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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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The information in this preliminary terms supplement is not complete and may be changed.
This terms supplement amends and restates the terms supplement that was previously filed on February 8, 2019.
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Preliminary Terms Supplement
Subject to Completion:
Dated February 8, 2019
Pricing Supplement Dated February __, 2019 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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$_________
Best Profile Notes
Linked to the Best Performing Basket of
Five Exchange Traded Funds,
Due March 2, 2023
Royal Bank of Canada
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Royal Bank of Canada is offering the Best Profile Notes (the “Notes”) linked to the best performance of three weighted Baskets, each comprised of the
SPDR® S&P 500® ETF Trust, the iShares® MSCI EAFE ETF, the SPDR® Gold Trust, the iShares® iBoxx $ High Yield Corporate Bond ETF and the iShares® iBoxx $ Investment Grade
Corporate Bond ETF (each, a “Basket Component”). Although each Basket will include the same Basket Components, each Basket will assign a different weight to the Basket Components, as described below.
The CUSIP number for the Notes is 78013GHM0. The Notes provide a 1:1 return on the
performance of the Best Performing Basket, measured from the Trade Date to the Valuation Date. The Notes do not pay interest, and investors are subject to one-for-one loss of the principal amount of the Notes for any percentage decrease in the
Best Performing Basket between the Trade Date and the Valuation Date. Any payments on the Notes are subject to our credit risk.
Issue Date: February 28, 2019
Maturity Date: March 2, 2023
The Notes will not be listed on any securities exchange.
Investing in the Notes involves a number of risks. See “Selected Risk Considerations” beginning on page P-6 of this terms supplement, “Additional
Risk Factors Specific to the Notes” beginning on page PS-6 of the product prospectus supplement dated September 11, 2018, and “Risk Factors” beginning on page S-1 of the prospectus supplement dated September 7, 2018.
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 terms supplement is truthful or complete. Any representation to the contrary is a criminal offense.
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Per Note
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Total
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Price to public(1)
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100.00%
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$
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Underwriting discounts and commissions(1)
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3.25%
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$
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Proceeds to Royal Bank of Canada
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96.75%
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$
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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 $967.50 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 $944.75 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 $924.75 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 $32.50 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 $32.50 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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Best Profile Notes
Linked to the Best Performing Basket of Five 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 terms
supplement, the product prospectus supplement, the prospectus supplement, and the prospectus.
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Issuer:
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Royal Bank of Canada (“Royal Bank”)
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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 performance of the best performing of three weighted Baskets. Each Basket is comprised of the
five Basket Components. The Basket Components and their respective component weights for each Basket 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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February 25, 2019
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Issue Date:
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February 28, 2019
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Valuation Date:
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February 27, 2023
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Maturity Date:
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March 2, 2023, subject to extension for market and other disruptions, as described in the product prospectus supplement.
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Payment at
Maturity
(if held to maturity):
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The investor will receive an amount per $1,000 principal amount per Note equal to:
Principal Amount + [Principal Amount x Percentage Change of the Best Performing Basket]
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Best Performing
Basket:
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The Best Performing Basket will be the Basket with the greatest Percentage Change.
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Percentage
Change:
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The Percentage Change for each Basket will equal an amount, expressed as a percentage and rounded to two decimal places,
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 Price:
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The closing price per share of a Basket Component on the Trade Date.
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Final Price:
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The closing price per share of a Basket Component on the Valuation Date.
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Best Profile Notes
Linked to the Best Performing Basket of Five Exchange Traded Funds
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The Baskets:
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Basket Component
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Ticker
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Basket A
Component
Weight
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Basket B
Component
Weight
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Basket C
Component
Weight
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SPDR® S&P 500® ETF Trust
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SPY UP
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30%
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20%
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10%
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iShares® MSCI EAFE ETF
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EFA UP
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30%
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20%
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10%
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SPDR® Gold Trust
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GLD UP
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20%
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25%
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30%
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iShares® iBoxx $ High Yield
Corporate Bond ETF
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HYG UP
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10%
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20%
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20%
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iShares® iBoxx $ Investment Grade
Corporate Bond ETF
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LQD UP
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10%
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15%
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30%
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Because each Basket includes the same Basket Components, any increase in the value of any particular Basket Component will
increase the value of all three Baskets; similarly, any decrease in the value of any particular Basket Component will decrease the value of all three Baskets. However, because the Baskets will have different Component Weights for each
Basket Component, it is impossible to know before the Valuation Date which Basket will be the Best Performing Basket.
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Principal at Risk:
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The Notes are NOT principal
protected. You may lose all or a substantial portion of your principal amount at maturity if there is a decrease from the Initial Price to the Final Price for some or all Basket Components.
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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 Notes 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).
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Terms Incorporated
in the Master Note:
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All of the terms appearing above the item captioned “Secondary Market” on pages P-2 and P-3 of this terms supplement and the
terms appearing under the caption “General Terms of the Notes” in the product prospectus supplement, as modified by this terms supplement.
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Best Profile Notes
Linked to the Best Performing Basket of Five Exchange Traded Funds
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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 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 terms supplement will have the
meanings given to them in the product prospectus supplement. In the event of any conflict, this terms supplement will control. The Notes vary from the terms
described in the product prospectus supplement in several important ways. You should read this terms supplement carefully.
This terms supplement, together with the documents listed below, contains the terms of the Notes and supersedes all prior or
contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, brochures or other educational materials of
ours. You should carefully consider, among other things, the matters set forth in “Risk Factors” in the prospectus supplement dated 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. The Notes vary from the terms described in the product prospectus supplement in several important ways. You should read this terms supplement
carefully. 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 terms supplement, “we,” “us,” or “our” refers to Royal Bank of Canada.
Royal Bank of Canada has filed a registration statement (including a product prospectus supplement, a prospectus supplement, and
a prospectus) with the SEC for the offering to which this terms supplement relates. Before you invest, you should read those documents and the other documents relating to this offering that we have filed with the SEC for more complete information
about us and this offering. You may obtain these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Royal Bank of Canada, any
agent or any dealer participating in this offering will arrange to send you the product prospectus supplement, the prospectus supplement and the prospectus if you so request by calling toll-free at 1-877-688-2301.
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Best Profile Notes
Linked to the Best Performing Basket of Five 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 Best Performing Basket used to illustrate the calculation of the Payment at Maturity (rounded to two decimal places) are not estimates or forecasts of the price of any Basket Component on the Valuation Date or on
any trading day prior to the Maturity Date. All examples 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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Hypothetical
Percentage Change
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Basket A
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20.00%
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Basket B
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-5.00%
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Basket C
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15.00%
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Best Performing Basket:
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Basket A
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Payment at Maturity:
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$1,000 + ($1,000 x 20.00%) = $1,000 + $200.00 = $1,200.00
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In this example, only one of the Baskets has a positive Percentage Change. On a $1,000 investment, a 20.00% Percentage Change in the Best Performing Basket
results in a Payment at Maturity of $1,200.00, a 20.00% return on the Notes.
