Bank of Montreal Protected Deposit, Government of Canada, Long Bond Bear Class, HPB Series 1

Transcription

1 Information Statement dated March 5, 2010 Bank of Montreal Protected Deposit, Government of Canada, Long Bond Bear Class, HPB Series 1 FundSERV Code: JHN 1084 This Information Statement has been prepared solely to assist prospective purchasers in making an investment decision with respect to the Deposit Notes offered hereunder (the Deposit Notes ). This Information Statement constitutes an offering of the Deposit Notes only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell the Deposit Notes. No securities commission or similar authority in Canada has in any way passed upon the merits of the Deposit Notes offered hereunder and any representation to the contrary is an offence. The Deposit Notes have not been, and will not be, registered under the United States Securities Act of 1933, as amended, or any State securities laws and may not be offered for sale or sold in the United States or to United States persons. Bank of Montreal has taken reasonable care to ensure that the facts stated in this Information Statement with respect to the description of the Deposit Notes are true and accurate in all material respects. In connection with the issue and sale of Deposit Notes by Bank of Montreal, no person is authorized to give any information or to make any representation not contained in this Information Statement and Bank of Montreal does not accept any responsibility for any information not contained herein. All information in this Information Statement relating to the DEX Long Term Non- Agency Bond Index (the Index ) is current as of January 29, 2010 unless otherwise indicated and is derived from publicly available sources and is presented in this Information Statement in summary form. Bank of Montreal makes no assurances, representations or warranties with respect to the accuracy, reliability or completeness of such information. Furthermore, Bank of Montreal makes no recommendation concerning the Index, fixed income investments or the suitability of investing in securities generally or the Deposit Notes in particular. BMO (M-bar roundel symbol), BMO and BMO Capital Markets are registered trade-marks of Bank of Montreal. Nesbitt Burns is a registered trade-mark of BMO Nesbitt Burns Corporation Limited used under license. DEX Long Term Non-Agency Bond Index is a trademark of TSX Inc. This mark has been sublicensed for use for certain purposes to Bank of Montreal by PC-BOND. The Deposit Notes are not sponsored, endorsed, sold or promoted by TSX Inc., PC-BOND, its affiliates (including TSX Group Inc.) or third party data suppliers. TSX Inc., PC-BOND, its affiliates (including TSX Group Inc.) and third party data suppliers make no representation, warranty, or condition regarding the advisability of investing in the Deposit Notes. The Deposit Notes are not sponsored, endorsed, sold or promoted by PC-Bond, a business unit of TSX Inc., TSX Inc., its affiliates (including TSX Group Inc.) or third party data suppliers (collectively, PC-Bond Group ). The PC-Bond Group makes no representation, condition or warranty, express or implied, to the owners of the Deposit Notes or any member of the public regarding the advisability of investing in securities generally or in the Deposit Notes particularly or the ability of the Index to track general bond market performance or any other economic factors. PC-Bond's relationship to Bank of Montreal is the licensing (or sublicensing) of certain trademarks and the licensing of the Index, which is determined, composed and calculated by PC-Bond without regard to Bank of Montreal or the Deposit Notes. Bank of Montreal is also one of the participants contributing pricing data to PC-Bond. PC-Bond has no obligation to take the needs of Bank of Montreal or the owners of the Deposit Notes into consideration in determining, composing or calculating the Index. PC-Bond is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the Deposit Notes to be issued or in the determination or calculation of the equation by which

2 the Deposit Notes are to be converted into cash. PC-Bond has no obligation or liability in connection with the administration, marketing or trading of the Deposit Notes. PC-Bond Group does not guarantee the accuracy and/or the completeness of the Index or any data included therein or any other data provided by the PC-Bond Group and PC-Bond Group shall have no liability for any interruptions, delays, errors or omissions therein. PC-Bond Group makes no warranty, condition or representation, express or implied, as to results to be obtained by Bank of Montreal, owners of the Deposit Notes, or any other person or entity from the use of the Index or any data included therein or any other data provided by the PC-Bond Group. PC-Bond Group makes no express or implied warranties, representations or conditions, and expressly disclaims all warranties or conditions of merchantability, merchantable quality or fitness for a particular purpose or use and any other express or implied warranty or condition with respect to the Index or any data included therein or any other data provided by the PC-Bond Group. Without limiting any of the foregoing, in no event shall PC-Bond Group have any liability for any special, punitive, indirect or consequential damages (including lost profits), even if notified of the possibility of such damages. 2

