Royal Bank of Canada is offering Auto-Callable Contingent Coupon Barrier Notes (the “Notes”) linked to the
VanEck Vectors® Gold Miners ETF (the “Reference Stock”). The Notes offered are senior unsecured obligations of Royal Bank of Canada, will pay a quarterly Contingent Coupon at the rate and under the circumstances specified below, and
will have the terms described in the documents described above, as supplemented or modified by this terms supplement.
The Notes do not guarantee any return of principal at maturity. Any payments on the Notes are subject to
our credit risk.
Investing in the Notes involves a number of risks. See “Selected Risk Considerations” beginning on page P-7
of this terms supplement, and “Risk Factors” beginning on page PS-5 of the product prospectus supplement dated September 10, 2018 and page S-1 of the prospectus supplement dated September 7, 2018.
The Notes will not constitute deposits insured by the Canada Deposit Insurance Corporation, the U.S.
Federal Deposit Insurance Corporation or any other Canadian or U.S. government agency or instrumentality. The Notes are not subject to conversion into our common shares under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act.
Neither the Securities and Exchange Commission nor any state securities commission has approved or
disapproved of the Notes or determined that this terms supplement is truthful or complete. Any representation to the contrary is a criminal offense.
Issuer:
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Royal Bank of Canada
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Stock Exchange Listing:
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None
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Trade Date:
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April 24, 2019
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Principal Amount:
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$1,000 per Note
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Issue Date:
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April 29, 2019
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Maturity Date:
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April 29, 2021
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Observation Dates:
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Quarterly, as set forth below
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Coupon Payment Dates:
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Quarterly, as set forth below.
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Valuation Date:
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April 26, 2021
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Contingent Coupon Rate:
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At least 7.95% per annum (to be determined on the Trade Date)
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Initial Stock Price:
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The closing price of the Reference Stock on the Trade Date.
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Final Stock Price:
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The closing price of the Reference Stock on the Valuation Date.
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Trigger Price and Coupon
Barrier:
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70% of the Initial Stock Price.
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Contingent Coupon:
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If the closing price of the Reference Stock is greater than or equal to the Coupon Barrier on the
applicable Observation Date, we will pay the Contingent Coupon applicable to that Observation Date. You may not receive any Contingent Coupons during the term of the Notes.
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Payment at Maturity (if held
to maturity):
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If the Notes are not previously called, we will pay you at maturity an amount based on the Final Stock Price, in
addition to the final Contingent Coupon, if payable:
$1,000 for each $1,000 in principal amount, unless (a) a Trigger Event occurs and (b) the Final
Stock Price is less than the Initial Stock Price.
If a Trigger Event occurs, and the Final Stock Price is less than the Initial Price, then the
investor will receive at maturity, for each $1,000 in principal amount, a cash payment equal to: $1,000 + ($1,000 x Reference Stock Return).
In this case, investors in the Notes will lose some or all of their principal amount.
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Trigger Event:
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A Trigger Event will occur if, on any trading day after the Trade Date and on or prior to the Valuation Date, the closing price of the
Reference Stock is less than the Trigger Price.
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Call Feature:
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If the closing price of the Reference Stock is greater than or equal to the Initial Stock Price starting on October 24, 2019 and on any
Observation Date thereafter, the Notes will be automatically called for 100% of their principal amount, plus the Contingent Coupon applicable to the corresponding Observation Date.
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Call Settlement Dates:
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The Coupon Payment Date corresponding to that Observation Date.
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CUSIP:
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78013X5G9
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Price to public(1)
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100.00%
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$
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Underwriting discounts and commissions(1)
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Proceeds to Royal Bank of Canada
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99.25%
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$
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(1) Certain dealers who purchase the Notes for sale to certain fee-based advisory accounts may forego some or all of
their underwriting discount or selling concessions. The public offering price for investors purchasing the Notes in these accounts may be between $992.50 and $1,000 per $1,000 in principal amount.
The initial estimated value of the Notes as of the Trade Date is expected to be between $957.31 and $977.31 per $1,000 in
principal amount, and will be less than the price to public. The final pricing supplement relating to the Notes will set forth our estimate of the initial value of the Notes as of the Trade Date. The actual value of the Notes at any time will
reflect many factors, cannot be predicted with accuracy, and may be less than this amount. We describe our determination of the initial estimated value in more detail below.
If the Notes priced on the date of this terms supplement, RBC Capital Markets, LLC, which we refer to as RBCCM, acting as agent for Royal Bank
of Canada, would receive a commission of approximately $7.50 per $1,000 in principal amount of the Notes and would use a portion of that commission to allow selling concessions to other dealers of up to approximately $7.50 per $1,000 in
principal amount of the Notes. The other dealers may forgo, in their sole discretion, some or all of their selling concessions. See “Supplemental Plan of Distribution (Conflicts of Interest)” below.
RBC Capital Markets, LLC
SUMMARY
The information in this “Summary” section is qualified by the more detailed information set forth in this terms supplement,
the product prospectus supplement, the prospectus supplement, and the prospectus.
General:
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This terms supplement relates to an offering of Auto-Callable Contingent Coupon Barrier Notes (the “Notes”) linked to
the VanEck Vectors® Gold Miners ETF (the “Reference Stock”).
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Issuer:
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Royal Bank of Canada (“Royal Bank”)
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Trade Date:
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April 24, 2019
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Issue Date:
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April 29, 2019
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Valuation Date:
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April 26, 2021
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Maturity Date:
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April 29, 2021
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Denominations:
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Minimum denomination of $1,000, and integral multiples of $1,000 thereafter.
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Designated Currency:
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U.S. Dollars
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Contingent Coupon:
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We will pay you a Contingent Coupon during the term of the Notes, periodically in arrears on each Coupon Payment Date,
under the conditions described below:
· If the closing price of the Reference Stock is greater than or equal to the Coupon Barrier on the applicable
Observation Date, we will pay the Contingent Coupon applicable to that Observation Date.
· If the closing price of the Reference Stock is less than the Coupon Barrier on the applicable Observation Date, we will not
pay you the Contingent Coupon applicable to that Observation Date.
