MANAGEMENT S RESPONSIBILITY FOR FINANCIAL REPORTING

Transcription

1 MANAGEMENT S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying financial statements have been prepared by RBC Global Asset Management Inc. ( RBC GAM ) as manager of the RBC GAM Investment Funds (the Funds ) and approved by the Board of Directors of RBC GAM. We are responsible for the information contained within the financial statements. We have maintained appropriate procedures and controls to ensure that timely and reliable financial information is produced. The financial statements have been prepared in compliance with International Financial Reporting Standards ( IFRS ) (and they include certain amounts that are based on estimates and judgments). The significant accounting policies, which we believe are appropriate for the Funds, are described in Note 3 to the financial statements. Damon G. Williams, FSA, FCIA, CFA Chief Executive Officer RBC Global Asset Management Inc. Heidi Johnston, CPA, CA Acting Chief Financial Officer RBC GAM Funds August 10, 2017 Unaudited Interim Financial Statements The accompanying interim financial statements have not been reviewed by the external auditors of the Funds. The external auditors will be auditing the annual financial statements of the Funds in accordance with Canadian generally accepted auditing standards.

2 2017 INTERIM FINANCIAL STATEMENTS SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) Number Fair % of Net of Units Security Cost Value Assets MUTUAL FUND UNITS Phillips, Hager & North High Yield Bond Fund* $ $ TOTAL MUTUAL FUND UNITS Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets BONDS AUSTRALIA BONDS Brookfield Infrastructure Finance Pty Ltd. CAD Oct-2017 $ $ TOTAL AUSTRALIA BONDS CANADIAN BONDS CORPORATE International Inc Nov Access Justice Durham Ltd Aug Access Prairies Partnership Mar Aéroports de Montréal Apr Aéroports de Montréal Apr Aéroports de Montréal Sep Aéroports de Montréal Jun Aéroports de Montréal Apr Alectra Inc Apr Alectra Inc Jul Alectra Inc Nov Alectra Inc May Alliance Pipeline LP Dec Alliance Pipeline LP Jun Alliance Pipeline LP Dec Alliance Pipeline LP Dec Alliance Pipeline LP Dec AltaGas Ltd Jun AltaLink Investments LP Jun AltaLink Investments LP Jun AltaLink Investments LP Mar AltaLink LP Mar AltaLink LP Nov Bank of Montreal Jul Bank of Montreal Aug Bank of Montreal Dec Bank of Montreal May Bank of Montreal Sep Bank of Nova Scotia May BC Tel Apr Bell Canada Sep Bell Canada Feb Bell Canada Jun Bell Canada Mar Bow Centre Street LP Jun Bow Centre Street LP Jun Bow Centre Street LP Jun Brookfield Asset Management Inc Mar Brookfield Asset Management Inc Mar Brookfield Asset Management Inc Jan Brookfield Infrastructure Finance ULC Oct The accompanying notes are an integral part of the financial statements.

3 SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) The accompanying notes are an integral part of the financial statements. Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets CORPORATE (cont.) Brookfield Infrastructure Finance ULC Mar-2022 $ $ Brookfield Infrastructure Finance ULC Feb Brookfield Renewable Energy Partners ULC Oct Brookfield Renewable Energy Partners ULC Feb Brookfield Renewable Energy Partners ULC Jun Bruce Power LP Jun Bruce Power LP Jun Bruce Power LP Jun Bruce Power LP Jun Cameco Corp Sep Cameco Corp Nov Cameco Corp Jun Canadian Imperial Bank of Commerce Mar Centra Gas Ontario Inc Oct Cominar Real Estate Investment Trust Jun Cominar Real Estate Investment Trust Dec Cominar Real Estate Investment Trust Jul Cominar Real Estate Investment Trust Nov Cominar Real Estate Investment Trust Dec Cominar Real Estate Investment Trust Jun Cominar Real Estate Investment Trust May Crombie Real Estate Investment Trust Oct Crombie Real Estate Investment Trust Feb Crosslinx Transit Solutions GP Jun CU Inc Nov CU Inc Nov CU Inc Apr CU Inc Mar CU Inc May CU Inc Nov CU Inc Nov CU Inc Oct CU Inc May CU Inc Nov CU Inc Nov CU Inc Oct CU Inc Oct Dufferin Wind Power Inc Nov Eagle Credit Card Trust Oct EllisDon Infrastructure JBH Inc Nov Enbridge Gas Distribution Inc Dec Enbridge Gas Distribution Inc Nov Enbridge Gas Distribution Inc Dec Enbridge Gas Distribution Inc Sep Enbridge Gas Distribution Inc Aug Enbridge Gas Distribution Inc Nov Enbridge Gas Distribution Inc Dec Enbridge Gas Distribution Inc Feb Enbridge Gas Distribution Inc Nov Enbridge Gas Distribution Inc Aug Enbridge Inc Sep Enbridge Inc Feb Enbridge Inc Jul Enbridge Inc Nov Enbridge Inc Sep Enbridge Inc Sep Enbridge Inc Mar Enbridge Inc Mar

