·
|
The notes are designed for investors who seek fixed contingent interest payments if the closing price of the iShares® Russell 2000 Index Fund (the “Reference Stock”) is equal to or greater than the Interest Observation Price (as defined below) on each applicable Interest Observation Date. If the notes are not automatically redeemed, investors should be willing to accept a payment at maturity that will not exceed the principal amount and be willing to lose 1% of their principal amount for each 1% that the price of the Reference Stock decreases, if that decrease as of the Valuation Date exceeds 15% of its price on the Pricing Date.
|
·
|
Investors in the notes should be willing to lose up to 100% of their principal amount at maturity.
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·
|
The notes will pay Contingent Interest on each semi-annual Interest Payment Date equal to 3.50% of the principal amount ($35.00 per $1,000 in principal amount) if the closing price of the Reference Stock on the applicable Interest Observation Date is equal to or greater than the Interest Observation Price (which is equal to 85% of the Initial Stock Price). Accordingly, the maximum return on the notes will be 7.00% per annum. However, if the closing price of the Reference Stock is less than the Interest Observation Price on an Interest Observation Date, the notes will not pay the Contingent Interest for that Interest Observation Date.
|
·
|
The notes will be redeemed prior to maturity if, on any Call Date, the closing price of the Reference Stock is greater than the Initial Stock Price.
|
·
|
All payments on the notes are subject to the credit risk of Bank of Montreal.
|
·
|
The offering is expected to price on March 25, 2013, and the notes are expected to settle on or about March 28, 2013.
|
·
|
The notes are scheduled to mature on March 31, 2016.
|
·
|
The notes will be issued in minimum denominations of $1,000 and integral multiples of $1,000.
|
·
|
The CUSIP number of the notes is 06366RLX1.
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·
|
Our subsidiary, BMO Capital Markets Corp. (“BMOCM”), is the agent for this offering. See “Supplemental Plan of Distribution (Conflicts of Interest)” below.
|
Price to Public(1)
|
Agent’s Commission(1)
|
Proceeds to Bank of Montreal
|
|
Per Note
|
US$1,000
|
US$ ●
|
US$ ●
|
Total
|
US$ ●
|
US$ ●
|
US$ ●
|
(1) In addition to the agent’s commission, the price to public specified above is expected to include the profit that we would recognize earned by hedging our exposure under the notes. The agent’s commission will be set forth in the final pricing supplement.
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Key Terms of the Notes:
|
|
Reference Stock:
|
iShares® Russell 2000 Index Fund (Bloomberg symbol: IWM). See the section below entitled “The Reference Stock” for additional information about the Reference Stock.
|
Contingent Interest:
|
If the price of the Reference Stock on the applicable Interest Observation Date is greater than or equal to the Interest Observation Price, Contingent Interest will be paid on the applicable Interest Payment Date. The Contingent Interest per semi-annual interest period is 3.50%, which is equal to 7.00% per annum.
|
Interest Observation Dates:
|
September 25, 2013, March 26, 2014, September 25, 2014, March 26, 2015, September 25, 2015, and the Valuation Date.
|
Interest Observation Price:
|
85% of the Initial Stock Price.
|
Interest Payment Dates:
|
Contingent Interest on the notes, if any, will be paid in semi-annual installments of $35 per $1,000 in principal amount of the notes on the third business day following an Interest Observation Date, provided that the final Interest Payment Date is the Maturity Date.
|
Automatic Redemption:
|
If, on any Call Date, the closing price of the Reference Stock is greater than the Initial Stock Price, the notes will be automatically redeemed.
|
Payment Upon Automatic Redemption:
|
If the notes are automatically redeemed, then, on the applicable Call Settlement Date, investors will receive $1,000 for each $1,000 in principal amount of the notes, plus the Contingent Interest applicable to that date.
|
Call Dates:
|
September 25, 2013, March 26, 2014, September 25, 2014, March 26, 2015 and September 25, 2015.
|
Call Settlement Dates:
|
The third business day following a Call Date.
|
Payment at Maturity (if held
to the Maturity Date):
|
If the notes are not automatically redeemed, the payment at maturity for each of the notes will be a cash payment per $1,000 in principal amount of the notes (the “Payment at Maturity”) based on the Final Stock Price, determined on the Valuation Date, and calculated as follows:
· If the Final Stock Price is greater than or equal to the Trigger Price on the Valuation Date, the Payment at Maturity will be $1,000 plus the Contingent Interest otherwise due as described above.
