Sun Life of Canada Fund A

Transcription

1 Annual Financial Statements as at December 31, 2013 Sun Life of Canada Fund A issued by Sun Life Assurance Company of Canada

2 A look inside Overview Independent Auditor s Report Equity Fund Sun Life of Canada Fund A Notes to the Financial Statements Legal Notice

3 2 Queen Street East, Twentieth Floor Toronto, Ontario M5C 3G7 Telephone: Toll Free: Facsimile: Enclosed are the Financial Statements for your CI Investments segregated funds for the period ending December 31, Inside is important information about each fund, including its financial statements for the period and a list of the top portfolio holdings of the underlying fund as of the end of the year. Additional information about your funds can be found on our website, If you have any questions about your investments, please contact your financial advisor. CI is proud to partner with advisors across Canada. We believe investors are most successful when they follow an investment plan developed with the assistance of a qualified advisor. CANADA S INVESTMENT COMPANY CI has been investing on behalf of Canadians since 1965 and has grown to become one of Canada s largest investment fund companies. We manage over $91 billion on behalf of two million Canadians. CI is a subsidiary of CI Financial Corp., a TSX-listed financial services firm with $118 billion in assets at December 31, CI provides one of the industry s widest selections of investment products and services and a strong lineup of leading portfolio management teams. Our portfolio management expertise is offered through several platforms, including mutual funds, tax-efficient funds, guaranteed solutions, alternative investments, segregated funds, and managed solutions. You may also contact CI Client Services at Thank you for investing with us. 1

4 Independent Auditor s Report To the Contractholders of: Sun Life of Canada Fund A (the Fund) We have audited the accompanying financial statements of the Fund, which comprise the statement of investment portfolio as at December 31, 2013, the statements of net assets as at December 31, 2013 and December 31, 2012, and the statements of operations and changes in net assets for the years ended December 31, 2013 and December 31, 2012, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Opinion In our opinion, the financial statements of the Fund present fairly, in all material respects, the financial position of the Fund as at December 31, 2013 and December 31, 2012, the results of its operations and the changes in its net assets for the years ended December 31, 2013 and December 31, 2012 in accordance with Canadian generally accepted accounting principles. Unaudited information We have not audited the information in the Top 25 Holdings and in the Financial Highlights and accordingly do not express an opinion on these schedules. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of the financial statements of the Fund in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on the financial statements of the Fund 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 an audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Chartered Professional Accountants, Licensed Public Accountants Toronto, Ontario April 30, 2014 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. 2

5 Top 25 Holdings of Underlying Fund (unaudited) No. of Shares/ Average Fair Par Value Investment Cost ($) Value ($) 1,245,100 Toronto-Dominion Bank 95,916, ,646,961 9,902,679 Signature Cash Management Fund (Class C) 99,026,790 99,026,790 Cash & Equivalents 81,009,962 1,064,750 Royal Bank of Canada 65,391,171 76,033, ,750 The Bank of Nova Scotia 56,240,011 66,147, ,100 Canadian National Railway Co. 28,625,463 46,879,496 1,183,424 Suncor Energy Inc. 38,079,714 44,070, ,500 Roche Holding AG 29,789,070 42,873,437 1,129,450 Canadian Natural Resources Ltd. 36,748,028 40,592,433 1,738,251 JPMorgan Chase & Co., Warrants (28Oct18) 21,163,770 35,799, ,300 Baxter International Inc. 28,188,651 32,452, ,400 Bayer AG 13,839,251 27,173, ,750 Cenovus Energy Inc. 28,104,451 26,227, ,560 Brookfield Asset Management Inc., Class A 16,730,960 25,167, ,137 Novartis AG, Registered Shares 15,205,934 22,052, ,500 Alimentation Couche-Tard Inc., Class B 8,963,921 21,447, ,100 Schlumberger Ltd. 16,368,321 20,682, ,100 Nestle S.A., Registered Shares 15,012,413 19,677, ,720 Canadian Imperial Bank of Commerce 15,730,837 18,935,078 15,500 Google Inc., Class A 10,547,938 18,450, ,900 Citigroup Inc. 12,187,335 17,872, ,100 Bank of Montreal 17,547,546 17,851, ,408 Sanofi 16,120,370 17,739,223 27,400 Apple Inc. 15,900,596 16,329, ,753 CVS Caremark Corp. 8,753,711 16,325,051 3 CIG

