Additional Information About Royal Bank of Canada and the Notes
|
You should read this pricing supplement together with the prospectus dated January 8, 2016, as supplemented by the prospectus supplement dated January 8, 2016, relating to our Series G medium-term notes of which these Notes are a part, and the more detailed information contained in product prospectus supplement no. UBS-TAOS-2 dated January 22, 2016.
This pricing supplement, together with the documents listed below, contains the terms of the Notes 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, fact sheets, brochures or other educational materials of ours.
You should carefully consider, among other things, the matters set forth in “Risk Factors” in the accompanying product prospectus supplement no. UBS-TAOS-2, as the Notes involve risks not associated with conventional debt securities.
If the terms discussed in this pricing supplement differ from those discussed in the product prospectus supplement no. UBS-TAOS-2, the prospectus supplement, or the prospectus, the terms discussed herein will control. Please note in particular that:
|
·
|
instead of the term “Trigger Price” in the product prospectus supplement, the term “Downside Threshold” is used in this document;
|
|
·
|
instead of "Starting Price" in the product prospectus supplement, the term "Initial Underlying Price" is used in this document; and
|
|
·
|
instead of "Final Price" in the product prospectus supplement, the term "Final Underlying Price" is used in this document.
|
You may access these on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filing for the relevant date on the SEC website):
¨
|
Product prospectus supplement no. UBS-TAOS-2 dated January 22, 2016:
|
¨
|
Prospectus supplement dated January 8, 2016:
|
¨
|
Prospectus dated January 8, 2016:
|
As used in this pricing supplement, “we,” “us” or “our” refers to Royal Bank of Canada.
Hypothetical terms only. Actual terms may vary. See the cover page for actual offering terms.
The examples below illustrate the payment upon a call or at maturity for a $10 Security in a hypothetical offering of the Notes, with the following assumptions:*
|
Principal Amount:
|
|
$10
|
|
Term:
|
|
2 years
|
|
Hypothetical
Initial Underlying Price*:
|
|
$100.00
|
|
Call Return Rate:
|
|
12.00% per annum (or 3.00% per quarterly period)
|
|
Observation Dates:
|
|
Observation Dates will occur quarterly as set forth under “Final Terms of the Notes” in this pricing supplement.
|
|
Hypothetical
Downside Threshold:
|
|
$75.00 (which is 75% of the Initial Underlying Price)
|
*
Not the actual Initial Underlying Price or Downside Threshold applicable to the Notes. The actual Initial Underlying Price and Downside Threshold for the Notes are set forth on the cover page of this pricing supplement.
Example 1 - Notes are Called on the First Observation Date
|
Closing Price at first Observation Date:
|
|
$105.00 (at or above Initial Underlying Price, Notes are called)
|
|
Call Price (per $10.00):
|
|
$10.30
|
Because the Notes are called on the first Observation Date, we will pay you on the Call Settlement Date a total Call Price of $10.30 per $10.00 principal amount (a 3.00% total return on the Notes).
Example 2 - Notes are Called on the final Observation Date
|
Closing Price at first Observation Date:
|
|
$95.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at second Observation Date:
|
|
$90.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at third Observation Date:
|
|
$85.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at fourth Observation Date:
|
|
$87.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at fifth Observation Date:
|
|
$89.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at sixth Observation Date:
|
|
$92.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at seventh Observation Date:
|
|
$95.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at final Observation Date:
|
|
$105.00 (at or above Initial Underlying Price, Notes are called)
|
|
Call Price (per $10.00):
|
|
$12.40
|
Because the Notes are called on the final Observation Date, we will pay you on the Call Settlement Date (which coincides with the Maturity Date in this example) a total Call Price of $12.40 per $10.00 principal amount (a 24% total return on the Notes).
Example 3 - Notes are NOT Called and the Final Underlying Price is above the Downside Threshold on the final Observation Date
|
Closing Price at first Observation Date:
|
|
$95.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at second Observation Date:
|
|
$90.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at third Observation Date:
|
|
$85.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at fourth Observation Date:
|
|
$87.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at fifth Observation Date:
|
|
$89.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at sixth Observation Date:
|
|
$92.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at seventh Observation Date:
|
|
$95.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at final Observation Date:
|
|
$90.00 (below Initial Underlying Price, but above Downside Threshold, Notes NOT called)
|
|
Payment at Maturity (per $10.00):
|
|
$10.00 × (1 + Contingent Absolute Return)
$10.00 × (1 + 10%)
$11.00
|
Because the Notes are not called and the Underlying Return is -10.00%, but the Final Underlying Price is above the Downside Threshold on the final Observation Date, we will pay you at maturity a total of $11.00 per $10.00 principal amount (a 10.00% return on the Notes). Accordingly, even though the price of the Underlying Equity has decreased, you will receive a positive return on the Notes.
