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April 2019
MSELN-381-C
Registration Statement No. 333-227001
Dated March 27, 2019
Filed Pursuant to Rule 433
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STRUCTURED INVESTMENTS
Opportunities in International Equities
PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
The PLUS are senior unsecured obligations of Royal Bank of Canada, do not pay interest, do not guarantee any return of principal at
maturity and have the terms described in the accompanying prospectus supplement and prospectus, as supplemented or modified by this document. At maturity, if the level of the underlying index has increased, investors will receive the stated principal amount of their investment plus a return reflecting the leveraged upside performance of the underlying index, subject to the maximum payment at maturity. However,
if the level of the underlying index has decreased, investors will lose 1% for every 1% decline in the level over the term of the PLUS. Under these circumstances, the
payment at maturity will be less than the stated principal amount and could be zero. Accordingly, you may lose your entire investment. The PLUS are for investors who seek an equity index-based return and who are willing to risk their principal
and forgo current income and upside above the maximum payment at maturity in exchange for the upside leverage feature, which applies to a limited range of positive performance of the underlying index. The PLUS are senior notes issued as part of
Royal Bank of Canada’s Global Medium-Term Notes, Series H program. All payments on the PLUS are subject to the credit risk of Royal Bank of Canada.
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SUMMARY TERMS
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Issuer:
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Royal Bank of Canada
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Underlying index:
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The EURO STOXX 50®Index (Bloomberg symbol: “SX5E”)
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Aggregate principal amount:
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$
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Stated principal amount:
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$10 per PLUS
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Issue price:
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$10 per PLUS
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Pricing date:
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April 12, 2019
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Issue date:
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April 17, 2019 (three business days after the pricing date)
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Maturity date:
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August 5, 2020, subject to adjustment as described in “Additional Terms of the PLUS” below.
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Payment at maturity:
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If the final index level is greater than the
initial index level,
$10 + $10 × leverage factor × underlying index return
In no event will the payment at maturity exceed the maximum payment at maturity.
If the final index level is less than or equal to
the initial index level,
$10 + $10 × underlying index return
Under these circumstances, the payment at maturity will be less than or equal to the stated principal
amount of $10. You will lose some or all of the principal amount if the final index level is less than the initial index level.
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Maximum payment at maturity:
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$15.073 per PLUS (150.73% of the stated principal amount).
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Leverage factor:
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300%
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Underlying index return:
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(final index level - initial index level) / initial index level
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Initial index level:
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, which is the closing level of the underlying index on the pricing date
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Final index level:
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The closing level of the underlying index on the valuation date
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Valuation date:
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July 31, 2020, subject to adjustment for non-trading days and certain market disruption events
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CUSIP/ISIN:
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78014H508 / US78014H5081
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Listing:
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The PLUS will not be listed on any securities exchange.
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Agent:
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RBC Capital Markets, LLC (“RBCCM”).
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Commissions and issue price:
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Price to public
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Agent’s commissions
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Proceeds to issuer
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Per PLUS
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$10.000
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$0.175(1)
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$0.050(2)
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$9.775
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Total
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$
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$
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$
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(1) RBCCM, acting as agent for Royal Bank of Canada, will receive a fee of $0.225 per $10 stated principal amount and will pay to Morgan Stanley Wealth
Management (“MSWM”) a fixed sales commission of $0.175 for each PLUS that MSWM sells. See “Supplemental Information Regarding Plan of Distribution; Conflicts of Interest.”
(2) Of the amount per $10 stated principal amount received by RBCCM, acting as agent for Royal Bank of Canada, RBCCM will pay MSWM a
structuring fee of $0.05 for each PLUS.
The pricing date, the issue date and other dates set forth above are subject to change, and will be set forth in the pricing supplement relating to
the PLUS. The initial estimated value of the PLUS as of the pricing date is expected to be between $9.5234 and $9.7234 per $10 PLUS, and will be less than the price to public. The pricing supplement relating to the PLUS will set forth our
estimate of the initial value of the PLUS as of the pricing date. The market value of the PLUS at any time will reflect many factors, cannot be predicted with accuracy, and may be less than this amount.
An investment in the PLUS involves certain risks. See “Risk Factors” beginning on page 6 of this document, beginning on page S-1 of the accompanying
prospectus supplement, and beginning on page 1 of the prospectus.
You should read this document together with the related prospectus supplement and prospectus, each of which can
be accessed via the hyperlinks below, before you decide to invest. Please also see “Additional Terms of the PLUS” in this document.
None of the Securities and Exchange Commission, any state securities commission
or any other regulatory body has approved or disapproved of the PLUS or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense. The PLUS 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 PLUS are not subject to conversion into our common shares under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act.
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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Investment Summary
Performance Leveraged Upside Securities
Principal at Risk Securities
The PLUS Based on the Performance of the EURO STOXX 50® Index, due August 5, 2020 (the “PLUS”) can be used:
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As an alternative to direct exposure to the underlying index that enhances returns for a certain range of positive performance of the underlying index, subject to the maximum payment
at maturity.
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To enhance returns and potentially outperform the underlying index in a moderately bullish scenario.
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To achieve similar levels of upside exposure to the underlying index as a direct investment, subject to the maximum payment at maturity, while using fewer dollars by taking advantage
of the leverage factor.
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The PLUS are exposed on a 1:1 basis to the negative performance of the underlying index.
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Maturity:
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Approximately 15 months
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Leverage factor:
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300% (applicable only if the final index level is greater than the initial index level)
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Maximum payment at maturity:
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$15.073 per PLUS (150.73% of the stated principal amount).
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Minimum payment at maturity:
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None. Investors may lose their entire initial investment in the PLUS.
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Coupon:
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None
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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Key Investment Rationale
These PLUS offer leveraged exposure to the performance of the underlying index. In exchange for enhanced performance of 300% of
the appreciation of the underlying index, investors forgo performance above the maximum payment at maturity of $15.073 per PLUS and are fully exposed to any negative performance of the underlying index. At maturity, if the level of the underlying
index has increased, investors will receive the stated principal amount of their investment plus a return reflecting the leveraged upside performance of the underlying
index, subject to the maximum payment at maturity. If the level of the underlying index remains unchanged, investors will receive the stated principal amount. However, if the level of the underlying index has decreased, investors will lose 1% for every 1% decline in the level of the underlying index over the term of the PLUS. Under these circumstances, the payment at maturity will be less than the stated
principal amount and could be zero. Accordingly, you may lose your entire investment.
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Leveraged
Upside
Performance
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The PLUS offer investors an opportunity to capture enhanced returns relative to a direct investment in the underlying index within a certain range of positive
performance.
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Upside
Scenario
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The level of the underlying index increases and, at maturity, we will pay the stated principal amount of $10 plus 300% of the underlying index return, subject
to the maximum payment at maturity of $15.073 per PLUS (150.73% of the stated principal amount)
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Par Scenario
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The final index level is equal to the initial index level. In this case, you receive the stated principal amount of $10 at maturity.
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Downside
Scenario
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The level of the underlying index declines and, at maturity, we will pay less than the stated principal amount by an amount that is proportionate to the
percentage decrease in the level of the underlying index from the initial index level. There is no minimum payment at maturity.
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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Additional Information
You should read this document together with the prospectus dated September 7, 2018, as supplemented by the prospectus supplement
dated September 7, 2018, relating to our Senior Global Medium-Term Notes, Series H, of which the PLUS are a part. This document, together with these documents, contains the terms of the PLUS and supersedes all other 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 rely only on the information provided or incorporated by reference in this document, the prospectus and the prospectus
supplement. We have not authorized anyone else to provide you with different information, and we take no responsibility for any other information that others may give you. We and Morgan Stanley Wealth Management are offering to sell the PLUS and
seeking offers to buy the PLUS only in jurisdictions where it is lawful to do so. The information contained in this document and the accompanying prospectus supplement and prospectus is current only as of their respective dates.
If the information in this document differs from the information contained in the prospectus supplement or the prospectus, you should rely on the
information in this document.