6 Financial Statements Statement of Investment Portfolio as at December 31, 2013 No. of Average Fair Units/Shares Investment Cost ($) Value ($) 2,420,031 Signature Select Canadian Corporate Class (A Shares) 44,037,911 57,596,745 Total Investments (99.4%) 44,037,911 57,596,745 Other Net Assets (Liabilities) (0.6%) 325,037 Net Assets (100.0%) 57,921,782 Statements of Net Assets as at December 31 (in $000 s except for per unit amounts and units outstanding) Statements of Operations for the years ended December 31 (in $000 s) Statements of Changes in Net Assets for the years ended December 31 (in $000 s) Assets Investments at fair value* Cash Receivable for unit subscriptions Receivable for securities sold Fees rebate receivable Receivable for distributions and interest Liabilities Bank overdraft Management fees payable Administration fees payable Insurance fees payable Payable for securities purchased Payable for unit redemptions Net assets and unitholders equity *Investments at cost Net assets per unit Number of units outstanding (see Schedule of Fund Unit Transactions) 57,597 52, ,082 53, ,922 52,526 44,038 47, ,865 95,767 Income Income distribution from investments Interest Fees rebate Expenses (Note 5) Management fees Administrative fees Insurance fees Custody fees Legal fees Audit fees Harmonized sales tax Net investment income (loss) for the year Realized and unrealized gain (loss) on investments Realized gain (loss) on investments Capital gain distribution from investments Change in unrealized appreciation (depreciation) of investments Net gain (loss) on investments Increase (decrease) in net assets from operations (see Schedule of Increase (Decrease) in Net Assets from Operations per Unit) ,266 1,231 1,640 1, ,415 3,395 9,208 3,811 10,158 4,685 Net assets, beginning of year Capital transactions Proceeds from units issued Payments for units redeemed Increase (decrease) in net assets from operations Net assets, end of year 52,526 53, (5,045) (5,729) (4,762) (5,359) 10,158 4,685 57,922 52,526 The Underlying Fund is also managed by CI Investments Inc., the Manager of the Fund. For inception date of the Fund, please refer to note 1 in the Notes to the Financial Statemets. Percentages shown in brackets in the Statement of Investment Portfolio relate investments at fair value to net assets of the Fund. The accompanying notes are an integral part of these financial statements. 4

7 Supplementary Schedules and Financial Highlights (unaudited) (for the years ended December 31) Supplementary Schedules Schedule of Fund Unit Transactions Number of units, beginning of year Units issued for cash Units redeemed Number of units, end of year Schedule of Increase (Decrease) in Net Assets from Operations per Unit Increase (decrease) in net assets from operations per unit ($) (1) , , (8,381) (10,774) 87,865 95, (1) Increase (decrease) in net assets from operations per unit of the class is calculated by dividing the increase (decrease) in net assets from operations for the relevant class by the weighted average number of units outstanding of the class during the year. Financial Highlights (unaudited) The following table shows selected key financial information about the Fund and is intended to help you understand the Fund's financial performance for the past five years, as applicable. The Fund s Net Asset Value per Unit Net asset value at December 31, of year shown ($) (1) Ratios and Supplemental Data Net assets ($000 s) (1) Number of units outstanding (1) Portfolio turnover rate (%) (2) ,922 52,526 53,200 62,434 60,568 87,865 95, , , , Management expense ratio Management expense ratio before taxes (%) (3) Goods and services tax/ Harmonized sales tax expenses (%) (3) Management expense ratio after taxes (%) (3) GST/Effective HST rate, for the prior calendar year or period (%) (3) (1) This information is provided as at December 31, of the year shown. (2) The Fund's portfolio turnover rate indicates how actively the Fund's portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund's portfolio turnover rate in a year, the greater the trading costs payable by the fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of a fund. (3) Management expense information is calculated based on expenses charged directly to the Fund plus, if applicable, expenses of the underlying mutual fund, calculated on a weighted average basis on the percentage weighting of the underlying mutual fund and is expressed as an annualized percentage of average net assets for the years shown. As of July 1, 2010, Ontario combined the federal goods and services tax ( GST - 5%) with the provincial retail sales tax ( PST - 8%). The combination resulted in a Harmonized sales tax ( HST ) rate of 13%. The Effective HST tax rate is calculated using the attribution percentage for each province based on unitholder residency and can be different from 13%. For any particular year, the rate shown will be prorated based on the different rates in effect during that year. For the year ended December 31, 2010 the rate applied is 5% for the period January 1, 2010 to June 30, 2010 and the Fund's Effective HST rate for the period from July 1, 2010 to December 31, The rate shown for the year ended December 31, 2010 is the time weighted average of these rates. For inception date of the Fund, please refer to note 1 in the Notes to the Financial Statements. The accompanying notes are an integral part of these financial statements. 5

