Semi-Annual Financial Statements

ep of F en 4 c FiNaNcial stateMeNts 3 BMO NESBITT BURNS BalaNCEd FUNd (unaudited) For the periods ended June 30, 2010 June 30, 2009 STaTEMENT OF OPERaTIONS (all aMOuNts iN caNadiaN dOllars) BMO N 5 cb 7 d d B e bn c G bo ep of F en 4 c FiNaNcial stateMeNts 3 BMO NESBITT BURNS BalaNCEd FUNd (unaudited) INCOME Dividends 348,772 332,320 Interest 449,238 533,012 Securities lending revenue 1,908 2,889 Witholding Tax 3 (420) 799,918 867,801 EXPENSES Management 4ees (note 5(a)) 374,009 339,963 Audit 4ees 4,961 5,788 Independent Review Committee Fees 1,080 1,311 Custody Fees 1,245 2,446 Legal and Filing Fees 7,042 6,218 Unitholder servicing 4ees (note 5(b)) 46,390 38,183 Printing and stationery 4ees 2,299 2,684 Commission and other port4olio transaction costs (note 5(b)) 7,197 517 444,223 397,110 Net investment income 4or the year 355,695 470,691 Net realized gain/(loss) on investments 607,719 (1,935,529) Realised (loss)/gain on 4oreign exchange (14) 450 Change in unrealized (depreciation)/appreciation in value o4 investments (1,567,844) 4,639,114 Unrealized gain on 4oreign exchange 31 28 (Decrease)/increase in net assets from operations (604,413) 3,174,754 (Decrease)/increase in net assets from operations Class A units (601,209) 3,170,266 Class F units (3,204) 4,488 (Decrease)/increase in net assets from operations per unit (note 2) Class A units ($0.15) $0.80 Class F units ($0.18) $1.42 The accompanying notes are an integral part o4 these fnancial statements. STaTEMENT OF CHaNGES IN NET aSSETS (all aMOuNts iN caNadiaN dOllars) Net assets 3 beginning of year (note 2) 52,134,669 47,210,956 171,444 15,797 (Decrease)/increase in net assets from operations (601,209) 3,170,266 (3,204) 4,488 UNIT TRANSACTIONS: Proceeds 4rom sale o4 units 3,869,016 4,729,906 101,700 67,500 Reinvested distributions 375,583 580,609 2,862 593 Amount paid on units redeemed (6,018,174) (5,517,047) (1,500) 3 Total unit transactions (1,773,575) (206,532) 103,062 68,093 DISTRIBUTIONS TO UNITHOLDERS FROM: Net investment income (388,055) (598,221) (2,862) (593) Total distributions paid to unitholders (388,055) (598,221) (2,862) (593) Net assets 3 end of year (note 2) 49,371,830 49,576,469 268,440 87,785 Change in Units Units issued and outstanding, beginning o4 year 4,017,943 4,034,893 12,920 1,330 Issued 4or cash 297,226 396,789 7,586 5,572 Issued 4or reinvestment o4 distributions 29,550 46,861 220 47 4,344,719 4,478,543 20,726 6,949 Redeemed during the year (460,628) (474,757) (113) 3 Units issued and outstanding, end of year 3,884,091 4,003,786 20,613 6,949 The accompanying notes are an integral part o4 these fnancial statements.<br><br> Class A Units Class F Units June 30 June 30 June 30 June 30 For the periods ended 2010 2009 2010 2009 BMO N 5 cb 7 d d B e bn c G bo ep of F en 4 c FiNaNcial stateMeNts 3 BMO NESBITT BURNS BalaNCEd FUNd (unaudited) STaTEMENT OF INvESTMENT PORTFOlIO (all aMOuNts iN caNadiaN dOllars) As at June 30, 2010 Par Value Cost Fair Value Description ($) ($) MONEY MARKET INVESTMENTS Commercial Paper 3 1.7% Canadian Government Treasury Bill 850,000 848,902 849,127 Total Money Market Investments 848,902 849,127 Money market instruments which are grouped by issuer earn interest at rates ranging 4rom 0.48% to 0.54% and mature between September 02, 2010 and September 16, 2010. BONDS Corporate Bonds 3 10.2% 407 International Inc., 5.960%, December 3, 2035 385,000 384,730 425,575 Bank o4 Nova Scotia, 4.990%, March 27, 2018 822,000 821,852 865,764 Canadian Imperial Bank o4 Commerce, 5.000%, September 10, 2012 201,000 199,113 212,883 Canadian Imperial Bank o4 Commerce, 4.550%, March 28, 2016 596,000 593,750 607,980 CI Financial Corporation, 3.300%, December 17, 2012 215,000 214,987 216,419 Greater Toronto Airport, 6.250%, December 13, 2012 305,000 334,158 332,078 Great-West Li4eco, 6.670%, March 21, 2033 150,000 177,997 171,141 Honda Canada, 4.727%, May 9, 2011 119,000 119,000 121,902 Honda Canada Finance, 5.675%, September 26, 2012 150,000 150,000 160,683 Hospital 4or Sick Children, 5.217%, December 16, 2049 500,000 500,000 495,765 Investors Group, 6.580%, March 7, 2018 88,000 99,024 99,172 Investors Group, 7.450%, May 9, 2031 105,000 128,603 124,773 Investors Group, 7.110%, March 7, 2033 84,000 99,627 96,630 John Deere Ltd, 5.250%, October 18, 2010 250,000 249,870 252,925 Manuli4e Bank, 4.680%, September 12, 2016 163,000 154,764 169,437 Royal Bank o4 Canada, 5.200%, August 15, 2012 172,000 172,764 182,793 Royal Bank o4 Canada, 5.060%, July 17, 2013 204,000 215,648 218,549 Sunli4e Financial Group, 4.800%, November 23, 2035 175,000 175,837 181,186 Terasen Gas Inc., 6.000%, October 2, 2037 88,000 87,684 98,909 4,879,408 5,034,564 Government and Government Guaranteed Bonds 3 18.9% Canada Housing Trust, 4.000%, June 15, 2012 265,000 275,733 275,852 Canada Post Corporation, 10.350%, March 15, 2016 125,000 185,754 175,405 Export Development Canada, 5.800%, March 12, 2012 825,000 916,229 901,832 Government o4 Canada, 1.250%, December 1, 2011 850,000 845,670 851,020 Government o4 Canada, 2.000%, September 1, 2012 326,000 324,735 329,179 Government o4 Canada, 5.250% June 1, 2013 2,700,000 2,972,872 2,960,361 Government o4 Canada, 3.000%, June 1, 2014 518,000 532,764 534,726 Government o4 Canada, 4.500%, June 1, 2015 909,000 986,323 1,000,709 Government o4 Canada, 4.000%, June 1, 2016 130,000 143,897 