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Example 2—
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Hypothetical
Percentage Change
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Basket A
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-10.00%
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Basket B
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-15.00%
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Basket C
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-5.00%
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Best Performing Basket:
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Basket C
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Payment at Maturity:
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$1,000 + ($1,000 x -5.00%) = $1,000 - $50 = $950.00
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In this example, all of the Baskets have a negative Percentage Change. As a result, the Best Performing Basket is the Basket with the least depreciation
between the Trade Date and the Valuation Date. On a $1,000 investment, a -5.00% Percentage Change in the Best Performing Basket results in a Payment at Maturity of $950.00, a -5.00% return on the Notes.
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Best Profile Notes
Linked to the Best Performing Basket of Five 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-5 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 the Percentage Change of the Best Performing Basket is negative. You will lose 1% of the principal amount of your Notes for each 1% that the Percentage Change of the Best Performing Basket is less than zero.
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The Notes Do Not Pay Interest and Your Return May Be Lower than the Return on a Conventional Debt Security of
Comparable Maturity – There will be no periodic interest payments on the Notes as there would be on a conventional fixed-rate or floating-rate debt security having the
same maturity. The return that you will receive on the Notes, which could be negative, may be less than the return you could earn on other investments. Even if your return is positive, your return may be less than the return you
would earn if you bought a conventional senior interest bearing debt security of Royal Bank.
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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 value of the Basket Components 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 Baskets — 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 Baskets would have. The Percentage Change of the Best Performing Basket will not reflect any
dividends paid on the securities included in the Best Performing Basket. Accordingly, an investment in the Notes may provide a return that is less than the return that would result from an investment in the Basket Components.
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The Initial Estimated Value of the Notes Will Be Less than the Price to the Public — The initial estimated
value set forth on the cover page and that will be set forth in the final pricing supplement for the Notes does not represent a minimum price at which we, RBCCM or any of our affiliates would be willing to purchase the Notes in any
secondary market (if any exists) at any time. If you attempt to sell the Notes prior to maturity, their market value may be lower than the price you paid for them and the initial estimated value. This is due to, among other things,
changes in the prices of the Basket Components, 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 on the Cover Page and that We Will Provide in the Final Pricing
Supplement Are Estimates Only, Calculated as of the Time the Terms of the Notes Are Set — The initial estimated value of the Notes will be based on the value of our obligation to make the payments on the Notes, together with
the mid-market value of the derivative embedded in the terms of the Notes. See “Structuring the Notes” below. Our estimates are based on a variety of assumptions, including our credit spreads, expectations as to dividends, interest
rates and volatility, and the expected term of the Notes. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the Notes or similar securities at a price
that is significantly different than we do.
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Best Profile Notes
Linked to the Best Performing Basket of Five Exchange Traded Funds
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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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Our Business Activities May Create Conflicts of Interest — We and our affiliates expect to engage in
trading activities related to the Basket Components or the securities or assets that they hold 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 one or more Basket Components, 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 Components, 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 Components, and, therefore, the market value of the Notes.
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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 (or
Gold, as to the GLD) May Be Imperfect — The performance of each Basket Component is linked principally to the performance of its Underlying Index or other assets that it holds. 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 or those assets.
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During periods of market volatility, securities held by a Basket Component may be unavailable in the secondary
market, market participants may be unable to calculate accurately its net asset value per share and its liquidity may be adversely affected. This kind of market volatility may also disrupt the ability of market participants to create and redeem
shares of the applicable Basket Component. Further, market volatility may adversely affect, sometimes materially, the prices at which market participants are willing to buy and sell shares of the Basket Component. As a result, under these
circumstances, the market value of shares of the Basket Component may vary substantially from the applicable net asset value per share. For all of the foregoing reasons, the performance of the Basket Component may not correlate with the
performance of the Underlying Index or other assets that it owns, as well as its net asset value per share, which could materially and adversely affect the value of the Notes in the secondary market and/or reduce the payments on the Notes.
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Changes in the Level of One Basket Component May Be Offset by Changes in the Level of the Other Basket Components
— A change in the level of one Basket Component may not correlate with changes in the level of the other Basket Components. The level of one Basket
Component may increase, while the level of one or more of the other Basket Components may not increase as much, or may even decrease. Therefore, in determining the level of the Best Performing Basket 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 Components.
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The performance of the Baskets may be highly correlated — The Payment at Maturity will be based upon the
Performance of the Best Performing Basket. However, each of the three Baskets is comprised of the same Basket Components. As a result, it is possible that the Best Performing Basket will not outperform the other Baskets to a
significant extent. It is also possible that each of the Baskets will have a Percentage Change that is less than zero. in such a case, you will receive a Payment at Maturity that is less than principal amount of the Notes.
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The Notes are Subject to Non-U.S. Securities Market Risks — The iShares® iBoxx $ High Yield
Corporate Bond ETF, the iShares® iBoxx $ Investment Grade Corporate Bond ETF may invest in foreign company debt securities so long as they are U.S.-dollar denominated. Therefore these Basket Components may include U.S.
dollar-denominated bonds issued by non-U.S. companies. In addition, foreign companies or foreign equity securities held by the iShares® MSCI EAFE ETF are publicly traded in the applicable foreign countries and trade in
currencies other than U.S. dollars, investments in the Notes involve particular risks. Securities issued by non-U.S. companies may be more volatile and may be subject to different political, market, economic, exchange rate, regulatory
and other risks than securities issued by U.S. companies, which may have a negative impact on the performance of the financial products linked to such securities, including the Notes. Also, the public availability of information
concerning the issuers of such securities will vary depending on their home jurisdiction and the reporting requirements imposed by their respective regulators. In addition, the issuers of these securities 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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Best Profile Notes
Linked to the Best Performing Basket of Five Exchange Traded Funds
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Additional Risks Related to the SPDR® Gold Trust
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The Notes Are Subject to Risks Associated with Gold — The investment objective of the SPDR®
Gold Trust is to reflect the performance of the price of gold bullion, less the SPDR® Gold Trust’s expenses. The price of gold is primarily affected by the global demand for and supply of gold. The market for gold bullion
is global, and gold prices are subject to volatile price movements over short periods of time and are affected by numerous factors, including macroeconomic factors, such as the structure of and confidence in the global monetary
system, expectations regarding the future rate of inflation, the relative strength of, and confidence in, the U.S. dollar (the currency in which the price of gold is usually quoted), interest rates, gold borrowing and lending rates
and global or regional economic, financial, political, regulatory, judicial or other events. Gold prices may be affected by industry factors, such as industrial and jewelry demand as well as lending, sales and purchases of gold by the
official sector, including central banks and other governmental agencies and multilateral institutions that hold gold. Additionally, gold prices may be affected by levels of gold production, production costs and short-term changes in
supply and demand due to trading activities in the gold market. From time to time, above-ground inventories of gold may also influence the market. It is not possible to predict the aggregate effect of all or any combination of these
factors. The price of gold has recently been, and may continue to be, extremely volatile.
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Single Commodity Prices Tend to be More Volatile than, and May Not Correlate with, the Prices of Commodities
Generally — The SPDR® Gold Trust is linked to a single commodity and not to a diverse basket of commodities or a broad-based commodity index. The price of gold may not correlate to the price of commodities
generally and may diverge significantly from the prices of commodities generally. As a result, the Notes carry greater risk and may be more volatile than Notes linked to the prices of more commodities or a broad-based commodity index.