4 SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) The accompanying notes are an integral part of the financial statements. Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets CORPORATE (cont.) Enbridge Income Fund Feb-2019 $ $ Enbridge Pipelines Inc Nov Enbridge Pipelines Inc Aug Enbridge Pipelines Inc Nov Enbridge Pipelines Inc Feb Enbridge Pipelines Inc Sep Enbridge Pipelines Inc Feb Enbridge Pipelines Inc Jun Enbridge Pipelines Inc Nov Enbridge Pipelines Inc Apr Enbridge Southern Lights LP Jun Enmax Corp Jun Fortis Inc Dec Fortis Inc Jul FortisAlberta Inc Oct FortisAlberta Inc Sep FortisAlberta Inc Sep FortisAlberta Inc Oct FortisBC Energy Inc Oct FortisBC Energy Inc May FortisBC Energy Inc Dec FortisBC Inc Jul FortisBC Inc Nov Gaz Metro Inc Jun Genesis Trust II Sep Genesis Trust II May Grand Renewable Solar LP Jan Great-West Lifeco Finance Delaware LP II Jun Greater Toronto Airports Authority Jun Greater Toronto Airports Authority Jun Greater Toronto Airports Authority Oct Greater Toronto Airports Authority Jun Greater Toronto Airports Authority Feb Greater Toronto Airports Authority Dec H2O Power LP Nov Hollis Receivables Term Trust II Jun Hospital Infrastructure Partners NOH Partnership Jan Husky Energy Inc Mar Hydro One Inc Nov Hydro One Inc Jun Hydro One Inc Jan Hydro One Inc Mar Hydro One Inc Apr Hydro One Inc Oct Hydro Ottawa Holdings Inc Feb Hydro Ottawa Holdings Inc Feb Inter Pipeline Corridor Inc Feb Kingston Solar LP Jul Lower Mattagami Energy LP Oct Lower Mattagami Energy LP Oct Lower Mattagami Energy LP May Maple Leaf Sports & Entertainment Ltd Jun Maritimes & Northeast Pipeline LP Nov Melancthon Wolfe Wind LP Dec Mountain View Partners GP Mar North Battleford Power LP Dec North West Redwater Partnership Feb North West Redwater Partnership Jun

5 SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) The accompanying notes are an integral part of the financial statements. Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets CORPORATE (cont.) North West Redwater Partnership Jun-2029 $ $ North West Redwater Partnership Jun North West Redwater Partnership Jun North West Redwater Partnership Jun North West Redwater Partnership Jan Northland Power Solar Finance One LP Jun Nova Gas Transmission Ltd May Nova Scotia Power Inc Aug Nova Scotia Power Inc May Nova Scotia Power Inc Jul Nova Scotia Power Inc Jun OMERS Realty Corp Nov Pembina Pipeline Corp Oct Pembina Pipeline Corp Feb Pembina Pipeline Corp Aug Plenary Health Hamilton LP May Plenary Health North Bay Finco Inc Mar Plenary Properties LTAP LP Jan Power Corp of Canada Jan PSS Generating Station LP Oct Ridley Grain Ltd Aug RioCan Real Estate Investment Trust Mar Royal Bank of Canada* Jul Royal Bank of Canada* Oct Royal Bank of Canada* Dec Royal Bank of Canada* Apr Royal Bank of Canada* Mar Royal Bank of Canada* Jul Royal Bank of Canada* Jul SEC LP and Arci Ltd Aug SGTP Highway Bypass LP Jan Sun Life Financial Inc May TELUS Corp Nov TELUS Corp Apr Teranet Holdings LP Dec Teranet Holdings LP Dec Teranet Holdings LP Jun TMX Group Ltd Oct Toromont Industries Ltd Sep TransCanada PipeLines Ltd Aug TransCanada PipeLines Ltd Nov TransCanada PipeLines Ltd Jun Transcanada Trust May TransEd Partners GP Sep Trillium Windpower LP Feb Union Gas Ltd Apr Union Gas Ltd Aug Union Gas Ltd Nov Union Gas Ltd Jun Union Gas Ltd Sep Union Gas Ltd Jun Union Gas Ltd Jun Union Gas Ltd Jun Vancouver Fraser Port Authority Apr Vancouver International Airport Authority Dec Westcoast Energy Inc Jan Westcoast Energy Inc Jan Westcoast Energy Inc Oct