You should carefully consider, among other things, the matters set forth in “Risk Factors” in this document and the accompanying prospectus
supplement and prospectus, as the PLUS involve risks not associated with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisers before you invest in the PLUS.
You may access these documents on the SEC website at www.sec.gov
as follows (or if such address has changed, by reviewing our filings for the relevant date on the SEC website):
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Prospectus dated September 7, 2018:
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Prospectus Supplement dated September 7, 2018:
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Our Central Index Key, or CIK, on the SEC website is 1000275.
Please see the section “Documents Incorporated by Reference” on page i of the above prospectus for a description of our filings with the SEC that are incorporated by
reference therein.
The issuer has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication
relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free
by visiting EDGAR on the SEC website at.www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in this offering will arrange to send
you the prospectus if you request it by calling toll-free 1-877-688-2301.
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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How the PLUS Work
Payoff Diagram
The payoff diagram below illustrates the payment at maturity on the PLUS for a range of hypothetical percentage changes in the
closing level of the underlying index. The graph is based on the following terms:
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Stated principal amount:
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$10 per PLUS
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Leverage factor:
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300%
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Maximum payment at maturity:
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$15.073 per PLUS (150.73% of the stated principal amount).
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Minimum payment at maturity:
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None
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PLUS Payoff Diagram
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n The PLUS
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n The Underlying Index
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How it works
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Upside Scenario. If the final index level is greater than the initial index
level, then investors would receive the $10 stated principal amount plus a return reflecting 300% of the appreciation of the underlying index over the term of the PLUS, subject to the maximum payment at maturity. Under the terms of
the PLUS, an investor would realize the maximum payment at maturity at a final index level of 116.91% of the initial index level.
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If the underlying index appreciates 15%, the investor would receive a 45% return, or $14.50 per PLUS, or 145% of the stated principal amount.
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If the underlying index appreciates 32%, the investor would receive only the maximum payment at maturity of $15.073 per PLUS, or 150.73% of the stated principal amount.
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Par Scenario. If the final index level is equal to the initial index level,
the investor would receive an amount equal to the $10 stated principal amount.
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Downside Scenario. If the final index level is less than the initial index
level, the investor would receive an amount that is less than the $10 stated principal amount, based on a 1% loss of principal for each 1% decline in the underlying index. Under these circumstances, the payment at maturity will be
less than the stated principal amount per PLUS. There is no minimum payment at maturity on the PLUS.
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If the underlying index depreciates 30%, the investor would lose 30% of the investor’s principal and receive only $7.00 per PLUS at maturity, or 70% of the stated principal amount.
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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Risk Factors
An investment in the PLUS is subject to the risks described below, as well as the risks described under “Risk
Factors” in the accompanying prospectus supplement and prospectus. Investors in the PLUS are also exposed to further risks related to the issuer of the PLUS, Royal Bank of Canada, which are described in Royal Bank of Canada’s annual report on
Form 40-F for its most recently completed fiscal year, filed with the SEC and incorporated by reference herein. See the categories of risks, identified and disclosed in the management’s discussion and analysis of financial condition and results
of operations included in the annual report on Form 40-F. This section (and the management’s discussion and analysis section of the annual report on Form 40-F) describes the most significant risks relating to the PLUS. You should carefully
consider whether the PLUS are suited to your particular circumstances.
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The PLUS do not pay interest or guarantee return of principal. The terms of the PLUS differ from those of
ordinary debt securities in that the PLUS do not pay interest or guarantee payment of the principal amount at maturity. If the final index level is less than the initial index level, the payout at maturity will be an amount in cash
that is less than the $10 stated principal amount of each PLUS by an amount proportionate to the full decrease in the level of the underlying index over the term of the PLUS. There is no minimum payment at maturity on the PLUS, and,
accordingly, you could lose your entire initial investment in the PLUS.
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The appreciation potential of the PLUS is limited by the maximum payment at maturity. The appreciation
potential of the PLUS is limited by the maximum payment at maturity of $15.073 per PLUS, or 150.73% of the stated principal amount. Although the leverage factor provides 300% exposure to any increase in the level of the underlying
index as of the valuation date above the initial index level, because the payment at maturity will be limited to 150.73% of the stated principal amount, any increase in the final index level over the initial index level by more than
16.91% will not further increase the return on the PLUS.
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The market price of the PLUS will be influenced by many unpredictable factors. Many factors will influence
the value of the PLUS in the secondary market and the price at which RBCCM may be willing to purchase or sell the PLUS in the secondary market, including:
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the trading price and volatility (frequency and magnitude of changes in value) of the securities represented by the underlying index;
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dividend yields on the securities represented by the underlying index;
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market interest rates;
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our creditworthiness, as represented by our credit ratings or as otherwise perceived in the market;
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time remaining to maturity;
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geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying index; and
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the exchange rate between the U.S. dollar and the euro.
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The level of the underlying index may be volatile, and you should not take the historical levels of the
underlying index as an indication of future performance. See “Information About the Underlying Index” below. You may receive less, and possibly significantly less, than the stated principal amount per PLUS if you sell your PLUS prior to maturity.
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The PLUS are subject to the credit risk of Royal Bank of Canada, and any actual or anticipated changes to its
credit ratings or credit spreads may adversely affect the market value of the PLUS. You are dependent on Royal Bank of Canada’s ability to pay all amounts due on the PLUS at maturity and therefore you are subject to the
credit risk of Royal Bank of Canada. If Royal Bank of Canada defaults on its obligations under the PLUS, your investment would be at risk and you could lose some or all of your investment. As a result, the market value of the PLUS
prior to maturity will be affected by changes in the market’s view of Royal Bank of Canada’s creditworthiness. Any actual or anticipated decline in Royal Bank of Canada’s credit ratings or increase in the credit spreads charged by the
market for taking Royal Bank of Canada credit risk is likely to adversely affect the market value of the PLUS.
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The amount payable on the PLUS is not linked to the level of the underlying index at any time other than the
valuation date. The final index level will be based on the closing level of the underlying index on the valuation date, subject to adjustment for non-trading days and certain market disruption events. Even if the level of the
underlying index appreciates prior to the valuation date but then decreases on the valuation date to a level that is less than the initial index level, the payment at maturity will be less, and may be significantly less, than it would
have been had the payment at maturity been linked to the level of the underlying index prior to that decrease. Although the actual level of the underlying index on the maturity date or at other times during the term of the PLUS may be
higher than the final index level, the payment at maturity will be based solely on the closing level of the underlying index on the valuation date.
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Investing in the PLUS is not equivalent to investing in the underlying index. Investing in the PLUS is not
equivalent to investing in the underlying index or its component stocks. Investors in the PLUS will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to stocks that
constitute the underlying index.
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The initial estimated value of the PLUS will be less than the price to the public. The initial estimated
value that will be set forth in the pricing supplement for the PLUS, does not represent a minimum price at which we, RBCCM or any of our affiliates would be willing to purchase the PLUS in any secondary market (if any exists) at any
time. If you attempt to sell the PLUS prior to maturity, their market value may be lower than the price you paid for them and the initial estimated value. This is due to, among other things, changes in the level of the underlying
index, the borrowing rate we pay to issue securities of this kind, and the inclusion in the price to the public of the agent’s commissions and the estimated costs relating to our hedging of the PLUS. These
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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factors, together with various credit, market and economic factors over the term of the PLUS, are expected to
reduce the price at which you may be able to sell the PLUS in any secondary market and will affect the value of the PLUS 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 PLUS prior to maturity may be less than your original purchase price, as any such sale price would not be expected to include the agent’s commissions and the hedging costs relating to the PLUS. In addition to
bid-ask spreads, the value of the PLUS 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 PLUS and determine the initial estimated value. As a result,
the secondary price will be less than if the internal funding rate was used. The PLUS are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your PLUS to maturity.
