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 are linked to the inverse performance of the Index.
Your investment in the notes is linked
to the inverse, or “short”, performance of the Index. Therefore, notwithstanding the gains resulting from the daily
interest, if any, and the cumulative negative effect of the daily investor fee, your notes will generally appreciate as the level
of the Index decreases and will decrease in value as the level of the Index increases. You may lose some or all of your investment
if the level of the Index increases over the term of your notes.
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 inverse
performance of the Index minus the Daily Investor Fee, any negative Daily Interest 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, any negative Daily Interest and the Redemption Fee Amount, if applicable, 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 decreased 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, any negative Daily Interest and the Redemption Fee Amount, if applicable, 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 decrease 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, any negative
Daily Interest 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 less than the Initial Index Level.
The negative effect of the Daily Investor
Fee, any negative Daily Interest 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 for 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 less than the Initial Index Level, you may receive
less than the principal amount of your notes due to the Daily Investor Fee, any negative Daily Interest and the Redemption Fee
Amount, if applicable.
The amount of the Daily Investor Fee and
any negative Daily Interest will reduce the payment, if any, you will receive at maturity, call or upon early redemption, or if
you sell the notes. Although the Daily Interest will be added to the Deposit Amount, the Daily Interest will be negative on any
Index Business Day on which the Daily Interest Rate is negative. On those Index Business Days, the Daily Interest will be subtracted
from the Deposit Amount. In addition, 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 decreased insufficiently to offset the cumulative negative effect of the Daily Investor Fee, any negative Daily Interest 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 increase 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 any positive effect of the Daily Interest and the cumulative negative effect of the Daily Investor
Fee, if the level of the Index increases 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, positive 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 inverse 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
inverse 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 negative (before taking into account the negative effect of the
Daily Investor Fee and the Daily Interest, and the Redemption Fee Amount, if applicable). It is possible for the level of the Index
to decrease 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 inverse
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. The notes rebalance
their theoretical exposure on a daily basis, increasing exposure in response to that day’s gains or reducing exposure in
response to that day’s losses.
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 Interest, 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 inverse
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, daily rebalancing
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 inverse 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 inverse 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 longer periods of time. 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 inverse 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 inverse leverage on a daily basis,
and the consequences of seeking daily inverse 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, which means exposure to the Index increases in response to that day’s losses and decreases in response to that day’s
gains. 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 inverse 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 negative (before taking into account the negative effect of the Daily Investor Fee and the Daily Interest, and the Redemption
Fee Amount, if applicable).
The amount you receive at maturity, call
or redemption will be contingent upon the compounded leveraged inverse 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 increase 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 which you can lose in any single Index Business Day from an increase 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 Short
Index Amount in calculating any subsequent Indicative Note Value. As such, the dollar amount that you can lose from any increase
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 increase of the Index level.
Due to the effect of compounding, if the Indicative Note
Value decreases, any subsequent decrease 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 a decrease 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 Short
Index Amount in calculating any subsequent Indicative Note Value. As such, the dollar amount that you can gain from any decrease
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 decreases 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 decrease 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 greater (e.g., -3.3, -4.0, -6.0); 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 less (e.g., -2.0, -1.0, -0.5). 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 on any Index Business Day
beginning on July 25, 2018 through, and including, 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 decreases 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 greater 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 less 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 decrease in the
Index Closing Level after the Final Measurement Period or the Call Measurement Period, as applicable, or if there is a significant
increase 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 commencing on the first Redemption Date (which
was January 26, 2018) 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 increases 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 meet 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.
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.
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 Deposit Amount minus (b) the Intraday Short Index Amount; 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 “FNGD”. 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 meet 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:
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·
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the expected volatility in the Index and the prices of the Index constituents;
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·
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the time to maturity of the notes;
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·
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the market price and expected distributions on the Index constituents;
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·
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interest and yield rates in the market generally;
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·
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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);
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·
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the amount of the Daily Investor Fee on the relevant date of determination;
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·
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whether the Daily Interest has been negative or positive;
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·
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the Index constituents and changes to those Index constituents over time;
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·
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whether the notes have been delisted from the NYSE;
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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
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·
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our actual or perceived creditworthiness.
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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 each night and does not change intraday as the level of the Index moves in favor of the notes
(i.e., the level of the Index decreases), 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 for 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%
|
$20.00
|
-$180.00
|
-9.00
|
115.00
|
15%
|
$27.50
|
-$172.50
|
-6.27
|
110.00
|
10%
|
$35.00
|
-$165.00
|
-4.71
|
105.00
|
5%
|
$42.50
|
-$157.50
|
-3.71
|
104.00
|
4%
|
$44.00
|
-$156.00
|
-3.55
|
103.00
|
3%
|
$45.50
|
-$154.50
|
-3.40
|
102.00
|
2%
|
$47.00
|
-$153.00
|
-3.26
|
101.00
|
1%
|
$48.50
|
-$151.50
|
-3.12
|
100.00
|
0%
|
$50.00
|
-$150.00
|
-3.00
|
99.00
|
-1%
|
$51.50
|
-$148.50
|
-2.88
|
98.00
|
-2%
|
$53.00
|
-$147.00
|
-2.77
|
97.00
|
-3%
|
$54.50
|
-$145.50
|
-2.67
|
96.00
|
-4%
|
$56.00
|
-$144.00
|
-2.57
|
95.00
|
-5%
|
$57.50
|
-$142.50
|
-2.48
|
85.00
|
-15%
|
$72.50
|
-$127.50
|
-1.76
|
80.00
|
-20%
|
$80.00
|
-$120.00
|
-1.50
|
The table above shows that if the level
of the Index increases during the Index Business Day, your effective exposure increases from three times leveraged short. For example,
if the level of the Index increases by 20%, your effective exposure increases from -3x to -9x.
The table above also shows that if the
level of the Index decreases during the Index Business Day, your effective exposure decreases from three times leveraged short.
For example, if the level of the Index decreases by 20%, your effective exposure decreases from -3x to -1.5x.
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 positively 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
positively affect the market price of the Index constituents and the Index level and, therefore adversely 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 Deposit Amount, the Short Index Amount,
the Daily Interest, 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 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 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 two 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 short equity investment in companies in the technology 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 outperform other segments
of the equity market or the equity market as a whole. Larger, more established companies may be better able to respond quickly
to new competitive challenges such as changes in technology and may be less likely to encounter challenges faced by smaller companies,
including during extended periods of economic contraction. Additionally, technology and consumer discretionary stocks generally,
and certain of the index constituents specifically, have previously experienced periods of prolonged price appreciation as well
as market volatility. Such performance, if it occurred in the future, would be expected to negatively affect the value of the notes.
Moreover, using a proprietary methodology discussed below, the Index specifically seeks to identify constituent issuers that exhibit
characteristics of high-growth technology and internet/media stocks, which may negatively affect the value of the notes. Past performance
is not indicative of future results.
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 rebalancing date (based on the 10 Index constituents as of the date of this
pricing supplement). Any increase in the market price of any of those stocks is likely to have a substantial adverse impact on
the Index Closing Level and the value of the notes. Significant changes to any of these stocks or their issuers, including a merger
or similar transaction, will have a more material impact on the level of the Index as compared to a more diversified index. Due
to the small number of Index constituents, those Index constituents and the Index itself may not necessarily follow the price movements
of the entire technology and consumer discretionary industries. If the Index constituents increase in value, the Index will also
increase in value, even if common stock prices of other companies in the technology and consumer discretionary industries generally
decrease in value. Giving effect to leverage, positive 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. 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, hypothetical examples 1-5 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 depreciates 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 decreases and increases 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 -8.83%, and an example
in which the Index level increases at a constant rate of 3.00% per day, increasing 91.6 points by day 22 (Example 2) and a Note
Return of -87.48%.