3 SUMMARY OF THE OFFERING This is a summary of the offering of the Bank of Montreal Protected Deposit, Government of Canada, Long Bond Bear Class, HPB Series 1 (the Deposit Notes ) under this Information Statement. In this description, $ refers to Canadian dollars, we, us and our each refer to Bank of Montreal, BMO Capital Markets refers to a company owned by us called BMO Nesbitt Burns Inc. and any of its affiliates, and business day refers to any day (other than Saturday, Sunday or a statutory holiday) on which commercial banks are open for business in Toronto, Ontario. Please note that this summary is not intended to be a detailed description of the offering. For more detailed and complete information please refer to the body of this Information Statement. Offering Overview: 1. Bank of Montreal Protected Deposit, Government of Canada, Long Bond Bear Class, HPB Series 1 (the Deposit Notes ) will be issued by Bank of Montreal on or about March 31, 2010 (the Issue Date ) and will mature on March 31, The term of the Deposit Notes is approximately 5 years. You will be entitled to repayment of the deposit amount of $100 per Deposit Note at maturity. The minimum subscription is $100,000 (1,000 Deposit Notes). We may change the minimum subscription at our discretion. 2. You will receive coupon payments of 1.50% per annum ( Coupon Payments ) paid on a pro rata basis every six months during the term ($0.75 on each payment date), with the first Coupon Payment made on September 30, 2010 and the last Coupon Payment made at maturity. 3. At maturity, you will also be entitled to receive a variable return ( Variable Return ), if any, on a Deposit Note, determined by the calculation agent for the Deposit Notes using the following formula (provided that Variable Return will not be less than zero): 100 x Multiplier x [- (Final Index Level - Initial Index Level)/Initial Index Level] The Initial Index Level is the official closing level of the DEX Long Term Non-Agency Bond Index (the Index ) on the Issue Date. The Final Index Level is the official closing level of the Index on the date that is three business days prior to the maturity date (the Valuation Date ). The Multiplier is The Index is a subset of the DEX Universe Bond Index comprised of Government of Canada Bonds with remaining terms greater than 10 years, minimum issue sizes of at least $50 million and with a minimum of 10 institutional buyers. 4. The Variable Return formula calculates the negative percentage difference, if any, between the Initial Index Level and the Final Index Level, multiplied by the Multiplier. Accordingly, if the Final Index Level is equal to or higher than the Initial Index Level, you will only be entitled to the deposit amount and the final Coupon Payment at maturity. If the Final Index Level is lower than the Initial Index Level, you will also be entitled to Variable Return at maturity. It is possible that no return will be payable on the Deposit Notes, other than the Coupon Payments. 5. Calculation and payment of Variable Return may be adjusted or delayed in the case of certain special circumstances, including a Market Disruption Event, as described in Appendix A to the Information Statement. Fees and Expenses: 6. No expenses will be paid out of the proceeds of this offering. Secondary Market: 7. The Deposit Notes will not be listed on any stock exchange. Moreover, Bank of Montreal does not have a right to redeem the Deposit Notes prior to maturity and you do not have the right to require Bank of Montreal to make such a redemption. However, BMO Capital Markets will use reasonable efforts, subject to normal market conditions, to arrange for a secondary market for the sale of Deposit Notes to BMO Capital Markets using the FundSERV network. The price for the sale of Deposit Notes through any secondary market prior to maturity will be determined by BMO Capital Markets, acting in its sole discretion. If you sell the Deposit Notes in the secondary market, you may receive less than the deposit amount of your Deposit Note and as a result, you may suffer a loss. Although BMO Capital Markets will use reasonable efforts to arrange for a secondary market it is under no obligation to do so, and may 3

4 suspend any such secondary market at any time. Therefore, there can be no assurance that a secondary market will be available, liquid or sustainable. If you sell a Deposit Note within the first year after the Issue Date, the proceeds from such sale will be reduced by an early trading charge of 1.00% of the Deposit Amount. Suitability and Appropriateness for Investment: 8. An investment in Deposit Notes may be suitable and appropriate for you if you: (i) seek a mid-term investment that provides semi-annual Coupon Payments and principal protection if Deposit Notes are held to maturity; (ii) are prepared to receive a return, if any, other than the Coupon Payments, that (a) is uncertain until and payable at maturity, (b) is based on the performance of the Index and is not based on a fixed, floating or other specified interest rate, and (c) may be zero; (iii) think that the level of the Index will decrease over the term of the Deposit Notes; and (iv) are prepared to accept the risks described in the Information Statement. A person should decide to invest in the Deposit Notes only after carefully considering, with his or her advisors, the suitability of this investment in light of his or her investment objectives, investment constraints and the information set out in the Information Statement. Eligibility and Tax Consequences: 9. Deposit Notes are eligible for trusts governed by TFSAs, RRSPs (including locked-in RRSPs), RRIFs, RESPs, RDSPs and DPSPs (other than a trust governed by a DPSP to which contributions are made by Bank of Montreal or an employer with which Bank of Montreal does not deal at arm s length within the meaning of the Income Tax Act (Canada)). 10. Subject to the limitations and qualifications set out in the more detailed tax disclosure contained in the Information Statement under the heading Income Tax Considerations, the following is a summary of the Canadian income tax consequences of investing in Deposit Notes: (i) Coupon Payments on the Deposit Notes will be required to be included in income as received (for an individual) or accrued (for a corporation), (ii) generally, Variable Return, if any, should be included in your income when determined, and (iii) while the matter is not free from doubt, an amount received by you on a disposition of a Deposit Note (other than on or following the Valuation Date) should give rise to a capital gain (or capital loss) to you to the extent proceeds of disposition, excluding accrued and unpaid interest, if any, exceed (or are less than) the aggregate of your adjusted cost base of the Deposit Note and any reasonable costs of disposition. You should consult your tax advisor with respect to your particular circumstances if you plan to sell a Deposit Note prior to maturity. Risk Factors: 11. The Deposit Notes may not be suitable for all investors and in deciding whether to invest in Deposit Notes you should take into account various risks associated with such an investment. The following is a summary list of these risks, which are more completely described in the Information Statement. Suitability of Deposit Notes for Investment: Unlike conventional fixed income investments, the Deposit Notes do not provide you with a return, other than Coupon Payments, that is calculated by reference to a specified fixed or floating rate of interest. Variable Return, if any, will depend on the negative performance, if any, of the Index and there may be no return in excess of Coupon Payments. Credit Risk: The likelihood that you will receive all the payments owing to you in connection with the Deposit Notes will depend on the financial health and creditworthiness of Bank of Montreal. Secondary Trading of Deposit Notes: There is currently no market through which the Deposit Notes may be sold and it is possible that no such market will be arranged. Risks Relating to Bonds: The amount of Variable Return, if any, payable on the Deposit Notes is based on the negative performance of the Index, which consists of bonds issued by the Government of Canada. The value of bonds is affected 4

