BMO Global Businesses High Income Fund · 2017. 8. 29. · BMO Global Businesses High Income Fund...

Semi-Annual Financial Statements 2017BMO Asset Management Inc.

BMO Global Businesses High Income Fund

June 30, 2017

NOTICE OF NO AUDITOR REVIEW OF THE SEMI-ANNUAL FINANCIAL STATEMENTS

BMO Asset Management Inc., the Manager of the Fund, appoints independent auditors to audit the Fund’s Annual Financial Statements. Under Canadian

securities laws (National Instrument 81-106), if an auditor has not reviewed the Semi-Annual Financial Statements, this must be disclosed in an accompanying

notice.

The Fund’s independent auditors have not performed a review of these Semi-Annual Financial Statements in accordance with standards established by the

Chartered Professional Accountants of Canada.

BMO Global Businesses High Income Fund (unaudited)

Statement of Financial Position

SEMI-ANNUAL FINANCIAL STATEMENTS

The accompanying notes are an integral part of these financial statements.

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June 30, December 31,As at (All amounts in thousands of Canadian dollars, except per unit data) 2017 2016

Assets

Current AssetsCash 5 8Investments

Non-derivative financial assets 6,863 6,869Derivative assets 46 —

Receivable for investments sold 15 —Dividends receivable 44 32Distribution receivable from investment trusts 1 1Total assets 6,974 6,910

Liabilities

Current LiabilitiesPayable for investments purchased 2 —Derivative liabilities 19 —Distributions payable — 38Accrued expenses 34 26Loan payable 1,548 1,448Total liabilities 1,603 1,512

Net assets attributable to holders of redeemable units 5,371 5,398

Net assets attributable to holders of redeemable unitsAdvisor Series Units 4,230 4,292Series F Units 1,141 1,106Series F5 Units 0 0

Net assets attributable to holders of redeemable units per unit Advisor Series Units $9.58 $9.95Series F Units $9.52 $9.84Series F5 Units $9.34 $9.49


Statement of Comprehensive Income



June 30, June 30,For the periods ended (All amounts in thousands of Canadian dollars, except per unit data) 2017 2016

INVESTMENT INCOMEInterest income — 0Dividend income 214 177Distributions from investment trusts 12 10Other changes in fair value of investments and derivatives

Net realized gain (loss) 70 (61)Change in unrealized (depreciation) appreciation (208) 392

Net gain on investments and derivatives 88 518Foreign exchange gain 25 19

Total other income 25 19

Total income 113 537

EXPENSESManagement fees (note 6) 54 47Fixed administration fees 6 5Withholding taxes 28 20Interest Expense (note 6) 8 3Commissions and other portfolio transaction costs (note 6) 2 7Operating expenses absorbed by the Manager — (3)Total expenses 98 79

Increase in net assets attributable to holders of redeemable units 15 458

Increase in net assets attributable to holders of redeemable unitsAdvisor Series Units 7 355Series F Units 8 103Series F5 Units 0 —

Increase in net assets attributable to holders of redeemable units per unit (note 8)

Advisor Series Units $0.02 $0.88Series F Units $0.07 $1.50Series F5 Units $0.08 $—


Statement of Changes in Net Assets Attributable to Holders of Redeemable Units



June 30, June 30,For the periods ended (All amounts in thousands of Canadian dollars) 2017 2016

Advisor Series UnitsNet assets attributable to holders of redeemable units at

beginning of period 4,292 3,112Increase in net assets attributable to holders of redeemable

units 7 355Distributions to holders of redeemable unitsNet investment income (174) (163)Total distributions to holders of redeemable units (174) (163)Redeemable unit transactionsProceeds from redeemable units issued 11 1,067Reinvestments of distributions to holders of redeemable units 163 151Redemption of redeemable units (69) (340)Net increase from redeemable unit transactions 105 878Net increase (decrease) in net assets attributable to holders

of redeemable units (62) 1,070Net assets attributable to holders of redeemable units

at end of period 4,230 4,182

Series F UnitsNet assets attributable to holders of redeemable units at

beginning of period 1,106 1Increase in net assets attributable to holders of redeemable

units 8 103Distributions to holders of redeemable unitsNet investment income (47) (30)Total distributions to holders of redeemable units (47) (30)Redeemable unit transactionsProceeds from redeemable units issued 42 1,080Reinvestments of distributions to holders of redeemable units 32 18Net increase from redeemable unit transactions 74 1,098Net increase in net assets attributable to holders

of redeemable units 35 1,171Net assets attributable to holders of redeemable units

at end of period 1,141 1,172


Statement of Changes in Net Assets Attributable to Holders of Redeemable Units CONTINUED




Series F5 UnitsNet assets attributable to holders of redeemable units at

beginning of period 0 —Increase in net assets attributable to holders of redeemable

units 0 —Distributions to holders of redeemable unitsNet investment income (0) —Total distributions to holders of redeemable units (0) —Redeemable unit transactionsReinvestments of distributions to holders of redeemable units 0 —Net increase from redeemable unit transactions 0 —Net increase in net assets attributable to holders

of redeemable units 0 —Net assets attributable to holders of redeemable units

at end of period 0 —

Total Fund

Net assets attributable to holders of redeemable units at beginning of period 5,398 3,113

Increase in net assets attributable to holders of redeemable units 15 458Distributions to holders of redeemable units fromNet investment income (221) (193)Total distributions paid to holders of redeemable units (221) (193)Redeemable unit transactionsProceeds from redeemable units issued 53 2,147Reinvestments of distributions to holders of redeemable units 195 169Redemption of redeemable units (69) (340)Net increase from redeemable unit transactions 179 1,976Net increase (decrease) in net assets attributable to holders of

redeemable units (27) 2,241Net assets attributable to holders of redeemable units at

end of period 5,371 5,354


Statement of Cash Flows




Cash flows from operating activitiesIncrease in net assets attributable to holders of redeemable units 15 458Adjustments for:

Foreign exchange gain on cash (25) (15)Net realized (gain) loss on sale of investments and derivatives (70) 61Change in unrealized depreciation (appreciation) of investments and

derivatives 208 (392)Increase in dividends receivable (12) (23)Increase in distribution receivable from investment trusts — (1)Increase in accrued expenses 8 15Return of capital distributions received 3 4Purchases of investments (751) (3,827)Proceeds from sale and maturity of investments 603 1,044Cash outflows on derivatives (28) (23)

Net cash from operating activities (49) (2,699)

Cash flows from financing activitiesDistributions paid to holders of redeemable units, net of reinvested

distributions (64) (24)Proceeds from issuances of redeemable units 11 2,146Amounts paid on redemption of redeemable units (27) (340)Loan proceeds 101 1,478Net cash from financing activities 21 3,260

Foreign exchange gain on cash 25 15Net (decrease) increase in cash (28) 561Cash and bank indebtedness at beginning of period 8 (477)Cash at end of period 5 99

Supplementary InformationInterest received, net of withholding taxes* — 0Dividends received, net of withholding taxes* 174 134Distribution received from investment trusts, net of withholding taxes* 15 13Interest expense paid* 8 3*These items are from operating activities

BMO Global Businesses High Income Fund (unaudited)SEMI-ANNUAL FINANCIAL STATEMENTS

As at June 30, 2017

Schedule of Investment Portfolio (All amounts in thousands of Canadian dollars, unless otherwise noted)

Number of Shares or Units

Cost + ($)

Fair Value ($)

EQUITIES*Australia — 12.8%Australia and New Zealand Banking Group Limited 2,900 73 83BHP Billiton Plc, ADR 1,205 50 48Growthpoint Properties Australia Limited 22,000 68 69LendLease Corporation Limited 1,600 18 27National Australia Bank Limited 2,900 77 85Stockland 19,270 83 84Sydney Airport Limited 9,964 62 70Telstra Corporation Limited 20,277 95 87Wesfarmers Limited 1,400 49 56Westpac Banking Corporation 2,600 75 79

650 688Brazil — 0.9%Braskem S.A., ADR 1,820 41 49

41 49Canada — 23.1%AltaGas Ltd. 1,777 59 53BCE Inc. 1,349 76 79Brookfield Infrastructure Partners L.P. 2,090 77 111Capital Power Corporation 4,369 77 106Dream Global REIT 7,623 57 83Dream Office REIT 3,906 60 76Enbridge Income Fund Holdings Inc. 3,829 110 123Exchange Income Corporation 1,540 44 51Gibson Energy Inc. 6,229 112 105H&R REIT 2,407 52 53Inter Pipeline Ltd. 3,639 77 93Pembina Pipeline Corporation 2,392 80 103Superior Plus Corporation 4,670 53 53Veresen Inc. 8,305 72 152

1,006 1,241France — 8.3%Casino Guichard-Perrachon 596 37 46Electricite de France S.A. 4,294 81 61Icade 814 76 89Neopost S.A. 1,400 41 84Total S.A., ADR 1,551 96 100Unibail-Rodamco SE 200 68 65

399 445Germany — 1.4%freenet AG 1,836 79 76

79 76Hong Kong — 1.3%New World Development Co. 41,008 46 68

46 68


Schedule of Investment Portfolio CONTINUED (All amounts in thousands of Canadian dollars, unless otherwise noted)


As at June 30, 2017

Number of

Shares or UnitsCost +

($)Fair Value

($)

Israel — 1.5%Bezeq The Israel Telecommunication Corporation Ltd. 37,640 108 81

108 81Netherlands — 1.5%Royal Dutch Shell plc, ADR, Class A 1,139 71 79

71 79New Zealand — 1.9%Spark New Zealand Limited 28,228 84 101

84 101Norway — 4.0%Gjensidige Forsikring ASA 2,800 59 62Ship Finance International Limited 2,815 55 50Statoil ASA, ADR 4,860 95 104

209 216Singapore — 0.8%Ascendas REIT 18,724 44 46

44 46Spain — 1.9%Gas Natural SDG, S.A. 2,100 53 64Telefonica, S.A., ADR 2,739 39 37

92 101Sweden — 2.9%Nordea Bank AB 5,396 70 89Telia Company AB 10,838 68 65

138 154Switzerland — 0.8%Swiss Re Ltd 345 44 41

44 41United Kingdom — 10.9%BP p.l.c., ADR 546 24 24Carillion PLC 11,461 60 36Centrica plc 20,329 85 69GlaxoSmithKline plc, ADR 1,399 74 78Imperial Brands PLC 1,100 78 64National Grid PLC, ADR 683 68 56Persimmon PLC 2,630 65 100SSE plc 3,799 105 93Vodafone Group Public Limited Company, ADR 1,749 78 65

637 585United States — 53.8%AGNC Investment Corp., REIT 2,773 69 77Altria Group, Inc. 599 45 58Annaly Capital Management Inc. 7,230 99 113AT&T Inc. 1,875 83 92CenterPoint Energy, Inc. 2,687 71 95CenturyLink, Inc. 2,254 89 70Consolidated Edison, Inc. 714 61 75CoreCivic, Inc. 2,693 82 96Duke Energy Corporation 783 70 85Energy Transfer Equity, L.P. 4,326 47 101Entergy Corporation 703 64 70Enterprise Products Partners L.P. 1,889 68 66Franklin Street Properties Corporation 3,415 49 49Geo Group, Inc., The, 3,085 72 118HCP, Inc. 1,112 48 46Helmerich & Payne, Inc. 1,029 93 72Holly Energy Partners, LP 1,806 83 76

