Registration Statement No.333-264388
Filed Pursuant to Rule 433
Subject to Completion, dated July 30, 2024
Pricing Supplement to the Prospectus dated May 26, 2022,
the Prospectus Supplement dated May 26, 2022 and the Product Supplement dated September 22, 2022
![](https://www.sec.gov/Archives/edgar/data/927971/000121465924013146/bmologosm.jpg)
US$ [ ]
Senior Medium-Term Notes, Series I
Market Linked Notes due February 05, 2026
Linked to the shares of Invesco S&P 500® Equal Weight ETF and the shares of SPDR® S&P 500® ETF Trust
| · | The notes are designed for investors who are seeking 150.00% leveraged positive return based on the amount
the performance of the shares of Invesco S&P 500® Equal Weight ETF from its Initial Level to its Final Level (as defined below,
the “RSP Return”) exceeds the performance of the shares of SPDR® S&P 500® ETF Trust from its Initial Level to
its Final Level (as defined below, the “SPY Return”). |
| · | If the RSP Return does not exceed the SPY return, investors will receive a cash amount at maturity that
is equal to the principal amount. |
| · | Investing in the notes is not equivalent to a hypothetical direct investment in the Reference Assets. |
| · | The notes do not bear interest. The notes will not be listed on any securities exchange. |
| · | All payments on the notes are subject to the credit risk of Bank of Montreal. |
| · | The notes will be issued in minimum denominations of $1,000 and integral multiples of $1,000. |
| · | The CUSIP number of the notes is 06376BB23. |
| · | Our subsidiary, BMO Capital Markets Corp. (“BMOCM”), is the agent for this offering. See
“Supplemental Plan of Distribution (Conflicts of Interest)” below. |
| · | The notes will not be subject to conversion into our common shares or the common shares of any of our
affiliates under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act (the “CDIC Act”). |
Terms of the Notes:1
Pricing Date: |
July 31, 2024 |
|
Valuation Date: |
February 02, 2026 |
Settlement Date: |
August 05, 2024 |
|
Maturity Date: |
February 05, 2026 |
1Expected. See “Key Terms of the Notes” below
for additional details.
|
Price to Public1 |
Agent’s Commission1 |
Proceeds to Bank of Montreal1 |
Per Note
Total |
100%
[ ] |
0.25%
[ ] |
99.75%
[ ] |
1 The total “Agent’s Commission” and “Proceeds
to Bank of Montreal” to be specified above will reflect the aggregate amounts at the time Bank of Montreal establishes its hedge
positions on or prior to the Pricing Date, which may be variable and fluctuate depending on market conditions at such times. Certain dealers
who purchased the notes for sale to certain fee-based advisory accounts may forego some or all of their selling concessions, fees or commissions.
The public offering price for investors purchasing the notes in these accounts may be between $997.50 and $1,000 per $1,000 in principal
amount. We or one of our affiliates may also pay a referral fee to certain dealers in connection with the distribution of the notes.
Investing in the notes involves risks, including
those described in the “Selected Risk Considerations” section beginning on page P-5 hereof, the “Additional Risk Factors
Relating to the Notes” section beginning on page PS-5 of the product supplement, and the “Risk Factors” section beginning
on page S-1 of the prospectus supplement and on page 8 of the prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these notes or passed upon the accuracy of this document, the product
supplement, the prospectus supplement or the prospectus. Any representation to the contrary is a criminal offense. The notes will be our
unsecured obligations and will not be savings accounts or deposits that are insured by the United States Federal Deposit Insurance Corporation,
the Deposit Insurance Fund, the Canada Deposit Insurance Corporation or any other governmental agency or instrumentality or other entity.
On the date hereof, based on the terms set forth
above, the estimated initial value of the notes is $981.50 per $1,000 in principal amount. The estimated initial value of the notes on
the Pricing Date may differ from this value but will not be less than $940.00 per $1,000 in principal amount. However, as discussed in
more detail below, the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy.
BMO CAPITAL MARKETS
Key Terms of the Notes:
Reference Assets: |
The shares of Invesco S&P 500® Equal Weight ETF (ticker symbol "RSP") and the shares of SPDR® S&P 500® ETF Trust (ticker symbol "SPY"). See "The Reference Assets" below for additional information. |
|
|
Underlying Index: |
With respect to Invesco S&P 500® Equal Weight ETF, the S&P 500® Index and with respect to SPDR® S&P 500® ETF Trust, the S&P 500® Index. |
|
|
Payment at Maturity: |
If the RSP Return is greater than the SPY Return, then the amount that
investors will receive at maturity for each $1,000 in principal amount of the notes will equal:
$1,000 + [$1,000 x (Relative Return x Upside Leverage
Factor)]
If the RSP Return is less than or equal to the SPY Return, then investors
will, for each $1,000 in principal amount of the notes, receive the principal amount of $1,000 and no additional return. |
|
|
Upside Leverage Factor: |
150.00% |
|
|
Relative Return: |
The RSP Return minus the SPY Return |
|
|
RSP Return: |
The Percentage Change of the shares of Invesco S&P 500® Equal Weight ETF. |
|
|
SPY Return: |
The Percentage Change of the shares of SPDR® S&P 500® ETF Trust. |
|
|
Percentage Change: |
With respect to each Reference Asset, the quotient, expressed as a percentage,
of the following formula:
(Final Level - Initial Level)
Initial Level |
|
|
Initial Level:2 |
With respect to each Reference Asset, the closing level of that Reference Asset on the Pricing Date. |
|
|
Final Level: |
With respect to each Reference Asset, the closing level of that Reference Asset on the Valuation Date. |
|
|
Pricing Date:1 |
July 31, 2024 |
|
|
Settlement Date:1 |
August 05, 2024 |
|
|
Valuation Date:1 |
February 02, 2026 |
|
|
Maturity Date:1 |
February 05, 2026 |
|
|
Calculation Agent: |
BMOCM |
|
|
Selling Agent: |
BMOCM |
1 Expected and subject to the occurrence of a market disruption
event, as described in the accompanying product supplement. If we make any change to the expected Pricing Date and Settlement Date, the
Valuation Date and Maturity Date will be changed so that the stated term of the notes remains approximately the same.
2 As determined by the calculation agent and subject to adjustment
in certain circumstances. See “General Terms of the Notes — Anti-dilution Adjustments to a Reference Asset that Is an Equity
Security (Including Any ETF)” and “— Adjustments to a Reference Asset that Is an ETF” in the product supplement
for additional information.
Payoff Example
The following table shows the hypothetical payout
profile of an investment in the notes based on various hypothetical Final Levels (and the corresponding Percentage Changes and Relative
Return) of the Reference Assets, reflecting the 150.00% Upside Leverage Factor. Please see “Examples of the Hypothetical Payment
at Maturity for a $1,000 Investment in the Notes” below for more detailed examples.
