MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL …funds.rbcgam.com/pdf/fs/annual/rbf263_e.pdf · Those standards require that we comply with ethical requirements and plan ... 148 900

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.

PricewaterhouseCoopers LLP, Chartered Professional Accountants, Licensed Public Accountants, have performed an independent audit of the

financial statements in accordance with IFRS. Their report is set out on the next page.

Damon G. Williams, FSA, FCIA, CFA Heidi Johnston, CPA, CAChief Executive Officer Chief Financial OfficerRBC Global Asset Management Inc. RBC GAM Funds

March 8, 2018

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

INDEPENDENT AUDITOR’S REPORT

To the Unitholders of:

RBC FUNDS & RBC PRIVATE POOLSRBC Canadian T-Bill FundRBC Canadian Money Market FundRBC Premium Money Market FundRBC $U.S. Money Market FundRBC Premium $U.S. Money Market FundRBC Canadian Short-Term Income FundRBC Monthly Income Bond FundRBC Canadian Bond Index Fund (formerly, RBC Advisor Canadian Bond Fund)RBC Canadian Government Bond Index FundRBC Bond FundRBC Vision Bond Fund (formerly, Phillips, Hager & North Community Values Bond Fund)RBC Global Bond FundRBC $U.S. Investment Grade Corporate Bond FundRBC Global Corporate Bond FundRBC High Yield Bond FundRBC $U.S. High Yield Bond FundRBC Global High Yield Bond FundRBC Strategic Income Bond FundRBC Emerging Markets Foreign Exchange FundRBC Emerging Markets Bond FundRBC Emerging Markets Bond Fund (CAD Hedged)BlueBay Global Monthly Income Bond FundBlueBay Global Sovereign Bond Fund (Canada)BlueBay Global Investment Grade Corporate Bond Fund (Canada)BlueBay European High Yield Bond Fund (Canada)BlueBay Emerging Markets Corporate Bond FundBlueBay Global Convertible Bond Fund (Canada)BlueBay $U.S. Global Convertible Bond Fund (Canada)RBC Managed Payout SolutionRBC Managed Payout Solution – EnhancedRBC Managed Payout Solution – Enhanced PlusRBC Monthly Income FundRBC U.S. Monthly Income Fund RBC Balanced FundRBC Global Balanced FundRBC Vision Balanced Fund (formerly, RBC Jantzi Balanced Fund)RBC Conservative Growth & Income FundRBC Balanced Growth & Income FundRBC Global Growth & Income FundRBC Retirement Income SolutionRBC Retirement 2020 PortfolioRBC Retirement 2025 PortfolioRBC Retirement 2030 PortfolioRBC Retirement 2035 PortfolioRBC Retirement 2040 PortfolioRBC Retirement 2045 PortfolioRBC Retirement 2050 PortfolioRBC Select Very Conservative PortfolioRBC Select Conservative PortfolioRBC Select Balanced Portfolio RBC Select Growth PortfolioRBC Select Aggressive Growth PortfolioRBC Select Choices Conservative PortfolioRBC Select Choices Balanced PortfolioRBC Select Choices Growth PortfolioRBC Select Choices Aggressive Growth PortfolioRBC Target 2020 Education FundRBC Target 2025 Education Fund

RBC Target 2030 Education FundRBC Target 2035 Education FundRBC Canadian Dividend FundRBC Canadian Equity FundRBC QUBE Canadian Equity FundRBC QUBE Low Volatility Canadian Equity FundRBC Trend Canadian Equity FundRBC Vision Canadian Equity Fund (formerly, RBC Jantzi Canadian Equity Fund)RBC Canadian Index FundRBC O’Shaughnessy Canadian Equity FundRBC O’Shaughnessy All-Canadian Equity FundRBC Canadian Equity Income FundRBC Canadian Small & Mid-Cap Resources FundRBC North American Value FundRBC North American Growth FundRBC U.S. Dividend FundRBC U.S. Dividend Currency Neutral FundRBC U.S. Equity Fund RBC U.S. Equity Currency Neutral FundRBC QUBE U.S. Equity FundRBC QUBE Low Volatility U.S. Equity FundRBC QUBE Low Volatility U.S. Equity Currency Neutral FundRBC U.S. Equity Value FundRBC U.S. Index FundRBC U.S. Index Currency Neutral FundRBC O’Shaughnessy U.S. Value FundRBC U.S. Mid-Cap Growth Equity FundRBC U.S. Mid-Cap Growth Equity Currency Neutral Fund RBC U.S. Mid-Cap Value Equity FundRBC U.S. Small-Cap Core Equity FundRBC U.S. Small-Cap Value Equity FundRBC O’Shaughnessy U.S. Growth FundRBC O’Shaughnessy U.S. Growth Fund IIRBC Life Science and Technology FundRBC International Dividend Growth FundRBC International Equity FundRBC International Equity Currency Neutral FundRBC International Index Currency Neutral FundRBC O’Shaughnessy International Equity FundRBC European Dividend FundRBC European Equity FundRBC European Mid-Cap Equity FundRBC Asian Equity FundRBC Asia Pacific ex-Japan Equity FundRBC Japanese Equity FundRBC Emerging Markets Multi-Strategy Equity FundRBC Emerging Markets Dividend FundRBC Emerging Markets Equity FundRBC Emerging Markets Small-Cap Equity FundRBC Global Dividend Growth FundRBC Global Dividend Growth Currency Neutral FundRBC Global Equity FundRBC Global Equity Focus FundRBC QUBE Global Equity FundRBC QUBE Low Volatility Global Equity FundRBC Vision Global Equity Fund (formerly, RBC Jantzi Global Equity Fund)RBC Vision Fossil Fuel Free Global Equity Fund RBC O’Shaughnessy Global Equity FundRBC QUBE All Country World Equity FundRBC QUBE Low Volatility All Country World Equity FundRBC Global Energy FundRBC Global Precious Metals Fund

