Sun Life of Canada Fund A

Transcription

1 Sun Life of Canada Fund A 2008 Annual Financial Statements as at December 31, 2008 managed by CI Investments Inc. issued by Sun Life Assurance Company of Canada

2 A look inside Overview...1 Auditors Report...2 Equity Funds Sun Life of Canada Fund A...3 Notes to the Financial Statements... 7 Legal Notice... 10

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 year 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. ABOUT CI INVESTMENTS 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 $50 billion on behalf of two million Canadians. CI is a subsidiary of CI Financial Corp., a TSX-listed financial services firm with $80 billion in fee-earning 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, segregated funds, and managed solutions. You may also contact CI Client Services at Thank you for investing with us. 1

4 Auditors Report To the Contractholders Sun Life Assurance Company of Canada Sun Life of Canada Fund A (the Fund ) We have audited the Statement of Investment Portfolio of the Fund as at December 31, 2008, the Statements of Net Assets as at December 31, 2008 and 2007 and the Statements of Operations and Changes in Net Assets for the years then ended. These financial statements are the responsibility of the Fund Manager. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Fund Manager, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the investment portfolio of the Fund as at December 31, 2008, its net assets as at December 31, 2008 and 2007 and the results of its operations and changes in its net assets for the years then ended in accordance with Canadian generally accepted accounting principles. Chartered Accountants Licensed Public Accountants Toronto, Canada April 1,

5 Sun Life of Canada Fund A Top 25 Holdings of Underlying Mutual Fund (unaudited) No. of Shares/ Average Fair Face Amount Investment Cost ($) Value ($) 1,476,300 SPDR Gold Trust 140,369, ,474,691 2,893,883 Toronto-Dominion Bank 146,013, ,739,216 2,373,600 Canadian Imperial Bank of Commerce 165,125, ,267,224 2,730,720 Royal Bank of Canada 115,041,540 98,578,992 1,814,240 Barrick Gold Corp. 60,361,433 81,114,670 1,498,080 TELUS Corp., Non-Voting Shares 61,933,080 52,282,992 1,819,850 Thomson Reuters PLC 50,304,226 48,794,742 1,744,820 Suncor Energy Inc. 74,996,150 41,387,130 1,795,200 Lincoln National Corp. 75,171,324 41,153,971 3,364,900 Talisman Energy Inc. 51,495,588 40,984, ,900 Raytheon Co. 33,818,694 36,139, ,341 Manitoba Telecom Services Inc. 39,881,753 35,560, ,500 Nestle SA, Registered Shares 26,142,059 32,223,616 1,716,300 Intel Corp. 36,958,189 30,615,770 1,430,890 Cameco Corp. 58,232,639 30,120, ,905 CVS Corp. 28,680,426 28,987, ,700 Imperial Oil Ltd. 25,600,461 28,844, ,000 AT&T Inc. 22,545,798 27,985, ,108 Procter & Gamble Co. 27,244,557 27,840, ,000 Amerada Hess Corp. 24,282,690 27,151,893 1,051,700 BCE Inc. 38,164,893 26,429,221 1,075,800 TransAlta Corp. 36,945,668 26,141, ,100 Alliant Techsystems Inc. 23,423,343 24,220,211 1,114,091 Nexen Inc. 30,099,554 23,897,252 1,107,200 Cisco Systems Inc. 36,259,737 21,959,967 3 CIG

6 Sun Life of Canada Fund A Financial Statements Statement of Investment Portfolio as at December 31, 2008 No. of Average Fair Units/Shares Investment Cost ($) Value ($) 5,099,928 Signature Select Canadian Fund (Class I) 56,140,047 50,132,296 Total Investments (99.6%) 56,140,047 50,132,296 Other Assets (net) (0.4%) 200,377 Total Net Assets (100.0%) 50,332,673 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 Receivable for dividends and accrued 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 asset value per unit Schedule 1 Number of units outstanding (Unit transactions Schedule 2) 50,132 70, ,405 71, ,333 70,868 56,140 58, , ,237 Income Income distribution from investments Interest Expenses (Management expense ratios Schedule 3) Management fees Administrative fees Insurance fees Custody fees Legal fees Audit fees Goods and services tax Net investment income (loss) for the year 1, , (791) Realized and unrealized gain (loss) on investments Realized gain (loss) on investments (a) Capital gain distribution from investments Change in unrealized appreciation (depreciation) of investments Net gain (loss) on investments Increase (decrease) in net assets from operations (Increase (decrease) in net assets from operations per unit Schedule 4) (18,386) (17,963) (17,344) 1,461 10,145 (7,841) 3,765 2,974 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 70,868 71, (3,590) (3,935) (3,191) (3,401) (17,344) 2,974 50,333 70,868 (a) Realized gain (loss) on investments Proceeds from sale of investments Investments at cost, beginning of year Investments purchased Investments at cost, end of year Cost of investments sold Realized gain (loss) on investments 4,108 4,794 58,218 51,105 1,607 10,446 59,825 61,551 56,140 58,218 3,685 3, ,461 Percentages shown in brackets in the Statement of Investment Portfolio relate investments at fair value to total net assets of the Fund. The accompanying notes are an integral part of these financial statements. 4

