STRUCTURED INVESTMENTS
Opportunities in U.S. and International Equities
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March 2019
MSELN-376-C
Registration Statement No. 333-227001
Dated March 6, 2019
Filed Pursuant to Rule 433
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SUMMARY TERMS
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Issuer:
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Royal Bank of Canada
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Underlying indices:
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S&P 500® Index (“SPX”), the Russell 2000® Index (“RTY”) and the NASDAQ 100® Index (“NDX”)
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Aggregate principal amount:
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$
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Stated principal amount:
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$1,000 per security
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Pricing date:
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March 8, 2019
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Issue date:
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March 13, 2019 (3 business days after the pricing date)
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Final valuation date:
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March 9, 2020
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Maturity date:
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March 12, 2020
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Automatic early redemption:
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On the first three contingent payment dates, the securities will be automatically called if, on the immediately preceding determination date,
the closing level of each underlying index is equal to or greater than its initial index level.
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Early redemption payment:
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The early redemption payment will be payable on the applicable contingent payment date, and will be an amount equal to (i) the stated principal
amount plus (ii) the contingent quarterly payment with respect to the related contingent payment date.
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Contingent quarterly payment:
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· If the closing level of each underlying index on the
preceding determination date is greater than or equal to its coupon threshold level, we will pay a contingent quarterly payment of $20.00 (2.00% of the stated principal amount) per security on the related contingent payment date.
· If the closing level of any
underlying index on a determination date is less than its coupon threshold level, no contingent quarterly payment will be made with respect to that contingent payment date.
It is possible that one or more underlying indices will close below their respective coupon threshold levels on at least one determination date,
so that you will receive few or no contingent quarterly payments during the term of the securities.
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Determination dates:
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June 10, 2019, September 9, 2019, December 9, 2019 and the final valuation date, subject to postponement as described below.
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Contingent payment dates:
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June 13, 2019, September 12, 2019, December 12, 2019 and the maturity date, subject to postponement as described below.
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Payment at maturity:
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· If the final index level of each underlying index is greater than or equal to its downside threshold level:
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(i) the stated principal amount plus (ii) the contingent quarterly
payment with respect to the maturity date
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· If the final index level of any underlying index is less than its downside threshold level:
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the stated principal amount x performance factor of the worst performing underlying index
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Coupon threshold level:
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As to each underlying index, 78.25% of its initial index level
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Downside threshold level:
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As to each underlying index, 78.25% of its initial index level
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Initial index level:
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As to each underlying index, its closing level on the pricing date
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Final index level:
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As to each underlying index, its closing level on the final valuation date
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Performance factor:
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As to each underlying index, a fraction, determined as follows: final index level/initial index level
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Worst performing underlying index:
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The underlying index with the lowest performance factor.
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CUSIP/ISIN:
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78013X3G1 / US78013X3G10
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Listing:
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The securities will not be listed on any securities exchange.
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Agent:
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RBC Capital Markets, LLC (“RBCCM”). See “Supplemental information regarding plan of distribution; conflicts of interest.”
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Commissions and issue price
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Price to public
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Agent’s commissions
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Proceeds to issuer
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Per security
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$1,000.00
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$12.50(1)
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$982.50
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$5.00(2)
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Total
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$
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$
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$
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Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
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Scenario 1
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On any of the first three determination dates, the closing level of each underlying index is greater than or equal to its initial index level.
§ The securities will be automatically redeemed for (i) the stated principal amount plus (ii) the contingent
quarterly payment with respect to the related determination date.
§ Investors will not participate in the appreciation of any underlying index from its initial index level.
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Scenario 2
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The securities are not automatically redeemed prior to maturity and the final index level of
each underlying index is greater than or equal to its downside threshold
level.
§ The payment due at maturity will be (i) the stated principal amount plus (ii) the contingent quarterly payment
with respect to the final determination date.
§ Investors will not participate in the appreciation of any underlying index from its initial index level.
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Scenario 3
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The securities are not automatically redeemed prior to maturity and the final index level of any underlying index is less
than its downside threshold level.
§ The payment due at maturity will be the stated principal amount x the performance factor of the worst performing underlying index.
§ Investors will lose a significant portion of, and may lose all, of their principal amount in this scenario.
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
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Hypothetical Initial Index Levels:
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100 with respect to each underlying index
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Hypothetical Coupon Threshold Levels and Downside Threshold Levels:
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78.25 with respect to each underlying index
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Contingent Quarterly Payment:
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$20 (2% of the stated principal amount)
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Stated Principal Amount:
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$1,000 per security
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Example 1
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Example 2
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Determination
Dates
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Hypothetical Closing Levels
(or Final Index Levels)
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Contingent
Quarterly
Coupon
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Early
Redemption
Payment*
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Hypothetical Closing Levels
(or Final Index Levels)
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Contingent
Quarterly
Coupon
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Early
Redemption
Payment
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SPX
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RTY
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NDX
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SPX
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RTY
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NDX
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#1
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80.00
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90.00
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95.00
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$20.00
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N/A
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79.00
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84.00
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83.00
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$20.00
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N/A
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#2
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90.00
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95.00
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101.00
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$20.00
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N/A
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75.00
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70.00
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71.00
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$0
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N/A
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#3
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101.00
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102.00
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106.00
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$20.00
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$1,020
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125.00
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126.00
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127.00
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$20.00
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$1,020
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Final
Valuation
Date
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N/A
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N/A
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N/A
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N/A
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N/A
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N/A
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N/A
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N/A
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§ |
In Example 1, the securities are automatically redeemed following the third determination date, as the
closing level of each underlying index on that determination date is equal to its initial index level. As the closing levels of each underlying index on the first and second determination dates are greater than or equal to its coupon
threshold level, you receive the contingent quarterly payment of $20.00 with respect to each such determination date. Following the third determination date, you receive the early redemption payment, calculated as follows:
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In Example 2, the securities are automatically redeemed following the third determination date, as the
closing level of each underlying index on that determination date is greater than its initial index level. As the closing level of each underlying index on the first and third determination dates are greater than its coupon threshold
level, you receive the contingent quarterly payment of $20.00 with respect to each such determination date. Following the third determination date, you receive an early redemption payment of $1,020.00, which includes the contingent
quarterly payment with respect to that determination date.
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
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Example 3
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Example 4
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Determination
Dates
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Hypothetical Closing Levels
(or Final Index Levels)
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Contingent
Quarterly
Coupon
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Early
Redemption
Payment
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Hypothetical Closing Levels (or
Final Index Levels)
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Contingent
Quarterly
Coupon
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Early
Redemption
Payment
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SPX
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RTY
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NDX
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SPX
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RTY
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NDX
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#1
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70.00
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69.00
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68.00
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$0
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N/A
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71.00
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71.00
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71.00
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$0
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N/A
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#2
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65.00
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64.00
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63.00
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$0
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N/A
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69.00
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69.00
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69.00
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$0
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N/A
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#3
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65.00
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64.00
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63.00
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$0
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N/A
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71.00
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71.00
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71.00
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$0
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N/A
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Final
Valuation
Date
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64.00
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63.00
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60.00
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$0
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N/A
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80.00
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80.00
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80.00
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$20*
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N/A
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Payment at
Maturity
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$600.00
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$1,020.00
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§ |
In Example 3, the closing level of one or more underlying indices is below its downside threshold
level on every determination date. As a result, you do not receive any contingent quarterly payments during the term of the securities and, at maturity, you are fully exposed to the decline in the closing level of the worst
performing underlying index, because the final index level of that underlying index is less than its downside threshold level. Investors will receive an amount calculated as follows:
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In Example 4, the closing level of one or more underlying indices is below its downside threshold level on the first three determination dates As a result, you do
not receive any contingent quarterly payments as to those determination dates. Although the final index level of each underlying index is less than its initial index level, because the final index level of each underlying index is not
less than its downside threshold level, you receive the stated principal amount plus a contingent quarterly payment with respect to the final determination date. Your payment at maturity is calculated as follows:
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
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§ |
The securities do not guarantee the return of any principal. The terms of the securities differ from
those of ordinary debt securities in that the securities do not guarantee the payment of regular interest or the return of any of the principal amount at maturity. Instead, if the securities have not been redeemed prior to maturity
and if the final index level of any underlying index is less than its downside threshold level, you will be exposed to the decline in the closing level of the worst performing underlying index, as compared to its initial index level,
on a 1 to 1 basis. In this case, the payment at maturity will be less than 78.25% of the stated principal amount and could be zero.
