Legal Terms and Conditions for Government of Canada Domestic Real Return Bonds

March 30, 2015

Domestic Real Return Bonds (the “Bonds”) are securities issued by the Government of Canada pursuant to Part IV of the Canadian Financial Administration Act. In addition to these general terms and conditions (the “Legal Terms and Conditions”), the Bonds are subject to the characteristics (the “Specific Terms”) indicated by the associated International Securities Identification Number (the “ISIN”).

The Bonds constitute direct, unsecured, and unconditional obligations of Her Majesty in right of Canada (“Canada”). Payments of principal of and interest on the Bonds are direct charges on, and payable out of the Consolidated Revenue Fund of Canada. The Bonds rank pari passu in all respects amongst themselves and with all other securities issued by Canada and presently outstanding.

Interest shall be paid on the dates indicated by the Specific Terms (the “Coupon Payment Dates”) and at the rate per annum as calculated in the manner described below, semi-annually, in arrears, in each year until the maturity date (“Maturity”). Where interest is payable for a period of less than six months, it shall be calculated on the basis of a 365-day year. Interest will cease to accrue on the Bonds on Maturity.

Interest on the Bonds consists of both a cash entitlement ("Coupon Interest") payable in semi-annual installments on the Coupon Payment Dates in each year and an Inflation Compensation payable on Maturity for such series. Interest will accrue daily in such manner as will give rise to the Coupon Interest and Inflation Compensation entitlements set forth below.

The Inflation Compensation accrued to any Date ("Inflation CompensationDate") for the Bonds is defined as the product of the principal and the Index Ratio for that Date ("Index RatioDate") minus the principal as depicted below:

Inflation CompensationDate = {[Principal * Index RatioDate] – Principal}

or,

The inflation compensation accrued to any date is equal to the product of the principal and the reference CPI for that date divided by the reference CPI base minus the principal.

Coupon Interest will be calculated by multiplying one-half of the interest rate as stated in the Specific Terms (the “Coupon Rate”) by the sum of the principal and the Inflation Compensation accrued from the date of issue (“Issue”) to the relevant Coupon Payment Date.

On Maturity, in addition to Coupon Interest, a final payment (the “Final Payment”) equal to the sum of Inflation Compensation accrued from Issue to Maturity (whether positive or negative) and the principal will be made, which sum will be paid in full satisfaction of the principal and Inflation Compensation. The calculation of the Final Payment is depicted below:

Final Payment = Principal + Inflation Compensation

Or,

The Final Payment is equal to the principal plus the inflation compensation accrued to that date. The inflation compensation accrued to any date is equal to the product of the principal and the reference CPI for that date divided by the reference CPI base minus the principal.

An Index Ratio is applied to calculate both Coupon Interest and the Inflation Compensation. As illustrated below, the Index Ratio for any date ("Date") is defined as the ratio of the reference CPI applicable to such Date ("Ref CPIDate") divided by the reference CPI applicable to Issue ("Ref CPIBase").

For details, see previous paragraph.

The reference CPI for the first day of any calendar month is the CPI for the third preceding calendar month.

The reference CPI for any other day in a month is calculated by linear interpolation between the reference CPI applicable to the first day of the month in which such day falls and the reference CPI applicable to the first day of the month immediately following. For the purpose of interpolating, Ref CPIDate calculations are carried to six decimal places and rounded, such that Ref CPIDate is expressed to five decimal places (with numbers of 5 or more rounded up). Similarly, calculations of the Index Ratio are carried to six decimal places and rounded (on the same basis), such that the Index Ratio is expressed to five decimal places.

Consequently, the formula used to calculate Ref CPIDate can be expressed as follows:

The reference CPI for a given date is equal to the reference CPI for the first day of the current calendar month plus the product of the division of t less one by D and the difference between the Ref CPIM and Ref CPIM+1. See following text for more details.
where,
D = the number of days in the calendar month in which the Date falls;
t = the calendar day corresponding to the Date;
Ref CPIM = reference CPI for the first day of the calendar month in which the Date falls;
Ref CPIM+1 Â = reference CPI for the first day of the calendar month immediately following the Date.

The Ref CPIBase is the Ref CPIDate applicable on Issue. The Ref CPIBase remains constant throughout the term of the Bonds other than when the Official Time Base (as defined by Statistics Canada) is changed. Whenever the Official Time Base is changed, the Government of Canada will publish the conversion factor (which is calculated to three decimal places) used to rebase the CPI series to the new Official Time Base. For the purposes of the Bonds, such conversion factor will be used to rebase relevant prior CPI data (including CPI data relevant to the calculation of Ref CPIBase), when the first CPI published under the new Official Time Base is applicable to the calculation of Ref CPIDate, with calculations carried to six decimal places and rounded to five decimal places (in the manner described above) or, in any event, to a minimum of five significant digits. Accordingly, a change in the Official Time Base will not have any impact on the entitlement of a beneficial owner of the Bonds (a "Bondowner") to Coupon Interest or the Inflation Compensation, except for a possible insignificant impact which might result from rounding calculations.

If the CPI is not published for any month which is relevant for the purposes of the Bonds, the Government of Canada will publish forthwith a substitute index figure for the month that will apply even if the relevant CPI is subsequently published. Should a published CPI be revised for any reason, the originally published figure will apply for the purposes of the Bonds.

