ISSUER FREE WRITING PROSPECTUS
Filed Pursuant to Rule 433
Registration Statement No. 333-227001
Dated April 22, 2019
Royal Bank of Canada Capped GEARS
$• Securities Linked to the Consumer Staples Select Sector SPDR® Fund due on or about June 30, 2020
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Investment Description
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Capped GEARS (each, a “Security” and collectively, the “Securities”) are unconditional, unsecured and unsubordinated debt securities issued by Royal Bank of Canada with
returns linked to the performance of the Consumer Staples Select Sector SPDR® Fund (the “Underlying”). If the Underlying Return (as defined below) is positive, we will repay the principal amount at maturity plus pay a return equal to 3
(the “Upside Gearing”) times the Underlying Return, up to the Maximum Gain. If the Underlying Return is negative, we will pay less than the principal amount at maturity and you will lose 1% of the principal amount of your Securities for every 1%
decline in the price of the Underlying, up to a loss of 100% of your investment. Investing in the Securities involves significant risks. The Securities do not pay dividends or
interest. You may lose some or all of your principal amount. Any payment on the Securities, including any repayment of principal, is subject to our creditworthiness. If we were to default on our payment obligations, you may not receive any amounts owed to you under the Securities and you could lose your
entire investment. The Securities will not be listed on any securities exchange. The Securities 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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Features
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Key Dates1
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Enhanced Growth Potential, Up to the Maximum Gain — At maturity, if the Underlying Return is positive, we will pay you the principal amount plus a return equal to the Upside Gearing
times the Underlying Return up to the Maximum Gain. If the Underlying Return is negative, investors will be exposed to the negative Underlying Return at maturity.
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❑
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Full Downside Market Exposure - If the Underlying Return is zero, we will pay the
full principal amount at maturity. However, if the Underlying Return is negative, investors will be exposed to the full downside performance of the Underlying and we will pay less than the full principal amount, resulting in a loss of
the principal amount that is proportionate to the percentage decline in the Underlying. Accordingly, you may lose some or all of the principal amount of the Securities. Any payment on the Securities, including any repayment of
principal, is subject to our creditworthiness.
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Trade Date1
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April 25, 2019
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Settlement Date1
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April 30, 2019
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Final Valuation Date2
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June 24, 2020
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Maturity Date2
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June 30, 2020
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Expected. In the event that we make any change to the expected Trade Date and Settlement Date, the Final Valuation Date and Maturity Date will be changed so that the stated term of the
Securities remains approximately the same.
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2
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Subject to postponement if a market disruption event occurs, as described under “General Terms of the Securities — Payment at Maturity” in the accompanying
product prospectus supplement EQUITY-1.
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NOTICE TO INVESTORS: THE SECURITIES ARE SIGNIFICANTLY RISKIER THAN CONVENTIONAL DEBT INSTRUMENTS.
THE ISSUER IS NOT NECESSARILY OBLIGATED TO REPAY THE FULL PRINCIPAL AMOUNT OF THE SECURITIES AT MATURITY, AND THE SECURITIES HAVE FULL DOWNSIDE MARKET RISK SIMILAR TO THE UNDERLYING. THIS MARKET RISK IS IN ADDITION TO THE CREDIT RISK
INHERENT IN PURCHASING OUR DEBT OBLIGATION. YOU SHOULD NOT PURCHASE THE SECURITIES IF YOU DO NOT UNDERSTAND OR ARE NOT COMFORTABLE WITH THE SIGNIFICANT RISKS INVOLVED IN INVESTING IN THE SECURITIES.
YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED UNDER “KEY RISKS” BEGINNING ON PAGE 5 OF THIS FREE WRITING PROSPECTUS AND UNDER “RISK FACTORS” BEGINNING ON PAGE PS-4 OF THE ACCOMPANYING PRODUCT PROSPECTUS SUPPLEMENT EQUITY-1 BEFORE PURCHASING ANY SECURITIES.
EVENTS RELATING TO ANY OF THOSE RISKS, OR OTHER RISKS AND UNCERTAINTIES, COULD ADVERSELY AFFECT THE MARKET VALUE OF, AND THE RETURN ON, YOUR SECURITIES. YOU COULD LOSE SOME OR ALL OF THE PRINCIPAL AMOUNT OF THE SECURITIES.
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Security Offering
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We are offering Capped GEARS Linked to the Consumer Staples Select Sector SPDR® Fund (“XLP”). The return on the principal
amount is subject to, and will not exceed, the predetermined Maximum Gain, which will be determined on the Trade Date. The Securities are offered at a minimum investment of 100 Securities at the Price to Public described below. The indicative
Maximum Gain range for the Securities is listed below. The actual Maximum Gain and Initial Underlying Price for the Securities will be determined on the Trade Date.
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Underlying
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Upside Gearing
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Maximum Gain
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Initial Underlying Price
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CUSIP
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ISIN
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Consumer Staples Select Sector SPDR® Fund (XLP)
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3
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At least 14%
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•
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78014H631
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US78014H6311
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See “Additional Information About Royal Bank of Canada and the Securities” in this free writing prospectus. The
Securities will have the terms specified in the prospectus dated September 7, 2018, the prospectus supplement dated September 7, 2018, product prospectus supplement EQUITY-1 dated January 18, 2019 and this free writing prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Securities or
passed upon the accuracy or the adequacy of this free writing prospectus or the accompanying prospectus, prospectus supplement and product prospectus supplement EQUITY-1. Any representation to the contrary is a criminal offense.
