RBC Capital Markets® |
Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-208507
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Pricing Supplement
Dated March 28, 2017
To the Product Prospectus Supplement ERN-ETF-1 Dated January 11, 2016, Prospectus Supplement Dated January 8, 2016, and Prospectus Dated January 8, 2016
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$2,917,000
Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real Estate
ETF, Due March 29, 2019
Royal Bank of Canada
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Per Note
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Total
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Price to public
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100.00%
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$2,917,000
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Underwriting discounts and commissions
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0.00%
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$0
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Proceeds to Royal Bank of Canada
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100.00%
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$2,917,000
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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Issuer:
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Royal Bank of Canada (“Royal Bank”)
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Issue:
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Senior Global Medium-Term Notes, Series G
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Underwriter:
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RBC Capital Markets, LLC (“RBCCM”)
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Reference Asset:
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iShares® U.S. Real Estate ETF
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Bloomberg Ticker:
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IYR
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Currency:
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U.S. Dollars
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Minimum Investment:
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$1,000 and minimum denominations of $1,000 in excess thereof
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Pricing Date:
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March 28, 2017
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Issue Date:
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March 31, 2017
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CUSIP:
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78012KE52
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Valuation Date:
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March 27, 2019
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Payment at Maturity
(if held to maturity):
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If, on the Valuation Date, the Percentage Change is positive, then the investor will receive an amount per $1,000 principal amount per Note equal to the lesser of:
1. Principal Amount + (Principal Amount x Percentage Change x Leverage Factor) and
2. Maximum Redemption Amount
If, on the Valuation Date, the Percentage Change is less than or equal to 0%, but not by more than the Buffer Percentage (that is, the Percentage Change is between zero and –28.00%), then the investor will receive the principal amount only.
If, on the Valuation Date, the Percentage Change is negative, by more than the Buffer Percentage (that is, the Percentage Change is between –28.01% and -100%), then the investor will receive a cash payment equal to:
Principal Amount + [Principal Amount x (Percentage Change + Buffer Percentage)]
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Percentage Change:
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The Percentage Change, expressed as a percentage, is calculated using the following formula:
Final Level- Initial Level
Initial Level
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Initial Level:
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$77.55, which was the closing share price of the Reference Asset on the Pricing Date.
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Final Level:
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The closing share price of the Reference Asset on the Valuation Date.
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Leverage Factor:
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150.00% (subject to the Maximum Redemption Amount)
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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Maximum
Redemption
Amount:
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115.00% multiplied by the principal amount
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Buffer Percentage:
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28.00%
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Buffer Level:
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$55.84 (72.00% of the Initial Level rounded to two decimal places)
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Maturity Date:
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March 29, 2019, subject to extension for market and other disruptions, as described in the product prospectus supplement dated January 11, 2016.
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Term:
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Two (2) years
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Principal at Risk:
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The Notes are NOT principal protected. You may lose a substantial portion of your principal amount at maturity if there is a percentage decrease from the Initial Level to the Final Level of more than 28.00%.
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Calculation Agent:
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RBCCM
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U.S. Tax Treatment:
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By purchasing a Note, each holder agrees (in the absence of a change in law, an administrative determination or a judicial ruling to the contrary) to treat the Note as a pre-paid cash-settled derivative contract for U.S. federal income tax purposes. However, the U.S. federal income tax consequences of your investment in the Notes are uncertain and the Internal Revenue Service could assert that the Notes should be taxed in a manner that is different from that described in the preceding sentence. Please see the section below, “Supplemental Discussion of U.S. Federal Income Tax Consequences,” and the discussion (including the opinion of our counsel Morrison & Foerster LLP) in the product prospectus supplement dated January 11, 2016 under “Supplemental Discussion of U.S. Federal Income Tax Consequences,” which apply to the Notes.
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Secondary Market:
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RBCCM (or one of its affiliates), though not obligated to do so, plans to maintain a secondary market in the Notes after the Issue Date. The amount that you may receive upon sale of your Notes prior to maturity may be less than the principal amount of your Notes.
