Registration Statement No.333-264388
Filed Pursuant to Rule 433
Subject to Completion,
dated September 10, 2024
Pricing Supplement to the Prospectus dated May 26, 2022,
the Prospectus Supplement dated May 26, 2022 and the Product Supplement dated July 22, 2022
US$ [ ]
Senior Medium-Term Notes, Series I
Autocallable Buffer Notes with Contingent Coupons due September 30, 2026
Linked to the Least Performing of the shares of iShares® 20+ Year Treasury Bond ETF and the shares of VanEck® Gold Miners ETF
| · | The notes are designed for investors who are seeking monthly contingent periodic interest payments (as
described in more detail below), as well as a return of principal if the closing level of each of the shares of iShares® 20+ Year
Treasury Bond ETF and the shares of VanEck® Gold Miners ETF (each, a "Reference Asset" and, collectively, the "Reference
Assets") on any monthly Observation Date beginning in March 2025 is greater than 100% of its Initial Level (the “Call Level”).
Investors should be willing to have their notes automatically redeemed prior to maturity, be willing to forego any potential to participate
in the appreciation of the shares of the Reference Assets and be willing to lose a significant portion of their principal at maturity.
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| · | The notes will pay a Contingent Coupon on each Contingent Coupon Payment Date at the Contingent Interest
Rate of 0.625% per month (approximately 7.50% per annum) if the closing level of each Reference Asset on the applicable monthly Observation
Date is greater than or equal to its Coupon Barrier Level. However, if the closing level of any Reference Asset is less than its Coupon
Barrier Level on an Observation Date, the notes will not pay the Contingent Coupon for that Observation Date. |
| · | Beginning on March 26, 2025, if on any Observation Date, the closing level of each Reference Asset is
greater than its Call Level, the notes will be automatically redeemed. On the following Contingent Coupon Payment Date (the “Call
Settlement Date"), investors will receive their principal amount plus the Contingent Coupon otherwise due. After the notes are redeemed,
investors will not receive any additional payments in respect of the notes. |
| · | The notes do not guarantee any return of principal at maturity. Instead, if the notes are not automatically
redeemed, the payment at maturity will be based on the Final Level of each Reference Asset and whether the Final Level of any Reference
Asset has declined from its Initial Level to below its Buffer Level on the Valuation Date (a “Trigger Event”), as described
below. |
| · | If the notes are not automatically redeemed and a Trigger Event has occurred, investors will lose 1%
of the principal amount for each 1% decrease in the level of the Least Performing Reference Asset (as defined below) from its Initial
Level to its Final Level in excess of 20.00%. In such a case, you will receive a cash amount at maturity that is less than the principal
amount, together with the final Contingent Coupon, if payable. |
| · | Investing in the notes is not equivalent to a direct investment in the Reference Assets. |
| · | The notes will not be listed on any securities exchange. |
| · | All payments on the notes are subject to the credit risk of Bank of Montreal. |
| · | The notes will be issued in minimum denominations of $1,000 and integral multiples of $1,000. |
| · | Our subsidiary, BMO Capital Markets Corp. (“BMOCM”), is the agent for this offering. See
“Supplemental Plan of Distribution (Conflicts of Interest)” below. |
| · | The notes will not be subject to conversion into our common shares or the common shares of any of our
affiliates under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act (the “CDIC Act”). |
Terms of the Notes:1
Pricing Date: |
September 25, 2024 |
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Valuation Date: |
September 25, 2026 |
Settlement Date: |
September 30, 2024 |
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Maturity Date: |
September 30, 2026 |
1Expected. See “Key Terms of the Notes” below
for additional details.
Specific Terms of the Notes:
Autocallable
Number |
Reference
Assets |
Ticker
Symbol |
Initial
Level |
Contingent
Interest Rate |
Coupon
Barrier
Level |
Buffer
Level |
CUSIP |
Principal
Amount |
Price to
Public1 |
Agent’s
Commission1 |
Proceeds to
Bank of
Montreal1 |
3958 |
The shares of iShares® 20+ Year Treasury Bond ETF |
TLT |
[ ] |
0.625% per month (approximately 7.50% per annum) |
[ ], 80.00% of its Initial Level |
[ ], 80.00% of its Initial Level |
06376BQV3 |
[ ] |
100% |
Up to 3.00%
[ ] |
At least 97.00%
[ ] |
The shares of VanEck® Gold Miners ETF |
GDX |
[ ] |
[ ], 80.00% of its Initial Level |
[ ], 80.00% of its Initial Level |
1 The total “Agent’s Commission” and “Proceeds
to Bank of Montreal” to be specified above will reflect the aggregate amounts at the time Bank of Montreal establishes its hedge
positions on or prior to the Pricing Date, which may be variable and fluctuate depending on market conditions at such times. Certain dealers
who purchased the notes for sale to certain fee-based advisory accounts may forego some or all of their selling concessions, fees or commissions.
The public offering price for investors purchasing the notes in these accounts may be between $970.00 and $1,000 per $1,000 in principal
amount. We or one of our affiliates may also pay a referral fee to certain dealers in connection with the distribution of the notes.
Investing in the notes involves risks, including
those described in the “Selected Risk Considerations” section beginning on page P-5 hereof, the “Additional Risk Factors
Relating to the Notes” section beginning on page PS-6 of the product supplement, and the “Risk Factors” section beginning
on page S-1 of the prospectus supplement and on page 8 of the prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these notes or passed upon the accuracy of this document, the product
supplement, the prospectus supplement or the prospectus. Any representation to the contrary is a criminal offense. The notes will be our
unsecured obligations and will not be savings accounts or deposits that are insured by the United States Federal Deposit Insurance Corporation,
the Deposit Insurance Fund, the Canada Deposit Insurance Corporation or any other governmental agency or instrumentality or other entity.
On the date hereof, based on the terms set forth
above, the estimated initial value of the notes is $958.90 per $1,000 in principal amount. The estimated initial value of the notes on
the Pricing Date may differ from this value but will not be less than $910.00 per $1,000 in principal amount. However, as discussed in
more detail below, the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy.
BMO CAPITAL MARKETS
Key Terms of the Notes:
Reference Assets: |
The shares of iShares® 20+ Year Treasury Bond ETF (ticker symbol "TLT") and the shares of VanEck® Gold Miners ETF (ticker symbol "GDX"). See "The Reference Assets" below for additional information. |
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Underlying Index: |
With respect to iShares® 20+ Year Treasury Bond ETF, ICE US Treasury 20+ Year Bond Index, and with respect to VanEck® Gold Miners ETF, the NYSE® Arca Gold Miners Index®. |
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Contingent Coupons: |
If the closing level of each Reference Asset on an Observation Date is greater than or equal to its Coupon Barrier Level, a Contingent Coupon will be paid on the corresponding Contingent Coupon Payment Date at the Contingent Interest Rate, subject to the automatic redemption feature. |
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Contingent Interest Rate: |
0.625% per month (approximately 7.50% per annum), if payable. Accordingly, each Contingent Coupon, if payable, will equal $6.25 for each $1,000 in principal amount. |
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Observation Dates:1 |
Three trading days prior to each scheduled Contingent Coupon Payment Date. |
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Contingent Coupon Payment
Dates:1 |
Interest, if payable, will be paid on the last business day of each month, beginning on October 31, 2024 and ending on the Maturity Date, subject to the automatic redemption feature. |
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Automatic Redemption: |
Beginning on March 26, 2025, if, on any Observation Date, the closing level of each Reference Asset is greater than its Call Level, the notes will be automatically redeemed. No further amounts will be owed to you under the Notes. |
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|
Payment upon Automatic
Redemption: |
If the notes are automatically redeemed, then, on the Call Settlement Date, investors will receive their principal amount plus the Contingent Coupon otherwise due. |
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Call Settlement Date:1 |
If the notes are automatically redeemed, the Contingent Coupon Payment Date immediately following the relevant Observation Date. |
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|
Payment at Maturity: |
If the notes are not automatically redeemed, the payment at maturity
for the notes is based on the performance of the Reference Assets.
You will receive $1,000 for each $1,000 in principal amount of the note,
unless a Trigger Event has occurred.
If a Trigger Event has occurred, you will receive at maturity, for each
$1,000 in principal amount of your notes, a cash amount equal to:
$1,000 + [$1,000 x (Percentage Change of the Least
Performing Reference Asset + Buffer Percentage)]
This amount will be less than the principal amount
of your notes, and may be significantly less. Specifically, you will lose 1% of the principal amount for each 1% decrease in the level
of the Least Performing Reference Asset from its Initial Level to its Final Level in excess of 20.00%.
You will also receive the final Contingent Coupon, if payable. |
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|
Trigger Event:2 |
A Trigger Event will be deemed to occur if the Final Level of any Reference Asset is less than its Buffer Level on the Valuation Date. |
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|
Least Performing Reference Asset: |
The Reference Asset with the lowest Percentage Change. |
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|
Percentage Change: |
With respect to each Reference Asset, the quotient, expressed as a percentage,
of the following formula:
(Final Level - Initial Level)
Initial Level |
|
|
Initial Level:2 |
With respect to each Reference Asset, the closing level of that Reference Asset on the Pricing Date. |
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|
Coupon Barrier Level:2 |
With respect to each Reference Asset, 80.00% of its Initial Level. |
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|
Buffer Level:2 |
With respect to each Reference Asset, 80.00% of its Initial Level. |
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|
Buffer Percentage:2 |
20.00% Accordingly, you will receive the principal amount of your notes at maturity only if the level of the Least Performing Reference Asset does not decrease by more than 20.00% over the term of the notes. If the Final Level of the Least Performing Reference Asset is less than its Buffer Level, you will receive less than the principal amount of your notes at maturity and you could lose up to 80.00% of the principal amount of your notes. |
Call Level:2 |
With respect to each Reference Asset, 100% of its Initial Level. |
Final Level: |
With respect to each Reference Asset, the closing level of that Reference Asset on the Valuation Date. |
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|
Pricing Date:1 |
September 25, 2024 |
|
|
Settlement Date:1 |
September 30, 2024 |
|
|
Valuation Date:1 |
September 25, 2026 |
|
|
Maturity Date:1 |
September 30, 2026 |
|
|
Physical Delivery Amount: |
We will only pay cash on the Maturity Date, and you will have no right to receive any shares of any Reference Asset. |
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Calculation Agent: |
BMOCM |
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Selling Agent: |
BMOCM |
1 Expected and subject to the occurrence of a market disruption
event, as described in the accompanying product supplement. If we make any change to the expected Pricing Date and Settlement Date, the
Contingent Coupon Payment Dates (and therefore the Observation Dates and potential Call Settlement Dates), the Valuation Date and Maturity
Date will be changed so that the stated term of the notes remains approximately the same.
