ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE BMO High ...

ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE

BMO High Yield US Corporate Bond Hedged
to CAD Index ETF (ZHY) (the “ETF”)

For the 12-month period ended December 31, 2014 (the “Period”)

Manager: BMO Asset Management Inc. (the “Manager” and “portfolio manager”)

Management Discussion Results of Operations
of Fund Performance The ETF returned 1.71% versus Index return of 2.81%. The
increase in total net asset value during the Period from
Investment Objective and Strategies approximately $611 million to approximately $989 million
The ETF seeks to replicate, to the extent possible, the had no impact to the performance of the ETF.
performance of a broad United States high yield corporate
bond market index, net of expenses. Currently, the ETF The difference in the performance of the ETF relative to the
seeks to replicate the performance of the Barclays U.S. High Index during the Period (-1.10%) resulted from the payment
Yield Very Liquid Index CAD Hedged (the “Index”). The of management fees (-0.61%), the impact of sampling
investment strategy of the ETF is currently to invest in and (-0.02%), trading costs (-0.08%) and certain other factors
hold the Constituent Securities (as defined in the (+0.01%), which may have included timing differences
prospectus) of the Index in the same proportion as they are versus the Index. A small portion of cash was held within
reflected in the Index or securities intended to replicate the the portfolio to accommodate distributions. This portion of
performance of the Index. The Manager may also use a the portfolio can cause a drag on positive returns because
sampling methodology in selecting investments for the ETF. the ETF was not fully invested. The underperformance
As an alternative to or in conjunction with investing in and caused by the ETF’s cash holdings was 0.40%.
holding the Constituent Securities, the ETF may invest in or
use certain Other Securities (as defined in the prospectus) The ETF aims to maintain a distribution based on the
to obtain exposure to the performance of the Index. earnings of the underlying portfolio, net of fees. This
benefits existing unitholders by reducing uncertainty
Risk regarding expected distribution rates resulting from fund
The risks associated with an investment in the ETF remain growth. A portion of the distributions may represent return
as discussed in the ETF’s most recent prospectus or any of capital. The distributions made do not impact the ETFs
amendments and summary documents. During the Period ability to fulfill its investment objectives.
there were no changes to the ETF that materially affected
the overall risk level associated with an investment in Market Conditions
the ETF. During the Period, soft economic data from Canada and the
U.S. in the first quarter weighed on interest rates and,
despite improved conditions and expectations for increases
later in the year, interest rates remained low. The U.S.
Federal Reserve Board (the “Fed”) completed its exit from
its quantitative easing program (i.e., monetary policy used
by the Fed to increase money supply) in the fourth quarter,

This annual management report of fund performance contains financial highlights but does not contain the complete annual financial
statements of the ETF. If the annual financial statements of the ETF 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 1-800-361-1392, by writing to us at 250 Yonge Street, 9th Floor, Toronto,
Ontario, M5B 2M8 or by visiting our website at www.bmo.com/etfs or SEDAR at www.sedar.com. You may also contact us using one of these
methods to request a copy of the ETF’s proxy voting policies and procedures, proxy voting disclosure record and/or quarterly portfolio disclosure.

BMO High Yield US Corporate Bond Hedged to CAD Index ETF

and signaled a plan to raise interest rates sometime in 2015. Key changes to the financial statements as a result of the
The Bank of Canada (“BoC”) indicated that it would attempt implementation of IFRS are:
to balance the impact of an interest rate hike by the Fed
with the various impacts of declining oil prices and • Statement of Financial Position replaced the former
potentially lower Canadian government tax revenues. Statement of Net Assets:
Canadian bonds posted positive returns across all maturities
and sectors over the Period, but bonds with longer-dated – The ETF’s unitholders investments in the units of the
maturities generated higher total returns than shorter-dated ETF did not qualify for equity classification under
bonds. Specifically, long-term bonds (10+ years) returned IFRS and have been classified as a financial liability
17.48%, with short-term bonds (1 to 5 years) returning for financial reporting purposes.
3.06%. Mid-term bonds (5 to 10 years) returned 9.16% over
the Period. From a sector perspective, provincial bonds – Classification of financial instruments: derivatives
posted the highest returns at 12.18%, followed by corporate and short positions have been classified as held for
bonds at 7.58% and Government of Canada bonds at 6.91%. trading while all other financial instruments have
been designated as fair valued through profit and loss.
The ETF’s exposure to the poor-performing Energy sector Following adoption of IFRS by the ETF for financial
detracted from the ETF’s performance over the Period. reporting purposes the ETF now fair values its
High-yield bonds underperformed against investment-grade investment securities traded on an exchange at close
bonds, detracting from the ETF’s performance, as did its price, which is determined as the price within the bid
holdings in CC-rated bonds. In addition, the ETF’s hedged ask range that represents the best estimate of
position to the U.S. dollar detracted from performance as fair value.
the Canadian dollar weakened significantly. The ETF’s
holdings in longer-term bonds and BB-rated corporate • Statement of Comprehensive Income replaced Statement
bonds contributed to its performance, as did its allocations of Operations:
in the Utilities and Financials sectors.
– The ETF accounts for interest income using the
Recent Developments effective interest rate method, rather than the coupon
The portfolio manager believes that the U.S. economy will method previously used under Canadian GAAP.
maintain its positive momentum, with continued job gains
and growing strength in business and consumer spending. • Statement of Changes in Net Assets Attributable
Interest rates will likely trend slightly higher in 2015 as a to Holders of Redeemable Units replaced the Statement
result of the expected tightening of monetary policy by the of Changes in Net Assets and the ETF now presents
Fed. The portfolio manager believes that the ETF is well a Statement of Cash Flows.
positioned in shorter-term bonds to take advantage of a
rising interest rate environment, but that further • Other notable changes to the financial statement notes
strengthening of the U.S. dollar could detract from the include additional or enhanced information in the notes
ETF’s performance in the coming period as a result of its to the financial statements, including a more detailed
currency hedging. The portfolio manager also has a note and reconciliation on the ETF’s transition from
favourable outlook for high-yield credit in the coming year. Canadian GAAP to IFRS.

