RBC Capital Markets®
Filed Pursuant to Rule 433
Registration Statement No. 333-227001
 


The information in this preliminary terms supplement is not complete and may be changed.
 

Preliminary Terms Supplement
Subject to Completion:
Dated January 25, 2019
Pricing Supplement Dated January __, 2019 to the Product Prospectus Supplement No. ERN-ES-1 Dated October 18, 2018, the Prospectus Supplement Dated September 7, 2018 and the Prospectus, Dated September 7, 2018
$________
Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple
Inc., Due February 3, 2021
Royal Bank of Canada
 
 

 
Royal Bank of Canada is offering the Autocallable Digital Plus Barrier Notes (the “Notes”) linked to the performance of the common stock of Apple Inc. (the “Reference Asset”).
The CUSIP number for the Notes is 78013GHK4. The Notes do not pay interest. Any payments on the Notes are subject to our credit risk. The Notes will not be listed on any securities exchange.
The Notes provide a fixed positive return of 120% of the principal amount if the Final Level of the Reference Asset is greater than or equal to its Initial Level. If the Final Level exceeds the Initial Level by more than 20%, the Notes will provide a one-for-one positive return, subject to the Maximum Redemption Amount of 140% of the principal amount of the Notes. Investors will receive the principal amount of the Notes if the Final Level is less than the Initial Level, but is not less than 80% of the Initial Level (the “Barrier Level”). However, investors will receive shares of the Reference Asset at maturity if its closing price on the Valuation Date is less than the Barrier Level, and the value of these shares is expected to be significantly less than the principal amount of the Notes, as further described below. Accordingly, investors may lose all or a significant portion of their principal amount.
The Notes will be automatically called if the closing price of the Reference Asset on January 29, 2020 is greater than or equal to the Initial Level, in which case you will receive a fixed amount of $1,160 for each $1,000 in principal amount of the Notes.
Issue Date: January 31, 2019
Maturity Date: February 3, 2021
Investing in the Notes involves a number of risks.  See “Risk Factors” beginning on page PS-4 of the product prospectus supplement, beginning on page S-1 of the prospectus supplement and on page 1 of the prospectus, and “Selected Risk Considerations” beginning on page P-8 of this terms supplement.
The Notes will not constitute deposits insured by the Canada Deposit Insurance Corporation, the U.S. Federal Deposit Insurance Corporation or any other Canadian or U.S. government agency or instrumentality.  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 the Notes or determined that this terms supplement is truthful or complete. Any representation to the contrary is a criminal offense.
 
Per Note
  
Total
Price to public(1)
100.00%
  
$
Underwriting discounts and commissions(1)
2.25%
  
$
Proceeds to Royal Bank of Canada
97.75%
  
$
(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 $977.50 and $1,000 per $1,000 in principal amount.
The initial estimated value of the Notes as of the date of this terms supplement is $974.83 per $1,000 in principal amount, which is less than the price to public.  The final pricing supplement relating to the Notes will set forth our estimate of the initial value of the Notes as of the Trade Date, which will not be less than $954.83 per $1,000 in principal amount.  The actual value of the Notes at any time will reflect many factors, cannot be predicted with accuracy, and may be less than this amount. We describe our determination of the initial estimated value in more detail below.
If the Notes priced on the date of this terms supplement, RBC Capital Markets, LLC, which we refer to as RBCCM, acting as agent for Royal Bank of Canada, would receive a commission of approximately $22.25 per $1,000 in principal amount of the Notes and would use a portion of that commission to allow selling concessions to other dealers of up to approximately $22.25 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.

RBC Capital Markets, LLC
 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
SUMMARY
The information in this “Summary” section is qualified by the more detailed information set forth in this terms supplement, the product prospectus supplement, the prospectus supplement, and the prospectus.
 
Issuer:
Royal Bank of Canada (“Royal Bank”)
 
Underwriter:
RBC Capital Markets, LLC
 
Currency:
U.S. Dollars
 
Minimum Investment:
$1,000 and minimum denominations of $1,000 in excess thereof
 
CUSIP:
78013GHK4
 
Trade Date (Pricing
Date):
January 29, 2019
 
Issue Date:
January 31, 2019
 
Valuation Date:
January 29, 2021
 
Maturity Date:
February 3, 2021, subject to extension for market and other disruptions, as described in the product prospectus supplement.
 