You may not receive a Contingent Coupon for one or more quarterly periods during the term of the
Notes.
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Contingent Coupon Rate:
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At least 7.95% per annum (1.9875% per quarter) (to be determined on the Trade Date)
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Observation Dates:
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Quarterly, on July 24, 2019, October 24, 2019, January 24, 2020, April 24, 2020, July 24, 2020, October 26, 2020,
January 25, 2021 and the Valuation Date.
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Coupon Payment Dates:
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The Contingent Coupon, if payable, will be paid quarterly on July 29, 2019, October 29, 2019, January 29, 2020, April
29, 2020, July 29, 2020, October 29, 2020, January 28, 2021 and the Maturity Date.
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Record Dates:
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The record date for each Coupon Payment Date will be one business day prior to that scheduled Coupon Payment Date; provided, however, that any Contingent
Coupon payable at maturity or upon a call will be payable to the person to whom the payment at maturity or upon the call, as the case may be, will be payable.
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Call Feature:
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If, on any Observation Date beginning on October 24, 2019 (other than the final Observation Date), the closing price of the Reference Stock is greater than or equal to
the Initial Stock Price, then the Notes will be automatically called.
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Call Settlement Dates:
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If the Notes are called on any Observation Date beginning on October 24, 2019, the Call Settlement Date will be the
Coupon Payment Date corresponding to that Observation Date.
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Payment if Called:
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If the Notes are automatically called, then, on the applicable Call Settlement Date, for each $1,000 principal amount,
you will receive $1,000 plus the Contingent Coupon otherwise due on that Call Settlement Date.
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Initial Stock Price:
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The closing price of the Reference Stock on the Trade Date.
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Final Stock Price:
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The closing price of the Reference Stock on the Valuation Date.
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Trigger Price and Coupon
Barrier:
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70% of the Initial Stock Price.
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Payment at Maturity (if not
previously called and held
to maturity):
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If the Notes are not previously called, we will pay you at maturity, in addition to the final Contingent Coupon, if payable, an amount based on the Final Stock Price of
the Reference Stock:
· If a Trigger Event has not occurred, or the Final Stock Price is greater than or equal to the Initial Stock Price, then we will pay you a cash payment equal to the principal amount.
· If a Trigger Event has occurred, and the Final Stock Price is less than the Initial Stock Price, you will receive at maturity, for each
$1,000 in principal amount, a cash payment equal to:
$1,000 + ($1,000 x Reference Stock Return)
In this case, the amount of cash that you receive will be less than your principal amount, if anything, resulting in a loss that is proportionate to the
decline of the Reference Stock from the Trade Date to the Valuation Date. Investors in the Notes will lose some or all of their principal amount if a Trigger Event
occurs and the Final Stock Price is less than the Initial Stock Price.
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Trigger Event:
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A Trigger Event will occur if the closing price of the Reference Stock is less than the Trigger
Price on any trading day during the Monitoring Period.
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Monitoring Period:
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The period from the trading day after the Trade Date to and including the Valuation Date.
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Reference Stock Return:
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Final Stock Price – Initial Stock Price
Initial Stock Price
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Stock Settlement:
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Not applicable. Payments on the Notes will be made solely in cash.
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Market Disruption Events:
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The occurrence of a market disruption event (or a non-trading day) as to the Reference Stock will result in the
postponement of an Observation Date or the Valuation Date, as described in the product prospectus supplement. The Calculation Event may, in its discretion, disregard the closing price of the Reference Stock on any trading day on which a
market disruption event occurs for purpose of determining whether a Trigger Event has occurred.
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Calculation Agent:
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RBC Capital Markets, LLC (“RBCCM”)
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U.S. Tax Treatment:
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By purchasing a Note, each holder agrees (in the absence of a change in law, an administrative determination or a
judicial ruling to the contrary) to treat the Notes as a callable pre-paid cash settled contingent income-bearing derivative contract linked to the Reference Stock for U.S. federal income tax purposes. However, the U.S. federal income
tax consequences of your investment in the Notes are uncertain and the Internal Revenue Service could assert that the Notes should be taxed in a manner that is different from that described in the preceding sentence. Please see the
section below, “Supplemental Discussion of U.S. Federal Income Tax Consequences” and the discussion (including the opinion of our counsel Morrison & Foerster LLP) in the product prospectus supplement under “Supplemental Discussion
of U.S. Federal Income Tax Consequences,” which apply to the Notes.
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Secondary Market:
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RBCCM (or one of its affiliates), though not obligated to do so, may maintain a secondary market in the Notes after the
Issue Date. The amount that you may receive upon sale of your Notes prior to maturity may be less than the principal amount.
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Listing:
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The Notes will not be listed on any securities exchange.
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Settlement:
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DTC global (including through its indirect participants Euroclear and Clearstream, Luxembourg as described under
“Description of Debt Securities—Ownership and Book-Entry Issuance” in the prospectus.
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Terms Incorporated in the
Master Note:
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All of the terms appearing above the item captioned “Secondary Market” on the cover page and pages P-2 and P-3 of this
terms supplement and the terms appearing under the caption “General Terms of the Notes” in the product prospectus supplement, as modified by this terms supplement.
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ADDITIONAL TERMS OF YOUR NOTES
You should read this terms supplement together with the prospectus dated September 7, 2018, as supplemented by the prospectus supplement dated
September 7, 2018 and the product prospectus supplement dated September 10, 2018, relating to our Senior Global Medium Term Notes, Series H, of which these Notes are a part. Capitalized terms used but not defined in this terms supplement will
have the meanings given to them in the product prospectus supplement. In the event of any conflict, this terms supplement will control. The Notes vary
from the terms described in the product prospectus supplement in several important ways. You should read this terms supplement carefully.
This terms supplement, together with the documents listed below, contains the terms of the Notes and supersedes all prior or contemporaneous oral
statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation, sample structures, brochures or other educational materials of ours. You should
carefully consider, among other things, the matters set forth in “Risk Factors” in the prospectus supplement dated September 7, 2018 and in the product prospectus supplement dated September 10, 2018, as the Notes involve risks not associated
with conventional debt securities. We urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the Notes. You may access these documents on the Securities and Exchange Commission (the “SEC”) website at
www.sec.gov as follows (or if that address has changed, by reviewing our filings for the relevant date on the SEC website):
Prospectus dated September 7, 2018:
Prospectus Supplement dated September 7, 2018:
Product Prospectus Supplement dated September 10, 2018:
Our Central Index Key, or CIK, on the SEC website is 1000275. As used in this terms supplement, “we,” “us,” or “our” refers to
Royal Bank of Canada.
