Fundamental Canadian Fixed Income Strategy

ObjectiveThe BMO Asset ManagementCanadian Fixed Income strategy seeks to provide a high level of interest income with an opportunity for growth by investing primarily in high-quality Canadian government and investment grade corporate fixed-income securities..

PhilosophyBMO Asset Management’s (BMO AM) fixed income philosophy is based on three beliefs:

■ Capital markets are not perfectly efficient and therefore invest ment opportunities can be identified through forecasting and analysis ■ The global economy influences domestic markets and as a result our macroeconomic insights are important drivers for fixed income returns■ Defined yield curve expectations can be used to construct an optimal portfolio that will achieve the maximum rate of return for a given level of risk

StrategyThe strategy builds a diversified portfolio of Canadian fixed income securities that provide:

■ Capital preservation■ Stable income generation■ Consistent rates of return

Investment ProcessA Comprehensive Investment Approach

About the StrategyA core, fundamental, Canadian fixed income strategy that uses unbiased active management to add value within a rigorous risk management framework.

Key differentiators:

Team: Team continuity and long-tenure, maximizing skillsets

Process: A rigorous and iterative investment approach with inherent risk processes and controls

Inherent risk management focus: Proprietary tool disaggregates, moni-tors, and helps to manage risk

Optimization discipline: Proprietary tool is used to create a risk structure that achieves the maximum rate of return for a given level of risk

Inception Date: July 1, 1991

Benchmark: DEX Universe Bond Index

Our process involves understanding and quantifying various risk factors, developing market expectations and building an optimal portfolio based on our forecasts.

1. Risk Management – We believe that risk management is the principle component of fixed income investing. BMO AM has a proprietary analytical tool to examine risk across various factors, such as:

Shift Risk: the amount of risk in both the benchmark and the portfolio measured in terms of modified duration.

Curve Risk: the amount of curve risk to which a portfolio and benchmark are exposed for several factors including sector, term-to-maturity and overall interest rate sensitivity.

Spread Risk: the type of credit risk (spread/ratings) and the amount of credit risk to which the benchmark and the portfolio are exposed.

2. Forecasting and Analysis – Consistent with an emphasis on risk management, expectations about the future direction of interest rates, the shape of the yield curve and credit spreads, are determined in order to identify possible investment opportu-nities.

3. Optimization – Once we identify risk factors present in the portfolio and the benchmark (i.e. shift risk, curve risk, provincial risk and corpo-rate risk), we incorporate them into our forecast. These inputs are then combined with any client constraints

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ObjectiveThe BMO Asset ManagementCanadian Fixed Income strategy seeks to provide a high level of interest income with an opportunity for growth by investing primarily in high-quality Canadian government and investment grade corporate fixed-income securities..

PhilosophyBMO Asset Management’s (BMO AM) fixed income philosophy is based on three beliefs:

■ Capital markets are not perfectly efficient and therefore invest ment opportunities can be identified through forecasting and analysis ■ The global economy influences domestic markets and as a result our macroeconomic insights are important drivers for fixed income returns■ Defined yield curve expectations can be used to construct an optimal portfolio that will achieve the maximum rate of return for a given level of risk

StrategyThe strategy builds a diversified portfolio of Canadian fixed income securities that provide:

■ Capital preservation■ Stable income generation■ Consistent rates of return

Investment ProcessA Comprehensive Investment Approach

Risk Management

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TM/® Trade-marks/registered trade-marks of Bank of Montreal, used under licenceThe information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. All Rights Reserved. The information contained herein: (1) is confidential and proprietary to BMO Asset Management Inc. (“BMO AM”); (2) may not be reproduced or distributed without the prior written consent of BMO AM; and (3) has been obtained from third party sources believed to be reliable but which have not been independently verified. BMO AM and its affiliates do not warrant or make any representations regarding the use or the results of the information contained herein in terms of its correctness, accuracy, timeliness, reliability or otherwise, and do not accept any responsibility for any loss or damage that results from its use. ® Registered trade-mark/trade-marks of Bank of Montreal, used under license.

Call to ActionFor more information about this strategy or our line-upof Equities, Fixed Income, Currency solutions and ETFs,please contact Marija Finney:Marija Finney, Senior Vice President,Head of Institutional Sales & ServiceTél. : 416-359-5003marija.finney@bmo.com

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to propose a new risk structure to achieve the maxi-mum rate of return for a given level of risk.

4. Credit Analysis & Security Selection –We actively manage credit exposure and use the output from our proprietary optimization software to determine the individual securities that will populate each risk basket. Each security is continuously monitored for concentration, spread and credit risk.

5. Attribution – We analyze our investment perfor-mance on a regular basis.

The portfolio management team continually assesses exposures and adheres to industry and position weight limits to target a favourable risk/return profile.

Our proprietary system provides a consistent risk management framework that gives us the ability to create an active risk consistent with client constraints and out interest rate forecast.

Additionally, operational risk controls ensure a strong governance structure is in place to safeguard client’s assets. These include segregation of portfolio manage-ment, research, and trading responsibilities, which are reinforced by pre- and post-trade compliance activi-ties, as well as daily monitoring of client and strategy guidelines.

BMO Global Asset Management, our global brand, is a multi-asset management business with offices located worldwide. BMO Asset Management Inc. (BMO AM) is the operating entity in Canada.BMO AM is a multi-disciplined provider of investment solutions across a diverse set of investment approaches:

■ Pure beta■ Risk controlled alpha■ Fundamental strategies■ Market neutral and long/short

We also offer customized solutions based on clients’ investment beliefs and risk preferences.

Key Investment Professionals

Firm Overview

Andrew Osterback, CFA

Vice President and Portfolio Manager, Fixed Income Andrew joined the BMO Asset Management Inc.fixed income team as a portfolio manager in 2005, andhas over 16 years’ experience in managing fixedincome portfolios.

Krista Carroll, CFA, MA

Vice President, Portfolio Manager &Senior Credit Analyst, Fixed IncomeKrista has been in the investment industry for over21 years, joining BMO Asset Management Inc. in 1994and becoming an active member of the fixed incometeam in 1996. Krista’s focus is on provincial andcorporate debt strategy within the fixed incomemandates. In addition to being a CFA charterholder,Krista holds a Bachelor of Arts (Economics and Math)degree from the University of Toronto and a Master ofArts (Economics) degree from Queens' University.

Ernie Chu, MBA, B.Sc.

Vice President, Senior Credit Analyst, Fixed IncomeErnie joined the BMO Asset Management Inc.fixed income team in March 2005. His focus is on thehigher yielding sectors of the investment grade bondmarket. Ernie has over 25 years of experience investingin the public and private fixed income and equitymarkets, including high yield and venture capital.Ernie holds a Master of Business Administrationdegree in Finance from the University of Toronto andan Honours Bachelor of Science degree, also from theUniversity of Toronto.