2017 Annual Management Report of Fund Performance

Transcription

1 (the Fund ) For the 12-month period ended December 31, (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, 43rd Floor, 100 King Street West, 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 objective is to provide long-term growth through capital appreciation by investing primarily in equities and equity-related securities of companies with small to medium market capitalization located throughout the world. The portfolio manager invests in global smaller capitalization companies that are displaying strong growth in earnings or sales. The portfolio manager will employ a quantitative model based on fundamental equity analysis methodologies to identify and select equities that trade below their intrinsic value, demonstrate superior earnings growth, and demonstrate positive price momentum. The portfolio manager may invest up to 3 of the Fund s assets in securities of other mutual funds and/or exchange traded funds managed by the Manager or other mutual fund managers, including affiliates or associates of the Manager. Risk The risks associated with an investment in the Fund remain as disclosed in the Fund s most recent simplified prospectus or any amendments and fund facts documents. During the Period there were no changes to the Fund that materially affected the overall risk level associated with an investment in the Fund. However, beginning in November the Fund s investment risk level is being determined by calculating the Fund s ten-year standard deviation in accordance with the investment risk classification methodology under National Instrument Investment Funds, which came into force effective September 1,. If the Fund does not have at least ten years of performance history, a reference index that is expected to reasonably approximate the Fund s standard deviation is used as a proxy for the remainder of the ten year period. In November, the Manager reviewed the Fund using the new standardized risk classification methodology and announced on November 10, that the risk rating of the Fund should be changed from medium to high to medium. The change to the Fund s risk rating was as a result of utilizing the new risk classification methodology and not because of changes to the investing strategies and processes employed by the portfolio manager or other changes to the Fund. The Manager reviews the Fund s investment risk level and reference index, if any, at least annually. Results of Operations During the Period, the Fund s total net asset value changed from approximately $248 million to approximately $314 million. Advisor Series units of the Fund returned 9.68% versus the Fund s benchmark, the MSCI World Small Cap Index (C$), return of 15.33%. Please see the Past Performance section for information on the performance returns of the Fund s other series. During the Period, global equity markets rose, driven by strength in the U.S. economy. The pro-growth, pro-business and anti-tax stance taken by the new U.S. administration significantly increased growth and inflation expectations not only in the U.S., but globally as well. U.S. economic data showed steady improvement, and during the fourth quarter of the U.S. government enacted its tax reform policy. After strong returns in, U.S. bank stocks continued to move higher in, though they lagged the broader market.

2 The technology-heavy NASDAQ Index rose almost 3 for the year as U.S. large-capitalization growth-oriented securities performed particularly well, while small-capitalization value-style stocks were one of the few areas in the market to post negative returns. Growth-style stocks outperformed their value counterparts by close to 17% for the year. The price of crude oil declined in early March, but rebounded to close the quarter above US$50 per barrel on the expectation of supply controls by the Organization of the Petroleum Exporting Countries ( OPEC ). However, crude oil prices declined during the second quarter to around US$46 per barrel. Details on OPEC s enforcement of its trade controls, and around non-opec production in Russia and the U.S., remained a concern. Oil prices rebounded again over the third quarter, to US$52 per barrel, following a volatile period of trading during a strong hurricane season. Supply disruption concerns in the Middle East, along with strong global demands, supported the rebound. During the fourth quarter, crude prices rose again, to close the year around US$60 per barrel amid unrest in Iran and very cold weather across North America. The price of gold was volatile during the year, briefly hitting US$1,350 per ounce in early September amid geopolitical concerns relating to U.S.-North Korea relations, but declined to around US$1,250 per ounce by mid-december as tensions eased. Base metals performed well, particularly in the third quarter, posting double-digit returns in some cases, as the continued strengthening of global economic growth fueled demand for base metals. An overweight allocation to the U.S. contributed to the Fund s performance, as did stock selection in the U.S., France and Italy. Overweight exposure to the Heath Care sector contributed to performance, as did stock selection in the Energy and Financials sectors. Top individual contributors included holdings in Recordati SpA, Myriad Genetics Inc. and Teradyne, Inc. Recordati SpA and Teradyne, Inc. stocks rose approximately 57% and 65%, respectively, as a result of strong earnings. Myriad Genetics Inc., up over 106%, also posted strong earnings and announced that one of its breast cancer detection tests had received positive coverage decisions from Medicare and private insurers. The Fund s underweight exposure to Asia, excluding Japan, detracted from its performance. Stock selection in the U.K. and Germany also weighed negatively on performance, as did selection in the Consumer Discretionary and Consumer Staples sectors. Individual detractors from performance included holdings in Hawaiian Holdings Inc. and NCR Corp. Hawaiian Holdings Inc. declined approximately 3 amid lower earnings reports, while NCR Corp. was down approximately 16% as a result of lower revenues. The Manager confirms that the Fund did not borrow money during the Period. Multi-Series Structure Change On November 21,, in addition to the types of units currently available for sale to investors, the Manager launched Series D units. Series D units may only be purchased through discount brokers. Recent Developments The portfolio manager anticipates continued strength in global equity markets, particularly in the U.S., although short-term markets may be less robust given their large moves over the last year. The portfolio manager believes that the Fund is well positioned for further recovery in global growth. Subsequent Event Sub-Advisor Change Effective February 1, 2018, F&C Management Limited, an affiliate of the Manager, was appointed sub-advisor for the Fund. In addition, a change in the investment strategies of the Fund was made as a result of this sub-advisor change. 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 receives from the Fund a management fee based on assets under management, calculated daily and payable monthly. Operating Expenses The Fund pays all of its operating expenses directly. These operating expenses include administration expenses and Fund expenses. These operating expenses are allocated proportionately among the relevant series. Operating expenses that are specific to a series are allocated to that series. Operating 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

