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RBC Capital Markets®
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Filed Pursuant to Rule 433
Registration Statement No. 333-227001
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Pricing Supplement
Dated October 22, 2018
To the Product Prospectus Supplement ERN-ETF-1 Dated September 11, 2018, Prospectus Supplement Dated September 7, 2018, and Prospectus Dated September 7,
2018
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$5,037,000
Buffer Booster Notes Linked to a Basket
of Two Exchange Traded Funds,
Due October 27, 2022
Royal Bank of Canada
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Royal Bank of Canada is offering the Buffer Booster Notes (the “Notes”) linked to the performance of an unequally weighted basket (the “Basket”) of
two ETFs: the iShares® MSCI EAFE ETF (70% weighting) and the iShares® MSCI Emerging Markets ETF (30% weighting).
The CUSIP number for the Notes is 78013XP77. If the Percentage Change of the Basket is greater than or equal to 0%, but does not exceed the Booster
Coupon of 15%, the Notes provide a fixed return equal to the Principal Amount plus the Booster Coupon. If the Percentage Change exceeds the Booster Percentage, in addition to the Booster Coupon, the Notes provide a leveraged positive return equal
to 111% of the Percentage Change above the Booster Coupon. If the Percentage Change is negative, but not less than -15%, the Notes will pay the principal amount. If the Percentage Change is less than -15%, you will lose 1.1765% of the principal
amount for each 1% that the Percentage Change is less than -15%. Any payments on the Notes are subject to our credit risk.
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Issue Date:
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October 25, 2018
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Maturity Date:
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October 27, 2022
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The Notes will not pay interest. 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 September 7, 2018,
“Additional Risk Factors Specific to the Notes” beginning on page PS-6 of the product prospectus supplement dated September 11, 2018, and “Selected Risk Considerations” on page P-6 of this pricing 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. The Notes are not subject to conversion into our common shares under subsection 39.2(2.3) of the Canada Deposit Insurance
Corporation Act.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that
this pricing 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(1)
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100.00%
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$5,037,000
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Underwriting discounts and commissions(1)
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3.00%
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$151,110
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Proceeds to Royal Bank of Canada
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97.00%
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$4,885,890
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(1)Certain dealers who purchase the Notes for sale to certain fee-based advisory accounts may forego some or all of their
underwriting discount or selling concessions. The public offering price for investors purchasing the Notes in these accounts may be between $970.00 and $1,000 per $1,000 in principal amount.
The initial estimated value of the Notes as of the date of this pricing supplement is $950.48 per $1,000 in principal amount, which
is less than the price to public. 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.
RBC Capital Markets, LLC, which we refer to as RBCCM, acting as agent for Royal Bank of Canada, received a commission of $30.00 per $1,000 in
principal amount of the Notes and used a portion of that commission to allow selling concessions to other dealers of up to $30.00 per $1,000 in principal amount of the Notes. The other dealers may forgo, in their sole discretion, some or all of
their selling concessions. See “Supplemental Plan of Distribution (Conflicts of Interest)” below.
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RBC Capital Markets, LLC
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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SUMMARY
The information in this “Summary” section is qualified by the more detailed information set forth in this
pricing 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 H
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Underwriter:
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RBC Capital Markets, LLC
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Reference Asset:
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The Notes are linked to the level of a basket (the “Basket”) of two ETFs (each, a “Basket Component,” collectively, the “Basket Components”). The Basket Components and their respective
Component Weights are indicated in the table below.
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Currency:
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U.S. Dollars
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Denominations
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$1,000 and minimum denominations of $1,000 in excess thereof
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Trade Date/Pricing
Date:
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October 22, 2018
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Issue Date:
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October 25, 2018
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CUSIP:
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78013XP77
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Valuation Date:
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October 24, 2022
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Maturity Date:
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October 27, 2022. The Maturity Date is subject to extension for market and other disruptions, as described in the product prospectus supplement dated September 11, 2018.
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Payment at
Maturity
(if held to maturity):
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If, on the Valuation Date, the Percentage Change is greater than the
Booster Coupon, then the investor will receive, for each $1,000 in principal amount of the Notes, an amount calculated as follows:
$1,000 + ((a) ($1,000 x Booster Coupon) + (b) ($1,000 x (Percentage Change – Booster Coupon) x Leverage Factor))
If, on the Valuation Date, the Percentage Change is greater than or equal
to zero, but is less than or equal to the Booster Coupon, then the investor will receive a return equal to the principal amount plus the Booster Coupon.
If, on the Valuation Date, the Percentage Change is negative but greater than or
equal to -15%, the investor will receive the Principal Amount of the Notes.
If, on the Valuation Date, the Percentage Change is negative and less than -15%, then
the investor will receive a cash payment equal to:
Principal Amount + [(Principal Amount x (Percentage Change + Buffer Percentage) x Downside Multiplier)]
In this case, you will lose approximately 1.1765% of the principal amount for each 1% that the Percentage Change is less than -15%.
