Registration Statement No. 333-264388
Filed Pursuant to Rule 424(b)(2)
Amendment No. 22 dated October 3, 2022 to the Pricing Supplement
dated January 22, 2018
to the Prospectus dated May 26, 2022 and
the Series D Senior Medium-Term Notes Prospectus Supplement dated
April 27, 2017

Issued by Bank of Montreal
95,000,000 Notes
MicroSectors™ FANG+™ Index 3X Leveraged ETNs due January 8,
2038*
This pricing supplement relates to the MicroSectors™ FANG+™ Index
3X Leveraged Exchange Traded Notes due January 8, 2038 (the
“notes”) that Bank of Montreal may issue from time to time. The
return on the notes is linked to a daily resetting three times
leveraged participation in the daily performance of the gross total
return version of the NYSE® FANG+® Index (the
“Index”), as described in this pricing supplement. The Index is an
equal-dollar weighted index designed to represent a segment of the
technology, media & communications and consumer discretionary
sectors consisting of highly-traded growth stocks of technology and
tech-enabled companies. The Index currently has 10 constituents.
The notes are unsecured and unsubordinated obligations of Bank of
Montreal. The notes do not guarantee any return of principal at
maturity, call or upon early redemption, and do not pay interest.
Instead, you will receive a cash payment in U.S. dollars at
maturity, call or redemption based on a three times leveraged
participation in the performance of the Index, less a Daily
Investor Fee, the Daily Financing Charge and, if upon early
redemption, the Redemption Fee Amount. You may lose some or all of
your principal.
On October 3, 2022, the closing price of the notes on the NYSE Arca
was $6.12 per note, and the closing Indicative Note Value per note
was $6.1229.
The notes are intended to be daily trading tools for
sophisticated investors to manage daily trading risks as part of an
overall diversified portfolio. They are designed to achieve their
stated investment objectives on a daily basis. The notes are
designed to reflect a 3x leveraged long exposure to the performance
of the Index on a daily basis (before taking into account the
negative effect of the Daily Investor Fee and the Daily Financing
Charge, and the Redemption Fee Amount, if applicable). However, due
to the daily resetting leverage, the returns on the notes over
different periods of time can, and most likely will, differ
significantly from three times the return on a direct long
investment in the Index. Their performance over longer periods of
time can differ significantly from their stated daily objectives.
The notes are riskier than securities that have intermediate- or
long-term investment objectives, and may not be suitable for
investors who plan to hold them for a period other than one day or
who have a “buy and hold” strategy. Also, the Index is potentially
volatile as it includes only a small number of constituents (10, as
of the date of this pricing supplement); any Index volatility would
be magnified by the leverage. Accordingly, the notes should be
purchased only by knowledgeable investors who understand the
potential consequences of investing in the Index and of seeking
daily compounding leveraged investment results. Investors should
actively and continuously monitor their investments in the notes,
even intra-day. It is possible that you will suffer significant
losses in the notes even if the long-term performance of the Index
is positive. You should proceed with extreme caution in
considering an investment in the notes. Any payment on the notes is
subject to the credit risk of Bank of Montreal.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the notes or
passed upon the accuracy or the adequacy of this pricing
supplement, the accompanying prospectus supplement and prospectus.
Any representation to the contrary is a criminal offense.
Investing in the notes involves risks, including those
described in the “Risk Factors” section beginning on page PS-13 of
this pricing supplement, and the “Risk Factors” sections beginning
on page S-1 of the prospectus supplement and on page 8 of the
prospectus.
The notes are 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.
The principal terms of the notes are as follows:
Issuer: |
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Bank of Montreal |
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Principal Amount: |
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$5 per note ($475,000,000 in aggregate principal amount,
representing 95,000,000 notes expected to be outstanding as of
October 4, 2022), after giving effect to a 10-for-1 split that
became effective on February 12, 2021)
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Initial Trade Date: |
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January 22, 2018 |
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Initial Issue Date: |
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January 25, 2018 |
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Term: |
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20
years, subject to your right to require us to redeem your notes on
any Redemption Date, our call right or our right to extend the
maturity date, each as described below. |
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BMO CAPITAL MARKETS
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(cover continued on next page)
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Maturity Date*: |
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January 8, 2038, which is scheduled to be the third Business Day
following the last Index Business Day in the Final Measurement
Period. The Maturity Date may be extended at our option for up to
two additional 5-year periods, as described below. The Maturity
Date is also subject to adjustment as described below and under
“Specific Terms of the Notes — Market Disruption Events.”
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Listing: |
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The
notes are listed on the NYSE Arca, Inc. (the “NYSE”) under the
ticker symbol listed below. The CUSIP and ISIN numbers, and the
Intraday Indicative Value ticker symbol, for the notes are:
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Ticker
Symbol |
CUSIP
Number |
ISIN Number |
Intraday
Indicative Value
Symbol |
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FNGU |
063679872 |
US0636798722 |
FNGUIV |
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If an active secondary market develops, we expect
that investors will purchase and sell the notes primarily in this
secondary market. |
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Interest Payments:
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None.
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Index: |
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The return on the notes is linked to a three
times leveraged participation in the performance of the
NYSE®
FANG+® Index, total return, compounded daily, minus the
applicable fees. The Index is an equal-dollar weighted index
designed to represent a segment of the technology, media &
communications and consumer discretionary sectors consisting of
highly-traded growth stocks of technology and tech-enabled
companies. The Index currently has
10 constituents.
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Payment at
Maturity/Cash
Settlement Amount: |
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If you hold your notes to
maturity, you will receive a cash payment in U.S. dollars at
maturity in an amount equal to the arithmetic mean of the closing
Indicative Note Values on each Index Business Day in the Final
Measurement Period. This amount will not be less than $0. |
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Indicative
Note Value: |
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On the Initial Trade Date, the Indicative Note Value of each note
was equal to the principal amount of $50. On any subsequent
Exchange Business Day until maturity, call or redemption of the
notes, the closing Indicative Note Value will equal (a) the Long
Index Amount on that Exchange Business Day minus (b) the
Financing Level on such Exchange Business Day; provided that if
such calculation results in a value equal to or less than $0, the
closing Indicative Note Value will be $0. If the closing Indicative
Note Value is $0 on any Exchange Business Day or the Intraday
Indicative Value at any time during an Exchange Business Day is
equal to or less than $0, then the Indicative Note Value on all
future Exchange Business Days will be $0. If the Indicative
Note Value is $0, the Cash Settlement Amount will be $0. On
February 12, 2021, we effected a 10-for-1 split of the notes. The
closing Indicative Value of the Notes on February 11, 2020 was
divided by 10 to determine the split-adjusted Indicative Note
Value.
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Long Index
Amount: |
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On the Initial Trade Date, the
Long Index Amount was equal to the Daily Leverage Factor
times the principal amount, which was equal to $150. On any
subsequent Exchange Business Day until maturity, call or redemption
of the notes, the Long Index Amount will equal the product of
(a) the closing Indicative Note Value on the immediately
preceding Exchange Business Day times (b) the Daily Leverage
Factor times (c) the Index Performance Factor on such
Exchange Business Day. |
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Financing
Level: |
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On the Initial Trade Date, the
Financing Level was equal to the Long Index Amount minus the
principal amount on the Initial Trade Date, which was equal to
$100. On any subsequent Exchange Business Day until maturity, call
or redemption of the notes, the Financing Level will equal (a) the
closing Indicative Note Value on the immediately preceding Exchange
Business Day times the Daily Financing Factor plus
(b) the Daily Financing Charge on such Exchange Business Day
plus (c) the Daily Investor Fee on such Exchange Business
Day. |
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Daily Leverage
Factor: |
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3 |
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Daily
Financing Factor: |
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2 |
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Index Performance Factor: |
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On the Initial Trade Date, the Index Performance Factor was set
equal to 1. On any subsequent Exchange Business Day until maturity,
call or redemption of the notes, the Index Performance Factor will
equal (a) the Index Closing Level on such Exchange Business Day
(or, if such day is not an Index Business Day, the Index Closing
Level on the immediately preceding Index Business Day) divided
by (b) the Index Closing Level on the immediately
preceding Index Business Day, as determined by the Calculation
Agent. If a Market Disruption Event occurs or is continuing on any
Index Business Day, the Calculation Agent will determine the Index
Performance Factor for the notes on each such Index Business Day
using an appropriate closing level of the Index for each such Index
Business Day taking into account the nature and duration of such
Market Disruption Event. Furthermore, if a Market Disruption Event
occurs and is continuing with respect to the notes on any Index
Business Day or occurred or was continuing on the immediately
preceding Index Business Day, the calculation of the Index
Performance Factor will be modified so that the applicable
leveraged exposure does not reset until the first Index Business
Day on which no Market Disruption Event with respect to the notes
is continuing.
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Daily
Financing Charge: |
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On the Initial Trade Date, the
Daily Financing Charge was $0. On any subsequent Exchange Business
Day until maturity, call or redemption of the notes, the Daily
Financing Charge will equal the product of (a) the closing
Indicative Note Value on the immediately preceding Exchange
Business Day times (b) the Daily Financing Factor
times (c) the Daily Financing Rate divided by (d) 365
times (e) the number of calendar days since the last
Exchange Business Day. Because the Daily Financing Charge is
calculated and added to the Financing Level on a daily basis, the
net effect of the Daily Financing Charge accrues over time. |
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Daily
Financing Rate: |
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The Daily Financing Rate will equal (a) the most recent US Federal
Funds Effective Rate plus (b) 1.00%. The US Federal Funds
Effective Rate is an interest rate that represents the rate at
which U.S. banks may lend reserve balances to other depository
institutions overnight, on an uncollateralized basis. The rate is
released by the NY Federal Reserve each day at approximately 9:00
a.m. EST for the prior business day and published on Bloomberg L.P.
(including any successor, “Bloomberg”) page “FEDL01 Index”.
Increases in the US Federal Funds Effective Rate will increase the
Daily Financing Rate, and, all other things remaining equal, will
reduce the return on the notes.
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Daily Investor
Fee: |
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On the Initial Trade Date, the
Daily Investor Fee was set equal to $0. On any subsequent Exchange
Business Day until maturity, call or redemption of the notes, the
Daily Investor Fee will equal the product of (a) the Indicative
Note Value at the close of the immediately preceding Exchange
Business Day times (b) the Fee Rate divided by (c)
365 times (d) the number of calendar days since the last
Exchange Business Day. Because the Daily Investor Fee is calculated
as part of the Financing Level through which it is subtracted from
the closing Indicative Note Value on a daily basis, the net effect
of the Daily Investor Fee accumulates over time and is subtracted
at a rate per year equal to the Fee Rate specified below. Because
the net effect of the Daily Investor Fee is a fixed percentage of
the value of the notes, the aggregate effect of the Daily Investor
Fee will increase or decrease in a manner directly proportional to
the value of the notes and the amount of notes that are held. |
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Fee Rate: |
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0.95% per annum |
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Call
Right: |
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On any Index Business Day through and including the Maturity Date
(the “Call Settlement Date”), we may redeem all, but not less than
all, of the issued and outstanding notes. To exercise our call
right, we must provide notice to the holders not less than 14
calendar days prior to the Call Settlement Date. If we exercise our
Call Right, you will receive a cash payment equal to the Call
Settlement Amount, which will be paid on the Call Settlement
Date.
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Call
Settlement Amount: |
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If we exercise our Call Right,
for each note, you will receive on the Call Settlement Date a cash
payment equal to the arithmetic mean of the closing Indicative Note
Values on each Index Business Day in the Call Measurement
Period. |
(cover continued on next page)
Early Redemption: |
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Subject to your
compliance with the procedures described under “Specific Terms of
the Notes — Early Redemption at the Option of the Holders,” upon
early redemption, you will receive per note a cash payment on the
relevant Redemption Date equal to (a) Indicative Note Value as
of the Redemption Measurement Date minus (b) the
Redemption Fee Amount. We refer to this cash payment as the
“Redemption Amount.” |
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Redemption Fee
Amount: |
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As of any Redemption Date, an
amount per note in cash equal to the product of (a) 0.125% and
(b) the Indicative Note Value. |
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Initial Index
Level: |
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2,466.45, which was the Index
Closing Level on the Initial Trade Date. |
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Index Closing
Level: |
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On any Index Business Day, the
closing level of the Index as reported on Bloomberg under the
symbol “NYFANGT <Index>”, subject to adjustment as described
under “Specific Terms of the Notes — Market Disruption
Events.” |
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Intraday
Indicative Value: |
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The Intraday Indicative Value of
the notes at any time during an Exchange Business Day will equal
(a) the Intraday Long Index Amount minus (b) the Financing
Level; provided that if such calculation results in a value equal
to or less than $0, the Intraday Indicative Value will be $0. If
the Intraday Indicative Value is equal to or less than $0 at any
time on any Exchange Business Day, then both the Intraday
Indicative Value and the closing Indicative Note Value on that
Exchange Business Day, and on all future Exchange Business Days,
will be $0. |
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Intraday Long
Index
Amount: |
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The Intraday Long
Index Amount will equal the product of (a) the closing Indicative
Note Value on the immediately preceding Exchange Business Day
times (b) the Daily Leverage Factor times (c) the
Intraday Index Performance Factor. |
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Intraday Index
Performance
Factor: |
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The Intraday
Index Performance Factor will equal (a) the most recently published
level of the Index divided by (b) the Index Closing Level on
the immediately preceding Index Business Day. |
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Calculation
Agent: |
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BMO Capital Markets Corp. |
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No Conversion
into
Common Shares: |
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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”). |
The notes are not intended to be “buy and hold” investments. The
notes are intended to be daily trading tools for sophisticated
investors and are not intended to be held to
maturity.
The notes are designed to reflect a 3x leveraged long exposure
to the performance of the Index on a daily basis, but the returns
on the notes over different periods of time can, and most likely
will, differ significantly from three times the return on a direct
long investment in the Index. Also, the Index is potentially
volatile as it includes only a small number of constituents (10, as
of the date of this pricing supplement); any Index volatility would
be magnified by the leverage. Accordingly, the notes should be
purchased only by knowledgeable investors who understand the
potential consequences of investing in the Index and of seeking
daily compounding leveraged investment results. Investors should
actively and continuously monitor their investments in the notes,
even intra-day.
Because your investment in the notes is three times leveraged,
any decrease in the level of the Index will result in a
significantly greater decrease in the Cash Settlement Amount, Call
Settlement Amount or Redemption Amount, as applicable (before
taking into account the Daily Investor Fee and the Daily Financing
Charge), and you may receive less than your original investment in
the notes at maturity, call or upon redemption, or if you sell your
notes in the secondary market. Due to leverage, the notes are very
sensitive to changes in the level of the Index and the path of such
changes. Moreover, because the Daily Investor Fee and Daily
Financing Charge may substantially reduce the amount of your return
at maturity, call or upon redemption, the level of the Index must
increase significantly in order for you to receive at least the
principal amount of your investment at maturity, call or upon
redemption, or if you sell your notes. If the level of the Index
decreases or does not increase sufficiently to offset the negative
effect of the Daily Investor Fee and Daily Financing Charge, you
will receive less than the principal amount of your investment at
maturity, call or upon redemption, or if you sell your
notes.
After the date of this document, we may sell from time to time a
portion of the notes at prices that are based on the Indicative
Note Value at the time of sale, at prices related to market prices
or at negotiated prices. We will receive proceeds equal to 100% of
the price at which the notes are sold to the public less any
commissions paid to BMO Capital Markets Corp. ("BMOCM"). BMOCM may
charge normal commissions in connection with any purchase or sale
of the notes. Please see “Supplemental Plan of Distribution
(Conflicts of Interest)” for more information.
If there is a substantial demand for the notes, we may issue and
sell additional notes to BMOCM, and BMOCM may sell those notes to
investors and dealers, potentially frequently. However, we and
BMOCM are under no obligation to issue or sell additional notes at
any time, and if we and BMOCM do issue and sell additional notes,
we or BMOCM may limit or restrict such sales, and we may stop and
subsequently resume selling additional notes at any time.
Furthermore, the stated principal amount of the notes stated at the
top of the cover page of this pricing supplement is the maximum
amount of the notes that we have currently authorized for issuance.
Although we have the right to increase the authorized amount of the
notes at any time, it is our current intention not to issue more
than the current maximum authorized amount of the notes, even if
there is substantial market demand for additional notes. We may
also reduce the maximum authorized amount of the notes at any time,
and we have no obligation to issue up to the maximum authorized
amount.
We may use this pricing supplement in the initial sale of the
notes. In addition, BMOCM or another of our affiliates may use this
pricing supplement in market-making transactions in the notes after
their initial sale. Unless we or our agent informs you
otherwise in the confirmation of sale or in a notice delivered at
the same time as the confirmation of sale, this pricing supplement
is being used in a market-making transaction.
*This Amendment No. 22 to the pricing supplement dated January 22,
2018 (as amended, the “pricing supplement”) relates to a maximum
aggregate principal amount of $475,000,000 of the notes
(representing 95,000,000 notes), $450,000,000 aggregate principal
amount of which were previously issued, and which we refer to as
the “original notes,” and an additional $25,000,000 in principal
amount that we expect to issue on October 4, 2022, and which we
refer to as the “reopened notes.” The reopened notes will be sold
from time to time at the various prices described above. See
“Specific Terms of the Notes – Reissuances or Reopened Issues.”
TABLE OF CONTENTS
Page
Pricing Supplement
Summary |
PS-1 |
Risk Factors |
PS-13 |
Hypothetical Examples |
PS-30 |
Specific Terms of the Notes |
PS-42 |
Intraday Value of the Index and the Notes |
PS-51 |
The Index |
PS-54 |
Use of Proceeds and Hedging |
PS-62 |
Supplemental Tax Considerations |
PS-63 |
Employee Retirement Income Security Act |
PS-69 |
Supplemental Plan of Distribution (Conflicts of Interest) |
PS-70 |
Validity of the Notes |
PS-72 |
Notice of Early Redemption |
A-1 |
Broker’s Confirmation of Redemption |
B-1 |
You should read this pricing supplement together with the
prospectus supplement dated April 27, 2017 and the prospectus dated
May 26, 2022. This pricing supplement, 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. We urge you
to consult your investment, legal, tax, accounting and other
advisers before you invest in the notes. The contents of any
website referred to in this pricing supplement are not incorporated
by reference in this pricing supplement, the accompanying
prospectus supplement or prospectus.
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):
Since the date that the notes were initially issued, we have
prepared a new “base” prospectus dated May 26, 2022. Accordingly,
please note that references in the prospectus supplement to the
“prospectus” will be deemed to refer to the prospectus dated May
26, 2022.
Our Central Index Key, or CIK, on the SEC website is 927971. As
used in this pricing supplement, “we,” “us” or “our” refers to Bank
of Montreal.
The notes described in this pricing supplement are not appropriate
for all investors, and involve important legal and tax consequences
and investment risks, which should be discussed with your
professional advisers. You should be aware that the regulations of
the Financial Industry Regulatory Authority, Inc., or FINRA, and
the laws of certain jurisdictions (including regulations and laws
that require brokers to ensure that investments are suitable for
their customers) may limit the availability of the notes. This
pricing supplement and the accompanying prospectus supplement and
prospectus do not constitute an offer to sell or a solicitation of
an offer to buy the notes in any circumstances in which such offer
or solicitation is unlawful.
SUMMARY
The following is a summary of
terms of the notes, as well as a discussion of factors you should
consider before purchasing the notes. The information in this
section is qualified in its entirety by the more detailed
explanations set forth elsewhere in this pricing supplement and in
the accompanying prospectus supplement and accompanying
prospectus.
The reopened notes, together with the original notes that we issued
beginning on January 25, 2018, have identical terms and are part of
a single series of medium-term notes. In this pricing supplement,
the term “notes” collectively refers to the reopened notes that we
are initially offering as of the date of this amended pricing
supplement and the original notes, unless the context otherwise
requires.
What are the notes?
The notes are senior unsecured
medium-term notes issued by Bank of Montreal with a return linked
to a three times leveraged participation in the performance of the
Index, compounded daily, less a Daily Investor Fee, the Daily
Financing Charge and, if applicable, the Redemption Fee Amount. The
Index is an equal-dollar weighted index designed to represent a
segment of the technology, media & communications and consumer
discretionary sectors consisting of highly-traded growth stocks of
technology and tech-enabled companies. The Index has
10 constituents as of the date of this pricing supplement. The
Index is a total return index. For a detailed description of the
Index, see “The Index.”
We refer to the securities
included in the Index as the “Index constituents” and the issuers
of those securities as the “constituent
issuers.”
The notes do not guarantee any
return of principal at, or prior to, maturity or call, or upon
early redemption. Instead, at maturity, you will receive a cash
payment equal to the arithmetic mean of the closing Indicative Note
Values on each Index Business Day in the Final Measurement Period.
We refer to this cash payment as the “Cash Settlement Amount.” This
amount will not be less than $0. The notes are not intended to be
“buy and hold” investments. The notes are intended to be daily
trading tools for sophisticated investors, and are not intended to
be held to maturity. You may lose some or all of your investment at
maturity. Because the Daily Investor Fee and the Daily Financing
Charge reduce your final payment, the level of the Index will need
to have increased over the term of the notes by an amount,
after giving effect to the daily leverage and the compounding
effect thereof, sufficient to offset the decrease in the principal amount represented by the Daily
Investor Fee and the Daily Financing Charge in order for you to
receive an aggregate amount over the term of the notes equal to at
least the principal amount of your notes. Due to leverage,
the notes are very sensitive to changes in the level of the Index
and the path of such changes. If
the increase in the level of the Index, measured as a component of
the closing Indicative Note Value during the Final Measurement
Period, is insufficient to offset the cumulative negative effect of
the Daily Investor Fee and the Daily Financing Charge, you will
lose some or all of your investment at maturity. This loss may
occur even if the Index Closing Level at any time during the Final
Measurement Period is greater than the Index Closing Level on the
Initial Trade Date. See “Risk Factors—The notes are not
suitable for all investors. In particular, the notes should be
purchased only by sophisticated investors who do not intend to hold
the notes as a buy and hold investment, who are willing to actively
and continuously monitor their investment and who understand the
consequences of investing in and of seeking daily resetting
leveraged investment results.” In addition, if the closing Indicative Note
Value or the Intraday Indicative Value of the notes is equal
to or less than $0, then the
notes will be permanently worth $0 and the Cash Settlement
Amount will be $0 (a total loss
of value).
The notes seek to approximate the
returns that might be available to investors through a leveraged
“long” investment in the Index (for example, through a leveraged
position in the Index constituents). A leveraged “long” investment
strategy involves the practice of borrowing money from a third
party lender at an agreed-upon rate of interest and using the
borrowed money together with investor capital to purchase assets. A
leveraged long investment strategy terminates with the sale of the
underlying assets and repayment of the third party lender, provided
that the proceeds of the sale of underlying assets are sufficient
to repay the loan. By implementing a leveraged strategy, the
leveraged investor seeks to benefit from an anticipated increase in
the value of the assets between the purchase and sale of such
assets, and assumes that the increase in value of the underlying
assets will exceed the cumulative interest due to the third party
lender over the term of the loan. A leveraged investor will incur a
loss if the value of the assets does not increase sufficiently to
cover payment of the interest charges.
In order to seek to replicate a
leveraged “long” investment strategy in the Index, the terms of the
notes provide that, on each Exchange Business Day, an amount equal
to the closing Indicative Note Value on the immediately preceding
Exchange Business Day (“$x”) is leveraged through a notional loan
of an amount equal to the Financing Level on the immediately
preceding Exchange Business Day (“$y”). Investors are thus
considered to have notionally borrowed $y, which, together with the
initial $x investment, represents a notional investment of $x + $y
(represented by the Long Index Amount) in the Index on the Exchange
Business Day. During the term of the notes, the leveraged portion
of the notional investment, $y (represented by the Financing
Level), accrues a Daily Financing Charge for the benefit of the
Issuer, the cumulative effect of which is reflected, together with
the applicable Daily Investor Fee, in the applicable Financing
Level. The Daily Financing Charge seeks to represent the amount of
interest, calculated by reference to the applicable Financing Rate,
that leveraged investors might incur if they sought to borrow funds
at a similar rate from a third party lender. A portion of the
Financing Level also reflects the incremental cost attributable to
the Daily Investor Fee. Upon maturity, call or redemption, the
investment in the Index is notionally sold at the then current
value of the Index, and the investor then notionally repays the
Issuer an amount equal to the principal of the notional loan plus
accrued interest and investor fees. The payment at maturity, call
or redemption under the notes, therefore, generally represents the
profit or loss that the investor would receive by applying a
leveraged “long” investment strategy, after taking into account,
and making assumptions for, the accrued financing charges that are
commonly present in such leveraged “long” investment strategies, as
well as applicable investor fees.
The notes provide a daily long
leveraged exposure to the performance of the Index. The return on
the notes is three times leveraged. Because the return is
leveraged, if the Index level increases on any day the notes
will increase by three times the daily return of the Index
(before taking into account the Daily Investor Fee, the Daily
Financing charge and any Redemption Fee Amount). However, any
decrease in the level of the Index will result in a
significantly greater decrease in the Cash Settlement
Amount, Call Settlement Amount or Redemption Amount, as applicable
(before taking into account any the Daily Investor Fee, the Daily
Financing Charge and any Redemption Fee Amount), and you may
receive less than your original investment in the notes at
maturity, call or upon redemption, or if you sell your notes in the
secondary market. Moreover, because the Daily Investor Fee, the
Daily Financing Charge and any Redemption Fee Amount may
substantially reduce the amount of your return at maturity, call or
upon redemption, or if you sell your notes, the level of the Index
must increase significantly in order for you to receive at least
the principal amount of your investment at maturity, call or upon
redemption. If the level of the Index decreases or does not
increase sufficiently to offset the cumulative negative effect of
the Daily Investor Fee, the Daily Financing Charge and any
Redemption Fee Amount, you will receive less than the principal
amount of your investment at maturity, call or upon redemption, or
if you sell your notes.
The returns on the notes are path dependent. The notes are designed
to reflect a leveraged exposure to the performance of the Index on
a daily basis; their returns over different periods of time can,
and most likely will, differ significantly from three times the
performance of the Index over such other periods of time. The notes
are very sensitive to changes in the level of the Index, and
returns on the notes may be negatively affected in complex ways by
the volatility of the Index on a daily or intraday basis. Also, the
Index is potentially volatile as it includes only a small number of
constituents (10, as of the date of this pricing supplement); any
Index volatility would be magnified by the leverage. Accordingly,
the notes should be purchased only by knowledgeable investors who
understand the potential consequences of investing in the Index and
of seeking daily compounding leveraged investment results. The
notes are not intended to be “buy and hold” investments. The notes
are intended to be daily trading tools for sophisticated investors,
and are not intended to be held to maturity. It is possible that
you will suffer significant losses in the notes even if the
long-term performance of the Index is flat or positive (before
taking into account the negative effect of the Daily Investor Fee
and the Daily Financing Charge, and the Redemption Fee Amount, if
applicable). Investors should actively and continuously
monitor their investments in the notes.
The Daily Investor Fee accrues at
a rate of 0.95% per annum. Because the Daily Investor Fee is
calculated as part of the Financing Level through which it is
subtracted from the closing Indicative Note Value on a daily basis,
the net effect of the Daily Investor Fee accumulates over time and
is subtracted at a rate per year equal to the Fee Rate. Because the
net effect of the Daily Investor Fee is a fixed percentage of the
value of the notes, the aggregate effect of the Daily Investor Fee
will increase or decrease in a manner directly proportional to the
value of the notes and the amount of notes that are
held.
On the Initial Trade Date, the
Index Performance Factor was 1. On any subsequent Exchange Business
Day until maturity, call or redemption of the notes, the Index
Performance Factor will equal (a) the Index Closing Level on such
Exchange Business Day (or, if such day is not an Index Business
Day, the Index Closing Level on the immediately preceding Index
Business Day) divided by (b) the Index Closing Level on the
immediately preceding Index Business Day, as determined by the
Calculation Agent. If a Market Disruption Event occurs or is
continuing on any Index Business Day, the Calculation Agent will
determine the Index Performance Factor for the notes on each such
Index Business Day using an appropriate closing level of the Index
for each such Index Business Day taking into account the nature and
duration of such Market Disruption Event. Furthermore, if a Market
Disruption Event occurs and is continuing with respect to the notes
on any Index Business Day or occurred or was continuing on the
immediately preceding Index Business Day, the calculation of the
Index Performance Factor will be modified so that the applicable
leveraged exposure does not reset until the first Index Business
Day on which no Market Disruption Event with respect to the notes
is continuing.
“Business Day” means a Monday,
Tuesday, Wednesday, Thursday or Friday that is neither a legal
holiday nor a day on which banking institutions are authorized or
obligated by law or executive order to close in New York City or
Toronto.
“Exchange Business Day” means any
day on which the primary exchange or market for trading of the
notes is scheduled to be open for trading.
“Index Business Day” means any
day on which the Index Sponsor (as defined below) publishes the
Index Closing Level.
The scheduled Maturity Date is
January 8, 2038, which is the third Business Day following the last
Index Business Day in the Final Measurement Period, subject to
adjustment as described below and under “Specific Terms of the
Notes — Market Disruption Events.” The Maturity Date may be
extended at our option for up to two additional five-year periods.
We may only extend the scheduled Maturity Date for five years at a
time. If we exercise our option to extend the maturity, we will
notify The Depository Trust Company (“DTC”) (the holder of the
global note for the notes) and the trustee at least 45 but not more
than 60 calendar days prior to the then scheduled Maturity Date. We
will provide that notice to DTC and the trustee in respect of each
five-year extension of the scheduled Maturity
Date.
Unlike ordinary debt securities,
the notes do not guarantee any return of principal at maturity or
call, or upon early redemption. The notes do not pay any
interest.
For a further description of how
your payment at maturity or call, or upon early redemption, will be
calculated, see “Specific Terms of the Notes — Cash Settlement
Amount at Maturity,” “— Call Right” and “— Early Redemption at the
Option of the Holders.”
Path Dependence and Daily
Leverage Reset. Because the leverage of the notes is generally
only reset once each day, it is likely that due to intra-day
changes in the level of the Index, the leverage at any point during
an Index Business Day can be higher or lower than the target
leverage of 3.0.
The performance of the notes is
path-dependent. This means that the value of the notes will depend
not only upon the level of the Index at maturity, call or
redemption, but also on the performance of the Index over each day
that you hold your notes. In other words, the value of the notes
will be affected by not only the increase or decrease in the level
of the Index over a given time period but also the volatility of
the level of the Index over such time period. For example, a sharp
spike or sharp decline in the level of the Index at the end of a
particular time period will not result in the same return as a
gradual uptick or gradual decline in the Index over the same time
period, even if the level of the Index at the end of the applicable
time period is the same in each scenario. Accordingly, the return
on the notes may not correlate with the return on the Index over
periods longer than one day.
As a general matter, it is
expected that the notes will have better returns if the Index
trends from one level to another over multiple Index Business Days,
rather than experiencing significant changes in opposite directions
over multiple Index Business Days. Consequently, volatility of the
Index level may have a significant negative effect on the value of
the notes.
In addition, the performance of
the notes is path dependent, insofar as their value at any time
depends not only on the level of the Index at such time, but also
on the Index’s level at any prior time. As a result, the value of
your investment in the notes may diverge significantly from the
value you might expect on the basis of the leverage strategy of the
notes and changes in the level of the Index over the period that
you hold them. See “Hypothetical Examples.”