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Price to Public
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Fees and Commissions(1)
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Proceeds to Us
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Offering of the Securities
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Total
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Per Security
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Total
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Per Security
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Total
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Per Security
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Securities Linked to the Consumer Staples Select Sector SPDR® Fund (XLP)
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•
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$10.00
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•
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$0.20
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•
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$9.80
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(1) UBS Financial Services Inc., which we refer to as UBS, will receive a commission that will depend on market conditions on the Trade Date. In no
event will the commission received by UBS exceed $0.20 per $10 principal amount of the Securities. See “Supplemental Plan of Distribution (Conflicts of Interest)” below.
The initial estimated value of the Securities as of the Trade Date is expected to be between $9.5719 and $9.7719 per $10.00 in principal amount and will
be less than the price to public. The pricing supplement relating to the Securities will set forth our updated estimate of the initial value of the Securities as of the Trade Date. The actual value of the Securities at any time will reflect many
factors, cannot be predicted with accuracy, and may be less than this amount. We describe our determination of the initial estimated value under “Key Risks,” “Supplemental Plan of Distribution (Conflicts of Interest)” and “Structuring the
Securities” below.
The Securities will not constitute deposits insured under the Canada Deposit Insurance Corporation Act or by the United States
Federal Deposit Insurance Corporation or any other Canadian or United States government agency or instrumentality.
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UBS Financial Services Inc.
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RBC Capital Markets, LLC
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Additional Information About Royal Bank of Canada and the Securities
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Royal Bank of Canada has filed a registration statement (including a prospectus) with the Securities and Exchange Commission, or
SEC, for the offering to which this free writing prospectus relates. Before you invest, you should read the prospectus in that registration statement and the other documents relating to this offering that Royal Bank of Canada has filed with the
SEC for more complete information about Royal Bank of Canada and this offering. You may obtain these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Royal Bank of Canada, any agent or any dealer
participating in this offering will arrange to send you the prospectus, the prospectus supplement, product prospectus supplement EQUITY-1 and this free writing prospectus if you so request by calling toll-free 1-877-688-2301.
You may revoke your offer to purchase the Securities at any time prior to the time at which we accept such offer by notifying the
applicable agent. We reserve the right to change the terms of, or reject any offer to purchase, the Securities prior to their issuance. In the event of any changes to the terms of the Securities, we will notify you and you will be asked to
accept such changes in connection with your purchase. You may also choose to reject such changes, in which case we may reject your offer to purchase.
You should read this free writing prospectus 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 these Securities are a part, and the more detailed information contained in product prospectus supplement EQUITY-1 dated January
18, 2019. This free writing prospectus, together with the documents listed below, contains the
terms of the Securities 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 EQUITY-1, as
the Securities involve risks not associated with conventional debt securities.
If the terms discussed in this free writing prospectus differ from those discussed in the product prospectus supplement, the
prospectus supplement, or the prospectus, the terms discussed herein will control.
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):
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Product prospectus supplement EQUITY-1 dated January 18, 2019:
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Prospectus supplement dated September 7, 2018:
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Prospectus dated September 7, 2018:
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As used in this free writing prospectus, “we,” “us” or “our” refers to Royal Bank of Canada.
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Investor Suitability
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The Securities may be suitable for you if, among other considerations:
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You fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial investment.
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You can tolerate the loss of some or all of the principal amount of the Securities and are willing to make an investment that has similar downside market risk as a hypothetical
investment in the Underlying.
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You believe that the price of the Underlying will appreciate over the term of the Securities and that the appreciation is unlikely to exceed the Maximum Gain set forth on the
cover page of this free writing prospectus.
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You understand and accept that your potential return is limited by the Maximum Gain and you would be willing to invest in the Securities if the Maximum Gain was set to the
bottom of the range indicated on the cover page of this free writing prospectus (the actual Maximum Gain will be determined on the Trade Date).
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You can tolerate fluctuations in the price of the Securities prior to maturity that may be similar to or exceed the downside fluctuations in the price of the Underlying.
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You do not seek current income from your investment and are willing to forgo dividends paid on the securities represented by the Underlying.
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You are willing to hold the Securities to maturity and accept that there may be little or no secondary market for the Securities.
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You are willing to assume our credit risk for all payments under the Securities, and understand that if we default on our obligations, you may not receive any amounts due to
you, including any repayment of principal.
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♦
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You fully understand and accept the risks associated with the Underlying.
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The Securities may not be suitable for you if, among other considerations:
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You do not fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial investment.
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You require an investment designed to provide a full return of principal at maturity.
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You cannot tolerate the loss of some or all of the principal amount of the Securities, and you are not willing to make an investment that has similar downside market risk as a
hypothetical investment in the Underlying.
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You believe that the price of the Underlying will decline over the term of the Securities, or you believe the price of the Underlying will appreciate over the term of the
Securities by a percentage that exceeds the Maximum Gain set forth on the cover page of this free writing prospectus.
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You seek an investment that has unlimited return potential without a cap on appreciation.
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You would be unwilling to invest in the Securities if the Maximum Gain was set to the bottom of the range indicated on the cover page of this free writing prospectus (the actual
Maximum Gain will be determined on the Trade Date).
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You cannot tolerate fluctuations in the price of the Securities prior to maturity that may be similar to or exceed the downside fluctuations in the price of the Underlying.
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You seek current income from this investment or prefer to receive the dividends paid on the securities represented by the Underlying.
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You are unable or unwilling to hold the Securities to maturity or you seek an investment for which there will be an active secondary market.
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You are not willing to assume our credit risk for all payments under the Securities, including any repayment of principal.
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You do not fully understand and accept the risks associated with the Underlying.