Hypothetical Relative Return |
Participation in Percentage Change
|
Hypothetical Return of the
Notes |
20%
10%
|
150% Upside Exposure
|
30%
15% |
0%
-100%
|
No Upside Payment
|
0%
0% |
Additional Terms of the Notes
You should read this document together with the
product supplement dated September 22, 2022, the prospectus supplement dated May 26, 2022 and the prospectus dated May 26, 2022. This
document, together with the documents listed below, contains the terms of the notes and supersedes all other prior or contemporaneous
oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas,
structures for implementation, sample structures, fact sheets, brochures or other educational materials of ours or the agent. You
should carefully consider, among other things, the matters set forth in Additional Risk Factors Relating to the Notes in the product supplement,
as the notes involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting
and other advisers before you invest in the notes.
You may access these documents on the SEC website
at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
Product supplement dated September 22, 2022:
https://www.sec.gov/Archives/edgar/data/927971/000121465922011396/j922220424b2.htm
Prospectus supplement dated May 26, 2022 and prospectus dated
May 26, 2022:
https://www.sec.gov/Archives/edgar/data/0000927971/000119312522160519/d269549d424b5.htm
Our Central Index Key, or CIK, on the SEC website
is 927971. As used in this document, "we", "us" or "our" refers to Bank of Montreal.
We have filed a registration statement (including
a prospectus) with the SEC for the offering to which this document relates. Before you invest, you should read the prospectus in that
registration statement and the other documents that we have filed with the SEC for more complete information about us and this offering.
You may obtain these documents free of charge by visiting the SEC's website at http://www.sec.gov. Alternatively, we will arrange to send
to you the prospectus (as supplemented by the prospectus supplement and product supplement) if you request it by calling our agent toll-free
at 1-877-369-5412.
Selected Risk Considerations
An investment in the notes involves significant
risks. Investing in the notes is not equivalent to investing directly in the Reference Assets. These risks are explained in more detail
in the “Additional Risk Factors Relating to the Notes” section of the product supplement.
Risks Related to the Structure or Features of the Notes
| · | Your return on the notes is based on the relative performance of the Reference Assets. — The notes are linked to the
performance of the Invesco S&P 500® Equal Weight ETF minus the performance of the SPDR® S&P 500® ETF Trust. As a result,
the notes are affected by the relative, not absolute, performance of the Reference Assets. In order to receive a positive return on the
notes, the RSP Return must be greater than the SPY Return, regardless of whether those Percentage Changes are positive or negative. If
the RSP Return is less than or equal to the SPY Return, you will receive only the principal amount of your notes even if both the RSP
Return and the SPY Return are positive or both the RSP Return and the SPY Return are negative. |
| · | The payments on the notes will be determined by reference to each Reference Asset individually, not to a basket, and the payments
on the notes will be based on the relative performance of the Reference Assets. — The notes are not linked to a weighted basket,
in which the risk may be mitigated and diversified among each of the basket components. For example, in the case of notes linked to a
weighted basket, the return would depend on the weighted aggregate performance of the basket components reflected as the basket return.
As a result, a decrease of the level of one basket component could be mitigated by the increase of the level of the other basket components,
as scaled by the weighting of that basket component. However, in the case of the notes, the individual performance of each Reference Asset
will not be combined, and the performance of one Reference Asset will not be mitigated by any positive performance of any other Reference
Assets. Instead, your return at maturity will depend on the performance of the Invesco S&P 500® Equal Weight ETF minus the performance
of the SPDR® S&P 500® ETF Trust. |
| · | The investment view implicit in the notes may not be successful. — An investment in the notes reflects the view that
the Invesco S&P 500® Equal Weight ETF will outperform the SPDR® S&P 500® ETF Trust, which will occur only if the equally
weighted companies in the Invesco S&P 500® Equal Weight ETF generally outperform the market weighted companies in the SPDR®
S&P 500® ETF Trust. If market weighted companies in the SPDR® S&P 500® ETF Trust generally outperform the equally
weighted companies in the Invesco S&P 500® Equal Weight ETF, then the Invesco S&P 500® Equal Weight ETF will underperform
the SPDR® S&P 500® ETF Trust and you will receive only the principal amount of your notes at maturity. You will receive a
positive return on your investment only if equally weighted companies in the Invesco S&P 500® Equal Weight ETF generally outperform
market weighted companies in the SPDR® S&P 500® ETF Trust. |
| · | Your return on the notes may be lower than the return on a conventional debt security of comparable maturity. — The
return that you will receive on your notes, which could be negative, may be less than the return you could earn on other investments.
The notes do not provide for interest payments and the payment you receive at maturity, if any, may be less than the principal amount
of the notes. Even if your return on the notes is positive, your return may be less than the return you would earn if you bought a conventional
senior interest bearing debt security of ours with the same maturity or if you invested directly in the Reference Assets. Your investment
may not reflect the full opportunity cost to you when you take into account factors that affect the time value of money. |
Risks Related to the Reference Assets
| · | Owning the notes is not the same as owning shares of any Reference Asset, making a hypothetical direct investment in any Reference
Asset or owning a security directly linked to the Reference Assets. — The return on your notes will not reflect the return you
would realize if you actually owned shares of any Reference Asset, made a hypothetical direct investment in any Reference Asset or the
underlying securities of any Reference Asset, or owned a security directly linked to the performance of the Reference Assets or the underlying
securities of the Reference Assets and held that investment for a similar period. Your notes may trade quite differently from the Reference
Assets. Changes in the level of a Reference Asset may not result in comparable changes in the market value of your notes. Even if the
levels of the Reference Assets increase during the term of the notes, the market value of the notes prior to maturity may not increase
to the same extent. It is also possible for the market value of the notes to decrease while the levels of the Reference Assets increase.
In addition, any dividends or other distributions paid on a Reference Asset will not be reflected in the amount payable on the notes. |
| · | You will not have any shareholder rights and will have no right to receive any shares of the Reference Assets (or any company included
in a Reference Asset) at maturity. — Investing in your notes will not make you a holder of any shares of the Reference Assets
or any securities held by the Reference Assets. Neither you nor any other holder or owner of the notes will have any voting rights, any
right to receive dividends or other distributions, or any other rights with respect to the Reference Assets or such underlying securities. |
| · | No delivery of shares of the Reference Assets. — The notes will be payable only in cash. You should not invest in the
notes if you seek to have the shares of a Reference Asset delivered to you at maturity. |
| · | Changes that affect an Underlying Index will affect the market value of the notes, whether the notes will be automatically redeemed,
and the amount you will receive at maturity. — With respect to a Reference Asset that is an ETF, the policies of the applicable
index sponsor concerning the calculation of the applicable Underlying Index, additions, deletions or substitutions of the components of
the applicable Underlying Index and the manner in which changes affecting those components, such as stock dividends, reorganizations or
mergers, may be reflected in the applicable Reference Asset and, therefore, could affect the share price of the Reference Asset, the amounts
payable on the notes, whether the notes are automatically redeemed, and the market value of the notes prior to maturity. The amount payable
on the notes and their market value could also be affected if the applicable index sponsor changes these policies, for example, by changing
the manner in which it calculates the applicable Underlying Index, or if the applicable index sponsor discontinues or suspends the calculation
or publication of the applicable Underlying Index. |
| · | We have no affiliation with any index sponsor of any Underlying Index and will not be responsible for any index sponsor's actions.
