Registration Statement No.333-264388
Filed Pursuant to Rule 433
Subject to Completion, dated October 3,
2022
Pricing Supplement to the Prospectus dated May 26, 2022,
the Prospectus Supplement dated May 26, 2022 and the Product
Supplement dated July 22, 2022
US$ [ ]
Senior Medium-Term Notes, Series I
Autocallable Buffer Notes with Contingent Coupons due July 27,
2026
Linked to the S&P 500® Index
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· |
The notes are designed for
investors who are seeking monthly contingent periodic interest
payments (as described in more detail below), as well as a return
of principal if the closing level of the S&P 500®
Index (the “Reference Asset”) on any monthly Observation Date
beginning in April 2023 is greater than 100% of its Initial Level
(the “Call Level”). Investors should be willing to have their notes
automatically redeemed prior to maturity, be willing to forego any
potential to participate in any increase in the level of the
Reference Asset and be willing to lose a significant portion of
their principal at maturity. |
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The notes will pay a Contingent
Coupon on each Contingent Coupon Payment Date at the Contingent
Interest Rate of 0.525% per month (approximately 6.30% per annum)
if the closing level of the Reference Asset on the applicable
monthly Observation Date is greater than its Coupon Barrier Level.
However, if the closing level of the Reference Asset is less than
or equal to its Coupon Barrier Level on an Observation Date, the
notes will not pay the Contingent Coupon for that Observation
Date. |
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Beginning on April 24, 2023, if on
any Observation Date, the closing level of the Reference Asset is
greater than its Call Level, the notes will be automatically
redeemed. On the following Contingent Coupon Payment Date (the
“Call Settlement Date"), investors will receive their principal
amount plus the Contingent Coupon otherwise due. After the notes
are redeemed, investors will not receive any additional payments in
respect of the notes. |
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The notes do not guarantee any
return of principal at maturity. Instead, if the notes are not
automatically redeemed, the payment at maturity will be based on
the Final Level of the Reference Asset and whether the Final Level
of that Reference Asset has declined from its Initial Level to
below its Buffer Level on the Valuation Date (a “Trigger Event”),
as described below. |
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If the notes are not automatically
redeemed and a Trigger Event has occurred, 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 20.00%. In such a case, you will receive a cash amount at
maturity that is less than the principal amount, together with the
final Contingent Coupon, if payable. |
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Investing in the notes is not
equivalent to a hypothetical direct investment in the Reference
Asset. |
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The notes will not be listed on
any securities exchange. |
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All payments on the notes are
subject to the credit risk of Bank of Montreal. |
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The notes will be issued in
minimum denominations of $1,000 and integral multiples of
$1,000. |
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Our subsidiary, BMO Capital
Markets Corp. (“BMOCM”), is the agent for this offering. See
“Supplemental Plan of Distribution (Conflicts of Interest)”
below. |
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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
| Pricing Date: |
October
21, 2022 |
|
Valuation Date: |
July 22,
2026 |
| Settlement
Date: |
October 26, 2022 |
|
Maturity
Date: |
July 27,
2026 |
1Expected. See “Key Terms of the Notes” below for
additional details.
Specific Terms of the Notes:
Autocallable
Number |
Reference
Asset |
Ticker
Symbol |
Initial
Level |
Contingent
Interest Rate |
Coupon
Barrier
Level |
Buffer
Level |
CUSIP |
Principal
Amount |
Price to
Public1 |
Agent’s
Commission1 |
Proceeds to
Bank of
Montreal1 |
|
2618 |
The S&P 500®
Index |
SPX |
[ ] |
0.525% per month (approximately
6.30% per annum) |
[ ], 80.00% of its Initial
Level |
[ ], 80.00% of its Initial
Level |
06374VAT3 |
[ ] |
100% |
Up to 2.50%
[ ]
|
At least 97.50%
[ ]
|
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
$975.00 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-6 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 $947.80 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
$900.00 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 S&P 500® Index
(ticker symbol "SPX") . See "The Reference Asset" below for
additional information. |
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| Contingent Coupons: |
If the closing level of the Reference Asset on an Observation
Date is greater than its Coupon Barrier Level, a Contingent Coupon
will be paid on the corresponding Contingent Coupon Payment Date at
the Contingent Interest Rate, subject to the automatic redemption
feature. |
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| Contingent Interest Rate: |
0.525% per month (approximately 6.30% per annum), if payable.
