ADDITIONAL RISK FACTORS RELATING TO THE NOTES

An investment in the notes involves risks. This section describes significant risks relating to the terms of the notes. Before investing in the notes, you should read the following information about these risks, together with the other information contained in or incorporated by reference in the applicable pricing supplement, this product supplement and the accompanying prospectus supplement and prospectus.

Your investment in the notes may result in a loss if the value of the Reference Asset decreases. The notes do not guarantee any return of principal. You will only receive the principal amount of your notes at maturity if the Final Level is greater than or equal to the Initial Level, or, if a Monitoring Period is applicable to your notes, the level of the Reference Asset does not decrease to a trading level or a closing level (as applicable) below the Trigger Level during the applicable Monitoring Period. If these conditions are not satisfied, you will be entitled to receive at maturity shares or cash with a value that we expect to be less than the principal amount of your notes, and may be zero. You may even lose the entire principal amount of your notes.

You will not benefit from any appreciation in the Reference Asset above the Initial Level. You should not expect to receive a payment at maturity or upon an automatic redemption with a value greater than your principal amount, plus any final interest payment. As a result, the total of the payments that you receive over the term of the notes will not exceed the principal amount of your notes plus any interest, even if the Final Level exceeds the Initial Level by a substantial amount.

Your yield may be lower than the yield on a standard debt security of comparable maturity. The yield that you will receive on your notes, which could be negative, may be less than the yield you could earn if you purchased a standard senior debt security of Bank of Montreal with the same Maturity Date. Your investment may not reflect the full opportunity cost to you when you take into account factors that affect the time value of money.

The cash value of any Reference Asset that we deliver to you may be less than the market value of those shares on the Valuation Date. If you receive the Physical Delivery Amount at maturity, the market price of the shares that you receive could decline between the Valuation Date (or the final Valuation Date) and the Maturity Date, which is when you will actually receive those shares. Similarly, if we elect to deliver to you the Cash Delivery Amount, we will determine the amount to be paid on the Valuation Date (or the final Valuation Date) and you will not benefit from any appreciation in the market price of the Reference Asset that may occur between the Valuation Date (or the final Valuation Date) and the Maturity Date.

Your notes may not have an active trading market. Your notes will not be listed on any securities exchange, and there may be little or no secondary market for your notes. Even if a secondary market for your notes develops, it may not provide significant liquidity. We expect that transaction costs in any secondary market would be high. As a result, the difference between bid and ask prices for your notes in any secondary market could be substantial. If you sell your notes before maturity, you may have to do so at a substantial discount from the issue price, and as a result, you may suffer substantial losses.

An investment in the notes is not the same as owning the Reference Asset or a security directly linked to the performance of the Reference Asset. The return on your notes will not reflect the return you would realize if you actually owned the Reference Asset or a security directly linked to the performance of the Reference Asset and held that investment for a similar period. An investment in the notes differs from a direct investment in several ways, including because:

Your notes may trade quite differently from the Reference Asset. Changes in the level of the Reference Asset may not result in comparable changes in the market value of your notes. Even if the level of the Reference Asset increases from the Initial Level during the term of the notes, the market value of the notes prior to maturity may not increase to the same extent, or may even decrease.

The market value of your notes may be influenced by many unpredictable factors. The following factors, which are beyond our control, may influence the market value of your notes:

These factors may influence the market value of your notes if you sell your notes before maturity. Our creditworthiness, as represented by our credit ratings or as otherwise perceived in the market, will also affect the market value of your notes. If you sell your notes prior to maturity, you may receive less than the principal amount of your notes.

Payments on the notes are subject to our credit risk, and changes in our credit ratings are expected to affect the market value of the notes. The notes are our senior unsecured debt securities. As a result, your receipt of any interest payments and the amount due on the Maturity Date are each dependent upon our ability to repay our obligations at that time. This will be the case even if the level of the Reference Asset increases after the pricing date. No assurance can be given as to what our financial condition will be at any time during the term of the notes.

The market value of your notes may decrease at an accelerated rate as the level of the Reference Asset approaches and decreases below any applicable Trigger Level. When the level of the Reference Asset on any trading day decreases from the Initial Level to a level near the Trigger Level for the first time, the market value of the notes may decrease at a greater rate than the market value of the Reference Asset. If the Reference Asset trades (in the case of Continuous Monitoring) or closes (in the case of Daily Monitoring) at levels that are near or below the Trigger Level, we expect that the market value of the notes will decrease, reflecting the fact that you may receive at maturity shares of the Reference Asset or cash with a value that is less than the principal amount of your notes. All other factors remaining constant, the longer the Monitoring Period is for your notes, the higher the probability will be that the Reference Asset will trade or close (as applicable) at a level that is less than the applicable Trigger Level.

Your notes may be subject to automatic early redemption. If your notes are subject to automatic redemption, we will redeem the notes if the level of the Reference Asset reaches or exceeds a specified level as of the applicable call observation date. Following a redemption, you will not receive any additional interest payments on the notes, and you may not be able to reinvest your proceeds in an investment with returns that are comparable to the return on the notes.

The amount of shares or cash to be paid at maturity will not be affected by all developments relating to the Reference Asset. Changes in the level of the Reference Asset during the term of the notes before the Valuation Date or Valuation Dates will not be reflected in the calculation of the payment at maturity, except to the extent that the Reference Asset trades or closes (as applicable) below the Trigger Level during any applicable Monitoring Period, or to the extent that the notes are subject to an automatic redemption. The calculation agent will calculate the amount to be paid at maturity by comparing the Final Level to the Initial Level. As a result, you may receive shares or cash at maturity with a value that is less than the principal amount of your notes, even if the level of the Reference Asset has increased at certain times during the term of the notes before decreasing to a level below the Initial Level.