The Government of Canada will continue to publish the CPI at least until the Index Ratio relevant to the Maturity for each series of Bonds outstanding has been determined (as described under “(b) Indexing Process”) except that, if the Government of Canada determines not to publish the CPI, it will publish a substitute index that is designed to reflect pure price movement in the Canadian economy and is equivalent in all material respects to the CPI. Such substitute index will, therefore, also be an "all items" index designed to reflect pure price movements affecting typical Canadian household expenditures. Such substitute index will be effective for the purposes of the Bonds only from the date of announcement that such substitute index will be used and will not be utilized to adjust any interest entitlement (whether Coupon Interest or the Inflation Compensation) which has accrued prior thereto. In addition, the Government of Canada will publish changes in the formula or the method of calculation of the CPI (including any substitute index) which has, or could reasonably be expected to have, a significant impact on the Bonds.

CPI for the purposes of the Bonds is defined as the All-items Consumer Price Index for Canada, not seasonally adjusted, as published by Statistics Canada, a bureau constituted under the Statistics Act (RSC, 1985, c. S-19) (or its successor government department or agency).

Canada will redeem the Bonds at the value specified by the above-noted Final Payment formula on Maturity. The Bonds are not redeemable prior to Maturity.

The Bonds are registered only in the name of CDS & Co., as nominee of CDS Clearing and Depository Services Inc. ("CDS"), and are held by CDS in its record entry securities clearing and depository system. The Bonds are not represented by physical certificates but only by book entries in the records maintained by CDS. Interests in the Bonds held by participants in the CDS system (each, a “CDS Participant”) are represented through book entries in accounts established and maintained by CDS for each such CDS Participant, in accordance with the practices, rules, and agreements of CDS. CDS Participants may in turn maintain on behalf of other persons accounts in which such persons’ interests in the Bonds may be recorded.

Canada may treat CDS & Co. as the absolute owner of the Bonds for the purpose of receiving payment and for all other purposes. No Bondowner will be shown on the records maintained by CDS other than a Bondowner who is a CDS Participant. The Bonds must be purchased, transferred, or sold directly or indirectly through a CDS Participant and all rights of Bondowners must be exercised by or through such CDS Participant.

Except in the limited circumstances described below, Bondowners will not be entitled to have Bonds registered in their names, will not receive or be entitled to certificates in definitive form representing Bonds, and will not be considered registered holders of Bonds. Neither Canada, nor any registrar, transfer agent, or paying agent duly appointed will have any responsibility or liability for maintaining, supervising, or reviewing any records of CDS relating to any interests in the Bonds or for any aspect of the records of CDS relating to payments made by CDS on account of such interests.

The Bonds constituting a particular issuance will be exchangeable, in whole but not in part, for Bonds in definitive form registered in the name of a Bondowner other than CDS or its nominee only if (i) CDS notifies Canada that it is unwilling or unable to continue as depository in connection with the particular issuance or (ii) Canada notifies CDS that it desires to issue the Bonds in definitive form. If, at any time, the Minister of Finance (the "Minister") determines that it is no longer practicable or appropriate to use CDS for the transfer and settlement of the interests of Bondowners in the Bonds, the Minister may select another depository for these purposes, or may direct that definitive individual certificates be made available to Bondowners in integral multiples of $1,000.

Payments of principal of and interest on the Bonds will be made to CDS & Co., as nominee of CDS, in Canadian dollars in accordance with the customary method for making payments in Canadian dollars. Payment by Canada of any amount owing hereunder to CDS & Co. in accordance with the Legal Terms and Conditions or the Specific Terms shall constitute a valid discharge, to the extent of the payment made, of Canada's obligations.

If any payment of principal or interest falls due on a day which is not a Business Day, payment thereof shall be made on the next succeeding Business Day and no further interest or other payment shall be paid in respect of the delay in such payment. "Business Day" means a day other than a Saturday or a Sunday or a day recognized as a holiday by the laws of Canada or of the Province of Ontario.

The Legal Terms and Conditions pertaining to a series of the Bonds may be amended only if the amendment is proposed by the Minister and approved by an extraordinary resolution of Bondowners at a duly convened meeting of Bondowners at which a quorum is present. An extraordinary resolution of Bondowners is a resolution passed by the favorable votes of Bondowners (excluding Her Majesty in right of Canada, agents thereof and other entities owned or controlled by any of the foregoing) owning not less than two-thirds of the principal amount of the Bonds represented at the meeting and voted on a poll upon such resolution. On a poll, each Bondowner present in person or represented by a proxy duly appointed by instrument in writing will be entitled to one vote in respect of each $1,000 principal amount of Bonds of which such Bondowner is the owner.

Meetings of Bondowners will be convened on not less than 21 clear days' notice to Bondowners given in the manner provided herein. Such notice will state the time when and place where the meeting will be held and briefly the general nature of the business to be transacted. A quorum for meetings of Bondowners will consist of at least two Bondowners present in person or represented by proxy and owning in the aggregate at least 25% in principal amount of the Bonds.

A Bondowner, as at the close of business on such record date as the Minister of Finance may select which is not more than 21 and not less than 10 days prior to the meeting date, may vote at any meeting of Bondowners of such series by instructing the relevant CDS Participant as to how such Bondowner wishes to vote or by obtaining a form of proxy from such CDS Participant appointing the Bondowner, or such individual as the Bondowner may designate, as proxy. Every extraordinary resolution passed as provided above will be binding on all Bondowners of the relevant series of Bonds, whether present or absent from the meeting.

Notwithstanding the above, Canada may make amendments to the Legal Terms and Conditions where the Minister, acting reasonably, determines that the amendment would not materially adversely affect the interest of the Bondowners.

Notice of any meeting of Bondowners or amendment shall be given forthwith to the Bondowners by publishing such notice on the Bank of Canada website.

Canada may, at any time, purchase Bonds in the open market, by tender, or by private contract at any price. Such Bonds purchased by Canada may be cancelled and Canada shall notify CDS & Co. of the cancellation. The aggregate principal of the particular issuance shall be reduced by the amount of the cancellation.

The Bonds shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein.

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