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RBC Capital Markets® |
Filed Pursuant to Rule 433
Registration Statement No. 333-208507
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The information in this preliminary terms supplement is not complete and may be changed.
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Preliminary Terms Supplement
Subject to Completion:
Dated June 19, 2018
Pricing Supplement Dated June __, 2018 to the Product Prospectus Supplement ERN-EI-1 Dated January 12, 2016, Prospectus Supplement
Dated January 8, 2016, and Prospectus Dated January 8, 2016
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$ __________
Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index,
Due December 24, 2020
Royal Bank of Canada
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Royal Bank of Canada is offering the Geared Buffered Enhanced Return Notes (the “Notes”) linked to the performance of the Russell 2000® Index (the “Reference Asset”). The CUSIP number for the Notes is 78013XMZ8. The Notes do not pay interest.
If the Final Level of the Reference Asset is greater than the Initial Level, investors will receive a 150% leveraged positive return, up to a
maximum return of $1,270 per $1,000 in Principal Amount. If the Final Level of the Reference Asset is greater than 80.00% of the Initial Level (the “Buffer Level”), but less than the Initial Level, investors will receive the Principal Amount.
However, if the Final Level is less than the Initial Level by more than the Buffer Percentage, investors will lose 1.25% of the principal amount of
the Notes for each 1% decrease from the Initial Level to the Final Level by more than the Buffer Percentage. Accordingly, investors may lose all or substantially all of their principal amount. Any payments on the Notes are subject to our credit
risk.
Issue Date: June 22, 2018
Maturity Date: December 24, 2020
The Notes will not be listed on any securities exchange.
Investing in the Notes involves a number of risks. See “Risk Factors” beginning on page S-1 of the prospectus supplement dated January 8, 2016,
“Additional Risk Factors Specific to the Notes” beginning on page PS-4 of the product prospectus supplement dated January 12, 2016, and “Selected Risk Considerations” on page P-6 of this terms supplement.
The Notes will not constitute deposits insured by the Canada Deposit Insurance Corporation, the U.S. Federal Deposit Insurance Corporation or any
other Canadian or U.S. government agency or instrumentality.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined
that this terms supplement is truthful or complete. Any representation to the contrary is a criminal offense.
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Per Note
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Total
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Price to public
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100.00%
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$
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Underwriting discounts and commissions
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0.00%
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$
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Proceeds to Royal Bank of Canada
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100.00%
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$
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The initial estimated value of the Notes as of the date of this terms supplement is $994.73 per $1,000 in principal amount, which is less than the
price to public. The final pricing supplement relating to the Notes will set forth our estimate of the initial value of the Notes as of the Pricing Date, which will not be less than $974.73 per $1,000 in principal amount. The actual value of the
Notes at any time will reflect many factors, cannot be predicted with accuracy, and may be less than this amount. We describe our determination of the initial estimated value in more detail below.
If the Notes priced on the date of this terms supplement, RBC Capital Markets, LLC, which we refer to as RBCCM, acting as agent for Royal Bank of
Canada, would not be expected to receive a commission in connection with the sale of the Notes. See “Supplemental Plan of Distribution (Conflicts of Interest)” below.
We may use this terms supplement in the initial sale of the Notes. In addition, RBCCM or another of our affiliates may use this terms supplement in a market-making
transaction in the Notes after their initial sale. Unless we or our agent informs the purchaser otherwise in the confirmation of sale, this terms
supplement is being used in a market-making transaction.
RBC Capital Markets, LLC
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
SUMMARY
The information in this “Summary” section is qualified by the more detailed information set forth in this terms
supplement, the product prospectus supplement, the prospectus supplement, and the prospectus.
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Issuer:
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Royal Bank of Canada (“Royal Bank”)
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Issue:
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Senior Global Medium-Term Notes, Series G
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Underwriter:
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RBC Capital Markets, LLC (“RBCCM”)
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Reference Asset:
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Russell 2000® Index
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Bloomberg Ticker:
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RTY
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Currency:
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U.S. Dollars
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Minimum
Investment:
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$1,000 and minimum denominations of $1,000 in excess thereof
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Pricing Date:
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June 19, 2018
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Issue Date:
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June 22, 2018
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CUSIP:
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78013XMZ8
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Valuation Date:
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December 21, 2020
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Payment at Maturity
(if held to maturity):
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If, on the Valuation Date, the Final Level is greater than or equal to the Initial Level, you will receive, for each
$1,000 in principal amount of the Notes, the lesser of:
1. $1,000 + [$1,000 x (Percentage Change x Leverage Factor)] and
2. Maximum Redemption Amount
If on the Valuation Date, the Final Level is greater than or equal to the Buffer Level but less than the Initial Level, you will receive
$1,000 per $1,000 principal amount of the Notes.