Significant Accounting Changes Resulting Related Party Transactions
from our Adoption of IFRS The Manager, an indirect, wholly-owned subsidiary of Bank
Effective January 1, 2014, the ETF adopted International of Montreal (“BMO”), is the portfolio manager, trustee and
Financial Reporting Standards (“IFRS”) as its basis of promoter of the ETF. From time to time, the Manager may,
accounting. The annual financial statements for the year on behalf of the ETF, enter into transactions or
ended December 31, 2014 are the first set of annual financial arrangements with or involving other members of BMO
statements prepared on an IFRS basis. The adjustments Financial Group, or certain other persons or companies that
made to reflect the impact of the change from Canadian are related or connected to the Manager (each a “Related
generally accepted accounting principles (“Canadian GAAP”) Party”). The purpose of this section is to provide a brief
to IFRS are presented in note 8 to the financial statements. description of any transactions involving the ETF and a
Related Party.

BMO High Yield US Corporate Bond Hedged to CAD Index ETF

Designated Broker Financial Highlights
The Manager has entered into an agreement with
BMO Nesbitt Burns Inc., an affiliate of the Manager, to act The following tables show selected key financial information
as designated broker and dealer for distribution of BMO about the ETF and are intended to help you understand the
exchange traded funds, on terms and conditions that are ETF’s financial performance for the periods indicated.
comparable to arm’s length agreements in the exchange
traded funds industry. The material terms and conditions The ETF’s Net Assets per Unit(1)
of the agreement have been disclosed in the ETF’s prospectus.
Financial years ended Dec. 31

Listed Units 2014 2013 2012 2011 2010

The Manager has also entered into agreements with other Net assets, beginning $ 15.91 15.97 14.99 15.52 15.21
major dealers in Canada to act as dealers for the creation of period
and redemption of BMO exchange traded funds. $ 0.96 1.13 1.19 1.29 1.33
Increase (decrease) $ (0.10) (0.10) (0.10) (0.09) (0.07)
Management Fees from operations
The Manager is responsible for the day-to-day management $ (0.58) (0.68) 0.22 (0.47) 0.32
of the business and operations of the ETF. The Manager Total revenue
monitors, evaluates the ETF’s performance, manages the Total expenses $ (0.27) 0.60 0.69 (0.17) (0.04)
portfolio and provides certain administrative services Realized gains (losses)
required by the ETF. As compensation for its services, the $ 0.01 0.95 2.00 0.56 1.54
Manager is entitled to receive a management fee payable for the period
quarterly, calculated based on the daily net asset value of the Unrealized gains (losses) $ 0.97 1.04 1.04 1.19 1.02
ETF at the maximum annual rate set out in the table below. $ — — — — —
for the period $ — — —
The following table shows the allocation of management fees. Total increase (decrease) $ 0.09 0.19
$ 0.00 0.01 0.10 0.06 0.19
from operations(2) $ 0.97 1.05 1.23 1.25 1.40
Distributions 15.22 15.91 15.97 14.99 15.52
From income

(excluding dividends)
From dividends
From capital gains
Return of capital
Total Annual Distributions(3)
Net assets, end of period