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Our initial estimated value of the PLUS is an estimate only, calculated as of the time the terms of the PLUS are
set. The initial estimated value of the PLUS is based on the value of our obligation to make the payments on the PLUS, together with the mid-market value of the derivative embedded in the terms of the PLUS. See “Structuring
the PLUS” below. Our estimate is based on a variety of assumptions, including our credit spreads, expectations as to dividends, interest rates and volatility, and the expected term of the PLUS. These assumptions are based on certain
forecasts about future events, which may prove to be incorrect. Other entities may value the PLUS or similar securities at a price that is significantly different than we do.
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The value of the PLUS at any time after the pricing date will vary based on many factors, including changes in
market conditions, and cannot be predicted with accuracy. As a result, the actual value you would receive if you sold the PLUS in any secondary market, if any, should be expected to differ materially from the initial estimated value of your PLUS.
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An investment in the PLUS is subject to risks relating to non-U.S. securities markets. Because foreign
companies or foreign equity securities included in the underlying index are publicly traded in the applicable foreign countries and are denominated in currencies other than U.S. dollars, an investment in the PLUS involves particular
risks. For example, the non-U.S. securities markets may be more volatile than the U.S. securities markets, and market developments may affect these markets differently from the U.S. or other securities markets. Direct or indirect
government intervention to stabilize the securities markets outside the U.S., as well as cross-shareholdings in certain companies, may affect trading prices and trading volumes in those markets. Also, the public availability of
information concerning the foreign issuers may vary depending on their home jurisdiction and the reporting requirements imposed by their respective regulators. In addition, the foreign issuers may be subject to accounting, auditing
and financial reporting standards and requirements that differ from those applicable to U.S. reporting companies.
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The PLUS will not be adjusted for changes in exchange rates. Although the equity securities composing the
underlying index are traded in euro, and the PLUS are denominated in U.S. dollars, the amount payable on the PLUS at maturity, if any, will not be adjusted for changes in the exchange rates between the U.S. dollar and the euro.
Changes in exchange rates, however, may also reflect changes in the applicable non-U.S. economies that in turn may affect the level of the underlying index, and therefore the PLUS. The amount we pay in respect of your PLUS on the
maturity date, if any, will be determined solely in accordance with the procedures described in this document.
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Adjustments to the underlying index could adversely affect the value of the PLUS. The sponsor of the
underlying index (the “index sponsor”) may add, delete or substitute the stocks constituting the underlying index, or make other methodological changes. Further, the index sponsor may discontinue or suspend calculation or publication
of the underlying index at any time. Any of these actions could affect the value of and the return on the PLUS.
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We have no affiliation with the index sponsor and will not be responsible for any actions taken by the index
sponsor. The index sponsor is not an affiliate of ours and will not be involved in the offering of the PLUS in any way. Consequently, we have no control over the actions of the index sponsor, including any actions of the
type that would require the calculation agent to adjust the payment to you at maturity. The index sponsor has no obligation of any sort with respect to the PLUS. Thus, the index sponsor has no obligation to take your interests into
consideration for any reason, including in taking any actions that might affect the value of the PLUS. None of our proceeds from the issuance of the PLUS will be delivered to the index sponsor.
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The PLUS will not be listed on any securities exchange and secondary trading may be limited. The PLUS will
not be listed on any securities exchange. Therefore, there may be little or no secondary market for the PLUS. RBCCM may, but is not obligated to, make a market in the PLUS, and, if it chooses to do so at any time, it may cease doing
so. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based on its estimate of the current value of the PLUS, taking into account its bid/offer spread, our credit spreads,
market volatility, the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and the likelihood that it will be able to resell the PLUS. Even if there is a secondary
market, it may not provide enough liquidity to allow you to trade or sell the PLUS easily. Because we do not expect that other broker-dealers will participate significantly in the secondary market for the PLUS, the price at which you
may be able to trade your PLUS is likely to depend on the price, if any, at which RBCCM is willing to transact. If, at any time, RBCCM were not to make a market in the PLUS, it is likely that there would be no secondary market for the
PLUS. Accordingly, you should be willing to hold your PLUS to maturity.
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Historical levels of the underlying index should not be taken as an indication of its future levels during the
term of the PLUS. The trading prices of the equity securities comprising the underlying index will determine the level of the underlying index at any given time. As a result, it is impossible to predict whether the level of
the underlying index will rise or fall. Trading prices of the equity securities comprising the underlying index will be influenced by complex and interrelated political, economic, financial and other factors.
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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Hedging and trading activity by us and our subsidiaries could potentially adversely affect the value of the PLUS.
One or more of our subsidiaries and/or third party dealers expect to carry out hedging activities related to the PLUS (and possibly to other instruments linked to the underlying index or the securities it represents), including
trading in those securities as well as in other related instruments. Some of our subsidiaries also may conduct trading activities relating to the underlying index on a regular basis as part of their general broker-dealer and other
businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially affect the initial index level and, therefore, could increase the level at or above which the underlying index must close on the
valuation date so that investors do not suffer a loss on their initial investment in the PLUS. Additionally, such hedging or trading activities during the term of the PLUS, including on the valuation date, could adversely affect the
closing level of the underlying index on the valuation date and, accordingly, the amount of cash an investor will receive at maturity, if any.
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Our business activities may create conflicts of interest. We and our affiliates may engage in trading
activities related to the underlying index or the securities represented by the underlying index that are not for the account of holders of the PLUS or on their behalf. These trading activities may present a conflict between the
holders’ interest in the PLUS and the interests we and our affiliates will have in proprietary accounts, in facilitating transactions, including options and other derivatives transactions, for our customers and in accounts under our
management. These trading activities could be adverse to the interests of the holders of the PLUS.
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We and our affiliates may presently or from time to time engage in business with one or more of the issuers of
the securities represented by the underlying index. This business may include extending loans to, or making equity investments in, such companies or providing advisory services to such companies, including merger and acquisition advisory
services. In the course of business, we and our affiliates may acquire non-public information relating to these companies, which we have no obligation to disclose to you, and, in addition, one or more of our affiliates may publish research
reports about these companies. Neither we nor the agent have made any independent investigation regarding any matters whatsoever relating to the issuers of the securities represented by the underlying index.
Moreover, we and our affiliates may have published, and in the future expect to publish, research reports with
respect to the underlying index or the securities which it represents. 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 PLUS. Any
of these activities by us or one or more of our affiliates may affect the level of the underlying index and, therefore, the market value of the PLUS.
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The calculation agent, which is a subsidiary of the issuer, will make determinations with respect to the PLUS,
which may create a conflict of interest. Our wholly owned subsidiary, RBCCM, will serve as the calculation agent. As calculation agent, RBCCM will determine the initial index level, the final index level and the underlying
index return, and will calculate the amount of cash, if any, you will receive at maturity. Moreover, certain determinations made by RBCCM, in its capacity as calculation agent, may require it to exercise discretion and make subjective
judgments, such as with respect to the occurrence or non-occurrence of market disruption events and the selection of a successor index or the calculation of the final index level in the event of a market disruption event or
discontinuance of the underlying index. These potentially subjective determinations may adversely affect the payout to you at maturity, if any. For further information regarding these types of determinations see “Additional Terms of
the PLUS” below.
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Significant aspects of the tax treatment of the PLUS are uncertain. The tax treatment of an investment in
the PLUS is uncertain. We do not plan to request a ruling from the Internal Revenue Service (the “IRS”) or from the Canada Revenue Agency regarding the tax treatment of an investment in the PLUS, and the IRS, the Canada Revenue Agency
or a court may not agree with the tax treatment described in this document.
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The IRS has issued a notice indicating that it and the U.S. Treasury Department are actively considering whether,
among other issues, a holder should be required to accrue interest over the term of an instrument such as the PLUS even though that holder will not receive any payments with respect to the PLUS until maturity and whether all or part of the gain a
holder may recognize upon sale, exchange or maturity of an instrument such as the PLUS should be treated as ordinary income. The outcome of this process is uncertain and could apply on a retroactive basis.
