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 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 and 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 leverage 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 and 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 your notes did not contain a leverage component. Accordingly, as a result of this leverage component
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 leverage component will magnify any losses at maturity, call or upon
redemption.
As discussed below under “—The
Index has limited actual historical information,” due to the small number of Index constituents, changes in the performance
of just one Index constituent can have a material effect on the Index level. Giving effect to leverage, negative changes in the
performance of one Index constituent will be magnified and have a material adverse effect on the value of the notes.
The notes are subject to our credit risk.
The notes are subject to our credit risk,
and our credit ratings and credit spreads may adversely affect the market value of the notes. The notes are senior unsecured debt
obligations of the issuer, Bank of Montreal, and are not, either directly or indirectly, an obligation of any third party. Investors
are dependent on our ability to pay all amounts due on the notes at maturity, call or upon early redemption or on any other relevant
payment dates, and therefore investors are subject to our credit risk and to changes in the market’s view of our creditworthiness.
If we were to default on our payment obligations, you may not receive any amounts owed to you under the notes and you could lose
your entire investment.
Our credit ratings are an assessment of our
ability to pay our obligations, including those on the notes. Consequently, actual or anticipated changes in our credit ratings
may affect the market value of the notes. However, because the return on the notes is dependent upon certain factors in addition
to our ability to pay our obligations on the notes, an improvement in our credit ratings will not reduce the other investment risks
related to the notes. Therefore, an improvement in our credit ratings may or may not have a positive effect on the market value
of the notes.
The notes will be subject to risks, including non-payment in
full, under Canadian Bank Resolution Powers.
Under Canadian bank resolution powers, the
Canada Deposit Insurance Corporation (“CDIC”) may, in circumstances where we have ceased, or are about to cease, to
be viable, assume temporary control or ownership of us and may be granted broad powers by one or more orders of the Governor in
Council (Canada), each of which we refer to as an “Order,” including the power to sell or dispose of all or a part
of our assets, and the power to carry out or cause us to carry out a transaction or a series of transactions the purpose of which
is to restructure our business. As part of the Canadian bank resolution powers, certain provisions of, and regulations under, the
Bank Act (Canada) (the “Bank Act”), the CDIC Act and certain other Canadian federal statutes pertaining to banks, which
we refer to collectively as the “bail-in regime,” provide for a bank recapitalization regime for banks designated by the Superintendent of Financial Institutions (Canada)
(the “Superintendent”) as domestic systemically important banks, which include us.
If the CDIC were to take action under the Canadian
bank resolution powers with respect to us, this could result in holders of the notes being subject to losses. As a result, you
should consider the risk that you may lose all of your investment, including the principal amount plus any accrued interest, if
the CDIC were to take action under the Canadian bank resolution powers, and that any remaining outstanding notes may be of little
value at the time of the exercise of these powers and thereafter.
There is no limitation on the type of Order
that may be made where it has been determined that we have ceased, or are about to cease, to be viable. As a result, you may be
exposed to losses through the use of Canadian bank resolution powers.
The notes are not suitable for investors with longer-term investment
objectives.
The notes are not intended to be “buy
and hold” investments. The notes are intended to be daily trading tools for sophisticated investors, and are not intended
to be held to maturity. The notes are designed to achieve their stated investment objective on a daily basis, but their performance
over different periods of time can differ significantly from their stated daily objective because the relationship between the
level of the Index and the closing Indicative Note Value will begin to break down as the length of an investor’s holding
period increases. The notes are not long-term substitutes for long positions in the Index constituents.
Investors should carefully consider whether
the notes are appropriate for their investment portfolio. As discussed below, because the notes are meant to provide leveraged
long exposure to changes in the daily Index Closing Level, their performance over months or years can differ significantly from
the performance of the Index during the same period of time. Therefore, it is possible that you will suffer significant losses
in the notes even if the long-term performance of the Index is positive (before taking into account the negative effect of the
Daily Investor Fee and 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 leveraged long return based on the performance of the Index (as adjusted for costs and fees). 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.
Daily rebalancing is likely 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 a 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 and 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 long investment results. The notes may not be appropriate for investors who intend to hold positions in an attempt
to generate returns over periods different than one day. See “Hypothetical Examples.”
In
addition, the daily rebalancing 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 rebalance their theoretical exposure to the Index on a daily basis (subject to the occurrence of a Market Disruption
Event). Daily rebalancing 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 and 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. 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 immediately preceding Index Business Day.
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 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 Level used to calculate the payment at maturity,
call or upon a redemption may be less than the Index Closing Level on the Maturity Date, Call Settlement Date or at other times
during the term of the notes.
The Index Closing Level on the Maturity Date,
Call Settlement Date or at other times during the term of the notes, including dates near the Final Measurement Period or the Call
Measurement Period, as applicable, could be greater than any of the Index Closing Levels during the Final Measurement Period or
Call Measurement Period, as applicable. This difference could be particularly large if there is a significant increase in the Index
Closing Level after the Final Measurement Period or the Call Measurement Period, as applicable, or if there is a significant decrease
in the Index Closing Level around the Final Measurement Period or the Call Measurement Period, as applicable, or if there is significant
volatility in the Index Closing Levels during the term of the notes.
There are restrictions on the minimum number of notes you may
request that we redeem and the dates on which you may exercise your right to have us redeem your notes.
If you elect to require us to redeem your notes, you must request
that we redeem at least 25,000 notes on any Business Day through and including the Final Redemption Date. If you own fewer than
25,000 notes, you will not be able to elect to require us to redeem your notes. Your request that we redeem your notes is only
valid if we receive your Redemption Notice by email no later than 2:00 p.m., New York City time, on the applicable Redemption
Notice Date and a completed and signed Redemption Confirmation by 5:00 p.m., New York City time, that same day. If we do not receive
such notice and confirmation, your redemption request will not be effective and we will not redeem your notes on the corresponding
Redemption Date.
The daily redemption feature is intended to
induce arbitrageurs to counteract any trading of the notes at a premium or discount to their indicative value. There can be no
assurance that arbitrageurs will employ the redemption feature in this manner.
Because of the timing requirements of the Redemption
Notice and the Redemption Confirmation, settlement of the redemption will be prolonged when compared to a sale and settlement in
the secondary market. Because your request that we redeem your notes is irrevocable, this will subject you to loss if the level
of the Index decreases after we receive your request. Furthermore, our obligation to redeem the notes prior to maturity may be
postponed upon the occurrence of a Market Disruption Event.
If you want to sell your notes but are unable
to satisfy the minimum redemption requirements, you may sell your notes into the secondary market at any time, subject to the risks
described below. A trading market for the notes may not develop. Also, the price you may receive for the notes in the secondary
market may differ from, and may be significantly less than, the Redemption Amount.
You will not know the Redemption Amount at the time you elect
to request that we redeem your notes.
You will not know the Redemption Amount you
will receive at the time you elect to request that we redeem your notes. Your notice to us to redeem your notes is irrevocable
and must be received by us no later than 2:00 p.m., New York City time, on the applicable Redemption Notice Date and a completed
and signed confirmation of such redemption must be received by us no later than 5:00 p.m., New York City time, on the same day.
The Redemption Measurement Date is the Index Business Day following the applicable Redemption Notice Date. You will not know the
Redemption Amount until after the Redemption Measurement Date, and we will pay you the Redemption Amount, if any, on the Redemption
Date, which is the third Business Day following the applicable Redemption Measurement Date. As a result, you will be exposed to
market risk in the event the level of the Index fluctuates after we confirm the validity of your notice of election to exercise
your right to have us redeem your notes, and prior to the relevant Redemption Date.
Market disruptions may adversely affect your return.
The Calculation Agent may, in its sole
discretion, determine that the markets have been affected in a manner that prevents the Calculation Agent from determining the
closing Indicative Note Values during the Final Measurement Period or the Call Measurement Period, or on a Redemption Measurement
Date, and prevents the Calculation Agent from calculating the amount that we are required to pay you, if any. These events may
include disruptions or suspensions of trading in the markets as a whole. If the Calculation Agent, in its sole discretion, determines
that any of these events prevents us or any of our affiliates from properly hedging our obligations under the notes, it is possible
that the determination of the Index Closing Level will be postponed and your return will be adversely affected. Moreover, if the
final Averaging Date (as defined under “Specific Terms of the Notes — Market Disruption Events”) is postponed
to the last possible day and the Index Closing Level is not available on that day if such day is not an Index Business Day, the
Calculation Agent or one of its affiliates will determine the Index Closing Level on such last possible day. See “Specific
Terms of the Notes — Market Disruption Events” for more information. Because the Calculation Agent is our affiliate,
its interests in making a determination of this kind may be adverse to the interests of holders of the notes.
Significant aspects of the tax treatment of the notes are uncertain
and certain aspects may make the notes less suitable for certain non-U.S. investors.
The tax treatment of the notes is uncertain. We do not plan
to request a ruling from the Internal Revenue Service or from any Canadian authorities regarding the tax treatment of the notes,
and the Internal Revenue Service or a court may not agree with the tax treatment described in this pricing supplement.
The Internal Revenue Service
has issued a notice indicating that it and the Treasury Department are actively considering whether, among other issues, a holder
should be required to accrue interest over the term of an instrument such as the notes even though that holder will not receive
any payments with respect to the notes until maturity and whether all or part of the gain a holder may recognize upon sale or maturity
of an instrument such as the notes could be treated as ordinary income. The outcome of this process is uncertain and could apply
on a retroactive basis.
Moreover, certain investors that are not “United States persons” for U.S. income tax purposes
may incur U.S. tax obligations as a result of an investment in the notes.
Please read carefully the section entitled
“Supplemental Tax Considerations” in this pricing supplement. You should consult your tax advisor about your own tax
situation.
Risks Relating to Liquidity and the Secondary
Market
The Intraday Indicative Value and the Indicative
Note Value are not the same as the closing price or any other trading price of the notes in the secondary market.
The Intraday Indicative Value at any point
in time of an Index Business Day will equal (a) the Intraday Long Index Amount minus (b) the Financing Level; provided that if
such calculation results in a value equal to or less than $0, the Intraday Indicative Value will be $0. Because the Intraday Indicative
Value uses an intraday Index level for its calculation, a variation in the intraday level of the Index from the previous Index
Business Day’s Index Closing Level may cause a significant variation between the closing Indicative Note Value and the Intraday
Indicative Value on any date of determination. The Intraday Indicative Value also does not reflect intraday changes in the leverage;
it is based on the constant Daily Leverage Factor of 3. Consequently, the Intraday Indicative Value may vary significantly from
the previous or next Index Business Day’s closing Indicative Note Value or the price of the notes purchased intraday.
The trading price of the notes at any time
is the price at which you may be able to sell your notes in the secondary market at such time, if one exists. The trading price
of the notes at any time may vary significantly from the Intraday Indicative Value of the notes at such time due to, among other
things, imbalances of supply and demand, lack of liquidity, transaction costs, credit considerations and bid-offer spreads, and
any corresponding premium in the trading price may be reduced or eliminated at any time. Paying a premium purchase price over the
Intraday Indicative Value of the notes could lead to significant losses in the event the investor sells such notes at a time when
that premium is no longer present in the market place or the notes are called, in which case investors will receive a cash payment
based on the closing Indicative Note Value of the notes during the Call Measurement Period. See “— There is no assurance
that your notes will continue to be listed on a securities exchange, and they may not have an active trading market” below.
We may, without providing you notice or obtaining your consent, create and issue notes in addition to those offered by this pricing
supplement having the same terms and conditions as the notes. However, we are under no obligation to sell additional notes at any
time, and we may suspend issuance of new notes at any time and for any reason without providing you notice or obtaining your consent.
If we limit, restrict or stop sales of additional notes, or if we subsequently resume sales of such additional notes, the price
and liquidity of the notes could be materially and adversely affected, including an increase or decline in the premium purchase
price of the notes over the Intraday Indicative Value of the notes. Before trading in the secondary market, you should compare
the Intraday Indicative Value with the then-prevailing trading price of the notes.
Publication of the Intraday Indicative Value
may be delayed, particularly if the publication of the intraday Index value is delayed. See “Intraday Value of the Index
and the Notes—Intraday Indicative Note Values.”
There is no assurance that your notes
will continue to be listed on a securities exchange, and they may not have an active trading market.
The notes have been listed on the NYSE
under the ticker symbol “FNGU.” No assurance can be given as to the continued listing of the notes for their term or
of the liquidity or trading market for the notes. There can be no assurance that a secondary market for the notes will be maintained.
We are not required to maintain any listing of the notes on any securities exchange.
If the notes are delisted, they will no
longer trade on a national securities exchange. Trading in delisted notes, if any, would be on an over-the-counter basis. If the
notes are removed from their primary source of liquidity, it is possible that holders may not be able to trade their notes at all.
We cannot predict with certainty what effect, if any, a delisting would have on the trading price of the notes; however, the notes
may trade at a significant discount to their indicative value. If a holder had paid a premium over the Intraday Indicative Value
of the notes and wanted to sell the notes at a time when that premium has declined or is no longer present, the investor may suffer
significant losses and may be unable to sell the notes in the secondary market.
The
notes could be delisted by the NYSE if they cease to satisfy the listing requirements of the exchange, for example, in the event that
there is a material change in the Index that causes the Index to no longer satisfy the NYSE’s listing requirements. See “Specific
Terms of the Notes—Discontinuation of or Adjustments to the Index; Alteration of Method of Calculation.”
Although the title of the notes includes
the words “exchange-traded notes,” we are not obligated to maintain the listing of the notes on the NYSE or any other
exchange. We may elect to discontinue the listing of the notes at any time and for any reason, including in connection with a decision
to discontinue further issuances and sales of the notes. If the notes ceased to be listed on an exchange, the words “exchange-traded
notes” will continue to be included in their title in any event.
The NYSE may halt trading in the notes
or may limit the extent to which trading prices may change within specified time periods, which in either case would adversely
impact your ability to sell the notes.
Trading
in the notes may be halted due to market conditions or, in light of the NYSE’s rules and procedures, for reasons that, in the view
of the NYSE, make trading in the notes inadvisable. General exchange trading is subject to trading halts caused by extraordinary market
volatility. In addition, the notes may be subject to “limit up” and “limit down” rules or trading pause requirements
that are triggered by a significant change in the trading price of the notes within a specified period of time. These “limit up”
and “limit down” and trading pause rules, if triggered, could prevent investors from transacting at the then prevailing Intraday
Indicative Value or at all. If the value of the notes declines precipitously during the trading day, triggering a “limit down”
mechanism or trading pause, you may be unable to sell your notes for some period of time, either because no trading at all is permitted
or because the price that any purchaser would be willing to pay for them at the time may be significantly below the lowest price that
a purchaser would be permitted to pay for them on the NYSE. In that circumstance, by the time you are finally able to sell your notes,
you may have incurred significantly greater losses than you would have incurred had you been able to sell them when you initially wanted
to. Additionally, the ability to short sell notes may be restricted when there is a significant change from the previous day’s
official closing price. The NYSE’s rules relating to these matters are subject to change from time to time.
The liquidity of the market for the
notes may vary materially over time, and may be limited if you do not hold at least 25,000 notes.
As stated on the cover of this pricing
supplement, we sold a portion of the notes on the Initial Trade Date, and the remainder of the notes may be offered and sold from
time to time, through BMOCM, our affiliate, as agent, to investors and dealers acting as principals. Certain affiliates of BMOCM
may engage in limited purchase and resale transactions in the notes, and we or BMOCM may purchase notes from holders in amounts
and at prices that may be agreed from time to time, although none of us are required to do so. Also, the number of notes outstanding
or held by persons other than our affiliates could be reduced at any time due to early redemptions of the notes or due to our or
our affiliates’ purchases of notes in the secondary market. Accordingly, the liquidity of the market for the notes could
vary materially over the term of the notes. There may not be sufficient liquidity to enable you to sell your notes readily and
you may suffer substantial losses and/or sell your notes at prices substantially less than their Intraday Indicative Value or Indicative
Note Value, including being unable to sell them at all or only for a minimal price in the secondary market. You may elect to require
us to redeem your notes, but such redemption is subject to the restrictive conditions and procedures described in this pricing
supplement, including the condition that you must request that we redeem a minimum of 25,000 notes on any Redemption Date.
We may sell additional notes at different
prices, but we are under no obligation to issue or sell additional notes at any time, and if we do sell additional notes, we may
limit or restrict such sales, and we may stop selling additional notes at any time.
In our sole discretion, we may decide to
issue and sell additional notes from time to time at a price that is higher or lower than the stated principal amount, based on
the Indicative Note Value at that time. The price of the notes in any subsequent sale may differ substantially (higher or lower)
from the issue price paid in connection with any other issuance of such notes. Additionally, any notes held by us or an affiliate
in inventory may be resold at prevailing market prices. However, we are under no obligation to issue or sell additional notes at
any time, and if we do sell additional notes, we may limit or restrict such sales, and we may stop selling additional notes at
any time. If we start selling additional notes, we may stop selling additional notes for any reason, which could materially and
adversely affect the price and liquidity of such notes in the secondary market.
