MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTINGfunds.rbcgam.com/pdf/fs/annual/phn3380_e.pdf55 187 Key Energy Services Inc. 421 380 93 900 McDermott International Inc. 1 047 1

The accompanying financial statements have been prepared by RBC Global Asset Management Inc. (“RBC GAM”), as manager of the Phillips, Hager &

North Investment Funds (the “Funds”) 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 accordance with accounting principles generally accepted in Canada (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.

Although the Board of Directors of RBC GAM is solely responsible for approving the financial statements and overseeing management’s financial

reporting responsibilities, the Financial Advisory Committee of the Board of Governors provides advice to RBC GAM concerning financial reporting,

the audit process and internal controls. Please see The Role of the Board of Governors at the end of this report.

Deloitte LLP, Independent Registered Chartered Accountants, have performed an independent audit of the financial statements in accordance

with Canadian generally accepted auditing standards. Their report is set out on the next page.

John s. montalbano, cfa frank lippa, cpa, caChief Executive Officer Chief Financial Officer and Chief Operating OfficerRBC Global Asset Management Inc. RBC Global Asset Management Inc.

March 1, 2013

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

We have audited the accompanying financial statements of each of the Funds, which comprise the statement of investment portfolio as at

December 31, 2012, the statements of net assets as at December 31, 2012 and 2011 and the statements of operations and changes in net assets

for the years then ended, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the financial statementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted

accounting principles, 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 responsibilityOur responsibility is to express an opinion on these financial statements 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 audit 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 our audits is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as at December 31, 2012

and 2011 and the results of their operations and changes in their net assets for the years then ended in accordance with Canadian generally

accepted accounting principles.

Chartered Accountants, Licensed Public Accountants

March 1, 2013Toronto, Ontario

To the Unitholders of:

phillips, Hager & north canadian money market fundphillips, Hager & north $u.s. money market fundphillips, Hager & north short term bond & mortgage fundphillips, Hager & north bond fundphillips, Hager & north community Values bond fundphillips, Hager & north total return bond fundphillips, Hager & north inflation-linked bond fundphillips, Hager & north High yield bond fundphillips, Hager & north short inflation-linked bond fundphillips, Hager & north long inflation-linked bond fundphillips, Hager & north monthly income fundphillips, Hager & north balanced fundphillips, Hager & north community Values balanced fund

phillips, Hager & north dividend income fundphillips, Hager & north canadian equity fundphillips, Hager & north community Values canadian equity fundphillips, Hager & north canadian equity Value fundphillips, Hager & north canadian equity underlying fundphillips, Hager & north canadian growth fundphillips, Hager & north canadian income fundphillips, Hager & north Vintage fundphillips, Hager & north u.s. dividend income fundphillips, Hager & north u.s. multi-style all-cap equity fundphillips, Hager & north u.s. equity fundphillips, Hager & north currency-Hedged u.s. equity fundphillips, Hager & north u.s. growth fund

phillips, Hager & north overseas equity fundphillips, Hager & north currency-Hedged overseas equity fundphillips, Hager & north global equity fundphillips, Hager & north community Values global equity fundphillips, Hager & north lifetime 2015 fundphillips, Hager & north lifetime 2020 fundphillips, Hager & north lifetime 2025 fundphillips, Hager & north lifetime 2030 fundphillips, Hager & north lifetime 2035 fundphillips, Hager & north lifetime 2040 fundphillips, Hager & north lifetime 2045 fundbonaVista global balanced fundbonaVista canadian equity Value fund(collectively referred to as the “funds”)

INDEPENDENT AUDITOR’S REPORT

STATEMENT OF INVESTMENT PORTFOLIO (in $000s)

2012 annual financial statements

December 31, 2012

The accompanying notes are an integral part of these financial statements.

PhilliPs, hAger & NOrth U.s. MUlti-stYle All-CAP eqUitY FUND

fair % of net Holdings security cost Value assets

canadian equitiesconsumer discretionary 31 550 Tim Hortons Inc. $ 1 596 $ 1 539

1 596 1 539 0.1 Health care 34 910 Catamaran Corp. 1 739 1 631

1 739 1 631 0.2 information technology 28 860 Open Text Corp. 1 517 1 598

1 517 1 598 0.2 total canadian equities 4 852 4 768 0.4 united states equitiesconsumer discretionary 53 320 Abercrombie & Fitch Co. 1 882 2 540 17 600 Amazon.com, Inc. 4 029 4 388 79 200 American Eagle Outfitters 1 404 1 613 48 207 ANN Inc. 1 586 1 619 198 874 Ascena Retail Group Inc. 3 707 3 650 22 820 Bed Bath & Beyond Inc. 1 394 1 266 26 400 Brunswick Corp. 588 763 454 210 Casual Male Retail Group Inc. 1 951 1 877 114 805 CBS Corp. 3 335 4 339 256 055 Comcast Corp., Class A 6 723 9 501 52 400 Dana Holding Corporation 724 811 33 560 Dick's Sporting Goods Inc. 1 560 1 517 43 640 Dollar Tree Inc. 2 012 1 758 41 261 Drew Industries Inc. 937 1 322 201 930 Ford Motor Company 2 453 2 597 16 110 Fossil Inc. 1 365 1 490 39 800 Grand Canyon Education Inc. 733 927 45 300 H&R Block, Inc. 737 835 153 130 Home Depot Inc. 7 136 9 407 41 502 Jarden Corp. 1 630 2 132 112 400 Lennar Corp. 2 997 4 316 49 700 Libbey Inc. 781 953 108 760 LKQ Corp. 2 068 2 278 113 025 Macy's Inc. 3 542 4 380 24 300 Maidenform Brands Inc. 579 470 56 840 Mattel Inc. 1 558 2 066 48 100 McGraw-Hill Companies Inc. 2 495 2 612 127 770 Newell Rubbermaid Inc. 2 308 2 826 34 600 Nike Inc. 1 563 1 773 57 090 Nordstrom Inc. 3 098 3 034 18 800 O'Reilly Automotive Inc. 1 578 1 669 8 720 Panera Bread Company 1 467 1 376 104 715 Pulte Corp. 996 1 889 106 800 RG Barry Corp. 1 255 1 338 26 180 Ross Stores Inc. 1 667 1 408 42 140 Sally Beauty Holdings Inc. 608 987 43 300 Starwood Hotels & Resorts Worldwide Inc. 2 292 2 466