You must rely on your own evaluation of the merits of an investment linked to the Reference Asset. In the ordinary course of their business, we or our affiliates may have expressed views on expected movements in any Reference Asset or any Reference Asset Constituents, and may do so in the future. These views or reports may be communicated to our clients and clients of our affiliates. However, these views are subject to change from time to time. Moreover, other professionals who transact business in markets relating to any Reference Asset or any Reference Asset Constituents may at any time have significantly different views from our views or those of our affiliates. For these reasons, you are encouraged to obtain information concerning the applicable Reference Asset and any Reference Asset Constituents from multiple sources, and you should not rely solely on views expressed by us or our affiliates.

Our trading and other transactions relating to the Reference Asset, any Reference Asset Constituents, futures, options or other derivative products may adversely affect the market value of the notes. As described below under “Use of Proceeds and Hedging,” we or one or more affiliates may hedge our obligations under the notes by purchasing or selling shares of the Reference Asset, any Reference Asset Constituents, futures or options relating to the Reference Asset or Reference Asset Constituents, or other derivative instruments with returns linked or related to changes in the performance of the Reference Asset or Reference Asset Constituents. We or our affiliates may adjust these hedges by, among other things, purchasing or selling those assets at any time. Although they are not expected to do so, any of these hedging activities may adversely affect the level of the Reference Asset, and therefore, the market value of the notes, and the amounts payable at maturity. It is possible that we or one or more of our affiliates could receive substantial returns from these hedging activities, even though the market value of the notes decreases.

We or one or more of our affiliates may also engage in trading relating to the Reference Asset or any Reference Asset Constituents 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 our customers, including block trades. Any of these activities could adversely affect the level of the Reference Asset and therefore, the market value of the notes. We or one or more of our affiliates may also issue or underwrite other securities or financial or derivative instruments with returns linked or related to changes in the performance of the Reference Asset or any Reference Asset Constituents. By introducing competing products into the marketplace in this manner, we or one or more of our affiliates could adversely affect the market value of the notes.

Our business activities or those of our affiliates may create conflicts of interest. We and our affiliates expect to engage in trading activities related to the Reference Asset and any Reference Asset Constituents that are not for the account of holders of the notes or on their behalf. These trading activities may present a conflict between the holders’ interests in the notes and the interests we and our affiliates will have in their proprietary accounts, in facilitating transactions, including options and other derivatives transactions, for their customers and in accounts under their management. These trading activities, if they influence the level of the Reference Asset, could be adverse to the interests of the holders of the notes. We and one or more of our affiliates may, at the time that we offer any notes or any time thereafter, engage in business with any applicable Reference Asset Issuer, or any issuer of any Reference Asset Constituent or the issuer of any component stocks of any index that is tracked by a Reference Asset that is an ETF (an “Underlying Index”), including making loans to or providing advisory services to those companies. These services could include investment banking and merger and acquisition advisory services. These activities may present a conflict between our or one or more of our affiliates’ obligations and your interests as a holder of the notes. Moreover, we and our affiliates may have published, and in the future expect to publish, research reports that relate to the Reference Asset or Reference Asset Constituents. This research is modified from time to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing or holding the notes. Any of these activities by us or one or more of our affiliates may affect the level of the Reference Asset and therefore, the market value of the notes.

The calculation agent may postpone the determination of the Final Level if a market disruption event occurs. The calculation agent may postpone the determination of the Final Level if the calculation agent determines that a market disruption event has occurred or is continuing on a Valuation Date. In no event, however, will any Valuation Date be postponed by more than ten trading days. As a result, if a market disruption event occurs or is continuing on a Valuation Date, the Maturity Date for the notes could also be postponed.

If the determination of the level of the Reference Asset for any Valuation Date is postponed to the last possible day, but a market disruption event occurs or is continuing on that day, that day will nevertheless be the date on which the level of the Reference Asset will be determined by the calculation agent. In such an event, the calculation agent will make a good faith estimate in its sole discretion of the level that would have prevailed in the absence of the market disruption event. See “General Terms of the Notes—Market Disruption Events.”

The delivery of the Physical Delivery Amount may be postponed if a Physical Delivery Amount Disruption Event Occurs. As described in more detail in the section below, “General Terms of the Notes—Payment at Maturity—Physical Delivery Amount,” there may be circumstances in which the calculation agent determines that we are unable to procure all or a portion of the securities needed to pay the Physical Delivery Amount on the Maturity Date. In such a case, the Maturity Date of your notes and the delivery of the Physical Delivery Amount may be postponed by up to ten business days, without any payment of additional interest, and we may also pay to you the Cash Delivery Amount in lieu of such securities. Accordingly, you are advised not to effect any transaction involving the securities that you may expect to receive as part of the Physical Delivery Amount until you have confirmed that those securities have been received in your account. In addition, the value of the securities delivered may decrease, perhaps to a significant extent, in the period between the Valuation Date or Valuation Dates and the Maturity Date, as so postponed.

As calculation agent, BMO Capital Markets Corp. will have the authority to make determinations that could affect the value of your notes and your payment at maturity. As calculation agent for your notes, BMO Capital Markets Corp. will have discretion in making various determinations that affect your notes, including determining the Final Level, market disruption events, and any amount of shares or cash payable on your notes. The calculation agent also has discretion in making certain adjustments relating to mergers and certain other corporate transactions which the Reference Asset Issuer may undertake. The exercise of this discretion by BMO Capital Markets Corp. could adversely affect the value of your notes and may present BMO Capital Markets Corp., which is our wholly owned subsidiary, with a conflict of interest.

