January 24, 2014 DEBT LINKED DEBT SECURITIES I RBC Non-Protected Bond RoC Securities, Series 1F 3- Term Semi-annual Return of Capital Payments INVESTMENT HIGHLIGHTS Variable Return linked to a Notional Portfolio of Five Provincial Bonds Issue Date February 27, 2014 Maturity Date February 27, 2017 Portfolio Five Provincial Bonds RoC Payments $1.50 semi-annual FundSERV RBB100 A final base shelf prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorities in each of the provinces and territories of Canada. A copy of the final base shelf prospectus, any amendment to the final base shelf prospectus and any applicable shelf prospectus supplement that has been filed, is required to be delivered with this document. This document does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final base shelf prospectus, any amendment and any applicable shelf prospectus supplement for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision. www.rbccm.com/structuredrates Tax-Efficient Exposure to a notional Canadian bond portfolio composed of five provincial bonds. Semi- Annual return of capital payments will reduce an investor s cost base for the Debt Securities. Return Based on Notional Portfolio of Bonds Trading at Premiums with a purchase price of $100 (subject to minimum subscription). Investors gain exposure to a portfolio of provincial bonds trading above par while eliminating adverse tax treatment of buying bonds trading at a premium. Alternative to investing in bond ETFs, mutual funds or holding the Underlying Bonds. Fixed Cash Flow: The Debt Securities provide semi-annual return of capital payments equal to $1.50 per Debt Security. KEY TERMS Issuer: Issuer Credit Rating: Currency: Issue Price: Minimum Subscription: Royal Bank of Canada (the "Bank") Aa3 by Moody s; AA- by Standard & Poor s and AA by DBRS CAD $100 (the "") Issue Date: February 27, 2014 Maturity Date: Principal at Risk: : Variable Return: Principal Amount Payment at Maturity: Portfolio: Selling Commission: Agent Fee Note Program Amount: FundSERV Code: $5,000 (50 Debt Securities) and integral multiples of $1,000 (10 Debt Securities) thereafter February 27, 2017, for a term of approximately 3 years The Debt Securities are not principal protected $1.50, paid semi-annually ($3.00 per annum) on or about each 27 th day of February and August. The difference between the Security and the Principal Amount on the Maturity Date. The Variable Return may be positive or negative $100 minus the sum of all the The not previously distributed through plus the Variable Return. 3.85% bonds issued by the Province of Manitoba due 1-December-2021 3.35% bonds issued by the Province of New Brunswick due 3-December-2021 3.15% bonds issued by the Province of Ontario due 2-June-2022 2.55% bonds issued by the Province of Alberta due 15-December-2022 3.30% bonds issued by the Province of British Columbia due 18-December-2023 None 0.15% paid to Laurentian Bank Securities Inc. out of the Note, for acting as independent agent. As an allowance for management of the Debt Securities, the Bank is entitled to an upfront amount of 1.00% of the of the Debt Securities and an ongoing annual amount of 0.10% of the Portfolio RBB100 Subscriptions Close: February 21, 2014
INVESTMENT RATIONALE Through the single purchase of Debt Securities, investors are able to obtain a return based on the performance of a notional portfolio of five provincial government bonds (the "Underlying Bonds"). The Debt Securities provide investors with an alternative to investing in fixed income investments such as bond mutual funds, bond ETFs and bonds while receiving the following tax efficient benefits: Semi-annual return of capital payments equal to $1.50 ($3.00 per annum) likely should not be included in the investor s income when received but rather should reduce the investor s adjusted cost base of the Debt Securities. Many provincial bonds are trading above their principal amount ($100) resulting in a tax mismatch where capital losses realized at maturity as a result of the difference between the principal amount of the bonds and their purchase price cannot be applied to reduce coupon interest income. EXAMPLES The following are hypothetical examples that illustrate how the Redemption Amount is calculated. These examples are included for illustration purposes only. The amounts used are hypothetical and are not forecasts or projections of the performance of the Portfolio or the performance of the Debt Securities. No assurance can be given that the results shown in these examples can be achieved. The examples set out below are included for illustration purposes only. The examples assume that a holder of Debt Securities has purchased such securities with an aggregate principal amount of $100 and that no Extraordinary Event has occurred. The starting Value per Debt Security for each example is $99, which is intended to account for the 1% upfront portion of the Note. All dollar amounts are rounded to the nearest whole cent. Example #1 Calculation of the Redemption Amount where the Portfolio increases In this example, the Portfolio is assumed to increase at a rate of 2.13% in the first year, 1.59% in the second year and 1.03% in the third year (less the applicable on-going annual portion of the Note ), which correlates to a decrease in the average yield of the Portfolio of 1.0% during the term of the Debt Securities (a 0.33% decrease each year) such that the average yield of the Portfolio will be 2.04% on the Maturity Date. 1 101.11 0.101 101.01 3.00 97.00 2 102.62 0.103 102.52 3.00 94.00 3 103.58 0.104 103.48 3.00 91.00 Variable Return = Security = $103.48 $91.00 = $12.48 Redemption Amount = + Variable Return = $91.00 + $12.48 = $103.48 Total made during the term of the Debt Securities = $9.00 In this example, the Redemption Amount and the provide a return equivalent to an annually compounded rate of return of 4.14%.
