Royal Bank of Canada Capped Buffer GEARS
$• Securities Linked to a Basket of Three Equity Indices and Two American Depositary Shares due on or about April 7, 2022
Capped Buffer GEARS (each, a “Security” and collectively, the “Securities”) are our unconditional, unsecured and unsubordinated debt
securities, with returns linked to an unequally weighted basket (the “Basket”) of three equity indices (each, an “Underlying Index”) and two American Depositary Shares (ADS) (the “Underlying Shares,” and together with the Underlying Indices, the
“Basket Components”). The Basket Components and their weightings are set forth below. If the Underlying Return (as defined below) is positive, we will repay the principal amount at maturity plus pay a return equal to 2 (the “Upside Gearing”)
times the Underlying Return, up to the Maximum Gain (as defined below). If the Underlying Return is zero or negative, but the Final Basket Level (as defined below) is greater than or equal to the Downside Threshold (as defined below), we will
repay the full principal amount at maturity. However, if the Underlying Return is negative and the Final Basket Level is less than the Downside Threshold, 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 level of the Basket in excess of the Buffer (as defined below), up to a loss of 90% of your investment.
Investing in the Securities involves significant risks. The
Securities do not pay dividends or interest. You may lose up to 90% of your principal amount if the Final Basket Level is less than the Downside Threshold. The downside exposure to the Basket is buffered only at maturity. Any payment on the
Securities, including any repayment of principal, is subject to our
creditworthiness. If we 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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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.
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Buffered Downside Market Exposure — If the
Underlying Return is zero or negative, but the Final Basket Level is greater than or equal to the Downside Threshold, we will pay the full principal amount at maturity. However, if the Underlying Return is negative and the Final Basket
Level is below the Downside Threshold, 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 Basket in excess of the Buffer. Accordingly, you
may lose up to 90% of the principal amount of the Securities. The downside exposure to the Underlying is buffered only at maturity.
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Trade Date1
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April 2, 2019
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Settlement Date1
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April 5, 2019
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Final Valuation Date1 2
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April 4, 2022
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Maturity Date1 2
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April 7, 2022
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1
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Expected. If 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 UBS-EQUITY-1 and as further discussed below.
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NOTICE TO INVESTORS: THE SECURITIES ARE SIGNIFICANTLY RISKIER THAN CONVENTIONAL DEBT INSTRUMENTS. WE ARE NOT
NECESSARILY OBLIGATED TO REPAY THE FULL PRINCIPAL AMOUNT OF THE SECURITIES AT MATURITY, AND THE SECURITIES HAVE DOWNSIDE MARKET RISK SIMILAR OF THE BASKET. 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 UBS-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, THE SECURITIES. YOU COULD LOSE A SIGNIFICANT PORTION OF THE PRINCIPAL AMOUNT OF THE SECURITIES.
We are offering Capped Buffer GEARS Linked to the Basket described below. The Securities are offered at a minimum investment of 100
Securities, at the Price to Public described below. The return on the principal amount is subject to, and will not exceed, the predetermined Maximum Gain.
Basket Components with Weightings
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Bloomberg
Symbols
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Buffer
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Downside
Threshold
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Upside
Gearing
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Maximum
Gain
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Initial
Basket Level
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CUSIP
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ISIN
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S&P 500® Index (50%)
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SPX
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EURO STOXX 50® Index (20%)
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SX5E
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MSCI Emerging Markets Index (20%)
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MXEF
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10%
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90
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2
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33%
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100
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78014H557
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US78014H5578
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ADSs of Alibaba Group Holding Limited (5%)
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BABA
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ADSs of Baidu, Inc. (5%)
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BIDU
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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 UBS-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 UBS-EQUITY-1. Any representation to the contrary is a criminal offense.
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Price to Public(1)
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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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$10.00
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●
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$0.18
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●
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$9.82
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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 $0.18 per $10 principal amount of the Securities. See “Supplemental Plan of Distribution (Conflicts of Interest)” on the last page of this free writing prospectus.
The initial estimated value of the Securities as of the date of this document is expected to be between $9.5322 and $9.7322 per $10 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.
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 UBS-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 UBS-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 UBS-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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As used in this free writing prospectus, “we,” “us” or “our” refers to Royal Bank of Canada.
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 up to 90% of the principal amount.
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You can tolerate the loss of up to 90% of your initial investment and are willing to make an investment that has similar downside market risk as a hypothetical investment in the Basket, subject to
the Buffer at maturity.
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You believe that the value of the Basket will appreciate over the term of the Securities and that the appreciation is unlikely to exceed the Maximum Gain.
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You understand and accept that your potential return is limited by the Maximum Gain set forth on the cover page.
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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 value of the Basket.
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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 Basket.
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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 understand and accept the risks associated with the Basket Components.
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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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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 up to 90% of your 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 up to 90% 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 Basket, subject to the Buffer at maturity.
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You believe that the value of the Basket will decline over the term of the Securities, or you believe the value of the Basket will appreciate over the term of the Securities by a percentage that
exceeds the Maximum Gain.
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You seek an investment that has unlimited return potential without a cap on appreciation.
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You are unwilling to invest in the Securities based on the Maximum Gain set forth on the cover page.
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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 value of the Basket.
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You seek current income from this investment or prefer to receive the dividends paid on the securities represented by the Basket.
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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 do not understand or accept the risks associated with the Basket Components.
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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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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 UBS-EQUITY-1 for risks related to an investment in the Securities. In addition, you should review
carefully the section below, “Information About the Basket Components,” for more information about the Basket Components.
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. The payment at maturity will be based on the principal amount.
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Term2:
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Approximately 3 years
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Basket:
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A basket consisting of the following:
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Basket
Components
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Bloomberg
Symbols
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Component Weightings
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Initial
Levels
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S&P 500® Index |
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SPX
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50%
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●
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EURO STOXX 50® Index |
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SX5E |
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20%
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MSCI Emerging Markets Index |
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MXEF
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20%
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ADSs of BABA |
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BABA
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5%
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ADSs of BIDU |
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BIDU
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5%
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●
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Upside
Gearing:
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2
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Maximum
Gain:
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33%
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Buffer:
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10%
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Downside
Threshold:
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90% of the Initial Level
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Payment at
Maturity (per
$10 Security):
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If the Underlying Return is positive, 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 zero or negative, but the Final Basket
Level is not below the Downside Threshold, we will pay you:
$10
If the Underlying Return is negative and the Final
Basket Level is below the Downside Threshold, we will pay you:
$10 + ($10 x (Underlying Return + Buffer))
In this scenario, you will lose up to 90% of the principal amount of the Securities, in an amount proportionate to the percentage the Underlying has declined in excess of the Buffer.
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Underlying
Return:
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Final Basket Level – Initial Basket Level
Initial Basket Level
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Initial Basket
Level:
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To be set to 100 on the Trade Date.
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Final Basket
Level:
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10 × [1 + (the sum of the Component Return of each Basket Component multiplied by its Component Weighting)]
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Component
Return of Each
Basket
Component:
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The Component Return with respect to each Basket Component reflects its performance, calculated as follows:
Final Level – Initial Level
Initial Level
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Initial Level:
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With respect to each Basket Component, its closing level or its closing price (as applicable) on the Trade Date, as indicated in the table above.
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Final Level:
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With respect to each Basket Component, its closing level or closing price (as applicable) on the Final Valuation Date. If there is a market
disruption event as to a Basket Component on the Final Valuation Date, or if that date is not a trading day as to a Basket Component, only the determination of the Final Level for that Basket Component will be postponed, as set forth in
the product prospectus supplement and as further set forth below.
