Registration Statement No.333-264388
Filed Pursuant to Rule 433

 

Subject to Completion, dated September 22, 2022
Pricing Supplement to the Prospectus dated May 26, 2022,
the Prospectus Supplement dated May 26, 2022 and the Product Supplement dated September 22, 2022

 

 

 

US$ [ ]
Senior Medium-Term Notes, Series I
Market Linked Notes due October 3, 2024
Linked to the Dow Jones Industrial Average®

 

· The notes are designed for investors who are seeking 91.30% positive return based on any appreciation in the level of the Dow Jones Industrial Average® (the “Reference Asset”) above 86.00% of its Initial Level (the “Strike Level”), subject to the Maximum Redemption Amount (as defined below). The performance of the Reference Asset will be determined based on the Final Level which will equal the arithmetic average of the closing levels of the Reference Asset on each of the Valuation Dates set forth below. Investors must be willing to accept that the payment at maturity will not exceed the Maximum Redemption Amount.
· The Maximum Redemption Amount is $1,219.10 for each $1,000 in principal amount (a 21.91% return on the notes).
· If the Reference Asset decreases by more than 14.00% from its Initial Level, investors will lose 1% of the principal amount for each 1% decrease in the level of the Reference Asset from its Initial Level to its Final Level in excess of 14.00%. In such a case, you will receive a cash amount at maturity that is less than the principal amount, and may lose up to 86.00% of your principal amount at maturity.
· Investing in the notes is not equivalent to a hypothetical direct investment in the Reference Asset.
· The notes do not bear interest. The notes will not be listed on any securities exchange.
· All payments on the notes are subject to the credit risk of Bank of Montreal.
· The notes will be issued in minimum denominations of $1,000 and integral multiples of $1,000.
· The CUSIP number of the notes is 06374V6Z4.
· Our subsidiary, BMO Capital Markets Corp. (“BMOCM”), is the agent for this offering. See “Supplemental Plan of Distribution (Conflicts of Interest)” below.
· The notes will not be subject to conversion into our common shares or the common shares of any of our affiliates under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act (the “CDIC Act”).

 

Terms of the Notes:1

 

 Strike Date:  September 21, 2022      
         
 Pricing Date:  September 23, 2022    Valuation Dates:  Each trading day  in the period from July 1, 2024 to September 30, 2024
         
 Settlement Date:  September 28, 2022    Maturity Date:  October 3, 2024

 

1Expected. See “Key Terms of the Notes” below for additional details.

 

  Price to Public1 Agent’s Commission1 Proceeds to Bank of Montreal1

Per Note

Total

100%

[ ]

0.25%

[ ]

99.75%

[ ]

 

1 The total “Agent’s Commission” and “Proceeds to Bank of Montreal” to be specified above will reflect the aggregate amounts at the time Bank of Montreal establishes its hedge positions on or prior to the Pricing Date, which may be variable and fluctuate depending on market conditions at such times. Certain dealers who purchased the notes for sale to certain fee-based advisory accounts may forego some or all of their selling concessions, fees or commissions. The public offering price for investors purchasing the notes in these accounts may be between $997.50 and $1,000 per $1,000 in principal amount. We or one of our affiliates may also pay a referral fee to certain dealers in connection with the distribution of the notes.

 

Investing in the notes involves risks, including those described in the “Selected Risk Considerations” section beginning on page P-5 hereof, the “Additional Risk Factors Relating to the Notes” section beginning on page PS-5 of the product supplement, and the “Risk Factors” section beginning on page S-1 of the prospectus supplement and on page 8 of the prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these notes or passed upon the accuracy of this document, the product supplement, the prospectus supplement or the prospectus. Any representation to the contrary is a criminal offense. The notes will be our unsecured obligations and will not be savings accounts or deposits that are insured by the United States Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada Deposit Insurance Corporation or any other governmental agency or instrumentality or other entity.

 

On the date hereof, based on the terms set forth above, the estimated initial value of the notes is $986.60 per $1,000 in principal amount. The estimated initial value of the notes on the Pricing Date may differ from this value but will not be less than $935.00 per $1,000 in principal amount. However, as discussed in more detail below, the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy.