140,205 Government o4 Canada, 3.500%, June 1, 2020 1,859,000 1,844,154 1,924,790 Government o4 Canada, 5.750%, June 1, 2029 125,000 153,875 161,379 Government o4 Canada, 4.000%, June 1, 2041 128,000 130,048 137,066 9,312,054 9,392,524 Provincial Government Bonds 3 9.8% Hydro Quebec, 6.500%, February 15, 2035 250,000 311,675 314,313 New4oundland Labrador Hydro, 4.300%, October 13, 2016 240,000 239,897 252,247 Ontario Strategic In4rastructure Finance Authority, 4.600%, June 1, 2015 299,000 304,132 318,091 Province o4 British Columbia, 5.620%, August 17, 2028 500,000 565,590 571,665 Province o4 Manitoba, 5.250%, December 3, 2012 350,000 368,550 376,961 Province o4 New Brunswick, 4.550%, March 26, 2037 625,000 622,581 614,606 Province o4 New4oundland, 4.500%, April 17, 2037 165,000 164,059 162,240 BMO N 5 cb 7 d d B e bn c G bo ep of F en 4 c FiNaNcial stateMeNts 3 BMO NESBITT BURNS BalaNCEd FUNd (unaudited) The accompanying notes are an integral part o4 these fnancial statements. STaTEMENT OF INvESTMENT PORTFOlIO CONTINUED (all aMOuNts iN caNadiaN dOllars) As at June 30, 2010 Par Value Cost Fair Value Description ($) ($) Provincial Government Bonds cont 9d Province o4 Ontario, 4.200%, June 2, 2020 180,000 177,632 183,121 Province o4 Ontario, 4.700%, June 2, 2037 90,000 88,123 90,890 Province o4 Ontario, 4.600%, June 2, 2039 327,000 318,138 335,172 Province o4 Quebec, 5.500%, December 1, 2014 874,000 918,483 970,586 Province o4 Saskatchewan, 5.250%, June 3, 2014 295,000 314,647 324,052 Province o4 Saskatchewan, 5.800%, September 5, 2033 300,000 354,860 355,298 4,748,367 4,869,242 Total Bonds 3 38.9% 18,939,829 19,296,330 Number of Cost* Fair Value Description shares ($) ($) EQUITIES Consumer Discretionary 3 3.2% Thomson Reuters Corporation 28,525 1,117,801 1,086,517 Tim Hortons Inc.<br><br> 14,000 462,202 477,120 1,580,003 1,563,637 Consumer Staples 3 1.6% Alimentation Couche-Tard Inc. 30,400 553,532 541,424 Loblaw Companies Limited 7,000 227,442 270,130 780,974 811,554 Energy 3 14.4% Canadian Natural Resources Limited 19,250 361,201 680,103 Celtic Explorations Limited 65,000 365,958 713,050 Cenovus Energy Limited 19,585 551,304 536,433 EnCana Corporation 22,585 698,733 728,140 Nexen Inc. 49,330 1,545,253 1,031,984 NuVista Energy Limited 38,500 423,588 391,545 ShawCor Limited 7,350 210,898 197,274 Storm Explorations Limited 46,000 533,044 620,080 Suncor Energy Inc.<br><br> 43,160 1,207,470 1,352,634 Talisman Energy Inc. 57,000 981,120 917,700 6,878,569 7,168,943 Financials 3 16.8% Bank o4 Montreal 11,300 460,482 652,348 Bank o4 Nova Scotia 10,000 510,691 490,400 Canadian Imperial Bank o4 Commerce 14,000 904,402 925,960 Great-West Li4eco Inc. 37,965 1,034,636 913,437 Manuli4e Financial Corporation 49,750 1,275,104 769,633 National Bank o4 Canada 9,000 521,114 489,960 Power Financial Corporation 26,100 741,221 712,008 Royal Bank o4 Canada 29,000 1,558,985 1,470,300 Toronto-Dominion Bank 27,610 1,391,033 1,902,329 8,397,668 8,326,375 Industrials 3 3.8% CAE Inc.<br><br> 66,850 713,196 616,357 Canadian Pacifc Railway Limited 9,580 517,364 546,635 DirectCash Income Fund 13,000 196,372 218,400 Finning International Inc. 29,700 479,783 523,611 1,906,715 1,905,003 BMO N 5 cb 7 d d B e bn c G bo ep of F en 4 c FiNaNcial stateMeNts 3 BMO NESBITT BURNS BalaNCEd FUNd (unaudited) The accompanying notes are an integral part o4 these fnancial statements. STaTEMENT OF INvESTMENT PORTFOlIO CONTINUED (all aMOuNts iN caNadiaN dOllars) As at June 30, 2010 Number of Cost* Fair Value Description shares ($) ($) BMO N 5 cb 7 d d B e bn c G bo ep of F en 4 c FiNaNcial stateMeNts 3 BMO NESBITT BURNS BalaNCEd FUNd (unaudited) Information Technology 3 1.5% Bridgewater Systems Corporation 5,000 49,914 43,550 Research In Motion Limited 13,700 1,233,255 716,921 1,283,169 760,471 Materials 3 11.8% Agrium Inc.<br><br> 8,500 425,623 441,915 Alamos Gold Inc. 19,900 282,679 324,967 Barrick Gold Corporation 19,106 681,757 923,584 Can4or Corporation 60,000 563,085 509,400 Can4or Pulp Income Fund 35,000 397,504 504,000 Eldorado Gold Corporation 20,000 251,430 381,600 Goldcorp Inc. 21,550 834,260 1,004,446 International Forest Products Limited 57,600 303,557 235,008 Kinross Gold Corporation 27,250 483,322 494,860 Potash Corporation o4 Saskatchewan 8,450 555,823 774,696 Quadra FNX Mining Limited 15,834 244,591 154,064 Yamana Gold Inc.<br><br> 10,000 126,500 109,300 5,150,131 5,857,840 Telecommunication Services 3 3.6% BCE Inc. 34,838 1,091,603 1,081,720 Rogers Communications Inc. 4,422 90,139 153,753 Telus Corporation 13,500 511,538 542,160 1,693,280 1,777,633 Total Equities 3 56.7% 27,670,509 28,171,456 Total Investments 3 97.3% 47,459,240 48,316,913 Other Assets less Liabilities 3 2.7% 1,323,357 Total Net Assets 3 100% 49,640,270 * For the purpose o4 the Statement o4 Investment Port4olio, cost includes commissions and other port4olio transaction costs (n ote 2).<br><br> THE FUND 9S INVESTMENT PORTFOLIO IS CONCENTRATED IN THE FOLLOWING SEGMENTS AS AT: June 30, December 31, 2010 2009 Money Market Investments 1.7% 2.5% Bonds and Debentures- Canada 38.9% 39.1% Bonds and Debentures- Foreign 0.0% 2.4% Consumer Discretionary 3.2% 2.4% Consumer Staples 1.6% 1.7% Energy 14.4% 15.0% Financials 16.8% 16.3% Industrials 3.8% 3.6% In4ormation Technology 1.5% 2.3% Materials 11.8% 10.9% Telecommunication Services 3.6% 3.3% Other Assets less Liabilities 2.7% 0.5% 100.0% 100.0% The accompanying notes are an integral part o4 these fnancial statements. BMO N 5 cb 7 d d B e bn c G bo ep of F en 4 c NOtes tO FiNaNcial stateMeNts 3 BMO NESBITT BURNS BalaNCEd FUNd (unaudited) June 30, 2010 1. THE Fund BMO Nesbitt Burns Balanced Fund (the cFund d) is an open-ended mutual 4und trust established under the laws o4 the province o4 Ontario and is governed by a Master Declaration o4 Trust dated November 1, 2002, amended October 31, 2008.