RBC Global Resources FundRBC Global Technology FundRBC Private Short-Term Income PoolRBC Private Canadian Corporate Bond PoolRBC Private Income PoolRBC Private Canadian Dividend PoolRBC Private Canadian Growth and Income Equity PoolRBC Private Canadian Equity PoolRBC Private Canadian Growth Equity PoolRBC Private Canadian Mid-Cap Equity PoolRBC Private U.S. Large-Cap Value Equity Pool RBC Private U.S. Large-Cap Value Equity Currency Neutral PoolRBC Private U.S. Growth Equity PoolRBC Private U.S. Large-Cap Core Equity Pool RBC Private U.S. Large-Cap Core Equity Currency Neutral PoolRBC Private U.S. Small-Cap Equity PoolRBC Private EAFE Equity PoolRBC Private Overseas Equity PoolRBC Private World Equity Pool

PHILLIPS, HAGER & NORTH INVESTMENT FUNDSPhillips, 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 Total Return Bond FundPhillips, Hager & North Inflation-Linked Bond FundPhillips, Hager & North High Yield Bond FundPhillips, Hager & North Long Inflation-linked Bond FundPhillips, Hager & North Monthly Income FundPhillips, Hager & North Balanced FundPhillips, Hager & North Dividend Income FundPhillips, Hager & North Canadian Equity FundPhillips, Hager & North Canadian Equity Value FundPhillips, Hager & North Canadian Equity Underlying FundPhillips, Hager & North Canadian Equity Underlying Fund IIPhillips, Hager & North Canadian Growth Fund Phillips, 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 LifeTime 2015 Fund Phillips, 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 FundPhillips, Hager & North LifeTime 2050 Fund

(collectively referred to as the “Funds”)

INDEPENDENT AUDITOR’S REPORT

We have audited the accompanying financial statements of each of the Funds, which comprise the statements of financial position,

comprehensive income, cash flows and changes in net assets attributable to holders of redeemable units as at and for the periods indicated in

note 2, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the financial statementsManagement is responsible for the preparation and fair presentation of the financial statements of each of the Funds in accordance with

International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation

of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on the financial statements of each of the Funds based on our audits. We conducted our audits in

accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan

and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures

selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due

to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation

of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and

the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained in each of our audits is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements of each of the Funds present fairly, in all material respects, the financial position, financial performance

and cash flows of each of the Funds as at and for the periods indicated in note 2, in accordance with International Financial Reporting Standards.

Chartered Professional Accountants, Licensed Public Accountants

Toronto, OntarioMarch 8, 2018

SCHEDULE OF INVESTMENT PORTFOLIO (in $000s)

2017 ANNUAL FINANCIAL STATEMENTS

December 31, 2017

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

RBC U.S. EQUITY FUND

Fair % of Net Holdings Security Cost Value Assets

COMMON EQUITIESConsumer Discretionary 34 600 Amazon.com, Inc. $ 34 128 $ 50 863 13 100 Charter Communications Inc. 5 770 5 536 589 900 Comcast Corp., Class A 25 344 29 716 108 000 Dollar General Corp. 10 266 12 631 101 100 General Motors Co. 5 135 5 211 80 200 Home Depot Inc. 12 005 19 126 80 600 McDonald’s Corp. 13 423 17 452 28 500 Netflix Inc. 5 322 6 879 92 600 Starbucks Corp. 6 638 6 685 122 400 The Walt Disney Company 16 641 16 586 101 300 TJX Companies Inc. 9 959 9 736

144 631 180 421 9.2Consumer Staples 321 200 Altria Group Inc. 28 054 28 846 141 000 CVS Health Corp. 13 949 12 859 162 700 PepsiCo Inc. 19 974 24 528 148 900 Philip Morris International Inc. 18 844 19 774 188 200 The Procter & Gamble Co. 20 948 21 770 68 100 Wal-Mart Stores, Inc. 6 559 8 464

108 328 116 241 5.9Energy 274 800 Chevron Corp. 36 559 43 314 161 400 ConocoPhillips 10 194 11 139 43 400 EOG Resources Inc. 5 517 5 889 268 800 Exxon Mobil Corp. 28 946 28 312 60 200 Marathon Petroleum Corp. 4 874 4 992 57 400 Occidental Petroleum Corp. 4 690 5 317 57 100 Phillips 66 Company 6 214 7 264 102 800 Valero Energy Corp. 8 897 11 878

105 891 118 105 6.0Financials 152 400 Aflac Inc. 15 383 16 824 1 332 900 Bank of America Corp. 25 962 49 485 133 200 Berkshire Hathaway Inc., Class B 27 364 33 265 412 400 Citigroup Inc. 34 139 38 581 250 600 Citizens Financial Group Inc. 11 810 13 224 495 200 Financial Select Sector SPDR Fund 17 836 17 426 377 300 iShares Dow Jones US Real Estate Index Fund 38 870 38 420 317 800 JPMorgan Chase & Co. 26 492 42 824 148 700 MetLife Inc. 9 222 9 450 377 800 Morgan Stanley 19 184 24 918 73 900 PNC Bank Corp. 11 730 13 411 131 600 Suntrust Banks Inc. 9 769 10 685 24 600 The Goldman Sachs Group Inc. 7 736 7 885 146 300 The Progressive Corp. 7 914 10 357

263 411 326 755 16.6


Health Care 107 100 AbbVie Inc. $ 9 609 $ 13 040 82 800 Aetna Inc. 14 419 18 800 56 500 Agilent Technologies Inc. 4 684 4 754 47 400 AmerisourceBergen Corp. 4 819 5 471 74 200 Amgen Inc. 15 805 16 220 37 800 Biogen Inc. 15 212 15 137 158 500 Bristol-Myers Squibb Co. 12 040 12 216 24 100 Humana Inc. 7 347 7 518 247 400 Johnson & Johnson 33 713 43 489 127 900 Medtronic Plc. 12 449 12 988 231 500 Merck & Co. Inc. 17 997 16 395 525 800 Pfizer Inc. 22 694 23 962 26 600 Thermo Fisher Scientific Inc. 6 027 6 353 127 900 UnitedHealth Group Incorporated 17 624 35 492 56 900 Zoetis Inc. 4 443 5 156

