Bank of Montreal Issues $1.72 Million Autocallable Notes Linked to Morgan Stanley and Micron Technology Stock Performance

Autocallable Structure and Early Redemption Mechanics

The notes incorporate an autocallable feature that allows for automatic early redemption beginning October 27, 2026. Under this structure, if the closing level of both Morgan Stanley and Micron Technology common stock exceeds 80% of their respective initial levels on any monthly observation date, the notes will be automatically redeemed on the following contingent coupon payment date. Upon automatic redemption, investors receive their full principal amount plus any contingent coupons otherwise due, and no further payments are made. This means investors who purchase the notes could see their investment terminated well before the July 31, 2028 maturity date, limiting their ability to capture additional returns should the reference assets appreciate further.

The automatic redemption feature represents a structural trade-off inherent in the product design. While it provides certainty of full principal recovery if both stocks remain above the specified thresholds, it simultaneously caps the upside potential for note holders. Investors who believe Morgan Stanley or Micron Technology stock prices will appreciate significantly above current levels may find their notes called away, preventing participation in gains beyond the initial coupon payments received. The initial levels for the reference assets were $215.18 for Morgan Stanley common stock and $990.21 for Micron Technology common stock, as established on the pricing date.

Contingent Coupon Payments and Memory Feature

The notes are designed to pay contingent monthly coupons at a rate of 2.375% per month, equivalent to approximately 28.50% per annum, provided that both reference assets remain above their coupon barrier levels on the relevant observation dates. Each contingent coupon payment, if paid, equals $23.75 per $1,000 in principal amount. However, the payment of these coupons is contingent on performance conditions, meaning if either Morgan Stanley or Micron Technology stock closes below 50% of its initial level on any observation date (the coupon barrier level), no contingent coupon is paid for that period. The coupon barrier level for Morgan Stanley is $107.59, and for Micron Technology is $495.11.

The notes incorporate a memory coupon feature that provides some protection against missed payments. If a contingent coupon is not paid in any given month because one or both reference assets fell below their coupon barrier levels, the unpaid coupon accrues and becomes payable on a later contingent coupon payment date, provided both reference assets subsequently trade at or above their coupon barrier levels on that later observation date. This means investors may receive accumulated back payments from prior periods. However, the filing indicates that if either reference asset remains below its coupon barrier level on every observation date throughout the note term, investors will receive no contingent coupons at all.

Principal Risk and Trigger Event Provisions

The notes explicitly do not guarantee return of principal at maturity. Instead, the payment at maturity depends on whether a "Trigger Event" occurs. A Trigger Event is defined as the final level of either reference asset falling below its trigger level—which is 50% of the initial level for both Morgan Stanley ($107.59) and Micron Technology ($495.11)—as measured on the valuation date of July 26, 2028. If the notes are not automatically redeemed prior to maturity and a Trigger Event has not occurred, investors receive their full principal amount of $1,000 per $1,000 in principal amount.

If a Trigger Event does occur, investors will receive either shares of the least performing reference asset (the reference asset that declined the most from its initial level) or, at Bank of Montreal's election, a cash equivalent in place of principal. The value of this physical or cash delivery decreases by 1% for each 1% that the least performing reference asset has declined from its initial level. This means if the least performing stock declines 20% from its initial level, the payment would be only $800 per $1,000 in principal amount. The filing notes that any fractional shares in a physical delivery will be paid in cash. This structure creates the potential for investors to lose a significant portion or even all of their principal investment if the least performing reference asset experiences substantial losses.

Pricing Terms and Investor Economics

The notes were offered to the public at 100% of their $1,000 principal amount per note, meaning investors paid the full face value. BMO Capital Markets, a subsidiary of Bank of Montreal, earned a 3.00% agent's commission, or $51,660, on the aggregate offering amount of $1,722,000. Bank of Montreal received proceeds of $1,670,340, representing 97% of the offering amount. Certain dealers who sold notes through fee-based advisory accounts may have reduced or eliminated their selling concessions, with investors in those accounts purchasing notes at prices between $970.00 and $1,000 per $1,000 in principal amount.

The disclosure notes that the estimated initial value of the notes is $945.25 per $1,000 in principal amount on the pricing date, based on the disclosed terms. This suggests that the value embedded in the product structure is meaningfully below the 100% public offering price, reflecting the costs of the embedded options, the credit spread, and other structural components. The filing cautions that actual value at any point in time will reflect many factors and cannot be predicted with accuracy, underscoring the complexity of valuing these derivative-linked instruments.

Credit Risk and Unsecured Status

The notes are unsecured obligations of Bank of Montreal and are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada Deposit Insurance Corporation, or any other governmental agency or instrumentary. This means investors bear the full credit risk of Bank of Montreal. If Bank of Montreal were to face financial distress or fail, investors would have claims only as unsecured creditors and could experience losses even if the underlying reference assets performed well and coupons were otherwise due and payable.

