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In today’s low yield environment many investors are looking for investments that provide tax-efficient cash flow. Series T units allow investors to draw on their investments for 5% (Series T5) or 8% (Series T8) annually† with distributions paid monthly. Series T units also offer investors an easy way to transition seamlessly from investing for long-term growth to drawing regular, tax-efficient cash flow.

1. Sustainable payouts – Distribution amounts are set at the beginning of each year so you know exactly how much you’ll receive each month. The monthly distribution resets each year to help mitigate the risk of capital erosion while supporting your long-term cash flow needs.

How the Series T5 Monthly Distribution is calculated

Monthly
distribution
(cents/unit)
Previous year December 31 Net Asset Value per unit x 5%
12 months
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In years when your fund increases in value, your distribution amount (in cents per unit) may rise for the following year and in years when your fund decreases in value, your distribution amount may be adjusted downward in order to re-establish the target payout rate.

2.Tax efficiency – Series T distributions are more tax efficient than redeeming your investment. They offer an attractive blend of tax-efficient income and tax-deferral benefits through the use of return of capital (ROC). ROC is used to top up the interest income, dividends, and/or capital gains earned by the fund to achieve the payout rate.

Hypothetical breakdown of a fund with fund income of 2%. Series T5 may distribute in excess of 5% if special capital gains are distributed at year end. The portion of the distribution that is interest, dividends and/or capital gains will be taxed in the tax year in which it is received.

4. Transitioning from saving to cash flow If you are an investor in another series of a fund, you may switch between the series you currently hold and Series T of the same fund at any time with no tax implications. This tax-free conversion may be particularly beneficial when transitioning to retirement.

If you have built up non-registered assets in a series other than Series T, you can now start drawing on your assets without triggering a capital gain or loss until the investment is ultimately sold.

Using a more traditional approach, such as a systematic withdrawal plan (SWP), would trigger capital gains in the current year if your investment has appreciated over time. This could be less tax efficient than receiving ROC as part of your cash flow.

Distributions Taxation of distributions Cash flow management
Series T Tax-efficient monthly distributions Distributions may include return of capital Distributions may be adjusted due to changes in market value
SWP Automatic sale of mutual fund units
Frequency and size of redemptions set by the investor
Taxable gains or losses may be realized on each sale Withdrawal level must be managed by the investor to avoid depleting capital too quickly

3. Customizable cash flows – You can customize a monthly cash flow that meets your specific needs up to a fund’s maximum payout rate of 5 or 8 per cent annually by dividing your capital between Series T5, Series T8 and any other Series of the same fund.

For more information about whether Series T is right for you, talk to your financial advisor today.

In retirement and ready to start drawing from their non-registered investment

Looking to establish steady, tax-efficient cash flow

Expecting to be in a lower tax bracket in future years

Concerned about the clawback of government benefits (i.e. Old Age Security pension - OAS)

†Payouts may be adjusted as market conditions require; they are not guaranteed.

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  • Series T – Designed to provide tax-efficient cash flow

Disclosure

This 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 provided. Information obtained from third parties is believed to be reliable but RBC GAM and its affiliates assume no responsibility for any errors or omissions or for any loss or damage suffered. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information. Please consult your advisor and read the prospectus or Fund Facts document before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. RBC Funds, PH&N Funds and BlueBay Funds are offered by RBC Global Asset Management Inc. and distributed through authorized dealers.

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