Bank of Montreal Issues $9.6 Million Autocallable Notes Linked to S&P 500 and Russell 2000 Indexes

Structured Product Design and Contingent Coupon Mechanics

Bank of Montreal's newly issued Senior Medium-Term Notes, Series K, employ a structured product design that combines autocallable features with contingent coupon payments. The notes are linked to two reference assets: the S&P 500 Index with an initial level of 7,408.30 and the Russell 2000 Index with an initial level of 2,940.163. Contingent coupons of 2.70% per quarter will be paid on scheduled dates beginning October 28, 2026, but only if both reference assets close at or above their respective coupon barrier levels on the applicable observation dates.

The coupon barrier level for both indexes is set at 70% of the initial level—5,185.81 for the S&P 500 and 2,058.114 for the Russell 2000. This structure means that if either index closes below its barrier level on any observation date, no coupon payment will be made for that quarter. The contingent nature of the coupons introduces variability in investor returns and requires ongoing monitoring of index levels throughout the one-year holding period. Observation dates are scheduled three trading days prior to each quarterly coupon payment date.

Automatic Redemption Feature and Early Call Risk

The notes incorporate an automatic redemption (autocall) feature that significantly affects the investment profile. Beginning October 23, 2026, on any observation date where both reference assets close above their respective call levels (also set at their initial levels), the notes will be automatically redeemed without investor consent. Once this occurs, investors will receive their principal amount plus any contingent coupon otherwise due on the call settlement date, and no additional payments will be made under the notes.

This autocall feature creates a capped return scenario for investors, as they will be forced to exit the position if the underlying indexes perform strongly. Investors cannot benefit from any appreciation beyond the initial levels once the automatic redemption is triggered. The call settlement date is defined as the contingent coupon payment date immediately following the relevant observation date. Investors must be willing to accept redemption at any point from October 28, 2026 forward if market conditions trigger the automatic redemption provision.

Principal at Risk and Trigger Event Mechanics

Unlike traditional debt securities, these notes do not guarantee return of principal at maturity. The final payment depends on whether a trigger event occurs during the monitoring period, which runs from the pricing date (July 23, 2026) through the valuation date (July 23, 2027). A trigger event is deemed to occur if the closing level of either the S&P 500 or Russell 2000 falls below its trigger level (70% of initial level) on any trading day during this period.

If a trigger event has occurred and the final level of the least performing reference asset is below its initial level at maturity, investors will suffer a one-to-one loss. Specifically, they will lose 1% of principal for each 1% decline in the least performing index. For example, if the Russell 2000 declines 15% from its initial level to its final level, and it is the least performing of the two indexes, investors would receive $850 per $1,000 principal amount (plus any final contingent coupon if payable). The filing states that the payment at maturity may be zero under severe market declines.

Offering Details and Pricing Information

The notes were issued in minimum denominations of $1,000 and integral multiples thereof, with a total principal amount of $9,588,000. The pricing date was July 23, 2026, and the settlement date was July 28, 2026. The notes will mature on July 28, 2027, providing investors with a one-year investment horizon. The valuation date, on which the final index levels will be determined for maturity payments, is set for July 23, 2027.

Bank of Montreal established the public offering price at 100% of principal amount, meaning investors paid $1,000 per $1,000 in principal amount. The agent's commission on the offering was 0.375%, with proceeds to Bank of Montreal of 99.625% of the principal amount, or $9,552,045 in aggregate. The filing notes that certain dealers who purchased notes for sale to fee-based advisory accounts may have foregone selling concessions, with those investors purchasing at prices between $996.25 and $1,000 per $1,000 principal amount. Bank of Montreal or its affiliates will also pay referral fees to certain dealers of up to 0.35% of principal amount.

Valuation and Initial Estimated Value

Bank of Montreal provided an estimated initial value for the notes of $985.34 per $1,000 in principal amount based on the terms set forth in the offering. This valuation represents a discount to the $1,000 public offering price and reflects the value of the embedded options and the contingent nature of the coupons. The filing emphasizes that this estimated value is based on specific assumptions and market conditions as of the pricing date, and the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy.

