Equity Linked Notes Customized Capabilities
Important Information ■■ ■■ ■■ ■■ ■■ ■■ ■■ ■■ 2 This communication has been generated by RBC Capital Markets’ Global Equity Linked Products and is not aresearch report or a product of RBC Capital Markets’ Research Department. These materials are for informational purposes only and do not contain all information that may be required toevaluate, and do not constitute a recommendation with respect to, any investment. Any recipient of these materialsshould conduct its own independent analysis of the matters referred to herein. Investors must consult with theirown advisors prior to investing. We are not providing you with any accounting, legal or tax advice in connectionwith these materials. Before a potential investor can purchase any structured notes, they must have completed account openingprocedures and have executed relevant documentation. Prior to investing in a structured note, a potential investorwill need to carefully review the relevant offering documents to fully understand the investment and the potentialrisks. Please review the section “Additional Risk Considerations” at the end of this document for important riskfactors that investors should consider in connection with the investments discussed in this document.The information and any analyses contained in this document are taken from, or based upon, information frompublicly available sources, the completeness and accuracy of which has not been independently verified. Theinformation and any analyses in these materials are subject to change with changing market conditions.Any examples, calculations or value ranges indicated herein are hypothetical and should not be construed asindicative of levels at which an issuer may issue a product. Royal Bank of Canada has filed a registration statement (including product supplements, a prospectus supplementand a prospectus) with the Securities and Exchange Commission (the “SEC”) for the ELNs described in this document. Before you invest, you should read those documents and other documents that Royal Bank of Canadahas filed with the SEC for more complete information about Royal Bank of Canada and the ELNs. You may obtainthese documents without cost by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, RBC CapitalMarkets, LLC will send to you the relevant product prospectus supplement, the prospectus supplement and theprospectus if you so request by calling toll-free 866-609-6009. RBC Capital Markets is the global brand name for the capital markets business of Royal Bank of Canada and itsaffiliates, including RBC Capital Markets, LLC (member FINRA, NYSE and SIPC); RBC Dominion Securities Inc.(member IIROC and CIPF); Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880); RBC Capital Markets(Hong Kong) Limited (regulated by the Securities and Futures Commission of Hong Kong and the Hong Kong Monetary Authority) and RBC Europe Limited (authorized by the Prudential Regulation Authority and regulated bythe Financial Conduct Authority and Prudential Regulation Authority.) ® Registered trademark of Royal Bank of Canada. Used under license. All rights reserved. | RBC CAPITAL MARKETS
Understanding Our Products Equity Linked Notes (ELNs) allow clients to customize return to suit their investmentneeds. Traditional equity investments provide full exposure to the market, whetherthe performance is positive or negative. ELNs provide clients with an alternative to traditional equities that can offer an enhanced return if the underlying equity asset rises, and varying levels of protection if the market falls. ELNs can be linked to a variety of underlyingassets, including indices, single stocks, portfolios of shares and industry sectors, and can beexpanded to include commodities and currencies. ELNs may be suited for clients who: ■ Want access to products that can be customized to reflect their return preferences ■ Want to limit market exposure to match their level of risk tolerance ■ Require growth or income in their portfolio ■ Prefer a medium term investment of 3 - 10 years ■ Are comfortable with the credit risk of the applicable issuer Benefits Customized Equity Investing ELNs deliver tailored exposure to equity markets. For markets with high expected growth, clients may consider notes that provide an accelerated or boosted return. These productsprovide enhanced participation in the positive performance of a selected equity market. For investors thatrequire income, notes that pay fixed or conditional coupons at above-market rates may be appropriate. Risk Tolerance ELNs are created to accommodate a variety of risk tolerance levels. Notes can be designed toprovide partial or conditional downside exposure while still offering upside return in positive markets. Flexible and Timely Issuance Based on Current Market Conditions ELNs can be customized and made available for purchase within a short time frame, typically a few days. Clients can choose to participate inELNs when it best suits their investment outlook. Transparent, Passive and Formulaic The return on ELNs is based on a defined payment formula, so the current performance of the notes can be calculated at any point throughout the term of the ELN. The returnformula is pre-determined before note issuance and the return calculation is therefore transparent. 3 | RBC CAPITAL MARKETS See Additional Risk Considerations at the end of this document. Investors need to reviewoffering documents for a specific offering for a detailed explanation of the potential risks.
