2017 Non-Prospectused Funds Annual Financial Statements

Transcription

1 Non-Prospectused Funds Annual Financial Statements Phillips, Hager & North Investment Management is a division of RBC Global Asset Management Inc., the Manager of the Funds and an indirect wholly owned subsidiary of Royal Bank of Canada.

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3 TABLE OF CONTENTS MANAGEMENT S RESPONSIBILITY FOR FINANCIAL REPORTING 2 INDEPENDENT AUDITOR S REPORT 3 MONEY MARKET FUNDS Phillips, Hager & North Institutional S.T.I.F. 5 FIXED INCOME FUNDS Phillips, Hager & North Municipal Plus Bond Fund 11 Phillips, Hager & North Mortgage Pension Trust 17 Phillips, Hager & North High Grade Corporate Bond Fund 24 Phillips, Hager & North Investment Grade Corporate Bond Trust 31 Phillips, Hager & North PRisM Short 41 Phillips, Hager & North Enhanced Total Return Bond Fund 48 Phillips, Hager & North Corporate Bond Trust 57 Phillips, Hager & North Enhanced Corporate Bond Trust 66 Phillips, Hager & North Private Placement Corporate Debt Fund 73 Phillips, Hager & North Core Plus Bond Fund 80 Phillips, Hager & North Alpha Plus Bond Fund 88 Phillips, Hager & North Long Municipal Plus Bond Fund 96 Phillips, Hager & North Long Investment Grade Corporate Bond Trust 102 Phillips, Hager & North Long Corporate Bond Trust 113 Phillips, Hager & North Long Mortgage Pension Trust 122 Phillips, Hager & North High Yield Mortgage Fund 131 Phillips, Hager & North Infrastructure Debt Fund 138 Phillips, Hager & North Long Bond Pension Trust 145 Phillips, Hager & North Enhanced Long Bond Pension Trust 153 Phillips, Hager & North Long Core Plus Bond Fund 161 Phillips, Hager & North PRisM Mid 169 Phillips, Hager & North PRisM Long 177 Phillips, Hager & North 20+ Strip Fund 186 Phillips, Hager & North Custom Interest Rate Overlay Fund 192 Phillips, Hager & North Custom Interest Rate Completion Fund 202 Phillips, Hager & North PRisM Levered Government Bond Fund 209 BlueBay Canadian Institutional Global High Yield Bond Fund 214 Phillips, Hager & North BlueBay Emerging Market Debt Fund 224 BALANCED FUNDS BonaVista Private Balanced Fund 237 BonaVista Balanced Fund 243 Phillips, Hager & North PRisM Balanced Fund 250 Phillips, Hager & North Enhanced Long Government Bond Fund 257 Phillips, Hager & North Enhanced PRisM Long Fund 264 RBC Total Return Growth Fund 271 Phillips, Hager & North Absolute Return Fund 280 RBC Multi-Strategy Alpha Fund 289 CANADIAN EQUITY FUNDS RBC QUBE 120/20 Canadian Equity Fund 296 RBC QUBE Market Neutral Canadian Equity Fund 303 BonaVista Canadian Equity Fund 316 Phillips, Hager & North Institutional Gold & Precious Metals Fund 323 RBC Canadian Preferred Share Fund 329 U.S. EQUITY FUNDS RBC Alpha Plus U.S. Equity Fund 338 GLOBAL EQUITY FUNDS RBC QUBE Market Neutral World Equity Fund (CAD Hedged) 344 RBC QUBE Market Neutral World Equity Fund 351 RBC Market Neutral Equity Fund 360 RBC QUBE Custom Global Equity Fund 369 GENERIC NOTES TO FINANCIAL STATEMENTS 376 1

4 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 funds (the Funds ) whose financial statements accompany this letter and approved by the Board of Directors of RBC GAM. We are responsible for the information contained within these financial statements. We have maintained appropriate procedures and controls to ensure that relevant 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. PricewaterhouseCoopers LLP, Chartered Professional Accountants, Licensed Public Accountants, have performed an independent audit of the financial statements in accordance with IFRS. Their report is set out on the next page. Damon G. Williams, FSA, FCIA, CFA Chief Executive Officer RBC Global Asset Management Inc. Heidi Johnston, CPA, CA Chief Financial Officer RBC GAM Funds March 8,