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The potential contingent repayment of principal represented by the downside threshold level applies only at
maturity. If the securities are not redeemed, you should be willing to hold the securities until maturity. Additionally, if the securities are not redeemed, at maturity, you will receive the stated principal amount only if
the final index level of each underlying index is greater than or equal to its downside threshold level. If you are able to sell the securities prior to maturity, you may have to sell them for a loss relative to the principal amount,
even if the level of each underlying index is at or above its downside threshold level.
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You will not receive any contingent quarterly payment for any contingent payment date where the closing level
of any underlying index on the preceding determination date is less than its coupon threshold level. A contingent quarterly payment will be made with respect to a contingent payment date only if the closing level of each
underlying index on the relevant determination date is greater than or equal to its coupon threshold level. It is possible that the closing level of one or more underlying indices could be below its respective coupon threshold level
on one or more determination dates, so that you will receive few or no contingent quarterly payments. If the closing level of any underlying index on a determination date is below its coupon threshold level, you will not receive any
contingent quarterly payments for the related contingent payment date, even if the closing level of that underlying index was at or above its coupon threshold level on most or all of the other trading days prior to that determination
date and even if the closing levels of the other underlying indices were at or above their respective coupon threshold levels on the applicable determination date.
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Your return on the securities may be lower than the return on a conventional debt security of comparable
maturity. The return that you will receive on the securities, which could be negative, may be less than the return you could earn on other investments. Your investment may not reflect the full opportunity cost to you when
you take into account factors that affect the time value of money, such as inflation.
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Investors will not participate in any appreciation in the level of any underlying index. Investors
will not participate in any appreciation in the level of any underlying index from its initial index level, and the return on the securities will be limited to the contingent quarterly payments, if any, that are payable. The payment
at maturity will not exceed the principal amount plus the final contingent quarterly payment, if it is payable. It is possible that the closing level of one or more of the underlying indices could be below the applicable coupon
threshold level on most or all of the determination dates so that you will receive few or no contingent quarterly payments. If you do not earn sufficient contingent quarterly payments over the term of the securities, the overall
return on the securities may be less than the amount that would be paid on one of our conventional debt securities of comparable maturity.
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
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The early redemption feature may limit the term of your investment to approximately three months. If the
securities are redeemed early, you may not be able to reinvest at comparable terms or returns. The term of your investment in the securities may be limited to as short as approximately three months by the early redemption feature. If the securities are automatically redeemed prior to maturity, you will
receive no more contingent quarterly payments and may be forced to invest in a lower interest rate environment and may not be able to reinvest at comparable terms or returns.
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You are exposed to the market risk of all underlying indices, with respect to both the contingent quarterly
payments, if any, and the payment at maturity, if any. Your return on the securities is not linked to a basket consisting of the underlying indices. Rather, it will be contingent upon the independent performance of each
underlying index. Unlike an instrument with a return linked to a basket of underlying assets, in which risk is potentially mitigated and diversified among all the components of the basket, you will be exposed to the risks related to
each of the underlying indices. Poor performance by any underlying index over the term of the securities may negatively affect your return and will not be
offset or mitigated by any positive performance by the other underlying indices. To receive any contingent quarterly payments, all underlying indices must close at or above their respective coupon threshold levels on the applicable determination date. In addition, if any underlying index has decreased to below its respective downside threshold level as of the final valuation date, you will be fully exposed to the decrease in the worst performing underlying index on a 1 to 1 basis, even if the other underlying indices have appreciated. Under this scenario, the payment at maturity will be less
than 78.25% of the stated principal amount and could be zero. Accordingly, your investment is subject to the market risk of each of the underlying indices.
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Because the securities are linked to the performance of the worst performing underlying index,
you are exposed to greater risks of receiving no contingent quarterly payments and sustaining a significant loss on your investment than if the securities were linked to just one underlying index. The risk that you will not receive any contingent quarterly payments, or that you will suffer a significant loss on your investment, is greater if you invest in the securities as opposed to substantially
similar securities that are linked to the performance of just one underlying index. With three underlying indices, it is more likely that one or more of the underlying indices will close below their respective coupon threshold
levels on any determination date or their respective downside threshold levels on the final valuation date than if the securities were linked to only one underlying index. Therefore, it is more likely that you will not receive any
contingent quarterly payments, and that you will suffer a significant loss on your investment.
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The market price will be influenced by many unpredictable factors. Several factors will influence the value of the securities in the secondary market and the price at which RBCCM may be willing to purchase or sell the securities in the secondary market.
Although we expect that generally the closing levels of the underlying indices on any day may affect the value of the securities more than any other single factor, other factors that may influence the value of the securities
include:
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the level of each underlying index;
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the volatility (frequency and magnitude of changes in the level) of the underlying indices;
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dividend rates on the securities included in the underlying indices;
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interest and yield rates in the market;
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the time remaining until the securities mature;
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying indices and their levels;
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the composition of the underlying indices and changes in their constituent stocks; and
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any actual or anticipated changes in our credit ratings or credit spreads.
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
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The securities are subject to our credit risk, and any actual or anticipated changes to its credit ratings or credit spreads may adversely affect the market value
of the securities. You are dependent on our ability to pay all amounts
due on the securities on each contingent payment date or at maturity, and therefore you are subject to our credit risk. If we default on our obligations under the securities, your investment would be at risk and you could lose some
or all of your investment. As a result, the market value of the securities prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any actual or anticipated 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 market value of the securities.
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Owning the securities is not the same as owning the common stocks included in the underlying indices. The
return on your securities will not reflect the return you would realize if you actually owned and held the common stocks included in the underlying indices for a similar period. If the securities are redeemed, the early redemption
payment that you receive will be the stated principal amount plus the contingent quarterly payment, regardless of the amount by which the closing level of
any underlying index on any scheduled trading day exceeds its initial index level. Investors will not participate in any appreciation of any underlying index. The return on the securities will be limited to any contingent quarterly
payments made during the term of the securities. In addition, you will not have voting rights, the right to receive dividends, or any other rights that holders of those common stocks may have. Even if the level of any underlying index
increases above its initial index level during the term of the securities, the market value of the securities may not increase by the same amount. It is also possible for the levels of one or more of the underlying indices to increase
while the market value of the securities decreases.
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Changes that affect the underlying indices will affect the market value of the securities and the payments on
the securities. The policies of the applicable index sponsors concerning the calculation of the underlying indices, additions, deletions or substitutions of the common stocks included in those indices and the manner in
which changes affecting the issuers of those stocks, such as stock dividends, reorganizations or mergers, are reflected in the applicable index could affect the levels of these indices, whether the securities are automatically called,
the contingent quarterly payment, the payment at maturity, and the market value of the securities prior to maturity. The amount payable on the securities and their market value could also be affected if an index sponsor changes these
policies, for example, by changing the manner in which it calculates the underlying index, or if an index sponsor discontinues or suspends calculation or publication of an underlying index, in which case it may become difficult to
determine the market value of the securities. If events such as these occur, or if the level of an underlying index is not available on the final valuation date because of a market disruption event or for any other reason and no
successor index is selected, the calculation agent may determine the level of the applicable underlying index — and thus the payment at maturity — in its sole discretion.
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No affiliation with any index sponsor. None of the applicable index sponsors is an affiliate of ours
and is not involved with this offering in any way. Consequently, we have no control over the actions of those index sponsors, including any actions of the type that would affect the composition of the underlying indices, and
therefore, the levels of the underlying indices. The index sponsors have no obligation of any sort with respect to the securities. Thus, these index sponsors have no obligation to take your interests into consideration for any reason,
including in taking any actions that might affect the value of the securities.
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An investment in the securities is subject to risks associated in investing in stocks with a small market capitalization. The
RTY 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 level of this underlying index 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 often 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 often 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.
