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 banking sector.
· 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 banking sector.
· 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
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
seek an investment for which there will be an active secondary market.
· 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 Solactive AG (the “Index Calculation Agent,” “Index Sponsor” and “Index
Administrator”) and disseminated by Bloomberg approximately every fifteen seconds (assuming the level of the Index has changed
within such fifteen-second interval) from 9:00 a.m. to approximately 4:30 p.m., New York City time. A daily Index Closing Level
is published after the close of normal trading hours, New York City time, on each Index Business Day. Index information, including
the Index level, is available from Bloomberg under the symbol “SOLUSBBT<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 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 are listed on the NYSE under
the ticker symbol “BNKU.” 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:
| · | the expected volatility in the Index and the prices of the Index constituents; |
| · | the time to maturity of the notes; |
| · | the market price and expected distributions on the Index constituents; |
| · | interest and yield rates in the market generally; |
| · | 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); |
| · | the amount of the Daily Investor Fee and the Daily Financing Charge on the relevant date of determination; |
| · | the Index constituents and changes to those Index constituents over time; |
| · | whether the notes have been delisted from the NYSE; |
| · | 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 February 25,
2019. 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.
Solactive AG, 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.
Solactive AG, 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. 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 the Index Calculation Agent, Index Sponsor
and Index Administrator, Solactive AG has no obligation to consider your interests in calculating or revising the Index, and you
will not have any rights against Solactive AG if it takes any such action. See “The Index.”
We and our affiliates have no affiliation with Solactive
AG and are not responsible for any of their public disclosure of information.
We and our affiliates are not affiliated
with Solactive AG, 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.
Solactive AG, 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 Solactive AG, as the 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 Solactive
AG 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 Solactive AG, 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 Solactive AG, 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 banking industry.
All of the stocks included in the Index
are issued by companies whose primary lines of business are in the banking industry. As a result, the stocks that will determine
the performance of the Index and hence, the value of the notes, are concentrated in one industry and vulnerable to events affecting
that industry. 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 banking industry. 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 customer preferences
or technology and may not be able to attain the high growth rate of smaller companies, especially during extended periods of economic
expansion.
Companies engaged in the banking industry
are subject to a variety of risks. The performance of bank stocks may be affected by extensive and changing governmental regulations,
which may limit both the amounts and types of loans and other financial commitments they can make, and the interest rates and fees
they can charge and the amount of capital they must maintain. Their profitability is dependent to a significant extent on the availability
and cost of capital funds, and can fluctuate significantly when interest rates change. Any deterioration of conditions in the credit
markets generally may cause an adverse impact in a broad range of markets that impact U.S. banks, including U.S. and international
credit and interbank money markets generally. Credit losses resulting from financial difficulties of borrowers can negatively impact
these companies. Banks may also be subject to severe price competition; significant competition exists among banking companies,
and failure to maintain or increase market share may result in lost market value. In addition, securities of banking sector companies
may experience a dramatic decline in value if any when these companies experience substantial declines in the valuations of their
assets, take action to raise capital (such as the issuance of debt or equity securities), or cease a portion of their operations.
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 monthly Adjustment Date. 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. Significant changes to any of
these stocks or their issuers, including a merger or similar transaction, will have a more material impact on the level of the
Index as compared to a more diversified index. Due to the small number of Index constituents, those Index constituents and the
Index itself may not necessarily follow the price movements of the entire banking industry. If the Index constituents decline in
value, the Index will also decline in value, even if common stock prices of other companies in the banking industry 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.
In addition, if an Index constituent is removed from this Index, for example, upon a merger or a liquidation, the Index may include
less than 10 constituents until the next monthly Selection Date (as defined below).
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.”
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 in this 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% |
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% |
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% |
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.
|
|
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% |
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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. |
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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 E” 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 E 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 Computershare Trust Company, National Association, as successor trustee to Wells Fargo Bank,
National Association, 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 March 25, 2039, 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 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.
The Fee Rate is 0.95% per annum.
The “Principal Amount” of each
note is $50.
