Registration Statement
No. 333-264388
Filed Pursuant to Rule
424(b)(5)
Product Supplement ETN
4X dated December 4, 2023 to the Prospectus dated May 26, 2022 and
the Series I Senior Medium-Term
Notes Prospectus Supplement dated May 26, 2022
Exchange Traded Notes Linked to the Leveraged
Positive Performance of an Index
This product supplement relates to exchange traded notes that Bank
of Montreal may issue from time to time. The specific terms of each issuance will be described in a pricing supplement to this product
supplement.
The return on the notes will be linked to a four times leveraged participation
in the performance of an equity index (each, an “Index”), as described in the applicable pricing supplement. The notes are
unsecured and unsubordinated obligations of Bank of Montreal. The notes do not guarantee any return of principal at maturity, call or
upon early redemption, and do not pay interest. Instead, you will receive a cash payment in U.S. dollars at maturity, call or redemption
based on the leveraged performance of the applicable Index, less a Daily Investor Fee (as described below), the Daily Financing Charge
and, if upon early redemption, a Redemption Fee Amount. You may lose some or all of your principal.
An investment in the notes involves significant risks and is not
appropriate for every investor. Investors should continuously monitor their holdings of the notes to ensure that they remain consistent
with their investment strategies. Any payment on the notes is subject to the credit risk of Bank of Montreal.
The notes are not intended to be “buy and hold” investments.
The notes are intended to be daily trading tools for sophisticated investors, and are not intended to be held to maturity. The returns
on the notes are path dependent. The notes are designed to reflect a leveraged exposure to the performance of the Index on a daily basis.
The notes will be listed on a U.S. securities exchange, as described
in the applicable pricing supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or passed upon the accuracy or the adequacy of this product supplement, the accompanying
prospectus supplement and prospectus. Any representation to the contrary is a criminal offense.
The notes will not be subject to conversion into
our common shares or the common shares of any of our affiliates under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation
Act (the “CDIC Act”).
Investing in the notes involves risks, including
those described in the “Risk Factors” section beginning on page PS-8 of this product supplement, and the “Risk Factors”
sections beginning on page S-1 of the prospectus supplement and on page 8 of the prospectus.
The notes will be our unsecured obligations and will not be savings
accounts or deposits that are insured by the United States Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada
Deposit Insurance Corporation or any other governmental agency or instrumentality or other entity.
BMO CAPITAL MARKETS
TABLE OF CONTENTS
Page
Product Supplement
You should read this product
supplement together with the prospectus supplement dated May 26, 2022 and the prospectus dated May 26, 2022. You should also read the
specific pricing supplement relating to your notes, which may contain terms that are different from, or additional to, the terms described
in this product supplement. If there is any inconsistency between the disclosures in this product supplement and the applicable pricing
supplement, the terms set forth in the applicable pricing supplement will control.
We urge you to consult your investment,
legal, tax, accounting and other advisers before you invest in the notes.
You may access these documents
on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filings
for the relevant date on the SEC website):
Our Central Index Key, or CIK, on the SEC website
is 927971. As used in this product supplement, “we,” “us” or “our” refers to Bank of Montreal.
SUMMARY
The following is a summary of terms of
the notes, as well as a discussion of factors you should consider before purchasing the notes. The information in this section is qualified
in its entirety by the more detailed explanations set forth elsewhere in this product supplement, in the accompanying prospectus supplement
and accompanying prospectus and in the applicable pricing supplement.
What are the notes?
The notes are senior unsecured medium-term
notes issued by Bank of Montreal with a return linked to a four times leveraged participation in the performance of the applicable Index,
compounded daily, less a Daily Investor Fee, the Daily Financing Charge and, if applicable, the Redemption Fee Amount. We refer to the
securities included in the applicable Index as the “Index constituents” and the issuers of those securities as the “constituent
issuers.”
The notes will not guarantee any return of
principal at, or prior to, maturity or call, or upon early redemption. Instead, at maturity, you will receive a cash payment equal to
the arithmetic mean of the Closing Indicative Note Values on each Index Business Day in the Final Measurement Period. We refer to this
cash payment as the “Cash Settlement Amount.” This amount will not be less than $0.
The notes are not intended to be “buy
and hold” investments. The notes are intended to be daily trading tools for sophisticated investors, and are not intended to be
held to maturity. You may lose some or all of your investment at maturity or call, or upon early redemption. Because the Daily Investor
Fee and the Daily Financing Charge will reduce your final payment, the level of the applicable Index will need to have increased over
the period you hold the notes by an amount, after giving effect to the daily leverage and the compounding effect thereof, sufficient to
offset the decrease in the principal amount represented by the applicable Daily Investor Fee and the Daily Financing Charge in order for
you to receive an aggregate amount equal to at least the principal amount of your notes. Due to leverage and compounding, the notes are
very sensitive to changes in the level of the Index and the path of such changes, and any decrease in the level of the Index will result
in a larger decrease in the value of the notes. If the increase in the level of the applicable Index, measured as a component of the Closing
Indicative Note Value during the Final Measurement Period, is insufficient to offset the cumulative negative effect of the Daily Investor
Fee and the Daily Financing Charge, you will lose some or all of your investment at maturity or call, or upon early redemption. This loss
may occur even if the Closing Index Level at any time during the Final Measurement Period is greater than the Closing Index Level on the
Initial Trade Date. In addition, if the Closing Indicative Note Value or the Intraday Indicative Note Value of the notes is equal to or
less than $0, then the notes will be permanently worth $0 and the Cash Settlement Amount will be $0 (a total loss of value).
The notes seek to approximate the returns that
might be available to investors through a leveraged “long” investment in the Index (for example, through a leveraged position
in the Index constituents). A leveraged “long” investment strategy involves the practice of borrowing money from a third party
lender at an agreed-upon rate of interest and using the borrowed money together with investor capital to purchase assets. A leveraged
long investment strategy terminates with the sale of the underlying assets and repayment of the third party lender, provided that the
proceeds of the sale of underlying assets are sufficient to repay the loan. By implementing a leveraged strategy, the leveraged investor
seeks to benefit from an anticipated increase in the value of the assets between the purchase and sale of such assets, and assumes that
the increase in value of the underlying assets will exceed the cumulative interest due to the third party lender over the term of the
loan. A leveraged investor will incur a loss if the value of the assets does not increase sufficiently to cover the payment of the interest
charges and will incur a loss at an accelerated rate if the value of the assets decrease.
In order to seek to replicate a leveraged “long”
investment strategy in the Index, the terms of the notes provide that, on each Exchange Business Day, an amount equal to the Closing Indicative
Note Value on the immediately preceding Exchange Business Day (“$x”) is leveraged through a notional loan of an amount equal
to “$y”. Investors are thus considered to have notionally borrowed $y, which, together with the initial $x investment, represents
a notional investment of $x + $y (represented by the Long Index Amount) in the Index on the Exchange Business Day. During the term of
the notes, the leveraged portion of the notional investment, $y (represented by the Financing Level), accrues a Daily Financing Charge
for the benefit of the Issuer, the cumulative effect of which is reflected, together with the applicable Daily Investor Fee, in the applicable
Financing Level. The Daily Financing Charge seeks to represent the amount of interest, calculated by reference to the applicable Financing
Rate, that leveraged investors might incur if they sought to borrow funds at a similar rate from a third party lender. A portion of the
Financing Level also reflects the incremental cost attributable to the Daily Investor Fee. Upon maturity, call or redemption, the investment
in the Index is notionally sold at the then current value of the Index, and the investor then notionally repays the Issuer an amount equal
to the principal of the notional loan plus accrued interest and investor fees. The payment at maturity, call or redemption under the notes,
therefore, generally represents the profit or loss that the investor would receive by applying a leveraged “long” investment
strategy, after taking into account, and making assumptions for, the accrued financing charges that are commonly present in such leveraged
“long” investment strategies, as well as applicable investor fees.
The notes provide a daily long leveraged exposure
to the performance of the Index. The return on the notes is four times leveraged, as specified in the applicable pricing supplement. Because
the return is leveraged, if the Index level increases on any day the notes will increase by four times the daily return of the Index (before
taking into account the Daily Investor Fee, the Daily Financing Charge and any Redemption Fee Amount). However, any decrease in the level
of the Index will result in a significantly greater decrease in the Cash Settlement Amount, Call Settlement Amount or Redemption Amount,
as applicable (before taking into account any the Daily Investor Fee, the Daily Financing Charge and any Redemption Fee Amount), and you
may receive less than your original investment in the notes at maturity, call or upon redemption, or if you sell your notes in the secondary
market. Moreover, because the Daily Investor Fee, the Daily Financing Charge and any Redemption Fee Amount may substantially reduce the
amount of your return at maturity, call or upon redemption, or if you sell your notes, the level of the Index must increase significantly
in order for you to receive at least the principal amount of your notes. If the level of the Index decreases or does not increase sufficiently
to offset the cumulative negative effect of the Daily Investor Fee, the Daily Financing Charge and any Redemption Fee Amount, you will
receive less than the principal amount of your investment at maturity, call or upon redemption, or if you sell your notes.
The returns on the notes are path dependent.
The notes are designed to reflect a leveraged exposure to the performance of the Index on a daily basis; their returns over different
periods of time can, and most likely will, differ significantly from the applicable leveraged performance of the Index over such other
periods of time. The notes are very sensitive to changes in the level of the Index, and returns on the notes may be negatively affected
in complex ways by the volatility of the Index on a daily or intraday basis. Accordingly, the notes should be purchased only by sophisticated
investors who understand the risks of investing in the notes and of seeking daily compounding leveraged investment results linked to the
Index. The notes are not intended to be “buy and hold” investments. The notes are intended to be daily trading tools for sophisticated
investors, and are not intended to be held to maturity. It is possible that you will suffer significant losses in the notes even if the
long-term performance of the Index is flat or positive (before taking into account the negative effect of the Daily Investor Fee and the
Daily Financing Charge, and the Redemption Fee Amount, if applicable). Investors should actively and continuously monitor their investments
in the notes.
The Daily Investor Fee will accrue at the rate
set forth in the applicable pricing supplement. Because the Daily Investor Fee is calculated as part of the Financing Level, through which
it is subtracted from the Closing Indicative Note Value on a daily basis, the net effect of the Daily Investor Fee accumulates over time
and is subtracted at a rate per year equal to the Fee Rate. Because the net effect of the Daily Investor Fee is a fixed percentage of
the value of the notes, the aggregate effect of the Daily Investor Fee will increase or decrease in a manner directly proportional to
the value of the notes and the amount of notes that are held and the duration of your holding period.
On the applicable Initial Trade Date, the Index
Performance Factor will be 1. On any subsequent Exchange Business Day until maturity, call or redemption of the notes, the Index Performance
Factor will equal (a) the Closing Index Level on such Exchange Business Day (or, if such day is not an Index Business Day, the Closing
Index Level on the immediately preceding Index Business Day) divided by (b) the Closing Index Level on the immediately preceding Index
Business Day, as determined by the Calculation Agent. If a Market Disruption Event occurs or is continuing on any Index Business Day,
the Calculation Agent will determine the Index Performance Factor for the notes on each such Index Business Day using an appropriate closing
level of the applicable Index for each such Index Business Day, taking into account the nature and duration of such Market Disruption
Event. Furthermore, if a Market Disruption Event occurs and is continuing with respect to the notes on any Index Business Day or occurred
or was continuing on the immediately preceding Index Business Day, the calculation of the Index Performance Factor will be modified so
that the applicable leveraged exposure does not reset until the first Index Business Day on which no Market Disruption Event with respect
to the notes is continuing.
The “Closing Index Level” will
be the closing level of the applicable Index on the applicable Index Business Day, determined as set forth in the applicable pricing supplement.
“Business Day” means a Monday,
Tuesday, Wednesday, Thursday or Friday that is neither a legal holiday nor a day on which banking institutions are authorized or obligated
by law or executive order to close in New York City.
“Exchange Business Day” means any
day on which the primary exchange or market for trading of the applicable notes is scheduled to be open for trading.
“Index Business Day” means any
day on which the applicable index sponsor (the “Index Sponsor”) publishes the Closing Index Level.
The scheduled Maturity Date for each of the
notes will be set forth in the applicable pricing supplement. The Maturity Date of each of the notes is expected to be the fifth Business
Day following the last Index Business Day in the Final Measurement Period, subject to adjustment as described in this document and under
“Additional Terms of the Notes — Market Disruption Events.” The Maturity Date may be extended at our option for up to
two additional five-year periods. We may only extend the scheduled Maturity Date for five years at a time. If we exercise our option to
extend the maturity, we will notify The Depository Trust Company (“DTC”) (the holder of the global note for the notes) and
the trustee at least 45 but not more than 60 calendar days prior to the then scheduled Maturity Date, including the new calculation date
determined by the Calculation Agent. We will provide that notice to DTC and the trustee in respect of each five-year extension of the
scheduled Maturity Date.
Unlike ordinary debt securities, the notes
will not guarantee any return of principal at maturity or call, or upon early redemption. The notes will not pay any interest.
For a further description of how your payment
at maturity or call, or upon early redemption, will be calculated, see “Additional Terms of the Notes—Cash Settlement Amount
at Maturity,” “—Call Right” and “—Early Redemption at the Option of the Holders.”
Path Dependence and Daily
Leverage Reset. Because the leverage of the notes is generally only reset once each day, it is likely that due to intra-day changes
in the level of the applicable Index, the leverage at any point during an Index Business Day will be higher or lower than the target leverage
of 4.0.
The performance of the notes
is path-dependent. This means that the value of the notes will depend not only upon the level of the Index at maturity, call or redemption,
but also on the performance of the Index over each day that you hold your notes. In other words, the value of the notes will be affected
by not only the increase or decrease in the level of the Index over a given time period but also the volatility of the level of the Index
over such time period. For example, a sharp spike or sharp decline in the level of the Index at the end of a particular time period will
not result in the same return as a gradual uptick or gradual decline in the Index over the same time period, even if the level of the
Index at the end of the applicable time period is the same in each scenario. Accordingly, the return on the notes may not correlate with
the return on the Index over periods longer than one day.
As a general matter,
it is expected that the notes will have better returns if the Index trends from one level to another over multiple Index Business Days,
rather than experiencing significant changes in opposite directions over multiple Index Business Days. Consequently, volatility of the
Index level may have a significant negative effect on the value of the notes.
In addition, the performance of the notes is
path dependent, insofar as their value at any time depends not only on the level of the Index at such time, but also on the Index’s
level at any prior time. As a result, the value of your investment in the notes may diverge significantly from the value of a four times
leveraged investment linked to the Index where the leverage is not reset on daily basis.
Early Redemption
You may elect to require us to redeem your
notes (subject to a minimum redemption amount that may be specified in the applicable pricing supplement) on any Business Day commencing
on the first Redemption Date specified in the applicable pricing supplement, and ending on the final Redemption Date (which will be the
last scheduled Index Business Day prior to the Calculation Date or Call Calculation Date, as applicable). If you elect to have your notes
redeemed and have done so under the redemption procedures described in “Additional Terms of the Notes—Early Redemption at
the Option of the Holders — Redemption Procedures,” you will receive a cash payment on the Redemption Date equal to the Redemption
Amount, as defined below. You must comply with the redemption procedures described below and in the applicable pricing supplement in order
to redeem your notes. To satisfy the minimum redemption amount, your broker or other financial intermediary may bundle your notes for
redemption with those of other investors to reach the applicable minimum amount of notes; however, there can be no assurance that they
can or will do so. We may from time to time in our sole discretion reduce this minimum requirement in whole or in part. Any such reduction
will be applied on a consistent basis for all holders of the applicable notes at the time the reduction becomes effective.
