ISSUER FREE WRITING PROSPECTUS
Filed Pursuant to Rule 433
Registration Statement No. 333-227001
Dated March 4, 2019
Royal Bank of Canada Trigger Absolute Return Step Securities
$• Securities Linked to the EURO STOXX 50® Index, due on or about March 28, 2024
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Investment Description
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Trigger Absolute Return Step Securities are unconditional, unsecured and unsubordinated debt securities issued by Royal Bank of Canada with returns
linked to the performance of the EURO STOXX 50® Index (the “Underlying”) (each, a “Security” and collectively, the “Securities”). If the Underlying Return is greater than or equal to the Step Barrier, we will pay the principal amount
at maturity plus a return equal to the greater of (i) the Step Return and (ii) the Underlying Return. If the Final Level is equal to or greater than the Downside Threshold but less than the Initial Level, we will pay the principal amount at
maturity and a return equal to the absolute value of the Underlying Return (the “Contingent Absolute Return”). If the Final Level is less than the Downside Threshold, we will pay less than the full principal amount at maturity, if anything,
resulting in a loss of principal that is proportionate to the negative Underlying Return. The Securities are not subject to conversion into our common shares under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act. Investing in the Securities involves significant risks. The Securities do not pay dividends or interest. You may lose some or all of your principal amount. The Step Payment, the
Contingent Absolute Return and the contingent repayment of principal apply only if you hold the Securities to maturity. Any payment on the Securities, including any repayment of principal, is subject to our creditworthiness. If we were to default on our payment obligations, you may not receive any amounts
owed to you under the Securities and you could lose your entire investment. The Securities will not be listed on any securities exchange.
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Features
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Key Dates1
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Step Return with Upside Participation: At maturity, we will pay you the principal amount plus a minimum
return of [53% – 57%] (to be determined on the Trade Date), which we call the “Step Return,” as long as the Underlying does not close below the Step Barrier on the Final Valuation Date, with participation in any positive Index
Return above the Step Return.
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Absolute Return Above the Downside Threshold — If the Underlying Return is less than or equal to zero
but the Final Level is greater than or equal to the Downside Threshold, we will pay the principal amount at maturity plus a return equal to the product of (i) the principal amount multiplied by (ii) the Contingent Absolute Return.
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Downside Exposure— If the Underlying Return is negative and the Final Level is less than the Downside
Threshold, we will pay you less than the full principal amount at maturity, resulting in a loss of principal that is proportionate to the negative Underlying Return.
Accordingly, you may lose some or all of the principal amount. Any payment on the Securities, including any repayment of principal, is subject to our creditworthiness.
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| Trade Date1 |
March 27, 2019
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| Settlement Date1 |
March 29, 2019
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| Final Valuation Date2 |
March 25, 2024
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| Maturity Date2 |
March 28, 2024
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| 1 |
Expected. If we make any change to the expected Trade Date and Settlement Date, the Final Valuation Date and Maturity Date will be changed so that the stated term of the
Securities remains approximately the same.
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Subject to postponement if a market disruption event occurs, as described under “General Terms of the Securities – Payment at Maturity” in the accompanying product prospectus supplement
UBS-IND-1.
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NOTICE TO INVESTORS: THE SECURITIES ARE SIGNIFICANTLY RISKIER THAN CONVENTIONAL DEBT
INSTRUMENTS. WE ARE NOT NECESSARILY OBLIGATED TO REPAY THE FULL PRINCIPAL AMOUNT AT MATURITY, AND THE SECURITIES CAN HAVE THE FULL DOWNSIDE MARKET RISK OF THE UNDERLYING. THIS MARKET RISK IS IN ADDITION TO THE CREDIT RISK INHERENT IN PURCHASING
OUR DEBT OBLIGATION. YOU SHOULD NOT PURCHASE THE SECURITIES IF YOU DO NOT UNDERSTAND OR ARE NOT COMFORTABLE WITH THE SIGNIFICANT RISKS INVOLVED IN INVESTING IN THE SECURITIES.
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER ‘‘KEY RISKS’’ BEGINNING ON PAGE 5
OF THIS FREE WRITING PROSPECTUS AND UNDER “RISK FACTORS” BEGINNING ON PAGE PS-3 OF THE ACCOMPANYING PRODUCT PROSPECTUS SUPPLEMENT BEFORE PURCHASING ANY SECURITIES. EVENTS RELATING TO ANY OF THOSE RISKS, OR OTHER RISKS AND UNCERTAINTIES, COULD
ADVERSELY AFFECT THE MARKET VALUE OF, AND THE RETURN ON, YOUR SECURITIES. YOU COULD LOSE SOME OR ALL OF THE PRINCIPAL AMOUNT.
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Security Offering
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We are offering Trigger Absolute Return Step Securities Linked to the EURO STOXX 50® Index. The
indicative Step Return range is listed below. The Securities are offered at a minimum investment of 100 Securities at the Price to Public described below.
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Underlying
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Step Return
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Initial Level
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Step Barrier
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Downside
Threshold
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CUSIP
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ISIN
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EURO STOXX 50® Index (“SX5E”)
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[53% – 57%] (to be determined on the Trade Date)
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•
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100% of the Initial
Level
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70% of the Initial Level
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78014H300
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US78014H3003
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See “Additional Information About Royal Bank of Canada and the Securities” in this free
writing prospectus. The Securities will have the terms specified in the prospectus, the prospectus supplement and product prospectus supplement UBS-IND-1, each dated September 7, 2018, and
this free writing prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved
of the Securities or passed upon the accuracy or the adequacy of this free writing prospectus or the accompanying product prospectus supplement, prospectus supplement and prospectus. Any representation to the contrary is a criminal offense.
