The information in this preliminary pricing supplement is not complete and may be changed. This preliminary pricing supplement is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Registration Statement No. 333-196387
Filed Pursuant to Rule 424(b)(2)
Subject to Completion, dated August 28, 2014
Preliminary Pricing Supplement
(To the Prospectus dated June 27, 2014 and
the Prospectus Supplement dated June 27, 2014)
$__________
Senior Medium-Term Notes, Series C
Raymond James Housing Recovery Equity Linked Notes – Notes Linked to a Fixed Basket of 13 Common Equity
Securities, due September 25, 2015
Securities, due September 25, 2015
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The notes will be linked to a basket of the common equity securities (each, a “Reference Share” and together, the “Basket”) of 13 housing-related companies (each, a “Reference Share Issuer”). The Reference Shares were selected in August 2014 by Raymond James & Associates, Inc. (“Raymond James”) as discussed in more detail below.
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You may lose all or a portion of the principal amount of your notes at maturity.
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The Reference Shares are: American Home 4 Rent (“AMH”); American Residential Properties, Inc. (“ARPI”); Catchmark Timber Trust, Inc. (“CTT”); The Home Depot, Inc. (“HD”); Lennar Corporation (“LEN”); Mid-America Apartment Communities, Inc. (“MAA”); Masco Corporation (“MAS”); Potlatch Corporation (“PCH”); PGT, Inc. (“PGTI”); PulteGroup, Inc. (“PHM”); Standard Pacific Corp. (“SPF”); Toll Brothers, Inc. (“TOL”); and Weyerhaeuser Company (“WY”).
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The notes may pay interest on December 26, 2014, March 25, 2015, June 25, 2015 and the maturity date. The amount of any interest to be paid on the notes will not be fixed, and will depend upon the total dividends paid on the Reference Shares during the preceding quarter, as described in more detail below.
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On the maturity date, the amount that we will pay to you for each $1,000 in principal amount of the notes (the “Redemption Amount”) will depend upon the performance of the Basket over the term of the notes, less a “Redemption Adjustment Amount” of $2.50. As described in more detail below, the Redemption Amount will be less than the price to the public set forth below if the “Basket Level Percentage” (as defined below) is not at least 103.00%. We describe in more detail below how the payment at maturity will be determined.
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All payments on the notes are subject to our credit risk.
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The notes will not be listed on any securities exchange or quotation system.
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The CUSIP number of the notes is 06366RWA9.
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Our subsidiary, BMO Capital Markets Corp. (“BMOCM”), is the agent for this offering. See “Supplemental Plan of Distribution—Conflicts of Interests” below.
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Investing in the notes involves risks, including those described in the “Additional Risk Factors” section beginning on page PS-6 of this pricing supplement, and the “Risk Factors” sections beginning on page S-1 of the prospectus supplement and page 7 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 pricing 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 Bank Insurance Fund, the Canada Deposit Insurance Corporation or any other governmental agency or instrumentality or other entity.
On the date of this preliminary pricing supplement, the estimated initial value of the notes is $995.10 per $1,000 in principal amount based on the terms set forth above. The estimated initial value of the notes on the pricing date may differ from this value and will be set forth in the revised pricing supplement. However, as discussed in more detail in this pricing supplement, the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy.
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Price to Public(1)
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Agent’s Commission(2)
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Proceeds to Us
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Per $1,000 of the Notes
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US$1,027.50
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US$0.00
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US$1,000.00
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Total
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US$ ●
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US$0.00
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US$ ●
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(1) The $27.50 in excess of the price to the public over the principal amount per note will be received by Raymond James for its services acting as distributor of the notes.
(2) Please see “Supplemental Plan of Distribution (Conflicts of Interests)” in this pricing supplement.
BMO Capital Markets
KEY TERMS OF THE NOTES
This section summarizes the terms of the notes, and should be read together with the additional information in this pricing supplement, including the information set forth below under the captions “Additional Risk Factors” and “Description of the Notes.”
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Issue Date of the Notes:
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September 19, 2014
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Issue Price of the Notes:
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$1,027.50 per $1,000 in principal amount of the notes.
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Reference Shares:
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The 13 Reference Shares set forth on the cover page of this pricing supplement. The Reference Shares are housing-related securities selected by the Equity Research Department of Raymond James based on its belief that certain U.S. companies may benefit from the continuing recovery in the U.S. housing sector, as discussed in the section below, “Description of the Reference Shares—Selection of the Basket.”
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Redemption Amount:
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The amount that you will receive at maturity for each $1,000 in principal amount of the notes will depend upon the performance of the Basket. The Redemption Amount will equal (a) the product of (i) $1,000 and (ii) the Basket Level Percentage minus (b) the Redemption Adjustment Amount of $2.50.
As discussed in more detail below, the Basket Level Percentage must exceed 103.00% in order for you to receive a Redemption Amount per $1,000 in principal amount of the notes that exceeds the issue price of the notes set forth above. In addition, the Redemption Amount could be substantially less than the principal amount of the notes.
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Reference Share
Weighting: |
For each Reference Share, approximately 7.69%, except as described below, under “—Potential Unequal Weighting.”
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Reference Share
Performance:
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The Reference Share Performance will measure the change in value of each Reference Share over the term of the notes. For each Reference Share, the Reference Share Performance will equal (a) the applicable Adjusted Final Share Price divided by (b) the applicable Adjusted Initial Share Price, expressed as a percentage. See “Description of the Notes—Payment at Maturity—Breakeven Level.”
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Weighted Reference
Share Performance:
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For each Reference Share, the product of (a) its Reference Share Performance and (b) the Reference Share Weighting.
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Basket Level
Percentage:
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The sum of the Weighted Reference Share Performances.
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Breakeven Level:
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103.00%, which is expressed as a percentage and calculated using the following formula: the quotient of: (a) the sum of (i) the issue price and (ii) the Redemption Adjustment Amount, divided by (b) the principal amount per note. See “Additional Risk Factors—General Risks Relating to the Notes—Your investment may result in a loss” and “—The notes will not reflect the full performance of the Reference Shares, which may negatively impact your return on the notes.”
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Average Intra-day
Price:
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With respect to a Reference Share and any averaging date, the arithmetic mean of the prices at which we or any of our affiliates (which may include the calculation agent) acquires, establishes, reestablishes, substitutes, maintains, unwinds or disposes of, as the case may be, of any transactions or assets relating to that Reference Share as we deem necessary to hedge our obligations with respect to the notes.
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Unadjusted Initial Share
Price:
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The arithmetic mean of the Average Intra-day Prices on each averaging date.
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Adjusted Initial Share
Price:
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The Adjusted Initial Share Price of each Reference Share will be determined over three averaging dates occurring shortly before the issue date of the notes. For each Reference Share, the Adjusted Initial Share Price will equal the sum of (a) the Unadjusted Initial Share Price and (b) $0.01. The Adjusted Initial Share Price for each Reference Share will be set forth in the final pricing supplement relating to the notes.
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Adjusted Final Share
Price:
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For one Reference Share, the arithmetic mean of the closing price on the valuation dates, minus $0.01.
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Averaging Dates:
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September 12, 2014, September 15, 2014 and September 16, 2014.
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Valuation Dates:
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The valuation dates will occur on three trading days occurring shortly before the maturity date. The scheduled valuation dates are: September 18, 2015, September 21, 2015 and September 22, 2015.
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Maturity Date:
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September 25, 2015
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Interest Payment Dates:
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December 26, 2014, March 25, 2015, June 25, 2015 and September 25, 2015 (the maturity date).
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PS-2
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Interest Calculation
Dates:
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December 22, 2014, March 20, 2015, June 22, 2015 and September 22, 2015 (the final valuation date).
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Calculation of Interest
Payments:
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The amount of each interest payment, if any, will depend upon the amount of dividends paid on each Reference Share during the Interest Calculation Period preceding each interest payment date, and will equal, for each $1,000 in principal amount, the sum of the Dividend Amounts for each of the Reference Shares.
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Interest Calculation
Period:
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The first Interest Calculation Period will commence on the second averaging date and end on the first Interest Calculation Date.
Each subsequent Interest Calculation Period will begin on the trading day following an Interest Calculation Date and end on the next Interest Calculation Date. The final Interest Calculation Date will occur on the final valuation date.
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Dividend Amount:
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For each Reference Share, an amount in U.S. dollars equal to (a) $1,000 divided by the applicable Adjusted Initial Share Price multiplied by (b) the applicable Reference Share Weighting multiplied by (c) 100% of the gross cash distributions (including ordinary and extraordinary dividends) per Reference Share declared by the applicable Reference Share Issuer where the date that the applicable Reference Share has commenced trading ex-dividend on its primary U.S. securities exchange as to each relevant distribution occurs during the relevant Interest Calculation Period, determined as described in more detail in the section below, “Description of the Notes—Payment at Maturity.”
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Calculation Agent:
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BMO Capital Markets Corp. (“BMOCM”)
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CUSIP:
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06366RWA9
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Potential Unequal
Weighting:
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On the first Averaging Date, we may determine, in our sole discretion, that one or more of the Reference Shares has relatively lower liquidity than most or all of the other Reference Shares. In such circumstances, we reserve the right to assign a Reference Share Weighting for that Reference Share or those Reference Shares (each a “Lower Weight Reference Share”) that is less than approximately 7.69%.
For example:
· If we assign a Reference Share Weighting of only 1% to one Lower Weight Reference Share, the other 12 Reference Shares will account for the remaining 99% of the Basket, and therefore, will each have a Reference Share Weighting of 8.25% (99% divided by 12), instead of approximately 7.69%.
· If we assign a Reference Share Weighting of 2% to one Lower Weight Reference Share and 3% to another Lower Weight Reference Share, the other 11 Reference Shares will account for the remaining 95% of the Basket, and therefore, will each have a Reference Share Weighting of approximately 8.64% (95% divided by 11, rounded to two decimal places), instead of approximately 7.69%.
· If we assign a Reference Share Weighting of 1% to three different Lower Weight Reference Shares, the other 10 Reference Shares will account for the remaining 97% of the Basket, and therefore, will each have a Reference Share Weighting of 9.70% (97% divided by 10), instead of approximately 7.69%.
The final pricing supplement will set forth whether or not there are any Lower Weight Reference Shares in the Basket, and the actual Reference Share Weighting of each Reference Share.
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Distribution:
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The notes are not intended for purchase by any investor that is not a United States person, as that term is defined for U.S. federal income tax purposes, and no dealer may make offers of the notes to any such investor.
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Each averaging date and each valuation date for any Reference Share, as well as the maturity date, are subject to postponement in the event of a Market Disruption Event with respect to an applicable Reference Share, as described in the section “Description of the Notes – Market Disruption Events” in this pricing supplement.
The pricing date and the issue date of the notes are subject to change. The actual pricing date, issue date, averaging dates, interest payment and calculation dates, valuation dates and maturity date for the notes will be set forth in the final pricing supplement relating to the notes.
We may use this pricing supplement in the initial sale of the notes. In addition, BMOCM or another of our affiliates may use this pricing supplement in market-making transactions in any notes after their initial sale. Unless our agent or we inform you otherwise in the confirmation of sale, this pricing supplement is being used in a market-making transaction.
PS-3
HYPOTHETICAL PAYMENTS ON THE NOTES AT MATURITY
The following hypothetical examples are provided for illustration purposes only and are hypothetical; they do not purport to be representative of every possible scenario concerning increases or decreases in the value of the Basket and the related effect on the Redemption Amount. The following hypothetical examples illustrate the payment you would receive on the maturity date if you purchased $1,000 in principal amount of the notes with an issue price of $1,027.50. Numbers appearing in the examples below have been rounded for ease of analysis. The examples below assume a Redemption Adjustment Amount of $2.50 and a Breakeven Level of 103.00%. This table does not reflect any interest that may be paid on the notes.
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Basket Level
Percentage
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Redemption Amount per $1,027.50 Issue
Price of the Notes
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Percentage Gain (or Loss) per
$1,027.50 Issue Price of the Notes
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140.00%
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$1,397.50
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36.01%
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130.00%
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$1,297.50
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26.28%
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120.00%
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$1,197.50
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16.55%
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110.00%
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$1,097.50
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6.81%
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103.00% (1)
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$1,027.50
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0.00%
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100.00% (2)
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$997.50
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-2.92%
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90.00%
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$897.50
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-12.65%
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80.00%
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$797.50
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-22.38%
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70.00%
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$697.50
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-32.12%
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60.00%
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$597.50
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-41.85%
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(1) For you to receive a Redemption Amount greater than the issue price of the notes, the Basket Level Percentage must be greater than the Breakeven Level of 103.00% due to the effect of both the Redemption Adjustment Amount and the issue price being greater than the $1,000 in principal amount you purchased.
(2) If the Basket Level Percentage is not at least 103.00%, you will lose some or all of the principal amount of the notes.