2 As determined by the calculation agent and subject to adjustment
in certain circumstances. See "General Terms of the Notes — Anti-dilution Adjustments to a Reference Asset that Is an Equity
Security (Including Any ETF)" and "— Adjustments to a Reference Asset that Is an ETF" in the product supplement for
additional information.
Additional Terms of the Notes
You should read this document together with the
product supplement dated July 22, 2022, the prospectus supplement dated May 26, 2022 and the prospectus dated May 26, 2022. This document,
together with the documents listed below, contains the terms of the notes and supersedes all other prior or contemporaneous oral statements
as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for
implementation, sample structures, fact sheets, brochures or other educational materials of ours or the agent. You should carefully
consider, among other things, the matters set forth in Additional Risk Factors Relating to the Notes in the product supplement, as the
notes involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and
other advisers before you invest in the notes.
You may access these documents on the SEC website
at www.sec.gov as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
Product supplement dated July 22, 2022:
https://www.sec.gov/Archives/edgar/data/927971/000121465922009102/r712220424b2.htm
Prospectus supplement dated May 26, 2022 and prospectus dated
May 26, 2022:
https://www.sec.gov/Archives/edgar/data/0000927971/000119312522160519/d269549d424b5.htm
Our Central Index Key, or CIK, on the SEC website
is 927971. As used in this document, "we", "us" or "our" refers to Bank of Montreal.
We have filed a registration statement (including
a prospectus) with the SEC for the offering to which this document relates. Before you invest, you should read the prospectus in that
registration statement and the other documents that we have filed with the SEC for more complete information about us and this offering.
You may obtain these documents free of charge by visiting the SEC's website at http://www.sec.gov. Alternatively, we will arrange to send
to you the prospectus (as supplemented by the prospectus supplement and product supplement) if you request it by calling our agent toll-free
at 1-877-369-5412.
Selected Risk Considerations
An investment in the notes involves significant
risks. Investing in the notes is not equivalent to investing directly in the Reference Assets. These risks are explained in more detail
in the “Additional Risk Factors Relating to the Notes” section of the product supplement.
Risks Related to the Structure or Features of the Notes
| · | Your investment in the notes may result in a loss. — The notes do not guarantee any return of principal. If the notes
are not automatically redeemed, the payment at maturity will be based on the Final Level of each Reference Asset and whether a Trigger
Event has occurred. If the Final Level of any Reference Asset is less than its Buffer Level, a Trigger Event will occur, and you will
receive at maturity a cash payment that is less than the principal amount of the notes. Accordingly, you could lose a significant portion
of your investment in the notes. |
| · | You may not receive any Contingent Coupons with respect to your notes. — We will not necessarily make periodic interest
payments on the notes. If the closing level of any Reference Asset on an Observation Date is less than its Coupon Barrier Level, we will
not pay you the Contingent Coupon applicable to that Observation Date. If the closing level of a Reference Asset is less than its Coupon
Barrier Level on each of the Observation Dates, we will not pay you any Contingent Coupons during the term of the notes, and you will
not receive a positive return on the notes. Generally, this non-payment of any Contingent Coupons will coincide with a greater risk of
principal loss on your notes. |
| · | Your notes are subject to automatic early redemption. — We will redeem the notes if the closing level of each Reference
Asset on any Observation Date is greater than its Call Level. Following an automatic redemption, you will not receive any additional Contingent
Coupons and may not be able to reinvest your proceeds in an investment with returns that are comparable to the notes. Furthermore, to
the extent you are able to reinvest such proceeds in an investment with a comparable return for a similar level of risk, you may incur
transaction costs such as dealer discounts and hedging costs built into the price of the new notes. |
| · | Your return on the notes is limited to the Contingent Coupons, if any, regardless of any appreciation in the value of any Reference
Asset. — You will not receive a payment at maturity with a value greater than your principal amount plus the final Contingent
Coupon, if payable. In addition, if the notes are automatically redeemed, you will not receive a payment greater than the principal amount
plus the applicable Contingent Coupon, even if the Final Level of one or more Reference Assets exceeds its Call Level by a substantial
amount. Accordingly, your maximum return on the applicable notes is limited to the potential return represented by the Contingent Coupons. |
| · | Whether you receive any Contingent Coupons and your payment at maturity may be determined solely by reference to the Least Performing
Reference Asset, even if any other Reference Assets perform better. - We will only make each Contingent Coupon payment on the notes
if the closing level of each Reference Asset on the applicable Observation Date exceeds the applicable Coupon Barrier, even if the values
of any other Reference Assets have increased significantly. Similarly, if a Trigger Event occurs with respect to any Reference Asset and
the Final Level of any Reference Asset is less than its Initial Level, your payment at maturity will be determined by reference to the
performance of the Least Performing Reference Asset. Even if the levels of any other Reference Assets have appreciated in value over the
term of the notes, or have experienced a decline that is less than that of the Least Performing Reference Asset, your return at maturity
will only be determined by reference to the performance of the Least Performing Reference Asset if a Trigger Event occurs. |
| · | The payments on the notes will be determined by reference to each Reference Asset individually, not to a basket, and the payments
on the notes will be based on the performance of the Least Performing Reference Asset. - Whether each Contingent Coupon is payable,
and the payment at maturity if a Trigger Event occurs, will be determined only by reference to the performance of the Least Performing
Reference Asset as of the applicable Observation Date and/or Valuation Date, regardless of the performance of any other Reference Assets.
The notes are not linked to a weighted basket, in which the risk may be mitigated and diversified among each of the basket components.
For example, in the case of notes linked to a weighted basket, the return would depend on the weighted aggregate performance of the basket
components reflected as the basket return. As a result, the depreciation of one basket component could be mitigated by the appreciation
of the other basket components, as scaled by the weighting of that basket component. However, in the case of the notes, the individual
performance of each Reference Asset will not be combined, and the depreciation of one Reference Asset will not be mitigated by any appreciation
of any other Reference Assets. Instead, your receipt of Contingent Coupon payments on the notes will depend on the value of each Reference
Asset on each Observation Date, and your return at maturity will depend solely on the Final Level of the Least Performing Reference Asset
if a Trigger Event occurs. |
| · | Your return on the notes may be lower than the return on a conventional debt security of comparable maturity. — The
return that you will receive on your notes, which could be negative, may be less than the return you could earn on other investments.
The notes do not provide for fixed interest payments and you may not receive any Contingent Coupons over the term of the notes. Even if
you do receive one or more Contingent Coupons and your return on the notes is positive, your return may be less than the return you would
earn if you bought a conventional senior interest bearing debt security of ours with the same maturity or if you invested directly in
the Reference Assets. Your investment may not reflect the full opportunity cost to you when you take into account factors that affect
the time value of money. |
| · | A higher Contingent Interest Rate or lower Buffer Levels or Coupon Barrier Levels may reflect greater expected volatility of the
Reference Assets, and greater expected volatility generally indicates an increased risk of loss at maturity. — The economic
terms for the notes, including the Contingent Interest Rate, Coupon Barrier Levels and Buffer Levels, are based, in part, on the expected
volatility of the Reference Assets at the time the terms of the notes are set. “Volatility” refers to the frequency and magnitude
of changes in the level of a Reference Asset. The greater the expected volatility of the Reference Assets as of the Pricing Date, the
greater the expectation is as of that date that the closing level of a Reference Asset could be less than its Coupon Barrier Level on
any Observation Date and that a Trigger Event could occur and, as a consequence, indicates an increased risk of not receiving a Contingent
Coupon and an increased risk of loss, respectively. All things being equal, this greater expected volatility will generally be reflected
in a higher Contingent Interest Rate than the yield payable on our conventional debt securities with a similar maturity or on otherwise
comparable securities, and/or a lower Buffer Levels and/or Coupon Barrier Levels than those terms on otherwise comparable securities.
Therefore, a relatively higher Contingent Interest Rate may indicate an increased risk of loss. Further, relatively lower Buffer Levels
and/or Coupon Barriers may not necessarily indicate that the notes have a greater likelihood of a return of principal at maturity and/or
paying Contingent Coupons. You should be willing to accept the downside market risk of the Reference Assets and the potential to lose
a significant portion of your initial investment. |
Risks Related to the Reference Assets
| · | Owning the notes is not the same as owning shares of the Reference Assets or a security directly linked to the Reference Assets.