198 882 236 991 12.0Industrials 25 800 3M Co. 6 045 7 647 61 300 Boeing Co. 11 545 22 732 39 300 Caterpillar Inc. 4 159 7 787 27 700 Cummins Engine Inc. 5 789 6 151 221 400 Delta Air Lines Inc. 13 470 15 585 49 000 FedEx Corporation 13 953 15 370 562 500 General Electric Company 16 116 12 356 75 900 Honeywell International Inc. 12 068 14 662 37 000 Northrop Grumman Corp. 11 456 14 284 40 700 Parker Hannifin Corp. 9 077 10 212 69 600 Raytheon Company 10 778 16 438 40 200 Rockwell Automation Inc. 8 952 9 928 74 100 Southwest Airlines 5 869 6 098 84 900 Union Pacific Corp. 10 914 14 327 33 000 United Technologies Corp. 5 368 5 297

145 559 178 874 9.1Information Technology 41 800 Accenture Plc., Class A 7 905 8 046 47 600 Activision Blizzard Inc. 3 969 3 789 62 700 Adobe Systems Inc. 11 641 13 816 45 800 Alphabet Inc., Class A 46 854 60 645 403 800 Apple Inc. 61 171 85 930 44 200 Broadcom Ltd. 10 018 14 296 585 100 Cisco Systems Inc. 22 065 28 187 214 000 Facebook Inc., Class A 37 969 47 485 468 000 Intel Corp. 21 957 27 170 59 000 International Business Machines 11 322 11 385 76 700 Mastercard Inc. 10 768 14 638 588 600 Microsoft Corp. 35 721 63 329 41 200 Nvidia Corp. 8 293 10 023 385 000 Oracle Corporation 21 600 22 888 77 900 PayPal Holdings Inc. 5 967 7 209 46 000 Salesforce.com Inc. 4 652 5 913 192 600 Texas Instruments Inc. 18 965 25 291 137 400 Visa Inc., Class A 16 754 19 736

357 591 469 776 23.8

December 31, 2017

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

SCHEDULE OF INVESTMENT PORTFOLIO (in $000s)



Materials 166 900 DowDuPont Inc. $ 12 790 $ 14 964 25 500 Praxair Inc. 4 873 4 964 6 400 Sherwin-Williams Co. 2 716 3 298

20 379 23 226 1.2Telecommunication Services 458 500 AT&T Inc. 22 260 22 422 236 000 Verizon Communications Inc. 15 750 15 730

38 010 38 152 1.9Utilities 101 500 American Electric Power 9 538 9 386 43 600 Duke Energy Corp. 4 866 4 610 103 900 NextEra Energy Inc. 16 826 20 403

31 230 34 399 1.7TOTAL COMMON EQUITIES 1 413 912 1 722 940 87.4

Number Fair % of Net of Units Security Cost Value Assets

MUTUAL FUND UNITS 2 087 635 RBC U.S. Mid-Cap Growth Equity Fund USD* $ 52 386 $ 77 670 5 505 615 RBC U.S. Mid-Cap Value Equity Fund USD* 67 336 71 722 911 950 RBC U.S. Small-Cap Core Equity Fund USD* 11 470 20 761

TOTAL MUTUAL FUND UNITS 131 192 170 153 8.6SHORT-TERM INVESTMENTS† 77 119 76 375 3.9TOTAL INVESTMENTS $ 1 622 223 1 969 468 99.9OTHER NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS 1 254 0.1NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS $ 1 970 722 100.0

* Investment in related party (see note 8 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 1.30% to 1.62% and mature between January 2, 2018 and January 26, 2018.

FINANCIAL STATEMENTS

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


Statements of Financial Position (in $000s except per unit amounts)

(see note 2 in the generic notes)December 31

2017December 31

2016

ASSETSInvestments at fair value $ 1 969 468 $ 1 795 053Cash 192 184Subscriptions receivable 1 632 609Dividends receivable, interest accrued and other assets 1 068 1 963TOTAL ASSETS 1 972 360 1 797 809LIABILITIESRedemptions payable 740 483Accounts payable and accrued expenses 898 891TOTAL LIABILITIES EXCLUDING NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS 1 638 1 374NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS (“NAV”) $ 1 970 722 $ 1 796 435

Investments at cost $ 1 622 223 $ 1 532 178

NAV SERIES A $ 471 766 $ 492 097 ADVISOR SERIES $ 9 595 $ 8 753 SERIES T5 $ 1 $ – SERIES H $ – $ – SERIES D $ 31 023 $ 28 264 SERIES F $ 60 378 $ 33 858 SERIES FT5 $ 30 $ – SERIES I $ – $ – SERIES O $ 1 397 929 $ 1 233 463NAV PER UNIT SERIES A $ 30.11 $ 28.54 ADVISOR SERIES $ 30.27 $ 28.68 SERIES T5 $ 30.29 $ – SERIES H $ – $ – SERIES D $ 31.77 $ 30.05 SERIES F $ 34.13 $ 32.26 SERIES FT5 $ 33.42 $ – SERIES I $ – $ – SERIES O $ 32.80 $ 31.00

Statements of Comprehensive Income (in $000s except per unit amounts)

For the periods ended December 31 (see note 2 in the generic notes) 2017 2016

INCOME (see note 3 in the generic notes)Dividends $ 35 811 $ 33 066Interest for distribution purposes 421 126Other income received from underlying funds 1 063 906Securities lending revenue (see note 7 in the generic notes) 102 101Capital gains received from underlying funds 6 902 1 986Net realized gain (loss) on investments 104 643 32 503Net gain (loss) on foreign currencies and other net assets (437) 3 676Change in unrealized gain (loss) on investments 84 370 53 396TOTAL INCOME (LOSS) 232 875 125 760EXPENSES (see notes – Fund Specific Information)Management fees 8 340 8 849Administration fees 1 067 1 021Independent Review Committee costs 3 2GST/HST 973 1 029Transaction costs 1 545 1 595Withholding tax 5 006 4 550TOTAL EXPENSES 16 934 17 046INCREASE (DECREASE) IN NAV $ 215 941 $ 108 714INCREASE (DECREASE) IN NAV SERIES A $ 47 944 $ 18 937 ADVISOR SERIES $ 900 $ 353 SERIES T5 $ – $ – SERIES H $ – $ (13) SERIES D $ 3 158 $ 1 427 SERIES F $ 5 412 $ 3 034 SERIES FT5 $ 3 $ – SERIES I $ – $ (1 396) SERIES O $ 158 524 $ 86 372INCREASE (DECREASE) IN NAV PER UNIT SERIES A $ 2.98 $ 1.00 ADVISOR SERIES $ 3.00 $ 1.13 SERIES T5 $ 2.18 $ – SERIES H $ – $ (8.42) SERIES D $ 3.39 $ 1.51 SERIES F $ 3.91 $ 5.08 SERIES FT5 $ 10.44 $ – SERIES I $ – $ (2.37) SERIES O $ 3.96 $ 2.26