Royal Bank of Canada has filed a registration statement (including a product prospectus supplement, a prospectus supplement,
and a prospectus) with the SEC for the offering to which this terms supplement relates. Before you invest, you should read those documents and the other documents relating to this offering that we have filed with the SEC for more complete
information about us and this offering. You may obtain these documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Royal Bank of Canada, any agent or any dealer participating in this offering will arrange to
send you the product prospectus supplement, the prospectus supplement and the prospectus if you so request by calling toll-free at 1-877-688-2301.
HYPOTHETICAL EXAMPLES
The table set out below is included for illustration purposes only. The table illustrates the Payment at
Maturity of the Notes (excluding the final Contingent Coupon, if payable) for a hypothetical range of performance for the Reference Stock, assuming the following terms and that the Notes are not automatically called prior to maturity:
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Hypothetical Initial Stock Price:
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$100.00*
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Hypothetical Trigger Price and Coupon Barrier:
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$70.00, which is 70% of the hypothetical Initial Stock Price
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Observation Dates:
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Quarterly
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Principal Amount:
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$1,000 per Note
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* The hypothetical Initial Stock Price of $100 used in the examples below has been chosen for illustrative
purposes only and does not represent the expected actual Initial Stock Price. The actual Initial Stock Price will be set forth on the cover page of the final pricing supplement relating to the Notes.
Hypothetical Final Stock Prices are shown in the first column on the left. The second column shows the amount
of cash to be paid on the Notes as a percentage of the principal amount if a Trigger Event does not occur. The third column shows the amount of cash to be paid on the
Notes as a percentage of the principal amount if a Trigger Event does occur.
If the Notes are called prior to maturity, the hypothetical examples below will not be relevant, and you will
receive on the applicable Coupon Payment Date, for each $1,000 principal amount, $1,000 plus the Contingent Coupon otherwise due on the Notes.
Hypothetical
Final Stock
Price
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If the closing market price of the
Reference Stock does not fall below
the Trigger Price on any trading day
during the Monitoring Period:
Payment at Maturity as Percentage of
Principal Amount
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If the closing market price of the
Reference Stock falls below the
Trigger Price on any trading day
during the Monitoring Period:
Payment at Maturity as Percentage
of Principal Amount*
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$180
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100%
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100%
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$160
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100%
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100%
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$140
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100%
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100%
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$120
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100%
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100%
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$100
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100%
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100%
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$90
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100%
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90%
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$80
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100%
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80%
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$70
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100%
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70%
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$69.99
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n/a
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69.99%
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$60
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n/a
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60%
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$50
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n/a
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50%
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$40
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n/a
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40%
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$30
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n/a
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30%
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$20
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n/a
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20%
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$10
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n/a
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10%
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$0
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n/a
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0%
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*Excluding the final Contingent Coupon, if payable.
Hypothetical Examples of Amounts Payable at Maturity
The following hypothetical examples illustrate how the payments at maturity set forth in the table above are calculated, assuming
the Notes have not been called.
Example 1: The price of the Reference Stock increases by 25% from the
Initial Stock Price to a Final Stock Price of $125.00. Because the Final Stock Price is greater than the Initial Stock Price, the investor receives at maturity, in addition to the final Contingent Coupon otherwise due on the Notes, a
cash payment of $1,000 per Note, despite the 25% appreciation in the price of the Reference Stock.
In Example 2, a Trigger Event does not occur
before the Valuation Date.
Example 2: The price of the Reference Stock decreases by 10%
from the Initial Stock Price to a Final Stock Price of $90.00. Because a Trigger Event does not occur, even though the Final Stock Price is less than the Initial Stock Price, you receive the principal amount at maturity, together with
the final Contingent Coupon, despite the 10% decrease in the price of the Reference Stock.
In Examples 3 and 4, a Trigger Event does occur
before the Valuation Date.
Example 3: The price of the Reference Stock decreases by 10%
from the Initial Stock Price to a Final Stock Price of $90.00. Because a Trigger Event does occur, and the Final Stock Price is less than the Initial Stock Price, we will pay only $900 for each $1,000 in the principal amount of the
Notes, calculated as follows:
Principal Amount + (Principal Amount x Reference Stock Return)
= $1,000 + ($1,000 x -10%) = $1,000 - $100 = $900
In this case, you will also receive the final Contingent Coupon, because the Final Stock Price is greater than the Coupon Barrier.
Example 4: The price of the Reference Stock decreases by 60%
from the Initial Stock Price to the Final Stock Price of $40.00. Because the Final Stock Price is less than its Coupon Barrier, the final Contingent Coupon will not be payable on the Maturity Date, and we will pay only $400 for each
$1,000 in the principal amount of the Notes, calculated as follows:
Principal Amount + (Principal Amount x Reference Stock Return)
= $1,000 + ($1,000 x -60%) = $1,000 - $600 = $400
* * *
The Payments at Maturity shown above are entirely hypothetical; they are based on theoretical prices of the Reference Stock
that may not be achieved on the Valuation Date and on assumptions that may prove to be erroneous. The actual market value of your Notes on the Maturity Date or at any other time, including any time you may wish to sell your Notes, may bear
little relation to the hypothetical Payments at Maturity shown above, and those amounts should not be viewed as an indication of the financial return on an investment in the Notes.
