Industry Issues

June 2006

Update on mutual fund industry issues from RBC Asset Management Inc.

It is our responsibility at RBC Asset Management, to act in the best interests of investors. To help us earn investors’ trust, our business structure is founded on three key elements: ethics, governance and compliance. As a leader in the mutual fund industry, we consider it our duty to be open in our communications with you and to share with you our views of mutual fund industry issues.

Global diversification

Given the broad range of investment opportunities in foreign markets, Canadian investors have long been encouraged to invest a portion of their portfolios outside of Canada. In addition to offering higher potential returns, geographic diversification can also help to reduce risk, leading to more consistent portfolio performance over time. Canadian companies represent only 3.5% of the world’s stock-market value. In addition, two sectors — Financials and Resources — make up more than 70% of Canada’s stock market. By investing outside our borders, it’s possible to gain access to opportunities not available in Canada.

Working with a professional financial advisor can help you better understand your portfolio’s exposure to Canadian markets and determine solutions that provide you with appropriate diversification.

RBC Asset Management announces changes to the RBC Funds

On March 31, 2006, RBC Asset Management announced a series of proposed changes in the RBC Funds lineup. These changes will provide investors in RBC Funds greater access to opportunities beyond Canada’s borders and simplify the range of investment options for investors.

The RBC Funds are continually reviewed to ensure that they reflect the best thinking of the portfolio management team and meet the needs of investors. Over the past 18 months, the portfolio management team completed a significant amount of research related to asset allocation and global investing.

The removal of foreign content restrictions from registered savings plans by the federal government in July 2005 provided another opportunity to incorporate this work into the RBC Funds.

RBC Asset Management also announced a series of fund closures and proposed fund mergers designed to simplify and reduce duplication across the RBC Funds lineup. Investors holding any of the funds being closed should have received a letter with additional details.

In May 2006, notices related to the proposed fund mergers and changes will be sent to investors holding affected funds. The notices will include information about a unitholder meeting planned for June 2006.

For more information, please visit the In Focus section of www.rbcfunds.com or speak to your financial advisor.

Proxy voting disclosure

Mutual fund managers and portfolio managers have an obligation to act in the best interests of the funds they manage. This obligation includes the responsibility to exercise the proxy voting rights of the voting securities held by the mutual funds. Equity mutual funds hold shares of companies, and the funds are entitled to exercise the voting rights attached to those shares. New securities rules require Canadian mutual funds to disclose their 2005/2006 annual proxy voting records no later than August 31, 2006.

RBC Asset Management started sharing its proxy voting policy with investors in January 2004. In the summer of 2005, we were one of the first Canadian mutual fund managers to publish the proxy voting records of our mutual funds. Information about proxy voting, our proxy voting policy and the proxy voting records of the RBC Funds for calendar year 2005 are available on the RBC Funds website at www.rbcfunds.com. Click on “investor information.” Then click on “proxy voting.”

The relationship between executive compensation and shareholder returns is an issue of serious concern to investors, including RBC Asset Management. Our proxy voting policy in regard to executive compensation is based on these three principles espoused by the Canadian Coalition for Good Governance:

Compensation packages

• Should be developed to attract, retain and motivate excellent people who will work with others to achieve long-term shareholder value.
• Should provide rewards for exceptional performance in both the short and long term, with a decided emphasis on longterm returns.
• Should be fair to the shareholders, senior management, employees and other stakeholders.

RBC Asset Management is a founding member of the Canadian Coalition for Good Governance, an organization devoted to the promotion of best corporate governance practices and to aligning the interests of boards and management with those of the shareholder.

The RBC Funds do not support the reelection of non-independent directors, who sit on compensation committees of a corporation’s board of directors; against stock option compensation plans, which would result in excessive dilution of shareholder value; and against the re-election of directors who support executive compensation, which cannot be related to performance.

New rules for independent fund governance

Canadian securities regulators are expected soon to publish rules requiring investment funds to appoint an Independent Review Committee (IRC). The IRC, a committee of at least three members, will be required to review a fund’s policies relating to conflicts of interest.