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Economic or Political Events or Crises Could Result in Large-Scale Purchases or Sales of Gold, Which Could Affect
the Price of Gold and May Adversely Affect the Value of the Notes — Many investors, institutions, governments and others purchase and sell gold as a hedge against inflation, market turmoil or uncertainty or political events.
Under such circumstances, significant largescale purchases or sales of gold by market participants may affect the price of gold, which could adversely affect the value of the Notes. Crises in the future may impair gold’s price
performance which would, in turn, adversely affect the shares of the SPDR® Gold Trust and your investment in the Notes.
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Gold Is Traded on the London Bullion Market Association (the “LBMA”), so an Investment in the Notes May Be Subject
to Risks Associated with the London Bullion Market Association — The SPDR® Gold Trust is closely related to its underlying commodity (e.g., gold), the price of which is determined by an independent service
provider appointed by the LBMA. Investments in securities indexed to the value of commodities the prices of which are determined by non-U.S. markets involve risks associated with the markets in those countries, including risks of
volatility in those markets and governmental intervention in those markets. The final price of gold will be determined by reference to fixing prices reported by an independent service provider appointed by the LBMA. The LBMA is a
self-regulatory association of bullion market participants. Although all market-making members of the LBMA are supervised by the Bank of England and are required to satisfy a capital adequacy test, the LBMA itself is not a regulated
entity. If the LBMA ceases operations, or if bullion trading becomes subject to a tax or any other form of regulation currently not in place, the role of LBMA price fixings as a global benchmark for the value of gold may be adversely
affected. The LBMA is a principals’ market which operates in a manner more closely analogous to an over-the-counter physical commodity market than regulated futures markets, and certain features of U.S. futures contracts are not
present in the context of LBMA trading. For example, there are no daily price limits on the LBMA which would otherwise restrict fluctuations in the prices of LBMA contracts. In a declining or rising market, it is possible that prices
would continue to decline or rise without limitation within a trading day or over a period of trading days.
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The Performance of the SPDR®
Gold Trust May Not Correlate with the Price of Gold — The performance of SPDR® Gold Trust may not fully replicate the performance of the price of gold due to the fees and expenses charged by the SPDR®
Gold Trust or by restrictions on access to gold due to other circumstances. The SPDR® Gold Trust does not generate any income and as the SPDR® Gold Trust regularly sells gold to pay for its ongoing expenses, the
amount of gold represented by each share gradually declines over time. The SPDR® Gold Trust sells gold to pay expenses on an ongoing basis irrespective of whether the trading price of the shares rises or falls in response
to changes in the price of gold. The sale of SPDR® Gold Trust’s gold to pay expenses at a time of low gold prices or at a time of high gold prices could adversely affect the value of the Notes. Additionally, there is a risk
that part or all of the SPDR® Gold Trust’s gold could be lost, damaged or stolen due to war, terrorism, theft, natural disaster or otherwise. The net asset value of the SPDR® Gold Trust will reflect the
performance of gold. However, because the shares of the SPDR® Gold Trust are traded on NYSE Arca, Inc. and are subject to market supply and investor demand, the market value of one Share of the SPDR® Gold Trust
may differ from the net asset value per share of the SPDR® Gold Trust.
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Additional Risks Related to the iShares® iBoxx $ High Yield Corporate Bond ETF and the iShares® iBoxx $
Investment Grade Corporate Bond ETF
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The Notes are Subject to Credit Risk Generally and Credit Risk Associated with High Yield Debt in Particular — The prices of the bonds underlying the iShares® iBoxx $ High Yield Corporate Bond ETF and the iShares® iBoxx $ Investment Grade Corporate
Bond ETF, which we collectively refer to as the “Bond ETFs,” are significantly influenced by the creditworthiness of the issuers of the bonds. The issuers of such bonds may have their credit ratings downgraded or have their credit
spreads widen significantly. Following a ratings downgrade or the widening of credit spreads, some or all of the bonds held by the Bond ETFs may suffer significant and rapid price declines. Such events may have material adverse
effects on the value of the Bond ETFs and the Notes.
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Further, the iShares® iBoxx $ High Yield Corporate Bond ETF is designed to provide a representation
of the U.S. dollar high-yield corporate market and is therefore subject to high-yield securities risk. Securities that are rated below investment grade (commonly known as “junk bonds”) may be more volatile than higher-rated securities of similar
maturity. High-yield securities may also be subject to greater levels of credit or default risk than higher-rated securities. The value of high-yield securities can be adversely affected by overall economic conditions, such as an economic
downturn or a period of rising interest rates, and high-yield securities may be less liquid and more difficult to sell at an advantageous time or price or to value than higher-rated securities. In particular, high-yield securities are often
issued by smaller, less creditworthy companies or by highly leveraged (indebted) firms, which are generally less able than more financially stable firms to make scheduled payments of interest and principal.
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The Notes Are Subject to Significant Risks Associated with Fixed-Income Securities, Including Interest
Rate-Related Risks — The Bond ETFs are bond ETFs that attempt to track the performance of indices composed of fixed income securities. Investing in the Notes linked indirectly to these ETFs differs significantly from
investing directly in bonds to be held to maturity as the values of the Bond ETFs change, at times significantly, during each trading day based upon the current market prices of their underlying bonds. The market prices of these bonds
are volatile and significantly influenced by a number of factors, particularly the yields on these bonds as compared to current market interest rates and the actual or perceived credit quality of the issuer of these bonds. The market
prices of the bonds underlying each of the Bond ETFs are determined by reference to the bid and ask quotations provided by 10 contributing banks, one of which is our affiliate.
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In general, fixed-income securities are significantly affected by changes in current market interest rates. As
interest rates rise, the price of fixed-income securities, including those underlying the Bond ETFs, is likely to decrease. Securities with longer durations tend to be more sensitive to interest rate changes, usually making them more volatile
than securities with shorter durations. The eligibility criteria for the securities included in the indices that underlie the Bond ETFs, which each mandate that each security must have a minimum term remaining to maturity (ranging from one year
to 20 years) for continued eligibility, means that, at any time, only longer-term securities underlie the Bond ETFs, which thereby increases the risk of price volatility in the underlying securities and, consequently, the volatility in the value
of these indices. As a result, rising interest rates may cause the value of the bonds underlying the Bond ETFs, the Bond ETFs and these indices to decline, possibly significantly.
Interest rates are subject to volatility due to a variety of factors, including:
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sentiment regarding underlying strength in the U.S. and global economies;
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expectations regarding the level of price inflation;
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sentiment regarding credit quality in the U.S. and global credit markets;
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central bank policies regarding interest rates; and
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the performance of U.S. and foreign capital markets.
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Best Profile Notes
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INFORMATION REGARDING THE BASKET COMPONENTS
We have derived the following
information from publicly available documents. We are not affiliated with any of the Basket Components and each Basket Component will have no obligations with respect to the Notes. This terms supplement relates only to the Notes and does not
relate to any of the shares of any Basket Component or to the securities or other assets held by any Basket Component. Neither we nor RBC Capital Markets, LLC participates in the preparation of the publicly available documents described below.
Neither we nor RBC Capital Markets, LLC has made any due diligence inquiry with respect to any Basket Component in connection with the offering of the Notes. There can be no assurance that all events occurring prior to the date of this terms
supplement, including events that would affect the accuracy or completeness of the publicly available documents described below, that would affect the trading price of the shares of any Basket Component 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 Basket Component could affect the value of the shares of that Basket Component on the Valuation Date and therefore could
affect the Payment at Maturity.