SELECTED RISK CONSIDERATIONS
An investment in the Notes involves significant risks. Investing in the Notes is not equivalent to investing
directly in the Reference Stock. These risks are explained in more detail in the section “Risk Factors,” in the product prospectus supplement. In addition to the risks described in the prospectus supplement and the product prospectus
supplement, you should consider the following:
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Principal at Risk — Investors in the Notes could lose all or a substantial
portion of their principal amount if there is a decline in the trading price of the Reference Stock between the Trade Date and the Valuation Date. If the Notes are not automatically called, a Trigger Event occurs, and the Final
Stock Price on the Valuation Date is less than the Initial Stock Price, the amount of cash that you receive at maturity will represent a loss of your principal that is
proportionate to the decline in the closing price of the Reference Stock from the Trade Date to the Valuation Date. Any Contingent Coupons received on the Notes prior to the Maturity Date may not be sufficient to compensate for any
such loss.
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The Protection Provided by the Trigger Price May Terminate on any Trading Day during the
Monitoring Period — If the closing price of the Reference Stock on any trading day during the Monitoring Period is less than the Trigger Price, you will be fully exposed at maturity to any decrease in the price of the
Reference Stock. Under these circumstances, if the Reference Stock Return is less than zero, you will lose 1% (or a fraction thereof) of the principal amount of your investment for every 1% (or a fraction thereof) that the Final
Stock Price is less than the Initial Stock Price. You will be subject to this potential loss of principal even if, after the Trigger Event, the price of the Reference Stock increases above the Trigger Price.
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The Notes Are Subject to an Automatic Call — If on any Observation Date beginning in
October 2019 (other than the final Observation Date), the closing price of the Reference Stock is greater than or equal to the Initial Stock Price, then the Notes will be automatically called. If the Notes are automatically called,
then, on the applicable Call Settlement Date, for each $1,000 in principal amount, you will receive $1,000 plus the Contingent Coupon otherwise due on the applicable Call Settlement Date. You will not receive any Contingent Coupons
after the Call Settlement Date. You may be unable to reinvest your proceeds from the automatic call in an investment with a return that is as high as the return on the Notes would have been if they had not been called.
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You May Not Receive Any Contingent Coupons — We will not necessarily make any
coupon payments on the Notes. If the closing price of the Reference Stock on an Observation Date is less than the Coupon Barrier, we will not pay you the Contingent Coupon applicable to that Observation Date. If the closing price of
the Reference Stock is less than the Coupon Barrier on each of the Observation Dates and on the Valuation Date, we will not pay you any Contingent Coupons during the term of, and you will not receive a positive return on, your
Notes. Generally, this non-payment of the Contingent Coupon coincides with a period of greater risk of principal loss on your Notes. Accordingly, if we do not pay the Contingent Coupon on the Maturity Date, you will also incur a
loss of principal, because the Final Stock Price will be less than the Trigger Price.
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The Call Feature and the Contingent Coupon Feature Limit Your Potential Return — The
return potential of the Notes is limited to the pre-specified Contingent Coupon Rate, regardless of the appreciation of the Reference Stock. In addition, the total return on the Notes will vary based on the number of Observation
Dates on which the Contingent Coupon becomes payable prior to maturity or an automatic call. Further, if the Notes are called due to the Call Feature, you will not receive any Contingent Coupons or any other payment in respect of
any Observation Dates after the applicable Call Settlement Date. Since the Notes could be called as early as October 2019, the total return on the Notes could be minimal. If the Notes are not called, you may be subject to the full
downside performance of the Reference Stock even though your potential return is limited to the Contingent Coupon Rate. As a result, the return on an investment in the Notes could be less than the return on a direct investment in
the Reference Stock.
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Your Return May Be Lower than the Return on a Conventional Debt Security of Comparable
Maturity — The return that you will receive on the Notes, which could be negative, may be less than the return you could earn on other investments. Even if your return is positive, your return may be less than the return
you would earn if you bought a conventional senior interest bearing debt security of Royal Bank.
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Payments on the Notes Are Subject to Our Credit Risk, and Changes in Our Credit Ratings
Are Expected to Affect the Market Value of the Notes — The Notes are our senior unsecured debt securities. As a result,
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your receipt of any Contingent Coupons, if payable, and the amount due on any relevant
payment date is dependent upon our ability to repay its obligations on the applicable payment dates. This will be the case even if the price of the Reference Stock increases after the Trade Date. No assurance can be given as to what our
financial condition will be during the term of the Notes.
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There May Not Be an Active Trading Market for the Notes-Sales in the Secondary Market May
Result in Significant Losses — There may be little or no secondary market for the Notes. The Notes will not be listed on any securities exchange. RBCCM and our other affiliates may make a market for the Notes; however,
they are not required to do so. RBCCM or any other affiliate of ours may stop any market-making activities at any time. Even if a secondary market for the Notes develops, it may not provide significant liquidity or trade at prices
advantageous to you. We expect that transaction costs in any secondary market would be high. As a result, the difference between bid and asked prices for your Notes in any secondary market could be substantial.
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Owning the Notes Is Not the Same as Owning the Reference Stock — The return on
your Notes is unlikely to reflect the return you would realize if you actually owned the shares of the Reference Stock. For instance, you will not receive or be entitled to receive any dividend payments or other distributions on the
Reference Stock during the term of your Notes. As an owner of the Notes, you will not have voting rights or any other rights that holders of the Reference Stock may have. Furthermore, the Reference Stock may appreciate substantially
during the term of the Notes, while your potential return will be limited to the applicable Contingent Coupons.
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There Is No Affiliation Between the Investment Advisor or the Index Sponsor and RBCCM,
and RBCCM Is Not Responsible for any Disclosure by the Investment Advisor or the Index Sponsor — We are not affiliated with the investment adviser of the Reference Stock or the index sponsor of its underlying index.
However, we and our affiliates may currently, or from time to time in the future, engage in business with these entities. Nevertheless, neither we nor our affiliates assume any responsibilities for the accuracy or the completeness
of any information that any other entity prepares. You, as an investor in the Notes, should make your own investigation into the Reference Stock and the companies in which it invests. None of these companies are involved in this
offering, and have no obligation of any sort with respect to your Notes. These companies have no obligation to take your interests into consideration for any reason, including when taking any corporate actions that might affect the
value of your Notes.
