Pricing Supplement
(To the Prospectus dated September 14, 2021, the Prospectus Supplement dated
September 14, 2021, and the Product Prospectus Supplement dated March 3, 2022)
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Filed Pursuant to Rule 424(b)(2)
Registration No. 333-259205
June 21, 2022
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Royal Bank of Canada
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$1,000,000
Capped Barrier Return Notes Due July 6, 2023
Linked to Health Care Select Sector SPDR® Fund
Senior Global Medium-Term Notes, Series I
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The Notes are designed for investors who seek a one-for-one return based on the appreciation of the Health Care Select Sector SPDR® Fund. (the “Reference Asset”), subject to
the Maximum Return set forth below. Investors should be willing to forgo interest and dividend payments and, if the price of the Reference Asset declines by more than 20%, be willing to lose some or all of their principal.
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Senior unsecured obligations of Royal Bank of Canada maturing on July 6, 2023.(a) Any payments on the Notes are subject to our credit risk.
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Minimum denominations of $10,000 and integral multiples of $1,000 in excess thereof.
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The Notes priced on June 21, 2022 (the “Pricing Date”), and will be issued on June 24, 2022 (the “issue date”).
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Key Terms
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Terms used in this pricing supplement, but not defined herein, will have the meanings ascribed to them in the product prospectus supplement.
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Issuer:
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Royal Bank of Canada
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Reference Asset:
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Health Care Select Sector SPDR® Fund (Bloomberg ticker symbol “XLV”)
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Payment at Maturity:
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If the Final Price is greater than the Initial Price, you will receive a cash payment that provides you with a return equal to the Percentage Change, subject to the
Maximum Return. Accordingly, if the Percentage Change is positive, your payment per $1,000 in principal amount of the Notes will be calculated as follows:
$1,000 + ($1,000 x Percentage Change), subject to the Maximum Return of $1,190.10
If the Final Price is equal to or less than the Initial Price but greater than or equal to the Barrier Price, resulting in a Percentage Change that is equal to or less
than 0% but greater than or equal -20.00%, you will receive the principal amount of your Notes at maturity.
If the Final Price is less than the Barrier Price, you will lose 1% of the principal amount of your Notes for every 1% that the Final Price declines from the Initial
Price. Accordingly, if the Percentage Change is less than -20.00%, your payment per $1,000 in principal amount of the Notes will be calculated as follows:
$1,000 + ($1,000 x Percentage Change)
If the Final Price is less than the Initial Price by more than 20.00%, you will lose 1% of the principal amount of your Notes for every 1% that the
Percentage Change is less than 0%, and you can lose up to 100% of the principal amount.
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Percentage Change:
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The performance of the Reference Asset from the Initial Price to the Final Price, calculated as follows:
Final Price – Initial Price
Initial Price
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Maximum Return:
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19.01%, which is $1,190.10 per $1,000 in principal amount of the Notes.
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Barrier Price:
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$95.91, which is 80% of the Initial Price (rounded to two decimal places).
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Initial Price:
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$119.89, which was the closing price of the Reference Asset on June 17, 2022.
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Final Price:
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The average of the closing price of the Reference Asset on each of the Valuation Dates.
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Valuation Dates:
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June 26, 2023, June 27, 2023, June 28, 2023, June 29, 2023 and June 30, 2023(a)
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Maturity Date:
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July 6, 2023(a)
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Calculation Agent:
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RBC Capital Markets, LLC (“RBCCM”)
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CUSIP/ISIN:
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78016FMD3/US78016FMD32
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Estimated Value:
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The initial estimated value of the Notes as of the Pricing Date was $1,003.56 per $1,000 in principal amount, However, the actual value of the Notes at any time will reflect many factors, cannot
be predicted with accuracy, and may be less than this amount.