In mutual fund management, there is the potential that the interests of the fund manager and its affiliates will conflict with the interests of the fund or its unitholders. Mutual fund managers are aware of these potential conflicts and are subject to existing laws requiring them to always put the interests of the mutual fund ahead of their own interests.

The IRC, which must be separate and not involved in the day-to-day business of the mutual fund manager, will provide recommendations to the manager. In some instances, the manager will not be able to act without the prior approval of the IRC.

At RBC Asset Management, we know the benefit of experienced, independent oversight. We support the regulators in making independent fund governance a requirement for all mutual funds. The advisory Board of Governors of the RBC Funds was established in 1994 for the purpose of providing the benefit of formal, independent fund governance for the RBC Funds and their unitholders. The governors, representing all regions of Canada, have reviewed the policies of RBC Asset Management on behalf of the funds; through their recommendations, they have given unitholders of the RBC Funds a voice at the management table.

For more information about the advisory Board of Governors, please see our publication “Mutual Funds and Governance: Taking Care of Your Investments.” At www.rbcfunds.com, click on “investor information.” Then click on “mutual fund governance.”

Investor feedback process

As a leader in the mutual fund industry, RBC Asset Management participates in addressing and often anticipating important industry issues. We give feedback to and receive it from financial advisors, business partners, competitors, regulators, investor rights activists and more. Most important, we listen and respond to questions, comments, advice and complaints from unitholders of the RBC Funds. We are a participant in the financial services industry, and our success lies in providing the right service to investors.

All issues raised by unitholders related to the management of the RBC Funds receive a prompt reply from responsible, knowledgeable employees. Investor feedback is given careful consideration, and where reasonably possible, improvements are made for the benefit of all unitholders. Reports of unitholder complaints and responses are regularly provided to senior management and to the advisory Board of Governors.

We value your feedback. You can contact us:

• Through your broker or financial advisor
• By e-mail
• Toll-free, by calling 1-800-463-3863
• By mail:
  RBC Asset Management Inc.
  P.O. Box 7500, Station A
  Toronto, ON, M5W 1P9

Management reports of fund performance

Unitholders of the RBC Funds recently received a 2005 annual Management Report of Fund Performance (MRFP). This is in response to a new disclosure requirement for mutual funds, and it is intended to provide information that is useful to investors, in addition to providing semi-annual and annual financial statements.

The MRFP for each mutual fund contains prescribed information so that investors can easily compare one mutual fund to another by reviewing the funds’ respective MRFPs.

Mutual fund disclosure documents are available on the SEDAR website (www. sedar.com), operated by the Canadian Securities Administrators. Click on ”search database,” then click on “search for investment fund documents.”

Disclosure documents for the RBC Funds are also available on SEDAR and are posted on the RBC Funds website at www.rbcfunds.com. Click on “fund information” for access to MRFPs and other information about the RBC Funds.

Investment Funds Institute of Canada

RBC Asset Management is a long-standing member of the Investment Funds Institute of Canada (IFIC), a professional trade association for members of the mutual fund industry. We participate actively on IFIC’s Board of Directors, standing committees and working groups. Our president, Brenda Vince, is the Chair of the IFIC Board of Directors.

We congratulate Joanne De Laurentiis on her recent appointment as President and Chief Executive Officer of IFIC.

What are the benefits of investing in RBC Funds?

When investing in RBC Funds, you are able to realize a variety of benefits:

• A broad range of mutual fund solutions designed to meet your needs
• Access to diversified pools of investments, even with a small initial investment
• Professional investment management at a reasonable price
• Competitive management expense ratios (MERs)
• No purchase or redemption commissions if units are purchased on a no-load basis
• Ease of buying units through your broker, financial planner or RBC Royal Bank branches
• Unit values calculated every trading day, published in newspapers and on the Internet
• An informative, accessible website, www.rbcfunds.com
• Responsive management, through the investor feedback process
• First-class independent fund governance
• The experience and leadership of RBC Asset Management

We are committed to providing you with current information on industry developments, our point of view and the actions we are taking. Please feel free to provide us with feedback. Forward your questions by e-mail or call 1-800-463-3863.