Each Basket Component is registered
under the Securities Exchange Act of 1934 (the “Exchange Act”). Companies with securities registered under that Act are required to file periodically certain financial and other information specified by the Securities and Exchange Commission
(the “SEC”). Information provided to or filed with the SEC can be obtained through the SEC’s website at www.sec.gov. However, none of the information on that website shall be deemed to be included or incorporated by reference in this
document.
The
SPDR® S&P 500® ETF Trust
The shares of the SPDR® S&P 500® ETF trade on the NYSE Arca under the symbol “SPY.” The SPY’s investment adviser is BlackRock Fund Advisors.
The SPY seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses,
of the S&P 500® Index (the “SPX Index”). To maintain the correspondence between the composition and weightings of stocks held by the SPY and component stocks of the SPX Index, the SPY adjusts its holdings from time to time to
conform to periodic changes in the identity and/or relative weightings of the index securities.
The SPY utilizes a “passive” or “indexing” investment approach in attempting to track the performance of the SPX Index. The SPY
seeks to invest in substantially all of the securities that comprise the SPX Index. The SPY typically earns income from dividends from securities that it holds. These amounts, net of expenses and taxes (if applicable), are passed along to the
SPY’s shareholders as “ordinary income.” In addition, the SPY realizes capital gains or losses whenever it sells securities. Net long-term capital gains are distributed to shareholders as “capital gain distributions.”
The S&P 500® Index (the “SPX Index”)
The SPX Index is intended to provide an indication of the pattern of common stock price movement. The calculation of the level of the SPX Index is based on the relative
value of the aggregate market value of the common stocks of 500 companies as of a particular time compared to the aggregate average market value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943.
S&P calculates the SPX Index by reference to the prices of the constituent stocks of the SPX Index without taking account of the value of dividends paid on those
stocks. As a result, the return on the Notes will not reflect the return you would realize if you actually owned the SPX Index constituent stocks and received the dividends paid on those stocks.
Effective with the September 2015 rebalance, consolidated share class lines will no longer be included in the SPX Index. Each share class line will be subject to public
float and liquidity criteria individually, but the company’s total market capitalization will be used to evaluate each share class line. This may result in one listed share class line of a company being included in the SPX Index while a second
listed share class line of the same company is excluded.
Computation of the SPX Index
While S&P currently employs the following methodology to calculate the SPX Index, no assurance can be given that S&P will not modify or change this methodology
in a manner that may affect the Payment at Maturity.
Historically, the market value of any component stock of the SPX Index was calculated as the product of the market price per share and the number of then outstanding
shares of such component stock. In March 2005, S&P began shifting the SPX Index halfway from a market capitalization weighted formula to a float-adjusted formula, before moving the SPX Index to full float adjustment on September 16, 2005.
S&P’s criteria for selecting stocks for the SPX Index did not change with the shift to float adjustment. However, the adjustment affects each company’s weight in the SPX Index.
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Under float adjustment, the share counts used in calculating the SPX Index reflect only those shares that are available to investors, not all of a company’s outstanding
shares. Float adjustment excludes shares that are closely held by control groups, other publicly traded companies or government agencies.
In September 2012, all shareholdings representing more than 5% of a stock’s outstanding shares, other than holdings by “block owners,” were removed from the float for
purposes of calculating the SPX Index. Generally, these “control holders” will include officers and directors, private equity, venture capital and special equity firms, other publicly traded companies that hold shares for control, strategic
partners, holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the company, holders of unlisted share classes of stock, government entities at all levels (other than government retirement/pension funds) and
any individual person who controls a 5% or greater stake in a company as reported in regulatory filings. However, holdings by block owners, such as depositary banks, pension funds, mutual funds and ETF providers, 401(k) plans of the company,
government retirement/pension funds, investment funds of insurance companies, asset managers and investment funds, independent foundations and savings and investment plans, will ordinarily be considered part of the float.
Treasury stock, stock options equity participation units, warrants, preferred stock, convertible stock, and rights are not part of the float. Shares held in a trust to
allow investors in countries outside the country of domicile, such as depositary shares and Canadian exchangeable shares are normally part of the float unless those shares form a control block.
For each stock, an investable weight factor (“IWF”) is calculated by dividing the available float shares by the total shares outstanding. Available float shares are
defined as the total shares outstanding less shares held by control holders. This calculation is subject to a 5% minimum threshold for control blocks. For example, if a company’s officers and directors hold 3% of the company’s shares, and no
other control group holds 5% of the company’s shares, S&P would assign that company an IWF of 1.00, as no control group meets the 5% threshold. However, if a company’s officers and directors hold 3% of the company’s shares and another control
group holds 20% of the company’s shares, S&P would assign an IWF of 0.77, reflecting the fact that 23% of the company’s outstanding shares are considered to be held for control. As of July 31, 2017, companies with multiple share class lines
are no longer eligible for inclusion in the Reference Index. Constituents of the Reference Index prior to July 31, 2017 with multiple share class lines will be grandfathered in and continue to be included in the Reference Index. If a constituent
company of the Reference Index reorganizes into a multiple share class line structure, that company will remain in the Reference Index at the discretion of the S&P Index Committee in order to minimize turnover.
The SPX Index is calculated using a base-weighted aggregate methodology. The level of the SPX Index reflects the total market value of all 500 component stocks relative
to the base period of the years 1941 through 1943. An indexed number is used to represent the results of this calculation in order to make the level easier to use and track over time. The actual total market value of the component stocks during
the base period of the years 1941 through 1943 has been set to an indexed level of 10. This is often indicated by the notation 1941-43 = 10. In practice, the daily calculation of the SPX Index is computed by dividing the total market value of the
component stocks by the “index divisor.” By itself, the index divisor is an arbitrary number. However, in the context of the calculation of the SPX Index, it serves as a link to the original base period level of the SPX Index. The index divisor
keeps the SPX Index comparable over time and is the manipulation point for all adjustments to the SPX Index, which is index maintenance.
Index Maintenance
Index maintenance includes monitoring and completing the adjustments for company additions and deletions, share changes, stock splits, stock dividends, and stock price
adjustments due to company restructuring or spinoffs. Some corporate actions, such as stock splits and stock dividends, require changes in the common shares outstanding and the stock prices of the companies in the SPX Index, and do not require
index divisor adjustments.
To prevent the level of the SPX Index from changing due to corporate actions, corporate actions which affect the total market value of the SPX Index require an index
divisor adjustment. By adjusting the index divisor for the change in market value, the level of the SPX Index remains constant and does not reflect the corporate actions of individual companies in the SPX Index. Index divisor adjustments are made
after the close of trading and after the calculation of the SPX Index closing level.