6 SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) The accompanying notes are an integral part of the financial statements. Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets CORPORATE (cont.) Westcoast Energy Inc Dec-2025 $ $ Westcoast Energy Inc Dec Westcoast Energy Inc Oct Winnipeg Airport Authority Inc Nov Winnipeg Airport Authority Inc Apr Winnipeg Airport Authority Inc Sep Winnipeg Airport Authority Inc Nov FEDERAL Canada Housing Trust No Dec Canada Housing Trust No Jun Canada Housing Trust No Dec Canada Housing Trust No Dec Canada Housing Trust No Mar Canada Housing Trust No Jun Canada Housing Trust No Jun CBC Monetization Trust May Government of Canada Aug Government of Canada Sep Government of Canada Mar Government of Canada Jun Government of Canada Sep Government of Canada Mar Government of Canada Jun Government of Canada Sep Government of Canada Mar Government of Canada Jun Government of Canada Jun Government of Canada Jun Government of Canada Jun Government of Canada Jun Government of Canada Jun Government of Canada Jun Government of Canada Dec Government of Canada Dec Government of Canada Dec PROVINCIAL/MUNICIPAL City of Montreal Dec City of Ottawa Jul City of Ottawa Jul City of Toronto Sep City of Toronto May City of Toronto Feb City of Vancouver Oct City of Vancouver Dec Hospital for Sick Children Dec McGill University Sep Ontario Electricity Financial Corp May Ontario Electricity Financial Corp May Ontario Electricity Financial Corp Jun Ontario School Boards Financing Corp Oct Ontrea Inc Apr OPB Finance Trust Feb OPB Finance Trust Jan Province of Alberta Jun Province of Alberta Dec

7 SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) The accompanying notes are an integral part of the financial statements. Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets PROVINCIAL/MUNICIPAL (cont.) Province of Alberta Dec-2043 $ $ Province of Alberta Dec Province of Manitoba Jun Province of Manitoba Sep Province of Manitoba Sep Province of New Brunswick Jun Province of New Brunswick Sep Province of New Brunswick Jun Province of New Brunswick Jun Province of New Brunswick Aug Province of Newfoundland and Labrador Oct Province of Ontario Jun Province of Ontario Sep Province of Ontario Feb Province of Ontario Jun Province of Ontario Jun Province of Ontario Dec Province of Ontario Jun Province of Ontario Jun Province of Ontario Jun Province of Ontario Jun Province of Ontario Jun Province of Ontario Jun Province of Ontario Jun Province of Ontario Dec Province of Ontario Jun Province of Quebec Dec Province of Quebec Jan Province of Quebec Apr Province of Quebec Sep Province of Quebec Oct Province of Quebec Dec Province of Quebec Dec Province of Quebec Dec Province of Quebec Dec Province of Saskatchewan Jun Province of Saskatchewan Mar Province of Saskatchewan Sep Province of Saskatchewan Jun Province of Saskatchewan Dec South Coast British Columbia Transportation Authority Nov South Coast British Columbia Transportation Authority Jun University of British Columbia Dec University of Toronto Nov TOTAL CANADIAN BONDS UNITED KINGDOM BONDS National Grid Electricity Transmission Plc. CAD Sep TOTAL UNITED KINGDOM BONDS UNITED STATES BONDS Anheuser-Busch InBev Finance Inc. CAD May Anheuser-Busch InBev Finance Inc. CAD May AT&T Inc. CAD Nov AT&T Inc. CAD May AT&T Inc. CAD May Bank of America Corp. CAD Jun Bank of America Corp. CAD Mar