Interest Payments:
None.  No payments will be made prior to an automatic call or the maturity date.
 
Automatic Call:
If, on the Call Observation Date, the closing stock price of the Reference Asset is greater than or equal to the Initial Level, investors will receive a fixed payment equal to the Call Settlement Amount on the Call Settlement Date.
 
Call Settlement Amount:
$1,160 for each $1,000 in principal amount of the Notes.
 
Call Observation Date:
January 29, 2020, subject to postponement if that date is not a trading day or if a Market Disruption Event occurs on that date, as set forth in the product prospectus supplement.
 
Call Settlement Date:
February 3, 2020, subject to postponement if that date is not a business day, or if a Market Disruption Event occurs on the Call Observation Date.
 
Payment at Maturity
(if held to maturity):
If, on the Valuation Date, the Final Level is greater than or equal to the Initial Level but less than or equal to 140% of the Initial Level, then the investor will receive the greater of:
·       the Digital Coupon; and
·        $1,000 + ($1,000 x Percentage Change)
 
If, on the Valuation Date, the Final Level is greater than 140% of the Initial Level, then the investor will receive the Maximum Redemption Amount.
 
If, on the Valuation Date, the Final Level is less than the Initial Level, but is not less than the Barrier Level, the investor will receive the principal amount of the Notes.
 

 
P-2
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
   
However, if, on the Valuation Date, the Final Level is less than the Barrier Level (the Percentage Change is less than -20%) then the investor will receive at maturity, for each $1,000 in principal amount, a number of shares of the Reference Asset equal to the Physical Delivery Amount (or at our election, the cash value of those shares).
In this case, you will lose a significant portion, or possibly even all, of the principal amount.
 
Digital Coupon:
120% of the principal amount ($1,200 for each $1,000 in principal amount of the Notes).
 
Percentage Change:
The Percentage Change, expressed as a percentage, is calculated using the following formula:
 
Physical Delivery
Amount:
For each $1,000 in principal amount, a number of shares of the Reference Asset equal to the principal amount divided by the Initial Level, subject to adjustment as described in the product prospectus supplement. If this number is not a round number, then the number of shares of the Reference Asset to be delivered will be rounded down and the fractional part shall be paid in cash.
 
Cash Delivery
Amount:
The product of the Physical Delivery Amount multiplied by the Final Level
 
Initial Level:
The closing price of the Reference Asset on the Trade Date. The Initial Level will be subject to adjustment in the event of certain corporate events affecting the Reference Asset, as set forth in the product prospectus supplement.
 
Final Level:
The closing price of the Reference Asset on the Valuation Date.
 
Maximum
Redemption
Amount:
140% multiplied by the principal amount
 
Barrier Level:
80% of the Initial Level.
 
Principal at Risk:
The Notes are NOT principal protected. You may lose all or a substantial portion of your principal amount at maturity if there is a percentage decrease from the Initial Level to the Final Level of more than 20%.
 
Calculation Agent:
RBCCM
 
U.S. Tax Treatment:
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 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 discussion in this terms supplement under “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 under “Supplemental Discussion of U.S. Federal Income Tax Consequences,” which apply to the Notes.

 
P-3
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
 
Secondary Market:
RBCCM (or one of its affiliates), though not obligated to do so, may maintain a secondary market in the Notes after the Issue Date. The amount that you may receive upon sale of your Notes prior to maturity may be less than the principal amount of your Notes.
 
Listing:
The Notes will not be listed on any securities exchange.
 
Clearance and
Settlement:
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).
 
Terms Incorporated
in the Master Note:
All of the terms appearing above the item captioned “Secondary Market” on the cover page and pages P-2 and P-3 of this terms supplement and the terms appearing under the caption “General Terms of the Notes” in the product prospectus supplement, as modified by this terms supplement.