— The sponsors of the Underlying Indices are not our affiliates and will not be involved in the offering of the notes in any way.
Consequently, we have no control over the actions of any index sponsor , including any actions of the type that would require the calculation
agent to adjust the payment to you at maturity. The index sponsors have no obligation of any sort with respect to the notes. Thus, the
index sponsors have no obligation to take your interests into consideration for any reason, including in taking any actions that might
affect the value of the notes. None of our proceeds from the issuance of the notes will be delivered to any index sponsor of any Underlying
Index. |
| · | Adjustments to a Reference Asset that is an ETF could adversely affect the notes. — The sponsor and advisor of each
ETF Reference Asset is responsible for calculating and maintaining that Reference Asset. The sponsor and advisor of each ETF Reference
Asset can add, delete or substitute the stocks comprising that Reference Asset or make other methodological changes that could change
the share price of the applicable Reference Asset at any time. If one or more of these events occurs, the calculation of the amount payable
at maturity may be adjusted to reflect such event or events. Consequently, any of these actions could adversely affect the amount payable
at maturity and/or the market value of the notes. |
| · | Changes that affect a Reference Asset that is an index could adversely affect the notes. — The policies of the sponsor
of each index Reference Asset with respect to the applicable Reference Asset concerning the calculation of the applicable Reference Asset,
additions, deletions or substitutions of the components of the applicable Reference Asset and the manner in which changes affecting those
components, such as stock dividends, reorganizations or mergers, may be reflected in the applicable Reference Asset and, therefore, could
affect the level of the applicable Reference Asset, the amount payable on the notes at maturity and the market value of the notes prior
to maturity. The amount payable on the notes and their market value could also be affected if an index sponsor changes these policies,
for example, by changing the manner in which it calculates the applicable Reference Asset, or if an index sponsor discontinues or suspends
the calculation or publication of the applicable Reference Asset. If an index sponsor discontinues publication of a Reference Asset, the
calculation agent may select a successor index (and make any corresponding adjustments to the applicable Initial Level) which will be
used as a substitute for the relevant Reference Asset for all purposes with respect to the notes. |
| · | We and our affiliates do not have any affiliation with any applicable investment advisor or any Reference Asset Issuer and are
not responsible for their public disclosure of information. — The investment advisor of each ETF Reference Asset advises the
issuer of the applicable Reference Asset (each, a “Reference Asset Issuer” and, collectively, the “Reference Asset Issuers”)
on various matters, including matters relating to the policies, maintenance and calculation of the applicable Reference Asset. We and
our affiliates are not affiliated with the investment advisor of any Reference Asset or any Reference Asset Issuer in any way and have
no ability to control or predict their actions, including any errors in or discontinuance of disclosure regarding the methods or policies
relating to a Reference Asset. No investment advisor of a Reference Asset nor any Reference Asset Issuer is involved in the offerings
of the notes in any way and has no obligation to consider your interests as an owner of the notes in taking any actions relating to a
Reference Asset that might affect the value of the notes. Neither we nor any of our affiliates has independently verified the adequacy
or accuracy of the information about any investment advisor or any Reference Asset Issuer contained in any public disclosure of information.
You, as an investor in the notes, should make your own investigation into any Reference Asset Issuers. |
| · | The correlation between the performance of an ETF Reference Asset and the performance of the applicable Underlying Index may be
imperfect. — The performance of each ETF Reference Asset is linked principally to the performance of the applicable Underlying
Index. However, because of the potential discrepancies identified in more detail in the product supplement, the return on an ETF Reference
Asset may correlate imperfectly with the return on the applicable Underlying Index. |
| · | Any Reference Asset that is an ETF is subject to management risks. — Any Reference Asset that is an ETF is subject to
management risk, which is the risk that the applicable investment advisor’s investment strategy, the implementation of which is
subject to a number of constraints, may not produce the intended results. For example, the applicable investment advisor may invest a
portion of a Reference Asset Issuer’s assets in securities not included in the relevant industry or sector but which the applicable
investment advisor believes will help the applicable Reference Asset track the relevant industry or sector. |
| · | You must rely on your own evaluation of the merits of an investment linked to the Reference Assets. — In the ordinary
course of their businesses, our affiliates from time to time may express views on expected movements in the prices of the Reference Assets
or the prices of the securities held by the Reference Assets. One or more of our affiliates have published, and in the future may publish,
research reports that express views on the Reference Assets or these securities. However, these views are subject to change from time
to time. Moreover, other professionals who deal in the markets relating to the Reference Assets at any time may have significantly different
views from those of our affiliates. You are encouraged to derive information concerning the Reference Assets from multiple sources, and
you should not rely on the views expressed by our affiliates.