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The Policies of the Reference Stock’s Investment Adviser Could Affect the Amount Payable
on the Notes and Their Market Value — The policies of the Reference Stock’s investment adviser concerning the management of the Reference Stock, additions, deletions or substitutions of the securities held by the Reference
Stock could affect the market price of shares of the Reference Stock and, therefore, the amount payable on the Notes and the market value of the Notes. The amount payable on the Notes and their market value could also be affected if
the Reference Stock’s investment adviser changes these policies, for example, by changing the manner in which it manages the Reference Stock, or if the Reference Stock’s investment adviser discontinues or suspends maintenance of the
Reference Stock, in which case it may become difficult to determine the market value of the Notes. The Reference Stock’s investment adviser have no connection to the offering of the Notes and have no obligations to you as an
investor in the Notes in making its decisions regarding the Reference Stock.
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Changes that Affect the Underlying Index of the Reference Stock Will Affect the Market
Value of the Notes and the Payments on the Notes — The policies of the sponsor of the underlying index of the Reference Stock concerning the calculation of that index, additions, deletions or substitutions of the
components of that index and the manner in which changes affecting those components, such as stock dividends, reorganizations or mergers, may be reflected in that index and, therefore, could affect the share price of the Reference
Stock, the amount payable on the Notes, if applicable, and the market value of the Notes prior to maturity. The amount payable on the Notes and their market value could also be affected if the sponsor changes these policies, for
example, by changing the manner in which it calculates the index, or if the calculation or publication of the index is discontinued or suspended.
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You Must Rely on Your Own Evaluation of the Merits of an Investment Linked to the
Reference Stock — In the ordinary course of their business, our affiliates may have expressed views on expected movement in the Reference Stock or the equity securities that they represent, and may do so in the future.
These views or reports may be communicated to our clients and clients of our affiliates. However, these views are subject to change from time to time. Moreover, other professionals who transact business in markets relating to the
Reference Stock may at any time have significantly different views from those of our affiliates. For these reasons, you are encouraged
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to derive information concerning the Reference Stock from multiple sources, and you
should not rely solely on views expressed by our affiliates.
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· |
The Reference Stock and its Underlying Index Are Different — The performance of
the Reference Stock may not exactly replicate the performance of its underlying index, because the Reference Stock will reflect transaction costs and fees that are not included in the calculation of its underlying index. It is also
possible that the performance of the Reference Stock may not fully replicate or may in certain circumstances diverge significantly from the performance of its underlying index due to the temporary unavailability of certain
securities in the secondary market, the performance of any derivative instruments contained in such Reference Stock or due to other circumstances. The Reference Stock may use futures contracts, options, swap agreements, currency
forwards and repurchase agreements in seeking performance that corresponds to its underlying index and in managing cash flows.
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During periods of market volatility, securities held by the Reference Stock may be
unavailable in the secondary market, market participants may be unable to calculate accurately the net asset value per share of the Reference Stock and its liquidity may be adversely affected. This kind of market volatility may also disrupt the
ability of market participants to create and redeem shares of the Reference Stock. Further, market volatility may adversely affect, sometimes materially, the prices at which market participants are willing to buy and sell shares of the
Reference Stock. As a result, under these circumstances, the market value of the Reference Stock may vary substantially from the net asset value per share of the Reference Stock. For all of the foregoing reasons, the performance of the
Reference Stock may not correlate with the performance of its underlying index as well as its net asset value per share, which could materially and adversely affect the value of the Notes in the secondary market and/or reduce any payment under
the Notes.
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Management Risk — The Reference Stock is not managed according to traditional
methods of ‘‘active’’ investment management, which involve the buying and selling of securities based on economic, financial and market analysis and investment judgment. Instead, the Reference Stock, utilizing a ‘‘passive’’ or
indexing investment approach, attempts to approximate the investment performance of its underlying index by investing in a portfolio of securities that generally replicate its underlying index. Therefore, unless a specific security
is removed from its underlying index, the Reference Stock generally would not sell a security because the security’s issuer was in financial trouble. In addition, the Reference Stock is subject to the risk that the investment
strategy of its investment advisor may not produce the intended results.
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Our Business Activities May Create Conflicts of Interest — We and our affiliates
expect to engage in trading activities related to the Reference Stock or the securities held by the Reference Stock that are not for the account of holders of the Notes or on their behalf. These trading activities may present a
conflict between the holders’ interests in the Notes and the interests we and our affiliates will have in their proprietary accounts, in facilitating transactions, including options and other derivatives transactions, for their
customers and in accounts under their management. These trading activities, if they influence the prices of the Reference Stock, could be adverse to the interests of the holders of the Notes. We and one or more of our affiliates
may, at present or in the future, engage in business with GDX or the issuers of the securities held by GDX, including making loans to or providing advisory services. These services could include investment banking and merger and
acquisition advisory services. These activities may present a conflict between our or one or more of our affiliates’ obligations and your interests as a holder of the Notes. Moreover, we and our affiliates may have published, and in
the future expect to publish, research reports with respect to the Reference Stock. This research is modified from time to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing
or holding the Notes. Any of these activities by us or one or more of our affiliates may affect the price of the Reference Stock, and, therefore, the market value of the Notes.
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The Initial Estimated Value of the Notes 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 Notes does not represent a minimum price at which we, RBCCM or any of our affiliates would be willing to purchase the Notes in any secondary
market (if any exists) at any time. If you attempt to sell the Notes prior to maturity, their market value may be lower than the price you paid for them and the initial estimated value. This is due to, among other things, changes in
the price of the Reference Stock, the borrowing rate we pay to issue securities of this kind, and the inclusion in the price to the public of the underwriting discount and the estimated costs relating to our hedging of the Notes.
These factors, together with various credit, market and economic factors over the term of the Notes, are expected to
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reduce the price at which you may be able to sell the Notes in any secondary market and
will affect the value of the Notes in complex and unpredictable ways. Assuming no change in market conditions or any other relevant factors, the price, if any, at which you may be able to sell your Notes prior to maturity may be less than your
original purchase price, as any such sale price would not be expected to include the underwriting discount and the hedging costs relating to the Notes. In addition to bid-ask spreads, the value of the Notes determined for any secondary market
price is expected to be based on the secondary rate rather than the internal funding rate used to price the Notes and determine the initial estimated value. As a result, the secondary price will be less than if the internal funding rate was
used. The Notes are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your Notes to maturity.