Example 4 - Notes are NOT Called and the Final Underlying Price is below the Downside Threshold on the final Observation Date
|
Closing Price at first Observation Date:
|
|
$95.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at second Observation Date:
|
|
$90.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at third Observation Date:
|
|
$85.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at fourth Observation Date:
|
|
$87.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at fifth Observation Date:
|
|
$89.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at sixth Observation Date:
|
|
$92.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at seventh Observation Date:
|
|
$95.00 (below Initial Underlying Price, Notes NOT called)
|
|
Closing Price at final Observation Date:
|
|
$50.00 (below Initial Underlying Price and Downside
|
|
|
|
Threshold, Notes NOT called)
|
|
Payment at Maturity (per $10):
|
|
$10.00 × (1 + Underlying Return)
$10.00 × (1 - 50%)
$5.00
|
Because the Notes are not called and the Final Underlying Price is below the Downside Threshold on the final Observation Date, we will pay you at maturity a total of $5.00 per $10.00 principal amount (a 50.00% loss on the Notes).
What Are the Tax Consequences of the Notes?
|
U.S. Federal Income Tax Consequences
Set forth below, together with the discussion of U.S. federal income tax in the accompanying product prospectus supplement, prospectus supplement, and prospectus, is a summary of the material U.S. federal income tax consequences relating to an investment in the Notes. The following summary is not complete and is qualified in its entirety by the discussion under the sections entitled “Supplemental Discussion of U.S. Federal Income Tax Consequences” in the accompanying product prospectus supplement, the section “Tax Consequences” in the accompanying prospectus and the section entitled “Certain Income Tax Consequences” in the accompanying prospectus supplement, which you should carefully review prior to investing in the Notes
.
In the opinion of our counsel, Morrison & Foerster LLP, it would generally be reasonable to treat the Notes as callable pre-paid cash-settled derivative contracts linked to the Underlying Equity for U.S. federal income tax purposes, and the terms of the Notes 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 Notes for all tax purposes in accordance with such characterization. If the Notes are so treated, a holder should generally recognize capital gain or loss upon the call, sale or maturity of the Notes in an amount equal to the difference between the amount a holder receives at such time and the holder’s tax basis in the Notes
.
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 tax treatments are also possible and the Internal Revenue Service might assert that a treatment other than that described above is more appropriate. In addition, the Internal Revenue Service has released a notice that may affect the taxation of holders of the Notes. According to the notice, the Internal Revenue Service and the Treasury Department are actively considering whether the holder of an instrument such as the Notes 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 Notes will ultimately be required to accrue income currently and this could be applied on a retroactive basis. The Internal Revenue Service and the 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 special "constructive ownership rules" of Section 1260 of the Internal Revenue Code might be applied to such instruments. Holders are urged to consult their tax advisors concerning the significance, and the potential impact, of the above considerations.
Individual holders that own “specified foreign financial assets” may be required to include certain information with respect to such assets with their U.S. federal income tax return. You are urged to consult your own tax advisor regarding such requirements with respect to the Notes
.
Under Section 871(m) of the code, a “dividend equivalent” payment is treated as a dividend from sources within the United States. Such payments generally would be subject to a 30% U.S. withholding tax if paid to a non-U.S. holder. Under U.S. Treasury Department regulations, payments (including deemed payments) with respect to equity-linked instruments (“ELIs”) that are “specified ELIs” may be treated as dividend equivalents if such specified ELIs reference an interest in an “underlying security,” which is generally any interest in an entity taxable as a corporation for U.S. federal income tax purposes if a payment with respect to such interest could give rise to a U.S. source dividend. However, the IRS has issued guidance that states that the U.S. Treasury Department and the IRS intend to amend the effective dates of the U.S. Treasury Department regulations to provide that withholding on dividend equivalent payments will not apply to specified ELIs that are not delta-one instruments and that are issued before January 1, 2019. Based on our determination that the Notes are not delta-one instruments, non-U.S. holders should not be subject to withholding on dividend equivalent payments, if any, under the Notes. However, it is possible that the Notes could be treated as deemed reissued for U.S. federal income tax purposes upon the occurrence of certain events affecting the Underlying Equity or the Notes, and following such occurrence the Notes could be treated as subject to withholding on dividend equivalent payments. Non-U.S. holders that enter, or have entered, into other transactions in respect of the Underlying Equity or the Notes should consult their tax advisors as to the application of the dividend equivalent withholding tax in the context of the Notes and their other transactions. If any payments are treated as dividend equivalents subject to withholding, we (or the applicable withholding agent) would be entitled to withhold taxes without being required to pay any additional amounts with respect to amounts so withheld.