Any limitation or suspension on the issuance
or sale of the notes by us or BMOCM may materially and adversely affect the price and liquidity of the notes in the secondary
market. Alternatively, the decrease in supply may cause an imbalance in the market supply and demand, which may cause the notes
to trade at a premium over the indicative value of the notes. Any premium may be reduced or eliminated at any time. Paying a premium
purchase price over the Indicative Note Value could lead to significant losses if you sell those notes at a time when that premium
is no longer present in the marketplace or if the notes are called at our option. If we call the notes prior to maturity, investors
will receive a cash payment in an amount equal to the Call Settlement Amount, which will not include any premium. Investors should
consult their financial advisors before purchasing or selling the notes, especially if they are trading at a premium.
The value of the notes in the secondary
market may be influenced by many unpredictable factors.
The market value of your notes may fluctuate
between the date you purchase them and the relevant date of determination. You may also sustain a significant loss if you sell
your notes in the secondary market. Several factors, many of which are beyond our control, will influence the market value of the
notes. We expect that, generally, the Index level on any day will affect the value of the notes more than any other single factor.
The value of the notes may be affected by a number of other factors that may either offset or magnify each other, including:
| · | 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 |
Hypothetical Price for 3x
Notes
C=$50*(1+3*B) |
Hypothetical Notional
Exposure for 3x Notes
D=$50*(1+B)*3 |
Effective Leverage
Amount of 3x Notes
E=D/C |
120.00 |
20% |
$80.00 |
$180.00 |
2.25 |
115.00 |
15% |
$72.50 |
$172.50 |
2.38 |
110.00 |
10% |
$65.00 |
$165.00 |
2.54 |
105.00 |
5% |
$57.50 |
$157.50 |
2.74 |
104.00 |
4% |
$56.00 |
$156.00 |
2.79 |
103.00 |
3% |
$54.50 |
$154.50 |
2.83 |
102.00 |
2% |
$53.00 |
$153.00 |
2.89 |
101.00 |
1% |
$51.50 |
$151.50 |
2.94 |
100.00 |
0% |
$50.00 |
$150.00 |
3.00 |
99.00 |
-1% |
$48.50 |
$148.50 |
3.06 |
98.00 |
-2% |
$47.00 |
$147.00 |
3.13 |
97.00 |
-3% |
$45.50 |
$145.50 |
3.20 |
96.00 |
-4% |
$44.00 |
$144.00 |
3.27 |
95.00 |
-5% |
$42.50 |
$142.50 |
3.35 |
85.00 |
-15% |
$27.50 |
$127.50 |
4.64 |
80.00 |
-20% |
$20.00 |
$120.00 |
6.00 |
The
table above shows that if the level of the Index increases during the Index Business Day, your effective exposure decreases from three
times leveraged long. For example, if the level of the Index increases by 20%, your effective exposure decreases from 3.00x to 2.25x.
The
table above also shows that if the level of the Index decreases during the Index Business Day, your effective exposure increases from
three times leveraged long. For example, if the level of the Index decreases by 20%, your effective exposure increases from 3.00x to
6.00x.
Risks Relating to Conflicts of Interest
and Hedging
Our offering of the notes does not constitute an expression of
our view about, or a recommendation of, the Index or any of the Index constituents.
You should not take our offering of the notes
as an expression of our views about how the Index or any of the Index constituents will perform in the future or as a recommendation
to invest (directly or indirectly, by taking a long or short position) in the Index or any of the Index constituents, including
through an investment in the notes. As a global financial institution, we and our affiliates may, and often do, have positions
(long, short or both) in the Index or one or more of the Index constituents that conflict with an investment in the notes. See
“— We or our affiliates may have economic interests that are adverse to those of the holders of the notes as a result
of our hedging and other trading activities” below and “Use of Proceeds and Hedging” in this pricing supplement
for some examples of potential conflicting positions we may have. You should undertake an independent determination of whether
an investment in the notes is suitable for you in light of your specific investment objectives, risk tolerance and financial resources.
We are not currently affiliated with any constituent
issuer or the Index Sponsor. However, we or our affiliates may currently or from time to time in the future engage in business
with a constituent issuer or the Index Sponsor. Nevertheless, neither we nor any of our affiliates independently verified the accuracy
or the completeness of any information about the Index Sponsor or any of the constituent issuers disclosed by the Index Sponsor,
the Index Calculation Agent or the constituent issuers.
We or our affiliates may have economic interests that are adverse
to those of the holders of the notes as a result of our hedging and other trading activities.
In anticipation of the sale of the notes, we
expect to hedge our obligations under the notes through certain affiliates or unaffiliated counterparties by taking positions in
instruments the value of which is derived from the Index or one or more Index constituents. We may also adjust our hedge by, among
other things, purchasing or selling instruments the value of which is derived from the Index or one or more Index constituents
at any time and from time to time, and close out or unwind our hedge by selling any of the foregoing at any time and from time
to time. We cannot give you any assurances that our hedging will not negatively affect the level of the Index or the performance
of the notes. See “Use of Proceeds and Hedging” below for additional information about our hedging activities.
These hedging activities may present a conflict
of interest between your interest as a holder of the notes and the interests our affiliates have in executing, maintaining and
adjusting hedge transactions. These hedging activities could also affect the price at which BMOCM is willing to purchase your notes
in the secondary market.
Our hedging counterparties expect to make a
profit. Because hedging our obligations entails risk and may be influenced by market forces beyond our control, this hedging may
result in a profit that is more or less than expected, or it may result in a loss.
It is possible that these hedging or trading
activities could result in substantial returns for us or our affiliates while the value of the notes declines.
Bank of Montreal or its affiliates may also
engage in trading in the Index constituents and other investments relating to the Index constituents, the constituent issuers or
the Index on a regular basis as part of our general broker-dealer and other businesses, for proprietary accounts, for other accounts
under management or to facilitate transactions for customers, including block transactions. Any of these activities could negatively
affect the market price of the Index constituents and the Index level and, therefore negatively affect the market value of the
notes. Bank of Montreal or its affiliates may also issue or underwrite other securities or financial or derivative instruments
with returns linked or related to changes in the performance of any constituent issuers, the Index constituents or the Index. By
introducing competing products into the market place in this manner, Bank of Montreal or its affiliates could adversely affect
the market value of the notes.
We or our affiliates may have economic interests that are adverse
to those of the holders of the notes as a result of our business activities.
We or our affiliates may currently or from
time to time engage in business with the constituent issuers, including extending loans to, or making equity investments in, or
providing advisory services to them, including merger and acquisition advisory services. In the course of this business, we or
our affiliates may acquire non-public information about the constituent issuers, and we will not disclose any such information
to you. Any prospective purchaser of notes should undertake an independent investigation of each constituent issuer as in its judgment
is appropriate to make an informed decision with respect to an investment in the notes.
Additionally, we or one of our affiliates may
serve as issuer, agent or underwriter for additional issuances of other securities or financial instruments with returns linked
or related to changes in the Index level or the Index constituents. To the extent that we or one of our affiliates serves as issuer,
agent or underwriter for such securities or financial instruments, our or their interests with respect to such products may be
adverse to those of the holders of the notes. By introducing competing products into the market place in this manner, we or one
or more of our affiliates could adversely affect the value of the notes.
BMOCM and its affiliates may have published research, expressed
opinions or provided recommendations that are inconsistent with investing in or holding the notes, and may do so in the future.
Any such research, opinions or recommendations could affect the level of the Index and of each of the Index constituents, and therefore
the market value of the notes.
BMOCM and its affiliates publish research from
time to time on financial markets and other matters that may influence the value of the notes, or express opinions or provide recommendations
that are inconsistent with purchasing or holding the notes. BMOCM and its affiliates may have published or may publish research
or other opinions that call into question the investment view implicit in an investment in the notes. Any research, opinions or
recommendations expressed by BMOCM or its affiliates may not be consistent with each other and may be modified from time to time
without notice. Investors should make their own independent investigation of the merits of investing in the notes, the Index, the
constituent issuers and the Index constituents.
We or our affiliates may have economic interests that are adverse
to those of the holders of the notes due to BMOCM’s role as Calculation Agent.
BMOCM, one of our affiliates, will act as the
Calculation Agent. The Calculation Agent will make all determinations relating to the notes, including the Index Closing Level,
the Index Performance Factor, the Indicative Note Value, the Daily Investor Fee, the Long Index Amount, the Financing Level, the
Daily Financing Charge, the Redemption Fee Amount, the Cash Settlement Amount, if any, that we will pay you at maturity, and the
Redemption Amount, if any, that we will pay you upon early redemption, if applicable. The Calculation Agent will also be responsible
for determining whether a Market Disruption Event has occurred, whether the Index has been discontinued and whether there has been
a material change in the Index. In performing these duties, BMOCM may have interests adverse to the interests of the holders of
the notes, which may affect your return on the notes, particularly where BMOCM, as the Calculation Agent, is entitled to exercise
discretion.
Risks Relating to the Index
The Index has limited actual historical information.
The Index was launched on September 26, 2017.
Because the Index is of recent origin and limited actual historical performance data exists with respect to it, your investment
in the notes may involve a greater risk than investing in securities linked to an Index with a more established record of performance.
The historical performance of the Index should
not be taken as an indication of its future performance. While the trading prices of the Index constituents will determine the
Index level, it is impossible to predict whether the Index level will fall or rise. Trading prices of the Index constituents will
be influenced by the complex and interrelated economic, financial, regulatory, geographic, judicial, tax, political and other factors
that can affect the capital markets generally and the equity trading markets on which the Index constituents are traded, and by
various circumstances that can influence the prices of the Index constituents. Due to the small number of Index constituents, the
level of the Index may be materially affected by changes in the level of a small number of Index constituents, or even one Index
constituent.
ICE Data Indices, LLC, as the Index Calculation Agent, may adjust
the Index in a way that may affect its level, and the Index Calculation Agent has no obligation to consider your interests.
ICE Data Indices, LLC, as the Index Calculation
Agent, Index Sponsor and Index Administrator, is responsible for calculating and maintaining the Index. The Index Sponsor can add,
delete or substitute an Index constituent or make other methodological changes that could change the Index level. The Index Sponsor
will determine, for example, which companies have an appropriate business for inclusion in the Index. Changes to the Index constituents
may affect the Index, as a newly added equity security may perform significantly better or worse than the Index constituent or
constituents it replaces. Additionally, the Index Sponsor may alter, discontinue or suspend calculation or dissemination of the
Index. Any of these actions could adversely affect the value of the notes. As Index Calculation Agent, Index Sponsor and Index
Administrator, ICE Data Indices, LLC has no obligation to consider your interests in calculating or revising the Index, and you
will not have any rights against ICE Data Indices, LLC if it takes any such action. See “The Index.”
As discussed above, the Index was launched
recently. The Index Sponsor has indicated that it expects to monitor the composition of the Index over time, including through
discussions and consultations with market participants, in order to determine whether any changes to the Index or its components
are necessary or appropriate. Because the Index currently has only 10 components, any additions to or deletions from the Index
could have a significant impact on future levels of the Index.
We and our affiliates have no affiliation with ICE Data Indices,
LLC and are not responsible for any of their public disclosure of information.
We and our affiliates are not affiliated with
ICE Data Indices, LLC, as the Index Calculation Agent, Index Sponsor and Index Administrator (except for licensing arrangements
discussed under “The Index — License Agreement”) and have no ability to control or predict its actions, including
any errors in or discontinuation of public disclosure regarding methods or policies relating to the calculation of the Index. If
the Index Sponsor discontinues or suspends the calculation of the Index, it may become difficult to determine the market value
of the notes and the payment at maturity, call or upon early redemption. The Calculation Agent may designate a successor index
in its sole discretion. If the Calculation Agent determines in its sole discretion that no successor index comparable to the Index
exists, the payment you receive at maturity, call or upon early redemption will be determined by the Calculation Agent in its sole
discretion. See “Specific Terms of the Notes — Market Disruption Events” and “— Calculation Agent.”
The Index Sponsor is not involved in the offer of the notes in any way and has no obligation to consider your interest as an owner
of the notes in taking any actions that might affect the market value of your notes.
ICE Data Indices, LLC, as the Index Calculation
Agent, Index Sponsor and Index Administrator is not involved in the offering of the notes in any way and it does not have any obligation
of any sort with respect to your notes. We are not affiliated with ICE Data Indices, LLC, as Index Calculation Agent, Index Sponsor
and Index Administrator and it does not have any obligation to take your interests into consideration for any reason, including
when taking any actions that might affect the value of the notes.
We have derived the information about ICE
Data Indices, LLC and the Index from publicly available information, without independent verification. Neither we nor any of our
affiliates have undertaken any independent review of the publicly available information about ICE Data Indices, LLC, as the Index
Calculation Agent, Index Sponsor and Index Administrator or the Index contained in this pricing supplement. You, as an investor
in the notes, should make your own independent investigation into ICE Data Indices, LLC, as the Index Calculation Agent,
Index Sponsor and Index Administrator and the Index.
The Index Calculation Agent may, in its sole discretion, discontinue
the public disclosure of the intraday Index value and the end-of-day closing value of the Index.
The Index Calculation Agent is under no obligation
to continue to calculate the intraday Index value and end-of-day official closing value of the Index, or to calculate similar values
for any successor index. If the Index Calculation Agent discontinues such public disclosure, we may not be able to provide the
Intraday Indicative Values related to the Index or the Intraday Indicative Value of the notes.
The Index lacks diversification and is vulnerable to fluctuations
in the technology, media & communications and consumer discretionary industries.
All of the stocks included in the Index
are issued by companies whose primary lines of business are in the technology, media & communications and consumer discretionary
industries. As a result, the stocks that will determine the performance of the Index and hence, the value of the notes, are concentrated
in these industries and vulnerable to events affecting those industries. Although an investment in the notes will not give holders
any ownership or other direct interests in the Index constituents, the return on an investment in the notes will be subject to
certain risks, including those described below, associated with a direct equity investment in companies in the technology, media
& communications and consumer discretionary industries. Accordingly, by investing in the notes, you will not benefit from the
diversification which could result from an investment linked to companies that operate in multiple sectors. The Index is also subject
to the risk that large-capitalization stocks may underperform other segments of the equity market or the equity market as a whole.
Larger, more established companies may be unable to respond quickly to new competitive challenges such as changes in technology
and may not be able to attain the high growth rate of smaller companies, especially during extended periods of economic expansion.
The Index currently includes constituents in
the following categories:
| · | Information Technology Sector Risk. The information technology sector includes companies engaged in Internet software
and services, technology hardware and storage peripherals, electronic equipment instruments and components, and semiconductors
and semiconductor equipment. Information technology companies face intense competition, both domestically and internationally,
which may have an adverse effect on profit margins. Information technology companies may have limited product lines, markets, financial
resources or personnel. The products of information technology companies may face rapid product obsolescence due to technological
developments and frequent new product introduction, unpredictable changes in growth rates and competition for the services of qualified
personnel. Failure to introduce new products, develop and maintain a loyal customer base, or achieve general market acceptance
for their products could have a material adverse effect on a company’s business. Companies in the information technology
sector are heavily dependent on intellectual property and the loss of patent, copyright and trademark protections may adversely
affect the profitability of these companies. |
| · | Internet Company Risk. Many Internet-related companies have incurred large losses since their inception and may continue
to incur large losses in the hope of capturing market share and generating future revenues. Accordingly, many such companies expect
to incur significant operating losses for the foreseeable future, and may never be profitable. The markets in which many Internet
companies compete face rapidly evolving industry standards, frequent new service and product announcements, introductions and enhancements,
and changing customer demands. The failure of an Internet company to adapt to such changes could have a material adverse effect
on the company’s business. Additionally, the widespread adoption of new Internet, networking, telecommunications technologies,
or other technological changes, could require substantial expenditures by an Internet company to modify or adapt its services or
infrastructure, which could have a material adverse effect on an Internet company’s business. |
| · | Semiconductor Company Risk. Competitive pressures may have a significant effect on the financial condition of semiconductor
companies and, as product cycles shorten and manufacturing capacity increases, these companies may become increasingly subject
to aggressive pricing, which hampers profitability. Reduced demand for end-user products, under-utilization of manufacturing capacity,
and other factors could adversely impact the operating results of companies in the semiconductor sector. Semiconductor companies
typically face high capital costs and may be heavily dependent on intellectual property rights. The semiconductor sector is highly
cyclical, which may cause the operating results of many semiconductor companies to vary significantly. The stock prices of companies
in the semiconductor sector have been and likely will continue to be extremely volatile. |
| · | Software Industry Risk. The software industry can be significantly affected by intense competition, aggressive pricing,
technological innovations, and product obsolescence. Companies in the software industry are subject to significant competitive
pressures, such as aggressive pricing, new market entrants, competition for market share, short product cycles due to an accelerated
rate of technological developments and the potential for limited earnings and/or falling profit margins. These companies also face
the risks that new services, equipment or technologies will not be accepted by consumers and businesses or will become rapidly
obsolete. These factors can affect the profitability of these companies and, as a result, the value of their securities. Also,
patent protection is integral to the success of many companies in this industry, and profitability can be affected materially by,
among other things, the cost of obtaining (or failing to obtain) patent approvals, the cost of litigating patent infringement and
the loss of patent protection for products (which significantly increases pricing pressures and can materially reduce profitability
with respect to such products). In addition, many software companies have limited operating histories. Prices of these companies’
securities historically have been more volatile than other securities, especially over the short term. |
| · | Internet Information Provider Company Risk. Internet information provider companies provide Internet navigation services
and reference guide information and publish, provide or present proprietary advertising and/or third party content. These companies
often derive a large portion of their revenues from advertising, and a reduction in spending by or loss of advertisers could seriously
harm their business. This business is rapidly evolving and intensely competitive, and is subject to changing technologies, shifting
user needs, and frequent introductions of new products and services. The research and development of new, technologically advanced
products is a complex and uncertain process requiring high levels of innovation and investment, as well as the accurate anticipation
of technology, market trends and consumer needs. The number of people who access the Internet is increasing dramatically and a
failure to attract and retain a substantial number of these users to a company’s products and services or to develop products
and technologies that are more compatible with alternative devices, could adversely affect operating results. Concerns regarding
a company’s products, services or processes that may compromise the privacy of users or other privacy related matters, even
if unfounded, could damage a company’s reputation and adversely affect operating results. |
| · | Catalog and Mail Order House Company Risk. Catalog and mail order house companies may be exposed to significant inventory
risks that may adversely affect operating results due to, among other factors: seasonality, new product launches, rapid changes
in product cycles and pricing, defective merchandise, changes in consumer demand and consumer spending patterns, or changes in
consumer tastes with respect to products. Demand for products can change significantly between the time inventory or components
are ordered and the date of sale. The acquisition of certain types of inventory or components may require significant lead-time
and prepayment and they may not be returnable. Failure to adequately predict customer demand or otherwise optimize and operate
distribution centers could result in excess or insufficient inventory or distribution capacity, result in increased costs, impairment
charges, or both. The business of catalog and mail order house companies can be highly seasonal and failure to stock or restock
popular products in sufficient amounts during high demand periods could significantly affect revenue and future growth. Increased
website traffic during peak periods could cause system interruptions which may reduce the volume of goods sold and the attractiveness
of a company’s products and services. |
A limited number of Index constituents may affect the Index Closing
Level, and the Index is not necessarily representative of its focus industry.
