1 The total “Agent’s Commission” and “Proceeds
to Bank of Montreal” specified above reflect the aggregate amounts at the time Bank of Montreal established its hedge positions
on or prior to the Pricing Date, which may have been variable and fluctuated depending on market conditions at such times. Certain
dealers who purchased the notes for sale to certain fee-based advisory accounts may have foregone some or all of their selling
concessions, fees or commissions. The public offering price for investors purchasing the notes in these accounts was between $988.00
and $1,000 per $1,000 in principal amount.
* Rounded to two decimal places with respect to SPX and NDX and
rounded to three decimal places with respect to RTY.
On the date hereof, based on the terms set
forth above, the estimated initial value of the notes is $937.66 per $1,000 in principal amount. However, as discussed in more
detail below, the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy.
You should read this document together with
the product supplement dated April 21, 2020, the prospectus supplement dated April 20, 2020 and the prospectus dated April 20,
2020. This document, together with the documents listed below, contains the terms of the notes and supersedes all other prior
or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence,
trade ideas, structures for implementation, sample structures, fact sheets, brochures or other educational materials of ours or
the agent. You should carefully consider, among other things, the matters set forth in Additional Risk Factors Relating to
the Notes in the product supplement, as the notes involve risks not associated with conventional debt securities. We urge you to
consult your investment, legal, tax, accounting and other advisers before you invest in the notes.
You may access these documents on the SEC
website at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
Our Central Index Key, or CIK, on the SEC
website is 927971. As used in this document, "we", "us" or "our" refers to Bank of Montreal.
An investment in the notes involves significant
risks. Investing in the notes is not equivalent to investing directly in the Reference Assets. These risks are explained in more
detail in the “Additional Risk Factors Relating to the Notes” section of the product supplement.
Additional Information Relating to the Estimated Initial Value
of the Notes
Our estimated initial value of the notes
on the date hereof that is set forth on the cover hereof equals the sum of the values of the following hypothetical components:
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a fixed-income debt component with the same tenor as the notes, valued using our internal funding rate for structured notes;
and
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one or more derivative transactions relating to the economic terms of the notes.
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The internal funding rate used in the determination
of the initial estimated value generally represents a discount from the credit spreads for our conventional fixed-rate debt. The
value of these derivative transactions are derived from our internal pricing models. These models are based on factors such as
the traded market prices of comparable derivative instruments and on other inputs, which include volatility, dividend rates, interest
rates and other factors. As a result, the estimated initial value of the notes on the Pricing Date was determined based on the
market conditions on the Pricing Date.
The Reference Assets
All disclosures contained in this pricing
supplement regarding the Reference Assets, including, without limitation, their make-up, method of calculation, and changes in
their components and their historical closing levels, have been derived from publicly available information prepared by the applicable
sponsors. The information reflects the policies of, and is subject to change by, the sponsors. The sponsors own the copyrights
and all rights to the Reference Assets. The sponsors are under no obligation to continue to publish, and may discontinue publication
of, the Reference Assets. Neither we nor BMO Capital Markets Corp. accepts any responsibility for the calculation, maintenance
or publication of and Reference Asset or any successor. We encourage you to review recent levels of the Reference Assets prior
to making an investment decision with respect to the notes.
The S&P 500® Index
The S&P 500® Index is intended to
provide an indication of the pattern of common stock price movement. The calculation of the level of this Reference Asset is based
on the relative value of the aggregate market value of the common stocks of 500 companies as of a particular time compared to the
aggregate average market value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943.
S&P calculates this Reference Asset by
reference to the prices of the constituent stocks of this Reference Asset without taking account of the value of dividends paid
on those stocks. As a result, the return on the notes will not reflect the return you would realize if you actually owned the constituent
stocks of the S&P 500® Index and received the dividends paid on those stocks.
Computation of the S&P 500®
Index
While S&P currently employs the following
methodology to calculate the S&P 500® Index, no assurance can be given that S&P will not modify or change this methodology
in a manner that may affect the Payment at Maturity.
Historically, the market value of any component
stock of the S&P 500® Index was calculated as the product of the market price per share and the number of then outstanding
shares of such component stock. In March 2005, S&P began shifting the S&P 500® Index halfway from a market capitalization
weighted formula to a float-adjusted formula, before moving the S&P 500® Index to full float adjustment on September 16,
2005. S&P’s criteria for selecting stocks for the S&P 500® Index did not change with the shift to float adjustment.
However, the adjustment affects each company’s weight in the S&P 500® Index.
Under float adjustment, the share counts
used in calculating the S&P 500® Index reflect only those shares that are available to investors, not all of a company’s
outstanding shares. Float adjustment excludes shares that are closely held by control groups, other publicly traded companies or
government agencies.
In September 2012, all shareholdings representing
more than 5% of a stock’s outstanding shares, other than holdings by “block owners,” were removed from the float
for purposes of calculating the S&P 500® Index. Generally, these “control holders” will include officers and
directors, private equity, venture capital and special equity firms, other publicly traded companies that hold shares for control,
strategic partners, holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the company, holders
of unlisted share classes of stock, government entities at all levels (other than government retirement/pension funds) and any
individual person who controls a 5% or greater stake in a company as reported in regulatory filings. However, holdings by block
owners, such as depositary banks, pension funds, mutual funds and ETF providers, 401(k) plans of the company, government retirement/pension
funds, investment funds of insurance companies, asset managers and investment funds, independent foundations and savings and investment
plans, will ordinarily be considered part of the float.
Treasury stock, stock options, equity participation
units, warrants, preferred stock, convertible stock, and rights are not part of the float. Shares held in a trust to allow investors
in countries outside the country of domicile, such as depositary shares and Canadian exchangeable shares are normally part of the
float unless those shares form a control block.
For each stock, an investable weight factor
(“IWF”) is calculated by dividing the available float shares by the total shares outstanding. Available float shares
are defined as the total shares outstanding less shares held by control holders. This calculation is subject to a 5% minimum threshold
for control blocks. For example, if a company’s officers and directors hold 3% of the company’s shares, and no other
control group holds 5% of the company’s shares, S&P would assign that company an IWF of 1.00, as no control group meets
the 5% threshold. However, if a company’s officers and directors hold 3% of the company’s shares and another control
group holds 20% of the company’s shares, S&P would assign an IWF of 0.77, reflecting the fact that 23% of the company’s
outstanding shares are considered to be held for control. As of July 31, 2017, companies with multiple share class lines are no
longer eligible for inclusion in the S&P 500® Index. Constituents of the S&P 500® Index prior to July 31, 2017
with multiple share class lines were grandfathered in and continue to be included in the S&P 500® Index. If a constituent
company of the S&P 500® Index reorganizes into a multiple share class line structure, that company will remain in the S&P
500® Index at the discretion of the S&P Index Committee in order to minimize turnover.
The S&P 500® Index is calculated
using a base-weighted aggregate methodology. The level of the S&P 500® Index reflects the total market value of all 500
component stocks relative to the base period of the years 1941 through 1943. An indexed number is used to represent the results
of this calculation in order to make the level easier to use and track over time. The actual total market value of the component
stocks during the base period of the years 1941 through 1943 has been set to an indexed level of 10. This is often indicated by
the notation 1941-43 = 10. In practice, the daily calculation of the S&P 500® Index is computed by dividing the total market
value of the component stocks by the “index divisor.” By itself, the index divisor is an arbitrary number. However,
in the context of the calculation of the S&P 500® Index, it serves as a link to the original base period level of the S&P
500® Index. The index divisor keeps the S&P 500® Index comparable over time and is the manipulation point for all adjustments
to the S&P 500® Index, which is index maintenance.
Index Maintenance
Index maintenance includes monitoring and
completing the adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock price adjustments
due to company restructuring or spinoffs. Some corporate actions, such as stock splits and stock dividends, require changes in
the common shares outstanding and the stock prices of the companies in the S&P 500® Index, and do not require index divisor
adjustments.
To prevent the level of the S&P 500®
Index from changing due to corporate actions, corporate actions which affect the total market value of the S&P 500® Index
require an index divisor adjustment. By adjusting the index divisor for the change in market value, the level of the S&P 500®
Index remains constant and does not reflect the corporate actions of individual companies in the S&P 500® Index. Index
divisor adjustments are made after the close of trading and after the calculation of the S&P 500® Index closing level.
Changes in a company’s total shares
outstanding of 5% or more due to public offerings are made as soon as reasonably possible. Other changes of 5% or more (for example,
due to tender offers, Dutch auctions, voluntary exchange offers, company stock repurchases, private placements, acquisitions of
private companies or non-index companies that do not trade on a major exchange, redemptions, exercise of options, warrants, conversion
of preferred stock, notes, debt, equity participations, at-the-market stock offerings or other recapitalizations) are made weekly,
and are generally announced on Fridays for implementation after the close of trading the following Friday (one week later). If
a 5% or more share change causes a company’s IWF to change by five percentage points or more, the IWF is updated at the same
time as the share change. IWF changes resulting from partial tender offers are considered on a case-by-case basis.
License Agreement
We and S&P Dow Jones Indices LLC (“S&P”)
have entered into a non-exclusive license agreement providing for the license to us and certain of our affiliates, in exchange
for a fee, of the right to use the S&P 500® Index, in connection with certain securities, including the notes. The S&P
500® Index is owned and published by S&P.
The license agreement between S&P and
us provides that the following language must be set forth in this pricing supplement:
The notes are not sponsored, endorsed, sold
or promoted by S&P Dow Jones Indices LLC, Dow Jones, Standard and Poor’s Financial Services LLC or any of their respective
affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty,
express or implied, to the holders of the notes or any member of the public regarding the advisability of investing in securities
generally or in the notes particularly or the ability of the S&P 500® Index to track general market performance. S&P
Dow Jones Indices’ only relationship to us with respect to the S&P 500® Index is the licensing of the Index and certain
trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its third party licensors. The S&P 500®
Index is determined, composed and calculated by S&P Dow Jones Indices without regard to us or the notes. S&P Dow Jones
Indices have no obligation to take our needs or the needs of holders of the notes into consideration in determining, composing
or calculating the S&P 500® Index. S&P Dow Jones Indices are not responsible for and have not participated in the determination
of the prices, and amount of the notes or the timing of the issuance or sale of the notes or in the determination or calculation
of the equation by which the notes are to be converted into cash. S&P Dow Jones Indices have no obligation or liability in
connection with the administration, marketing or trading of the notes. There is no assurance that investment products based on
the S&P 500® Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices
LLC and its subsidiaries are not investment advisors. Inclusion of a security or futures contract within an index is not a recommendation
by S&P Dow Jones Indices to buy, sell, or hold such security or futures contract, nor is it considered to be investment advice.
Notwithstanding the foregoing, CME Group Inc. and its affiliates may independently issue and/or sponsor financial products unrelated
to the notes currently being issued by us, but which may be similar to and competitive with the notes. In addition, CME Group Inc.
and its affiliates may trade financial products which are linked to the performance of the S&P 500® Index. It is possible
that this trading activity will affect the value of the notes.
S&P DOW JONES INDICES DO NOT GUARANTEE
THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P 500® INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION,
INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P
DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES
INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY US, HOLDERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P
500® INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL
S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT
LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS
BETWEEN S&P DOW JONES INDICES AND US, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
S&P® is a registered trademark of
Standard & Poor’s Financial Services LLC and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings
LLC. These trademarks have been licensed for use by Bank of Montreal. “Standard & Poor’s®”, “S&P
500®” and “S&P®” are trademarks of S&P. The notes are not sponsored, endorsed, sold or promoted
by S&P and S&P makes no representation regarding the advisability of investing in the notes.
The Russell 2000® Index
The Russell 2000® Index was developed
by Russell Investments (“Russell”) before FTSE International Limited (“FTSE”) and Russell combined in 2015
to create FTSE Russell, which is wholly owned by London Stock Exchange Group. Russell began dissemination of the Russell 2000®
Index (Bloomberg L.P. index symbol “RTY”) on January 1, 1984. The Russell 2000® Index was set to 135 as of the
close of business on December 31, 1986. FTSE Russell calculates and publishes the Russell 2000® Index. The Russell 2000®
Index is designed to track the performance of the small capitalization segment of the U.S. equity market. As a subset of the Russell
3000® Index, the Russell 2000® Index consists of the smallest 2,000 companies included in the Russell 3000® Index.
The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies. The Russell 2000® Index is determined,
comprised, and calculated by FTSE Russell without regard to the notes.
Selection of Stocks Comprising the
Russell 2000® Index
All companies eligible for inclusion in the
Russell 2000® Index must be classified as a U.S. company under FTSE Russell’s country-assignment methodology. If a company
is incorporated, has a stated headquarters location, and trades on a standard exchange in the same country (American Depositary
Receipts and American Depositary Shares are not eligible), then the company is assigned to its country of incorporation. If any
of the three factors are not the same, FTSE Russell defines three Home Country Indicators (“HCIs”): country of incorporation,
country of headquarters, and country of the most liquid exchange (as defined by a two-year average daily dollar trading volume)
(“ADDTV”) from all exchanges within a country. Using the HCIs, FTSE Russell compares the primary location of the company’s
assets with the three HCIs. If the primary location of its assets matches any of the HCIs, then the company is assigned to the
primary location of its assets. If there is insufficient information to determine the country in which the company’s assets
are primarily located, FTSE Russell will use the primary location of the company’s revenue for the same cross-comparison
and assigns the company to the appropriate country in a similar fashion. FTSE Russell uses the average of two years of assets or
revenues data to reduce potential turnover. If conclusive country details cannot be derived from assets or revenues data, FTSE
Russell will assign the company to the country in which its headquarters are located unless the country is a Benefit Driven Incorporation
“BDI” country. If the country in which its headquarters are located is a BDI, it will be assigned to the country of
its most liquid stock exchange. BDI countries include: Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, Bermuda,
Bonaire, British Virgin Islands, Cayman Islands, Channel Islands, Cook Islands, Curacao, Faroe Islands, Gibraltar, Guernsey, Isle
of Man, Jersey, Liberia, Marshall Islands, Panama, Saba, Sint Eustatius, Sint Maarten, and Turks and Caicos Islands. For any companies
incorporated or headquartered in a U.S. territory, including countries such as Puerto Rico, Guam, and U.S. Virgin Islands, a U.S.
HCI is assigned. “N-Shares” of companies controlled by entities in mainland China are not eligible for inclusion in
the Russell 2000® Index.
All securities eligible for inclusion in
the Russell 2000® Index must trade on a major U.S. exchange. Stocks must have a closing price at or above $1.00 on their primary
exchange on the “rank day” in May of each year (timetable is announced each spring) to be eligible for inclusion during
annual reconstitution. However, in order to reduce unnecessary turnover, if an existing member’s closing price is less than
$1.00 on the last day of May, it will be considered eligible if the average of the daily closing prices (from its primary exchange)
during the month of May is equal to or greater than $1.00. FTSE Russell adds initial public offerings (IPOs) each quarter to ensure
that new additions to the institutional investing opportunity set are reflected in representative indexes. A stock added during
the quarterly IPO process is considered a new index addition, and therefore must have a closing price on its primary exchange at
or above $1.00 on the last day of the eligibility period in order to qualify for index inclusion. If an existing index member does
not trade on the rank day, it must price at $1.00 or above on another eligible U.S. exchange to remain eligible.
Royalty trusts, limited liability companies,
closed-end investment companies (companies that are required to report Acquired Fund Fees and Expenses, as defined by the SEC,
including business development companies, are not eligible), blank check companies, special-purpose acquisition companies, exchange
traded funds, mutual funds and limited partnerships are ineligible for inclusion. Preferred and convertible preferred stock, redeemable
shares, participating preferred stock, warrants, rights, installment receipts and trust receipts are not eligible for inclusion
in the Russell 2000® Index.
Annual reconstitution is a process by which
the Russell 2000® Index is completely rebuilt. On the rank day of July, all eligible securities are ranked by their total market
capitalization. The largest 4,000 become the Russell 3000E Index, and the other FTSE Russell indexes are determined from that set
of securities. Reconstitution of the Russell 2000® Index occurs on the last Friday in June or, when the last Friday in June
is the 29th or 30th, reconstitution occurs on the prior Friday. In addition, FTSE Russell adds initial public offerings to the
Russell 2000® Index on a quarterly basis based on total market capitalization ranking within the market-adjusted capitalization
breaks established during the most recent reconstitution.
After membership is determined, a security’s
shares are adjusted to include only those shares available to the public. This is often referred to as “free float.”
The purpose of the adjustment is to exclude from market calculations the capitalization that is not available for purchase and
is not part of the investable opportunity set.
License Agreement
“Russell 2000®” and “Russell
3000®” are trademarks of FTSE Russell and have been licensed for use by us.
The notes are not sponsored, endorsed, sold
or promoted by FTSE Russell. FTSE Russell makes 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 Russell 2000® Index to track general stock market performance or a segment of the same. FTSE Russell's publication of
the Russell 2000® Index in no way suggests or implies an opinion by FTSE Russell as to the advisability of investment in any
or all of the securities upon which the Russell 2000® Index is based. FTSE Russell's only relationship to the Issuer is the
licensing of certain trademarks and trade names of FTSE Russell and of the Russell 2000® Index which is determined, composed
and calculated by FTSE Russell without regard to the Issuer or the notes. FTSE Russell is not responsible for and has not reviewed
the notes nor any associated literature or publications and FTSE Russell makes no representation or warranty express or implied
as to their accuracy or completeness, or otherwise. FTSE Russell reserves the right, at any time and without notice, to alter,
amend, terminate or in any way change the Russell 2000® Index. FTSE Russell has no obligation or liability in connection with
the administration, marketing or trading of the notes.
FTSE RUSSELL DOES NOT GUARANTEE THE ACCURACY
AND/OR THE COMPLETENESS OF THE RUSSELL 2000® INDEX OR ANY DATA INCLUDED THEREIN AND FTSE RUSSELL SHALL HAVE NO LIABILITY FOR
ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. FTSE RUSSELL MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED
BY THE ISSUER, INVESTORS, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE RUSSELL 2000® INDEX OR ANY
DATA INCLUDED THEREIN. FTSE RUSSELL MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE RUSSELL 2000® INDEX OR ANY DATA INCLUDED HEREIN WITHOUT LIMITING
ANY OF THE FOREGOING. IN NO EVENT SHALL FTSE RUSSELL HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
The NASDAQ 100® Index
The NASDAQ 100® Index is a modified market
capitalization-weighted index of 100 of the largest stocks of both U.S. and non-U.S. non-financial companies listed on The NASDAQ
Stock Market based on market capitalization. It does not contain securities of financial companies, including investment companies.
The NASDAQ 100® Index, which includes companies across a variety of major industry groups, was launched on January 31, 1985,
with a base index value of 250.00. On January 1, 1994, the base index value was reset to 125.00. The NASDAQ OMX Group, Inc. publishes
the NASDAQ 100® Index. Current information regarding the market value of the NASDAQ 100® Index is available from NASDAQ
OMX Group, Inc. (“NASDAQ OMX”) as well as numerous market information services.
The share weights of the component securities
of the NASDAQ 100® Index at any time are based upon the total shares outstanding in each of those securities and are additionally
subject, in certain cases, to rebalancing. Accordingly, each underlying stock’s influence on the level of the NASDAQ 100®
Index is directly proportional to the value of its share weight.
Index Calculation
At any moment in time, the level of the NASDAQ
100® Index equals the aggregate value of the then-current share weights of each of the component securities, which are based
on the total shares outstanding of each such component security, multiplied by each such security’s respective last sale
price on The NASDAQ Stock Market (which may be the official closing price published by The NASDAQ Stock Market), and divided by
a scaling factor (the “divisor”), which becomes the basis for the reported level of the NASDAQ 100® Index. The
divisor serves the purpose of scaling such aggregate value to a lower order of magnitude, which is more desirable for reporting
purposes.
Underlying Stock Eligibility Criteria and Annual Ranking Review
Initial Eligibility Criteria
To be eligible for initial inclusion in the
NASDAQ 100® Index, a security must be listed on The NASDAQ Stock Market and meet the following criteria:
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the security’s U.S. listing must be exclusively on the NASDAQ Global Select Market or the NASDAQ Global Market;
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the security must be issued by a non-financial company;
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the security may not be issued by an issuer currently in bankruptcy proceedings;
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the security must generally be a common stock, ordinary share, American Depositary Receipt, or tracking stock (closed-end funds,
convertible debentures, exchange traded funds, limited liability companies, limited partnership interests, preferred stocks, rights,
shares or units of beneficial interests, warrants, units and other derivative securities are not included in the NASDAQ 100®
Index, nor are the securities of investment companies);
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the security must have a three-month average daily trading volume of at least 200,000 shares;
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if the security is issued by an issuer organized under the laws of a jurisdiction outside the United States, it must have listed
options on a recognized market in the United States or be eligible for listed-options trading on a recognized options market in
the United States;
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the issuer of the security may not have entered into a definitive agreement or other arrangement which would likely result
in the security no longer being eligible;
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the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn; and
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the issuer of the security must have “seasoned” on the NASDAQ Stock Market or another recognized market (generally,
a company is considered to be seasoned if it has been listed on a market for at least three full months, excluding the first month
of initial listing).
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Continued Eligibility Criteria
In addition, to be eligible for continued
inclusion in the NASDAQ 100® Index the following criteria apply:
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the security’s U.S. listing must be exclusively on the NASDAQ Global Select Market or the NASDAQ Global Market;
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the security must be issued by a non-financial company;
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the security may not be issued by an issuer currently in bankruptcy proceedings;
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the security must have an average daily trading volume of at least 200,000 shares in the previous three-month trading period
as measured annually during the ranking review process described below;
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if the issuer of the security is organized under the laws of a jurisdiction outside the United States, then such security must
have listed options on a recognized market in the United States or be eligible for listed-options trading on a recognized options
market in the United States, as measured annually during the ranking review process;
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the issuer of the security may not have entered into a definitive agreement or other arrangement that would likely result in
the security no longer being eligible;
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the security must have an adjusted market capitalization equal to or exceeding 0.10% of the aggregate adjusted market capitalization
of the NASDAQ 100® Index at each month-end. In the event that a company does not meet this criterion for two consecutive month-ends,
it will be removed from the NASDAQ 100® Index effective after the close of trading on the third Friday of the following month;
and
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the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn.
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These eligibility criteria may be revised from time to time by
NASDAQ OMX without regard to the notes.
Annual Ranking Review
The component securities are evaluated on
an annual basis (the “Ranking Review”), except under extraordinary circumstances, which may result in an interim evaluation,
as follows. Securities that meet the applicable eligibility criteria are ranked by market value. Eligible securities that are already
in the NASDAQ 100® Index and that are ranked in the top 100 eligible securities (based on market capitalization) are retained
in the NASDAQ 100® Index. A security that is ranked 101 to 125 is also retained, provided that such security was ranked in
the top 100 eligible securities as of the previous Ranking Review or was added to the NASDAQ 100® Index subsequent to the previous
Ranking Review. Securities not meeting such criteria are replaced. The replacement securities chosen are those eligible securities
not currently in the NASDAQ 100® Index that have the largest market capitalization. The data used in the ranking includes end
of October market data and is updated for total shares outstanding submitted in a publicly filed SEC document via EDGAR through
the end of November.
Replacements are made effective after the
close of trading on the third Friday in December. Moreover, if at any time during the year other than the Ranking Review, a component
security is determined by NASDAQ OMX to become ineligible for continued inclusion in the NASDAQ 100® Index, the security will
be replaced with the largest market capitalization security meeting the eligibility criteria listed above and not currently included
in the NASDAQ 100® Index.
Index Maintenance
In addition to the Ranking Review, the securities
in the NASDAQ 100® Index are monitored every day by NASDAQ OMX with respect to changes in total shares outstanding arising
from corporate events, such as stock dividends, stock splits and certain spin-offs and rights issuances. NASDAQ OMX has adopted
the following quarterly scheduled weight adjustment procedures with respect to those changes. If the change in total shares outstanding
arising from a corporate action is greater than or equal to 10%, that change will be made to the NASDAQ 100® Index as soon
as practical, normally within ten days of such corporate action. Otherwise, if the change in total shares outstanding is less than
10%, then all such changes are accumulated and made effective at one time on a quarterly basis after the close of trading on the
third Friday in each of March, June, September and December.
In either case, the share weights for those
component securities are adjusted by the same percentage amount by which the total shares outstanding have changed in those securities.
Ordinarily, whenever there is a change in the share weights, a change in a component security, or a change to the price of a component
security due to spin-off, rights issuances or special cash dividends, NASDAQ OMX adjusts the divisor to ensure that there is no
discontinuity in the level of the NASDAQ 100® Index that might otherwise be caused by any of those changes. All changes will
be announced in advance.
Index Rebalancing
Under the methodology employed, on a quarterly
basis coinciding with NASDAQ OMX’s quarterly scheduled weight adjustment procedures, the component securities are categorized
as either “Large Stocks” or “Small Stocks” depending on whether their current percentage weights (after
taking into account scheduled weight adjustments due to stock repurchases, secondary offerings or other corporate actions) are
greater than, or less than or equal to, the average percentage weight in the NASDAQ 100® Index (i.e., as a 100-stock index,
the average percentage weight in the NASDAQ 100® Index is 1%).
This quarterly examination will result in
an index rebalancing if it is determined that: (1) the current weight of the single largest market capitalization component security
is greater than 24% or (2) the “collective weight” of those component securities, the individual current weights of
which are in excess of 4.5%, when added together, exceed 48%. In addition, NASDAQ OMX may conduct a special rebalancing at any
time if it is determined to be necessary to maintain the integrity of the NASDAQ 100® Index.
If either one or both of these weight distribution
requirements are met upon quarterly review, or NASDAQ OMX determines that a special rebalancing is required, a weight rebalancing
will be performed. First, relating to weight distribution requirement (1) above, if the current weight of the single largest component
security exceeds 24%, then the weights of all Large Stocks will be scaled down proportionately towards 1% by enough of an amount
for the adjusted weight of the single largest component security to be set to 20%. Second, relating to weight distribution requirement
(2) above, for those component securities whose individual current weights or adjusted weights in accordance with the preceding
step are in excess of 4.5%, if their “collective weight” exceeds 48%, then the weights of all Large Stocks will be
scaled down proportionately towards 1% by just enough amount for the “collective weight,” so adjusted, to be set to
40%.
The aggregate weight reduction among the
Large Stocks resulting from either or both of the above rescalings will then be redistributed to the Small Stocks in the following
iterative manner. In the first iteration, the weight of the largest Small Stock will be scaled upwards by a factor which sets it
equal to the average Index weight of 1.0%. The weights of each of the smaller remaining Small Stocks will be scaled up by the same
factor, reduced in relation to each stock’s relative ranking among the Small Stocks, such that the smaller the component
security in the ranking, the less the scale-up of its weight. This is intended to reduce the market impact of the weight rebalancing
on the smallest component securities in the NASDAQ 100® Index.
In the second iteration, the weight of the
second largest Small Stock, already adjusted in the first iteration, will be scaled upwards by a factor which sets it equal to
the average index weight of 1%. The weights of each of the smaller remaining Small Stocks will be scaled up by this same factor,
reduced in relation to each stock’s relative ranking among the Small Stocks, such that, once again, the smaller the component
stock in the ranking, the less the scale-up of its weight.
Additional iterations will be performed until
the accumulated increase in weight among the Small Stocks exactly equals the aggregate weight reduction among the Large Stocks
from rebalancing in accordance with weight distribution requirement (1) and/or weight distribution requirement (2).
Then, to complete the rebalancing procedure,
once the final percent weights of each of the component securities are set, the share weights will be determined anew based upon
the last sale prices and aggregate capitalization of the NASDAQ 100® Index at the close of trading on the last day in February,
May, August and November. Changes to the share weights will be made effective after the close of trading on the third Friday in
March, June, September and December, and an adjustment to the divisor will be made to ensure continuity of the NASDAQ 100®
Index.
Ordinarily, new rebalanced weights will be
determined by applying the above procedures to the current share weights. However, NASDAQ OMX may from time to time determine rebalanced
weights, if necessary, by instead applying the above procedure to the actual current market capitalization of the component securities.
In those instances, NASDAQ OMX would announce the different basis for rebalancing prior to its implementation.
License Agreement
The notes are not sponsored, endorsed, sold
or promoted by Nasdaq, Inc. or its affiliates (NASDAQ, with its affiliates, are referred to as the “Corporations”).
The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures
relating to, the notes. The Corporations make no representation or warranty, express or implied to the owners of the notes or any
member of the public regarding the advisability of investing in securities generally or in the notes particularly, or the ability
of the NASDAQ 100® Index to track general stock market performance. The Corporations' only relationship to the Issuer (“Licensee”)
is in the licensing of the Nasdaq®, the NASDAQ 100® Index, and certain trade names of the Corporations and the use of the
NASDAQ 100® Index which is determined, composed and calculated by NASDAQ without regard to Licensee or the notes. NASDAQ has
no obligation to take the needs of the Licensee or the owners of the notes into consideration in determining, composing or calculating
the NASDAQ 100®Index. The Corporations are not responsible for and have no participated in the determination of the timing
of, prices at, or quantities of the notes to be issued or in the determination or calculation of the equation by which the notes
is to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of
the notes.
THE CORPORATIONS DO NOT GUARANTEE THE
ACCURACY AND/OR UNINTERRUPTED CALCULATION OF NASDAQ 100® Index OR ANY DATA INCLUDED THEREIN, THE CORPORATIONS MAKE NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE NASDAQ 100® Index OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ 100® Index OR ANY DATA
INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS
OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.