Early Redemption
You may elect to require us to redeem your notes (subject to a
minimum redemption amount of at least 25,000 notes) on any Business
Day until the final Redemption Date (which will be the last
scheduled Index Business Day prior to the Calculation Date or Call
Calculation Date, as applicable). If you elect to have your notes
redeemed and have done so under the redemption procedures described
in “Specific Terms of the Notes —Early Redemption at the Option of
the Holders — Redemption Procedures,” you will receive a cash
payment on the Redemption Date equal to the Redemption Amount, as
defined below. You must comply with the redemption procedures
described below in order to redeem your notes. To satisfy the
minimum redemption amount, your broker or other financial
intermediary may bundle your notes for redemption with those of
other investors to reach this minimum amount of 25,000 notes;
however, there can be no assurance that they can or will do so. We
may from time to time in our sole discretion reduce this minimum
requirement in whole or in part. Any such reduction will be applied
on a consistent basis for all holders of the notes at the time the
reduction becomes effective.
Upon early redemption, you will
receive per note a cash payment on the relevant Redemption Date
equal to (a) the Indicative Note Value as of the Redemption
Measurement Date minus (b) the Redemption Fee Amount. We refer to
this cash payment as the “Redemption Amount.” This amount will not
be less than $0. You may lose some or all of your investment
upon early redemption. Because the cumulative negative effect of
the Daily Investor Fee and the Daily Financing Charge, and the
Redemption Fee Amount, reduce your final payment, the level of the
Index will need to have increased over the term of the notes by an
amount, after giving effect to the daily leverage and the
compounding effect thereof, sufficient to offset the decrease in
principal amount represented by the Daily Investor Fee, the Daily
Financing Charge and the Redemption Fee Amount in order for you to
receive an aggregate amount upon redemption equal to at least the
principal amount. Due to leverage, the notes are very sensitive to
changes in the level of the Index and the path of such changes. See
“—Path Dependence and Daily Leverage Reset” above. If the increase
in the level of the Index, as measured on the Redemption
Measurement Date, is insufficient to offset such a negative effect,
you will lose some or all of your investment upon early
redemption. It is possible
that you will suffer significant losses in the notes upon
redemption even if the long-term performance of the Index is flat
or positive (before taking into account the negative effect of the
Daily Investor Fee, the Daily Financing Charge and the Redemption
Fee Amount).
Redemption Fee Amount: As
of any Redemption Measurement Date, 0.125% of the Indicative Note
Value.
For a detailed description of the redemption procedures applicable
to an early redemption, see “Specific Terms of the Notes —Early
Redemption at the Option of the Holders — Redemption
Procedures.”
Call Right
On any Call Settlement Date (as
defined above), we may at our option redeem all, but not less than
all, of the issued and outstanding notes. To exercise our Call
Right, we must provide notice to the holders of the notes not less
than 14 calendar days prior to the Call Settlement Date specified
by us. In the event we exercise this right, you will receive a cash
payment equal to the arithmetic mean of the closing Indicative Note
Values on each Index Business Day in the Call Measurement Period.
We refer to this cash payment as the “Call Settlement Amount.” If
we issue a call notice on any calendar day, the “Call Calculation
Date” will be the next Index Business Day after the call notice is
issued.
The Call Settlement Date will be the fifth Business Day following
the last Index Business Day in the Call Measurement Period.
Call Measurement Period: The five Index Business Days from
and including the Call Calculation Date, subject to adjustment as
described under “Specific Terms of the Notes — Market Disruption
Events.”
Understanding the Value of the Notes
The initial offering price of the notes was determined at the
inception of the notes. The initial offering price and the Intraday
Indicative Value are not the same as the trading price, which is
the price at which you may be able to sell your notes in the
secondary market, or the Redemption Amount, which is the amount
that you will receive from us in the event that you choose to have
your notes repurchased by us. An explanation of each type of
valuation is set forth below.
Initial Offering Price to
the Public. The initial offering price to the public was equal
to the original aggregate principal amount of the notes. The
initial offering price reflects the value of the notes only on the
Initial Trade Date.
Intraday Indicative Value. The Intraday Indicative Value for
the notes at any point in time during an Exchange Business Day will
equal (a) the Intraday Long Index Amount minus (b) the Financing
Level; provided that if such calculation results in a value equal
to or less than $0, the Intraday Indicative Value will be $0. If
the Intraday Indicative Value of the notes is equal to or less than
$0 at any time on any Exchange Business Day, then both the Intraday
Indicative Value of the notes and the closing Indicative Note Value
on that Exchange Business Day, and on all future Exchange Business
Days, will be $0. The Intraday Long Index Amount will equal the
product of (a) the closing Indicative Note Value on the immediately
preceding Exchange Business Day times (b) the Daily Leverage
Factor times (c) the Intraday Index Performance Factor. The
Intraday Index Performance Factor will equal (a) the most recently
published level of the Index divided by (b) the Index
Closing Level on the immediately preceding Index Business Day.
The Intraday Indicative Value is not the same as, and may differ
from, the amount payable upon an early redemption, call or at
maturity and the trading price of the notes in the secondary
market. Because the Intraday Indicative Value uses an intraday
Index level for its calculation, a variation in the intraday level
of the Index from the previous Index Business Day’s Index Closing
Level may cause a significant variation between the closing
Indicative Note Value and the Intraday Indicative Value on any date
of determination. The Intraday Indicative Value also does not
reflect intraday changes in the leverage; it is based on the
constant Daily Leverage Factor of 3.0. Consequently, the Intraday
Indicative Value may vary significantly from the previous or next
Index Business Day’s closing Indicative Note Value or the price of
the notes purchased intraday. See “Risk Factors — The notes are
subject to intraday purchase risk,” “— The Indicative Note Value is
reset daily, and the leverage of the notes during any given Index
Business Day may be greater or less than 3.0” and “—The notes are
subject to intraday purchase risk.” The Intraday Indicative Value
of the notes is published every 15 seconds to the Consolidated Tape
and ICE Data Global Index Feed, and will be available on Bloomberg
under the ticker symbol indicated below.
Trading Price. The market value of the notes at any given
time, which we refer to as the trading price, is the price at which
you may be able to buy or sell your notes in the secondary market,
if one exists. The trading price may vary significantly from the
Intraday Indicative Value, because the market value reflects
investor supply and demand for the notes.
Redemption Amount. The Redemption Amount is the price per
note that we will pay you to redeem the notes upon your request.
The Redemption Amount is calculated according to the formula set
forth above. The Redemption Amount may vary significantly from the
Intraday Indicative Value and the trading price of the notes.
Because the Redemption Amount is based on the Index Closing Level
at the end of the Index Business Day after a notice of redemption
is received, you will not know the Redemption Amount you will
receive at the time you elect to request that we redeem your
notes.
Ticker Symbols
Trading price: |
FNGU |
Intraday indicative
value: |
FNGUIV |
Intraday Index value: |
NYFANGT<Index> |
Selected Risk Considerations
An investment in the notes involves risks. Selected risks are
summarized here, but we urge you to read the more detailed
explanation of risks described under “Risk Factors” below.
· |
You may lose some or all of
your principal — The notes do not guarantee any return on your
initial investment. The notes are leveraged notes, which means they
are exposed to three times the risk of any decrease in the level of
the Index, compounded daily. Due to leverage, the notes are very
sensitive to changes in the level of the Index and the path of such
changes. Because the Daily Investor Fee and the Daily Financing
Charge reduce your final payment, the level of the Index, measured
as a component of the closing Indicative Note Value during the
Final Measurement Period or Call Measurement Period, or on a
Redemption Measurement Date, will need to increase by an amount at
least equal to the percentage of the principal amount represented
by the Daily Investor Fee, the Daily Financing Charge and any
Redemption Fee Amount in order for you to receive an aggregate
amount at maturity, upon a call or redemption, or if you sell your
notes, that is equal to at least the principal amount. If the
increase in the level of the Index during the Final Measurement
Period or Call Measurement Period, or on a Redemption Measurement
Date, is insufficient to offset the cumulative negative effect of
the Daily Investor Fee, the Daily Financing Charge and any
Redemption Fee Amount you will lose some or all of your investment
at maturity or call, or upon early redemption. This loss may occur
even if the Index Closing Levels during the Final Measurement
Period or Call Measurement Period, on a Redemption Measurement
Date, or when you elect to sell your notes, are greater than the
Initial Index Level. |
· |
Correlation and compounding
risk — A number of factors may affect the notes’ ability to
achieve a high degree of correlation with the performance of the
Index, and there is a significant possibility that the notes will
not achieve a high degree of correlation with the performance of
the Index over periods longer than one day. The leverage is reset
daily, the return on the notes is path dependent and you will be
exposed to compounding of daily returns. As a result, the
performance of the notes for periods greater than one Index
Business Day may be either greater than or less than three times
the Index performance, before accounting for the Daily Investor
Fee, the Daily Financing Charge and any Redemption Fee Amount.
Further, significant adverse performances of the notes may not be
offset by subsequent beneficial performances of equal
magnitude. |
· |
Daily reset — Because the
leverage of the notes is generally only reset once each day, it is
likely that due to intra-day changes in the level of the Index, the
leverage at any point during an Index Business Day can be higher or
lower than the target leverage, which is 3.0. |
· |
Path dependence — The
return on the notes will be highly path dependent. Accordingly,
even if the level of the Index increases or decreases over the term
of the notes, or over the term which you hold the notes, the value
of the notes will increase or decrease not only based on any change
in the level of the Index over a given time period but also based
on the volatility of the Index over that time period. The value of
the notes will depend not only upon the level of the Index at
maturity, upon call or upon early redemption, but also on the
performance of the Index over each day that you hold the notes. It
is possible that you will suffer significant losses in the notes,
even if the long-term performance of the Index is positive.
Accordingly, the returns on the notes may not correlate with
returns on the Index over periods of longer than one day. |
· |
Long holding period
risk—The notes are intended to be daily trading tools for
sophisticated investors and are designed to reflect a leveraged
long exposure to the performance of the Index on a daily basis, but
their returns over different periods of time can, and most likely
will, differ significantly from three times the return on a direct
long investment in the Index. The notes are very sensitive to
changes in the level of the Index, and returns on the notes may be
negatively affected in complex ways by volatility of the Index on a
daily or intraday basis. Also, the Index is potentially volatile as
it includes only a small number of constituents (10, as of the date
of this pricing supplement); any Index volatility would be
magnified by the leverage. Accordingly, the notes should be
purchased by knowledgeable investors who understand the potential
consequences of investing in the Index and of seeking daily
compounding leveraged long investment results. Investors should
actively and frequently monitor their investments in the notes,
even intra-day. It is possible that you will suffer significant
losses in the notes even if the long-term performance of the Index
is positive (before taking into account the negative effect of the
Daily Investor Fee and the Daily Financing Charge, and the
Redemption Fee Amount, if applicable). |
· |
Potential total loss of
value — If the closing Indicative Note Value of the notes is
equal to or less than $0 on any Exchange Business Day, then the
Indicative Note Value on all future Exchange Business Days will be
$0. If the Intraday Indicative Value of the notes is equal to or
less than $0 at any time on any Index Business Day, then both the
Intraday Indicative Value of the notes and the closing Indicative
Note Value on that Exchange Business Day, and on all future
Exchange Business Days, will be $0. If the Indicative Note
Value is $0, the Cash Settlement Amount will be $0. |
· |
Leverage risk — The notes
are three times leveraged and, as a result, the notes will benefit
from three times any positive, but will decline based on three
times any negative, daily performance of the Index. However, the
leverage of the notes may be greater or less than 3.0 during any
given Index Business Day if the level of the Index on any Exchange
Business Day has increased or decreased from the Index Closing
Level on the preceding Index Business Day. Volatility of the Index
level may have a significant negative effect on the value of the
notes. |
· |
Market risk — The return
on the notes, which may be positive or negative, is linked to a
three times leveraged participation in the performance of the
Index, compounded daily, as measured by the Index Performance
Factor, and which, in turn, is affected by a variety of market and
economic factors affecting the Index constituents, such as interest
rates in the markets and economic, financial, political,
regulatory, judicial or other events that affect the markets
generally. |
· |
Credit of issuer — The
notes are senior unsecured debt obligations of the issuer, Bank of
Montreal, and are not, either directly or indirectly, an obligation
of any third party. Any payment to be made on the notes, including
any payment at maturity, call or upon early redemption, depends on
the ability of Bank of Montreal to satisfy its obligations as they
come due. As a result, the actual and perceived creditworthiness of
Bank of Montreal will affect the market value, if any, of the notes
prior to maturity, call or early redemption. In addition, in the
event Bank of Montreal was to default on its obligations, you may
not receive any amounts owed to you under the terms of the
notes. |
· |
The Index has a limited actual
performance history — The Index was launched on September 26,
2017. Because the Index is of recent origin and limited actual
historical performance data exists with respect to it, your
investment in the notes may involve a greater risk than investing
in securities linked to one or more indices with a more established
record of performance. |
· |
The Index lacks
diversification and is concentrated in two sectors, and has a
limited number of Index constituents — All of the stocks
included in the Index are issued by companies whose primary lines
of business are in the technology, media & communications and
consumer discretionary sectors. As a result, the notes will not
benefit from the diversification that could result from an
investment linked to an index of companies that operate in multiple
sectors. Each of the Index constituents represents 10% of the
weight of the Index as of each quarterly reconstitution date (based
on the current 10 Index constituents). Any reduction in the market
price of any of those stocks is likely to have a substantial
adverse impact on the Index Closing Level and the value of the
notes. Giving effect to leverage, negative changes in the
performance of one Index constituent will be magnified and have a
material adverse effect on the value of the notes. |
· |
A trading market for the notes
may not develop — Although the notes are listed on the NYSE, a
trading market for the notes may not develop. Certain of our
affiliates may engage in limited purchase and resale transactions
in the notes, although they are not required to and may stop at any
time. We are not required to maintain any listing of the notes on
the NYSE or any other exchange. In addition, we are not obliged to,
and may not, sell the full aggregate principal amount of the notes.
We may suspend or cease sales of the notes at any time, at our
discretion. Therefore, the liquidity of the notes may be
limited. |
· |
The Intraday Indicative Value
is not the same as the trading price of the notes in the secondary
market —The Intraday Indicative Value of the notes is
calculated by ICE Data Indices, LLC (“ICE Data”) and published
every 15 seconds on each Exchange Business Day during normal
trading hours to the Consolidated Tape and ICE Data Global Index
Feed, and will be available on Bloomberg under the ticker symbol
FNGUIV so long as no Market Disruption Event has occurred or is
continuing and will be disseminated over the consolidated tape, or
other major market vendor. The Intraday Indicative Value
calculation uses, for the Intraday
Index Performance Factor, the intraday Index level as of the
time of calculation, which could adversely affect the value of the
notes. The Intraday Indicative Value also does not reflect intraday
changes in the leverage. See “Intraday Value of the Index and the
Notes — Intraday Indicative Note Values.” The trading price of the
notes at any time is the price at which you may be able to sell
your notes in the secondary market at that time, if one exists. The
trading price of the notes at any time may vary significantly from
the Intraday Indicative Value of the notes at that time. |
· |
Paying a premium purchase
price over the Intraday Indicative Value of the notes could lead to
significant losses in the event one sells the notes at a time when
that premium is no longer present in the market place or the notes
are called — Paying a premium purchase price over the Intraday
Indicative Value of the notes could lead to significant losses in
the event one sells the notes at a time when that premium is no
longer present in the market place or if the notes are called, in
which case investors will receive a cash payment in an amount based
on the arithmetic mean of the closing Indicative Note Value of the
notes on each Index Business Day during the Call Measurement
Period. We may, without providing you notice or obtaining your
consent, create and issue notes in addition to those offered by
this pricing supplement having the same terms and conditions as the
notes. However, we are under no obligation to sell additional notes
at any time, and we may suspend issuance of new notes at any time
and for any reason without providing you notice or obtaining your
consent. If we limit, restrict or stop sales of additional notes,
or if we subsequently resume sales of such additional notes, the
price and liquidity of the notes could be materially and adversely
affected, including an increase or decline in the premium purchase
price of the notes over the Intraday Indicative Value. Before
trading in the secondary market, you should compare the Intraday
Indicative Value with the then-prevailing trading price of the
notes. |
· |
Potential conflicts —
We and our affiliates play a variety of roles in connection with
the issuance of the notes, including acting as an agent of the
issuer for the offering of the notes, making certain calculations
and determinations that may affect the value of the notes and
hedging our obligations under the notes. Any profit in connection
with such hedging activities will be in addition to any other
compensation that we and our affiliates receive for the sale of the
notes, which creates an additional incentive to sell the notes to
you. Our affiliates will, among other things, calculate the
arithmetic mean of the closing Indicative Note Values and the
Redemption Fee Amount, where applicable, make determinations with
respect to Market Disruption Events, splits and reverse splits of
the notes and the replacement of the Index with a successor index.
Any exercise by us of our Call Right could present a conflict
between your interest in the notes and our interests in determining
whether to call the notes. We have no obligation to ensure that
investors will not lose all or a portion of their investment in the
notes upon a call. In performing these activities, our economic
interests and those of our affiliates are potentially adverse to
your interests as an investor in the notes. |
· |
Call right — We may elect
to redeem all outstanding notes at any time, as described under
“Specific Terms of the Notes — Call Right.” If we exercise our Call
Right, the Call Settlement Amount may be less than the principal
amount of your notes. |
· |
Minimum redemption amount
— You must elect to redeem at least 25,000 notes for us to
repurchase your notes, unless we determine otherwise or your broker
or other financial intermediary bundles your notes for redemption
with those of other investors to reach this minimum requirement,
and there can be no assurance that they can or will do so.
Therefore, the liquidity of the notes may be limited. |
· |
Your redemption election is
irrevocable — You will not be able to rescind your election to
redeem your notes after your redemption notice is received by us.
Accordingly, you will be exposed to market risk if the level of the
Index decreases after we receive your offer and the Redemption
Amount is determined on the Redemption Measurement Date. You will
not know the Redemption Amount at the time that you submit your
irrevocable redemption notice. |
· |
Owning the notes is not the
same as owning any of the Index constituents — The return on
the notes may not reflect the return you would realize if you
actually owned any of the Index constituents. |
· |
Uncertain tax treatment —
Significant aspects of the tax treatment of the notes are
uncertain. You should consult your own tax advisor about your own
tax situation. |
The notes may be a suitable investment for you if:
· You
seek a short-term investment with a return linked to a three times
leveraged participation in the performance of the Index, compounded
daily, in which case you are willing to accept the risk of
fluctuations in the technology, media & communications and
consumer discretionary sectors.
· You
understand (i) leverage risk, including the risks inherent in
maintaining a constant three times daily resetting leverage, and
(ii) the consequences of seeking leveraged investment results
generally.
· You
believe the level of the Index will increase during the term of the
notes by an amount, after giving effect to the daily leverage and
the compounding effect thereof, sufficient to offset the Daily
Investor Fee, the Daily Financing Charge and any Redemption Fee
Amount.
· You
are a sophisticated investor, understand path dependence of
investment returns and you seek a short-term investment in order to
manage daily trading risks.
· You
understand that the notes are designed to achieve their stated
investment objective on a daily basis, but their performance over
different periods of time can differ significantly from their
stated daily objective.
· You
are willing to accept the risk that you may lose some or all of
your investment.
· You
are willing to hold securities that may be redeemed early by us,
under our call right.
· You
are willing to forgo dividends or other distributions paid to
holders of the Index constituents, except as reflected in the level
of the Index.
· You
understand that the trading price of the notes at any time may vary
significantly from the Intraday Indicative Value of the notes at
such time and that paying a premium purchase price over the
Intraday Indicative Value of the notes could lead to significant
losses in the event you sell the notes at a time when that premium
is no longer present in the market place or the notes are
called.
· You
are willing to actively and frequently monitor your investment in
the notes.
· You
are willing to accept the risk that the price at which you are able
to sell the notes may be significantly less than the amount you
invested.
· You
do not seek a pre-determined amount of current income from your
investment.
|
The notes may not be a suitable investment for you
if:
· You
believe that the level of the Index will decrease during the term
of the notes or the level of the Index will not increase by an
amount, after giving effect to the daily resetting leverage and the
compounding effect thereof, sufficient to offset the Daily Investor
Fee, the Daily Financing Charge and any Redemption Fee Amount.
· You
are not willing to accept the risk that you may lose some or all of
your investment.
· You
are not willing to hold securities that may be redeemed early by
us, under our call right.
· You
do not seek a short-term investment with a return linked to a three
times leveraged participation in the performance of the Index,
compounded daily, in which case you are not willing to accept the
risk of fluctuations in the technology, media & communications,
and consumer discretionary sectors.
· You
do not understand (i) leverage risk, including the risks inherent
in maintaining a constant three times daily leverage, and (ii) the
consequences of seeking leveraged investment results generally.
· You
are not a sophisticated investor, do not understand path dependence
of investment returns and you seek an investment for purposes other
than managing daily trading risks.
· You
do not understand that the trading price of the notes at any time
may vary significantly from the Intraday Indicative Value of
the notes at such time and that paying a premium purchase price
over the Intraday Indicative Value of the notes could lead to
significant losses in the event you sell the notes at a time when
that premium is no longer present in the market place or the notes
are called.
· You
are not willing to forgo dividends or other distributions paid to
holders of the Index constituents, except as reflected in the level
of the Index.
· You
are not willing to actively and frequently monitor your investment
in the notes.
· You
are not willing to accept the risk that the price at which you are
able to sell the notes may be significantly less than the amount
you invested.
· You
prefer the lower risk and therefore accept the potentially lower
returns of fixed-income investments with comparable maturities and
credit ratings.
· You
seek an investment for which there will be an active secondary
market.
|
· You
are not seeking an investment for which there will be an active
secondary market.
· You
are comfortable with the creditworthiness of Bank of Montreal, as
issuer of the notes.
|
· You
are not comfortable with the creditworthiness of Bank of Montreal
as issuer of the notes.
|
About the Index
The level of the Index is calculated and published by ICE Data
Indices, LLC (the “Index Calculation Agent” and “Index Sponsor”)
and disseminated by Bloomberg approximately every one second
(assuming the level of the Index has changed within such interval)
from 9:30 a.m. to 6:00 p.m., New York City time. A daily Index
Closing Level is published at approximately 4:30 p.m., New York
City time, on each Index Business Day. Index information, including
the Index level, is available from Bloomberg under the symbol
“NYFANGT<Index>”. The historical performance of the Index is
not indicative of the future performance of the Index or the level
of the Index during the Final Measurement Period or on the
applicable Redemption Measurement Date or Call Calculation Date, as
the case may be.
Tax Consequences
For important information about tax consequences, please see the
section entitled “Supplemental Tax Considerations.”
Conflicts of Interest
BMOCM is an affiliate of Bank of Montreal and, as such, has a
“conflict of interest” in this offering within the meaning of the
Financial Industry Regulatory Authority, Inc. (“FINRA”) Rule 5121.
Consequently, the offering is being conducted in compliance with
the provisions of Rule 5121.
RISK FACTORS
Your investment in the notes will involve certain risks. The
notes are not secured debt and do not guarantee any return of
principal at, or prior to, maturity, call or upon early redemption.
As described in more detail below, the trading price of the notes
may vary considerably before the maturity date. Investing in the
notes is not equivalent to investing directly in the Index
constituents or any securities of the constituent issuers. In
addition, your investment in the notes entails other risks not
associated with an investment in conventional debt securities.
In addition to the risk factors beginning on page S-1 of the
prospectus supplement and page 8 of the prospectus, you should
consider carefully the following discussion of risks before you
decide that an investment in the notes is suitable for
you.
Risks Relating to the Notes Generally
The notes do not guarantee the return of your
investment.
The notes may not return any of your investment. The amount payable
at maturity, call or upon early redemption, will reflect a three
times daily resetting leveraged participation in the performance of
the Index minus the Daily Investor Fee, the Daily Financing
Charge and, in the case of an early redemption, the Redemption Fee
Amount. These amounts will be determined as described in this
pricing supplement. Because the Daily Investor Fee, the Daily
Financing Charge and any Redemption Fee Amount reduce your final
payment, the Index Closing Levels, measured as a component of the
closing Indicative Note Value during the Final Measurement Period
or Call Measurement Period, or on a Redemption Measurement Date,
will need to have increased over the term of the notes by an
amount, after giving effect to the daily leverage and the
compounding effect thereof, sufficient to offset the decrease in
the principal amount represented by the Daily Investor Fee, the
Daily Financing Charge and any Redemption Fee Amount in order for
you to receive an aggregate amount at maturity, upon a call or
redemption, or if you sell your notes, that is equal to at least
the principal amount of your notes. If the increase in the Index
Closing Levels, as measured during the Final Measurement Period or
Call Measurement Period, or on a Redemption Measurement Date, is
insufficient to offset the cumulative negative effect of the Daily
Investor Fee, the Daily Financing Charge, and the Redemption Fee
Amount, if applicable, you will lose some or all of your investment
at maturity, call or upon early redemption. This loss may occur
even if the Index Closing Levels during the Final Measurement
Period or Call Measurement Period, on a Redemption Measurement
Date, or when you elect to sell your notes, are greater than the
Initial Index Level.
The negative effect of the Daily Investor Fee, Daily Financing
Charge and any Redemption Fee Amount are in addition to the losses
that may be caused by the daily resetting leverage of the notes and
volatility in the Index. See “—Leverage increases the sensitivity
of your notes to changes in the level of the Index,” “—The notes
are not suitable for investors with longer-term investment
objectives” and “—The notes are not suitable for all investors. In
particular, the notes should be purchased only by sophisticated
investors who do not intend to hold the notes as a buy and hold
investment, who are willing to actively and continuously monitor
their investment and who understand the consequences of investing
in and of seeking daily resetting leveraged investment results”
below.
If the Intraday Indicative Value of the notes is equal to or
less than $0 at any time during an Exchange Business Day, or the
closing Indicative Note Value is equal to or less than $0, you will
lose all of your investment in the notes.
If the closing Indicative Note Value or the Intraday Indicative
Value of the notes is equal to or less than $0, then the notes will
be permanently worth $0 (a total loss of value) and you will lose
all of your investment in the notes and the Cash Settlement Amount
will be $0. We would be likely to call the notes under these
circumstances, and you will not receive any payments on the
notes.
Even if the Index Closing Levels during the Final Measurement
Period or Call Measurement Period, or on a Redemption Measurement
Date, are greater than the Initial Index Level, you may receive
less than the principal amount of your notes due to the Daily
Investor Fee, the Daily Financing Charge and the Redemption Fee
Amount, if applicable.
The amount of the Daily Investor Fee, the Daily Financing Charge,
and any Redemption Fee Amount, will reduce the payment, if any, you
will receive at maturity, call or upon early redemption, or if you
sell your notes. If you elect to require us to redeem your notes
prior to maturity, you will be charged a Redemption Fee Amount
equal to 0.125% of the Indicative Note Value. If the Index Closing
Levels, measured as a component of the closing Indicative Note
Value during the Final Measurement Period or Call Measurement
Period, or on a Redemption Measurement Date, have increased
insufficiently to offset the cumulative negative effect of the
Daily Investor Fee, the Daily Financing Charge and any Redemption
Fee Amount, you will receive less than the principal amount of your
investment at maturity, call or upon early redemption of your
notes.
Leverage increases the sensitivity of your notes to changes in
the level of the Index.
Because your investment in the notes is three times leveraged,
changes in the level of the Index will have a greater impact on the
payout on your notes than on a payout on securities that are not so
leveraged. In particular, any decrease in the level of the Index
will result in a significantly greater decrease in your payment at
maturity, call or upon redemption, and you will suffer losses on
your investment in the notes substantially greater than you would
if the terms of the notes did not contain a leverage component.
Accordingly, as a result of this daily resetting leverage and
without taking into account the cumulative negative effect of the
Daily Investor Fee and the Daily Financing Charge, if the level of
the Index decreases over the term of the notes, the daily resetting
leverage will magnify any losses at maturity, call or upon
redemption.
As discussed below under “—The Index has limited actual historical
information,” due to the small number of Index constituents,
changes in the performance of just one Index constituent can have a
material effect on the Index level. Giving effect to leverage,
negative changes in the performance of one Index constituent will
be magnified and have a material adverse effect on the value of the
notes.
The notes are subject to our credit risk.
The notes are subject to our credit risk, and our credit ratings
and credit spreads may adversely affect the market value of the
notes. The notes are senior unsecured debt obligations of the
issuer, Bank of Montreal, and are not, either directly or
indirectly, an obligation of any third party. Investors are
dependent on our ability to pay all amounts due on the notes at
maturity, call or upon early redemption or on any other relevant
payment dates, and therefore investors are subject to our credit
risk and to changes in the market’s view of our creditworthiness.
If we were to default on our payment obligations, you may not
receive any amounts owed to you under the notes and you could lose
your entire investment.
Our credit ratings are an assessment of our ability to pay our
obligations, including those on the notes. Consequently, actual or
anticipated changes in our credit ratings may affect the market
value of the notes. However, because the return on the notes is
dependent upon certain factors in addition to our ability to pay
our obligations on the notes, an improvement in our credit ratings
will not reduce the other investment risks related to the notes.
Therefore, an improvement in our credit ratings may or may not have
a positive effect on the market value of the notes.
The notes will be subject to risks, including non-payment in
full, under Canadian Bank Resolution Powers.
Under Canadian bank resolution powers, the Canada Deposit Insurance
Corporation (“CDIC”) may, in circumstances where we have ceased, or
are about to cease, to be viable, assume temporary control or
ownership of us and may be granted broad powers by one or more
orders of the Governor in Council (Canada), each of which we refer
to as an “Order,” including the power to sell or dispose of all or
a part of our assets, and the power to carry out or cause us to
carry out a transaction or a series of transactions the purpose of
which is to restructure our business. As part of the Canadian bank
resolution powers, certain provisions of, and regulations under,
the Bank Act (Canada) (the “Bank Act”), the CDIC Act and certain
other Canadian federal statutes pertaining to banks, which we refer
to collectively as the “bail-in regime,” provide for a bank
recapitalization regime for banks designated by the Superintendent
of Financial Institutions (Canada) (the “Superintendent”) as
domestic systemically important banks, which include us.
If the CDIC were to take action under the Canadian bank resolution
powers with respect to us, this could result in holders of the
notes being subject to losses. As a result, you should consider the
risk that you may lose all of your investment, including the
principal amount plus any accrued interest, if the CDIC were to
take action under the Canadian bank resolution powers, and that any
remaining outstanding notes may be of little value at the time of
the exercise of these powers and thereafter.
There is no limitation on the type of Order that may be made where
it has been determined that we have ceased, or are about to cease,
to be viable. As a result, you may be exposed to losses through the
use of Canadian bank resolution powers.
The notes are not suitable for investors with longer-term
investment objectives.
The notes are not intended to be “buy and hold” investments. The
notes are intended to be daily trading tools for sophisticated
investors, and are not intended to be held to maturity. The notes
are designed to achieve their stated investment objective on a
daily basis, but their performance over different periods of time
can differ significantly from their stated daily objective because
the relationship between the level of the Index and the closing
Indicative Note Value will begin to break down as the length of an
investor’s holding period increases. The notes are not long-term
substitutes for long positions in the Index constituents.
Investors should carefully consider whether the notes are
appropriate for their investment portfolio. As discussed below,
because the notes are meant to provide leveraged long exposure to
changes in the daily Index Closing Level, their performance over
months or years can differ significantly from the performance of
the Index during the same period of time. Therefore, it is
possible that you will suffer significant losses in the notes even
if the long-term performance of the Index is positive (before
taking into account the negative effect of the Daily Investor Fee,
the Daily Financing Charge, and the Redemption Fee Amount, if
applicable). It is possible for the level of the Index to increase
over time while the market value of the notes declines over
time. You should proceed with extreme caution in considering
an investment in the notes.
The notes seek to provide a daily resetting leveraged long return
based on the performance of the Index (as adjusted for costs and
fees) over a period of a single day. The notes do not attempt to,
and should not be expected to, provide returns that reflect
leverage on the return of the Index for periods longer than a
single day.