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Trade Date:
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The Initial Level of each Basket Component is determined, and the Initial Basket Level is set to 100.
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Maturity Date:
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The Final Level and the Component Return of each Basket Component, the Final Basket Level and the Underlying Return are
determined.
If the Underlying Return is positive, we will pay you, for each $10 Security:
$10 + ($10 x the lesser of (i) Upside Gearing x Underlying Return and (ii) Maximum Gain
If the Underlying Return is zero or negative, but the Final Basket Level is not below the Downside Threshold, we will pay you a cash payment of $10 per $10
Security.
If the Final Basket Level is negative and the Final Basket Level is below the Downside Threshold, we will pay you a cash payment that is less than your initial
investment of $10 per Security, resulting in a loss that is proportionate to the percentage decline of the Underlying in excess of the Buffer, and equal to:
$10 + ($10 x (Underlying Return + Buffer)
In this scenario, you will lose up to 90% of the principal amount of the Securities, in an amount proportionate to the
percentage that the Underlying has declined in excess of the Buffer.
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INVESTING IN THE SECURITIES INVOLVES SIGNIFICANT RISKS. 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.
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.
An investment in the Securities involves significant risks. Investing in the Securities is not equivalent to investing directly in
any of the Basket Components. These risks are explained in more detail in the “Risk Factors” section of the accompanying product prospectus supplement UBS-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 at maturity. The return on the Securities at maturity is linked to the performance of the Basket and will depend on whether, and the extent to
which, the Underlying Return is positive or negative. If the Underlying Return is negative and the Final Basket Level is below the Downside Threshold, you will be exposed to any negative Underlying Return in excess of the Buffer, 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 Basket in excess of the Buffer. Accordingly, you could lose up to 90% of the principal amount of the Securities.
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The Buffer Applies Only if You Hold the Securities to Maturity: The application of the Buffer only
applies at maturity. If you are able to sell your Securities in the secondary market prior to maturity, you may have to sell them at a loss even if the Basket has not declined by more than 10% at the time of sale.
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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 Basket 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 Basket, which may be significant. Therefore, you will not benefit from any
appreciation of the Basket 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 Basket Components.
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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 that we issued with the same maturity date or if you invested directly in the securities represented by the Basket Components. 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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Lack of Liquidity: The Securities will not be listed on any securities exchange. 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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The Initial Estimated Value of the Securities Will Be Less than the Price to the Public: The initial
estimated value 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 value of the Basket, 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 the 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 market 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
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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.
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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Changes in the Values of One or More of the Basket Components May Be Offset by Changes in
the Values of One or More of the Other Basket Components: Changes in the values of the Basket Components may not correlate with each other. At a time
when the value of one of the Basket Components increases, the level of any other Basket Components may not increase as much or may even decline. Therefore, in calculating the Final Basket Level, an increase in the value of one of the
Basket Components may be moderated, or more than offset, by a lesser increase or decline in the level of any other Basket Comments. In addition, because the SPX makes up 50% of the Basket, we expect that generally the market value of
your Securities and your payment at maturity will depend to a greater extent on the performance of the SPX than the performance of each of the other Basket Components. Further, high correlation of movements in the values of the Basket
Components during periods of negative returns among them could have an adverse effect on any payment on the Securities.
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No Dividend Payments or Voting Rights: Investing in the Securities is not equivalent to investing
directly in any of the securities represented by the Basket Components. 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 those
securities would have. The Underlying Return excludes any cash dividend payments paid on these securities.
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An Investment in the Securities Is Subject to Risks Associated with Non-U.S. Securities Markets: The
securities included in the SX5E and the MXEF have been issued by non-U.S. companies. An investment in securities linked to the value of non-U.S. equity securities involves particular risks. Non-U.S. securities markets may be more
volatile than U.S. securities markets, and market developments may affect non-U.S. securities markets differently from the U.S. securities markets. Direct or indirect government intervention to stabilize these non-U.S. securities
markets, as well as cross shareholdings among non-U.S. companies, may affect trading prices and volumes in those markets. Also, there is generally less publicly available information in the U.S. about non-U.S. companies than about those
U.S. companies that are subject to the reporting requirements of the SEC, and non-U.S. companies are subject to accounting, disclosure, auditing and financial reporting standards and requirements that differ from those applicable to
U.S. reporting companies.
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Prices of securities in non-U.S. countries are subject to political, economic, financial and social factors that may be unique to the
particular countries. These factors, which could negatively affect the non-U.S. securities markets, include the possibility of recent or future changes in the economic and fiscal policies of non-U.S. governments, the possible imposition of, or
changes in, currency exchange laws or other non-U.S. laws or restrictions applicable to non-U.S. companies or investments in non-U.S. equity securities, the possibility of fluctuations in the rate of exchange between currencies, the possibility of
outbreaks of hostility and political instability and the possibility of natural disaster or adverse public health developments in the relevant region. Moreover, the economies of certain foreign countries may differ favorably or unfavorably from the
U.S. economy in important respects, such as growth of gross national product, rate of inflation, trade surpluses or deficits, capital reinvestment, resources and self-sufficiency.
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An Investment in the Securities Is Subject to Risks Associated with Emerging Markets: The securities
included in the MXEF have been issued by emerging market companies. Investments in securities linked directly or indirectly to emerging market equity securities involve many risks, including, but not limited to: economic, social,
political, financial and military conditions in the emerging market; regulation by national, provincial, and local governments; less liquidity and smaller market capitalizations than exist in the case of many large U.S. companies;
different accounting and disclosure standards; and political uncertainties. Stock prices of emerging market companies may be more volatile and may be affected by market developments differently than U.S. companies. Government
intervention to stabilize securities markets and cross-shareholdings may affect prices and volume of trading of the securities of emerging market companies. Economic, social, political, financial and military factors could, in turn,
negatively affect such companies’ value. These factors could include changes in the emerging market government’s economic and fiscal policies, possible imposition of, or changes in, currency exchange laws or other laws or restrictions
applicable to the emerging market companies or investments in their securities, and the possibility of fluctuations in the rate of exchange between currencies. Moreover, emerging market economies may differ favorably or unfavorably from
the U.S. economy in a variety of ways, including growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency. You should carefully consider the risks related to emerging markets, to which
the Securities are susceptible, before making a decision to invest in the Securities.
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The Return on the Securities Will Not Be Adjusted for the Exchange Rates Related to the Underlying Indices: Although
the equity securities that comprise the SX5E and the MXEF are traded in the foreign currencies, and your Securities are denominated in U.S. dollars, the amount payable on your Securities will not be adjusted for changes in the exchange
rates between the U.S. dollar and the relevant foreign currencies. Therefore, if a relevant foreign currency appreciates or depreciates relative to the U.S. dollar over the term of the Securities, you will not receive any additional
payment or incur any reduction in any payment on the Securities. Changes in exchange rates, however, may also reflect changes in the foreign economies that in turn may affect the level of one or both of these indices, and therefore the
return on your Securities.
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Changes Affecting an Underlying Index: The policies of an index sponsor concerning additions, deletions
and substitutions of the stocks included in the relevant Underlying Index and the manner in which the index sponsor takes account of certain changes affecting those stocks included in the relevant Underlying Index may adversely affect
the level of that Underlying Index. The policies of an index sponsor with respect to the calculation of the relevant Underlying Index could also adversely affect the level of that Underlying Index. An index sponsor may discontinue or
suspend calculation or dissemination of the relevant Underlying Index and has no obligation to consider your interests in the Securities when taking any action regarding the relevant Underlying Index. Any such actions could have an
adverse effect on the value of the Securities.
