIVE

COME PROFITABLE

RESULTS.

A N N U A L A N D S U S TA I N A B I L I T Y R E P O R T

fondsftq.com

545 Crémazie Blvd. East Suite 200 Montréal, Québec H2M 2W4 Telephone: 514 383-8383Fax: 514 383-2502Toll free: 1 800 361-5017

Shareholder Services Montréal: 514 383-3663Toll free: 1 800 567-3663

Legal deposit – 3rd quarter 2014Bibliothèque nationale du Québec National Library of Canada

Ce document est également disponible en français.

B-08-00-0294

2014

A N N U A L A N D A N N U A L A N D A N N U A L A N D S U S TA I N A B I L I T Y R E P O R TS U S TA I N A B I L I T Y R E P O R TS U S TA I N A B I L I T Y R E P O R T

THE ANNUALOUT OF

COLLECTIVE DRIVE COLLECTIVE DRIVE COME

PROFITABLE RESULTS.

S U S TA I N A B I L I T Y R E P O R T

THE ANNUAL

172,596JOBS CREATED, MAINTAINED ORPROTECTED IN QUÉBEC THROUGH INVESTMENTS OF THE FONDS AND ITS NETWORK* AS AT MAY 31, 2014

91,014

48,481

33,101

DIRECT JOBS

INDIRECT JOBS

REGIONAL AND LOCAL FUNDS

INDUCED JOBS

91,014DIRECT JOBS

55,218

27,461

8,335

FONDS DE SOLIDARITÉ FTQ

SPECIALIZED FUNDS

TAKING INTO ACCOUNT PAST AND CURRENTPARTNERSHIPS, IT IS ESTIMATED THAT OVER530,000 JOBS WERE CREATED, MAINTAINEDOR PROTECTED IN QUÉBEC BY THE FONDS ANDITS NETWORK FROM 1990 TO 2014.

* By partner companies in the portfolio as at May 31, 2014.

D E V E L O P M E N T C A P I TA LI N V E S T M E N T S 2

FOR THE YEARS ENDED MAY 31(IN MILLIONS OF $)

2013

20122011

2010

2014521

9083

733

501

548

FA I R VA L U E O F D E V E L O P M E N T C A P I TA L I N V E S T M E N T S 2

AS AT MAY 31(IN MILLIONS OF $)

2013

20122011

2010

20146,144

5,757

5,207

4,784

6,408

N U M B E R O F PA R T N E R C O M PA N I E SAS AT MAY 31(FONDS AND NETWORK)

2013

20122011

2010

20142,395

2,239

2,129

2,052

2,467

S H A R E R E D E M P T I O N SFOR THE YEARS ENDED MAY 31(IN MILLIONS OF $)

2013

2012

2011

2010

2014542

620

465

341

729

N E T VA L U E P E R S H A R EAS AT MAY 31(IN DOLLARS)

2013

20122011

2010

201427.98

26.59

25.92

23.84

30.29

N U M B E R O F J O B S C R E AT E D , M A I N TA I N E D O R P R O T E C T E D I N Q U É B E C B Y T H E F O N D S A N D I T S N E T W O R KAS AT MAY 31

2013

2012

2011

2010

2014170,915

168,577

160,789

150,133

172,596

S H A R E H O L D E R P R O F I L EAS AT MAY 31, 2014

UNIONIZED

NON-UNIONIZED

55%

45%

338,589

275,369

S H A R E I S S U E SFOR THE YEARS ENDED MAY 31(IN MILLIONS OF $)

2013

2012

2011

2010

2014855

767

698

660

787

K E Y D ATAFOR THE YEARS ENDED MAY 31

(in millions of $; except Class A shares outstanding: number in thousands) 2014 2013 2012 2011 2010

Statements of OperationsRevenues 248 256 247 256 222Net earnings 774 458 215 650 600

Balance SheetsNet assets 10,126 9,301 8,525 8,178 7,294Class A shares outstanding 334,234 332,441 320,629 315,504 305,951

Total operating expense ratio1 1.4% 1.4% 1.5% 1.5% 1.5%

1. The total operating expense ratio does not include capital tax and is calculated as stipulated in the Regulation Respecting Development Capital Investment Fund Continuous Disclosure.2. These investments include funds committed but not disbursed as well as guarantees and suretyships.3. This amount takes into account the investment of $300 million made in SSQ Financial Group.

HIGHLIGHTS

N U M B E R O F S H A R E H O L D E R SAS AT MAY 31

2013

2012

2011

2010

2014615,664

594,287

583,235

577,511

613,958

R E D E M P T I O N B R E A K D O W N B Y C R I T E R I O NFOR THE YEAR ENDED MAY 31, 2014

Redemptions provided for in the Fonds’ Incorporation Act and in the Purchase-by-Agreement Policy Number $M % of total

Retirement and early retirement 41,422 634 87

Access to home ownership 3,735 32 4

Death, disability, redemption within 60 days 2,200 33 5

Unforeseen events (job loss and other) 4,166 20 3

Return to studies 409 3 —

Other criteria (capital injection into a business, emigration,

redemption of pension credits and ineligibility for tax credits) 412 7 1

Total 52,344 729 100

C H A N G E I N D E V E L O P M E N T C A P I TA L I N V E S T M E N T S ( AT C O S T ) 1

FOR THE YEAR ENDED MAY 31, 2014

Balance as at May 31, 20132 Investments Disinvestments Balance as at May 31, 2014

Regions3 Number $M % Number $M % Number $M % Number $M %

Western Québec 23 132 3 3 1 — 6 7 2 22 126 2

Montréal Region 122 2,417 45 30 345 63 40 227 57 127 2,535 46

Central Québec 18 144 3 1 5 1 7 8 2 17 141 3

Québec City Region 32 634 12 3 7 1 9 28 7 31 613 11

Eastern Québec 24 180 3 4 49 9 8 7 2 23 222 4

All of Québec 51 1,488 28 4 119 22 16 101 26 49 1,506 28

Outside Québec 35 332 6 3 22 4 14 18 4 37 336 6

Total 305 5,327 100 48 548 100 100 396 100 306 5,479 100

Sectors

Real estate 4 442 8 2 31 6 1 40 10 4 433 8

Regional development4 22 442 8 — — — 1 3 1 22 439 8

Industries, services,

natural resources

and consumer 197 3,221 61 35 356 65 69 191 48 198 3,386 62

New economy 82 1,222 23 11 161 29 29 162 41 82 1,221 22

Total 305 5,327 100 48 548 100 100 396 100 306 5,479 100

1. These investments exclude the securities in the Entreprises publiques québécoises à faible capitalisation portfolio and include funds committed but not disbursed as well as guarantees and suretyships.

2. The breakdown by region was changed based on the reorganizations undergone by companies in the portfolio.

3. Regional groupings: Western Québec: Abitibi-Témiscamingue/Outaouais. Montréal Region: Montréal/Laval/Laurentides/Montérégie/Lanaudière. Central Québec: Estrie/Mauricie/Centre-du-Québec. Québec City Region: Capitale-Nationale/Chaudière-Appalaches. Eastern Québec: Bas-Saint-Laurent/Saguenay–Lac-Saint-Jean/Gaspésie–Îles-de-la-Madeleine/Côte-Nord/Nord-du-Québec. All of Québec: Investments impacting more than one region. Outside Québec: Investments in companies headquartered outside Québec.

4. Regional funds, local funds and regional investment companies.

A N N U A L R AT E O F R E T U R N O F T H E F O N D S *

FOR THE YEARS ENDED MAY 31

9.2% 8.3%5.3%

2.6%

8.8%

-12.6%

-1.2%

7.1%6.0%

5.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

* Net earnings per share divided by the share value at the beginning of the year. This return does not take into account tax credits granted to shareholders.

H I G H L I G H T S

WE APPRECIATE YOUR COMMENTS

This Annual and Sustainability Report includes the financial and extra-financial information related to the Fonds de solidarité FTQ’s activities for the most recent financial year, which ended May 31, 2014.

Please do not hesitate to send us your comments, to which we will pay special attention.

Real Estate Management and Sustainable Development Department

Fonds de solidarité FTQ545 Crémazie Blvd. EastSuite 200Montréal, Québec H2M 2W4

You may also send your comments by email to: [email protected]

Printed by the unionized workers of Transcontinental Acme Direct on Rolland Opaque30 paper manufactured in Québec using biogas energy, EcoLogo and FSC Mixed Sources certifi ed and containing 30% recycled post-consumer fi bre.

CREDITS

ED ITO RSChantal DoréSuzanne HamelAndré McDonald

WRITERSuzanne Hamel

TR A NSL ATO RJean Marois

C O LL A BO R ATO RSJohanne BissonnetteRoch DutilFrançois GirardAlain HouleSylvain MassePierre Surprenant

PH OTO G R A PH ERYves Lacombe

D ESI G N ERGauthier designers

WE WO U LD LIK E TO TH A N K E V ERYO N E WH O C O NTRIBU TED TO TH E PRO D U CTI O N O F THIS D O CU M ENT.

Two prestigious design awards

The Fonds de solidarité FTQ’s 2013 Annual and Sustainability Report was also awarded two prestigious design awards and, remarkably, both its printed and digital versions won prizes. The printed version of the report received a prize as part of the 2014 Annual Design + Image awards of Canadian Coupe Magazine, in the Annual Reports category. The digital version earned an award in the 2014 Grafika competition, which recognized the 100 best achievements in graphic design of the year in Québec.

The Fonds’ Annual and Sustainability Report commended on the international scene!

The Fonds de solidarité FTQ earned a special mention at the Responsible Investor Reporting Awards 2014, which recognize the highest standards in the reporting and disclosure of responsible investment activities by asset owners globally. The Fonds stood out for its 2013 Annual and Sustainability Report (ASR). It was singled out for the clarity of its reporting and approach to responsible investment, which was found to be original, well executed and fully integrated into its daily operations. The judging panel highlighted the clear, useful links to the objectives and principles of the Global Reporting Initiative (GRI) and the United Nations’ Global Compact and Principles for Responsible Investment (UN PRI). It also found the report convincing and visually attractive thanks to its design and interactive version with easy navigation between key topics. Finally, the judging panel was impressed with the analysis of the Fonds’ past, current and futures objectives, which provides insight into the continuity of its actions.

The results were announced at the annual Responsible Investor Europe summit in London on June 4.

Fonds de solidarité F tQ 2014 1

1our mission

2message from the chairman of the board of directors

3message from the president and chief executive officer

4message from the president of the ftQ and first vice-president of the board of directors of the fonds de solidarité ftQ

5improved governance

10sustainable development

12ethics and governance

14our social impact

18our shareholders

22our economic impact

26our partners

32our environmental impact

36our employees

39sustainable development and responsible investment objectives

45our management discussion and analysis

76our financial statements

100the board of directors and the management committee

101members of our boards and committees Who are external to the fonds and the ftQ

102the governing bodies of the fonds de solidarité ftQ and the union

our MISSIoNCreate, maintain or proteCt jobs

Invest in companies impacting the Québec economy and offer them services to further their development and create, maintain or protect jobs.

train workers

Promote economic training for workers so they can increase their influence on the economic development of Québec.

Develop the QuébeC eConomy

Stimulate the Québec economy through strategic investments that benefit both Québec workers and companies alike.

prepare for retirement

Make workers aware of the need to save for retirement and encourage them to do so, as well as encourage them to participate in the development of the economy by purchasing Fonds shares.

tabLe of coNteNtS

2 Fonds de solidarité F tQ 2014 Fonds de solidarité F tQ 2014 3

tHe Fonds de solidarité FtQ deserVes our trust

“The Fonds de solidarité FTQ “The Fonds de solidarité FTQ is one of the major Québec is one of the major Québec institutions dedicated institutions dedicated to economic development.” to economic development.” robert pariZeau

I joined the Fonds de solidarité FTQ’s Board of Directors in the wake of the recommendations from the special governance committee set up by the Fonds at the end of 2013. Upon my arrival, I discovered a professionally managed organization possessing strength and integrity. My decision to accept the Chairman position, which was not taken lightly, was based on one unwavering fact: the Fonds is a trustworthy organization.

Back in 2009, the Fonds de solidarité FTQ undertook to improve its governance and tighten the application of its ethics rules. It then made the required changes with due care and according to the rules.

In February 2014, the Fonds announced its intention to extend further its governance reform. In just a few months, numerous actions were taken and several new measures were implemented. Besides appointing an individual independent from the Fonds and the FTQ as Chairman of the Board of Directors, two new committees were created: the Governance and Ethics Committee and the Human Resources Committee. The Fonds also worked with KPMG to set up an external ethics hotline for its employees. This hotline provides the confi dentiality and immunity necessary to report behaviours that would not be compliant with applicable laws or the Fonds’ policies.

Implementing these measures required the collaboration of all the Fonds’ governing bodies. I would like to thank the members of the Board of Directors for their outstanding work and dedication. I would particularly like to thank Daniel Boyer, who demonstrated leadership and openness in the implementation of these changes.

I would also like to thank the Fonds’ employees for their conscientious work, as well as the over 2,000 local representatives (LRs), who do their utmost in their workplace to spread the word about the Fonds’ economic and social mission; their commitment is a force to be reckoned with that characterizes the very nature of our institution.

The Fonds de solidarité FTQ is one of the major Québec institutions dedicated to economic development. Québec companies and our shareholder-savers deserve for us to make every eff ort to ensure its success and development. As such, it is with pride that I plan to help and guide the Fonds through the next steps in implementing its new governance.

My career at the Fonds de solidarité FTQ began in 1989. I quickly became a believer in the socio-economic development mission that is the soul of the Fonds as well as in its innovative and unique business model. I am proud to work here alongside competent and dedicated colleagues.

I am still fi lled with this pride and just as convinced of the relevance of the Fonds. Today, as President and Chief Executive Offi cer, I intend to do everything in my power to keep the Fonds de solidarité FTQ prominently positioned in the minds of Québec savers and entrepreneurs.

As such, I have taken action to speed up the review of our strategic plan in order to ensure that the Fonds better meets companies’ needs. We are also continuing our dialogue with the Government of Québec so that the Fonds’ activities remain in line with the economic priorities of the province. Lastly, since my appointment, I have given all the support necessary to implement the changes to the Fonds’ governance system that were adopted last February by the Board of Directors.

The Fonds de solidarité FTQ will also have to continue to focus on achieving good results for its shareholders. For the fi nancial year ended May 31, 2014, we have delivered results that meet their expectations: with record net earnings of $774 million, we have generated a return of 8.3%, which increased our net assets to a new high of $10.1 billion. The value of the Fonds share reached $30.29, up $2.31 over last year. In addition, the 2014 RRSP campaign was the third largest in our history in terms of amounts collected ($787 million),

and we invested $548 million to support Québec companies. Buoyed by these results, the Fonds continues to eloquently demonstrate its relevance.

I would like to thank the Fonds’ employees and the 2,000 or so local representatives (LRs) for their hard work and resilience during diffi cult times. We are really looking forward to this opportunity to give together a renewed momentum to the Fonds so that it can continue to stimulate Québec’s economic development.

tHe Fonds’ Mission is More releVant tHan eVer!

“I intend to do everything in my “I intend to do everything in my power to keep the Fonds prominently power to keep the Fonds prominently positioned in the minds of Québec savers and entrepreneurs.” Gaétan morin

messaGe from the Chairman of the boarD of DireCtors

messaGe from the presiDent anD Chief exeCutive offiCer

Fonds de solidarité F tQ 2014 54 Fonds de solidarité F tQ 2014 Fonds de solidarité F tQ 2014 5

a neW page in History We are proud oF

When it created the Fonds de solidarité FTQ, over 30 years ago, the FTQ gave Québec a unique institution that has transformed the socio-economic landscape of the province. This year, the Fonds wrote a new page in its history by signifi cantly modifying its governance. While staying true to the labour roots of the Fonds, these changes will grant further power to the shareholders of the Fonds de solidarité FTQ.

Last May, the Fonds achieved a milestone in the implementation of its new governance. For the fi rst time, the Chairman of the Board of Directors is an individual independent from the Fonds and the FTQ. I would like to thank Mr. Parizeau for accepting this position and bringing his extensive experience to the Fonds.

Since his arrival, Mr. Parizeau has done an amazing job, particularly with the new Human Resources and Governance and Ethics Committees, which he chairs. His expertise was also extremely valuable to the work of the committee responsible for recruiting a new President and Chief Executive Offi cer, which I had the honour to co-chair with him.

This selection committee was tasked with creating the profi le of the next President and Chief Executive Offi cer and identifying the individual most likely to contend with the challenges the Fonds must face. After a rigorous search process and analysis, the committee chose Mr. Gaétan Morin. I would like to congratulate Mr. Morin and thank him for accepting this important task; his skills as a unifi er, his ethics and his deep knowledge of the investment fi eld make him the best person for the position.

In addition, the Fonds de solidarité FTQ had one of its best RRSP campaigns ever this year. This is largely due to the exceptional mobilization of our local representatives (LRs). I would like to sincerely thank them all for their unwavering commitment to the Fonds’ mission.

The FTQ is proud to be involved in the evolution of the Fonds. We intend to continue supporting it in its development so that it can fulfi l its mission for savers and for companies that create jobs and contribute to Québec’s economic development for many years to come.

“The FTQ is proud “The FTQ is proud to be involved in to be involved in the evolution of the Fonds.” the evolution of the Fonds.” Daniel boyer

IMProVeD GoVerNaNce, MeetING SHareHoLDer eXPectatIoNS

Throughout its 30 years of existence, the Fonds, like other fi nancial institutions,

has from time to time adopted measures to improve its processes and its

overall governance.

More recently, in spring 2009, the Fonds made signifi cant changes in the area

of ethics, risk management and governance. For instance, since 2009, any

investment fi le must be approved or recommended by a committee composed

of a majority of members who are independent from both the Fonds and the FTQ

before it is submitted to the Board of Directors, if needed.

2013-2014: an important step in improving governance

In fall 2013, after some of the Fonds’ executives appeared before the Québec National Assembly’s Public Finance Committee, the Board of Directors of the Fonds formed a special committee whose mandate was to examine the Fonds’ governance and, with the support of external governance experts, to make appropriate proposals to update it.

The special committee consulted two respected experts to support it in its process: Mr. Yvan Allaire and Mr. Robert Parizeau.

Mr. Yvan Allaire is a fellow of the Royal Society of Canada, Executive Chair of the Board of Directors of the Institute for Governance of Private and Public Organizations (IGPPO), Chair of the Global Agenda Council on the Role of Business – World Economic Forum, and emeritus professor at Université du Québec à Montréal.

Mr. Robert Parizeau is advisor to AON Parizeau, Co-Chair of the Board of Directors of the Institute of Corporate Directors – Québec Section and director of the IGPPO. During his career, he sat on the Board of Directors of several large public companies.

On February 6, 2014, the Board of Directors of the Fonds unanimously approved the recommendations of the special committee. By creating a better balance between the interests of its various stakeholders, the Fonds took another step in adopting governance practices that draw upon the best practices of listed companies.

messaGe from the presiDent of the ftQ anD first viCe-presiDent of the boarD of DireCtors of the fonDs De soliDarité ftQ


Composition of the boarD of DireCtors of the fonDs De soliDarité ftQ before after

the reform the reform*

Directors nominated by the FTQ 10 7

Directors elected by shareholders following a public call for nominations 2 4

Independent directors 4 1 7 2

President and Chief Executive Offi cer 1 1

TOTAL 17 19

1. Nominated by the above 12 members of the Board of Directors.2. From now on, elected by the shareholders following a recommendation of the Governance and Ethics Committee made up of a majority of independent members.

the Committee’s key reCommenDations:

presidency of the Board of Directors and all the Board’s committees reserved for a member independent from both the Fonds and the FTQ1.

reconfi guration of the Board of Directors in order to:

• Reduce from 10 to 7 the number of directors nominated by the FTQ; in this way, the FTQ will no longer nominate the majority of members to the Board of Directors, as this power will be granted to the shareholders of the Fonds.

• Increase from 4 to 7 the number of directors independent from the Fonds and the FTQ1, who from now on will be proposed for election at the annual shareholders’ meeting by the Governance and Ethics Committee composed of a majority of independent individuals; and

• Increase from 2 to 4 the number of directors coming from a public call for nominations and elected annually by the shareholders.

enshrinement of the regulation adopted in 2009 requiring any investment to be approved or recommended by an investment Special Board made up of a majority of members independent from the Fonds and the FTQ1. Furthermore, in order to increase the power of these Boards and to enable the Board of Directors to play a more signifi cant role in strategic planning and overall risk management, the amount above which an investment must be submitted to the Board of Directors would be increased2.

Creation of three new committees composed of a majority of members independent from the Fonds and the FTQ1 :

• Governance and Ethics; • Human Resources; and • Risk Management.

The responsibilities of the Governance and ethics Committee include:

• For the seven independent candidates to be elected by the shareholders, prepare the list and the profi le of these candidates after due diligence;

• For the four other candidates arising from a public call, ensure that the eligibility criteria are met and conduct due diligence before allowing the submission of their nomination for election at the annual meeting of shareholders.

The duration of Board member terms will be limited to 12 years.

1 4

5

2

3

tHe Board oF directors

from left to right, iN the foregroUND:Gaétan Morin, President and Chief Executive Offi cer; Robert Parizeau, Chairman of the Board of Directors; Michèle Colpron, Corporate Director; Serge Cadieux, Secretary of the Board of Directors and General Secretary, FTQ; and Daniel Boyer, First Vice-President of the Board of Directors and President, FTQ.

For the complete list of members of the Board of Directors and of members of our Boards and Committees who are external to the Fonds and the FTQ, see pages 100 to 102.

members of the Board of Directors will be appointed by the FTQ general council.

independent members not related to the Fonds or the FTQ and its affi liated unions will be nominated for election each year at the shareholders’ meeting by the Governance and Ethics Committee.

members will also be elected at the shareholders’ meeting following a public call for nominations.

eleCtion of members of the boarD of DireCtors*

477

i m p r o v e D G o v e r n a n C e i m p r o v e D G o v e r n a n C e

* Subject to an amendment to the act governing the Fonds.

1. Including FTQ-affi liated unions.2. The Governance and Ethics Committee is responsible for analyzing how this will be implemented.

iN aDDiTioN To approViNG TheSe reCoMMeNDaTioNS, The FoNDS

aLSo aNNouNCeD ThaT iT wouLD reViSe iTS CoDeS oF eThiCS To eNSure

They MeeT BeST praCTiCeS.


investment file GovernanCe

tHe Board oF directors oF tHe Fonds: assessMent, training and continuous iMproVeMent

Following the example of public companies and wishing to apply governance best practices, the

members of the Board of directors of the Fonds de solidarité FtQ completed a self-assessment

questionnaire during the most recent financial year, for a second year in a row. the results of this

self-assessment allow them to identify ways to continuously improve their performance as directors

and develop training plans to help them meet the objectives they set every year.

aware of the benefits of this process, the members of all the special Boards also conducted, for the first

time, a self-assessment during the financial year.

tHe ManageMent coMMittee

m a ri o trem b l ay Vice-President, Public and Corporate Affairs, and Corporate Secretary

D enis leClerC Executive Vice-President, Shareholder Services and President of the Fondation de la formation économique

Da n n y le b r aC eu r Vice-President,Human Resources

G a é ta n m o rin President and Chief Executive Officer

mi Ch el p o ntb ria n D Executive Vice-President,Finance

n o rm a n D Ch o u in a rDExecutive Vice-President, Investments

i m p r o v e D G o v e r n a n C e

8 Fonds de solidarité F tQ 2014

The Special Boards and the Fonds immobilier are composed of a majority of external members.All Special Boards must approve the fi les prior to submitting them to the Board, if needed.

Quick implementation of several measuresSeveral of the measures announced by the Board of Directors were implemented a few months after being adopted. For instance, after the appointment of an individual independent from the Fonds and the FTQ as Chairman of the Board of Directors, two of the proposed new committees were formed: the Governance and Ethics Committee and the Human Resources Committee. Furthermore, the Fonds adopted a policy that specifi es and formalizes the defi nition of an “independent director”.

In addition, the Fonds outsourced to KPMG the management of its employee ethics hotline.

Reconfi guration of the Board of Directors: waiting for the amendment of the act governing the Fonds by the National Assembly The reconfi guration of the Board of Directors is one of the cornerstones of the Fonds’ new governance. However, the adoption by the National Assembly of amendments to the act governing the Fonds is needed to redefi ne

the Board of Directors in accordance with the proposals approved on February 6, 2014.

In its budget tabled before the National Assembly by Finance Minister Carlos Leitao in June 2014, the Government of Québec announced its intention to amend the act governing the Fonds.

“The FoNDS De SoLiDariTÉ FTQ haS MaDe GreaT STriDeS

By propoSiNG BeST GoVerNaNCe praCTiCeS

ThaT wiLL GiVe SharehoLDerS More power

whiLe STayiNG True To iTS LaBour rooTS.”

- DaNieL Boyer, preSiDeNT oF The FTQ aND

FirST ViCe-preSiDeNT oF The BoarD oF DireCTorS oF The FoNDS De SoLiDariTÉ FTQ

boarD of DIrectorS of tHe foNDS

INVeStMeNt ProJectS

s p ec i a l b oa r d

mining portfolio


turnaround and majority interests


new economy


traditional sector

fonds immobilier

INVeStMeNt ProceSS(due diligence)

10 Fonds de solidarité F tQ 2014 Fonds de solidarité F tQ 2014 1110 Fonds de solidarité F tQ 2014 Fonds de solidarité F tQ 2014 11

properly reporting our social, econoMic and enVironMental iMpact

this fifth annual and sustainability report (asr) of

the fonds de solidarité ftQ Was prepared using the

guidelines of the global reporting initiative (gri), an

international reference in triple bottom line reporting,

Which is a measurement of social, economic and

environmental performance.

GRI’s Application LevelAs this fi fth Annual and Sustainability Report refl ects the highest number of indicators required by the GRI process, it complies with Application Level A.

To see the GRI Index, please refer to the electronic version of the ASR: fondsftq.com/annual-report.

An integrated reportThe Fonds issues an integrated report, which means that it presents its activities for the last fi nancial year as well as fi nancial data as at May 31, 2014. This report has the benefi t of detailing the Fonds’ overall fi nancial performance and extra-fi nancial impact—social, economic and environmental—which is intrinsically linked to its mission. This, in itself, refl ects a continuously improving approach to sustainable and responsible development.