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If the Final Level is less than the Buffer Level, then the investor will receive, for each $1,000 in principal amount of
the Notes:
Principal Amount + [Principal Amount x (Percentage Change + Buffer Percentage) x Downside Multiplier]
This amount will be less than the principal amount, and you may lose all or substantially all of your
investment in the Notes.
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Percentage Change:
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The Percentage Change, expressed as a percentage, is calculated using the following formula:
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Initial Level:
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The closing level of the Reference Asset on the Pricing Date.
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
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Final Level:
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The closing level of the Reference Asset on the Valuation Date.
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Leverage Factor:
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150%
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Maximum
Redemption
Amount:
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$1,270 per $1,000 in Principal Amount.
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Buffer Percentage:
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20.00%
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Buffer Level:
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80.00% of the Initial Level (to be determined on the Pricing Date).
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Downside Multiplier:
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100% divided by the Buffer Level. Accordingly, the Downside Multiplier will be 1.25.
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Maturity Date:
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December 24, 2020, subject to extension for market and other disruptions, as described in the product prospectus supplement
dated January 12, 2016.
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Term:
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Approximately two (2) years and six (6) months.
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Principal at Risk:
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The Notes are NOT principal
protected. You may lose all or a substantial portion of your principal amount at maturity if the Final Level is less than the Buffer Level.
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Calculation Agent:
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RBCCM
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U.S. Tax Treatment:
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By purchasing a Note, each holder agrees (in the absence of a change in law, an administrative determination or a judicial ruling to the
contrary) to treat the Note as a pre-paid cash-settled derivative contract for U.S. federal income tax purposes. However, the U.S. federal income tax consequences of your investment in the Notes are uncertain and the Internal Revenue
Service could assert that the Notes should be taxed in a manner that is different from that described in the preceding sentence. Please see the section below, “Supplemental Discussion of U.S. Federal Income Tax Consequences,” and the
discussion (including the opinion of our counsel Morrison & Foerster LLP) in the product prospectus supplement dated January 12, 2016 under “Supplemental Discussion of U.S. Federal Income Tax Consequences,” which apply to the Notes.
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Secondary Market:
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RBCCM (or one of its affiliates), though not obligated to do so, may maintain a secondary market in the Notes after the
Issue Date. The amount that you may receive upon sale of your Notes prior to maturity may be less than the principal amount of your Notes.
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Listing:
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The Notes will not be listed on any securities exchange.
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Clearance and
Settlement:
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DTC global (including through its indirect participants Euroclear and Clearstream, Luxembourg as described under
“Description of Debt Securities—Ownership and Book-Entry Issuance” in the prospectus dated January 8, 2016).
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
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Terms Incorporated
in the Master Note:
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All of the terms appearing above the item captioned “Secondary Market” on pages P-2 and P-3 of this terms supplement and
the terms appearing under the caption “General Terms of the Notes” in the product prospectus supplement dated January 12, 2016, as modified by this terms supplement. In addition to those terms, the following two sentences are also so
incorporated into the master note: RBC confirms that it fully understands and is able to calculate the effective annual rate of interest applicable to the Notes based on the methodology for calculating per annum rates provided for in the
Notes. RBC irrevocably agrees not to plead or assert Section 4 of the Interest Act (Canada), whether by way of defense or otherwise, in any proceeding relating to the Notes.
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
ADDITIONAL TERMS OF YOUR NOTES
You should read this terms supplement together with the prospectus dated January 8, 2016, as supplemented by the prospectus supplement dated January 8,
2016 and the product prospectus supplement dated January 12, 2016, relating to our Senior Global Medium-Term Notes, Series G, of which these Notes are a part. Capitalized terms used but not defined in this terms supplement will have the meanings
given to them in the product prospectus supplement. In the event of any conflict, this terms supplement will control. The Notes vary from the terms
described in the product prospectus supplement in several important ways. You should read this terms supplement carefully.