consumer discretionary (cont.) 83 420 Steinway Musical Instruments Inc. $ 1 654 $ 1 749 25 151 Steven Madden Ltd. 774 1 056 108 900 Target Corporation 6 162 6 399 47 857 Tenneco Automotive Inc. 1 512 1 669 75 700 The Walt Disney Company 2 850 3 743 35 500 Time Warner Cable Inc. 3 287 3 428 62 840 Time Warner Inc. 2 735 2 985 89 365 TJX Companies Inc. 2 488 3 768 21 480 Tractor Supply Co. 2 030 1 885 33 280 True Religion Apparel Inc. 739 840 40 710 TRW Automotive Holdings Corp. 1 668 2 168 29 040 Under Armour Inc., Class A 1 590 1 400 103 640 Universal Electronics Inc. 2 272 1 954 8 720 V.F. Corporation 1 375 1 308 25 500 Vitamin Shoppe Inc. 1 453 1 452 16 800 Whirlpool Corp. 1 607 1 698 116 800 Zagg Inc. 1 215 846

112 149 128 541 12.1 consumer staples 119 900 Altria Group Inc. 4 092 3 743 62 105 Bunge Ltd. 4 254 4 479 34 910 Church & Dwight Co. Inc. 1 865 1 858 34 500 Clorox Company 2 553 2 509 39 100 Colgate-Palmolive Company 3 781 4 060 22 400 Costco Wholesale Corp. 1 758 2 198 159 340 CVS Corp. 5 902 7 655 18 833 Energizer Holdings Inc. 1 386 1 496 41 400 General Mills Inc. 1 692 1 662 36 350 Harris Teeter Supermarkets, Inc. 1 325 1 391 22 300 Hershey Foods Corp. 1 551 1 600 84 790 Ingredion Inc. 4 397 5 426 33 366 Kraft Foods Group Inc. 1 297 1 506 28 190 McCormick & Co. Inc. 1 731 1 778 76 200 Mondelez International Inc. 1 843 1 927 103 100 Philip Morris International Inc. 7 129 8 566 24 170 Pricesmart Inc. 1 857 1 849 90 255 Procter & Gamble Co. 6 240 6 088 228 340 The Coca-Cola Co. 8 198 8 226 42 525 The J.M. Smucker Company 3 686 3 642 38 930 Treehouse Foods Inc. 2 074 2 016 32 220 United Natural Foods Inc. 1 852 1 715 84 700 Wal-Mart Stores, Inc. 5 659 5 742

76 122 81 132 7.6 energy 38 945 Anadarko Petroleum Corp. 2 757 2 875 71 850 Cameron International 3 550 4 028 8 500 CARBO Ceramics Inc. 841 661 165 695 Chevron Corp. 16 909 17 810 18 800 Concho Resources Inc. 1 738 1 505


December 31, 2012




energy (cont.) 54 310 ConocoPhillips $ 2 982 $ 3 129 20 810 Continental Resources Inc. 1 555 1 519 11 400 Core Laboratories N.V. 1 143 1 238 59 350 Dresser-Rand Group Inc. 2 838 3 309 23 000 EOG Resources Inc. 2 494 2 759 149 925 Exxon Mobil Corp. 12 297 12 895 32 900 FMC Technologies Inc. 1 412 1 398 18 000 Geospace Technologies Corp. 868 1 586 129 900 Gulfport Energy Corp. 3 739 4 928 85 885 Helmerich & Payne 4 055 4 778 49 740 Hess Corp. 2 644 2 615 55 187 Key Energy Services Inc. 421 380 93 900 McDermott International Inc. 1 047 1 027 28 575 National Oilwell Varco Inc. 2 231 1 940 200 276 Noble Corp. 6 900 6 924 65 575 Occidental Petroleum Corp. 5 667 4 990 32 900 Oceaneering International Inc. 1 564 1 758 34 215 Oil States International Inc. 2 691 2 431 30 585 Peabody Energy Corp. 707 809 60 357 QEP Resources Inc. 1 739 1 814 88 400 Schlumberger Ltd. 6 414 6 084 109 165 Valero Energy Corp. 2 654 3 697 26 316 World Fuel Services Corp. 858 1 076

94 715 99 963 9.4 financials 65 260 ACE Ltd. 4 514 5 172 33 085 Affiliated Managers Group Inc. 3 369 4 275 184 335 Allstate Corp. 6 573 7 354 29 100 American Express Company 1 704 1 661 57 200 American Financial Group Inc. 2 194 2 245 86 930 American International Group Inc. 2 843 3 048 54 700 American Tower Corp. Real Estate Investment Trust 3 885 4 196 46 131 Amerisafe Inc. 944 1 203 128 890 Apartment Investment & Management Co. 3 433 3 463 118 302 Ares Capital Corp. 1 890 2 054 32 381 Asta Funding Inc. 275 299 202 005 Bank of America Corp. 2 163 2 329 61 090 Brown & Brown Inc. 1 613 1 544 33 135 Capital One Financial Corp. 1 754 1 907 10 400 Chemical Financial Corp. 237 245 44 755 Chubb Corp. 3 324 3 348 198 860 Citigroup Inc. 6 247 7 817 23 300 Community Bank System Inc. 654 633 123 205 Compass Diversified Holdings 1 825 1 800 206 899 Fifth Third Bancorp 2 637 3 121 23 800 First Republic Bank 784 775 32 200 Franklin Resources Inc. 3 892 4 020 46 750 Goldman Sachs Group Inc. 5 408 5 926 193 900 Hartford Financial Services Inc. 3 769 4 322 114 470 HCC Insurance Holdings Inc. 3 589 4 228 166 565 Host Marriott Corp. 2 370 2 592 312 058 Huntington Bancshares 1 932 1 977 178 165 Invesco Ltd. 4 067 4 615 237 010 JPMorgan Chase & Co. 9 145 10 355