Examples
3-5 highlight the effect of volatility in the Index. In Example 3, the Index level decreases by a constant 1% per day, with a decrease
of 19.8 points by day 22 and a Note Return of 91.06%. In contrast, the Index in Example 4, at day 22, has decreased 19.6 points;
however, due to the volatility of the Index on a daily basis, the Note Return is -72.82%, a 163.88% difference from the Note Return
in Example 3. Example 5 also highlights the effect of volatility in the Index, in that the Index increases and decreases in a volatile
manner over the 22-day period, and ends at the same level as on day one. The Note Return is -37.10% even though the Index level
is still at 100. For ease of analysis and presentation, examples 1-5 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 1-5, the Daily Investor Fee and the Daily Interest 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, Daily Interest 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
Interest Rate were included, the notes’ performance would be different than that shown.
Table
1 is an example in which the notes correspond (before giving effect to the Daily Investor Fee and the Daily Interest) to three
times (3x) the daily inverse performance of the Index. 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 -47.48. In Table 1, shaded areas represent those scenarios
where the notes will outperform (i.e., return more than) the inverse Index performance times 3.0 leverage; conversely areas not
shaded represent those scenarios where the notes will underperform (i.e., return less than) the inverse 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 decreases and increases
by a constant 3.00% per day.
Assumptions
|
|
Fee Rate
|
0.95% per annum
|
Daily Leverage Factor
|
3
|
Daily Deposit Factor
|
4
|
Daily Interest Rate
|
-1.00%
|
Hypothetical Principal Amount
|
$50.00
|
Initial Index Level
|
100
|
Note Return
|
-8.83%
|
Cumulative Index Return
|
-0.99%
|
Day
|
Index
Level
|
Daily Index
Performance
|
Index
Performance
Factor
|
Daily
Investor
Fee
|
Fee
Accrual
|
Daily
Interest
|
Deposit
Amount
|
Short
Index
Amount
|
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
Deposit
Factor *
Daily
Interest
Rate/365
|
(Previous
Indicative
Note Value
* Daily
Deposit
Factor) + G
- E
|
(Previous
Indicative
Note Value
* D * Daily
Leverage
Factor)
|
H - I
|
(Current
Indicative
Note Value -
Previous
Indicative
Note Value)/
Previous
Indicative
Note Value
|
|
|
|
|
|
|
|
|
|
|
|
0
|
100.0
|
|
|
|
|
|
$200.00
|
$150.00
|
$50.00
|
0.00%
|
1
|
97.0
|
-3.0%
|
0.97
|
$0.0013
|
$0.0013
|
-$0.0055
|
$199.99
|
$145.50
|
$54.49
|
8.99%
|
2
|
99.9
|
3.0%
|
1.03
|
$0.0014
|
$0.0027
|
-$0.0060
|
$217.97
|
$168.38
|
$49.58
|
-9.01%
|
3
|
96.9
|
-3.0%
|
0.97
|
$0.0013
|
$0.0040
|
-$0.0054
|
$198.32
|
$144.28
|
$54.04
|
8.99%
|
4
|
99.8
|
3.0%
|
1.03
|
$0.0014
|
$0.0054
|
-$0.0059
|
$216.14
|
$166.97
|
$49.17
|
-9.01%
|
5
|
96.8
|
-3.0%
|
0.97
|
$0.0013
|
$0.0067
|
-$0.0054
|
$196.66
|
$143.07
|
$53.58
|
8.99%
|
6
|
99.7
|
3.0%
|
1.03
|
$0.0014
|
$0.0081
|
-$0.0059
|
$214.33
|
$165.58
|
$48.75
|
-9.01%
|
7
|
96.7
|
-3.0%
|
0.97
|
$0.0013
|
$0.0094
|
-$0.0053
|
$195.01
|
$141.88
|
$53.14
|
8.99%
|
8
|
99.6
|
3.0%
|
1.03
|
$0.0014
|
$0.0107
|
-$0.0058
|
$212.54
|
$164.19
|
$48.35
|
-9.01%
|
9
|
96.7
|
-3.0%
|
0.97
|
$0.0013
|
$0.0120
|
-$0.0053
|
$193.38
|
$140.69
|
$52.69
|
8.99%
|
10
|
99.6
|
3.0%
|
1.03
|
$0.0014
|
$0.0134
|
-$0.0058
|
$210.76
|
$162.82
|
$47.94
|
-9.01%
|
11
|
96.6
|
-3.0%
|
0.97
|
$0.0012
|
$0.0146
|
-$0.0053
|
$191.76
|
$139.51
|
$52.25
|
8.99%
|
12
|
99.5
|
3.0%
|
1.03
|
$0.0014
|
$0.0160
|
-$0.0057
|
$208.99
|
$161.45
|
$47.54
|
-9.01%
|
13
|
96.5
|
-3.0%
|
0.97
|
$0.0012
|
$0.0172
|
-$0.0052
|
$190.16
|
$138.34
|
$51.81
|
8.99%
|
14
|
99.4
|
3.0%
|
1.03
|
$0.0013
|
$0.0186
|
-$0.0057
|
$207.24
|
$160.10
|
$47.14
|
-9.01%
|
15
|
96.4
|
-3.0%
|
0.97
|
$0.0012
|
$0.0198
|
-$0.0052
|
$188.56
|
$137.19
|
$51.38
|
8.99%
|
16
|
99.3
|
3.0%
|
1.03
|
$0.0013
|
$0.0211
|
-$0.0056
|
$205.51
|
$158.76
|
$46.75
|
-9.01%
|
17
|
96.3
|
-3.0%
|
0.97
|
$0.0012
|
$0.0223
|
-$0.0051
|
$186.99
|
$136.04
|
$50.95
|
8.99%
|
18
|
99.2
|
3.0%
|
1.03
|
$0.0013
|
$0.0237
|
-$0.0056
|
$203.79
|
$157.43
|
$46.36
|
-9.01%
|
19
|
96.2
|
-3.0%
|
0.97
|
$0.0012
|
$0.0249
|
-$0.0051
|
$185.42
|
$134.90
|
$50.52
|
8.99%
|
20
|
99.1
|
3.0%
|
1.03
|
$0.0013
|
$0.0262
|
-$0.0055
|
$202.08
|
$156.11
|
$45.97
|
-9.01%
|
21
|
96.1
|
-3.0%
|
0.97
|
$0.0012
|
$0.0274
|
-$0.0050
|
$183.87
|
$133.77
|
$50.10
|
8.99%
|
22
|
99.0
|
3.0%
|
1.03
|
$0.0013
|
$0.0287
|
-$0.0055
|
$200.39
|
$154.81
|
$45.58
|
-9.01%
|
Example 2: The Index level increases by a constant 3.00%
per day.