Risks Some key risk considerations include, but are not limited, to the following: ■ ELNs are senior debt obligations of the issuer of the ELN. Therefore, returns are dependent on the issuer’s ability topay. Any secondary market prices will typically decrease if the issuer’s credit risk increases. ■ ELNs most often do not offer full downside protection, so investors may lose all or a part of their initial investmentbased on the performance of the underlying equity asset. ■ Return formulas are pre-defined and cannot be changed during the term of the note. ■ Returns could be less than traditional debt securities. ■ Returns may be capped (depending on the structure). ■ Although investors might hold a note linked to an underlying equity asset that generates dividends, ELN investorsmost often do not receive the benefit of these dividends (depending on individual note features). ■ A secondary market for ELNs is not guaranteed. The price at which ELNs can be sold in the secondary market,if any, prior to maturity may be at a substantial discount from the investor’s initial investment. ■ Typically, the market value of an ELN will only fully reflect the return formula at or close to maturity. Prior tomaturity, a variety of factors may cause the market value of an ELN to be less than the principal amount,or less than the amount that may be expected to be paid at maturity. Prior to investing, potential investors should review the relevant offering documents for details specific to theELN offering. 4 | RBC CAPITAL MARKETS See Additional Risk Considerations at the end of this document. Investors need to reviewoffering documents for a specific offering for a detailed explanation of the potential risks.
How it works Choosing an Equity Linked Note ELNs are created based on the investmentpreferences of clients. Investors can choose from notes with a growth orincome focus, based on their personal requirements. Customizing the UPSIDE return and DOWNSIDE exposure Investors may customize the level of upside participation they want to an underlying equity asset, as well as theamount of downside exposure desired. UPSIDE DOWNSIDE Growth Income Boosted Enhanced Full or Fixed Conditional Callable No Partial Conditional Return Return Partial Coupons Coupons Exposure Exposure Exposure Return (“Buffer”) (“Barrier”) Choosing the Upside Return - Growth Notes Growth notes are designed to enhance returns when market performance is positive. Booster Notes and EnhancedReturn Notes are two types of Growth notes. Booster Note A Booster Note will provide a minimum return at maturity if the performance in the underlying equity asset at maturityis positive but less than the stated Booster Percentage. For any positive performance greater than the Booster Percentage, the investor will typically participate in the full appreciation of the underlying equity asset at maturity. For any negative performance in the underlying equity asset,the investor will receive a return equal to the underlying equity asset’s price return at maturity, unless the noteincludes limits on downside exposure. 5 | RBC CAPITAL MARKETS See Additional Risk Considerations at the end of this document. Investors need to reviewoffering documents for a specific offering for a detailed explanation of the potential risks.
Employing a Booster strategy may be appropriate in the following scenarios. 1. An investor is moderately bullish: As an example, a note that offers a 50% booster for any return in the underlying equity asset between 0 - 50%, will provide the investor with a 50% payout at maturity evenif the performance of the underlying equity asset is 0.01%. This is displayed visually in the graph below. 2. An investor is bullish but wants to maximize return in the event that equity market performance is mediocre: If the underlying equity asset generates significantly positive returns, the investor participates in these returns but also receives the boosted return during mediocre market performance. Considerations Investors will lose some or all of their initial investment if the underlying equity asset’s price return at maturity isnegative. Investors do not receive dividends paid by the stocks in the Index. Upside $200 Participation $150 Payment at Maturity Percentage change in $100 the underlying equity Downside asset Participation $50 $0 -100% -50% 0% 50% 100% UNDERLYING EQUITY ASSET PERFORMANCE Enhanced Return Note An Enhanced Return Note will return an accelerated performance of an underlying equity asset if its performance ispositive at maturity. For any negative performance in the underlying equity asset, the investor will receive a returnequal to the underlying equity asset’s price return at maturity, unless the note includes limits on downside exposure. As an example, if an investor with a long time horizon who is looking for higher than average market returns purchases a 6-year note that offers 1.5 times the appreciation of an equity index, then at maturity, for any positivereturn in the index, the investor receives 150% of such positive return. Considerations Investors will lose some or all of their initial investment if the underlying equity asset’s price return at maturity isnegative. Investors do not receive dividends paid by the stocks in the Index. Upside Participation $200 $150 Payment at Maturity Percentage change $100 in the index Downside Participation $50 $0 -100% -50% 0% 50% 100% INDEX PERFORMANCE 6 | RBC CAPITAL MARKETS See Additional Risk Considerations at the end of this document. Investors need to review offering documents for a specific offering for a detailed explanation of the potential risks.