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The suitability considerations identified above are not exhaustive. Whether or not the Securities are a suitable investment for
you will depend on your individual circumstances, and you should reach an investment decision only after you and your investment, legal, tax, accounting, and other advisers have carefully considered the suitability of an investment in the
Securities in light of your particular circumstances. You should also review carefully the “Key Risks” in this free writing prospectus and “Risk Factors” in the accompanying product prospectus supplement EQUITY-1 for risks related to an
investment in the Securities. In addition, you should review carefully the section below, “Information About the Underlying,” for more information about the Underlying.
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Indicative Terms of the Securities1
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Issuer:
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Royal Bank of Canada
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Issue Price:
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$10 per Security (subject to a minimum purchase of 100 Securities).
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Principal Amount:
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$10 per Security.
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Term2:
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Approximately 14 months
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Underlying:
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Consumer Staples Select Sector SPDR® Fund
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Upside Gearing:
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3
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Maximum Gain:
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The Maximum Gain is expected to be at least 14% (to be determined on the Trade Date).
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Payment at Maturity
(per $10 Security):
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If the Underlying Return is positive or zero, we will pay you:
$10 + ($10 x the lesser of (i) Upside Gearing x Underlying Return and (ii) Maximum Gain)
If the Underlying Return is negative, we will pay you:
$10 + ($10 x (Underlying Return)
In this scenario, you will lose some or all of the principal amount of the Securities in an amount proportionate
to the negative Underlying Return.
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Underlying Return:
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Final Underlying Price – Initial Underlying Price
Initial Underlying Price
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Initial Underlying
Price:
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The closing price of the Underlying on the Trade Date.
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Final Underlying
Price:
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The Closing Price of the Underlying on the Final Valuation Date.
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Investment Timeline
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Trade Date:
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The Maximum Gain is set. The Initial Underlying Price is determined.
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Maturity Date:
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The Final Underlying Price and Underlying Return are determined.
If the Underlying Return is positive or zero, we will pay you a cash payment per $10 Security that provides you with your principal
amount plus a return equal to the Underlying Return multiplied by the Upside Gearing, subject to the Maximum Gain. Your payment at maturity per $10 Security will be equal to:
$10 + ($10 x the lesser of (i) Upside Gearing x
Underlying Return and (ii) Maximum Gain)
If the Underlying Return is negative, we will pay you a cash payment that is less than the principal amount of $10 per Security
resulting in a loss of principal that is proportionate to the percentage decline in the Underlying, and equal to:
$10 + ($10 x (Underlying Return)
In this scenario, you will lose some or all of the principal amount of the Securities, in an amount proportionate to
the negative Underlying Return.
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INVESTING IN THE SECURITIES INVOLVES SIGNIFICANT RISKS. YOU MAY LOSE SOME OR ALL OF THE PRINCIPAL AMOUNT. ANY
PAYMENT ON THE SECURITIES, INCLUDING ANY REPAYMENT OF PRINCIPAL, IS SUBJECT TO OUR CREDITWORTHINESS. IF WE WERE TO DEFAULT ON OUR PAYMENT OBLIGATIONS, YOU MAY NOT RECEIVE ANY AMOUNTS OWED TO YOU UNDER THE SECURITIES AND YOU COULD LOSE YOUR ENTIRE
INVESTMENT.
1 Terms used in this free writing prospectus, but not defined herein, shall have the meanings ascribed to them in the product prospectus supplement.
2 In the event we make any change to the expected Trade Date and Settlement Date, the Final Valuation Date and
Maturity Date will be changed to ensure that the stated term of the Securities remains approximately the same.
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Key Risks
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An investment in the Securities involves significant risks. Investing in the Securities is not equivalent to investing directly in the Underlying.
These risks are explained in more detail in the “Risk Factors” section of the accompanying product prospectus supplement EQUITY-1. We also urge you to consult your investment, legal, tax, accounting and other advisors before investing in the
Securities.
Risks Relating to the Securities Generally
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Your Investment in the Securities May Result in a Loss of Principal — The Securities differ from
ordinary debt securities in that we are not necessarily obligated to repay the full principal amount of the Securities at maturity. The return on the Securities at maturity is linked to the performance of the Underlying and will
depend on whether, and the extent to which, the Underlying Return is positive or negative. If the Final Underlying Price is less than the Initial Underlying Price, you will be fully exposed to any negative Underlying Return and we
will pay you less than your principal amount at maturity, resulting in a loss of principal of your Securities that is proportionate to the percentage decline in the Underlying. Accordingly, you could lose the entire principal amount of the Securities.
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The Upside Gearing Applies Only if You Hold the Securities to Maturity—The application of the Upside
Gearing only applies at maturity. If you are able to sell your Securities prior to maturity in the secondary market, the price you receive will likely not reflect the full effect of the Upside Gearing and the return you realize may be
less than the Upside Gearing times the return of the Underlying at the time of sale, even if that return is positive and does not exceed the Maximum Gain.
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The Appreciation Potential of the Securities Is Limited by the Maximum Gain—If the Underlying Return is
positive, we will pay you $10 per Security at maturity plus an additional return that will not exceed the Maximum Gain, regardless of the appreciation in the Underlying, which may be significant. Therefore, you will not benefit from
any appreciation of the Underlying in excess of an amount that, when multiplied by the Upside Gearing, exceeds the Maximum Gain and your return on the Securities may be less than your return would be on a hypothetical direct
investment in the securities represented by the Underlying.
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No Interest Payments—We will not pay any interest with respect to the Securities.