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The Initial Estimated Value of the Notes that We Will Provide in the Final Pricing
Supplement Are Estimates Only, Calculated as of the Time the Terms of the Notes Are Set –The initial estimated value of the Notes will be based on the value of our obligation to make the payments on the Notes, together with
the mid-market value of the derivative embedded in the terms of the Notes. See “Structuring the Notes” below. Our estimates are based on a variety of assumptions, including our credit spreads, expectations as to dividends, interest
rates and volatility, and the expected term of the Notes. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the Notes or similar securities at a price
that is significantly different than we do.
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The value of the Notes at any time after the Trade Date will vary based on many factors, including changes in market
conditions, and cannot be predicted with accuracy. As a result, the actual value you would receive if you sold the Notes in any secondary market, if any, should be expected to differ materially from the initial estimated value of your Notes.
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Market Disruption Events and Adjustments – The payment at maturity, each
Observation Date, and the Valuation Date are subject to adjustment as described in the product prospectus supplement. For a description of what constitutes a market disruption event as well as the consequences of that market
disruption event, see “General Terms of the Notes—Market Disruption Events” in the product prospectus supplement.
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The Securities Composing the Underlying Index of the GDX Are Concentrated in One Sector — All of the securities included in the underlying index of the GDX are issued by companies in the gold and silver mining sector. As a result, the securities
that will determine the performance of the GDX and the level of the underlying index, which the GDX seeks to replicate, are concentrated in one sector. Although an investment in the Notes will not give holders any ownership or other
direct interests in the securities composing the underlying index, the return on an investment in the Notes will be subject to certain risks associated with a direct equity investment in companies in this market sector. Accordingly,
by investing in the Notes, you will not benefit from the diversification which could result from an investment linked to companies that operate in multiple sectors.
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An Investment in the Notes Is Subject to Risks Associated with the Gold and Silver
Mining Industries — All or substantially all of the stocks held by the GDX are issued by gold or silver mining companies. As a result, the
stocks that will determine the performance of the GDX are concentrated in one sector. Although an investment in the Notes will not give holders any ownership or other direct interests in the stocks held by the GDX, the return on the
Notes will be subject to certain risks associated with a direct equity investment in gold or silver mining companies.
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In addition, these companies are highly dependent on the price of gold or silver, as applicable. These prices
fluctuate widely and may be affected by numerous factors. Factors affecting gold prices include economic factors, including, among other things, the structure of and confidence in the global monetary system, expectations of the future rate of
inflation, the relative strength of, and confidence in, the U.S. dollar (the currency in which the price of gold is generally quoted), interest rates and gold borrowing and lending rates, and global or regional economic, financial, political,
regulatory, judicial or other events. Gold prices may also be affected by industry factors such as industrial and jewelry demand, lending, sales and purchases of gold by the official sector, including central banks and other governmental
agencies and multilateral institutions which hold gold, levels of gold production and production costs, and short-term changes in supply and demand because of trading activities in the gold market. Factors affecting silver prices include
general economic trends, technical developments, substitution issues and regulation, as well as specific factors including industrial and jewelry demand, expectations with respect to the rate of inflation, the relative strength of the U.S.
dollar (the currency in which the price of silver is generally quoted) and other currencies, interest rates, central
bank sales, forward sales by producers, global or regional political or economic events,
and production costs and disruptions in major silver producing countries such as Mexico and Peru. The supply of silver consists of a combination of new mine production and existing stocks of bullion and fabricated silver held by governments,
public and private financial institutions, industrial organizations and private individuals. In addition, the price of silver has on occasion been subject to very rapid short-term changes due to speculative activities. From time to time,
above-ground inventories of silver may also influence the market.
On the other hand, the GDX reflects the performance of shares of gold and silver mining companies and not gold bullion
or silver bullion. The GDX may under- or over-perform gold bullion and/or silver bullion over the term of the Notes.
INFORMATION REGARDING THE REFERENCE STOCK
Information provided to or filed with the SEC relating to the GDX under the Securities Exchange Act of 1934, as amended, and the Investment Company
Act of 1940, as amended, can be obtained through the SEC’s website at http://www.sec.gov. In addition, information regarding the Reference Stock may be obtained from other sources including, but not limited to, press releases, newspaper
articles and other publicly disseminated documents. We have not participated in the preparation of, or verified, such publicly available information. None of the forgoing documents or filings are incorporated by reference in, and should not be
considered part of, this document.
The following information regarding the Reference Stock is derived from publicly available information.
We have not independently verified the accuracy or completeness of reports filed by the Reference Stock with the SEC, information published by it
on its website or in any other format, information about it obtained from any other source or the information provided below.
The Notes are not sponsored, endorsed, sold or promoted by the investment adviser. The investment adviser makes no representations or warranties to
the owners of the Notes or any member of the public regarding the advisability of investing in the Notes. The investment adviser has no obligation or liability in connection with the operation, marketing, trading or sale of the Notes.
We obtained the information regarding the historical performance of the Reference Stock set forth below from Bloomberg Financial Markets.
We have not independently verified the accuracy or completeness of the information obtained from Bloomberg Financial Markets. The historical
performance of the Reference Stock should not be taken as an indication of its future performance, and no assurance can be given as to the market price of the Reference Stock at any time during the term of the Notes. We cannot give you
assurance that the performance of the Reference Stock will not result in the loss of all or part of your investment.
The VanEck Vectors® Gold Miners ETF
The GDX is an investment portfolio maintained, managed and advised by Van Eck. The VanEck VectorsTM ETF Trust is a
registered open-end investment company that consists of numerous separate investment portfolios, including the GDX.
The GDX is an exchange traded fund that trades on NYSE Arca under the ticker symbol “GDX.”
The GDX seeks to provide investment results that correspond generally to the price and yield performance, before fees and
expenses, of the Underlying Index. The Underlying Index was developed by the NYSE Amex and is calculated, maintained and published by NYSE Arca. The Underlying Index is a modified market capitalization-weighted index comprised of publicly
traded companies involved primarily in mining for gold or silver.