Neither the offering of the notes nor any views which our affiliates from time to time may express in the ordinary course of their businesses
constitutes a recommendation as to the merits of an investment in the notes. |
General Risk Factors
| · | Your investment is subject to the credit risk of Bank of Montreal. — Our credit ratings and credit spreads may adversely
affect the market value of the notes. Investors are dependent on our ability to pay any amounts due on the notes, and therefore investors
are subject to our credit risk and to changes in the market’s view of our creditworthiness. Any decline in our credit ratings or
increase in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the value of the notes. |
| · | Potential conflicts. — We and our affiliates play a variety of roles in connection with the issuance of the notes, including
acting as calculation agent. In performing these duties, the economic interests of the calculation agent and other affiliates of ours
are potentially adverse to your interests as an investor in the notes. We or one or more of our affiliates may also engage in trading
of shares of any Reference Asset that is an ETF or the securities held by or included in a Reference Asset 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 our customers. Any of these activities could adversely affect the level of the Reference Assets and, therefore, the market value of,
and the payments on, the notes. We or one or more of our affiliates may also issue or underwrite other securities or financial or derivative
instruments with returns linked or related to changes in the performance of the Reference Assets. By introducing competing products into
the marketplace in this manner, we or one or more of our affiliates could adversely affect the market value of the notes. |
| · | Our initial estimated value of the notes will be lower than the price to public. — Our initial estimated value of the
notes is only an estimate, and is based on a number of factors. The price to public of the notes will exceed our initial estimated value,
because costs associated with offering, structuring and hedging the notes are included in the price to public, but are not included in
the estimated value. These costs include any underwriting discount and selling concessions, the profits that we and our affiliates expect
to realize for assuming the risks in hedging our obligations under the notes and the estimated cost of hedging these obligations. The
initial estimated value of the notes may be as low as the amount indicated on the cover page hereof. |
| · | Our initial estimated value does not represent any future value of the notes, and may also differ from the estimated value of any
other party. — Our initial estimated value of the notes as of the date hereof is, and our estimated value as determined on
the Pricing Date will be, derived using our internal pricing models. This value is based on market conditions and other relevant factors,
which include volatility of the Reference Assets, dividend rates and interest rates. Different pricing models and assumptions could provide
values for the notes that are greater than or less than our initial estimated value. In addition, market conditions and other relevant
factors after the Pricing Date are expected to change, possibly rapidly, and our assumptions may prove to be incorrect. After the Pricing
Date, the value of the notes could change dramatically due to changes in market conditions, our creditworthiness, and the other factors
set forth herein and in the product supplement. These changes are likely to impact the price, if any, at which we or BMOCM would be willing
to purchase the notes from you in any secondary market transactions. Our initial estimated value does not represent a minimum price at
which we or our affiliates would be willing to buy your notes in any secondary market at any time. |
| · | The terms of the notes are not determined by reference to the credit spreads for our conventional fixed-rate debt. —
To determine the terms of the notes, we will use an internal funding rate that represents a discount from the credit spreads for our conventional
fixed-rate debt. As a result, the terms of the notes are less favorable to you than if we had used a higher funding rate. |
| · | Certain costs are likely to adversely affect the value of the notes. — Absent any changes in market conditions, any
secondary market prices of the notes will likely be lower than the price to public. This is because any secondary market prices will likely
take into account our then-current market credit spreads, and because any secondary market prices are likely to exclude all or a portion
of any underwriting discount and selling concessions, and the hedging profits and estimated hedging costs that are included in the price
to public of the notes and that may be reflected on your account statements. In addition, any such price is also likely to reflect a discount
to account for costs associated with establishing or unwinding any related hedge transaction, such as dealer discounts, mark-ups and other
transaction costs. As a result, the price, if any, at which BMOCM or any other party may be willing to purchase the notes from you in
secondary market transactions, if at all, will likely be lower than the price to public. Any sale that you make prior to the Maturity
Date could result in a substantial loss to you. |
| · | Lack of liquidity. — The notes will not be listed on any securities exchange. BMOCM may offer to purchase the notes
in the secondary market, but is not required to do so. Even if there is a secondary market, it may not provide enough liquidity to allow
you to trade or sell the notes easily. Because other dealers are not likely to make a secondary market for the notes, the price at which
you may be able to trade the notes is likely to depend on the price, if any, at which BMOCM is willing to buy the notes. |
| · | Hedging and trading activities. — We or any of our affiliates have carried out or may carry out hedging activities related
to the notes, including purchasing or selling shares of any Reference Assets that are ETFs or securities held by or included in the Reference
Assets, futures or options relating to the Reference Assets or securities held by or included in the Reference Assets or other derivative
instruments with return linked or related to changes in the performance on the Reference Assets or securities held by or included in the
Reference Assets. We or our affiliates may also trade in any Reference Assets that are ETFS, such securities, or instruments related to
the Reference Assets or such securities from time to time. Any of these hedging or trading activities on or prior to the Pricing Date
and during the term of the notes could adversely affect the payments on the notes. |
| · | Many economic and market factors will influence the value of the notes. — In addition to the levels of the Reference
Assets and interest rates on any trading day, the value of the notes will be affected by a number of economic and market factors that
may either offset or magnify each other, and which are described in more detail in the product supplement. |
Please read carefully the section entitled "U.S. Federal
Tax Information" in this pricing supplement, the section entitled "Supplemental Tax Considerations—Supplemental U.S. Federal
Income Tax Considerations" in the accompanying product supplement, the section entitled "United States Federal Income Taxation"
in the accompanying prospectus and the section entitled "Certain Income Tax Consequences" in the accompanying prospectus supplement.
You should consult your tax advisor about your own tax situation.
Examples of the Hypothetical Payment at Maturity for a $1,000 Investment
in the Notes
The following table illustrates the hypothetical
payments on a note at maturity. The hypothetical payments are based on a $1,000 investment in the note, a hypothetical Initial Level of
100.00 for each Reference Asset, a range of hypothetical Final Levels and the effect on the payment at maturity.
The hypothetical examples shown below are intended
to help you understand the terms of the notes. The actual cash amount that you will receive at maturity will depend upon the Relative
Return. You may lose some or all of the principal amount at maturity.
Hypothetical Final Level of
the Invesco S&P 500®
Equal Weight ETF |
Hypothetical Final Level of
the SPDR® S&P 500® ETF
Trust |
Relative Return |
Hypothetical Payment at
Maturity |
Hypothetical Return on
the Notes |
110.00 |
110.00 |
0.00% |
$1,000.00 |
0.00% |
110.00 |
100.00 |
10.00% |
$1,150.00 |
15.00% |
110.00 |
90.00 |
20.00% |
$1,300.00 |
30.00% |
105.00 |
110.00 |
-5.00% |
$1,000.00 |
0.00% |
105.00 |
105.00 |
0.00% |
$1,000.00 |
0.00% |
105.00 |
100.00 |
5.00% |
$1,075.00 |
7.50% |
105.00 |
95.00 |
10.00% |
$1,150.00 |
15.00% |
100.00 |
100.00 |
0.00% |
$1,000.00 |
0.00% |
95.00 |
105.00 |
-10.00% |
$1,000.00 |
0.00% |
95.00 |
100.00 |
-5.00% |
$1,000.00 |
0.00% |
95.00 |
95.00 |
0.00% |
$1,000.00 |
0.00% |
95.00 |
90.00 |
5.00% |
$1,075.00 |
7.50% |
90.00 |
110.00 |
-20.00% |
$1,000.00 |
0.00% |
90.00 |
100.00 |
-10.00% |
$1,000.00 |
0.00% |
90.00 |
95.00 |
-5.00% |
$1,000.00 |
0.00% |
90.00 |
90.00 |
0.00% |
$1,000.00 |
0.00% |
The following examples illustrate how the returns
set forth in the table above are calculated.
Example 1: The Relative Return is positive.
Hypothetical Final Level of the iShares®
Russell 2000 ETF |
Hypothetical Final Level of the S&P 500®
Index |
Relative Return |
105.00 |
95.00 |
10.00% |
Because the Relative Return is positive, the payment at maturity is
calculated as follows:
$1,000 + $1,000 x (10.00% x 150.00%) = $1,150.00
Example 2: The Relative Return is positive.
Hypothetical Final Level of the iShares®
Russell 2000 ETF |
Hypothetical Final Level of the S&P 500®
Index |
Relative Return |
105.00 |
100.00 |
5.00% |
Because the Relative Return is positive, the payment at maturity is
calculated as follows:
$1,000 + $1,000 x (5.00% x 150.00%) = $1,075.00
Example 3: The Relative Return is positive.
Hypothetical Final Level of the iShares®
Russell 2000 ETF |
Hypothetical Final Level of the S&P 500®
Index |
Relative Return |
95.00 |
90.00 |
5.00% |
Because the Relative Return is positive, the payment at maturity is
calculated as follows:
$1,000 + $1,000 x (5.00% x 150.00%) = $1,075.00
Example 4: The Relative Return is negative.