Assumptions
|
|
Fee Rate
|
0.95% per annum
|
Daily Leverage Factor
|
3
|
Daily Deposit Factor
|
4
|
Daily Interest Rate
|
-1.00%
|
Hypothetical Principal Amount
|
$50.00
|
Initial Index Level
|
100
|
Note Return
|
-87.48%
|
Cumulative Index Return
|
91.61%
|
Day
|
Index
Level
|
Daily Index
Performance
|
Index
Performance
Factor
|
Daily
Investor
Fee
|
Fee
Accrual
|
Daily
Interest
|
Deposit
Amount
|
Short Index
Amount
|
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
Deposit
Factor *
Daily
Interest
Rate/365
|
(Previous
Indicative
Note Value *
Daily Deposit
Factor) + G -
E
|
(Previous
Indicative
Note Value
* D * Daily
Leverage
Factor)
|
H - I
|
(Current
Indicative
Note Value -
Previous
Indicative
Note Value)/
Previous
Indicative
Note Value
|
|
|
|
|
|
|
|
|
|
|
|
0
|
100.0
|
|
|
|
|
|
$200.00
|
$150.00
|
$50.00
|
0.00%
|
1
|
103.0
|
3.0%
|
1.03
|
$0.0013
|
$0.0013
|
-$0.0055
|
$199.99
|
$154.50
|
$45.49
|
-9.01%
|
2
|
106.1
|
3.0%
|
1.03
|
$0.0012
|
$0.0025
|
-$0.0050
|
$181.97
|
$140.57
|
$41.39
|
-9.01%
|
3
|
109.3
|
3.0%
|
1.03
|
$0.0011
|
$0.0036
|
-$0.0045
|
$165.57
|
$127.90
|
$37.66
|
-9.01%
|
4
|
112.6
|
3.0%
|
1.03
|
$0.0010
|
$0.0045
|
-$0.0041
|
$150.64
|
$116.37
|
$34.27
|
-9.01%
|
5
|
115.9
|
3.0%
|
1.03
|
$0.0009
|
$0.0054
|
-$0.0038
|
$137.06
|
$105.89
|
$31.18
|
-9.01%
|
6
|
119.4
|
3.0%
|
1.03
|
$0.0008
|
$0.0062
|
-$0.0034
|
$124.71
|
$96.34
|
$28.37
|
-9.01%
|
7
|
123.0
|
3.0%
|
1.03
|
$0.0007
|
$0.0070
|
-$0.0031
|
$113.47
|
$87.66
|
$25.81
|
-9.01%
|
8
|
126.7
|
3.0%
|
1.03
|
$0.0007
|
$0.0077
|
-$0.0028
|
$103.24
|
$79.76
|
$23.48
|
-9.01%
|
9
|
130.5
|
3.0%
|
1.03
|
$0.0006
|
$0.0083
|
-$0.0026
|
$93.94
|
$72.57
|
$21.37
|
-9.01%
|
10
|
134.4
|
3.0%
|
1.03
|
$0.0006
|
$0.0088
|
-$0.0023
|
$85.47
|
$66.03
|
$19.44
|
-9.01%
|
11
|
138.4
|
3.0%
|
1.03
|
$0.0005
|
$0.0093
|
-$0.0021
|
$77.76
|
$60.08
|
$17.69
|
-9.01%
|
12
|
142.6
|
3.0%
|
1.03
|
$0.0005
|
$0.0098
|
-$0.0019
|
$70.76
|
$54.66
|
$16.09
|
-9.01%
|
13
|
146.9
|
3.0%
|
1.03
|
$0.0004
|
$0.0102
|
-$0.0018
|
$64.38
|
$49.73
|
$14.64
|
-9.01%
|
14
|
151.3
|
3.0%
|
1.03
|
$0.0004
|
$0.0106
|
-$0.0016
|
$58.57
|
$45.25
|
$13.32
|
-9.01%
|
15
|
155.8
|
3.0%
|
1.03
|
$0.0003
|
$0.0109
|
-$0.0015
|
$53.30
|
$41.17
|
$12.12
|
-9.01%
|
16
|
160.5
|
3.0%
|
1.03
|
$0.0003
|
$0.0113
|
-$0.0013
|
$48.49
|
$37.46
|
$11.03
|
-9.01%
|
17
|
165.3
|
3.0%
|
1.03
|
$0.0003
|
$0.0115
|
-$0.0012
|
$44.12
|
$34.08
|
$10.04
|
-9.01%
|
18
|
170.2
|
3.0%
|
1.03
|
$0.0003
|
$0.0118
|
-$0.0011
|
$40.14
|
$31.01
|
$9.13
|
-9.01%
|
19
|
175.4
|
3.0%
|
1.03
|
$0.0002
|
$0.0120
|
-$0.0010
|
$36.53
|
$28.22
|
$8.31
|
-9.01%
|
20
|
180.6
|
3.0%
|
1.03
|
$0.0002
|
$0.0123
|
-$0.0009
|
$33.23
|
$25.67
|
$7.56
|
-9.01%
|
21
|
186.0
|
3.0%
|
1.03
|
$0.0002
|
$0.0125
|
-$0.0008
|
$30.24
|
$23.36
|
$6.88
|
-9.01%
|
22
|
191.6
|
3.0%
|
1.03
|
$0.0002
|
$0.0126
|
-$0.0008
|
$27.51
|
$21.25
|
$6.26
|
-9.01%
|
Example 3: The Index level decreases by a constant 1.00%
per day.
Assumptions
|
|
Fee Rate
|
0.95% per annum
|
Daily Leverage Factor
|
3
|
Daily Deposit Factor
|
4
|
Daily Interest Rate
|
-1.00%
|
Hypothetical Principal Amount
|
$50.00
|
Initial Index Level
|
100
|
Note Return
|
91.06%
|
Cumulative Index Return
|
-19.84%
|
Day
|
Index
Level
|
Daily Index
Performance
|
Index
Performance
Factor
|
Daily
Investor
Fee
|
Fee
Accrual
|
Daily
Interest
|
Deposit
Amount
|
Short
Index
Amount
|
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
Deposit
Factor *
Daily
Interest
Rate/365
|
(Previous
Indicative
Note Value *
Daily
Deposit
Factor) + G -
E
|
(Previous
Indicative
Note Value
* D * Daily
Leverage
Factor)
|
H - I
|
(Current
Indicative
Note Value
- Previous
Indicative
Note
Value)/
Previous
Indicative
Note Value
|
|
|
|
|
|
|
|
|
|
|
|
0
|
100.0
|
|
|
|
|
|
$200.00
|
$150.00
|
$50.00
|
0.00%
|
1
|
99.0
|
-1.0%
|
0.99
|
$0.0013
|
$0.0013
|
-$0.0055
|
$199.99
|
$148.50
|
$51.49
|
2.99%
|
2
|
98.0
|
-1.0%
|
0.99
|
$0.0013
|
$0.0026
|
-$0.0056
|
$205.97
|
$152.93
|
$53.03
|
2.99%
|
3
|
97.0
|
-1.0%
|
0.99
|
$0.0014
|
$0.0040
|
-$0.0058
|
$212.12
|
$157.50
|
$54.61
|
2.99%
|
4
|
96.1
|
-1.0%
|
0.99
|
$0.0014
|
$0.0054
|
-$0.0060
|
$218.45
|
$162.21
|
$56.25
|
2.99%
|
5
|
95.1
|
-1.0%
|
0.99
|
$0.0015
|
$0.0069
|
-$0.0062
|
$224.98
|
$167.05
|
$57.93
|
2.99%
|
6
|
94.1
|
-1.0%
|
0.99
|
$0.0015
|
$0.0084
|
-$0.0063
|
$231.69
|
$172.04
|
$59.66
|
2.99%
|
7
|
93.2
|
-1.0%
|
0.99
|
$0.0016
|
$0.0100
|
-$0.0065
|
$238.61
|
$177.18
|
$61.44
|
2.99%
|
8
|
92.3
|
-1.0%
|
0.99
|
$0.0016