Upon early redemption, you will receive per
note a cash payment on the relevant Redemption Date equal to (a) the arithmetic mean of the Closing Indicative Note Values on each
Index Business Day in the Redemption Measurement Period minus (b) the Redemption Fee Amount. We refer to this cash payment as the “Redemption
Amount.” This amount will not be less than $0. You may lose some or all of your investment upon early redemption. Because the
cumulative negative effect of the Daily Investor Fee, the Daily Financing Charge and the Redemption Fee Amount reduce your final payment,
the level of the applicable Index will need to have increased over the period you hold the notes by an amount, after giving effect to
the daily leverage and its compounding effect, sufficient to offset the decrease in principal amount represented by the Daily Investor
Fee, the Daily Financing Charge and the Redemption Fee Amount in order for you to receive an aggregate amount upon redemption equal to
at least the principal amount. Due to leverage, the notes are very sensitive to changes in the level of the Index and the path of those
changes. See “—Path Dependence and Daily Leverage Reset” above. If the increase in the level of the applicable Index,
as measured on each Index Business Day in the Redemption Measurement Period, is insufficient to offset such a negative effect, you will
lose some or all of your investment upon early redemption. It is possible that you will suffer significant losses in the notes
upon redemption even if the long-term performance of the applicable Index is flat or positive (before taking into account the negative
effect of the Daily Investor Fee, the Daily Financing Charge and the Redemption Fee Amount).
Redemption Fee Amount: As of any Redemption
Measurement Period, the Redemption Fee Amount will be the product of (a) a percentage that will be set forth in the applicable pricing
supplement and (b) the arithmetic mean of the Closing Indicative Note Values on each Index Business Day in the Redemption Measurement
Period. We reserve the right from time to time to reduce or waive the Redemption Fee Amount in our sole discretion on a case-by-case basis.
In exercising your right to have us redeem your notes, you should not assume you will be entitled to the benefit of any such waiver.
For a detailed description of the redemption
procedures applicable to an early redemption, see “Additional Terms of the Notes —Early Redemption at the Option of the Holders
— Redemption Procedures.”
Call Right
On any Call Settlement Date (as
defined above), we may at our option redeem all, but not less than all, of the outstanding notes of the relevant issuance. To exercise
our Call Right, we must provide notice to the holders of the applicable notes not less than 14 calendar days prior to the Call Settlement
Date specified by us. In the event we exercise this right, you will receive a cash payment equal to the arithmetic mean of the Closing
Indicative Note Values on each Index Business Day in the Call Measurement Period. We refer to this cash payment as the “Call Settlement
Amount.” If we issue a call notice on any calendar day, the “Call Calculation Date” will be the next Index Business
Day after the call notice is issued.
Unless otherwise set forth in the
applicable pricing supplement, the Call Settlement Date will be the fifth Business Day following the last Index Business Day in the Call
Measurement Period.
Call Measurement Period: Unless
otherwise set forth in the applicable pricing supplement, the five Index Business Days from and including the Call Calculation Date, subject
to adjustment as described under “Additional Terms of the Notes — Market Disruption Events.”
RISK FACTORS
Your investment in the notes will involve certain
risks. The notes are not secured debt and will not guarantee any return of principal at, or prior to, maturity, call or upon early redemption.
As described in more detail below, the trading price of the notes may vary considerably before the maturity date. Investing in the notes
is not equivalent to investing directly in the applicable Index constituents or any securities of the constituent issuers. In addition,
your investment in the notes entails other risks not associated with an investment in conventional debt securities. In addition to
the risk factors beginning on page S-1 of the prospectus supplement and page 8 of the prospectus, you should consider carefully the
following discussion of risks, together with the risk factors set forth in the applicable pricing supplement, before you decide that an
investment in the notes is suitable for you.
Risks Relating to the Terms of the Notes
The notes do not guarantee the return of your investment.
The notes may not return any of your investment.
The amount payable at maturity, call or upon early redemption, will reflect a four times daily resetting leveraged participation in the
performance of the applicable Index minus the Daily Investor Fee, the Daily Financing Charge and, in the case of an early redemption,
the Redemption Fee Amount. These amounts will be determined as described in this product supplement and the applicable pricing supplement.
Because these fees and charges will reduce the payments on the notes, the Closing Index Levels, measured as a component of the Closing
Indicative Note Value during the Final Measurement Period, Call Measurement Period or Redemption Measurement Period, will need to have
increased over the period you hold the applicable notes by an amount, after giving effect to the daily resetting leverage and the compounding
effect thereof, sufficient to offset the decrease in the principal amount represented by the Daily Investor Fee, the Daily Financing Charge
and the Redemption Fee Amount, if applicable, in order for you to receive an aggregate amount at maturity, upon a call or redemption,
or if you sell your notes, that is equal to at least the principal amount of your notes. If the increase in the Closing Index Levels,
as measured during the Final Measurement Period, Call Measurement Period or Redemption Measurement Period, is insufficient to offset the
cumulative negative effect of the Daily Investor Fee, the Daily Financing Charge, and the Redemption Fee Amount, if applicable, you will
lose some or all of your investment at maturity, call or upon early redemption. This loss may occur even if the Closing Index Levels during
the Final Measurement Period, Call Measurement Period or Redemption Measurement Period, or when you elect to sell your notes, have increased
since the Initial Trade Date.
The negative effect of the Daily Investor Fee,
Daily Financing Charge and the Redemption Fee Amount, if applicable, are in addition to the losses that may be caused by the daily resetting
leverage of the notes and volatility in the Index. See “—Leverage increases the sensitivity of your notes to changes in the
level of the Index,” “—The notes are not suitable for investors with longer-term investment objectives” and “—The
notes are not suitable for all investors. In particular, the notes should be purchased only by sophisticated investors who do not intend
to hold the notes as a buy and hold investment, who are willing to actively and continuously monitor their investment and who understand
the risks of investing in the notes and of seeking daily resetting leveraged investment results linked to the Index” below.
If the Intraday Indicative Note Value for the notes is equal to
or less than $0 at any time during an Exchange Business Day, or the Closing Indicative Note Value is equal to or less than $0, you will
lose all of your investment in the notes.
If the Closing Indicative Note Value or the Intraday
Indicative Note Value of the notes is equal to or less than $0, then the notes will be permanently worth $0 (a total loss of value) and
you will lose all of your investment in the notes and the Cash Settlement Amount will be $0. We would be likely to call the notes in full
under these circumstances, and you will not receive any payments on the notes.
Even if the Closing Index Levels during the Final Measurement Period,
Call Measurement Period or Redemption Measurement Period are greater than the Initial Index Level, you may receive less than the principal
amount of your notes due to the Daily Investor Fee, the Daily Financing Charge and the Redemption Fee Amount, if applicable.
The amount of the Daily Investor Fee, the Daily
Financing Charge and the Redemption Fee Amount, if applicable, will reduce the payment, if any, you will receive at maturity, call or
upon early redemption, or if you sell your notes. If you elect to require us to redeem your notes prior to maturity, you will be charged
the Redemption Fee Amount. If the Closing Index Levels, measured as a component of the Closing Indicative Note Value during the Final
Measurement Period, Call Measurement Period or Redemption Measurement Period, have decreased or increased insufficiently to offset the
cumulative negative effect of these fees and charges, you will receive less than the principal amount of your investment at maturity,
call or upon early redemption of your notes.
Leverage increases the sensitivity of your notes to changes in
the level of the Index.
Because your investment in the notes is four times
leveraged, compounded daily, changes in the level of the applicable Index will have a greater impact on the payout on your notes than
on a payout on securities that are not so leveraged. In particular, any decrease in the level of the Index will result in a significantly
greater decrease in your payment at maturity, call or upon redemption, and you will suffer losses on your investment in the notes substantially
greater than you would if the terms of your notes did not contain leverage. Accordingly, as a result of this daily resetting leverage
component and without taking into account the cumulative negative effect of the Daily Investor Fee and the Daily Financing Charge, if
the level of the Index decreases over the period you hold the notes, the daily resetting leverage will magnify any losses at maturity,
call or upon redemption.
The notes are subject to our credit risk.
The notes are subject to our credit risk, and our
credit ratings and credit spreads may adversely affect the market value of the notes. The notes are senior unsecured debt obligations
of the issuer, Bank of Montreal, and are not, either directly or indirectly, an obligation of any third party. Investors are dependent
on our ability to pay all amounts due on the notes at maturity, call or upon early redemption or on any other relevant payment dates,
and therefore investors are subject to our credit risk and to changes in the market’s view of our creditworthiness. If we were to
default on our payment obligations, you may not receive any amounts owed to you under the notes and you could lose your entire investment.
Our credit ratings are an assessment of our ability
to pay our obligations, including those on the notes. Consequently, actual or anticipated changes in our credit ratings may affect the
market value of the notes. However, because the return on the notes is dependent upon certain factors in addition to our ability to pay
our obligations on the notes, an improvement in our credit ratings will not reduce the other investment risks related to the notes. Therefore,
an improvement in our credit ratings may or may not have a positive effect on the market value of the notes.
The notes are not suitable for investors with longer-term investment
objectives.
The notes are not intended to
be “buy and hold” investments. The notes are intended to be daily trading tools for sophisticated investors, and are not intended
to be held to maturity. The notes are designed to achieve their stated investment objective on each day, but their performance over different
periods of time can differ significantly from their stated daily objective because the relationship between the level of the applicable
Index and the Closing Indicative Note Value will begin to break down as the length of an investor’s holding period increases. The
notes are not long-term substitutes for long positions in the Index constituents.
Investors should carefully consider
whether the notes are appropriate for their investment portfolio. As discussed below, because the notes are meant to provide leveraged
long exposure to changes in the Closing Index Level on each Index Business Day, their performance over months or years can differ significantly
from the performance of the applicable Index during the same period of time. Therefore, it is possible that you will suffer significant
losses in the notes even if the long-term performance of the Index is positive (before taking into account the negative effect of the
Daily Investor Fee and the Daily Financing Charge, and the Redemption Fee Amount, if applicable). It is possible for the level of the
Index to increase over time while the market value of the notes declines over time. You should proceed with extreme caution in
considering an investment in the notes.
The notes seek to provide a four
times leveraged long return based on the performance of the applicable Index (as adjusted for costs and fees) over a period of a single
day. The notes do not attempt to, and should not be expected to, provide returns that reflect leverage on the return of the Index for
periods longer than a single day.
The daily resetting leverage
is expected to cause the notes to experience a “decay” effect, which will impair the performance of the notes if the applicable
Index experiences volatility from day to day, and such performance will be dependent on the path of daily returns during the holder’s
holding period. The “decay” effect refers to the tendency of the notes to lose value over time. At higher ranges of volatility,
there is a significant chance of a complete loss of the value of the notes even if the performance of the Index is flat (before taking
into account the negative effect of the Daily Investor Fee, the Daily Financing Charge and the Redemption Fee Amount, if applicable).
Although the decay effect is more likely to manifest itself the longer the notes are held, the decay effect can have a significant impact
on the performance of the notes, even over a period as short as two days. The notes should be purchased only by sophisticated investors
seeking a short-term investment who understand leverage risk, including the risks inherent in maintaining a constant four times daily
resetting leverage as described in this document, and who understand the risks inherent in path dependence of investment returns.
The notes are not be appropriate for investors who intend to hold positions in an attempt to generate returns over periods longer than
one day. See “Hypothetical Examples.”
In addition, the daily resetting
leverage feature will result in leverage relative to the Closing Indicative Note Value that may be greater or less than the stated leverage
factor if the value of the notes has changed since the beginning of the day in which you purchase the notes.
You should continuously monitor your holdings of the notes to
ensure that they remain consistent with your investment strategies.
The notes are designed to reflect
a leveraged long exposure to the performance of the applicable Index on a daily basis. As such, the notes will be more volatile than a
non-leveraged investment linked to the Index. You should continuously monitor your holdings of the notes, at least on each Index Business
Day or even intraday, to ensure that they remain consistent with your investment strategies.
The notes are not suitable for all investors. In particular, the
notes should be purchased only by sophisticated investors who do not intend to hold the notes as a buy and hold investment, who are willing
to actively and continuously monitor their investment and who understand the risks of investing in the notes and of seeking daily resetting
leveraged investment results linked to the Index.
The notes require an understanding
of path dependence of investment results and are intended for sophisticated investors to use as part of an overall diversified portfolio.
The notes are risky and may not be suitable for investors who plan to hold them for periods greater than a single day. The notes are designed
to achieve their stated investment objective on each day, but the performance of the notes over different periods of time can differ significantly
from their stated daily objectives because the relationship between the level of the Index and the Closing Indicative Note Value will
begin to break down as the length of an investor’s holding period increases. The notes are not long-term substitutes for long exposure
to the Index. Accordingly, it is likely that the returns on the notes will not correlate with returns on the Index over periods longer
than one day.
Investors should carefully consider
whether the notes are appropriate for their investment portfolio. The notes entail leverage risk and should be purchased only by investors
who understand leverage risk, including the risks inherent in maintaining a constant four times leverage on a daily basis, and the risks
of seeking daily leveraged investment results generally. Investing in the notes is not equivalent to a direct investment in the Index
constituents because the notes reset their theoretical leveraged exposure to the Index on each day (subject to the occurrence of a Market
Disruption Event). Daily resetting of the leverage will impair the performance of the notes if the Index experiences volatility from day
to day, and such performance is dependent on the path of daily returns during an investor’s holding period. If the notes experience
a high amount of realized volatility, there is a significant chance of a complete loss of your investment even if the performance of the
Index is flat or is positive. In addition, the notes are meant to provide leveraged exposure to changes in the Closing Index Level,
which means their performance over months or years can differ significantly from the performance of the Index over the same period of
time. It is possible that you will suffer significant losses in the notes even if the long-term performance of the Index is positive
(before taking into account the negative effect of the Daily Investor Fee, the Daily Financing Charge and the Redemption Fee Amount, if
applicable).
The amount you receive at maturity,
call or redemption will be contingent upon the compounded leveraged daily performance of the Index during the term of the notes. There
is no guarantee that you will receive at maturity, call or redemption your initial investment or any return on that investment. Significant
adverse daily performances for the notes may not be offset by any beneficial daily performances of the same magnitude.
Due to the effect of compounding, if the Closing Indicative Note
Value increases, any subsequent decrease of the Index level will result in a larger dollar reduction from the Closing Indicative Note
Value than if the Closing Indicative Note Value remained constant.
If the Closing Indicative Note
Value increases, the dollar amount that you can lose in any single Index Business Day from a decrease of the Index level will increase
correspondingly. This is because the Index Performance Factor will be applied to a larger Indicative Note Value and, consequently, a larger
Long Index Amount in calculating any subsequent Indicative Note Value. As such, the dollar amount that you can lose from any decrease
will be greater than if the Closing Indicative Note Value were maintained at a constant level. This means that if the Closing Indicative
Note Value increases, you could lose more than 4% of your initial investment for each 1% daily decrease of the Index level.