This terms supplement, together with the documents listed below, contains the terms of the Notes 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 January 8, 2016 and “Additional Risk Factors Specific to the Notes” in the product prospectus supplement dated
January 12, 2016, as the Notes 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 Notes. You may access these documents on the
Securities and Exchange Commission (the “SEC”) website at www.sec.gov as follows (or if that address has changed, by reviewing our filings for the relevant date on the SEC website):
Prospectus dated January 8, 2016:
Prospectus Supplement dated January 8, 2016:
Product Prospectus Supplement ERN-EI-1 dated January 12, 2016:
Our Central Index Key, or CIK, on the SEC website is 1000275. As used in this terms supplement, “we,” “us,” or “our” refers to Royal Bank of Canada.
Royal Bank of Canada has filed a registration statement (including a product prospectus supplement, a prospectus supplement, and a
prospectus) with the SEC for the offering to which this terms supplement relates. Before you invest, you should read those documents and the other documents relating to this offering that we have filed with the SEC for more complete information
about us and this offering. You may obtain these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Royal Bank of Canada, any
agent or any dealer participating in this offering will arrange to send you the product prospectus supplement, the prospectus supplement and the prospectus if you so request by calling toll-free at 1-877-688-2301.
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
HYPOTHETICAL RETURNS
The examples set out below are included for illustration purposes only. The hypothetical
Percentage Changes of the Reference Asset used to illustrate the calculation of the Payment at Maturity (rounded to two decimal places) are not estimates or forecasts of the Initial Level, the Final Level or the level of the Reference
Asset on any trading day prior to the Maturity Date. All examples are based on the Leverage Factor of 150%, the Buffer Percentage of 20.00% (the Buffer Level is 80.00% of the Initial Level), and the
Downside Multiplier of 1.25 (100% divided by 80.00%), a Maximum Redemption Amount of 127.00% of the principal amount, and assume
that a holder purchased Notes with an aggregate principal amount of $1,000, and that no market disruption event occurs on the Valuation Date.
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Example 1—
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Calculation of the Payment at Maturity where the Percentage Change is positive.
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Percentage Change:
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5.00%
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Payment at Maturity:
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$1,000 + [$1,000 x (5.00% x 150%)] = $1,000 + $75.00 = $1,075.00
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On a $1,000 investment, a 5% Percentage Change results in a Payment at Maturity of $1,075.00, a 7.50% return on the Notes.
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Example 2—
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Calculation of the Payment at Maturity where the Percentage Change is positive (and the Payment at Maturity is subject to the Maximum
Redemption Amount).
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Percentage Change:
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20.00% | |
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Payment at Maturity:
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$1,000 + [$1,000 x (20.00% x 150%)] = $1,000 + $300.00 = $1,300.00
However, the Maximum Redemption Amount is $1,270.00
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On a $1,000 investment, a 10% Percentage Change results in a Payment at Maturity of $1,270.00, a 27.00% return on the Notes.
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Example 3—
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Calculation of the Payment at Maturity where the Percentage Change is negative, but the Final Level is greater than the Buffer Level.
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Percentage Change:
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-5.00%
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Payment at Maturity:
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$1,000
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On a $1,000 investment, a -5% Percentage Change results in a Payment at Maturity of $1,000, a 0.00% return on the Notes.
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Example 4—
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Calculation of the Payment at Maturity where the Final Level is less than the Buffer Level.
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Percentage Change:
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-30.00%
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Payment at Maturity:
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$1,000 + [$1,000 x (-30.00% +20.00%) x 1.25] = $1,000 - $125.00 = $875.00
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On a $1,000 investment, a -20% Percentage Change results in a Payment at Maturity of $875.00, a -12.50% return on the Notes.
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
SELECTED RISK CONSIDERATIONS
An investment in the Notes involves significant risks. Investing in the Notes is not equivalent to investing directly in the Reference Asset. These
risks are explained in more detail in the section “Additional Risk Factors Specific to the Notes,” beginning on page PS-4 of the product prospectus supplement. In addition to the risks described in the prospectus supplement and the product
prospectus supplement, you should consider the following:
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Principal at Risk – Investors in the Notes could lose all or a substantial portion of their
principal amount if there is a decline in the level of the Reference Asset. You will lose 1.25% of the principal amount of the Notes for each 1% that the Final Level is less than the Initial Level by more than the Buffer Percentage.
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The Notes Do Not Pay Interest and Your Return May Be Lower than the Return on a Conventional Debt
Security of Comparable Maturity – There will be no periodic interest payments on the Notes as there would be on a conventional fixed-rate or floating-rate debt security having the same maturity. The return that you will
receive on the Notes, which could be negative, may be less than the return you could earn on other investments. Even if your return is positive, your return may be less than the return you would earn if you bought a conventional
senior interest bearing debt security of Royal Bank.