Please see the sections below, “Additional Risk Factors—General Risks Relating to the Notes—Your investment may result in a loss” and “—The notes will not reflect the full performance of the Reference Shares, which may negatively impact your return on the notes.”
PS-4
ADDITIONAL TERMS OF THE NOTES
You should read this pricing supplement together with the prospectus supplement dated June 27, 2014 and the prospectus dated June 27, 2014. This pricing supplement, 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” in this pricing 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):
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Prospectus supplement dated June 27, 2014:
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Prospectus dated June 27, 2014:
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Our Central Index Key, or CIK, on the SEC website is 927971. As used in this pricing supplement, the “Company,” “we,” “us” or “our” refers to Bank of Montreal.
PS-5
ADDITIONAL RISK FACTORS
An investment in the notes involves risks. This section describes significant risks relating to the terms of the notes. The notes are a riskier investment than ordinary debt securities. In addition, the notes are not equivalent to investing directly in the Reference Shares. Before investing in the notes, you should read the following information about these risks, together with the other information contained in or incorporated by reference in the prospectus supplement and prospectus.
General Risks Relating to the Notes
Your investment in the notes may result in a loss. The notes do not guarantee any return of principal. The amount payable on the notes at maturity will depend on the performance of the Reference Shares and the applicable Dividend Amount and may be less, and possibly significantly less, than your initial investment. If the prices of the Reference Shares decrease, the payment at maturity may be less than the principal amount of the notes. In addition, the Basket Level Percentage must exceed 103.00% in order for you to receive a Redemption Amount per $1,000 in principal amount of the notes that exceeds the issue price of the notes set forth above. You may lose all or a substantial portion of the amount that you invested to purchase the notes. You may incur a loss, even if the Basket Level Percentage is positive (but less than 103.00%). Please also see “—The notes will not reflect the full performance of the Reference Shares, which may negatively impact your return on the notes.”
The notes may not pay interest and your return may be lower than the return on a conventional debt security of comparable maturity. There may be no periodic interest payments on the notes, and any such payments may be less than there would be on a conventional fixed-rate or floating-rate debt security having the same maturity. The amount of each interest payment, if any, will depend upon the amount of dividends paid on each Reference Share during the Interest Calculation Period preceding each interest payment date. The yield that you will receive on your notes, which could be negative, may be less than the yield you could earn if you purchased a standard senior debt security of Bank of Montreal with the same maturity date. Your investment may not reflect the full opportunity cost to you when you take into account factors that affect the time value of money.
Owning the notes is not the same as owning the Reference Shares or a security directly linked to the performance of the Reference Shares. The return on your notes will not reflect the return you would realize if you actually owned the Reference Shares or a security directly linked to the performance of the Reference Shares and held that investment for a similar period. Your notes may trade quite differently from the Reference Shares. Changes in the prices and dividend yields of the Reference Shares may not result in comparable changes in the market value of your notes. Even if the prices and dividend yields of the Reference Shares 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 prices and dividend yields of the Reference Shares increase.
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, among other things, 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 the agent’s commission, and 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.
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 of this preliminary pricing supplement 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, interest rates, and other relevant factors. 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 in this pricing 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 values do 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.
PS-6
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 the agent’s commission 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 to 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.
Any increase in the price of one or more Reference Shares may be offset by decreases in the price of one or more other Reference Shares. The price of one or more of the Reference Shares may increase while the price of one or more of the other Reference Shares decreases. Therefore, in determining the value of the Basket at any time, increases in the price of one Reference Share may be moderated, or wholly offset, by decreases in the price of one or more other Reference Shares. In addition, if the final pricing supplement sets forth one or more Lower Weight Reference Shares, any increases in the value of any Lower Weight Reference Share will have a smaller impact on the payment of the notes than if that Lower Weight Reference Share had been assigned a Reference Share Weighting that was equal to that of the other Reference Shares. The positive performance of that Lower Weight Reference Share will offset to a lesser extent any decrease in value of any Reference Share with a higher weighting.
The notes may not have an active trading market. Your notes will not be listed on any securities exchange, and there may be little or no secondary market for your notes. Even if a secondary market for your notes develops, it may not provide significant liquidity. We expect that transaction costs in any secondary market would be high. As a result, the difference between bid and ask prices for your notes in any secondary market could be substantial. If you sell your notes before maturity, you may suffer substantial losses.
The issue price for the notes is greater than the principal amount due to an additional fee charged by Raymond James, as a distributor of the notes; the payment at maturity, if any, will be further reduced by an additional service fee charged by BMO Capital Markets Corp. (“BMOCM”). The issue price for each $1,000 principal amount of the notes is $1,027.50. The excess over the principal amount will constitute a commission to Raymond James for its services in acting as a distributor of the notes. The Redemption Amount at maturity will be calculated based on the principal amount rather than the issue price. Accordingly, the resulting return per note, if any, on the principal amount will be reduced when compared to the issue price. Moreover, the calculation of the Redemption Amount includes a reduction by the Redemption Adjustment Amount of $2.50, which represents an additional service fee to BMOCM.
For each $1,000 principal amount of the notes that you hold, the Basket Level Percentage must be at least 103.00% for the Redemption Amount to exceed the purchase price set forth above. This percentage reflects (a) the Redemption Adjustment Amount of $2.50 and (b) the percentage difference between the issue price of the notes and the principal amount.
The notes will not reflect the full performance of the Reference Shares, which may negatively impact your return on the notes. Because (i) the calculation of the Redemption Amount includes a reduction by the Redemption Adjustment Amount; (ii) the Adjusted Initial Share Price for each Reference Share will be increased by $0.01; (iii) the Adjusted Final Share Price for each Reference Share will include a reduction of $0.01; and (iv) the issue price for the notes is greater than the principal amount, the return, if any, on the notes will not reflect the full performance of the Reference Shares. Therefore, the yield to maturity based on the methodology for calculating the Redemption Amount will be less than the yield that would be produced if the Reference Shares were purchased and held for a similar period.
The market value of your notes may be influenced by many unpredictable factors. The following factors, many of which are beyond our control, may influence the market value of your notes:
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the market prices of the Reference Shares;
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the dividend yields of the Reference Shares;
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economic, financial, political, military, regulatory, legal and other events that affect the securities markets generally and the U.S. markets in particular, and which may affect the values of the Reference Shares;
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changes in, and the volatility of, the exchange rates between the U.S. dollar and the relevant non-U.S. currency or currencies in which the non-U.S. Reference Shares trade could have a negative impact on the payments due on your notes and their market value; and
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interest rates in the market.
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PS-7
These factors may influence the market value of your notes if you sell your notes before maturity. Our creditworthiness, as represented by our credit ratings or as otherwise perceived in the market will also affect the market value of your notes. If you sell your notes prior to maturity, you may receive less than your initial investment.
Payments on the notes are subject to our credit risk, and changes in our credit ratings may adversely affect the market value of the notes. The notes are our senior unsecured debt securities. The payment due on the maturity date and any interest payments are dependent upon our ability to repay our obligations at that time. This will be the case even if the values and dividend yields of the Reference Shares increase as of the interest calculation dates and the valuation dates. No assurance can be given as to what our financial condition will be at any time during the term of the notes.
The Adjusted Initial Share Price for each Reference Share will be based on the Average Intra-day Prices for that Reference Share on each averaging date, which may adversely affect the return on the notes. The Adjusted Initial Share Price of each Reference Share, which is used to determine the related Reference Share Performance and therefore the Basket Level Percentage, will be based on the Average Intra-day Prices of that Reference Share on each averaging date. The Average Intra-day Price for a Reference Share on any averaging date is the arithmetic mean of the prices at which we, or one or more of our affiliates execute transactions with respect to such Reference Share on each averaging date in order to hedge our obligations under the notes.
As a result, the hedging activities relating to each Reference Share by us or any of our affiliates may affect the calculation agent’s determination of the Adjusted Initial Share Price for each Reference Share; therefore, these hedging activities may adversely affect the payment at maturity, if any.
The Adjusted Initial Share Price for each Reference Share will not be known until after the pricing date of the notes. The Adjusted Initial Share Price of the Reference Shares will be determined over three averaging dates. We expect that the first averaging date will be the pricing date of the notes. As a result, the Adjusted Initial Share Price of one or more Reference Shares may be substantially higher or lower than its market price on the date that you make your investment decision to purchase the notes.
The effect of the Adjusted Initial Share Price and the Adjusted Final Share Price for each Reference Share may negatively impact the Redemption Amount. The Adjusted Initial Share Price for each Reference Share will include an upward adjustment equal to $0.01, and the Adjusted Final Share Price will include a downward adjustment equal to $0.01 for each Reference Share. These adjustments are intended to compensate us for costs relating to the hedging of our obligations under the notes. Therefore, for the Reference Share Performance to be greater than 100%, the average performance over the valuation dates for each Reference Share must exceed its Unadjusted Initial Share Price by more than $0.02.
Accordingly, in order for the Redemption Amount to exceed the issue price of the notes, the weighted average performance of the Reference Shares over the valuation dates must exceed the Unadjusted Initial Share Prices by a sufficient amount to surpass the Breakeven Level, plus $0.02. Accordingly, you could lose a substantial portion of your initial principal investment even if the average performance of one or more of the Reference Shares increases in value over the valuation dates.
The Adjusted Final Share Price of each Reference Share is based on the arithmetic average of its closing prices on each valuation date and may be less than the closing prices of such Reference Share prior to such dates or on any valuation date individually. The Adjusted Final Share Price of each Reference Share will be calculated based on the closing prices of that Reference Share on each of the valuation dates specified above. The prices prior to those dates will not be used to determine the Redemption Amount. Therefore, no matter how high the prices of the relevant Reference Shares may be during the term of the notes, only the closing prices of the Reference Shares on each of the valuation dates will be used to calculate the applicable Adjusted Final Share Prices and the Redemption Amount payable to you at maturity. In addition, because each Adjusted Final Share Price is based on the arithmetic average of the closing prices of the relevant Reference Share on each valuation date, the Adjusted Final Share Price calculated in this manner may be lower than the price of the relevant Reference Share on any single valuation date. Accordingly, the averaging feature may decrease the Adjusted Final Share Price and therefore your return on the notes.
Correlation among the Reference Shares may affect the value of your notes. The Reference Shares may not represent a diversified portfolio of securities. To the extent that the Reference Shares move in the same direction (i.e., are highly correlated), you will lose some or all of the benefits that would ordinarily attend a diversified portfolio of securities. The Reference Shares may be concentrated in a limited number of industries. An investment in the notes might increase your exposure to fluctuations in any of the sectors represented by the Basket.
We will not hold shares of any Reference Share for your benefit. The indenture and the terms governing your notes do not contain any restriction on our ability or the ability of any of our affiliates to sell, pledge or otherwise convey all or any portion of Reference Shares that we or they may acquire. Neither we nor our affiliates will pledge or otherwise hold any assets for your benefit, including any Reference Shares. Consequently, in the event of our bankruptcy, insolvency or liquidation, any of those assets that we own will be subject to the claims of our creditors generally and will not be available for your benefit specifically.
PS-8
You must rely on your own evaluation of the merits of an investment linked to the Reference Shares. In the ordinary course of their business, BMOCM, Raymond James and our respective affiliates may have expressed views on expected movements in any Reference Share, and may do so in the future. These views or reports may be communicated to our clients, Raymond James’ clients, and clients of our respective affiliates. However, these views are subject to change from time to time. Moreover, other professionals who transact business in markets relating to any Reference Share may at any time have significantly different views from those of our respective affiliates. For these reasons, you are encouraged to derive information concerning the Reference Shares from multiple sources, and you should not rely solely on views expressed by us or our respective affiliates.
Our trading and other transactions relating to the Reference Shares, futures, options or other derivative products may adversely affect the market value of the notes. As described below under “Use of Proceeds and Hedging,” we or our affiliates may hedge our obligations under the notes by purchasing or selling the Reference Shares, futures or options relating to the Reference Shares, or other derivative instruments with returns linked or related to changes in the performance of the Reference Shares. We may adjust these hedges by, among other things, purchasing or selling those assets at any time. Although they are not expected to do so, any of these hedging activities may adversely affect the prices of the Reference Shares, and therefore, the market value of the notes, and the amount payable at maturity. It is possible that we or one or more of our affiliates could receive substantial returns from these hedging activities, even though the market value of the notes decreases.