The GDX utilizes a “passive” or “indexing” investment approach in attempting to track the performance of the Underlying
Index. The GDX will invest in all of the securities which comprise the Underlying Index. The GDX will normally invest at least 95% of its total assets in common stocks that comprise the Underlying Index.
The Notes are not sponsored, endorsed, sold or promoted by Van Eck. Van Eck makes no representations or warranties to the owners of the Notes or
any member of the public regarding the advisability of investing in the Notes. Van Eck has no obligation or liability in connection with the operation, marketing, trading or sale of the Notes.
The NYSE Arca Gold Miners Index
The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of securities issued by publicly traded companies
involved primarily in the mining of gold or silver. The underlying index was developed by the NYSE Amex and is calculated, maintained and published by NYSE Arca.
Eligibility Criteria for Index Components
The underlying index includes common stocks, ADRs or GDRs of selected companies that are
involved in mining for gold and silver and that are listed for trading and electronically quoted on a major stock market that is accessible by foreign investors. Generally, this includes exchanges in most developed markets and major emerging
markets, and includes companies that are cross-listed, i.e., both U.S. and Canadian listings. NYSE Arca will use its discretion to avoid exchanges and markets that are considered “frontier” in nature or have major restrictions to foreign
ownership. The underlying index includes companies that derive at least 50% of their revenues from gold mining and related activities (40% for companies that are already included in the underlying index). Also, the underlying index will
maintain an exposure to companies with a significant revenue exposure to silver mining in addition to gold mining, which will not exceed 20% of the underlying index weight at each rebalance.
Currently, only companies with a market capitalization of greater than $750
million that have an average daily trading volume of at least 50,000 shares and an average daily value traded of at least $1 million over the past three months are eligible for inclusion in the underlying index. Starting in December 2013, for
companies already included in the underlying index, the market capitalization requirement at each rebalance will be $450 million, the average daily volume requirement will be at least 30,000 shares over the past three months and the average
daily value traded requirement will be at least $600,000 over the past three months.
NYSE Arca has the discretion to not include all companies that meet the minimum criteria for inclusion.
Calculation of the Underlying Index
The underlying index is calculated by NYSE Arca on a price return basis. The calculation is based on the current modified market capitalization
divided by a divisor. The divisor was determined on the initial capitalization base of the underlying index and the base level and may be adjusted as a result of corporate actions and composition changes, as described below. The level of the
underlying index was set at 500.00 on December 20, 2002 which is the index base date. The underlying index is calculated using the following formula:
Where:
t = day of calculation;
N = number of constituent equities in the underlying index;
Qi,t = number of shares of equity i on day t;
Mi,t = multiplier of equity i;
Ci,t = price of equity i on day t; and
DIV = current index divisor on day t.
Underlying Index Maintenance
The underlying index is reviewed quarterly to ensure that at least 90% of the underlying index weight is accounted for by index components that
continue to meet the initial eligibility requirements. NYSE Arca may at any time and from time to time change the number of securities comprising the group by adding or deleting one or more securities, or replacing one or more securities
contained in the group with one or more substitute securities of its choice, if in NYSE Arca’s discretion such addition, deletion or substitution is necessary or appropriate to maintain the quality and/or character of the underlying index. Components will be removed from the underlying index during the quarterly review if either (1) the market capitalization falls below $450 million or (2) the traded average daily
shares for the previous three months is less than 30,000 shares and the average daily traded value for the previous three months is less than $600,000.
At the time of the quarterly rebalance, the component security weights (also referred to as the multiplier or share quantities of each component
security) will be modified to conform to the following asset diversification requirements:
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the weight of any single component security may not account for more than 20% of the total value of the underlying index;
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the component securities are split into two subgroups–large and small, which are ranked by market capitalization weight in the underlying index. Large securities are defined as
having a starting index weight greater than or equal to 5%. Small securities are defined as having a starting index weight below 5%; and
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the final aggregate weight of those component securities which individually represent more than 4.5% of the total value of the underlying index may not account for more than 45% of
the total index value.
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The weights of the components securities (taking into account expected component changes and share adjustments) are modified in accordance with the
underlying index’s diversification rules.
Diversification Rule 1: If any component stock exceeds 20% of the
total value of the underlying index, then all stocks greater than 20% of the underlying index are reduced to represent 20% of the value of the underlying index. The aggregate amount by which all component stocks are reduced is redistributed
proportionately across the remaining stocks that represent less than 20% of the index value. After this redistribution, if any other stock then exceeds 20%, the stock is set to 20% of the index value and the redistribution is repeated.
Diversification Rule 2: The components are sorted into two groups, large are components
with a starting index weight of 5% or greater and small are components with a weight of under 5% (after any adjustments for Diversification Rule 1). The large group will
represent in
the aggregate 45% and the small group will represent 55% in the aggregate of
the final index weight. This will be adjusted through the following process: The weight of each of the large stocks will be scaled down proportionately (with a floor of 5%) so that the aggregate weight of the large components will be
reduced to represent 45% of the underlying index. If any large component stock falls below a weight equal to the product of 5% and the proportion by which the stocks were scaled down following this distribution, then the weight of the stock is
set equal to 5% and the components with weights greater than 5% will be reduced proportionately. The weight of each of the small components will be scaled up proportionately from the redistribution of the large components. If any small
component stock exceeds a weight equal to the product of 4.5% and the proportion by which the stocks were scaled down following this distribution, then the weight of the stock is set equal to 4.5%. The redistribution of weight to the remaining
stocks is repeated until the entire amount has been redistributed.
Changes to the underlying index composition and/or the component security weights in the underlying index are determined and announced prior to taking effect. These
changes typically become effective after the close of trading on the third Friday of each calendar quarter month in connection with the quarterly index rebalance. The share quantities of each component security in the index portfolio remains
fixed between quarterly reviews except in the event of certain types of corporate actions such as stock splits, reverse stock splits, stock dividends, or similar events. The share quantities used in the underlying index calculation are not
typically adjusted for shares issued or repurchased between quarterly reviews. However, in the event of a merger between two components, the share quantities of the surviving entity may be adjusted to account for any stock issued in the
acquisition. NYSE Arca may substitute securities or change the number of securities included in the underlying index, based on changing conditions in the industry or in the event of certain types of corporate actions, including mergers,
acquisitions, spin-offs, and reorganizations. In the event of component or share quantity changes to the index portfolio, the payment of dividends other than ordinary cash dividends, spin-offs, rights offerings, re-capitalization, or other
corporate actions affecting a component security of the underlying index, the index divisor may be adjusted to ensure that there are no changes to the index level as a result of nonmarket forces.
