ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE BMO Mid Corporate Bond Index ETF (ZCM) (the “ETF”) For the 12-month period ended December 31, 2020 (the “Period”) Manager: BMO Asset Management Inc. (the “Manager” and “portfolio manager”)
Management Discussion Results of Operations of Fund Performance The ETF outperformed the broad-based FTSE Canada Universe Bond Index by 1.89%. However, the more Investment Objective and Strategies appropriate comparison is to the FTSE Canada Mid The ETF seeks to replicate, to the extent possible, the Term Corporate Bond Index (“the Index”), due to the performance of a mid-term corporate bond index, net concentration of the portfolio in mid-term Canadian of expenses. Currently, the ETF seeks to replicate the corporate bonds. The ETF returned 10.57% versus the performance of the FTSE Canada Mid Term Corporate Bond Index return of 11.14%. The change in total net asset Index (the “Index”). The investment strategy of the ETF is value during the Period from approximately $978 million to invest in and hold the constituent securities of the Index to approximately $1,093 million had no impact to the in the same proportion as they are reflected in the Index. performance of the ETF. The difference in the performance The Manager may also use a sampling methodology in of the ETF relative to the Index during the Period (-0.57%) selecting investments for the ETF. As an alternative to or in resulted from the management expense ratio (-0.34%) and conjunction with investing in and holding the constituent the impact of sampling and certain other factors (-0.23%), securities, the ETF may invest in or use certain Other which may have included timing differences versus the Securities (as defined in the prospectus) to obtain exposure Index, and market volatility. to the performance of the Index. Market Conditions Risk During the Period, the spread of COVID-19 and the resulting The risks associated with an investment in the ETF remain economic downturn resulted in unprecedented monetary as disclosed in the ETF’s most recent prospectus or any policy support from governments and central banks. The amendments thereto and ETF facts. During the Period there Bank of Canada cut its policy interest rate by a total of 150 were no changes to the ETF that materially affected the basis points and offered a quantitative easing program with overall risk level associated with an investment in the ETF. large-scale asset purchases. As a result, the government On January 10, 2020, the Manager reviewed the ETF using bond yield curve shifted lower. Corporate spreads widened the standardized investment risk classification methodology in early 2020 as default risks rose before falling later in prescribed by National Instrument 81-102 Investment Funds the Period. Corporate spreads ended 2020 close to pre and determined that the risk rating of the ETF had not pandemic levels. Near-term inflation expectations remained changed. The Manager reviews the ETF’s investment risk firmly anchored at low levels. The 10-year Canadian level and reference index, if any, at least annually. bond yields decreased from 1.70% to 0.67%. Overall, the Canadian bond market, as measured by the FTSE Canada
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 BMO Asset Management Inc., 250 Yonge Street, 7th Floor, Toronto, Ontario, M5B 2M8 or by visiting our website at www.bmo.com/etflegal 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 Mid Corporate Bond Index ETF
Universe Bond Index rose 8.7% during the Period, led by The Manager has also entered into agreements with certain long-term bonds. The FTSE Canada Mid Term Overall Bond other registered dealers in Canada to act as dealers for Index rose 10.1% over the Period. the creation and redemption of units of BMO exchange traded funds. With long-term bonds outperforming short-term bonds over the Period, the ETF’s exposure to longer duration Buying and Selling Securities bonds contributed to performance, while shorter duration During the Period, the ETF relied on standing instructions bonds detracted from performance. The ETF’s holdings in provided by the independent review committee (“IRC”) for corporate bonds contributed to performance, in particular any of the following related party transactions that may have in its exposure to BBB-rated corporate bonds. From a sector occurred in the ETF: perspective, the ETF’s exposure to Communication Services (a) investments in securities issued by BMO, an affiliate of and Financial sectors contributed to performance, while its the Manager, or any other issuer related to the Manager; exposure to Industrials detracted from