5 INDEPENDENT AUDITOR S REPORT To the Unitholders of: Phillips, Hager & North Institutional S.T.I.F. Phillips, Hager & North Municipal Plus Bond Fund Phillips, Hager & North Mortgage Pension Trust Phillips, Hager & North High Grade Corporate Bond Fund Phillips, Hager & North Investment Grade Corporate Bond Trust Phillips, Hager & North PRisM Short Phillips, Hager & North Enhanced Total Return Bond Fund Phillips, Hager & North Corporate Bond Trust Phillips, Hager & North Enhanced Corporate Bond Trust Phillips, Hager & North Private Placement Corporate Debt Fund Phillips, Hager & North Core Plus Bond Fund Phillips, Hager & North Alpha Plus Bond Fund Phillips, Hager & North Long Municipal Plus Bond Fund Phillips, Hager & North Long Investment Grade Corporate Bond Trust Phillips, Hager & North Long Corporate Bond Trust Phillips, Hager & North Long Mortgage Pension Trust Phillips, Hager & North High Yield Mortgage Fund Phillips, Hager & North Infrastructure Debt Fund Phillips, Hager & North Long Bond Pension Trust Phillips, Hager & North Enhanced Long Bond Pension Trust Phillips, Hager & North Long Core Plus Bond Fund Phillips, Hager & North PRisM Mid Phillips, Hager & North PRisM Long Phillips, Hager & North 20+ Strip Fund Phillips, Hager & North Custom Interest Rate Overlay Fund Phillips, Hager & North Custom Interest Rate Completion Fund Phillips, Hager & North PRisM Levered Government Bond Fund BlueBay Canadian Institutional Global High Yield Bond Fund Phillips, Hager & North BlueBay Emerging Market Debt Fund BonaVista Private Balanced Fund BonaVista Balanced Fund Phillips, Hager & North PRisM Balanced Fund Phillips, Hager & North Enhanced Long Government Bond Fund Phillips, Hager & North Enhanced PRisM Long Fund RBC Total Return Growth Fund Phillips, Hager & North Absolute Return Fund RBC Multi-Strategy Alpha Fund RBC QUBE 120/20 Canadian Equity Fund RBC QUBE Market Neutral Canadian Equity Fund BonaVista Canadian Equity Fund Phillips, Hager & North Institutional Gold & Precious Metals Fund RBC Canadian Preferred Share Fund RBC Alpha Plus U.S. Equity Fund RBC QUBE Market Neutral World Equity Fund (CAD Hedged) RBC QUBE Market Neutral World Equity Fund RBC Market Neutral Equity Fund RBC QUBE Custom Global Equity Fund (collectively referred to as the Funds ) We have audited the accompanying financial statements of each of the Funds, which comprise the statements of financial position, comprehensive income, cash flows and changes in net assets attributable to holders of redeemable units as at and for the periods indicated in note 2, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of the financial statements of each of the Funds in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on the financial statements of each of the Funds based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in each of our audits is sufficient and appropriate to provide a basis for our audit opinion. 3

6 INDEPENDENT AUDITOR S REPORT Opinion In our opinion, the financial statements of each of the Funds present fairly, in all material respects, the financial position, financial performance and cash flows of each of the Funds as at and for the periods indicated in note 2, in accordance with International Financial Reporting Standards. Chartered Professional Accountants, Licensed Public Accountants Toronto, Ontario March 8,

7 ANNUAL FINANCIAL STATEMENTS SCHEDULE OF INVESTMENT PORTFOLIO (in $000s) PHILLIPS, HAGER & NORTH INSTITUTIONAL S.T.I.F., Par Value Cost/ % of Net (000s) Security Fair Value Assets BANKERS ACCEPTANCES AND BANK OBLIGATIONS HSBC Bank Canada $ National Bank of Canada COMMERCIAL PAPER AltaLink LP Banner Trust Bay Street Funding Trust Class A Caisse Centrale Desjardins Canadian Master Trust Series A Caterpillar Financial Services Ltd Central 1 Credit Union Clarity Trust Enbridge Pipelines Inc FortisBC Energy Inc Fusion Trust Gaz Metro Inc Greater Toronto Airport Authority Honda Canada Finance Inc Husky Energy Inc Hydro One Inc Inter Pipeline Corridor Inc King Street Funding Trust Lower Mattagami Energy LP Merit Trust Senior Notes Nestlé Capital Canada Ltd Nissan Canada Financial Services Inc Nova Scotia Power Inc OMERS Realty Corp Prime Trust Senior Notes Ridge Trust SAFE Trust Series SOUND Trust Suncor Energy Inc SURE Trust TMX Group Ltd Union Gas Ltd Zeus Receivables Trust Senior Notes TOTAL INVESTMENTS OTHER NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS $ Investments, which are grouped by issuer, earn interest at rates ranging from 0.98% to 1.73% and mature between January 3, 2018 and August 9, The accompanying notes are an integral part of the financial statements. 5

8 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH INSTITUTIONAL S.T.I.F. Statements of Financial Position (in $000s except per unit amounts) (see note 2 in the generic notes) ASSETS Investments at fair value $ $ Cash Dividends receivable, interest accrued and other assets TOTAL ASSETS NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS ( NAV ) $ $ Statements of Comprehensive Income (in $000s except per unit amounts) For the periods ended (see note 2 in the generic notes) INCOME (see note 3 in the generic notes) Interest for distribution purposes $ $ TOTAL INCOME (LOSS) INCREASE (DECREASE) IN NAV $ $ INCREASE (DECREASE) IN NAV SERIES O $ $ INCREASE (DECREASE) IN NAV PER UNIT SERIES O $ 0.10 $ 0.09 Investments at cost $ $ NAV SERIES O $ $ NAV PER UNIT SERIES O $ $ The accompanying notes are an integral part of these financial statements. 6

9 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH INSTITUTIONAL S.T.I.F. Statements of Cash Flow (in $000s) For the periods ended (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 Non-cash distributions from underlying funds Net realized loss (gain) on investments Change in unrealized loss (gain) on investments (Increase) decrease in accrued receivables (263) (438) Increase (decrease) in accrued payables (Increase) decrease in margin accounts Cost of investments purchased ( ) ( ) Proceeds from sale and maturity of investments NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (32 726) ( ) 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 (1) (3) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ $ Net increase (decrease) in cash for the period (3) 10 Cash (bank overdraft), beginning of period CASH (BANK OVERDRAFT), END OF PERIOD $ 43 $ 46 Interest received (paid) $ $ Dividends received, net of withholding taxes $ $ The accompanying notes are an integral part of these financial statements. 7

10 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH INSTITUTIONAL S.T.I.F. Statements of Changes in NAV (in $000s) For the periods ended (see note 2 in the generic notes) Series O NAV AT BEGINNING OF PERIOD $ $ INCREASE (DECREASE) IN NAV Early redemption fees Proceeds from redeemable units issued Reinvestments of distributions to holders of redeemable units Redemption of redeemable units ( ) ( ) NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS Distributions from net income (11 945) (8 534) Distributions from net gains Distributions from capital TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (11 945) (8 534) NET INCREASE (DECREASE) IN NAV NAV AT END OF PERIOD $ $ The accompanying notes are an integral part of these financial statements. 8

11 NOTES TO FINANCIAL STATEMENTS FUND SPECIFIC INFORMATION PHILLIPS, HAGER & NORTH INSTITUTIONAL S.T.I.F., General information (see note 1 in the generic notes) The Fund seeks to provide a steady level of current income while preserving capital by investing exclusively in a well-diversified portfolio of short-term Canadian money market securities. Financial instrument risk and capital management (see note 5 in the generic notes) Credit risk (%) The table below summarizes the Fund s credit risk exposure grouped by credit ratings as at: Rating R-1 (H) R-1 (M) R-1 (L) Total Concentration risk (%) The table below summarizes the Fund s investment portfolio (after consideration of derivative products, if any) as at: Investment mix Corporate Notes Cash/Other Total 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 0 1 month months months months 0.9 Total Due to the short-term nature of the Fund s investments, the Fund has minimal sensitivity to changes in interest rates. 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., 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 , 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 For the periods ended, and, there were no transfers of financial instruments between Level 1, Level 2 and Level 3. Management fees and operating expenses (see note 8 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 NAV of each series of the Fund. Management fees Operating expenses Series O n/a* 0.00% * 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: Units held Series O Value of all units 1 1 Please see the generic notes at the back of the financial statements. 9

12 NOTES TO FINANCIAL STATEMENTS FUND SPECIFIC INFORMATION PHILLIPS, HAGER & NORTH INSTITUTIONAL S.T.I.F., Taxes ($000s) (see note 6 in the generic notes) The Fund had no capital or non-capital losses as at,. 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 (see note 2 in the generic notes) Series O Opening units Issued number of units Reinvested number of units Redeemed number of units ( ) ( ) Ending number of units Investments by other related investment funds (%) (see note 8 in the generic notes) The table below summarizes, as a percentage, the NAV of the Fund owned by other related investment funds as at: BonaVista Balanced Fund 0.1 BonaVista Private Balanced Fund Phillips, Hager & North 20+ Strip Fund Phillips, Hager & North Alpha Plus Bond Fund 0.1 Phillips, Hager & North Core Plus Bond Fund Phillips, Hager & North Enhanced Corporate Bond Trust Phillips, Hager & North Enhanced Total Return Bond Fund Phillips, Hager & North Infrastructure Debt Fund Phillips, Hager & North Long Investment Grade Corporate Bond Trust Phillips, Hager & North PRisM Balanced Fund 0.1 Phillips, Hager & North PRisM Long Phillips, Hager & North PRisM Mid Phillips, Hager & North PRisM Short RBC Multi-Strategy Alpha Fund Total Please see the generic notes at the back of the financial statements. 10

13 ANNUAL FINANCIAL STATEMENTS SCHEDULE OF INVESTMENT PORTFOLIO (in $000s) PHILLIPS, HAGER & NORTH MUNICIPAL PLUS BOND FUND, Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets CANADIAN BONDS FEDERAL 229 Government of Canada Sep-2022 $ 219 $ PROVINCIAL/MUNICIPAL City of Ottawa Jul City of Toronto Jul First Nations Finance Authority Jun Hospital for Sick Children Dec Hospital for Sick Children Dec Ontario School Boards Financing Corp Nov Province of Ontario Jun Province of Ontario Jun South Coast British Columbia Transportation Authority Jun South Coast British Columbia Transportation Authority Nov University of British Columbia Dec University of Ontario Institute of Technology Oct University of Ottawa Oct York Region District School Board Jun York Region District School Board Jun TOTAL CANADIAN BONDS SHORT-TERM INVESTMENTS* TOTAL INVESTMENTS $ OTHER NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS $ * Short-term investments, which may be made up of treasury bills, commercial paper, term deposits and discount notes, earn interest at rates ranging from 0.87% to 0.89% and mature between February 22, 2018 and March 8, The accompanying notes are an integral part of the financial statements. 11

14 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH MUNICIPAL PLUS BOND FUND Statement of Financial Position (in $000s except per unit amounts) (see note 2 in the generic notes) ASSETS Investments at fair value $ Cash 3 Dividends receivable, interest accrued and other assets 452 TOTAL ASSETS NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS ( NAV ) $ Investments at cost $ NAV SERIES N $ SERIES O $ NAV PER UNIT SERIES N $ 9.96 SERIES O $ 9.96 Statement of Comprehensive Income (in $000s except per unit amounts) For the period ended (see note 2 in the generic notes) INCOME (see note 3 in the generic notes) Interest for distribution purposes $ 370 Net realized gain (loss) on investments (36) Change in unrealized gain (loss) on investments (379) TOTAL INCOME (LOSS) (45) INCREASE (DECREASE) IN NAV $ (45) INCREASE (DECREASE) IN NAV SERIES N $ (24) SERIES O $ (21) INCREASE (DECREASE) IN NAV PER UNIT SERIES N $ (0.02) SERIES O $ (0.02) The accompanying notes are an integral part of these financial statements. 12

15 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH MUNICIPAL PLUS BOND FUND Statement of Cash Flow (in $000s) For the period ended (see note 2 in the generic notes) CASH FLOWS FROM OPERATING ACTIVITIES Increase (decrease) in NAV $ (45) ADJUSTMENTS TO RECONCILE NET CASH PROVIDED BY (USED IN) OPERATIONS Interest for distribution purposes Non-cash distributions from underlying funds Net realized loss (gain) on investments 36 Change in unrealized loss (gain) on investments 379 (Increase) decrease in accrued receivables (452) Increase (decrease) in accrued payables (Increase) decrease in margin accounts Cost of investments purchased ( ) Proceeds from sale and maturity of investments NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ( ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of redeemable units Cash paid on redemption of redeemable units (494) Distributions paid to holders of redeemable units NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ Net increase (decrease) in cash for the period 3 Cash (bank overdraft), beginning of period CASH (BANK OVERDRAFT), END OF PERIOD $ 3 Interest received (paid) $ (81) Dividends received, net of withholding taxes $ The accompanying notes are an integral part of these financial statements. 13

16 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH MUNICIPAL PLUS BOND FUND Statement of Changes in NAV (in $000s) For the period ended (see note 2 in the generic notes) Series N Series O Total NAV AT BEGINNING OF PERIOD $ $ $ INCREASE (DECREASE) IN NAV (24) (21) (45) Early redemption fees Proceeds from redeemable units issued Reinvestments of distributions to holders of redeemable units Redemption of redeemable units (395) (99) (494) NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS Distributions from net income (204) (181) (385) Distributions from net gains Distributions from capital TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (204) (181) (385) NET INCREASE (DECREASE) IN NAV NAV AT END OF PERIOD $ $ $ The accompanying notes are an integral part of these financial statements. 14

17 NOTES TO FINANCIAL STATEMENTS FUND SPECIFIC INFORMATION PHILLIPS, HAGER & NORTH MUNICIPAL PLUS BOND FUND, General information (see note 1 in the generic notes) The Fund seeks to provide liquidity associated with quasigovernment issuers that trade in small lot sizes by investing primarily in Canadian municipal bonds. The Fund was started June 28,. Financial instrument risk and capital management (see note 5 in the generic notes) Credit risk (%) The table below summarizes the Fund s credit risk exposure grouped by credit ratings as at: Rating AAA 0.2 AA 46.6 A 53.2 Total Concentration risk (%) The table below summarizes the Fund s investment portfolio (after consideration of derivative products, if any) as at: Investment mix Municipal Bonds 54.8 Provincial Bonds 41.8 Federal Bonds 0.2 Cash/Other 3.2 Total 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 Less than 1 year years years 33.7 > 10 years 64.7 Total As at,, had prevailing interest rates risen or lowered by 1%, with all other factors kept constant, the Fund s NAV may have decreased or increased, respectively, by approximately 13.0%. 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,., 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 For the period ended,, there were no transfers of financial instruments between Level 1, Level 2 and Level 3. Management fees and operating expenses (see note 8 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 NAV of each series of the Fund. Management fees Operating expenses Series N n/a* 0.00% Series O n/a* 0.00% * Series N and 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: Units held Series N 50 Series O 50 Value of all units 1 Taxes ($000s) (see note 6 in the generic notes) The non-capital and capital losses as at, for the Fund were approximately: Capital losses 16 Non-capital losses Please see the generic notes at the back of the financial statements. 15

18 NOTES TO FINANCIAL STATEMENTS FUND SPECIFIC INFORMATION PHILLIPS, HAGER & NORTH MUNICIPAL PLUS BOND FUND, 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 period ended (see note 2 in the generic notes) Series N Opening units Issued number of units Reinvested number of units 20 Redeemed number of units (39) Ending number of units Series O Opening units Issued number of units Reinvested number of units 18 Redeemed number of units (10) Ending number of units Investments by other related investment funds (%) (see note 8 in the generic notes) The table below summarizes, as a percentage, the NAV of the Fund owned by other related investment funds as at: Phillips, Hager & North Alpha Plus Bond Fund Phillips, Hager & North Core Plus Bond Fund 26.0 Phillips, Hager & North Enhanced Total Return Bond Fund 24.2 Total 50.2 Please see the generic notes at the back of the financial statements. 16

19 ANNUAL FINANCIAL STATEMENTS SCHEDULE OF INVESTMENT PORTFOLIO (in $000s) PHILLIPS, HAGER & NORTH MORTGAGE PENSION TRUST, Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets CANADIAN BONDS CORPORATE ARI FCP Investments LP Dec-2023 $ $ West Edmonton Mall Property Inc Feb West Edmonton Mall Property Inc Feb TOTAL CANADIAN BONDS MORTGAGES (SCHEDULE A) SHORT-TERM INVESTMENTS* Banner Trust Bay Street Funding Trust Class A Caisse Centrale Desjardins Canadian Master Trust Series A Central 1 Credit Union Enbridge Gas Distribution Inc Fusion Trust Greater Toronto Airport Authority HSBC Bank Canada Hydro One Inc Inter Pipeline Corridor Inc King Street Funding Trust Merit Trust Senior Notes National Bank of Canada Nissan Canada Financial Services Inc OMERS Realty Corp Prime Trust Senior Notes Ridge Trust SAFE Trust Series SURE Trust TMX Group Ltd Union Gas Ltd Zeus Receivables Trust Senior Notes TOTAL SHORT-TERM INVESTMENTS TOTAL INVESTMENTS $ OTHER NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS $ The accompanying notes are an integral part of the financial statements. 17

20 SCHEDULE OF INVESTMENT PORTFOLIO (in $000s) PHILLIPS, HAGER & NORTH MORTGAGE PENSION TRUST, SCHEDULE A Mortgages Number of Loans Interest Rate (%) Principal $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ SCHEDULE A (cont.) Mortgages Number Interest of Loans Rate (%) Principal Cost Fair Value % of Net Assets $ $ $ $ $ $ $ $ $ $ * 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 1.19% to 1.69% and mature between January 3, 2018 and June 27, The accompanying notes are an integral part of the financial statements. 18

21 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH MORTGAGE PENSION TRUST Statements of Financial Position (in $000s except per unit amounts) (see note 2 in the generic notes) ASSETS Investments at fair value $ $ Cash Subscriptions receivable Dividends receivable, interest accrued and other assets TOTAL ASSETS LIABILITIES Due to investment dealers Redemptions payable 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 $ $ Statements of Comprehensive Income (in $000s except per unit amounts) For the periods ended (see note 2 in the generic notes) INCOME (see note 3 in the generic notes) Interest for distribution purposes $ $ Net realized gain (loss) on investments (5 184) (1 760) Change in unrealized gain (loss) on investments (28 759) (41 998) TOTAL INCOME (LOSS) EXPENSES (see notes Fund Specific Information) Management fees 7 7 Administration fees Independent Review Committee costs 1 1 GST/HST TOTAL EXPENSES INCREASE (DECREASE) IN NAV $ $ INCREASE (DECREASE) IN NAV SERIES A $ 23 $ 20 SERIES O $ $ INCREASE (DECREASE) IN NAV PER UNIT SERIES A $ 0.20 $ 0.16 SERIES O $ 0.25 $ 0.21 NAV SERIES A $ $ SERIES O $ $ NAV PER UNIT SERIES A $ $ SERIES O $ $ The accompanying notes are an integral part of these financial statements. 19

22 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH MORTGAGE PENSION TRUST Statements of Cash Flow (in $000s) For the periods ended (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 Non-cash distributions from underlying funds Net realized loss (gain) on investments Change in unrealized loss (gain) on investments (Increase) decrease in accrued receivables (794) (769) Increase (decrease) in accrued payables (Increase) decrease in margin accounts Cost of investments purchased ( ) ( ) Proceeds from sale and maturity of investments NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ( ) ( ) 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 (15 458) (13 976) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ $ Net increase (decrease) in cash for the period Cash (bank overdraft), beginning of period CASH (BANK OVERDRAFT), END OF PERIOD $ $ Interest received (paid) $ $ Dividends received, net of withholding taxes $ $ The accompanying notes are an integral part of these financial statements. 20

23 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH MORTGAGE PENSION TRUST Statements of Changes in NAV (in $000s) For the periods ended (see note 2 in the generic notes) Series A Series O Total NAV AT BEGINNING OF PERIOD $ $ $ $ $ $ INCREASE (DECREASE) IN NAV Early redemption fees Proceeds from redeemable units issued Reinvestments of distributions to holders of redeemable units Redemption of redeemable units ( ) ( ) ( ) ( ) NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS Distributions from net income (35) (36) ( ) ( ) ( ) ( ) Distributions from net gains Distributions from capital TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (35) (36) ( ) ( ) ( ) ( ) NET INCREASE (DECREASE) IN NAV (11) (15) NAV AT END OF PERIOD $ $ $ $ $ $ The accompanying notes are an integral part of these financial statements. 21

24 NOTES TO FINANCIAL STATEMENTS FUND SPECIFIC INFORMATION PHILLIPS, HAGER & NORTH MORTGAGE PENSION TRUST, General information (see note 1 in the generic notes) The Fund seeks to provide relatively high yields by investing primarily in a portfolio of first mortgages on income-producing property located in Canada. Financial instrument risk and capital management (see note 5 in the generic notes) Liquidity risk (%) Liquidity risk is the possibility that investments in the Fund cannot be readily converted into cash when required. Due to the illiquid nature of mortgage investments, purchases and redemptions of units of the Fund may be delayed for six months, or up to 36 months in extreme cases. Also, in extreme cases, payments for redemptions may occur as transfer in-kind. Credit risk (%) The table below summarizes the Fund s credit risk exposure grouped by credit ratings as at: Rating A Unrated* Total * Mortgages represent 98.9% (, 98.8%) of the unrated above. 0.0% (, 0.1%) of the mortgages are Canada Mortgage and Housing Corporation ( CMHC ) guaranteed mortgages, and therefore have the backing of an AAA rated issuer. To manage the credit risk on the remaining 100.0% (, 99.9%), which are conventional mortgages, the Fund only purchases mortgages that are no more than 75% of the value of the property and the net income generated by the property must be at least 1.2x the income required to pay the monthly debt service requirements. These statistics are monitored on an ongoing basis both at the individual security level and on an aggregate level. As at, mortgage payments valued at $247,570 were in arrears by 90 days or more (, $34,355). Due to the high quality of mortgages held, defaults and other credit losses are not considered a significant risk to the Fund. Concentration risk (%) The table below summarizes the Fund s investment portfolio (after consideration of derivative products, if any) as at: Investment mix Mortgages Corporate Bonds Provincial Bonds 0.5 Mortgage-Backed Securities 1.1 Cash/Other Total 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 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 NAV may have decreased or increased, respectively, by approximately 2.8% (, 3.0%). 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., 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 , 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. 22

25 NOTES TO FINANCIAL STATEMENTS FUND SPECIFIC INFORMATION PHILLIPS, HAGER & NORTH MORTGAGE PENSION TRUST, During the periods ended, and, the reconciliation of financial instruments measured at fair value using unobservable inputs (Level 3) is presented as follows: Please see the generic notes at the back of the financial statements. Balance at beginning of period Net purchases Net sales ( ) ( ) Net transfers in Net transfers out Realized gains (losses) (3 594) (1 725) Unrealized gains (losses) (29 387) (41 247) Balance at end of period During the year ended,, investments in mortgages of $2,820,614 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 of 1.80% (, 2.11%), an unobservable input, would have increased or decreased the Fund s NAV respectively by approximately 0.5% (, 0.6%). Management fees and operating expenses (see note 8 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 NAV of each series of the Fund. Management fees Operating expenses Series A 0.50% 0.15% Series O n/a* 0.14% * 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: Units held Series A Series O Value of all units 1 1 Taxes ($000s) (see note 6 in the generic notes) The non-capital and capital losses as at, for the Fund were approximately: Capital losses Non-capital losses 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 (see note 2 in the generic notes) Series A Opening units Issued number of units Reinvested number of units Redeemed number of units Ending number of units Series O Opening units Issued number of units Reinvested number of units Redeemed number of units (38 401) (45 899) Ending number of units Investments by other related investment funds (%) (see note 8 in the generic notes) The table below summarizes, as a percentage, the NAV of the Fund owned by other related investment funds as at: Phillips, Hager & North Alpha Plus Bond Fund Phillips, Hager & North Core Plus Bond Fund Phillips, Hager & North Enhanced Corporate Bond Trust Phillips, Hager & North Enhanced Total Return Bond Fund Phillips, Hager & North Long Core Plus Bond Fund Phillips, Hager & North PRisM Balanced Fund Total

26 ANNUAL FINANCIAL STATEMENTS SCHEDULE OF INVESTMENT PORTFOLIO (in $000s) PHILLIPS, HAGER & NORTH HIGH GRADE CORPORATE BOND FUND, Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets BONDS CANADIAN BONDS CORPORATE 40 Access Prairies Partnership Mar-2048 $ 40 $ Aéroports de Montréal Oct Aéroports de Montréal Apr Alberta Powerline LP Jun Alectra Inc Jul Alliance Pipeline LP Dec AltaLink Investments LP Jun Bell Canada Sep Brookfield Asset Management Inc Mar Brookfield Infrastructure Finance ULC Feb Brookfield Renewable Energy Partners ULC Oct Bruce Power LP Jun Cameco Corp Jun Cominar Real Estate Investment Trust May CU Inc Nov CU Inc Mar Dufferin Wind Power Inc Nov EllisDon Infrastructure JBH Inc Nov Enbridge Gas Distribution Inc Nov Enbridge Gas Distribution Inc Nov Enbridge Inc Feb Enbridge Pipelines Inc Sep Enbridge Pipelines Inc Aug Enwave Energy Corp Dec Fortis Inc Dec FortisBC Energy Inc Oct Greater Toronto Airports Authority Dec Greater Toronto Airports Authority Feb Greater Toronto Airports Authority Dec H2O Power LP Nov Hydro One Inc Jun Mountain View Partners GP Mar North Battleford Power LP Dec North West Redwater Partnership Jun Northland Power Solar Finance One LP Jun Nova Scotia Power Inc Jul Ontario Power Generation Inc Oct Plenary Properties LTAP LP Jan PSS Generating Station LP Oct SEC LP and Arci Ltd Aug SGTP Highway Bypass LP Jan TransCanada PipeLines Ltd Sep TransEd Partners GP Sep Westcoast Energy Inc Dec Winnipeg Airport Authority Inc Apr The accompanying notes are an integral part of the financial statements. 24