The discount between the offering price and estimated value indicates the cost embedded in the structured product for the optional features and contingent coupon structure. Investors should understand that their notes may trade at a significant discount to par value in secondary markets, particularly if market conditions change or if early unwinding becomes desirable. The notes will not be listed on any securities exchange, limiting liquidity and secondary market trading opportunities.

Credit Risk and Issuer Obligations

All payments on the notes are subject to the credit risk of Bank of Montreal. The notes are unsecured obligations of the bank, meaning they are not backed by any collateral and rank accordingly in the issuer's capital structure. The filing explicitly states that the notes are not savings accounts or deposits insured by the United States Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada Deposit Insurance Corporation, or any other governmental agency or instrumentality. This means investors bear the full credit risk associated with Bank of Montreal's financial condition.

Bank of Montreal's subsidiary, BMO Capital Markets Corp., serves as the agent for the offering and was responsible for pricing and distributing the notes. The agency relationship creates a potential conflict of interest, as disclosed in the prospectus supplement. The issuer has indicated that aggregate amounts reflected in agent's commission and proceeds figures represent amounts at the time Bank of Montreal established its hedge positions on or prior to the pricing date, which may have been variable and fluctuated depending on market conditions at such times.

Conversion and CDIC Treatment

The filing explicitly states that the notes will not be subject to conversion into Bank of Montreal's common shares or the common shares of any of its affiliates under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act (the CDIC Act). This provision clarifies that holders of these notes will not have their securities converted to equity shares in any bailout or restructuring scenario involving CDIC intervention. The notes are pure debt instruments without embedded equity conversion rights, regardless of the issuer's financial condition.

Risk Considerations and Investment Suitability

The prospectus supplement emphasizes that investing in the notes involves substantial risks. The filing directs investors to detailed risk factor disclosures beginning on page P-5 of the pricing supplement, page PS-6 of the product supplement, and page S-1 of the prospectus supplement. Key risks include the contingent nature of coupon payments, the lack of principal guarantee, the possibility of automatic redemption limiting upside participation, and the inability to directly participate in index appreciation beyond the call levels.

The filing states that investors should be willing to lose some or all of their principal at maturity, willing to have notes automatically redeemed prior to maturity, and willing to forego any potential to participate in any increase in the level of the reference assets. The structure is designed for specific investor profiles seeking quarterly income in exchange for accepting these limitations. Market participants should review all risk disclosures and consult financial advisors to determine whether this structured product aligns with their investment objectives and risk tolerance.

Reference Assets and Index Selection

The notes are linked to two major equity market indexes: the S&P 500 Index (ticker SPX) and the Russell 2000 Index (ticker RTY). The S&P 500 Index consists of 500 large-capitalization U.S. stocks and represents the broader large-cap market. The Russell 2000 Index comprises 2,000 small-capitalization U.S. stocks and represents the small-cap market segment. The selection of both a large-cap and small-cap index creates different market dynamics, as the Russell 2000 historically exhibits greater volatility than the S&P 500.

The filing notes that investing in the notes is not equivalent to a hypothetical direct investment in the reference assets. Because the notes are linked to the least performing of the two indexes for maturity payoff calculations, performance will be determined by whichever index performs worse. This means that even if one index performs strongly, investors' returns will be constrained by the weaker performer. The dual-index linkage structure creates correlation risk between the two indexes, and investors should understand how these indexes historically move together or apart during various market regimes.

Regulatory Status and Compliance

The prospectus supplement and pricing supplement confirm that neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy of the offering documents. The filing includes a standard representation that any contrary representation is a criminal offense. Bank of Montreal emphasizes through regulatory disclaimers that the notes are not insured deposits and are unsecured obligations subject to issuer credit risk.

The notes were registered under Registration Statement No. 333-285508 and filed pursuant to Rule 424(b)(2) as a pricing supplement to documents filed on March 25, 2025. The offering complies with SEC disclosure requirements for structured debt products. Investors should review all prospectus materials carefully and ensure they understand the complete terms before investing, as these structured products involve complexities not present in traditional fixed-income securities.