Accordingly, each Contingent Coupon, if payable, will equal $5.25
for each $1,000 in principal amount. |
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| Observation Dates:1 |
Three trading days prior to each scheduled Contingent Coupon
Payment Date. |
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Contingent Coupon Payment
Dates:1 |
Interest, if payable, will be paid on the 27th day of each
month (or, if such day is not a business day, the next following
business day), beginning on November 27, 2022 and ending on the
Maturity Date, subject to the automatic redemption feature. |
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| Automatic Redemption: |
Beginning on April 24, 2023, if, on any Observation Date, the
closing level of the Reference Asset is greater than its Call
Level, the notes will be automatically redeemed. No further amounts
will be owed to you under the Notes. |
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|
Payment upon Automatic
Redemption: |
If the notes are automatically redeemed, then, on the Call
Settlement Date, investors will receive their principal amount plus
the Contingent Coupon otherwise due. |
| |
|
| Call Settlement
Date:1 |
If the notes are automatically redeemed, the Contingent Coupon
Payment Date immediately following the relevant Observation
Date. |
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| Payment at Maturity: |
If the notes are not automatically redeemed, the payment at
maturity for the notes is based on the performance of the Reference
Asset.
You will receive $1,000 for each $1,000 in principal amount of the
note, unless a Trigger Event has occurred.
If a Trigger Event has occurred, you will receive at maturity, for
each $1,000 in principal amount of your notes, a cash amount equal
to:
$1,000 + [$1,000 x (Percentage Change + Buffer Percentage)]
This amount will be less than the principal amount of your note,
and may be significantly less. Specifically, you 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 20.00%.
You will also receive the final Contingent Coupon, if payable.
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| |
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| Trigger Event:2 |
A Trigger Event will be deemed to occur if the Final Level of
the Reference Asset is less than its Buffer Level on the Valuation
Date. |
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| Percentage Change: |
The quotient, expressed as a percentage, of the following
formula:
(Final Level - Initial Level)
Initial Level
|
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|
| Initial Level:2 |
The closing level of the Reference Asset on the Pricing
Date. |
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|
| Coupon Barrier
Level:2 |
80.00% of the Initial Level. |
| |
|
| Buffer Level:2 |
80.00% of the Initial Level. |
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|
| Buffer Percentage:2 |
20.00% 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 20.00% 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 80.00% of the principal
amount of your notes. |
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|
| Call Level:2 |
100% of the Initial Level. |
| |
|
| Final Level: |
The closing level of the Reference Asset on the Valuation
Date. |
| |
|
| Pricing Date:1 |
October 21, 2022 |
| |
|
| Settlement Date:1 |
October 26, 2022 |
| |
|
| Valuation Date:1 |
July 22, 2026 |
| |
|
| Maturity Date:1 |
July 27, 2026 |
| |
|
| 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 Contingent Coupon Payment Dates (and therefore
the Observation Dates and potential Call Settlement Dates), the
Valuation Date and Maturity Date will be changed so that the stated
term of the notes remains approximately the same.
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.
Additional Terms of the Notes
You should read this document together with the product supplement
dated July 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 July 22, 2022:
https://www.sec.gov/Archives/edgar/data/927971/000121465922009102/r712220424b2.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.
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
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Your investment in the notes may result in a loss. — The
notes do not guarantee any return of principal. If the notes are
not automatically redeemed, the payment at maturity will be based
on the Final Level and whether a Trigger Event has occurred. If the
Final Level is less than its Buffer Level, a Trigger Event will
occur, and you will lose 1% of the principal amount for each 1%
that the Final Level is less than the Initial Level in excess of
the Buffer Percentage. In such a case, you will receive at maturity
a cash payment that is less than the principal amount of the notes.
Accordingly, you could lose a significant portion of your
investment in the notes. |
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You may not receive any Contingent Coupons with respect to
your notes. — We will not necessarily make periodic interest
payments on the notes. If the closing level of the Reference Asset
on an Observation Date is less than its Coupon Barrier Level, we
will not pay you the Contingent Coupon applicable to that
Observation Date. If the closing level of the Reference Asset is
less than its Coupon Barrier Level on each of the Observation
Dates, we will not pay you any Contingent Coupons during the term
of the notes, and you will not receive a positive return on the
notes. Generally, this non-payment of any Contingent Coupons will
coincide with a greater risk of principal loss on your notes. |
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Your notes are subject to automatic early redemption. —
We will redeem the notes if the closing level of the Reference
Asset on any Observation Date is greater than its Call Level.