8 SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets UNITED STATES BONDS (cont.) Citigroup Inc. CAD Oct-2022 $ $ Merrill Lynch & Co. Inc. CAD May Molson Coors International LP CAD Sep Molson Coors International LP CAD Sep Molson Coors International LP CAD Jul Molson Coors International LP CAD Jul United Parcel Service Inc. CAD May Wells Fargo & Co. CAD Mar Wells Fargo & Co. CAD Oct Wells Fargo & Co. CAD May TOTAL UNITED STATES BONDS TOTAL BONDS MORTGAGE-BACKED SECURITIES Equitable Bank Jan Peoples Trust Oct TOTAL MORTGAGE-BACKED SECURITIES MORTGAGES CMHC Insured % Nov 01, % Dec 01, % Jan 01, % Nov 01, TOTAL MORTGAGES SHORT-TERM INVESTMENTS Banner Trust Bay Street Funding Trust Class A Caisse Centrale Desjardins Canadian Master Trust Series A Enbridge Pipelines Inc Government of Canada Treasury Bills Greater Toronto Airport Authority HSBC Bank Canada Inter Pipeline Corridor Inc King Street Funding Trust Merit Trust Senior Notes National Bank of Canada Nissan Canada Financial Services Inc Nova Scotia Power Inc Prime Trust Senior Notes Ridge Trust SOUND Trust SURE Trust Union Gas Ltd Zeus Receivables Trust Senior Notes TOTAL SHORT-TERM INVESTMENTS TOTAL INVESTMENTS UNREALIZED GAIN ON FUTURES CONTRACTS (SCHEDULE A) UNREALIZED LOSS ON FUTURES CONTRACTS (SCHEDULE A) (341) TOTAL PORTFOLIO $ OTHER NET ASSETS (LIABILITIES) ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS ( ) (4.5) NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS $ The accompanying notes are an integral part of the financial statements.

9 SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) SCHEDULE A Futures Contracts Number of Contracted Unrealized Contracts Value Gain (699) Canadian 10-Year Bond Future, September 2017 Contracts at CAD per contract $ ( ) $ $ ( ) $ Number of Contracted Unrealized Contracts Value Loss (801) United States 10-Year Note Future, September 2017 Contracts at USD per contract $ $ (341) $ $ (341) TOTAL FUTURES $ $ $2 760 Government of Canada Treasury Bills are held as collateral by counterparties with respect to the above futures contracts. * Investment in related party (see note 7 in the generic notes). Short-term investments, which may be made up of treasury bills, commercial paper, term deposits and discount notes, and are grouped by issuer, earn interest at rates ranging from 0.54% to 1.11% and mature between July 4, 2017 and December 22, The accompanying notes are an integral part of the financial statements.

10 FINANCIAL STATEMENTS (unaudited) Statements of Financial Position (unaudited) (in $000s except per unit amounts) (see note 2 in the generic notes) June December ASSETS Investments at fair value $ $ Cash Due from investment dealers Subscriptions receivable Unrealized gain on futures contracts Futures contracts margin receivable Dividends receivable, interest accrued and other assets TOTAL ASSETS LIABILITIES Due to investment dealers Redemptions payable Unrealized loss on futures contracts 341 Distributions payable 49 Accounts payable and accrued expenses TOTAL LIABILITIES EXCLUDING NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS ( NAV ) $ $ Investments at cost $ $ NAV SERIES A $ $ ADVISOR SERIES $ $ SERIES H $ $ SERIES D $ $ SERIES F $ $ SERIES I $ $ SERIES O $ $ NAV PER UNIT SERIES A $ $ ADVISOR SERIES $ $ SERIES H $ $ SERIES D $ $ SERIES F $ $ SERIES I $ $ SERIES O $ $ Statements of Comprehensive Income (unaudited) (in $000s except per unit amounts) For the periods ended June 30 (see note 2 in the generic notes) INCOME (see note 3 in the generic notes) Interest for distribution purposes $ $ Net gain (loss) from futures contracts (4 201) Other income received from underlying funds Net realized gain (loss) on investments (2 791) Net gain (loss) on foreign currencies and other net assets Change in unrealized gain (loss) on investments TOTAL INCOME (LOSS) EXPENSES (see notes Fund Specific Information) Management fees Administration fees Independent Review Committee costs 1 2 GST/HST TOTAL EXPENSES INCREASE (DECREASE) IN NAV $ $ INCREASE (DECREASE) IN NAV SERIES A $ $ ADVISOR SERIES $ $ SERIES H $ $ 944 SERIES D $ $ SERIES F $ $ SERIES I $ $ SERIES O $ $ INCREASE (DECREASE) IN NAV PER UNIT SERIES A $ 0.23 $ 0.47 ADVISOR SERIES $ 0.22 $ 0.47 SERIES H $ $ 0.48 SERIES D $ 0.25 $ 0.51 SERIES F $ 0.25 $ 0.50 SERIES I $ $ 0.51 SERIES O $ 0.28 $ 0.54 The accompanying notes are an integral part of these financial statements.