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Price to Public1
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Underwriting Commission2
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Proceeds to Royal Bank of Canada
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Per Note
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$1,000.00
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$10.00
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$990.00
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Total
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$1,000,000.00
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$10,000.00
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$990,000.00
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Final Price
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Percentage Change
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Payment at Maturity
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Total Return on the Notes
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$160.00
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60.00%
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$1,190.10
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19.01%
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$145.00
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45.00%
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$1,190.10
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19.01%
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$130.00
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30.00%
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$1,190.10
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19.01%
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$120.00
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20.00%
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$1,190.10
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19.01%
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$119.01
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19.01%
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$1,190.10
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19.01%
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$115.00
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15.00%
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$1,150.00
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15.00%
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$110.00
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10.00%
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$1,100.00
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10.00%
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$105.00
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5.00%
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$1,050.00
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5.00%
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$100.00
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0.00%
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$1,000.00
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0.00%
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$95.00
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-5.00%
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$1,000.00
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0.00%
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$90.00
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-10.00%
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$1,000.00
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0.00%
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$85.00
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-15.00%
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$1,000.00
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0.00%
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$80.00
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-20.00%
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$1,000.00
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0.00%
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$70.00
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-30.00%
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$700.00
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-30.00%
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$60.00
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-40.00%
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$600.00
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-40.00%
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$50.00
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-50.00%
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$500.00
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-50.00%
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$40.00
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-60.00%
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$400.00
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-60.00%
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$30.00
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-70.00%
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$300.00
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-70.00%
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$20.00
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-80.00%
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$200.00
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-80.00%
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$10.00
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-90.00%
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$100.00
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-90.00%
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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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Appreciation Potential — The Notes provide the opportunity to receive a positive return that is equal to any positive Percentage Change, subject to the Maximum Return.
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Limited Protection Against Loss — Payment at maturity of the principal amount of the Notes is protected against a decline in the Final Price, as compared to the Initial
Price, of up to 20%. If the Final Price is less than the Initial Price by more than 20%, the amount of cash that you will receive at maturity will represent a loss of your principal that is proportionate to the decline in the price of the
Reference Asset from the Initial Price to the Final Price.
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You May Lose All or a Portion of the Principal Amount at Maturity —Investors in the Notes could lose all or a substantial portion of their principal amount if the price of
the Reference Asset decreases by more than 20%. If the Percentage Change is less than -20%, the amount of cash that you will receive at maturity will represent a loss of your principal that is proportionate to the decline in the price of
the Reference Asset from the Initial Price to the Final Price.
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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. Even if your return is positive, your return may be less than the return you would earn if you purchased one of our conventional senior interest bearing debt securities.
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Your Potential Payment at Maturity Is Limited — The Notes will provide less opportunity to participate in increases in the price of the Reference Asset than an investment
in a security linked to the Reference Asset providing full participation in the appreciation, because the payment at maturity will not exceed the amount represented by the Maximum Return. Accordingly, your return on the Notes may be less
than your return would be if you made an investment in a security directly linked to increases in the Reference Asset.
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Owning the Notes Is Not the Same as Owning Shares of the Reference Asset — The return on the Notes may not reflect the return you would realize if you actually owned
shares of the Reference Asset. For instance, as a holder of the Notes, you will not have voting rights, rights to receive cash dividends or other distributions, or any other rights that holders of shares of the Reference Asset would have.
Further, you will not participate in any appreciation of the price of Reference Asset above 19.01%.
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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 our obligations at that time. This will be the case even if the price of the Reference Asset increases after
the date that the Initial Price was determined. No assurance can be given as to what our financial condition will be at the maturity of the Notes.
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Market Disruption Events and Adjustments May Adversely Affect Your Return on the Notes — The payment at maturity, the Valuation Dates and the Reference Asset 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 on a Valuation Date, see “General Terms of the
Notes—Market Disruption Events” in the product prospectus supplement.
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The Tax Treatment of the Notes Is Uncertain — Significant aspects of the tax treatment of an investment in the Notes are uncertain. You should consult your tax adviser
about your tax situation.
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The Initial Estimated Value of the Notes That Is Set Forth on the Cover Page of this Pricing Supplement Is an Estimate Only, Calculated as of the Pricing Date — The value
of the Notes at any time after the Pricing Date will vary based on many factors, including changes in market conditions, and cannot be predicted with accuracy. As a result, the actual value you would receive if you sold the Notes in any
secondary market, if any, should be expected to differ materially from the initial estimated value of the Notes, and may be significantly lower than that initial estimated value. The Notes are not designed to be short-term trading
instruments. Accordingly, you should be able and willing to hold your Notes to maturity.
