AMENDED AND RESTATED INFORMATION STATEMENT DATED AUGUST 2, 2016 This Amended and Restated Information Statement (the “Information Statement”) amends and restates and replaces in its entirety the amended and restated information statement of Bank of Montreal dated July 8, 2016 in respect of the Deposit Notes. This Information Statement has been prepared solely for assisting prospective purchasers in making an investment decision with respect to the Deposit Notes. This Information Statement constitutes an offering of these Deposit Notes only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell the Deposit Notes. No securities commission or similar authority in Canada has in any way passed upon the merits of the Deposit Notes offered hereunder and any representation to the contrary is an offence. The Deposit Notes offered under this Information Statement have not been, and will not be, registered under the United States Securities Act of 1933, as amended, or any State securities laws and may not be offered for sale or sold in the United States or to United States persons.
BANK OF MONTREAL VOLATILITY CONTROLLED (6%) GLOBAL DIVERSIFIED INDEX F-CLASS PRINCIPAL PROTECTED DEPOSIT NOTES, SERIES 4 PRICE: $100 PER DEPOSIT NOTE Minimum Subscription: $10,000 (100 Deposit Notes) The Bank of Montreal Volatility Controlled (6%) Global Diversified Index F-Class Principal Protected Deposit Notes, Series 4 (the “Deposit Notes”) issued by Bank of Montreal are a principal protected product that will mature on August 10, 2023 (“Maturity”). The closing of this offering is scheduled to occur on or about August 10, 2016 (the “Closing Date”). At Maturity, a holder will receive the deposit amount of $100 (the “Deposit Amount”) in respect of each of the holder’s Deposit Notes plus a variable return, if any, that will be determined based on the performance of the BMO Volatility Controlled (6%) Global Diversified Index (the “Index”) over the term of the Deposit Notes. The variable return for each Deposit Note at Maturity, if any, will equal $100 multiplied by 230% (the “Participation Rate”) of the percentage change, if positive, in the level of the Index from the Closing Date to and including the fifth (5th) Business Day prior to Maturity. See “Note Program − Variable Return”. BMO Nesbitt Burns Inc. is the selling agent (the “Selling Agent”) and is a wholly-owned subsidiary of Bank of Montreal. Consequently, Bank of Montreal is a related issuer of the Selling Agent under applicable securities legislation. See “Plan of Distribution”. This Information Statement has been prepared for the sole purpose of assisting prospective investors in making an investment decision with respect to the Deposit Notes only. This Information Statement relates only to the Deposit Notes offered hereby and the Index and does not relate to the indices and exchange-traded funds comprising the Index (the “Index Components”) or the sponsors or issuers of such Index Components. Bank of Montreal has taken reasonable care to ensure that the facts in this Information Statement with respect to the description of the Deposit Notes are true and accurate in all material respects. All information in this Information Statement relating to the Index Components and the sponsors or issuers of such Index Components has been obtained from publicly available sources; it is the sole responsibility of such respective sponsors or issuers to ensure the accuracy, reliability and completeness of such information. As such, none of Bank of Montreal, the Selling Agent, the Manager or the Index Calculation Agent assumes any responsibility for the accuracy or completeness of such information or has any obligation or responsibility for the provision of future information in respect of the Index Components or the sponsors or issuers of the Index Components. Bank of Montreal makes no assurances, representations or warranties with respect to the accuracy, reliability or completeness of information obtained from such publicly available sources. Furthermore, Bank of Montreal makes no recommendation concerning the Index, the Index Components, or the sponsors or issuers of the Index Components, equity or debt securities as an asset class or the suitability of investing in securities generally or the Deposit Notes in particular. In connection with the issue and sale of Deposit Notes by Bank of Montreal, no person is authorized to give any information or to make any representation not contained in this Information Statement and Bank of Montreal does not accept any responsibility for any information not contained herein. Investors shall have no recourse against Bank of Montreal, the Selling Agent, the Manager, the Index Calculation Agent or any of their respective affiliates or associates in connection with any
1 information about and/or relating to the Index, the Index Components or the sponsors or issuers of the Index Components. JHN4003
2 TABLE OF CONTENTS
Page
SUMMARY OF THE OFFERING ...... 6 DEFINITIONS ...... 15 NOTE PROGRAM ...... 18 Maturity Payment ...... 18 Variable Return ...... 18 Return Profile and Variable Return Examples ...... 18 SECONDARY MARKET ...... 20 FUNDSERV ...... 20 General Information ...... 21 Deposit Notes Held Through the Custodian ...... 21 Purchase of FundSERV Notes ...... 21 Sale of FundSERV Notes ...... 21 SUITABILITY AND APPROPRIATENESS FOR INVESTMENT ...... 22 DESCRIPTION OF THE DEPOSIT NOTES ...... 22 Offering ...... 22 Maturity Payment ...... 23 Variable Return ...... 23 Rank ...... 23 Settlement of Payments ...... 23 Book-Entry System ...... 24 Global Note ...... 24 Custodian ...... 25 Definitive Deposit Notes ...... 25 Notices to Holders ...... 26 Amendments to the Global Note ...... 26 Investor’s Right to Cancel the Agreement to Purchase a Deposit Note ...... 26 Date of Agreement to Purchase a Deposit Note ...... 26 THE INDEX ...... 26 General Overview ...... 26 Index Composition ...... 27 Calculating the Index and Selecting the Monthly Unique Portfolio ...... 27 FEES AND EXPENSES OF THE OFFERING ...... 29 FEES AND EXPENSES ASSOCIATED WITH THE INDEX ...... 30 RISK FACTORS ...... 30 Suitability of Deposit Notes for Investment ...... 30 Non-Conventional Deposit Notes ...... 30 Variable Return May Not Be Payable ...... 30 Variable Return May Be Limited ...... 30 Risk Factors Relating to the Index and Index Components ...... 30 Secondary Trading of Deposit Notes ...... 32 Legislative, Regulatory and Administrative Changes ...... 32 Conflicts of Interest ...... 33 Credit Rating ...... 33 Credit Risk...... 34 No Deposit Insurance ...... 34 Canadian Investor Protection Fund ...... 34 Special Circumstances ...... 34 No Independent Calculation...... 34 3 No Ownership of the Index or the Index Components ...... 34 CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS ...... 34 Variable Return ...... 35 Disposition of Deposit Notes Prior to October 1, 2016 ...... 35 Disposition of Deposit Notes After September 30, 2016 ...... 36 Eligibility for Investment by Registered Plans ...... 36 PLAN OF DISTRIBUTION ...... 36 ADDITIONAL INFORMATION ...... 37 APPENDIX A BMO VOLATILITY CONTROLLED (6%) GLOBAL DIVERSIFIED INDEX RULES...... A-1 Appendix A Definitions ...... A-1 Index Rules...... A-3 The Index Calculation Agent; Amendment of Index Rules; Limitation of Liability ...... A-5 Annex A ...... A-6 APPENDIX B INDEX COMPONENTS ...... B-1 Description, Composition and Historical Performance of Index Components...... B-1 Risk Factors Relating to Index Components ...... B-17 APPENDIX C SPECIAL CIRCUMSTANCES ...... C-1 Determinations of the Index Calculation Agent and Manager ...... C-1 Discontinuance or Modification of an Index Component that is an Index...... C-1 Potential Adjustment Event...... C-2 Merger Event ...... C-2 Substitution Event ...... C-3 Market Disruption Event...... C-4 Extraordinary Event...... C-5
4 “BMO (M-bar roundel symbol)”, “BMO” and “BMO Capital Markets” are registered trademarks of Bank of Montreal used under license. S&P/TSX 60 Index, S&P 500 Index and S&P/TSX Small Cap Index are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and, in the case of S&P/TSX 60 Index and S&P/TSX Small Cap Index, TSX Inc., and each has been licensed for use by Bank of Montreal and its affiliates. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Bank of Montreal and its affiliates. TSX is a trademark of TSX Inc., and has been licensed for use by SPDJI and Bank of Montreal and its affiliates. Bank of Montreal’s Deposit Notes are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, or TSX Inc. and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of S&P/TSX 60 Index, S&P 500 Index or S&P/TSX Small Cap Index. EURO STOXX 50® Index is the intellectual property (including registered trademarks) of STOXX and/or its licensors, which is used under license. The Deposit Notes are in no way sponsored, endorsed, sold or promoted by STOXX and its licensors and neither STOXX nor its licensors shall have any liability with respect thereto. iShares and all associated trademarks are trademarks of BlackRock Inc. BlackRock Asset Management Canada Limited and BlackRock Fund Advisors have no obligation or liability in connection with the administration, marketing or trading of the Deposit Notes. Neither BlackRock Asset Management Canada Limited nor BlackRock Fund Advisors is responsible for or has participated in the determination of the structuring, timing, pricing or number of Deposit Notes to be issued. Neither BlackRock Asset Management Canada Limited nor BlackRock Fund Advisors has any responsibility or liability with respect to the accuracy, reliability or completeness of any of the information contained in this Information Statement or has any obligation or liability in connection with the administration, marketing or trading of the Deposit Notes. BMO Asset Management Inc. is the manager of each of BMO Aggregate Bond Index ETF, BMO Short Corporate Bond Index ETF and BMO Long Provincial Bond Index ETF. BMO Asset Management Inc. has no obligation or liability in connection with the administration, marketing or trading of the Deposit Notes, is not responsible for and has not participated in the determination of the structuring, timing, pricing or number of Deposit Notes to be issued, has no responsibility or liability with respect to the accuracy, reliability or completeness of any of the information contained in this Information Statement, and has no obligation or liability in connection with the administration, marketing or trading of the Deposit Notes.
AMENDMENT AND RESTATEMENT This Information Statement amends and restates and replaces in its entirety the amended and restated information statement of Bank of Montreal dated July 8, 2016 in respect of the Deposit Notes (the “Prior Information Statement”). The only differences between the Prior Information Statement and this Information Statement are as follows: The name of the Note has been changed from Bank of Montreal Volatility Controlled Global Diversified Index F-Class Principal Protected Deposit Notes, Series 4 to Bank of Montreal Volatility Controlled (6%) Global Diversified Index F-Class Principal Protected Deposit Notes, Series 4. The Start Date has been changed from August 10, 2016 to June 29, 2016. Pages 8, 11, 29, 31 and A-4 have been revised to say that the Index was established on the Start Date and therefore has limited history to evaluate its likely performance. Prospective investors should review this Information Statement carefully prior to making an investment decision with respect to the Deposit Notes.
5 SUMMARY OF THE OFFERING This is a summary of the offering of Deposit Notes under this Information Statement. Please note that this summary is not intended to be a detailed description of the offering and may not contain all the information that a prospective investor may need to make a decision as to whether to purchase any Deposit Notes. For more detailed and complete information prospective investors should please refer to the body of this Information Statement and the appendices thereto. In this summary, “$” refers to Canadian dollars, unless otherwise specified and “BMO Capital Markets” refers to a company owned by Bank of Montreal called BMO Nesbitt Burns Inc. and any of its affiliates.
Issue: Bank of Montreal Volatility Controlled (6%) Global Diversified Index F-Class Principal Protected Deposit Notes, Series 4 (the “Deposit Notes”). Issuer: Bank of Montreal. Subscription Price: The price for each Deposit Note is $100 (the “Deposit Amount”). Minimum Subscription: Investors must invest a minimum of $10,000 (100 Deposit Notes). Bank of Montreal reserves the right to change the minimum investment amount in its sole and absolute discretion. Issue Size: The maximum issue size is $20,000,000. Bank of Montreal reserves the right to change the maximum size in its sole and absolute discretion. Closing Date: The Deposit Notes will be issued on or about August 10, 2016 (the “Closing Date”). Maturity Date: The Deposit Notes will mature on August 10, 2023 (“Maturity” or the “Maturity Date”). The term of the Deposit Notes is approximately 7 years. Offering: This offering has been designed to provide investors with payment at Maturity of (i) the Deposit Amount per Deposit Note, and (ii) an amount of Variable Return (as defined below), if any, based on the performance of the BMO Volatility Controlled (6%) Global Diversified Index (the “Index”) as set out below under “Payment at Maturity”. See “Note Program”. The Deposit Notes are Canadian dollar deposits. All amounts owing on the Deposit Notes will be paid in Canadian dollars. Payment at Maturity: Subject to the occurrence of certain special circumstances, for each Deposit Note held at Maturity, an investor will receive (i) the Deposit Amount, and (ii) a Variable Return, if any, based on the performance of the Index. More specifically, the Variable Return per Deposit Note, if any (the “Variable Return”), is $100.00 multiplied by 230% of the percentage change (if positive) in the level of the Index from the Closing Date to and including the fifth (5th) Business Day prior to Maturity (the “Final Valuation Date”). If the percentage change in the level of the Index measured from the Closing Date to the Final Valuation Date is zero or negative, no Variable Return will be payable on the Deposit Notes. The Variable Return, if any, will reflect dividends and distributions declared and paid on components of the Index and the securities represented in indices included in the Index, net of withholding taxes that would be payable by Bank of Montreal had it received such dividends and distributions. Beneficial holders of Deposit Notes (each a “Holder”) cannot elect to receive any payments prior to Maturity. No Variable Return or distributions will be paid during the term of the Deposit Notes. It is possible that no Variable Return will be payable on the Deposit Notes. See “Note Program – Maturity Payment” and “Note Program – Variable Return”. The Index: The performance of the Index will determine the amount of Variable Return, if any, an investor will receive at Maturity. The Index may change in certain circumstances. See “Special Circumstances” in Appendix C.
6 General Overview The BMO Volatility Controlled (6%) Global Diversified Index (the “Index”) is a proprietary index that is based on the Modern Portfolio Theory approach to asset allocation. This theory suggests how investors can select a portfolio from available assets to maximize expected return for a given amount of risk. Monthly, the Index Calculation Agent constructs an “efficient frontier” from among all hypothetical portfolios of the exchange-traded funds and indices comprising the Index (the “Index Components”) that comply with the rules of the Index (“Eligible Portfolios”). The “efficient frontier” is a set of hypothetical portfolios that offer the highest expected return for a given level of risk. From the Eligible Portfolios, the Index Calculation Agent selects as the Monthly Unique Portfolio the Eligible Portfolio that would have resulted in the highest return over the previous six months with an annualized volatility of 6% or less for the same period. If no Eligible Portfolio meets these criteria, the limit on volatility is increased by 1% (first to 7%, then to 8% and so on) until a Monthly Unique Portfolio that complies with the rules of the Index is found. Daily, the Index Calculation Agent monitors the volatility of the Monthly Unique Portfolio over the previous one-month period and adjusts the exposure of the Index to the Monthly Unique Portfolio to target a 6% annualized volatility. No assurance can be given that this investment strategy will be successful or that the Index will outperform any alternative portfolio or strategy that might be constructed from the Index Components. Furthermore, no assurance can be given that the Index will achieve its target volatility of 6%. The actual realized volatility of the Index may be greater or less than 6%. Index Composition The Index is a notional portfolio that tracks the total return of the underlying investments of a portfolio of four indices and six exchange-traded funds (each a “Securities Component” and collectively the “Securities Components”) and the Canadian overnight repo rate average (the “Cash Component” and, together with the Securities Components, the “Index Components”). The total return of the Index is determined based on the reinvestment of dividends and distributions declared and paid on the Securities Components or the securities represented in Securities Components that are indices, net of withholding taxes that would be payable by Bank of Montreal had it received such dividends or distributions. The Securities Components represent a diverse range of sectors, asset classes and geographic regions. The Cash Component represents the Canadian volume-weighted average cost of overnight funding collateralized with Government of Canada debt instruments. The Index may change in certain circumstances. See “Special Circumstances” in Appendix C. Each Index Component is listed below together with its cap (maximum Weight in the Monthly Unique Portfolio), sector, sector cap, asset class and Bloomberg ticker symbol:
Index Component Sector Index Component Cap Sector Cap Asset Class Bloomberg Ticker S&P/TSX 60 Index 20% Equity Canadian large cap SPTSX60 INDEX equities S&P 500 Index 20% Equity Equities US large cap SPX INDEX 50% equities
OMPONENTS Euro STOXX 50 20% Equity European large cap SX5E INDEX C Index equities
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S&P/TSX Small Cap 20% Equity Canadian small cap SPTSXS INDEX Index equities iShares International 20% Equity International high IDV UP EQUITY Select Dividend ETF dividend paying equities BMO Aggregate 20% Fixed Canadian broad ZAG CT EQUITY Bond Index ETF Income corporate bonds
BMO Short Corporate 20% Fixed Canadian short term ZCS CT EQUITY Bond Index ETF Income Fixed corporate bonds Income BMO Long Provincial 20% Fixed Canadian long term ZPL CT EQUITY Bond Index ETF Income 50% provincial bonds iShares Canadian 20% Fixed Canadian broad XBB CT EQUITY Universe Bond Index Income corporate bonds ETF iShares S&P/TSX 50% Alternative 50% Canadian real estate XRE CT EQUITY Capped REIT Index investment trusts ETF
Canadian Overnight 25% Cash 25% Cash CAONREPO
Repo Rate Average INDEX
OMPONENT C
Further information about the Index Components can be found in Appendix B.
The Index Level
The Index Level on an Index Business Day is the Index Level on the previous Index
Business Day plus the return on the Index since the previous Index Business Day
minus the portion of the annual fee of 2.50% (the “Fee”) that has accrued since the
previous Index Business Day. The Index Level on each Index Business Day will be
reported by BMO Capital Markets at www.bmosp.com.
The Index Calculation Agent is bound by the Index Rules in determining the Index Level and has no discretion in applying the Index Rules to determine the Index Level except in the first five Index Business Days following a Reweighting Date, as set out under “The Index – Calculating the Index and Selecting the Monthly Unique Portfolio – Monthly Selection and Reweighting of the Monthly Unique Portfolio”, and on the occurrence of certain events, as described in Appendix C.
The Index is described as a “notional” or “hypothetical” portfolio of assets because there is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest. The Index merely references certain Index Components, the performance of which will be used as a reference point for calculating the Index Level. The Index was established on the Start Date and therefore has limited history to evaluate its likely performance. Past performance of the Index Components is not indicative of future performance of the Index.
This description is qualified in its entirety by reference to the Index Rules. More details about the Index and the Index Rules, including limitations on the inclusion of the Index Components in the Index and details of the calculation of the Index Level, are set out in “The Index” and in Appendix A. Fees and Expenses of the No fees will be paid out of the proceeds of this offering to BMO Nesbitt Burns Inc. for Offering: its services as selling agent. The Deposit Notes are available only to investors who participate in programs that already charge a fee for the advice they are receiving (for example, dealer sponsored “fee for service” or wrap programs) or pay their advisor an
8
hourly or annual asset based fee rather than commissions on each transaction and who purchase the Deposit Notes in connection with such programs. Fees and Expenses The Index Return used to determine the Variable Return on the Deposit Notes will be Associated with the Index affected by the deduction of an annual fee equal to 2.50% (the “Fee”) in determining the Index Level (see Appendix A). Listing and Secondary The Deposit Notes will not be listed on any stock exchange or marketplace. Moreover, Market: Bank of Montreal does not have the right to redeem (that is, buy or repay) the Deposit Notes prior to Maturity and Holders do not have the right to require Bank of Montreal to redeem the Deposit Notes prior to Maturity. However, BMO Capital Markets will use reasonable efforts, under normal market conditions, to arrange for a secondary market for the sale of Deposit Notes through the order entry system operated by FundSERV, but reserves the right to elect not to do so in the future, in its sole and absolute discretion, without prior notice to Holders. This secondary market is available only for Deposit Notes purchased using the FundSERV network and is the only way that Holders can sell their Deposit Notes prior to Maturity. The sale of Deposit Notes using the FundSERV network carries certain restrictions, including selling procedures that require an irrevocable sale order to be initiated at a price that will not be known prior to placing such sale order. The price that BMO Capital Markets will pay to a Holder prior to Maturity will be determined by BMO Capital Markets, acting in its sole discretion, and will be based on factors described under “Secondary Market”. The relationship among these factors is complex and may also be influenced by various political, economic and other factors that can affect the secondary market price of a Deposit Note. In particular, Holders should realize that any trading price for the Deposit Notes (a) may have a non-linear sensitivity to the increases and decreases in the Index Level (i.e., the trading price of a Deposit Note will increase and decrease at a different rate compared to the percentage increases and decreases in the Index Level); and (b) may be substantially affected by changes in interest rates independent of the performance of the Index. If a Holder sells such Holder’s Deposit Notes prior to Maturity, such Holder may receive less than the Deposit Amount even if the performance of the Index has been positive, and as a result, such Holder may suffer losses. No Early Trading Charge will apply to the sale of a Deposit Note at any time after the closing of the Offering. BMO Capital Markets is under no obligation to facilitate or arrange for a secondary market, and such secondary market, if commenced, may be suspended at any time at the sole discretion of BMO Capital Markets, without notice to you. If there is no secondary market, a Holder will not be able to sell such Holder’s Deposit Notes. The Deposit Notes are intended to be instruments held to Maturity with their principal being payable on the Maturity Date. A Holder should consult such Holder’s financial advisor on whether it would be more favourable in the circumstances at any time to sell the Deposit Notes on the secondary market, if available, or hold the Deposit Notes until Maturity. A Holder should also consult such Holder’s tax advisor as to the income tax consequences arising from a sale of the Deposit Notes prior to Maturity as compared to holding the Deposit Notes until Maturity. See “FundSERV” and “Secondary Market”. Suitability and The Deposit Notes may be a suitable and appropriate investment for investors who are Appropriateness for prepared to: Investment: invest for the mid to long-term; receive the Deposit Amount only at Maturity; receive a return, if any, at Maturity that (i) is based on the performance of the Index and is not based on a fixed, floating or other specified interest rate, (ii) is uncertain until the Final Valuation Date, and (iii) may be zero;
9 obtain exposure to the Index Components that may be limited by the constraints imposed by the rules of the Index and whose performance may not match the performance of a direct investment in the Index Components or any alternative portfolio or strategy that might be constructed from the Index Components; and accept the risks described in this Information Statement, including the risks associated with the performance of the Index. A prospective investor should make a decision to invest in the Deposit Notes after carefully considering, with such prospective investor’s advisors, the suitability of this investment in light of such prospective investor’s investment objectives and the information in this Information Statement. See “Suitability and Appropriateness for Investment”. Risk Factors: These Deposit Notes may not be suitable for all investors and in deciding whether to invest in Deposit Notes prospective investors should take into account various risks associated with such an investment. The following is a summary list of these risks in addition to those described beside the headings “Suitability and Appropriateness for Investment” above and “Consequences of Special Circumstances” below. For a complete description of these risks, please see “Risk Factors” in this Information Statement. Non-Conventional Deposit Notes The Deposit Notes are not conventional instruments or debt securities in that they do not provide a Holder with a return or income stream prior to Maturity, or a return at Maturity, that is calculated wholly by reference to a specific fixed or floating rate of interest that can be determined prior to the Final Valuation Date. The return on the Deposit Notes, unlike that on many deposit liabilities of Canadian chartered banks, is uncertain and the Deposit Notes could provide no return. Variable Return May Not Be Payable Holders may not receive a Variable Return on their Deposit Notes. Whether Holders receive a Variable Return, and if so, how much of a Variable Return, will depend on the performance of the Index as described beside “Payment at Maturity”, above. Variable Return May Be Limited Since the Variable Return for each Deposit Note, if any, will equal $100 multiplied by 230% of the percentage change, if positive, in the Index Level from the Closing Date to and including the Final Valuation Date, a Holder’s exposure under the Deposit Notes to the Index is not the same as an investment in the Index or the Index Components and therefore the Variable Return that may be payable at Maturity may be less than the return realized from a direct investment in the Index or the Index Components. Risk Factors Relating to the Index and the Index Components The Variable Return, if any, payable on the Deposit Notes is based on the performance of the Index. Accordingly, certain risk factors applicable to investors who invest directly in the Index or the Index Components are also applicable to an investment in the Deposit Notes to the extent that such risk factors could adversely affect the performance of the Index. The Index follows a proprietary strategy that operates on the basis of the Index Rules. No assurance can be given that the investment strategy on which the Index is based will be successful or that such Index will outperform any alternative strategy that might be employed in respect of the Index Components. Furthermore, no assurance can be given that the Index will achieve its target volatility of 6%. Accordingly, potential investors in the Deposit Notes should determine whether the Index Rules are
10 appropriate in light of their individual circumstances and investment objectives. The Index was established on the Start Date and therefore has limited history to evaluate its likely performance. Past performance of the Index Components is not indicative of future performance of the Index. The Index is a notional portfolio of assets. Consequently, Holders of the Deposit Notes will not have any claim against any of the reference assets which comprise that Index. Holders should also recognize that the BMO Capital Markets, as the Sponsor of the Index, has no obligations relating to the Deposit Notes or to Holders. Holders should recognize that it is impossible to know whether the Index Level at any time will rise or fall. The performance of the Index is dependent on the performance of the 11 Index Components (being the 10 Securities Components and the Cash Component) and their underlying securities. A decrease in the price of the Index Components will adversely affect the Index and may affect the Deposit Notes. Furthermore, increases in the value of some of the Index Components may be offset by declines in the level of other Index Components. These factors are beyond the control of Bank of Montreal. Historical price levels of the Index Components should not be considered as an indication of the future performance of the Index Components or the Index. None of Bank of Montreal, BMO Capital Markets or their respective affiliates or associates have performed any due diligence investigation or review of any of the Index Components or the sponsors or issuers, as the case may be, of the Index Components. Any information relating to the Index Components or their sponsors or issuers was derived from and based solely upon publicly available sources and its accuracy cannot be guaranteed. The Index Calculation Agent is bound by the Index Rules in determining the Index Level and, except on the occurrence of certain events, as described in Appendix C, has no discretion in applying the Index Rules to determine the Weights to be applied to the Index Components on each Reweighting Date or, subject to limited discretion to base the Index Level on the previous month’s Monthly Unique Portfolio for up to five Index Business Days after a Reweighting Date, to change the exposure of the Index to the Monthly Unique Portfolio on each Index Business Day between Reweighting Dates. However, the Index Rules confer on the Index Calculation Agent limited discretion in making certain determinations and calculations from time to time. In addition, the Index Calculation may have to take steps to resolve ambiguities in the Index Rules, including, if necessary, amending the Index Rules. While the Index Calculation Agent will act in good faith and in a commercially reasonable manner with respect to the performance of its obligations and the exercise of its discretion pursuant to the Index Rules, the exercise of such discretion in the making of calculations and determinations may adversely affect the performance of the Index. All determinations of the Index Calculation Agent in respect of the Index shall be final, conclusive and binding and no person shall be entitled to make any claim in respect thereof against the Index Calculation Agent, any of its affiliates or any of their respective directors, officers, employees, representatives, delegates or agents. This is not a complete description of the risks applicable to the Index, the Index Components or the sponsors or issuers of the Index Components. For a description of the risks applicable to the Index Components and their sponsors or issuers, an investor should consult the publicly available disclosure documents available at the websites set out in Appendix B. Information about the Index can be found in Appendix A. Secondary Trading of Deposit Notes There is currently no market through which the Deposit Notes may be sold and it is possible that no such market will be arranged. Sale of a Deposit Note prior to Maturity may result in a loss even if the performance of the Index has been positive.
