Registration Statement No.333-264388
Filed Pursuant to Rule 424(b)(2)
Pricing Supplement dated September 30, 2022 to the Prospectus dated
May 26, 2022,
the Prospectus Supplement dated May 26, 2022 and the Product
Supplement dated July 22, 2022
US$401,000
Senior Medium-Term Notes, Series I
Barrier Enhanced Return Notes due October 07, 2024
Linked to the S&P 500® Index
|
· |
The notes are designed for
investors who are seeking 200.00% leveraged positive return based
on any appreciation in the level of the S&P 500®
Index (the “Reference Asset”) , subject to the Maximum Redemption
Amount (as defined below). Investors must be willing to accept that
the payment at maturity will not exceed the Maximum Redemption
Amount. |
|
· |
The Maximum Redemption Amount is
$1,304.00 for each $1,000 in principal amount (a 30.40% return on
the notes). |
|
· |
If the Reference Asset decreases
by more than 30.00% 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 such
a case, you will receive a cash amount at maturity that is less
than the principal amount, and may lose up to 100% 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
06374V6E1. |
|
· |
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:
| Pricing Date: |
September
30, 2022 |
|
Valuation Date: |
October
02, 2024 |
| Settlement
Date: |
October 05, 2022 |
|
Maturity
Date: |
October 07,
2024 |
|
|
Price to
Public1 |
Agent’s
Commission1 |
Proceeds to Bank of
Montreal1 |
|
Per Note
Total
|
100%
$401,000.00
|
0.80%
$3,208.00
|
99.20%
$397,792.00
|
1 The total “Agent’s Commission” and “Proceeds to Bank
of Montreal” specified above reflect the aggregate amounts at the
time Bank of Montreal established its hedge positions on or prior
to the Pricing Date, which may have been variable and fluctuated
depending on market conditions at such times. Certain dealers who
purchased the notes for sale to certain fee-based advisory accounts
may have foregone some or all of their selling concessions, fees or
commissions. The public offering price for investors purchasing the
notes in these accounts was between $992.00 and $1,000 per $1,000
in principal amount.
*
Rounded to two decimal places.
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 $960.04 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. |
| |
|
| Payment at Maturity: |
If the Final Level of the Reference Asset is greater than its
Initial Level and the Percentage Change of the Reference Asset
multiplied by the Upside Leverage Factor is greater than or equal
to the Maximum Return, 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 its
Initial Level and the Percentage Change of the Reference Asset
multiplied by the Upside Leverage Factor is less than the Maximum
Return, 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 x
Upside Leverage Factor)]
If the Final Level of the Reference Asset is less than its Initial
Level, but is not less than its Barrier Level, then investors will,
for each $1,000 in principal amount of the notes, receive the
principal amount of $1,000 and no additional return.
If the Final Level of the Reference Asset is less than its Barrier
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)
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: |
200.00% |
| |
|
| Maximum Return: |
30.40% |
| |
|
| Maximum Redemption Amount: |
The payment at maturity will not exceed the Maximum Redemption
Amount of $1,304.00 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
|
| |
|
| Initial Level:2 |
3,585.62 with respect to SPX, which was the closing level
of the Reference Asset on the Pricing Date. |
| |
|
| Barrier Level:2 |
2,509.93 with respect to SPX, which is 70.00% of the Initial
Level (rounded to two decimal places). |
| |
|
| Final Level: |
The closing level of the Reference Asset on the Valuation
Date. |
| |
|
| Pricing Date: |
September 30, 2022 |
| |
|
| Settlement Date: |
October 05, 2022 |
| |
|
| Valuation Date:1 |
October 02, 2024 |
| |
|
| Maturity Date:1 |
October 07, 2024 |
| |
|
| Calculation Agent: |
BMOCM |
| |
|
| Selling Agent: |
BMOCM |
1 Subject to the occurrence of a market disruption
event, as described in the accompanying product supplement.
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.