Due to the effect of compounding, if the Closing Indicative Note
Value decreases, any subsequent increase of the Index level will result in a smaller dollar increase on the Closing Indicative Note Value
Indicative Note Value than if the Closing Indicative Note Value remained constant.
If the Closing Indicative Note
Value decreases, the dollar amount that you can gain in any single Index Business Day from an increase of the Index level will decrease
correspondingly. This is because the Index Performance Factor will be applied to a smaller Indicative Note Value and, consequently, a
smaller Long Index Amount in calculating any subsequent Indicative Note Value. As such, the dollar amount that you can gain from any increase
of the Index level will be less than if the Closing Indicative Note Value were maintained at a constant level. This means that if the
Closing Indicative Note Value decreases on an Exchange Business Day, the daily increase of the Index level on the following Exchange Business
Day will have to exceed the prior decrease to restore the value of your investment (before taking into account the negative effect of
the Daily Investor Fee, the Daily Financing Charge and the Redemption Fee Amount, if applicable). Further, if the Closing Indicative Note
Value is less than your initial investment, each 1% daily increase in the Index level will result in an increase in the Closing Indicative
Note Value that is less than 4% of your initial investment.
The leverage of the notes is reset daily, and the effective leverage
of the notes during any given day may be greater than or less than 4.0.
The leverage of the notes is reset daily (subject
to the occurrence of a Market Disruption Event). Resetting the Closing Indicative Note Value has the effect of resetting the then-current
leverage to approximately 4.0. During any given day, the effective leverage of the notes will depend on intra-day changes in the level
of the applicable Index and any change in the level of the Index on any day may cause the effective leverage to be greater than or less
than 4.0. If the level of the Index on any day has increased from the Closing Index Level on the preceding day, the effective leverage
of the notes will be less than 4.0 (e.g., 3.5, 2.0, 0.5); conversely, if the level of the Index on any Exchange Business Day has decreased
from the Closing Index Level on the preceding day, the effective leverage of the notes will be greater than 4.0 (e.g., 4.5, 5.0, 5.5).
Thus, the effective leverage of the notes at the time that you purchase them may be greater or less than the target leverage of 4.0, depending
on the performance of the Index since the leverage was reset. See “—The notes are subject to intraday purchase risk”
below.
You should regularly monitor your holdings of the notes to ensure
that they remain consistent with your investment strategies.
The notes are designed to reflect leveraged long
exposure to the performance of the applicable Index on a daily basis. There is no guarantee that you will receive at maturity, call or
redemption your initial investment or any return on that investment. You should regularly monitor your holdings of the applicable notes
to ensure that they remain consistent with your investment strategies.
The notes are subject to our Call Right, which does not allow for
participation in any future performance of the applicable Index. The exercise of our Call Right may adversely affect the value of, or
your ability to sell, your notes. We may call the notes prior to the maturity date.
We will have the right to call the notes upon 14
calendar days’ prior written notice. You will only be entitled to receive a payment on the Call Settlement Date equal to the Call
Settlement Amount. The Call Settlement Amount may be less than the stated principal amount of your notes. You will not be entitled to
any further payments after the Call Settlement Date, even if the applicable Index level increases substantially after the Call Measurement
Period. In addition, the issuance of a notice of our election to exercise our call right in whole or in part may adversely impact your
ability to sell your notes, and/or the price at which you may be able to sell your notes prior to the Call Settlement Date. We have no
obligation to ensure that investors will not lose all or a portion of their investment in the notes if we call the notes; consequently,
a potential conflict between our interests and those of the noteholders exists with respect to our Call Right.
If we exercise our right to call the notes
prior to maturity, your payment on the Call Settlement Date may be less than the Closing Indicative Note Value at the time we gave the
notice of our election to call the notes.
As discussed above, we have the right to call the
notes on or prior to the Maturity Date. The Call Settlement Amount will be payable on the Call Settlement Date and we will provide at
least 14 calendar days’ notice prior to the Call Settlement Date of our election to exercise our call of the notes. The Call Settlement
Amount per note will be based principally on the Closing Indicative Note Value on each Index Business Day during the Call Measurement
Period. The Call Measurement Period will be a specified number of consecutive Index Business Days from, and including, the Call Calculation
Date. The Call Calculation Date will be a date specified in our call notice, subject to postponement if that date is not an Index Business
Day or in the event of a Market Disruption Event. It is possible that the market prices of the applicable Index constituents, and,
as a result, the Closing Index Level and the Closing Indicative Note Value, may vary significantly between when we provide the notice
of our intent to call the notes and the Call Measurement Period, including potentially as a result of our trading activities during this
period, as described further under “We or our affiliates may have economic interests that are adverse to those of the holders of
the notes as a result of our hedging and other trading activities.” As a result, you may receive a Call Settlement Amount that is
significantly less than the Indicative Value at the time of the notice of our election to call the notes and may be less than your initial
investment in the notes.
The notes do not pay any interest, and you will not have any ownership
rights in the Index constituents.
The notes do not pay any interest, and you should
not invest in the notes if you are seeking an interest-bearing investment. You will not have any ownership rights in the applicable Index
constituents, nor will you have any right to receive dividends or other distributions paid to holders of the Index constituents, except
to the extent that dividend payments are reflected in the level of the applicable Index. The Cash Settlement Amount, the Call Settlement
Amount, or Redemption Amount, if any, will be paid in U.S. dollars, and you will have no right to receive delivery of any shares of the
Index constituents.
The Closing Index Levels used to calculate the payment at maturity,
call or upon a redemption may be less than those levels on the Maturity Date, Call Settlement Date, Redemption Date or at other times
during the term of the notes.
The Closing Index Level on the Maturity Date, Call
Settlement Date, Redemption Date or at other times during the term of the notes, including dates near the Final Measurement Period, Call
Measurement Period or Redemption Measurement Period, as applicable, could be greater than any of the Closing Index Levels during the Final
Measurement Period, Call Measurement Period or Redemption Measurement Period, as applicable. This difference could be particularly large
if there is a significant increase in the applicable Closing Index Level after the Final Measurement Period, Call Measurement Period or
Redemption Measurement Period, as applicable, or if there is a significant decrease in the Closing Index Level around the Final Measurement
Period, Call Measurement Period or Redemption Measurement Period, as applicable, or if there is significant volatility in the Closing
Index Level during the term of the notes.
There are restrictions on the minimum number of notes you may request
that we redeem and the dates on which you may exercise your right to have us redeem your notes.
If you elect to require us to redeem your notes,
you must request that we redeem at least the number of notes specified in the applicable pricing supplement on any Business Day commencing
on the first applicable Redemption Date through and including the Final Redemption Date. If you own fewer than the applicable minimum
required number of notes, you will not be able to elect to require us to redeem your notes. Your request that we redeem your notes is
only valid if we receive your Redemption Notice by email no later than 2:00 p.m., New York City time, on the applicable Redemption Notice
Date and a completed and signed Redemption Confirmation by 5:00 p.m., New York City time, that same day. If we do not receive such notice
and confirmation, your redemption request will not be effective and we will not redeem your notes on the corresponding Redemption Date.
The daily redemption feature is intended to induce
arbitrageurs to counteract any trading of the notes at a premium or discount to their indicative value. There can be no assurance that
arbitrageurs will employ the redemption feature in this manner.
Because of the timing requirements of the Redemption
Notice and the Redemption Confirmation, settlement of the redemption will be prolonged when compared to a sale and settlement in the secondary
market. Because your request that we redeem your notes is irrevocable, this will subject you to loss if the level of the applicable Index
decreases after we receive your request. Furthermore, our obligation to redeem the notes prior to maturity may be postponed upon the occurrence
of a Market Disruption Event.
If you want to sell your notes but are unable to
satisfy the minimum redemption requirements, you may attempt to sell your notes into the secondary market at any time, subject to the
risks described below. A trading market for the notes may not develop. Also, the price you may receive for the notes in the secondary
market may differ from, and may be significantly less than, the Redemption Amount.
You will not know the Redemption Amount at the time you elect to
request that we redeem your notes.
You will not know the Redemption Amount you will
receive at the time you elect to request that we redeem your notes. Your notice to us to redeem your notes is irrevocable and must be
received by us no later than 2:00 p.m., New York City time, on the applicable Redemption Notice Date and a completed and signed confirmation
of such redemption must be received by us no later than 5:00 p.m., New York City time, on the same day. The Redemption Measurement Period
will be a period of five consecutive Index Business Days from and including the applicable Redemption Calculation Date following the applicable
Redemption Notice Date. You will not know the Redemption Amount until the last Index Business Day in the applicable Redemption Measurement
Period, and we will pay you the Redemption Amount, if any, on the Redemption Date, which is the fifth Business Day following the last
Index Business Day in the applicable Redemption Measurement Period. As a result, you will be exposed to market risk in the event the level
of the Index fluctuates after we confirm the validity of your notice of election to exercise your right to have us redeem your notes,
and prior to the relevant Redemption Date.
Market disruptions may adversely affect your return.
The Calculation Agent may, in its sole discretion,
determine that the markets have been affected in a manner that prevents the Calculation Agent from determining the Closing Indicative
Note Values during the Final Measurement Period, Call Measurement Period or Redemption Measurement Period, and prevents the Calculation
Agent from calculating the amount that we are required to pay you, if any. These events may include disruptions or suspensions of trading
in the markets as a whole. If the Calculation Agent, in its sole discretion, determines that any of these events prevents us or any of
our affiliates from properly hedging our obligations under the notes, it is possible that the determination of the Closing Index Level
will be postponed and your return will be adversely affected. Moreover, if the final Averaging Date (as defined under “Additional
Terms of the Notes — Market Disruption Events”) is postponed to the last possible day and the Closing Index Level is not available
on that day if such day is not an Index Business Day, the Calculation Agent or one of its affiliates will determine the Closing Index
Level on such last possible day. See “Additional Terms of the Notes — Market Disruption Events” for more information.
Because the Calculation Agent is our affiliate, its interests in making a determination of this kind may be adverse to the interests of
holders of the notes.
Significant aspects of the tax treatment of the notes are uncertain
and certain aspects may make the notes less suitable for certain non-U.S. investors.
The tax treatment of the notes is uncertain. We
do not plan to request a ruling from the Internal Revenue Service or from any Canadian authorities regarding the tax treatment of the
notes, and the Internal Revenue Service or a court may not agree with the tax treatment described in this product supplement.
The Internal Revenue Service has issued a notice
indicating that it and the Treasury Department are actively considering whether, among other issues, a holder should be required to accrue
interest over the term of an instrument such as the notes even though that holder will not receive any payments with respect to the notes
until maturity and whether all or part of the gain a holder may recognize upon sale or maturity of an instrument such as the notes could
be treated as ordinary income. The outcome of this process is uncertain and could apply on a retroactive basis.
Moreover, certain investors that are not “United
States persons” for U.S. income tax purposes may incur U.S. tax obligations as a result of an investment in the notes.
Please read carefully the section entitled “Supplemental
Tax Considerations” in this product supplement. You should consult your tax advisor about your own tax situation.
Risks Relating to Liquidity and the Secondary Market
The Intraday Indicative Note Value and the Closing Indicative Note
Value are not the same as the closing price or any other trading price of the notes in the secondary market.
The Intraday Indicative Note Value at any point
in time of an Index Business Day will equal (a) the Intraday Long Index Amount minus (b) the Financing Level; provided that if such calculation
results in a value equal to or less than $0, the Intraday Indicative Note Value will be $0. Because the Intraday Indicative Note Value
uses an intraday Index level for its calculation, a variation in the intraday level of the applicable Index from the previous Index Business
Day’s Closing Index Level may cause a significant variation between the Closing Indicative Note Value and the Intraday Indicative
Note Value on any date of determination. The Intraday Indicative Note Value also does not reflect intraday changes in the leverage; it
is based on the applicable constant Daily Leverage Factor. As a result, the Intraday Indicative Note Value may vary significantly from
the previous or next Index Business Day’s Closing Indicative Note Value or the price of the notes purchased intraday.
The trading price of the notes at any time is the
price at which you may be able to sell your notes in the secondary market at such time, if one exists. The trading price of the notes
at any time may vary significantly from the Intraday Indicative Note Value of the notes at such time due to, among other things, imbalances
of supply and demand, lack of liquidity, transaction costs, credit considerations and bid-offer spreads, and any corresponding premium
in the trading price may be reduced or eliminated at any time. Paying a premium purchase price over the Intraday Indicative Note Value
of the notes could lead to significant losses in the event the investor sells such notes at a time when that premium is no longer present
in the marketplace or the notes are called, in which case investors will receive a cash payment based on the Closing Indicative Note Value
of the notes during the Call Measurement Period. See “— There is no assurance that your notes will continue to be listed on
a securities exchange, and they may not have an active trading market” below. We may, without providing you notice or obtaining
your consent, create and issue notes in addition to those offered by the applicable pricing supplement having the same terms and conditions
as the notes. However, we are under no obligation to sell additional notes at any time, and we may suspend issuance of new notes at any
time and for any reason without providing you notice or obtaining your consent. If we limit, restrict or stop sales of additional notes,
or if we subsequently resume sales of such additional notes, the price and liquidity of the notes could be materially and adversely affected,
including an increase or decline in the premium purchase price of the applicable notes over the Intraday Indicative Note Value of the
notes. Before trading in the secondary market, you should compare the Intraday Indicative Note Value with the then-prevailing trading
price of the notes.
Publication of the Intraday Indicative Note Value
may be delayed, particularly if the publication of the applicable intraday Index level is delayed. See “Intraday Value of the Index
and the Notes—Intraday Indicative Note Values.”
There is no assurance that your notes will continue to be listed
on a securities exchange, and they may not have an active trading market.
The notes are expected to be listed on the securities
exchange specified in the applicable pricing supplement. No assurance can be given as to the continued listing of the notes for their
term or of the liquidity or trading market for the notes. There can be no assurance that a secondary market for the notes will be maintained.
We are not required to maintain any listing of the notes on any securities exchange.
If the notes are delisted, they will no longer
trade on a national securities exchange. Trading in delisted notes, if any, would be on an over-the-counter basis. If the notes are removed
from their primary source of liquidity, it is possible that holders may not be able to trade their notes at all. We cannot predict with
certainty what effect, if any, a delisting would have on the trading price of the applicable notes; however, the notes may trade at a
significant discount to their indicative value. If a holder had paid a premium over the Intraday Indicative Note Value of the notes and
wanted to sell the notes at a time when that premium has declined or is no longer present, the investor may suffer significant losses
and may be unable to sell the notes in the secondary market.
The notes could be delisted by the applicable securities
exchange if they cease to meet the listing requirements of that exchange, for example, in the event that there is a material change in
the applicable Index that causes the Index to no longer meet the exchange’s listing requirements. See “Additional Terms of
the Notes—Discontinuation of or Adjustments to the Index; Alteration of Method of Calculation.”
Although the title of the notes includes the words
“exchange-traded notes,” we are not obligated to maintain the listing of any of the notes on any securities exchange. We may
elect to discontinue the listing of your notes at any time and for any reason, including in connection with a decision to discontinue
further issuances and sales of those notes. If your notes ceased to be listed on an exchange, the words “exchange-traded notes”
will continue to be included in their title in any event.
The applicable securities exchange may halt trading in the notes
or may limit the extent to which trading prices may change within specified time periods, which in either case would adversely impact
your ability to sell the notes.