— The return on your notes will not reflect the return you would realize if you actually owned shares of the Reference Assets or
a security directly linked to the performance of the Reference Assets and held that investment for a similar period. Your notes may trade
quite differently from the Reference Assets. Changes in the level of a Reference Asset may not result in comparable changes in the market
value of your notes. Even if the levels of the Reference Assets increase during the term of the notes, the market value of the notes prior
to maturity may not increase to the same extent. It is also possible for the market value of the notes to decrease while the levels of
the Reference Assets increase. In addition, any dividends or other distributions paid on a Reference Asset will not be reflected in the
amount payable on the notes. |
| · | You will not have any shareholder rights and will have no right to receive any shares of the Reference Assets (or any company included
in a Reference Asset) at maturity. — Investing in your notes will not make you a holder of any shares of the Reference Assets
or any securities held by the Reference Assets. Neither you nor any other holder or owner of the notes will have any voting rights, any
right to receive dividends or other distributions, or any other rights with respect to the Reference Assets or such underlying securities. |
| · | No delivery of shares of the Reference Assets. — The notes will be payable only in cash. You should not invest in the
notes if you seek to have the shares of a Reference Asset delivered to you at maturity. |
| · | Changes that affect an Underlying Index will affect the market value of the notes, whether the notes will be automatically redeemed,
and the amount you will receive at maturity. — With respect to each Reference Asset, the policies of the applicable index sponsor
concerning the calculation of the applicable Underlying Index, additions, deletions or substitutions of the components of the applicable
Underlying Index and the manner in which changes affecting those components, such as stock dividends, reorganizations or mergers, may
be reflected in the applicable Reference Asset and, therefore, could affect the share price of the Reference Asset, the amounts payable
on the notes, whether the notes are automatically redeemed, and the market value of the notes prior to maturity. The amount payable on
the notes and their market value could also be affected if the applicable index sponsor changes these policies, for example, by changing
the manner in which it calculates the applicable Underlying Index, or if the applicable index sponsor discontinues or suspends the calculation
or publication of the applicable Underlying Index. |
| · | We have no affiliation with any index sponsor of any Underlying Index and will not be responsible for any index sponsor's actions.
— The sponsors of the Underlying Indices are not our affiliates and will not be involved in the offering of the notes in any way.
Consequently, we have no control over the actions of any index sponsor , including any actions of the type that would require the calculation
agent to adjust the payment to you at maturity. The index sponsors have no obligation of any sort with respect to the notes. Thus, the
index sponsors have no obligation to take your interests into consideration for any reason, including in taking any actions that might
affect the value of the notes. None of our proceeds from the issuance of the notes will be delivered to any index sponsor of any Underlying
Index. |
| · | Adjustments to a Reference Asset could adversely affect the notes. — The sponsor and advisor of each Reference Asset
is responsible for calculating and maintaining that Reference Asset. The sponsor and advisor of each Reference Asset can add, delete or
substitute the stocks comprising that Reference Asset or make other methodological changes that could change the share price of the applicable
Reference Asset at any time. If one or more of these events occurs, the calculation of the amount payable at maturity may be adjusted
to reflect such event or events. Consequently, any of these actions could adversely affect the amount payable at maturity and/or the market
value of the notes. |
| · | We and our affiliates do not have any affiliation with any applicable investment advisor or any Reference Asset Issuer and are
not responsible for their public disclosure of information. — The investment advisor of each Reference Asset advises the issuer
of the applicable Reference Asset (each, a “Reference Asset Issuer” and, collectively, the “Reference Asset Issuers”)
on various matters, including matters relating to the policies, maintenance and calculation of the applicable Reference Asset. We and
our affiliates are not affiliated with the investment advisor of any Reference Asset or any Reference Asset Issuer in any way and have
no ability to control or predict their actions, including any errors in or discontinuance of disclosure regarding the methods or policies
relating to a Reference Asset. No investment advisor of a Reference Asset nor any Reference Asset Issuer is involved in the offerings
of the notes in any way and has no obligation to consider your interests as an owner of the notes in taking any actions relating to a
Reference Asset that might affect the value of the notes. Neither we nor any of our affiliates has independently verified the adequacy
or accuracy of the information about any investment advisor or any Reference Asset Issuer contained in any public disclosure of information.
You, as an investor in the notes, should make your own investigation into the Reference Asset Issuers. |
| · | The correlation between the performance of a Reference Asset and the performance of the applicable Underlying Index may be imperfect.
— The performance of each Reference Asset is linked principally to the performance of the applicable Underlying Index. However,
because of the potential discrepancies identified in more detail in the product supplement, the return on a Reference Asset may correlate
imperfectly with the return on the applicable Underlying Index. |
| · | The Reference Assets are subject to management risks. — The Reference Assets are subject to management risk, which is
the risk that the applicable investment advisor’s investment strategy, the implementation of which is subject to a number of constraints,
may not produce the intended results. For example, the applicable investment advisor may invest a portion of a Reference Asset Issuer’s
assets in securities not included in the relevant industry or sector but which the applicable investment advisor believes will help the
applicable Reference Asset track the relevant industry or sector. |
| · | You must rely on your own evaluation of the merits of an investment linked to the Reference Assets. — In the ordinary
course of their businesses, our affiliates from time to time may express views on expected movements in the prices of the Reference Assets
or the prices of the securities held by the Reference Assets. One or more of our affiliates have published, and in the future may publish,
research reports that express views on the Reference Assets or these securities. However, these views are subject to change from time
to time. Moreover, other professionals who deal in the markets relating to the Reference Assets at any time may have significantly different
views from those of our affiliates. You are encouraged to derive information concerning the Reference Assets from multiple sources, and
you should not rely on the views expressed by our affiliates.
Neither the offering of the notes nor any views which our affiliates from time to time may express in the ordinary course of their businesses
constitutes a recommendation as to the merits of an investment in the notes. |
Risks Relating to the iShares® 20+ Year Treasury
Bond ETF
| · | An investment in the notes involves different considerations than a direct investment in the iShares® 20+ Year Treasury Bond
ETF. The notes provide exposure to the price performance of the iShares® 20+ Year Treasury Bond ETF (“TLT”),
not its yield performance. The “price performance” of the TLT will depend solely on changes in the value of the bonds held
by the TLT (as reflected in the TLT’s market price) and will exclude all distributions by the TLT of any interest payments on those
bonds. By contrast, the overall performance of a direct investment in the TLT would reflect changes in the value of the bonds held by
the TLT as well as interest payments on those bonds. We refer to the overall performance of a direct investment in the TLT, taking into
account changes in bond values as well as interest payments, as its “yield performance.” |
In stable market conditions (i.e.,
conditions with stable interest rates and credit risks, resulting in stable bond values), the overall return on a direct investment in
the TLT would be expected to be attributable primarily, if not solely, to distributions by the TLT of interest payments on its underlying
bonds. In these conditions, the yield performance of the TLT would be positive, but its price performance, which is the performance relevant
to the securities, would be roughly zero. The price performance of the TLT would be expected to be positive only if market conditions
that affect bond values change in a direction that is favorable to bond values. The most significant market conditions affecting bond
values are prevailing market interest rates and credit risk. In general, bond values rise when prevailing market interest rates fall and/or
when perceptions of creditworthiness improve. Therefore, in order for TLT to have positive price performance, and in order for the securities
to produce a positive return, prevailing market interest rates would need to fall and/or the perceived creditworthiness of the United
States would need to improve over the term of the securities (in each case without a countervailing unfavorable movement by any other
relevant factor). If neither of these circumstances comes to pass, the TLT is unlikely to have positive price performance, and if the
opposite circumstances occur (i.e., if prevailing market interest rates rise and/or the perceived creditworthiness of the United
States deteriorates), the price performance of the TLT is likely to be negative. In any such case, the price performance of the TLT may
be zero or negative even though the yield performance of the TLT over the same period is positive.
| · | The notes are subject to significant risks associated with fixed-income securities, including interest rate-related risks and credit
risks. — The iShares® 20+ Year Treasury Bond ETF is a bond ETF that attempts to track the performance of an index composed
of fixed income securities. Investing in the notes linked indirectly to the iShares® 20+ Year Treasury Bond ETF differs significantly
from investing directly in bonds to be held to maturity as the values of the iShares® 20+ Year Treasury Bond ETF changes, at times
significantly, during each trading day based upon the current market prices of its underlying bonds. The market prices of these bonds
are volatile and significantly influenced by a number of factors, particularly the yields on these bonds as compared to current market
interest rates and the actual or perceived credit quality of the issuer of these bonds. |
In general, fixed-income securities are
significantly affected by changes in current market interest rates. As interest rates rise, the price of fixed-income securities, including
those underlying the iShares® 20+ Year Treasury Bond ETF, is likely to decrease. Securities with longer durations tend to be more
sensitive to interest rate changes, usually making them more volatile than securities with shorter durations. The eligibility criteria
for the securities included in the indices that underlie the iShares® 20+ Year Treasury Bond ETF, which each mandate that each security
must have a minimum term remaining to maturity (ranging from one year to 20 years) for continued eligibility, means that, at any time,
only longer-term securities underlie the iShares® 20+ Year Treasury Bond ETF, which thereby increases the risk of price volatility
in the underlying securities and, consequently, the volatility in the value of the Underlying Index. As a result, rising interest rates
may cause the value of the bonds underlying the iShares® 20+ Year Treasury Bond ETF, the iShares® 20+ Year Treasury Bond ETF and
the Underlying Index to decline, possibly significantly.
Interest rates are subject to volatility
due to a variety of factors, including:
| · | sentiment regarding underlying strength in the U.S. and global economies; |
| · | expectations regarding the level of price inflation; |
| · | sentiment regarding credit quality in the U.S. and global credit markets; |
| · | central bank policies regarding interest rates; and |
| · | the performance of U.S. and foreign capital markets. |
The prices of the underlying bonds are
also significantly influenced by the creditworthiness of the issuers of the bonds (i.e., the U.S. government). The bonds underlying the
iShares® 20+ Year Treasury Bond ETF may have their credit ratings downgraded, or have their credit spreads widen significantly. Following
a ratings downgrade or the widening of credit spreads, some or all of the underlying bonds may suffer significant and rapid price declines.
| · | The notes are subject to concentration risks. — The iShares® 20+ Year Treasury Bond ETF invests in
U.S. Treasury bonds that are all obligations of the United States with a similar remaining time to maturity. As a result, the iShares® 20+
Year Treasury Bond ETF is concentrated in the performance of bonds issued by a single issuer and having the same general tenor and terms.