BMO Global Businesses High Income Fund (unaudited)SEMI-ANNUAL FINANCIAL STATEMENTS

As at June 30, 2017

Schedule of Investment Portfolio CONTINUED (All amounts in thousands of Canadian dollars, unless otherwise noted)

Number of

Shares or UnitsCost +

($)Fair Value

($)

United States — 53.8% cont’dHospitality Properties Trust 1,849 67 70Lexington Realty Trust 4,049 49 52Macquarie Infrastructure Corporation 481 48 49Medical Properties Trust, Inc. 3,134 54 52MPLX LP 2,295 99 99New York Community Bancorp, Inc. 1,829 38 31NRG Yield, Inc., Class C 2,644 60 60NuStar Energy LP 1,188 81 72Omega Healthcare Investors, Inc. 2,096 89 90ONEOK, Inc. 1,771 105 120Sabra Health Care REIT, Inc. 1,607 42 50Select Income REIT 1,910 53 60Senior Housing Properties Trust 2,873 58 76Six Flags Entertainment Corporation 892 60 69Southern Company, The, 1,203 80 75Spirit Realty Capital, Inc. 4,874 71 47Suburban Propane Partners, L.P. 1,388 54 43Summit Midstream Partners, LP 3,251 111 95Targa Resources Corp. 1,067 71 63Two Harbors Investment Corporation 6,345 78 82Ventas, Inc. 831 55 75VEREIT, Inc. 3,355 36 35Verizon Communications Inc. 1,175 69 68

2,721 2,892

Total Investment Portfolio — 127.8% 6,369 6,863

Option Contracts at Fair Value — 0.5% 27

Other Assets Less Liabilities — (27.8)% (1,519)

NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS — 100.0% 5,371

+ Where applicable, distributions received from holdings as a return of capital are used to reduce the adjusted cost base of the securities in the portfolio.* These securities are partially pledged as collateral for the loan.

OPTION CONTRACTS

Underlying SecurityNumber of Contracts Strike Price Expiry Date

Premium Paid

(Received) Fair Value SPDR S&P 500 ETF Trust 100.000000 239.00 September 16, 2017 52 46SPDR S&P 500 ETF Trust (100.000000) 277.00 September 16, 2017 (24) (19)Total Option Contracts at Fair Value 28 27


NOTES TO THE FINANCIAL STATEMENTS

June 30, 2017 (All amounts in thousands of Canadian dollars, except per unit data)

1. The FundBMO Global Businesses High Income Fund (“the Fund”) is a pooled trust fund established by a Trust Indenture under the laws of the Province of Ontario on November 12, 2015. The Fund is relying on the exemption in Section 2.11 of National Instrument 81-106 that exempts the Fund from filing these financial statements with a securities regulatory authority. The address of the Fund's registered office is 100 King Street West, Toronto, Ontario, M5X 1A1.

The Statement of Financial Position and related notes are as at June 30, 2017 and December 31, 2016. The Statement of Comprehensive Income, Statement of Changes in Net Assets Attributable to Holders of Redeemable Units, Statement of Cash Flows and related notes are for the periods ended June 30, 2017 and June 30, 2016.

The financial statements were authorized for issuance by the Board of Directors of BMO Asset Management Inc. (the “Manager”) on August 9, 2017.

These financial statements should be read in conjunction with the annual financial statements for the period ended December 31, 2016 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

2. Basis of preparation and presentationThese unaudited interim financial statements have been prepared in accordance with IFRS and in accordance with International Accounting Standard (“IAS”) 34 – Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”).

3. Summary of significant accounting policiesFinancial instrumentsThe Fund records financial instruments at fair value. Investment transactions are accounted for on the trade date. The Fund’s investments are either designated at fair value through profit or loss (“FVTPL”) at inception or classified as held for trading. The changes in the investment fair values and related transaction costs are recorded in the Fund’s Statement of Comprehensive Income.

Financial assets or financial liabilities held for trading are those acquired or incurred principally for the purpose of selling or repurchasing in the near future, or on initial recognition, are part of a portfolio of identified financial instruments that the Fund manages together and that have a recent actual pattern of short-term profit taking. The Fund classifies all derivatives and short positions as held for trading. The Fund does not designate any derivatives as hedges in a hedging relationship.

The Fund designates all other investments at FVTPL as they have reliably measurable fair values and are part of a group of financial assets or financial liabilities that are managed and that have their performance evaluated on a fair value basis in accordance with the Fund’s investment strategy.

The Fund has issued multiple series of redeemable units, which are equally subordinated but are not identical and consequently, do not meet the conditions to be classified as equity. As a result, the Fund’s obligations for net assets attributable to holders of redeemable units are classified as financial liabilities and presented at the redemption amounts.

All other financial assets and financial liabilities are measured at amortized cost. Under this method, financial assets and financial liabilities reflect the amount required to be received, paid or discounted, when appropriate, at the contract’s effective interest rate.

The Manager has determined that the Fund meets the definition of “investment entity” and as a result, the Fund measures subsidiaries, if any at FVTPL.

Cost of investmentsThe cost of investments represents the amount paid for each security and is determined on an average cost basis.


NOTES TO THE FINANCIAL STATEMENTS CONTINUED


Fair value measurementInvestments are recorded at their fair value with the change between this amount and their average cost being recorded as “Change in unrealized appreciation (depreciation)” in the Statement of Comprehensive Income.

For exchange-traded securities, close prices are considered to be fair value if they fall within the bid-ask spread. In circumstances where the close price is not within the bid-ask spread, the Manager determines the point within the bid-ask spread that is most representative of fair value based on the specific facts and circumstances.