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An Investment in the Securities Is Subject to Our Credit Risk—The Securities are our unsubordinated,
unsecured debt obligations, and are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the Securities, including any repayment of principal at maturity, depends on our ability to satisfy
our obligations as they come due. As a result, our actual and perceived creditworthiness may affect the market value of the Securities and, in the event we were to default on our obligations, you may not receive any amounts owed to
you under the terms of the Securities and you could lose your entire initial investment.
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The Securities Will Be Subject to Risks, Including Non-Payment in Full, Under Canadian Bank Resolution Powers
— Under Canadian bank resolution powers, the Canada Deposit Insurance Corporation (“CDIC”) may, in circumstances where we have ceased, or are about to cease, to be viable, assume temporary control or ownership over us and may be
granted broad powers by one or more orders of the Governor in Council (Canada), including the power to sell or dispose of all or a part of our assets, and the power to carry out or cause us to carry out a transaction or a series of
transactions the purpose of which is to restructure our business. See “Description of Debt Securities — Canadian Bank Resolution Powers” in the accompanying prospectus for a description of the Canadian bank resolution powers,
including the bail-in regime. If the CDIC were to take action under the Canadian bank resolution powers with respect to us, holders of the Securities could be exposed to losses.
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Your Return on the Securities May Be Lower than the Return on a Conventional Debt Security of Comparable
Maturity—The return that you will receive on the Securities, which could be negative, may be less than the return you could earn on other investments. Even if your return is positive, your return may be less than the return
you could earn if you bought a conventional senior interest bearing debt security of ours with the same maturity date or if invested directly in the Underlying or the securities held by the Underlying. Your investment may not reflect
the full opportunity cost to you when you take into account factors that affect the time value of money.
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No Dividend Payments or Voting Rights—Investing in the Securities is not equivalent to investing
directly in any of the component securities of the Underlying. As a holder of the Securities, you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of the securities
represented by the Underlying would have. The Underlying is a price return index, and the Underlying Return excludes any cash dividend payments paid on its component stocks.
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The Initial Estimated Value of the Securities Will Be Less than the Price to the Public—The initial
estimated value for the Securities that will be set forth in the final pricing supplement for the Securities, will be less than the public offering price you pay for the Securities, does not represent a minimum price at which we,
RBCCM or any of our other affiliates would be willing to purchase the Securities in any secondary market (if any exists) at any time. If you attempt to sell the Securities prior to maturity, their market value may be lower than the
price you paid for them and the initial estimated value. This is due to, among other things, changes in the price of the Underlying, the borrowing rate we pay to issue securities of this kind, and the inclusion in the price to the
public of the underwriting discount, and our estimated profit and the costs relating to our hedging of the Securities. These factors, together with various credit, market and economic factors over the term of the Securities, are
expected to reduce the price at which you may be able to sell the Securities in any secondary market and will affect the value of the Securities 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 Securities prior to maturity may be less than the price to public, as any such sale price would not be expected to include the underwriting discount and our
estimated profit and the costs relating to our hedging of the Securities. In addition, any price at which you may sell the Securities is likely to reflect customary bid-ask spreads for similar trades. In addition to bid-ask spreads,
the value of the Securities determined for any secondary market price is expected to be based on a secondary market rate rather than the internal borrowing rate used to price the Securities and determine the initial estimated value.
As a result, the secondary price will be less than if the internal borrowing rate was used. The Securities are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your Securities to
maturity.
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Our Initial Estimated Value of the Securities Is an Estimate Only, Calculated as of the Time the Terms of the
Securities Are Set—The initial estimated value of the Securities is based on the value of our obligation to make the payments on the Securities, together with the mid-market value of the derivative embedded in the terms of
the Securities. See “Structuring the Securities” 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
Securities. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the Securities or similar securities at a price that is significantly different than we do.
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The value of the Securities at any time after the Trade Date will vary based on many factors, including changes in market
conditions, and cannot be predicted with accuracy. As a result, the actual value you would receive if you sold the Securities in any secondary market, if any, should be expected to differ materially from the initial estimated value of your
Securities and the amount that may be paid at maturity.
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Owning the Securities Is Not the Same as Owning the Underlying or the Stocks Comprising the Underlying’s
Underlying Index—The return on your Securities may not reflect the return you would realize if you actually owned the Underlying or stocks included in the Underlying’s underlying index. As a holder of the Securities, you will
not have voting rights or rights to receive dividends or other distributions or other rights that holders of the Underlying or these stocks would have, and any such dividends will not be incorporated in the determination of the
Underlying Return.
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The Policies of the Underlying’s Investment Adviser Could Affect the Amount Payable on the Securities and
Their Market Value—The policies of the Underlying’s investment adviser concerning the management of the Underlying, additions, deletions or substitutions of the securities held by the Underlying could affect the market price
of shares of the Underlying and, therefore, the amount payable on the Securities on the maturity date and the market value of the Securities before that date. The amount payable on the Securities and their market value could also be
affected if the Underlying investment adviser changes these policies, for example, by changing the manner in which it manages the Underlying, or if the Underlying investment adviser discontinues or suspends maintenance of the
Underlying, in which case it may become difficult to determine the market value of the Securities. The Underlying’s investment adviser has no connection to the offering of the Securities and has no obligations to you as an investor in
the Securities in making its decisions regarding the Underlying.