Although your investment in the notes will not result in the ownership or other direct interest in the U.S. Treasury bonds held by the
iShares® 20+ Year Treasury Bond ETF, the return on your investment in the notes will be subject to certain risks similar
to those associated with direct investment in a U.S. Treasury bonds. This increases the risk that any downgrade of the credit ratings
of the U.S. government from its current ratings, any increase in risk that the U.S. Treasury may default on its obligations by the market
(whether for credit or legislative process reasons) or any other market events that create a decrease in demand for U.S. Treasury bonds
would significantly adversely affect the iShares® 20+ Year Treasury Bond ETF and may adversely affect the value of
the notes. In addition, to the extent that any such decrease in demand is more concentrated in particular U.S. Treasury bond maturities,
the iShares® 20+ Year Treasury Bond ETF could be severely affected, which may adversely affect the value of the notes. |
Risks Relating to VanEck® Gold Miners ETF
| · | The VanEck® Gold Miners ETF, and therefore an investment in the notes, is subject to foreign currency exchange rate risk.
— The share price of the VanEck® Gold Miners ETF will fluctuate based upon its net asset value, which will in turn depend in
part upon changes in the value of the currencies in which the stocks held by the VanEck® Gold Miners ETF are traded. Accordingly,
investors in the notes will be exposed to currency exchange rate risk with respect to each of these currencies. An investor’s net
exposure will depend on the extent to which these currencies strengthen or weaken against the U.S. dollar. If the dollar strengthens against
these currencies, the net asset value of the VanEck® Gold Miners ETF will be adversely affected and the price of its shares may decrease. |
| · | The VanEck® Gold Miners ETF, and therefore an investment in the notes, is subject to risks associated with foreign securities
markets. — The Underlying Index of the VanEck® Gold Miners ETF tracks the value of certain foreign equity securities. You
should be aware that investments in securities linked to the value of foreign equity securities involve particular risks. The foreign
securities markets comprising the Underlying Index of the VanEck® Gold Miners ETF may have less liquidity and may be more volatile
than U.S. or other securities markets and market developments may affect foreign markets differently from U.S. or other securities markets.
Direct or indirect government intervention to stabilize these foreign securities markets, as well as cross-shareholdings in foreign companies,
may affect trading prices and volumes in these markets. Also, there is generally less publicly available information about foreign companies
than about those U.S. companies that are subject to the reporting requirements of the U.S. Securities and Exchange Commission, and foreign
companies are subject to accounting, auditing and financial reporting standards and requirements that differ from those applicable to
U.S. reporting companies.
Prices of securities in foreign countries are subject to political, economic, financial and social factors that apply in those geographical
regions. These factors, which could negatively affect those securities markets, include the possibility of recent or future changes in
a foreign government’s economic and fiscal policies, the possible imposition of, or changes in, currency exchange laws or other
laws or restrictions applicable to foreign companies or investments in foreign equity securities and the possibility of fluctuations in
the rate of exchange between currencies, the possibility of outbreaks of hostility and political instability and the possibility of natural
disaster or adverse public health developments in the region. Moreover, foreign economies may differ favorably or unfavorably from the
U.S. economy in important respects such as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency. |
| · | The VanEck® Gold Miners ETF, and therefore an investment in the notes, is subject to risks associated with emerging markets.
— The Underlying Index of the VanEck® Gold Miners ETF consists of stocks issued by companies in countries with emerging
markets. Countries with emerging markets may have relatively unstable governments, may present the risks of nationalization of businesses,
restrictions on foreign ownership and prohibitions on the repatriation of assets, and may have less protection of property rights than
more developed countries. The economies of countries with emerging markets may be based on only a few industries, may be highly vulnerable
to changes in local or global trade conditions (due to economic dependence upon commodity prices and international trade), and may suffer
from extreme and volatile debt burdens, currency devaluations or inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings
difficult or impossible at times.
The shares tracked by the Underlying Index of the VanEck® Gold Miners ETF may be listed on a foreign stock exchange. A foreign stock
exchange may impose trading limitations intended to prevent extreme fluctuations in individual security prices and may suspend trading
in certain circumstances. These actions could limit variations in the levels of the of the VanEck® Gold Miners ETF, which could, in
turn, adversely affect the value of, and amount payable on, the notes. |
| · | The VanEck® Gold Miners ETF, and therefore an investment in the notes, is subject to risks associated with concentration in
the gold and silver mining industries. — All or substantially all of the equity securities held by the VanEck® Gold Miners
ETF are issued by gold or silver mining companies. An investment in the notes will be exposed to risks in the gold and silver mining industries.
As a result of being linked to a single industry or sector, the notes may have increased volatility as the share price of the VanEck®
Gold Miners ETF may be more susceptible to adverse factors that affect that industry or sector. Competitive pressures may have a significant
effect on the financial condition of companies in these industries.
In addition, these companies are highly dependent on the price of gold or silver, as applicable. These prices fluctuate widely and may
be affected by numerous factors. Factors affecting gold prices include economic factors, including, among other things, the structure
of and confidence in the global monetary system, expectations of the future rate of inflation, the relative strength of, and confidence
in, the U.S. dollar (the currency in which the price of gold is generally quoted), interest rates and gold borrowing and lending rates,
and global or regional economic, financial, political, regulatory, judicial or other events. Gold prices may also be affected by industry
factors such as industrial and jewelry demand, lending, sales and purchases of gold by the official sector, including central banks and
other governmental agencies and multilateral institutions which hold gold, levels of gold production and production costs, and short-term
changes in supply and demand because of trading activities in the gold market. Factors affecting silver prices include general economic
trends, technical developments, substitution issues and regulation, as well as specific factors including industrial and jewelry demand,
expectations with respect to the rate of inflation, the relative strength of the U.S. dollar (the currency in which the price of silver
is generally quoted) and other currencies, interest rates, central bank sales, forward sales by producers, global or regional political
or economic events, and production costs and disruptions in major silver producing countries. |
| · | Relationship to gold and silver bullion. — The VanEck® Gold Miners ETF invests in shares of gold and silver mining
companies, but not in gold bullion or silver bullion. The VanEck® Gold Miners ETF may under- or over-perform gold bullion and/or silver
bullion over the term of the notes. |
General Risk Factors
| · | Your investment is subject to the credit risk of Bank of Montreal. — Our credit ratings and credit spreads may adversely
affect the market value of the notes. Investors are dependent on our ability to pay any amounts due on the notes, and therefore investors
are subject to our credit risk and to changes in the market’s view of our creditworthiness. Any decline in our credit ratings or
increase in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the value of the notes. |
| · | Potential conflicts. — We and our affiliates play a variety of roles in connection with the issuance of the notes, including
acting as calculation agent. In performing these duties, the economic interests of the calculation agent and other affiliates of ours
are potentially adverse to your interests as an investor in the notes. We or one or more of our affiliates may also engage in trading
of shares of the Reference Assets or the securities held by a Reference Asset on a regular basis as part of our general broker-dealer
and other businesses, for proprietary accounts, for other accounts under management or to facilitate transactions for our customers. Any
of these activities could adversely affect the level of the Reference Assets and, therefore, the market value of, and the payments on,
the notes. We or one or more of our affiliates may also issue or underwrite other securities or financial or derivative instruments with
returns linked or related to changes in the performance of the Reference Assets. By introducing competing products into the marketplace
in this manner, we or one or more of our affiliates could adversely affect the market value of the notes. |
| · | Our initial estimated value of the notes will be lower than the price to public. — Our initial estimated value of the
notes is only an estimate, and is based on a number of factors. The price to public of the notes will exceed our initial estimated value,
because costs associated with offering, structuring and hedging the notes are included in the price to public, but are not included in
the estimated value. These costs include any underwriting discount and selling concessions, the profits that we and our affiliates expect
to realize for assuming the risks in hedging our obligations under the notes and the estimated cost of hedging these obligations. The
initial estimated value of the notes may be as low as the amount indicated on the cover page hereof. |
| · | Our initial estimated value does not represent any future value of the notes, and may also differ from the estimated value of any
other party. — Our initial estimated value of the notes as of the date hereof is, and our estimated value as determined on the
Pricing Date will be, derived using our internal pricing models. This value is based on market conditions and other relevant factors,
which include volatility of the Reference Assets, dividend rates and interest rates. Different pricing models and assumptions could provide
values for the notes that are greater than or less than our initial estimated value. In addition, market conditions and other relevant
factors after the Pricing Date are expected to change, possibly rapidly, and our assumptions may prove to be incorrect. After the Pricing
Date, the value of the notes could change dramatically due to changes in market conditions, our creditworthiness, and the other factors
set forth herein and in the product supplement. These changes are likely to impact the price, if any, at which we or BMOCM would be willing
to purchase the notes from you in any secondary market transactions. Our initial estimated value does not represent a minimum price at
which we or our affiliates would be willing to buy your notes in any secondary market at any time. |
| · | The terms of the notes are not determined by reference to the credit spreads for our conventional fixed-rate debt. —
To determine the terms of the notes, we will use an internal funding rate that represents a discount from the credit spreads for our conventional
fixed-rate debt. As a result, the terms of the notes are less favorable to you than if we had used a higher funding rate. |
| · | Certain costs are likely to adversely affect the value of the notes. — Absent any changes in market conditions, any secondary
market prices of the notes will likely be lower than the price to public. This is because any secondary market prices will likely take
into account our then-current market credit spreads, and because any secondary market prices are likely to exclude all or a portion of
any underwriting discount and selling concessions, and the hedging profits and estimated hedging costs that are included in the price
to public of the notes and that may be reflected on your account statements. In addition, any such price is also likely to reflect a discount
to account for costs associated with establishing or unwinding any related hedge transaction, such as dealer discounts, mark-ups and other
transaction costs. As a result, the price, if any, at which BMOCM or any other party may be willing to purchase the notes from you in
secondary market transactions, if at all, will likely be lower than the price to public. Any sale that you make prior to the Maturity
Date could result in a substantial loss to you. |
| · | Lack of liquidity. — The notes will not be listed on any securities exchange. BMOCM may offer to purchase the notes in
the secondary market, but is not required to do so. Even if there is a secondary market, it may not provide enough liquidity to allow
you to trade or sell the notes easily. Because other dealers are not likely to make a secondary market for the notes, the price at which
you may be able to trade the notes is likely to depend on the price, if any, at which BMOCM is willing to buy the notes. |
| · | Hedging and trading activities. — We or any of our affiliates have carried out or may carry out hedging activities related
to the notes, including purchasing or selling shares of the Reference Assets or securities held by the Reference Assets, futures or options
relating to the Reference Assets or securities held by the Reference Assets or other derivative instruments with returns linked or related
to changes in the performance on the Reference Assets or securities held by the Reference Assets. We or our affiliates may also trade
in the Reference Assets, such securities, or instruments related to the Reference Assets or such securities from time to time. Any of
these hedging or trading activities on or prior to the Pricing Date and during the term of the notes could adversely affect the payments
on the notes. |
| · | Many economic and market factors will influence the value of the notes. — In addition to the levels of the Reference
Assets and interest rates on any trading day, the value of the notes will be affected by a number of economic and market factors that
may either offset or magnify each other, and which are described in more detail in the product supplement. |
| · | 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 herein.