Please read carefully the sections entitled “Canadian Federal Income Tax Consequences” and “Supplemental Discussion of U.S. Federal Income Tax
Consequences” in this document, the section entitled “Tax Consequences” in the accompanying prospectus and the section entitled “Certain Income Tax Consequences” in the accompanying prospectus supplement. You should consult your tax advisor about
your own tax situation.
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
Additional Terms of the PLUS
Please read this information in conjunction with the summary terms on the front cover of this document.
|
Additional Provisions
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|
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Postponement of the
valuation date:
|
If the valuation date occurs on a day that is not a trading day or on a day on which the calculation agent has determined
that a market disruption event (as defined below) has occurred or is continuing, then the valuation date will be postponed until the next succeeding trading day on which the calculation agent determines that a market disruption event does
not occur or is not continuing; provided that in no event will the valuation date be postponed by more than five trading days. If the valuation date is postponed by five trading days, and a market disruption event occurs or is continuing
on that fifth trading day, then the calculation agent may determine, in its good faith and reasonable judgment, what the closing level of the underlying index would have been in the absence of the market disruption event. If the valuation
date is postponed, then the maturity date will be postponed by an equal number of business days. No interest shall accrue or be payable as a result of such postponement.
|
|
Market disruption events:
|
With respect to the underlying index and any relevant successor index, a “market disruption event” means:
§ a suspension, absence or material limitation of trading of equity securities then constituting 20% or more of the level of the underlying index (or
the relevant successor index) on the relevant exchanges (as defined below) for such securities for more than two hours of trading during, or during the one hour period preceding the close of, the principal trading session on such relevant
exchange; or
§ a breakdown or failure in the price and trade reporting systems of any relevant exchange as a result of which the reported trading prices for equity
securities then constituting 20% or more of the level of the underlying index (or the relevant successor index) during the one hour preceding the close of the principal trading session on such relevant exchange are materially inaccurate;
or
§ a suspension, absence or material limitation of trading on the primary exchange or market for trading in futures or options contracts related to the
underlying index (or the relevant successor index) for more than two hours of trading during, or during the one hour period preceding the close of, the principal trading session on such exchange or market; or
§ a decision to permanently discontinue trading in the relevant futures or options contracts;
in each case as determined by the calculation agent in its sole discretion; and
§ a determination by the calculation agent in its sole discretion that the event described above materially interfered with our ability or the ability
of any of our affiliates to adjust or unwind all or a material portion of any hedge with respect to the PLUS.
For purposes of determining whether a market disruption event with respect to the underlying index (or the relevant
successor index) exists at any time, if trading in a security included in the underlying index (or the relevant successor index) is materially suspended or materially limited at that time, then the relevant percentage contribution of that
security to the level of the underlying index (or the relevant successor index) will be based on a comparison of (a) the portion of the level of the underlying index (or
the relevant successor index) attributable to that security relative to (b) the overall level of the underlying index (or the relevant successor index), in each case immediately before that suspension or limitation.
For purposes of determining whether a market disruption event with respect to the underlying index (or the relevant
successor index) has occurred:
§ a limitation on the hours or number of days of trading will not constitute a market disruption event if it results from an announced change in
the regular business hours of the relevant exchange, or the primary exchange or market for trading in futures or options contracts related to the underlying index (or the relevant successor index);
§ limitations pursuant to the rules of any relevant exchange similar to NYSE Rule 80B (or any applicable rule or regulation enacted or promulgated
by any other self-regulatory organization or any government agency of scope similar to NYSE Rule 80B as determined by the calculation agent) on trading during significant market fluctuations will constitute a suspension, absence or
material limitation of trading;
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
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§ a suspension of trading in futures or options contracts on the underlying index (or the relevant successor index) by the primary exchange or market trading in such contracts by reason of:
§ a price change exceeding limits set by such exchange or market,
§ an imbalance of orders relating to such contracts, or
§ a disparity in bid and ask quotes relating to such contracts,
will, in each such case, constitute a suspension, absence or material limitation of trading in futures or options contracts
related to the underlying index (or the relevant successor index); and
§ a “suspension, absence or material limitation of trading” on any relevant exchange or on the primary exchange or market on which futures or options contracts related to the underlying index (or
the relevant successor index) are traded will not include any time when such exchange or market is itself closed for trading under ordinary circumstances.
“Relevant exchange” means, with respect to the underlying index or any successor index, the primary exchange or market of
trading for any security (or any combination thereof) then included in the underlying index or such successor index, as applicable.
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Discontinuation
of/adjustments to the
underlying index:
|
If the index sponsor discontinues publication of the underlying index and the index sponsor or another entity publishes a
successor or substitute index that the calculation agent determines, in its sole discretion, to be comparable to the discontinued index (such index being referred to herein as a “successor index”), then the closing level of the underlying
index on the valuation date will be determined by reference to the level of such successor index at the close of trading on the relevant exchange for the successor index on such day.
Upon any selection by the calculation agent of a successor index, the calculation agent will cause written notice to be
promptly furnished to the trustee, to us and to the holders of the PLUS.
If the index sponsor discontinues publication of the underlying index prior to, and that discontinuation is continuing on
the valuation date, and the calculation agent determines, in its sole discretion, that no successor index is available at that time or the calculation agent has previously selected a successor index and publication of that successor index
is discontinued prior to, and that discontinuation is continuing on, the valuation date, then the calculation agent will determine the closing level of the underlying index for that date. The closing level of the underlying index will be
computed by the calculation agent in accordance with the formula for and method of calculating the underlying index or successor index, as applicable, last in effect prior to the discontinuation, using the closing price (or, if trading in
the relevant securities has been materially suspended or materially limited, the calculation agent’s good faith estimate of the closing price that would have prevailed but for the suspension or limitation) at the close of the principal
trading session on that date of each security most recently included in the underlying index or successor index, as applicable.
If at any time the method of calculating the underlying index or a successor index, or the level thereof, is changed in a
material respect, or if the underlying index or a successor index is in any other way modified so that the underlying index or successor index does not, in the opinion of the calculation agent, fairly represent the level of the underlying
index or successor index had those changes or modifications not been made, then the calculation agent will, at the close of business in New York City on the date on which the closing level of the underlying index is to be determined, make
any calculations and adjustments as, in the good faith judgment of the calculation agent, may be necessary in order to arrive at a level of a stock index comparable to the underlying index or successor index, as the case may be, as if
those changes or modifications had not been made, and calculate the closing level of the underlying index with reference to the underlying index or such successor index, as adjusted. Accordingly, if the method of calculating the
underlying index or a successor index is modified so that the level of the underlying index or such successor index is a fraction of what it would have been if there had been no such modification (e.g., due to a split in the underlying
index), then the calculation agent will adjust its calculation of the underlying index or such successor index in order to arrive at a level of the underlying index or such successor index as if there had been no such modification (e.g.,
as if such split had not occurred).
Notwithstanding these alternative arrangements, discontinuation the publication of or modification of the underlying index
or successor index, as applicable, may adversely affect the value of the PLUS.
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Business day:
|
A business day means a Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in The City of New
York generally are authorized or obligated by law, regulation or executive order to close.
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|
|
PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
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Trading day:
|
A trading day means a day, as determined by the calculation agent, on which trading is generally conducted on (i) the
relevant exchanges for securities comprising the underlying index or the successor index and (ii) the exchanges on which futures or options contracts related to the underlying index or the successor index are traded, other than a day on
which trading on such relevant exchange or exchange on which such futures or options contracts are traded is scheduled to close prior to its regular weekday closing time.
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Default interest upon
acceleration:
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In the event we fail to make a payment on the maturity date, any overdue payment in respect of such payment on the PLUS will
bear interest until the date upon which all sums due are received by or on behalf of the relevant holder, at a rate per annum which is the rate for deposits in U.S. dollars for a period of six months which appears on the Reuters Screen
LIBOR page as of 11:00 a.m. (London time) on the first business day following such failure to pay. Such rate shall be determined by the calculation agent. If interest is required to be calculated for a period of less than one year, it
will be calculated on the basis of a 360-day year consisting of the actual number of days in the period.