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An Investment in the Securities Is Subject to Risks Relating
to the Consumer Staples Sector—The XLP’s assets are concentrated in the consumer staples sector, which means the XLP will be more affected by the performance of the consumer
staples sector than a fund that is more diversified. Consumer staples companies are subject to government regulation affecting their products, which may negatively impact such companies’ performance. For instance, government
regulations may affect the permissibility of using various food additives and production methods of companies that make food products, which could affect company profitability. Tobacco companies may be adversely affected by the
adoption of proposed legislation and/or by litigation. Also, the success of food, beverage, household and personal product companies may be strongly affected by consumer interest, marketing campaigns and other factors affecting
supply and demand, including performance of the overall domestic and global economy, interest rates, competition and consumer confidence and spending.
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Historical Prices of the Underlying Should Not Be Taken as an Indication of Its Future Prices During the Term
of the Securities—The trading prices of the Underlying will determine the value of the Securities at any given time. However, it is impossible to predict whether the price of the Underlying will rise or fall, and trading
prices of the common stocks held by the Underlying will be influenced by complex and interrelated political, economic, financial and other factors that can affect the issuers of those stocks, and therefore, the price of the
Underlying.
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The Underlying and its Underlying Index Are Different—The performance of the Underlying may not exactly
replicate the performance of the underlying index, because the Underlying will reflect transaction costs and fees that are not included in the calculation of the underlying index. It is also possible that the performance of the
Underlying may not fully replicate or may in certain circumstances diverge significantly from the performance of the underlying index due to the temporary unavailability of certain securities in the secondary market, the performance
of any derivative instruments contained in the Underlying or due to other circumstances. The Underlying may use futures contracts, options, swap agreements, currency forwards and repurchase agreements in seeking performance that
corresponds to the underlying index and in managing cash flows.
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During periods of market volatility, securities underlying the Underlying may be unavailable in the secondary market, market
participants may be unable to calculate accurately the net asset value per share of the Underlying and the liquidity of the Underlying may be adversely affected. This kind of market volatility may also disrupt the ability of market participants
to create and redeem shares of the Underlying. Further, market volatility may adversely affect, sometimes materially, the prices at which market participants are willing to buy and sell shares of the Underlying. As a result, under these
circumstances, the market value of shares of the Underlying may vary substantially from the net asset value per share of the Underlying. For all of the foregoing reasons, the performance of the Underlying may not correlate with the performance of
its underlying index as well as the net asset value per share of the Underlying, which could materially and adversely affect the value of the Securities in the secondary market and/or reduce your payment at maturity.
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Management Risk—The Underlying is not managed according to traditional methods of “active” investment
management, which involve the buying and selling of securities based on economic, financial and market analysis and investment judgment. Instead, the Underlying, utilizing a “passive” or indexing investment approach, attempts to
approximate the investment performance of its underlying index by investing in a portfolio of securities that generally replicate the underlying index. Therefore, unless a specific security is removed from the underlying index, the
Underlying generally would not sell a security because the security’s issuer was in financial trouble. In addition, the Underlying is subject to the risk that the investment strategy of the Underlying’s investment advisor may not
produce the intended results.
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Lack of Liquidity—The Securities will not be listed on any securities exchange. RBC Capital Markets,
LLC (“RBCCM”) intends to offer to purchase the Securities in the secondary market, but is not required to do so. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the Securities
easily. Because other dealers are not likely to make a secondary market for the Securities, the price at which you may be able to trade your Securities is likely to depend on the price, if any, at which RBCCM is willing to buy the
Securities.
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Potential Conflicts—We and our affiliates play a variety of roles in connection with the issuance of
the Securities, including hedging our obligations under the Securities. In performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor
in the Securities.
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Potentially Inconsistent Research, Opinions or Recommendations by RBCCM, UBS or Their Affiliates—RBCCM,
UBS or their affiliates may publish research, express opinions or provide recommendations that are inconsistent with investing in or holding the Securities, and which may be revised at any time. Any such research, opinions or
recommendations could affect the price of the Underlying, and therefore, the market value of the Securities.
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Uncertain Tax Treatment—Significant aspects of the tax treatment of an investment in the Securities are
uncertain. You should consult your tax adviser about your tax situation.
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Potential Royal Bank of Canada and UBS Impact on Price—Trading or other transactions by Royal Bank of
Canada, UBS and our respective affiliates in the Underlying or the securities included in the Underlying’s underlying index, or in futures, options, exchange-traded funds or other derivative products on the Underlying or those
securities, may adversely affect the market value of the Underlying and, therefore, the market value of the Securities.
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The Probability That the Underlying Will Fall Below the Initial Underlying Price on the Final Valuation Date
Will Depend on the Volatility of the Underlying — “Volatility” refers to the frequency and magnitude of changes in the price of the Underlying. Greater expected volatility with respect to the Underlying reflects a higher
expectation as of the Trade Date that the Underlying could close below its Initial Underlying Price on the Final Valuation Date, resulting in the loss of some or all of your investment. However, an Underlying’s volatility can change
significantly over the term of the Securities. The price of the Underlying could fall sharply, which could result in a significant loss of principal.
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The Terms of the Securities at Issuance and Their Market Value Prior to Maturity Will Be Influenced by Many
Unpredictable Factors—Many economic and market factors will influence the terms of the Securities at issuance and their value prior to maturity. These factors are similar in some ways to those that could affect the value of a
combination of instruments that might be used to replicate the payments on the Securities, including a combination of a bond with one or more options or other derivative instruments. For the market value of the Securities, we expect
that, generally, the price of the Underlying on any day will affect the value of the Securities more than any other single factor. However, you should not expect the value of the Securities in the secondary market to vary in
proportion to changes in the price of the Underlying. The value of the Securities will be affected by a number of other factors that may either offset or magnify each other, including:
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the price of the Underlying;
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the actual and expected volatility of the price of the Underlying;
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the time remaining to maturity of the Securities;
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the dividend rates on the securities held by the Underlying;
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interest and yield rates in the market generally, as well as in each of the markets of the securities held by the Underlying;
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a variety of economic, financial, political, regulatory or judicial events;
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the occurrence of certain events with respect to the Underlying that may or may not require an adjustment to the terms of the Securities; and
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our creditworthiness, including actual or anticipated downgrades in our credit ratings.
