MicroSectors™ -3× Short Artificial Intelligence (AI) ETNs

The -3× ETNs are linked to the inverse performance of the Index - Your investment in the -3× ETNs is linked to the inverse, or “short,” performance of the Index. Therefore, leaving aside the effects of the daily compounding of leverage, the Daily Investor Fee, any negative Daily Interest and the Redemption Fee Amount, if applicable (referred to herein collectively as the “fees and charges”), the value of the -3× ETNs will generally increase as the level of the Index decreases and will generally decrease as the level of the Index increases. There is no maximum limit to the level of the Index. Therefore, an increase in the level of the Index could cause you to lose up to your entire investment in the -3× ETNs.

You may lose some or all of your principal - The -3× ETNs do not guarantee any return on your initial investment. The -3× ETNs are leveraged inverse notes, which means they are exposed to three times the risk of any increase in the level of the Index, compounded daily. Due to leverage, the -3× ETNs are very sensitive to changes in the level of the Index and the path of such changes. The fees and charges will reduce any payment at maturity, call or upon early redemption, or if you sell your -3× ETNs in the secondary market. Because of these fees and charges, the level of the Index will need to have decreased over the period you hold the -3× ETNs by an amount that is sufficient, after giving effect to the decay effect caused by the daily resetting of the leverage, to offset the fees and charges in order for you to receive at least the principal amount of your investment. You may lose your entire investment in the -3× ETNs.

Long holding period risk - The -3× ETNs are not intended to be “buy and hold” investments, and are not intended to be held to maturity. Instead, the -3× ETNs are intended to be daily trading tools for sophisticated investors to manage daily trading risks as part of an overall diversified portfolio. The -3× ETNs are designed to reflect a 3× leveraged exposure to the inverse performance of the Index on a daily basis, before taking into account the negative effect of the Daily Investor Fee, any negative Daily Interest and the Redemption Fee Amount, if applicable. However, due to the daily resetting leverage, the returns on the -3× ETNs over different periods of time can, and most likely will, differ significantly from three times the return on a direct short investment in the Index. The -3× ETNs are designed to achieve their stated investment objectives on a daily basis. The performance of the -3× ETNs over different periods of time can differ significantly from their stated daily objectives. The -3× ETNs are considerably riskier than securities that have intermediate- or long-term investment objectives, and are not suitable for investors who plan to hold them for a period of more than one day or who have a “buy and hold” strategy. Investors should actively and continuously monitor their investments in the -3× ETNs on an intraday basis, and any decision to hold the -3× ETNs for more than one day should be made with great care and only as the result of a series of daily (or more frequent) investment decisions to remain invested in the -3× ETNs for the next one-day period. The -3× ETNs are very sensitive to changes in the level of the Index, and returns on the -3× ETNs may be negatively impacted in complex ways by the volatility of the Index on a daily or intraday basis. It is possible that you will suffer significant losses in the -3× ETNs even if the long-term performance of the Index is negative. Accordingly, the -3× ETNs should be purchased only by sophisticated investors who understand and can bear the potential risks and consequences of the -3× ETNs that are designed to provide leveraged exposure to the inverse performance of the Index on a daily basis and that will be highly volatile and may experience significant losses, up to the entire amount invested, in a short period of time.

Leverage risk - The -3× ETNs are three times leveraged and, as a result, the -3× ETNs will benefit from three times any negative daily performance of the Index, but will decline based on three times any positive, daily performance of the Index. However, the leverage of the -3× ETNs may be greater or less than -3.0 during any given day. Volatility of the level of the Index may have a significant negative effect on the value of the -3× ETNs.

Fees and charges - On each date of determination, the Closing Indicative Value will reflect the deduction of the Daily Investor Fee. In addition, if the Daily Interest is negative on any day, such negative Daily Interest will further reduce the Closing Indicative Value. Moreover, if you elect for us to redeem your -3× ETNs, your payment upon redemption will be subject to the Redemption Fee Amount (unless waived by us). As a result, the Closing Indicative Value of the -3× ETNs will trail the value of a hypothetical identical security from which no such deductions are made and will reduce any payment at maturity, call or upon early redemption, or if you sell your -3× ETNs in the secondary market. If the level of the Index increases or does not decrease sufficiently, after giving effect to the decay effect caused by the daily resetting of the leverage, to offset these fees and charges over the period you hold the -3× ETNs, the value of the -3× ETNs will decline and you will lose some or all of your investment. This loss may occur even if the level of the Index remains the same or declines over the period you hold your -3× ETNs.

If the Federal Funds Effective Rate minus the Spread on any day is negative, the Daily Interest will be negative and will reduce the Closing Indicative Value - The Daily Interest will be added to the Closing Indicative Value on a daily basis. However, if the Federal Funds Effective Rate minus the Spread on any day is negative, the Daily Interest will be negative and will reduce the Closing Indicative Value. The Federal Funds Effective Rate will fluctuate over time, and we cannot predict the Federal Funds Effective Rate on any day.