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Leverage Factor:
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111%
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Downside
Multiplier:
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1 divided by 0.85, which equals approximately 1.1765.
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Booster Coupon:
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15%
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Buffer Percentage:
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15%
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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Percentage
Change:
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The Percentage Change, expressed as a percentage and rounded to two decimal places, will be equal to the sum of the Weighted Component Change for each Basket Component. The Weighted Component Change for each Basket Component will be determined as follows:
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Initial Level:
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The closing price per share of a Basket Component on the Trade Date, as provided in the table below.
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Final Level:
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The closing price per share of a Basket Component on the Valuation Date.
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The Basket:
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Basket Component
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Bloomberg
Ticker
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Component
Weight
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Initial Level
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iShares® MSCI EAFE ETF (the “EFA”)
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EFA
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70%
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$63.46
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iShares® MSCI Emerging Markets ETF (the “EEM”)
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EEM
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30%
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$40.10
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Principal at Risk:
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The Notes are NOT principal
protected. You could lose some or all of your principal amount at maturity if the Percentage Change is less than -15%.
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Calculation Agent:
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RBC Capital Markets, LLC
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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 September 11, 2018 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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RBC Capital Markets, LLC (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 September 7, 2018).
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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 pricing supplement and the terms
appearing under the caption “General Terms of the Notes” in the product prospectus supplement dated September 11, 2018, as modified by this pricing supplement.
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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ADDITIONAL TERMS OF YOUR NOTES
You should read this pricing supplement together with the prospectus dated September 7, 2018, as supplemented by the prospectus
supplement dated September 7, 2018 and the product prospectus supplement dated September 11, 2018, relating to our Senior Global Medium-Term Notes, Series H, of which these Notes are a part. Capitalized terms used but not defined in this pricing
supplement will have the meanings given to them in the product prospectus supplement. In the event of any conflict, this pricing supplement will control. The
Notes vary from the terms described in the product prospectus supplement in several important ways. You should read this pricing supplement carefully.
This pricing 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 September 7, 2018 and “Additional Risk Factors Specific to the Notes” in the product prospectus supplement dated
September 11, 2018, 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 September 7, 2018:
Prospectus Supplement dated September 7, 2018:
Product Prospectus Supplement ERN-ETF-1 dated September 11, 2018:
Our Central Index Key, or CIK, on the SEC website is 1000275. As used in this pricing supplement, “we,” “us,” or “our” refers to Royal Bank of Canada.
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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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 Final Level or the price of any Basket Component on the Valuation
Date or on any trading day prior to the Maturity Date. All examples reflect the Booster Coupon of 15% of the principal amount, a Buffer Percentage of 15%, the Leverage Factor of 111%, and a Downside Multiplier of 1.1765, 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 and less than or equal to the Booster
Coupon.
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Percentage Change:
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2%
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Payment at Maturity:
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$1,000 + ($1,000 x 15%) = $1,000 + $150.00 = $1,150.00
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On a $1,000 investment, a 2% Percentage Change results in a Payment at Maturity of $1,150.00, a 15.00% 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 greater than the Booster Coupon.
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Percentage Change:
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40%
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Payment at Maturity:
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$1,000 + [($1,000 x 15%) + ($1,000 x (40% -15%) x 111%)] =
$1,000 + [$150 + $277.50] = $1,427.50
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On a $1,000 investment, a 40% Percentage Change results in a Payment at Maturity of $1,427.50, a 42.75% 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 not by more than the Buffer
Percentage).
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Percentage Change:
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-10%
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Payment at Maturity:
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$1,000
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On a $1,000 investment, a -10% Percentage Change results in a Payment at Maturity of $1,000.00, a 0% return on the Notes.
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Example 4 —
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Calculation of the Payment at Maturity where the Percentage Change is negative (by more than the Buffer Percentage).
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Percentage Change:
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-60%
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Payment at Maturity:
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1,000 + ($1,000 x (-60% + 15%) x 1.1765) = $1,000 - $529.425 = $470.575
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On a $1,000 investment, a -60% Percentage Change results in a Payment at Maturity of $470.575, a -52.9425% return on the Notes.
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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SELECTED RISK CONSIDERATIONS
An investment in the Notes involves significant risks. Investing in the Notes is not equivalent to investing directly in the Basket Components.
These risks are explained in more detail in the section “Additional Risk Factors Specific to the Notes,” beginning on page PS-6 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 of more than 15%. In such a case, you will lose approximately 1.1765% of the principal amount of your Notes for each 1% that the Percentage Change is less than -15%.
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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. 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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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 Trade 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 Basket Components – 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.