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Some or all of these factors will influence the terms of the Securities at issuance as well as the price you will receive if you
choose to sell the Securities prior to maturity. The impact of any of the factors set forth above may enhance or offset some or all of any change resulting from another factor or factors. You may have to sell the Securities at a substantial
discount from the principal amount if, for example, the price of the Underlying is at, below or not sufficiently above, the Initial Underlying Price.
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The Anti-Dilution Protection for the Underlying Is Limited—The calculation agent will make adjustments
to the Initial Underlying Price and the Final Underlying Price for certain events affecting the shares of the Underlying. However, the calculation agent will not be required to make an adjustment in response to all events that could
affect the Underlying. If an event occurs that does not require the calculation agent to make an adjustment, the value of the Securities and the Payment at Maturity may be materially and adversely affected.
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Hypothetical Examples and Return Table at Maturity
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Hypothetical terms only. Actual terms may vary. See the cover page for actual offering terms.
The following table and hypothetical examples below illustrate the payment at maturity per $10.00 Security for a hypothetical
range of Underlying Returns from -100.00% to +100.00% and assume a hypothetical Initial Underlying Price of $100.00, a hypothetical Maximum Gain of 14% (the low end of the range set forth above), and reflect the Upside Gearing of 3. The actual
Initial Underlying Price and Maximum Gain will be set on the Trade Date. The hypothetical Payment at Maturity examples set forth below are for illustrative purposes only and may not be the actual returns applicable to a purchaser of the
Securities. The actual payment at maturity will be determined based on the Final Underlying Price on the Final Valuation Date. You should consider carefully whether the Securities are suitable to your investment goals. The numbers appearing in
the table below have been rounded for ease of analysis.
Example 1 - On the Final Valuation Date, the Underlying
closes 2% above the Initial Underlying Price. Because the Underlying Return is positive, we will pay you an amount based upon the lesser of the Underlying Return times the Upside Gearing and the hypothetical Maximum Gain. Since the
Underlying Return of 2% times the Upside Gearing is less than the hypothetical Maximum Gain, we will pay you at maturity a cash payment of $10.60 per $10 principal amount Security, calculated as follows:
$10 + ($10 x 2% x 3) = $10 + $0.60 = $10.60
Example 2 - On the Final Valuation Date, the Underlying
closes 20% above the Initial Underlying Price. Because the Underlying Return is positive, we will pay you an amount based upon the lesser of the Underlying Return times the Upside Gearing and the hypothetical Maximum Gain. Since the
Underlying Return of 20% times the Upside Gearing is greater than the hypothetical Maximum Gain, we will pay you at maturity a cash payment of $11.40 per $10 principal amount Security, calculated as follows:
$10 + ($10 x 14.00%) = $10 + $1.40 = $11.40
Example 3 - On the Final Valuation Date, the Underlying
closes 40% below the Initial Underlying Price. Because the Underlying Return is -40%, which is negative, we will pay you at maturity a cash payment of $6.00 per $10 principal amount Security (a 40% loss on the principal amount),
calculated as follows:
$10 + ($10 x -40%) = $10 - $4.00 = $6.00
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Hypothetical Final Price
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Hypothetical
Underlying Return1
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Hypothetical Payment at
Maturity ($)
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Hypothetical Total Return
on Securities2
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$200.00
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100.00%
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$11.40
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14.00%
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$175.00
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75.00%
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$11.40
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14.00%
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$150.00
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50.00%
|
$11.40
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14.00%
|
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$140.00
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40.00%
|
$11.40
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14.00%
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$130.00
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30.00%
|
$11.40
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14.00%
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$120.00
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20.00%
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$11.40
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14.00%
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$115.00
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15.00%
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$11.40
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14.00%
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$110.00
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10.00%
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$11.40
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14.00%
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$104.67
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4.67%
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$11.40
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14.00%
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$104.00
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4.00%
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$11.20
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12.00%
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$103.00
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3.00%
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$10.90
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9.00%
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$102.00
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2.00%
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$10.60
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6.00%
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$100.00
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0.00%
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$10.00
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0.00%
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$95.00
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-5.00%
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$9.50
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-5.00%
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$80.00
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-20.00%
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$8.00
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-20.00%
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$75.00
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-25.00%
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$7.50
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-25.00%
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$70.00
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-30.00%
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$7.00
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-30.00%
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$65.00
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-35.00%
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$6.50
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-35.00%
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$60.00
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-40.00%
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$6.00
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-40.00%
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$50.00
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-50.00%
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$5.00
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-50.00%
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$25.00
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-75.00%
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$2.50
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-75.00%
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$0.00
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-100.00%
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$0.00
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-100.00%
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1 The Underlying Return excludes any cash dividend payments.
2 The “total return” is the number, expressed as a percentage, that results from comparing the payment at maturity per $10 principal amount Security
to the purchase price of $10.00 per Security.
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What Are the Tax Consequences of the Securities?
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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 Securities. The following summary supplements, and to the extent inconsistent supersedes, the discussion
under the section entitled “Supplemental Discussion of U.S. Federal Income Tax Consequences” in the accompanying product prospectus supplement, the section entitled “Certain Income Tax Consequences” in the accompanying prospectus supplement, and
the section entitled “Tax Consequences” in the accompanying prospectus, which you should carefully review prior to investing in the Securities.