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The Historical Values of any Basket Component Should Not Be Taken as an Indication of Its Future Prices During
the Term of the Securities: The values of the Basket Components will determine the value of the Securities at any given time. However, it is impossible to predict whether the value of any Basket Component will rise or fall, and
the values of the Basket Components will be influenced by complex and interrelated political, economic, financial and other factors that can affect the value of the Basket.
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Potential Conflicts: We, UBS and our respective 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 and those of UBS are potentially adverse
to your interests as an investor in the Securities.
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We, UBS and our respective affiliates may do business from time to time with the issuers of the securities represented by the Basket
Components. We may engage in lending or financing transactions with them, or advise them in connection with acquisitions or other transactions. We may acquire non-public information about these companies, which we have no obligation to provide to
you.
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Potentially Inconsistent Research, Opinions or Recommendations by RBCCM, UBS or Their Affiliates: RBCCM,
UBS or their respective 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 value of the Basket, 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 equity securities represented by the Basket or in futures, options, exchange-traded funds or other derivative products on those equity securities may adversely affect the market value of
those equity securities, the value of that Basket Component, and, therefore, the market value of the Securities.
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The Probability That the Value of the Basket Will Fall Below the Downside Threshold on the Final Valuation Date
Will Depend on the Volatility of the Basket Components: “Volatility" refers to the frequency and magnitude of changes in the value of the Basket Components. Greater expected volatility with respect to the Basket Components
reflects a higher expectation as of the Trade Date that the level Basket could close below the Initial Basket Level on the Final Valuation Date, resulting in the loss of some or all of your investment. However, a Basket Component’s
volatility can change significantly over the term of the Securities. The level of the Basket 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 value of the Basket Components 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 values of the Basket Components. 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 actual or expected volatility of each Basket Component;
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the time remaining to maturity of the Securities;
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the dividend rates on the equity securities represented by the Basket Components;
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interest and yield rates in the market generally, as well as in each of the markets of the equity securities represented by the Basket Components;
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a variety of economic, financial, political, regulatory or judicial events;
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our creditworthiness, including actual or anticipated downgrades in our credit ratings; and
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whether any organization event affects any Underlying Share that requires the calculation agent to adjust the terms of the Securities.
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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 value of the Basket is at, below or not sufficiently above, the Initial Basket Level.
Additional Risks Relating to the ADSs
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The value of
an ADS may not accurately track the value of the underlying stock represented by that ADS: Each ADS represents shares of the relevant company (an
“underlying company”). The trading patterns of the ADSs will generally reflect the characteristics and valuations of the underlying ADS stock; however, the value of the ADSs may not completely track the value of those shares. Trading volume and pricing on any applicable non-U.S. exchange may, but will not
necessarily, have similar characteristics as the ADSs. For example, certain factors may increase or decrease the public float of the ADSs and, as a result, the ADSs may have less liquidity or lower market value than the underlying
ADS.
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Adverse trading conditions in the applicable non-U.S. market may negatively affect the
value of the applicable stock: Holders of the underlying company’s ADSs may usually surrender the ADSs in order to receive and trade the underlying ADS stock. This provision permits investors in the ADSs to take advantage of
price differentials between markets. However, this provision may also cause the market prices of the applicable ADS to more closely correspond with the values of the common shares in the applicable non-U.S. markets. As a result, a market outside of the U.S. for the underlying ADS stock that is not liquid may also result in an illiquid market for the ADSs.
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Your anti-dilution protection is limited: The calculation agent will make
adjustments to the price of an ADS as described in the product prospectus supplement. The calculation agent is not required, however, to make such adjustments in response to all events that could affect the applicable ADSs. If an event
occurs that does not require the calculation agent to make an adjustment, such as an offering of common shares for cash, the value of the notes may be materially and adversely affected. In addition, all determinations and calculations
concerning any such adjustment will be made by the calculation agent, which will be binding on you absent manifest error. You should be aware that the calculation agent may make any such adjustment, determination or calculation in a
manner that differs from, or that is in addition to, that described in the product prospectus supplement as necessary to achieve an equitable result.
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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 are based on the Initial Basket Level
of 100.00, the Buffer of 10% and the Maximum Gain of 33%, and reflect the Upside Gearing of 2. 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 Basket Level. 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 Basket Level. 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 $10.40 per $10 principal amount
Security, calculated as follows:
$10 + ($10 x 2% x 2) = $10 + $0.40 = $10.40
Example 2 – On the Final Valuation Date, the Underlying
closes 40% above the Initial Basket Level. 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 40% times the Upside Gearing is greater than the hypothetical Maximum Gain, we will pay you at maturity a cash payment of $13.30 per $10 principal amount
Security, calculated as follows:
$10 + ($10 x 33%) = $10 + $3.30 = $13.30
Example 3 – On the Final Valuation Date, the Underlying
closes 5% below the Initial Basket Level. Because the Underlying Return is -5%, which is negative, but the Final Basket Level is not less than the Downside
Threshold, we will pay you at maturity the principal amount ($10).
Example 4 – On the Final Valuation Date, the Underlying
closes 40% below the Initial Basket Level. Because the Underlying Return is -40%, which is negative, and the Final Basket Level is below the Downside Threshold, we will pay you at maturity a cash payment of $7.00 per $10 principal amount Security (a 30% loss on the principal amount), calculated as follows:
$10 + ($10 x (-40% + 10%)) = $10 - $3.00 = $7.00
Hypothetical Final Basket
Level ($)
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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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$13.30
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33.00%
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175.00
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75.00%
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$13.30
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33.00%
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150.00
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50.00%
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$13.30
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33.00%
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140.00
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40.00%
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$13.30
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33.00%
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130.00
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30.00%
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$13.30
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33.00%
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120.00
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20.00%
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$13.30
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33.00%
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116.50
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16.50%
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$13.30
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33.00%
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115.00
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15.00%
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$13.00
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30.00%
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110.00
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10.00%
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$12.00
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20.00%
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104.00
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4.00%
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$10.80
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8.00%
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102.00
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2.00%
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$10.40
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4.00%
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95.00
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-5.00%
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$10.00
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0.00%
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90.00
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-10.00%
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$10.00
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0.00%
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80.00
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-20.00%
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$9.00
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-10.00%
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70.00
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-30.00%
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$8.00
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-20.00%
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60.00
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-40.00%
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$7.00
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-30.00%
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50.00
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-50.00%
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$6.00
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-40.00%
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25.00
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-75.00%
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$3.50
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-65.00%
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0.00
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-100.00%
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$10.00
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-90.00%
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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 per Security.
Information About the Basket Components
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We have derived all information contained in this document regarding each Basket Component, including the historical performance
information, from publicly available sources, without independent verification.
As to each Underlying Index, the information reflects the policies of, and is subject to change by, its index sponsor. Each index
sponsor, which owns the copyright and all other rights to the applicable Underlying Index, has no obligation to continue to publish, and may discontinue publication of the relevant Underlying Index. None of us, UBS or RBCCM accepts any
responsibility for the calculation, maintenance or publication of any Underlying Index or any successor index.
The SPX is intended to provide an indication of the pattern of common stock price movement in the large capitalization segment of
the U.S. equity market. The calculation of the level of the SPX is based on the relative value of the aggregate market value of the common stocks of 500 companies as of a particular time
compared to the aggregate average market value of the common stocks of 500 similar companies during the base period of the years 1941 through 1943.