Each of the Index constituents represents
10% of the weight of the Index as of each quarterly reconstitution date (based on the 10 Index constituents as of the date of this
pricing supplement). Any reduction in the market price of any of those stocks is likely to have a substantial adverse impact on
the Index Closing Level and the value of the notes. Due to the small number of Index constituents, those Index constituents and
the Index itself may not necessarily follow the price movements of the Index’s target industries. If the Index constituents
decline in value, the Index will also decline in value, even if common stock prices of other companies in these industries generally
increase in value. Giving effect to leverage, negative changes in the performance of one Index constituent will be magnified and
have a material adverse effect on the value of the notes. See “Summary—Path Dependence and Daily Leverage Reset”
above.
An Index constituent may be replaced upon the occurrence of certain
adverse events.
An exchange may delist an Index constituent.
Procedures have been established by the Index Sponsor to address such an event. Because there are only 10 Index constituents as
of the date of this pricing supplement, there can be no assurance that the replacement or delisting of the Index constituents,
or any other force majeure event, will not have an adverse or distortive effect on the Index level or the manner in which it is
calculated and, therefore, may have any adverse impact on the value of the notes. An Index constituent may also be removed from
the Index, as described under “The Index — Index Maintenance.”
The Index uses a proprietary selection methodology, which may
not select the constituent issuers in the same manner as would other index providers or market participants.
Using a proprietary methodology discussed below,
the Index seeks to identify constituent issuers that exhibit characteristics of high-growth technology and Internet/media stocks.
When selecting future constituent issuers, the Index Sponsor will focus on distinguishing between traditional technology
and service companies and newer, innovative, technology-utilizing companies. There can be no assurances that the proprietary methodology
used to identify constituent issuers eligible for inclusion in the Index will be successful. The Index Sponsor’s methodology,
to some extent, involves subjective judgments, and there can be no assurance that any or all constituent issuers included in the
Index would be selected by other market participants using a similar selection process. See “The Index—Index Constituent
Selection.”
We are not currently affiliated with any of the constituent issuers.
We are not currently affiliated with any of
the constituent issuers. As a result, we have no ability, nor expect to have the ability in the future, to control the actions
of such constituent issuers, including actions that could affect the value of the Index constituents or the value of your notes,
and we are not responsible for any disclosure made by any other company. None of the money you pay us will go to any of the constituent
issuers represented in the Index and none of the constituent issuers will be involved in the offering of the notes in any way.
The constituent issuers will not have any obligation to consider your interests as a holder of the notes in taking any corporate
actions that might affect the value of your notes.
In the event we become affiliated with any
of the constituent issuers, we will have no obligation to consider your interests as a holder of the notes in taking any action
with respect to such constituent issuer that might affect the value of your notes.
HYPOTHETICAL
EXAMPLES
Hypothetical Payment at Maturity
The following examples and table illustrate
how the notes would perform at maturity in hypothetical circumstances, and 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 a 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.
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.
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, 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.
These examples and table 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 and
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 note, 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.
Example 1: The Index level alternatively increases then decreases
by a constant 3.00% per day.
Assumptions |
|
Fee Rate |
0.95% per annum |
Daily Leverage Factor |
3 |
Daily Financing Factor |
2 |
Daily Financing Rate |
1.00% |
Hypothetical Principal Amount |
$50.00 |
Initial Index Level |
100 |
Note Return |
-8.72% |
Cumulative Index Return |
-0.99% |
Day |
Index
Level |
Daily Index
Performance |
Index
Performance
Factor |
Daily
Investor
Fee |
Fee
Accrual |
Daily
Financing
Charge |
Long Index
Amount |
Financing
Level |
Indicative
Note Value |
Note
Return |
A |
B |
C |
D |
E |
F |
G |
H |
I |
J |
K |
|
Previous
Index
Level*
(1+C) |
|
Current
Index Level
/
Previous
Index Level |
Previous
Indicative
Note
Value *
Fee
Rate/365 |
Total of
E |
Previous
Indicative
Note
Value *
Daily
Financing
Factor *
Daily
Financing
Rate/365 |
Previous
Indicative
Note Value *
Daily
Leverage
Factor * D |
Previous
Indicative
Note
Value *
Daily
Financing
Factor +
E + G |
H - I |
(Current
Indicative
Note Value
-
Previous
Indicative
Note
Value)/
Previous
Indicative
Note Value |
0 |
100.0 |
|
|
|
|
|
$150.00 |
$100.00 |
$50.00 |
|
1 |
103.0 |
3.0% |
1.03 |
$0.0013 |
$0.0013 |
$0.00274 |
$154.50 |
$100.00 |
$54.50 |
8.99% |
2 |
99.9 |
-3.0% |
0.97 |
$0.0014 |
$0.0027 |
$0.00299 |
$158.58 |
$109.00 |
$49.59 |
-9.01% |
3 |
102.9 |
3.0% |
1.03 |
$0.0013 |
$0.0040 |
$0.00272 |
$153.22 |
$99.18 |
$54.05 |
8.99% |
4 |
99.8 |
-3.0% |
0.97 |
$0.0014 |
$0.0054 |
$0.00296 |
$157.27 |
$108.10 |
$49.18 |
-9.01% |
5 |
102.8 |
3.0% |
1.03 |
$0.0013 |
$0.0067 |
$0.00269 |
$151.96 |
$98.36 |
$53.60 |
8.99% |
6 |
99.7 |
-3.0% |
0.97 |
$0.0014 |
$0.0081 |
$0.00294 |
$155.97 |
$107.20 |
$48.77 |
-9.01% |
7 |
102.7 |
3.0% |
1.03 |
$0.0013 |
$0.0094 |
$0.00267 |
$150.70 |
$97.55 |
$53.16 |
8.99% |
8 |
99.6 |
-3.0% |
0.97 |
$0.0014 |
$0.0107 |
$0.00291 |
$154.69 |
$106.32 |
$48.37 |
-9.01% |
9 |
102.6 |
3.0% |
1.03 |
$0.0013 |
$0.0120 |
$0.00265 |
$149.46 |
$96.74 |
$52.72 |
8.99% |
10 |
99.6 |
-3.0% |
0.97 |
$0.0014 |
$0.0134 |
$0.00289 |
$153.41 |
$105.44 |
$47.97 |
-9.01% |
11 |
102.5 |
3.0% |
1.03 |
$0.0012 |
$0.0146 |
$0.00263 |
$148.22 |
$95.94 |
$52.28 |
8.99% |
12 |
99.5 |
-3.0% |
0.97 |
$0.0014 |
$0.0160 |
$0.00286 |
$152.14 |
$104.57 |
$47.57 |
-9.01% |
13 |
102.4 |
3.0% |
1.03 |
$0.0012 |
$0.0172 |
$0.00261 |
$147.00 |
$95.15 |
$51.85 |
8.99% |
14 |
99.4 |
-3.0% |
0.97 |
$0.0013 |
$0.0186 |
$0.00284 |
$150.88 |
$103.70 |
$47.18 |
-9.01% |
15 |
102.4 |
3.0% |
1.03 |
$0.0012 |
$0.0198 |
$0.00259 |
$145.78 |
$94.36 |
$51.42 |
8.99% |
16 |
99.3 |
-3.0% |
0.97 |
$0.0013 |
$0.0211 |
$0.00282 |
$149.64 |
$102.85 |
$46.79 |
-9.01% |
17 |
102.3 |
3.0% |
1.03 |
$0.0012 |
$0.0224 |
$0.00256 |
$144.58 |
$93.58 |
$51.00 |
8.99% |
18 |
99.2 |
-3.0% |
0.97 |
$0.0013 |
$0.0237 |
$0.00279 |
$148.40 |
$102.00 |
$46.40 |
-9.01% |
19 |
102.2 |
3.0% |
1.03 |
$0.0012 |
$0.0249 |
$0.00254 |
$143.38 |
$92.81 |
$50.58 |
8.99% |
20 |
99.1 |
-3.0% |
0.97 |
$0.0013 |
$0.0262 |
$0.00277 |
$147.17 |
$101.15 |
$46.02 |
-9.01% |
21 |
102.1 |
3.0% |
1.03 |
$0.0012 |
$0.0274 |
$0.00252 |
$142.20 |
$92.04 |
$50.16 |
8.99% |
22 |
99.0 |
-3.0% |
0.97 |
$0.0013 |
$0.0287 |
$0.00275 |
$145.96 |
$100.32 |
$45.64 |
-9.01% |
Example 2: The Index level decreases by a constant 3.00% per
day.
Assumptions |
|
Fee Rate |
0.95% per annum |
Daily Leverage Factor |
3 |
Daily Financing Factor |
2 |
Daily Financing Rate |
1.00% |
Hypothetical Principal Amount |
$50.00 |
Initial Index Level |
100 |
Note Return |
-87.47% |
Cumulative Index Return |
-48.83% |
Day |
Index
Level |
Daily Index
Performance |
Index
Performance
Factor |
Daily
Investor
Fee |
Fee
Accrual |
Daily
Financing
Charge |
Long Index
Amount |
Financing
Level |
Indicative
Note
Value |
Note
Return |
A |
B |
C |
D |
E |
F |
G |
H |
I |
J |
K |
|
Previous
Index
Level*
(1+C) |
|
Current
Index Level
/
Previous
Index Level |
Previous
Indicative
Note
Value*
Fee
Rate/365 |
Total of E |
Previous
Indicative
Note Value *
Daily
Financing
Factor *
Daily
Financing
Rate/365 |
Previous
Indicative
Note Value
* Daily
Leverage
Factor * D |
Previous
Indicative
Note
Value*
Daily
Financing
Factor +
E + G |
H - I |
(Current
Indicative
Note Value -
Previous
Indicative
Note Value)/
Previous
Indicative
Note Value |
0 |
100.0 |
|
|
|
|
|
$150.00 |
$100.00 |
$50.00 |
|
1 |
97.0 |
-3.0% |
0.97 |
$0.0013 |
$0.0013 |
$0.00274 |
$145.50 |
$100.00 |
$45.50 |
-9.01% |
2 |
94.1 |
-3.0% |
0.97 |
$0.0012 |
$0.0025 |
$0.00249 |
$132.39 |
$91.00 |
$41.40 |
-9.01% |
3 |
91.3 |
-3.0% |
0.97 |
$0.0011 |
$0.0036 |
$0.00227 |
$120.47 |
$82.80 |
$37.67 |
-9.01% |
4 |
88.5 |
-3.0% |
0.97 |
$0.0010 |
$0.0045 |
$0.00206 |
$109.62 |
$75.34 |
$34.28 |
-9.01% |
5 |
85.9 |
-3.0% |
0.97 |
$0.0009 |
$0.0054 |
$0.00188 |
$99.74 |
$68.55 |
$31.19 |
-9.01% |
6 |
83.3 |
-3.0% |
0.97 |
$0.0008 |
$0.0062 |
$0.00171 |
$90.76 |
$62.38 |
$28.38 |
-9.01% |
7 |
80.8 |
-3.0% |
0.97 |
$0.0007 |
$0.0070 |
$0.00155 |
$82.58 |
$56.76 |
$25.82 |
-9.01% |
8 |
78.4 |
-3.0% |
0.97 |
$0.0007 |
$0.0077 |
$0.00141 |
$75.14 |
$51.65 |
$23.50 |
-9.01% |
9 |
76.0 |
-3.0% |
0.97 |
$0.0006 |
$0.0083 |
$0.00129 |
$68.37 |
$46.99 |
$21.38 |
-9.01% |
10 |
73.7 |
-3.0% |
0.97 |
$0.0006 |
$0.0088 |
$0.00117 |
$62.21 |
$42.76 |
$19.45 |
-9.01% |
11 |
71.5 |
-3.0% |
0.97 |
$0.0005 |
$0.0093 |
$0.00107 |
$56.61 |
$38.91 |
$17.70 |
-9.01% |
12 |
69.4 |
-3.0% |
0.97 |
$0.0005 |
$0.0098 |
$0.00097 |
$51.51 |
$35.40 |
$16.11 |
-9.01% |
13 |
67.3 |
-3.0% |
0.97 |
$0.0004 |
$0.0102 |
$0.00088 |
$46.87 |
$32.21 |
$14.66 |
-9.01% |
14 |
65.3 |
-3.0% |
0.97 |
$0.0004 |
$0.0106 |
$0.00080 |
$42.65 |
$29.31 |
$13.34 |
-9.01% |
15 |
63.3 |
-3.0% |
0.97 |
$0.0003 |
$0.0109 |
$0.00073 |
$38.81 |
$26.67 |
$12.13 |
-9.01% |
16 |
61.4 |
-3.0% |
0.97 |
$0.0003 |
$0.0113 |
$0.00066 |
$35.31 |
$24.27 |
$11.04 |
-9.01% |
17 |
59.6 |
-3.0% |
0.97 |
$0.0003 |
$0.0115 |
$0.00060 |
$32.13 |
$22.08 |
$10.05 |
-9.01% |
18 |
57.8 |
-3.0% |
0.97 |
$0.0003 |
$0.0118 |
$0.00055 |
$29.24 |
$20.09 |
$9.14 |
-9.01% |
19 |
56.1 |
-3.0% |
0.97 |
$0.0002 |
$0.0120 |
$0.00050 |
$26.60 |
$18.28 |
$8.32 |
-9.01% |
20 |
54.4 |
-3.0% |
0.97 |
$0.0002 |
$0.0123 |
$0.00046 |
$24.21 |
$16.64 |
$7.57 |
-9.01% |
21 |
52.7 |
-3.0% |
0.97 |
$0.0002 |
$0.0125 |
$0.00041 |
$22.03 |
$15.14 |
$6.89 |
-9.01% |
22 |
51.2 |
-3.0% |
0.97 |
$0.0002 |
$0.0126 |
$0.00038 |
$20.04 |
$13.77 |
$6.27 |
-9.01% |
Example 3: The Index level increases by a constant 1.00% per
day.