Please see the discussion under the section entitled “Supplemental Discussion of U.S. Federal Income Tax Consequences” in the accompanying product prospectus supplement for a further discussion of the U.S. federal income tax consequences of an investment in the Notes
.
Canadian Federal Income Tax Consequences
For a discussion of the material Canadian federal income tax consequences relating to an investment in the Notes, please see the section entitled “Tax Consequences” in the accompanying prospectus, which you should carefully review prior to investing in the Notes
.
Information About the Underlying Equity
|
Included on the following pages is a brief description of the issuer of the Underlying Equity. This information has been obtained from publicly available sources. Set forth below is a table that provides the quarterly high and low and period-end closing prices for the Underlying Equity. We obtained the closing price information set forth below from the Bloomberg Professional
®
service (“Bloomberg”) without independent verification. You should not take the historical prices of the Underlying Equity as an indication of future performance.
The Underlying Equity is registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Companies with securities registered under the Exchange Act are required to file financial and other information specified by the SEC periodically. Information filed by the Underlying Equity issuer with the SEC can be reviewed electronically through a website maintained by the SEC. The address of the SEC’s website is http://www.sec.gov. Information filed with the SEC by the Underlying Equity issuer under the Exchange Act can be located by reference to its SEC Central Index Key (“CIK”) number provided below. In addition, information filed with the SEC can be inspected and copied at the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of this material can also be obtained from the Public Reference Section, at prescribed rates. Information from outside sources is not incorporated by reference in, and should not be considered part of, this pricing supplement or any accompanying prospectus or prospectus supplement. We have not independently verified the accuracy or completeness of the information contained in outside sources.
According to publicly available information, General Motors Company designs, builds, and sells cars, trucks, crossovers, and automobile parts. The company offers vehicle protection, parts, accessories, maintenance, satellite radio, and automotive financing.
Information filed by the company with the SEC under the Exchange Act can be located by reference to its SEC CIK number: 1467858. The company’s common stock is listed on the NYSE under the ticker symbol “GM.”
Historical Information
The following table sets forth the quarterly high, low and period-end closing prices for this Underlying Equity, based on daily closing prices, as reported by Bloomberg.
The historical performance of this Underlying Equity should not be taken as an indication of its future performance during the term of the Notes.
Quarter Begin
|
|
Quarter End
|
|
Quarterly Closing High ($)
|
|
Quarterly Closing Low ($)
|
|
Quarterly Period-End Close
($)
|
10/1/2010*
|
|
12/31/2010
|
|
36.86
|
|
33.25
|
|
36.86
|
1/1/2011
|
|
3/31/2011
|
|
38.98
|
|
30.74
|
|
31.03
|
4/1/2011
|
|
6/30/2011
|
|
33.04
|
|
28.56
|
|
30.36
|
7/1/2011
|
|
9/30/2011
|
|
31.80
|
|
20.18
|
|
20.18
|
10/1/2011
|
|
12/31/2011
|
|
26.45
|
|
19.05
|
|
20.27
|
1/1/2012
|
|
3/31/2012
|
|
27.34
|
|
21.05
|
|
25.65
|
4/1/2012
|
|
6/30/2012
|
|
26.76
|
|
19.66
|
|
19.72
|
7/1/2012
|
|
9/30/2012
|
|
24.80
|
|
18.80
|
|
22.75
|
10/1/2012
|
|
12/31/2012
|
|
28.83
|
|
23.09
|
|
28.83
|
1/1/2013
|
|
3/31/2013
|
|
30.60
|
|
26.33
|
|
27.82
|
4/1/2013
|
|
6/30/2013
|
|
35.03
|
|
27.52
|
|
33.31
|
7/1/2013
|
|
9/30/2013
|
|
37.58
|
|
33.69
|
|
35.97
|
10/1/2013
|
|
12/31/2013
|
|
41.53
|
|
34.16
|
|
40.87
|
1/1/2014
|
|
3/31/2014
|
|
40.95
|
|
34.09
|
|
34.42
|
4/1/2014
|
|
6/30/2014
|
|
37.09
|
|
31.93
|
|
36.30
|
7/1/2014
|
|
9/30/2014
|
|
37.97
|
|
31.94
|
|
31.94
|
10/1/2014
|
|
12/31/2014
|
|
35.09
|
|
29.69
|
|
34.91
|
1/1/2015
|
|
3/31/2015
|
|
38.87
|
|
32.62
|
|
37.50
|
4/1/2015
|
|
6/30/2015
|
|
37.16
|
|
33.23
|
|
33.33
|
7/1/2015
|
|
9/30/2015
|
|
33.23
|
|
27.28