Significant aspects of the tax treatment of the notes are uncertain. 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. Please read carefully the sections entitled “Supplemental Tax Considerations” in this product supplement, the sections “United States Federal Income Taxation” and “Canadian Taxation” in the accompanying prospectus and the section entitled “Certain Income Tax Consequences” in the accompanying prospectus supplement. You should consult your tax advisor about your own tax situation.

A 30% U.S. Federal Withholding Tax May Be Withheld on Interest Payments to Non-United States Holders. The U.S. federal income tax treatment of the notes is uncertain and as a result, the institution through which you hold the notes may determine to withhold U.S. federal income tax at a 30% rate (or at a lower rate under an applicable income tax treaty) in respect of the interest payments made to a non-United States holder unless such payments are effectively connected with the conduct by the non-United States holder of a trade or business in the United States (in which case, to avoid withholding, the non-United States holder will be required to provide a Form W-8ECI). We will not pay any additional amounts in respect of such withholding. Please read carefully the sections entitled “Supplemental Tax Considerations” in this product supplement, the sections “United States Federal Income Taxation” and “Canadian Taxation” in the accompanying prospectus and the section entitled “Certain Income Tax Consequences” in the accompanying prospectus supplement. You should consult your tax advisor about your own tax situation.

Employee benefit plans should carefully review the legal issues of an investment in the notes. Any fiduciary of an “employee benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), subject to Title I of ERISA, a plan or account subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”), an entity whose underlying assets include the assets of any of the foregoing (each of the foregoing, a “Benefit Plan Investor”) or any other plan which is subject to any federal, state, local or other law that is substantially similar to the fiduciary responsibility and prohibited transaction provisions of ERISA or Section 4975 of the Code (“Similar Law”) that is considering purchasing the notes with the assets of such Benefit Plan Investor or plan subject to Similar Law, should consult with its counsel regarding whether the purchase or holding of the notes is or could become a non-exempt “prohibited transaction” under ERISA or the Code or a violation of any Similar Law. For additional information, please see the discussion under “Certain Considerations for ERISA and Other U.S. Employee Benefit Plans” below.

Additional Risks Relating to the Reference Assets

You will not have any shareholder rights prior to maturity of the notes. Unless and until shares of a Reference Asset are delivered to you at maturity, the notes will not entitle a holder to any direct or indirect ownership or entitlement to the Reference Asset or any Reference Asset Constituents. Until the delivery of any shares of a Reference Asset occurs, a holder of the notes will not be entitled to the rights and benefits of a holder of the Reference Asset, including any right to receive any distributions or dividends or to vote at or attend any meetings of holders of shares of the Reference Asset.

No Reference Asset Issuer will have any role or responsibilities with respect to the notes. Neither the applicable Reference Asset Issuer, or the issuer of any Reference Asset Constituent, will have authorized or approved the notes, and will not be involved in any offering. No such company will have any financial or legal obligation with respect to the notes or the amounts to be paid to you, including any obligation to take our needs or your needs into consideration for any reason, including taking any corporate actions that might affect the value of the Reference Asset or the notes. No such company will receive any of the proceeds from any offering of the notes. No Reference Asset Issuer or any other such company will be responsible for, or participate in, the determination or calculation of the amounts receivable by holders of the notes.

An investment in the notes may be subject to risks associated with non-U.S. securities markets. The Reference Asset, or any Reference Asset Constituents, may have been issued by one or more non-U.S. companies. An investment in notes linked to the value of non-U.S. equity securities involves particular risks. Non-U.S. securities markets may be more volatile than U.S. securities markets, and market developments may affect non-U.S. securities markets differently from the U.S. securities markets. Direct or indirect government intervention to stabilize these non-U.S. securities markets, as well as cross shareholdings among non-U.S. companies, may affect trading prices and volumes in those markets. Also, there is generally less publicly available information in the U.S. about non-U.S. companies than about those U.S. companies that are subject to the reporting requirements of the U.S. Securities and Exchange Commission (the “SEC”), and non-U.S. companies are subject to accounting, disclosure, auditing and financial reporting standards and requirements that differ from those that are applicable to U.S. reporting companies.

Levels of securities in countries outside of the U.S. are subject to political, economic, financial and social factors that may be unique to the particular country. These factors, which could negatively affect the non-U.S. securities markets, include the possibility of recent or future changes in the economic and fiscal policies of non-U.S. governments, the possible imposition of, or changes in, currency exchange laws or other non-U.S. laws or restrictions applicable to non-U.S. companies or investments in non-U.S. equity securities, the possibility of fluctuations in the rate of exchange between currencies, the possibility of outbreaks of hostility and political instability and the possibility of natural disaster or adverse public health developments in the region. Moreover, the economies of certain foreign countries may differ favorably or unfavorably from the U.S. economy in important respects, such as growth of gross national product, rate of inflation, trade surpluses or deficits, capital reinvestment, resources and self-sufficiency.

We do not control any Reference Asset Issuer and we are not responsible for any disclosure made by any other company. Except to the extent set forth in the applicable pricing supplement, neither we nor any of our affiliates have the ability to control the actions of any Reference Asset Issuer, or the issuers of any Reference Asset Constituents. We do not assume any responsibility for the adequacy or accuracy of any publicly available information about any of these companies, unless (and only to the extent that) our securities or the securities of our affiliates are represented by that Reference Asset. We are not responsible for any other issuer’s public disclosure of information on itself or the Reference Asset, whether contained in SEC filings or otherwise. We will not perform any due diligence procedures with respect to the applicable Reference Asset Issuer or any issuers of any Reference Asset Constituents. You should make your own investigation into the applicable Reference Asset Issuer and any issuers of the Reference Asset Constituents.