Spread increase risk - The Daily Interest is calculated by reference to the Deposit Amount and the difference between the Interest Rate and the Spread. The Calculation Agent may, in its sole discretion, increase the Spread to the maximum amount specified in the pricing supplement. If the Calculation Agent elects to increase the Spread, the Daily Interest will decrease and may become negative, and the Closing Indicative Value of, and your return on, the -3× ETNs will be adversely affected. In determining whether to increase the Spread, the Calculation Agent may have economic interests that are adverse to your interests as an investor in the ETNs, including because the Calculation Agent is our affiliate and any increase in the Spread may reduce amounts credited as Daily Interest or otherwise increase amounts retained by BMO or its affiliates in connection with the ETNs.

Correlation and compounding risk - A number of factors may affect the -3× ETNs’ ability to achieve a high degree of correlation with the leveraged inverse performance of the Index, and there is a significant possibility that the -3× ETNs will not achieve a high degree of correlation with the leveraged inverse performance of the Index over periods longer than one day. The leverage is reset daily, the return on the -3× ETNs is path dependent and you will be exposed to compounding of daily returns. As a result, the performance of the -3× ETNs for periods greater than one day may be either greater than or less than three times the inverse Index performance, before accounting for the fees and charges.

Path dependence - The return on the -3× ETNs will be highly path dependent. Accordingly, the value of the -3× ETNs will increase or decrease not only based on any change in the level of the Index over the period you hold the -3× ETNs but also based on the volatility of the level of the Index over that time period. The value of the -3× ETNs will depend not only upon the level of the Index at such time, but also on the performance of the Index over each day that you hold the -3× ETNs. It is possible that you will suffer significant losses in the -3× ETNs, even if the long-term performance of the Index is negative. Accordingly, the returns on the -3× ETNs may not correlate with returns on the Index over periods of longer than one day.

Credit of issuer - The -3× ETNs are senior unsecured debt obligations of the issuer, Bank of Montreal, and are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the -3× ETNs, including any payment at maturity, call or upon early redemption, depends on the ability of Bank of Montreal to satisfy its obligations as they come due. As a result, the actual and perceived creditworthiness of Bank of Montreal will affect the market value, if any, of the -3× ETNs prior to maturity, call or early redemption. In addition, in the event Bank of Montreal was to default on its obligations, you may not receive any amounts owed to you under the terms of the -3× ETNs.

Potential total loss of value - If the Closing Indicative Value of the -3× ETNs is equal to or less than $0 on any Exchange Business Day, then the Closing Indicative Value on all future Exchange Business Days will be $0. If the Intraday Indicative Value of the -3× ETNs is equal to or less than $0 at any time on any Exchange Business Day, then both the Intraday Indicative Value of the -3× ETNs and the Closing Indicative Value on that Exchange Business Day, and on all future Exchange Business Days, will be $0. If the Closing Indicative Value is zero, the Cash Settlement Amount will be zero.

A trading market for the -3× ETNs may not develop - The -3× ETNs are listed on the NYSE Arca, Inc. under the symbol “AIQD.” However, a trading market for the -3× ETNs may not develop. We are not required to maintain any listing of the -3× ETNs on the NYSE Arca, Inc. or any other exchange.

The Intraday Indicative Value is not the same as the trading price of the -3× ETNs in the secondary market - The Intraday Indicative Value of the -3× ETNs will be published every 15 seconds on each Exchange Business Day during normal trading hours on Bloomberg under the ticker symbol AIQDIV so long as no Market Disruption Event has occurred or is continuing. The trading price of the -3× ETNs at any time is the price at which you may be able to sell your -3× ETNs in the secondary market at such time, if one exists. The trading price of the -3× ETNs at any time may vary significantly from the Intraday Indicative Value of the -3× ETNs at such time.

Paying a premium purchase price over the Intraday Indicative Value of the -3× ETNs could lead to significant losses in the event one sells such -3× ETNs at a time when such premium is no longer present in the market place or the -3× ETNs are called - Paying a premium purchase price over the Intraday Indicative Value of the -3× ETNs could lead to significant losses in the event one sells the -3× ETNs at a time when such premium is no longer present in the market place or if the -3× ETNs are called, in which case investors will receive a cash payment in an amount based on the arithmetic mean of the Closing Indicative Value of the -3× ETNs during the Call Measurement Period. Before trading in the secondary market, you should compare the Intraday Indicative Value with the then-prevailing trading price of the -3× ETNs.

Call right risk - We may, in our sole discretion, redeem the -3× ETNs, in whole or in part, at any time after the Initial Issue Date upon prior notice. If we exercise this call right, you will receive a Call Settlement Amount based on the average of the Closing Indicative Values during a five-day Call Measurement Period, rather than the Closing Indicative Value on any single day. As a result, you may not fully participate in decreases in the level of the Index or increases in the Closing Indicative Value during the Call Measurement Period. The Call Settlement Amount may be less than the price you paid for the -3× ETNs, and you will not participate in any decreases in the level of the Index after the Call Measurement Period. Once redeemed, the -3× ETNs will cease to be outstanding on the Call Settlement Date and investors will have no further rights under the -3× ETNs after the Call Settlement Date. Notice of our exercise of the call right will be delivered solely to The Depository Trust Company (DTC), as the sole registered holder of the -3× ETNs. Beneficial holders of the -3× ETNs will not receive notice directly from us and must rely on their broker or other intermediary. Our decision to exercise the call right may adversely affect the trading price of the -3× ETNs and presents a potential conflict of interest.