|
|
30.02
|
10/1/2015
|
|
12/31/2015
|
|
36.46
|
|
30.67
|
|
34.01
|
1/1/2016
|
|
3/31/2016
|
|
33.31
|
|
26.90
|
|
31.43
|
4/1/2016
|
|
6/30/2016
|
|
32.66
|
|
27.51
|
|
28.30
|
7/1/2016
|
|
9/30/2016
|
|
32.39
|
|
28.17
|
|
31.77
|
10/1/2016
|
|
12/31/2016
|
|
37.66
|
|
30.96
|
|
34.84
|
1/1/2017
|
|
3/31/2017
|
|
38.28
|
|
34.26
|
|
35.36
|
4/1/2017
|
|
6/30/2017
|
|
34.93
|
|
32.42
|
|
34.93
|
7/1/2017
|
|
8/17/2017**
|
|
36.47
|
|
34.76
|
|
35.00
|
|
|
|
|
|
|
|
|
|
*The common stock of General Motors Company began trading on November 18, 2010. Accordingly, the “Quarterly Closing High,” “Quarterly Closing Low” and “Quarterly Period-End Close” data indicated are for this shortened period only and do not reflect complete data for the fourth calendar quarter of 2010, and there is limited performance history for the Underlying Equity.
** This pricing supplement includes information for the third calendar quarter of 2017 only for the period from July 1, 2017 through August 17, 2017. Accordingly, the “Quarterly Closing High,” “Quarterly Closing Low” and “Quarterly Period-End Close” data indicated are for this shortened period only and do not reflect complete data for the third calendar quarter of 2017.
The graph below illustrates the performance of this Underlying Equity from November 18, 2010 to August 17, 2017, based on the Initial Underlying Price of $35.00, which was its closing price on August 17 2017, and the Downside Threshold of $26.25, which is equal to 75.00% of the Initial Underlying Price.
HISTORIC PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE
.
Source: Bloomberg L.P.
We have not independently verified the accuracy or completeness of the information obtained from Bloomberg Financial Markets.
Supplemental Plan of Distribution (Conflicts of Interest)
|
We have agreed to indemnify UBS Financial Services Inc. and RBCCM against liabilities under the Securities Act of 1933, as amended, or to contribute payments that UBS Financial Services Inc. and RBCCM may be required to make relating to these liabilities as described in the prospectus supplement and the prospectus. We have agreed that UBS Financial Services Inc. may sell all or a part of the Notes that it will purchase from us to investors at the price to public or to its affiliates at the price indicated on the cover of this pricing supplement.
Subject to regulatory constraints and market conditions, RBCCM intends to offer to purchase the Notes in the secondary market, but it is not required to do so.
We or our affiliates may enter into swap agreements or related hedge transactions with one of our other affiliates or unaffiliated counterparties in connection with the sale of the Notes and RBCCM and/or an affiliate may earn additional income as a result of payments pursuant to the swap or related hedge transactions. See “Use of Proceeds and Hedging” beginning on page PS-17 of the accompanying product prospectus supplement no. UBS-TAOS-2.
The value of the Notes shown on your account statement may be based on RBCCM’s estimate of the value of the Notes if RBCCM or another of our affiliates were to make a market in the Notes (which it is not obligated to do). That estimate will be based upon the price that RBCCM may pay for the Notes in light of then prevailing market conditions, our creditworthiness and transaction costs. For a period of approximately six months after the issue date of the Notes, the value of the Notes that may be shown on your account statement may be higher than RBCCM’s estimated value of the Notes at that time. This is because the estimated value of the Notes will not include the underwriting discount and our hedging costs and profits; however, the value of the Notes shown on your account statement during that period may be a higher amount, reflecting the addition of the underwriting discount and our estimated costs and profits from hedging the Notes. Any such excess is expected to decrease over time until the end of this period. After this period, if RBCCM repurchases your Notes, it expects to do so at prices that reflect their estimated value. This period may be reduced at RBCCM’s discretion based on a variety of factors, including but not limited to, the amount of the Notes that we repurchase and our negotiated arrangements from time to time with UBS.