Trading in your notes may be halted due to market
conditions or, in light of the exchange’s rules and procedures, for reasons that, in the view of that exchange, make trading in
the notes inadvisable. General exchange trading is subject to trading halts caused by extraordinary market volatility pursuant to “circuit
breaker” rules based on a specified decline in a market index (e.g., the S&P 500® Index). In addition, the notes
may be subject to “limit up” and “limit down” rules or trading pause requirements that are triggered by a significant
change in the trading price of the notes within a specified period of time. These “limit up” and “limit down”
and trading pause rules, if triggered, could prevent investors from transacting at the then prevailing Intraday Indicative Note Value
or at all. If the value of the notes declines precipitously during the trading day, triggering a “limit down” mechanism or
trading pause, you may be unable to sell your notes for some period of time, either because no trading at all is permitted or because
the price that any purchaser would be willing to pay for them at the time may be significantly below the lowest price that a purchaser
would be permitted to pay for them on the applicable exchange. In that circumstance, by the time you are finally able to sell your notes,
you may have incurred significantly greater losses than you would have incurred had you been able to sell them when you initially wanted
to. Additionally, the ability to short sell notes may be restricted when there is a 10% or greater change from the previous day’s
official closing price. The applicable exchange’s rules relating to these matters are subject to change from time to time.
The liquidity of the market for the notes may vary materially over
time, and may be limited if you do not hold the minimum number of notes required for an optional redemption.
Certain affiliates of BMOCM may engage in limited
purchase and resale transactions in the notes, and we or BMOCM may purchase notes from holders in amounts and at prices that may be agreed
from time to time, although none of us are not required to do so. Also, the number of notes outstanding or held by persons other than
our affiliates could be reduced at any time due to early redemptions of the notes or due to our or our affiliates’ purchases of
notes in the secondary market. Accordingly, the liquidity of the market for the notes could vary materially over the period you hold the
notes. There may not be sufficient liquidity to enable you to sell your notes readily and you may suffer substantial losses and/or sell
your notes at prices substantially less than their Intraday Indicative Note Value or Indicative Note Value, including being unable to
sell them at all or only for a minimal price in the secondary market. You may elect to require us to redeem your notes, but such redemption
is subject to the restrictive conditions and procedures described in this product supplement, including the condition that you must request
that we redeem the minimum number of notes specified in the applicable pricing supplement on any Redemption Date.
The value of the notes in the secondary market may be influenced
by many unpredictable factors.
The market value of your notes may fluctuate between
the date you purchase them and the relevant date of determination. You may also sustain a significant loss if you sell your notes in the
secondary market. Several factors, many of which are beyond our control, will influence the market value of the notes. We expect that,
generally, the level of the applicable Index on any day will affect the value of the notes more than any other single factor. The value
of the notes may be affected by a number of other factors that may either offset or magnify each other, including:
| · | the expected volatility in the applicable Index and the prices of the applicable Index constituents; |
| · | the time to maturity of the notes; |
| · | the market price and expected dividends or distributions on the applicable Index constituents; |
| · | interest and yield rates in the market generally; |
| · | supply and demand for the applicable notes, including, but not limited to, inventory positions with BMOCM or any market maker or other
person or entity who is trading the notes (supply and demand for the notes will be affected by the total issuance of notes, and we are
under no obligation to issue additional notes to increase the supply); |
| · | the amount of the Daily Investor Fee and the Daily Financing Charge on the relevant date of determination; |
| · | the applicable Index constituents and changes to those Index constituents over time; |
| · | whether the applicable notes have been delisted from the applicable securities exchange; |
| · | economic, financial, political, regulatory, judicial, military and other events that affect the applicable Index constituents or that
affect markets generally and which may affect the Closing Index Level; and |
| · | our actual or perceived creditworthiness. |
Some or all of these factors will influence the
price you will receive if you choose to sell your notes prior to maturity. The impact of any of the factors set forth above may enhance
or offset some or all of any change resulting from another factor or factors. If you sell the notes, you may receive significantly less
than the amount that you paid for them.
The notes are subject to intraday purchase risk.
The notes may be purchased in the secondary market
at prices other than the Closing Indicative Note Value, which will have an effect on the effective leverage amount of the notes. Because
the leverage exposure is fixed after the close of each Exchange Business Day (subject to the occurrence of a Market Disruption Event)
and does not change intraday as the level of the applicable Index increases or decreases, the effective leverage amount of the notes decreases
when the level of the applicable Index increases and the effective leverage amount of the notes increases when the level of the applicable
Index decreases.
Risks Relating to Conflicts of Interest and Hedging
Our offering of the notes does not constitute an expression of our
view about, or a recommendation of, the applicable Index or any of the applicable Index constituents.
You should not take our offering of the notes as
an expression of our views about how the applicable Index or any of the Index constituents will perform in the future or as a recommendation
to invest (directly or indirectly, by taking a long or short position) in the applicable Index or any of the Index constituents, including
through an investment in the notes. As a global financial institution, we and our affiliates may, and often do, have positions (long,
short or both) in the applicable Index or one or more of the Index constituents that conflict with an investment in the notes. See “—
We or our affiliates may have economic interests that are adverse to those of the holders of the notes as a result of our hedging and
other trading activities” below and “Use of Proceeds and Hedging” in this product supplement for some examples of potential
conflicting positions we may have. You should undertake an independent determination of whether an investment in the notes is suitable
for you in light of your specific investment objectives, risk tolerance and financial resources.
Except to the extent specified in the applicable
pricing supplement, we will not be affiliated with any constituent issuer or the Index Sponsor. However, we or our affiliates may currently
or from time to time in the future engage in business with a constituent issuer or the Index Sponsor. Nevertheless, neither we nor any
of our affiliates independently verified the accuracy or the completeness of any information about the applicable Index Sponsor or any
of the constituent issuers disclosed by the Index Sponsor or the constituent issuers.
We or our affiliates may have economic interests that are adverse
to those of the holders of the notes as a result of our hedging and other trading activities.
In anticipation of the sale of each of the notes,
we expect to hedge our obligations under the notes through certain affiliates or unaffiliated counterparties by taking positions in instruments
the value of which is derived from the applicable Index or one or more Index constituents. We may also adjust our hedge by, among other
things, purchasing or selling instruments the value of which is derived from the applicable Index or one or more Index constituents at
any time and from time to time, and close out or unwind our hedge by selling any of the foregoing at any time and from time to time. We
cannot give you any assurances that our hedging will not negatively affect the level of the applicable Index or the performance of the
applicable notes. See “Use of Proceeds and Hedging” below for additional information about our hedging activities.
These hedging activities may present a conflict
of interest between your interest as a holder of the notes and the interests our affiliates have in executing, maintaining and adjusting
hedge transactions. These hedging activities could also affect the price at which BMOCM is willing to purchase your notes in the secondary
market.
Our hedging counterparties expect to make a profit.
Because hedging our obligations entails risk and may be influenced by market forces beyond our control, this hedging may result in a profit
that is more or less than expected, or it may result in a loss.
It is possible that these hedging or trading activities
could result in substantial returns for us or our affiliates while the value of the applicable notes declines.
Bank of Montreal or its affiliates may also engage
in trading in the applicable Index constituents and other investments relating to those constituents, the constituent issuers or the applicable
Index on a regular basis as part of our general broker-dealer and other businesses, for proprietary accounts, for other accounts under
management or to facilitate transactions for customers, including block transactions. Any of these activities could negatively affect
the market price of the applicable Index constituents and the applicable Index level and, therefore negatively affect the market value
of the applicable notes. Bank of Montreal or its affiliates may also issue or underwrite other securities or financial or derivative instruments
with returns linked or related to changes in the performance of any constituent issuers, the Index constituents or the applicable Index.
By introducing competing products into the market place in this manner, Bank of Montreal or its affiliates could adversely affect the
market value of the applicable notes.
We or our affiliates may have economic interests that are adverse
to those of the holders of the notes as a result of our business activities.
We or our affiliates may currently or from time
to time engage in business with the applicable constituent issuers, including extending loans to, or making equity investments in, or
providing advisory services to them, including merger and acquisition advisory services. In the course of this business, we or our affiliates
may acquire non-public information about those constituent issuers, and we will not disclose any such information to you. Any prospective
purchaser of notes should undertake an independent investigation of each constituent issuer as in its judgment is appropriate to make
an informed decision with respect to an investment in the notes.
Additionally, we or one of our affiliates may serve
as issuer, agent or underwriter for additional issuances of other securities or financial instruments with returns linked or related to
changes in the applicable Index level or the applicable Index constituents. To the extent that we or one of our affiliates serves as issuer,
agent or underwriter for such securities or financial instruments, our or their interests with respect to such products may be adverse
to those of the holders of the applicable notes. By introducing competing products into the market place in this manner, we or one or
more of our affiliates could adversely affect the value of the applicable notes.
BMOCM and its affiliates may have published research, expressed
opinions or provided recommendations that are inconsistent with investing in or holding the applicable notes, and may do so in the future.
Any such research, opinions or recommendations could affect the level of the applicable Index and of each of the Index constituents, and
therefore the market value of the notes.
BMOCM and its affiliates publish research from
time to time on financial markets and other matters that may influence the value of the applicable notes, or express opinions or provide
recommendations that are inconsistent with purchasing or holding those notes. BMOCM and its affiliates may have published or may publish
research or other opinions that call into question the investment view implicit in an investment in the applicable notes. Any research,
opinions or recommendations expressed by BMOCM or its affiliates may not be consistent with each other and may be modified from time to
time without notice. Investors should make their own independent investigation of the merits of investing in the applicable notes, the
applicable Index, the constituent issuers and the Index constituents.
We or our affiliates may have economic interests that are adverse
to those of the holders of the notes due to BMOCM’s role as Calculation Agent.
BMOCM, one of our affiliates, will act as the Calculation
Agent. The Calculation Agent will make all determinations relating to each of the notes, including the Closing Index Level, the Index
Performance Factor, the Closing Indicative Note Value, the Daily Investor Fee, the Long Index Amount, the Financing Level, the Daily Financing
Charge, the Redemption Fee Amount, the Cash Settlement Amount, if any, that we will pay you at maturity, and the Redemption Amount, if
any, that we will pay you upon early redemption, if applicable. The Calculation Agent will also be responsible for determining whether
a Market Disruption Event has occurred, whether the applicable Index has been discontinued and whether there has been a material change
in that Index. As described in more detail below, the calculation agent may also make determinations that result in a replacement of the
Index for the notes. See "Additional Terms of the Notes—Discontinuance or Modification of an Index; Additional Replacement
Events." In performing these duties, BMOCM may have interests adverse to the interests of the holders of the notes, which may affect
your return on the notes, particularly where BMOCM, as the Calculation Agent, is entitled to exercise discretion.
HYPOTHETICAL EXAMPLES
The applicable pricing supplement will set forth
examples and tables that illustrate the amounts payable on the notes at maturity in hypothetical circumstances. They are intended to highlight
how the return on the notes is affected by the daily performance of the Index, fees and path dependency.
Many factors will affect the value of the notes,
and the figures in the applicable pricing supplement will be provided for illustration only. These hypothetical examples and tables should
not be taken as an indication or a prediction of future Index performance or investment results and are intended to illustrate a few of
the possible returns on the notes. Because the Closing Indicative Note Value will take into account the net effect of the Daily Investor
Fee and the performance of the applicable Index, the Closing Indicative Note Value is dependent on the path taken by the Index level to
arrive at its ending level.
ADDITIONAL TERMS
OF THE NOTES
In this section, references to “holders”
mean those who own the applicable notes registered in their own names, on the books that we or the trustee maintains for this purpose,
and not those who own beneficial interests in the notes registered in street name or in the notes issued in book-entry form through DTC
or another depositary. Owners of beneficial interests in the notes should read the section entitled “Description of Debt Securities
We May Offer — Legal Ownership and Book-Entry Issuance” in the accompanying prospectus.
Each of the notes will be part of a series of debt
securities entitled “Senior Medium-Term Notes, Series I” that we may issue from time to time under the indenture more particularly
described in the accompanying prospectus supplement. This product supplement summarizes specific financial and other terms that apply
to the notes. Terms that apply generally to all Senior Medium-Term Notes, Series I are described in “Description of the Notes We
May Offer” in the accompanying prospectus supplement and “Description of Debt Securities We May Offer” in the accompanying
prospectus. The terms described in this document supplement those described in the accompanying prospectus supplement and prospectus and,
if the terms described here are inconsistent with those described there, the terms described here are controlling. The applicable pricing
supplement for your notes may also contain additional or different terms of the applicable notes.
We or our affiliates may, at any time and from
time to time, purchase outstanding notes in the open market, by private agreement or in other transactions.
Cash Settlement Amount at Maturity
The “Maturity Date” will be specified
in the applicable pricing supplement. Unless otherwise set forth in the applicable pricing supplement, the Maturity Date will be the fifth
scheduled Business Day following the last Index Business Day in the Final Measurement Period, unless that day is not a Business Day, in
which case the Maturity Date will be the following Business Day, subject to adjustment as described below under “— Market
Disruption Events.” The Maturity Date of any of the notes may be extended at our option for up to two additional five-year periods.
We may only extend a scheduled Maturity Date for five years at a time. If we exercise our option to extend the maturity, we will notify
DTC and the trustee at least 45 but not more than 60 calendar days prior to the then scheduled Maturity Date, including the new Calculation
Date determined by the Calculation Agent. We will provide that notice to DTC and the trustee in respect of each five-year extension of
the scheduled Maturity Date.
For each note, unless earlier called or redeemed,
you will receive at maturity a cash payment equal to the arithmetic mean of the Closing Indicative Note Values on each Index Business
Day in the Final Measurement Period. We refer to this cash payment as the “Cash Settlement Amount.” This amount will not be
less than $0.
On the Initial Trade Date, the Closing Indicative
Note Value of the applicable notes will equal the principal amount. The principal amount will be $25, unless specified otherwise in the
applicable pricing supplement. On any subsequent Exchange Business Day until maturity, call or redemption of the notes, the Closing Indicative
Note Value will equal (a) the Long Index Amount on such Exchange Business Day minus (b) the Financing Level on such Exchange Business
Day; provided that if such calculation results in a value equal to or less than $0, the Closing Indicative Note Value will be $0. If the
Closing Indicative Note Value is $0 on any Exchange Business Day or the Intraday Indicative Note Value at any time during an Exchange
Business Day is equal to or less than $0, then the Closing Indicative Note Value on all future Exchange Business Days for those notes
will be $0 and the Cash Settlement Amount will be $0.
On the Initial Trade Date, the Long Index Amount
of the applicable notes will equal the Daily Leverage Factor times the principal amount, which equals $100. On any subsequent Exchange
Business Day until maturity, call or redemption of the notes, the Long Index Amount will equal the product of (a) the Closing Indicative
Note Value on the immediately preceding Exchange Business Day times (b) the Daily Leverage Factor times (c) the Index Performance
Factor on that Exchange Business Day.
On the Initial Trade Date, the Financing Level
will equal the Long Index Amount minus the principal amount on the Initial Trade Date, which equals $75. On any subsequent Exchange
Business Day until maturity, call or redemption of the notes, the Financing Level will equal (a) the Closing Indicative Note Value on
the immediately preceding Exchange Business Day times the Daily Financing Factor plus (b) the Daily Financing Charge on
such Exchange Business Day plus (c) the Daily Investor Fee on such Exchange Business Day.