5 by changes in interest rates, the risk of default in interest and principal, and price changes due to such factors as general economic conditions and the issuer s creditworthiness. Special Circumstances: In certain special circumstances, the calculation agent may estimate the closing level of the Index, determine such closing level in an alternate manner, or choose a comparable index as a substitute for the Index. If a Market Disruption Event occurs on the Issue Date or Valuation Date, the determination of the closing level of the Index (and, if applicable, the payment of the Variable Return, if any) may be delayed. Fluctuations in the closing level of the Index may occur in the interim. No Ownership of Index: You will have no rights of ownership in the Index or any of the securities included in the Index. No Independent Calculation: We will not retain an independent person to make or confirm the determinations and calculations made for the Deposit Notes. Conflicts of Interest: BMO Capital Markets, which has undertaken to use reasonable efforts to arrange for a secondary market, is an affiliate of Bank of Montreal. No Deposit Insurance: The Deposit Notes will not be deposits insured under the Canada Deposit Insurance Corporation Act or any other deposit insurance regime designed to ensure the payment of all or a portion of a deposit upon the insolvency of a deposit taking financial institution. Not Eligible for Protection Under the Canadian Investor Protection Fund: As is the case with other investments made through BMO Harris Investment Management Inc., your investment in the Deposit Notes will not be eligible for protection under the Canadian Investor Protection Fund. Legislative, Regulatory and Administrative Changes: Changes in laws, regulations or administrative practices, including with respect to taxation, could have an impact on you. Other Important Information 12. After the Deposit Notes have been issued, the terms of the Deposit Notes may be amended without your consent if Bank of Montreal and BMO Capital Markets agree that the amendment would not materially and adversely affect your interests. In all other cases an amendment must be approved by the votes of holders of at least two-thirds of the outstanding Deposit Notes represented at a meeting held to consider the amendment. 13. If you place an order to purchase a Deposit Note in person or electronically, the agreement to purchase the Deposit Note will be deemed to have been entered into on the third day after the later of (i) the day your purchase order is received, and (ii) five business days after the postmark date, if the Information Statement is provided to you by mail, or the date the Information Statement is actually received by you, if it is provided other than by mail. If an order to purchase a Deposit Note is received by telephone, the agreement to purchase the Deposit Note will be deemed to have been entered into at the time your purchase order is received. You can cancel an order to buy a Deposit Note (or cancel its purchase if the Deposit Note has been issued) by providing instructions to Bank of Montreal through your financial advisor any time up to 48 hours after the later of (i) the day on which the agreement to purchase the Deposit Note is entered into, and (ii) deemed receipt of the Information Statement. 14. You may request information about the Deposit Notes or a copy of the Information Statement by contacting your local BMO Harris Investment Management Inc. Investment Counsellor at , or calling BMO Capital Markets at to speak to someone in English and to speak to someone in French. A copy of the Information Statement is also posted at During the term of the Deposit Notes, you may inquire as to the net asset value of, and the formula for determining Variable Return under, a Deposit Note by contacting BMO Harris Investment Management Inc. or BMO Capital Markets at the above numbers. This is only a summary of certain terms of the Deposit Notes. You should read the complete Information Statement for more detailed information on all aspects of the Deposit Notes. 5