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Your Potential Payment at Maturity Is Limited – The Notes will provide less opportunity to participate in the appreciation of the Reference Asset than an investment in a security linked to the Reference Asset providing full participation in the
appreciation, because the payment at maturity will not exceed the Maximum Redemption Amount. Accordingly, your return on the Notes may be less than your return would be if you made an investment in a security directly linked to the
positive performance of the Reference Asset.
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Payments on the Notes Are Subject to Our Credit Risk, and Changes in Our Credit Ratings Are Expected to
Affect the Market Value of the Notes – The Notes are Royal Bank’s senior unsecured debt securities. As a result, your receipt of the amount due on the maturity date is dependent upon Royal Bank’s ability to repay its
obligations at that time. This will be the case even if the level of the Reference Asset increases after the Pricing Date. No assurance can be given as to what our financial condition will be at the maturity of the Notes.
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There May Not Be an Active Trading Market for the Notes—Sales in the Secondary Market May Result in
Significant Losses – There may be little or no secondary market for the Notes. The Notes will not be listed on any securities exchange. RBCCM and other affiliates of Royal Bank may make a market for the Notes; however, they
are not required to do so. RBCCM or any other affiliate of Royal Bank may stop any market-making activities at any time. Even if a secondary market for the Notes develops, it may not provide significant liquidity or trade at prices
advantageous to you. We expect that transaction costs in any secondary market would be high. As a result, the difference between bid and asked prices for your Notes in any secondary market could be substantial.
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You Will Not Have Any Rights to the Securities Included in the Reference Asset – As a holder of
the Notes, you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of securities included in the Reference Asset would have. The Final Level will not reflect any
dividends paid on the securities included in the Reference Asset, and accordingly, any positive return on the Notes may be less than the potential positive return on those securities.
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The Initial Estimated Value of the Notes Will Be Less than the Price to the Public – The
initial estimated value set forth on the cover page and that will be set forth in the final pricing supplement for the Notes does not represent a minimum price at which we, RBCCM or any of our affiliates would be willing to purchase
the Notes in any secondary market (if any exists) at any time. If you attempt to sell the Notes 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 level of the Reference Asset, the borrowing rate we pay to issue securities of this kind, and the inclusion in the price to the public of the estimated costs relating to our hedging of the Notes. 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. Assuming no change in market conditions or any other relevant factors, the
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
price, if any, at which you may be able to sell your Notes prior to maturity may be less than your original purchase price, as
any such sale price would not be expected to include the hedging costs relating to the Notes. In addition to bid-ask spreads, the value of the Notes 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 Notes and determine the initial estimated value. As a result, the secondary price will be less than if the internal funding rate was used. The Notes are not designed to be short-term trading
instruments. Accordingly, you should be able and willing to hold your Notes to maturity.
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The Initial Estimated Value of the Notes on the Cover Page and that We Will Provide in the Final
Pricing Supplement Are Estimates Only, Calculated as of the Time the Terms of the Notes Are Set –The initial estimated value of the Notes will be based on the value of our obligation to make the payments on the Notes,
together with the mid-market value of the derivative embedded in the terms of the Notes. See “Structuring the Notes” below. Our estimates are based on a variety of assumptions, including our credit spreads, expectations as to
dividends, interest rates and volatility, and the expected term of the Notes. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the Notes or similar
securities at a price that is significantly different than we do.
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The value of the Notes at any time after the Pricing Date will vary based on many factors, including changes in
market conditions, and cannot be predicted with accuracy. As a result, the actual value you would receive if you sold the Notes in any secondary market, if any, should be expected to differ materially from the initial estimated value of your
Notes.
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Inconsistent Research – Royal Bank or its affiliates may issue research reports on securities
that are, or may become, components of the Reference Asset. We may also publish research from time to time on financial markets and other matters that may influence the levels of the Reference Asset or the value of the Notes, or
express opinions or provide recommendations that may be inconsistent with the purchasing or holding the Notes or with the investment view implicit in the Notes or the Reference Asset. You should make your own independent investigation
of the merits of investing in the Notes and the Reference Asset.
