Registration Statement No.333-264388
Filed Pursuant to Rule 433
Subject to Completion, dated October 4,
2022
Pricing Supplement to the Prospectus dated May 26, 2022,
the Prospectus Supplement dated May 26, 2022 and the Product
Supplement dated September 22, 2022

US$ [ ]
Senior Medium-Term Notes, Series I
Market Linked Notes due April 30, 2024
Linked to the NASDAQ-100 Index®
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The notes are designed for
investors who are seeking 100.00% positive return based on any
appreciation in the level of the NASDAQ-100 Index® (the
“Reference Asset”) , subject to the Maximum Redemption Amount (as
defined below). Investors must be willing to accept that the
payment at maturity that the payment at maturity will not exceed
the Maximum Redemption Amount. |
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The Maximum Redemption Amount is
$1,093.00 for each $1,000 in principal amount (a 9.30% return on
the notes). |
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If the Final Level of the
Reference Asset decreases from its Initial Level, investors will
receive a cash amount at maturity that is equal to the principal
amount. |
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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 do not bear interest.
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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The CUSIP number of the notes is
06374VAL0. |
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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
26, 2022 |
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Valuation Date: |
April 25,
2024 |
Settlement
Date: |
October 31, 2022 |
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Maturity
Date: |
April 30,
2024 |
1Expected. See “Key Terms of the Notes” below for
additional details.
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Price to
Public1 |
Agent’s
Commission1 |
Proceeds to Bank of
Montreal1 |
Per Note
Total
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100%
[ ]
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1.375%
[ ]
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98.625%
[ ]
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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
$986.25 and $1,000 per $1,000 in principal amount. We or one of our
affiliates may also pay a referral fee to certain dealers in
connection with the distribution of the notes.
Investing in the notes involves risks, including those
described in the “Selected Risk Considerations” section beginning
on page P-5 hereof, the “Additional Risk Factors Relating to the
Notes” section beginning on page PS-5 of the product supplement,
and the “Risk Factors” section beginning on page S-1 of the
prospectus supplement and on page 8 of the prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these notes or
passed upon the accuracy of this document, the product supplement,
the prospectus supplement or the prospectus. Any representation to
the contrary is a criminal offense. The notes will be our unsecured
obligations and will not be savings accounts or deposits that are
insured by the United States Federal Deposit Insurance Corporation,
the Deposit Insurance Fund, the Canada Deposit Insurance
Corporation or any other governmental agency or instrumentality or
other entity.
On the date hereof, based on the terms set forth above, the
estimated initial value of the notes is $967.30 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
$920.00 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 NASDAQ-100 Index®
(ticker symbol "NDX") . See "The Reference Asset" below for
additional information. |
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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 or equal to
its Initial 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.
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Upside Leverage Factor: |
100.00% |
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Maximum Return: |
9.30% |
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Maximum Redemption Amount: |
The payment at maturity will not exceed the Maximum Redemption
Amount of $1,093.00 per $1,000 in principal amount of the
notes. |
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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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Final Level: |
The closing level of the Reference Asset on the Valuation
Date. |
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Pricing Date:1 |
October 26, 2022 |
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Settlement Date:1 |
October 31, 2022 |
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Valuation Date:1 |
April 25, 2024 |
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Maturity Date:1 |
April 30, 2024 |
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Calculation Agent: |
BMOCM |
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Selling Agent: |
BMOCM |
1 Expected and subject to the occurrence of a market
disruption event, as described in the accompanying product
supplement. If we make any change to the expected Pricing Date and
Settlement Date, the Valuation 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.