<br><br> The Fund is authorized to issue an unlimited number o4 units in an unlimited number o4 classes. Each class is intended 4or di44erent kinds o4 investors and has di44erent management 4ees. Re4er to Note 8(a) 4or the classes issued in this Fund and the launch date.<br><br> BMO Nesbitt Burns Inc. (the cManager d) is responsible 4or the management o4 the Fund. The Manager is a wholly owned subsidiary o4 Bank o4 Montreal.<br><br> The in4ormation provided in these unaudited nancial statements is 4or the six-month period(s) ended as at June 30, 2010 and 2009 except 4or the comparative in4ormation presented in the Statement o4 Net Assets and the comparative Fund Speci c in4ormation in note 8, which is as at December 31, 2009. Financial in4ormation 4or the Fund or class established during the period(s) is presented 4rom the date o4 inception as noted in note 8(a). 2.<br><br> Summary oF SigniFicanT accounTing policiES These nancial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ( cGAAP d), including estimates and assumptions made by management that may a44ect the reported amounts o4 assets, liabilities, income and expenses during the reported periods. Actual results could di44er 4rom estimates. Emerging Issues Committee 3 173 ( cEIC-173 d) On January 20, 2009, the Canadian Accounting Standards Board issued Emerging Issues Committee Abstract 173 3 cCredit Risk and the Fair Value of Financial Assets and Financial Liabilities d ( cEIC- 173 d).<br><br> EIC-173 supplements the Canadian Institute o4 Chartered Accountants ( cCICA d) Handbook Section 3855. EIC-173 requires that an entity 9s own credit risk (in the case o4 nancial liabilities) and a counterparty 9s credit risk (in the case o4 nancial assets) be taken into account in determining the 4air value o4 nancial assets and nancial liabilities, including derivative instruments. The new guidance did not have any signi cant impact on the valuation o4 the Fund 9s nancial assets and nancial liabilities, or their net assets.<br><br> V",5"t*/. /f *.vest-e.ts CICA Handbook Section 3855 cFinancial Instruments 3 Recognition and Measurement d ( cSection 3855 d), requires the use o4 bid prices 4or long positions and ask prices 4or short positions in the 4air valuation o4 investments, rather than the use o4 closing prices currently used 4or the purpose o4 determining Net Asset Value ( cNAV d). For investments that are not traded in an active market, Section 3855 requires the use o4 valuation techniques incorporating 4actors that market participants would consider in setting a price.<br><br> The NAV is the 4air value o4 the total assets o4 a Fund less the 4air value o4 its total liabilities at a Valuation Date determined in accordance with Part 14 o4 National Instrument 81-106 3 Investment Fund Continuous Disclosure ( cNI 81-106 d) 4or the purpose o4 processing unitholder transactions. For nancial statement purposes, valuations are determined in accordance with Canadian GAAP. This may result in a di44erence between the Net Assets per Unit and the NAV per unit 4or each class.<br><br> Re4er to Note 8(b) 4or details o4 the comparison between Net Assets per Unit and NAV per unit 4or each class. Investments are deemed to be held 4or trading in accordance with Section 3855. Investments are recorded at their 4air value with the change between this amount and average cost being recorded as unrealized appreciation (depreciation) in value o4 investments in the Statement o4 Operations.<br><br> Securities listed on a recognized public securities exchange in North America and Latin America are valued 4or nancial reporting purposes at their bid prices 4or long positions and ask prices 4or their short positions. The Manager uses 4air value pricing when the 4air value o4 a security held in a 4und is unavailable, unreliable or not considered to refect the current 4air value, and may determine another value which it considers to be 4air and reasonable using the services o4 third-party valuation service providers, or using a valuation technique that, to the extent possible, makes maximum use o4 inputs and assumptions based on observable market data including volatility, comparable companies and other applicable rates and prices. Procedures are in place to 4air value securities traded in countries outside North America and Latin America daily, to avoid stale prices and to take into account, among other things, any signi cant events occurring a4ter the close o4 a 4oreign market.<br><br> For bonds, debentures, asset-backed securities and other debt securities, the 4air value represents the bid price provided by independent security pricing services. Short-term investments are included in the Statement o4 Investment Port4olio at their 4air value. Unlisted warrants are valued based on a pricing model which considers 4actors such as the market value o4 the underlying security, strike price and terms o4 the warrant.