You will have limited anti-dilution protection with respect to the Reference Asset. The calculation agent will adjust the Initial Level, the Trigger Level and any call level for stock splits, reverse stock splits, stock dividends, extraordinary dividends and other events that affect the applicable issuer’s capital structure, but only in the situations we describe in “General Terms of the Notes—Anti-Dilution Adjustments” below. The calculation agent will not be required to make an adjustment for every corporate event that may affect the relevant security. For example, the calculation agent will not make any adjustments for events such as an offering by the Reference Asset Issuer of equity securities or a tender or exchange offer for less than all outstanding shares of that issuer by a third party. Those events or other actions by the applicable issuer or a third party may nevertheless adversely affect the level of the Reference Asset, and adversely affect the value of your notes.

The historical performance of the Reference Asset should not be taken as an indication of its future performance. The level of the Reference Asset will determine the amount to be paid on the notes at maturity and whether the notes are subject to an automatic redemption. The historical performance of the Reference Asset is not necessarily an indicator of its future performance. As a result, it is impossible to predict whether the level of the Reference Asset will rise or fall during the term of the notes. The level of the Reference Asset will be influenced by complex and interrelated political, economic, financial and other factors.

We will not hold any shares of the Reference Asset for your benefit. The indenture and the terms governing your notes do not contain any restriction on our ability or the ability of any of our affiliates to sell, pledge or otherwise convey all or any shares of the Reference Asset that we or they may acquire. Neither we nor our affiliates will pledge or otherwise hold any such shares for your benefit. Consequently, in the event of our bankruptcy, insolvency or liquidation, any of those assets that we own will be subject to the claims of our creditors generally and will not be available for your benefit specifically.

Additional Risks Relating to Reference Assets that Are ADRs

The value of the Reference Asset may not accurately track the value of the common shares of the applicable company. If the Reference Asset is an ADR, each share of the Reference Asset will represent shares of the relevant company (an “Underlying Company”). The trading patterns of the ADRs will generally reflect the characteristics and valuations of the underlying common shares; however, the value of the ADRs may not completely track the value of those shares. Trading volume and pricing on the applicable non-U.S. exchange may, but will not necessarily, have similar characteristics as the ADRs. For example, certain factors may increase or decrease the public float of the ADRs and, as a result, the ADRs may have less liquidity or lower market value than the common shares of the Underlying Company.

Adverse trading conditions in the applicable non-U.S. market may negatively affect the value of the Reference Asset. Holders of the Underlying Company’s ADRs may usually surrender the ADRs in order to receive and trade the underlying common shares. This provision permits investors in the ADRs to take advantage of price differentials between markets. However, this provision may also cause the market prices of the Reference Asset to more closely correspond with the values of the common shares in the applicable non-U.S. markets. As a result, a market outside of the U.S. for the underlying common shares that is not liquid may also result in an illiquid market for the ADRs.

Additional Risks Relating to Reference Assets that Are Issued by Exchange Traded Funds

You will have no rights against the sponsor of any ETF Reference Asset or any issuers of the Reference Asset Constituents. The notes are not sponsored, endorsed, sold or promoted by any sponsor of any ETF that is a Reference Asset or any such issuer. No sponsor of the relevant ETF or any such issuer has passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the notes. No sponsor of the relevant ETF or any such issuer makes any representation or warranty, express or implied, to you or any member of the public regarding the advisability of investing in securities generally or the notes in particular, or the ability of the relevant ETF to track general market performance. The sponsor of that ETF has no obligation to take our needs or your needs into consideration in determining, composing or calculating that ETF, or in making changes to that ETF. No sponsor of the relevant ETF or any issuer of any Reference Asset Constituent is responsible for, and none of them has participated in the determination of, the timing, prices or quantities of the notes to be issued or in the determination or calculation of the equation by which the amounts to be paid on the notes are to be determined. No sponsor of the relevant ETF or any such issuer has any liability in connection with the administration, marketing or trading of the notes.

Adjustments to the relevant ETF could adversely affect the notes. The sponsor of the relevant ETF is responsible for calculating and maintaining such ETF. The relevant ETF sponsor can add, delete or substitute the stocks comprising the relevant ETF or make other methodological changes that could change the value of the ETF at any time. If one or more of these events occurs, the calculation of the amount payable at maturity may be adjusted to reflect such event or events. Please refer to “Description of the Notes—Adjustments to an ETF.” Consequently, any of these actions could adversely affect the amount payable at maturity and/or the market value of the notes.

The policies of an ETF sponsor or investment advisor, as applicable, and changes that affect the ETF or the relevant Underlying Index could adversely affect the amount payable on your notes and their market value. The policies of the sponsor or investment advisor, as applicable, of the relevant ETF concerning the calculation of the ETF’s net asset value, additions, deletions or substitutions of securities in such ETF and the manner in which changes affecting the relevant Underlying Index are reflected in the ETF could affect the market price of the shares of the ETF and, therefore, the amount payable on your notes on the Maturity Date and the market value of your notes before that date. The amount payable on your notes and their market value could also be affected if the ETF sponsor or investment advisor, as applicable, changes these policies, for example, by changing the manner in which it calculates the ETF’s net asset value, or if the ETF sponsor or investment advisor, as applicable, discontinues or suspends calculation or publication of the ETF’s net asset value, in which case it may become difficult to determine the market value of the notes.