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 100.00% Upside Leverage Factor, and Maximum Return
of 9.30%. 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
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Hypothetical Return of the
Notes
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14.30%
9.30%
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100% Upside Exposure, subject to the Maximum Return
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9.30%
9.30%
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7.00%
4.00%
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100% Upside Exposure
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7.00%
4.00%
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0%
-100%
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No Upside Payment
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0%
0%
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Additional Terms of the Notes
You should read this document together with the product supplement
dated September 22, 2022, the prospectus supplement dated May 26,
2022 and the prospectus dated May 26, 2022. This document,
together with the documents listed below, contains the terms of the
notes and supersedes all other prior or contemporaneous oral
statements as well as any other written materials including
preliminary or indicative pricing terms, correspondence, trade
ideas, structures for implementation, sample structures, fact
sheets, brochures or other educational materials of ours or the
agent. You should carefully consider, among other things, the
matters set forth in Additional Risk Factors Relating to the Notes
in the product supplement, as the notes involve risks not
associated with conventional debt securities. We urge you to
consult your investment, legal, tax, accounting and other advisers
before you invest in the notes.
You may access these documents on the SEC website at www.sec.gov as
follows (or if such address has changed, by reviewing our filings
for the relevant date on the SEC website):
Product supplement dated September 22, 2022:
https://www.sec.gov/Archives/edgar/data/927971/000121465922011396/j922220424b2.htm
Prospectus supplement dated May 26, 2022 and prospectus dated May
26, 2022:
https://www.sec.gov/Archives/edgar/data/0000927971/000119312522160519/d269549d424b5.htm
Our Central Index Key, or CIK, on the SEC website is 927971. As
used in this document, "we", "us" or "our" refers to Bank of
Montreal.
We have filed a registration statement (including a prospectus)
with the SEC for the offering to which this document relates.
Before you invest, you should read the prospectus in that
registration statement and the other documents that we have filed
with the SEC for more complete information about us and this
offering. You may obtain these documents free of charge by visiting
the SEC's website at http://www.sec.gov. Alternatively, we will
arrange to send to you the prospectus (as supplemented by the
prospectus supplement and product supplement) if you request it by
calling our agent toll-free at 1-877-369-5412.
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 return on the notes is limited to the Maximum
Redemption Amount, regardless of any appreciation in the levels of
the Reference Asset. — The return on your notes will not be
greater than the Maximum Redemption Amount. This will be the case
even if the Percentage Change of the Reference Asset multiplied by
the Upside Leverage Factor exceeds the Maximum Return. |
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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 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
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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 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. |
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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 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 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. |
Risks Relating to the NASDAQ-100® Index
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An investment in the notes is subject to risks associated
with foreign securities markets. — The NASDAQ-100®
Index tracks the value of certain foreign equity securities. You
should be aware that investments in securities linked to the value
of foreign equity securities involve particular risks. The foreign
securities markets comprising the NASDAQ-100® Index may
have less liquidity and may be more volatile than U.S. or other
securities markets and market developments may affect foreign
markets differently from U.S. or other securities markets. Direct
or indirect government intervention to stabilize these foreign
securities markets, as well as cross-shareholdings in foreign
companies, may affect trading prices and volumes in these markets.
Also, there is generally less publicly available information about
foreign companies than about those U.S. companies that are subject
to the reporting requirements of the U.S. Securities and Exchange
Commission, and foreign companies are subject to accounting,
auditing and financial reporting standards and requirements that
differ from those applicable to U.S. reporting companies.