8 Fund Specific Financial Instruments Risks (Note 9) The Signature Select Canadian Corporate Class investments were concentrated in the following segments: as at December 31, 2013 Categories Net Assets (%) Financials Energy Health Care Consumer Staples Industrials Information Technology Funds Cash & Equivalents Materials Consumer Discretionary Warrants Utilities Telecommunication Services Private Placements Foreign Currency Forward Contracts (0.4) as at December 31, 2012 Categories Net Assets (%) Long Positions: Financials Energy Consumer Staples Materials Health Care Information Technology Industrials Exchange-Traded Funds Short-Term Investments Consumer Discretionary Telecommunication Services Cash & Equivalents Utilities Other Net Assets (Liabilities) Private Placements Foreign Currency Forward Contracts (0.2) Total Long Positions Short Positions: Health Care (0.6) Total Short Positions (0.6) Other Price Risk The Fund indirectly bears the other price risk exposure of the Underlying Fund. As at December 31, 2013 and 2012, the Underlying Fund was exposed to other price risk as its holdings were sensitive to changes in general economic conditions in Canada. The Underlying Fund was invested in Canadian stocks. As at December 31, 2013, had the Canadian markets increased or decreased by 10% (December 31, %), with all other variables held constant, net assets of the Fund would have increased or decreased, respectively, by approximately $5,760,000 (December 31, $5,235,000). In practice, actual results may differ from this analysis and the difference may be material. Credit Risk The Fund indirectly bears the credit risk exposure of the Underlying Fund. As at December 31, 2013 and 2012, the Underlying Fund had insignificant exposure to credit risk as it invested predominantly in stocks. The Underlying Fund was invested in fixed income securities, preferred securities and derivative instruments, if any, with the following credit ratings, as per table below. as at December 31, 2012^ Credit Rating Net Assets (%) AAA/Aaa/A Not Rated 0.7 Total 4.7 ^Credit ratings are obtained from Standard & Poor s, where available, otherwise ratings are obtained from: Moody's Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services, respectively. Currency Risk The Fund indirectly bears the currency risk exposure of the Underlying Fund. As at December 31, 2013 and 2012, the Underlying Fund was exposed to currency risk, as some of its investments were denominated in currencies other than Canadian dollars, the functional currency of the Fund and the Underlying Fund. As a result, the Fund was affected by fluctuations in the value of such currencies relative to the Canadian dollar. The tables below summarize the Underlying Fund s exposure to currency risk. as at December 31, 2013 Currency Net Assets (%) US Dollar 23.8 Swiss Franc 2.5 Japanese Yen 1.5 British Pound 1.5 Euro 1.0 Swedish Krona 0.7 Hong Kong Dollar 0.6 Thai Baht 0.5 Brazilian Real 0.4 Mexican Peso 0.4 Korean Won 0.2 South Africa Rand 0.2 Total 33.3 as at December 31, 2012 Currency Net Assets (%) US Dollar 22.5 Swiss Franc 3.3 Brazilian Real 0.8 Thai Baht 0.8 Euro 0.7 Japanese Yen 0.6 British Pound 0.6 Hong Kong Dollar 0.6 Mexican Peso 0.5 Swedish Krona 0.2 Australian Dollar 0.1 Indonesian Rupiah 0.1 Total 30.8 The accompanying notes are an integral part of these financial statements. 6