financials (cont.) 602 353 KKR Financial Holdings LLC $ 5 385 $ 6 318 82 780 LaSalle Hotel Properties 2 014 2 088 101 410 Lincoln National Corp. 2 492 2 608 77 900 MetLife Inc. 2 680 2 548 18 975 Morgan Stanley 282 360 58 200 Netspend Holdings Inc. 463 637 65 461 People's United Financial Inc. 828 786 69 180 PNC Bank Corp. 4 379 4 006 14 090 Portfolio Recovery Associates Inc. 1 415 1 491 33 320 ProAssurance Corp. 1 191 1 397 42 960 Raymond James Financial Corp. 1 558 1 644 67 820 Reinsurance Group of America Inc. 3 601 3 605 33 000 Safeguard Scientifics Inc. 560 483 24 170 Signature Bank 1 610 1 713 57 515 Simon Property Group Inc. 7 536 9 031 85 055 Torchmark Corp. 4 039 4 362 122 953 Tower Group Inc. 2 519 2 166 21 480 T. Rowe Price Group Inc. 1 351 1 389 194 165 U.S. Bancorp 5 199 6 159 136 050 UnumProvident Corp. 2 818 2 812 324 055 Wells Fargo & Company 9 247 11 011

148 201 163 138 15.4 Health care 71 700 Abbott Laboratories 4 343 4 665 18 600 Alexion Pharmaceuticals Inc. 971 1 732 68 500 AmerisourceBergen Corp. 2 551 2 938 30 800 Amgen Inc. 2 422 2 640 54 200 Baxter International Inc. 3 392 3 588 22 600 Biogen Idec Inc. 3 052 3 291 154 000 BioScrip Inc. 1 009 1 614 51 800 Bristol-Myers Squibb Co. 1 870 1 678 17 450 C.R. Bard Inc. 1 797 1 694 29 200 Celgene Corp. 2 138 2 281 22 820 Cerner Corp. 1 742 1 758 52 200 Endo Pharmaceuticals Holdings Inc. 1 602 1 360 50 100 Express Scripts Holding Co. 2 493 2 686 67 100 Gilead Sciences Inc. 4 022 4 898 98 280 HCA Holdings Inc. 2 843 2 946 28 190 Henry Schein Inc. 2 194 2 253 18 310 Humana Inc. 1 469 1 248 20 130 IDEXX Laboratories Inc. 1 946 1 855 211 600 Johnson & Johnson 14 613 14 732 18 120 Laboratory Corp. of America Holdings 1 664 1 558 47 500 Masimo Corp. 1 220 991 69 325 McKesson Corp. 5 706 6 677 44 380 Medtronic Inc. 1 761 1 808 105 875 Merck & Co. Inc. 3 996 4 306 13 496 Meridian Bioscience Inc. 294 267 9 390 Mettler-Toledo International Inc. 1 609 1 800 88 160 Mylan Laboratories Inc. 1 877 2 405 67 130 Parexel International Corp. 2 085 1 970 16 780 Perrigo Company 1 797 1 733 293 260 Pfizer Inc. 5 614 7 308 24 840 Sirona Dental Systems Inc. 1 409 1 582


December 31, 2012




Health care (cont.) 35 200 U.S. Physical Therapy Inc. $ 877 $ 962 111 470 UnitedHealth Group Incorporated 5 613 6 005 62 600 Universal Health Services Inc., Class B 2 589 3 006 22 160 Varian Medical Systems Inc. 1 319 1 545 19 460 Waters Corp. 1 607 1 684 16 110 Watson Pharmaceuticals Inc. 1 384 1 376 26 446 West Pharmaceutical Services Inc. 954 1 437

99 844 108 277 10.2 industrials 46 300 3M Co. 4 251 4 270 174 480 Acacia Research 5 165 4 442 1 070 939 ACCO Brands Corp. 8 811 7 807 49 007 Ametek Inc. 1 355 1 829 53 501 Astronics Corp. 1 408 1 215 17 589 Atlas Air Worldwide Holdings Inc. 845 774 63 124 AZZ Inc. 1 370 2 406 86 900 Boeing Co. 6 097 6 507 46 200 Caterpillar Inc. 4 189 4 112 11 691 Chart Industries Inc. 310 774 28 190 Clean Harbors Inc. 1 338 1 539 106 465 Columbus McKinnon Corp. 1 625 1 745 33 035 Cummins Engine Inc. 3 484 3 555 36 920 Donaldson Co. Inc. 1 261 1 204 43 000 Ducommun Inc. 878 688 84 410 Eaton Corp Plc. 4 030 4 544 34 100 Emerson Electric Co. 1 632 1 794 37 600 EnerSys 934 1 405 18 480 FedEx Corporation 1 673 1 684 50 660 Fluor Corp. 2 795 2 958 57 988 Gardner Denver Inc. 3 892 3 945 588 805 General Electric Company 10 691 12 269 8 040 Grainger (W.W.) Inc. 1 678 1 616 135 715 Honeywell International Inc. 7 349 8 557 14 850 IHS Inc., Class A 1 349 1 415 24 900 II-VI Inc. 510 433 28 900 Illinois Tool Works Inc. 1 643 1 746 49 236 Insteel Industries Inc. 479 609 70 430 Interface Inc. 1 005 1 084 28 190 J.B. Hunt Transport Services Inc. 1 527 1 670 149 660 KBR Inc. 4 383 4 447 32 273 Kirby Corp. 1 850 1 981 29 220 Landstar System Inc. 1 414 1 522 17 900 Lockheed Martin Corporation 1 618 1 641 18 800 MSC Industrial Direct Co. 1 284 1 408 28 351 Old Dominion Freight Line Inc. 721 965 22 850 Owens Corning 698 839 13 580 Pentair Ltd. 591 663 10 160 Precision Castparts Corp. 1 569 1 911 7 121 Regal-Beloit Corp. 417 499 45 060 Republic Services Inc. 1 271 1 313 20 200 Roadrunner Transportation Systems Inc. 339 364 16 780 Roper Industries Inc. 1 822 1 857 64 169 Spirit Airlines Inc. 1 082 1 129 20 640 SPX Corp. 1 330 1 438


industrials (cont.) 21 480 Stericycle Inc. $ 1 919 $ 1 989 46 255 Sun Hydraulics Corp. 1 091 997 28 300 The ADT Corp. 1 002 1 307 54 160 The Greenbrier Co. Inc. 797 869 32 350 Triumph Group Inc. 2 069 2 098 56 600 Tyco International Ltd. 3 162 1 643 67 152 Union Pacific Corp. 7 204 8 385 48 800 United Rentals Inc. 1 749 2 206 59 700 United Technologies Corp. 4 947 4 863 10 780 Valmont Industries 1 378 1 462 30 880 Verisk Analytics Inc. 1 461 1 564 14 800 Wabtec Corp. 792 1 286 45 650 Waste Connections Inc. 1 330 1 532 73 850 Werner Enterprises Inc. 1 743 1 589