We, Raymond James, or one or more of our respective affiliates may also engage in trading relating to the Reference Shares 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, including block trades. Any of these activities could adversely affect the prices of the Reference Shares and, therefore, the market value of the notes. We, Raymond James, or one or more of our respective 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 Shares. 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 business activities and the business activities of our affiliates may create conflicts of interest. As noted above, we, Raymond James, or one or more of our respective affiliates expect to engage in trading activities related to the Reference Shares that are not for the account of holders of the notes or on their behalf. These trading activities may present a conflict between the holders’ interests in the notes and the interests we and our affiliates will have in their proprietary accounts, in facilitating transactions, including options and other derivatives transactions, for their customers and in accounts under their management. These trading activities, if they influence the prices of the Reference Shares, could be adverse to the interests of the holders of the notes. We, Raymond James, or one or more of our respective affiliates may, at present or in the future, engage in business with the issuers of the Reference Shares, including making loans to or providing advisory services to those companies. These services could include investment banking and merger and acquisition advisory services. These activities may present a conflict between our or one or more of our affiliates’ obligations and your interests as a holder of the notes. Moreover, we, Raymond James and our respective affiliates have published, and in the future expect to publish, research reports with respect to most or even all of the Reference Shares. This research is modified from time to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing or holding the notes. Even if our affiliates or Raymond James provides research that expresses a negative opinion about one or more of the Reference Shares, or if market conditions in housing-related sectors or other sectors change, the composition of the Basket will not change during the term of the notes. Any of these activities by us or one or more of our affiliates may affect the prices the Reference Shares and, therefore, the market value of the notes.
As calculation agent, BMOCM will have the authority to make determinations that could affect the value of your notes and your payment at maturity. As calculation agent for your notes, BMOCM will have discretion in making various determinations that affect your notes, including determining the Adjusted Initial Share Prices, the Adjusted Final Share Prices, the Basket Level Percentage, the Redemption Amount, the amounts of any interest payments on the notes, and whether any market disruption event has occurred. The calculation agent also has discretion in making certain adjustments relating to mergers and certain other corporate transactions that a Reference Share Issuer may undertake. The exercise of this discretion by BMOCM could adversely affect the value of your notes and may present BMOCM, which is our wholly owned subsidiary, with a conflict of interest.
The historical performance of the Reference Shares should not be taken as an indication of their future performance. The Adjusted Final Share Prices of the Reference Shares will determine the Redemption Amount. The historical performance of the Reference Shares does not necessarily give an indication of their future performance. As a result, it is impossible to predict whether the prices of the Reference Shares will rise or fall during the term of the notes. The prices of the Reference Shares will be influenced by complex and interrelated political, economic, financial and other factors.
PS-9
Holders of the Reference Shares are only entitled to receive those dividends as each issuer’s board of directors may declare out of funds legally available. Although dividends and distributions on one or more of the Reference Shares may have historically been declared by the applicable board of directors, they are not required to do so and may reduce or eliminate those dividends in the future. The Dividend Amount of one or more of the Reference Shares during the term of the notes may be zero. If the dividends paid on the Reference Shares are not significant, any interest payments that you receive on the notes may not be sufficient to provide you with your desired return on the notes.
Significant aspects of the tax treatment of the notes are uncertain and may be less favorable than a direct investment in the Reference Shares. The tax treatment of the notes is uncertain. We do not plan to request a ruling from the Internal Revenue Service or from any Canadian authorities regarding the tax treatment of the notes, and the Internal Revenue Service or a court may not agree with the tax treatment described in this pricing supplement. Although the U.S. federal income tax treatment of the interest payments is uncertain, we intend to take the position that such interest payments constitute taxable ordinary income to a United States holder at the time received or accrued in accordance with the holder’s regular method of accounting.
If a Reference Share is the type of financial asset described under Section 1260 of the Internal Revenue Code of 1986, as amended (the “Code”) (including, among others, any equity interest in pass-thru entities such as regulated investment companies (including certain exchange-traded funds), real estate investment trusts, partnerships, trusts, and passive foreign investment companies), while the matter is not entirely clear, an investment in the notes will likely, in whole or in part, be treated as a “constructive ownership transaction” to which Section 1260 of the Code applies. If Section 1260 of the Code applies, all or a portion of any long-term capital gain recognized by a United States Holder in respect of the notes will be recharacterized as ordinary income and certain interest charges may apply. See the section entitled “Supplemental Tax Considerations – Supplemental U.S. Federal Income Tax Considerations – Potential Application of Section 1260 of the Code.”
The Internal Revenue Service has issued a notice indicating that it and the Treasury Department are actively considering whether, among other issues, a holder of an instrument such as the notes should be required to accrue ordinary income (in addition to the interest payments) on a current basis, and they are seeking comments on the subject. The outcome of this process is uncertain and could apply on a retroactive basis.
In addition, an investment in the notes may have timing and character consequences that result in you owing more U.S. federal income tax than you would have owed if you had instead made a direct investment in the Reference Shares. In particular, the terms of the notes will require you to treat the interest payments as ordinary income, notwithstanding the fact that an actual holder of a Reference Share that is an individual may be able to treat distributions on such Reference Share as “qualified dividend income” subject to the reduced tax rate applicable to net long-term capital gains and corporate holders may be able to treat such distributions as eligible for a dividends-received deduction. This could have the effect of requiring you to pay more U.S. federal income tax than a holder of a similar investment in the Reference Shares.
Please read carefully the section entitled “Supplemental Tax Considerations” in this pricing supplement, the section “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.
Insurance companies and employee benefit plans should carefully review the legal issues of an investment in the notes. Any insurance company or fiduciary of a pension plan or other employee benefit plan that is subject to the prohibited transaction rules of the Employee Retirement Income Security Act of 1974, as amended, which we call “ERISA,” or the Internal Revenue Code of 1986, as amended (the “Code”), including an IRA or Keogh plan (or a governmental plan to which similar prohibitions apply), and that is considering purchasing the notes with the assets of the insurance company or the assets of such plan, should consult with its counsel regarding whether the purchase or holding of the notes could become a “prohibited transaction” under ERISA, the Code or any substantially similar prohibition in light of the representations a purchaser or holder in any of the above categories is deemed to make by purchasing and holding the notes. These issues are discussed in more detail in the section “Employee Retirement Income Security Act” below.
Risks Relating to the Reference Shares
The securities included in the Basket are concentrated in one sector. All of the securities included in the Basket are issued by housing-related companies. Although an investment in the notes will not give holders any ownership or other direct interests in the Reference Shares, the return on an investment in the notes will be subject to certain risks associated with a direct equity investment in housing-related companies. Accordingly, by investing in the notes, you will not benefit from the diversification which could result from an investment linked to companies that operate in multiple sectors.
PS-10
Adverse conditions in housing-related sectors may reduce your return on the notes. All of the Reference Shares are issued by companies whose primary lines of business are directly associated with the housing industry. This industry is cyclical and has from time to time experienced significant difficulties. The prices of the Reference Shares, and the amount of dividends paid on the Reference Shares, will be affected by a number of factors that may affect the value of the notes, including:
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employment levels and job growth;
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the availability of financing for home buyers;
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market interest rates;
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consumer confidence;
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housing demand and real estate values;
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the availability of suitable undeveloped land;
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raw material and labor shortages and price fluctuations; and
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federal, state, and local laws and regulations concerning the development of land, housing construction, home sales, consumer financing, and environmental protection.
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In addition, weather conditions and natural disasters such as hurricanes, tornadoes, earthquakes, floods, and fires can harm housing-related businesses. Geopolitical events, such as armed conflict and related market disruptions could also have a significant impact on housing-related businesses.
These factors described above could cause an adverse change in housing-related industries generally or regionally and could cause the value of the Reference Shares to decrease or remain flat during the term of the notes, which would adversely impact the level of Basket. This in turn could adversely impact the market value of the notes and decrease the payment at maturity.
The inclusion of the Reference Shares in the Basket does not guarantee a positive return on
the notes. There can be no assurance that any Reference Share, or the Basket in its entirety, will increase in value. The performance of the Reference Shares may be less than the performance of the equities markets generally, less than the performance of other housing-related companies that are not included in the Basket, and less than the performance of specific sectors of the equity markets, or other securities in which you may choose to invest. As of the date of this document, the Equity Research Department at Raymond James believes that the stock prices of housing-related companies have the potential to increase during the term of the notes. However, there can be no assurance that they will in fact do so. Although Raymond James has expressed a positive view as to the Reference Shares prior to the date of this pricing supplement, its views may change significantly during the term of the notes. In addition, any positive views of Raymond James’ research divisions is separate and apart from the offering of these notes, and does not constitute investment advice. Our offering of the notes does not constitute our recommendation or the recommendation of ours, Raymond James, or our respective affiliates to invest in the notes or in the Reference Shares.
You will not have any shareholder rights and will have no right to receive any Reference Shares at maturity. Investing in the notes will not make you a holder of any of the Reference Shares. Neither you nor any other holder or owner of the notes will have any voting rights, any right to receive dividends or other distributions (except to the extent that the Dividend Amounts are reflected in the interest payments on the notes) or any other rights with respect to any of these securities.
Changes that affect a Reference Share may affect the market value of the notes and the amount you will receive at maturity. Changes affecting a Reference Share or a Reference Share Issuer, such as reorganizations or mergers, will be reflected in the price of that Reference Share and therefore could affect the amount payable on your notes at maturity and the market value of the notes prior to maturity. If these events occur, the calculation agent may adjust the applicable Adjusted Initial Share Price. See “Description of the Notes—Anti-dilution Adjustments.”
No Reference Share Issuer will have any role or responsibilities with respect to the notes. None of the issuers of the Reference Shares will have authorized or approved the notes, or will be involved in this offering. No such company will have any financial or legal obligation with respect to the notes or the amounts to be paid to you, including any obligation to take our needs or your needs into consideration for any reason, including taking any corporate actions that might affect the value of the Reference Shares or the notes. No such company will receive any of the proceeds from any offering of the notes. No Reference Share Issuer or any other company will be responsible for, or participate in, the determination or calculation of the Redemption Amount.
PS-11
We do not control any Reference Share Issuer and we are not responsible for any disclosure made by any other company. Neither we nor any of our affiliates have the ability to control the actions of any Reference Share Issuer, nor do we assume any responsibility for the adequacy or accuracy of any publicly available information about any of these companies, unless (and only to the extent that) our securities or the securities of our affiliates are represented by that Reference Share. We are not responsible for any other issuer’s public disclosure of information on itself or any Reference Share, whether contained in U.S. Securities and Exchange Commission (the “SEC”) filings or otherwise. We will not perform any due diligence procedures with respect to the applicable Reference Share Issuers. You should make your own investigation into the Reference Share Issuers.
Industry consolidation and other corporate events may alter the composition of the Basket. If a Reference Share Issuer is acquired in a stock-for-stock transaction, the stock of the acquiring company will assume that Reference Share’s place in the Basket, including if the stock of the acquiring company is already in the Basket. Consequently, any consolidation among issuers of the Reference Shares will result in an increased weighting in the Basket for the surviving company. The effects on the Basket and the Adjusted Initial Share Prices of the Reference Shares of consolidation transactions and other reorganization events with respect to the Reference Shares are described in “Description of the Notes—Anti-dilution Adjustments.”
You will have limited anti-dilution protection with respect to the Reference Shares. The calculation agent will adjust the Adjusted Initial Share Price of a Reference Share for stock splits, reverse stock splits, stock dividends and other events that affect the applicable issuer’s capital structure, but only in the situations we describe in “Description of the Notes—Anti-dilution Adjustments” below. The calculation agent will not be required to make an adjustment for every corporate event that may affect a Reference Share. For example, the calculation agent will not make any adjustments for events such as an offering by a Reference Share Issuer of equity securities or a tender or exchange offer for less than all outstanding shares of that issuer by a third party. Those events or other actions by the applicable issuer or a third party may nevertheless adversely affect the price of the Reference Share, and adversely affect the value of your notes.
PS-12
DESCRIPTION OF THE NOTES
This pricing supplement, and the accompanying prospectus dated June 27, 2014 relating to the notes, should be read together. Because the notes are part of a series of our senior debt securities called Senior Medium-Term Notes, Series C, this pricing supplement and the accompanying prospectus should also be read together with the accompanying prospectus supplement, dated June 27, 2014. Terms used but not defined in this pricing supplement have the meanings given to them in the accompanying prospectus or accompanying prospectus supplement, unless the context requires otherwise.
The notes will be issued in book-entry form through The Depository Trust Company. Owners of beneficial interests in the notes should read the section entitled “Description of the Notes We May Offer—Legal Ownership” in the accompanying prospectus supplement and “Description of the Debt Securities We May Offer—Legal Ownership and Book-Entry Issuance” in the accompanying prospectus.
The notes are part of a series of senior debt securities entitled “Senior Medium-Term Notes, Series C” that we may issue from time to time under the senior indenture, dated January 25, 2010, between Bank of Montreal and Wells Fargo Bank, National Association, as trustee. Terms that apply generally to our medium term notes are described in “Description of the Notes We May Offer” in the accompanying prospectus supplement. The terms described in this pricing supplement, supplement those described in the accompanying prospectus and the accompanying prospectus supplement, and, if the terms described here are inconsistent with those described in those documents, the terms described in this pricing supplement are controlling.