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Price to Public
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Fees and Commissions(1)
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Proceeds to Us
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Offering of the Securities
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Total
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Per Security
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Total
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Per Security
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Total
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Per Security
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Securities Linked to the EURO STOXX 50® Index
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•
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$10.00
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•
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$0.35
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•
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$9.65
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(1)
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UBS Financial Services Inc., which we refer to as UBS, will receive a commission that will depend on market conditions on
the Trade Date. In no event will the commission received by UBS exceed $0.35 per $10 in principal amount of the Securities. See “Supplemental Plan of Distribution (Conflicts
of Interest)” below.
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The initial estimated value of the Securities as of the Trade Date is expected to be between $9.2901 and $9.4901 per $10 in principal amount, and will be less than the price to public. The pricing supplement relating to the Securities will set forth our estimate of the initial value of the Securities as of the Trade Date. The
actual value of the Securities at any time will reflect many factors, cannot be predicted with accuracy, and may be less than this amount. We describe our determination of the initial estimated value under “Key Risks,” “Supplemental Plan of Distribution (Conflicts of Interest)” and “Structuring the Securities” below.
The Securities will not constitute deposits insured under the Canada Deposit Insurance Corporation Act or by the United States Federal Deposit
Insurance Corporation or any other Canadian or United States government agency or instrumentality.
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UBS Financial Services Inc.
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RBC Capital Markets, LLC
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Additional Information About Royal Bank of Canada and the Securities
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Royal Bank of Canada has filed a registration statement (including a prospectus) with the Securities and Exchange Commission, or
SEC, for the offering to which this free writing prospectus relates. Before you invest, you should read the prospectus in that registration statement and the other documents relating to this offering that 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 prospectus, the prospectus supplement, product prospectus supplement UBS-IND-1 and this free writing prospectus if you so request by calling toll-free 1-877-688-2301.
You may revoke your offer to purchase the Securities at any time prior to the time at which we accept such offer by notifying the
applicable agent. We reserve the right to change the terms of, or reject any offer to purchase, the Securities prior to their issuance. In the event of any changes to the terms of the Securities, we will notify you and you will be asked to
accept such changes in connection with your purchase. You may also choose to reject such changes, in which case we may reject your offer to purchase.
You should read this free writing prospectus together with the prospectus dated September 7, 2018, as supplemented by the
prospectus supplement dated September 7, 2018, relating to our senior global medium-term notes, Series H, of which these Securities are a part, and the more detailed information contained in product prospectus supplement UBS-IND-1 dated September
7, 2018. This free writing prospectus, together with the documents listed below, contains the
terms of the Securities and supersedes all other prior or contemporaneous oral statements as well as any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for implementation,
sample structures, fact sheets, brochures or other educational materials of ours. You should carefully consider, among other things, the matters set forth in “Risk Factors” in the accompanying product prospectus supplement UBS-IND-1, as
the Securities involve risks not associated with conventional debt securities.
If the terms discussed in this free writing prospectus differ from those discussed in the product prospectus supplement, the
prospectus supplement or the prospectus, the terms discussed herein will control.
You may access these on the SEC website at www.sec.gov as follows (or if such address has changed, by reviewing our filing for the
relevant date on the SEC website):
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Product prospectus supplement UBS-IND-1 dated September 7, 2018:
https://www.sec.gov/Archives/edgar/data/1000275/000114036118038046/form424b5.htm |
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Prospectus supplement dated September 7, 2018:
https://www.sec.gov/Archives/edgar/data/1000275/000121465918005975/f97180424b3.htm |
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Prospectus dated September 7, 2018:
https://www.sec.gov/Archives/edgar/data/1000275/000121465918005973/l96181424b3.htm |
As used in this free writing prospectus, “we,” “us” or “our” refers to Royal Bank of Canada.
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Investor Suitability
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The Securities may be suitable for you if, among other considerations:
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You fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial investment.
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You can tolerate the loss of all or a substantial portion of the principal amount of the Securities and are willing to make an investment that may have the full downside market
risk as a hypothetical investment in the Underlying.
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You seek an investment with a return linked to the performance of the Underlying and believe the Final Level is likely to be at or above the Step Barrier on the Final Valuation
Date.
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You understand and accept that your potential positive return from the Contingent Absolute Return feature is limited by the Downside Threshold.
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You would be willing to invest in the Securities if the Step Return is set to the bottom of the range indicated on the cover page of this document (the actual Step Return will
be determined on the Trade Date).
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You can tolerate fluctuations in the price of the Securities prior to maturity that may be similar to or exceed the downside fluctuations in the level of the Underlying.
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You do not seek current income from your investment and are willing to forgo dividends paid on the securities represented by the Underlying.
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You are willing to hold the Securities to maturity and accept that there may be little or no secondary market for the Securities.
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You are willing to assume our credit risk for all payments under the Securities, and understand that if we default on our obligations, you may not receive any amounts due to
you, including any repayment of principal.
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You fully understand and accept the risks associated with the Underlying.
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The Securities may not be suitable for you if, among other considerations:
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You do not fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial investment.
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You require an investment designed to provide a full return of principal at maturity.
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You cannot tolerate the loss of all or a substantial portion of the principal amount of the Securities, and you are not willing to make an investment that may have the full
downside market risk as a hypothetical investment in the Underlying.
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You believe that the Final Level is unlikely to be at or above the Step Barrier on the Final Valuation Date.
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You believe the Underlying Index will depreciate from the Initial Level over the term of the Securities and is likely to close below the Downside Threshold on the Final
Valuation Date.
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You do not understand and accept that your potential positive return from the Contingent Absolute Return feature is limited by the Downside Threshold.
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You would be unwilling to invest in the Securities if the Step Return is set to the bottom of the range indicated on the cover page of this document (the actual Step Return will
be determined on the Trade Date).
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You cannot tolerate fluctuations in the price of the Securities prior to maturity that may be similar to or exceed the downside fluctuations in the level of the Underlying.
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You seek current income from this investment or prefer to receive the dividends paid on the securities represented by the Underlying.