134 607 142 363 13.4 information technology 11 800 Alliance Data Systems Corp. 1 356 1 697 27 530 Ansys Inc. 1 882 1 841 60 210 Apple Inc. 31 894 31 868 58 340 ARM Holdings Plc. ADR 1 641 2 192 56 563 Arrow Electronics Inc. 2 187 2 139 77 210 Aruba Networks Inc. 1 605 1 590 30 860 Aspen Technology Inc. 344 846 42 200 Automatic Data Processing Inc. 2 429 2 388 45 350 Avnet Inc. 1 369 1 379 53 285 Broadcom Corp. 1 913 1 757 7 760 CACI International Inc. 392 424 110 800 Ciena Corp. 1 666 1 727 423 385 Cisco Systems Inc. 7 575 8 267 20 500 Cognizant Technology Solutions Corp., Class A 1 319 1 507 69 000 Computer Task Group Inc. 889 1 230 21 480 Concur Technologies Inc. 1 455 1 440 121 790 eBay Inc. 4 595 6 173 234 005 EMC Corp. 5 836 5 882 34 370 F5 Networks Inc. 3 522 3 314 14 760 Factset Research Systems Inc. 1 369 1 291 136 130 Fairchild Semiconductor International Inc. 1 794 1 946 16 600 Google Inc., Class A 10 375 11 688 140 625 Intel Corp. 3 102 2 881 38 900 Interactive Intelligence Group 1 111 1 249 39 834 InterDigital Inc. 1 578 1 626 56 900 International Business Machines 10 378 10 826 23 100 IPG Photonics Corp. 1 264 1 528 32 000 KLA-Tencor Corp. 1 624 1 517 12 700 Liquidity Services Inc. 498 515 2 870 MasterCard Inc. 1 069 1 401 32 100 Measurement Specialties Inc. 948 991 19 460 MercadoLibre Inc. 1 650 1 518 508 920 Micron Technology Inc. 3 291 3 200 248 100 Microsoft Corp. 7 151 6 584 30 880 Micros Systems Inc. 1 420 1 300 36 400 Motorola Solutions Inc. 1 790 2 013 58 618 NIC Inc. 490 950 267 000 Oracle Corporation 7 479 8 831


December 31, 2012




information technology (cont.) 97 600 QUALCOMM Inc. $ 5 343 $ 6 009 47 300 Rackspace Hosting Inc. 3 394 3 489 15 200 Salesforce.com Inc. 2 244 2 536 78 600 Sandisk Corp. 3 179 3 399 70 900 Sapient Corp. 729 744 309 880 Skyworks Solutions Inc. 7 255 6 245 47 000 SynOpsys Inc. 1 519 1 486 101 500 Take-Two Interactive Software Inc. 1 258 1 108 19 460 Teradata Corp. 1 427 1 196 127 800 Teradyne Inc. 2 064 2 144 50 900 Tessco Technologies Inc. 1 007 1 117 214 095 Texas Instruments Inc. 6 312 6 579 60 420 Tibco Software Inc. 1 709 1 321 36 250 Trimble Navigation Ltd. 1 745 2 152 34 760 Tyler Technologies Inc. 797 1 672 36 920 Verisign Inc. 1 744 1 423 35 800 Visa Inc., Class A 3 653 5 386 24 170 WEX Inc. 1 690 1 809 128 730 Xyratex Ltd. 1 886 1 075

181 205 190 406 17.9 materials 16 110 Airgas Inc. 1 304 1 461 42 720 Allegheny Technologies Inc. 1 425 1 288 26 180 Aptargroup Inc. 1 340 1 241 48 612 Ashland Inc. 2 962 3 882 16 400 Buckeye Technologies Inc. 450 468 96 608 Crown Holdings Inc. 3 320 3 530 39 380 Cytec Industries Inc. 2 341 2 692 52 700 Dow Chemical Company 1 699 1 692 60 600 Du Pont (E.I.) de Nemours and Company 3 186 2 707 66 510 Eastman Chemical Company 3 667 4 497 29 540 Ecolab Inc. 1 879 2 109 90 335 FMC Corp. 4 859 5 249 85 370 International Paper Co. 2 730 3 378 9 800 Kaiser Aluminum Corp. 502 600 41 791 Koppers Holdings Inc. 1 173 1 582 34 700 LyondellBasell Industries N.V. 1 537 1 968 37 500 Monsanto Co. 3 326 3 525 180 585 Omnova Solutions Inc. 1 283 1 254 158 975 Owens-Illinois Inc. 3 190 3 355 25 275 PPG Industries Inc. 2 776 3 397 87 292 Reliance Steel & Aluminum Co. 4 686 5 382 64 010 Schweitzer-Mauduit International Inc. 1 881 2 481 20 130 Sigma-Aldrich Corp. 1 441 1 471 24 500 Southern Copper Corp. 817 921 71 580 Universal Stainless & Alloy 2 148 2 588

55 922 62 718 5.9


telecommunication services 135 150 AT&T Inc. $ 4 069 $ 4 526 101 250 CenturyTel Inc. 4 084 3 934 52 800 Crown Castle International Corp. 3 467 3 784 294 800 Sprint Corp. 1 338 1 657 139 010 Verizon Communications Inc. 5 027 5 973 90 506 Windstream Corp. 906 744

18 891 20 618 2.0 utilities 13 300 Cleco Corporation 526 528 58 062 CMS Energy Corp. 1 309 1 405 203 185 Edison International 8 554 9 117 98 170 NextEra Energy Inc. 6 160 6 744 159 990 Northeast Utilities 5 969 6 208 20 400 NorthWestern Corp. 707 703 88 700 OGE Energy Corp. 4 834 4 961

28 059 29 666 2.8 total united states equities 949 715 1 026 822 96.7 sHort-term inVestments* 17 324 17 370 1.7 total inVestments $ 971 891 1 048 960 98.8 otHer net assets 12 893 1.2 net assets $ 1 061 853 100.0

* Short-term investments, which may be made up of treasury bills, commercial paper, term deposits and discount notes, earn interest at rates ranging from 0.10% to 0.30% and mature between January 2, 2013 and January 24, 2013.