As a Percentage Feb. 10, 2014
of Management Fees to Dec. 31, 2014

Ticker Maximum Annual Distribution(1) Other(2) Institutional Units
ZHY Management Fee Rate % %
Net assets, beginning of period $ 15.92
% 0.6 99.4 Increase (decrease) from operations
Total revenue $ 0.07
0.55 Total expenses $ 0.00
Realized gains (losses) for the period $ (0.75)
(1) Distribution expenses include filing and listing fees. Unrealized gains (losses) for the period
(2) Other includes all costs related to general administration, advertising and marketing, and profit. Total increase (decrease) from operations(2) (0.15)
Distributions $ (0.83)
From income (excluding dividends)
From dividends $—
From capital gains $—
Return of capital $—
Total Annual Distributions(3) $—
Net assets, end of period
—
$ 15.09

(1) This information is derived from the ETF’s audited financial statements. The financial information
presented for the years ended December 31, 2014 and December 31, 2013 is derived from the financial
statements determined in accordance with IFRS. Information for years prior to January 1, 2013 is derived
from prior period financial statements prepared in accordance with Canadian GAAP. An explanation of
these differences can be found in the notes to the ETF’s financial statements.

(2) 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.

(3) Distributions were either paid in cash or reinvested in additional units of the ETF, or both.

BMO High Yield US Corporate Bond Hedged to CAD Index ETF

Ratios and Supplemental Data Year-by-Year Returns
The following bar chart shows the performance for the ETF
Financial years ended Dec. 31 for each of the financial years shown. The chart shows, in
percentage terms, how much an investment made on the
Listed Units 2014 2013 2012 2011 2010 first day of each financial year would have increased or
53,952 decreased by the last day of each financial year.
Total net asset value (000’s)(1) $ 988,502 610,860 576,812 142,077
Number of units 3,476 Listed Units 14.60 1.71
% 64,940 38,401 36,126 9,476 0.72 16% 10.29
outstanding (000’s)(1) 0.62 0.62 0.62 0.62 8% 3.16 4.84 6.42
Management expense ratio(2) % 0.72 0%
Management expense ratio % 0.62 0.62 0.62 0.62 0.09 -8%
% 0.00 0.01 0.02 0.02 149.28 -16%
before waivers $ 52.01 58.56 100.31 125.63 15.52
or absorptions(2) $ 15.22 15.91 15.97 14.99 15.69
Trading expense ratio(3) 15.14 15.91 16.01 15.21
Portfolio turnover rate(4)
Net asset value per unit
Closing market price

Institutional Units Feb. 10, 2014 2009(1) 2010 2011 2012 2013 2014
to Dec. 31, 2014

Total net asset value (000’s)(1) $0 Institutional Units -4.65(2)
Number of units outstanding (000’s)(2) 0 16% 2014
Management expense ratio* 8%
Management expense ratio before waivers or absorptions* % —* 0%
Trading expense ratio(3) % —* -8%
Portfolio turnover rate(4) % 0.00 -16%
Net asset value per unit % 52.01
$ 15.09 (1) Return from October 20, 2009 to December 31, 2009
(2) Return from January 3, 2014 to December 31, 2014
* Management fees are paid directly to the Manager as negotiated with the investor.
Annual Compound Returns
(1) This information is provided as at December 31 of the period shown. This table compares the historical annual compound
returns of the ETF with its benchmark index, the Barclays
(2) Management expense ratio is based on total expenses (excluding commissions and other portfolio U.S. High Yield Very Liquid Index CAD Hedged.
transaction costs) for the stated period and is expressed as an annualized percentage of daily average
net asset value during the period. The Barclays U.S. High Yield Very Liquid Index CAD
Hedged is a more liquid version of the U.S. Corporate
(3) The trading expense ratio represents total commissions and other portfolio transaction costs expressed High Yield Index that consists of United States dollar-
as an annualized percentage of daily average net asset value during the period. denominated, non-investment grade, fixed rate, taxable
corporate bonds. The Index is hedged to Canadian dollars.
(4) The ETF’s portfolio turnover rate indicates how actively the ETF’s portfolio manager manages its portfolio
investments. A portfolio turnover rate of 100% is equivalent to the ETF buying and selling all of the
securities in its portfolio once in the course of the year. The higher an ETF’s portfolio turnover rate in a
year, the greater the trading costs payable by the ETF 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 an ETF.

Past Performance

The ETF’s performance information assumes that all
distributions made by the ETF in the periods shown were
used to purchase additional units of the ETF and is based on
the net asset value of the ETF.

The performance information does not take into account As of December 31, 2014 Since
sales, redemption, distribution or other optional charges Listed Units 1Yr 3Yr 5Yr 10Yr Inception(1)
that, if applicable, would have reduced returns or
performance. Please remember that how the ETF has BMO High Yield US Corporate Bond 1.71 7.44 7.48 7.82
performed in the past does not indicate how it will perform Hedged to CAD Index ETF 2.81 8.55 9.23 10.16
in the future.
Barclays U.S. High Yield Very Liquid
Index CAD Hedged

Institutional Units Since
1Yr 3Yr 5Yr 10Yr Inception(2)
BMO High Yield US Corporate Bond
Hedged to CAD Index ETF (4.65)

Barclays U.S. High Yield Very Liquid 2.62
Index CAD Hedged

(1) Return from October 20, 2009 to December 31, 2014
(2) Return from January 3, 2014 to December 31, 2014

A discussion on the relative performance of the ETF as compared to its
benchmark index can be found under the Results of Operations section
of this report.