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You are unable or unwilling to hold the Securities to maturity or you seek an investment for which there will be an active secondary market.
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You are not willing to assume our credit risk for all payments under the Securities, including any repayment of principal.
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You do not fully understand and accept the risks associated with the Underlying.
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The suitability considerations identified above are not exhaustive. Whether or
not the Securities are a suitable investment for you will depend on your individual circumstances, and you should reach an investment decision only after you and your investment, legal, tax, accounting, and other advisers have carefully
considered the suitability of an investment in the Securities in light of your particular circumstances. You should also review carefully the “Key Risks” in this free writing prospectus and “Risk Factors” in the accompanying product prospectus
supplement UBS-IND-1 for risks related to an investment in the Securities. In addition,
you should review carefully the section below, “Information About the Underlying,” for more information about the Underlying.
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Indicative Terms of the Securities1
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Issuer:
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Royal Bank of Canada
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Issue Price:
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$10 per Security (subject to a minimum purchase of 100 Securities).
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Principal Amount:
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$10 per Security.
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Term2:
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Approximately five years
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Underlying:
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EURO STOXX 50® Index
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Payment at Maturity
(per $10 Security):
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If the Underlying Return is zero or positive, we will pay you:
$10 + $10 × (the greater of: (a) the Step Return and (b) the Underlying
Return);
If the Underlying Return is negative, but the Final Level is
greater than or equal to the Downside Threshold, we will pay you:
$10 + ($10 x Contingent Absolute Return)
In this scenario, you will receive a 1% positive return on the Securities for each 1% negative return on the
Underlying.
If the Underlying Return is negative and the Final Level is less than the Downside Threshold, we will pay you a cash payment that is less than the principal amount, resulting in a loss of principal that is
proportionate to the negative Underlying Index Return, calculated as follows:
$10 + ($10 × Underlying Return)
In this scenario, you will lose some or all of the principal amount, in an amount proportionate to the negative
Underlying Return.
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Underlying Return:
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Final Level – Initial Level
Initial Level |
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Contingent Absolute
Return:
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The absolute value of the Underlying Return. For example, if the Underlying Return is -5%, the Contingent Absolute Return will be equal
to 5%.
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Downside Threshold:
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70% of the Initial Level
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Step Barrier:
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100% of the Initial Level
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Step Return:
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[53% - 57%] (to be determined on the Trade Date)
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Initial Level:
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The closing level of the Underlying on the Trade Date.
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Final Level:
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The closing level of the Underlying on the Final Valuation Date
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Investment Timeline
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Trade Date:
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The Initial Level, Downside Threshold, Step Barrier and Step Return are determined.
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Maturity Date:
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The Final Level and Underlying Return are determined.
If the Final Level is greater than or equal to the Step Barrier, we will pay you a cash payment per Security equal
to:
$10 + [$10 × (the greater of (i) the Step Return and
(ii) the Underlying Return)]
If the Final Level is less than the Initial Level, but greater than or equal to the Downside Threshold, we will pay
you a cash payment equal to:
$10 + ($10 × Contingent Absolute Return);
If the Final Level is less than the Downside Threshold, we will pay you a cash payment that is less than the principal amount of $10 per Security, calculated as follows:
$10 + ($10 x Underlying Return)
In this scenario, you will lose some or all of the principal amount, in an
amount proportionate to the negative Underlying Return.
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INVESTING IN THE SECURITIES INVOLVES SIGNIFICANT RISKS. YOU MAY LOSE SOME OR ALL OF YOUR PRINCIPAL AMOUNT. ANY PAYMENT ON THE SECURITIES, INCLUDING ANY REPAYMENT OF PRINCIPAL, IS SUBJECT TO OUR CREDITWORTHINESS. IF WE WERE TO DEFAULT ON OUR PAYMENT OBLIGATIONS, YOU MAY NOT RECEIVE
ANY AMOUNTS OWED TO YOU UNDER THE SECURITIES AND YOU COULD LOSE YOUR ENTIRE INVESTMENT.
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1 Terms used in this free writing prospectus, but not defined herein, shall have the meanings ascribed to them in
the product prospectus supplement.
2 In the event we make any change to the expected Trade Date and Settlement Date, the Final Valuation Date and Maturity Date will be changed to ensure
that the stated term of the Securities remains approximately the same.
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Key Risks
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An investment in the Securities involves significant risks. Investing in the Securities is not equivalent to investing directly in any of the
component securities of the Underlying. These risks are explained in more detail in the “Risk Factors” section of the accompanying product prospectus supplement UBS-IND-1. We also urge you to consult your investment, legal, tax, accounting and other advisors before investing in the Securities.
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Your Investment in the Securities May Result in a Loss of Principal: The Securities differ from ordinary debt securities in that we are not necessarily obligated to repay the full principal amount of the Securities at maturity. The return on the Securities at maturity is linked to
the performance of the Underlying and will depend on whether, and the extent to which, the Underlying Return is positive or negative. If the Final Level is less than the Downside Threshold, the Contingent Absolute Return feature
will no longer be available, you will be fully exposed to any negative Underlying Return and we will pay you less than your principal amount at maturity, resulting in a loss proportionate to the decrease in the value of the
Underlying from the Initial Level to the Final Level. Accordingly, you could lose the entire principal amount of the Securities.
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The Step Return and the Contingent Absolute Return Apply Only if You Hold the Securities to Maturity: You
should be willing to hold the Securities to maturity. If you are able to sell your Securities in the secondary market, the price you receive will likely not reflect the full economic value of the Step Return or the Securities
themselves, and the return you realize may be less than the Underlying’s return at the time of sale even if that return is positive.
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The Contingent Repayment of Principal Applies Only if You Hold the Securities to Maturity: The contingent
repayment of principal only applies at maturity. If you are able to sell your Securities prior to maturity in the secondary market, you may have to sell them at a loss even if the level of the Underlying is above the Downside
Threshold at the time of sale.