Assumptions |
|
Fee Rate |
0.95% per annum |
Daily Leverage Factor |
3 |
Daily Financing Factor |
2 |
Daily Financing Rate |
1.00% |
Hypothetical Principal Amount |
$50.00 |
Initial Index Level |
100 |
Note Return |
91.28% |
Cumulative Index Return |
24.47% |
Day |
Index
Level |
Daily Index
Performance |
Index
Performance
Factor |
Daily
Investor
Fee |
Fee
Accrual |
Daily
Financing
Charge |
Long
Index
Amount |
Financing
Level |
Indicative
Note Value |
Note
Return |
A |
B |
C |
D |
E |
F |
G |
H |
I |
J |
K |
|
Previous
Index
Level*
(1+C) |
|
Current
Index Level
/
Previous
Index Level |
Previous
Indicative
Note
Value*
Fee
Rate/365 |
Total of E |
Previous
Indicative
Note
Value *
Daily
Financing
Factor *
Daily
Financing
Rate/365 |
Previous
Indicative
Note
Value *
Daily
Leverage
Factor * D |
Previous
Indicative
Note Value
*
Daily
Financing
Factor +
E + G |
H - I |
(Current
Indicative
Note Value
-
Previous
Indicative
Note
Value)/
Previous
Indicative
Note Value |
0 |
100.0 |
|
|
|
|
|
$150.00 |
$100.00 |
$50.00 |
|
1 |
101.0 |
1.0% |
1.01 |
$0.0013 |
$0.0013 |
$0.00274 |
$151.50 |
$100.00 |
$51.50 |
2.99% |
2 |
102.0 |
1.0% |
1.01 |
$0.0013 |
$0.0026 |
$0.00282 |
$156.03 |
$103.00 |
$53.04 |
2.99% |
3 |
103.0 |
1.0% |
1.01 |
$0.0014 |
$0.0040 |
$0.00291 |
$160.70 |
$106.08 |
$54.62 |
2.99% |
4 |
104.1 |
1.0% |
1.01 |
$0.0014 |
$0.0054 |
$0.00299 |
$165.51 |
$109.25 |
$56.26 |
2.99% |
5 |
105.1 |
1.0% |
1.01 |
$0.0015 |
$0.0069 |
$0.00308 |
$170.46 |
$112.52 |
$57.94 |
2.99% |
6 |
106.2 |
1.0% |
1.01 |
$0.0015 |
$0.0084 |
$0.00317 |
$175.56 |
$115.89 |
$59.67 |
2.99% |
7 |
107.2 |
1.0% |
1.01 |
$0.0016 |
$0.0100 |
$0.00327 |
$180.81 |
$119.35 |
$61.46 |
2.99% |
8 |
108.3 |
1.0% |
1.01 |
$0.0016 |
$0.0116 |
$0.00337 |
$186.22 |
$122.92 |
$63.30 |
2.99% |
9 |
109.4 |
1.0% |
1.01 |
$0.0016 |
$0.0132 |
$0.00347 |
$191.80 |
$126.60 |
$65.19 |
2.99% |
10 |
110.5 |
1.0% |
1.01 |
$0.0017 |
$0.0149 |
$0.00357 |
$197.53 |
$130.39 |
$67.14 |
2.99% |
11 |
111.6 |
1.0% |
1.01 |
$0.0017 |
$0.0167 |
$0.00368 |
$203.44 |
$134.29 |
$69.15 |
2.99% |
12 |
112.7 |
1.0% |
1.01 |
$0.0018 |
$0.0185 |
$0.00379 |
$209.53 |
$138.31 |
$71.22 |
2.99% |
13 |
113.8 |
1.0% |
1.01 |
$0.0019 |
$0.0203 |
$0.00390 |
$215.80 |
$142.45 |
$73.35 |
2.99% |
14 |
114.9 |
1.0% |
1.01 |
$0.0019 |
$0.0222 |
$0.00402 |
$222.26 |
$146.71 |
$75.55 |
2.99% |
15 |
116.1 |
1.0% |
1.01 |
$0.0020 |
$0.0242 |
$0.00414 |
$228.91 |
$151.10 |
$77.81 |
2.99% |
16 |
117.3 |
1.0% |
1.01 |
$0.0020 |
$0.0262 |
$0.00426 |
$235.75 |
$155.62 |
$80.13 |
2.99% |
17 |
118.4 |
1.0% |
1.01 |
$0.0021 |
$0.0283 |
$0.00439 |
$242.81 |
$160.28 |
$82.53 |
2.99% |
18 |
119.6 |
1.0% |
1.01 |
$0.0021 |
$0.0304 |
$0.00452 |
$250.07 |
$165.07 |
$85.00 |
2.99% |
19 |
120.8 |
1.0% |
1.01 |
$0.0022 |
$0.0327 |
$0.00466 |
$257.55 |
$170.01 |
$87.54 |
2.99% |
20 |
122.0 |
1.0% |
1.01 |
$0.0023 |
$0.0349 |
$0.00480 |
$265.26 |
$175.10 |
$90.16 |
2.99% |
21 |
123.2 |
1.0% |
1.01 |
$0.0023 |
$0.0373 |
$0.00494 |
$273.20 |
$180.34 |
$92.86 |
2.99% |
22 |
124.5 |
1.0% |
1.01 |
$0.0024 |
$0.0397 |
$0.00509 |
$281.37 |
$185.73 |
$95.64 |
2.99% |
Example 4: The Index level increases in a volatile manner.
Assumptions |
|
Investor Fee |
0.95% per annum |
Daily Leverage Factor |
3 |
Daily Financing Factor |
2 |
Daily Financing Rate |
1.00% |
Hypothetical Principal Amount |
$50.00 |
Initial Index Level |
100 |
Note Return |
-19.32% |
Cumulative Index Return |
24.87% |
Year |
Index
Level |
Daily Index
Performance |
Index
Performance
Factor |
Daily
Investor
Fee |
Fee
Accrual |
Daily
Financing
Charge |
Long Index
Amount |
Financing
Level |
Indicative
Note
Value |
Note
Return |
A |
B |
C |
D |
E |
F |
G |
H |
I |
J |
K |
|
Previous
Index
Level*
(1+C) |
|
Current
Index Level
/
Previous
Index Level |
Previous
Indicative
Note
Value* Fee
Rate/365 |
Total of
E |
Previous
Indicative
Note
Value *
Daily
Financing
Factor *
Daily
Financing
Rate/365 |
Previous
Indicative
Note Value *
Daily
Leverage
Factor * D |
Previous
Indicative
Note
Value *
Daily
Financing
Factor +
E + G |
H - I |
(Current
Indicative
Note Value
-
Previous
Indicative
Note
Value)/
Previous
Indicative
Note Value |
0 |
100.0 |
|
|
|
|
|
$150.00 |
$150.00 |
$50.00 |
|
1 |
110.0 |
10.0% |
1.10 |
$0.0013 |
$0.0013 |
$0.00274 |
$165.00 |
$100.00 |
$65.00 |
29.99% |
2 |
112.2 |
2.0% |
1.02 |
$0.0017 |
$0.0030 |
$0.00356 |
$198.89 |
$130.00 |
$68.89 |
5.99% |
3 |
108.8 |
-3.0% |
0.97 |
$0.0018 |
$0.0048 |
$0.00377 |
$200.47 |
$137.79 |
$62.68 |
-9.01% |
4 |
98.0 |
-10.0% |
0.90 |
$0.0016 |
$0.0064 |
$0.00343 |
$169.25 |
$125.37 |
$43.87 |
-30.01% |
5 |
93.1 |
-5.0% |
0.95 |
$0.0011 |
$0.0076 |
$0.00240 |
$125.04 |
$87.75 |
$37.29 |
-15.01% |
6 |
81.9 |
-12.0% |
0.88 |
$0.0010 |
$0.0085 |
$0.00204 |
$98.44 |
$74.58 |
$23.86 |
-36.01% |
7 |
78.6 |
-4.0% |
0.96 |
$0.0006 |
$0.0092 |
$0.00131 |
$68.72 |
$47.73 |
$21.00 |
-12.01% |
8 |
74.7 |
-5.0% |
0.95 |
$0.0005 |
$0.0097 |
$0.00115 |
$59.84 |
$42.00 |
$17.85 |
-15.01% |
9 |
60.5 |
-19.0% |
0.81 |
$0.0005 |
$0.0102 |
$0.00098 |
$43.36 |
$35.69 |
$7.67 |
-57.01% |
10 |
71.4 |
18.0% |
1.18 |
$0.0002 |
$0.0104 |
$0.00042 |
$27.16 |
$15.35 |
$11.81 |
53.99% |
11 |
74.9 |
5.0% |
1.05 |
$0.0003 |
$0.0107 |
$0.00065 |
$37.22 |
$23.63 |
$13.59 |
14.99% |
12 |
69.7 |
-7.0% |
0.93 |
$0.0004 |
$0.0110 |
$0.00074 |
$37.90 |
$27.17 |
$10.73 |
-21.01% |
13 |
58.5 |
-16.0% |
0.84 |
$0.0003 |
$0.0113 |
$0.00059 |
$27.04 |
$21.46 |
$5.58 |
-48.01% |
14 |
53.9 |
-8.0% |
0.92 |
$0.0001 |
$0.0114 |
$0.00031 |
$15.40 |
$11.16 |
$4.24 |
-24.01% |
15 |
56.0 |
4.0% |
1.04 |
$0.0001 |
$0.0116 |
$0.00023 |
$13.23 |
$8.48 |
$4.75 |
11.99% |
16 |
70.0 |
25.0% |
1.25 |
$0.0001 |
$0.0117 |
$0.00026 |
$17.81 |
$9.50 |
$8.31 |
74.99% |
17 |
78.4 |
12.0% |
1.12 |
$0.0002 |
$0.0119 |
$0.00046 |
$27.92 |
$16.62 |
$11.30 |
35.99% |
18 |
86.3 |
10.0% |
1.10 |
$0.0003 |
$0.0122 |
$0.00062 |
$37.29 |
$22.60 |
$14.69 |
29.99% |
19 |
96.6 |
12.0% |
1.12 |
$0.0004 |
$0.0126 |
$0.00080 |
$49.36 |
$29.38 |
$19.98 |
35.99% |
20 |
100.5 |
4.0% |
1.04 |
$0.0005 |
$0.0131 |
$0.00109 |
$62.33 |
$39.95 |
$22.37 |
11.99% |
21 |
109.5 |
9.0% |
1.09 |
$0.0006 |
$0.0137 |
$0.00123 |
$73.16 |
$44.75 |
$28.41 |
26.99% |
22 |
124.9 |
14.0% |
1.14 |
$0.0007 |
$0.0144 |
$0.00156 |
$97.16 |
$56.82 |
$40.34 |
41.99% |
Table 1: Expected return on the notes over one year of Index
performance, without giving effect to the Daily Investor Fee and the Daily Financing Charge and assuming a constant drift and volatility
over time.
|
|
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% |
|
|
Shaded areas represent those scenarios where the Note will outperform
(i.e., return more than) the Index performance times the Daily Leverage Factor; conversely areas not shaded represent those
scenarios where the Note will underperform (i.e., return less than) the Index performance times the Daily Leverage Factor. |
Hypothetical
Examples
We cannot predict the
actual Index level on any Index Business Day 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, Index volatility and any Redemption Fee Amount. Moreover, the assumptions
on which the hypothetical returns are based are purely for illustrative purposes. Consequently, the amount, in cash, to be paid
in respect of your notes, if any, on the Maturity Date, Call Settlement Date or the relevant Redemption Date, as applicable, may
be very different from the information reflected in the tables above.
The hypothetical examples and
table are not indicative of the future performance of the Index on any Index Business Day, the Index Closing Levels during the
Final Measurement Period or Call Measurement Period, or on a Redemption Measurement Date, or what the value of your notes may be.
Fluctuations in the hypothetical examples may be greater or less than fluctuations experienced by the holders of the notes. The
information shown above is for illustrative purposes only and does not represent the actual future performance of the notes.
SPECIFIC TERMS OF THE NOTES
In this section, references to “holders”
mean those who own the notes registered in their own names, on the books that we or the trustee maintains for this purpose, and
not those who own beneficial interests in the notes registered in street name or in the notes issued in book-entry form through
DTC or another depositary. Owners of beneficial interests in the notes should read the section entitled “Description of Debt
Securities We May Offer — Legal Ownership and Book-Entry Issuance” in the accompanying prospectus.
The notes are part of a series of debt securities
entitled “Senior Medium-Term Notes, Series D” that we may issue from time to time under the indenture more particularly
described in the accompanying prospectus supplement. This pricing supplement summarizes specific financial and other terms that
apply to the notes. Terms that apply generally to all Senior Medium-Term Notes, Series D are described in “Description
of the Notes We May Offer” in the accompanying prospectus supplement and “Description of Debt Securities We May Offer”
in the accompanying prospectus. The terms described in this pricing supplement those described in the accompanying prospectus supplement
and prospectus and, if the terms described here are inconsistent with those described there, the terms described here are controlling.
The notes are issued under our senior indenture
dated as of January 25, 2010 between us and Wells Fargo Bank, National Association, as trustee, as amended and supplemented to
date.
Please note that the information about
the price to the public and the net proceeds to us on the front cover of this pricing supplement relates only to the initial sale
of the notes. If you have purchased the notes in a secondary market transaction after the initial sale, information about the price
and date of sale to you will be provided in a separate confirmation of sale.
We or our affiliates may, at any time and from
time to time, purchase outstanding notes in the open market, by private agreement or in other transactions.
Cash Settlement Amount at Maturity
The “Maturity Date” will be
January 8, 2038, which is scheduled to be the third Business Day following the last Index Business Day in the Final
Measurement Period, unless that day is not a Business Day, in which case the Maturity Date will be the following Business
Day, subject to adjustment as described below under “— Market Disruption Events.” The Maturity Date
may be extended at our option for up to two additional five-year periods. We may only extend the scheduled Maturity Date for
five years at a time. If we exercise our option to extend the maturity, we will notify DTC and the trustee at least 45 but
not more than 60 calendar days prior to the then scheduled Maturity Date. We will provide that notice to DTC and the
trustee in respect of each five-year extension of the scheduled Maturity Date.
For each note, unless earlier called or
redeemed, you will receive at maturity a cash payment equal to the arithmetic mean of the closing Indicative Note Values on each
Index Business Day in the Final Measurement Period. We refer to this cash payment as the “Cash Settlement Amount.”
This amount will not be less than $0.
On the Initial Trade Date, the Indicative
Note Value of each note was equal to the principal amount of $50. On any subsequent Exchange Business Day until maturity, call
or redemption of the notes, the closing Indicative Note Value will equal (a) the Long Index Amount on such Exchange Business Day
minus (b) the Financing Level on such Exchange Business Day; provided that if such calculation results in a value equal to or
less than $0, the closing Indicative Note Value will be $0. If the closing Indicative Note Value of the notes is $0 on any Exchange
Business Day or the Intraday Indicative Value at any time during an Exchange Business Day is equal to or less than $0, then the
Indicative Note Value of the notes on all future Exchange Business Days will be $0 and the Cash Settlement Amount will be $0.
On the Initial Trade Date, the Long Index Amount
was equal to the Daily Leverage Factor times the principal amount, which was equal to $150. On any subsequent Exchange Business
Day until maturity, call or redemption of the notes, the Long Index Amount will equal the product of (a) the closing Indicative
Note Value on the immediately preceding Exchange Business Day times (b) the Daily Leverage Factor times (c) the Index
Performance Factor on such Exchange Business Day.
On the Initial Trade Date, the Financing Level
was equal to the Long Index Amount minus the principal amount on the Initial Trade Date, which was equal to $100. On any
subsequent Exchange Business Day until maturity, call or redemption of the notes, the Financing Level will equal (a) the closing
Indicative Note Value on the immediately preceding Exchange Business Day times the Daily Financing Factor plus (b)
the Daily Financing Charge on such Exchange Business Day plus (c) the Daily Investor Fee on such Exchange Business Day.
The Daily Leverage Factor is 3. The Daily Financing
Factor is 2.
On the Initial Trade Date, the Index Performance
Factor was 1. On any subsequent Exchange Business Day until maturity, call or redemption of the notes, the Index Performance Factor
will equal (a) the Index Closing Level on such Exchange Business Day (or, if such day is not an Index Business Day, the Index Closing
Level on the immediately preceding Index Business Day) divided by (b) the Index Closing Level on the immediately preceding
Index Business Day, as determined by the Calculation Agent. If a Market Disruption Event occurs or is continuing on any Index Business
Day, the Calculation Agent will determine the Index Performance Factor for the notes on each such Index Business Day using an appropriate
closing level of the Index for each such Index Business Day taking into account the nature and duration of such Market Disruption
Event. Furthermore, if a Market Disruption Event occurs and is continuing with respect to the notes on any Index Business Day or
occurred or was continuing on the immediately preceding Index Business Day, the calculation of the Index Performance Factor will
be modified so that the applicable leveraged exposure does not reset until the first Index Business Day on which no Market Disruption
Event with respect to the notes is continuing.
Accordingly, if a Market Disruption Event with
respect to the notes occurs or is continuing on any Index Business Day (for purposes of this paragraph, the “date of determination”)
or if a Market Disruption Event with respect to the notes occurred or was continuing on the Index Business Day immediately preceding
the date of determination, then the Index Performance Factor for the notes on the date of determination will equal one plus the
quotient of (a) the difference of (i) the closing level of the Index on the date of determination, minus (ii) the closing level
of the Index on the Index Business Day immediately preceding the date of determination, divided by (b) the difference of (i) the
product of the Daily Leverage Factor and the closing level of the Index on the Index Business Day immediately preceding the date
of determination, minus (ii) the product of the Daily Financing Factor and the closing level of the Index on the Index Business
Day on which no Market Disruption Event occurred or was continuing that most closely precedes the date of determination.
On the Initial Trade Date, the Daily Financing
Charge was $0. On any subsequent Exchange Business Day until maturity, call or redemption of the notes, the Daily Financing Charge
will equal the product of (a) the closing Indicative Note Value on the immediately preceding Exchange Business Day times
(b) the Daily Financing Factor times (c) the Daily Financing Rate divided by (d) 365 times (e) the number
of calendar days since the last Exchange Business Day. Because the Daily Financing Charge is calculated and added to the Financing
Level on a daily basis, the net effect of the Daily Financing Charge accrues over time.
The Daily Financing Rate will equal (a) the
most recent US Federal Funds Effective Rate plus (b) 1.00%. The US Federal Funds Effective Rate is an interest rate that
represents the rate at which U.S. banks may lend reserve balances to other depository institutions overnight, on an uncollateralized
basis. The rate is released by the NY Federal Reserve each day at approximately 9:00 a.m. EST for the prior business day and published
on Bloomberg page “FEDL01 Index”. If the Calculation Agent determines that this rate is no longer published or available,
the Calculation Agent may substitute a successor rate, with any applicable adjustments, as it reasonably determines to be appropriate
under the circumstances.