Following an automatic redemption, you will not receive any
additional Contingent Coupons and may not be able to reinvest your
proceeds in an investment with returns that are comparable to the
notes. Furthermore, to the extent you are able to reinvest such
proceeds in an investment with a comparable return for a similar
level of risk, you may incur transaction costs such as dealer
discounts and hedging costs built into the price of the new
notes. |
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Your return on the notes is limited to the Contingent
Coupons, if any, regardless of any increase in the level of the
Reference Asset. — You will not receive a payment at maturity
with a value greater than your principal amount plus the final
Contingent Coupon, if payable. In addition, if the notes are
automatically redeemed, you will not receive a payment greater than
the principal amount plus the applicable Contingent Coupon, even if
the Final Level of the Reference Asset exceeds its Call Level by a
substantial amount. Accordingly, your maximum return on the
applicable notes is limited to the potential return represented by
the Contingent Coupons. |
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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 fixed interest payments and you may not
receive any Contingent Coupons over the term of the notes. Even if
you do receive one or more Contingent Coupons and 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. |
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A higher Contingent Interest Rate or lower Buffer Levels or
Coupon Barrier Levels may reflect greater expected volatility of
the Reference Asset, and greater expected volatility generally
indicates an increased risk of loss at maturity. — The economic
terms for the notes, including the Contingent Interest Rate, Coupon
Barrier Levels and Buffer Levels, are based, in part, on the
expected volatility of the Reference Asset at the time the terms of
the notes are set. “Volatility” refers to the frequency and
magnitude of changes in the level of a Reference Asset. The greater
the expected volatility of the Reference Asset as of the Pricing
Date, the greater the expectation is as of that date that the
closing level of a Reference Asset could be less than its Coupon
Barrier Level on any Observation Date and that a Trigger Event
could occur and, as a consequence, indicates an increased risk of
not receiving a Contingent Coupon and an increased risk of loss,
respectively. All things being equal, this greater expected
volatility will generally be reflected in a higher Contingent
Interest Rate than the yield payable on our conventional debt
securities with a similar maturity or on otherwise comparable
securities, and/or a lower Buffer Levels and/or Coupon Barrier
Levels than those terms on otherwise comparable securities.
Therefore, a relatively higher Contingent Interest Rate may
indicate an increased risk of loss. Further, relatively lower
Buffer Levels and/or Coupon Barriers may not necessarily indicate
that the notes have a greater likelihood of a return of principal
at maturity and/or paying Contingent Coupons. You should be willing
to accept the downside market risk of the Reference Asset and the
potential to lose a significant portion of your initial
investment. |
Risks Related to the Reference Asset
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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 the Reference Asset may not result
in comparable changes in the market value of your notes. Even if
the levels of the Reference Asset increase 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 levels of the Reference
Asset increase. |
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You will not have any shareholder rights and will have no
right to receive any shares of any company included in the
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. |
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We have no affiliation with the index sponsor and will not
be responsible for any 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 the 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 the index sponsor. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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· |
Many economic and market factors will influence the value of
the notes. — In addition to the levels 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. |
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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. |
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, assuming that the notes are not automatically
redeemed. The hypothetical payments are based on a $1,000
investment in the note, a hypothetical Initial Level of $100.00, a
hypothetical Buffer Level of $80.00 (80.00% of the hypothetical
Initial Level), a hypothetical Call Level of $100.00 (100.00% of
the hypothetical Initial Level), 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. If the notes are not
automatically redeemed, the actual cash amount that you will
receive at maturity will depend upon the Final Level of the
Reference Asset. If the notes are automatically redeemed prior to
maturity, the hypothetical examples below will not be relevant, and
you will receive on the applicable Call Settlement Date, for each
$1,000 principal amount, the principal amount plus the applicable
Contingent Coupon.