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The Potential for a Positive Return if the Underlying Depreciates is Limited: Any positive return on the
Securities if the Underlying depreciates will be limited by the Downside Threshold, because the Contingent Absolute Return feature will apply only if the Final Level is greater than or equal to the Downside Threshold. If the Final
Level is less than the Downside Threshold, you will not receive a Contingent Absolute Return and will instead lose some or all of your investment.
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No Interest Payments: We will not pay any interest with respect to the Securities.
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An Investment in the Securities Is Subject to Our Credit Risk: The Securities are unsubordinated,
unsecured debt obligations of the issuer, Royal Bank of Canada, and are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the
Securities, including any repayment of principal at maturity, depends on our ability to satisfy our obligations as they come due. As a result, our actual and perceived
creditworthiness may affect the market value of the Securities and, in the event we were to default on our obligations, you may not receive any amounts owed to you under the terms of the Securities and you could lose your entire
initial investment.
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The Securities Will Be Subject to Risks, Including Non-Payment in Full, Under Canadian Bank Resolution Powers:
Under Canadian bank resolution powers, the Canada Deposit Insurance Corporation (“CDIC”) may, in circumstances where we have ceased, or are about to cease, to be viable, assume temporary control or ownership over us and may be granted
broad powers by one or more orders of the Governor in Council (Canada), including the power to sell or dispose of all or a part of our assets, and the power to carry out or cause us to carry out a transaction or a series of
transactions the purpose of which is to restructure our business. See “Description of Debt Securities — Canadian Bank Resolution Powers” in the accompanying prospectus for a description of the Canadian bank resolution powers,
including the bail-in regime. If the CDIC were to take action under the Canadian bank resolution powers with respect to us, this could result in holders of the Securities being exposed to losses.
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Your Return on the Securities May Be Lower than the Return on a Conventional Debt Security of Comparable Maturity:
The return that you will receive on the Securities, which could be negative, may be less than the return you could earn on other investments. Even if your return is positive, your return may be less than the return you could earn if
you bought a conventional senior interest bearing debt security of ours with the same maturity date or if you were able to invest directly in the Underlying or the securities included in the Underlying. Your investment may not
reflect the full opportunity cost to you when you take into account factors that affect the time value of money.
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No Dividend Payments or Voting Rights: Investing in the Securities is not equivalent to investing
directly in any of the component securities of the Underlying. As a holder of the Securities, you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of the equity
securities represented by the Underlying would have. The Underlying is a price return index, and the Underlying Return excludes any cash dividend payments paid on its
component stocks.
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The Initial Estimated Value of the Securities Will Be Less than the Price to the Public: The initial
estimated value of the Securiites that will be set forth in the final pricing supplement for the Securities, will be less than the public offering price you pay for the Securities, does not represent a minimum price at which we, RBCCM
or any of our other affiliates would be willing to purchase the Securities in any secondary market (if any exists) at any time. If you attempt to sell the Securities prior to maturity, their market value may be lower than the price
you paid for them and the initial estimated value. This is due to, among other things, changes in the level of the Underlying, the borrowing rate we pay to issue securities of this kind, and the inclusion in the price to the public
of the underwriting discount, and our estimated profit and the costs relating to our hedging of the Securities. These factors, together with various credit, market and economic factors over the term of the Securities, are expected to
reduce the price at which you may be able to sell the Securities in any secondary market and will affect the value of the Securities in complex and unpredictable ways. Assuming no change in market conditions or any other relevant
factors, the price, if any, at which you may be able to sell your Securities prior to maturity may be less than the price to public, as any such sale price would not be expected to include the underwriting discount and our estimated
profit and the costs relating to our hedging of the Securities. In addition, any price at which you may sell the Securities is likely to reflect customary bid-ask spreads for similar trades. In addition to bid-ask spreads, the value
of the Securities determined for any secondary market price is expected to be based on the secondary market rate rather than the internal borrowing rate used to price the Securities and determine the initial estimated value. As a
result, the secondary price will be less than if the internal borrowing rate was used. The Securities are not designed to be short-term trading instruments. Accordingly, you should be able and willing to hold your Securities to
maturity.
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Our Initial Estimated Value of the Securities Is an Estimate Only, Calculated as of the Time the Terms of the Securities Are Set: The initial estimated value of the Securities is based on the value of our obligation to make the payments on the Securities, together with the mid-market value of the derivative embedded in the terms of
the Securities. See “Structuring the Securities” below. Our estimate is based on a variety of assumptions, including our credit spreads, expectations as to dividends, interest rates and volatility, and the expected term of the
Securities. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the Securities or similar securities at a price that is significantly different than we do.
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5
The value of the Securities at any time after the Trade Date will vary based on many factors, including changes in market
conditions, and cannot be predicted with accuracy. As a result, the actual value you would receive if you sold the Securities in any secondary market, if any, should be expected to differ materially from the initial estimated value of your
Securities and the amount that may be paid at maturity.
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Changes Affecting the Underlying: The
policies of the index sponsor concerning additions, deletions and substitutions of the stocks included in the Underlying and the manner in which the index sponsor takes account of certain changes affecting those stocks included in the
Underlying may adversely affect its level. The policies of the index sponsor with respect to the calculation of the Underlying could also adversely affect its level. The index sponsor may discontinue or suspend calculation or
dissemination of the Underlying and has no obligation to consider your interests in the Securities when taking any action regarding the Underlying. Any such actions could have
an adverse effect on the value of the Securities and the amount that may be paid at maturity.
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Lack of Liquidity: The Securities will not be listed
on any securities exchange. RBC Capital Markets, LLC (“RBCCM”) intends to offer to purchase the Securities in the secondary market, but is not required to do so. Even if there is a secondary market, it may not provide enough
liquidity to allow you to trade or sell the Securities easily. Because other dealers are not likely to make a secondary market for the Securities, the price at which you may be able to trade your Securities is likely to depend on
the price, if any, at which RBCCM is willing to buy the Securities.
