|
Subject to Completion
Preliminary Term Sheet dated March 29, 2019
|
Filed Pursuant to Rule 433
Registration Statement No. 333-227001 (To Prospectus dated September 7, 2018, Prospectus Supplement dated September 7, 2018 and
Product Supplement EQUITY INDICES LIRN-1 dated
September 25, 2018)
|
|
Units
$10 principal amount per unit
CUSIP No.
 |
Pricing Date*
Settlement Date*
Maturity Date*
|
April , 2019
May , 2019
April , 2021
|
|||
|
*Subject to change based on the actual date the notes are priced for initial sale to the public (the “pricing date”)
|
|||||
|
Capped Leveraged Index Return Notes® Linked to the MSCI Emerging Markets Index
§ Maturity of approximately two years
§ 2-to-1 upside exposure to increases in the Index, subject to a capped return of [18% to 22%]
§ 1-to-1 downside exposure to decreases in the Index beyond a 10.00% decline, with up to 90.00% of your principal at risk
§ All payments occur at maturity and are subject to the credit risk of Royal Bank of Canada
§ No periodic interest payments
§ In addition to the underwriting discount set forth below, the notes include a hedging-related charge of $0.075 per unit.
See “Structuring the Notes”
§ Limited secondary market liquidity, with no exchange listing
§ The notes are unsecured debt securities and are not savings accounts or insured deposits of a bank. The notes are
not insured or guaranteed by the Canada Deposit Insurance Corporation, the U.S. Federal Deposit Insurance Corporation, or any other governmental agency of Canada or the United States
|
|||||
The notes are being issued by Royal Bank of Canada (“RBC”). There are important differences between the notes and a conventional
debt security, including different investment risks and certain additional costs. See “Risk Factors” and “Additional Risk Factors” beginning on page TS-7 of this term sheet and “Risk Factors” beginning on page PS-6 of product supplement EQUITY
INDICES LIRN-1.
The initial estimated value of the notes as of the pricing date is expected to
be between $9.4761 and $9.6761 per unit, which is less than the public offering price listed below. See “Summary” on the
following page, “Risk Factors” beginning on page TS-7 of this term sheet and “Structuring the Notes” on page TS-12 of this term sheet for additional information. The actual value of your notes at any time will reflect many factors and cannot be
predicted with accuracy.
None of the Securities and Exchange Commission (the “SEC”), any state securities commission, or any other regulatory body has approved or disapproved
of these securities or determined if this Note Prospectus (as defined below) is truthful or complete. Any representation to the contrary is a criminal offense.
|
Per Unit
|
Total
|
|
|
Public offering price(1)
|
$10.00
|
$
|
|
Underwriting discount(1)
|
$0.20
|
$
|
|
Proceeds, before expenses, to RBC
|
$9.80
|
$
|
| (1) |
For any purchase of 500,000 units or more in a single transaction by an individual investor or in combined transactions with the investor's household in this offering, the public
offering price and the underwriting discount will be $9.95 per unit and $0.15 per unit, respectively. See “Supplement to the Plan of Distribution” below.
|
The notes:
|
Are Not FDIC Insured
|
Are Not Bank Guaranteed
|
May Lose Value
|
Merrill Lynch & Co.
April , 2019
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
Summary
The Capped Leveraged Index Return Notes® Linked to the MSCI Emerging Markets Index, due April , 2021 (the “notes”) are our
senior unsecured debt securities. The notes are not guaranteed or insured by the Canada Deposit Insurance Corporation or the U.S. Federal Deposit Insurance Corporation or secured by collateral. The notes will rank equally with all of our other unsecured and unsubordinated debt. Any payments due on the notes, including any repayment of principal, will be subject to the credit risk of RBC. The notes are not
bail-inable notes (as defined in the prospectus supplement). The notes provide you a leveraged return, subject to a cap, if the Ending Value of the Market Measure, which is the MSCI Emerging Markets Index (the “Index”), is
greater than its Starting Value. If the Ending Value is less than the Threshold Value, you will lose a portion, which could be significant, of the principal amount of your notes. Any payments on the notes, will be calculated based on the $10
principal amount per unit and will depend on the performance of the Index, subject to our credit risk. See “Terms of the Notes” below.
The economic terms of the notes (including the Capped Value) are based on our internal funding rate, which is the rate we would pay to borrow funds
through the issuance of market-linked notes and the economic terms of certain related hedging arrangements. Our internal funding rate is typically lower than the rate we would pay when we issue conventional fixed or floating rate debt
securities. This difference in funding rate, as well as the underwriting discount and the hedging related charge described below, will reduce the economic terms of the notes to you and the initial estimated value of the notes on the pricing
date. Due to these factors, the public offering price you pay to purchase the notes will be greater than the initial estimated value of the notes.
On the cover page of this term sheet, we have provided the initial estimated value range for the notes. This initial estimated value range was
determined based on our and our affiliates’ pricing models, which take into consideration our internal funding rate and the market prices for the hedging arrangements related to the notes. The initial estimated value of the notes calculated on
the pricing date will be set forth in the final term sheet made available to investors in the notes. For more information about the initial estimated value and the structuring of the notes, see “Structuring the Notes” on page TS-12.