On the Initial Trade Date, the Daily Investor
Fee was $0. On any subsequent Exchange Business Day until maturity, call or redemption of the notes, the Daily Investor Fee will
equal the product of (a) the Indicative Note Value at the close of the immediately preceding Exchange Business Day times
(b) the Fee Rate divided by (c) 365 times (d) the number of calendar days since the last Exchange Business Day. Because
the Daily Investor Fee is calculated as part of the Financing Level through which it is subtracted from the closing Indicative
Note Value on a daily basis, the net effect of the Daily Investor Fee accumulates over time and is subtracted at a rate per year
equal to the Fee Rate. Because the net effect of the Daily Investor Fee is a fixed percentage of the value of the note, the aggregate
effect of the Daily Investor Fee will increase or decrease in a manner directly proportional to the value of the note and the amount
of notes that are held.
The Fee Rate is 0.95% per annum.
The “principal amount” of each note was $50 as of
the original issue date. After giving effect to a 10-for-1 split, effective as of February 12, 2021, the principal amount per note
became $5.
You may lose some or all of your investment
at maturity. Because the Daily Investor Fee and the Daily Financing Charge reduce your final payment, the level of the Index will
need to have increased sufficiently over the term of the notes in an amount, after giving effect to the daily leverage and the
compounding effect thereof, sufficient to offset the decrease in principal amount represented by the Daily Investor Fee and the
Daily Financing Charge in order for you to receive an aggregate amount over the term of the notes equal to at least the principal
amount of your notes. Due to leverage, the notes are very sensitive to changes in the level of the Index and the path of such
changes. If the increase in the level of the Index, measured as a component of the closing Indicative
Note Value during the Final Measurement Period, is insufficient to offset the cumulative negative effect of the Daily Investor
Fee and the Daily Financing Charge, you will lose some or all of your investment at maturity. This loss may occur even if the
Index Closing Level at any time during the Final Measurement Period is greater than the Index Closing Level on the Initial Trade
Date. It is possible that you will suffer significant losses in the notes even if the long-term performance of the Index is
flat or positive (before taking into account the negative effect of the Daily Investor Fee and the Daily Financing Charge, and
the Redemption Fee Amount, if applicable). In addition, if the closing Indicative Note Value or the Intraday Indicative
Value of the notes is equal to or less than $0, then the notes will be permanently worth $0 and the Cash Settlement Amount will
be $0 (a total loss of value).
The “Initial Index Level” is 2,466.45,
which was the Index Closing Level for the Index on the Initial Trade Date.
The “Final Measurement Period”
means the five Index Business Days from and including the Calculation Date, subject to adjustment as described under “—
Market Disruption Events.”
The “Index Calculation Agent” means
the entity that calculates and publishes the level of the Index, which is currently ICE Data Indices, LLC.
The “Calculation Date” means December
29, 2037, unless such day is not an Index Business Day, in which case the Calculation Date will be the next Index Business Day,
subject to adjustments.
“Index Business Day” means any
day on which the Index Sponsor publishes the Index Closing Level.
“Primary Exchange” means, with
respect to each Index constituent or each component underlying a successor index, the primary exchange or market of trading such
Index constituent or such component underlying a successor index.
“Related Exchange” means, with
respect to each Index constituent or each component underlying a successor index, each exchange or quotation system where trading
has a material effect (as determined by the Calculation Agent) on the overall market for futures or options contracts relating
to such Index constituent or such component underlying a successor index.
“Exchange Business Day” means any
day on which the primary exchange or market for trading of the notes is scheduled to be open for trading.
“Business Day” means a Monday, Tuesday,
Wednesday, Thursday or Friday that is neither a legal holiday nor a day on which banking institutions are authorized or obligated
by law or executive order to close in New York City or Toronto.
Early Redemption at the Option of the Holders
Subject to your compliance with the procedures
described below, you may submit a request on any Business Day to elect to require us to redeem your notes (subject to a minimum
redemption amount of at least 25,000 notes) between and including the Redemption Dates specified below. If you so elect and have
done so in compliance with the redemption procedures described below, and subject to the postponements and adjustments described
under “— Market Disruption Events,” you will receive payment for the redeemed notes on the applicable Redemption
Date. You must comply with the redemption procedures described below in order to redeem your notes. For any applicable redemption
request, the “Redemption Notice Date” will be the date that the applicable Redemption Notice and Redemption Confirmation
(each as defined below) are delivered. If such Redemption Notice or Redemption Confirmation is delivered on a day that is not an
Index Business Day, then the Redemption Notice Date will be the next Index Business Day. To satisfy the minimum redemption amount,
your broker or other financial intermediary may bundle your notes for redemption with those of other investors to reach this minimum
amount of 25,000 notes; however, there can be no assurance that they can or will do so. We may from time to time in our sole discretion
reduce this minimum redemption amount. Any such reduction will be applied on a consistent basis for all holders of the notes at
the time the reduction becomes effective.
The notes will be redeemed and the holders
will receive payment for their notes on the third Business Day following the applicable Redemption Measurement Date (the “Redemption
Date”). The first Redemption Date was January 26, 2018, and the final Redemption Date will be the
last scheduled Index Business Day prior to the Calculation Date or Call Calculation Date, as applicable. If a Market Disruption
Event is continuing or occurs on the applicable scheduled Redemption Measurement Date with respect to any of the Index constituents,
such Redemption Measurement Date may be postponed as described under “— Market Disruption Events.”
The applicable “Redemption Measurement
Date” means the Index Business Day following the applicable Redemption Notice Date, subject to adjustments as described under
“— Market Disruption Events.”
If you exercise your right to have us redeem
your notes, subject to your compliance with the procedures described under “— Redemption Procedures,” you will
receive for each note a cash payment on the relevant Redemption Date equal to the Indicative Note Value as of the Redemption
Measurement Date, minus the Redemption Fee Amount.
The “Redemption Fee Amount” equals
0.125% of the Indicative Note Value.
We refer to this cash payment as the “Redemption
Amount.” This amount will not be less than $0.
For purposes of determining the Redemption
Amount, the Index Performance Factor used in calculating the closing Indicative Note Value as of the Redemption Measurement Date
will be (a) the Index Closing Level on the Redemption Measurement Date divided by (b) the Index Closing Level on the immediately
preceding Index Business Day, as determined by the Calculation Agent.
We will inform you of such Redemption Amount
on the first Business Day following the applicable Redemption Measurement Date.
You may lose some or all of your investment
upon early redemption. Because the cumulative negative effect of the Daily Investor Fee, the Daily Financing Charge and the Redemption
Fee Amount reduce your final payment, the level of the Index will need to have increased over the term of the notes by an amount,
after giving effect to the daily leverage and the compounding effect thereof, sufficient to offset the decrease in principal amount
represented by the Daily Investor Fee, the Daily Financing Charge and the Redemption Fee Amount in order for you to receive an
aggregate amount upon redemption equal to at least the principal amount of your notes. Due to leverage, the notes are very sensitive
to changes in the level of the Index and the path of such changes. If the increase in the level of the Index, as measured on the
Redemption Measurement Date, is insufficient to offset such a cumulative negative effect, you will lose some or all of your investment
upon early redemption. It is possible that you will suffer significant losses in the notes upon redemption even if the long-term
performance of the Index is flat or positive (before taking into account the negative effect of the Daily Investor Fee, the Daily
Financing Charge and the Redemption Fee Amount).
The Redemption Amount is meant to induce arbitrageurs
to counteract any trading of the notes at a premium or discount to their indicative value. However, there can be no assurance that
arbitrageurs will employ the repurchase feature in this manner.
Redemption Procedures
To redeem your notes, you must instruct your
broker or other person through whom you hold your notes to take the following steps through normal clearing system channels:
| Ø | deliver a notice of redemption, which we refer to as a “Redemption Notice,” which is attached to this pricing supplement
as Annex A, to Bank of Montreal or its agent via email no later than 2:00 p.m. (New York City time) on the Index Business Day preceding
the applicable Redemption Measurement Date. If we receive your Redemption Notice by the time specified in the preceding sentence,
we (or our agent) will respond by sending you a form of confirmation of redemption, which is attached to this pricing supplement
as Annex B, for your execution; |
| Ø | deliver the signed confirmation of redemption, which we refer to as the “Redemption Confirmation,” to us via e-mail
in the specified form by 5:00 p.m. (New York City time) on the same day. We or our affiliate must acknowledge receipt in order
for your Redemption Confirmation to be effective; |
| Ø | instruct your DTC custodian to book a delivery vs. payment trade with respect to your notes on the applicable Redemption Measurement
Date at a price equal to the Redemption Amount; and |
| Ø | cause your DTC custodian to deliver the trade as booked for settlement via DTC at or prior to 10:00 a.m. (New York City time)
on the applicable Redemption Date. |
Different brokerage firms may have different
deadlines for accepting instructions from their customers. Accordingly, as a beneficial owner of the notes, you should consult
the brokerage firm through which you own your interest for the relevant deadline. If your broker delivers your notice of redemption
after 2:00 p.m. (New York City time), or your confirmation of redemption after 5:00 p.m. (New York City time), on the Index Business
Day prior to the applicable Redemption Measurement Date, your notice will not be effective, you will not be able to redeem your
notes until the following Redemption Date and your broker will need to complete all the required steps if you wish to redeem your
notes on any subsequent Redemption Date. In addition, Bank of Montreal may request a medallion signature guarantee or such assurances
of delivery as it may deem necessary in its sole discretion. All instructions given to participants from beneficial owners of notes
relating to the right to redeem their notes will be irrevocable. If the notes undergo a split or reverse split, the minimum number
of notes needed to exercise your right to redeem will remain the same.
Call Right
We have the right to redeem all, but not less than all, of the
notes upon not less than 14 calendar days’ prior notice to the holders of the notes. Such redemption will occur on the applicable
Call Settlement Date (as defined above). Upon early redemption in the event we exercise this right, you will receive a cash payment
equal to the arithmetic mean of the closing Indicative Note Values on each Index Business Day in the Call Measurement Period.
We refer to this cash payment as the “Call
Settlement Amount.” This amount will not be less than $0.
We will inform you of such Call Settlement
Amount on the first Business Day following the last Index Business Day in the Call Measurement Period.
The holders will receive payment for their
notes on the fifth Business Day following the last Index Business Day in the Call Measurement Period (the “Call Settlement
Date”). If a Market Disruption Event is continuing or occurs on the scheduled Call Calculation Date with respect to any of
the Index constituents, such Call Calculation Date may be postponed as described under “— Market Disruption Events.”
The “Call Measurement Period” means
the five Index Business Days from and including the Call Calculation Date, subject to adjustments as described under “—
Market Disruption Events.”
If we issue a call notice on any calendar day,
the “Call Calculation Date” will be the next Index Business Day after the call notice is issued.
You may lose some or all of your investment
upon a call. Because the Daily Investor Fee and the Daily Financing Charge reduce your final payment, the level of the Index will
need to have increased over the term of the notes by an amount, after giving effect to the daily leverage and the compounding effect
thereof, sufficient to offset the decrease in the principal amount represented by the Daily Investor Fee and the Daily Financing
Charge in order for you to receive an aggregate amount upon a call equal to at least the principal amount of your notes. Due to
leverage, the notes are very sensitive to changes in the level of the Index and the path of such changes. If the increase in the
level of the Index, measured as a component of the closing Indicative Note Value during the Call
Measurement Period, is insufficient to offset such a cumulative negative effect, you will lose some or all of your investment
upon a call. This loss may occur even if the Index Closing Level at any time during the Call Measurement Period is greater than
the Initial Index Level. It is possible that you will suffer significant losses in the notes upon a call even if the long-term
performance of the Index is flat or positive (before taking into account the negative effect of the Daily Investor Fee and the
Daily Financing Charge).
Calculation Agent
BMOCM will act as the Calculation Agent. The
Calculation Agent will make all determinations relating to the notes, including the Index Performance Factor, the Index Closing
Level on any Index Business Day on which such Index Closing Level is to be determined during the term of the notes, the Indicative
Note Value, the Long Index Amount, the Financing Level, the Daily Financing Charge, the Daily Investor Fee, the Redemption Fee
Amount, the Cash Settlement Amount, if any, that we will pay you at maturity, the Redemption Amount, if any, that we will pay you
upon redemption, if applicable, and the Call Settlement Amount, if any, that we will pay you in the event that we call the notes.
The Calculation Agent will also be responsible for determining whether a Market Disruption Event has occurred, whether the Index
has been discontinued and whether there has been a material change in the Index. All determinations made by the Calculation Agent
will be at the sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all purposes
and binding on you and on us. The holder of the notes will not be entitled to any compensation from us for any loss suffered as
a result of any determinations or calculations made by the Calculation Agent. We may appoint a different Calculation Agent from
time to time after the date of this pricing supplement without your consent and without notifying you.
The Calculation Agent will provide written
notice to the trustee at its New York office, on which notice the trustee may conclusively rely, of the amount to be paid at maturity
or call, or upon early redemption, or on a Coupon Payment Date on or prior to 12:00 p.m., New York City time, on the Business Day
immediately preceding the Maturity Date, any Redemption Date, any Call Settlement Date or any Coupon Payment Date, as applicable.
All dollar amounts related to determination
of the Indicative Note Value, the Long Index Amount, the Financing Level, the Daily Financing Charge, the Daily Investor Fee, the
Redemption Amount and Redemption Fee Amount, if any, per security, the Call Settlement Amount, if any, per security, and the Cash
Settlement Amount, if any, per security, will be rounded to the nearest one-millionth, with five ten-millionths rounded upward
(e.g., .7654545 would be rounded up to .765455); and all dollar amounts paid on the aggregate principal amount of notes per holder
will be rounded to the nearest cent, with one-half cent rounded upward.
Market Disruption Events
If a Market Disruption Event occurs or
is continuing on any day that would otherwise constitute an Index Business Day, as determined by the Calculation Agent, that day
will not be considered an Index Business Day for purposes of determinations with respect to the notes. As a result, the calculation
of the Index Performance Factor will be modified so that the applicable leverage does not reset until the first Index Business
Day on which no Market Disruption Event has occurred or is continuing.
To
the extent a Market Disruption Event has occurred or is continuing on an Averaging Date (as defined below) or on a Redemption Measurement
Date, the closing Indicative Note Value for such Averaging Date or for such Redemption Measurement Date will be determined by the Calculation
Agent or one of its affiliates on the first succeeding Index Business Day on which a Market Disruption Event does not occur or is not
continuing (the “Deferred Averaging Date”) irrespective of whether, pursuant to such determination, the Deferred Averaging
Date would fall on a date originally scheduled to be an Averaging Date. If the postponement described in the preceding sentence results
in the closing Indicative Note Value being calculated on a day originally scheduled to be an Averaging Date, for purposes of determining
the closing Indicative Note Values on the Index Business Days during the Final Measurement Period or Call Measurement Period, or on a
Redemption Measurement Date, the Calculation Agent or one of its affiliates, as the case may be, will apply the closing Indicative Note
Value for such Deferred Averaging Date (i) on the date(s) of the original Market Disruption Event and (ii) such Averaging Date. For example,
if the Final Measurement Period or Call Measurement Period, as applicable, for purposes of calculating the Cash Settlement Amount or
Call Settlement Amount, respectively, is based on the arithmetic mean of the closing Indicative Note Values on June 7, June 8, June 9,
June 10 and June 11, and there is a Market Disruption Event on June 7, but no other Market Disruption Event during the Final Measurement
Period or Call Measurement Period, as applicable, then the closing Indicative Note Value on June 8 will be used twice to calculate the
Cash Settlement Amount or Call Settlement Amount, respectively, and such Cash Settlement Amount or Call Settlement Amount, as applicable,
will be determined based on the arithmetic mean of the closing Indicative Note Values on June 8 , June 8, June 9, June 10 and June 11.
In
no event, however, will any postponement under the two immediately preceding paragraphs result in the final Averaging Date or the Redemption
Measurement Date, as applicable, occurring more than three Index Business Days following the day originally scheduled to be such final
Averaging Date or Redemption Measurement Date. If the third Index Business Day following the date originally scheduled to be the final
Averaging Date, or the Redemption Measurement Date, as applicable, is not an Index Business Day or a Market Disruption Event has occurred
or is continuing on such third Index Business Day, the Calculation Agent or one of its affiliates will determine the Index Closing Level
to be used in the calculation of the closing Indicative Note Value based on its good faith estimate of the Index Closing Level that would
have prevailed on such third Index Business Day but for such Market Disruption Event.
An “Averaging Date” means
each of the Index Business Days during the Final Measurement Period or Call Measurement Period, as applicable, subject to adjustment
as described below.