Procedures are in place to fair value securities traded in countries outside of North America daily, to avoid stale prices and to take into account, among other things, any significant events occurring after the close of a foreign market.

For bonds, debentures, asset-backed securities and other debt securities, fair value is represented by bid prices provided by independent security pricing services. Short-term investments, if any, are held at amortized cost which approximates fair value.

Mutual fund units held as investments are valued at their respective Net Asset Value (“NAV”) on each Valuation Date (the “Valuation Date” is each day on which the Toronto Stock Exchange is open for trading) as these values are the most readily and regularly available.

For securities where market quotes are not available, unreliable or not considered to reflect the current value, the Manager may determine another value which it considers to be fair and reasonable, or use a valuation technique that, to the extent possible, makes maximum use of inputs and assumptions based on observable market data including volatility, comparable companies NAV (for exchange-traded funds) and other applicable rates or prices. These estimation techniques include discounted cash flows, internal models that utilize observable data or comparisons with other securities that are substantially similar. In limited circumstances, the Manager may use internal models where the inputs are not based on observable market data.

Derivative instrumentsDerivative instruments are financial contracts that derive their value from changes in the underlying interest rates, foreign exchange rates or other financial or commodity prices or indices.

Derivative instruments are either regulated exchange-traded contracts or negotiated over-the-counter contracts. The Fund may use these instruments for trading purposes, as well as to manage the Fund’s risk exposures.

Derivatives are measured at fair value. Realized gains and losses are included in “Net realized gain (loss)” in the Statement of Comprehensive Income and unrealized gains and losses are included in “Change in unrealized appreciation (depreciation)” in the Statement of Comprehensive Income.

Forward currency contractsA forward currency contract is an agreement between two parties (the Fund and the counterparty) to purchase or sell a currency against another currency at a set price on a future date. The Fund may enter into forward currency contracts for hedging purposes, which can include the economic hedging of all or a portion of the currency exposure of an investment or group of investments, either directly or indirectly. The Fund may also enter into these contracts for non-hedging purposes, which can include increasing the exposure to a foreign currency, or the shifting exposure to foreign currency fluctuations from one country to another. The value of forward currency contracts entered into by the Fund is recorded as the difference between the value of the contract on the Valuation Date and the value on the date the contract originated.

Option contractsThe Fund may engage in option contract transactions by purchasing (long positions) or writing (short positions) call or put option contracts. These contracts have different risk exposures for the Fund: whereas the risk for long positions will be limited to the premium paid to purchase the option contracts, the risk exposure for the short positions is potentially unlimited until closed or expired.




Purchased option contractsThe premium paid for purchasing an option is recorded as an asset in the Statement of Financial Position. The option contract is valued on each Valuation Date at an amount equal to the fair value of the option that would have the effect of closing the position. The change in the difference between the premium and the fair value is shown as “Change in unrealized appreciation (depreciation)” in the Statement of Comprehensive Income.

When a purchased option expires, the Fund will realize a loss equal to the premium paid. When a purchased option is closed, the gain or loss the Fund will realize will be the difference between the proceeds and the premium paid. When a purchased call option is exercised, the premium paid is added to the cost of acquiring the underlying security. When a purchased put option is exercised, the premium paid is subtracted from the proceeds from the sale of the underlying security that had to be sold.

Written option contractsThe premium received from writing a call or put option is recorded as a liability in the Statement of Financial Position.

When a written option expires, the Fund will realize a gain equal to the premium received. When a written option is closed, the Fund will realize a gain or loss equal to the difference between the cost at which the contract was closed and the premium received. When a written call option is exercised, the premium received is added to the proceeds from the sale of the underlying investments to determine the realized gain or loss. When a written put option is exercised, the premium received is subtracted from the cost of the underlying investment the Fund had purchased.

The gain or loss that the Fund realizes when a purchased or written option is expired or closed is recorded as “Net realized gain (loss)” in the Statement of Comprehensive Income.

Income recognitionDividend income and distributions from investment trusts are recognized on the ex-dividend and ex-distribution date, respectively.

Interest income from interest bearing investments is recognized in the Statement of Comprehensive Income using the effective interest rate. Interest receivable shown in the Statement of Financial Position is accrued based on the interest bearing investments’ stated rates of interest.

Foreign currency translationThe fair value of investments and other assets and liabilities in foreign currencies are translated into the Fund’s functional currency at the rates of exchange prevailing at the period-end date. Purchases and sales of investments, and income and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Foreign exchange gains (losses) on completed transactions are included in “Net Realized gains (losses)” and unrealized foreign exchange gains (losses) are included in “Change in unrealized appreciation (depreciation)” in the Statement of Comprehensive Income. Foreign exchange gains (losses) relating to cash, receivables and payables are included in “Foreign exchange gain (loss)” in the Statement of Comprehensive Income.

CashCash is comprised of cash and deposits with banks which include bankers’ acceptances and overnight demand deposits. Cash is recorded at fair value. The carrying amount of cash approximates its fair value because it is short-term in nature.

Other assets and other liabilitiesReceivable for investments sold, dividends receivable, distribution from investment trusts, and subscriptions receivable are initially recorded at fair value and subsequently measured at amortized cost. Similarly, payable for investments purchased, redemptions payable, distributions payable and accrued expenses are measured at amortized cost. Other assets and liabilities are short-term in nature, and are carried at cost or amortized cost.




Increase or decrease in net assets attributable to holders of redeemable units“Increase (decrease) in net assets attributable to holders of redeemable units per unit” of a series in the Statement of Comprehensive Income represents the increase (decrease) in net assets attributable to holders of redeemable units (“Net Assets”) of the series divided by the weighted average number of units of the series outstanding during the period.