Prices of securities in foreign countries are subject to political,
economic, financial and social factors that apply in those
geographical regions. These factors, which could negatively affect
those securities markets, include the possibility of recent or
future changes in a foreign government’s economic and fiscal
policies, the possible imposition of, or changes in, currency
exchange laws or other laws or restrictions applicable to foreign
companies or investments in foreign equity securities and the
possibility of fluctuations in the rate of exchange between
currencies, the possibility of outbreaks of hostility and political
instability and the possibility of natural disaster or adverse
public health developments in the region. Moreover, foreign
economies may differ favorably or unfavorably from the U.S. economy
in important respects such as growth of gross national product,
rate of inflation, capital reinvestment, resources and
self-sufficiency. |
General Risk Factors
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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 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. |
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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 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. |
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U.S. taxpayers will be
required to pay taxes on the notes each year. — The notes will
likely be treated as debt instruments subject to special rules
governing contingent payment debt instruments for U.S. federal
income tax purposes. If you are a United States holder (as defined
in the accompanying prospectus), you generally will be required to
pay taxes on ordinary income over the term of the notes based on
the comparable yield for the notes, even though you will not
receive any payments from us until maturity. This comparable yield
is determined solely to calculate the amounts you will be taxed on
prior to maturity and is neither a prediction nor a guarantee of
what the actual yield will be. Any gain you may recognize on the
sale or maturity of the notes will be ordinary income. Any loss you
may recognize upon the sale of the notes will generally be ordinary
loss to the extent of the interest you included as income in the
current or previous taxable years in respect of the notes and
thereafter will be capital loss. |
Please read carefully the
section entitled "U.S. Federal Tax Information" in this pricing
supplement, 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, the
Maximum Return of 9.30%, the Maximum Redemption Amount of
$1,093.00, 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% |
$1,093.00 |
9.30% |
180.00 |
180.00% |
$1,093.00 |
9.30% |
160.00 |
160.00% |
$1,093.00 |
9.30% |
140.00 |
140.00% |
$1,093.00 |
9.30% |
120.00 |
120.00% |
$1,093.00 |
9.30% |
109.30 |
109.30% |
$1,093.00 |
9.30% |
105.00 |
105.00% |
$1,050.00 |
5.00% |
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% |
0.00 |
0.00% |
$1,000.00 |
0.00% |
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 95.00, representing a Percentage Change of –5%. Because the
Percentage Change of the Reference Asset is negative, the investor
receives a payment at maturity of $1,000.00 per $1,000 in principal
amount of the notes.
Example 2: The level of the of the Reference Asset increases
from the hypothetical Initial Level of 100.00 to a hypothetical
Final Level of 105.00, representing a Percentage Change of
5.00%. 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 $1,050.00 per $1,000 in principal amount of the notes,
calculated as follows:
$1,000 + $1,000 x (5.00% x 100.00%) = $1,050.00
Example 3: 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 $1,093.00
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 Reference Asset.
U.S. Federal Tax Information
We intend to treat the notes, and in the opinion of our counsel,
Mayer Brown LLP, the notes should be treated, as debt instruments
subject to the special rules governing contingent payment debt
instruments for U.S. federal income tax purposes. Please see the
discussion in the product supplement dated September 22, 2022 under
“Supplemental Tax Considerations—Supplemental U.S. Federal Income
Tax Considerations—Notes Treated as Indebtedness—Where the Term of
the Notes Exceeds One Year,” 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.
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 NASDAQ-100® Index
The NASDAQ-100 Index® is a modified market
capitalization-weighted index of 100 of the largest stocks of both
U.S. and non-U.S. non-financial companies listed on The NASDAQ
Stock Market based on market capitalization. It does not contain
securities of financial companies, including investment companies.
The NASDAQ-100 Index® which includes companies across a
variety of major industry groups, was launched on January 31, 1985,
with a base index value of 250.00. On January 1, 1994, the base
index value was reset to 125.00. The NASDAQ-100 Index®
composition is reviewed on an annual basis in December. Nasdaq,
Inc. publishes the NASDAQ-100 Index®. Current
information regarding the market value of the Nasdaq-100
Index® is available from Nasdaq, Inc. as well as
numerous market information services.
The share weights of the component securities of the Nasdaq-100
Index® at any time are based upon the total shares
outstanding in each of those securities and are additionally
subject, in certain cases, to rebalancing. Accordingly, each
underlying stock’s influence on the level of the NASDAQ-100
Index® is directly proportional to the value of its
share weight.