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
1,975.35, 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 Solactive AG.
The “Calculation Date” means
March 16, 2039, 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 April 8, 2019, 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 reserve the right from time to time to reduce or waive the Redemption Fee Amount
in our sole discretion on a case-by-case basis. In exercising your right to have us redeem your notes, you should not assume you
will be entitled to the benefit of any such waiver.
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, on or prior to 12:00 p.m., New York City time, on the Business Day immediately preceding the Maturity Date, any Redemption
Date or any Call Settlement 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. We issued the notes initially in an aggregate amount of $25,000,000 in April 2019. Including the notes that will be issued
on March 20, 2023, we will have issued $300,000,000 in aggregate principal amount of the notes, corresponding to 6,000,000 notes. 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 15 seconds during normal trading hours on Bloomberg under the ticker
symbol “SOLUSBBT” <INDEX>.
Solactive AG, 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 every 15 seconds 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 Solactive AG (based in part on information provided
by the Index Calculation Agent) or a successor on Bloomberg under the ticker symbol “BNKUIV” 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 Solactive AG 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.
Neither the NYSE or Solactive AG, 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 Solactive AG are derived from sources deemed reliable, but Solactive AG, 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. Solactive AG 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. Solactive AG 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 Solactive AG, 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.solactive.com/indices/?se=1&index=DE000SLA7WC8.
Neither the methodology nor any other information included on any Solactive AG website is included or incorporated by reference
into this pricing supplement.
Introduction
The Index is an equal-dollar weighted index
designed to track the prices of the 10 U.S. stocks in the banking sector with the largest free-float market capitalization. The
Index was launched on February 25, 2019. As of the date of this pricing supplement, the Index constituents are: Bank of America
Corporation (BAC), Citigroup Inc. (C), The Goldman Sachs Group, Inc. (GS), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS),
The PNC Financial Services Group, Inc. (PNC), The Charles Schwab Corporation (SCHW), Truist Financial Corporation (TFC), U.S. Bancorp
(USB) and Wells Fargo & Company (WFC).
The Index constituents are equally weighted
on each “Adjustment Day,” which is the third Friday of each month. If this day is not a trading day, then the Adjustment
Day will be postponed to the next trading day.
As discussed in more detail below, the
Index is a total return index, in which dividends paid on the index constituents are reflected in the level of the Index.
The Index level is calculated every 15
seconds on each trading day when the New York Stock Exchange and the Nasdaq Stock Market are open for business, from 9:00AM to
approximately 4:30PM, New York City time. The level of the Index is rounded to two decimal places.
The Index was developed in collaboration
with REX Shares, LLC.
Index Constituent Selection
The first business day of each calendar
month is a “Selection Day” for the Index.
Annual Selection. On the Selection
Day in March of each year, Solactive AG selects securities for potential inclusion in the Index based on the following criteria:
| · | a security must be a components of the Solactive GBS United States Large & Mid Cap Index; |
| · | the security must be listed on a U.S. securities exchange, and be domiciled in the U.S.; |
| · | the issuer of the security must have a free-float market capitalization that is greater than US$1 billion; and |
| · | the security must have a minimum average daily traded value for the preceding one month and six months of more than US$25 million. |
If an issuer has more than one class of
common equity securities outstanding, only the class that Solactive AG deems to be the most liquid may be included. Solactive AG
determines the free-float market capitalization of each relevant security based on the product of the “float shares”
outstanding (as sourced from data vendors that it selects from time to time) and the closing price of the relevant share class.