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
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There are risks associated with investments in securities linked to the value of foreign equity securities.
The NDX includes certain equity securities issued by non-U.S. companies. An investment in securities linked to the value of non-U.S. equity securities involves particular risks. Non-U.S. securities markets may be more volatile than
U.S. securities markets, and market developments may affect non-U.S. securities markets differently from the U.S. securities markets. Direct or indirect government intervention to stabilize these non-U.S. securities markets, as well
as cross shareholdings among non-U.S. companies, may affect trading prices and volumes in those markets. Also, there is generally less publicly available information in the U.S. about non-U.S. companies than about those companies that
are subject to the reporting requirements of the SEC, and non-U.S. companies are subject to accounting, disclosure, auditing and financial reporting standards and requirements that differ from those applicable to U.S. reporting
companies.
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The securities are subject to exchange rate risk. Because certain securities included in the NDX are
traded in currencies other than U.S. dollars, and the securities are denominated in U.S. dollars, the amount payable on the securities at maturity may be exposed to fluctuations in the exchange rate between the U.S. dollar and each of
the currencies in which those securities are denominated. These changes in exchange rates may reflect changes in various non-U.S. economies that in turn may affect the payments on the securities and whether they are subject to an
automatic call. An investor’s net exposure will depend on the extent to which the currencies in which the relevant securities are denominated either strengthen or weaken against the U.S. dollar and the relative weight of each
security.
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We or our affiliates may have adverse economic interests to the holders of the securities. RBCCM and other affiliates of ours
may trade the common stocks included in the underlying indices and other financial instruments related to the underlying indices on a regular basis, for their accounts and for other accounts under their management. RBCCM and these
affiliates may also issue or underwrite or assist unaffiliated entities in the issuance or underwriting of other securities or financial instruments linked to the underlying indices. To the extent that we or one of our affiliates
serves as issuer, agent or underwriter for those securities or financial instruments, our or their interests with respect to those products may be adverse to those of the holders of the securities. Any of these trading activities
could potentially affect the performance of the underlying indices and, accordingly, could affect the value of the securities and the amounts, if any, payable on the securities.
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§ |
The historical performance of the underlying indices should not be taken as an indication of their future
performance. The levels of the underlying indices will determine the amounts to be paid on the securities. The historical performance of the underlying indices does not give an indication of their future performance. As a
result, it is impossible to predict whether the level of any underlying index will rise or fall during the term of the securities. The levels of the underlying indices will be influenced by complex and interrelated political,
economic, financial and other factors. The level of an underlying index may decrease such that you may not receive any return of your investment or any contingent quarterly payment. There can be no assurance that the level of any
underlying index will not decrease so that at maturity you will not lose a significant portion or all of your investment.
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§ |
The securities will not be listed on any securities exchange and secondary trading may be limited. The
securities will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
§ |
The initial estimated value of the securities will be less than the price to the public. The initial
estimated value that will be set forth in the final pricing supplement for the securities, does not represent a minimum price at which we, RBCCM or any of our affiliates would be willing to purchase the securities in any secondary
market (if any exists) at any time. If you attempt to sell the securities prior to maturity, their market value may be lower than the price you paid for them and the initial estimated value. This is due to, among other things,
changes in the levels of the underlying indices, the borrowing rate we pay to issue securities of this kind, and the inclusion in the price to the public of the agent’s commissions and the estimated costs relating to our hedging of
the securities. These factors, together with various credit, market and economic factors over the term of the securities, are expected to reduce the price at which you may be able to sell the securities in any secondary market and
will affect the value of the securities in complex and unpredictable ways. Assuming no change in market conditions or any other relevant factors, the price, if any, at which you may be able to sell your securities prior to maturity
may be less than your original purchase price, as any such sale price would not be expected to include the agent’s commissions and the hedging costs relating to the securities. In addition to bid-ask spreads, the value of the
securities determined for any secondary market price is expected to be based on the secondary rate rather than the internal funding rate used to price the securities and determine the initial estimated value. As a result, the
secondary price will be less than if the internal funding rate was used. The securities are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your securities to maturity.
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§ |
Our initial estimated value of the securities is an estimate only, calculated as of the time the terms of the
securities are set. The initial estimated value of the securities is based on the value of our obligation to make the payments on the securities, together with the mid-market value of the derivative embedded in the terms of
the securities. See “Additional Information About the Securities—Structuring the securities” below. Our estimate is based on a variety of assumptions, including our credit spreads, expectations as to dividends, interest rates and
volatility, and the expected term of the securities. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the securities or similar securities at a price
that is significantly different than we do.
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§ |
The securities are not designed to be short-term trading instruments. The price at which you will be
able to sell the securities to us or our affiliates prior to maturity, if at all, may be at a substantial discount from the principal amount of the securities, even in cases where the closing level of one or more of the underlying
indices have appreciated since the pricing date. In addition, you may receive less, and possibly significantly less, than the stated principal amount of your securities if you try to sell your securities prior to the maturity date,
and you will not receive the benefit of any contingent repayment of principal represented by the downside threshold level.
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§ |
Hedging and trading activity by our subsidiaries could potentially adversely affect the value of the
securities. One or more of our subsidiaries and/or third party dealers expect to carry out hedging activities related to the securities (and to other instruments linked to the underlying indices), including trading in the
common stocks included in the underlying indices and in other instruments related to the underlying indices. Some of our subsidiaries also trade the common stocks included in the underlying indices and other financial instruments
related to the underlying
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
§ |
You must rely on your own evaluation of the merits of an investment linked to the underlying indices. In
the ordinary course of their business, our affiliates may have expressed views on expected movement in the underlying indices, and may do so in the future. These views or reports may be communicated to our clients and clients of our
affiliates. However, these views are subject to change from time to time. Moreover, other professionals who transact business in markets relating to the underlying indices may at any time have significantly different views from those
of our affiliates. For these reasons, you are encouraged to derive information concerning the underlying indices from multiple sources, and you should not rely solely on views expressed by our affiliates.
|
§ |
The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the
securities, which may create a conflict of interest. Our wholly owned subsidiary, RBCCM, will serve as the calculation agent. As calculation agent, RBCCM will determine the initial index levels, the downside threshold
levels and coupon threshold levels, the final index levels, whether the contingent quarterly payment will be paid on each contingent payment date, whether a market disruption event has occurred, whether the securities are subject to
an automatic call, and the payment, if any, that you will receive upon an early redemption or at maturity. Any of these determinations made by RBCCM, in its capacity as calculation agent, may require it to exercise discretion and
make subjective judgments, such as with respect to the occurrence or nonoccurrence of market disruption events, may affect the payments to you on the securities.
|
§ |
Significant aspects of the income tax treatment of an investment in the securities are uncertain. The tax treatment of an investment in the securities is
uncertain. We do not plan to request a ruling from the Internal Revenue Service or the Canada Revenue Agency regarding the tax treatment of an investment in the securities, and the Internal Revenue Service, the Canada Revenue Agency
or a court may not agree with the tax treatment described in this document. Although the U.S. federal income tax treatment of the contingent quarterly payments is uncertain, we intend to take the position that the contingent quarterly
payments constitute taxable ordinary income to a U.S. holder at the time received or accrued in accordance with the holder’s regular method of tax accounting.