The increase (decrease) in net assets attributable to holders of redeemable units per unit for the periods ended June 30, 2017 and June 30, 2016 is calculated as follows:

For the periods ended June 30, 2017 June 30, 2016

Advisor Series UnitsIncrease in net assets attributable to holders of redeemable units 7 355

Weighted average units outstanding during the period 436 402

Increase in net assets attributable to holders of redeemable units per unit 0.02 0.88

Series F UnitsIncrease in net assets attributable to holders of redeemable units 8 103

Weighted average units outstanding during the period 117 68

Increase in net assets attributable to holders of redeemable units per unit 0.07 1.50

Series F5 UnitsIncrease in net assets attributable to holders of redeemable units 0 —

Weighted average units outstanding during the period 0 —

Increase in net assets attributable to holders of redeemable units per unit 0.08 —

TaxationThe Fund qualifies as a financial institution under the provisions of the Income Tax Act (Canada) since more than 50% of the fair market value of all interests in the Fund is held at this time by a financial institution and, is subject to mark-to-market rules contained in the Income Tax Act. Generally, the Fund should not be subject to income taxes on its net taxable capital gains and its net income for the year if it distributes all of the net income for tax purposes and sufficient net taxable capital gains, determined in Canadian dollars, (less any applicable loss carry forwards) to participants. Capital losses can be carried forward indefinitely and applied against future capital gains. Non-capital losses are available to be carried forward for 20 years.

As of the tax year-ended December 31, 2016, there were no capital and non-capital losses carry forwards.

The Fund may incur withholding taxes imposed by certain countries on investment income and capital gains. Such income and capital gains are recorded on a gross basis with the related withholding taxes shown as a separate expense in the Statement of Comprehensive Income.

Investments in subsidiaries, joint ventures and associatesSubsidiaries are entities over which the Fund has control through its exposure or rights to variable returns from its investment and has the ability to affect those returns through its power over the entity. The Manager has determined that the Fund is an investment entity and as such, it accounts for subsidiaries, if any, at fair value. Joint ventures are those where the Fund exercises joint control through an agreement with other shareholders, and associates are investments in which the Fund exerts significant influence over operating, investing, and financing decisions (such as entities in which the Fund owns 20% - 50% of voting shares), all of which, have been designated at FVTPL.

Unconsolidated structured entitiesThe Fund may invest in securitizations, asset-backed securities and mortgage-backed securities.

During the periods, the Fund had no sponsored unconsolidated structured entities. The Fund has determined that its investments in securitizations, asset-backed securities and mortgage-backed securities, if any, are unconsolidated structured entities. The determination is based on the fact that decision making about the securitizations, asset-backed securities and mortgage-backed securities is not governed by the voting right or other similar right held by the Fund.




Mortgage-related securities are created from pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. Asset-backed securities are created from many types of assets, including auto loans, credit card receivables, home equity loans, and student loans.

The Fund does not provide and has not committed to providing any additional significant financial or other support to the unconsolidated structured entities other than its investments in the unconsolidated structured entities.

There were no unconsolidated structured entities held as at June 30, 2017 and December 31, 2016.

Offsetting of financial assets and financial liabilitiesFinancial instruments are presented at net or gross amounts in the Statement of Financial Position depending on the existence of intention and legal right to offset opposite positions of such instruments held with the same counterparties. Amounts offset in the Statement of Financial Position are transactions for which the Fund has legally enforceable rights to offset and intends to settle the positions on a net basis. Amounts not offset in the Statement of Financial Position relate to transactions where a master netting arrangement or similar agreement is in place with a right of offset only in the event of default, insolvency or bankruptcy, or where the Fund has no intention of settling on a net basis. There were no master netting arrangements during the period.

Accounting standards issued but not yet adoptedIn July 2014, the IASB issued the final version of IFRS 9, Financial Instruments, which addresses classification and measurement, impairment and hedge accounting.

The new standard requires assets to be carried at amortized cost, FVTPL or fair value through other comprehensive income based on the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial assets. The classification and measurement of liabilities remains generally unchanged with the exception of liabilities recorded at FVTPL. For these liabilities, fair value changes attributable to changes in the entity’s own credit risk are to be presented in other comprehensive income unless they affect amounts recorded in income.

The new standard is effective for the Fund for its fiscal year beginning January 1, 2018. The Manager is in the process of assessing the impact of adopting this standard but does not expect that the adoption of this standard to have a significant impact to the Fund’s financial statements.

CollateralCash collateral provided by the Fund is identified in the Statement of Financial Position as margin cash and is not included as a component of cash. For collateral other than cash, if the party to whom the collateral is provided has the right by contract or custom to sell or re-pledge the collateral, the Fund classifies the asset in its Statement of Financial Position separately from other assets and liabilities the asset as pledged collateral. Where the party to whom the collateral is provided does not have the right to sell or re-pledge, a disclosure of the collateral provided is made in the notes to the financial statements. See note 8 for details.

4. Critical accounting judgments and estimates The preparation of financial statements requires the use of judgement in applying the Fund’s accounting policies and to make estimates and assumptions about the future. The following discusses the most significant accounting judgements and estimates that the Fund has made in preparing its financial statements:

Accounting judgements: Functional and presentation currency The Fund’s unitholders are mainly Canadian residents, with the subscriptions and redemptions of the redeemable units denominated in Canadian dollars. The Fund invests in Canadian and U.S. dollars and other foreign denominated securities, as applicable. The performance of the Fund is measured and reported to the investors in Canadian dollars. The Manager considers the Canadian dollar as the




currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in Canadian dollars, which is the Fund's functional and presentation currency.