Once the Index universe is determined as set forth above, the
selection of the Index constituents is effected as follows:
| · | Solactive AG identifies the issuers that are: |
| o | in the business sectors of Banking or Investment Services; |
| o | in the industry groups of United States Commercial Banks, Diversified Investment, Securities Sales and Trading Services, or Investment
Banking and Corporate Finance; and |
| o | with industry classifications Brokerage Services, Diversified Investment, Other Securities Sales and Trading Services, United States
East and South Commercial Banks, United States Midwest and West Commercial Banks, Other United States Commercial Banks, or Other Investment
Banking and Corporate Finance |
each as identified by FactSet RBICS; and
| · | these securities are ranked based on their free-float market capitalization, and the 10 largest are selected for the Index. |
On each monthly Selection Day other than
for the month of March, the Index constituents are reviewed as follows:
| · | the Index universe and industry sector determinations are made as set forth above; |
| · | these securities are ranked based on their free-float market capitalization, and the 13 largest are identified; |
| · | if any of the securities currently in the Index is no longer included in the 13 largest, the Index is reconstituted to the
largest 10 by rank; all such stocks will be re-weighted to have equal weight on the subsequent Adjustment Day; and |
| · | if all of the securities currently in the Index are among the 13 largest, no change is made to the composition of the Index;
however, the Index constituents are re-weighted to have an equal weight on the subsequent Adjustment Day. |
Solactive AG will publicly announce any
changes to the composition of the Index.
Index Calculation
Index Level. The Index is based
on a starting level as of 1,000 at the close of trading on its inception date, March 15, 2013.
The level of the Index is calculated in
accordance with the following formula:
where:
= Number
of Shares of the Index constituent i
on trading day
= Price
of Index constituent i
on trading day
The “Number of Shares” for
an Index constituent on any trading day is based on the number or fraction of shares included in the Index; it is calculated for
any Index constituent as the ratio of (A) the Percentage Weight of an Index constituent multiplied by the level of the Index and
(B) its closing price. The “Percentage Weight” of an Index constituent is the ratio of its closing price multiplied
by its Number of Shares, divided by the Index level. The Number of Shares will be adjusted by Solactive AG to reflect corporate
transactions that impact the number of outstanding shares of an Index constituent, including stock dividends, stock splits and
reverse stock splits, issuances of new shares, repurchases of outstanding shares and other transactions.
Dividends. Dividend payments and
other distributions on an Index constituent are deemed to be reinvested into the applicable Index constituent, based on the closing
price of the applicable Index constituent on the trading day prior to the ex-date. These dividends and distributions result in
an adjustment of the Number of Shares. Upon the payment of a dividend, the new Number of Shares for the relevant Index constituent
is calculated as follows:
with:
=
Number of Shares of the Index constituent i on trading day t
pi,t-1 =
Closing price of the Index constituent i on Trading Day t-1
=
Dividend amount on the ex-dividend date on trading day t
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.
Mergers and Acquisitions. If an
Index constituent merges with or is acquired by another Index constituent, that acquired component will be replaced in the Index
with the relevant security having largest free-float market capitalization that is not yet included in the Index, determined as
of the most recent Selection Date.
Spin-offs. In case of spin-off events,
spun-off companies will always be removed from the Index and their weight will be redistributed proportionally among the remaining
Index constituents.
Bankruptcy and Similar Events. If
an Index constituent is bankrupt, files for bankruptcy, becomes insolvent, is being liquidated or is delisted from its primary
U.S. exchange (other than for purposes of relisting on a different exchange), Solactive AG will make an announcement once it determines
the information to be definitive, and the security will be removed from the Index. The relevant constituent will be replaced in
the Index with the relevant security having largest free-float market capitalization that is not yet included in the Index, determined
as of the most recent Selection Date.
Index Governance
Solactive AG 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”). A committee consisting of Solactive AG personnel (the
“Index Committee”) is responsible for helping to ensure Solactive AG’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. Solactive AG is also responsible for decisions regarding the interpretation of the
Index methodology, and the Index Committee is responsible for reviewing all rule modifications and Index constituent changes to
ensure that they are made objectively, without bias, and in accordance with applicable law and regulation and Solactive AG’s
policies and procedures. Consequently, all of Solactive AG’s and the Index Committee discussions and decisions are confidential
until released to the public.
Methodology changes. The Index Committee
is responsible for decisions regarding the composition of the Index as well as any amendments to the rules. Members of the Index
Committee can recommend changes to the Index methodology and submit them to the Index Committee for approval.