Terms of the Notes
|
Issuer:
|
Royal Bank of Canada (“RBC”)
|
||
|
Principal Amount:
|
$10.00 per unit
|
||
|
Term:
|
Approximately two years
|
||
|
Market Measure:
|
The MSCI Emerging Markets Index (Bloomberg symbol: “MXEF”), a price return index.
|
||
|
Starting Value:
|
The closing level of the Market Measure on the pricing date
|
||
|
Ending Value:
|
The average of the closing levels of the Market Measure on each calculation day occurring during the Maturity
Valuation Period. The scheduled calculation days are subject to postponement in the event of Market Disruption Events, as described beginning on page PS-18 of product supplement EQUITY INDICES LIRN-1.
|
||
|
Threshold Value:
|
90% of the Starting Value, rounded to two decimal places.
|
||
|
Participation Rate:
|
200%
|
||
|
Capped Value:
|
[$11.80 to $12.20] per unit, which represents a return of [18% to 22%] over the principal amount. The actual
Capped Value will be determined on the pricing date.
|
||
|
Maturity Valuation
Period:
|
Five scheduled calculation days shortly before the maturity date.
|
||
|
Fees and
Charges:
|
The underwriting discount of $0.20 per unit listed on the cover page and the hedging related charge of $0.075 per
unit described in “Structuring the Notes” on page TS-12.
|
||
|
Calculation Agent:
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”).
|
|
Redemption Amount Determination
On the maturity date, you will receive a cash payment per unit determined as follows:
 |
|
|
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
The terms and risks of the notes are contained in this term sheet and in the following:
| § |
Product supplement EQUITY INDICES LIRN-1 dated September 25, 2018:
|
| § |
Series H MTN prospectus supplement dated September 7, 2018:
|
| § |
Prospectus dated September 7, 2018:
|
These documents (together, the “Note Prospectus”) have been filed as part of a registration statement with the SEC, which may,
without cost, be accessed on the SEC website as indicated above or obtained from MLPF&S by calling 1-800-294-1322. Before you invest, you should read the Note Prospectus, including this term sheet, for information about us and this offering.
Any prior or contemporaneous oral statements and any other written materials you may have received are superseded by the Note Prospectus. Capitalized terms used but not defined in this term sheet have the meanings set forth in product supplement
EQUITY INDICES LIRN-1. Unless otherwise indicated or unless the context requires otherwise, all references in this document to “we,” “us,” “our,” or similar references are to RBC.
Investor Considerations
You may wish to consider an investment in the notes if:
| § |
You anticipate that the Index will increase moderately from the Starting Value to the Ending Value.
|
| § |
You are willing to risk a loss of principal and return if the Index decreases from the Starting Value to an Ending Value that is below the Threshold Value.
|
| § |
You accept that the return on the notes will be capped.
|
| § |
You are willing to forgo the interest payments that are paid on conventional interest bearing debt securities.
|
| § |
You are willing to forgo dividends or other benefits of owning the stocks included in the Index.
|
| § |
You are willing to accept a limited or no market for sales prior to maturity, and understand that the market prices for the notes, if any, will be affected by various factors,
including our actual and perceived creditworthiness, our internal funding rate and fees and charges on the notes.
|
|
§
|
You are willing to assume our credit risk, as issuer of the notes, for all payments under the notes, including the Redemption Amount.
|
The notes may not be an appropriate investment for you if:
| § |
You believe that the Index will decrease from the Starting Value to the Ending Value or that it will not increase sufficiently over the term of the notes to provide you with your
desired return.
|
| § |
You seek 100% principal repayment or preservation of capital.
|
| § |
You seek an uncapped return on your investment.
|
| § |
You seek interest payments or other current income on your investment.
|
| § |
You want to receive dividends or other distributions paid on the stocks included in the Index.
|
| § |
You seek an investment for which there will be a liquid secondary market.
|
|
§
|
You are unwilling or are unable to take market risk on the notes or to take our credit risk as issuer of the notes.
|
|
|
|
|
We urge you to consult your investment, legal, tax, accounting, and other advisors before you invest in the notes.
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
Hypothetical Payout Profile and Examples of Payments at Maturity
The graph below is based on hypothetical numbers and values.
Capped Leveraged Index Return Notes®
This graph reflects the returns on the notes, based on the Participation Rate of 200%, the Threshold Value of 90% of the Starting Value and
a Capped Value of $12.00 (the midpoint of the Capped Value range of [$11.80 to $12.20]). The green line reflects the returns on the notes, while the dotted gray line reflects the returns of a direct investment in the stocks included in the
Index, excluding dividends.
This graph has been prepared for purposes of illustration only.
|
|
|
|
The following table and examples are for purposes of illustration only. They are based on hypothetical
values and show hypothetical returns on the notes. They illustrate the calculation of the Redemption Amount and total rate of return based on a hypothetical Starting
Value of 100, a Threshold Value of 90, the Participation Rate of 200%, a Capped Value of $12.00 per unit and a range of hypothetical Ending Values. The actual amount you receive
and the resulting total rate of return will depend on the actual Starting Value, Threshold Value, Ending Value, Capped Value, and whether you hold the notes to maturity. The following examples do not take into account any tax
consequences from investing in the notes.
For recent actual levels of the Market Measure, see “The Index” section below. The Index is a price return index and as such the Ending Value will not
include any income generated by dividends paid on the stocks included in the Index, which you would otherwise be entitled to receive if you invested in those stocks directly. In addition, all payments on the notes are subject to issuer credit
risk.