 
P-4
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
ADDITIONAL TERMS OF YOUR NOTES
You should read this terms 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 October 18, 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 terms supplement will have the meanings given to them in the product prospectus supplement. In the event of any conflict, this terms supplement will control. The Notes vary from the terms described in the product prospectus supplement in several important ways. In particular, please note that you may receive shares of the Reference Asset at maturity. You should read this terms supplement carefully.
This terms supplement, together with the documents listed below, contains the terms of the Notes and supersedes all prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, brochures or other educational materials of ours. You should carefully consider, among other things, the matters set forth in “Risk Factors” in the prospectus supplement and in the product prospectus supplement, 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 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:
https://www.sec.gov/Archives/edgar/data/1000275/000121465918005973/l96181424b3.htm
Prospectus Supplement dated September 7, 2018:
https://www.sec.gov/Archives/edgar/data/1000275/000121465918005975/f97180424b3.htm
Product Prospectus Supplement ERN-ES-1 dated October 18, 2018:
https://www.sec.gov/Archives/edgar/data/1000275/000114036118040853/form424b5.htm
Our Central Index Key, or CIK, on the SEC website is 1000275. As used in this terms supplement, “we,” “us,” or “our” refers to Royal Bank of Canada.
Royal Bank of Canada has filed a registration statement (including a product prospectus supplement, a prospectus supplement, and a prospectus) with the SEC for the offering to which this terms supplement relates. Before you invest, you should read those documents and the other documents relating to this offering that we have filed with the SEC for more complete information about us and this offering. You may obtain these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Royal Bank of Canada, any agent or any dealer participating in this offering will arrange to send you the product prospectus supplement, the prospectus supplement and the prospectus if you so request by calling toll-free at 1-877-688-2301.

 
P-5
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
HYPOTHETICAL RETURNS
The examples below are based on the following terms:
 
Hypothetical Initial Level:
$100.00*
 
Hypothetical Barrier Level:
$80.00 which is 80.00% of the hypothetical Initial Level
 
Digital Coupon:
120% multiplied by the principal amount
 
Maximum Redemption Amount:
140% multiplied by the principal amount
 
Principal Amount:
$1,000 per Note
* The hypothetical Initial Level of $100 used in the examples below has been chosen for illustrative purposes only and is not expected to be the actual Initial Level. The actual Initial Level will be set forth in the final pricing supplement relating to the Notes.
If the Notes are automatically called on the Call Observation Date, the amounts set forth below will not be relevant, and you will receive the Call Settlement Amount on the Call Settlement Date.
Final Level
Percentage Change
Payment at Maturity
Physical Delivery
Amount as Number of
Shares of the
Reference Asset
Cash Delivery
Amount
$160.00
60.00%
$1,400.00
n/a
n/a
$150.00
50.00%
$1,400.00
n/a
n/a
$140.00
40.00%
$1,400.00
n/a
n/a
$135.00
35.00%
$1,350.00
n/a
n/a
$130.00
30.00%
$1,300.00
n/a
n/a
$125.00
25.00%
$1,250.00
n/a
n/a
$120.00
20.00%
$1,200.00
n/a
n/a
$115.00
15.00%
$1,200.00
n/a
n/a
$110.00
10.00%
$1,200.00
n/a
n/a
$105.00
5.00%
$1,200.00
n/a
n/a
$100.00
0.00%
$1,200.00
n/a
n/a
$95.00
-5.00%
$1,000.00
n/a
n/a
$90.00
-10.00%
$1,000.00
n/a
n/a
$80.00
-20.00%
$1,000.00
n/a
n/a
$79.99
-20.01%
Physical or Cash Delivery Amount
10
$799.90
$70.00
-30.00%
Physical or Cash Delivery Amount
10
$700.00
$60.00
-40.00%
Physical or Cash Delivery Amount
10
$600.00
$50.00
-50.00%
Physical or Cash Delivery Amount
10
$500.00
$40.00
-60.00%
Physical or Cash Delivery Amount
10
$400.00
$30.00
-70.00%
Physical or Cash Delivery Amount
10
$300.00
$20.00
-80.00%
Physical or Cash Delivery Amount
10
$200.00
$10.00
-90.00%
Physical or Cash Delivery Amount
10
$100.00
$0.00
-100.00%
Physical or Cash Delivery Amount
10
$0.00
The following examples illustrate how the payments at maturity set forth in the table above are calculated:
Example 1: The price of the Reference Asset increases to a Final Level of $150.00.
Because the Final Level is greater than the Barrier Level, but the Percentage Change is greater than 40%, an investor will receive at maturity a payment of $1,400 per $1,000 in principal amount of the Notes, equal to the Maximum Redemption Amount.
Example 2: The price of the Reference Asset increases to a Final Level of $125.00.
Because the Final Level is greater than the Barrier Level, but the Percentage Change is not greater than 40%, an investor will receive at maturity a payment of $1,250 per $1,000 in principal amount of the Notes, calculated as follows:
Principal Amount + (Principal Amount x Percentage Change) = $1,000 + ($1,000 x 25%) = $1,250