Index Calculation
At any moment in time, the level of the NASDAQ-100
Index® equals the aggregate value of the then-current
share weights of each of the component securities, which are based
on the total shares outstanding of each such component security,
multiplied by each such security’s respective last sale price on
The NASDAQ Stock Market (which may be the official closing price
published by The NASDAQ Stock Market), and divided by a scaling
factor (the “divisor”), which becomes the basis for the reported
level of the NASDAQ-100 Index®. The divisor serves the
purpose of scaling such aggregate value to a lower order of
magnitude, which is more desirable for reporting purposes.
Underlying Stock Eligibility Criteria and Annual Ranking
Review
Initial Eligibility Criteria
To be eligible for initial inclusion in the NASDAQ-100
Index®, a security must be listed on The NASDAQ Stock
Market and meet the following criteria:
|
· |
the security’s U.S. listing must be exclusively on the NASDAQ
Global Select Market or the NASDAQ Global Market; |
|
· |
the security must be issued by a non-financial company (any
industry other than financials) according to the Industry
Classification Benchmark (ICB); |
|
· |
the security may not be issued by an issuer currently in
bankruptcy proceedings; |
|
· |
the security must generally be a common stocks, ordinary
shares, American Depositary Receipts (ADRs), or tracking stock
(closed-end funds, convertible debentures, exchange traded funds,
limited liability companies, limited partnership interests,
preferred stocks, rights, shares or units of beneficial interests,
warrants, units and other derivative securities are not included in
the NASDAQ-100 Index®, nor are the securities of
investment companies). Companies organized as Real Estate
Investment Trusts (“REITs”) are not eligible for index inclusion.
If the security is a depositary receipt representing a security of
a non-U.S. issuer, then references to the "issuer" are references
to the underlying security and the total shares outstanding (“TSO”)
is the actual depositary shares outstanding as reported by the
depositary banks; |
|
· |
the security must have a three-month average daily trading
volume of at least 200,000 shares; |
|
· |
if the security is issued by an issuer organized under the laws
of a jurisdiction outside the United States, it must have listed
options on a recognized market in the United States or be eligible
for listed-options trading on a recognized options market in the
United States; |
|
· |
the issuer of the security may not have entered into a
definitive agreement or other arrangement that would make it
ineligible for index inclusion and where the transaction is
imminent as determined by the Index Management Committee; |
|
· |
the issuer of the security may not have annual financial
statements with an audit opinion that is currently withdrawn;
and |
|
· |
the issuer of the security must have “seasoned” on the NASDAQ
Stock Market or another recognized market (generally, a company is
considered to be seasoned if it has been listed on a market for at
least three full months, excluding the first month of initial
listing). |
Continued Eligibility Criteria
In addition, to be eligible for continued inclusion in the
NASDAQ-100 Index® the following criteria
apply:
|
· |
the security’s U.S. listing must be exclusively on the NASDAQ
Global Select Market or the NASDAQ Global Market; |
|
· |
the security must be issued by a non-financial company; |
|
· |
the security may not be issued by an issuer currently in
bankruptcy proceedings; |
|
· |
the security must have an average daily trading volume of at
least 200,000 shares in the previous three-month trading period as
measured annually during the ranking review process described
below; |
|
· |
if the issuer of the security is organized under the laws of a
jurisdiction outside the United States, then such security must
have listed options on a recognized market in the United States or
be eligible for listed-options trading on a recognized options
market in the United States, as measured annually during the
ranking review process; |
|
· |
the issuer of the security may not have entered into a
definitive agreement or other arrangement that would likely result
in the security no longer being eligible; |
|
· |
the security must have an adjusted market capitalization equal
to or exceeding 0.10% of the aggregate adjusted market
capitalization of the NASDAQ-100 Index® at
each month-end. In the event that a company does not meet this
criterion for two consecutive month-ends, it will be removed from
the NASDAQ-100 Index® effective after the
close of trading on the third Friday of the following month;
and |
|
· |
the issuer of the security may not have annual financial
statements with an audit opinion that is currently withdrawn. |
These eligibility criteria may be revised from time to time by
Nasdaq, Inc. without regard to the notes.