The index sponsor calculates the SPX by reference to the prices of the constituent stocks of the SPX without taking account of the
value of dividends paid on those stocks. As a result, the return on the Securities will not reflect the return you would realize if you actually owned the SPX constituent stocks and received the dividends paid on those stocks.
Computation of the SPX
Historically, the market value of any component stock of the SPX was calculated as the product of the market price per share and the
number of then outstanding shares of such component stock. In March 2005, the index sponsor began shifting the SPX halfway from a market capitalization weighted formula to a float-adjusted formula, before moving the SPX to full float adjustment on
September 16, 2005. The index sponsor’s criteria for selecting stocks for the SPX did not change with the shift to float adjustment. However, the adjustment affects each company’s weight in the SPX.
Under float adjustment, the share counts used in calculating the SPX reflect only those shares that are available to investors, not
all of a company’s outstanding shares. Float adjustment excludes shares that are closely held by control groups, other publicly traded companies or government agencies.
In September 2012, all shareholdings representing more than 5% of a stock’s outstanding shares, other than holdings by “block
owners,” were removed from the float for purposes of calculating the SPX. Generally, these “control holders” will include officers and directors, private equity, venture capital and special equity firms, other publicly traded companies that hold
shares for control, strategic partners, holders of restricted shares, ESOPs, employee and family trusts, foundations associated with the company, holders of unlisted share classes of stock, government entities at all levels (other than government
retirement/pension funds) and any individual person who controls a 5% or greater stake in a company as reported in regulatory filings. However, holdings by block owners, such as depositary banks, pension funds, mutual funds and ETF providers,
401(k) plans of the company, government retirement/pension funds, investment funds of insurance companies, asset managers and investment funds, independent foundations and savings and investment plans, will ordinarily be considered part of the
float.
Treasury stock, stock options, restricted shares, equity participation units, warrants, preferred stock, convertible stock, and
rights are not part of the float. Shares held in a trust to allow investors in countries outside the country of domicile, such as depositary shares and Canadian exchangeable shares are normally part of the float unless those shares form a control
block.
For each stock, an investable weight factor (“IWF”) is calculated by dividing the available float shares by the total shares
outstanding. Available float shares are defined as the total shares outstanding less shares held by control holders. This calculation is subject to a 5% minimum threshold for control blocks. For example, if a company’s officers and directors hold
3% of the company’s shares, and no other control group holds 5% of the company’s shares, the index sponsor would assign that company an IWF of 1.00, as no control group meets the 5% threshold. However, if a company’s officers and directors hold 3%
of the company’s shares and another control group holds 20% of the company’s shares, the index sponsor would assign an IWF of 0.77, reflecting the fact that 23% of the company’s outstanding shares are considered to be held for control. As of July
31, 2017, companies with multiple share class lines are no longer eligible for inclusion in the SPX. Constituents of the SPX prior to July 31, 2017 with multiple share class lines will be grandfathered in and continue to be included in the SPX. If
a constituent company of the SPX reorganizes into a multiple share class line structure, that company will remain in the SPX at the discretion of the S&P Index Committee in order to minimize turnover
The SPX is calculated using a base-weighted aggregate methodology. The level of the SPX reflects the total market value of all 500
component stocks relative to the base period of the years 1941 through 1943. An indexed number is used to represent the results of this calculation in order to make the level easier to work with and track over time. The actual total market value of
the component stocks during the base period of the years 1941 through 1943 has been set to an indexed level of 10. This is often indicated by the notation 1941- 43 = 10. In practice, the daily calculation of the SPX is computed by dividing the
total market value of the component stocks by the “index divisor.” By itself, the index divisor is an arbitrary number. However, in the context of the calculation of the SPX, it serves as a link to the original base period level of the SPX. The
index divisor keeps the SPX comparable over time and is the manipulation point for all adjustments to the SPX, which is index maintenance.
Index Maintenance
Index maintenance includes monitoring and completing the adjustments for company additions and deletions, share changes, stock
splits, stock dividends, and stock price adjustments due to company restructuring or spinoffs. Some corporate actions, such as stock splits and stock dividends, require changes in the common shares outstanding and the stock prices of the companies
in the SPX, and do not require index divisor adjustments.
To prevent the level of the SPX from changing due to corporate actions, corporate actions which affect the total market value of the
SPX require an index divisor adjustment. By adjusting the index divisor for the change in market value, the level of the SPX remains constant and does not reflect the corporate actions of individual companies in the SPX. Index divisor adjustments
are made after the close of trading and after the calculation of the index closing level.
Changes in a company’s shares outstanding and IWF due to its acquisition of another public company are made as soon as reasonably
possible. At S&P’s discretion, de minimis merger and acquisition share changes are accumulated and implemented with the quarterly share rebalancing.
All other changes of less than 5% are accumulated and made quarterly on the third Friday of March, June, September, and December.
Changes in a company’s total shares outstanding of 5% or more due to public offerings are made as soon as reasonably possible. Other
changes of 5% or more (for example, due to tender offers, Dutch auctions, voluntary exchange offers, company stock repurchases, private placements, acquisitions of private companies or non-index companies that do not trade on a major exchange,
redemptions, exercise of options, warrants, conversion of preferred stock, notes, debt, equity participations, at-the-market stock offerings or other recapitalizations) are made weekly, and are generally announced on Fridays for implementation
after the close of trading the following Friday (one week later). If a 5% or more share change causes a company’s IWF to change by five percentage points or more, the IWF is updated at the same time as the share change. IWF changes resulting from
partial tender offers are considered on a case-by-case basis.
License Agreement
S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones®
is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks have been licensed for use by S&P Dow Jones Indices LLC. “Standard & Poor’s®,” “S&P 500®” and “S&P®” are
trademarks of S&P. These trademarks have been sublicensed for certain purposes by us. The SPX is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by us.
The Securities are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P or any of their
respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the holders of the Securities or any member of the public regarding the advisability of
investing in Securities generally or in the Securities particularly or the ability of the SPX to track general market performance. S&P Dow Jones Indices’ only relationship to us with respect to the SPX is the licensing of the SPX and certain
trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its third party licensors. The SPX is determined, composed and calculated by S&P Dow Jones Indices without regard to us or the Securities. S&P Dow Jones
Indices have no obligation to take our needs or the needs of holders of the Securities into consideration in determining, composing or calculating the SPX. S&P Dow Jones Indices are not responsible for and have not participated in the
determination of the prices, and amount of the Securities or the timing of the issuance or sale of the Securities or in the determination or calculation of the equation by which the Securities are to be converted into cash. S&P Dow Jones
Indices have no obligation or liability in connection with the administration, marketing or trading of the Securities. There is no assurance that investment products based on the SPX will accurately track index performance or provide positive
investment returns. S&P Dow Jones Indices LLC and its subsidiaries are not investment advisors. Inclusion of a security or futures contract within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security
or futures contract, nor is it considered to be investment advice. Notwithstanding the foregoing, CME Group Inc. and its affiliates may independently issue and/or sponsor financial products unrelated to the Securities currently being issued by us,
but which may be similar to and competitive with the Securities. In addition, CME Group Inc. and its affiliates may trade financial products which are linked to the performance of the SPX. It is possible that this trading activity will affect the
value of the Securities.
S&P DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE SPX OR ANY DATA RELATED THERETO OR ANY
COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS
THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY US, HOLDERS OF THE SECURITIES, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE SPX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR
CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO
THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND US, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Historical Information
The following graph sets forth the closing levels of the SPX from April 1, 2009 through April 1, 2019, as reported by Bloomberg Financial Markets. The historical performance of this Underlying Index should not be taken as an indication of future performance.