The daily resetting leverage of the notes is expected to cause the
notes to experience a “decay” effect, which will impair the
performance of the notes if the Index experiences volatility from
day to day, and such performance will be dependent on the path of
daily returns during the holder’s holding period. The “decay”
effect refers to the likely tendency of the notes to lose value
over time. At higher ranges of volatility, there is a significant
chance of a complete loss of the value of the notes even if the
performance of the Index is flat (before taking into account the
negative effect of the Daily Investor Fee, the Daily Financing
Charge, and the Redemption Fee Amount, if applicable). Although the
decay effect is more likely to manifest itself the longer the notes
are held, the decay effect can have a significant impact on the
performance of the notes, even over a period as short as two days.
The notes should be purchased only by knowledgeable investors
who understand the potential consequences of investing in the Index
and of seeking daily compounding leveraged investment results.
The notes may not be appropriate for investors who intend to hold
positions in an attempt to generate returns over periods longer
than one day. See “Hypothetical Examples — Illustrations of the
"Decay" Effect on the Notes” below.
In addition, the daily resetting leverage feature will result in
leverage relative to the closing Indicative Note Value that may be
greater or less than the stated leverage factor if the value of the
notes has changed since the beginning of the day in which you
purchase the notes.
You should regularly monitor your holdings of the notes to
ensure that they remain consistent with your investment
strategies.
The notes are designed to reflect a leveraged long exposure to the
performance of the Index on a daily basis. As such, the notes will
be more volatile than a non-leveraged investment linked to the
Index. You should regularly monitor your holdings of the notes to
ensure that they remain consistent with your investment
strategies.
The notes are not suitable for all investors. In particular, the
notes should be purchased only by sophisticated investors who do
not intend to hold the notes as a buy and hold investment, who are
willing to actively and continuously monitor their investment and
who understand the consequences of investing in and of seeking
daily resetting leveraged investment results.
The notes require an understanding of path dependence of investment
results and are intended for sophisticated investors to use as part
of an overall diversified portfolio. The notes are risky and may
not be suitable for investors who plan to hold them for periods
greater than a single day. The notes are designed to achieve their
stated investment objective on a daily basis, but the performance
of the notes over different periods of time can differ
significantly from their stated daily objectives because the
relationship between the level of the Index and the Indicative Note
Value will begin to break down as the length of an investor’s
holding period increases. The notes are not long-term substitutes
for long positions in the Index constituents. Accordingly, there is
a significant possibility that the returns on the notes will not
correlate with returns on the Index over periods longer than one
day.
Investors should carefully consider whether the notes are
appropriate for their investment portfolio. The notes entail
leverage risk and should be purchased only by investors who
understand leverage risk, including the risks inherent in
maintaining a constant three times leverage on a daily basis, and
the consequences of seeking daily leveraged investment results
generally. Investing in the notes is not equivalent to a direct
investment in the Index constituents because the notes reset their
theoretical leveraged exposure to the Index on a daily basis
(subject to the occurrence of a Market Disruption Event). Daily
resetting of the leverage will impair the performance of the notes
if the Index experiences volatility from day to day, and such
performance is dependent on the path of daily returns during an
investor’s holding period. If the notes experience a high amount
of realized volatility, there is a significant chance of a complete
loss of your investment even if the performance of the Index is
flat. In addition, the notes are meant to provide leveraged
exposure to changes in the Index Closing Level, which means their
performance over months or years can differ significantly from the
performance of the Index over the same period of time. It is
possible that you will suffer significant losses in the notes even
if the long-term performance of the Index is positive (before
taking into account the negative effect of the Daily Investor Fee,
the Daily Financing Charge, and the Redemption Fee Amount, if
applicable).
The amount you receive at maturity, call or redemption will be
contingent upon the compounded leveraged daily performance of the
Index during the term of the notes. There is no guarantee that you
will receive at maturity, call or redemption your initial
investment or any return on that investment. Significant adverse
daily performances for the notes may not be offset by any
beneficial daily performances of the same magnitude.
Due to the effect of compounding, if the Indicative Note Value
increases, any subsequent decrease of the Index level will result
in a larger dollar reduction from the Indicative Note Value than if
the Indicative Note Value remained constant.
If the Indicative Note Value increases, the dollar amount that you
can lose in any single Index Business Day from a decrease of the
Index level will increase correspondingly. This is because the
Index Performance Factor will be applied to a larger Indicative
Note Value and, consequently, a larger Long Index Amount in
calculating any subsequent Indicative Note Value. As such, the
dollar amount that you can lose from any decrease will be greater
than if the Indicative Note Value were maintained at a constant
level. This means that if the Indicative Note Value increases, you
could lose more than 3% of your initial investment for each 1%
daily decrease of the Index level.
Due to the effect of compounding, if the Indicative Note Value
decreases, any subsequent increase of the Index level will result
in a smaller dollar increase on the Indicative Note Value than if
the Indicative Note Value remained constant.
If the Indicative Note Value decreases, the dollar amount that you
can gain in any single Index Business Day from an increase of the
Index level will decrease correspondingly. This is because the
Index Performance Factor will be applied to a smaller Indicative
Note Value and, consequently, a smaller Long Index Amount in
calculating any subsequent Indicative Note Value. As such, the
dollar amount that you can gain from any increase of the Index
level will be less than if the Indicative Note Value were
maintained at a constant level. This means that if the Indicative
Note Value decreases, it will take larger daily increases of the
Index level to restore the value of your investment back to the
amount of your initial investment than would have been the case if
the Indicative Note Value were maintained at a constant level.
Further, if you invest in the notes, you could gain less than 3% of
your initial investment for each 1% daily increase of the Index
level.
The Indicative Note Value is reset daily, and the leverage of
the notes during any given Exchange Business Day may be greater
than or less than 3.0.
The Indicative Note Value is reset daily (subject to the occurrence
of a Market Disruption Event) based on the Index Closing Level.
Resetting the Indicative Note Value has the effect of resetting the
then-current leverage to approximately 3.0. During any given
Exchange Business Day, the leverage of the notes will depend on
intra-day changes in the level of the Index and may be greater or
less than 3.0. If the level of the Index on any Exchange Business
Day has increased from the Index Closing Level on the preceding
Index Business Day, the leverage of the notes will be less than 3.0
(e.g. 2.0, 1.0, 0.5); conversely, if the level of the Index on any
Exchange Business Day has decreased from the Index Closing Level on
the preceding Index Business Day, the leverage of the notes will be
greater than 3.0 (e.g., 3.3, 4.0, 6.0). Thus, the leverage of the
notes at the time that you purchase them may be greater or less
than the target leverage of 3.0, depending on the performance of
the Index since the leverage was reset. See “—The notes are subject
to intraday purchase risk” below.
The notes are subject to our Call Right, which does not allow
for participation in any future performance of the Index. The
exercise of our Call Right may adversely affect the value of, or
your ability to sell, your notes. We may call the notes prior to
the maturity date.
We have the right to call the notes at any time through the
Maturity Date. You will only be entitled to receive a payment on
the Call Settlement Date equal to the Call Settlement Amount. The
Call Settlement Amount may be less than the stated principal amount
of your notes. You will not be entitled to any further payments
after the Call Settlement Date, even if the Index level increases
substantially after the Call Measurement Period. In addition, the
issuance of a notice of our election to exercise our call right may
adversely impact your ability to sell your notes, and/or the price
at which you may be able to sell your notes prior to the Call
Settlement Date. We have no obligation to ensure that investors
will not lose all or a portion of their investment in the notes if
we call the notes; consequently, a potential conflict between our
interests and those of the noteholders exists with respect to our
Call Right.
If we exercise our right to call the notes prior to maturity,
your payment on the Call Settlement Date may be less than the
Indicative Note Value at the time we gave the notice of our
election to call the notes.
As discussed above, we have the right to call the notes on or prior
to the Maturity Date. The Call Settlement Amount will be payable on
the Call Settlement Date and we will provide at least 14 calendar
days’ notice prior to the Call Settlement Date of our election to
exercise our call of the notes. The Call Settlement Amount per note
will be based principally on the closing Indicative Note Value on
each Index Business Day during the Call Measurement Period. The
Call Measurement Period will be a period of five consecutive Index
Business Days from, and including, the Call Calculation Date. The
Call Calculation Date will be a date specified in our call notice,
subject to postponement if such date is not an Index Business Day
or in the event of a Market Disruption Event. It is possible
that the market prices of the Index constituents, and, as a result,
the Index Closing Level and the Indicative Note Value may vary
significantly between when we provide the notice of our intent to
call the notes and the Call Calculation Date, including potentially
as a result of our trading activities during this period, as
described further under “We or our affiliates may have economic
interests that are adverse to those of the holders of the notes as
a result of our hedging and other trading activities.” As a result,
you may receive a Call Settlement Amount that is significantly less
than the Indicative Value at the time of the notice of our election
to call the notes and may be less than your initial investment in
the notes.
The notes do not pay any interest, and you will not have any
ownership rights in the Index constituents.
The notes do not pay any interest, and you should not invest in the
notes if you are seeking an interest-bearing investment. You will
not have any ownership rights in the Index constituents, nor will
you have any right to receive dividends or other distributions paid
to holders of the Index constituents, except as reflected in the
level of the Index. The Cash Settlement Amount, the Call Settlement
Amount, or Redemption Amount, if any, will be paid in U.S. dollars,
and you will have no right to receive delivery of any shares of the
Index constituents.
The Index Closing Levels used to calculate the payment at
maturity, call or upon a redemption may be less than those levels
on the Maturity Date, Call Settlement Date or at other times during
the term of the notes.
The Index Closing Level on the Maturity Date, Call Settlement Date
or at other times during the term of the notes, including dates
near the Final Measurement Period or the Call Measurement Period,
as applicable, could be greater than any of the Index Closing
Levels during the Final Measurement Period or Call Measurement
Period, as applicable. This difference could be particularly large
if there is a significant increase in the Index Closing Level after
the Final Measurement Period or the Call Measurement Period, as
applicable, or if there is a significant decrease in the Index
Closing Level around the Final Measurement Period or the Call
Measurement Period, as applicable, or if there is significant
volatility in the Index Closing Levels during the term of the
notes.
There are restrictions on the minimum number of notes you may
request that we redeem and the dates on which you may exercise your
right to have us redeem your notes.
If you elect to require us to redeem your notes, you must request
that we redeem at least 25,000 notes on any Business Day through
and including the Final Redemption Date. If you own fewer than
25,000 notes, you will not be able to elect to require us to redeem
your notes. Your request that we redeem your notes is only valid if
we receive your Redemption Notice by email no later than
2:00 p.m., New York City time, on the applicable Redemption
Notice Date and a completed and signed Redemption Confirmation by
5:00 p.m., New York City time, that same day. If we do not receive
such notice and confirmation, your redemption request will not be
effective and we will not redeem your notes on the corresponding
Redemption Date.
The daily redemption feature is intended to induce arbitrageurs to
counteract any trading of the notes at a premium or discount to
their indicative value. There can be no assurance that arbitrageurs
will employ the redemption feature in this manner.
Because of the timing requirements of the Redemption Notice and the
Redemption Confirmation, settlement of the redemption will be
prolonged when compared to a sale and settlement in the secondary
market. Because your request that we redeem your notes is
irrevocable, this will subject you to loss if the level of the
Index decreases after we receive your request. Furthermore, our
obligation to redeem the notes prior to maturity may be postponed
upon the occurrence of a Market Disruption Event.
If you want to sell your notes but are unable to satisfy the
minimum redemption requirements, you may sell your notes into the
secondary market at any time, subject to the risks described below.
A trading market for the notes may not develop. Also, the price you
may receive for the notes in the secondary market may differ from,
and may be significantly less than, the Redemption Amount.
You will not know the Redemption Amount at the time you elect to
request that we redeem your notes.
You will not know the Redemption Amount you will receive at the
time you elect to request that we redeem your notes. Your notice to
us to redeem your notes is irrevocable and must be received by us
no later than 2:00 p.m., New York City time, on the applicable
Redemption Notice Date and a completed and signed confirmation of
such redemption must be received by us no later than 5:00 p.m., New
York City time, on the same day. The Redemption Measurement Date is
the Index Business Day following the applicable Redemption Notice
Date. You will not know the Redemption Amount until after the
Redemption Measurement Date, and we will pay you the Redemption
Amount, if any, on the Redemption Date, which is the third Business
Day following the applicable Redemption Measurement Date. As a
result, you will be exposed to market risk in the event the level
of the Index fluctuates after we confirm the validity of your
notice of election to exercise your right to have us redeem your
notes, and prior to the relevant Redemption Date.
Market disruptions may adversely affect your return.
The Calculation Agent may, in its sole discretion, determine that
the markets have been affected in a manner that prevents the
Calculation Agent from determining the closing Indicative Note
Values during the Final Measurement Period or the Call Measurement
Period, or on a Redemption Measurement Date, and prevents the
Calculation Agent from calculating the amount that we are required
to pay you, if any. These events may include disruptions or
suspensions of trading in the markets as a whole. If the
Calculation Agent, in its sole discretion, determines that any of
these events prevents us or any of our affiliates from properly
hedging our obligations under the notes, it is possible that the
determination of the Index Closing Level will be postponed and your
return will be adversely affected. Moreover, if the final Averaging
Date (as defined under “Specific Terms of the Notes — Market
Disruption Events”) is postponed to the last possible day and the
Index Closing Level is not available on that day if such day is not
an Index Business Day, the Calculation Agent or one of its
affiliates will determine the Index Closing Level on such last
possible day. See “Specific Terms of the Notes — Market Disruption
Events” for more information. Because the Calculation Agent is our
affiliate, its interests in making a determination of this kind may
be adverse to the interests of holders of the notes.
Significant aspects of the tax treatment of the notes are
uncertain and certain aspects may make the notes less suitable for
certain non-U.S. investors.
The tax treatment of the notes is uncertain. We do not plan to
request a ruling from the Internal Revenue Service or from any
Canadian authorities regarding the tax treatment of the notes, and
the Internal Revenue Service or a court may not agree with the tax
treatment described in this pricing supplement.
The Internal Revenue Service has issued a notice indicating that it
and the Treasury Department are actively considering whether, among
other issues, a holder should be required to accrue interest over
the term of an instrument such as the notes even though that holder
will not receive any payments with respect to the notes until
maturity and whether all or part of the gain a holder may recognize
upon sale or maturity of an instrument such as the notes could be
treated as ordinary income. The outcome of this process is
uncertain and could apply on a retroactive basis.
Moreover, certain investors that are not “United States persons”
for U.S. income tax purposes may incur U.S. tax obligations as a
result of an investment in the notes.
Please read carefully the section entitled “Supplemental Tax
Considerations” in this pricing supplement. You should consult your
tax advisor about your own tax situation.
Risks Relating to Liquidity and the Secondary Market
The Intraday Indicative Value and the Indicative Note Value are
not the same as the closing price or any other trading price of the
notes in the secondary market.
The Intraday Indicative Value at any point in time of an Index
Business Day will equal (a) the Intraday Long Index Amount minus
(b) the Financing Level; provided that if such calculation results
in a value equal to or less than $0, the Intraday Indicative Value
will be $0. Because the Intraday Indicative Value uses an intraday
Index level for its calculation, a variation in the intraday level
of the Index from the previous Index Business Day’s Index Closing
Level may cause a significant variation between the closing
Indicative Note Value and the Intraday Indicative Value on any date
of determination. The Intraday Indicative Value also does not
reflect intraday changes in the leverage; it is based on the
constant Daily Leverage Factor of 3. Consequently, the Intraday
Indicative Value may vary significantly from the previous or next
Index Business Day’s closing Indicative Note Value or the price of
the notes purchased intraday.
The trading price of the notes at any time is the price at which
you may be able to sell your notes in the secondary market at such
time, if one exists. The trading price of the notes at any time may
vary significantly from the Intraday Indicative Value of the notes
at such time due to, among other things, imbalances of supply and
demand, lack of liquidity, transaction costs, credit considerations
and bid-offer spreads, and any corresponding premium in the trading
price may be reduced or eliminated at any time. Paying a premium
purchase price over the Intraday Indicative Value of the notes
could lead to significant losses in the event the investor sells
such notes at a time when that premium is no longer present in the
market place or the notes are called, in which case investors will
receive a cash payment based on the closing Indicative Note Value
of the notes during the Call Measurement Period. See “— There is no
assurance that your notes will continue to be listed on a
securities exchange, and they may not have an active trading
market” below. We may, without providing you notice or obtaining
your consent, create and issue notes in addition to those offered
by this pricing supplement having the same terms and conditions as
the notes. However, we are under no obligation to sell additional
notes at any time, and we may suspend issuance of new notes at any
time and for any reason without providing you notice or obtaining
your consent. If we limit, restrict or stop sales of additional
notes, or if we subsequently resume sales of such additional notes,
the price and liquidity of the notes could be materially and
adversely affected, including an increase or decline in the premium
purchase price of the notes over the Intraday Indicative Value of
the notes. Before trading in the secondary market, you should
compare the Intraday Indicative Value with the then-prevailing
trading price of the notes.
Publication of the Intraday Indicative Value may be delayed,
particularly if the publication of the intraday Index value is
delayed. See “Intraday Value of the Index and the Notes—Intraday
Indicative Note Values.”
There is no assurance that your notes will continue to be listed
on a securities exchange, and they may not have an active trading
market.
The notes have been listed on the NYSE under the ticker symbol
“FNGU.” No assurance can be given as to the continued listing of
the notes for their term or of the liquidity or trading market for
the notes. There can be no assurance that a secondary market for
the notes will be maintained. We are not required to maintain any
listing of the notes on any securities exchange.
If the notes are delisted, they will no longer trade on a national
securities exchange. Trading in delisted notes, if any, would be on
an over-the-counter basis. If the notes are removed from their
primary source of liquidity, it is possible that holders may not be
able to trade their notes at all. We cannot predict with certainty
what effect, if any, a delisting would have on the trading price of
the notes; however, the notes may trade at a significant discount
to their indicative value. If a holder had paid a premium over the
Intraday Indicative Value of the notes and wanted to sell the notes
at a time when that premium has declined or is no longer present,
the investor may suffer significant losses and may be unable to
sell the notes in the secondary market.
The notes could be delisted by the NYSE if they cease to satisfy
the listing requirements of the exchange, for example, in the event
that there is a material change in the Index that causes the Index
to no longer satisfy the NYSE’s listing requirements. See “Specific
Terms of the Notes—Discontinuation of or Adjustments to the Index;
Alteration of Method of Calculation.”
Although the title of the notes includes the words “exchange-traded
notes,” we are not obligated to maintain the listing of the notes
on the NYSE or any other exchange. We may elect to discontinue the
listing of the notes at any time and for any reason, including in
connection with a decision to discontinue further issuances and
sales of the notes. If the notes ceased to be listed on an
exchange, the words “exchange-traded notes” will continue to be
included in their title in any event.
The NYSE may halt trading in the notes or may limit the extent to
which trading prices may change within specified time periods,
which in either case would adversely impact your ability to sell
the notes.
Trading in the notes may be halted due to market conditions or, in
light of the NYSE’s rules and procedures, for reasons that, in the
view of the NYSE, make trading in the notes inadvisable. General
exchange trading is subject to trading halts caused by
extraordinary market volatility. In addition, the notes may be
subject to “limit up” and “limit down” rules or trading pause
requirements that are triggered by a significant change in the
trading price of the notes within a specified period of time. These
“limit up” and “limit down” and trading pause rules, if triggered,
could prevent investors from transacting at the then prevailing
Intraday Indicative Value or at all. If the value of the notes
declines precipitously during the trading day, triggering a “limit
down” mechanism or trading pause, you may be unable to sell your
notes for some period of time, either because no trading at all is
permitted or because the price that any purchaser would be willing
to pay for them at the time may be significantly below the lowest
price that a purchaser would be permitted to pay for them on the
NYSE. In that circumstance, by the time you are finally able to
sell your notes, you may have incurred significantly greater losses
than you would have incurred had you been able to sell them when
you initially wanted to. Additionally, the ability to short sell
notes may be restricted when there is a significant change from the
previous day’s official closing price. The NYSE’s rules relating to
these matters are subject to change from time to time.
The liquidity of the market for the notes may vary materially
over time, and may be limited if you do not hold at least 25,000
notes.
As stated on the cover of this pricing supplement, we sold a
portion of the notes on the Initial Trade Date, and the remainder
of the notes may be offered and sold from time to time, through
BMOCM, our affiliate, as agent, to investors and dealers acting as
principals. Certain affiliates of BMOCM may engage in limited
purchase and resale transactions in the notes, and we or BMOCM may
purchase notes from holders in amounts and at prices that may be
agreed from time to time, although none of us are required to do
so. Also, the number of notes outstanding or held by persons other
than our affiliates could be reduced at any time due to early
redemptions of the notes or due to our or our affiliates’ purchases
of notes in the secondary market. Accordingly, the liquidity of the
market for the notes could vary materially over the term of the
notes. There may not be sufficient liquidity to enable you to sell
your notes readily and you may suffer substantial losses and/or
sell your notes at prices substantially less than their Intraday
Indicative Value or Indicative Note Value, including being unable
to sell them at all or only for a minimal price in the secondary
market. You may elect to require us to redeem your notes, but such
redemption is subject to the restrictive conditions and procedures
described in this pricing supplement, including the condition that
you must request that we redeem a minimum of 25,000 notes on any
Redemption Date.
We may sell additional notes at different prices, but we are
under no obligation to issue or sell additional notes at any time,
and if we do sell additional notes, we may limit or restrict such
sales, and we may stop selling additional notes at any
time.
In our sole discretion, we may decide to issue and sell additional
notes from time to time at a price that is higher or lower than the
stated principal amount, based on the Indicative Note Value at that
time. The price of the notes in any subsequent sale may differ
substantially (higher or lower) from the issue price paid in
connection with any other issuance of such notes. Additionally, any
notes held by us or an affiliate in inventory may be resold at
prevailing market prices. However, we are under no obligation to
issue or sell additional notes at any time, and if we do sell
additional notes, we may limit or restrict such sales, and we may
stop selling additional notes at any time. If we start selling
additional notes, we may stop selling additional notes for any
reason, which could materially and adversely affect the price and
liquidity of such notes in the secondary market.
Any limitation or suspension on the issuance or sale of the notes
by us or BMOCM may materially and adversely affect the price and
liquidity of the notes in the secondary market. Alternatively, the
decrease in supply may cause an imbalance in the market supply and
demand, which may cause the notes to trade at a premium over the
indicative value of the notes. Any premium may be reduced or
eliminated at any time. Paying a premium purchase price over the
Indicative Note Value could lead to significant losses if you sell
those notes at a time when that premium is no longer present in the
marketplace or if the notes are called at our option. If we call
the notes prior to maturity, investors will receive a cash payment
in an amount equal to the Call Settlement Amount, which will not
include any premium. Investors should consult their financial
advisors before purchasing or selling the notes, especially if they
are trading at a premium.
The value of the notes in the secondary market may be influenced
by many unpredictable factors.
The market value of your notes may fluctuate between the date you
purchase them and the relevant date of determination. You may also
sustain a significant loss if you sell your notes in the secondary
market. Several factors, many of which are beyond our control, will
influence the market value of the notes. We expect that, generally,
the Index level on any day will affect the value of the notes more
than any other single factor. The value of the notes may be
affected by a number of other factors that may either offset or
magnify each other, including:
|
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the expected volatility in the Index and the prices of the
Index constituents; |
|
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the time to maturity of the notes; |
|
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the market price and expected distributions on the Index
constituents; |
|
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interest and yield rates in the market generally; |
|
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supply and demand for the notes, including, but not limited to,
inventory positions with BMOCM or any market maker or other person
or entity who is trading the notes (supply and demand for the notes
will be affected by the total issuance of notes, and we are under
no obligation to issue additional notes to increase the
supply); |
|
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the amount of the Daily Investor Fee and the Daily Financing
Charge on the relevant date of determination; |
|
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the Index constituents and changes to those Index constituents
over time; |
|
· |
whether the notes have been delisted from the NYSE; |
|
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economic, financial, political, regulatory, judicial, military
and other events that affect the Index constituents or that affect
markets generally and which may affect the Index Closing Level;
and |
|
· |
our actual or perceived creditworthiness. |
Some or all of these factors will influence the price you will
receive if you choose to sell your notes prior to maturity. The
impact of any of the factors set forth above may enhance or offset
some or all of any change resulting from another factor or factors.
If you sell the notes, you may receive significantly less than the
amount that you paid for them.
The notes are subject to intraday purchase risk.
The notes may be purchased in the secondary market at prices other
than the closing Indicative Note Value, which will have an effect
on the effective leverage amount of the notes. Because the exposure
is fixed after the close of each trading day (subject to the
occurrence of a Market Disruption Event) and does not change
intraday as the level of the Index moves in favor of the notes
(i.e., the level of the Index increases), the actual
exposure in the notes decreases. The reverse is also true. The
table below presents the hypothetical exposure an investor has
(ignoring all costs, fees and other factors) when purchasing a note
intraday given the movement of the level of the Index since the
closing level of the Index on the prior Index Business Day. The
resulting effective exposure amount will then be constant for that
purchaser until the earlier of (i) a sale or (ii) the end of the
Index Business Day. The table below assumes the closing Indicative
Note Value of the notes was $50 on the prior Index Business Day and
the closing level of the Index on the prior Index Business Day was
100.00.
A |
B |
C |
D |
E |
Index Level |
% Change
in Index Level |
Hypothetical Price for 3x
Notes
C=$50*(1+3*B) |
Hypothetical Notional
Exposure for 3x Notes
D=$50*(1+B)*3 |
Effective Leverage
Amount of 3x Notes
E=D/C |
120.00 |
20% |
$80.00 |
$180.00 |
2.25 |
115.00 |
15% |
$72.50 |
$172.50 |
2.38 |
110.00 |
10% |
$65.00 |
$165.00 |
2.54 |
105.00 |
5% |
$57.50 |
$157.50 |
2.74 |
104.00 |
4% |
$56.00 |
$156.00 |
2.79 |
103.00 |
3% |
$54.50 |
$154.50 |
2.83 |
102.00 |
2% |
$53.00 |
$153.00 |
2.89 |
101.00 |
1% |
$51.50 |
$151.50 |
2.94 |
100.00 |
0% |
$50.00 |
$150.00 |
3.00 |
99.00 |
-1% |
$48.50 |
$148.50 |
3.06 |
98.00 |
-2% |
$47.00 |
$147.00 |
3.13 |
97.00 |
-3% |
$45.50 |
$145.50 |
3.20 |
96.00 |
-4% |
$44.00 |
$144.00 |
3.27 |
95.00 |
-5% |
$42.50 |
$142.50 |
3.35 |
85.00 |
-15% |
$27.50 |
$127.50 |
4.64 |
80.00 |
-20% |
$20.00 |
$120.00 |
6.00 |
The table above shows that if the level of the Index increases
during the Index Business Day, your effective exposure decreases
from three times leveraged long. For example, if the level of the
Index increases by 20%, your effective exposure decreases from
3.00x to 2.25x.
The table above also shows that if the level of the Index decreases
during the Index Business Day, your effective exposure increases
from three times leveraged long. For example, if the level of the
Index decreases by 20%, your effective exposure increases from
3.00x to 6.00x.
Risks Relating to Conflicts of Interest and Hedging
Our offering of the notes does not constitute an expression of
our view about, or a recommendation of, the Index or any of the
Index constituents.
You should not take our offering of the notes as an expression of
our views about how the Index or any of the Index constituents will
perform in the future or as a recommendation to invest (directly or
indirectly, by taking a long or short position) in the Index or any
of the Index constituents, including through an investment in the
notes. As a global financial institution, we and our affiliates
may, and often do, have positions (long, short or both) in the
Index or one or more of the Index constituents that conflict with
an investment in the notes. See “— We or our affiliates may have
economic interests that are adverse to those of the holders of the
notes as a result of our hedging and other trading activities”
below and “Use of Proceeds and Hedging” in this pricing supplement
for some examples of potential conflicting positions we may have.
You should undertake an independent determination of whether an
investment in the notes is suitable for you in light of your
specific investment objectives, risk tolerance and financial
resources.
We are not currently affiliated with any constituent issuer or the
Index Sponsor. However, we or our affiliates may currently or from
time to time in the future engage in business with a constituent
issuer or the Index Sponsor. Nevertheless, neither we nor any of
our affiliates independently verified the accuracy or the
completeness of any information about the Index Sponsor or any of
the constituent issuers disclosed by the Index Sponsor, the Index
Calculation Agent or the constituent issuers.
We or our affiliates may have economic interests that are
adverse to those of the holders of the notes as a result of our
hedging and other trading activities.
In anticipation of the sale of the notes, we expect to hedge our
obligations under the notes through certain affiliates or
unaffiliated counterparties by taking positions in instruments the
value of which is derived from the Index or one or more Index
constituents. We may also adjust our hedge by, among other things,
purchasing or selling instruments the value of which is derived
from the Index or one or more Index constituents at any time and
from time to time, and close out or unwind our hedge by selling any
of the foregoing at any time and from time to time. We cannot give
you any assurances that our hedging will not negatively affect the
level of the Index or the performance of the notes. See “Use of
Proceeds and Hedging” below for additional information about our
hedging activities.
These hedging activities may present a conflict of interest between
your interest as a holder of the notes and the interests our
affiliates have in executing, maintaining and adjusting hedge
transactions. These hedging activities could also affect the price
at which BMOCM is willing to purchase your notes in the secondary
market.
Our hedging counterparties expect to make a profit. Because hedging
our obligations entails risk and may be influenced by market forces
beyond our control, this hedging may result in a profit that is
more or less than expected, or it may result in a loss.
It is possible that these hedging or trading activities could
result in substantial returns for us or our affiliates while the
value of the notes declines.
Bank of Montreal or its affiliates may also engage in trading in
the Index constituents and other investments relating to the Index
constituents, the constituent issuers or the Index 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 customers, including block
transactions. Any of these activities could negatively affect the
market price of the Index constituents and the Index level and,
therefore negatively affect the market value of the notes. Bank of
Montreal or its affiliates may also issue or underwrite other
securities or financial or derivative instruments with returns
linked or related to changes in the performance of any constituent
issuers, the Index constituents or the Index. By introducing
competing products into the market place in this manner, Bank of
Montreal or its affiliates could adversely affect the market value
of the notes.
We or our affiliates may have economic interests that are
adverse to those of the holders of the notes as a result of our
business activities.
We or our affiliates may currently or from time to time engage in
business with the constituent issuers, including extending loans
to, or making equity investments in, or providing advisory services
to them, including merger and acquisition advisory services. In the
course of this business, we or our affiliates may acquire
non-public information about the constituent issuers, and we will
not disclose any such information to you. Any prospective purchaser
of notes should undertake an independent investigation of each
constituent issuer as in its judgment is appropriate to make an
informed decision with respect to an investment in the notes.
Additionally, we or one of our affiliates may serve as issuer,
agent or underwriter for additional issuances of other securities
or financial instruments with returns linked or related to changes
in the Index level or the Index constituents. To the extent that we
or one of our affiliates serves as issuer, agent or underwriter for
such securities or financial instruments, our or their interests
with respect to such products may be adverse to those of the
holders of the notes. By introducing competing products into the
market place in this manner, we or one or more of our affiliates
could adversely affect the value of the notes.
BMOCM and its affiliates may have published research, expressed
opinions or provided recommendations that are inconsistent with
investing in or holding the notes, and may do so in the future. Any
such research, opinions or recommendations could affect the level
of the Index and of each of the Index constituents, and therefore
the market value of the notes.
BMOCM and its affiliates publish research from time to time on
financial markets and other matters that may influence the value of
the notes, or express opinions or provide recommendations that are
inconsistent with purchasing or holding the notes. BMOCM and its
affiliates may have published or may publish research or other
opinions that call into question the investment view implicit in an
investment in the notes. Any research, opinions or recommendations
expressed by BMOCM or its affiliates may not be consistent with
each other and may be modified from time to time without notice.