27 SCHEDULE OF INVESTMENT PORTFOLIO (in $000s) PHILLIPS, HAGER & NORTH HIGH GRADE CORPORATE BOND FUND, Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets FEDERAL 770 Government of Canada Sep-2020 $ 755 $ Government of Canada Jun Government of Canada Mar Government of Canada Sep Government of Canada Jun Government of Canada Jun Government of Canada Jun Government of Canada Dec PROVINCIAL/MUNICIPAL 62 University of Toronto Dec TOTAL CANADIAN BONDS UNITED STATES BONDS 284 Merrill Lynch & Co. Inc. CAD May Molson Coors International LP CAD Jul United Parcel Service Inc. CAD May Wells Fargo & Co. CAD Oct TOTAL UNITED STATES BONDS TOTAL BONDS $ OTHER NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS $ The accompanying notes are an integral part of the financial statements. 25

28 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH HIGH GRADE CORPORATE BOND FUND Statements of Financial Position (in $000s except per unit amounts) (see note 2 in the generic notes) ASSETS Investments at fair value $ $ Cash Subscriptions receivable 75 Dividends receivable, interest accrued and other assets TOTAL ASSETS LIABILITIES Redemptions payable 50 TOTAL LIABILITIES EXCLUDING NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS 50 NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS ( NAV ) $ $ Statements of Comprehensive Income (in $000s except per unit amounts) For the periods ended (see note 2 in the generic notes) INCOME (see note 3 in the generic notes) Interest for distribution purposes $ $ Net realized gain (loss) on investments (579) Net gain (loss) on foreign currencies and other net assets (3) 158 Change in unrealized gain (loss) on investments TOTAL INCOME (LOSS) INCREASE (DECREASE) IN NAV $ $ INCREASE (DECREASE) IN NAV SERIES O $ $ INCREASE (DECREASE) IN NAV PER UNIT SERIES O $ 0.37 $ 0.42 Investments at cost $ $ NAV SERIES O $ $ NAV PER UNIT SERIES O $ $ The accompanying notes are an integral part of these financial statements. 26

29 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH HIGH GRADE CORPORATE BOND FUND Statements of Cash Flow (in $000s) For the periods ended (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 Non-cash distributions from underlying funds Net realized loss (gain) on investments 579 (2 497) Change in unrealized loss (gain) on investments (552) (1 700) (Increase) decrease in accrued receivables Increase (decrease) in accrued payables (Increase) decrease in margin accounts Cost of investments purchased (94 461) ( ) Proceeds from sale and maturity of investments NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of redeemable units Cash paid on redemption of redeemable units (84 902) ( ) Distributions paid to holders of redeemable units (3 468) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ (79 027) $ ( ) Net increase (decrease) in cash for the period (517) 610 Cash (bank overdraft), beginning of period CASH (BANK OVERDRAFT), END OF PERIOD $ 203 $ 720 Interest received (paid) $ $ Dividends received, net of withholding taxes $ $ The accompanying notes are an integral part of these financial statements. 27

30 FINANCIAL STATEMENTS PHILLIPS, HAGER & NORTH HIGH GRADE CORPORATE BOND FUND Statements of Changes in NAV (in $000s) For the periods ended (see note 2 in the generic notes) Series O NAV AT BEGINNING OF PERIOD $ $ INCREASE (DECREASE) IN NAV Early redemption fees Proceeds from redeemable units issued Reinvestments of distributions to holders of redeemable units Redemption of redeemable units (84 852) ( ) NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS (77 138) ( ) Distributions from net income (1 914) (15 179) Distributions from net gains Distributions from capital TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (1 914) (15 179) NET INCREASE (DECREASE) IN NAV (77 170) ( ) NAV AT END OF PERIOD $ $ The accompanying notes are an integral part of these financial statements. 28