11 Legislative, Regulatory and Administrative Changes Changes in laws, regulations or administrative practices, including with respect to taxation, could have an impact on Holders. Conflicts of Interest In the course of normal business operations, Bank of Montreal and BMO Capital Markets may hold interests linked to the Index Components or enter into other business dealings with respect to these Index Components. In addition, BMO Capital Markets, which has undertaken to use reasonable efforts to provide a secondary market, is an affiliate of Bank of Montreal. Conflicts may also arise because Bank of Montreal may engage in trading activities related to the Index Components that are not for the account of Holders or on their behalf which may present a conflict between the Holders’ interest in the Deposit Notes and the interests that Bank of Montreal will have in their proprietary accounts in facilitating transactions. Such trading activities could be adverse to the interests of the Holders. Subsidiaries of Bank of Montreal have published, and in the future expect to publish, research reports with respect to some or all of the Index Components. This research is modified from time to time and may express opinions or provide recommendations that are inconsistent with purchasing or holding the Deposit Notes. If Bank of Montreal or BMO Capital Markets take any such actions, Bank of Montreal and BMO Capital Markets will not necessarily take into account the effect, if any, that such actions could have on the Deposit Notes or the Variable Return that may be payable on the Deposit Notes. BMO Capital Markets, an affiliate of Bank of Montreal, acts as the Index Calculation Agent and is responsible for calculating and maintaining the Index and developing the guidelines and policies governing its composition and calculation. The Index Calculation Agent has limited discretion in making certain determinations and calculations in respect of the Index from time to time. The Index Calculation Agent may also amend the rules governing the Index in certain circumstances. While the Index Calculation Agent will act in good faith and in a commercially reasonable manner with respect to the performance of its obligations and the exercise of its discretion pursuant to the Index Rules, the policies and judgments for which the Index Calculation Agent is responsible could have an impact, positive or negative, on the Index Level and the value of the Deposit Notes. The Index Calculation Agent has no obligation to consider a Holder’s interests in taking any actions that might affect the value of the Deposit Notes. BMO Asset Management Inc., an affiliate of Bank of Montreal, manages and administers three of the Securities Components. BMO Asset Management Inc. will have no obligation to consider a Holder’s interests in taking any actions that might affect the value of the Deposit Notes. Credit Rating There is no assurance that the Deposit Notes, if rated, would receive the same rating as other deposit liabilities of Bank of Montreal. Credit Risk The likelihood that a Holder will receive all the payments owing under the Deposit Notes will depend on the financial health and creditworthiness of Bank of Montreal. No Deposit Insurance Unlike conventional bank deposits, the Deposit Notes are not insured under the Canada Deposit Insurance Corporation Act or any other deposit insurance regime designed to ensure that depositors receive payment of all or a portion of their deposits if the deposit taking financial institution becomes insolvent.
12
Canadian Investor Protection Fund There is no assurance that an investment in the Deposit Notes will be eligible for protection under the Canadian Investor Protection Fund. No Independent Calculation Bank of Montreal has no obligation to retain an independent person to make or confirm the determinations and calculations made for the Deposit Notes. No Ownership of the Index or the Index Components Holders will have no rights of ownership in the Index or any Index Components. The Deposit Notes do not represent a substitute for an investment in the Index or the Index Components. Consequences of Special In certain circumstances, BMO Capital Markets may, as it determines appropriate, (i) Circumstances: adjust the components or variables in calculating the Variable Return, if any, (ii) defer the timing of the calculation of the Variable Return, if any, (iii) replace a Securities Component with a comparable index or ETF, or (iv) on the occurrence of an Extraordinary Event, instead of paying the Variable Return, if any, at Maturity, pay the estimated present value on the occurrence of the Extraordinary Event of the Variable Return, if any, that would have been payable at Maturity if the Extraordinary Event had not occurred. See “Special Circumstances” in Appendix C for a discussion of these circumstances. Amendments: Bank of Montreal may amend the terms of the Deposit Notes after they have been issued without the Holders’ consent if Bank of Montreal and BMO Capital Markets agree that the amendment would not materially and adversely affect a Holder’s interests. In all other cases, amendments must be approved by the votes of Holders representing at least two-thirds of the outstanding aggregate Deposit Amounts of the Deposit Notes represented at a meeting held to consider the amendment. See “Description of the Deposit Notes– Amendments to the Global Note”. Investor’s Right to An investor may cancel an order to purchase a Deposit Note (or cancel its purchase if Cancel: the Deposit Note has been issued) by providing instructions to Bank of Montreal through such investor’s financial advisor any time up to 48 hours after the later of (i) the day on which the agreement to purchase the Deposit Note is entered into, and (ii) deemed receipt of this Information Statement. See “Description of the Deposit Notes– Investor’s Right to Cancel the Agreement to Purchase a Deposit Note”. If an investor places an order to purchase a Deposit Note in person or electronically, the agreement to purchase the Deposit Note will be deemed to have been entered into on the third day after the later of (i) the day such purchase order is received, and (ii) five Business Days after the postmark date, if this Information Statement is provided to such investor by mail, or the date this Information Statement is actually received by such investor, if it is provided other than by mail. If an order to purchase a Deposit Note is received by telephone, the agreement to purchase the Deposit Note will be deemed to have been entered into at the time such purchase order is received. Eligibility for Investment: Unless Canadian law changes, a holder who purchases the Deposit Notes only at the time of issuance (an “Initial Holder”) will be able to hold Deposit Notes in a trust governed by a registered retirement savings plan, registered retirement income fund, registered education savings plan, registered disability savings plan, tax-free savings account or deferred profit sharing plan (other than a trust governed by a deferred profit sharing plan to which contributions are made by Bank of Montreal or by an employer with which Bank of Montreal does not deal at arm’s length within the meaning of the Income Tax Act (Canada) (the “Tax Act”)). Income Tax This income tax summary applies to an Initial Holder who is resident in Canada and is Considerations: subject to the limitations and qualifications set out under “Certain Canadian Federal
13
Income Tax Considerations” in the body of this Information Statement. In the opinion of Torys LLP, counsel to Bank of Montreal, if an Initial Holder holds Deposit Notes at Maturity, such Initial Holder will be required to include in his or her income the amount, if any, by which the payment at Maturity exceeds the amount such Initial Holder deposited with Bank of Montreal. Generally, based in part on counsel’s understanding of the Canada Revenue Agency’s administrative practice, an Initial Holder should not have to report any amount in respect of the Variable Return, if any, in his or her tax return for any taxation year ending before the year in which the Deposit Notes mature or are disposed of, as the case may be, provided an Extraordinary Event has not occurred. However, counsel understands that the Canada Revenue Agency is currently reviewing its administrative practice in relation to the relevance of a secondary market for debt obligations such as the Deposit Notes in determining whether there is a deemed accrual of interest on such debt obligations. Provided an Extraordinary Event has not occurred and while the matter is not free from doubt, a disposition of a Deposit Note, other than to Bank of Montreal, prior to October 1, 2016 should give rise to a capital gain (or capital loss) to the extent an Initial Holder’s proceeds of disposition, excluding accrued and unpaid interest, if any, exceed (or are less than) the aggregate of such Initial Holder’s adjusted cost base of such Deposit Note and any reasonable costs of disposition. An Initial Holder should consult his or her tax advisor with respect to his or her particular circumstances if such Initial Holder plans to sell a Deposit Note prior to October 1, 2016. The federal Budget released on March 22, 2016 proposes to amend the Tax Act to change the federal income tax consequences described above where an Initial Holder transfers or assigns a Deposit Note (other than to Bank of Montreal) after September 30, 2016. On such a transfer or assignment, the Initial Holder will be required to include in income as accrued interest the amount, if any, by which the price for which the Deposit Note was transferred or assigned exceeds the amount such Initial Holder deposited with Bank of Montreal. See “Certain Canadian Federal Income Tax Considerations”. Rank: The Deposit Notes will rank equally with all other deposit liabilities of Bank of Montreal. See “Description of the Deposit Notes– Rank”. CDIC: The Deposit Notes will not constitute deposits that are insured under the Canada Deposit Insurance Corporation Act or any other deposit insurance regime designed to ensure the payment of all or a portion of a deposit upon the insolvency of the deposit taking financial institution.
Prospective investors may request information about the Deposit Notes or another copy of this Information Statement by calling BMO Capital Markets at 1-866-864-7760 to speak to someone in English and 1-866-529-0017 to speak to someone in French. A copy of this Information Statement is also posted at www.bmosp.com.
During the term of the Deposit Notes, Holders may inquire as to the net asset value of the Deposit Notes and the formula for determining the Variable Return under the Deposit Notes by contacting BMO Capital Markets at the above numbers.
14 DEFINITIONS In this Information Statement, unless the context otherwise requires: “$” means Canadian dollars, unless otherwise specified; “Alternate ETF” has the meaning ascribed thereto in Appendix C under “Substitution Event”; “BMO Capital Markets” means collectively, BMO Nesbitt Burns Inc. and any of its affiliates; “Book-Entry System” means the record entry securities transfer and pledge system established and governed by one or more agreements between CDS and CDS Participants pursuant to which the operating rules and procedures for such system are established and administered by CDS, including in relation to CDS; “Business Day” means any day (other than a Saturday or a Sunday or a statutory holiday) on which commercial banks are open for business in Toronto, Ontario; “Cash Component” means Canadian Overnight Repo Rate Average; “CDS” means CDS Clearing and Depository Services Inc. or its nominee; “CDS Participant” means a broker, dealer, bank or other financial institution or other person for whom CDS effects book-entry transfers and pledges of Deposit Notes under the Book-Entry System; “Closing Date” means on or about August 10, 2016; “Closing Level” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; “CRA” means the Canada Revenue Agency; “Custodian” means Bank of Montreal or a person appointed by Bank of Montreal; “DBRS” means DBRS Limited; “Deposit Amount” means $100.00 per Deposit Note; “Deposit Notes” means the Bank of Montreal Volatility Controlled (6%) Global Diversified Index F-Class Principal Protected Deposit Notes, Series 4 issued by Bank of Montreal; “Early Trading Charge” means the early trading charge per Deposit Note, if any, described under “Secondary Market”; “Eligible Portfolio” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; “ETF” means exchange-traded fund; “Extraordinary Event” has the meaning ascribed thereto in Appendix C under “Extraordinary Event”; “Extraordinary Event Notification Date” has the meaning ascribed thereto in Appendix C under “Extraordinary Event”; “Fee” means 2.50% per annum; “Final Level” means the Index Level on the Final Valuation Date, provided that, if the Final Valuation Date is not an Index Business Day, then the Final Level will be determined on the immediately preceding Index Business Day, and subject further to the provisions set out in Appendix C under “Extraordinary Event”; “Final Valuation Date” means the date that is five Business Days prior to the Maturity Date or, if such Business Day is not an Index Business Day, the immediately preceding Index Business Day, subject to the Special Circumstances set out in Appendix C; “FundSERV” means FundSERV Inc.; “Holder” means a beneficial owner of a Deposit Note; “Index” means the BMO Volatility Controlled (6%) Global Diversified Index, as further described in this Information Statement under “The Index” and in Appendix A; “Index Business Day” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”;
15 “Index Calculation Agent” means BMO Capital Markets or a third party appointed by BMO Capital Markets to act as calculation agent for the Note Program or in respect of the Index; “Index Components” means the Cash Component and the indices and units of the ETFs comprising the Index, and each is a “Index Component”. Each Index Component is listed below together with its cap (maximum Weight in the Monthly Unique Portfolio), sector, sector cap, asset class and Bloomberg ticker symbol. Further information about the Index Components, including limitations on their inclusion in the Index, can be found in “The Index” and in Appendix B:
Index Component Sector Index Component Cap Sector Cap Asset Class Bloomberg Ticker S&P/TSX 60 Index 20% Equity Canadian large cap equities SPTSX60 INDEX S&P 500 Index 20% Equity US large cap equities SPX INDEX
Euro STOXX 50 Index 20% Equity Equities European large cap equities SX5E INDEX
S&P/TSX Small Cap Index 20% Equity 50% Canadian small cap equities SPTSXS INDEX iShares International Select Dividend 20% Equity International high dividend paying IDV UP EQUITY ETF equities
BMO Aggregate Bond Index ETF 20% Fixed Income Canadian broad corporate bonds ZAG CT EQUITY
OMPONENTS C
BMO Short Corporate Bond Index 20% Fixed Income Canadian short term corporate bonds ZCS CT EQUITY ETF Fixed BMO Long Provincial Bond Index 20% Fixed Income Income Canadian long term provincial bonds ZPL CT EQUITY ETF 50%
ECURITIES iShares Canadian Universe Bond 20% Fixed Income Canadian broad corporate bonds XBB CT EQUITY S Index ETF iShares S&P/TSX Capped REIT Index 50% Alternative 50% Canadian real estate investment trusts XRE CT EQUITY
ETF
Canadian Overnight Repo Rate 25% Cash 25% Cash CAONREPO
Average INDEX
ASH
C
OMPONENT C
“Index Level” means, in respect of an Index Business Day, the closing level of the Index on that Index Business Day calculated in compliance with the Index Rules set out in Appendix A; “Index Return” means the percentage change in the Index Level from the Closing Date to the Final Valuation Date and rounded to two decimal places, calculated as follows: Index Return = Final Level – Initial Level Initial Level; “Index Rules” means the rules governing the constitution and maintenance of the Index, the calculation of the Index Level and other decisions and actions related to the maintenance of the Index as set out in Appendix A; “Initial Holder” means a Holder who purchases the Deposit Notes only at the time of their issuance; “Initial Level” means the Index Level on the Closing Date, provided that if such day is not an Index Business Day, then the Initial Level will be determined on the immediately following Index Business Day, subject to the Special Circumstances set out in Appendix C; “Manager” means BMO Capital Markets or a person appointed by BMO Capital Markets to act as manager of the Note Program; “Market Disruption Event” has the meaning ascribed thereto in Appendix C under “Market Disruption Event”; “Material Index Change” has the meaning given to that term in Appendix C under “Discontinuance or Modification of the Index”; “Maturity” or “Maturity Date” means August 10, 2023; “Merger Event” has the meaning ascribed thereto in Appendix C under “Merger Event”; “Monthly Unique Portfolio” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; “Moody’s” means Moody’s Investors Service Inc.;
16 “Note Program” means the Bank of Montreal Volatility Controlled (6%) Global Diversified Index F-Class Principal Protected Deposit Notes, Series 4 note program administered by BMO Capital Markets; “Offering” means the offering of the Deposit Notes to prospective investors under this Information Statement; “Participation Rate” means 230%; “Performance” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; “Potential Adjustment Event” has the meaning ascribed thereto in Appendix C under “Potential Adjustment Event”; “Rebalancing Observation Period” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; “Reweighting Date” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; “Reweighting Observation Period” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; “Reweighting Selection Date” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; “Realized Volatility” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; “Related Exchange” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; “Replacement Event” has the meaning ascribed thereto in Appendix C under “Discontinuance or Modification of an Index Component that is an Index”; “Replacement Index” has the meaning ascribed thereto in Appendix C under “Discontinuance or Modification of an Index Component that is an Index”; “S&P” means Standard & Poor’s Financial Services LLC; “Securities Components” means the Index Components other than the Cash Component, and each is a “Securities Component, subject to the Special Circumstances set out in Appendix C; “Selling Agent” means BMO Nesbitt Burns Inc.; “Sponsor” means BMO Capital Markets; “Start Date” means June 29, 2016, the day the Index was created; “Subscription Price” means $100.00 per Deposit Note; “Target Volatility” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; “Tax Act” means the Income Tax Act (Canada); “Valuation Date” means any day on which the Index Level is scheduled to be determined for calculating the Variable Return or any other day on which the Index Level is required to be determined, subject to the Special Circumstances set out in Appendix C; “Variable Return” means, on a per Deposit Note basis, the amount equal to the following formula, provided that the Variable Return shall not be less than zero: Variable Return = Deposit Amount × Participation Rate × Index Return; “Variable Return Early Payment Amount” has the meaning ascribed thereto in Appendix C under “Extraordinary Event”; “Weight” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”; and “Weighting Constraints” has the meaning ascribed thereto in Appendix A under “Appendix A Definitions”.
17 NOTE PROGRAM The Note Program provides investors with an entitlement to payment per Deposit Note of (i) the Deposit Amount at Maturity, and (ii) a Variable Return, if any, at Maturity based on the performance of the Index. See “Maturity Payment” and “Variable Return” in this Information Statement and “Special Circumstances” in Appendix C. Maturity Payment The Deposit Notes will mature on the Maturity Date. At Maturity, each Holder will be entitled to receive the Deposit Amount of $100 per Deposit Note, regardless of the performance of the Index, and the Variable Return, if any, at Maturity as discussed below. Variable Return The Variable Return, if any, payable on the Maturity Date will be based on the Index Return, which will reflect the reinvestment of any dividends or distributions declared on the Securities Components or on the securities represented in Securities Components that are indices, net of withholding taxes that would be payable by Bank of Montreal had it received such dividends or distributions. The Index Return is the percentage change in the Index Level from the Closing Date to the Final Valuation Date and will be determined by the Index Calculation Agent in accordance with the methodology described below. The Variable Return, if any, will be payable in an amount per Deposit Note equal to the result obtained using the following formula: Variable Return = Deposit Amount × Participation Rate × Index Return where the Index Return is the percentage change in the Index Level during the term of the Deposit Notes determined as follows: Index Return = Final Level – Initial Level Initial Level The formula above provides for a Variable Return, if any, equal to the Deposit Amount multiplied by 230% of the Index Return. No Variable Return will be payable unless the Index Return is greater than zero. Accordingly, a Holder may not receive any Variable Return. The amount of the Variable Return, if any, will be payable on the Maturity Date unless the Final Valuation Date is postponed to a later date due to a Market Disruption Event or the Variable Return Early Payment Amount is determined and paid due to an Extraordinary Event as described in Appendix C. Return Profile and Variable Return Examples The return profile and examples below are provided for illustration purposes only. The return profile demonstrates the Variable Return that may be payable on the Deposit Notes based on a specific Index Return determined on the Final Valuation Date. All examples assume that a Holder has purchased a Deposit Note with an aggregate principal amount of $100.00, that a Holder holds the Deposit Notes until Maturity and that no Extraordinary Event or Market Disruption Event has occurred during the term of the Deposit Notes. The Index Returns used to illustrate the three different scenarios are hypothetical and are not estimates or forecasts of expected changes in the Index Level from the Closing Date to and including the Final Valuation Date. The calculation of the Variable Return would involve determining the Index Return by comparing the Final Level to the Initial Level. The Variable Return, if any, will be equal to the Deposit Amount multiplied by 230% of the Index Return, if positive.
18 Return Profile
The blue line represents the range of possible Index Returns on the Final Valuation Date. The red line represents the range of potential Variable Return amounts for one Deposit Note. Scenario 1 – Positive Index Return Initial Level: 100.00 Final Level: 158.89 Index Return: (158.89 ─ 100.00) ÷ 100.00 = 58.89% Variable Return: Deposit Amount × Participation Rate × Index Return Variable Return: $100.00 × 230% × 58.89% Variable Return: $135.45 In the example above, at Maturity a Holder would receive a Variable Return of $135.45, and would also receive the Deposit Amount of $100.00 per Deposit Note, representing a cumulative return of 135.45% and an annually compounded rate of return of 13.01%. Scenario 2 – Neutral Index Return Initial Level: 100.00 Final Level: 120.63 Index Return: (120.63 ─ 100.00) ÷ 100.00 = 20.63% Variable Return: Deposit Amount × Participation Rate × Index Return Variable Return: $100.00 × 230% × 20.63% Variable Return: $47.45 In the example above, at Maturity a Holder would receive a Variable Return of $47.45, and would also receive the Deposit Amount of $100.00 per Deposit Note, representing a cumulative return of 47.45% and an annually compounded rate of return of 5.70%. Scenario 3 – Negative Index Return Initial Level: 100.00 Final Level: 76.38 Index Return: (76.38 ─ 100.00) ÷ 100.00 = -23.62% Variable Return: Deposit Amount × Participation Rate × Index Return Variable Return: $100.00 × 230% × 0% Variable Return: $0 In the example above, the Index Return is negative. As a result, the Variable Return is zero and a Holder would not receive any Variable Return at Maturity, but would receive the Deposit Amount of $100.00 per Deposit Note at Maturity.