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Listing:
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The Notes will not be listed on any securities exchange.
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Clearance and
Settlement:
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DTC global (including through its indirect participants Euroclear and Clearstream, Luxembourg as described under “Description of Debt Securities—Ownership and Book-Entry Issuance” in the prospectus dated January 8, 2016).
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Terms Incorporated
in the Master Note:
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All of the terms appearing above the item captioned “Secondary Market” on pages P-2 and P-3 of this pricing supplement and the terms appearing under the caption “General Terms of the Notes” in the product prospectus supplement dated January 11, 2016, as modified by this pricing supplement.
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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Example 1—
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Calculation of the Payment at Maturity where the Percentage Change is positive.
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Percentage Change:
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5%
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Payment at Maturity:
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$1,000 + ($1,000 x 5% x 150.00%) = $1,000 + $75.00 = $1,075.00
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On a $1,000 investment, a 5% Percentage Change results in a Payment at Maturity of $1,075.00, a 7.50% return on the Notes.
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Example 2—
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Calculation of the Payment at Maturity where the Percentage Change is positive (and the Payment at Maturity is subject to the Maximum Redemption Amount).
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Percentage Change:
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20%
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Payment at Maturity:
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$1,000 + ($1,000 x 20% x 150.00%) = $1,000 + $300.00 = $1,300.00
However, the Maximum Redemption Amount is $1,150.00
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On a $1,000 investment, a 20% Percentage Change results in a Payment at Maturity of $1,150.00,
a 15.00% return on the Notes.
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Example 3—
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Calculation of the Payment at Maturity where the Percentage Change is negative (but not by more than the Buffer Percentage).
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Percentage Change:
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-8%
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Payment at Maturity:
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At maturity, if the Percentage Change is negative BUT not by more than the Buffer Percentage, then the Payment at Maturity will equal the principal amount.
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On a $1,000 investment, a -8% Percentage Change results in a Payment at Maturity of $1,000,
a 0% return on the Notes.
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Example 4—
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Calculation of the Payment at Maturity where the Percentage Change is negative (by more than the Buffer Percentage).
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Percentage Change:
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-35%
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Payment at Maturity:
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$1,000 + [$1,000 x (-35% + 28.00%)] = $1,000 - $70.00 = $930.00
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On a $1,000 investment, a -35% Percentage Change results in a Payment at Maturity of $930.00,
a -7.00% return on the Notes.
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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Principal at Risk – Investors in the Notes could lose a substantial portion of their principal amount if there is a decline in the share price of the Reference Asset. You will lose 1% of the principal amount of your Notes for each 1% that the Final Level is less than the Initial Level by more than 28.00%.
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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 bought a conventional senior interest bearing debt security of Royal Bank.
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Your Potential Payment at Maturity Is Limited – The Notes will provide less opportunity to participate in the appreciation 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 Maximum Redemption Amount. Accordingly, your return on the Notes may be less than your return would be if you made an investment in the Reference Asset or a security directly linked to the positive performance of the Reference Asset.
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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 Royal Bank’s senior unsecured debt securities. As a result, your receipt of the amount due on the maturity date is dependent upon Royal Bank’s ability to repay its obligations at that time. This will be the case even if the share price of the Reference Asset increases after the Pricing Date. No assurance can be given as to what our financial condition will be at the maturity of the Notes.
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There May Not Be an Active Trading Market for the Notes—Sales in the Secondary Market May Result in Significant Losses – There may be little or no secondary market for the Notes. The Notes will not be listed on any securities exchange. RBCCM and other affiliates of Royal Bank may make a market for the Notes; however, they are not required to do so. RBCCM or any other affiliate of Royal Bank may stop any market-making activities at any time. Even if a secondary market for the Notes develops, it may not provide significant liquidity or trade at prices advantageous to you. We expect that transaction costs in any secondary market would be high. As a result, the difference between bid and asked prices for your Notes in any secondary market could be substantial.