Classification and measurement of financial instruments and application of fair value option In classifying and measuring financial instruments held by the Fund, the Manager is required to make significant judgements about whether or not the business of the Fund is to invest on a total return basis for the purpose of applying the fair value options for financial assets.

Accounting estimates: Fair value measurement of securities not quoted in an active market The Fund has established policies and control procedures that are intended to ensure these estimates are well controlled, independently reviewed, and consistently applied from period to period. The estimates of the value of the Fund’s assets and liabilities are believed to be appropriate as at the reporting date.

The Fund may hold financial instruments that are not quoted in active markets. Note 3 discusses the policies used by the Fund for the estimates used in determining fair value.

5. Units and unit transactionsThe redeemable units of the Fund are classified as financial liabilities.

The units have no par value and are entitled to distributions, if any. Upon redemption, a unit is entitled to a proportionate share of the Fund’s NAV. The Fund is required to pay distributions in an amount not less than the amount necessary to ensure the Fund will not be liable for income taxes on realized capital gains, dividends and interest. The Fund has no restrictions or specific capital requirements on the subscriptions and redemptions of units. The relevant movements in redeemable units are shown on the Statement of Changes in Net Assets Attributable to Holders of Redeemable Units. In accordance with its investment objectives and strategies, and the risk management practices outlined in Note 9, the Fund endeavors to invest the subscriptions received in appropriate investments, while maintaining sufficient liquidity to meet redemptions, with such liquidity being augmented by short-term borrowings or disposal of investments where necessary.

Redeemable units of the Fund are offered for sale on a continuous basis and may be purchased or redeemed on any Valuation Date at the NAV per unit of a particular series. The NAV per unit of a series for the purposes of subscription or redemption is computed by dividing the NAV of the Fund attributable to the series (that is, the total fair value of the assets attributable to the series less the liabilities attributable to the series) by the total number of the units of the series of the Fund outstanding at such time on each Valuation Date.

Expenses directly attributable to a series are charged to that series. Other expense, income, realized and unrealized gains and losses from investment transactions are allocated proportionately to each series based upon the relative NAV of each series.

The number of units that have been issued and are outstanding are disclosed in the table below.





(in thousands of units)

Advisor Series UnitsUnits issued and outstanding, beginning of period 431 310Issued for cash 1 111Issued on reinvestment of distributions 17 15Redeemed during the period (7) (34)

Units issued and outstanding, end of period 442 402

Series F UnitsUnits issued and outstanding, beginning of period 112 0Issued for cash 4 110Issued on reinvestment of distributions 4 2

Units issued and outstanding, end of period 120 112

Series F5 UnitsUnits issued and outstanding, beginning of period 0 —Issued on reinvestment of distributions 0 —

Units issued and outstanding, end of period 0 —

Advisor Series Units are available through authorized dealers to investors who have an available prospectus exemption.

Series F Units and Series F5 Units are available to investors who are enrolled in dealer-sponsored wrap programs or flat fee accounts, who meet the minimum purchase amount and whose dealer has entered into an F Series Agreement with the Manager.

Reconciliation of NAV to Net AssetsAs at June 30, 2017 and December 31, 2016, there were no differences between the Fund’s NAV per unit and its Net Assets per unit calculated for each series in accordance with IFRS.

6. Related party transactions(a) Management feesThe Manager is responsible for the day-to-day management of the Fund and its investment portfolio in compliance with the Fund’s constating documents. The Manager provides key management personnel to the Fund, monitors and evaluates the performance of the Fund, pays for the investment management services of the investment managers and provides all related administrative services required by the Fund. As compensation for its services the Manager is paid an annual management fee of 1.95% for Advisor Series, 0.95% for Series F and 0.95% for Series F5 per annum of the NAV of the respective series, accrued and calculated daily and paid monthly in arrears, together with applicable taxes.

(b) Fixed administration feesThe Manager pays all operating expenses related to the operation of the Fund. These expenses include audit and legal fees and expenses; prime brokerage and related custody expenses, registrar and transfer agency fees; cost attributable to the issue and redemption of units including the cost of the unitholder record keeping system; expenses incurred in respect of preparing and distributing offering documents and subscription agreements, financial reports and other types of reports, statements and communications to unitholders; fund accounting and valuation costs; filing fees, including those incurred by the Manager. In return, the Manager is paid an annual fixed administration fee of 0.20% per annum of the NAV of the Advisor Series, Series F and Series F5 accrued and calculated daily and paid monthly in arrears, together with applicable taxes.

(c) Brokerage commissionsThe Fund may execute trades with and through BMO Nesbitt Burns Inc., an affiliate of the Manager based on established standard brokerage agreements at market prices. These fees are included in “Commissions and other portfolio transaction costs” in the Statement of Comprehensive Income.




Brokerage commissions paid (excluding transaction costs) on security transactions and amounts paid to related parties of the Manager for brokerage services provided to the Fund for the periods are as follows:


Total brokerage amounts paid 2 6Total brokerage amounts paid to related parties — 1

There were no ascertainable soft dollars paid or payable to dealers by the Fund during the periods.

(d) Units held by the ManagerThe Manager held the following units of the Fund:

June 30, 2017 December 31, 2016

SeriesNumber of Units

Value of Units

($)Number of Units

Value of Units

($)

01Advisor Series 364,202 3,488 350,021 3,48302Series F 125 1 120 103Series F5 11 — 11 —

(e) Interest on loan payableBMO Nesbitt Burns Inc., as broker, provides leverage loan facilities to the Fund.

The interest charged on the leverage loan facilities are shown as “Interest expense” in the Statement of Comprehensive Income and for the period ended June 30, 2017 amounted to $8 (December 31, 2016– $3).