11 FINANCIAL STATEMENTS (unaudited) Statements of Cash Flow (unaudited) (in $000s) For the periods ended June 30 (see note 2 in the generic notes) CASH FLOWS FROM OPERATING ACTIVITIES Increase (decrease) in NAV $ $ ADJUSTMENTS TO RECONCILE NET CASH PROVIDED BY (USED IN) OPERATIONS Interest for distribution purposes (249) (334) Net realized loss (gain) on investments (48 445) Change in unrealized loss (gain) on investments (70 268) ( ) (Increase) decrease in accrued receivables 141 (4 010) Increase (decrease) in accrued payables Cost of investments purchased ( ) ( ) Proceeds on sales of investments NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (40 930) ( ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of redeemable units Cash paid on redemption of redeemable units ( ) ( ) Distributions paid to holders of redeemable units (29 664) (26 932) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ $ Net increase (decrease) in cash for the period (1 726) Cash (bank overdraft), beginning of period CASH (BANK OVERDRAFT), END OF PERIOD $ $ Interest received (paid) $ $ Dividends received, net of withholding taxes $ $ Cash consists of cash and futures contracts margin receivable/payable, as applicable. The accompanying notes are an integral part of these financial statements.

12 FINANCIAL STATEMENTS (unaudited) Statements of Changes in NAV (unaudited) (in $000s) For the periods ended June 30 (see note 2 in the generic notes) Series A Advisor Series Series H Series D NAV AT BEGINNING OF PERIOD $ $ $ $ $ $ $ $ INCREASE (DECREASE) IN NAV Early redemption fees 2 Proceeds from redeemable units issued Reinvestments of distributions to holders of redeemable units Redemption of redeemable units (26 792) (17 688) (20 061) (13 986) (26 676) (39 520) (28 565) NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS (9 059) (23 888) Distributions from net income (1 855) (1 644) (1 290) (1 071) (256) (8 073) (7 763) Distributions from net gains Distributions from capital TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (1 855) (1 644) (1 290) (1 071) (256) (8 073) (7 763) NET INCREASE (DECREASE) IN NAV (7 646) (23 200) NAV AT END OF PERIOD $ $ $ $ $ $ $ $ For the periods ended June 30 (see note 2 in the generic notes) Series F Series I Series O Total NAV AT BEGINNING OF PERIOD $ $ $ $ $ $ $ $ INCREASE (DECREASE) IN NAV Early redemption fees 8 (4) 10 (4) Proceeds from redeemable units issued Reinvestments of distributions to holders of redeemable units Redemption of redeemable units ( ) (62 714) ( ) ( ) ( ) ( ) ( ) NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS (86 042) Distributions from net income (12 545) (7 286) (1 605) ( ) ( ) ( ) ( ) Distributions from net gains Distributions from capital TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (12 545) (7 286) (1 605) ( ) ( ) ( ) ( ) NET INCREASE (DECREASE) IN NAV (82 908) NAV AT END OF PERIOD $ $ $ $ $ $ $ $ The accompanying notes are an integral part of these financial statements.