In the opinion of our counsel, Morrison & Foerster LLP, it would generally be reasonable to treat the Securities as pre-paid
cash-settled derivative contracts in respect of the Underlying for U.S. federal income tax purposes, and the terms of the Securities 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 Securities for all tax purposes in accordance with such characterization. If the Securities are so treated, subject to the discussion in the accompanying product prospectus supplement concerning the potential application of
the “constructive ownership” rules under Section 1260 of the Code, a U.S. holder should generally recognize capital gain or loss upon the sale or maturity of the Securities in an amount equal to the difference between the amount a holder receives
at such time and the holder’s tax basis in the Securities. 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 (the “IRS”) might assert that a treatment other than
that described above is more appropriate. In addition, the IRS has released a notice that may affect the taxation of holders of the Securities. According to the notice, the IRS and the U.S. Treasury Department are actively considering whether the
holder of an instrument such as the Securities 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 Securities 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 special “constructive ownership rules” of Section 1260 of the 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.
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 Securities are not
delta-one instruments, non-U.S. holders should not be subject to withholding on dividend equivalent payments, if any, under the Securities. However, it is possible that the Securities could be treated as deemed reissued for U.S. federal income
tax purposes upon the occurrence of certain events, and following such occurrence the Securities 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 or the Securities should consult their tax advisors as to the application of the dividend equivalent withholding tax in the context of the Securities 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.
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 Securities.
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 Securities.
Canadian Federal Income Tax Consequences
For a discussion of the material Canadian federal income tax consequences relating to an investment in the Securities, please see the section entitled “Tax
Consequences—Canadian Taxation” in the accompanying prospectus, which you should carefully review prior to investing in the Securities.
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Information About the Underlying
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Included on the following pages is a brief description of the Underlying. This information has been obtained from publicly
available sources. Set forth below is a table that provides the quarterly high and low closing prices for the Underlying. 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 as an indication of future performance.
The Underlying is registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Investment Company
Act of 1940, as amended (the “Investment Company Act”). Companies with securities registered under the Exchange Act and the Investment Company Act are required to file financial and other information specified by the SEC periodically. Information
filed by the Underlying with the SEC can be reviewed electronically through a web site maintained by the SEC. The address of the SEC’s web site is http://www.sec.gov. Information filed with the SEC by the issuer of the Underlying under the
Exchange Act can be located by reference to its SEC Central Index Key number provided below. Information from outside sources is not incorporated by reference in, and should not be considered part of, this free writing prospectus or any
accompanying prospectus or prospectus supplement. We have not independently reviewed the accuracy or completeness of the information contained in outside sources.
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Consumer Staples Select Sector SPDR® Fund
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The XLP seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Consumer
Staples Select Sector Index. The Consumer Staples Select Sector Index measures the performance of the consumer staples sector of the U.S. equity market. The XLP is composed of companies whose primary line of business is directly associated with
the consumer staples sector. The XLP trades on the NYSE Arca under the ticker symbol “XLP.”
The Consumer Staples Select Sector Index
The index is a modified market capitalization-based index. The index is intended to track the movements of companies that are components of the
S&P 500® Index and are involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products and personal products.
The index is one of the Select Sector Indices. The Select Sector Indices are sub-indices of the S&P 500® Index. Each stock in the
S&P 500® Index is allocated to at least one Select Sector Index, and the combined companies of the eleven Select Sector Indices represent all of the companies in the S&P 500® Index. The industry indices are
sub-categories within each Select Sector Index and represent a specific industry segment of the overall Select Sector Index. The eleven Select Sector Indices seek to represent the eleven S&P 500® Index sectors.
Each Select Sector Index was developed and is maintained in accordance with the following criteria:
• Each of the component stocks in a Select Sector Index
(the “Component Stocks”) is a constituent company of the S&P 500® Index.
• The ten Select Sector Indices together will include all
of the companies represented in the S&P 500® Index and each of the stocks in the S&P 500® Index will be allocated to at least one of the Select Sector Indices.
• The Index Compilation Agent assigns each constituent
stock of the S&P 500® Index to a Select Sector Index. The Index Compilation Agent assigns a company’s stock to a particular Select Sector Index based on S&P Dow Jones Indices’ sector classification methodology as set forth in
its Global Industry Classification Standard.
• Each Select Sector Index is calculated by S&P Dow
Jones Indices using a modified “market capitalization” methodology. This design ensures that each of the component stocks within a Select Sector Index is represented in a proportion consistent with its percentage with respect to the total market
capitalization of that Select Sector Index.
• For reweighting purposes, each Select Sector Index is
rebalanced quarterly after the close of business on the second to last calculation day of March, June, September and December using the following procedures: (1) The rebalancing reference date is two business days prior to the last calculation
day of each quarter; (2) With prices reflected on the rebalancing reference date, and membership, shares outstanding, additional weight factor (capping factor) and investable weight factors as of the rebalancing effective date, each company is
weighted using the modified market capitalization methodology. Modifications are made as defined below.
(i) The indices are first evaluated to ensure none of the indices breach the maximum allowable limits defined in rules (ii) and (v) below. If any of
the allowable limits are breached, the component stocks are reweighted based on their float-adjusted market capitalization weights.
(ii) If any component stock has a weight greater than 24%, that component stock has its float-adjusted market capitalization weight capped at 23%. The
23% weight cap creates a 2% buffer to ensure that no component stock exceeds 25% as of the quarter-end diversification requirement date.
(iii) All excess weight is equally redistributed to all uncapped component stocks within the relevant Select Sector Index.