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Potential Conflicts: We and our affiliates play a variety of roles in connection with the issuance of the
Securities, including hedging our obligations under the Securities. In performing these duties, the economic interests of the calculation agent and other affiliates of ours are potentially adverse to your interests as an investor in
the Securities.
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Potentially Inconsistent Research, Opinions or Recommendations by RBCCM, UBS or Their Affiliates: RBCCM,
UBS or their affiliates may publish research, express opinions or provide recommendations that are inconsistent with investing in or holding the Securities, and which may be revised at any time. Any such research, opinions or
recommendations could affect the level of the Underlying or the equity securities included in the Underlying, and therefore the market value of the Securities.
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Uncertain Tax Treatment: Significant aspects of the tax treatment of an investment in the Securities are
uncertain. You should consult your tax adviser about your tax situation.
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Potential Royal Bank of Canada and UBS Impact on Price: Trading or other transactions by Royal Bank of
Canada, UBS and our respective affiliates in the equity securities included in the Underlying or in futures, options, exchange-traded funds or other derivative products on the equity securities included in the Underlying may adversely
affect the market value of those equity securities the level of the Underlying and, therefore, the market value of the Securities.
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The Probability That the Underlying Will Fall Below the Downside Threshold on the Final Valuation Date Will Depend
on the Volatility of the Underlying: “Volatility” refers to the frequency and magnitude of changes in the level of the Underlying. Greater expected volatility with respect to the Underlying reflects a higher expectation as of
the Trade Date that the Underlying could close below its Downside Threshold on the Final Valuation Date, resulting in the loss of some or all of your investment. However, the Underlying’s volatility can change significantly over the
term of the Securities. The level of the Underlying could fall sharply, which could result in a significant loss of principal.
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An Investment in the Securities Is Subject to Risks Associated with Non-U.S. Securities Markets: The
securities included in the Underlying have been issued by non-U.S. companies. An investment in securities linked to the value of non-U.S. equity securities involves particular risks. Non-U.S. securities markets may be more volatile
than U.S. securities markets, and market developments may affect non-U.S. securities markets differently from the U.S. securities markets. Direct or indirect government intervention to stabilize these non-U.S. securities markets, as
well as cross shareholdings among non-U.S. companies, may affect trading prices and volumes in those markets. Also, there is generally less publicly available information in the U.S. about non-U.S. companies than about those U.S.
companies that are subject to the reporting requirements of the SEC, and non-U.S. companies are subject to accounting, disclosure, auditing and financial reporting standards and requirements that differ from those applicable to U.S.
reporting companies.
Prices of securities in non-U.S. countries are subject to political, economic, financial and social factors that may be unique to the particular countries. These factors, which could negatively affect the non-U.S. securities markets, include the possibility of recent or future changes in the economic and fiscal policies of non-U.S. governments, the possible imposition of, or changes in, currency exchange laws or other non-U.S. laws or restrictions applicable to non-U.S. companies or investments in non-U.S. equity securities, the possibility of fluctuations in the rate of exchange between currencies, the possibility of outbreaks of hostility and political instability and the possibility of natural disaster or adverse public health developments in the relevant region. Moreover, the economies of certain foreign countries may differ favorably or unfavorably from the U.S. economy in important respects, such as growth of gross national product, rate of inflation, trade surpluses or deficits, capital reinvestment, resources and self-sufficiency. |
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As a Holder of the Securities, You Will Not Have Direct Exposure to Fluctuations in the U.S. Dollar/Euro
Exchange Rate Related to the Underlying: The value of the Securities will not be adjusted for exchange rate fluctuations between the U.S. dollar and the euro, even though any
currency fluctuations could affect the performance of the Underlying. Therefore, if the euro appreciates or depreciates relative to the U.S. dollar over the term of the Securities, you will not receive any additional payment or
incur any reduction in any payment on the Securities.
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The Terms of the Securities at Issuance and Their Market Value Prior to Maturity Will Be Influenced by Many
Unpredictable Factors: Many economic and market factors will influence the terms of the Securities at issuance and their value prior to maturity. These factors are similar in
some ways to those that could affect the value of a combination of instruments that might be used to replicate the payments on the Securities, including a combination of a bond with one or more options or other derivative
instruments. For the market value of the Securities, we expect that, generally, the level of the Underlying on any day will affect the value of the Securities more than any other single factor. However, you should not expect the
value of the Securities in the secondary market to vary in proportion to changes in the level of the Underlying. The value of the Securities will be affected by a number of other factors that may either offset or magnify each other,
including:
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the actual or expected volatility of the Underlying;
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the time remaining to maturity of the Securities;
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the dividend rates on the equity securities included in the Underlying;
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interest and yield rates in the market generally, as well as in each of the markets of the equity securities included in the Underlying;
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a variety of economic, financial, political, regulatory or judicial events; and
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our creditworthiness, including actual or anticipated downgrades in our credit ratings.
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Some or all of these factors will influence the terms of the Securities at issuance,
and the price you will receive if you choose to sell the Securities prior to maturity. The impact of any of the factors set forth above may enhance or offset some or all of any change resulting from another factor or factors. You may have to sell
the Securities at a substantial discount from the principal amount if, for example, the level of the Underlying is at, below or not sufficiently above, the Initial Level.
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Hypothetical Examples and Return Table at Maturity
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Hypothetical terms only. Actual terms may vary. See the cover page for the actual offering terms.
The following table and hypothetical examples below illustrate the payment at maturity per $10 Security for a hypothetical range of Underlying
Returns from -100.00% to +100.00, reflect the Downside Threshold of 70% of the Initial Level, and assume a hypothetical Initial Level of 2,000 and a hypothetical Step Return of 53% (the low end of the Step Return range indicated on the cover
page). The actual Initial Level, Downside Threshold and Step Return will be set on the Trade Date. The hypothetical Payment at Maturity examples set forth below are for illustrative purposes only and may not be the actual returns applicable to a
purchaser of the Securities. The actual payment at maturity will be determined based on the Final Level on the Final Valuation Date. You should consider carefully whether the Securities are
suitable to your investment goals. The numbers appearing in the table below have been rounded for ease of analysis.