 

BMO CAPITAL MARKETS

 

     
 

 

Key Terms of the Notes:

 

Reference Asset:  The Dow Jones Industrial Average® (ticker symbol "DJI") . See "The Reference Asset" below for additional information.
   
Payment at Maturity:

If the Final Level of the Reference Asset is greater than or equal to its Cap Level, the payment at maturity for each $1,000 in principal amount of the notes will equal the Maximum Redemption Amount.

 

If the Final Level of the Reference Asset is greater than or equal to its Strike Level and but less than its Cap Level, then the amount that investors will receive at maturity for each $1,000 in principal amount of the notes will equal:

 

$1,000 + [$1,000 x (Adjusted Percentage Change of the Reference Asset x Upside Leverage Factor)]

 

If the Final Level of the Reference Asset is less than its Strike Level, then the amount that investors will receive at maturity for each $1,000 in principal amount of the notes will equal:

 

$1,000 + [$1,000 x (Percentage Change of the Reference Asset+ Buffer Percentage)]

 

In this case, investors will lose 1% of their principal for each 1% that the Final Level of the Reference Asset declines from its Initial Level. You may lose all of the principal amount of your notes.

   
Upside Leverage Factor: 91.30%
   
Maximum Return: 21.91%
   
Maximum Redemption Amount: The payment at maturity will not exceed the Maximum Redemption Amount of $1,219.10 per $1,000 in principal amount of the notes.
   
Percentage Change:

The quotient, expressed as a percentage, of the following formula:

 

(Final Level – Initial Level)
Initial Level

   
Adjusted Percentage Change:

The quotient, expressed as a percentage, of the following formula:

 

(Final Level – Strike Level)
Initial Level

   
Initial Level:2 The closing level of the Reference Asset on the Strike Date.
   
Cap Level:2 110.00% of the Initial Level.
   
Strike Level:2 86.00% of the Initial Level. We may also refer to the Strike Level as the “Buffer Level”.
   
Buffer Percentage: 2 14.00% Accordingly, you will receive the principal amount of your notes at maturity only if the level of the Reference Asset does not decrease by more than 14.00% over the term of the notes. If the Final Level of the Reference Asset is less than its Buffer Level, you will receive less than the principal amount of your notes at maturity and you could lose up to 86.00% of the principal amount of your notes.
   
Final Level: The arithmetic average of the closing levels of the Reference Asset on each of the Valuation Dates.
   
Strike Date: September 21, 2022
   
Pricing Date:1 September 23, 2022
   
Settlement Date:1 September 28, 2022
   
Valuation Dates:1 Each trading day in the period from and including July 1, 2024 to and including September 30, 2024
   
Maturity Date:1 October 3, 2024
   
Calculation Agent: BMOCM
   
Selling Agent: BMOCM

 

1 Expected and subject to the occurrence of a market disruption event, as described in the accompanying product supplement. If we make any change to the expected Pricing Date and Settlement Date, the Valuation Dates and Maturity Date will be changed so that the stated term of the notes remains approximately the same.

 

2
 

 

2As determined by the calculation agent and subject to adjustment in certain circumstances. See “General Terms of the Notes — Adjustments to a Reference Asset that Is an Index” in the product supplement for additional information.

 

3
 

 

Payoff Example

 

The following table shows the hypothetical payout profile of an investment in the notes based on various hypothetical Final Levels (and the corresponding Percentage Change) of the Reference Asset, reflecting the 91.30% Upside Leverage Factor, Maximum Return of 21.91%, Strike Level of 86.00% of the Initial Level and Upper Strike Level of 110.00% of the Initial Level. Please see “Examples of the Hypothetical Payment at Maturity for a $1,000 Investment in the Notes” below for more detailed examples.

 

 

Hypothetical Percentage Change
of the Reference Asset

 

 

Participation in Percentage
Change

 

 

Hypothetical Return of the
Notes

 

 

14.07%

 

11.45%

 

 

91.30% Upside Exposure, subject to the Maximum Return

 

 

21.91%

 

21.91%

 

 

10.00%

 

-14.00%

 

 

91.30% Upside Exposure Above Strike Level

 

 

21.91%

 

0.00%

 

 

-24%

 

-34%

 

 

1x Loss Beyond Strike Level as measured from the Initial Level

 

 

-10%

 

-20%

 

 

4
 

 

Additional Terms of the Notes

 

You should read this document together with the product supplement dated September 22, 2022, the prospectus supplement dated May 26, 2022 and the prospectus dated May 26, 2022. This document, together with the documents listed below, contains the terms of the notes and supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, fact sheets, brochures or other educational materials of ours or the agent. You should carefully consider, among other things, the matters set forth in Additional Risk Factors Relating to the Notes in the product supplement, as the notes involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the notes.