|
§ |
A 30% U.S. federal withholding tax will be withheld on contingent quarterly payments paid
to non-U.S. holders. While the U.S. federal income tax treatment of the securities (including proper characterization of the contingent
quarterly payments for U.S. federal income tax purposes) is uncertain, U.S. federal income tax at a 30% rate (or at a lower rate under an applicable income tax treaty) will be withheld in respect of the contingent quarterly payments
paid to a non-U.S. holder unless such payments are effectively connected with the conduct by the non-
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Bloomberg Index Symbol:
|
SPX
|
52 Week High (on 9/20/2018):
|
2,930.75
|
Current Index Level:
|
2,792.81
|
52 Week Low (on 12/24/2018):
|
2,351.10
|
52 Weeks Ago:
|
2,720.94
|
The S&P 500®
|
High
|
Low
|
2014
|
|||
First Quarter
|
1,878.04
|
1,741.89
|
|
Second Quarter
|
1,962.87
|
1,815.69
|
|
Third Quarter
|
2,011.36
|
1,909.57
|
|
Fourth Quarter
|
2,090.57
|
1,862.49
|
|
2015
|
|
||
First Quarter
|
2,117.39
|
1,992.67
|
|
Second Quarter
|
2,130.82
|
2,057.64
|
|
Third Quarter
|
2,128.28
|
1,867.61
|
|
Fourth Quarter
|
2,109.79
|
1,923.82
|
|
2016
|
|
|
|
First Quarter
|
2,063.95
|
1,829.08
|
|
Second Quarter
|
2,119.12
|
2,000.54
|
|
Third Quarter
|
2,190.15
|
2,088.55
|
|
Fourth Quarter
|
2,271.72
|
2,085.18
|
|
2017
|
|
|
|
First Quarter
|
2,395.96
|
2,257.83
|
|
Second Quarter
|
2,453.46
|
2,328.95
|
|
Third Quarter
|
2,519.36
|
2,409.75
|
|
Fourth Quarter
|
2,690.16
|
2,529.12
|
|
2018
|
|
|
|
First Quarter
|
2,872.87
|
2,581.00
|
|
Second Quarter
|
2,786.85
|
2,581.88
|
|
Third Quarter
|
2,930.75
|
2,713.22
|
|
Fourth Quarter
|
2,925.51
|
2,351.10
|
|
2019
|
|
|
|
First Quarter (through March 4, 2019)
|
2,803.69
|
2,447.89
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
SPX Daily Closing Levels
January 1, 2014 to March 4, 2019
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Bloomberg Index Symbol:
|
RTY
|
52 Week High (on 8/31/2018):
|
1,740.753
|
Current Index Level:
|
1,575.437
|
52 Week Low (on 12/24/2018):
|
1,266.925
|
52 Weeks Ago:
|
1,546.048
|
The Russell 2000®
|
High
|
Low
|
2014
|
|
||
First Quarter
|
1,208.651
|
1,093.594
|
|
Second Quarter
|
1,192.964
|
1,095.986
|
|
Third Quarter
|
1,208.150
|
1,101.676
|
|
Fourth Quarter
|
1,219.109
|
1,049.303
|
|
2015
|
|
||
First Quarter
|
1,266.373
|
1,154.709
|
|
Second Quarter
|
1,295.799
|
1,215.417
|
|
Third Quarter
|
1,273.328
|
1,083.907
|
|
Fourth Quarter
|
1,204.159
|
1,097.552
|
|
2016
|
|
|
|
First Quarter
|
1,114.028
|
953.715
|
|
Second Quarter
|
1,188.954
|
1,089.646
|
|
Third Quarter
|
1,263.438
|
1,139.453
|
|
Fourth Quarter
|
1,388.073
|
1,156.885
|
|
2017
|
|
|
|
First Quarter
|
1,413.635
|
1,345.598
|
|
Second Quarter
|
1,425.985
|
1,345.244
|
|
Third Quarter
|
1,490.861
|
1,356.905
|
|
Fourth Quarter
|
1,548.926
|
1,464.095
|
|
2018
|
|
|
|
First Quarter
|
1,610.706
|
1,463.793
|
|
Second Quarter
|
1,706.985
|
1,492.531
|
|
Third Quarter
|
1,740.753
|
1,653.132
|
|
Fourth Quarter
|
1,672.992
|
1,266.925
|
|
2019
|
|
|
|
First Quarter (through March 4, 2019)
|
1,590.062
|
1,330.831
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
RTY Daily Closing Levels
January 1, 2014 to March 4, 2019
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
· |
the security’s U.S. listing must be exclusively on the Nasdaq Global Select Market or the Nasdaq Global Market;
|
· |
the security must be issued by a non-financial company;
|
· |
the security may not be issued by an issuer currently in bankruptcy proceedings;
|
· |
the security must generally be a common stock, ordinary share, American Depositary Receipt, or tracking stock (closed-end funds, convertible debentures, exchange traded funds,
limited liability companies, limited partnership interests, preferred stocks, rights, shares or units of beneficial interests, warrants, units and other derivative securities are not included in the NDX, nor are the securities of
investment companies);
|
· |
the security must have a three-month average daily trading volume of at least 200,000 shares;
|
· |
if the security is issued by an issuer organized under the laws of a jurisdiction outside the United States, it must have listed options on a recognized market in the United States
or be eligible for listed-options trading on a recognized options market in the United States;
|
· |
the issuer of the security may not have entered into a definitive agreement or other arrangement which would likely result in the security no longer being eligible;
|
· |
the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn; and
|
· |
the issuer of the security must have “seasoned” on the Nasdaq Stock Market or another recognized market (generally, a company is considered to be seasoned if it has been listed on a
market for at least three full months, excluding the first month of initial listing).
|
· |
the security’s U.S. listing must be exclusively on the Nasdaq Global Select Market or the Nasdaq Global Market;
|
· |
the security must be issued by a non-financial company;
|
· |
the security may not be issued by an issuer currently in bankruptcy proceedings;
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
· |
the security must have an average daily trading volume of at least 200,000 shares in the previous three-month trading period as measured annually during the ranking review process
described below;
|
· |
if the issuer of the security is organized under the laws of a jurisdiction outside the United States, then such security must have listed options on a recognized market in the
United States or be eligible for listed-options trading on a recognized options market in the United States, as measured annually during the ranking review process;
|
· |
the issuer of the security may not have entered into a definitive agreement or other arrangement that would likely result in the security no longer being eligible;
|
· |
the security must have an adjusted market capitalization equal to or exceeding 0.10% of the aggregate adjusted market capitalization of the NDX at each month-end. In the event that
a company does not meet this criterion for two consecutive month-ends, it will be removed from the NDX effective after the close of trading on the third Friday of the following month; and
|
· |
the issuer of the security may not have annual financial statements with an audit opinion that is currently withdrawn.
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Bloomberg Index Symbol:
|
NDX
|
52 Week High (on 8/29/2018):
|
7,660.180
|
Current Index Level:
|
7,150.833
|
52 Week Low (on 12/24/2018):
|
5,899.354
|
52 Weeks Ago:
|
6,881.283
|
NASDAQ 100®
|
High
|
Low
|
2014
|
|||
First Quarter
|
3,727.185
|
3,440.502
|
|
Second Quarter
|
3,849.479
|
3,446.845
|
|
Third Quarter
|
4,103.083
|
3,857.938
|
|
Fourth Quarter
|
4,337.785
|
3,765.281
|
|
2015
|
|||
First Quarter
|
4,483.049
|
4,089.648
|
|
Second Quarter
|
4,548.740
|
4,311.257
|
|
Third Quarter
|
4,679.675
|
4,016.324
|
|
Fourth Quarter
|
4,719.053
|
4,192.963
|
|
2016
|
|||
First Quarter
|
4,497.857
|
3,947.804
|
|
Second Quarter
|
4,565.421
|
4,201.055
|
|
Third Quarter
|
4,891.363
|
4,410.747
|
|
Fourth Quarter
|
4,965.808
|
4,660.457
|
|
2017
|
|||
First Quarter
|
5,439.742
|
4,911.333
|
|
Second Quarter
|
5,885.296
|
5,353.586
|
|
Third Quarter
|
6,004.380
|
5,596.956
|
|
Fourth Quarter
|
6,513.269
|
5,981.918
|
|
2018
|
|||
First Quarter
|
7,131.121
|
6,306.100
|
|
Second Quarter
|
7,280.705
|
6,390.837
|
|
Third Quarter
|
7,660.180
|
7,014.554
|
|
Fourth Quarter
|
7,645.453
|
5,899.354
|
|
2019
|
|||
First Quarter (through March 4, 2019)
|
7,151.572
|
6,147.128
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
NDX Daily Closing Levels
January 1, 2014 to March 4, 2019
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
Additional Provisions:
|
||
Market disruption
events:
|
“Market disruption event” means, as to any underlying index:
· a suspension, absence or limitation of trading in index components constituting 20% or more, by weight, of the underlying index;
·
a suspension, absence or limitation of trading in futures or options contracts relating to the underlying index on their respective markets;
· 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, index components
constituting 20% or more, by weight, of the underlying index, or (ii) effect transactions in, or obtain market values for, futures or options contracts relating to the underlying index on their respective markets;
· the closure on any day of the primary market for futures or options contracts relating to the underlying index or index components constituting 20% or more, by weight, of the underlying index 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;
· any scheduled trading day on which (i) the primary markets for index components constituting 20% or more, by weight, of the underlying index or (ii) the exchanges or quotation systems, if any,
on which futures or options contracts on the underlying index are traded, fails to open for trading during its regular trading session; or
· 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
securities that we or our affiliates have effected or may effect as described below under “Use of proceeds and hedging” in this document,
· in each case as determined by the calculation agent in its sole discretion; and the calculation determines in its sole discretion that the relevant event materially interferes with our ability
or the ability of any of our affiliates to adjust or unwind all or a material portion of any hedge with respect to the securities.