13 NOTES TO FINANCIAL STATEMENTS FUND SPECIFIC INFORMATION (unaudited) General information (see note 1 in the generic notes) The investment objective of the Fund is to provide investors with stability of capital by investing primarily in a well-diversified portfolio of fixed-income securities issued primarily by Canadian governments and corporations. It also invests in derivatives. All outstanding Series H units were re-designated as Series C units, and then all Series C units were renamed Series A units effective June 30, All outstanding Series I units were re-designated as Series F units effective June 30, Financial instrument risk and capital management (see note 4 in the generic notes) Credit risk (%) The table below summarizes the Fund s credit risk exposure grouped by credit ratings as at: Rating June December AAA AA A BBB BB 0.5 B 0.6 CCC 0.2 Unrated* Total * Mortgages, which represent 44.8% (December 31, %) of the unrated above, are all Canada Mortgage and Housing Corporation ( CMHC ) guaranteed mortgages, and therefore have the backing of an AAA rated issuer. As at and December 31, 2016, there were no mortgage payments in arrears. Interest rate risk (%) The table below summarizes the Fund s exposure to interest rate risk by remaining term to maturity as at: Term to maturity June December Less than 1 year years years > 10 years Total As at, had prevailing interest rates risen or lowered by 1%, with all other factors kept constant, the Fund s net assets may have decreased or increased, respectively, by approximately 7.2% (December 31, %). In practice, actual results could differ from this sensitivity analysis and the difference could be material. Fair value hierarchy ($000s except % amounts) (see note 3 in the generic notes) The following is a summary of the inputs used as of and December 31, Level 1 Level 2 Level 3 Total Equities Mutual fund units Fixed-income and debt securities Short-term investments Derivatives assets Derivatives liabilities (341) (341) Total financial instruments % of total portfolio Concentration risk (%) The table below summarizes the Fund s investment portfolio (after consideration of derivative products, if any) as at: Investment mix June December Federal Bonds Provincial Bonds Corporate Bonds Municipal Bonds Mortgage-Backed Bonds Mortgages Cash/Other Total December 31, 2016 Level 1 Level 2 Level 3 Total Equities Mutual fund units Fixed-income and debt securities Short-term investments Derivatives assets Derivatives liabilities Total financial instruments % of total portfolio Please see the generic notes at the back of the financial statements.

14 NOTES TO FINANCIAL STATEMENTS FUND SPECIFIC INFORMATION (unaudited) During the periods ended and December 31, 2016, the reconciliation of financial instruments measured at fair value using unobservable inputs (Level 3) is presented as follows: June December Balance at beginning of period Net purchases 4 Net sales (203) (395) Net transfers in Net transfers out Realized gains (losses) (2) (5) Unrealized gains (losses) (128) (283) Balance at end of period During the period ended December 31, 2016, investments in mortgages of $8,721 were transferred into Level 3 from Level 2 following management s assessment of the significance of the unobservable inputs used to value those investments. The Level 3 assets are mortgages which are valued by a third-party vendor using industry-accepted methodologies which include unobservable inputs. Mortgages are valued by discounting future cash flows using a discount rate equal to the risk-free rate plus an appropriate risk spread premium. The spread premium is derived by the vendor from their risk rating program and a monthly spread matrix. This quantitative rules-based approach reviews seven risk factors to assess the market risk, credit risk and liquidity premiums to arrive at a total credit score for each mortgage. Among the inputs are the borrowers financial statements, rent roll and operating statements, the most recent property inspection report and the terms of the mortgage itself. As at, a 10% increase or decrease in the weighted average spread premium, an unobservable input, would have increased or decreased the Fund s net assets respectively by approximately 0.0% (December 31, %). Management fees and operating expenses (see note 7 in the generic notes) Management fees and administration fees of each series of the Fund are payable to RBC GAM and calculated at the following annual percentages, before GST/HST, of the daily net asset value of each series of the Fund. Management fees* Operating expenses Series A 0.90% 0.05% Advisor Series 0.90% 0.05% Series H 0.90% 0.05% Series D 0.50% 0.04% Series F 0.40% 0.05% Series I 0.40% 0.05% Series O n/a 0.02% * Effective June 30, 2016, the management fees for Series A and Advisor Series units were reduced to 0.90% from 1.00%; and for Series F units were reduced to 0.40% from 0.50%. Series O unitholders pay a negotiated management fee directly to RBC GAM for investment-counselling services Investments by related parties ($000s except unit amounts) Royal Bank of Canada, or one of its subsidiaries, held the following investments in the Fund as at: June December Units held Series A Advisor Series Series D Series F Value of all units 3 3 Underlying mutual fund ownership interest (%) The table below summarizes the Fund s interest in the underlying mutual funds as a percentage of NAV, and the Fund s ownership interest as a percentage of the net assets of the underlying funds ( Ownership ). All underlying funds are established and conduct business in Canada, and have an associate relationship to the Fund. June December NAV Ownership NAV Ownership Phillips, Hager & North High Yield Bond Fund RBC High Yield Bond Fund Taxes ($000s) (see note 5 in the generic notes) The Fund had no capital or non-capital losses as at December 31, Please see the generic notes at the back of the financial statements.