(iv) After this redistribution, if the float-adjusted market capitalization weight of any other component stock(s) then breaches 23%, the process is
repeated iteratively until no component stock s breaches the 23% weight cap.
(v) The sum of the component stocks with weight greater than 4.8% cannot exceed 50% of the total index weight. These caps are set to allow for a
buffer below the 5% limit.
(vi) If the rule in step (v) is breached, all the component stocks are ranked in descending order of their float-adjusted market capitalization
weights and the first component stock that causes the 50% limit to be breached has its weight reduced to 4.5%.
(vii) This excess weight is equally redistributed to all component stocks with weights below 4.5%. This process is repeated iteratively until step (v)
is satisfied.
(viii) Index share amounts are assigned to each component stock to arrive at the weights calculated above. Since index shares are assigned based on
prices one business day prior to rebalancing, the actual weight of each component stock at the rebalancing differs somewhat from these weights due to market movements.
(ix) If necessary, the reweighting process may take place more than once prior to the close on the last business day of March, June, September or
December to ensure conformity with all diversification requirements.
Each Select Sector Index is calculated using the same methodology utilized by S&P Dow Jones Indices in calculating the S&P 500®
Index, using a base-weighted aggregate methodology. The daily calculation of each Select Sector Index is computed by dividing the total market value of the companies in the Select Sector Index by a number called the index divisor.
10
The Index Compilation Agent at any time may determine that a Component Stock which has been assigned to one Select Sector Index has undergone such a
transformation in the composition of its business, and should be removed from that Select Sector Index and assigned to a different Select Sector Index. In the event that the Index Compilation Agent notifies S&P Dow Jones Indices that a
Component Stock’s Select Sector Index assignment should be changed, S&P Dow Jones Indices will disseminate notice of the change following its standard procedure for announcing index changes and will implement the change in the affected Select
Sector Indices on a date no less than one week after the initial dissemination of information on the sector change to the maximum extent practicable. It is not anticipated that Component Stocks will change sectors frequently.
Component Stocks removed from and added to the S&P 500® Index will be deleted from and added to the appropriate Select Sector Index on
the same schedule used by S&P Dow Jones Indices for additions and deletions from the S&P 500® Index insofar as practicable.
11
Historical Information
The graph below illustrates the performance of the Underlying from April 18, 2009 to April 18, 2019.
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.
12
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Supplemental Plan of Distribution (Conflicts of Interest)
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We have agreed to indemnify UBS and RBCCM against liabilities under the Securities Act of 1933, as amended, or to contribute payments that UBS and
RBCCM may be required to make relating to these liabilities as described in the prospectus supplement and the prospectus. We will agree that UBS may sell all or a part of the Securities that it will purchase from us to investors at the price to
public listed on the cover hereof, or its affiliates at the price indicated on the cover of the pricing supplement, the document that will be filed under Rule 424(b)(2) containing the final pricing terms of the Securities.
UBS may allow a concession not in excess of the underwriting discount set forth on the cover of the pricing supplement to its affiliates for
distribution of the Securities.
Subject to regulatory constraints and market conditions, RBCCM intends to offer to purchase the Securities 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 Securities 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” in the accompanying product
prospectus supplement EQUITY-1.
We expect to deliver the Securities 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 Securities more than two business days prior
to the original issue date will be required to specify alternative settlement arrangements to prevent a failed settlement.
The value of the Securities shown on your account statement may be based on RBCCM’s estimate of the value of the Securities if RBCCM or another of
our affiliates were to make a market in the Securities (which it is not obligated to do). That estimate will be based upon the price that RBCCM may pay for the Securities in light of then prevailing market conditions, our creditworthiness and
transaction costs. If so specified in the pricing supplement related to the Securities, for a period of approximately 7 months after the issue date, the value of the Securities that may be shown on your account statement may be higher than
RBCCM’s estimated value of the Securities at that time. This is because the estimated value of the Securities will not include the underwriting discount and our hedging costs and profits; however, the value of the Securities shown on your
account statement during that period may be a higher amount, potentially reflecting the addition of the underwriting discount and our estimated costs and profits from hedging the Securities. Any such excess is expected to decrease over time
until the end of this period. After this period, if RBCCM repurchases your Securities, 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 Securities 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 September 7, 2018.
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Structuring the Securities
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The Securities are our debt securities, the return on which is linked to the performance of the Underlying. As is the case for
all of our debt securities, including our structured notes, the economic terms of the Securities 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 a secondary market rate is a factor that is likely to result in a higher initial estimated value of the Securities at the time their terms are set than if a secondary
market rate was used. Unlike the estimated value included on the cover of the final pricing supplement relating to the Securities, any value of the Securities 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 Securities than if our initial internal borrowing rate were used.
In order to satisfy our payment obligations under the Securities, 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, and the tenor of the Securities. The economic terms of the Securities and their initial estimated value depend in part on the terms of these hedging arrangements.
The lower implied borrowing rate is a factor that reduces the economic terms of the Securities to you. The initial offering price
of the Securities also reflects the underwriting discount and our estimated hedging costs. These factors result in the initial estimated value for the Securities on the Trade Date being less than their public offering price. See “Key Risks—The
Initial Estimated Value of the Securities Will Be Less than the Price to the Public” above.
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Terms Incorporated in Master Note
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The terms appearing above under the caption “Indicative Terms of the Securities” and the provisions in the accompanying product prospectus
supplement EQUITY-1 dated January 18, 2019 under the caption “General Terms of the Securities,” are incorporated into the master note issued to DTC, the registered holder of the Securities.
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