The Internal Revenue Service has released a notice that may affect the taxation of holders of “prepaid forward contracts”
and similar instruments. According to the notice, the Internal Revenue Service and the U.S. Treasury are actively considering whether
the holder of such instruments should be required to accrue ordinary income on a current basis. While it is not clear whether the notes
would be viewed as similar to such instruments, it is possible that any future guidance could materially and adversely affect the tax
consequences of an investment in the notes, possibly with retroactive effect.
Please read carefully the section entitled "U.S. Federal Tax Information" herein, the section entitled "Supplemental Tax
Considerations–Supplemental U.S. Federal Income Tax Considerations" in the accompanying product supplement, the section entitled
"United States Federal Income Taxation" in the accompanying prospectus and the section entitled "Certain Income Tax Consequences"
in the accompanying prospectus supplement. You should consult your tax advisor about your own tax situation. |
Examples of the Hypothetical Payment at Maturity for a $1,000 Investment
in the Notes
The following table illustrates the hypothetical
payments on a note at maturity, assuming that the notes are not automatically redeemed. The hypothetical payments are based on a $1,000
investment in the note, a hypothetical Initial Level of $100.00, a hypothetical Buffer Level of $80.00 for each Reference Asset (80.00%
of the hypothetical Initial Level), a hypothetical Call Level of $100.00 (100.00% of the hypothetical Initial Level), a range of hypothetical
Final Levels and the effect on the payment at maturity .
The hypothetical examples shown below are intended
to help you understand the terms of the notes. If the notes are not automatically redeemed, the actual cash amount that you will receive
at maturity will depend upon the Final Level of the Least Performing Reference Asset. If the notes are automatically redeemed prior to
maturity, the hypothetical examples below will not be relevant, and you will receive on the applicable Call Settlement Date, for each
$1,000 principal amount, the principal amount plus the applicable Contingent Coupon.
As discussed in more detail above, your total return
on the notes will also depend on the number of Contingent Coupon Dates on which the Contingent Coupon is payable. It is possible that
the only payments on your notes will be the payment, if any, due at maturity. The payment at maturity will not exceed the principal amount,
and may be significantly less.
Hypothetical Final Level of the
Least Performing Reference Asset |
Hypothetical Final Level of the
Least Performing Reference Asset
Expressed as a Percentage of its
Initial Level |
Payment at Maturity (Excluding
Coupons) |
$200.00 |
200.00% |
$1,000.00 |
$180.00 |
180.00% |
$1,000.00 |
$160.00 |
160.00% |
$1,000.00 |
$140.00 |
140.00% |
$1,000.00 |
$120.00 |
120.00% |
$1,000.00 |
$100.00 |
100.00% |
$1,000.00 |
$90.00 |
90.00% |
$1,000.00 |
$80.00 |
80.00% |
$1,000.00 |
$79.99 |
79.99% |
$999.90 |
$60.00 |
60.00% |
$800.00 |
$40.00 |
40.00% |
$600.00 |
$20.00 |
20.00% |
$400.00 |
$0.00 |
0.00% |
$200.00 |
U.S. Federal Tax Information
By purchasing the notes, each holder agrees (in
the absence of a change in law, an administrative determination or a judicial ruling to the contrary) to treat each note as a pre-paid
contingent income-bearing derivative contract for U.S. federal income tax purposes. In the opinion of our counsel, Mayer Brown LLP, it
would generally be reasonable to treat the notes as pre-paid contingent income-bearing derivative contracts in respect of the Reference
Assets for U.S. federal income tax purposes. However, the U.S. federal income tax consequences of your investment in the notes are uncertain
and the Internal Revenue Service could assert that the notes should be taxed in a manner that is different from that described in the
preceding sentence. Please see the discussion in the accompanying product supplement under "Supplemental Tax Considerations—Supplemental
U.S. Federal Income Tax Considerations—Notes Treated as an Investment Unit Consisting of a Debt Portion and a Put Option, as a Pre-Paid
Contingent Income-Bearing Derivative Contract, or as a Pre-Paid Derivative Contract—Notes Treated as a Pre-Paid Contingent Income-Bearing
Derivative Contract," which applies to the notes, except the following disclosure which supplements, and to the extent inconsistent
supersedes, the discussion in the product supplement.
Under current Internal Revenue Service guidance,
withholding on "dividend equivalent" payments (as discussed in the product supplement), if any, will not apply to notes that
are issued as of the date of this pricing supplement unless such notes are "delta-one" instruments. Based on our determination
that the notes are not delta-one instruments, non-United States holders (as defined in the product supplement) should not generally be
subject to withholding on dividend equivalent payments, if any, under the notes.
Supplemental Plan of Distribution (Conflicts of Interest)
BMOCM will purchase the notes from us at a purchase
price reflecting the commission set forth on the cover hereof. BMOCM has informed us that, as part of its distribution of the notes, it
will reoffer the notes to other dealers who will sell them. Each such dealer, or each additional dealer engaged by a dealer to whom BMOCM
reoffers the notes, will receive a commission from BMOCM, which will not exceed the commission set forth on the cover page. We or one
of our affiliates may also pay a referral fee to certain dealers in connection with the distribution of the notes.
Certain dealers who purchase the notes for sale
to certain fee-based advisory accounts may forego some or all of their selling concessions, fees or commissions. The public offering price
for investors purchasing the notes in these accounts may be less than 100% of the principal amount, as set forth on the cover page of
this document. Investors that hold their notes in these accounts may be charged fees by the investment advisor or manager of that account
based on the amount of assets held in those accounts, including the notes.
We will deliver the notes on a date that is greater
than one business day following the pricing date. Under Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), trades in the secondary market generally are required to settle in one business day, unless the parties to any such trade
expressly agree otherwise. Accordingly, purchasers who wish to trade the notes more than one business day prior to the issue date will
be required to specify alternative settlement arrangements to prevent a failed settlement.
We own, directly or indirectly, all of the outstanding
equity securities of BMOCM, the agent for this offering. In accordance with FINRA Rule 5121, BMOCM may not make sales in this offering
to any of its discretionary accounts without the prior written approval of the customer.
We reserve the right to withdraw, cancel or modify
the offering of the notes and to reject orders in whole or in part. You may cancel any order for the notes prior to its acceptance.
You should not construe the offering of the notes
as a recommendation of the merits of acquiring an investment linked to the Reference Assets or as to the suitability of an investment
in the notes.
BMOCM may, but is not obligated to, make a market
in the notes. BMOCM will determine any secondary market prices that it is prepared to offer in its sole discretion.
We may use the final pricing supplement relating
to the notes in the initial sale of the notes. In addition, BMOCM or another of our affiliates may use the final pricing supplement in
market-making transactions in any notes after their initial sale. Unless BMOCM or we inform you otherwise in the confirmation of sale,
the final pricing supplement is being used by BMOCM in a market-making transaction.
For a period of approximately three months following
issuance of the notes, the price, if any, at which we or our affiliates would be willing to buy the notes from investors, and the value
that BMOCM may also publish for the notes through one or more financial information vendors and which could be indicated for the notes
on any brokerage account statements, will reflect a temporary upward adjustment from our estimated value of the notes that would otherwise
be determined and applicable at that time. This temporary upward adjustment represents a portion of (a) the hedging profit that we or
our affiliates expect to realize over the term of the notes and (b) any underwriting discount and the selling concessions paid in connection
with this offering. The amount of this temporary upward adjustment will decline to zero on a straight-line basis over the three-month
period.
The notes and the related offer to purchase notes
and sale of notes under the terms and conditions provided herein do not constitute a public offering in any non-U.S. jurisdiction, and
are being made available only to individually identified investors pursuant to a private offering as permitted in the relevant jurisdiction.