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
|
Ending Value
|
Percentage Change from the
Starting Value to the Ending
Value
|
Redemption Amount per Unit
|
Total Rate of Return on the
Notes
|
|||
|
0.00
|
-100.00%
|
$1.00
|
-90.00%
|
|||
|
50.00
|
-50.00%
|
$6.00
|
-40.00%
|
|||
|
80.00
|
-20.00%
|
$9.00
|
-10.00%
|
|||
|
90.00(1)
|
-10.00%
|
$10.00
|
0.00%
|
|||
|
94.00
|
-6.00%
|
$10.00
|
0.00%
|
|||
|
95.00
|
-5.00%
|
$10.00
|
0.00%
|
|||
|
97.00
|
-3.00%
|
$10.00
|
0.00%
|
|||
|
100.00(2)
|
0.00%
|
$10.00
|
0.00%
|
|||
|
102.00
|
2.00%
|
$10.40
|
4.00%
|
|||
|
104.00
|
4.00%
|
$10.80
|
8.00%
|
|||
|
105.00
|
5.00%
|
$11.00
|
10.00%
|
|||
|
110.00
|
10.00%
|
$12.00(3)
|
20.00%
|
|||
|
120.00
|
20.00%
|
$12.00
|
20.00%
|
|||
|
130.00
|
30.00%
|
$12.00
|
20.00%
|
|||
|
140.00
|
40.00%
|
$12.00
|
20.00%
|
|||
|
150.00
|
50.00%
|
$12.00
|
20.00%
|
|||
|
160.00
|
60.00%
|
$12.00
|
20.00%
|
| (1) |
This is the hypothetical Threshold Value.
|
| (2) |
The hypothetical Starting Value of 100 used in these examples has been chosen for illustrative purposes
only, and does not represent a likely actual Starting Value for the Market Measure.
|
| (3) |
The Redemption Amount per unit cannot exceed the hypothetical Capped Value.
|
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
Redemption Amount Calculation Examples
|
Example 1
|
|
|
The Ending Value is 80.00, or 80.00% of the Starting Value:
|
|
|
Starting Value:
|
100.00 |
|
Threshold Value:
|
90.00 |
|
Ending Value:
|
80.00 |
 |
Redemption Amount per unit
|
|
Example 2
|
|
|
The Ending Value is 95.00, or 95.00% of the Starting Value:
|
|
|
Starting Value:
|
100.00 |
|
Threshold Value:
|
90.00 |
|
Ending Value:
|
95.00 |
|
Redemption Amount (per unit) = $10.00, the principal amount, since
the Ending Value is less than the Starting Value but equal to or greater than the Threshold Value.
|
|
|
Example 3
|
|
|
The Ending Value is 104.00, or 104.00% of the Starting Value:
|
|
|
Starting Value:
|
100.00 |
|
Ending Value:
|
104.00 |
 |
= $10.80 Redemption Amount per unit
|
|
Example 4
|
|
|
The Ending Value is 130.00, or 130.00% of the Starting Value:
|
|
|
Starting Value:
|
100.00 |
|
Ending Value:
|
130.00 |
 |
= $16.00, however, because the Redemption Amount for the notes cannot exceed the Capped Value, the Redemption Amount will be
$12.00 per unit
|
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
Risk Factors
There are important differences between the notes and a conventional debt security. An investment in the notes involves significant
risks, including those listed below. You should carefully review the more detailed explanation of risks relating to the notes in the “Risk Factors” sections beginning on page PS-6 of product supplement EQUITY INDICES LIRN-1, page S-1 of the MTN
prospectus supplement, and page 1 of the prospectus identified above. We also urge you to consult your investment, legal, tax, accounting, and other advisors before you invest in the notes.
| § |
Depending on the performance of the Index as measured shortly before the maturity date, your investment may result in a loss; there is no guaranteed return of principal.
|
| § |
Your return on the notes may be less than the yield you could earn by owning a conventional fixed or floating rate debt security of comparable maturity.
|
| § |
Payments on the notes are subject to our credit risk, and actual or perceived changes in our creditworthiness are expected to affect the value of the notes. If we become insolvent or
are unable to pay our obligations, you may lose your entire investment.
|
| § |
Your investment return is limited to the return represented by the Capped Value and may be less than a comparable investment directly in the stocks included in the Index.
|
| § |
The initial estimated value of the notes is an estimate only, determined as of a particular point in time by reference to our and our affiliates’ pricing models. These pricing models
consider certain assumptions and variables, including our credit spreads, our internal funding rate on the pricing date, mid-market terms on hedging transactions, expectations on interest rates and volatility, price-sensitivity
analysis, and the expected term of the notes. These pricing models rely in part on certain forecasts about future events, which may prove to be incorrect.
|
| § |
The public offering price you pay for the notes will exceed the initial estimated value. If you attempt to sell the notes prior to maturity, their market value may be lower than the
price you paid for them and lower than the initial estimated value. This is due to, among other things, changes in the level of the Index, our internal funding rate, and the inclusion in the public offering price of the underwriting
discount and the hedging related charge, all as further described in “Structuring the Notes” on page TS-12. These factors, together with various credit, market and economic factors over the term of the notes, are expected to reduce
the price at which you may be able to sell the notes in any secondary market and will affect the value of the notes in complex and unpredictable ways.
|
| § |
The initial estimated value does not represent a minimum or maximum price at which we, MLPF&S or any of our affiliates would be willing to purchase your notes in any secondary
market (if any exists) at any time. The value of your notes at any time after issuance will vary based on many factors that cannot be predicted with accuracy, including the performance of the Index, our creditworthiness and changes in
market conditions.
|
| § |
A trading market is not expected to develop for the notes. Neither we nor MLPF&S is obligated to make a market for, or to repurchase, the notes. There is no assurance that any
party will be willing to purchase your notes at any price in any secondary market.
|
| § |
Our business, hedging and trading activities, and those of MLPF&S and our respective affiliates (including trades in shares of companies included in the Index), and any hedging
and trading activities we, MLPF&S or our respective affiliates engage in for our clients’ accounts, may affect the market value and return of the notes and may create conflicts of interest with you.
|
| § |
The Index sponsor may adjust the Index in a way that affects its level, and has no obligation to consider your interests.
|
| § |
You will have no rights of a holder of the securities represented by the Index, and you will not be entitled to receive securities or dividends or other distributions by the issuers
of those securities.