6 THE OFFERING This is a description of the offering of Deposit Notes under this Information Statement. In this description, $ refers to Canadian dollars, we, us and our each refer to Bank of Montreal, BMO Capital Markets refers to a company owned by us called BMO Nesbitt Burns Inc. and any of its affiliates, and business day refers to any day (other than Saturday, Sunday or a statutory holiday) on which commercial banks are open for business in Toronto, Ontario. Issue: Bank of Montreal Protected Deposit, Government of Canada, Long Bond Bear Class, HPB Series 1 (the Deposit Notes ) FundSERV Code: JHN 1084 Issuer: Bank of Montreal Subscription Price: The price for each Deposit Note is $100 (the Deposit Amount ). Minimum Subscription: Issue Size: You must invest a minimum of $100,000 (1,000 Deposit Notes) in the Deposit Notes. We may change the minimum subscription at our discretion. The maximum offering size for the Deposit Notes is $50,000,000. We may change the maximum size of the offering at our discretion. Issue Date: Maturity Date: Offering: The Index: The Deposit Notes will be issued on or about March 31, 2010 (the Issue Date ). Subscriptions will be received subject to rejection or allotment in whole or in part. We reserve the right to (i) close the subscription books at any time without notice, and/or (ii) elect not to proceed with the issue of Deposit Notes in whole or in part for any reason. The Deposit Notes will mature on March 31, 2015 ( Maturity or Maturity Date ). The term is approximately five years. The Deposit Notes will provide you with (i) steady cash flow in the form of semi-annual coupon payments of 1.50% per annum ($0.75 on each payment date) ( Coupon Payments ) during the term of the Deposit Notes, (ii) 100% principal protection if held over their term until Maturity, and (iii) subject to certain special circumstances described herein, a variable return, if any, at Maturity based on the negative performance, if any, of the DEX Long Term Non-Agency Bond Index (the Index ). The Index is a subset of the DEX Universe Bond Index comprised of Government of Canada Bonds with remaining terms greater than 10 years, minimum issue sizes of at least $50 million and with a minimum of 10 institutional buyers. As of January 29, 2010 the Index consists of 11 bonds with remaining terms ranging from 10 to 32 years. The Index is a total return index (coupons are reinvested), and returns are calculated daily, and are weighted by market capitalization, so that the return on a bond influences the return on the Index in proportion to the bond s market value. The Index has been published since 2001, and is intended to be a transparent index, with individual security holdings disclosed each day. The market value of the Index is approximately $7.1 billion, and the average annual yield is 3.90% as of January 29, An Investor may obtain further information in respect of the Index from PC-Bond s website, which contains a full description of the Index methodology and also provides daily Index returns and statistics for the Index. 6

7 Securities Included in the Index The following chart lists the securities included in the Index as of January 29, 2010: Issuer Coupon Maturity Government of Canada 3.50% June 1, 2020 Government of Canada 10.50% March 15, 2021 Government of Canada 9.75% June 1, 2021 Government of Canada 9.25% June 1, 2022 Government of Canada 8% June 1, 2023 Government of Canada 9% June 1, 2025 Government of Canada 8% June 1, 2027 Government of Canada 5.75% June 1, 2029 Government of Canada 5.75% June 1, 2033 Government of Canada 5% June 1, 2037 Government of Canada 4% June 1, 2041 Source: PC-Bond, a business unit of TMX Group Inc. Copyright TMX Inc. All rights reserved. The information contained herein may not be redistributed, sold or modified or used to create any derivative work without the prior written consent of TMX Group Inc. Historical Closing Levels The following graph illustrates the performance of the Index from January 2, 2001 to February 4, 2010 using daily Closing Levels. Past Closing Levels are not necessarily indicative of future Closing Levels. DEX Long Term Non-Agency Bond Index January 2, 2001-February 4, 2010 Index Level /2/2001 7/2/2001 1/2/2002 7/2/2002 1/2/2003 7/2/2003 1/2/2004 7/2/2004 1/2/2005 7/2/2005 1/2/2006 7/2/2006 1/2/2007 7/2/2007 1/2/2008 7/2/2008 1/2/2009 7/2/2009 1/2/2010 Source: PC-Bond, a business unit of TMX Group Inc. Copyright TMX Inc. All rights reserved. The information contained herein may not be redistributed, sold or modified or used to create any derivative work without the prior written consent of TMX Group Inc. 7

8 Coupon Payments: Variable Return at Maturity: Calculation Agent: Sample Calculations of Variable Return: Coupon Payments will be paid on the last day of every September and March following the Issue Date during the term of the Deposit Notes, with the first Coupon Payment made on September 30, 2010 and the last Coupon Payment made at Maturity. If any scheduled Coupon Payment date is not a business day, then the Coupon Payment to be made to holders of Deposit Notes (collectively the Holders and each a Holder ) on such day will be paid on the immediately following business day and no interest or other compensation will be paid in respect of such adjustment. For each Deposit Note you hold on the Maturity Date, you will be entitled to receive a variable return ( Variable Return ), if any, determined by the Calculation Agent (as defined below) using the following formula (provided that Variable Return will not be less than zero): $100 x Multiplier x [- (Final Index Level - Initial Index Level)/Initial Index Level] Where: Business Day means any day (other than a Saturday, a Sunday or a statutory holiday) on which commercial banks are open for business in Toronto, Ontario. Closing Level means, on any Business Day, the closing level of the Index (or successor index) at the end of such day, as announced by PC-Bond (or successor source for the Index or successor index) at (or successor site). Final Index Level means the Closing Level on the Valuation Date, subject to certain special circumstances described in Appendix A to this Information Statement. Initial Index Level means the Closing Level on the Issue Date, subject to certain special circumstances described in Appendix A to this Information Statement. Multiplier means Valuation Date means the day three Business Days prior to the Maturity Date. The Variable Return formula calculates the negative percentage difference, if any, between the Initial Index Level and the Final Index Level, multiplied by the Multiplier. Accordingly, if the Final Index Level is equal to or higher than the Initial Index Level, you will only be entitled to the Deposit Amount and the final Coupon Payment at Maturity. If the Final Index Level is lower than the Initial Index Level, you will also be entitled to Variable Return at Maturity. Calculation and payment of Variable Return may be adjusted or delayed in the case of certain special circumstances, including a Market Disruption Event, as described in Appendix A to the Information Statement. BMO Capital Markets The examples set out below are for illustrative purposes only and should not be construed as an estimate or forecast of Closing Levels or Variable Return. Positive Return Example (negative performance of Index) Hypothetical Initial Index Level: 190 Hypothetical Final Index Level: 144 Multiplier: 1.25 Variable Return Formula = $100 x 1.25 x [- ( ) / 190] = +$ (Variable Return) Payment at Maturity = $100 + $0.75 (final Coupon Payment) + $ = $ Total Coupon Payments over the term of the Deposit Notes, not including final Coupon Payment: $6.75 Over the term of the Deposit Notes, the Holder receives $100 (Deposit Amount) + $7.50 (Coupon Payments) + $ (Variable Return) = $ per Deposit Note, which is equivalent to an annual compounded rate of return of 6.70% per annum. 8