 

You may access these documents on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):

 

Product supplement dated September 22, 2022:

https://www.sec.gov/Archives/edgar/data/927971/000121465922011396/j922220424b2.htm

 

Prospectus supplement dated May 26, 2022 and prospectus dated May 26, 2022:

https://www.sec.gov/Archives/edgar/data/0000927971/000119312522160519/d269549d424b5.htm

 

 

Our Central Index Key, or CIK, on the SEC website is 927971. As used in this document, "we", "us" or "our" refers to Bank of Montreal.

 

We have filed a registration statement (including a prospectus) with the SEC for the offering to which this document relates. Before you invest, you should read the prospectus in that registration statement and the other documents that we have filed with the SEC for more complete information about us and this offering. You may obtain these documents free of charge by visiting the SEC's website at http://www.sec.gov. Alternatively, we will arrange to send to you the prospectus (as supplemented by the prospectus supplement and product supplement) if you request it by calling our agent toll-free at 1-877-369-5412.

 

5
 

 

Selected Risk Considerations

 

An investment in the notes involves significant risks. Investing in the notes is not equivalent to investing directly in the Reference Asset. These risks are explained in more detail in the “Additional Risk Factors Relating to the Notes” section of the product supplement.

 

Risks Related to the Structure or Features of the Notes

 

· Your investment in the notes may result in a loss. — The notes do not guarantee any return of principal. If the Final Level is less than its Strike Level, you will lose 1% of the principal amount for each 1% that the Final Level is less than the Initial Level in excess of 14.00%. In such a case, you will receive at maturity a cash payment that is less than the principal amount of the notes and may be significantly less than the principal amount of your notes. Accordingly, you could lose up to 86.00% of the principal amount of your notes.

· If the Final Level is greater than the Strike Level, the Upside Leverage Factor will reduce any return on your investment. — If the Final Level is greater than the Strike Level, the Upside Leverage Factor will reduce any return on your investment. The amount that you would be paid on our notes on the Maturity Date if the Final Level is greater than or equal to the Strike Level but less than the Cap Level will be reduced by subtracting from the Final Level the product of (i) the Upside Leverage Factor times (ii) the result of the Final Level minus the Strike Level. Therefore, as shown in the examples provided elsewhere in this pricing supplement, this adjustment will reduce the return on your investment in those circumstances.

· Your return on the notes is limited to the Maximum Redemption Amount, regardless of any appreciation in the levels of the Reference Asset. — The return on your notes will not be greater than the Maximum Redemption Amount. This will be the case even if the Adjusted Percentage Change of the Reference Asset multiplied by the Upside Leverage Factor exceeds the Maximum Return.

· Your return on the notes will be based on the Final Level which will be calculated as set forth herein and may be less favorable than if the Final Level were determined based on the closing level on a single Valuation Date. — Your investment in the notes may not perform as well as an investment the return of which is based solely on the performance of the Reference Asset on a single day shortly before maturity. Your ability to earn a positive return on the notes at maturity may be limited by the averaging convention used to calculate the Final Level, especially if there is significant volatility in the closing level during the term of the notes. Accordingly, you may not receive a positive return even if the closing level of the Reference Asset on the final Valuation Date is greater than the Strike Level.

· Your return on the notes may be lower than the return on a conventional debt security of comparable maturity. — The return that you will receive on your notes, which could be negative, may be less than the return you could earn on other investments. The notes do not provide for interest payments and the payment you receive at maturity, if any, may be less than the principal amount of the notes. Even if your return on the notes is positive, your return may be less than the return you would earn if you bought a conventional senior interest bearing debt security of ours with the same maturity or if you invested directly in the Reference Asset. Your investment may not reflect the full opportunity cost to you when you take into account factors that affect the time value of money.