Statements of Cash Flow (in $000s)


CASH FLOWS FROM OPERATING ACTIVITIESIncrease (decrease) in NAV $ 215 941 $ 108 714 ADJUSTMENTS TO RECONCILE NET CASH PROVIDED BY (USED IN) OPERATIONSInterest for distribution purposes – – Non-cash distributions from underlying funds (7 965) (2 892)Net realized loss (gain) on investments (100 640) (30 821)Change in unrealized loss (gain) on investments (84 370) (53 396)(Increase) decrease in accrued receivables 895 219 Increase (decrease) in accrued payables 7 (185)(Increase) decrease in margin accounts – – Cost of investments purchased (2 777 342) (2 680 477)Proceeds from sale and maturity of investments 2 795 902 2 621 613 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 42 428 (37 225)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of redeemable units 169 720 297 375 Cash paid on redemption of redeemable units (205 101) (258 755)Distributions paid to holders of redeemable units (7 039) (1 269)NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ (42 420) $ 37 351 Net increase (decrease) in cash for the period 8 126 Cash (bank overdraft), beginning of period 184 58 CASH (BANK OVERDRAFT), END OF PERIOD $ 192 $ 184

Interest received (paid) $ 394 $ 120 Dividends received, net of withholding taxes $ 31 727 $ 28 742




Statements of Changes in NAV (in $000s)

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

Series A Advisor Series Series T5 Series H2017 2016 2017 2016 2017 2016 2017 2016

NAV AT BEGINNING OF PERIOD $ 492 097 $ 558 417 $ 8 753 $ 8 930 $ – $ – $ – $ 228INCREASE (DECREASE) IN NAV 47 944 18 937 900 353 – – – (13)Early redemption fees – – – – – – – –Proceeds from redeemable units issued 22 803 20 956 1 509 1 070 3 – – –Reinvestments of distributions to holders of redeemable units 21 552 – 436 – – – – –Redemption of redeemable units (90 561) (106 213) (1 561) (1 600) (2) – – (215)NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS (46 206) (85 257) 384 (530) 1 – – (215)Distributions from net income – – – – – – – –Distributions from net gains (22 069) – (442) – – – – –Distributions from capital – – – – – – – –TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (22 069) – (442) – – – – –NET INCREASE (DECREASE) IN NAV (20 331) (66 320) 842 (177) 1 – – (228)NAV AT END OF PERIOD $ 471 766 $ 492 097 $ 9 595 $ 8 753 $ 1 $ – $ – $ –


Series D Series F Series FT5 Series I2017 2016 2017 2016 2017 2016 2017 2016

NAV AT BEGINNING OF PERIOD $ 28 264 $ 27 576 $ 33 858 $ 6 483 $ – $ – $ – $ 21 421INCREASE (DECREASE) IN NAV 3 158 1 427 5 412 3 034 3 – – (1 396)Early redemption fees – – – – – – – –Proceeds from redeemable units issued 8 248 6 805 32 363 31 541 29 – – 1 313Reinvestments of distributions to holders of redeemable units 1 584 136 1 960 117 1 – – –Redemption of redeemable units (8 600) (7 539) (9 816) (7 070) (2) – – (21 338)NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS 1 232 (598) 24 507 24 588 28 – – (20 025)Distributions from net income (180) (141) (538) (247) – – – –Distributions from net gains (1 451) – (2 861) – (1) – – –Distributions from capital – – – – – – – –TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (1 631) (141) (3 399) (247) (1) – – –NET INCREASE (DECREASE) IN NAV 2 759 688 26 520 27 375 30 – – (21 421)NAV AT END OF PERIOD $ 31 023 $ 28 264 $ 60 378 $ 33 858 $ 30 $ – $ – $ –




Statements of Changes in NAV (cont.) (in $000s)


Series O Total2017 2016 2017 2016

NAV AT BEGINNING OF PERIOD $ 1 233 463 $ 1 027 971 $ 1 796 435 $ 1 651 026INCREASE (DECREASE) IN NAV 158 524 86 372 215 941 108 714Early redemption fees – – – –Proceeds from redeemable units issued 133 911 235 058 198 866 296 743Reinvestments of distributions to holders of redeemable units 81 935 16 721 107 468 16 974Redemption of redeemable units (122 939) (114 804) (233 481) (258 779)NET INCREASE (DECREASE) FROM REDEEMABLE UNIT TRANSACTIONS 92 907 136 975 72 853 54 938Distributions from net income (22 094) (17 855) (22 812) (18 243)Distributions from net gains (64 871) – (91 695) –Distributions from capital – – – –TOTAL DISTRIBUTIONS TO HOLDERS OF REDEEMABLE UNITS (86 965) (17 855) (114 507) (18 243)NET INCREASE (DECREASE) IN NAV 164 466 205 492 174 287 145 409NAV AT END OF PERIOD $ 1 397 929 $ 1 233 463 $ 1 970 722 $ 1 796 435

NOTES TO FINANCIAL STATEMENTS – FUND SPECIFIC INFORMATION

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

December 31, 2017


General information (see note 1 in the generic notes)

The investment objective of the Fund is to provide long-term

capital growth by investing primarily in equity securities

of U.S. companies, providing broad exposure to economic

growth through the U.S. stock market.

Series T5 and Series FT5 units were started February 15, 2017.