Any of the following will be a Market Disruption
Event with respect to the Index, in each case as determined by the Calculation Agent in its sole discretion:
| (a) | the suspension, absence or material limitation of trading in a material number of the Index constituents for more than two
hours or during the one-half hour before the close of trading in the applicable Primary Exchange or
Primary Exchanges; |
| (b) | the suspension, absence or material limitation of trading in option or futures contracts relating to the Index or to a material
number of Index constituents on a Related Exchange for more than two hours of trading or during the one-half hour before the close
of trading in that market; |
| (c) | the Index is not published; or |
| (d) | any other event, if the Calculation Agent determines in its sole discretion that the event materially interferes with our ability
or the ability of any of our affiliates to unwind all or a material portion of a hedge with respect to the notes that we or our
affiliates have effected or may effect as described in the section entitled “Use of Proceeds and Hedging.” |
The following events will not be Market Disruption
Events with respect to the Index:
| (a) | a limitation on the hours or numbers of days of trading, but only if the limitation results from an announced change in the
regular business hours of the Primary Exchange or Related Exchange; or |
| (b) | a decision to permanently discontinue trading in the option or futures contracts relating to the Index or any Index constituents. |
For this purpose, an “absence of trading”
in the primary securities market on which option or futures contracts related to the Index or any Index constituents are traded
will not include any time when that market is itself closed for trading under ordinary circumstances.
Notwithstanding the occurrence of one or more
of the events described above, which may, in the Calculation Agent’s discretion, constitute a Market Disruption Event, the
Calculation Agent in its discretion may waive its right to postpone the determination of the Index Closing Level if it determines
that one or more of the above events has not and is not likely to materially impair its ability to determine the Index Closing
Level on any date.
Discontinuance or Modification of the Index
If the Index Sponsor discontinues publication
of the Index and the Index Sponsor or anyone else publishes a substitute index that the Calculation Agent determines is comparable
to the Index, then the Calculation Agent will permanently replace the Index with that substitute index (the “successor index”)
for all purposes, and all provisions described in this pricing supplement as applying to the Index will thereafter apply to the
successor index instead. If the Calculation Agent replaces the Index with a successor index, then the Calculation Agent will determine
the Cash Settlement Amount, Redemption Amount or Call Settlement Amount, as applicable, by reference to the successor index.
If the Calculation Agent determines that the
publication of the Index is discontinued and there is no successor index, the Calculation Agent will determine the level of the
Index and thus the Cash Settlement Amount, Redemption Amount or Call Settlement Amount, as applicable, by a computation methodology
that the Calculation Agent determines will as closely as reasonably possible replicate the Index.
If the Calculation Agent determines that
the Index, the Index constituents or the method of calculating the Index is changed at any time in any respect, including whether
the change is made by the Index Sponsor under its existing policies or following a modification of those policies, is due to the
publication of a successor index, is due to events affecting the Index constituents or is due to any other reason and is not otherwise
reflected in the level of the Index by the Index Sponsor according to the methodology described in this document, then the Calculation
Agent will be permitted (but not required) to make such adjustments in the Index or the method of its calculation as it believes
are appropriate to ensure that the Index Closing Level used to determine the Cash Settlement Amount, Redemption Amount or Call
Settlement Amount, as applicable, is equitable.
A substitution of the Index for a successor
index or a material change in the method of calculating the Index could cause the notes to no longer satisfy the listing requirements
and result in the NYSE delisting the notes. A delisting of the notes would materially and adversely affect the liquidity of the
trading market for the notes.
Events of Default and Acceleration
Under the heading “Description of Debt
Securities We May Offer — Modification and Waiver of the Debt Securities — Events of Default” in the accompanying
prospectus is a description of events of default relating to debt securities including the notes.
Payment upon an Event of Default
In case an event of default with respect to the notes will
have occurred and be continuing, the amount declared due and payable per note upon any acceleration of the notes will be determined
by the Calculation Agent and will be an amount in cash equal to the Redemption Amount, calculated as if the date of acceleration
were the Redemption Measurement Date. For purposes of this calculation, the Redemption Fee Amount will be $0.
If the maturity of the notes is accelerated
because of an event of default as described above, we will, or will cause the Calculation Agent to, provide written notice to the
trustee at its New York office, on which notice the trustee may conclusively rely, and to DTC of the cash amount due with respect
to the notes as promptly as possible and in no event later than two Business Days after the date of acceleration.
Defeasance
The provisions described in the accompanying
prospectus under the heading “Description of Debt Securities We May Offer — Modification and Waiver of the Debt Securities
— Defeasance” are not applicable to the notes.
Manner of Payment and Delivery
Any payment on or delivery of the notes at
maturity or call, or upon early redemption, will be made to accounts designated by you and approved by us, or at the corporate
trust office of the trustee in New York City, but only when the notes are surrendered to the trustee at that office. We also may
make any payment or delivery in accordance with the applicable procedures of the depositary.
Modified Business Day
As described in “Description of the Notes
We May Offer — Payment Mechanics — Payment When Offices Are Closed” in the attached prospectus supplement, any
payment on the notes that would otherwise be due on a day that is not a Business Day may instead be paid on the next day that is
a Business Day, with the same effect as if paid on the original due date, except as described under “— Cash Settlement
Amount at Maturity,” “— Call Right” and “— Early Redemption at the Option of the Holders”
above.
Reissuances or Reopened Issues
We may, at our sole discretion, “reopen” or reissue
the notes. As of May 16, 2022, we will have issued the notes in an aggregate principal amount of $360,000,000 (corresponding to 72,000,000
notes, after giving effect to the split described in this document). We may issue additional notes in amounts that exceed these amounts
at any time, without your consent and without notifying you. The notes do not limit our ability to incur other indebtedness or to issue
other securities. Also, we are not subject to financial or similar restrictions by the terms of the notes. For more information, please
refer to “Description of the Notes We May Offer — General” in the accompanying prospectus supplement and “Description
of Debt Securities We May Offer — General” in the accompanying prospectus.
These further issuances, if any, will
be consolidated to form a single class with the originally issued notes and will have the same CUSIP number and will trade interchangeably
with the notes immediately upon settlement. Any additional issuances will increase the aggregate principal amount of the outstanding
notes of the class, plus the aggregate principal amount of any notes bearing the same CUSIP number that are issued in any future
issuances of notes bearing the same CUSIP number. The price of any additional offering will be determined at the time of pricing
of that offering.
Clearance and Settlement
The DTC participants that hold the notes through DTC on behalf
of investors will follow the settlement practices applicable to equity securities in DTC’s settlement system with respect
to the primary distribution of the notes and secondary market trading between DTC participants.
INTRADAY VALUE OF THE INDEX AND
THE NOTES
Intraday Index Values
Each Index Business Day, the Index Calculation
Agent will calculate and publish the intraday Index value every second during normal trading hours to the ICE Data Global Index
Feed. The intraday Index value is also available on Bloomberg under the ticker symbol “NYFANGT” <INDEX>.
ICE Data Indices, LLC, the Index Calculation
Agent, is not affiliated with Bank of Montreal and does not approve, endorse, review or recommend the Index or the notes. The information
used in the calculation of the intraday Index value will be derived from sources the Index Calculation Agent deems reliable, but
the Index Calculation Agent and its affiliates do not guarantee the correctness or completeness of the intraday Index value or
other information furnished in connection with the notes or the calculation of the Index. The Index Calculation Agent makes no
warranty, express or implied, as to results to be obtained by Bank of Montreal, holders of the notes, or any other person or entity
from the use of the intraday Index value or any data included therein. The Index Calculation Agent makes no express or implied
warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the intraday
Index value or any data included therein. The Index Calculation Agent, its employees, subcontractors, agents, suppliers and vendors
will have no liability or responsibility, contingent or otherwise, for any injury or damages, whether caused by the negligence
of the Index Calculation Agent, its employees, subcontractors, agents, suppliers or vendors or otherwise, arising in connection
with the intraday Index value or the notes, and will not be liable for any lost profits, losses, punitive, incidental or consequential
damages. The Index Calculation Agent will not be responsible for or have any liability for any injuries or damages caused by errors,
inaccuracies, omissions or any other failure in, or delays or interruptions of, the intraday Index value from whatever cause. The
Index Calculation Agent is not responsible for the selection of or use of the Index or the notes, the accuracy and adequacy of
the Index or information used by Bank of Montreal and the resultant output thereof.
The intraday calculation of the level of
the Index will be provided for reference purposes only. Published calculations of the level of the Index from the Index Calculation
Agent may occasionally be subject to delay or postponement. Any such delays or postponements will affect the current level of the
Index and therefore the value of the notes in the secondary market. The intraday Index value published each second will be based
on the intraday prices of the Index constituents.
Intraday Indicative Note Values
An Intraday Indicative Value, which is
our approximation of the value of the notes, is calculated and published by ICE Data Indices, LLC (based in part on information
provided by the Index Calculation Agent) or a successor to the Consolidated Tape and ICE Data Global Index Feed, and will be available
on Bloomberg under the ticker symbol “FNGUIV” every 15 seconds during normal trading hours. The actual trading
price of the notes may vary significantly from their Intraday Indicative Value. In connection with the notes, we use the term
“indicative value” to refer to the value at a given time equal to (a) the Intraday Long Index Amount minus
(b) the Financing Level; provided that if such calculation results in a value equal to or less than $0, then both the Intraday
Indicative Value and the closing Indicative Note Value will be $0. The Intraday Long Index Amount will equal the product of (a)
the closing Indicative Note Value on the immediately preceding Exchange Business Day times (b) the Daily Leverage Factor
times (c) the Intraday Index Performance Factor. The Intraday Index Performance Factor equals (a) the most recently published
Index level divided by (b) the Index Closing Level on the preceding Index Business Day.
If the Intraday Indicative Value of the notes
is equal to or less than $0 at any time on any Exchange Business Day, then both the Intraday Indicative Value and the closing Indicative
Note Value of the notes on that Exchange Business Day, and on all future Exchange Business Days, will be $0 (a total loss of value).
The Intraday Indicative Value is meant to approximate
the value of the notes at a particular time. There are three elements of the formula: the Intraday Long Index Amount, the Financing
Level and the Intraday Index Performance Factor (using, instead of the Index Closing Level for the date of determination, the intraday
Index level at the time of determination), as described immediately above. Because the intraday Index level and the Intraday Long
Index Amount are variable, the Intraday Indicative Value translates the change in the Index level from the previous Exchange Business
Day, as measured at the time of measurement, into an approximation of the expected value of the notes. The Intraday Indicative
Value uses an intraday Index level for its calculation; therefore, a variation in the intraday level of the Index from the previous
Exchange Business Day’s Index Closing Level may cause a significant variation between the closing Indicative Note Value and
the Intraday Indicative Value on any date of determination. The Intraday Indicative Value also does not reflect intraday changes
in the leverage; it is based on the constant Daily Leverage Factor of 3. Consequently, the Intraday Indicative Value may vary significantly
from the previous or next Exchange Business Day’s closing Indicative Note Value or the price of the notes purchased intraday.
See “Risk Factors — The notes are subject to intraday purchase risk” and “— The Indicative Note Value
is reset daily, and the leverage of the notes during any given Exchange Business Day may be greater or less than 3.0.” The
Intraday Indicative Value may be useful as an approximation of what price an investor in the notes would receive if the notes were
to be redeemed or if they matured, each at the time of measurement. The Intraday Indicative Value may be helpful to an investor
in the notes when comparing it against the notes’ trading price on the NYSE and the most recently published level of the
Index.
The Intraday Indicative Value calculation will
be provided for reference purposes only. It is not intended as a price or quotation, or as an offer to solicitation for the purpose,
sale, or termination of your notes, nor will it reflect hedging or other transactional costs, credit considerations, market liquidity
or bid-offer spreads. The levels of the Index provided by the Index Calculation Agent will not necessarily reflect the depth and
liquidity of the Index constituents. For this reason and others, the actual trading price of the notes may be different from their
indicative value. For additional information, please see “Risk Factors — The Intraday Indicative Value and the Indicative
Note Value are not the same as the closing price or any other trading price of the notes in the secondary market” in this
pricing supplement.
The calculation of the Intraday Indicative
Value will not constitute a recommendation or solicitation to conclude a transaction at the level stated, and should not be treated
as giving investment advice.
The publication of the Intraday Indicative
Value of the notes by ICE Data may occasionally be subject to delay or postponement. If the intraday Index value is delayed, then
the Intraday Indicative Value of the notes will also be delayed. The actual trading price of the notes may be different from their
Intraday Indicative Value. The Intraday Indicative Value of the notes is published at least every 15 seconds from 9:30 a.m. to
6:00 p.m., New York City time, will be based on the intraday values of the Index, and may not be equal to the payment at maturity,
call or redemption.
The indicative value calculations will
have been prepared as of a particular date and time and will therefore not reflect subsequent changes in market values or prices
or in any other factors relevant to their determination.
If
you want to sell your notes but are unable to satisfy the minimum redemption requirements, you may sell your notes into the secondary
market at any time, subject to the risks described under “Risk Factors — Risks Relating to Liquidity and the Secondary Market
— There is no assurance that your notes will continue to be listed on a securities exchange, and they may not have an active trading
market” and “— The value of the notes in the secondary market may be influenced by many unpredictable factors.”
Also, the price you may receive for the notes in the secondary market may differ from, and may be significantly less than, the Redemption
Amount.
None of NYSE, ICE Data Indices, LLC, or
their respective affiliates, are affiliated with Bank of Montreal or BMOCM and do not approve, endorse, review or recommend Bank
of Montreal, BMOCM or the notes.
The Intraday Indicative Values of the notes
calculated by ICE Data are derived from sources deemed reliable, but ICE Data, its affiliates and its and their respective suppliers
do not guarantee the correctness or completeness of the notes, their values or other information furnished in connection with the
notes. ICE Data and its affiliates make no warranty, express or implied, as to results to be obtained by BMOCM, Bank of Montreal,
the holders of the notes, or any other person or entity from the use of the notes, or any date or values included therein or in
connection therewith. ICE Data and its affiliates make no express or implied
warranties, and expressly disclaim all warranties of merchantability or fitness for a particular purpose with respect to the notes,
or any data or values included therein or in connection therewith.
Split or Reverse Split of the Notes
We or the Calculation Agent may initiate a
split or reverse split of the notes on any Index Business Day. If we or the Calculation Agent decides to initiate a split or reverse
split, we will issue a notice to holders of the notes and a press release announcing the split or reverse split, specifying the
effective date of the split or reverse split. The Calculation Agent will determine the ratio of such split or reverse split, as
the case may be, using relevant market indicia, and will adjust the terms of the notes accordingly. Any adjustment of the closing
value will be rounded to 8 decimal places.
In the case of a reverse split, we reserve
the right to address odd numbers of notes (commonly referred to as “partials”) in a manner determined by the Calculation
Agent in its sole discretion, acting in good faith. For example, if the notes undergo a 1-for-4 reverse split, holders who own
a number of notes on the relevant record date that is not evenly divisible by 4 will receive the same treatment as all other holders
for the maximum number of notes they hold that is evenly divisible by 4, and we will have the right to compensate holders for their
remaining or “partial” notes in a manner determined by the Calculation Agent in its sole discretion. Our current intention
is to provide holders with a cash payment for their partials in an amount equal to the appropriate percentage of the closing Indicative
Note Value of the notes on a specified Index Business Day following the announcement date.
A split or reverse split of the notes will
not affect the aggregate stated principal amount of notes held by an investor, other than to the extent of any “partial”
notes, but it will affect the number of notes an investor holds, the denominations used for trading purposes on the exchange and
the trading price, and may affect the liquidity, of the notes on the exchange.
THE INDEX
We have derived all information contained
in this pricing supplement regarding the Index, including, without limitation, its make-up,
performance, method of calculation and changes in its constituents, from publicly available sources. Such information reflects
the policies of and is subject to change by ICE Data Indices, LLC (“ICE Data”), which is the Index Sponsor, Index Administrator
and Index Calculation Agent. We have not undertaken any independent review or due diligence of such information. The Index Sponsor
has no obligation to continue to publish, and may discontinue the publication of, the Index. The description of the Index is summarized
from its governing methodology, which is available at https://www.theice.com/publicdocs/data/NYSE_FANGplus_Index_Methodology.pdf.
Neither the methodology nor any other information included on that website is included or incorporated by reference into this pricing
supplement.
Introduction
The Index is an equal-dollar weighted index designed to represent a
segment of the technology, media & communications and consumer discretionary sectors consisting of highly-traded growth stocks of
technology and tech-enabled companies such as Apple Inc., Amazon.com, Inc., Meta Platforms, Inc., Netflix, Inc. and Google (Alphabet Inc.).
The Index currently has 10 Index constituents, which is the minimum number, but it may have more than 10 Index constituents in the future.
The Index was launched on September 26, 2017. As of the date of this pricing supplement, the Index constituents are Alibaba Group Holding
Limited, Amazon.com, Inc., Apple Inc., Baidu, Inc., Google (Alphabet Inc.), Meta Platforms, Inc., Microsoft Corporation, Netflix, Inc.,
Nvidia Corporation and Tesla, Inc.
Index Universe
The Index universe will consist of all
stocks classified as Consumer Discretionary, Media & Communications or Technology by the Index Sponsor that are listed on a
major U.S. stock exchange, such as the NYSE, Nasdaq or NYSE American. American Depositary Receipts and Global Depositary Receipts
are eligible for inclusion in the Index.
