Bank of Montreal Issues $10.3 Million Capped Leveraged Basket-Linked Notes Due 2027

Multi-Index Basket Structure and Weighting Methodology

The notes are linked to an unequally weighted basket of five international equity indices, each with distinct geographic exposure. The EURO STOXX 50 Index carries the highest weighting at 40% of the basket composition, followed by the TOPIX Index at 25%, the FTSE 100 Index at 17%, the Swiss Market Index at 11%, and the S&P/ASX 200 Index at 7%. The initial basket level was set at 100, with the initial weighted values calculated as the product of each index's weight and the initial basket level of 100. On the trade date of July 23, 2026, the initial underlier levels for the five indices were: EURO STOXX 50 at 6,210.17, TOPIX at 4,053.88, FTSE 100 at 10,639.17, Swiss Market Index at 14,214.95, and S&P/ASX 200 at 8,838.994.

The unequal weighting structure creates significant disparity in the impact each index has on overall note performance. The filing explicitly notes that declines in one basket underlier may offset increases in others, and that the performances of basket underliers with higher weightings will have significantly larger impacts on returns than those with lower weightings. This concentration in the EURO STOXX 50 and TOPIX indices means that European and Japanese equity market movements will dominate the notes' price behavior throughout the holding period.

Upside Participation Terms and Maximum Cap

If the final basket level on the determination date—August 23, 2027, subject to postponement—is greater than the initial basket level of 100, investors will receive positive returns calculated at 150% of the basket return. This means investors participate at one and one-half times the percentage increase in the basket level, providing leveraged upside exposure. However, this upside participation is subject to a maximum settlement amount of $1,357.75 per $1,000 principal amount of notes. The estimated initial value of the notes, as determined by Bank of Montreal as of the trade date, was $973.90 per $1,000 principal amount, which is less than the original issue price, indicating the market value incorporated the risks and feature limitations of the structured product.

The cap level is set at 123.85, equal to 123.85% of the initial basket level. Once the final basket level reaches or exceeds this cap level, investors receive the maximum settlement amount of $1,357.75 regardless of how much further the basket appreciates beyond that threshold. This capping mechanism limits the investor's potential gains while allowing Bank of Montreal to manage its hedging costs and risk exposure. For investors seeking full participation in strong international equity market rallies, this cap represents a meaningful constraint on potential returns.

Downside Risk and Principal Loss Exposure

The notes offer no protection against negative basket returns. If the final basket level falls below the initial basket level of 100, investors face dollar-for-dollar loss of principal. The filing states explicitly that "you will lose 1% of the principal amount of your notes for every 1% that the final basket level has declined below the initial basket level." This means if the basket declines by 20%, investors lose $200 per $1,000 principal amount. In a severe scenario where the basket declines 100% (a total collapse of all underlying indices), investors would lose the entire principal amount and receive nothing at maturity.

The notes bear no interest during their holding period, so investors receive only the principal repayment amount adjusted for basket performance, with no coupon payments to provide income or cushion against losses. This structure exposes investors to significant downside risk from the trade date of July 23, 2026, through the stated maturity date of August 25, 2027—a period of approximately thirteen months—with no downside hedging or capital protection features built into the security.

Credit Risk and Issuer Obligations

The notes are unsecured obligations of Bank of Montreal, meaning all payments depend entirely on the bank's creditworthiness and ability to meet its obligations. The filing emphasizes that if Bank of Montreal defaults on its obligations under the notes, investors "could lose some or all of your investment." The notes are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada Deposit Insurance Corporation, or any other governmental agency. This lack of insurance coverage distinguishes the notes from traditional bank deposits and places investors in the position of unsecured creditors in the event of Bank of Montreal's financial distress.

The notes are also explicitly not bail-inable notes and are not subject to conversion into common shares of Bank of Montreal or any affiliated entity under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act. This means that in a resolution scenario affecting the bank, investors would not benefit from any automatic conversion to equity, but would instead remain holders of unsecured debt claims on the institution. The combination of unsecured status, lack of government insurance, and no conversion rights means investors bear both the market risk of the underlying indices and the credit risk of Bank of Montreal.

Pricing and Distribution Details

The notes were offered at an original issue price of $1,000 per note, with a total principal amount of $10,278,000 representing 10,278 notes issued. Bank of Montreal received net proceeds of $989.80 per note after deducting an underwriting discount of $10.20 per note. The total underwriting discount across all notes was $104,835.60, with net proceeds to Bank of Montreal totaling $10,173,164.40. The pricing supplement is dated July 23, 2026, the same date as the trade date for determining the initial underlier levels.

