Confidential Information Memorandum
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KEY INFORMATION (ORAL DISCLOSURE) Where an investor is considering a purchase of Deposit Notes, the financial advisor must orally disclose all of the following information to the investor: Offering Overview: 1. The Bank of Montreal Commodity Deposit, Series 3 will be issued by Bank of Montreal on or about October 19, 2010 (the “Closing Date”) and will mature on October 19, 2017. The term of the Deposit Notes is 7 years. The principal amount of $100 per Deposit Note will be repaid at maturity. 2. On the maturity date, you will receive your principal amount plus a variable return, if any, based on the performance of an equally-weighted notional portfolio (the “Portfolio”) of the following six commodity indices: DJ-UBS Grains Sub-IndexSM Excess Return, DJ-UBS Petroleum Sub-IndexSM Excess Return, DJ-UBS Softs Sub-IndexSM Excess Return, DJ-UBS Livestock Sub-IndexSM Excess Return, DJ-UBS Precious Metals Sub-IndexSM Excess Return and DJ-UBS Industrial Metals Sub-IndexSM Excess Return (the “Indices” and each an “Index”). 3. More specifically, the variable return per Deposit Note, if any, will be an amount per Deposit Note equal to the Deposit Amount multiplied by the positive sum, if any, of the weighted percentage changes (positive and negative) in the closing levels of each of the Indices in the Portfolio measured from the Closing Date to and including October 16, 2017 (the “Final Valuation Date”). The weighted percentage change in each Index is subject to a cap of 11.667% (the “Capped Index Return”), which would result in a maximum variable return equal to 70% of the Deposit Amount, equivalent to an approximately 7.88% compound annual return. No variable return will be payable to a holder at maturity unless the sum of the weighted percentage changes of each Index in the Portfolio on the Final Valuation Date (subject to the Capped Index Return) is greater than zero. As there is no limit on the negative performance for any Index, weak performance in one Index may offset positive performance in other Indices resulting in the possibility of no variable return being paid. The variable return will not be less than zero. For the purposes of the foregoing calculations, the “weighted percentage change” of an Index is equal to the actual percentage change in the closing level of the Index multiplied by one-sixth (1/6). 4. It is possible that no variable return will be payable at maturity. Fees and Expenses: 5. Expenses of $2.00 (2.00%) per Deposit Note will be paid out of the proceeds of this offering. Secondary Market: 6. The Deposit Notes will not be listed on any stock exchange. Moreover, Bank of Montreal does not have the right to redeem and you do not have the right to require Bank of Montreal to redeem (that is, buy or repay) the Deposit Notes prior to maturity. However, BMO Capital Markets will use reasonable efforts to arrange for a secondary market for the sale of Deposit Notes using the FundSERV network. The price that BMO Capital Markets will pay for Deposit Notes sold in the secondary market prior to maturity will be determined by BMO Capital Markets, acting in its sole discretion. 7. If you sell your Deposit Notes prior to maturity in the secondary market, you may receive less than the Deposit Amount even if the performance of the Indices has been positive. BMO Capital Markets is under no obligation to facilitate or arrange for a secondary market and may suspend any secondary market at any time. If there is no secondary market, you will not be able to sell your Deposit Notes. Early Trading Charge: 8. If you sell a Deposit Note within the first 360 days from the Closing Date of this offering, the amount you will receive will be reduced by an early trading charge that will be equal to the applicable percentage of the Deposit Amount determined as follows: If sold within 0-60 61-120 days 121-180 181-240 241-300 301-360 Thereafter days days days days days Early Trading Charge 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% Nil Tax Consequences: 9. The Canadian income tax consequences of investing in Deposit Notes are described in the Information Statement. However, in summary, (i) if a Deposit Note is held at maturity, you will be required to include in your income the amount, if any, by which the payment at maturity exceeds the Deposit Amount in the taxation year in which such a payment is received, and (ii) provided an extraordinary event has not occurred and while the matter is not free from doubt, an amount received on a disposition of a Deposit Note (other than on or following the Final Valuation Date) should give rise to a capital gain (or capital loss) to you to the extent the proceeds of disposition exceed (or are less than) the aggregate of your adjusted cost base of the Deposit Note and any reasonable costs of disposition. You should consult your tax advisor with respect to your particular circumstances if you plan to sell a Deposit Note prior to maturity. Risk Factors: 10. The Deposit Notes may not be suitable for all investors and in deciding whether to invest in Deposit Notes you should take into account various risks associated with such an investment. The Information Statement contains a complete description of these risks, which include the following: Suitability An investment in Deposit Notes may be a suitable and appropriate investment for you if you are prepared to: invest for the mid to long-term; receive the Deposit Amount only on maturity; receive a return at maturity that (i) is not based wholly on a fixed, floating or other specified interest rate but on the performance of the Indices in the Portfolio, (ii) cannot exceed 70% of the Deposit Amount, (iii) is uncertain until maturity, and (iv) may be zero; and accept the risks described in the Information Statement, including the risks associated with the Indices in the Portfolio. Non-Conventional Deposit Notes The Deposit Notes are not conventional notes or debt securities in that they do not provide you with a return or income stream prior to maturity, or a return at maturity, that is calculated by reference to a fixed or floating rate of interest that can be determined before the maturity 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 It is possible that you may not receive a variable return on your Deposit Notes. Whether you receive a variable return, and if so, how much of a variable return, will depend on the performance of the Indices in the Portfolio. Variable Return May Be Limited Although the determination of the variable return is a function of the performance of the Indices in the Portfolio, the amount of variable return, if any, paid to you on maturity may not mirror the performance of the Indices since the weighted percentage change in each Index will be subject to a maximum of 11.667% of the Deposit Amount. Accordingly, the variable return per Deposit Note, if any, cannot exceed 70% of the Deposit Amount (an approximately 7.88% annual compounded rate of return). Risk Factors Relating to the Indices and Their Underlying Futures Contracts Certain risk factors applicable to investors who invest directly in the futures contracts or their underlying commodities represented in the Indices in the Portfolio are also applicable to an investment in the Deposit Notes. These risk factors include: (i) trading in futures contracts on physical commodities is speculative and can be extremely volatile; (ii) the trading activities of UBS Securities and its affiliates could adversely affect the market price of the Index components or the value of the Index; (iii) futures markets occasionally experience disruptions in trading; (iv) futures contracts comprising each Index are regularly replaced with futures contracts with later expiration dates that are acquired at prices which could be higher or lower than the prices at which the replaced futures contracts are sold, resulting in decreases or increases in the closing level of the relevant Index; (v) Indices may in the future include over-the- counter contracts traded on trading facilities that are subject to less regulation than regulated futures exchanges or no substantive regulation; KEY INFORMATION (ORAL DISCLOSURE) and (vi) data used to recalculate the composition of each Index annually are subject to potential errors in data sources or other errors that may effect the weighting of components of the Indices. This is not a complete description of the risks applicable to the Indices or futures contracts and their underlying commodities represented in the Indices. For a general description of the Indices and futures contracts, you should refer to the website www.djindexes.com/ubs. 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 Indices has been positive. Legislative, Regulatory and Administrative Changes Changes in laws, regulations or administrative practices, including with respect to taxation, could have an impact on you. Various national governments have expressed concern regarding the disruptive effects of speculative trading in the commodity markets and the need to regulate the derivative markets in general. In the United States in particular, the regulation of commodity transactions is subject to ongoing modification by governmental and judicial action.