Materiality testUsing a materiality test, which we perform each year, we determine the priority information that we must disclose in our report to adequately consider the concerns related to our industry and those of our stakeholders. This test allows us to defi ne the topics and indicators that clearly highlight the social, economic and environmental impact of the Fonds de solidarité FTQ that is likely to infl uence the perceptions and decisions of our stakeholders.

BoundaryThis report also includes fi nancial data and information on some investment activities of the Fonds régionaux de solidarité FTQ, the Fonds locaux de solidarité FTQ and the Fonds immobiliers de solidarité FTQ, which are part of our investment network. However, this report mainly covers the activities that are under the direct control of the Fonds de solidarité FTQ’s head offi ce.

The Fonds only has to report on its own direct activities. According to the approach proposed by the GRI, it does not have to include the activities of its partner companies. Nevertheless, the Fonds strongly encourages its partners to adopt responsible behaviours in all respects and, in that regard, it off ers them awareness-raising and information tools on topics related to sustainable development and socially responsible investment.

StakeholdersAccording to the GRI, stakeholders are the individuals, organizations, communities and other social players that are aff ected by the mission or the activities of a company or an organization, that may infl uence the choices this company or organization makes or that have an interest in its activities.

The main stakeholders with whom the Fonds engages in dialogue on a regular basis are listed below. We strive to properly identify their needs and concerns as well as to adequately and promptly meet their expectations.

our SharehoLDerS

our parTNer CoMpaNieS

QuÉBeC SoCieTy

GoVerNMeNTS

our eMpLoyeeS

our LoCaL repreSeNTaTiVeS (Lrs)

The FTQ aND QuÉBeC’S uNioNS

Period coveredThe data presented in this report cover the most recent fi nancial year of the Fonds de solidarité FTQ, which was from June 1, 2013 to May 31, 2014. They were collected and validated by the Fonds specialists who are responsible for this report, and were read by our independent auditors.

SOCIAL

SUSTAINABLE

to be sustainable, development should integrate these three dimensions: social, economic and environmental.

ENVIRONMENTAL

ECONOMIC

context and paraMeters

Content of this reportto prepare this report in accordance with the methodology recommended by the gri, we have used the indicators in gri version 3.1 as well as those in the fi nancial services sector supplement.

this approach is based on principles such as materiality, stakeholder involvement, completeness, accuracy and clarity. to see the gri guidelines: globalreporting.org

s u s ta i n a b l e D e v e l o p m e n t s u s ta i n a b l e D e v e l o p m e n t

the sustainable Development Committee

from left to right:Daniel Bourcier, Michel Dorion, Alain Houle, François Girard and Suzanne Hamel

12 Fonds de solidarité F tQ 2014 Fonds de solidarité F tQ 2014 1312 Fonds de solidarité F tQ 2014

the fonds de solidarité ftQ favours socially

responsible investment (sri), Which means investment

that taKes into consideration environmental, social

and governance issues in addition to financial aspects.

one Way to optimiZe responsible investment is to engage

in an active dialogue With the companies in Which the

fonds invests.

To ensure better monitoring of its responsible investments in Canadian large-capitalization securities, the Fonds de solidarité FTQ uses the services of SHARE (Shareholder Association for Research & Education), a not-for-profi t organization. SHARE may intervene at shareholders’ meetings, by proposing resolutions or debating resolutions that were already submitted, or by approaching certain companies to establish a more direct contact. The objective of these interventions is to engage companies in a dialogue to improve some of their governance, human rights or environment protection practices. SHARE intervenes in its capacity as representative and on behalf of an investor group that includes the Fonds.

share.ca

engageMents and actiVities

Here are a few examples of engagements and activities undertaken by SHARE on behalf of the Fonds de solidarité FTQ from April 2013 to March 2014.

environmental

• SHARE discussed various environmental topics with several companies. These engagements were aimed at convincing these companies to adopt better environmental practices and be more transparent in that respect; in the longer term, the objective is to reduce the risks associated with projects having a negative environmental impact that these companies may undertake, so that they can generate a better return. For instance, SHARE continued its engagements on climate risks, including hydraulic fracturing and hydrocarbon development; in particular, it requested companies to disclose the results of their fracturing tests.

soCial

SHARE’s activities draw upon the standards of the United Nations and other international organizations: its objective is to promote corporate accountability with respect to human rights and workers’ health and safety.

• SHARE undertook some actions against the abuse of the Canadian Temporary Foreign Worker Program by certain companies. The increase in the number of precarious jobs, especially in the services sector, leads to a disengagement from the employees and a general deterioration of work conditions.

• Workers’ health and safety practices vary considerably between companies and sectors. SHARE engaged with several Canadian companies from the energy, resources, manufacturing and transportation sectors, where low safety standards have a signifi cant impact on the workers’ health.

• SHARE also discussed with Canadian transportation companies the lessons to be learned from the tragic Lac-Mégantic accident to better protect populations and the environment.

GovernanCe

• SHARE continued exerting pressure to increase the presence of women on boards of directors: three of the targeted companies responded that they would consider these recommendations.

Taking its shareholder seatThe Fonds de solidarité FTQ chose to take its shareholder seat in the companies in which it invests. Consequently, when companies make certain decisions, the Fonds prefers to intervene in order to infl uence these decisions rather than to withdraw.

However, when exceptional conditions warrant it, the Fonds may decide to exclude from its portfolio the securities of companies that refuse to engage, do not comply with local or international law or use practices that are not consistent with its values. This is why the Fonds does not invest, for example, in companies from the tobacco sector or in companies with 10% or more of sales arising from the manufacturing or sale of weapons.

an annual analysis

the fonds de solidarité ftQ is also supported and guided by groupe investissement responsable (gir) in its annual analysis of the listed securities in its portfolio. following the analysis of environmental, social and sound governance issues related to each of these securities, gir proposes to the fonds some directions to help it make decisions that are informed and comply with socially responsible investment (sri) best practices.

Day-to-Day manaGement

To manage the Fonds de solidarité FTQ’s day-to-day operations, the Board of Directors relies on the Management Committee, which is made up of six members (see page 8).

The Autorité des marchés financiers (AMF)The AMF inspects the internal affairs and the activities of the Fonds de solidarité FTQ. It ensures that the Fonds applies and complies with its Incorporation Act and securities regulations; in addition, it carries out other functions in regards to the Fonds, which is a reporting issuer as defined in the Securities Act.

ComplianceThe Fonds de solidarité FTQ chose, with a view to complying with governance best practices, to apply Regulation 52-109, which governs the certification of financial disclosures in its six-month period and annual reports, even though it is not required to comply with such regulation.

Several years ago, the Fonds implemented a financial compliance framework program called Confor. This program addresses the controls and procedures that allow the Fonds’ management to certify that, to the best of its knowledge, the financial information disclosed presents fairly its financial position.

In addition, since 2012, the Fonds has been registered as an investment fund manager under Regulation 31-103 respecting Registration Requirements, Exemptions and Ongoing Registrant Obligations. In addition to obligations related to the registration of the Fonds and some of its employees and directors, books and records, and insurance, this regulation requires that a compliance system be established and maintained to provide reasonable assurance that the Fonds and its employees comply with securities legislation and manage the risks associated with its business.

Audit processThe Fonds de solidarité FTQ undergoes a complete financial statement audit process twice a year, as required by legislation. The Fonds also chose to engage two independent audit firms to perform those audits (instead of only one): Raymond Chabot Grant Thornton and Deloitte.

In addition, the Fonds has created a new internal audit function during the year.

No grantsThe Fonds de solidarité FTQ does not receive government grants.

e t h i C s a n D G o v e r n a n C e e t h i C s a n D G o v e r n a n C e

inVesting responsiBly


prinCiples, DisCipline anD transparenCy (Cont’D)

One of the advantages of this policy is to give a clear mandate to the Fonds’ Sustainable Development Committee (the “SD Committee”), which was created by the Management Committee. The mandate of the SD Committee includes facilitating the day-to-day integration of the activities of the various sectors of the Fonds that are related to SD and SRI. The SD Committee is made up of individuals from various sectors of the Fonds, and its activities aff ect the three main dimensions of sustainable development: social, economic and environmental.

reaD the fonDs’ sustainable Development poliCy anD the sustainable Development Committee manDate at:fondsftq.com/sustainable-development

Our achievements over the yearsThe Fonds had already presented, in its 2013 Annual and Sustainability Report, a summary of its main SD and SRI achievements.

Examples of achievements, from 1983 to 2013:

- the social audit: performed before each investment in a partner company, whose goal is to analyze the extra-fi nancial aspects of these companies;

- the exit audit: performed to appropriately assess the socio-economic impact that could result from a disinvestment by the Fonds on the communities where it makes a commitment;

- the due diligence review process: the traditional process undertaken before any investment to assess whether a company will generate a satisfactory return in the future;

- the investment policy: in addition to the social audit and due diligence review, this policy sets out the main principles and guidelines that orient the Fonds’ investments and includes all the issues related to the social, economic and environmental context;

- the Code of Conduct for International Business Dealings: applicable to the Fonds partner companies that have operations outside Canada;

- the guidance on voting rights: a series of guidelines on voting as a shareholder of listed companies.

To see this summary: fondsftq.com/2013report

our SocIaL IMPact

a sustainaBle and socially responsiBle organiZation


prinCiples, DisCipline anD transparenCy

After participating in the organization of a major symposium on responsible investment in 2013, during which the Québec network of responsible investors, Réseau PRI Québec, was created, the Fonds has completed and issued for the fi rst time, in March 2014, the “PRI Reporting Framework” 2013-2014.

New milestones in our journey All the signatories to the Principles for Responsible Investment (PRI) that undertook to apply the principles issued by the United Nations Environment Programme Finance Initiative must now complete the “PRI Reporting Framework” questionnaire to report, as an institutional investor, the environmental, social and governance (ESG) issues related to their investments.

The PRI Advisory Council agreed in May 2011 to develop a new Reporting Framework for signatories with three key objectives in mind:

1. To be an accountability tool for the PRI Initiative and its signatories.

2. To provide a standardized transparency tool to help signatories in their own reporting.

3. To enable the assessment of signatories’ progress and capabilities on responsible investment, facilitating learning and development.

This disciplined process is designed to increase the accountability of the Initiative as a whole while evidencing the work of its signatories and supporting their ongoing journey to implement responsible investment.

With this process, the Fonds has taken a further step that demonstrates the importance it places on the principles for responsible investment and the transparency required for their application.

As at April 15, 2014, there were 1,244 PRI signatories around the world, including the 28 members of the Réseau PRI Québec. For more information on the PRI: unpri.org

A sustainable development framework policy During the last fi nancial year, we have added another signifi cant element to our continuous improvement approach for sustainable development and socially responsible investment: a sustainable development policy.

A sustainable development framework policy has been drafted and will be submitted to the Board of Directors in the next fi nancial year. In conjunction with its integrated risk management approach, this policy enables the Fonds to systematically take into consideration the ESG issues, alongside fi nancial factors, with respect to risks. This was a critical step for the Fonds as a socially responsible investor. ›

as at april 15, 2014, there

were 1,244 pri signatories

around the world, including

the 28 members of

the réseau pri Québec.

o u r s o C i a l i m pa C t

The Fonds de solidarité FTQ is an investor concerned with the social and economic issues that impact Quebecers and our economy. This was in fact the main reason why it was created, making it, from the outset, a socially responsible investor committed to a sustainable development (SD) approach. Since then, the Fonds has come a long way in this field.

gestures oF solidarity WitH tHe coMMunities

to stay close to people and communities, the Fonds de solidarité FtQ and its regional and local network support organizations that promote humanitarian or charitable activities. in addition, the Fonds encourages its employees who volunteer in community activities. Following are some examples.

Generously supporting CentraideIn 2013-2014, the Fonds de solidarité FTQ, its employees and the employees of its network were once again deeply involved in what has become a tradition for several years: the Centraide campaign.

Together, we raised $217,648 to support Centraide in its projects related to major social issues that concern us all. Centraide uses the donations collected to implement eff ective strategies to fi ght against poverty and exclusion.

The Fonds thanks and congratulates its employees for this generous gesture of true solidarity!

Citizen involvementThe Fonds de solidarité FTQ is proud to have contributed to the fundraising event held for the 10th anniversary of the Institut du Nouveau Monde (INM). Over 300 people attended this event celebrating the fi rst decade of this organization that fosters citizen involvement and contributes to the strengthening of social ties and the growth of democratic institutions.

The business community got together for the occasion, and guests included Marc Dutil, President of CANAM Group (a Fonds partner company until 2012), named 2013 Québec EY Entrepreneur of the Year by Ernst & Young and member of the Order of Canada. Two other Fonds partner company executives attended the event: Jean-François Harel, from Coop fédérée, and Sylvain Morissette, from TC Transcontinental.

The money raised in connection with this event will be used to scale up the organization’s education programs. For instance, the “Let’s Go and Change the World” initiative, which was developed through the INM’s Summer School, supports young people who wish to become social entrepreneurs; this program helps them develop their business plans and gives them the opportunity to benefi t from business start-up grants and the experience of seasoned mentors.

fUNDrAiSiNg eVeNt helD for the 10th ANNiVerSArYof the iNStitUt DU NoUVeAU moNDe


the fonDation De la formation éConomiQue is 25 years olD

Training to enrich communitiesProviding economic training to workers so they can increase their infl uence on the economic development of Québec has been enshrined in the Fonds de solidarité FTQ’s mission for 30 years. Twenty-fi ve years ago, in 1989, the Fonds created the Fondation de la formation économique (FFE) to better reach this objective. The Fondation’s mandate is specifi cally to design and provide various training programs that are related to the Fonds’ mission.

Training: a cultureIn the beginning, economic training was envisioned as a tool for workers to understand things like a balance sheet, for example, as well as gain a better knowledge of the complex economic environment in which the company that employs them operates. They can therefore better assess the challenges the company must meet to grow and ensure its continuity in an increasingly competitive global economy.

Over the years, training content and objectives, as well as educational approaches, have changed signifi cantly. They have been tailored to the needs of each Fonds partner company based in particular on its specifi c situation and its industry.

When workers understand the economic environment of the company they work for, they are better able to contribute to creating and maintaining quality jobs, which is in their best interests, and to growing the company, which benefi ts the company, and ultimately benefi ts the entire community where the company is located.

A customer approachThe basic premise of all the training off ered by the FFE is always the same: promote open and transparent communication practices between management and workers. Employee participation in a company’s success increases its chances of succeeding, and this success will positively aff ect our economy as a whole.

To truly adapt to the unique context of each company, its issues and its markets, the training off ered to the Fonds partner companies has changed over the years. This training takes into account certain socio-economic factors that may have an impact on company development. Depending on the company and the context, the training may focus, for example, on the market and customers, on the impact of exchange rates, on price fl uctuations, on critical skills to develop within the company and even on certain trends that may transform society and global markets in the future.

For The FFe, KeepiNG oN Top oF Major SoCiaL aND eCoNoMiC

MoVeMeNTS ThaT CouLD poSiTiVeLy iMpaCT The GrowTh oF QuÉBeC

CoMpaNieS aND oN joBS iS a prioriTy. happy 25Th aNNiVerSary

To The FoNDaTioN!

T R A I N I N G A C T I V I T I E SFO R T H E Y E A R E N D E D M AY 31, 2014

Participants Courses

Local representatives (LRs) 3,246 136

Economic training for workers 1,364 85

Network members 1,578 79

Students 283 16

Total 6,471 316

tens of thousanDs support the fonDs De soliDarité ftQ!

In December 2013, the Government of Canada passed Bill C-4, which phases out the federal tax credit for contributions to labour-sponsored funds such as the Fonds de solidarité FTQ. The Fonds strongly opposed this measure, and it was not alone! In fact, the Fonds received the support of 110,000 Quebecers as well as major organizations such as the Fédération des chambres de commerce du Québec, the Board of Trade of Metropolitan Montreal (BTMM), the Quebec Employers Council, numerous unions, several regional conferences of elected officials as well as Canada’s Venture Capital & Private Equity Association (CVCA). In May 2013, the BTMM also released the Report on the Importance of Labour-Sponsored Funds for the Economy of Metropolitan Montreal, a report that draws a portrait of the critical role labour-sponsored funds play in the economy. With this support from all its stakeholders, the Fonds de solidarité FTQ will continue to put forward to the federal government the advantages of the labour-sponsored fund model.

how will the new aCt affeCt the fonDs De soliDarité ftQ?

The phase-out of the federal tax credit will not have any effect on the Fonds’ return or its ability to satisfy eligible redemption requests from its shareholders. Without this tax credit, the Fonds shareholders will see an increase in income tax as a result of the phase-out.

A report on the impact of the phase-out of the federal tax credit on the Fonds de solidarité FTQ, issued in October 2013 by KPMG-SECOR, confirms that the tax credit is a tax benefit for the shareholders but that it has no impact on the Fonds’ share value and return. This return does not depend on the size of the Fonds, annual shareholder subscriptions or redemption requests: it depends solely on the mix of the Fonds’ investments and other investments and on market conditions. The report also shows that the Fonds has assets that are sufficiently liquid to meet at any time its obligations to shareholders, including a one-time increase in redemption requests.

However, the phase-out of the federal tax credit could lead to a reduction in the annual volume of investments the Fonds makes in Québec companies if subscriptions were to fall. In addition, the Fonds could find itself forced to change the level of risk of its investments to offset the loss of the “risk premium” that the federal tax credit represents to shareholders.

a still-at tr aCtive rrsp!

Even with the phase-out of the federal income tax credit, the Fonds de solidarité FTQ’s RRSP remains attractive to savers because they will continue to benefit from a provincial tax credit of 15%. It bears repeating that many savers use systematic savings to contribute to their Fonds RRSP, which, in some cases, gives them the opportunity to receive immediately the tax savings to which they are entitled.

Important: the reduction in the federal tax credit does not affect existing shareholders and those who will subscribe before March 2, 2015 (for 2014); they have benefited or will benefit from the federal tax credit of 15% and the provincial tax credit of 15% (for a total of 30% in tax credits) at the time of subscription, and their investment will continue to grow based on the Fonds’ returns.

o u r s o C i a l i m pa C to u r s o C i a l i m pa C t

25YRS


Historic results, reFlecting collectiVe interest

The mission of a socially responsible investor such as the Fonds is twofold, and the impact of its activities reflects this. Of course, the Fonds invests in the Québec economy, but the money invested is the money of thousands of Quebecers who are saving for their retirement. The Fonds not only encourages hundreds of thousands of people who would very likely not contribute regularly to another RRSP to prepare for a better retirement, but it also gets them involved in Québec’s economic development. No other individual retirement savings vehicle devotes as much money to financing companies. Today it’s called “socially responsible investment,” but, as explains Denis Leclerc, Executive Vice-President, Shareholder Services, “when the Fonds was created 30 years ago, it was simply our mission!”

In this interview, Denis Leclerc talks to us about the strength of the Fonds, shareholder trust and solidarity as the fundamental value of this unique institution, that had, once again this year, remarkable results.

The DireCT aND perSoNaLiZeD huMaN CoNTaCT ThaT MarKS our reLaTioNShip

wiTh our SharehoLDerS iS The FouNDaTioN oF our SuCCeSS.

What were the results for the last financial year in terms of subscriptions?Total contributions for 2013-2014 were $787 million, the third best year in our history! The Fonds now has 613,958 share-holders, Quebecers who have renewed their trust in us or chose us for the first time because the Fonds de solidarité FTQ is strong and reliable.

Yet the Fonds was in the media a lot in 2013-2014. How do you explain how this “media crisis” had such little negative impact on the RRSP campaign? The impact on the RRSP campaign was minimal, true. Less than 2% of the calls that Shareholder Services received during this period were related to the media crisis. Our shareholders and Quebecers gave credit where credit was due. The Fonds de solidarité FTQ is an institution that is close to the people, and for 30 years we have built strong ties with our shareholders. The direct and personalized human contact that marks our relationship with them is the foundation of our success.

Mobilizing our employees and our network of local representatives (LRs) was critical to this last year’s success. We made 75% more calls to shareholders to make sure of their loyalty to the Fonds. Our LRs increased activities in their workplace to explain to people that the Fonds RRSP remains one of the most advantageous retirement savings vehicles for them, especially when they select systematic savings. ›

an intervieW With Denis leClerC, executive vice-president, shareholder services

number of shareholders AS AT MAY 31, 2014

613,958

share issuesFOR THE YEAR ENDED MAY 31, 2014

$787M

the local representatives (lrs) maKe up a vast netWorK

of 2,039 volunteers Who believe in the fonds’ mission

and its economic and social impact. during the last

financial year, given the difficult media context, they

Were even more engaged in convincing their coWorKers

of the importance of properly preparing for their

retirement and the numerous advantages the fonds

rrsp offers.

o u r s h a r e h o l D e r so u r s h a r e h o l D e r s


Will Québec’s savers still be eligible for the 30% tax credit in 2014?Absolutely! The federal government’s phase-out of the tax credit will only start with the 2015 tax year. And we are continuing our efforts to convince the Canadian government to reverse its decision. The opposition parties in Ottawa have understood the importance of the Fonds’ impact—subscriptions to its RRSP and its investments—on the Québec economy.

The Fonds share issues are capped at $650 million for one year. What impact will this have?True, the Government of Québec announced in its 2014-2015 budget that the issues of shares giving rise to a tax credit by the Fonds would be capped at $650 million for the financial year ending May 31, 2015. But shareholders should rest assured: this limit will have no impact on the share value, the Fonds’ return or the Fonds’ ability to redeem shares.

DeSpiTe The $650 MiLLioN Cap, The TaX CreDiTS ToTaLLiNG 30%

reMaiN uNChaNGeD For The SharehoLDerS’

2014 TaX year.

To avoid being affected by this limit and thereby be certain they can buy shares and fully benefit from the tax credits related to the Fonds RRSP, Quebecers who generally contribute through lump-sum payments can sign up now for systematic savings, which is contributing through payroll deduction or pre-authorized withdrawals. Since shares are set aside for individuals who contribute through one of these two methods, those who do so will not be impacted by the limit.

Did you improve the share redemption mechanisms in the last financial year?We are continuously improving our Purchase-by-Agreement Policy, but it is worth noting that we cannot change this policy as we please; we must comply with the Québec Ministry of Finance’s regulations governing share redemptions.

The Fonds redeems shares from shareholders at important stages in their life other than retirement, such as when buying a house or going back to school. Redemptions also happen in difficult times, such as job loss or disability. In the last financial year, under the “Loss pertaining to principal residence” criteria, the Fonds added damages caused to homes by pyrrhotite (a mineral that swells and cracks concrete when exposed to air and humidity); shareholders can now take advantage of this option.

Is the Fonds RRSP still available throughout Québec?Yes, everywhere! During RRSP campaigns, we have many service points throughout Québec. People are also subscribing more and more through our website; there’s even a mobile platform they can use! Payroll deduction or pre-authorized withdrawals are still just as popular, and for those who wait until the last minute during the campaigns, lump-sum subscriptions also remain an attractive option.

WHat are tHe sources oFretireMent incoMe?

did you know that nearly one in fi ve Québec workers does not know where his or her retirement income will come from? this is what a survey conducted by Question Retraite in april 2013 revealed. the survey’s results are worrisome: 16% of Québec’s workers aged 25 to 64 have no idea where their retirement income will come from. among non-retired individuals, 39% believe their main source of income would be an employer plan, and 52% of young retirees confi rm this is the case.

individuals generally need 70% of their average annual gross income for the last three years of work to maintain their lifestyle in retirement. and public plans only cover a maximum of 40% of this amount! in light of this reality, how will Quebecers support themselves in retirement, especially if they don’t know the source of their retirement income?

this situation requires that we continue our eff orts to raise worker awareness on saving for retirement, for example by investing in the fonds rrsp.

tHe Fonds WinstHree FlÈcHes d’or!

the fonds de solidarité ftQ was awarded three flèches d’or at the relationship marketing association’s gala held in montréal on april 16, 2014. the fonds is proud to have been nominated alongside other major players, including national bank of canada, desjardins group, and the just for laughs group, for projects executed in 2013.

the fonds, in partnership with pénéga communication, won the three following prizes for its 2012-2013 rrsp campaign: fi rst prize for cross-channel marketing, fi rst prize for relationship marketing and the most prestigious prize of the night, campaign of the year!

séCurifonDs: new proDuCts offereD!

SÉCURIFONDS inc., a financial services firm created by the Fonds de solidarité FTQ, offers support services to Fonds shareholders who are preparing for retirement. SÉCURIFONDS, which is registered with the Autorité des marchés financiers, has continuously evolved in recent years. Thanks to an agreement with SecuriGroup, a financial services firm owned by SSQ, Life Insurance Company Inc., our future retired shareholders can now benefit, in addition to disbursement products, from an interesting range of financial products to prepare for a secure retirement. These products include Guaranteed Investment Certificates (GICs), health insurance, a non-registered savings plan (NRSP) and a Tax-Free Savings Account (TFSA).

securifonds.com

o u r s h a r e h o l D e r so u r s h a r e h o l D e r s

from left to right: Daniel Martial (Pénéga Communication), Rachèle Robert (Fonds de solidarité FTQ), Roxane Prince (Fonds), Nathalie Marquis (Pénéga), Marc-André Léveillé (Pénéga), Gabrielle Thom-Gadbois (Fonds), Yanick Lebel (Pénéga), Patrick Schumann (Fonds) and Violette Létourneau (Pénéga)

interview with Denis leClerC (Cont’D)


our ecoNoMIcIMPact

tHe Fonds de solidarité FtQ’s inVestMent netWork


tHe Fonds régionaux, For groWtH in tHe regions

The Fonds régionaux de solidarité FTQ (FRS) are present in the 17 regions of Québec. They have 57 employees—passionate people who understand the issues entrepreneurs face, and really care about economic development in their region—as well as 123 volunteer directors who have inside knowledge of their area because they are from there.

From Gatineau to Chibougamau to Gaspé to Sherbrooke, the FRS off er SMEs fl exible, quick and simple fi nancing solutions in the form of unsecured loans and equity. They also make the services off ered by the larger Fonds network available in the regions.