The Daily Leverage Factor is 4. The Daily Financing
Factor is 3.
On the Initial Trade Date, the Index Performance
Factor of the applicable notes will be 1. On any subsequent Exchange Business Day until maturity, call or redemption of the notes, the
Index Performance Factor will equal (a) the Closing Index Level on such Exchange Business Day (or, if such day is not an Index Business
Day, the Closing Index Level on the immediately preceding Index Business Day) divided by (b) the Closing Index Level on the
immediately preceding Index Business Day, as determined by the Calculation Agent. If a Market Disruption Event occurs or is continuing
on any Index Business Day, the Calculation Agent will determine the Index Performance Factor for the notes on each such Index Business
Day using an appropriate closing level of the applicable Index for each such Index Business Day, taking into account the nature and duration
of such Market Disruption Event. Furthermore, if a Market Disruption Event occurs and is continuing with respect to the notes on any Index
Business Day or occurred or was continuing on the immediately preceding Index Business Day, the calculation of the Index Performance Factor
will be modified so that the leveraged exposure does not reset until the first Index Business Day on which no Market Disruption Event
with respect to the notes is continuing.
Accordingly, if a Market Disruption
Event with respect to the notes occurs or is continuing on any Index Business Day (for purposes of this paragraph, the “date of
determination”) or if a Market Disruption Event with respect to the notes occurred or was continuing on the Index Business Day immediately
preceding the date of determination, then the Index Performance Factor for the notes on the date of determination will equal one plus
the quotient of (a) the difference of (i) the closing level of the applicable Index on the date of determination, minus (ii) the closing
level of the Index on the Index Business Day immediately preceding the date of determination, divided by (b) the difference of (i) the
product of the Daily Leverage Factor and the closing level of the Index on the Index Business Day immediately preceding the date of determination,
minus (ii) the product of the Daily Financing Factor and the closing level of the Index on the Index Business Day on which no Market Disruption
Event occurred or was continuing that most closely precedes the date of determination.
On the Initial Trade Date, the
Daily Financing Charge will be $0. On any subsequent Exchange Business Day until maturity, call or redemption of the notes, the Daily
Financing Charge will equal the product of (a) the Closing Indicative Note Value on the immediately preceding Exchange Business Day
times (b) the Daily Financing Factor times (c) the Daily Financing Rate divided by (d) 365 times (e) the Financing
Period (as defined below). Because the Daily Financing Charge is calculated and added to the Financing Level on a daily basis, the net
effect of the Daily Financing Charge accrues over time.
The "Financing Period" is equal to the
number of calendar days from (and excluding) the "settlement date" for the immediately preceding Exchange Business Day to (and
including) the settlement date for the current Exchange Business Day. The "settlement date" refers to the business day on which
a sale of an equity security agreed on the applicable Exchange Business Day is typically required to settle under Rule 15c6-1(a) under
the Exchange Act. This business day is currently the second business day after the date of an agreement to buy or sell a security, but
is expected to be the first business day after such date, effective May 28, 2024. For example, currently, the settlement date for an Exchange
Business Day occurring on a Wednesday is currently the following Friday, and the settlement date for an Exchange Business Day occurring
on a Thursday is currently the following Monday. Accordingly, on a typical Thursday prior to May 28, 2024, the Financing Period would
be three, since there are three calendar days from (and excluding) Friday to (and including) Monday; that is, Saturday, Sunday and Monday.
The Calculation Agent may adjust a settlement date if it deems reasonably appropriate to reflect any disruptions or extraordinary events
that impact the securities settlement or other systems in the applicable markets.
Unless otherwise specified in the applicable pricing
supplement, the Daily Financing Rate will equal (a) the most recent bank prime loan rate published by the Board of Governors of the Federal
Reserve System (the “Federal Reserve Bank Prime Loan Rate”); plus (b) the Financing Spread. The Federal Reserve Bank Prime
Loan Rate is based on the prime rates posted by large insured U.S.-chartered commercial banks. The Federal Reserve Bank Prime Loan Rate
will be the rate set forth on Bloomberg page “FCPR Index,” or any other successor applicable source reasonably determined
by the Calculation Agent. Increases in the Federal Reserve Bank Prime Loan Rate will increase the Daily Financing Rate, and, all other
things remaining equal, will reduce the return on the notes. If the Calculation Agent determines that this rate is no longer published
or available, the Calculation Agent may substitute a successor rate, with any applicable adjustments, as it reasonably determines to be
appropriate under the circumstances.
On the Initial Trade Date, the Daily Investor Fee
of the applicable notes will be $0. On any subsequent Exchange Business Day until maturity, call or redemption of the notes, the Daily
Investor Fee will equal the product of (a) the Closing Indicative Note Value at the close of the immediately preceding Exchange Business
Day times (b) the Fee Rate divided by (c) 365 times (d) the Financing Period. Because the Daily Investor Fee is calculated
as part of the Financing Level through which it is subtracted from the Closing Indicative Note Value on a daily basis, the net effect
of the Daily Investor Fee accumulates over time and is subtracted at a rate per year equal to the Fee Rate. Because the net effect of
the Daily Investor Fee is a fixed percentage of the value of the notes, the aggregate effect of the Daily Investor Fee will increase or
decrease in a manner directly proportional to the value of the notes and the amount of notes that are held.
The “Intraday Indicative Note Value”
of the notes at any time during an Exchange Business Day will equal (a) the Intraday Long Index Amount minus (b) the Financing Level;
provided that if such calculation results in a value equal to or less than $0, the Intraday Indicative Note Value will be $0. If the Intraday
Indicative Note Value is equal to or less than $0 at any time on any Exchange Business Day, then both the Intraday Indicative Note Value
and the Closing Indicative Note Value on that Exchange Business Day, and on all future Exchange Business Days, will be $0.
The “Intraday Long Index Amount” will
equal the product of (a) the Closing Indicative Note Value on the immediately preceding Exchange Business Day times (b) the Daily Leverage
Factor times (c) the Intraday Index Performance Factor.
The “Intraday Index Performance Factor”
will equal (a) the most recently published level of the applicable Index divided by (b) the Closing Index Level on the immediately preceding
Index Business Day.
The applicable Fee Rate will be specified in the
applicable pricing supplement.
You may lose some or all of your investment at
maturity or call, or upon early redemption. Because the Daily Investor Fee and the Daily Financing Charge reduce your final payment, the
level of the applicable Index will need to have increased sufficiently over the period you hold the notes in an amount, after giving effect
to the daily leverage and the compounding effect thereof, sufficient to offset the decrease in principal amount represented by the Daily
Investor Fee and the Daily Financing Charge in order for you to receive an aggregate amount equal to at least the principal amount. Due
to leverage, the notes are very sensitive to changes in the level of the applicable Index and the path of such changes, and any decrease
in the level of the Index will result in a larger decrease in the value of the notes. If the increase in the level of the applicable
Index, measured as a component of the Closing Indicative Note Value during the Final Measurement Period, is insufficient to offset the
cumulative negative effect of the Daily Investor Fee and the Daily Financing Charge, you will lose some or all of your investment at maturity
or call, or upon early redemption. This loss may occur even if the Closing Index Level at any time during the Final Measurement Period
is greater than the Closing Index Level on the Initial Trade Date. It is possible that you will suffer significant losses in the notes
even if the long-term performance of the applicable Index is flat or positive (before taking into account the negative effect of the Daily
Investor Fee, the Daily Financing Charge and the Redemption Fee Amount, if applicable). In addition, if the Closing Indicative
Note Value or the Intraday Indicative Note Value of the notes is equal to or less than $0, then the notes will be permanently worth $0
and the Cash Settlement Amount will be $0 (a total loss of value).
The “Initial Index Level” will be specified
in the applicable pricing supplement, and will be the Closing Index Level for the applicable Index on the applicable Initial Trade Date.
Unless otherwise set forth in the applicable pricing
supplement, the “Final Measurement Period” means the five Index Business Days from and including the Calculation Date, subject
to adjustment as described under “— Market Disruption Events.”
The “Index Calculation Agent” means
the entity that calculates and publishes the level of the applicable Index, as specified in the applicable pricing supplement.
The “Calculation Date” will be specified
in the applicable pricing supplement. If that day is not an Index Business Day, the Calculation Date will be the next Index Business Day,
subject to adjustments.
“Index Business Day” means any day
on which the applicable Index Sponsor publishes the Closing Index Level.
Unless otherwise set forth in the applicable pricing
supplement, “Primary Exchange” means, with respect to each Index constituent or each component underlying a successor index,
the primary exchange or market of trading such Index constituent or such component underlying a successor index.
Unless otherwise set forth in the applicable pricing
supplement, “Related Exchange” means, with respect to each Index constituent or each component underlying a successor index,
each exchange or quotation system where trading has a material effect (as determined by the Calculation Agent) on the overall market for
futures or options contracts relating to such Index constituent or such component underlying a successor index.
“Exchange Business Day” means any day
on which the primary exchange or market for trading of the applicable notes is scheduled to be open for trading.
“Business Day” means a Monday, Tuesday,
Wednesday, Thursday or Friday that is neither a legal holiday nor a day on which banking institutions are authorized or obligated by law
or executive order to close in New York City.
Early Redemption at the Option of the Holders
Subject to your compliance with the procedures
described below, you may submit a request on any Business Day to require us to redeem your notes (subject to a minimum redemption amount
set forth in the applicable pricing supplement). In order to redeem your notes, you must comply with the redemption procedures described
under “—Redemption Procedures” below, and subject to the postponements and adjustments described under “—Market
Disruption Events,” you will receive the Redemption Amount on the applicable Redemption Date.
For any applicable redemption request, the “Redemption
Notice Date” will be the date that the applicable Redemption Notice and Redemption Confirmation (each as defined below) are delivered.
If such Redemption Notice or Redemption Confirmation is delivered on a day that is not an Index Business Day, then the Redemption Notice
Date will be the next Index Business Day.
To satisfy the minimum redemption amount, your
broker or other financial intermediary may bundle your notes for redemption with those of other investors to reach the minimum required
amount of notes; however, there can be no assurance that they can or will do so. We may from time to time in our sole discretion reduce
the applicable minimum redemption amount. Any such reduction will be applied on a consistent basis for all holders of the applicable notes
at the time the reduction becomes effective.
The Redemption Amount will equal (a) the arithmetic
mean of the Closing Indicative Note Values on each Index Business Day in the Redemption Measurement Period minus (b) the Redemption Fee
Amount (as defined below). The Redemption Amount will not be less than $0. Unless otherwise set forth in the applicable pricing supplement,
the “Redemption Measurement Period” means the five Index Business Days from and including the Redemption Calculation Date,
subject to adjustments as described under “— Market Disruption Events.” The “Redemption Calculation Date”
will be the first Index Business Day immediately following the applicable Redemption Notice Date. The “Redemption Fee Amount”
will be a percentage of the Closing Indicative Note Value set forth in the applicable pricing supplement. We reserve the right from time
to time to reduce or waive the Redemption Fee Amount in our sole discretion on a case-by-case basis. In exercising your right to have
us redeem your notes, you should not assume you will be entitled to the benefit of any such waiver.
We will inform you of such Redemption Amount on
the first Business Day following the last Index Business Day in the Redemption Measurement Period.
The notes will be redeemed and the holders will
receive the Redemption Amount on the fifth Business Day following the last Index Business Day in the Redemption Measurement Period (the
“Redemption Date”). The first Redemption Date will be set forth in the applicable pricing supplement, and the final Redemption
Date will be the last scheduled Index Business Day prior to the Calculation Date or Call Calculation Date, as applicable.
You may lose some or all of your investment upon
early redemption. Because the cumulative negative effect of the Daily Investor Fee, the Daily Financing Charge and the Redemption Fee
Amount reduce your final payment, the level of the applicable Index will need to have increased over the term of the applicable notes
by an amount, after giving effect to the daily leverage and the compounding effect thereof, sufficient to offset the decrease in principal
amount represented by the Daily Investor Fee, the Daily Financing Charge and the Redemption Fee Amount in order for you to receive an
aggregate amount upon redemption equal to at least the principal amount of your notes. Due to the leverage, the notes are very sensitive
to changes in the level of the applicable Index and the path of such changes. If the increase in the level of the applicable Index, as
measured on each Index Business Day in the Redemption Measurement Period, is insufficient to offset such a cumulative negative effect,
you will lose some or all of your investment upon early redemption. It is possible that you will suffer significant losses in the notes
upon redemption even if the long-term performance of the applicable Index is flat or positive (before taking into account the negative
effect of the Daily Investor Fee, the Daily Financing Charge and the Redemption Fee Amount).
The Redemption Amount is meant to induce arbitrageurs
to counteract any trading of the notes at a premium or discount to their indicative value. However, there can be no assurance that arbitrageurs
will employ the repurchase feature in this manner as to any of the notes.
Redemption Procedures
To redeem your notes, you must instruct your broker
or other person through whom you hold your notes to take the following steps through normal clearing system channels:
| Ø | deliver a notice of redemption, which we refer to as a “Redemption Notice,” which will be attached to the applicable pricing
supplement, to Bank of Montreal or its agent via email no later than 2:00 p.m. (New York City time) on the Index Business Day preceding
the applicable Redemption Calculation Date. If we receive your Redemption Notice by the time specified in the preceding sentence, we (or
our agent) will respond by sending you a form of confirmation of redemption, in a form that will be set forth in the applicable pricing
supplement, for your execution; |
| Ø | deliver the signed confirmation of redemption, which we refer to as the “Redemption Confirmation,” to us via e-mail in
the specified form by 5:00 p.m. (New York City time) on the same day. We or our affiliate must acknowledge receipt in order for your Redemption
Confirmation to be effective; |
| Ø | instruct your DTC custodian to book a delivery vs. payment trade with respect to your notes on the applicable Redemption Calculation
Date at a price equal to the Redemption Amount; and |
| Ø | cause your DTC custodian to deliver the trade as booked for settlement via DTC at or prior to 10:00 a.m. (New York City time) on the
applicable Redemption Date. |
Different brokerage firms may have different deadlines
for accepting instructions from their customers. Accordingly, as a beneficial owner of the notes, you should consult the brokerage firm
through which you own your interest for the relevant deadline. If your broker delivers your notice of redemption after 2:00 p.m. (New
York City time), or your confirmation of redemption after 5:00 p.m. (New York City time), on the Index Business Day prior to the applicable
Redemption Calculation Date, your notice will not be effective, you will not be able to redeem your notes until the following Redemption
Date and your broker will need to complete all the required steps if you wish to redeem your notes on any subsequent Redemption Date.
In addition, Bank of Montreal may request a medallion signature guarantee or such assurances of delivery as it may deem necessary in its
sole discretion. All instructions given to participants from beneficial owners of notes relating to the right to redeem their notes will
be irrevocable. If the applicable notes undergo a split or reverse split, the minimum number of notes needed to exercise your right to
redeem will remain the same.
Call Right
We have the right to redeem all, but not less than
all, of any issuance of the notes upon not less than 14 calendar days’ prior notice to the holders of the applicable notes. Such
redemption will occur on the applicable Call Settlement Date (as defined above). Upon early redemption in the event we exercise this right,
you will receive a cash payment equal to the arithmetic mean of the Closing Indicative Note Values on each Index Business Day in the Call
Measurement Period.