returns. (b) investments in a class of non-government debt securities Recent Developments and/or equity securities of an issuer during the period of As the second wave of COVID-19 continues to impact many distribution of those securities to the public and/or the countries, the portfolio manager expects further turbulence 60-day period following the distribution period where in the economy until the vaccine is fully distributed. That BMO Nesbitt Burns Inc., an affiliate of the Manager, or any turbulence will urge central banks globally to keep interest other affiliate of the Manager acted as an underwriter in rates at historically low levels. In this environment, longer the distribution; duration bonds may outperform. The ETF maintains a mid duration positioning. If corporate credit spreads continue (c) trades in debt securities in the secondary market with to tighten, in part due to the potential for economies BMO Nesbitt Burns Inc., an affiliate of the Manager, that is re-opening and with the central bank’s bond purchasing trading with the ETF as principal; and programs, the ETF’s holdings in corporate bonds may (d) inter-fund trades benefit. Conversely, if the distribution of the vaccine is slower or is less successful than expected, then credit (each, a “Related Party Transaction”). spreads may widen. If the latter occurs, the ETF could see some underperformance, especially in BBB-rated In accordance with the IRC’s standing instructions, in corporate bonds. making a decision to cause the ETF to enter into a Related Party Transaction, the Manager and the portfolio manager Related Party Transactions of the ETF are required to comply with the Manager’s The Manager, an indirect, wholly-owned subsidiary of written policies and procedures governing the Related Party Bank of Montreal (“BMO”), is the portfolio manager, Transaction and report periodically to the IRC, describing trustee and promoter of the ETF. From time to time, the each instance that the Manager relied on the standing Manager may, on behalf of the ETF, enter into transactions instructions and its compliance or non-compliance with the or arrangements with or involving other members governing policies and procedures. The governing policies of BMO Financial Group, or certain other persons or and procedures are designed to ensure that each Related companies that are related or connected to the Manager Party Transaction (i) is made free from any influence of (each a “Related Party”). The purpose of this section is to BMO, BMO Nesbitt Burns Inc. or an associate or affiliate of provide a brief description of any transactions involving the BMO and/or BMO Nesbitt Burns Inc. and without taking into ETF and a Related Party. account any considerations relevant to BMO, BMO Nesbitt Burns Inc. or an associate or affiliate of BMO and/or Designated Broker BMO Nesbitt Burns Inc., (ii) represents the business The Manager has entered into an agreement with judgment of the Manager, uninfluenced by considerations BMO Nesbitt Burns Inc., an affiliate of the Manager, to other than the best interests of the ETF, and (iii) achieves act as designated broker and dealer for distribution of a fair and reasonable result for the ETF. BMO exchange traded funds, on terms and conditions that are comparable to arm’s length agreements in the exchange traded funds industry. The material terms and conditions of the agreement have been disclosed in the ETF’s prospectus. BMO Mid Corporate Bond Index ETF
Financial Highlights Manager is entitled to receive a management fee payable quarterly and calculated based on the daily net asset value The following tables show selected key financial of the ETF at the annual rate set out in the table below. information about the ETF and are intended to help you understand the ETF’s financial performance for the Annual Ticker Management Fee Rate periods indicated. % ZCM 0.30 The ETF’s Net Assets per Unit(1) Financial years ended Dec. 31 Listed CAD Units 2020 2019 2018 2017 2016 Past Performance Net assets, beginning of period $ 16.46 15.74 16.13 16.29 16.21 The ETF’s performance information assumes that all Increase (decrease) from operations Total revenue $ 0.51 0.53 0.51 0.48 0.47 distributions made by the ETF in the periods shown were Total expenses $ (0.06) (0.05) (0.05) (0.06) (0.05) used to purchase additional units of the ETF and is based on Realized gains (losses) for the period $ 0.27 0.22 (0.19) 0.04 0.10 the net asset value of the ETF. Unrealized gains (losses) for the period $ 0.88 0.62 (0.17) (0.18) 0.00 Total increase (decrease) from The performance information does not take into account operations(2) $ 1.60 1.32 