2017 Annual Management Report of Fund Performance

Transcription

1 (the Fund ) For the 12-month period ended September 30, (the Period ) Manager: BMO Investments Inc. (the Manager or BMOII ) Portfolio manager: BMO Asset Management Inc., Toronto, Ontario (the portfolio manager ) Annual Management Report of Fund Performance This annual management report of fund performance contains financial highlights but does not contain the complete annual financial statements of the Fund. If the annual financial statements of the Fund do not accompany the mailing of this report, you may obtain a copy of the annual financial statements at your request, and at no cost, by calling and , by writing to us at BMO Investments Inc., First Canadian Place, 100 King Street West, 43rd Floor, Toronto, Ontario, M5X 1A1 or by visiting our website at and or SEDAR at You may also contact us using one of these methods to request a copy of the Fund s proxy voting policies and procedures, proxy voting disclosure record and/or quarterly portfolio disclosure. MANAGEMENT DISCUSSION OF FUND PERFORMANCE Investment Objective and Strategies The Fund s objectives are to provide a fixed monthly distribution while preserving the value of your investment. The Fund invests primarily in Canadian fixed income securities with higher-than-average yields, issued by the federal government, provincial governments, government agencies and corporations, as well as preferred and common shares, real estate investment trusts, royalty trusts and other high-yielding investments. To enhance the yield, the Fund may also invest in Canadian or foreign lower-rated or unrated securities, derivative instruments like options, futures and forward contracts. For the fixed income portion of the portfolio, the portfolio manager may implement dynamic positioning strategies on the yield curve by actively trading different types of securities. The portfolio manager invests primarily in securities rated BBB or higher, examines economic indicators like growth, inflation and monetary policy to provide a framework for selecting appropriate securities, and selects the term of the securities based on interest rate outlook. For the equity portion of the portfolio, the portfolio manager applies a bottom-up fundamental investment process to identify attractively priced securities. This process includes analyzing financial statements, company management and valuations, with an emphasis on companies that generate stable and predictable cash flows. Risk No changes affecting the overall level of risk associated with investing in the Fund were made during the Period. The risks of the Fund remain as discussed in the Fund s most recent simplified prospectus or any amendments and fund facts. Results of Operations During the Period, the Fund s total net asset value changed from approximately $3,935 million to approximately $4,336 million. Series A units of the Fund returned 2.18% versus the Fund s blended benchmark, composed of 5 FTSE TMX Canada Universe Bond Index and 5 S&P/TSX Composite Total Return Index, return of 3.0. Please see the Past Performance section for information on the performance returns of the Fund s other series. During the Period, the outcome of the U.S. presidential election resulted in a stock rally in many countries, including Canada. Investors expected increased fiscal spending, tax reforms and deregulation in the U.S. These changes were expected to result in higher consumer demand in the U.S. and contribute to global growth. However, while improved market sentiment lifted Canadian equities, the rally was short lived as investors were disappointed by the new U.S. administration s lack of progress. While much of the weakness in Canadian stocks can be attributed to external factors, concerns of overheating in the housing market and issues at Home Capital Group Inc. also resulted in weaker investor appetite for Canadian equities. However, as economic expansion continued to show resilience, as demonstrated by employment gains, improving manufacturing activity and widespread improvements in gross domestic product, Canadian stocks became more appealing. In the third quarter, Canadian Financials stocks registered strong performance as interest rates rose in response to two interest rate increases by the Bank of Canada ( BoC ).