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You Will Not Have Any Rights to the Securities Included in the Reference Asset – As a holder of the Notes, you will not have voting rights or rights to receive cash dividends or other distributions or other rights that holders of securities included in the Reference Asset would have. The Final Level will not reflect any dividends paid on the securities included in the Reference Asset, and accordingly, any positive return on the Notes may be less than the potential positive return on the securities included in the Reference Asset.
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The Initial Estimated Value of the Notes Is Less than the Price to the Public – The initial estimated value set forth on the cover page of this pricing supplement does not represent a minimum price at which we, RBCCM or any of our affiliates would be willing to purchase the Notes in any secondary market (if any exists) at any time. If you attempt to sell the Notes prior to maturity, their market value may be lower than the price you paid for them and the initial estimated value. This is due to, among other things, changes in the share price of the Reference Asset, the borrowing rate we pay to issue securities of this kind, and the inclusion in the price to the public of the estimated costs relating to our hedging of the Notes. These factors, together with various credit, market and economic factors over the term of the Notes, are expected to reduce the price at which you may be able to sell the Notes in any secondary market and will affect the value of the Notes in complex and unpredictable ways. Assuming no change in market conditions or any other relevant factors, the price, if any, at which you may be able to sell your Notes prior to maturity may be less than your original purchase price, as any such sale price
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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The Initial Estimated Value of the Notes Is an Estimate Only, Calculated as of the Time the Terms of the Notes Were Set –The initial estimated value of the Notes is based on the value of our obligation to make the payments on the Notes, together with the mid-market value of the derivative embedded in the terms of the Notes. See “Structuring the Notes” below. Our 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 Notes. These assumptions are based on certain forecasts about future events, which may prove to be incorrect. Other entities may value the Notes or similar securities at a price that is significantly different than we do.
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Market Disruption Events and Adjustments – The payment at maturity and the Valuation Date are subject to adjustment as described in the product prospectus supplement. For a description of what constitutes a market disruption event as well as the consequences of that market disruption event, see “General Terms of the Notes—Market Disruption Events” in the product prospectus supplement.
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Changes that Affect the Underlying Index Will Affect the Market Value of the Notes and the Amount You Will Receive at Maturity — The policies of MSCI Inc., the sponsor of the Underlying Index (the “Index Sponsor”), concerning the calculation of the Underlying Index, additions, deletions or substitutions of the components of the Underlying Index and the manner in which changes affecting those components, such as stock dividends, reorganizations or mergers, may be reflected in the Underlying Index and, therefore, could affect the share price of the Reference Asset, the amount payable on the Notes at maturity, and the market value of the Notes prior to maturity. The amount payable on the Notes and their market value could also be affected if the Index Sponsor changes these policies, for example, by changing the manner in which it calculates the Underlying Index, or if the sponsor discontinues or suspends the calculation or publication of the Underlying Index.
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Adjustments to the Reference Asset could adversely affect the Notes — BlackRock, Inc. (collectively with its affiliates, “BlackRock”), as the sponsor of the Reference Asset, is responsible for calculating and maintaining the Reference Asset. BlackRock can add, delete or substitute the stocks comprising the Reference Asset. BlackRock may make other methodological changes that could change the share price of the Reference Asset at any time. If one or more of these events occurs, the calculation of the amount payable at maturity may be adjusted to reflect such event or events. Consequently, 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 Index Sponsor is not an affiliate of ours 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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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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We and Our Affiliates Do Not Have Any Affiliation with BlackRock and Are Not Responsible for its Public Disclosure of Information — We and our affiliates are not affiliated with BlackRock 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. BlackRock 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 BlackRock 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 Correlation Between the Performance of the Reference Asset and the Performance of the Underlying Index May Be Imperfect — The performance of the Reference Asset is linked principally to the performance of the Underlying Index. However, because of the potential discrepancies identified in more detail in the product prospectus supplement, the return on the Reference Asset may correlate imperfectly with the return on the Underlying Index.