<br><br> Mutual 4und units held as investments are valued at their respective net asset values on each valuation date, as these values are the most readily and regularly available. The Fund 9s nancial instruments are classi ed into three levels based on the inputs used to value the nancial instruments. Level 1 securities are based on quoted prices in active markets 4or identical securities.<br><br> Level 2 securities are based on signi cant observable market inputs, such as quoted prices 4rom similar securities and quoted prices in inactive markets. Level 3 securities are based on signi cant unobservable inputs that refect the Manager 9s determination o4 assumptions that market participants might reasonably use in valuing the securities. Re4er to note 8(g) 4or the relevant disclosure.<br><br> i.vest-e.t t2".s"$t*/.s Investment transactions are accounted 4or on the trade date. Realized gains (losses) 4rom the sale o4 investments and unrealized appreciation (depreciation) in the value o4 investments are calculated with re4erence to the average cost o4 the related investments which exclude brokerage commissions and other trading expenses. All net realized gains (losses), unrealized appreciation (depreciation) in value, and transaction costs are attributable to investments and derivative instruments which are deemed held 4or trading, and are included in the Statement o4 Operations.<br><br> Transaction Costs, such as brokerage commissions, incurred in the purchase and sale o4 securities by the Fund are expensed and included in cCommissions and other port4olio transaction costs d in the Statement o4 Operations. BMO N 5 cb 7 d d B e bn c G bo ep of F en 4 c NOtes tO FiNaNcial stateMeNts 3 BMO NESBITT BURNS BalaNCEd FUNd (unaudited) June 30, 2010 c/st /f *.vest-e.ts The cost o4 investments represents the amount paid 4or each security and is determined on an average cost basis. i.$/-e 2e$/(.*t*/.<br><br> Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date. Interest on infation-indexed bonds will be paid based on a principal value, which is adjusted 4or infation.<br><br> At maturity, the Fund will receive, in addition to a coupon interest payment, a nal payment equal to the sum o4 the par value and the infation compensation accrued 4rom the original issue date. Interest is accrued on each valuation day based on the infation adjusted par value at that time. The change in par value o4 the bonds in respect o4 infation adjustments is recognized as income by adjusting the cost o4 the investments.<br><br> Distributions received 4rom investment trusts are recorded as income, capital gains or a return o4 capital, based on the best in4ormation available to the Manager. Due to the nature o4 these investments, actual allocations could vary 4rom this in4ormation. Amounts recorded as a return o4 capital reduce the cost o4 the investment in the investment trust.<br><br> T2".s,"t*/. /f f/2e*(. $522e.$*es The 4air value o4 investments and other assets and liabilities in 4oreign currencies are translated into the Fund 9s 4unctional currency at the rates o4 exchange prevailing at the period-end date.<br><br> Purchases and sales o4 investments and income and expenses are translated at the rates o4 exchange prevailing on the respective dates o4 such transactions. Foreign exchange gains (losses) on completed transactions are included in realized gain (loss) on sale o4 investments and unrealized 4oreign exchange gains (losses) are included in unrealized appreciation (depreciation) in value o4 investments in the Statement o4 Operations. Realized and unrealized exchange gains (losses) on assets (other than investments) and liabilities are included in gain (loss) on 4oreign exchange in the Statement o4 Operations.<br><br> Se$52*t*es ,e.%*.( The Fund may engage in securities lending pursuant to the terms o4 an agreement which includes restrictions as set out in Canadian securities legislation. Collateral held is government Treasury Bills and quali ed Notes. Income 4rom securities lending is recorded as securities lending revenue in the Statement o4 Operations and is recognized when earned.<br><br> The securities on loan continue to be displayed in the Statement o4 Investment Port4olio. The market value o4 the securities loaned and collateral held is determined daily. Aggregate values o4 securities on loan and related collateral held in trust as at June 30, 2010, where applicable, are disclosed in Note 8(4).<br><br> i.$2e"se /2 %e$2e"se *. .et "ssets f2/- /0e2"t*/.s 0e2 5.*t cIncrease (decrease) in net assets 4rom operations per unit d o4 a class in the Statement o4 Operations represents the increase (decrease) in net assets 4rom operations attributable to the class, divided by the weighted average number o4 units o4 the class outstanding during the period. Sh/2t-te2- t2"%*.( 0e.",t8 To discourage excessive trading, the Fund may, at the Manager 9s sole discretion, charge a short-term trading penalty.<br><br> This penalty is paid directly to the Fund. c"sh Cash is comprised o4 cash on deposit and cash equivalents and is deemed to be held 4or trading carried at 4air value. othe2 "ssets ".% ,*"b*,*t*es Interest and dividends receivable, subscriptions receivable, receivable 4or margin on 4utures, and due 4rom broker are designated as loans and receivables and recorded at cost or amortized cost.