FALL 2010 A qUARTeRLy eDUCATIONAL NewSLeTTeR FOR CLIeNTS OF RBC DIReCT INVeSTING INC.

In this issueTrack your progress in achieving your investment goals with new portfolio management tools

A new way to compare and track your portfolio’s progress

RBC Funds — Series D, tailor-made for self-directed investors

3 reasons to contribute regularly to your RRSP

Market Outlook Provided by RBC Asset Management Inc. on September 24, 2010

The global macroeconomic environment continues to have a profound effect on the investment landscape. The hangover from the credit bust of 2008/2009 will shape economic growth and influence returns from capital markets for some time to come. In recent months, ongoing weakness in a number of economic indicators has had a negative impact on consumer and investor confidence. Three areas of particular weakness in the U.S. economy continue to weigh on confidence: employment, housing and credit. Stronger job creation and a firmer housing market should ultimately encourage credit uptake and move the U.S. economy a few steps closer to normalcy.

Expect subdued growth and low inflationA half speed recovery is still our base case scenario. With core inflation hovering at a 44-year low, the U.S. economy is uncomfortably close to deflation. The Fed has stated clearly that it will act aggressively to prevent deflation by using a broad range of tools at its disposal. Economic conditions, while slack, are in no way weak enough to suggest that these tools will turn out to be ineffective. We are looking for subdued price pressures in most developed economies over the forecast horizon, but not sustained episodes of deflation.

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Track your progress in achieving your investment goals with new portfolio management tools

Building a portfolio to help you reach your financial goals is getting easier. RBC Direct Investing™ is adding some powerful new tools — the Goal Setting tool and the Analyze & Rebalance tool — to help you manage your investments and make decisions with greater confidence.

Whether you’re saving for a long-term goal like retirement or a short-term goal like a family vacation, these new tools can help. The Goal Setting tool will provide a valuable new way to define your goals and chart a course to achieve them, while the Analyze & Rebalance tool will allow you to fine-tune your holdings to help you reach your destination.

Target your goalsA new banner on the Summary page of the My Home tab in the online investing site will provide a quick link to the Goal Setting tool. You will also be able to select the new Manage My Goals page under the My Portfolios tab. There, you’ll see four tabs that will lead you through the goal-setting process step by step:

1. Identify your goal(s). Choose one or more goals from a list that includes retirement, major purchase, education and other common objectives.

2. Link your goal to one or more RBC Direct Investing accounts. For example, you might link your retirement goal to your Registered Retirement Savings Plan (RRSP) and a non-registered account, or a new car goal to your Tax-Free Savings Account (TFSA).

3. Enter the details of your goal. Fill in the amount of money you’ll need to fulfil your goal, your time horizon and the amount you are currently contributing toward it. This will give you an idea of how far you are from reaching your goal. If you’re unsure of the details, use estimates to get started, then you can edit your goals as often as you like.

4. Track your progress. On the Summary page of Manage My Goals, you can see what will happen if you adjust your current approach — for example, by contributing more or more often or moving your target date. When you’ve finalized your selections, the Goal Setting tool will track your progress as you work toward your goals. Summary page of Manage My Goals found under the My Portfolios tab in the online

investing site.

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Get your portfolio on track Once you’ve established your goals and set a course to achieve them, go to the Analyze & Rebalance tool (accessed directly from the new Analyze & Rebalance page coming soon to the My Portfolios tab in the online investing site). Using this tool, you will be able to analyze your portfolio by answering the following questions to determine how to adjust your holdings:

1. How well diversified are you? The first step is to see how well diversified your portfolio is. You will be able to analyze your holdings by asset class, market sector and geographical exposure, and assess your portfolio’s risk vs. return characteristics.

2. Do you have the right asset mix? On the next page, you will be able to compare your portfolio to a standard risk profile that is appropriate for your objectives and investing style based on what you have told us. If your asset mix or portfolio risk is different from the profile, adjusting your holdings may help you align your portfolio with your objectives.

3. How will rebalancing affect your outcome? Using the rebalancing step, you will be able to try out new scenarios to see how selling some of your current holdings or adding new ones could affect your asset allocation and your potential returns before you begin to trade in the market.