We and our affiliates generally do not have any affiliation with the investment advisor of an ETF and are not responsible for its public disclosure of information. Each investment advisor of an ETF advises that ETF on various matters including matters relating to the policies, maintenance and calculation of the ETF. Unless otherwise specified in the applicable pricing supplement, we and our affiliates generally are not affiliated with the investment advisor of an ETF in any way and have no ability to control or predict its actions, including any errors in or discontinuance of disclosure regarding their methods or policies relating to the ETF. Except in the limited cases where we or an affiliate is the investment advisor of an ETF, the investment advisor is not involved in any offering of the notes in any way and has no obligation to consider your interests as an owner of the notes in taking any actions relating to the ETF that might affect the value of the notes.

Neither we nor any of our affiliates assumes any responsibility for the adequacy or accuracy of the information about an ETF or the investment advisor of such ETF contained in any public disclosure of information by such investment advisor (except to the extent that we or an affiliate is the investment advisor of such ETF). You, as an investor in the notes, should make your own investigation into the ETF.

Even if the stocks held by the ETF or included in the ETF’s Underlying Index are all part of the same industry, such stocks are not necessarily representative of that industry. Even if an ETF or an ETF’s Underlying Index purports to be representative of a particular industry, the performance of that ETF may not correlate with the performance of the entire industry as represented by the stocks held by the ETF or included in the ETF’s Underlying Index. The ETF may decline in value even if the industry as a whole rises in value. Furthermore, one or more of the issuers of the stocks held by the ETF or included in the ETF’s Underlying Index may engage in new lines of business unrelated to the particular industry or cease to be involved in lines of business in the particular industry. The stocks held by the ETF or included in the ETF’s Underlying Index may not vary even if one or more of the issuers of such stocks are no longer involved in the particular industry. The composition of the Underlying Index may also be changed from time to time.

If the stocks held by the ETF or included in the ETF’s Underlying Index are all part of the same sector, there are risks associated with a sector investment. If the stocks held by the ETF or included in the ETF’s Underlying Index are all part of the same sector, the performance of notes linked to such ETF is dependent upon the performance of issuers of stocks in a particular sector of the economy. Consequently, the value of the notes may be subject to greater volatility and be more adversely affected by a single economic, political or regulatory occurrence affecting the particular sector than an investment linked to a more broadly diversified asset.

The correlation between the performance of an ETF and the performance of the ETF’s Underlying Index may be imperfect. The performance of an ETF is linked principally to the performance of the ETF’s Underlying Index. However, the performance of an ETF may also be linked in part to shares of other ETFs because some ETFs generally invest a specified percentage, e.g., 10% of their assets, in the shares of other ETFs. In addition, while the performance of an ETF is linked principally to the performance of such ETF’s Underlying Index, ETFs generally invest in a representative sample of the stocks included in such ETF’s Underlying Index and generally do not hold all or substantially all of the stocks included in such ETF’s Underlying Index. Finally, the performance of an ETF and of the ETF’s Underlying Index will generally vary due to transaction costs, certain corporate actions and timing variances.

Imperfect correlation between the stocks held by an ETF and the stocks included in such ETF’s Underlying Index; the performance of the shares of other ETFs, if applicable; rounding of prices; changes to an ETF’s Underlying Index; and changes to regulatory policies, may cause the performance of an ETF to differ from the performance of the ETF’s Underlying Index. In addition, because shares of ETFs are traded on exchanges and are subject to market supply and investor demand, the market value of one share of an ETF may differ from its net asset value per share and the shares of an ETF may trade at, above or below their net asset value per share.

Because of the potential discrepancies identified above, the return on an ETF may correlate imperfectly with the return on the ETF’s Underlying Index. These discrepancies may also result in your notes being priced with a lower interest rate than otherwise would have been the case.

The performance and market value of an ETF during periods of market volatility may not correlate with the Underlying Index as well as the net asset value per share. During periods of market volatility, Reference Asset Constituents may be unavailable in the secondary market, market participants may be unable to calculate accurately the net asset value per share of an ETF and the liquidity of an ETF may be adversely affected. This kind of market volatility may also disrupt the ability of market participants to create and redeem shares of an ETF. Further, market volatility may adversely affect, sometimes materially, the prices at which market participants are willing to buy and sell shares of an ETF. As a result, under these circumstances, the market value of the shares of an ETF may vary substantially from the net asset value per share of such ETF. For all of the foregoing reasons, the performance of the ETF may not correlate with the performance of its Underlying Index as well as the net asset value per share of the ETF, which could materially and adversely affect the value of the notes in the secondary market and/or reduce your payment at maturity.

There is no assurance that an active trading market will continue for the shares of the relevant ETF or that there will be liquidity in the trading market. Although the shares of an ETF to which your notes may be linked are listed for trading on various securities exchanges and a number of similar products have been traded on other securities exchanges for varying periods of time, there is no assurance that an active trading market will continue for the shares of such ETF or that there will be liquidity in the trading market.

An ETF is subject to management risks. Each ETF is subject to management risk, which is the risk that the investment advisor’s investment strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. For example, an investment advisor may invest a portion of the ETF’s assets in securities not included in the relevant industry or sector but which the investment advisor believes will help the ETF track the relevant industry or sector.

The notes may be subject to foreign currency risk if the relevant ETF is comprised of foreign equity securities. If the relevant ETF and the stocks comprising such ETF are not denominated in the same currency as that ETF, the notes may be subject to foreign currency risk. Because the prices of the stocks comprising the relevant ETF will be converted into the currency in which the ETF is denominated (the “base currency”) for the purposes of calculating the value of such ETF, your investment will be exposed to currency exchange risk with respect to each of the countries represented in such ETF which do not use the base currency. Your net exposure to such risk will depend on the extent to which the currencies in which the stocks comprising the ETF are denominated, other than the base currency, strengthen or weaken relative to the base currency. If the base currency strengthens relative to any of the currencies in which the stocks comprising the ETF are denominated, the value of the ETF may be adversely affected, and the amount payable on the notes at maturity may be reduced. Of particular importance to potential currency exchange risks are: existing and expected rates of inflation, existing and expected interest rate levels, the balance of payments, and the extent of governmental surpluses or deficits in the relevant countries represented in any relevant ETF. All of these factors are in turn sensitive to the monetary, fiscal and trade policies pursued by the governments of the countries represented in such ETF and other countries important to international trade and finance.

