The Hidden Costsof Passive InvestingIndex Funds and ETFs:Increasing Risk in a Changing Market

January 2018

Wintergreen Advisers, LLC (“Wintergreen” or “we”) provides investment advisory services to multiple clients, including pooled investment vehicles and a registered investment company, Wintergreen Fund, Inc. (the “Fund”). The views contained in these materials are those of Wintergreen as of January 8, 2018, and may not reflect its views on the date these materials are first published or anytime thereafter. Anyexamples of specific investments are included to illustrate Wintergreen’s investment process and strategy for investing the assets of itsclients, including the Fund. There can be no assurance that such investments will remain represented in a portfolio. Holdings and allocations are subject to risks and to change. The views described herein do not constitute investment advice, are not a guarantee of future performance, and are not intended as an offer or solicitation with respect to the purchase or sale of any security.

Mutual fund investing involves risks, including loss of principal. Investors should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. The Fund is subject to several risks, any of which could cause an investor to lose money. Please review the prospectus of the Fund for a complete discussion of the Fund’s risks which include, but are not limited to: possible loss of principal amount invested; stock market risk; value risk; interest rate risk; income risk; credit risk; foreign securities risks, including currency risk and emerging market risk; derivatives risk; short sale risk and investor activism risk. Wintergreen follows a global value approach to investing the Fund’sassets. The Fund’s investments in foreign securities exposes the Fund to risks associated with currency fluctuations, economic or financial instability, lack of timely or reliable financial information or unfavorable political or legal developments, which risks are magnified in emerging markets. In light of these risks, the Fund may not be suitable for all investors. The prospectus, which contains this and other information about the Fund, may be obtained by contacting the Fund, free of charge, by telephone at (888) GOTOGREEN (888-468-6473), or by visiting the Fund’s website at www.wintergreenfund.com. The prospectus should be read carefully before investing.

Page 2

The winds of the stock market are changing, making for challenging times for both institutional and individual investors.

Many see the market as overpriced and overheated with gains over the past few years driven by market momentum. We believe this momentum has been further fed by huge inflows to index funds, which are then obligated to buy more of the biggest momentum stocks, without regard for valuation.

Page 3

What’s Best For Investors

This momentum cycle has created a dangerous bubble where the risk-return ratio has become untenable for investors. Market corrections will likely expose liquidity issues around index funds and ETFs, causing pain for their investors.

Because they are seen as low cost, assets have flowed into index funds and ETFs.

Page 4

On the Index Bubble

Flows by Year: Active v. Passive ($million), 2007-2016 (source: Morningstar Asset Flow Reports)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016PassiveFlow $217,000,000 $215,000,000 $193,000,000 $195,000,000 $195,000,000 $259,000,000 $305,000,000 $420,142,000 $412,822,000 $504,776,000

ActiveFlow $185,000,000 ($195,000,000) $275,000,000 $190,000,000 $15,000,000 $203,000,000 $115,000,000 $44,265,000 ($206,681,000) ($340,137,000)

$600,000,000

$500,000,000

$400,000,000

$300,000,000

$200,000,000

$100,000,000

$0

($100,000,000)

($200,000,000)

($300,000,000)

($400,000,000)

U.S. Passive vs. Active Fund Flows

Passive Flow Active Flow

Page 5

Blind Rush to Passive

Index funds began as a good idea – offeringdiversification at low costs.

This was meant to drive value for investors while reducing overall risk.

But these passive funds have ballooned to over $3T in assets, and we believe these products have become momentum monsters and present liquidity issues.

Page 6

Best Laid Plans Gone Awry

Page 7

Best Laid Plans Gone Awry

Index funds put stress on the markets with high concentrations of securities with loftyvaluations.

ERISA’s (Employee Retirement Income Security Act of 1974) recognition of the proxy vote as an important element of the value of a security is being largely neglected.

Page 8

Best Laid Plans Gone Awry

*Based on proxy voting by Vanguard, State Street and Blackrock for the year ending June 30, 2016

97% of the time, index funds vote in favor of management proposals, creating increased hidden costs for investors*.