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Events of default and
acceleration:
|
If the maturity of the PLUS is accelerated upon an event of default under the Indenture, the amount payable upon
acceleration will be determined by the calculation agent. Such amount will be calculated as if the date of declaration of acceleration were the valuation date.
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Minimum ticketing size:
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$1,000 / 100 PLUS
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Additional amounts:
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We will pay any amounts to be paid by us on the PLUS without deduction or withholding for, or on account of, any and all
present or future income, stamp and other taxes, levies, imposts, duties, charges, fees, deductions or withholdings (“taxes”) now or hereafter imposed, levied, collected, withheld or assessed by or on behalf of Canada or any Canadian
political subdivision or authority that has the power to tax, unless the deduction or withholding is required by law or by the interpretation or administration thereof by the relevant governmental authority. At any time a Canadian taxing
jurisdiction requires us to deduct or withhold for or on account of taxes from any payment made under or in respect of the PLUS, we will pay such additional amounts (“Additional Amounts”) as may be necessary so that the net amounts
received by each holder (including Additional Amounts), after such deduction or withholding, shall not be less than the amount the holder would have received had no such deduction or withholding been required.
However, no Additional Amounts will be payable with respect to a payment made to a holder of a PLUS or of a right to receive
payments in respect thereto (a “Payment Recipient”), which we refer to as an “Excluded Holder,” in respect of any taxes imposed because the beneficial owner or Payment Recipient:
(i)
with whom we do not deal at arm’s length (within the meaning of the Income Tax Act (Canada)) at the time of making such payment;
(ii)
who is subject to such taxes by reason of its being connected presently or formerly with Canada or any province or territory thereof otherwise than by reason of the
holder’s activity in connection with purchasing the PLUS, the holding of the PLUS or the receipt of payments thereunder;
(iii)
who is, or who does not deal at arm’s length with a person who is, a “specified shareholder” (within the meaning of subsection 18(5) of the Income Tax Act (Canada)) of
Royal Bank of Canada (generally a person will be a “specified shareholder” for this purpose if that person, either alone or together with persons with whom the person does not deal at arm’s length, owns 25% or more of (a) our voting
shares, or (b) the fair market value of all of our issued and outstanding shares);
(iv)
who presents such security for payment (where presentation is required) more than 30 days after the relevant date (except to the extent that the holder thereof would have been
entitled to such Additional Amounts on presenting a security for payment on the last day of such 30 day period); for this purpose, the “relevant date” in relation to any payments on any security means:
a.
the due date for payment thereof, or
b.
if the full amount of the monies payable on such date has not been received by the trustee on or prior to such due date, the date on which the full amount of such monies has been
received and notice to that effect is given to holders of the PLUS in accordance with the Indenture;
(v) who could lawfully avoid (but has not so avoided) such withholding or deduction by
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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complying, or requiring that any agent comply with, any statutory requirements necessary to establish
qualification for an exemption from withholding or by making, or requiring that any agent make, a declaration of non-residence or other similar claim for exemption to any relevant tax authority; or
(vi) who is subject to deduction or withholding on account of any tax, assessment, or other governmental charge that is imposed or withheld by reason of the application of Section 1471 through 1474
of the United States Internal Revenue Code of 1986, as amended (the “Code”) (or any successor provisions), any regulation, pronouncement, or agreement thereunder, official interpretations thereof, or any law implementing an
intergovernmental approach thereto, whether currently in effect or as published and amended from time to time.
For the avoidance of doubt, we will not have any obligation to pay any holders Additional Amounts on any tax which is
payable otherwise than by deduction or withholding from payments made under or in respect of the PLUS.
We will also make such withholding or deduction and remit the full amount deducted or withheld to the relevant authority in
accordance with applicable law. We will furnish to the trustee, within 30 days after the date the payment of any taxes is due pursuant to applicable law, certified copies of tax receipts evidencing that such payment has been made or other
evidence of such payment satisfactory to the trustee. We will indemnify and hold harmless each holder of the PLUS (other than an Excluded Holder) and upon written request reimburse each such holder for the amount of (x) any taxes so
levied or imposed and paid by such holder as a result of payments made under or with respect to the PLUS, and (y) any taxes levied or imposed and paid by such holder with respect to any reimbursement under (x) above, but excluding any
such taxes on such holder’s net income or capital.
For additional information, see the section entitled “Tax Consequences—Canadian Taxation” in the accompanying prospectus.
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Form of the PLUS:
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Book-entry
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Trustee:
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The Bank of New York Mellon
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Calculation agent:
|
RBCCM. The calculation agent will make all determinations regarding the PLUS. Absent manifest error, all determinations of
the calculation agent will be final and binding on you and us, without any liability on the part of the calculation agent. You will not be entitled to any compensation from us for any loss suffered as a result of any of the above
determinations or confirmations by the calculation agent.
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Contact:
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Morgan Stanley Wealth Management clients may contact their local Morgan Stanley Wealth Management branch office or our principal executive
offices at 1585 Broadway, New York, New York 10036 (telephone number 1-(866)-477-4776). All other clients may contact their local brokerage representative. Third-party distributors may contact Morgan Stanley Structured Investment Sales at
1-(800)-233-1087.
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
Information About the Underlying Index
All disclosures contained in this document regarding the underlying index, including, without limitation, its make-up, method of calculation, and
changes in its components, have been derived from publicly available sources. The information reflects the policies of, and is subject to change by, STOXX Limited, as the sponsor of the underlying index (“STOXX”). STOXX, which owns the copyright
and all other rights to the underlying index, has no obligation to continue to publish, and may discontinue publication of, the underlying index. The consequences of STOXX discontinuing publication of the underlying index are discussed above in
the section entitled “Additional Terms of the PLUS—Discontinuation of/adjustments to the underlying index.” Neither we nor RBCCM accepts any responsibility for the calculation, maintenance or publication of the underlying index or any successor
index.
EURO STOXX 50® Index (“SX5E”)
The SX5E was created by STOXX Limited, a subsidiary of Deutsche Börse AG. Publication of the SX5E began in February 1998, based on
an initial index level of 1,000 at December 31, 1991.
Composition and Maintenance
The SX5E is composed of 50 component stocks of market sector leaders from within the 19 EURO STOXX® Supersector
indices, which represent the Eurozone portion of the STOXX Europe 600® Supersector indices.
The composition of the SX5E is reviewed annually, based on the closing stock data on the last trading day in August. The component
stocks are announced on the first trading day in September. Changes to the component stocks are implemented on the third Friday in September and are effective the following trading day. Changes in the composition of the SX5E are made to ensure
that the SX5E includes the 50 market sector leaders from within the SX5E.
The free float factors for each component stock used to calculate the SX5E, as described below, are reviewed, calculated, and
implemented on a quarterly basis and are fixed until the next quarterly review.
The SX5E is also reviewed on an ongoing basis. Corporate actions (including initial public offerings, mergers and takeovers,
spin-offs, delistings, and bankruptcy) that affect the SX5E composition are announced immediately, implemented two trading days later, and become effective on the next trading day after implementation.
Calculation of the SX5E
The SX5E is calculated with the “Laspeyres formula,” which measures the aggregate price changes in the component stocks against a
fixed base quantity weight. The formula for calculating the SX5E value can be expressed as follows:
|
SX5E =
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Free float market capitalization of the SX5E
|
x 1,000
|
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Divisor
|
The “free float market capitalization of the SX5E” is equal to the sum of the products of the closing price, market
capitalization, the number of shares, the free float factor and weighing cap factor for each component stock as of the time the SX5E is being calculated.
The SX5E is also subject to a divisor, which is adjusted to maintain the continuity of the SX5E values across changes due to
corporate actions, such as the deletion and addition of stocks, the substitution of stocks, stock dividends, and stock splits.
License Agreement
We have entered into a non-exclusive license agreement with STOXX providing for the license to us and certain of our affiliated or
subsidiary companies, in exchange for a fee, of the right to use indices owned and published by STOXX (including the EURO STOXX 50® Index) in connection with certain securities, including the PLUS.
