Principal Protected Preferred ROC Series I
FundSERV Code JHN 307
The Bank of Montreal Faircourt Principal Protected Deposit Notes, Preferred Share R.O.C. Class, Series 1 (the “Deposit Notes”) issued by Bank of Montreal will mature on or about September 12, 2014 (“Maturity”). The Deposit Notes are a principal protected product that provides, except in certain circumstances described herein as a preservation event or an extraordinary event, up to 125% exposure to the distributions and capital appreciation of a portfolio (the “Portfolio”) of notional preferred shares (collectively the “Preferred Shares” and each a “Preferred Share”) that could have notionally been purchased with the proceeds of the offering of the Deposit Notes.
The Portfolio will consist of Preferred Shares of Canadian issuers diversified by sectors selected by the Investment Manager through the Portfolio Advisor. Preferred Shares at the time of notional acquisition generally will be listed on the Toronto Stock Exchange and will be rated Pfd-1, Pfd-2 or Pfd-3 by Dominion Bond Rating Service Limited or at equivalent ratings by another recognized rating agency. The Portfolio will be actively managed by the Investment Manager through the Portfolio Advisor. Accordingly, the composition of the Portfolio, including the particular Preferred Shares in the Portfolio, the ratings and the sectoral weightings, will vary from time to time during the term of the Deposit Notes based on the Investment Manager’s (through the Portfolio Advisor’s) assessment of market conditions and sustainability of cash distributions over time. It is anticipated that the Portfolio will
consist of Preferred Shares of between approximately 30 to 50 issues upon net proceeds of the offering of the Deposit Notes being fully invested in Preferred Shares.
Within 10 business days of the end of May 2007 and each month thereafter prior to the month of Maturity, Bank of Montreal will repay to each holder of a Deposit Note (a “Holder” and collectively the “Holders”) a portion of the principal of the Deposit Note equal to the Deposit Note’s pro rata share of 75% of all distributions, if any, on the Preferred Shares not yet paid to the Holder or notionally reinvested in the Basket. An amount equal to 25% of all distributions, if any, on the Preferred Shares, the entire amount of the return on cash, if any, and, following a preservation event, the entire amount of distributions on Excess Preferred Shares, if any, will be notionally reinvested in the Basket.