9 Fund Specific Financial Instruments Risks (Note 9) (cont d) Currency Risk (cont d) As at December 31, 2013, had the Canadian dollar strengthened or weakened by 10% (December 31, %) in relation to all other foreign currencies held in the Underlying Fund, with all other variables held constant, net assets of the Fund would have indirectly decreased or increased, respectively, by approximately $1,918,000 (December 31, $1,612,000). In practice, the actual results may differ from this analysis and the difference may be material. Interest Rate Risk The Fund indirectly bears the interest rate risk exposure of the Underlying Fund. As at December 31, 2013 and 2012, the Underlying Fund had insignificant exposure to interest rate risk as substantially all of its assets were invested in stocks. Fair Value Hierarchy The tables below summarize the inputs used by the Fund in valuing the Fund s investments carried at fair value. Long Positions at fair value as at December 31, 2013 Level 1 Level 2 Level 3 Total (in $000's) (in $000's) (in $000's) (in $000's) Underlying Fund 57,597 57,597 Total 57,597 57,597 Long Positions at fair value as at December 31, 2012 Level 1 Level 2 Level 3 Total (in $000's) (in $000's) (in $000's) (in $000's) Underlying Fund 52,352 52,352 Total 52,352 52,352 The accompanying notes are an integral part of these financial statements. 7

10 Notes to the Financial Statements 1. THE FUND Sun Life of Canada Fund A (the Fund ) was created by Board resolution of Sun Life Assurance Company of Canada ( Sun Life ) on April 1, Sun Life, a wholly owned subsidiary of Sun Life Financial Inc., is the sole issuer of the individual variable insurance contract providing for investment in the Fund. The assets of the Fund are owned by Sun Life and are segregated from Sun Life s other assets. The Fund is not a separate legal entity but is a separate reporting entity. The Fund is managed by CI Investments Inc. ( CI or the Manager ) who also provides certain administrative services to the Fund. The Statement of Investment Portfolio for the Fund is as at December 31, 2013 and the Statements of Net Assets are as at December 31, 2013 and The Statements of Operations and the Statements of Changes in Net Assets are for the years ended December 31, 2013 and The Supplementary Schedules are for years ended December 31, 2013 and The Financial Highlights (unaudited) are for the most recent five years ended December 31, as applicable. The Fund Specific Financial Instruments Risks are as at December 31, 2013 and SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ( Canadian GAAP ). The following is a summary of significant accounting policies of the Fund: (g) Increase (Decrease) in Net Assets from Operations per Unit Increase (decrease) in net assets from operations per unit in the Supplementary Schedules is calculated by dividing the increase (decrease) in net assets from operations of the Fund by the weighted average number of units outstanding during the year. (h) Non-zero Amounts Some of the balances reported in the financial statements include amounts that are rounded to zero. (i) Use of Estimates The preparation of financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the reporting date and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. 3. INCOME TAXES The Fund is deemed to be inter-vivos trust under the provisions of the Income Tax Act (Canada) and is deemed to have allocated its income to the beneficiaries. The Fund s net capital gains/(losses) are deemed to be those of the beneficiaries. Accordingly, the Fund is not subject to income tax on its net income, including net realized capital gains for the year. The Fund may elect each year to realize capital gains/(losses) for the taxation year, to optimize the allocation of capital gains/(losses) between redeeming and continuing beneficiaries. (a) Valuation of Investments The Fund invests only in units of an Underlying Fund. The Underlying Fund is valued at its net asset value as reported by the Underlying Fund s manager on the valuation date. (b) Cost of Investments Cost of investments represents the amount paid for each security, and is determined on an average cost basis. (c) Investment Transactions Investment transactions are accounted for on trade date. Realized gains and losses on sales of investments and unrealized appreciation or depreciation in value of investments are calculated on an average cost basis. (d) Income Recognition Distributions from investments are recorded on the ex-distribution date and interest income is accrued on a daily basis. 4. UNITHOLDERS EQUITY Units issued and outstanding represent the capital of the Fund. The relevant changes pertaining to subscriptions and redemptions of the Fund s units are disclosed in the Statements of Changes in Net Assets. In accordance with the objectives and risk management policies outlined in Note 9, the Fund endeavours to invest subscriptions received in appropriate investments while maintaining sufficient liquidity to meet redemptions by disposal of investments when necessary. Unit Transactions information for the Fund appears under the Supplementary Schedules in the Financial Statements. 5. MANAGEMENT FEES AND OTHER EXPENSES The Manager, in consideration of management fees received, provides management services that are required in the day-to-day operation of the Fund, including management of the investment portfolio of the Underlying Fund. Distributions received from investment fund holdings are recognized by the Fund in the same form in which they were received from the Underlying Fund. The management fee is calculated as an annual percentage of the total net asset value of the Fund at the end of each business day and is paid at the end of each month. (e) Net Asset Value per Unit Net asset value per unit for the Fund is calculated at the end of each day on which the Toronto Stock Exchange is open for business by dividing the total net asset value of the Fund by its outstanding units. (f) Cash Cash is comprised of cash on deposit. The Fund will not pay a duplicate management and administration fee on the portion of assets that are invested in units of the Underlying Fund. During the reporting period the Fund may receive management fee rebates from the Underlying Fund. The management fee rebates are included in Fees rebate receivable and in Fees rebate as reflected in the Statements of Net Assets and Statements of Operations of the Fund, as applicable. 8