7 Sun Life of Canada Fund A Financial Statements Supplementary Schedules (for the years ended December 31) Schedule Net asset value per unit, end of year ($) Schedule 2 Unit transactions Number of units, beginning of year Units issued Units redeemed Number of units, end of year , , ,056 (7,854) (7,752) 133, ,237 Schedule 3 (unaudited) Management expense ratios 1, 2 (%) Management and operating expenses Goods and services tax expenses Total management expense ratio Schedule 4 Increase (decrease) in net assets from operations per unit 3 ($) (126.55) 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. 2 Effective fiscal 2005, the fiscal year end of the underlying mutual fund changed from December 31 to March 31, As a result, the MER of the underlying mutual fund was based on the most recent audited MER at December 31, It was expected that the MER of the underlying mutual fund at December 31, 2005 would have been less than the prior year MER due to a decline in fees that occurred in September For fiscal 2008, 2007 and 2006, the MER of the underlying mutual fund was based on the most recent MER at December 31, 2008, 2007 and 2006, respectively. 3 Increase (decrease) in net assets from operations per unit of the class 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. 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 Sun Life of Canada Fund A Fund Specific Financial Instruments Risks (Note 9) (Dollar amounts in thousands) Other Price Risk The Fund bears the other price risk exposure of the underlying mutual fund. The underlying mutual fund is exposed to other price risk as its holdings are sensitive to changes in general economic conditions in Canada. The underlying mutual fund is predominantly invested in Canadian stocks; as a result, an overall downturn in the Canadian economy may have a negative impact on the value of the underlying mutual fund s holdings. The table below summarizes the Fund s overall market exposure. as at December 31, 2008* Investments held for trading Fair value Net Assets (in $000 s) (%) *Excludes loans and receivables as well as financial liabilities at amortized cost. 50, , As at December 31, 2008, had the Canadian markets increased or decreased by 10%, with all other variables held constant, the Fund s net assets would have increased or decreased, respectively, by approximately $5,013. In practice, the actual trading results may differ from this sensitivity analysis and the difference may be material. Credit Risk The Fund bears the credit risk exposure of the underlying mutual fund. The underlying mutual fund has insignificant exposure to credit risk as it invests predominantly in stocks that are traded in an active market on a recognized stock exchange. The underlying mutual fund was invested in debt securities and derivative instruments if any, with the following credit ratings, as per table below. as at December 31, 2008* Net Assets Debt Securities and Derivative Instruments by Credit Rating (%) AAA/Aaa/A AA/Aa/A+ 6.1 A 0.4 Not Rated 10.0 Total 17.9 *Credit ratings are obtained from Standard & Poor's, otherwise ratings are obtained from: Moody's Investor Service, Dominion Bond Rating Services and Canadian Bond Rating Services, respectively. Currency Risk The Fund bears the currency risk exposure of the underlying mutual fund. The underlying mutual fund is exposed to currency risk as some of its assets are invested in stocks denominated in currencies other than Canadian dollars, the functional currency of the underlying mutual fund. The table below summarizes the underlying mutual fund's exposure to currency risk, net of derivative instruments. as at December 31, 2008 Net Assets Currency (%) US Dollar 14.0 British Pound 1.2 Australian Dollar 0.5 Japanese Yen 0.4 Norwegian Krone 0.4 Israeli Shekel 0.4 Hong Kong Dollar 0.3 Mexican Peso 0.2 Swiss Franc 0.1 Total 17.5 As at December 31, 2008, had the Canadian dollar strengthened or weakened by 10% in relation to all other foreign currencies held in the Fund, with all other variables held constant, net assets would have decreased or increased, respectively, by approximately $881. In practice, the actual trading results may differ materially from the sensitivity analysis due to other market circumstances and investment decisions made by the portfolio manager. Liquidity Risk The Fund bears the liquidity risk exposure of the underlying mutual fund. The underlying mutual fund has insignificant liquidity risk as it invests predominantly in stocks that trade frequently in the markets. To meet unitholder redemptions, the Fund maintains sufficient cash and actively-traded investments that can be disposed of if needed. Interest Rate Risk The Fund bears the interest rate risk exposure of the underlying mutual fund. The underlying mutual fund has insignificant exposure to interest rate risk as nearly all of its assets are invested in stocks. The accompanying notes are an integral part of these financial statements. 6