During their fi nancial year ended March 31, 2014, they supported the projects of 74 companies, investing $33.5 million to create, maintain or protect over 2,000 jobs. In total, 361 companies are FRS partners.

inVestingin Buildingacross QuéBec

The investments of the Fonds immobilier de solidarité FTQ target the start-up of real estate projects of all sizes, in all regions of Québec and in all sectors: residential, commercial, offi ce and institutional. The capital invested by the Fonds immobilier, in partnership with developers and builders, stimulate job creation, mainly in the construction industry.

As at May 31, 2014, the Fonds immobilier owned 30 buildings under management and 18 million square feet of land. It was also involved in the completion of 30 development projects, valued at $1.6 billion, that will create close to 12,000 jobs, according to the Institut de la statistique du Québec. Investments in social, community and aff ordable housing amounted to $53 million. In addition, the Fonds immobilier sold 11 buildings for $179 million during the last fi nancial year.

“our roLe iS To DeVeLop, BuiLD, STaBiLiZe aND

TheN SeLL aSSeTS oVer a FiVe- To SeVeN-year horiZoN, BaSeD oN

eCoNoMiC CoNDiTioNS. our BuSiNeSS MoDeL

GeNeraTeS GooD reSuLTS.”

- NorMaND BÉLaNGer, preSiDeNT aND ChieF eXeCuTiVe oFFiCer,

FoNDS iMMoBiLier De SoLiDariTÉ FTQ

Choice partners The Fonds immobilier works with well-known partners. For example, in the last fi nancial year, it entered into a partnership with Industrial Alliance, Insurance and Financial Services Inc., which acquired 50% of the Place Québec building, located near Parliament Hill in Québec City and owned until then by the Fonds immobilier. A project to build a tower is also under study.

In December 2013, the Fonds immobilier and the Réseau de transport de la Capitale (RTC) inaugurated the newly renovated spaces at Place Québec and the new heated bus station that is connected to the building.

Improving quality of lifeThe Fonds immobilier encourages the development of eco-responsible projects. Some of these buildings, including Le Monroe residential project, designed in partnership with Cosoltec, target LEED® certifi cation. Other projects integrate ecological measures such as energy effi ciency, reducing the ecological footprint and integrating green space.

Investing to show solidarity The Fonds immobilier also invests in aff ordable, community and social housing projects through specialized funds managed by social economy organizations. One such investment permitted the conversion of the parsonage next to the old Notre-Dame-du-Perpétuel-Secours church in the Sud-Ouest borough of Montréal into 12 community apartments for young adults at risk of becoming homeless.

To drive our economy To promote discussion among manufacturers, distributors and promoters, the Fonds immobilier, the Fonds de solidarité FTQ and the network of regional funds launched CIRCUIT IMMO in April 2014. This networking event provided an opportunity for 80 professionals and entrepreneurs, partners in the broad Fonds network, to create business relationships. Nearly twenty suppliers from the real estate and construction industry were able to showcase their products to the real estate promoters who were present.

A new company each week!Out of these 74 investments, 47 were made in new companies. For 10 years, the FRS have

invested in one new company per week on average.

They have also participated in succession projects that allowed fl agship companies

such as Propair, in Abitibi-Témiscamingue, to ensure their continuity; this 60-year old

family company is a leader in specialized air transport. The FRS Abitibi-Témiscamingue

is proud to have contributed to the fi nancing of the company’s acquisition by six

investors from Abitibi, thereby protecting the economic interests of the company

and 100 jobs.

In addition, the FRS support growing companies, such as Québec City-based Groupe

Qualinet, which specializes in post-disaster cleaning, among other services. The FRS

Québec investment will help this company support its growth and further the expansion

of its Environment division.

“A partner who understands our needs” Financing a project is only the fi rst step in the partnership the FRS enter into with companies. They also provide coaching to ensure their success, as Nathalie Légaré, President of Location Jean Légaré (FRS Montérégie partner), explained in Le Devoir in July 2013: “I send the Fonds régional my numbers every month. It’s a good partner, very respectful, and it understands our needs.” In 2013, Location Jean Légaré launched the Pods franchise, thereby diversifying its off ering. Another good example: in 2013, the FRS Outaouais reinvested in Laiterie de l’Outaouais, which then expanded its distribution network and increased its production capacity.

o u r e C o n o m i C i m pa C t

from left to right: Rémy Normand, President, RTC and Normand Bélanger, President and Chief Executive Offi cer, Fonds immobilier de solidarité FTQ

le moNroe reSiDeNtiAl ProJeCt

the fonDs’ investment network (Cont’D)

Fonds de solidarité F tQ 2014 2524 Fonds de solidarité F tQ 2014

tHe Fonds locaux,present across QuéBec!

Present in all the regionsFrom Outaouais to Gaspésie to the Côte-Nord, the Fonds locaux de solidarité (FLS) are present everywhere in Québec. Each region has a gateway leading to an FLS: either a Local Development Centre (LDC) or a Community Economic Development Corporation (CEDC). Companies from everywhere can therefore access dedicated and versatile specialists who work to develop local economies. In fact, there are 400 specialists and 600 volunteers involved with FLS to support Québec’s companies!

Present in the local economyThe FLS are involved in all economic sectors, based on the priorities set by local development players. Examples of the support provided by the FLS are numerous: Microbrasserie Le Naufrageur, in Carleton-sur-Mer; the Pas d’cochon dans mon salon food truck, in Montréal; Clément et frères,

an industrial trailer manufacturer in Louiseville; Menuiserie Belisle, a door and window manufacturer in Saint-Jean-de-Dieu; Les Ruchers Promiel, a honey producer in Château-Richer; Ferme R. E. Bilodeau, in Beauceville; Soudure mécanique Expert, in Fermont, and Atelier Ferland, in Barnston-Ouest.

Present in small businessThe FLS mainly invest in small companies: 85% of their investments are made in companies with fewer than 20 employees. But this number is not surprising, as, according to the Canadian Federation of Independent Business, 72% of SMEs in Québec

have fewer than 10 employees, and 51% have fewer than fi ve. These small companies therefore represent signifi cant development potential in all of Québec’s regions.

A new record!The 84 FLS achieved a new record for a third year in a row, investing in 263 projects during the twelve-month period ended June 30, 2014. That’s $7 million invested by FLS across Québec!

D I R E C T E C O N O M I C I M PA C T O F T H E F O N D SFOR THE YEAR ENDED MAY 31

(IN THOUSANDS OF $) 2014 2013

Direct economic value created (refl ected in share value)

Interest and dividend revenues 248,466 255,897

Realized gains on development capital investments and otherinvestments and change in unrealized appreciation or depreciation 684,081 349,810

Direct economic value distributed in Québec society

Operating costs (goods and services purchased from suppliers) 63,195 51,708

Salaries and benefi ts 76,377 75,296

Payments to shareholders (shares redeemed)1 732,337 534,912

Payments to governments (income and other taxes) 19,846 20,710

Investments in the community (donations and sponsorships) 755 869

1. The Fonds does not pay any dividends.

your Money at Work

from march 2013 to november 2013, the fonds de solidarité ftQ aired a second series of sixty-second tv spots called Your money at work. these are short news stories on fonds rrsp holders who visit companies that receive fi nancial support from the fonds. these rrsp holders can see how the money they invest helps smes—and the regions where they operate—grow. it’s one way to clearly show how the money of the fonds’ shareholder-owners “is driving our economy”! the 45 new spots have been aired on src-rdi and ctv to better explain the mission and the role of the fonds to Quebecers.

coMMents FroM daniel denis, partner and econoMist, kpMg-secor

The contribution of the Fonds partner companies to the Québec economy held steady in 2013-2014: their activities generated added value estimated at $11.4 billion in Québec. The weight of the activities of the Fonds partner companies was a little more than 3% of the overall Québec economy (as a percentage of Québec’s nominal GDP).

The Fonds partner companies supported 139,495 direct and indirect jobs in 2013-2014, outperforming the overall Québec economy in this area. Total employment supported by the Fonds partner companies was up 2.7% over last year, while overall employment only grew 1.2% in Québec during the same period.

In addition, the value added per direct job was down slightly from last year due to changes in the job mix per industry. Regardless, Québec’s strategic sectors continue to dominate among the partner companies, with mineral extraction, the manufacturing sector and business services alone representing over 64% of all jobs supported.

E C O N O M I C I M PA C T O N Q U É B E CR E L AT E D T O G O O D S A N D S E R V I C E S P R O D U C E DB Y T H E F O N D S PA R T N E R C O M PA N I E SAS AT MAY 31, 2014

DIRECT INDIRECT DIRECT AND EFFECT EFFECT INDIRECT EFFECTS

Value added to base prices (in thousands of $) 7,680,000 3,708,000 11,388,000

Jobs (in person-years) 91,014 48,481 139,495

Value added per job (in thousands of $) 84.4 76.5 81.6

Source: KPMG-SECOR analysis and results of the Institut de la statistique du Québec (ISQ)’s input-output model.

The direct economic impact of the FondsThe table below presents fi nancial data that demonstrate the signifi cance of the activities of the Fonds de solidarité FTQ and how the Fonds creates wealth for its stakeholders.

This table should not be used as a substitute for the Fonds’ fi nancial statements; it is intended to present certain fi nancial data identifi ed as material in accordance with the GRI.

presentin tWoneW regions

MRC DE L’ÉRABLEMRC DE PAPINEAU

o u r e C o n o m i C i m pa C to u r e C o n o m i C i m pa C t

the fonDs’ investment network (Cont’D)


supporting our entrepreneurs to driVe our econoMy

What are the major investment strategies of the Fonds?One of our main objectives is undoubtedly to keep the flagships of our economy in Québec! We also work hard to make sure that decision-making centres stay here. Helping our small businesses grow to increase the pool of medium-sized and large businesses in Québec is also one of our major concerns. These strategies orient and guide our investment activities, which are always aimed at growing the Québec economy as well as creating and maintaining quality jobs.

Are there preferred sectors?As a matter of fact, there are several! But we are always looking for transactions that create value for all stakeholders, regardless of the sector, and we continue to cover all sectors of the economy. Following are some examples of sectors where our investments had a particularly strong impact.

Let’s talk first about the life sciences sector. Together with the Caisse de dépôt et placement du Québec, we have invested in the privatization of atrium innovations, which will be able to continue its development and for which we have played a key role. We are proud of our efforts to keep this industry flagship in Québec.

More generally, our objective is to preserve what Québec has achieved in this sector. We work in partnership with all its stakeholders, and this is why it is important that specialized private funds invest here: they represent an amazing network that has broad expertise and can offer financial support to a large number of companies, both in better and poorer years. The life sciences sector would certainly be less developed than it currently is without the involvement of the Fonds.

roBoTiZaTioN iS The FuTure oF The aeroSpaCe iNDuSTry!

we wiLL CoNTiNue To BuiLD oN our aChieVeMeNTS iN ThiS SeCTor

BeCauSe iT iS NeCeSSary To reaCh a CriTiCaL MaSS

iN TerMS oF CoMpaNy SiZe.

aerospace is also a strategic sector for Québec. In this sector, the Fonds supports sub-contractors that strengthen the supply chain because we want to avoid having prime manufacturers encourage their suppliers to move their operations to countries where labour is cheaper. For instance, during the last financial year, we invested in aV&r, a young robotics firm, which merged with imac to enhance its service offering. Robotization is the future of the aerospace industry! We will continue to build on our achievements in this sector because it is necessary to reach a critical mass in terms of company size.

adetel, a company specialized in designing embedded electronic equipment, is another example of an investment that allowed us to attract a foreign strategic investor to strengthen this niche of excellence. The Fonds stands out because of the European partnership network that it has successfully developed and that offers a rather unique international expertise. ›

intervieW With normanD ChouinarD, executive vice-president, investments

number of partner companies AS AT MAY 31, 2014(FONDS AND NETWORK)

2,467

overall, during the last financial year,

the fonds de solidarité ftQ invested $548 million

in 48 companies in Québec. behind those numbers,

there are solid strategies, implemented by the team

of specialists of the fonds’ investments sector,

Who are continuously searching for neW opportunities

that Will benefit the Québec economy.

o u r pa r t n e r so u r pa r t n e r s


The natural resource sector, especially the wood fibre sub-sector, bears mentioning. The Fonds is a major investor, a leader, in this sub-sector in Québec! Our investment in Groupe Lebel, in Rivière-du-Loup, through the Fonds Valorisation Bois (see sidebar), helps consolidate the manufacturing of value-added wood products and support the transformation of our forest resources. The Fonds Valorisation Bois targets successful companies and supports their development in these promising niches.

The Fonds makes two types of investments in this sector. It offers growth capital: Groupe Lebel, which acquired Cambium and Bois Daquaam is an example of such an investment. It also offer strategic capital: this is what we did in 2010-2011 with Chantiers Chibougamau, an investment that allowed us to support a regional company that adds value by transforming the resource into an innovative product: cross-laminated timber. Entrepreneurs are increasingly using “strategic” growth capital instead of “convenience” capital, which they may obtain from traditional financial institutions. And, at the Fonds, they find all the players in the forest sector, which allows them to create synergies.

Another important sector is the agrifood sector. By investing in Colabor, the Fonds supports a Canadian distribution leader: this company ships 50,000 products to 25,000 institutions and stores in Québec, Ontario and the Maritimes. With sales of $1.5 billion, Colabor is in full growth mode: over the last few years, it strengthened its market position by acquiring a series of companies.

Solidifying certain Québec brands is also one of our priorities. Les Brasseurs du Nord, the maker of Boréale beers, comes to mind. The majority interest investment we made in this microbrewery in 2012-2013 allowed us to keep the ownership of this strong brand in Québec and to introduce, among other things, new beer flavours and the can format during the summer of 2014.

I will conclude with mining. For several years, our investment strategy for this sector has been as follows: first, investing up to $1 million in exploration companies, and second, investing between $5 million and $20 million in companies that operate mines in Québec. However, it should be noted that the Fonds is committed to investing, according to its criteria, in projects that are socially acceptable to the communities where they are carried out.

During the last two years, in an environment of uncertain stock markets, we decided to be even more conservative and support mainly companies that are already in our portfolio. In the last financial year, we have made four investments. The Fonds has invested $8 million over four years in Mines Coulon, in partnership with Virginia Mines, Sodemex Développement, Sidex and the Fonds régional de solidarité FTQ Nord-du-Québec. The Coulon project, whose property is located in the Municipality of Baie-James, holds the largest undeveloped copper-zinc-silver resource in Québec. In developing this project, the company is looking to benefit from the expected zinc production shortfall in the next few years and the increase of the price of this metal on the market.

In addition, during the last financial year, the Fonds has injected an additional $10 million to support its partner, Stornoway Diamond, in the construction of the Renard project, the first diamond mine in Québec. Operating the mine will require over 400 jobs in the next two decades. ›

tHe Fonds Valorisation Bois

the fonds valorisation bois invests in high value-added secondary and tertiary processing projects and targets successful companies that wish to develop their operations in promising niches. this investment fund for high value-added wood processing will help businesses in the forestry industry move to new niches such as “green” construction, energy and chemicals, which are all supported by the forestry industry. the goal is to ensure that Québec has an innovative forest industry that will generate wealth and lasting jobs.

the fonds valorisation bois has capitalization of $170 million over 5 years, with $95 million sourced from the government of Québec and $75 million from the fonds de solidarité ftQ.

Finally, with the ongoing objective of diversifying our risks, we have added companies in the services sector (such as drilling companies) to our portfolio and given preference to those that could become consolidators in their market. We will also support high-potential projects that will promote secondary processing in Québec.

Are manufacturing SMEs still a preferred sector for the Fonds? SMEs are at the core of the Fonds’ activities and will remain so: ensuring their vitality is part of our mission. It will take greater modernization of their equipment to achieve this vitality, and we will always be there to support them in their investments to improve productivity.

The FoNDS haS aLwayS oFFereD More ThaN juST

FiNaNCiaL CapiTaL; For 30 yearS, iT haS heLpeD

eNTrepreNeurS Grow Their CoMpaNieS.

How are the Fonds’ investment opportunities shaping up for the coming years? Investing in SMEs, in Québec as anywhere else in the world, is always a challenge for investors. An interesting challenge will you say, but a challenge nonetheless! Various factors can explain this: the lack of medium-sized businesses, competition from emerging countries, lack of capital to market new products and the large number of entrepreneurs who are planning to retire without having secured succession.

This being said, the Fonds will continue to offer patient capital: we want to support the growth of businesses, especially those that are the most promising in terms of wealth and job creation. In addition, as a socially responsible investor committed to sustainable development, the Fonds has developed strict investment standards; not only are we concerned with financial returns, we are also concerned with ethics.

It must be pointed out that, year after year, we inject hundreds of millions of dollars into the Québec economy to support companies and pursue our mission. And that’s what we will be doing in the coming years, by focusing on the strategies we just talked about. And if the past is any indication of the future, the Fonds will continue to play an essential role in Québec’s economic growth!

Through the investments of the Fonds and its network, we have created, maintained or protected over 530,000 jobs in Québec from 1990 to 2014.


tHe Fonds de solidarité FtQ: a key Venture capital player

although its economic weight is much lower, Québec has invested as much as ontario in the technology sector (venture capital) in 2013-2014, in particular because of teralys capital, a fund of funds, which receives a third of its financing from the fonds de solidarité ftQ. the fonds shareholders’ money is “at work” in some 50 private funds dedicated to venture capital that, in turn, invest in a very large number of companies in growing sectors!

in real terms, close to $2 billion was invested in venture capital in canada in 2013, and 30% of these investments were made in Québec. montréal, in particular, has a significant pool of start-ups, and the fonds de solidarité ftQ alone has invested 16% of venture capital invested in Québec.

interview with normanD ChouinarD (Cont’D) interview with normanD ChouinarD (Cont’D)


Entrepreneurial succession: an issue that matters to usFor over 10 years, and once again during the last financial year, succession has been an important theme for the Fonds de solidarité FTQ. For instance, the Fonds has awarded, as it does every year, a $12,500 scholarship to two entrepreneurs attending the École d’entrepreneurship de Beauce to cover part of their tuition. The Fonds is proud to be associated with this unique school for four years now and to contribute in such a way to the development of entrepreneurship excellence in Québec.

Furthermore, with the Fondation de l’entrepreneurship (a not-for-profit organization promoting the development of entrepreneurial culture as a means to ensure the economic and social development of Québec), of which it is a partner, the Fonds was involved in a pilot project in the Capitale-Nationale and Montréal regions in which acquiring entrepreneurs and selling executives were coached in a business ownership transfer process. The program offered the participants tailored financing and personalized support. The Fonds also supports the entrepreneurship programs of the Montreal Young Chamber of Commerce and HEC Montréal.

Securing the continuity of companies is a major issue in Québec, and the Fonds has always been a leader in succession matters, in particular by offering patient financing to facilitate business transfers. But financing alone is not enough: raising awareness of the many challenges involved and supporting the various parties are also necessary.

The Fonds has its own succession expert: Gabriel Nadon, who joined the Fonds network in 1995 and has been working exclusively on business transfers for 11 years. You can read his blog at bloguereleve.fondsftq.com

The continuity of the manufacturing sector: vital for our economyIn 2013-2014, and for a second consecutive year, the Fonds de solidarité FTQ participated in “The future of Quebec’s manufacturing industry,” a series of roadshow events held across Québec organized by Deloitte, one of the largest professional services firms in Canada. No economic sector creates more wealth than the manufacturing sector, and it was important to the Fonds to be a partner in this project.

In that same vein, the Fonds participated, in February 2014, in the Strategic Forum on the manufacturing sector held by the Board of Trade of Metropolitan Montreal. During the Forum, Normand Chouinard, Executive Vice-President, Investments at the Fonds, stressed the importance of development capital in this sector, in particular to help companies market their products outside Québec. The Fonds dedicates substantial amounts to development capital by offering financing to SMEs that wish to invest in innovation and increase productivity to ensure their growth in Québec or abroad. Manufacturing companies represent approximately 18% of the Fonds’ portfolio. For example, AV&R, Bermex and Metal 7, all major manufacturing companies, are Fonds partner companies.

Venture capital: supporting innovation With its direct investments in companies and its financial support of 75 specialized funds, many of which are dedicated to technologies and life sciences, the Fonds de solidarité FTQ contributes to the growth of the expanding sectors of our economy by valuing creativity and innovation.

It is in this perspective that the Fonds participated, in December 2013, in the Strategic Forum on creative industries, organized by the Board of Trade of Metropolitan Montreal. Alain Denis, Senior Vice-President, New Economy at the Fonds, spoke during this forum of the importance of the financing chain for innovative companies at all stages of their development. Without the “creative capital” they receive directly or indirectly from the Fonds and others, innovative companies would find it difficult to grow, and sometimes even to survive. It is in that context that several companies, including Coveo, Acquisio, Beyond the Rack, Emovi and Enerkem, received financial support from the Fonds and its network.

inVestMents – in BrieF

Following are some examples of recent investments made by the Fonds de solidarité FtQ.

ConQuerinG the worlD!

in March 2014, the Fonds joined a group of strategic buyers to invest in coalision, which manufactures sports and wellness activity clothing under the lolë brand and employs more than 200 people. With this fi nancial support, which allows consolidating quality jobs in Québec, the company will be able to keep expanding internationally. the lolë brand is already available in over 1,700 points of sale around the world, in ateliers lolë and online at the brand’s website.

aCQuirinG a well-known Company

the Fonds was part of a consortium of investors, led by ncp investment Management, that acquired Metal 7 inc., a specialized manufacturer based in sept-Îles. serving the primary industry for 40 years, with projects carried out in 17 countries around the world, Metal 7 has a large customer base in the iron ore pelletizing, aluminum and pulp and paper industries. this investment will allow the company to undertake further expansion and consolidation while continuing to off er good jobs in the côte-nord region.

another show of support

to the life sCienCes seCtor

in May 2014, the Fonds was proud to invest in prcl research, a Québec biotech start-up. this investment, made in partnership with tVM capital life sciences Venture Vii and u.s. fi rm synta pharmaceuticals corporation, will be used to develop an oral treatment for psoriasis based on molecules developed by synta and licensed to prcl research. this direct investment demonstrates the Fonds’ desire to capitalize on Québec’s assets in the life sciences sector: talent, a vast network of service organizations and capital. these assets make Québec well-positioned to take advantage of new partnership models that bring together large pharmaceutical companies and biotechs to make investments.

PrcLreSearcH


Business succession: a critical cHallenge!

to help Québec meet the entrepreneurial succession challenge, the fonds de solidarité ftQ and the board of trade of metropolitan montreal (btmm) created the rdv relève inc.tm last april. as part of this project, which will have a yearly edition, the btmm issued a study sponsored by the fonds de solidarité ftQ and conducted in cooperation with raymond chabot grant thornton, entitled Transferring businesses to a succession: a major issue for the Québec economy and the sustainability of SMEs.

the study innovates by focusing on the risk represented by the propensity of business owners not to plan for their succession or to underestimate the complexity and length of the transfer process. “between 5,700 and 10,000 Québec businesses are at risk of closing in the next 10 years if they are not successfully transferred. these closings could result in the loss of 79,000 to 139,000 jobs and $8.2 to $12 billion in gdp,” said michel leblanc, president and chief executive offi cer of the btmm.

ccmm.qc.ca/transferringbusinessestothesuccession


our eNVIroNMeNtaL IMPact

HigHligHts The Fonds de solidarité FTQ’s head office real estate management is exemplary from a social perspective. During the 2012-2013 financial year, the building obtained the highest BOMA BESt certification level, Level 4, which is awarded when over 90% of the environment management best practices recognized by BOMA are effectively applied. And as at May 31, 2014, the Fonds was in the process of obtaining the Gold Level LEED EB (existing building) certification for its head office!

during the last financial year,

92% of the fonds’ purchases

of goods and services were

made from suppliers in Québec,

compared to 88% in 2013.

promotinG sustainable transportation

This concern for sound environmental management is also part of the Sustainable Transportation Policy that the Fonds de solidarité FTQ has developed to guide the measures it implements to promote sustainable transportation, such as incentives to encourage carpooling and using public transportation, information booths and workshops facilitated by Vélo Québec. These measures are enhanced year after year to reduce greenhouse gas emissions, improve the quality of life of employees and contribute to the development of public transportation in Québec.

Reducing our ecological footprintIn order to reduce the Fonds de solidarité FTQ’s ecological footprint, the annual general meetings of shareholders have been carbon-neutral since 2007. In addition, the Fonds continues to strengthen the application of eco-responsible

principles in organizing meeting and events held at its head offi ce and off -premises. Refer to pages 42 to 44 to see all the environmental objectives of the Fonds.

The Responsible Procurement Policy (RPR)By adopting an RPR in 2011, the Fonds de solidarité FTQ integrated the concept of sustainable development into its goods and services procurement practices. Consequently, for its purchases, the Fonds intends to give preference to businesses that adopt social practices that are respectful of workers’ rights and communities and consumption practices that respect the environment and communities.

During the last fi nancial year, the Fonds surveyed its largest suppliers on sustainable development to assess their level of knowledge and application of responsible procurement best practices, to infl uence them and to eventually support them in improving these practices. This is an extra step toward sustainable development that we invite them to take with us.

Under its RPR, the Fonds buys fi rst and foremost from suppliers in Québec. It also favours purchasing from its partner companies, either from Québec or the rest of Canada. In addition to social and environment concerns, the Fonds considers other important criteria in selecting its suppliers, including quality and cost of products, fi nancial health as well as compliance with agreements entered into.


enVironMental HigHligHtsFor tHe Most recentFinancial year

Residual materialsThe Fonds continues with its residual materials management approach in order to meet the waste reduction goals set out in the Québec Residual Materials Management Policy and the accompanying 2011-2015 Action Plan. According to a characterization study performed by NI Environment, the recycling rate was 64.6% at the Fonds’ head office for the financial year ended May 31, 2014.

The Fonds does not release any residual materials in the environment, and has never incurred fines or sanctions for environmental matters.

Raw and recycled materialsRaw materials consumption (paper and envelopes, promotional materials, kitchen supplies, ink cartridges, tissue paper) and percentage of recycled materials:

WaterOur water consumption continued to decrease during the last financial year: it was down 33%, which is in addition to the 22% reduction for the prior year. This improvement is mainly due to significant changes made to the replacement of our sanitary facilities.

Greenhouse gas (GHG) emissions

EnergyThe Fonds’ head office building uses mostly electricity as energy source, but also uses natural gas, fuel oil and propane. Renewable energy represented 89% of total energy consumption, an exceptional proportion, compared to 92% in 2013.