11 Notes to the Financial Statements (cont d) The management fees and the fees rebate reported in the Statements of Operations of the Fund are each presented on a gross basis. In addition to the management fee, the Fund and the Underlying Fund also bear all operating and administrative expenses including audit and legal fees, transfer agency fees, custody fees, expenses relating to reporting and making distributions to unitholders, all other costs and fees imposed by statute or regulation and expenses of all communications with unitholders. The Fund pays an insurance fee to Sun Life. The insurance fee of the Fund is a charge by Sun Life for the applicable Guarantee Option in respect of the Fund. The insurance fees payable at year-end are included in the Insurance fees payable in the Statements of Net Assets, while insurance fees expense for the year are included in the Insurance fees in the Statements of Operations. 6. RELATED PARTY TRANSACTIONS During the years ended December 31, 2013 and 2012, the following related party transactions were entered into: a) Management fees paid to (fees rebates received from) the Manager and Insurance fees paid to Sun Life are presented separately in the Statements of Operations of the Fund. b) The management fees payable to (fees rebates receivable from) the Manager and the Insurance fees payable to Sun Life as at December 31, 2013 and 2012 are presented separately in the Statements of Net Assets. c) The Fund may invest in an Underlying Fund that is also managed by CI Investments Inc., the Manager of the Fund. 7. INTERNATIONAL FINANCIAL REPORTING STANDARDS On December 12, 2011 the Canadian Accounting Standards Board ( AcSB ) allowed investment funds to defer mandatory adoption of International Financial Reporting Standards ( IFRS ) as issued by the International Accounting standards Board ( IASB ) until the fiscal year beginning on or after January 1, Accordingly, the Fund will adopt IFRS for its fiscal year beginning January 1, 2014, and will issue its initial financial statements in accordance with IFRS, including comparative information, for the semi-annual period ending June 30, The June 30, 2014 semi-annual and December 31, 2014 annual financial statements will include an opening Statement of Net Assets as at January 1, 2013 and comparative financial information prepared in accordance with IFRS. The Manager has evaluated the differences between Canadian GAAP and IFRS and implemented a transition plan to meet the AcSB implementation timeline. Based on the Manager s analysis to date the adoption of IFRS will likely have no material impact on the net assets per unit calculation; however, the changeover to IFRS will result in inclusion of the Statement of Cash Flows as part of the financial statements, classification of net assets representing contractholders equity as a liability as well as more extensive note disclosure. However, the Manager s current evaluation may be subject to changes due to issuance of new standards or new interpretations of existing standards. 8. FINANCIAL INSTRUMENTS The categorization of financial instruments is as follows: investments are classified as held for trading and are stated at fair value. Receivable for distributions and interest, receivable for unit subscriptions, receivable for securities sold and fees rebate receivable are designated as loans and receivables. They are recorded at amortized cost which approximates their fair value due to their short-term nature. Similarly, management fees payable, administration fees payable, insurance fees payable, payable for securities purchased and payable for unit redemptions are designated as financial liabilities and are carried at their amortized cost which approximates their fair value, due to their short-term nature. Financial liabilities are generally paid within three months. 9. FINANCIAL INSTRUMENTS RISK Risk Management The Fund invests in units of an Underlying Fund and is exposed to a variety of financial instruments risks: credit risk, liquidity risk and market risk (including interest rate risk, currency risk and other price risk). The level of risk to which the Fund is exposed depends on the investment objective and the type of investments held by the Underlying Fund. The value of investments within an Underlying Fund portfolio can fluctuate daily as a result of changes in prevailing interest rates, economic and market conditions and company specific news related to investments held by the Underlying Fund and this will affect the value of the Fund. The Manager of the Underlying Fund may minimize potential adverse effects of these risks by, but not limited to, regular monitoring of the Underlying Fund s positions and market events, diversification of the investment portfolio by asset type, country, sector, term to maturity within the constraints of the stated objectives, and through the usage of derivatives to hedge certain risk exposures. 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 risk or currency risk). The value of each investment is influenced by the outlook of the issuer and by general economic and political conditions, as well as industry and market trends. All securities present a risk of loss of capital. Other assets and liabilities are monetary items that are short-term in nature and therefore are not subject to other price risk. Interest Rate Risk Interest rate risk is the risk that the fair value of interest-bearing investments will fluctuate due to changes in prevailing levels of market interest rates. As a result, the value of the Underlying Fund that invests in debt securities and/or income trusts will be affected by changes in applicable interest rates. If interest rates fall, the fair value of existing debt securities may increase due to the increase in yield. Alternatively, if interest rates rise, the yield of existing debt securities decrease which may then lead to a decrease in their fair value. The magnitude of the decline will generally be greater for long-term debt securities than for short-term debt securities. Interest rate risk also applies to convertible securities. The fair value of these securities varies inversely with interest rates, similar to other debt securities. However, since they may be converted into common shares, convertible securities are generally less affected by interest rate fluctuations than other debt securities. Currency Risk Currency risk arises from financial instruments that are denominated in a currency other than Canadian dollars, the functional currency of the Fund and the Underlying Fund. As a result, the Underlying Fund may be exposed to the risk that the value of securities denominated in other currencies will fluctuate due to changes in exchange rates. Equities traded in foreign markets are also exposed to currency risk as the prices denominated in foreign currencies are converted to Underlying Fund s functional currency to determine their fair value. 9