|
|
Postponement of a
determination date or
final valuation date:
|
In determining the closing level of each underlying index on the determination dates and the final index level of each
underlying index, the calculation agent will take into account market disruption events and non-trading days as follows:
If a scheduled determination date or the scheduled final valuation date is not a trading day or if there is a market
disruption event on that date, the determination date or the final valuation date, as applicable, shall be the next succeeding trading day on which there is no market disruption event; provided that if a market disruption event has
occurred on each of the five consecutive trading days immediately succeeding the scheduled determination date or final valuation date, then (i) that fifth succeeding trading day will be deemed to be the determination date or final
valuation date notwithstanding the occurrence of a market disruption event on that date and (ii) with respect to any that fifth trading day on which a market disruption event occurs, the calculation agent will determine (or, if not
determinable, estimate) the closing level of the applicable underlying index on that fifth trading day, regardless of the occurrence or continuation of a market disruption event on that day. In such an event, the calculation agent will
make a good faith estimate in its sole discretion of the closing level that would have prevailed in the absence of the market disruption event.
For the avoidance of doubt, if a determination date or the final valuation date is postponed as to any underlying index due
to a market disruption event or non-trading day, the determination date or the final valuation date will not be postponed as to any underlying index that is not so effected.
If a determination date is postponed as described in this section, then the related contingent payment date, if an amount is
due, will be postponed by the same number of business days
|
|
Unavailability of the level
|
If the applicable index sponsor discontinues publication of an underlying index and that sponsor
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
of an underlying index:
|
or another entity publishes a successor or substitute index that the calculation agent determines, in its sole discretion,
to be comparable to the discontinued underlying index (such successor or substitute index being referred to in this section as a “successor index”), then any subsequent index closing level will be determined by reference to the published
level of that successor index at the regular weekday close of trading on the applicable date.
Upon any selection by the calculation agent of a successor index, the calculation agent will provide written notice to the
trustee of the selection, and the trustee will furnish written notice thereof, to the extent the trustee is required to under the indenture, to each holder of the securities.
If a successor index is selected by the calculation agent, that successor index will be used as a substitute for the
underlying index for all purposes, including for purposes of determining whether a market disruption event exists with respect to that underlying index.
If the applicable sponsor discontinues publication of the underlying index prior to, and that discontinuance is continuing
on, any date prior to maturity and the calculation agent determines, in its sole discretion, that no successor index is available at that time, then the calculation agent will determine the level of the applicable underlying index for the
relevant date in accordance with the formula for and method of calculating the underlying index last in effect prior to the discontinuance, without rebalancing or substitution, using the closing level (or, if trading in the relevant
underlying securities or components of the underlying index have been materially suspended or materially limited, its good faith estimate of the closing level that would have prevailed but for that suspension or limitation) at the close
of the principal trading session of the relevant exchange on that date of each security or component most recently comprising the underlying index. Notwithstanding these alternative arrangements, discontinuance of the publication of any
underlying index may adversely affect the value of the securities.
If at any time the method of calculating a closing level for an underlying index or a successor index is changed in a
material respect, or if an underlying index is in any other way modified so that the underlying index does not, in the opinion of the calculation agent, fairly represent the level of the underlying index had those changes or modifications
not been made, then, from and after that time, the calculation agent will, at the close of business in New York City on the applicable date, make such calculations and adjustments as, in the good faith judgment of the calculation agent,
may be necessary in order to arrive at a level of the applicable underlying index comparable to the underlying index as if those changes or modifications had not been made. Accordingly, if the method of calculating an underlying index is
modified so that the level of the underlying index is a fraction of what it would have been if it had not been modified (e.g., due to a split in the underlying index), then the calculation agent will adjust the underlying index in order
to arrive at a value of the underlying index as if it had not been modified (e.g., as if such split had not occurred).
|
|
Record date:
|
The record date for each contingent payment date shall be the date one business day prior to the scheduled contingent
payment date; provided, however, that any contingent quarterly payment payable at maturity or upon redemption will be payable to the person to whom the payment
at maturity or early redemption payment, as the case may be, is payable.
|
|
Postponement of
maturity date:
|
If the scheduled final valuation date is not a trading day or if a market disruption event occurs on that day so that the
final valuation date is postponed and falls less than two business days prior to the scheduled maturity date, the maturity date will be postponed to the second business day following that final valuation date, as postponed.
|
|
Trading day:
|
“Trading day” means a day, as determined by the calculation agent, means a day, as determined by the calculation agent, on
which trading is generally conducted on (i) the relevant exchanges for securities comprising the applicable underlying index or the successor index and (ii) the exchanges on which futures or options contracts related to the applicable
underlying index or the successor index are traded, other than a day on which trading on such relevant exchange or exchange on which such futures or options contracts are traded is scheduled to close prior to its regular weekday closing
time.
|
|
Alternate exchange
calculation in the case of
an event of default:
|
In case an event of default with respect to the securities shall have occurred and be continuing, the amount of cash
declared due and payable per security upon any acceleration of the securities (the “Acceleration Amount”) shall be determined by the calculation agent and will be an amount of cash equal to the payment at maturity calculated as if the
date of acceleration were the final valuation date; provided that the unpaid portion of the contingent quarterly payment, if any, will be calculated on a 30/360 basis.
If the maturity of the securities is accelerated because of an event of default as described above, we will, or will cause the calculation
agent to, provide written notice to the trustee at its New York
|
Contingent Income Auto-Callable Securities due March 12, 2020
Based on the Worst Performing of S&P 500® Index, the Russell 2000® Index and the NASDAQ 100®
Index
|
office, on which notice the trustee may conclusively rely, and to DTC of the Acceleration Amount due with respect to the
securities as promptly as possible and in no event later than two business days after the date of acceleration.
|
||
Listing:
|
The securities will not be listed on any securities exchange.
|
|
Minimum ticketing size:
|
$1,000 / 1 security
|
|
Trustee:
|
The Bank of New York Mellon
|
|
Calculation agent:
|
RBCCM. The calculation agent will make all determinations regarding the securities. 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 confirmations by the calculation agent.
|
|
Additional amounts:
|
We will pay any amounts to be paid by us on the securities without deduction or withholding for, or on account of, any and
all present or future income, stamp and other taxes, levies, imposts, duties, charges, fees, deductions or withholdings (taxes) now or hereafter imposed, levied, collected, withheld or assessed by or on behalf of Canada or any Canadian
political subdivision or authority that has the power to tax, unless the deduction or withholding is required by law or by the interpretation or administration thereof by the relevant governmental authority. At any time a Canadian taxing
jurisdiction requires us to deduct or withhold for or on account of taxes from any payment made under or in respect of the securities, we will pay such additional amounts (“Additional Amounts”) as may be necessary so that the net amounts
received by each holder (including Additional Amounts), after such deduction or withholding, shall not be less than the amount the holder would have received had no such deduction or withholding been required.