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An Investment in the Notes 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 the RTY may be more volatile than that of a market measure that does not track solely small-capitalization
stocks. Stock prices of small-capitalization companies are also generally more vulnerable than those of large-capitalization companies to adverse business and economic developments, and the stocks of small-capitalization companies may
be thinly traded, and be less attractive to many investors if they do not pay dividends. In addition, small capitalization companies are 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.
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Market Disruption Events and Adjustments – The payment at maturity and the Valuation Date are
subject to adjustment as described in the product prospectus supplement. For a description of what constitutes a market disruption event as well as the consequences of that market disruption event, see “General Terms of the
Notes—Market Disruption Events” in the product prospectus supplement.
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
INFORMATION REGARDING THE REFERENCE ASSET
The RTY
The RTY was developed by Russell Investments (“Russell”) before FTSE International Limited and Russell combined in 2015 to create FTSE Russell,
which is wholly owned by London Stock Exchange Group. Russell began dissemination of the RTY (Bloomberg L.P. index symbol “RTY”) on January 1, 1984. FTSE Russell calculates and publishes the RTY. The RTY was set to 135 as of the close of business
on December 31, 1986. The RTY is designed to track the performance of the small capitalization segment of the U.S. equity market. As a subset of the Russell 3000® Index, the RTY consists of the smallest
2,000 companies included in the Russell 3000® Index. The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies, representing
approximately 98% of the investable U.S. equity market. The RTY is determined, comprised, and calculated by FTSE Russell without regard to the Notes.
Selection of Stocks Underlying the RTY
All companies eligible for inclusion in the RTY must be classified as a U.S. company under FTSE Russell’s country-assignment methodology. If a
company is incorporated, has a stated headquarters location, and trades in the same country (American Depositary Receipts and American Depositary Shares are not eligible), then the company is assigned to its country of incorporation. If any of
the three factors are not the same, FTSE Russell defines three Home Country Indicators (“HCIs”): country of incorporation, country of headquarters, and country of the most liquid exchange (as defined by a two-year average daily dollar trading
volume) (“ADDTV”) from all exchanges within a country. Using the HCIs, FTSE Russell compares the primary location of the company’s assets with the three HCIs. If the primary location of its assets matches any of the HCIs, then the company is
assigned to the primary location of its assets. If there is insufficient information to determine the country in which the company’s assets are primarily located, FTSE Russell will use the primary country from which the company’s revenues are
primarily derived for the comparison with the three HCIs in a similar manner. FTSE Russell uses the average of two years of assets or revenues data to reduce potential turnover. If conclusive country details cannot be derived from assets or
revenues data, FTSE Russell will assign the company to the country of its headquarters, which is defined as the address of the company’s principal executive offices, unless that country is a Benefit Driven Incorporation “BDI” country, in which
case the company will be assigned to the country of its most liquid stock exchange. BDI countries include: Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, Bermuda, Bonaire, British Virgin Islands, Cayman Islands, Channel Islands,
Cook Islands, Curacao, Faroe Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Liberia, Marshall Islands, Panama, Saba, Sint Eustatius, Sint Maarten, and Turks and Caicos Islands. For any companies incorporated or headquartered in a U.S.
territory, including countries such as Puerto Rico, Guam, and U.S. Virgin Islands, a U.S. HCI is assigned.
All securities eligible for inclusion in the RTY must trade on a major U.S. exchange. Stocks must have a closing price at or above $1.00 on their
primary exchange on the last trading day in May to be eligible for inclusion during annual reconstitution. However, in order to reduce unnecessary turnover, if an existing member’s closing price is less than $1.00 on the last day of May, it will
be considered eligible if the average of the daily closing prices (from its primary exchange) during the month of May is equal to or greater than $1.00. Initial public offerings are added each quarter and must have a closing price at or above
$1.00 on the last day of their eligibility period in order to qualify for index inclusion. If an existing stock does not trade on the “rank day” (typically the last trading day in May but a confirmed timetable is announced each spring) but does
have a closing price at or above $1.00 on another eligible U.S. exchange, that stock will be eligible for inclusion.
An important criterion used to determine the list of securities eligible for the RTY is total market capitalization, which is defined as the market price as of the rank
day in May for those securities being considered at annual reconstitution times the total number of shares outstanding. Where applicable, common stock, non-restricted exchangeable shares and partnership units/membership interests are used to
determine market capitalization. Any other form of shares such as preferred stock, convertible preferred stock, redeemable shares, participating preferred stock, warrants, rights, installment receipts or trust receipts, are excluded from the
calculation. If multiple share classes of common stock exist, they are combined to determine total shares outstanding. In cases where the common stock share classes act independently of
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
each other (e.g., tracking stocks), each class is considered for inclusion separately. If multiple share classes exist, the pricing vehicle will be
designated as the share class with the highest two-year trading volume as of the rank day in May.