Changes in a company’s total shares outstanding of 5% or more due to public offerings are made as soon as reasonably possible. Other changes of 5%
or more (for example, due to tender offers, Dutch auctions, voluntary exchange offers, company stock repurchases, private placements, acquisitions of private companies or non-index companies that do not trade on a major exchange, redemptions,
exercise of options, warrants, conversion of preferred stock, notes, debt, equity participations, at-the-market stock offerings or other recapitalizations) are made weekly, and are generally announced on Fridays for implementation after the close
of
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trading the following Friday (one week later). If a 5% or more share change causes a company’s IWF to change by five percentage
points or more, the IWF is updated at the same time as the share change. IWF changes resulting from partial tender offers are considered on a case-by-case basis.
iShares® MSCI EAFE ETF
The shares of the iShares® MSCI EAFE ETF trade on the NYSE Arca under the symbol “EFA.”
The EFA seeks to track the investment results of large- and mid-capitalization developed market equities, excluding the U.S. and Canada, as measured by
the MSCI EAFE® Index (the “EAFE Index”).
The EFA is maintained and managed by iShares and advised by BlackRock Fund Advisors. iShares is a registered investment company that consists of
numerous separate investment portfolios, including the EFA. The EFA typically earns income from dividends from securities included in the EAFE Index. These amounts, net of expenses and taxes (if applicable), are passed along to the EFA’s
shareholders as “ordinary income.” In addition, the EFA realizes capital gains or losses whenever it sells securities. Net long-term capital gains are distributed to shareholders as “capital gain distributions.”
The MSCI EAFE Index (the “EAFE Index”)
The EAFE Index is a stock index calculated, published and disseminated daily by MSCI Inc. (“MSCI”), through numerous data vendors, on the MSCI website
and in real time on Bloomberg Financial Markets and Reuters Limited. MSCI has no any obligation to continue to calculate and publish, and may discontinue calculation and publication of the EAFE Index.
The 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 EAFE Index is
calculated daily in U.S. dollars and published in real time every 60 seconds during market trading hours. The EAFE Index currently consists of the following 21 developed countries: Australia, Austria, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Ireland, Israel, Italy, Japan, The Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. The 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 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.
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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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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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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The SPDR® Gold Trust
The SPDR® Gold Trust, or the Gold Trust, issues SPDR® Gold Shares, or the “Shares,” which represent units of fractional
undivided beneficial interest in and ownership of the Gold Trust. World Gold Trust Services, LLC is the sponsor of the Gold Trust, or the Sponsor. BNY Mellon Asset Servicing, a division of The Bank of New York Mellon, is the trustee of the Gold
Trust, or the Trustee, HSBC Bank plc is the custodian of the Gold Trust, or the Custodian, and State Street Global Advisors Fund Distributors, LLC is the marketing agent of the Gold Trust, or the Marketing Agent. The Gold Trust intends to issue
additional Shares on a continuous basis through its Trustee. The Gold Trust is not a commodity pool for purposes of the Commodity Exchange Act of 1936, as amended, and its sponsor is not subject to regulation by the Commodity Futures Trading
Commission as a commodity pool operator, or a commodity trading advisor.
The Shares trade on NYSE Arca, Inc., or NYSE Arca, under the symbol “GLD.”
The Shares may be purchased from the Gold Trust only in one or more blocks of 100,000 Shares (a block of 100,000 Shares is called a Basket). The Gold
Trust issues Shares in Baskets to certain authorized participants, or the Authorized Participants, on an ongoing basis. Baskets are offered continuously at the net asset value, or the NAV, for 100,000 Shares on the day that an order to create a
Basket is accepted by the Trustee.
The investment objective of the Gold
Trust is to reflect the performance of the price of gold bullion, less the Gold Trust’s expenses. The Gold Trust holds gold bars. The Gold Trust issues shares in exchange for deposits of gold and distributes gold in connection with the
redemption of shares. The Shares of the Gold Trust are intended to offer investors an opportunity to participate in the gold market through an investment in securities. The ownership of the Shares of the Gold Trust is intended to overcome
certain barriers to entry in the gold market, such as the logistics of buying, storing and insuring gold.
The Shares of the Gold Trust represent
units of fractional undivided beneficial interest in and ownership of the Gold Trust, the primary asset of which is allocated (or secured) gold. The Gold Trust is not managed like a corporation or an active investment vehicle. The gold held by
the Gold Trust will be sold only: (1) on an as-needed basis to pay the Gold Trust’s expenses, (2) in the event the Gold Trust terminates and liquidates its assets or (3) as otherwise required by law or regulation.
Creation and Redemption
The SPDR® Gold Trust creates and redeems the Shares from time to time, but only in one or more baskets (a “basket” equals a block of
100,000 shares). The creation and redemption of baskets requires the delivery to the Gold Trust or the distribution by the Gold Trust of the amount of gold and any cash represented by the baskets being created or redeemed, the amount of which is
based on the combined net asset value of the number of Shares included in the baskets being created or redeemed. The initial amount of gold required for deposit with the Gold Trust to create shares for the period from the formation of the Gold
Trust to the first day of trading of the Shares on the NYSE was 10,000 ounces per basket. The number of ounces of gold required to create a basket or to be delivered upon the redemption of a basket gradually decreases over time, due to the
accrual of the Gold Trust’s expenses and the sale of the Gold Trust’s gold to pay the Gold Trust’s expenses. Baskets may be created or redeemed only by authorized participants, who pay a transaction fee for each order to create or redeem baskets
and may sell the Shares included in the baskets they create to other investors.
Valuation of Gold; Computation of Net Asset Value
The Trustee determines the NAV of the Gold Trust on each day that NYSE Arca is open for regular trading at the earlier of (i) the afternoon session
of the twice daily determination of the price of an ounce of gold through an auction by the London Bullion Market Association, or LBMA, administered by the ICE Benchmark Administration, or the IBA, which starts at 3:00 PM London, England time, or
the LBMA Gold Price PM, or (ii) 12:00 PM New York time. The LBMA Gold Price PM is determined by participants in a physically settled, electronic and tradable auction. The LBMA Gold Price PM replaced the previously established London PM Gold Fix
on March 20, 2015. The NAV of the Gold Trust is the aggregate value of the Gold Trust’s assets less its estimated accrued but unpaid liabilities (which include accrued expenses). In determining the Gold Trust’s NAV, the Trustee values the gold
held by the Gold Trust based on the LBMA Gold Price PM for an ounce of gold. The Trustee also determines the NAV per Share.
The Custodian is HSBC Bank plc and is responsible for the safekeeping of the Gold Trust’s gold bars transferred to it in connection with the creation of Baskets by
Authorized Participants. The Custodian also facilitates the transfer of gold in and out of the Gold Trust through gold accounts it maintains for Authorized Participants and the Gold Trust. The Custodian is a market maker, clearer and approved
weigher under the rules of the LBMA.
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Best Profile Notes
Linked to the Best Performing Basket of Five Exchange Traded Funds
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iShares iBoxx $ High
Yield Corporate Bond ETF
The iShares iBoxx $ High Yield Corporate
Bond ETF trades on the NYSE Arca, Inc. under the ticker symbol “HYG.”
The HYG seeks to track the investment results of the Markit iBoxx® USD Liquid High Yield Index (the “HY Index”). The underlying index is a
rules-based index consisting of liquid U.S. dollar-denominated, high yield corporate bonds for sale in the United States, which is designed to provide a broad representation of the U.S. dollar-denominated high yield liquid corporate bond market.