As discussed in more detail above, your total return on the notes
will also depend on the number of Contingent Coupon Dates on which
the Contingent Coupon is payable. It is possible that the only
payments on your notes will be the payment, if any, due at
maturity. The payment at maturity will not exceed the principal
amount, and may be significantly less.
|
Hypothetical Final Level |
Hypothetical Final Level Expressed
as a Percentage of the Initial Level |
Payment at Maturity (Excluding
Coupons) |
|
$200.00 |
200.00% |
$1,000.00 |
|
$180.00 |
180.00% |
$1,000.00 |
|
$160.00 |
160.00% |
$1,000.00 |
|
$140.00 |
140.00% |
$1,000.00 |
|
$120.00 |
120.00% |
$1,000.00 |
|
$100.00 |
100.00% |
$1,000.00 |
|
$90.00 |
90.00% |
$1,000.00 |
|
$80.00 |
80.00% |
$1,000.00 |
|
$79.99 |
79.99% |
$999.90 |
|
$60.00 |
60.00% |
$800.00 |
|
$40.00 |
40.00% |
$600.00 |
|
$20.00 |
20.00% |
$400.00 |
|
$0.00 |
0.00% |
$200.00 |
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 contingent
income-bearing 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 contingent
income-bearing 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 accompanying product supplement under “Supplemental Tax
Considerations—Supplemental U.S. Federal Income Tax
Considerations—Notes Treated as an Investment Unit Consisting of a
Debt Portion and a Put Option, as a Pre-Paid Contingent
Income-Bearing Derivative Contract, or as a Pre-Paid Derivative
Contract—Notes Treated as a Pre-Paid Contingent Income-Bearing
Derivative Contract,” which applies to the notes.
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.
The notes and the related offer to purchase notes and sale of notes
under the terms and conditions provided herein do not constitute a
public offering in any non-U.S. jurisdiction, and are being made
available only to individually identified investors pursuant to a
private offering as permitted in the relevant jurisdiction. The
notes are not, and will not be, registered with any securities
exchange or registry located outside of the United States and have
not been registered with any non-U.S. securities or banking
regulatory authority. The contents of this document have not been
reviewed or approved by any non-U.S. securities or banking
regulatory authority. Any person who wishes to acquire the notes
from outside the United States should seek the advice or legal
counsel as to the relevant requirements to acquire these notes.
British Virgin Islands. The notes have not been, and will
not be, registered under the laws and regulations of the British
Virgin Islands, nor has any regulatory authority in the British
Virgin Islands passed comment upon or approved the accuracy or
adequacy of this document. This pricing supplement and the related
documents shall not constitute an offer, invitation or solicitation
to any member of the public in the British Virgin Islands for the
purposes of the Securities and Investment Business Act, 2010, of
the British Virgin Islands.
Cayman Islands. Pursuant to the Companies Law (as amended)
of the Cayman Islands, no invitation may be made to the public in
the Cayman Islands to subscribe for the notes by or on behalf of
the issuer unless at the time of such invitation the issuer is
listed on the Cayman Islands Stock Exchange. The issuer is not
presently listed on the Cayman Islands Stock Exchange and,
accordingly, no invitation to the public in the Cayman Islands is
to be made by the issuer (or by any dealer on its behalf). No such
invitation is made to the public in the Cayman Islands hereby.
Dominican Republic. Nothing in this pricing supplement
constitutes an offer of securities for sale in the Dominican
Republic. The notes have not been, and will not be, registered with
the Superintendence of Securities Market of the Dominican Republic
(Superintendencia del Mercado de Valores), under Dominican
Securities Market Law No. 249-17 (“Securities Law 249-17”), and the
notes may not be offered or sold within the Dominican Republic or
to, or for the account or benefit of, Dominican persons (as defined
under Securities Law 249-17 and its regulations). Failure to comply
with these directives may result in a violation of Securities Law
249-17 and its regulations.
Israel. This pricing supplement is intended solely for
investors listed in the First Supplement of the Israeli Securities
Law of 1968, as amended. A prospectus has not been prepared or
filed, and will not be prepared or filed, in Israel relating to the
notes offered hereunder. The notes cannot be resold in Israel other
than to investors listed in the First Supplement of the Israeli
Securities Law of 1968, as amended.
No action will be taken in Israel that would permit an offering of
the notes or the distribution of any offering document or any other
material to the public in Israel. In particular, no offering
document or other material has been reviewed or approved by the
Israel Securities Authority. Any material provided to an offeree in
Israel may not be reproduced or used for any other purpose, nor be
furnished to any other person other than those to whom copies have
been provided directly by us or the selling agents.
Nothing in this pricing supplement or any other offering material
relating to the notes, should be considered as the rendering of a
recommendation or advice, including investment advice or investment
marketing under the Law For Regulation of Investment Advice,
Investment Marketing and Investment Portfolio Management, 1995, to
purchase any note. The purchase of any note will be based on an
investor’s own understanding, for the investor’s own benefit and
for the investor’s own account and not with the aim or intention of
distributing or offering to other parties. In purchasing the notes,
each investor declares that it has the knowledge, expertise and
experience in financial and business matters so as to be capable of
evaluating the risks and merits of an investment in the notes,
without relying on any of the materials provided.
