Understanding structured notes: Principal Protected Notes

PPN returns are based on the performance of one or more underlying reference assets, which can include equities, equity indexes, bonds, commodities, currencies or a combination of these. PPNs can provide exposure to traditional assets, as well as assets that may not be readily available to retail investors. 

The main differences between PPNs and MLGICs are CDIC insurance eligibility — MLGICs are eligible, while PPNs are not, and the ability to sell PPNs via a daily secondary market. MLGICs are non-redeemable prior to maturity.

The returns on PPNs are based on the performance of the reference assets and a predetermined formula. All formulas are specified in the Information Statement and depend on the specific PPN. The potential returns of a PPN could be less and sometimes materially than the actual performance of the underlying reference assets, depending on the PPN structure.

Income Notes

Income Notes offer the potential for higher income relative to traditional GICs and other fixed income instruments. Investors may receive periodic income payments on predefined dates during the term of the PPN, with payments determined by the performance of the reference assets. Income notes may also provide a specified minimum return on some or all payment dates.

Growth Notes

Growth Notes offer the potential for enhanced variable returns, payable at maturity, based on the performance of reference assets, while potentially minimizing the risk of down markets if held to maturity. These strategies can offer full, enhanced, partial or capped participation in the underlying reference asset market performance. In the event the underlying reference asset returns are negative at maturity of the Note, your principal is returned. Principal protection is only guaranteed at maturity.

Boosted Return Notes

Boosted Return Notes offer the potential to outperform the reference asset while retaining principal protection at maturity. If the underlying reference asset performance is 0% or greater at maturity, the Boosted Return PPN’s return is calculated using a specified formula, offering the potential for outperformance in a flat or moderately bullish environment.

• Principal protection: 100% principal protection at maturity 
• Income potential: Some PPNs may offer the potential for enhanced income, based on the performance of the underlying reference assets
• Growth potential: Some PPNs may offer the potential to receive an enhanced return at maturity, depending on the performance of the underlying reference assets 
• Diversification: Some PPNs may provide exposure to reference assets that may not otherwise be directly accessible
• Liquidity: Opportunity to sell PPNs prior to maturity in a daily secondary market¹
• Currency hedged: No direct currency exposure when the reference asset is denominated in a foreign currency
• Minimum investment: Minimum investment is $5,000
• Fees: PPNs available through Investor’s Edge will include an upfront selling concession. All fees and selling commissions are stated in the Pricing Supplement for each PPN

• CDIC coverage: PPNs are not eligible for CDIC insurance.
• Credit risk: Guarantee of principal protection and any income is dependent on the creditworthiness of the issuer.
• Market risk: If the underlying assets perform poorly, there’s a risk that no return, or only the specified minimum guaranteed return, may be payable.
• Liquidity risk: There’s no assurance that notes can be sold in a secondary market prior to maturity, or that the secondary market price will be at or above $100 purchase price when the investor wishes to sell. Principal protection is only offered at maturity.

Basket of 10 global blue chip equities

• 100% participation, subject to a cap of 60%, linked to the price return of the stock basket

Basket of 5 Canadian banks 

• 100% participation rate in the positive price return of the stock basket

Basket of Canadian equity sub-indices

• 120% participation rate in the positive performance of the index basket 

Boosted Return Principal Protected Notes provide investors with the opportunity to potentially outperform the reference asset while retaining principal protection at maturity.

Investor benefits and features

• Increased return potential in a flat or moderately bullish environment (see calculation of the PPN Return below)
• 100% principal protection at maturity
• No direct currency exposure if the underlying reference asset is denominated in a foreign currency
• May be sold prior to maturity at the current bid price through a daily secondary market¹

• a dashed blue line represents “Portfolio Performance,” showing a steady upward diagonal trend;
• a solid burgundy line represents “PPN Return,” which starts flat at the bottom, then inclines upward at a less steep angle than the blue line; and
• a grey-shaded triangular area labeled “Outperformance Potential” lies between the two lines, highlighting the gap in performance.

Calculation of the PPN Return

• If the reference asset performance is less than or equal to the Boosted Return and greater than or equal to 0.00%, the PPN Return will be equal to the Boosted Return
• If the reference asset performance is greater than the Boosted Return, the PPN Return will be equal to the Boosted Return plus a specified percentage of the performance above the Boosted Return
• If the reference asset performance is less than 0.00%, the PPN Return will be equal to zero; however, investors will still receive their principal investment at maturity