3 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, The Manager may, at their discretion, absorb all or a portion of the operating expenses at any given time. Separate fees and expenses are negotiated and paid by each Series I investor. Further details about operating expenses can be found in the Fund s most recent simplified prospectus at and or 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 may pay 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. 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 Advisor Series Units Series F Units Series D Units Series I Units Classic Series 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 $ Advisor Series 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 $ * 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, Series I Units will not exceed the management fee charged for Advisor Series or Series A Units.

4 Series F Units 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 $ Net assets, beginning of period $ Total revenue $ Total expenses (2) $ for the period $ for the period $ from operations (3) $ (excluding dividends) $ 0.01 From dividends $ From capital gains $ Return of capital $ Total annual distributions (4) $ Net assets, end of period $ Series D Units Nov. 20, to Dec. 31, Classic Series Units Net assets, beginning of period $ 10.00)* Total revenue $ 0.05 Total expenses (2) $ for the period $ 2.02 for the period $ from operations (3) $ (excluding dividends) $ From dividends $ From capital gains $ 0.01 Return of capital $ Total annual distributions (4) $ 0.01 Net assets, end of period $ 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) The information is derived from the Fund s audited financial statements. (2) Includes commissions and other portfolio transaction costs and withholding taxes. (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 paid in cash or reinvested in additional units of the Fund, or both.

5 Ratios and Supplemental Data Series A Units Total net asset value (000s) (1) $ 43,726 41,237 44,383 29,283 22,633 outstanding (000s) (1) 2,969 2,784 2,969 2,165 1,790 (2) % before waivers or absorptions % Net asset value per unit $ Advisor Series Units Total net asset value (000s) (1) $ 17,286 18,328 23,282 15,564 14,628 outstanding (000s) (1) 1,107 1,157 1,453 1,077 1,075 (2) % before waivers or absorptions % Net asset value per unit $ Series F Units Total net asset value (000s) (1) $ 6,612 4,671 5,111 1, outstanding (000s) (1) (2) % before waivers or absorptions % Net asset value per unit $ Series D Units Nov. 20, to Dec. 31, Total net asset value (000s) (1) $ 5 outstanding (000s) (1) 0 (2) % 1.75 before waivers or absorptions % Trading expense ratio (3) % 0.36 Portfolio turnover rate (4) % Net asset value per unit $ Series I Units Total net asset value (000s) (1) $ 245, , , ,316 68,734 outstanding (000s) (1) 15,714 12,004 11,104 8,441 5,525 + % before waivers or absorptions + % Net asset value per unit $ Classic Series Units Total net asset value (000s) (1) $ outstanding (000s) (1) (2) % before waivers or absorptions % 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 December 31 of the period shown. (2) The management expense ratio of a particular series is calculated based on all expenses allocated to the series, as applicable, including all taxes and interest expenses but excluding brokerage commissions and other portfolio transaction costs, divided by the average daily net asset value of that series, annualized. BMOII may reduce the effective management fees payable by some unitholders by reducing the management fees it charges to the Fund and directing the Fund to make management fees distributions to these unitholders in amounts equal to the amounts of the management fees reduction. The management expense ratio does not take into account the reduction in management fees due to management fees distributions to unitholders. (3) BMOII absorbed certain expenses or waived certain fees otherwise payable by a series. In doing so, BMOII attempts to maintain the overall MER of the Fund at a rela tively consistent level. BMOII may discontinue the absorption or waiver at any time. (3) The trading expense ratio represents the 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. PAST PERFORMANCE The Fund s performance information assumes that all distributions made by the Fund in the periods shown were used to purchase additional units or shares 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, how the Fund has performed in the past does not indicate how it will perform in the future.