 
P-6
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
Example 3: The price of the Reference Asset decreases to a Final Level of $90.00.
Although the Final Level is less than the Initial Level, the Final Level is greater than the Barrier Level. Because the Final Level is greater than the Barrier Level, an investor will receive at maturity the principal amount of $1,000 per $1,000 in principal amount of the Notes.
Example 4: The price of the Reference Asset decreases to a Final Level of $40.00.
Because the Final Level is less than the Barrier Level, the investor will receive 10 shares of the Reference Asset at maturity, or at our option, the Cash Delivery Amount, calculated as follows:
Physical Delivery Amount x Final Level = 10 x $40 = $400.00

 
P-7
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
SELECTED RISK CONSIDERATIONS
An investment in the Notes involves significant risks. Investing in the Notes is not equivalent to investing directly in the Reference Asset. These risks are explained in more detail in the section “Risk Factors” beginning on page PS-4 of the product prospectus supplement. In addition to the risks described in the prospectus supplement and the product prospectus supplement, you should consider the following:

 ·
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 trading price of the Reference Asset between the Trade Date and the Valuation Date. If the Final Level is less than the Barrier Level, the value of the shares or cash that you receive at maturity will represent a loss of your principal that is proportionate to the decline in the closing price of the Reference Asset from the Trade Date to the Valuation Date. If you receive shares of the Reference Asset, they may decrease in value between the Valuation Date and the maturity date, further reducing your return on the Notes.

·
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.

·
Your Potential Payment at Maturity Is Limited –– The Notes will provide less opportunity to participate in the appreciation of the Reference Asset than an investment in a security linked to the Reference Asset providing full participation in the appreciation, because the payment at maturity will not exceed the Maximum Redemption Amount. Accordingly, your return on the Notes may be less than your return would be if you made an investment in the Reference Asset or in a security directly linked to the positive performance of the Reference Asset.

·
The Notes Are Subject to an Automatic Call — If on the Call Observation Date, the closing price of the Reference Asset is greater than or equal to its Initial Level,  then the Notes will be automatically called. If the Notes are automatically called, then, on the Call Settlement Date, for each $1,000 in principal amount, you will receive $1,000 plus the fixed return specified above.  You may be unable to reinvest your proceeds from the automatic call in an investment with a return that is as high as the return on the Notes would have been if they had not been called.

·
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 any amounts due on the Notes is dependent upon Royal Bank’s ability to repay its obligations at that time. This will be the case even if the price of the Reference Asset increases after the Trade Date. No assurance can be given as to what our financial condition will be at maturity of the Notes.

·
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.

·
You Must Rely on Your Own Evaluation of the Merits of an Investment Linked to the Reference Asset –– In the ordinary course of their business, our affiliates may have expressed views on expected movements in the Reference Asset, and may do so in the future. These views or reports may be communicated to our clients and clients of our affiliates. However, these views are subject to change from time to time. Moreover, other professionals who transact business in markets relating to the Reference Asset may at any time have significantly different views from those of ours and our affiliates. For these reasons, you are encouraged to derive information

 
P-8
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
concerning the Reference Asset from multiple sources, and you should not rely solely on views expressed by us or our affiliates.

 ·
The Initial Estimated Value of the Notes Will Be Less than the Price to the Public –– The initial estimated value set forth on the cover page of this terms supplement and that will be set forth in the final pricing supplement for the Notes does not represent a minimum price at which we, RBCCM or any of our affiliates would be willing to purchase the Notes in any secondary market (if any exists) at any time. If you attempt to sell the Notes prior to maturity, their market value may be lower than the price you paid for them and the initial estimated value. This is due to, among other things, changes in the price 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.

·
The Initial Estimated Value of the Notes on the Cover Page and that We Will Provide in the Final Pricing Supplement Are Estimates Only, Calculated as of the Time the Terms of the Notes Are Set –– The initial estimated value of the Notes will be based on the value of our obligation to make the payments on the Notes, together with the mid-market value of the derivative embedded in the terms of the Notes. See “Structuring the Notes” below. Our estimates are based on a variety of assumptions, including our credit spreads, expectations as to dividends, interest rates and volatility, and the expected term of the Notes. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the Notes or similar securities at a price that is significantly different than we do.
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.