Mexico. The notes have not been registered with the National
Registry of Securities maintained by the Mexican National Banking
and Securities Commission and may not be offered or sold publicly
in Mexico. This pricing supplement and the related documents may
not be publicly distributed in Mexico. The notes may only be
offered in a private offering pursuant to Article 8 of the
Securities Market Law.
Switzerland. The notes may not be distributed to retail
investors in Switzerland. This pricing supplement shall not be
dispatched, copied to or otherwise made available to any person in
Switzerland, and the notes may not be offered for sale to any
person in Switzerland, except in accordance with Swiss law.
The notes are not offered, sold or advertised, directly or
indirectly, in, into or from Switzerland on the basis of a public
offering and will not be listed on the SIX Swiss Exchange or any
other offering or regulated trading facility in Switzerland.
Accordingly, neither this pricing supplement or any other marketing
material constitute a prospectus as defined in article 652a or
article 1156 of the Swiss Code of Obligations or a listing
prospectus as defined in article 32 of the Listing Rules of the SIX
Swiss Exchange or any other regulated trading facility in
Switzerland. Any sales or resales of the notes may only be
undertaken on a private basis to selected individual investors in
compliance with Swiss law. By accepting this pricing supplement or
by purchasing the notes, investors are deemed to have acknowledged
and agreed to abide by these restrictions.
The notes may also be sold in the following jurisdictions,
provided, in each case, any sales are made in accordance with all
applicable laws in such jurisdiction:
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.
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 S&P 500® Index
The S&P 500® Index measures the performance of the
large-cap segment of the U.S. market. The S&P 500®
Index includes 500 leading companies and covers approximately 80%
of available market capitalization. The calculation of the level of
the S&P 500® Index is based on the relative value of
the aggregate market value of the common stocks of 500 companies as
of a particular time compared to the aggregate average market value
of the common stocks of 500 similar companies during the base
period of the years 1941 through 1943.
S&P calculates the S&P 500® Index by reference
to the prices of the constituent stocks of the S&P
500® Index without taking account of the value of
dividends paid on those stocks. As a result, the return on the
notes will not reflect the return you would realize if you actually
owned the constituent stocks of the S&P 500® Index
and received the dividends paid on those stocks.
Computation of the S&P 500® Index
While S&P currently employs the following methodology to
calculate the S&P 500® Index, no assurance can be
given that S&P will not modify or change this methodology in a
manner that may affect the Payment at Maturity.
Historically, the market value of any component stock of the
S&P 500® Index was calculated as the product of the
market price per share and the number of then outstanding shares of
such component stock. In March 2005, S&P began shifting the
S&P 500® Index halfway from a market capitalization
weighted formula to a float-adjusted formula, before moving the
S&P 500® Index to full float adjustment on September
16, 2005. S&P’s criteria for selecting stocks for the S&P
500® Index did not change with the shift to float
adjustment. However, the adjustment affects each company’s weight
in the S&P 500® Index.
Under float adjustment, the share counts used in calculating the
S&P 500® Index reflect only those shares that are
available to investors, not all of a company’s outstanding shares.
Float adjustment excludes shares that are closely held by control
groups, other publicly traded companies or government agencies.
In September 2012, all shareholdings representing more than 5% of a
stock’s outstanding shares, other than holdings by “block owners,”
were removed from the float for purposes of calculating the S&P
500® Index. Generally, these “control holders” will
include officers and directors, private equity, venture capital and
special equity firms, other publicly traded companies that hold
shares for control, strategic partners, holders of restricted
shares, ESOPs, employee and family trusts, foundations associated
with the company, holders of unlisted share classes of stock,
government entities at all levels (other than government
retirement/pension funds) and any individual person who controls a
5% or greater stake in a company as reported in regulatory filings.
However, holdings by block owners, such as depositary banks,
pension funds, mutual funds and ETF providers, 401(k) plans of the
company, government retirement/pension funds, investment funds of
insurance companies, asset managers and investment funds,
independent foundations and savings and investment plans, will
ordinarily be considered part of the float.
Treasury stock, stock options, equity participation units,
warrants, preferred stock, convertible stock, and rights are not
part of the float. Shares held in a trust to allow investors in
countries outside the country of domicile, such as depositary
shares and Canadian exchangeable shares are normally part of the
float unless those shares form a control block.