19 SECONDARY MARKET The Deposit Notes will not be listed on any stock exchange or marketplace. Moreover, Bank of Montreal does not have a right to redeem the Deposit Notes prior to Maturity and a Holder may not require Bank of Montreal to redeem the Deposit Notes prior to Maturity. However, Deposit Notes purchased using the FundSERV network may be “redeemed” using that network on a daily basis. Any such redemption would actually be a sale to BMO Capital Markets in the secondary market. BMO Capital Markets will use reasonable efforts under normal market conditions to arrange for a secondary market for the sale of Deposit Notes by Holders to BMO Capital Markets through the order entry system operated by FundSERV, but reserves the right to elect not to do so in the future, in its sole and absolute discretion, without prior notice to Holders. In order to sell a Deposit Note in the secondary market, if available, a Holder must arrange through his or her financial advisor to give notice to BMO Capital Markets either in writing or electronically through FundSERV’s investment fund transaction processing system. The sale of Deposit Notes using the FundSERV network carries certain restrictions, including selling procedures that require an irrevocable sale order to be initiated at a price that will not be known prior to placing such sale order. See “FundSERV − Sale of FundSERV Notes”. However, BMO Capital Markets is under no obligation to facilitate or arrange for such a secondary market, and such secondary market, when commenced, may be suspended at any time at the sole discretion of BMO Capital Markets, without notice. Therefore, there can be no assurance that a secondary market will be available or that such market will be liquid or sustainable. See also “FundSERV” below for details in respect of secondary market trading where the Deposit Notes are held through dealers and other firms that are on the FundSERV network. The sale of a Deposit Note to BMO Capital Markets will be effected at a price equal to (i) the bid price for the Deposit Note, determined by BMO Capital Markets in its sole discretion, minus (ii) any applicable Early Trading Charge as set out below. The Deposit Notes are intended to be instruments held to Maturity with their principal being payable on the Maturity Date. As a result, sale of the Deposit Notes prior to the Maturity Date may result in a bid price that is less than the Deposit Amount of the Deposit Notes. The bid price of a Deposit Note at any time will be determined by BMO Capital Markets, acting in its sole and absolute discretion, and will be dependent upon a number of factors, which may include, among other things: (i) whether the Index Level has increased or decreased since the Closing Date and by how much; (ii) the fact that Holders will receive the Deposit Amount on the Maturity Date regardless of the Index Level or performance of the Index at any time and up to such time; and (iii) a number of other interrelated factors, including, without limitation, the correlation and volatility of the prices of the Index Components, prevailing interest rates, the dividend and distribution yields of the Index Components and the time remaining to the Maturity Date. The relationship among these factors is complex and may also be influenced by various political, economic and other factors that can affect the trading price of a Deposit Note. In particular, Holders should realize that any trading price for a Deposit Note: (a) may have a non-linear sensitivity to the increases and decreases in the Index Level (i.e., the trading price of a Deposit Note will increase and decrease at a different rate compared to the percentage increases and decreases in the Index Level); and (b) may be substantially affected by changes in interest rates independent of the performance of the Index. No Early Trading Charge will apply to the sale of a Deposit Note at any time after the closing of the Offering. If a Holder sells his or her Deposit Notes prior to Maturity, such Holder may receive less than the Deposit Amount even if the performance of the Index has been positive, and as a result, such Holder may suffer losses. A Holder will not be able to redeem or sell a Deposit Note prior to Maturity other than through the secondary market, if available, provided by BMO Capital Markets. A Holder should consult his or her financial advisor on whether it would be more favourable in the circumstances at any time to sell the Deposit Notes in a secondary market, if available, or hold the Deposit Notes until the Maturity Date. A Holder should also consult his or her tax advisor as to the tax consequences arising from a sale of a Deposit Note prior to the Maturity Date as compared to holding the Deposit Note until the Maturity Date. See “Certain Canadian Federal Income Tax Considerations”. Bank of Montreal, BMO Capital Markets or any of their respective affiliates, associates or successors, may at any time, subject to applicable laws, purchase Deposit Notes at any price in the open market or by private agreement. FUNDSERV Holders may purchase Deposit Notes through dealers and other firms that facilitate purchase and related settlement through the order entry system operated by FundSERV. The following information about FundSERV and its
20 network is relevant for such Holders. Holders should consult with their financial advisors as to whether their Deposit Notes have been purchased using the FundSERV network and to obtain further information on FundSERV procedures applicable to those Holders. Where a Holder’s purchase order for Deposit Notes is effected by a dealer or other firm using the FundSERV network, such dealer or other firm may not be able to accommodate a purchase of Deposit Notes through certain registered plans for purposes of the Income Tax Act (Canada) (the “Tax Act”). Holders should consult their financial advisors as to whether their orders for Deposit Notes will be made using the FundSERV network and any limitations on their ability to purchase Deposit Notes through registered plans. General Information FundSERV is owned and operated by both fund sponsors and distributors and provides distributors of funds and certain other financial products with an online transaction processing system for such financial products, including the Deposit Notes. FundSERV’s network facilitates the matching of orders to settlement instructions, facilitates reconciliation, aggregates and reports net settlement amounts and distributes settlement instructions information to the financial product distribution channel. Deposit Notes Held Through the Custodian All Deposit Notes will initially be issued in the form of a fully registered global deposit note (“Global Note”) that will be deposited with CDS. Deposit Notes purchased using the FundSERV network (“FundSERV Notes”) will also be evidenced by the Global Note. Holders holding FundSERV Notes will therefore have an indirect beneficial interest in the Global Note. The Deposit Notes will be recorded in CDS as being held by BMO Capital Markets (as a direct participant in CDS). BMO Capital Markets in turn will hold the Deposit Notes for the Custodian. The Custodian will record or cause to be recorded respective interests in the FundSERV Notes which recordings will be made as instructed by CDS Participants or non-CDS Participants, as the case may be, using the FundSERV network. Purchase of FundSERV Notes In order to purchase FundSERV Notes, the aggregate Subscription Price must be delivered to the Selling Agent in immediately available funds prior to the Closing Date. Despite delivery of such funds, the Selling Agent reserves the right not to accept any offer to purchase FundSERV Notes. If the FundSERV Notes are not issued to the subscriber for any reason, such funds will be returned without delay to the subscriber. In any event, whether or not the FundSERV Notes are issued, no interest or other compensation will be paid to the subscriber on such funds. Sale of FundSERV Notes A Holder wishing to sell FundSERV Notes prior to Maturity is subject to certain procedures and limitations. Any Holder wishing to sell a FundSERV Note should consult with his or her financial advisor in advance in order to understand the timing and other procedural requirements and limitations of selling. A Holder must sell FundSERV Notes by using the “redemption” procedures of FundSERV’s transaction processing system. A sale or redemption of FundSERV Notes through any other means is not possible. Accordingly, a Holder will not be able to negotiate a sale price for FundSERV Notes. Instead, the financial advisor for the Holder will need to initiate an irrevocable request to “redeem” the FundSERV Note in accordance with the then established procedures of FundSERV. Generally, this will mean the financial advisor will need to initiate the redemption request by 1:00 p.m. (Toronto time, or such other time as may hereafter be established by FundSERV) on a Business Day. Any request received after such time will be deemed to be a request sent and received in respect of the next following Business Day. Sale of a FundSERV Note will be effected at a sale price equal to (i) the bid price for the FundSERV Note determined by BMO Capital Markets, acting in its sole and absolute discretion, minus (ii) any applicable Early Trading Charge. A Holder should be aware of the limitations and restrictions surrounding the secondary market. See “Secondary Market”. A Holder should also be aware that, although the “redemption” procedures of FundSERV’s transaction processing system would be utilized, the FundSERV Notes of the Holder will actually be sold in the secondary market to BMO Capital Markets. In turn, BMO Capital Markets will be able to deal with such FundSERV Notes in its discretion, including, without limitation, selling those FundSERV Notes to other parties at any price or holding them in its inventory. Holders should also be aware that from time to time such “redemption” mechanism to sell FundSERV Notes may be suspended for any reason without notice, thus effectively preventing Holders from selling their FundSERV Notes. Potential Holders requiring liquidity should carefully consider this possibility before purchasing FundSERV Notes.
21 The sale price will actually represent BMO Capital Markets’ bid price for the Deposit Notes (i.e., the price it is offering to purchase Deposit Notes in the secondary market) as of the applicable Business Day, less any applicable Early Trading Charge. There is no guarantee that the sale price for any day is the highest bid price possible in any secondary market for the Deposit Notes, but will represent BMO Capital Markets’ bid price generally available to all Holders as at the relevant close of business, including clients of BMO Capital Markets. A Holder holding FundSERV Notes should realize that in certain circumstances FundSERV Notes may not be transferable to another dealer, if the Holder were to decide to move his or her investment accounts to such other dealer. In that event, the Holder would have to sell the FundSERV Notes pursuant to the procedures outlined above. SUITABILITY AND APPROPRIATENESS FOR INVESTMENT A person should make a decision to invest in the Deposit Notes after carefully considering, with his or her advisors, the suitability of this investment in light of his or her investment objectives and the information in this Information Statement. The Deposit Notes may be a suitable and appropriate investment for investors who are prepared to: invest for the mid to long-term; receive the Deposit Amount only at Maturity; receive a return at Maturity, that (i) is based on the performance of the Index and is not based on a fixed, floating or other specified interest rate, (ii) is uncertain until the Final Valuation Date, and (iii) may be zero; obtain exposure to the Index Components that may be limited by the constraints imposed by the Index Rules and whose performance may not match the performance of a direct investment in the Index Components or any alternative portfolio or strategy that might be constructed from the Index Components; and accept the risks set out under “Risk Factors”, including the risks associated with the performance of the Index. DESCRIPTION OF THE DEPOSIT NOTES The following is a summary of the material attributes and characteristics of the Deposit Notes offered hereby. Reference is made to the certificate representing the Global Note referred to below which contains the full text of such attributes and characteristics. Offering The Bank of Montreal Volatility Controlled (6%) Global Diversified Index F-Class Principal Protected Deposit Notes, Series 4 are being issued by Bank of Montreal with a Subscription Price of $100 per Deposit Note and a minimum subscription of $10,000 (100 Deposit Notes). The currency of the Offering is Canadian dollars. The maximum size of the Offering is $20,000,000. Bank of Montreal reserves the right to change the maximum size of the Offering at and in its sole and absolute discretion. Bank of Montreal is offering the Deposit Notes through FundSERV’s transaction processing system. Subscriptions for Deposit Notes may be made using FundSERV’s network under the FundSERV code “JHN4003” which will result in funds being accumulated in a non-interest bearing account of BMO Capital Markets pending execution of all required documents and satisfaction of closing conditions, if any. Funds in respect of all subscriptions shall be payable at the time of subscription. A Global Note for the full amount of the issue will be issued in registered form to CDS on the Closing Date. Subject to certain exceptions, certificates evidencing the Deposit Notes will not be available to Holders and registration of ownership of the Deposit Notes will be made through the Book-Entry System of CDS or through FundSERV’s transaction processing system, as applicable. The Deposit Notes may not be called for redemption by Bank of Montreal prior to Maturity. Investors will subscribe for Deposit Notes by placing their orders with the Selling Agent or sub-agency groups including other qualified selling members. Orders for purchases of Deposit Notes may be accepted in whole or in part, and the right to allot Deposit Notes to investors in an amount less than that subscribed for by the investor is reserved by Bank of Montreal. Bank of Montreal reserves the right to discontinue accepting subscriptions at any time without notice. Bank of Montreal may
22 at any time prior to the Closing Date, in its sole and absolute discretion, elect whether or not to proceed in whole or in part with the issue of the Deposit Notes. Bank of Montreal may from time to time issue any additional series of notes or any other notes or other debt instruments (which may or may not resemble the Deposit Notes) and offer any such notes or debt instruments concurrently with the Offering. Maturity Payment Each Deposit Note will mature on the Maturity Date, on which date the Holder will be entitled to receive, in respect of each Deposit Note, an amount equal to the Deposit Amount plus the Variable Return, if any. If the Maturity Date does not occur on an Index Business Day, then the Maturity Date will be deemed to occur on the next following Index Business Day and no interest or other compensation will be paid in respect of such postponement. See “Description of the Deposit Notes – Settlement of Payments” below. The Variable Return, if any, payable to each Holder at Maturity will not affect the right of Holders to receive the Deposit Amount at Maturity. The Deposit Notes are Canadian dollar deposits. Bank of Montreal will pay all amounts on the Deposit Notes in Canadian dollars. Variable Return The Variable Return, if any, payable on the Maturity Date will be determined by the Index Calculation Agent in accordance with the methodology described under “Note Program − Variable Return”. The amount of the Variable Return, if any, will depend upon the Index Return (which will reflect the reinvestment of any dividends or distributions declared on the Securities Components or on the securities represented in Securities Components that are indices, net of withholding taxes that would be payable by Bank of Montreal had it received such dividends or distributions). There is a possibility that a Holder may not receive any Variable Return. No Variable Return will be payable unless the Index Return is greater than zero. The amount of the Variable Return, if any, will be payable on the Maturity Date. However, the timing and manner of determining the Variable Return is affected by the occurrence of certain unusual events. See “Special Circumstances” in Appendix C. Generally stated, the Variable Return, if any, will be payable on the Maturity Date, unless the Final Valuation Date is postponed to a later date due to a Market Disruption Event or the Variable Return Early Payment Amount is determined and paid due to an Extraordinary Event, as described under “Extraordinary Event” in Appendix C. Rank The Deposit Notes will constitute direct unconditional obligations of Bank of Montreal. The Deposit Notes will be issued on an unsubordinated basis and will rank equally, as among themselves and with all other outstanding, direct, unsecured and unsubordinated, present and future obligations (except as otherwise prescribed by law) of Bank of Montreal, and will be payable rateably without any preference or priority. Settlement of Payments Bank of Montreal will be required to make available to CDS, no later than 10:00 a.m. (Toronto time) on the Maturity Date, funds in an amount sufficient to pay the amounts due on the Maturity Date under the Deposit Notes. All amounts payable in respect of the Deposit Notes will be made available by Bank of Montreal through CDS or its nominee. CDS or its nominee will, upon receipt of any such amount, facilitate payment to the applicable CDS Participants or credit the respective accounts of such CDS Participants, in amounts proportionate to their respective interests as shown on the records of CDS. The Custodian will facilitate payment to non-CDS Participants (or CDS Participants, if applicable) through FundSERV’s transaction processing system or credit the respective accounts of such non-CDS Participants (or CDS Participants, if applicable) in amounts proportionate to their respective interests. See “Description of the Deposit Notes − Custodian”. Bank of Montreal expects that payments by CDS Participants and non-CDS Participants to Holders will be governed by standing instructions and customary practices, as is the case with securities or instruments held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such CDS Participants or
23 non-CDS Participants. The responsibility and liability of Bank of Montreal, except in its capacity as the Custodian, in respect of Deposit Notes represented by a Global Note is limited to making payment of the amounts due in respect of the Global Note to CDS or its nominee. Neither Bank of Montreal, except in its capacity as the Custodian, nor the Manager will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership of the Deposit Notes represented by the Global Note or for maintaining, supervising or reviewing records relating to any such ownership. Bank of Montreal retains the right, as a condition to payment of amounts at Maturity, to require the surrender for cancellation of any certificate evidencing the Deposit Notes. Neither Bank of Montreal nor CDS (or any depository) will be bound to see to the execution of any trust affecting the ownership of any Deposit Note or be affected by notice of any equitable interest that may be subsisting with respect to any Deposit Note. Book-Entry System Each Deposit Note will generally be represented by a Global Note representing the entire issuance of Deposit Notes. Bank of Montreal will issue Deposit Notes evidenced by certificates in definitive form to a particular Holder only in limited circumstances. Both any certificated Deposit Notes in definitive form and any Global Note will be issued in registered form, whereby Bank of Montreal’s obligation will run only to the holder named on the face of such note. Definitive Deposit Notes if issued will name Holders or nominees as the owners of the Deposit Notes, and in order to transfer or exchange these definitive Deposit Notes or to receive payment, the Holders or nominees (as the case may be) must physically deliver the definitive Deposit Notes to Bank of Montreal. A Global Note will name a depository or its nominee as the owner of the Deposit Notes, initially to be CDS. (All references to the Deposit Notes and a Deposit Note contained in this Information Statement will include the Global Note unless the context otherwise requires.) Each Holder’s beneficial ownership of Deposit Notes will be shown on the records maintained by the Holder’s broker/dealer, bank, trust company or other representative that is a participant in the relevant depository or, in certain cases, on the records maintained by the Custodian, as explained more fully below. Interests of participants will be shown on the records maintained by the relevant depository or on the records maintained by the Custodian. Global Note Bank of Montreal will issue the registered Deposit Notes on the Closing Date in the form of the fully registered Global Note that will be deposited with a depository (initially being CDS) and registered in the name of such depository or its nominee in denominations equal to the aggregate Deposit Amounts of the Deposit Notes. Unless and until it is exchanged in whole for Deposit Notes in definitive registered form, the registered Global Note may not be transferred except as a whole by and among the depository, its nominee or any successors of such depository or nominee. Each person owning a beneficial interest in a registered Global Note must rely on the procedures of the depository for that registered Global Note and on the procedures of the participant(s) and the Custodian, if any, through which the person owns its interest, to exercise any rights of a Holder. Bank of Montreal understands that under existing industry practices, if Bank of Montreal requests any action of Holders or if an owner of a beneficial interest in a registered Global Note desires to direct or take any action that a Holder is entitled to direct or take in respect of the Deposit Notes, the depository for the registered Global Note would authorize the participants to direct or take that action, and the participants and the Custodian, if any, would authorize beneficial owners owning through them to direct or take that action or would otherwise act upon the instructions of beneficial owners holding through them. See “Description of the Deposit Notes – Custodian”. Payments on the Deposit Notes represented by a registered Global Note registered in the name of a depository or its nominee will be made to the depository or its nominee, as the case may be, as the registered owner of the registered Global Note. Neither Bank of Montreal, except in its capacity as the Custodian, nor any agent thereof will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the registered Global Note or for maintaining, supervising or reviewing any records relating to any such ownership interests. Bank of Montreal expects that the depository for any of the Deposit Notes represented by a registered Global Note, upon receipt of any payment on the Deposit Notes, will immediately credit participants’ accounts in amounts
24 proportionate to their respective interests in that registered Global Note as shown on the records of the depository. See “Description of the Deposit Notes − Settlement of Payments”. Custodian The Custodian will hold the Deposit Notes for CDS Participants and non-CDS Participants (including, in certain cases, Holders) in accordance with their respective entitlements as reflected in a register to be maintained by the Custodian solely on the basis of and in reliance upon instructions received from such CDS Participants and non- CDS Participants, as the case may be. Upon receiving amounts payable in respect of Deposit Notes from BMO Capital Markets, the Custodian will arrange for payment to CDS Participants and non-CDS Participants (including Holders) in amounts proportionate to their respective interests in the Deposit Notes recorded in the register maintained by the Custodian. All records maintained by the Custodian shall, absent manifest error, be final for all purposes and binding on all persons including the Holders. The Custodian shall not be responsible for its errors if made in good faith. Definitive Deposit Notes If the depository for any of the Deposit Notes represented by a registered Global Note is at any time unwilling or unable to continue to properly discharge its responsibilities as depository, and a successor depository is not appointed by Bank of Montreal within ninety (90) days, Bank of Montreal will issue Deposit Notes in definitive form in exchange for the registered Global Note that had been held by the depository. In addition, Bank of Montreal may at any time and in its sole and absolute discretion decide not to have any of the Deposit Notes represented by one or more registered Global Notes. If Bank of Montreal makes that decision, Bank of Montreal will issue Deposit Notes in definitive form in exchange for all of the registered Global Notes representing the Deposit Notes. Except in the circumstances described above, beneficial owners of the Deposit Notes will not be entitled to have any portions of such Deposit Notes registered in their name, will not receive or be entitled to receive physical delivery of the Deposit Notes in certificated, definitive form and will not be considered the owners or holders of a Global Note. Any Deposit Notes issued in definitive form in exchange for a registered Global Note will be registered in the name or names that the depository gives to Bank of Montreal or its agent, as the case may be. It is expected that the depository’s instructions will be based upon directions received by the depository from participants with respect to ownership of beneficial interests in the registered Global Note that had been held by the depository. The text of any Deposit Notes issued in definitive form will contain such provisions as Bank of Montreal may deem necessary or advisable. Bank of Montreal will keep or cause to be kept a register in which will be recorded registrations and transfers of Deposit Notes in definitive form if issued. Such register will be kept at the offices of Bank of Montreal or at such other offices notified by Bank of Montreal to Holders. No transfer of a definitive Deposit Note will be valid unless made at such offices and entered on such register upon surrender of the certificate in definitive form for cancellation with a written instrument of transfer in form and as to execution satisfactory to Bank of Montreal or its agent, and upon compliance with such reasonable conditions as may be required by Bank of Montreal or its agent and with any requirement imposed by law. Payments on a definitive Deposit Note, if issued, will be made by cheque mailed to the applicable registered Holder at the address of the Holder appearing in the aforementioned register in which registrations and transfers of Deposit Notes are to be recorded or, if requested in writing by the Holder at least five Business Days before the date of the payment and agreed to by Bank of Montreal, by electronic funds transfer to a bank account nominated by the Holder with a bank in Canada. Payment under any definitive Deposit Note is conditional upon the Holder first delivering the Deposit Note to the paying and transfer agent who reserves the right on behalf of Bank of Montreal, in the case of payment of the Variable Return Early Payment Amount on a Deposit Note prior to the Maturity Date, to mark on the Deposit Note that the Variable Return, if any, has been paid in full or in part (as the case may be), or, in the case of payment of the Variable Return and the Deposit Amount, or the Variable Return Early Payment Amount and the Deposit Amount (as the case may be), under the Deposit Note in full at any time, to retain the Deposit Note and mark the Deposit Note as cancelled.
25 Notices to Holders If notice is required to be given to Holders it will be validly given if published once in a French language Canadian newspaper and in the national edition of an English language Canadian newspaper, or if communicated to the Holders or their agents by mail, electronic and/or any other means. Unless stated otherwise, the Manager will give notice as aforesaid to the Holders or their agents of any material change or material fact relating to the Deposit Notes. Amendments to the Global Note The Global Note may be amended without the consent of the Holders by agreement between Bank of Montreal and the Manager if, in the reasonable opinion of Bank of Montreal and the Manager, the amendment would not materially and adversely affect the interests of such Holders. In all other cases, the Global Note may be amended if the amendment is approved by a resolution passed by the favourable votes of Holders representing not less than 66⅔% of the outstanding aggregate Deposit Amounts of the Deposit Notes represented at the meeting of Holders for the purpose of considering the resolution. Each Holder is entitled to one vote per Deposit Note held for the purpose of voting at meetings convened to consider a resolution. The Deposit Notes do not carry the right to vote in any other circumstances. Investor’s Right to Cancel the Agreement to Purchase a Deposit Note An investor may cancel an order to purchase a Deposit Note (or cancel its purchase if the Deposit Note has been issued) by providing instructions to Bank of Montreal through his or her financial advisor any time up to 48 hours after the later of (i) the day on which the agreement to purchase the Deposit Note is entered into; and (ii) deemed receipt of this Information Statement. Upon cancellation, the investor is entitled to a refund of the Subscription Price and any fees relating to the purchase that have been paid by the investor to Bank of Montreal. This right of cancellation does not extend to investors who purchase a Deposit Note in the secondary market. An investor will be deemed to have received this Information Statement on the earlier of: (i) the day recorded as the time of sending by the server or other electronic means, if provided by electronic means; (ii) the day recorded as the time of sending by fax machine, if provided by fax; (iii) five Business Days after the postmark date, if provided by mail; and (iv) when it is received. Date of Agreement to Purchase a Deposit Note If an order to purchase a Deposit Note is received in person or electronically, the agreement to purchase the Deposit Note will be deemed to have been entered into on the third day after the later of (i) the day the purchase order is received; and (ii) five Business Days after the postmark date, if this Information Statement is provided to the investor by mail, or the date this Information Statement is actually received by the investor, if it is provided other than by mail. If an order to purchase a Deposit Note is received by telephone, the agreement to purchase a Deposit Note will be deemed to have been entered into at the time the purchase order is received. THE INDEX General Overview The BMO Volatility Controlled (6%) Global Diversified Index (the “Index”) is a proprietary index that is based on the Modern Portfolio Theory approach to asset allocation. This theory suggests how investors can select a portfolio from available assets to maximize expected return for a given amount of risk. Monthly, the Index Calculation Agent constructs an “efficient frontier” from among all hypothetical portfolios of the Index Components described below that comply with the rules of the Index (“Eligible Portfolios”). The “efficient frontier” is a set of hypothetical portfolios that offer the highest expected return for a given level of risk. From the Eligible Portfolios, the Index Calculation Agent selects as the Monthly Unique Portfolio the Eligible Portfolio that would have resulted in the highest return over the previous six months with an annualized volatility of 6% or less for the same period. If no Eligible Portfolio meets these criteria, the limit on volatility is increased by 1% (first to 7%, then to 8% and so on) until a Monthly Unique Portfolio that complies with the rules of the Index is found. Daily, the Index Calculation Agent monitors the volatility of the Monthly Unique Portfolio over the previous one- month period and adjusts the exposure of the Index to the Monthly Unique Portfolio to target a 6% annualized volatility.