 

Risks Related to the Reference Asset

 

· Owning the notes is not the same as a hypothetical direct investment in the Reference Asset or a security directly linked to the Reference Asset. — The return on your notes will not reflect the return you would realize if you made a hypothetical direct investment in the Reference Asset or the underlying securities of the Reference Asset or a security directly linked to the performance of the Reference Asset or the underlying securities of the Reference Asset and held that investment for a similar period. Your notes may trade quite differently from the Reference Asset. Changes in the level of a Reference Asset may not result in comparable changes in the market value of your notes. Even if the level of the Reference Asset increases during the term of the notes, the market value of the notes prior to maturity may not increase to the same extent. It is also possible for the market value of the notes to decrease while the level of the Reference Asset increases.

· You will not have any shareholder rights and will have no right to receive any shares of any company included in a Reference Asset at maturity. — Investing in your notes will not make you a holder of any securities included in the Reference Asset. Neither you nor any other holder or owner of the notes will have any voting rights, any right to receive dividends or other distributions, or any other rights with respect to such underlying securities.

· We have no affiliation with any index sponsor and will not be responsible for the index sponsor's actions. — The sponsor of the Reference Asset is not our affiliate and will not be involved in the offering of the notes in any way. Consequently, we have no control over the actions of any index sponsor, including any actions of the type that would require the calculation agent to adjust the payment to you at maturity. The index sponsor has no obligation of any sort with respect to the notes. Thus, the index sponsor has no obligation to take your interests into consideration for any reason, including in taking any actions that might affect the value of the notes. None of our proceeds from the issuance of the notes will be delivered to any index sponsor.

· You must rely on your own evaluation of the merits of an investment linked to the Reference Asset. — In the ordinary course of their businesses, our affiliates from time to time may express views on expected movements in the levels of the Reference Asset or the prices of the securities included in the Reference Asset. One or more of our affiliates have published, and in the future may publish, research reports that express views on the Reference Asset or these securities. However, these views are subject to change from time to time. Moreover, other professionals who deal in the markets relating to the Reference Asset at any time may have significantly different views from those of our affiliates. You are encouraged to derive information concerning the Reference Asset from multiple sources, and you should not rely on the views expressed by our affiliates. Neither the offering of the notes nor any views which our affiliates from time to time may express in the ordinary course of their businesses constitutes a recommendation as to the merits of an investment in the notes.

 

General Risk Factors

 

· Your investment is subject to the credit risk of Bank of Montreal. — Our credit ratings and credit spreads may adversely affect the market value of the notes. Investors are dependent on our ability to pay any amounts due on the notes, and therefore investors are subject to our credit risk and to changes in the market’s view of our creditworthiness. Any decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the value of the notes.

· Potential conflicts. — We and our affiliates play a variety of roles in connection with the issuance of the notes, including acting as calculation agent. In performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the notes. We or one or more of our affiliates may also engage in trading of securities included in a Reference Asset 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. Any of these activities could adversely affect the level of the Reference Asset and, therefore, the market value of, and the payments on, 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. 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.

 

6
 

 

· Our initial estimated value of the notes will be lower than the price to public. — Our initial estimated value of the notes is only an estimate, and is based on a number of factors. The price to public of the notes will exceed our initial estimated value, because costs associated with offering, structuring and hedging the notes are included in the price to public, but are not included in the estimated value. These costs include any underwriting discount and selling concessions, the profits that we and our affiliates expect to realize for assuming the risks in hedging our obligations under the notes and the estimated cost of hedging these obligations. The initial estimated value of the notes may be as low as the amount indicated on the cover page hereof.

· Our initial estimated value does not represent any future value of the notes, and may also differ from the estimated value of any other party. — Our initial estimated value of the notes as of the date hereof is, and our estimated value as determined on the Pricing Date will be, derived using our internal pricing models. This value is based on market conditions and other relevant factors, which include volatility of the Reference Asset, dividend rates and interest rates. Different pricing models and assumptions could provide values for the notes that are greater than or less than our initial estimated value. In addition, market conditions and other relevant factors after the Pricing Date are expected to change, possibly rapidly, and our assumptions may prove to be incorrect. After the Pricing Date, the value of the notes could change dramatically due to changes in market conditions, our creditworthiness, and the other factors set forth herein and in the product supplement. These changes are likely to impact the price, if any, at which we or BMOCM would be willing to purchase the notes from you in any secondary market transactions. Our initial estimated value does not represent a minimum price at which we or our affiliates would be willing to buy your notes in any secondary market at any time.