However, no Additional Amounts will be payable with respect to a payment made to a holder of a security or of a right to
receive payments in respect thereto (a “Payment Recipient”), which we refer to as an “Excluded Holder,” in respect of a beneficial owner or Payment Recipient:
(i) with whom we do not deal at arm’s length (within the meaning of the Income Tax Act (Canada)) at the time of making such payment;
(ii) who is subject to such taxes by reason of the holder being connected presently or formerly with Canada or any province or territory thereof otherwise than by reason of the holder’s activity in
connection with purchasing the securities, the holding of securities or the receipt of payments thereunder;
(iii) who is, or who does not deal at arm’s length with a person who is, a “specified shareholder” (within the meaning of subsection 18(5) of the Income Tax Act (Canada)) of Royal Bank of Canada
(generally a person will be a “specified shareholder” for this purpose if that person, either alone or together with persons with whom the person does not deal at arm’s length, owns 25% or more of (a) our voting shares, or (b) the fair
market value of all of our issued and outstanding shares);
(iv) who presents such security for payment (where presentation is required, such as if a security is issued in definitive form) more than 30 days after the relevant date; for this purpose, the
“relevant date” in relation to any payments on any security means:
a. the due date for payment thereof (whether at maturity or upon an earlier acceleration), or
b. if the full amount of the monies payable on such date has not been received by the Trustee on or prior to such due date, the date on which the full amount of such monies has been received and
notice to that effect is given to holders of the securities in accordance with the Indenture;
(v) who could lawfully avoid (but has not so avoided) such withholding or deduction by complying, or requiring that any agent comply with, any statutory requirements necessary to establish
qualification for an exemption from withholding or by making, or requiring that any agent make, a declaration of non-residence or other similar claim for exemption to any relevant tax authority; or
(vi) who is subject to deduction or withholding on account of any tax, assessment, or other governmental charge that is imposed or withheld by reason of the application of Section 1471 through 1474 of the United States
Internal Revenue Code of 1986, as amended (the “Code”) (or any successor provisions), any regulation, pronouncement, or agreement thereunder, official interpretations thereof, or any law implementing an intergovernmental approach thereto,
whether currently in effect or as published and amended from time to time.
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For the purposes of clause (iv) above, if a security is presented for payment more than 30 days after the relevant date, we
shall only be required to pay such Additional Amounts as shall have accrued as of such 30th day, and no further Additional Amounts shall accrue or become payable after such date.
For the avoidance of doubt, we will not have any obligation to pay any holders Additional Amounts on any tax which is
payable otherwise than by deduction or withholding from payments made under or in respect of the securities.
We will also make such withholding or deduction and remit the full amount deducted or withheld to the relevant authority in
accordance with applicable law. We will furnish to the Trustee, within 30 days after the date the payment of any taxes is due pursuant to applicable law, certified copies of tax receipts evidencing that such payment has been made or
other evidence of such payment satisfactory to the Trustee. We will indemnify and hold harmless each holder of securities (other than an Excluded Holder) and upon written request reimburse each such holder for the amount of (x) any taxes
so levied or imposed and paid by such holder as a result of payments made under or with respect to the securities, and (y) any taxes levied or imposed and paid by such holder with respect to any reimbursement under (x) above, but
excluding any such taxes on such holder’s net income or capital.
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Canadian tax
consequences:
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An investor should read carefully the description of material Canadian federal income tax considerations relevant to a
Non-resident Holder owning debt securities under “Tax Consequences—Canadian Taxation” in the accompanying prospectus.
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U.S. tax considerations:
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The following is a general description of the material U.S. tax considerations relating to the securities. It does not
purport to be a complete analysis of all tax considerations relating to the securities. Prospective purchasers of the securities 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 the U.S. of acquiring, holding and disposing of the securities and receiving payments under the securities. This summary is based upon the law as in effect on the date of this document 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. It applies only to those holders who are not excluded from the discussion of U.S. federal income taxation in the accompanying prospectus. This discussion applies only to U.S. holders and non-U.S. holders that will
purchase the securities upon original issuance and will hold the securities as capital assets for U.S. federal income tax purposes. It does not apply to holders subject to special rules including holders subject to Section 451(b) of the
Code. In addition, the discussion below assumes that an investor in the securities will be subject to a significant risk that it will lose a significant amount of its investment in the securities.
You should consult your tax advisor concerning the U.S. federal income tax and other tax consequences of your investment in
the securities 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 SECURITIES 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 SECURITIES 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 SECURITIES, 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 any of the entities whose stock is included in the underlying indices 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 any of the entities whose stock is included
in the underlying indices were so treated, certain adverse U.S. federal income tax consequences could possibly apply to U.S. and non-U.S. holders, respectively. You should refer to any available information filed with the SEC and other
authorities by the entities whose stock is included in the underlying indices 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 security with terms described in this document as a
callable pre-paid cash-settled contingent income-bearing derivative contract linked to the underlying indices for U.S. federal income tax purposes, and the terms of the securities require a holder and us (in the absence of a change in
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law or an administrative or judicial ruling to the contrary) to treat the securities for all tax purposes in accordance with such
characterization. Although the U.S. federal income tax treatment of the contingent quarterly payment is uncertain, we intend to take the position, and the following discussion assumes, that such contingent quarterly payment (including any
contingent quarterly payment paid on or with respect to the call or maturity date) constitutes taxable ordinary income to a U.S. holder at the time received or accrued in accordance with the holder’s regular method of tax accounting. If
the securities are so treated, a U.S. holder should generally recognize capital gain or loss upon the call, sale or maturity of the securities in an amount equal to the difference between the cash amount a holder receives at such time
(other than amounts properly attributable to any contingent quarterly payment, which would be taxed, as described above, as ordinary income) and the holder’s tax basis in the securities. In general, a U.S. holder’s tax basis in the
securities will be equal to the price the holder paid for the securities. Capital gain recognized by an individual U.S. holder is generally taxed at ordinary income rates where the property is held for one year or less. The ordinary
income treatment of the contingent quarterly coupons, in conjunction with the capital loss treatment of any loss recognized upon the sale, exchange or maturity of the securities, could result in adverse tax consequences to a holder
because the deductibility of capital losses is subject to limitations.
Alternative Treatments. Alternative tax treatments of the securities are also possible and the Internal Revenue Service
might assert that a treatment other than that described above is more appropriate. For example, it is possible to treat the securities, and the Internal Revenue Service might assert that the securities should be treated, as a single debt
instrument. Pursuant to such characterization, the securities would generally be subject to the rules concerning short-term debt instruments as described under the heading “Tax Consequences --- United States Taxation --- Original Issue
Discount --- Short-Term Debt Securities” in the accompanying prospectus.
Because of the absence of authority regarding the appropriate tax characterization of the securities, it is also possible
that the Internal Revenue Service could seek to characterize the securities 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 call, sale or maturity of the securities should be treated as ordinary gain or loss.
The Internal Revenue Service has released a notice that may affect the taxation of holders of the securities. According to
the notice, the Internal Revenue Service and the U.S. Treasury Department are actively considering whether the holder of an instrument such as the securities should be required to accrue ordinary income on a current basis irrespective of
any contingent quarterly payments. 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 securities will ultimately be required to accrue
income currently irrespective of any contingent quarterly payments and this could be applied on a retroactive basis. The Internal Revenue Service and the U.S. 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, which very generally can operate to recharacterize certain
long-term capital gains as ordinary income and impose an interest charge, 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 securities for U.S. federal income tax purposes in accordance with the treatment described in this document unless and until such time as the U.S. Treasury Department and Internal Revenue Service
determine that some other treatment is more appropriate.
Backup Withholding and Information Reporting. Payments made with respect to the securities and proceeds from the sale or
exchange of the securities may be subject to a backup withholding tax unless, in general, the holder complies with certain procedures or is an exempt recipient. Any amounts so withheld generally will be refunded by the Internal Revenue
Service or allowed as a credit against the holder's U.S. federal income tax liability, provided the holder makes a timely filing of an appropriate tax return or refund claim to the Internal Revenue Service.
Reports will be made to the Internal Revenue Service and to holders that are not exempted from the reporting requirements.
Non-U.S. holders. The following discussion applies to non-U.S. holders of the securities. A non-U.S. holder is a beneficial
owner of a security that, for U.S. federal income tax purposes, is a non-resident alien individual, a foreign corporation, or a foreign estate or trust.