· If the Final Stock Price is less than the Trigger Price on the Valuation Date, the Payment at Maturity will be less than the principal amount, resulting in a loss that is proportionate to the decrease in the price of the Reference Stock from the pricing date to the Valuation Date, calculated as follows:
$1,000 + ($1,000 x Percentage Change)
|
Trigger Price:
|
85% of the Initial Stock Price
|
Initial Stock Price:
|
The closing price of one share of the Reference Stock on the Pricing Date.
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Final Stock Price:
|
The closing price of one share of the Reference Stock on the Valuation Date.
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Percentage Change:
|
Final Stock Price – Initial Stock Price, expressed as a percentage.
Initial Stock Price
|
Monitoring Period:
|
None. Only the price of the Reference Stock on the Valuation Date will be used to determine the payment at maturity.
|
Physical Delivery Amount:
|
Not applicable. The payment at maturity is payable only in cash.
|
Pricing Date:
|
On or about March 25, 2013
|
Settlement Date:
|
On or about March 28, 2013, as determined on the Pricing Date.
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Valuation Date:
|
On or about March 28, 2016, as determined on the Pricing Date. The Valuation Date will be the final Interest Observation Date.
|
Maturity Date:
|
On or about March 31, 2016, as determined on the Pricing Date.
|
Calculation Agent:
|
BMOCM
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Selling Agent:
|
BMOCM
|
The Pricing Date and the Settlement Date are subject to change. The actual Pricing Date, Settlement Date, Interest Observation Dates, Call Dates, Valuation Date and Maturity Date for the notes will be set forth in the final pricing supplement.
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.
|
|
·
|
Product supplement dated February 27, 2013:
|
|
·
|
Prospectus supplement dated June 22, 2011:
|
|
·
|
Prospectus dated June 22, 2011:
|
|
·
|
Your investment in the notes may result in a loss. — You may lose some or all of your investment in the notes. If the notes are not automatically redeemed, the payment at maturity will depend on whether the Final Stock Price is less than the Trigger Price. If the Final Stock Price of the Reference Stock on the Valuation Date is below the Trigger Price then you will lose 1% of the principal amount of the notes for every 1% that the Final Stock Price is less than the Initial Stock Price. Accordingly, you may lose the entire principal amount of your notes.
|
|
·
|
You may not receive any Contingent Interest with respect to your notes. We will not necessarily make periodic coupon payments on the notes. If the closing price of the Reference Stock on an Interest Observation Date is less than the Interest Observation Price, we will not pay you the Contingent Interest applicable to that Interest Observation Date. If the closing price of the Reference Stock is less than the Interest Observation Price on each of the Interest Observation Dates, we will not pay you any Contingent Interest during the term of the notes, and you will not receive a positive return on the notes. Furthermore, the non-payment of the Contingent Interest on the final Interest Observation Date will coincide with a loss of principal on the notes, because in such a case, the Final Stock Price will be less than the Trigger Price.
|
|
·
|
Your potential return on the notes is limited. The return on the notes is limited to the pre-specified Contingent Interest, regardless of any increase in the price of the Reference Stock. As a result, the return on an investment in the notes could be less than the return on a direct investment in the Reference Stock. In addition, the total return on the notes will vary based on the number of Interest Observation Dates on which the Contingent Interest is payable prior to maturity.
|
|
·
|
Your investment is subject to the credit risk of Bank of Montreal. — Our credit ratings and credit spreads may adversely affect the market value of the notes. Investors are dependent on our ability to all amounts due on the notes, and therefore investors are subject to our credit risk and to changes in the market’s view of our creditworthiness. Any decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the value of the notes.
|
|
·
|
Your notes are subject to automatic early redemption. — We will redeem the notes if the closing price of the Reference Stock on any Call Date is greater than its Initial Stock Price. Following an automatic redemption, you may not be able to reinvest your proceeds in an investment with returns that are comparable to the notes.
|
|
·
|
Potential conflicts. — We and our affiliates play a variety of roles in connection with the issuance of the notes, including acting as calculation agent. In performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in the notes. We or one or more of our affiliates may also engage in trading of shares of the Reference Stock or securities included in the Reference Stock on a regular basis as part of our general broker-dealer and other businesses, for proprietary accounts, for other accounts under management or to facilitate transactions for our customers. Any of these activities could adversely affect the price of the Reference Stock and, therefore, the market value of the notes. We or one or more of our affiliates may also issue or underwrite other securities or financial or derivative instruments with returns linked or related to changes in the performance of the Reference Stock. 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.