26 Index Composition The Index is a notional portfolio that tracks the total return of the underlying investments of a portfolio of 11 Index Components: ten Securities Components—four indices and six exchange-traded funds—and a Cash Component— the Canadian overnight repo rate average. The total return reflects changes in the price or level of the Index Components and the reinvestment of dividends or distributions declared and paid on the Securities Components or on the securities represented in Securities Components that are indices, net of any withholding taxes that would be payable by Bank of Montreal had it received those dividends and distributions. The Securities Components represent a diverse range of sectors, asset classes and geographic regions. The Cash Component represents the Canadian volume-weighted average cost of overnight funding collateralized with Government of Canada debt instruments. The Index may change in certain circumstances. See “Special Circumstances” in Appendix C. Each Index Component is listed below together with its cap (maximum Weight in the Monthly Unique Portfolio), sector, sector cap, asset class and Bloomberg ticker symbol:
Index Component Sector Index Component Cap Sector Cap Asset Class Bloomberg Ticker S&P/TSX 60 Index 20% Equity Canadian large cap equities SPTSX60 INDEX
S&P 500 Index 20% Equity US large cap equities SPX INDEX
Euro STOXX 50 Index 20% Equity Equities European large cap equities SX5E INDEX S&P/TSX Small Cap Index 20% Equity 50% Canadian small cap equities SPTSXS INDEX iShares International Select Dividend 20% Equity International high dividend paying IDV UP EQUITY
ETF equities
OMPONENTS C
BMO Aggregate Bond Index ETF 20% Fixed Income Canadian broad corporate bonds ZAG CT EQUITY BMO Short Corporate Bond Index ETF 20% Fixed Income Fixed Canadian short term corporate bonds ZCS CT EQUITY BMO Long Provincial Bond Index ETF 20% Fixed Income Income Canadian long term provincial bonds ZPL CT EQUITY iShares Canadian Universe Bond Index 20% Fixed Income 50% Canadian broad corporate bonds XBB CT EQUITY
ECURITIES ETF S iShares S&P/TSX Capped REIT Index 50% Alternative 50% Canadian real estate investment trusts XRE CT EQUITY
ETF
Canadian Overnight Repo Rate 25% Cash 25% Cash CAONREPO
Average Index
ASH
C
OMPONENT C
Further information about the Index Components can be found in Appendix B. Calculating the Index and Selecting the Monthly Unique Portfolio Determining Eligible Portfolios The Monthly Unique Portfolio is a hypothetical weighted portfolio of Index Components chosen from among all Eligible Portfolios. The weights applied to each Index Component to determine each Eligible Portfolio (including the Monthly Unique Portfolio) are subject to the following limits: each weight must be 0% or a positive integral multiple of 5%; the sum of the weights applied to all Index Components must be 100%; the weight applied to the iShares S&P/TSX Capped REIT Index ETF cannot exceed 50%; the weight applied to each Securities Component (except the iShares S&P/TSX Capped REIT Index ETF) cannot exceed 20%; the sum of the weights applied to all Securities Components in a sector (except Cash) cannot exceed 50%; and the weight applied to the Cash Component cannot exceed 25% (which means that the sum of the Weights applied to all Securities Components must be at least 75%).
27 Monthly Selection and Reweighting of the Monthly Unique Portfolio On the first Index Business Day of each month (the “Reweighting Date”), the Index Calculation Agent determines all Eligible Portfolios and calculates their performance for the previous 126 Index Business Days (a period of approximately six calendar months called the “Reweighting Observation Period”). The annualized volatility of each Eligible Portfolio is calculated over the same Reweighting Observation Period. The Monthly Unique Portfolio is the Eligible Portfolio that would have produced the highest overall return on the Index over the Reweighting Observation Period subject to volatility not exceeding an annualized level of 6%. If no eligible portfolio meets these criteria, the limit on volatility is increased by 1% (first to 7%, then to 8% and so on) until a Monthly Unique Portfolio meeting the criteria is found. The “Weights” are the individual weights applied to each Index Component in the Monthly Unique Portfolio. For a period of up to five Index Business Days following the determination of a Monthly Unique Portfolio on a Reweighting Date (the “Determination Period”), the Index Calculation Agent may, in its sole discretion, continue to use the Monthly Unique Portfolio from the preceding Reweighting Date for purposes of daily rebalancing of volatility and determining the Index Level; provided, however, that the Index Calculation Agent must adopt the most recently determined Monthly Unique Portfolio for such purposes on or before the end of the Determination Period. The Index uses volatility to measure a hypothetical portfolio’s level of risk, with greater volatility representing higher risk. The Index’s volatility is based on fluctuations in the Closing Levels of the weighted Securities Components during the Reweighting Observation Period, with recent fluctuations being weighted more heavily than less recent fluctuations. The calculation of volatility is described in more detail in Appendix A. Daily Rebalancing On each Index Business Day between Reweighting Dates, the Index follows a strategy that targets 6% volatility by varying the exposure of the Index to the Monthly Unique Portfolio based on its 1-month historical volatility. The aggregate weight of the Securities Components in the Monthly Unique Portfolio adjusted for the variable exposure will range from 0% to 100%, increasing when the volatility of the Monthly Unique Portfolio decreases and decreasing when the volatility increases. The exposure of the Index to the Monthly Unique Portfolio will not be greater than 100%. Rebalancing may result in the overall exposure of the Index to certain Index Components exceeding the limits set out above under “Determining Eligible Portfolios”. However, after daily rebalancing, (i) the overall weight of each Index Component (including Cash in the Monthly Unique Portfolio combined with Cash used for rebalancing) will always be at least 0% (i.e., no Index Component will have a negative weighting), and (ii) the sum of the overall weights of all Index Components will always be 100%. In certain circumstances these constraints could result in an Index volatility below 6%. Rebalancing changes the extent to which the Monthly Unique Portfolio is represented in the Index, but it does not change the Weights of the Index Components in the Monthly Unique Portfolio. The following diagram illustrates the effect of daily rebalancing:
Determining the Index Level The Index Level on an Index Business Day is the Index Level on the previous Index Business Day plus the return on the Index since the previous Index Business Day minus the portion of the annual fee of 2.50% (the “Fee”) that has accrued since the previous Index Business Day. The return on the Index since the previous Index Business day is the
28 sum of the weighted returns on the Index Components since the previous Index Business Day (using the Weights determined on the previous Reweighting Date) after the weighted returns on the Securities Components have been multiplied by the Daily Exposure Factor and the weighted return on the Cash Component (including Cash in the Monthly Unique Portfolio combined with Cash used for daily rebalancing) has been multiplied by one minus the Daily Exposure Factor. The Index Level on each Index Business Day will be reported by BMO Capital Markets at www.bmosp.com. The Closing Level of each Securities Component, which is used to calculate that Securities Component’s return, reflects the ‘total return’ of that Securities Component, being changes in the price or level of that Securities Component and the reinvestment of any dividends or distributions declared and paid on the Securities Component or on the securities represented in a Securities Component that is an index, net of any withholding taxes, stamp taxes and/or other similar amounts that would be payable by Bank of Montreal had it received such dividends or distributions (as determined by the Index Calculation Agent). In the case of dividends paid by U.S. companies, such taxes are expected to be approximately 15% of gross cash ordinary dividends based on Bank of Montreal’s status as a Canadian taxpayer and current withholding rates under the Canada-United States Tax Convention for dividend payments by U.S. companies to Canadian residents. Many of Canada’s tax treaties with other countries provide for the same rate of withholding tax on dividend payments made by companies in those countries. The Index Calculation Agent is bound by the Index Rules in determining the Index Level and, except on the occurrence of certain events, as described in Appendix C, has no discretion in applying the Index Rules to determine the Weights to be applied to the Index Components on each Reweighting Date or, subject to limited discretion to base the Index Level on the previous month’s Monthly Unique Portfolio for up to five Index Business Days after a Reweighting Date, as set out above under “Monthly Selection and Reweighting of the Monthly Unique Portfolio”, to change the exposure of the Index to the Monthly Unique Portfolio on each Index Business Day between Reweighting Dates. The Index is described as a “notional” or “hypothetical” portfolio of assets because there is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest. The Index merely references certain Index Components, the performance of which will be used as a reference point for calculating the Index Level. No assurance can be given that the investment strategy used to construct the Index will be successful or that the Index will outperform any alternative portfolio or strategy that might be constructed from the Index Components. Furthermore, no assurance can be given that the Index will achieve its target volatility of 6%. The actual realized volatility of the Index may be greater or less than 6%. The Index has limited history; therefore limited historical performance data is available for the Index. An investment in the Deposit Notes does not represent a direct or indirect investment in any of the Index Components that comprise the Index. Holders have no right or entitlement to the dividends or distributions paid on such Index Components or their constituent securities. Further information about the Index, including the rules for calculating the Index Level, can be found in Appendix A. All information in this Information Statement relating to the Index Components is derived from publicly available sources and is presented in this Information Statement in summary form. Such information is subject to change by the sponsor or issuer of such Index Components. The sponsor of an Index Component that is an index has no obligation to continue to publish, and may discontinue publication of such index at any time. As such, none of Bank of Montreal, the Selling Agent, the Manager or the Index Calculation Agent assumes any responsibility for the accuracy, reliability or completeness of such information, or accepts responsibility for the calculation or other maintenance of or any adjustments to an Index Component or the provision of any future information in respect of the Index Components, and the sponsor or issuer of an Index Component has no duty or obligation to update such information up to or after the Closing Date. Investors in the Deposit Notes should make their own investigation into the Index, the Index Components and the sponsors or issuers of the Index Components. FEES AND EXPENSES OF THE OFFERING No expenses will be paid out of the proceeds of the Offering to the Selling Agent. The Deposit Notes are available only to investors who participate in programs that already charge a fee for the advice they are receiving (for example, dealer sponsored “fee for service” or wrap programs) or pay their advisor an hourly or annual asset based fee rather than commissions on each transaction and who purchase the Deposit Notes in connection with such programs.
29 FEES AND EXPENSES ASSOCIATED WITH THE INDEX The Index Return used to determine the Variable Return on the Deposit Notes will be affected by the deduction of the Fee in determining the Index Level (see Appendix A). RISK FACTORS An investment in Deposit Notes is subject to certain risk factors that prospective investors should carefully consider before acquiring Deposit Notes, including, but not limited to, the risk factors described below. This section describes the most significant risks relating to the Deposit Notes. Bank of Montreal urges prospective investors to read the following information about these risks, together with other information in this Information Statement, before investing in the Deposit Notes. Suitability of Deposit Notes for Investment An investor should decide to invest in the Deposit Notes only after carefully considering with his or her advisor, whether the Deposit Notes are a suitable investment in light of the information set out in this Information Statement. Neither Bank of Montreal nor BMO Capital Markets, including in its capacity as Selling Agent, Manager and Index Calculation Agent, makes any recommendation as to whether the Deposit Notes are a suitable investment for any person. The return on the Deposit Notes, if any, unlike the return on many deposit liabilities of Canadian chartered banks, is uncertain in that, if the Index does not generate positive returns, the Deposit Notes could produce no return on a Holder’s original investment. There is no assurance that the Index will generate positive returns. It is possible that at Maturity a Holder will only receive the Deposit Amount. The Deposit Notes are designed for investors with a mid to long-term investment horizon who are prepared to hold the Deposit Notes to Maturity; an investment in the Deposit Notes is only suitable for investors prepared to assume the risks of an investment whose return, if any, is based on the performance of the Index and could be zero. The Deposit Amount is only repaid if the Deposit Notes are held to Maturity. The Deposit Notes are not conventional indebtedness. They do not have a fixed yield and could produce no return at Maturity. Therefore, the Deposit Notes are not suitable investments for investors who need or expect a return on investment. In addition, the Deposit Notes are not a suitable investment for a prospective investor who does not understand their terms or the risks involved in holding the Deposit Notes. Non-Conventional Deposit Notes The Deposit Notes are not conventional instruments or debt securities. The Deposit Notes may not provide Holders with a return or income stream prior to Maturity, or a return at Maturity, that is calculated wholly by reference to a specific fixed or floating rate of interest that can be determined prior to the Final Valuation Date. The return on the Deposit Notes, unlike that on many deposit liabilities of Canadian chartered banks, is uncertain in that the Deposit Notes could provide no return. Variable Return May Not Be Payable The Variable Return payable under the Deposit Notes, if any, is uncertain and is based on the performance of the Index. An investment in the Deposit Notes will not track a direct investment in the Index or the Index Components and Holders will not have any ownership interest or related rights (including, without limitation, any voting rights or rights to receive dividends or distributions) in the Index or the Index Components. There is a possibility that no Variable Return will be payable, with the result that a Holder may only receive the Deposit Amount at Maturity. In all cases, however, Holders will be entitled to receive the Deposit Amount at Maturity. See “Note Program − Variable Return”. Variable Return May Be Limited Since the Variable Return, if any, will equal $100 multiplied by 230% of the Index Return (if positive) from the Closing Date until the Final Valuation Date, a Holder’s exposure under the Deposit Notes to the Index is not the same as an investment in the Index Components and therefore the Variable Return that may be payable at Maturity may be less than the return realized from a direct investment in the Index or the Index Components. If the Index Return is zero or negative no Variable Return will be payable. Risk Factors Relating to the Index and Index Components The Variable Return, if any, payable on the Deposit Notes is based on the performance of the Index. Accordingly, certain risk factors applicable to investors who invest directly in the Index or the Index Components are also 30 applicable to an investment in the Deposit Notes to the extent that such risk factors could adversely affect the performance of the Index. Risks Relating to the Index: The Index follows a proprietary strategy that operates on the basis of the Index Rules. In particular, the Index Components are subject to monthly reweighting, daily rebalancing and upper limits by asset type and sector. A Holder’s return on the Deposit Notes may be less than the return a Holder could realize on an alternative investment in the Index Components that is not subject to reweighting, rebalancing or such upper limits. No assurance can be given that the investment strategy on which the Index is based will be successful or that such Index will outperform any alternative strategy that might be employed in respect of the Index Components. Furthermore, no assurance can be given that the Index will achieve its target volatility of 6%. The actual realized volatility of the Index may be greater or less than 6%. Accordingly, potential investors in the Deposit Notes should determine whether the Index Rules are appropriate in light of their individual circumstances and investment objectives. The Index was established on the Start Date and therefore has limited history to evaluate its likely performance. Past performance of the Index Components is not indicative of future performance of the Index. The Index is a notional portfolio of assets. The exposures to the Index Components are purely notional and will exist solely in the records maintained by or on behalf of the Index Calculation Agent. Consequently, Holders of the Deposit Notes will not have any claim against any of the reference assets which comprise that Index. Holders should also recognize that the BMO Capital Markets, as the Sponsor of the Index, has no obligations relating to the Deposit Notes or to Holders. Risks Relating to the Index Components: Holders should recognize that it is impossible to know whether the Index Level at any time will rise or fall. The performance of the Index is dependent on the performance of the 11 Index Components (being the 10 Securities Components and the Cash Component) and their underlying securities. The value of most investments, in particular equity securities, is affected by the outlook for the company that issued the security, and changes in general economic, industry and market trends. These changes may be caused by corporate developments, changes in interest rates, changes in the level of inflation, and other political and economic developments. These changes can affect the price of equity securities which can move up or down, without any predictability. A decrease in the price of the Index Components will adversely affect the Index and may affect the Deposit Notes. Furthermore, increases in the value of some of the Index Components may be offset by declines in the level of other Index Components. These factors are beyond the control of Bank of Montreal. Historical price levels of the Index Components should not be considered as an indication of the future performance of the Index Components or the Index. Furthermore, the results that may be obtained from investing in any security or other investment or transaction linked to the Index may be significantly different from the results that could theoretically be obtained from investing in the Index Components. Such differences may arise for a number of reasons including, but not limited to, the Fee deducted in determining the Index Level. None of Bank of Montreal, BMO Capital Markets or their respective affiliates or associates have performed any due diligence investigation or review of any of the Index Components or the sponsors or issuers, as the case may be, of the Index Components. Any information relating to the Index Components or their sponsors or issuers was derived from and based solely upon publicly available sources and its accuracy cannot be guaranteed. None of Bank of Montreal, BMO Capital Markets or any of their respective affiliates or associates has any obligations or responsibility for the provision of future information in respect of the Index Components or their sponsors or issuers. Investors shall have no recourse against Bank of Montreal, BMO Capital Markets or any of their respective affiliates or associates in connection with any information about and/or relating to the Index Components or their sponsors or issuers that is not contained in this Information Statement. Prospective investors should undertake an independent investigation to determine if an investment in the Deposit Notes is suitable for them. None of the sponsors or issuers of the Index Components have participated in the preparation of this Information Statement and the Deposit Notes are not in any way sponsored, endorsed, sold or promoted by any such sponsors or issuers. Index Calculation Agent Discretion: The Index Calculation Agent is bound by the Index Rules in determining the Index Level and, except on the occurrence of certain events, as described in Appendix C, has no discretion in applying the Index Rules to determine the Weights to be applied to the Index Components on each Reweighting Date or, subject to limited discretion to base the Index Level on the previous month’s Monthly Unique Portfolio for up to five Index Business Days after a Reweighting Date, as set out under “The Index – Calculating the Index and Selecting the Monthly Unique Portfolio – Monthly Selection and Reweighting of the Monthly Unique Portfolio”, to
31 change the exposure of the Index to the Monthly Unique Portfolio on each Index Business Day between Reweighting Dates. However, the Index Rules confer on the Index Calculation Agent limited discretion in making certain determinations and calculations from time to time. In addition, the Index Calculation may have to take steps to resolve ambiguities in the Index Rules, including, if necessary, amending the Index Rules. While the Index Calculation Agent will act in good faith and in a commercially reasonable manner with respect to the performance of its obligations and the exercise of its discretion pursuant to the Index Rules, the exercise of such discretion in making calculations and determinations may adversely affect the performance of the Index. All determinations of the Index Calculation Agent in respect of the Index shall be final, conclusive and binding and no person shall be entitled to make any claim in respect thereof against the Index Calculation Agent, any of its affiliates or any of their respective directors, officers, employees, representatives, delegates or agents, who shall be under no obligation to revise any determination or calculation made or action taken for any reason once a determination or calculation is made or action taken by the Index Calculation Agent in respect of the Index. This is not a complete description of the risks applicable to the Index, the Index Components or the sponsors or issuers of the Index Components. For a description of the risks applicable to the Index Components and their sponsors or issuers, an investor should consult the publicly available disclosure documents available at the websites set out in Appendix B. Information about the Index can be found in Appendix A. Secondary Trading of Deposit Notes The Deposit Notes are designed for investors who are prepared to hold the Deposit Notes to Maturity. There is currently no market through which the Deposit Notes may be sold. Bank of Montreal does not intend to apply to have the Deposit Notes listed on any securities exchange or marketplace. BMO Capital Markets may (but is not obligated to) arrange for a secondary market for the purchase and sale of the Deposit Notes. Should there be such a secondary market, it is not possible to predict, due to several factors, the price at which the Deposit Notes will trade in the secondary market or whether such market will be liquid or illiquid. A Holder who sells Deposit Notes in the secondary market may receive less than the Deposit Amount. Sale of a Deposit Note prior to Maturity may result in a loss even if the performance of the Index has been positive. The Deposit Amount is repaid by Bank of Montreal only at Maturity. There is no assurance that any premium that may have been paid by a Holder having purchased Deposit Notes in the secondary market will be repaid. The price that BMO Capital Markets will pay to a Holder for a Deposit Note prior to Maturity will be determined by BMO Capital Markets, acting in its sole discretion, and will be based on, among other things: whether the Index Level has increased or decreased since the Closing Date and by how much; the fact that the Deposit Amount is payable on the Maturity Date regardless of the Closing Level or performance of the Index at any time and up to such time; and a number of other interrelated factors, including, without limitation, the correlation and volatility of the prices of the Index Components, prevailing interest rates, the dividend or distribution yields of the Index Components and the time remaining to the Maturity Date. The relationship among these factors is complex and may also be influenced by various political, economic and other factors that can affect the trading price of a Deposit Note. In particular, Holders should realize that the secondary market price for the Deposit Note (a) may have a non-linear sensitivity to the increases and decreases in the Closing Levels of the Index (i.e., the trading price of a Deposit Note will increase and decrease at a different rate compared to the increases and decreases in the Closing Levels of the Index); and (b) may be substantially affected by changes in interest rates independent of the performance of the Index. Holders may wish to consult their respective financial advisors on whether it would be more appropriate in the circumstances at any time to sell or to hold their Deposit Notes until Maturity. A Holder will not be able to redeem or sell Deposit Notes prior to Maturity, other than through the secondary market, if available. Legislative, Regulatory and Administrative Changes Changes in laws, regulations or administrative practices, including with respect to taxation, could have an impact on Holders, including changes, if any, as a result of a current review by the CRA of its administrative practice in
32 relation to the relevance of a secondary market for debt obligations such as the Deposit Notes in determining whether there is a deemed annual accrual of interest on such debt obligations. Conflicts of Interest Each of Bank of Montreal, BMO Capital Markets, whether in its capacity as Selling Agent, Index Calculation Agent or Manager and any of their respective affiliates, may from time to time, in the course of its normal business operations, hold interests linked to the Index or the Index Components or hold securities of, extend credit to or enter into other business dealings with respect to the Index Components, including under hedging arrangements relating to the Deposit Notes. In addition, BMO Capital Markets, which has undertaken to use reasonable efforts to provide a secondary market, is an affiliate of Bank of Montreal. Each of Bank of Montreal and BMO Capital Markets has agreed that all such actions taken by it shall be taken based on normal commercial criteria in the particular circumstances. Conflicts may also arise because Bank of Montreal and/or its affiliates may engage in trading activities related to the Index Components that are not for the account of Holders or on their behalf. These trading activities may present a conflict between the Holders’ interest in the Deposit Notes and the interests that Bank of Montreal and/or its affiliates will have in their proprietary accounts in facilitating transactions, including block trades and options and other derivatives transactions, for their customers and in accounts under their management. These trading activities, if they influence the Index, could be adverse to the interests of the Holders. Moreover, subsidiaries of Bank of Montreal (including BMO Capital Markets) have published, and in the future expect to publish, research reports with respect to some or all of the Index Components. This research is modified from time to time and may express opinions or provide recommendations that are inconsistent with purchasing or holding the Deposit Notes. The foregoing actions by Bank of Montreal, BMO Capital Markets and their respective affiliates may not take into account the effect, if any, of such actions on the Deposit Notes or the Variable Return that may be payable on the Deposit Notes. BMO Capital Markets, an affiliate of Bank of Montreal, acts as the Index Calculation Agent and is responsible for calculating and maintaining the Index and developing the guidelines and policies governing its composition and calculation. The Index Calculation Agent has limited discretion in making certain determinations and calculations in respect of the Index from time to time, as set out above under “Risk Factors Relating to the Index and Index Components—Index Calculation Agent Discretion”. Although the Index Calculation Agent will make all determinations and take all action in relation to the Index acting in good faith and in a commercially reasonable manner, the policies and judgments for which the Index Calculation Agent is responsible could have an impact, positive or negative, on the Index Level and the value of the Deposit Notes. The Index Calculation Agent may also amend the rules governing the Index in certain circumstances as described above under “Risk Factors Relating to the Index and Index Components— Index Calculation Agent Discretion”. Although judgments, policies and determinations concerning the Index are made by the Index Calculation Agent, Bank of Montreal, as the parent company of the Index Calculation Agent, ultimately controls the Index Calculation Agent. The Index Calculation Agent has no obligation to consider a Holder’s interests in taking any actions that might affect the value of the Deposit Notes. Furthermore, the inclusion of the Index Components in the Index is not an investment recommendation by Bank of Montreal of the Index Calculation Agent of the Index Components or any of the securities comprising the Index Components or in which the Index Components invest. See Appendix A for further information about the determination of the Index Level. BMO Asset Management Inc., an affiliate of Bank of Montreal, manages and administers three of the Index Components: BMO Aggregate Bond Index ETF, BMO Short Corporate Bond Index ETF and BMO Long Provincial Bond Index ETF. BMO Asset Management Inc. will have no obligation to consider a Holder’s interests in taking any actions that might affect the value of the Deposit Notes. Credit Rating The Deposit Notes have not been rated. As of the date of this Information Statement, the deposit liabilities of Bank of Montreal with a term to Maturity of more than one year are rated “AA” by DBRS, “A+” by S&P and “Aa3” by Moody’s. There can be no assurance that, if the Deposit Notes were specifically rated by these rating agencies, they would have the same rating as the conventional deposit liabilities of Bank of Montreal. A rating is not a recommendation to buy, sell or hold investments, and may be subject to revision or withdrawal at any time by the relevant rating agency.