4. Do you want to adjust your portfolio now? You can put your ideas from the rebalancing worksheet into action immediately, or save them for future use, by using the Trades List, which stores your work. If you prefer, you can try your ideas using a Practice Account to see how they work before executing them with your own money.

Analyze & Rebalance page of the My Portfolios tab in the online investing site

Help is always at hand With each of the tools you’ll find new online Show Me videos that demonstrate how the Goal Setting and Analyze & Rebalance tools work. While you’re using the tools, you’ll also receive tailored messages from the new personal investing assistant to guide you. If you wish to start developing your own investment strategy but are not sure where to start, take a look at the “Six Key Steps to Investing” Investing article in the Retirement & Investment Planning section of the Guidance & Planning tab of the online investing site.

Once you’ve used the Goal Setting tool and the Analyze & Rebalance tool for the first time, you’ll want to return to these pages frequently to track your progress. You can add new goals, make adjustments as circumstances change, review your Trades List and add potential new holdings.

Making these new tools a part of your investment plan can give your investing a new focus and help you see whether you’re on track to reaching your objectives. And that can help get you to your destination sooner.

Look for the “Show Me” image on the new Manage My Goals and Analyze & Rebalance pages to view how you can use the new tools.

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Look for these new tools under My Portfolios

you may have noticed recent changes to the navigation tabs on the RBC Direct Investing site. These are designed to put some of our newest tools at your fingertips, while providing easy access to your most-used features.

The My Accounts tab has been renamed My Portfolios. Under this tab you’ll find three new pages:

n Performance, which provides access to the new Performance tool

n Analyze & Rebalance (coming soon), which will take you to the Analyze & Rebalance tool

n Manage My Goals (coming soon), which will provide you with access to the new Goal Setting tool

you’ll also find a handy snapshot of your holdings, all on one page. The Intraday Balances and Product Mix (formerly Asset Mix) sections have moved to the Holdings page. Balances as of the previous business day are also available from the Holdings page.

These changes are just part of our continuing effort to provide you with the best investing experience in the industry. Stay tuned for more improvements in the months ahead.

A new way to compare and track your portfolio’s progress

Monitoring the performance of your portfolio is an important part of long-term investing. That’s why RBC Direct Investing has introduced a new tool to help you keep track of your personal rate of return and measure it against your target or major benchmarks.

The new Performance tool is designed to help you determine if you are on track to reach your goals by providing the returns your investments generate over a period of time.

How do you want to measure performance?To access the new tool, click “Performance” under the My Portfolios tab. At the top of the page, you’ll see a “Show Performance For” prompt. Select the account that you wish to measure. You can choose any registered or non-registered account you have with RBC Direct Investing, except for the Practice Account.

In the Select Preference section, you can choose how you want to view your portfolio’s performance — monthly, quarterly or annual returns in a calendar, annualized or cumulative view. You can also choose the time period you want to focus on.

Performance for your account is shown graphically in a chart, as well as in a table. Change your preferences and click “Update” to create a new chart based on different performance criteria.

Measure your returns against a benchmarkThe “Compare To” prompt allows you to compare your portfolio’s performance to a number of benchmarks, including:

n Market indices such as the S&P/TSX Composite, Dow Jones Industrial Average or NASDAQ

n Your personal rate of return

n Other accounts, including accounts linked to your financial goals

n Standard investor risk profile benchmarks (especially useful if you have used the Goal Setting and Analyze & Rebalance tools to align your portfolio with a particular profile)

n Other benchmarks such as the Consumer Price Index or three-month Canadian and U.S. treasury bills

The Performance page also includes quick links to articles that provide more information about analyzing your personal rate of return and addressing any problems with your long-term performance. You will also find a link to the new Show Me tutorial that illustrates how to use rate of return and the Performance page.

By using the Performance tool regularly, you can monitor the progress of your portfolio and determine whether adjustments need to be made in order to keep you on track with your objectives.

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RBC Funds — Series D, tailor-made for self-directed investors

3 reasons to contribute regularly to your RRSP

As an RBC Direct Investing client, you can benefit from some of the lowest equity trading fees in the industry and buy or sell more than 2,500 mutual funds online commission-free1. But, did you know that you can also get low management fees when buying mutual funds by choosing to invest in Series D units of RBC Funds?

Designed especially for self-directed investors, Series D units of RBC Funds have lower management expense ratios2 (MERs) than conventional funds, starting as low as 0.50%. In addition, there are no loads, service charges or transaction fees.

Low fees allow you to keep more of your returns. That can make a significant difference in the long term. For example, the RBC Canadian Equity Fund Series D has an MER of 1.16%, less than half the industry average of 2.39%3 in its fund category. On a $25,000 investment with an 8% annual return, that could add up to a difference of $11,400 over 15 years.4

Available for all asset classesThere is a wide selection of Series D units of RBC Funds available to choose from, with more than 40 funds in all major categories. The list includes money market, income, balanced, growth and equity funds managed payout solutions, U.S. and

international funds, and three Jantzi socially responsible funds. Most Series D units of RBC Funds can be held in your registered accounts. A minimum investment of $10,000 per fund, per account is required to qualify for Series D pricing.

New funds are added from time to time as new opportunities arise. The latest addition is the new RBC Emerging Markets Bond Fund. It offers an opportunity to participate in emerging markets with less risk than an equity fund, while achieving higher potential returns than fixed-income investments such as GICs. As well, it provides an opportunity to diversify your portfolio in a new way.

A history of performanceSeries D units of RBC Funds are mem-bers of the RBC Asset Management mutual funds family, which has con-sistently ranked among the industry leaders and was awarded the Best Overall Bond Fund Family in 2009 and the Best Overall Fund Group in 2007 and 2008 in Canada by Lipper Inc., a leading global fund rating company.5

You can find the Series D units of RBC Funds that fit your portfolio by using the Mutual Funds Screener found in the Mutual Funds Centre, located under the Quotes & Research tab in the online investing site.

With Registered Retirement Savings Plan (RRSP) season just around the corner, you may already be scrambling for the money to make your contribution to qualify for a 2010 tax deduction.

Instead of the last-minute rush to make your contribution, have you considered setting up a regular contribution plan? You’ll benefit from:

n Less worry. When you contribute regularly, there is no rush to make your contribution as the deadline nears and no worries about finding a lump sum to contribute.

n More compounding. Contributing throughout the year allows your

The mutual fund Model Portfolios created by RBC Asset Management also provide exposure to Series D units of RBC Funds and can be accessed through the Mutual Funds Centre.

RBC Direct Investing is the only online brokerage that offers access to Series D units of RBC Funds. It’s another way of providing you with industry-leading value, choice and transparency along with the pricing option you desire.

money more time to grow and compound in a tax-sheltered environment.

n Convenience. Making regular contributions to your RRSP is easy with a Pre-Authorized Contribution Plan. The amount you choose is transferred to your RRSP (or spousal RRSP) from your RBC Direct Investing account, or RBC savings or chequing account, on a schedule that suits you. You can contribute weekly, monthly or quarterly, and contributions start as low as $25 a week.

Or, if you prefer to make regular contributions to your RRSP by automatically purchasing mutual

funds, you may want to consider setting up an Automatic Investment Plan. For as little as $100 per month, or $300 per quarter, an Automatic Investment Plan will let you purchase your choice of more than 2,500 mutual funds commission-free1 for your RBC Direct Investing RRSP, paid for from your chequing or savings account at any Canadian financial institution.

To set up a Pre-Authorized Contribution Plan or an Automatic Investment Plan, visit the Services section on the Accounts & Services page found under the Investment Products tab in the online investing site, and follow the online directions.

1 This pricing applies to trades placed through the online investing site and the automated telephone service. Processing fees may be charged on some funds at the time of purchase (1% to 5%). Please verify with an RBC Direct Investing representative.

2 You must hold a minimum balance of $10,000 per fund, per account to qualify for Series D pricing.

There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed or covered by the Canada Deposit Insurance Corporation or by another government deposit insurer; their values change frequently, and past performance may not be repeated. Series D units of RBC Funds are offered by RBC Asset Management Inc. and distributed exclusively through RBC Direct Investing Inc. and Phillips, Hager & North Investment Funds Ltd. RBC Asset Management Inc. is a related issuer of RBC Direct Investing.3 Source: Morningstar Canada, December 2009. Industry

average MER shown for Canadian Equity Fund category.4 Source: RBC Asset Management.5 The Lipper Fund Awards were awarded based on the

best risk-adjusted performance over the three-year periods ended December 31, 2006, 2007 and 2008. Lipper Inc. is a Thomson Reuters company.