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The Initial Estimated Value of the Notes Is Less than the Price to the Public – The initial estimated
value set forth on the cover page of this pricing supplement 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 underwriting discount and 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 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 underwriting discount and 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 Is an Estimate Only, Calculated as of the Time the Terms of the Notes
Were Set – The initial estimated value of the Notes is 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 estimate is based on a variety of assumptions, including our credit spreads, expectations as to dividends, interest rates and volatility, and the expected term of the 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 Trade 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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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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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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The Correlation Between the Performance of each Basket Component and the Performance of its Underlying Index May
Be Imperfect — The performance of each Basket Component is linked principally to the performance of its Underlying Index. However, because of the potential discrepancies identified in more detail in the product prospectus
supplement, the return on each Basket Component may correlate imperfectly with the return on its Underlying Index.
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Changes in the Level of One Basket Component May Be Offset by Changes in the Level of the Other Basket Component –
A change in the level of one Basket Component may not correlate with changes in the level of the other Basket Component. The level of one Basket Component may increase, while the level of the other Basket Component may not
increase as much, or may even decrease. Therefore, in determining the level of the Reference Asset as of any time, increases in the level of one Basket Component may be moderated, or wholly offset, by lesser increases or decreases in
the level of the other Basket Component. Because the EFA has a higher component weight in the Basket than the EEM, decreases in the price of the EFA will have a greater impact on the value of the Basket than comparable changes in the
price of the EEM.
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Risks Associated with Foreign Securities Markets – Because foreign companies or foreign equity securities
held by the EFA and the EEM are publicly traded in the applicable foreign countries and trade in currencies other than U.S. dollars, investments in the Notes involve particular risks. For example, the foreign securities markets may be
more volatile than the U.S. securities markets, and market developments may affect these markets differently from the United States or other securities markets. Direct or indirect government intervention to stabilize the securities
markets outside the United States, as well as cross-shareholdings in certain companies, may affect trading prices and trading volumes in those markets. Also, the public availability of information concerning the foreign issuers may
vary depending on their home jurisdiction and the reporting requirements imposed by their respective regulators. In addition, the foreign issuers may be subject to accounting, auditing and financial reporting standards and
requirements that differ from those applicable to United States reporting companies.
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Securities prices generally are subject to political, economic, financial and social factors that apply to the
markets in which they trade and, to a lesser extent, foreign markets. Securities prices outside the United States are subject to political, economic, financial and social factors that apply in foreign countries. These factors, which could
negatively affect foreign securities markets, include the possibility of changes in a foreign government’s economic and fiscal policies, the possible imposition of, or changes in, currency exchange laws or other laws or restrictions applicable to
foreign companies or investments in foreign equity securities and the possibility of fluctuations in the rate of exchange between currencies. Moreover, foreign economies may differ favorably or unfavorably from the United States economy in
important respects such as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency.
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Exchange Rate Risk – The share prices of the EFA and the EEM will fluctuate based in large part upon its
respective net asset value, which will in turn depend in part upon changes in the value of the currencies in which the stocks held by the EFA and the EEM are traded. Accordingly, investors in the Notes will be exposed to currency
exchange rate risk with respect to each of the currencies in which the stocks held by the EFA and the EEM are traded. An investor’s net exposure will depend on the extent to which these currencies strengthen or weaken against the U.S.
dollar. If the dollar strengthens against these currencies, the net asset value of the EFA and the EEM will be adversely affected and the level of the Reference Asset, and consequently, the market value of the Notes may decrease.
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Emerging Markets Risk: Investments in securities linked directly or indirectly to emerging market equity
securities, such as the EEM, involve many risks, including, but not limited to: economic, social, political, financial and military conditions in the emerging market; regulation by national, provincial, and local governments; less
liquidity and smaller market capitalizations than exist in the case of many large U.S. companies; different accounting and disclosure standards; and political uncertainties. Stock prices of emerging market companies may be more
volatile and may be affected by market developments differently than U.S. companies. Government intervention to stabilize securities markets and cross-shareholdings may affect prices and volume of trading of the securities of emerging
market companies. Economic, social, political, financial and military factors could, in turn, negatively affect such companies’ value. These factors could include changes in the emerging market government’s economic and fiscal
policies, possible imposition of, or changes in, currency exchange laws or other laws or restrictions applicable to the emerging market companies or investments in their securities, and the possibility of fluctuations in the rate of
exchange between currencies. Moreover, emerging market economies may differ favorably or unfavorably from the U.S. economy in a variety of ways, including growth of gross national product, rate of inflation, capital reinvestment,
resources and self-sufficiency. You should carefully consider the risks related to emerging markets, to which the Notes are highly susceptible, before making a decision to invest in the Notes.
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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Our Business Activities May Create Conflicts of Interest — We and our affiliates expect to engage in
trading activities related to the Reference Asset or the securities held by the EFA and the EEM that are not for the account of holders of the Notes or on their behalf. These trading activities may present a conflict between the
holders’ interests in the Notes and the interests we and our affiliates will have in their proprietary accounts, in facilitating transactions, including options and other derivatives transactions, for their customers and in accounts
under their management. These trading activities, if they influence the value of the Basket, could be adverse to the interests of the holders of the Notes. We and one or more of our affiliates may, at present or in the future,
engage in business with the issuers of the securities represented by the Basket, including making loans to or providing advisory services. These services could include investment banking and merger and acquisition advisory services.