<br><br> Amounts due to broker, accrued expenses and redemptions payable are designated as nancial liabilities and reported at amortized cost. Other assets and liabilities are short-term in nature and are carried at amortized cost, which approximates 4air value. 3.<br><br> uniT ValuaTion Units o4 the Fund are o44ered 4or sale on a continuous basis and may be purchased or redeemed on any valuation date at the NAV o4 a particular class. A valuation date is each day on which the Toronto Stock Exchange is open 4or trading. The NAV per unit o4 a class 4or the purposes o4 subscription or redemption is computed by dividing the NAV o4 the Fund attributable to the class (that is, the total 4air value o4 the assets attributable to the class less the liabilities attributable to the class) by the total number o4 units o4 the class o4 the Fund outstanding at such time.<br><br> This amount may be di44erent 4rom the Net Assets per unit o4 a class calculation, which is presented on the Statement o4 Net Assets. Generally, any di44erences are due to valuing actively traded securities at bid prices 4or GAAP purposes while NAV typically utilizes closing price to determine 4air value 4or the purchase and redemption o4 units. See Note 8(b) 4or the reconciliation o4 the NAV per unit to Net Assets as at June 30, 2010 and December 31, 2009 4or each class o4 the 4und.<br><br> Expenses directly attributable to a class are charged to that class. Other expenses, income, realized and unrealized gains and losses 4rom investment transactions are allocated proportionately to each class based upon the relative NAV o4 each class. c"0*t", %*s$,/s52e The capital o4 the Fund is represented by issued and redeemable units with no par value.<br><br> The units are entitled to distributions, i4 any, and to payment o4 a proportionate share based on the Fund 9s NAV per unit upon redemption. The Fund has no restrictions or speci c capital requirements on the subscriptions and redemptions o4 units. The relevant movements in capital are shown on the Statement o4 Changes in Net Assets.<br><br> In accordance with its investment objectives and strategies, and the risk management practices outlined in Note 6, the Fund endeavours to invest the subscriptions received in appropriate investments while maintaining su4 cient liquidity to meet redemptions, such liquidity being augmented by short-term borrowings or disposal o4 investments where necessary. 4. incomE TaxES The Fund quali es as a mutual 4und trust under the provisions o4 the Income Tax Act (Canada) (the cTax Act d), and accordingly, is not subject to tax on its net taxable income 4or the tax year which ends BMO N 5 cb 7 d d B e bn c G bo ep of F en 4 c NOtes tO FiNaNcial stateMeNts 3 BMO NESBITT BURNS BalaNCEd FUNd (unaudited) June 30, 2010 in December, including net realized capital gains, which is paid or payable to its unitholders as at the end o4 the tax year.<br><br> However, such part o4 the Fund 9s net income and net realized capital gains as is not so paid or payable, is subject to income tax. Income tax on net realized capital gains not paid or payable is generally recoverable by virtue o4 re4unding provisions contained in tax legislation, as redemptions occur. It is the intention o4 the Fund to distribute all o4 its income and su4 cient net realized capital gains so that the Fund will not be subject to income tax.<br><br> Non-capital losses that arose in taxation years be4ore 2004 are available to be carried 4orward 4or seven years and applied against 4uture taxable income. Non-capital losses that arose in 2004 and 2005 are available to be carried 4orward 4or ten years. Non-capital losses that arose in 2006 and a4ter are available to be carried 4orward 4or twenty years.<br><br> Capital losses 4or income tax purposes may be carried 4orward inde nitely and applied against capital gains realized in 4uture years. The Fund 9s available non-capital and capital losses 4or income tax purposes as o4 the tax year ended December 2009 are included in Note 8(c). 5.<br><br> rElaTEd parTy TranSacTionS (a) m"."(e-e.t Fees The Manager is responsible 4or the day-to-day management o4 the Fund and its investment port4olio in compliance with the Fund 9s constating documents. The Manager monitors and evaluates the per4ormance o4 the Fund, pays 4or the investment management services o4 the investment advisors and provides all related administrative services required by the Fund. As compensation 4or its services the Manager is entitled to receive a 4ee payable monthly, calculated at the maximum annual rates included in Note 8(d).<br><br> (b) Unitholder se2v*$*.(, $/--*ss*/.s ".% /the2 0/2tf/,*/ t2".s"$t*/. $/sts The Fund is provided with certain 4acilities and services by the Manager and its a4 liates. A portion o4 the unitholder servicing expenses include expenses incurred in the administration o4 the Fund that were paid to Bank o4 Montreal.<br><br> Re4er to Note 8(d) 4or related party 4ees charged to the Fund 4or the periods ended June 30, 2010 and 2009 where applicable. (c) i.*t*", *.vest-e.ts In order to establish a new 4und, the Manager makes initial investments in the 4und. Pursuant to the policies o4 the Canadian Securities Administrators, an initial investor cannot redeem its investments until an additional $500,000 has been received 4rom other investors with respect to the same series o4 units.