15 NOTES TO FINANCIAL STATEMENTS FUND SPECIFIC INFORMATION (unaudited) Redeemable units (000s) There is no limitation on the number of units available for issue. Units are purchased and redeemed at the NAV per unit. For the periods ended June 30 (see note 2 in the generic notes) Series A Opening units Issued number of units Reinvested number of units Redeemed number of units (2 339) (1 520) Ending number of units Advisor Series Opening units Issued number of units Reinvested number of units Redeemed number of units (1 749) (1 201) Ending number of units Series H Opening units Issued number of units 220 Reinvested number of units 19 Redeemed number of units (2 248) Ending number of units Series D Opening units Issued number of units Reinvested number of units Redeemed number of units (3 455) (2 454) Ending number of units Series F Opening units Issued number of units Reinvested number of units Redeemed number of units (11 965) (5 380) Ending number of units Series I Opening units Issued number of units Reinvested number of units 108 Redeemed number of units (11 241) Ending number of units Series O Opening units Issued number of units Reinvested number of units Redeemed number of units (69 086) (30 852) Ending number of units Investments by other related investment funds (%) (see note 7 in the generic notes) The table below summarizes, as a percentage, the net assets of the Fund owned by other related investment funds as at: June December RBC Balanced Growth & Income Class RBC Balanced Growth & Income Fund RBC Conservative Growth & Income Fund RBC Monthly Income Bond Fund RBC Retirement 2020 Portfolio RBC Retirement 2025 Portfolio RBC Retirement 2030 Portfolio RBC Retirement 2035 Portfolio RBC Retirement 2040 Portfolio RBC Retirement 2045 Portfolio RBC Retirement 2050 Portfolio RBC Retirement Income Solution RBC Select Balanced Portfolio RBC Select Choices Balanced Portfolio RBC Select Choices Conservative Portfolio RBC Select Choices Growth Portfolio RBC Select Conservative Portfolio RBC Select Growth Portfolio RBC Select Very Conservative Portfolio RBC Target 2020 Education Fund RBC Target 2025 Education Fund RBC Target 2030 Education Fund 0.3 Total Please see the generic notes at the back of the financial statements.

16 GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see Fund Specific Information) 1. The Funds The Funds ( Fund or Funds ) are open-ended mutual fund trusts governed by the laws of the Province of Ontario or British Columbia. RBC GAM is the manager and portfolio manager of the Funds and its head office is located at 155 Wellington Street West, 22nd Floor, Toronto, Ontario. RBC GAM is also the trustee of those Funds governed by the laws of the Province of Ontario. These financial statements were approved for issuance by the Board of Directors of RBC GAM on August 10, The Funds may issue an unlimited number of units in some or all of Series A, Advisor Series, Advisor T5 Series, Series T5, Series T8, Series H, Series D, Series DZ, Series F, Series FT5, Series FT8, Series I and Series O. Series A units have no sales charges and are available to all investors through authorized dealers. Advisor Series units and Advisor T5 Series units are available to all investors through authorized dealers with an initial sales charge or low-load sales charge option. For certain of the Funds, Advisor Series units and Advisor T5 Series units are available with a deferred sales charge option. Under the initial sales charge option, investors pay a sales charge ranging from 0% to 5% of the amount invested. Under the deferred sales charge or low-load sales charge option, sales charges may be applicable, as described in the Simplified Prospectus. Series T5 units and Series T8 units have no sales charges and are available to all investors through authorized dealers. Series H units have no sales charges, have lower fees than Series A units and are only available to investors who invest and maintain the required minimum balance through authorized dealers. Series D units and Series DZ units have no sales charges and have lower fees than Series A units. Series D units and Series DZ units may be available to investors who have accounts with RBC Direct Investing Inc., Phillips, Hager & North Investment Funds Ltd. ( PH&N IF ) or certain other authorized dealers (primarily discount brokers). Series F units, Series FT5 units and Series FT8 units have no sales charges and have lower fees than Series A units. Series F units, Series FT5 units and Series FT8 units are only available to investors who have fee-based accounts with their dealer. Series I units have no sales charges, have lower fees than Series F units, Series FT5 units and Series FT8 units and are only available to investors who invest and maintain the required minimum balance and who have accounts with dealers who have signed a fee-based agreement with RBC GAM. Series O units are only available to large private or institutional investors or dealers. No management fees are payable by the Funds in respect to Series O units. Unitholders pay a negotiated fee directly to RBC GAM for investment-counselling services. 2. Financial year/period The information provided in these financial statements and notes thereto is for the six-month periods ended and 2016, or as at and December 31, In the year a Fund or series is established, period represents the period from inception to June 30 of that fiscal year. 3. Summary of significant accounting policies These financial statements have been prepared in compliance with International Financial Reporting Standards ( IFRS ), which include estimates and assumptions made by management that may affect the reported amounts of assets (primarily valuation of investments), liabilities, income and expenses during the reported periods. Actual results may differ from estimates. The significant accounting policies of the Funds, which are investment entities, are as follows: Classification of Financial Assets and Liabilities The Funds financial assets and financial liabilities, other than derivatives, are designated at fair value through profit or loss at inception, as those financial assets and liabilities are managed together and their performance evaluated on a fair value basis in accordance with the Funds documented investment strategy. Derivatives are classified as held for trading and measured at fair value through profit or loss. Redemption units are measured at their respective redemption values. All other assets and liabilities are measured at amortized cost. Unrealized gains (losses) arising on derivatives are shown on the respective Fund s Statements of Financial Position and such amounts are included in the Statements of Comprehensive Income in Change in unrealized gain (loss) on investments, where applicable. Realized gains arising on derivatives during a period are included in the Statements of Comprehensive Income in Other derivatives, where applicable. Refer to note 3 for net gains (losses) on financial instruments by category.