33 Credit Risk Because the obligation to make payments to Holders is an obligation of Bank of Montreal, the likelihood that such Holders will receive the payments owing to them in connection with the Deposit Notes will be dependent upon the financial health and creditworthiness of Bank of Montreal. No Deposit Insurance Unlike conventional bank deposits, the Deposit Notes will not constitute deposits that are insured under the Canada Deposit Insurance Corporation Act or any other deposit insurance regime designed to ensure the payment of all or a portion of a deposit upon the insolvency of the deposit taking financial institution. Therefore, a Holder will not be entitled to Canada Deposit Insurance Corporation protection. Canadian Investor Protection Fund There is no assurance that an investment in the Deposit Notes will be eligible for protection under the Canadian Investor Protection Fund. A Holder should consult a financial advisor on whether the Holder’s investment in the Deposit Notes is eligible for protection in light of such Holder’s particular circumstances. Special Circumstances In the event of the occurrence of certain special circumstances as described under “Special Circumstances” in Appendix C, BMO Capital Markets may, as it determines appropriate, (i) adjust the components or variables in calculating the Variable Return, (ii) replace a Securities Component with a comparable index or ETF, (iii) defer the timing of the calculation of the Variable Return, if any, or (iv) on the occurrence of an Extraordinary Event, instead of paying the Variable Return, if any, at Maturity, determine the Variable Return Early Payment Amount to be paid in extinguishment of the obligation to pay the Variable Return. The Variable Return Early Payment Amount is an estimate of the present value, which may be zero, on the Extraordinary Event Notification Date, of a right to receive the Variable Return, if any, that would have been payable at Maturity if the Extraordinary Event had not occurred. If the Index Calculation Agent makes such an election, the Variable Return Early Payment Amount, if any, will be paid on the tenth (10th) Business Day after the Extraordinary Event Notification Date and no other variable return will be payable to Holders. However, in no event will the Deposit Amount be paid prior to the Maturity Date. See “Special Circumstances” in Appendix C. If a Market Disruption Event in respect of the Index occurs on a day on which the Index Level is to be determined for calculating the Variable Return, the determination of the Closing Level for such Final Valuation Date may be delayed. Fluctuations in the Index Level may occur in the interim. Where there has been a Market Disruption Event, payment of the Variable Return, if any, will be made on the Business Day after the Closing Level on the Final Valuation Date has been determined. See “Special Circumstances” in Appendix C. No Independent Calculation As part of its responsibilities, the Manager will be solely responsible for computing the Variable Return based on the performance of the Index as determined by the Index Calculation Agent. Bank of Montreal has no obligation to retain an independent person to make or confirm the determinations and calculations made for the Deposit Notes. No Ownership of the Index or the Index Components The Deposit Notes will not entitle a Holder to any direct or indirect ownership of, entitlement to, or interest in the Index or the Index Components. As such, a Holder will not be entitled to the rights and benefits of a security holder, including any right to receive dividends or distributions or to vote at or attend meetings of security holders. Owning the Deposit Notes is different from owning the Index Components. The Deposit Notes do not represent a substitute for an investment in the Index Components. CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS In the opinion of Torys LLP, counsel to Bank of Montreal, the following is, as of the date hereof, a general summary of the principal Canadian federal income tax considerations generally applicable to the acquisition, holding and disposition of Deposit Notes by an Initial Holder. This summary is applicable only to an Initial Holder who is an individual (other than a trust) and, for the purposes of the Tax Act is, or is deemed to be, a resident of Canada, deals at arm’s length with and is not affiliated with Bank of Montreal and holds Deposit Notes as capital property.
34 The Deposit Notes will generally be considered to be capital property to an Initial Holder unless: (i) the Initial Holder holds such Deposit Notes in the course of carrying on or otherwise as part of a business of trading or dealing in or buying and selling securities; or (ii) the Initial Holder acquired such Deposit Notes as an adventure in the nature of trade. Certain Initial Holders resident in Canada whose Deposit Notes might not otherwise be considered to be capital property or who desire certainty with respect to the treatment of the Deposit Notes as capital property may be entitled to make an irrevocable election to have the Deposit Notes and all of the Initial Holder’s other “Canadian securities” (as defined in the Tax Act) deemed to be capital property pursuant to subsection 39(4) of the Tax Act. This summary is based on the current provisions of the Tax Act and the regulations thereunder (the “Regulations”) as in force on the date of this Information Statement, counsel’s understanding of the current administrative and assessing practices of the CRA and all specific proposals to amend the Tax Act and the Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof. No assurance can be given that any proposals to amend the Tax Act and the Regulations will be enacted as proposed or at all. This summary does not otherwise take into account or anticipate any changes in law or the CRA’s administrative or assessing practices, whether by legislative, governmental or judicial action. This summary is not exhaustive of all possible Canadian federal income tax considerations applicable to an investment in Deposit Notes, nor does it take into account provincial, territorial or foreign income tax legislation or considerations. This summary is of a general nature only and is not intended to be, nor should it be relied upon or construed as, legal or tax advice to any particular Holder. Holders should consult their own tax advisors for advice with respect to the income tax consequences of an investment in Deposit Notes, based on their particular circumstances. Variable Return A Deposit Note is a “prescribed debt obligation” within the meaning of the Tax Act. The rules in the Regulations applicable to a prescribed debt obligation (the “prescribed debt obligation rules”) generally require a taxpayer to accrue the amount of any interest, bonus or premium receivable in respect of the obligation over the term of the obligation, based on the maximum amount of interest, bonus or premium receivable on the obligation. Based in part on counsel’s understanding of the CRA’s administrative practice relating to “prescribed debt obligations”, there should be no deemed accrual of the Variable Return on the Deposit Notes under the prescribed debt obligation rules prior to the Final Valuation Date, provided that Bank of Montreal has not given notice of the payment of a Variable Return Early Payment Amount following an Extraordinary Event. However, counsel understands that the CRA is currently reviewing its administrative practice in relation to the relevance of a secondary market for debt obligations such as the Deposit Notes in determining whether there is a deemed accrual of interest on such debt obligations. See “Risk Factors – Legislative, Regulatory and Administrative Changes”. If an Extraordinary Event occurs and Bank of Montreal has given notice of the payment of a Variable Return Early Payment Amount, the amount of any Variable Return Early Payment Amount will generally be required to be included in the Initial Holder’s income in the taxation year that includes the date such amount was determined, except to the extent otherwise included in income for the taxation year or a preceding taxation year. Bank of Montreal will file an information return with the CRA in respect of any such amount as and when required by law and will provide the Initial Holder with a copy of such return. Disposition of Deposit Notes Prior to October 1, 2016 In certain circumstances, where an investor assigns or otherwise transfers a debt obligation, the amount of interest accrued on the debt obligation to that time, but unpaid, will be excluded from the proceeds of disposition of the debt obligation and will be required to be included as interest in computing the investor’s income for the taxation year in which the transfer occurs, except to the extent that it has been otherwise included in income for the taxation year or a preceding taxation year. As described in more detail above, there should be no amount that will be treated as accrued interest on an assignment or transfer of a Deposit Note prior to October 1, 2016 unless Bank of Montreal has given notice of the payment of a Variable Return Early Payment Amount following an Extraordinary Event. Provided an Extraordinary Event has not occurred and while the matter is not free from doubt, a disposition or deemed disposition of a Deposit Note by an Initial Holder, other than to Bank of Montreal, prior to October 1, 2016 should give rise to a capital gain (or capital loss) to the extent the Initial Holder’s proceeds of disposition, excluding accrued and unpaid interest, if any, exceed (or are less than) the aggregate of the Initial Holder’s adjusted cost base
35 of the Deposit Note and any reasonable costs of disposition. An Initial Holder who disposes of a Deposit Note prior to October 1, 2016 should consult his or her tax advisor with respect to the Initial Holder’s particular circumstances. One-half of a capital gain (a “taxable capital gain”) realized by an Initial Holder must be included in the income of the Initial Holder. One-half of a capital loss (an “allowable capital loss”) realized by an Initial Holder is deductible against taxable capital gains realized in the taxation year. Allowable capital losses in excess of taxable capital gains for a taxation year may be carried back and deducted against net taxable capital gains realized in the three preceding taxation years or carried forward and deducted against net taxable capital gains realized in subsequent taxation years, subject to the detailed rules in the Tax Act. Capital gains realized by an individual may give rise to a liability for alternative minimum tax. Disposition of Deposit Notes After September 30, 2016 Upon a disposition of a Deposit Note at Maturity, an Initial Holder will be required to include in income for the taxation year in which the disposition occurs, the amount, if any, of the Variable Return, except to the extent otherwise included in income for the taxation year or a preceding taxation year. Bank of Montreal will file an information return with the CRA in respect of any such amount as and when required by law and will provide the Initial Holder with a copy of such return. The federal Budget released on March 22, 2016 proposes to amend the Tax Act to change the federal income tax consequences described above where an Initial Holder transfers or assigns a Deposit Note (other than to Bank of Montreal) after September 30, 2016. Pursuant to the proposed amendments, if enacted as currently proposed, on a transfer or assignment by an Initial Holder of a Deposit Note after September 30, 2016, the Initial Holder will be required to include in income as accrued interest the amount, if any, by which the price for which the Deposit Note was transferred or assigned exceeds the Deposit Amount. An Initial Holder may realize a capital loss on such transfer or assignment to the extent that the price for which the Deposit Note was transferred or assigned is less than the Deposit Amount. Eligibility for Investment by Registered Plans In the opinion of Torys LLP, counsel to Bank of Montreal, the Deposit Notes will, at the date of issue, be qualified investments under the Tax Act for trusts governed by tax-free savings accounts, registered retirement savings plans, registered retirement income funds, registered education savings plans, registered disability savings plans and deferred profit sharing plans (other than a trust governed by a deferred profit sharing plan to which contributions are made by Bank of Montreal or by an employer with which Bank of Montreal does not deal at arm’s length within the meaning of the Tax Act). Where a Holder’s purchase order for Deposit Notes is effected through dealers and other firms that place and clear orders for Deposit Notes using the FundSERV network, such dealers or other firms may not be able to accommodate a purchase of Deposit Notes through certain registered plans. Holders should consult their financial advisors as to whether their orders for Deposit Notes will be made using the FundSERV network and any limitations on their ability to purchase Deposit Notes through registered plans. PLAN OF DISTRIBUTION Pursuant to an agreement between Bank of Montreal and the Selling Agent, the Selling Agent has agreed to offer Deposit Notes for sale as agent of Bank of Montreal on a best efforts basis, if, as and when issued by Bank of Montreal. Investors will subscribe for Deposit Notes by placing their orders with the Selling Agent or sub-agency groups including other qualified selling members. The Deposit Notes are being offered through FundSERV’s transaction processing system. Subscriptions for Deposit Notes may be made through the FundSERV network under the FundSERV code “JHN4003”, which will result in funds being accumulated in a non-interest bearing account of BMO Capital Markets pending execution of all required documents and satisfaction of closing conditions, if any. Holders should recognize that, unless they have purchased the Deposit Notes directly through a representative of BMO Nesbitt Burns Inc., they do not have an account with BMO Nesbitt Burns Inc. Funds in respect of all subscriptions shall be payable at the time of subscription. Bank of Montreal will have the sole right to accept offers to purchase Deposit Notes and may reject any proposed purchase of Deposit Notes in whole or in part. Bank of Montreal reserves the right to allot the Deposit Notes to investors in an amount less than that subscribed for by an investor and/or to close the subscription book or discontinue accepting subscriptions at any time without notice.
36 The Selling Agent is a wholly-owned subsidiary of Bank of Montreal. Consequently, Bank of Montreal is a related issuer of the Selling Agent under applicable securities legislation. The decision to offer the Deposit Notes and the terms of this Offering were negotiated at arm’s length between Bank of Montreal and the Selling Agent. Each Deposit Note will be issued at 100% of its Deposit Amount. There is a maximum issue size of $20,000,000 of Deposit Notes. Bank of Montreal may change the maximum size of the Offering at its discretion. No expenses will be paid out of the proceeds of this Offering to the Selling Agent. While the Selling Agent has agreed to use its best efforts to sell the Deposit Notes offered hereby, the Selling Agent will not be obligated to purchase any Deposit Notes that are not sold. For greater certainty, BMO Capital Markets may purchase Deposit Notes offered hereby as principal. The proceeds to Bank of Montreal from the issuance of the Deposit Notes will constitute deposits received by Bank of Montreal and will be used for general banking purposes. The closing of this Offering is scheduled to occur on or about the Closing Date. Bank of Montreal may, at any time prior to the Closing Date, in its sole and absolute discretion, elect whether or not to proceed in whole or in part with the issue of the Deposit Notes. If for any reason the closing of this Offering does not occur, all subscription funds will be returned to subscribers without interest or deduction. Bank of Montreal may from time to time issue any additional series of notes or any other notes or debt instruments (which may or may not resemble the Deposit Notes) and offer any such notes or debt instruments concurrently with the Offering. Bank of Montreal reserves the right to purchase for cancellation at its discretion any amount of Deposit Notes in the secondary market, without notice to Holders. A Global Note for the aggregate principal amount of the Offering will be issued in registered form to CDS and will be deposited with CDS on the Closing Date. Subject to certain exceptions, certificates evidencing the Deposit Notes will not be available to Holders under any circumstances and registration of interests in and transfer of Deposit Notes will be made through the Book-Entry System of CDS or through FundSERV’s transaction processing system, as applicable. See “Description of the Deposit Notes − Book-Entry System”. The Deposit Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”). No Deposit Notes may or will be offered or sold in the United States or to, or for the account or benefit of, U.S. Persons (as defined in Regulation S of the U.S. Securities Act). In connection with the issue and sale of the Deposit Notes by Bank of Montreal, no person is authorized to give any information or to make any representation not expressly contained in this Information Statement or the Global Note and Bank of Montreal does not accept responsibility for any information not contained herein. This Information Statement does not constitute, and may not be used for the purposes of, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such offer or solicitation and no action is being taken to permit an offering of the Deposit Notes or the distribution of this Information Statement in the United States or to U.S. Persons (as defined in Regulation S of the U.S. Securities Act) or in any jurisdiction outside Canada where any action is required. ADDITIONAL INFORMATION An investor may request information about the Deposit Notes or another copy of this Information Statement by calling BMO Capital Markets at 1-866-864-7760 to speak to someone in English and 1-866-529-0017 to speak to someone in French. A copy of this Information Statement is also posted at www.bmosp.com.
37 APPENDIX A BMO VOLATILITY CONTROLLED (6%) GLOBAL DIVERSIFIED INDEX RULES The Index Rules set out in this Appendix A will govern the constitution and maintenance of the Index, the calculation of the Index Level and other decisions and actions related to the maintenance of the Index. In the event of any inconsistency between the Index Rules and any other disclosure in this Information Statement, the Index Rules will prevail to the extent of such inconsistency. The Index is the intellectual property of BMO Capital Markets, and BMO Capital Markets reserves all rights with respect to its ownership of the Index. The Index Level on each Index Business Day will be reported by BMO Capital Markets at www.bmosp.com. The Index may change in certain circumstances. See “Special Circumstances” in Appendix C. Appendix A Definitions Terms used in the Appendix A have the meanings ascribed to them below. Other capitalized terms used and not defined in this Appendix A have the meanings ascribed to them in the Information Statement under the heading “Definitions”. “Closing Level” means (i) in respect of an Index Component that is an index, the official closing level or value of the index rounded to two decimal places on a given day as announced by the sponsor of the index, provided that, if on or after the Closing Date the sponsor of the index materially changes the time of day at which the official closing level or value is determined or no longer announces the official closing level or value, the Index Calculation Agent may thereafter deem the Closing Level to be the level or value of the index as of the time of day used by the sponsor of the index to determine the official closing level or value prior to such change or failure to announce; and (ii) in respect of a unit of an Index Component that is an ETF, the closing price on any day, in the official currency used by the relevant Exchange, for that unit as announced by the relevant Exchange, provided that, if on or after the Closing Date such Exchange changes the time of day at which such closing price is determined or fails to announce such closing price, the Index Calculation Agent may thereafter deem the Closing Level to be the price of such unit as of the time of day used by such Exchange to determine the closing price prior to such change or failure to announce; and provided further in each case that if a day on which the Closing Level is to be determined is not an Exchange Business Day with respect to an Index Component or if the Index Calculation Agent cannot obtain relevant reliable information from third party sources, the Closing Level of such Index Component on such day shall be the Closing Level of the Index Component determined in accordance with (i) or (ii), as applicable, as of the immediately preceding Exchange Business Day for such Index Component for which the Index Calculation Agent can obtain relevant reliable information from third party sources; “Daily Exposure Factor” means, in respect of an Index Business Day following the most recent Reweighting Date, an exposure factor between zero and one (inclusive) that, when applied to the Index Components as set out in Annex A under “Calculation of the Index Level”, results in the Index having a volatility of no more than 6%. “Determination Period” means, in respect of a Reweighting Date, the five Index Business Days immediately following the Reweighting Date; “Eligible Portfolio” means, in respect of a Reweighting Date, a hypothetical weighted portfolio of Index Components that comprises all 11 of the Index Components and that satisfies the Weighting Constraints; “Exchange” means (i) in respect of an Index Component, any exchange or trading system from which prices of securities are used from time to time in the computation of the Closing Level for such Index Component, and (ii) in respect of an Alternate ETF, the primary exchange or trading system on which such Alternate ETF is listed as determined by the Index Calculation Agent; provided in each case that if the Index Calculation Agent, acting in its sole and absolute discretion, determines that such exchange or trading system is no longer the primary exchange for the trading of the Index Component or Alternate ETF, the Index Calculation Agent may designate another exchange or trading system as the Exchange for the Index Component or Alternate ETF subject, in each case, to the Special Circumstances set out in Appendix C; “Exchange Business Day” means, in respect of an Index Component, any Business Day which is also an Exchange Day on which the Exchange and each Related Exchange are open for trading; “Exchange Day” means, in respect of an Index Component, any day on which the Exchange and each Related Exchange are scheduled to be open for trading during their respective regular trading sessions;
A-1 “Index Business Day” means a day on which the Toronto Stock Exchange is scheduled to open for trading for its regular trading session; “Index Level” means, in respect of an Index Business Day, the closing level of the Index on that Index Business Day calculated in compliance with the Index Rules and in accordance with the formula set out under “Calculation of the Index Level” in Annex A to this Appendix A and rounded to two decimal place; “Index Rules” means the rules governing the constitution and maintenance of the Index, the calculation of the Index Level and other decisions and actions related to the maintenance of the Index, as set out in this Appendix A; “Monthly Unique Portfolio” means, in respect of a Reweighting Date, the Eligible Portfolio that would have produced the highest overall return on the Index over the Reweighting Observation Period subject to Realized Volatility not exceeding an annualized level of 6%; provided that if no Eligible Portfolio has a Realized Volatility equal to or less than 6%, the limit on annualized volatility will be increased in successive increments of 1% until an Eligible Portfolio meeting the criteria is found, which Eligible Portfolio shall be the Monthly Unique Portfolio. “Performance” means, in respect of an Eligible Portfolio and a Reweighting Date, the sum of the weighted returns of each Index Component (based on the weights assigned to the Index Components in the Eligible Portfolio) over the Reweighting Observation Period; “Realized Volatility” means (i) in respect of a Reweighting Date and an Eligible Portfolio, the annualized realized volatility of the Eligible Portfolio over the relevant Reweighting Observation Period determined in accordance with the formula set out under “Calculation of Realized Volatility ─ Calculation of Realized Volatility of Eligible Portfolios for Monthly Reweighting (Determination of the Monthly Unique Portfolio)” in Annex A to this Appendix A and, (ii) in respect of an Index Business Day that is not a Reweighting Date and a Monthly Unique Portfolio, the annualized realized volatility of the Securities Components in the Monthly Unique Portfolio over the relevant Rebalancing Observation Period determined in accordance with the formula set out under “Calculation of Realized Volatility ─ Calculation of Realized Volatility of the Monthly Unique Portfolio for Daily Rebalancing” in Annex A to this Appendix A; “Rebalancing Observation Period” means, in respect of an Index Business Day, the period of 21 Index Business Days prior to and excluding such Index Business Day; “Related Exchange” means any exchange or trading system on which futures or options relating to the Index are listed from time to time; “Reweighting Date” means the first Index Business Day of each calendar month during the term of the Deposit Notes; “Reweighting Observation Period” means, in respect of a Reweighting Selection Date, the period of 126 Index Business Days prior to and including the Reweighting Selection Date; “Reweighting Selection Date” means, in respect of a Reweighting Date, the Index Business Day immediately preceding the Reweighting Date; provided that if a Reweighting Selection Date is an Index Business Day on which a Market Disruption Event occurs or is continuing in respect of any Index Component (each such Index Component for these purposes, an “Affected Index Component”), then the relevant Reweighting Selection Date will remain the originally scheduled Reweighting Selection Date and the Closing Level for each Affected Index Component in respect of such Reweighting Selection Date will be deemed to be the Closing Level for the Affected Index Component as of the immediately preceding Index Business Day for the Affected Index Component on which no Market Disruption Event has occurred or is continuing in respect of that Affected Index Component; “Target Volatility” means 6%, subject to adjustment in accordance with the Index Rules; “Weight” means, in respect of a Reweighting Date, the weight assigned to each Index Component on the Reweighting Selection Date in determining the Monthly Unique Portfolio, as determined by the Index Calculation Agent in accordance with the Index Rules; “Weighting Constraints” means, in respect of an Eligible Portfolio, the following limits on the weights applied to the Index Components in determining the Eligible Portfolio: all Weights must be 0% or a positive integral multiple of 5%; the sum of the Weights applied to all Index Components must be 100%;
A-2 the sum of the Weights applied to all Securities Components in one sector cannot exceed 50%; the Weight applied to the iShares S&P/TSX Capped REIT Index ETF cannot exceed 50%; the Weight applied to each Securities Component (except the iShares S&P/TSX Capped REIT Index ETF) cannot exceed 20%; and the Weight applied to the Cash Component cannot exceed 25%. Index Rules Monthly Reweighting For each Reweighting Date, subject to adjustment if a Market Disruption Event has occurred and is continuing and subject as further described below, the Index Calculation Agent will: 1. determine the Reweighting Observation Period; 2. determine the Closing Level of each Index Component on each Index Business Day during the Reweighting Observation Period; 3. identify all Eligible Portfolios; 4. calculate the Performance of each Eligible Portfolio; 5. calculate the Realized Volatility of each Eligible Portfolio; and 6. identify the Monthly Unique Portfolio, including the Weights assigned to each Index Component. In determining the Monthly Unique Portfolio: If (a) the Closing Level of any Index Component as of any date which is published or otherwise made available in respect of the relevant Index Component is subsequently corrected and such correction is published or otherwise made available in respect of such Index Component; or (b) the Index Calculation Agent identifies an error or omission in any of its calculations or determinations in respect of the Index, then the Index Calculation Agent may, if practicable and if the Index Calculation Agent determines acting in good faith that such correction, error or omission (as the case may be) is material, adjust or correct the relevant calculation or determination of the Index Level as of any Index Business Day to take into account such correction. Realized Volatility will be determined using the formula in Annex A to this Appendix A. For some or all of the Determination Period following the determination of a Monthly Unique Portfolio on a Reweighting Date, the Index Calculation Agent may, in its sole discretion, continue to use the Monthly Unique Portfolio from the preceding Reweighting Date for purposes of daily rebalancing of volatility and determining the Index Level; provided, however, that the Index Calculation Agent must adopt the most recently determined Monthly Unique Portfolio for such purposes on or before the end of the Determination Period. If a Reweighting Selection Date or Final Valuation Date is an Index Business Day on which a Market Disruption Event occurs or is continuing in respect of any Index Component, then the relevant Reweighting Date will be determined as set out in Appendix C. If any Index Business Day, other than a Reweighting Selection Date or Final Valuation Date, is an Index Business Day on which a Market Disruption Event occurs or is continuing in respect of any Index Component (each such Index Component for these purposes, an “Affected Index Component”), the Index Calculation Agent may either: (i) calculate its good faith estimate of the Index Level for such Index Business Day, using its good faith estimate of the Closing Level of the Affected Index Component(s). Any such estimated level may be subject to correction on the first succeeding Index Business Day that on which a Market Disruption Event is not occurring or continuing in respect of such Affected Index Component and on the first succeeding Index Business Day on which a Market Disruption Event is not occurring or continuing in respect of any Index Component; or (ii) suspend the calculation and publication of the Index Level until the first succeeding Index Business Day on which a Market Disruption Event is not occurring or continuing in respect of any Index Component.