Minimum redemption amount - You must elect to redeem at least 25,000 ETNs for us to repurchase your ETNs, unless we determine otherwise or your broker or other financial intermediary bundles your ETNs for redemption with those of other investors to reach this minimum requirement, and there can be no assurance that they can or will do so. Therefore, your ability to elect to redeem the -3× ETNs may be limited.

Your redemption election is irrevocable - You will not be able to rescind your election to redeem your -3× ETNs after your redemption notice is received by us. Accordingly, you will be exposed to market risk if the level of the Index increases after we receive your offer and the Redemption Amount is determined on the Redemption Measurement Date. You will not know the Redemption Amount at the time that you submit your irrevocable redemption notice.

Not pure AI exposure - Although the name of the Index refers to “AI,” the Index is not limited to companies whose primary business is artificial intelligence, and the Index allocates significant weight to larger, diversified technology companies that are considered by the Index Sponsor to enable the development, deployment or business application of AI technologies. As a result, the performance of the Index may be driven in significant part by factors unrelated to the development, adoption or performance of AI-related technologies, and the Index may not provide concentrated exposure to companies directly engaged in AI activities.

Use of subjective determinations by the Index Sponsor to determine AI classification - The Index Sponsor’s methodology for identifying, selecting and classifying Index Constituents involves subjective judgments. In particular, the Index Sponsor determines whether a company is involved in AI-related sub-themes and, for Purity Leaders, what percentage of that company’s revenue is attributable to AI-related products, services and activities, based on the Index Sponsor’s interpretation of publicly available sources. As a result, there can be no assurance that any Index Constituent has the degree of exposure to AI technologies that investors may expect based on the name or stated objective of the Index, or that any Index Constituent’s stock price performance will be driven primarily by the development, adoption or performance of AI-related technologies.

Concentration risk - The Index is composed of stocks of companies that are classified by the Index Sponsor as being involved in certain AI-related sub-themes identified by the Index Sponsor, including AI hardware, AI software, AI enabling infrastructure and AI services. Accordingly, an investment in the ETNs exposes investors to risks associated with investments in the stocks of technology and AI-related companies. In addition, the Index may be disproportionately affected by the performance of a small number of stocks. Although the Index includes 25 Index Constituents, at each monthly rebalancing, the Index assigns 40% of its total weight to only five Index Constituents classified by the Index Sponsor as “Purity Leaders.” Positive performance by one or more of those Index Constituents may have a significant positive effect on the Closing Index Level and, thus, a significant adverse effect on the value of the -3× ETNs. Giving effect to leverage, positive changes in the performance of one or more Index Constituents will be magnified and may have a material adverse effect on the value of the -3× ETNs.

Limited operating history - The net total return version of the Index was recently launched and has extremely limited actual performance history. The future performance of the Index may differ significantly from any historical or hypothetical performance.

Index substitution risk - If the Calculation Agent determines that an Index Substitution Event has occurred, it may, but is not required to, select a successor or substitute index to replace the Index or use an alternative computation methodology to determine the level of the Index. Any successor or substitute index may not have the same constituents, methodology, risk profile or performance characteristics as the original Index. Because the Calculation Agent is our affiliate, its determinations with respect to any Index Substitution Event may involve conflicts of interest. Any replacement of the Index, adjustment to the terms of the -3× ETNs or use of an alternative computation methodology may adversely affect the value of the -3× ETNs and any payments on the -3× ETNs.

No interest payments or ownership rights - The -3× ETNs do not pay any interest. You will not have any ownership rights in the Index Constituents, nor will you have any right to receive dividends or other distributions paid to holders of the Index Constituents, except as reflected in the level of the Index.

Potential conflicts - We and our affiliates play a variety of roles in connection with the issuance of the -3× ETNs, including acting as an agent of the issuer for the offering of the -3× ETNs, making certain calculations and determinations that may affect the value of the -3× ETNs, determining whether to increase the Spread, determining whether an Index Substitution Event has occurred and whether to replace the Index or use an alternative computation methodology, and hedging our obligations under the -3× ETNs. Any profit in connection with such hedging activities will be in addition to any other compensation that we and our affiliates receive for the sale of the -3× ETNs, which creates an additional incentive to sell the -3× ETNs to you. In performing these activities and making these determinations, our economic interests and those of our affiliates are potentially adverse to your interests as an investor in the -3× ETNs.

Uncertain tax treatment - Significant aspects of the tax treatment of the -3× ETNs are uncertain. You should consult your own tax advisor about your own tax situation. Bank of Montreal and its affiliates do not provide tax advice, and nothing contained herein should be construed as tax advice. Please be advised that any discussion of U.S. tax matters contained herein (including any attachments): (i) is not intended or written to be used, and cannot be used, by you for the purposes of avoiding U.S. tax-related penalties, and (ii) was written to support the promotion of marketing of the transactions or other matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from your independent tax advisor.