Bank of Montreal Issues $28.4 Million Capped Leveraged Russell 2000 Index-Linked Notes Due August 2027

Structured Product Terms and Index Linkage

Bank of Montreal's newly issued notes establish a direct performance link to the Russell 2000 Index, measured from the trade date of July 23, 2026 to the determination date of August 23, 2027. The initial underlier level was fixed at 2,940.163, representing the closing level of the Russell 2000 Index on the trade date. This one-year structured product provides investors with exposure to small-capitalization equity market performance through a leveraged and capped payoff mechanism.

The notes do not bear periodic interest payments, instead delivering returns solely through appreciation or depreciation of the underlying index. Investors must hold the instruments to maturity, as the notes are not listed on any securities exchange and are specifically designed for buy-and-hold investment strategies. The calculation agent for the notes is BMO Capital Markets Corp., the distribution agent responsible for determining final payoff amounts based on the Russell 2000 Index closing level on August 23, 2027.

Upside Participation and Maximum Return Cap Structure

The notes incorporate a 150% upside participation rate, meaning positive returns on the Russell 2000 Index are magnified by 50% for noteholders. If the index rises above the initial level of 2,940.163, investors receive $1,000 principal plus the product of $1,000 multiplied by 150% multiplied by the percentage return of the index, subject to a maximum settlement amount. This leveraged participation structure provides enhanced exposure to index gains during favorable market conditions.

However, the upside is strictly capped at $1,267.75 per $1,000 principal amount of notes, corresponding to a cap level of 3,464.9820955 on the Russell 2000 Index, or 117.85% above the initial underlier level. This cap represents a limitation on maximum gains, preventing investors from capturing the full benefit of index rallies exceeding approximately 17.85%. The cap level effectively restricts profit potential even if the Russell 2000 Index experiences substantial appreciation during the one-year holding period.

Downside Risk and Principal Loss Exposure

The notes expose investors to full downside losses with no capital protection. If the final underlier level on August 23, 2027 is equal to or below the initial level of 2,940.163, investors lose 1% of principal for every 1% decline in the index. The disclosure explicitly states that investors could lose some or all of the principal amount of the notes. Unlike conventional bonds, these structured products offer no floor on losses and provide no guaranteed recovery of investment if index performance turns negative.

The cash settlement amount calculation demonstrates the asymmetric risk profile inherent in these instruments. For every 1% decline in the Russell 2000 Index from the trade date level, noteholders receive $990 per $1,000 principal (a 1% loss), with losses compounding as the index falls further. An index decline of 50% would theoretically result in zero recovery of principal. This downside structure makes the notes unsuitable for investors requiring capital preservation or seeking conventional fixed-income characteristics.

Valuation and Initial Market Pricing

Bank of Montreal priced the notes at $1,000 per $1,000 principal amount, with an underwriting discount of $13.60 per note, generating net proceeds to the issuer of $986.40 per note. The total offering raised $28.4 million in gross proceeds with $386,280.80 retained as underwriting compensation, leaving net proceeds to Bank of Montreal of approximately $28.02 million. The company did not disclose alternative pricing methodologies or comparative valuation benchmarks in the filing.

The estimated initial value of the notes determined by Bank of Montreal as of the trade date was $985.37 per $1,000 principal amount, representing a value less than the original $1,000 issue price. This discrepancy of approximately $14.63 per note reflects the theoretical impact of the embedded options inherent in the structured product design. The filing acknowledges that the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy, limiting investor reliance on any single valuation estimate.

Issuer Credit Risk and Unsecured Status

All payments on the notes are subject to the credit risk of Bank of Montreal, as the notes constitute unsecured obligations of the issuer. The filing emphasizes that if Bank of Montreal defaults on its obligations, investors could lose some or all of their 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, leaving investors with direct exposure to Bank of Montreal's creditworthiness as the sole recourse for repayment.