The notes are not, and will not be, registered with any securities exchange or registry located outside of the United States and have
not been registered with any non-U.S. securities or banking regulatory authority. The contents of this document have not been reviewed
or approved by any non-U.S. securities or banking regulatory authority. Any person who wishes to acquire the notes from outside the United
States should seek the advice or legal counsel as to the relevant requirements to acquire these notes.
British Virgin Islands. The notes have not
been, and will not be, registered under the laws and regulations of the British Virgin Islands, nor has any regulatory authority in the
British Virgin Islands passed comment upon or approved the accuracy or adequacy of this document. This pricing supplement and the related
documents shall not constitute an offer, invitation or solicitation to any member of the public in the British Virgin Islands for the
purposes of the Securities and Investment Business Act, 2010, of the British Virgin Islands.
Cayman Islands. Pursuant to the Companies
Law (as amended) of the Cayman Islands, no invitation may be made to the public in the Cayman Islands to subscribe for the notes by or
on behalf of the issuer unless at the time of such invitation the issuer is listed on the Cayman Islands Stock Exchange. The issuer is
not presently listed on the Cayman Islands Stock Exchange and, accordingly, no invitation to the public in the Cayman Islands is to be
made by the issuer (or by any dealer on its behalf). No such invitation is made to the public in the Cayman Islands hereby.
Dominican Republic. Nothing in this pricing
supplement constitutes an offer of securities for sale in the Dominican Republic. The notes have not been, and will not be, registered
with the Superintendence of Securities Market of the Dominican Republic (Superintendencia del Mercado de Valores), under Dominican Securities
Market Law No. 249-17 (“Securities Law 249-17”), and the notes may not be offered or sold within the Dominican Republic or
to, or for the account or benefit of, Dominican persons (as defined under Securities Law 249-17 and its regulations). Failure to comply
with these directives may result in a violation of Securities Law 249-17 and its regulations.
Israel. This pricing supplement is intended
solely for investors listed in the First Supplement of the Israeli Securities Law of 1968, as amended. A prospectus has not been prepared
or filed, and will not be prepared or filed, in Israel relating to the notes offered hereunder. The notes cannot be resold in Israel other
than to investors listed in the First Supplement of the Israeli Securities Law of 1968, as amended.
No action will be taken in Israel that would permit
an offering of the notes or the distribution of any offering document or any other material to the public in Israel. In particular, no
offering document or other material has been reviewed or approved by the Israel Securities Authority. Any material provided to an offeree
in Israel may not be reproduced or used for any other purpose, nor be furnished to any other person other than those to whom copies have
been provided directly by us or the selling agents.
Nothing in this pricing supplement or any other
offering material relating to the notes, should be considered as the rendering of a recommendation or advice, including investment advice
or investment marketing under the Law For Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management, 1995,
to purchase any note. The purchase of any note will be based on an investor’s own understanding, for the investor’s own benefit
and for the investor’s own account and not with the aim or intention of distributing or offering to other parties. In purchasing
the notes, each investor declares that it has the knowledge, expertise and experience in financial and business matters so as to be capable
of evaluating the risks and merits of an investment in the notes, without relying on any of the materials provided.
Mexico. The notes have not been registered
with the National Registry of Securities maintained by the Mexican National Banking and Securities Commission and may not be offered or
sold publicly in Mexico. This pricing supplement and the related documents may not be publicly distributed in Mexico. The notes may only
be offered in a private offering pursuant to Article 8 of the Securities Market Law.
Switzerland. This pricing supplement is not
intended to constitute an offer or solicitation to purchase or invest in any notes. Neither this pricing supplement nor any other offering
or marketing material relating to the notes constitutes a prospectus compliant with the requirements of articles 35 et seq. of the Swiss
Financial Services Act ("FinSA")) for a public offering of the notes in Switzerland and no such prospectus has been or will
be prepared for or in connection with the offering of the notes in Switzerland.
Neither this pricing supplement nor any other offering
or marketing material relating to the notes has been or will be filed with or approved by a Swiss review body (Prüfstelle). No application
has been or is intended to be made to admit the notes to trading on any trading venue (SIX Swiss Exchange or on any other exchange or
any multilateral trading facility) in Switzerland. Neither this pricing supplement nor any other offering or marketing material relating
to the notes may be publicly distributed or otherwise made publicly available in Switzerland.
The notes may not be publicly offered, directly
or indirectly, in Switzerland within the meaning of FinSA except (i) in any circumstances falling within the exemptions to prepare a prospectus
listed in article 36 para. 1 FinSA or (ii) where such offer does not qualify as a public offer in Switzerland, provided always that no
offer of notes shall require the Issuer or any offeror to publish a prospectus pursuant to article 35 FinSA in respect to such offer and
that such offer shall comply with the additional restrictions set out below (if applicable). The Issuer has not authorised and does not
authorise any offer of notes which would require the Issuer or any offeror to publish a prospectus pursuant to article 35 FinSA in respect
of such offer. For purposes of this provision "public offer" shall have the meaning as such term is understood pursuant to article
3 lit. g and h FinSA and the Swiss Financial Services Ordinance ("FinSO").
The notes do not constitute participations in a
collective investment scheme within the meaning of the Swiss Collective Investment Schemes Act. They are not subject to the approval of,
or supervision by, the Swiss Financial Market Supervisory Authority ("FINMA"), and investors in the notes will not benefit from
protection under CISA or supervision by FINMA.
Prohibition of Offer to Private Clients in Switzerland
- No Key Information Document pursuant to article 58 FinSA (Basisinformationsblatt für Finanzinstrumente) or equivalent document
under foreign law pursuant to article 59 para. 2 FinSA has been or will be prepared in relation to the notes. Therefore, the following
additional restriction applies: Notes qualifying as "debt securities with a derivative character" pursuant to article 86 para.
2 FinSO may not be offered within the meaning of article 58 para. 1 FinSA, and neither this pricing supplement nor any other offering
or marketing material relating to such notes may be made available, to any retail client (Privatkunde) within the meaning of FinSA in
Switzerland.
The notes may also be sold in the following jurisdictions,
provided, in each case, any sales are made in accordance with all applicable laws in such jurisdiction:
Additional Information Relating to the Estimated Initial Value of
the Notes
Our estimated initial value of the notes on the
date hereof, and that will be set forth on the cover page of the final pricing supplement relating to the notes, equals the sum of the
values of the following hypothetical components:
| · | a fixed-income debt component with the same tenor as the notes, valued using our internal funding rate for structured notes; and |
| · | one or more derivative transactions relating to the economic terms of the notes. |
The internal funding rate used in the determination
of the initial estimated value generally represents a discount from the credit spreads for our conventional fixed-rate debt. The value
of these derivative transactions is derived from our internal pricing models. These models are based on factors such as the traded market
prices of comparable derivative instruments and on other inputs, which include volatility, dividend rates, interest rates and other factors.
As a result, the estimated initial value of the notes on the Pricing Date will be determined based on the market conditions on the Pricing
Date.
The Reference Assets
We have derived the following information from publicly
available documents. We have not independently verified the accuracy or completeness of the following information. We are not affiliated
with any Reference Asset Issuer and the Reference Asset Issuers will have no obligations with respect to the notes. This document relates
only to the notes and does not relate to the shares of the Reference Assets or any securities included in any Underlying Index. Neither
we nor any of our affiliates participates in the preparation of the publicly available documents described below. Neither we nor any of
our affiliates has made any due diligence inquiry with respect to the Reference Assets in connection with the offering of the notes. There
can be no assurance that all events occurring prior to the date hereof, including events that would affect the accuracy or completeness
of the publicly available documents described below and that would affect the trading price of the shares of the Reference Assets, have
been or will be publicly disclosed. Subsequent disclosure of any events or the disclosure of or failure to disclose material future events
concerning the Reference Assets could affect the price of the shares of the Reference Assets on each Observation Date and on the Valuation
Date, and therefore could affect the payments on the notes.
The selection of a Reference Asset is not a recommendation
to buy or sell the shares of that Reference Asset. Neither we nor any of our affiliates make any representation to you as to the performance
of the shares of the Reference Assets. Information provided to or filed with the SEC under the Exchange Act and the Investment Company
Act of 1940 relating to the Reference Assets may be obtained through the SEC’s website at http://www.sec.gov.
We encourage you to review recent levels of the
Reference Assets prior to making an investment decision with respect to the notes.
The iShares® 20+ Year Treasury Bond ETF
The iShares® 20+ Year Treasury Bond ETF (“TLT”)
seeks to track the investment results of the ICE U.S. Treasury 20+ Year Bond Index (the “IDCOT20T”), which measures the performance
of public obligations of the U.S. Treasury that have a remaining maturity greater than twenty years. Prior to the selection of the IDCOT20T
on April 1, 2016, the TLT tracked the Bloomberg Barclays U.S. 20+ Year Treasury Bond Index. The
TLT trades on the Nasdaq Global Market under the ticker symbol “TLT.”
BlackRock® Fund Advisors (“BFA”),
the investment adviser of TLT, uses a “passive” or indexing approach to try to achieve the investment objective of TLT.
Information provided to or filed with the SEC pursuant
to the Securities Act and the Investment Company Act can be located by reference to SEC file numbers 333-92935 and 811-09729, respectively,
through the SEC’s website at www.sec.gov. Information from outside sources is not incorporated by reference in, and should not be
considered a part of, this document. In addition, information may be obtained from other sources including, but not limited to, press
releases, newspaper articles and other publicly disseminated documents.
Investment Objective and Strategy
The TLT generally invests at least 90% of its assets
in the bonds of the IDCOT20T and at least 95% of its assets in U.S. government bonds. TLT may invest up to 10% of its assets in U.S. government
bonds not included in the IDCOT20T, but which BFA believes will help TLT track the IDCOT20T. TLT also may invest up to 5% of its assets
in repurchase agreements collateralized by U.S. government obligations and in cash and cash equivalents, including shares of money market
funds advised by BFA or its affiliates. TLT seeks to track the investment results of the IDCOT20T before fees and expenses of TLT.