The HYG generally invests at least 90% of its assets in securities that comprise the underlying index and in investments that provide substantially
similar exposure to the securities in the underlying index. The HYG is passively managed and employs a Representative Sampling Strategy. The ETF’s investment adviser is BlackRock Fund Advisors, and the underlying index is sponsored by Markit
Indices Limited (“Markit”). More information regarding the HYG can be located on the iShares website; however, information on that website is not included or incorporated by reference into this document. The HYG is issued by the iShares Trust, a
registered investment company.
The iBoxx® $ Liquid High Yield Index (the “HY Index”)
The HY index is published by Markit. Markit has no obligation to continue to publish, and may discontinue publication of, the HY Index at any time.
The HY Index is designed to reflect the performance of the U.S. dollar-denominated high yield corporate debt. The HY Index is market-value weighted
with an issuer cap of 3%.
The HY Index consists of sub-investment grade U.S. dollar-denominated bonds issued by corporate issuers from developed countries and rated by at
least one of three rating services: Fitch Ratings (“Fitch”), Moody’s Investors Service (“Moody’s”) or Standard & Poor’s Rating Services (“S&P”). The HY Index composition is rebalanced once a month, after the close of business on the last
business day of the rebalancing month (the “rebalancing date”). The new HY Index composition becomes effective on the first business day of the next month (the “composition month”).
The bonds in the HY Index must meet all the criteria described below as of the close of business three business days prior to the rebalancing date,
provided that the relevant bond data can be verified, at Markit’s sole discretion, as of such date (the “bond selection cut-off date”).
The HY Index is based on multi-sourced pricing which, depending on the structure of each market, takes into account a variety of data inputs such as
transaction data, quotes from market makers and other observable data points. Prices for the bonds in the HY Index are sourced from a number of leading market makers. The received quotes are subject to a quality control process which is intended
to exclude stale or off-market prices, and the quotes that pass the quality control are consolidated to the HY Index price. Additionally, the HY Index rules and their application are governed by two committees:
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Technical Committee: composed of representatives of market makers and banks. The Technical Committee meets
once a month in order to provide feedback and information as to the monthly rebalancing, and to monitor market developments. It also provides assistance in the identification of eligible constituents, especially in the instance where
the eligibility or the classification of a bond is unclear or contentious. Additionally, the Technical Committee discusses any market developments which may warrant index rule changes and provides recommendations on changes to the
rules.
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Oversight Committee: composed of representatives from a broad range of asset managers, consultants and
industry bodies. The purpose of the Oversight Committee is to review the recommendations of the Technical Committee and also to provide consultation on any market developments which may warrant rule changes.
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Selection Criteria for the iBoxx $ Liquid High Yield Index
The following selection criteria are applied to select the constituents for the HY Index:
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Bond Type. Only fixed-rate bonds whose cash flow can be determined in advance are eligible for the HY
Index. The HY Index is comprised solely of bonds. Treasury Bills and other money market instruments are not eligible. The HY Index includes only U.S. dollar denominated bonds. In particular, bonds with the following characteristics
are included: fixed coupon bonds, step-up bonds with coupon schedules known at issuance (or as functions of the issuer’s rating), sinking funds and amortizing bonds, medium-term notes, Rule 144A offerings, callable bonds and putable
bonds. The following instrument types are specifically excluded from the HY Index: preferred shares, optionally and mandatorily convertible bonds, subordinated bank or insurance debt with mandatory contingent conversion features or
with any conversion options before the first call date, bonds with other equity features attached (e.g., options or warrants), private placements, perpetual bonds (unless callable and meets the time to maturity requirements set forth
below), floating rate notes, pay-in-kind bonds (during the pay-in-kind period), zero coupon bonds, zero step-ups (GAINS), bonds with differences between accrual and coupon payment periods and monthly-paying bonds, and Regulation S
offerings.
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Best Profile Notes
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Any bond subject to a firm call or tender offer, with the exception of exchange offers, in the month immediately following the
rebalancing date will be excluded from the HY Index, provided that Markit is aware of that tender offer or call as of the bond selection cut-off date.
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Credit Rating. Bonds in the HY Index must have a Markit iBoxx Rating of sub-investment grade, which is
defined as BB+ or lower by S&P or Fitch or Ba1 or lower by Moody’s, but the bonds must not be in default. If a bond is rated by more than one of the foregoing ratings agencies, then the Markit iBoxx Rating is the average of the
provided ratings. The rating is consolidated to the nearest rating grade in accordance with the Markit iBoxx Rules. Rating notches are not used. Issues rated D by Fitch or S&P, or that have been subject to a default press release
by Moody’s cannot enter the HY Index. Those issues in the HY Index that are subsequently downgraded to D by Fitch or S&P or subject to a default press release by Moody’s (as of the bond selection cut-off date) will be taken out of
the HY Index on the next rebalancing date. After a bond has migrated into high yield from investment grade status, it must retain that status for three months (the “stabilization period”) before it can be included in the HY Index. In
case of an ID change or exchange of a 144A version into a registered bond, the ratings from the 144A bond are also used for the registered bond.
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Time to Maturity. To qualify for entry in the HY Index, at the balancing day, bonds must have at least one
year to maturity and new insertions must have at least 18 months remaining to maturity. All bonds must have an expected remaining term of 15 years or less.
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Amount Outstanding. The outstanding face value of all non-convertible bonds denominated in U.S. dollars
from the issuer must be greater than or equal to $1 billion as of the bond selection cut-off date. The outstanding face value of a bond must be greater than or equal to $400 million as of the bond selection cut-off date. Partial
buybacks or increases will affect the outstanding face value of a prospective bond. Markit considers changes to the outstanding face value of a candidate bond as a result of partial or full buybacks or increases, provided that Markit
is aware of such changes as of the bond selection cut-off date. In the case of 144A securities that are registered as global securities, the remaining amount of the 144A version and the registered version are recombined if the bond is
not exchanged in full and if the remaining amount of the 144A version reduces the amount outstanding below the eligibility threshold.
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Bond Classification. All bonds are classified based on the principal activities of the issuer and the main
sources of the cash flows used to pay coupons and redemptions. Bonds must be denominated in U.S. dollars and must be corporate credit, i.e., debt instruments backed by corporate issuers that are not secured by specific assets. Debt
issued by governments, sovereigns, quasi-sovereigns and government-backed or guaranteed entities is excluded. Bonds eligible for the HY index must be issued from countries classified as developed markets based on the “Markit Global
Economic Development Classification,” which is updated once per year.
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Each bond in the HY Index is assigned to one of the following sectors: Oil & Gas, Basic Materials, Industrials, Consumer
Goods, Health Care, Consumer Services, Telecommunications, Technology, Utilities, Financials and Technology.
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Lockout Period. A bond that drops out of the HY Index at the rebalancing day is excluded from re-entering
the index for a three-month period. The rule for the lockout period takes precedence over the other rules for the HY Index selection. A locked out bond will not be selected, even if it qualifies for the HY Index
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Minimum Run. Any bond that enters the HY Index must remain in the HY Index for a minimum of six months,
provided it is not upgraded to investment grade, defaulted or fully redeemed in that period.
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Index Review
Index methodology reviews for the HY Index are performed on a periodic basis. Any material changes to the methodology governing the HY Index are
published on the Markit website.