Example 1 – On the Final Valuation Date, the Underlying
closes 10% above the Initial Level. Because the Underlying Return is positive, we will pay you an amount based upon the lesser of the Underlying Return and
Step Return, calculated as follows:
Underlying Return = (2,100 – 2,000) / 2,000 = 10%
Payment at Maturity = $10 + [$10 x the greater of (i) 53% and (ii) 10%] = $15.30
Because the Final Level is greater than or equal to the Step Barrier but the Underlying Return is less than the Step Return, the Payment at Maturity is equal to $15.30
per $10.00 principal amount of Securities, resulting in a total return on the Securities of 53%.
Example 2 – On the Final Valuation Date, the Underlying closes 70% above the Initial
Level. Because the Underlying Return is positive, we will pay you an amount based upon the lesser of the Underlying Return and Step Return, calculated as
follows:
Underlying Return = (3,200 – 2,000) / 2,000 = 70%
Payment at Maturity = $10 + [$10 x the greater of (i) 53% and (ii) 70%] = $17.00
Because the Final Level is greater than or equal to the Step Barrier but the Underlying Return is greater than the Step Return, the Payment at Maturity is equal to
$17.00 per $10.00 principal amount of Securities, resulting in a total return on the Securities of 70%.
Example 3 – On the Final Valuation Date, the Underlying
closes 10% below the Initial Level. Because the Underlying Return is negative and the Final Level is greater than the Downside Threshold, the payment at
maturity will be calculated as follows:
$10 + ($10 x 10.00%) = $10.00 + $1.00 = $11.00
Example 4 – On the Final Valuation Date, the Underlying
closes 40% below the Initial Level. Because the Final Level is less than the Downside Threshold, we will pay you at maturity a cash payment of $6.00 per $10
principal amount Security (a 40% loss on the principal amount), calculated as follows:
$10 + ($10 x -40%) = $10.00 - $4.00 = $6.00
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Hypothetical Final Level
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Hypothetical Underlying
Return*
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Hypothetical Payment at
Maturity ($)
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Total Return on
Securities (%)1
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3,500.00
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75.00%
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$17.50
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75.00%
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3,400.00
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70.00%
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$17.00
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70.00%
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3,200.00
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60.00%
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$16.00
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60.00%
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3,100.00
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55.00%
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$15.50
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55.00%
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3,060.00
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53.00%
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$15.30
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53.00%
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3,000.00
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50.00%
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$15.30
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53.00%
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2,800.00
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40.00%
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$15.30
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53.00%
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2,600.00
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30.00%
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$15.30
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53.00%
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2,500.00
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25.00%
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$15.30
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53.00%
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2,200.00
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10.00%
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$15.30
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53.00%
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2,000.00
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0.00%
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$15.90
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53.00%
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1,800.00
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-10.00%
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$11.00
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10.00%
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1,700.00
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-15.00%
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$11.50
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15.00%
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1,600.00
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-20.00%
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$12.00
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20.00%
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1,400.00
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-30.00%
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$13.00
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30.00%
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1,200.00
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-40.00%
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$6.00
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-40.00%
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1,000.00
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-50.00%
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$5.00
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-50.00%
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500.00
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-75.00%
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$2.50
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-75.00%
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0.00
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-100.00%
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$0.00
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-100.00%
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* The Underlying Return excludes any cash dividend payments.
1 The “total return” is the number, expressed as a percentage, that results from comparing the
payment at maturity per $10 principal amount Security to the purchase price of $10 per Security.
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What Are the Tax Consequences of the Securities?
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U.S. Federal Income Tax Consequences
Set forth below, together with the discussion of U.S. federal income tax in the accompanying product prospectus supplement, prospectus supplement,
and prospectus, is a summary of the material U.S. federal income tax consequences relating to an investment in the Securities. The following summary supplements and to the extent inconsistent with supersedes the discussion under the section
entitled “Supplemental Discussion of U.S. Federal Income Tax Consequences” in the accompanying product prospectus supplement, the section entitled “Certain Income Tax Consequences” in the accompanying prospectus supplement, and the section
entitled “Tax Consequences” in the accompanying prospectus, which you should carefully review prior to investing in the Securities.
In the opinion of our counsel, Morrison & Foerster LLP, it would generally be reasonable to
treat a Security with terms described herein as a pre-paid cash-settled derivative contract in respect of the Underlying for U.S. federal income tax purposes, and the terms of the Securities require a holder and us (in the absence of a change in
law or an administrative or judicial ruling to the contrary) to treat the Securities for all tax purposes in accordance with such characterization. If the Securities are so treated, a U.S. holder should generally recognize capital gain or loss
upon the sale or maturity of the Securities in an amount equal to the difference between the amount a holder receives at such time and the holder’s tax basis in the Securities. Capital gain recognized by an individual U.S. holder is generally
taxed at preferential rates where the property is held for more than one year and is generally taxed at ordinary income rates where the property is held for one year or less. The deductibility of capital losses is subject to limitations.
Alternative tax treatments are also possible and the Internal Revenue Service (the “IRS”) might assert that a treatment other than that described
above is more appropriate. In addition, the IRS has released a notice that may affect the taxation of holders of the Securities. According to the notice, the IRS and the U.S. Treasury Department are actively considering whether the holder of an
instrument such as the Securities should be required to accrue ordinary income on a current basis. It is not possible to determine what guidance they will ultimately issue, if any. It is possible, however, that under such guidance, holders of the
Securities will ultimately be required to accrue income currently and this could be applied on a retroactive basis. The IRS and the U.S. Treasury Department are also considering other relevant issues, including whether additional gain or loss
from such instruments should be treated as ordinary or capital and whether the special “constructive ownership rules” of Section 1260 of the Internal Revenue Code might be applied to such instruments. Holders are urged to consult their tax
advisors concerning the significance, and the potential impact, of the above considerations.