9 Suitability and Appropriateness for Investment: Secondary Market: Negative Return Example (positive performance of Index) Hypothetical Initial Index Level: 190 Hypothetical Final Index Level: 205 Multiplier: 1.25 Variable Return Formula = $100 x 1.25 x [- ( ) / 190] = (zero Variable Return) Payment at Maturity = $100 + $0.75 (final Coupon Payment) = $ Because the Variable Return formula is less than zero, the Holder receives only the Deposit Amount of $ at Maturity plus the final Coupon Payment. Total Coupon Payments over the term of the Deposit Notes, not including final Coupon Payment: $6.75 Over the term of the Deposit Notes, the Holder receives $100 (Deposit Amount) + $7.50 (Coupon Payments) = $ per Deposit Note, which is equivalent to an annual compounded rate of return of 1.50% per annum. An investment in Deposit Notes may be suitable and appropriate for investors who: (i) seek a mid-term investment that provides semi-annual Coupon Payments and principal protection if Deposit Notes are held to Maturity; (ii) are prepared to receive a return, if any, other than the Coupon Payments, that (a) is uncertain until and payable at Maturity, (b) is based on the performance of the Index and is not based on a fixed, floating or other specified interest rate, and (c) may be zero; (iii) think that the level of the Index will decrease over the term of the Deposit Notes; and (iv) are prepared to accept the risks described in the Information Statement. A person should decide to invest in the Deposit Notes only after carefully considering, with his or her advisors, the suitability of this investment in light of his or her investment objectives, investment constraints and the information set out in the Information Statement. The Deposit Notes are Canadian dollar deposits. We will pay all amounts on the Deposit Notes in Canadian dollars. The Deposit Notes will not be listed on any stock exchange. Moreover, Bank of Montreal does not have a right to redeem the Deposit Notes prior to Maturity and you do not have the right to require Bank of Montreal to make such redemption. However, BMO Capital Markets will use reasonable efforts, subject to normal market conditions, to arrange for a secondary market for the sale of Deposit Notes to BMO Capital Markets prior to the Maturity Date using the FundSERV network. In order to sell a Deposit Note in any available secondary market, a holder must arrange through his or her financial advisor to give notice to BMO Capital Markets either in writing or electronically through the transaction processing system of FundSERV Inc. ( FundSERV ) and initiate an irrevocable request to redeem the Deposit Note in accordance with the then established procedures of FundSERV s transaction processing system. Generally, this will mean the financial advisor will need to initiate the redemption request by 1:00 p.m. (Toronto time, or such other time as may hereafter be established by FundSERV) on a Business Day. The price for the sale of Deposit Notes through any secondary market prior to Maturity will be determined by BMO Capital Markets, acting in its sole discretion. If you sell the Deposit Notes in the secondary market, you may receive less than the Deposit Amount of your Deposit Note and as a result, you may suffer a loss. Although BMO Capital Markets will use reasonable efforts to arrange for a secondary market it is under no obligation to do so or to facilitate such secondary market, and may in its sole discretion suspend any such secondary market at any time without notice. Therefore, there can be no assurance that a secondary market will be available, liquid or sustainable. If you sell a Deposit Note within the first year from the Issue Date, the proceeds from the sale of the Deposit Note will be reduced by an early trading charge ( Early Trading Charge ) equal to 1.00% of the Deposit Amount. 9