· The terms of the notes are not determined by reference to the credit spreads for our conventional fixed-rate debt. — To determine the terms of the notes, we will use an internal funding rate that represents a discount from the credit spreads for our conventional fixed-rate debt. As a result, the terms of the notes are less favorable to you than if we had used a higher funding rate.

· Certain costs are likely to adversely affect the value of the notes. — Absent any changes in market conditions, any secondary market prices of the notes will likely be lower than the price to public. This is because any secondary market prices will likely take into account our then-current market credit spreads, and because any secondary market prices are likely to exclude all or a portion of any underwriting discount and selling concessions, and the hedging profits and estimated hedging costs that are included in the price to public of the notes and that may be reflected on your account statements. In addition, any such price is also likely to reflect a discount to account for costs associated with establishing or unwinding any related hedge transaction, such as dealer discounts, mark-ups and other transaction costs. As a result, the price, if any, at which BMOCM or any other party may be willing to purchase the notes from you in secondary market transactions, if at all, will likely be lower than the price to public. Any sale that you make prior to the Maturity Date could result in a substantial loss to you.

· Lack of liquidity. — The notes will not be listed on any securities exchange. BMOCM may offer to purchase the notes in the secondary market, but is not required to do so. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Because other dealers are not likely to make a secondary market for the notes, the price at which you may be able to trade the notes is likely to depend on the price, if any, at which BMOCM is willing to buy the notes.

· Hedging and trading activities. — We or any of our affiliates have carried out or may carry out hedging activities related to the notes, including purchasing or selling shares of securities included in the Reference Asset, futures or options relating to the Reference Asset or securities included in the Reference Asset or other derivative instruments with return liked or related to changes in the performance on the Reference Asset or securities included in the Reference Asset. We or our affiliates may also trade in the securities included in the Reference Asset or instruments related to the Reference Asset or such securities from time to time. Any of these hedging or trading activities on or prior to the Pricing Date and during the term of the notes could adversely affect the payments on the notes.

· Many economic and market factors will influence the value of the notes. — In addition to the level of the Reference Asset and interest rates on any trading day, the value of the notes will be affected by a number of economic and market factors that may either offset or magnify each other, and which are described in more detail in the product supplement.

· 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 herein.
The Internal Revenue Service has released a notice that may affect the taxation of holders of “prepaid forward contracts” and similar instruments. According to the notice, the Internal Revenue Service and the U.S. Treasury are actively considering whether the holder of such instruments should be required to accrue ordinary income on a current basis. While it is not clear whether the notes would be viewed as similar to such instruments, it is possible that any future guidance could materially and adversely affect the tax consequences of an investment in the notes, possibly with retroactive effect.
Please read carefully the section entitled "U.S. Federal Tax Information" herein, the section entitled "Supplemental Tax Considerations–Supplemental U.S. Federal Income Tax Considerations" in the accompanying product supplement, the section entitled "United States Federal Income 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.

 

7
 

 

Examples of the Hypothetical Payment at Maturity for a $1,000 Investment in the Notes

 

The following table illustrates the hypothetical payments on a note at maturity. The hypothetical payments are based on a $1,000 investment in the note, a hypothetical Initial Level of 100.00, a hypothetical Strike Level of 86.00 (86.00% of the hypothetical Initial Level), a hypothetical Cap Level of 110.00 (110.00% of the hypothetical Initial Level), the Maximum Return of 21.91%, the Maximum Redemption Amount of $1,219.10, and a range of hypothetical Final Levels and the effect on the payment at maturity.

 

The hypothetical examples shown below are intended to help you understand the terms of the notes. The actual cash amount that you will receive at maturity will depend upon the Final Level of the Reference Asset. You may lose some or all of the principal amount at maturity.