The license agreement between us and STOXX requires that the following language be stated in this document:
STOXX has no relationship to us, other than the licensing of the EURO STOXX 50® Index and the related trademarks for
use in connection with the PLUS.
STOXX does not:
| • |
sponsor, endorse, sell or promote the PLUS.
|
| • |
recommend that any person invest in the PLUS or any other securities.
|
| • |
have any responsibility or liability for or make any decisions about the timing, amount or pricing of the PLUS.
|
| • |
have any responsibility or liability for the administration, management or marketing of the PLUS.
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| • |
consider the needs of the PLUS or the holders of the PLUS in determining, composing, or calculating the EURO STOXX 50® Index or have any obligation to do so.
|
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
STOXX will not have any liability in connection with the PLUS. Specifically STOXX does not make any warranty, express or implied,
and disclaims any and all warranty concerning:
| • |
the results to be obtained by the PLUS, the holders of the PLUS or any other person in connection with the use of the EURO STOXX 50® Index and the data included in the
EURO STOXX 50® Index;
|
| • |
the accuracy or completeness of the EURO STOXX 50® Index and its data;
|
| • |
the merchantability and the fitness for a particular purpose or use of the EURO STOXX 50® Index and its data;
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| • |
STOXX will have no liability for any errors, omissions or interruptions in the EURO STOXX 50® Index or its data; and
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| • |
under no circumstances will STOXX be liable for any lost profits or indirect, punitive, special, or consequential damages or losses, even if STOXX knows that they might occur.
|
The licensing agreement between us and STOXX is solely for their benefit and our benefit, and not for the benefit of the holders of the PLUS or
any other third parties.
|
|
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
Historical Information
The table below sets forth the published high and low closing levels of the underlying index for each quarter in the period from
January 1, 2014 through March 26, 2019. The graph below sets forth the daily closing levels of the underlying index from January 1, 2014 through March 26, 2019. We obtained the information in the table and graph below from Bloomberg Financial
Markets, without independent verification. You should not take the historical performance of the underlying index as an indication of its future performance, and no assurance can be given as to the level of the underlying index on the valuation
date.
The EURO STOXX 50® Index
Information as of market close on March 26, 2019:
|
Bloomberg Ticker Symbol:
|
SX5E
|
52 Weeks Ago:
|
3,278.72
|
||||
|
Current Index Level:
|
3,319.53
|
52 Week High (on 5/17/2018):
|
3,592.18
|
||||
|
52 Week Low (on 12/27/2018):
|
2,937.36
|
|
The EURO STOXX 50® Index
|
High
|
Low
|
|
2014
|
||
|
First Quarter
|
3,172.43
|
2,962.49
|
|
Second Quarter
|
3,314.80
|
3,091.52
|
|
Third Quarter
|
3,289.75
|
3,006.83
|
|
Fourth Quarter
|
3,277.38
|
2,874.65
|
|
2015
|
||
|
First Quarter
|
3,731.35
|
3,007.91
|
|
Second Quarter
|
3,828.78
|
3,424.30
|
|
Third Quarter
|
3,686.58
|
3,019.34
|
|
Fourth Quarter
|
3,506.45
|
3,069.05
|
|
2016
|
||
|
First Quarter
|
3,178.01
|
2,680.35
|
|
Second Quarter
|
3,151.69
|
2,697.44
|
|
Third Quarter
|
3,091.66
|
2,761.37
|
|
Fourth Quarter
|
3,290.52
|
2,954.53
|
|
2017
|
||
|
First Quarter
|
3,500.93
|
3,230.68
|
|
Second Quarter
|
3,658.79
|
3,409.78
|
|
Third Quarter
|
3,594.85
|
3,388.22
|
|
Fourth Quarter
|
3,697.40
|
3,503.96
|
|
2018
|
||
|
First Quarter
|
3,672.29
|
3,278.72
|
|
Second Quarter
|
3,592.18
|
3,340.35
|
|
Third Quarter
|
3,527.18
|
3,293.36
|
|
Fourth Quarter
|
3,414.16
|
2,937.36
|
|
2019
|
||
|
First Quarter (through March 26, 2019)
|
3,409.00
|
2,954.66
|
|
|
|
PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
|
The EURO STOXX 50® Index – Historical Closing Levels
January 1, 2014 to March 26, 2019
|
|
|
|
PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
|
Canadian Federal Income Tax Consequences
An investor should read carefully the description of material Canadian federal income tax considerations relevant to a Non-resident
Holder owning debt securities under “Tax Consequences—Canadian Taxation” in the accompanying prospectus.
Supplemental Discussion of U.S. Federal Income Tax Consequences
The following, together with the discussion of U.S. federal income taxation in the accompanying prospectus and prospectus
supplement, is a general description of the material U.S. tax considerations relating to the PLUS. It does not purport to be a complete analysis of all tax considerations relating to the PLUS. Prospective purchasers of the PLUS should consult
their tax advisors as to the consequences under the tax laws of the country of which they are resident for tax purposes and the tax laws of Canada and the U.S. of acquiring, holding and disposing of the PLUS and receiving payments under the PLUS.
This summary is based upon the law as in effect on the date of this document and is subject to any change in law that may take effect after such date.
Supplemental U.S. Tax Considerations
The following section supplements the discussion of U.S. federal income taxation in the accompanying prospectus and prospectus
supplement. It applies only to those initial holders who are not excluded from the discussion of U.S. federal income taxation in the accompanying prospectus. It does not apply to holders subject to special rules including holders subject to
Section 451(b) of the Code.
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW THE PLUS SHOULD BE TREATED FOR U.S. FEDERAL INCOME TAX
PURPOSES. AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE PLUS ARE UNCERTAIN. BECAUSE OF THE UNCERTAINTY, YOU SHOULD CONSULT YOUR TAX ADVISOR IN DETERMINING THE U.S. FEDERAL INCOME TAX AND OTHER TAX CONSEQUENCES OF
YOUR INVESTMENT IN THE PLUS, INCLUDING THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
We will not attempt to ascertain whether any of the entities whose stock is included in the underlying index would be treated as a
“passive foreign investment company” within the meaning of Section 1297 of the Code, or a “U.S. real property holding corporation” within the meaning of Section 897 of the Code. If any of the entities whose stock is included in the underlying
index were so treated, certain adverse U.S. federal income tax consequences could possibly apply to U.S. and non-U.S. holders, respectively. You should refer to any available information filed with the SEC and other authorities by the entities
whose stock is included in the underlying index and consult your tax advisor regarding the possible consequences to you in this regard.
In the opinion of our counsel, Morrison & Foerster LLP, it would generally be reasonable to treat a PLUS as a pre-paid
cash-settled derivative contract in respect of the underlying index for U.S. federal income tax purposes, and the terms of the PLUS require a holder and us (in the absence of a change in law or an administrative or judicial ruling to the
contrary) to treat the PLUS for all tax purposes in accordance with such characterization. If the PLUS are so treated, a U.S. holder should generally recognize capital gain or loss upon the sale, exchange or maturity of the PLUS in an amount
equal to the difference between the amount a holder receives at such time and the holder’s tax basis in the PLUS. In general, a U.S. holder’s tax basis in the PLUS will be equal to the price the holder paid for the PLUS. Capital gain recognized
by an individual U.S. holder is generally taxed at preferential rates where the property is held for more than one year and is generally taxed at ordinary income rates where the property is held for one year or less. The deductibility of capital
losses is subject to limitations.
Alternative Treatments. Alternative tax treatments of the PLUS are also possible and the IRS might assert that a treatment other
than that described above is more appropriate. For example, it is possible to treat the PLUS, and the IRS might assert that a PLUS should be treated, as a single debt instrument. Pursuant to such characterization, since the PLUS have a term that
exceeds one year, such a debt instrument would be subject to the special tax rules governing contingent payment debt instruments. If the PLUS are so treated, a holder would generally be required to accrue interest income over the term of the PLUS
based upon the yield at which we would issue a non-contingent fixed-rate debt instrument with terms and conditions similar to the PLUS. In addition, any gain a holder might recognize upon the sale, exchange or maturity of the PLUS would generally
be ordinary income and any loss recognized by a holder at such time would generally be ordinary loss to the extent of interest that same holder included in income in the current or previous taxable years in respect of the PLUS, and thereafter,
would be capital loss.