Hypothetical Final Level of the iShares®
Russell 2000 ETF |
Hypothetical Final Level of the S&P 500®
Index |
Relative Return |
95.00 |
105.00 |
-10.00% |
Because the Relative Return is negative, your payment at maturity is
$1,000.
Example 5: The Relative Return is negative.
Hypothetical Final Level of the iShares®
Russell 2000 ETF |
Hypothetical Final Level of the S&P 500®
Index |
Relative Return |
105.00 |
110.00 |
-5.00% |
Because the Relative Return is negative, your payment at maturity is
$1,000.
Example 6: The Relative Return is negative.
Hypothetical Final Level of the iShares®
Russell 2000 ETF |
Hypothetical Final Level of the S&P 500®
Index |
Relative Return |
90.00 |
95.00 |
-5.00% |
Because the Relative Return is negative, your payment at maturity is
$1,000.
U.S. Federal Tax Information
We intend to treat the notes, and in the opinion
of our counsel, Mayer Brown LLP, the notes should be treated, as debt instruments subject to the special rules governing contingent payment
debt instruments for U.S. federal income tax purposes. Please see the discussion in the product supplement dated September 22, 2022 under
“Supplemental Tax Considerations—Supplemental U.S. Federal Income Tax Considerations—Notes Treated as Indebtedness—Where
the Term of the Notes Exceeds One Year,” which applies to the notes.
Under current Internal Revenue Service guidance,
withholding on "dividend equivalent" payments (as discussed in the product supplement), if any, will not apply to notes that
are issued as of the date of this pricing supplement unless such notes are "delta-one" instruments. Based on our determination
that the notes are not delta-one instruments, non-United States holders (as defined in the product supplement) should not generally be
subject to withholding on dividend equivalent payments, if any, under the notes.
Supplemental Plan of Distribution (Conflicts of Interest)
BMOCM will purchase the notes from us at a purchase
price reflecting the commission set forth on the cover hereof. BMOCM has informed us that, as part of its distribution of the notes, it
will reoffer the notes to other dealers who will sell them. Each such dealer, or each additional dealer engaged by a dealer to whom BMOCM
reoffers the notes, will receive a commission from BMOCM, which will not exceed the commission set forth on the cover page. We or one
of our affiliates may also pay a referral fee to certain dealers in connection with the distribution of the notes.
Certain dealers who purchase the notes for sale
to certain fee-based advisory accounts may forego some or all of their selling concessions, fees or commissions. The public offering price
for investors purchasing the notes in these accounts may be less than 100% of the principal amount, as set forth on the cover page of
this document. Investors that hold their notes in these accounts may be charged fees by the investment advisor or manager of that account
based on the amount of assets held in those accounts, including the notes.
We will deliver the notes on a date that is greater
than two business days following the pricing date. Under Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade
expressly agree otherwise. Accordingly, purchasers who wish to trade the notes more than two business days prior to the issue date will
be required to specify alternative settlement arrangements to prevent a failed settlement.
We own, directly or indirectly, all of the outstanding
equity securities of BMOCM, the agent for this offering. In accordance with FINRA Rule 5121, BMOCM may not make sales in this offering
to any of its discretionary accounts without the prior written approval of the customer.
We reserve the right to withdraw, cancel or modify
the offering of the notes and to reject orders in whole or in part. You may cancel any order for the notes prior to its acceptance.
You should not construe the offering of the notes
as a recommendation of the merits of acquiring an investment linked to the Reference Assets or as to the suitability of an investment
in the notes.
BMOCM may, but is not obligated to, make a market
in the notes. BMOCM will determine any secondary market prices that it is prepared to offer in its sole discretion.
We may use the final pricing supplement relating
to the notes in the initial sale of the notes. In addition, BMOCM or another of our affiliates may use the final pricing supplement in
market-making transactions in any notes after their initial sale. Unless BMOCM or we inform you otherwise in the confirmation of sale,
the final pricing supplement is being used by BMOCM in a market-making transaction.
For a period of approximately three months following
issuance of the notes, the price, if any, at which we or our affiliates would be willing to buy the notes from investors, and the value
that BMOCM may also publish for the notes through one or more financial information vendors and which could be indicated for the notes
on any brokerage account statements, will reflect a temporary upward adjustment from our estimated value of the notes that would otherwise
be determined and applicable at that time. This temporary upward adjustment represents a portion of (a) the hedging profit that we or
our affiliates expect to realize over the term of the notes and (b) any underwriting discount and the selling concessions paid in connection
with this offering. The amount of this temporary upward adjustment will decline to zero on a straight-line basis over the three-month
period.
The notes and the related offer to purchase notes
and sale of notes under the terms and conditions provided herein do not constitute a public offering in any non-U.S. jurisdiction, and
are being made available only to individually identified investors pursuant to a private offering as permitted in the relevant jurisdiction.
The notes are not, and will not be, registered with any securities exchange or registry located outside of the United States and have
not been registered with any non-U.S. securities or banking regulatory authority. The contents of this document have not been reviewed
or approved by any non-U.S. securities or banking regulatory authority. Any person who wishes to acquire the notes from outside the United
States should seek the advice or legal counsel as to the relevant requirements to acquire these notes.
British Virgin Islands. The notes have not
been, and will not be, registered under the laws and regulations of the British Virgin Islands, nor has any regulatory authority in the
British Virgin Islands passed comment upon or approved the accuracy or adequacy of this document. This pricing supplement and the related
documents shall not constitute an offer, invitation or solicitation to any member of the public in the British Virgin Islands for the
purposes of the Securities and Investment Business Act, 2010, of the British Virgin Islands.
Cayman Islands. Pursuant to the Companies
Law (as amended) of the Cayman Islands, no invitation may be made to the public in the Cayman Islands to subscribe for the notes by or
on behalf of the issuer unless at the time of such invitation the issuer is listed on the Cayman Islands Stock Exchange. The issuer is
not presently listed on the Cayman Islands Stock Exchange and, accordingly, no invitation to the public in the Cayman Islands is to be
made by the issuer (or by any dealer on its behalf). No such invitation is made to the public in the Cayman Islands hereby.
Dominican Republic. Nothing in this pricing
supplement constitutes an offer of securities for sale in the Dominican Republic. The notes have not been, and will not be, registered
with the Superintendence of Securities Market of the Dominican Republic (Superintendencia del Mercado de Valores), under Dominican Securities
Market Law No. 249-17 (“Securities Law 249-17”), and the notes may not be offered or sold within the Dominican Republic or
to, or for the account or benefit of, Dominican persons (as defined under Securities Law 249-17 and its regulations). Failure to comply
with these directives may result in a violation of Securities Law 249-17 and its regulations.