BMO High Yield US Corporate Bond Hedged to CAD Index ETF

Summary of Investment Portfolio % of Net
Asset Value
As at December 31, 2014 Top 25 Holdings
Portfolio Allocation
% of Net SoftBank Corp., Series 144A, Senior, Unsecured, Notes,
Asset Value 4.500% Apr 15, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5

Industrials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86.7 Clear Channel Worldwide Holdings, Inc., Senior, Notes,
Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 Subordinated, Callable, 7.625% Mar 15, 2020 . . . . . . . . . . . . . . . . . . 0.4
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
Cash/Receivables/Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Novelis, Inc., Senior, Unsecured, Notes, Callable, 8.750%
Dec 15, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4
Total Portfolio Allocation 100.0
Inmet Mining Corp., Series 144A, Senior, Unsecured, Notes,
Top 25 Holdings % of Net Callable, 8.750% Jun 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4
Asset Value
Tenet Healthcare Corporation, Senior, Unsecured, Notes,
Cash/Receivables/Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 8.125% Apr 1, 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4
SPDR Barclays High Yield Bond ETF* . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3
First Data Corporation, Senior, Unsecured, Notes, Callable, Numericable-SFR, Series 144A, Secured, Notes, Callable,
6.000% May 15, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4
12.625% Jan 15, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9
DISH DBS Corporation, Senior, Unsecured, Notes, 6.750% Top Holdings as a Percentage of Total Net Asset Value 14.7

Jun 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 Total Net Asset Value $988,502,378
HCA, Inc., Senior, Secured, Notes, 6.500% Feb 15, 2020 . . . . . . . . . . . . 0.7
Royal Bank of Scotland Group plc, The, Notes, Subordinated, * The prospectus and other information about the underlying exchange traded fund held in the
portfolio may be found at the issuer’s website.
6.125% Dec 15, 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6
Sprint Corporation, Senior, Unsecured, Notes, 7.875% The summary of investment portfolio may change due to the ETF’s ongoing
portfolio transactions. Updates are available quarterly.
Sep 15, 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6
Sprint Communications Inc., Series 144A, Senior, Unsecured,

Notes, 9.000% Nov 15, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
Numericable-SFR, Series 144A, Secured, Notes, Callable,

6.250% May 15, 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
H.J. Heinz Company, Secured, Notes, Callable, 4.250%

Oct 15, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
Chrysler Group LLC/CG Co-Issuer Inc., Senior, Secured,

Notes, Callable, 8.250% Jun 15, 2021 . . . . . . . . . . . . . . . . . . . . . . . . 0.5
SLM Corporation, Medium Term Notes, Senior, Unsecured,

8.000% Mar 25, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
CIT Group, Inc., Series 144A, Secured, Notes, 5.500%

Feb 15, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
Goodyear Tire & Rubber Company, The, Senior, Unsecured,

Notes, Callable, 6.500% Mar 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . . 0.5
U.S. Foodservices, Inc., Senior, Unsecured, Notes, Callable,

8.500% Jun 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
Chrysler Group LLC/CG Co-Issuer Inc., Senior, Secured, Notes,

Callable, 8.000% Jun 15, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
Reynolds Group Issuer Inc./Reynolds Group Issuer LLC/Reynolds

Group Issuer LU., Secured, Notes, Callable, 5.750%
Oct 15, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5
AES Corporation, The, Senior, Unsecured, Notes, 7.375% Jul 1, 2021 . . . 0.5
Wind Acquisition Finance SA, Series 144A, Senior, Secured,
Notes, Callable, 7.375% Apr 23, 2021. . . . . . . . . . . . . . . . . . . . . . . . 0.5

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 ETF may invest in and the risks detailed from time to time in the ETFs’ 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 ETF, 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 Asset Management 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 exchange traded funds are managed and administered by BMO Asset Management Inc., an investment fund manager and
portfolio manager and separate legal entity from Bank of Montreal.

® “BMO (M-bar roundel symbol)” is a registered trade-mark of Bank of Montreal.

The Index is a trademark of Barclays and has been licensed for use in connection with the listing and trading of the ETF on the
Toronto Stock Exchange. The ETF is not sponsored by, endorsed, sold or promoted by Barclays and Barclays makes no
representation regarding the advisability of investing in the ETF.

www.bmo.com/etfs
For more information please call 1-800-361-1392