Asset Management Fixed income insights First quarter 2017 Portfolio positioning Fund updates: first quarter of 2017 Interest rates/duration: Holding duration towards the lower end of relative benchmark range for now, with a bias towards returning to neutral position as fiscal and monetary policy evolve; underweight Treasuries, favoring non-government sectors instead BMO TCH Core Plus Bond Fund: The Fund outperformed in the quarter with sector and quality selection contributing to relative performance as the Fund remained underweight Treasuries and overweight credit. Credit was the best performing fixed income sector, benefitting the Fund, as spreads tightened and markets priced in a higher level of future growth. Security selection within corporate credit further added to outperformance for the period. With rates declining mildly in the first quarter, the Fund’s below benchmark duration detracted modestly from relative returns.

Investment grade corporate floating rate notes did not keep pace with the performance of broader credit for the quarter, but benefitted from the Fed raising the Fed Funds rate in March. Credit: Global demand for U.S. fixed income remains strong; Broadlyspeaking, U.S. corporate balance sheets have managed the credit cycle well; the ever-evolving US political news flow continues presenting upward pressure on volatility, creating opportunities as sectors and subsectors risks are repriced; credit spread compression to near historical averages suggest a more balanced approach to risk Mortgages: U.S.

agency MBS to realize continued support from Fed reinvestment for the time being, but discussions regarding the Fed balance sheet and political rhetoric around the agencies justifies greater caution as the year progresses; agency MBS remain a relative safe haven during periods of global uncertainty High yield (HY) and emerging markets (EM): Recent market volatility has created additional bottom-up opportunities across the credit spectrum; HY/EM spreads reflect more concern over global uncertainties, though recent spread widening has been too modest to create compelling valuations at a sector level BMO TCH Corporate Income Fund: Security selection within corporate credit led to outperformance for the period. In particular, names within the technology, chemicals and metals & mining sectors added value, while names within the retail sector detracted from performance. The overweight to corporate versus non-corporate detracted from performance in the period, though the underweight to utilities was additive as that was the sole credit sector with negative excess returns.

With rates declining mildly in the first quarter, the Fund’s below benchmark duration detracted modestly from relative returns. BMO TCH Intermediate Income Fund: The Fund’s outperformance was significantly impacted by a litigation settlement from a crisis-era investment received during the quarter. Overweight credit positioning contributed to performance as it was the best performing fixed income sector, however, the overweight to mortgage backed securities (MBS) detracted modestly from relative returns. The Fund’s lower duration profile detracted modestly from performance during the period.

Security selection within corporate credit added further to outperformance for the period. BMO TCH Emerging Markets Bond Fund: The Fund underperformed in the period largely due to the diversification to quasi-sovereign and corporate debt, which underperformed the sovereign benchmark. Country selection was positive during the period. In particular, the contribution from allocations to Mexico is noteworthy given its position in the epicenter of recent political rhetoric.

While Trump’s election was initially perceived negatively for Mexican debt, the Fund’s positioning was additive to performance for the quarter. All investments involve risk, including the possible loss of principal. Keep in mind that as interest rates rise, prices for bonds with fixed interest rates may fall. This may have an adverse effect on a portfolio. Foreign investing involves special risks due to factors such as increased volatility, currency fluctuation and political uncertainties. High yield bond funds may have higher yields and are subject to greater credit, market and interest rate risk than higher-rated fixed-income securities.

Keep in mind that as interest rates rise, prices for bonds with fixed interest rates may fall. This may have an adverse effect on a Fund’s portfolio. Investments cannot be made in an index. This presentation may contain targeted returns and forward-looking statements. “Forward-looking statements,” can be identified by the use of forward-looking terminology such as “may”, “should”, “expect”, “anticipate”, “outlook”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof, or variations thereon, or other comparable terminology.

Investors are cautioned not to place undue reliance on such returns and statements, as actual returns and results could differ materially due to various risks and uncertainties. This material does not constitute investment advice. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report.

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