Index Rebalancing
The HY Index is rebalanced every month, on the last business day of the month. Any inclusion after the bond selection cut-off date will not be
considered in the re-balancing process, but will become effective at the end of the following month. Changes to amounts outstanding and ratings are taken into account only if they are known to have taken place three business days before the end
of the month. New bonds issued are taken into account if they are publicly known to settle until the last calendar day of the month, inclusive, and if their rating and amount outstanding has become known at least three trading days before the end
of the month.
In a first step, the selection criteria set out above are applied to the universe of U.S. dollar-denominated bonds. Bond ratings and amount outstanding are used as of the bond selection cut-off date.
Maturity dates remain fixed for the life of the bond. Only bonds with a first settlement date on or before the rebalancing date are included in the selection process. Once the eligible bond universe has been defined, the weight for each bond is
determined and if necessary capped, applying an issuer cap of 3%. The weights and capping factors are determined on the last business day of each month using the end-of-month market values.
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Best Profile Notes
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Treatment of Special Intra-Month Events
If a bond is fully redeemed intra-month, the bond effectively ceases to exist. In all calculations, the redeemed bond is treated as cash based on the
last iBoxx price, the call price or the repurchase price, as applicable. A redemption factor and redemption price are used to treat these events in the HY Index and in calculations relating thereto. In addition, the clean price of the bond is set
to the redemption price, and the interest accrued until the redemption date is treated as an irregular coupon payment.
If a bond is identified as trading flat of accrued, the accrued interest on the bond is set to zero in the total return index calculation and the
bond is excluded from the calculation of all bond and index analytical values.
Some bonds have predefined coupon changes that lead to a change in the annual coupon over the life of the bond. In all instances, the coupon change must be a fixed
amount on top of a fixed coupon; accordingly, floating coupon bonds are not eligible for the HY Index. The two main categories of bonds with coupon changes of this nature are step-up bonds and event-driven bonds. Step-up bonds have a pre-defined
coupon schedule that cannot change during the life of the bond. That coupon schedule is used in all bond calculations. Event-driven bonds’ coupons may change upon the occurrence (or non-occurrence) of specified events, such as ratings changes,
failure to register a bond or failure to complete a merger. In the calculation of the HY Index and the analytics, the coupon schedule as of the calculation date is used. Any events occurring after the calculation date are ignored in the
determination of the applicable coupon schedule.
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Best Profile Notes
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iShares iBoxx $
Investment Grade Corporate Bond Fund
iShares iBoxx $ Investment Grade
Corporate Bond Fund trades on the NYSE Arca, Inc. under the ticker symbol “LQD.”
The LQD generally invests at least 90% of its assets in securities that comprise the underlying index and at least 95% of its assets in
investment-grade corporate bonds. The LQD is passively managed and employs a representative sampling strategy. The LQD’s investment adviser is BlackRock Fund Advisors and the underlying index is sponsored by Markit. More information regarding the
LQD can be located on the iShares website; however, information on that website is not included or incorporated by reference into this document.
The LQD is issued by the iShares Trust, a registered investment company. The LQD seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of its underlying index, the U.S. dollar-denominated liquid investment
grade corporate bond market, as defined by the Markit iBoxx® $ Liquid Investment Grade Index (the “IG Index”). As described below, bonds issued by issuers organized in a variety of developed countries are eligible for inclusion in the IG Index.
The iBoxx® $ Liquid Investment Grade Index (the “IG Index”)
The IG index is published by Markit. Markit has no obligation to continue to publish, and may discontinue publication of, the IG Index at any time.
The IG Index is designed to reflect the performance of the U.S. dollar-denominated investment grade corporate debt. The IG Index is market-value
weighted with an issuer cap of 3%.
The IG Index consists of investment grade U.S. dollar-denominated bonds issued by corporate issuers from developed countries and rated by at least
one of three rating services: Fitch Ratings (“Fitch”), Moody’s Investors Service (“Moody’s”) or Standard & Poor’s Rating Services (“S&P”). The IG Index composition is rebalanced once a month, after the close of business on the last
business day of the rebalancing month (the “rebalancing date”). The new IG Index composition becomes effective on the first business day of the next month.
The bonds in the IG Index must meet all the criteria described below as of the close of business three business days prior to the rebalancing date,
provided that the relevant bond data can be verified, at Markit’s sole discretion, as of such date (the “bond selection cut-off date”).
The IG Index is based on multi-sourced pricing which, depending on the structure of each market, takes into account a variety of data inputs such as
transaction data, quotes from market makers and other observable data points. Prices for the bonds in the IG Index are sourced from a number of leading market makers. The received quotes are subject to a quality control process which is intended
to exclude stale or off-market prices, and the quotes that pass the quality control are consolidated to the IG Index price. Additionally, the IG Index rules and their application are governed by two committees:
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Technical Committee: composed of representatives of market makers and banks. The Technical Committee meets
once a month in order to provide feedback and information as to the monthly rebalancing, and to monitor market developments. It also provides assistance in the identification of eligible constituents, especially in the instance where
the eligibility or the classification of a bond is unclear or contentious. Additionally, the Technical Committee discusses any market developments which may warrant index rule changes and provides recommendations on changes to the
rules.
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Oversight Committee: composed of representatives from a broad range of asset managers, consultants and
industry bodies. The purpose of the Oversight Committee is to review the recommendations of the Technical Committee and also to provide consultation on any market developments which may warrant rule changes.
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Selection Criteria for the iBoxx $ Liquid Investment Grade Index
The following selection criteria are applied to select the constituents for the IG Index:
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Bond Type. Only fixed-rate bonds whose cash flow can be determined in advance are eligible for the IG
Index. The IG Index is comprised solely of bonds. Treasury Bills and other money market instruments are not eligible. The IG Index includes only U.S. dollar denominated bonds. In particular, bonds with the following characteristics
are included: fixed coupon bonds, step-up bonds with coupon schedules known at issuance (or as functions of the issuer’s rating), sinking funds and amortizing bonds, medium-term notes, Rule 144A offerings with a registration right,
callable bonds and putable bonds. The following instrument types are specifically excluded from the IG Index: preferred shares, optionally and mandatorily convertible bonds, subordinated bank or insurance debt with mandatory
contingent conversion features or with any conversion options before the first call date, bonds with other equity features attached (e.g., options or warrants), private placements, perpetual bonds, fixed-
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Best Profile Notes
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to-floater bonds, floating rate notes, pay-in-kind bonds (during the pay-in-kind period), zero coupon bonds, zero step-ups (GAINS)
and bonds with differences between accrual and coupon payment periods and monthly-paying bonds.
Any bond subject to a firm call or tender offer, with the exception of exchange offers, in the month immediately following the
rebalancing date will be excluded from the IG Index, provided that Markit is aware of that tender offer or call as of the bond selection cut-off date.
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Credit Rating. Bonds in the IG Index must have a Markit iBoxx Rating of investment grade, which is defined
as BBB- or above by S&P or Fitch or Baa3 or above by Moody’s. If a bond is rated by more than one of the foregoing ratings agencies, then the Markit iBoxx Rating is the average of the provided ratings. The rating is consolidated
to the nearest rating grade in accordance with the Markit iBoxx Rules. Rating notches are not used. In case of an ID change or exchange of a Rule 144A/Regulation S offering into a registered bond, the ratings from the Rule
144A/Regulation S offering are also used for the registered bond.