These activities may present a conflict between our or one or more of our affiliates’ obligations and your interests as a holder of the Notes. Moreover, we and our affiliates may have published, and in the future expect to publish,
research reports with respect to the Basket Components. This research is modified from time to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing or holding the Notes. Any
of these activities by us or one or more of our affiliates may affect the value of the Basket, and, therefore, the market value of the Notes.
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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INFORMATION REGARDING THE BASKET COMPONENTS
We have derived the following information regarding each of the applicable Basket Components from publicly available documents. We have not
independently verified the accuracy or completeness of the following information. We are not affiliated with any of the Basket Components and the Basket Components will have no obligations with respect to the applicable notes. This document
relates only to the Notes and does not relate to the shares of any of the Basket Component or any securities included in any of the underlying indices. Neither we nor our affiliates participates in the preparation of the publicly available
documents described below. Neither we nor our affiliates has made any due diligence inquiry with respect to any of the Basket Components in connection with the offering of any of the Notes. There can be no assurance that all events occurring
prior to the date of this document, including events that would affect the accuracy or completeness of the publicly available documents described below, that would affect the trading prices of the shares of any of the Basket Components have been
or will be publicly disclosed. Subsequent disclosure of any events or the disclosure of or failure to disclose material future events concerning any of the Basket Components could affect the price of the shares of the applicable Basket Component
after the Trade Date, and therefore could affect the payment at maturity.
The selection of the applicable Basket Component relating to any of the Notes is not a recommendation to buy or sell the shares of the applicable
Basket Component. Neither we nor any of our affiliates make any representation to you as to the performance of the shares of any of the Basket Components. Information provided to or filed with the SEC under the Securities Exchange Act of 1934 and
the Investment Company Act of 1940 relating to each Basket Component may be obtained through the SEC’s website at http://www.sec.gov.
iShares consists of numerous separate investment portfolios (the “iShares Funds”), including the applicable Basket Component. Each of the Basket
Components seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of their respective underlying indices. The Basket Components typically earn income from dividends from securities held by
the Basket Components. These amounts, net of expenses and taxes (if applicable), are passed along to the Basket Components’ shareholders as “ordinary income.” In addition, the Basket Components realizes capital gains or losses whenever they sell
securities. Net long-term capital gains are distributed to their respective shareholders as “capital gain distributions.” However, because the applicable notes are linked only to the share price of the applicable Basket Component, you will not be
entitled to receive income, dividend, or capital gain distributions from the applicable Basket Component or any equivalent payments.
“iShares®” and “BlackRock®” are registered trademarks of BlackRock®. The Notes are not sponsored, endorsed, sold,
or promoted by BlackRock®, or by any of the iShares® Funds. Neither BlackRock® nor the iShares® Funds make any representations or warranties to the owners of any of the Notes or any member of the public
regarding the advisability of investing in any of the Notes. Neither BlackRock® nor the iShares® Funds shall have any obligation or liability in connection with the registration, operation, marketing, trading, or sale of any
of the Notes or in connection with our use of information about any of the Basket Components or any of the iShares® Funds.
iShares® MSCI EAFE ETF (the “EFA”)
The iShares® MSCI EAFE ETF trades on the NYSE Arca under the ticker symbol “EFA.” The Advisor employs a technique known as representative
sampling to track the MSCI EAFE Index. The EFA generally invests at least 90% of its assets in the securities of the MSCI EAFE Index and in American Depositary Receipts or Global Depositary Receipts based on the securities of the MSCI EAFE Index.
The EFA may invest the remainder of its assets in securities not included in the MSCI EAFE Index, but which the Advisor believes will help the EFA track the MSCI EAFE Index, or in futures contracts, options on futures contracts, other types of
options and swaps related to the MSCI EAFE Index, as well as cash and cash equivalents, including shares of money market funds affiliated with the Advisor or its affiliates. The Advisor will waive portfolio management fees in an amount equal to
the portfolio management fees of such other iShares funds for any portion of the EFA’s assets invested in shares of such other funds.
The MSCI EAFE Index
The information below is included only to give insight to the MSCI EAFE Index, the performance of which the EFA attempts to reflect. The Notes are
linked to the performance of the EFA and not to the MSCI EAFE Index. We have derived all information contained in this document regarding the MSCI EAFE Index, including, without limitation, its make-up, method of calculation and changes in its
components, from publicly available information. The MSCI EAFE Index is a stock index calculated, published and disseminated daily by MSCI, Inc. (“MSCI”), a majority-owned subsidiary of Morgan Stanley, through numerous data vendors, on the MSCI
website and in real time on Bloomberg Financial Markets and Reuters Limited. Neither MSCI nor Morgan Stanley has any obligation to continue to calculate and publish, and may discontinue calculation and publication of the MSCI EAFE Index.