6 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 fees and expenses allocated and payable by each series. On August 20, 2010, Global Alpha Capital Management Ltd. replaced RCM Capital Management LLC as the portfolio manager of the Fund. Series F Units On June 15, 2012, BMO Guardian Global Technology Fund and BMO U.S. Special Equity Fund merged into the Fund. On July 12, 2013, BMO Asset Management Inc., an affiliate of the Manager, replaced Global Alpha Capital Management Ltd. as portfolio manager of the Fund. In addition, the investment strategies changed to reflect the investment style of BMO Asset Management Inc. These changes could have affected the performance of the Fund, had they been in effect throughout the performance measurements periods presented. Year-by-Year Returns The following bar charts show the performance for 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 the financial year. Series A Units Series D Units - - Series I Units (2) Advisor Series Units (1) Classic Series Units (1) For the period beginning with the performance launch date of April 16, 2012 to December 31, (2) For the period beginning with the performance launch date of November 21, to December 31,

7 Annual Compound Returns This table compares the historical annual compound returns of the Fund with its benchmark, the MSCI World Small Cap Index (C$), a broad-based index. The MSCI World Small Cap Index (C$) is an index comprised of small capitalization companies from developed market countries and across all industries. Series A Units year years years years Inception (1) BMO Global Small Cap Fund % MSCI World Small Cap Index (C$) % Advisor Series Units year years years years Inception BMO Global Small Cap Fund % MSCI World Small Cap Index (C$) % Series F Units year years years years Inception BMO Global Small Cap Fund % MSCI World Small Cap Index (C$) % Series D Units year years years years Inception (2) BMO Global Small Cap Fund % 0.19 MSCI World Small Cap Index (C$) % 1.82 Series I Units year years years years Inception BMO Global Small Cap Fund % MSCI World Small Cap Index (C$) % Classic Series Units year years years years Inception BMO Global Small Cap Fund % MSCI World Small Cap Index (C$) % (1) Return from the performance launch date of April 16, 2012 to December 31,. (2) Return from the performance launch date of November 21, to December 31,. 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.

8 SUMMARY OF INVESTMENT PORTFOLIO As at December 31, % of Net Portfolio Allocation Asset Value United States 36.1 United Kingdom 14.9 Japan 9.2 Germany 6.6 Ireland 4.8 Canada 4.7 France 4.6 Spain 4.3 Norway 3.3 Cash/Receivables/Payables 3.0 Italy 2.2 Sweden 1.3 Luxembourg 1.1 New Zealand 1.1 Finland 1.0 Other 1.8 Total Portfolio Allocation Sector Allocation % of Net Asset Value Consumer Discretionary 17.0 Industrials 15.8 Information Technology 13.5 Health Care 13.1 Financials 12.3 Real Estate 8.4 Consumer Staples 6.9 Materials 5.7 Cash/Receivables/Payables 3.0 Energy 2.6 Utilities 1.7 Total Sector Allocation % of Net Top 25 Holdings Asset Value Issuer Cash/Receivables/Payables 3.0 Vail Resorts, Inc. 2.7 Alleghany Corporation 2.5 Sirius Real Estate Limited 2.3 Waste Connections, Inc. 2.1 STERIS plc 2.0 Dechra Pharmaceuticals PLC 1.8 CDW Corporation 1.7 Rubis SCA 1.7 Viscofan, S.A. 1.6 Merlin Properties SOCIMI, S.A. 1.6 Storebrand ASA 1.6 Melrose Industries PLC 1.6 State Bank Financial Corporation 1.5 WEX Inc. 1.5 LKQ Corporation 1.5 Granite Construction Incorporated 1.5 DISCO Corporation 1.4 Maisons du Monde SA 1.4 Performance Food Group Company 1.4 Dalata Hotel Group Public Limited Company 1.4 CSRA Inc. 1.3 ICON Public Limited Company 1.3 Cinemark Holdings, Inc. 1.3 Amdocs Limited 1.3 Top Holdings as a Percentage of Total Net Asset Value 43.0 Total Net Asset Value $314,180,343 The summary of investment portfolio may change due to the Fund s ongoing portfolio transactions. Updates are available quarterly.

9 BMO Investments Inc. First Canadian Place, 43rd Floor 100 King Street West Toronto, Ontario M5X 1A1 and If you have any questions, please give us a call as follows: If you purchased BMO Mutual Funds through a BMO Bank of Montreal branch or BMO Online Banking, please call If you purchased BMO Mutual Funds through a full-service or discount broker, please call or clientservices.mutualfunds@bmo.com. This document may contain forward-looking statements relating to anticipated future events, results, circumstances, performance or expectations that are not historical facts but instead represent our beliefs regarding future events. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed or implied in the forward-looking statements. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including but not limited to market and general economic conditions, interest rates, regulatory and statutory developments, the effects of competition in the geographic and business areas in which the Fund may invest in and the risks detailed from time to time in BMO Mutual Funds simplified prospectus. We caution that the foregoing list of factors is not exhaustive and that when relying on forward-looking statements to make decisions with respect to investing in the Fund, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Due to the potential impact of these factors, BMO Investments Inc. does not undertake, and specifically disclaims, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. BMO Mutual Funds are offered by BMO Investments Inc., a financial services firm and separate legal entity from Bank of Montreal. BMO (M-bar roundel symbol) registered trademark, and BMO (M-bar roundel symbol) Mutual Funds are owned by Bank of Montreal, used under license.