2 Canadian banks responded by increasing their prime rate, which should support earnings generated from consumer loans. Meanwhile, members of the Organization of the Petroleum Exporting Countries ( OPEC ) and other parties, which agreed to cut oil production, continued to monitor compliance with their quotas. OPEC believes the cuts have already helped reduce global oil supply, which could support oil prices. Overall, Canadian equities, as represented by the S&P/TSX Composite Total Return Index, delivered a 9.2% gain over the Period. The Canadian 10-year government bond yield has rallied since late. The outcome of the U.S. presidential election resulted in a sharp increase in North American bond yields on expectations of fiscal spending and tax reforms in the U.S. These changes were expected to result in higher inflation in both Canada and the U.S. However, investors were disappointed by the lack of progress of the new U.S. administration and bond yields slid during the first half of. However, Canada has demonstrated strong economic performance in as gains in employment remained on an upward trajectory and manufacturing activity continued to expand. As a result, the BoC changed its cautious tone and raised interest rates twice. In the second quarter, the BoC suggested there was a higher likelihood that the two interest rate cuts implemented in would be unwound. After the second interest rate increase, however, markets started to price in a more aggressive interest rate trajectory. The Canadian yield curve shifted higher across all maturities, particularly across short-term and mid-term maturities. However, strong economic data helped corporate spreads (i.e., difference in yields), as corporate bonds outperformed government debt. Overall, the Canadian bond market, as measured by the FTSE TMX Canada Universe Bond Index, fell 3. since the end of September. The new U.S. administration s pro-growth, pro-business, anti-tax stance increased growth and inflation expectations in the U.S. and globally. Crude oil prices were volatile but rebounded nearly 8% in the fourth quarter of following OPEC s announcement of production cuts. Oil prices fell in early March, but rebounded from its lowest level in more than a year to close the third quarter of just under US$52 per barrel. After falling during the fourth quarter of, gold prices rallied more than 8% in the first quarter of, but weakened to below US$1,300 per ounce by the end of the Period. Base metals performed well, posting doubledigit returns in some cases, on continued strengthening in global economic growth. In late, European markets were positive, but in the low single digits except for Italy, which rebounded sharply following the failure of the referendum on constitutional reform in early December. Emerging markets, particularly in Asia, were significantly weaker than their developed market counterparts as the new U.S. administration appeared more domestically focused. South Korean equities and currency fell sharply after its president was impeached on issues surrounding potential abuses of influence. During the first quarter of, the NASDAQ Composite Index rose more than as U.S. large-capitalization growth securities were particularly strong while small-capitalization value stocks had a negative return. European markets rose on improved macroeconomic data. In particular, Spain saw a rebound in economic strength, which resulted in a rise of nearly 13% for the quarter. South Korean equities rebounded after weakness in the prior quarter as result of a robust export market. The rest of Asia, excluding Japan, which tends to be cyclical in nature, rose more than as investors branched out of U.S. equities and put capital to work in the region. In the U.K., Prime Minister Theresa May formally invoked Article 50 at March month-end to initiate its departure from the European Union ( EU ). During the last half of the period, global equity markets continued to move higher. Even with a Republican majority in the U.S. Congress, it proved unable to enact policy or tax reform. Despite this, the U.S. economy continued to improve as large-capitalization equities, particularly in the Information Technology sector, posted higher returns. Led by the Information Technology sector, growth-style stocks significantly outperformed value-based stocks. The U.K. market lagged the rest of Europe after Prime Minister May called a snap election, but failed to increase support for her party, leading to some concern over how the country s withdrawal from the EU would progress. During the third quarter of, European markets were particularly strong as global economic data continued to improve, and political risk subsided following the French and German elections. Emerging markets returns were driven higher as global growth expectations improved. Stock selection in Asia and Europe contributed to performance, as did selections in the Health Care and Consumer Discretionary sectors. The Fund s position in Best Buy Co. Inc. contributed to its performance as the company reported consistently positive earnings. An overweight allocation to corporate bonds was another driver of performance as the economy improved. The Fund s