Because of the absence of authority regarding the appropriate tax characterization of the PLUS, it is also possible that the IRS
could seek to characterize the PLUS in a manner that results in tax consequences that are different from those described above. For example, the IRS could possibly assert that any gain or loss that a holder may recognize upon the sale, exchange
or maturity of the PLUS should be treated as ordinary gain or loss.
The IRS has released a notice that may affect the taxation of holders of the PLUS. According to the notice, the IRS and the U.S. Treasury Department
are actively considering whether the holder of an instrument such as the PLUS should be required to accrue ordinary income on a current basis. It is not possible to determine what guidance they will ultimately issue, if any. It is possible,
however, that under such guidance, holders of the PLUS will ultimately be required to accrue income currently and this could be applied on a retroactive basis. The IRS and the U.S. Treasury Department are also considering other relevant issues,
including whether additional gain or loss from such instruments should be treated as ordinary or capital and whether the constructive ownership rules of Section 1260 of the Code which very generally can operate to recharacterize certain long-term
capital gains as ordinary income and impose an interest charge, might be applied to such instruments. Holders are urged to consult their tax advisors concerning the significance, and the potential impact, of the above
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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considerations. We intend to treat the PLUS for U.S. federal income tax purposes in accordance with the treatment described in this
document unless and until such time as the U.S. Treasury Department and IRS determine that some other treatment is more appropriate.
Backup Withholding and Information Reporting. Payments made with respect to the PLUS and proceeds from the sale or exchange of the
PLUS may be subject to a backup withholding tax unless, in general, the holder complies with certain procedures or is an exempt recipient. Any amounts so withheld generally will be refunded by the IRS or allowed as a credit against the holder’s
U.S. federal income tax liability, provided the holder makes a timely filing of an appropriate tax return or refund claim to the IRS.
Reports will be made to the IRS and to holders that are not exempted from the reporting requirements.
Non-U.S. Holders. The following discussion applies to non-U.S. holders of the PLUS. A non-U.S. holder is a beneficial owner of a
PLUS that, for U.S. federal income tax purposes, is a non-resident alien individual, a foreign corporation, or a foreign estate or trust.
Except as described below, a non-U.S. holder will generally not be subject to U.S. federal income or withholding tax for amounts
paid in respect of the PLUS, provided that (i) the holder complies with any applicable certification requirements, (ii) the payment is not effectively connected with the conduct by the holder of a U.S. trade or business, and (iii) if the holder
is a non-resident alien individual, such holder is not present in the U.S. for 183 days or more during the taxable year of the sale, exchange or maturity of the PLUS. In the case of (ii) above, the holder generally would be subject to U.S.
federal income tax with respect to any income or gain in the same manner as if the holder were a U.S. holder and, in the case of a holder that is a corporation, the holder may also be subject to a branch profits tax equal to 30% (or such lower
rate provided by an applicable U.S. income tax treaty) of a portion of its earnings and profits for the taxable year that are effectively connected with its conduct of a U.S. trade or business, subject to certain adjustments. Payments made to a
non-U.S. holder may be subject to information reporting and to backup withholding unless the holder complies with applicable certification and identification requirements as to its foreign status.
Under Section 871(m) of the Code, a “dividend equivalent” payment is treated as a dividend from sources within the United States.
Such payments generally would be subject to a 30% U.S. withholding tax if paid to a non-U.S. holder. Under U.S. Treasury Department regulations, payments (including deemed payments) with respect to equity-linked instruments (“ELIs”) that are
“specified ELIs” may be treated as dividend equivalents if such specified ELIs reference an interest in an “underlying security,” which is generally any interest in an entity taxable as a corporation for U.S. federal income tax purposes if a
payment with respect to such interest could give rise to a U.S. source dividend. However, the IRS has issued guidance that states that the U.S. Treasury Department and the IRS intend to amend the effective dates of the U.S. Treasury Department
regulations to provide that withholding on dividend equivalent payments will not apply to specified ELIs that are not delta-one instruments and that are issued before January 1, 2021. Based on our determination that the PLUS are not delta-one
instruments, non-U.S. holders should not be subject to withholding on dividend equivalent payments, if any, under the PLUS. However, it is possible that the PLUS could be treated as deemed reissued for U.S. federal income tax purposes upon the
occurrence of certain events affecting the underlying index or the PLUS (for example, upon an underlying index rebalancing), and following such occurrence the PLUS could be treated as subject to withholding on dividend equivalent payments.
Non-U.S. holders that enter, or have entered, into other transactions in respect of the underlying index or the PLUS should consult their tax advisors as to the application of the dividend equivalent withholding tax in the context of the PLUS 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.
As discussed above, alternative characterizations of the PLUS for U.S. federal income tax purposes are possible. Should an
alternative characterization, by reason of change or clarification of the law, by regulation or otherwise, cause payments as to the PLUS to become subject to withholding tax, we will withhold tax at the applicable statutory rate. The IRS has also
indicated that it is considering whether income in respect of instruments such as the PLUS should be subject to withholding tax. We will not be required to pay any additional amounts in respect of such withholding. Prospective investors should
consult their own tax advisors in this regard.
Foreign Account Tax Compliance Act. The Foreign Account Tax Compliance Act (“FATCA”) imposes a 30% U.S. withholding tax on certain
U.S.-source payments, including interest (and OID), dividends, other fixed or determinable annual or periodical gain, profits, and income, and on the gross proceeds from a disposition of property of a type which can produce U.S. source interest
or dividends (“Withholdable Payments”), if paid to a foreign financial institution (including amounts paid to a foreign financial institution on behalf of a holder), unless such institution enters into an agreement with the U.S. Treasury
Department to collect and provide to the U.S. Treasury Department certain information regarding U.S. financial account holders, including certain account holders that are foreign entities with U.S. owners, with such institution or otherwise
complies with FATCA. In addition, the PLUS may constitute a “financial account” for these purposes and thus, be subject to information reporting requirements pursuant to FATCA. FATCA also generally imposes a withholding tax of 30% on Withholdable
Payments made to a non-financial foreign entity unless such entity provides the withholding agent with a certification that it does not have any substantial U.S. owners or a certification identifying the direct and indirect substantial U.S.
owners of the entity. Under certain circumstances, a holder may be eligible for refunds or credits of such taxes.
The U.S. Treasury Department and the IRS have announced that withholding on payments of gross proceeds from a sale or redemption of the PLUS will
only apply to payments made after December 31, 2018. However, recently proposed regulations eliminate the requirement of withholding on gross proceeds from the sale or disposition of financial instruments. The U.S. Treasury Department has
indicated that taxpayers may rely on these proposed regulations pending their finalization. If we determine withholding is appropriate with respect to the PLUS, we will withhold tax at the applicable statutory rate, and we will not pay any
additional amounts in respect of such withholding. Therefore, if such withholding applies, any payments on the PLUS will be significantly less than what you would have otherwise received. Depending on your circumstances, these amounts withheld
may be creditable or refundable to you. Foreign financial institutions and non-financial foreign entities located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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subject to different rules. Prospective investors are urged to consult with their own tax advisors regarding the possible
implications of FATCA on their investment in the PLUS.
Use of Proceeds and Hedging
The net proceeds from the sale of the PLUS will be used as described under “Use of Proceeds” in the accompanying prospectus
supplement and prospectus and to hedge market risks of Royal Bank of Canada associated with its obligation to make the payment at maturity on the PLUS. The initial public offering price of the PLUS includes the underwriting discount and
commission and the estimated cost of hedging our obligations under the PLUS.