Financial instrument risk and capital management (see note 5 in the generic notes)

Concentration risk (%)

The table below summarizes the Fund’s investment portfolio

(after consideration of derivative products, if any) as at:

Investment mixDecember 31

2017December 31

2016

Information Technology 23.8 20.6Financials 16.6 13.1Health Care 12.0 11.4Consumer Discretionary 9.2 8.8Industrials 9.1 9.9United States Equity Funds 8.6 9.1Energy 6.0 7.8Consumer Staples 5.9 7.8Telecommunication Services 1.9 2.5Utilities 1.7 3.1Materials 1.2 1.9Real Estate – 1.3Cash/Other 4.0 2.7Total 100.0 100.0

Currency risk (% of NAV)

The table below summarizes the Fund’s net exposure (after

hedging, if any) to currency risk as at:

CurrencyDecember 31

2017December 31

2016

United States dollar 100.0 100.0Total 100.0 100.0

As at December 31, 2017, if the Canadian dollar had

strengthened or weakened by 5% in relation to the above

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

NAV may have decreased or increased, respectively, by

approximately 5.0% (December 31, 2016 – 5.0%). In practice,

actual results could differ from this sensitivity analysis and

the difference could be material.

Other price risk (% impact on NAV)

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

broad-based index (noted below) on the Fund’s NAV, using a

36-month historical correlation of data of the Fund’s return

and the index, with all other factors kept constant, as at:

December 31 2017

December 31 2016

S&P 500 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, 2017 and 2016.

December 31, 2017 Level 1 Level 2 Level 3 Total

Equities 1 722 940 – – 1 722 940Mutual fund units 170 153 – – 170 153Fixed-income and debt securities – – – –Short-term investments – 76 375 – 76 375Derivatives – assets – – – –Derivatives – liabilities – – – –Total financial instruments 1 893 093 76 375 – 1 969 468% of total portfolio 96.1 3.9 – 100.0

December 31, 2016 Level 1 Level 2 Level 3 Total

Equities 1 584 224 – – 1 584 224Mutual fund units 164 186 – – 164 186Fixed-income and debt securities – – – –Short-term investments – 46 643 – 46 643Derivatives – assets – – – –Derivatives – liabilities – – – –Total financial instruments 1 748 410 46 643 – 1 795 053% of total portfolio 97.4 2.6 – 100.0

For the periods ended December 31, 2017 and 2016, there

were no transfers of financial instruments between Level 1,

Level 2 and Level 3.



December 31, 2017


Management fees and operating expenses (see note 8 in the generic notes)

Management fees and administration fees of each series

of the Fund are payable to RBC GAM and calculated at the

following annual percentages, before GST/HST, of the daily

NAV of each series of the Fund.

Management fees* Operating expenses

Series A 1.60% 0.15%Advisor Series 1.60% 0.10%Series T5 1.60% 0.10%Series D 0.85% 0.10%Series F 0.60% 0.10%Series FT5 0.60% 0.10%Series O n/a† 0.02%

* Effective June 30, 2016, the management fees for Series A and Advisor Series units were reduced to 1.60% from 1.75%; for Series D units were reduced to 0.85% from 1.00%; and for Series F units were reduced to 0.60% from 0.75%.

† Series O unitholders pay a negotiated management fee directly to RBC GAM for investment-counselling services.

Investments by related parties ($000s except unit amounts)

Royal Bank of Canada, or one of its subsidiaries, held the

following investments in the Fund as at:

December 31 2017

December 31 2016

Units held Series T5 35 – Series FT5 32 – Series O 371 348Value of all units 14 11

Unconsolidated structured entities (%) (see note 3 in the generic notes)

The table below summarizes the Fund’s interest in the

sponsored funds as a percentage of NAV, and the Fund’s

ownership interest as a percentage of NAV of the sponsored

funds (“Ownership”). All sponsored funds are established

and conduct business in Canada.

December 31 2017

December 31 2016

NAV Ownership NAV Ownership

RBC U.S. Mid-Cap Growth Equity Fund 3.9 9.7 3.9 10.4RBC U.S. Mid-Cap Value Equity Fund 3.6 11.3 4.1 12.8RBC U.S. Small-Cap Core Equity Fund 1.1 9.0 1.1 10.3

The table below summarizes the Fund’s interest in the unsponsored funds as a percentage of NAV, and the Fund’s ownership interest as a percentage of NAV of the unsponsored funds (“Ownership”).

December 31 2017

December 31 2016

NAV Ownership NAV Ownership

Financial Select Sector SPDR Fund 0.9 – – –iShares Dow Jones US Real Estate Index Fund 1.9 0.8 1.5 0.5

Taxes ($000s) (see note 6 in the generic notes)

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

December 31, 2017.

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.


Series AOpening units 17 243 20 478Issued number of units 766 798Reinvested number of units 700 –Redeemed number of units (3 039) (4 033)Ending number of units 15 670 17 243

Advisor SeriesOpening units 305 326Issued number of units 50 40Reinvested number of units 14 –Redeemed number of units (52) (61)Ending number of units 317 305

Series T5Opening units – –Issued number of units – –Reinvested number of units – –Redeemed number of units – –Ending number of units – –

Series DOpening units 941 964Issued number of units 259 243Reinvested number of units 49 4Redeemed number of units (273) (270)Ending number of units 976 941

Series FOpening units 1 050 211Issued number of units 951 1 071Reinvested number of units 56 4Redeemed number of units (288) (236)Ending number of units 1 769 1 050



December 31, 2017



Series FT5Opening units – –Issued number of units 1 –Reinvested number of units – –Redeemed number of units – –Ending number of units 1 –

Series O Opening units 39 790 34 890Issued number of units 4 150 8 328Reinvested number of units 2 443 534Redeemed number of units (3 763) (3 962)Ending number of units 42 620 39 790

Transaction costs ($000s except %)

Transaction costs, including brokerage commissions, in

consideration of portfolio transactions for the periods ended:

December 31 2017

December 31 2016

$ % $ %

Total transaction costs 1 545 100 1 595 100Related-party brokerage commissions* 131 8 216 14Commission arrangements† 311 20 233 15

* See note 8 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 except %) (see note 7 in the generic notes)

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

December 31 2017

December 31 2016

Fair value of securities loaned 75 493 169 853Fair value of collateral received 77 003 173 250

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.