Example #2 Calculation of the Redemption Amount where the Portfolio decreases In this example, the Portfolio is assumed to decrease at a rate of 4.41% in the first year, 3.40% in the second year and 2.31% in the third year (less the applicable on-going annual portion of the Note ), which correlates to an increase in the average yield of the Portfolio of 2.0% during the term of the Debt Securities (a 0.67% increase each year) such that the average yield of the Portfolio will be 5.04% on the Maturity Date. 1 94.63 0.09 94.54 3.00 97.00 2 91.33 0.09 91.24 3.00 94.00 3 89.13 0.09 89.04 3.00 91.00 Variable Return = Security = $89.04 $91.00 = -$1.96 Redemption Amount = + Variable Return = $91.00 + (-$1.96) = $89.04 Total made during the term of the Debt Securities = $9.00 In this example, the Redemption Amount and the provide a return equivalent to an annually compounded rate of return of -0.68%. Example #3 Calculation of the Redemption Amount where the Portfolio does not change significantly In this example, the Portfolio is assumed to decrease at a rate of 0.10% in the first year, 0.11% in the second year and 0.11% in the third year (less the applicable on-going annual portion of the Note ), which correlates to no change in the average yield of the Portfolio during the term of the Debt Securities such that the average yield of the Portfolio will remain 3.04% on the Maturity Date. 1 98.90 0.10 98.80 3.00 97.00 2 98.69 0.10 98.59 3.00 94.00 3 98.48 0.10 98.38 3.00 91.00
Variable Return = Security = $98.38 $91.00 = $7.38 Redemption Amount = + Variable Return = $91.00 + $7.38 = $98.38 Total made during the term of the Debt Securities = $9.00 In this example, the Redemption Amount and the provide a return equivalent to an annually compounded rate of return of 2.49%. HISTORICAL PRICE/YIELD OF THE UNDERLYING BONDS in the PORTFOLIO The charts below sets out the closing bid prices and yields for the five Underlying Bonds in the Portfolio from their respective issuance dates to January 13, 2014. Past price and yield performance is not an indicator of future price and yield performance. (Source: RBC Capital Markets) Historical Bid Prices 114 112 110 108 106 Price 104 102 100 98 96 94 92 Jun-11 Jul-11 Sep-11 Nov-11 Dec-11 Feb-12 Apr-12 May-12 Jul-12 Aug-12 Oct-12 Dec-12 Jan-13 Mar-13 May-13 Jun-13 Aug-13 Oct-13 Nov-13 Jan-14 Date ALB 2.55% 15DEC22 BC 3.3% 18DEC23 NB 3.35% 3DEC21 ONT 3.15% 2JUN22 MAN 3.85% 1DEC21
Historical Bid Yields 4 3.5 Yield 3 2.5 2 Jun-11 Jul-11 Sep-11 Nov-11 Dec-11 Feb-12 Apr-12 May-12 Jul-12 Aug-12 Oct-12 Dec-12 Jan-13 Mar-13 May-13 Jun-13 Aug-13 Oct-13 Nov-13 Jan-14 Date ALB 2.55% 15DEC22 BC 3.3% 18DEC23 NB 3.35% 3DEC21 ONT 3.15% 2JUN22 MAN 3.85% 1DEC21 All capitalized terms unless defined will have the meanings described to them in the Pricing Supplement. These Debt Securities are not conventional notes. For the various risks associated with such an investment, please see the Risk Factors section of the Pricing Supplement. The Debt Securities will not constitute deposits insured under the Canada Deposit Insurance Corporation Act. The Debt Securities will expose investors to the credit risks of both the Bank and the Underlying Bond Issuers. The Underlying Bonds have historically had higher credit ratings than the Bank's debt securities. This marketing material is provided for discussion purposes only and it does not constitute either an offer or the solicitation of an offer to enter into a securities transaction. It is not intended to set forth a final expression of the terms and conditions of any transaction and it may be amended, superseded or replaced in its entirety by other summaries of terms and conditions. This term sheet does not purport to identify or suggest all of the risks (direct or indirect), which may be associated with the proposed investment. An investment in the Debt Securities involves risks. An investment in the Debt Securities is not the same as a direct investment in the securities that comprise the Portfolio and investors have no direct rights with respect to the securities in the Portfolio. The Debt Securities are considered to be "specified derivatives" under applicable Canadian securities laws. If you purchase Debt Securities, you will be exposed to fluctuations in interest rates and changes in the value of the Portfolio, among other factors. Price changes may be volatile and an investment in the Debt Securities may be considered to be speculative. Since the Debt Securities are not principal protected and the will be at risk, you could lose substantially all of your investment.