Tactical Allocation Customized Thematic Investment Company A revolutionary new tactical portfolio management tool from BMO Capital Markets
Today s Investment Universe Today s universe of investment options mutual funds, closed-end funds, ETFs, notes, stocks, bonds, commodities, currencies, real estate, precious metals, cryptocurrencies, etc. can be confusing, even overwhelming 1
Investors Need Solutions That Are. 1. Built for the way they see the world We live in a world of insights, but as investors, we can t always act on them Want to invest in connected cars, shale oil, fintech, clean technology and so on? The investment industry doesn t make it easy because there are few available investment products and investors can be lost or overwhelmed Who has the time to follow a particular stock and stay on top of corporate news and earnings reports? We think in terms of ideas, insights and trends 2. Built for how they think and work Advisors and their clients are looking for investments that allow them to express a view Many investors would prefer to invest in a particular industry or asset class versus trying to pick a specific company in that industry or asset class 3. Built for transparency and control Some investments offer a less than clear picture of holdings and performance It would be ideal to see what you own and how your investments are performing at all times 2
BMO TACTIC Funds A Unique New Investment Solution TACTIC definition -- noun tac tic \ˈtaktik\ -- an action or method that is planned and used to achieve a particular goal Tactical Allocation Customized Thematic Investment Company ( TACTIC ) has been developed as a platform for the issuance of customized investment solutions based on a set of timely and opportunistic investment themes Thematic investing isn t new, but widespread access to it is Professional and high net-worth investors have been successfully investing around a central theme, trend or strategy for decades Identify a Theme Periodic Rebalancing Invest in Stocks which Represent the Theme The BMO TACTIC Funds platform is a hub for investors to tactically express a view based on an investment theme that may have broad or relatively focused appeal, over a short, intermediate or long term investment horizon BMO TACTIC Funds are designed to provide a nimble platform to go from idea to investment on a timely, nimble, low-cost and tax-efficient basis 3
Tactical Allocation Customized Thematic Investment Company Deploy your TACTIC Tactical Allocation Tactical asset allocation is a dynamic investment strategy that actively adjusts a portfolio s allocation, with the goal of improving risk-adjusted returns Investors can express a view and exploit an investment opportunity in a nimble and timely manner Can be fairly short-term, intermediate or long-term investment, depending on investor s view Investments can be fairly tailored and targeted, allowing for bespoke investment solutions Customized Allows investors to exploit a very focused investment opportunity that may not be found in more broadlybased investment offerings such as mutual funds or ETFs Can accommodate hand-picked portfolios or baskets of securities Thematic Investment platform based on narrow or broad investment themes to access and isolate the opportunity More innovative, more likely to know what you own BMO TACTIC Funds platform can accommodate many types of strategies Investment Company Continuously offered with daily subscriptions and redemptions via FundSERV Designed for every type of investor retail, HNW, institutional, fee-based and transaction accounts, etc. Can provide opportunities for tax-efficiency and enhanced returns 4
What You Get with BMO TACTIC Funds BMO TACTIC Funds ETFs Mutual Funds Closed-End Funds Ownership of a basket of securities reflecting a consistent investment idea or theme Customizable investment, allowing for bespoke investment solutions Diversification across multiple securities Daily liquidity and pricing Eligible for commission-based or fee-based accounts Opportunities for tax-efficiency and enhanced returns via leverage 5