While the U.S. federal income tax treatment of the securities (including proper characterization of the contingent quarterly payments for
U.S. federal income tax purposes) is uncertain, U.S. federal income tax at a 30% rate (or at a lower rate under an applicable income tax treaty) will be withheld in respect of the contingent quarterly payments paid to a non-U.S. holder
unless such
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payments are effectively connected with the conduct by the non-U.S. holder of a trade or business in the U.S. (in which
case, to avoid withholding, the non-U.S. holder will be required to provide a Form W-8ECI). We will not pay any additional amounts in respect of such withholding. To claim benefits under an income tax treaty, a non-U.S. holder must obtain
a taxpayer identification number and certify as to its eligibility under the appropriate treaty’s limitations on benefits article, if applicable (which certification may generally be made on a Form W-8BEN or W-8BEN-E, or a substitute or
successor form). In addition, special rules may apply to claims for treaty benefits made by corporate non-U.S. holders. A non-U.S. holder that is eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax
treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service. The availability of a lower rate of withholding or an exemption from withholding under an applicable
income tax treaty will depend on the proper characterization of the contingent quarterly payments under U.S. federal income tax laws and whether such treaty rate or exemption applies to such payments. No assurance can be provided on the
proper characterization of the contingent quarterly payments for U.S. federal income tax purposes and, accordingly, no assurance can be provided on the availability of benefits under any income tax treaty. Non-U.S. holders should consult
their tax advisors in this regard.
Except as discussed below, a non-U.S. holder will generally not be subject to U.S. federal income or withholding tax on any
gain (not including, for the avoidance of doubt, any amounts properly attributable to any contingent quarterly payment which would be subject to the rules discussed in the previous paragraph) upon the call, sale or maturity of the
securities, provided that (i) the holder complies with any applicable certification requirements (which certification may generally be made on a Form W-8BEN or W-8BEN-E, or a substitute or successor form), (ii) the payment is not
effectively connected with the conduct by the holder of a U.S. trade or business, and (iii) if the holder is a non-resident alien individual, such holder is not present in the U.S. for 183 days or more during the taxable year of the call,
sale or maturity of the securities. In the case of (ii) above, the holder generally would be subject to U.S. federal income tax with respect to any income or gain in the same manner as if the holder were a U.S. holder and, in the case of
a holder that is a corporation, the holder may also be subject to a branch profits tax equal to 30% (or such lower rate provided by an applicable U.S. income tax treaty) of a portion of its earnings and profits for the taxable year that
are effectively connected with its conduct of a trade or business in the U.S., subject to certain adjustments. Payments made to a non-U.S. holder may be subject to information reporting and to backup withholding unless the holder complies
with applicable certification and identification requirements as to its foreign status.
Under Section 871(m) of the Code, a “dividend equivalent” payment is treated as a dividend from sources within the United
States. Such payments generally would be subject to a 30% U.S. withholding tax if paid to a non-U.S. holder. Under U.S. Treasury Department regulations, payments (including deemed payments) with respect to equity-linked instruments
(“ELIs”) that are “specified ELIs” may be treated as dividend equivalents if such specified ELIs reference an interest in an “underlying security,” which is generally any interest in an entity taxable as a corporation for U.S. federal
income tax purposes if a payment with respect to such interest could give rise to a U.S. source dividend. However, the Internal Revenue Service has issued guidance that states that the U.S. Treasury Department and the Internal Revenue
Service intend to amend the effective dates of the U.S. Treasury Department regulations to provide that withholding on dividend equivalent payments will not apply to specified ELIs that are not delta-one instruments and that are issued
before January 1, 2021. Based on our determination that the securities are not delta-one instruments, non-U.S. holders should not be subject to withholding on dividend equivalent payments, if any, under the securities. However, it is
possible that the securities could be treated as deemed reissued for U.S. federal income tax purposes upon the occurrence of certain events affecting the underlying stock or the securities (for example, upon an underlying index
rebalancing), and following such occurrence the securities could be treated as subject to withholding on dividend equivalent payments. Non-U.S. holders that enter, or have entered, into other transactions in respect of the underlying
stock or the securities should consult their tax advisors as to the application of the dividend equivalent withholding tax in the context of the securities and their other transactions. If any payments are treated as dividend equivalents
subject to withholding, we (or the applicable withholding agent) would be entitled to withhold taxes without being required to pay any additional amounts with respect to amounts so withheld.
As discussed above, alternative characterizations of the securities for U.S. federal income tax purposes are possible. Should an
alternative characterization, by reason of change or clarification of the law, by regulation or otherwise, cause payments as to the securities to become subject to withholding tax in addition to the withholding tax described above, we
will withhold tax at the applicable statutory rate. The Internal Revenue Service has also indicated that it is considering whether income in respect of instruments such as the securities should be subject to
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withholding tax. Prospective investors should consult their own tax advisors in this regard.
Foreign Account Tax Compliance Act. The Foreign Account Tax Compliance Act (“FATCA”) enacted on March 18, 2010, imposes a
30% U.S. withholding tax on certain U.S. source payments of interest (and original issue discount), dividends, or other fixed or determinable annual or periodical gain, profits, and income, and on the gross proceeds from a disposition of
property (including payments at maturity, or upon a redemption or sale) 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 U.S. Treasury Department to collect and provide to the U.S. Treasury Department certain information regarding U.S. account
holders, including certain account holders that are foreign entities with U.S. owners, with such institution or otherwise complies with FATCA. In addition, the securities may constitute a “financial account” for these purposes and thus,
be subject to information reporting requirements pursuant to FATCA. 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.
The U.S. Treasury Department and the Internal Revenue Service have announced that withholding on payments of gross proceeds
from a sale, exchange or redemption of the securities will only apply to payments made after December 31, 2018. However, recently proposed regulations eliminate the requirement of withholding on gross proceeds from the sale or disposition
of financial instruments. The U.S. Treasury Department has indicated that taxpayers may rely on these proposed regulations pending their finalization. We will not pay additional amounts with respect to any FATCA withholding. Therefore, if
such withholding applies, any payments on the securities will be significantly less than what you would have otherwise received. Depending on your circumstances, these amounts withheld may be creditable or refundable to you. Foreign
financial institutions and non-financial foreign entities located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. You are urged to consult with your own
tax advisors regarding the possible implications of FATCA on your investment in the securities.
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Use of proceeds and
hedging:
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The net proceeds from the sale of the securities will be used as described under “Use of Proceeds” in
the accompanying prospectus supplement and prospectus and to hedge market risks of Royal Bank of Canada associated with its obligation to make the payments on the securities. The initial public offering price of the securities includes
the underwriting discount and commission and the estimated cost of hedging our obligations under the securities.
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Supplemental
information regarding
plan of distribution;
conflicts of interest:
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Under the terms of a distribution agreement, RBCCM, an affiliate of Royal Bank of Canada, will purchase the securities
from Royal Bank of Canada for distribution to MSWM. RBCCM will act as agent for the securities and will receive a fee of $17.50 per $1,000 stated principal amount and will pay to MSWM a fixed sales commission of $12.50 for each of the
securities they sell. Of the amount per $1,000 stated principal amount received by RBCCM, RBCCM will pay MSWM a structuring fee of $5 for each security.
MSWM may reclaim selling concessions allowed to individual brokers within MSWM in connection with the offering if, within
30 days of the offering, Royal Bank of Canada repurchases the securities distributed by those brokers.
We expect that delivery of the securities will be made against payment for the securities on or about March 13, 2019,
which is the third business day following the pricing date (this settlement cycle being referred to as “T+3”). We expect to deliver the securities on a date that is greater than two business days following the pricing date. Under Rule
15c6-1 of the Exchange Act, trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the securities
more than two business days prior to the original issue date will be required to specify alternative settlement arrangements to prevent a failed settlement.
In addition, RBCCM or another of its affiliates or agents may use this document in market-making transactions after the
initial sale of the securities, but is under no obligation to do so and may discontinue any market-making activities at any time without notice.