12 Notes to the Financial Statements (cont d) Credit Risk Credit risk is the risk that a security issuer or counterparty to a financial instrument will fail to meet its financial obligations. The fair value of a debt instrument includes consideration of the credit worthiness of the debt issuer. The carrying amount of debt instruments represents the credit risk exposure of the Underlying Fund. Credit risk exposure for derivative instruments is based on each Underlying Fund s unrealized gain on the contractual obligations with the counterparty as at the reporting date. The credit risk exposure of Fund s other assets are represented by their carrying amount as disclosed in the Statements of Net Assets. Liquidity Risk Liquidity risk is the risk that a Fund may not be able to settle or meet its obligations, on time or at a reasonable price. The Fund is exposed to daily cash redemption of redeemable units. The Fund invests all of its assets in Underlying Fund which can be readily disposed of. Fair Value Hierarchy The Fund is required to classify financial instruments measured at fair value using a fair value hierarchy. Investments whose values are based on quoted market prices in active markets are classified as Level 1. This level includes publicly traded equities, exchange traded and retail mutual funds, exchange traded warrants, futures contracts and traded options. Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified as Level 2. These include, fixed income securities, mortgage backed securities ( MBS ), short-term instruments, non-traded warrants, over-the-counter options, structured notes of indexed securities, if applicable, foreign currency forward contracts and swap instruments. Investments classified as Level 3 have significant unobservable inputs. Level 3 instruments include private equities, private term loans, private equity funds and certain derivatives. As observable prices are not available for these securities, the Fund may use a variety of valuation techniques to derive the fair value. The Fund invests only in another investment fund and these investments are classified as Level 1. Details of Fund s exposure to financial instruments risks including the fair value hierarchy classifications are available in the Fund Specific Financial Instruments Risks section of the financial statements. 10

13 Legal Notice NOTICE: Should you require additional copies of these Annual Financial Statements or have received more than one copy, please contact CI Investments Inc. or your advisor. Sun Life Assurance Company of Canada, a member of the Sun Life Financial group of companies, is the sole issuer of the individual variable insurance contracts providing for investment in Sun Life of Canada Fund A. A description of the key features of the applicable individual variable insurance contract is contained in the Information Folder. SUBJECT TO ANY APPLICABLE DEATH AND MATURITY GUARANTEES, ANY AMOUNT THAT IS ALLOCATED TO A SEGREGATED FUND IS INVESTED AT THE RISK OF THE CONTRACTHOLDER AND MAY INCREASE OR DECREASE IN VALUE. CI Investments and the CI Investments design are registered trademarks of CI Investments Inc. INFORMATION FOLDER: CI would be pleased to provide, without charge, the most recent Information Folder upon request to CI s Toronto office. 11

14 Sun Life Assurance Company of Canada 227 King Street South P.O. Box 1601 STN Waterloo Waterloo, Ontario N2J 4C5 2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7 I Head Office / Toronto Calgary Montreal Vancouver Client Services English: French: SunFund_AR_04/14E