Under Section 871(m) of the Code, a “dividend equivalent” payment is treated as a dividend from sources within the United States. Such payments
generally would be subject to a 30% U.S. withholding tax if paid to a non-U.S. holder. Under U.S. Treasury Department regulations, payments (including deemed payments) with respect to equity-linked instruments (“ELIs”) that are “specified ELIs”
may be treated as dividend equivalents if such specified ELIs reference an interest in an “underlying security,” which is generally any interest in an entity taxable as a corporation for U.S. federal income tax purposes if a payment with respect
to such interest could give rise to a U.S. source dividend. However, the IRS has issued guidance that states that the U.S. Treasury Department and the IRS intend to amend the effective dates of the U.S. Treasury Department regulations to provide
that withholding on dividend equivalent payments will not apply to specified ELIs that are not delta-one instruments and that are issued before January 1, 2021. Based on our determination that the Securities are not delta-one instruments,
non-U.S. holders should not be subject to withholding on dividend equivalent payments, if any, under the Securities. However, it is possible that the Securities could be treated as deemed reissued for U.S. federal income tax purposes upon the
occurrence of certain events affecting the Underlying or the Securities (for example, upon an Underlying rebalancing), and following such occurrence the Securities could be treated as subject to withholding on dividend equivalent payments.
Non-U.S. holders that enter, or have entered, into other transactions in respect of the Underlying or the Securities should consult their tax advisors as to the application of the dividend equivalent withholding tax in the context of the
Securities and their other transactions. If any payments are treated as dividend equivalents subject to withholding, we (or the applicable withholding agent) would be entitled to withhold taxes without being required to pay any additional amounts
with respect to amounts so withheld.
Individual holders that own “specified foreign financial assets” may be required to include certain information with respect to such assets with
their U.S. federal income tax return. You are urged to consult your own tax advisor regarding such requirements with respect to the Securities.
The accompanying product prospectus supplement notes that FATCA withholding on payments of gross proceeds from a sale or redemption of the
Securities 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 Securities.
Please see the discussion under the section entitled “Supplemental Discussion of U.S. Federal Income Tax Consequences” in the accompanying product
prospectus supplement for a further discussion of the U.S. federal income tax consequences of an investment in the Securities.
Canadian Federal Income Tax Consequences
For a discussion of the material Canadian federal income tax consequences relating to an investment in the Securities, please see the section
entitled “Tax Consequences—Canadian Taxation” in the accompanying prospectus, which you should carefully review prior to investing in the Securities.
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Information About the Underlying
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All disclosures contained in this document regarding the Underlying, including, without limitation, its make up, method of
calculation, and changes in its components, have been derived from publicly available sources. The information reflects the policies of, and is subject to change by, STOXX Limited, as the sponsor of the Underlying (“STOXX”). STOXX, which owns the
copyright and all other rights to the Underlying, has no obligation to continue to publish, and may discontinue publication of, the Underlying. Neither we nor RBCCM accepts any responsibility for the calculation, maintenance or publication of the
Underlying or any successor index.
The Underlying was created by STOXX Limited, a subsidiary of Deutsche Börse AG. Publication of the Underlying began in February
1998, based on an initial index level of 1,000 at December 31, 1991.
Composition and Maintenance
The Underlying is composed of 50 component stocks of market sector leaders from within the 19 EURO STOXX® Supersector
indices, which represent the Eurozone portion of the STOXX Europe 600® Supersector indices.
The composition of the Underlying is reviewed annually, based on the closing stock data on the last trading day in August. The
component stocks are announced on the first trading day in September. Changes to the component stocks are implemented on the third Friday in September and are effective the following trading day. Changes in the composition of the Underlying are
made to ensure that the Underlying includes the 50 market sector leaders from within the Underlying.
The free float factors for each component stock used to calculate the Underlying, as described below, are reviewed, calculated,
and implemented on a quarterly basis and are fixed until the next quarterly review.
The Underlying is also reviewed on an ongoing monthly basis. Corporate actions (including initial public offerings, mergers and
takeovers, spin-offs, delistings, and bankruptcy) that affect the Underlying composition are announced immediately, implemented two trading days later and become effective on the next trading day after implementation.
Calculation of the Underlying
The Underlying is calculated with the “Laspeyres
formula,” which measures the aggregate price changes in the component stocks against a fixed base quantity weight. The formula for calculating the Underlying value can be expressed as follows:
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Underlying =
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Free float market capitalization of the Underlying
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Divisor
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The “free float market capitalization of the Underlying” is equal to the sum of the products of the price, the number of shares,
the free float factor and the weighting cap factor for each component stock as of the time the Underlying is being calculated.
The Underlying is also subject to a divisor, which is adjusted to maintain the continuity of the Underlying values across changes
due to corporate actions, such as the deletion and addition of stocks, the substitution of stocks, stock dividends, and stock splits.
9
License Agreement
We have entered into a non-exclusive license agreement with STOXX providing for the license to us and certain of our affiliated or
subsidiary companies, in exchange for a fee, of the right to use indices owned and published by STOXX (including the Underlying) in connection with certain securities, including the Securities offered hereby.
The license agreement between us and STOXX requires that the following language be stated in this document:
STOXX has no relationship to us, other than the licensing of the Underlying and the related trademarks for use in connection with
the Securities. STOXX does not:
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sponsor, endorse, sell, or promote the Securities;
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recommend that any person invest in the Securities offered hereby or any other securities;
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have any responsibility or liability for or make any decisions about the timing, amount, or pricing of the Securities;
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have any responsibility or liability for the administration, management, or marketing of the Securities; or
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consider the needs of the Securities or the holders of the Securities in determining, composing, or calculating the Underlying, or have any obligation to do so.