0.10 0.28 0.52 Distributions sales, redemption, distribution or other optional charges From income (excluding dividends) $ 0.53 0.52 0.51 0.48 0.49 that, if applicable, would have reduced returns or From dividends $ — — — — — erformance. Please remember that how the ETF has From capital gains $ — — — — 0.05 performed in the past does not indicate how it will perform Return of capital $ 0.02 0.03 0.00 0.01 0.01 Total Annual Distributions(3) $ 0.55 0.55 0.51 0.49 0.55 in the future. Net assets, end of period $ 17.63 16.46 15.74 16.13 16.29 Year-by-Year Returns (1) This information is derived from the ETF’s audited annual financial statements. (2) Net assets and distributions are based on the actual number of units outstanding at the relevant The following bar chart shows the performance of the ETF time. The increase/decrease from operations is based on the weighted average number of units for each of the financial years shown. The chart shows, in outstanding over the financial period. This table is not intended to be a reconciliation of beginning to ending net assets per unit. percentage terms, how much an investment made on the (3) Distributions were either paid in cash or reinvested in additional units of the ETF, or both. first day of each financial year would have increased or Ratios and Supplemental Data decreased by the last day of each financial year. Financial years ended Dec. 31 Listed CAD Units 2020 2019 2018 2017 2016 Listed CAD Units Total net asset value (000’s)(1) $ 1,093,150 977,522 1,084,590 1,370,977 1,182,988 14% 10.57 (1) 8.39 7.58 8.71 8.16 Number of units outstanding (000’s) 62,019 59,372 68,903 85,015 72,620 7% (2) 3.59 3.72 Management expense ratio % 0.34 0.33 0.33 0.34 0.33 0.67 2.02 0.79 Management expense ratio before 0% (2) waivers or absorptions % 0.34 0.33 0.33 0.34 0.33 -7% Trading expense ratio(3) % — — — — — Portfolio turnover rate(4) % 51.05 57.85 41.40 58.31 57.35 -14% Net asset value per unit $ 17.63 16.46 15.74 16.13 16.29 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Closing market price $ 17.66 16.53 15.74 16.16 16.28 (1) This information is provided as at December 31 of the period shown. Annual Compound Returns (2) Management expense ratio is based on total expenses (excluding commissions and other portfolio This table compares the historical annual compound returns transaction costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the period. of the ETF with its benchmark index, the FTSE Canada Mid (3) The trading expense ratio represents total commissions and other portfolio transaction costs Term Corporate Bond Index and a broad-based index, the expressed as an annualized percentage of daily average net asset value during the period. For all the financial periods listed, no commissions or other portfolio transaction costs were incurred by FTSE Canada Universe Bond Index. the ETF. As a result, the trading expense ratio for all the periods was nil. (4) The ETF’s portfolio turnover rate indicates how actively the ETF’s portfolio manager manages its The FTSE Canada Mid Term Corporate Bond Index consists 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 of semi-annual pay fixed rate corporate bonds denominated 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 in Canadian dollars, with an effective term to maturity a relationship between a high turnover rate and the performance of an ETF. between five and ten years, a credit rating of BBB or higher Management Fees and a minimum size of $100 million per issue. The Manager is responsible for the day-to-day management The FTSE Canada Universe Bond Index is designed to be of the business and operations of the ETF. The Manager a broad measure of the Canadian investment-grade fixed monitors and evaluates the ETF’s performance, manages income market consisting of federal, provincial, municipal the portfolio and provides certain administrative services and corporate bonds. The FTSE Canada Universe Bond required by the ETF. As compensation for its services, the Index consists of semi-annual pay fixed rate bonds issued BMO Mid Corporate Bond Index ETF domestically in Canada and denominated in Canadian Summary of Investment Portfolio dollars, with an effective term to maturity of greater than As at December 31, 2020 one year and a credit rating of BBB or higher. % of Net As at December 31, 2020 Portfolio Allocation Asset Value Listed CAD Units Since Energy ...... 25.3 1Yr 3Yr 5Yr 10Yr Inception Financials ...... 22.0 BMO Mid Corporate Bond Index ETF % 10.57 6.43 4.99 5.36 FTSE Canada Mid Term Corporate Utilities ...... 16.0 Bond Index % 11.14 6.87 5.49 5.87 Communication Services ...... 13.6 FTSE Canada Universe Bond Index % 8.68 5.61 4.19 4.49 Real Estate...... 10.9 Industrials ...... 6.4 A discussion on the relative performance of the ETF as compared to its Consumer Staples ...... 4.5 benchmark index and broad-based index can be found under the Results of Cash/Receivables/Payables ...... 0.7 Operations section of this report. Consumer Discretionary ...... 0.4 Materials ...... 0.2