Index Constituent Selection
At each quarterly reconstitution, the Index
universe will be screened utilizing a proprietary methodology that references, among other factors, sector classification, revenue
growth and an analysis of the applicable issuer’s business. The following steps will be executed:
| · | Stocks must have a market capitalization (including all share classes
and unlisted shares) of at least $5 billion; |
| · | Stocks must have at least six months of trading history; |
| · | Stocks must have a trailing six month average daily traded value (ADTV
/ turnover) of $50 million on the specific listing line; |
| · | For any securities with multiple share classes, the most liquid share
classis included in the Index based on its trailing six month ADTV; |
| · | Securities are excluded from inclusion in the Index if they are not
representative of the high-growth technology and internet/social media industry. Qualifying companies have significant revenue
exposures to one or more of the areas of search, social networking, autonomous driving, electric vehicles, smartphones, mobile
payments, e-commerce, online games, streaming media, online entertainment, cryptocurrencies and blockchain, big data, artificial
intelligence, machine learning, digital advertising, cloud services and other innovative technologies. |
| · | An Index advisory committee is responsible for the selection of a
minimum of 10 securities from the above-qualifying candidates for inclusion in the Index. The advisory committee’s selections
are subject to the review and approval of a governance committee. |
| · | If a corporate action leads to the removal of a security in between
the quarterly reconstitutions, then the Index advisory committee is responsible for the selection of a replacement security to
be added to the Index at the current Index weight of the security being deleted, subject to review and approval by the governance
committee. Replacements in the Index are announced after the close of trading on the third trading day prior to effectiveness. |
| · | The final list of companies will be equally weighted based upon the
prices and Index market capitalization as of the close of trading on the third Friday of March, June, September, and December.
|
Reconstitutions and Frequency
The general aim of the quarterly reconstitution
of the Index is to ensure that the selection and weightings of the Index constituents continues to reflect as closely as possible
the Index’s objective. The Index Administrator reserves the right to, at any time, change the number of stocks comprising
the Index by adding or deleting one or more stocks, or replacing one or more stocks contained in the Index with one or more substitute
stocks of its choice, if in the Index Administrator’s discretion such addition, deletion or substitution is necessary or
appropriate to maintain the quality and/or character of the Index. Any such action would need to be approved by the Governance
Committee.
Changes to the Index constituents may occur
during a scheduled reconstitution and as a result of the removal of an Index constituent. The quarterly Index reconstitution becomes
effective after the close of the third Friday of March, June, September, and December. The reconstitution announcement will be
made after the close of the second Friday of the month (one week prior). The reference date for all company-specific data and information
utilized in the reconstitution process will be taken from that same day, with exception of the prices utilized to determine the
shares, which will be taken from the third Friday.
Periodical Weighting Adjustment
At quarterly Index reconstitution, the
Index will be reconstituted according to the methodology described above under “—Index Universe” and “—Index
Constituent Selection.”
Index Calculation
The Index is calculated on a gross total
return basis. The formula used for calculating the level of the Index, and any adjustments to the Index divisor, may be found
on theice.com website, in the document entitled NYSE Indices—Guide to Index Mathematics.
Corporate Actions
General. The Index may be adjusted in
order to maintain the continuity of the Index level and the composition. Adjustments take place in reaction to events that occur
with Index constituents in order to mitigate or eliminate the effect of that event on Index performance.
Removal of constituents. Any Index
constituent deleted from the Index as a result of a corporate action such as a merger, acquisition, spin-off, delisting or bankruptcy
will be replaced by a new stock. Thus, the total number of Index constituents in the Index will stay constant. The Governance Committee
would oversee a process to select a replacement stock that reflects the Index’s objective and is in line with the reconstitution
selection criteria as set forth above under “—Index Universe” and “—Index Constituent Selection.”
If an Index constituent is removed and replaced in the Index, the divisor will be adjusted to maintain the Index level.
Mergers and Acquisitions.
| · | Merger or acquisition between Index constituents: In the event a merger
or acquisition occurs between Index constituents, the acquired company is deleted and will be replaced by another company. There
will be no change made to the acquiring company’s weight in the Index. |
| · | Merger or acquisition between an Index constituent and a non-member:
A non-member is defined as a company that is not a current Index constituent. A merger or acquisition between an Index constituent
and one non-member can take two forms: |
| o | The acquiring company is an Index constituent and the acquired company is not. There will be no action taken as to inclusion
in the Index. |
| o | The acquiring company is not an Index constituent, but the acquired company is an Index constituent. The acquired company is
removed from the Index and will be replaced by another company. It is possible, but not necessary, that the replacement company
selected for the Index will be the acquiring company. |
Suspensions and company distress. Immediately
upon an Index constituent filing for bankruptcy, an announcement will be made to remove the stock from the Index effective for
the next business day following the bankruptcy. If the stock is trading on an over-the-counter (OTC) market, the last trade or
price on that market is utilized as the deletion price on that day.
If the stock does not trade on the relevant
exchange between the bankruptcy announcement and the deletion effective date, the stock may be deleted from the Index in that corporate
action with a presumed market value of $0.
Price sources. In the event that
the trading in shares is suspended or halted, the last known price established during regular session trading on the primary exchange
will be used. Depending on the particular situation, the Index Administrator may choose to value the security at a price of $0
for purposes of Index calculation and/or Index corporate actions. This would be applicable for certain extreme cases such as a
company bankruptcy or severe distress when the security is no longer tradeable.
Spin-offs. The closing price of the
Index constituent is adjusted by the value of the spin-off, and the shares of the Index constituent will be adjusted to maintain
its existing weighting in the Index. The divisor will be adjusted to account for any changes in the overall Index market capitalization.
Spun-off companies will not be added into the Index at the time of the event.
Dividends. The Index calculation incorporates
regular cash dividends paid on the Index constituents and reinvests those distributions into the Index at the open of the dividend
ex-date.
Rights issues and other rights.
In the event of a rights issue, the price
is adjusted for the value of the right before the open on the ex-date, and the shares are increased to maintain the Index constituent’s
existing weighting within the Index. The adjustment assumes that the rights issue is fully subscribed. The amount of the price
adjustment is determined from the terms of the rights issue, including the subscription price, and the price of the underlying
security. The Index Administrator will only enact adjustments if the rights represent a positive value, or are in-the-money, or
alternatively, represent or can be converted into a tangible cash value.
Bonus issues, stock splits and reverse stock
splits. For bonus issues, stock splits and reverse stock splits, the number of shares included in the Index will be adjusted
in accordance with the ratio given in the corporate action. Since the event will also incorporate a corresponding price adjustment
and will not change the value of the company included in the Index, the divisor will not be changed because of this.
Changes in number of shares. Changes
in the number of shares outstanding, typically due to share repurchases, tenders, or offerings, will not be reflected in the Index.
Index Governance
ICE Data Indices, LLC (“ICE Data”) is responsible
for the day-to-day management of the Index, including retaining primary responsibility for all aspects of the Index determination
process, including implementing appropriate governance and oversight, as required under the International Organization of Securities
Commission’s Principles for Financial Benchmarks (the “IOSCO Principles”). The Governance Committee is responsible
for helping to ensure ICE Data’s overall compliance with the IOSCO Principles, by performing the Oversight Function which
includes overseeing the Index development, design, issuance and operation of the Index, as well as reviewing the control framework.
ICE Data is also responsible for decisions regarding the interpretation of the Index methodology and the Governance Committee is
responsible for reviewing all rule book modifications and Index constituent changes with respect to the Index to ensure that they
are made objectively, without bias, and in accordance with applicable law and regulation and ICE Data’s policies and procedures.
Consequently, all ICE Data’s and the Governance Committee discussions and decisions are confidential until released to the
public.
Cases not covered in the methodology.
In cases which are not expressly covered in the methodology, operational adjustments will take place along the lines of the
aim of the Index. Operational adjustments may also take place if, in the opinion of the Index Administrator, it is desirable to
do so to maintain a fair and orderly market in derivatives on the Index and/or this is in the best interests of the investors
in products based on the Index and/or the proper functioning of the markets. Any such modifications described in this paragraph
or exercise of judgment will also be governed by any applicable and outstanding policies, procedures and guidelines in place by
ICE Data at such time.
Methodology changes. The Governance
Committee reviews all methodology modifications and Index changes to ensure that they are made objectively, without bias and in
accordance with applicable law and regulation and ICE Data’s policies and procedures. The methodology may be supplemented,
amended in whole or in part, revised or withdrawn at any time. Supplements, amendments, revisions and withdrawals may also lead
to changes in the way the Index is compiled or calculated or affect the Index in another way. Any such modifications described
in this paragraph will also be governed by any applicable and outstanding policies and procedures in place by ICE Data at such
time.
Dissemination
The Index is calculated from 9:30 a.m. until
6:00 p.m. Eastern Time on those days specified as “Index Business Days,” as that term is defined in the Index methodology.
Solely for the purpose of the preceding sentence and not for the purpose of any calculation of the value of the notes, Index Business
Days will be classified as days on which the U.S. Equity Markets (NYSE, Nasdaq, and NYSE American) are open for a full or partial
day of trading.
Exceptional Market Conditions and Corrections
The Index Administrator retains the right
to delay the publication of the opening level of the Index. Furthermore, the Index Administrator retains the right to suspend
the publication of the level of the Index if it believes that circumstances prevent the proper calculation of the Index.
If Index constituent prices are cancelled
or revised, the Index will not be recalculated unless the Index Administrator decides otherwise.
Reasonable efforts are made to ensure the
correctness and validity of data used in real-time Index calculations. Where errors have occurred in the determination or calculation
of the Index closing value, the decision to make a restatement will be assessed on a case by case basis. Such decision will take
account of the significance, impact, age and scale of the error.
Announcements
Changes to the Index methodology are announced
on the ICE Index Platform at indices.theice.com.
As a general rule, the announcement periods
relating to the addition and removal of constituents that are mentioned in this section will be applied. However, emergency actions,
including urgently required corporate action treatments, often resulting from late notices from the relevant company or exchange,
may require the Index Administrator to deviate from the standard timing.
Reconstitution Constituent Changes.
The addition or removal of
constituents typically occurs during the quarterly reconstitutions and are announced after the close of trading on
the second Friday of the reconstitution month. The corresponding new Index shares are announced after the close of trading on
the third Friday of the reconstitution month. The new
Index composition can be accessed on the ICE Index Platform at indices.theice.com. Constituents may also be added to or
removed from the Index as a result of corporate actions as described below.
Corporate Actions.
In case of a corporate action that affects
one or more constituents, the Index Administrator will publish an announcement explaining its treatment in the Index shortly after
the firm details have become available and have been confirmed. When possible, the addition or removal of a constituent is announced
at least three trading days before the effective date of the change. However, depending on the availability of public information,
less advance notice may be given. In the case of mergers and acquisitions, effort are made to remove the company at some reasonable
time ahead of the suspension in trading in the acquired company. There are certain situations and corporate actions that require the
removal of a company that has already ceased trading. In those cases, the company is removed from the Index at its last traded
price, or, at the discretion of the Index Administrator, at a derived price that is intended to represent its post-suspension value.
Once a corporate action has been actioned in the Index, the Index Administrator confirms the changes and final terms (such as the
Index divisor) in a separate announcement.
Methodology changes. Barring exceptional
circumstances, the Index Administrator will announce proposed rule changes to stakeholders prior to them being implemented. Stakeholders
will also be notified of when the changes will take effect.
Reviews; publication of new selection.
The new composition of the Index, including the companies to be a part of the Index and their corresponding new Index weights,
will be announced at least one week prior to the effective date and can be accessed from ICE Data Services at www.theice.com/market-data/indices/equity-indices/products.
Historical Index Information
Any historical upward or downward trend in
value of the Index during any period shown below is not an indication that the value of the Index is more or less likely to increase
or decrease at any time during the term of the notes. The historical Index returns do not give an indication of the future performance
of the Index. We cannot make any assurance that the future performance of the Index will result in holders of the notes receiving
a positive return on their investment.
The graph below shows the historical performance of the Index
from September 26, 2017, its commencement date, through May 13, 2022.
Historical results are not indicative of
future results.
License Agreement
We have entered into a sub-license agreement
with REX Shares, LLC (“REX” or the “Structuring Agent”), which licenses the Index from the Index Sponsor.
The license agreement with the Structuring Agent also provides for the use of certain trade names, trademarks and service marks.
We have also entered into a services agreement with REX to provide certain services related to product design, content generation
and document dissemination.
MicroSectorsTM and REXTM
are registered trademarks of REX. NYSE is a registered trademark of NYSE Group, Inc., an affiliate of ICE Data Indices,
LLC and is used by ICE Data Indices with permission and under a license.
FANG+™ is a trademark of ICE Data
Indices, LLC or its affiliates (“ICE Data”). The trademarks have been licensed for use for certain purposes by Bank
of Montreal. The NYSE® FANG+™ Index is a product of ICE Data, and has been licensed for use by Bank of Montreal.
The notes are not sponsored, endorsed, sold or promoted by REX or any of its affiliates or third party licensors (collectively,
“REX Index Parties”) or by ICE Data or any of its affiliates or third party licensors (collectively, “ICE Data
Index Parties”). REX Index Parties and ICE Data Index Parties make no representation or warranty, express or implied, to
the owners of the notes or any member of the public regarding the advisability of investing in securities generally or in the
notes particularly or the ability of the NYSE® FANG+™ Index to track general market performance. REX Index
Parties and ICE Data Index Parties’ only relationship to Bank of Montreal with respect to the Index is the licensing of
the Index and certain trademarks, service marks and/or trade names of REX Index Parties and ICE Data Index Parties. The NYSE®
FANG+™ Index is determined, composed and calculated by ICE Data Index Parties without regard to Bank of Montreal or
the notes. ICE Data Index Parties have no obligation to take the needs of Bank of Montreal or the owners of notes into consideration
in determining, composing or calculating the NYSE® FANG+™ Index. REX Index Parties and ICE Data Index Parties
are not responsible for and have not participated in the determination of the prices, and amount of the notes or the timing of
the issuance or sale of the notes or in the determination or calculation of the equation by which the notes are to be converted
into cash. REX Index Parties and ICE Data Index Parties have no obligation or liability in connection with the administration,
marketing or trading of the notes. There is no assurance that investment products based on the NYSE® FANG+™
Index will accurately track index performance or provide positive investment returns. Inclusion of a security within an index
is not a recommendation by REX Index Parties or ICE Data Index Parties to buy, sell, or hold such security, nor is it considered
to be investment advice.
REX INDEX PARTIES AND ICE DATA INDEX PARTIES
DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE NYSE® FANG+™ INDEX OR ANY
DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS)
WITH RESPECT THERETO. REX INDEX PARTIES AND ICE DATA INDEX PARTIES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS,
OMISSIONS, OR DELAYS THEREIN. REX INDEX PARTIES AND ICE DATA INDEX PARTIES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY BANK
OF MONTREAL, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NYSE® FANG+™ INDEX OR
WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL REX INDEX PARTIES
OR ICE DATA INDEX PARTIES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT
LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS
BETWEEN ICE DATA INDEX PARTIES AND BANK OF MONTREAL, OTHER THAN THE LICENSORS OF ICE DATA INDEX PARTIES.
U.S. Federal Income Tax Considerations
The following is a general description
of certain material U.S. federal income tax considerations relating to the notes. It does not purport to be a complete analysis
of all U.S. federal income tax considerations relating to the notes. Prospective purchasers of the notes should consult their tax
advisors as to the consequences under the tax laws of the country of which they are resident for tax purposes and the tax laws
of Canada and the U.S. of acquiring, holding and disposing of the notes and receiving payments under the notes. This summary is
based upon the law as in effect on the date of this pricing supplement and is subject to any change in law that may take effect
after such date.
The following section supersedes the discussion
of U.S. federal income taxation in the accompanying prospectus and prospectus supplement in its entirety. This section is based
on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations
under the Code, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on
a retroactive basis.
This summary applies only to holders who
are initial investors and hold their notes as “capital assets” for U.S. federal income tax purposes and are not excluded
from this discussion. This section does not apply to classes of holders subject to special rules, such as partnerships, subchapter
S corporations, other pass-through entities, governments (or instrumentalities or agencies thereof), dealers in securities or currencies,
traders in securities that elect to use a mark-to-market method of accounting for their notes, banks, financial institutions, insurance
companies, tax-exempt organizations, regulated investment companies, real estate investment trusts, persons that hold notes as
part of a straddle or a hedging or conversion transaction, persons liable for alternative minimum tax, persons subject to Section
451(b) of the Code, U.S. expatriates or persons whose functional currency for tax purposes is not the U.S. dollar. In addition,
the discussion below assumes that an investor in the notes will be subject to a significant risk that it will lose a significant
amount of its investment in the notes.
If a partnership holds the notes, the U.S.
federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership.
A partner in a partnership holding the notes should consult its tax advisor with regard to the U.S. federal income tax treatment
of an investment in the notes.
A U.S. holder is a beneficial owner of
a note and that, for U.S. federal income tax purposes, is (i) a citizen or individual resident of the United States, (ii) a domestic
corporation, (iii) an estate whose income is subject to U.S. federal income tax regardless of its source, or (iv) a trust if a
U.S. court can exercise primary supervision over the trust’s administration and one or more “United States persons”
are authorized to control all substantial decisions of the trust. A non-U.S. holder is a beneficial owner of a note that, for U.S.
federal income tax purposes, is a non-resident alien individual, a foreign corporation, or a foreign estate or trust.