The MSCI EAFE Index is a free float-adjusted market capitalization index with a base date of December 31, 1969 and an initial value of 100. The MSCI
EAFE Index is calculated daily in U.S. dollars and published in real time every 60 seconds during market trading hours. The MSCI EAFE Index currently consists of the following 21 developed countries: Australia, Austria, Belgium, Denmark, Finland,
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France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, The Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and
the United Kingdom. The MSCI EAFE Index is comprised of companies in both the Large Cap Index and Mid Cap Index, as discussed in the section “—Defining Market Capitalization Size Segments for Each Market” below. The MSCI EAFE 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.
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Buffer Booster Notes Linked to a Basket of Two Exchange
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iShares® MSCI Emerging Markets ETF (the “EEM”)
The EEM trades on the NYSE Arca under the ticker symbol “EEM.” The Advisor employs a technique known as representative sampling to track the MSCI
Emerging Markets Index. The EEM generally invests at least 90% of its assets in the securities of the MSCI Emerging Markets Index and in American Depositary Receipts or Global Depositary Receipts based on the securities of the MSCI Emerging
Markets Index. The EEM may invest the remainder of its assets in securities not included in the MSCI Emerging Markets Index, but which the Advisor believes will help the EEM track the MSCI Emerging Markets Index, or in futures contracts, options
on futures contracts, other types of options and swaps related to the MSCI Emerging Markets Index, as well as cash and cash equivalents, including shares of money market funds affiliated with the Advisor or its affiliates. The Advisor will waive
portfolio management fees in an amount equal to the portfolio management fees of such other iShares funds for any portion of the EEM’s assets invested in shares of such other funds.
The MSCI Emerging Markets Index
The information below is included only to give insight to the MSCI Emerging Markets Index, the performance of which the EEM attempts to reflect. The
Notes are linked to the performance of the EEM and not to the MSCI Emerging Markets Index. We have derived all information contained in this document regarding the MSCI Emerging Markets Index, including, without limitation, its make-up, method of
calculation and changes in its components, from publicly available information. The MSCI Emerging Markets Index is a stock index calculated, published and disseminated daily by MSCI, Inc. (“MSCI”), a majority-owned subsidiary of Morgan Stanley,
through numerous data vendors, on the MSCI website and in real time on Bloomberg Financial Markets and Reuters Limited. Neither MSCI nor Morgan Stanley has any obligation to continue to calculate and publish, and may discontinue calculation and
publication of the MSCI Emerging Markets Index.
The MSCI Emerging Markets Index is intended to measure equity market performance in the global emerging markets. The MSCI Emerging Markets Index is a
free float-adjusted market capitalization index with a base date of December 31, 1987 and an initial value of 100. The MSCI Emerging Markets Index is calculated daily in U.S. dollars and published in real time every 60 seconds during market
trading hours. The MSCI Emerging Markets Index currently consists of the following 23 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Greece, Egypt, Hungary, India, Indonesia, South Korea, Malaysia, Mexico, Peru,
Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The MSCI Emerging Markets 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.
General – MSCI Indices
MSCI provides global equity indices intended to measure equity performance in international markets and the MSCI International Equity Indices are
designed to serve as global equity performance benchmarks. In constructing these indices, MSCI applies its index construction and maintenance methodology across developed, emerging, and frontier markets.
MSCI enhanced the methodology used in its MSCI International Equity Indices. The MSCI Standard and MSCI Small Cap Indices, along with the other MSCI
equity indices based on them, transitioned to the global investable market indices methodology described below. The transition was completed at the end of May 2008. The Enhanced MSCI Standard Indices are composed of the MSCI Large Cap and Mid Cap
Indices. The MSCI Global Small Cap Index transitioned to the MSCI Small Cap Index resulting from the Global Investable Market Indices methodology and contains no overlap with constituents of the transitioned MSCI Standard Indices. Together, the
relevant MSCI Large Cap, Mid Cap, and Small Cap Indices will make up the MSCI investable market index for each country, composite, sector, and style index that MSCI offers.
Constructing the MSCI Global Investable Market Indices. MSCI undertakes
an index construction process, which involves:
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defining the equity universe;
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determining the market investable equity universe for each market;
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determining market capitalization size segments for each market;
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applying index continuity rules for the MSCI Standard Index;
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creating style segments within each size segment within each market; and
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classifying securities under the Global Industry Classification Standard (the “GICS”).
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Defining the Equity Universe. The equity universe is defined by:
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Buffer Booster Notes Linked to a Basket of Two Exchange
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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, are eligible for inclusion in the equity universe. Conversely, mutual funds, ETFs, equity derivatives
and most investment trusts are not eligible for inclusion in the equity universe.
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Classifying Eligible Securities into the Appropriate Country: each company and its securities (i.e., share classes) are classified in only one country.