A-3 Daily Rebalancing The exposure of the Index to the Monthly Unique Portfolio is rebalanced on each Index Business Day, including Reweighting Dates, to account for daily changes in the 1-month historical volatility of the Monthly Unique Portfolio during the Rebalancing Observation Period in respect of such Index Business Day. If such volatility is greater or less than 6%, the Index will decrease or increase its exposure to the Monthly Unique Portfolio (and increase or decrease its exposure to Cash) in accordance with the Index Level formula set out in Annex A to this Appendix A and subject to the limits set out below. For each Index Business Day that is not a Reweighting Date, subject to adjustment if a Market Disruption Event has occurred and is continuing and subject as further described below, the Index Calculation Agent will: 1. determine the Daily Exposure Factor for such Index Business Day; 2. determine the Index Level on such Index Business Day In determining the Daily Exposure Factor on any such Index Business Day: the Daily Exposure Factor will be between zero and one (inclusive); application of the foregoing restraint together with the Weighting Constraints could result in Realized Volatility of the Index being less than 6% on an annualized basis; rebalancing changes the extent to which the Monthly Unique Portfolio (and therefore the Securities Components and the Cash Component) is represented in the Index, but does not change the Weights of the Securities Components; and daily rebalancing will be based on the old Monthly Unique Portfolio until the Index Calculation Agent adopts the new Monthly Unique Portfolio, as described above under “Monthly Reweighting”. Determining the Index Level Unless a Market Disruption Event has occurred and is continuing, the Index Calculation Agent will determine the Index Level on each Index Business Day. The Index Business Level on any day that is not an Index Business Day will be the Index Level on the immediately preceding Index Business Day. The Index started on On June 29, 2016 (the “Start Date”). On the State Date, the Index comprised notional holdings in the Index Components with Weights determined as of the Reweighting Selection Date immediately preceding the Start Date (the “Initial Reweighting Selection Date”) and effected as of the relevant Reweighting Date (the “Initial Reweighting Date”), in accordance with the procedure described in “Monthly Reweighting” above. References to “Reweighting Date” or “Reweighting Selection Date,” respectively, include references to the Initial Reweighting Date or Initial Reweighting Selection Date, respectively. The Index Level for the Index was set at 100 on the Start Date. Annex A to this Appendix A provides details of the calculation of the Index Level on each Index Business Day under the heading “Calculation of the Index Level”. No assurance can be given that the investment strategy used to construct the Index will be successful or that the Index will outperform any alternative portfolio or strategy that might be constructed from the Index Components. Furthermore, no assurance can be given that the Index will achieve its target volatility of 6%. The actual realized volatility of the Index may be greater or less than 6%. The Index is described as a “notional” or “hypothetical” portfolio or portfolio of assets because there is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest. The Index merely references certain Index Components, the performance of which will be used as a reference point for calculating the Index Level. The Index was established on the Start Date and therefore has limited history to evaluate its likely performance. Past performance of the Index Components is not indicative of future performance of the Index.
A-4 The Index Calculation Agent; Amendment of Index Rules; Limitation of Liability BMO Capital Markets or any affiliate or subsidiary designated by it will act as calculation agent for the Index (in such capacity, the “Index Calculation Agent”). The Index Calculation Agent’s determinations in respect of the Index and interpretation of the Index Rules will be final. The Index Rules may be supplemented, amended or restated from time to time at the sole discretion of the Index Calculation Agent. The Index Calculation Agent will act in good faith and in a commercially reasonable manner with respect to the performance of its obligations and the exercise of its discretion pursuant to the Index Rules. While the Index Rules are intended to be comprehensive, ambiguities may arise. In such circumstances, the Index Calculation Agent will resolve such ambiguities in a reasonable manner and, if necessary, amend the Index Rules to reflect such resolution. Neither the Index Calculation Agent nor any of its affiliates or any of their respective directors, officers, employees, representatives, delegates or agents (each a “Related Person”) will have any responsibility to any person (whether as a result of negligence or otherwise) for any determinations made or anything done (or omitted to be determined or done) in respect of the Index and any use to which any person may put the Index or the Index Levels. All determinations of the Index Calculation Agent in respect of the Index shall be final, conclusive and binding and no person shall be entitled to make any claim against any of the Related Persons in respect thereof. Once a determination or calculation is made or action taken by the Index Calculation Agent in respect of the Monthly Unique Portfolio, neither the Index Calculation Agent nor any other Related Person shall be under any obligation to revise any determination or calculation made or action taken for any reason.
A-5 Annex A Calculation of Realized Volatility Realized Volatility is calculated for every Securities Component for monthly reweighting; and for the portfolio of Securities Components for daily rebalancing. Both calculations are based on the exponential weighted moving average (“EWMA”) approach with an EWMA smoothing factor l = 0.94. Calculation of the Realized Volatility for every Securities Component proceeds as follows. Calculation of Realized Volatility of Eligible Portfolios for Monthly Reweighting (Determination of the Monthly Unique Portfolio) First, the EWMA of 126 daily returns (from 127 consecutive business days) is calculated as: 126 푆 (푖) 1 − 푙 μ(푖) = ∑ 푙126−푡 ( 푡 1 − 푙126 (푖) − 1) 푆
Then the Realized Volatility is calculated as: 1 t−1 (푖) 126 푆 2 1 − 푙 (푖) 126−푡 푡 휎 = ∑ 푙 ( (푖) 1 − 푙126 (푖) − 1 − 휇 ) 푆 Here: 1 t−1
(i) is the EWMA estimate of the Realized Average of the ith Securities Component returns (i) is the EWMA estimate of the Realized Volatility of the ith Securities Component returns l is the EWMA smoothing parameter (0.94) t and t – 1 are the Index Business Day and the Index Business Day immediately preceding day t (i) th S t is the Closing Level of the i Securities Component on day t (i) th St– 1 is the Closing Level of the i Securities Component on day t – 1
Calculation of Realized Volatility of the Monthly Unique Portfolio for Daily Rebalancing The calculation of the Realized Volatility of the Monthly Unique Portfolio for purposes of daily rebalancing is similar to the calculation of the Realized Volatility of Eligible Portfolios for Monthly Reweighting, but the return on the Monthly Unique Portfolio is used instead of Securities Component returns. First, for each of 22 Index Business Days portfolio value is constructed as: 10 (푖) (푖) 푃푡 = ∑ 푤 푆푡
Then EWMA estimates of the portfolio return realized average1 and realized volatility are calculated as: 1 − 푙 21 μ = ∑ 푙21−푡 푃 − 1) 푡 1 − 푙21 ( 1 푃푡−1 21 1 − 푙 2 21−푡 푃 ∑ 푙 ( 푃 푡 Where: 푡−1
휎 = 21 − 1 − 휇) 1 − 푙 1
t and t – 1 are the Index Business Day and the Index Business Day immediately preceding day t
Pt is the portfolio value on Index Business Day t is the EWMA of the Realized Average of the daily portfolio returns
A-6 is the EWMA estimate of the Realized Volatility of the daily portfolio returns l is the EWMA smoothing parameter (0.94) w(i) is the Weight of the ith Securities Component after the latest Reweighting Date
Calculation of the Index Level On each Index Business Day from but excluding the immediately preceding Reweighting Date to and including the next following Reweighting Date, the “Index Level” for the Index will be determined as follows: (푖) 푤 ∑10 (푖) 푆푡 � − � 1 0( ) �� � − � 푡 푡−1 ) 푆 푖 + (1 + 푟 푡 푡−1) (1 − 퐴 ) (푖) 퐴 퐼푡 = 퐼푡−1 (1 − 365 ∑ 10 (푖) 푆푡 −1 푡−1 푡−1 365 푡−1 퐹�� 푤 1 푆(푖) 0 ( ) 10 (푖) �푡 − �푡−1 ∑ 푤 (1 + �� �푡 − �푡−1 푟�푡(푖)) ) ( 1 푡 퐴푡−1 + (1 + 푟푡−1 ) (1 − 퐴푡−1)) 10 (푖) (푖) = 퐼푡−1 (1 − 365 ∑ 푤 (1 + 푟�푡 ) 365 퐹��
Where: 1 푡−1
t is the Index Business Day on which the Index Level is being determined t-1 is the Index Business Day immediately preceding Index Business Day t
It is the Index Level on Index Business Day t
It-1 is the Index Level on the Index Business Day immediately preceding Index Business Day t Fee is the annual fee (2.5%)
dt – dt–1 is the number of days between Index Business Day t and the previous Index Business Day t – 1 w(i) is the Weight of the ith Securities Component after the latest Reweighting Date (i) th S t is the closing level of the i Securities Component on day t (i) th S0 is the closing level of the i Securities Component on the latest Reweighting Date
At–1 is the Daily Exposure Factor on the previous Index Business Day t – 1 ON rt–1 is the Canadian overnight repo rate average for Index Business Day t – 1 (i) (i) (i) (i) th rett = (S t – S 0 ) / S 0 is the i Securities Component return from the latest Reweighting Date to Index Business Day t
The Index Level on any Index Business Day given by this formula reflects the following calculation steps: 1. The Index Fee on such Index Business Day will be 2.50% multiplied by the number of calendar days from but excluding the immediately preceding Index Business Day to and including such Index Business Day and divided by 365 with the result being multiplied by the Index Level on the previous Index Business Day; 2. The Index Level Net of the Fee on the previous Index Business Day will be the Index Level on the previous Index Business Day less the Index Fee on such Index Business Day; 3. The Securities Component Return for each Securities Component on each Index Business Day will be the Closing Level of the Securities Component on such Index Business Day less the Closing Level of the Securities Component on the immediately preceding Reweighting Date, divided by the Closing Level of the Securities Component on the immediately preceding Reweighting Date;
A-7 4. The Relative Weighted Securities Component for each Securities Component on such Index Business Day will be such Securities Component’s Securities Component Return on such Index Business Day plus one with such sum being multiplied by the Weight assigned to such Securities Component on the immediately preceding Reweighting Date; 5. The Gross Relative Securities Component on such Index Business Day will be the sum of the Relative Weighted Securities Components for all Securities Components on such Index Business Day; 6. The Gross Securities Component Quotient on such Index Business Day will be the ratio of the Gross Relative Securities Component on such Index Business Day to the Gross Relative Securities Component on the previous Index Business Day multiplied by the Daily Exposure Factor determined as of the previous Index Business Day; 7. The Gross Cash Component Return on such Index Business Day will be the published Canadian Overnight Repo Rate on the previous Index Business Day multiplied by the number of calendar days from but excluding the immediately preceding Business Date to and including such Index Business Day with the result being divided by 365; 8. The Gross Cash Component Quotient on such Index Business Day will be (one plus the Gross Cash Component Return) multiplied by (one minus the Daily Exposure Factor); and 9. The Index Level on such Index Business Day will be the Index Level Net of the Fee on such Index Business Day multiplied by the sum of (a) the Gross Securities Component Quotient and (b) the Gross Cash Component Quotient on such Index Business Day, rounded to two decimal places.
A-8 APPENDIX B INDEX COMPONENTS All information in this Information Statement relating to an Index Component, including its composition and historical performance, is derived from publicly available sources and is presented in this Information Statement in summary form. As such, none of Bank of Montreal, the Selling Agent, the Manager, the Calculation Agent, the Index Calculation Agent or any investment dealer, broker or agent selling the Deposit Notes (i) assumes any responsibility for the accuracy or completeness of such information; (ii) accepts responsibility for the provision of any future information in respect thereof; (iii) has any duty or obligation to update such information up to or after the Closing Date; or (iv) assumes any responsibility for the calculation or other maintenance of or any adjustments to any Closing Level or Closing Price. The information set out below is historical and as such is subject to change and is not a guarantee of the future composition of or weightings of an Index Component that is an index. Neither the sponsor of an Index Component that is an index nor the fund manager of an Index Component that is an ETF (i) has any obligation or liability in connection with the administration, marketing or trading of the Deposit Notes; (ii) is responsible for or has participated in the determination of the structuring, timing, pricing or number of Deposit Notes to be issued; or (iii) has any responsibility or liability with respect to the accuracy, reliability or completeness of any of the information contained in this Information Statement. A Holder may obtain further information about each Index Component and its constituent securities at the websites set out below. Internet addresses included in this Information Statement are inactive textual references only. The contents of any websites referred to in this Information Statement are not incorporated by reference in, and do not form part of, this Information Statement. Description, Composition and Historical Performance of Index Components
S&P/TSX 60 Index SPTSX60 Index The S&P/TSX 60 Index is a large-cap index comprising sixty (60) actively traded Canadian companies. The constituents are a subset of the constituents of the S&P/TSX Composite Index. The S&P/TSX 60 Index is maintained by the Canadian S&P Index Committee, whose members include representatives from both the Sponsor and the TSX. The S&P/TSX 60 Index value is determined by multiplying the price of the individual components by their corresponding free-float share amount. The free-float share amount adjusts the outstanding float for control blocks. The market capitalization of all the individual components are summed and divided by the S&P/TSX 60 Index divisor, which may be adjusted for corporate actions and significant restructurings. Criteria for removal from the S&P/TSX 60 Index include a violation of one or more Index requirements, as well as mergers or acquisitions involving companies in the S&P/TSX 60 Index. The top 10 securities represented in the S&P/TSX 60 Index as at June 20, 2016 are set out below (Source: Bloomberg). The historical composition of the S&P/TSX 60 Index does not necessarily reflect the composition of the S&P/TSX 60 Index in the future.
Company Weighting Royal Bank of Canada 8.65% Toronto-Dominion Bank 7.82% Bank of Nova Scotia 5.67% Canadian National Railway Co 4.50% Suncor Energy Inc. 4.08% Bank of Montreal 3.98% BCE Inc. 3.91% Enbridge Inc. 3.65% Canadian Natural Resources Ltd. 3.10% Canadian Imperial Bank of Commerce 3.01% The Index references the total return version of the S&P/TSX 60 Index, which reflects the reinvestment of dividends and distributions declared on its constituent securities. Securities represented in the S&P/TSX 60 Index have an average 12-month dividend yield of 3.07% and an aggregate market capitalization of $1.45 trillion as at June 22, 2016 (Source: Bloomberg).
B-1 Historical Performance of the S&P/TSX 60 Index Closing Levels of the S&P/TSX 60 Index can be found on Bloomberg under the symbol “SPTSX60
Industry Sector Breakdown of the S&P/TSX 60 Index The following chart provides an industry sector breakdown of the constituent securities of the S&P/TSX 60 Index as at June 20, 2016:
Source: Bloomberg
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S&P 500 Index SPX Index The S&P 500 Index is considered a gauge of the U.S. equities market. It is comprised of 500 companies from a variety of industries in the United States. The S&P 500 Index focuses on the large cap segment of the market, with approximately 80% coverage of the U.S. equity market capitalization. S&P chooses companies for inclusion in the S&P 500 with the aim of achieving a distribution by broad industry groupings that approximates the distribution of these groupings in the common stock population of its Stock Guide Database of over 10,000 companies, which S&P uses as an assumed model for the composition of the total market. Relevant criteria employed by S&P include the viability of the particular company, the extent to which that company represents the industry group to which it is assigned, the extent to which the market price of that company’s common stock generally is responsive to changes in the affairs of the respective industry, and the market value and trading activity of the common stock of that company. Ten main groups of companies comprise the S&P 500 Index, with the approximate percentage of the market capitalization of the S&P 500 Index included in each group as at June 21, 2016 indicated in parentheses: Information Technology (20.0%); Financials (15.8%); Health Care (14.5%); Consumer Discretionary (12.5%); Consumer Staples (10.4%); Industrials (10.2%); Energy (7.3%); Utilities (3.5%); Materials (2.9%); and Telecommunications Services (2.8%) (Source: S&P Dow Jones Indices). The Index references the total return version of the S&P 500 Index, which reflects the reinvestment of dividends and distributions declared on its constituent securities, net of any withholding taxes, stamp taxes and/or other similar amounts that would be payable by Bank of Montreal had it received dividends on such securities (as determined by the Calculation Agent). In the case of dividends paid by U.S. companies, such taxes are expected to be approximately 15% of gross cash ordinary dividends based on Bank of Montreal’s status as a Canadian taxpayer and current withholding rates under the Canada-United States Tax Convention for dividend payments by U.S. companies to Canadian residents. Securities represented in the S&P 500 Index have an average 12-month dividend yield of 2.18% and an aggregate market capitalization of $18.82 trillion as at June 22, 2016 (Source: Bloomberg). Historical Performance of the S&P 500 Index Closing Levels of the S&P 500 Index can be found on Bloomberg under the symbol “SPX”. The following graph illustrates the performance of the S&P 500 Index from May 23, 2006 through May 20, 2016 using daily Closing Levels of the S&P 500 Index obtained from Bloomberg Financial Services. Past S&P 500 Index values are not necessarily indicative of future S&P 500 Index values.
B-3 Industry Sector Breakdown of the S&P 500 Index The following chart provides an industry sector breakdown of the constituent securities of the S&P 500 Index as at June 21, 2016:
Source: Bloomberg
Euro STOXX 50 Index SX5E Index The EURO STOXX 50 Index is a capitalization-weighted index of 50 stocks from 12 Eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. It captures approximately 60% of the free float market capitalization of the EURO STOXX Total Market Index, which in turn covers approximately 95% of the free float market capitalization of the represented countries. The EURO STOXX 50 Index is weighted by free float market capitalization, subject to a 10% cap. The top 10 securities represented in the EURO STOXX 50 Index as at June 20, 2016 are set out below (Source: Bloomberg). The historical composition of the EURO STOXX 50 Index does not necessarily reflect the composition of the EURO STOXX 50 Index in the future.
Company Weighting TOTAL SA 5.47% Anheuser-Busch InBev SA/NV 4.47% Sanofi 4.20% Siemens AG 3.93% Bayer AG 3.86% SAP SE 3.54% BASF SE 3.30% Allianz SE 3.20% Unilever NV 3.18% Daimler AG 3.00% The Index references the total return version of the Euro STOXX 50 Index, which reflects the reinvestment of dividends and distributions declared on its constituent securities, net of any withholding taxes, stamp taxes and/or other similar amounts that would be payable by Bank of Montreal had it received dividends on such securities (as determined by the Calculation Agent). In the case of dividends paid by European companies, many of Canada’s tax treaties with European countries provide that such taxes are approximately 15% of gross cash ordinary dividends based on Bank of Montreal’s status as a Canadian taxpayer and current withholding rates under such treaties. Securities represented in the Euro STOXX 50 Index have an average 12-month dividend yield of 4.12% and an aggregate market capitalization of €2.41 trillion as at June 22, 2016 (Source: Bloomberg). Historical Performance of the Euro STOXX 50 Index Closing Levels of the Euro STOXX 50 Index can be found on Bloomberg under the symbol “SX5E“. The following graph illustrates the performance of the Euro STOXX 50 Index from May 19, 2006 through May 20, 2016 using
B-4 daily Closing Levels of the Euro STOXX 50 Index obtained from Bloomberg Financial Services. Past Euro STOXX 50 Index values are not necessarily indicative of future Euro STOXX 50 Index values.
Industry Sector Breakdown of the Euro STOXX 50 Index The following chart provides an index sector breakdown of the constituent securities of the Euro STOXX 50 Index as at June 20, 2016:
Source: Bloomberg
S&P/TSX Small Cap Index SPTSXS Index The S&P/TSX Small Cap Index is a capitalization-weighted index of 217 actively traded Canadian companies. The S&P/TSX Small Cap Index is maintained by the Canadian S&P Index Committee, whose members include representatives from both the Sponsor and the TSX. The S&P/TSX Small Cap Index value is determined by multiplying the price of the individual components by their corresponding free-float share amount. The free-float share amount adjusts the outstanding float for control blocks of 10% or more. To be eligible for inclusion in the S&P/TSX Small Cap Index, a security must be between $100 Million and $1.5 Billion in market capitalization. Criteria for removal from the S&P/TSX Small Cap Index include a violation of one or more Index requirements, as well as mergers or acquisitions involving companies in the S&P/TSX Small Cap Index.
B-5 The top 10 securities represented in the S&P/TSX Small Cap Index as at June 20, 2016 are set out below (Source: Bloomberg). The historical composition of the S&P/TSX Small Cap Index does not necessarily reflect the composition of the S&P/TSX Small Cap Index in the future.
Company Weighting Pan American Silver Corp 2.02% OceanaGold Corp 1.92% New Gold Inc 1.90% B2Gold Corp 1.84% Alamos Gold Inc 1.83% First Majestic Silver Corp 1.77% IAMGOLD Corp 1.41% SEMAFO Inc 1.31% Parex Resources Inc 1.31% FirstService Corp 1.25%
The Index references the total return version of the S&P/TSX Small Cap Index, which reflects the reinvestment of dividends or distributions declared on its constituent securities. Securities represented in the S&P/TSX Small Cap Index have an average 12-month dividend yield of 2.54% and an aggregate market capitalization of $167.28 billion as at June 22, 2016 (Source: Bloomberg). Historical Performance of the S&P/TSX Small Cap Index Closing Levels of the S&P/TSX Small Cap Index can be found on Bloomberg under the symbol “SPTSXS”. The following graph illustrates the performance of the S&P/TSX Small Cap Index from June 20, 2006 through June 20, 2016 using daily Closing Levels of the S&P/TSX Small Cap Index obtained from Bloomberg Financial Services. Past S&P/TSX Small Cap Index values are not necessarily indicative of future S&P/TSX Small Cap Index values.
Industry Sector Breakdown of the S&P/TSX Small Cap Index The following chart provides an industry sector breakdown of the constituent securities of the S&P/TSX Small Cap Index as at June 20, 2016:
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Source: Bloomberg iShares International Select Dividend ETF IDV UP Equity The iShares International Select Dividend ETF seeks to track the investment results of the Dow Jones EPAC Select Dividend Index (the “Underlying Index”), which measures the performance of a selected group of equity securities issued by companies that have provided relatively high dividend yields on a consistent basis over time. Dividend yield is calculated using a stock’s unadjusted indicated annual dividend (not including any special dividends) divided by its unadjusted price. As at June 22, 2016, the iShares International Select Dividend ETF had a market capitalization of approximately $2,78 billion and a dividend or distribution yield of 5.46%, representing approximately 45.08% over the 7-year term of the Deposit Notes, assuming the dividend or distribution yield on the units of iShares International Select Dividend ETF remains constant at 5.46% each year and assuming dividends and distributions are reinvested in the units of iShares International Select Dividend ETF. The top 10 securities represented in the iShares International Select Dividend ETF as at June 20, 2016 are set out below (Source: Bloomberg). The historical composition of the iShares International Select Dividend ETF does not necessarily reflect the composition of the iShares International Select Dividend ETF in the future.
Company Weighting Royal Dutch Shell Plc Class A 3.58% AstraZeneca PLC 3.45% Commonwealth Bank of Australia 3.21% British American Tobacco p.l.c. 3.11% Macquarie Group Limited 2.86% Vtech Holdings Ltd. 2.56% Rio Tinto Ltd. 2.30% Casino, Guichard-Perrachon Société Anonyme 2.21% Canadian Imperial Bank of Commerce 2.21% Eni SpA 2.01% Historical Performance of the iShares International Select Dividend ETF Closing Levels of the iShares International Select Dividend ETF can be found on Bloomberg under the symbol “IDV”. The following graph illustrates the performance of the iShares International Select Dividend ETF from June 15, 2006 through June 20, 2016 using daily Closing Levels of the iShares International Select Dividend ETF obtained from Bloomberg Financial Services. Past iShares International Select Dividend ETF values are not necessarily indicative of future iShares International Select Dividend ETF values.
B-7
Industry Sector and Geographic Breakdown of the iShares International Select Dividend ETF The following charts provide an industry sector and geographic breakdown of the constituent securities of the iShares International Select Dividend ETF as at June 21, 2016: Industry sector
B-8 Geographic
Source: Bloomberg
BMO Aggregate Bond Index ETF ZAG CT Equity The BMO Aggregate Bond Index ETF is an exchange-traded fund that attempts to replicate, to the extent possible, the performance of the FTSE TMX Canada UniverseXM Bond Index, net of expenses. The FTSE TMX Canada UniverseXM Bond Index presents a broad measure of the Canadian investment-grade fixed income market consisting of the Government of Canada, Provincial and Corporate bonds. The BMO Aggregate Bond Index ETF invests in debt securities primarily with a term to maturity greater than one year. As at June 22, 2016, the BMO Aggregate Bond Index ETF had a market capitalization of approximately $1.87 billion and a dividend or distribution yield of 3.06%, representing approximately 23.49% over the 7-year term of the Deposit Notes, assuming the dividend or distribution yield on the units of BMO Aggregate Bond Index ETF remains constant at 3.06% each year and assuming dividends and distributions are reinvested in the units of BMO Aggregate Bond Index ETF. Nine Constituents of the BMO Aggregate Bond Index ETF The nine constituents included in the BMO Aggregate Bond Index ETF as at June 20, 2016 are as follows:
Index Weighting BMO Short Federal Bond Index 20.42% BMO Long Provincial Bond Index 16.97% BMO Short Corporate Bond Index 15.19% BMO Mid Provincial Bond Index 10.40% BMO Mid Federal Bond Index E 8.60% BMO Long Federal Bond Index 7.99% BMO Short Provincial Bond Index 7.59% BMO Long Corporate Bond Index 7.31% BMO Mid Corporate Bond Index 5.52%
Historical Performance of the BMO Aggregate Bond Index ETF Closing Levels of the BMO Aggregate Bond Index ETF can be found on Bloomberg under the symbol “ZAG“. The following graph illustrates the performance of the BMO Aggregate Bond Index ETF from January 25, 2010 through June 20, 2016 using daily Closing Levels of the BMO Aggregate Bond Index ETF obtained from Bloomberg Financial Services. Past BMO Aggregate Bond Index ETF values are not necessarily indicative of future BMO Aggregate Bond Index ETF values.