|
$0.0116
|
-$0.0067
|
$245.74
|
$182.47
|
$63.27
|
2.99%
|
9
|
91.4
|
-1.0%
|
0.99
|
$0.0016
|
$0.0132
|
-$0.0069
|
$253.08
|
$187.92
|
$65.16
|
2.99%
|
10
|
90.4
|
-1.0%
|
0.99
|
$0.0017
|
$0.0149
|
-$0.0071
|
$260.64
|
$193.53
|
$67.11
|
2.99%
|
11
|
89.5
|
-1.0%
|
0.99
|
$0.0017
|
$0.0167
|
-$0.0074
|
$268.42
|
$199.31
|
$69.11
|
2.99%
|
12
|
88.6
|
-1.0%
|
0.99
|
$0.0018
|
$0.0185
|
-$0.0076
|
$276.44
|
$205.26
|
$71.18
|
2.99%
|
13
|
87.8
|
-1.0%
|
0.99
|
$0.0019
|
$0.0203
|
-$0.0078
|
$284.69
|
$211.39
|
$73.30
|
2.99%
|
14
|
86.9
|
-1.0%
|
0.99
|
$0.0019
|
$0.0222
|
-$0.0080
|
$293.19
|
$217.70
|
$75.49
|
2.99%
|
15
|
86.0
|
-1.0%
|
0.99
|
$0.0020
|
$0.0242
|
-$0.0083
|
$301.95
|
$224.21
|
$77.74
|
2.99%
|
16
|
85.1
|
-1.0%
|
0.99
|
$0.0020
|
$0.0262
|
-$0.0085
|
$310.97
|
$230.90
|
$80.07
|
2.99%
|
17
|
84.3
|
-1.0%
|
0.99
|
$0.0021
|
$0.0283
|
-$0.0088
|
$320.25
|
$237.80
|
$82.46
|
2.99%
|
18
|
83.5
|
-1.0%
|
0.99
|
$0.0021
|
$0.0304
|
-$0.0090
|
$329.82
|
$244.90
|
$84.92
|
2.99%
|
19
|
82.6
|
-1.0%
|
0.99
|
$0.0022
|
$0.0326
|
-$0.0093
|
$339.67
|
$252.21
|
$87.46
|
2.99%
|
20
|
81.8
|
-1.0%
|
0.99
|
$0.0023
|
$0.0349
|
-$0.0096
|
$349.81
|
$259.74
|
$90.07
|
2.99%
|
21
|
81.0
|
-1.0%
|
0.99
|
$0.0023
|
$0.0373
|
-$0.0099
|
$360.26
|
$267.50
|
$92.76
|
2.99%
|
22
|
80.2
|
-1.0%
|
0.99
|
$0.0024
|
$0.0397
|
-$0.0102
|
$371.02
|
$275.49
|
$95.53
|
2.99%
|
|
|
|
|
|
|
|
|
|
|
|
|
Example 4: The Index level decreases in a volatile manner.
Assumptions
|
|
Fee Rate
|
0.95% per annum
|
Daily Leverage Factor
|
3
|
Daily Deposit Factor
|
4
|
Daily Interest Rate
|
-1.00%
|
Hypothetical Principal Amount
|
$50.00
|
Initial Index Level
|
100
|
Note Return
|
-72.82%
|
Cumulative Index Return
|
-19.63%
|
Day
|
Index
Level
|
Daily Index
Performance
|
Index
Performance
Factor
|
Daily
Investor
Fee
|
Fee
Accrual
|
Daily
Interest
|
Deposit
Amount
|
Short
Index
Amount
|
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
Deposit
Factor *
Daily
Interest
Rate/365
|
(Previous
Indicative
Note Value *
Daily
Deposit
Factor) + G -
E
|
(Previous
Indicative
Note Value
* D * Daily
Leverage
Factor)
|
H - I
|
(Current
Indicative
Note Value -
Previous
Indicative
Note Value)/
Previous
Indicative
Note Value
|
|
|
|
|
|
|
|
|
|
|
|
0
|
100.0
|
|
|
|
|
|
$200.00
|
$150.00
|
$50.00
|
0.00%
|
1
|
89.0
|
-11.0%
|
0.89
|
$0.0013
|
$0.0013
|
-$0.0055
|
$199.99
|
$133.50
|
$66.49
|
32.99%
|
2
|
92.6
|
4.0%
|
1.04
|
$0.0017
|
$0.0030
|
-$0.0073
|
$265.96
|
$207.46
|
$58.51
|
-12.01%
|
3
|
95.3
|
3.0%
|
1.03
|
$0.0015
|
$0.0046
|
-$0.0064
|
$234.01
|
$180.78
|
$53.23
|
-9.01%
|
4
|
103.9
|
9.0%
|
1.09
|
$0.0014
|
$0.0059
|
-$0.0058
|
$212.92
|
$174.07
|
$38.85
|
-27.01%
|
5
|
109.1
|
5.0%
|
1.05
|
$0.0010
|
$0.0070
|
-$0.0043
|
$155.40
|
$122.38
|
$33.02
|
-15.01%
|
6
|
121.1
|
11.0%
|
1.11
|
$0.0009
|
$0.0078
|
-$0.0036
|
$132.07
|
$109.95
|
$22.12
|
-33.01%
|
7
|
128.4
|
6.0%
|
1.06
|
$0.0006
|
$0.0084
|
-$0.0024
|
$88.47
|
$70.34
|
$18.13
|
-18.01%
|
8
|
134.8
|
5.0%
|
1.05
|
$0.0005
|
$0.0089
|
-$0.0020
|
$72.53
|
$57.12
|
$15.41
|
-15.01%
|
9
|
161.8
|
20.0%
|
1.20
|
$0.0004
|
$0.0093
|
-$0.0017
|
$61.64
|
$55.48
|
$6.16
|
-60.01%
|
10
|
127.8
|
-21.0%
|
0.79
|
$0.0002
|
$0.0094
|
-$0.0007
|
$24.65
|
$14.60
|
$10.04
|
62.99%
|
11
|
122.7
|
-4.0%
|
0.96
|
$0.0003
|
$0.0097
|
-$0.0011
|
$40.17
|
$28.93
|
$11.25
|
11.99%
|
12
|
131.3
|
7.0%
|
1.07
|
$0.0003
|
$0.0100
|
-$0.0012
|
$44.99
|
$36.11
|
$8.88
|
-21.01%
|
13
|
154.9
|
18.0%
|
1.18
|
$0.0002
|
$0.0102
|
-$0.0010
|
$35.54
|
$31.45
|
$4.09
|
-54.01%
|
14
|
165.7
|
7.0%
|
1.07
|
$0.0001
|
$0.0103
|
-$0.0004
|
$16.34
|
$13.11
|
$3.23
|
-21.01%
|
15
|
159.1
|
-4.0%
|
0.96
|
$0.0001
|
$0.0104
|
-$0.0004
|
$12.91
|
$9.29
|
$3.61
|
11.99%
|
16
|
120.9
|
-24.0%
|
0.76
|
$0.0001
|
$0.0105
|
-$0.0004
|
$14.45
|
$8.24
|
$6.22
|
71.99%
|
17
|
106.4
|
-12.0%
|
0.88
|
$0.0002
|
$0.0107
|
-$0.0007
|
$24.86
|
$16.41
|
$8.45
|
35.99%
|
18
|
92.6
|
-13.0%
|
0.87
|
$0.0002
|
$0.0109
|
-$0.0009
|
$33.81
|
$22.06
|
$11.75
|
38.99%
|
19
|
82.4
|
-11.0%
|
0.89
|
$0.0003
|
$0.0112
|
-$0.0013
|
$46.99
|
$31.36
|
$15.62
|
32.99%
|
20
|
76.6
|
-7.0%
|
0.93
|
$0.0004
|
$0.0116
|
-$0.0017
|
$62.49
|
$43.59
|
$18.90
|
20.99%
|
21
|
70.5
|
-8.0%
|
0.92
|
$0.0005
|
$0.0121
|
-$0.0021
|
$75.60
|
$52.17
|
$23.43
|
23.99%
|
22
|
80.4
|
14.0%
|
1.14
|
$0.0006
|
$0.0127
|
-$0.0026
|
$93.73
|
$80.15
|
$13.59
|
-42.01%
|
Example 5: The Index level increases and decreases in a volatile
manner, ending at the same level.