Israel. This pricing supplement is intended
solely for investors listed in the First Supplement of the Israeli Securities Law of 1968, as amended. A prospectus has not been prepared
or filed, and will not be prepared or filed, in Israel relating to the notes offered hereunder. The notes cannot be resold in Israel other
than to investors listed in the First Supplement of the Israeli Securities Law of 1968, as amended.
No action will be taken in Israel that would permit
an offering of the notes or the distribution of any offering document or any other material to the public in Israel. In particular, no
offering document or other material has been reviewed or approved by the Israel Securities Authority. Any material provided to an offeree
in Israel may not be reproduced or used for any other purpose, nor be furnished to any other person other than those to whom copies have
been provided directly by us or the selling agents.
Nothing in this pricing supplement or any other
offering material relating to the notes, should be considered as the rendering of a recommendation or advice, including investment advice
or investment marketing under the Law For Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management, 1995,
to purchase any note. The purchase of any note will be based on an investor’s own understanding, for the investor’s own benefit
and for the investor’s own account and not with the aim or intention of distributing or offering to other parties. In purchasing
the notes, each investor declares that it has the knowledge, expertise and experience in financial and business matters so as to be capable
of evaluating the risks and merits of an investment in the notes, without relying on any of the materials provided.
Mexico. The notes have not been registered
with the National Registry of Securities maintained by the Mexican National Banking and Securities Commission and may not be offered or
sold publicly in Mexico. This pricing supplement and the related documents may not be publicly distributed in Mexico. The notes may only
be offered in a private offering pursuant to Article 8 of the Securities Market Law.
Switzerland. This pricing supplement is not
intended to constitute an offer or solicitation to purchase or invest in any notes. Neither this pricing supplement nor any other offering
or marketing material relating to the notes constitutes a prospectus compliant with the requirements of articles 35 et seq. of the Swiss
Financial Services Act ("FinSA")) for a public offering of the notes in Switzerland and no such prospectus has been or will
be prepared for or in connection with the offering of the notes in Switzerland.
Neither this pricing supplement nor any other offering
or marketing material relating to the notes has been or will be filed with or approved by a Swiss review body (Prüfstelle). No application
has been or is intended to be made to admit the notes to trading on any trading venue (SIX Swiss Exchange or on any other exchange or
any multilateral trading facility) in Switzerland. Neither this pricing supplement nor any other offering or marketing material relating
to the notes may be publicly distributed or otherwise made publicly available in Switzerland.
The notes may not be publicly offered, directly
or indirectly, in Switzerland within the meaning of FinSA except (i) in any circumstances falling within the exemptions to prepare a prospectus
listed in article 36 para. 1 FinSA or (ii) where such offer does not qualify as a public offer in Switzerland, provided always that no
offer of notes shall require the Issuer or any offeror to publish a prospectus pursuant to article 35 FinSA in respect to such offer and
that such offer shall comply with the additional restrictions set out below (if applicable). The Issuer has not authorised and does not
authorise any offer of notes which would require the Issuer or any offeror to publish a prospectus pursuant to article 35 FinSA in respect
of such offer. For purposes of this provision "public offer" shall have the meaning as such term is understood pursuant to article
3 lit. g and h FinSA and the Swiss Financial Services Ordinance ("FinSO").
The notes do not constitute participations in a
collective investment scheme within the meaning of the Swiss Collective Investment Schemes Act. They are not subject to the approval of,
or supervision by, the Swiss Financial Market Supervisory Authority ("FINMA"), and investors in the notes will not benefit from
protection under CISA or supervision by FINMA.
Prohibition of Offer to Private Clients in Switzerland
- No Key Information Document pursuant to article 58 FinSA (Basisinformationsblatt für Finanzinstrumente) or equivalent document
under foreign law pursuant to article 59 para. 2 FinSA has been or will be prepared in relation to the notes. Therefore, the following
additional restriction applies: Notes qualifying as "debt securities with a derivative character" pursuant to article 86 para.
2 FinSO may not be offered within the meaning of article 58 para. 1 FinSA, and neither this pricing supplement nor any other offering
or marketing material relating to such notes may be made available, to any retail client (Privatkunde) within the meaning of FinSA in
Switzerland.
The notes may also be sold in the following jurisdictions,
provided, in each case, any sales are made in accordance with all applicable laws in such jurisdiction:
Additional Information Relating to the Estimated Initial Value of
the Notes
Our estimated initial value of the notes on the
date hereof, and that will be set forth on the cover page of the final pricing supplement relating to the notes, equals the sum of the
values of the following hypothetical components:
| · | a fixed-income debt component with the same tenor as the notes, valued using our internal funding rate for structured notes; and |
| · | one or more derivative transactions relating to the economic terms of the notes. |
The internal funding rate used in the determination
of the initial estimated value generally represents a discount from the credit spreads for our conventional fixed-rate debt. The value
of these derivative transactions is derived from our internal pricing models. These models are based on factors such as the traded market
prices of comparable derivative instruments and on other inputs, which include volatility, dividend rates, interest rates and other factors.
As a result, the estimated initial value of the notes on the Pricing Date will be determined based on the market conditions on the Pricing
Date.
The Reference Assets
All disclosures contained in this pricing supplement
regarding the Reference Assets, including, without limitation, their make-up, method of calculation, and changes in their components and
their historical closing levels, have been derived from publicly available information prepared by the applicable sponsors. The information
reflects the policies of, and is subject to change by, the sponsors. The sponsors own the copyrights and all rights to the Reference Assets.
The sponsors are under no obligation to continue to publish, and may discontinue publication of, the Reference Assets. Neither we nor
BMOCM accepts any responsibility for the calculation, maintenance or publication of any Reference Asset or any successor.
Information provided to or filed with the SEC under
the Exchange Act and the Investment Company Act of 1940 relating to any Reference Asset that is an ETF may be obtained through the SEC’s
website at http://www.sec.gov.
We encourage you to review recent levels of the
Reference Assets prior to making an investment decision with respect to the notes.
Invesco S&P 500® Equal Weight ETF
The Invesco Exchange-Traded Fund Trust (the “Invesco Trust”)
is a registered investment company that consists of numerous separate investment portfolios, including the Invesco S&P 500® Equal
Weight ETF. Invesco Capital Management LLC (“Invesco”) is the investment adviser of the Invesco S&P 500® Equal Weight
ETF. The Invesco S&P 500® Equal Weight ETF seeks to track the investment results (before fees and expenses) of the S&P 500® S&P
500® Equal Weight Index, which is an equal-weighted version of the S&P 500® Index. Information provided to
or filed with the SEC by the Invesco Trust can be located by reference to SEC file numbers 333-102228 and 811-21265 or its CIK Code: 0001209466.
The S&P 500® Equal Weight Index
The S&P 500® Equal Weight Index is calculated, maintained and
published by S&P Dow Jones Indices LLC (“S&P Dow Jones”), and is reported by Bloomberg L.P. under the ticker symbol
“SPW.”