The notes are explicitly not bail-inable notes and are not subject to conversion into Bank of Montreal common shares or the common shares of any affiliates under the Canada Deposit Insurance Corporation Act. This non-convertible feature means investors have no equity participation rights or conversion optionality to mitigate credit risk through equity upside. Investors must evaluate Bank of Montreal's credit quality and financial stability as material considerations, since issuer default would eliminate recovery of both principal and any accrued returns.

Tax Considerations and Regulatory Compliance

The notes involve material United States federal income tax consequences that investors must carefully review prior to purchase. Bank of Montreal disclosed that tax treatment is addressed in detail within the product supplement and prospectus documents dated March 25, 2025, and incorporated by reference into this pricing supplement. The filing recommends that investors consult the product supplement for comprehensive discussion of potential tax implications, including characterization of the notes for ordinary income treatment and treatment of gains or losses upon disposition.

The notes also involve Canadian federal income tax consequences relevant to Canadian investors or Bank of Montreal itself, with detailed analysis provided in the accompanying product supplement. Investors must consider the interaction between United States and Canadian tax regimes if applicable to their jurisdiction. The filing notes that to the extent disclosure in the pricing supplement is inconsistent with disclosure in the product supplement, underlying supplement, prospectus supplement, or prospectus, the disclosure in the pricing supplement will control, establishing a clear hierarchy of document priority for interpretation purposes.

Market Disruption Provisions and Maturity Adjustments

The determination date of August 23, 2027 is subject to postponement if non-scheduled trading days occur or a market disruption event affects the Russell 2000 Index on the scheduled date. Similarly, the stated maturity date of August 25, 2027 will be postponed if the determination date is postponed and will be adjusted for non-business days. The filing directs investors to detailed provisions in the product supplement for specific circumstances that constitute market disruption events and the mechanics of date postponement.

Market disruption provisions protect noteholders by ensuring that index closing levels are determined on a day with normal trading conditions, preventing settlement calculations based on artificially distorted market data. The filing does not specify the maximum period of potential postponement or circumstances under which the determination date might be extended indefinitely. Investors should review the detailed product supplement provisions to understand potential timing risks and the impact of extended determination periods on investment returns.

Investment Suitability and Risk Profile Summary

These notes represent a complex structured product with leverage, downside risk, and performance capping characteristics that differ substantially from conventional debt or equity investments. The 150% upside participation rate combined with full downside loss exposure creates an asymmetric return profile suitable only for investors with sophisticated understanding of derivative instruments and index-linked products. The notes are designed for buy-and-hold investors who anticipate moderate appreciation in the Russell 2000 Index and can tolerate complete loss of principal if the index declines.

The combination of the leveraged upside, capped maximum return, and uncapped downside loss distinguishes these notes from traditional fixed-income securities. Investors comparing this product to alternatives should evaluate the opportunity cost of the capped return structure against the downside risk exposure. The filing identifies that the notes involve risks not associated with conventional debt securities, with detailed risk factor analysis provided in the accompanying product and prospectus supplements effective as of March 25, 2025.

Distribution and Secondary Market Considerations

BMO Capital Markets Corp., a subsidiary of Bank of Montreal, serves as the agent for distribution of the notes, receiving the $13.60 per note underwriting discount. The notes are not listed on any securities exchange and are designed to be held to maturity, creating an illiquid investment vehicle without active secondary market trading. This absence of secondary market liquidity means investors cannot readily exit positions prior to maturity and must commit capital for the full one-year holding period.

The lack of exchange listing and secondary trading activity differentiates these notes from publicly traded structured products and creates potential complications for investors seeking early exit. The principal amount denominations are $1,000 and any integral multiple of $1,000, with CUSIP 06376LP42 and ISIN US06376LP425 assigned for identification purposes. Investors should verify the exact CUSIP and ISIN prior to purchase to ensure proper identification of the specific tranche and avoid confusion with other Bank of Montreal structured product offerings.