In addition, during the last financial year, the Fonds has replaced the halogen bulbs in conference rooms and hallways with LED bulbs, which are much more energy efficient. The Fonds has also installed motion sensors in most of its conference rooms: when no movement is detected in the room, the system automatically turns off the lights.

total ghg emissions

2014 1,578 TONNES2013 1,678 TONNES2014 1,578 TONNES2013 1,678 TONNES

recycling rate at the fonds’ head office

2014 64.6%2013 65.5%2014 64.6%2013 65.5%

raW and recycled materials

2014: 141 TONNES 96%*

2013: 144 TONNES 97%

* A sharp increase, as this percentage was only77% in 2010.

2014: 141 TONNES 96%2013: 144 TONNES 97%

the Green Committee

anD the sustainable

transportation

Committee

from left to right: Carole Parent, Marco Poulin, Claire Richard, Fabien Bouchard and Alain Houle

o u r e n v i r o n m e n ta l i m pa C t


virGinia mines: CreatinG wealth without CompromisinG the Quality of life of future GenerationsVirginia Mines is one of the most active mining exploration companies in Québec; it operates in accordance with industry best practices in order to create wealth for its shareholders and Quebecers without compromising the quality of life of future generations. The values it upholds include respect, communication, health and safety, and the environment.

Best practicesFrom the outset, Virginia Mines adopted best practices in the areas of health and safety, environment and community relations. Each year, the company organizes a visit to the aboriginal communities aff ected by its operations to update them, listen to their concerns and recruit local workers. Virginia Mines is also involved in its communities by off ering scholarships, internships and summer jobs to geology students and regularly making donations to educational institutions to support the next generation. In addition, in 2007, Virginia Mines was one of the creators of the Fonds Restor-Action Nunavik to clean up abandoned mining sites, which will continue its work until 2017.

The 2013 PDG-Vert prizeVirginia Mines recently became involved in the BNQ 21000 pilot project of the Québec Standards Bureau to better structure its actions, in particular through consultations with stakeholders: it developed a sustainable development policy and a responsible procurement policy, acquired a greenhouse gas calculator and implemented a group insurance program, a physical wellness policy, an incentive to take public transportation and a pay equity policy. All of this work has paid off , as André Gaumond, President and CEO, was awarded the 2013 PDG-Vert prize (small business category), created by Les Aff aires Group and TREBORA Conseil to recognize the eff orts of business leaders in sustainable development and social responsibility.

New SD certifi cationIn addition, the Quebec Mineral Exploration Association (QMEA) launched a project to create a new sustainable development certifi cation specifi c to the mining sector, and Virginia Mines agreed to help design it and be part of the fi rst group of companies that will test the standard.

The Fonds de solidarité FTQ gave $5,000 to the QMea to support this sustainable development certifi cation project and also sought out contributions from other sponsors.

air transat, a fonDs De soliDarité ftQ partner Company, has unDertaken a forwarD-thinkinG reCyClinG initiative worth notinG

A promising achievement by Air Transat: recycling old aircraftEven though there is no environmental standard governing the dismantling of commercial aircraft in North America, Air Transat has set up the first Canadian program for eco-responsibly dismantling end-of-life aircraft. In fact, in 2011, the carrier decided to dismantle two A310s by complying with its own standards for social responsibility. As such, it was out of the question to take the aircraft apart and ship them out of the country in bulk; this needed to be handled in a responsible and ecological manner. To execute this project, Air Transat teamed up with Québec-based partners: Eko-Conseil, a sustainable development consulting firm, Recykinfo, a recycling company (and its Aerocycle division), Avianor, specialized in aircraft and parts maintenance (to remove and decontaminate certain aircraft parts and manage hazardous materials), and the Aéroports de Montréal team. The dismantling of the two A310s took place from November 2011 to July 2013 at the Mirabel International Airport site.

Impressive resultsTo qualify as sustainable under the European standards, dismantling an aircraft must result in reusing or recycling at least 85% of the aircraft and comply with the international standards and directives of the Aircraft Fleet Recycling Association. With the Air Transat project, 87% of the components of the two aircraft were re-used, recycled or reclaimed locally—including 500 seats, aluminium and iron, electronic material and cables, as well as tires. Dismantling an aircraft is therefore not merely shredding metal. However, for reasons that are often related to costs and the industry, managing end-of-life aircraft does not always rank high among an airline’s priorities. In North America, dismantling aircraft is therefore often handled by metal recyclers; hazardous materials management is thus sometimes deficient, and these practices may contribute to environmental dumping in countries where laws are less strict.

Stimulating perspectivesOver the next 20 years, some 12,000 commercial aircraft, or 600 per year, will have to be dismantled around the world. Dismantling and recycling end-of-life aircraft therefore represents an extremely interesting market for Québec: hundreds of jobs could be created to meet the needs of carriers who care about complying with high environmental standards. The Montréal metropolitan area is already recognized as the third largest aerospace centre in the world, after Toulouse and Seattle. Therefore, with its project, Air Transat created a network of Québec-based partners who have the expertise necessary to secure a position in this market, and by doing that, the Québec company is a pioneering force. This was not an accident: Air Transat, Canada’s leading holiday travel airline, is firmly committed to the responsible development of the tourism industry and the concepts surrounding sustainable tourism are part of the company’s culture.

o u r e n v i r o n m e n ta l i m pa C to u r e n v i r o n m e n ta l i m pa C t

leed certiFication For a Fonds partner!

the Wakefi eld mill hotel and spa, a partner company of the fonds de solidarité régional ftQ outaouais, received leed certifi cation from the canada green building council for its eco river lodge, an expansion project completed in 2011. this coveted and internationally recognized certifi cation makes the eco river lodge the fi rst leed-certifi ed hotel in the outaouais region.

this achievement was made possible through the ongoing eff orts of the Wakefi eld mill team in respecting the location of the hotel in the magnifi cent gatineau park. the architectural design of the lodge, the engineering and the materials were all selected to reduce the building’s impact on the environment and take advantage of natural resources to conserve energy. to learn more, visit wakefi eldmill.com

congratulations!

the WAKefielD mill hotel AND SPA, eCo riVer loDge

our partners and sustainaBle deVelopMent


portrait oF a teaM dedicated to collectiVe excellence

coMpetent, creatiVeand solidary eMployees!

the 447 employees of the fonds de solidarité ftQ

have our mission and achieving our goals at heart,

Whether through the success of our rrsp subscription

campaigns or maKing the best investments possible

in Québec companies to support their groWth.

The Fonds de solidarité FTQ is proud of its employees and is extremely grateful for the unwavering support they showed during this last fi nancial year, which was made more diffi cult by the media coverage. This challenge motivated them, and the results we achieved are the proof; for example, the last subscription campaign was one of the top three in the past 30 years. The Fonds employees are proud, and this pride plays an undeniable role in the success and continuity of the organization.

Optimizing work organizationThe most recent fi nancial year saw a continuation of the eff orts made in the last few years by the Human Resources department to deal with an increasing number of retirements. Members of the various management committees of the Fonds were called upon to optimize the work organization processes and rationalize costs. As such, the need to fi ll a position held by a person who retires is carefully reviewed; however, the Fonds ensures that knowledge is transferred so that employees who stay in their position have the knowledge and know-how necessary to properly do their job.

Skill profi les and developmentIt is critical for the Fonds de solidarité FTQ to guarantee that all its employees acquire and maintain new skills. Accordingly, the Fonds created new profi les that describe the critical skills that employees, both unionized and management, must master in order for the organization to overcome its current and future challenges and continue to successfully grow. The skill profi les were established in a transparent fashion through a consultation process conducted with employees and managers, the results of which are available on the Fonds’ Intranet.

In addition, the Fonds implemented development activities designed to meet these needs. Employees can self-manage their professional development and target training activities that are in line with their skill profi le; they can also acquire and develop new skills in collaboration with their managers, who are responsible for ensuring the continuous development of Fonds employees.

The SKiLL proFiLeS For our MaNaGerS aND eMpLoyeeS are upDaTeD

eVery FiVe yearS, aLLowiNG uS To STay oN The LeaDiNG eDGe

oF huMaN reSourCeS TreNDS.

A healthy and dynamic workplacePromoting quality of life is one of the priorities of the Fonds and, as such, employees benefi t from a health and wellness program that includes several activities. In addition, the Fonds has adopted measures to encourage work-life balance.

All these eff orts to promote a healthy and dynamic workplace are undertaken in partnership with the employees’ union. It should also be noted that the Fonds employees’ collective agreement, signed in 2010 for a fi ve-year period, will expire on December 31, 2014.


The vast majority of the Fonds de solidarité FTQ’s employees work in Montréal (98% – 440 employees); the remaining employees (2% – 7 employees) work in Québec City.

The remuneration structure of the Fonds de solidarité FTQ does not provide for bonuses to employees and management.

The Fonds provides quality jobs to 447 permanent employees; of those, 388 (86.8%) are unionized.

The collective agreement, signed in 2010 for a fi ve-year period, requires that the employer give one-month written notice to the union about any reorganization projects or elimination of positions.

The age of employees who retired was between 53 and 69 years (average of 62 years). Excluding retirements, the turnover rate for the Fonds’ employees was a remarkably low 1.0%.

During the fi nancial year, 15 permanent employees of the Fonds (7 women and 8 men – 2 managers, 12 professionals and 1 member of technical and offi ce personnel) took maternity, paternity or adoption leave. All of the people who took advantage of these benefi ts are still employed by the Fonds.

B R E A K D O W N O F P E R M A N E N T E M P L O Y E E SA S AT M AY 31, 2014

AGE WOMEN MEN TOTAL %

Less than 35 16 11 27 6.035 to 44 years 41 59 100 22.445 to 54 years 113 79 192 43.055 years and up 66 62 128 28.6Total 236 211 447 100.0 average age 50 49 49 Sex 52.8% 47.2% 100.0

EMPLOYMENT CATEGORIES

Managers 21 38 59 13.2Professionals 103 139 242 54.1Technical and offi ce personnel 112 34 146 32.7Total 236 211 447 100.0

C H A N G E I N P E R M A N E N T E M P L O Y E E SF R O M J U N E 1, 2013 TO M AY 31, 2014

WOMEN MEN TOTAL

Number of permanent employees as at May 31, 2013 240 209 449

Hirings 10 13 23

Retirements (11) (7) (18)

Resignations (2) (2) (4)

Deaths (1) (1) (2)

Other departure — (1) (1)

Number of permanent employees as at May 31, 2014 236 211 447

number of permanent employees AS AT MAY 31, 2014

447

o u r e m p l o y e e so u r e m p l o y e e s

Danny le braCeur vice-president, human resources

WORKERS’ TRAINING

ECONOMIC DEVELOPMENT

JOB CREATION

PREPARATION FOR RETIREMENT

our teaMS StrIVe eVerY DaY to booSt Your SaVINGS.

2,467development capital investments FOR THE YEAR ENDED MAY 31, 2014

$548M

PartNer coMPaNIeS

613,958net assetsAS AT MAY 31, 2014

$10,126MSHareHoLDer-oWNerS

SHareHoLDer SerVIceS

LocaL rePreSeNtatIVeS (Lrs)

foNDS IMMobILIer

ecoNoMIc traINING

foNDS LocauX

SPecIaLIZeD fuNDS

foNDS rÉGIoNauX

MarKetING aND INforMatIoN tecHNoLoGIeS

foNDS De SoLIDarItÉ ftQ(head offi ce)

Fonds de solidarité F tQ 2014 3938 Fonds de solidarité F tQ 2014 38 Fonds de solidarité F tQ 2014

The table below presents the total number of absences from work by the Fonds’ permanent employees, which includes absences paid by the Fonds (absences due to health conditions, accidents or a particular situation aff ecting the employee) and absences paid by the Fonds’ permanent employee group insurance plan. Absences are expressed in person-years, with one person-year representing 1,820 hours (52 weeks times 35 hours per week). The total fi gure for work time during the period does not represent exactly the number of permanent employees as at May 31, 2014, as work time data take into account the timing of the arrival or departure of permanent employees during the year.

There were no work-related accidents during this fi nancial year. The number of lost work days resulting from the single work-related accident that occurred last year is minimal.

The FoNDS De SoLiDariTÉ FTQ iS prouD oF iTS eMpLoyeeS

aND iS eXTreMeLy GraTeFuL For The uNwaVeriNG SupporT They ShoweD

DuriNG ThiS LaST FiNaNCiaL year, whiCh waS MaDe More DiFFiCuLT

By The MeDia CoVeraGe.

o u r e m p l o y e e s

Our salary structure complies with the applicable pay equity legislation. The diff erence between the average women’s salary and the average men’s salary is due, among other things, to the diff erence in the breakdown of women and men in the levels making up each of these categories.

P E R M A N E N T E M P L O Y E E S ’ W O R K P L A C E AT T E N D A N C E A N D A B S E N C E S( I N P E R S O N/ Y E A R S)F R O M J U N E 1, 2013 TO M AY 31, 2014

WOMEN MEN TOTAL

Absences 9.2 5.5 14.7 Work time 228.5 211.2 439.7Absenteeism rate 4.0% 2.6% 3.3%

R AT I O O F W O M E N ’ S S A L A R Y T O M E N ’ S S A L A R Y A S AT M AY 31, 2014

EMPLOYMENT CATEGORIES

Managers 0.82

Professionals 0.85

Technical and offi ce personnel 0.96

E M P L O Y E E T R A I N I N GFO R T H E Y E A R E N D E D M AY 31, 2014

NUMBER AVERAGE OF EMPLOYEES TOTAL HOURS OF EMPLOYMENT WHO ATTENDED TRAINING TRAINING PER CATEGORIES TRAINING HOURS EMPLOYEE

Managers 61 1,825 30Professionals 235 5,637 24Technical and offi ce personnel 136 1,794 13Temporary or student personnel 93 1,017 11Total 525 10,273 20

Women 279 5,141 18Men 246 5,132 21Total 525 10,273 20

2013-2014 objeCtives follow-up 2014-2015 objeCtives

The Fonds will develop an integrated sustainable development and socially responsible investment policy (SD/SRI). This policy will become the anchor point for all the tools that the Fonds has developed over the years to guide its policies for investing in companies and on capital markets, its relations with partner companies and all its stakeholders, and its own conduct.

The policy has been drafted and is expected to be adopted by fall 2014.

The Fonds will deploy its new policy and organize information/training sessions, in particular for the members of the various Boards and Committees of the Fonds, as well as for its managers and employees, so that this policy and its impact on the Fonds’ operations are known.

The SD Committee will propose a three-year strategic action plan to meet as adequately as possible the challenges related to sustainable development and socially responsible investment.

As the public activities held in February 2011 (symposium on retirement) and in February 2013 (symposium on responsible investment) were very successful, the Fonds will organize, for a third year, an event on an important socio-economic topic related to its sustainable development and corporate social responsibility objectives.

The Fonds will participate, as a Québec signatory to the United Nations’ Principles for Responsible Investment (PRI), in “PRI in Person”, an international activity to be held in Montréal from September 22 to September 26, 2014 that will bring together PRI signatories and representatives of the fi nancial community.

As a signatory to the Principles for Responsible Investment (PRI) issued by the United Nations Environment Programme Finance Initiative, the Fonds completed, for the fi rst time, the required “PRI Reporting Framework” questionnaire and posted it on the PRI website. The Fonds will complete this questionnaire every year from now on.

As a PRI signatory, the Fonds will also continue, during the next fi nancial year, to incorporate ESG (environmental, social and governance) issues into its various processes and activities.

2013 will mark the 30th anniversary of the creation of the Fonds de solidarité FTQ. On this occasion, the Fonds will emphasize, from January 1, 2013 to December 31, 2013, the economic and social solidarity of all its stakeholders and their contribution to the Fonds’ innovations and achievements over these years.

Achieved. Internal and external activities were successfully held during the last fi nancial year.

Following the recent adoption of an integrated risk management policy, the Fonds will implement this new policy, in particular by reviewing certain processes related to activities that are more sensitive to fi nancial and extra-fi nancial risks as well as specifi cally determining the nature and extent of the risks it takes in relation to its mission and its tolerance to these risks.

Further to this determination, the Fonds will also revise its Integrated Financial Assets Management Policy (IFAM).

Work toward achieving this objective is progressing well: in particular, processes to improve the management of certain fi nancial and extra-fi nancial risks in the Other Investments and Investments sectors have been implemented. The work will continue in 2014-2015 in other sectors of the Fonds, including Shareholder Services and Information Technologies.

The IFAM policy has been revised, and the new version was adopted by the Board of Directors on February 27, 2014 (for more details on changes made to the policy, refer to page 54). This policy applies to all of the fi nancial assets of the Fonds and is complemented by the Investment Policy (for the development capital investments managed by the Investments sector) and the Other Investments Portfolio Policy (for the assets managed by the Other Investments sector). The latter has also been revised, and its new version was also adopted by the Board of Directors in February 2014. The Investment Policy will be revised and submitted to the Board of Directors at a later date.

The Fonds de solidarité FTQ proposed a major reform of its governance. For more details, refer to page 5 of this report. The Fonds’ Incorporation Act will have to be amended by the National Assembly so that the Fonds can make some of the proposed changes. More generally, the Fonds will continue to implement the proposals adopted by the Board of Directors on February 6, 2014.

The Fonds has updated the code of ethics and conduct applicable to its employees and will continue to revise the code of ethics applicable to its directors.

The Fonds will adopt new charters for its new Boards and Committees.

The Fonds will take stock of the main tax measures and government assistance programs related to sustainable development projects to which its partner companies could be eligible.

The Fonds will communicate this list to the specialists of its Investments sector so they can adequately inform the Fonds’ partners.

Achieved.

Work toward achieving this objective is underway and will continue in 2014-2015.

soCio-eConomiC objeCtives

s u s ta i n a b l e D e v e l o p m e n t a n D r e s p o n s i b l e i n v e s t m e n t o b j e C t i v e s





The Fonds will prepare a carbon credit information and intervention guide for the specialists of the Investments sector.

This guide will be distributed in the next financial year.

Achieved.

Achieved.

The Fonds will create a reference bank of the main carbon credit and sustainable development and corporate social responsibility (SD/CSR) players and specialists.


The Fonds will then organize, for the members of the Investments sector’s multidisciplinary teams, training sessions on topics related to carbon credits and SD/CSR as well as on the carbon credit reference bank it will create.

Work toward achieving this objective is underway; as this objective spans more than one financial year, we will continue our work in 2014-2015.

The Fonds will also prepare an SD/CSR and carbon credit intervention and knowledge-sharing plan.

Economic knowledge transfer from the SD Committee to advisors of the Investments sector, who share this information, as needed, with the Fonds’ partner companies: achieved. An information bulletin on this topic was issued in April 2014.

The intervention plan will be issued in 2014-2015.

Further to the adoption by the Board of Directors, in March 2013, of an overhauled version of its Code of Conduct for International Business Dealings, the Fonds will organize meetings to enable the Investments sector’s teams and external directors who represent the Fonds on the board of directors of its partner companies to take ownership of the Code and the Fonds régionaux’s executives to tailor it to their decision-making structures.


The Fondation de la formation économique (FFE) will develop training on sustainable development for the employees of the Fonds partner companies who wish to be better informed on this topic.

Work toward achieving this objective is progressing well. Training activities on sustainable development will continue in 2014-2015.

The Fonds will, in collaboration with SHARE, continue the shareholder dialogue about certain securities of listed Canadian companies it holds on governance-related or social or environmental issues.

In addition, the Fonds will continue to search for the appropriate vehicle to pursue its commitment as a proactive shareholder of non-Canadian public companies.

The Fonds will also continue to use the Montréal-based Groupe investissement responsable (GIR) to exercise its voting rights in public companies in accordance with its Guidance on voting rights.

For more details on the engagements and activities undertaken by SHARE on behalf of the Fonds, see page 12.


The Fonds will pursue our efforts to increase the number of shareholders under the age of 40 and the number of shareholders from cultural communities so that they benefit from the Fonds RRSP, in particular by subscribing through payroll deduction.

As at May 31, 2014, the number of new shareholders under the age of 40 was 11,317, or 47% of the total number of enrolments. As at May 31, 2013, we had 18,861 new shareholders under the age of 40, or 44% of the total number of enrolments. We will continue our efforts in that regard in 2014-2015.


The Fonds’ obsolete promotional materials will be recycled and transformed, and then offered to charities, schools, etc.

The outdoor advertising billboards will be recycled into shopping bags, which will be entirely produced by a solidarity economy enterprise.

To meet as adequately as possible the needs of all its stakeholders, the Fonds will periodically take the necessary surveys to measure their satisfaction with its activities and better understand their concerns and expectations.

The Fonds regularly conducts surveys to understand the needs and expectations of its shareholders and adequately meet them. During the last financial year, the Fonds consulted some of its shareholders to learn their perceptions and expectations of the Fonds’ promotional materials and RRSP advertising campaign. In addition, a consultation process was held to measure the potential impact of the tax credits on their intentions to subscribe to the Fonds.

The Fonds will issue a newsletter three times a year to provide information about the investment activities of the Fonds and its network and their socio-economic impact on communities (regions, business people, etc.)

A newsletter and the first Bulletin InvestDD were issued. The work toward achieving this objective will continue in 2014-2015.

To be ready for the G4 Sustainability Reporting Guidelines, the newest version of the GRI Guidelines, that will be effective for its 2016 Annual and Sustainability Report, the Fonds will participate in various consultation and training events scheduled for the next financial year.

Achieved.

To tailor its SD/SRI service offering, the Fonds will survey some 20 partner companies from different industries to understand their needs in terms of sustainable development, socially responsible investment and corporate social responsibility.

The Fonds will create a first group made up of approximately 15 partner companies interested in reducing their energy consumption and will introduce them to the Association québécoise pour la maîtrise de l’énergie (AQME), whose mission is to help energy users implement energy efficiency projects (financial assistance programs, measures, equipment, etc.)

The Fonds will post on its Intranet the “Sustainable development/Socially responsible investment” directory for its employees. This directory will include guides, materials from training sessions offered by the Fonds and other relevant documents.

The Fonds will organize a discussion group with various players in the SD/SRI field (accountants, lawyers and other specialists) to learn about their medium- and long-term vision of the developments expected in the field and the potential impact on the needs for relevant financing products.




environmental objeCtives



The Fonds will continue its efforts to reduce by at least 3% per year, by 2016-2017, its paper consumption for its head office needs. This measure is in addition to the decision made two years ago to use Enviro 100 paper, which contains 100% post-consumer FSC-certified (Forest Stewardship Council) fibre, is EcoLogo-certified and made using biogas.

Work toward achieving this reduction objective is underway, with good results (reduction of almost 3% for 2013-2014), and we will continue our work in 2014-2015.

Implementing composting: the Fonds will plan Phase II—related to the whole building—by the end of 2014.

Work toward achieving this objective will have to continue until the end of 2015.

The Fonds will continue to implement its action plan to obtain Gold Level LEED EB (existing building) certification for its head office by May 31, 2014.

Work toward achieving this objective is underway; this objective will be achieved early in the 2014-2015 financial year.

The Fonds will continue to implement the action plan of its Green Committee so that the employees of its head office can use public transportation and active transportation (cycling and walking) even more.

In addition, the Fonds will analyze its employees’ travel from home to work to evaluate the related GHG emissions.



The Fonds’ Green Committee will prepare information bulletins on several aspects related to the environment. These bulletins will be released on the Intranet site for employees.

Achieved.

The Fonds issued three Écogestion bulletins during the last financial year. Ongoing.

Concurrently with the continued deployment of its Responsible Procurement Policy, the Fonds will define specific criteria related to the SD/CSR good practices required from its suppliers and will assess its suppliers using a questionnaire developed from these criteria.

Achieved.

The Fonds sent a first SD questionnaire to its main suppliers.

During the next financial year, the Fonds will prepare a profile of its suppliers based on their level of criticality and will favour socially responsible suppliers.

In addition, the Fonds will ensure that the furniture and electronic and computer products it will buy are, at a minimum, ENERGY STAR and GREENGUARD certified.


The fonds régionaux and the fonds locaux de solidarité FTQ network and the Fonds immobilier de solidarité FTQ will adopt an action plan to reduce their direct environmental footprint.


The Fonds will raise awareness among the occupants of its head office on various environmental objectives. For instance:

• It will organize a contest to familiarize occupants with the environment section of Courbec’s (manager of the head office building) website and draw attention to the achievements of the past years;

• It will organize a lunch-and-learn event to present the most effective and original environmental projects carried out in the workplace;

• It will encourage occupants to buy environmentally friendly supplies and equipment to reduce the quantity of dangerous products and GHG emissions;

• It will improve recycling and composting to reduce the quantity of waste sent to landfills.



The Fonds’ annual general meetings, which have been carbon-neutral since 2007, will continue to be carbon-neutral.

The Fonds will gradually take steps to make all its other meetings carbon-neutral by 2016.

The next annual general meeting of the Fonds, to be held on September 27, 2014, will also be carbon-neutral.

The efforts to achieve this objective will continue in the next financial year.

The Fonds will also strengthen its adherence to eco-responsible principles in organizing meetings and events to be held at its head office and off-premises.

Achieved. Ongoing. Other meetings will also be held in accordance with these principles in the next financial year.

The Fonds will raise awareness among its employees working at its head office and tenants of the head office building of the necessary actions to take to reach its eco-responsible electricity consumption objectives.


Following an energy consumption audit, the Fonds will compare its head office’s current performance against the best performances achieved elsewhere on this front, and will continue to carry out energy savings projects in an optimal manner based on existing market best practices.

Achieved. As a result of replacing halogen bulbs with LED (light-emitting diode) bulbs: expected savings of approximately 270,000 kWh in the next year.

With the installation of motion detectors in conference rooms (lights turn off and heating decreases automatically when there is no movement), we will improve our energy consumption.

The Fonds will take the following energy savings measures in the next financial year:

• Installing variable speed-drives for the air handling units on the floors

• A study is currently being performed to increase the effectiveness of the condensing boiler.

The Fonds will implement a new IT platform to control its head office mechanical systems (heating, ventilation and air conditioning).

With this change, we will be able to better monitor the operation of this equipment and the air quality while improving occupant comfort.

(Distech Controls, a Fonds partner company, supplies the equipment needed for this implementation. Distech Controls is a major player in the global building automation market.)