Annual Ranking Review
The component securities are evaluated on an annual basis (the
“Ranking Review”), except under extraordinary circumstances, which
may result in an interim evaluation, as follows. Securities that
meet the applicable eligibility criteria are ranked by market
value. Eligible securities that are already in the NASDAQ-100
Index® and that are ranked in the top 100
eligible securities (based on market capitalization) are retained
in the NASDAQ-100 Index®. A security that is
ranked 101 to 125 is also retained, provided that such security was
ranked in the top 100 eligible securities as of the previous
Ranking Review or was added to the NASDAQ-100
Index® subsequent to the previous Ranking
Review. Securities not meeting such criteria are replaced. The
replacement securities chosen are those eligible securities not
currently in the NASDAQ-100 Index® that have
the largest market capitalization. The data used in the ranking
includes end of October market data and is updated for total shares
outstanding submitted in a publicly filed SEC document via EDGAR
through the end of November.
Replacements are made effective after the close of trading on the
third Friday in December. Moreover, if at any time during the year
other than the Ranking Review, a component security is determined
by NASDAQ OMX to become ineligible for continued inclusion in the
NASDAQ-100 Index®, the security will be
replaced with the largest market capitalization security meeting
the eligibility criteria listed above and not currently included in
the NASDAQ-100 Index®. Issuers that are added
as a result of a spin-off are not replaced until after they have
been included in a reconstitution.
Index Maintenance
In addition to the Ranking Review, the securities NASDAQ-100
Index® are monitored every day by Nasdaq, Inc. with
respect to changes in total shares outstanding arising from
corporate events, such as stock dividends, stock splits and certain
spin-offs and rights issuances. Nasdaq, Inc. has adopted the
following quarterly scheduled weight adjustment procedures with
respect to those changes. If the change in total shares outstanding
arising from a corporate action is greater than or equal to 10%,
that change will be made to the NASDAQ-100 Index® as
soon as practical, normally within ten days of such corporate
action. Otherwise, if the change in total shares outstanding is
less than 10%, then all such changes are accumulated and made
effective at one time on a quarterly basis after the close of
trading on the third Friday in each of March, June, September and
December.
In either case, the share weights for those component securities
are adjusted by the same percentage amount by which the total
shares outstanding have changed in those securities. Ordinarily,
whenever there is a change in the share weights, a change in a
component security, or a change to the price of a component
security due to spin-off, rights issuances or special cash
dividends, Nasdaq, Inc. adjusts the divisor to ensure that there is
no discontinuity in the level of the NASDAQ-100 Index®
that might otherwise be caused by any of those changes. All changes
will be announced in advance.
Index Rebalancing
Under the methodology employed, on a quarterly basis coinciding
with Nasdaq, Inc.’s quarterly scheduled weight adjustment
procedures, the component securities are categorized as either
“Large Stocks” or “Small Stocks” depending on whether their current
percentage weights (after taking into account scheduled weight
adjustments due to stock repurchases, secondary offerings or other
corporate actions) are greater than, or less than or equal to, the
average percentage weight in the NASDAQ-100 Index®
(i.e., as a 100-stock index, the average percentage weight in the
NASDAQ-100 Index® is 1%).
This quarterly examination will result in an index rebalancing if
it is determined that: (1) the current weight of the single largest
market capitalization component security is greater than 24% or (2)
the “collective weight” of those component securities, the
individual current weights of which are in excess of 4.5%, when
added together, exceed 48%. In addition, Nasdaq, Inc. may conduct a
special rebalancing at any time if it is determined to be necessary
to maintain the integrity of the NASDAQ-100 Index®.