For additional information as to the relationship between us and RBCCM, please see the section “Plan of Distribution—Conflicts of Interest” in the prospectus dated January 8, 2016.
The Notes are our debt securities, the return on which is linked to the performance of the Underlying Equity. As is the case for all of our debt securities, including our structured notes, the economic terms of the Notes reflect our actual or perceived creditworthiness at the time of pricing. In addition, because structured notes result in increased operational, funding and liability management costs to us, we typically borrow the funds under these Notes at a rate that is more favorable to us than the rate that we might pay for a conventional fixed or floating rate debt security of comparable maturity. Using this relatively lower implied borrowing rate rather than
any secondary market rate is a factor that resulted in a higher initial estimated value of the Notes at the time their terms are set than if
any secondary market rate was used. Unlike the estimated value included on the cover of this document, any value of the Notes determined for purposes of a secondary market transaction may be based on a different borrowing rate, which may result in a lower value for the Notes than if our initial internal borrowing rate were used.
In order to satisfy our payment obligations under the Notes, we may choose to enter into certain hedging arrangements (which may include call options, put options or other derivatives) on the issue date with RBCCM or one of our other subsidiaries. The terms of these hedging arrangements take into account a number of factors, including our creditworthiness, interest rate movements, the volatility of the Underlying Equity, and the tenor of the Notes. The economic terms of the Notes and their initial estimated value depend in part on the terms of these hedging arrangements.
The lower implied borrowing rate is a factor that reduced the economic terms of the Notes to you. The initial offering price of the Notes also reflects the underwriting commission and our estimated hedging costs. These factors resulted in the initial estimated value for the Notes on the Trade Date being less than their public offering price. See “Key Risks—The Initial Estimated Value of the Notes Is Less than the Price to the Public” above.
Terms Incorporated in Master Note
|
The terms appearing above under the caption “Final Terms of the Notes” and the provisions in the accompanying product prospectus supplement no. UBS-TAOS-2 dated January 22, 2016 under the caption “General Terms of the Securities,” are incorporated into the master note issued to DTC, the registered holder of the Notes.
In the opinion of Norton Rose Fulbright Canada LLP, the issue and sale of the Notes has been duly authorized by all necessary corporate action of the Bank in conformity with the Indenture, and when the Notes have been duly executed, authenticated and issued in accordance with the Indenture and delivered against payment therefor, the Notes will be validly issued and, to the extent validity of the Notes is a matter governed by the laws of the Province of Ontario or Québec, or the laws of Canada applicable therein, and will be valid obligations of the Bank, subject to equitable remedies which may only be granted at the discretion of a court of competent authority, subject to applicable bankruptcy, to rights to indemnity and contribution under the Notes or the Indenture which may be limited by applicable law; to insolvency and other laws of general application affecting creditors’ rights, to limitations under applicable limitations statutes, and to limitations as to the currency in which judgments in Canada may be rendered, as prescribed by the Currency Act (Canada). This opinion is given as of the date hereof and is limited to the laws of the Provinces of Ontario and Québec and the federal laws of Canada applicable thereto. In addition, this opinion is subject to customary assumptions about the Trustee’s authorization, execution and delivery of the Indenture and the genuineness of signatures and certain factual matters, all as stated in the letter of such counsel dated January 8, 2016, which has been filed as Exhibit 5.1 to Royal Bank’s Form 6-K filed with the SEC dated January 8, 2016.
In the opinion of Morrison & Foerster LLP, when the Notes have been duly completed in accordance with the Indenture and issued and sold as contemplated by the prospectus supplement and the prospectus, the Notes will be valid, binding and enforceable obligations of Royal Bank, entitled to the benefits of the Indenture, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith). This opinion is given as of the date hereof and is limited to the laws of the State of New York. This opinion is subject to customary assumptions about the Trustee’s authorization, execution and delivery of the Indenture and the genuineness of signatures and to such counsel’s reliance on the Bank and other sources as to certain factual matters, all as stated in the legal opinion dated January 8, 2016, which has been filed as Exhibit 5.2 to the Bank’s Form 6-K dated January 8, 2016.