B-9
Industry Sector Breakdown of the BMO Aggregate Bond Index ETF The following chart provides an industry sector breakdown of the constituent securities of the BMO Aggregate Bond Index ETF as at May 31, 2016:
Source: Bloomberg
BMO Short Corporate Bond Index ETF ZCS CT Equity The BMO Short Corporate Bond Index ETF is an exchange-traded fund that attempts to replicate, to the extent possible, the performance of the FTSE TMX Canada Short Term Corporate Bond Index, net of expenses. The FTSE TMX Canada Short Term Bond Index generally holds corporate bonds issued in Canada in Canadian dollars, with a credit rating of BBB or higher, a minimum size of $100 Million per issue, and a term to maturity of between one and five years. The BMO Aggregate Bond Index ETF invests in debt securities primarily with a term to maturity between one and five years.
B-10 As at June 22, 2016, the BMO Short Corporate Bond Index ETF had a market capitalization of approximately $1.11 billion and a dividend or distribution yield of 3.50%, representing approximately 27.23% over the 7-year term of the Deposit Notes, assuming the dividend or distribution yield on the units of BMO Short Corporate Bond Index ETF remains constant at 3.50% each year and assuming dividends and distributions are reinvested in the units of BMO Short Corporate Bond Index ETF. Top Ten Constituents of the BMO Short Corporate Bond Index ETF The top ten constituents included in the BMO Short Corporate Bond Index ETF as at May 31, 2016 are as follows:
Bond Weighting BMO 3.21 09/13/18 2.33% BNS 2.37 01/11/18 2.18% RY 2.98 05/07/19 2.08% RY 2.98 1.93% TD 5.763 12/18/17 1.76% CM 2.22 03/07/18 1.67% RY 2.82 07/12/18 1.62% BNS 2.462 03/14/19 1.54% WFC 2.944 07/25/19 1.53% RY 2.99 12/06/19 1.50%
Historical Performance of the BMO Short Corporate Bond Index ETF Closing Levels of the BMO Short Corporate Bond Index ETF can be found on Bloomberg under the symbol “ZCS”. The following graph illustrates the performance of the BMO Short Corporate Bond Index ETF from October 26, 2009 through June 20, 2016 using daily Closing Levels of the BMO Short Corporate Bond Index ETF obtained from Bloomberg Financial Services. Past BMO Short Corporate Bond Index ETF values are not necessarily indicative of future BMO Short Corporate Bond Index ETF values.
Term Breakdown of the BMO Short Corporate Bond Index ETF The following chart provides a breakdown of the time to maturity of the constituent securities of the BMO Short Corporate Bond Index ETF as at May 31, 2016:
B-11
Source: Bloomberg
BMO Long Provincial Bond Index ETF ZPL CT Equity The BMO Long Provincial Bond Index ETF is an exchange-traded fund that attempts to replicate, to the extent possible, the performance of the FTSE TMX Canada Long Term Provincial Bond Index, net of expenses. The FTSE TMX Canada Long Term Provincial Bond Index generally holds provincial bonds issued in Canadian dollars, with a credit rating of BBB or higher, a minimum size of $100 Million per issue, and a term to maturity of greater than 10 years. The BMO Long Provincial Bond Index ETF invests primarily in securities issued or guaranteed by the Provincial Governments of Canada, by various agencies of the Provincial Governments, and by various instrumentalities that have been established or sponsored by Provincial Governments, with a term to maturity greater than 10 years. As at June 23, 2016, the BMO Long Provincial Bond Index ETF had a market capitalization of approximately $374.22 million and a dividend or distribution yield of 3.37%, representing approximately 26.11% over the 7-year term of the Deposit Notes, assuming the dividend or distribution yield on the units of BMO Long Provincial Bond Index ETF remains constant at 3.37% each year and assuming dividends and distributions are reinvested in the units of BMO Long Provincial Bond Index ETF. Top Ten Constituents of the BMO Long Provincial Bond Index ETF The top ten constituents included in the BMO Long Provincial Bond Index ETF as at May 31, 2016 are as follows:
Bond Weighting ONT 3.45 06/02/45 8.76% ONT 6 ½ 03/08/29 6.35% ONT 3 ½ 06/02/43 6.13% Q 5 12/01/41 5.97% ONT 5.6 06/02/35 5.58% ONT 4.6 06/02/39 5.07% Q 5 ¾ 12/01/36 4.26% Q 4 ¼ 12/01/43 3.84% Q 5 12/01/38 3.58% O 4.7 06/02/37 3.33%
B-12 Historical Performance of the BMO Long Provincial Bond Index ETF Closing Levels of the BMO Long Provincial Bond Index ETF can be found on Bloomberg under the symbol “ZPL”. The following graph illustrates the performance of the BMO Long Provincial Bond Index ETF from March 27, 2013 through June 20, 2016 using daily Closing Levels of the BMO Long Provincial Bond Index ETF obtained from Bloomberg Financial Services. Past BMO Long Provincial Bond Index ETF values are not necessarily indicative of future BMO Long Provincial Bond Index ETF values.
Term Breakdown of the BMO Long Provincial Bond Index ETF The following chart provides a breakdown of the time to maturity of the constituent securities of the BMO Long Provincial Bond Index ETF as at May 31, 2016:
Source: Bloomberg
B-13 iShares Canadian Universe Bond Index ETF XBB CT Equity The iShares Canadian Universe Bond Index ETF is an exchange-traded fund that attempts to replicate, to the extent possible, the performance of the FTSE TMX Canada Universe Bond Index, net of expenses. The FTSE TMX Canada Universe Bond Index generally holds a diversified selection of investment-grade Government of Canada, provincial, corporate and municipal bonds, issued in Canada in Canadian dollars. The FTSE TMX Canada Universe Bond Index is the broadest and most widely used measure of performance of marketable government and corporate bonds outstanding in the Canadian market. As at June 21, 2016, the iShares Canadian Universe Bond Index ETF had a market capitalization of approximately $2.17 billion and a dividend or distribution yield of 2.80%, representing approximately 21.33% over the 7-year term of the Deposit Notes, assuming the dividend or distribution yield on the units of iShares Canadian Universe Bond Index ETF remains constant at 2.80% each year and assuming dividends and distributions are reinvested in the units of iShares Canadian Universe Bond Index ETF. Top Ten Constituents of the iShares Canadian Universe Bond Index ETF The top ten constituents included in the iShares Canadian Universe Bond Index ETF as at June 21, 2016 are as follows:
Bond Weighting CAN 4 06/01/41 1.34% CAN 5 06/01/37 1.27% CAN 3 ¾ 06/01/19 1.24% CAN 1 ¼ 02/01/18 1.18% CAN 5 ¾ 06/01/33 1.17% CAN 3 ½ 12/01/45 1.09% CAN 1 ¼ 08/01/17 1.03% ONT 2.6 06/02/25 1.02% ONT 3.45 06/02/45 0.99% ONT 2.90 0.99%
Historical Performance of the iShares Canadian Universe Bond Index ETF Closing Levels of the iShares Canadian Universe Bond Index ETF can be found on Bloomberg under the symbol “XBB”. The following graph illustrates the performance of the iShares Canadian Universe Bond Index ETF from June 19, 2006 through June 20, 2016 using daily Closing Levels of the iShares Canadian Universe Bond Index ETF obtained from Bloomberg Financial Services. Past iShares Canadian Universe Bond Index ETF values are not necessarily indicative of future iShares Canadian Universe Bond Index ETF values.
B-14 Term Breakdown of the iShares Canadian Universe Bond Index ETF The following chart provides a breakdown of the time to maturity of the constituent securities of the iShares Canadian Universe Bond Index ETF as at April 27, 2016:
Source: Bloomberg iShares S&P/TSX Capped REIT Index ETF XRE CT Equity The iShares S&P/TSX Capped REIT Index ETF is an exchange-traded fund that has been designed to replicate, to the extent possible, the performance of the S&P/TSX Capped REIT Index, net of expenses. The investment strategy of the iShares S&P/TSX Capped REIT Index ETF is to invest in and hold constituent securities of the S&P/TSX Capped REIT Index. The units of iShares S&P/TSX Capped REIT Index ETF are listed on the TSX under the symbol “XRE”. The S&P/TSX Capped REIT Index is a sub-index of the broad-based S&P/TSX Income Trust Index. This sector- based index is comprised of real estate income trusts which are classified in the GICS® financials sector, with individual constituent real estate investment trust’s relative weight capped at 25%. The iShares S&P/TSX Capped REIT Index ETF seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the S&P/TSX Capped REIT Index, net of expenses. As at June 21, 2016, the iShares S&P/TSX Capped REIT Index ETF had a market capitalization of approximately $1.30 billion and a dividend or distribution yield of 5.13%, representing approximately 41.93% over the 7-year term of the Deposit Notes, assuming the dividend or distribution yield on the units of iShares S&P/TSX Capped REIT Index ETF remains constant at 5.13% each year and assuming dividends and distributions are reinvested in the units of iShares S&P/TSX Capped REIT Index ETF. Top Ten Constituents of the iShares S&P/TSX Capped REIT Index ETF The top ten constituents included in the iShares S&P/TSX Capped REIT Index ETF as at June 21, 2016 are as follows:
Company Weighting RioCan Real Estate Investment Trust 19.95% H&R Real Estate Investment Trust 13.14% Smart Real Estate Investment Trust 9.21% Canadian Apartment Properties Real Estate Investment Trust 8.99% Canadian Real Estate Investment Trust 7.50% Allied Properties Real Estate Investment Trust 6.53% Cominar Real Estate Investment Trust 5.99% Dream Office Real Estate Investment Trust 4.47% Boardwalk Real Estate Investment Trust 4.42%
B-15
Artis Real Estate Investment Trust 4.04%
Historical Performance of the iShares S&P/TSX Capped REIT Index ETF Closing Levels of the iShares S&P/TSX Capped REIT Index ETF can be found on Bloomberg under the symbol “XRE“. The following graph illustrates the performance of the iShares S&P/TSX Capped REIT Index ETF from June 20, 2006 through June 20, 2016 using daily Closing Levels of the iShares S&P/TSX Capped REIT Index ETF obtained from Bloomberg Financial Services. Past iShares S&P/TSX Capped REIT Index ETF values are not necessarily indicative of future iShares S&P/TSX Capped REIT Index ETF values.
Canadian Overnight Repo Rate Average CAONREPO Index The CAONREPO Index is the Bloomberg code for the Canadian Overnight Repo Rate (“CORRA”), which is the volume weighted average rate of overnight general (non-specific) collateral repo trades that occurred through designated inter-dealer brokers and the Canadian Derivatives Clearing Corporation’s central counterparty system as reported to the Bank of Canada. CORRA is a measure of the average cost of overnight collateralized funding, and is widely used as the reference for overnight indexed swaps and related futures. Historical Performance of the CAONREPO Index Closing Levels of the CAONREPO Index can be found on Bloomberg under the symbol “CAONREPO
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Source: Bank of Canada Risk Factors Relating to Index Components Risk Factors Relating to the Index Components that are Indices and their Underlying Securities Whether a Variable Return will be payable on the Deposit Notes on the Maturity Date is based in part on the performance of the securities represented in the Index Components that are indices. Accordingly, certain risk factors applicable to investors who invest directly in the securities represented in an Index Component that is an index are also applicable to an investment in the Deposit Notes to the extent that such risk factors could adversely affect the performance of that index. Investors should recognize that it is impossible to know whether the Closing Level of an Index Component that is an index at any time will rise or fall. The Closing Level of such an index will be influenced by the prices of the securities represented in the index, which are affected by general macroeconomic conditions, industrial production, consumption trends, technological innovation and government policies and regulations, sources of production, methods of extraction and transportation, labour and other disruptions, ease of storage, existing inventories, political events, currency exchange rates, interest rates and government regulation. Securities prices may be volatile and historical prices are not necessarily accurate predictors of future prices. In addition, there are risks specific to each of the Index Components that are indices. The S&P 500 Index will be affected by changes in the market price of its constituent securities. The constituent securities of the S&P 500 Index are equity securities issued by U.S. companies, so the performance of the S&P 500 Index will likely be affected by the political, economic, financial and other factors that influence the U.S. equities market generally. The price of equity securities is influenced by the outlook for the company that issued them and by general economic, industry and market trends. When the economy is strong, the outlook for many companies will be good, and share prices will generally rise. On the other hand, share prices usually decline with a general economic or industry downturn. The Euro STOXX 50 Index is calculated with reference to the value of equity securities of European large-cap companies. As a result, the return on the Deposit Notes will likely be affected by the complex and interrelated political, economic, financial and other factors that influence European equity markets generally or that impact the prospects of companies based in or operating in particular Eurozone countries. The European equity markets may be more or less volatile than the Canadian equity markets and may be affected by market developments in different ways than Canadian equity markets. Direct or indirect government intervention to stabilize a particular market and cross-shareholdings in companies on international securities markets may affect prices and the volume of trading on those markets. In addition, changes of government, changes in economic and fiscal policies (including risks associated with the continuation of the Euro as a currency in a particular country and associated fiscal challenges affecting certain European countries), the possible imposition of, or changes in, currency exchange laws or other
B-17 laws or restrictions, and possible fluctuations in the rate of exchange between currencies, are factors that could negatively affect European securities markets. The value of the securities comprising the Euro STOXX 50 Index will also be affected by corporate developments, changes in interest rates, changes in the level of inflation and by other various circumstances that can influence the values of the securities in a specific market segment or of a particular company. These factors, which are beyond the control of Bank of Montreal or the Dealers, can affect the price of equity securities without any predictability. Additionally, accounting, auditing and financial reporting standards and requirements in Europe differ from those applicable to Canadian reporting issuers. The S&P/TSX Small Cap Index will be affected by changes in the market price of its constituent securities. Stock prices of small-capitalization companies may be more volatile than those of larger companies and, therefore, the S&P/TSX Small Cap Index’s share price may be more volatile than those of funds that invest a larger percentage of their assets in stocks issued by mid- or large-capitalization companies. Stock prices of small-capitalization companies are generally more vulnerable than those of mid- or large-capitalization companies to adverse business and economic developments. Securities of small-capitalization companies may be thinly traded, making it difficult for the S&P/TSX Small Cap Index Fund to buy and sell them. In addition, small-capitalization companies are typically less financially stable than larger, more established companies and may depend on a small number of essential personnel, making these companies more vulnerable to experiencing adverse effects due to the loss of personnel. Small-capitalization companies also normally have less diverse product lines than those of mid- or large- capitalization companies and are more susceptible to adverse developments concerning their products. This is not a complete description of the risks applicable to the securities represented in each Index Component that is an index and its issuers. For a description of the risks applicable to the securities represented in each such index and their issuers, an investor should consult documents made publicly available by each issuer at www.sedar.com, in the case of the S&P/TSX 60 Index and S&P/TSX Small Cap Index, and at www.sec.gov/edgar.shtml, in the case of S&P 500 Index and from other publicly available sources. Information about the component issuers of the Euro STOXX 50 Index is available at https://www.stoxx.com/index-details?symbol=sx5e and from other publicly available sources. The content of these websites is not incorporated by reference in, and does not form part of, this Information Statement.
Risk Factors Relating to the Index Components that are ETFs and their Underlying Securities Whether a Variable Return will be payable on the Deposit Notes on the Maturity Date is based in part on the performance of the price performance of the Index Components that are ETFs. Accordingly, certain risk factors applicable to investors who invest directly in an ETF are also applicable to an investment in the Deposit Notes to the extent that such risk factors could adversely affect the price performance of the ETF. Such risk factors may include the following: (i) the underlying securities in which the ETF invests may fluctuate in accordance with changes in the financial condition of the issuers of those securities, general and global market conditions; (ii) the level of the related index may fluctuate in accordance with the financial condition of its constituent issuers; (iii) the ETF will not replicate exactly the performance of the related index; (iv) if the calculation of the related index is delayed, trading of the ETF may be suspended, and if the related index ceases to be calculated or is discontinued, the ETF may be terminated or its investment objective may be changed; (v) the related index may be adjusted or may cease to be calculated without reference to the interests of the ETF; (vi) the ETF may trade below, at or above its net asset value, which will fluctuate with changes in the market value of the ETF’s holdings; (vii) the ETF may invest more of its net assets in one or more companies than is permitted for actively managed mutual funds, resulting in increased liquidity risk of the ETF affecting the ETF’s ability to satisfy redemption requests and also resulting in lower diversification of the ETF and an increase in the general risk of equity investments and the volatility of the ETF’s net asset value; (viii) if the ETF engages in securities lending, it would be exposed to the risk of loss should a borrower default on its obligations; (ix) the tracking of the related index by the ETF depends on the ability of its manager and designated brokers or other persons to perform their obligations; (x) if the ETF invests in derivatives from time to time, it may expose the ETF to the possibility that it will be unable to close out derivatives positions, that it will suffer losses due to the credit risk that its counterparties may be unable to meet their obligations and that its use derivatives will be ineffective; (xi) tax rules affecting the taxation of the ETF or the underlying securities of the ETF may change; (xii) certain securities or derivatives held by the ETF may be illiquid, which may prevent the ETF from being able to limit its losses or realize gains; (xiii) the ETF may not be able to repay amounts borrowed if it is unable to collect distributions from an issuer of an underlying security; (xiv) currency forward transactions entered into by the ETF, if any, to hedge its exposure to foreign currency may not be effective and will expose the
B-18 ETF to the risk of investing in derivatives; and (xv) some or all of the securities represented in the related index may be cease traded which may result in the ETF suspending the right to redeem units of the ETF for cash. An investor should recognize that it is impossible to know whether the price of the units or shares of an ETF at any time will rise or fall. The price of such units or shares will be influenced by the demand and supply for the securities represented in the index whose performance the ETF seeks to replicate and by general economic, industry and market trends. These factors are beyond the control of Bank of Montreal. Historical price levels of units of an ETF should not be considered as an indication of the future price performance of the ETF. In addition, there are risk factors specific to each of the Index Components that are ETFs. Risk factors applicable to the iShares International Select Dividend ETF may include the following: (i) securities in the underlying index or in the ETF’s portfolio may underperform in comparison to the general financial markets, a particular financial market or other asset classes; (ii) to the extent that persons authorized to engage in creation or redemption transactions directly with the ETF exit the business or are unable to proceed with creation and/or redemption orders with respect to the ETF and cannot be replaced, ETF shares may trade at a discount to net asset value and possibly face delisting; (iii) the ETF may be susceptible to an increased risk of loss to the extent that the ETF’s investments are concentrated in the securities of a particular issuer or issuers, country, group of countries, region, market, industry, group of industries, sector or asset class; (iv) because the ETF’s net asset value is determined in U.S. dollars, the ETF’s net asset value could decline if the currency of a non-U.S. market in which the ETF invests depreciates against the U.S. dollar or if there are delays or limits on repatriation of such currency; (v) the ETF’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform the market, and a company may reduce or eliminate its dividend; (vi) the value of securities issued by companies in the energy sector may decline for many reasons, including changes in energy prices, energy supply and demand, government regulations, energy conservation efforts and potential civil liabilities; (vii) equity securities are subject to changes in value, and their values may be more volatile than those of other asset classes; (vii) the performance of companies in the financials sector may be adversely impacted by many factors, including government regulations, economic conditions, credit rating downgrades, changes in interest rates, and decreased liquidity in credit markets. The impact of more stringent capital requirements, recent or future regulation on any individual financial company, or recent or future regulation on the financials sector as a whole cannot be predicted; (viii) a natural or other disaster could occur in a geographic region in which the ETF invests; (ix) there is no guarantee that the ETF will achieve a high degree of correlation to the underlying index and therefore achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the ETF’s ability to adjust its exposure to the required levels in order to track the underlying index. Errors in index data, index computations or the construction of the underlying index in accordance with its methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the ETF and its shareholders; (x) the industrials sector may be adversely affected by changes in the supply of and demand for products and services, product obsolescence, claims for environmental damage or product liability and general economic conditions, among other factors; (xi) changes in the financial condition or credit rating of an issuer of individual securities to which the ETF has exposure may cause the value of the securities to decline; (xii) there is no guarantee that an issuer that paid dividends in the past will continue to do so in the future or will continue paying dividends at the same level; (xiii) as the ETF may not fully replicate the underlying index, it is subject to the risk that BlackRock Fund Advisors’ (BFA) investment strategy may not produce the intended results; (xiv) the ETF could lose money over short periods due to short-term market movements and over longer periods during more prolonged market downturns; (xv) the ETF faces numerous market trading risks, including the potential lack of an active market for ETF shares, losses from trading in secondary markets, periods of high volatility and disruptions in the creation/redemption process. Any of these factors, among others, may lead to the fund’s shares trading at a premium or discount to net asset value; (xvi) investments in the securities of non-U.S. issuers are subject to the risks associated with investing in those non-U.S. markets, such as heightened risks of inflation or nationalization. The ETF may lose money due to political, economic and geographic events affecting issuers of non-U.S. securities or non-U.S. markets; (xvii) companies in the oil and gas industry are affected by worldwide energy prices and exploration and production costs, may have significant operations in areas at risk for natural disasters, social unrest and environmental damage, and may be at risk for increased government regulation and intervention, litigation, and negative publicity and public perception; (xviii) the ETF is not actively managed and BFA does not attempt to take defensive positions under any market conditions, including declining markets; (xix) the ETF invests in countries whose economies are heavily dependent upon trading with key partners, and any reduction in this trading may have an adverse impact on the ETF’s investments; (xx) the ETF may engage in
B-19 securities lending, which involves the risk that the ETF may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The ETF could also lose money in if the value of the collateral provided for loaned securities or the value of any investments made with cash collateral declines, which could trigger adverse tax consequences for the ETF; (xxi) some countries and regions in which the ETF invests have experienced security concerns. Incidents involving a country’s or region’s security may cause uncertainty in these markets and may adversely affect their economies and the ETF’s investments; (xxii) the countries in which the ETF invests may be subject to considerable degrees of economic, political and social instability; (xxiii) Tracking error, the divergence of the ETF’s performance from that of the underlying index, may occur for a variety of reasons and may be heightened during times of increased market volatility or other unusual market conditions; (xxiv) the sale price the ETF could receive for a security may differ from the ETF’s valuation of the security and from the value used by the underlying index, particularly for securities or assets that trade in low volume or volatile markets or that are valued using a fair value methodology, and the value of the securities or assets in the ETF’s portfolio may change on days when shareholders will not be able to purchase or sell the ETF’s shares. In addition, the ETF has significant exposure, including through its portfolio companies’ trading partners, to U.S., Australasian and European issuers. Therefore any economic, political or regulatory events of circumstances that adversely affect the stability or economic viability of the countries, regions, sectors, industries or markets in these geographic areas and in the markets in which these issuers operate can have a material adverse effect on the issuers and the value of their securities and, accordingly, on the value of the ETF. Investment in the BMO Aggregate Bond Index ETF, BMO Short Corporate Bond Index ETF, BMO Long Provincial Bond Index ETF and iShares Canadian Universe Bond Index ETF should be made with an understanding that the value of the underlying debt securities will be affected by changes in the general level of interest rates. Generally, debt securities will decrease in value when interest rates rise and will increase in value when interest rates decline. Securities with longer durations tend to be more interest rate sensitive, which may make them more volatile than securities with shorter durations. The NAV of the BMO Aggregate Bond Index ETF, BMO Short Corporate Bond Index ETF, BMO Long Provincial Bond Index ETF and iShares Canadian Universe Bond Index ETF will fluctuate with interest rate changes and the corresponding changes in the value of the securities held by the BMO Aggregate Bond Index ETF. The value of the bonds held by the BMO Aggregate Bond Index ETF, BMO Short Corporate Bond Index ETF, BMO Long Provincial Bond Index ETF and iShares Canadian Universe Bond Index ETF may be affected by price changes due to a change in general economic conditions. The iShares S&P/TSX Capped REIT Index ETF is comprised of constituents in the real estate financial services sector and may be considered to be less diversified, and trading prices may be more volatile, than a more broadly diversified portfolio. Real estate investment trusts generally are subject to certain risks related to their direct ownership of real estate and are affected by general economic conditions, local real estate markets, supply and demand for leased premises, competition from other available premises and various other factors. This is not a complete description of the risks applicable to the Index Components that are ETFs. For a description of the risks applicable to an Index Component that is an ETF, an investor should consult the disclosure documents made publicly available by the ETF at www.bmo.com/gam/ca/investor/products/etfs, in the case of BMO Aggregate Bond Index ETF, BMO Short Corporate Bond Index ETF and BMO Long Provincial Bond Index ETF, https://www.ishares.com/us/products/239499/ishares-international-select-dividend-etf in the case of iShares International Select Dividend ETF, and https://www.blackrock.com/ca/individual/en/products/product- list#categoryId=1&lvl2=overview, in the case of iShares Canadian Universe Bond Index ETF and iShares S&P/TSX Capped REIT Index ETF. The content of these websites is not incorporated by reference in, and does not form part of, this Information Statement.