The SX5E was created by STOXX, which is currently owned by Deutsche Börse AG. Publication of the SX5E began in February 1998, based
on an initial SX5E level of 1,000 at December 31, 1991.
Composition and Maintenance
The SX5E is composed of 50 component stocks of market sector leaders from within the 19 EURO STOXX® Supersector indices,
which represent the Eurozone portion of the STOXX Europe 600® Supersector indices.
The composition of the SX5E is reviewed annually, based on the closing stock data on the last trading day in August. The component stocks are
announced on the first trading day in September. Changes to the component stocks are implemented on the third Friday in September and are effective the following trading day. Changes in the composition of the SX5E are made to ensure that the SX5E
includes the 50 market sector leaders from within the SX5E.
The free float factors for each component stock used to calculate the SX5E, as described below, are reviewed, calculated, and implemented on a
quarterly basis and are fixed until the next quarterly review.
The SX5E is also reviewed on an ongoing basis. Corporate actions (including initial public offerings, mergers and takeovers, spin-offs, delistings,
and bankruptcy) that affect the SX5E composition are immediately reviewed. Any changes are announced, implemented, and effective in line with the type of corporate action and the magnitude of the effect.
Calculation of the SX5E
The SX5E is calculated with the “Laspeyres formula,” which measures the aggregate price changes in the component stocks against a fixed base quantity
weight. The formula for calculating the SX5E value can be expressed as follows:
Index =
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Free float market capitalization of the index
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x 1,000
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Adjusted base date market capitalization of the index
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The “free float market capitalization of the SX5E” is equal to the sum of the products of the closing price, market capitalization, and free float
factor for each component stock as of the time the SX5E is being calculated.
The SX5E is also subject to a divisor, which is adjusted to maintain the continuity of the SX5E values across changes due to corporate actions, such
as the deletion and addition of stocks, the substitution of stocks, stock dividends, and stock splits.
License Agreement
We have entered into a non-exclusive license agreement with STOXX providing for the license to us and certain of our affiliated or subsidiary companies,
in exchange for a fee, of the right to use indices owned and published by STOXX (including the SX5E) in connection with certain securities, including the Securities offered hereby.
The license agreement between us and STOXX requires that the following language be stated in this document:
STOXX has no relationship to us, other than the licensing of the SX5E and the related trademarks for use in connection with the Securities. STOXX does
not:
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sponsor, endorse, sell, or promote the Securities;
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recommend that any person invest in the Securities offered hereby or any other securities;
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have any responsibility or liability for or make any decisions about the timing, amount, or pricing of the Securities;
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have any responsibility or liability for the administration, management, or marketing of the Securities; or
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consider the needs of the Securities or the holders of the Securities in determining, composing, or calculating the SX5E, or have any obligation to do so.
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STOXX will not have any liability in connection with the Securities. Specifically:
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STOXX does not make any warranty, express or implied, and disclaims any and all warranty concerning:
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the results to be obtained by the Securities, the holders of the Securities or any other person in connection with the use of the SX5E and the data included in the SX5E;
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the accuracy or completeness of the SX5E and its data;
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the merchantability and the fitness for a particular purpose or use of the SX5E and its data;
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STOXX will have no liability for any errors, omissions, or interruptions in the SX5E or its data; and
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Under no circumstances will STOXX be liable for any lost profits or indirect, punitive, special, or consequential damages or losses, even if STOXX knows that they might occur.
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The licensing agreement between us and STOXX is solely for their benefit and our benefit, and not for the benefit of the holders of the Securities or any other third
parties.
Historical Information
The following graph sets forth the closing levels of the SX5E from April 1, 2009 through April 1, 2019, as reported by Bloomberg Financial Markets. The historical performance of this Underlying Index should not be taken as an indication of future performance.
The MSCI Emerging Markets Index
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The MXEF is intended to measure equity market performance in the global emerging markets. The MXEF is a free float-adjusted market
capitalization index with a base date of December 31, 1987 and an initial value of 100. The MXEF is calculated daily in U.S. dollars and published in real time every 60 seconds during market trading hours. The MXEF currently consists of the
following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Greece, Egypt, Hungary, India, Indonesia, South Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan,
Thailand, Turkey and United Arab Emirates.
As of the close on May 31, 2018, MSCI began a multi-step process to include, in the MSCI Emerging Markets Index, large cap China A shares that are
not in trading suspension. As part of the first step of the inclusion process, which resulted from the May 2018 quarterly index review, MSCI added such large cap China A shares to the MSCI Emerging Markets Index at 2.5% of their foreign inclusion
factor-adjusted market capitalization. In connection with the August 2018 quarterly index review, MSCI implemented the second step of the inclusion process by increasing the foreign inclusion factor-adjusted market capitalization of those existing
China A share constituents from 2.5% to 5%. With the implementation of this second step, and the inclusion of additional China A shares in connection with the August 2018 quarterly index review, China A shares were initially expected to represent
approximately 0.75% of the MSCI Emerging Markets Index. In February 2019, MSCI announced a three-step process between May 2019 and November 2019 that would increase the number of Chinese A Shares in the MXEF.
MSCI has announced that, beginning in June 2019, it expects to include the MSCI Saudi Arabia Index in the MSCI Emerging Markets Index, representing
on a pro forma basis a weight of approximately 2.6% of the MSCI Emerging Markets Index with 32 securities, following a two-step inclusion process. The first inclusion step is expected to coincide with the May 2019 semi-annual review and the second
inclusion step is expected to take place as part of the August 2019 quarterly index review. In addition, MSCI has announced the reclassification of the MSCI Argentina Index from a “frontier market” to an “emerging market”, and the MSCI Argentina
Index is expected to be included in the MSCI Emerging Markets Index coinciding with the May 2019 semi-annual index review. MSCI expects to continue to restrict the inclusion in the MSCI Argentina Index to only foreign listings of Argentinian
companies, such as American depositary receipts.
The MXEF is part of the MSCI Regional Equity Indices series and is an MSCI Global Investable Market Index, which is a family within the MSCI
International Equity Indices.
Constructing the MSCI Global Investable Market Indices. MSCI
undertakes an index construction process, which involves:
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defining the equity universe;
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determining the market investable equity universe for each market;
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determining market capitalization size segments for each market;
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applying index continuity rules for the MSCI Standard Index;
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creating style segments within each size segment within each market; and
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classifying securities under the Global Industry Classification Standard (the “GICS”).
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Defining the Equity Universe. The equity universe is defined by:
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Identifying Eligible Equity Securities: the equity universe initially looks at securities listed in any of the countries in the MSCI Global Index Series, which will be classified as
either Developed Markets (“DM”) or Emerging Markets (“EM”). All listed equity securities, including Real Estate Investment Trusts and certain income trusts in Canada, are eligible for inclusion in the equity universe. Conversely, mutual
funds, ETFs, equity derivatives, and most investment trusts, are not eligible for inclusion, are eligible for inclusion in the equity universe. Conversely, mutual funds, ETFs, equity derivatives, and most investment trusts, are not.
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Classifying Eligible Securities into the Appropriate Country: each company and its securities (i.e., share classes) are classified in only one country.