|
| § |
Your return on the notes and the value of the notes may be affected by exchange rate movements and factors affecting the international securities markets, specifically changes in the
countries represented by the Index.
|
| § |
While we, MLPF&S or our respective affiliates may from time to time own securities of companies included in the Index, we, MLPF&S and our respective affiliates do not control
any company included in the Index, and have not verified any disclosure made by any other company.
|
| § |
There may be potential conflicts of interest involving the calculation agent, which is MLPF&S. We have the right to appoint and remove the calculation agent.
|
| § |
The U.S. federal income tax consequences of the notes are uncertain, and may be adverse to a holder of the notes. See “Summary of U.S. Federal Income Tax Consequences” below and
“U.S. Federal Income Tax Summary” beginning on page PS-30 of product supplement EQUITY INDICES LIRN-1. For a discussion of the Canadian federal income tax consequences of investing in the notes, see “Tax Consequences—Canadian
Taxation” in the prospectus dated September 7, 2018.
|
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
Additional Risk Factors
There are risks associated with emerging markets.
An investment in the notes will involve risks not generally associated with investments which have no emerging market component. In particular, many
emerging nations are undergoing rapid change, involving the restructuring of economic, political, financial and legal systems. Regulatory and tax environments may be subject to change without review or appeal. Many emerging markets suffer from
underdevelopment of capital markets and tax regulation. The risk of expropriation and nationalization remains a threat. Guarding against such risks is made more difficult by low levels of corporate disclosure and unreliability of economic and
financial data.
Other Terms of the Notes
Market Measure Business Day
The following definition shall supersede and replace the definition of a “Market Measure Business Day” set forth in product
supplement EQUITY INDICES LIRN-1:
A “Market Measure Business Day” means a day on which:
(A) each of the London Stock Exchange, the Hong Kong Stock Exchange, the São Paulo Stock
Exchange, and the Korea Stock Exchange (or any successor to the foregoing exchanges) are open for trading; and
(B) the Index or any successor thereto is calculated and published.
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
The Index
All disclosures contained in this term sheet regarding the Index, including, without limitation, its make up, method of calculation,
and changes in its components, have been derived from publicly available sources. The information reflects the policies of, and is subject to change by, MSCI. MSCI, which owns the copyright and all other rights to the Index, has no obligation to
continue to publish, and may discontinue publication of, the Index. The consequences of the Index sponsor discontinuing publication of the Index are discussed in the
section entitled “Description of LIRNs—Discontinuance of an Index” beginning on page PS-19 of product supplement EQUITY INDICES LIRN-1.” None of us, the calculation agent, or
MLPF&S accepts any responsibility for the calculation, maintenance or publication of the Index or any successor index.
The MSCI Emerging Markets Index
The Index is intended to measure equity market performance in the global emerging markets. The Index is a free float-adjusted market
capitalization index with a base date of December 31, 1987 and an initial value of 100. The Index is calculated daily in U.S. dollars and published in real time every 60 seconds during market trading hours. The Index currently consists of the
following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Greece, Egypt, Hungary, India, Indonesia, South Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan,
Thailand, Turkey and United Arab Emirates.
As of the close on May 31, 2018, MSCI began a multi-step process to include, in the MSCI Emerging Markets Index, large cap China A shares that are
not in trading suspension. As part of the first step of the inclusion process, which resulted from the May 2018 quarterly index review, MSCI added such large cap China A shares to the MSCI Emerging Markets Index at 2.5% of their foreign inclusion
factor-adjusted market capitalization. In connection with the August 2018 quarterly index review, MSCI implemented the second step of the inclusion process by increasing the foreign inclusion factor-adjusted market capitalization of those
existing China A share constituents from 2.5% to 5%. With the implementation of this second step, and the inclusion of additional China A shares in connection with the August 2018 quarterly index review, China A shares were initially expected to
represent approximately 0.75% of the MSCI Emerging Markets Index. In February 2019, MSCI announced a three-step process between May 2019 and November 2019 that would increase the number of Chinese A Shares in the Index.
MSCI has announced that, beginning in June 2019, it expects to include the MSCI Saudi Arabia Index in the MSCI Emerging Markets Index, representing
on a pro forma basis a weight of approximately 2.6% of the MSCI Emerging Markets Index with 32 securities, following a two-step inclusion process. The first inclusion step is expected to coincide with the May 2019 semi-annual review and the
second inclusion step is expected to take place as part of the August 2019 quarterly index review. In addition, MSCI has announced the reclassification of the MSCI Argentina Index from a “frontier market” to an “emerging market”, and the MSCI
Argentina Index is expected to be included in the MSCI Emerging Markets Index coinciding with the May 2019 semi-annual index review. MSCI expects to continue to restrict the inclusion in the MSCI Argentina Index to only foreign listings of
Argentinian companies, such as American depositary receipts.
The Index is part of the MSCI Regional Equity Indices series and is an MSCI Global Investable Market Index, which is a family within the MSCI
International Equity Indices.