The S&P 500® Equal Weight Index is an equal-weighted version
of the S&P 500® Index. Index composition of the S&P 500® Equal Weight Index is the same as the S&P
500® Index. Constituent changes are incorporated in the S&P 500® Equal Weight Index as and when they are made
in the S&P 500® Index. When a company is added to the S&P 500® Equal Weight Index in the middle of the
quarter, it takes the weight of the company that it replaced. The one exception is when a company is removed from the S&P 500®
Equal Weight Index at a price of $0.00. In that case, the company’s replacement is added to the S&P 500® Equal Weight Index
at the weight using the previous day’s closing value, or the most immediate prior business day that the deleted company was not
valued at $0.00.
The S&P 500® Equal Weight Index is generally calculated and
maintained in the same manner as the S&P 500® Index, except that the constituents of the S&P 500® Equal
Weight Index are equally weighted. To calculate an equal-weighted index, the market capitalization for each stock used in the calculation
of the index is redefined so that each index constituent has an equal weight in the index at each rebalancing date. In addition to being
the product of the stock price, the stock’s shares outstanding, and the stock’s float factor (“IWF”), an additional
weight factor (“AWF”) is also introduced in the market capitalization calculation to establish equal weighting. The AWF of
a stock is the adjustment factor of that stock assigned at each index rebalancing date that makes all index constituents’ modified
market capitalization equal (and, therefore, equal weight), while maintaining the total market value of the overall index.
The S&P 500® Equal Weight Index is reset to equal weight quarterly
after the close of business on the third Friday of March, June, September and December. The reference date for weighting is the second
Friday of the reweighting month and changes are effective after the close of the following Friday using prices as of the reweighting reference
date, and membership, shares outstanding, and IWFs as of the reweighting effective date.
The S&P 500® Index
The S&P 500® Index is intended to provide
an indication of the pattern of common stock price movement. The calculation of the level of this Reference Asset is based on the relative
value of the aggregate market value of the common stocks of 500 companies as of a particular time compared to the aggregate average market
value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943.
S&P calculates this Reference Asset by reference
to the prices of the constituent stocks of this Reference Asset without taking account of the value of dividends paid on those stocks.
As a result, the return on the notes will not reflect the return you would realize if you actually owned the constituent stocks of the
S&P 500® Index and received the dividends paid on those stocks.
Computation of the S&P 500® Index
While S&P currently employs the following methodology
to calculate the S&P 500® Index, no assurance can be given that S&P will not modify or change this methodology in a manner
that may affect the Payment at Maturity.
Historically, the market value of any component
stock of the S&P 500® Index was calculated as the product of the market price per share and the number of then outstanding shares
of such component stock. In March 2005, S&P began shifting the S&P 500® Index halfway from a market capitalization weighted
formula to a float-adjusted formula, before moving the S&P 500® Index to full float adjustment on September 16, 2005. S&P’s
criteria for selecting stocks for the S&P 500® Index did not change with the shift to float adjustment. However, the adjustment
affects each company’s weight in the S&P 500® Index.
Under float adjustment, the share counts used in
calculating the S&P 500® Index reflect only those shares that are available to investors, not all of a company’s outstanding
shares. Float adjustment excludes shares that are closely held by control groups, other publicly traded companies or government agencies.
In September 2012, all shareholdings representing
more than 5% of a stock’s outstanding shares, other than holdings by “block owners,” were removed from the float for
purposes of calculating the S&P 500® Index. Generally, these “control holders” will include officers and directors,
private equity, venture capital and special equity firms, other publicly traded companies that hold shares for control, strategic partners,
holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the company, holders of unlisted share classes
of stock, government entities at all levels (other than government retirement/pension funds) and any individual person who controls a
5% or greater stake in a company as reported in regulatory filings. However, holdings by block owners, such as depositary banks, pension
funds, mutual funds and ETF providers, 401(k) plans of the company, government retirement/pension funds, investment funds of insurance
companies, asset managers and investment funds, independent foundations and savings and investment plans, will ordinarily be considered
part of the float.
Treasury stock, stock options, equity participation
units, warrants, preferred stock, convertible stock, and rights are not part of the float. Shares held in a trust to allow investors in
countries outside the country of domicile, such as depositary shares and Canadian exchangeable shares are normally part of the float unless
those shares form a control block.
For each stock, an investable weight factor (“IWF”)
is calculated by dividing the available float shares by the total shares outstanding. Available float shares are defined as the total
shares outstanding less shares held by control holders. This calculation is subject to a 5% minimum threshold for control blocks. For
example, if a company’s officers and directors hold 3% of the company’s shares, and no other control group holds 5% of the
company’s shares, S&P would assign that company an IWF of 1.00, as no control group meets the 5% threshold. However, if a company’s
officers and directors hold 3% of the company’s shares and another control group holds 20% of the company’s shares, S&P
would assign an IWF of 0.77, reflecting the fact that 23% of the company’s outstanding shares are considered to be held for control.
As of July 31, 2017, companies with multiple share class lines are no longer eligible for inclusion in the S&P 500® Index. Constituents
of the S&P 500® Index prior to July 31, 2017 with multiple share class lines were grandfathered in and continue to be included
in the S&P 500® Index. If a constituent company of the S&P 500® Index reorganizes into a multiple share class line structure,
that company will remain in the S&P 500® Index at the discretion of the S&P Index Committee in order to minimize turnover.
The S&P 500® Index is calculated using a
base-weighted aggregate methodology. The level of the S&P 500® Index reflects the total market value of all 500 component stocks
relative to the base period of the years 1941 through 1943. An indexed number is used to represent the results of this calculation in
order to make the level easier to use and track over time. The actual total market value of the component stocks during the base period
of the years 1941 through 1943 has been set to an indexed level of 10. This is often indicated by the notation 1941-43 = 10. In practice,
the daily calculation of the S&P 500® Index is computed by dividing the total market value of the component stocks by the “index
divisor.” By itself, the index divisor is an arbitrary number. However, in the context of the calculation of the S&P 500®
Index, it serves as a link to the original base period level of the S&P 500® Index. The index divisor keeps the S&P 500®
Index comparable over time and is the manipulation point for all adjustments to the S&P 500® Index, which is index maintenance.
Index Maintenance
Index maintenance includes monitoring and completing
the adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock price adjustments due to
company restructuring or spinoffs. Some corporate actions, such as stock splits and stock dividends, require changes in the common shares
outstanding and the stock prices of the companies in the S&P 500® Index, and do not require index divisor adjustments.
To prevent the level of the S&P 500® Index
from changing due to corporate actions, corporate actions which affect the total market value of the S&P 500® Index require an
index divisor adjustment. By adjusting the index divisor for the change in market value, the level of the S&P 500® Index remains
constant and does not reflect the corporate actions of individual companies in the S&P 500® Index. Index divisor adjustments are
made after the close of trading and after the calculation of the S&P 500® Index closing level.