Tax Treatment of the Notes
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY
DIRECTLY DISCUSSES HOW THE NOTES SHOULD BE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES. AS A RESULT, THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE NOTES ARE UNCERTAIN. BECAUSE OF THE UNCERTAINTY, HOLDERS SHOULD CONSULT THEIR TAX ADVISORS
IN DETERMINING THE U.S. FEDERAL INCOME TAX AND OTHER TAX CONSEQUENCES OF THEIR INVESTMENT IN THE NOTES, INCLUDING THE APPLICATION
OF STATE, LOCAL OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. FEDERAL OR OTHER TAX LAWS.
We will not attempt to ascertain whether
the issuer of any of the Index constituents would be treated as a “passive foreign investment company” within the meaning
of Section 1297 of the Code or a “United States real property holding corporation” within the meaning of Section 897
of the Code. If the issuer of one or more of such stocks were so treated, certain adverse U.S. federal income tax consequences
could apply. You should refer to any available information filed with the SEC by the issuers of the Index constituents and consult
your tax advisor regarding the possible consequences to you in this regard.
In
the opinion of our counsel, Ashurst LLP, it would generally be reasonable to treat a note with the terms described in this pricing supplement
as a pre-paid cash-settled derivative contract in respect of the Index for U.S. federal income tax purposes, and the terms of the notes
require a holder (in the absence of a change in law or an administrative or judicial ruling to the contrary) to treat the notes for all
tax purposes in accordance with such characterization. If the notes are so treated, a U.S. holder would recognize capital gain or loss
upon the sale, exchange, redemption or settlement of the notes in an amount equal to the difference between the amount a U.S. holder
receives at such time and the U.S. holder’s tax basis in the notes. In general, a U.S. holder’s tax basis in the notes will
be equal to the price the holder paid for the notes. Capital gain recognized by an individual U.S. holder generally is taxed at preferential
rates where the property is held for more than one year and is taxed at ordinary income rates where the property is held for one year
or less. The deductibility of capital losses is subject to limitations. The holding period for notes of a U.S. holder who acquires the
notes upon issuance generally will begin on the date after the issue date (i.e., the settlement date) of the notes. If the notes are
held by the same U.S. holder until maturity, that holder’s holding period will include the Maturity Date.
Alternative Treatments.
Alternative tax treatments of the notes are also possible and the Internal Revenue Service (“IRS”) might assert that a treatment
other than that described above is more appropriate. For example, it would be possible to treat the notes, and the IRS might assert that
the notes should be treated, as a single debt instrument. Such a debt instrument would be subject to the special tax rules governing
contingent payment debt instruments. If the notes are so treated, a U.S. holder would be required to accrue interest currently over the
term of the notes even though that holder will not receive any payments from us prior to maturity. In addition, any gain a U.S. holder
might recognize upon the sale, exchange, redemption or settlement of the notes would be ordinary income and any loss recognized by a
holder at such time would be ordinary loss to the extent of interest that same holder included in income in the current or previous taxable
years in respect of the notes, and thereafter, would be capital loss. Moreover, under such characterization a given note may not be “fungible”
with notes with different issue dates for U.S. federal income tax purposes.
It
is also possible that the IRS could seek to tax the notes by reference to a holder’s deemed ownership of the Index constituents.
In such case, a U.S. holder could be required to recognize amounts of income, gain or loss as if such holder had actually owned interests
in the Index constituents. Under this alternative treatment, a U.S. holder could also be required to currently recognize gain or loss,
at least some of which could be short-term capital gain (and possibly loss), each time the Index rebalances.
The IRS could also assert that a holder should be required to
treat any amounts attributable to the Daily Investor Fee, the Daily Financing Charge and any Redemption Fee Amount as separate investment
expenses. For taxable years beginning after December 31, 2017 and beginning on or before December 31, 2025, the deduction of any such
deemed expenses would not generally be permitted to a holder who is an individual, trust or estate. For taxable years beginning after
December 31, 2025, the deduction of any such deemed expenses would generally be subject to a 2% floor on miscellaneous itemized deductions
applicable to a holder who is an individual, trust or estate. Such amount would correspondingly increase the amount of gain and income
or decrease the amount of loss recognized by a holder with respect to an investment in the notes.
In addition to and
separate from an alternative tax treatment of deemed ownership of the Index constituents, it is possible that a deemed taxable exchange
could occur on one or more of the reconstitution dates or upon any extension by us of the Maturity Date or that the notes could be treated
as a series of derivative contracts, each of which matures on the next reconstitution date. If the notes were properly characterized
in such a manner, a U.S. holder would be treated as disposing of the notes on each reconstitution date or extension, as the case may
be, in return for new notes that mature on the next reconstitution date or on the extended Maturity Date, as the case may be, and a U.S.
holder accordingly could recognize capital gain or loss on each reconstitution date or extension, as the case may be, equal to the difference
between the holder’s tax basis in the notes (which would be adjusted to take into account any prior recognition of gain or loss)
and the fair market value of the notes on such date.
Because of the absence
of authority regarding the appropriate tax characterization of the notes, it is also possible that the IRS could seek to characterize
the notes in a manner that results in other tax consequences that are different from those described above. For example, the IRS could
assert that any gain or loss that a holder may recognize upon the sale, exchange, redemption or settlement of the notes should be treated
as ordinary gain or loss.
The
IRS has released a notice that may affect the taxation of holders of the notes. According to the notice, the IRS and the Treasury Department
are actively considering whether the holder of an instrument such as the notes should be required to accrue ordinary income on a current
basis, and they sought taxpayer comments on the subject. It is not possible to determine what guidance will ultimately be issued, if
any. It is possible, however, that under such guidance, holders of the notes will ultimately be required to accrue income currently and
this could be applied on a retroactive basis. The IRS and the Treasury Department are also considering other relevant issues, including
whether additional gain or loss from such instruments should be treated as ordinary or capital and whether the special “constructive
ownership rules” of Section 1260 of the Code might be applied to such instruments. Further, future legislation, including legislation
based on bills previously introduced in Congress, may tax all derivative instruments on a mark-to-market basis, requiring holders of
such derivative instruments to take into account annually gains and losses on such instruments as ordinary income. The adoption of such
legislation or similar proposals may significantly impact the tax consequences from an investment in the notes, including the timing
and character of income and gain on the notes. Holders should consult their tax advisor as to the tax consequences of possible alternative
characterizations of the notes for U.S. federal income tax purposes and proposals to change the taxation of certain derivative instruments.
We intend to treat the notes for U.S. federal income tax purposes in accordance with the treatment described in this pricing supplement
unless and until such time as the Treasury Department and IRS determine that some other treatment is more appropriate.
Information With
Respect to Foreign Financial Assets. An individual U.S. holder who, during any taxable year, holds any interest in “specified
foreign financial assets” with an aggregate value in excess of $50,000 (and in some circumstances, a higher threshold) may be required
to file an information report with respect to such assets with his or her tax returns. “Specified foreign financial assets”
may include financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are not
held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments
and contracts held for investment that have non-U.S. issuers or counterparties, and (iii) interests in foreign entities. Under these
rules, the notes may be treated as “specified foreign financial assets.” Holders are urged to consult their tax advisors
regarding the application of this reporting requirement to their ownership of the notes.
Additional Medicare
Tax on Unearned Income. Certain U.S. holders will be subject to an additional 3.8% Medicare tax on unearned income. For individual
U.S. holders, the additional Medicare tax applies to the lesser of (i) “net investment income” or (ii) the excess of “modified
adjusted gross income” over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net
investment income” generally equals the taxpayer’s gross investment income reduced by the deductions that are allocable to
such income. Investment income generally includes passive income such as dividends and capital gains. U.S. holders are urged to consult
their own tax advisors regarding the implications of the additional Medicare tax resulting from an investment in the notes.
Non-U.S. Holders
The following discussion
applies to non-U.S. holders of the notes. A non-U.S. holder is a beneficial owner of a note that, for U.S. federal income tax purposes,
is a non-resident alien individual, a foreign corporation, or a foreign estate or trust.
Except as discussed below, a non-U.S. holder will
generally not be subject to U.S. federal income or withholding tax for amounts paid in respect of the notes, provided that (i) the holder
complies with any applicable certification requirements, (ii) the payment is not effectively connected with the conduct by the holder
of a U.S. trade or business, and (iii) if the holder is a non-resident alien individual, such holder is not present in the U.S. for 183
days or more during the taxable year of the sale, exchange, redemption or settlement of the notes. In the case of (ii) above, the holder
generally would be subject to U.S. federal income tax with respect to any income or gain in the same manner as if the holder were a U.S.
holder and, in the case of a holder that is a corporation, the holder may also be subject to a branch profits tax equal to 30% (or such
lower rate provided by an applicable U.S. income tax treaty) of a portion of its earnings and profits for the taxable year that are effectively
connected with its conduct of a trade or business in the U.S., subject to certain adjustments.
Under Section 871(m) of the code, a “dividend
equivalent” payment is treated as a dividend from sources within the U.S. and 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, certain payments (including deemed payments)
on certain equity linked instruments (“ELI’s”), including the notes, that are contingent upon or determined by reference
to actual or estimated U.S. source dividends and that reference an interest in an “underlying security” would be treated as
U.S. source dividends. An “underlying security” 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. Under current IRS guidance, withholding
on “dividend equivalent” payments, if any, will apply to notes that are issued as of the date of this pricing supplement if
such notes are “delta-one” instruments. Based on our determination that the notes are delta-one instruments, non-U.S. holders
will be subject to withholding on dividend equivalent payments, if any, under the notes. We will not pay additional amounts in respect
of any dividend equivalent withholding.
As discussed above, alternative characterizations
of the notes for U.S. federal income tax purposes are possible. Should an alternative characterization, by reason of change or clarification
of the law, by regulation or otherwise, cause payments as to the notes to become subject to withholding tax (including withholding on
“dividend equivalent” payments), we will withhold tax at the applicable statutory rate. The IRS has also indicated that it
is considering whether income in respect of instruments such as the notes should be subject to withholding tax. Prospective investors
should consult their own tax advisors in this regard.
Backup Withholding
and Information Reporting
Holders may be subject
to information reporting. Holders may also be subject to backup withholding on payments in respect of their notes unless they provide
proof of an applicable exemption or a correct taxpayer identification number and otherwise comply with applicable requirements of the
backup withholding rules. Non-U.S. holders will not be subject to backup withholding if they provide a properly completed Form W-8 appropriate
to their circumstances. Amounts withheld under the backup withholding rules are not additional taxes and may be refunded or credited
against U.S. federal income tax liability, provided the required information is furnished to the IRS.
The Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act (“FATCA”)
imposes a 30% U.S. withholding tax on certain U.S. source payments, including interest (and original issue discount), dividends, and other
fixed or determinable annual or periodical gain, profits, and income (“Withholdable Payments”), if paid to a foreign financial
institution (including amounts paid to a foreign financial institution on behalf of a holder), unless such institution enters into an
agreement with the U.S. Treasury Department to collect and provide to the U.S. Treasury Department certain information regarding U.S.
financial account holders, including certain account holders that are foreign entities with U.S. owners, with such institution, or otherwise
complies with the legislation. In addition, the notes may constitute a “financial account” for these purposes and, thus, be
subject to information reporting requirements pursuant to FATCA. FATCA also generally imposes a withholding tax of 30% on Withholdable
Payments made to a non-financial foreign entity unless such entity provides the withholding agent with a certification that it does not
have any substantial U.S. owners or a certification identifying the direct and indirect substantial U.S. owners of the entity. Under certain
circumstances, a holder may be eligible for refunds or credits of such taxes.
The U.S. Treasury
Department has proposed regulations that eliminate the requirement of FATCA withholding on payments of gross proceeds upon the sale or
disposition of financial instruments of a type which can produce U.S. source interest or dividends. The U.S. Treasury Department has indicated
that taxpayers may rely on these proposed regulations pending their finalization, and the discussion above assumes the proposed regulations
will be finalized in their proposed form with retroactive effect. If we determine withholding is appropriate with respect to the notes,
we will withhold tax at the applicable statutory rate, and we will not pay any additional amounts in respect of such withholding. Therefore,
if such withholding applies, any payments on the notes will be significantly less than what you would have overwise received. Depending
on your circumstances, these amounts withheld may be creditable or refundable to you. Foreign financial institutions and non-financial
foreign entities located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject
to different rules. Holders are urged to consult with their own tax advisors regarding the possible implications of FATCA on their investment
in the notes.
EMPLOYEE RETIREMENT INCOME SECURITY
ACT
A
fiduciary of a pension, profit-sharing or other employee benefit plan subject to the Employee Retirement Income Security Act of 1974,
as amended (“ERISA” and, each such plan, an “ERISA Plan”) should consider the fiduciary standards
of ERISA in the context of the ERISA 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 ERISA Plan, and whether the investment would involve a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code (the “Code”).
Section 406 of ERISA and
Section 4975 of the Code prohibit ERISA Plans, individual retirement accounts and Keogh plans subject to Section 4975 of the
Code and entities such as collective investment funds, partnerships or separate accounts whose underlying assets are deemed to include
“plan assets” of such ERISA Plans, accounts or plans (collectively, “Plans”), from engaging in
certain transactions involving “plan assets” with persons who are “parties in interest” under ERISA
or “disqualified persons” under the Code (in either case referred to herein as “parties in interest”)
with respect to such Plans. As a result of our business, we and our current and future affiliates may be parties in interest with respect
to many Plans. Where the Bank of Montreal or our affiliate is or becomes a party in interest with respect to a Plan, the purchase and
holding of the notes by or on behalf of the Plan could be a prohibited transaction under Section 406 of ERISA and/or Section 4975 of
the Code and result in civil penalties or other liabilities under ERISA or an excise tax under Section 4975 of the Code unless such
acquisition and holding is pursuant to and in accordance with applicable statutory, regulatory or administrative relief.
In this regard, Section 408(b)(17) of ERISA and Section 4975(d)(20)
of the Code provide an exemption for the purchase and sale of securities and related lending transactions where neither Bank of
Montreal nor any of its affiliates have or exercise any discretionary authority or control or render any investment advice with
respect to the assets of the Plan involved in the transaction and the Plan pays no more and receives no less than “adequate
consideration” in connection with the transaction (the “Service Provider Exemption”). Moreover, the
United States Department of Labor has issued five prohibited transaction class exemptions, or “PTCEs”, that
may provide exemptive relief if required for direct or indirect prohibited transactions that may arise from the purchase or holding
of the notes. Those exemptions are:
| · | PTCE 84-14, an exemption for certain transactions determined or effected by independent qualified
professional asset managers; |
| · | PTCE 90-1, an exemption for certain transactions involving insurance company pooled separate accounts; |
| · | PTCE 91-38, an exemption for certain transactions involving bank collective investment funds; |
| · | PTCE 95-60, an exemption for transactions involving certain insurance company general accounts; and |
| · | PTCE 96-23, an exemption for plan asset transactions managed by in-house asset managers. |
Accordingly, the notes may not be purchased or held by any Plan
or any person investing “plan assets” of any plan, unless in each case the purchaser or holder is eligible for
exemptive relief under one or more of the PTCEs listed above or under the Service Provider Exemption or there is some other basis
on which the purchase and holding of the notes will not constitute a non-exempt prohibited transaction under Section 406 of ERISA
or Section 4975 of the Code. Each purchaser or holder of the notes or any interest therein will therefore be deemed to have represented
by such purchase and holding that it either (1) is not a Plan and is not purchasing the notes on behalf of or with “plan
assets” of any Plan or (2) its purchase and holding of the notes will not result in a non-exempt prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code.
Certain employee benefit
plans and arrangements including those that are governmental plans (as defined in section 3(32) of ERISA), church plans (as defined
in Section 3(33) of ERISA) and non-U.S. plans (as described in Section 4(b)(4) of ERISA) (collectively, “Non-ERISA Arrangements”)
are not subject to the prohibited transaction rules of Section 406 of ERISA or Section 4975 of the Code, but may be subject to
similar rules under applicable laws or regulations (“Similar Laws”). As such, any purchaser or holder of the
notes or any interest in the notes which is, or is investing the assets of, a non-ERISA arrangement will be deemed to have represented
by its purchase and holding of the notes that such purchase and holding will not violate the provisions of any Similar Laws.
Due to the complexity of these rules and the penalties that
may be imposed upon persons involved in non-exempt prohibited transactions, it is important that fiduciaries or other persons considering
purchasing the notes on behalf of or with “plan assets” of any Plan or non-ERISA arrangement consult with their
counsel regarding the availability of exemptive relief under any of the PTCEs listed above, the Service Provider Exemption or any
other applicable exemption, or the potential consequences of any purchase or holding under Similar Laws, as applicable.
If you are an insurance company
or the fiduciary of a pension plan or an employee benefit plan, and propose to invest in the notes, you should consult your legal
counsel.
None of the Transaction Parties is undertaking to provide impartial investment advice, or to give advice
in a fiduciary capacity, in connection with the acquisition or holding of notes by any Plan or Non-ERISA Arrangement. Each purchaser
and holder of the notes has exclusive responsibility for ensuring that its purchase, holding and subsequent disposition of the
notes do not violate the fiduciary or prohibited transaction rules of ERISA, the Code or any Similar Laws. The sale of notes to
any Plan or Non-ERISA Arrangement is in no respect a representation by Bank of Montreal of any of our affiliates or any other Transaction
Party that such an investment is appropriate for, or meets all applicable legal requirements with respect to investments by, Plans
or Non-ERISA Arrangements generally or any particular Plan or Non-ERISA Arrangement.