Composition of the Basket
The Basket will be composed of the Reference Shares, which will be 13 U.S. housing-related securities selected by Raymond James. The Reference Shares will not change over the term of the notes, except in limited circumstances relating to corporate events that may affect the Reference Shares, as described below.
Each Reference Share will be assigned a weighting (each, a “Reference Share Weighting”) so that each Reference Share represents a specified portion of the value of the Basket on the first averaging date. The Reference Share Weighting of each Reference Share will be approximately 7.69%, except under the circumstances described in the section above, “Key Terms of the Notes.”
Payment at Maturity
The amount that you will receive at maturity for each $1,000 in principal amount of the notes (the “Redemption Amount”) will depend upon the performance of the Basket. The Redemption Amount will equal:
($1,000 × the Basket Level Percentage) – (the Redemption Adjustment Amount)
The Redemption Adjustment Amount will equal $2.50.
Breakeven Level. The Breakeven Level is 103.00%. In order for you to receive a Redemption Amount per $1,000 in principal amount of the notes that exceeds the price to the public set forth on the cover page, the Basket Level Percentage must exceed the Breakeven Level. In addition, the Redemption Amount could be substantially less than the principal amount of the notes. The Breakeven Level is expressed as a percentage, and calculated as follows:
See “—Adjusted Initial Share Price” and “—Adjusted Final Share Price as to additional adjustments that will affect the Redemption Amount.”
Basket Level Percentage. The Basket Level Percentage will equal the sum of the Weighted Reference Share Performances.
Weighted Reference Share Performance. For each Reference Share, the product of (a) its Reference Share Performance and (b) its Reference Share Weighting.
Reference Share Performance. The Reference Share Performance will measure the change in value of each Reference Share over the term of the notes. For each Reference Share, the Reference Share Performance will equal (a) the applicable Adjusted Final Share Price divided by (b) the applicable Adjusted Initial Share Price, expressed as a percentage.
PS-13
Adjusted Initial Share Price. For each Reference Share, the “Adjusted Initial Share Price” will be determined over the three averaging dates set forth above. For each Reference Share, the Adjusted Initial Share Price will equal the sum of (a) the arithmetic mean of the Average Intra-day Prices on each averaging date (the “Unadjusted Initial Share Price”) and (b) $0.01.
Average Intra-Day Price. With respect to each Reference Share and any averaging date, the arithmetic mean of the prices at which we or any of our affiliates (which may include the calculation agent) acquires, establishes, reestablishes, substitutes, maintains, unwinds or disposes of, as the case may be, of any transactions or assets relating to that Reference Share as we deem necessary to hedge our obligations with respect to the notes.
Adjusted Final Share Price. For each Reference Share, the arithmetic mean of the closing prices on each valuation date, minus $0.01.
Interest Payments
We may make periodic interest payments on the notes. The amount of each interest payment, if any, will depend upon the amount of dividends paid on each Reference Share during the Interest Calculation Period preceding each interest payment date, and will equal, for each $1,000 in principal amount, the sum of the Dividend Amounts for each of the Reference Shares
The first Interest Calculation Period will commence on the second averaging date and end on the first Interest Calculation Date. Each subsequent Interest Calculation Period will begin on the trading day following an Interest Calculation Date and end on the next Interest Calculation Date. The final Interest Calculation Date will occur on the final valuation date.
Interest will be paid on the Interest Payment Dates set forth in “Key Terms of the Notes.” Interest will be payable to holders of record on the third business day before each Interest Payment Date. However, the final interest payment will be paid to the holders entitled to the payment at maturity. If an Interest Payment Date falls on a day other than a business day, interest will be paid on the next succeeding business day, and no additional interest will accrue as a result of that postponement.
Dividend Amount. For each Reference Share, an amount in U.S. dollars equal to (a) $1,000 divided by the applicable Adjusted Initial Share Price multiplied by (b) the applicable Reference Share Weighting multiplied by (c) 100% of the gross cash distributions (including ordinary and extraordinary dividends) per Reference Share declared by the applicable Reference Share Issuer where the date that the applicable Reference Share has commenced trading ex-dividend on its primary U.S. securities exchange as to each relevant distribution occurs during the relevant Interest Calculation Period, as determined by the calculation agent, and subject to the following limitations:
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with respect to any distribution where the date that the applicable Reference Share commences trading ex-dividend on the second averaging date, only 1/3 of the applicable distribution shall be included;
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with respect to any distribution where the date that the applicable Reference Share commences trading ex-dividend on the third averaging date, only 2/3 of the applicable distribution shall be included;
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with respect to any distribution where the date that the applicable Reference Share commences trading ex-dividend on the second valuation date, only 2/3 of the applicable distribution shall be included; and
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with respect to any distribution where the date that the applicable Reference Share commences trading ex-dividend on the third valuation date, only 1/3 of the applicable distribution shall be included.
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Valuation Dates
The valuation dates will occur on three trading days occurring shortly before the maturity date. The scheduled valuation dates are: September 18, 2015, September 21, 2015 and September 22, 2015. If any valuation date is not a trading day as to any Reference Share, that valuation date will be postponed as to that Reference Share to the next trading day (and each subsequent valuation date will be similarly postponed). If the calculation agent determines that a market disruption event occurs or is continuing on any valuation date, the Adjusted Final Share Price of the applicable Reference Share or Reference Shares will be determined according to the calculation in “—Consequences of Market Disruption Events” below.
Maturity Date
The maturity date will be September 25, 2015, unless that date is not a business day, in which case the maturity date will be the next following business day. The maturity date will be postponed by the same number of business days as the final valuation date may be postponed, as provided herein. However, no interest will accrue past the maturity date.
PS-14
Certain Definitions
Business Day. A day of the week other than Saturday or Sunday that is neither a legal holiday nor a day on which banking institutions are authorized or obligated by law or executive order to close in New York City, Toronto, or Montreal.
Trading Day. As to any Reference Share, any day, as determined by the calculation agent, on which trading is generally conducted on the relevant primary U.S. exchange for that Reference Share.
Closing Price. The closing price for any Reference Share on any day will equal the closing sale price or last reported sale price, regular way, for the security, on a per-share basis:
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on the principal national securities exchange on which that Reference Share is listed for trading on that day, or
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if that Reference Share is not listed on any national securities exchange on that day, on any other market system or quotation system that is the primary market for the trading of that Reference Share.
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If that Reference Share is not listed or traded as described above, then the closing price for that Reference Share on any day will be the average, as determined by the calculation agent, of the bid prices for the security obtained from as many dealers in that security selected by the calculation agent as will make those bid prices available to the calculation agent. The number of dealers need to exceed three and may include the calculation agent, Raymond James, or any of their respective affiliates.
Consequences of Market Disruption Events
If a market disruption event with respect to any of the Reference Shares occurs or is continuing on any scheduled averaging date or valuation date, the price of any affected Reference Share for that date will be based upon its price on the next scheduled trading day on which no market disruption event occurs, and each subsequent averaging date or valuation date will be similarly postponed. In no event, however, will any averaging date or valuation date be postponed by more than ten trading days. As a result, if a market disruption event occurs or is continuing on an averaging date or the valuation date, the determination of the Adjusted Initial Share Price or the Adjusted Final Share Price could also be postponed, although not by more than ten trading days. If the final scheduled valuation date is postponed, the maturity date shall be postponed by the same number of business days.
If an averaging date or a valuation date is postponed to the tenth scheduled trading day thereafter, and a market disruption event occurs on that day, then the calculation agent shall determine the value of the applicable Reference Share on that day based upon its good faith estimate, made in its sole discretion, of the value that would have been applicable in the absence of the market disruption event.
Any of the following will be a “market disruption event” as to any Reference Share:
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a suspension, absence or limitation of trading in (i) that security in its primary market, as determined by the calculation agent, or (ii) futures or options contracts relating to that security in the primary market for those contracts, as determined by the calculation agent;
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any event that disrupts or impairs, as determined by the calculation agent, the ability of market participants to (i) effect transactions in, or obtain market values for, the security in its primary market, or (ii) effect transactions in, or obtain market values for, futures or options contracts relating to that security in its primary market;
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the closure on any day of the primary market for that security on a scheduled trading day prior to the scheduled weekday closing time of that market (without regard to after hours or any other trading outside of the regular trading session hours) unless such earlier closing time is announced by the primary market at least one hour prior to the earlier of (i) the actual closing time for the regular trading session on such primary market on such scheduled trading day for such primary market and (ii) the submission deadline for orders to be entered into the relevant exchange system for execution at the close of trading on such scheduled trading day for such primary market;
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any scheduled trading day on which (i) the primary market for that security or (ii) the exchanges or quotation systems, if any, on which futures or options contracts on that security are traded, fails to open for trading during its regular trading session; or
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PS-15
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any other event, if the calculation agent determines that the event interferes with our ability or the ability of any of our affiliates to unwind all or a portion of a hedge with respect to the notes that we or our affiliates have effected or may effect as described below under “Use of Proceeds and Hedging” in this pricing supplement.
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Anti-dilution Adjustments
The calculation agent will adjust the Adjusted Initial Share Price for any Reference Share if any of the dilution events described below occurs with respect to that Reference Share.
The calculation agent will adjust the Adjusted Initial Share Price for any Reference Share as described below, but only if an event described below under this “—Anti-dilution Adjustments” section occurs with respect to that Reference Share and only if the relevant event occurs during the period described under the applicable subsection. The Adjusted Initial Share Price for each Reference Share will be subject to the adjustments described below, independently and separately, with respect to the dilution events that affect that Reference Share.
If more than one anti-dilution event requiring adjustment occurs with respect to the Adjusted Initial Share Price for any Reference Share, the calculation agent will adjust the Adjusted Initial Share Price of that Reference Share for each event, sequentially, in the order in which the events occur, and on a cumulative basis. As a result, having adjusted the Adjusted Initial Share Price for a Reference Share for the first event, the calculation agent will adjust the Adjusted Initial Share Price for that same Reference Share for the second event, applying the required adjustment to the Adjusted Initial Share Price as already adjusted for the first event, and so on for each event. If an event requiring an anti-dilution adjustment occurs, the calculation agent will make the adjustment in an attempt to offset, to the extent practical, any change in the economic position of the holder and us, relative to your note, that results solely from that event. The calculation agent may also adjust the Adjusted Initial Share Price, the Adjusted Final Share Price or the Dividend Amount of the applicable Reference Share in order to ensure an appropriate result. The calculation agent may, in its sole discretion, modify the anti-dilution adjustments set forth in this section as necessary to ensure an equitable result.
Stock Splits and Stock Dividends
A stock split is an increase in the number of a corporation’s outstanding shares of stock without any change in its stockholders’ equity. When a corporation pays a stock dividend, it issues additional shares of its stock to all holders of its outstanding stock in proportion to the shares they own. Each outstanding share will be worth less as a result of a stock split or stock dividend.
If a Reference Share is subject to a stock split or receives a stock dividend, then the calculation agent will adjust its Adjusted Initial Share Price by dividing the prior Adjusted Initial Share Price — that is, the Adjusted Initial Share Price before the stock split or stock dividend — by an amount equal to: (1) the number of shares of the applicable Reference Share outstanding immediately after the stock split or stock dividend becomes effective; divided by (2) the number of shares of the applicable Reference Share outstanding immediately before the stock split or stock dividend becomes effective. The Adjusted Initial Share Price for a Reference Share will not be adjusted, however, unless:
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in the case of a stock split, the first day on which that Reference Share trades without the right to receive the stock split occurs after the averaging dates and on or before the applicable valuation date; or
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in the case of a stock dividend, the ex-dividend date occurs after the averaging dates and on or before the applicable valuation date.
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The ex-dividend date for any dividend or other distribution with respect to a Reference Share is the first day on which that Reference Share trades without the right to receive that dividend or other distribution.
Reverse Stock Splits
A reverse stock split is a decrease in the number of a corporation’s outstanding shares of stock without any change in its stockholders’ equity. Each outstanding share will be worth more as a result of a reverse stock split.
If a Reference Share is subject to a reverse stock split, then the calculation agent will adjust its Adjusted Initial Share Price by multiplying the prior Adjusted Initial Share Price by an amount equal to: (a) the number of shares of that Reference Share outstanding immediately before the reverse stock split becomes effective; divided by (b) the number of shares of that Reference Share outstanding immediately after the reverse stock split becomes effective. The Adjusted Initial Share Prices of a Reference Share will not be adjusted, however, unless the reverse stock split becomes effective after the averaging date and on or before the first valuation date.