Offering, Distribution and Settlement BMO TACTIC Funds will generally be governed by: NI 81-102 Investment Funds; and/or Sold under a prospectus, AIF and Fund Facts form NI 81-104 Commodity Pools / Alternative Funds Sold under a long form prospectus and greensheet, as applicable BMO TACTIC Funds will be launched on a periodic basis and continuously offered thereafter with daily redemptions No fee or penalty other than typical Early Trading Charge Subscriptions and redemptions will take place via FundSERV Similar to mutual funds, note offerings Eligible for investment advisors (IIROC) and financial planners (MFDA), depending upon type of fund 6
BMO TACTIC Funds for Advisors and Their Clients BMO TACTIC Funds can be distributed to transaction accounts or fee-based advisors BMO TACTIC Funds can be distributed to clients who want, or want to minimize, foreign currency exposure, if applicable BMO TACTIC Funds can also be issued to institutional investors via a Class I Unit TRANSACTION ACCOUNT FEE-BASED ACCOUNT DISCOUNT BROKERAGE ACCOUNT F/X Hedged Class A BMO TACTIC Funds (0-2% sales commission + service fee if applicable) Class F BMO TACTIC Funds Class D BMO TACTIC Funds (service fee if applicable) F/X Unhedged Class A (Unhedged) BMO TACTIC Funds (0-2% sales commission + service fee if applicable) Class F (Unhedged) BMO TACTIC Funds Class D (Unhedged) BMO TACTIC Funds (service fee if applicable) 7
A Few Points on Tax Disposition like most investment funds, dispositions/sales of BMO TACTIC Funds will generally be considered capital gains or losses for tax purposes Not generally considered income for tax purposes Not considered U.S. property for U.S. estate tax purposes (even if U.S. underlying securities) Typically, Canadian mutual fund trust or corporation used 8
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BMO FinTech Sector TACTIC Fund Objective & Strategy To provide long-term capital appreciation by investing in financial technology companies that are publicly traded in the United States. Initially, the BMO FinTech Sector TACTIC Fund will invest in the constituent securities of the KBW Nasdaq Financial Technology Index. What is FinTech? The phrase FinTech, first coined by a New York banker in 1972, refers to the intersection of technology and financial services. FinTech is a dynamic segment at the intersection of the financial services and technology sectors where technology-focused startups and new market entrants innovate the products and services currently provided by the traditional financial services industry. (PricewaterhouseCoopers LLP) FinTechs are defined as high-growth organisations combining innovative business models and technology to enable, enhance and disrupt financial services. This definition is not restricted to start-ups or new entrants, but includes scale-ups, maturing companies and even nonfinancial services companies, such as telecommunication providers and e-retailers. (E&Y) FinTech Index The KBW Nasdaq Financial Technology Index (FinTech Index) is designed to track the performance of financial technology companies that are publicly traded in the U.S. The FinTech Index is equally-weighted and currently includes 50 companies. These companies leverage technology to deliver financial products and services. These companies have nearly exclusive electronic distribution and limited or no bricks and mortar exposure, and a predominately fee-based revenue mix. FinTech Index Inclusion Criteria To be eligible for inclusion in the FinTech Index, a security or its issuer, as applicable, must meet the following criteria (among others): Be listed on The Nasdaq Stock Market, the New York Stock Exchange or NYSE MKT Be classified as a company that leverages technology to deliver financial products and services. Distribution should be nearly exclusively electronic, with limited to no bricks and mortar, and the revenue mix must be predominantly fee-based Have a market capitalization greater than or equal US$500 million 10