10 You should be aware that any valuation price for the Deposit Notes appearing in your periodic investment account statements, as well as any bid price quoted to sell your Deposit Notes, will be before the application of any applicable Early Trading Charge. If you wish to sell a Deposit Note prior to Maturity you should consult your financial advisor on whether a sale of the Deposit Note will be subject to an Early Trading Charge and, if so, the amount of the Early Trading Charge. A Holder should be aware that, although the redemption procedures of FundSERV s transaction processing system would be utilized, the Deposit Notes of the Holder will actually be sold in the secondary market to BMO Capital Markets. In turn, BMO Capital Markets will be able to deal with such Deposit Notes in its discretion, including, without limitation, selling those Deposit Notes to other parties at any price or holding them in its inventory. Holders of Deposit Notes will not be able to redeem or sell their Deposit Notes prior to the Maturity Date other than through any available secondary market. You may wish to consult your financial advisor as to whether it would be more appropriate in the circumstances at any time to sell the Deposit Notes or to hold your Deposit Notes until the Maturity Date. You should also consult your tax advisor as to the tax consequences arising from a sale of a Deposit Note prior to the Maturity Date in your particular circumstances. We, or any of our affiliates, may at any time, subject to applicable laws, purchase Deposit Notes at any price in the open market or by private agreement. Rank: CDIC: Credit Rating: Global Note: Amendments to Global Note: The Deposit Notes will rank equally with all of our deposit liabilities and will constitute our direct unconditional obligations. The Deposit Notes will be issued on an unsubordinated basis and will rank pari passu, as among themselves and with all of our other outstanding, direct, unsecured and unsubordinated, present and future obligations (except as otherwise prescribed by law), and will be payable rateably without any preference or priority. The Deposit Notes will not constitute deposits that are insured under the Canada Deposit Insurance Corporation Act or any other deposit insurance regime designed to ensure the payment of all or a portion of a deposit upon the insolvency of the deposit taking financial institution. The Deposit Notes have not been rated. As at the date of this Information Statement our deposit liabilities with a term to maturity of more than one year were rated AA by DBRS Limited, A+ by Standard & Poor s Ratings Services and Aa2 by Moody s Investors Service Inc. However, there can be no assurance that, if the Deposit Notes were specifically rated by these rating agencies, they would have the same ratings. A rating is not a recommendation to buy, sell or hold investments, and may be subject to revision or withdrawal at any time by the relevant rating agency. We will issue the Deposit Notes in the form of a fully registered global note (the Global Note ) that will be deposited with a depository (initially being CDS Clearing and Depository Services Inc. or its nominee ( CDS )) and registered in the name of such depository or its nominee in denominations equal to the aggregate of the Deposit Amounts of the Deposit Notes. Subject to certain exceptions, certificates evidencing the Deposit Notes will generally not be available to Holders under any circumstances and registration of interests in the Deposit Notes will be made through CDS book-entry system. Unless and until it is exchanged in whole for Deposit Notes in definitive registered form, the registered Global Note may not be transferred except as a whole by and among the depository, its nominee or any successors of such depository or nominee. The Global Note may be amended following the Issue Date without the consent of the Holders by agreement between Bank of Montreal and BMO Capital Markets (as Manager of the note program) if, in the reasonable opinion of Bank of Montreal and BMO Capital Markets, the amendment would not materially and adversely affect the interests of the Holders. In all other cases, the Global Note may be amended if an amendment is approved by a resolution passed by the favourable votes of Holders representing not less than 66⅔% of the outstanding 10

11 aggregate Deposit Amounts of the Deposit Notes represented at the meeting of Holders for the purpose of considering the resolution. Each Holder is entitled to one vote per Deposit Note held for the purpose of voting at meetings convened to consider a resolution. The Deposit Notes do not carry the right to vote in any other circumstances. Notices to Holders: Settlement of Payments: If notice is required to be given to Holders it will be validly given if published once in a French language Canadian newspaper and in the national edition of an English language Canadian newspaper, or if communicated to the Holders by mail, electronic and/or any other means. The Manager will give notice as aforesaid to the Holders of any material change or material fact relating to the Deposit Notes. We will be required to make available to CDS, no later than 10:00 a.m. (Toronto time): on each date on which Coupon Payments are scheduled to be paid (including the Maturity Date), funds in an amount sufficient to pay the Coupon Payment under each Deposit Note; and on the Maturity Date, funds in an amount sufficient to pay the Deposit Amount and Variable Return (if any) under each Deposit Note, subject to postponement of calculation and payment of the Variable Return to a later date due to a Market Disruption Event as described in Appendix A, provided that if a Coupon Payment date or the Maturity Date falls on a day that is not a Business Day, such payment will be postponed until the next Business Day and no interest or other compensation will be paid in respect of such postponement. All amounts payable in respect of the Deposit Notes will be made available by us through CDS or its nominee. CDS or its nominee will, upon receipt of any such amount, facilitate payment to the applicable CDS participants or credit the accounts of such CDS participants, in amounts proportionate to their respective interests as shown on the records of CDS. The Custodian will facilitate payment to non-cds participants (or CDS participants, if applicable) through FundSERV s transaction processing system or credit the respective accounts of such non-cds participants (or CDS participants, if applicable) in amounts proportionate to their respective interests. We expect that payments by CDS participants and non-cds participants to Holders will be governed by standing instructions and customary practices, as is the case with securities or instruments held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such CDS participants or non-cds participants. Our responsibility and liability in respect of Deposit Notes represented by a Global Note is limited to making payment of the amounts due in respect of the Global Note to CDS or its nominee. Neither we nor any of our agents will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests of the Deposit Notes represented by the Global Note or for maintaining, supervising or reviewing records relating to any such ownership interests. We retain the right, as a condition to payment of amounts on the Maturity Date, to require the surrender for cancellation of any certificate evidencing the Deposit Notes. Neither we nor CDS will be bound to see to the execution of any trust affecting the ownership of any Deposit Note or be affected by notice of any equity that may be subsisting with respect to any Deposit Note. General FundSERV Information: FundSERV is owned and operated by both fund sponsors and distributors and provides distributors of funds and certain other financial products with an online transaction processing system for such financial products, including the Deposit Notes. FundSERV s network facilitates the matching of orders to settlement instructions, facilitates reconciliation, aggregates and reports net settlement amounts and distributes settlement instruction information to the financial product distribution channel. A Holder holding FundSERV Notes should realize that in certain circumstances Deposit Notes purchased using the FundSERV network ( FundSERV Notes ) may not be transferable to 11