December 31 2017

December 31 2016

$ % $ %

Gross revenue 150 100 172 100 RBC IS (paid) (42) (28) (60) (35)Tax withheld (6) (4) (11) (6)Fund revenue 102 68 101 59

Investments by other related investment funds (%) (see note 8 in the generic notes)

The table below summarizes, as a percentage, the NAV of the

Fund owned by other related investment funds as at:

December 31 2017

December 31 2016

RBC Select Aggressive Growth Portfolio 1.9 1.7RBC Select Balanced Portfolio 15.4 13.7RBC Select Conservative Portfolio 15.8 14.7RBC Select Growth Portfolio 7.0 6.6RBC Target 2020 Education Fund 0.4 0.7RBC Target 2025 Education Fund 1.9 2.0RBC Target 2030 Education Fund 1.7 1.3RBC Target 2035 Education Fund – –RBC U.S. Equity Class 1.5 1.5Total 45.6 42.2

GENERIC NOTES TO FINANCIAL STATEMENTS

December 31, 2017

(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 March 8, 2018.

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 12-month periods ended or as

at December 31, 2017 and 2016, as applicable. 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 policies

These financial statements have been prepared in

compliance with International Financial Reporting Standards

(“IFRS”). 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. Realized gains arising on

derivatives during a period are included in the Statements

of Comprehensive Income in “Net gain (loss) from futures

contracts,” “Other derivatives” and “Net gain (loss) on foreign

currencies and other net assets,” where applicable.

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.


December 31, 2017


Unconsolidated Structured Entities The Funds may invest in

other Funds and exchange-traded funds (“ETFs”) managed

by the manager or an affiliate of the manager (“sponsored

funds”) and may invest in other funds and ETFs managed

by unaffiliated entities (“unsponsored funds”); collectively,

“underlying funds.” The underlying funds are determined to

be unconsolidated structured entities, as decision making

in the underlying fund is not governed by the voting rights

or other similar rights held by the Fund. The investments

in underlying funds are subject to the terms and conditions

of the offering documents of the respective underlying

funds and are susceptible to market price risk arising from

uncertainties about future values of those underlying funds.

The underlying funds’ objectives are generally to achieve

long-term 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

underlying funds apply various investment strategies to

accomplish their respective investment objectives.

The underlying 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 underlying funds’ NAV.

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 investments in the underlying

funds is included in the Schedule of Investment Portfolio

and included in “Investments at fair value” in the Funds’

Statements of Financial Position. The change in fair value

of the investment held in the underlying funds is included

in “Change in unrealized gain (loss) on investments” in the

Statements of Comprehensive Income.

Certain Funds may invest in mortgage-related or other

asset-backed securities. These securities include commercial

mortgage-backed securities, asset-backed securities,

collateralized debt obligations and other securities that

directly or indirectly represent a participation in, or are

securitized by and payable from, mortgage loans on real

property. Mortgage-related securities are created from

pools of residential or commercial mortgage loans while

asset-backed securities are created from many types of

assets, including auto loans, credit card receivables, home

equity loans and student loans. The Funds account for these

investments at fair value. The fair value of such securities, as

disclosed in the Schedule of Investment Portfolio, represents

the maximum exposure to losses at that date.

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 and derivatives are recorded at fair value, which

is determined as follows:

Equities – Common shares, preferred shares and exchange-

traded 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.


December 31, 2017


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.

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.

Warrants – Warrants are valued using a recognized option pricing model, which includes factors such as the terms of the warrant, time value of money and volatility inputs that are significant to such valuation.

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 – A total return swap is an agreement by which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains. Total return swap contracts are marked to market daily based upon quotations from the market makers and the change in value, if any, is recorded in “Change in unrealized gain (loss) on investments” in the Statements of Comprehensive Income. When the swap contract is terminated early, the Fund records a realized gain or loss equal to the difference between the current net present value and the executed net present value in “Other

derivatives” in the Statements of Comprehensive Income. Unrealized gains and losses are recorded as “Receivable on open swap contracts” or “Payable on open swap contracts” in the Statements of Financial Position. The risks of total return swap contracts include changes in market conditions and the possible inability of the counterparty to fulfill its obligations under the agreement.

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 NAV 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 market-based

approach, which may use related or comparable assets or

liabilities, NAV per unit (for exchange-traded funds), recent

transactions, market multiples, book values and other relevant

information for the investment to determine its fair value.

Management also has procedures in place to determine the

fair value of foreign securities traded in countries outside

of 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.

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


December 31, 2017


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.

Cash Cash is comprised of cash and deposits with banks

and is recorded at fair value. The carrying amount of cash

approximates its fair value because it is short-term in nature.

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

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 NAV is calculated for each

series of units of a Fund. The NAV 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 NAV 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.

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.


December 31, 2017


Foreign Currencies The following is a list of abbreviations

used in the Schedule of Investment Portfolio:

ARS – Argentinian peso KRW – South Korean wonAUD – Australian dollar MXN – Mexican pesoBRL – Brazilian real MYR – Malaysian ringgitCAD – Canadian dollar NOK – Norwegian kroneCHF – Swiss franc NZD – New Zealand dollarCLP – Chilean peso PEN – Peruvian nuevo solCNY – Chinese renminbi PHP – Philippine pesoCOP – Colombian peso PLN – Polish zlotyCZK – Czech koruna RON – Romanian leuDKK – Danish krone RUB – Russian rubleEUR – Euro SEK – Swedish kronaGBP – Pound sterling SGD – Singapore dollarHKD – Hong Kong dollar THB – Thailand bahtHUF – Hungarian forint TRY – Turkish new liraIDR – Indonesian rupiah TWD – New Taiwan dollarILS – Israeli new shekel USD – United States dollarINR – Indian rupee ZAR – South African randJPY – Japanese yen

4. Critical accounting judgments and estimates

The preparation of financial statements requires the use

of judgment in applying the Funds’ accounting policies

and making estimates and assumptions about the future.