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Effective with the November 2015 semi-annual index review, companies traded outside of their country of classification (i.e., “foreign listed
companies”) became 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.
Determining the Market Investable Equity Universes. A market investable
equity universe for a market is derived by 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.
The investability screens used to determine the investable equity universe in each market are as follows:
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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.
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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.
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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.
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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.
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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.
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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%.
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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:
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Investable Market Index (Large + Mid + Small);
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Buffer Booster Notes Linked to a Basket of Two Exchange
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Standard Index (Large + Mid);
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Large Cap Index;
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Mid Cap Index; or
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Small Cap Index.
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Creating the size segment indices in each market involves the following steps:
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defining the market coverage target range for each size segment;
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determining the global minimum size range for each size segment;
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determining the market size segment cutoffs and associated segment number of companies;
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assigning companies to the size segments; and
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applying final size−segment investability requirements.
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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.
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:
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Semi−Annual Index Reviews (“SAIRs”) in May and November of the Size Segment and Global Value and Growth Indices which include:
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updating the indices on the basis of a fully refreshed equity universe;
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taking buffer rules into consideration for migration of securities across size and style segments; and
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updating FIFs and Number of Shares (“NOS”).
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Quarterly Index Reviews in February and August of the Size Segment Indices aimed at:
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including significant new eligible securities (such as IPOs that were not eligible for earlier inclusion) in the index;
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allowing for significant moves of companies within the Size Segment Indices, using wider buffers than in the SAIR; and
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reflecting the impact of significant market events on FIFs and updating NOS.
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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.
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None of us, RBCCM or any of our other affiliates accepts any responsibility for the calculation, maintenance, or publication of, or for any error, omission, or
disruption in, the index or any successor to the index.
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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Historical Information for the iShares® MSCI EAFE ETF (“EFA”)
The graph below sets forth the information relating to the historical performance of the EFA. In addition, below the graph is a table setting forth
the intra-day high, intra-day low and period-end closing share prices of the EFA. The information provided in this table is for the period from January 1, 2008 through October 22, 2018.
We obtained the information regarding the historical performance of the EFA 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 EFA should not be taken as an indication of its future performance, and no assurance can be given as to the Final Level of the EFA. We cannot give you assurance that the performance of the EFA will result in any positive return
on your initial investment.
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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Period-Start
Date
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Period-End
Date
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High Intra-Day Price of this
Basket Component ($)
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Low Intra-Day Price of this
Basket Component ($)
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Period-End Closing Price of
this Basket Component ($)
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1/1/2008
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3/31/2008
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79.22
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65.63
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71.90
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4/1/2008
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6/30/2008
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78.76
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68.06
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68.70
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7/1/2008
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9/30/2008
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68.39
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52.36
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56.30
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10/1/2008
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12/31/2008
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56.42
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35.53
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44.33
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1/1/2009
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3/31/2009
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45.61
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31.56
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37.59
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4/1/2009
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6/30/2009
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49.18
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37.28
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45.81
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7/1/2009
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9/30/2009
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56.31
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43.49
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54.70
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10/1/2009
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12/31/2009
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57.66
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52.42
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55.90
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1/1/2010
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3/31/2010
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58.00
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49.94
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56.00
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4/1/2010
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6/30/2010
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58.08
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45.86
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46.51
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7/1/2010
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9/30/2010
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55.81
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46.45
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54.92
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10/1/2010
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12/31/2010
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59.50
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53.85
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57.87
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1/1/2011
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3/31/2011
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61.98
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54.69
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60.09
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4/1/2011
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6/30/2011
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64.35
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56.71
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60.14
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7/1/2011
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9/30/2011
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60.86
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46.09
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47.75
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10/1/2011
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12/31/2011
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55.86
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45.46
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49.53
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1/1/2012
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3/31/2012
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55.91
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48.99
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54.90
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4/1/2012
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6/30/2012
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55.68
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46.55
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49.96
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7/1/2012
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9/30/2012
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55.57
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47.30
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53.00
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10/1/2012
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12/31/2012
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56.88
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51.63
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56.82
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1/1/2013
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3/31/2013
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59.99
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56.69
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58.98
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4/1/2013
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6/30/2013
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64.13
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56.45
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57.38
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7/1/2013
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9/30/2013
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65.11
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57.02
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63.79
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10/1/2013
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12/31/2013
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67.36
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62.54
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67.06
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1/1/2014
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3/31/2014
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68.19
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62.28
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67.17
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4/1/2014
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6/30/2014
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70.78
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65.69
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68.37
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7/1/2014
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9/30/2014
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69.29
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63.85
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64.12
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10/1/2014
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12/31/2014
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64.54
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58.64
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60.84
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1/1/2015
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3/31/2015
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66.20
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58.29
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64.17
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4/1/2015
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6/30/2015
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68.52
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63.27
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63.49
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7/1/2015
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9/30/2015
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65.60
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55.89
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57.32
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10/1/2015
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12/31/2015
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62.18
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56.99
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58.75
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1/1/2016
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3/31/2016
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58.06
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50.94
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57.13
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4/1/2016
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6/30/2016
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60.16
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51.94
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55.81
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7/1/2016
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9/30/2016
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60.15
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53.77
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59.13
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10/1/2016
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12/31/2016
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59.35
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56.11
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57.73
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1/1/2017
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3/31/2017
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62.65
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57.85
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62.29
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4/1/2017
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6/30/2017
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67.24
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61.35
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65.20
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7/1/2017
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9/30/2017
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68.68
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64.56
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68.48
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10/1/2017
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12/31/2017
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70.96
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68.14
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70.31
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1/1/2018
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3/31/2018
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75.27
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66.90
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69.68
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4/1/2018
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6/30/2018
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72.10
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66.20
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66.97
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7/1/2018
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9/28/2018
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69.13
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65.15
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67.99
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10/1/2018
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10/22/2018
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68.32
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63.19
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63.46
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PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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Historical Information for the iShares® MSCI Emerging Markets ETF (“EEM”)
The graph below sets forth the information relating to the historical performance of the EEM. In addition, below the graph is a table setting forth
the intra-day high, intra-day low and period-end closing share prices of the EEM. The information provided in this table is for the period from January 1, 2008 through October 22, 2018.