For each stock, an investable weight factor (“IWF”) is calculated
by dividing the available float shares by the total shares
outstanding. Available float shares are defined as the total shares
outstanding less shares held by control holders. This calculation
is subject to a 5% minimum threshold for control blocks. For
example, if a company’s officers and directors hold 3% of the
company’s shares, and no other control group holds 5% of the
company’s shares, S&P would assign that company an IWF of 1.00,
as no control group meets the 5% threshold. However, if a company’s
officers and directors hold 3% of the company’s shares and another
control group holds 20% of the company’s shares, S&P would
assign an IWF of 0.77, reflecting the fact that 23% of the
company’s outstanding shares are considered to be held for control.
As of July 31, 2017, companies with multiple share class lines are
no longer eligible for inclusion in the S&P 500®
Index. Constituents of the S&P 500® Index prior to
July 31, 2017 with multiple share class lines were grandfathered in
and continue to be included in the S&P 500® Index.
If a constituent company of the S&P 500® Index
reorganizes into a multiple share class line structure, that
company will remain in the S&P 500® Index at the
discretion of the S&P Index Committee in order to minimize
turnover.
The S&P 500® Index is calculated using a
base-weighted aggregate methodology. The level of the S&P
500® Index reflects the total market value of all 500
component stocks relative to the base period of the years 1941
through 1943. An indexed number is used to represent the results of
this calculation in order to make the level easier to use and track
over time. The actual total market value of the component stocks
during the base period of the years 1941 through 1943 has been set
to an indexed level of 10. This is often indicated by the notation
1941-43 = 10. In practice, the daily calculation of the S&P
500® Index is computed by dividing the total market
value of the component stocks by the “index divisor.” By itself,
the index divisor is an arbitrary number. However, in the context
of the calculation of the S&P 500® Index, it serves
as a link to the original base period level of the S&P
500® Index. The index divisor keeps the S&P
500® Index comparable over time and is the manipulation
point for all adjustments to the S&P 500® Index,
which is index maintenance.
Index Maintenance
Index maintenance includes monitoring and completing the
adjustments for company additions and deletions, share changes,
stock splits, stock dividends, and stock price adjustments due to
company restructuring or spinoffs. Some corporate actions, such as
stock splits and stock dividends, require changes in the common
shares outstanding and the stock prices of the companies in the
S&P 500® Index, and do not require index divisor
adjustments.
To prevent the level of the S&P 500® Index from
changing due to corporate actions, corporate actions which affect
the total market value of the S&P 500® Index require
an index divisor adjustment. By adjusting the index divisor for the
change in market value, the level of the S&P 500®
Index remains constant and does not reflect the corporate actions
of individual companies in the S&P 500® Index. Index
divisor adjustments are made after the close of trading and after
the calculation of the S&P 500® Index closing
level.
Changes in a company’s total shares outstanding of 5% or more due
to public offerings are made as soon as reasonably possible. Other
changes of 5% or more (for example, due to tender offers, Dutch
auctions, voluntary exchange offers, company stock repurchases,
private placements, acquisitions of private companies or non-index
companies that do not trade on a major exchange, redemptions,
exercise of options, warrants, conversion of preferred stock,
notes, debt, equity participations, at-the-market stock offerings
or other recapitalizations) are made weekly, and are generally
announced on Fridays for implementation after the close of trading
the following Friday (one week later). If a 5% or more share change
causes a company’s IWF to change by five percentage points or more,
the IWF is updated at the same time as the share change. IWF
changes resulting from partial tender offers are considered on a
case-by-case basis.
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 S&P 500® Index, in connection with
certain securities, including the notes. The S&P
500® Index 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, 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 S&P 500® Index to track general
market performance. S&P Dow Jones Indices’ only relationship to
us with respect to the S&P 500® Index 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 S&P 500® Index 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 S&P
500® Index. 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 S&P
500® Index 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 S&P
500® Index. It is possible that this trading activity
will affect the value of the notes.
S&P DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY,
TIMELINESS AND/OR THE COMPLETENESS OF THE S&P 500®
INDEX 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 S&P
500® INDEX 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.
“Standard & Poor’s®”, “S&P 500®” and
“S&P®” are trademarks of S&P. The notes are not
sponsored, endorsed, sold or promoted by S&P and S&P makes
no representation regarding the advisability of investing in the
notes.
14
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