The following discusses the most significant accounting

judgments and estimates that management has made in

preparing the financial statements.

Classification and measurement of financial instruments and application of fair value option

In classifying and measuring financial instruments held

by the Funds, the manager is required to make significant

judgments about whether or not the business of the Funds is

to invest on a total return basis for the purpose of applying

the fair value option for financial assets.

Fair value measurement of securities not quoted in an active market

The Funds have established policies and control procedures

that are intended to ensure these estimates are well

controlled, independently reviewed and consistently applied

from period to period. The estimates of the value of the

Funds’ assets and liabilities are believed to be appropriate as

at the reporting date.

The Funds may hold financial instruments that are not quoted

in active markets. Note 3 discusses the policies used by

management for the estimates used in determining fair value.

5. Financial instrument risk and capital management

RBC GAM is responsible for managing each Fund’s

capital, which is its NAV 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.”

These risks include a Fund’s direct risks and pro rata exposure to

the risks of underlying funds, as applicable.

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 NAV 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


December 31, 2017


contractual obligations with the counterparty. Credit risk

exposure is mitigated for those Funds participating in a

securities lending program (see note 7). 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.

6. 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. Since the Funds do

not record income taxes, the tax benefit of capital and

non-capital losses has not been reflected in the Statements

of Financial Position as a deferred income tax asset. 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 20 years.

7. 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 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% 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.

8. Administrative and other related-party transactions

Manager and Portfolio Manager

RBC GAM is an indirect wholly owned subsidiary of

Royal Bank of Canada (“Royal Bank”). RBC GAM is the

manager and portfolio manager 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

is paid a management fee by the Funds as compensation

for its services. The management fee is calculated and

accrued daily as a percentage of the NAV of each series

of units of the Funds. No management fees are paid by

the Funds with respect to Series O units. Unitholders of

Series O units pay a negotiated fee directly to RBC GAM for

investment-counselling services.

The Funds pay a fixed administration fee to RBC GAM. The

fixed administration fee is calculated and accrued daily as a

percentage of the NAV of each series of units of the Funds.

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


December 31, 2017


limited to, recordkeeping, accounting and fund valuation

costs, custody fees, audit and legal fees and the costs of

preparing and distributing annual and interim 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 Independent Review Committee

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

proportionately to each series based upon the relative NAV

of each series. 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 (“underlying mutual funds”). A Fund

will not invest in units of an underlying mutual fund if the

Fund would be required to pay any management or incentive

fees in respect of that investment that a reasonable person

would believe duplicates a fee payable by the underlying

mutual fund for the same service. The Fund’s ownership

interest in underlying mutual funds is disclosed in the Notes

to Financial Statements – Fund Specific Information.

RBC GAM or its affiliates may earn fees and spreads in connection with various services provided to, or transactions with, the Funds, such as banking, brokerage, securities lending, foreign exchange and derivatives transactions. RBC GAM or its affiliates may earn a foreign exchange spread when unitholders switch between series of funds denominated in different currencies. The Funds also maintain bank accounts and overdraft provisions with Royal Bank for which Royal Bank may earn a fee. Affiliates of RBC GAM that provide services to the Funds in the course of their normal business, all of which are wholly owned subsidiaries of Royal Bank of Canada, are discussed below.

Sub-Advisors

RBC Global Asset Management (U.S.) Inc. is the sub-advisor

for the RBC $U.S. Investment Grade Corporate Bond Fund,

RBC U.S. Mid-Cap Growth Equity Fund, RBC U.S. Mid-Cap

Growth Equity Currency Neutral Fund, RBC U.S. Mid-Cap

Value Equity Fund, RBC U.S. Small-Cap Core Equity Fund,

RBC U.S. Small-Cap Value Equity Fund and Phillips,

Hager & North U.S. Multi-Style All-Cap Equity Fund (for a

portion of the Fund). RBC Global Asset Management (UK)

Limited is the sub-advisor for the RBC Bond Fund (for a

portion of the Fund), RBC Global Bond Fund (for a portion

of the Fund), RBC Global Corporate Bond Fund (for a

portion of the Fund), RBC Global High Yield Bond Fund (for

a portion of the Fund), RBC Emerging Markets Bond Fund,

RBC U.S. Monthly Income Fund (for a portion of the Fund),

RBC Balanced Fund (for the European equity portion of the

Fund), RBC Global Balanced Fund (for the European equity

portion of the Fund), RBC Vision Balanced Fund (formerly,

RBC Jantzi Balanced Fund) (for the European equity portion

of the Fund), RBC International Dividend Growth Fund,

RBC International Equity Fund (for the European equity

portion of the Fund), RBC European Dividend Fund,

RBC European Equity Fund, RBC European Mid-Cap Equity

Fund, RBC Emerging Markets Dividend Fund, RBC Emerging

Markets Equity Fund, RBC Emerging Markets Small-Cap

Equity Fund, RBC Global Dividend Growth Fund, RBC Global

Dividend Growth Currency Neutral Fund, RBC Global Equity

Fund, RBC Global Equity Focus Fund, RBC Vision Global

Equity Fund (formerly, RBC Jantzi Global Equity Fund),

RBC Vision Fossil Fuel Free Global Equity Fund, Phillips,

Hager & North Overseas Equity Fund and Phillips, Hager &

North Global Equity Fund. RBC Investment Management

(Asia) Limited is the sub-advisor for the RBC Balanced

Fund (for the Asian equity portion of the Fund), RBC Global

Balanced Fund (for the Asian equity portion of the Fund),

RBC Vision Balanced Fund (formerly, RBC Jantzi Balanced

Fund) (for the Asian equity portion of the Fund), RBC

International Dividend Growth Fund (for the Asian equity

portion of the Fund), RBC International Equity Fund (for the

Asian equity portion of the Fund), RBC Asian Equity Fund,

RBC Asia Pacific Ex-Japan Equity Fund and RBC Japanese

Equity Fund. BlueBay Asset Management LLP is the sub-

advisor of the BlueBay Global Monthly Income Bond Fund,

BlueBay Global Sovereign Bond Fund (Canada), BlueBay

Global Investment Grade Corporate Bond Fund (Canada),

BlueBay European High Yield Bond Fund (Canada), BlueBay

Emerging Markets Corporate Bond Fund, BlueBay Global

Convertible Bond Fund (Canada) and BlueBay $U.S. Global

Convertible Bond Fund (Canada).