Choosing the Upside Return - Income Notes Income Notes offer an investor the ability to receive fixed or conditional income. Fixed Coupon Barrier Notes andAutocallable Notes are two types of Income Notes. Fixed Coupon Barrier Notes This type of note provides fixed coupon payments on a regular basis and usually offers conditional limits on downside exposure at maturity. These notes are commonly linked to a single broad-based equity index such as theS&P 500® Index, the Russell 2000® Index, etc. At maturity, as long as the index does not drop to the pre-specifiedbarrier level, the investor receives a return of principal. If the index trades at or below the barrier level at maturity, theinvestor loses principal in line with the performance of the index. Considerations While these strategies may meet investors’ needs for income, the limits on downside participation offered at maturity is conditional on the underlying equity asset not trading below the barrier level at maturity. It is also worthhighlighting that investors do not receive any additional return based on the performance of the underlying equityasset at maturity over and above the coupon payments paid throughout the term of the note. All coupons andpayments at maturity are subject to the issuer’s credit and are therefore dependent on the issuer’s ability to pay atthe time. Autocallable Conditional Coupon Notes These notes pay a conditional coupon if the underlying market is above the coupon barrier level on the relevant observation date. The notes are automatically called at a price equal to the original investment amount, if the level ofthe underlying equity asset as of the relevant observation date is equal to or above its initial level. If the note is notcalled during its term and on the maturity date the underlying equity asset is not below the pre-determined principalbarrier level, the note returns the original investment amount. However, if the underlying equity asset is tradingbelow the principal barrier level at maturity, the investor receives the market return and potentially a substantial lossof principal. Considerations While these notes may provide a greater return over traditional income-generating investments, returns are not guaranteed and are conditional on the underlying equity asset performance. Additionally, return of principal at maturity is also conditional on the underlying equity asset performance. All coupons and payments at maturity aresubject to the issuer’s credit and are therefore dependent on the issuer’s ability to pay at the time. 7 | RBC CAPITAL MARKETS See Additional Risk Considerations at the end of this document. Investors need to reviewoffering documents for a specific offering for a detailed explanation of the potential risks.
Choosing the Level of Downside Exposure ELNs can be designed to include a desired level of downside exposure. ELNs may provide full, partial or conditionallimits on downside exposure so that only the protection required by investors is actually purchased, whichpotentially allows for greater participation in the performance of the underlying equity asset. Two common forms ofproviding downside limits are the Buffer and the Barrier. Buffers Buffers offer partial protection from a depreciation in the equity market by protecting an investor from a stated decline in the performance of the underlying equity asset at maturity. For example, a note with a 30% buffer limits the investor’s exposure to the first 30% drop in the underlying equity asset at maturity. If the underlying equity assetwere to suffer a loss beyond 30%, the investor would only participate in the drop beyond 30%, e.g. for a drop of50% in the underlying equity asset, the investor would only recognize 20% of the decline. Buffer strategies, whencombined with boosters or enhanced return features, offer investors the ability to enhance returns while providinginsulation from the initial loss of a stated amount. Considerations While this strategy manages the risk of a market fall, the benefits of the buffer are only realized at maturity. The investor is exposed to any loss on the underlying equity asset beyond the buffer. All payments at maturity are subjectto the issuer’s credit and are therefore dependent on the issuer’s ability to pay at the time. Barriers Barriers offer protection that is conditional on the performance of the underlying equity asset on the maturity date.For example, if a note includes a 30% barrier at maturity, as long as the underlying equity asset does not drop by30% or more at maturity, investors will receive back their original investment. If the underlying equity asset wereto drop by 30% or more, investors would fully participate in the drop and lose principal in line with the drop in theunderlying equity asset. This is unlike buffered strategies, where investors only participate in the incremental dropbeyond 30%. Considerations The barrier does not provide for a minimum return of principal. In addition and similar to the buffer above, the benefits of the barrier are only realized at maturity. All payments at maturity are subject to the issuer’s credit and aretherefore dependent on the issuer’s ability to pay at the time. 8 | RBC CAPITAL MARKETS See Additional Risk Considerations at the end of this document. Investors need to reviewoffering documents for a specific offering for a detailed explanation of the potential risks.
