RBC Capital Markets®
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Filed Pursuant to Rule 433
Registration Statement No. 333-227001
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The information in this preliminary terms supplement is not complete and may be changed.
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Preliminary Terms Supplement
Subject to Completion:
Dated May 3, 2018
Pricing Supplement Dated May ___, 2019 to the
Product Prospectus Supplement ERN-ETF-1 Dated September 11, 2018, Prospectus Supplement Dated September 7, 2018, and Prospectus Dated
September 7, 2018
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$_________
Buffered Enhanced Return Notes
Linked to a Basket of Three Exchange
Traded Funds, Due November 12, 2020 Royal Bank of Canada
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Per Note
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Total
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Price to public(1)
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100.00%
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$
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Underwriting discounts and commissions(1)
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0.25%
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$
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Proceeds to Royal Bank of Canada
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99.75%
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$
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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Issuer:
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Royal Bank of Canada (“Royal Bank”)
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Underwriter:
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RBC Capital Markets, LLC
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Reference Asset:
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The Notes are linked to the level of a basket (the “Basket”) of three ETFs (each, a “Basket Component,” collectively, the
“Basket Components”). The Basket Components and their respective Component Weights are indicated in the table below.
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Currency:
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U.S. Dollars
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Denominations
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$1,000 and minimum denominations of $1,000 in excess thereof
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Trade Date
(Pricing Date):
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May 6, 2019
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Issue Date:
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May 9, 2019
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Valuation Date:
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November 6, 2020
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Maturity Date:
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November 12, 2020. The Maturity Date is subject to extension for market and other disruptions, as described in the
product prospectus supplement dated September 11, 2018.
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Payment at
Maturity
(if held to
maturity):
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If, on the Valuation Date, the Percentage Change is positive, then
the investor will receive, for each $1,000 in principal amount of the Notes, an amount calculated as follows:
$1,000 + ($1,000 x the lesser of (i) Leverage Factor x
Percentage Change and (ii) Maximum Return)
If, on the Valuation Date, the Percentage Change is zero or negative
but greater than or equal to -15%, the investor will receive the Principal Amount of the Notes.
If, on the Valuation Date, the Percentage Change is less
than -15%, then the investor will receive a cash payment equal to:
Principal Amount + [(Principal Amount x (Percentage Change + Buffer Percentage)]
In this case, you will lose 1% of the principal amount for each 1% that the Percentage Change is less than -15%.
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Leverage Factor:
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150%
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Maximum Return:
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12.60%
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Buffer
Percentage:
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15%
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Percentage
Change:
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The Percentage Change, expressed as a percentage and rounded to two decimal places, will be equal to the sum of the Weighted Component Change for each Basket Component. The Weighted Component Change for each Basket Component will be determined as follows:
Component Weight x
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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Initial Level:
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The closing price per share of a Basket Component on the Trade Date.
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Final Level:
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The closing price per share of a Basket Component on the Valuation Date.
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The Basket:
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Basket Component
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Bloomberg
Ticker
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Component
Weight
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Initial Level
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Energy Select Sector SPDR® Fund (“XLE”)
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XLE
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40%
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Industrial Select Sector SPDR® Fund ( “XLI”)
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XLI
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40%
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Technology Select Sector SPDR® Fund (“XLK”)
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XLK
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20%
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Principal at Risk:
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The Notes are NOT principal
protected. You could lose some or all of your principal amount at maturity if the Percentage Change is less than -15%.
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Calculation
Agent:
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RBC Capital Markets, LLC
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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 Note as a pre-paid cash-settled derivative contract 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 dated September 11, 2018 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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RBC Capital Markets, LLC (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 of your Notes.
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Listing:
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The Notes will not be listed on any securities exchange.
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Clearance and
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 dated September 7, 2018).
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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 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 dated September 11, 2018, as modified by this terms supplement.
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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Example 1 —
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Calculation of the Payment at Maturity where the Percentage Change is positive, and when multiplied by the Leverage
Factor is less than the Maximum Return.
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Percentage Change:
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2%
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Payment at Maturity:
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$1,000 + ($1,000 x 2% x 150%) = $1,000 + $30.00 = $1,030.00
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On a $1,000 investment, a 2% Percentage Change results in a Payment at Maturity of $1,030.00, a 3.00% return on the
Notes.
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Example 2—
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Calculation of the Payment at Maturity where the Percentage Change is positive, and when multiplied by the Leverage Factor is greater than
the Maximum Return.
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Percentage Change:
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40%
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Payment at Maturity:
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$1,000 + ($1,000 x 12.60%) = $1,000 + $126 = $1,260.00
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On a $1,000 investment, because the Percentage Change multiplied by the Leverage Factor is greater than the Maximum Return, investors receive a Payment at
Maturity of $1,260.00, a return of 12.60% on the Notes.
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Example 3 —
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Calculation of the Payment at Maturity where the Percentage Change is negative (but not by more than the Buffer
Percentage).
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Percentage Change:
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-10%
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Payment at Maturity:
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$1,000
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On a $1,000 investment, a -10% Percentage Change results in a Payment at Maturity of $1,000.00, a 0% return on the Notes.