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 200.00% Upside Leverage Factor, Maximum Return of
30.40%, and Barrier Level of 70.00% 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
|
|
17.70%
15.20%
|
200% Upside Exposure, subject to the Maximum Return
|
30.40%
30.40%
|
|
11.00%
6.00%
|
200% Upside Exposure
|
22.00%
12.00%
|
|
0%
-30%
|
Barrier Level of 70% of Initial Level
|
0%
0%
|
|
-40%
-50%
|
1x Loss Beyond Barrier Level
|
-40%
-50%
|
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/927971/000121465922009101/b721223424b2.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.
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 Barrier Level, you will lose 1% of the principal
amount for each 1% that the Final Level is less than the Initial
Level. 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
zero. Accordingly, you could lose your entire investment in the
notes. |
|
· |
Your return on the notes is limited to the Maximum
Redemption Amount, regardless of any appreciation in the level 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 Percentage Change of the Reference Asset multiplied by
the Upside Leverage Factor exceeds the Maximum Return. |
|
· |
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 the 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. |
|
· |
Our initial estimated value of the notes is 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 exceeds 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. |
|
· |
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 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 were not determined by reference to
the credit spreads for our conventional fixed-rate debt. — To
determine the terms of the notes, we used 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. |
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 Barrier Level of 70.00 (70.00% of the hypothetical
initial level), the Maximum Return of 30.40%, the Maximum
Redemption Amount of $1,304.00, 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% |
$1,304.00 |
30.40% |
|
180.00 |
180.00% |
$1,304.00 |
30.40% |
|
160.00 |
160.00% |
$1,304.00 |
30.40% |
|
140.00 |
140.00% |
$1,304.00 |
30.40% |
|
120.00 |
120.00% |
$1,304.00 |
30.40% |
|
115.20 |
115.20% |
$1,304.00 |
30.40% |
|
110.00 |
110.00% |
$1,200.00 |
20.00% |
|
105.00 |
105.00% |
$1,100.00 |
10.00% |
|
100.00 |
100.00% |
$1,000.00 |
0.00% |
|
95.00 |
95.00% |
$1,000.00 |
0.00% |
|
90.00 |
90.00% |
$1,000.00 |
0.00% |
|
85.00 |
85.00% |
$1,000.00 |
0.00% |
|
80.00 |
80.00% |
$1,000.00 |
0.00% |
|
75.00 |
75.00% |
$1,000.00 |
0.00% |
|
70.00 |
70.00% |
$1,000.00 |
0.00% |
|
69.99 |
69.99% |
$699.90 |
-30.01% |
|
60.00 |
60.00% |
$600.00 |
-40.00% |
|
30.00 |
30.00% |
$300.00 |
-70.00% |
|
0.00 |
0.00% |
$0.00 |
-100.00% |
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 60.00, representing a Percentage Change of –40.00%. Because
the Percentage Change of the Reference Asset is negative and its
hypothetical Final Level is less than its Barrier Level, the
investor receives a payment at maturity of $600.00 per $1,000 in
principal amount of the notes, calculated as follows:
$1,000 + [$1,000 x –40.00%] = $600.00
Example 2: The level of the Reference Asset decreases from the
hypothetical Initial Level of 100.00 to a hypothetical Final Level
of 95.00, representing a Percentage Change of –5%. Although the
Percentage Change of the Reference Asset is negative, because its
hypothetical Final Level is greater than its Barrier Level, the
investor receives a payment at maturity equal to the principal
amount of the notes.
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 110.00, representing a Percentage Change of
10.00%. Because the hypothetical Final Level of the Reference
Asset is greater than its hypothetical Initial Level and the
Percentage Change multiplied by the Upside Leverage Factor does not
exceed the Maximum Return, the investor receives a payment at
maturity of $1,200.00 per $1,000 in principal amount of the notes,
calculated as follows:
$1,000 + $1,000 x (10.00% x 200.00%) = $1,200.00
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%. Because
the hypothetical Final Level of the Reference Asset is greater than
its hypothetical Initial Level, and the Percentage Change
multiplied by the Upside Leverage Factor exceeds the Maximum
Return, the investor receives a payment at maturity of $1,304.00
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 Least Performing Reference Asset.