We believe index funds and ETFs touting low expenses are often providing incomplete and misleading information, with investors unknowingly exposed to other hidden costs.This overwhelming approval of

compensation plans creates value dilution that we have shown far outweighs low fund management fees.

Page 9

Hidden in the Fine Print

Page 10

We believe that index funds and ETFs are risky and will be compromised, ultimately costing investors long-term gains due to three key reasons.

1. Hidden costs in index funds and ETFs significantly reduce returns. We call these Look Through Expenses.

2. Market weight cap index funds and ETFs are concentrated and create self-fulfilling momentum strategies that artificially inflate valuations of stocks.

3. Index funds vote in favor of management recommendations virtually all the time, which leads to increased costs to investors.

Page 11

Three Risks of Index Funds and ETFs

Risk #1: Hidden costs in index funds and ETFs Hidden costs in index funds and ETFs significantly reduce returns.

We call these Look Through Expenses.

Page 12

Data from 2016 proxies and annual reports.Graphic source: Economic Policy Institute

Page 13

Look-Through Expenses: What Are They?

Dilution from executive stock compensation plans. Company shares issued annually for executive compensation are a major component in Look Through Expenses.

Buybacks to offset dilution created by executive stock option plans. Ongoing corporate share buybacks to offset executive stock option dilution also increase these expenses.

People who invest in index funds and ETFs believe their expenses are much lower than other investment vehicles, but hidden costs significantly

reduce the returns of these funds. They are:

Wintergreen analyzed the Proxy Filings and Annual Reports for each ofthe companies in the S&P 500.

We calculated the dilution from executive stock compensation plans. Care was taken to focus specifically on the Named Executive Officers and to not include shares granted to other employees.

We then calculated the Buybacks being used to offset dilutioncreated by executive stock option plans.

Data from 2016 proxies and annual reports Page 14

Wintergreen’s Methodology

• From page 36 of the 2017 Amazon proxy statement, it is disclosed that Amazon has 19.8m shares to be issued upon the exercise of outstanding options, warrants and rights for executive compensation awards and 123.1m total additional shares authorized under executive compensation plans that are available for future issuance under management compensation plans, for a total of 142.9m executive compensation shares

• Page 1 of the proxy shows 477m total shares outstanding for the company. When the 142.9m total possible executive compensation shares are divided by these 477m shares the resulting Total Dilution is 30.0%

• Page 27 of the 2017 proxy notes a term of 5.5 years for the executive bonus plan, which results in average annual dilution of 5.4%

Source: 2017 Amazon Proxy Statement Page 15

Wintergreen’s Methodology – Amazon Example

Dilution:

Buyback:

Amazon’s total look through expense to shareholders(average dilution plus average buyback used to offset executive compensation)

is an annual 5.4%

Wintergreen conducted this research for EVERY company in the S&P 500

Page 16

Wintergreen’s Methodology – Amazon Example

• Amazon had no buybacks in 2013, 2014, 2015, 2016.

• With 472m shares outstanding, the average annual buyback is 0.0%

Source: 2017 Amazon Proxy Statement

* Data as of 2016, based on Wintergreen’s analysis of dilution due to executive bonus plans and buybacks used to offset that dilution.† Average fees of leading S&P 500 Index Funds. Please see www.wintergreeniceberg.com for more information.

4.3%*

AVERAGE 2016 LOOK-THROUGH EXPENSES FOR S&P 500

Page 17

The Real Cost of An Index Fund to Shareholders

Buybacks to Offset Dilution 1.7%Calculated from the Company’s Annual Report

Dilution from Compensation 2.6%Calculated from the Company’s Proxy Filing

What You Think You Pay 0.04%†From the Index Fund’s Prospectuses

Advertised Management Fee† 0.095%

Look-Through Expense*

including Advertised Management Fee† 4.325%*

Market Maker Spread† 0.149%

Arbitrage Spread † 0.011%

Creation Fees †

Total:4.62%

49 times morecostly thanadvertised!

* Data as of 2016, based on Wintergreen’s analysis of dilution due to executive bonus plans and buybacks used to offset that dilution. † SPY ETF data from 2016 SPY ETF Annual Report. Please see www.wintergreeniceberg.com for more information.

