Annual Financial Statement as at December 31, Sun Life of Canada Fund A. issued by Sun Life Assurance Company of Canada

Transcription

1 Annual Financial Statement as at December 31, 2010 Sun Life of Canada Fund A managed by CI Investments Inc. issued by Sun Life Assurance Company of Canada

2 A look inside Overview...1 Independent Auditor s Report...2 Equity Fund...3 Notes to the Financial Statements... 9 Legal Notice... 12

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. 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 over $71 billion on behalf of 1.6 million Canadians. CI is a subsidiary of CI Financial Corp., a TSX-listed financial services firm with $96 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 Independent Auditor s Report To the Contractholders of Sun Life Assurance Company of Canada We have audited the accompanying financial statements of, which comprise the Statement of Investment Portfolio as at December 31, 2010, the Statements of Net Assets as at December 31, 2010 and 2009, and the Statements of Operations and Changes in Net Assets for the years then ended, and a summary of significant accounting policies and other explanatory information. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of as at December 31, 2010 and 2009, 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. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements 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. Unaudited Information We have not audited, reviewed or otherwise attempted to verify the accuracy or completeness of the Top 25 Holdings of Underlying Mutual Fund and the Financial Statements - Financial Highlights for the. Auditor's Responsibility 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 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. Chartered Accountants Licensed Public Accountants April 8, 2011 Toronto, Canada 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 each of the Underlying Mutual Fund (unaudited) No. of Shares/ Average Fair Par Value Cost ($) Value ($) 2,388,683 Toronto-Dominion Bank 153,218, ,359,713 3,157,450 Canadian Natural Resources Ltd. 105,681, ,032,908 3,467,062 Suncor Energy Inc. 113,513, ,719,133 5,563,550 Talisman Energy Inc. 91,356, ,065, ,000,001 Short-Term Notes 120,000, ,004,919 1,816,700 Barrick Gold Corp. 78,803,487 96,503, ,600 Canadian Imperial Bank of Commerce 59,271,502 67,410, ,518 Freeport-McMoRan Copper & Gold Inc., Class B (USD) 40,786,178 63,537,719 1,576,700 Eli Lilly and Co. 65,715,503 55,098,252 1,198,150 Goldcorp Inc. 48,025,148 54,971,122 1,638,300 Brookfield Asset Management Inc., Class A 39,955,983 54,391,560 1,895,250 Power Corp. of Canada 51,825,873 52,441,568 1,413,884 Cenovus Energy Inc. 41,219,234 47,054,060 1,486,350 Wells Fargo & Co. 39,830,196 45,937,496 1,323,950 Rogers Communications Inc., Class B 38,313,605 45,808, ,300 Schlumberger Ltd. 38,606,222 44,993,119 1,062,985 Imperial Oil Ltd. 42,317,625 43,135, ,246 Potash Corp. of Saskatchewan Inc. 29,876,896 40,658, ,400 Apache Corp. 33,755,942 39,168,216 1,338,884 EnCana Corp. 42,976,335 38,948, ,300 Nestle SA, Registered Shares 26,854,919 38,822, ,600 Halliburton Co 28,882,689 37,160, ,050 Union Pacific Corp. 22,386,813 35,397, ,900 BCE Inc. 30,215,816 35,301, ,650 Merck & Co., Ltd. 36,423,057 34,204,771 3 CIG

6 Financial Statements Statement of Investment Portfolio as at December 31, 2010 No. of Average Fair Units/Shares Investment Cost ($) Value ($) 4,300,132 Signature Select Canadian Fund (Class I) 47,338,752 62,523,918 Total Investments (100.1%) 47,338,752 62,523,918 Other Assets (net) (-0.1%) (89,897) Total Net Assets (100.0%) 62,434,021 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 Management fee rebate receivable Receivable for dividends and accrued interest Liabilities Bank overdraft Management fees payable Administration fees payable Filing fees payable Insurance fees payable Payable for securities purchased Payable for unit redemptions Net assets and unitholders equity *Investments at cost 62,524 60, ,735 60, ,434 60,568 47,339 51,748 Net asset value per unit (see Financial Highlights) Class A Number of units outstanding (Unit transactions see Supplementary Schedule) Class A 114, ,089 Income Income distribution from investments Interest Management fee rebate Expenses (Note 5) (Management expense ratios see Financial Highlights) Management fees Administrative fees Insurance fees Custody fees Legal fees Audit fees Goods and services tax/harmonized sales tax Net investment income (loss) for the year (792) (713) 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 see Supplementary Schedule) 856-6,380 7,236 6, ,813 14,880 14,167 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 60,568 50, (4,882) (4,337) (4,578) (3,932) 6,444 14,167 62,434 60,568 (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 5,317 4,617 51,748 56, ,800 56,298 47,339 51,748 4,461 4, 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 Financial Statements Supplementary Schedule Supplementary Schedule Unit Transactions Number of units, beginning of year Units issued for cash Units redeemed Number of units, end of year Class A , , (9,833) (10,134) 114, ,089 Increase (decrease) in net assets from operations per unit (%) (1) (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. 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 Financial Statements Financial Highlights (unaudited) Financial Highlights 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 ($) Ratios and Supplemental Data Net assets ($000 s) (1) Number of units outstanding (1) Portfolio turnover rate (%) (2) Class A ,434 60,568 50,333 70,868 71, , , , , , 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 those years. For the year ended December 31, 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 starting July 1, The rate shown for the year ended December 31 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. 6