12 another dealer, if the Holder were to decide to move his or her investment accounts to such other dealer. In that event, the Holder would have to attempt to sell the FundSERV Notes pursuant to the procedures outlined above. The Manager is required to post or arrange to be posted on FundSERV the net asset value of the Deposit Notes on each Business Day, subject to the occurrence of a Market Disruption Event, as described in Appendix A to the Information Statement. Deposit Notes Held Through the Custodian: Selling Agent: Fees and Expenses: The Deposit Notes will be recorded in CDS as being held by BMO Capital Markets (as a direct participant in CDS). BMO Capital Markets will, in turn, hold the Deposit Notes for the custodian ( Custodian ), which will be Bank of Montreal or a person appointed by Bank of Montreal. The Custodian will hold Deposit Notes for CDS participants and non-cds participants (including, in certain cases, Holders) in accordance with their respective entitlements as reflected in a register to be maintained by the Custodian solely on the basis of and in reliance upon instructions received from such CDS participants and non-cds participants, as the case may be. Upon receiving amounts payable in respect of Deposit Notes from BMO Capital Markets, the Custodian will arrange for payment to CDS participants and non-cds participants (including Holders) in amounts proportionate to their respective interests in the Deposit Notes recorded in the register maintained by the Custodian. Payments on the Deposit Notes represented by a registered Global Note registered in the name of a depository or its nominee will be made to the depository or its nominee, as the case may be, as the registered owner of the registered Global Note. All records maintained by the Custodian shall, absent manifest error, be final for all purposes and binding on all persons including the Holders. The Custodian shall not be responsible for its errors if made in good faith. BMO Nesbitt Burns Inc. is the selling agent (in such capacity, the Selling Agent ) for the Deposit Notes. The Selling Agent is a wholly-owned subsidiary of BMO Nesbitt Burns Corporation Limited which, in turn, is an indirect majority-owned subsidiary of Bank of Montreal. Consequently, Bank of Montreal is a related issuer of the Selling Agent under applicable securities legislation. No expenses will be paid out of the proceeds of this offering. Plan of Distribution: Pursuant to an agreement between us and the Selling Agent, the Selling Agent has agreed to offer Deposit Notes for sale as our agent on a best efforts basis, if, as and when issued by us. We will have the sole right to accept offers to purchase Deposit Notes, may reject any offer to purchase Deposit Notes in whole or in part, and reserve the right to close the subscription book at any time. Additionally, we reserve the right to elect not to proceed with the issue of Deposit Notes in whole or in part for any reason. Each Deposit Note will be issued at 100% of its $100 Deposit Amount. The maximum size of the Offering of the Deposit Notes is $50,000,000. We may change the maximum size of the Offering at our discretion. While the Selling Agent has agreed to use its best efforts to sell the Deposit Notes offered hereby, the Selling Agent will not be obligated to purchase any Deposit Notes which are not sold. For greater certainty, BMO Capital Markets may purchase Deposit Notes offered hereby as principal. Bank of Montreal is offering the Deposit Notes through FundSERV s transaction processing system. Subscriptions for Deposit Notes may be made using FundSERV s network under the FundSERV code JHN 1084 which will result in funds being accumulated in a non-interest bearing account of BMO Capital Markets pending execution of all required documents and satisfaction of closing conditions, if any. Funds in respect of all subscriptions are payable at the time of subscription. Subscription funds received on the FundSERV network must be delivered to the Selling Agent in immediately available funds at least three Business Days prior to the Issue Date. However, if the Deposit Notes are not issued for any reason, the subscription funds will be returned forthwith without any interest to the purchaser s financial advisor using the FundSERV 12