3 positioning on the yield curve, which was higher than that of the benchmark, contributed to its performance as well. The Fund s duration (i.e., interest rate sensitivity) was lower than that of the benchmark. As interest rates rose, using the 10-year Government of Canada ( GoC ) yield, the Fund s positioning contributed to performance. Despite the Fund s lower duration, the rise in interest rates detracted from overall performance. Stock selection in Japan, an underweight allocation to banking and an overweight exposure to real estate investment trusts detracted from the Fund s equity component. On a relative basis, the Fund s underweight allocation to U.S. banks, Bank of America Corp. and JPMorgan Chase & Co., detracted from results as well. The portfolio manager increased the Fund s equity exposure to cyclical sectors and trimmed its higher-yield, low volatility stocks. The total amount of corporate bond exposure in the Fund was decreased in order to take profits. The Fund distributes a fixed amount per unit each month, consistent with the Fund s stated objective of providing a stable cash flow to its unitholders. A portion of a distribution may consist of a return of capital. This portion may be significant, and will occur when the income earned by the Fund per unit is less than the fixed amount of the distribution. The Manager confirms that the Fund did not borrow money during the Period. For information on the Fund s performance and composition, please refer to the Past Performance section and Summary of Investment Portfolio section of this report. Recent Developments The portfolio manager recognizes that, given the BoC tightening of monetary policy and a relatively strong Canadian dollar versus its U.S. counterpart, monetary conditions in Canada are more constrained than a year ago. BoC actions should continue to keep inflation under control and limit the recent upward pressure on interest rates. In this scenario, it is anticipated that growth will remain positive but not as strong as in recent months, and that the BoC will become less hawkish in its monetary policy stance. While growth will not likely be quite as robust as it was previously, and inflation should remain in check, the portfolio manager anticipates that there is still some pressure to push yields modestly higher as investors continue to adjust to the U.S. Federal Reserve Board s scaling back of its quantitative easing program (i.e., monetary policy used by central banks to increase money supply). In this environment, the Fund will likely maintain a duration lower than that of the benchmark. A positive growth environment, with interest rates that are still relatively low and inflation that remains in check, should continue to see risky assets perform well. In this context, it is expected that corporate bond spreads (i.e., the incremental yield on corporate bonds versus GoC bonds of similar maturity) will continue to narrow and outperform GoC benchmarks. Given that corporate bonds are expected to outperform, the portfolio manager will maintain an overweight exposure to the Corporate sector for the foreseeable future. With respect to equities, the portfolio manager expects continued strength from global markets, particularly in the U.S. However, short-term markets are likely to stay at current levels given their large performance moves late in. The Fund may lag the broader market if commodity prices rebound, but is well positioned for a volatile downturn in markets. Subsequent Event Multi-Series Structure Change In a press release on November 10,, in addition to the types of units currently available for sale to investors, the Manager announced, subject to regulatory approval, Series G units would be available for sale. Series G units are available exclusively through BMO Group Registered Retirement Savings Plan (RRSP) accounts. RELATED PARTY TRANSACTIONS BMO Investments Inc., an indirect, wholly-owned subsidiary of Bank of Montreal ( BMO ), is the Manager of the Fund. From time to time, the Manager may, on behalf of the Fund, enter into transactions or arrangements with or involving other members of BMO Financial Group, or certain other persons or companies that are related or connected to the Manager (each a Related Party ). The purpose of this section is to provide a brief description of any transaction involving the Fund and a Related Party. Portfolio Manager The Fund s portfolio manager is BMO Asset Management Inc. ( BMOAM ), an affiliate of the Manager. BMOAM provides portfolio management services to the Fund. BMOAM receives from the Fund a management fee based on assets under management, calculated daily and payable monthly.