Market Maker Spread = 1yr turnover % * average spread % Arbitrage Spread = $equalized net income / $total net assets Creation Fees = ((#units * $unit fee)/unit size) / $total net assets

Page 18

Real Costs in the SPY ETF

0.127%

+

+

+

…Long-term investment returns will suffer due to Look-Through

Expenses.

Look-Through Expenses of 4.3% may

seem small now….

….but if these LTEs compound annually at 6%, the effect on your

returns would be staggering – increasing to almost 25% by year

30!

Look-Through Expense of 4.1% in 2015 compounding at 6% (EPI, “CEO Pay Rises as Typical Workers Are Less,” Issue Brief#380, June 2014.)

Page 19

Huge Costs to Investors Over Time ….

This hypothetical chart shows what could happen to $100,000 invested over 30 years.

Effect of Look-Through Expenses on Returns

Effect of Look-Through Expenses on Return If markets compound at 6% annually, which is a common prediction of leading index funds, the added effect of Look-Through Expenses over the long term can be staggering. As suggested by the Economic Policy Institute*, Look-Through Expenses are also expected to compound at 6%.

This example shows that if Look-Through Expenses did not exist, investor returns would have been much higher.

Each year’s hypothetical return has been calculated based on 6% market growth, which is based on an S$P 500 index fund’s sales material. “What You Could Have Made” shows what you could have made if the compounding Look-Through Expenses had not been deducted from each year’s return.

*Look-Through Expenses of 4.1% in 2015 compounding at 6% (Economic Policy Institute , “CEO Pay Rises as Typical Workers Are Less,” Issue Brief #380, June 2014. Washington, DC.)

$1000

$900

$800

$700

$600

$500

$400

$300

$200

$100

0 5 10 15 20 25 30

Portfolio return before LTE (“What you could have made”)

Portfolio return after LTE (“What index funds predict you will make”)

Port

folio

Val

ue (T

hous

ands

) Page 20

$898,487

$574,349

The Long-Term Impact of Look-Through Expenses on Returns

Risk #2: Market Weighting = Concentration of ReturnsIndex Funds and ETFs are Concentrated and Laden with Risk

Page 21* As of December 1, 2017Source: http://www.multpl.com/shiller-pe/

1901

1921

1929

1966

1981

2000

-

5

10

15

20

25

30

35

40

45

50

1881 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011

Pric

e-Ea

rnin

gs R

atio

(CAP

E, P

/E 1

0)

CAPE Price E10 Ratio

Price-Earnings Ratio (CAPE, P/E 10) Average

32.3x*

Highest P/E in historyExcept for 1929 and

2000!

32.5x

44.2x

Blind Rush to Passive

Data: Pictet, Morningstar

FANG and Friends: Alphabet, Amazon, Apple, eBay, Facebook, Microsoft, Netflix, Priceline, Salesforce, and Starbucks.

75%

Through December 31, 2017

of the time, these 10 stocks have driven

stock market performance

Page 23

2010 2011 2012 2013 2014 2015 2016 2017FANG & Friends 32.71% 0.70% 34.72% 63.42% 7.50% 45.97% 5.86% 42.12%Rest of S&P 500 19.22% 0.37% 16.02% 34.62% 13.67% -2.37% 13.66% 17.22%S&P 500 Average 19.46% 0.37% 16.34% 35.17% 13.54% -1.38% 13.50% 21.76%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

FANG & Friends: Average Total Return

The Diversification Myth: FANG and Friends

The Liquidity Myth: August 24, 2015

We believe the dangers of ETFs became apparent on August 24, 2015, a day when volatility kept about half of the stocks in the S&P 500 from opening on time.

As a result, pricing for some of the most popular S&P 500 index products broke down. J.P. Morgan estimates that 290 ETFs traded at apparently “wrong” prices in the first hour of trading and led to investor losses of $250 million.

Page 24J.P. Morgan Market and Volatility Commentary, September 24, 2015.