Investors should make their own independent investigation of the
merits of investing in the notes, the Index, the constituent
issuers and the Index constituents.
We or our affiliates may have economic interests that are
adverse to those of the holders of the notes due to BMOCM’s role as
Calculation Agent.
BMOCM, one of our affiliates, will act as the Calculation Agent.
The Calculation Agent will make all determinations relating to the
notes, including the Index Closing Level, the Index Performance
Factor, the Indicative Note Value, the Daily Investor Fee, the Long
Index Amount, the Financing Level, the Daily Financing Charge, the
Redemption Fee Amount, the Cash Settlement Amount, if any, that we
will pay you at maturity, and the Redemption Amount, if any, that
we will pay you upon early redemption, if applicable. The
Calculation Agent will also be responsible for determining whether
a Market Disruption Event has occurred, whether the Index has been
discontinued and whether there has been a material change in the
Index. In performing these duties, BMOCM may have interests adverse
to the interests of the holders of the notes, which may affect your
return on the notes, particularly where BMOCM, as the Calculation
Agent, is entitled to exercise discretion.
Risks Relating to the Index
The Index has limited actual historical information.
The Index was launched on September 26, 2017. Because the Index is
of recent origin and limited actual historical performance data
exists with respect to it, your investment in the notes may involve
a greater risk than investing in securities linked to an Index with
a more established record of performance.
The historical performance of the Index should not be taken as an
indication of its future performance. While the trading prices of
the Index constituents will determine the Index level, it is
impossible to predict whether the Index level will fall or rise.
Trading prices of the Index constituents will be influenced by the
complex and interrelated economic, financial, regulatory,
geographic, judicial, tax, political and other factors that can
affect the capital markets generally and the equity trading markets
on which the Index constituents are traded, and by various
circumstances that can influence the prices of the Index
constituents. Due to the small number of Index constituents, the
level of the Index may be materially affected by changes in the
level of a small number of Index constituents, or even one Index
constituent.
ICE Data Indices, LLC, as the Index Calculation Agent, may
adjust the Index in a way that may affect its level, and the Index
Calculation Agent has no obligation to consider your
interests.
ICE Data Indices, LLC, as the Index Calculation Agent, Index
Sponsor and Index Administrator, is responsible for calculating and
maintaining the Index. The Index Sponsor can add, delete or
substitute an Index constituent or make other methodological
changes that could change the Index level. The Index Sponsor will
determine, for example, which companies have an appropriate
business for inclusion in the Index. Changes to the Index
constituents may affect the Index, as a newly added equity security
may perform significantly better or worse than the Index
constituent or constituents it replaces. Additionally, the Index
Sponsor may alter, discontinue or suspend calculation or
dissemination of the Index. Any of these actions could adversely
affect the value of the notes. As Index Calculation Agent, Index
Sponsor and Index Administrator, ICE Data Indices, LLC has no
obligation to consider your interests in calculating or revising
the Index, and you will not have any rights against ICE Data
Indices, LLC if it takes any such action. See “The Index.”
As discussed above, the Index was launched recently. The Index
Sponsor has indicated that it expects to monitor the composition of
the Index over time, including through discussions and
consultations with market participants, in order to determine
whether any changes to the Index or its components are necessary or
appropriate. Because the Index currently has only 10 components,
any additions to or deletions from the Index could have a
significant impact on future levels of the Index.
We and our affiliates have no affiliation with ICE Data Indices,
LLC and are not responsible for any of their public disclosure of
information.
We and our affiliates are not affiliated with ICE Data Indices,
LLC, as the Index Calculation Agent, Index Sponsor and Index
Administrator (except for licensing arrangements discussed under
“The Index — License Agreement”) and have no ability to control or
predict its actions, including any errors in or discontinuation of
public disclosure regarding methods or policies relating to the
calculation of the Index. If the Index Sponsor discontinues or
suspends the calculation of the Index, it may become difficult to
determine the market value of the notes and the payment at
maturity, call or upon early redemption. The Calculation Agent may
designate a successor index in its sole discretion. If the
Calculation Agent determines in its sole discretion that no
successor index comparable to the Index exists, the payment you
receive at maturity, call or upon early redemption will be
determined by the Calculation Agent in its sole discretion. See
“Specific Terms of the Notes — Market Disruption Events” and “—
Calculation Agent.” The Index Sponsor is not involved in the offer
of the notes in any way and has no obligation to consider your
interest as an owner of the notes in taking any actions that might
affect the market value of your notes.
ICE Data Indices, LLC, as the Index Calculation Agent, Index
Sponsor and Index Administrator is not involved in the offering of
the notes in any way and it does not have any obligation of any
sort with respect to your notes. We are not affiliated with ICE
Data Indices, LLC, as Index Calculation Agent, Index Sponsor and
Index Administrator and it does not have any obligation to take
your interests into consideration for any reason, including when
taking any actions that might affect the value of the notes.
We have derived the information about ICE Data Indices, LLC and the
Index from publicly available information, without independent
verification. Neither we nor any of our affiliates have undertaken
any independent review of the publicly available information about
ICE Data Indices, LLC, as the Index Calculation Agent, Index
Sponsor and Index Administrator or the Index contained in this
pricing supplement. You, as an investor in the notes, should
make your own independent investigation into ICE Data Indices, LLC,
as the Index Calculation Agent, Index Sponsor and Index
Administrator and the Index.
The Index Calculation Agent may, in its sole discretion,
discontinue the public disclosure of the intraday Index value and
the end-of-day closing value of the Index.
The Index Calculation Agent is under no obligation to continue to
calculate the intraday Index value and end-of-day official closing
value of the Index, or to calculate similar values for any
successor index. If the Index Calculation Agent discontinues such
public disclosure, we may not be able to provide the Intraday
Indicative Values related to the Index or the Intraday Indicative
Value of the notes.
The Index lacks diversification and is vulnerable to
fluctuations in the technology, media & communications and
consumer discretionary industries.
All of the stocks included in the Index are issued by companies
whose primary lines of business are in the technology, media &
communications and consumer discretionary industries. As a result,
the stocks that will determine the performance of the Index and
hence, the value of the notes, are concentrated in these industries
and vulnerable to events affecting those industries. Although an
investment in the notes will not give holders any ownership or
other direct interests in the Index constituents, the return on an
investment in the notes will be subject to certain risks, including
those described below, associated with a direct equity investment
in companies in the technology, media & communications and
consumer discretionary industries. Accordingly, by investing in the
notes, you will not benefit from the diversification which could
result from an investment linked to companies that operate in
multiple sectors. The Index is also subject to the risk that
large-capitalization stocks may underperform other segments of the
equity market or the equity market as a whole. Larger, more
established companies may be unable to respond quickly to new
competitive challenges such as changes in technology and may not be
able to attain the high growth rate of smaller companies,
especially during extended periods of economic expansion.
The Index currently includes constituents in the following
categories:
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Information Technology Sector Risk. The information
technology sector includes companies engaged in Internet software
and services, technology hardware and storage peripherals,
electronic equipment instruments and components, and semiconductors
and semiconductor equipment. Information technology companies face
intense competition, both domestically and internationally, which
may have an adverse effect on profit margins. Information
technology companies may have limited product lines, markets,
financial resources or personnel. The products of information
technology companies may face rapid product obsolescence due to
technological developments and frequent new product introduction,
unpredictable changes in growth rates and competition for the
services of qualified personnel. Failure to introduce new products,
develop and maintain a loyal customer base, or achieve general
market acceptance for their products could have a material adverse
effect on a company’s business. Companies in the information
technology sector are heavily dependent on intellectual property
and the loss of patent, copyright and trademark protections may
adversely affect the profitability of these companies. |
|
· |
Internet Company Risk. Many Internet-related companies
have incurred large losses since their inception and may continue
to incur large losses in the hope of capturing market share and
generating future revenues. Accordingly, many such companies expect
to incur significant operating losses for the foreseeable future,
and may never be profitable. The markets in which many Internet
companies compete face rapidly evolving industry standards,
frequent new service and product announcements, introductions and
enhancements, and changing customer demands. The failure of an
Internet company to adapt to such changes could have a material
adverse effect on the company’s business. Additionally, the
widespread adoption of new Internet, networking, telecommunications
technologies, or other technological changes, could require
substantial expenditures by an Internet company to modify or adapt
its services or infrastructure, which could have a material adverse
effect on an Internet company’s business. |
|
· |
Semiconductor Company Risk. Competitive pressures may
have a significant effect on the financial condition of
semiconductor companies and, as product cycles shorten and
manufacturing capacity increases, these companies may become
increasingly subject to aggressive pricing, which hampers
profitability. Reduced demand for end-user products,
under-utilization of manufacturing capacity, and other factors
could adversely impact the operating results of companies in the
semiconductor sector. Semiconductor companies typically face high
capital costs and may be heavily dependent on intellectual property
rights. The semiconductor sector is highly cyclical, which may
cause the operating results of many semiconductor companies to vary
significantly. The stock prices of companies in the semiconductor
sector have been and likely will continue to be extremely
volatile. |
|
· |
Software Industry Risk. The software industry can be
significantly affected by intense competition, aggressive pricing,
technological innovations, and product obsolescence. Companies in
the software industry are subject to significant competitive
pressures, such as aggressive pricing, new market entrants,
competition for market share, short product cycles due to an
accelerated rate of technological developments and the potential
for limited earnings and/or falling profit margins. These companies
also face the risks that new services, equipment or technologies
will not be accepted by consumers and businesses or will become
rapidly obsolete. These factors can affect the profitability of
these companies and, as a result, the value of their securities.
Also, patent protection is integral to the success of many
companies in this industry, and profitability can be affected
materially by, among other things, the cost of obtaining (or
failing to obtain) patent approvals, the cost of litigating patent
infringement and the loss of patent protection for products (which
significantly increases pricing pressures and can materially reduce
profitability with respect to such products). In addition, many
software companies have limited operating histories. Prices of
these companies’ securities historically have been more volatile
than other securities, especially over the short term. |
|
· |
Internet Information Provider Company Risk. Internet
information provider companies provide Internet navigation services
and reference guide information and publish, provide or present
proprietary advertising and/or third party content. These companies
often derive a large portion of their revenues from advertising,
and a reduction in spending by or loss of advertisers could
seriously harm their business. This business is rapidly evolving
and intensely competitive, and is subject to changing technologies,
shifting user needs, and frequent introductions of new products and
services. The research and development of new, technologically
advanced products is a complex and uncertain process requiring high
levels of innovation and investment, as well as the accurate
anticipation of technology, market trends and consumer needs. The
number of people who access the Internet is increasing dramatically
and a failure to attract and retain a substantial number of these
users to a company’s products and services or to develop products
and technologies that are more compatible with alternative devices,
could adversely affect operating results. Concerns regarding a
company’s products, services or processes that may compromise the
privacy of users or other privacy related matters, even if
unfounded, could damage a company’s reputation and adversely affect
operating results. |
|
· |
Catalog and Mail Order House Company Risk. Catalog and
mail order house companies may be exposed to significant inventory
risks that may adversely affect operating results due to, among
other factors: seasonality, new product launches, rapid changes in
product cycles and pricing, defective merchandise, changes in
consumer demand and consumer spending patterns, or changes in
consumer tastes with respect to products. Demand for products can
change significantly between the time inventory or components are
ordered and the date of sale. The acquisition of certain types of
inventory or components may require significant lead-time and
prepayment and they may not be returnable. Failure to adequately
predict customer demand or otherwise optimize and operate
distribution centers could result in excess or insufficient
inventory or distribution capacity, result in increased costs,
impairment charges, or both. The business of catalog and mail order
house companies can be highly seasonal and failure to stock or
restock popular products in sufficient amounts during high demand
periods could significantly affect revenue and future growth.
Increased website traffic during peak periods could cause system
interruptions which may reduce the volume of goods sold and the
attractiveness of a company’s products and services. |
A
limited number of Index constituents may affect the Index Closing
Level, and the Index is not necessarily representative of its focus
industry.
Each of the Index constituents represents 10% of the weight of the
Index as of each quarterly reconstitution date (based on the 10
Index constituents as of the date of this pricing supplement). Any
reduction in the market price of any of those stocks is likely to
have a substantial adverse impact on the Index Closing Level and
the value of the notes. Due to the small number of Index
constituents, those Index constituents and the Index itself may not
necessarily follow the price movements of the Index’s target
industries. If the Index constituents decline in value, the Index
will also decline in value, even if common stock prices of other
companies in these industries generally increase in value. Giving
effect to leverage, negative changes in the performance of one
Index constituent will be magnified and have a material adverse
effect on the value of the notes. See “Summary—Path Dependence and
Daily Leverage Reset” above.
An Index constituent may be replaced upon the occurrence of
certain adverse events.
An exchange may delist an Index constituent. Procedures have been
established by the Index Sponsor to address such an event. Because
there are only 10 Index constituents as of the date of this pricing
supplement, there can be no assurance that the replacement or
delisting of the Index constituents, or any other force majeure
event, will not have an adverse or distortive effect on the Index
level or the manner in which it is calculated and, therefore, may
have any adverse impact on the value of the notes. An Index
constituent may also be removed from the Index, as described under
“The Index — Index Maintenance.”
The Index uses a proprietary selection methodology, which may
not select the constituent issuers in the same manner as would
other index providers or market participants.
Using a proprietary methodology discussed below, the Index seeks to
identify constituent issuers that exhibit characteristics of
high-growth technology and Internet/media stocks. When selecting
future constituent issuers, the Index Sponsor will focus on
distinguishing between traditional technology and service companies
and newer, innovative, technology-utilizing companies. There can be
no assurances that the proprietary methodology used to identify
constituent issuers eligible for inclusion in the Index will be
successful. The Index Sponsor’s methodology, to some extent,
involves subjective judgments, and there can be no assurance that
any or all constituent issuers included in the Index would be
selected by other market participants using a similar selection
process. See “The Index—Index Constituent Selection.”
We are not currently affiliated with any of the constituent
issuers.
We are not currently affiliated with any of the constituent
issuers. As a result, we have no ability, nor expect to have the
ability in the future, to control the actions of such constituent
issuers, including actions that could affect the value of the Index
constituents or the value of your notes, and we are not responsible
for any disclosure made by any other company. None of the money you
pay us will go to any of the constituent issuers represented in the
Index and none of the constituent issuers will be involved in the
offering of the notes in any way. The constituent issuers will not
have any obligation to consider your interests as a holder of the
notes in taking any corporate actions that might affect the value
of your notes.
In the event we become affiliated with any of the constituent
issuers, we will have no obligation to consider your interests as a
holder of the notes in taking any action with respect to such
constituent issuer that might affect the value of your notes.
HYPOTHETICAL EXAMPLES
Hypothetical Payment at Maturity
The following examples and table illustrate how the notes would
perform at maturity in hypothetical circumstances. They are
intended to highlight how the return on the notes is affected by
the daily performance of the Index, fees, leverage, compounding and
path dependency. For ease of review, the hypotheticals cover a
22-day period.
The daily resetting of the leverage is likely to cause each note to
experience a “decay” effect, which is likely to worsen over time
and will be greater the more volatile the level of the Index. The
“decay” effect refers to the likely tendency of the notes to lose
value over time. Accordingly, the notes are not suitable for
intermediate- or long-term investment, as any intermediate- or
long-term investment is very likely to sustain significant losses,
even if the Index appreciates over the relevant time period.
Although the decay effect is more likely to impact the return on
the notes the longer the notes are held, the decay effect can have
a significant impact on the note performance even over a period as
short as two days. The notes are suitable only for sophisticated
investors. If you invest in the notes, you should continuously
monitor your holdings of the notes and make investment decisions at
least on each trading day. Please see the section “—Illustrations
of the “Decay Effect” on the Notes” below.
We have included examples in which the Index level alternatively
increases and decreases at a constant rate of 3.00% per day, with
the Index level dropping by one point by day 22 (Example 1) and a
Note Return of -8.72%, and an example in which the Index level
decreases at a constant rate of 3.00% per day, decreasing 48.8
points by day 22 (Example 2) and a Note Return of -87.47%.
Examples 3 and 4 highlight the effect of volatility in the Index.
In Example 3, the Index level increases by a constant 1% per day,
with an increase of 24.5 points by day 22 and a Note Return of
91.28%. In contrast, the Index in Example 4, at day 22, has
increased 24.9 points; however, due to the volatility of the Index
on a daily basis, the Note Return is -19.32%, a 110.6% difference
from the Note Return in Example 3. For ease of analysis and
presentation, examples 1-4 assume that the notes were purchased
on the Initial Trade Date at the Indicative Note Value and disposed
of on the Maturity Date, no Market Disruption Events occurred and
that the term of the notes is 22 days. In Examples 1-4, the
Daily Investor Fee and the Daily Financing Charge assume that there
are no weekends or holidays; every calendar day is assumed to be an
Exchange Business Day. We have not considered a call or early
redemption for simplicity.
These examples highlight the impact of the Daily Investor Fee,
leverage and compounding on the payment at maturity under different
circumstances. Many other factors will affect the value of the
notes, and these figures are provided for illustration only. These
hypothetical examples should not be taken as an indication or a
prediction of future Index performance or investment results and
are intended to illustrate a few of the possible returns on the
notes. Because the Indicative Note Value takes into account the net
effect of the Daily Investor Fee, which is a fixed percentage of
the value of the notes, and the performance of the Index, the
Indicative Note Value is dependent on the path taken by the Index
level to arrive at its ending level. The figures in these examples
and table have been rounded for convenience.
We cannot predict the actual Index level at any time during the
term of the notes or the market value of the notes, nor can we
predict the relationship between the Index level and the market
value of your notes at any time prior to the Maturity Date. The
actual amount that a holder of the notes will receive at maturity
or call, or upon early redemption, as the case may be, and the rate
of return on the notes will depend on the actual Index Closing
Levels during the term of the notes and during the Final
Measurement Period or Call Measurement Period, or on a Redemption
Measurement Date, the Daily Investor Fee, Daily Financing Charge,
Index volatility and the Redemption Fee Amount, if applicable.
Moreover, the assumptions on which the hypothetical returns are
based are purely for illustrative purposes. Consequently, the
amount to be paid in respect of the notes, if any, on the Maturity
Date, Call Settlement Date or relevant Redemption Date, as
applicable, may be very different from the information reflected
inthis section.
Example 1: The Index level alternatively increases then
decreases by a constant 3.00% per day.
Assumptions |
|
Fee Rate |
0.95% per annum |
Daily Leverage
Factor |
3 |
Daily
Financing Factor |
2 |
Daily
Financing Rate |
1.00% |
Hypothetical Principal Amount |
$50.00 |
Initial Index Level |
100 |
Note Return |
-8.72% |
Cumulative Index Return |
-0.99% |
Day |
Index
Level |
Daily Index
Performance |
Index
Performance
Factor |
Daily
Investor
Fee |
Fee
Accrual |
Daily
Financing
Charge |
Long Index
Amount |
Financing
Level |
Indicative
Note Value |
Note
Return |
A |
B |
C |
D |
E |
F |
G |
H |
I |
J |
K |
|
Previous
Index
Level*
(1+C) |
|
Current
Index Level
/
Previous
Index Level |
Previous
Indicative
Note
Value *
Fee
Rate/365 |
Total of
E |
Previous
Indicative
Note
Value *
Daily
Financing
Factor *
Daily
Financing
Rate/365 |
Previous
Indicative
Note Value *
Daily
Leverage
Factor * D |
Previous
Indicative
Note
Value *
Daily
Financing
Factor +
E + G |
H - I |
(Current
Indicative
Note Value
-
Previous
Indicative
Note
Value)/
Previous
Indicative
Note Value |
0 |
100.0 |
|
|
|
|
|
$150.00 |
$100.00 |
$50.00 |
|
1 |
103.0 |
3.0% |
1.03 |
$0.0013 |
$0.0013 |
$0.00274 |
$154.50 |
$100.00 |
$54.50 |
8.99% |
2 |
99.9 |
-3.0% |
0.97 |
$0.0014 |
$0.0027 |
$0.00299 |
$158.58 |
$109.00 |
$49.59 |
-9.01% |
3 |
102.9 |
3.0% |
1.03 |
$0.0013 |
$0.0040 |
$0.00272 |
$153.22 |
$99.18 |
$54.05 |
8.99% |
4 |
99.8 |
-3.0% |
0.97 |
$0.0014 |
$0.0054 |
$0.00296 |
$157.27 |
$108.10 |
$49.18 |
-9.01% |
5 |
102.8 |
3.0% |
1.03 |
$0.0013 |
$0.0067 |
$0.00269 |
$151.96 |
$98.36 |
$53.60 |
8.99% |
6 |
99.7 |
-3.0% |
0.97 |
$0.0014 |
$0.0081 |
$0.00294 |
$155.97 |
$107.20 |
$48.77 |
-9.01% |
7 |
102.7 |
3.0% |
1.03 |
$0.0013 |
$0.0094 |
$0.00267 |
$150.70 |
$97.55 |
$53.16 |
8.99% |
8 |
99.6 |
-3.0% |
0.97 |
$0.0014 |
$0.0107 |
$0.00291 |
$154.69 |
$106.32 |
$48.37 |
-9.01% |
9 |
102.6 |
3.0% |
1.03 |
$0.0013 |
$0.0120 |
$0.00265 |
$149.46 |
$96.74 |
$52.72 |
8.99% |
10 |
99.6 |
-3.0% |
0.97 |
$0.0014 |
$0.0134 |
$0.00289 |
$153.41 |
$105.44 |
$47.97 |
-9.01% |
11 |
102.5 |
3.0% |
1.03 |
$0.0012 |
$0.0146 |
$0.00263 |
$148.22 |
$95.94 |
$52.28 |
8.99% |
12 |
99.5 |
-3.0% |
0.97 |
$0.0014 |
$0.0160 |
$0.00286 |
$152.14 |
$104.57 |
$47.57 |
-9.01% |
13 |
102.4 |
3.0% |
1.03 |
$0.0012 |
$0.0172 |
$0.00261 |
$147.00 |
$95.15 |
$51.85 |
8.99% |
14 |
99.4 |
-3.0% |
0.97 |
$0.0013 |
$0.0186 |
$0.00284 |
$150.88 |
$103.70 |
$47.18 |
-9.01% |
15 |
102.4 |
3.0% |
1.03 |
$0.0012 |
$0.0198 |
$0.00259 |
$145.78 |
$94.36 |
$51.42 |
8.99% |
16 |
99.3 |
-3.0% |
0.97 |
$0.0013 |
$0.0211 |
$0.00282 |
$149.64 |
$102.85 |
$46.79 |
-9.01% |
17 |
102.3 |
3.0% |
1.03 |
$0.0012 |
$0.0224 |
$0.00256 |
$144.58 |
$93.58 |
$51.00 |
8.99% |
18 |
99.2 |
-3.0% |
0.97 |
$0.0013 |
$0.0237 |
$0.00279 |
$148.40 |
$102.00 |
$46.40 |
-9.01% |
19 |
102.2 |
3.0% |
1.03 |
$0.0012 |
$0.0249 |
$0.00254 |
$143.38 |
$92.81 |
$50.58 |
8.99% |
20 |
99.1 |
-3.0% |
0.97 |
$0.0013 |
$0.0262 |
$0.00277 |
$147.17 |
$101.15 |
$46.02 |
-9.01% |
21 |
102.1 |
3.0% |
1.03 |
$0.0012 |
$0.0274 |
$0.00252 |
$142.20 |
$92.04 |
$50.16 |
8.99% |
22 |
99.0 |
-3.0% |
0.97 |
$0.0013 |
$0.0287 |
$0.00275 |
$145.96 |
$100.32 |
$45.64 |
-9.01% |
Example 2: The Index level decreases by a constant 3.00% per
day.
Assumptions |
|
Fee Rate |
0.95% per annum |
Daily Leverage Factor |
3 |
Daily Financing Factor |
2 |
Daily Financing Rate |
1.00% |
Hypothetical Principal Amount |
$50.00 |
Initial Index Level |
100 |
Note Return |
-87.47% |
Cumulative Index Return |
-48.83% |
Day |
Index
Level |
Daily Index
Performance |
Index
Performance
Factor |
Daily
Investor
Fee |
Fee
Accrual |
Daily
Financing
Charge |
Long Index
Amount |
Financing
Level |
Indicative
Note
Value |
Note
Return |
A |
B |
C |
D |
E |
F |
G |
H |
I |
J |
K |
|
Previous
Index
Level*
(1+C) |
|
Current
Index Level
/
Previous
Index Level |
Previous
Indicative
Note
Value*
Fee
Rate/365 |
Total of E |
Previous
Indicative
Note Value *
Daily
Financing
Factor *
Daily
Financing
Rate/365 |
Previous
Indicative
Note Value
* Daily
Leverage
Factor * D |
Previous
Indicative
Note
Value*
Daily
Financing
Factor +
E + G |
H - I |
(Current
Indicative
Note Value -
Previous
Indicative
Note Value)/
Previous
Indicative
Note Value |
0 |
100.0 |
|
|
|
|
|
$150.00 |
$100.00 |
$50.00 |
|
1 |
97.0 |
-3.0% |
0.97 |
$0.0013 |
$0.0013 |
$0.00274 |
$145.50 |
$100.00 |
$45.50 |
-9.01% |
2 |
94.1 |
-3.0% |
0.97 |
$0.0012 |
$0.0025 |
$0.00249 |
$132.39 |
$91.00 |
$41.40 |
-9.01% |
3 |
91.3 |
-3.0% |
0.97 |
$0.0011 |
$0.0036 |
$0.00227 |
$120.47 |
$82.80 |
$37.67 |
-9.01% |
4 |
88.5 |
-3.0% |
0.97 |
$0.0010 |
$0.0045 |
$0.00206 |
$109.62 |
$75.34 |
$34.28 |
-9.01% |
5 |
85.9 |
-3.0% |
0.97 |
$0.0009 |
$0.0054 |
$0.00188 |
$99.74 |
$68.55 |
$31.19 |
-9.01% |
6 |
83.3 |
-3.0% |
0.97 |
$0.0008 |
$0.0062 |
$0.00171 |
$90.76 |
$62.38 |
$28.38 |
-9.01% |
7 |
80.8 |
-3.0% |
0.97 |
$0.0007 |
$0.0070 |
$0.00155 |
$82.58 |
$56.76 |
$25.82 |
-9.01% |
8 |
78.4 |
-3.0% |
0.97 |
$0.0007 |
$0.0077 |
$0.00141 |
$75.14 |
$51.65 |
$23.50 |
-9.01% |
9 |
76.0 |
-3.0% |
0.97 |
$0.0006 |
$0.0083 |
$0.00129 |
$68.37 |
$46.99 |
$21.38 |
-9.01% |
10 |
73.7 |
-3.0% |
0.97 |
$0.0006 |
$0.0088 |
$0.00117 |
$62.21 |
$42.76 |
$19.45 |
-9.01% |
11 |
71.5 |
-3.0% |
0.97 |
$0.0005 |
$0.0093 |
$0.00107 |
$56.61 |
$38.91 |
$17.70 |
-9.01% |
12 |
69.4 |
-3.0% |
0.97 |
$0.0005 |
$0.0098 |
$0.00097 |
$51.51 |
$35.40 |
$16.11 |
-9.01% |
13 |
67.3 |
-3.0% |
0.97 |
$0.0004 |
$0.0102 |
$0.00088 |
$46.87 |
$32.21 |
$14.66 |
-9.01% |
14 |
65.3 |
-3.0% |
0.97 |
$0.0004 |
$0.0106 |
$0.00080 |
$42.65 |
$29.31 |
$13.34 |
-9.01% |
15 |
63.3 |
-3.0% |
0.97 |
$0.0003 |
$0.0109 |
$0.00073 |
$38.81 |
$26.67 |
$12.13 |
-9.01% |
16 |
61.4 |
-3.0% |
0.97 |
$0.0003 |
$0.0113 |
$0.00066 |
$35.31 |
$24.27 |
$11.04 |
-9.01% |
17 |
59.6 |
-3.0% |
0.97 |
$0.0003 |
$0.0115 |
$0.00060 |
$32.13 |
$22.08 |
$10.05 |
-9.01% |
18 |
57.8 |
-3.0% |
0.97 |
$0.0003 |
$0.0118 |
$0.00055 |
$29.24 |
$20.09 |
$9.14 |
-9.01% |
19 |
56.1 |
-3.0% |
0.97 |
$0.0002 |
$0.0120 |
$0.00050 |
$26.60 |
$18.28 |
$8.32 |
-9.01% |
20 |
54.4 |
-3.0% |
0.97 |
$0.0002 |
$0.0123 |
$0.00046 |
$24.21 |
$16.64 |
$7.57 |
-9.01% |
21 |
52.7 |
-3.0% |
0.97 |
$0.0002 |
$0.0125 |
$0.00041 |
$22.03 |
$15.14 |
$6.89 |
-9.01% |
22 |
51.2 |
-3.0% |
0.97 |
$0.0002 |
$0.0126 |
$0.00038 |
$20.04 |
$13.77 |
$6.27 |
-9.01% |
Example 3: The Index level increases by a constant 1.00% per
day.
Assumptions |
|
Fee Rate |
0.95% per annum |
Daily Leverage Factor |
3 |
Daily Financing Factor |
2 |
Daily Financing Rate |
1.00% |
Hypothetical Principal Amount |
$50.00 |
Initial Index Level |
100 |
Note Return |
91.28% |
Cumulative Index Return |
24.47% |
Day |
Index
Level |
Daily Index
Performance |
Index
Performance
Factor |
Daily
Investor
Fee |
Fee
Accrual |
Daily
Financing
Charge |
Long
Index
Amount |
Financing
Level |
Indicative
Note Value |
Note
Return |
A |
B |
C |
D |
E |
F |
G |
H |
I |
J |
K |
|
Previous
Index
Level*
(1+C) |
|
Current
Index Level
/
Previous
Index Level |
Previous
Indicative
Note
Value*
Fee
Rate/365 |
Total of E |
Previous
Indicative
Note
Value *
Daily
Financing
Factor *
Daily
Financing
Rate/365 |
Previous
Indicative
Note
Value *
Daily
Leverage
Factor * D |
Previous
Indicative
Note Value
*
Daily
Financing
Factor +
E + G |
H - I |
(Current
Indicative
Note Value
-
Previous
Indicative
Note
Value)/
Previous
Indicative
Note Value |
0 |
100.0 |
|
|
|
|
|
$150.00 |
$100.00 |
$50.00 |
|
1 |
101.0 |
1.0% |
1.01 |
$0.0013 |
$0.0013 |
$0.00274 |
$151.50 |
$100.00 |
$51.50 |
2.99% |
2 |
102.0 |
1.0% |
1.01 |
$0.0013 |
$0.0026 |
$0.00282 |
$156.03 |
$103.00 |
$53.04 |
2.99% |
3 |
103.0 |
1.0% |
1.01 |
$0.0014 |
$0.0040 |
$0.00291 |
$160.70 |
$106.08 |
$54.62 |
2.99% |
4 |
104.1 |
1.0% |
1.01 |
$0.0014 |
$0.0054 |
$0.00299 |
$165.51 |
$109.25 |
$56.26 |
2.99% |
5 |
105.1 |
1.0% |
1.01 |
$0.0015 |
$0.0069 |
$0.00308 |
$170.46 |
$112.52 |
$57.94 |
2.99% |
6 |
106.2 |
1.0% |
1.01 |
$0.0015 |
$0.0084 |
$0.00317 |
$175.56 |
$115.89 |
$59.67 |
2.99% |
7 |
107.2 |
1.0% |
1.01 |
$0.0016 |
$0.0100 |
$0.00327 |
$180.81 |
$119.35 |
$61.46 |
2.99% |
8 |
108.3 |
1.0% |
1.01 |
$0.0016 |
$0.0116 |
$0.00337 |
$186.22 |
$122.92 |
$63.30 |
2.99% |
9 |
109.4 |
1.0% |
1.01 |
$0.0016 |
$0.0132 |
$0.00347 |
$191.80 |
$126.60 |
$65.19 |
2.99% |
10 |
110.5 |
1.0% |
1.01 |
$0.0017 |
$0.0149 |
$0.00357 |
$197.53 |
$130.39 |
$67.14 |
2.99% |
11 |
111.6 |
1.0% |
1.01 |
$0.0017 |
$0.0167 |
$0.00368 |
$203.44 |
$134.29 |
$69.15 |
2.99% |
12 |
112.7 |
1.0% |
1.01 |
$0.0018 |
$0.0185 |
$0.00379 |
$209.53 |
$138.31 |
$71.22 |
2.99% |
13 |
113.8 |
1.0% |
1.01 |
$0.0019 |
$0.0203 |
$0.00390 |
$215.80 |
$142.45 |
$73.35 |
2.99% |
14 |
114.9 |
1.0% |
1.01 |
$0.0019 |
$0.0222 |
$0.00402 |
$222.26 |
$146.71 |
$75.55 |
2.99% |
15 |
116.1 |
1.0% |
1.01 |
$0.0020 |
$0.0242 |
$0.00414 |
$228.91 |
$151.10 |
$77.81 |
2.99% |
16 |
117.3 |
1.0% |
1.01 |
$0.0020 |
$0.0262 |
$0.00426 |
$235.75 |
$155.62 |
$80.13 |
2.99% |
17 |
118.4 |
1.0% |
1.01 |
$0.0021 |
$0.0283 |
$0.00439 |
$242.81 |
$160.28 |
$82.53 |
2.99% |
18 |
119.6 |
1.0% |
1.01 |
$0.0021 |
$0.0304 |
$0.00452 |
$250.07 |
$165.07 |
$85.00 |
2.99% |
19 |
120.8 |
1.0% |
1.01 |
$0.0022 |
$0.0327 |
$0.00466 |
$257.55 |
$170.01 |
$87.54 |
2.99% |
20 |
122.0 |
1.0% |
1.01 |
$0.0023 |
$0.0349 |
$0.00480 |
$265.26 |
$175.10 |
$90.16 |
2.99% |
21 |
123.2 |
1.0% |
1.01 |
$0.0023 |
$0.0373 |
$0.00494 |
$273.20 |
$180.34 |
$92.86 |
2.99% |
22 |
124.5 |
1.0% |
1.01 |
$0.0024 |
$0.0397 |
$0.00509 |
$281.37 |
$185.73 |
$95.64 |
2.99% |
Example 4: The Index level increases in a volatile
manner.