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STOXX will not have any liability in connection with the Securities. Specifically:
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STOXX does not make any warranty, express or implied, and disclaims any and all warranty concerning:
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| · |
the results to be obtained by the Securities, the holders of the Securities or any other person in connection with the use of the Underlying and the data included in the
Underlying;
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the accuracy or completeness of the Underlying and its data;
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| · |
the merchantability and the fitness for a particular purpose or use of the Underlying and its data;
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STOXX will have no liability for any errors, omissions, or interruptions in the Underlying or its data; and
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Under no circumstances will STOXX be liable for any lost profits or indirect, punitive, special, or consequential damages or losses, even if STOXX knows that they might occur.
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The licensing agreement between us and STOXX is solely for their benefit and our benefit, and not for the benefit of the holders of the Securities
or any other third parties.
10
Historical Information
The following graph sets forth closing levels of the Underlying, as
reported by Bloomberg Financial Markets, for the period from January 1, 2008 to February 28, 2019. The historical performance of the Underlying should not be taken as an
indication of its future performance. We cannot give you assurance that the performance of the Underlying will result in the return of any of your initial investment.
HISTORIC PERFORMANCE IS NOT AN INDICATION OF FUTURE PERFORMANCE.
Source: Bloomberg L.P. We have not independently verified the accuracy or
completeness of the information obtained from Bloomberg Financial Markets.
11
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Supplemental Plan of Distribution (Conflicts of Interest)
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We have agreed to indemnify UBS and RBCCM against liabilities under the Securities Act of 1933, as amended, or to contribute
payments that UBS and RBCCM may be required to make relating to these liabilities as described in the prospectus supplement and the prospectus. We will agree that UBS may sell all or a part of the Securities that it will purchase from us to
investors at the price to public listed on the cover hereof, or its affiliates at the price indicated on the cover of the pricing supplement, the document that will be filed under Rule 424(b)(2) containing the final pricing terms of the
Securities.
UBS may allow a concession not in excess of the underwriting discount set forth on the cover of the pricing supplement to its
affiliates for distribution of the Securities.
Subject to regulatory constraints and market conditions, RBCCM intends to offer to purchase the Securities in the secondary market, but it is not
required to do so.
We or our affiliates may enter into swap agreements or related hedge transactions with one of our other affiliates or unaffiliated counterparties
in connection with the sale of the Securities and RBCCM and/or an affiliate may earn additional income as a result of payments pursuant to the swap or related hedge transactions. See “Use of Proceeds and Hedging” in the accompanying product
prospectus supplement UBS-IND-1.
The value of the Securities shown on your account statement may be based on RBCCM’s estimate of the value of the Securities if RBCCM or another of
our affiliates were to make a market in the Securities (which it is not obligated to do). That estimate will be based upon the price that RBCCM may pay for the Securities in light of then prevailing market conditions, our creditworthiness and
transaction costs. If so specified in the pricing supplement related to the Securities, for a period of approximately 15 months after the issue date, the value of the Securities that may be shown on your account statement may be higher than
RBCCM’s estimated value of the Securities at that time. This is because the estimated value of the Securities will not include the underwriting discount and our hedging costs and profits; however, the value of the Securities shown on your
account statement during that period may be a higher amount, potentially reflecting the addition of the underwriting discount and our estimated costs and profits from hedging the Securities. Any such excess is expected to decrease over time
until the end of this period. After this period, if RBCCM repurchases your Securities, it expects to do so at prices that reflect their estimated value. This period may be reduced at RBCCM’s discretion based on a variety of factors, including but
not limited to, the amount of the Securities that we repurchase and our negotiated arrangements from time to time with UBS.
For additional information as to the relationship between us and RBCCM, please see the section “Plan of Distribution—Conflicts of Interest” in the
prospectus dated September 7, 2018.
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Structuring the Securities
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The Securities are our debt securities, the return on which is linked to the performance of the Underlying. As is the case for all of our debt securities, including our structured notes, the economic terms of the Securities reflect our actual or perceived creditworthiness at the time of pricing. In addition,
because structured notes result in increased operational, funding and liability management costs to us, we typically borrow the funds under these Securities at a rate that is more favorable to us than the rate that we might pay for a conventional
fixed or floating rate debt security of comparable maturity. Using this relatively lower implied borrowing rate rather than the secondary market rate is a factor that
is likely to result in a higher initial estimated value of the Securities at the time their terms are set than if the secondary market rate was used. Unlike the
estimated value that will be included on the cover of the final pricing supplement relating to the Securities, any value of the Securities determined for purposes of a secondary market transaction may be based on a different borrowing rate, which
may result in a lower value for the Securities than if our initial internal borrowing rate were used.
In order to satisfy our payment obligations under the Securities, we may choose to enter into certain hedging arrangements (which
may include call options, put options or other derivatives) on the issue date with RBCCM or one of our other subsidiaries. The terms of these hedging arrangements take into account a number of factors, including our creditworthiness, interest
rate movements, the volatility of the Underlying, and the tenor of the Securities. The economic terms of the Securities and their initial estimated value depend in part on the terms of
these hedging arrangements.
The lower implied borrowing rate is a factor that reduces the economic terms of the Securities to you. The initial offering price of the
Securities also reflects the underwriting commission and our estimated hedging costs. These factors result in the initial estimated value for the Securities on the Trade Date being less than their public offering price. See “Key Risks—The
Initial Estimated Value of the Securities Will Be Less than the Price to the Public” above.
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Terms Incorporated in Master Note
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The terms appearing above under the caption “Indicative Terms of the Securities” and the provisions in the accompanying product prospectus
supplement UBS-IND-1 dated September 7, 2018 under the caption “General Terms of the Securities,” are incorporated into the master note issued to DTC, the registered holder of the Securities.
12