Assumptions
|
|
Fee Rate
|
0.95% per annum
|
Daily Leverage Factor
|
3
|
Daily Deposit Factor
|
4
|
Daily Interest Rate
|
-1.00%
|
Hypothetical Principal Amount
|
$50.00
|
Initial Index Level
|
100
|
Note Return
|
-37.10%
|
Cumulative Index Return
|
-0.02%
|
Day
|
Index
Level
|
Daily Index
Performance
|
Index
Performance
Factor
|
Daily
Investor
Fee
|
Fee
Accrual
|
Daily
Interest
|
Deposit
Amount
|
Short
Index
Amount
|
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
Deposit
Factor *
Daily
Interest
Rate/365
|
(Previous
Indicative
Note Value
* Daily
Deposit
Factor) + G
- E
|
(Previous
Indicative
Note Value
* D * Daily
Leverage
Factor)
|
H - I
|
(Current
Indicative
Note Value
- Previous
Indicative
Note
Value)/
Previous
Indicative
Note Value
|
|
|
|
|
|
|
|
|
|
|
|
0
|
100.0
|
|
|
|
|
|
$200.00
|
$150.00
|
$50.00
|
0.00%
|
1
|
102.0
|
2.0%
|
1.02
|
$0.0013
|
$0.0013
|
-$0.0055
|
$199.99
|
$153.00
|
$46.99
|
-6.01%
|
2
|
105.1
|
3.0%
|
1.03
|
$0.0012
|
$0.0025
|
-$0.0051
|
$187.97
|
$145.21
|
$42.76
|
-9.01%
|
3
|
109.3
|
4.0%
|
1.04
|
$0.0011
|
$0.0036
|
-$0.0047
|
$171.02
|
$133.40
|
$37.62
|
-12.01%
|
4
|
98.3
|
-10.0%
|
0.90
|
$0.0010
|
$0.0046
|
-$0.0041
|
$150.48
|
$101.58
|
$48.90
|
29.99%
|
5
|
100.3
|
2.0%
|
1.02
|
$0.0013
|
$0.0059
|
-$0.0054
|
$195.60
|
$149.64
|
$45.96
|
-6.01%
|
6
|
103.3
|
3.0%
|
1.03
|
$0.0012
|
$0.0071
|
-$0.0050
|
$183.84
|
$142.02
|
$41.82
|
-9.01%
|
7
|
93.0
|
-10.0%
|
0.90
|
$0.0011
|
$0.0082
|
-$0.0046
|
$167.27
|
$112.91
|
$54.36
|
29.99%
|
8
|
94.8
|
2.0%
|
1.02
|
$0.0014
|
$0.0096
|
-$0.0060
|
$217.43
|
$166.34
|
$51.09
|
-6.01%
|
9
|
96.7
|
2.0%
|
1.02
|
$0.0013
|
$0.0109
|
-$0.0056
|
$204.35
|
$156.33
|
$48.02
|
-6.01%
|
10
|
87.1
|
-10.0%
|
0.90
|
$0.0012
|
$0.0122
|
-$0.0053
|
$192.06
|
$129.65
|
$62.42
|
29.99%
|
11
|
88.8
|
2.0%
|
1.02
|
$0.0016
|
$0.0138
|
-$0.0068
|
$249.65
|
$190.99
|
$58.66
|
-6.01%
|
12
|
90.6
|
2.0%
|
1.02
|
$0.0015
|
$0.0153
|
-$0.0064
|
$234.64
|
$179.51
|
$55.13
|
-6.01%
|
13
|
81.5
|
-10.0%
|
0.90
|
$0.0014
|
$0.0168
|
-$0.0060
|
$220.53
|
$148.86
|
$71.67
|
29.99%
|
14
|
83.2
|
2.0%
|
1.02
|
$0.0019
|
$0.0186
|
-$0.0079
|
$286.66
|
$219.30
|
$67.36
|
-6.01%
|
15
|
84.8
|
2.0%
|
1.02
|
$0.0018
|
$0.0204
|
-$0.0074
|
$269.42
|
$206.11
|
$63.31
|
-6.01%
|
16
|
76.3
|
-10.0%
|
0.90
|
$0.0016
|
$0.0220
|
-$0.0069
|
$253.22
|
$170.93
|
$82.29
|
29.99%
|
17
|
77.9
|
2.0%
|
1.02
|
$0.0021
|
$0.0242
|
-$0.0090
|
$329.15
|
$251.81
|
$77.34
|
-6.01%
|
18
|
79.4
|
2.0%
|
1.02
|
$0.0020
|
$0.0262
|
-$0.0085
|
$309.36
|
$236.67
|
$72.69
|
-6.01%
|
19
|
81.0
|
2.0%
|
1.02
|
$0.0019
|
$0.0281
|
-$0.0080
|
$290.75
|
$222.43
|
$68.32
|
-6.01%
|
20
|
89.1
|
10.0%
|
1.10
|
$0.0018
|
$0.0298
|
-$0.0075
|
$273.27
|
$225.46
|
$47.81
|
-30.01%
|
21
|
90.9
|
2.0%
|
1.02
|
$0.0012
|
$0.0311
|
-$0.0052
|
$191.25
|
$146.31
|
$44.94
|
-6.01%
|
22
|
100.0
|
10.0%
|
1.10
|
$0.0012
|
$0.0323
|
-$0.0049
|
$179.75
|
$148.30
|
$31.45
|
-30.01%
|
Table 1: Expected return on the notes over one year
of Index performance, without giving effect to the Daily Investor Fee and the Daily Interest and
assuming a constant drift and volatility over time.