If either one or both of these weight distribution requirements are
met upon quarterly review, or Nasdaq, Inc. determines that a
special rebalancing is required, a weight rebalancing will be
performed. First, relating to weight distribution requirement (1)
above, if the current weight of the single largest component
security exceeds 24%, then the weights of all Large Stocks will be
scaled down proportionately towards 1% by enough of an amount for
the adjusted weight of the single largest component security to be
set to 20%. Second, relating to weight distribution requirement (2)
above, for those component securities whose individual current
weights or adjusted weights in accordance with the preceding step
are in excess of 4.5%, if their “collective weight” exceeds 48%,
then the weights of all Large Stocks will be scaled down
proportionately towards 1% by just enough amount for the
“collective weight,” so adjusted, to be set to 40%.
The aggregate weight reduction among the Large Stocks resulting
from either or both of the above rescalings will then be
redistributed to the Small Stocks in the following iterative
manner. In the first iteration, the weight of the largest Small
Stock will be scaled upwards by a factor which sets it equal to the
average Index weight of 1.0%. The weights of each of the smaller
remaining Small Stocks will be scaled up by the same factor,
reduced in relation to each stock’s relative ranking among the
Small Stocks, such that the smaller the component security in the
ranking, the less the scale-up of its weight. This is intended to
reduce the market impact of the weight rebalancing on the smallest
component securities in the NASDAQ-100
Index®.
In the second iteration, the weight of the second largest Small
Stock, already adjusted in the first iteration, will be scaled
upwards by a factor which sets it equal to the average index weight
of 1%. The weights of each of the smaller remaining Small Stocks
will be scaled up by this same factor, reduced in relation to each
stock’s relative ranking among the Small Stocks, such that, once
again, the smaller the component stock in the ranking, the less the
scale-up of its weight.
Additional iterations will be performed until the accumulated
increase in weight among the Small Stocks exactly equals the
aggregate weight reduction among the Large Stocks from rebalancing
in accordance with weight distribution requirement (1) and/or
weight distribution requirement (2).
Then, to complete the rebalancing procedure, once the final percent
weights of each of the component securities are set, the share
weights will be determined anew based upon the last sale prices and
aggregate capitalization of the NASDAQ-100 Index® at the
close of trading on the last day in February, May, August and
November. Changes to the share weights will be made effective after
the close of trading on the third Friday in March, June, September
and December, and an adjustment to the divisor will be made to
ensure continuity of the NASDAQ-100 Index®.
Ordinarily, new rebalanced weights will be determined by applying
the above procedures to the current share weights. However, Nasdaq,
Inc. may from time to time determine rebalanced weights, if
necessary, by instead applying the above procedure to the actual
current market capitalization of the component securities. In those
instances, Nasdaq, Inc. would announce the different basis for
rebalancing prior to its implementation.
License Agreement
The notes are not sponsored, endorsed, sold or promoted by Nasdaq,
Inc. or its affiliates (NASDAQ, with its affiliates, are referred
to as the “Corporations”). The Corporations have not passed on the
legality or suitability of, or the accuracy or adequacy of
descriptions and disclosures relating to, the notes. The
Corporations make no representation or warranty, express or implied
to the owners 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 NASDAQ-100
Index® to track general stock market performance. The
Corporations' only relationship to the Issuer (“Licensee”) is in
the licensing of the Nasdaq®, the NASDAQ-100
Index®, and certain trade names of the Corporations and
the use of the NASDAQ-100 Index® which is determined,
composed and calculated by NASDAQ without regard to Licensee or the
notes. NASDAQ has no obligation to take the needs of the Licensee
or the owners of the notes into consideration in determining,
composing or calculating the NASDAQ-100 Index®. The
Corporations are not responsible for and have not participated in
the determination of the timing of, prices at, or quantities of the
notes to be issued or in the determination or calculation of the
equation by which the notes are to be converted into cash. The
Corporations have no liability in connection with the
administration, marketing or trading of the notes.
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR
UNINTERRUPTED CALCULATION OF NASDAQ-100
Index® OR ANY DATA INCLUDED THEREIN, THE
CORPORATIONS MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY LICENSEE, OWNERS OF THE NOTES, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE NASDAQ-100
Index® OR ANY DATA INCLUDED THEREIN. THE
CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ-100
Index® OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS
HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
13
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