 

 

 

Hypothetical Final Level Hypothetical Final Level
Expressed as a Percentage of the
Initial Level
Hypothetical Payment at
Maturity
Hypothetical Return on the Notes
200.00 200.00% $1,219.10 21.91%
180.00 180.00% $1,219.10 21.91%
160.00 160.00% $1,219.10 21.91%
140.00 140.00% $1,219.10 21.91%
120.00 120.00% $1,219.10 21.91%
110.00 110.00% $1,219.10 21.91%
105.00 105.00% $1,173.47 17.347%
100.00 100.00% $1,127.82 12.782%
90.00 90.00% $1,036.52 3.652%
86.00 86.00% $1,000.00 0.00%
85.99 85.99% $999.90 -0.01%
80.00 80.00% $940.00 -6.00%
60.00 60.00% $740.00 -26.00%
40.00 40.00% $540.00 -46.00%
20.00 20.00% $340.00 -66.00%
0.00 0.00% $140.00 -86.00%

The following examples illustrate how the returns set forth in the table above are calculated.

 

Example 1: The level of the Reference Asset decreases from the hypothetical Initial Level of 100.00 to a hypothetical Final Level of 80.00, representing a Percentage Change of –20.00%. Because the hypothetical Final Level is less than its Strike Level, the investor receives a payment at maturity of $940.00 per $1,000 in principal amount of the notes, calculated as follows:

 

$1,000 + [$1,000 x (–20.00% + 14.00%)] = $940.00

 

Example 2: The level of the Reference Asset decreases from the hypothetical Initial Level of 100.00 to a hypothetical Final Level of 90.00, representing a Percentage Change of –10% and an Adjusted Percentage Change of 4%. Although the Percentage Change of the Reference Asset is negative, because its hypothetical Final Level is greater than its Strike Level, the investor receives a payment at maturity equal to $1,036.52, calculated as follows:

 

$1,000 + ($1,000 x 4.00% x 91.30%) = $1,036.52

 

Example 3: The level of the of the Reference Asset increases from the hypothetical Initial Level of 100.00 to a hypothetical Final Level of 105.00, representing a Percentage Change of 5.00% and an Adjusted Percentage Change of 19%. Because the hypothetical Final Level of the Reference Asset is greater than its hypothetical Strike Level and less than its hypothetical Cap Level, the investor receives a payment at maturity of $1,173.47 per $1,000 in principal amount of the notes, calculated as follows:

 

$1,000 + ($1,000 x 19.00% x 91.30%) = $1,173.47

 

Example 4: The level of the Reference Asset increases from the hypothetical Initial Level of 100.00 to a hypothetical Final Level of 120.00, representing a Percentage Change of 20.00% and an Adjusted Percentage Change of 34%. Because the hypothetical Final Level of the Reference Asset is greater than its hypothetical Cap Level, the investor receives a payment at maturity of $1,219.10 per $1,000 in principal amount of the notes (the Maximum Redemption Amount). The return on the notes in this example is less than the Percentage Change of the Reference Asset.

 

8
 

 

U.S. Federal Tax Information

 

By purchasing the notes, each holder agrees (in the absence of a change in law, an administrative determination or a judicial ruling to the contrary) to treat each note as a pre-paid derivative contract for U.S. federal income tax purposes. In the opinion of our counsel, Mayer Brown LLP, it would generally be reasonable to treat the notes as pre-paid derivative contracts in respect of the Reference Asset(s) for U.S. federal income tax purposes. However, the U.S. federal income tax consequences of your investment in the notes are uncertain and the Internal Revenue Service could assert that the notes should be taxed in a manner that is different from that described in the preceding sentence. Please see the discussion in the product supplement dated September 22, 2022 under “Supplemental Tax Considerations—Supplemental U.S. Federal Income Tax Considerations—Notes Treated as Pre-Paid Derivative Contracts,” which applies to the notes.

 

9
 

 

Supplemental Plan of Distribution (Conflicts of Interest)

 

BMOCM will purchase the notes from us at a purchase price reflecting the commission set forth on the cover hereof. BMOCM has informed us that, as part of its distribution of the notes, it will reoffer the notes to other dealers who will sell them. Each such dealer, or each additional dealer engaged by a dealer to whom BMOCM reoffers the notes, will receive a commission from BMOCM, which will not exceed the commission set forth on the cover page. We or one of our affiliates may also pay a referral fee to certain dealers in connection with the distribution of the notes. 