The sub-advisors earn a fee which is calculated and accrued

daily as a percentage of the NAV of each series of units of the

Funds. The sub-advisors are paid by the manager from the

management fee paid by the Funds.


December 31, 2017


Trustee

RBC GAM is the trustee for the Funds governed by the laws of the Province of Ontario. RBC IS is the trustee for the Funds governed by the laws of the Province of British Columbia. The trustee holds title to the Funds’ property on behalf of the unitholders. The trustee earns a fee, which is paid by the manager from the fixed administration fee paid by the Funds.

Distributors

RBC GAM, Royal Mutual Funds Inc., RBC Direct Investing Inc., RBC Dominion Securities Inc. and PH&N IF are 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 A, Advisor Series, Advisor T5 Series, Series T5, Series T8, Series H and Series D units.

Custodian

RBC IS is the custodian and holds the assets of the Funds.

RBC IS earns a fee as the custodian, which is paid by the

manager from the fixed administration fee paid by the Funds.

Registrars

Royal Bank, RBC IS and RBC GAM are the registrars of

the Funds and keep records of who owns the units of the

Funds. The registrars also process orders and issue account

statements. The registrars earn a fee, which is paid by the

manager from the fixed administration fee paid by the Funds.

Brokers and Dealers

The Funds have established or may establish standard

brokerage agreements and dealing agreements at

market rates with related parties such as RBC Dominion

Securities Inc., RBC Capital Markets, LLC, RBC Europe

Limited, NBC Securities Inc. and Royal Bank of Canada.

Other Related-Party Transactions

Pursuant to applicable securities legislation, the Funds

relied on the standing instructions from the Independent

Review Committee with respect to one or more of the

following 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 Independent Review Committee 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.

9. Revision of comparative information

Where applicable, certain comparative figures on the

Statements of Cash Flow have been revised.

Amounts reclassified to “Non‐-cash distributions from

underlying funds” have been presented separately from

amounts related to “Cost of investments purchased”

to appropriately reflect the non-‐cash components of

investments purchased. The impact on the “Net cash

provided by (used in) operating activities” is nil.

Comparative figures on the Statements of Cash Flow have

been revised for the following funds:

RBC Monthly Income Bond Fund, RBC Emerging Markets

Bond Fund (CAD Hedged), BlueBay $U.S. Global Convertible

Bond Fund (Canada), RBC Managed Payout Solution,

RBC Managed Payout Solution – Enhanced, RBC Managed

Payout Solution – Enhanced Plus, RBC Conservative

Growth & Income Fund, RBC Balanced Growth & Income

Fund, RBC Global Growth & Income Fund, RBC Retirement

2020 Portfolio, RBC Retirement 2025 Portfolio, RBC Retirement




December 31, 2017


2050 Portfolio, RBC Select Very Conservative Portfolio,

RBC Select Conservative Portfolio, RBC Select Balanced

Portfolio, RBC Select Growth Portfolio, RBC Select Aggressive

Growth Portfolio, RBC Select Choices Conservative Portfolio,

RBC Select Choices Balanced Portfolio, RBC Select Choices

Growth Portfolio, RBC Select Choices Aggressive Growth

Portfolio, RBC Target 2020 Education Fund, RBC Target

2025 Education Fund, RBC Target 2030 Education Fund,

RBC International Equity Currency Neutral Fund, RBC

International Index Currency Neutral Fund, RBC Asian Equity

Fund, RBC Emerging Markets Multi-Strategy Equity Fund,

RBC Private U.S. Large-Cap Value Equity Currency Neutral

Pool, RBC Private U.S. Large-Cap Core Equity Currency

Neutral Pool, Phillips, Hager & North Balanced Fund, Phillips,

Hager & North Currency-Hedged U.S. Equity Fund, Phillips,

Hager & North Currency-Hedged Overseas Equity Fund,

Phillips, Hager & North LifeTime 2015 Fund, Phillips, Hager &

North LifeTime 2020 Fund, Phillips, Hager & North LifeTime

2025 Fund, Phillips, Hager & North LifeTime 2030 Fund,

Phillips, Hager & North LifeTime 2035 Fund, Phillips, Hager &

North LifeTime 2040 Fund, Phillips, Hager & North LifeTime

2045 Fund and Phillips, Hager & North LifeTime 2050 Fund.

Amounts reclassified to “(Increase) decrease in margin

accounts” have been presented separately from amounts

related to “Cash (bank overdraft), beginning of period,”

to appropriately separate changes in margin accounts.

Comparative figures on the Statements of Cash Flow have

been revised for the following funds:

BlueBay $U.S. Global Convertible Bond Fund (Canada) and

RBC International Index Currency Neutral Fund.

10. Future accounting changes

The following IFRS standard has been issued, but is not yet

in effect:

IFRS 9 Financial Instruments addresses the classification,

measurement and derecognition of financial assets and

liabilities. It replaces the multiple classifications and

measurement models in IAS 39 and is effective for reporting

periods beginning on or after January 1, 2018. Classification

and measurement of debt assets will be driven by an entity’s

business model for managing the financial assets and the

contractual cash flow characteristics of the financial assets.

Derivative and equity instruments are measured at fair value

through profit or loss unless, for equity instruments not held

for trading, an irrevocable option is taken to measure at fair

value through other comprehensive income.

On adoption of IFRS 9, the Funds’ investment portfolios

will continue to be classified at fair value through profit or

loss. Other financial assets which are held for collection will

continue to be measured at amortized cost with no material

impact expected from application of the new impairment

model introduced in IFRS 9. As a result, the adoption of

IFRS 9 is not expected to have a material impact on the

Funds’ financial statements.

Documents

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL …funds.rbcgam.com/pdf/fs/annual/rbf263_e.pdf · Those standards require that we comply with ethical requirements and plan ... 148 900