9 Fund Specific Financial Instruments Risks (Note 8) (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 tables below summarize the Fund s overall market exposure. as at December 31, 2010* Fair value Net Assets (in $000 s) (%) Investments held for trading 62, , Credit Risk (cont d) as at December 31, 2009^ Net Assets Credit Rating (%) AAA/Aaa/A AA/Aa/A+ 3.5 A 0.1 BBB/Baa/B Not Rated 1.8 Total 5.8 ^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. as at December 31, 2009* Fair value Net Assets (in $000 s) (%) Investments held for trading 60, , *Excludes loans and receivables as well as financial liabilities at amortized cost. As at December 31, 2010, 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 $6,252 (December 31, $6,055). In practice, actual 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 exposure to credit risk as it invests predominantly in stocks that are traded in an active market on a recognized stock exchange. Risk is mitigated because investments bear an investment grade rating. All fixed income securities rated BBB/Baa/B++ or above are considered investment grade and have a lower credit risk than below investment grade bond. The underlying mutual fund was invested in fixed income securities, preferred securities and derivative instruments, if any, with the following credit ratings, as per tables below. as at December 31, 2010^ Net Assets Credit Rating (%) AAA/Aaa/A AA/Aa/A+ 1.8 A 0.1 Total 4.1 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 tables below summarize the underlying mutual fund s exposure to currency risk. as at December 31, 2010 Net Assets Currency (%) US Dollar 15.0 British Pound 3.2 Swiss Franc 2.1 Euro 1.9 Brazilian Real 0.7 Singapore Dollar 0.7 Hong Kong Dollar 0.6 Japanese Yen 0.4 Mexican Peso 0.4 Australian Dollar 0.3 Thai Baht 0.3 Total 25.6 as at December 31, 2009 Net Assets Currency (%) US Dollar 15.4 Euro 3.4 British Pound 2.9 Swiss Franc 1.3 Japanese Yen 0.8 Brazilian Real 0.7 Mexican Peso 0.2 Australian Dollar (0.2) Total 24.5 As at December 31, 2010, 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, the Fund's net assets would have decreased or increased, respectively, by approximately $1,601 (December 31, $1,484). In practice, the actual results may differ materially from the sensitivity analysis due to other market circumstances and investment decisions made by the portfolio manager. The accompanying notes are an integral part of these financial statements. 7

10 Fund Specific Financial Instruments Risks (Note 8) (Dollar amounts in thousands) (cont d) 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 are traded in an active market on a recognized stock exchange and can be disposed of if required. 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. Fund Specific Fair Value (Note 2a) (Dollar amounts in thousands) The tables below summarize the Fund's financial assets/liabilities at fair value. Assets/Liabilities at fair value as at December 31, 2010 Level 1 Level 2 Level 3 Total (in $000's) (in $000's) (in $000's) (in $000's) Assets/Liabilities at fair value as at December 31, 2009 Level 1 Level 2 Level 3 Total (in $000's) (in $000's) (in $000's) (in $000's) Assets Investments in an underlying mutual fund 62,524 62,524 Cash Total 62,735 62,735 Assets Investments in an underlying mutual fund 60,554 60,554 Cash Total 60,567 60,567 The accompanying notes are an integral part of these financial statements. 8