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Time to Maturity. To qualify for entry in the IG Index, at the balancing day, bonds must have at least
three years, and all new insertions must have at least three years and six months remaining in their term.
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Amount Outstanding. The outstanding face value of all bonds (excluding fixed-to-floater and perpetual
bonds) denominated in U.S. dollars from the issuer must be greater than or equal to $2 billion as of the bond selection cut-off date. The outstanding face value of a bond must be greater than or equal to $750 million as of the bond
selection cut-off date. Partial buybacks or increases will affect the outstanding face value of a prospective bond. Markit considers changes to the outstanding face value of a candidate bond as a result of partial or full buybacks or
increases, provided that Markit is aware of such changes as of the bond selection cut-off date. In the case of Regulation S securities that are registered as global securities, the remaining amount of the Regulation S version and the
registered version are recombined if the bond is not exchanged in full and if the remaining amount of the Regulation S version reduces the amount outstanding below the eligibility threshold.
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Bond Classification. All bonds are classified based on the principal activities of the issuer and the main
sources of the cash flows used to pay coupons and redemptions. Bonds must be denominated in U.S. dollars with clearance and settlement available through DTC. The securities need to be either publicly registered in the United States
with the SEC or Rule 144A offerings with registration rights. Eurobonds are excluded.
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Bonds must be corporate credit, i.e., debt instruments backed by corporate issuers that are not secured by specific assets. Debt
issued by governments, sovereigns, quasi-sovereigns and government-backed or guaranteed entities is excluded. Bonds eligible for the IG index must be issued from countries classified as developed markets based on the “Markit Global Economic
Development Classification,” which is updated once per year.
Each bond in the IG Index is assigned to one of the following sectors: Consumer Goods, Consumer Services, Financials, Industrials
& Materials, Telecommunication & Technology and Utilities & Energy.
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Lockout Period. A bond that drops out of the IG Index at the rebalancing day is excluded from re-entering
the index for a three-month period. The rule for the lockout period takes precedence over the other rules for the IG Index selection. A locked out bond will not be selected, even if it qualifies for the IG Index
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Minimum Run. Any bond that enters the IG Index must remain in the IG Index for a minimum of six months,
provided it is not downgraded to sub-investment grade, defaulted or fully redeemed in that period.
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Index Review
Index methodology reviews for the IG Index are performed on a periodic basis. Any material changes to the methodology governing the IG Index are
published on the Markit website.
Index Calculation
The calculation of the IG Index is based on bid prices. New bonds are included in the indices at their respective ask prices when they enter the
index.
Index Rebalancing
The IG Index is rebalanced every month, on the last business day of the month after the close of business, i.e., the rebalancing date. Any inclusion after the bond
selection cut-off date will not be considered in the re-balancing process, but will become effective at the end of the following month. Changes to amounts outstanding and ratings are taken into account only if they are known to have taken place
three business days before the end of the month. New bonds issued are taken into account if they are publicly known to settle until the last calendar day of the month, inclusive, and if their rating and amount outstanding has become known at
least three trading days before the end of the month.
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Best Profile Notes
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In a first step, the selection criteria set out above are applied to the universe of the broader Markit iBoxx USD Corporate Investment Grade Index.
Bond ratings and amount outstanding are used as of the bond selection cut-off date. Maturity dates remain fixed for the life of the bond. Only bonds with a first settlement date on or before the rebalancing date are included in the selection
process. Once the eligible bond universe has been defined, the weight for each bond is determined and if necessary capped, applying an issuer cap of 3%. The weights and capping factors are determined on the last business day of each month using
the end-of-month market values.
Treatment of Special Intra-Month Events
If a bond is fully redeemed intra-month, the bond effectively ceases to exist. In all calculations, the redeemed bond is treated as cash based on the
last iBoxx price, the call price or the repurchase price, as applicable. A redemption factor and redemption price is used to treat these events in the IG Index and in calculations relating thereto. In addition, the clean price of the bond is set
to the redemption price, and the interest accrued until the redemption date is treated as an irregular coupon payment.
If a bond is identified as trading flat of accrued, the accrued interest on the bond is set to zero in the total return index calculation and the
bond is excluded from the calculation of all bond and index analytical values.
Some bonds have predefined coupon changes that lead to a change in the annual coupon over the life of the bond. In all instances, the coupon change must be a fixed
amount on top of a fixed coupon; accordingly, floating coupon bonds are not eligible for the IG Index. The two main categories of bonds with coupon changes of this nature are step-up bonds and event-driven bonds. Step-up bonds have a pre-defined
coupon schedule that cannot change during the life of the bond. That coupon schedule is used in all bond calculations. Event-driven bonds’ coupons may change upon the occurrence (or non-occurrence) of specified events, such as ratings changes,
failure to register a bond or failure to complete a merger. In the calculation of the IG Index and the analytics, the coupon schedule as of the calculation date is used. Any events occurring after the calculation date are ignored in the
determination of the applicable coupon schedule.
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Best Profile Notes
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HISTORICAL INFORMATION
The graphs below set forth the information relating to the historical performance of each Basket Component from January 1, 2009 to
February 5, 2019.
We obtained the information in the graphs 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 Basket Components should not be taken as an indication of its future performance, and no assurance can be given as to the Final Level of any of the Basket Components. We cannot give you assurance that the performance
of the Basket Components will result in any positive return on your initial investment.
SPDR S&P500 ETF Trust (SPY)
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
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iShares MSCI EAFE ETF (EFA)
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
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Best Profile Notes
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SPDR Gold Trust (GLD)
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
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Best Profile Notes
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iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
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Best Profile Notes
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iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
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Best Profile Notes
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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 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
and 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. Although U.S. Treasury Department regulations 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, we have determined that the Notes are delta-one instruments. In addition, U.S. Treasury Department regulations exclude instruments linked to a “qualified index” (as defined in the applicable
U.S. Treasury Department regulations) or an exchange traded fund that tracks a qualified index. Based on our determination that the Basket Components are each an exchange traded fund that tracks a qualified index, non-U.S. holders should not be
subject to withholding on dividend equivalent payments, if any, under the Notes. 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.
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, 2018. That discussion is modified to reflect regulations proposed by the U.S. Treasury Department in December 2018 indicating an intent to eliminate the requirement under FATCA of withholding on
gross proceeds of the disposition of financial instruments. The U.S. Treasury Department has indicated that taxpayers may rely on these proposed regulations pending their finalization. Prospective investors are urged to consult with their own tax
advisors regarding the possible implications of FATCA on their investment in the Notes.
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 February 28, 2019, which is the third
business day following the Trade Date (this settlement cycle being referred to as “T+3”). See “Plan of Distribution” in the prospectus. For additional information as to the relationship between us and RBC Capital Markets, LLC, please see the
section “Plan of Distribution—Conflicts of Interest” in the prospectus.
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 settlement arrangements to prevent a failed settlement.
The value of the Notes shown on your account statement may be based on RBCCM’s estimate of the value of the Notes if RBCCM or
another of our affiliates were to make a market in the Notes (which it is not obligated to do). That estimate will be based upon the price that RBCCM may pay for the Notes in light of then prevailing market conditions, our creditworthiness and
transaction costs. For a period of approximately twelve 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.
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Best Profile Notes
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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 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 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 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.