TLT may lend securities representing up to one-third
of the value of its total assets (including the value of any collateral received). The IDCOT20T is sponsored by ICE Data Indices, LLC
or its affiliates (the “IDI”), which is independent of TLT and BFA. The IDI determines the composition and relative weightings
of the securities in the IDCOT20T and publishes information regarding the market value of the IDCOT20T.
Representative Sampling
BFA uses a representative sampling indexing strategy
to manage the TLT. “Representative sampling” is an indexing strategy that involves investing in a representative sample of
securities that collectively has an investment profile similar to that of the IDCOT20T. The securities selected are expected to have,
in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics
(such as return variability, duration, maturity, credit ratings and yield) and liquidity measures similar to those of the IDCOT20T. The
TLT may or may not hold all of the securities in the IDCOT20T.
Industry Concentration Policy
TLT will concentrate its investments (i.e., hold
25% or more of its total assets) in a particular industry or group of industries to approximately the same extent that the IDCOT20T is
concentrated. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities), repurchase
agreements collateralized by U.S. government securities, and securities of state or municipal governments and their political subdivisions
are not considered to be issued by members of any industry.
The ICE U.S. Treasury 20+ Year Bond Index
All information contained in this underlying supplement
regarding the IDCOT20T is derived from publicly available information, without independent verification. This information reflects the
policies of, and is subject to change by, IDI, a subsidiary of Intercontinental Exchange, Inc. IDI has no obligation to continue to publish,
and may discontinue publication of, the IDCOT20T.
The ICE U.S. Treasury 20+ Year Bond Index is a market-value
weighted index that is designed to measure the performance of the U.S. dollar-denominated, fixed-rate U.S. Treasury market that has a
remaining maturity of greater than or equal to twenty years. The IDCOT20T was launched on December 31, 2015. The IDCOT20T is reported
by Bloomberg L.P. under the ticker symbol “IDCOT20.”
Index Eligibility Criteria and Inclusion Rules
The IDCOT20T consists of securities that meet the
criteria listed below (the “Eligible Bond universe”). The basis of the Eligible Bond universe are those securities for which
content is available daily, including evaluations and reference data, through ICE Data Pricing & Reference Data, LLC (“PRD”).
Maturity. Each security must have a
minimum remaining term to final maturity of greater than or equal to twenty years as of the last business day of the month (the “Rebalance
Date”). Treasury securities that have an announced call are removed from the IDCOT20T at the end of the month prior to the month
in which the call will take place.
Size. Each security is required to have
a minimum amount outstanding of U.S. $300 million. Amount outstanding is defined as the par amount outstanding of each U.S. Treasury security,
inclusive of any announced auctions or re-openings, less the par amount of that U.S. Treasury security held in the Federal Reserve System
Open Market Account or bought at issuance by the Federal Reserve. A new issuance bought at auction by the Federal Reserve is not included
in the Eligible Bond universe. Secondary market purchases or sales by the Federal Reserve that occur in the current month are reflected
in the Eligible Bond universe at the next rebalancing.
Coupon. The Eligible Bond universe includes
only fixed-rate securities, excluding zero coupon securities.
Currency. The Eligible Bond universe
includes only securities with principal and interest denominated in U.S. dollars.
Bond Type. Inflation-linked securities,
Treasury bills, floating-rate notes, cash-management bills and any government agency debt issued with or without a government guarantee
are excluded from the Eligible Bond universe.
Index Maintenance
The IDCOT20T is rebalanced monthly. Securities are
required to meet the IDCOT20T inclusion rules highlighted in the previous section to be considered for inclusion at the beginning of any
given month. This includes the availability of evaluated pricing and reference data through PRD.
Rebalancing. The IDCOT20T is rebalanced
at each month end. The new IDCOT20T for the next month is available three days prior to month end and is intended to reflect the constituent
changes from the prior rebalancing date based on index eligibility.
Reinvestment of Cash Flows. Cash that
has accrued intra-month from interest and principal payments by the securities included in the IDCOT20T earns no reinvestment return during
the month. Accumulated cash (from coupon and principal payments) is removed from the IDCOT20T at month-end, such that the cash is reinvested
pro rata across the entire IDCOT20T.
New Issues. Qualifying securities issued
on or before the rebalancing date may qualify for inclusion. Issued securities are included in the pro forma IDCOT20T with a price of
U.S. $100 until replaced with an evaluated price as soon as available after auction day.
Calculation
Returns and risk measures, such as yield duration,
are first calculated at the constituent level and then aggregated to the IDCOT20T level using its constituents’ market weights.
Constituent Level Calculations
,
,
,
and
and
,
,
,
and
denote
the price, accrued interest, par amount, cumulative coupon payments and market values at date
and
date
, respectively. C denotes the coupon payments during the period
(excluding any coupon payment on date
but including any coupon
payment on date
).
Coupon payments during the period are calculated
as follows:
.
The market values at time
and
are:
and
,
respectively.
The price return
and
coupon return
(whenever applicable) are defined as follows:
| o | Price return: return due to price appreciation over the return period: |
![](https://www.sec.gov/Archives/edgar/data/927971/000121465924016273/image_020.gif)
| o | Coupon return: return due to coupon accrual during the period: |
![](https://www.sec.gov/Archives/edgar/data/927971/000121465924016273/image_021.gif)
The total return is the sum of the price return
and the coupon return:
![](https://www.sec.gov/Archives/edgar/data/927971/000121465924016273/image_022.gif)
Index Level Calculations
The IDCOT20T had an initial level of 100 at the
inception date. As time passes, the IDCOT20T level is calculated in an iterative way as follows:
![](https://www.sec.gov/Archives/edgar/data/927971/000121465924016273/image_023.gif)
The IDCOT20T total return is calculated by aggregating
the constituent level total returns using market weights. To calculate the IDCOT20T total return for the period from dates
and
,
market value weights at date
are used. The total market value
of the IDCOT20T at time
is
plus
any intra-month cash from coupon payment or principal repayment and the weight for constituent security, which is calculated as follows:
![](https://www.sec.gov/Archives/edgar/data/927971/000121465924016273/image_028.gif)
The IDCOT20T’s level will be provided to four
decimal places.
Index Policies
Timing and Pricing Source.
The IDCOT20T’s level is calculated using 3:00
p.m. Eastern Standard Time evaluations from PRD. These evaluations are based upon methodologies designed to reflect the market upon which
the IDCOT20T is based.
PRD’s bid-side evaluations are market-based
measurements that are processed through a rules-based pricing application and represent its good faith determinations as to what the holder
would receive in an orderly transaction (for an institutional round lot position, typically $1,000,000 or greater current value in U.S.
dollars or local currency equivalent) under current market conditions. The rules based logic utilizes valuation techniques that may vary
by asset class and per methodology, maximize the use of relevant observable data including quoted prices for similar assets, benchmark
yield curves and market corroborated inputs. For example, its pricing applications are coded to review trades and bids to determine that
the lot size is representative of an institutional round lot, though smaller or retail sized lots may be considered, especially if this
is the only or primary trading information available.
PRD’s evaluators meet regularly to discuss
market movements and other macro-economic information. PRD evaluates U.S. Treasury securities by obtaining feeds continuously from a number
of live data sources including active market makers and inter-dealer brokers. Sources are reviewed on the basis of their historical accuracy
for individual issues and maturity ranges. As new information is received, it is compared against the previous evaluation as part of the
daily process. To provide additional transparency into its procedures, controls and governing processes, PRD adopted a code of conduct
which enables benchmark administrators, like IDI, to exercise oversight of the benchmark setting process in conformance with the IOSCO
Principles. IDI also maintains a verification process designed to identify price tolerance breaks for further investigation.
Calendar. The IDCOT20T follows the SIFMA
U.S. bond market holiday schedule. The IDCOT20T’s level is calculated daily at the end of each day on which SIFMA declares the U.S.
fixed income markets open. When the bond market closes early per the SIFMA schedule, the IDCOT20T’s level may be calculated at a
time in accordance with the recommended close. However, evaluated pricing from PRD must be available to calculate the IDCOT20T’s
level.
Exceptional Market Conditions and Corrections.
IDI retains the right to delay the publication of the level of the IDCOT20T. Furthermore, IDI retains the right to suspend the publication
of the level of the IDCOT20T if it believes that circumstances prevent the proper calculation of the IDCOT20T. If evaluated prices are
not available, the IDCOT20T will not be recalculated unless IDI decides otherwise. Reasonable efforts are made to ensure the correctness
and validity of data used in index calculations. Where errors have occurred in the determination or calculation of the IDCOT20T, the decision
to make a restatement will be assessed on a case by case basis. Such decision will take account of the significance, impact, age and scale
of the error.
In the event that there is a market-wide event
resulting in evaluated prices not being available, IDI will determine its approach on a case by case basis, taking into account information
and notifications provided by PRD. Market-wide events include, but are not limited to, technological problems or failures, natural disaster
or other business continuity planning-related event. IDI will communicate any issues with publication of the IDCOT20T during the day through
the regular client communication channels; in addition, IDI may also contact clients directly; post a notice on the IDI website; send
a message via the market data portal; or use other such forms of communication.