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RBC Direct Investing Inc.*, RBC Asset Management Inc., Phillips, Hager & North Investment Management Ltd. (PH&N IM) and Royal Bank of Canada are separate corporate entities which are affiliated. RBC Direct Investing Inc. does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their own investment decisions. RBC Direct Investing is a business name used by RBC Direct Investing Inc. ™ Trademark of Royal Bank of Canada. ® Registered trademarks of Royal Bank of Canada. Used under licence. © Copyright 2010. All rights reserved.

Information supplied by RBC Asset Management Inc. (RBC AM) has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by RBC AM, RBC Direct Investing Inc., their affiliates or any other person as to the accuracy, completeness or correctness of information obtained from third parties. Opinions of RBC AM constitute its judgment as of September 24, 2010, are subject to change without notice and are provided in good faith but without responsibility for any errors or omissions contained herein.

The information contained herein has been obtained from sources believed to be reliable at the time obtained, but neither RBC Direct Investing Inc. nor its employees, agents or information suppliers can guarantee its accuracy or completeness. This publication is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This publication is furnished on the basis and understanding that neither RBC Direct Investing Inc. nor its employees, agents or information suppliers is to be under any responsibility of liability whatsoever in respect thereof. The inventories of RBC Direct Investing Inc. may from time to time include securities mentioned herein. Using borrowed money to finance the purchase of securities involves greater risk than using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the securities purchased declines.

For more information on our products or services, or to complete an application, drop by any RBC Royal Bank branch or visit our website at www.rbcdirectinvesting.com.

For past issues of our newsletter, go to www.rbcdirectinvesting.com/newsletter. For account-specific inquiries, call us toll-free at 1-800-769-2560.

* Member – Canadian Investor Protection Fund

VPS59416 (09/2010)

Short rates to remain lowWith the economic outlook still murky, we do not expect a rise in the fed funds rate before 2011. As conditions gradually normalize, the Fed will eventually look for an opportunity to lift rates from the current emergency setting. This will send a powerful “all clear” signal to the markets that the Fed has declared the crisis over. Other developed countries have also committed to holding overnight borrowing costs low until private demand firms. A standout among the G7 nations on the interest rate front has been Canada, where the central bank has hiked interest rates in three 25-basis-point moves since June of this year.

Expect long-bond yields to trend higherWe are living through an intense period of investor de-risking, as assets shift out of equities and into bonds. Meanwhile, all-time low short-term interest rates are encouraging investors to shift assets out of money market funds into higher-yielding, but still relatively safe alternatives. Nevertheless, sustaining the current level of yields likely requires ongoing

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RBC Investment Strategy Committee’s recommended asset mix by investor profile+

Very Conservative Conservative Balanced Growth Aggressive

Growth

Cash 5.4% 5.2% 5.0% 4.0% 3.0%

Fixed Income 71.0% 54.9% 35.0% 20.8% 0.0%

Canadian Equities 11.8% 17.3% 22.0% 26.2% 36.7%

U.S. Equities 6.0% 11.5% 22.0% 26.2% 31.3%

International Equities 5.8% 11.1% 16.0% 22.8% 29.0%

Total 100% 100% 100% 100% 100%+ Complete RBC Investment Strategy Committee’s Global Investment Outlook including the definitions of investor

profiles can be found on the Market Insight page under the Markets tab on your RBC Direct Investing site. Data as of September 24, 2010.

pressure on the economy. We expect that economic normalization, however gradual, will ultimately put significant upward pressure on long-bond yields.

Equity valuations remain attractiveOver the summer, volatility and weaker prices returned to equity markets as investors remained sceptical of the earnings recovery that has taken place, despite the fact that many CEOs and analysts generally expect profits to head higher still. In our view, current valuations provide an attractive foundation for future gains and superior returns will eventually appear as valuations revert to their mean in a more complete economic recovery.

Remain overweight equities, underweight bondsRespecting the strong cyclical and secular headwinds, we remain modestly overweight equities. The undervaluation that exists in most developed stock markets highlights the potential for above average long-term returns. Given our base case economic scenario, it is challenging to make a long-term case for bonds, and we remain underweight fixed income. We continue to seek gains and avoid losses through more frequent tactical positioning as markets remain unusually volatile.