Companies with a total market capitalization of less than $30 million are not eligible for the RTY. Similarly, companies with only 5% or less of
their shares available in the marketplace are not eligible for the RTY. Royalty trusts, limited liability companies, closed-end investment companies (companies that are required to report Acquired Fund Fees and Expenses, as defined by the SEC,
including business development companies), blank check companies, special purpose acquisition companies, and limited partnerships are also ineligible for inclusion. Exchange traded funds and mutual funds are also excluded. Bulletin board, pink
sheets, and over-the-counter (“OTC”) traded securities are not eligible for inclusion.
Annual reconstitution is a process by which the RTY is completely rebuilt. Based on closing levels of the company’s common stock on its primary
exchange on the rank day of May of each year, FTSE Russell reconstitutes the composition of the RTY using the then existing market capitalizations of eligible companies. Reconstitution of the RTY occurs on the last Friday in June or, when the
last Friday in June is the 29th or 30th, reconstitution occurs on the prior Friday. In addition, FTSE Russell adds initial public offerings to the RTY on a quarterly basis based on total market capitalization ranking within the market-adjusted
capitalization breaks established during the most recent reconstitution.
After membership is determined, a security’s shares are adjusted to include only those shares available to the public. This is often referred to as
“free float.” The purpose of the adjustment is to exclude from market calculations the capitalization that is not available for purchase and is not part of the investable opportunity set.
License Agreement
FTSE Russell and Royal Bank have entered into a non-exclusive license agreement providing for the license to Royal Bank, and certain of its
affiliates, in exchange for a fee, of the right to use indices owned and published by FTSE Russell in connection with some securities, including the Notes.
FTSE Russell does not guarantee the accuracy and/or the completeness of the RTY or any data included in the RTY and has no liability for any errors,
omissions, or interruptions in the RTY. FTSE Russell makes no warranty, express or implied, as to results to be obtained by the calculation agent, holders of the Notes, or any other person or entity from the use of the RTY or any data included in
the RTY in connection with the rights licensed under the license agreement described in this document or for any other use. FTSE Russell makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability or
fitness for a particular purpose with respect to the RTY or any data included in the RTY. Without limiting any of the above information, in no event will FTSE Russell have any liability for any special, punitive, indirect or consequential
damages, including lost profits, even if notified of the possibility of these damages.
The Notes are not sponsored, endorsed, sold or promoted by FTSE Russell. FTSE Russell makes no representation or warranty, express or implied, to
the owners of the Notes or any member of the public regarding the advisability of investing in securities generally or in the Notes particularly or the ability of the RTY to track general stock market performance or a segment of the same. FTSE
Russell’s publication of the RTY in no way suggests or implies an opinion by FTSE Russell as to the advisability of investment in any or all of the stocks upon which the RTY is based. FTSE Russell's only relationship to Royal Bank is the
licensing of certain trademarks and trade names of FTSE Russell and of the RTY, which is determined, composed and calculated by FTSE Russell without regard to Royal Bank or the Notes. FTSE Russell is not responsible for and has not reviewed the
Notes nor any associated literature or publications and FTSE Russell makes no representation or warranty express or implied as to their accuracy or completeness, or otherwise. FTSE Russell reserves the right, at any time and without notice, to
alter, amend, terminate or in any way change the RTY. FTSE Russell has no obligation or liability in connection with the administration, marketing or trading of the Notes.
“Russell 2000®” and “Russell 3000®” are registered trademarks
of FTSE Russell in the U.S. and other countries.
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
Historical Information
The graph below sets forth the information relating to the historical performance of the Reference Asset. In addition, below the graph is a table
setting forth the intra-day high, intra-day low and period-end closing levels of the Reference Asset. The information provided in this table is for the period from 2008 to 2017, the first calendar quarter of 2018 and for the period from April 1,
2018 through June 18, 2018.
We obtained the information regarding the historical performance of the Reference Asset in the chart below from Bloomberg Financial Markets.
We have not independently verified the accuracy or completeness of the information obtained from Bloomberg Financial Markets. The historical
performance of the Reference Asset should not be taken as an indication of its future performance, and no assurance can be given as to the Final Level of the Reference Asset. We cannot give you assurance that the performance of the Reference
Asset will result in any positive return on your initial investment.