BMO FinTech Sector TACTIC Fund FinTech Index Selected Companies FinTech Index Return Profile FinTech Index has achieved 37.26% return over the past year (as at January 23, 2017) While S&P 500 Index has achieved 25.35% return during the same period FinTech Index has achieved 50.21% return since inception (on July 17, 2016) While S&P 500 Index has achieved 31.35% return during the same period FinTech Index Group Exposure 11 As of January 29, 2018
BMO FinTech Sector TACTIC Fund FinTech Index Member Companies Ticker Company Name Market Cap (US$ in millions) ACIW ACI Worldwide Inc. $2,742.74 ADS Alliance Data Systems Corp. $14,120.64 AXP American Express Co. $86,346.10 BKI Black Knight Inc. $7,811.82 HAWK Blackhawk Network Holdings Inc. $2,602.76 BOFI BofI Holding Inc. $2,141.40 BR Broadridge Financial Solutions Inc. $11,313.75 CATM Cardtronics PLC $1,083.11 CBOE Cboe Global Markets Inc. $15,451.25 CME CME Group Inc. $52,517.65 CLGX CoreLogic Inc. $3,949.00 DNB Dun & Bradstreet Corp/The $4,613.31 ENV Envestnet Inc. $2,391.41 EFX Equifax Inc. $15,120.40 EEFT Euronet Worldwide Inc. $5,004.70 EVTC EVERTEC Inc. $1,118.43 FDS FactSet Research Systems Inc. $8,031.89 FICO Fair Isaac Corp. $5,167.76 FIS Fidelity National Information Services Inc. $34,378.44 FNGN Financial Engines Inc. $1,845.70 FDC First Data Corp. $16,696.28 FISV Fiserv Inc. $29,828.21 FLT FleetCor Technologies Inc. $18,965.02 GPN Global Payments Inc. $17,847.82 GDOT Green Dot Corp. $3,200.66 Ticker Company Name Market Cap (US$ in millions) INFO IHS Markit Ltd. $19,007.57 ICE Intercontinental Exchange Inc. $43,812.61 JKHY Jack Henry & Associates Inc. $9,737.72 LC LendingClub Corp. $1,661.55 TREE LendingTree Inc. $4,331.51 MKTX MarketAxess Holdings Inc. $7,199.21 MA Mastercard Inc. $180,009.87 MCO Moody's Corp. $31,330.85 MSCI MSCI Inc. $12,631.25 NDAQ Nasdaq Inc. $13,564.06 PYPL PayPal Holdings Inc. $101,399.16 SPGI S&P Global Inc. $46,693.05 SEIC SEI Investments Co. $12,041.97 SQ Square Inc. $17,640.97 SSNC SS&C Technologies Holdings Inc. $10,258.04 TRI Thomson Reuters Corp. $31,208.10 TSS Total System Services Inc. $16,150.89 PAY VeriFone Systems Inc. $2,010.45 VRSK Verisk Analytics Inc. $16,189.21 VIRT Virtu Financial Inc. $3,627.23 V Visa Inc. $284,510.76 WU Western Union Co/The. $9,571.65 WEX WEX Inc. $6,679.14 WETF WisdomTree Investments Inc. $1,684.01 WP Worldpay Inc. $25,467.23 Nasdaq is a registered trademark of Nasdaq, Inc. (which with its affiliates is referred to as the Corporations ) and is licensed for use by the Bank of Montreal. The BMO TACTIC Funds have not been passed on by the Corporations as to their legality or suitability. The BMO TACTIC Funds are not issued, endorsed, sold, orpromoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE BMO TACTIC FUNDS. As of January 29, 2018 12
Objective & Strategy: To provide long-term capital appreciation by investing in small and mid-sized Canadian companies included in BMO Capital Markets Canadian Top 15 Small Cap Fundamental List Objective & Strategy: To provide long-term capital appreciation by investing in small and mid-sized U.S. companies included in BMO Capital Markets U.S. Top 15 Small Cap Fundamental List The Top 15 Lists The BMO Capital Markets Canadian Top 15 Small Cap Fundamental List and the BMO Capital Markets U.S. Top 15 Small Cap Fundamental List are designed to provide investors with the best investment ideas that are rated Outperform by BMO Capital Markets equity research analysts. All of the securities appearing on the list are selected from BMO Capital Markets equity research s Outperform rated stocks and are selected to achieve a degree of diversification within the constraints of the list s objectives, criteria, and availability of suitable Outperform rated stocks. Each Fund will hold the securities on an initially equally-weighted basis. The List is managed by a committee which meets monthly and solicits comments from analysts on an ongoing basis the committee is chaired by Brian Belski. Brian Belski is the Chief Investment Strategist of BMO Capital Markets. Mr. Belski joined BMO Capital Markets in April 