Constructing the MSCI Global Investable Market Indices. MSCI undertakes
an index construction process, which involves:
| § |
defining the equity universe;
|
| § |
determining the market investable equity universe for each market;
|
| § |
determining market capitalization size segments for each market;
|
| § |
applying index continuity rules for the MSCI Standard Index;
|
| § |
creating style segments within each size segment within each market; and
|
| § |
classifying securities under the Global Industry Classification Standard (the “GICS”).
|
Defining the Equity Universe. The equity universe is defined by:
| § |
Identifying Eligible Equity Securities: the equity universe initially looks at securities listed in any of the countries in the MSCI Global Index Series, which will be classified as
either Developed Markets (“DM”) or Emerging Markets (“EM”). All listed equity securities, including Real Estate Investment Trusts and certain income trusts in Canada, are eligible for inclusion in the equity universe. Conversely,
mutual funds, ETFs, equity derivatives, and most investment trusts, are not eligible for inclusion, are eligible for inclusion in the equity universe. Conversely, mutual funds, ETFs, equity derivatives, and most investment trusts, are
not.
|
| § |
Classifying Eligible Securities into the Appropriate Country: each company and its securities (i.e., share classes) are classified in only one country.
|
Effective with the November 2015 semi-annual index review, companies traded outside of their country of classification (i.e., “foreign listed
companies”) will become eligible for inclusion in the MSCI Country Investable Market Indexes along with the applicable MSCI Global Index. In order for a MSCI Country Investable Market Index to be eligible to include foreign listed companies, it
must meet the Foreign Listing Materiality Requirement. To meet the Foreign Listing Materiality Requirement, the aggregate market capitalization of all securities represented by foreign listings should represent at least (i) 5% of the free
float-adjusted market capitalization of the relevant MSCI Country Investable Market Index and (ii) 0.05% of the free-float adjusted market capitalization of the MSCI ACWI Investable Market Index.
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
Determining the Market Investable Equity Universes. A market investable
equity universe for a market is derived by identifying eligible listings for each security in the equity universe, and by applying applying investability screens to individual companies and securities in the equity universe that are classified in
that market. A market is equivalent to a single country, except in DM Europe, where all DM countries in Europe are aggregated into a single market for index construction purposes. Subsequently, individual DM Europe country indices within the MSCI
Europe Index are derived from the constituents of the MSCI Europe Index under the global investable market indices methodology.
A security may be listed in the country where it is classified (i.e. local listing) and/or in a different country (i.e. “foreign listing”).
Securities may be represented by either a local or foreign listing. A security may be represented by a foreign listing only if:
| § |
The security is classified in a country that meets the Foreign Listing Materiality Requirement, and
|
| § |
The security’s foreign listing is traded on an eligible stock exchange of: a DM country if the security is classified in a DM country, a DM or an EM country if the security is
classified in an EM country, or a DM or an EM or a FM country if the security is classified in a FM country. Securities in that country may not be represented by a foreign listing in the global investable equity universe if a country
does not meet the requirement.
|
The investability screens used to determine the investable equity universe in each market are as follows:
| § |
Equity Universe Minimum Size Requirement: this investability screen is applied at the company level. In
order to be included in a market investable equity universe, a company must have the required minimum full market capitalization. The size requirement also applies to companies in all developed and emerging markets.
|
| § |
Equity Universe Minimum Free Float-Adjusted Market Capitalization Requirement: this investability screen
is applied at the individual security level. To be eligible for inclusion in a market investable equity universe, a security must have a free float-adjusted market capitalization equal to or higher than 50% of the equity universe
minimum size requirement.
|
| § |
DM and EM Minimum Liquidity Requirement: this investability screen is applied at the individual security
level. To be eligible for inclusion in a market investable equity universe, a security must have adequate liquidity. The twelve-month and three-month Annual Traded Value Ratio (“ATVR”), a measure that screens out extreme daily trading
volumes and takes into account the free float-adjusted market capitalization size of securities, together with the three-month frequency of trading are used to measure liquidity. A minimum liquidity level of 20% of three- and
twelve-month ATVR and 90% of three-month frequency of trading over the last four consecutive quarters are required for inclusion of a security in a market investable equity universe of a DM, and a minimum liquidity level of 15% of
three- and twelve-month ATVR and 80% of three-month frequency of trading over the last four consecutive quarters are required for inclusion of a security in a market investable equity universe of an EM.
|
| § |
Global Minimum Foreign Inclusion Factor Requirement: this investability screen is applied at the
individual security level. To be eligible for inclusion in a market investable equity universe, a security’s Foreign Inclusion Factor (“FIF”) must reach a certain threshold. The FIF of a security is defined as the proportion of shares
outstanding that is available for purchase in the public equity markets by international investors. This proportion accounts for the available free float of and/or the foreign ownership limits applicable to a specific security (or
company). In general, a security must have an FIF equal to or larger than 0.15 to be eligible for inclusion in a market investable equity universe.
|
| § |
Minimum Length of Trading Requirement: this investability screen is applied at the individual security
level. For an initial public offering (“IPO”) to be eligible for inclusion in a market investable equity universe, the new issue must have started trading at least three months before the implementation of a semi-annual index review
(as described below). This requirement is applicable to small new issues in all markets. Large IPOs are not subject to the minimum length of trading requirement and may be included in a market investable equity universe and the
Standard Index outside of a Quarterly or Semi-Annual Index Review.
|
| § |
Minimum Foreign Room Requirement: this investability screen is applied at the individual security level.
For a security that is subject to a foreign ownership limit to be eligible for inclusion in a market investable equity universe, the proportion of shares still available to foreign investors relative to the maximum allowed (referred
to as “foreign room”) must be at least 15%.
|
Defining Market Capitalization Size Segments for Each Market. Once a
market investable equity universe is defined, it is segmented into the following size-based indices:
| § |
Investable Market Index (Large + Mid + Small);
|
| § |
Standard Index (Large + Mid);
|
| § |
Large Cap Index;
|
| § |
Mid Cap Index; or
|
| § |
Small Cap Index.
|
Creating the size segment indices in each market involves the following steps:
| § |
defining the market coverage target range for each size segment;
|
| § |
determining the global minimum size range for each size segment;
|
| § |
determining the market size-segment cutoffs and associated segment number of companies;
|
| § |
assigning companies to the size segments; and
|
| § |
applying final size-segment investability requirements.
|
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
Index Continuity Rules for the Standard Indices. In order to achieve
index continuity, as well as to provide some basic level of diversification within a market index, and notwithstanding the effect of other index construction rules described in this section, a minimum number of five constituents will be
maintained for a DM Standard Index and a minimum number of three constituents will be maintained for an EM Standard Index.
