Bank of Montreal Issues $1.73 Million Autocallable Barrier Notes Linked to Three Major US Equity Indices

Structure and Key Design Features of the Autocallable Notes

The disclosure outlines a complex structured note design that combines multiple features intended to appeal to specific investor preferences. The notes are linked to three reference assets: the NASDAQ-100 Index with an initial level of 28,454.81, the Russell 2000 Index with an initial level of 2,940.163, and the Dow Jones Industrial Average with an initial level of 51,711.65. The notes were issued with a minimum denomination of $1,000 and integral multiples thereof, with a total principal amount of $1.73 million issued at 100% of par value to the public.

The autocallable feature represents a significant structural element. Beginning on July 23, 2027, the notes will be automatically redeemed if, on any call observation date (scheduled for July, October, January, and April), the closing level of each of the three reference assets exceeds its respective call level. The call levels are set at 100% of the initial level for each index. Upon automatic redemption, investors receive their principal amount plus any contingent coupon otherwise due, after which no further payments are made. This design creates a scenario where investors may not hold the notes to their July 2031 maturity date if the market conditions trigger early redemption.

Contingent Coupon Mechanics and Payment Structure

The notes incorporate a contingent coupon mechanism that creates variability in monthly income payments. The contingent interest rate is set at 0.7375% per month, which equates to approximately 8.85% per annum. Contingent coupons are payable on the 28th day of each month (or the next business day if the 28th is not a business day), beginning on August 28, 2026, provided that the closing level of each reference asset on the applicable coupon observation date (three trading days prior to the payment date) is greater than or equal to its coupon barrier level. The coupon barrier levels are set at 75% of the initial level for each index: 21,341.11 for the NASDAQ-100, 2,205.122 for the Russell 2000, and 38,783.74 for the Dow Jones Industrial Average.

The contingent nature of these coupons means that if any of the three reference assets closes below its respective coupon barrier level on a coupon observation date, the contingent coupon payment will not be made for that month. The filing does not specify whether missed coupons accrue or are forfeited. This structure requires that all three indices remain above their 75% barrier levels simultaneously for the full monthly coupon payment to be made, which introduces a correlation risk for investors. Each monthly payment, if payable, equals $7.375 per $1,000 in principal amount of notes held.

Principal Repayment at Maturity and Trigger Event Provisions

If the notes are not automatically redeemed prior to maturity and reach the July 28, 2031 maturity date, the payment of principal depends on whether a trigger event occurs. A trigger event is deemed to occur if the final level of any reference asset on the valuation date (July 23, 2031) is less than its trigger level. The trigger levels are set at 70% of the initial level for each index: 19,918.37 for the NASDAQ-100, 2,058.114 for the Russell 2000, and 36,198.16 for the Dow Jones Industrial Average.

If no trigger event occurs—meaning all three indices remain at or above their 70% trigger levels—investors will receive full principal of $1,000 per $1,000 of notes held at maturity. However, if a trigger event occurs, investors will experience principal loss. The loss mechanism is based on the least performing reference asset. For each 1% decline in the least performing asset from its initial level to its final level, investors lose 1% of the principal amount. The filing illustrates this with the formula: $1,000 + ($1,000 × Percentage Change of the Least Performing Reference Asset). This means the repayment at maturity could be substantially less than the original principal, potentially resulting in a zero payment if the least performing asset declines 100% from its initial level, though such an extreme scenario would be unlikely in normal market conditions.

Offering Terms, Pricing, and Agent Commission

The notes were priced on July 23, 2026, with a settlement date of July 28, 2026. Bank of Montreal's subsidiary, BMO Capital Markets Corp. (BMOCM), acted as the agent for the offering. The public offering price was established at 100% of par value, or $1,000 per $1,000 in principal amount. However, the filing indicates that certain dealers who purchased the notes for sale to fee-based advisory accounts offered prices between $963.75 and $1,000 per $1,000 in principal amount, with those dealers foregoing some or all of their selling concessions, fees, or commissions. An additional referral fee of up to 0.50% of the principal amount was to be paid to certain dealers in connection with the distribution of the notes.

Bank of Montreal's agent commission on the offering was 3.625%, generating $62,712.50 in total commissions on the $1.73 million issuance. The proceeds to Bank of Montreal, after deduction of the agent's commission, totaled $1,667,287.50. The disclosure notes that the agent's commission and proceeds reflected aggregate amounts at the time Bank of Montreal established its hedge positions on or prior to the pricing date, and these amounts may have fluctuated depending on market conditions at the time. The estimated initial value of the notes, based on the terms set forth in the offering document, was calculated at $947.19 per $1,000 in principal amount on the date of the filing.