|
|
One Year Index Volatility
|
One
Year
Index
Perform-
ance
|
Three
Times the
Inverse
(-3x)
of One
Year
Index
Perform-
ance
|
0%
|
5%
|
10%
|
15%
|
20%
|
25%
|
30%
|
35%
|
40%
|
45%
|
50%
|
55%
|
60%
|
65%
|
70%
|
-75%
|
225%
|
6300.00%
|
6204.72%
|
5927.29%
|
5491.78%
|
4934.42%
|
4298.65%
|
3629.59%
|
2968.83%
|
2350.51%
|
1798.94%
|
1328.03%
|
942.16%
|
638.08%
|
407.28%
|
238.34%
|
-70%
|
210%
|
3603.70%
|
3548.56%
|
3388.02%
|
3135.98%
|
2813.44%
|
2445.52%
|
2058.33%
|
1675.95%
|
1318.12%
|
998.93%
|
726.41%
|
503.10%
|
327.13%
|
193.56%
|
95.80%
|
-65%
|
195%
|
2232.36%
|
2197.64%
|
2096.54%
|
1937.82%
|
1734.70%
|
1503.01%
|
1259.18%
|
1018.38%
|
793.04%
|
592.04%
|
420.42%
|
279.80%
|
168.98%
|
84.87%
|
23.30%
|
-60%
|
180%
|
1462.50%
|
1439.24%
|
1371.51%
|
1265.18%
|
1129.11%
|
973.89%
|
810.54%
|
649.23%
|
498.27%
|
363.61%
|
248.64%
|
154.43%
|
80.20%
|
23.85%
|
-17.40%
|
-55%
|
165%
|
997.39%
|
981.06%
|
933.49%
|
858.81%
|
763.24%
|
654.23%
|
539.50%
|
426.21%
|
320.18%
|
225.61%
|
144.86%
|
78.70%
|
26.56%
|
-13.02%
|
-41.99%
|
-50%
|
150%
|
700.00%
|
688.09%
|
653.41%
|
598.97%
|
529.30%
|
449.83%
|
366.20%
|
283.60%
|
206.31%
|
137.37%
|
78.50%
|
30.27%
|
-7.74%
|
-36.59%
|
-57.71%
|
-45%
|
135%
|
501.05%
|
492.10%
|
466.05%
|
425.15%
|
372.80%
|
313.10%
|
250.26%
|
188.21%
|
130.14%
|
78.34%
|
34.11%
|
-2.13%
|
-30.68%
|
-52.36%
|
-68.22%
|
-40%
|
120%
|
362.96%
|
356.07%
|
336.00%
|
304.50%
|
264.18%
|
218.19%
|
169.79%
|
121.99%
|
77.27%
|
37.37%
|
3.30%
|
-24.61%
|
-46.61%
|
-63.30%
|
-75.53%
|
-35%
|
105%
|
264.13%
|
258.71%
|
242.93%
|
218.15%
|
186.44%
|
150.26%
|
112.20%
|
74.60%
|
39.42%
|
8.04%
|
-18.75%
|
-40.71%
|
-58.01%
|
-71.14%
|
-80.75%
|
-30%
|
90%
|
191.55%
|
187.20%
|
174.57%
|
154.73%
|
129.34%
|
100.38%
|
69.90%
|
39.80%
|
11.63%
|
-13.50%
|
-34.95%
|
-52.53%
|
-66.38%
|
-76.89%
|
-84.59%
|
-25%
|
75%
|
137.04%
|
133.51%
|
123.23%
|
107.10%
|
86.46%
|
62.91%
|
38.13%
|
13.66%
|
-9.24%
|
-29.67%
|
-47.11%
|
-61.40%
|
-72.66%
|
-81.21%
|
-87.47%
|
-20%
|
60%
|
95.31%
|
92.40%
|
83.94%
|
70.65%
|
53.64%
|
34.24%
|
13.82%
|
-6.35%
|
-25.22%
|
-42.05%
|
-56.42%
|
-68.20%
|
-77.48%
|
-84.52%
|
-89.67%
|
-15%
|
45%
|
62.83%
|
60.41%
|
53.35%
|
42.27%
|
28.09%
|
11.91%
|
-5.11%
|
-21.92%
|
-37.65%
|
-51.69%
|
-63.67%
|
-73.48%
|
-81.22%
|
-87.09%
|
-91.39%
|
-10%
|
30%
|
37.17%
|
35.13%
|
29.19%
|
19.85%
|
7.91%
|
-5.72%
|
-20.06%
|
-34.22%
|
-47.48%
|
-59.30%
|
-69.39%
|
-77.66%
|
-84.18%
|
-89.13%
|
-92.75%
|
-5%
|
15%
|
16.64%
|
14.90%
|
9.84%
|
1.91%
|
-8.25%
|
-19.84%
|
-32.03%
|
-44.07%
|
-55.34%
|
-65.39%
|
-73.98%
|
-81.01%
|
-86.55%
|
-90.76%
|
-93.83%
|
0%
|
0%
|
0.00%
|
-1.49%
|
-5.82%
|
-12.63%
|
-21.34%
|
-31.27%
|
-41.73%
|
-52.05%
|
-61.71%
|
-70.33%
|
-77.69%
|
-83.72%
|
-88.47%
|
-92.07%
|
-94.71%
|
5%
|
-15%
|
-13.62%
|
-14.90%
|
-18.65%
|
-24.53%
|
-32.05%
|
-40.63%
|
-49.66%
|
-58.58%
|
-66.92%
|
-74.37%
|
-80.73%
|
-85.93%
|
-90.04%
|
-93.15%
|
-95.43%
|
10%
|
-30%
|
-24.87%
|
-25.99%
|
-29.24%
|
-34.36%
|
-40.90%
|
-48.36%
|
-56.22%
|
-63.97%
|
-71.23%
|
-77.71%
|
-83.24%
|
-87.77%
|
-91.34%
|
-94.04%
|
-96.03%
|
15%
|
-45%
|
-34.25%
|
-35.23%
|
-38.08%
|
-42.55%
|
-48.28%
|
-54.81%
|
-61.68%
|
-68.47%
|
-74.82%
|
-80.49%
|
-85.33%
|
-89.29%
|
-92.42%
|
-94.79%
|
-96.52%
|
20%
|
-60%
|
-42.13%
|
-42.99%
|
-45.50%
|
-49.44%
|
-54.48%
|
-60.23%
|
-66.28%
|
-72.25%
|
-77.84%
|
-82.83%
|
-87.09%
|
-90.58%
|
-93.33%
|
-95.41%
|
-96.94%
|
25%
|
-75%
|
-48.80%
|
-49.56%
|
-51.78%
|
-55.27%
|
-59.72%
|
-64.81%
|
-70.16%
|
-75.45%
|
-80.40%
|
-84.81%
|
-88.58%
|
-91.66%
|
-94.10%
|
-95.94%
|
-97.29%
|
30%
|
-90%
|
-54.48%
|
-55.16%
|
-57.13%
|
-60.23%
|
-64.20%
|
-68.72%
|
-73.48%
|
-78.17%
|
-82.57%
|
-86.49%
|
-89.84%
|
-92.59%
|
-94.75%
|
-96.39%
|
-97.59%
|
35%
|
-105%
|
-59.36%
|
-59.96%
|
-61.72%
|
-64.49%
|
-68.03%
|
-72.07%
|
-76.31%
|
-80.51%
|
-84.44%
|
-87.94%
|
-90.93%
|
-93.38%
|
-95.31%
|
-96.78%
|
-97.85%
|
40%
|
-120%
|
-63.56%
|
-64.10%
|
-65.68%
|
-68.16%
|
-71.33%
|
-74.95%
|
-78.76%
|
-82.53%
|
-86.05%
|
-89.19%
|
-91.87%
|
-94.07%
|
-95.80%
|
-97.11%
|
-98.07%
|
45%
|
-135%
|
-67.20%
|
-67.69%
|
-69.11%
|
-71.34%
|
-74.20%
|
-77.46%
|
-80.88%
|
-84.27%
|
-87.44%
|
-90.27%
|
-92.68%
|
-94.66%
|
-96.22%
|
-97.40%
|
-98.27%
|
50%
|
-150%
|
-70.37%
|
-70.81%
|
-72.10%
|
-74.11%
|
-76.69%
|
-79.64%
|
-82.73%
|
-85.79%
|
-88.66%
|
-91.21%
|
-93.39%
|
-95.18%
|
-96.58%
|
-97.65%
|
-98.43%
|
55%
|
-165%
|
-73.15%
|
-73.55%
|
-74.71%
|
-76.54%
|
-78.88%
|
-81.54%
|
-84.35%
|
-87.12%
|
-89.72%
|
-92.03%
|
-94.01%
|
-95.63%
|
-96.90%
|
-97.87%
|
-98.58%
|
60%
|
-180%
|
-75.59%
|
-75.95%
|
-77.01%
|
-78.67%
|
-80.80%
|
-83.22%
|
-85.77%
|
-88.29%
|
-90.65%
|
-92.76%
|
-94.55%
|
-96.02%
|
-97.18%
|
-98.06%
|
-98.71%
|
65%
|
-195%
|
-77.74%
|
-78.07%
|
-79.04%
|
-80.55%
|
-82.49%
|
-84.70%
|
-87.03%
|
-89.33%
|
-91.48%
|
-93.39%
|
-95.03%
|
-96.38%
|
-97.43%
|
-98.24%
|
-98.82%
|
70%
|
-210%
|
-79.65%
|
-79.95%
|
-80.83%
|
-82.22%
|
-83.99%
|
-86.01%
|
-88.14%
|
-90.24%
|
-92.21%
|
-93.96%
|
-95.46%
|
-96.69%
|
-97.65%
|
-98.39%
|
-98.92%
|
75%
|
-225%
|
-81.34%
|
-81.62%
|
-82.43%
|
-83.70%
|
-85.32%
|
-87.18%
|
-89.13%
|
-91.05%
|
-92.86%
|
-94.46%
|
-95.84%
|
-96.96%
|
-97.85%
|
-98.52%
|
-99.01%
|
Shaded areas represent those scenarios where the notes will
outperform (i.e., return more than) the index performance times the Daily Leverage Factor; conversely areas not shaded represent
those scenarios where the notes will underperform (i.e., return less than) the index performance times the Daily Leverage Factor.