Assumptions |
|
Fee Rate |
0.95% per annum |
Daily Leverage Factor |
3 |
Daily Financing Factor |
2 |
Daily Financing Rate |
1.00% |
Hypothetical Principal Amount |
$50.00 |
Initial Index Level |
100 |
Note Return |
-19.32% |
Cumulative Index Return |
24.87% |
Year |
Index
Level |
Daily Index
Performance |
Index
Performance
Factor |
Daily
Investor
Fee |
Fee
Accrual |
Daily
Financing
Charge |
Long Index
Amount |
Financing
Level |
Indicative
Note
Value |
Note
Return |
A |
B |
C |
D |
E |
F |
G |
H |
I |
J |
K |
|
Previous
Index
Level*
(1+C) |
|
Current
Index Level
/
Previous
Index Level |
Previous
Indicative
Note
Value* Fee
Rate/365 |
Total of
E |
Previous
Indicative
Note
Value *
Daily
Financing
Factor *
Daily
Financing
Rate/365 |
Previous
Indicative
Note Value *
Daily
Leverage
Factor * D |
Previous
Indicative
Note
Value *
Daily
Financing
Factor +
E + G |
H - I |
(Current
Indicative
Note Value
-
Previous
Indicative
Note
Value)/
Previous
Indicative
Note Value |
0 |
100.0 |
|
|
|
|
|
$150.00 |
$150.00 |
$50.00 |
|
1 |
110.0 |
10.0% |
1.10 |
$0.0013 |
$0.0013 |
$0.00274 |
$165.00 |
$100.00 |
$65.00 |
29.99% |
2 |
112.2 |
2.0% |
1.02 |
$0.0017 |
$0.0030 |
$0.00356 |
$198.89 |
$130.00 |
$68.89 |
5.99% |
3 |
108.8 |
-3.0% |
0.97 |
$0.0018 |
$0.0048 |
$0.00377 |
$200.47 |
$137.79 |
$62.68 |
-9.01% |
4 |
98.0 |
-10.0% |
0.90 |
$0.0016 |
$0.0064 |
$0.00343 |
$169.25 |
$125.37 |
$43.87 |
-30.01% |
5 |
93.1 |
-5.0% |
0.95 |
$0.0011 |
$0.0076 |
$0.00240 |
$125.04 |
$87.75 |
$37.29 |
-15.01% |
6 |
81.9 |
-12.0% |
0.88 |
$0.0010 |
$0.0085 |
$0.00204 |
$98.44 |
$74.58 |
$23.86 |
-36.01% |
7 |
78.6 |
-4.0% |
0.96 |
$0.0006 |
$0.0092 |
$0.00131 |
$68.72 |
$47.73 |
$21.00 |
-12.01% |
8 |
74.7 |
-5.0% |
0.95 |
$0.0005 |
$0.0097 |
$0.00115 |
$59.84 |
$42.00 |
$17.85 |
-15.01% |
9 |
60.5 |
-19.0% |
0.81 |
$0.0005 |
$0.0102 |
$0.00098 |
$43.36 |
$35.69 |
$7.67 |
-57.01% |
10 |
71.4 |
18.0% |
1.18 |
$0.0002 |
$0.0104 |
$0.00042 |
$27.16 |
$15.35 |
$11.81 |
53.99% |
11 |
74.9 |
5.0% |
1.05 |
$0.0003 |
$0.0107 |
$0.00065 |
$37.22 |
$23.63 |
$13.59 |
14.99% |
12 |
69.7 |
-7.0% |
0.93 |
$0.0004 |
$0.0110 |
$0.00074 |
$37.90 |
$27.17 |
$10.73 |
-21.01% |
13 |
58.5 |
-16.0% |
0.84 |
$0.0003 |
$0.0113 |
$0.00059 |
$27.04 |
$21.46 |
$5.58 |
-48.01% |
14 |
53.9 |
-8.0% |
0.92 |
$0.0001 |
$0.0114 |
$0.00031 |
$15.40 |
$11.16 |
$4.24 |
-24.01% |
15 |
56.0 |
4.0% |
1.04 |
$0.0001 |
$0.0116 |
$0.00023 |
$13.23 |
$8.48 |
$4.75 |
11.99% |
16 |
70.0 |
25.0% |
1.25 |
$0.0001 |
$0.0117 |
$0.00026 |
$17.81 |
$9.50 |
$8.31 |
74.99% |
17 |
78.4 |
12.0% |
1.12 |
$0.0002 |
$0.0119 |
$0.00046 |
$27.92 |
$16.62 |
$11.30 |
35.99% |
18 |
86.3 |
10.0% |
1.10 |
$0.0003 |
$0.0122 |
$0.00062 |
$37.29 |
$22.60 |
$14.69 |
29.99% |
19 |
96.6 |
12.0% |
1.12 |
$0.0004 |
$0.0126 |
$0.00080 |
$49.36 |
$29.38 |
$19.98 |
35.99% |
20 |
100.5 |
4.0% |
1.04 |
$0.0005 |
$0.0131 |
$0.00109 |
$62.33 |
$39.95 |
$22.37 |
11.99% |
21 |
109.5 |
9.0% |
1.09 |
$0.0006 |
$0.0137 |
$0.00123 |
$73.16 |
$44.75 |
$28.41 |
26.99% |
22 |
124.9 |
14.0% |
1.14 |
$0.0007 |
$0.0144 |
$0.00156 |
$97.16 |
$56.82 |
$40.34 |
41.99% |
Table 1: Expected return on the notes over one year of Index
performance, without giving effect to the Daily Investor Fee and
the Daily Financing Charge and assuming a constant daily leverage
and volatility over time.
Table 1 illustrates the effect of two factors that affect the
notes’ performance: Index volatility and Index return. Index
volatility is a statistical measure of the magnitude of
fluctuations in the returns of the Index and is calculated as the
standard deviation of the natural logarithms of the Index
Performance Factor (calculated daily), multiplied by the square
root of the number of Exchange Business Days per year (assumed to
be 252). Table 1 shows estimated note returns for a number of
combinations of Index volatility and Index return over a one-year
period. To isolate the impact of daily leveraged exposure, the
table assumes no Daily Investor Fees and a Daily Financing Rate of
0%, and that the volatility of the Index remains constant over
time. If these assumptions were different, the notes’ performance
would be different than that shown. If the effect of the Daily
Investor Fee and the Daily Financing Rate were included, the notes’
performance would be different than shown.
Because the return on the notes is linked to a three times
leveraged participation in the performance of the Index, compounded
daily, the notes might be incorrectly expected to achieve a 30%
return on a yearly basis if the Index return was 10%, absent the
effects of compounding. However, as Table 1 shows, with an Index
volatility of 40%, and given the assumptions listed above, the
notes would return -17.6%. In Table 1, shaded areas represent those
scenarios where the notes will outperform (i.e., return more than)
the Index performance times 3.0 leverage; conversely, areas not
shaded represent those scenarios where the notes will underperform
(i.e., return less than) the Index performance times 3.0
leverage.
This table highlights the impact of leverage and compounding on the
payment at maturity under different circumstances. Many other
factors will affect the value of the notes, and these figures are
provided for illustration only. This table should not be taken as
an indication or a prediction of future Index performance or
investment results and are intended to illustrate a few of the
possible returns on the notes. Because the Indicative Note Value
takes into account the net effect of the Daily Investor Fee, which
is a fixed percentage of the value of the notes, and the
performance of the Index, the Indicative Note Value is dependent on
the path taken by the Index level to arrive at its ending level.
The figures in this table have been rounded for convenience.
|
|
One-Year Index Volatility |
One Year
Index
Performance |
Three Times
(3x)
One Year
Index
Performance |
0% |
5% |
10% |
15% |
20% |
25% |
30% |
35% |
40% |
45% |
50% |
55% |
60% |
65% |
70% |
-75% |
-225% |
-98.44% |
-98.45% |
-98.48% |
-98.54% |
-98.61% |
-98.70% |
-98.81% |
-98.92% |
-99.03% |
-99.15% |
-99.26% |
-99.37% |
-99.47% |
-99.56% |
-99.64% |
-70% |
-210% |
-97.30% |
-97.32% |
-97.38% |
-97.48% |
-97.61% |
-97.76% |
-97.94% |
-98.13% |
-98.33% |
-98.53% |
-98.72% |
-98.91% |
-99.08% |
-99.24% |
-99.38% |
-65% |
-195% |
-95.71% |
-95.74% |
-95.84% |
-95.99% |
-96.20% |
-96.45% |
-96.73% |
-97.03% |
-97.35% |
-97.66% |
-97.97% |
-98.27% |
-98.54% |
-98.79% |
-99.01% |
-60% |
-180% |
-93.60% |
-93.65% |
-93.79% |
-94.02% |
-94.32% |
-94.69% |
-95.11% |
-95.57% |
-96.04% |
-96.51% |
-96.98% |
-97.42% |
-97.83% |
-98.20% |
-98.53% |
-55% |
-165% |
-90.89% |
-90.96% |
-91.16% |
-91.48% |
-91.92% |
-92.45% |
-93.04% |
-93.69% |
-94.36% |
-95.04% |
-95.70% |
-96.32% |
-96.91% |
-97.43% |
-97.90% |
-50% |
-150% |
-87.50% |
-87.59% |
-87.87% |
-88.32% |
-88.91% |
-89.64% |
-90.46% |
-91.34% |
-92.27% |
-93.19% |
-94.10% |
-94.96% |
-95.76% |
-96.48% |
-97.13% |
-45% |
-135% |
-83.36% |
-83.49% |
-83.85% |
-84.45% |
-85.24% |
-86.21% |
-87.30% |
-88.48% |
-89.70% |
-90.94% |
-92.14% |
-93.29% |
-94.35% |
-95.32% |
-96.17% |
-40% |
-120% |
-78.40% |
-78.56% |
-79.04% |
-79.81% |
-80.84% |
-82.09% |
-83.51% |
-85.04% |
-86.63% |
-88.23% |
-89.80% |
-91.28% |
-92.66% |
-93.92% |
-95.03% |
-35% |
-105% |
-72.54% |
-72.74% |
-73.35% |
-74.33% |
-75.64% |
-77.23% |
-79.04% |
-80.98% |
-83.01% |
-85.04% |
-87.03% |
-88.92% |
-90.67% |
-92.27% |
-93.69% |
-30% |
-90% |
-65.70% |
-65.96% |
-66.71% |
-67.94% |
-69.58% |
-71.56% |
-73.82% |
-76.25% |
-78.78% |
-81.32% |
-83.80% |
-86.16% |
-88.35% |
-90.34% |
-92.11% |
-25% |
-75% |
-57.81% |
-58.13% |
-59.06% |
-60.57% |
-62.58% |
-65.03% |
-67.79% |
-70.79% |
-73.90% |
-77.02% |
-80.07% |
-82.98% |
-85.67% |
-88.12% |
-90.30% |
-20% |
-60% |
-48.80% |
-49.18% |
-50.31% |
-52.14% |
-54.59% |
-57.55% |
-60.91% |
-64.55% |
-68.32% |
-72.11% |
-75.81% |
-79.34% |
-82.61% |
-85.59% |
-88.23% |
-15% |
-45% |
-38.59% |
-39.05% |
-40.40% |
-42.60% |
-45.53% |
-49.09% |
-53.12% |
-57.47% |
-62.00% |
-66.55% |
-70.99% |
-75.22% |
-79.14% |
-82.71% |
-85.88% |
-10% |
-30% |
-27.10% |
-27.64% |
-29.25% |
-31.86% |
-35.34% |
-39.56% |
-44.35% |
-49.52% |
-54.89% |
-60.29% |
-65.56% |
-70.58% |
-75.24% |
-79.48% |
-83.24% |
-5% |
-15% |
-14.26% |
-14.90% |
-16.80% |
-19.86% |
-23.96% |
-28.92% |
-34.55% |
-40.63% |
-46.95% |
-53.30% |
-59.50% |
-65.40% |
-70.88% |
-75.86% |
-80.29% |
0% |
0% |
0.00% |
-0.75% |
-2.96% |
-6.53% |
-11.31% |
-17.10% |
-23.66% |
-30.75% |
-38.12% |
-45.53% |
-52.76% |
-59.65% |
-66.04% |
-71.85% |
-77.01% |
5% |
15% |
15.76% |
14.90% |
12.34% |
8.21% |
2.67% |
-4.03% |
-11.63% |
-19.84% |
-28.37% |
-36.94% |
-45.32% |
-53.29% |
-60.69% |
-67.41% |
-73.38% |
10% |
30% |
33.10% |
32.11% |
29.17% |
24.41% |
18.05% |
10.34% |
1.61% |
-7.83% |
-17.64% |
-27.50% |
-37.13% |
-46.29% |
-54.80% |
-62.53% |
-69.40% |
15% |
45% |
52.09% |
50.95% |
47.59% |
42.16% |
34.89% |
26.08% |
16.10% |
5.32% |
-5.89% |
-17.16% |
-28.16% |
-38.63% |
-48.35% |
-57.18% |
-65.03% |
20% |
60% |
72.80% |
71.51% |
67.69% |
61.52% |
53.26% |
43.26% |
31.91% |
19.66% |
6.93% |
-5.87% |
-18.38% |
-30.27% |
-41.32% |
-51.35% |
-60.27% |
25% |
75% |
95.31% |
93.85% |
89.54% |
82.56% |
73.23% |
61.92% |
49.10% |
35.25% |
20.86% |
6.39% |
-7.74% |
-21.19% |
-33.67% |
-45.01% |
-55.09% |
30% |
90% |
119.70% |
118.06% |
113.21% |
105.36% |
94.86% |
82.14% |
67.71% |
52.13% |
35.95% |
19.67% |
3.78% |
-11.34% |
-25.39% |
-38.15% |
-49.49% |
35% |
105% |
146.04% |
144.20% |
138.77% |
129.98% |
118.22% |
103.97% |
87.82% |
70.37% |
52.24% |
34.02% |
16.22% |
-0.72% |
-16.45% |
-30.73% |
-43.43% |
40% |
120% |
174.40% |
172.35% |
166.29% |
156.49% |
143.37% |
127.49% |
109.47% |
90.01% |
69.79% |
49.47% |
29.62% |
10.73% |
-6.81% |
-22.75% |
-36.91% |
45% |
135% |
204.86% |
202.58% |
195.85% |
184.96% |
170.39% |
152.74% |
132.73% |
111.11% |
88.64% |
66.06% |
44.01% |
23.02% |
3.53% |
-14.17% |
-29.90% |
50% |
150% |
237.50% |
234.98% |
227.53% |
215.47% |
199.34% |
179.80% |
157.64% |
133.71% |
108.84% |
83.84% |
59.42% |
36.19% |
14.61% |
-4.98% |
-22.40% |
55% |
165% |
272.39% |
269.61% |
261.38% |
248.08% |
230.28% |
208.72% |
184.27% |
157.86% |
130.43% |
102.84% |
75.90% |
50.27% |
26.46% |
4.84% |
-14.38% |
60% |
180% |
309.60% |
306.54% |
297.49% |
282.86% |
263.28% |
239.57% |
212.68% |
183.63% |
153.45% |
123.11% |
93.48% |
65.29% |
39.10% |
15.32% |
-5.82% |
65% |
195% |
349.21% |
345.86% |
335.94% |
319.89% |
298.42% |
272.41% |
242.92% |
211.06% |
177.97% |
144.69% |
112.19% |
81.27% |
52.55% |
26.47% |
3.29% |
70% |
210% |
391.30% |
387.63% |
376.78% |
359.23% |
335.74% |
307.30% |
275.05% |
240.21% |
204.01% |
167.62% |
132.07% |
98.26% |
66.84% |
38.32% |
12.96% |
75% |
225% |
435.94% |
431.93% |
420.10% |
400.96% |
375.33% |
344.31% |
309.12% |
271.12% |
231.63% |
191.93% |
153.16% |
116.27% |
82.00% |
50.88% |
23.23% |
Numbers in red font highlight scenarios where the notes are
expected to perform negatively. Shaded areas represent those
scenarios where the notes will outperform (i.e., return more than)
the Index performance times the Daily Leverage Factor; conversely
areas not shaded represent those scenarios where the notes will
underperform (i.e., return less than) the Index performance times
the Daily Leverage Factor. Please note that the table above is not
a representation as to the notes' actual returns, which may be
materially different than the scenarios shown above, as a result of
a variety of factors, including the decay effects described above,
as well as the Daily Financing Fee and the Daily Investor Fee.
Illustrations of the “Decay” Effect on the Notes
The daily resetting of the notes’ leveraged exposure to the Index
is expected to cause the notes to experience a “decay” effect,
which worsens over time and increases with the volatility of the
Index. The decay effect refers to the tendency of the notes to lose
value over time, regardless of the performance of the Index. The
decay effect occurs any time the Index moves in a direction on one
day that is different from the direction it moved on the prior day.
If the Index increases one day and decreases the next, the
resetting of the leveraged exposure based on the higher value after
the first day means that a greater amount of value is exposed to
the decrease on the next day than if the leveraged exposure had not
been reset; and if the Index decreases one day and increases the
next, the resetting of the leveraged exposure based on the lower
value after the first day means that a smaller amount is exposed to
the increase on the next day. One consequence of this daily
resetting of leverage is that, if the Index moves in one direction
from Day 0 to Day 1 and then returns to its Day 0 level on Day 2,
the Closing Indicative Note Value of the notes will be lower on Day
2 than it was on Day 0, even though the closing level of the Index
is the same on Day 2 as it was on Day 0. As a result of this decay
effect, it is extremely likely that the value of the notes will
decline to near zero (absent reverse splits) by the maturity date,
and likely significantly sooner. Accordingly, the notes are not
suitable for intermediate- or long-term investment, as any
intermediate-or long-term investment is very likely to sustain
significant losses, even if the Index increases over the relevant
time period. Although the decay effect is more likely to manifest
itself the longer the notes are held, the decay effect can have a
significant impact on the performance of the notes, even over a
period as short as two days. The notes are not intended to be
“buy and hold” investments. If you invest in the notes, you should
continuously monitor your holding of the notes and make investment
decisions at least on each Index Business Day, or even
intraday.
The examples below are designed to illustrate the decay effect on
the Closing Indicative Note Value of the notes over a short period
of time. To isolate the decay effect, the examples below disregard
the effects of the Daily Financing Fee and the Daily Investor Fee.
If the Daily Financing Fee and the Daily Investor Fee were also
taken into account, then the hypothetical Closing Indicative Note
Values below would be even lower.
Each of the examples below illustrates hypothetical daily
fluctuations in the closing level of the Index over a period of 10
Index Business Days. By showing changes over 10 Index Business
Days, we are not suggesting that 10 Index Business Days is an
appropriate period of time to hold the notes. Rather, we are
showing changes over 10 Index Business Days to illustrate how the
decay effect increases over a number of days, and to illustrate the
risks of holding the notes for more than one Index Business Day. As
described elsewhere in this pricing supplement, the notes are
intended to be daily trading tools for sophisticated investors to
manage daily trading risks.
In each of the examples below, the closing level of the Index is
the same at the end of the hypothetical 10 Index Business Day
period as it was at the beginning of the period. We are showing
examples on this basis to illustrate how the decay effect has an
impact on the Closing Indicative Note Value of the notes that is
independent from the directional performance of the Index. If the
Index were to move in an adverse direction (i.e., lower in
the case of the notes) over the relevant time period, the Closing
Indicative Note Values would be lower than in the examples
illustrated below.
The examples below are based on a hypothetical closing level of the
Index of 100 and a hypothetical Closing Indicative Note Value of
$100 at the beginning of the hypothetical 10 Index Business Day
period.
Example 1. The closing level of the Index fluctuates by 1% per
day.
In this example, the Index fluctuates by 1% per day (as a
percentage of the initial level) over a 10 Index Business Day
period.
Day |
Index Level |
% Change of Index
Level from Day 0 |
Closing
Indicative
Note Value ($) |
% Change of
Closing Indicative
Note Value from
Day 0 |
0 |
100.00 |
|
100.00 |
|
1 |
101.00 |
1.0% |
103.00 |
3.00% |
2 |
100.00 |
0.0% |
99.94 |
-0.06% |
3 |
99.00 |
-1.0% |
96.94 |
-3.06% |
4 |
100.00 |
0.0% |
99.88 |
-0.12% |
5 |
101.00 |
1.0% |
102.88 |
2.88% |
6 |
100.00 |
0.0% |
99.82 |
-0.18% |
7 |
99.00 |
-1.0% |
96.83 |
-3.17% |
8 |
100.00 |
0.0% |
99.76 |
-0.24% |
9 |
101.00 |
1.0% |
102.75 |
2.75% |
10 |
100.00 |
0.0% |
99.70 |
-0.30% |
In this example, although the closing level of the Index fluctuated
within a narrow range around the initial level and concluded the
hypothetical 10 Index Business Day period at the same level at
which it started, the Closing Indicative Note Value of the notes
experienced a decay of -0.30% (before giving effect to the Daily
Financing Fee and the Daily Investor Fee).
Example 2. The closing level of the Index fluctuates by 5% per
day.
In this example, the Index fluctuates by 5% per day (as a
percentage of the initial level) over a 10 Index Business Day
period.
Day |
Index Level |
% Change of Index
Level from Day 0 |
Closing
Indicative
Note Value ($) |
% Change of
Closing Indicative
Note Value from
Day 0 |
0 |
100.00 |
|
100.00 |
|
1 |
105.00 |
5.00% |
115.00 |
15.00% |
2 |
100.00 |
0.00% |
98.57 |
-1.43% |
3 |
95.00 |
-5.00% |
83.79 |
-16.21% |
4 |
100.00 |
0.00% |
97.02 |
-2.98% |
5 |
105.00 |
5.00% |
111.57 |
11.57% |
6 |
100.00 |
0.00% |
95.63 |
-4.37% |
7 |
95.00 |
-5.00% |
81.28 |
-18.72% |
8 |
100.00 |
0.00% |
94.12 |
-5.88% |
9 |
105.00 |
5.00% |
108.24 |
8.24% |
10 |
100.00 |
0.00% |
92.77 |
-7.23% |
In this example, although the closing level of the Index fluctuated
around the initial level and concluded the hypothetical 10 Index
Business Day period at the same level at which it started, the
Closing Indicative Note Value of the notes experienced a decay of
-7.23% (before giving effect to the Daily Financing Fee and the
Daily Investor Fee).
Example 3. The closing level of the Index fluctuates by 12% per
day.
In this example, the Index fluctuates by 12% per day (as a
percentage of the initial level) over a 10 Index Business Day
period.
Day |
Index Level |
% Change of Index
Level from Day 0 |
Closing
Indicative
Note Value ($) |
% Change of
Closing Indicative
Note Value from
Day 0 |
0 |
100.00 |
|
100.00 |
|
1 |
112.00 |
12.00% |
136.00 |
36.00% |
2 |
100.00 |
0.00% |
92.29 |
-7.71% |
3 |
88.00 |
-12.00% |
59.06 |
-40.94% |
4 |
100.00 |
0.00% |
83.22 |
-16.78% |
5 |
112.00 |
12.00% |
113.19 |
13.19% |
6 |
100.00 |
0.00% |
76.80 |
-23.20% |
7 |
88.00 |
-12.00% |
49.16 |
-50.84% |
8 |
100.00 |
0.00% |
69.26 |
-30.74% |
9 |
112.00 |
12.00% |
94.20 |
-5.80% |
10 |
100.00 |
0.00% |
63.92 |
-36.08% |
In this example, although the closing level of the Index fluctuated
around the initial level and concluded the hypothetical 10 Index
Business Day period at the same level at which it started, the
Closing Indicative Note Value of the notes experienced a decay of
-36.08% (before giving effect to the Daily Financing Fee and the
Daily Investor Fee).
In this example, the greater magnitude of the daily changes in the
closing level of the Index as compared to both of the prior
examples results in significantly greater decay, with a decay of
-36.08%. The Closing Indicative Note Value experienced this
significant decay even though the closing level of the Index
concluded the hypothetical 10 Index Business Day period at the same
level at which it started. As this example illustrates, the greater
the daily fluctuations in the closing level of the Index
(i.e., the greater the volatility), the greater the
decay.
* * *
In each example, there is no change in the closing level of the
Index from Day 0 to Day 10, in order to isolate the decay effect
from other factors that affect the Closing Indicative Note Value.
If the Index level decreases over the same time period, that
adverse Index movement would have caused the Closing Indicative
Note Value to be even lower. For example, on Day 7 of Example 3
above, the Index level was 12% lower than it was on Day 0, and the
Closing Indicative Note Value was 50.84% lower on that day than it
was on Day 0, for a loss that is greater than 3 times the decline
of the Index from Day 0 to Day 7.
The above examples illustrate the following important points about
the decay effect over any holding period of more than one day:
The decay effect worsens over time. In each of the examples
above, the closing level of the Index returns to the original level
of 100 on multiple days during the 10 Index Business Day period.
Each time the level returns to 100, the Closing Indicative Note
Value is lower than it was on any earlier date on which the closing
level was 100. The same is true for each of the other closing
levels shown in the examples above.
Although the decay effect worsens over time, it can have a
meaningful effect even over a period as short as two days. In
Example 3 above, the closing level of the Index falls from 100 to
88 from Day 2 to Day 3 and then returns to 100 on Day 4. Although
the closing level of the Index is the same on Day 4 as it was on
Day 2, the Closing Indicative Note Value of the notes on Day 4 was
lower, and in the case of Example 3, significantly lower, than it
was on Day 2.
The decay effect worsens as volatility increases. Volatility
refers to the average magnitude of daily fluctuations in the
closing level of the Index over any period of time. The daily
fluctuations in Example 2 are significantly larger than they are in
Example 1, and the daily fluctuations in Example 3 are
significantly larger than they are in Example 2. As a result, the
decline in the Closing Indicative Note Value in Example 2 is
significantly greater than it is in Example 1, and the decline in
the Closing Indicative Note Value in Example 3 is significantly
greater than it is in Example 2.
The daily compounding of returns will adversely affect the Closing
Indicative Note Value of the notes any time the closing level of
the Index moves in a different direction on one day than it did on
the prior day. If the closing level of the Index increases from Day
0 to Day 1 and then decreases by the same amount from Day 1 to Day
2, or if the closing level decreases from Day 0 to Day 1 and then
increases by the same amount from Day 1 to Day 2, the Closing
Indicative Note Value on Day 2 will be lower than it was on Day 0,
even though the closing level of the Index on Day 2 is the same as
it was on Day 0.
The 3-to-1 leverage ratio does not hold for any period longer
than one day. In Example 3 above, the 50.84% loss reflected in
the Closing Indicative Note Value from Day 0 to Day 7 was
approximately 4.24 times greater than the 12% decline in the
closing level of the Index over the same period.
In fact, the Closing Indicative Note Value of the notes may decline
significantly over any given time period even if the closing level
of the Index from the beginning to the end of that time period
increases. For example, in Example 3 above, the closing level of
the Index has increased by 12% from Day 0 to Day 9, but the Closing
Indicative Note Value was 5.80% lower on Day 9 than it was on Day
0.
SPECIFIC TERMS OF THE NOTES
In this section, references to “holders” mean those who own the
notes registered in their own names, on the books that we or the
trustee maintains for this purpose, and not those who own
beneficial interests in the notes registered in street name or in
the notes issued in book-entry form through DTC or another
depositary. Owners of beneficial interests in the notes should read
the section entitled “Description of Debt Securities We May Offer —
Legal Ownership and Book-Entry Issuance” in the accompanying
prospectus.
The notes are part of a series of debt securities entitled “Senior
Medium-Term Notes, Series D” that we may issue from time to
time under the indenture more particularly described in the
accompanying prospectus supplement. This pricing supplement
summarizes specific financial and other terms that apply to the
notes. Terms that apply generally to all Senior Medium-Term Notes,
Series D are described in “Description of the Notes We May
Offer” in the accompanying prospectus supplement and “Description
of Debt Securities We May Offer” in the accompanying prospectus.
The terms described in this pricing supplement those described in
the accompanying prospectus supplement and prospectus and, if the
terms described here are inconsistent with those described there,
the terms described here are controlling.
The notes are issued under our senior indenture dated as of January
25, 2010 between us and Wells Fargo Bank, National Association, as
trustee, as amended and supplemented to date.
Please note that the information about the price to the public and
the net proceeds to us on the front cover of this pricing
supplement relates only to the initial sale of the notes. If you
have purchased the notes in a secondary market transaction after
the initial sale, information about the price and date of sale to
you will be provided in a separate confirmation of sale.
We or our affiliates may, at any time and from time to time,
purchase outstanding notes in the open market, by private agreement
or in other transactions.
Cash Settlement Amount at Maturity
The “Maturity Date” will be January 8, 2038, which is scheduled to
be the third Business Day following the last Index Business Day in
the Final Measurement Period, unless that day is not a Business
Day, in which case the Maturity Date will be the following Business
Day, subject to adjustment as described below under “— Market
Disruption Events.” The Maturity Date may be extended at our option
for up to two additional five-year periods. We may only extend the
scheduled Maturity Date for five years at a time. If we exercise
our option to extend the maturity, we will notify DTC and the
trustee at least 45 but not more than 60 calendar days prior
to the then scheduled Maturity Date. We will provide that notice to
DTC and the trustee in respect of each five-year extension of the
scheduled Maturity Date.