Creating Style Indices within Each Size Segment. All securities in the
investable equity universe are classified into value or growth segments using the MSCI Global Value and Growth methodology. Classifying Securities under the Global Industry Classification Standard. All securities in the global investable equity
universe are assigned to the industry that best describes their business activities. To this end, MSCI has designed, in conjunction with S&P Dow Jones Indexes, the GICS. Under the GICS, each company is assigned to one sub−industry according
to its principal business activity. Therefore, a company can belong to only one industry grouping at each of the four levels of the GICS.
Calculation Methodology for the Index
The performance of the Index is a free float weighted average of the U.S. dollar values of its component securities.
Prices used to calculate the component securities are the official exchange closing prices or prices accepted as such in the relevant market. In the
case of a market closure, or if a security does not trade on a specific day or during a specific period, MSCI carries forward the previous day’s price (or latest available closing price). In the event of a market outage resulting in any component
security price to be unavailable, MSCI will generally use the last reported price for such component security for the purpose of performance calculation unless MSCI determines that another price is more appropriate based on the circumstances.
Closing prices are converted into U.S. dollars, as applicable, using the closing exchange rates calculated by WM/Reuters at 4:00 P.M. London Time.
Index Maintenance
The MSCI global investable market indices are maintained with the objective of reflecting the evolution of the underlying equity markets and segments
on a timely basis, while seeking to achieve index continuity, continuous investability of constituents and replicability of the indices, index stability, and low index turnover. In particular, index maintenance involves:
(i) Semi-Annual Index Reviews (“SAIRs”) in May and November of the Size Segment and Global Value and Growth Indices which
include:
| § |
updating the indices on the basis of a fully refreshed equity universe;
|
| § |
taking buffer rules into consideration for migration of securities across size and style segments; and
|
| § |
updating FIFs and Number of Shares (“NOS”).
|
(ii) Quarterly Index Reviews (“QIRs”) in February and August of the Size Segment Indices aimed at:
| § |
including significant new eligible securities (such as IPOs that were not eligible for earlier inclusion) in the Index;
|
| § |
allowing for significant moves of companies within the Size Segment Indices, using wider buffers than in the SAIR; and
|
| § |
reflecting the impact of significant market events on FIFs and updating NOS.
|
(iii) Ongoing Event-Related Changes: changes of this type are generally implemented in the indices as they occur. Significantly
large IPOs are included in the indices after the close of the company’s tenth day of trading.
None of us, MLPF&S or any of our respective affiliates accepts any responsibility for the calculation, maintenance, or publication of, or for any
error, omission, or disruption in, the Index any successor to the Index.
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
The following graph shows the daily historical performance of the Index in the period from January 1, 2008
through March 25, 2019. We obtained this historical data from Bloomberg L.P. We have not independently verified the accuracy or completeness of the information obtained from Bloomberg L.P. On March 25, 2019, the closing level of the Index was
1,047.71.
Historical Performance of the Index
This historical data on the Index is not necessarily indicative of the future performance of the Index or
what the value of the notes may be. Any historical upward or downward trend in the level of the Index during any period set forth above is not an indication that the level of the Index is more or less likely to increase or decrease at any time
over the term of the notes.
Before investing in the notes, you should consult publicly available sources for the levels of the Index.
License Agreement
We have entered into a non-exclusive license agreement with MSCI providing for the license to us and certain of our affiliates, in exchange for a fee,
of the right to use the Index in connection with securities, including the notes. The Index is owned and published by MSCI.
The license agreement between MSCI and us provides that the following language must be set forth in this pricing supplement:
THE NOTES ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI INC. (“MSCI”), ANY AFFILIATE OF MSCI OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO,
MAKING OR COMPILING ANY MSCI INDEX. THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY ROYAL BANK OF CANADA AND
ITS AFFILIATES. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THE NOTES OR ANY MEMBER OF THE
PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN FINANCIAL SECURITIES GENERALLY OR IN THE NOTES PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN
TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THE NOTES OR THE ISSUER OR OWNER OF THE NOTES. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY
INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUERS OR OWNERS OF THE NOTES INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI INDEXES. NEITHER MSCI, ITS AFFILIATES
NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THE NOTES TO BE ISSUED OR IN THE DETERMINATION OR
CALCULATION OF THE EQUATION BY WHICH THE NOTES ARE REDEEMABLE FOR CASH. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, THE MAKING OR COMPILING ANY MSCI INDEX HAS ANY OBLIGATION OR LIABILITY TO THE OWNERS OF
THE NOTES IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THE NOTES.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDEXES FROM SOURCES WHICH MSCI CONSIDERS RELIABLE,
NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO MAKING OR COMPILING ANY MSCI INDEX WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN.
NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE’S
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
CUSTOMERS OR COUNTERPARTIES, ISSUERS OF THE NOTES, OWNERS OF THE NOTES, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI INDEX OR ANY DATA
INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX SHALL HAVE ANY LIABILITY FOR ANY
ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. FURTHER, NEITHER MSCI, ANY OF ITS AFFILIATES NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX MAKES ANY
EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND MSCI, ANY OF ITS AFFILIATES AND ANY OTHER PARTY INVOLVED IN, OR RELATED TO MAKING OR COMPILING ANY MSCI INDEX HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, WITH RESPECT TO ANY MSCI INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL MSCI, ANY OF ITS AFFILIATES OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING ANY MSCI INDEX HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
No purchaser, seller or holder of the notes, or any other person or entity, should use or refer to any MSCI trade name, trade mark or service mark
rights to sponsor, endorse, market or promote the notes without first contacting MSCI to determine whether MSCI’s permission is required. Under no circumstances may any person or entity claim affiliation with MSCI without the prior written
permission of MSCI.