Achieved. The Fonds will implement a new protocol to track energy consumption on a monthly basis.

Following a water use efficiency audit, the Fonds will develop and prioritize new opportunities to reduce water consumption beyond the objective it had set.

Water consumption reduction reached 33% in 2013-2014.

The Fonds will optimize the operation of the cooling towers by reducing the air-conditioning loads.

The Fonds will take the necessary measures to better control outdoor watering. It will also run an awareness-raising campaign on the importance of saving water targeting the tenants of its head office building.

To reduce by 2% to 5% a year the quantity of residual materials sent from its head office to landfills, the Fonds will intensify its information and awareness-raising campaign on residual materials management targeting its employees working at its head office and tenants of the head office building.

This objective has been achieved for 2013-2014.

The Fonds will continue its efforts to achieve this objective once again in 2014-2015.

To always reduce its paper consumption, the Fonds will encourage its shareholders to view their account information online.

Work toward achieving this objective is underway; as this objective spans several financial years, we will continue our work in 2014-2015.


Fonds de solidarité F tQ 2014 4544 Fonds de solidarité F tQ 2014

our MaNaGeMeNt DIScuSSIoN aND aNaLYSIS





The Legal Aff airs Department of the Fonds will continue to hold training sessions on Bill 89, which has substantially amended the Environment Quality Act, and on other regulations related to sustainable development to help with integrating these new standards into its partners’ practices.

Training was off ered to 20 individuals in 2013-2014.

The Fonds has prepared a guide on the Environment Quality Act and the measures to undertake to manage risks related to this Act. This guide will be intended for specialists of its Investments sector who are corporate directors and external directors who represent the Fonds on the board of directors of its partner companies.

The guide has been revised and will be distributed during the next fi nancial year.

After adopting guidelines for practices related to sustainable development and social responsibility in mining project management in 2012, the Fonds will continue to phase in these guidelines in its partner companies in the mining sector.

Work toward achieving this objective is underway; as this objective spans more than one fi nancial year, we will continue our work in 2014-2015.


FONDS DE SOLIDARITÉ DES TRAVAILLEURS DU QUÉBEC (F.T.Q.)

MANAGEMENT DISCUSSION AND ANALYSIS FOR THE YEAR ENDED MAY 31, 2014 This Management Discussion and Analysis (“MD&A”) is intended to help the readers assess, through the eyes of management, the Fonds de solidarité FTQ’s (the “Fonds”) results and financial condition and the material changes therein during the financial year ended May 31, 2014. The annual MD&A complements and supplements the financial statements and contains financial highlights, but does not contain the complete annual financial statements of the Fonds. To facilitate understanding of events and uncertainties presented herein, this MD&A should be read together with the financial statements and the notes thereto.

This MD&A contains forward-looking statements about the Fonds’ activities, results, and strategies that should be interpreted with caution. These forecasts necessarily involve assumptions, uncertainties and risks; it is therefore possible that a number of factors may cause them not to materialize. Legislative or regulatory changes, economic and business conditions and the level of competition are some examples of major factors that may influence, sometimes significantly, the accuracy of the forward-looking statements in this MD&A. This MD&A is dated June 26, 2014.

The Fonds is subject to the Regulation Respecting Development Capital Investment Fund Continuous Disclosure (the “Regulation”) and, as such, applies the requirements of this Regulation, notably to its financial statements and its MD&A.

You can get a copy of the annual financial statements at your request, and at no cost, by calling us at 514-383-3663 or toll free at 1-800-567-3663, by writing to us at 8717 Berri Street, Montréal, Québec H2M 2T9 or by visiting our website at www.fondsftq.com or the SEDAR website at www.sedar.com. You can also obtain a copy of the interim documents in this same manner.

FINANCIAL HIGHLIGHTS

RATIOS AND SUPPLEMENTAL DATA Years ended May 31

(in millions of dollars, unless otherwise specified) 2014 2013 2012 2011 2010

Revenues 248 256 247 256 222

Net earnings 774 458 215 650 600

Net assets 10,126 9,301 8,525 8,178 7,294

Class A shares outstanding (number, in thousands) 334,234 332,441 320,629 315,504 305,951

Total operating expense ratio* (%) 1.39 1.44 1.46 1.47 1.54Portfolio turnover rate**:

Development capital investments (%)Other investments (%)

7.14167.36

8.44115.57

12.09158.61

11.38172.57

7.93233.20

Trading expense ratio*** (%) 0.02 0.02 0.02 0.02 0.03

Number of shareholders (number) 613,958 615,664 594,287 583,235 577,511

Issues of shares 787 855 767 698 660

Redemptions of shares 729 542 620 465 341

Fair value of development capital investments**** 6,408 6,144 5,757 5,207 4,784

* The total operating expense ratio is obtained as follows: by dividing expenses (excluding capital tax) for the year, as shown in the Statement of Operations, by the average net assets for that year.

** The portfolio turnover rate reflects the number of changes made to the composition of the portfolio. There is not necessarily a relationship between a high turnover rate and the portfolio’s performance.

*** The trading expense ratio represents transaction costs expressed as a percentage of average net assets.**** These investments include funds committed but not disbursed as well as guarantees and suretyships.

1

The following tables show selected key financial information about the Fonds and are intended to help you understand the Fonds’ financial performance for the past five financial years. This information is derived from the Fonds’ audited financial statements. The Fonds’ results are discussed under “Results of Operations” on page 49.


CHANGE IN NET ASSETS PER SHARE Years ended May 31

(in dollars) 2014 2013 2012 2011 2010

Net assets per share, beginning of year* 27.98 26.59 25.92 23.84 21.78

Increase from operations**: 2.32 1.41 0.68 2.10 2.01

Interest and dividends 0.75 0.79 0.78 0.82 0.74

Total operating expenses (0.42) (0.40) (0.39) (0.38) (0.37)

Income tax and capital tax (0.06) (0.05) (0.09) (0.08) (0.09)

Realized gains 0.86 0.30 0.16 0.26 0.22

Unrealized gains 1.19 0.77 0.22 1.48 1.51

Variance from issues and redemptions of shares

Variance from the transfer of Class G shares

(0.01)

-

(0.02)

-

(0.01)

-

(0.02)

-

(0.02)

0.07

Net assets per share, end of year* 30.29 27.98 26.59 25.92 23.84

* The amount of net assets per share is based on the actual number of shares outstanding at the relevant time. ** The increase (decrease) from operations is based on the weighted-average number of shares outstanding during the financial year.

ECONOMIC CONDITIONS AND OUTLOOK World and the United States Over the last 12 months, as prices for commodities such as copper, gold and oil remained volatile, the global economy as a whole posted renewed momentum, particularly in developed countries. The recession in the Eurozone came to an end in the second quarterof 2013 mainly due to the good performance of the German and French economies. This growth in Eurozone GDP, while modest, continued in the following quarters, mainly stemming from improvements in consumption, net exports, public spending and investments.In order to allow the Eurozone economy to improve further in the coming quarters, the European Central Bank seems increasinglyinclined to adopt the same language as the U.S. Federal Reserve (the Fed) by adopting an accommodating monetary policy, particularly through guaranteeing a long period of very low rates. Despite subsisting problems in several Eurozone countries that willinevitably take a lot of time to fix, most economic indicators seem to point to better growth in 2014 than in 2013.

The economic situation in many emerging countries appears to have deteriorated over the last 12 months to such an extent that some economists are talking about a growth crisis and even fear the effects might be felt in developed countries. Several emerging countries are facing struggles, including a sharp decline in the value of their currency, high inflation and significant capital flight. Under these conditions, growth in real GDP could be slower in 2014 in most emerging countries, especially in Latin America and in Eastern Europe, where political unrest in the Ukraine could continue to devolve and have a negative economic impact on the country as well as on Russia, which is already under some international sanctions.

After a disappointing first quarter of 2013, the U.S. economy posted advances in GDP growth in the following two quarters, due in part to acceleration in business investment, but more generally due to the gradual improvement of economic conditions across the country. This growth slowed in the fourth quarter of 2013 and was negative in the first quarter of 2014, stemming in part from a decrease in consumption, the partial shutdown of the U.S. government in fall 2013, cooling foreign trade and poor weather conditions that plagued a large part of the United States over the 2013-2014 winter. The savings rate in the United States has been 4.6% on average since May 31, 2013, lower than the average savings rate for the same period in the previous year. Despite a decline in job creation at the end of 2013 and the beginning of 2014, job creation on the whole over the last 12 months was positive in the United States, which pushed the unemployment rate down to 6.3% in May 2014, compared to 7.5% in May 2013. Based on projections from several economists, the unemployment rate should continue to fall to 6.0% by the end of 2014. Despite the overall dampening effect the 2013 mortgage rate increase had on growth in several housing market indicators, it seems that recovery in this market has been resilient overall, and many specialists in the sector agree that it should continue in the coming quarters. In terms of inflation, the annual variation in the U.S. CPI was 1.5% on average since May 2013. Inflation should continue to be relatively weak in 2014, and then accelerate somewhat in 2015. Lastly, the key interest rate remained unchanged at 0.25% since December 2008, and no increase is expected before September 2015.

2



At the beginning of December 2013, the Democrats and Republicans finally managed to come to terms and signed an agreement on the federal budget for 2014 and 2015 and in February 2014, the debt ceiling was raised until March 2015. As a result, the country should not face in the short term a budget impasse similar to the one that it faced at the start of October 2013, that caused the U.S. government to partially shut down for over two weeks. Many economists believe that this calming of fears related to the fiscal policy should have an overall positive impact on U.S. economic growth in the coming quarters, and at the same time allow the Fed to continue, in the coming months, to gradually taper off the quantitative easing program that it began in January 2014. Note that in November 2013, the Fed bought $85 billion in Treasury Bonds and mortgage-backed securities, while in February 2014 this amount was brought down to $65 billion, and then lowered to $45 billion in May 2014.

Canada and Québec Economic growth in Canada over the last 12 months has been relatively good, especially when compared against other G7 countries. This growth largely stems from consumer spending, with retail sales growing at a sustained pace, which particularly offset weakness in foreign trade, restrictions in government spending and a cooling real estate market. Despite this good news, many economists question whether the Canadian economy has the capacity necessary to maintain this pace of growth over the coming quarters. While it is true that the current situation characterized by a weaker Canadian dollar, a forecasted U.S. economic recovery and improving economic conditions in the Eurozone could at first appear to be very positive for Canada’s foreign trade, Canadian exporters seem to be struggling with gaining market share abroad because of very fierce competition, which not surprisingly gives rise to a fair amount of uncertainty as to what the real improvement in foreign trade will be in the coming quarters. In addition, household debt continues to be worrisome, and improvements in household balance sheets will always be welcomed in the coming quarters. However, household balance sheets cannot improve without some downward pressure on consumer spending and a likely even more pronounced slowdown in the real estate market. The combination of these two elements and the budgetary restrictions of public administrations could very likely have a negative impact on domestic demand. In terms of inflation, the annual variation in the Canadian CPI has averaged 1.3%since May 2013. Inflation should only rise very slowly in Canada in 2014 and 2015, which should encourage the Bank of Canada to hold the discount rate (which has been at 1% since September 2010) at a low level for longer still. The unemployment rate decreased slightly from 7.1% in May 2013 to 7.0% in May 2014. Many economists agree that it should fall even further in the coming quarters if theCanadian economy keeps growing.

During the last 12 months, short-term (2 years) Canadian government bond interest rates remained relatively stable. During the same period, long-term (10 years) interest rates and provincial and investment-grade corporation credit spreads followed an upward trend from May to December 2013, then a downward trend from December 2013 to May 2014; however, as at May 31, 2014, compared to May 31, 2013, long-term (10 year) interest rates had increased 18 basis points and provincial and investment-grade corporation credit spreads were narrower. The Canadian dollar traded at $US0.92 on May 31, 2014, compared to $US0.97 on May 31, 2013. In light of current conditions, we forecast that over the next few months the Canadian dollar should fluctuate between $US0.87 and $US0.95 and that interest rates on Canadian 10-year and 30-year bonds should vary in a range not exceeding plus or minus 50 basis points.

In Québec, economic growth continued to be relatively weak during the last 12 months, mainly due to the challenges faced by the manufacturing sector, persistent lackluster foreign trade, decreases in residential investment, the weight of the tax burden and high debt levels of households, which is making them cautious. Based on several economic indicators, particularly employment, it seems that the Québec economy struggled a little bit more than most of the other Canadian provinces. The unemployment rate was 8.0% in May 2014, which is higher than it was in May 2013 (7.7%), and higher than the rates for Ontario (7.3%) and Canada (7.0%). Despite the difficultiesthe Québec economy is facing, several economists believe that it should improve in the coming quarters, mainly thanks to the end of the recession in the Eurozone and the acceleration of the U.S. economy, which should stimulate exports in 2014 and 2015. As a result of more sustained economic growth, the labour market should also improve somewhat. However, the fierce competition Québec’s exporting businesses will face to gain foreign market share represents a sizable challenge. Under these conditions, the Fonds will continue to play an important role, particularly by contributing to creating and maintaining jobs in Québec and by working with Québec companies who have the will and the desire to expand abroad while generating economic spinoffs for Québec.

Despite positive signs suggesting that an economic recovery built on stronger ground may be on the horizon in several countries, economic and financial issues still abound, and the road to greater global stability is still littered with all kinds of obstacles. This situation gives rise to many economic uncertainties that should continue to impact the performance of many financial institutions, including the Fonds.

3


MANAGEMENT DISCUSSION OF FINANCIAL PERFORMANCE RESULTS OF OPERATIONS

OVERALL RESULT For the financial year ended May 31, 2014, the Fonds posted record net earnings of $774 million, compared to net earnings of $458 million for the prior year. With this result for the year, the Fonds generated a return of 8.3%, up from the return of 5.3% experienced for the previous year. The value of the Fonds’ shares therefore increased by $2.31 compared to the price reported in July 2013 and by $1.08 compared to January 2014 to stand at $30.29 as at July 4, 2014. The Fonds also reached a new high as at May 31, 2014 as it increased its net assets to $10.1 billion. The number of shareholders stood at 613,958 as at May 31, 2014.

As a result of its mission, a significant portion of the Fonds’ portfolio is comprised of private securities and specialized funds. Consequently, the Fonds did not benefit from the full effect of the increase in stock markets that occurred during the year. In fact, the Fonds’ asset allocation tends to limit its return potential in a bull market such as we have experienced in the last financial year, while the opposite occurs in a bear market.

FONDS RETURN Years ended May 31

2014 2013Assets under

management at end of year*

$MWeight

%Return

%

Assets under management at

end of year*$M

Weight%

Return%

Development capital investments 5,000 49.2 9.8 4,910 52.7 7.4

Other investments** 5,162 50.8 9.8 4,411 47.3 6.610,162 100.0 9.8 9,321 100.0 6.9

Total operating expenses (1.4) (1.4)Income tax (0.1) (0.2)Fonds return (annual) 8.3 5.3

Fonds return (1st six-month period) 4.4 2.3

* Assets under management at end of year refer to the fair value, at the end of the year, of the assets managed by the Investments and Other Investments sectors and used to generate revenues presented in the Statement of Operations. This amount differs from the amount of assets presented in the financial statements, which includes, unlike assets under management, notes from the liquidity surpluses of regional and local funds and certain specialized funds, among other things.

** Other investments represent the remaining assets not invested in partner companies. Managed by the Other Investments sector, they consist of the following portfolios: cash and money market, bonds, shares, absolute return strategies, international infrastructure funds and high-income.

SECTOR RESULTS

Investments sector The assets managed by the Investments sector are essentially mission-driven development capital investments made by the Fonds in public and private companies in the form of shares, units or loans. To stabilize its return, the Fonds favours a fair balance between investments in the form of loans—that are usually unsecured and provide a current return through interest payments—, investments in shares—that potentially generate a higher return but involve an increased level of volatility—, and investments in specialized fund units—that allow the Fonds to better diversify its portfolio while bringing private and foreign capital inflows to Québec. Development capital investments are governed by the Fonds’ Investment Policy, which is an important component of its Integrated Financial Assets Management Policy.

The Investments sector earned a gross return of 9.8% for the year, up from the gross return of 7.4% generated for the prior year. Taking into account this return and given the level of mission-driven investments made by the Fonds, the assets in this sector represented $5.0 billion or 49.2% of assets under management as at May 31, 2014 (52.7% as at May 31, 2013).

Fonds return (2nd six-month period) 3.7 2.9

4



The performance of the Investments sector is influenced by various factors, particularly the behaviour of the financial markets as well as the economic and business conditions in which our partner companies operate, and by the dynamic management of our investments. The gross return of 9.8% of the Investments sector for the most recently ended year is largely explained by the following:

• the return of 7.2% generated by our private securities and specialized funds portfolio during the year (compared to 6.7% for the previous year). This performance is essentially attributable to the general strength of the portfolio, which produced interest and dividend revenues and, in addition, generated an increase in value during the year;

• the return of 21.7% generated by our portfolio of listed securities during the year. This return is essentially explained by the very good performance of the stock markets during the last year, especially for small-cap companies. For the previous year, this portfolio had recorded a return of 11.0%, when the stock market conditions were also favourable.

Other Investments sector The Other Investments sector manages the Fonds’ assets that are not invested in partner companies. Other investments consist of the following portfolios: cash and money market, bonds, shares, absolute return strategies, international infrastructure funds and high-income. Other investments are managed in accordance with the Other Investments Portfolio Policy, which is an integral part of the Integrated Financial Assets Management Policy. The Other Investments Portfolio Policy is designed to optimize the return-risk ratio of the Fonds, diversify development capital investments and ensure that the Fonds has a liquidity level that is sufficient to meet all its obligations.

For the year, the Other Investments sector earned a gross return of 9.8%, up from the gross return of 6.6% recorded for the prior year. The assets of this sector represented $5.2 billion or 50.8% of the Fonds’ assets under management as at May 31, 2014 (47.3% as at May 31, 2013).

The evolution of interest rates and the performance of the stock markets are the determining factors in analyzing the performance of the Other Investments sector. Accordingly, the results achieved by this sector are influenced by the behaviour of the financial markets and the conditions affecting the economic environment. The gross return of 9.8% of the Other Investments sector for the year is largely explained by the following:

• the increase in stock markets, which led to a return of 19.4% for the shares and other securities1 portfolios. This performance follows a return of 12.1% for the prior year, when economic conditions were also characterized by an increase in stock markets;

• the return of 3.2% on our fixed-income portfolio for the year, compare to the return of 2.4% for the previous year. This return is essentially attributable to the interest income generated by the portfolio.

RETURN BY ASSET CLASS Years ended May 31

2014 2013Assets under

management at end of year

$MWeight

%Return

%

Assets under management at

end of year$M

Weight%

Return%

Development capital investmentsPrivate securities and specialized fundsListed securities

4,154846

40.98.3

7.221.7

4,042868

43.49.3

6.711.0

Other investmentsFixed-income securities 2,647 26.0 3.2 2,427 26.0 2.4Shares and other securities 2,515 24.8 19.4 1,984 21.3 12.1

10,162 100.0 9.8 9,321 100.0 6.9

1 Other securities are comprised of the following portfolios: absolute return strategies, international infrastructure funds and high-income.

5


TOTAL OPERATING EXPENSES Total operating expenses consist mainly of expenses related to assets under management, shareholder services, subscription activities, systems and controls and their improvement, the process of investing in partner companies, personnel and all otherresources the Fonds requires to achieve its mission and meet its objectives. Although it is essential that the Fonds has available resources to achieve its mission, it is also fundamental that it controls its expenses. Year after year, the Fonds was able to maintain its total operating expense ratio at a lower level than the average management expense ratio of Canadian balanced funds2, which stands at approximately 2.5% on an annual basis.

For the financial year ended May 31, 2014, the ratio of total operating expenses to net average assets for the year, calculated using the method prescribed in the Regulation, was 1.4% (1.4% for the previous year). Expressed in dollars, total operating expenses amounted to $137.5 million for the year ended May 31, 2014, compared to $129.9 million for the previous year. In addition to the normal increase related to the impact of inflation and salaries, operating expenses were affected by the environment in which the Fonds operated during the year.

ANALYSIS OF CASH FLOWS, BALANCE SHEET AND OFF-BALANCE SHEET ITEMS

Cash flows Cash flows from operating activities of the Fonds totalled $122 million for the year, up from $112 million for the previous year. Changes in these cash flows mainly resulted from our current operations.

Cash flows from financing activities of the Fonds totalled $91 million for the year, compared to $271 million for the prior year. These cash flows for the two years resulted largely from issues of shares amounting to $787 million ($855 million for the previous year) less redemptions of shares totalling $732 million3 ($535 million for the previous year).

Cash flows from investment activities of the Fonds represented a net cash outflow of $207 million for the year, compared to $388 million for the previous year. Cash needed to support net investments (acquisitions less proceeds from disposals) in partner companies was provided by both the cash flows from operating activities and the cash flows from financing activities of the Fonds discussed above.

The Fonds also has lines of credit available for its working capital requirements. As at May 31, 2014, these lines of credit were unused.

Balance sheet and off-balance sheet items Balance sheet development capital investments increased from $5.3 billion as at May 31, 2013 to $5.4 billion as at May 31, 2014. This $138 million growth mainly resulted from the increase in value of our development capital investments during the year, which more than offset our negative net disbursed investments of $41 million (disbursed investments of $378 million less disinvestments of $419 million).On a commitment basis, the Fonds made development capital investments of $548 million during the year, compared to $521 million for the prior year. In addition, funds committed but not disbursed increased from $838 million as at May 31, 2013 to $963 million as at May 31, 2014.

In addition, balance sheet other investments increased by $699 million during the year to $5.1 billion as at May 31, 2014 ($4.4 billion as at May 31, 2013). This growth is mainly attributable to the increase in value of securities held in the portfolio as a result of the stock market appreciation and, to a lesser extent, revenues generated by these securities as well as cash flows from investment and financing activities.

The Fonds uses derivative financial instruments in particular to increase its revenues or reduce its financial risks, to safeguard the value of its assets, to facilitate the management of its portfolios, to modify its asset allocation and to enhance its returns within allocated risk limits.

2 Canadian neutral balanced funds as compiled by globefund.com.3 This amount is presented on a cash basis and therefore includes the change in amounts payable between May 31, 2013 and May 31, 2014.

6



MISSION OF THE FONDS, OBJECTIVES AND STRATEGIES

MISSION AND OBJECTIVES The Fonds is a union-based development capital investment fund that was born out of the Fédération des travailleurs et travailleuses du Québec. Created in 1983 under the Act to Establish the Fonds de solidarité des travailleurs du Québec (F.T.Q.), the Fonds endeavours to collect the savings of Quebecers who want to participate in creating and maintaining jobs, in order to improve the situation of workers and to stimulate the Québec economy. The Fonds’ mission also includes raising awareness and encouraging workers to save for retirement as well as providing them economic training

The Fonds’ mission is supported by both levels of government since shares of the Fonds qualify for RRSPs and give rise to a 15% tax credit at both the Québec and federal tax levels, for a total of 30%4. The maximum tax credit is $1,500 per year, which corresponds to a purchase of $5,000 of shares.

However, in the federal budget tabled on March 21, 2013, the Government of Canada announced its intention to phase out through 2017 the 15% tax credit it grants to labour-sponsored fund shareholders. Despite the representations and proposals made by the two Québec-based labour-sponsored funds (the Fonds and Fondaction CSN), the Government of Canada passed Bill C-4 in December 2013 without amending the measures set out in the March 2013 budget. More specifically, according to these measures, the federal income tax credit remains at 15% until the taxpayer’s 2014 tax year (therefore including any contributions made during the first 60 days of 2015 and applied to the 2014 tax year), and will then be phased out through 2017. The Québec tax credit of 15% remains in place. Consequently, for the taxpayer’s 2014 tax year, total credits will continue to be 30%. Despite this decision by the Government of Canada, the Fonds will continue to make representations and proposals as part of the federal government’s various consultation processes to convince it to change its decision in future budgets.

It is important to highlight that the phase-out of the federal labour-sponsored fund tax credit will not affect the ability of the Fonds to seek a reasonable return or its ability to satisfy the eligible requests for redemption from its shareholders, as a significant part of its assets is liquid. In addition, it should be noted that the Fonds’ share value does not depend on the federal tax credit, on the size of the Fonds, on the annual subscriptions or on the redemption requests to the Fonds, but depends exclusively on the value of the Fonds’ assets, which are solid.

According to a KPMG-SECOR analysis, the Fonds’ business model will remain viable despite the feared decrease in subscription caused by this hidden tax hike. However, should subscriptions decrease, the Fonds will have to reduce its investments in Québec companies to maintain its model in balance. The conclusions of the KPMG-SECOR analysis show the potential disruptive effect of the federal government’s decision on the financing of Québec job-creating companies.

Put another way, the federal government’s decision, which will represent a significant tax increase for Québec workers who save (annual increase of $418 for the average Fonds shareholder who invests $2,785 per year), could reduce subscriptions and, consequently, job-creating investments in the Québec economy.

4 Please see the prospectus for more information.

7


The business model the Fonds uses to achieve its mission can be illustrated as follows:

When shareholders buy shares of the Fonds, an entire process is set into motion. A portion of the money collected from shareholders (in consideration of which the Fonds issues them shares) is first invested by the Fonds, pursuant to its mission, in shares, units or loans in private and public companies in Québec, or in companies that generate economic spinoffs in Québec. The investments made by the Fonds in compliance with its mission represent the development capital investments portfolio, and the companies in which the Fonds invests become partner companies of the Fonds. Pursuant to the Fonds’ Incorporation Act, this portion invested in partner companies must comply with the 60% rule5. To ensure sound diversification of its financial assets, the other portion of the money collected but not invested in Fonds partner companies is invested in other financial instruments in a way that allows the Fonds to meet its liquidity needs, to produce current revenue sufficient to cover expenses and to contribute to the generation of a reasonable return to the shareholders. All of these other financial investments represent the other investments portfolio. The Fonds’ interests in partner companies are qualified as patient capital as they are intended to be held over an investment horizon generally ranging from 5 to 7 years, depending on the financial instrument used. The sums raised when an interest held by the Fonds is sold or bought back (disinvestment) are reinvested in other companies or used to reimburse shareholders who request a share redemption, in accordance with our retirement orearly retirement criteria. On average, shareholders request a redemption approximately 10 years after their first share purchase. During this 10-year average period, given the Fonds’ investment horizon, the shareholders’ money would therefore have been invested in development capital more than 1.5 times.