We refer to this cash payment as the “Call
Settlement Amount.” This amount will not be less than $0.
We will inform you of such Call Settlement Amount
on the first Business Day following the last Index Business Day in the Call Measurement Period.
The holders will receive payment for their notes
on the fifth Business Day following the last Index Business Day in the Call Measurement Period (the “Call Settlement Date”).
Unless otherwise set forth in the applicable pricing
supplement, the “Call Measurement Period” means the five Index Business Days from and including the Call Calculation Date,
subject to adjustments as described under “— Market Disruption Events.”
If we issue a call notice on any calendar day,
the “Call Calculation Date” will be the next Index Business Day after the call notice is issued.
You may lose some or all of your investment upon
a call. Because the Daily Investor Fee and the Daily Financing Charge reduce your final payment, the level of the applicable Index will
need to have increased over the period you hold the notes by an amount, after giving effect to the daily leverage and the compounding
effect thereof, sufficient to offset the decrease in the principal amount represented by the Daily Investor Fee and the Daily Financing
Charge in order for you to receive an aggregate amount upon a call equal to at least the principal amount of your notes. Due to leverage,
the notes are very sensitive to changes in the level of the Index and the path of such changes. If the increase in the level of the Index,
measured as a component of the Closing Indicative Note Value during the Call Measurement Period, is insufficient to offset such a cumulative
negative effect, you will lose some or all of your investment upon a call. This loss may occur even if the Closing Index Level at any
time during the Call Measurement Period is greater than the Initial Index Level. It is possible that you will suffer significant losses
in the notes upon a call even if the long-term performance of the applicable Index is flat or positive (before taking into account the
negative effect of the Daily Investor Fee and the Daily Financing Charge).
Calculation Agent
BMOCM will act as the Calculation Agent for each
of the notes. The Calculation Agent will make all determinations relating to the notes, including the Index Performance Factor, the Closing
Index Level on any Index Business Day on which such Closing Index Level is to be determined during the term of the applicable notes, the
Closing Indicative Note Value, the Long Index Amount, the Financing Level, the Daily Financing Charge, the Daily Investor Fee, the Redemption
Fee Amount, the Cash Settlement Amount, if any, that we will pay you at maturity, the Redemption Amount, if any, that we will pay you
upon redemption, if applicable, and the Call Settlement Amount, if any, that we will pay you in the event that we call the applicable
notes. The Calculation Agent will also be responsible for determining whether a Market Disruption Event has occurred, whether the applicable
Index has been discontinued and whether there has been a material change in that Index. All determinations made by the Calculation Agent
will be at the sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all purposes and
binding on you and on us. The holder of the notes will not be entitled to any compensation from us for any loss suffered as a result of
any determinations or calculations made by the Calculation Agent. We may appoint a different Calculation Agent from time to time after
the date of this product supplement or the applicable pricing supplement without your consent and without notifying you.
The Calculation Agent will provide written notice
to the trustee at its New York office, on which notice the trustee may conclusively rely, of the amount to be paid at maturity or call,
or upon early redemption, on or prior to 12:00 p.m., New York City time, on the Business Day immediately preceding the Maturity Date,
any Redemption Date or any Call Settlement Date, as applicable.
All dollar amounts related to determination of
the applicable Indicative Note Value, the Long Index Amount, the Financing Level, the Daily Financing Charge, the Daily Investor Fee,
the Redemption Amount and Redemption Fee Amount, if any, per note, the Call Settlement Amount, if any, per note, and the Cash Settlement
Amount, if any, per note, may be rounded as the Calculation Agent deems appropriate; and all dollar amounts paid on the aggregate principal
amount of the applicable notes per holder will be rounded to the nearest cent, with one-half cent rounded upward.
Market Disruption Events
If a Market Disruption Event occurs or is continuing
on any day that would otherwise constitute an Index Business Day, as determined by the Calculation Agent, that day will not be considered
an Index Business Day for purposes of determinations with respect to the applicable notes. As a result, the calculation of the Index Performance
Factor will be modified so that the leverage does not reset until the first Index Business Day on which no Market Disruption Event has
occurred or is continuing.
To the extent a Market Disruption Event has occurred
or is continuing on an Averaging Date (as defined below), the Closing Indicative Note Value for such Averaging Date will be determined
by the Calculation Agent or one of its affiliates on the first succeeding Index Business Day on which a Market Disruption Event does not
occur or is not continuing (the “Deferred Averaging Date”) irrespective of whether, pursuant to such determination, the Deferred
Averaging Date would fall on a date originally scheduled to be an Averaging Date. If the postponement described in the preceding sentence
results in the Closing Indicative Note Value being calculated on a day originally scheduled to be an Averaging Date, for purposes of determining
the Closing Indicative Note Values on the Index Business Days during the Final Measurement Period, Call Measurement Period or Redemption
Measurement Period, as applicable, the Calculation Agent or one of its affiliates, as the case may be, will apply the Closing Indicative
Note Value for such Deferred Averaging Date (i) on the date(s) of the original Market Disruption Event and (ii) such Averaging Date. For
example, if the Final Measurement Period, Call Measurement Period or Redemption Measurement Period, as applicable, for purposes of calculating
the Cash Settlement Amount, Call Settlement Amount or Redemption Amount, respectively, is based on the arithmetic mean of the Closing
Indicative Note Values on June 23, June 24, June 25, June 26 and June 27, and there is a Market Disruption Event on June 23, but no other
Market Disruption Event during the Final Measurement Period, Call Measurement Period or Redemption Measurement Period, as applicable,
then the Closing Indicative Note Value on June 24, will be used twice to calculate the Cash Settlement Amount or Call Settlement Amount,
respectively, and such Cash Settlement Amount or Call Settlement Amount, as applicable, will be determined based on the arithmetic mean
of the Closing Indicative Note Values on June 24, June 24, June 25, June 26 and June 27.
In no event, however, will any postponement under
the two immediately preceding paragraphs result in the final Averaging Date occurring more than five scheduled Index Business Days following
the day originally scheduled to be such final Averaging Date. If the fifth scheduled Index Business Day following the day originally scheduled
to be the final Averaging Date is not an Index Business Day or a Market Disruption Event has occurred or is continuing on such fifth scheduled
Index Business Day, the Calculation Agent or one of its affiliates will determine the Closing Index Level to be used in the calculation
of the Closing Indicative Note Value based on its good faith estimate of the Closing Index Level that would have prevailed on such fifth
scheduled Index Business Day but for such Market Disruption Event.
An “Averaging Date” means each Index
Business Day during the Final Measurement Period, Call Measurement Period or Redemption Measurement Period, as applicable, subject to
adjustment as described in this document.
Any of the following will be a Market Disruption
Event with respect to the applicable Index, in each case as determined by the Calculation Agent in its sole discretion:
| (a) | the suspension, absence or material limitation of trading in a material number of the applicable Index constituents for more than
two hours or during the one-half hour before the close of trading in the applicable Primary Exchange or Primary Exchanges; |
| (b) | the suspension, absence or material limitation of trading in option or futures contracts relating to the applicable Index or to a
material number of Index constituents on a Related Exchange for more than two hours of trading or during the one-half hour before the
close of trading in that market; |
| (c) | the closure on any Index Business Day of the applicable Primary Exchange or Primary Exchanges or any related futures or options exchange
prior to its scheduled closing time unless the earlier closing time is announced by the relevant stock exchange or related futures or
options exchange, as applicable, at least one hour prior to the earlier of (1) the actual closing time for the regular trading session
on such relevant stock exchange or related futures or options exchange, as applicable, and (2) the submission deadline for orders to be
entered into the relevant stock exchange or related futures or options exchange, as applicable, system for execution at such actual closing
time on that day; |
| (d) | the applicable Index is not published, or the Calculation Agent reasonably determines that the published level of the Index is or
may be inaccurate; or |
| (e) | any other event, if the Calculation Agent determines in its sole discretion that the event materially interferes with our ability
or the ability of any of our affiliates to enter into, maintain or unwind all or a material portion of a hedge with respect to the applicable
notes that we or our affiliates have effected or may effect as described in the section entitled “Use of Proceeds and Hedging.” |
The following events will not be Market Disruption
Events with respect to the applicable Index:
| (a) | a limitation on the hours or numbers of days of trading, but only if the limitation results from an announced change in the regular
business hours of the Primary Exchange or Related Exchange; or |
| (b) | a decision to permanently discontinue trading in the option or futures contracts relating to the applicable Index or any Index constituents. |
For this purpose, an “absence of trading”
in the primary securities market on which option or futures contracts related to the applicable Index or any Index constituents are traded
will not include any time when that market is itself closed for trading under ordinary circumstances.
Notwithstanding the occurrence of one or more of
the events described above, which may, in the Calculation Agent’s discretion, constitute a Market Disruption Event, the Calculation
Agent in its discretion may waive its right to postpone the determination of the Closing Index Level if it determines that one or more
of the above events has not and is not likely to materially impair its ability to determine the Closing Index Level on any date.
Discontinuance or Modification of an Index; Additional Replacement
Events
If the applicable Index Sponsor discontinues publication
of the applicable Index, or if we are unable to obtain or maintain a license to use the Index in connection with the notes, and the Index
Sponsor or anyone else publishes a substitute index that the Calculation Agent determines is comparable to that Index, then the Calculation
Agent will replace that Index with that substitute index (the “successor index”) for all purposes, and all terms of the notes
applying to the Index will thereafter apply to the successor index instead. The Calculation Agent may also (but is not required to) effect
such a replacement if (a) the Calculation Agent determines that the Index Sponsor has made a material change to the Index that renders
it inappropriate or undesirable to link the notes to the Index (including, but not limited to, a change to the types of companies included
in the Index), (b) the Index Sponsor or other applicable entity calculates the level of the Index incorrectly, or (c) if the Calculation
Agent determines in its sole discretion that, whether due to the principal amount of the notes outstanding, the liquidity of the stocks
included in the Index and/or any other relevant factors, the trading of the notes or our hedging activities relating to the notes may
have a significant impact on the market prices and/or liquidity of one or more of those stocks. If the Calculation Agent replaces the
applicable Index with a successor index, then the Calculation Agent will determine the Closing Indicative Note Value, the Intraday Indicative
Note Value, the Cash Settlement Amount, Redemption Amount or Call Settlement Amount, as applicable, by reference to the successor index.
If the Calculation Agent determines that the publication
of the applicable Index is discontinued, or if we are unable to obtain or maintain a license to use the Index (or any applicable successor
index) in connection with the notes, and the Calculation Agent determines that no successor index is available at such time, the Calculation
Agent will determine the level of that Index and thus the Closing Indicative Note Value, the Intraday Indicative Note Value, the Cash
Settlement Amount, Redemption Amount or Call Settlement Amount, as applicable, by a computation methodology that the Calculation Agent
determines will as closely as reasonably possible replicate the Index.
If the Calculation Agent determines that the applicable
Index, the Index constituents or the method of calculating that Index is changed at any time in any respect, including whether the change
is made by the Index Sponsor under its existing policies or following a modification of those policies, is due to the publication of a
successor index, is due to events affecting the Index constituents or is due to any other reason and is not otherwise reflected in the
level of the applicable Index by the Index Sponsor pursuant to the applicable methodology, then the Calculation Agent will be permitted
(but not required) to make such adjustments in the Index or the method of its calculation as it believes are appropriate to ensure that
the Closing Index Level used to determine the Closing Indicative Note Value, the Intraday Indicative Note Value, the Cash Settlement Amount,
Redemption Amount or Call Settlement Amount, as applicable, is equitable.
A substitution of the applicable Index for a successor
index or a material change in the method of calculating the Index could cause the notes to no longer satisfy the listing requirements
and result in the relevant securities exchange delisting the notes. A delisting of the notes would materially and adversely affect the
liquidity of the trading market for those notes.
Events of Default and Acceleration
Under the heading “Description of Debt Securities
We May Offer — Modification and Waiver of the Debt Securities — Events of Default” in the accompanying prospectus is
a description of events of default relating to debt securities including the notes.
Payment upon an Event of Default
In case an event of default with respect to any
of the notes shall have occurred and be continuing, the amount declared due and payable per note upon any acceleration of the applicable
notes will be determined by the Calculation Agent and will be an amount in cash equal to the Redemption Amount, calculated as if the date
of acceleration were the Redemption Calculation Date. For purposes of this calculation, the Redemption Fee Amount will be $0.
If the maturity of the applicable notes is accelerated
because of an event of default as described above, we will, or will cause the Calculation Agent to, provide written notice to the trustee
at its New York office, on which notice the trustee may conclusively rely, and to DTC of the cash amount due with respect to the applicable
notes as promptly as possible and in no event later than two Business Days after the date of acceleration.
Defeasance
The provisions described in the accompanying prospectus
under the heading “Description of Debt Securities We May Offer — Modification and Waiver of the Debt Securities — Defeasance”
are not applicable to the notes.
Manner of Payment and Delivery
Any payment on or delivery of the applicable notes
at maturity or call, or upon early redemption, will be made to accounts designated by you in writing and approved by us, or at the corporate
trust office of the trustee in New York City, but only when the applicable notes are surrendered to the trustee at that office. We also
may make any payment or delivery in accordance with the applicable procedures of the depositary.
Modified Business Day
As described in “Description of the Notes
We May Offer — Payment Mechanics — Payment When Offices Are Closed” in the attached prospectus supplement, any payment
on the notes that would otherwise be due on a day that is not a Business Day may instead be paid on the next day that is a Business Day,
with the same effect as if paid on the original due date, except as described under “— Cash Settlement Amount at Maturity,”
“— Call Right” and “— Early Redemption at the Option of the Holders” above.
Clearance and Settlement
The DTC participants that hold the notes through
DTC on behalf of investors will follow the settlement practices applicable to equity securities in DTC’s settlement system with
respect to the primary distribution of the notes and secondary market trading between DTC participants.
Split or Reverse Split of the Notes
We or the Calculation Agent may initiate a split
or reverse split of any issuance of the notes on any Index Business Day. If we or the Calculation Agent decides to initiate a split or
reverse split, we will issue a notice to holders of the applicable notes and a press release announcing the split or reverse split, specifying
the effective date of the split or reverse split. The Calculation Agent will determine the ratio of such split or reverse split, as the
case may be, using relevant market indicia, and will adjust the terms of the applicable notes accordingly. Any adjustment of the closing
value will be rounded to 8 decimal places.
In the case of a reverse split, we reserve the
right to address odd numbers of notes (commonly referred to as “partials”) in a manner determined by the Calculation Agent
in its sole discretion, acting in good faith. For example, if the notes undergo a 1-for-4 reverse split, holders who own a number of the
applicable notes on the relevant record date that is not evenly divisible by 4 will receive the same treatment as all other holders for
the maximum number of notes they hold that is evenly divisible by 4, and we will have the right to compensate holders for their remaining
or “partial” notes in a manner determined by the Calculation Agent in its sole discretion. Our current intention is to provide
holders with a cash payment for their partials in an amount equal to the appropriate percentage of the Closing Indicative Note Value of
the notes on a specified Index Business Day following the announcement date.
A split or reverse split of the notes will not
affect the aggregate stated principal amount of the applicable notes held by an investor, other than to the extent of any “partial”
notes, but it will affect the number of notes an investor holds, the denominations used for trading purposes on the exchange and the trading
price, and may affect the liquidity, of the applicable notes on the exchange.