 

Certain dealers who purchase the notes for sale to certain fee-based advisory accounts may forego some or all of their selling concessions, fees or commissions. The public offering price for investors purchasing the notes in these accounts may be less than 100% of the principal amount, as set forth on the cover page of this document. Investors that hold their notes in these accounts may be charged fees by the investment advisor or manager of that account based on the amount of assets held in those accounts, including the notes. 

 

We will deliver the notes on a date that is greater than two business days following the pricing date. Under Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes more than two business days prior to the issue date will be required to specify alternative settlement arrangements to prevent a failed settlement. 

 

We own, directly or indirectly, all of the outstanding equity securities of BMOCM, the agent for this offering. In accordance with FINRA Rule 5121, BMOCM may not make sales in this offering to any of its discretionary accounts without the prior written approval of the customer. 

 

We reserve the right to withdraw, cancel or modify the offering of the notes and to reject orders in whole or in part. You may cancel any order for the notes prior to its acceptance. 

 

You should not construe the offering of the notes as a recommendation of the merits of acquiring an investment linked to the Reference Asset or as to the suitability of an investment in the notes. 

 

BMOCM may, but is not obligated to, make a market in the notes. BMOCM will determine any secondary market prices that it is prepared to offer in its sole discretion. 

 

We may use the final pricing supplement relating to the notes in the initial sale of the notes. In addition, BMOCM or another of our affiliates may use the final pricing supplement in market-making transactions in any notes after their initial sale. Unless BMOCM or we inform you otherwise in the confirmation of sale, the final pricing supplement is being used by BMOCM in a market-making transaction.

 

For a period of approximately three months following issuance of the notes, the price, if any, at which we or our affiliates would be willing to buy the notes from investors, and the value that BMOCM may also publish for the notes through one or more financial information vendors and which could be indicated for the notes on any brokerage account statements, will reflect a temporary upward adjustment from our estimated value of the notes that would otherwise be determined and applicable at that time. This temporary upward adjustment represents a portion of (a) the hedging profit that we or our affiliates expect to realize over the term of the notes and (b) any underwriting discount and the selling concessions paid in connection with this offering. The amount of this temporary upward adjustment will decline to zero on a straight-line basis over the three-month period. 

 

10
 

 

Additional Information Relating to the Estimated Initial Value of the Notes

 

Our estimated initial value of the notes on the date hereof , and that will be set forth on the cover page of the final pricing supplement relating to the notes, equals the sum of the values of the following hypothetical components:

 

· a fixed-income debt component with the same tenor as the notes, valued using our internal funding rate for structured notes; and 

· one or more derivative transactions relating to the economic terms of the notes. 

 

The internal funding rate used in the determination of the initial estimated value generally represents a discount from the credit spreads for our conventional fixed-rate debt. The value of these derivative transactions is derived from our internal pricing models. These models are based on factors such as the traded market prices of comparable derivative instruments and on other inputs, which include volatility, dividend rates, interest rates and other factors. As a result, the estimated initial value of the notes on the Pricing Date will be determined based on the market conditions on the Pricing Date. 

 

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The Reference Asset

 

All disclosures contained in this pricing supplement regarding the Reference Asset, including, without limitation, their make-up, method of calculation, and changes in their components and their historical closing levels, have been derived from publicly available information prepared by the applicable sponsor. The information reflects the policies of, and is subject to change by, the sponsor. The sponsor owns the copyrights and all rights to the Reference Asset. The sponsor is under no obligation to continue to publish, and may discontinue publication of, the Reference Asset. Neither we nor BMO Capital Markets Corp. accepts any responsibility for the calculation, maintenance or publication of and Reference Asset or any successor. We encourage you to review recent levels of the Reference Asset prior to making an investment decision with respect to the notes.

 

The Dow Jones Industrial Average® (“DJI”)

 

The DJI is a price-weighted index, which means an underlying stock’s weight in the DJI is based on its price per share rather than the total market capitalization of the issuer. The DJI is designed to provide an indication of the composite performance of 30 common stocks of corporations representing a broad cross-section of U.S. industry. The corporations represented in the DJI tend to be market leaders in their respective industries and their stocks are typically widely held by individuals and institutional investors.