17 GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see Fund Specific Information) Classification of Redeemable Units The Funds have multiple features across the different series of the Funds. Consequently, the Funds outstanding redeemable units are classified as financial liabilities in accordance with the requirements of IAS 32 Financial Instruments: Presentation. Unconsolidated Structured Entities The Funds may invest in other Funds managed by the manager or an affiliate of the manager ( Investee Funds ). The Investee Funds are determined to be unconsolidated structured entities, as decision making in the Investee Fund is not governed by the voting rights or other similar rights held by the Fund. The investments in Investee Funds are subject to the terms and conditions of the offering documentation of the respective Investee Funds and are susceptible to market price risk arising from uncertainties about future values of those Investee Funds. The Investee Funds objectives are generally to achieve longterm capital appreciation and/or current income by investing in a portfolio of securities and other funds in line with each of their documented investment strategies. The Investee Funds apply various investment strategies to accomplish their respective investment objectives. The Investee Funds finance their operations by issuing redeemable units which are puttable at the unitholder s option, and entitle the unitholder to a proportional stake in the respective Fund s net assets. The Funds do not consolidate their investment in underlying funds but account for these investments at fair value. The manager has determined that the Funds are investment entities in accordance with IFRS 10 Consolidated Financial Statements, since the Funds meet the following criteria: (i) The Funds obtain capital from one or more investors for the purpose of providing those investors with investment management services, (ii) The Funds commit to their investors that their business purpose is to invest funds solely for the returns from capital appreciation, investment income or both and (iii) The Funds measure and evaluate the performance of substantially all of their investments on a fair value basis. Therefore, the fair value of the investment in the Investee Fund is included in the Schedule of Investment Portfolio and included in Investments at fair value in the Fund s Statements of Financial Position. The change in fair value of the investment held in the Investee Fund is included in Change in unrealized gain (loss) on investments in the Statements of Comprehensive Income. Determination of Fair Value The fair value of a financial instrument is the amount at which the financial instrument could be exchanged in an arm s-length transaction between knowledgeable and willing parties under no compulsion to act. In determining fair value, a three-tier hierarchy based on inputs is used to value the Funds financial instruments. The hierarchy of inputs is summarized below: Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices), including broker quotes, vendor prices and vendor fair value factors; and Level 3 inputs for the asset or liability that are not based on observable market data (unobservable inputs). Changes in valuation methods may result in transfers into or out of an investment s assigned level. The three-tier hierarchy of investments and derivatives is included in Notes to Financial Statements Fund Specific Information. Investments are recorded at fair value, which is determined as follows: Equities Common shares, preferred shares and exchangetraded funds are valued at the closing price recorded by the security exchange on which the security is principally traded. In circumstances where the closing price is not within the bid-ask spread, management will determine the points within the bid-ask spread that are most representative of the fair value. Fixed-Income and Debt Securities Bonds, mortgage-backed securities, loans and debentures are valued at the closing price quoted by major dealers or independent pricing vendors in such securities. NHA-approved mortgages are valued at an amount, which produces a yield equivalent to the prevailing rate of return on mortgages of similar type and term. Short-Term Investments Short-term investments are valued at fair value, which is approximated at cost plus accrued interest. Options Listed options are valued at the closing price on the recognized exchange on which the option is traded. In circumstances where the closing price is not within the bid-ask spread, management will determine the points within the bid-ask spread that are most representative of the fair value.