For each note, unless earlier called or redeemed, you will receive
at maturity a cash payment equal to the arithmetic mean of the
closing Indicative Note Values on each Index Business Day in the
Final Measurement Period. We refer to this cash payment as the
“Cash Settlement Amount.” This amount will not be less than $0.
On the Initial Trade Date, the Indicative Note Value of each note
was equal to the principal amount of $50. On any subsequent
Exchange Business Day until maturity, call or redemption of the
notes, the closing Indicative Note Value will equal (a) the Long
Index Amount on such Exchange Business Day minus (b) the Financing
Level on such Exchange Business Day; provided that if such
calculation results in a value equal to or less than $0, the
closing Indicative Note Value will be $0. If the closing Indicative
Note Value of the notes is $0 on any Exchange Business Day or the
Intraday Indicative Value at any time during an Exchange Business
Day is equal to or less than $0, then the Indicative Note Value of
the notes on all future Exchange Business Days will be $0 and the
Cash Settlement Amount will be $0.
On the Initial Trade Date, the Long Index Amount was equal to the
Daily Leverage Factor times the principal amount, which was
equal to $150. On any subsequent Exchange Business Day until
maturity, call or redemption of the notes, the Long Index Amount
will equal the product of (a) the closing Indicative Note Value on
the immediately preceding Exchange Business Day times (b)
the Daily Leverage Factor times (c) the Index Performance
Factor on such Exchange Business Day.
On the Initial Trade Date, the Financing Level was equal to the
Long Index Amount minus the principal amount on the Initial
Trade Date, which was equal to $100. On any subsequent Exchange
Business Day until maturity, call or redemption of the notes, the
Financing Level will equal (a) the closing Indicative Note Value on
the immediately preceding Exchange Business Day times the
Daily Financing Factor plus (b) the Daily Financing Charge
on such Exchange Business Day plus (c) the Daily Investor
Fee on such Exchange Business Day.
The Daily Leverage Factor is 3. The Daily Financing Factor is
2.
On the Initial Trade Date, the Index Performance Factor was 1. On
any subsequent Exchange Business Day until maturity, call or
redemption of the notes, the Index Performance Factor will equal
(a) the Index Closing Level on such Exchange Business Day (or, if
such day is not an Index Business Day, the Index Closing Level on
the immediately preceding Index Business Day) divided by
(b) the Index Closing Level on the immediately preceding Index
Business Day, as determined by the Calculation Agent. If a Market
Disruption Event occurs or is continuing on any Index Business Day,
the Calculation Agent will determine the Index Performance Factor
for the notes on each such Index Business Day using an appropriate
closing level of the Index for each such Index Business Day taking
into account the nature and duration of such Market Disruption
Event. Furthermore, if a Market Disruption Event occurs and is
continuing with respect to the notes on any Index Business Day or
occurred or was continuing on the immediately preceding Index
Business Day, the calculation of the Index Performance Factor will
be modified so that the applicable leveraged exposure does not
reset until the first Index Business Day on which no Market
Disruption Event with respect to the notes is continuing.
Accordingly, if a Market Disruption Event with respect to the notes
occurs or is continuing on any Index Business Day (for purposes of
this paragraph, the “date of determination”) or if a Market
Disruption Event with respect to the notes occurred or was
continuing on the Index Business Day immediately preceding the date
of determination, then the Index Performance Factor for the notes
on the date of determination will equal one plus the quotient of
(a) the difference of (i) the closing level of the Index on the
date of determination, minus (ii) the closing level of the Index on
the Index Business Day immediately preceding the date of
determination, divided by (b) the difference of (i) the product of
the Daily Leverage Factor and the closing level of the Index on the
Index Business Day immediately preceding the date of determination,
minus (ii) the product of the Daily Financing Factor and the
closing level of the Index on the Index Business Day on which no
Market Disruption Event occurred or was continuing that most
closely precedes the date of determination.
On the Initial Trade Date, the Daily Financing Charge was $0. On
any subsequent Exchange Business Day until maturity, call or
redemption of the notes, the Daily Financing Charge will equal the
product of (a) the closing Indicative Note Value on the
immediately preceding Exchange Business Day times (b) the
Daily Financing Factor times (c) the Daily Financing Rate
divided by (d) 365 times (e) the number of calendar
days since the last Exchange Business Day. Because the Daily
Financing Charge is calculated and added to the Financing Level on
a daily basis, the net effect of the Daily Financing Charge accrues
over time.
The Daily Financing Rate will equal (a) the most recent US Federal
Funds Effective Rate plus (b) 1.00%. The US Federal Funds
Effective Rate is an interest rate that represents the rate at
which U.S. banks may lend reserve balances to other depository
institutions overnight, on an uncollateralized basis. The rate is
released by the NY Federal Reserve each day at approximately 9:00
a.m. EST for the prior business day and published on Bloomberg page
“FEDL01 Index”. If the Calculation Agent determines that this rate
is no longer published or available, the Calculation Agent may
substitute a successor rate, with any applicable adjustments, as it
reasonably determines to be appropriate under the
circumstances.
On the Initial Trade Date, the Daily Investor Fee was $0. On any
subsequent Exchange Business Day until maturity, call or redemption
of the notes, the Daily Investor Fee will equal the product of (a)
the Indicative Note Value at the close of the immediately preceding
Exchange Business Day times (b) the Fee Rate divided
by (c) 365 times (d) the number of calendar days since
the last Exchange Business Day. Because the Daily Investor Fee is
calculated as part of the Financing Level through which it is
subtracted from the closing Indicative Note Value on a daily basis,
the net effect of the Daily Investor Fee accumulates over time and
is subtracted at a rate per year equal to the Fee Rate. Because the
net effect of the Daily Investor Fee is a fixed percentage of the
value of the note, the aggregate effect of the Daily Investor Fee
will increase or decrease in a manner directly proportional to the
value of the note and the amount of notes that are held.
The Fee Rate is 0.95% per annum.
The “principal amount” of each note was $50 as of the original
issue date. After giving effect to a 10-for-1 split, effective as
of February 12, 2021, the principal amount per note became $5.
You may lose some or all of your investment at maturity. Because
the Daily Investor Fee and the Daily Financing Charge reduce your
final payment, the level of the Index will need to have increased
sufficiently over the term of the notes in an amount, after giving
effect to the daily leverage and the compounding effect thereof,
sufficient to offset the decrease in principal amount represented
by the Daily Investor Fee and the Daily Financing Charge in order
for you to receive an aggregate amount over the term of the notes
equal to at least the principal amount of your notes. Due to
leverage, the notes are very sensitive to changes in the level of
the Index and the path of such changes. If the increase in the
level of the Index, measured as a
component of the closing Indicative Note Value during the Final
Measurement Period, is insufficient to offset the cumulative
negative effect of the Daily Investor Fee and the Daily Financing
Charge, you will lose some or all of your investment at maturity.
This loss may occur even if the Index Closing Level at any time
during the Final Measurement Period is greater than the Index
Closing Level on the Initial Trade Date. It is possible that you
will suffer significant losses in the notes even if the long-term
performance of the Index is flat or positive (before taking into
account the negative effect of the Daily Investor Fee and the Daily
Financing Charge, and the Redemption Fee Amount, if
applicable). In addition, if the closing Indicative Note
Value or the Intraday Indicative Value of the notes is equal to or
less than $0, then the notes will be permanently worth $0 and the
Cash Settlement Amount will be $0 (a total loss of
value).
The “Initial Index Level” is 2,466.45, which was the Index Closing
Level for the Index on the Initial Trade Date.
The “Final Measurement Period” means the five Index Business Days
from and including the Calculation Date, subject to adjustment as
described under “— Market Disruption Events.”
The “Index Calculation Agent” means the entity that calculates and
publishes the level of the Index, which is currently ICE Data
Indices, LLC.
The “Calculation Date” means December 29, 2037, unless such day is
not an Index Business Day, in which case the Calculation Date will
be the next Index Business Day, subject to adjustments.
“Index Business Day” means any day on which the Index Sponsor
publishes the Index Closing Level.
“Primary Exchange” means, with respect to each Index constituent or
each component underlying a successor index, the primary exchange
or market of trading such Index constituent or such component
underlying a successor index.
“Related Exchange” means, with respect to each Index constituent or
each component underlying a successor index, each exchange or
quotation system where trading has a material effect (as determined
by the Calculation Agent) on the overall market for futures or
options contracts relating to such Index constituent or such
component underlying a successor index.
“Exchange Business Day” means any day on which the primary exchange
or market for trading of the notes is scheduled to be open for
trading.
“Business Day” means a Monday, Tuesday, Wednesday, Thursday or
Friday that is neither a legal holiday nor a day on which banking
institutions are authorized or obligated by law or executive order
to close in New York City or Toronto.
Early Redemption at the Option of the Holders
Subject to your compliance with the procedures described below, you
may submit a request on any Business Day to elect to require us to
redeem your notes (subject to a minimum redemption amount of at
least 25,000 notes) between and including the Redemption Dates
specified below. If you so elect and have done so in compliance
with the redemption procedures described below, and subject to the
postponements and adjustments described under “— Market Disruption
Events,” you will receive payment for the redeemed notes on the
applicable Redemption Date. You must comply with the redemption
procedures described below in order to redeem your notes. For any
applicable redemption request, the “Redemption Notice Date” will be
the date that the applicable Redemption Notice and Redemption
Confirmation (each as defined below) are delivered. If such
Redemption Notice or Redemption Confirmation is delivered on a day
that is not an Index Business Day, then the Redemption Notice Date
will be the next Index Business Day. To satisfy the minimum
redemption amount, your broker or other financial intermediary may
bundle your notes for redemption with those of other investors to
reach this minimum amount of 25,000 notes; however, there can be no
assurance that they can or will do so. We may from time to time in
our sole discretion reduce this minimum redemption amount. Any such
reduction will be applied on a consistent basis for all holders of
the notes at the time the reduction becomes effective.
The notes will be redeemed and the holders will receive payment for
their notes on the third Business Day following the applicable
Redemption Measurement Date (the “Redemption Date”). The first
Redemption Date was January 26, 2018, and the final Redemption Date
will be the last scheduled Index
Business Day prior to the Calculation Date or Call Calculation
Date, as applicable. If a Market Disruption Event is
continuing or occurs on the applicable scheduled Redemption
Measurement Date with respect to any of the Index constituents,
such Redemption Measurement Date may be postponed as described
under “— Market Disruption Events.”
The applicable “Redemption Measurement Date” means the Index
Business Day following the applicable Redemption Notice Date,
subject to adjustments as described under “— Market Disruption
Events.”
If you exercise your right to have us redeem your notes, subject to
your compliance with the procedures described under “— Redemption
Procedures,” you will receive for each note a cash payment on the
relevant Redemption Date equal to the Indicative Note Value as of
the Redemption Measurement Date, minus the Redemption Fee
Amount.
The “Redemption Fee Amount” equals 0.125% of the Indicative Note
Value.
We refer to this cash payment as the “Redemption Amount.” This
amount will not be less than $0.
For purposes of determining the Redemption Amount, the Index
Performance Factor used in calculating the closing Indicative Note
Value as of the Redemption Measurement Date will be (a) the Index
Closing Level on the Redemption Measurement Date divided by
(b) the Index Closing Level on the immediately preceding Index
Business Day, as determined by the Calculation Agent.
We will inform you of such Redemption Amount on the first Business
Day following the applicable Redemption Measurement Date.
You may lose some or all of your investment upon early redemption.
Because the cumulative negative effect of the Daily Investor Fee,
the Daily Financing Charge and the Redemption Fee Amount reduce
your final payment, the level of the Index will need to have
increased over the term of the notes by an amount, after giving
effect to the daily leverage and the compounding effect thereof,
sufficient to offset the decrease in principal amount represented
by the Daily Investor Fee, the Daily Financing Charge and the
Redemption Fee Amount in order for you to receive an aggregate
amount upon redemption equal to at least the principal amount of
your notes. Due to leverage, the notes are very sensitive to
changes in the level of the Index and the path of such changes. If
the increase in the level of the Index, as measured on the
Redemption Measurement Date, is insufficient to offset such a
cumulative negative effect, you will lose some or all of your
investment upon early redemption. It is possible that you will
suffer significant losses in the notes upon redemption even if the
long-term performance of the Index is flat or positive (before
taking into account the negative effect of the Daily Investor Fee,
the Daily Financing Charge and the Redemption Fee Amount).
The Redemption Amount is meant to induce arbitrageurs to counteract
any trading of the notes at a premium or discount to their
indicative value. However, there can be no assurance that
arbitrageurs will employ the repurchase feature in this manner.
Redemption Procedures
To redeem your notes, you must instruct your broker or other person
through whom you hold your notes to take the following steps
through normal clearing system channels:
|
Ø |
deliver a notice of redemption, which we refer to as a
“Redemption Notice,” which is attached to this pricing supplement
as Annex A, to Bank of Montreal or its agent via email no later
than 2:00 p.m. (New York City time) on the Index Business Day
preceding the applicable Redemption Measurement Date. If we receive
your Redemption Notice by the time specified in the preceding
sentence, we (or our agent) will respond by sending you a form of
confirmation of redemption, which is attached to this pricing
supplement as Annex B, for your execution; |
|
Ø |
deliver the signed confirmation of redemption, which we refer
to as the “Redemption Confirmation,” to us via e-mail in the
specified form by 5:00 p.m. (New York City time) on the same day.
We or our affiliate must acknowledge receipt in order for your
Redemption Confirmation to be effective; |
|
Ø |
instruct your DTC custodian to book a delivery vs. payment
trade with respect to your notes on the applicable Redemption
Measurement Date at a price equal to the Redemption Amount;
and |
|
Ø |
cause your DTC custodian to deliver the trade as booked for
settlement via DTC at or prior to 10:00 a.m. (New York City time)
on the applicable Redemption Date. |
Different brokerage firms may have different deadlines for
accepting instructions from their customers. Accordingly, as a
beneficial owner of the notes, you should consult the brokerage
firm through which you own your interest for the relevant deadline.
If your broker delivers your notice of redemption after 2:00 p.m.
(New York City time), or your confirmation of redemption after 5:00
p.m. (New York City time), on the Index Business Day prior to the
applicable Redemption Measurement Date, your notice will not be
effective, you will not be able to redeem your notes until the
following Redemption Date and your broker will need to complete all
the required steps if you wish to redeem your notes on any
subsequent Redemption Date. In addition, Bank of Montreal may
request a medallion signature guarantee or such assurances of
delivery as it may deem necessary in its sole discretion. All
instructions given to participants from beneficial owners of notes
relating to the right to redeem their notes will be irrevocable. If
the notes undergo a split or reverse split, the minimum number of
notes needed to exercise your right to redeem will remain the
same.
Call Right
We have the right to redeem all, but not less than all, of the
notes upon not less than 14 calendar days’ prior notice to the
holders of the notes. Such redemption will occur on the applicable
Call Settlement Date (as defined above). Upon early redemption in
the event we exercise this right, you will receive a cash payment
equal to the arithmetic mean of the closing Indicative Note Values
on each Index Business Day in the Call Measurement Period.
We refer to this cash payment as the “Call Settlement Amount.” This
amount will not be less than $0.
We will inform you of such Call Settlement Amount on the first
Business Day following the last Index Business Day in the Call
Measurement Period.
The holders will receive payment for their notes on the fifth
Business Day following the last Index Business Day in the Call
Measurement Period (the “Call Settlement Date”). If a Market
Disruption Event is continuing or occurs on the scheduled Call
Calculation Date with respect to any of the Index constituents,
such Call Calculation Date may be postponed as described under “—
Market Disruption Events.”
The “Call Measurement Period” means the five Index Business Days
from and including the Call Calculation Date, subject to
adjustments as described under “— Market Disruption Events.”
If we issue a call notice on any calendar day, the “Call
Calculation Date” will be the next Index Business Day after the
call notice is issued.
You may lose some or all of your investment upon a call. Because
the Daily Investor Fee and the Daily Financing Charge reduce your
final payment, the level of the Index will need to have increased
over the term of the notes by an amount, after giving effect to the
daily leverage and the compounding effect thereof, sufficient to
offset the decrease in the principal amount represented by the
Daily Investor Fee and the Daily Financing Charge in order for you
to receive an aggregate amount upon a call equal to at least the
principal amount of your notes. Due to leverage, the notes are very
sensitive to changes in the level of the Index and the path of such
changes. If the increase in the level of the Index, measured as a component
of the closing Indicative Note Value during the Call Measurement
Period, is insufficient to offset such a cumulative negative
effect, you will lose some or all of your investment upon a call.
This loss may occur even if the Index Closing Level at any time
during the Call Measurement Period is greater than the Initial
Index Level. It is possible that you will suffer significant
losses in the notes upon a call even if the long-term performance
of the Index is flat or positive (before taking into account the
negative effect of the Daily Investor Fee and the Daily Financing
Charge).
Calculation Agent
BMOCM will act as the Calculation Agent. The Calculation Agent will
make all determinations relating to the notes, including the Index
Performance Factor, the Index Closing Level on any Index Business
Day on which such Index Closing Level is to be determined during
the term of the notes, the Indicative Note Value, the Long Index
Amount, the Financing Level, the Daily Financing Charge, the Daily
Investor Fee, the Redemption Fee Amount, the Cash Settlement
Amount, if any, that we will pay you at maturity, the Redemption
Amount, if any, that we will pay you upon redemption, if
applicable, and the Call Settlement Amount, if any, that we will
pay you in the event that we call the notes. The Calculation Agent
will also be responsible for determining whether a Market
Disruption Event has occurred, whether the Index has been
discontinued and whether there has been a material change in the
Index. All determinations made by the Calculation Agent will be at
the sole discretion of the Calculation Agent and will, in the
absence of manifest error, be conclusive for all purposes and
binding on you and on us. The holder of the notes will not be
entitled to any compensation from us for any loss suffered as a
result of any determinations or calculations made by the
Calculation Agent. We may appoint a different Calculation Agent
from time to time after the date of this pricing supplement without
your consent and without notifying you.
The Calculation Agent will provide written notice to the trustee at
its New York office, on which notice the trustee may conclusively
rely, of the amount to be paid at maturity or call, or upon early
redemption, or on a Coupon Payment Date on or prior to 12:00 p.m.,
New York City time, on the Business Day immediately preceding the
Maturity Date, any Redemption Date, any Call Settlement Date or any
Coupon Payment Date, as applicable.
All dollar amounts related to determination of the Indicative Note
Value, the Long Index Amount, the Financing Level, the Daily
Financing Charge, the Daily Investor Fee, the Redemption Amount and
Redemption Fee Amount, if any, per security, the Call Settlement
Amount, if any, per security, and the Cash Settlement Amount, if
any, per security, will be rounded to the nearest one-millionth,
with five ten-millionths rounded upward (e.g., .7654545 would be
rounded up to .765455); and all dollar amounts paid on the
aggregate principal amount of notes per holder will be rounded to
the nearest cent, with one-half cent rounded upward.
Market Disruption Events
If a Market Disruption Event occurs or is continuing on any day
that would otherwise constitute an Index Business Day, as
determined by the Calculation Agent, that day will not be
considered an Index Business Day for purposes of determinations
with respect to the notes. As a result, the calculation of the
Index Performance Factor will be modified so that the applicable
leverage does not reset until the first Index Business Day on which
no Market Disruption Event has occurred or is continuing.
To the extent a Market Disruption Event has occurred or is
continuing on an Averaging Date (as defined below) or on a
Redemption Measurement Date, the closing Indicative Note Value for
such Averaging Date or for such Redemption Measurement Date will be
determined by the Calculation Agent or one of its affiliates on the
first succeeding Index Business Day on which a Market Disruption
Event does not occur or is not continuing (the “Deferred Averaging
Date”) irrespective of whether, pursuant to such determination, the
Deferred Averaging Date would fall on a date originally scheduled
to be an Averaging Date. If the postponement described in the
preceding sentence results in the closing Indicative Note Value
being calculated on a day originally scheduled to be an Averaging
Date, for purposes of determining the closing Indicative Note
Values on the Index Business Days during the Final Measurement
Period or Call Measurement Period, or on a Redemption Measurement
Date, the Calculation Agent or one of its affiliates, as the case
may be, will apply the closing Indicative Note Value for such
Deferred Averaging Date (i) on the date(s) of the original Market
Disruption Event and (ii) such Averaging Date. For example, if the
Final Measurement Period or Call Measurement Period, as applicable,
for purposes of calculating the Cash Settlement Amount or Call
Settlement Amount, respectively, is based on the arithmetic mean of
the closing Indicative Note Values on June 7, June 8, June 9, June
10 and June 11, and there is a Market Disruption Event on June 7,
but no other Market Disruption Event during the Final Measurement
Period or Call Measurement Period, as applicable, then the closing
Indicative Note Value on June 8 will be used twice to calculate the
Cash Settlement Amount or Call Settlement Amount, respectively, and
such Cash Settlement Amount or Call Settlement Amount, as
applicable, will be determined based on the arithmetic mean of the
closing Indicative Note Values on June 8 , June 8, June 9, June 10
and June 11.
In no event, however, will any postponement under the two
immediately preceding paragraphs result in the final Averaging Date
or the Redemption Measurement Date, as applicable, occurring more
than three Index Business Days following the day originally
scheduled to be such final Averaging Date or Redemption Measurement
Date. If the third Index Business Day following the date originally
scheduled to be the final Averaging Date, or the Redemption
Measurement Date, as applicable, is not an Index Business Day or a
Market Disruption Event has occurred or is continuing on such third
Index Business Day, the Calculation Agent or one of its affiliates
will determine the Index Closing Level to be used in the
calculation of the closing Indicative Note Value based on its good
faith estimate of the Index Closing Level that would have prevailed
on such third Index Business Day but for such Market Disruption
Event.
An “Averaging Date” means each of the Index Business Days during
the Final Measurement Period or Call Measurement Period, as
applicable, subject to adjustment as described below.
Any of the following will be a Market Disruption Event with respect
to the Index, in each case as determined by the Calculation Agent
in its sole discretion:
|
(a) |
the suspension, absence or material limitation of trading in a
material number of the Index constituents for more than two hours
or during the one-half hour before the close of trading in the
applicable Primary Exchange or Primary
Exchanges; |
|
(b) |
the suspension, absence or material limitation of trading in
option or futures contracts relating to the Index or to a material
number of Index constituents on a Related Exchange for more than
two hours of trading or during the one-half hour before the close
of trading in that market; |
|
(c) |
the Index is not published; or |
|
(d) |
any other event, if the Calculation Agent determines in its
sole discretion that the event materially interferes with our
ability or the ability of any of our affiliates to unwind all or a
material portion of a hedge with respect to the notes that we or
our affiliates have effected or may effect as described in the
section entitled “Use of Proceeds and Hedging.” |
The following events will not be Market Disruption Events with
respect to the Index:
|
(a) |
a limitation on the hours or numbers of days of trading, but
only if the limitation results from an announced change in the
regular business hours of the Primary Exchange or Related Exchange;
or |
|
(b) |
a decision to permanently discontinue trading in the option or
futures contracts relating to the Index or any Index
constituents. |
For this purpose, an “absence of trading” in the primary securities
market on which option or futures contracts related to the Index or
any Index constituents are traded will not include any time when
that market is itself closed for trading under ordinary
circumstances.
Notwithstanding the occurrence of one or more of the events
described above, which may, in the Calculation Agent’s discretion,
constitute a Market Disruption Event, the Calculation Agent in its
discretion may waive its right to postpone the determination of the
Index Closing Level if it determines that one or more of the above
events has not and is not likely to materially impair its ability
to determine the Index Closing Level on any date.
Discontinuance or Modification of the Index
If the Index Sponsor discontinues publication of the Index and the
Index Sponsor or anyone else publishes a substitute index that the
Calculation Agent determines is comparable to the Index, then the
Calculation Agent will permanently replace the Index with that
substitute index (the “successor index”) for all purposes, and all
provisions described in this pricing supplement as applying to the
Index will thereafter apply to the successor index instead. If the
Calculation Agent replaces the Index with a successor index, then
the Calculation Agent will determine the Cash Settlement Amount,
Redemption Amount or Call Settlement Amount, as applicable, by
reference to the successor index.
If the Calculation Agent determines that the publication of the
Index is discontinued and there is no successor index, the
Calculation Agent will determine the level of the Index and thus
the Cash Settlement Amount, Redemption Amount or Call Settlement
Amount, as applicable, by a computation methodology that the
Calculation Agent determines will as closely as reasonably possible
replicate the Index.
If the Calculation Agent determines that the Index, the Index
constituents or the method of calculating the Index is changed at
any time in any respect, including whether the change is made by
the Index Sponsor under its existing policies or following a
modification of those policies, is due to the publication of a
successor index, is due to events affecting the Index constituents
or is due to any other reason and is not otherwise reflected in the
level of the Index by the Index Sponsor according to the
methodology described in this document, then the Calculation Agent
will be permitted (but not required) to make such adjustments in
the Index or the method of its calculation as it believes are
appropriate to ensure that the Index Closing Level used to
determine the Cash Settlement Amount, Redemption Amount or Call
Settlement Amount, as applicable, is equitable.
A substitution of the Index for a successor index or a material
change in the method of calculating the Index could cause the notes
to no longer satisfy the listing requirements and result in the
NYSE delisting the notes. A delisting of the notes would materially
and adversely affect the liquidity of the trading market for the
notes.
Events of Default and Acceleration
Under the heading “Description of Debt Securities We May Offer —
Modification and Waiver of the Debt Securities — Events of Default”
in the accompanying prospectus is a description of events of
default relating to debt securities including the notes.
Payment upon an Event of Default
In case an event of default with respect to the notes will have
occurred and be continuing, the amount declared due and payable per
note upon any acceleration of the notes will be determined by the
Calculation Agent and will be an amount in cash equal to the
Redemption Amount, calculated as if the date of acceleration were
the Redemption Measurement Date. For purposes of this calculation,
the Redemption Fee Amount will be $0.
If the maturity of the notes is accelerated because of an event of
default as described above, we will, or will cause the Calculation
Agent to, provide written notice to the trustee at its New York
office, on which notice the trustee may conclusively rely, and to
DTC of the cash amount due with respect to the notes as promptly as
possible and in no event later than two Business Days after the
date of acceleration.
Defeasance
The provisions described in the accompanying prospectus under the
heading “Description of Debt Securities We May Offer — Modification
and Waiver of the Debt Securities — Defeasance” are not applicable
to the notes.
Manner of Payment and Delivery
Any payment on or delivery of the notes at maturity or call, or
upon early redemption, will be made to accounts designated by you
and approved by us, or at the corporate trust office of the trustee
in New York City, but only when the notes are surrendered to the
trustee at that office. We also may make any payment or delivery in
accordance with the applicable procedures of the depositary.
Modified Business Day
As described in “Description of the Notes We May Offer — Payment
Mechanics — Payment When Offices Are Closed” in the attached
prospectus supplement, any payment on the notes that would
otherwise be due on a day that is not a Business Day may instead be
paid on the next day that is a Business Day, with the same effect
as if paid on the original due date, except as described under “—
Cash Settlement Amount at Maturity,” “— Call Right” and “— Early
Redemption at the Option of the Holders” above.
Reissuances or Reopened Issues
We may, at our sole discretion, “reopen” or reissue the notes. As
of October 4, 2022, we will have issued the notes in an aggregate
principal amount of $475,000,000 (corresponding to 95,000,000
notes, after giving effect to the split described in this
document). We may issue additional notes in amounts that exceed
these amounts at any time, without your consent and without
notifying you. The notes do not limit our ability to incur other
indebtedness or to issue other securities. Also, we are not subject
to financial or similar restrictions by the terms of the notes. For
more information, please refer to “Description of the Notes We May
Offer — General” in the accompanying prospectus supplement and
“Description of Debt Securities We May Offer — General” in the
accompanying prospectus.
These further issuances, if any, will be consolidated to form a
single class with the originally issued notes and will have the
same CUSIP number and will trade interchangeably with the notes
immediately upon settlement. Any additional issuances will increase
the aggregate principal amount of the outstanding notes of the
class, plus the aggregate principal amount of any notes bearing the
same CUSIP number that are issued in any future issuances of notes
bearing the same CUSIP number. The price of any additional offering
will be determined at the time of pricing of that
offering.
Clearance and Settlement
The DTC participants that hold the notes through DTC on behalf of
investors will follow the settlement practices applicable to equity
securities in DTC’s settlement system with respect to the primary
distribution of the notes and secondary market trading between DTC
participants.
INTRADAY VALUE OF THE INDEX AND THE NOTES
Intraday Index Values
Each Index Business Day, the Index Calculation Agent will calculate
and publish the intraday Index value every second during normal
trading hours to the ICE Data Global Index Feed. The intraday Index
value is also available on Bloomberg under the ticker symbol
“NYFANGT” <INDEX>.
ICE Data Indices, LLC, the Index Calculation Agent, is not
affiliated with Bank of Montreal and does not approve, endorse,
review or recommend the Index or the notes. The information used in
the calculation of the intraday Index value will be derived from
sources the Index Calculation Agent deems reliable, but the Index
Calculation Agent and its affiliates do not guarantee the
correctness or completeness of the intraday Index value or other
information furnished in connection with the notes or the
calculation of the Index. The Index Calculation Agent makes no
warranty, express or implied, as to results to be obtained by Bank
of Montreal, holders of the notes, or any other person or entity
from the use of the intraday Index value or any data included
therein. The Index Calculation Agent makes no express or implied
warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to
the intraday Index value or any data included therein. The Index
Calculation Agent, its employees, subcontractors, agents, suppliers
and vendors will have no liability or responsibility, contingent or
otherwise, for any injury or damages, whether caused by the
negligence of the Index Calculation Agent, its employees,
subcontractors, agents, suppliers or vendors or otherwise, arising
in connection with the intraday Index value or the notes, and will
not be liable for any lost profits, losses, punitive, incidental or
consequential damages. The Index Calculation Agent will not be
responsible for or have any liability for any injuries or damages
caused by errors, inaccuracies, omissions or any other failure in,
or delays or interruptions of, the intraday Index value from
whatever cause. The Index Calculation Agent is not responsible for
the selection of or use of the Index or the notes, the accuracy and
adequacy of the Index or information used by Bank of Montreal and
the resultant output thereof.
The intraday calculation of the level of the Index will be provided
for reference purposes only. Published calculations of the level of
the Index from the Index Calculation Agent may occasionally be
subject to delay or postponement. Any such delays or postponements
will affect the current level of the Index and therefore the value
of the notes in the secondary market. The intraday Index value
published each second will be based on the intraday prices of the
Index constituents.
Intraday Indicative Note Values
An Intraday Indicative Value, which is our approximation of the
value of the notes, is calculated and published by ICE Data
Indices, LLC (based in part on information provided by the Index
Calculation Agent) or a successor to the Consolidated Tape and ICE
Data Global Index Feed, and will be available on Bloomberg under
the ticker symbol “FNGUIV” every 15 seconds during normal trading
hours. The actual trading price of the notes may vary
significantly from their Intraday Indicative Value. In
connection with the notes, we use the term “indicative
value” to refer to the value at a given time equal to (a) the
Intraday Long Index Amount minus (b) the Financing Level;
provided that if such calculation results in a value equal to or
less than $0, then both the Intraday Indicative Value and the
closing Indicative Note Value will be $0. The Intraday Long Index
Amount will equal the product of (a) the closing Indicative Note
Value on the immediately preceding Exchange Business Day
times (b) the Daily Leverage Factor times (c) the
Intraday Index Performance Factor. The Intraday Index Performance
Factor equals (a) the most recently published Index level
divided by (b) the Index Closing Level on the preceding
Index Business Day.
If the Intraday Indicative Value of the notes is equal to or less
than $0 at any time on any Exchange Business Day, then both the
Intraday Indicative Value and the closing Indicative Note Value of
the notes on that Exchange Business Day, and on all future Exchange
Business Days, will be $0 (a total loss of value).