THE INDEX
The applicable pricing supplement will set forth
information about the relevant Index, including its Index Sponsor, Index Calculation Agent, and other material information about that
Index. We will derive all information contained in any pricing supplement regarding the applicable Index from publicly available sources,
without independent investigation.
USE OF PROCEEDS
AND HEDGING
The net proceeds we receive from the sale of each
of the notes will be used for general corporate purposes and, in part, by us or by one or more of our affiliates in connection with hedging
our obligations under those notes.
We expect to enter into transactions to hedge our
obligations under the applicable notes. Such transactions may involve purchases or sales of the applicable Index constituents or financial
instruments linked to the applicable Index and/or the Index constituents prior to or on the applicable Initial Issue Date. In addition,
from time to time after we issue any notes, we may enter into additional hedging transactions or unwind those hedging transactions previously
entered into. In this regard, we may:
| · | acquire or dispose of or otherwise repurchase long or short positions in some or all of the applicable Index constituents; |
| · | acquire or dispose of long or short positions in listed or over-the-counter options, futures, or other instruments linked to some
or all of the constituent issuers, the Index constituents or the applicable Index; |
| · | acquire or dispose of long or short positions in listed or over-the-counter options, futures, or other instruments linked to the level
of other similar market indices; or |
| · | engage in any combination of the above activities. |
We or our affiliates may acquire a long or short
position in securities similar to any of the notes from time to time and may, in our sole discretion, hold or resell those securities.
We may close out our hedge positions on or before
the last Index Business Day in the applicable Final Measurement Period or Call Measurement Period. That step may involve sales or purchases
of the applicable Index constituents, listed or over-the-counter options or futures on Index constituents or listed or over-the-counter
options, futures, or other instruments linked to the level of the applicable Index, as well as other instruments designed to track the
performance of that Index.
While we cannot predict an outcome, any of these
hedging activities or other trading activities of ours could potentially decrease the level of the applicable Index, which could adversely
affect your payment at maturity, call or upon early redemption. It is possible that these hedging or trading activities could result in
substantial returns for us or our affiliates while the value of the notes declines. See “Risk Factors — Risks Relating to
the Notes Generally — We or our affiliates may have economic interests that are adverse to those of the holders of the notes as
a result of our hedging and other trading activities” above.
We have no obligation to engage in any manner of
hedging activity and will do so solely at our discretion and for our own account. We may hedge our exposure on the notes directly or we
may aggregate this exposure with other positions taken by us and our affiliates with respect to our exposure to the applicable Index or
one or more constituent issuers or the Index constituents. No noteholder will have any rights or interest in our hedging activity or any
positions that we or any unaffiliated counterparties may take in connection with our hedging activity.
SUPPLEMENTAL TAX
CONSIDERATIONS
The following is a general description of certain
tax considerations relating to the notes. It does not purport to be a complete analysis of all tax considerations relating to the notes.
Prospective purchasers of the notes should consult their tax advisors as to the consequences under the tax laws of the country of which
they are resident for tax purposes and the tax laws of Canada and the U.S. of acquiring, holding and disposing of the notes and receiving
payments under the notes. This summary is based upon the law as in effect on the date of this product supplement and is subject to any
change in law that may take effect after such date. The applicable pricing supplement may set forth additional or different considerations
relating to any particular issuance of the notes.
Supplemental Canadian Tax Considerations
In the opinion of Torys LLP, our Canadian federal
income tax counsel, the following summary describes the principal Canadian federal income tax considerations generally applicable to a
purchaser who acquires from us as the beneficial owner the notes offered by this document, and who, at all relevant times, for purposes
of the Income Tax Act (Canada) and the Income Tax Regulations (collectively, the “Tax Act”), (1) is not, and is not deemed
to be, resident in Canada; (2) deals at arm’s length with us and with any transferee resident (or deemed to be resident) in Canada
to whom the purchaser disposes of notes, (3) is not affiliated with us, (4) does not receive any payment of interest on a note in respect
of a debt or other obligation to pay an amount to a person with whom we do not deal at arm’s length, (5) does not use or hold notes
in a business carried on in Canada and (6) is not a “specified shareholder” of ours as defined in the Tax Act for this purpose
or a non-resident person not dealing at arm’s length with such “specified shareholder” (a “Holder”). Special
rules, which are not discussed in this summary, may apply to a non-Canadian holder that is an insurer that carries on an insurance business
in Canada and elsewhere.
This summary does not address the possible application
of the “hybrid mismatch arrangement” rules contained in proposals to amend the Tax Act released by the Minister of Finance
(Canada) on April 29, 2022 (the “Hybrid Mismatch Proposals”) to a Holder (i) that disposes of a note to a person or entity
with which it does not deal at arm’s length or to an entity that is a “specified entity” (as defined in the Hybrid Mismatch
Proposals) with respect to the Holder or in respect of which the Holder is a “specified entity,” (ii) that disposes of a note
under, or in connection with, a “structured arrangement” (as defined in such Hybrid Mismatch Proposals), or (iii) in respect
of which we are a “specified entity.” Such Holders should consult their own tax advisors.
This summary supersedes and replaces in its entirety
the section of the prospectus entitled “Canadian Taxation.”
This summary is based on the current provisions
of the Tax Act and on counsel’s understanding of the current administrative policies and assessing practices of the Canada Revenue
Agency published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act publicly
announced by or on behalf of the Minister of Finance (Canada) prior to the date of this document (the “Proposed Amendments”),
including the Hybrid Mismatch Proposals, and assumes that all Proposed Amendments will be enacted in the form proposed. However, no assurances
can be given that the Proposed Amendments will be enacted as proposed, or at all. This summary does not otherwise take into account or
anticipate any changes in law or administrative policy or assessing practice whether by legislative, administrative or judicial action
nor does it take into account tax legislation or considerations of any province, territory or foreign jurisdiction, which may differ from
those discussed herein.
Canadian federal income tax considerations applicable
to the notes may be described more particularly when such notes are offered (and then only to the extent material) in a pricing supplement
related thereto if they are not addressed by the comments following and, in that event, the following will be superseded thereby to the
extent indicated in that pricing supplement. These Canadian federal income tax considerations may also be supplemented, amended and/or
replaced in a pricing supplement.
This summary is of a general nature only and is
not, and is not intended to be, legal or tax advice to any particular holder. This summary is not exhaustive of all Canadian federal income
tax considerations. Accordingly, prospective purchasers of the notes should consult their own tax advisors having regard to their own
particular circumstances.
Interest paid or credited or deemed to be paid
or credited by us on a note (including amounts on account or in lieu of payment of, or in satisfaction of interest) to a Holder generally
will not be subject to Canadian non-resident withholding tax, unless any portion of such interest (other than on a “prescribed obligation,”
as defined in the Tax Act for this purpose) is contingent or dependent on the use of or production from property in Canada or is computed
by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable
to shareholders of any class or series of shares of the capital stock of a corporation. The administrative policy of the Canada Revenue
Agency is that interest paid on a debt obligation is not subject to withholding tax unless, in general, it is reasonable to consider that
there is a material connection between the index or formula to which any amount payable under the debt obligation is calculated and the
profits of the issuer. With respect to any interest on a note, or any portion of the principal amount of a note in excess of the issue
price, such interest or principal, as the case may be, paid or credited to a Holder should not be subject to Canadian non-resident withholding
tax, unless otherwise specified in the applicable pricing supplement.
In the event that a note, interest on which is
not exempt from Canadian non-resident withholding tax (other than a note which is an “excluded obligation,” as defined in
the Tax Act for this purpose) is redeemed in whole or in part, cancelled, repurchased or purchased by us or any other person resident
or deemed to be resident in Canada from a Holder or is otherwise assigned or transferred by a Holder to a person resident or deemed to
be resident in Canada for an amount which exceeds, generally, the issue price thereof, or in certain cases, the price for which such note
was assigned or transferred to the Holder by a person resident or deemed resident in Canada, the excess may be deemed to be interest and
may, together with any interest that has accrued on the note to that time, be subject to Canadian non-resident withholding tax.
If an amount of interest paid by us on a security
were to be non-deductible by us in computing our income as a result of the application of proposed subsection 18.4(4) of the Tax Act,
such amount of interest would be deemed to have been paid by us as a dividend, and not to have been paid by us as interest, and be subject
to Canadian non-resident withholding tax. Proposed subsection 18.4(4) would apply only if a payment of interest by us on a security constituted
the deduction component of a “hybrid mismatch arrangement” under which the payment arises within the meaning of proposed paragraph
18.4(3)(b) of the Tax Act.
No payment of interest by us on a security should
be considered to arise under a “hybrid mismatch arrangement” as no such payment should be considered to arise under or in
connection with a “structured arrangement,” both as defined in proposed subsection 18.4(1) of the Tax Act, on the basis that
(i) based on pricing data and analysis provided to Torys LLP by us in relation to these notes, it should not be reasonable to consider
that any economic benefit arising from any “deduction/non-inclusion mismatch” as defined in proposed subsection 18.4(6) of
the Tax Act is reflected in the pricing of the notes, and (ii) it should also not be reasonable to consider that the notes were designed
to, directly or indirectly, give rise to any “deduction/non-inclusion mismatch.”
Generally, there are no other taxes on income (including
taxable capital gains) payable by a Holder on interest, discount, or premium in respect of a note or on the proceeds received by a Holder
on the disposition of a note (including redemption, cancellation, purchase or repurchase).
U.S. Federal Income Tax Considerations
The following is a general description of certain
material U.S. federal income tax considerations relating to the notes. It does not purport to be a complete analysis of all U.S. federal
income tax considerations relating to the notes. Prospective purchasers of the notes should consult their tax advisors as to the consequences
under the tax laws of the country of which they are resident for tax purposes and the tax laws of Canada and the U.S. of acquiring, holding
and disposing of the notes and receiving payments under the notes. This summary is based upon the law as in effect on the date of this
product supplement and is subject to any change in law that may take effect after such date.
The following section supersedes the discussion
of U.S. federal income taxation in the accompanying prospectus and prospectus supplement in its entirety. This section is based on the
Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations under the
Code, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.
This summary applies only to holders who are initial
investors and hold their notes as capital assets for U.S. federal income tax purposes and are not excluded from this discussion. This
section does not apply to classes of holders subject to special rules, such as partnerships, subchapter S corporations, other pass-through
entities, governments (or instrumentalities or agencies thereof), dealers in securities or currencies, traders in securities that elect
to use a mark-to-market method of accounting for their notes, banks, financial institutions, insurance companies, tax-exempt organizations,
regulated investment companies, real estate investment trusts, persons that hold notes as part of a straddle or a hedging or conversion
transaction, persons liable for alternative minimum tax, persons subject to Section 451(b) of the Code, U.S. expatriates or persons whose
functional currency for tax purposes is not the U.S. dollar. In addition, the discussion below assumes that an investor in the notes will
be subject to a significant risk that it will lose a significant amount of its investment in the notes.
If a partnership holds the notes, the U.S. federal
income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner
in a partnership holding the notes should consult its tax advisor with regard to the U.S. federal income tax treatment of an investment
in the notes.
A U.S. holder is a beneficial owner of a note and
that, for U.S. federal income tax purposes, is (i) a citizen or individual resident of the United States, (ii) a domestic corporation,
(iii) an estate whose income is subject to U.S. federal income tax regardless of its source, or (iv) a trust if a U.S. court can exercise
primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions
of the trust. A non-U.S. holder is a beneficial owner of a note that, for U.S. federal income tax purposes, is a non-resident alien individual,
a foreign corporation, or a foreign estate or trust.
Tax Treatment of the Notes
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY
DIRECTLY DISCUSSES HOW THE NOTES SHOULD BE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES. AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES
OF AN INVESTMENT IN THE NOTES ARE UNCERTAIN. BECAUSE OF THE UNCERTAINTY, HOLDERS SHOULD CONSULT THEIR TAX ADVISORS IN DETERMINING THE
U.S. FEDERAL INCOME TAX AND OTHER TAX CONSEQUENCES OF THEIR INVESTMENT IN THE NOTES, INCLUDING THE APPLICATION OF STATE, LOCAL OR OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. FEDERAL OR OTHER TAX LAWS.
We will not attempt to ascertain whether the issuer
of any of the applicable Index constituents would be treated as a “passive foreign investment company” within the meaning
of Section 1297 of the Code or a “United States real property holding corporation” within the meaning of Section 897 of the
Code. If the issuer of one or more of such stocks were so treated, certain adverse U.S. federal income tax consequences could possibly
apply. You should refer to any available information filed with the SEC by the issuers of the applicable Index constituents and consult
your tax advisor regarding the possible consequences to you in this regard.
In the opinion of our counsel, Ashurst LLP, it
would be generally reasonable to treat a note with terms described in this product supplement as a pre-paid cash-settled derivative contract
in respect of the applicable Index for U.S. federal income tax purposes, and the terms of the notes require a holder and us (in the absence
of a change in law or an administrative or judicial ruling to the contrary) to treat the notes for all tax purposes in accordance with
such characterization. If the notes are so treated, and subject to the discussion below regarding the potential application of the constructive
ownership rules under Section 1260 of the Code, a U.S. holder generally should recognize capital gain or loss upon the sale, exchange,
redemption or maturity of the applicable notes in an amount equal to the difference between the amount a U.S. holder receives at such
time and the U.S. holder’s tax basis in those notes. In general, a U.S. holder’s tax basis in the notes will be equal to the
price the holder paid for the notes. Capital gain recognized by an individual U.S. holder generally is taxed at preferential rates where
the property is held for more than one year and generally is taxed at ordinary income rates where the property is held for one year or
less. The deductibility of capital losses is subject to limitations. The holding period for notes of a U.S. holder who acquires the notes
upon issuance generally will begin on the date after the issue date (i.e., the settlement date) of the notes. If the notes are held by
the same U.S. holder until maturity, that holder’s holding period generally will include the applicable Maturity Date.
Potential Application of Section
1260 of the Code. To the extent that an applicable Index includes the type of financial asset described under Section 1260 of the
Code (including, among others, any equity interest in pass-thru entities such as ETFs, regulated investment companies, real estate investment
trusts, partnerships, and passive foreign investment companies, each a “Section 1260 Financial Asset”), while the matter is
not entirely clear, unless otherwise specified in the applicable terms supplement, there exists a substantial risk that an investment
in a note is, in whole or in part, a “constructive ownership transaction” to which Section 1260 of the Code applies. If Section
1260 of the Code applies, all or a portion of any long-term capital gain recognized by a U.S. holder in respect of a note will be recharacterized
as ordinary income (the “Excess Gain”). In addition, an interest charge will also apply to any deemed underpayment of tax
in respect of any Excess Gain to the extent such gain would have resulted in a gross income inclusion for the U.S. holder in taxable years
prior to the taxable year of the call, sale, or maturity (assuming such income accrued at a constant rate equal to the applicable federal
rate as of the date of call, sale, or maturity).