The value of the securities shown on your account statement may be based on RBCCM’s estimate of the value of the securities if RBCCM or
another of our affiliates were to make a market in the securities (which it is not obligated to do). That estimate will be based on the price that RBCCM may pay for the securities in light of then prevailing market conditions, our
creditworthiness and transaction costs. For an initial period of approximately 6 months, the value of the securities that may be shown on your account statement is expected to be higher than RBCCM’s estimated value of the securities at
that time. This is because the estimated value of
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the securities will not include the agent’s commission and our hedging costs and profits; however, the value of the
securities shown on your account statement during that period is initially expected to be a higher amount, reflecting the addition of the agent’s commission and our estimated costs and profits from hedging the securities. This excess is
expected to decrease over time until the end of this period, and we reserve the right to shorten this period. After this period, if RBCCM repurchases your securities, it expects to do so at prices that reflect its estimated value.
No Prospectus (as defined in Directive 2003/71/EC (as amended, the “Prospectus Directive”)) will be prepared in connection
with the securities. Accordingly, the securities may not be offered to the public in any member state of the European Economic Area (the “EEA”), and any purchaser of the securities who subsequently sells any of the securities in any EEA
member state must do so only in accordance with the requirements of the Prospectus Directive, as implemented in that member state.
The securities are not intended to be offered, sold or otherwise made available to, and should not be offered, sold or
otherwise made available to, any retail investor in the EEA. For these purposes, the expression “offer" includes the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be
offered so as to enable an investor to decide to purchase or subscribe the securities, and a “retail investor” means a person who is one (or more) of: (a) a retail client, as defined in point (11) of Article 4(1) of Directive 2014/65/EU
(as amended, “MiFID II”); or (b) a customer, within the meaning of Insurance Distribution Directive 2016/97/EU, as amended, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID
II; or (c) not a qualified investor as defined in the Prospectus Directive. Consequently, no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the securities or
otherwise making them available to retail investors in the EEA has been prepared, and therefore, offering or selling the securities or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs
Regulation.
For additional information as to the relationship between us and RBCCM, please see the section “Plan of
Distribution—Conflicts of Interest” in the accompanying prospectus.
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Structuring the
securities:
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The securities are our debt securities, the return on which is linked to the performance of the underlying indices. As is
the case for all of our debt securities, including our structured notes, the economic terms of the securities reflect our actual or perceived creditworthiness at the time of pricing. In addition, because structured notes result in
increased operational, funding and liability management costs to us, we typically borrow the funds under these securities at a rate that is more favorable to us than the rate that we might pay for a conventional fixed or floating rate
debt security of comparable maturity. Using this relatively lower implied borrowing rate, rather than the secondary market rate, along with the fees and expenses associated with structured notes, typically reduces the initial estimated
value of the securities at the time their terms are set. Unlike the estimated value that will be included in the final pricing supplement, any value of the securities determined for purposes of a secondary market transaction may be based
on a different funding rate, which may result in a lower value for the securities than if our initial internal funding rate were used.
In order to satisfy our payment obligations under the securities, we may choose to enter into certain hedging arrangements
(which may include call options, put options or other derivatives) on the issue date with RBCCM or one of our other subsidiaries. The terms of these hedging arrangements take into account a number of factors, including our
creditworthiness, interest rate movements, the volatility of the underlying indices, and the tenor of the securities. The economic terms of the securities and their initial estimated value depend in part on the terms of these hedging
arrangements.
The lower implied borrowing rate, the underwriting commission and the hedging-related costs relating to the securities
reduce the economic terms of the securities to you and result in the initial estimated value for the securities on the pricing date being less than their public offering price. See “Risk Factors—The initial estimated value of the
securities will be less than the price to the public” above.
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Employee Retirement
Income Security Act:
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This section is only relevant to you if you are an insurance company or the fiduciary of a pension plan
or an employee benefit plan (including a governmental plan, an IRA or a Keogh Plan) proposing to invest in the securities.
The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), imposes certain requirements on “employee
benefit plans” (as defined in Section 3(3) of ERISA) subject to ERISA, including entities such as collective investment funds and separate accounts whose underlying assets include the assets of such plans (collectively, “ERISA Plans”) and
on those
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persons who are fiduciaries with respect to ERISA Plans. Each fiduciary of an ERISA Plan should
consider the fiduciary standards of ERISA in the context of the ERISA Plan’s particular circumstances before authorizing an investment in the securities. Accordingly, 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 ERISA Plan.
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving
the assets of an ERISA Plan, as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts, including entities whose underlying assets include the assets of
such plans (together with ERISA Plans, “Plans”) and certain persons (referred to as “parties in interest” or “disqualified persons”) having certain relationships to such Plans, unless a statutory or administrative exemption is applicable
to the transaction. Governmental plans may be subject to similar prohibitions. Therefore, a plan fiduciary considering purchasing securities should consider whether the purchase or holding of such instruments might constitute a
“prohibited transaction.”
Royal Bank of Canada and certain of its affiliates each may be considered a “party in interest” or a
“disqualified person” with respect to many employee benefit plans by reason of, for example, Royal Bank of Canada (or its affiliate) providing services to such plans. Prohibited transactions within the meaning of ERISA or the Code may
arise, for example, if securities are acquired by or with the assets of a Plan, and with respect to which Royal Bank of Canada or any of its affiliates is a ‘‘party in interest” or a “disqualified person,” unless those securities are
acquired under an exemption for transactions effected on behalf of that Plan by a “qualified professional asset manager” or an “in-house asset manager,” for transactions involving insurance company general accounts, for transactions
involving insurance company pooled separate accounts, for transactions involving bank collective investment funds, or under another available exemption. Section 408(b)(17) provides an additional exemption for the purchase and sale of
securities and related lending transactions where neither the issuer of the securities 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 the Plan pays no more than “adequate consideration” in connection with the transaction. The person making the decision on behalf of a Plan or a governmental plan shall be deemed, on behalf of itself
and any such plan, by purchasing and holding the securities, or exercising any rights related thereto, to represent that (a) such purchase, holding and exercise of the securities will not result in a non-exempt prohibited transaction
under ERISA or the Code (or, with respect to a governmental plan, under any similar applicable law or regulation) and (b) neither Royal Bank of Canada nor any of its affiliates is a “fiduciary” (within the meaning of Section 3(21) of
ERISA) with respect to the purchaser or holder in connection with such person’s acquisition, disposition or holding of the securities, or any exercise related thereto or as a result of any exercise by Royal Bank of Canada or any of its
affiliates of any rights in connection with the securities, and no advice provided by Royal Bank of Canada or any of its affiliates has formed a primary basis for any investment decision by or on behalf of such purchaser or holder in
connection with the securities and the transactions contemplated with respect to the securities.
If you are an insurance company or the fiduciary of a pension plan or an employee benefit plan, and
propose to invest in the securities, you should consult your legal counsel.
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Contact:
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MSWM clients may contact their local Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New
York, New York 10036 (telephone number 1-(866)-477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at 1-(800)-233-1087.
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Where you can find more
information:
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Royal Bank of Canada has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication
relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these
documents for free by visiting EDGAR on the SEC website at.www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in this offering will arrange to send you the prospectus if you request it by calling
toll-free 1-877-688-2301.
You should read this document together with the prospectus dated September 7, 2018, as supplemented by the prospectus supplement dated September
7, 2018 relating to our Senior Global Medium-Term Notes, Series H, of which these securities are a part. Capitalized terms used but not defined in this document will have the meanings given to them in the prospectus supplement. In the
event of any conflict, this document will control. The securities vary from the terms described in the prospectus supplement in several important ways. You should read this document carefully.
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This document, together with the documents listed below, contains the terms of the securities and supersedes all 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, brochures or other educational materials of ours. You
should carefully consider, among other things, the matters set forth in “Risk Factors” in the prospectus supplement dated September 7, 2018 and in this document, as the securities involve risks not associated with conventional debt
securities. We urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the securities.
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):
Prospectus dated September 7, 2018:
Prospectus Supplement dated September 7, 2018:
Our Central Index Key, or CIK, on the SEC website is 1000275.
Please see the section “Documents Incorporated by Reference” on page i of the above prospectus for a description of our filings with the SEC
that are incorporated by reference therein.
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