4 Administration Fee and Operating Expenses The Fund pays a fixed administration fee to the Manager in respect of each series other than Series I. The Manager in return pays the operating expenses of these series of the Fund, other than certain specified expenses that are paid directly by the Fund ( Fund Expenses ). Fund Expenses, include expenses incurred in respect of preparing and distributing fund facts, interest or other borrowing expenses, all reasonable costs and expenses incurred in relation to compliance with NI , including compensation and expenses payable to the Fund s Independent Review Committee ( IRC ) members, taxes to which the Fund is or might be subject, and costs associated with compliance with any new governmental or regulatory requirement introduced after December 1, Fund Expenses are allocated proportionately among the relevant series. If the Fund Expenses are specific to a series, the Fund Expenses are allocated to that series. The fixed administration fee is calculated as a fixed annual percentage of the average net asset value of each relevant series of the Fund. Separate fees and expenses are negotiated and paid by each Series I investor. Further details about the fixed administration fee and/or Fund Expenses can be found in the Fund s most recent simplified prospectus at and or Buying and Selling Securities Investments in Bank of Montreal Common Shares or Preferred Shares, Investments in Bank of Montreal Debt Securities in the Secondary Market, Investing in Bank of Montreal Debt Securities in a Primary Offering, Related-Party Underwritings, Trades in Debt Securities with a Related Entity, Trading as Principal and Conducting Inter-Fund Trades During the Period, the Manager relied on an approval and standing instruction provided by the Fund s IRC with respect to the following related party transactions: (a) investments in common shares or preferred shares of BMO, an affiliate of the Manager; (b) investments in debt securities of BMO, an affiliate of the Manager, in the secondary market; (c) investments in debt securities of BMO, an affiliate of the Manager, in a primary offering; (d) investments in a class of non-government debt securities and/or equity securities of an issuer during the period of distribution of those securities to the public and/or the 60-day period following the distribution period where BMO Nesbitt Burns Inc., an affiliate of the Manager, acted as an underwriter in the distribution; (e) trades in debt securities in the secondary market with BMO Nesbitt Burns Inc. who is trading with the Fund as principal; and (f) inter-fund trades (each, a Related Party Transaction ). In accordance with the IRC s approval and standing instruction, in making a decision to cause the Fund to make a Related Party Transaction, the Manager and portfolio manager of the Fund, are required to comply with the Manager s written policies and procedures governing the Related Party Transaction and report periodically to the IRC, describing each instance that the Manager relied on the approval and standing instruction and its compliance or non-compliance with the governing policies and procedures. The governing policies and procedures are designed to ensure the Related Party Transaction (i) is made free from any influence of BMO, BMO Nesbitt Burns Inc. or an associate or affiliate of BMO and/or BMO Nesbitt Burns Inc. and without taking into account any considerations relevant to BMO, BMO Nesbitt Burns Inc. or an associate or affiliate of BMO and/or BMO Nesbitt Burns Inc., (ii) represents the business judgment of the Manager, uninfluenced by considerations other than the best interests of the Fund, and (iii) achieves a fair and reasonable result for the Fund. Brokerage Commissions The Fund pays standard brokerage commissions at market rates to BMO Nesbitt Burns Inc., an affiliate of the Manager, for executing a portion of its trades. The brokerage commissions charged to the Fund (excluding exchange and other fees) during the periods indicated, were as follows: Period ended Period ended Sep. 30, Sep. 30, $000 $000 Total brokerage commissions $ 1,181 1,077 Brokerage commissions paid to BMO Nesbitt Burns Inc. $ Distribution Services The Manager markets and distributes the Fund through Bank of Montreal branches and/or (depending on the series) through registered dealers and brokers, including BMO InvestorLine Inc. and BMO Nesbitt Burns Inc., both affiliates of the Manager. The Manager pays to these affiliates a service fee called a trailing commission based on the average daily value of the units and/or shares that are held in investor accounts. This service fee is paid monthly or quarterly and varies by purchase option and by series.