If the relevant ETF is comprised of stocks denominated in a currency other than U.S. dollars, the notes, which are denominated in U.S. dollars, are subject to foreign currency risk because the return on the notes is linked to the performance of such ETF, the value of which is dependant on the stocks denominated in a currency other than U.S. dollars. Foreign currency risks include, but are not limited to, convertibility risk and market volatility and potential interference by foreign governments through regulation of local markets, foreign investment or particular transactions in foreign currency. These factors may adversely affect the values of the stocks comprising the ETF, the price of the ETF’s shares and the value of the notes.

GENERAL TERMS OF THE NOTES

This product supplement and the accompanying prospectus dated April 20, 2020 relating to the notes, should be read together. Because the notes are part of a series of our senior debt securities called Senior Medium-Term Notes, Series F, this product supplement and the accompanying prospectus should also be read together with the accompanying prospectus supplement, dated April 20, 2020. Terms used but not defined in this product supplement have the meanings given them in the accompanying prospectus or accompanying prospectus supplement, unless the context requires otherwise.

The notes will be issued in book-entry form through The Depository Trust Company. Owners of beneficial interests in the notes should read the section entitled “Description of the Notes We May Offer – Legal Ownership” in the accompanying prospectus supplement and “Description of the Debt Securities We May Offer – Legal Ownership and Book-Entry Issuance” in the accompanying prospectus.

The notes are part of a series of senior debt securities entitled “Senior Medium-Term Notes, Series F” that we may issue from time to time under the senior indenture, dated January 25, 2010, as amended by the First Supplemental Indenture thereto, dated September 23, 2018, between Bank of Montreal and Wells Fargo Bank, National Association, as trustee. Terms that apply generally to our medium term notes are described in “Description of the Notes We May Offer” in the accompanying prospectus supplement. The terms described in this document supplement those described in the accompanying prospectus and the accompanying prospectus supplement, and, if the terms described here are inconsistent with those described in those documents, the terms described in this product supplement are controlling.

As described in more detail below, we may make periodic interest payments on the notes, and holders of the notes will be entitled to receive a payment of cash and/or securities on the Maturity Date. If any interest payment date or the Maturity Date of the notes falls on a day that is not a business day, we will pay the required payment on the first subsequent business day, and no additional interest will accrue on the notes as a result.

Payment at Maturity

Your payment at maturity will be based on the performance of the applicable Reference Asset. You will receive at maturity the principal amount of your notes unless:

(i)       the Final Level is less than the Initial Level; and

(ii)      (a) if the notes are notes subject to Continuous Monitoring, at any time during the applicable Monitoring Period, the level of the Reference Asset quoted on the relevant exchange is less than the applicable Trigger Level; or

(b) if the notes are notes subject to Closing Level Monitoring, on any trading day during the applicable Monitoring Period, the closing level of the Reference Asset is less than the Trigger Level.

If either of these conditions occur, you will receive at maturity, instead of the principal amount of the notes, the number of shares of the Reference Asset equal to the Physical Delivery Amount or, at our election, the Cash Delivery Amount.

The applicable pricing supplement will specify if a Monitoring Period is applicable to the notes, and if so, will specify Continuous Monitoring, Closing Level Monitoring, or another method for monitoring the Reference Asset.

The applicable Monitoring Period will be specified in the applicable pricing supplement. For example, the Monitoring Period (a) may include the period from pricing date through the final Valuation Date, (b) be limited to the final Valuation Date or (c) may be of any other period of time set forth in the applicable pricing supplement.

At maturity, you will also receive any final payment of interest due on your notes.

Physical Delivery Amount

The Physical Delivery Amount for each $1,000 in principal amount of the notes will equal $1,000 divided by the Initial Level.

Any fractional shares will be paid in cash, in an amount equal to that fraction multiplied by the Final Level. The number of shares or the amount of cash that we may deliver to you is subject to adjustment, as described below under “— Anti-dilution Adjustments” and “— Consequences of Market Disruption Events.”

We expect that the market price of the shares you receive in exchange for your notes at maturity will be less than the principal amount of your notes.

If we have not exercised our option to pay to you the Cash Delivery Amount, and the calculation agent determines in its sole discretion that a Physical Delivery Amount Disruption Event (as defined below) has occurred and is continuing on any Valuation Date, then the Maturity Date of the notes will be postponed by the number of business days (up to ten business days) as the calculation agent shall determine to be necessary to enable us to procure the securities needed to pay the Physical Delivery Amount. We will not pay any additional interest to you if the Maturity Date is so postponed. If we are unable to deliver all or a portion of the securities to which you are entitled on the Maturity Date, as so postponed, we may pay to you the Cash Delivery Amount, determined as described below.

A “Physical Delivery Amount Disruption Event” means any event or series of events, as a result of which the calculation agent determines that, due to the operation of law, regulation, market conditions, our policies or the policies of our affiliates relating to the trading of securities or other factors, we cannot in a commercially reasonable manner procure delivery of all or a portion of the securities required to be delivered to make payment of the Physical Delivery Amount.

Cash Delivery Amount

At our election, instead of delivering to you shares of the Reference Asset equal to the Physical Delivery Amount, we may deliver to you the Cash Delivery Amount. We may make this election at any time, including on the applicable Maturity Date.