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
Supplement to the Plan of Distribution
Under our distribution agreement with MLPF&S, MLPF&S will purchase the notes from us as principal at the public offering price indicated on the
cover of this term sheet, less the indicated underwriting discount.
The current business of MLPF&S is being reorganized into two affiliated broker-dealers: MLPF&S and a new broker-dealer, BofA Securities, Inc.
(“BofAS”). BofAS will be the new legal entity for the institutional services that are now provided by MLPF&S. MLPF&S will be assigning its rights and obligations as selling agent for the notes under our distribution agreement to BofAS
effective on the “Transfer Date.” Accordingly, if the pricing date of the notes occurs on or after the Transfer Date, BofAS will be responsible for the pricing of the notes. If the settlement date of the notes occurs on or after the Transfer
Date, BofAS will, subject to the terms and conditions of the distribution agreement, purchase the notes from us as principal on the settlement date. MLPF&S will in turn purchase the notes from BofAS for resale, and it will receive a selling
concession in connection with the sale of the notes in an amount up to the full amount of underwriting discount set forth on the cover of this term sheet.
We may deliver the notes against payment therefor in New York, New York on a date that is greater than two business days following the pricing date.
Under Rule 15c6-1 of the Securities Exchange Act of 1934, 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, if the initial settlement
of the notes occurs more than two business days from the pricing date, purchasers who wish to trade the notes more than two business days prior to the original issue date will be required to specify alternative settlement arrangements to prevent
a failed settlement.
The notes will not be listed on any securities exchange. In the original offering of the notes, the notes will be sold in minimum investment amounts of
100 units. If you place an order to purchase the notes, you are consenting to MLPF&S acting as a principal in effecting the transaction for your account.
MLPF&S may repurchase and resell the notes, with repurchases and resales being made at prices related to then-prevailing market prices or at
negotiated prices, and these will include MLPF&S’s trading commissions and mark-ups. MLPF&S may act as principal or agent in these market-making transactions; however, it is not obligated to engage in any such transactions. At
MLPF&S’s discretion, for a short, undetermined initial period after the issuance of the notes, MLPF&S may offer to buy the notes in the secondary market at a price that may exceed the initial estimated value of the notes. Any price
offered by MLPF&S for the notes will be based on then-prevailing market conditions and other considerations, including the performance of the Index and the remaining term of the notes. However, neither we nor any of our affiliates is
obligated to purchase your notes at any price or at any time, and we cannot assure you that we, MLPF&S or any of our respective affiliates will purchase your notes at a price that equals or exceeds the initial estimated value of the notes.
The value of the notes shown on your account statement will be based on MLPF&S’s estimate of the value of the notes if MLPF&S or another of its
affiliates were to make a market in the notes, which it is not obligated to do. That estimate will be based upon the price that MLPF&S may pay for the notes in light of then-prevailing market conditions and other considerations, as mentioned
above, and will include transaction costs. At certain times, this price may be higher than or lower than the initial estimated value of the notes.
The distribution of the Note Prospectus in connection with these offers or sales will be solely for the purpose of providing investors with the
description of the terms of the notes that was made available to investors in connection with their initial offering. Secondary market investors should not, and will not be authorized to, rely on the Note Prospectus for information regarding RBC
or for any purpose other than that described in the immediately preceding sentence.
An investor’s household, as referenced on the cover of this term sheet, will generally include accounts held by
any of the following, as determined by MLPF&S in its discretion and acting in good faith based upon information then available to MLPF&S:
| · |
the investor’s spouse (including a domestic partner), siblings, parents, grandparents, spouse’s parents, children and grandchildren, but excluding accounts held
by aunts, uncles, cousins, nieces, nephews or any other family relationship not directly above or below the individual investor;
|
| · |
a family investment vehicle, including foundations, limited partnerships and personal holding companies, but only if the beneficial owners of the vehicle consist
solely of the investor or members of the investor’s household as described above; and
|
| · |
a trust where the grantors and/or beneficiaries of the trust consist solely of the investor or members of the investor’s household as described above; provided
that, purchases of the notes by a trust generally cannot be aggregated together with any purchases made by a trustee’s personal account.
|
Purchases in retirement accounts will not be considered part of the same household as an individual investor’s personal or other non-retirement
account, except for individual retirement accounts (“IRAs”), simplified employee pension plans (“SEPs”), savings incentive match plan for employees (“SIMPLEs”), and single-participant or owners only accounts (i.e., retirement accounts held by
self-employed individuals, business owners or partners with no employees other than their spouses).
Please contact your Merrill Lynch financial advisor if you have any questions about the application of these provisions to your specific
circumstances or think you are eligible.
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
Structuring the Notes
The notes are our debt securities, the return on which is linked to the performance of the Index. As is the case for all of our debt securities,
including our market-linked notes, the economic terms of the notes reflect our actual or perceived creditworthiness at the time of pricing. In addition, because market-linked notes result in increased operational, funding and liability
management costs to us, we typically borrow the funds under these notes at a rate that is more favorable to us than the rate which we refer to as our internal funding rate, which is the rate that we might pay for a conventional fixed or floating
rate debt security. This generally relatively lower internal funding rate, which is reflected in the economic terms of the notes, along with the fees and charges associated with market-linked notes, typically results in the initial estimated
value of the notes on the pricing date being less than their public offering price.
