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.
2017 INTERIM FINANCIAL STATEMENTS SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets BONDS CANADIAN BONDS CORPORATE 3 700 Alimentation Couche-Tard Inc. 3.319 01-Nov-2019 $ 3 858 $ 3 817 15 400 AltaGas Ltd. 4.600 15-Jan-2018 16 726 15 651 3 500 AltaGas Ltd. 4.550 17-Jan-2019 3 774 3 641 1 900 AltaLink LP 5.243 29-May-2018 2 122 1 964 60 350 Bank of Montreal 3.210 13-Sep-2018 61 381 61 596 42 700 Bank of Montreal 2.430 04-Mar-2019 42 759 43 307 18 250 Bank of Montreal 1.880 31-Mar-2021 18 488 18 200 14 400 Bank of Montreal 3.400 23-Apr-2021 15 470 15 154 31 000 Bank of Montreal 1.610 28-Oct-2021 30 998 30 439 10 100 Bank of Nova Scotia 2.750 13-Aug-2018 10 124 10 245 32 400 Bank of Nova Scotia 2.462 14-Mar-2019 32 514 32 880 29 000 Bank of Nova Scotia 2.400 28-Oct-2019 28 993 29 454 35 100 Bank of Nova Scotia 2.270 13-Jan-2020 36 028 35 550 33 650 Bank of Nova Scotia 2.130 15-Jun-2020 33 723 33 958 9 950 Bank of Nova Scotia 2.090 09-Sep-2020 10 045 10 023 5 000 Bank of Nova Scotia 3.270 11-Jan-2021 5 338 5 229 19 000 Bank of Nova Scotia 2.873 04-Jun-2021 19 742 19 614 29 000 Bank of Nova Scotia 1.900 02-Dec-2021 28 992 28 761 3 900 Bank of Nova Scotia 1.830 27-Apr-2022 3 899 3 841 1 000 bcimc Realty Corp. 2.790 02-Aug-2018 1 023 1 014 4 000 bcimc Realty Corp. 2.960 07-Mar-2019 4 139 4 088 1 000 bcimc Realty Corp. 2.100 03-Jun-2021 1 017 1 003 15 000 Bell Canada 4.880 26-Apr-2018 16 523 15 407 17 700 Bell Canada 3.500 10-Sep-2018 17 739 18 083 27 150 Bell Canada 3.350 18-Jun-2019 28 357 27 947 3 100 Bell Canada 3.250 17-Jun-2020 3 242 3 213 30 000 Bell Canada 2.000 01-Oct-2021 29 945 29 697 16 000 Bell Canada 3.000 03-Oct-2022 16 709 16 468 2 500 BMW Canada Inc. 1.830 15-Jun-2021 2 505 2 476 5 150 Bruce Power LP 2.844 23-Jun-2021 5 150 5 247 10 000 Caisse Centrale Desjardins 2.795 19-Nov-2018 10 216 10 170 19 000 Caisse Centrale Desjardins 2.443 17-Jul-2019 18 997 19 295 8 500 Caisse Centrale Desjardins 2.091 17-Jan-2022 8 500 8 489 23 700 Canadian Credit Card Trust II 1.829 24-Mar-2020 23 708 23 706 5 600 Canadian Imperial Bank of Commerce 1.700 09-Oct-2018 5 597 5 617 27 950 Canadian Imperial Bank of Commerce 2.350 24-Jun-2019 28 307 28 342 7 400 Canadian Imperial Bank of Commerce 1.660 20-Jan-2020 7 399 7 385 58 600 Canadian Imperial Bank of Commerce 1.850 14-Jul-2020 58 537 58 705 17 500 Canadian Imperial Bank of Commerce 1.900 26-Apr-2021 17 509 17 468 14 200 Canadian Imperial Bank of Commerce 1.640 12-Jul-2021 14 212 14 006 1 300 Canadian Imperial Bank of Commerce 2.040 21-Mar-2022 1 300 1 296 5 000 Canadian Natural Resources Ltd. 2.600 03-Dec-2019 4 991 5 047 10 000 Canadian Real Estate Investment Trust 3.676 24-Jul-2018 10 047 10 176 10 000 Canadian Real Estate Investment Trust 2.564 30-Nov-2019 10 010 10 027 15 600 Canadian Western Bank 2.531 22-Mar-2018 15 662 15 699 13 000 Canadian Western Bank 3.077 14-Jan-2019 13 125 13 198 4 600 Canadian Western Bank 2.377 23-Jan-2020 4 600 4 606 9 000 Canadian Western Bank 2.751 29-Jun-2020 9 000 9 077 5 400 Canadian Western Bank 2.788 13-Sep-2021 5 400 5 412 14 800 Cards II Trust 2.155 15-Oct-2020 14 895 14 949 The accompanying notes are an integral part of the financial statements.
SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets CORPORATE (cont.) 10 000 Choice Properties LP 3.000 20-Sep-2019 $ 9 981 $ 10 198 3 500 Choice Properties LP 3.600 20-Sep-2021 3 712 3 645 9 000 Choice Properties Real Estate Investment Trust 2.297 14-Sep-2020 9 035 9 015 7 900 Crombie Real Estate Investment Trust 3.986 31-Oct-2018 8 001 8 029 6 000 Daimler Canada Finance Inc. 1.780 19-Aug-2019 5 998 5 993 14 000 Daimler Canada Finance Inc. 1.570 25-May-2020 14 000 13 845 26 500 Daimler Canada Finance Inc. 1.910 08-Jul-2021 26 512 26 228 9 400 Enbridge Inc. 4.770 02-Sep-2019 10 057 9 955 5 000 Enbridge Inc. 3.190 05-Dec-2022 5 215 5 131 3 000 Enbridge Income Fund 4.100 22-Feb-2019 3 221 3 107 11 000 First Capital Realty Inc. 4.950 30-Nov-2018 11 978 11 463 18 000 Ford Credit Canada Ltd. 2.939 19-Feb-2019 18 034 18 276 6 000 Ford Credit Canada Ltd. 3.140 14-Jun-2019 6 000 6 121 26 700 Ford Credit Canada Ltd. 2.923 16-Sep-2020 26 862 27 109 26 500 Ford Credit Canada Ltd. 2.580 10-May-2021 26 500 26 474 5 000 Ford Credit Canada Ltd. 2.710 23-Feb-2022 5 000 4 982 4 750 Ford Credit Canada Ltd. 2.766 22-Jun-2022 4 750 4 730 4 000 Genesis Trust II 1.675 17-Sep-2018 4 000 4 009 22 500 Genesis Trust II 2.433 15-May-2019 22 526 22 814 11 000 Genesis Trust II 1.699 15-Apr-2020 11 000 10 984 1 000 Genworth MI Canada Inc. 5.680 15-Jun-2020 1 097 1 075 41 000 Glacier Credit Card Trust 2.568 20-Sep-2019 41 780 41 679 7 150 Great-West Life & Annuity Insurance Capital LP II 3.449 16-May-2046 7 462 9 249 9 550 Great-West Lifeco Inc. 6.140 21-Mar-2018 10 909 9 869 9 700 H&R Real Estate Investment Trust 3.344 20-Jun-2018 9 685 9 837 4 300 H&R Real Estate Investment Trust 2.923 06-May-2022 4 304 4 261 28 000 Hollis Receivables Term Trust II 1.788 26-Feb-2020 28 089 27 994 12 500 Honda Canada Finance Inc. 1.631 12-Aug-2019 12 461 12 477 32 000 HSBC Bank Canada 2.078 26-Nov-2018 32 364 32 205 70 500 HSBC Bank Canada 2.491 13-May-2019 70 500 71 472 27 000 HSBC Bank Canada 2.938 14-Jan-2020 28 329 27 727 6 000 HSBC Bank Canada 2.449 29-Jan-2021 6 000 6 086 9 100 HSBC Bank Canada 2.170 29-Jun-2022 9 100 9 013 10 000 Hydro One Inc. 1.480 18-Nov-2019 10 000 9 989 6 600 Hydro One Inc. 1.620 30-Apr-2020 6 599 6 588 7 000 Inter Pipeline Ltd. 3.839 30-Jul-2018 7 392 7 161 9 000 Inter Pipeline Ltd. 3.448 20-Jul-2020 9 446 9 347 26 500 Loblaw Companies Ltd. 3.748 12-Mar-2019 26 609 27 374 11 200 Manulife Bank of Canada 1.915 01-Sep-2021 11 200 11 069 6 250 Manulife Bank of Canada 2.082 26-May-2022 6 250 6 177 10 500 Manulife Financial Corporation 5.505 26-Jun-2018 11 796 10 907 4 800 Master Credit Card Trust II 2.723 21-Nov-2018 4 800 4 880 50 550 National Bank of Canada 2.794 09-Aug-2018 50 311 51 294 41 000 National Bank of Canada 2.404 28-Oct-2019 42 366 41 644 17 800 National Bank of Canada 1.742 03-Mar-2020 17 831 17 775 39 200 National Bank of Canada 1.809 26-Jul-2021 39 330 38 850 5 000 Nissan Canada Financial Services Inc. 1.584 07-Oct-2019 5 000 4 972 8 000 OMERS Realty Corp. 2.498 05-Jun-2018 8 045 8 081 12 075 Penske Truck Leasing Canada Inc. 3.650 01-Feb-2018 12 361 12 219 20 000 Rogers Communications Inc. 5.380 04-Nov-2019 23 138 21 601 37 700 Rogers Communications Inc. 5.340 22-Mar-2021 43 036 41 950 23 000 Royal Bank of Canada* 2.820 12-Jul-2018 23 209 23 323 37 280 Royal Bank of Canada* 2.890 11-Oct-2018 37 277 37 936 18 000 Royal Bank of Canada* 2.770 11-Dec-2018 18 313 18 316 3 000 Royal Bank of Canada* 2.980 07-May-2019 3 067 3 073 7 800 Royal Bank of Canada* 2.350 09-Dec-2019 7 989 7 915 35 850 Royal Bank of Canada* 1.920 17-Jul-2020 35 850 35 961 The accompanying notes are an integral part of the financial statements.
SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets CORPORATE (cont.) 16 000 Royal Bank of Canada* 2.860 04-Mar-2021 $ 16 758 $ 16 505 30 000 Royal Bank of Canada* 2.030 15-Mar-2021 30 554 30 062 10 000 Royal Bank of Canada* 1.583 13-Sep-2021 10 000 9 804 14 400 Shaw Communications Inc. 5.650 01-Oct-2019 16 018 15 550 19 000 Shaw Communications Inc. 3.150 19-Feb-2021 19 187 19 520 7 500 Sun Life Financial Inc. 5.700 02-Jul-2019 8 617 8 074 11 050 TELUS Corp. 5.050 04-Dec-2019 12 649 11 872 7 400 TELUS Corp. 5.050 23-Jul-2020 8 276 8 057 16 410 The Manufacturers Life Insurance Co. 2.926 29-Nov-2023 16 373 16 663 13 200 The Manufacturers Life Insurance Co. 2.811 21-Feb-2024 13 200 13 406 19 000 The Manufacturers Life Insurance Co. 2.389 05-Jan-2026 19 000 19 131 3 300 Thomson Reuters Corp. 3.309 12-Nov-2021 3 300 3 424 50 450 Toronto-Dominion Bank 2.447 02-Apr-2019 50 630 51 214 44 200 Toronto-Dominion Bank 1.693 02-Apr-2020 44 200 44 123 18 300 Toronto-Dominion Bank 2.045 08-Mar-2021 18 577 18 368 12 000 Toronto-Dominion Bank 2.621 22-Dec-2021 12 301 12 284 22 300 Toronto-Dominion Bank 1.994 23-Mar-2022 22 300 22 206 10 400 Toronto-Dominion Bank 1.909 18-Jul-2023 10 400 10 184 12 000 Toyota Credit Canada Inc. 2.750 18-Jul-2018 11 998 12 159 18 000 Toyota Credit Canada Inc. 2.480 19-Nov-2019 18 187 18 298 8 500 Toyota Credit Canada Inc. 1.800 19-Feb-2020 8 492 8 501 10 000 Toyota Credit Canada Inc. 2.050 20-May-2020 10 004 10 054 5 000 Toyota Credit Canada Inc. 2.020 28-Feb-2022 4 998 4 971 5 000 Union Gas Ltd. 5.350 27-Apr-2018 5 543 5 155 5 000 VW Credit Canada Inc. 2.500 01-Oct-2019 4 997 5 054 1 000 VW Credit Canada Inc. 2.150 24-Jun-2020 910 1 000 20 400 Wells Fargo Canada Corp. 2.780 15-Nov-2018 20 625 20 729 1 500 Wells Fargo Canada Corp. 2.944 25-Jul-2019 1 531 1 536 27 300 Wells Fargo Canada Corp. 3.040 29-Jan-2021 28 774 28 278 2 217 411 2 210 273 40.8 FEDERAL 28 000 Canada Housing Trust No. 1 2.050 15-Jun-2018 27 725 28 272 32 200 Canada Housing Trust No. 1 2.350 15-Dec-2018 33 153 32 752 50 000 Canada Housing Trust No. 1 1.950 15-Jun-2019 50 150 50 688 45 000 Canada Housing Trust No. 1 1.250 15-Dec-2020 44 703 44 577 157 500 Canada Housing Trust No. 1 3.350 15-Dec-2020 168 733 167 069 118 000 Canada Housing Trust No. 1 1.250 15-Jun-2021 118 011 116 281 86 000 Canada Housing Trust No. 1 2.650 15-Mar-2022 93 397 89 542 137 900 Government of Canada 0.500 01-Aug-2018 137 609 137 127 256 150 Government of Canada 0.500 01-Nov-2018 255 291 254 284 19 000 Government of Canada 3.750 01-Jun-2019 20 557 19 942 27 000 Government of Canada 3.500 01-Jun-2020 29 763 28 778 120 700 Government of Canada 0.750 01-Sep-2020 120 000 118 941 100 000 Government of Canada 0.750 01-Mar-2021 99 855 98 078 18 000 Government of Canada 3.250 01-Jun-2021 20 117 19 328 40 000 Government of Canada 0.750 01-Sep-2021 39 576 39 057 100 000 Government of Canada 0.500 01-Mar-2022 97 345 96 060 82 700 Government of Canada 2.750 01-Jun-2022 91 002 87 975 70 000 Government of Canada 1.500 01-Jun-2023 70 887 70 039 1 517 874 1 498 790 27.6 The accompanying notes are an integral part of the financial statements.
SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) Par Value Coupon Fair % of Net (000s) Security Rate % Maturity Cost Value Assets PROVINCIAL/MUNICIPAL 58 400 Province of Alberta 1.600 15-Jun-2018 $ 57 963 $ 58 698 67 000 Province of Alberta 1.350 01-Sep-2021 66 223 65 781 35 000 Province of British Columbia 2.250 01-Mar-2019 36 203 35 612 25 000 Province of British Columbia 3.250 18-Dec-2021 27 225 26 566 36 750 Province of Manitoba 4.750 11-Feb-2020 43 012 39 823 82 500 Province of Manitoba 1.550 05-Sep-2021 82 565 81 722 4 500 Province of New Brunswick 4.400 03-Jun-2019 4 991 4 761 80 000 Province of New Brunswick 4.500 02-Jun-2020 91 579 86 698 48 000 Province of Ontario 1.435 28-Aug-2018 48 000 48 162 164 400 Province of Ontario 2.100 08-Sep-2018 164 240 166 233 61 100 Province of Ontario 4.400 02-Jun-2019 66 345 64 672 160 250 Province of Ontario 2.100 08-Sep-2019 162 667 162 841 143 575 Province of Ontario 4.000 02-Jun-2021 160 831 155 829 98 000 Province of Ontario 1.350 08-Mar-2022 96 456 95 792 52 000 Province of Ontario 3.150 02-Jun-2022 56 647 55 030 75 000 Province of Ontario 2.850 02-Jun-2023 79 822 78 272 97 690 Province of Quebec 4.500 01-Dec-2018 105 986 102 170 4 200 Province of Quebec 4.500 01-Dec-2019 4 709 4 508 69 430 Province of Quebec 4.500 01-Dec-2020 78 153 76 084 115 000 Province of Quebec 3.500 01-Dec-2022 126 859 123 990 1 560 476 1 533 244 28.3 TOTAL CANADIAN BONDS 5 295 761 5 242 307 96.7 UNITED KINGDOM BONDS 1 500 Aviva Plc. CAD 4.500 10-May-2021 1 495 1 597 TOTAL UNITED KINGDOM BONDS 1 495 1 597 UNITED STATES BONDS 5 505 Lehman Brothers Holdings Inc. CAD 4.730 01-Jun-2011 3 170 396 TOTAL UNITED STATES BONDS 3 170 396 TOTAL BONDS 5 300 426 5 244 300 96.7 SHORT-TERM INVESTMENTS 152 441 152 441 2.8 TOTAL INVESTMENTS 5 452 867 5 396 741 99.5 UNREALIZED GAIN ON FOREIGN EXCHANGE CONTRACTS (SCHEDULE A) 348 UNREALIZED LOSS ON FOREIGN EXCHANGE CONTRACTS (SCHEDULE A) (4) TOTAL PORTFOLIO $ 5 452 867 5 397 085 99.5 OTHER NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS 24 598 0.5 NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS $ 5 421 683 100.0 The accompanying notes are an integral part of the financial statements.
SCHEDULE OF INVESTMENT PORTFOLIO (unaudited) (in $000s) SCHEDULE A Foreign Exchange Contracts Unrealized Contracts Maturity Date Gain Bought CAD 140 Sold USD 105 @ 1.3359 11-Jul-2017 $ 4 Bought CAD 49 Sold USD 36 @ 1.3718 18-Jul-2017 3 Bought CAD 190 Sold USD 140 @ 1.3555 31-Jul-2017 8 Bought CAD 163 Sold USD 120 @ 1.3588 01-Aug-2017 8 Bought CAD 93 Sold USD 70 @ 1.3282 01-Aug-2017 2 Bought CAD 259 Sold USD 190 @ 1.3617 08-Aug-2017 13 Bought CAD 1 071 Sold USD 810 @ 1.3226 08-Aug-2017 22 Bought CAD 5 Sold USD 4 @ 1.3734 16-Aug-2017 Bought CAD 198 Sold USD 145 @ 1.3624 17-Aug-2017 10 Bought CAD 296 Sold USD 218 @ 1.3567 18-Aug-2017 13 Bought CAD 13 Sold USD 10 @ 1.3230 22-Aug-2017 Bought CAD 2 600 Sold USD 1 924 @ 1.3514 24-Aug-2017 107 Bought CAD 27 Sold USD 20 @ 1.3403 28-Aug-2017 1 Bought CAD 81 Sold USD 60 @ 1.3456 29-Aug-2017 3 Bought CAD 157 Sold USD 115 @ 1.3695 01-Sep-2017 9 Bought CAD 369 Sold USD 274 @ 1.3479 11-Sep-2017 14 Bought CAD 2 183 Sold USD 1 626 @ 1.3428 14-Sep-2017 77 Bought CAD 302 Sold USD 225 @ 1.3425 19-Sep-2017 11 Bought CAD 513 Sold USD 380 @ 1.3489 22-Sep-2017 20 Bought CAD 356 Sold USD 270 @ 1.3203 27-Sep-2017 7 Bought CAD 399 Sold USD 301 @ 1.3261 28-Sep-2017 9 Bought CAD 141 Sold USD 106 @ 1.3304 04-Oct-2017 4 Bought CAD 132 Sold USD 100 @ 1.3226 05-Oct-2017 3 $ 348 Unrealized Contracts Maturity Date Loss Bought USD 75 Sold CAD 101 @ 0.7417 05-Sep-2017 $ (4) $ (4) TOTAL FOREIGN EXCHANGE $ 344 All counterparties have a credit rating of at least A. * 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, earn interest at rates ranging from 0.70% to 0.95% and mature between July 4, 2017 and July 31, 2017. The accompanying notes are an integral part of the financial statements.
FINANCIAL STATEMENTS (unaudited) Statements of Financial Position (unaudited) (in $000s except per unit amounts) (see note 2 in the generic notes) June 30 2017 December 31 2016 ASSETS Investments at fair value $ 5 396 741 $ 5 118 301 Cash 514 515 Due from investment dealers 13 721 Subscriptions receivable 1 040 3 460 Unrealized gain on foreign exchange contracts 348 8 Dividends receivable, interest accrued and other assets 24 782 26 288 TOTAL ASSETS 5 437 146 5 148 572 LIABILITIES Due to investment dealers 13 511 Redemptions payable 1 050 1 221 Unrealized loss on foreign exchange contracts 4 84 Distributions payable 53 Accounts payable and accrued expenses 845 876 TOTAL LIABILITIES EXCLUDING NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS 15 463 2 181 NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS ( NAV ) $ 5 421 683 $ 5 146 391 Investments at cost $ 5 452 867 $ 5 141 967 NAV SERIES A $ 816 868 $ 838 389 ADVISOR SERIES $ 22 176 $ 25 152 SERIES D $ 25 939 $ 24 826 SERIES F $ 45 840 $ 29 528 SERIES O $ 4 510 860 $ 4 228 496 NAV PER UNIT SERIES A $ 10.60 $ 10.68 ADVISOR SERIES $ 10.65 $ 10.73 SERIES D $ 10.63 $ 10.71 SERIES F $ 10.69 $ 10.77 SERIES O $ 10.67 $ 10.75 Statements of Comprehensive Income (unaudited) (in $000s except per unit amounts) For the periods ended June 30 (see note 2 in the generic notes) 2017 2016 INCOME (see note 3 in the generic notes) Interest for distribution purposes $ 62 037 $ 62 899 Securities lending revenue (see note 6 in the generic notes) 352 200 Net realized gain (loss) on investments (6 887) (9 782) Net gain (loss) on foreign currencies and other net assets (116) 419 Change in unrealized gain (loss) on investments (32 040) 11 388 TOTAL INCOME (LOSS) 23 346 65 124 EXPENSES (see notes Fund Specific Information) Management fees 3 959 4 800 Administration fees 663 616 Independent Review Committee costs 1 2 GST/HST 460 539 TOTAL EXPENSES 5 083 5 957 INCREASE (DECREASE) IN NAV $ 18 263 $ 59 167 INCREASE (DECREASE) IN NAV SERIES A $ (315) $ 7 212 ADVISOR SERIES $ (6) $ 203 SERIES D $ 27 $ 206 SERIES F $ 17 $ 142 SERIES O $ 18 540 $ 51 404 INCREASE (DECREASE) IN NAV PER UNIT SERIES A $ $ 0.09 ADVISOR SERIES $ $ 0.09 SERIES D $ 0.01 $ 0.11 SERIES F $ $ 0.13 SERIES O $ 0.05 $ 0.16 The accompanying notes are an integral part of these financial statements.
FINANCIAL STATEMENTS (unaudited) Statements of Cash Flow (unaudited) (in $000s) For the periods ended June 30 (see note 2 in the generic notes) 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES Increase (decrease) in NAV $ 18 263 $ 59 167 ADJUSTMENTS TO RECONCILE NET CASH PROVIDED BY (USED IN) OPERATIONS Interest for distribution purposes Net realized loss (gain) on investments 6 887 9 782 Change in unrealized loss (gain) on investments 32 040 (11 388) (Increase) decrease in accrued receivables 1 506 727 Increase (decrease) in accrued payables (31) (104) Cost of investments purchased (2 321 968) (2 013 621) Proceeds on sales of investments 2 003 971 1 888 548 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (259 332) (66 889) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of redeemable units 515 066 404 354 Cash paid on redemption of redeemable units (255 381) (337 018) Distributions paid to holders of redeemable units (354) (366) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ 259 331 $ 66 970 Net increase (decrease) in cash for the period (1) 81 Cash (bank overdraft), beginning of period 515 11 CASH (BANK OVERDRAFT), END OF PERIOD $ 514 $ 92 Interest received (paid) $ 63 543 $ 63 626 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.
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 D Series F 2017 2016 2017 2016 2017 2016 2017 2016 NAV AT BEGINNING OF PERIOD $ 838 389 $ 958 343 $ 25 152 $ 26 001 $ 24 826 $ 21 582 $ 29 528 $ 11 717 INCREASE (DECREASE) IN NAV (315) 7 212 (6) 203 27 206 17 142 Early redemption fees 1 1 2 Proceeds from redeemable units issued 114 491 59 736 2 860 1 962 7 086 3 093 23 734 4 548 Reinvestments of distributions to holders of redeemable units 5 719 7 243 125 181 220 203 286 88 Redemption of redeemable units (135 486) (130 727) (5 792) (2 864) (5 993) (3 950) (7 335) (2 779) NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS (15 275) (63 748) (2 807) (721) 1 314 (652) 16 685 1 857 Distributions from net income (5 931) (7 575) (163) (212) (228) (216) (390) (148) Distributions from net gains Distributions from capital TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (5 931) (7 575) (163) (212) (228) (216) (390) (148) NET INCREASE (DECREASE) IN NAV (21 521) (64 111) (2 976) (730) 1 113 (662) 16 312 1 851 NAV AT END OF PERIOD $ 816 868 $ 894 232 $ 22 176 $ 25 271 $ 25 939 $ 20 920 $ 45 840 $ 13 568 For the periods ended June 30 (see note 2 in the generic notes) Series O Total 2017 2016 2017 2016 NAV AT BEGINNING OF PERIOD $ 4 228 496 $ 3 685 300 $ 5 146 391 $ 4 702 943 INCREASE (DECREASE) IN NAV 18 540 51 404 18 263 59 167 Early redemption fees 2 2 Proceeds from redeemable units issued 364 475 332 507 512 646 401 846 Reinvestments of distributions to holders of redeemable units 53 727 52 031 60 077 59 746 Redemption of redeemable units (100 606) (200 543) (255 212) (340 863) NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS 317 596 183 995 317 513 120 731 Distributions from net income (53 772) (52 031) (60 484) (60 182) Distributions from net gains Distributions from capital TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (53 772) (52 031) (60 484) (60 182) NET INCREASE (DECREASE) IN NAV 282 364 183 368 275 292 119 716 NAV AT END OF PERIOD $ 4 510 860 $ 3 868 668 $ 5 421 683 $ 4 822 659 The accompanying notes are an integral part of these financial statements.
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 a competitive level of monthly income by investing primarily in short-term, high-quality fixed-income securities issued or guaranteed by Canadian federal, provincial or municipal governments or corporations. 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 30 2017 December 31 2016 AAA 31.7 27.9 AA 32.7 38.4 A 25.7 22.4 BBB 9.9 11.3 Total 100.0 100.0 Concentration risk (%) The table below summarizes the Fund s investment portfolio (after consideration of derivative products, if any) as at: Investment mix June 30 2017 December 31 2016 Corporate Bonds 40.8 48.4 Provincial/Municipal Bonds 28.3 24.9 Federal Bonds 27.6 23.6 Cash/Other 3.3 3.1 Total 100.0 100.0 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 30 2017 December 31 2016 Less than 1 year 5.6 7.9 1 5 years 87.7 82.4 5 10 years 6.7 9.6 > 10 years 0.1 Total 100.0 100.0 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 2.7% (December 31, 2016 2.7%). 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, 2016. Level 1 Level 2 Level 3 Total Equities Mutual fund units Fixed-income and debt securities 5 244 300 5 244 300 Short-term investments 152 441 152 441 Derivatives assets 348 348 Derivatives liabilities (4) (4) Total financial instruments 5 397 085 5 397 085 % of total portfolio 100.0 100.0 December 31, 2016 Level 1 Level 2 Level 3 Total Equities Mutual fund units Fixed-income and debt securities 4 986 600 4 986 600 Short-term investments 131 701 131 701 Derivatives assets 8 8 Derivatives liabilities (84) (84) Total financial instruments 5 118 225 5 118 225 % of total portfolio 100.0 100.0 For the periods ended and December 31, 2016, there were no transfers of financial instruments between Level 1, Level 2 and Level 3. 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 D 0.55% 0.05% Series F 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%; for Series D units were reduced to 0.55% from 0.65%; 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. Please see the generic notes at the back of the financial statements.
NOTES TO FINANCIAL STATEMENTS FUND SPECIFIC INFORMATION (unaudited) Taxes ($000s) (see note 5 in the generic notes) The non-capital and capital losses as at December 31, 2016 for the Fund were approximately: Capital losses 151 007 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 June 30 (see note 2 in the generic notes) 2017 2016 Series A Opening units 78 497 88 668 Issued number of units 10 708 5 529 Reinvested number of units 535 672 Redeemed number of units (12 671) (12 105) Ending number of units 77 069 82 764 Advisor Series Opening units 2 343 2 393 Issued number of units 265 181 Reinvested number of units 12 17 Redeemed number of units (539) (264) Ending number of units 2 081 2 327 Series D Opening units 2 317 1 991 Issued number of units 661 286 Reinvested number of units 21 19 Redeemed number of units (559) (365) Ending number of units 2 440 1 931 Series F Opening units 2 741 1 075 Issued number of units 2 200 417 Reinvested number of units 27 8 Redeemed number of units (680) (255) Ending number of units 4 288 1 245 Series O Opening units 393 436 338 783 Issued number of units 33 855 30 589 Reinvested number of units 4 998 4 794 Redeemed number of units (9 350) (18 414) Ending number of units 422 939 355 752 Securities lending revenue ($000s except %) (see note 6 in the generic notes) Fair value of securities on loan and collateral received as at: June 30 2017 June 30 2016 Fair value of securities loaned 1 315 699 419 158 Fair value of collateral received 1 344 693 428 725 The table below provides a reconciliation of the gross revenue generated from the securities lending transactions of the Fund to the securities lending revenue disclosed in the Statements of Comprehensive Income. June 30 2017 June 30 2016 $ % $ % Gross revenue 504 100 310 100 RBC IS (paid) (150) (30) (109) (35) Tax withheld (2) (1) Fund revenue 352 70 200 65 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 30 2017 December 31 2016 RBC Managed Payout Solution 11.9 12.5 RBC Managed Payout Solution Enhanced 5.5 5.5 RBC Managed Payout Solution Enhanced Plus 4.4 4.4 RBC Retirement 2020 Portfolio RBC Retirement 2025 Portfolio RBC Retirement 2030 Portfolio RBC Retirement 2035 Portfolio RBC Retirement 2040 Portfolio RBC Retirement 2050 Portfolio RBC Retirement Income Solution 0.1 RBC Select Conservative Portfolio 36.6 34.7 RBC Select Very Conservative Portfolio 16.9 18.0 RBC Target 2020 Education Fund 5.8 5.0 RBC Target 2025 Education Fund 1.8 1.5 Total 83.0 81.6 Please see the generic notes at the back of the financial statements.
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, 2017. 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, 2016. 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.
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.
GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see Fund Specific Information) The premium received for written options is recorded as a liability in the Schedule of Investment Portfolio and adjusted daily to the fair value of the written option. Forward Contracts Forward contracts are valued at the gain or loss that would arise as a result of closing the position at the valuation date. Any unrealized gain or loss at the close of business on each valuation date is recorded as Change in unrealized gain (loss) on investments in the Statements of Comprehensive Income. The receivable/payable on forward contracts is recorded separately in the Statements of Financial Position. Realized gain (loss) on foreign exchange contracts is included in Net gain (loss) on foreign currencies and other net assets in the Statements of Comprehensive Income. Total Return Swaps The Funds may enter into total return swaps to gain or mitigate exposure of the underlying reference securities. Total return swaps on commodities involve commitments where cash flows are exchanged based on the price of a commodity and based on a fixed or variable rate. One party would receive payments based on the market value of the commodity involved and pay a fixed amount. Total return swaps on indices or individual securities involve commitments to pay interest in exchange for a market-linked return. One counterparty pays out the total return of a specific reference asset, which may be an equity, index, or bond, and in return receives a regular stream of payments. To the extent the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty. Futures Contracts Futures contracts entered into by the Funds are financial agreements to purchase or sell a financial instrument at a contracted price on a specified future date. However, the Funds do not intend to purchase or sell the financial instrument on the settlement date; rather, they intend to close out each futures contract before settlement by entering into equal, but offsetting, futures contracts. Futures contracts are valued at the gain or loss that would arise as a result of closing the position at the valuation date. Any gain or loss at the close of business on each valuation date is recorded as Net gain (loss) from futures contracts in the Statements of Comprehensive Income. The receivable/ payable on futures contracts is recorded separately in the Statements of Financial Position. Mutual Fund Unit Valuation Units of Funds are valued at their respective net asset value per unit from fund companies on the relevant valuation dates. Fair Valuation of Investments The Funds have procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these fair valuation procedures, the Funds primarily employ a marketbased approach, which may use related or comparable assets or liabilities, recent transactions, market multiples, book values and other relevant information for the investment to determine its fair value. The Funds may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments, but only if they arise as a feature of the instrument itself. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. All security valuation techniques are periodically reviewed by the Valuation Committee ( VC ) of the manager and are approved by the manager. The VC provides oversight of the Funds valuation policies and procedures. Foreign Exchange The value of investments and other assets and liabilities in foreign currencies is translated into Canadian dollars (U.S. dollars in the case of the Phillips, Hager & North $U.S. Money Market Fund, RBC $U.S. Money Market Fund, RBC Premium $U.S. Money Market Fund, RBC $U.S. Investment Grade Corporate Bond Fund, RBC $U.S. High Yield Bond Fund, BlueBay Emerging Markets Corporate Bond Fund, BlueBay $U.S. Global Convertible Bond Fund (Canada) and RBC U.S. Monthly Income Fund) at the rate of exchange on each valuation date. Purchases and sales of investments, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions. Realized foreign exchange gains/losses are included in Net gain (loss) on foreign currencies and other net assets in the Statements of Comprehensive Income. Functional Currency The Funds, with the exceptions below, have their subscriptions, redemptions and performance denominated in Canadian dollars and, consequently, the Canadian dollar is the functional currency for the Funds. Phillips, Hager & North $U.S. Money Market Fund, RBC $U.S. Money Market Fund, RBC Premium $U.S. Money
GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see Fund Specific Information) Market Fund, RBC $U.S. Investment Grade Corporate Bond Fund, RBC $U.S. High Yield Bond Fund, BlueBay Emerging Markets Corporate Bond Fund, BlueBay $U.S. Global Convertible Bond Fund (Canada) and RBC U.S. Monthly Income Fund have their subscriptions, redemptions and performance denominated in U.S. dollars and, consequently, the U.S. dollar is the functional currency for these Funds. Valuation of Series A different net asset value is calculated for each series of units of a Fund. The net asset value of a particular series of units is computed by calculating the value of the series proportionate share of the assets and liabilities of the Fund common to all series less the liabilities of the Fund attributable only to that series. Expenses directly attributable to a series are charged to that series. Other expenses are allocated proportionately to each series based upon the relative net asset value of each series. Expenses are accrued daily. Investment Transactions Investment transactions are accounted for as of the trade date. Transaction costs, such as brokerage commissions, incurred by the Funds are recorded in the Statements of Comprehensive Income for the period. The unrealized gain and loss on investments is the difference between fair value and average cost for the period. The basis of determining the cost of portfolio assets, and realized and unrealized gains and losses on investments, is average cost which does not include amortization of premiums or discounts on fixed-income and debt securities with the exception of zero coupon bonds. Income Recognition Dividend income is recognized on the ex-dividend date and interest for distribution purposes is coupon interest recognized on an accrual basis and/or imputed interest on zero coupon bonds. Other income (loss) includes income from income trusts. Distributions received from income trusts are recognized based on the nature of the underlying components, such as income, capital gains and return of capital. Other income received from underlying funds includes income earned by a Fund from investments in underlying funds. Any premiums paid or discounts received on the purchase of zero coupon bonds are amortized on a straight line basis. Increase (Decrease) in NAV per Unit Increase (decrease) in NAV per unit in the Statements of Comprehensive Income represents the increase (decrease) in net assets attributable to holders of redeemable units by series, divided by the average units outstanding per series during the period. Early Redemption Fees Early redemption fees (short-term trading fees) are paid directly to a Fund and are designed to deter excessive trading and its associated costs. With the exception of money market funds, a Fund may apply a fee of 2% of the current value of units if the unitholder redeems or switches out units within seven days of purchasing or previously switching into a Fund. These amounts are included in the Statements of Changes in NAV. Foreign Currencies The following is a list of abbreviations used in the Schedule of Investment Portfolio: ARS Argentinian peso AUD Australian dollar BRL Brazilian real CAD Canadian dollar CHF Swiss franc CLP Chilean peso CNH/CNY Chinese renminbi COP Colombian peso CZK Czech koruna DKK Danish krone EUR Euro GBP Pound sterling HKD Hong Kong dollar HUF Hungarian forint IDR Indonesian rupiah ILS Israeli new shekel INR Indian rupee JPY Japanese yen KRW South Korean won MXN Mexican peso MYR Malaysian ringgit NOK Norwegian krone NZD New Zealand dollar PEN Peruvian nuevo sol PHP Philippine peso PLN Polish zloty RON Romanian leu RUB Russian ruble SEK Swedish krona SGD Singapore dollar THB Thailand baht TRY Turkish new lira TWD New Taiwan dollar USD United States dollar UYU Uruguay peso ZAR South African rand 4. Financial instrument risk and capital management RBC GAM is responsible for managing each Fund s capital, which is its net assets and consists primarily of its financial instruments. A Fund s investment activities expose it to a variety of financial risks. RBC GAM seeks to minimize potential adverse effects of these risks on a Fund s performance by employing professional, experienced portfolio managers, daily monitoring of the Fund s holdings and market events, diversifying its investment portfolio within the constraints of its investment objectives and, in some cases, periodically hedging certain risk exposures through the use of derivatives. To assist in managing risks, RBC GAM also uses internal guidelines, maintains a governance structure that oversees each Fund s investment activities and monitors compliance with the Fund s investment strategies, internal guidelines and securities regulations. Financial instrument risk, as applicable to a Fund, is disclosed in its Notes to Financial Statements Fund Specific Information.
GENERIC NOTES TO FINANCIAL STATEMENTS (unaudited) (also see Fund Specific Information) Liquidity risk Liquidity risk is the possibility that investments in a Fund cannot be readily converted into cash when required. A Fund is exposed to daily cash redemptions of redeemable units. Liquidity risk is managed by investing the majority of a Fund s assets in investments that are traded in an active market and that can be readily disposed. In accordance with securities regulations, a Fund must maintain at least 90% of its assets in liquid investments. In addition, a Fund aims to retain sufficient cash and cash equivalent positions to maintain liquidity, and has the ability to borrow up to 5% of its net assets for the purpose of funding redemptions. All non-derivative financial liabilities, other than redeemable units, are due within 90 days. Credit risk Credit risk is the risk that a loss could arise from a security issuer or counterparty not being able to meet its financial obligations. The carrying amount of investments and other assets represents the maximum credit risk exposure as disclosed in a Fund s Statements of Financial Position. The fair value of fixed-income and debt securities includes a consideration of the creditworthiness of the debt issuer. Credit risk exposure to over-the-counter derivative instruments is based on a Fund s unrealized gain on the contractual obligations with the counterparty. Credit risk exposure is mitigated for those Funds participating in a securities lending program (see note 6). RBC GAM monitors each Fund s credit exposure and counterparty ratings daily. Concentration risk Concentration risk arises as a result of net financial instrument exposures to the same category, such as geographical region, asset type, industry sector or market segment. Financial instruments in the same category have similar characteristics and may be affected similarly by changes in economic or other conditions. Interest rate risk Interest rate risk is the risk that the fair value of a Fund s interest-bearing investments will fluctuate due to changes in market interest rates. The value of fixed-income and debt securities, such as bonds, debentures, mortgages or other income-producing securities, is affected by interest rates. Generally, the value of these securities increases if interest rates fall and decreases if interest rates rise. Currency risk Currency risk is the risk that the value of investments denominated in currencies, other than the functional currency of a Fund, will fluctuate due to changes in foreign exchange rates. The value of investments denominated in a currency other than the functional currency is affected by changes in the value of the functional currency in relation to the value of the currency in which the investment is denominated. When the value of the functional currency falls in relation to foreign currencies, then the value of the foreign investments rises. When the value of the functional currency rises, the value of the foreign investments falls. Other price risk Other price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate or currency risk), whether caused by factors specific to an individual investment, its issuer, or all factors affecting all instruments traded in a market or market segment. 5. Taxes The Funds qualify as open-ended mutual fund trusts or unit trusts under the Income Tax Act (Canada). In general, the Funds are subject to income tax; however, no income tax is payable on net income and/or net realized capital gains which are distributed to unitholders. In addition, for mutual fund trusts, income taxes payable on net realized capital gains are refundable on a formula basis when units of the Funds are redeemed. Capital losses are available to be carried forward indefinitely and applied against future capital gains. Non-capital losses may be carried forward to reduce future taxable income for up to 10 years, with the exception of non-capital losses realized in 2006 and later years, which may be carried forward up to 20 years. 6. Securities lending revenue Certain of the Funds lend portfolio securities from time to time in order to earn additional income. Income from securities lending is included in the Statements of Comprehensive Income of a Fund. Each such Fund will have entered into a securities lending program with its custodian, RBC Investor Services Trust ( RBC IS ). The aggregate market value of all securities loaned by a Fund cannot exceed 50%