(f) Other related party feesFrom time to time, the Manager may on behalf of the Fund, enter into transactions or arrangements with or involving subsidiaries and affiliates of Bank of Montreal or certain other persons or companies that are related or connected to the Manager of the Fund. These transactions or arrangements may include transactions or arrangements with or involving subsidiaries and affiliates of Bank of Montreal, including BMO Asset Management Corp., BMO Asset Management Inc., BMO InvestorLine Inc., BMO Nesbitt Burns Inc., BMO Private Investment Counsel Inc., Pyrford International Limited, or other investment funds offered by Bank of Montreal, and may involve the purchase or sale of portfolio securities through or from a subsidiary or affiliates of Bank of Montreal, the purchase or sale of securities issued or guaranteed by a subsidiary or affiliates of Bank of Montreal, entering into forward contracts with a subsidiary or affiliates of Bank of Montreal acting as counterparty, the purchase or redemption of units of other Bank of Montreal investment funds or the provision of services to the Manager.

7. Loan payableThe Fund has the ability to borrow from its prime brokers in the short-term. The credit available to the Fund from this borrowing facility is secured by the assets of the Fund which are held as collateral at a secured separate custodian account. The facility bears interest at the applicable CDOR or LIBOR rate plus a spread. The facility provides for maximum borrowings up to 30% of the total Net Assets of the Fund. There were $1,549 in borrowings under the facility as at June 30, 2017 (December 31, 2016 – $1,448). During the period ended June 30, 2017, the minimum and maximum amounts of borrowings were $1,436 and $1,636, respectively (December 31, 2016 – $623 and $1,592 respectively).

8. Collateral pledgedIn accordance with the prime brokerage agreement with a Canadian broker/dealer firm, the Fund is required to provide collateral against the amount borrowed. Securities pledged are identified in the Schedule of Investment Portfolio as at June 30, 2017. The total fair value of collateral pledged as at June 30, 2017 is $2,383 (December 31, 2016 – $48).




9. Financial instruments risksThe Fund’s activities expose it to a variety of risks associated with the financial instruments, as follows: market risk (including currency risk, interest rate risk and other market risk), credit risk and liquidity risk. The concentration table groups securities by asset type, geographic location and/or market segment. The Fund’s risk management practice outlines the monitoring of compliance to investment guidelines.

The Manager manages the potential effects of these financial risks on the Fund’s performance by employing and overseeing professional and experienced portfolio advisors that regularly monitor the Fund’s positions, market events and diversify investment portfolios within the constraints of the investment guidelines.

The Fund’s objective is to provide long-term total return by primarily investing in global equity markets.

No changes affecting the overall level of risk of investing in the Fund were made during the period.

(a) Currency riskCurrency risk is the risk that the value of financial instruments denominated in currencies, other than the functional currency of the Fund, will fluctuate due to changes in foreign exchange rates. Investments in foreign markets are exposed to currency risk as the prices denominated in foreign currencies are converted to the Fund’s functional currency in determining fair value. The Fund may enter into forward currency contracts for hedging purposes to reduce foreign currency exposure or to establish exposure to foreign currencies.

The Fund's exposure to currency risk is summarized in the tables below. Amounts shown are based on the carrying value of monetary and non-monetary assets (including derivatives and the underlying principle (notional) amount of forward currency contracts, if any).

As at June 30, 2017Cash and other

current receivables & payables

($)

Invest- ments

(monetary & non-monetary)

($)

Forward currency contracts

($)

Net currency exposure

($)

As a % of net assets

(%)

Australian Dollar 14 640 — 654 12.2Euro 2 485 — 487 9.1Hong Kong Dollar — 68 — 68 1.3Israel Shekel — 81 — 81 1.5Norwegian Krone — 62 — 62 1.1New Zealand — 102 — 102 1.9Pound Sterling 8 362 — 370 6.9Singapore Dollar — 46 — 46 0.8Swedish Krona — 154 — 154 2.9Swiss Franc — 41 — 41 0.8US Dollar (669) 3,720 — 3,051 56.8Total (645) 5,761 — 5,116 95.3All amounts in Canadian dollars

As at December 31, 2016Cash and other


($)

Invest- ments


($)


($)


($)


(%)

Australian Dollar 13 608 — 621 11.5Euro — 420 — 420 7.8Hong Kong Dollar 2 58 — 60 1.1Israel Shekel — 96 — 96 1.8New Zealand — 90 — 90 1.7Pound Sterling 1 334 — 335 6.2Singapore Dollar — 39 — 39 0.7Swedish Krona — 139 — 139 2.6Swiss Franc — 44 — 44 0.8




As at December 31, 2016Cash and other


($)

Invest- ments


($)


($)


($)


(%)

US Dollar (723) 3,881 — 3,158 58.5Total (707) 5,709 — 5,002 92.7All amounts in Canadian dollars

As at June 30, 2017 and December 31, 2016, if the Canadian dollar had strengthened or weakened by 5% in relation to all foreign currencies, respectively, with all other variables held constant, the Net Assets of the Fund could possibly have increased or decreased by approximately $256 (December 31, 2016 — $250). In practice, actual results may differ from this sensitivity analysis and the difference could be material.

(b) Interest rate riskInterest rate risk is the risk that the fair value of the Fund's interest bearing investments will fluctuate due to changes in market interest rates. The Fund's exposure to interest rate risk is concentrated in its investment in debt securities (such as bonds, money market investments, short-term investments and debentures) and interest rate derivative instruments, if any. Other assets and liabilities are short-term in nature and/or non-interest bearing.

As at June 30, 2017 and December 31, 2016, the Fund did not have any significant exposure to interest rate risk.