The notes were issued in minimum denominations of $1,000 and integral multiples of $1,000, limiting accessibility to smaller retail investors. The notes will not be listed on any securities exchange, meaning they lack the liquidity of exchange-traded securities and may be difficult to buy or sell in secondary markets. Investors seeking to exit their positions before maturity may face significant bid-ask spreads or be unable to find buyers at favorable prices.

Reference Asset Selection and Correlation Considerations

The notes are linked to the least performing of Morgan Stanley and Micron Technology common stock, meaning the structure creates a "worst-of" payoff at maturity. This feature significantly increases the risk profile compared to notes linked to a single stock or an equally weighted basket. For example, if Morgan Stanley stock performs poorly and Micron Technology stock performs well, investors receive returns based only on the Morgan Stanley performance. This "least performing" linkage means that unless both stocks decline together, the note payoff will be determined by whichever stock experiences the worse performance.

Morgan Stanley (MS) is a major investment banking and financial services firm, while Micron Technology (MU) is a leading semiconductor and memory company. These companies operate in substantially different industries and may respond differently to macroeconomic conditions, interest rate changes, and sector-specific developments. However, both are large-cap stocks subject to market-wide volatility. Investors considering these notes should evaluate the historical and expected future correlation between these two stocks and assess the probability that one or both may decline materially below their coupon barrier levels of 50% or trigger levels of 50% during the note term.

Regulatory Approval and Compliance Status

The filing was made pursuant to Rule 424(b)(2) under the Securities Act of 1933 and includes a pricing supplement dated July 23, 2026, to previously filed prospectuses and product supplements dated March 25, 2025. The note offering is registered under Registration Statement No. 333-285508. The filing includes a standard disclaimer that neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the notes or passed upon the accuracy of the offering documents.

The notes are structured as medium-term notes issued under a registered program and are subject to the terms described in the underlying prospectus and prospectus supplement, as modified and supplemented by the pricing supplement. The filing indicates that selected risk considerations are described in detail in multiple sections of the offering documents, including pages P-5 of the pricing supplement and pages PS-6 and S-1 of the supporting prospectus documents, suggesting investors should review those materials for comprehensive risk disclosure.

Instrument Characteristics and Non-Equivalence to Direct Stock Investment

The disclosure explicitly states that investing in the notes is not equivalent to a direct investment in the reference assets. This is a critical distinction because the notes embed multiple layers of optionality and risk that do not exist in a simple stock purchase. The autocallable feature caps upside, the contingent coupon structure ties income to barrier levels, the trigger event provisions create downside leverage, and the credit risk of Bank of Montreal adds an additional layer of risk separate from equity market risk.

The notes do not provide dividend participation in the reference assets and do not convey voting rights or ownership interests in Morgan Stanley or Micron Technology. Instead, the notes are derivative instruments whose value depends on the pricing of embedded options, the creditworthiness of Bank of Montreal, and the performance of the underlying stocks relative to specified barrier levels. Investors should view these notes as complex structured products requiring careful analysis of the payoff profiles across different market scenarios rather than as equity-like investments.

Minimum Investment Requirements and Distribution Channels

The notes were issued in minimum denominations of $1,000 and integral multiples of $1,000, establishing a baseline investment size for participants. The offering was distributed through BMO Capital Markets and select dealers, including some who offered the notes through fee-based advisory accounts with reduced commissions. This distribution approach suggests the notes may have been targeted primarily at institutional investors and high-net-worth individuals rather than retail investors, though retail participation was permitted.

The filing notes that certain dealers may have foregone some or all of their selling concessions in fee-based advisory accounts, resulting in different pricing for those customers. This pricing variation underscores the importance of comparing purchase prices and understanding the compensation structure when acquiring these notes through different channels. The lack of exchange listing means the secondary market for these notes, if one develops, will likely be limited and may not offer transparent pricing comparable to exchange-traded securities.

Important Disclosures and Valuation Caveats

The offering document emphasizes that the estimated initial value of $945.25 per $1,000 in principal amount is based on the terms set forth and that actual value at any time will reflect many factors and cannot be predicted with accuracy. This cautionary language highlights the complexity involved in pricing these derivative-linked instruments and suggests investors should not rely on the disclosed initial valuation when making investment decisions. Market conditions, volatility, interest rates, and changes in the credit quality of Bank of Montreal all affect note value.

The filing includes cross-references to extensive risk factor disclosures in the underlying prospectuses, indicating that the pricing supplement alone does not contain complete risk disclosure. Investors are expected to review the full prospectus dated March 25, 2025, the prospectus supplement dated March 25, 2025, and the product supplement dated March 25, 2025, in addition to the pricing supplement. These materials collectively provide the legal and structural documentation governing the notes but may not be readily available to all prospective purchasers. The maturity date of July 31, 2028 gives the notes a two-year duration from settlement, making them a medium-term instrument subject to significant market and credit risks during this period.