FINANCIAL STATEMENTS



statements of net assets (in $000s except per unit amounts)

december 31 (see note 2 in the generic notes) 2012 2011

assetsInvestments at fair value $ 1 048 960 $ 872 582Cash 22 207 7 268Due from investment dealers 1 107 3 118Subscriptions receivable 182 49Unrealized gain on foreign exchange contracts – 4Dividends receivable, interest accrued and other assets 762 1 061total assets 1 073 218 884 082liabilitiesDue to investment dealers 11 001 7 273Redemptions payable 306 1 251Accounts payable and accrued expenses 58 46total liabilities 11 365 8 570net assets $ 1 061 853 $ 875 512

Investments at cost $ 971 891 $ 809 250

net assets, end of period series c $ 637 $ 447 adVisor series $ 464 $ 20 series d $ 7 804 $ 4 128 series f $ 121 $ 51 series o $ 1 052 827 $ 870 866net assets per unit, end of period series c $ 11.35 $ 11.15 adVisor series $ 11.35 $ 11.15 series d $ 11.55 $ 11.27 series f $ 11.55 $ 11.27 series o $ 11.34 $ 11.07net asset Value (transactional naV) per unit, end of period (see note 3 in the generic notes) series c $ 11.36 $ 11.16 adVisor series $ 11.36 $ 11.16 series d $ 11.56 $ 12.28 series f $ 11.56 $ 11.28 series o $ 11.35 $ 11.08

statements of operations (in $000s except per unit amounts)

for the periods ended december 31 (see note 2 in the generic notes) 2012 2011

income (see note 3 in the generic notes)Dividends $ 21 750 $ 14 505Interest 41 24Securities lending revenue (see note 6 in the generic notes) 126 62Foreign withholding taxes (2 994) (2 121)total income (loss) 18 923 12 470expenses (see notes – fund specific information)Management fees 78 39Administration fees 510 423Board of Governors costs 4 4GST/HST 58 45total expenses 650 511net inVestment income (loss) 18 273 11 959realiZed and unrealiZed gain (loss) on inVestments Net realized gain (loss) on investments 75 611 (3 114)Net gain (loss) on foreign currencies and other net assets 412 1 319Change in unrealized gain (loss) on investments 13 733 751Transaction costs (2 492) (3 482)net gain (loss) on inVestments 87 264 (4 526)increase (decrease) in net assets from operations $ 105 537 $ 7 433increase (decrease) in net assets from operations series c $ 47 $ (11) adVisor series $ 13 $ – series d $ 502 $ (3) series f $ 8 $ 2 series o $ 104 967 $ 7 445increase (decrease) in net assets from operations per unit series c $ 1.00 $ (0.11) adVisor series $ 1.00 $ (0.11) series d $ 1.12 $ (0.03) series f $ 1.14 $ – series o $ 1.23 $ 0.09

Approved by the Board of Directors of RBC Global Asset Management Inc.

John s. montalbanoDirector

doug coulterDirector

FINANCIAL STATEMENTS



for the periods ended december 31 series o total(see note 2 in the generic notes) 2012 2011 2012 2011

net assets – beginning of period $ 870 866 $ 761 910 $ 875 512 $ 763 442increase (decrease) from operations 104 967 7 445 105 537 7 433Early redemption fees – – – –Proceeds from units issued 278 041 218 271 283 857 222 214Proceeds from reinvestment of distributions 83 843 11 270 84 407 11 277Payments on redemption of units (201 013) (116 755) (202 992) (117 572)total unit transactions 160 871 112 786 165 272 115 919Distributions from net income (16 809) (11 275) (16 843) (11 282)Distributions from net gains (67 068) – (67 625) –Distributions from capital – – – –total distributions (83 877) (11 275) (84 468) (11 282)total increase (decrease) in net assets 181 961 108 956 186 341 112 070net assets – end of period $ 1 052 827 $ 870 866 $ 1 061 853 $ 875 512

statements of changes in net assets (in $000s)

for the periods ended december 31 series c advisor series series d series f(see note 2 in the generic notes) 2012 2011 2012 2011 2012 2011 2012 2011

net assets – beginning of period $ 447 $ 156 $ 20 $ – $ 4 128 $ 1 371 $ 51 $ 5increase (decrease) from operations 47 (11) 13 – 502 (3) 8 2Early redemption fees – – – – – – – –Proceeds from units issued 306 365 574 20 4 825 3 505 111 53Proceeds from reinvestment of distributions 44 – 25 – 490 7 5 –Payments on redemption of units (163) (63) (136) – (1 635) (745) (45) (9)total unit transactions 187 302 463 20 3 680 2 767 71 44Distributions from net income – – – – (33) (7) (1) –Distributions from net gains (44) – (32) – (473) – (8) –Distributions from capital – – – – – – – –total distributions (44) – (32) – (506) (7) (9) –total increase (decrease) in net assets 190 291 444 20 3 676 2 757 70 46net assets – end of period $ 637 $ 447 $ 464 $ 20 $ 7 804 $ 4 128 $ 121 $ 51

NOTES TO FINANCIAL STATEMENTS – FUND SPECIFIC INFORMATION

Please see the generic notes at the back of the financial statements.