We obtained the information regarding the historical performance of the EEM 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 EEM should not be taken as an indication of its future performance, and no assurance can be given as to the Final Level of the EEM. We cannot give you assurance that the performance of the EEM will result in any positive return
on your initial investment.
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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Period-Start
Date
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Period-End
Date
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High Intra-Day Price of this
Basket Component ($)
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Low Intra-Day Price of this
Basket Component ($)
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Period-End Closing Price of
this Basket Component ($)
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1/1/2008
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3/31/2008
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50.75
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40.68
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44.79
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4/1/2008
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6/30/2008
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52.48
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44.43
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45.19
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7/1/2008
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9/30/2008
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44.76
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30.88
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34.53
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10/1/2008
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12/31/2008
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34.29
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18.22
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24.69
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1/1/2009
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3/31/2009
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27.28
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19.87
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24.81
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4/1/2009
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6/30/2009
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34.88
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24.72
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32.23
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7/1/2009
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9/30/2009
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39.51
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30.25
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38.91
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10/1/2009
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12/31/2009
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42.52
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37.30
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41.16
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1/1/2010
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3/31/2010
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43.47
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35.01
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42.12
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4/1/2010
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6/30/2010
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44.02
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35.21
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37.32
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7/1/2010
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9/30/2010
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44.99
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36.76
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44.77
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10/1/2010
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12/31/2010
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48.62
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44.51
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47.31
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1/1/2011
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3/31/2011
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48.75
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44.25
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48.69
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4/1/2011
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6/30/2011
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50.43
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44.77
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47.60
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7/1/2011
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9/30/2011
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48.63
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34.71
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35.07
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10/1/2011
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12/31/2011
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43.21
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33.43
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37.94
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1/1/2012
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3/31/2012
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44.91
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38.21
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42.94
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4/1/2012
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6/30/2012
|
43.75
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36.58
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39.19
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||||
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7/1/2012
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9/30/2012
|
42.83
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37.15
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41.32
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||||
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10/1/2012
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12/31/2012
|
44.42
|
39.93
|
44.35
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||||
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1/1/2013
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3/31/2013
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45.28
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41.72
|
42.78
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||||
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4/1/2013
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6/30/2013
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44.26
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36.16
|
38.57
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||||
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7/1/2013
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9/30/2013
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43.32
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36.98
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40.77
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10/1/2013
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12/31/2013
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43.91
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40.15
|
41.77
|
||||
|
1/1/2014
|
3/31/2014
|
41.25
|
37.06
|
40.99
|
||||
|
4/1/2014
|
6/30/2014
|
43.98
|
40.55
|
43.23
|
||||
|
7/1/2014
|
9/30/2014
|
45.85
|
41.36
|
41.56
|
||||
|
10/1/2014
|
12/31/2014
|
42.46
|
37.23
|
39.29
|
||||
|
1/1/2015
|
3/31/2015
|
41.11
|
37.72
|
40.13
|
||||
|
4/1/2015
|
6/30/2015
|
44.18
|
39.03
|
39.62
|
||||
|
7/1/2015
|
9/30/2015
|
40.02
|
30.00
|
32.78
|
||||
|
10/1/2015
|
12/31/2015
|
36.42
|
31.51
|
32.19
|
||||
|
1/1/2016
|
3/31/2016
|
34.58
|
27.62
|
34.25
|
||||
|
4/1/2016
|
6/30/2016
|
35.34
|
31.71
|
34.36
|
||||
|
7/1/2016
|
9/30/2016
|
38.31
|
33.33
|
37.45
|
||||
|
10/1/2016
|
12/31/2016
|
38.19
|
33.95
|
35.01
|
||||
|
1/1/2017
|
3/31/2017
|
40.23
|
35.30
|
39.39
|
||||
|
4/1/2017
|
6/30/2017
|
42.04
|
38.72
|
41.39
|
||||
|
7/1/2017
|
9/30/2017
|
45.96
|
40.96
|
44.81
|
||||
|
10/1/2017
|
12/31/2017
|
47.93
|
44.80
|
47.12
|
||||
|
1/1/2018
|
3/31/2018
|
52.08
|
45.04
|
48.28
|
||||
|
4/1/2018
|
6/30/2018
|
48.31
|
42.16
|
43.33
|
||||
|
7/1/2018
|
9/28/2018
|
45.06
|
40.63
|
42.92
|
||||
|
10/1/2018
|
10/22/2018
|
43.16
|
38.78
|
40.10
|
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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SUPPLEMENTAL DISCUSSION OF
U.S. FEDERAL INCOME TAX CONSEQUENCES
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following disclosure supplements, and to the extent inconsistent supersedes, the discussion in the product prospectus supplement
dated September 11, 2018 under “Supplemental Discussion of U.S. Federal Income Tax Consequences.”