<br><br> Re4er to Note 8(d) 4or the investment in units o4 the Fund held by the Manager as at June 30, 2010, where applicable. (d) othe2 2e,"te% 0"2t8 t2".s"$t*/.s From time to time, the Manager may on behal4 o4 the Fund enter into transactions or arrangements with or involving other members o4 Bank o4 Montreal Group o4 Companies, or certain other persons or companies that are related or connected to the Manager o4 the Fund. These transactions or arrangements may include transactions or arrangements with or involving Bank o4 Montreal, Bank o4 Montreal Ireland Plc., BMO Harris Investment Management Inc., BMO Asset Management Inc., BMO InvestorLine Inc., HIM Monegy Inc., BMO Trust Company, Harris Investment Management Inc., Pyr4ord International Ltd.<br><br> or other mutual 4unds, and may involve the purchase or sale o4 port4olio securities through or 4rom a member o4 Bank o4 Montreal Group o4 Companies, the purchase or sale o4 securities issued or guaranteed by a member o4 Bank o4 Montreal Group o4 Companies, the purchase or redemption o4 units o4 other BMO 4unds or the provision o4 services to the Manager. 6. Financial inSTrumEnT riSk A 4und may be exposed to a variety o4 nancial risks.<br><br> A 4und 9s exposure to nancial risks are concentrated in its investment holdings, including derivative instruments. The Statement o4 Investment Port4olio groups securities by asset type, geographic region and/or market segment. The Fund 9s risk management practice includes the monitoring o4 compliance to investment guidelines.<br><br> The Manager manages the potential e44ects o4 these nancial risks on the Fund 9s per4ormance by employing and overseeing pro4essional and experienced port4olio managers that regularly monitor the Fund 9s positions, market events and diversi4y investment port4olios within the constraints o4 the investment guidelines. (a) c522e.$8 2*s+ Currency risk is the risk that the value o4 nancial instruments denominated in currencies, other than the 4unctional currency o4 the Fund, will fuctuate due to changes in 4oreign exchange rates. Investments in 4oreign markets are exposed to currency risk as the prices denominated in 4oreign currencies are converted to the Fund 9s 4unctional currency in determining 4air value.<br><br> The Fund may enter into 4orward currency contracts 4or hedging purposes to reduce 4oreign currency exposure or to establish exposure to 4oreign currencies. The Fund 9s exposure to currency risk, i4 any, is 4urther discussed in Note 8(e). (b) i.te2est 2"te 2*s+ Interest rate risk is the risk that the 4air value o4 the Fund 9s interest- bearing investments will fuctuate due to changes in market interest rates.<br><br> The Fund 9s exposure to interest rate risk is concentrated in its investment in debt securities (such as bonds, money market instruments and debentures) and interest rate derivative instruments, i4 any. Other assets and liabilities are short-term in nature and/or non-interest bearing. The Fund 9s exposure to interest rate risk, i4 any, is 4urther discussed in Note 8(e).<br><br> (c) othe2 -"2+et 2*s+ Other market risk is the risk that the 4air value o4 a nancial instrument will fuctuate as a result o4 changes in market prices (other than those arising 4rom interest rate risk or currency risk), whether those changes are caused by 4actors speci c to the individual nancial instrument or its issuer, or 4actors a44ecting all similar nancial instruments traded in a market. Other assets and liabilities are monetary items that are short term in nature and are not subject to other market risk. The Fund 9s exposure to other market risk, i4 any, is 4urther discussed in Note 8(e).<br><br> (d) c2e%*t 2*s+ Credit risk is the risk that a loss could arise 4rom a security issuer or counterparty to a nancial instrument not being able to meet it 9s nancial obligations. The 4air value o4 debt securities includes consideration o4 the credit worthiness o4 the debt issuer. Credit risk exposure 4or over-the-counter derivative instruments is based on the Fund 9s unrealized gain o4 the contractual obligations with the counterparty as at the reporting date.<br><br> The credit exposure o4 other BMO N 5 cb 7 d d B e bn c G bo ep of F en 4 c NOtes tO FiNaNcial stateMeNts 3 BMO NESBITT BURNS BalaNCEd FUNd (unaudited) June 30, 2010 assets is represented by its carrying amount. The Fund 9s exposure to credit risk, i4 any, is 4urther discussed in Note 8(e). The Fund may enter into securities lending transactions with approved counterparties.<br><br> Credit risk associated with these transactions is considered minimal as all counterparties have a su4 cient approved credit rating and the market value o4 collateral held by the Fund must be at least 102% o4 the 4air value o4 securities loaned, as disclosed in Note 8. (e) l*q5*%*t8 2*s+ The Fund 9s exposure to liquidity risk is concentrated in the daily cash redemptions o4 units. The Fund primarily invests in securities that are traded in active markets and can be readily disposed.<br><br> In addition, the Fund retains su4 cient cash and cash equivalent positions to maintain liquidity. The Fund may, 4rom time to time, enter into over the-counter derivative contracts or invest in unlisted securities, which are not traded in an organized market and may be illiquid. Securities 4or which a market quotation could not be obtained and may be illiquid are identi ed on the Statement o4 Investment Port4olio.