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 July 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.
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.
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.
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 this pricing supplement in the initial sale of the
notes. In addition, BMOCM or another of our affiliates may use this
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, this 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.
Additional Information Relating to the Estimated Initial Value
of the Notes
Our estimated initial value of the notes on the date hereof that is
set forth on the cover hereof, 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 was 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 own 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.
Validity of the Notes
In the opinion of Osler, Hoskin & Harcourt LLP, the issue and
sale of the notes has been duly authorized by all necessary
corporate action of the Bank in conformity with the Senior
Indenture, and when this pricing supplement has been attached to,
and duly notated on, the master note that represents the notes, the
notes will have been validly executed and issued and, to the extent
validity of the notes is a matter governed by the laws of the
Province of Ontario, or the laws of Canada applicable therein, and
will be valid obligations of the Bank, subject to the following
limitations (i) the enforceability of the Senior Indenture may be
limited by the Canada Deposit Insurance Corporation Act (Canada),
the Winding-up and Restructuring Act (Canada) and bankruptcy,
insolvency, reorganization, receivership, moratorium, arrangement
or winding-up laws or other similar laws affecting the enforcement
of creditors’ rights generally; (ii) the enforceability of the
Senior Indenture may be limited by equitable principles, including
the principle that equitable remedies such as specific performance
and injunction may only be granted in the discretion of a court of
competent jurisdiction; (iii) pursuant to the Currency Act (Canada)
a judgment by a Canadian court must be awarded in Canadian currency
and that such judgment may be based on a rate of exchange in
existence on a day other than the day of payment; and (iv) the
enforceability of the Senior Indenture will be subject to the
limitations contained in the Limitations Act, 2002 (Ontario), and
such counsel expresses no opinion as to whether a court may find
any provision of the Senior Debt Indenture to be unenforceable as
an attempt to vary or exclude a limitation period under that Act.
This opinion is given as of the date hereof and is limited to the
laws of the Provinces of Ontario and the federal laws of Canada
applicable thereto. In addition, this opinion is subject to
customary assumptions about the trustee’s authorization, execution
and delivery of the Indenture and the genuineness of signatures and
certain factual matters, all as stated in the letter of such
counsel dated May 26, 2022, which has been filed as Exhibit 5.3 to
Bank of Montreal’s Form 6-K filed with the SEC and dated May 26,
2022.
In the opinion of Mayer Brown LLP, when this pricing supplement has
been attached to, and duly notated on, the master note that
represents the notes, and the notes have been issued and sold as
contemplated herein, the notes will be valid, binding and
enforceable obligations of Bank of Montreal, entitled to the
benefits of the Senior Indenture, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors’ rights generally,
concepts of reasonableness and equitable principles of general
applicability (including, without limitation, concepts of good
faith, fair dealing and the lack of bad faith). This opinion is
given as of the date hereof and is limited to the laws of the State
of New York. Insofar as this opinion involves matters governed by
the laws of the Province of Ontario, or the laws of Canada
applicable therein, Mayer Brown LLP has assumed, without
independent inquiry or investigation, the validity of the matters
opined on by Osler, Hoskin & Harcourt LLP, Canadian legal
counsel for the issuer, in its opinion expressed above. This
opinion is subject to customary assumptions about the trustee’s
authorization, execution and delivery of the Senior Indenture and
the genuineness of signatures and to such counsel’s reliance on the
Bank of Montreal and other sources as to certain factual matters,
all as stated in the legal opinion of Mayer Brown LLP dated May 26,
2022, which has been filed with the SEC as an exhibit to a report
on Form 6-K by the Bank of Montreal on May 26, 2022.
13
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