 ·
The Business Activities of Royal Bank and Our Affiliates May Create Conflicts of Interest –– We and our affiliates expect to engage in trading activities related to the Reference Asset 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 price of the Reference Asset, 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 Apple Inc., the issuer of the Reference Asset (the ‘‘Reference Asset Issuer’’), 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 Reference Asset. 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 may affect the price of the Reference Asset and, therefore, the market value of the Notes.

 
P-9
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 

·
Owning the Notes Is Not the Same as Owning the Reference Asset –– The return on your Notes is unlikely to reflect the return you would realize if you actually owned the Reference Asset. For example, you will not receive or be entitled to receive any dividend payments or other distributions on the Reference Asset during the term of your Notes; accordingly, an investment in the Notes may return less than an actual investment in the Reference Asset. As an owner of the Notes, you will not have voting rights or any other rights that holders of the Reference Asset may have. Furthermore, the Reference Asset may appreciate substantially during the term of the Notes, and you will not fully participate in such appreciation.

·
Inconsistent Research – Royal Bank or its affiliates may issue research reports relating to the Reference Asset. We may also publish research from time to time on financial markets and other matters that may influence the price of the Reference Asset or the value of the Notes, or express opinions or provide recommendations that may be inconsistent with the purchasing or holding the Notes or with the investment view implicit in the Notes or the Reference Asset. You should make your own independent investigation of the merits of investing in the Notes and the Reference Asset.

·
Market Disruption Events and Adjustments –– The payments on the Notes 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.

 
P-10
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
INFORMATION REGARDING THE REFERENCE ASSET

We have derived the following information from publicly available documents published by the Reference Asset Issuer. We have not independently verified the accuracy or completeness of the following information.
Apple Inc. designs, manufactures, and markets personal computers and related personal computing and mobile communication devices along with a variety of related software, services, peripherals, and networking solutions. The company sells its products through its online stores, its retail stores, its direct sales force, third-party wholesalers, and resellers.
The company’s common stock is listed on the Nasdaq Global Select Market under the ticker symbol “AAPL.”
The Reference Asset is registered under the Exchange Act. Information provided to or filed with the Securities and Exchange Commission by the issuer of Reference Asset under the Exchange Act can be located through the Securities and Exchange Commission’s website at www.sec.gov. In addition, information regarding the Reference Asset may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents.

 
P-11
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
Historical Information

The graph below sets forth information relating to the historical performance of the Reference Asset for the period from January 1, 2009 through January 23, 2019.

We obtained the information regarding the historical performance of the Reference Asset from Bloomberg Financial Markets. We have not independently verified the accuracy or completeness of the information obtained from Bloomberg Financial Markets.
The historical performance of the Reference Asset should not be taken as an indication of its future performance, and no assurance can be given as to the Final Level of the Reference Asset, or whether the Notes will be subject to an automatic call. We cannot give you assurance that the performance of the Reference Asset will result in any positive return on your investment.


 
P-12
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
SUPPLEMENTAL PLAN OF DISTRIBUTION (CONFLICTS OF INTEREST)
We expect that delivery of the Notes will be made against payment for the Notes on January 31, 2019, which is the second (2nd) business day following the Trade Date (this settlement cycle being referred to as “T+2”). 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.
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 three 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 terms supplement in the initial sale of the Notes. In addition, RBCCM or another of our affiliates may use this terms supplement in a market-making transaction in the Notes after their initial sale. Unless we or our agent informs the purchaser otherwise in the confirmation of sale, this terms supplement is being used in a market-making transaction.