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Effective with the November 2015 semi-annual index review, companies traded outside of their country of
classification (i.e., “foreign listed companies”) will become eligible for inclusion in the MSCI Country Investable Market Indexes along with the applicable MSCI Global Index. In order for a MSCI Country Investable Market Index to be eligible to
include foreign listed companies, it must meet the Foreign Listing Materiality Requirement. To meet the Foreign Listing Materiality Requirement, the aggregate market capitalization of all securities represented by foreign listings should represent
at least (i) 5% of the free float-adjusted market capitalization of the relevant MSCI Country Investable Market Index and (ii) 0.05% of the free-float adjusted market capitalization of the MSCI ACWI Investable Market Index.
Determining the Market Investable Equity Universes. A market investable equity universe
for a market is derived by identifying eligible listings for each security in the equity universe, and by applying applying investability screens to individual companies and securities in the equity universe that are classified in that market. A
market is equivalent to a single country, except in DM Europe, where all DM countries in Europe are aggregated into a single market for index construction purposes. Subsequently, individual DM Europe country indices within the MSCI Europe Index are
derived from the constituents of the MSCI Europe Index under the global investable market indices methodology.
A security may be listed in the country where it is classified (i.e. local listing) and/or in a different country (i.e. “foreign listing”).
Securities may be represented by either a local or foreign listing. A security may be represented by a foreign listing only if:
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The security is classified in a country that meets the Foreign Listing Materiality Requirement, and
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The security’s foreign listing is traded on an eligible stock exchange of: a DM country if the security is classified in a DM country, a DM or an EM country if the security is
classified in an EM country, or a DM or an EM or a FM country if the security is classified in a FM country. Securities in that country may not be represented by a foreign listing in the global investable equity universe if a country
does not meet the requirement.
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The investability screens used to determine the investable equity universe in each market are as follows:
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Equity Universe Minimum Size Requirement: this investability screen is applied at the company level. In
order to be included in a market investable equity universe, a company must have the required minimum full market capitalization. The size requirement also applies to companies in all developed and emerging markets.
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Equity Universe Minimum Free Float-Adjusted Market Capitalization Requirement: this investability screen
is applied at the individual security level. To be eligible for inclusion in a market investable equity universe, a security must have a free float-adjusted market capitalization equal to or higher than 50% of the equity universe
minimum size requirement.
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DM and EM Minimum Liquidity Requirement: this investability screen is applied at the individual security
level. To be eligible for inclusion in a market investable equity universe, a security must have adequate liquidity. The twelve-month and three-month Annual Traded Value Ratio (“ATVR”), a measure that screens out extreme daily trading
volumes and takes into account the free float-adjusted market capitalization size of securities, together with the three-month frequency of trading are used to measure liquidity. A minimum liquidity level of 20% of three- and
twelve-month ATVR and 90% of three-month frequency of trading over the last four consecutive quarters are required for inclusion of a security in a market investable equity universe of a DM, and a minimum liquidity level of 15% of
three- and twelve-month ATVR and 80% of three-month frequency of trading over the last four consecutive quarters are required for inclusion of a security in a market investable equity universe of an EM.
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Global Minimum Foreign Inclusion Factor Requirement: this investability screen is applied at the
individual security level. To be eligible for inclusion in a market investable equity universe, a security’s Foreign Inclusion Factor (“FIF”) must reach a certain threshold. The FIF of a security is defined as the proportion of shares
outstanding that is available for purchase in the public equity markets by international investors. This proportion accounts for the available free float of and/or the foreign ownership limits applicable to a specific security (or
company). In general, a security must have an FIF equal to or larger than 0.15 to be eligible for inclusion in a market investable equity universe.
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Minimum Length of Trading Requirement: this investability screen is applied at the individual security
level. For an initial public offering (“IPO”) to be eligible for inclusion in a market investable equity universe, the new issue must have started trading at least three months before the implementation of a semi-annual index review (as
described below). This requirement is applicable to small new issues in all markets. Large IPOs are not subject to the minimum length of trading requirement and may be included in a market investable equity universe and the Standard
Index outside of a Quarterly or Semi-Annual Index Review.
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Minimum Foreign Room Requirement: this investability screen is applied at the individual security level.
For a security that is subject to a foreign ownership limit to be eligible for inclusion in a market investable equity universe, the proportion of shares still available to foreign investors relative to the maximum allowed (referred to
as “foreign room”) must be at least 15%.
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Defining Market Capitalization Size Segments for Each Market. Once a
market investable equity universe is defined, it is segmented into the following size-based indices:
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Investable Market Index (Large + Mid + Small);
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Standard Index (Large + Mid);
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Creating the size segment indices in each market involves the following steps:
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defining the market coverage target range for each size segment;
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determining the global minimum size range for each size segment;
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determining the market size-segment cutoffs and associated segment number of companies;
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assigning companies to the size segments; and
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applying final size-segment investability requirements.
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Index Continuity Rules for the Standard Indices. In order to achieve
index continuity, as well as to provide some basic level of diversification within a market index, and notwithstanding the effect of other index construction rules described in this section, a minimum number of five constituents will be maintained
for a DM Standard Index and a minimum number of three constituents will be maintained for an EM Standard Index.
Creating Style Indices within Each Size Segment. All securities in the
investable equity universe are classified into value or growth segments using the MSCI Global Value and Growth methodology. Classifying Securities under the Global Industry Classification Standard. All securities in the global investable equity
universe are assigned to the industry that best describes their business activities. To this end, MSCI has designed, in conjunction with S&P Dow Jones Indexes, the GICS. Under the GICS, each company is assigned to one sub−industry according to
its principal business activity. Therefore, a company can belong to only one industry grouping at each of the four levels of the GICS.
Calculation Methodology for the Index
The performance of the Index is a free float weighted average of the U.S. dollar values of its component securities.
Prices used to calculate the component securities are the official exchange closing prices or prices accepted as such in the relevant market. In the
case of a market closure, or if a security does not trade on a specific day or during a specific period, MSCI carries forward the previous day’s price (or latest available closing price). In the event of a market outage resulting in any component
security price to be unavailable, MSCI will generally use the last reported price for such component security for the purpose of performance calculation unless MSCI determines that another price is more appropriate based on the circumstances.
Closing prices are converted into U.S. dollars, as applicable, using the closing exchange rates calculated by WM/Reuters at 4:00 P.M. London Time.
Index Maintenance
The MSCI global investable market indices are maintained with the objective of reflecting the evolution of the underlying equity markets and segments
on a timely basis, while seeking to achieve index continuity, continuous investability of constituents and replicability of the indices, index stability, and low index turnover. In particular, index maintenance involves:
(i) Semi-Annual Index Reviews (“SAIRs”) in May and November of the Size Segment and Global Value and Growth Indices which
include:
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updating the indices on the basis of a fully refreshed equity universe;
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taking buffer rules into consideration for migration of securities across size and style segments; and
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updating FIFs and Number of Shares (“NOS”).
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(ii) Quarterly Index Reviews (“QIRs”) in February and August of the Size Segment Indices aimed at:
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including significant new eligible securities (such as IPOs that were not eligible for earlier inclusion) in the Index;
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allowing for significant moves of companies within the Size Segment Indices, using wider buffers than in the SAIR; and
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reflecting the impact of significant market events on FIFs and updating NOS.
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(iii) Ongoing Event-Related Changes: changes of this type are generally implemented in the indices as they occur. Significantly
large IPOs are included in the indices after the close of the company’s tenth day of trading.
None of us, UBS or any of our respective affiliates accepts any responsibility for the calculation, maintenance, or publication of,
or for any error, omission, or disruption in, the MXEF any successor to the MXEF.