<br><br> The proportion o4 illiquid securities to NAV o4 the Fund is monitored by the Manager to ensure it does not exceed the regulatory limit and does not signi cantly a44ect the liquidity required to meet the Fund 9s nancial obligations. 7. TranSiTion To inTErnaTional Financial rEporTing STandardS In 2008, the Canadian Accounting Standards Board ( cAcSB d) con rmed that all Canadian publicly accountable enterprises, which include investment 4unds, will be required to prepare their nancial statements in accordance with International Financial Reporting Standards ( cIFRS d), as issued by the International Accounting Standards Board ( cIASB d), 4or nancial years commencing on or a4ter January 1, 2011.<br><br> However, in June 2010, the AcSB issued a proposal to de4er the adoption o4 IFRS 4or investment companies, which include investment 4unds, by one year. This proposal could result in the Fund de4erring its adoption o4 IFRS 4rom January 1, 2011 to January 1, 2012. The AcSB is expected to nalize their proposal in September 2010.<br><br> In order to meet the requirement to transition to IFRS, the Manager established a committee 4or the development and implementation o4 a transition plan and to provide oversight o4 the transition to IFRS. The transition plan is comprised o4 three phases: a diagnostic assessment to identi4y potential IFRS di44erences relative to current policies; implementation and education, which includes con rming actual IFRS di44erences relative to current policies; and completion o4 all integration requirements 4or any actual di44erences identi ed. The Fund 9s transition to IFRS remains on track: its diagnostic assessment to identi4y potential IFRS di44erences is completed, and the Committee is currently working through the second phase o4 the transition plan.<br><br> The diagnostic assessment o4 the Fund revealed the 4ollowing: The criteria contained within the IFRS Financial Instruments: Presentation standard (IAS 32) may require unitholders 9 equity to be classi ed as a liability within the Fund 9s statement o4 net assets, unless certain conditions are met. The Manager is currently assessing the Fund 9s unitholder structure to con rm classi cation. The requirements contained within the IFRS Consolidated and Separate Financial Statements standard (IAS 27) may impact the accounting o4 certain investments held by the Fund.<br><br> To the extent any o4 the Fund 9s investments in other 4unds are deemed to be controlled by the Fund, as determined under the criteria contained within IAS 27, the Fund will need to consolidate the nancial statements o4 those investments within the Fund 9s nancial statements. However, the IASB is planning to replace IAS 27 with a new standard. This new standard may be in e44ect prior to Fund 9s transition date, such that the IFRS may di44er at transition date 4rom its current 4orm.<br><br> The Manager is currently monitoring the IASB 9s project to replace IAS 27, and will amend its implementation plans accordingly. Presentation changes to unitholders 9 equity and presenting certain investments held by the Fund on a consolidated basis will not have an impact on the Fund 9s results o4 operations or nancial position. The diagnostic assessment did not reveal any other potential material di44erences between the Fund 9s current accounting policies and the requirements under IFRS.<br><br> The Manager does not 4oresee any impact or change to the Fund 9s business arrangements or any accounting policy or implementation decisions that the Fund will need to make as a result o4 the changeover to IFRS. The Manager has not identi ed any changes that will impact NAV per share as a result o4 the changeover to IFRS. However, this determination is subject to change as new standards are issued or interpretations o4 existing standards evolve.<br><br> 8. Fund SpEciFic inFormaTion (a) F5.% ".% u.*t c,"ss *.f/2-"t*/. The Fund 9s inception date was November 1, 2002.<br><br> The Fund may issue an unlimited number o4 units in each o4 Class A and F. Class A units are available to all investors. Class F units are available 4or purchase by investors who are enrolled in dealer sponsored wrap programs or fat 4ee accounts.<br><br> Instead o4 paying a commission on each transaction, these investors pay an annual 4ee to the Manager based on the value o4 their assets. Unit Class Launch Date Class A Units November 1, 2002 Class F Units October 31, 2008 (b) re$/.$*,*"t*/. /f net asset V",5e 0e2 u.*t t/ net assets 0e2 u.*t June 30, 2010 Net Asset Value Section 3855 Net Assets Unit Class per Unit Adjustment per Unit Class A Units 12.71 3 12.71 Class F Units 13.02 3 13.02 December 31, 2009 Net Asset Value Section 3855 Net Assets Unit Class per Unit Adjustment per Unit Class A Units 13.00 (0.02) 12.98 Class F Units 13.29 (0.02) 13.27 BMO N 5 cb 7 d d B e bn c G bo ep of F en 4 c NOtes tO FiNaNcial stateMeNts 3 BMO NESBITT BURNS BalaNCEd FUNd (unaudited) June 30, 2010 (c) i.$/-e T"7es As at the tax year ended December 2009, the Fund has the 4ollowing available non-capital and capital losses 4or income tax purposes: Non-Capital Losses That Expire in Total Total Capital Non-Capital 2012 and Losses Losses 2010 2011 thereafter ($) ($) ($) ($) ($) 1,423,747 3 3 3 3 (d) re,"te% 0"2t8 t2".s"$t*/.s m"."(e-e.t Fees ".% o0e2"t*.