At maturity, we are required to pay the Redemption Amount to holders of the notes, which will be calculated based on the $10 per unit principal amount
and will depend on the performance of the Index. In order to meet these payment obligations, at the time we issue the notes, we may choose to enter into certain hedging arrangements (which may include call options, put options or other
derivatives) with MLPF&S or one of its affiliates. The terms of these hedging arrangements are determined by seeking bids from market participants, including MLPF&S and its affiliates, and take into account a number of factors, including
our creditworthiness, interest rate movements, the volatility of the Index, the tenor of the notes and the tenor of the hedging arrangements. The economic terms of the notes and their initial estimated value depend in part on the terms of these
hedging arrangements.
MLPF&S has advised us that the hedging arrangements will include a hedging related charge of approximately $0.075 per unit, reflecting an estimated
profit to be credited to MLPF&S from these transactions. Since hedging entails risk and may be influenced by unpredictable market forces, additional profits and losses from these hedging arrangements may be realized by MLPF&S or any
third party hedge providers.
For further information, see “Risk Factors—General Risks Relating to LIRNs” beginning on page PS-6 and “Use of Proceeds and Hedging” on page PS-15 of
product supplement EQUITY INDICES LIRN-1.
MLPF&S Reorganization
As discussed above under “Supplement to the Plan of Distribution,” the current business of MLPF&S is being reorganized into two affiliated
broker-dealers. Effective on the Transfer Date, BofAS will be the new legal entity for the institutional services that are now provided by MLPF&S. As such, beginning on the Transfer Date, the institutional services currently being provided by
MLPF&S, including acting as selling agent for the notes, acting as calculation agent for the notes, acting as principal or agent in secondary market-making transactions for the notes and entering into hedging arrangements with respect to the
notes, are expected to be provided by BofAS. Accordingly, references to MLPF&S in this term sheet as such references relate to MLPF&S’s institutional services, such as those described above, should be read as references to BofAS to the
extent these services are to be performed on or after the Transfer Date.
|
Capped Leveraged Index Return Notes®
Linked to the MSCI Emerging Markets Index, due April , 2021 |
Summary of Canadian Federal Income Tax Consequences
For a discussion of the material Canadian federal income tax consequences relating to an investment in the notes, please see the section entitled “Tax
Consequences—Canadian Taxation” in the prospectus dated September 7, 2018.
Summary of U.S. Federal Income Tax Consequences
You should consider the U.S. federal income tax consequences of an investment in the notes, including the following:
| § |
There is no statutory, judicial, or administrative authority directly addressing the characterization of the notes.
|
| § |
You agree with us (in the absence of a statutory, regulatory, administrative, or judicial ruling to the contrary) to characterize and treat the notes for all tax purposes as pre-paid
derivative contracts in respect of the Index.
|
| § |
Under this characterization and tax treatment of the notes, a U.S. holder (as defined on page 41 of the prospectus) generally will recognize capital gain or loss upon the sale or
maturity of the notes. This capital gain or loss generally will be long-term capital gain or loss if you held the notes for more than one year.
|
| § |
No assurance can be given that the Internal Revenue Service or any court will agree with this characterization and tax treatment.
|
| § |
Under current Internal Revenue Service guidance, withholding on “dividend equivalent” payments (as discussed in the product supplement), if any, will not apply to notes that are
issued as of the date of this pricing supplement unless such notes are “delta-one” instruments.
|
| § |
The accompanying product supplement notes that FATCA withholding on payments of gross proceeds from a sale or redemption of the notes will only apply to payments made after December
31, 2018. That discussion is modified to reflect regulations proposed by the U.S. Treasury Department in December 2018 indicating an intent to eliminate the requirement under FATCA of withholding on gross proceeds of the disposition
of financial instruments. The U.S. Treasury Department has indicated that taxpayers may rely on these proposed regulations pending their finalization. Prospective investors are urged to consult with their own tax advisors regarding
the possible implications of FATCA on their investment in the notes.
|
You should consult your own tax advisor concerning the U.S. federal income tax consequences to you of acquiring, owning, and disposing of the notes,
as well as any tax consequences arising under the laws of any state, local, foreign, or other tax jurisdiction and the possible effects of changes in U.S. federal or other tax laws. You should review carefully the discussion under the section
entitled “U.S. Federal Income Tax Summary” beginning on page PS-30 of product supplement EQUITY INDICES LIRN-1.
Where You Can Find More Information
We have filed a registration statement (including a product supplement, a prospectus supplement, and a prospectus) with the SEC for the offering to which this term sheet
relates. Before you invest, you should read the Note Prospectus, including this term sheet, and the other documents that we have filed with the SEC, for more complete information about us and this offering. You may get these documents without
cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, we, any agent, or any dealer participating in this offering will arrange to send you these documents if you so request by calling MLPF&S toll-free at 1-800-294-1322.
Market-Linked Investments Classification
MLPF&S classifies certain market-linked investments (the “Market-Linked Investments”) into categories, each with different investment characteristics. The following description is meant solely for informational purposes and is not intended to
represent any particular Enhanced Return Market-Linked Investment or guarantee any performance.
Enhanced Return Market-Linked Investments are short- to medium-term investments that offer you a way to enhance exposure to a
particular market view without taking on a similarly enhanced level of market downside risk. They can be especially effective in a flat to moderately positive market (or, in the case of bearish investments, a flat to moderately negative market).
In exchange for the potential to receive better-than market returns on the linked asset, you must generally accept market downside risk and capped upside potential. As these investments are not market downside protected, and do not assure full
repayment of principal at maturity, you need to be prepared for the possibility that you may lose all or part of your investment.
“Leveraged Index Return Notes®” and “LIRNs®” are the registered service marks of Bank of America Corporation, the parent
company of MLPF&S.