STRATEGIES To implement its mission and to reach its objectives, the Fonds deployed various strategies, both from a global management perspective and by sector. Therefore, in an overall perspective, the Fonds implemented an Integrated Financial Assets Management Policy applicable to all the Fonds’ financial assets. The objective of this policy is to manage the financial assets in an integrated and comprehensive way to ensure sound diversification and an optimal return/risk profile while complying with the mission of the Fonds and meeting the expectations of its stakeholders. The Integrated Financial Assets Management Policy is complemented by the Investment Policy for the development capital investments managed by the Investments sector and the Other Investments Portfolio Policy for the assets managed by the Other Investments sector. The assets in the other investments portfolio are allocated in a way that is complementary to the portfolio of mission-driven investments made in partner companies in order to allow the Fonds to obtain, overall, the desired return/risk ratio.

5 For more on this, please see the “60% rule” section of this MD&A.

8



The Integrated Financial Assets Management Policy takes into account actual and expected changes in the Fonds’ business, particularly the expected increase in redemptions due to aging shareholders and the increase in the size of the portfolio of mission-driven development capital investments. In fact, the weight of investments disbursed by the Fonds, which was 49% as at May 31, 2014, should gradually increase. During the financial year, a detailed review of the Integrated Financial Assets Management Policy was undertaken to revise it in order to maintain the balance sought between the various components of the Fonds’ balance sheet, maintain the desired return/risk ratio and continue to meet the expectations of stakeholders. The recommendations arising from the revision work approved at the meeting of the Board of Directors held on February 27, 2014 involve adding integrated management guidelines for all the Fonds’ financial assets and revising the Other Investments Portfolio Policy. The integrated management guidelines ensure complementarity between the assets managed by the Investments and the Other Investments sectors as well as sound diversification and exposure to each major asset class given the expected changes in the Fonds’ financial assets. The work related to revising the Other Investments Portfolio Policy resulted in changes to the asset mix and the management structure of the Other Investments sector, which are being progressively implemented.

The Shareholder Services sector The Shareholder Services sector had its third strongest subscription performance ever with its results for the 2013-2014 financial year.

During the financial year, the Fonds collected subscriptions allowing it to issue shares totalling $787 million. The number of new shareholders totalled 23,855, bringing the Fonds’ total number of shareholders to 613,958 as at May 31, 2014. These results are important to highlight given the difficult context in which they were achieved, especially thanks to the sustained effort of employees and the local representative (LR) network.

The annual volume of subscriptions through systematic savings was $435 million and continues to represent the largest proportion of the Fonds’ subscriptions, thanks to the support of our LRs. Their commitment, personalized approach and proximity to shareholders resulted in 18,813 shareholders starting payroll deduction in 2013-2014. The number of recruitment and loyalty-building activities they executed in the workplace increased from 2,068 last year to 2,195 this year. To support the LRs in their day-to-day activities, the Fonds, in collaboration with the Fondation de la formation économique, provides them with training and information on an ongoing basis. In 2013-2014, 136 training activities were offered.

Online transactions are gaining popularity with our shareholders and the general public. In fact, $163 million was collected through various virtual channels in 2013-2014 and, for the first time this year, the mobile versions of the Fonds’ online platforms were available. It is worth pointing out that 18% of the traffic to the Fonds’ website originates from tablets and smartphones.

As expected, redemptions increased to $729 million for the financial year ended May 31, 2014, compared to $542 million for the financial year ended May 31, 2013. Retirement, accounting for $634 million, is the main reason for the redemption requests.

The activities of SÉCURIFONDS, Financial Services Firm Inc. are increasing as anticipated when it was created in 2010. Its mission involves supporting our shareholders as they prepare for retirement. As at May 31, 2014, over 2,400 savers held products offered by SÉCURIFONDS, for assets under management totalling over $60 million.

The Shareholder Services sector is proud of its results for the year and now plans to stay the course with the three same axes for its future activities: developing systematic savings, mobilizing the LR network and building shareholder loyalty.

The Investments sector The Investments sector’s strategies, which support the Fonds' achievement of its mission regarding development capital investments in Québec's economy, are integrated in the global perspective defined by the Integrated Financial Assets Management Policy, which includes the Investment Policy, and vary, among other things, depending on fluctuations of the 60% rule which the Fonds must follow pursuant to its Incorporation Act (for more on this, see the "60% Rule" section).

To enable risk diversification, the Fonds allocates its investment portfolio among various economic sectors. Generally, the Fonds holds a minority interest in the companies it in which it invests. Over the years, this approach to investing has allowed the Fonds to develop extensive knowledge of the various sectors in which it invests, and its partner companies highly value the expertise this has allowed it to develop.

Every year the Fonds undertakes an analysis to determine the sectors that will be prioritized given the behaviour of the financial markets and the economic and business conditions of the various sectors, as well as based on the dynamic management of its investments. The priorities are determined within the risk management framework implemented by the Investments sector several years ago, which helped improve the quality of the portfolio and stabilizing the return.

9


Multidisciplinary teams support our investment specialists with their expertise: legal, tax, business valuation, market study, due diligence, labour relations and public market departments. A due diligence committee reviews all files submitted to governing bodies to identify the associated risks taking into consideration the Fonds’ mission. In addition, to deal with more difficult situations, the Senior Vice-President, Turnaround Management and Special Projects, together with the Vice-President, Legal Affairs, very closely monitor investments that entail greater credit risk.

To fulfill its Québec economic development and job creation mission, the Fonds invests significantly in the form of unsecured risk capital (development capital) in partner companies. To have an accurate idea of the Fonds’ efforts in Québec’s economic development, we must go beyond the image given by the portfolio as at a particular date and look at amounts invested in the form of unsecured risk capital (development capital) over a certain period.

As the following graph illustrates, during the financial years 2005 to 2014, i.e. a 10-year period, the Fonds has committed $5.7 billion of unsecured risk capital (development capital) to partner companies. Of this amount, $2.1 billion has been invested in venture capital6

either directly in private companies ($1.1 billion) or indirectly in private funds ($1.0 billion) in Québec and Canada. The investments made by the Fonds in private funds had a structuring effect on the Québec venture capital industry and allowed these private funds to raise several additional billions of dollars.

The Other Investments sector In managing the balance of assets not invested in partner companies (presented under “Other Investments” in the financial statements), the Other Investments sector is governed by the Other Investments Portfolio Policy, which forms an integral part of the Integrated Financial Assets Management Policy. The objective of the Other Investments Portfolio Policy is to optimize the Fonds’ return/ risk ratio, diversify development capital investments and provide the liquidity necessary for the Fonds’ to meet all its obligations.

The assets of the Other Investments sector are managed internally by a team of specialists and externally by specialized managers. The internal team of specialists manages the cash and money market portfolio, part of the bond portfolio and the high-income portfolio. The portfolios that are managed internally represented $2.0 billion as at May 31, 2014, or 40% of the total amount of other investments (47% as at May 31, 2013). To improve the overall performance of these portfolios, the Fonds’ specialists have some latitude in implementing tactical strategies on the market; these transactions must comply with the Other Investments Portfolio Policy and the guidelines authorized by the Financial Assets Management Committee.

6 Venture capital comprises high-risk investments made directly or indirectly by the Fonds in companies in the start-up or early development stage, particularly in the new economy sector.

10



For portfolios managed externally, the Fonds retains the services of specialized managers which allows optimizing the management of those portfolios. One of the benefits of this kind of management is the implementation of specialized management strategies, such as active management of the duration of the bond portfolio, which targets generating added value for the portfolios in question through the expertise the selected specialists have in the area.

Using derivative financial instruments provides active management of market risks to which the Fonds is exposed. When appropriate, the Other Investments sector develops a risk management strategy, which must be authorized by the appropriate governing bodies, to reduce the Fonds’ exposure to market risks.

During the last financial year, some changes affecting the Other Investments sector were phased in. On the one hand, the equity benchmark index was switched from an in-house index composed of five sectors to the S&P/TSX and MSCI Global 10 sector indexes, and on the other hand, the currency hedge on the global equities portfolio was gradually removed. The Fonds is also phasing out thehigh-income portfolio, the absolute return strategies class and the international infrastructure funds. Other changes were made as part of the revision of the other investments portfolio, including a reduction in the bond target allocation in favour of increasing stocks, adopting an active management approach for Canadian equities and adding low-volatility, high-dividend equities in order to optimize the Fonds’ return/risk ratio. The implementation of these other changes started during the financial year and is expected to be completed by June 30, 2014.

The activities of the Other Investments sector fall under the responsibility of two separate Vice-Presidents: the Vice-President, Marketable Securities Portfolio Management and the Vice-President, Financial Management and Strategy. This structure helps the Fonds continue prioritizing the optimization of its return/risk ratio despite the increasing complexity of financial markets.

60% RULE

The 60% rule set out in the Fonds’ Incorporation Act stipulates that the Fonds’ average unsecured investments in qualified business enterprises must represent at least 60% of its average net assets of the previous financial year. The Fonds may invest the remaining assets in other financial vehicles for asset diversification and sound management purposes. The calculation method for this rule is based on the value of the Fonds’ assets, which depends in part on interest rate fluctuations and on the performance of stock markets and the economy in general.

As at May 31, 2014, the value of average qualified investments7 amounted to $5.8 billion or 65.1% of the average net assets of the previous financial year (compared to 66.0% as at May 31, 2013). Since the minimum percentage prescribed was reached as at May 31, 2014, the amount of share issues for the 2014-2015 financial year will not be limited by the 60% rule. However, as mentioned later in the “Recent developments” section, as part of the 2014-2015 Québec budget tabled on June 4, 2014, the Government of Québec decided to set a limit on share issues by tax-advantaged funds for the 2014-2015 fiscal year. This limit for the Fonds amounts to $650 million in shares giving rise to a tax benefit.

As at May 31, 2014, in addition to the 60% rule, the Fonds was in compliance with all other limits and rules set out in its Incorporation Act. The Fonds expects to comply with all the limits and rules set out in its Incorporation Act over the next several years.

7 These investments include funds committed but not disbursed as well as guarantees and suretyships.

11


RECENT DEVELOPMENTS

LIMITATION ON FONDS SHARE ISSUES As part of the 2014-2015 Québec budget tabled on June 4, 2014, the Government of Québec decided to set a limit on share issues by tax-advantaged funds for the 2014-2015 fiscal year. The limit for the Fonds will amount to $650 million in shares giving rise to a tax benefit and will have no impact on its share return or its ability to redeem its shares. However, it will reduce both the ability of the Fonds to invest in Québec SMEs and, the ability of Quebec workers to save for retirement.

ACCOUNTING POLICIES – INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) In 2008, the Accounting Standards Board of Canada (AcSB) announced that publicly accountable enterprises would have to replaceCanadian generally accepted accounting principles (GAAP) by IFRS in their financial statements for the years beginning on or after January 1, 2011. Then, in December 2011, the AcSB confirmed that investment companies, as defined in the Accounting Guideline oninvestment companies of the CPA Canada Handbook – Accounting, will have to apply IFRS for the first time to their interim and annual financial statements for the years beginning on or after January 1, 2014, at the latest. The Fonds intends to meet this first-time adoption date and will therefore apply IFRS for the first time to prepare its financial statements for the six-month period ending November 30,2014.

IFRS conversion plan

The Fonds adopted an IFRS conversion plan comprising three phases: a diagnostic phase; a standards assessment, detailed analysis issue resolution and model financial statements preparation phase; and a change integration phase.

The first phase was completed before the end of the financial year ended May 31, 2009. This phase included identifying the IFRS having an impact on the Fonds as well as the main issues and priorities to assess in the context of the Fonds.

The part of the second phase dealing with standards assessment, detailed analysis and issue resolution was completed in May 2010. It included a more detailed analysis of the IFRS and the differences with current Canadian standards and their interpretations in order to identify the impact the conversion will have on processes, systems and the financial statements. The Fonds is currently finalizing its financial statements prepared in accordance with the new standards.

During the change integration phase, we will keep accounting records both under GAAP and IFRS to be able to present comparative information upon transition. In addition, the Fonds deployed its training plans, which are intended to upgrade the knowledge of its accounting staff and other stakeholders of the organization who are affected by the IFRS conversion.

The Fonds continuously monitors the development of IFRS to assess its impact.

Main expected changesThe following table presents only the significant differences between GAAP currently applied by the Fonds and IFRS. While noteworthy, these differences do not necessarily have a significant impact on the Fonds’ financial statements. This table was prepared based on current standards that would be effective as at the date of transition; however, certain standards could be amended and the Fonds could reassess its position as needed. The impact assessment reflects the results of the analysis based on the current situation.

12



Accounting policy Main differences between GAAP and IFRS Impact on financial statements

Consolidation Under GAAP, investment companies meeting certain criteria recognize their investments at fair value, in accordance with Accounting Guideline AcG-18, Investment Companies. This rule applies to all investments, including those in entities in which the investment company holds more than 50% of voting shares and those in entities over which it exercises control.

On October 31, 2012, the International Accounting Standards Board (IASB), the international standard-setting organization, issued a document entitled Investment Entities(amendments to IFRS 10, IFRS 12 and IAS 27), which defines investment entities and provides for an exception to the consolidation principle for such entities. Under this exception, investment entities measure their investments in controlled entities at fair value—instead of consolidating them—and recognize changes in fair value in profit or loss. In addition, the document specifies certain disclosure requirements regarding these investments in controlled entities.

The Fonds does not currently prepare consolidated financial statements and recognizes all its development capital investments and other investments at fair value.

IFRS now provide for an accounting treatment for controlled entities that is similar to the treatment currently applied by the Fonds. The Fonds meets the definition of an investment entity set out in the recent amendments to the standards.

The Fonds is currently finalizing its assessment of the disclosure requirements under IFRS.

Financial instruments Under GAAP, the Fonds recognizes all itsdevelopment capital investments and otherinvestments at fair value, in accordance withaccounting principles applicable to investmentcompanies.

Other than for financial instruments subject toconsolidation, as described above, IFRS thatapply to financial instruments are similar toGAAP.

The Fonds will recognize all its financial instruments at fair value, as it currently does.

Financial instruments – fair value

Under GAAP, listed financial instruments are measured at the closing bid price at the balance sheet date.

Under IFRS, if an asset measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances must be used to measure fair value.

The Fonds will use the most relevant fair value within the bid price and ask price range.

13



Property and equipment (Capital assets)

IFRS require that each component of an item of property, plant and equipment be depreciated separately when such item of property, plant and equipment is comprised of components to which different depreciation rates apply. One impact of this requirement is that more components are recognized under IFRS than under GAAP.

Under IFRS, an item of property, plant and equipment may be measured using the cost model or the revaluation model. GAAP preclude the remeasurement of property, plant and equipment at fair value.

Upon transition to IFRS, IFRS 1 First-Time Adoption of International Financial Reporting Standards allows an entity to use the fair value of an item of property, plant and equipment as its deemed cost as at the date of transition.

The list of the specific components of the Fonds’ buildings has been prepared.

The Fonds expects to use the fair value of its buildings as their deemed cost as at the date of transition.

After the transition, the Fonds expects to continue using the cost model to measure its property and equipment.

Investment property Under IFRS, an investment property is defined as a property held to earn rentals or for capital appreciation, or both. An investment property may be measured using the cost model or the fair value model.

However, investment entities are required to apply the fair value model, thereby eliminating the above-mentioned choice.

GAAP do not include a specific definition of investment property.

The Fonds will reclassify in its balance sheet the portion of the buildings that it leases out.

The Fonds will measure this portion of the buildings that it leases out at fair value.

Employee benefits Under IFRS, past service cost of defined benefit pension plans for which benefits are already vested is immediately expensed. Under GAAP, it is usually amortized over the average remaining service period of active employees.

Under GAAP, the actuarial gains or losses of defined benefit pension plans that exceed the “corridor” are amortized over the average remaining service period of active employees. This option to defer the recognition of gains and losses, which was previously allowed by IFRS, has been eliminated with the issuance of an amendment to IAS 19 Employee Benefits.

The vested portion of past service cost will have to be immediately recognized in net assets.

The Fonds will recognize all net actuarial losses of pension plans in net assets.

14




Income taxes Under GAAP, the portion of income taxes paid that will be refundable in the future upon the payment of dividends or a transfer from retained earnings to share capital must be recognized as an asset. In addition, income tax rates used in the calculation of future income taxes already include the favourable effect of refundable taxes.

The interpretations of the accounting treatment of income taxes required under IFRS were subject to discussions, which led to the following conclusion: the Fonds considers itself, in substance, exempted from accounting for income taxes related to capital gains and, accordingly, does not recognize any deferred tax liabilities for unrealized net gains on investments nor any corresponding deferred tax assets for unrealized recoveries resulting from the tax mechanisms related to refundable capital gains tax on hand.

The accounting treatment for income taxes under IFRS will becomparable to the accounting treatment currently used by the Fonds.

Based on work performed to date, the impact on net assets and net assets per share at the date of transition is not expected to be material.

The Fonds believes that the IFRS conversion will not require major changes to its information systems, its data processing procedures and its various activities. The Fonds also believes that its current internal control over financial reporting and disclosure controls and procedures will be sufficient and adequate for adopting IFRS and meeting their related disclosure requirements.

15


PAST PERFORMANCE This section presents the past performance of the Fonds. The past performance of the Fonds does not necessarily indicate how it will perform in the future.

YEAR-BY-YEAR RETURNS OF THE FONDS The following chart shows the Fonds’ annual performance and illustrates how the Fonds’ performance has changed from year to year for the last ten financial years.

The annual performance of the Fonds is calculated by dividing net earnings (net loss) per share for the financial year by the value per share at the beginning of the financial year. Such performance sometimes differs from the annual compound return to the shareholder because the annual performance of the Fonds is calculated taking into account share issues and redemptions made during the year, which have a dilutive or accretive effect on net earnings (net loss) per share, as the case may be.

ANNUAL COMPOUND RETURNS TO THE SHAREHOLDER At the current value of $30.29 per share, a shareholder who has invested at the beginning of each of the periods indicated below earns the following annual compound returns:

The annual compound return to the shareholder is calculated by taking into account the annualized change in the price per share over the periods indicated. This return sometimes differs from the annual performance of the Fonds since, as explained above, it does not take into account the dilutive or accretive effect of share issues and redemptions made during the year.

Since the inception of the Fonds, the annual compound return to the shareholder has been 3.8%.

ANNUAL COMPOUND RETURNS TO THE SHAREHOLDERS (INCLUDING TAX CREDITS)

Let’s take, for example, a shareholder who has invested an equal amount each year through payroll deduction. Including the Québec and federal labour-sponsored fund tax credits (each amounting to 15%) that this shareholder has received, at the current value of $30.29 per share, this shareholder earned an annual compound return of 15.5% and 11.2% for a 7-year and 10-year period, respectively. In addition to this return, the shareholder can receive additional tax benefits if he transfers his Fonds shares to an RRSP.

16



SUMMARY OF INVESTMENT PORFTOLIO As at May 31, 2014, the Fonds’ assets under management were broken down between the following categories of the development capital investments and other investments portfolios:

Asset classes % of net assets

Development capital investmentsPrivate securities 29.9Specialized funds 11.1Listed securities 8.4

49.4

Other investmentsCash and money market 2.3Bonds 23.8Shares 23.3Hedge funds8 0.3High-dividend shares9 0.8International infrastructure funds 0.5

51.0

As at May 31, 2014, the issuers of the top 25 positions held by the Fonds, of which 16 are part of the development capital investments portfolio and 9 are part of the other investments portfolio, were as follows:

Issuers % of net assets

Development capital investments(16 issuers)* 29.0Other investments(9 issuers)** 16.5

45.5

* The 16 issuers representing, as a group, 29.0% of the Fonds’ net assets are:

** The 9 issuers representing, as a group, 16.5% of the Fonds’ net assets are:

Camoplast Solideal inc. Cogeco Câble inc.Corporation Financière L'Excellence ltéeEntreprises québécoises publiques10

Fonds immobilier de solidarité FTQ inc.10

Fonds immobilier de solidarité FTQ I, s.e.c.10

Fonds immobilier de solidarité FTQ II, s.e.c.10

Gestion TFI inc.Metro inc.Société de gestion d'actifs forestiers Solifor, société en commandite10

Société en commandite Groupe CHSSQ Financial Group11

TMX Group LimitedTranscontinental inc.Trencap s.e.c.VC, société en commandite

Province of Ontario 4.3%Province of Québec 2.8% Financement-Québec 2.5% Government of Canada 2.1%Canada Housing Trust No 1 1.3% Royal Bank of Canada 1.1%Hydro-Québec 0.8%Laurentian Bank of Canada 0.8% The Bank of Nova Scotia 0.8%

This summary of investment portfolio may change due to ongoing portfolio transactions of the Fonds.

8 Hedge funds are included in the absolute return strategies portfolio.9 High-dividend shares are included in the high-income portfolio.10 Despite their relatively important weight in the overall portfolio of the Fonds, these issuers do not constitute a significant concentration risk given the large

number of investees.11 Includes all of the Fonds’ investments in SSQ, Life Insurance Company Inc. and its subsidiaries, SSQ Insurance Company Inc. and SSQ General Insurance

Company Inc. Includes also the Fonds’ investment in SSQ, Mutual Holding Inc.

17


CONTRIBUTION TO QUÉBEC’S ECONOMIC DEVELOPMENT In keeping with its mission, the Fonds made investments over the financial year that contributed to creating, maintaining or saving quality jobs in different sectors of the Québec economy. In the current, still uncertain economic conditions, the Fonds continues to play an active role in the development and growth of Québec companies. As such, during the financial year, the Fonds invested $548 million, on a commitment basis, to support Québec entrepreneurs in their development projects. Here are a few examples of the Fonds’ contribution to Québec’s economic development during the financial year.

To support the Québec aerospace sector and the growth of a leader, the Fonds invested $1.4 million in AV&R Vision & Robotics. This investment helped AV&R Vision & Robotics merge with IMAC Automatisation, making AV&R the world’s largest robotics company in aerospace, and one of the largest engineering firms specialized in automation.

In the services industry, the Fonds contributed, with a $15 million investment in Coalision Inc. (Lolë), to the orderly transfer of ownership of the company by management, and therefore ensured that the company remained in Québec. Colabor Group Inc., a wholesaler anddistributor of food products serving the retail and foodservice markets, received a $30 million reinvestment from the Fonds. Through this reinvestment, the Fonds wanted to continue to support this partner, a very important player in its market in Québec. In addition, the Fonds provided financing of $15 million to Lunetterie New Look for its acquisition of the assets of Vogue Optical, a company that operates a network of 64 optometry clinics in the Maritimes. This transaction makes Lunetterie New Look the third largest integrated optical products retailer in Canada, and the eighth largest in North America.

The Fonds also collaborated directly in the development of its long standing partner, Atrium Innovations, with an investment totalling $81.1 million ($58.9 million through Acquisition Glacier and $22.2 million in Atrium Innovations), allowing it to stay in Québec. The transfer of ownership to Permira, a European venture capital firm, will help turn Atrium Innovations into a recognized global leader and support its expansion into emerging markets. In addition, the Fonds helped capitalize Versant Venture Capital V, L.P., a private venture capital fund, with a $16.4 million investment. This fund is looking to bring its “Build to Buy” investment model to Québec by opening a drug discovery unit in Montréal, which should eventually employ more than 20 people.

The Fonds Valorisation Bois invested $10 million in Groupe Lebel, which allowed the company to proceed with the acquisition of The Cambium Group and thereby continue its expansion and consolidation. It should be remembered that the Fonds made a $75 million commitment to the Fonds Valorisation Bois; this investment fund for high value-added wood transformation will help businesses in the forestry industry move into new niches such as green construction, green energy and green chemicals, which are all supported by the forestry industry.

Over the years, the Fonds made investments pursuant to the Policy for Investment Outside Québec that have had significant economic spinoffs for Québec. During the financial year, the Fonds invested $20.1 million ($53.9 million in the previous year) in two companies in accordance with this policy.

The Fonds made an investment in a private fund outside of Québec of $16.4 million during the financial year ($29.7 million in the previous year). As mentioned previously, this $16.4 million investment was made in Versant Venture Capital V, L.P., a U.S. fund.

During the financial year, the Fonds invested $3.7 million in Adetel Group, a company meeting the company impacting the Québec economy criteria ($5.2 million in the previous year). The Fonds did not make any investment in the category of companies undertaking large-scale projects in Québec ($19.0 million in the previous year).

12 Since 1998, the Fonds has been authorized by the Minister of Finance of Québec to invest outside Québec provided certain clearly defined conditions are met, notably with regards to economic spinoffs in Québec. The main groups of eligible investments are private funds outside Québec, companies impacting the Québec economy and large-scale investment projects (financing for expansion, modernization, productivity improvement).

18

POLICY FOR INVESTMENT OUTSIDE QUÉBEC12



THE FONDS' INVESTMENT NETWORK Since its inception in 1983, the Fonds has built a solid investment network that provides entrepreneurs who follow their ambitions with patient capital based on their needs. A veritable business hub brimming with ideas, talent and knowledge, this network offers the Fonds' partner companies the opportunity to share their concerns with other SMEs, learn from past experiences and forge new business ties. The Fonds’ investment network, which covers all of Québec, revolves around five levels of investment:

• The Fonds de solidarité FTQ generally offers $2 million and up for large companies.

• The fonds régionaux de solidarité FTQ generally offer capital ranging from $100,000 to $2 million to meet the needs of businesses in their region.

• The local solidarity funds, created by the Fonds and the Québec Federation of Municipalities, generally offer $5,000 to $100,000 to small businesses.

• The fonds immobiliers de solidarité FTQ are specialized in real estate investment and development. Their main objective is to create and save jobs through building or renovating major office buildings and commercial, industrial, institutional and residentialproperties.

• The other specialized funds form an investment network in Québec and abroad that invests in assorted industries. The Fonds’ commitment to this network continued in 2013-2014, with the ongoing goal to facilitate Québec SMEs’ access to capital in all their stages of development.

Québec entrepreneurs have access to the entire Fonds investment network through its website: www.fondsftq.com. In addition to searching for our financing projects and for members of our teams of experts, this one-stop shop for investment provides details on the Fonds, the regional funds, the local funds and the real estate funds.