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 original 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 Deposit Amount on such Exchange Business
Day minus (b) the Short Index Amount 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 Deposit
Amount was equal to the original principal amount plus the Short Index Amount on the Initial Trade Date, which sum equals
$200. On any subsequent Exchange Business Day until maturity, call or redemption of the notes, the Deposit Amount will equal (a)
the closing Indicative Note Value on the immediately preceding Exchange Business Day times the Daily Deposit Factor plus
(b) the Daily Interest on such Exchange Business Day minus (c) the Daily Investor Fee on such Exchange Business Day.
On the Initial Trade Date, the Short Index
Amount was equal to the Daily Leverage Factor times the original principal amount, which equals $150. On any subsequent
Exchange Business Day until maturity, call or redemption of the notes, the Short 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.
The Daily Leverage Factor is 3. The Daily
Deposit Factor is 4.
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 Deposit 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, minus (ii) 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.
On the Initial Trade Date, the Daily Interest
was $0. On any subsequent Exchange Business Day until maturity, call or redemption of the notes, the Daily Interest will equal
the product of (a) the closing Indicative Note Value on the immediately preceding Exchange Business Day times (b) the Daily
Deposit Factor times (c) the Daily Interest Rate divided by (d) 365 times (e) the number of calendar days
since the last Exchange Business Day. Because the Daily Interest is calculated and added to the Deposit Amount on a daily basis,
the net effect of the Daily Interest accrues over time. The Daily Interest Rate will vary in time and can become negative on certain
days. On such days, the Daily Interest will also be negative.
The Daily Interest Rate will equal (a)
the most recent US Federal Funds Effective Rate minus (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 days when the US Federal Funds Effective Rate is lower than 1.00%, the Daily Interest Rate will
be negative.
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 subtracted from the Deposit Amount, and the Deposit Amount is calculated as part of 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 1-for-10 reverse split, effective as of July 20, 2020, the
principal amount per note was $500.
You may lose some or all of your investment
at maturity. Because the Daily Investor Fee and any negative Daily Interest reduce your final payment, the level of the Index will
need to have decreased 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 any negative Daily Interest
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 decrease
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 any
negative Daily Interest, 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 less 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 negative
(before taking into account the negative effect of the Daily Investor Fee and the Daily Interest). 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.
“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.
“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.
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, any negative Daily Interest and the Redemption
Fee Amount reduce your final payment, the level of the Index will need to have decreased 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, any negative Daily Interest 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 decrease 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 negative (before taking into account the negative effect of the Daily Investor Fee, the Daily
Interest 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 any Index Business Day that we may specify through and including the Maturity Date (the
“Call Settlement Date”). 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 any negative Daily Interest reduce your final payment, the level of the Index will
need to have decreased 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 any negative Daily
Interest 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 decrease 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 less
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 negative (before taking into account the negative effect of the Daily Investor Fee and the
Daily Interest).
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 Deposit Amount, the Short Index Amount, the Daily Interest, the Daily Investor Fee, the Redemption Fee Amount,
the Cash Settlement Amount, if any, that we will pay you at maturity, the Redemption Amount, if any, that we will pay you upon
redemption, if applicable, and the Call Settlement Amount, if any, that we will pay you in the event that we call the notes. The
Calculation Agent will also be responsible for determining whether a Market Disruption Event has occurred, whether the Index has
been discontinued and whether there has been a material change in the Index. All determinations made by the Calculation Agent will
be at the sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all purposes and
binding on you and on us. The holder of the notes will not be entitled to any compensation from us for any loss suffered as a result
of any determinations or calculations made by the Calculation Agent. We may appoint a different Calculation Agent from time to
time after the date of this pricing supplement without your consent and without notifying you.
The Calculation Agent will provide written notice to the trustee
at its New York office, on which notice the trustee may conclusively rely, of the amount to be paid at maturity or call, or upon
early redemption, on or prior to 12:00 p.m., New York City time, on the Business Day immediately preceding the Maturity Date, any
Redemption Date or any Call Settlement Date, as applicable.
All dollar amounts related to determination
of the Indicative Note Value, the Deposit Amount, the Short Index Amount, the Daily Interest, 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, 2021, June 8, 2021, June 9, 2021, June 10, 2021, and June 11, 2021 and there is a Market Disruption
Event on June 7, 2021, 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, 2021 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, 2021, June 8, 2021, June 9, 2021,
June 10, 2021 and June 11, 2021.
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:
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(a)
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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;
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(b)
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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;
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(c)
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the Index is not published; or
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(d)
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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.”
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The following events will not be Market
Disruption Events with respect to the Index:
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(a)
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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
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(b)
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a decision to permanently discontinue trading in the option or futures contracts relating to the Index or any Index constituents.
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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 shall have occurred and be continuing, the amount declared due and payable per note upon any acceleration of the notes
will be determined by the Calculation Agent and will be an amount in cash equal to the Redemption Amount, calculated as if the
date of acceleration were the Redemption Measurement Date. For purposes of this calculation, the Redemption Fee Amount will be
$0.
If the maturity of the notes is accelerated
because of an event of default as described above, we will, or will cause the Calculation Agent to, provide written notice to
the trustee at its New York office, on which notice the trustee may conclusively rely, and to DTC of the cash amount due with
respect to the notes as promptly as possible and in no event later than two Business Days after the date of acceleration.
Defeasance
The provisions described in the accompanying
prospectus under the heading “Description of Debt Securities We May Offer — Modification and Waiver of the Debt Securities
— Defeasance” are not applicable to the notes.
Manner of Payment and Delivery
Any payment on or delivery of the notes
at maturity or call, or upon early redemption, will be made to accounts designated by you and approved by us, or at the corporate
trust office of the trustee in New York City, but only when the notes are surrendered to the trustee at that office. We also may
make any payment or delivery in accordance with the applicable procedures of the depositary.
Modified Business Day
As described in “Description of the
Notes We May Offer — Payment Mechanics — Payment When Offices Are Closed” in the attached prospectus supplement,
any payment on the notes that would otherwise be due on a day that is not a Business Day may instead be paid on the next day that
is a Business Day, with the same effect as if paid on the original due date, except as described under “— Cash Settlement
Amount at Maturity,” “— Call Right” and “— Early Redemption at the Option of the Holders”
above.