|
|
·
|
The inclusion of the agent’s commission and hedging profits, if any, in the initial price to public of the notes, as well as our hedging costs, is likely to adversely affect the price at which you can sell your notes. — Assuming no change in market conditions or any other relevant factors, the price, if any, at which BMOCM or any other party may be willing to purchase the notes in secondary market transactions may be lower than the initial price to public. The initial price to public will include, and any price quoted to you is likely to exclude, the agent’s commission paid in connection with the initial distribution. The initial price to public is also expected to include, and any price quoted to you would be likely to exclude, the hedging profits that we expect to earn with respect to hedging our exposure under the notes. 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.
|
|
·
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Owning the notes is not the same as owning the Reference Stock or a security directly linked to the Reference Stock. — The return on your notes will not reflect the return you would realize if you actually owned the Reference Stock or a security directly linked to the performance of the Reference Stock and held that investment for a similar period. Your notes may trade quite differently from the Reference Stock. Changes in the price of the Reference Stock may not result in comparable changes in the market value of your notes. Even if the price of the Reference Stock increases 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 price of the Reference Stock increases. In addition, any dividends or other distributions paid on the Reference Stock will not be reflected in the amounts payable on the notes.
|
|
·
|
You will not have any shareholder rights and will have no right to receive any shares of the Reference Stock at maturity. — Investing in your notes will not make you a holder of any shares of the Reference Stock, or any securities held by the Reference Stock. Neither you nor any other holder or owner of the notes will have any voting rights, any right to receive dividends or other distributions or any other rights with respect to the Reference Stock or such other securities.
|
|
·
|
Changes that affect the index underlying the Reference Stock will affect the market value of the notes and the amount you will receive at maturity. — The policies of the Russell Investment Group (“Russell”), the sponsor of the Russell 2000 Index (the “Underlying Index”), concerning the calculation of the Underlying Index, additions, deletions or substitutions of the components of the Underlying Index and the manner in which changes affecting those components, such as stock dividends, reorganizations or mergers, may be reflected in the Underlying Index and, therefore, could affect the share price of the Reference Stock, the amounts payable on the notes, and the market value of the notes prior to maturity. The amounts payable on the notes and their market value could also be affected if Russell changes these policies, for example, by changing the manner in which it calculates the Underlying Index, or if Russell discontinues or suspends the calculation or publication of the Underlying Index.
|
|
·
|
An investment in the notes is subject to risks associated in investing in stocks with a small market capitalization. — The Underlying Index consists of stocks issued by companies with relatively small market capitalizations. These companies often have greater stock price volatility, lower trading volume and less liquidity than large-capitalization companies. As a result, the share price of the iShares® Russell 2000 Index Fund may be more volatile than that of a market measure that does not track solely small-capitalization stocks. Stock prices of small-capitalization companies are also generally more vulnerable than those of large-capitalization companies to adverse business and economic developments, and the stocks of small-capitalization companies may be thinly traded, and be less attractive to many investors if they do not pay dividends. In addition, small capitalization companies are typically less well-established and less stable financially than large-capitalization companies and may depend on a small number of key personnel, making them more vulnerable to loss of those individuals. Small capitalization companies tend to have lower revenues, less diverse product lines, smaller shares of their target markets, fewer financial resources and fewer competitive strengths than large-capitalization companies. These companies may also be more susceptible to adverse developments related to their products or services.
|
|
·
|
Adjustments to the Reference Stock could adversely affect the notes. — BlackRock, Inc. (collectively with its affiliates, “BlackRock”), in its role as the sponsor and advisor of the Reference Stock, is responsible for calculating and maintaining the Reference Stock. BlackRock can add, delete or substitute the stocks comprising the Reference Stock or make other methodological changes that could change the share price of the Reference Stock at any time. If one or more of these events occurs, the calculation of the amounts payable on the notes may be adjusted to reflect such event or events. Consequently, any of these actions could adversely affect the amounts payable on the notes and/or the market value of the notes.
|
|
·
|
We and our affiliates do not have any affiliation with the investment advisor of the Reference Stock and are not responsible for its public disclosure of information. — We and our affiliates are not affiliated with BlackRock in any way and have no ability to control or predict its actions, including any errors in or discontinuance of disclosure regarding its methods or policies relating to the Reference Stock. BlackRock is not involved in the offering of the notes in any way and has no obligation to consider your interests as an owner of the notes in taking any actions relating to the Reference Stock that might affect the value of the notes. Neither we nor any of our affiliates has independently verified the adequacy or accuracy of the information about BlackRock or the Reference Stock contained in any public disclosure of information. You, as an investor in the notes, should make your own investigation into the Reference Stock.