The following graph shows the breakdown of the Fonds’ investments based on its various network components:

DISTRIBUTION OF INVESTMENTS BY NETWORK COMPONENTS (AT COST) As at May 31, 2014

19


TRENDS AND OUTLOOK TRENDS IN THE VENTURE CAPITAL INDUSTRY13 The Québec market, which was down sharply in 2012, posted the strongest growth in Canada in 2013, with amounts invested increasing by 46% to total $588 million. Transactions in Québec represented 30% of all dollars invested in the Canadian market in 2013, allowing Québec to recover market share lost in 2012. Investments in Québec in 2013 were at their highest level since 2007, a record year in the pre-2008-2009 financial crisis cycle.

It should be noted that Québec succeeded in attracting significant investments from abroad: U.S. and other foreign funds represented a third of the amounts invested in Québec in 2013, injecting $195 million in Québec businesses, up 84% from the previous year. For the same period, local venture capital investors increased their transactions by 33%, with total investments of $393 million, mainly due to the involvement of government, institutional, and tax-advantaged funds.

With regards to the allocation of investment by sector, the big winners in 2013 were the non-technology and clean technology sectors, with $208 million and $200 million respectively, or 36% and 34% of the total venture capital invested in Québec. The information technology and life sciences sectors, totalling $114 million and $67 million respectively in 2013, were less popular with investors.

On a broader level, venture capital investments were up in 2013 compared to the previous year across the North American market. The Canadian market grew 31%, with $2 billion in investments (up from $1.5 billion in 2012), while investments in the United States grew a more modest 7%, to total $29.4 billion.

TRENDS IN THE SAVINGS MARKET AND RRSP Like the population in the rest of Canada, the population of Québec is aware of the importance of saving in order to accumulate financial capital for retirement or other goals. But despite everything, the personal savings rate in Canada, as calculated by Statistics Canada, was close to a historic low at 3.9% in 2013. By comparison, this rate was over 6% during the hardest times of the last recession (2008-2009) and was 20% at the beginning of the 1980s. In Québec, the savings rate is even lower. In fact, according to the Institut de la statistique du Québec, it was 2.5% in 2013. One factor that explains this situation both in Québec and the rest of Canada is the level of household debt, which has held fairly steady for over a year at a historic high: for the country as a whole, the household debt to disposable income ratio was 164% in the fourth quarter of 2013. Soaring mortgage credit in response to a hot real estate market in recent years is a major factor explaining household debt, and consequently, the decline in discretionary income available for saving.

According to an Ipsos Reid poll, the rate of Canadians holding RRSPs would be 59% for 2013, a sharply higher proportion than for Québec (49%) based on a SOM poll. This data suggests that a proportionally less significant number of savers in Québec chose this type of plan to save for retirement. There could be many reasons for this: higher tax rates in Québec compared to the rest of Canada leave less money in the taxpayer pockets, high household debt rate, a higher unemployment rate, increased job instability following an increase in part-time jobs to the detriment of full-time jobs, and so on.

In this context, it is clear that making Quebecers aware of saving and encouraging them to save, which is an integral part of the Fonds’ mission, remains a core priority, especially with regards to young people. On this point, we believe that the communication strategy that we designed specifically for them, as well as the involvement of our network of 2,039 LRs, our return, and the tax credits our shares give rise to are all features that should continue to allow, once again in 2014-2015, the Fonds’ shares to keep their advantageous position among all the retirement savings products available on the market.

13 The information presented in this section only concerns the venture capital category and is therefore not representative of the Fonds’ overall development capital investments. In addition, most of the information presented in this section covers the 2013 calendar year, which is different than the Fonds’ financial year.

20



FONDS OUTLOOK14 Based on current financial and economic outlooks, and given our mission and investment strategy, we are anticipating an average annual return of 2.5% to 3% on a long-term horizon. This return does not take into account the tax credits granted to shareholders upon purchasing shares of the Fonds and is subject to significant volatility on a six-month or annual basis.

While the Fonds is confident it will reach its return objective over a long period, the annual return depends on current economic conditionsand the ups and downs of the stock and financial markets. Therefore, the Fonds’ return over the 2014-2015 year will be greatly influenced by stock market returns. The return for private securities is also linked to the general performance of the economy and may be lower than their historic average returns, particularly because of an increase in the cost of credit, adverse impact of economic conditions, the volatility of the Canadian dollar compared to the U.S. dollar and the effects of foreign competition. The Fonds is targeting a ratio of total operating expenses to average net assets similar to or lower than the ratio achieved for the financial year ended May 31, 2014.

In 2014-2015, with issues of shares giving rise to a tax benefit limited to $650 million and anticipated share redemptions greater than share issues, the growth of the Fonds’ net assets will depend on its return. In addition, considering the current 60% rule level and the $650 million limit on issues of shares giving rise to a tax benefit in 2014-2015, the volume of investments made by the Fonds should be similar to the 2013-2014 financial year.

The phase-out of the federal income tax credit will not, strictly speaking, affect the overall strength of the Fonds’ assets, the share value, the return to shareholders or the ability of the Fonds to redeem shares, even in the long-term. However, as mentioned previously, the federal government’s decision, which will represent a significant tax hike for Québec workers who save, could reduce subscriptions and, consequently, decrease the Fonds’ job-creating investments in the Québec economy.

14 The outlook presented in this MD&A reflects the Fonds’ expectations with respect to future events, based on information available to the Fonds as at June 26, 2014,and presupposes certain risks, uncertainties and assumptions. Many factors, several of which are beyond our control, may cause the Fonds’ actual results, performance, or achievements to differ materially from explicit or implicit expected future results, performance, or achievements.

21


RISK MANAGEMENT

Sound risk management practices are vital to the success of the Fonds. We manage our risk within a framework taking into account the nature of our activities and the risks we can reasonably assume considering the desired return/risk ratio and stakeholderexpectations. To that end, we capitalize on a structured process to determine, measure and control the significant risks with which we must contend.

Notice to readers: The following paragraphs and the sections on market risk, credit and counterparty risk and liquidity risk form an integral part of the financial statements on which an unmodified opinion was expressed in an independent auditors’ report datedJune 26, 2014.

The Fonds manages all its financial instruments in an integrated, comprehensive manner in accordance with the standards set out in the Integrated Financial Assets Management Policy. The Integrated Financial Assets Management Policy is complemented by the Investment Policy for the development capital investments managed by the Investments sector and by the Other Investments Portfolio Policy for the assets managed by the Other Investments sector. These policies, which were adopted by the Board of Directors, set goals, guidelines and several limits so that the Fonds’ management can ensure that the target return/risk profile is reached. The Fonds uses derivative financial instruments in particular to increase its revenues or reduce its financial risks, to safeguard the value of its assets, to facilitate the management of its portfolios, to modify its asset allocation and to enhance its returns within allocated risk limits.

During the year ended May 31, 2014, the risk management approach continued to evolve, after the Fonds undertook, a few years ago, a process to implement an integrated risk management framework. The objective of this process was essentially to provide the Fonds’ management with an overall vision of all risks to ensure that they are managed in accordance with their degree of importance. The production of an integrated risk profile allowed prioritizing the key financial and non-financial risks to which the Fonds is exposed, before and after considering the effectiveness of the controls implemented to mitigate the Fonds’ exposure to these risks. A mitigation strategy was developed for some of these risks, and action plans were set up and deployed. In addition, the Fonds produces on a quarterly basis a risk scorecard. This scorecard, which is integrated into its corporate scorecard, allows management to monitor the evolution of risks with respect to its business objectives and strategies.

The integrated risk management approach was also designed to improve risk governance, monitoring and reporting. To that end, the Board of Directors of the Fonds adopted, in May 2012, the Integrated Risk Management Policy, a new policy that sets out the Fonds’requirements in that regard while specifying the responsibilities of the main stakeholders involved. This policy has been in effect since June 1, 2012 and continued to be implemented throughout the 2013-2014 financial year.

In addition, as the Fonds chose to manage its risks using the principle of subsidiarity, the Fonds’ business sectors have started to review their procedures and processes to integrate the management of the risks identified in the Integrated Risk Management Policyinto the management of their operations. The review of processes has been completed in the Other Investments and Investments sectors and has started in two other sectors of the Fonds (Shareholder Services and Information Technologies) during the financial year.

In the normal course of business, the Fonds is exposed to various risks; the principal ones are presented hereafter.

MARKET RISK

Market risk, which is inherent to the Fonds’ participation in financial markets, represents the risk of losses in value arising from fluctuations in interest rates, exchange rates and prices of listed financial instruments. More specifically, this risk varies with the financial markets’ conditions and certain parameters of these markets, such as volatility, that may lower the value of the Fonds’ financial assets and thus have a negative impact on its Balance Sheet and Statement of Operations. Difficult economic or financial conditions may thus have a negative impact on the value of the Fonds’ shares.

The Fonds manages market risk by allocating its financial assets across several classes. In addition, it invests in various industries (government and government agencies, financial institutions, technology, manufacturing and primary, services and tourism, regional or local funds and real estate) and geographic areas, within the limits allowed by its Incorporation Act.

The Fonds’ financial assets are especially sensitive to listed share prices and fluctuations in bond interest rates (Canada bond rates and credit spreads). The Fonds’ financial assets are also sensitive to exchange rate fluctuations, but since most of its transactions are in Canadian dollars, the Fonds’ direct exposure to currency risk is relatively low. Furthermore, hedging mechanisms such as foreign currency forward contracts may be used.

22



As part of the revision of the Integrated Financial Assets Management Policy, the foreign currency hedge on the global equities held in the other investments portfolio, which stood at 50% as at May 31, 2013, was phased out during the year.

The Fonds performs sensitivity analyses and simulations to inform senior management of material levels of market risk exposure. It uses derivative financial instruments to reduce its market risk exposure and safeguard the value of its assets. The following table presents a sensitivity analysis for each of the three market risk categories to which the Fonds’ financial assets are exposed, namelychanges in interest rates, listed share prices and exchange rates. These analyses reflect the changes made to hedging levels for theFonds’ exposure to interest rate risk and currency risk.

SENSITIVITY OF THE FONDS’ RESULTS TO MARKET RISK (in millions of dollars) May 31, 2014 May 31, 2013

Change in bond interest rates* 1% increase in bond interest rates (180) (179)1% decrease in bond interest rates 180 179

Change in listed share prices**10% increase in listed share prices 332 25310% decrease in listed share prices (332) (253)

Change in exchange rates***10% appreciation of the Canadian dollar (216) (94)10% depreciation of the Canadian dollar 216 94

* This analysis is performed on bonds held by the Fonds presented under Other investments in the financial statements. In this analysis, the impact on results takes into account the use of interest rate forward and futures contracts aimed at safeguarding assets.

** This analysis is performed on listed shares held by the Fonds presented under Development capital investments and Other investments in the financial statements. In this analysis, the impact on results takes into account the use of stock index futures.

*** This analysis is performed on securities denominated in foreign currencies held by the Fonds presented under Development capital investments and Other investments in the financial statements. In this analysis, the impact on results takes into account the use of foreign currency forward contracts.

The value of unlisted financial instruments in the development capital investments portfolio is established using approved and accepted valuation techniques. These techniques are based on a set of assumptions that take into account market conditions such as economic growth and credit spreads as at the valuation date. Since the assumptions used are highly interrelated, a sensitivity analysis that isolates the impact of one of these variables on the unlisted securities portfolio is not considered to fairly represent the sensitivity of the results. In addition, the fair value of certain financial instruments, in particular other investments and listed securities in the development capital investments portfolio, is determined based on external information and, consequently, no other reasonably possible assumption can be applied to the valuation techniques. Despite this, management assessed the situation for loans, bonds and advances as well as for unlisted securities valued using the capitalization of cash flows method, and determined that using possible alternative assumptions would not result in significantly different fair values.

CREDIT AND COUNTERPARTY RISK The Fonds’ exposure to credit risk stems mainly from its mission-driven development capital investments, which are generally unsecured. Its other investment activities generally entail less of this risk since the counterparties concerned are typically more financially solid (governments, banks, etc.).

Credit risk is the potential for loss due to the failure of a partner company (financial instruments presented under Development capital investments), issuer or counterparty in a transaction (financial instruments presented under Other investments) to honour its contractual obligations or due to a degradation of its financial position. The Fonds manages this risk through several means, including a due diligence process to ensure that the credit risk level is acceptable.

The Fonds maintains a sound diversification of its assets through the Integrated Financial Assets Management Policy. Compliance with this policy therefore enables managing the concentration risk associated with the exposure to an issuer or group of issuers with common characteristics (industries, credit ratings, etc.).

23


EXPOSURE TO CREDIT AND COUNTERPARTY RISK (fair value as a percentage of net assets) May 31, 2014 May 31, 2013

Weight of the five largest investments (Development capital investments) 17.1* 19.5*Weight of the five largest issuers or counterparties (Other investments) 13.0** 14.1**

* The portion attributable to investments that do not constitute a significant concentration risk given the large number of investees represented 8.9% as at May 31, 2014 (9.6% as at May 31, 2013).

** All of these securities are issued or guaranteed by the governments of Québec, Ontario and Canada.

The summary of investment portfolio presented previously also discloses relevant information on the credit and counterparty risk concentration level.

For the development capital investments portfolio, the Fonds approves on an annual basis targets by industries, in keeping with its internal structure. These targets are set using a risk allocation mechanism. It should be noted that the actual results may however differ from the industry targets determined based on the investment opportunities on the market. Based on an optimal risk level defined by the Fonds for this portfolio as a whole by taking into account its mission, the risk allocation mechanism facilitates a more effective monitoring and control of the portfolio profile and sector allocation by risk level. The return/risk balance of this portfolio is achieved through a sector-based risk allocation mechanism that takes into account the higher risk of our investments in certain sectors.

The Fonds regularly re-examines the status of its development capital investments to ensure that they are adequately classified in one of the following three categories: compliant with internal criteria, under watch or in turnaround. To deal with the more difficult situations, an internal committee closely monitors investments that entail greater credit risk.

CLASSIFICATION OF THE DEVELOPMENT CAPITAL INVESTMENTS PORTFOLIO(fair value in millions of dollars) May 31, 2014 May 31, 2013

Compliant with internal criteria 5,136 4,982Under watch 284 293In turnaround 17 24

5,437 5,299

For the other investments portfolio, issuer and counterparty ratings and compliance with exposure limits by borrower or counterparty contribute to the sound management of the credit and counterparty risk of the portfolio and to the diversification of assets. These criteria are set based on the risks specific to each asset class and reduce the risk that our results will be materially affected in the event of a payment default. As at May 31, 2014, the weighted average credit rating of bonds was AA-, as it was as at May 31, 2013.

CLASSIFICATION OF BONDS INCLUDED IN THE OTHER INVESTMENTS PORTFOLIO* (fair value in millions of dollars) May 31, 2014 May 31, 2013

AAA 459 444AA 775 705A 965 973BBB 308 264

2,507 2,386

* Presented using the Standard and Poor’s rating scale.

LIQUIDITY RISK The Fonds must make disbursements on a daily basis—when it redeems shares held by shareholders, disburses amounts it committed to invest in partner companies, reimburses notes payable and pays expenses. It is worth noting that the Fonds is required to redeem shares only in the circumstances set out in its Incorporation Act, or to purchase them by agreement in exceptional situations provided under a policy adopted for such purpose by the Board of Directors and approved by the Minister of Finance of Québec.

The Fonds must be able to obtain the liquidity required to meet its commitments. Liquidity risk is therefore related to the potential for loss due to its inability to meet such commitments. In certain cases, securities acquired on the market can be subject to resale restrictions, thus potentially reducing their liquidity.

24



The Fonds’ Incorporation Act provides that part of the financial assets of the Fonds may be invested in marketable securities on organized markets, such as stock and bond markets, so it can easily obtain cash. The Fonds also has access to bank credit facilities for additional liquidities.

As at May 31, 2014, the ratio of liquid assets15 as a percentage of assets under management was 59.2% (53.8% as at May 31, 2013),demonstrating, in management’s opinion, that the Fonds has the required liquidity to fulfill all its obligations and commitments, even under potential scenarios that would be less favourable to it.

OPERATIONAL RISKInherent to all the Fonds’ activities, operational risk is the risk of sustaining losses as a result of the inadequacy or failure of certain processes or systems in place or due to human factors or external events. This risk also includes legal risk and regulatory compliance risk.

Effective policies, standards and procedures are implemented to manage this risk. Control principles and mechanisms are monitored and periodically revised with a view to continuous improvement. The Fonds’ operational risk management and the effectiveness of its management framework are underpinned by the following guiding principles:

• Competent, well-trained staff; • A succession management program; • A culture of integrity; • Segregation of incompatible duties;• Adoption of a concept of independence inspired by the securities regulations applicable to public companies;• Delegation of decision-making authority to Special Boards whose majority of members are external to the Fonds and the FTQ;• Monitoring of the development capital investment valuation process; • Monitoring of the due diligence process; • Implementation of a framework program of financial compliance; • Implementation of a framework program of regulatory compliance; • Monitoring of technology development and information security; • A planning process for resumption of activities in the event of business interruption; • Continuous monitoring of changes in applicable legislation, regulations and standards, including the Fonds’ compliance therewith; • Risk identification and assessment when new products or activities are implemented.

Codes of ethics and conduct define, among other things, the rules of conduct to be followed by employees, officers and directors to avoid, for instance, conflict of interest situations. All employees or officers must, in the execution of their duties, put the interests of the Fonds ahead of their own or those of third parties. They must also avoid placing themselves in a conflict of interest situation, either real, potential or apparent. The codes of ethics and conduct prohibit, among others, certain personal trading deemed conflictual, including receiving certain gifts and using any advantage, information or interest related to the Fonds that would be incompatible with theprofessional duties and responsibilities of an employee. In addition, the codes forbid the disclosure by directors and employees, for purposes other than the execution of their duties, of confidential information obtained through such execution. Each year, all employees must complete a statement of interests held and a statement on the compliance of their conduct with the code.

Training on the code of ethics and conduct has been provided to all Fonds employees during the year. An ethics hotline managed by KPMG LLP has been implemented and now allows employees to anonymously report cases of non-compliance with the code involving financial or accounting information or illegal acts.

A few years ago, the Fonds undertook an analysis of the risk of fraud and misconduct to which it is exposed. Although this risk was not assessed as high following this analysis, recommendations to improve its control environment have been gradually implemented by the Fonds over the past few years.

Finally, the Fonds has created a new internal audit function during the year. A Vice-President, Internal Audit will be appointed soon.

15 Liquid financial assets are comprised of fixed-income securities (cash, money market and bonds), listed shares of the other investments portfolio and certain listed shares of the development capital investments portfolio.

25


OTHER RISKS

The Fonds is also exposed to other risks such as strategic and reputation risks, which could result in negative financial consequences.

Strategic risk, which includes competitive risk and risk associated with regulatory changes, refers to the possibility of incurring losses as a result of ineffective strategies, lack of integrated business strategies or the inability to adapt the strategies to changes in the business environment. This risk is managed through monitoring and strategic and operational planning processes that seek input from all levels of the organization; the resulting plans are submitted to the Board of Directors for approval. The Management Committee periodically monitors the business plans and strategic objectives of the Fonds and each sector. Any strategic decision or change to the Fonds’ already adopted orientations that could have a material impact is authorized beforehand by the appropriate governing bodies, based on the powers delegated to them.

With respect to strategic risk, the phase-out of the tax credit announced by the federal government in its March 2103 budget and implemented through the adoption of Bill C-4 in December 2013 will force the Fonds to adapt and review its medium- and long-term development strategies by taking into account a potential reduction in subscriptions. As explained previously in this MD&A, the phase-out of the federal tax credit does not affect the equilibrium of the model (ability to redeem shares, to keep sufficient liquidities, to seek a reasonable return, to comply with the 60% rule, etc.), but it will force the Fonds to adapt its annual investment volumes to the subscription amounts it will collect year after year.

Should subscriptions decrease while redemptions maintain their trend, the financial impact of the measure would be, for the Fonds, a potential decrease in its assets that would be gradual and slow. The Fonds’ assets will nevertheless continue to be very substantial, and their decrease will have no impact on the equilibrium of the model mentioned above, in particular the Fonds’ ability to redeem shares from its shareholders.

Reputation risk is the risk that negative publicity, whether founded or unfounded, will cause expenses, revenue losses, a decrease in liquidity or a decline in the customer base. The Fonds controls and manages reputation risk through the following, among others: proper training, legal and financial due diligence for all its capital development investments, sound governance practices, the application of policies and procedures, and ownership of the codes of ethics and conduct by all officers and employees. The Fonds is a responsible corporate citizen that takes ethical, social and environmental aspects into consideration when making investment decisions. We have also adopted a voting rights policy with regards to public partner companies and a code of conduct for international business dealings. The Fonds also ensures that any financial information released outside the organization is accurate and validated beforehand.

Reputation risk was considerably increased in the last few months by the media coverage of some files raised before the Charbonneau Commission. In such context, the testimony of the Fonds before the National Assembly’s Committee on Public Finance on November 5,2013, allowed the Chairman of the Board of Directors of the Fonds to announce that the Executive Committee of the Fonds would recommend the formation of a special committee on governance at the next meeting of the Board of Directors of the Fonds. The Board unanimously adopted the resolution to form this committee at its November 21, 2013 meeting. On February 6, 2014, the Fonds announced that its Board of Directors had approved the recommendations of its special committee on governance. This special committee, comprised of a majority of independent directors, consulted with two governance experts. Also on February 6, 2014, the Fonds announced the arrival of Robert Parizeau as Director, who became Chairman of the Board on May 14, 2014, and the departure of its President and CEO (in the interim, the office was collegially held by the five members of the Management Committee until the appointment of Gaétan Morin as President and CEO on June 26, 2014).

The Fonds implemented a Disclosure Policy concerning all financial and non-financial information issued and/or disclosed externally and the information that is communicated internally to a large number of employees. The main objectives of this policy are to provide a disclosure framework and standards, to ensure that information disclosed is rigorously prepared and validated, to make the Fonds’ employees aware of disclosure principles, and to specify the roles and responsibilities of the main participants in the disclosure process.

The application of this policy is monitored by a Disclosure Committee comprised of members of the Fonds’ management. The main responsibilities of this Committee are to set disclosure guidelines, to implement and keep up to date the Disclosure Policy and ensure it is complied with, and to ensure that relevant and effective disclosure controls and procedures are in place. The Disclosure Committee reports its activities to the Management Committee.

Given the growing use of social media by the Fonds and its employees, the Fonds implemented a Social Media Policy a few years ago. This policy governs the use of these tools to prevent any harm or damage to the image or the reputation of the Fonds resulting from such use. All employees were trained following the implementation of this policy.

26

See the box on governance on page 72 for more details on the governance changes announced on February 6, 2014.



GOVERNANCE

On February 6, 2014, the Fonds announced an important governance reform project that includes the following main proposals:

1. The Chairs of the Board of Directors AND of all the Board’s committees (including those authorizing regional and real estate fund investments) will be a member independent from both the Fonds and the FTQ16.

2. Reconfiguration of the Board of Directors in particular in order to increase from 17 to 19 the number of directors, a majority of which must now be elected each year by the shareholders.

3. Enshrinement of the rule adopted in 2009 requiring any investment to be approved by an investment committee made up of a majority of members independent from the Fonds and the FTQ16; since 2009, this rule has granted the independent members that authorize investments, including at the real estate funds, a veto. Furthermore, in order to increase the power of these Boards, the amount at which an investment must be submitted to the Board of Directors will be increased.

4. Creation of three new committees composed of a majority of members independent from the Fonds and the FTQ16, namely (i) Governance and Ethics, (ii) Human Resources, and (iii) Risk Management.

5. The duration of Board member mandates will be limited to 12 years.

Since the announcement of this reform, several actions have been taken by the Fonds to implement these changes. Robert Parizeau, who joined the Board of Directors in February 2014, became its first independent Chairman on May 14, 2014. In addition, two of the proposed new committees, the Governance and Ethics Committee and the Human Resource Committee, have already been formed. Through its budget tabled on June 4, 2014, the Government of Québec announced that, in light of the principles presented by the Fonds, it will propose amendments to the Fonds’ Incorporation Act.

RISK GOVERNANCEThe Management Committee, comprised of the President and CEO and executives, is responsible for the global management of the Fonds’ operations. Because risk governance is an essential part of integrated financial assets management, the Fonds has put in place a management framework to ensure that risk management and control strategies and resulting operational decisions take the established level of acceptable risk into account. An Integrated Risk Management Advisory Committee has also been set up. Thegovernance structure that supports the Fonds, in particular with respect to risk management, was as follows as at May 31, 2014:

The Fonds’ risk governance structure is built upon a series of policies approved by the Board of Directors. The Fonds regularly reassesses policies, standards, guidelines, and procedures to incorporate the best possible practices.

16 Including FTQ-affiliated unions.

27


The implementation process of the integrated risk management framework that was launched a few years ago and led to the adoption by the Board of Directors of the Integrated Risk Management Policy in May 2012 (see the “Risk Management” section) also had some effects on the risk governance structure. The roles and responsibilities of the Fonds’ governing bodies, internal committees and main stakeholders involved were specified in this policy. The Board of Directors of the Fonds thus reconfirmed its responsibility for integrated risk management while delegating to the Executive Committee the monitoring of some work and their results in that respect. The Integrated Risk Management Policy sets out the organization’s requirements with respect to the integrated management of all types of risks, ensures that risk management is closely related to the “total” risk appetite and determines an approach whereby all significant risks and their interrelations are considered in the development of the organization and the maintenance of the return/risk balance. The Vice-President responsible for the integrated risk management framework reports directly to the President and CEO in carrying out hisduties, and he is supported by the Integrated Risk Management Advisory Committee.

The Integrated Financial Assets Management Policy, which is under the Integrated Risk Management Policy, is a key piece of the risk governance framework. The objective of this policy is to manage financial assets in an integrated and comprehensive way to ensure sound diversification and an optimal return/risk profile while complying with the mission of the Fonds and meeting the expectations of its stakeholders. The Integrated Financial Assets Management Policy is complemented by the Investment Policy for the development capital investments managed by the Investments sector and the Other Investments Portfolio Policy for the assets managed by the Other Investments sector. The purpose of these policies is to set out the investment principles and rules for financial assets as well as to define the roles and responsibilities of the persons involved and the monitoring procedure to be applied. Policies are complemented by guidelines to specify how investment managers must proceed, including, without limitations, discretionary limits, diversification requirements, quality standards as well as return and risk objectives.

