1. Capital Markets Update July 2015

2. 2  A recent run of good data suggests that the U.S. economy is not nearly as weak as the first-quarter decline in GDP suggested. In particular, the consumer seems to be reviving, indicating that the long- awaited deployment of oil savings may finally be happening.  In Europe, the growth profile has improved, inflation has clearly bottomed and recent releases emphasized the upward trend in consumer prices. Low oil prices, interest rates and currencies are still stimulative, but slightly less so than before given a recent bounce in oil and yields, and retracement in currencies. Greece’s debt situation remains a major concern and little progress has been made towards reaching a deal.  Emerging-market growth is still generally decelerating, but the latest numbers in China were not quite as weak as expected and the Chinese government continues to roll out additional easing measures.  Overall, we now expect global growth to be slightly weaker in 2015 versus 2014, but to improve in 2016. The Economy

3. 3  Economic data generally improved last month. Purchasing managers’ indices (PMIs) moved higher in the U.S., the Eurozone and China.  PMIs in the U.S. and the Eurozone are consistent with moderate growth, and although China’s PMI ticked higher too, it remains slightly below the 50 level which typically indicates a contraction in economic activity.  Data surprise indexes have also shown some improvement. Westpac’s indexes in the U.S. and Eurozone have begun trending higher after having troughed earlier in the spring.  The trend in economic data is behaving similarly to last year, and if 2015 plays out like 2014, we can expect the improvement to continue into the second half of the year. The Economy

4. 4 Short-Term Interest Rates  Short-term interest rates remain low across developed nations.  In some parts of the world, though, the need for ultra-low interest rates is no longer evident. We expect the Fed to hike rates later this year and for the Bank of England (BoE) to do so in the first half of 2016.  While initial rate hikes are imminent in these regions, most monetary-policy adjustments are likely to be gradual and well telegraphed as central bankers can be patient in an environment of moderate growth and low inflation. Forecasts as of June 15, 2015

5. 5 Fixed Income  Global bond yields have rebounded sharply, moving closer to level of equilibrium our models suggest.  As a result of the swift upward adjustment in yields, the acute valuation risk that was present in bonds when yields were extremely low is now less obvious.  In some regions, namely the U.S. and the U.K., bond yields are now above the midpoints of their equilibrium ranges.

6. 6  German Bunds rose from 0.05% to over 1.00% in a period of less than two months. This is more than just a reflation story; we are seeing illiquidity and risk premiums reflected in asset prices.  During the bond market sell-off, inflation expectations have only moved slightly higher and growth forecasts have been relatively unchanged, if not lowered.  The Greek crisis is also putting upward pressure on bond yields. While we believe the chance of contagion from the Greek situation is relatively low, French and Belgian bond yields are pricing in this risk, having risen more than German Bund yields.  It appears that we are finally starting to see a return of the fixed-income risk premium that had disappeared during quantitative easing, which held yields low. Fixed Income Forecasts as of June 15, 2015

7. 7  Concerns over Greece and an upcoming initial rate hike in the U.S. have caused equities to waver in recent weeks.  In aggregate, global stocks have become a bit cheaper relative to our composite fair value model.  In European and emerging markets, equities have dropped over 5% from their April peaks, while U.S. stocks have been in more of a sideways moving trend. Equity Markets Fair value is the minimum price level consistent with mild inflation/low interest rates in a growing economy. Above-average price appreciation remains a possibility in an environment where ‘normalcy’ is restored. Moreover, opportunity exists as valuations in some big markets still lie below their minimum expected levels. Corrections are always a possibility and valuations will not limit the risk of damage from systemic shocks, but the outlook for equity market returns is generally superior when stocks lie below fair value at the bands’ midpoint.

8. 8  U.S. stocks have been supported by expanding price-to-earnings (PE) multiples so far this year.  That said, the S&P 500 is up a mere 1% year-to-date as the boost from PEs was almost entirely offset by a reduction in earnings.  Investors seem to be waiting for evidence that earnings will actually pick up later this year.  As valuations are now closer to equilibrium, the need for corporate profit growth becomes that much more important.  Earnings expectations appear to have stabilized, after dropping significantly with the decline in oil prices and the strengthening U.S. dollar in late 2014/early 2015.  Looking ahead into 2016, earnings are expected to rise meaningfully. As long as the economy continues to grow at a modest pace, we can expect corporations to deliver that earnings growth, supporting a further move higher in stocks. Equity Markets Forecasts as of June 15, 2015

9. 9  Bond yields have risen considerably, but they are still at historically low levels and there is a risk that they could rise further as the Fed begins hiking interest rates.  Our expectation is for global growth to be moderate and inflation to remain low. In this scenario, yields could still rise, though at a gradual pace over a long period of time.  Increasing bond yields would lead to low or even negative total returns for fixed income investors as capital losses offset coupon income.  We expect a better outcome for stocks, as corporate profits should continue to expand and be supportive of mid-to-high single-digit returns. Thus, we expect stocks to outperform bonds, and trailing 10-year relative returns are consistent with that view.  As a result, we have maintained our underweight in bonds and overweight stocks. For a balanced global investor, we recommend an asset mix of 60% equities, 38% bonds, with the balance of 2% in cash. Asset Mix Asset mix as of June 15, 2015

10. 10 This information has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. RBC GAM takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when printed. Due to the possibility of human and mechanical error as well as other factors, including but not limited to technical or other inaccuracies or typographical errors or omissions, RBC GAM is not responsible for any errors or omissions contained herein. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information. Any investment and economic outlook information contained in this report has been compiled by RBC GAM from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions. This report may contain forward-looking statements about the Fund, its future performance, strategies or prospects, and possible future Fund action. The words “may,” “could,” “should,” “would,” “suspect,” “outlook,” “believe,” “plan,” “anticipate,” “estimate,” “expect,” “intend,” “forecast,” “objective” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements involve inherent risks and uncertainties, both about the Fund and general economic factors, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement made in relation to the Fund. These factors include, but are not limited to, general economic, political and market factors in Canada, the United States and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological changes, changes in laws and regulations, judicial or regulatory judgments, legal proceedings and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Global Asset Management Inc. 2015 DISCLOSURE