5 Management Fees The Manager is responsible for the day-to-day management of the business and operations of the Fund. The Manager monitors and evaluates the Fund s performance, pays for the investment advice provided by the Fund s portfolio manager and provides certain administrative services required by the Fund. As compensation for its services, the Manager is entitled to receive a management fee payable monthly, calculated based on the daily net asset value of each series of the Fund at the maximum annual rate set out in the table below. As a Percentage of Management Fees General Maximum Annual Administration, Management Dealer Investment Fee Rate* Compensation Advice and Profit % % % Series A Units Series T6 Units Series F Units Series F6 Units Series D Units Series I Units Series R Units * For Series I Units, separate Series I fees are negotiated and paid by each Series I investor. Since the Manager pays no distribution, service or trailing fees on Series I Units, the combined management and administrative fees for Series I Units will not exceed the management fee charged for Series A Units. FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the periods indicated. The Fund s Net Assets per Unit (1) Series A Units Net assets, beginning of period $ Total revenue $ Total expenses (2) $ for the period $ for the period $ from operations (3) $ (excluding dividends) $ From dividends $ From capital gains $ Return of capital $ Total Annual Distributions (4) $ Net assets, end of period $ Series T6 Units (6) ) Net assets, beginning of period $ )* Total revenue $ Total expenses (2) $ for the period $ for the period $ from operations (3) $ (excluding dividends) $ From dividends $ From capital gains $ Return of capital $ Total Annual Distributions (4) $ Net assets, end of period $ Series F Units Net assets, beginning of period $ Total revenue $ Total expenses (2) $ for the period $ for the period $ from operations (3) $ (excluding dividends) $ From dividends $ From capital gains $ Return of capital $ Total Annual Distributions (4) $ Net assets, end of period $

6 Series F6 Units Oct. 18, to Sep. 30, Net assets, beginning of period $ 10.00)* Total revenue $ 0.28 Total expenses (2) $ for the period $ 0.29 for the period $ from operations (3) $ 0.37 (excluding dividends) $ 0.07 From dividends $ 0.11 From capital gains $ 0.04 Return of capital $ 0.37 Total Annual Distributions (4) $ 0.59 Net assets, end of period $ 9.84 Premium Series Units (8) )(9) ) Net assets, beginning of period $ )* Total revenue $ Total expenses (2) $ for the period $ for the period $ from operations (3) $ (excluding dividends) $ From dividends $ From capital gains $ Return of capital $ Total Annual Distributions (4) $ Net assets, end of period $ 9.76 Series D Units (7) 2014) Net assets, beginning of period $ )* Total revenue $ Total expenses (2) $ for the period $ for the period $ from operations (3) $ (excluding dividends) $ From dividends $ From capital gains $ Return of capital $ Total Annual Distributions (4) $ Net assets, end of period $ Series I Units Net assets, beginning of period $ Total revenue $ Total expenses (2) $ for the period $ for the period $ from operations (3) $ (excluding dividends) $ From dividends $ From capital gains $ Return of capital $ Total Annual Distributions (4) $ Net assets, end of period $

7 Series R Units 2014 (5) 2013) Net assets, beginning of period $ * Total revenue $ Total expenses (2) $ for the period $ for the period $ from operations (3) $ (excluding dividends) $ From dividends $ From capital gains $ Return of capital $ Total Annual Distributions (4) $ Net assets, end of period $ * Initial net assets. (1) This information is derived from the Fund s audited financial statements. The financial information presented for the periods ended September 30,, September 30,, September 30, and September 30, 2014 is derived from the financial statements determined in accordance with IFRS. Information for periods prior to October 1, 2013 is derived from prior period financial statements prepared in accordance with Canadian GAAP. (2) Includes commissions and other portfolio transaction costs. Prior to October 1, 2013, withholding taxes were not included in expenses as they were included in revenue. (3) Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of units outstanding over the financial period. This table is not intended to be a reconciliation of beginning to ending net assets per unit. (4) Distributions were either paid in cash or reinvested in additional units of the Fund, or both. The allocation of the distributions from each of income, dividends, capital gains and return of capital is based on the Manager s estimate as at September 30 of the period shown, which is the Fund s financial year-end. However, the actual allocation of distributions is determined as at December 15, the Fund s tax year-end. Accordingly, the actual allocation among income, dividends, capital gains and return of capital may differ from these estimates. (5) The information shown in this column is for the period beginning March 8, 2013 (the series inception date) and ending September 30, (6) The information shown in this column