Risk Disclosure and Credit Exposure

The filing emphasizes that all payments on the notes are subject to the credit risk of Bank of Montreal. Investors holding these notes are creditors of Bank of Montreal and are reliant on the bank's financial condition and creditworthiness for timely and full payment of all amounts due. The notes are unsecured obligations and are not savings accounts or deposits insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada Deposit Insurance Corporation, or any other governmental agency or instrumentality.

The disclosure explicitly states that investing in the notes is not equivalent to a hypothetical direct investment in the reference assets. Investors are not purchasing the underlying indices but rather holding Bank of Montreal obligations that are linked to those indices' performance. The notes will not be listed on any securities exchange, which means there may be limited liquidity for investors seeking to sell the notes prior to maturity or early redemption. The offering document indicates that selected risk considerations are detailed in additional sections, including "Additional Risk Factors Relating to the Notes" in the product supplement and "Risk Factors" in the prospectus supplement and prospectus.

Quarterly Call Observation Dates and Automatic Redemption Schedule

The automatic redemption feature operates on a quarterly schedule beginning July 23, 2027. Call observation dates are scheduled to occur in July, October, January, and April of each year, coinciding with coupon observation dates. On each call observation date, Bank of Montreal will assess whether the closing levels of all three reference assets exceed their respective call levels (which are set at 100% of their initial levels). If this condition is met—that is, if the NASDAQ-100 closes above 28,454.81, the Russell 2000 closes above 2,940.163, and the Dow Jones Industrial Average closes above 51,711.65—the notes will be automatically redeemed.

Upon automatic redemption, the call settlement date is established as the contingent coupon payment date immediately following the relevant call observation date. On the call settlement date, investors receive their full principal amount of $1,000 per $1,000 in notes held, plus the contingent coupon otherwise due for that period (if the coupon barrier conditions were met). After automatic redemption, no further payments of any kind are made on the notes. This feature means that if all three indices trade above their initial levels on any quarterly observation date, the investor's participation in further gains is terminated, though they receive their principal back. The design assumes that investors are willing to have their notes automatically redeemed and accept the forfeiture of any additional upside participation beyond that point.

Investor Suitability and Explicit Risk Warnings

The offering document includes explicit statements regarding the intended investor profile and associated risks. The disclosure states that the notes are designed for investors seeking monthly contingent periodic interest payments as well as a return of principal if the closing levels of all reference assets on quarterly call observation dates exceed 100% of their initial levels. However, the document explicitly warns that investors must be willing to have their notes automatically redeemed prior to maturity, willing to forego any potential to participate in increases in the level of the reference assets beyond the call levels, and willing to lose some or all of their principal at maturity.

The filing emphasizes that the notes do not guarantee any return of principal at maturity and that the payment at maturity is contingent on whether a trigger event has occurred. If indices decline below their 70% trigger levels, principal loss is certain, with the magnitude determined by the performance of the least performing index. This risk structure means that while investors receive monthly income if coupon barriers are maintained, they expose themselves to significant downside risk if the equity markets decline substantially. The notes are particularly sensitive to the performance of the weakest of the three indices, as the least performing asset determines the principal repayment amount.

Regulatory Status and Listing Information

The offering document confirms that the notes will not be listed on any securities exchange, which has implications for secondary market liquidity. The notes were filed pursuant to Rule 424(b)(2), with the pricing supplement dated July 23, 2026, and incorporating the prospectus dated March 25, 2025, the prospectus supplement dated March 25, 2025, and the product supplement dated March 25, 2025. The registration statement number is 333-285508.

The filing includes the standard regulatory disclaimer that neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the notes or passed upon the accuracy of the offering documents. The notes are designated with CUSIP number 06376LPW0 and are identified as Series K of Bank of Montreal's Senior Medium-Term Notes. The document notes that the notes will not be subject to conversion into Bank of Montreal's common shares or the common shares of any of its affiliates under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act, clarifying the equity conversion status of these debt instruments.

Valuation Considerations and Market-Dependent Pricing

The disclosure provides an important caveat regarding note valuation, stating that while the estimated initial value of the notes was $947.19 per $1,000 in principal amount on the filing date based on the terms set forth, the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy. This valuation estimate represents the bank's assessment of the intrinsic value of the structured product, which is less than the 100% public offering price. The difference between the estimated initial value and the offering price reflects the bank's profit margin, distribution costs, and hedging expenses embedded in the product.

The actual market value of the notes will fluctuate based on changes in the levels of the three reference indices, changes in volatility, changes in interest rates, and the passage of time. As the notes approach maturity or an automatic redemption date, their value will converge toward the expected payoff amount. Secondary market trading, if available through Bank of Montreal or other dealers, would reflect real-time market conditions and investor demand. The filing does not provide guidance on secondary market liquidity or pricing mechanisms for investors seeking to exit their positions prior to maturity.