The Cash Delivery Amount will be equal to the product of the Final Level and the Physical Delivery Amount.

Cash Delivery Amount = Final Level × Physical Delivery Amount

The Final Level will be the closing level of one share of the Reference Asset on the Valuation Date or the average of the closing levels of the Reference Asset on each of the Valuation Dates, subject to anti-dilution adjustment.

The Cash Delivery Amount will be less than the principal amount of your notes.

Valuation Date

Unless otherwise specified in the applicable pricing supplement, the Valuation Date (if there is only one Valuation Date applicable to the notes) or the final Valuation Date (if there is more than one Valuation Date applicable to the notes) will be the third trading day before the Maturity Date. If the calculation agent determines that a market disruption event occurs or is continuing on any Valuation Date, the Final Level will be determined as set forth in “—Consequences of Market Disruption Events” below. The Valuation Date or Valuation Dates that are applicable to your notes will be set forth in the applicable pricing supplement.

Maturity Date

As set forth in the applicable pricing supplement, unless that date is not a business day, in which case the Maturity Date will be the next following business day. The Maturity Date will be postponed by the same number of trading days as the Valuation Date or the final Valuation Date, as applicable, if a market disruption event occurs or is continuing as described below. However, interest will not accrue after the applicable Maturity Date.

Certain Definitions

Business Day. Unless otherwise set forth in the applicable pricing supplement, “business day” means a day of the week other than Saturday or Sunday 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, Toronto, or Montreal.

If any payment on the notes is scheduled to occur on a day which is not a business day, such payment will be made on the next following business day unless otherwise set forth in the applicable pricing supplement.

Trading Day. Unless otherwise set forth in the applicable pricing supplement, “trading day” is any day, as determined by the calculation agent, on which trading is generally conducted on the relevant primary U.S. exchange for the applicable Reference Asset.

Closing Level. Unless otherwise set forth in the applicable pricing supplement, the closing level for any Reference Asset on any trading day will equal the closing sale price or last reported sale price, regular way, for the security or the ETF, on a per-share or other unit basis:

If the Reference Asset is not listed or traded as described above, then the closing level for that Reference Asset on any trading day will be the average, as determined by the calculation agent, of the bid prices for the Reference Asset obtained from as many dealers in that Reference Asset selected by the calculation agent, in its sole discretion, as will make those bid prices available to the calculation agent. The number of dealers need not exceed three and may include the calculation agent or any of our other affiliates.

Consequences of Market Disruption Events

If the calculation agent determines that, on a Valuation Date and/or, if your notes are subject to automatic early redemption, on a call observation date, a market disruption event has occurred or is continuing with respect to the Reference Asset, the determination of the Final Level and/or, if applicable, the closing level of the applicable Reference Asset, may be postponed. If such a postponement occurs, the calculation agent will use the closing level of the Reference Asset on the first subsequent trading day on which no market disruption event occurs or is continuing. However, in no event will the determination of the Final Level and/or, if applicable, the closing level of the applicable Reference Asset, be postponed by more than ten trading days.

If the determination of the Final Level and/or, if applicable, the closing level of the applicable Reference Asset, is postponed to the last possible day, but a market disruption event for the Reference Asset occurs or is continuing on that day, that day will be the date on which the Final Level and/or, if applicable, the closing level of the applicable Reference Asset, will be determined by the calculation agent. In such an event, the calculation agent will make a good faith estimate in its sole discretion of the Final Level and/or, if applicable, the closing level of the applicable Reference Asset, that would have prevailed in the absence of the market disruption event.

For the avoidance of doubt, if any observation date (including, without limitation, any Valuation Date or call observation date) is postponed due to a market disruption event, the corresponding payment date will be postponed by the same number of trading days.

Any of the following will be a market disruption event:

Interest Payments

Any interest will accrue on the principal amount of your notes and will be calculated and paid as described in the accompanying prospectus and prospectus supplement with regard to fixed rate notes, as modified by the pricing supplement. The interest payment dates will be those specified in the applicable pricing supplement. Unless otherwise specified in the applicable pricing supplement, interest will be computed on the basis of a 360-day year of twelve 30-day months. The applicable pricing supplement may also specify a fixed amount that will be paid on each interest payment, based on the applicable interest rate.

As long as your notes are in global form, the regular record date for each interest payment date will be the third preceding business day, unless otherwise specified in the applicable pricing supplement. However, the final payment of interest will be paid to the person to whom the payment at maturity is due.

Automatic Call

If so specified in the applicable pricing supplement, your notes will be subject to automatic redemption. In such a case, we will automatically redeem the notes if the closing level of the Reference Asset on the applicable call observation date is greater than or equal to the call level. The applicable pricing supplement will set forth the applicable call level, call observation dates and the amount that we will pay upon an early redemption.

Anti-dilution Adjustments

The Initial Level, the Trigger Level and the call level (if applicable), as well as any other applicable level, will be specified in the applicable pricing supplement. The calculation agent will adjust the Initial Level, the Trigger Level and the call level, as well as any other applicable level, if any of the dilution events described below occurs with respect to the Reference Asset.

The calculation agent will adjust the Initial Level, the Trigger Level, the call level and any other applicable level as described below, but only if an event below under this section occurs with respect to the Reference Asset and only if the relevant event occurs during the period described under the applicable subsection. The Initial Level, the Trigger Level, the call level and any other applicable level will be subject to the adjustments described below, independently and separately, with respect to the dilution events that affect the Reference Asset.