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, 2021. 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 Basket Components or the Notes (for example, upon a rebalancing of the underlying Basket Components), 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 Basket Components 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 October 25, 2018, which is the third (3rd) business day
following the Trade Date (this settlement cycle being referred to as “T+3”). See “Plan of Distribution” in the prospectus dated September 7, 2018. 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 September 7, 2018.
We expect to deliver the Notes on a date that is greater than two business days following the trade 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 arrangements to prevent a failed settlement.
In the initial offering of the Notes, they will be offered to investors at a purchase price equal to par, except with respect to certain accounts as
indicated on the cover page of this document.
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 9 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 the underwriting discount and our hedging costs and profits; however, the value of the Notes shown on your account statement during that period may be a higher amount, reflecting the addition of
RBCCM’s underwriting discount and 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.
We may use this pricing supplement in the initial sale of the Notes. In addition, RBCCM or another of our affiliates may use this pricing 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 pricing supplement is being used in a market-making transaction.
STRUCTURING THE NOTES
The Notes are our debt securities, the return on which is linked to the performance of the Basket Components. 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 reduced the initial estimated value of the Notes at the time their terms were set. Unlike the estimated value
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Buffer Booster Notes Linked to a Basket of Two Exchange
Traded Funds
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included in this 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 Basket Components, 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 reduced the economic terms of the Notes to you. The initial offering price of the Notes also
reflects the underwriting commission and our estimated hedging costs. These factors resulted in the initial estimated value for the Notes on the Trade Date being less than their public offering price. See “Selected Risk Considerations—The Initial
Estimated Value of the Notes Is Less than the Price to the Public” above.
VALIDITY OF THE NOTES
In the opinion of Norton Rose Fulbright Canada LLP, the issue and sale of the Notes has been duly authorized by all necessary corporate action of the
Bank in conformity with the Indenture, and when the Notes have been duly executed, authenticated and issued in accordance with the Indenture and delivered against payment therefor, the Notes will be validly issued and, to the extent validity of
the Notes is a matter governed by the laws of the Province of Ontario or Québec, or the laws of Canada applicable therein, and will be valid obligations of the Bank, subject to equitable remedies which may only be granted at the discretion of a
court of competent authority, subject to applicable bankruptcy, to rights to indemnity and contribution under the Notes or the Indenture which may be limited by applicable law; to insolvency and other laws of general application affecting
creditors’ rights, to limitations under applicable limitations statutes, and to limitations as to the currency in which judgments in Canada may be rendered, as prescribed by the Currency Act (Canada). This opinion is given as of the date hereof
and is limited to the laws of the Provinces of Ontario and Québec and the federal laws of Canada applicable thereto. In addition, this opinion is subject to customary assumptions about the Trustee’s authorization, execution and delivery of the
Indenture and the genuineness of signatures and certain factual matters, all as stated in the letter of such counsel dated September 7, 2018, which has been filed as Exhibit 5.1 to Royal Bank’s Form 6-K filed with the SEC dated September 7, 2018.
In the opinion of Morrison & Foerster LLP, when the Notes have been duly completed in accordance with the Indenture and issued and sold as contemplated by the
prospectus supplement and the prospectus, the Notes will be valid, binding and enforceable obligations of Royal Bank, entitled to the benefits of the Indenture, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’
rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith). This opinion is given as of the date hereof and is
limited to the laws of the State of New York. This opinion is subject to customary assumptions about the Trustee’s authorization, execution and delivery of the Indenture and the genuineness of signatures and to such counsel’s reliance on the Bank
and other sources as to certain factual matters, all as stated in the legal opinion dated September 7, 2018, which has been filed as Exhibit 5.2 to the Bank’s Form 6-K dated September 7, 2018.
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P-19
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RBC Capital Markets, LLC
|