Changes in a company’s total shares outstanding
of 5% or more due to public offerings are made as soon as reasonably possible. Other changes of 5% or more (for example, due to tender
offers, Dutch auctions, voluntary exchange offers, company stock repurchases, private placements, acquisitions of private companies or
non-index companies that do not trade on a major exchange, redemptions, exercise of options, warrants, conversion of preferred stock,
notes, debt, equity participations, at-the-market stock offerings or other recapitalizations) are made weekly, and are generally announced
on Fridays for implementation after the close of trading the following Friday (one week later). If a 5% or more share change causes a
company’s IWF to change by five percentage points or more, the IWF is updated at the same time as the share change. IWF changes
resulting from partial tender offers are considered on a case-by-case basis.
SPDR® S&P 500® ETF Trust (“SPY”)
The SPY seeks to provide investment results that,
before fees and expenses, correspond generally to the performance of the S&P 500® Index. The SPY utilizes a “replication”
investment approach in attempting to track the performance of the underlying index. The SPY typically invests in substantially all of
the securities which comprise the underlying index in approximately the same proportions as the underlying index. Shares of the SPY are
listed on the NYSE Arca under the symbol “SPY.”
The S&P 500® Index
The S&P 500® Index is intended to provide
an indication of the pattern of common stock price movement. The calculation of the level of this Reference Asset is based on the relative
value of the aggregate market value of the common stocks of 500 companies as of a particular time compared to the aggregate average market
value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943.
S&P calculates this Reference Asset by reference
to the prices of the constituent stocks of this Reference Asset without taking account of the value of dividends paid on those stocks.
As a result, the return on the notes will not reflect the return you would realize if you actually owned the constituent stocks of the
S&P 500® Index and received the dividends paid on those stocks.
Computation of the S&P 500® Index
While S&P currently employs the following methodology
to calculate the S&P 500® Index, no assurance can be given that S&P will not modify or change this methodology in a manner
that may affect the Payment at Maturity.
Historically, the market value of any component
stock of the S&P 500® Index was calculated as the product of the market price per share and the number of then outstanding shares
of such component stock. In March 2005, S&P began shifting the S&P 500® Index halfway from a market capitalization weighted
formula to a float-adjusted formula, before moving the S&P 500® Index to full float adjustment on September 16, 2005. S&P’s
criteria for selecting stocks for the S&P 500® Index did not change with the shift to float adjustment. However, the adjustment
affects each company’s weight in the S&P 500® Index.
Under float adjustment, the share counts used in
calculating the S&P 500® Index reflect only those shares that are available to investors, not all of a company’s outstanding
shares. Float adjustment excludes shares that are closely held by control groups, other publicly traded companies or government agencies.
In September 2012, all shareholdings representing
more than 5% of a stock’s outstanding shares, other than holdings by “block owners,” were removed from the float for
purposes of calculating the S&P 500® Index. Generally, these “control holders” will include officers and directors,
private equity, venture capital and special equity firms, other publicly traded companies that hold shares for control, strategic partners,
holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the company, holders of unlisted share classes
of stock, government entities at all levels (other than government retirement/pension funds) and any individual person who controls a
5% or greater stake in a company as reported in regulatory filings. However, holdings by block owners, such as depositary banks, pension
funds, mutual funds and ETF providers, 401(k) plans of the company, government retirement/pension funds, investment funds of insurance
companies, asset managers and investment funds, independent foundations and savings and investment plans, will ordinarily be considered
part of the float.
Treasury stock, stock options, equity participation
units, warrants, preferred stock, convertible stock, and rights are not part of the float. Shares held in a trust to allow investors in
countries outside the country of domicile, such as depositary shares and Canadian exchangeable shares are normally part of the float unless
those shares form a control block.
For each stock, an investable weight factor (“IWF”)
is calculated by dividing the available float shares by the total shares outstanding. Available float shares are defined as the total
shares outstanding less shares held by control holders. This calculation is subject to a 5% minimum threshold for control blocks. For
example, if a company’s officers and directors hold 3% of the company’s shares, and no other control group holds 5% of the
company’s shares, S&P would assign that company an IWF of 1.00, as no control group meets the 5% threshold. However, if a company’s
officers and directors hold 3% of the company’s shares and another control group holds 20% of the company’s shares, S&P
would assign an IWF of 0.77, reflecting the fact that 23% of the company’s outstanding shares are considered to be held for control.
As of July 31, 2017, companies with multiple share class lines are no longer eligible for inclusion in the S&P 500® Index. Constituents
of the S&P 500® Index prior to July 31, 2017 with multiple share class lines were grandfathered in and continue to be included
in the S&P 500® Index. If a constituent company of the S&P 500® Index reorganizes into a multiple share class line structure,
that company will remain in the S&P 500® Index at the discretion of the S&P Index Committee in order to minimize turnover.
The S&P 500® Index is calculated using a
base-weighted aggregate methodology. The level of the S&P 500® Index reflects the total market value of all 500 component stocks
relative to the base period of the years 1941 through 1943. An indexed number is used to represent the results of this calculation in
order to make the level easier to use and track over time. The actual total market value of the component stocks during the base period
of the years 1941 through 1943 has been set to an indexed level of 10. This is often indicated by the notation 1941-43 = 10. In practice,
the daily calculation of the S&P 500® Index is computed by dividing the total market value of the component stocks by the “index
divisor.” By itself, the index divisor is an arbitrary number. However, in the context of the calculation of the S&P 500®
Index, it serves as a link to the original base period level of the S&P 500® Index. The index divisor keeps the S&P 500®
Index comparable over time and is the manipulation point for all adjustments to the S&P 500® Index, which is index maintenance.
Index Maintenance
Index maintenance includes monitoring and completing
the adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock price adjustments due to
company restructuring or spinoffs. Some corporate actions, such as stock splits and stock dividends, require changes in the common shares
outstanding and the stock prices of the companies in the S&P 500® Index, and do not require index divisor adjustments.
To prevent the level of the S&P 500® Index
from changing due to corporate actions, corporate actions which affect the total market value of the S&P 500® Index require an
index divisor adjustment. By adjusting the index divisor for the change in market value, the level of the S&P 500® Index remains
constant and does not reflect the corporate actions of individual companies in the S&P 500® Index. Index divisor adjustments are
made after the close of trading and after the calculation of the S&P 500® Index closing level.
Changes in a company’s total shares outstanding
of 5% or more due to public offerings are made as soon as reasonably possible. Other changes of 5% or more (for example, due to tender
offers, Dutch auctions, voluntary exchange offers, company stock repurchases, private placements, acquisitions of private companies or
non-index companies that do not trade on a major exchange, redemptions, exercise of options, warrants, conversion of preferred stock,
notes, debt, equity participations, at-the-market stock offerings or other recapitalizations) are made weekly, and are generally announced
on Fridays for implementation after the close of trading the following Friday (one week later). If a 5% or more share change causes a
company’s IWF to change by five percentage points or more, the IWF is updated at the same time as the share change. IWF changes
resulting from partial tender offers are considered on a case-by-case basis.
16
Bank of Montreal (NYSE:BMO)
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Bank of Montreal (NYSE:BMO)
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