If an investment in a note is
treated as a constructive ownership transaction, it is not clear to what extent any long-term capital gain of a U.S. holder in respect
of the note will be recharacterized as ordinary income. It is possible, for example, that the amount of the Excess Gain (if any) that
would be recharacterized as ordinary income in respect of the note will equal the excess of (i) any long-term capital gain recognized
by the U.S. holder in respect of the note and attributable to Section 1260 Financial Assets, over (ii) the “net underlying long-term
capital gain” (as defined in Section 1260 of the Code) such U.S. holder would have had if such U.S. holder had acquired an amount
of the corresponding Section 1260 Financial Assets at fair market value on the original issue date for an amount equal to the portion
of the issue price of the note attributable to the corresponding Section 1260 Financial Assets and sold such amount of Section 1260 Financial
Assets upon the date of call, sale, or maturity of the note at fair market value. To the extent any gain is treated as long-term capital
gain after application of the recharacterization rules of Section 1260 of the Code, such gain would be subject to U.S. federal income
tax at the rates that would have been applicable to the net underlying long-term capital gain. However, unless otherwise established by
clear and convincing evidence, the net underlying long-term capital gain is treated as zero. U.S. holders should consult their tax advisors
regarding the potential application of Section 1260 of the Code to an investment in a note.
Information With Respect to Foreign Financial
Assets. An individual U.S. holder who, during any taxable year, holds any interest in “specified foreign financial assets”
with an aggregate value in excess of $50,000 (and in some circumstances, a higher threshold) may be required to file an information report
with respect to such assets with his or her tax returns. “Specified foreign financial assets” may include financial accounts
maintained by foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained by
financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments and contracts held for investment
that have non-U.S. issuers or counterparties, and (iii) interests in foreign entities. Under these rules, the notes may be treated as
“specified foreign financial assets.” Holders are urged to consult their tax advisors regarding the application of this reporting
requirement to their ownership of the notes.
Additional Medicare Tax on Unearned Income.
Certain U.S. holders will be subject to an additional 3.8% Medicare tax on unearned income. For individual U.S. holders, the additional
Medicare tax applies to the lesser of (i) “net investment income” or (ii) the excess of “modified adjusted gross income”
over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income”
generally equals the taxpayer’s gross investment income reduced by the deductions that are allocable to such income. Investment
income generally includes passive income such as dividends and capital gains. U.S. holders are urged to consult their own tax advisors
regarding the implications of the additional Medicare tax resulting from an investment in the notes.
Alternative Treatments. Alternative tax
treatments of the notes are also possible and the Internal Revenue Service (“IRS”) might assert that a treatment other than
that described above is more appropriate. For example, it would be possible to treat the notes, and the IRS might assert that the notes
should be treated, as a single debt instrument. Such a debt instrument would generally be subject to the special tax rules governing contingent
payment debt instruments. If the notes are so treated, a U.S. holder would generally be required to accrue interest currently over the
period it holds the notes even though that holder will not receive any payments from us prior to maturity. In addition, any gain a U.S.
holder might recognize upon the sale, exchange, redemption or maturity of the notes would be ordinary income and any loss recognized by
a holder at such time would be ordinary loss to the extent of interest that same holder included in income in the current or previous
taxable years in respect of the notes, and thereafter, would be capital loss. It is also possible that the IRS could seek to tax the notes
by reference to a holder’s deemed ownership of the applicable Index constituents. In such case, a U.S. holder could be required
to recognize amounts of income, gain or loss as if such holder had actually owned interests in those Index constituents. Under this alternative
treatment, a U.S. holder could also be required to currently recognize gain or loss, at least some of which could be short-term capital
gain (and possibly loss), each time the applicable Index rebalances.
The IRS could also assert that a holder should
be required to treat any amounts attributable to the Daily Investor Fee and any Redemption Fee Amount as separate investment expenses.
For taxable years beginning after December 31, 2017 and beginning on or before December 31, 2025, the deduction of any such deemed expenses
generally would not be permitted to a holder who is an individual, trust or estate. For taxable years beginning after December 31, 2025,
the deduction of any such deemed expenses generally would be subject to a 2% floor on miscellaneous itemized deductions applicable to
a holder who is an individual, trust or estate. Such amount correspondingly would increase the amount of gain and income or decrease the
amount of loss recognized by a holder with respect to an investment in the notes.
In addition to and separate from an alternative
tax treatment of deemed ownership of the applicable Index constituents, it is possible that a deemed taxable exchange could occur on one
or more of the applicable Index rebalancing dates or upon any extension by us of the Maturity Date or that the notes could be treated
as a series of derivative contracts, each of which matures on the next rebalancing date. If the notes were properly characterized in such
a manner, a U.S. holder would be treated as disposing of the notes on each rebalancing date or extension, as the case may be, in return
for new notes that mature on the next rebalancing date or on the extended Maturity Date, as the case may be, and a U.S. holder could accordingly
recognize capital gain or loss on each rebalancing date or extension, as the case may be, equal to the difference between the holder’s
tax basis in the notes (which would be adjusted to take into account any prior recognition of gain or loss) and the fair market value
of the notes on such date.
Because of the absence of authority regarding the
appropriate tax characterization of the notes, it is also possible that the IRS could seek to characterize the notes in a manner that
results in other tax consequences that are different from those described above. For example, the IRS could assert that any gain or loss
that a holder may recognize upon the call, sale, exchange, redemption or maturity of the notes should be treated as ordinary gain or loss.
The IRS has released a notice that may affect the
taxation of holders of the notes. According to the notice, the IRS and the Treasury Department are actively considering whether the holder
of an instrument such as the notes should be required to accrue ordinary income on a current basis, and they sought taxpayer comments
on the subject. It is not possible to determine what guidance will ultimately be issued, if any. It is possible, however, that under such
guidance, holders of the notes will ultimately be required to accrue income currently and this could be applied on a retroactive basis.
The IRS and the Treasury Department are also considering other relevant issues, including whether additional gain or loss from such instruments
should be treated as ordinary or capital and whether the special “constructive ownership rules” of Section 1260 of the Code
might be applied to such instruments. Further, future legislation, including legislation based on bills previously introduced in Congress,
may tax all derivative instruments on a mark-to-market basis, requiring holders of such derivative instruments to take into account annually
gains and losses on such instruments as ordinary income. The adoption of such legislation or similar proposals may significantly impact
the tax consequences from an investment in the notes, including the timing and character of income and gain on the notes. Holders should
consult their tax advisor as to the tax consequences of possible alternative characterizations of the notes for U.S. federal income tax
purposes and proposals to change the taxation of certain derivative instruments. We intend to treat the notes for U.S. federal income
tax purposes in accordance with the treatment described in this product supplement unless and until such time as the Treasury Department
and IRS determine that some other treatment is more appropriate.
Non-U.S. Holders
The following discussion applies to non-U.S. holders
of the notes. A non-U.S. holder is a beneficial owner of a note that, for U.S. federal income tax purposes, is a non-resident alien individual,
a foreign corporation, or a foreign estate or trust.
Except as discussed below, a non-U.S. holder generally
will not be subject to U.S. federal income or withholding tax for amounts paid in respect of the notes, provided that (i) the holder complies
with any applicable certification requirements, (ii) the payment is not effectively connected with the conduct by the holder of a U.S.
trade or business, and (iii) if the holder is a non-resident alien individual, such holder is not present in the U.S. for 183 days or
more during the taxable year of the sale, exchange, redemption or maturity of the notes. In the case of (ii) above, the holder generally
would be subject to U.S. federal income tax with respect to any income or gain in the same manner as if the holder were a U.S. holder
and, in the case of a holder that is a corporation, the holder may also be subject to a branch profits tax equal to 30% (or such lower
rate provided by an applicable U.S. income tax treaty) of a portion of its earnings and profits for the taxable year that are effectively
connected with its conduct of a trade or business in the U.S., subject to certain adjustments.
Under Section 871(m) of the Code,
a “dividend equivalent” payment is treated as a dividend from sources within the United States. Such payments generally would
be subject to a 30% U.S. withholding tax if paid to a non-U.S. holder. Under U.S. Treasury Department regulations, payments (including
deemed payments) with respect to equity linked instruments (“ELIs”) that are “specified ELIs” may be treated as
dividend equivalents if such specified ELIs, directly or indirectly reference an interest in an “underlying security,” which
generally is any interest in an entity taxable as a corporation for U.S. federal income tax purposes if a payment with respect to such
interest could give rise to a U.S. source dividend. However, the IRS has issued guidance that states that the U.S. Treasury Department
and the IRS intend to amend the effective date of the U.S. Treasury Department regulations to provide that withholding on “dividend
equivalent” payments will not apply to specified ELIs that are not delta-one instruments and that are issued before January 1, 2025.
Unless otherwise specified in the applicable pricing supplement, because the delta of the notes with respect to the applicable Index generally
is expected to be one, we expect to treat dividend equivalent payments, if any, as subject to withholding. We will not pay any additional
amounts in respect of any dividend equivalent withholding.
As discussed above, alternative characterizations
of the notes for U.S. federal income tax purposes are possible. Should an alternative characterization, by reason of change or clarification
of the law, by regulation or otherwise, cause payments as to the notes to become subject to withholding tax (including withholding on
“dividend equivalent” payments), we will withhold tax at the applicable statutory rate. The IRS has also indicated that it
is considering whether income in respect of instruments such as the notes should be subject to withholding tax. Prospective investors
should consult their own tax advisors in this regard.
Backup Withholding and Information Reporting
Holders may be subject to information reporting.
Holders may also be subject to backup withholding on payments in respect of their notes unless they provide proof of an applicable exemption
or a correct taxpayer identification number and otherwise comply with applicable requirements of the backup withholding rules. Non-U.S.
holders will not be subject to backup withholding if they provide a properly completed Form W-8 appropriate to their circumstances. Amounts
withheld under the backup withholding rules are not additional taxes and may be refunded or credited against U.S. federal income tax liability,
provided the required information is furnished to the IRS.
The Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act (“FATCA”)
imposes a 30% U.S. withholding tax on certain U.S. source payments, including interest (and original issue discount), dividends, and other
fixed or determinable annual or periodical gain, profits, and income (“Withholdable Payments”), if paid to a foreign financial
institution (including amounts paid to a foreign financial institution on behalf of a holder), unless such institution enters into an
agreement with the U.S. Treasury Department to collect and provide to the U.S. Treasury Department certain information regarding U.S.
financial account holders, including certain account holders that are foreign entities with U.S. owners, with such institution, or otherwise
complies with the legislation. In addition, the notes may constitute a “financial account” for these purposes and, thus, be
subject to information reporting requirements pursuant to FATCA. FATCA also generally imposes a withholding tax of 30% on Withholdable
Payments made to a non-financial foreign entity unless such entity provides the withholding agent with a certification that it does not
have any substantial U.S. owners or a certification identifying the direct and indirect substantial U.S. owners of the entity. Under certain
circumstances, a holder may be eligible for refunds or credits of such taxes.
The U.S. Treasury Department has proposed regulations
that eliminate the requirement of FATCA withholding on payments of gross proceeds upon the sale or disposition of financial instruments
of a type which can produce U.S. source interest or dividends. The U.S. Treasury Department has indicated that taxpayers may rely on these
proposed regulations pending their finalization, and the discussion above assumes the proposed regulations will be finalized in their
proposed form with retroactive effect. If we determine withholding is appropriate with respect to the notes, we will withhold tax at the
applicable statutory rate, and we will not pay any additional amounts in respect of such withholding. Therefore, if such withholding applies,
any payments on the notes will be significantly less than what you would have otherwise received. Depending on your circumstances, these
amounts withheld may be creditable or refundable to you. Foreign financial institutions and non-financial foreign entities located in
jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. Investors
are urged to consult with their own tax advisors regarding the possible implications of FATCA on their investment in the notes.
EMPLOYEE RETIREMENT
INCOME SECURITY ACT
A fiduciary of a pension, profit-sharing or other
employee benefit plan subject to the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (each,
a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances
before authorizing an investment in the notes. Among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the Plan,
and whether the investment would involve a prohibited transaction under ERISA or the U.S. Internal Revenue Code. Please see the section
of the prospectus, "Employee Retirement Income Security Act."
SUPPLEMENTAL PLAN
OF DISTRIBUTION (CONFLICTS OF INTEREST)
The terms and conditions set forth in a Distribution
Agreement between Bank of Montreal and the Agents party thereto, including BMOCM, govern the sale and purchase of each of the notes.
We may deliver notes against payment therefor on
a date that is greater than two business days following the date of sale of any notes. Under Rule 15c6-1 of the Securities Exchange
Act of 1934, trades in the secondary market generally are required to settle in two business days, unless parties to any such trade expressly
agree otherwise. Accordingly, purchasers who wish to transact in notes that are to be issued more than two business days after the related
trade date will be required to specify alternative settlement arrangements to prevent a failed settlement.
BMOCM will act as our agent in connection with
any redemptions at the investor’s option, and the applicable Redemption Fee Amount applicable to any such redemptions will be paid
to us. Additionally, it is possible that BMOCM and its affiliates may profit from expected hedging activities related to any of the notes,
even if the value of those notes declines.
The notes are not intended for purchase by any
investor that is not a United States person, as that term is defined for U.S. federal income tax purposes, and no dealer may make offers
of the notes to any such investor.
Each of BMOCM and any other broker-dealer offering
the notes have not offered, sold or otherwise made available and will not offer, sell or otherwise make available any of the notes to,
any retail investor in the European Economic Area (“EEA”). For these purposes, a “retail investor” means a person
who is one (or more) of: (a) a retail client, as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID
II”); or (b) a customer, within the meaning of Directive (EU) 2016/97, as amended, where that customer would not qualify as a professional
client as defined in point (10) of Article 4(1) of MiFID II; or (c) not a qualified investor as defined in Regulation (EU) (2017/1129)
(the “EU Prospectus Regulation”). Consequently, no key information document required by Regulation (EU) No 1286/2014 (as amended,
the “EU PRIIPs Regulation”) for offering or selling the notes or otherwise making them available to retail investors in the
EEA has been prepared, and therefore, offering or selling the notes or otherwise making them available to any retail investor in the EEA
may be unlawful under the EU PRIIPs Regulation.
Each of BMOCM and any other broker-dealer offering
the notes have not offered, sold or otherwise made available and will not offer, sell or otherwise make available any of the notes to,
any retail investor in the United Kingdom. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail
client, as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law by virtue of the European
Union (Withdrawal) Act 2018 (the "EUWA"); or (ii) a customer within the meaning of the provisions of the Financial Services
and Markets Act 2000 (the "FSMA") and any rules or regulations made under the FSMA to implement Directive (EU) 2016/97, where
that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it
forms part of domestic law by virtue of the EUWA. Consequently no key information document required by Regulation (EU) No 1286/2014 as
it forms part of domestic law by virtue of the EUWA (the "UK PRIIPs Regulation") for offering or selling the notes or otherwise
making them available to retail investors in the UK has been prepared and therefore offering or selling the notes or otherwise making
them available to any retail investor in the UK may be unlawful under the UK PRIIPs Regulation.
Conflicts of Interest
BMOCM is an affiliate of Bank of Montreal and,
as such, has a “conflict of interest” in the offerings contemplated hereby, within the meaning of FINRA Rule 5121. Consequently,
each offering of the notes will be conducted in compliance with the provisions of Rule 5121. BMOCM is not permitted to sell notes in any
offering to an account over which it exercises discretionary authority without the prior specific written approval of the account holder.
PS-39
Microsectors US Big Oil ... (AMEX:NRGU)
Gráfica de Acción Histórica
De Abr 2024 a May 2024
Microsectors US Big Oil ... (AMEX:NRGU)
Gráfica de Acción Histórica
De May 2023 a May 2024