Page 25

Record Levels of Margin Debt

Source: New York Stock Exchange, Margin Debt Data

Page 26

Record Levels of Margin Debt

*November 27, 2017, “A Balanced Approach to Monetary Policy”

Robert KaplanPresident and CEO, Federal Reserve Bank of Dallas

“I would also note that margin debt is now at record levels. In the event of a sell-off, high levels of margin debt can encourage additional selling, which could, in

turn, lead to a more rapid tightening of financial conditions.”*

The majority of active managers have given up trying to outperform the index and have realigned their strategies to mimic indexes. We call this “index light.”

With so much capital either in passive funds or index light funds, we think the risk of a bubble bursting is more prevalent than ever.

When the tide goes out, we believe the high risks of index funds and high R2 investment portfolios will damage the savings and retirement accounts of many.

Page 27

When Active Funds Are Not Active

Source: Bloomberg as of 12/31/2017

Fund Name Ticker R-Squared

S&P 500 Index SPY 0.992

Hartford International Fund HILAX 0.851

Oakmark Fund OAKMX 0.783

Franklin Mutual Shares Fund MUTHX 0.765

Dodge & Cox Global Stock Fund DODWX 0.749

Artisan Global Value ARTGX 0.733

Wintergreen Fund WGRIX 0.125

Page 28

How to Tell if Your Manager is Really Active

2.59%

4.45%

4.78%

4.46%

1.70%

0.46%

0.87%

0.85%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00%

Wintergreen WGRIX

Vanguard VWUSX

Blackrock MALVX

State Street SSJIX

Mutual Fund Side by Side Comparison: Estimated Total Expenses to Shareholders

Advertised Net Expense Ratio Total Expenses to Shareholders*

*Total Expenses to Shareholders = (AVG LTE x R2) + Net Expense Ratio

Look Through Expense data as of 2016, based on Wintergreen’s analysis of dilution due to executive bonus plans and buybacks used to offset that dilution. Expense Ratios from 2017 prospectuses.

Page 29

Investors Beware: Total Expenses Can Diminish Your Returns GreatlyTrue Active Managers Can Make Investments in Securities

with Lower Look Through Expenses

Risk #3: Weak Corporate GovernanceInvestors Don’t Realize the Impact of Weak Governance

on Hidden Costs

Page 30

Index Funds and ETFs seem to overlook fiduciary responsibility to look out for investors’ financial interests, ignoring Look-Through Expenses.

Wintergreen’s Calculation of Look Through Expenses is the Total Amount that Company’s have the ability to award to executives without the need for any additional shareholder approval or regulatory input.

Although Congress initially authorized $700 billion for TARP in October 2008, that authority was reduced to $475 billion by the Dodd-Frank Act. Look- Through Expenses are an ongoing annual expense; data calculated as of 2016. Source: https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/Pages/default.aspx

Page 31

Weak Corporate Governance Costs Billions

The societal impact is staggering - the potential of $908 billion of Look Through Expenses is equal to 4.9% of the United States GDP.Potential dollar amounts for LTE:

$475 BillionTARPin 2008

A one-time expense

$828 BillionLook-Through

Expensesin 2015

About equal to the 17th largest economy in the world (Turkey)

Potential ongoing annual expense

Although Congress initially authorized $700 billion for TARP in October 2008, that authority was reduced to $475 billion by the Dodd-Frank Act. Look- Through Expenses are an ongoing annual expense; data calculated as of 2016. Source: https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/Pages/default.aspx

$908 BillionLook-Through

Expensesin 2016

About equal to the 16th largest economy in the world (Indonesia)Potential ongoing annual expense

Page 32

Weak Corporate Governance Costs Billions

Page 33

Truth in Marketing

Passive Fund Realities:• Overall Expenses are Not Low

• Market Weighting Reduces Diversification

• Liquidity Risks– remember the ETF crash on August 24, 2015

• A Crowded Trade

Page 34

Failed Engagement with Companies

Index Fund and ETF sponsors are aware of their terrible voting results on executive compensation

• Their explanation that they “engage” with portfolio companies has not changed the voting and approval practices of the companies of which they are the largest shareholders.

The top 4-6 shareholders in most S&P 500 companies are index funds.