PS-16
Transferable Rights and Warrants
If the Reference Share Issuer issues transferable rights or warrants to all holders of that Reference Share to subscribe for or purchase that Reference Share at an exercise price per share that is less than the closing price of the Reference Share on the business day before the ex-dividend date for the issuance, then the applicable Adjusted Initial Share Price will be adjusted by multiplying the prior Adjusted Initial Share Price by the following fraction:
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the numerator will be the number of shares of that Reference Share outstanding at the close of business on the day before that ex-dividend date plus the number of additional shares of that Reference Share that the aggregate offering price of the total number of shares of the applicable Reference Share so offered for subscription or purchase pursuant to the transferable rights or warrants could purchase at the closing price on the business day before the ex-dividend date, with that number of additional shares being determined by multiplying the total number of shares so offered by the exercise price of those transferable rights or warrants and dividing the resulting product by the closing price on the business day before that ex-dividend date.
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the denominator will be the number of shares of that Reference Share outstanding at the close of business on the day before that ex-dividend date plus the number of additional shares of the applicable Reference Share offered for subscription or purchase under those transferable rights or warrants.
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The Adjusted Initial Share Price will not be adjusted, however, unless the ex-dividend date described above occurs after the averaging dates and on or before the applicable valuation date.
Reorganization Events
If a Reference Share Issuer undergoes a reorganization event in which property other than the applicable Reference Share — e.g., cash and securities of another issuer — is distributed in respect of that Reference Share, then, for purposes of calculating its Reference Share Performance, the calculation agent will determine the closing price of that Reference Share on each valuation date to equal the value of the cash, securities and other property distributed in respect of one share of that Reference Share.
If the calculation agent determines that, by valuing such cash, securities and other property, a commercially reasonable result is not achieved, then the calculation agent will, in its sole discretion, substitute another stock for that Reference Share.
Each of the following is a reorganization event with respect to a Reference Share:
|
|
·
|
the Reference Share is reclassified or changed;
|
|
|
·
|
the Reference Share Issuer has been subject to a merger, consolidation or other combination and either is not the surviving entity or is the surviving entity but all the outstanding stock is exchanged for or converted into other property;
|
|
|
·
|
a statutory share exchange involving the outstanding stock and the securities of another entity occurs, other than as part of an event described in the two bullet points above;
|
|
|
·
|
the Reference Share Issuer sells or otherwise transfers its property and assets as an entirety or substantially as an entirety to another entity;
|
|
|
·
|
the Reference Share Issuer effects a spin-off — that is, issues to all holders of that Reference Share equity securities of another issuer, other than as part of an event described in the four bullet points above;
|
|
|
·
|
the Reference Share Issuer is liquidated, dissolved or wound up or is subject to a proceeding under any applicable bankruptcy, insolvency or other similar law; or
|
|
|
·
|
another entity completes a tender or exchange offer for all of the outstanding stock of the Reference Share Issuer.
|
Valuation of Distribution Property
If a reorganization event occurs with respect to a Reference Share, and the calculation agent does not substitute another stock for that Reference Share as described in “—Substitution” below, then the calculation agent will determine the applicable closing price on each valuation date so as to equal the value of the property — whether it be cash, securities or other property — distributed in the reorganization event in respect of one share of that Reference Share, as that Reference Share existed before the date of the reorganization. We refer to the property distributed in a reorganization event as distribution property, a term we describe in more detail below. The calculation agent will not make any determination for a reorganization event, however, unless the event becomes effective (or, if the event is a spin-off, unless the ex-dividend date for the spin-off occurs) after the averaging dates and on or before the applicable valuation date.
PS-17
For the purpose of making a determination required by a reorganization event, the calculation agent will determine the value of each type of distribution property, in its sole discretion. For any distribution property consisting of a security, the calculation agent will use the closing price for the security on the relevant date. The calculation agent may value other types of property in any manner it determines, in its sole discretion, to be appropriate. If a holder of a Reference Share may elect to receive different types or combinations of types of distribution property in the reorganization event, the distribution property will consist of the types and amounts of each type distributed to a holder that makes no election, as determined by the calculation agent in its sole discretion.
If a reorganization event occurs and the calculation agent adjusts the closing price of a Reference Share on a valuation date to equal the value of the distribution property distributed in the event, as described above, the calculation agent will make further determinations for later events that affect the distribution property considered in determining the closing price. The calculation agent will do so to the same extent that it would make determinations if that Reference Share were outstanding and were affected by the same kinds of events.
For example, if a Reference Share Issuer merges into another company and each share of that Reference Share is converted into the right to receive two common shares of the surviving company and a specified amount of cash, then on each valuation date the closing price of that Reference Share will be determined to equal the value of the two common shares of the surviving company plus the specified amount of cash. The calculation agent will further determine the common share component of that closing price to reflect any later stock split or other event, including any later reorganization event, that affects the common shares of the surviving company, to the extent described in this “—Anti-dilution Adjustments” section or as described above in the “—Reorganization Events” subsection as if the common shares were that Reference Share. In that event, the cash component will not be redetermined but will continue to be a component of the closing price.
When we refer to “distribution property,” we mean the cash, securities and other property distributed in a reorganization event in respect of a Reference Share. If an adjustment resulting from a prior reorganization had occurred, the “distribution property” will mean the cash, securities and other property distributed in respect of any securities whose value determines the closing price of the Reference Share on a valuation date. In the case of a spin-off, the distribution property also includes the Reference Share in respect of which the distribution is made.
If a reorganization event occurs, the distribution property distributed in the event will be substituted for the Reference Share as described above. Consequently, in this pricing supplement, when we refer to a Reference Share, we mean any distribution property that is distributed in a reorganization event in respect of that Reference Share. Similarly, when we refer to a Reference Share Issuer, we mean any successor entity in a reorganization event.
Substitution
If the calculation agent determines that a commercially reasonable result is not achieved by valuing distribution property with respect to the applicable Reference Share upon becoming subject to a reorganization event, then the calculation agent will, in its sole discretion, substitute another stock for that Reference Share. In such case, the adjustments described above under “—Valuation of Distribution Property” will not apply.
If the calculation agent so determines, it may choose, in its sole discretion, the stock of a different company listed on a national securities exchange as a substitute for that Reference Share. For all purposes, the substitute stock will be deemed to be that Reference Share for all purposes of the notes. The calculation agent will determine, in its sole discretion, the Adjusted Initial Share Price, the Dividend Amount and/or the manner of valuation of the substitute stock. The calculation agent will have the right to make such adjustments to the calculation of the applicable Reference Share Performance and Dividend Amount as it determines in its sole discretion are necessary to preserve as nearly as possible our and your relative economic position prior to the reorganization event.
Other Events and Adjustments
The calculation agent may make such adjustments to the terms of the notes with respect to any of the events described above, as it deems in its discretion is necessary to ensure an equitable result, for example, if an event of the type described in this section occurs on an averaging date or on a valuation date.
PS-18
Events of Default
In case an event of default with respect to the notes shall have occurred and be continuing, the amount declared due and payable on the notes upon any acceleration of the notes will be determined by the calculation agent and will be an amount of cash equal to the amount payable as described under the caption “—Payment at Maturity,” calculated as if the date of acceleration were the final valuation date. The Dividend Amount for each Reference Share will only include dividends declared and paid through that date.
If the maturity of the notes is accelerated because of an event of default, we will, or will cause the calculation agent to, provide written notice to the trustee at its New York office, on which notice the trustee may conclusively rely, and to the depositary, of the amount due with respect to the notes as promptly as possible and in no event later than two business days after the date of acceleration.
Role of the Calculation Agent
The calculation agent will make all determinations regarding the prices of the Reference Shares, the Redemption Amount, the Dividend Amounts of the Reference Shares, trading days, business days, market disruption events, any required anti-dilution adjustments, the default amount, and the amounts payable on your notes. Absent manifest error, all determinations of the calculation agent will be final and binding on you and us, without any liability on the part of the calculation agent. You will not be entitled to any compensation from us for any loss suffered as a result of any of the above determinations or calculations by the calculation agent.
Our subsidiary, BMOCM, is expected to serve as the calculation agent for the notes. We may change the calculation agent for your notes at any time after the date of this pricing supplement without notice and BMOCM may resign as calculation agent at any time upon 60 days written notice to us.
Listing
Your notes will not be listed on any securities exchange.
PS-19
DESCRIPTION OF THE REFERENCE SHARES
Companies with securities registered under the Exchange Act, are required to file financial and other information specified by the SEC periodically. Information provided to or filed with the SEC can be inspected or copied at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. In addition, information provided to or filed with the SEC by each Reference Share Issuer under the Exchange Act can be located through the SEC’s website at http://www.sec.gov.
This pricing supplement relates only to the notes offered hereby and does not relate to any Reference Shares or other securities of any Reference Share Issuer. We derived all disclosures in this pricing supplement regarding the Reference Share Issuers from publicly available documents described in the preceding paragraph. In connection with the offering of the notes, none of us, Raymond James, or our respective affiliates have participated in the preparation of such documents or made any due diligence inquiry with respect to any Reference Share Issuer. None of us, Raymond James, or any of our respective affiliates makes any representation that such publicly available documents or any other publicly available information regarding any Reference Share Issuer is current, accurate or complete. None of such documents shall be deemed to be incorporated by reference into this pricing supplement.
The composition of the Basket and the identity of the Reference Shares were selected by the Raymond James Equity Research Department. Neither we nor our affiliates take any responsibility for the selection of the Basket and the identity of the Reference Shares or otherwise endorses those stocks and none of those entities makes any representation as to the performance of any Reference Share or the Basket.
The Selection of the Basket
The Equity Research Department at Raymond James & Associates, Inc. regularly publishes research regarding housing-related sectors. The Reference Shares have been selected from among the companies covered by the Equity Research Department or the research division of one or more investment banks with which Raymond James has a research relationship based upon a belief that these companies are likely to benefit from the continuing recovery in the U.S. housing sector. However, we note that these are only research views based on currently available information. There is no assurance that any particular company will be successful, or that the investment thesis underlying these research views will come to pass. Moreover, the business, results of operations, and prospects of these companies and the growth and health of the sector are subject to conditions outside of the control of the Equity Research Department, such as general economic conditions.
The Reference Shares do not represent all of the companies in housing-related sectors that are covered by the Equity Research Department. It is possible that a different group of housing-related companies could perform better or worse than the Basket. Each of the Reference Shares is covered by the Equity Research Department and currently has a rating of “buy” or “outperform” from Raymond James as of the date of this document. Additional information regarding Raymond James research analyst ratings is available at http://www.raymondjames.com/rsch_how.htm. Information on that website is not included or incorporated by reference in this pricing supplement. A rating is subject to downward revision at any time, and a broker-dealer may cease to cover a particular security at any time, including during the term of the notes.
The information in the above two paragraphs has been provided by Raymond James.
The composition of the Basket and the identity of the Reference Shares were selected by the Equity Research Department. Neither we nor our affiliates take any responsibility for the selection of the Basket or the identity of the Reference Shares or otherwise endorses such stocks and none of such entities (or Raymond James) makes any representation as to the performance of any Reference Share or the Basket.
PS-20
The Reference Shares
American Home 4 Rent
American Homes 4 Rent is a Maryland real estate investment trust (“REIT”) focused on acquiring, renovating, leasing and operating single-family homes as rental properties. Its Class A common shares started trading on the New York Stock Exchange (“NYSE”) on August 1, 2013 under the symbol “AMH.”
Historical Information of the Common Stock of American Home 4 Rent
The following table sets forth the high and low closing prices of this Reference Stock from August 1, 2013 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2013
|
Third Quarter (starting August 1, 2013)
|
16.90
|
15.35
|
|||
|
Fourth Quarter
|
16.86
|
15.22
|
||||
|
2014
|
First Quarter
|
17.42
|
16.14
|
|||
|
Second Quarter
|
18.04
|
15.87
|
||||
|
Third Quarter (through August 22, 2014)
|
18.51
|
17.56
|
American Residential Properties, Inc.
American Residential Properties, Inc. is an integrated REIT which acquires, renovates, leases and manages single-family properties in select communities in the southwestern and southeastern United States. The company focuses on investment opportunities related to the single-family housing sector. Its common stock started trading on the NYSE on May 9, 2013 under the symbol “ARPI.”
Historical Information of the Common Stock of American Residential Properties, Inc.
The following table sets forth the high and low closing prices of this Reference Stock from May 9, 2013 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2013
|
Second Quarter (starting May 9, 2013)
|
21.00
|
17.20
|
|||
|
Third Quarter
|
18.41
|
16.50
|
||||
|
Fourth Quarter
|
18.53
|
16.29
|
||||
|
2014
|
First Quarter
|
19.02
|
17.12
|
|||
|
Second Quarter
|
19.28
|
17.01
|
||||
|
Third Quarter (through August 22, 2014)
|
18.85
|
18.09
|
Catchmark Timber Trust, Inc.
CatchMark Timber Trust, Inc. is a REIT that is engaged in timberland ownership and management, without ownership, of any forest products or other manufacturing operations. Its Class A common stock started trading on the NYSE on December 12, 2013 under the symbol “CTT.” However, its common equity securities were registered under Section 12 of the Exchange Act prior to that time.