License Agreement
We have entered into a non-exclusive license agreement with MSCI providing for the license to us and certain of our affiliated or
subsidiary companies, in exchange for a fee, of the right to use indices owned and published by MSCI (including the MXEF) in connection with certain securities, including the Securities offered hereby.
The license agreement between us and MSCI requires that the following language be stated in this document:
The Securities are not sponsored, endorsed, sold or promoted by MSCI or any affiliate of MSCI. Neither MSCI nor any other party
makes any representation or warranty, express or implied, to the owners of the Securities or any member of the public regarding the advisability of investing in Securities generally or in the Securities or the ability of the MSCI World Index to
track general stock market performance. MSCI is the licensor of certain trademarks, service marks and trade names of MSCI and of the MSCI World Index, which is determined, composed and calculated by MSCI without regard to the securities or Royal
Bank of Canada. MSCI has no obligation to take the needs of Royal Bank of Canada or the owners of the Securities into consideration in determining, composing or calculating the MSCI World Index. MSCI is not responsible for and has not participated
in the determination of the timing of, pricing at or quantities of the Securities or in the determination or calculation of the equation by which the Securities are redeemable for cash. Neither MSCI nor any other party has any obligation or
liability to owners of the Securities in connection with the administration, marketing or trading of the Securities.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI WORLD INDEX FROM SOURCES WHICH
MSCI CONSIDERS RELIABLE, NEITHER MSCI NOR ANY OTHER PARTY GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE MSCI WORLD INDEX OR ANY DATA INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY LICENSEE, LICENSEE’S CUSTOMERS OR COUNTERPARTIES, OWNERS OF THE PRODUCTS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE MSCI WORLD INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY
OTHER USE. FURTHER, NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES AND MSCI HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE MSCI WORLD INDEX AND ANY DATA
INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH THE MSCI WORLD INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL MSCI OR ANY OTHER PARTY HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
No purchaser, seller or holder of the Securities, or any other person or entity, should use or refer to any MSCI trade name, trade mark or service
mark rights to sponsor, endorse, market or promote the Securities without first contacting MSCI to determine whether MSCI’s permission is required. Under no circumstances may any person or entity claim affiliation with MSCI without the prior
written permission of MSCI.
Historical Information
The following graph sets forth the closing levels of the MXEF from April 1, 2009 through April 1, 2019, as reported by Bloomberg
Financial Markets. The historical performance of this Underlying Index should not be taken as an indication of future performance.
Information About the ADSs
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Included on the following pages is a brief description of each ADS. This information has been obtained from publicly available
sources. We obtained the closing price information set forth below for the ADSs from the Bloomberg Professional® service (“Bloomberg”) without independent verification. You should not take the historical prices of any ADS as an
indication of future performance.
Each ADS 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 periodically file financial and other information specified by the SEC. Information filed by the applicable ADS 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 issuer of the applicable ADS under the Exchange Act can be located by reference to its SEC Central Index Key (“CIK”) 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 verified the accuracy or
completeness of the information contained in outside sources.
According to publicly available information, Alibaba Group Holding Limited, through its subsidiaries, provides Internet
infrastructure, e-commerce, online financial, and Internet content services through its subsidiaries. Information filed by the company with the SEC under the Exchange Act can be located by reference to its SEC CIK number: 1577552. The company’s
ADSs are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “BABA.”
According to publicly available information, Baidu, Inc. operates an Internet search engine. The company offers algorithmic search,
enterprise search, pay for performance and news, MP3, and image searches. Information filed by the company with the SEC under the Exchange Act can be located by reference to its SEC CIK number: 1329099. The company’s ADSs are listed on the Nasdaq
under the ticker symbol “BIDU.”
The following graph sets forth the closing prices of BABA from September 18, 2014 (the date that it commenced trading) through April 1, 2019, as
reported by Bloomberg Financial Markets. The historical performance of this Basket Component should not be taken as an indication of future performance.
The following graph sets forth the closing prices of BIDU from April 1, 2009 through April 1, 2019, as reported by Bloomberg Financial Markets. The historical performance of this Basket Component should not be taken as an indication of future performance.
Use of Proceeds and Hedging
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The net proceeds we receive from the sale of the Securities will be used for general corporate purposes and, in part, by us or by
one or more of our affiliates in connection with hedging our obligations under the Securities. The original issue price of the Securities includes the underwriting commission (as shown on the cover page of this document) paid with respect to the
Securities and the estimated cost of hedging our obligations under the Securities.
In anticipation of the sale of the Securities, we expect to enter into hedging transactions with one or more of our affiliates
involving the Basket Components or the securities represented by the Basket Components, and/or related listed and/or over-the-counter derivative instruments prior to or on the Trade Date. From time to time, including around the time of the maturity
date, we and our respective affiliates may enter into additional hedging transactions or unwind those that we or they have entered into. In this regard, we and our respective affiliates may:
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acquire or dispose of investments relating to the Basket Components;
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acquire or dispose of long or short positions in listed or over-the-counter derivative instruments related to the Basket Components; or
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any combination of the above two.
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We and our affiliates may acquire a long or short position in securities similar to the Securities from time to time and may, in our
or their sole discretion, hold or resell those similar securities.
We and our affiliates may close out our or their hedges at any time during the term of the Securities. That step may, for example,
involve sales or purchases of over-the-counter derivative instruments linked to the Basket Components.
Additional Terms of the Securities Relating to Underlying Indices
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General
A “closing level” of an Underlying Index or any successor index will be the official closing level of the applicable Underlying
Index or any successor index published following the regular official weekday close of trading on the applicable trading day, as determined by the calculation agent.
A “trading day” as to any Underlying Index is a day, as determined by the calculation agent, on which trading is generally conducted
on (i) the relevant exchanges (as defined below) for securities included in the applicable Underlying Index or the successor index and (ii) the exchanges on which futures or options contracts related to that Underlying Index or the successor index
are traded, other than a day on which trading on such relevant exchange or exchange on which such futures or options contracts are traded is scheduled to close prior to its regular weekday closing time.
As to any Underlying Index, if the Final Valuation Date is not a trading day or if there is a market disruption event on that day,
the Final Valuation Date will be postponed to the immediately succeeding trading day during which no market disruption event shall have occurred or be continuing. In no event, however, will the Final Valuation Date be postponed more than ten
business days following the date originally scheduled. If the tenth business day following the date originally scheduled to be the Final Valuation Date is not a trading day, or if there is a market disruption event on that date, the calculation
agent will determine the closing level for the applicable Underlying Index in accordance with the formula for and method of calculating that Underlying Index last in effect prior to commencement of the market disruption event (or prior to the
non-trading day), using the closing price (or, if trading in the relevant securities has been materially suspended or materially limited, the calculation agent’s good faith estimate of the closing price that would have prevailed but for such
suspension or limitation or non-trading day) on that tenth scheduled business day of each security most recently constituting that Underlying Index.
For the avoidance of doubt, if an Underlying Index is subject to a non-trading day or market disruption event only the closing level
of that Underlying Index shall be postponed; the closing level of any Basket Component that is not so affected shall be determined on the scheduled Final Valuation Date.
If, due to a market disruption event or otherwise, the Final Valuation Date is postponed, the maturity date will be postponed by the
same number of business days. However, if the Final Valuation Date is postponed so that it falls less than three business days prior to the scheduled maturity date, the maturity date will be the third business day following the Final Valuation
Date, as so postponed.