( E70e.ses The Manager is entitled to receive Management Fees at annual rates, and recover Operating Expenses up to the maximum rate, as 4ollows: Management Operating Fees Expenses (Cap) Unit Class (%) (%) Class A Units 1.75 0.50 Class F Units 0.75 0.50 i.*t*", *.vest-e.ts The manager held the 4ollowing investments in units o4 the Fund: As at June 30, 2010 As at December 31, 2009 Units held by Fair value Units held by Fair value the Manager of units the Manager of units Unit Class ($) ($) ($) ($) Class A Units 3 3 3 3 Class F Units 1,285 16,731 1,272 16,879 u.*th/,%e2 se2v*$*.( ".% /the2 0/2tf/,*/ t2".s"$t*/.<br><br> $/sts. The related party 4ees charged relating to unitholder servicing and other port4olio transaction costs are as 4ollows: Period ending Period ending June 30, 2010 June 30, 2009 ($) ($) Unitholder servicing 33,279 28,875 (e) F*.".$*", *.st25-e.t 2*s+ The Fund 9s objective is to achieve long-term capital growth consistent with the preservation o4 capital and liquidity by investing primarily in equities and xed income securities. No changes a44ecting the overall level o4 risk o4 investing in the Fund were made during the period.<br><br> c522e.$8 2*s+ The Fund invested primarily in Canadian bonds and equities. As at June 30, 2010 and December 31, 2009, the Fund did not have any signi cant exposure to currency risk. i.te2est 2"te 2*s+ The 4ollowing table summarizes the Fund 9s exposure to interest rate risk categorized by the earlier o4 contractual repricing or maturity dates.<br><br> Interest Rate <1 year 1-3 years 3-5 years 5-10 years >10 years Total Exposure as at ($) ($) ($) ($) ($) ($) June 30, 2010 1,223,954 6,800,060 3,366,713 4,418,121 4,336,607 20,145,455 December 31, 2009 1,657,988 5,197,594 2,531,388 6,542,086 7,102,518 23,031,574 All amounts in CA$ As at the periods ended June 30, 2010 and December 31, 2009, i4 the prevailing interest rates had been raised or lowered by 1%, assuming a parallel shi4t in the yield curve, with all other variables held constant, Net Assets could possibly have increased or decreased, respectively, by approximately $8,349 (December 31, 2009 3 $9,259). The Fund 9s interest rate sensitivity was determined based on port4olio weighted duration. In practice, actual results may di44er 4rom this sensitivity analysis and the di44erence could be material.<br><br> othe2 -"2+et 2*s+ As at June 30, 2010 approximately 57% (December 31, 2009 3 56%) o4 the Fund 9s Net Assets were traded on respective stock exchanges. I4 equity prices on the respective stock exchanges 4or these securities had increased or decreased by 10% as at the periods ended, with all other 4actors remaining constant, Net Assets could possibly have increased or decreased by approximately $2,817,146 (December 31, 2009 3 $2,903,729), respectively. In practice, actual results may di44er 4rom this sensitivity analysis and the di44erence could be material.<br><br> c2e%*t 2*s+ The Fund 9s credit risk exposure grouped by credit ratings are listed in the 4ollowing table. As a % of Net Assets as at Credit Risk June 30, 2010 December 31, 2009 AAA 20.1% 25.0% AA 7.0% 7.8% A 10.5% 10.9% BBB 0.4% 3 Below BBB/Unrated 2.6% 0.3% Total 40.6% 44.0% Credit risk associated with securities lending is considered minimal as the value o4 cash or securities held as collateral must be at least 102% o4 the 4air value o4 securities loaned, as shown below. (4) Se$52*t*es ,e.%*.( The Fund had assets involved in securities lending transactions outstanding as 4ollows: June 30, 2010 December 31, 2009 $ $ Aggregate Fair Value o4 Securities on Loan 8,302,760 6,622,104 Aggregate Fair Value o4 Collateral 4or Loan 8,771,677 6,978,462 (g) F"*2 V",5e H*e2"2$h8 The classi cation between hierarchy levels as at June 30, 2010 is not signi cantly di44erent 4rom the levels as at December 31, 2009.<br><br> The disclosure related to the hierarchical classi cation o4 the Fund 9s nancial instruments is included in the Fund 9s audited nancial statements as at December 31, 2009. BMO Nesbitt Burns Inc. 1 First Canadian Place 54th Floor Toronto, Ontario M5X 1H3 Client Services Toll Free: 1-800-361-1392 Fax: 1-866-486-2846 Email: contact.centre@bmonb.com Website: www.bmonesbittburns.com TruSTEES Patrick W.<br><br> J. French, Oakville Richard L. Mills, Toronto Colin J.<br><br> Monteith, Toronto Paul C. Adair, Toronto Sarah E. A.<br><br> Widmeyer, Toronto Mary La4azanis, Toronto managEr, promoTEr and diSTriBuTor BMO Nesbitt Burns Inc. 1 First Canadian Place 54th Floor, P.O. Box 150 Toronto, Ontario M5X 1H3 indEpEndEnT audiTorS PricewaterhouseCoopers LLP 77 King Street West Toronto, Ontario M5K 1G8 inVESTmEnT adViSor BMO Asset Management Inc.<br><br> 77 King Street West Suite 4200 Toronto, Ontario M5K 1J5 Harris Investment Management Inc. 190 South LaSalle Street, 4th foor Chicago, Illinois 60690-0755 Pyr4ord International Limited 79 Grosvenor Street London, United Kingdom W1K 3JU cuSTodian CIBC Mellon Global Securities Services Company 320 Bay Street Toronto, Ontario M5H 2P6 BMO Nesbitt Burns Inc. 1 First Canadian Place, 54th Floor, P.O.<br><br> Box 150 Toronto, Ontario M5X 1H3 www.bmonesbittburns.com contact.centre@bmonb.com 1-800-361-1392 ® cBMO (M-bar roundel symbol) d is a registered trade-mark o4 Bank o4 Montreal, used under licence. ® cNesbitt Burns d is a registered trade-mark o4 BMO Nesbitt Burns Corporation Limited, used under licence. Member 3 Canadian Inv estor Protection Fund.<br><br>

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