The graph below illustrates the performance of the Reference Stock from January 1, 2009 to April 8, 2019
assuming an Initial Stock Price of $22.69, which was the closing price of the Reference Stock on April 8, 2019. The red line represents a hypothetical Coupon Barrier and Trigger Price of $15.88,
which is equal to 70% of the closing price on April 8, 2019, rounded to two decimal places. The actual Coupon Barrier and Trigger Price will be based on the closing price of the Reference Stock on the Trade Date.
SUPPLEMENTAL DISCUSSION OF
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following disclosure supplements, and to the extent inconsistent supersedes, the discussion in the product prospectus
supplement under “Supplemental Discussion of U.S. Federal Income Tax Consequences.”
Under Section 871(m) of the Code, a “dividend equivalent” payment is treated as a dividend from sources within the United
States. 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
Notes are not delta-one instruments, non-U.S. holders should not be subject to withholding on dividend equivalent payments, if any, under the Notes. However, it is possible that the Notes could be treated as deemed reissued for U.S. federal
income tax purposes upon the occurrence of certain events affecting the Reference Stock or the Notes, and following such occurrence the Notes could be treated as subject to withholding on dividend equivalent payments. Non-U.S. holders that
enter, or have entered, into other transactions in respect of the Reference Stock or the Notes should consult their tax advisors as to the application of the dividend equivalent withholding tax in the context of the Notes and their other
transactions. If any payments are treated as dividend equivalents subject to withholding, we (or the applicable withholding agent) would be entitled to withhold taxes without being required to pay any additional amounts with respect to amounts
so withheld.
The accompanying product prospectus supplement notes that FATCA withholding on payments of gross proceeds from a sale or
redemption of Notes will only apply to payments made after December 31, 2018. That discussion is modified to reflect regulations proposed by the U.S. Treasury Department in December 2018 indicating an intent to eliminate the requirement under
FATCA of withholding on gross proceeds of the disposition of financial instruments. The U.S. Treasury Department has indicated that taxpayers may rely on these proposed regulations pending their finalization. Prospective investors are urged to
consult with their own tax advisors regarding the possible implications of FATCA on their investment in the Notes.
SUPPLEMENTAL PLAN OF DISTRIBUTION (CONFLICTS OF INTEREST)
We expect that delivery of the Notes will be made against payment for the Notes on or about April 29, 2019, which is the third
(3rd) business day following the Trade Date (this settlement cycle being referred to as “T+3”).
We will deliver the Notes on a date that is greater than two business days following the Trade Date. Under Rule 15c6-1 of the
Exchange Act, trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the Notes more than two business days
prior to the original Issue Date will be required to specify alternative arrangements to prevent a failed settlement.
In the initial offering of the Notes, they will be offered to investors at a purchase price equal to par, except with respect
to certain accounts as indicated on the cover page of this document.
For additional information as to the relationship between us and RBCCM, please see the section “Plan of Distribution—Conflicts
of Interest” in the prospectus.
The value of the Notes shown on your account statement may be based on RBCCM’s estimate of the value of the Notes if RBCCM or
another of our affiliates were to make a market in the Notes (which it is not obligated to do). That estimate will be based upon the price that RBCCM may pay for the Notes in light of then prevailing market conditions, our creditworthiness and
transaction costs. For a period of approximately 6 months after the issue date of the Notes, the value of the Notes that may be shown on your account statement may be higher than RBCCM’s estimated value of the Notes at that time. This is
because the estimated value of the Notes will not include the underwriting discount and our hedging costs and profits; however, the value of the Notes shown on your account statement during that period may initially be a higher amount,
reflecting the addition of RBCCM’s underwriting discount and our estimated costs and profits from hedging the Notes. This excess is expected to decrease over time until the end of this period. After this period, if RBCCM repurchases your
Notes, it expects to do so at prices that reflect their estimated value.
We may use this terms supplement in the initial sale of the Notes. In addition, RBCCM or another of our affiliates may use this terms supplement
in a market-making transaction in the Notes after their initial sale. Unless we or our agent informs the purchaser otherwise in the confirmation of sale,
this terms supplement is being used in a market-making transaction.
STRUCTURING THE NOTES
The Notes are our debt securities, the return on which is linked to the performance of the Reference Stock. As is the case
for all of our debt securities, including our structured notes, the economic terms of the Notes reflect our actual or perceived creditworthiness at the time of pricing. In addition, because structured notes result in increased operational,
funding and liability management costs to us, we typically borrow the funds under these Notes at a rate that is more favorable to us than the rate that we might pay for a conventional fixed or floating rate debt security of comparable
maturity. Using this relatively lower implied borrowing rate rather than the secondary market rate, is a factor that is likely to reduce the initial estimated value of the Notes at the time their terms are set. Unlike the estimated value
included in the final pricing supplement, any value of the Notes determined for purposes of a secondary market transaction may be based on a different funding rate, which may result in a lower value for the Notes than if our initial internal
funding rate were used.
In order to satisfy our payment obligations under the Notes, we may choose to enter into certain hedging arrangements (which
may include call options, put options or other derivatives) on the issue date with RBCCM or one of our other subsidiaries. The terms of these hedging arrangements take into account a number of factors, including our creditworthiness, interest
rate movements, the volatility of the Reference Stock, and the tenor of the Notes. The economic terms of the Notes and their initial estimated value depend in part on the terms of these hedging arrangements.
The lower implied borrowing rate is a factor that reduces the economic terms of the Notes to you. The initial offering price
of the Notes also reflects the underwriting commission and our estimated hedging costs. These factors result in the initial estimated value for the Notes on the Trade Date being less than their public offering price. See “Selected Risk
Considerations—The Initial Estimated Value of the Notes Will Be Less than the Price to the Public” above.