13 network. Investors Right to Cancel the Agreement to Purchase Deposit Notes: Date of Agreement to Purchase a Deposit Note: Eligibility for Investment: Income Tax Considerations: We may from time to time issue additional series of notes or other notes or other debt instruments (which may or may not resemble the Deposit Notes) and may offer such notes or debt instruments concurrently with the Offering. We reserve the right to purchase for cancellation at our discretion any amount of Deposit Notes in the secondary market, without notice to Holders. An investor may cancel an order to purchase a Deposit Note (or its purchase if issued) by providing instructions to us through his or her financial advisor any time up to 48 hours after the later of (i) the day on which the agreement to purchase the Deposit Note is entered into, and (ii) deemed receipt of this Information Statement. Upon cancellation, the investor is entitled to a refund of the subscription price together with any fees relating to the purchase that have been paid by the person. This right of cancellation does not extend to investors who purchase a Deposit Note in the secondary market. An investor will be deemed to have received this Information Statement or such written notice on the earlier of: (i) the day recorded as the time of sending by the server or other electronic means, if provided by electronic means; (ii) the day recorded as the time of sending by fax machine, if provided by fax; (iii) five Business Days after the postmark date, if provided by mail, and (iv) when it is received. If an order to purchase a Deposit Note is received in person or electronically, the agreement to purchase the Deposit Note will be deemed to have been entered into on the third day after the later of (i) the day the purchase order is received; and (ii) five Business Days after the postmark date, if this Information Statement is provided to the investor by mail, or the date this Information Statement is actually received by the investor, if it is provided other than by mail. If an order to purchase a Deposit Note is received by telephone, the agreement to purchase a Deposit Note will be deemed to have been entered into at the time the purchase order is received. In the opinion of our counsel, McMillan LLP, the Deposit Notes offered hereby will, at the date of issue, be qualified investments for trusts governed by tax-free savings accounts, registered retirement savings plans, registered retirement income funds, registered education savings plans, registered disability savings plans and deferred profit sharing plans (other than a trust governed by a deferred profit sharing plan to which contributions are made by us or by an employer with which we do not deal at arm s length within the meaning of the Income Tax Act (Canada)). Where a Holder s purchase order for Deposit Notes is effected through dealers and other firms that place and clear orders for Deposit Notes using the FundSERV network, such dealers or other firms may not be able to accommodate a purchase of Deposit Notes through certain registered plans. Holders should consult their financial advisors as to whether their orders for Deposit Notes will be made using the FundSERV network and any limitations on their ability to purchase Deposit Notes through registered plans. In the opinion of McMillan LLP, counsel to Bank of Montreal, the following is, as of the date hereof, a summary of the principal Canadian federal income tax considerations generally applicable to the acquisition, holding and disposition of Deposit Notes by a Holder ( Initial Holder ) who purchases Deposit Notes only at the time of their issuance. This summary is applicable only to an Initial Holder who, for the purposes of the Income Tax Act (Canada) (the Tax Act ), is a resident of Canada, deals at arm s length with and is not affiliated with Bank of Montreal, holds Deposit Notes as capital property and is an individual (other than a trust) or a corporation (other than a financial institution as defined in subsection 142.2(1) of the Tax Act). The Deposit Notes will generally be considered to be capital property to an Initial Holder, unless (i) the Initial Holder holds the Deposit Notes in the course of carrying on or otherwise as part of a business of trading or dealing in or buying and selling securities; or (ii) the Initial Holder acquired the Deposit Notes as an adventure in the nature of trade. Certain Initial Holders resident in Canada whose Deposit Notes might not otherwise be considered to be 13

14 capital property or who desire certainty with respect to the treatment of the Deposit Notes as capital property may be entitled to make an irrevocable election to have the Deposit Notes and all of the Initial Holder s other Canadian securities deemed to be capital property pursuant to subsection 39(4) of the Tax Act. This summary is based on the current provisions of the Tax Act and the regulations thereunder (the Regulations ) as in force on the date hereof, counsel s understanding of the current administrative and assessing practices of the Canada Revenue Agency ( CRA ) and all specific proposals to amend the Tax Act and Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof. This summary does not otherwise take into account or anticipate any changes in law or the CRA s administrative or assessing practices, whether by legislative, governmental or judicial action. This summary is not exhaustive of all possible Canadian federal income tax considerations applicable to an investment in Deposit Notes and does not take into account provincial, territorial or foreign income tax legislation or considerations. This summary is of a general nature only and is not intended to be legal or tax advice to any Holder. Holders should consult their own tax advisors for advice with respect to the income tax consequences of an investment in Deposit Notes, based on their particular circumstances. Coupon Payments Based on the terms of the Deposit Notes, Coupon Payments will be required to be included in income for a taxation year to the extent received (for an Initial Holder that is an individual) or accrued (for an Initial Holder that is a corporation) in such taxation year. Bank of Montreal will file an information return with the CRA in respect of Coupon Payments of an Initial Holder and will provide the Initial Holder with a copy of such information return. Variable Return A Deposit Note is a prescribed debt obligation within the meaning of the Tax Act. The rules in the Regulations applicable to a prescribed debt obligation ( prescribed debt obligation rules ) generally require a taxpayer to accrue the amount of any interest, bonus or premium receivable in respect of the obligation over the term of the obligation, based on the maximum amount of interest, bonus or premium receivable on the obligation. Based in part on counsel s understanding of the CRA s administrative practice with regard to prescribed debt obligations, there should be no deemed accrual of the Variable Return on the Deposit Notes under the prescribed debt obligation rules prior to the Valuation Date. However, counsel understands that the CRA is currently reviewing its administrative practice in relation to the relevance of a secondary market for debt obligations such as the Deposit Notes in determining whether there is a deemed accrual of interest on such debt obligations. Disposition of Deposit Notes Upon a disposition of a Deposit Note at Maturity, an Initial Holder will be required to include in income for the taxation year in which the disposition occurs, the final Coupon Payment and the amount, if any, of the Variable Return, except to the extent otherwise included in income in the taxation year or a preceding taxation year. Bank of Montreal will file an information return with the CRA in respect of any such amount to be included in an Initial Holder s income and will provide the Initial Holder with a copy of such information return. In certain circumstances, where an investor assigns or otherwise transfers a debt obligation, the amount of interest accrued on the debt obligation to that time, but unpaid, will be excluded from the proceeds of disposition of the obligation and will be required to be included as interest in computing the investor s income for the taxation year in which the transfer occurs, except to the extent that it has been otherwise included in the investor s income for that year or a preceding year. Accordingly, an Initial Holder will generally be required to include in income an unpaid Coupon Payment that is considered to have accrued to the date of disposition except to the extent that it has been otherwise included in income for that year or a preceding year. However, under the terms of the Deposit Notes, there should be no amount in respect of Variable Return that will be treated as accrued interest on an assignment or transfer 14