|
|
·
|
The correlation between the performance of the Reference Stock and the performance of the Underlying Index may be imperfect. — The performance of the Reference Stock is linked principally to the performance of the Underlying Index. However, because of the potential discrepancies identified in more detail in the product supplement, the return on the Reference Stock may correlate imperfectly with the return on the Underlying Index.
|
|
·
|
The Reference Stock is subject to management risks. — The Reference Stock is subject to management risk, which is the risk that the investment advisor’s investment strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. For example, the investment advisor may invest a portion of the Reference Stock’s assets in securities not included in the relevant industry or sector but which the investment advisor believes will help the Reference Stock track the relevant industry or sector.
|
|
·
|
Lack of liquidity. — The notes will not be listed on any securities exchange. BMOCM may offer to purchase the notes in the secondary market, but is not required to do so. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Because other dealers are not likely to make a secondary market for the notes, the price at which you may be able to trade your notes is likely to depend on the price, if any, at which BMOCM is willing to buy the notes.
|
|
·
|
Hedging and trading activities. — We or any of our affiliates may carry out hedging activities related to the notes, including purchasing or selling securities included in the Reference Stock, or futures or options relating to the Reference Stock, or other derivative instruments with returns linked or related to changes in the performance of the Reference Stock. We or our affiliates may also engage in trading of shares of the Reference Stock or securities included in the Underlying Index from time to time. Any of these hedging or trading activities on or prior to the pricing date and during the term of the notes could adversely affect the payments on the notes.
|
|
·
|
Many economic and market factors will influence the value of the notes. — In addition to the price of the Reference Stock and interest rates on any trading day, the value of the notes will be affected by a number of economic and market factors that may either offset or magnify each other, and which are described in more detail in the product supplement.
|
·
|
You must rely on your own evaluation of the merits of an investment linked to the Reference Stock. — In the ordinary course of their businesses, our affiliates from time to time may express views on expected movements in the price of the Reference Stock or the securities held by the Reference Stock. One or more of our affiliates have published, and in the future may publish, research reports that express views on Reference Stock or these securities. However, these views are subject to change from time to time. Moreover, other professionals who deal in the markets relating to Reference Stock at any time may have significantly different views from those of our affiliates. You are encouraged to derive information concerning the Reference Stock from multiple sources, and you should not rely on the views expressed by our affiliates.
|
|
·
|
Significant aspects of the tax treatment of the notes are uncertain. — The tax treatment of the notes is uncertain. We do not plan to request a ruling from the Internal Revenue Service or from any Canadian authorities regarding the tax treatment of the notes, and the Internal Revenue Service or a court may not agree with the tax treatment described in this pricing supplement.
|
Hypothetical Stock
Price on the First Call
Date
|
Percentage
Change
|
Total Payment Received on the First Call Settlement Date
|
Total
Return
(%)
|
||
Principal Returned
|
Interest Received
|
Total
Payment
|
|||
$94.83
|
+5%
|
$1,000.00
(100%)
|
$35.00
(One Interest Payment)
|
$1,035.00
|
3.50%
|
Hypothetical Final
Stock Price on the
Valuation Date
|
Percentage
Change
|
Total Payment Received by the Maturity Date.
|
Total
Return
(%)
|
||
Principal Returned
|
Interest Received
|
Total
Payment
|
|||
$81.28
|
-10%
|
$1,000.00
(100%)
|
$175.00
(Five Interest Payments)
|
$1,175.00
|
17.50%
|
Hypothetical Final
Stock Price on the
Valuation Date
|
Percentage
Change
|
Total Payment Received by the Maturity Date.
|
Total
Return
(%)
|
||
Principal Returned
|
Interest Received
|
Total
Payment
|
|||
$63.22
|
-30%
|
$700.00 (70%)
|
$35.00
(One Interest Payment)
|
$735.00
|
-26.50%
|
High ($)
|
Low ($)
|
|||||
2010
|
First Quarter
|
69.25
|
58.68
|
|||
Second Quarter
|
74.14
|
61.08
|
||||
Third Quarter
|
67.67
|
59.04
|
||||
Fourth Quarter
|
79.22
|
66.94
|
||||
2011
|
First Quarter
|
84.17
|
77.18
|
|||
Second Quarter
|
86.37
|
77.77
|
||||
Third Quarter
|
85.65
|
64.25
|
||||
Fourth Quarter
|
76.45
|
60.97
|
||||
2012
|
First Quarter
|
84.41
|
74.56
|
|||
Second Quarter
|
83.79
|
73.64
|
||||
Third Quarter
|
86.40
|
76.68
|
||||
Fourth Quarter
|
84.69
|
76.88
|
||||
2013
|
First Quarter (through February 27, 2013)
|
92.55
|
86.65
|