9 Notes to the Financial Statements As at December 31, 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. 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, 2008 and the Statements of Net Assets are as at December 31, 2008 and The Statements of Operations and Statements of Changes in Net Assets are for the years ended December 31, 2008 and The Supplementary Schedules to the Financial Statements are for the most recent five years ended December 31 for schedule 1 and 3, and for the years ended December 31, 2008 and 2007 for schedule 2 and 4. The Fund s Specific Financial Instruments Risks are as at December 31, SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ( GAAP ). The following is a summary of significant accounting policies of the Funds: Accounting Changes The CICA issued Section 3862 Financial Instruments Disclosures and Section 3863 Financial Instruments Presentation in place of Section 3861 Financial Instruments Disclosure and Presentation. Section 3862 and 3863 became effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, These sections establish standards for disclosure of financial instruments including the nature and extent of risks arising from financial instruments to which the Fund is exposed to during the reporting period. Adoption of the new accounting standards has no impact on valuation policies, nor the way the Fund s Net Assets are calculated. See Note 9 for disclosures added. Section 1535 Capital Disclosures establishes standards for disclosing information about an entity s capital and how it is managed. The new standard became effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, The adoption of Section 1535 did not have a significant impact on the Funds disclosures as information on the Funds unitholders equity is included in Note 4 and the Funds do not have any externally imposed capital requirements. Additional information on capital management is included in Note 9. The Canadian Securities Administrators ("CSA") amended section 14.2 of National Instrument on September 5, The amended section 14.2 requires the net asset value of an investment fund to be calculated using the fair value of the fund's assets and liabilities. The adoption of Section 3855 results in a different valuation method for calculating daily net asset value. For the purpose of processing unitholder transactions, net asset value is calculated based on the closing market price (referred to as Net Asset Value ), while for financial statement purposes net asset value is calculated based on bid/ask price (referred to as Net Assets ). The CSA requires investment funds to provide in their financial statements an explanation of the differences between the Net Asset Value per unit and the Net Assets per unit. As each of the Funds invest solely in units of an underlying mutual fund, Section 3855 does not impact the Fund s valuation of investments since the Fund s investments are priced based on the Net Asset Value per unit of the underlying mutual fund which reflects actual and regularly occurring market transactions on an arm s length basis. (b) Commissions and other portfolio transaction costs As the Fund invests solely in units of underlying mutual fund, the Fund is not subject to transaction costs. (c) Cost of Investments Cost of investments represents the amount paid for each security, and is determined on an average cost basis. (d) 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. (e) Income Recognition Distributions from investments are recorded on the ex-distribution date and interest income is accrued on a daily basis. Distributions received from investment fund holdings are recognized by the Funds in the same form in which they were received from the underlying funds. All income, dividends, net realized gains (losses) are attributable to investments. (f) 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. (a) Valuation of Investments Investments are categorized as held for trading in accordance with Section 3855, Financial Instruments Recognition and Measurement and are recorded at their fair value. Underlying funds are valued on each business day at their Net Asset Value as reported by the fund manager. The Canadian Institute of Chartered Accountants ( CICA ) issued Section 3855, Financial Instruments - Recognition and Measurement, which requires the fair value of financial instruments to be measured based on investments bid/ask price depending on type of investment and investment position (long/short). For financial reporting purposes, on January 1, 2007 the Fund adopted Section 3855 on a retrospective basis without restatement of prior years numbers. Prior to adoption of Section 3855 the fair value of investments was measured based on the closing market price for the day. (g) Use of Estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the reporting date and the reported amounts of income and expenses during the reporting period. The most significant estimates relate to the valuation of investments. Due to the uncertainty inherent in making estimates, actual results could differ from those estimates. 7