If more than one anti-dilution event requiring adjustment occurs with respect to the Initial Level, the Trigger Level, the call level and any other applicable level, the calculation agent will adjust the Initial Level, the Trigger Level, the call level and any other applicable level for each event, sequentially, in the order in which the events occur, and on a cumulative basis. Therefore, having adjusted the Initial Level, the Trigger Level, the call level and any other applicable level for the first event, the calculation agent will adjust the Initial Level, the Trigger Level, the call level and any other applicable level for the second event, applying the required adjustment to the Initial Level, the Trigger Level, the call level and any other applicable level as already adjusted for the first event, and so on for each event.

If an event requiring an anti-dilution adjustment occurs, the calculation agent will make the adjustment in an attempt to offset, to the extent practical, any change in the economic position of the holder and us, relative to your note, that results solely from that event. The calculation agent may, in its sole discretion, modify the anti-dilution adjustments set forth in the section as necessary to ensure an equitable result.

Stock Splits and Stock Dividends

A stock split is an increase in the number of a corporation’s outstanding shares of stock without any change in its stockholders’ equity. When a corporation pays a stock dividend, it issues additional shares of its stock to all holders of its outstanding stock in proportion to the shares they own. Each outstanding share will be worth less as a result of a stock split or stock dividend.

If the Reference Asset is subject to a stock split or receives a stock dividend, then the calculation agent will adjust the Initial Level, the Trigger Level, the call level and any other applicable level by dividing the prior Initial Level, Trigger Level, and call level before the stock split or stock dividend by an amount equal to: (1) the number of shares of the Reference Asset outstanding immediately after the stock split or stock dividend becomes effective; divided by (2) the number of shares of the Reference Asset outstanding immediately before the stock split or stock dividend becomes effective. The Initial Level, the Trigger Level, the call level and any other applicable level will not be adjusted, however, unless:

The ex-dividend date for any dividend or other distribution with respect to the Reference Asset is the first day on which the Reference Asset trades without the right to receive that dividend or other distribution.

Reverse Stock Splits

A reverse stock split is a decrease in the number of a corporation’s outstanding shares of stock without any change in its stockholders’ equity. Each outstanding share will be worth more as a result of a reverse stock split.

If the Reference Asset is subject to a reverse stock split, then the calculation agent will adjust the Initial Level, the Trigger Level, the call level and any other applicable level by multiplying the prior Initial Level, the Trigger Level, the call level and any other applicable level by a number equal to: (1) the number of shares of the Reference Asset outstanding immediately before the reverse stock split becomes effective; divided by (2) the number of shares of the Reference Asset outstanding immediately after the reverse stock split becomes effective. The Initial Level, the Trigger Level, the call level and any other applicable level will not be adjusted, however, unless the reverse stock split becomes effective after the pricing date and on or before the applicable Valuation Date or call observation date.

Extraordinary Dividends

Any distribution or dividend on the Reference Asset determined by the calculation agent to be a distribution or dividend that is not in the ordinary course of the issuer’s historical dividend practices will be deemed to be an extraordinary dividend. The calculation agent will determine if the dividend is an extraordinary dividend and, if so, the amount of the extraordinary dividend. Each outstanding share will be worth less as a result of an extraordinary dividend.

If any extraordinary dividend occurs with respect to the Reference Asset, the calculation agent will adjust the Initial Level, the Trigger Level, the call level and any other applicable level to equal the product of: (1) the prior Initial Level, the Trigger Level, the call level and any other applicable level, times (2) a fraction, the numerator of which is the amount by which the closing level of the Reference Asset on the business day before the ex-dividend date exceeds the extraordinary dividend amount and the denominator of which is the closing level of the Reference Asset on the business day before the ex-dividend date. The Initial Level, the Trigger Level, the call level and any other applicable level will not be adjusted, however, unless the ex-dividend date occurs after the pricing date and on or before the applicable Valuation Date or call observation date.

The extraordinary dividend amount with respect to an extraordinary dividend for the Reference Asset equals:

To the extent an extraordinary dividend is not paid in cash, the value of the non-cash component will be determined by the calculation agent. A distribution on the Reference Asset that is a stock dividend, an issuance of transferable rights or warrants or a spin-off event and also an extraordinary dividend will result in an adjustment to the Initial Level, the Trigger Level, the call level and any other applicable level only as described under “— Stock Splits and Stock Dividends” above, “— Transferable Rights and Warrants” below or “— Reorganization Events” below, as the case may be, and not as described here.

Transferable Rights and Warrants

If the issuer of the Reference Asset issues transferable rights or warrants to all holders of the Reference Asset to subscribe for or purchase the Reference Asset at an exercise price per share that is less than the closing level of the Reference Asset on the business day before the ex-dividend date for the issuance, then the applicable Initial Level, the Trigger Level, the call level and any other applicable level will be adjusted by multiplying the prior Initial Level, the Trigger Level, the call level and any other applicable level by the following fraction:

The Initial Level, the Trigger Level, the call level and any other applicable level will not be adjusted, however, unless the ex-dividend date described above occurs after the pricing date and on or before the applicable Valuation Date or call observation date.

Reorganization Events

If the issuer of the Reference Asset undergoes a reorganization event in which property other than the Reference Asset—e.g., cash and securities of another issuer—is distributed in respect of the Reference Asset, then, for purposes of calculating the level of the Reference Asset, the calculation agent will determine the closing level of the Reference Asset on the Valuation Date to equal the value of the cash, securities and other property distributed in respect of one share of the Reference Asset.

If the calculation agent determines that, by valuing such cash, securities and other property, a commercially reasonable result is not achieved, then the calculation agent will, in its sole discretion, substitute another stock for that Reference Asset.

Each of the following is a reorganization event with respect to the Reference Asset: