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 $977.50
and $1,000 per $1,000 in principal amount.
* Rounded to two decimal places with respect to INDU 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 $964.70 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 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 Dow Jones Industrial Average® (“INDU”)
The INDU is a price-weighted index, which means an underlying
stock’s weight in the INDU is based on its price per share rather than the total market capitalization of the issuer. The
INDU is designed to provide an indication of the composite performance of 30 common stocks of corporations representing a broad
cross-section of U.S. industry. The corporations represented in the INDU tend to be market leaders in their respective industries
and their stocks are typically widely held by individuals and institutional investors.
The INDU is maintained by an Averages Committee comprised
of three representatives of S&P Dow Jones Indices and two representatives of The Wall Street Journal (“WSJ”). The
Averages Committee was created in March 2010, when Dow Jones Indexes became part of CME Group Index Services, LLC, a joint venture
company owned by CME Group Inc. and by Dow Jones & Company. Generally, composition changes occur only after mergers, corporate
acquisitions or other dramatic shifts in a component's core business. When such an event necessitates that one component be replaced,
the entire INDU is reviewed. As a result, when changes are made they typically involve more than one component. While there are
no rules for component selection, a stock typically is added only if the company has an excellent reputation, demonstrates sustained
growth and is of interest to a large number of investors.
Changes in the composition of the INDU are made entirely
by the Averages Committee without consultation with the corporations represented in the INDU, any stock exchange, any official
agency or us. Unlike most other indices, which are reconstituted according to a fixed review schedule, constituents of the INDU
are reviewed on an as-needed basis. Changes to the common stocks included in the INDU tend to be made infrequently, and the underlying
stocks of the INDU may be changed at any time for any reason. The companies currently represented in the INDU are incorporated
and headquartered in the United States and its territories and their stocks are listed on the New York Stock Exchange and Nasdaq.
The INDU initially consisted of 12 common stocks and was
first published in the WSJ in 1896. The INDU was increased to include 20 common stocks in 1916 and to 30 common stocks in 1928.
The number of common stocks in the INDU has remained at 30 since 1928, and, in an effort to maintain continuity, the constituent
corporations represented in the INDU have been changed on a relatively infrequent basis.
Computation of the INDU
The level of the INDU is the sum of the primary exchange
prices of each of the 30 component stocks included in the INDU, divided by a divisor that is designed to provide a meaningful continuity
in the level of the INDU. Because the INDU is price-weighted, stock splits or changes in the component stocks could result in distortions
in the index level. In order to prevent these distortions related to extrinsic factors, the divisor is periodically changed in
accordance with a mathematical formula that reflects adjusted proportions within the INDU. The current divisor of the INDU is published
daily in the WSJ and other publications. In addition, other statistics based on the INDU may be found in a variety of publicly
available sources.
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 INDU, in connection with certain securities, including the notes. The INDU 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 Trademark Holdings LLC, 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 INDU to track general market performance. S&P Dow
Jones Indices’ only relationship to us with respect to the INDU 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 INDU 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 INDU. 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 INDU 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 INDU. 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 INDU 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 INDU 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. “Dow Jones®”, “DJIA®”, “Dow Jones Industrial
Average®” and “The Dow®” are trademarks of Dow Jones Trademark Holdings LLC. The notes are not sponsored,
endorsed, sold or promoted by S&P Dow Jones Indices and S&P Dow Jones Indices makes no representation regarding the advisability
of investing in the notes.
The NASDAQ 100® Index
The NASDAQ 100® Index is a modified market capitalization-weighted
index of 100 of the largest stocks of both U.S. and non-U.S. non-financial companies listed on The NASDAQ Stock Market based on
market capitalization. It does not contain securities of financial companies, including investment companies. The NASDAQ 100®
Index, which includes companies across a variety of major industry groups, was launched on January 31, 1985, with a base index
value of 250.00. On January 1, 1994, the base index value was reset to 125.00. The NASDAQ 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
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is to be converted into cash. The Corporations have no liability in connection with the administration, marketing or trading of
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OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.