10 Notes to the Financial Statements As at December 31, 2008 (cont d) 3. INCOME TAXES The Fund is deemed to be an inter-vivos trust under the provisions of the Income Tax Act (Canada) and is deemed to have allocated its income to the contractholders. The Fund s net capital gains (losses) are deemed to be those of the contractholders. Accordingly, the Fund is not subject to income tax on its net income, including net realized capital gains for the year. 8. OTHER INFORMATION Soft dollar commissions and annual audited financial statements of the CI underlying mutual fund are available in electronic format on the Manager s web site at or by writing to the Manager at the following address: CI Investments Inc., 2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7. 4. UNITHOLDERS EQUITY Units issued and outstanding represent the capital of the Fund. Unit transactions information for the Fund appear under Supplementary Schedules to 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 Fund that is invested in an underlying CI mutual 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. The management fees expense is presented net of rebates, if any, recovered from the underlying mutual fund. Management Expense Ratios (MER) information for the Fund appears under Supplementary Schedules to the Financial Statements. In addition to the management fee, the Fund and the underlying mutual fund also bear all operating and administrative expenses including audit and legal fees, registry and 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. 9. FINANCIAL INSTRUMENTS RISK AND CAPITAL MANAGEMENT Risk Management The Fund invests solely in units of underlying mutual 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 market 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 mutual fund. The value of investments within an underlying mutual 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 mutual fund. The manager of the underlying mutual fund may minimize potential adverse effects of these risks by, but not limited to, regular monitoring of the underlying mutual 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. Details of individual Fund s look through exposure to financial instruments risks are available in the schedules to the financial statements of the Fund. 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. 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 that 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 On December 12, 2008, Sun Life Financial Inc. completed the sale of its significant interest in CI Financial Corp. (formerly CI Financial Income Fund) to The Bank of Nova Scotia. As CI Financial Corp. is the parent company of the Manager, The Bank of Nova Scotia therefore is considered a related party to the Funds. 7. FUTURE ACCOUNTING STANDARDS On February 13, 2008, the Canadian Accounting Standards Board ( AcSB ) confirmed that the use of International Financial Reporting Standards ( IFRS ) will be required in 2011 for all publicly accountable profit-oriented enterprises. IFRS will replace GAAP. IFRS becomes effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, Other assets and liabilities are monetary items that are short-term in nature and therefore are not subject to significant 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 mutual 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. On the other hand, 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 longterm debt securities than short-term debt securities. Interest rate risk also applies to underlying mutual fund that invests in 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. At December 31, 2008, the Manager is taking the following steps to transition to IFRS: Identification of areas where changes in disclosure will be required under IFRS standards. Identification of operational areas impacted by the adoption of IFRS. Assessment of current reporting systems and their readiness for IFRS implementation. Implementation of an IFRS transition plan. 8

11 Notes to the Financial Statements As at December 31, 2008 (cont d) 9. FINANCIAL INSTRUMENTS RISK AND CAPITAL MANAGEMENT (cont d) Currency Risk Currency risk arises from financial instruments that are denominated in a currency other than the functional currency of the underlying mutual funds. As a result, the underlying mutual funds may be exposed to the risk that the value of securities denominated in other currencies will fluctuate due to changes in exchange rates. Equities in foreign markets are also exposed to currency risk as the prices denominated in foreign currencies are converted to the underlying mutual fund s functional currency to determine their fair value. 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 credit risk exposure of Fund s other assets is represented by its carrying amount as disclosed in the Statements of Net Assets. Liquidity Risk The underlying mutual fund is exposed to daily cash redemption of redeemable units. Therefore, underlying mutual fund invests the majority of its assets in investments that are traded in active markets and can be readily disposed of. In addition, the underlying mutual fund retains sufficient cash and cash equivalents positions to maintain liquidity. From time to time, the underlying mutual fund may enter into derivative contracts or invest in unlisted securities that may not trade in an organized market and may be illiquid. The Fund is also exposed to daily cash redemption therefore the Fund retains sufficient cash position to maintain liquidity. Capital Management The Manager considers the Fund s capital to consist of the net assets and unitholders equity. The Manager manages the capital of the Fund in accordance with the Fund s investment objectives, policies and restrictions, as outlined in the Fund s prospectus, while maintaining sufficient liquidity to meet unitholder redemptions. The Fund does not have any externally imposed capital requirements. 9

12 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. 10

13 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-03/09E