Supplemental Information Regarding Plan of Distribution; Conflicts of Interest
Pursuant to the terms of a distribution agreement, RBCCM, an affiliate of Royal Bank of Canada, will purchase the PLUS from Royal
Bank of Canada for distribution to Morgan Stanley Wealth Management. RBCCM will act as agent for the PLUS and will receive a fee of $0.225 per $10 stated principal amount and will pay to Morgan Stanley Wealth Management a fixed sales commission
of $0.175 for each of the PLUS they sell. Of the amount per $10 stated principal amount received by RBCCM, RBCCM will pay Morgan Stanley Wealth Management a structuring fee of $0.05 for each PLUS. Morgan Stanley Wealth Management may reclaim
selling concessions allowed to individual brokers within Morgan Stanley Wealth Management in connection with the offering if, within 30 days of the offering, Royal Bank of Canada repurchases the PLUS distributed by such brokers.
We expect that delivery of the PLUS will be made against payment for the PLUS on or about April 17, 2019, which is the third
business day following the pricing date (this settlement cycle being referred to as “T+3”). We expect to deliver the PLUS 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 PLUS more than two business days prior to the original issue
date will be required to specify alternative settlement arrangements to prevent a failed settlement.
In addition, RBCCM or another of its affiliates or agents may use this document in market-making transactions after the initial sale
of the PLUS, but is under no obligation to do so and may discontinue any market-making activities at any time without notice.
For additional information as to the relationship between us and RBCCM, please see the section “Plan of Distribution—Conflicts of
Interest” in the accompanying prospectus.
The value of the PLUS shown on your account statement may be based on RBCCM’s estimate of the value of the PLUS if RBCCM or another
of our affiliates were to make a market in the PLUS (which it is not obligated to do). That estimate will be based on the price that RBCCM may pay for the PLUS in light of then prevailing market conditions, our creditworthiness and transaction
costs. For an initial period of approximately 8 months, the value of the PLUS that may be shown on your account statement is expected to be higher than RBCCM’s estimated value of the PLUS at that time. This is because the estimated value of the
PLUS will not include the agent’s commission and our hedging costs and profits; however, the value of the PLUS shown on your account statement during that period is initially expected to be a higher amount, reflecting the addition of the agent’s
commission and our estimated costs and profits from hedging the PLUS. This excess is expected to decrease over time until the end of this period, and we reserve the right to shorten this period. After this period, if RBCCM repurchases your PLUS,
it expects to do so at prices that reflect its estimated value.
No Prospectus (as defined in Directive 2003/71/EC (as amended, the “Prospectus Directive”)) will be prepared in connection with the
PLUS. Accordingly, the PLUS may not be offered to the public in any member state of the European Economic Area (the “EEA”), and any purchaser of the PLUS who subsequently sells any of the PLUS in any EEA member state must do so only in accordance
with the requirements of the Prospectus Directive, as implemented in that member state.
The PLUS are not intended to be offered, sold or otherwise made available to, and should not be offered, sold or otherwise made
available to, any retail investor in the EEA. For these purposes, the expression “offer” includes the communication in any form and by any means of sufficient information on the terms of the offer and the PLUS to be offered so as to enable an
investor to decide to purchase or subscribe the PLUS, and a “retail investor” means a person who is one (or more) of: (a) a retail client, as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or (b) a
customer, within the meaning of Insurance Distribution Directive 2016/97/EU, as amended, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (c) not a qualified investor as
defined in the Prospectus Directive. Consequently, no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the PLUS or otherwise making them available to retail investors
in the EEA has been prepared, and therefore, offering or selling the PLUS or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.
Structuring the PLUS
The PLUS are our debt securities, the return on which is linked to the performance of the underlying index. As is the case for all of our debt
securities, including our structured notes, the economic terms of the PLUS 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 securities 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, along with the fees and expenses associated with structured notes, typically reduces the initial estimated value of the PLUS at the time their terms are set. Unlike
the estimated value that will be included in the final pricing supplement, the value of the PLUS determined for
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PLUS Based on the Performance of the EURO STOXX 50® Index due August 5, 2020
Performance Leveraged Upside SecuritiesSM
Principal at Risk Securities
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purposes of a secondary market transaction may be based on a different funding rate, which may result in a lower value for the PLUS
than if our initial internal funding rate were used.
In order to satisfy our payment obligations under the PLUS, 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 underlying index, and the tenor of the PLUS. The economic terms of the PLUS and their initial estimated value depend in part on the terms of these hedging arrangements.
The lower implied borrowing rate, the underwriting commission and the hedging-related costs relating to the PLUS reduce the economic
terms of the PLUS to you and result in the initial estimated value for the PLUS on the pricing date being less than their public offering price. See “Risk Factors—The initial estimated value of the PLUS will be less than the price to the public”
above.
Employee Retirement Income Security Act
This section is only relevant to you if you are an insurance company or the fiduciary of a pension plan or an employee benefit plan
(including a governmental plan, an IRA or a Keogh Plan) proposing to invest in the PLUS.
The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), imposes certain requirements on “employee benefit plans”
(as defined in Section 3(3) of ERISA) subject to ERISA, including entities such as collective investment funds and separate accounts whose underlying assets include the assets of such plans (collectively, “ERISA Plans”) and on those persons who
are fiduciaries with respect to ERISA Plans. Each fiduciary of an ERISA Plan should consider the fiduciary standards of ERISA in the context of the ERISA Plan’s particular circumstances before authorizing an investment in the PLUS. Accordingly,
among other factors, the fiduciary should consider whether the investment would satisfy the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the ERISA Plan.
In addition, Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit certain transactions involving the assets
of an ERISA Plan, as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Internal Revenue Code, such as individual retirement accounts, including entities whose underlying assets include the assets of
such plans (together with ERISA Plans, “Plans”) and certain persons (referred to as “parties in interest” or “disqualified persons”) having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the
transaction. Governmental plans may be subject to similar prohibitions. Therefore, a plan fiduciary considering purchasing PLUS should consider whether the purchase or holding of such instruments might constitute a “prohibited transaction.”
Royal Bank of Canada and certain of its affiliates each may be considered a “party in interest” or a “disqualified person” with respect to many
employee benefit plans by reason of, for example, Royal Bank of Canada (or its affiliate) providing services to such plans. Prohibited transactions within the meaning of ERISA or the Internal Revenue Code may arise, for example, if PLUS are
acquired by or with the assets of a Plan, and with respect to which Royal Bank of Canada or any of its affiliates is a “party in interest” or a “disqualified person,” unless those PLUS are acquired under an exemption for transactions effected on
behalf of that Plan by a “qualified professional asset manager” or an “in-house asset manager,” for transactions involving insurance company general accounts, for transactions involving insurance company pooled separate accounts, for transactions
involving bank collective investment funds, or under another available exemption. Section 408(b)(17) provides an additional exemption for the purchase and sale of securities and related lending transactions where neither the issuer of the
securities nor any of its affiliates have or exercise any discretionary authority or control or render any investment advice with respect to the assets of any Plan involved in the transaction and the Plan pays no more than “adequate
consideration” in connection with the transaction. The person making the decision on behalf of a Plan or a governmental plan shall be deemed, on behalf of itself and any such plan, by purchasing and holding the PLUS, or exercising any rights
related thereto, to represent that (a) such purchase, holding and exercise of the PLUS will not result in a non-exempt prohibited transaction under ERISA or the Internal Revenue Code (or, with respect to a governmental plan, under any similar
applicable law or regulation) and (b) neither Royal Bank of Canada nor any of its affiliates is a “fiduciary” (within the meaning of Section 3(21) of ERISA) with respect to the purchaser or holder in connection with such person’s acquisition,
disposition or holding of the PLUS, or any exercise related thereto or as a result of any exercise by Royal Bank of Canada or any of its affiliates of any rights in connection with the PLUS, and no advice provided by Royal Bank of Canada or any
of its affiliates has formed a primary basis for any investment decision by or on behalf of such purchaser or holder in connection with the PLUS and the transactions contemplated with respect to the PLUS.