December 31, 2012


Financial instrument risk and capital management (see note 4 in the generic notes)

Currency risk (% of net assets)

The table below summarizes the Fund’s net exposure

(after hedging, if any) to currency risk as at:

december 31 December 31 Currency 2012 2011

United States dollar 99.6 100.0Total 99.6 100.0

As at December 31, 2012, if the Canadian dollar had

strengthened or weakened by 1% in relation to the above

currency, with all other factors kept constant, the Fund’s

net assets may have decreased or increased, respectively, by

approximately 1.0% (December 31, 2011 – 1.0%). In practice,

actual results could differ from this sensitivity analysis and the

difference could be material.

Other price risk (% impact on net assets)

The table below shows the impact of a 1% change in the

broad-based index (noted below) on the Fund’s net assets,

using a 30-month (December 31, 2011 – 18-month) historical

correlation of data of the Fund’s return and the index, with all

other factors kept constant, as at:

december 31 December 31 2012 2011

Russell 3000 Total Return Index (CAD) + or - 1.0 + or - 1.0

Since historical correlation may not be representative of

future correlation, 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

December 31, 2012 and 2011 in the valuation of the Fund’s

financial instruments carried at fair value.

december 31, 2012 level 1 level 2 level 3 total

equities 1 031 590 – – 1 031 590mutual fund units – – – –fixed-income and debt securities – – – –short-term investments – 17 370 – 17 370derivatives – assets – – – –derivatives – liabilities – – – –total financial instruments 1 031 590 17 370 – 1 048 960% of total portfolio 98.3 1.7 – 100.0

December 31, 2011 Level 1 Level 2 Level 3 Total

Equities 858 028 – – 858 028Mutual fund units – – – –Fixed-income and debt securities – – – –Short-term investments – 14 554 – 14 554Derivatives – assets – 4 – 4Derivatives – liabilities – – – –Total financial instruments 858 028 14 558 – 872 586% of total portfolio 98.3 1.7 – 100.0

For the periods ended December 31, 2012 and 2011, there

were no transfers of financial instruments between Level 1

and Level 2.

Management fees (see note 7 in the generic notes)

No management fees are payable by the Fund with respect

to Series O units. Series O unitholders pay a negotiated fee

directly to RBC GAM for investment-counselling services.

Management fees of the other series of the Fund are

calculated at the following annual percentages, before

GST/HST, of the daily net asset value of each series of

the Fund.

Series C 1.75%Advisor Series 1.75%Series D 1.00%Series F 0.75%

Operating expenses (see note 7 in the generic notes)

Administration fees payable by each series of the Fund

are calculated at the following annual percentages, before

GST/HST, of the daily net asset value of each series of

the Fund.

Series C 0.10%Advisor Series 0.10%Series D 0.10%Series F 0.10%Series O 0.05%



December 31, 2012


initial investments ($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 C 96 89 Advisor Series 101 94 Series D 96 89 Series F 96 89 Series O 100 92 Value of all units $ 6 $ 5

taxes ($000s) (see note 5 in the generic notes)

The Fund had no capital or non-capital losses as at

December 31, 2012.

Unitholders’ equity (000s)

The unitholders’ equity of the Fund includes amounts

representing units, undistributed net income (loss), realized

gain (loss) on investments and unrealized gain (loss) on

investments. There is no limitation on the number of units

available for issue. Units are purchased and redeemed at the

transactional NAV per unit.

For the periods ended December 31 (see note 2 in the generic notes) 2012 2011

series c Opening units 40 14 Issued number of units 26 32 Reinvested number of units 4 – Redeemed number of units (14) (6) Ending number of units 56 40

advisor series Opening units 2 – Issued number of units 48 2 Reinvested number of units 2 – Redeemed number of units (11) – Ending number of units 41 2

series d Opening units 366 121 Issued number of units 403 311 Reinvested number of units 42 1 Redeemed number of units (135) (67) Ending number of units 676 366

For the periods ended December 31 (see note 2 in the generic notes) 2012 2011

series f Opening units 5 – Issued number of units 9 6 Reinvested number of units – – Redeemed number of units (4) (1) Ending number of units 10 5

series o Opening units 78 660 68 429 Issued number of units 23 530 20 119 Reinvested number of units 7 382 1 010 Redeemed number of units (16 740) (10 898) Ending number of units 92 832 78 660

transaction costs ($000s except %)

Transaction costs, including brokerage commissions, in

consideration of portfolio transactions for the periods ended:

december 31 December 31 2012 2011 $ % $ %

Total transaction costs 2 492 100 3 482 100Related-party brokerage commissions* 24 1 116 3Commission arrangements† 56 2 119 3

* See note 7 in the generic notes.† Commission arrangements are part of commission amounts paid to dealers. The Fund

uses commission arrangements (formerly known as “soft dollars”) for research and/or order execution goods and services.

securities lending revenue ($000s) (see note 6 in the generic notes)

Fair value of securities on loan and collateral received as at:


Fair value of securities loaned $ 72 048 $ 71 275Fair value of collateral received $ 75 650 $ 74 838



December 31, 2012

investments by other related investment Funds (000s) (see note 7 in the generic notes)

The following outstanding units of the Fund were held by the

following related Investment Funds as at:


series o Phillips, Hager & North LifeTime 2015 Fund 37 8Phillips, Hager & North LifeTime 2020 Fund 65 17Phillips, Hager & North LifeTime 2025 Fund 70 21Phillips, Hager & North LifeTime 2030 Fund 56 16Phillips, Hager & North LifeTime 2035 Fund 89 15Phillips, Hager & North LifeTime 2040 Fund 75 28Phillips, Hager & North LifeTime 2045 Fund 96 15RBC Select Very Conservative Portfolio 6 547 4 430RBC Select Conservative Portfolio 26 182 21 802 RBC Select Balanced Portfolio 34 115 32 260RBC Select Growth Portfolio 16 614 16 638RBC Select Aggressive Growth Portfolio 3 510 3 194 RBC Select Choices Conservative Portfolio 602 –RBC Select Choices Balanced Portfolio 885 –RBC Select Choices Growth Portfolio 1 670 –RBC Select Choices Aggressive Growth Portfolio 916 –RBC Select Very Conservative Class 20 –RBC Select Conservative Class 25 –RBC Select Balanced Class 17 –RBC Select Growth Class 12 –RBC Select Aggressive Growth Class 11 –Phillips, Hager & North U.S. Multi-Style All-Cap Equity Class 778 –total 92 392 78 444


GENERIC NOTES TO FINANCIAL STATEMENTS

December 31, 2012

(also see Fund Specific Information)

1. the FundsThe mutual funds (“Fund” or “Funds”) are open-ended mutual fund trusts governed by the laws of the Province of British Columbia and governed by a Master Declaration of Trust. RBC GAM is the manager and portfolio advisor of the Funds.