Reissuances or Reopened Issues
We may, at our sole discretion, “reopen”
or reissue the notes. We issued the notes initially in an aggregate principal amount of $50,000,000 on January 25, 2018. Including
the notes that will be issued as of February 12, 2021, we will have issued $9,000,000,000 in aggregate principal amount of the
notes. We may issue additional notes in amounts that exceed these amounts at any time, without your consent and without notifying
you. The notes do not limit our ability to incur other indebtedness or to issue other securities. Also, we are not subject to financial
or similar restrictions by the terms of the notes. For more information, please refer to “Description of the Notes We May
Offer — General” in the accompanying prospectus supplement and “Description of Debt Securities We May Offer —
General” in the accompanying prospectus.
These further issuances, if any, will be
consolidated to form a single class with the originally issued notes and will have the same CUSIP number and will trade interchangeably
with the notes immediately upon settlement. Any additional issuances will increase the aggregate principal amount of the outstanding
notes of the class, plus the aggregate principal amount of any notes bearing the same CUSIP number that are issued in any future
issuances of notes bearing the same CUSIP number. The price of any additional offering will be determined at the time of pricing
of that offering.
Clearance and Settlement
The DTC participants that hold the notes
through DTC on behalf of investors will follow the settlement practices applicable to equity securities in DTC’s settlement
system with respect to the primary distribution of the notes and secondary market trading between DTC participants.
INTRADAY VALUE OF THE INDEX
AND THE NOTES
Intraday Index Values
Each Index Business Day, the Index Calculation
Agent will calculate and publish the intraday Index value every second during normal trading hours to the ICE Data Global Index
Feed. The intraday Index value will also be 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
shall 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 shall not be liable for any lost profits, losses, punitive, incidental or consequential
damages. The Index Calculation Agent shall not be responsible for or have any liability for any injuries or damages caused by errors,
inaccuracies, omissions or any other failure in, or delays or interruptions of, the intraday Index value from whatever cause. The
Index Calculation Agent is not responsible for the selection of or use of the Index or the notes, the accuracy and adequacy of
the Index or information used by Bank of Montreal and the resultant output thereof.
The intraday calculation of the level of
the Index will be provided for reference purposes only. Published calculations of the level of the Index from the Index Calculation
Agent may occasionally be subject to delay or postponement. Any such delays or postponements will affect the current level of the
Index and therefore the value of the notes in the secondary market. The intraday Index value published every 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 “FNGDIV” 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 Deposit Amount minus (b) the Intraday Short Index
Amount; 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 Short 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 Deposit Amount from the
previous Index Business Day, the Intraday Short Index Amount 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 Short 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 Indices, LLC 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 will be 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 meet 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 and consumer discretionary sectors consisting of highly-traded growth stocks
of technology and tech-enabled companies such as Facebook, Inc., Apple Inc., Amazon.com, 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 Facebook, Inc., Apple Inc., Amazon.com, Inc., Netflix, Inc., Google (Alphabet Inc.), Alibaba Group Holding Limited, Baidu,
Inc., Nvidia Corporation, Tesla, Inc. and Twitter, Inc.
Index Universe
The Index universe will consist of all
stocks classified as Consumer Discretionary 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 are eligible for inclusion in the Index.
Index Constituent Selection
At each quarterly rebalance, 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:
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Stocks must have a market capitalization (including all share classes and unlisted shares) of at least $5 billion;
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Stocks must have a trailing six month average daily traded value (ADTV / turnover) of $50 million on the specific listing line;
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The ICE Data Indices Governance Committee (the “Governance Committee”) will oversee a process to select FANG and
FANG-related stocks. The FANG stocks include Facebook, Inc., Apple Inc., Amazon.com, Inc., Netflix, Inc., Google (Alphabet Inc.).
Other stocks selected for the Index, in addition to satisfying the criteria in the two subparagraphs above, should exhibit characteristics
of high-growth technology and Internet/media stocks. ICE Data and its Governance Committee will focus on distinguishing between
traditional technology and services companies and newer, innovative, technology-utilizing companies using, among other factors,
sector classification, revenue growth and an analysis of the issuer’s business.
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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.
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Rebalances and Frequency
The general aim of the quarterly rebalance
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 of representing a segment of the technology and consumer discretionary sectors consisting of the most
highly-traded and high-growth technology and internet/media stocks such as Facebook, Inc., Apple Inc., Amazon.com, Inc., Netflix,
Inc., Google (Alphabet Inc.). 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 rebalance and as a result of the removal of an Index constituent. The quarterly Index rebalance becomes effective
after the close of the third Friday of March, June, September, and December. The rebalance 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 rebalancing 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 rebalances, the Index
will be rebalanced 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 current Index level would be calculated by dividing the current modified Index market capitalization by the Index
divisor. The divisor was determined based on the initial capitalization base of the Index and the base level. The divisor is updated
as a result of corporate actions and composition changes.
The general formula for the Index is:
Where:
t means Index Calculation Date t
Dt means the Index divisor on Index Calculation Date
t
Pi,t means the price of Index constituent i on
Index Calculation Date t
Qi,ty means the number of shares of Index constituent
i on Index Calculation Date t
Index Calculation Date means a U.S. Business Day where all of
the Constituent Exchanges are open.
The Base Date for the Index is September
19, 2014, and the Base Level is 1,000.00.
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 rebalancing
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.
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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.
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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:
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o
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The acquiring company is an Index constituent and the acquired company is not. There will be no action taken in the Index.
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o
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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.
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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,
the Index will not be recalculated unless the Index Administrator decides otherwise.
Commercially reasonable efforts are made
to ensure the correctness and validity of data used in real-time Index calculations. If incorrect price or corporate action data
affects Index daily highs, lows, or closes, it is corrected retroactively as soon as possible and all revisions are communicated
out to the public and market data vendors.
Announcements
Changes to the Index methodology which
arise as a result of market feedback, consultations, internal reviews, or otherwise will be communicated by an Index announcement
which will be distributed by ICE Data at www.theice.com/market-data/indices and ICE Data Services at www.theice.com/market-data/indices/equity-indices/products.
The information included in those websites will not be deemed to be included or incorporated by reference in this pricing supplement.
As a general rule, the announcement periods
that are mentioned below will be applied. However, 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.
Inclusion of new Index constituents.
The inclusion of new companies in the Index will typically only occur during a quarterly rebalance, although there could be exceptions
based on a specific corporate action affecting a current Index constituent during the year. The inclusion of the new company will
be announced at least one week prior to the effective date of the actual inclusion. For example, for a rebalance effective for
June 18, 2018, the announcement would have occurred after the close on June 8, 2018.
Removal of Index constituents. Index
constituents would be removed from the Index as a result of periodic corporate actions as well as the results of the quarterly
rebalance. All removals will be announced at least three trading days before the effective date of the removal. It should be noted
that in the case of mergers and acquisitions, every effort will be made to remove the company at some reasonable time ahead of
the suspension in trading in the acquired company. There will be certain situations and corporate actions that would require the
removal of a company that has already ceased trading. In those cases, the company will be removed from the Index at its last traded
price, or, at the discretion of the Index Administrator, at a derived price that most accurately represents its post-suspension
value.
Corporate actions. In case of an
event that could affect one or more Index constituents, the Index Administrator will inform the market about the intended treatment
of the event in the Index shortly after the firm details have become available and have been confirmed. When possible, the corporate
action will be announced, even if not all information is known, at least one trading day before the effective date of the action.
Once the corporate action has been effectuated, the Index Administrator will confirm the changes 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 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 February 11, 2021.
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. NYSE® 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.