BMO Precious Metals Fund (The “Fund”) for the Period Ended September 30, 2013 • Manager: BMO Investments Inc

BMO Precious Metals Fund (the “Fund”) For the period ended September 30, 2013 • Manager: BMO Investments Inc. (the “Manager”) Portfolio manager: BMO Asset Management Inc., Toronto, Ontario (the “portfolio manager”) 2013 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 1-800-665-7700, by writing to us at BMO Investments Inc., First Canadian Place, 100 King Street West, 43rd Floor, Toronto, Ontario, M5X 1A1 or by visiting our website at www.bmo.com/mutualfunds or SEDAR at www.sedar.com. 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 equities. With sentiment improving, the price of gold fell by The Fund’s objective is to increase the value of your approximately 25% and gold equities declined even more investment over the long term by investing primarily in the sharply. In addition, increased scepticism regarding the securities of Canadian companies operating in the precious benefits of further quantitative easing (i.e., monetary policy metals industry, including exploration, mining, production used by central banks to increase money supply) negatively or distribution. impacted investor sentiment toward gold stocks. The portfolio manager combines fundamental analysis with Over the period, the Fund performed in line with its Index. the outlook for commodities markets to seek to identify Virtually all gold equities performed poorly, regardless of attractively priced companies involved in the exploration, the company’s market capitalization. That said, smaller- mining, production or distribution of precious metals. capitalization, exploration-focused companies, meaning companies that do not yet generate cash flow, were Risk particularly weak. On an individual securities basis, No changes affecting the overall level of risk associated with holdings in Probe Mines Limited and Virginia Mines Inc. investing in the Fund were made during the period. The contributed positively to Fund performance. Fund holdings risks of this Fund remain as discussed in the Fund’s most in Allied Nevada Gold Corp. and Barrick Gold Corporation recent simplified prospectus or its amendments. detracted from performance. At the end of the period, the Results of Operations Fund had a higher-than-average cash balance. Over the 12-month period ended September 30, 2013, (the Multi-Series Structure Change “period”), Series A units of the Fund returned -43.04%. In addition to the types of units currently available for sale Please see Past Performance for information on the to investors, the Manager began offering Series F units. performance returns of the Fund’s other series. Series F units are available to investors who are enrolled in The precious metals market was very volatile over the period, dealer sponsored wrap programs or flat fee accounts. and reacted strongly to each release of macroeconomic data For information on the Fund’s performance and composition, and change in market sentiment. The Fund’s benchmark, the please refer to the Past Performance section and Summary of S&P/TSX Composite Total Return Index Gold Sub-Industry Investment Portfolio section of this report. (the “Index”) declined significantly over the period. Recent Developments During the period, signs of a strengthening U.S. economy, The Canadian economy continues to be significantly tied to combined with a more stable economic environment in global macroeconomic developments, and particularly Europe with respect to that region’s ongoing sovereign debt policy events related to Europe, China and the U.S. The U.S. crisis, resulted in a decrease in investor risk-aversion. In housing market has been showing signs of strength, while recent years, negative market sentiment in Europe and a weak U.S. dollar had bolstered the prices of gold and gold BMO Precious Metals Fund U.S. employment trends have been improving as well, than the straight-line amortization method. The Manager is although the labour participation rate has remained assessing the impact of this change to the Fund’s financial somewhat low. statements. The Manager has not identified any changes that will impact NAVPU as a result of the transition to IFRS. The portfolio manager expects macroeconomic challenges and market volatility to remain elevated in the near term. As Where the Fund holds controlling interest in an investment, the U.S. housing market slowly strengthens and as concerns it is the Manager’s expectation that the Fund will qualify as about European economic instability subside, the price of an investment entity in accordance with IFRS 10 Consolidated gold may decline further. In this environment, the portfolio Financial Statements. As such, the Fund will not be required manager prefers the Fund to hold larger capitalization, to consolidate its investments, but rather to hold the producing gold equities over exploration-focused stocks. investments at fair value through profit or loss regardless of whether those investments are controlled. If the Fund fair Future Accounting Standards values the investments it controls, it may be required to make Canadian investment entities will be required to prepare additional financial statement disclosures on its controlled their financial statements in accordance with International investments in accordance with IFRS 12 Disclosure of Financial Reporting Standards (“IFRS”), as issued by the Interests in Other Entities (“IFRS 12”). IFRS 12 also requires International Accounting Standards Board, for fiscal years additional disclosures if the Fund is determined to qualify beginning on or after January 1, 2014. As a result, the Fund as an investment entity without having all of the typical will report its financial results for the interim period ending characteristics of an investment entity. March 31, 2015, prepared on an IFRS basis. It will also provide comparative data on an IFRS basis, including an The criteria contained within IAS 32 Financial Instruments: opening balance sheet as at October 1, 2013 (transition Presentation (“IAS 32”) will result in the classification of the date). A summary of the significant standards impacting the unitholders’ equity as a liability within the Fund’s Fund under IFRS are outlined below. Statement of Net Assets, unless all conditions required for equity classification are met. The Manager is currently The differences between the Fund’s accounting policies assessing the Fund’s unitholder structure to determine under Canadian generally accepted accounting principles classification under IAS 32. (GAAP) and IFRS requirements will result in measurement and recognition differences on transition to IFRS. The net Under IFRS, cash flows statement is one of the primary impact of these differences will be recorded in the increase/ financial statements required to be presented. The Fund decrease in net assets attributable to redeemable unitholders. will therefore be presenting cash flows statement in its set of financial statements in accordance with the presentation The framework for fair valuation is set out under IFRS 13 requirements in IAS 7 Statement of Cash Flows. Fair Value Measurement, which includes the requirements for the measurement and disclosure of fair value. If an asset RELATED PARTY TRANSACTIONS or liability measured at fair value has a bid price and an ask price, the standard requires valuation to be based on a price BMO Investments Inc. (“BMOII”), an indirect, wholly-owned within the bid-ask spread that is most representative of fair subsidiary of Bank of Montreal, is the Manager of the Fund. value. The standard allows the use of mid-market pricing or From time to time, the Manager may, on behalf of the Fund, other pricing conventions that are used by market participants enter into transactions or arrangements with or involving as a practical means for fair value measurements within a other members of BMO Financial Group, or certain other bid-ask spread. Thus this standard will impact the net persons or companies that are related or connected to the assets per unit for financial statement reporting purposes Manager (each a “Related Party”). The purpose of this section compared to current standards, and may also result in the is to provide a brief description of any transaction involving elimination of the differences between the net asset per unit the Fund and a Related Party. and net asset value per unit (“NAVPU”) at the financial Portfolio Manager statement reporting date. While IFRS does not require The Fund’s portfolio manager is BMO Asset Management interest income to be disclosed for debt instruments Inc. (“BMOAM”), an affiliate of the Manager. BMOAM measured at fair value through profit or loss, when interest provides portfolio management services to the Fund. BMOAM income is disclosed, IFRS requires that the effective interest receives from the Fund a management fee based on assets rate method of calculating accrued interest be used rather under management, calculated daily and payable monthly. BMO Precious Metals Fund Administration Fees Burns Inc., (ii) represents the business

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