Russell 2000® Index (“RTY”)
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
|
Period-Start Date
|
Period-End Date
|
High Intra-Day Level
of the Reference
Asset
|
Low Intra-Day Level of
the Reference Asset
|
Period-End Closing
Level of the Reference
Asset
|
||||
|
1/1/2008
|
3/31/2008
|
768.460
|
643.280
|
687.967
|
||||
|
4/1/2008
|
6/30/2008
|
763.270
|
684.880
|
689.659
|
||||
|
7/1/2008
|
9/30/2008
|
764.380
|
647.370
|
679.583
|
||||
|
10/1/2008
|
12/31/2008
|
679.570
|
371.260
|
482.770
|
||||
|
1/1/2009
|
3/31/2009
|
519.180
|
342.570
|
422.748
|
||||
|
4/1/2009
|
6/30/2009
|
535.850
|
412.770
|
508.282
|
||||
|
7/1/2009
|
9/30/2009
|
625.310
|
473.540
|
604.278
|
||||
|
10/1/2009
|
12/31/2009
|
635.990
|
553.320
|
633.409
|
||||
|
1/1/2010
|
3/31/2010
|
693.320
|
580.490
|
678.643
|
||||
|
4/1/2010
|
6/30/2010
|
745.950
|
607.300
|
609.486
|
||||
|
7/1/2010
|
9/30/2010
|
678.900
|
587.600
|
676.139
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||||
|
10/1/2010
|
12/31/2010
|
793.280
|
669.430
|
789.737
|
||||
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1/1/2011
|
3/31/2011
|
843.730
|
771.710
|
843.548
|
||||
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4/1/2011
|
6/30/2011
|
868.570
|
772.620
|
827.429
|
||||
|
7/1/2011
|
9/30/2011
|
860.370
|
634.710
|
644.156
|
||||
|
10/1/2011
|
12/31/2011
|
769.460
|
601.710
|
740.916
|
||||
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1/1/2012
|
3/30/2012
|
847.920
|
736.780
|
830.301
|
||||
|
4/1/2012
|
6/30/2012
|
841.060
|
729.750
|
798.487
|
||||
|
7/1/2012
|
9/30/2012
|
868.500
|
765.050
|
837.450
|
||||
|
10/1/2012
|
12/31/2012
|
853.570
|
763.550
|
849.350
|
||||
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1/1/2013
|
3/31/2013
|
954.000
|
849.330
|
951.542
|
||||
|
4/1/2013
|
6/30/2013
|
1,008.230
|
898.400
|
977.475
|
||||
|
7/1/2013
|
9/30/2013
|
1,082.000
|
981.300
|
1,073.786
|
||||
|
10/1/2013
|
12/31/2013
|
1,167.960
|
1,037.860
|
1,163.637
|
||||
|
1/1/2014
|
3/31/2014
|
1,212.823
|
1,082.717
|
1,173.038
|
||||
|
4/1/2014
|
6/30/2014
|
1,193.964
|
1,082.531
|
1,192.964
|
||||
|
7/1/2014
|
9/30/2014
|
1,213.550
|
1,101.675
|
1,101.676
|
||||
|
10/1/2014
|
12/31/2014
|
1,221.442
|
1,040.472
|
1,204.696
|
||||
|
1/1/2015
|
3/31/2015
|
1,268.162
|
1,151.295
|
1,252.772
|
||||
|
4/1/2015
|
6/30/2015
|
1,295.996
|
1,211.126
|
1,253.947
|
||||
|
7/1/2015
|
9/30/2015
|
1,275.899
|
1,078.633
|
1,100.688
|
||||
|
10/1/2015
|
12/31/2015
|
1,205.079
|
1,080.606
|
1,135.889
|
||||
|
1/1/2016
|
3/31/2016
|
1,134.078
|
943.097
|
1,114.028
|
||||
|
4/1/2016
|
6/30/2016
|
1,190.172
|
1,085.883
|
1,151.923
|
||||
|
7/1/2016
|
9/30/2016
|
1,263.460
|
1,131.713
|
1,251.646
|
||||
|
10/1/2016
|
12/31/2016
|
1,392.714
|
1,156.085
|
1,357.130
|
||||
|
1/1/2017
|
3/31/2017
|
1,414.824
|
1,335.038
|
1,385.920
|
||||
|
4/1/2017
|
6/30/2017
|
1,433.790
|
1,345.244
|
1,415.359
|
||||
|
7/1/2017
|
9/30/2017
|
1,493.555
|
1,349.354
|
1,490.861
|
||||
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10/1/2017
|
12/31/2017
|
1,559.607
|
1,454.165
|
1,535.511
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||||
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1/1/2018
|
3/31/2018
|
1,615.517
|
1,436.427
|
1,529.427
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||||
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4/1/2018
|
6/18/2018
|
1,692.460
|
1,482.897
|
1,692.460
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PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
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Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
SUPPLEMENTAL DISCUSSION OF
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following disclosure supplements, and to the extent inconsistent supersedes, the discussion in the product prospectus supplement dated January 12,
2016 under “Supplemental Discussion of U.S. Federal Income Tax Consequences.” The discussions below and in the accompanying product prospectus supplement do not address the tax consequences applicable to holders subject to Section 451(b) of the
Code.