Market Disruption Events
Certain events may prevent the calculation agent from determining the closing level of each Underlying Index, and consequently, the
amount, if any, that we will pay to you on the Securities. These events may include disruptions or suspensions of trading on the markets as a whole. We refer to each of these events individually as a “market disruption event.”
With respect to any Underlying Index and any relevant successor index, a “market disruption event,” means:
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a suspension, absence or material limitation of trading of equity securities then constituting 20% or more of the level of the Underlying Index (or the relevant successor index) on
the relevant exchanges (as defined below) for such securities for more than two hours of trading during, or during the one hour period preceding the close of, the principal trading session on such relevant exchange; or
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a breakdown or failure in the price and trade reporting systems of any relevant exchange as a result of which the reported trading prices for equity securities then constituting 20%
or more of the level of the Underlying Index (or the relevant successor index) during the one hour preceding the close of the principal trading session on such relevant exchange are materially inaccurate; or
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a suspension, absence or material limitation of trading on the primary exchange or market for trading in futures or options contracts related to the Underlying Index (or the relevant
successor index) for more than two hours of trading during, or during the one hour period preceding the close of, the principal trading session on such exchange or market; or
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a decision to permanently discontinue trading in the relevant futures or options contracts;
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in each case as determined by the calculation agent in its sole discretion; and
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a determination by the calculation agent in its sole discretion that the event described above materially interfered with our ability or the ability of any of our affiliates to adjust
or unwind all or a material portion of any hedge with respect to the Securities.
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For purposes of determining whether a market disruption event with respect to any Underlying Index (or the relevant successor index)
exists at any time, if trading in a security included in the Underlying Index (or the relevant successor index) is materially suspended or materially limited at that time, then the relevant percentage contribution of that security to the level of
the Underlying Index (or the relevant successor index) will be based on a comparison of:
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the portion of the level of the Underlying Index (or the relevant successor index) attributable to that security relative to
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the overall level of the Underlying Index (or the relevant successor index),
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in each case immediately before that suspension or limitation.
For purposes of determining whether a market disruption event with respect to any Underlying Index (or the relevant successor index)
has occurred:
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a limitation on the hours or number of days of trading will not constitute a market disruption event if it results from an announced change in the regular business hours of the
relevant exchange, or the primary exchange or market for trading in futures or options contracts related to the Underlying Index (or the relevant successor index);
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limitations pursuant to the rules of any relevant exchange similar to NYSE Rule 80B (or any applicable rule or regulation enacted or promulgated by any other self-regulatory
organization or any government agency of scope similar to NYSE Rule 80B as determined by the calculation agent) on trading during significant market fluctuations will constitute a suspension, absence or material limitation of trading;
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a suspension of trading in futures or options contracts on the Underlying Index (or the relevant successor index) by the primary exchange or market trading in such contracts by reason
of
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a price change exceeding limits set by such exchange or market,
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an imbalance of orders relating to such contracts, or
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a disparity in bid and ask quotes relating to such contracts
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will, in each such case, constitute a suspension, absence or material limitation of trading in futures or options
contracts related to the Underlying Index (or the relevant successor index); and
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a “suspension, absence or material limitation of trading” on any relevant exchange or on the primary exchange or market on which futures or options contracts related to the Underlying
Index (or the relevant successor index) are traded will not include any time when such exchange or market is itself closed for trading under ordinary circumstances.
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“Relevant exchange” means, with respect to any Underlying Index or any relevant successor index, the primary exchange or market of
trading for any security (or any combination thereof) then included in that Underlying Index or such successor index, as applicable.
Discontinuation of an Underlying Index; Alteration of Method of Calculation
If the index sponsor of an Underlying Index discontinues publication of that Underlying Index and the index sponsor or another
entity publishes a successor or substitute index that the calculation agent determines, in its sole discretion, to be comparable to the discontinued Underlying Index (such index being referred to herein as a “successor index”), then the closing
levels of that Underlying Index will be determined by reference to the level of such successor index at the close of trading on the relevant exchange for the successor index on such day.
Upon any selection by the calculation agent of a successor index, the calculation agent will cause written notice to be promptly
furnished to the trustee, to us and to the holders of the Securities.
If an index sponsor discontinues publication of an Underlying Index prior to, and that discontinuation is continuing on or prior to
the Final Valuation Date, and the calculation agent determines, in its sole discretion, that no successor index is available at that time or the calculation agent has previously selected a successor index and publication of that successor index is
discontinued prior to, and that discontinuation is continuing on, the applicable trading day, then the calculation agent will determine the closing level of that Underlying Index for that date. The closing level will be computed by the calculation
agent in accordance with the formula for and method of calculating that Underlying Index or successor index, as applicable, last in effect prior to the discontinuation, using the closing price (or, if trading in the relevant securities has been
materially suspended or materially limited, the calculation agent’s good faith estimate of the closing price that would have prevailed but for the suspension or limitation) at the close of the principal trading session on that date of each security
most recently included in the Underlying Index or successor index, as applicable. Notwithstanding these alternative arrangements, discontinuation of the publication of the Underlying Index or successor index, as applicable, may adversely affect the
value of the Securities.
If at any time the method of calculating an Underlying Index or a successor index, or the level thereof, is changed in a material respect, or if an
Underlying Index or a successor index is in any other way modified so that the Underlying Index or successor index does not, in the opinion of the calculation agent, fairly represent the level of the Underlying Index or successor index had those
changes or modifications not been made, then the calculation agent will, at the close of business in New York City on the date on any date on which the closing level of the Underlying Index is to be determined, make any calculations and adjustments
as, in the good faith judgment of the calculation agent, may be necessary in order to arrive at a level of a stock index comparable to the Underlying Index or successor index, as the case may be, as if those changes or modifications had not been
made, and calculate the closing level with reference to the Underlying Index or such successor index, as adjusted. Accordingly, if the method of calculating an Underlying Index or a successor index is modified so that the level of the Underlying
Index or such successor index is a fraction of what it would have been if there had been no such modification (e.g., due to a split in the Underlying Index), then the calculation agent will adjust its calculation of the Underlying Index or such
successor index in order to arrive at a level of the Underlying Index or such successor index as if there had been no such modification (e.g., as if such split had not occurred).
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 Basket 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.
If an Underlying Index periodically rebalances, it is possible that the Securities could be treated as a series of derivative
contracts, each of which matures on the next rebalancing date. If the Securities were properly characterized in such a manner, a holder would be treated as disposing of the Securities on each rebalancing date in return for new derivative
contracts that mature on the next rebalancing date, and a holder would accordingly likely recognize capital gain or loss on each rebalancing date equal to the difference between the holder’s basis in the Securities (which would be adjusted to
take into account any prior recognition of gain or loss) and the fair market value of the securities on such date.
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.
We will not attempt to ascertain whether the issuer of any of the stocks represented by the Basket Components would be treated as
a “passive foreign investment company” within the meaning of Section 1297 of the Code or a “U.S. real property holding corporation” within the meaning of Section 897 of the Code. If the issuer of one or more such stocks were so treated, certain
adverse U.S. federal income tax consequences could possibly apply. You should refer to any available information filed with the SEC and other authorities by the issuers of the securities represented by the Basket Components and consult your tax
advisor regarding the possible consequences to you in this regard.
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.
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.
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.
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” above.
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 eight 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.
Structuring the Securities
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The Securities are our debt securities, the return on which is linked to the performance of the Basket. 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 this document or in 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 each Basket Component, 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.
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 UBS-EQUITY-1 dated September 7, 2018 under the caption “General Terms of the Securities,” are incorporated into the master note issued to DTC, the registered holder of the Securities.