Total Portfolio Allocation 100.0
% of Net Top 25 Holdings Asset Value Bank of Montreal, Deposit Notes, Senior, Unsecured, 3.190% Mar 1, 2028 ...... 3.0 Bank of Nova Scotia, The, Deposit Notes, Senior, Unsecured, 3.100% Feb 2, 2028 ...... 2.7 Royal Bank of Canada, Senior, Unsecured, Notes, 2.328% Jan 28, 2027 ...... 2.1 TransCanada Trust, Series 2017-A, Fixed to Floating, Junior, Notes, Subordinated, Callable, 4.650% May 18, 2077...... 1.8 Enbridge Inc., Fixed to Floating, Notes, Subordinated, Callable, 5.375% Sep 27, 2077 ...... 1.7 Toronto-Dominion Bank, The, Fixed to Floating, Medium Term Notes, Unsecured, Subordinated, Callable, 4.859% Mar 4, 2031 ..... 1.7 Suncor Energy Inc., Medium Term Notes, Senior, Unsecured, Callable, 5.000% Apr 9, 2030 ...... 1.4 TransCanada PipeLines Limited, Senior, Unsecured, Notes, Debentures, Callable, 3.800% Apr 5, 2027 ...... 1.4 TransCanada PipeLines Limited, Medium Term Notes, Senior, Unsecured, Callable, 3.390% Mar 15, 2028 ...... 1.4 Rogers Communications Inc., Senior, Unsecured, Notes, Callable, 3.250% May 1, 2029 ...... 1.3 Alectra Inc., Series A, Senior, Unsecured, Debentures, Callable, 2.488% May 17, 2027 ...... 1.2 Enbridge Inc., Medium Term Notes, Senior, Unsecured, Callable, 2.990% Oct 3, 2029 ...... 1.2 Enbridge Gas Inc., Medium Term Notes, Senior, Unsecured, Callable, 2.900% Apr 1, 2030 ...... 1.2 Enbridge Inc., Series C, Fixed to Floating, Unsecured, Notes, Subordinated, Callable, 6.625% Apr 12, 2078 ...... 1.2 TELUS Corporation, Series CY, Senior, Unsecured, 3.300% May 2, 2029 ...... 1.0 Bank of Nova Scotia, The, Deposit Notes, Senior, Unsecured, 2.620% Dec 2, 2026 ...... 1.0 Husky Energy Inc., Senior, Unsecured, Notes, Callable, 3.600% Mar 10, 2027 ...... 1.0 Toronto-Dominion Bank, The, Senior, Unsecured, Notes, 3.060% Jan 26, 2032 ...... 1.0 BMO Mid Corporate Bond Index ETF
% of Net Top 25 Holdings Asset Value Rogers Communications Inc., Senior, Unsecured, Notes, Callable, 3.650% Mar 31, 2027 ...... 1.0 TELUS Corporation, Senior, Unsecured, Notes, Callable, 3.625% Mar 1, 2028 ...... 1.0 Bell Canada, Series M-48, Medium Term Notes, Senior, Unsecured, Callable, 3.800% Aug 21, 2028 ...... 0.9 Bell Canada, Medium Term Notes, Senior, Unsecured, Callable, 2.500% May 14, 2030 ...... 0.9 Bruce Power L.P., Senior, Unsecured, Notes, 3.969% Jun 23, 2026 ..... 0.9 Bell Canada, Series M-46, Medium Term Notes, Senior, Unsecured, Callable, 3.600% Sep 29, 2027 ...... 0.9 OMERS Realty Corporation, Series 11, Senior, Unsecured, Debentures, Callable, 3.628% Jun 5, 2030 ...... 0.9
Top Holdings as a Percentage of Total Net Asset Value 33.8
Total Net Asset Value $1,093,150,163
The summary of investment portfolio may change due to the ETF’s ongoing portfolio transactions. Updates are available quarterly. Caution regarding forward-looking statements 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. The ETF is not in any way sponsored, endorsed, sold or promoted by FTSE Global Debt Capital Markets Inc. (“FGDCM”), FTSE International Limited (“FTSE”), Frank Russell Company (“Frank Russell”), FTSE Fixed Income LLC (“FTSE FI”) or the London Stock Exchange Group companies (together with FGDCM, FTSE, Frank Russell and FTSE FI, the “Licensor Parties”). The Licensor Parties make no claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to (i) the results to be obtained from the use of the FTSE BMO ETF Indices, (ii) the figure at which any of the FTSE BMO ETF Indices stands at any particular time on any particular day or otherwise, or (iii) the suitability of an Underlying Index for the particular purpose to which is it being put in connection with the FTSE BMO ETFs. Each of the FTSE BMO ETF Indices is compiled and calculated by FGDCM of FTSE and all copyright in any of the FTSE BMO ETF Indices values and constituent lists vests in FGDCM or FTSE, respectively. The Licensor Parties shall not be liable (whether in negligence or otherwise) to any person for any error in any of the FTSE BMO ETF Indices and the Licensor Parties shall not be under any obligation to advise any person of any error therein. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used under licence. 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.
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