Historical Information of the Common Stock of Catchmark Timber Trust, Inc.
The following table sets forth the high and low closing prices of this Reference Stock from December 12, 2013 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2013
|
Fourth Quarter (starting December 12, 2013)
|
13.95
|
13.48
|
|||
|
2014
|
First Quarter
|
14.30
|
12.86
|
|||
|
Second Quarter
|
14.06
|
12.98
|
||||
|
Third Quarter (through August 22, 2014)
|
13.60
|
11.74
|
PS-21
The Home Depot, Inc.
The Home Depot, Inc. is a home improvement retailer that sells building materials and home improvement products. The company sells a wide assortment of building materials, home improvement and lawn and garden products, and provides a number of services. The company operates throughout the U.S. (including Puerto Rico, the Virgin Islands and Guam), Canada, China and Mexico. Its common stock trades on the NYSE under the symbol “HD.”
Historical Information of the Common Stock of The Home Depot, Inc.
The following table sets forth the high and low closing prices of this Reference Stock from the first quarter of 2010 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2010
|
First Quarter
|
32.75
|
27.34
|
|||
|
Second Quarter
|
36.49
|
28.07
|
||||
|
Third Quarter
|
31.81
|
27.07
|
||||
|
Fourth Quarter
|
35.24
|
30.21
|
||||
|
2011
|
First Quarter
|
38.49
|
34.38
|
|||
|
Second Quarter
|
38.17
|
33.45
|
||||
|
Third Quarter
|
37.05
|
28.51
|
||||
|
Fourth Quarter
|
42.22
|
31.59
|
||||
|
2012
|
First Quarter
|
50.31
|
42.14
|
|||
|
Second Quarter
|
52.99
|
47.02
|
||||
|
Third Quarter
|
60.37
|
50.70
|
||||
|
Fourth Quarter
|
65.07
|
59.01
|
||||
|
2013
|
First Quarter
|
71.37
|
62.85
|
|||
|
Second Quarter
|
79.82
|
69.67
|
||||
|
Third Quarter
|
80.54
|
72.70
|
||||
|
Fourth Quarter
|
82.34
|
74.14
|
||||
|
2014
|
First Quarter
|
82.91
|
74.97
|
|||
|
Second Quarter
|
81.13
|
75.70
|
||||
|
Third Quarter (through August 22, 2014)
|
91.15
|
79.40
|
PS-22
Lennar Corporation
Lennar Corporation constructs and sells single-family attached and detached homes, and to a lesser extent multi-level buildings. It also buys and sells residential land. The company also provides mortgage financing, title insurance, closing services and other financial services. Its Class A common stock trades on the NYSE under the symbol “LEN.”
Historical Information of the Common Stock of Lennar Corporation
The following table sets forth the high and low closing prices of this Reference Stock from the first quarter of 2010 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2010
|
First Quarter
|
18.30
|
13.01
|
|||
|
Second Quarter
|
20.71
|
13.91
|
||||
|
Third Quarter
|
15.61
|
12.72
|
||||
|
Fourth Quarter
|
18.96
|
14.39
|
||||
|
2011
|
First Quarter
|
21.38
|
18.12
|
|||
|
Second Quarter
|
19.20
|
16.69
|
||||
|
Third Quarter
|
18.90
|
12.71
|
||||
|
Fourth Quarter
|
19.98
|
12.74
|
||||
|
2012
|
First Quarter
|
27.67
|
19.89
|
|||
|
Second Quarter
|
30.91
|
23.68
|
||||
|
Third Quarter
|
37.51
|
28.97
|
||||
|
Fourth Quarter
|
39.71
|
34.65
|
||||
|
2013
|
First Quarter
|
43.40
|
36.66
|
|||
|
Second Quarter
|
43.88
|
34.94
|
||||
|
Third Quarter
|
37.44
|
31.53
|
||||
|
Fourth Quarter
|
39.75
|
32.58
|
||||
|
2014
|
First Quarter
|
44.33
|
36.91
|
|||
|
Second Quarter
|
41.98
|
38.02
|
||||
|
Third Quarter (through August 22, 2014)
|
42.55
|
35.93
|
PS-23
Mid-America Apartment Communities, Inc.
Mid-America Apartment Communities, Inc. is a REIT which owns, develops, acquires and operates multi-family apartment communities in the southeast and midwest United States and Texas. In addition, the company conducts third party property management, development and construction activities through its service corporation. Its common stock trades on the NYSE under the symbol “MAA.”
Historical Information of the Common Stock of Mid-America Apartment Communities, Inc.
The following table sets forth the high and low closing prices of this Reference Stock from the first quarter of 2010 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2010
|
First Quarter
|
54.90
|
45.58
|
|||
|
Second Quarter
|
57.22
|
50.52
|
||||
|
Third Quarter
|
60.74
|
50.10
|
||||
|
Fourth Quarter
|
64.23
|
58.64
|
||||
|
2011
|
First Quarter
|
64.97
|
60.46
|
|||
|
Second Quarter
|
68.55
|
62.66
|
||||
|
Third Quarter
|
73.25
|
57.06
|
||||
|
Fourth Quarter
|
63.09
|
55.35
|
||||
|
2012
|
First Quarter
|
67.03
|
58.49
|
|||
|
Second Quarter
|
70.20
|
65.10
|
||||
|
Third Quarter
|
70.05
|
65.01
|
||||
|
Fourth Quarter
|
65.07
|
60.82
|
||||
|
2013
|
First Quarter
|
70.68
|
65.12
|
|||
|
Second Quarter
|
74.41
|
61.39
|
||||
|
Third Quarter
|
69.46
|
60.40
|
||||
|
Fourth Quarter
|
67.31
|
59.70
|
||||
|
2014
|
First Quarter
|
68.69
|
61.06
|
|||
|
Second Quarter
|
73.41
|
67.37
|
||||
|
Third Quarter (through August 22, 2014)
|
74.91
|
69.92
|
PS-24
Masco Corporation
Masco Corporation manufactures, and sells home improvement and building products. The company’s products include faucets, kitchen and bath cabinets, architectural coatings, and builders’ hardware products. The company sells its products through mass merchandisers, home centers, hardware stores, and other wholesale and retail outlets to consumers and contractors. Its common stock trades on the NYSE under the symbol “MAS.”
Historical Information of the Common Stock of Masco Corporation
The following table sets forth the high and low closing prices of this Reference Stock from the first quarter of 2010 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2010
|
First Quarter
|
15.58
|
13.16
|
|||
|
Second Quarter
|
18.35
|
10.76
|
||||
|
Third Quarter
|
11.93
|
10.05
|
||||
|
Fourth Quarter
|
13.53
|
10.60
|
||||
|
2011
|
First Quarter
|
14.77
|
12.72
|
|||
|
Second Quarter
|
14.29
|
11.81
|
||||
|
Third Quarter
|
12.46
|
6.96
|
||||
|
Fourth Quarter
|
10.70
|
6.91
|
||||
|
2012
|
First Quarter
|
14.10
|
10.98
|
|||
|
Second Quarter
|
14.55
|
11.73
|
||||
|
Third Quarter
|
16.25
|
11.94
|
||||
|
Fourth Quarter
|
17.08
|
14.30
|
||||
|
2013
|
First Quarter
|
20.94
|
17.07
|
|||
|
Second Quarter
|
22.74
|
18.65
|
||||
|
Third Quarter
|
22.38
|
18.51
|
||||
|
Fourth Quarter
|
22.80
|
19.39
|
||||
|
2014
|
First Quarter
|
23.63
|
20.74
|
|||
|
Second Quarter
|
22.89
|
19.54
|
||||
|
Third Quarter (through August 22, 2014)
|
23.51
|
20.27
|
PS-25
Potlatch Corporation
Potlatch Corporation is a REIT that owns timberlands in Arkansas, Idaho, Minnesota and Wisconsin. The company grows and harvests timber, as well as manufactures and sells wood products, printing papers, and other pulp-based products. Its common stock started trading on Nasdaq on December 17, 2010 under the symbol “PCH.”
Historical Information of the Common Stock of Potlatch Corporation
The following table sets forth the high and low closing prices of this Reference Stock from December 17, 2010 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2010
|
Fourth Quarter (starting December 17, 2010)
|
32.90
|
32.40
|
|||
|
2011
|
First Quarter
|
40.20
|
32.62
|
|||
|
Second Quarter
|
40.55
|
33.04
|
||||
|
Third Quarter
|
36.98
|
29.12
|
||||
|
Fourth Quarter
|
34.74
|
29.44
|
||||
|
2012
|
First Quarter
|
34.42
|
30.07
|
|||
|
Second Quarter
|
31.94
|
28.39
|
||||
|
Third Quarter
|
38.27
|
32.51
|
||||
|
Fourth Quarter
|
39.19
|
37.24
|
||||
|
2013
|
First Quarter
|
45.86
|
39.90
|
|||
|
Second Quarter
|
51.04
|
39.93
|
||||
|
Third Quarter
|
44.26
|
38.00
|
||||
|
Fourth Quarter
|
43.62
|
38.17
|
||||
|
2014
|
First Quarter
|
41.89
|
37.70
|
|||
|
Second Quarter
|
41.70
|
37.27
|
||||
|
Third Quarter (through August 22, 2014)
|
43.04
|
40.79
|
PS-26
PGT, Inc.
PGT, Inc. manufactures and supplies residential impact-resistant windows and doors. Its common stock trades on Nasdaq under the symbol “PGTI.”
Historical Information of the Common Stock of PGT, Inc.
The following table sets forth the high and low closing prices of this Reference Stock from the first quarter of 2010 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2010
|
First Quarter
|
2.03
|
1.56
|
|||
|
Second Quarter
|
3.32
|
1.88
|
||||
|
Third Quarter
|
2.69
|
1.91
|
||||
|
Fourth Quarter
|
2.70
|
2.03
|
||||
|
2011
|
First Quarter
|
2.58
|
2.23
|
|||
|
Second Quarter
|
2.49
|
1.69
|
||||
|
Third Quarter
|
1.96
|
1.25
|
||||
|
Fourth Quarter
|
1.46
|
0.98
|
||||
|
2012
|
First Quarter
|
1.92
|
1.05
|
|||
|
Second Quarter
|
3.03
|
1.75
|
||||
|
Third Quarter
|
3.35
|
2.66
|
||||
|
Fourth Quarter
|
4.57
|
3.24
|
||||
|
2013
|
First Quarter
|
8.10
|
4.36
|
|||
|
Second Quarter
|
9.04
|
6.43
|
||||
|
Third Quarter
|
11.48
|
8.77
|
||||
|
Fourth Quarter
|
10.49
|
9.05
|
||||
|
2014
|
First Quarter
|
12.26
|
10.23
|
|||
|
Second Quarter
|
11.59
|
8.03
|
||||
|
Third Quarter (through August 22, 2014)
|
10.46
|
7.39
|
PS-27
PulteGroup, Inc.
PulteGroup Inc. sells and constructs homes, and purchases, develops, and sells residential land and develops active adult communities. The company also provides mortgage financing, title insurance, and other services to home buyers. The company has operations in various markets across the United States and Puerto Rico. Its common stock trades on the NYSE under the symbol “PHM.”
Historical Information of the Common Stock of PulteGroup, Inc.
The following table sets forth the high and low closing prices of this Reference Stock from the first quarter of 2010 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2010
|
First Quarter
|
11.74
|
10.22
|
|||
|
Second Quarter
|
13.39
|
8.28
|
||||
|
Third Quarter
|
9.07
|
7.84
|
||||
|
Fourth Quarter
|
8.73
|
6.21
|
||||
|
2011
|
First Quarter
|
8.69
|
6.54
|
|||
|
Second Quarter
|
8.44
|
6.93
|
||||
|
Third Quarter
|
7.84
|
3.61
|
||||
|
Fourth Quarter
|
6.48
|
3.54
|
||||
|
2012
|
First Quarter
|
9.61
|
6.52
|
|||
|
Second Quarter
|
10.70
|
7.69
|
||||
|
Third Quarter
|
16.98
|
10.02
|
||||
|
Fourth Quarter
|
18.61
|
15.24
|
||||
|
2013
|
First Quarter
|
21.67
|
18.02
|
|||
|
Second Quarter
|
24.25
|
17.54
|
||||
|
Third Quarter
|
20.39
|
15.11
|
||||
|
Fourth Quarter
|
20.37
|
15.54
|
||||
|
2014
|
First Quarter
|
21.29
|
18.57
|
|||
|
Second Quarter
|
20.23
|
18.16
|
||||
|
Third Quarter (through August 22, 2014)
|
20.50
|
17.54
|
PS-28
Standard Pacific Corp.