Expert Judgment. In cases which are not expressly
covered in the index rules, operational adjustments may take place along the lines of the aim of the IDCOT20T. Operational adjustments
may also take place if, in the opinion of IDI, it is desirable to do so to maintain the integrity of the IDCOT20T. Any such modifications
described under this section or exercise of expert judgment will be based upon the IDI’s Index Design Principles, which detail the
core design principles adhered to IDI in establishing an IDCOT20T determination specific to the IDCOT20T. “Expert Judgment”
refers to the exercise of discretion by the IDI with respect to the use of data in determining a benchmark. Expert Judgment includes extrapolating
values from prior or related transactions, adjusting values for factors that might influence the quality of data such as market events
or impairment of a buyer’s or seller’s credit quality or weighting firm bids or offers greater than a particular concluded
transaction. Any exercise of expert judgment will be overseen by the ICE Data Indices, LLC Governance Committee (for purposes of this
section, the “Index Committee”). The IDI Index Design Principles are available on request to PRD.
Index Reviews. IDI undertakes regular reviews
of the IDCOT20T, the methodology and the market which it represents to ensure it continues to meet the index objective, in accordance
with IDI’s policies and procedures. Should material changes to the IDCOT20T be required or proposed, this will be communicated to
stakeholders and subscribers in accordance with IDI’s consultation policy, where possible.
Consultations. IDI may from time to time
consult with stakeholders and subscribers on proposed material changes that affect the IDCOT20T in accordance with IDI’s consultation
process. These proposals will be published to stakeholders and subscribers and all feedback received will be considered by IDI. Any resulting
changes to the IDCOT20T will be announced prior to it being implemented.
Restatements. IDI reserves the right to restate
the IDCOT20T’s level based on its discretion. The IDCOT20T subscribers are notified prior to a restatement of data. Restatements
are typically communicated on the same day but may take longer depending on the volume of restatements required and other conditions.
Index Governance
The Index Committee is responsible for governance
and oversight of the IDCOT20T. The Index Committee provides oversight to IDI that has daily responsibilities for the development, issuance
and operation of the IDCOT20T.
The Index Committee will approve any necessary changes
in the IDCOT20T’s methodology. The IDI is then responsible for implementing the changes and notifying subscribers. Where a change
is material, IDI will consult with stakeholders and subscribers in accordance with the IDI consultation process. For other changes, advance
notice will be provided, where possible, to allow stakeholders and subscribers appropriate preparation to implement the change.
VanEck® Gold Miners ETF (“GDX”)
The VanEck® Gold Miners ETF is an investment
portfolio maintained, managed and advised by Van Eck Associates Corporation. The VanEck® Gold Miners ETF is classified as a “non-diversified”
fund under the Investment Company Act of 1940. .The VanEck® Gold Miners ETF seeks to provide investment results that correspond generally
to the price and yield performance, before fees and expenses, of the NYSE® Arca Gold Miners Index®. Information about the VanEck®
Gold Miners ETF filed with the SEC can be found by reference to its SEC file numbers: 333-123257 and 811-10325 or its CIK Code: 0001137360.
Shares of the VanEck® Gold Miners ETF are listed on the NYSE Arca under ticker symbol "GDX."
The NYSE® Arca Gold Miners Index®
All information in this document regarding the NYSE®
Arca Gold Miners Index®, including, without limitation, its make-up, method of calculation and changes in its components, is derived
from publicly available information. Such information reflects the policies of, and is subject to change by, ICE Data Indices, LLC (“IDI”).
Neither we nor any of our affiliates has undertaken any independent review or due diligence of such information. The NYSE Arca Gold Miners
is maintained and published by IDI. IDI has no obligation to continue to publish, and may discontinue the publication of, the NYSE®
Arca Gold Miners Index®.
The NYSE® Arca Gold Miners Index® is a rules-based
index designed to measure the performance of highly capitalized companies in the gold mining industry. The NYSE® Arca Gold Miners
Index® includes common stocks, ADRs and GDRs of selected companies that are involved primarily in mining for gold or silver ore and
that are listed for trading and electronically quoted on a major stock market that is accessible by foreign investors. Generally, this
will include exchanges in most developed markets and major emerging markets, and will include companies that are cross-listed, e.g., both
U.S. and Canadian listings. IDI will use its discretion to avoid exchanges and markets that are considered “frontier” in nature
or have major restrictions to foreign ownership. The NYSE® Arca Gold Miners Index® includes companies that derive at least 50%
of their revenues from gold mining and related activities There will be a 10% buffer built in so that companies already existing in the
index will only be removed from the index in the next review if their gold mining revenues fall below the 40% level. It should be noted
that the NYSE® Arca Gold Miners Index® will maintain an exposure to companies with a significant revenue exposure to silver mining
in addition to gold mining. The IDI will ensure, solely through the company selections in the index rebalances, that the percentage of
the NYSE® Arca Gold Miners Index® weight that will consist of these “silver-tilted” companies will not exceed 20%.
Only companies with market capitalization greater
than $750 million that have an average daily trading volume of at least 50,000 shares over the past three months and an average daily
value traded of at least $1 million are eligible for inclusion in the NYSE® Arca Gold Miners Index®.
For reasons of practicality, IDI has the discretion
to not include all companies that meet the minimum levels for inclusion. These include, but are not limited to, pending corporate actions,
litigation or geo-political events that may affect a given stock. In addition, IDI has the discretion to include companies that do not
meet the minimum levels for inclusion, if it determines that by doing so it maintains the quality and/or character of the index.
The NYSE® Arca Gold Miners Index® was assigned
a base date of December 19, 2002 and a base value of 500.00.
Calculation of the NYSE® Arca Gold Miners
Index®. The NYSE® Arca Gold Miners Index® is calculated using a modified market capitalization weighting methodology.
The NYSE® Arca Gold Miners Index® is weighted based on the market capitalization of each of the component securities, modified
to conform to the asset diversification requirements, which are applied in conjunction with the scheduled quarterly adjustments to the
NYSE® Arca Gold Miners Index® and described below as Diversification Rule 1 and Diversification Rule 2.
The NYSE® Arca Gold Miners Index® is reviewed
quarterly so that the NYSE® Arca Gold Miners Index® components continue to represent the index’s objective of measuring
the performance of highly capitalized companies in the gold mining industry. The NYSE Arca may at any time and from time to time change
the number of securities comprising the group by adding or deleting one or more securities, or replacing one or more securities contained
in the group with one or more substitute securities of its choice, in the event of certain corporate actions or if, in the NYSE Arca’s
discretion, such addition, deletion or substitution is necessary or appropriate to maintain the quality and/or character of the NYSE®
Arca Gold Miners Index®. Changes to the NYSE® Arca Gold Miners Index® compositions and/or the component share weights in the
NYSE® Arca Gold Miners Index® typically take effect after the close of trading on the third Friday of each calendar quarter month
in connection with the quarterly index rebalance.
At the time of the quarterly rebalance, the weights
for the components stocks (taking into account expected component changes and share adjustments), are modified in accordance with the
following procedures.
Diversification Rule 1: If any component stock exceeds
20% of the total value of the NYSE® Arca Gold Miners Index®, then all stocks greater than 20% of the NYSE® Arca Gold Miners
Index® are reduced to represent 20% of the value of the NYSE® Arca Gold Miners Index®. The aggregate amount by which all component
stocks are reduced is redistributed proportionately across the remaining stocks that represent less than 20% of the index value. After
this redistribution, if any other stock then exceeds 20%, the stock is set to 20% of the index value and the redistribution is repeated.
If there is no component stock over 20% of the total value of the NYSE® Arca Gold Miners Index® to start, then this Diversification
Rule 1 is not executed.
Diversification Rule 2: The components are sorted
into two groups, large components have a starting index weight of 5% or greater (“large components”) and small components
start at under 5% (“small components”)(after any adjustments for Diversification Rule 1). If, after Diversification Rule 1
above is run, there are no large components, this Diversification Rule 2 is not run. Alternatively, if the starting aggregate weight of
the large components after Diversification Rule 1 is run is not greater than 45% of the starting index weight, then Diversification Rule
2 is not executed. If Diversification Rule 2 is indeed executed, then the (1) large group and (2) small group will represent 45% and 55%,
respectively, of the final index weight. This will be adjusted for through the following process:
(1) |
The weight of each of the large stocks will be scaled down proportionately (with a floor of 5%) so that the aggregate weight of the large components will be reduced to represent 45% of the NYSE® Arca Gold Miners Index®. If any large component stock falls below a weight equal to the product of 5% and the proportion by which the stocks were scaled down following this distribution, then the weight of the stock is set equal to 5% and the components with weights greater than 5% will be reduced proportionately. |
|
|
(2) |
The weight of each of the small components will be scaled up proportionately from the redistribution of the large components. If any small component stock exceeds a weight equal to the product of 4.5% and the proportion by which the stocks were scaled down following this distribution, then the weight of the stock is set equal to 4.5%. The redistribution of weight to the remaining stocks is repeated until the entire amount has been redistributed. |
Components will be removed from the NYSE® Arca
Gold Miners Index® during the quarterly review if (i) the market capitalization falls below $450 million, or (ii) the average daily
trading volume for the previous three months is lower than 30,000 shares and the average daily value traded is lower than $600,000 for
the past three months. In conjunction with the quarterly review, the share weights used in the calculation of the NYSE® Arca Gold
Miners Index® are determined based upon current shares outstanding modified, if necessary, to provide greater index diversification,
as described above. As ag general rule, the index components and their share weights are determined and announced prior to taking effect
according to the timing set forth in the methodology, however emergency actions may require IDI to deviate from the normal scheduling.
The share weight of each component stock in the index portfolio remains fixed between quarterly reviews except in the event of certain
types of corporate actions. The NYSE Arca may substitute stocks or change the number of stocks included in the NYSE® Arca Gold Miners
Index®, based on changing conditions in the industry or in the event of certain types of corporate actions. If changes are made, the
index divisor may be adjusted to ensure that there are no changes to the index price as a result of non-market forces.
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