The Funds may issue an unlimited number of units in some or all of Series C, Advisor Series, Series H, Series B, Series D, Series F, Series I and Series O.

Series C units are available to investors who purchase units from authorized third-party dealers.

Advisor Series units are available to all investors with an initial sales charge or low-load sales charge option. Under the initial sales charge option, investors pay a sales commission ranging from 0% to 5% of the amount invested. Under the low-load sales charge option, investors do not pay a commission.

Series H units have lower fees than Series C units and are only available to investors who invest and maintain the required minimum balance.

Series B units were previously available to investors who purchased units from authorized third-party dealers. All outstanding Series B units were redesignated as Series D units effective July 2012.

Series D units are available to all investors and may be purchased, switched or redeemed through Phillips, Hager & North Investment Funds Ltd. (“PH&N IF”) or certain other authorized dealers (primarily discount brokers).

Series F units are available to investors who have fee-based accounts with their dealer.

Series I units have lower fees than Series F 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 as may be determined from time to time on a case-by-case basis. Series O units may only be purchased, switched or redeemed through RBC GAM or, in certain circumstances, PH&N IF.

2. Financial year/periodThe information provided in these financial statements and notes thereto is for the 12-month periods ended or as at December 31, 2012 and 2011. In the year a Fund or series is

established, “period” represents the period from inception to December 31 of that fiscal year.

3. summary of significant accounting policiesThese financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”), 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 are as follows:

valuation of investments The valuation methods used to calculate the daily net asset value to transact units of the Funds (“transactional NAV”), as described in the Funds’ Annual Information Form, are not identical to the GAAP valuation methods used to determine the financial statement net assets (“net assets”) described below. The primary difference between net assets and transactional NAV relates to valuation of actively traded securities at bid prices for net assets and at last sale prices for transactional NAV.

In accordance with the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3862, Financial Instruments – Disclosures, the Funds’ financial instruments are measured at fair value using a three-tier hierarchy based on inputs used to value the Funds’ investments and derivatives. 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); 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 exchange-traded funds are valued at the closing bid price recorded by the security exchange on which the security is principally traded.


December 31, 2012


Fixed-Income and Debt Securities – Bonds, mortgage-backed securities and debentures are valued at the closing bid price quoted by major dealers in such securities.

Mortgages are valued at a principal 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 their cost including applicable foreign exchange translations. This value, together with accrued interest, approximates fair value using closing bid prices.

Options – Listed options are valued at the closing bid price on the recognized exchange on which the option is traded for the long positions and the ask price for the short positions. The premium received for written options is recorded as a credit in the Statement 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 gain or loss at the close of business on each valuation date is recorded in the Statements of Operations. The net receivable/payable on forward contracts is recorded separately in the Statements of Net Assets. Realized gain (loss) on foreign exchange contracts is included in “Net gain (loss) on foreign currencies and other net assets” in the Statements of Operations.

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 Operations. The net receivable/payable on futures contracts is recorded separately in the Statements of Net Assets.

Mutual Fund Unit Valuation – Units of Funds are valued at their respective transactional NAV per unit received from fund companies on the relevant valuation dates.

Fair Valuation of Investments (including unlisted securities) – If the valuation methods described above are not appropriate, RBC GAM will estimate the fair value of an investment using established fair valuation procedures, such as consideration of public information, broker quotes, valuation models, fundamental analysis, matrix pricing, discounts from market prices of similar securities or discounts applied due to restrictions on the disposition of securities, and external fair value service providers.

Procedures are in place to determine the fair value of foreign securities traded in countries outside North America daily, to avoid stale prices and to take into account, among other things, any significant events occurring after the close of a foreign market. This fair valuation process takes into account the last quoted price of the security and adjusts the price based on inputs such as related indices, changes in foreign markets and American Depository Receipts (“ADR”) prices. These securities are classified as Level 2.

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) 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 Operations.

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 Operations for the period. The period change in the difference between fair value and average cost of securities represents unrealized gains and losses. The basis of determining the cost of portfolio assets, and realized and unrealized gains and losses on investments, is average cost.


December 31, 2012


income recognition Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. “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 revenue” includes income earned by a Fund from investments in underlying funds.

increase (Decrease) in Net Assets from Operations Per Unit Increase (decrease) in net assets from operations per unit in the Statements of Operations represents the increase (decrease) in net assets from operations 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 the 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.

Foreign Currencies The following is a list of abbreviations used in the Statement of Investment Portfolio:

AUD – Australian Dollar JPY – Japanese Yen CAD – Canadian Dollar NOK – Norwegian KroneCHF – Swiss Franc SGD – Singapore DollarEUR – Euro USD – United States DollarGBP – Pound Sterling

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 advisors, 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.

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.

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 Net Assets. The fair value of fixed-income and debt securities includes a consideration of the credit worthiness 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.

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 Canadian dollars is affected by changes in the value of the Canadian dollar or a Fund’s functional currency, in relation to the value of the currency in which the investment is denominated. When the value of the Canadian dollar falls in relation to foreign currencies, then the value of foreign investments rises. When the value of the Canadian dollar rises, the value of foreign investments falls.


December 31, 2012


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. taxesThe 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 revenueCertain 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 Operations 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% of the assets of a Fund. The Fund receives collateral, with an approved credit rating of at least A, of at least 102% of the value of securities on loan. The Fund is indemnified by RBC IS for any collateral credit or market loss. As such, the credit risk associated with securities lending is considered minimal.