(c) Other market riskOther market risk is the risk that the fair value of a financial instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in a market. Other assets and liabilities are monetary items that are short-term in nature, as such they are not subject to other market risk.

The Fund has a significant exposure to other market risk arising from its investment in equity securities. Using historical correlation between the Fund's return and the return of its benchmark, if the benchmark, MSCI World Index, had increased or decreased by 10%, with all other variables held constant, the Net Assets of the Fund would have increased or decreased, respectively, by $551 (December 31, 2016 — $603). Historical correlation may not be representative of future correlation, and accordingly, actual results may differ and the difference could be material.

(d) Credit riskCredit risk is the risk that a loss could arise from a security issuer or counterparty to a financial instrument not being able to meet its financial obligations. The fair value of debt securities includes consideration of the credit worthiness of the debt issuer. Credit risk exposure for over-the-counter derivative instruments is based on the Fund's unrealized gain of the contractual obligations with the counterparty as at the reporting date. The credit exposure of other assets is represented by its carrying amount.

As at June 30, 2017 and December 31, 2016, the Fund did not have any significant exposure to credit risk.

(e) Liquidity riskThe Fund’s exposure to liquidity risk is concentrated in the daily cash redemptions of units. The Fund primarily invests in securities that are traded in active markets and can be readily disposed. In addition, the Fund retains sufficient cash and cash equivalent positions to maintain liquidity. The Fund may, from time to time, enter into over-the-counter derivative contracts or invest in unlisted securities, which are not traded in an organized market and may be illiquid. Securities for which a market quotation could not be obtained and may be illiquid are identified on the Schedule of Investment Portfolio. The proportion of illiquid securities to the NAV of the Fund is monitored by the Manager to ensure it does not exceed the regulatory limit and does not significantly affect the liquidity required to meet the Fund’s financial obligations. There were no such illiquid securities held by the Fund as at June 30, 2017 and December 31, 2016.




(f) LeverageLeverage is the amount of money the Fund can borrow on the Net Assets of the Fund. The Fund may utilize leverage in an amount of up to 30% of the Net Assets of the Fund at the time of borrowing. The minimum and maximum leverage for the period ended June 30, 2017 were 25.27% and 29.56% (December 31, 2016 – 0.55% and 29.01%, respectively).

(g) Concentration riskThe Fund's concentration risk is summarized in the following table:

As at June 30, 2017 December 31, 2016

EquitiesAustralia 12.8% 12.3%Brazil 0.9% 1.0%Canada 21.5% 21.9%France 8.3% 7.5%Germany 3.0% 2.6%Hong Kong 1.3% 1.1%Israel 1.5% 1.8%Netherlands 1.5% 1.5%New Zealand 1.9% 1.7%Norway 4.0% 2.2%Singapore 0.8% 0.7%Spain 1.9% 1.6%Sweden 2.9% 2.6%Switzerland 0.8% 0.8%United Kingdom 10.9% 11.5%United States 53.8% 56.5%

Other Assets Less Liabilities (27.8)% (27.3)%

100.0% 100.0%

10. Financial assets and financial liabilitiesCategories of financial assets and financial liabilitiesThe categories of financial assets and financial liabilities, except cash, are summarized in the following table:

As at June 30, 2017 December 31, 2016Financial assets designated at FVTPL 6,863 6,869Financial assets designated as held for trading 46 —Loans and receivables 59 33Financial liabilities held for trading 19 —Financial liabilities measured at amortized cost 1,583 1,512




Net gains and losses on financial assets and financial liabilities at fair valueFor the periods ended June 30, 2017 June 30, 2016Net realized gains (losses) on financial assets

Held for trading 0 2

Designated at FVTPL 295 124

296 126

Total net realized gains (losses) on financial assets and financial liabilities 296 126

Change in unrealized gains (losses) on financial assets Held for trading (1) (5)

Designated at FVTPL (207) 397

(208) 392

Total change in unrealized gains (losses) on financial assets and financial liabilities (208) 392

11. Fair value hierarchy levelsThe Fund classifies its financial instruments into three levels based on the inputs used to value the financial instruments. Level 1 securities are valued based on quoted prices in active markets for identical securities. Level 2 securities are valued based on significant observable market inputs, such as quoted prices from similar securities and quoted prices in inactive markets or based on observable inputs to models. Level 3 securities are valued based on significant unobservable inputs that reflect the Manager's determination of assumptions that market participants might reasonably use in valuing the securities. The tables below show the relevant disclosure.

As at June 30, 2017

Financial assets Level 1 Level 2 Level 3 Total Equity Securities 4,182 2,681 — 6,863 Derivatives 46 — — 46Total 4,209 2,681 — 6,890

Financial liabilitiesDerivatives (19) — — (19)

As at December 31, 2016

Financial assets Level 1 Level 2 Level 3 Total Equity Securities 4,302 2,567 — 6,869

Transfers between levelsTransfers are made between the various fair value hierarchy levels due to changes in the availability of quoted market prices or observable inputs due to changing market conditions.

During the period from January 1, 2017 to June 30, 2017, there were no transfers between the levels.

During the period from January 1, 2016 to December 31, 2016, $83 of equity securities were transferred from Level 1 to Level 2.

BMO Asset Management Inc.First Canadian Place, 43rd Floor100 King Street West Toronto, Ontario M5X 1A1www.bmo.com/gam

Independent AuditorPricewaterhouseCoopers LLCPwC Tower18 York Street, Suite 2600Toronto, Ontario M5J 0B2

For more information please call 1-800-361-1392

® “BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.

BMO Global Asset Management is the brand name of BMO Asset Management Inc. BMO Asset Management Inc. is a Canadian Investment Fund Manager, Portfolio Manager, Commodity Trading Manager and Exempt Market Dealer.

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