Standard Pacific Corp. constructs move-up homes within a wide range of price and size. The company operates throughout major metropolitan areas in California, Texas, Arizona, and Colorado. Standard Pacific also provides mortgage financing and title services to its homebuyers through its subsidiaries. Its common stock trades on the NYSE under the symbol “SPF.”
Historical Information of the Common Stock of Standard Pacific Corp.
The following table sets forth the high and low closing prices of this Reference Stock from the first quarter of 2010 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2010
|
First Quarter
|
5.11
|
3.63
|
|||
|
Second Quarter
|
6.88
|
3.33
|
||||
|
Third Quarter
|
4.23
|
3.03
|
||||
|
Fourth Quarter
|
4.69
|
3.46
|
||||
|
2011
|
First Quarter
|
4.95
|
3.60
|
|||
|
Second Quarter
|
3.97
|
3.21
|
||||
|
Third Quarter
|
3.61
|
2.16
|
||||
|
Fourth Quarter
|
3.69
|
2.25
|
||||
|
2012
|
First Quarter
|
4.79
|
3.13
|
|||
|
Second Quarter
|
6.19
|
4.20
|
||||
|
Third Quarter
|
7.67
|
5.62
|
||||
|
Fourth Quarter
|
7.79
|
6.04
|
||||
|
2013
|
First Quarter
|
9.07
|
7.40
|
|||
|
Second Quarter
|
9.81
|
7.83
|
||||
|
Third Quarter
|
8.74
|
7.09
|
||||
|
Fourth Quarter
|
9.05
|
7.26
|
||||
|
2014
|
First Quarter
|
9.15
|
8.06
|
|||
|
Second Quarter
|
8.60
|
7.66
|
||||
|
Third Quarter (through August 22, 2014)
|
8.76
|
7.50
|
PS-29
Toll Brothers, Inc.
Toll Brothers, Inc. builds luxury homes, serving both move-up and empty nester buyers in several regions of the United States. The company builds customized single and attached homes, primarily on land that it develops and improves. Toll Brothers also operates its own architectural, engineering, mortgage, title, security, landscape, insurance brokerage, and manufacturing operations. Its common stock trades on the NYSE under the symbol “TOL.”
Historical Information of the Common Stock of Toll Brothers, Inc.
The following table sets forth the high and low closing prices of this Reference Stock from the first quarter of 2010 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2010
|
First Quarter
|
21.26
|
18.15
|
|||
|
Second Quarter
|
23.15
|
16.36
|
||||
|
Third Quarter
|
19.09
|
16.02
|
||||
|
Fourth Quarter
|
19.96
|
17.78
|
||||
|
2011
|
First Quarter
|
21.90
|
19.43
|
|||
|
Second Quarter
|
21.75
|
19.66
|
||||
|
Third Quarter
|
21.45
|
14.31
|
||||
|
Fourth Quarter
|
21.30
|
13.75
|
||||
|
2012
|
First Quarter
|
25.07
|
21.01
|
|||
|
Second Quarter
|
29.73
|
21.81
|
||||
|
Third Quarter
|
36.43
|
28.89
|
||||
|
Fourth Quarter
|
35.25
|
29.73
|
||||
|
2013
|
First Quarter
|
37.98
|
33.09
|
|||
|
Second Quarter
|
37.60
|
30.30
|
||||
|
Third Quarter
|
34.66
|
30.10
|
||||
|
Fourth Quarter
|
37.00
|
30.29
|
||||
|
2014
|
First Quarter
|
39.55
|
35.00
|
|||
|
Second Quarter
|
37.27
|
33.66
|
||||
|
Third Quarter (through August 22, 2014)
|
37.44
|
32.47
|
PS-30
Weyerhaeuser Company
Weyerhaeuser Company is an integrated forest products company with offices or operations worldwide. The company primarily grows and harvests trees, develops and construct real estate and makes a range of forest products. The company is also classified as a REIT. Its common shares trade on the NYSE under the symbol “WY.”
Historical Information of the Common Stock of Weyerhaeuser Company
The following table sets forth the high and low closing prices of this Reference Stock from the first quarter of 2010 to August 22, 2014.
|
High ($)
|
Low ($)
|
|||||
|
2010
|
First Quarter
|
18.55
|
16.06
|
|||
|
Second Quarter
|
21.81
|
14.41
|
||||
|
Third Quarter
|
17.50
|
14.04
|
||||
|
Fourth Quarter
|
19.00
|
15.23
|
||||
|
2011
|
First Quarter
|
25.20
|
19.55
|
|||
|
Second Quarter
|
25.14
|
20.01
|
||||
|
Third Quarter
|
22.57
|
15.55
|
||||
|
Fourth Quarter
|
18.88
|
15.25
|
||||
|
2012
|
First Quarter
|
22.28
|
18.78
|
|||
|
Second Quarter
|
22.36
|
18.69
|
||||
|
Third Quarter
|
27.15
|
22.16
|
||||
|
Fourth Quarter
|
28.52
|
24.99
|
||||
|
2013
|
First Quarter
|
31.50
|
28.78
|
|||
|
Second Quarter
|
32.60
|
27.01
|
||||
|
Third Quarter
|
29.86
|
26.65
|
||||
|
Fourth Quarter
|
31.57
|
28.12
|
||||
|
2014
|
First Quarter
|
31.34
|
28.84
|
|||
|
Second Quarter
|
33.09
|
27.72
|
||||
|
Third Quarter (through August 22, 2014)
|
34.38
|
31.23
|
PS-31
SUPPLEMENTAL TAX CONSIDERATIONS
Supplemental Canadian Tax Considerations
For a summary of Canadian tax considerations relevant to an investment in the notes, please see the sections entitled “Canadian Taxation” in the accompanying prospectus and the section entitled “Certain Income Tax Consequences—Certain Canadian Income Tax Considerations ” in the accompanying prospectus supplement.
With respect to any interest payable on the notes, or any portion of the principal amount of the notes in excess of the issue price, such interest or principal, as the case may be, should not be subject to Canadian Non-Resident withholding tax.
Supplemental U.S. Federal Income Tax Considerations
The following, together with the discussion of U.S. federal income taxation in the accompanying prospectus and prospectus supplement, is a general description of the material U.S. tax considerations relating to the notes. It does not purport to be a complete analysis of all tax considerations relating to the notes. Prospective purchasers of the notes should consult their tax advisors as to the consequences under the tax laws of the country of which they are resident for tax purposes and the tax laws of Canada and the U.S. of acquiring, holding and disposing of the notes and receiving payments under the notes. This summary is based upon the law as in effect on the date of this pricing supplement and is subject to any change in law that may take effect after such date.
The following section supplements the discussion of U.S. federal income taxation in the accompanying prospectus and prospectus supplement with respect to United States holders (as defined in the accompanying prospectus). It applies only to those holders who are not excluded from the discussion of U.S. federal income taxation in the accompanying prospectus. In addition, the discussion below assumes that an investor in the notes will be subject to a significant risk that it will lose a significant amount of its investment in the notes. Bank of Montreal intends to treat interest payments with respect to the notes as U.S. source income for U.S. federal income tax purposes.
You should consult your tax advisor concerning the U.S. federal income tax and other tax consequences of your investment in the notes in your particular circumstances, including the application of state, local or other tax laws and the possible effects of changes in federal or other tax laws.
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW THE NOTES SHOULD BE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES. AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE NOTES ARE UNCERTAIN. BECAUSE OF THE UNCERTAINTY, YOU SHOULD CONSULT YOUR TAX ADVISOR IN DETERMINING THE U.S. FEDERAL INCOME TAX AND OTHER TAX CONSEQUENCES OF YOUR INVESTMENT IN THE NOTES, INCLUDING THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
We will not attempt to ascertain whether a Reference Share Issuer would be treated as a “passive foreign investment company” within the meaning of Section 1297 of the Code or a “U.S. real property holding corporation” within the meaning of Section 897 of the Code. If a Reference Share Issuer were so treated, certain adverse U.S. federal income tax consequences could possibly apply. You should refer to any available information filed with the SEC by Reference Share Issuers and consult your tax advisor regarding the possible consequences to you in this regard.
In the opinion of our counsel, Morrison & Foerster LLP, it would generally be reasonable to treat a note with terms described in this pricing supplement as a pre-paid cash-settled income-bearing derivative contract in respect of the Basket for U.S. federal income tax purposes, and the terms of the notes require a holder and us (in the absence of a change in law or an administrative or judicial ruling to the contrary) to treat the notes for all tax purposes in accordance with such characterization. Although the U.S. federal income tax treatment of the interest payments is uncertain, we intend to take the position, and the following discussion assumes, that such interest payments (including any interest payment on or with respect to the maturity date) constitute taxable ordinary income to a United States holder at the time received or accrued in accordance with the holder’s regular method of accounting. If the notes are so treated, subject to the discussion below concerning the application of the “constructive ownership” rules under Section 1260 of the Code, it would be reasonable for a United States holder to take the position that it will recognize capital gain or loss upon the sale or maturity of the notes in an amount equal to the difference between the amount a United States holder receives at such time (other than amounts properly attributable to any interest payments, which would be treated, as described above, as ordinary income) and the United States holder’s tax basis in the notes. In general, a United States holder’s tax basis in the notes will be equal to the price the holder paid for the notes. Capital gain recognized by an individual United States holder is generally taxed at preferential rates where the property is held for more than one year and is generally taxed at ordinary income rates where the property is held for one year or less. The deductibility of capital losses is subject to limitations. The holding period for notes of a United States holder who acquires the notes upon issuance will generally begin on the date after the issue date (i.e., the settlement date) of the notes. If the notes are held by the same United States holder until maturity, that holder’s holding period will generally include the maturity date. It is possible that the Internal Revenue Service could assert that a United States holder’s holding period in respect of the notes should end on the date on which the amount the holder is entitled to receive upon the maturity of the notes is determined, even though the holder will not receive any amounts from us in respect of the notes prior to the maturity of the notes. In such case, a United States holder may be treated as having a holding period in respect of the notes that is one year or less even if the holder receives cash upon maturity of the notes at a time that is more than one year after the beginning of its holding period.
PS-32
Potential Application of Section 1260 of the Code
To the extent a Reference Share is the type of financial asset described under Section 1260 of the Code (including, among others, any equity interest in pass-thru entities such as regulated investment companies (including certain exchange-traded funds), real estate investment trusts, partnerships, trusts and passive foreign investment companies), while the matter is not entirely clear, an investment in the notes will likely, in whole or in part, be treated as a “constructive ownership transaction” to which Section 1260 of the Code applies. If Section 1260 of the Code applies, all or a portion of any long-term capital gain recognized by a United States holder in respect of a note will be recharacterized as ordinary income (the “Excess Gain”). In addition, an interest charge will also apply to any deemed underpayment of tax in respect of any Excess Gain to the extent such gain would have resulted in gross income inclusion for the United States holder in taxable years prior to the taxable year of the sale, exchange, or settlement (assuming such income accrued at a constant rate equal to the applicable federal rate as of the date of sale, exchange, or settlement).
If an investment in a note is treated as a constructive ownership transaction, it is not clear to what extent any long-term capital gain of a United States holder in respect of the note will be recharacterized as ordinary income. It is possible, for example, that the amount of the Excess Gain (if any) that would be recharacterized as ordinary income in respect of the note will equal the excess of (i) any long-term capital gain recognized by the United States holder in respect of the note and attributable to Section 1260 Financial Assets, over (ii) the “net underlying long-term capital gain” (as defined in Section 1260 of the Code) such United States holder would have had if such United States holder had acquired an amount of the corresponding Section 1260 Financial Assets at fair market value on the original issue date for an amount equal to the portion of the issue price of the note attributable to the corresponding Section 1260 Financial Assets and sold such amount of Section 1260 Financial Assets upon the date of sale, exchange, or settlement of the note at fair market value (and appropriately taking into account any leveraged upside exposure). To the extent any gain is treated as long-term capital gain after application of the recharacterization rules of Section 1260 of the Code, such gain would be subject to U.S. federal income tax at the rates that would have been applicable to the net underlying long-term capital gain. United States holders should consult their tax advisors regarding the potential application of Section 1260 of the Code to an investment in the note.
Under Section 1260 of the Code, there is a presumption that the net underlying long-term capital gain is zero (with the result that the recharacterization and interest charge described above would apply to all of the gain from the notes that otherwise would have been long-term capital gain), unless the contrary is demonstrated by clear and convincing evidence. Holders will be responsible for obtaining information necessary to determine the net underlying long-term capital gain with respect to the corresponding Section 1260 Financial Assets, as we do not intend to supply holders with such information. Holders should consult with their tax advisor regarding the application of the constructive ownership transaction to their notes and the calculations necessary to comply with Section 1260 of the Code.