The Intraday Indicative Value is meant to approximate the value of
the notes at a particular time. There are three elements of the
formula: the Intraday Long Index Amount, the Financing Level and
the Intraday Index Performance Factor (using, instead of the Index
Closing Level for the date of determination, the intraday Index
level at the time of determination), as described immediately
above. Because the intraday Index level and the Intraday Long Index
Amount are variable, the Intraday Indicative Value translates the
change in the Index level from the previous Exchange Business Day,
as measured at the time of measurement, into an approximation of
the expected value of the notes. The Intraday Indicative Value uses
an intraday Index level for its calculation; therefore, a variation
in the intraday level of the Index from the previous Exchange
Business Day’s Index Closing Level may cause a significant
variation between the closing Indicative Note Value and the
Intraday Indicative Value on any date of determination. The
Intraday Indicative Value also does not reflect intraday changes in
the leverage; it is based on the constant Daily Leverage Factor of
3. Consequently, the Intraday Indicative Value may vary
significantly from the previous or next Exchange Business Day’s
closing Indicative Note Value or the price of the notes purchased
intraday. See “Risk Factors — The notes are subject to intraday
purchase risk” and “— The Indicative Note Value is reset daily, and
the leverage of the notes during any given Exchange Business Day
may be greater or less than 3.0.” The Intraday Indicative Value may
be useful as an approximation of what price an investor in the
notes would receive if the notes were to be redeemed or if they
matured, each at the time of measurement. The Intraday Indicative
Value may be helpful to an investor in the notes when comparing it
against the notes’ trading price on the NYSE and the most recently
published level of the Index.
The Intraday Indicative Value calculation will be provided for
reference purposes only. It is not intended as a price or
quotation, or as an offer to solicitation for the purpose, sale, or
termination of your notes, nor will it reflect hedging or other
transactional costs, credit considerations, market liquidity or
bid-offer spreads. The levels of the Index provided by the Index
Calculation Agent will not necessarily reflect the depth and
liquidity of the Index constituents. For this reason and others,
the actual trading price of the notes may be different from their
indicative value. For additional information, please see “Risk
Factors — The Intraday Indicative Value and the Indicative Note
Value are not the same as the closing price or any other trading
price of the notes in the secondary market” in this pricing
supplement.
The calculation of the Intraday Indicative Value will not
constitute a recommendation or solicitation to conclude a
transaction at the level stated, and should not be treated as
giving investment advice.
The publication of the Intraday Indicative Value of the notes by
ICE Data Indices, LLC may occasionally be subject to delay or
postponement. If the intraday Index value is delayed, then the
Intraday Indicative Value of the notes will also be delayed. The
actual trading price of the notes may be different from their
Intraday Indicative Value. The Intraday Indicative Value of the
notes is published at least every 15 seconds from 9:30 a.m. to 6:00
p.m., New York City time, will be based on the intraday values of
the Index, and may not be equal to the payment at maturity, call or
redemption.
The indicative value calculations will have been prepared as of a
particular date and time and will therefore not reflect subsequent
changes in market values or prices or in any other factors relevant
to their determination.
If you want to sell your notes but are unable to satisfy the
minimum redemption requirements, you may sell your notes into the
secondary market at any time, subject to the risks described under
“Risk Factors — Risks Relating to Liquidity and the Secondary
Market — There is no assurance that your notes will continue to be
listed on a securities exchange, and they may not have an active
trading market” and “— The value of the notes in the secondary
market may be influenced by many unpredictable factors.” Also, the
price you may receive for the notes in the secondary market may
differ from, and may be significantly less than, the Redemption
Amount.
None of NYSE, ICE Data Indices, LLC or their respective affiliates
are affiliated with Bank of Montreal or BMOCM and do not approve,
endorse, review or recommend Bank of Montreal, BMOCM or the
notes.
The Intraday Indicative Values of the notes calculated by ICE Data
are derived from sources deemed reliable, but ICE Data, its
affiliates and its and their respective suppliers do not guarantee
the correctness or completeness of the notes, their values or other
information furnished in connection with the notes. ICE Data and
its affiliates make no warranty, express or implied, as to results
to be obtained by BMOCM, Bank of Montreal, the holders of the
notes, or any other person or entity from the use of the notes, or
any date or values included therein or in connection therewith. ICE
Data and its affiliates make no express or implied warranties, and
expressly disclaim all warranties of merchantability or fitness for
a particular purpose with respect to the notes, or any data or
values included therein or in connection therewith.
Split or Reverse Split of the Notes
We or the Calculation Agent may initiate a split or reverse split
of the notes on any Index Business Day. If we or the Calculation
Agent decides to initiate a split or reverse split, we will issue a
notice to holders of the notes and a press release announcing the
split or reverse split, specifying the effective date of the split
or reverse split. The Calculation Agent will determine the ratio of
such split or reverse split, as the case may be, using relevant
market indicia, and will adjust the terms of the notes accordingly.
Any adjustment of the closing value will be rounded to 8 decimal
places.
In the case of a reverse split, we reserve the right to address odd
numbers of notes (commonly referred to as “partials”) in a manner
determined by the Calculation Agent in its sole discretion, acting
in good faith. For example, if the notes undergo a 1-for-4 reverse
split, holders who own a number of notes on the relevant record
date that is not evenly divisible by 4 will receive the same
treatment as all other holders for the maximum number of notes they
hold that is evenly divisible by 4, and we will have the right to
compensate holders for their remaining or “partial” notes in a
manner determined by the Calculation Agent in its sole discretion.
Our current intention is to provide holders with a cash payment for
their partials in an amount equal to the appropriate percentage of
the closing Indicative Note Value of the notes on a specified Index
Business Day following the announcement date.
A split or reverse split of the notes will not affect the aggregate
stated principal amount of notes held by an investor, other than to
the extent of any “partial” notes, but it will affect the number of
notes an investor holds, the denominations used for trading
purposes on the exchange and the trading price, and may affect the
liquidity, of the notes on the exchange.
THE INDEX
We have derived all information contained in this pricing
supplement regarding the Index, including, without limitation,
its make-up, performance, method of calculation and changes in its
constituents, from publicly available sources. Such information
reflects the policies of and is subject to change by ICE Data
Indices, LLC (“ICE Data”), which is the Index Sponsor, Index
Administrator and Index Calculation Agent. We have not undertaken
any independent review or due diligence of such information. The
Index Sponsor has no obligation to continue to publish, and may
discontinue the publication of, the Index. The description of the
Index is summarized from its governing methodology, which is
available at
https://www.theice.com/publicdocs/data/NYSE_FANGplus_Index_Methodology.pdf.
Neither the methodology nor any other information included on that
website is included or incorporated by reference into this pricing
supplement.
As discussed in more detail below, the Index methodology will be
subject to changes that will become effective in December
2022.
Introduction
The Index is an equal-dollar weighted index designed to represent a
segment of the technology, media & communications and consumer
discretionary sectors consisting of highly-traded growth stocks of
technology and tech-enabled companies such as Apple Inc.,
Amazon.com, Inc., Meta Platforms, Inc., Netflix, Inc. and Google
(Alphabet Inc.). The Index currently has 10 Index constituents,
which is the minimum number, but it may have more than 10 Index
constituents in the future. The Index was launched on September 26,
2017. As of the date of this pricing supplement, the Index
constituents are Alibaba Group Holding Limited, Amazon.com, Inc.,
Apple Inc., Baidu, Inc., Google (Alphabet Inc.), Meta Platforms,
Inc., Microsoft Corporation, Netflix, Inc., Nvidia Corporation and
Tesla, Inc.
Index Universe
The Index universe will consist of all stocks classified as
Consumer Discretionary, Media & Communications or Technology by
the Index Sponsor that are listed on a major U.S. stock exchange,
such as the NYSE, Nasdaq or NYSE American. American Depositary
Receipts and Global Depositary Receipts are eligible for inclusion
in the Index.
Index Constituent Selection
At each quarterly reconstitution, the Index universe will be
screened utilizing a proprietary methodology that references, among
other factors, sector classification, revenue growth and an
analysis of the applicable issuer’s business. The following steps
will be executed:
|
· |
Stocks
must have a market capitalization (including all share classes and
unlisted shares) of at least $5 billion; |
|
· |
Stocks
must have at least six months of trading history; |
|
· |
Stocks
must have a trailing six month average daily traded value (ADTV /
turnover) of $50 million on the specific listing line; |
|
· |
For
any securities with multiple share classes, the most liquid share
classis included in the Index based on its trailing six month
ADTV; |
|
· |
Securities are
excluded from inclusion in the Index if they are not representative
of the high-growth technology and internet/social media industry.
Qualifying companies have significant revenue exposures to one or
more of the areas of search, social networking, autonomous driving,
electric vehicles, smartphones, mobile payments, e-commerce, online
games, streaming media, online entertainment, cryptocurrencies and
blockchain, big data, artificial intelligence, machine learning,
digital advertising, cloud services and other innovative
technologies. |
|
· |
An
Index advisory committee is responsible for the selection of a
minimum of 10 securities from the above-qualifying candidates for
inclusion in the Index. The advisory committee’s selections are
subject to the review and approval of a governance
committee. |
|
· |
If a
corporate action leads to the removal of a security in between the
quarterly reconstitutions, then the Index advisory committee is
responsible for the selection of a replacement security to be added
to the Index at the current Index weight of the security being
deleted, subject to review and approval by the governance
committee. Replacements in the Index are announced after the close
of trading on the third trading day prior to
effectiveness. |
|
· |
The
final list of companies will be equally weighted based upon the
prices and Index market capitalization as of the close of trading
on the third Friday of March, June, September, and
December. |
Reconstitutions and Frequency
The general aim of the quarterly reconstitution of the Index is to
ensure that the selection and weightings of the Index constituents
continues to reflect as closely as possible the Index’s objective.
The Index Administrator reserves the right to, at any time, change
the number of stocks comprising the Index by adding or deleting one
or more stocks, or replacing one or more stocks contained in the
Index with one or more substitute stocks of its choice, if in the
Index Administrator’s discretion such addition, deletion or
substitution is necessary or appropriate to maintain the quality
and/or character of the Index. Any such action would need to be
approved by the Governance Committee.
Changes to the Index constituents may occur during a scheduled
reconstitution and as a result of the removal of an Index
constituent. The quarterly Index reconstitution becomes effective
after the close of the third Friday of March, June, September, and
December. The reconstitution announcement will be made after the
close of the second Friday of the month (one week prior). The
reference date for all company-specific data and information
utilized in the reconstitution process will be taken from that same
day, with exception of the prices utilized to determine the shares,
which will be taken from the third Friday.
Periodical Weighting Adjustment
At quarterly Index reconstitution, the Index will be reconstituted
according to the methodology described above under “—Index
Universe” and “—Index Constituent Selection.”
Index Calculation
The Index is calculated on a gross total return basis. The formula
used for calculating the level of the Index, and any adjustments to
the Index divisor, may be found on theice.com website, in the
document entitled NYSE Indices—Guide to Index
Mathematics.
Corporate Actions
General. The Index may be adjusted in order to maintain the
continuity of the Index level and the composition. Adjustments take
place in reaction to events that occur with Index constituents in
order to mitigate or eliminate the effect of that event on Index
performance.
Removal of constituents. Any Index constituent deleted from
the Index as a result of a corporate action such as a merger,
acquisition, spin-off, delisting or bankruptcy will be replaced by
a new stock. Thus, the total number of Index constituents in the
Index will stay constant. The Governance Committee would oversee a
process to select a replacement stock that reflects the Index’s
objective and is in line with the reconstitution selection criteria
as set forth above under “—Index Universe” and “—Index Constituent
Selection.” If an Index constituent is removed and replaced in the
Index, the divisor will be adjusted to maintain the Index
level.
Mergers and Acquisitions.
|
· |
Merger
or acquisition between Index constituents: In the event a merger or
acquisition occurs between Index constituents, the acquired company
is deleted and will be replaced by another company. There will be
no change made to the acquiring company’s weight in the
Index. |
|
· |
Merger
or acquisition between an Index constituent and a non-member: A
non-member is defined as a company that is not a current Index
constituent. A merger or acquisition between an Index constituent
and one non-member can take two forms: |
|
o |
The acquiring company is an Index constituent and the acquired
company is not. There will be no action taken as to inclusion in
the Index. |
|
o |
The acquiring company is not an Index constituent, but the
acquired company is an Index constituent. The acquired company is
removed from the Index and will be replaced by another company. It
is possible, but not necessary, that the replacement company
selected for the Index will be the acquiring company. |
Suspensions and company distress. Immediately upon an Index
constituent filing for bankruptcy, an announcement will be made to
remove the stock from the Index effective for the next business day
following the bankruptcy. If the stock is trading on an
over-the-counter (OTC) market, the last trade or price on that
market is utilized as the deletion price on that day.
If the stock does not trade on the relevant exchange between the
bankruptcy announcement and the deletion effective date, the stock
may be deleted from the Index in that corporate action with a
presumed market value of $0.
Price sources. In the event that the trading in shares is
suspended or halted, the last known price established during
regular session trading on the primary exchange will be used.
Depending on the particular situation, the Index Administrator may
choose to value the security at a price of $0 for purposes of Index
calculation and/or Index corporate actions. This would be
applicable for certain extreme cases such as a company bankruptcy
or severe distress when the security is no longer tradeable.
Spin-offs. The closing price of the Index constituent is
adjusted by the value of the spin-off, and the shares of the Index
constituent will be adjusted to maintain its existing weighting in
the Index. The divisor will be adjusted to account for any changes
in the overall Index market capitalization. Spun-off companies will
not be added into the Index at the time of the event.
Dividends. The Index calculation incorporates regular cash
dividends paid on the Index constituents and reinvests those
distributions into the Index at the open of the dividend
ex-date.
Rights issues and other rights.
In the event of a rights issue, the price is adjusted for the value
of the right before the open on the ex-date, and the shares are
increased to maintain the Index constituent’s existing weighting
within the Index. The adjustment assumes that the rights issue is
fully subscribed. The amount of the price adjustment is determined
from the terms of the rights issue, including the subscription
price, and the price of the underlying security. The Index
Administrator will only enact adjustments if the rights represent a
positive value, or are in-the-money, or alternatively, represent or
can be converted into a tangible cash value.
Bonus issues, stock splits and reverse stock splits. For
bonus issues, stock splits and reverse stock splits, the number of
shares included in the Index will be adjusted in accordance with
the ratio given in the corporate action. Since the event will also
incorporate a corresponding price adjustment and will not change
the value of the company included in the Index, the divisor will
not be changed because of this.
Changes in number of shares. Changes in the number of shares
outstanding, typically due to share repurchases, tenders, or
offerings, will not be reflected in the Index.
Index Governance
ICE Data Indices, LLC (“ICE Data”) is responsible for the
day-to-day management of the Index, including retaining primary
responsibility for all aspects of the Index determination process,
including implementing appropriate governance and oversight, as
required under the International Organization of Securities
Commission’s Principles for Financial Benchmarks (the “IOSCO
Principles”). The Governance Committee is responsible for helping
to ensure ICE Data’s overall compliance with the IOSCO Principles,
by performing the Oversight Function which includes overseeing the
Index development, design, issuance and operation of the Index, as
well as reviewing the control framework. ICE Data is also
responsible for decisions regarding the interpretation of the Index
methodology and the Governance Committee is responsible for
reviewing all rule book modifications and Index constituent changes
with respect to the Index to ensure that they are made objectively,
without bias, and in accordance with applicable law and regulation
and ICE Data’s policies and procedures. Consequently, all ICE
Data’s and the Governance Committee discussions and decisions are
confidential until released to the public.
Cases not covered in the methodology. In cases which are not
expressly covered in the methodology, operational adjustments will
take place along the lines of the aim of the Index. Operational
adjustments may also take place if, in the opinion of the Index
Administrator, it is desirable to do so to maintain a fair and
orderly market in derivatives on the Index and/or this is in the
best interests of the investors in products based on the Index
and/or the proper functioning of the markets. Any such
modifications described in this paragraph or exercise of judgment
will also be governed by any applicable and outstanding policies,
procedures and guidelines in place by ICE Data at such
time.
Methodology changes. The Governance Committee reviews all
methodology modifications and Index changes to ensure that they are
made objectively, without bias and in accordance with applicable
law and regulation and ICE Data’s policies and procedures. The
methodology may be supplemented, amended in whole or in part,
revised or withdrawn at any time. Supplements, amendments,
revisions and withdrawals may also lead to changes in the way the
Index is compiled or calculated or affect the Index in another way.
Any such modifications described in this paragraph will also be
governed by any applicable and outstanding policies and procedures
in place by ICE Data at such time.
Dissemination
The Index is calculated from 9:30 a.m. until 6:00 p.m. Eastern Time
on those days specified as “Index Business Days,” as that term is
defined in the Index methodology. Solely for the purpose of the
preceding sentence and not for the purpose of any calculation of
the value of the notes, Index Business Days will be classified as
days on which the U.S. Equity Markets (NYSE, Nasdaq, and NYSE
American) are open for a full or partial day of trading.
Exceptional Market Conditions and Corrections
The Index Administrator retains the right to delay the publication
of the opening level of the Index. Furthermore, the Index
Administrator retains the right to suspend the publication of the
level of the Index if it believes that circumstances prevent the
proper calculation of the Index.
If Index constituent prices are cancelled or revised, the Index
will not be recalculated unless the Index Administrator decides
otherwise.
Reasonable efforts are made to ensure the correctness and validity
of data used in real-time Index calculations. Where errors have
occurred in the determination or calculation of the Index closing
value, the decision to make a restatement will be assessed on a
case by case basis. Such decision will take account of the
significance, impact, age and scale of the error.
Announcements
Changes to the Index methodology are announced on the ICE Index
Platform at indices.theice.com.
As a general rule, the announcement periods relating to the
addition and removal of constituents that are mentioned in this
section will be applied. However, emergency actions, including
urgently required corporate action treatments, often resulting from
late notices from the relevant company or exchange, may require the
Index Administrator to deviate from the standard timing.
Reconstitution Constituent Changes.
The addition or removal of
constituents typically occurs during the quarterly
reconstitutions and are announced after the close of trading on the
second Friday of the reconstitution month. The corresponding new
Index shares are announced after the close of trading on the third
Friday of the
reconstitution month. The new Index composition can be accessed on
the ICE Index Platform at indices.theice.com. Constituents may also
be added to or removed from the Index as a result of corporate
actions as described below.
Corporate Actions.
In case of a corporate action that affects one or more
constituents, the Index Administrator will publish an announcement
explaining its treatment in the Index shortly after the firm
details have become available and have been confirmed. When
possible, the addition or removal of a constituent is announced at
least three trading days before the effective date of the change.
However, depending on the availability of public information, less
advance notice may be given. In the case of mergers and
acquisitions, effort are made to remove the company at some
reasonable time ahead of the suspension in trading in the acquired
company. There are certain situations and corporate actions that
require the removal of a company that has already ceased trading.
In those cases, the company is removed from the Index at its last
traded price, or, at the discretion of the Index Administrator, at
a derived price that is intended to represent its post-suspension
value. Once a corporate action has been actioned in the Index, the
Index Administrator confirms the changes and final terms (such as
the Index divisor) in a separate announcement.
Methodology changes. Barring exceptional circumstances, the
Index Administrator will announce proposed rule changes to
stakeholders prior to them being implemented. Stakeholders will
also be notified of when the changes will take effect.
Reviews; publication of new selection. The new composition
of the Index, including the companies to be a part of the Index and
their corresponding new Index weights, will be announced at least
one week prior to the effective date and can be accessed from ICE
Data Services at
www.theice.com/market-data/indices/equity-indices/products.
2022 Changes to Index Methodology
On October 3, 2022, ICE Data announced changes to the index
methodology, including to remove the responsibilities of the Index
advisory committee, and to make the Index qualification criteria
exclusively rule-based. Information about the new methodology is
available on ICE Data's website. The changes to the index
methodology will become effective in connection with the quarterly
index reconstitution scheduled for December 19, 2022. These changes
may have a substantial impact upon the levels of the Index on and
after that date.
Under the new methodology, among other changes:
|
· |
The Index methodology will include a rule that six securities
in the Index will be comprised of the “FAANMG” companies: Meta
Platforms Inc., Apple Inc., Amazon.com Inc., Netflix Inc.,
Microsoft Corp. and Alphabet Inc. These companies will be included
as long as they meet the Index security type, exchange listing,
sector classification, market capitalization, liquidity, seasoning,
country of incorporation and country of risk criteria. |
|
· |
The Index methodology will be modified to include a more
granular filter to select constituents belonging to specific
sub-industries in the Consumer Discretionary, Media &
Communications or Technology sectors based on the ICE Uniform
Sector Classification schema. |
|
· |
The remaining four constituents selected for inclusion in the
Index will be based on rankings incorporating the following
factors, while also implementing a buffer rule to reduce
turnover: |
|
o |
market capitalization (35% weight); |
|
o |
average daily traded value on the specific share class (35%
weight); |
|
o |
price-to-sales ratio over the most recent 12 months (15%
weight); and |
|
o |
one-year net sales growth (15% weight). |
|
· |
Index components will be limited to companies organized in the
U.S. and that are generally based in the U.S. |
|
· |
The required seasoning period for new constituents to be added
to the Index will be decreased from six months to 60 calendar
days. |
|
· |
The number of Index constituents will be fixed at 10. If a
corporate action leads to the removal of a security between the
quarterly reconstitutions, then the next highest ranked security
from the last reconstitution will be added to the Index at the
weight of the security being deleted. |
In addition to the forgoing, the reference date for index
reconstitutions will be updated to the last business day of the
month preceding the reconstitution month. The announcement date
will remain the second Friday of the reconstitution month.
In connection with the amendments, information from the second
index business day preceding the third Friday of the reconstitution
month (normally the Wednesday preceding the third Friday) will be
used to convert the equal percentage constituent weights to Index
constituent shares. This change is expected to result in the actual
reconstitution effective weights drifting from their equal
percentage target weight based on the constituents’ relative market
appreciation or depreciation on the remaining index business days
prior to effectiveness.
Historical Index Information
Any historical upward or downward trend in value of the Index
during any period shown below is not an indication that the value
of the Index is more or less likely to increase or decrease at any
time during the term of the notes. The historical Index returns do
not give an indication of the future performance of the Index. We
cannot make any assurance that the future performance of the Index
will result in holders of the notes receiving a positive return on
their investment.
The graph below shows the historical performance of the Index from
September 26, 2017, its commencement date, through October 3,
2022.

Historical results are not indicative of future results.
License Agreement
We have entered into a sub-license agreement with REX Shares, LLC
(“REX” or the “Structuring Agent”), which licenses the Index from
the Index Sponsor. The license agreement with the Structuring Agent
also provides for the use of certain trade names, trademarks and
service marks. We have also entered into a services agreement with
REX to provide certain services related to product design, content
generation and document dissemination.
MicroSectorsTM and REXTM are registered
trademarks of REX. NYSE is a registered trademark of NYSE Group,
Inc., an affiliate of ICE Data Indices, LLC and is used by ICE Data
Indices with permission and under a license.
FANG+® is a
trademark of ICE Data Indices, LLC or its affiliates (“ICE Data”).
The trademarks have been licensed for use for certain purposes by
Bank of Montreal. The NYSE® FANG+® Index is a product of ICE
Data, and has been licensed for use by Bank of Montreal. The notes
are not sponsored, endorsed, sold or promoted by REX or any of its
affiliates or third party licensors (collectively, “REX Index
Parties”) or by ICE Data or any of its affiliates or third party
licensors (collectively, “ICE Data Index Parties”). REX Index
Parties and ICE Data Index Parties 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 NYSE® FANG+® Index to track general market
performance. REX Index Parties and ICE Data Index Parties’ only
relationship to Bank of Montreal with respect to the Index is the
licensing of the Index and certain trademarks, service marks and/or
trade names of REX Index Parties and ICE Data Index Parties. The
NYSE® FANG+® Index is determined, composed
and calculated by ICE Data Index Parties without regard to Bank of
Montreal or the notes. ICE Data Index Parties have no obligation to
take the needs of Bank of Montreal or the owners of notes into
consideration in determining, composing or calculating the
NYSE® FANG+® Index. REX Index Parties and
ICE Data Index Parties 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. REX Index Parties and ICE Data Index
Parties 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 NYSE®
FANG+® Index will
accurately track index performance or provide positive investment
returns. Inclusion of a security within an index is not a
recommendation by REX Index Parties or ICE Data Index Parties to
buy, sell, or hold such security, nor is it considered to be
investment advice.
REX INDEX PARTIES AND ICE DATA INDEX PARTIES DO NOT GUARANTEE THE
ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE
NYSE® FANG+® INDEX OR ANY DATA RELATED
THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH
RESPECT THERETO. REX INDEX PARTIES AND ICE DATA INDEX PARTIES SHALL
NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS,
OMISSIONS, OR DELAYS THEREIN. REX INDEX PARTIES AND ICE DATA INDEX
PARTIES 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 BANK
OF MONTREAL, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE NYSE® FANG+® INDEX OR WITH RESPECT TO ANY
DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT WHATSOEVER SHALL REX INDEX PARTIES OR ICE DATA INDEX PARTIES
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 ICE
DATA INDEX PARTIES AND BANK OF MONTREAL, OTHER THAN THE LICENSORS
OF ICE DATA INDEX PARTIES.
USE OF PROCEEDS AND HEDGING
The net proceeds we receive from the sale of the notes will be used
for general corporate purposes and, in part, by us or by one or
more of our affiliates in connection with hedging our obligations
under the notes.
We expect to enter into transactions to hedge our obligations under
the notes. Such transactions may involve purchases or sales of the
Index constituents or financial instruments linked to the Index
and/or the Index constituents prior to or on the Initial Issue
Date. In addition, from time to time after we issue the notes, we
may enter into additional hedging transactions or unwind those
hedging transactions previously entered into. In this regard, we
may:
|
· |
acquire or dispose of or otherwise repurchase long or short
positions in some or all of the Index constituents; |
|
· |
acquire or dispose of long or short positions in listed or
over-the-counter options, futures, or other instruments linked to
some or all of the constituent issuers, the Index constituents or
the Index; |
|
· |
acquire or dispose of long or short positions in listed or
over-the-counter options, futures, or other instruments linked to
the level of other similar market indices; or |
|
· |
engage in any combination of the above activities. |
We or our affiliates may acquire a long or short position in
securities similar to the notes from time to time and may, in our
sole discretion, hold or resell those securities.
We may close out our hedge positions on or before the last Index
Business Day in the applicable Final Measurement Period or Call
Measurement Period. That step may involve sales or purchases of the
Index constituents, listed or over-the-counter options or futures
on Index constituents or listed or over-the-counter options,
futures, or other instruments linked to the level of the Index, as
well as other instruments designed to track the performance of the
Index.
While we cannot predict an outcome, any of these hedging activities
or other trading activities of ours could potentially decrease the
Index level, which could adversely affect your payment at maturity,
call or upon early redemption. It is possible that these hedging or
trading activities could result in substantial returns for us or
our affiliates while the value of the notes declines. See “Risk
Factors — Risks Relating to the Notes Generally — We or our
affiliates may have economic interests that are adverse to those of
the holders of the notes as a result of our hedging and other
trading activities” above.
We have no obligation to engage in any manner of hedging activity
and will do so solely at our discretion and for our own account. We
may hedge our exposure on the notes directly or we may aggregate
this exposure with other positions taken by us and our affiliates
with respect to our exposure to the Index or one or more
constituent issuers or the Index constituents. No noteholder will
have any rights or interest in our hedging activity or any
positions that we or any unaffiliated counterparties may take in
connection with our hedging activity.
SUPPLEMENTAL TAX CONSIDERATIONS
The following is a general description of certain tax
considerations relating to the notes. It does not purport to be a
complete analysis of all tax considerations relating to the notes.
Prospective purchasers of the notes should consult their tax
advisors as to the consequences under the tax laws of the country
of which they are resident for tax purposes and the tax laws of
Canada and the U.S. of acquiring, holding and disposing of the
notes and receiving payments under the notes. This summary is based
upon the law as in effect on the date of this pricing supplement
and is subject to any change in law that may take effect after such
date.
Supplemental Canadian Tax Considerations
In the opinion of Torys LLP, our Canadian federal income tax
counsel, the following summary describes the principal Canadian
federal income tax considerations generally applicable to a
purchaser who acquires from us as the beneficial owner the notes
offered by this document, and who, at all relevant times, for
purposes of the Income Tax Act (Canada) and the Income Tax
Regulations (collectively, the “Tax Act”), (1) is not, and is not
deemed to be, resident in Canada; (2) deals at arm’s length with us
and with any transferee resident (or deemed to be resident) in
Canada to whom the purchaser disposes of notes, (3) is not
affiliated with us, (4) does not receive any payment of interest on
a note in respect of a debt or other obligation to pay an amount to
a person with whom we do not deal at arm’s length, (5) does not use
or hold notes in a business carried on in Canada and (6) is not a
“specified shareholder” of ours as defined in the Tax Act for this
purpose or a non-resident person not dealing at arm’s length with
such “specified shareholder” (a “Holder”). Special rules, which are
not discussed in this summary, may apply to a non-Canadian holder
that is an insurer that carries on an insurance business in Canada
and elsewhere.
This summary does not address the possible application of the
“hybrid mismatch arrangement” rules contained in proposals to amend
the Tax Act released by the Minister of Finance (Canada) on April
29, 2022 (the “Hybrid Mismatch Proposals”) to a Holder (i) that
disposes of a note to a person or entity with which it does not
deal at arm’s length or to an entity that is a “specified entity”
(as defined in the Hybrid Mismatch Proposals) with respect to the
Holder or in respect of which the Holder is a “specified entity”,
(ii) that disposes of a note under, or in connection with, a
“structured arrangement” (as defined in such Hybrid Mismatch
Proposals), or (iii) in respect of which we are a “specified
entity”. Such Holders should consult their own tax advisors.
This summary supersedes and replaces in its entirety the section of
the prospectus entitled “Canadian Taxation.”
This summary is based on the current provisions of the Tax Act and
on counsel’s understanding of the current administrative policies
and assessing practices of the Canada Revenue Agency published in
writing prior to the date hereof. This summary takes into account
all specific proposals to amend the Tax Act publicly announced by
or on behalf of the Minister of Finance (Canada) prior to the date
of this document (the “Proposed Amendments”), including the Hybrid
Mismatch Proposals, and assumes that all Proposed Amendments will
be enacted in the form proposed. However, no assurances can be
given that the Proposed Amendments will be enacted as proposed, or
at all. This summary does not otherwise take into account or
anticipate any changes in law or administrative policy or assessing
practice whether by legislative, administrative or judicial action
nor does it take into account tax legislation or considerations of
any province, territory or foreign jurisdiction, which may differ
from those discussed herein.
This summary is of a general nature only and is not, and is not
intended to be, legal or tax advice to any particular holder. This
summary is not exhaustive of all Canadian federal income tax
considerations. Accordingly, prospective purchasers of the notes
should consult their own tax advisors having regard to their own
particular circumstances.
Interest paid or credited or deemed to be paid or credited by us on
a note (including amounts on account or in lieu of payment of, or
in satisfaction of interest) to a Holder generally will not be
subject to Canadian non-resident withholding tax, unless any
portion of such interest (other than on a “prescribed obligation,”
as defined in the Tax Act for this purpose) is contingent or
dependent on the use of or production from property in Canada or is
computed by reference to revenue, profit, cash flow, commodity
price or any other similar criterion or by reference to dividends
paid or payable to shareholders of any class or series of shares of
the capital stock of a corporation. The administrative policy of
the Canada Revenue Agency is that interest paid on a debt
obligation is not subject to withholding tax unless, in general, it
is reasonable to consider that there is a material connection
between the index or formula to which any amount payable under the
debt obligation is calculated and the profits of the issuer. With
respect to any interest on a note, or any portion of the principal
amount of a note in excess of the issue price, such interest or
principal, as the case may be, paid or credited to a Holder should
not be subject to Canadian non-resident withholding tax.