Index Corrections
Solactive AG endeavors to ensure the accuracy
of the Index. Nevertheless, errors in the Index determination process may occur from time to time for a variety of reasons, both
internal and external to Solactive AG. The primary aim in this regard is to ensure the quality of Solactive AG’s index calculation
by defining a coherent and, if possible, exhaustive rule-based methodology which clearly defines specific treatments for individual
error types.
Solactive AG endeavors to correct all errors
that have been identified within a reasonable period of time. A reasonable period of time, as referred to in this policy, is generally
understood as meaning two business days.
Additional information relating to Solactive
AG’s index correction policy may be found on its website, in the document named “Correction Policy.”
Conditions of Market Stress
Solactive AG maintains rules and procedures
that will apply during conditions of market stress occurring in the calculation process of the Index. Market stress can arise due
to a variety of reasons and take several forms, but generally results in inaccurate or delayed prices for one or more constituents
of the Index. The Index may also be directly affected by stock suspensions or any other disruptions, as one or more of the Index
constituents may be prohibited from trading for a longer time, thereby impairing the representativeness of the index. In order
to maintain the quality of the Index methodology and to define how and when discretion may be exercised in the determination of
an index, Solactive AG applies rules and procedures as to how to address these circumstances. These may be found on the Solactive
AG website, in the document named “Disruption Policy.”
Historical Index Information
The following graph sets forth the historical closing levels
of the Index from February 25, 2019 to March 17, 2023.
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 Solactive AG. 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.
Solactive AG (“Solactive”) is the licensor of the
Index. The notes are not sponsored, endorsed, promoted or sold by Solactive in any way, and Solactive makes no express or implied
representation, guarantee or assurance with regard to: (a) the advisability in investing in the notes; (b) the quality, accuracy
and/or completeness of the Index; and/or (c) the results obtained or to be obtained by any person or entity from the use of the
Index. Solactive does not guarantee the accuracy and/or the completeness of the Index and will not have any liability for any errors
or omissions with respect thereto. Notwithstanding Solactive’s obligations to its licensees, Solactive reserves the right
to change the methods of calculation or publication of the Index, and Solactive will not be liable for any miscalculation of or
any incorrect, delayed or interrupted publication with respect to the Index. Solactive will not be liable for any damages, including,
without limitation, any loss of profits or business, or any special, incidental, punitive, indirect or consequential damages suffered
or incurred as a result of the use (or inability to use) of the Index.
MicroSectorsTM and REXTM
are registered trademarks of REX. The trademarks have been licensed for use for certain purposes 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”). REX 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 Index to track general market performance. REX 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. REX
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 have no obligation or liability in connection with the administration, marketing
or trading of the notes. Inclusion of a security within an index is not a recommendation by REX Index Parties to buy, sell, or
hold such security, nor is it considered to be investment advice.
REX INDEX PARTIES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS
AND/OR THE COMPLETENESS OF THE 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 WILL NOT BE SUBJECT TO ANY DAMAGES
OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. REX INDEX PARTIES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIM 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 INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER WILL REX 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.
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 Adjustment Days 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 Adjustment Day. If the notes were properly characterized in such a manner,
a U.S. holder would be treated as disposing of the notes on each Adjustment Day or extension, as the case may be, in return for
new notes that mature on the next Adjustment Day 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 Adjustment Day 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 advisors 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 generally
will 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, directly or indirectly, 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 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.
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 (or an applicable withholding agent) 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. 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 the Initial Trade Date, we sold $25,000,000 in principal
amount of the notes through BMOCM and through one or more dealers purchasing as principal through BMOCM for $50 per note. We received
proceeds equal to 100% of the offering price of those notes. We will issue an additional $75,000,000 in principal amount of the notes
on March 20, 2023, which may be sold to investors from time to time.
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. In addition, BMOCM may receive
a portion of the Daily Investor Fee. 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 prospectus 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.: 063679823
[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 $[ ] MicroSectorsTM
U.S. Big Banks Index 3X Leveraged ETNs due March 25, 2039, CUSIP No. 063679823 (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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