11 Notes to the Financial Statements 1. THE FUND (the Fund ) was created by Board resolution of Sun Life Assurance Company of Canada ( Sun Life ) on April 1, (c) Cost of Investments Cost of investments represents the amount paid for each security, and is determined on an average cost basis. 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, 2010 and the Statements of Net Assets are as at December 31, 2010 and The Statements of Operations and the Statements of Changes in Net Assets are for the years ended December 31, 2010 and The Supplementary Schedules and Financial Highlights are for years ended December 31, 2010 and 2009 for Supplementary Schedules and for the most recent five years ended December 31 for Financial Highlights. The Fund s Specific Financial Instruments Risks are as at December 31, 2010 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: (a) Valuation of Investments Investments are categorized as held for trading in accordance with Section 3855, Financial Instruments Recognition and Measurement ( Section 3855 ) 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. Section 3855, 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). (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. (g) 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 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. As at December 31, 2010 and 2009, the Fund invested solely in units of underlying mutual fund which is classified as Level 1 as the fair value is based on unadjusted quoted price in active markets for the units in the underlying mutual fund. There were no transfers between the three Levels during the year In accordance with section 14.2 of National Instrument the net asset value of an investment fund is calculated using the fair value of the fund's assets and liabilities. 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 Canadian Securities Administrators ( CSA ) requires investment funds to provide in their financial statements an explanation of the difference between the Net Asset Value per unit and the Net Assets per unit. The Fund invest solely in units of one or more 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. Accordingly, the Fund s Net Asset Value per unit and the Net Assets per unit figures are the same. 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. 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 invest in an underlying CI mutual fund. (b) Commissions and Other Portfolio Transaction Costs As the Fund invests solely in units of underlying mutual funds, the Fund is not subject to transaction costs. 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. 9

12 Notes to the Financial Statements (cont d) During the reporting period the Fund may receive management fee rebates from the underlying mutual fund. The management fee rebates are included in Management fee rebate receivable and in Management fee rebate as reflected in the Statements of Net Assets and Statements of Operations of the Fund, as applicable. Management Expense Ratios (MER) information for the Fund appears under Financial Highlights 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. 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. 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%. 6. RELATED PARTY TRANSACTIONS The Bank of Nova Scotia has a significant interest in CI Financial Corp., the parent company of the Manager; therefore, The Bank of Nova Scotia is considered a related party to the Fund. 8. FINANCIAL INSTRUMENTS RISK AND CAPITAL MANAGEMENT Risk Management The Fund invests solely in units of underlying mutual funds 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. Other assets and liabilities are monetary items that are short-term in nature and therefore are not subject to significant other price risk. The Fund paid no brokerage commissions to The Bank of Nova Scotia during the years ended December 31, 2010 and During the years ended December 31, 2010 and 2009, the following related party transactions were entered into: a) Management fees paid to (management fee rebates received from) the Manager and Insurance fees paid to Sun Life are disclosed in Note 5 and are presented separately in the Statements of Operations of each Fund. b) The management fees payable to (management fee rebates receivable from) the Manager and the Insurance fees payable to Sun Life as at December 31, 2010 and 2009 are disclosed in Note 5 and are presented separately in the Statements of Net Assets of each Fund. 7. FUTURE ACCOUNTING STANDARDS International Financial Reporting Standards On February 13, 2008, the Canadian Accounting Standards Board ( AcSB ) confirmed that the use of International Financial Reporting Standards ( IFRS ) will be required for all publicly accountable profitoriented enterprises for interim and annual financial statements relating to fiscal years beginning on or after January 1, On January 12, 2011, the AcSB confirmed further deferral of the IFRS changeover date for investment funds inclusive of segregated funds. Based on the AcSB decision the IFRS will become effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2013 instead of January 1, 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 long-term debt securities than for short-term debt securities. Interest rate risk also applies to the underlying mutual fund that investss 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. 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. 10

13 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 maximum 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 therefore the Fund retains sufficient cash position to maintain liquidity. The underlying mutual fund is exposed to daily cash redemption of redeemable units. Therefore, the 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. 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. OTHER INFORMATION Soft dollar commissions and annual audited financial statements of the CI underlying CI mutual funds 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. 11

14 Clarica Segregated Funds 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 Clarica Segregated Funds. 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. Clarica is a registered trademark of Sun Life Assurance Company of Canada. INFORMATION FOLDER: CI would be pleased to provide, without charge, the most recent Information Folder upon request to CI s Toronto office. 12

15 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: SUNLIFE_AR_04/11E