is for the period beginning March 28, 2013 (the series inception date) and ending September 30, (7) The information shown in this column is for the period beginning April 7, 2014 (the series inception date) and ending September 30, (8) The information shown in this column is for the period beginning February 18, (the series inception date) and ending September 30,. (9) As at the close of business on October 30,, the Premium Series was terminated. Ratios and Supplemental Data Series A Units Total net asset value (000 s) (1) $ 3,557,070 3,160,913 2,923,326 2,843,924 2,749,174 outstanding (000 s) (1) 509, , , , ,196 (2) % before waivers or absorptions % Trading expense ratio (3) % Portfolio turnover rate (4) % Net asset value per unit $ Series T6 Units (6) ) Total net asset value (000 s) (1) $ 80,372 71,955 56,592 48,834 29,880 outstanding (000 s) (1) 8,910 7,458 5,788 4,734 3,075 (2) % before waivers or absorptions % Trading expense ratio (3) % Portfolio turnover rate (4) % Net asset value per unit $ Series F Units Total net asset value (000 s) (1) $ 63,376 28,844 8,937 3,716 3,471 outstanding (000 s) (1) 5,979 2, (2) % before waivers or absorptions % Trading expense ratio (3) % Portfolio turnover rate (4) % Net asset value per unit $ Series F6 Units Oct. 18, to Sep. 30, Total net asset value (000 s) (1) $ 799 outstanding (000 s) (1) 81 (2) % 0.70 before waivers or absorptions % 0.75 Trading expense ratio (3) % 0.04 Portfolio turnover rate (4) % Net asset value per unit $ 9.84 Premium Series Units (8) )(9) ) Total net asset value (000 s) (1) $ 1 outstanding (000 s) (1) 0 (2) % before waivers or absorptions % Trading expense ratio (3) % Portfolio turnover rate (4) % Net asset value per unit $ 9.76

8 Series D Units (7) 2014) Total net asset value (000 s) (1) $ 23,830 15,314 8,472 3,877 outstanding (000 s) (1) 2,325 1, (2) % before waivers or absorptions % Trading expense ratio (3) % Portfolio turnover rate (4) % Net asset value per unit $ Series I Units Total net asset value (000 s) (1) $ 374, , , , ,853 outstanding (000 s) (1) 41,039 37,097 34,167 28,033 26,652 + % before waivers or absorptions + % 0.02 Trading expense ratio (3) % Portfolio turnover rate (4) % Net asset value per unit $ Series R Units 2014 (5) 2013) Total net asset value (000 s) (1) $ 236, , , , ,585 outstanding (000 s) (1) 46,811 53,268 61,000 69,435 77,711 (2) % before waivers or absorptions % Trading expense ratio (3) % Portfolio turnover rate (4) % Net asset value per unit $ Operating expenses are paid by BMOII and management fees are paid directly to BMOII as negotiated with the investor. (1) This information is provided as at September 30 of the period shown, as applicable. (2) is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the period. (3) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. (4) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio manager manages its portfolio investments. A portfolio turnover rate of 10 is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund s portfolio turnover rate in a year, the greater the trading costs payable by the fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of a fund. (5) The information shown in this column is for the period beginning March 8, 2013 (the series inception date) and ending September 30, (6) The information shown in this column is for the period beginning March 28, 2013 (the series inception date) and ending September 30, (7) The information shown in this column is for the period beginning April 7, 2014 (the series inception date) and ending September 30, (8) The information shown in this column is for the period beginning February 18, (the series inception date) and ending September 30,. (9) As at the close of business on October 30,, the Premium Series was terminated. PAST PERFORMANCE The Fund s performance information assumes that all distributions made by the Fund in the periods shown were used to purchase additional securities of the Fund and is based on the net asset value of the Fund. The performance information does not take into account sales, redemption, distribution or other optional charges that, if applicable, would have reduced returns or performance. Please remember that how the Fund has performed in the past does not indicate how it will perform in the future. The returns of each series may differ from one another for a number of reasons, including if the series was not issued and outstanding for the entire reporting period and because of the different levels of management fees and expenses allocated and payable by each series. On February 1,, the management fee on Series F and Series F6 units was lowered from 0.55% to 0.5. This change could have affected the performance of the Fund, had it been in effect throughout the performance measurement periods presented. Year-by-Year Returns The following bar charts show the performance of each series of the Fund for each of the financial years shown. The charts show in percentage terms how an investment made on the first day of each financial year would have increased or decreased by the last day of each financial year. Series A Units