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There May Not Be an Active Trading Market for the Notes—Sales in the Secondary Market May Result in Significant Losses — There may be little or no secondary market for the
Notes. The Notes will not be listed on any securities exchange. RBCCM and our other affiliates may make a market for the Notes; however, they are not required to do so. RBCCM or any other affiliate of ours may stop any market-making
activities at any time. Even if a secondary market for the Notes develops, it may not provide significant liquidity or trade at prices advantageous to you. We expect that transaction costs in any secondary market would be high. As a
result, the difference between bid and asked prices for the Notes in any secondary market could be substantial.
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Many Economic and Market Factors Will Impact the Value of the Notes — In addition to the price of the Reference Asset on any day, the value of the Notes will be affected by
a number of economic and market factors that may either offset or magnify each other, including:
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the expected volatility of the Reference Asset;
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the time to maturity of the Notes;
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the dividend rates on the Reference Asset and the securities that it holds;
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interest and yield rates in the market generally;
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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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An Investment in the Notes Is Subject to Risks Associated with the Health Care Sector — The Reference Asset invests in the health care sector, which means that the
Reference Asset will be more affected by the performance of the health care sector than an ETF that is more diversified. Companies in the health care sector are subject to extensive government regulation, and their profitability can be
significantly affected by restrictions on government reimbursement for medical expenses, rising costs of medical products and services, pricing pressure (including price discounting), limited product lines and an increased emphasis on the
delivery of healthcare through outpatient services. Companies in the health care sector are heavily dependent on obtaining and defending patents, which may be time consuming and costly, and the expiration of patents may also adversely
affect the profitability of these companies. Health care companies are also subject to extensive litigation based on product liability and similar claims. In addition, their products can become obsolete due to industry innovation, changes
in technologies or other market developments. Many new products in the health care sector require significant research and development
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The Reference Asset and Its Underlying Index Are Different — The performance of the Reference Asset may not exactly replicate the performance of its underlying index,
because the Reference Asset will reflect transaction costs and fees that are not included in the calculation of its underlying index. It is also possible that the performance of the Reference Asset may not fully replicate or may in certain
circumstances diverge significantly from the performance of its underlying index due to the temporary unavailability of certain securities in the secondary market, the performance of any derivative instruments contained in the Reference
Asset or due to other circumstances. The Reference Asset may use futures contracts, options, swap agreements, currency forwards and repurchase agreements in seeking performance that corresponds to its underlying index and in managing cash
flows.
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Adjustments to the Reference Asset Could Adversely Affect the Notes — The advisor of the Reference Asset, is responsible for calculating and maintaining the Reference
Asset. The advisor can add, delete or substitute the stocks comprising the Reference Asset. The advisor may make other methodological changes that could change the share price of the Reference Asset at any time. Any of these actions could
adversely affect the amount payable at maturity and/or the market value of the Notes.
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We Have No Affiliation with the Index Sponsor and Will Not Be Responsible for Any Actions Taken by the Index Sponsor — The sponsor of the underlying index for the
Reference Asset is not our affiliate and will not be involved in the offering of the Notes in any way. Consequently, we have no control over the actions of the index sponsor, including any actions of the type that would require the
calculation agent to adjust the payment to you at maturity. The index sponsor has no obligation of any sort with respect to the Notes. Thus, the index sponsor has no obligation to take your interests into consideration for any reason,
including in taking any actions that might affect the value of the Notes. None of our proceeds from the issuance of the Notes will be delivered to the index sponsor.
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We and Our Affiliates Do Not Have Any Affiliation with the Advisor and Are Not Responsible for its Public Disclosure of Information — We and our affiliates are not
affiliated with the Reference Asset's advisor in any way and have no ability to control or predict its actions, including any errors in or discontinuance of disclosure regarding its methods or policies relating to the Reference Asset. The
advisor is not involved in the offering of the Notes in any way and has no obligation to consider your interests as an owner of the Notes in taking any actions relating to the Reference Asset that might affect the value of the Notes.
Neither we nor any of our affiliates has independently verified the adequacy or accuracy of the information about the advisor or the Reference Asset contained in any public disclosure of information. You, as an investor in the Notes,
should make your own investigation into the Reference Asset.