Index Funds vote in favor of management proposals 97% of the time.*

Over time, executive compensation has ballooned, dilutingshareholder value for all.**

54% of the time buybacks are used to absorb the dilution caused bythese expensive stock-based compensation packages.***

The active vote has value – ERISA (the Employee Retirement Income Security Act of 1974) recognized the value of the right to say no.

*Based on proxy voting in 2016**Economic Policy Institute, “CEO Pay Rises as Typical Workers Are Less,” Issue Brief #380, June 2014. Washington, DC.***Data as of 2016, based on Wintergreen’s analysis of dilution due to executive bonus plans and buybacks used to offset that dilution.

Page 35

The Current Index Investing System

Page 36

The Current Index Investing System Means Most Investors Lose

The Role of the CFA is being Diminished• Fundamental Analysis is becoming irrelevant.

• Valuations are being ignored.

• Corporate Governance is being ignored.

• Securities Analysts will probably have fewer jobs.

• Risk to price discovery as there will be fewer analysts to study new information to determine the price at which buying and selling is balanced.

Potential SolutionsStarting a Discussion on how to Remedy these Issues

Page 37

Clearer disclosure to improve voting decisions including:Greater transparency and disclosure of Look-Through Expenses:

Portfolio companies should disclose the costs of dilutive stock executive compensation plans and the stock buybacks involved. This cost disclosure should be clearly identified in the annual report and proxy statement for each company.

This standardized expense number, once properly disclosed, can be used by investors to make investment decisions as to which companies to avoid, based on their total LTE.

Page 38

Wintergreen’s Suggested Solutions to these Hidden Costs

Clearer disclosure to improve voting decisions:Funds should disclose their true expense to shareholders

based on the average LTE in their portfolios. If investors knew that the LTE for a fund was 4.3%, their investment decision may change.

Page 39

Wintergreen’s Suggested Solutions to these Hidden Costs

Funds should refine their marketing to reflect the market weighting and to disclose the Look Through Expenses.

Funds need to vote their proxies from the perspective of the investor and not the CEO.

Wintergreen's research shows that 97% of the time, Index Funds vote in favor of executive compensation plans. Since the top 4-6 shareholders in most S&P 500 companies are index funds, the weight of their votes have a material impact on voting results. As we have learned from our activist campaigns, companies know this and count on these votes when creating compensation plans.

The Result: Extreme Look Through Expenses

Page 40

Wintergreen’s Suggested Solutions to these Hidden Costs

Change executive compensation plans from stock grants to cash compensation with long-term stock ownership requirements.

Requiring management purchase shares with cash that they have paid tax on, and requiring minimum ownership provisions, will align managements interests with shareholder interests.

The resulting savings can be used to benefit shareholders by increased reinvestment in the underlying businesses or by paying dividends to shareholders.

Page 41

Wintergreen’s Suggested Solutions to these Hidden Costs

Q&A

Page 42

Discussion

THIS DOCUMENT INCLUDES INFORMATION BASED ON DATA FOUND IN FILINGS WITH THE SECURITIES AND EXCHANGE

COMMISSION, INDEPENDENT INDUSTRY PUBLICATIONS AND OTHER SOURCES. ALTHOUGH WE

BELIEVE THAT THE DATA ARE RELIABLE, WE HAVE NOT SOUGHT, NOR HAVE WE RECEIVED, PERMISSION FROM ANY

THIRD-PARTY TO INCLUDE THEIR INFORMATION IN THIS PAPER. MANY OF THE STATEMENTS IN THIS PAPER REFLECT

OUR SUBJECTIVE BELIEF.

THE INFORMATION CONTAINED HEREIN IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES

NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY

COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS

SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN DECISIONS

REGARDING A COMPANY AND ITS PROSPECTS BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE

INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN. NEITHER WINTERGREEN ADVISERS,

LLC NOR ANY OF ITS AFFILIATES ACCEPTS ANY LIABILITY WHATSOEVER FOR ANY DIRECT OR CONSEQUENTIAL LOSS

HOWSOEVER ARISING, DIRECTLY OR INDIRECTLY, FROM ANY USE OF THE INFORMATION CONTAINED HEREIN.

Page 43

www.wintergreenway.comwww.wintergreenadvisers.com

Page 44