Registration Statement No.333-264388
Filed Pursuant to Rule 433
Subject to Completion, dated October 04,
2022
Pricing Supplement to the Prospectus dated May 26, 2022,
the Prospectus Supplement dated May 26, 2022 and the Product
Supplement dated September 22, 2022

US$ [ ]
Senior Medium-Term Notes, Series I
Market Linked Notes due October 30, 2026
Linked to the S&P 500® 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 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 that the payment at
maturity will not exceed the Maximum Redemption Amount. |
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The
Maximum Redemption Amount is $1,355.00 for each $1,000 in principal
amount (a 35.50% 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 06374VAX4. |
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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 |
|
Valuation
Date: |
October
27, 2026 |
Settlement
Date: |
October
31, 2022 |
|
Maturity
Date: |
October
30, 2026 |
1Expected. See “Key Terms of the Notes” below for
additional details.
|
Price
to Public1 |
Agent’s
Commission1 |
Proceeds
to Bank of Montreal1 |
Per Note
Total
|
100%
[ ]
|
2.75%
[ ]
|
97.25%
[ ]
|
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
$972.50 and $1,000 per $1,000 in principal amount. We or one of our
affiliates may also pay a referral fee to certain dealers in
connection with the distribution of the notes.
Investing in the notes involves risks, including those
described in the “Selected Risk Considerations” section beginning
on page P-5 hereof, the “Additional Risk Factors Relating to the
Notes” section beginning on page PS-5 of the product supplement,
and the “Risk Factors” section beginning on page S-1 of the
prospectus supplement and on page 8 of the prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these notes or
passed upon the accuracy of this document, the product supplement,
the prospectus supplement or the prospectus. Any representation to
the contrary is a criminal offense. The notes will be our unsecured
obligations and will not be savings accounts or deposits that are
insured by the United States Federal Deposit Insurance Corporation,
the Deposit Insurance Fund, the Canada Deposit Insurance
Corporation or any other governmental agency or instrumentality or
other entity.
On the date hereof, based on the terms set forth above, the
estimated initial value of the notes is $937.10 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
$890.00 per $1,000 in principal amount. However, as discussed in
more detail below, the actual value of the notes at any time will
reflect many factors and cannot be predicted with accuracy.
BMO CAPITAL MARKETS
Key Terms of the Notes:
Reference
Asset: |
The S&P
500® Index (ticker symbol "SPX") . See "The Reference
Asset" below for additional information. |
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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: |
35.50% |
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Maximum Redemption
Amount: |
The
payment at maturity will not exceed the Maximum Redemption Amount
of $1,355.00 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 |
October 27,
2026 |
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Maturity
Date:1 |
October 30,
2026 |
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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 35.50%. 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 |
40.50%
35.50%
|
100% Upside Exposure, subject to the Maximum Return
|
35.50%
35.50%
|
24.00%
12.00%
|
100% Upside Exposure
|
24.00%
12.00%
|
0%
-100%
|
No Upside Payment
|
0%
0%
|
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. |
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 35.50%, the Maximum Redemption Amount of
$1,355.00, 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% |
$1,355.00 |
35.50% |
180.00 |
180.00% |
$1,355.00 |
35.50% |
160.00 |
160.00% |
$1,355.00 |
35.50% |
140.00 |
140.00% |
$1,355.00 |
35.50% |
135.50 |
135.50% |
$1,355.00 |
35.50% |
110.00 |
110.00% |
$1,100.00 |
10.00% |
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 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 $1,100.00 per $1,000 in principal amount of the notes,
calculated as follows:
$1,000 + $1,000 x (10.00% x 100.00%) = $1,100.00
Example 3: The level of the Reference Asset increases from the
hypothetical Initial Level of 100.00 to a hypothetical Final Level
of 140.00, representing a Percentage Change of 40.00%. 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 $1,355.00
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 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.
Historical Information
The graph below shows the daily historical closing levels of
S&P 500® Index from September 30, 2017 through
September 30, 2022. We obtained the closing level information in
the graph below based on information from Bloomberg
Professional® service without independent verification.
Past performance of the Reference Asset is not indicative of
the future performance of the Reference Asset.

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