 
P-13
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
STRUCTURING THE NOTES
The Notes are our debt securities, the return on which is linked to the performance of the Reference Asset. As is the case for all of our debt securities, including our structured notes, the economic terms of the Notes reflect our actual or perceived creditworthiness at the time of pricing. In addition, because structured notes result in increased operational, funding and liability management costs to us, we typically borrow the funds under these Notes at a rate that is more favorable to us than the rate that we might pay for a conventional fixed or floating rate debt security of comparable maturity. Using this relatively lower implied borrowing rate rather than the secondary market rate, is a factor that is likely to reduce the initial estimated value of the Notes at the time their terms are set. Unlike the estimated value included in this terms supplement or in the final pricing supplement, any value of the Notes determined for purposes of a secondary market transaction may be based on a different funding rate, which may result in a lower value for the Notes than if our initial internal funding rate were used.
In order to satisfy our payment obligations under the Notes, we may choose to enter into certain hedging arrangements (which may include call options, put options or other derivatives) on the issue date with RBCCM or one of our other subsidiaries. The terms of these hedging arrangements take into account a number of factors, including our creditworthiness, interest rate movements, the volatility of the Reference Asset, and the tenor of the Notes. The economic terms of the Notes and their initial estimated value depend in part on the terms of these hedging arrangements.
The lower implied borrowing rate is a factor that reduces the economic terms of the Notes to you. The initial offering price of the Notes also reflects the underwriting commission and our estimated hedging costs. These factors result 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 Will Be Less than the Price to the Public” above.
SUPPLEMENTAL DISCUSSION OF U.S. FEDERAL INCOME TAX CONSEQUENCES
The following disclosure supplements, and to the extent inconsistent supersedes, the discussion in the product prospectus supplement dated October 18, 2018 under “Supplemental Discussion of U.S. Federal Income Tax Consequences.”

If the Notes are settled by physical delivery of a number of shares of the Reference Asset at maturity, although no assurances can be provided in this regard, a U.S. holder may generally expect not to recognize gain or loss upon maturity. However, a U.S. holder would generally be required to recognize loss, with respect to any cash received in lieu of a fractional share, equal to the difference between the cash received and the pro rata portion of the tax basis allocable to a fractional share. Any such loss would be treated as capital loss. A U.S. holder’s tax basis in the shares of Reference Asset delivered would generally equal its tax basis in the Notes, other than any amount allocable to a fractional share. A U.S. holder’s holding period for the shares of the Reference Asset delivered would begin on the day after the shares of the Reference Asset are received.

Under Section 871(m) of the Code, a “dividend equivalent” payment is treated as a dividend from sources within the United States. Such payments generally would be subject to a 30% U.S. withholding tax if paid to a non-U.S. holder. Under U.S. Treasury Department regulations, payments (including deemed payments) with respect to equity-linked instruments (“ELIs”) that are “specified ELIs” may be treated as dividend equivalents if such specified ELIs reference an interest in an “underlying security,” which is generally any interest in an entity taxable as a corporation for U.S. federal income tax purposes if a payment with respect to such interest could give rise to a U.S. source dividend. However, the IRS has issued guidance that states that the U.S. Treasury Department and the IRS intend to amend the effective dates of the U.S. Treasury Department regulations to provide that withholding on dividend equivalent payments will not apply to specified ELIs that are not delta-one instruments and that are issued before January 1, 2019. Based on our determination that the Notes are not delta-one instruments, non-U.S. holders should not be subject to withholding on dividend equivalent payments, if any, under the Notes. However, it is possible that the Notes could be treated as deemed reissued for U.S.

 
P-14
RBC Capital Markets, LLC

 


Autocallable Digital Plus Barrier Notes
Linked to the Common Stock of Apple Inc.
 
federal income tax purposes upon the occurrence of certain events affecting the Reference Asset or the Notes, and following such occurrence the Notes could be treated as subject to withholding on dividend equivalent payments. Non-U.S. holders that enter, or have entered, into other transactions in respect of the Reference Asset or the Notes should consult their tax advisors as to the application of the dividend equivalent withholding tax in the context of the Notes and their other transactions. If any payments are treated as dividend equivalents subject to withholding, we (or the applicable withholding agent) would be entitled to withhold taxes without being required to pay any additional amounts with respect to amounts so withheld.
The accompanying product prospectus supplement notes that FATCA withholding on payments of gross proceeds from a sale or redemption of Notes will only apply to payments made after December 31, 2021. That discussion is modified to reflect regulations proposed by the U.S. Treasury Department in December 2018 indicating an intent to eliminate the requirement under FATCA of withholding on gross proceeds of the disposition of financial instruments. The U.S. Treasury Department has indicated that taxpayers may rely on these proposed regulations pending their finalization. Prospective investors are urged to consult with their own tax advisors regarding the possible implications of FATCA on their investment in the Notes.


 
P-15
RBC Capital Markets, LLC