KEY GOVERNING BODIES

BOARD OF DIRECTORS, DELEGATE BOARDS AND COMMITTEES The Board of Directors carries out the following duties:

• Ensuring the Fonds’ mission, Incorporation Act and any other law it is subject to are followed while adhering to its values of solidarity and responsibility;

• Approving the main directions, policies and business strategies of the Fonds, notably in regards to integrated financial assets managementand integrated risk management;

• Ensuring there are controls over the Fonds’ management, including over risk management, and ensuring a culture of integrity;• Approving investment recommendations for which it is responsible and monitoring them;• Ensuring that the Fonds, as an investor, behaves as a socially responsible entity;• Evaluating the Fonds’ performance on a regular basis.

Members of the Board of Directors are nominated or elected according to the rules set out in the Fonds’ Incorporation Act. In carrying out its mandate, the Board delegates part of its responsibilities.

Delegate Boards and Committees are responsible for decisions related to development capital investments and, in accordance with Section 8 of its Incorporation Act, decisions related to the purchase by agreement of shares of the Fonds. These Delegate Boards andCommittees include the Executive Committee, the four Special Boards created for the Traditional, New Economy, Mining Portfolio and Turnaround and Majority Interests sectors as well as the Purchase-by-Agreement Decision-Making Committee, which is responsible for approving the purchase by agreement requests made by our shareholders. Each development capital investment of $5 million or more must be authorized by the Board of Directors, or the Executive Committee if the Board of Directors is unable to meet in a timely fashion; in addition, each of these investments must be recommended by the Special Board overseeing the corresponding activities. All investments of less than $5 million are under the authority of the corresponding Special Board, except for the Mining Portfolio, whose limit is $1 million. The four Special Boards are composed of a majority of members who are external to the Fonds and the FTQ, while the Purchase-by-Agreement Decision-Making Committee is comprised of Fonds employees. The Executive Committee examines, at least once every six-month period, management’s reports on integrated risk management. Using these reports, the Committee reports to the Board of Directors, the Audit Committee and the Financial Assets Management Committee, as required. It also recommends policies for integrated risk management that are proposed by management, as needed.

28



AUDIT COMMITTEE The Audit Committee is comprised entirely of members who are external to the Fonds in accordance with Regulation 52-110 respecting Audit Committees, and its mandate includes: recommending the audited financial statements and MD&A for approval by the Board of Directors; approving the principles for valuing development capital investments and receiving the Valuation Committee’s report; enquiring about the effectiveness of internal controls implemented by management and the fact that they are not overridden; enquiring about the compliance and risk management process for preparing the Fonds’ financial statements and providing feedback; and overseeing the application of the code of ethics for employees and directors. The Committee also ensures the Fonds complies with the laws, regulations and agreements that govern its operations and that may have a material financial impact. The Audit Committee reports its activities twice a year to the Board of Directors and makes recommendations to it when necessary.

HUMAN RESOURCES COMMITTEE Composed of a majority of independent (from the Fonds, the FTQ and its affiliated unions) directors, this new committee set up in April 2014 had the priority duty to propose, in the context of the search for a new President and CEO, his employment conditions and compensation. More broadly, the Committee will have to examine issues related to the compensation of the Fonds’ management as well as evaluate and plan management’s succession. Its mandate will also include overseeing the negotiation of the collective agreement with the Fonds’ employees.

GOVERNANCE AND ETHICS COMMITTEE Composed of a majority of independent (from the Fonds, the FTQ and its affiliated unions) directors, this new committee set up in February 2014 was first mandated in the short-term to steer the implementation of the Fonds’ governance reform announced on February 6, 2014. This committee will also be responsible for supporting the Board of Directors in the implementation of a continuing education and self-assessment program, in addition to the overall aspects of the Fonds’ general governance, in particular with respect to appointments to the governing bodies of the Fonds. It will also ensure, with the Fonds’ management, that directors, governing body members and all employees of the Fonds maintain on an ongoing basis ethical culture and practices.

FINANCIAL ASSETS MANAGEMENT COMMITTEE This committee is responsible for monitoring the implementation, compliance with and updating of the Integrated Financial Assets Management Policy, including the Investment Policy and the Other Investments Portfolio Policy. Its primary mandate is to ensurethat asset management is coordinated and linked. In this capacity, it recommends the main investment orientations to the Board of Directors. This committee also monitors performance and changes in the return/risk ratio, ensures that the Fonds’ activities are in compliance with all its policies and approves the guidelines required to manage its financial assets. The Financial Assets Management Committee reports to the Board of Directors twice yearly on its activities and makes recommendations to it when necessary.

VALUATION COMMITTEE Composed of a majority of qualified valuators independent from the Fonds, the Valuation Committee is mandated to review the private investment valuation process and provide a reasonable assurance that the procedure used for valuing the development capital investments portfolio complies with the procedure set out in the Regulation Respecting Development Capital Investment Fund Continuous Disclosure.The Valuation Committee reports on its review to the Audit Committee twice yearly.

VALUATION FRAMEWORK Development capital investments and other investments are recorded on the balance sheet at their fair value17. However, the majority of the Fonds’ development capital investments are made in private companies or specialized funds for which a fair value must be established because the securities issued by these companies or funds are not traded on organized, public markets. Qualified valuators employed by the Fonds determine the fair value of these investments. These valuators report to the Executive Vice-President, Finance and follow a structured process comprising several verification and validation steps to ensure the quality, uniformity and integrity of the work performed and of the resulting fair value.

17 Using fair value is a best practice recognized by venture capital firms and private equity funds. In short, fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.

29


The management framework that governs the procedure for valuing development capital investments is set out in the Regulation Respecting Development Investment Fund Continuous Disclosure. In particular, the Regulation specifies the minimum qualifications required for qualified valuators employed by the Fonds as well as the governing body responsible for approving the valuation principles used. The Regulation also requires that all relevant information about the valuations (excluding publicly traded issuers valued using market prices) should be provided to an independent valuation committee. In addition, regulations require that the Chief Executive Officer and the Chief Financial Officer sign on a half-year basis a certification stating that the valuation procedure set out in the Regulation was complied with and confirming the aggregate fair value of the development capital investments portfolio. This certification has been signed and submitted to the Audit Committee on a half-year basis since May 31, 2009. For the six-month period ended May 31, 2014, the certification was signed by the new President and CEO and the Executive Vice-President, Finance of the Fonds.

FINANCIAL GOVERNANCE While not required to apply MI 52-109 issued by the Canadian Securities Administrators, the Fonds has decided to base its work upon the principles stated in this rule, thereby demonstrating its willingness to respect best practices in financial governance. Our financial compliance framework program commonly known as Confor applies to controls providing reasonable assurance that the financial information prepared and reported is reliable and that the financial statements are prepared in accordance with Canadian generally accepted accounting principles.

Management is responsible for designing and maintaining adequate internal control over financial reporting and disclosure controls and procedures. It must also periodically evaluate their design and effectiveness.

During the year, the Fonds undertook the necessary work to evaluate the design and effectiveness of internal control over financial reporting and disclosure controls and procedures using the COSO framework (issued in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission), and, for information technology controls, the COBIT (Control Objectives for Information and Related Technology) framework, two recognized financial governance frameworks.

Regulations require that the President and CEO and the Chief Financial Officer confirm their responsibility for controls by signing a certification to this end. Accordingly, for the year ended May 31, 2014, the Fonds’ new President and CEO and Executive Vice-President, Finance signed a certification confirming their responsibility in that regard. These certifications are available on SEDAR. A mechanism for sub-certification by several Fonds executives and managers also supports these certifications.

Management’s conclusions on the design and effectiveness of internal control over financial reporting and disclosure controls and procedures are presented hereafter.

MANAGEMENT’S REPORT ON INTERNAL CONTROLS CONCLUSIONS ON THE DESIGN AND EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING Internal control over financial reporting comprises all the processes and controls in place, including policies and procedures, that govern the maintenance of accounting records and the preparation of financial statements to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian generally accepted accounting principles. Management, under the supervision of the new President and CEO and the Executive Vice-President, Finance, evaluated the design and effectiveness of internal control over financial reporting. Based on this evaluation, management concluded that, as at May 31, 2014, internal control over financial reporting was adequately designed and effective and did not contain any material weaknesses. However, because of its inherent limitations, internal control over financial reporting may not prevent or detect certain misstatements on a timely basis. During the year ended May 31, 2014, there was no change in the Fonds’ internal control over financial reporting that has materially affected, or is reasonably likely to affect, the Fonds’ internal control over financial reporting.

CONCLUSIONS ON THE DESIGN AND EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES Disclosure controls and procedures include the processes and mechanisms designed to provide reasonable assurance that financial information for external purposes is recorded, processed, summarized and reported within the required time period for review and approval by management and that it is disclosed externally within the time periods specified in the applicable regulations and legislation. Management, under the supervision of the new President and CEO and the Executive Vice-President, Finance, evaluated the design and effectiveness of disclosure controls and procedures. Based on this evaluation, management concluded that, as at May 31, 2014, disclosure controls and procedures were adequately designed and effective.

30


OUR FINANCIAL STATEMENTS



tHe Board oF directorsAS OF JULY 14, 2014

MeMBers oF our Boards and coMMittees WHo are external to tHe Fonds and tHe FtQ

1 Ch ristin e b e au bien a , e , G , i , j president of groupe bsc and corporate director

2 G erry b o u tin president, teamsters Québec, local union 931, and vice-president, ftQ

3 Da niel boy er a , e , f, G president, fédération des travailleurs et travailleuses du Québec (ftQ), and first vice-president of the board of directors, fonds de solidarité ftQ

4 serG e Ca D ieux a , e , f, G , j , k general secretary, fédération des travailleurs et travailleuses du Québec (ftQ), and secretary of the board of directors, fonds de solidarité ftQ

5 lo uise Ch a bot president, centrale des syndicats du Québec

6 a n o u k C o lle t j regional director, united food and commercial Workers international union (ufcW), and vice-president, ftQ

7 mi Ch èle C o lpro n a , b , C, f, G corporate director

8 D enis l a b rèCh e a , b , D, e , G corporate director

9 lu Cie le vas seu r president, canadian union of public employees (cupe), Québec, and vice-president, ftQ

10 G a é ta n m o rin a , C president and chief executive officer, fonds de solidarité ftQ

1 1 j e a n-pierre o u elle t k president, Québec service employees union (Qseu), local 298, and vice-president, ftQ

1 2 y v es o u elle t general manager, ftQ-construction, and vice-president, ftQ

13 mi C h el o uim e t Québec director, unifor, and vice-president, ftQ

14 ro b ert pa riZe au a , e , f corporate director and chairman of the board of directors, fonds de solidarité ftQ

15 m aG a li pi Ca rD i regional executive vice-president, Québec region, public service alliance of canada (psac), and vice-president, ftQ

16 Da niel roy h Québec director, united steelworkers, and vice-president, ftQ

17 p ierre-m au ri C e vaC h o n a , b , e , f, G , j corporate director and second vice-president of the board of directors, fonds de solidarité ftQ

1 Ch ristin e b e au bien a , e , G , i , j

president of groupe bsc and corporate director

2 p ierre bo u D re au lt h

director and manager of mining companies

3 mi Ch èle C o lpro n a , b , C, f, G

corporate director

4 mi C h el G au thier h

consultant and retired professor (uQam)

5 mi Ch el G ilb ert h corporate director

6 D enis l a b rèC h e a , b , D, e , G

corporate director

7 p ierre l a fl a m m e D * corporate director and consultant

8 m a rio l ava llée C

professor, finance department, faculty of administration, université de sherbrooke

9 mi C h el m . les sa rD j , k

corporate director

10 a n D ré m o n e t te i , k

advisor in management, strategic planning, mergers and acquisitions, and corporate finance

1 1 j o sée m o rin i

corporate director and consultant

1 2 mi Ch el n a D e au D

executive director, institute for governance of private and public organizations (igppo)

13 Cl au D e n o rm a n D e au k

real estate consultant and corporate director

14 ro b ert pa riZe au a , e , f

corporate director and chairman of the board of directors, fonds de solidarité ftQ

15 j e a n perro n j

corporate director, and president and chief executive officer, association des cadres des collèges du Québec

16 jaC Q u es sim a rD i

full professor, université laval, and director, cancer genomics laboratory at the chuQ/chul research centre

17 lo uise st- Cy r D

honorary professor, hec montréal

1 8 y vo n tes sier k

corporate director

19 mi Ch el th érien C

strategic advisor and corporate director

20 p ierre-m au ri Ce vaCh o n a , b , e , f, G , j

corporate director and second vice-president of the board of directors, fonds de solidarité ftQ

14

15

712

13

19

3 26

8

13 1417

3

7 9

15 15

20

4 4

8 10

16 16

1 5

9 1110

17

2 6

11 12

18

tHe ManageMent coMMittee

G a é ta n m o rin a , C president and chief executive officer

n o rm a n D C h o uin a rD executive vice-president, investments

D enis leClerC executive vice-president, shareholder services and president of the fondation de la formation économique

mi C h el p o ntb ria n D executive vice-president, finance

Da n n y le b r aC eu r vice-president, human resources

m a ri o trem b l ay vice-president, public and corporate affairs, and corporate secretary

a Member of the Executive Committee B Member of the Audit Committee C Member of the Financial Assets Management Committee D Member of the Valuation Committee e Member of the Governance and Ethics Committee F Member of the Human Resources Committee G Member of the Special Board - Traditional Sector h Member of the Special Board - Mining Portfolio i Member of the Special Board - New Economy j Member of the Special Board - Turnaround and Majority Interests K Member of the Fonds immobilier de solidarité FTQ I, s.e.c. and

Fonds immobilier de solidarité FTQ II, s.e.c. Advisory Committees and of the Fonds immobilier de solidarité FTQ inc. Board of Directors * It was with great sadness that we learned on July 17, 2014 of the passing of Pierre Laflamme, one of the great pioneers of the Fonds.


tHe goVerning Bodies oF tHe Fonds de solidarité FtQ

In addition to the Board of Directors, the Executive Committee and the Audit Committee, the Fonds has the following governing bodies:

speCia l boa rD – tr a D itio n a l seCto r 1

Daniel Boyer , Chair Christine Beaubien 2

Serge CadieuxMichèle Colpron 2

Denis Labrèche 2

Pierre-Maurice Vachon 2

speCia l boa rD – t u rn a ro u n D a n D m a j o rit y interest s 1

Pierre-Maurice Vachon, Chair 2

Christine Beaubien 2

Serge Cadieux Anouk ColletMichel M. Lessard 2 Jean Perron 2

speCia l boa rD – n e w eC o n o m y 1

René Roy, Chair Christine Beaubien 2

André Monette 2

Josée Morin 2

Magali PicardJacques Simard 2

speCia l boa rD – minin G p o rtfo lio 1

Daniel Roy, ChairPierre Boudreault 2

Michel Gauthier 2

Michel Gilbert 2

fin a n Cia l a s se t s m a n aG em ent C o m mit teeMichèle Colpron, Chair 2 Mario Lavallée 2

Gaétan MorinMichel Parenteau Michel Thérien 2

D eCisio n-m a k in G boa rD s o f th e fo n D s im m o biliers D e so liDa rité f tQ 1

René Roy, ChairSerge CadieuxMichel M. Lessard 2

André Monette 2

Claude Normandeau 2 Jean-Pierre OuelletYvon Tessier 2

va luatio n C o m mit teeLouise St-Cyr, Chair 2

Denis Labrèche 2

Pierre Laflamme 2

Michel Nadeau 2

G ov ern a n Ce a n D e thi C s C o m mit teeRobert Parizeau, Chair 2

Christine Beaubien 2

Daniel BoyerSerge CadieuxDenis Labrèche 2


h u m a n reso u rCes C o m mit teeRobert Parizeau, Chair 2

Daniel BoyerSerge CadieuxMichèle Colpron 2


1. All investments must be authorized by a governing body, depending on the appropriate economic sector. When an investment reaches a minimum amount of $5 million, it must also be submitted to the Fonds’ Board of Directors (Mining Portfolio: $1 million).

2. Indicates directors who are external to the Fonds and the FTQ.

tHe union

e x eCu tiv e C o m mit tee (from left to right)

Julie Proulx, TreasurerRobert Charpentier, Second Vice-ChairJosée Lachapelle, SecretaryPeyman Eslami, ConsultantMarie-Claude Rouleau, Executive Vice-ChairGuy Trépanier, Chair

l a b o u r a n D so Cia l D eleG ate s , wo rk pl aC e h e a lth a n D seC u rit y o ffi Cia l s , a n D lo Ca l representativ esLucie AdamSamia AklilLouise BergeronNathalie BilodeauCédric BrabantDaniel Champagne Johanne DupontNathalie GarciaJacques GrégoireRéjean LangevinJean MartelRobert ParadisMartin RivestCarole RuelSylvain TellierJean-Marc Wassef

172,596JOBS CREATED, MAINTAINED ORPROTECTED IN QUÉBEC THROUGH INVESTMENTS OF THE FONDS AND ITS NETWORK* AS AT MAY 31, 2014

91,014

48,481

33,101

DIRECT JOBS

INDIRECT JOBS

REGIONAL AND LOCAL FUNDS

INDUCED JOBS

91,014DIRECT JOBS

55,218

27,461

8,335

FONDS DE SOLIDARITÉ FTQ

SPECIALIZED FUNDS

TAKING INTO ACCOUNT PAST AND CURRENTPARTNERSHIPS, IT IS ESTIMATED THAT OVER530,000 JOBS WERE CREATED, MAINTAINEDOR PROTECTED IN QUÉBEC BY THE FONDS ANDITS NETWORK FROM 1990 TO 2014.

* By partner companies in the portfolio as at May 31, 2014.

D E V E L O P M E N T C A P I TA LI N V E S T M E N T S 2

FOR THE YEARS ENDED MAY 31(IN MILLIONS OF $)

2013

20122011

2010

2014521

9083

733

501

548

FA I R VA L U E O F D E V E L O P M E N T C A P I TA L I N V E S T M E N T S 2

AS AT MAY 31(IN MILLIONS OF $)

2013

20122011

2010

20146,144

5,757

5,207

4,784

6,408

N U M B E R O F PA R T N E R C O M PA N I E SAS AT MAY 31(FONDS AND NETWORK)

2013

20122011

2010

20142,395

2,239

2,129

2,052

2,467

S H A R E R E D E M P T I O N SFOR THE YEARS ENDED MAY 31(IN MILLIONS OF $)

2013

2012

2011

2010

2014542

620

465

341

729

N E T VA L U E P E R S H A R EAS AT MAY 31(IN DOLLARS)

2013

20122011

2010

201427.98

26.59

25.92

23.84

30.29

N U M B E R O F J O B S C R E AT E D , M A I N TA I N E D O R P R O T E C T E D I N Q U É B E C B Y T H E F O N D S A N D I T S N E T W O R KAS AT MAY 31

2013

2012

2011

2010

2014170,915

168,577

160,789

150,133

172,596

S H A R E H O L D E R P R O F I L EAS AT MAY 31, 2014

UNIONIZED

NON-UNIONIZED

55%

45%

338,589

275,369

S H A R E I S S U E SFOR THE YEARS ENDED MAY 31(IN MILLIONS OF $)

2013

2012

2011

2010

2014855

767

698

660

787

K E Y D ATAFOR THE YEARS ENDED MAY 31

(in millions of $; except Class A shares outstanding: number in thousands) 2014 2013 2012 2011 2010

Statements of OperationsRevenues 248 256 247 256 222Net earnings 774 458 215 650 600

Balance SheetsNet assets 10,126 9,301 8,525 8,178 7,294Class A shares outstanding 334,234 332,441 320,629 315,504 305,951

Total operating expense ratio1 1.4% 1.4% 1.5% 1.5% 1.5%

1. The total operating expense ratio does not include capital tax and is calculated as stipulated in the Regulation Respecting Development Capital Investment Fund Continuous Disclosure.2. These investments include funds committed but not disbursed as well as guarantees and suretyships.3. This amount takes into account the investment of $300 million made in SSQ Financial Group.

HIGHLIGHTS

N U M B E R O F S H A R E H O L D E R SAS AT MAY 31

2013

2012

2011

2010

2014615,664

594,287

583,235

577,511

613,958

R E D E M P T I O N B R E A K D O W N B Y C R I T E R I O NFOR THE YEAR ENDED MAY 31, 2014

Redemptions provided for in the Fonds’ Incorporation Act and in the Purchase-by-Agreement Policy Number $M % of total

Retirement and early retirement 41,422 634 87

Access to home ownership 3,735 32 4

Death, disability, redemption within 60 days 2,200 33 5

Unforeseen events (job loss and other) 4,166 20 3

Return to studies 409 3 —

Other criteria (capital injection into a business, emigration,

redemption of pension credits and ineligibility for tax credits) 412 7 1

Total 52,344 729 100

C H A N G E I N D E V E L O P M E N T C A P I TA L I N V E S T M E N T S ( AT C O S T ) 1

FOR THE YEAR ENDED MAY 31, 2014

Balance as at May 31, 20132 Investments Disinvestments Balance as at May 31, 2014

Regions3 Number $M % Number $M % Number $M % Number $M %

Western Québec 23 132 3 3 1 — 6 7 2 22 126 2

Montréal Region 122 2,417 45 30 345 63 40 227 57 127 2,535 46

Central Québec 18 144 3 1 5 1 7 8 2 17 141 3

Québec City Region 32 634 12 3 7 1 9 28 7 31 613 11

Eastern Québec 24 180 3 4 49 9 8 7 2 23 222 4

All of Québec 51 1,488 28 4 119 22 16 101 26 49 1,506 28

Outside Québec 35 332 6 3 22 4 14 18 4 37 336 6

Total 305 5,327 100 48 548 100 100 396 100 306 5,479 100

Sectors

Real estate 4 442 8 2 31 6 1 40 10 4 433 8

Regional development4 22 442 8 — — — 1 3 1 22 439 8

Industries, services,

natural resources

and consumer 197 3,221 61 35 356 65 69 191 48 198 3,386 62

New economy 82 1,222 23 11 161 29 29 162 41 82 1,221 22

Total 305 5,327 100 48 548 100 100 396 100 306 5,479 100

1. These investments exclude the securities in the Entreprises publiques québécoises à faible capitalisation portfolio and include funds committed but not disbursed as well as guarantees and suretyships.

2. The breakdown by region was changed based on the reorganizations undergone by companies in the portfolio.

3. Regional groupings: Western Québec: Abitibi-Témiscamingue/Outaouais. Montréal Region: Montréal/Laval/Laurentides/Montérégie/Lanaudière. Central Québec: Estrie/Mauricie/Centre-du-Québec. Québec City Region: Capitale-Nationale/Chaudière-Appalaches. Eastern Québec: Bas-Saint-Laurent/Saguenay–Lac-Saint-Jean/Gaspésie–Îles-de-la-Madeleine/Côte-Nord/Nord-du-Québec. All of Québec: Investments impacting more than one region. Outside Québec: Investments in companies headquartered outside Québec.

4. Regional funds, local funds and regional investment companies.

A N N U A L R AT E O F R E T U R N O F T H E F O N D S *

FOR THE YEARS ENDED MAY 31

9.2% 8.3%5.3%

2.6%

8.8%

-12.6%

-1.2%

7.1%6.0%

5.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

* Net earnings per share divided by the share value at the beginning of the year. This return does not take into account tax credits granted to shareholders.

H I G H L I G H T S

WE APPRECIATE YOUR COMMENTS

This Annual and Sustainability Report includes the financial and extra-financial information related to the Fonds de solidarité FTQ’s activities for the most recent financial year, which ended May 31, 2014.

Please do not hesitate to send us your comments, to which we will pay special attention.

Real Estate Management and Sustainable Development Department

Fonds de solidarité FTQ545 Crémazie Blvd. EastSuite 200Montréal, Québec H2M 2W4

You may also send your comments by email to: [email protected]

Printed by the unionized workers of Transcontinental Acme Direct on Rolland Opaque30 paper manufactured in Québec using biogas energy, EcoLogo and FSC Mixed Sources certifi ed and containing 30% recycled post-consumer fi bre.

CREDITS

ED ITO RSChantal DoréSuzanne HamelAndré McDonald

WRITERSuzanne Hamel

TR A NSL ATO RJean Marois

C O LL A B O R ATO RSJohanne BissonnetteRoch DutilFrançois GirardAlain HouleSylvain MassePierre Surprenant

PH OTO G R A PH ERYves Lacombe

D ESI G N ERGauthier designers

WE WO U LD LIK E TO TH A N K E V ERYO N E WH O C O N TRIB U TED TO TH E PRO D U C TI O N O F THIS D O C U M EN T.

Two prestigious design awards

The Fonds de solidarité FTQ’s 2013 Annual and Sustainability Report was also awarded two prestigious design awards and, remarkably, both its printed and digital versions won prizes. The printed version of the report received a prize as part of the 2014 Annual Design + Image awards of Canadian Coupe Magazine, in the Annual Reports category. The digital version earned an award in the 2014 Grafika competition, which recognized the 100 best achievements in graphic design of the year in Québec.

The Fonds’ Annual and Sustainability Report commended on the international scene!

The Fonds de solidarité FTQ earned a special mention at the Responsible Investor Reporting Awards 2014, which recognize the highest standards in the reporting and disclosure of responsible investment activities by asset owners globally. The Fonds stood out for its 2013 Annual and Sustainability Report (ASR). It was singled out for the clarity of its reporting and approach to responsible investment, which was found to be original, well executed and fully integrated into its daily operations. The judging panel highlighted the clear, useful links to the objectives and principles of the Global Reporting Initiative (GRI) and the United Nations’ Global Compact and Principles for Responsible Investment (UN PRI). It also found the report convincing and visually attractive thanks to its design and interactive version with easy navigation between key topics. Finally, the judging panel was impressed with the analysis of the Fonds’ past, current and futures objectives, which provides insight into the continuity of its actions.

The results were announced at the annual Responsible Investor Europe summit in London on June 4.

the annual 2014 - fonds de solidarité ftq...the fonds de solidarité ftq’s 2013 annual and...

Documents