BMO Capital Markets Corp., a subsidiary of Bank of Montreal, and Goldman Sachs & Co. LLC served as agents for the distribution of the notes. These underwriters were responsible for marketing and placing the notes with investors. The notes were not registered for listing on any securities exchange and are designed to be held to maturity rather than actively traded in secondary markets, limiting investor liquidity options after purchase.

Tax Considerations and Regulatory Status

The filing indicates that material U.S. federal income tax consequences and Canadian federal income tax consequences apply to ownership and disposition of the notes, with detailed discussion provided in separate sections of the product supplement and prospectus materials. Investors are directed to review "United States Federal Income Tax Considerations" in the pricing supplement and accompanying product supplement documents, as well as "Canadian Federal Income Tax Consequences" sections, for comprehensive tax treatment analysis. The filing does not detail specific tax consequences in the pricing supplement itself but instead references other documents in the registration statement.

The notes were issued pursuant to a registration statement (No. 333-285508) filed with the Securities and Exchange Commission. The pricing supplement was filed as a 424(b)(2) document, indicating it was a post-effective amendment pricing supplement to an already-effective registration statement. Neither the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved of these notes, and the filing includes the standard disclaimer that any representation to the contrary would constitute a criminal offense.

Market Disruption Provisions and Determination Date Mechanics

The determination date, scheduled for August 23, 2027, is subject to postponement if market disruption events occur. The filing specifies that if a market disruption event occurs or is continuing with respect to any basket underlier on the determination date, or if the determination date is not a scheduled trading day, then the determination date for that specific basket underlier will be postponed to the first succeeding scheduled trading day on which a market disruption event for that underlier has not occurred and is not continuing. If that first succeeding trading day has not occurred by the final disrupted determination date for that underlier, the final disrupted determination date will be deemed to be the determination date for purposes of calculating the final underlier level.

This postponement mechanism protects investors and Bank of Montreal from having final valuations occur during periods of market dysfunction. However, investors should note that if market disruptions are sustained and widespread, determination dates could be substantially delayed. The stated maturity date of August 25, 2027, is also subject to postponement under the same circumstances. The calculation agent, BMO Capital Markets Corp., will be responsible for determining the final basket level and calculating the cash settlement amount based on the final underlier levels for each index on the determination date.

Investment Comparison and Estimated Initial Value

Bank of Montreal estimated the initial value of the notes as of the trade date at $973.90 per $1,000 principal amount, representing approximately 97.39% of the original issue price. The filing explicitly notes that this estimated initial value is less than the original issue price and that the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy. The difference between the original issue price of $1,000 and the estimated initial value of $973.90 reflects the costs associated with structuring, distributing, and hedging the notes, as well as the market's assessment of the value of the various embedded derivatives and risk factors.

This pricing structure means investors immediately face a marked-to-market loss if they were to sell the notes in a secondary market shortly after issuance. The initial estimated value reflects the cost of the leverage feature (150% upside participation), the cap on upside returns ($1,357.75 maximum), the full downside exposure, the lack of interest payments, and the credit risk of Bank of Montreal as issuer. Investors considering purchase should recognize that the structured features and embedded derivatives reduce the fair value relative to the principal amount investors pay at issuance.

Risk Factors and Suitability Considerations

The filing states that the notes involve risks not associated with conventional debt securities and directs investors to review detailed risk discussion beginning on page PS-12 of the pricing supplement and continuing in the accompanying product supplement, prospectus supplement, and prospectus. These risks include, but are not limited to, the possibility of substantial or total loss of principal, the leverage effect on downside returns, the concentration of the basket in two indices (EURO STOXX 50 and TOPIX) representing 65% of the basket weighting, and the absence of interest payments or coupon during the holding period.

Additional risks implicit in the structure include currency risk (if the indices are not all in the same currency), the risk that the cap level of 123.85 may be reached quickly in a strong market rally leaving investors with capped returns, and the risk that all five indices move in the same direction, preventing diversification benefits. The leveraged upside participation at 150% amplifies gains in rising markets but does not protect against downside losses, creating asymmetric risk exposure. Investors should evaluate whether their investment objectives, risk tolerance, time horizon, and overall portfolio composition align with the specific terms of these basket-linked notes.