2012 and has extensive experience in investment strategy, portfolio management and research with leading North American investment banks, including the creation and management of equity portfolios and proprietary strategies for institutional and retail clients. Inclusion Criteria To be eligible for inclusion in the portfolio, a security will generally satisfy the following criteria: Have an Outperform rating by the relevant BMO Capital Markets equity research analyst Market capitalization: Canadian Top 15 List: $300 million (min) to $4.9 billion (max) U.S. Top 15 List: US$300 million (min) to US$6.0 billion (max) 13
BMO Canadian Top 15 Small Cap TACTIC Fund Selected Companies BMO U.S. Top 15 Small Cap TACTIC Fund Selected Companies Total Return vs. BMO Small Cap Index Weighted (BMO SCI) (for the period ending December 31, 2017) Total Return vs. Russell 2000 Index (both in Canadian Dollars) (for the period ending December 31, 2017) 1800 1600 1400 1200 1 YR 5 YR Jan 02 Top 15 15.68% 17.49% 18.74% BMO SCI 6.38% 5.99% 7.96% 700 600 500 1 YR 5 YR Jan 08 Top 15 13.38% 26.63% 19.41% Russell 7.12% 19.49% 11.89% 1000 400 800 600 400 Top 15 300 200 Top 15 200 BMO SCI 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: BMO Capital Markets, Factset. Note: Inception date of the BMO Capital Markets Canadian Top 15 Small Cap Fundamental List was January 2002, and that of the BMO Capital Markets U.S. Top 15 Small Cap Fundamental List was January 2008. 100 Russell 2000 14
BMO TACTIC Funds Fundserv Codes BMO FinTech Sector TACTIC Fund Class Fundserv Code Class A Class F Class D Class A (Hedged) Class F (Hedged) Class D (Hedged) BMO Canadian Top 15 Small Cap TACTIC Fund Class Fundserv Code JHN10024 JHN10025 JHN10039 JHN10027 JHN10028 JHN10040 BMO U.S. Top 15 Small Cap TACTIC Fund Class Fundserv Code Class A JHN10030 Class A JHN10033 Class F JHN10031 Class F JHN10034 Class D JHN10041 Class D JHN10042 Class A (Hedged) JHN10036 Minimum Purchase: $500 Class F (Hedged) Class D (Hedged) JHN10037 JHN10043 15
Summary of Terms Class A Units (CAD and CAD Hedged) Offering: Class F Units (CAD and CAD Hedged) (for fee-based accounts) Class D Units (CAD and CAD Hedged) (for discount brokerage accounts) Minimum Purchase: Distributions: Currency Hedging: Leverage: Daily Purchases and Redemptions: Upfront Sales Commission: Management Fee: Service Fee: $500 The BMO TACTIC Funds will not make regular distributions. Distributions, if any, will be automatically invested in additional Units or paid in Units. Offering unhedged and substantially-hedged versions of Units. Maximum 25% of total assets of the BMO TACTIC Fund. Initially, leverage will not be used. All daily purchases and redemptions will be through the order entry system operated by FundSERV Inc. Class A Units: 0% to 2.00% (negotiated) Class F Units: Nil Class D Units: Nil Class A Units: 1.85% p.a. (including an amount equal to the Service Fee) Class F Units: 0.85% p.a. Class D Units: 0.95% p.a. (including an amount equal to the Service Fee) Class A Units: 1.00% of net asset value of the applicable BMO TACTIC Fund, calculated daily and paid quarterly. Class F Units: Nil Class D Units: 0.10% of net asset value of the applicable BMO TACTIC Fund, calculated daily and paid quarterly. The Service Fee will be paid by the Manager out of the Management Fee. 16
Summary of Terms (continued) Switching and Conversion of Units: Short-term Redemption Fee: Termination: Manager: Portfolio Manager: Eligibility: Unitholders may not switch Units of one BMO TACTIC Fund for those of another. Unitholders may convert Units of any class into Units of any other class of the same BMO TACTIC Fund. A BMO TACTIC Fund may, at its sole discretion, charge a short-term redemption fee of up to 1.00% of the amount that an investor redeems if such transaction is done within 90 days of purchase. The BMO TACTIC Funds do not have a fixed termination date. BMO Nesbitt Burns Inc. BMO Asset Management Inc. Eligible for RRSPs, RRIFs, DPSPs, RDSPs, RESPs and TFSAs. 17
Use BMO TACTIC Funds to Hit Your Investment Target 18