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The Reference Asset Is Subject to Management Risks — The Reference Asset is subject to management risk, which is the risk that the advisor’s investment strategy, the
implementation of which is subject to a number of constraints, may not produce the intended results. For example, the advisor may invest a portion of the Reference Asset's assets in securities not included in the relevant industry or sector
but which the Advisor believes will help the Reference Asset track the relevant industry or sector.
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The Payments on the Notes Are Subject to Anti-dilution Adjustments — For certain corporate or organizational events affecting the Reference Asset, the calculation agent may
make adjustments to the terms of the Notes. However, the calculation agent will not make such adjustments in response to all events
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The Business Activities of Royal Bank and Our Affiliates May Create Conflicts of Interest — We and our affiliates expect to engage in trading activities related to the
Reference Asset or the securities that it holds 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 price of the Reference Asset, 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 Reference Asset or the issuers of
the securities that it holds, including making loans to or providing advisory services. These services could include investment banking and merger and acquisition advisory services. These activities may present a conflict between our or one
or more of our affiliates’ obligations, and your interests as a holder of the Notes. Moreover, we and our affiliates may have published, and in the future expect to publish, research reports with respect to the Reference Asset and/or the
issuers of the securities that it holds. This research is modified from time to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing or holding the Notes. Any of these activities may
affect the price of the Reference Asset and, therefore, the market value of the Notes.
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Each of the component stocks in a Select Sector Index (the “Component Stocks”) is a constituent company of the S&P 500® Index.
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The eleven Select Sector Indices together will include all of the companies represented in the S&P 500® Index and each of the stocks in the S&P 500® Index will be allocated to at least one of the Select Sector Indices.
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Each constituent stock of the S&P 500® Index is assigned to a Select Sector Index based on its GICS sector. Each Select Sector Index is made up of all the stocks in the
applicable GICS sector.
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Each Select Sector Index is calculated by the Index sponsor, Standard & Poor’s, using a capped market capitalization methodology where single index constituents or defined groups of index constituents are
confined to a maximum weight and the excess weight is distributed proportionally among the remaining index constituents. Each Select Sector Index is rebalanced from time to time to re-establish the proper weighting.
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For reweighting purposes, each Select Sector Index is rebalanced quarterly after the close of business on the third Friday of March, June September and December using the following procedures: (1) The rebalancing
reference date is the second Friday of March, June, September and December; (2) With prices reflected on the rebalancing reference date, and membership, shares outstanding and investable weight factors as of the rebalancing effective date,
each company is weighted by float-adjusted market capitalization methodology. Modifications are made as defined below.
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(i) |
If any Component Stock has a weight greater than 24%, that Component Stock has its float-adjusted market capitalization weight capped at 23%. The 23% weight cap creates a 2% buffer to ensure that no Component
Stock exceeds 25% as of the quarter-end diversification requirement date.
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(ii) |
All excess weight is equally redistributed to all uncapped Component Stocks within the relevant Select Sector Index.
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After this redistribution, if the float-adjusted market capitalization weight of any other Component Stock(s) then breaches 23%, the process is repeated iteratively until no Component Stocks breaches the 23%
weight cap.
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(iv) |
The sum of the Component Stocks with weights greater than 4.8% cannot exceed 50% of the total index weight. These caps are set to allow for a buffer below the 5% limit.
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If the rule in step (iv) is breached, all the Component Stocks are ranked in descending order of their float-adjusted market capitalization weights and the first Component Stock that causes the 50% limit to be
breached has its weight reduced to 4.5%.
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(vi) |
This excess weight is equally redistributed to all Component Stocks with weights below 4.5%. This process is repeated iteratively until step (iv) is satisfied.
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(vii) |
Index share amounts are assigned to each Component Stock to arrive at the weights calculated above. Since index shares are assigned based on prices one week prior to rebalancing, the actual weight of each
Component Stock at the rebalancing differs somewhat from these weights due to market movements.
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(viii) |
If, on the second to last business day of March, June, September, or December, a company has a weight greater than 24% or the sum of the companies with weights greater than 4.8% exceeds 50%, a secondary
rebalancing will be triggered with the rebalancing effective date being after the close of the last business day of the month. This second rebalancing will use the closing prices as of the second to last business day of March, June,
September or December, and membership, shares outstanding, and IWFs as of the rebalancing effective date.
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