7. Administrative and other related-party transactions

Manager and RegistrarRBC GAM is an indirect wholly-owned subsidiary of Royal Bank of Canada (“Royal Bank”). RBC GAM is the manager and registrar of the Funds. RBC GAM is responsible for the Funds’ day-to-day operations, provides investment advice and portfolio management services to the Funds and appoints distributors for the Funds. RBC GAM, as registrar,

also keeps records of who owns units of the Funds. RBC GAM is paid a management fee by the Funds as compensation for its services. No management fees are paid by the Funds with respect to Series O units. Series O unitholders pay a negotiated fee directly to RBC GAM for investment-counselling services.

The Funds pay a fixed administration fee to RBC GAM. RBC GAM in turn pays certain operating expenses of the Funds. These expenses include regulatory filing fees and other day-to-day operating expenses including, but not limited to, recordkeeping, accounting and fund valuation costs, custody fees, audit and legal fees, and the costs of preparing and distributing annual and semi-annual reports, prospectuses, statements and investor communications.

Notwithstanding the fixed administration fee, the Funds also pay certain operating expenses directly, including the costs related to the Board of Governors (“BoG”) of the Funds and the cost of any new government or regulatory requirements introduced and any borrowing costs (collectively, other fund costs), and taxes (including, but not limited to, GST/HST). Other Fund costs will be allocated among each series of units of a fund in accordance with the services used. RBC GAM may, in some years and in certain cases, absorb a portion of operating expenses. The decision to absorb the operating expenses is reviewed annually and determined at the discretion of RBC GAM, without notice to unitholders.

Certain Funds may invest in units of other Funds managed by RBC GAM or its affiliates.

Affiliates of RBC GAM that provide services to the Funds in the course of their normal businesses are discussed below.

Portfolio Advisor

With the exception of the BonaVista Global Balanced Fund and the BonaVista Canadian Equity Value Fund, RBC GAM is the principal portfolio advisor of the Funds. BonaVista Asset Management Ltd. (“BonaVista”), a subsidiary of RBC GAM, is the principal portfolio advisor for the BonaVista Global Balanced Fund and the BonaVista Canadian Equity Value Fund. Sky Investment Counsel Inc. (“Sky”) is the sub-advisor for the Phillips, Hager & North Overseas Equity Fund and the non-North American equity assets of the Phillips, Hager & North Balanced Fund, the Phillips, Hager & North Global Equity Fund and the Phillips, Hager & North Community Values Global Equity Fund. RBC GAM has a non-controlling interest in Sky. The fees paid to BonaVista and Sky are paid by RBC GAM and not the Funds.


December 31, 2012


DistributorsRBC GAM, PH&N IF, Royal Mutual Funds Inc., RBC Direct Investing Inc. and RBC Dominion Securities Inc. are the principal distributors of, or distribute certain series of units of, the Funds. Dealers receive an ongoing commission based on the total value of their clients’ Series C, Advisor Series, Series H, Series B or Series D units.

BrokerageThe Funds have established standard brokerage agreements at market rates with related-party dealers.

Trustee and CustodianRBC IS is the trustee and custodian of the Funds. RBC IS is paid custodial fees for holding the assets of the Funds, and trustee fees for acting as the trustee. The fees paid to RBC IS are paid by RBC GAM and not the Funds.

Other Related-Party TransactionsPursuant to applicable securities legislation, the Funds relied on the standing instructions from the BoG in its capacity as the Independent Review Committee with respect to one or more of the following related-party transactions:

Related-Party Trading Activities

(a) trades in securities of Royal Bank;

(b) investments in the securities of issuers for which a related-party dealer acted as an underwriter during the distribution of such securities and the 60-day period following the conclusion of such distribution of the underwritten securities to the public;

(c) purchases of equity and debt securities from or sales of equity or debt securities to a related-party dealer, where it acted as principal; and

Inter-Fund Trading

(d) purchases or sales of securities of an issuer from or to another investment fund or managed account managed by RBC GAM.

The applicable standing instructions require that Related-Party Trading Activities and Inter-Fund Trading be conducted in accordance with RBC GAM policy and that RBC GAM advise the BoG of a material breach of any standing instruction. RBC GAM policy requires that an investment decision in respect of Related-Party Trading Activities: (i) is made free from any influence of Royal Bank or its associates or affiliates and without taking into account any consideration relevant to Royal Bank or its affiliates

or associates, (ii) represents the business judgment of the portfolio manager, uninfluenced by considerations other than the best interests of the Funds, (iii) is in compliance with RBC GAM policies and procedures, and (iv) achieves a fair and reasonable result for the Funds. RBC GAM policy requires that an investment decision in respect of Inter-Fund Trading is in the best interests of each Fund.

8. Future accounting changesInternational Financial Reporting StandardsThe Funds will be required to adopt the International Financial Reporting Standards (“IFRS”) beginning in their fiscal 2014 year. In preparation to meet the requirements, RBC GAM has taken the following steps in managing the transition to IFRS:

(a) established a committee for the development and implementation of a transition plan and to provide oversight of the transition to IFRS;

(b) commenced activities to identify key issues and the likely impacts resulting from the adoption of IFRS; and

(c) initiated analysis to reconfigure accounting systems used by the Funds.

The key elements of the plan currently include disclosure of the quantitative impact, if any, in the comparative 2013 financial statements and the preparation of the 2014 financial statements in accordance with IFRS.

Since IFRS standards are constantly evolving, the major qualitative impacts based on standards approved to date are the addition of a cash flow statement and the impact of classification of puttable instruments, the units of the Fund, as a liability or as an equity.

Regardless of the financial statement impacts, RBC GAM has presently determined that there will be no quantitative impact to the transactional NAV of each series as a result of the changeover to IFRS.

9. Comparative figuresIn the Statements of Operations, “Board of Governors costs” for certain funds, which were reimbursed by the manager for the prior period, have been reflected to conform with the presentation in the current year.

Documents

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTINGfunds.rbcgam.com/pdf/fs/annual/phn3380_e.pdf55 187 Key Energy Services Inc. 421 380 93 900 McDermott International Inc. 1 047 1