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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 BlackRock’s investment strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. For example, BlackRock may invest a portion of the Reference Asset’s assets in securities not included in the relevant industry or sector but which BlackRock believes will help the Reference Asset track the relevant industry or sector.
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Our Business Activities May Create Conflicts of Interest — We and our affiliates expect to engage in trading activities related to the Reference Asset or Notes held by the Reference Asset that are not for the account of holders of the Notes or on their behalf. These trading activities may present a conflict between the holders’ interests in the Notes and the interests we and our affiliates will have in their proprietary accounts, in facilitating transactions, including options and other derivatives transactions, for their customers and in accounts under their management. These trading activities, if they influence the prices of the Reference 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 issuers of Notes held by the Reference Asset, 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. This research is modified from time to time without notice and may express opinions or provide recommendations that are inconsistent with purchasing or holding the Notes. Any of these activities by us or one or more of our affiliates may affect the price of the Reference Asset, and, therefore, the market value of the Notes.
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The Stocks Included in the Underlying Index Are Concentrated in One Sector — All of the securities included in the underlying index of the Reference Asset are issued by companies in the real estate industry. As a result, the securities that will determine the performance of the Reference Asset and the value of the Notes are concentrated in one sector. Although an investment in the Notes will not give holders any ownership or other direct interests in the securities composing the underlying index, the return on an investment in the Notes will be subject to certain risks associated with a direct equity investment in companies in the real estate industry. Accordingly, by investing in the Notes, you will not benefit from the diversification which could result from an investment linked to companies that operate in multiple sectors.
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There Are Risks Associated with the Real Estate Industry — All of the securities composing the underlying index of the Reference Asset are issued by companies involved directly or indirectly in the real estate industry. The value of real estate and, consequently, companies involved in the real estate industry may be affected by many complex factors that interrelate with each other in complex and unpredictable ways. Such factors may include, but are not limited to, general economic and political conditions, liquidity in the real estate market, rising
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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Period-Start Date
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Period-End Date
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High Intra-Day Share Price of
the Reference Asset ($)
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Low Intra-Day Share Price of
the Reference Asset ($)
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Period-End Closing Share Price
of the Reference Asset ($)
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1/1/2012
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3/31/2012
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62.81
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56.07
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62.29
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4/1/2012
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6/30/2012
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64.86
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58.89
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63.97
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7/1/2012
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9/30/2012
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68.26
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63.67
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64.39
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10/1/2012
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12/31/2012
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65.56
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60.84
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64.72
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1/1/2013
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3/31/2013
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69.55
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65.29
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69.48
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4/1/2013
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6/30/2013
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76.21
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62.72
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66.39
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7/1/2013
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9/30/2013
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69.60
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60.92
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63.76
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10/1/2013
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12/31/2013
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68.25
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61.91
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63.09
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1/1/2014
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3/31/2014
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69.33
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62.61
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67.67
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4/1/2014
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6/30/2014
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73.13
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67.33
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71.79
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7/1/2014
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9/30/2014
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74.95
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68.59
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69.20
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10/1/2014
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12/31/2014
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79.12
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68.66
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76.84
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1/1/2015
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3/31/2015
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83.54
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76.33
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79.32
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4/1/2015
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6/30/2015
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80.89
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71.25
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71.30
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7/1/2015
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9/30/2015
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76.69
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68.28
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70.95
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10/1/2015
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12/31/2015
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77.04
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70.55
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75.11
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1/1/2016
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3/31/2016
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77.96
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65.88
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77.86
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4/1/2016
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6/30/2016
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82.35
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75.63
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82.30
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7/1/2016
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9/30/2016
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85.80
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78.67
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80.64
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10/1/2016
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12/31/2016
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80.34
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72.11
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76.94
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1/1/2017
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3/28/2017
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81.01
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76.12
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77.55
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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Buffered Enhanced Return Notes
Linked to the iShares® U.S. Real
Estate ETF,
Due March 29, 2019
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P-14
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RBC Capital Markets, LLC
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