B-20 APPENDIX C SPECIAL CIRCUMSTANCES Determinations of the Index Calculation Agent and Manager All calculations and determinations in respect of the Deposit Notes made by the Index Calculation Agent or the Manager will, absent manifest error, be final and binding on Bank of Montreal and the Holders. The Index Calculation Agent will not be responsible for its errors or omissions if made in good faith, except in the case of its negligence or willful misconduct. In certain circumstances, if a calculation or determination contemplated to be made by the Index Calculation Agent in respect of the Deposit Notes involves the application of material discretion or is not based on information or calculation methodologies compiled or utilized by, or derived from, independent third party sources, Bank of Montreal may appoint one or more calculation experts to confirm such calculation or determination. In the circumstances described below, the Index Calculation Agent may, as it determines appropriate, (i) adjust the components or variables in calculating the Variable Return, if any, (ii) defer the timing of the calculation of the Variable Return, if any, (iii) replace a Securities Component with a comparable index or ETF. Details of the actions that may be taken by the Index Calculation Agent in such circumstances are described below. On the occurrence of an Extraordinary Event, instead of paying the Variable Return, if any, at Maturity, pay the estimated present value on the occurrence of the Extraordinary Event of the Variable Return, if any, that would have been payable at Maturity if the Extraordinary Event had not occurred. Discontinuance or Modification of an Index Component that is an Index If an Index Component that is an index is (i) not calculated and announced by the sponsor of such index existing on the Closing Date but is calculated and announced by an entity (a “successor sponsor”) that succeeds such sponsor and continues calculation and publication of the index, provided such successor sponsor is acceptable to Bank of Montreal, or (ii) replaced by a successor index using, in the determination of the Index Calculation Agent, the same or a substantially similar formula for and method of calculation as used in the calculation of the index, then the index will be deemed to be the index so calculated and announced by the successor sponsor or that successor index, as the case may be, and the Variable Return will be calculated by reference to the closing value of the applicable index. If any of the following occurs in respect of an Index Component that is an index (each a “Material Index Change”): 1. on or prior to any Valuation Date, the sponsor of the index announces that it will make a material change in the formula for or the method of calculating the Closing Level of such index or in any other way materially modifies the index (other than a modification prescribed in that formula or method to maintain the index in the event of changes in constituent securities and capitalization and other routine events) or permanently cancels the index and no successor index exists; 2. on any Valuation Date, the sponsor of the index fails to calculate, announce and/or publish the Closing Level of the index (or the information necessary for determining the Closing Level of the index), or is temporarily or permanently discontinued or unavailable; or 3. prior to the Final Valuation Date, Bank of Montreal determines, in its sole discretion, that it has ceased to have any necessary license or right to utilize the index in connection with the Deposit Notes, then the Index Calculation Agent may (A) determine if such Material Index Change has a material effect on the calculation of the Variable Return and, if so, shall calculate those payments using, in lieu of a published Closing Level for the index, the value for the index as at that Valuation Date as determined by the Index Calculation Agent in accordance with the formula for and method of calculating the Closing Level of the index last in effect prior to the change, failure or cancellation, but using only those constituent securities that comprised the index immediately prior to that Material Index Change, or (B) determine if another comparable equity index exists that (1) is reasonably representative of the equity market which was represented by the index, and (2) may be as efficiently and economically hedged by dealers in such equity market as the index was so hedged. If the Index Calculation Agent determines that such other comparable index exists, then the comparable index (the “Replacement Index”) shall replace the index as of the date of such determination. Upon such replacement (a “Replacement Event”), the Replacement Index shall be deemed to be the index for purposes of determining the Variable Return and Bank of Montreal shall, as soon as practicable after such Replacement Event, make adjustments to the Initial Level, or any C-1 other component or variable relevant to the determination of any amounts payable in respect of the Deposit Notes. Adjustments will be made in such a way as the Index Calculation Agent determines appropriate to account for the performance of the index up to the occurrence of such Replacement Event and the subsequent performance of the Replacement Index thereafter. Upon any Replacement Event and the making of any adjustments, the Index Calculation Agent shall promptly give notice to the Holders or their agents. For greater certainty, the Index Calculation Agent, acting in its sole and absolute discretion, may determine that no other comparable index exists such that a Replacement Index is not substituted for the index. See “Special Circumstances − Extraordinary Event” in the Information Statement. Potential Adjustment Event Following the declaration of the terms of any Potential Adjustment Event (as defined below) in respect of the units of an Index Component that is an ETF, the Index Calculation Agent, acting in its sole and absolute discretion, will determine whether such Potential Adjustment Event has a diluting or concentrative effect on the theoretical value of the relevant units and, if so, will (i) make the corresponding adjustments, if any, to any one or more of the Initial Level, the formula for calculating the Index Return, or any other component or variable relevant to the determination of the Variable Return as the Index Calculation Agent, acting in its sole and absolute discretion, determines appropriate to account for the diluting or concentrative effect and (ii) determine the effective date of the adjustments. The Index Calculation Agent may, but need not, determine any appropriate adjustments by reference to the adjustments in respect of such Potential Adjustment Event made by an options exchange to options on the units traded on such options exchange. Unless expressly provided below, the Index Calculation Agent will make no adjustment in respect of any distribution of cash. “Potential Adjustment Event” means, in respect of the units of an Index Component that is an ETF, the occurrence of any of the following events, as determined by the Index Calculation Agent, acting in its sole and absolute discretion: 1. a subdivision, consolidation or reclassification of the units (unless resulting in a Merger Event), or a free distribution or dividend of units to existing holders thereof by way of bonus, capitalization or similar issue; 2. a distribution, issue or dividend to existing holders of units of (i) units, or (ii) other share capital or securities granting the right to payment of dividends, distributions and/or the proceeds of liquidation of an Index Component that is an ETF equally or proportionately with such payments to holders of units, or (iii) share capital or other securities of another issuer acquired or owned (directly or indirectly) by an Index Component that is an ETF as a result of a spin-off or other similar transaction, or (iv) any other type of securities, rights or warrants or other assets, in any case for payment (cash or other consideration) at less than the prevailing market price as determined by the Index Calculation Agent; 3. an extraordinary dividend or distribution in respect of units (where the characterization of a dividend or distribution as “extraordinary” will be determined by the Index Calculation Agent); or 4. any other event that may have a diluting or concentrative effect on the theoretical value of the units. Merger Event On or after a Merger Date (as defined below), the Index Calculation Agent (i) will (A) make adjustment(s), if any, to any one or more of the Initial Level, the formula for calculating the Index Return, or any other component or variable relevant to the determination of the Variable Return as the Index Calculation Agent, acting in its sole and absolute discretion, determines appropriate to account for the economic effect on the Deposit Notes of the Merger Event, which may, but need not, be determined by reference to the adjustments made in respect of such Merger Event by an options exchange to options on the units traded on such options exchange and (B) determine the effective date of the adjustments, or (ii) if the Index Calculation Agent determines that no adjustments that it could make under (i) will produce a commercially reasonable result, may deem the relevant Merger Event to be a Substitution Event subject to the provisions of “Substitution Event” below. “Merger Event” means, in respect of a unit of an Index Component that is an ETF, any (i) reclassification, reorganization, consolidation or change of the units that results in a transfer of or an irrevocable commitment to transfer all units outstanding to another entity or person, (ii) statutory arrangement, consolidation, amalgamation, merger or binding security exchange of the ETF with or into another entity or person (other than a statutory arrangement, consolidation, amalgamation, merger or binding security exchange in which the ETF is the continuing entity and which does not result in a reclassification, reorganization, consolidation or change of all units outstanding), (iii) takeover bid (within the meaning of applicable securities laws), tender offer, exchange offer,
C-2 solicitation, proposal or other event by any entity or person to purchase or otherwise obtain 100% of the outstanding units that results in a transfer of or an irrevocable commitment to transfer all units (other than units owned or controlled by such other entity or person), (iv) statutory arrangement, consolidation, amalgamation, merger or binding security exchange of the ETF or its subsidiaries with or into another entity in which the ETF is the continuing entity and which does not result in a reclassification, reorganization, consolidation or change of all units outstanding but results in the outstanding units (other than units owned or controlled by such other entity) immediately prior to such event collectively representing less than 50% of the outstanding units immediately following such event (commonly referred to as a “reverse merger”), or (v) sale of all or substantially all assets of the ETF (or any lease, long term supply agreement or other arrangement having the same economic effect as a sale of all or substantially all assets in the ETF) in each case if the Merger Date is on or before the date on which the Index Return is determined. “Merger Date” means the closing date of a Merger Event or, where a closing date cannot be determined under the local law applicable to such Merger Event, such other date as determined by the Index Calculation Agent. Substitution Event Upon the Index Calculation Agent becoming aware of the occurrence of a Substitution Event (as defined below) in respect of the units of an Index Component that is an ETF, the following will apply, effective on a date (the “Substitution Date”) as determined by the Index Calculation Agent, acting in its sole and absolute discretion: 1. any adjustments set out in “Potential Adjustment Event” above in respect of the units will not apply; 2. the Index Calculation Agent may choose (in its sole and absolute discretion) a new security (the “Alternate ETF”) of another exchange-traded fund listed on a major exchange or market quotation system as a substitute for the units; 3. the units will not be used for purposes of determining the Variable Return payable on or after the Substitution Date; 4. the Alternate ETF will replace the units, the issuer of such Alternate ETF will replace the ETF, and the primary exchange or market quotation system on which such Alternate ETF is listed will be the Exchange in respect of such ETF Alternate Security; and 5. the Index Calculation Agent, acting in its sole and absolute discretion, will determine the initial Closing Level of such Alternate ETF by taking into account all relevant market circumstances, including the initial price of the units and the Closing Level or estimated value on the Substitution Date of the units and the Closing Level on the Substitution Date of the Alternate ETF, and will make adjustments, if any, to any one or more of the formula for calculating the Index Return or any other component or variable relevant to the determination of the Variable Return as the Index Calculation Agent, acting in its sole and absolute discretion, determines appropriate to account for the economic effect on the Deposit Notes of the relevant Substitution Event (including adjustments to account for changes in volatility, expected dividends or distributions, stock loan rate or liquidity relevant to the applicable substitution). Upon choosing an Alternate ETF, the Index Calculation Agent will promptly give details of such substitution and brief details of the Substitution Event to Holders or their agents. For greater certainty, the Alternate ETF chosen by the Index Calculation Agent may be any security of a large issuer, including any securities of an issuer that was the continuing entity in respect of a Merger Event. The Index Calculation Agent may decide not to choose an Alternate ETF as a substitute for the units of an Index Component that is an ETF if the Index Calculation Agent, acting in its sole and absolute discretion, determines that there are no appropriate securities of a large issuer listed on a major exchange or market quotation system which offer sufficient liquidity in order for a party to acquire, place, establish, re-establish, substitute, maintain, modify or unwind or dispose of any hedge transaction in respect of such securities or to realize, recover or remit the proceeds of any such hedge transaction. See “Special Circumstances – Extraordinary Event” in the Information Statement. “Substitution Event” means, in respect of the units of an Index Component that is an ETF, any Nationalization, Insolvency or Delisting in respect of the units, any ETF Index Event, or any Merger Event in respect of the units that is deemed by the Index Calculation Agent to be a Substitution Event, in its sole and absolute discretion, or the occurrence and continuation for at least four consecutive applicable Exchange Days of a Market Disruption Event (as defined below) in respect of the units.
C-3 “Nationalization” means, in respect of the units of an Index Component that is an ETF, that all or substantially all of the units or all or substantially all of the assets of the ETF are nationalized, expropriated or otherwise required to be transferred to any governmental agency, authority or entity. “Insolvency” means, in respect of the units of an Index Component that is an ETF, that by reason of the voluntary or involuntary liquidation, bankruptcy, insolvency, dissolution or winding-up of or any analogous proceeding affecting the ETF, (i) all units are required to be transferred to a trustee, liquidator or other similar official or (ii) holders of units become legally prohibited from transferring them. “Delisting” means, in respect of the units of an Index Component that is an ETF, that the Exchange announces that pursuant to the rules of the Exchange, the units cease (or will cease) to be listed, traded or publicly quoted on the Exchange for any reason (other than a Merger Event) and are not immediately re-listed, re-traded or re-quoted on an exchange or quotation system located in the same country as the Exchange. “ETF Index Event” means (i) on or prior to the Final Valuation Date, the sponsor for the index underlying an Index Component that is an ETF index announces that it will make a material change in the formula for or the method of calculating the index or in any other way materially modifies the index (other than a modification prescribed in that formula or method to maintain the index in the event of changes to the constituent securities and other routine events) or permanently cancels the index and no successor index exists, or (ii) on a Reweighting Date or the Final Valuation Date, the sponsor for the index fails to determine and announce the official closing level or value of the index, and, in either case, the Index Calculation Agent determines that such event has had a material effect on the calculation of the Index Level or Variable Return. Market Disruption Event If the Index Calculation Agent, acting in its sole and absolute discretion, determines that a Market Disruption Event (as defined below) in respect of an Index Component has occurred and is continuing on any day that, but for that event, would be a Reweighting Selection Date, Reweighting Date or the Final Valuation Date, then the Index Level will be determined and, if applicable, the Variable Return will be calculated on the basis that the Reweighting Selection Date, Reweighting Date or Final Valuation Date, as the case may be, will be postponed to the next Index Business Day on which there is no Market Disruption Event in effect in respect of the Index Component. However, there will be a limit for postponement of the Reweighting Selection Date, Reweighting Date or Final Valuation Date. If on the eighth (8th) Index Business Day following the date originally scheduled as a Reweighting Selection Date, Reweighting Date or the Final Valuation Date, as the case may be, such Reweighting Selection Date, Reweighting Date or the Final Valuation Date has not occurred, then despite the occurrence of any Market Disruption Event in respect of the Index Component on or after such eighth (8th) Index Business Day: 1. such eighth (8th) Index Business Day will be the Reweighting Selection Date, Reweighting Date or Final Valuation Date, as the case may be, and 2. the Index Level for such Reweighting Selection Date, Reweighting Date or Final Valuation Date, as the case may be, used in the calculation of the Index Return and the Variable Return, if applicable, will be a value equal to the Index Calculation Agent’s estimate of the Index Level as at such Reweighting Selection Date, Reweighting Date or Final Valuation Date reasonably taking into account all relevant market circumstances. A Market Disruption Event may delay the calculation of the Variable Return that may be payable. Where there has been a Market Disruption Event on a day that would, but for the occurrence of such Market Disruption Event, be the Final Valuation Date, payment of the Variable Return will be made on the fifth Business Day following the determination of the Index Return. “Market Disruption Event” means any bona fide event, circumstance or cause (whether or not reasonably foreseeable) beyond the reasonable control of Bank of Montreal or any person that does not deal at arm’s length with Bank of Montreal which (as determined by the Index Calculation Agent) has or will have a material adverse effect on the ability of a party to acquire, place, establish, re-establish, substitute, maintain, modify or unwind or dispose of any hedge transaction in respect of the Index or to realize, recover or remit the proceeds of any such hedge transaction. A Market Disruption Event may include, without limitation, any of the following events: 1. any failure of trading to commence, or the permanent discontinuation of trading or any suspension of or limitation imposed on trading of: (i) an Index Component that is an index; (ii) securities that comprise 10% or more of the value of an Index Component that is an index on a relevant Exchange; (iii) units of an Index
C-4 Component that is an ETF; or (iv) any futures or options relating to an Index Component by the relevant Exchange or Related Exchange, whether by reason of movements in price exceeding limits permitted by a relevant Exchange or Related Exchange or otherwise; 2. in respect of an Index Component that is an index, the failure of the sponsor of the index, or the successor sponsor, to determine or announce the closing level of the index (or the information necessary for determining the closing level of the index), or the temporary or permanent discontinuance or unavailability of such announcements; 3. the closure on any Index Business Day of an Exchange or Related Exchange after it has opened for trading but prior to its scheduled closing time unless such earlier closing time is announced by the Exchange or Related Exchange at least one hour prior to the earlier of (i) the actual closing time for the regular trading session on such Exchange or Related Exchange on such Index Business Day and (ii) the submission deadline for orders to be submitted for entry in the Exchange or Related Exchange system for execution at the close of trading on such Index Business Day; 4. any event (other than an event described in (c) above) that disrupts or impairs (as determined by the Index Calculation Agent) the ability of market participants in general to effect transactions in, or obtain market values for: (i) the Index Component, (ii) securities that comprise 10% or more of the value of an Index Component that is an index on an Exchange, or (iii) any futures or options contracts relating to an Index Component on a Related Exchange; 5. the failure on any Exchange Day of an Exchange(s) or any Related Exchange to open for trading during its regular trading session; 6. the adoption, change, enactment, publication, decree or other promulgation of any statute, regulation, rule or notice, howsoever described, or order of any court or other governmental or regulatory authority, or issuance of any directive or promulgation of, or any change in the interpretation, whether formal or informal, by any court, tribunal, regulatory authority or similar administrative or judicial body of any law, order, regulation, decree or notice, howsoever described, any other event that (as determined by the Index Calculation Agent) makes or would make it unlawful or impracticable for Bank of Montreal to perform its obligations under the Note Program or for dealers generally to acquire, place, establish, re-establish, substitute, maintain, modify or unwind or dispose of any hedge transaction in respect of an Index Component or to realize, recover or remit the proceeds of any such hedge transaction in respect of the Index Component or otherwise has or would have a material adverse effect on an Index Component, on a securityholder of an Index Component that is an ETF, or on the economy or the trading of securities generally on any relevant Exchange or Related Exchange; 7. the taking of any action by any governmental, administrative, legislative or judicial authority or power of Canada or any other country, or any political subdivision thereof, that (as determined by the Index Calculation Agent) has a material adverse effect on the financial markets of Canada or of a country in which an Exchange or Related Exchange is located; 8. any outbreak or escalation of hostilities or other national or international calamity or crisis (including, without limitation, natural calamities) that (as determined by the Index Calculation Agent) has or would have a material adverse effect on the ability of Bank of Montreal to perform its obligations under the Note Program or of dealers generally to acquire, place, establish, re-establish, substitute, maintain, modify or unwind or dispose of any hedge transaction in respect of an Index Component or to realize, recover or remit the proceeds of any such hedge transaction in respect of the Index Component or has or would have a material adverse effect on the economy of Canada or of a country in which an Exchange or Related Exchange is located or the trading of securities generally on any relevant Exchange or Related Exchange; or 9. an increase in the cost of acquiring, placing, establishing, re-establishing, substituting, maintaining, modifying unwinding or disposing of any hedge transaction in connection with an Index Component or in the cost of realizing, recovering or remitting the proceeds of any such hedge transaction. Extraordinary Event If one of the events lists in the definition of “Extraordinary Event” (defined below) occurs, then the Index Calculation Agent may, upon notice to the Holders to be given effective on an applicable Exchange Day (the date of such notification being the “Extraordinary Event Notification Date”), elect to estimate the present value, which may be nil, (the “Variable Return Early Payment Amount”) as of the Extraordinary Event Notification Date, taking into
C-5 account all relevant market circumstances, of a right to receive payment of any Variable Return that, but for such occurrence of the Extraordinary Event, would have been payable. Upon such election, the following consequences will arise as of the Extraordinary Event Notification Date: 1. any Variable Return that may otherwise be payable by Bank of Montreal will not be calculated in accordance with the provisions set out in “Note Program − Variable Return” above; 2. the Variable Return Early Payment Amount will be determined as of the Extraordinary Event Notification Date, whether or not any Extraordinary Event is continuing on such date; and 3. Bank of Montreal shall be discharged of all its obligations in respect of any Variable Return. Payment of the Variable Return Early Payment Amount, if any, per Deposit Note will be made on the tenth (10th) Business Day after the Extraordinary Event Notification Date. Upon such payment, the Holder’s right to receive any Variable Return per Deposit Note will be extinguished. In these circumstances, payment of the Deposit Amount will not be accelerated and will remain due and payable only on the Maturity Date. It should be noted that the Variable Return Early Payment Amount, if any, will reflect a return to Holders that may be less than the amount of Variable Return that may have been payable absent the occurrence of the relevant Extraordinary Event and the election by Bank of Montreal to pay the Variable Return Early Payment Amount. “Extraordinary Event” means, 1. any of the following events occurs after the Closing Date and prior to Maturity in respect of an Index Component that is an ETF where the Index Calculation Agent, acting in its sole and absolute discretion, has determined in good faith that such event constitutes an “Extraordinary Event”: a. the winding-up, dissolution or liquidation of the Index Component or other cessation of trading of any units of the Index Component; b. the manager of the Index Component or any affiliate of the manager of the Index Component ceases to act as the investment adviser of the Index Component; c. the investment objectives, investment restrictions or investment policies of the Index Component or any units of the Index Component are modified (except where such modification is of a formal, minor or technical nature); d. a material modification (other than any modifications referred to in (iii) above) of the terms and conditions relating to the Index Component or any units of the Index Component (including, but not limited to, a material modification of the constating documents of the Index Component) or the occurrence of any event or change having a material adverse effect on the Index Component or any units of the Index Component (including, in respect of the Index Component, but not limited to, the interruption, breakdown or suspension for a significant period of time of the calculation or publication of the net asset value per unit); e. the non-execution or partial-execution by the Index Component of a subscription, redemption or exchange order given by an investor in any units of the Index Component or a refusal to transfer any of the units of the Index Component to an eligible transferee except where such non-execution, partial execution or refusal is the result of circumstances beyond the control of the Index Component; f. any mandatory redemption or other reduction (actual or potential as determined by the Index Calculation Agent in its sole discretion) in the number of the units held by any holder of such units of the Index Component for any reason beyond the control of such holder; g. any failure by the manager of the ETF to calculate or publish the daily official net asset value per unit within five (5) Business Days after the relevant valuation date except as provided in the case of a suspension of the determination of the net asset value per unit of the Index Component in accordance with the provisions set out in the constating documents of the Index Component; h. the Index Component imposes in whole or part any restriction, charge or fee in respect of a redemption, exchange or subscription of any units of the Index Component by any holder thereof (other than any fee applicable to a holder of the units of the Index Component as at the Closing Date),
C-6 including, without limitation, a short-term trading fee imposed by the manager of the Index Component and paid to such ETF that is different from the short-term trading fees charged by the manager of the Index Component generally as of the date hereof or that is applied differently than it would be applied as of the date hereof; i. any relevant activities of or in relation to the Index Component, the manager of the ETF or its portfolio advisor are or become unlawful, illegal or otherwise prohibited in whole or in part as a result of compliance with any present or future law, regulation, judgment, order or directive of any governmental, administrative, legislative or judicial authority or power, or in the interpretation thereof; j. a relevant authorization or licence is revoked or is under review by a competent authority in respect of the Index Component or the manager of the ETF; k. any change in or in the official interpretation or administration of any laws or regulation relating to taxation that has or is likely to have a material adverse effect on any unitholder of the Index Component or in respect of any hedge established in connection with the Offering; l. a party is unable to effectively acquire, establish, re-establish, substitute, maintain, unwind or dispose of any hedging transaction in connection with the Offering or to realize, recover or remit the proceeds of any such hedging transaction; m. an increase in the cost of acquiring, establishing, re-establishing, substituting, maintaining, unwinding or disposing of any hedging transaction or in the cost of realizing, recovering or remitting the proceeds of any such hedging transaction in connection with the Offering; or n. as a result of any adoption of, or any change in, any law, order, regulation, decree or notice, howsoever described, or issuance of any directive or promulgation of, or any change in the interpretation, whether formal or informal, by any court, tribunal, regulatory authority or similar administrative or judicial body of any law, order, regulation, decree or notice, howsoever described, after such date or as a result of any other event, (1) it would become unlawful for any unitholder of the Index Component to hold, purchase, exchange, redeem or sell any units, (2) the cost of investing in any units would materially increase, other than ordinary course increases in the market value of the units of the Index Component, or (3) a unitholder of the Index Component would be subject to a material loss as a result of holding any units of the Index Component; 2. the Index Calculation Agent determines in its sole and absolute discretion that a Market Disruption Event has occurred and has continued for at least eight (8) consecutive Exchange Days, or that any Material Index Change or Substitution Event has occurred, and the Index Calculation Agent has decided not to choose a Replacement Index or an issuer of an Alternate Security, as the case may be, as a substitute for the affected Index Component on the grounds the Index Calculation Agent has determined that there is no other appropriate index or ETF that offers sufficient liquidity in order for the Index Calculation Agent to acquire, place, establish, re-establish, substitute, maintain, modify or unwind or dispose of any hedge transaction in respect of the affected Index Component or to realize, recover or remit the proceeds of any such hedge transaction; or 3. there is any change or proposed change in applicable law (or the interpretation or administration thereof) that, in the opinion of the Index Calculation Agent, acting reasonably, would have a significant adverse effect to Holders regarding the market price, value, marketability or return payable with respect to the Notes.
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