9 Series T6 Units Series D Units (4) (5) Series F Units Series I Units (2) (1) Series F6 Units Series R Units (6) (3) (1) For the period beginning with the performance launch date of March 5, 2008 to September 30, (2) For the period beginning with the performance launch date of November 3, 2008 to September 30, (3) For the period beginning with the performance launch date of March 11, 2013 to September 30, (4) For the period beginning with the performance launch date of April 1, 2013 to September 30, (5) For the period beginning with the performance launch date of April 8, 2014 to September 30, (6) For the period beginning with the performance launch date of October 19, to September 30,. 2014

10 Annual Compound Returns This table compares the historical annual compound returns of the Fund with its blended benchmark (composed of 5 FTSE TMX Canada Universe Bond Index and 5 S&P/TSX Composite Total Return Index ( S&P/TSX )), in addition to the S&P/TSX, a broad-based index. The FTSE TMX Canada Universe Bond Index is a broad measure of the total return of Canadian bonds that mature in more than one year. The S&P/TSX reflects the price movements of selected securities listed on the Toronto Stock Exchange and weighted by market capitalization. Series A Units year years years years Inception BMO Monthly Income Fund % Blended Benchmark % S&P/TSX % Series T6 Units year years years years Inception (4) BMO Monthly Income Fund % Blended Benchmark % S&P/TSX % Series F Units year years years years Inception (2) BMO Monthly Income Fund % Blended Benchmark % S&P/TSX % Series F6 Units year years years years Inception (6) BMO Monthly Income Fund % 3.87 Blended Benchmark % 3.47 S&P/TSX % 8.92 Series D Units year years years years Inception (5) BMO Monthly Income Fund % Blended Benchmark % S&P/TSX % Series I Units year years years years Inception (1) BMO Monthly Income Fund % Blended Benchmark % S&P/TSX % Series R Units year years years years Inception (3) BMO Monthly Income Fund % Blended Benchmark % S&P/TSX % (1) Return from the performance launch date of March 5, 2008 to September 30,. (2) Return from the performance launch date of November 3, 2008 to September 30,. (3) Return from the performance launch date of March 11, 2013 to September 30,. (4) Return from the performance launch date of April 1, 2013 to September 30,. (5) Return from the performance launch date of April 8, 2014 to September 30,. (6) Return from the performance launch date of October 19, to September 30,. As noted above, the table shows a comparison of the historical annual compound returns of the Fund with the S&P/TSX, a broad-based index. The Fund, however, uses a blended benchmark to compare its overall relative performance. The reason for this is that the blended benchmark is a better reflection of the asset mix of the underlying investments within the Fund s portfolio. Accordingly, the blended benchmark is a more accurate and useful comparison. A commentary on the market and/or information regarding the relative performance of the Fund as compared to its benchmark can be found under the Results of Operations section of this report.

11 SUMMARY OF INVESTMENT PORTFOLIO As at September 30, % of Net Portfolio Allocation Asset Value Bonds and Debentures 40.6 Canadian Equities 32.8 U.S. Equities 14.2 International Equities 8.5 International Equity Funds 1.2 Emerging Markets Equity Fund 1.0 Cash/Receivables/Payables 0.7 Other 1.0 Total Portfolio Allocation % of Net Top 25 Holdings Asset Value Issuer Government of Canada, 0.75 May 1, Province of Quebec, Unsecured, 3.50 Dec 1, Government of Canada, 0.50 Feb 1, Royal Bank of Canada 2.1 Toronto-Dominion Bank, The, 2.0 Province of Ontario, Unsecured, 2.80 Jun 2, Bank of Nova Scotia, The, 1.4 Province of Ontario, Unsecured, 2.60 Jun 2, Province of Ontario, Unsecured, 2.90 Dec 2, BMO Low Volatility Emerging Markets Equity ETF+ 1.0 Enbridge Inc. 0.9 Government of Canada, Unsecured, 2.75 Dec 1, TransCanada Corporation 0.8 Province of Quebec, Unsecured, 2.75 Sep 1, BCE Inc. 0.8 Suncor Energy Inc. 0.8 Province of British Columbia, Unsecured, 2.80 Jun 18, Canadian Natural Resources Limited 0.7 Cogeco Communications Inc. 0.7 Inter Pipeline Ltd. 0.7 Power Corporation of Canada 0.7 Pembina Pipeline Corporation 0.7 Rogers Communications Inc., Class B 0.7 Enbridge Income Fund Holdings Inc. 0.7 Province of Newfoundland and Labrador, Series 5X, Apr 15, Top Holdings as a Percentage of Total Net Asset Value 31.5 Total Net Asset Value $4,335,705,510 +The prospectus and other information about the underlying exchange traded fund held in the portfolio are available on the internet at and, also at The summary of investment portfolio may change due to the Fund s ongoing portfolio transactions. Updates are available quarterly.