 

The DJI is maintained by an Averages Committee comprised of three representatives of S&P Dow Jones Indices and two representatives of The Wall Street Journal (“WSJ”). The Averages Committee was created in March 2010, when Dow Jones Indexes became part of CME Group Index Services, LLC, a joint venture company owned by CME Group Inc. and by Dow Jones & Company. Generally, composition changes occur only after mergers, corporate acquisitions or other dramatic shifts in a component's core business. When such an event necessitates that one component be replaced, the entire DJI is reviewed. As a result, when changes are made they typically involve more than one component. While there are no rules for component selection, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors.

 

Changes in the composition of the DJI are made entirely by the Averages Committee without consultation with the corporations represented in the DJI, any stock exchange, any official agency or us. Unlike most other indices, which are reconstituted according to a fixed review schedule, constituents of the DJI are reviewed on an as-needed basis. Changes to the common stocks included in the DJI tend to be made infrequently, and the underlying stocks of the DJI may be changed at any time for any reason. Constituent changes are typically announced one to five days before they are scheduled to be implemented. The companies currently represented in the DJI are incorporated and headquartered in the United States and its territories and their stocks are listed on the New York Stock Exchange and Nasdaq.

 

The DJI initially consisted of 12 common stocks and was first published in the WSJ in 1896. The DJI was increased to include 20 common stocks in 1916 and to 30 common stocks in 1928. The number of common stocks in the DJI has remained at 30 since 1928, and, in an effort to maintain continuity, the constituent corporations represented in the DJI have been changed on a relatively infrequent basis.

 

Computation of the DJI

 

The level of the DJI is the sum of the primary exchange prices of each of the 30 component stocks included in the DJI, divided by a divisor that is designed to provide a meaningful continuity in the level of the DJI. Because the DJI is price-weighted, stock splits or changes in the component stocks could result in distortions in the index level. In order to prevent these distortions related to extrinsic factors, the divisor is periodically changed in accordance with a mathematical formula that reflects adjusted proportions within the DJI. The current divisor of the DJI is published daily in the WSJ and other publications. In addition, other statistics based on the DJI may be found in a variety of publicly available sources.

 

License Agreement

 

We and S&P Dow Jones Indices LLC (“S&P”) have entered into a non-exclusive license agreement providing for the license to us and certain of our affiliates, in exchange for a fee, of the right to use the DJI, in connection with certain securities, including the notes. The DJI is owned and published by S&P.

 

The license agreement between S&P and us provides that the following language must be set forth in this pricing supplement:

 

The notes are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, Standard and Poor’s Financial Services LLC or any of their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the holders of the notes or any member of the public regarding the advisability of investing in securities generally or in the notes particularly or the ability of the DJI to track general market performance. S&P Dow Jones Indices’ only relationship to us with respect to the DJI is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its third party licensors. The DJI is determined, composed and calculated by S&P Dow Jones Indices without regard to us or the notes. S&P Dow Jones Indices have no obligation to take our needs or the needs of holders of the notes into consideration in determining, composing or calculating the DJI. S&P Dow Jones Indices are not responsible for and have not participated in the determination of the prices, and amount of the notes or the timing of the issuance or sale of the notes or in the determination or calculation of the equation by which the notes are to be converted into cash. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of the notes. There is no assurance that investment products based on the DJI will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC and its subsidiaries are not investment advisors. Inclusion of a security or futures contract within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security or futures contract, nor is it considered to be investment advice. Notwithstanding the foregoing, CME Group Inc. and its affiliates may independently issue and/or sponsor financial products unrelated to the notes currently being issued by us, but which may be similar to and competitive with the notes. In addition, CME Group Inc. and its affiliates may trade financial products which are linked to the performance of the DJI. It is possible that this trading activity will affect the value of the notes.

 

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S&P DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE DJI OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY US, HOLDERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DJI OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND US, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.

 

S&P® is a registered trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. These trademarks have been licensed for use by Bank of Montreal. “Dow Jones®”, “DJIA®”, “Dow Jones Industrial Average®” and “The Dow®” are trademarks of Dow Jones Trademark Holdings LLC. The notes are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices and S&P Dow Jones Indices makes no representation regarding the advisability of investing in the notes.

 

 

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