Customized Capabilities At RBC, the Global Equity Linked Products group offers a comprehensive spectrumof Equity Linked Notes (“ELNs”) to suit the needs of investment advisors and theirinvestors. We also recognize that a more customized approach to product designmay be necessary for investors with unique requirements Our customized solutions are often used by high net worth clients with specific needs, sophisticatedinstitutional clients, investment advisors with a highdegree of autonomy, or those looking to offerbespoke solutions. For these situations, we are able to customize many aspects of an ELN. If an off-the-shelf solution does notmeet your requirements, or you have a distinct view ofthe market, we have the ability to address your needs.We will work with you to create a solution that fits yourinvestment mandate. 9 | RBC CAPITAL MARKETS See Additional Risk Considerations at the end of this document. Investors need to reviewoffering documents for a specific offering for a detailed explanation of the potential risks.
Additional Risk Considerations An investment in ELNs involves significant risks. These risks are explained in more detail in the applicable offeringdocuments for a specific offering. Before investing in an ELN, investors should carefully read the relevant offeringdocuments to ensure they understand all of the potential risks. Some general risk considerations for ELNs include,but are not limited to the following: ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ 10 ELNs are unsecured debt obligations of the relevant issuer. Investors are dependent on the ability of the issuer topay all amounts due on the notes, and therefore, investors are subject to the relevant issuer’s credit risk and tochanges in the market’s view of the creditworthiness of the relevant issuer. Depending on the structure, investors in an ELN could lose some or their entire principal if there is a decline inthe underlying equity asset. Even for structures that offer limits on downside exposure, the return of principal willdepend on the relevant issuer’s ability to pay its obligations at the relevant time. Some structures pay a variable or contingent coupon based on the performance of the underlying equity asset. Thiscoupon may fluctuate over time and potentially be zero for some or all of the ELN’s term. In some structures, the coupon may be the only return an investor will be entitled to for the ELN. For structures that are subject to redemption prior to maturity, if the ELNs are called before maturity, an investorwill not receive any further coupons and may not be able to reinvest proceeds from the call in an investment with acomparable return had the ELNs not been called. ELNs are typically sold at par and include fees and costs such as commissions, hedging costs and projected profitsof the relevant issuer or its affiliates. Therefore, the estimated initial value of a ELN on the pricing date will be lessthan the issue price investors pay for the ELN. The offering documents of an ELN will typically include the issuer’s initial estimated value of the ELN. Thisestimated value does not represent the future value of the ELN. ELNs will not be listed on any securities exchange. While the relevant issuer or its affiliate will generally endeavorto maintain a secondary market, they are not obligated to do so. The issuer or its affiliate may cease any market-making activities at any time. Even if a secondary market for the ELNs develops, it may not provide significant liquidity or trade at prices advantageous to the investor. The price at which an investor may be able to sell ELNs prior to maturity, if at all, may be at a substantial discountfrom the principal amount of the ELNs, even in cases where the closing price of the underlying equity asset hasappreciated since the trade date. In addition, investors will not receive the benefit of any contingent repaymentof principal if they sell ELNs before the maturity date. The potential returns described in the relevant offering documents assume the ELNs, which are not designed to be short-term trading instruments, are held to maturity.The return on ELNs may be lower than the return an investor could earn on other investments during the sameterm. Even if the return on an ELN is positive, it may be less than the return an investor could earn if it bought aconventional debt security of the relevant issuer. Investing in ELNs is not the same as owning the underlying equity asset (or any security or other componentincluding in the underlying equity asset) directly. For instance, investors usually will not receive or be entitled toreceive any dividend payments or other distributions on the underlying equity asset. Investors will also not haveany voting rights or any other rights that a holder of the underlying equity asset may have.The activities of the relevant issuer or its affiliates may conflict with an investor’s interests and may adverselyaffect the value of the ELNs. Many economic and market factors will influence the value of the ELNs, including but not limited to, interest andyield rates in the market, time to maturity of the ELNs, expected volatility of the underlying equity asset, and economic, financial, political, regulatory or judicial events. While the offering documents will typically contain a summary of the expected U.S. federal income taxconsequences of an investment in the ELNs, significant aspects of the tax treatment of the ELNs may be complexand uncertain. Prospective investors should consult with their tax advisor before investing in any ELN to determinethe effects based on their individual circumstances. | RBC CAPITAL MARKETS
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