Alternative Treatments
Alternative tax treatments of the notes are also possible and the Internal Revenue Service might assert that a treatment other than that described above is more appropriate. For example, it would be possible to treat the notes, and the Internal Revenue Service might assert that the notes should be treated, as a single debt instrument. Such a debt instrument would be subject to the special tax rules governing contingent payment debt instruments. If the notes are so treated, a United States holder would generally be required to accrue interest currently over the term of the notes irrespective of the interest payments on the notes. In addition, any gain a United States holder might recognize upon the sale or maturity of the notes would be ordinary income and any loss recognized by a holder at such time would be ordinary loss to the extent of interest that same holder included in income in the current or previous taxable years in respect of the notes, and thereafter, would be capital loss.
Because of the absence of authority regarding the appropriate tax characterization of the notes, it is also possible that the Internal Revenue Service could seek to characterize the notes in a manner that results in other tax consequences that are different from those described above. For example, the Internal Revenue Service could possibly assert that any gain or loss that a holder may recognize upon the sale or maturity of the notes should be treated as ordinary gain or loss.
PS-33
The Internal Revenue Service has released a notice that may affect the taxation of holders of the notes. According to the notice, the Internal Revenue Service and the Treasury Department are actively considering whether the holder of an instrument such as the notes should be required to accrue ordinary income on a current basis irrespective of any interest payments, and they sought taxpayer comments on the subject. It is not possible to determine what guidance they will ultimately issue, if any. It is possible, however, that under such guidance, holders of the notes will ultimately be required to accrue income currently irrespective of any interest payments and this could be applied on a retroactive basis. The Internal Revenue Service and the Treasury Department are also considering other relevant issues, including whether additional gain or loss from such instruments should be treated as ordinary or capital and whether the special “constructive ownership rules” of Section 1260 of the Code might be applied to such instruments. Holders are urged to consult their tax advisors concerning the significance, and the potential impact, of the above considerations. We intend to treat the notes for U.S. federal income tax purposes in accordance with the treatment described in this pricing supplement unless and until such time as the Treasury Department and Internal Revenue Service determine that some other treatment is more appropriate.
Backup Withholding and Information Reporting
Please see the discussion under “United States Federal Income Taxation—Other Considerations—Backup Withholding and Information Reporting” in the accompanying prospectus for a description of the applicability of the backup withholding and information reporting rules to payments made on your notes.
Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act was enacted on March 18, 2010 and will impose a 30% U.S. withholding tax on certain U.S. source payments, including interest (and OID), dividends, other fixed or determinable annual or periodical gain, profits, and income, and on the gross proceeds from a disposition of property of a type which can produce U.S. source interest or dividends (“Withholdable Payments”), if paid to a foreign financial institution (including amounts paid to a foreign financial institution on behalf of a holder), unless such institution enters into an agreement with the Treasury Department to collect and provide to the Treasury Department substantial information regarding U.S. account holders, including certain account holders that are foreign entities with U.S. owners, with such institution. A note may constitute an account for these purposes. The legislation also generally imposes a withholding tax of 30% on Withholdable Payments made to a non-financial foreign entity unless such entity provides the withholding agent with a certification that it does not have any substantial U.S. owners or a certification identifying the direct and indirect substantial U.S. owners of the entity.
These withholding and reporting requirements generally apply to payments made after June 30, 2014. Account holders subject to information reporting requirements pursuant to the Foreign Account Tax Compliance Act may include holders of the notes. Foreign financial institutions and non-financial foreign entities located in jurisdictions that have an intergovernmental agreement with the United States governing the Foreign Account Tax Compliance Act may be subject to different rules. Holders are urged to consult with their own tax advisors regarding the possible implications of this legislation on their investment in the notes.
PS-34
EMPLOYEE RETIREMENT INCOME SECURITY ACT
A fiduciary of a pension, profit-sharing or other employee benefit plan subject to the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (each, a “Plan”), should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing an investment in the notes. Among other factors, the fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the Plan, and whether the investment would involve a prohibited transaction under ERISA or the Code.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well as individual retirement accounts, Keogh plans any other plans that are subject to Section 4975 of the Code (also “Plans”), from engaging in certain transactions involving “plan assets” with persons who are “parties in interest” under ERISA or “disqualified persons” under the Code with respect to the Plan. A violation of these prohibited transaction rules may result in excise tax or other liabilities under ERISA or the Code for those persons, unless exemptive relief is available under an applicable statutory, regulatory or administrative exemption. Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA) and non-U.S. plans (as described in Section 4(b)(4) of ERISA) (“Non-ERISA Arrangements”) are not subject to the requirements of Section 406 of ERISA or Section 4975 of the Code but may be subject to similar provisions under applicable federal, state, local, non-U.S., or other laws (“Similar Laws”).
The acquisition of notes by a Plan or any entity whose underlying assets include “plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) with respect to which we or certain of our affiliates is or becomes a party in interest or disqualified person may result in a prohibited transaction under ERISA or Section 4975 of the Code, unless the notes are acquired pursuant to an applicable exemption. The U.S. Department of Labor has issued five prohibited transaction class exemptions, or “PTCEs”, that may provide exemptive relief if required for direct or indirect prohibited transactions that may arise from the purchase or holding of notes. These exemptions are PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers), PTCE 90-1 (for certain transactions involving insurance company pooled separate accounts), PTCE 91-38 (for certain transactions involving bank collective investment funds), PTCE 95-60 (for transactions involving certain insurance company general accounts), and PTCE 96-23 (for transactions managed by in-house asset managers). In addition, ERISA Section 408(b)(17) and Section 4975(d)(20) of the Code provide an exemption for the purchase and sale of securities offered hereby, provided that neither the issuer of notes offered hereby nor any of its affiliates have or exercise any discretionary authority or control or render any investment advice with respect to the assets of any Plan involved in the transaction, and provided further that the Plan pays no more and receives no less than “adequate consideration” in connection with the transaction (the “Service Provider Exemption”). Any Plan fiduciary relying on the Service Provider Exemption and purchasing the notes on behalf of a Plan must initially make a determination that (x) the Plan is paying no more than, and is receiving no less than, “adequate consideration” in connection with the transaction and (y) neither we nor any of our affiliates directly or indirectly exercises any discretionary authority or control or renders investment advice with respect to the assets of the Plan which such fiduciary is using to purchase, both of which are necessary preconditions to reliance on the Service Provider Exemption. If we or any of our affiliates provides fiduciary investment management services with respect to a Plan’s acquisition of the notes, the Service Provider Exemption may not be available, and in that case, other exemptive relief would be required as precondition for purchasing the notes. Any Plan fiduciary considering reliance on the Service Provider Exemption is encouraged to consult with counsel regarding the availability of the exemption. There can be no assurance that any of the foregoing exemptions will be available with respect to any particular transaction involving the notes, or that, if an exemption is available, it will cover all aspects of any particular transaction.
Because we or our affiliates may be considered to be a party in interest with respect to many Plans, the notes may not be purchased, held or disposed of by any Plan, unless such purchase, holding or disposition is eligible for exemptive relief, including relief available under PTCE 96-23, 95-60, 91-38, 90-1, or 84-14 or the Service Provider Exemption, or such purchase, holding or disposition is not otherwise prohibited. Except as otherwise set forth in any applicable pricing supplement, by its purchase of any notes, each purchaser (whether in the case of the initial purchase or in the case of a subsequent transferee) will be deemed to have represented and agreed by its purchase and holding of the notes offered hereby that either (i) it is not and for so long as it holds a note, it will not be a Plan, a Plan Asset Entity, or a Non-ERISA Arrangement, or (ii) its purchase and holding of the notes will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or, in the case of such a Non-ERISA Arrangement, under any Similar Laws.
In addition, any purchaser that is a Plan or a Plan Asset Entity or that is acquiring the notes on behalf of a Plan or a Plan Asset Entity, including any fiduciary purchasing on behalf of a Plan or Plan Asset entity, will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding of the notes that (a) neither we nor any of our respective affiliates or agents are a “fiduciary” (under Section 3(21) of ERISA, or under any final or proposed regulations thereunder, or with respect to a non-ERISA Arrangement under any Similar Laws with respect to the acquisition, holding or disposition of the notes, or as a result of any exercise by us or our affiliates or agents of any rights in connection with the notes, (b) no advice provided by us or any of our affiliates or agents has formed a primary basis for any investment decision by or on behalf of such purchaser in connection with the notes and the transactions contemplated with respect to the notes, and (c) such purchaser recognizes and agrees that any communication from us or any of our affiliates or agents to the purchaser with respect to the notes is not intended by us or any of our affiliates or agents to be impartial investment advice and is rendered in our or our affiliates’ or agents’ capacity as a seller of such notes and not a fiduciary to such purchaser.
PS-35
Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is important that fiduciaries or other persons considering purchasing notes on behalf of or with the assets of any Plan, a Plan Asset Entity or Non-ERISA Arrangement consult with their counsel regarding the availability of exemptive relief under any of the PTCEs listed above, the Service Provider Exemption or the potential consequences of any purchase or holding under Similar Laws, as applicable. Purchasers of notes have exclusive responsibility for ensuring that their purchase and holding of notes do not violate the fiduciary or prohibited transaction rules of ERISA or the Code or any similar provisions of Similar Laws. The sale of any notes to a Plan, Plan Asset Entity or Non-ERISA Arrangement is in no respect a representation by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to investments by any such Plans, Plan Asset Entities or Non-ERISA Arrangements generally or any particular Plan, Plan Asset Entity or Non-ERISA Arrangement or that such investment is appropriate for such Plans, Plan Asset Entities or Non-ERISA Arrangements generally or any particular Plan, Plan Asset Entity or Non-ERISA Arrangement.
PS-36
USE OF PROCEEDS AND HEDGING
We will use the net proceeds we receive from the sale of the notes for the purposes we describe in the accompanying prospectus and the accompanying prospectus supplement under “Use of Proceeds.” We or our affiliates may also use those proceeds in transactions intended to hedge our respective obligations under the notes as described below.
We or our affiliates expect to enter into hedging transactions involving, among other transactions, purchases or sales of one or more of the Reference Shares, or listed or over-the-counter options, futures and other instruments linked to the Reference Shares. In addition, from time to time after we issue the notes, we or our affiliates expect to enter into additional hedging transactions and to unwind those we have entered into in connection with the notes. Consequently, with regard to the notes, we or our affiliates from time to time expect to acquire or dispose of the Reference Shares or positions in listed or over-the-counter options, futures or other instruments linked to one or more of the Reference Shares.
We or our affiliates may acquire a long position in securities similar to the notes from time to time and may, in our or their sole discretion, hold, resell or repurchase those securities.
In the future, we or our affiliates expect to close out hedge positions relating to the notes and possibly relating to other securities or instruments with returns linked to one or more of the Reference Shares. We expect these steps to involve sales of instruments linked to the Reference Shares on or shortly before the applicable valuation dates. These steps may also involve transactions of the type contemplated above. Notwithstanding the above, we are permitted to and may choose to hedge in any manner not stated above; similarly, we may elect not to enter into any such transactions. Investors will not have knowledge about our hedging positions.
We have no obligation to engage in any manner of hedging activity and will do so solely at our discretion and for our own account. No holder of any notes will have any rights or interest in our hedging activity or any positions we or any counterparty may take in connection with our hedging activity.
PS-37
SUPPLEMENTAL PLAN OF DISTRIBUTION (CONFLICTS OF INTEREST)
We, either ourselves or through BMOCM as agent, have entered into an arrangement with Raymond James, whereby Raymond James will distribute the notes. Such distribution may occur on or subsequent to the Issue Date. The notes sold by Raymond James to investors will be offered at the issue price of $1,027.50 per note. Raymond James will pay to BMOCM $1,000 per note, and BMOCM will pay to us $1,000 per note. Because Raymond James will offer the notes at a price equal to $1,027.50 per note, the excess will constitute a commission to Raymond James for its services in acting as distributor for BMOCM.
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 any 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 any of the notes as a recommendation of the merits of acquiring an investment linked to any of the Reference Shares 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 this pricing supplement in the initial sale of notes. In addition, BMOCM or another of our affiliates may use this 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, this 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 the hedging profit that we or our affiliates expect to realize over the term of the notes. The amount of this temporary upward adjustment will decline to zero on a straight-line basis over the three-month period.
ADDITIONAL INFORMATION RELATING TO THE ESTIMATED INITIAL VALUE OF THE NOTES
Our estimated initial value of the notes on the date of this preliminary pricing supplement, 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:
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a fixed-income debt component with the same tenor as the notes, valued using our internal funding rate for structured notes; and
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one or more derivative transactions relating to the economic terms of the notes.
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The internal funding rate used in the determination of the initial estimated value generally represents a discount from the credit spreads for our conventional fixed-rate debt. The value of these derivative transactions are derived from our internal pricing models. These models are based on interest rates and other factors. As a result, the estimated initial value of the notes on the pricing date will be determined based on market conditions at that time.
PS-38