In the event that a note, interest on which is not exempt from
Canadian non-resident withholding tax (other than a note which is
an “excluded obligation,” as defined in the Tax Act for this
purpose) is redeemed in whole or in part, cancelled, repurchased or
purchased by us or any other person resident or deemed to be
resident in Canada from a Holder or is otherwise assigned or
transferred by a Holder to a person resident or deemed to be
resident in Canada for an amount which exceeds, generally, the
issue price thereof, or in certain cases, the price for which such
note was assigned or transferred to the Holder by a person resident
or deemed resident in Canada, the excess may be deemed to be
interest and may, together with any interest that has accrued on
the note to that time, be subject to Canadian non-resident
withholding tax.
If an amount of interest paid by us on a note were to be
non-deductible by us in computing our income as a result of the
application of proposed subsection 18.4(4) of the Tax Act, such
amount of interest would be deemed to have been paid by us as a
dividend, and not to have been paid by us as interest, and be
subject to Canadian non-resident withholding tax. Proposed
subsection 18.4(4) would apply only if a payment of interest by us
on a note constituted the deduction component of a “hybrid mismatch
arrangement” under which the payment arises within the meaning of
proposed paragraph 18.4(3)(b) of the Tax Act.
No payment of interest by us on a note should be considered to
arise under a “hybrid mismatch arrangement” as no such payment
should be considered to arise under or in connection with a
“structured arrangement”, both as defined in proposed subsection
18.4(1) of the Tax Act, on the basis that (i) based on pricing data
and analysis provided to Torys LLP by us in relation to these
notes, it should not be reasonable to consider that any economic
benefit arising from any “deduction/non-inclusion mismatch” as
defined in proposed subsection 18.4(6) of the Tax Act is reflected
in the pricing of the notes, and (ii) it should also not be
reasonable to consider that the notes were designed to, directly or
indirectly, give rise to any “deduction/non-inclusion
mismatch”.
Generally, there are no other taxes on income (including taxable
capital gains) payable by a Holder on interest, discount, or
premium in respect of a note or on the proceeds received by a
Holder on the disposition of a note (including redemption,
cancellation, purchase or repurchase).
U.S. Federal Income Tax Considerations
The following is a general description of certain material U.S.
federal income tax considerations relating to the notes. It does
not purport to be a complete analysis of all U.S. federal income
tax considerations relating to the notes. Prospective purchasers of
the notes should consult their tax advisors as to the consequences
under the tax laws of the country of which they are resident for
tax purposes and the tax laws of Canada and the U.S. of acquiring,
holding and disposing of the notes and receiving payments under the
notes. This summary is based upon the law as in effect on the date
of this pricing supplement and is subject to any change in law that
may take effect after such date.
The following section supersedes the discussion of U.S. federal
income taxation in the accompanying prospectus and prospectus
supplement in its entirety. This section is based on the Internal
Revenue Code of 1986, as amended (the “Code”), its legislative
history, existing and proposed regulations under the Code,
published rulings and court decisions, all as currently in effect.
These laws are subject to change, possibly on a retroactive
basis.
This summary applies only to holders who are initial investors and
hold their notes as “capital assets” for U.S. federal income tax
purposes and are not excluded from this discussion. This section
does not apply to classes of holders subject to special rules, such
as partnerships, subchapter S corporations, other pass-through
entities, governments (or instrumentalities or agencies thereof),
dealers in securities or currencies, traders in securities that
elect to use a mark-to-market method of accounting for their notes,
banks, financial institutions, insurance companies, tax-exempt
organizations, regulated investment companies, real estate
investment trusts, persons that hold notes as part of a straddle or
a hedging or conversion transaction, persons liable for alternative
minimum tax, persons subject to Section 451(b) of the Code, U.S.
expatriates or persons whose functional currency for tax purposes
is not the U.S. dollar. In addition, the discussion below assumes
that an investor in the notes will be subject to a significant risk
that it will lose a significant amount of its investment in the
notes.
If a partnership holds the notes, the U.S. federal income tax
treatment of a partner will generally depend on the status of the
partner and the tax treatment of the partnership. A partner in a
partnership holding the notes should consult its tax advisor with
regard to the U.S. federal income tax treatment of an investment in
the notes.
A U.S. holder is a beneficial owner of a note and that, for U.S.
federal income tax purposes, is (i) a citizen or individual
resident of the United States, (ii) a domestic corporation, (iii)
an estate whose income is subject to U.S. federal income tax
regardless of its source, or (iv) a trust if a U.S. court can
exercise primary supervision over the trust’s administration and
one or more “United States persons” are authorized to control all
substantial decisions of the trust. A non-U.S. holder is a
beneficial owner of a note that, for U.S. federal income tax
purposes, is a non-resident alien individual, a foreign
corporation, or a foreign estate or trust.
Tax Treatment of the Notes
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY
DISCUSSES HOW THE NOTES SHOULD BE TREATED FOR U.S. FEDERAL INCOME
TAX PURPOSES. AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES
OF AN INVESTMENT IN THE NOTES ARE UNCERTAIN. BECAUSE OF THE
UNCERTAINTY, HOLDERS SHOULD CONSULT THEIR TAX ADVISORS IN
DETERMINING THE U.S. FEDERAL INCOME TAX AND OTHER TAX CONSEQUENCES
OF THEIR INVESTMENT IN THE NOTES, INCLUDING THE APPLICATION OF
STATE, LOCAL OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN U.S. FEDERAL OR OTHER TAX LAWS.
We will not attempt to ascertain
whether the issuer of any of the Index constituents would be
treated as a “passive foreign investment company” within the
meaning of Section 1297 of the Code or a “United States real
property holding corporation” within the meaning of Section 897 of
the Code. If the issuer of one or more of such stocks were so
treated, certain adverse U.S. federal income tax consequences could
apply. You should refer to any available information filed with the
SEC by the issuers of the Index constituents and consult your tax
advisor regarding the possible consequences to you in this
regard.
In the opinion of our counsel,
Ashurst LLP, it would generally be reasonable to treat a note with
the terms described in this pricing supplement as a pre-paid
cash-settled derivative contract in respect of the Index for U.S.
federal income tax purposes, and the terms of the notes require a
holder (in the absence of a change in law or an administrative or
judicial ruling to the contrary) to treat the notes for all tax
purposes in accordance with such characterization. If the notes are
so treated, a U.S. holder would recognize capital gain or loss upon
the sale, exchange, redemption or settlement of the notes in an
amount equal to the difference between the amount a U.S. holder
receives at such time and the U.S. holder’s tax basis in the notes.
In general, a U.S. holder’s tax basis in the notes will be equal to
the price the holder paid for the notes. Capital gain recognized by
an individual U.S. holder generally is taxed at preferential rates
where the property is held for more than one year and is taxed at
ordinary income rates where the property is held for one year or
less. The deductibility of capital losses is subject to
limitations. The holding period for notes of a U.S. holder who
acquires the notes upon issuance generally will begin on the date
after the issue date (i.e., the settlement date) of the notes. If
the notes are held by the same U.S. holder until maturity, that
holder’s holding period will include the Maturity
Date.
Alternative Treatments.
Alternative tax treatments of the notes are also possible and the
Internal Revenue Service (“IRS”) might assert that a treatment
other than that described above is more appropriate. For example,
it would be possible to treat the notes, and the IRS might assert
that the notes should be treated, as a single debt instrument. Such
a debt instrument would be subject to the special tax rules
governing contingent payment debt instruments. If the notes are so
treated, a U.S. holder would be required to accrue interest
currently over the term of the notes even though that holder will
not receive any payments from us prior to maturity. In addition,
any gain a U.S. holder might recognize upon the sale, exchange,
redemption or settlement of the notes would be ordinary income and
any loss recognized by a holder at such time would be ordinary loss
to the extent of interest that same holder included in income in
the current or previous taxable years in respect of the notes, and
thereafter, would be capital loss. Moreover, under such
characterization a given note may not be “fungible” with notes with
different issue dates for U.S. federal income tax
purposes.
It is also possible that the IRS
could seek to tax the notes by reference to a holder’s deemed
ownership of the Index constituents. In such case, a U.S. holder
could be required to recognize amounts of income, gain or loss as
if such holder had actually owned interests in the Index
constituents. Under this alternative treatment, a U.S. holder could
also be required to currently recognize gain or loss, at least some
of which could be short-term capital gain (and possibly loss), each
time the Index rebalances.
The IRS could also assert that a
holder should be required to treat any amounts attributable to the
Daily Investor Fee, the Daily Financing Charge and any Redemption
Fee Amount as separate investment expenses. For taxable years
beginning after December 31, 2017 and beginning on or before
December 31, 2025, the deduction of any such deemed expenses would
not generally be permitted to a holder who is an individual, trust
or estate. For taxable years beginning after December 31, 2025, the
deduction of any such deemed expenses would generally be subject to
a 2% floor on miscellaneous itemized deductions applicable to a
holder who is an individual, trust or estate. Such amount would
correspondingly increase the amount of gain and income or decrease
the amount of loss recognized by a holder with respect to an
investment in the notes.
In addition to and separate from an
alternative tax treatment of deemed ownership of the Index
constituents, it is possible that a deemed taxable exchange could
occur on one or more of the reconstitution dates or upon any
extension by us of the Maturity Date or that the notes could be
treated as a series of derivative contracts, each of which matures
on the next reconstitution date. If the notes were properly
characterized in such a manner, a U.S. holder would be treated as
disposing of the notes on each reconstitution date or extension, as
the case may be, in return for new notes that mature on the next
reconstitution date or on the extended Maturity Date, as the case
may be, and a U.S. holder accordingly could recognize capital gain
or loss on each reconstitution date or extension, as the case may
be, equal to the difference between the holder’s tax basis in the
notes (which would be adjusted to take into account any prior
recognition of gain or loss) and the fair market value of the notes
on such date.
Because of the absence of authority
regarding the appropriate tax characterization of the notes, it is
also possible that the IRS could seek to characterize the notes in
a manner that results in other tax consequences that are different
from those described above. For example, the IRS could assert that
any gain or loss that a holder may recognize upon the sale,
exchange, redemption or settlement of the notes should be treated
as ordinary gain or loss.
The IRS has released a notice that
may affect the taxation of holders of the notes. According to the
notice, the IRS and the Treasury Department are actively
considering whether the holder of an instrument such as the notes
should be required to accrue ordinary income on a current basis,
and they sought taxpayer comments on the subject. It is not
possible to determine what guidance will ultimately be issued, if
any. It is possible, however, that under such guidance, holders of
the notes will ultimately be required to accrue income currently
and this could be applied on a retroactive basis. The IRS and the
Treasury Department are also considering other relevant issues,
including whether additional gain or loss from such instruments
should be treated as ordinary or capital and whether the special
“constructive ownership rules” of Section 1260 of the Code might be
applied to such instruments. Further, future legislation, including
legislation based on bills previously introduced in Congress, may
tax all derivative instruments on a mark-to-market basis, requiring
holders of such derivative instruments to take into account
annually gains and losses on such instruments as ordinary income.
The adoption of such legislation or similar proposals may
significantly impact the tax consequences from an investment in the
notes, including the timing and character of income and gain on the
notes. Holders should consult their tax advisor as to the tax
consequences of possible alternative characterizations of the notes
for U.S. federal income tax purposes and proposals to change the
taxation of certain derivative instruments. We intend to treat the
notes for U.S. federal income tax purposes in accordance with the
treatment described in this pricing supplement unless and until
such time as the Treasury Department and IRS determine that some
other treatment is more appropriate.
Information With Respect to
Foreign Financial Assets. An individual U.S. holder who, during
any taxable year, holds any interest in “specified foreign
financial assets” with an aggregate value in excess of $50,000 (and
in some circumstances, a higher threshold) may be required to file
an information report with respect to such assets with his or her
tax returns. “Specified foreign financial assets” may include
financial accounts maintained by foreign financial institutions, as
well as any of the following, but only if they are not held in
accounts maintained by financial institutions: (i) stocks and
securities issued by non-U.S. persons, (ii) financial instruments
and contracts held for investment that have non-U.S. issuers or
counterparties, and (iii) interests in foreign entities. Under
these rules, the notes may be treated as “specified foreign
financial assets.” Holders are urged to consult their tax advisors
regarding the application of this reporting requirement to their
ownership of the notes.
Additional Medicare Tax on
Unearned Income. Certain U.S. holders will be subject to an
additional 3.8% Medicare tax on unearned income. For individual
U.S. holders, the additional Medicare tax applies to the lesser of
(i) “net investment income” or (ii) the excess of “modified
adjusted gross income” over $200,000 ($250,000 if married and
filing jointly or $125,000 if married and filing separately). “Net
investment income” generally equals the taxpayer’s gross investment
income reduced by the deductions that are allocable to such income.
Investment income generally includes passive income such as
dividends and capital gains. U.S. holders are urged to consult
their own tax advisors regarding the implications of the additional
Medicare tax resulting from an investment in the
notes.
Non-U.S. Holders
The following discussion applies to
non-U.S. holders of the notes. A non-U.S. holder is a beneficial
owner of a note that, for U.S. federal income tax purposes, is a
non-resident alien individual, a foreign corporation, or a foreign
estate or trust.
Except as discussed below, a non-U.S.
holder will generally not be subject to U.S. federal income or
withholding tax for amounts paid in respect of the notes, provided
that (i) the holder complies with any applicable certification
requirements, (ii) the payment is not effectively connected with
the conduct by the holder of a U.S. trade or business, and (iii) if
the holder is a non-resident alien individual, such holder is not
present in the U.S. for 183 days or more during the taxable year of
the sale, exchange, redemption or settlement of the notes. In the
case of (ii) above, the holder generally would be subject to U.S.
federal income tax with respect to any income or gain in the same
manner as if the holder were a U.S. holder and, in the case of a
holder that is a corporation, the holder may also be subject to a
branch profits tax equal to 30% (or such lower rate provided by an
applicable U.S. income tax treaty) of a portion of its earnings and
profits for the taxable year that are effectively connected with
its conduct of a trade or business in the U.S., subject to certain
adjustments.
Under Section 871(m) of the Code, a “dividend equivalent” payment
is treated as a dividend from sources within the United States.
Such payments generally would be subject to a 30% U.S. withholding
tax if paid to a non-U.S. holder. Under U.S. Treasury Department
regulations, payments (including deemed payments) with respect to
equity -linked instruments (“ELIs”) that are “specified ELIs” may
be treated as dividend equivalents if such specified ELIs reference
an interest in an “underlying security,” which generally is any
interest in an entity taxable as a corporation for U.S. federal
income tax purposes if a payment with respect to such interest
could give rise to a U.S. -source dividend. However, the IRS has
issued guidance that states that the U.S. Treasury Department and
the IRS intend to amend the effective date of the U.S. Treasury
Department regulations to provide that withholding on “dividend
equivalent” payments will not apply to specified ELIs that are not
delta-one instruments and that are issued before January 1, 2025.
Based on our determination that the notes are delta-one
instruments, non-U.S. holders will be subject to withholding on
dividend equivalent payments, if any, under the notes. We will not
pay additional amounts in respect of any dividend equivalent
withholding.
As discussed above, alternative
characterizations of the notes for U.S. federal income tax purposes
are possible. Should an alternative characterization, by reason of
change or clarification of the law, by regulation or otherwise,
cause payments as to the notes to become subject to withholding tax
(including withholding on “dividend equivalent” payments), we will
withhold tax at the applicable statutory rate. The IRS has also
indicated that it is considering whether income in respect of
instruments such as the notes should be subject to withholding tax.
Prospective investors should consult their own tax advisors in this
regard.
Backup Withholding and Information
Reporting
Holders may be subject to information
reporting. Holders may also be subject to backup withholding on
payments in respect of their notes unless they provide proof of an
applicable exemption or a correct taxpayer identification number
and otherwise comply with applicable requirements of the backup
withholding rules. Non-U.S. holders will not be subject to backup
withholding if they provide a properly completed Form W-8
appropriate to their circumstances. Amounts withheld under the
backup withholding rules are not additional taxes and may be
refunded or credited against U.S. federal income tax liability,
provided the required information is furnished to the
IRS.
The Foreign Account Tax Compliance
Act
The Foreign Account Tax Compliance
Act (“FATCA”) imposes a 30% U.S. withholding tax on certain U.S.
source payments, including interest (and original issue discount),
dividends, and other fixed or determinable annual or periodical
gain, profits, and income (“Withholdable Payments”), if paid to a
foreign financial institution (including amounts paid to a foreign
financial institution on behalf of a holder), unless such
institution enters into an agreement with the U.S. Treasury
Department to collect and provide to the U.S. Treasury Department
certain information regarding U.S. financial account holders,
including certain account holders that are foreign entities with
U.S. owners, with such institution, or otherwise complies with the
legislation. In addition, the notes may constitute a “financial
account” for these purposes and, thus, be subject to information
reporting requirements pursuant to FATCA. FATCA also generally
imposes a withholding tax of 30% on Withholdable Payments made to a
non-financial foreign entity unless such entity provides the
withholding agent with a certification that it does not have any
substantial U.S. owners or a certification identifying the direct
and indirect substantial U.S. owners of the entity. Under certain
circumstances, a holder may be eligible for refunds or credits of
such taxes.
The U.S. Treasury Department has
proposed regulations that eliminate the requirement of FATCA
withholding on payments of gross proceeds upon the sale or
disposition of financial instruments of a type which can produce
U.S. source interest or dividends. The U.S. Treasury Department has
indicated that taxpayers may rely on these proposed regulations
pending their finalization, and the discussion above assumes the
proposed regulations will be finalized in their proposed form with
retroactive effect. If we determine withholding is appropriate with
respect to the notes, we will withhold tax at the applicable
statutory rate, and we will not pay any additional amounts in
respect of such withholding. Therefore, if such withholding
applies, any payments on the notes will be significantly less than
what you would have overwise received. Depending on your
circumstances, these amounts withheld may be creditable or
refundable to you. Foreign financial institutions and non-financial
foreign entities located in jurisdictions that have an
intergovernmental agreement with the United States governing FATCA
may be subject to different rules. Holders are urged to consult
with their own tax advisors regarding the possible implications of
FATCA on their investment in the notes.
EMPLOYEE RETIREMENT INCOME SECURITY ACT
A fiduciary of a pension, profit-sharing or other employee benefit
plan subject to the U.S. Employee Retirement Income Security Act of
1974, as amended (“ERISA”) (each, a “Plan”), should consider the
fiduciary standards of ERISA in the context of the Plan’s
particular circumstances before authorizing an investment in the
notes. Among other factors, the fiduciary should consider whether
the investment would satisfy the prudence and diversification
requirements of ERISA and would be consistent with the documents
and instruments governing the Plan, and whether the investment
would involve a prohibited transaction under ERISA or the U.S.
Internal Revenue Code. Please see the section of the prospectus,
“Employee Retirement Income Security Act.”
SUPPLEMENTAL PLAN OF DISTRIBUTION (CONFLICTS OF INTEREST)
The terms and conditions set forth in a Distribution Agreement
between Bank of Montreal and the Agents party thereto, including
BMOCM, govern the sale and purchase of the notes.
On and after the Initial Trade Date, through October 4, 2022, we
will have issued an aggregate of $475,000,000 in principal amount
of the notes.
Additional notes may be offered and sold after the date of this
document from time to time through BMOCM and one or more dealers at
a price that is higher or lower than the stated principal amount,
based on the Indicative Note Value at that time. Sales of the notes
after the date of this document will be made at market prices
prevailing at the time of sale, at prices related to market prices
or at negotiated prices. We will receive proceeds equal to 100% of
the price that the notes are sold to the public, less any
commissions paid to BMOCM or any other dealer. We may not sell the
full amount of notes offered by this pricing supplement, and may
discontinue sales of the notes at any time.
We may deliver notes against payment therefor on a date that is
greater than two business days following the date of sale of any
notes. Under Rule 15c6-1 of the Securities Exchange Act of
1934, trades in the secondary market generally are required to
settle in two business days, unless parties to any such trade
expressly agree otherwise. Accordingly, purchasers who wish to
transact in notes that are to be issued more than two business days
after the related trade date will be required to specify
alternative settlement arrangements to prevent a failed
settlement.
BMOCM and any other agent and dealer in the initial and any
subsequent distribution are expected to charge normal commissions
for the purchase of the notes.
Broker-dealers may make a market in the notes, although none of
them are obligated to do so and any of them may stop doing so at
any time without notice. This prospectus (such term includes this
pricing supplement and the accompanying prospectus supplement and
prospectus) may be used by such dealers and our affiliates in
connection with market-making transactions. In these transactions,
dealers may resell a note covered by this pricing supplement that
they acquire from us, BMOCM or other holders after the original
offering and sale of the notes, or they may sell any notes covered
by this prospectus in short sale transactions. This prospectus will
be deemed to cover any short sales of notes by market participants
who cover their short positions with notes borrowed or acquired
from us or our affiliates in the manner described above.
Broker-dealers and other market participants are cautioned that
some of their activities, including covering short sales with notes
borrowed from us or one of our affiliates, may result in their
being deemed participants in the distribution of the notes in a
manner that would render them statutory underwriters and subject
them to the prospectus delivery and liability provisions of the
Securities Act of 1933 (the “Securities Act”). A determination of
whether a particular market participant is an underwriter must take
into account all the facts and circumstances pertaining to the
activities of the participant in the particular case, and the
example mentioned above should not be considered a complete
description of all the activities that would lead to designation as
an underwriter and subject a market participant to the prospectus
delivery and liability provisions of the Securities Act.
BMOCM or another FINRA member will provide certain services
relating to the distribution of the notes and may be paid a fee for
its services equal to all, or a portion of, the Daily Investor Fee.
BMOCM may also pay fees to other dealers pursuant to one or more
separate agreements. Any portion of the Daily Investor Fee paid to
BMOCM or such other FINRA member will be paid on a periodic basis
over the term of the notes. Although BMOCM will not receive any
discounts in connection with such sales, BMOCM is expected to
charge normal commissions for the purchase of any such notes.
BMOCM will act as our agent in connection with any redemptions at
the investor’s option, and the Redemption Fee Amount applicable to
any such redemptions will be paid to us. Additionally, it is
possible that BMOCM and its affiliates may profit from expected
hedging activities related to this offering, even if the value of
the notes declines.
The notes are not intended for purchase by any investor that is not
a United States person, as that term is defined for U.S. federal
income tax purposes, and no dealer may make offers of the notes to
any such investor.
Each of BMOCM and any other broker-dealer offering the notes have
not offered, sold or otherwise made available and will not offer,
sell or otherwise make available any of the notes to, any retail
investor in the European Economic Area (“EEA”). For these purposes,
a “retail investor” means a person who is one (or more) of: (a) a
retail client, as defined in point (11) of Article 4(1) of
Directive 2014/65/EU (as amended, “MiFID II”); or (b) a customer,
within the meaning of Directive (EU) 2016/97, as amended, where
that customer would not qualify as a professional client as defined
in point (10) of Article 4(1) of MiFID II; or (c) not a qualified
investor as defined in Regulation (EU) (2017/1129) (the “EU
Prospectus Regulation”). Consequently, no key information document
required by Regulation (EU) No 1286/2014 (as amended, the “EU
PRIIPs Regulation”) for offering or selling the notes or otherwise
making them available to retail investors in the EEA has been
prepared, and therefore, offering or selling the notes or otherwise
making them available to any retail investor in the EEA may be
unlawful under the EU PRIIPs Regulation.
Each of BMOCM and any other broker-dealer offering the notes have
not offered, sold or otherwise made available and will not offer,
sell or otherwise make available any of the notes to, any retail
investor in the United Kingdom. For these purposes, a retail
investor means a person who is one (or more) of: (i) a retail
client, as defined in point (8) of Article 2 of Regulation (EU) No
2017/565 as it forms part of domestic law by virtue of the European
Union (Withdrawal) Act 2018 (the "EUWA"); or (ii) a customer within
the meaning of the provisions of the Financial Services and Markets
Act 2000 (the "FSMA") and any rules or regulations made under the
FSMA to implement Directive (EU) 2016/97, where that customer would
not qualify as a professional client, as defined in point (8) of
Article 2(1) of Regulation (EU) No 600/2014 as it forms part of
domestic law by virtue of the EUWA. Consequently no key information
document required by Regulation (EU) No 1286/2014 as it forms part
of domestic law by virtue of the EUWA (the "UK PRIIPs Regulation")
for offering or selling the notes or otherwise making them
available to retail investors in the UK has been prepared and
therefore offering or selling the notes or otherwise making them
available to any retail investor in the UK may be unlawful under
the UK PRIIPs Regulation.
Conflicts of Interest
BMOCM is an affiliate of Bank of Montreal and, as such, has a
“conflict of interest” in this offering within the meaning of FINRA
Rule 5121. Consequently, the offering is being conducted in
compliance with the provisions of Rule 5121. BMOCM is not permitted
to sell notes in this offering to an account over which it
exercises discretionary authority without the prior specific
written approval of the account holder.
VALIDITY OF THE NOTES
In the opinion of Osler, Hoskin & Harcourt LLP, the issue and
sale of the notes has been duly authorized by all necessary
corporate action of the Bank in conformity with the senior
indenture, and when the notes have been duly completed in
accordance with the senior indenture, the notes will have been
validly executed, authenticated, issued and delivered, to the
extent that validity of the notes is a matter governed by the laws
of the Province of Ontario and the federal laws of Canada
applicable therein and will be valid obligations of the Bank,
subject to the following limitations (i) the enforceability of the
senior indenture may be limited by the Canada Deposit Insurance
Corporation Act (Canada), the Winding-up and Restructuring Act
(Canada) and bankruptcy, insolvency, reorganization, receivership,
moratorium, arrangement or winding-up laws or other similar laws
affecting the enforcement of creditors’ rights generally; (ii) the
enforceability of the senior indenture may be limited by equitable
principles, including the principle that equitable remedies such as
specific performance and injunction may only be granted in the
discretion of a court of competent jurisdiction; (iii) pursuant to
the Currency Act (Canada) a judgment by a Canadian court must be
awarded in Canadian currency and that such judgment may be based on
a rate of exchange in existence on a day other than the day of
payment; and (iv) the enforceability of the senior indenture will
be subject to the limitations contained in the Limitations Act,
2002 (Ontario), and such counsel expresses no opinion as to whether
a court may find any provision of the senior indenture to be
unenforceable as an attempt to vary or exclude a limitation period
under that Act. This opinion is given as of the date hereof and is
limited to the laws of the Provinces of Ontario and the federal
laws of Canada applicable therein. In addition, this opinion is
subject to certain assumptions about (i) the Trustees’
authorization, execution and delivery of the senior indenture, (ii)
the genuineness of signatures and (iii) certain other matters, all
as stated in the letter of such counsel dated May 26, 2022, which
has been filed as Exhibit 5.3 to Bank of Montreal’s Form 6-K filed
with the SEC and dated May 26, 2022.
In the opinion of Ashurst LLP, when the notes have been duly
completed in accordance with the senior indenture, and the notes
have been issued and sold as contemplated by the prospectus
supplement and the prospectus, the notes will be valid, binding and
enforceable obligations of the Bank, entitled to the benefits of
the senior indenture, subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights
and subject to general principles of equity, public policy
considerations and the discretion of the court before which any
suit or proceeding may be brought. This opinion is given as of the
date hereof and is limited to the laws of the State of New York.
This opinion is subject to customary assumptions about the
Trustee’s authorization, execution and delivery of the senior
indenture and the genuineness of signatures and to such counsel’s
reliance on the Bank and other sources as to certain factual
matters, all as stated in the legal opinion dated May 26, 2022,
which has been filed as Exhibit 5.4 to the Bank’s Form 6-K dated
May 26, 2022.
ANNEX A
NOTICE OF EARLY REDEMPTION
To: [ ].com
Subject: Notice of Early Redemption, CUSIP No.: 063679872
[BODY OF EMAIL]
Name of broker: [ ]
Name of beneficial holder: [ ]
Number of Notes to be redeemed: [ ]
Applicable Redemption Measurement Date: [ ], 20[ ]*
Broker Contact Name: [ ]
Broker Telephone #: [ ]
Broker DTC # (and any relevant sub-account): [ ]
The undersigned acknowledges that in addition to any other
requirements specified in the pricing supplement relating to the
notes being satisfied, the notes will not be redeemed unless (i)
this notice of redemption is delivered to BMO Capital Markets Corp.
(“BMO Capital Markets”) by 2:00 p.m. (New York City time) on the
Index Business Day prior to the applicable Redemption Measurement
Date; (ii) the confirmation, as completed and signed by the
undersigned is delivered to BMO Capital Markets by 5:00 p.m. (New
York City time) on the same day the notice of redemption is
delivered; (iii) the undersigned has booked a delivery vs. payment
(“DVP”) trade on the applicable Redemption Measurement Date, facing
BMO Capital Markets DTC 5257 and (iv) the undersigned instructs DTC
to deliver the DVP trade to BMO Capital Markets as booked for
settlement via DTC at or prior to 10:00 a.m. (New York City time)
on the applicable Redemption Date.
The undersigned further acknowledges that the undersigned has read
the section “Risk Factors — You will not know the Redemption Amount
at the time you elect to request that we redeem your notes” in the
pricing supplement relating to the notes and the undersigned
understands that it will be exposed to market risk on the
Redemption Measurement Date.
*Subject
to adjustment as described in the pricing supplement relating to
the notes.
ANNEX B
BROKER’S CONFIRMATION OF REDEMPTION
[TO BE COMPLETED BY BROKER]
Dated:
BMO Capital Markets Corp.
BMO Capital Markets, as Calculation Agent
e-mail: [ ]
To Whom It May Concern:
The holder of $[ ] MicroSectors™ FANG+™ Index
3X Leveraged ETNs due January
8, 2038, CUSIP No. 063679872 (the “notes”) hereby irrevocably
elects to receive a cash payment on the Redemption Date*
of [holder to specify] with respect to the number of notes
indicated below, as of the date hereof, the redemption right as
described in the pricing supplement relating to the notes (the
“Prospectus”). Terms not defined herein have the meanings given to
such terms in the Prospectus.
The undersigned certifies to you that it will (i) book a DVP trade
on the applicable Redemption Measurement Date with respect to the
number of notes specified below at a price per note equal to the
Redemption Amount, facing BMO Capital Markets DTC 5257 and (ii)
deliver the trade as booked for settlement via DTC at or prior to
10:00 a.m. (New York City time) on the applicable Redemption
Date.
The undersigned acknowledges that in addition to any other
requirements specified in the Prospectus being satisfied, the notes
will not be redeemed unless (i) this confirmation is delivered to
BMO Capital Markets by 5:00 p.m. (New York City time) on the same
day the notice of redemption is delivered; (ii) the undersigned has
booked a DVP trade on the applicable Redemption Measurement Date,
facing BMO Capital Markets DTC 5257; and (iii) the undersigned will
deliver the DVP trade to BMO Capital Markets as booked for
settlement via DTC at or prior to 10:00 a.m. (New York City time)
on the applicable Redemption Date.
|
Very
truly yours, |
|
[NAME OF DTC
PARTICIPANT HOLDER] |
|
|
|
Name: |
|
Title: |
|
Telephone: |
|
Fax: |
|
E-mail: |
Number of notes surrendered for redemption: ________
DTC # (and any relevant sub-account): ________
Contact Name: ________
Telephone: ________
Fax: ________
E-mail: ________
(At least 25,000 notes must be redeemed at one time to receive a
cash payment on any Redemption Date.)
* Subject to adjustment as described in the pricing
supplement relating to the notes.
B-1
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