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 IRS has issued guidance that states that the U.S. Treasury Department and the IRS 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, 2019. Based on our determination that the Notes are not delta-one
instruments, non-U.S. holders should not be subject to withholding on dividend equivalent payments, if any, under the Notes. However, it is possible that the Notes could be treated as deemed reissued for U.S. federal income tax purposes upon the
occurrence of certain events affecting the Reference Asset or the Notes (for example, upon a Reference Asset rebalancing), and following such occurrence the Notes 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 Reference Asset or the Notes should consult their tax advisors as to the application of the dividend equivalent withholding tax in the context of the Notes
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.
SUPPLEMENTAL PLAN OF DISTRIBUTION (CONFLICTS OF INTEREST)
We expect that delivery of the Notes will be made against payment for the Notes on or about June 22, 2018, which is the third (3rd)
business day following the Pricing Date (this settlement cycle being referred to as “T+3”). See “Plan of Distribution” in the prospectus dated January 8, 2016. For additional information as to the relationship between us and RBCCM, please see the
section “Plan of Distribution-Conflicts of Interest” in the prospectus dated January 8, 2016.
We expect to deliver the Notes 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 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 value of the Notes shown on your account statement may be based on RBCCM’s estimate of the value
of the Notes if RBCCM or another of our 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 RBCCM may pay for the Notes in light of then prevailing market conditions,
our creditworthiness and transaction costs. For a period of approximately 3 months after the issue date of the Notes, the value of the Notes that may be shown on your account statement may be higher than RBCCM’s estimated value of the Notes at
that time. This is because the estimated value of the Notes will not include our hedging costs and profits; however, the value of the Notes shown on your account statement during that period may initially be a higher amount, reflecting the
addition of our estimated costs and profits from hedging the Notes. This excess is expected to decrease over time until the end of this period. After this period, if RBCCM repurchases your Notes, it expects to do so at prices that reflect their
estimated value.
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|
|
Geared Buffered Enhanced Return Notes
Linked to the Russell 2000® Index |
No Prospectus (as defined in Directive 2003/71/EC (as amended, the “Prospectus Directive”)) will be prepared in connection with the Notes.
Accordingly, the Notes may not be offered to the public in any member state of the European Economic Area (the “EEA”), and any purchaser of the Notes who subsequently sells any of the Notes 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 Notes 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 Notes to be offered so as to enable an investor to decide
to purchase or subscribe the Notes, 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 Notes or otherwise making them available to retail investors in the EEA has been
prepared, and therefore, offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.
STRUCTURING THE NOTES
The Notes are our debt securities, the return on which is linked to the performance of the
Reference Asset. As is the case for all of our debt securities, including our structured notes, the economic terms of the Notes 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 Notes 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, is a factor that is likely to reduce the initial estimated value of the Notes at the time their terms are set. Unlike the
estimated value included in this terms supplement or in the final pricing supplement, any value of the Notes 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 Notes than if our initial internal funding rate were used.
In order to satisfy our payment obligations under the Notes, 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 Reference Asset, and the tenor of the Notes. The economic terms of the Notes and their initial estimated value depend in part on the terms of these hedging
arrangements.
The lower implied borrowing rate is a factor that reduces the economic terms of
the Notes to you. The initial offering price of the Notes also reflects our estimated hedging costs. These factors result in the initial estimated value for the Notes on the Pricing Date being less than their public offering price. See
“Selected Risk Considerations—The Initial Estimated Value of the Notes Will Be Less than the Price to the Public” above.
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P-14
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RBC Capital Markets, LLC
|