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Example 4 —
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Calculation of the Payment at Maturity where the Percentage Change is negative (by more than the Buffer Percentage).
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Percentage Change:
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-60%
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Payment at Maturity:
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1,000 + ($1,000 x (-60% + 15%) = $1,000 - $450.00 = $550.00
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On a $1,000 investment, a -60% Percentage Change results in a Payment at Maturity of $550, a -45% return on the Notes.
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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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 level of the Reference Asset of more than 15%. In such a case, you will lose approximately 1.1765% of the principal amount of your Notes for each 1% that the Percentage Change is less than -15%.
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The Notes Do Not Pay Interest and Your Return May Be Lower than the Return on a Conventional Debt Security of
Comparable Maturity – There will be no periodic interest payments on the Notes as there would be on a conventional fixed-rate or floating-rate debt security having the same 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. 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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The Appreciation Potential of the Notes Is Limited by the Maximum Return – If the Percentage Change is positive, we will pay you $1,000 per Note at maturity plus an additional return that will not exceed the Maximum Return, regardless of the
appreciation in the Basket Components, which may be significant. Therefore, you will not benefit from any appreciation of the Basket Components in excess of an amount that, when multiplied by the Leverage Factor, exceeds the Maximum
Return and your return on the Notes may be less than your return would be on a hypothetical direct investment in the component stocks of the Basket Components.
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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, your receipt of the amount due on the maturity date is dependent upon our ability to repay its obligations at that time.
This will be the case even if the prices of one or more of the Basket Components increase after the Trade Date. No assurance can be given as to what our financial condition will be at the maturity 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 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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You Will Not Have Any Rights to the Securities Included in the Basket Components – As a holder of the
Notes, you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of securities included in the Reference Asset would have. The Final Level of each Basket Component will
not reflect any dividends paid on the securities included in that Basket Component.
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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
value of the Basket Components, 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 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
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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The Initial Estimated Value of the Notes that We Will Provide in the Final Pricing Supplement Will Be an
Estimate 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 will be 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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Market Disruption Events and Adjustments – The payment at maturity 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 Correlation Between the Performance of Each Basket Component and the Performance of its Underlying Index
May Be Imperfect — The performance of each Basket Component is linked principally to the performance of its Underlying Index. However, because of the potential discrepancies identified in more detail in the product
prospectus supplement, the return on each Basket Component may correlate imperfectly with the return on its Underlying Index.
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Changes in the Level of One Basket Component May Be Offset by Changes in the Level of the Other Basket
Component – A change in the level of one Basket Component may not correlate with changes in the level of the other Basket Component. The level
of one Basket Component may increase, while the level of another Basket Component may not increase as much, or may even decrease. Therefore, in determining the level of the Reference Asset as of any time, increases in the level of
one Basket Component may be moderated, or wholly offset, by lesser increases or decreases in the level of the other Basket Component. Because the XLE and XLI each have a higher component weight in the Basket than the XLK, decreases
in the price of the XLE or XLI will have a greater impact on the value of the Basket than comparable changes in the price of the XLK.
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An Investment in the Notes Is Subject to Risks Associated with Specific Economic Sectors — The stocks
held by the Basket Components are issued by companies engaged in a specific sector of the economy. Accordingly, an investment in the Notes is subject to the specific risks of companies that operate in each of those sectors. An
investment in the Notes may accordingly be more risky than a security linked to a more diversified set of securities.
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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 Asset or the securities held by the Basket Components 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 value of the Basket, 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 the issuers of the securities represented by the Basket, including making loans to or providing advisory services. These services could include investment banking and merger and acquisition advisory
services. These activities may
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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The Reference Stocks and their Underlying Indices Are Different — The performance of each Reference
Stock may not exactly replicate the performance of its respective underlying index, because these Basket Components 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 these Basket Components may not fully replicate or may in certain circumstances diverge significantly from the performance of their underlying indices due to the temporary unavailability of certain
securities in the secondary market, the performance of any derivative instruments contained in the Basket Components, or due to other circumstances. These Basket Components may use futures contracts, options, swap agreements,
currency forwards and repurchase agreements in seeking performance that corresponds to their underlying indices and in managing cash flows.
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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Each of the component stocks in a Select Sector Index (the “SPDR Component Stocks”) is a constituent company of the S&P 500® Index.
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The Select Sector Indices together will include all of the companies represented in the S&P 500® Index and each of the stocks in the S&P 500® Index
will be allocated to one and only one of the Select Sector Indices.
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Each constituent stock of the S&P 500® Index is assigned to a Select Sector Index on the basis of that company’s sales and earnings composition and the sensitivity of
the company’s stock price and business results to the common factors that affect other companies in each Select Sector Index.
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S&P has sole control over the removal of stocks from the S&P 500® Index and the selection of replacement stocks to be added to the S&P 500® Index.
However, S&P plays only a consulting role in the Select Sector Indices.
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Each Select Sector Index is calculated by S&P using a modified “market capitalization” methodology. This design ensures that each of the component stocks within a Select Sector
Index is represented in a proportion consistent with its
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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Buffered Enhanced Return Notes Linked to a Basket of
Three Exchange Traded Funds
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P-15
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RBC Capital Markets, LLC
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